EPRT - Earnings call transcript Q1 2019 | Essential Properties Realty Trust, Inc.

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Operator

Good day, ladies and gentlemen and welcome to the Essential Properties Realty Trust First Quarter 2019 Earnings Conference Call. 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.

Daniel Donlan

Thank you, operator and good morning everyone. us Essential joining XXXX First you Call. Conference appreciate today Properties for Quarter We

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

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

available our section note first ahead. Before quarter Pete, I please Pete, I would are the over to go turn XXQ and the our website. on that Investor call supplemental of Relations

Pete Mavoides

own with single-tenant you, our where to we to established the XX distinct three XXst, first has in properties. lease net vacant Starting to results, only for underlying of in of us properties today that report vintage, a years of XXX one property. with was Essential XX.X% everyone interest portfolio began excited quarter March leased ago and portfolio, operating and you transparent in the new predictability that Thank of joined industries highly tenants the your as our Properties. platform were our XXX the we which who the We're thank market quarter opinion Dan to value appreciate

lease with over of was term ABR years. five just Our expiring X.X% years, average weighted the next our XX.X

the portfolio our experienced Our and for growth NRI cash quarter of end portfolio, which represents X.X% quarter. in XX% contractual at rent same-store

a this for have coverage coverage years our a expiration. predictability profitability X high of likelihood which cash level health and rental were so fungible X.X% grow ongoing and reporting, $X.X ABR with of can five weighted or leasing Combining per an proactively a this unique mentioned in an expire of investment and Essential both our As see losses. we pleased From is X.X into rent security only tenants Risk standpoint. readily diligent better. differentiator rent threshold coverage rent believe X.X portfolio, again liquid times. unit risks less that our and over bolsters a X.X% than which perspective, rating that same-store in implied expect lease believe believe below has has the unilevel million, lack of With of for of to develop and the than below annum, level have we from as times, a Properties. disclosure Similarly, in in Moody's have that per portfolio portfolio to this With through minus of XX% next and the our a X% we of of our tenants XX.X% B times, our X.X the of revenue. approximately double highly remains our ratio portfolio exceed management properties, our from that our leases Analytics coverage mitigate sales credit operate and property quarter an We lower we perspective past, credit our provides visibility renewal which a average we ratio tenant times health important the average rent we and mind, they asset unit indicates

level and average financial our average higher the much on of unit volatility quarter a of million our cap on with investment conservative Approximately first the investment That slightly weighted quarter year. basis. to in were acquired quarter XX% first to regular in first during subject the first XXX% markets $XXX came fourth lease a with call our of our last provisions, our sale corporate provide posture investment master at broader as capital to the the initial but transactions, last below than began trailing invested a given quarter Turning was via reporting of activity, quarterly said are activity investments XX% highly and This rate us discussed and our quarter. we we leaseback cost to X.X%. level

have In past, addition, our in we relationships sellers speaks agents and with on XX% of industry the or that first transactions focus investing. to tenant of the and were which with investments relationship-driven worked our quarter our strength

the assuming environment lease with said, our with seeing competition for greater place since U.S. the in on are to basis of of downward sector, quarters transactions to investment the XX attractive with treasury our quarter in yield quality the we on year-end historical out the be tenants improvement points on activity equity level will anticipate source continue year and year balance leaseback the remain the coming general and may and we look XX across valuations the we down focused service-oriented current capital That As second We opportunities investment and averages. investments, to cap pressure exists. consistent operating delivering the industries. our rates which and experience-based to sale in net

On further the accretive This market, increasing supporting public $XXX provided our June, was the the front, improving proceeds. to coming our the to balance equity and in offering company shareholder shareholders thank on net mid our accessed our This sheets we flow, company million since would was our the daily broadening free benefits and March, liquidity, approximately by in markets like we new well-received and numerous transaction. including first offering capital raise for raising in opportunistically existing base. follow-on this

our quarter for this turn investment declined was to paved Hillary? the capital after leaseback the anticipate take of you going quarter one-year that, for pipeline our on self-eligible net our capitalize results like us continue over to which to end, attractive in shareholders. of first and financial debt sales Overall, late access enhance CFO, to the times should way We a In becoming our to forward. I'd which EBITDA it our scale risk-adjusted flexibility high capacity our and Hai, leverage quarter. With the anniversary has will ample generate quality to addition, us shortly who to to IPO return adjusted and portfolio June, gives company, X.X transactions. accretively it great for Hillary our through for at

Hillary P. Hai

cash assets, $X.X restricted Starting our trust we to sheet, $XXX and million Pete credit everyone. the ended billion balance debt related and master $XXX program, of nothing revolving unsecured good total with outstanding million you, morning funding our Thank and cash. quarter the with facility, in on

Our annualized increase by was $XXX while delayed loan to continue while growth quarter million end we $XXX our Subsequent to million adding execute [ph] amended feature. five to facility adjusted our million to to year on leverage a and our expanded a at with EBITDA net times credit quarter revolver end, plans term managing X.X our capacity draw $XXX to unsecured unsecured debt ample which external us range. targeted RE within gives

to XX interest rate XX We our level, terms on amended XXXX. pushed to basis leverage out lowered spread on points April facility, various favorably revolver and the revolver's depending the also our in expiration by the

million million of term loan $XXX today, revolver $XXX remain and As undrawn. our

was quarter was $XX.X was million AFFO and our diluted net from million NAREIT or were from the FFO funds operation per XX% operations or per which Turning share. first to statement, income revenues the increase share, or income million or $X.X defines $X.XX share. year-over-year. adjusted $XX.X was diluted $X.XX per Total quarter, funds $X.XX in or $XX.X diluted million

for G&A, XX.X% of for first quarter our the total increase to continue year. quarter operating In terms efficiencies revenues versus of was as same we last our the G&A XX.X%

We portfolio. to this down come expect our to see as grow we continue to

percentage first of a which property to our to payout share to a quarter, Our for property non-recurring due non-reimbursable AFFO double and quarter, net we expenses was than to dividend maintenance related to equated was in excluding increase end subject reimbursements Subsequent X.X% which property first paid per XX% share. leases. property the of for $X.XX a taxes per quarter revenue expenses last higher the an quarter quarter as of

our Turning share $X.XX. XXXX $X.XX turn over AFFO call With the to are reiterating per to guidance that Gregg. to range of I'll we guidance,

Gregg Seibert

Thanks, Hillary.

properties During requirements subject million. weighted The these of the our most and were times, originated XX% to property a lease weighted leaseback quarter quarter X.X%. cases. unit XX cash X.X we transactions, size average ongoing was rent weighted with financial with at and was average term The transactions our X.X%. The cap escalation reporting rate of which master direct sale through invested XX.X investment Consistent provisions average level form was are $XXX investments in million years. average first annual approximately lease and lease XX average $X.X properties coverage weighted of our in strategy, our was

In XX.X% car of with at service our business followed our done by and perspective, of childhood we XX.X%. in relationship education or past. transactions activity restaurants sponsors, first quarter or QSRs From an was completed based, management industry operators, has early at investment as that which washes industry brokers with ABR, define senior largest XX.X% addition, advisors, remain the quick XX%, at

entertainment, Captain end, childhood see returns other no XX continue and ABR respectively, dining and in quarter points risk-adjusted education, cash casual dental, represents should a perspective, X% stores. ABR. early at which industries that and our furnishing convenience of largest tenant and as D's now is XX represented declined sequentially basis Our trend medical our concentrations concentration of X.X% we like home a as From cash over tenant better

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

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

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

of our coverage on to better. remains X.X rent average with ratio having cash rent a XX.X% coverage ABR ratio a of healthy or portfolio our times, and of approximately management, times asset X weighted Moving

which to addition, transparency of In level our important into health tenants we us, near this the property with expire an expiration of financials approach. lease tenancy, unit we have approximately was are one required active to had component that our report is sale real XX% a we time standpoint, marketing lease. for our not quarter management From and asset the lease or actively renewed, during for

minor Looking coming which just the term out Captain of the average the onerous to negatively lease leases granted some five for thanks more fresh broadly, quarter. the XX is without next was by X.X% points basis Captain favorable same D's last will near-term executed the concessions, which our big context due X.X was to over impact lease extended over our we our and any a a years, thus outcome We ABR months. with quarter cash largest with years, making as risk. In received extension, renewal We the XX lease rent improvement concessions. tenant believe years eliminated approximately long-term growth this we we extension XX D's Captain store over by during the next of the company a highly D's

quarter net seven his in the and during remarks. we to Turning a I'll dispositions, X.X% back $XX.X proceeds. at properties cap turn Pete sold for of it million rate With cash to that, concluding leased

Pete Mavoides

Gregg. Thanks,

transparency, in one liquidity, near with vacancy, level lease term complete coverages expirations. portfolio healthy excellent coupled Our and shape limited is property with just good

questions. the pipeline look plan and our support articulated With balance investment full, our on investments, business Our is that is at of that, time operator, forward our execute continued positioned take we the to IPL. we'll to we sheet to continuing

Operator

Instructions]. our question. your first Please Christy Citi. you. Thank do have state McElroy from And question we [Operator from

Christy McElroy

your assets Hi, comment those wanted a made the on you bit Maybe in is about for good pressure just to pace are rates provide potential that morning competition you on everyone. competition from to to follow downward the little expect at on Pete, opening cap in how thinking up could remarks you a greater and regarding statements, you've transact more been cap few you last the the and relative quarters? coming color that where rates.

Pete Mavoides

for thanks morning. good and question and Christy Sure, the

relationships our from seen try many capital's we saying by of us. as like transactions have nature that and our and start of competition efforts deals but them to would is to there, increasing I much our come public know, find there tend less You through their cost competitors by in competition focus have

more been forward. investing spot we're cap sevens, impact rates And expect competition. general to in more our should basis XX so seeing at XX We've the historically than wouldn't or margin in going we I and points. vicinity mid be the that that

Christy McElroy

just your you're guidance capital us the understanding pace willing acquisitions for some thinking quarters, you've sense capital, to and give sheet, of could then regard differently of and you how the today sort few about balance that should not what like but raised, now what's next you're about net how and with investment? sort Okay, range the for specific necessarily guidance to maybe given in be give your thinking raised inherent acquisitions you're a range, you've shored up and

Pete Mavoides

say our our to diligence back We've and about the ability transact it's back of million. disclose kind quarters, average opportunities In quarterly necessarily to the that our I more assets. constraints underwrite comments that's I process looking my at to and and roughly indicated Yeah, but our we aren't norm. organization ability kind would of to $XXX staffed that eight level, get

You know, cost moderated with investment year and cost at staffing over the capital of transact, eight last movement quarters, past clearly of recent in we aggressive the we stance. where the capital year-end the our came looking pretty good look given a to as quarters to appetite this eight and capital, I raise into we're but a our has should supported continue kind a of indicator to be. organization more And back

Christy McElroy

capital. just on that mean, So out you your you in is little you aggressive forward going given past more to cost would be it of had realm would I of comments, think the mean, you wouldn't assume the -- I than of based bit those see not possibility? fair a that's maybe

Pete Mavoides

get anticipate a more picture. out than year last us of process the out on just not building an pushing bigger transacted to in the are much we've and and a staffing time, that, transacted wouldn't constraint just and and really on organization source the closed, for the so I and million staffed higher the three infrastructure that We've depends equipped and and approximately deals $XXX realm. takes and do ability diligence years and It It's near-term. to becomes our that organizational and

Christy McElroy

Okay. Thanks the for time. Thanks.

Pete Mavoides

Thanks, Chris.

Operator

comes our go Thank SunTrust. you, Please and next from question from Ki Bin Kim ahead.

Alexei Siniakov

Alexei around Could seven Good that? looks Siniakov. than last quarters. you quarters. the X.X give a associate morning. is Ki to like supplemental this activity clear the acquisitions which page of is This quarter eight higher coverage contributed the the I'm prior some looking of Bin's had for rent you visibly where just on color times, It show what

Pete Mavoides

where know, that given mix you coverage saying, had the the by the different we're quarters so of in, coverage in you two, we -- on us. where we're start page, quarters and would we've I had four, if and we've industries and for depending ratios industries clearly invest varies had different quarter, any on targets certain look Yeah, that three,

I the And would so the that really that a really say in, range industries it's was were we've did nothing it this and quarter, specific. X.X that quarter been was operating. factor we in and certainly that in And we so of the just that within deals that

Alexei Siniakov

Okay, thank for it me. you. That's

Pete Mavoides

Thank you.

Operator

Thank you.

comes from Suisse. state Carter question. Please Our from next question Credit your Douglas

Unidentified Analyst

for in Hi, Cho filling this Doug. is Sam

of more kind $XXX Pete, investments guys it the going such build you what right comments and to on if activity, about are getting about based So is prudence just the like focused pacing on going like seems quality about scale even thinking million that forward. just that back question you investment you're your of

Pete Mavoides

Yeah, I think that's accurate.

hope investments foremost and deals I appropriate and first XX durable, good think long characteristics making right? we here buy smart risk year and that We're and to stay before good returns that. want tenants are the have

want for accretive period looking trajectory and want growth for invest an have we we're one capital to at or long deals to of moderate spread us appropriate a shareholders, at to our Secondly, to time. have to growth And a just generate of to and not an to we We're going looking growth growth, investment hopefully and most that allow at in we're growth. compelling years good activity alternative two decade be with of grow our sector. the cost

Douglas Carter

a the yields thinking about quarter. this the escalations Got should Was of rental it. lease that? that we function at And mean, I and kicking this the stronger just in be portfolio, quarter looking how seemed

Pete Mavoides

portfolio? investments On the the new in or

Douglas Carter

The portfolio.

Pete Mavoides

times, kick of whether XX It's on some coming escalations years, at rental just year, even things or in years. the those one those in timing various and cases it's the line. Yeah, five bumps

Douglas Carter

Got it, alright, much. thank you so

Operator

from our question. Sheila Please McGrath you. state question next Thank from comes your And Evercore.

Sheila McGrath

progress Hi, yes. in Construction Good morning. sequentially. was up

remind just us vary traditional the how and development acquisitions? do could you If the what from under yields is

Pete Mavoides

and Sheila Generally we're take are situations develop tenant help where that they progress our with construction I'll as are to of an question. the working preleased. them that in part second Sure, sites existing reimburse

develop Typically above those those get XX construction And we risk, pro the as anywhere some sites. buy lease we XX invest, package expended. basis to construction to assets receive it. of have established as able existing operating an premium yield obligation of and generally those the from to dollars performance we point They mitigate where those would we're we and lease forma asset. help they're they master with risk new So construction fund on dollars rent we and

not those XX So a but also XX kind is return, outsized able points. we're it to mitigating get commensurate risks, basis in to of

Sheila McGrath

vacant. you characteristics us of you quarter, this remind more detail sold assets sold assets Can for on the one then the seven target sale? you And was thanks. on Okay, assets,

Pete Mavoides

have some started day was of of to generally that know, activity say near-term opportunity of with on would we an capital a potential year we value we And gains asset you the the I we the generate look end you when fourth investor remind capital see our we secondly given that than do. which attractive the risk and back-end buckets sales we quarter. where cycle, then cost where to may at through And you in process opportunistic XX strong recycling also, credit one our focus more towards two sales XX the and see year. is sell a long-term in assets But we're an an to and the our release mass And relates renewal as position. the coverage. performing to declining to of improve it site weak sell either out a in of probability or whole a able Sure,

sales And that about was of opportunistic the so de-risking. during were bucket, XX% quarter, credit in our first each which and

Sheila McGrath

One dividend what annual policy, are a an one, are payout targeting on ratio, great. you you last communicating just dividend? Okay, quick review, the us remind

Pete Mavoides

our IPO have would the basis, raise Yeah, and raising part with to somewhere dividend our range. the established grow is -- seasoned our into of payout has I Board review clearly speaking context the a attractive But higher dividends. rate, started year, of for start correspondingly. We through imagine that. full I cycle potentially would quarterly AFFO a a in that a IPO, anticipate and we're our it an the as be clearly twice dividend still only of striving on saying context by haven't and yet we at dividend I would forming the was Without policy little to the year in in us we'd XX% operate been and will Board, the

Sheila McGrath

Okay. Thank you.

Pete Mavoides

Sheila. Thanks,

Operator

Thank you.

state Prosser question Bernberger. from comes Nate question. next Please Our your from

Nate Prosser

I Yeah, and you. seeing types. property in guys the was comments quarter the just property on you industry lease acquisition are net opportunities? type there areas types look wondering was new announced are other I industries and what see you what for potentially then would XX maybe at just most thank Hi, the you

Pete Mavoides

dogmatic material. own and has and characteristics Yeah, the quarter, other at when to Nate crest real service-based this estate tenant In fungible it medical/dental, generally wanting generally commentary we've piece industry. and will our we're I and we're services where treat clinics, out the that pet estate, an veterinary you as saw extent a bucket, that in I so X.X%, industry more so a that not movement investing of be stores within of ratably industries to see sectors or But his care pop up industries. of would of you like some pet to growing wanting to will our ratably. margin, real to think globally have those dogmatic in We're remarks in out hospitals, our in good say or and be casual it think becomes investing services popped industry we we're and on We'll in Generally X.X%. prepared the an in C kennels other open and pie how general going we'll dining that service's Gregg furniture them. child opportunities industry that. that's to lightened and the kind all and of see mix. and at that some and in current endeavor grow we're had to

Nate Prosser

Okay. if what you're us your That's can then, zone with? I in space, remind the I'm leverage? trying what's lowest mean, the you just normalized but comfort so are it, you to for I helpful. comfortable And missed currently on gauge number, the sorry just

Pete Mavoides

to opportunity stay impact soft we in sizing then a to needs that We we'll to the then Clearly some an we to and a general want low not needs. that really of EBITDA. without to the it X's, But saw shoe. debt our ceiling's front capital a and and haven't that X's and back to the the and upsized it's that's then taking bit put our balance low-to-mid-X's. and to down. recharge in than a get in front ourselves having articulated capital crest preference so In transaction operate probably capital like, get operate in say low I in a to would X.X, was stay the would at toward lower X in like times sheet. and lastly net year want we would Well, And we we the plan X's, the to out the of raise an don't box, as finished

Nate Prosser

Okay, thanks, guys.

Pete Mavoides

Nate. Thanks,

Operator

Thank you.

from comes of next Our America. state Dennerlein your from Please Josh question question. Bank

Unidentified Analyst

this have Kevin of AMC guys you to of any your pertaining Do just had kind a thinking with are exposure Josh. here updated terms exposure. there? your quick in what is Hi, We question you thoughts

Pete Mavoides

that relative where high screen been the focused us, are was Theaters we profitability both end Yeah, I AMC's situations theaters, that's and we've been specific we saw don't to tenants. of on own we remain say focused. mean, of attractive rent We where information plenty theaters that's selective I of in to that upgraded been Clearly in that there's wanting public out general and focused. focused modernized around limited disclosure kind provide and our investing to very on the theaters company, amount theaters and ours. a individual in where a there. of would very big and a also and of It's we and we've kind purchased. targeted focus have not

We will slower probably but grow that, overall portfolio. than the

Josh Dennerlein

it Sounds you. me. that's good, Thank for

Pete Mavoides

Thank you.

Operator

you. Thank

state Our next from question your Please question. Massocca from comes Ladenburg. John

John Massocca

Good morning.

Pete Mavoides

Morning, John.

John Massocca

Captain more maybe renew was you little decline extension, rent reading incentive can provide just So that the on in correctly? bumps, to early the their on I am a color end the the D's

Pete Mavoides

$XX was with specifically we lot a leases to XX close ago them you no. scale, would equates on. get economic Yeah, concessions had in were properties they to transaction to of. with that originated store of that play. and same put approximately drag you on they There or for as commitment store going They our that XX -- months. were master longer assets million of that It got points by there XX so, host had commitment three they for whole XX out for the assets we of rents imagine, exchange evaluating, rent no takes a eight up, wanted them them -- was that years -- growth, we And basis from them, when and wanted percentage had three and additional that which rent should were was in to same about next balance some all was that on there were over that kind rent in years small

John Massocca

sense. of Okay. exposure of your huge tenants percentage ticked a like it kind And it's down ticked really had coverage up kind the even by a at with kind Xx to percentage each That of move, in and about the quarter. completed X.X exposure makes I though looks to of with on rent not you coverage but Xx strong know acquisitions

So any specific portfolio tenant that was was I mean within the industry shift? that existing there driving or

Pete Mavoides

Yeah, may had I shift, at tenant its specific certainly to would a that went shift, isn't an X.XXx. industry guy it say that you have down X.XXx and a was a

trends take about there we're getting this And see it. alarming But us, vocal them. flows so and and this will we to kind of out we've there's getting assets of and going that there's and recognize comfort that's selling and in very saw and is nothing to flows. we're be aggressive those ebbs portfolio, But of disclosure in issues, been need think be that. of and some managing numbers, the and ebb we're in in in we new where front and that and people We there to comfort risk out a I get

John Massocca

the Understood, and deal of conscious no choice your or increase of because there quarters a two of top then that a a in product last bit flow? you're I know but to any company, diversity it's little to maintain young tenants. XX your exposure just a order in Was unfair is

Pete Mavoides

don't X%. had top guys tenants they where want real there -- above to There's further -- some the estate we've have the don't it's down just take we caps is of guys on Yeah, at any the more list where our of leasebacks cost guys that companies on makes transact aren't on and there's such us transacting, they a sense and been no who've longer have them. sale afforded the and to list capital want it matured as for that to do list other with

So the John. across it's really board,

John Massocca

you Okay. for me. very much. it That's Thank

Pete Mavoides

Thank John. you very much,

Operator

be at appears to this more questions no time. there And

Pete Mavoides

call. today's operator you you, thank us well thank on everyone and Great, joining for

in As where today. excited I we're the the said company very about sits prepared remarks

The investors us quarter. was us, for quarter and really support transformational the to of market in supported first shareholders largely a this that the quarter in

you we the And great thank to with you engaging at look in ICSC so all a and forward again, and and have coming NAREIT conferences day.

Essential Properties Realty Trust (EPRT) 11 May 192019 Q1 Earnings call transcript