EPRT - Earnings call transcript Q4 2018 | Essential Properties Realty Trust, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good morning, ladies and gentlemen and welcome to Essential Properties Realty Trust fourth quarter 2018 earnings conference call. This conference is being recorded and a replay of the call will be available two hours after the completion of the call for the next two weeks. The dial-in details for the replay can be found in today's press release.

Additionally, there will be an audio webcast available on Essential Properties' website at www.essentialproperties.com, an archive of which will be available for 90 days. It is now my pleasure to turn the call over to Dan Donlan, Senior Vice President and Head of Capital Markets at Essential Properties. Dan. Welcome,

Dan Donlan

and Essential We call. Properties operator us you morning for today fourth good you appreciate everyone. joining Thank quarter conference

with and discuss Pete to our CFO. COO me quarter Hai, Here are results and our Hillary Mavoides, Gregg CEO, fourth President Seibert, our our today

we earnings forward-looking made. During we in statements the from cause to forward-looking results statements the and future may to certain significantly reflect press time-to-time changes from yesterday's will with not materially statements detail greater considered these may after be may actual actual release. Factors this statements the The were under to filings and company's expectations discussed differ from revisions call, matters SEC company's could and statements disclosed in are in risks forward-looking federal make the results these that securities release law. differ in

I Before XX-K Pete, would Pete, our website. available XXXX note ahead. call our are section materials of on that supplemental investor to turn please the go another Relations Investor the quarter I fourth over and

Pete Mavoides

everyone you for has thank and you who Dan interest to in joined your us Essential Thank Properties. today

out excited year Essential million an traded lease investors from We ranks the was We to the of for over $XXX lease REITs. XXXX, publicly growing net approximately invested eventful over portfolio net million $XXX are Properties. our by close raised which XX%, and joined

time markets. for Looking at capital volatile quarter, the a fourth the was it

year and points falling In elevated capital touched basis as cost XX-year U.S. seen Treasury was XXXX, since short-term XX to not the end result. X.XX% addition for the nearly to on VIX our yield quarter, the being at a of before the of levels impacted at highs the much April

asset dislocation. third capacity months prolonged have has These nice investment the and to through in market communicated decisions trajectory. quarter for to continue measured as understanding of volatility valuations interest the continued we assumed growth slightly first reported pace call, been would reflected XXXX, that ample new XXXX more two results into it have market of REIT a more activities were relates seen posture dispositions, if earnings on we allows we aggressive a our to the our As us which tailwind and any we stabilize, a yesterday. In and rates operate

We also ago. Essential close true as RMZ, the milestone occurs made today, our having see inclusion three our than company in the less as a after first of years our which investment Properties

was occupied, XX, recent As of inherent XXX% of portfolio benefits the granular December of to which assets. XXX owning speaks our net properties tenant a single of portfolio lease vintage

XX Our different tenants, industries properties in businesses. our cash oriented are XX% coming and from service to experience XXX of based tenants over that targeted operating our in operate leased with ABR

customers within operators and visit an We to on focus operator our occupy our as our properties. behavior our to profitability believe predictable continue pay underlying rents tenants' or have receive supports properties tenants either We must customer experience. industries the results to that these in relationships a transparent this service

a had average year properties compelling lease XX, As of XX.X our December weighted term.

which trajectory expect we our to leading XX NOI contractual and to to was expirations remain limit our portfolio's X.X% portfolio years our of duration terms store in our fourth and quarter. cash historical by sector from small, relative to enhances the This lease same come. erosion rent lease growing our sale-leaseback XX future serves the evidenced growth, internal investment size, initial having years, average Given lease transactions our for

is a readily are experience, on differentiator standpoint, our In investment sales leasing addition, of Based of property there per which an a with a average and fungible liquid our $X million, portfolio highly for from an large important is there from Essential. is granularity deeper and serves active and in interested management diversifies tenants low pool point smaller This buyers further for of and our of an risk. prospective asset facilitate price our inherent of exponentially number to capable philosophy properties assets. re-leasing perspective

to XX net rate a initial at $XXX of properties in quarter X.X%. high-quality Turning activity. weighted average investment million lease We our invested cap fourth

ABR, a corporate As sale-leaseback required provide investment XX% approximately of financial XX% regular basis. on and via percentage level subject XX% our us unit of master transactions, cash lease provisions came activity quarter fourth was a to reporting to with are and

activity at Based cash unique implied own. and profitability probability minus our direct Moody's committed of year very compares to expire sale-leaseback leases XXXX, level leases rate the coverage million XX% data, BB at was XX% cap and a X.X tools us over we of believe From with the we their of master reporting. not has management coverage industry and unit provisions security XX% approximately to XXXX the represent to cash which in transactions, our tenants perspective, senior discipline only than XX% cap net of our provides rent predictability Analytics' X.X%, average Similarly, and per statistics provide and We below rental revenue. only below at the high in X.X level times. better. are this historical We that when tenant ABR a and of visibility bolsters years but our our consistency ratio has subject tenant these X.X% portfolio selectivity ongoing ended unit relationships credit the rent a disclosure coverage the operate speak properties level believe $XXX X.X% times. team. of XXXX With from we times investment to our of XX% required have and average an For have healthy tenant XXX lease renewing into to average invested tenants of our investing the health that and of weighted our that to properties, X.X coverage $XXX lower rating quality, into rates. times X.X% only our a million of lease which investment XX strong that long-standing our our investments our of XXXX mind, properties relationship-based coverage weighted involved upon next two weighted health with invested maturity a has activity cash of or unit staying rent as

cash into capitalize Looking balance million give of ahead, $XX our EBITDA annualized pipeline loan investment X.X well our XXXX. and ample quarter-end leverage of to growing to debt net liquidity adjusted times us on

master us We to opportunities reporting small deploy are box, will tenant capital continue requirements. originated with that provisions focus and primarily properties on allow to financial transactions single accretively through lease sale-leaseback into that investment

net the maintain portfolios our disciplined numbers. reflects industry managing industry freshly investment call over adherence you to have underwritten Hillary? fundamentals. and our XXXX, and to we our XX properties. have our have strategy, in As Hai, years real single the the resistant and lease With and we of in net we will CFO, we as portfolio believe plus Hillary a strict that, intentionally less sectors many lessons have to properties take over the look the the in turn which who of investing we I tenants like view, one out through In will estate learned to to compelling those balance the recession that collective lease tenant most and we our avoided would durable

Hillary Hai

$X.X related million Starting cash. million cash the $XX outstanding quarter in of our restricted everyone. and the Pete Program, $XXX and Funding of morning $XX We our credit million Master debt balance of billion ended with on million revolving sheet. line with assets, you Thank total $XXX Trust to unsecured and good

execute adjusted annualized to debt continue while to times quarter-end EBITDAre capital managing net Our us which plans at was targeted within range. external our our growth gives capacity leverage to X.X

Turning to the income statement.

share. from FFO share share. $XX.X adjusted was or was quarter $X.X was income or $X.XX and or Our funds defined from operations $X.XX funds fourth $XX or million net per $X.XX per or operation million AFFO million per NAREIT

operating In for terms And increase G&A G&A, of XX.X% to we of our quarter was fourth total continue revenues. the efficiencies.

expect to per Subsequent the business share which to largely paid metric fourth place a the execute to quarter share. our quarter, in for using we a we We AFFO dividend fourth decline payout see to as infrastructure continue ratio have $X.XX our of XX% to quarter-end, to plan. per equates this

guidance are XXXX share we $X.XX guidance, of to reiterating our $X.XX. to AFFO per Turning range

With to turn next in quarter decline income that, to the quarter. cash of We couple interest cash outstanding highlight should a will our in from operating which over temporary received from $XXX,XXX wanted reimbursable normalizes. of related Gregg. materially housekeeping large quarter as was I I And increase items balances expenses. the call Lastly, the to balance increase in the two, expenses

Gregg Seibert

Thank you Hillary.

relationship-based, investments which rent annual to million. invested XX.X lease long-standing average was in direct Essential these on investment average our our with quarter, offer consistently senior which at were through approximately XXX activity our and sale-leaseback lease restaurants We that dining XX platform that we to million financial source our at most XX% year-over-year casual remained property past. master of rate of declined originated fourth define fourth or years, Consistent our capitalize This operators, XXX of sponsors, declined XX% transactions requirements lease at of an service our $XXX advisors the properties with brokers lease weighted has with restaurants home are cap basis net strategy, From our returns. cases. management to our and was quick and of at transactions of During XX risk-adjusted largest a with a $X.X transactions relationships and was completed and investment parameters provisions XX% has cash and form year-over-year reporting that ongoing hallmark investment X.X% Conversely, is industry attractive Properties. our on properties seek in in points fit quarter weighted in our investment basis our size To space X.X%. perspective, the points The the with average weighted XX.X%. average family term our X.X%. QSRs to the escalation was concentration done as furnishing opportunities XX.X% being we sector concentration largest end, business quarter industry has or ABR,

goal XXXX returns a been of see risk-adjusted better chain industries, these trends to X% health unit a entertainment We as XXX-plus other fitness. cash has early childhood a and year-end, and ours. of declined QSR in Captain concentration dental, at education, expect in continue perspective, medical such to ABR D's, tenant we which and From as

top XXX basis Our cash year-over-year. XX.X% represented down our over down of basis ABR year-end, which and at points tenants sequentially XX points X,XXX was

as top capitalize fall quarters in with are XX continue of outside concentration and our our to exposures to the our relationships that XX on expect We with tenants coming we grow new top our portfolio. to tenants, existing

industries XX% based service oriented a our has these recession operate estate from that in more portfolio focus tenants believe of more for Essential We experience tenants, Looking these importantly, by ago. at years since cash been broadly. are and real heavily and tenants which resistant the more pressures. three insulated nearly Over investing derived and started is ABR we occupied businesses, deliberate e-commerce against

on to asset Moving management.

healthy a coverage and better. or remains of our weighted approximately of ratio Our average portfolio a with times times of rent rent coverage XX% cash two ABR having X.X

of our approach. addition, above asset coming vast of with have and just our lease coverage of level near is majority tenancy, In real we our standpoint, transparency times. of health From of us, to X.X important component the financials to the cash those next which management over have XX.X% four report tenants due our a required active X.X% into years ABR unit time an is expiration the expirations

this XXX%, we we ebb years, was would our expect expiration occupancy quarter-end and near-term schedule. see lease flow through coming as in to our manage the While

remarks. that To was dispositions. times, cap comprised average sale. which value we that facilitate properties Essential sold $XX.X $X times. fungible being has to compares weighted quarter coverage in basis, that, back proceeds. a net portfolio at X.X eight on of highly XXXX, of during average properties favorably and end, million, cap our is a I efforts. of sold portfolio that rate to inception of On ratio leased the the X.X%. current year-end to properties leased since seven million rate average for it rent re-leasing disposition ratio our The granular these properties coverage sold Furthermore, through cash X.X% weighted $XX.X property gain With XX Turning concluding on X.X for will Pete million our for properties our had turn we With a recognized his cash and

Pete Mavoides

thanks Thanks Gregg Hillary. and

good transparency, in and portfolio vacancies, shape is Our property complete coverage, expirations. no lease with healthy excellent with limited liquidity level coupled near-term

markets Our pipeline which invest. and we full more see stabilized is and a operating environment capital from to

at on operator, executing take forward about we we questions. We and are the With plan excited XXXX that, articulated prospects that to time of the the we IPO. our will for business look our

Operator

open and for Thank floor the [Operator Instructions]. now is your questions. you, gentlemen, ladies

Citi. ahead. from first McElroy our Please with question take Christy will We go

is line open. Your

Christy McElroy

Hi. Good morning everyone.

the Can sort FFO Just embedded bridging your you give acquisition AFFO how in you context are of a the of XXXX. have sort what of How activity? put done? place? funding pushing us can about to for get comfortable and between you an you guidance feel for gap today. now ATM And mid-year sense that for about thinking you more I are and when leverage think X.X you deals times at do in

Pete Mavoides

been and which last give and runway IPO through to Yes. our between kind We invest. enough thanks to year-end, to us next we in continue guidance continue AFFO in provide provide people capacity historically forward where of have our take have week. $XXX couple look right million July not come disclosure we do seeing we in We the early to The for million of structured Christy, shelf to eligibility to acquisition $XXX question have we and million and us that. We tend the the intentionally. guidance invest. good been you point around somewhere to years to of certainly context early around to will $XXX

and continue will brings. to so and manage our our And within see we that see opportunities accretive we target capital deploy leverage market the what if are

Christy McElroy

recent in more how So and does you give today, of to think trading premium comfort guess willing philosophically of I you you of level more then, with following an that leverage transacting? the a when outperformance, are your stock just NAV more about at then push far

Gregg Seibert

Certainly.

stock deploying to think said we target certainly sheet better the past we last of leverage I certainly think kind did of would end the balance that And I certainly the how have year we the we uncomfortable than sheet. plan delever our through today feel equitize and a running in our about about be concrete without and influences towards price balance capital.

Christy McElroy

much. Okay. a we so you Thank you in see days. will And few

Gregg Seibert

Thank you Christy.

Operator

Instructions]. [Operator

Douglas We next Suisse. to will go Credit Harter with

Sam Choe

Choe, Doug actually is Harter. Sam This on Hi. for

So Greg, you and target you tenant concentration year. I certain do the have you during you expect want mean that far to I that top the think to you as I how about decline to talked take down? mean, XX mentioned, guys how a

Pete Mavoides

It's capacity the continue And as to Yes, incrementally kind tenants trended Sam and in down this and at more and will us is our of materially good Pete. do gives ebb We XX%. it flow. or larger to slightly scale top do portfolio, feel with XX. we deals additional investments

hard feel a articulated. down. have around will target that it hard don't is no think XX. But XX%. there we that top just by invest, continuing to So at target good We I come have we And

Sam Choe

it. Got

part risk a also restaurants mean, and managing you you theme a I So big think is I for the mentioned concentration guys that big the was portfolio. of

that on target is the that to it's investments thinking right? if in. trend, come a as will hard about certain exposure more no I the about how there So sector Am

Gregg Seibert

articulated. with coming we don't to of targets want we tenant a obviously There target. down that kind D's Hard Yes. year-end, We and Captain X% have be isn't any above to that crusted at goal X%. hard

have don't industries to above articulated, We we want any also XX%. run

into look extent so see where activity you concentrated. will And at things like the and in kind we it family, of and our And washes certainly becoming as QSRs investment different car our investment are we we all over of having But moderate and considerations. three and our and industry that to that, restaurants economic distinct managing is sectors important with tenancy, casual QSR, geography of and diversity, estate terms real drivers. both weighs

Sam Choe

much. so you Thank Great.

Pete Mavoides

You Sam. got Thank it. you

Operator

ahead. SunTrust. Please go to Ki Bin go we Kim with Next,

Ki Bin Kim

Good everyone. Hi. morning

Pete Mavoides

Hi Kim.

Ki Bin Kim

how diligence just buying, new you types you about our broadly go about and of your new what underwriting at you are basically processes talk you looking Can businesses? due when are for tenants

Pete Mavoides

Yes. a I the provided, in would speak kind looking we lot that to what at. predominantly are we of say, stats of

transactions our being XX% sale-leasebacks with on are focused the We fourth quarter of in sale-leasebacks.

on and of fungible terms we leases, in and those industries restaurants. real all sectors of industries XX% car the care, based to with have our operations invest those focused with and continue industries, in things And our leases estate disclosed leases are focused kind being in that including We wash, service were master granular past. master we entertainment, real of the XX based experience we across all in and child of estate,

unit individual property those In really, are appropriate corporate performance the terms we factors of and value risk-adjusted make diligencing we to three levels of getting lease real the which investing, and and our the in underwriting, along and fungibility real it's the return. our sure focus of tenants, the underwriting net are estate our on then of critical three risks level inherent the credit estate

Ki Bin Kim

go do investing have past a you newer like comfortable career, when in I into know ones? you childhood which and you around business more with education education, done or in your early the operators different And how but get

Gregg Seibert

such First, an pure how looks we to context what are on are historical to sale-leasebacks the performance have the unit the that that to the us. we rent operating they are in credit, focus like. the and obligations have are and work proven assets in and From ability we perspective, we credit get and to proven the buildings corporate level support to capitalized corporate understanding tend proven of sale-leasebacks in acquiring operations

we business about is Lastly, is XX% with doing to over of guys done that of I the we in half are with past would that that and the point the business have fact tenants.

either portfolios here the early And and we importantly for working the most long-term. them in we the have while, so, have and known in are good over with tenants operators know or to of we guys more a good be are our past guys sector, the specifically had childhood we in

Ki Bin Kim

new lease for have down quarters? the And kind ticked percentage reason in past the particular couple of why any of deals master

Gregg Seibert

Yes.

It lease I our of and get deal. where and we don't assets not master it, a approach we master tenant think the if are in dogmatic doing a deals it's could the price the and into be just to ebb a are the profile lease that are doing. we want provide that and we individual changes flow to it risk just or doesn't we deal construction

Ki Bin Kim

All you. right. Thank

Gregg Seibert

Kim. Thanks

Operator

Instructions]. [Operator

take will Raymond James. next from Collin Mings We with our question

is line Your sir. open,

Collin Mings

Thanks. Good morning everyone.

Pete Mavoides

morning. Good

Collin Mings

$XX pricing about year-to-date. just share First us you here me. of transactions? those on like you the have question for with looks maybe It properties shy acquired just million Can

Pete Mavoides

those consistent very we pricing were is XXXX. on where with The in

Collin Mings

Okay. little can a maybe And then VASA your the just during quarter, move of expand into the of you more bit top XX Fitness on roster tenants?

Pete Mavoides

Yes.

have XX. we think quarter. in had top two the during which Fitness, One XX changes in was Sports Latitude is our Town acquired our top which I

have was that So but them was VASA credit Fitness great and change, in, a have continued you we just a tenant, happy the name not then on that them such a other to and there. change properties and operator into Great movement XX. invest will. top operator to of the if in kind really And and add with VASA populated

Collin Mings

the then drove you quarter? shy upon be of expand impairment Okay. can just And about appears $X what during what the it to million

Pete Mavoides

to Hillary it. tackle wants

Hillary Hai

Yes.

listed So during sites. other our and expiration impaired sites of near-term the sites book the those value. we five Three had quarter, we sale below for two

Pete Mavoides

focuses and And the risk disposition out as really you management our call, asset see the Yes. to we portfolio. will on selling as activity tried our of articulate have and proactive during

selling we impairment portfolio. an if So surprising in one to of weaker it's assets not the are see our

Collin Mings

mean Was provide level obtain something No, noted overall, of bit will little I focus then maybe to adjusted where And one-time sense. look? that strategy, the tenants it that just the in strategy press that weren't more you opportunities, that situations under just talk existing level maybe get that about relationship-based others you financial were the And required the be those the lease. Okay. forward? financials on Is in relationship-based to that you to lot maybe unit a lease going the couldn't? get able given unit able just of to necessarily on release, reporting in makes a

Pete Mavoides

can to will investment, is that. will we Listen, the that that We asymmetrical extent can't we right certain an capitalize negotiate be that with an on get We basis. there to come make information ongoing to to we agreement Yes. the with regard. and advantage them. the tenant, that relationships do business, have help creates of it's take huge as we try we our information to we value doing certainly that where relationships not good in see but of part And those our but opportunities business a on

Collin Mings

Okay. Thank you.

Pete Mavoides

Thank you.

Operator

ISI. next Sheila from comes ahead. go Evercore with question Our McGrath Please

Your open. line is

Sheila McGrath

morning. Yes, Hi. good

if acquisition you you are the grow a quarter as Or run front, to personnel? good On is here and/or fourth asset wondering having G&A am I hire pretty additional rate? managers rapidly,

Pete Mavoides

Hillary Yes. tackle first. it I let will

Hillary Hai

as So nominal decrease increase. of going amount cash our G&A, revenues will but of in G&A terms a the total percentage forward will

As to our you as grow. said, more continue hire people we portfolio will

Gregg Seibert

Yes. we professionals going more that. But say number. grow certainly, that I slowly than rationalize that should the senior are infrastructure baked and our it's and into would to assets large, and level by G&A

Sheila McGrath

how Okay. you And reducing just quarter, curious you vacancy you the ones the for How or sale? assets in do on Were the sale? for do targeted the Pete, then selling sales select select concentration? Great.

Pete Mavoides

a really before that long-term coverage lease with the we or to opportunity relationship tenants of We given continue invest lastly, last be a an And It's of portfolio. property. lease unlikely out can try risk We to declining the they positions And near-term with with predominance vacant our out investing, our materialize. renewal to Yes. get sold mix. our in prospect. the have then

quarter we that. we to invest the fourth if all in think And those scenarios. sale-leasebacks, sell of continue So I do sales represented exposure the accretively fresh can to will in

Sheila McGrath

some leasing-up Okay. And you last on hitting you Or Did successful question were occupancy properties? vacancy? sell in XXX%.

Pete Mavoides

the we us initial the vacant the and our asset Seed then vacant Portfolio quarter, an one property was during only remaining in quarter, that to we end that At had and fourth Yes. that third of sold GE came asset.

Sheila McGrath

Thank you. Okay.

Pete Mavoides

Sheila. Thank you

Operator

[Operator Instructions].

John Ladenburg to next with We will Massocca go Thalmann.

John Massocca

morning. Good

Pete Mavoides

morning Hi. John. Good

John Massocca

the that broader going continue much dispositions on selling of context, Just maybe, is are do how the that a of because if mean GE I be stuff an vintage for and it's think comes of proceeds, things of more in that kind is stuff will? disposition you older ramped to have I since pool were you again obviously you of bought the from you maybe a kind of little going roughly have you to than portfolio? more that to legacy touching using kind really you mean of back operations,

Pete Mavoides

Yes. Well, and as become we has globally, portfolio GE it's And less XX% a smaller our smaller of percentage. below think less I and and see today.

And so buy just and a naturally as that to along you smaller underwriting percentage. you we it sell, of large deal. and go capital in portfolio, be assets a buying seasoned someone a it's that take-it-or-leave else's a percentage asset going have higher with And and recycling whenever dispositions

So initially, part of the were largest I the sales of and GE our portfolio think largest part our assets.

fourth look I the eight at quarter two the here of assets list today, As GE. were

assets. organically just what bought as would as sale-leasebacks selling are we is and that to so of we GE And go more more have imagine we stuff forward, through opposed I

John Massocca

one Makes sense. are you sub-sector might forward? place where going acquisition question. is there? And grew of little detail then service And What what those pretty mean, kind see in quarter. decently that are buying of a last assets? more I you the types The growth entertainment

Pete Mavoides

bowling the alley it parks. We trampoline space. Yes. I we like was quarter, as some well entertainment in fourth as a deal did believe, the

would to overall the as quarter fourth higher static space I think it to But a growing happened portfolio. I pretty remain percentage. entertainment percentage have ratably. don't just a will The of grow expect disproportionately. the it I see

John Massocca

inline of Or on bigger I box of you basis, maybe per little with price with kind of a that bit is And it a what transaction a other mean, do stuff? generally? kind is the

Pete Mavoides

And that is if average invested bigger. you to the average million. to price be I you across Certainly property our $X.X quarter per property going foot QSR in comparing a see and per million little during bowling portfolio Yes. being price our at think The space $X center, XX,XXX bigger a be foot entertainment square going it's box. are X,XXX a to square

John Massocca

right. All me. much. you it Thank That's from very

Pete Mavoides

Thank John. you

Operator

it I And appears Instructions]. from any [Operator we closing will leadership audience. have back no our remarks. it that turn signals or for team to additional the

Pete Mavoides

were you thank and proud joining conferences continuing you that We all. shareholders and the look the forward year discussion. and of thank and engaging with forward And continue today. XXXX we we posted and Well, to Thank call really to all to the the to you we the quarter look for execute. upcoming

Essential Properties Realty Trust (EPRT) 3 Mar 192018 Q4 Earnings call transcript