EPRT - Earnings call transcript Q3 2019 | Essential Properties Realty Trust, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Essential Properties Realty Trust Third Quarter 2019 Financial Results Call. [Operator Instructions] At this time, it’s my pleasure to turn the floor over to Mr. Dan Donlan, Senior Vice President, Capital Markets. Sir, the floor is yours.

Dan Donlan

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

today our Seibert, to are me with Here discuss our Hillary our and and Pete third 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 these statements forward-looking in that expectations files 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 third ahead. Before quarter Pete, I please Pete, I would are the over to go turn XX-Q and the our website. on that Investor call supplemental of Relations

Pete Mavoides

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

We Eldridge that cap share with ATM their same-store exiting quarter, our initial saw and million of could rate first rental creation activity to the which comparable fully an our growth the of at X.X% quarter, with portfolio X.X%. performance capital Accretive $XXX the solid are a investment of activity position invested our third with program. of active and was report the strong per recent with results. pleased quarter Consistent report quarters, we results third markets

an and over year. achieved represents per mind, quarter continue to This capital a impressive in capital. at near third debt attractive Based on XX% offer and versus and increase share neutral sources accretive coupled to on compared end our ago. of investment a portfolio implies and disciplined adjusted newly offer AFFO portfolio XX% midpoint opportunities X.X%, well-covered that are updated as guidance. leverage pipeline to a which per of managing compelling the guidance multiple this anticipate vintage underwritten AFFO a sheet $X.XX, We investment all believe was balance to quarter year was a XXXX basis the share and markets our at $X.XX X.Xx these to to of healthy, With we We XXXX reported yield to growth remain providing with $X.XX, our which of to last our net increase annualized freshly opportunity. X.Xx commitment assumptions, generate total we growth, dividend oil and our return our prudently price risks, EBITDAre focused

the to with Turning quarter starting the portfolio. third and

investments XXX distinct in of properties in XX, tenants As September industries. we XXX% XXX XX that operating to leased had were

lease years. term average weighted Our was XX.X

ABR of More importantly, to prior expires XXXX. our X.X% though, only

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

to we expiring losses, past, grow expect our at contractual and leases have in when our portfolio mentioned X.X% potential coupling credit with same-store rent As annum. we approximately per the growth

threshold pleased to again that So we were exceed this quarter.

of health of tenant XX.X% a our average with ABR a of ratio From X.Xx, coverage rent our a rent portfolio has coverage perspective, ratio having or weighted Xx better.

indicates lease of rent our we coverage believe next below a out likelihood than high renewal of at exploration. X.Xx, X% which the have leases less Looking expire that over years, X unit-level

with tenants per count coverage lower risk X.X% of an Moody’s number and Additionally, elevated single manageable credit implied a very characteristics. X.Xx, level B unit both than ratio only below and have risk which tenants of our properties rating represents

attractive spread basis We investment X.X%, XX with of mortgage unit which points or required quarter loans. provide initial Approximately And XXX% average capital. a us cost a level weighted from our XX% rate cap are financial million invested leasebacks to quarter investments came sale $XXX originated was and basis. to was corporate third very directly regular third on of a up Our our activity of robust. sequentially, at representing reporting

mentioned originated the have past, in to terms. we form by we and returns attractive to sale-leaseback As generate our opportunity afford on delivering our investments directly lease believe with capital tenant need a risk-adjusted preferred investments an structuring

vacant, we disposition in total proceeds. million in and risks XX to quarter, exposures, On including effort front, during sold proactively net mitigate one the for the properties an $XX.X

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

I the to take with that, quarter. to turn would will through it financials for third our Hillary, And the who like over you CFO,

Hillary Hai

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

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

week, ratings Lastly, rated our received investment-grade earlier company. an Fitch credit broaden from further Rating Services, which capital to BBB- we as this access should

markets to activities. on Moving capital our

over raising in gross of an X.X $XX raising at In at date, we the million During million million shares of Program the fourth under $XX.XX, Program. we last ATM of $XX.X price common ATM an proceeds August, quarter, quarter, sold the X.X X a established sell million. stock $XX.XX price proceeds To we ATM the average of used share, of of weeks have average shares million. $XXX the to over per gross

raise equity efficient and Given to investment we proactively activity, tool as the sheet. granularity of balance our ATM a manage the our quarterly view highly

was four in items as our both down of and of $X.X secondary and litigation. the which from quarter costs million XX of share AFFO diluted this diluted to and When our settlement the G&A connection per in offering share. $XX.X a Turning per or ongoing or million NAREIT-defined Of basis Eldridge funds FFO, total million core adjusted charges $XX.X potential million funds diluted one-time was or or $X.XX was points incurred note an with nonrecurring quarters. from or Core operation funds was our average prior the $X.XX is in quarter, excluding July these from or FFO, the over the per income percentage $X.XX operations statement, versus revenues, quarter, XX.X%, G&A, share. $XX.X operations, from we third

Going as our base grows. our continue G&A expect forward, we to to scale asset

by to XXXX range $X.XX the Turning to guidance, a per new share at AFFO our $X.XX are guidance low end to $X.XX. of we raising

approximately Looking the guidance ahead which ranges. most our share range cash to to implies AFFO closely it next per recurring $X.XX metric, year, we introducing as growth share. the flow a of AFFO both midpoint $X.XX, are relevant of at earnings approximates XX% XXXX is believe We per

our basis, a a for potential. we we future As goalpost historical stated a past, X-quarter is have provide in in net investment our investment good trailing supplement on which activity, the

turn will I With to Seibert. COO, the call our Gregg that, over

Gregg Seibert

Hillary. Thanks,

our X.X%. we transactions XX% average of or activity level with into million. within invested X.X%, average These $X.X XX XXX weighted were rent the average targeted property representing coverage of $XXX restaurants, at investment was quick our made XX was quarter, properties rate XX investments term the escalation of and The weighted service per unit cash is quarter. a million QSRs, industries average the of During annual weighted cap weighted XX.X the in third lease X.Xx, these years, our was and properties average nearly investment

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

childhood of with the and at was business an origination advisers largest transactions of to at past. addition, operators, respectively, in carwashes to remain perspective, which QSRs dental investment the XX.X%, define early at with new that we From or X%. relationship-based, activity of with and our at has XX.X% senior team brokers by education In industry expand XX.X% due management industry relationships followed counterparties, XX% sponsors, operators medical our completed third quarter efforts and as our ongoing ABR, done our C-stores

ABR, as our of furnishings is X.X% and which XX Conversely, returns down basis see industries. other we we now persist points quarter-over-quarter, is risk-adjusted to in just home concentration this trend better expect

points dining our which order concentration, proactively addition, basis dispositions XX the selective concentrations. capacity continue declined higher-performing locations while in brands we of and our quarter in underperforming invest properties to to through in In create manage managing casual to

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

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

existing the to top Perkins, top We bankruptcy. coming was relationships. outside of continue purchased grow quarters as exposures on in end, which expect concentration we our capitalize out quarter of with of Subsequent XX represents to tenants today tenant newly and ABR developed XX X.X% to our further decline our

As negotiated XX-year in part of the master for lower new slightly lease bankruptcy we process, a exchange rents.

lease are are experienced restaurant to properties and with We operator. pleased well-capitalized a to an long-term our now master report subject

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

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

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

from sold Turning were that, to leased million will concluding cash X the quarter, for net I properties With it industries cap remarks. X.X%. a rate of $XX.X sold proceeds. blended for being we his in properties different Despite de-risking dispositions sales, to for this dispositions Pete X XX back these turn

Pete Mavoides

Gregg. Thanks,

expiration. with minimis remains shape coverage, excellent lease vacancy, property and no Excellent liquidity level transparency. de near-term with portfolio healthy strong in Our coupled

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

With the questions. up that, for open call operator, let’s

Operator

we Christy Citi. will Thank you. first And Instruction] from question take [Operator our McElroy with

Unidentified Analyst

Hi, Christy. is [indiscernible] guys. on This for

understand with the deal in your sort be pipeline to strong are been ever to moving into relatively access few similar Just pipeline volumes it’s pace a capital overall, How of the team acquisitions And to itself. and you to guys in over QX? opportunities of than very wanted being have easier we terms thinking about particularly should of to past the quarters, QX likely as we and XXXX? expect seen in

Pete Mavoides

Sure.

have I organization result, lot on invest to the direct the the lot transactions. way very we negotiations we is and of staffed investment assets transact in a And granular. as our activity said a really It single investment and infrastructure of level. in work, past, becomes takes and of and this current As constraint at a really, staffing organized

anticipate For the given as but of These able and found our we to two going we be somewhat were to anticipate wouldn’t run-rate. that and $XXX our some on, we have invested larger years, higher transact past forward. indicative million, a to I transactions elevated organization be X do quarters would last that to approximately staffing

Unidentified Analyst

another And in what noticed terms just had about then question, pickup guys drove you sort real quick, Can talk a of of sequential just increase? we receivable. notes that Thanks.

Pete Mavoides

Sure.

couple have to as characteristics we business, a loans we’ll part. be existing our going loans of to some It’s be our but transactions. small of to to part of it those did an loans we accommodation our quarter, the structure tenants. general, big sale-leaseback not do time tenants. to with a time a In During from our Typically, will similar

Unidentified Analyst

sort just a of sort write you particularly just with? curious those of during industry loans the I verticals am quick quarter follow-up guys, And Okay. and what did

Pete Mavoides

quick-serve well as the industry We quarter did care child this a in in restaurant the loan past industry. as

Unidentified Analyst

Okay, thank you.

Pete Mavoides

Thank you.

Operator

our We question will from SunTrust. with next Bin Ki Kim take

Alexei Siniakov

quarter between Ki today lower that you Bin. last it total wanted at of you Good ABR. count credit or XX the like to morning. This XX% lower? questions same can if had stores all, Perkins your you I that for a is store couple that changed? is maybe or related to Well, XX% and that the around rent the disclose of number the has filling old Alexei rent, clarify, in profiles? A X.X% stands is mentioned first of just talent new And differential Siniakov

Pete Mavoides

around. of specifics is the that into XX less Sure. X.X% during getting concession that asset And without XX. ended we assets than the that giving represents rent you recall it day, stronger, have sold denominator the concession both the the good then is up very negotiation, reasonable emerging But view, in rent And an duration tenant quarter. a a lease was, the tenant have with – at And lease in our much an the we in. the moving confidence of numerator the and get end that to we rent longer

Alexei Siniakov

know looks tenants what XX was XX for quarter, and And relates color no some can give percentage quarter? question it’s Sports ABR, second to last top I the the Thanks it color. is longer what it status International. my tenant like tenant Okay, Maybe this but top then that great. within the around of in Town is? you the the of

Pete Mavoides

are public The is exact now. guys the Sports percentage Yes. up Town digging Clearly, company. a

think I credit the people form own view can and So their going there. on on what’s

As we’ve X and a Town public. unit challenges, Latitude which did perspective, operator. subsequently with a was challenges they lease. by the Fitness, acquired From Sports. master credit was we said a in are We which those a sale-leaseback, did have a a was their X-unit past, deal That very

and So that of just kind and assets just And into sports. remain we the that top is we around bought as sit the we out master coverage our today, And X% XX. Town Sports confident of our we the lease. Town in of bought

Alexei Siniakov

on I kind coverage you former of Latitude those see. Fitness noticing any in rent slippage stores? Are

Pete Mavoides

stable remain they help. and No,

Alexei Siniakov

underwritten just that? that And Okay. part to seed after original of clarify that GE or was the was portfolio

Pete Mavoides

that That was originated subsequent to we GE. sale-leaseback a

Alexei Siniakov

Okay much great. that. Thank you it. so for That’s

Pete Mavoides

you. Thank

Operator

Brian RBC question take We’ll Capital with next Hawthorne Markets. our from

Brian Hawthorne

a individual on with new Ladybirds. you then a that and I property more or this have brand tenant question an assets relationship? a into had added that Hi, Was owned is

Pete Mavoides

tackle you Gregg, why don’t that relationship?

Gregg Seibert

had Sure. for time. We We’ve Ladybirds. portfolio had some in our them some

So assets XX known past. we’ve in already this someone with we years was business that to an done addition incremental It’s owned. and have the about

have a just we again, to this prior long-standing incremental assets quarter So done And addition an past relationship. past was in it’s years.

Brian Hawthorne

these are lease? trust properties of part master Okay. a And then all master or

Gregg Seibert

They right, assets. are a structure, be but they’re trust. master master lease our a [indiscernible] master lease Yes master not trust would

Brian Hawthorne

Right.

out guys Okay, competition, one one REITs. other any other there triple great. seeing the And from on net then you are increased competition

kind seen investment of have raise year, year? of We this guidance all the them throughout

Pete Mavoides

Sure.

seems as we’ve were increased that has I investment And think dealt the you go through quarter. earnings were everyone and it margin like people past. results in XX% deals that our of our deals sale-leasebacks competition the direct seasons, had the of deals with XX% certainly activity. at in heightened during with

the improving still only is incremental private competition, a and have that of relationships But we certainly. – returns. believe capital we so risk-adjusted model good some and And sector, the us well-differentiated allows to set investment not the public cost attractive generate across of driving

Brian Hawthorne

you. thank Okay

Pete Mavoides

Thank you.

Operator

Suisse. with Sam We’ll our Choe next question Credit take from

Sam Choe

Hi, guys.

the the know tightened like just what some wanted I But guys you investment pacing? for you’ve guidance So October get seen XXXX. on color to in just

Pete Mavoides

Sure. last I say subsequent XX-Q we filed of we million. would kind events, X $XX.X night, updates invested our and November our quarter-to-date, that investment in we’ve activity which through reported

Sam Choe

Great.

from capital space. but then the anything specific, assuming was And if great. that’s was wondering there I’m more that location I general casual saw? that away was mentioned that some think, there rotation Gregg you Okay, dining just

Pete Mavoides

Yes.

free liquid capital Gregg’s redeploy better. around to sites within are that that out to and brands – up to where with we that’s about that commentary portfolio properties may expectations dining one relates dining be within expectations to I the the is from it a could up with weren’t invest be to casual specific to as of the aren’t portfolio the that rotating and into tend is things performing be operators. our and guys to more And nuanced, that very be guys a and be – to but relatively us to well. this performing people of case. fine-tune up concepts our able like performing can performing the think or allow casual always operators move bit are and space rotation was And that But

Sam Choe

color. Awesome Thank you.

Operator

next Evercore Sheila take question We will our ISI. from with McGrath

Sheila McGrath

Acquisitions had in unit good quarter the a units, morning. Yes, XXX. investment lowest the were per average I guess lot that, of

Just wondering that if transaction one bringing lower? there with average multiple units, was

Pete Mavoides

brought Sheila. to million, quick-serve space it, loan have down, been average historical the that was of, there really I Yes, absent in think restaurant X closer call we that did we our loan, that would

Sheila McGrath

yield we similar that? should the is pricing about a it And of acquisitions how as loan, or think

Pete Mavoides

should loans you loan with with economic around seek program regardless is do an consistent earlier our so investments similar deploying my the structure. an sale-leaseback consistent certain to and generally – and accommodation we comments as where capital to we solely to create our of Yes, are profile that tenants it’s

Sheila McGrath

remind looks about growth, Okay. or how remind how an the And ratio us targeting payout us what about growth? XXXX AFFO think you on pretty attractive for can dividend Are guidance just should – we you you then think dividend?

Pete Mavoides

Yes.

to in it maintain said have payout a endeavor will think probably we it we adjust what look the that the and I ratio biannually range. evaluate XX% to generally is that would board quarterly,

Sheila McGrath

Okay, thank you.

Pete Mavoides

Thank you.

Operator

from button. still Hello, Alan Goldman your We Alan, Wai Alan, please check will Alright. take you question are our there? next with Sachs. mute

we’ll Moving John Massocca to go Thalmann. Ladenburg on, next with

John Massocca

regional maybe would in on in there maybe color versus of kind Just brands? franchisee touching you XQ national corporate and ‘XX. properties the be mix color again of provide of guess, credit restaurant helpful. then acquired Could of on I versus you terms the general properties So QSR kind some any maybe

Pete Mavoides

but it say, of a the of the did, chunk said, would that largely franchise brands or national generally, loan majority good I was was probably the it with we it. I As

John Massocca

provide Okay. the makes can then you dispositions color That sense. additional And in some maybe quarter. on

rate of it’s with disposition X.Xx attractive, a assets the pretty X%,X% coverage the cap Specifically, on but small sample just seems size.

And outlier? to of that there possible? is that bit maybe maybe of kind were an little think of repeat those a but forward, properties don’t you’re made going of numbers any that So, kind characteristics I exactly, those going

Pete Mavoides

activity. Yes. provide good we Listen, disposition a pretty think quarter-over-quarter John and on disclosure I

from range X with Looking X casual dining one restaurants, auto at cap of our rates disposition there child a care up one list, and X.X%. were carwashes, service X.X%

As basis have an get about a it, piece you pay from priced you attractively we real investors your right think for perspective, think if willing that. and basis as you to – of estate are

And appropriate. is equally piece important basis, that. metric, an people a real appropriate so having a And basis have of willing coverage but the to you if is buy estate in low are

John Massocca

specialized in or nothing there’s maybe someone opportunity redevelopment like that of So repositioning a attractive. property found a terms of

Pete Mavoides

range No and at said. those with industries No. low It’s a outliers as all a across a high across of – X.X%. I four X.X%

that. of nothing So, it was kind driving

John Massocca

in you washes Okay. both it just And car industry Zips quarter, by property were the then a is was or it the on the mentioned or view like they that looks you driven tenant, the sold specific?

Pete Mavoides

We continue to industry like the there. start carwash

We it’s purely a tenants will create time, that done like exposure our time continue we operating to to their and Zips, great with tenant, are growing. top they’ve business. XX job business invest growing sell From of their to capacity to continue and a to

capacity. up sale opportunistic an free it’s kind so some of And to

John Massocca

very it you that’s much. Well, Thank me. for

Pete Mavoides

it. we John, appreciate

Operator

Goldman [Operator next Sachs. to Instruction] Burrows with We Caitlin will go

Alan Wai

for Wai Caitlin. Alan on It’s

earlier, that were technology we facing some about issues. Sorry

I to a So, do this decline a cap the X.X% mid-Xs. into trend last and is year wondering in in you rates, rates XXXX? why continue been down from this on your acquisition quarter there’s downward cap expect was bit

Pete Mavoides

it’s say was to listen really the X over Yes, last quarters have X.X% quarter last cap rates would – X.X%. a X.X%. ranged our And from and down I

X.X% and the as quoting XX-year expansions there escalations think Clearly, space rates, more you’re GAAP well which from I multiple ranged has the they a in cap as moved have in incorporate been tight X.X%. the band materially. treasury has pretty to

cap movement past, industries is in the said on in range you the in transact expect And we quarter and than the low more of mid-X% As the a should to trend. a the tenancies quarter reflection I a we would any rate cash individual that to that basis. given say macro in the deals us do have during

Alan Wai

would the grade downturn. some your Thanks. That’s your who portfolio exposure perceived of from we this through some potentially important Could you aspects investors case go your a risk? concerned Because non-investment in risk have in to of helpful. of feedback tenants, the mitigate of that were more with gotten strategy

Pete Mavoides

take portfolio of better the have able to does that where buying margin also reflected one, inflated real allows tenancy more estate not together. have to really some sale-leasebacks but subject extent investing basis mitigants firmly more site our in can that. hour and also our master investment. the of statements we we’re directly get investment robust mitigate lease – I believers the provisions safety; that our are supplement unit isn’t portfolio. a compelling level us is of with range, disclosure a that strategy we that the fact and offers that form these two, in fact for investment-grade unit It’s equate It’s in couple on a provides in We are properties non-rated our an have pretty is our originating point our individual And credits mid-X.X% that to to view. tenants believe in we’re the Yes. the coverage and about originated loss investment-grade the not the doing level around risk provide nearly of an in it’s and return firm and a to that reflected entry our into fact lease in profit we and which, reflected but in And our reflected compelling of for safe that XX% risks XX% issues, sites lease

Alan Wai

very much. Thank you

Operator

over Mr. any no at Mavoides, this call back the left further the in are you time, queue. to there I’d comments. like closing questions turn And for to

Pete Mavoides

reported. the about happy really are we quarter we Well, just Great.

we compelling. XXXX, reflected which in the are with to to investors forward be at upcoming as we our looking for And We guidance, meeting Nareit. believe excited are

thank all your So today. you for time

Operator

today’s and Ladies participation. teleconference. this appreciate does your We gentlemen, conclude

You disconnect have may day. great at and this a time,

Essential Properties Realty Trust (EPRT) 10 Nov 192019 Q3 Earnings call transcript