EPRT - Earnings call transcript Q2 2019 | Essential Properties Realty Trust, Inc.

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Operator

Good morning ladies and gentlemen, and welcome to your Essential Properties Realty Trust Second Quarter 2019 Earnings Conference Call. All lines have been placed in a listen-only mode, and the floor will be open for questions and comments following the presentation. [Operator Instructions].

This conference call 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.

an an available be archive XX be website Essential available will days. www.essentialproperties.com at of there audio on webcast Properties' for Additionally, which will

Dan turn now Capital of Essential call pleasure is at Vice to It over and my Markets to Donlan, Properties. Head Senior President the

Dan Donlan

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

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

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

Before I would second that the I supplemental to turn over and on of XX-Q Investor the are available section our Pete, quarter Relations our website. note call

ahead. please Pete, go

Pete Mavoides

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

the equates four months. XX% In $XXX and past $XX which in the invested which to one-year passing XXX the properties quarter since anniversary we include XX over pleased initial growth properties are sold results, We our public report nearly for into assets our offering. second to coming million, last million of XX have quarters public,

operations properties between which times to since XXX% improved rationalization rents has importantly of since strong the XX% same-store X.X contractual diversity, ratio, of of our external their Similarly, internal cash coverage with our speaks and of increasing well our performed public, represents consistent and averaged and growth X.X addition, in has profitability between the Coupling G&A, which exceptionally to resulted and portfolio the public. coming growth. X.X% our with most value ABR cash earnings our our rent coming leased X.X% tenants. In times has and dividends growth

Turning and portfolio. starting quarter to the second the with

As XXX of we XX, that to industries. owned in XXX% tenants June XX were operating leased properties XXX distinct

XX.X Our years, XXXX. of was with ABR X.X% weighted our lease average expiring only term through

quarter quarter-over-quarter. X.X% contractual Our growth same-store portfolio, our end, represents rent and which total at contractual quarter-over-quarter XX% X.X% of growth of cash of portfolio experienced NOI

we to have in X.X% expect past, portfolio As approximately our grow we same-store the mentioned at annum. per

So pleased were to proactive this we again threshold asset through exceed management. quarter that

which and characteristics. renewal lease rent properties Analytics of a believe implied our perspective, is our a which and coverage unit-level From has an eight better. a ABR rent have tenants expiration. of X.X% -- tenants X.X the X.X our years lower of last over leases at both up level we rating unit mind, ratio has weighted which coverage expire quarter. a B high cash times And below manageable coverage below times, portfolio indicates of tenant With XX.X% have modestly of rent that Risk Moody's average risk has X% our a than health Similarly, next of with coverage that rent X.X or ratio ratio X.X per times less likelihood from than rent of very number times, times, two in credit represents elevated

and our second since of $XXX a activity, we investment represents of quarter inception. $XXX quarter average trailing activity most weighted investment our cap second level average invested our million, to million X.X%. of initial above rate Turning at This was active four-quarter

required are subject were investments our regular financial second and of with a to and provide corporate came to basis. us via sale-leaseback XX% XX% transactions, master-lease quarter reporting XXX% Approximately unit-level provisions on

XX we Subsequent shares front exposures, to in completed the effort a risks secondary our quarter-end, of assets we mitigate one capital for $XXX proceeds. disposition the offering proactively Eldridge and to an On quarter, for million in common million net partner. property for including $XX.X initial sold in vacant Industries,

company thank team Eldridge shares it guidance to over a their longer business was these result, company trust, As for that well-capitalized like support in no three OP units EPRT. growing plan is team We any integral would The a the owns in or Eldridge’s public Eldridge to a and past years. this today. from

growing tenants of in with we the on our we remain historical experience-based year, service-oriented with portfolio consistent be the our balance mid-X% cap origination we with in out of As sale-leaseback investment anticipate the industries. level activity and our to through focused rates of transactions to look the market averages middle range. And

risk-adjusted great the for and Overall, way returns our shareholders. paved continue the us scale this and was has a attractive portfolio accretively quarter for for company to generate to

to turn take financials over who Hai, I'd Hillary like the second that, it will the CFO, through Hillary? With to quarter. you for our

Hillary Hai

term balance credit Starting million the you, debt including outstanding notes, and total funding morning, and of with Pete, unsecured of $XXX good and $XX quarter $XXX sheet, total with million outstanding facility. $XXX ended Thank master assets, revolving $X.X we under million million of the loan everyone. billion $XXX in unsecured million

XXXX, plan end, coming We our was have external range. targeted EBITDAre growth while to and debt within us due leverage on our until gives adjusted execute no which to debt net capacity annualized at our maturities managing times X.X major quarter

share. funds or million to our quarter or $XX.X diluted per operations defined million the was $XX.X FFO per share. statement, was $X.XX income Turning net second from diluted income $X.XX or NAREIT

or share. $XX or share, from diluted AFFO $X.XX FFO adjusted operations $XX.X was per $X.XX Core and per million funds operation or Core funds or from million was diluted

of ABS costs premium of the and repurchase partial XXXX-X $X.X which million million Of a our legal $X.X note, write-off costs. of financing deferred in we paid, included to $X.X million $XXX,XXX related quarter, loss of recognized Notes, the in a

to income statement our to Given the FFO, this called new one-time which quarter we Core NAREIT-defined to items back nature these added of these adds disclosure items, FFO.

was we efficiencies, our of While second revenues. increase the XX.X% total quarter for to continue operating G&A

metric to moderate We grows portfolio and scale. expect our this as

to end, a equated share quarter paid $X.XX an payout share. which to our the per AFFO Subsequent XX.X% per of quarter second dividend quarter, second of we for

registration filed and statement, gives a various on ability also equity an We us the capital shelf debt of which to overnight raise basis. forms

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

turn I'll Gregg. over that, With call the to

Gregg Seibert

Hillary. Thanks,

made $XXX stores half XX transactions million During targeted our the representing industries cap of education, XX of at weighted quarter, properties of were early activity invested average childhood the rate investment quarter. XX and XX investments a in X.X%. within our These convenience and in with cash we

The the weighted weighted was X.X The The unit-level average annual was weighted our years. lease properties and term times average escalation was million. per coverage rent average XX.X property investment $X of average was X.X%.

through approximately of in which lease were investment master quarter reporting lease requirements sale-leaseback ongoing originated direct with Consistent subject second strategy, are most to cases. our provisions and our XX% investments our transactions, form with financial

has In with or define senior investment with relationship brokers activity addition, second business the quarter our advisers we of XX% management past. that was as sponsors, completed based, done operators, in transactions which

childhood at dental at industry by and perspective, stores quick XX.X%, convenience washes our restaurants education at car early or of X.X%. at largest service industry medical an ABR, cash XX.X%, XX.X% at remain QSRs From followed XX.X%,

other quarter-over-quarter XXX and risk-adjusted due industries, our sales year-over-year should to in portfolio points other points basis concentration persist is basis a down returns in home growth Conversely, industries. which to furnishings trend declined as better we and is continue that property XXX seek

capacity manage proactively casual to to our free-up selective continue we locations brands addition, properties. underperforming In higher-performing concentration dining invest and dispositions to in of in order through

tenant our ABR. more From perspective, X% than no cash a tenant represented of

cash top of Our points which quarter-over-quarter. XXX represented quarter XX down basis end, at was tenancy our XX% ABR

to our expect over as concentration our coming we our developed tenants continue XX tenant top on outside capitalize newly the with further grow We and quarters top relationships. of XX exposures existing to decline

note Of Couche-Tard Circle the subsidiary Alimentation quarter resulted added in stores the top K XX we a in of our which entering branded second portfolio to convenience XX tenancy.

operate we three derived ago. from and has businesses tenants started approximately deliberate that Essential over cash the at have XX% our of years portfolio been more experience-based ABR for Looking broadly service-oriented since focus investing is a which

industries estate tenants, insulated and by We heavily e-commerce occupied are recession-resistant these these and real pressures. believe more importantly, in against more tenants

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

fungible readily real-time of to we average a to highly transparency per into portfolio. in important from In managing our unit-level addition leasing property health perspective which is sales of $X.X liquid our with remains million, near have standpoint. our an tenants investment a approximately With an of the to XX% financials required and report our component portfolio tenancy risk us from

properties quarter we elevated for the different Turning cash quarter. properties for leased net The was from XX of a higher which X% seven this $XX.X in repositioning blended rate million sold of of these prevalence slightly and were this given proceeds. sold portfolio cap to dispositions, industries XX

it will I that, remarks. back for Pete turn to With closing the

Pete Mavoides

Thanks Gregg.

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

is fund to continuing business full, plans. on our pipeline and execute continued we sheet is to well-positioned balance to look Our forward investment our growth,

With please open for up questions. call the that, operator,

Operator

with first to call questions. We'll open now go you. The for Thank is Instructions] McElroy [Operator Christy Citigroup.

Christy McElroy

everyone. morning good Hey,

with strategy that pace cost some that more thinking you could deal year? -- drove this be the pace? recognizing and if accelerating spring following equity the had raise also in accelerated the is rest on acquisition you of the your position more favorable. should capital of you What additional wonder And Just the like QX we how about dry powder of provide color your

Pete Mavoides

fully-charged in investing. the our around a in and of Great more with historical the large quarter that with historical a the be of went million focused an we and that during on really XX, said transaction would bought capital Christy quarter certainly expect our came average. $XX to and That We balance kind quarter you. performance you transacting deal as drove sheet we transacting that average. had that into outsized about see We top our consistent a the cost attractive we've thank and more we been

Christy McElroy

Okay, provide where stands that are today? then got on credit? you an about that and comment exposure your How update feeling you And Perkins it. can on

Pete Mavoides

great coupling is asset of fungibility. the unit Perkins great of level think I And benefits with Sure. visibility of example a

out so bought that been have acquired of ABR. properties And repositioned the to credit our properties representing We feel ago. this years Chapter with think our XX thing sit we managing our really today, We going and the exposure will we we come for point to X.X% tenant point that a nine and tenant properties cash we three hold. a GE comfortable we forward. or and intact when XX where reduced with stronger good lease portfolio where sold we exposure and assets about We've restructuring a monitoring that our the Perkins will XX be

Christy McElroy

Bilerman. Michael its Pete,

is is public to sit to Board and the on Board out Board? the that going given seats the of process the of very nomination small were also two rights Now Eldridge controlled for stock, have company and their completely and obviously size used what and they have when a the went company. You timing a that the be you

talk can So want occur? about that to governance you make little corporate improvements you timing in to bit that's and a going the that

Pete Mavoides

Yes.

quarter be I think the a to would an more replace the Board And frame. will manner over reasonable seats so members bring time the orderly diversity members assume Eldridge broader Board. two in we who think the in transition -- I and to off those next Board perspective and that that would it's to or logical two

last think Board I over happen our would really half that's was year discussed meeting that something of so at the the And back here. and the

Christy McElroy

so You months? underway will the the six advisers next in already is and three to engaged -- occur search to that already

Pete Mavoides

the We once discussions are something But will And have not we have we engaged to ongoing. the announce announce it. search.

Christy McElroy

to But it? you're committed do

Pete Mavoides

And to the logical Eldridge think that's Board I have I no in the any company want the interest longer. off the they come transition. think members economic Board given

Christy McElroy

you. Thank

Pete Mavoides

Thank you.

Operator

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

Sheila McGrath

for the to portfolio Yes, Pete the good did morning. X.X times. coverage increase

by that of Or was portfolio performing mix driven tenant some coverage the the acquisition? Just is higher? segment well wondering boosting if new

Pete Mavoides

of Sheila number representing Yes. we that of billion. total $XXX bought assets XX% about $X.X or our obviously XX% million There's a in if lot going on just and

I think combination be to it's factors. going of a

for the times. investments were on coverage X.X Our quarter

did just portfolio. it's you accretive times. is how slightly within so to the you that I how X.X the out that is new But And from much if investments can math, pure and from guess figure movements much

Sheila McGrath

perspective. fairly assets? off? and those you your it assets chose Can a active Okay. thoughts what And then of were historical characteristics to -- a the quarter the sale was And why for sales, of on you just the you give us or dispose

Pete Mavoides

specific Yes, really sector exposure. derisking we furnishing don't be dining the it like where it we in last where or of that be sales and casual or quarter be tends a sold credit down could derisking some coverage asset derisking and we to case this a tenant that see specific our industry of can

And motivations and specific tenant so asset of good mix well both I think the industry a quarter motivations. as represented

Sheila McGrath

Okay, great. One question. last

You did reduce be over Master pay that borrowings that to related continued Trust expect continue down we will time? Should -- to secured you'll Funding. that

Pete Mavoides

Yes.

So we notes. had XXXX our

we term recasted the using with revolver. notes have opportunity put place We our loan unsecured that in connection to in purchase those

in think balance borrowing to expect chunk We general, strategy. in that of us unsecured more prepayable should our transition you I And have a those XX sheet another to become November.

Sheila McGrath

you. Thank Okay.

Pete Mavoides

Thank you, Sheila.

Operator

Sam ahead. Please Credit we'll next go And go to Suisse. Choe with

Sam Choe

guys. Hi,

you guys which cited close X%. to debt-to-EBITDA of preference X.X% the to of kind low of is So mid your

you wondering with along how to the in of manage Just the intend year? investment that the second half expected pacing

Pete Mavoides

Yes.

the at of in I and to raise logical subsequent investments market expect the think you ATM end. shelf we us leverage that quarter our and I future get filed within our back look that place in by a raising manage an to year equity the equity. could to in manage help near to fund think leverage the program Obviously, targets, our universal be here. as we'll we it's half And

Sam Choe

thought. I operating quarter. lighter color property some on this you that? were the what Okay. expenses give then little And a That's Could

Pete Mavoides

Yes. on some color give why Hillary, you don't that?

Hillary Hai

So due reimbursable last higher was because onetime quarter to tax some reassessment. we was that had tax property a charges

So quarter should the last this going of rate better half a the year. forward, be run for

Sam Choe

you Thank so perfect. Okay, much.

Pete Mavoides

Thank you.

Operator

with Hawthorne go Brian we'll to next Capital. And RBC

Brian Hawthorne

the expansion the color investments kind of you you you're most or by industry? seeing which us talk close And industries plans? can about give Can the then of best on any -- your rates

Pete Mavoides

we're and all all in see activity sourcing grow Listen flows generically, would We're we're across those any expect focused you'll pretty exposure is conducting ebbs Sure. quarter, ratably industries. industries across our given to XX originating in and industries. those industries. And I across those

quarter past and XX% XX% care. this But C-stores child was

kind Next neutral down our exposure XX% we on of dining QSRs But of quarter overall, to with think car the exception, could us and trying dining ratably cautiously I washes. are and our XX% furnishing be and see more kind casual managing exposure. you'll grow stay home family

Brian Hawthorne

Okay. Thanks.

Pete Mavoides

Thank you, Brian.

Operator

Our next question comes from Nate Crossett with Berenberg.

Nate Crossett

touch guys. Hut, Kind you to question. your similar Hi, a Pizza good of think morning the closures? Perkins of store I to Can announced bunch as exposure on they've

Gregg Seibert

It's Yes. stand-down.

of XX we Pizza basis have We roughly exposure as to Hut stand. points

Pete Mavoides

don't across ABR risk that of and of properties are points basis XX spread Yes. and we heightened our so good there a liquid fungible any portfolio. for see number

Nate Crossett

you furnishings quarter. the I of the and of see kind Art Van, Vans to the you And And reducing home trying Dave one -- they're in Okay. change Art just then on about I I CEO. talked know think sold

sense to other of the get how you feel a Just four about wanted locations?

Pete Mavoides

investment We ago and Listen, a good made concept, that lease. that had strong to a hasn't long assets we it we subject not felt was a Yes. master good that And good really changed. brand.

I management a well received. there be think will change

to we and come company a think role I I which grow. should more has family active that -- think in positive Board the see good a the is taken founding that's continue

to it we're our see we Art so there. and about And Should comfortable exposure feel to we good but opportunity would, we Van. an our with accretively opportunistically, reduce exposure

Nate Crossett

And going feel be enough? to Do us then you guys sales the more in Or one the that size coming months? there remind just that's more, helpful. that's are ads the Okay, team? you can of

Pete Mavoides

when this place in able And infrastructure place, the Listen said, appreciate be No. come form. guys company predictably built to and you private staffed execute. in the transact this often I've we in company teams our were hopefully And public XX months, to past is we to have that. to over its

seats and the filled level. high key we're at so are transacting And a

financial are Generically change X/X about finance and and focused another going XX X/X that's not on and materially. management, on our of X/X employees closing -- asset to originations on accounting

Nate Crossett

Okay. Thanks guys.

Pete Mavoides

you. Thank

Operator

Massocca Thalmann. question Ladenburg next comes from our And John with

John Massocca

morning. Good

Pete Mavoides

Good morning, John.

John Massocca

there of for So move provide of sub, helpful? X% you minus tenant would breakout any that, chart? Page anything Just the give in that you kind Maybe bar just XX credit, what of move? the kind color the if drove B you you Perkins? around that of portfolio into look the at kind of any that talked of of be kind Was about category

Pete Mavoides

on have Yes. I I tenancy there. don't the specific breakdown mean, the

comfort quarter. and will movement us in – and that the given of We concern. has chunk take a in give is that You really any coverage certainly ebbs see flows healthy any fact good doesn't

John Massocca

And then Art maybe home what on Okay. the besides that side, sub-segment guys can tenants provide color are in any you on furnishing Van?

Peter Mavoides

of We have Ashley. think Van right overall the that Art it's really, balance Gregg? the exposure, is And and – couple Is Ashley I entire a if Furnitures think about that. you besides

Gregg Seibert

That's right.

John Massocca

then, And those are Okay. the detailed or Perkins branded branded Perkins on one all more any Callender's locations? question Are of Marie they exposure.

Peter Mavoides

Yeah.

And so are they're our all are and of they stores XX all corporate operating. Perkins and currently all sites Perkins

John Massocca

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

Peter Mavoides

appreciate John, questions. the Thanks

Operator

And Burrows Sachs. go Caitlin Goldman next with we'll to

Unidentified Analyst

cash do rates REIT Earlier, you're driving that which to non-investment-grade mentioned know end to Julian seven’s high range. the of and sustainable for cap be guess, ability would high I the how achieve the is what the is you year at your for rest at in end high week low Hey. cap of that? believe range properties lease of rates net Caitlin. this mid you another I on trading mentioned This is the expecting eight’s. that five’s at were

Peter Mavoides

what quite Yeah, we're think simply good I we say, at I do. would

are the people a the at the we're doing investor our with deck, past dealt with into we've in If high percentage stats deals the XX%. you in deals look of

So our sale high have are trust where tenant. counterparty. into of good direct a also delivering people A We're a capital deals structuring a reputation leasebacks, need a we leasebacks. as for and capital us percentage sale we're

brokered deals, to. mid-X% to look with know this and you And – And which for so been is that competing work the lease in lease the existing disclosure moving trust us in we and relationships and range. counterparties been in to that of market not referring consistently context doing we've – that net upstream deals for years. We're we're XX that we've whoever was our sale-leasebacks, in probably structure

be it believe to sustainable. very we So

Unidentified Analyst

Got to know it. mentioned of the And leasebacks. guess, we look that guess selling transactions the related that XX% I XX% is of I Or entities release what I sale talking of other are that, the mostly we year-to-date up about when brokerage market? kind are made about? at other

Peter Mavoides

tenant XX it restructuring a the be great an transaction in getting partner into that where an a direct We having Yeah. paid was insight unique doing leaseback, the through deal. that or a Outside example we but had is the the that or existing that focus to transacted think the inception we either performance, but be trying return. relationship find of can only is at quarter ago. risk-adjusted And that about new That to years the kind leaseback the with we're deal, sale happened where on in $XX Questar sale A broker generally of there, lease of attractive generally create we a deal second leaseback structuring sale could and can an inefficiencies lease, subject that the market lease be of existing where or to deal, existing tenant here. originated, an lease when value, inverse with million property lease. my we're buying it we're

the lease. and had the had in the we great structure, the the into worked, so, We with for of nature insight past. And seller

so, buckets. lease look we opportunities, deliver in shareholder we can value, And for where those existing

Unidentified Analyst

Thanks Awesome. for that.

Peter Mavoides

you. Thank

Operator

next comes Kim question from Our Kevin with SunTrust.

Kevin Kim

Good Hey! morning.

some the run G&A longer curious that, higher term. you've G&A Just about the little but just of bit quarter. know, accounting annualized I What a question, right quick, rate? this is addressed a was

Pete Mavoides

Hillary, what do you there? get

Hillary Hai

quarters, came XX% that quarter we few to bit a little But range, revenues. onetime be of expenses had this the total We looking a through. around So forward is should next higher. two

Kevin Kim

dollars? about can revenues Okay. total How in hard acquisitions? because based Just the change on

Hillary Hai

Yeah.

million that million also model at, So, per costs. have I we're each volume do on the would roughly $X doing, we're $X.X quarter. quarter. depending as to we certain Depending -- looking variable

Kevin Kim

are the in line So correct? G&A the Is transaction item. that expenses

Hillary Hai

costs do properties very but many Not we on that transaction, dependent have we are how have. servicing

Kevin Kim

which Okay. And is just this there your calculation, But fine. that no you add-back be quarter. AFFO one add last costs, on to seems question, back transaction fully

Just curious, why is? that

Hillary Hai

our cost total. actually already our investments, We for -- transaction that's the investment in is

it's in our calculation. not So AFFO

you see So, that's don't any. why,

Kevin Kim

Okay, all right. Thank you.

Pete Mavoides

Kevin. Thanks,

Operator

And, Massocca another John question Thalmann. is Ladenburg from with

John Massocca

it Questar was going the to you covered think Actually, ask transaction. But I I about well. pretty

just I'm pulling out queue. Thanks. So, of the

Pete Mavoides

thanks Great, John.

Operator

no this questions, [Operator at Instructions] appear And there time. to be

management So I'll any remarks. back for turn it over to closing

Pete Mavoides

proud we're the just think, I quarter, we reported. Great, of

the in yesterday, into As continue we filed you the -- third quarter see, we've execute. had good our to XX-Q into as here progress quarter

And Thank to all, with engaging in summer. enjoy the so, you of the conferences rest we I September. you forward you. look hope And

Operator

And appreciate today's connection. that teleconference. does your conclude We

your You great a this lines time. disconnect And have may day. at

Essential Properties Realty Trust (EPRT) 9 Aug 192019 Q2 Earnings call transcript