EPRT - Earnings call transcript Q1 2021 | Essential Properties Realty Trust, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] This conference is being recorded and a replay of the call will be available 2 hours after 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 you. Thank

You may begin.

Dan Donlan

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

and Gregg Mark are today our Peter first Mavoides, Seibert, to our and President with COO Here quarter CEO, Patten, CFO. discuss our our

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

Peter Mavoides

And interest joining who to you today for us your Dan. everyone you, in Thank thank Properties. Essential is

was The all for solid first fronts. quarter on us

In as and them emerge terms great our demonstrated impacts of durability COVID the a XX behind from operators. portfolio, stability tenants stronger the and our portfolio pandemic of largely put the

support are us businesses, affect tenants, burdens to now manageable of needing continues these of pandemic form deferred in vast from the our with more While no longer the rents. the majority

needed restructure the the repositioning the first to as into a we of tenants pandemic. quarter completed leased of fourth largely the and Additionally, result properties formerly to that quarter,

relationships, to real to choice the the of the were for of driving continue as investment estate In investments, during industry capital activity us turn a terms partner tenants as capital strengthened our pandemic are which needs.

into the in we strong another first front. result, performance continued fourth of quarter investment activity on the record quarter level As that the with the experienced a

a During the lease cash quarter we yield with invested $XXX term. at XX of million over XX X.X% initial properties into years

were More on importantly, were our these and XX% XX% of direct repeat/relationship sale transactions lease deals form. leasebacks

the In leverage capital and markets to operate us our continue we attractive markets. within remain for terms well of range. The capital desired

the finished net adjusted quarter EBITDA of annualized with times. ROE Specifically to debt X.X

into our external However, declines our pro end, follow-on to ample when subsequent times, provides quarter's taking which account offering forma strategy. to leverage our to X.X capacity equity continue growth

pipeline occupied, balance to assumptions, our $X.XX focused our and we share well-priced offer believe on We to of robust were XX.X% accretive sources XXXX with Looking share quarter of capital and industries. our are of opportunity. the we attractive opportunities specificity. our sheet markets dividend increase properties vintage projected risks combined investment our year, leased return out covered in dig more to and total in double-digit anticipate our prudently guidance multiple managing remain in that to these per $X.XX. per We XXX AFFO X,XXX capital. new and our Based to operating investments well the the generate highly offer balance AFFO a commitment with with the reiterating portfolio and XX ended compelling investor in tenants To to portfolio to

next Our of our at weighted stood expiring only average ABR lease XX.X X% X years years. with end, the term quarter at over

slight was quarter's was weighted times, over three coverage a times. improvement X.X which ratio level Our unit average last

to do of year. and deferrals. see unit remain metrics the implied pick traditional As we level it shutdowns is rent programs Yet, statistics, encouraging trend. not rating related forgivable have previously the pandemic up negatively these and as mentioned, credit have credit been benefits skewed focuses coverage Nonetheless, impacted which last our they upward this on loan by

to continuing our to forward portfolio look we industries. middle targeted and operators through and growing sale add strong tenants with market to predominantly in leasebacks our properties remains direct pipeline Our

fully supportive flexibility. the needs that, growth will Gregg, maintain balance external order stay call sheet optimal While of strategy, COO. in our turn our With way remains to over I'll of ahead financial we continue to our our capital to

Gregg Seibert

Thanks, Pete.

provisions. XX% $X.X our lease form with From with which our and master requirements industry investment XX.X%. view weighted was Properties. industries and quarter, years. unit largest per of service early at dental our originated $XXX by cash properties washes million. of X.X%, business made early lease XX% investments XX.X industries lease During medical, average million remain property investments of leasebacks, quick auto as XX We segments in reporting annual separate to strategy XX%, level at coming X the our [ph] the our was X with at rent service through car weighted industry investments weighted first Consistent quick were dental restaurants, sale from coverage four X through weighted The activity was yield and for education times followed at and X%. quarter the perspective, escalation of our Essential term average of childhood service, first was transactions average medical, XX% these contained different an education. XX% These we restaurants The at are childhood XX% direct ABR, a quarterly financial X industries, investment over subject average ongoing Tier our invested were XXXX cash within

we have as distinct focus diverse, it specific remain we our industry the to relationships in as retaining competitive deep proprietary industry As noted our advantage and and view a us allows past, datasets.

resistant rental the sales, materials and equipment services, care building concentration see service, pet we and grocery. increases industries, forward, in Going continue pandemic occurring more auto like to

a which of XX the profits ABR opportunities no quarter perspective, ABR, and our Essential and combined both investment indoor and dining Properties. important end just down also accounts more begun and to tenant in This a is ABR our XX.X% differentiator expect vaccinations is top our and in the entertainment X.X% From significantly Conversely, casual we X offers traded of than rated X.X% industries restrictions theaters revenues direct concentration just tenant risk publicly our companies further our Increasing concentrated However, mitigation tenant investment a tool attractive XX.X% ago. have are at credits. opportunity diversity experience for benefit of X% of then capacity on years we rebounds which both which movie compares an more industries X focus, just is to as to market set relax, concentration a middle which strong states grade pursuing expansive strategy investment more note, now represented furnishings. increase. and our versus home to reductions Of years ago. exposure is and for

On decision back the point terminate a occupancy late mostly which front, Southeast. to property our in XX see X pull the a master we to tenant with March relates in quarter, an lease service did basis auto this

the Given determine our term. course and strength the for relationships, our of the was real in this long best the basis operator estate we of action

or tenants to underwriting better We these our is have recovery expect of speaks properties. to we on our desirability and historical terminations, quality either all re-let sites of which for replacement lease performance the or than of identified that and our consistent

only with As at of XX.X% today, our vacant X stands occupancy properties.

costs, property $XX including sold yield one average terms we in excluding a on properties, In vacant those net dispositions cash million weighted this of XX achieved for quarter and dispositions. When vacant proceeds. we X% transaction properties

With activity liquid past, That an allows mentioned the level moderate to in said, manage our future As portfolio. the we to and should industries, risk unit us. important have to discipline, the consistent balance investment more is take financials much quarter. only is with us as turn of fourth I'd Mark proactively for of disposition call levels properties to CFO our aspect tenants average, within it historical related behind Mark? the that, our who as will sheet restructuring like Patten, through the and COVID you over

Mark Patten

Gregg. Thanks,

in As and on in both a per release night, first Gregg remarks growth which basis FFO strong had results our by we evident and highlighted share revenue were noted AFFO great their a quarter, $X.XX. last our Pete and and was

impairment record the last full in $XX.X Total of the said, the of pandemic, which of million not maintenance our the we did $X.X following. directly the results to Some over more notable in time year, since first million of did should related with activity of vacant broadly forward. yield $X.X expenses property that charges million $XXX increase well weighted investment were total $XXX,XXX $X.X QX, at as reached quarter operating revenue single average for elements XX% sold our taxes for and a notable quarter, of first in We going onset of of recognized the That quarter a associated April XXXX investments COVID. $XXX a approximately level was cash incur be XXXX non-recurring that the XXXX, property our impact XXXX for an Difficulty] of this and re-let reported for the adjustments those furniture reflects approximately million QX million of or as in properties so of [Technical during property. a include charge level property our related have X.X% to few million results intra-quarter

Total recognized that was well services, as in $X.X a dispositions period costs the as and such year. the in reflected $X.X GAAP We reduced QX legal, versus That's also million for XX% certain in million Gregg which XXXX services. same outsourced improvement, G&A million asset mentioned last $X.X during as gains quarter. on professional audit

QX of XXXX which X% $XX.X and in favorable elements cost the G&A year. to approximately in continue XXXX. in favorably XXXX level We our percentage Net for recurring just to cash first million $X.X versus income was decreased to particular was over XX%, of during last was which XX% QX million year, G&A cash nearly our revenue, these up will that a expect QX was million total from G&A compared saw basis quarter, We XXXX trend last revenue. our QX quarter as notably $X.X a

or for totaled period of increase FFO XX% same $X.X quarter. over Our in That's $XX.X the million an XXXX. million the

a diluted the on Our share FFO per in basis mentioned as period a was I increase XXXX. over fully same X% $X.XX

basis per QX FFO per on quarter was for was XX% FFO $X.XX core and share the diluted a fully a higher core than share. basis XXXX Our nominal on

Our last AFFO for basis, a With that's per for the $X.X in QX quarter diluted totaling achieved approximately AFFO share the gross year, QX at sheet X% total are was QX end. at XX particularly end, was investing increase quarter XX% another $X.X million on balance versus $XXX per our million, $X.XX from fully properties, up quarter. XXXX XXXX. by quarter our That's largely notable the a with share. On team, to assets elements at stood following, regard our billion strong $XX.X million

result our additional cash balance This into investments. facility at elevated long-term nearly our of restricted debt available price cash million basis on the million support weighted quarter $XXX an credit our generated quarter, new perspective, a of an equity cash unrestricted million investment was deployment quarter million million approximately in robust of the $XX.XX was share. essentially $X shares average The selling to we in fund of from our ATM we gross gross an our end, proceeds $XX as the Our activity. totaled per on investment during with pipeline. attractive of slightly drew From increase X.X XXXX $XX for in first

quarter share As referenced $XX.XX discount. before the price to equity $XXX per million upsized proceeds end, we overnight Pete gross total underwriters executed at offering, an a of generating the subsequent of

quarter at million. total $XXX at liquidity Our end stood

adjusted pipeline times out net now continue basis investments. ample the both support investors moved to liquidity of offering pro existing increased and $XXX We forma pursue As from debt we EBITDAre the to to our release, have million. runway X.X appreciate new and annualized leverage in strong potential our on overnight to we pointed to our a as our

proceeds offering, the balance With credit the net of down the paid facility. outstanding we the on

we our in accordion due past not total loan XXXX. of and capacity million term an noted credit additional access that our include does current we facility available have our million that on the $XXX on our borrowing feature million could we've As through liquidity an $XX $XXX in of quarters, feature accordion

seen is that, liquidity We the for levered continue significant macroeconomic and height a turn growth, it Pete. quarters. a us platform of sheet low position hold to the the back over for pandemic that our a strategic just weather intervening we've balance and advantage stability challenging a to I'll not provides as of to view and environment these With during but such

Peter Mavoides

With Mark. the call open and operator, Gregg Thanks, please questions. Great. for that,

Operator

you. Thank

first with Our a We Choe now [Operator from Credit line of conducting will Please the be question-and-answer Instructions] session. question with proceed Suisse. your Sam comes question.

Sam Choe

especially just I March was strong. investment morning. Good of guys. was Hi, at kind just looking activity your seeing that and

like been lot under that the when curious wanted and pandemic that reminder standpoint, how or just investments you experienced PSAs to a So And has LOI. can the there since take know you timing does changes helps [ph] complete? that any of on its of long front? with generally I to those just on relationship-based be are How if the but for

Peter Mavoides

Yes. drives that assume timing. predominantly to should have XX our past, to the we a the deals often said gating Where we’re is contract the and have quick negotiate pipeline. lag for to vary. an day diligence XX item underlying we many cycle had may we've and days our generally deal diligence transaction are XX XX M&A a weeks, We've buying a competitor we that and cycle, a of that that days day Thanks, that in XX becomes three as Sam. sale about as lot you Generally, as XX operator by for But to then about leasebacks, months, given closed and a deals doing driven deals business closing. and another transaction on perform

Sam Choe

Got you it. And the able to the subsequent quarter? investments are how PSA, under much disclose LOI to are

Peter Mavoides

we of context about in the overnight that did context the of forward April, pipeline In that offering, in offering our our was disclosed don't. we which Generally, million. $XXX we

And my opportunities hard we're to and so drive be, commentary we pipeline have broad quality a I the working that close and would see we investments. full guess

Sam Choe

All you much, it. so guys. Got thank right,

Peter Mavoides

Thank you, Sam.

Operator

Thank you.

proceed Evercore comes with the Sheila Our of ISI. next from McGrath question question. your line Please with

Sheila McGrath

that? rate. page, in on the with lease the you the if recovery was to restructurings morning. could a line detail retail looks bit little item, leasing supplemental, on lower some Pete, just have us I good give wondering a Yes, of

Peter Mavoides

you're one by would don't Yes, our support and off is we have million first saying, would XXX certainly impact that. [ph] had largely leases. restructuring lot generally Art a that retail there to Sheila. of Van seeing numbers What I the of a of the start some generic

Sheila McGrath

Gregg Okay, great. think I And and… then

Peter Mavoides

Just tie together. that

was If you to Mark had that during commentary to furniture back we a related it quarter, go the on impairment property. the

Sheila McGrath

Okay, entertainment but thanks. there's more And you're cinemas. in not focusing that think I mentioned asset, pipeline on Gregg, then the

any would kind tenants that that So our on higher assets pandemic? what would now what entertainment and - of the rates include since cap

Peter Mavoides

Yes.

open assets, entertainment So to and those center, well alleys. and sectors as we're investing that what is, said I casual think some seeing selectively in both pipeline entertainment and as rebounded Gregg certainly in our family bowling as we're dining, includes have

really We fungible wouldn't also the our and uses - generally going use some quality have miscellaneous to And be keeping is But to of fungible those other granular special trampoline parks encompass not to type discipline our be and end so range. it industry and assets, in going that, at cap we're the our to at, properties, some keeping super-wide looking - assets. that for high average. wider rate it's operators having

And sure. think so low the be would that range, I X sector would in that

Sheila McGrath

you. thank Okay,

Peter Mavoides

you. Thank

Operator

Thank you.

with Crossett Nate of line the from with your comes Berenberg. question next question. Our Please proceed

Nate Crossett

Hey, morning. good

maybe a follow Sheila's to up bit. just So question on

that's the of your that [indiscernible] pricing sevens just kind now, on anticipating months we've in at overall up. though competition kind maybe is is place low saying rates pricing you're in the and pipeline comments the X And correct? you're as So back seen of then

Peter Mavoides

and pipeline in current Yes, see set have But activities We've continue of pipeline here and of have would of space of competitors us in choose year with see really despite up. we spiking transact of the range. low not restarted the think competition, and to a as full invest in us kind low certainly come expect transact investment competitors to seen that say, is seven relationships certainly the to a has expect a people have increased seven range and to sort kind half that. I we new and competition, that competition we and have result rates of abated to we you great that that the their and us should to continue as of supportive first

Nate Crossett

quarter helpful. I think have investment-grade pursue mentioned Okay, Fitch, on year. one one that's think you I last just funding then And side, you with another and the you this may

just that so stands? curious And I'm where

Peter Mavoides

an were agencies we we'll the know. have But dialogs provided update there on in and ongoing let an we’re If you that, with having. would somewhere, when we Yes. We're discussion get it. that's that

Nate Crossett

a difference now? is and mean, I have Okay. investment-grade money you there material what had to you if you XX-year price were I'll right say today then if to versus

Peter Mavoides

on that universe your on But give you think certainly have more validation market wouldn't but it investors then depends today of material markets you're granularity into. what more the there it, where given hearing the approach. pricing It that and you of a you be And more that think expensive difference. credit I the we're is are I which can the

Mark Patten

Nate, would the we’re I on on we not say, we our but sitting and any time a paying certainly when revolver the cash, raise And debt where preparing down recent with equity in not capital, do. and for need position ourselves us - -

Nate Crossett

Okay, thank you.

Peter Mavoides

you. Thank

Operator

Our [Operator of Instructions] you. Thank comes from line Haendel next the St. question

Mizuho. with with your proceed question. Please Juste

Haendel St. Juste

for Good you my morning question. taking out thank Hey, there.

Peter Mavoides

morning. Good

Haendel St. Juste

I It were first the So auto on in like tenant quarter guess drove first some issue starting prior occupancy service there dip. concerns. seemed the that

the basis [ph] on think accounting. tenant was I cash already

the the us quarter reason all. in is sub-sector to and at any there changed what concerned first So for about be

one-off Given this issue, this more perspective? in or tenant your is of a

Peter Mavoides

and see can over terribly some occupancy at really if not, about, get think going gave those and sector more would industries the business backdrop not whether trying impacted we're from from a is the it certainly assets. fine not to of invest COVID the normally say worked we Yes, concern, say, XX% the discern it would impacted broadly, doing in service as dip give gave really The certainly one of perspective. the all, I played doubt would, - you COVID-related really commentary is operator is any and I you and on shouldn't a pandemic the out was least automotive pandemic given defensive material we we and through the we to impacted bad that them call, or the was benefit and leeway than truly operator. I where we've their was tenants gave just

to a this put operator it we the place to in conclusion took bad operators to little need and us longer of decided so just to better And do. we that's guy and was why come a

Haendel St. Juste

talk bit re-letting about assets timeline more Got seven the And rents it, you we and can how a it. the think old maybe and new you're got versus underwriting? the recoveries for those about should

Peter Mavoides

market, not that, from an means, And the and specific management organized because a that go generally the sale running a it months. be asset. it's days, really and market vacant shouldn't Separate then or the may is just months asset but to processed find And process on for have to market and team six orderly prolong six meeting extent whether our finding you tenant, find that any the the the disciplined asset we deals than the longer find the fallout have marketing not for negotiation we're should is which replacement right. to it's the market. XX mandate Yes. process closing, than And to longer a tenant an

the history. experience. said we so really we situation with the good and would would we to my specific be be re-let around in on outcome the our view, And And past provide on on that disclosure as my expect our consistent expectation timing call,

Haendel St. Juste

recognize of for [ph] accounting, about period prospects Okay, in you or some you thinking reversing first tenants the on accruals. paying as well the fair are here of quarter prior rent? as some cash potential enough. because what recognizing Thanks. rents the And did and began tenants basis the for any you Any

Peter Mavoides

first. lot lot back assets a is of question, going a in Haendel. the There come tenants that of the online. that a throughout We will and lot repositioned into fourth A

feeling our they're you those puts of anything say, our tenants paying tenant and and are all lot a we're takes our and guidance of there's that. baked Dan and into base, generally about I us. takes revenue good or so and puts in But add what our and Mark, to And would

Mark Patten

from along mean, burned add I'd I the we think deferrals front, was off - what had on said I is deferral anywhere payback the months. XX to payout really year, on XX all the

we're substantially XX% collecting into probably all our basically we're of deferral So way the them. payments and

shape we're What front deferral paid. good on of in in pretty the defer. we terms getting agreed So to

Haendel St. Juste

Okay. And non-accrual? on

Peter Mavoides

to you into Yes, in stream, there beyond. year. non-recognized not I of I increase deferrals that mean, terms that wouldn't recognize the should the is which terms be their we did revenues, the bucket And of Haendel think in XXXX continue then but non-accrual until come expect earnings to in throughout collections or opportunity for to the later

Mark Patten

probably caught we cash catch the Yes. pay when up, mostly Whenever they or which us either - up. somehow would

Haendel St. Juste

you, to got and bit more you. I'll that, follow I appreciate with a get offline you probably up Got guys you. Thank color.

Peter Mavoides

Great. you, Haendel. Thank

Operator

you. Thank

Please Our next question Thalmann. Massocca Ladenburg with the comes John with line your of from proceed question.

John Massocca

morning. Good

Peter Mavoides

morning, Good Massocca.

John Massocca

particular, has start majeure looking the sector, new are in potential at post-pandemic, you thinking any insurance of et change kind to in just kind force you leases how deposit tenants, with As any cetera. of requirements, language been entertainment there structuring investments

Peter Mavoides

of we generally repeat No, business. lease not Listen, lot really. durable we're doing very a a I and mean, have

result adding properties the our tenants sector in in it. to leases not already of that we're And place and some we're pandemic. broadly So, in change leases, of that seen just the as more with we fact a terms have dealing the of new in

an investors sort in both sort nature of this XX operators and of XX once year of is to think I event change lifetime underlying that shouldn't recognize hopefully and a agreement. a the

John Massocca

[indiscernible] pricing the existed And some investment thinking headwinds a in kind reopening the things the that maybe tight pulling How space, balancing dining the some for maybe is about Okay. and other tough the feel given radar. get casual the it on operating pressures. pre-pandemic underwriting of then to you segment, of are some the of are side versus back of

investing about kind that in thinking of segment Just how holistically? you

Peter Mavoides

as into recovered. X and X we or we’re digging that performance history at and do site has has We're a think certainly performed, the foot P&Ls environment, in typically kind premises then years we're and square value real challenged rent also per site operating sale-leasebacks, paying, of And understanding our that charging understanding stabilized basis. of both in the through estate both on-premises, we're of and back of and looking and I the sources revenue, how how kind the off like. testing Yes, understanding

a hasn't but we're at underwriting And so terms guess, changed. the discipline really right more what I on sure our basis, that assets certainly basis and broad have to We in buying in of at, stabilized units data to are making and look we're do. healthy getting looking is

John Massocca

you it very me. from that's Okay, much. Thank

Peter Mavoides

Thanks, it. John. Appreciate

Operator

Thank you.

the Chris line Our next One Please Securities. from question. comes proceed question Capital with Lucas your with of

Chris Lucas

Hey, morning, guys. good

a on of early childhood the, business. education just quick line one Pete, Just

a what pre-K how Just the the several proposal terms curious quarters. have thoughts president's either as of may that performed business? or a any kind in whether on as business that as of guys to you And to curious in funding last over tailwind I'm to headwind then, do

Peter Mavoides

Yes.

to COVID shut the the XXX almost were recovery, guys to in in occupancy, disclosed, XX% quarter I maybe rebounded fourth childhood operating but occupancy the operating space XX% we've and those impacted severely lagged quarter, profitably pandemic, we are as first. think in sit and as here it and full with and in second our that the and XX% disclosed, was into kind the the early terms of call occupancy as and So paying in third we by education also open sector of today, collections

guys So those doing are open and and operating. well

there subsidies, are are the not or that that be majorly government the own more initiatives businesses of for only real extent more and subsidized, is operators and most profit ability that up we our think the to and globally, I education, terms it - for own to they childhood In driven fill that for for operate. they and early childcare estate by really the supported demand operators of a but benefit

But needed needed, it think a it'll we think think clearly, tailwind. a be or nice don't plus. operators I our we So be I

Chris Lucas

Great, thank I you. all That's had.

Peter Mavoides

you, Thank Chris.

Operator

today's like management to floor conclude does to comments. back the That you. I’d Thank session. closing question-and-answer for over turn

Peter Mavoides

you all very thank over look Well, with weeks. the Great. engaging you to guys much. next forward several We

continue a and non-deal we As up here excited all. have in we're of to second the to Thank execute roadshows coming you, couple quarter.

Operator

today's teleconference. concludes This

may participation Thank your your a and day. have lines disconnect You now. wonderful for you

Essential Properties Realty Trust (EPRT) 4 May 212021 Q1 Earnings call transcript