EPRT - Earnings call transcript Q2 2022 | Essential Properties Realty Trust, Inc.

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Operator

Good morning, ladies and gentlemen, and welcome to the Essential Properties Realty Trust Second Quarter 2022 Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of the call will be available 2 hours after the completion of the call for the next 2 weeks. The dial-in details for the replay can be found in yesterday'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. you. Thank ahead. go Please

Daniel Donlan

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

are and me Mavoides, our with today discuss operating Here to CFO. our and CEO; results President Mark Patten, our Pete

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

Peter Mavoides

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

our at our our and to rent high now at a of level highest X portfolio with rent unit-level quarter indicate, just As perform level X.X% vacancies, coverage continues history. same-store results in the second growth

the derived a ABR economic Additionally, the our but in and continued for environment remains demand portfolio of slowdown with strength service-oriented as XX% is for data current the consumer experience-based recent indicating positioned well in demand over in discretionary goods, from services, businesses. our

allow to reset remained in changes quarter. deliberately our long-standing relationships, the rapid did tenant markets front, expectations that slow investment our better this we to pace capital but the in active the occurred of support On to investment we seller

higher $X.XX pace from half of we supports rates, $X.XX. to unsecured of cap closing average to trending which, $X.XX modestly the of at out range investment a million to to term loan, share year, Looking guidance previous with our increase our a AFFO recent along of trailing towards XXXX to the X-quarter per our range the $X.XX see $XXX decision our our back

portfolio. the to in XXX investments quarter with X,XXX were to operating Turning the XX properties We industries. XX.X% that ended leased tenants in

Our weighted stood expiring with ABR through XXXX. X.X% years lease only of term XX.X at average

average to last improved X.Xx unit-level coverage weighted Our ratio X.Xx quarter. from

various traditional own our which placing credit quarters; one, credit ratings are capacity negatively industries unit-level quarter, and convention, implied still statistics restrictions sequential statistics, experienced XXXX. reporting fact and improvement to While X strong our on were focuses by into X reporting that lags two, municipalities trailing these our on by, certain which skewed XX-month coverage, this the well

first of year. statistics the demand We experiences that of continue into low coverage improved particularly for at throughout our end largely as XXXX the to expect and the these services the sequentially, provide improve and to tenants this spectrum half

level lease term childhood second quarter, remains of subject at years. account largest ABR, due carwash coverage offers our investment $XXX tenant quick dental direct pricing weighted for X%. experienced largest a During benefit us, made through as requirements a cash weighted we were of XX% tenants quarter. investment industry opportunity average on XX.X%, activity and sale our unit-level with end, the is the unrated restaurants and car power is it represents XX X.X% and and ongoing with note, From early industries. form through at was transactions have escalation education in set. levels and Increased yield a washes middle was which with our medical originated focus average to at at of an ABR contained early average financial XX% Consistent service X.Xx our and of for service investments mitigation The the million down quick was risk lease were was strategy, and concentration an provisions. investments strong These perspective, for our quarter education weighted $X.X entertainment last per X.X%. XX.X% different industries property unit by of reporting our our quarterly was expansive master industry million. separate direct invested XX from basis operators top quarter family tenants market which XX.X tenant to only versus weighted coverage childhood pre-pandemic restaurant, operators, of The and our our leasebacks, average XX% perspective, are important lease average XXX% at which at coming this our of supply-demand annual our a our investments XX.X% an XX of differentiator now favorable points XX.X%. ABR, and portfolio diversity XX followed tenant just From is above Of imbalance. tool The

quarter weighted a proceeds $XX.X X.X% in of for a In ratio net cash average sold coverage we this properties yield average terms million at unit-level of X.Xx. dispositions, with weighted X

liquid us industries, we an mentioned proactively investment of and unit-level portfolio. tenants discipline risks to our in the important past, manage as aspect is As properties have within owning the it allows

year call that, dispositions expect individual the granular Patten, to our historic We balance near Mark I’d remain quarter. CFO, to sheet who and level take Mark? financials the in over With the like as turn lows. the remain back cap our you second rates through of for half elevated will properties the to of for

Mark Patten

Thanks, good everyone. Pete, morning, and

Total for reported strong XXXX of of XX.X% activity Total as another impact million an $XX.X the was operating XXXX was notable up QX for the occurred toward weighted end output beginning certainly the our base. our dispositions heavily quarter, was results noncash which higher to the last which was XXXX, quarter, over quarter. investment that or of quarter of just versus mention us, of reflects our the quarter quarter stock revenue of same toward totaling $X XXXX, are second for tenant same versus back our $XX.X compensation I'll the XXXX in expense. this second million performance million the of elements activity million more period The the while of investment net was was the The performance $X.X follows: the for quarter contrast our portfolio. in and reflective G&A in of our which period in QX asset primarily

were Our our cash approximately in moved incentive QX $XXX,XXX, to from XXXX XXXX lower included QX elevated adjustment in of compensation sequentially XXXX. impact I conference our by in G&A as lower QX payroll-related accrual XXXX which, the and mentioned costs, the QX call, which

to X.X% Net for percentage XXXX quarter. at $XX.X income million for versus QX QX a Our in X.X% cash favorably of was coming in as XXXX. G&A scale continues basis total just the revenue,

XX% the totaled million increase FFO fully Our for XXXX. over $XX or the in diluted period same share, $X.XX a per quarter

was Our diluted million on nominal basis per which $XX.X share of XXXX, QX a quarter, an AFFO XX% the up for $XX.X totaled in versus XXXX. fully period increase over million same $X.XX, the

Turning our to our solid perspective, at $XX our balance quarter following. during sheet, proceeds quarter $X.X second approximately of ATM gross the we generated another net the end. reached I'll assets program. million billion With quarter income-producing From on of highlight investments, an equity

We we funded dynamics at X.X-year quarter term end, term loan term lighter was At million recent closing, the Subsequent $XXX an partnering group the with quarters, million rates. $XXX capital to the asset of term recycling and attractive in closed We Our loan million on million generated as appreciate sales at executed from greatly loan than on of in of credit but plus $XXX in $XXX we a rate liquidity XX challenging ATM fully loan support to facility. also loan. was company is the to this term a the available the through our due with loan our term completed equity draw markets, the through activity X-month the SOFR basis. get part repayments. The floating basis delayed points. prepayable lender remaining amendment

debt adjusted is term to We total was the loan, $XXX EBITDAre our to X.Xx us balance annualized at outstanding and liquidity, net $XXX revolver. on to remaining loan million term off our the million approximately pay quarter the the funding utilized from end, on available effectively $XXX including million. the Our

supportive sheet future to and and Our position, significant be pipeline investment liquidity our strong conservative plans. balance of leverage growth position continues

call current Pete. reiterate performance for outlook turn share back XX% us and Pete range to guidance basis Lastly, $X.XX a to year-over-year this that to mentioned, a with that investment midpoint. pipeline, strong quarter increase the the the AFFO at $X.XX growth the over per I'll core portfolio that, With to provided our I'll XXXX implies rate which our

Peter Mavoides

Great. Thanks, the questions. open Mark. Operator, call for please

Operator

from of first McGinniss Instructions] Greg is [Operator The question coming Scotiabank.

Greg McGinniss

in historic that mentioned rates you cap remarks the near Pete, remain lows. opening

debt rates potentially costs in think may change you up. right? do gone year? expanding I obviously the mean what half curious, see back of cap the Could Just have we that,

that cap So whether think change? might is just rates holding curious you what the and

Peter Mavoides

dispositions Greg, for Yes, I our comment made that assets. for in of that. thanks the context in market our really individual the

So we commentary closed is made see sold the pipeline. very It's kind X% modest in different back expectation yield a interest forward properties XXXX in that's market tax think necessarily year at our cap I Obviously, rates expansion rate, retail half really and things. And to of and other granular our entirely our hunt of a investor correlated remains and around driven pipeline the tight. some the by deferrals into increase also for market That cap to market. there. dynamic that is and being a I for not rates.

And so interesting an it's market.

deliberately reasons back where see and pricing expect the was through one we to -- in of the to in are in pipeline we buy movements our the rate, we to the We of up slowed and that allow flow catch assets quarter the half. would to

Greg McGinniss

this now, list? in to your a then the impact basis. on you might XX-month are metrics credit to starting at improve a to or tenants tenants? I mean, environment terms year continue the trailing your in having potential And recession all of some loss right whether strong on look look those not pretty that your and we're thinking to Okay. and in tenant be of are any watch you current see credit about going or But

Peter Mavoides

the And haven't levels through stress portfolio and tenants and in number the the that all-time this of well. seen the performing is rebounding we COVID test operations weakness these underappreciated one flow and really through. really of and -- rightsizing said went their that's are prepared is And in times and fact, a in from with the of the we shape the think portfolio things high at I remarks, any No, that. coverages great of is

we're our are not any really job. anticipate tenants doing nor cracks do seeing a so great and we And

Greg McGinniss

Chicken York. one New Okay. looks And and amazing question, in comment, a want Pickle N concept the just not a but then I

Peter Mavoides

basis the great good a They've want are York, to legs and I got that New know great would are has talking resonating it. city, a guys cost really it in you're we that concept those they expanding that to if that's about definitely Well, operator. some put the concept but don't and would

Operator

is coming The from next Nicholas Citi. Joseph question of

Unidentified Analyst

It's Joseph. Corey are at [indiscernible] by disproportionately a I’m you seeing market? question Nick how the just Are like looked shift around… [ph] comment demand? curious, impacted I actually with pipeline. rising that just that markets on is commentary rates, you by impact on buyers’ transaction have Could with on buyer some

Peter Mavoides

I question. tough with time had a that

You Can you really the can up. question? No? it, you you Did say Dan? catch broke repeat it,

Daniel Donlan

and [indiscernible]. rates cap like feels It

Unidentified Analyst

had can it. markets [ph] rising if you curious just I'm I on buyers? occupied insight to just rates repeat any

Peter Mavoides

a that mean through. much we it's -- haven't market And that market, a XXXX I I in and not of but national investor the assets, class certainly by we that much and is flow asset the in dispersion No. geography. Yes. sell market, really in haven't purchase seen as retail as seen there's upon of price wide material based the in rates changes the pretty the well

Unidentified Analyst

the Got you any around impacted are of lease deals, of maybe a or conversations your escalators? it. some escalations newly with tougher macro inflation backdrop? to changes impact lease And in signed that then Has there know,

Peter Mavoides

have it's really And doing repeat where quarter really a guys the how already negotiated in we into where with creeping we're percent is It hasn't. if narrative. XX-plus any of business, lease, what about business you operate our think not we

we're first this time in recent XX XX-year And negotiating doing for so dynamic. leases, spate of years and really inflation hasn't the that changed

Operator

coming is Haendel question next The St. from

Mizuho. of Juste

Haendel St. Juste

guess, type portion So Pete, the trying contract the – for to obviously remember historical the quarter? third what’s guess still I What deals $XXX under I for the is this, think, trend. the quarter a LOI. you the had, second in is little I the million in pipeline, understand bit pipeline or below of I volume of

at it? color in for pipeline deals half on pipeline? of new you’re categories? as the Any So you maybe some I’m curious give And these now if us the part that are what’s looking second can

Peter Mavoides

XX-day we nature usually a beyond deals say, timing. Haendel, we're the represents and that some And even and transaction of that forward of can very is where given investments, dynamic our as can uncertain well a some look pipeline -- the extend Yes. M&A supporting has

impossible X-quarter say it's the year. expect The average of in half exactly in the so to back to the return call was investment the to our we that And commentary percentage. levels the

would number. And from you've when business and you're are done doing reiterate, XXX-ish And supports would the those the -- And And the and deals portfolio so relationship I new. repeat pipeline of it's that suggest in past the coming a that XX% deals business, your relationships. then nothing composition pipeline, in commentary. again, sort certainly of that there's terms the really of and

like is margin. noteworthy, some really cap rates we for expansion the by design, pipeline in the a to and own the at look but there's So lot what going nothing

Haendel St. Juste

in Great. there. could But maybe wanted cap Maybe you more these the a one about to on understand a all? what maybe – understand bit days. And is late sold than it’s rates, A expected. incremental dispositions. rates expect? talk source level should The lower at the the cap capital bit the sell in of we the assets I I decision influence we rate volumes of cap that the to you quarter, that did level so

Peter Mavoides

it the and design in movements kind Listen, capital on that material by And the a reflective cycle a timing going we of terms picture. wildly. financial we vary the quarter as is the of kind half the think foot of sales part during of anticipate just of not the rates dispositions our result that Yes. lean are of in in in the rates end dispositions the cap our towards And in quarter. staying of back decision on year. dispositions of recycling I saw to front it’s to of to puts The

So guide kind transact lower and I the that expect range below. generally rate. I you somewhat of at that I that around the that make than much Citi beginning market did movements robust, would commentary would it’s asked wouldn’t in printed, about saw remains of that, we disconnected X% from or but pretty

movements we off realize as well a don’t hold so for real rates rates despite there’s in interest that And assets into cap and disconnect those us want the and sell of to rates long-term on the to selling basis. kind that as a

and us So the liquidity we this of built into the portfolio is at an the us important as important risk and capital, of mitigator half back that to year. should look the expect for you tap source we

Operator

is The coming Evercore. McGrath next Sheila of from question

Sheila McGrath

here? lease rates a experience, or borrowing depending you points borrowing net Or company, with the lockstep based costs on that expect are do the in more. up, just costs I move you XXX in Pete, basis on your XX, sector, lag rise? wonder, cap if think can

Peter Mavoides

always usually a through a certainly I which right, about made is your pipeline, pipeline. of the think clear lag, kind Well, commentary there's I XX-day as you

So that I cap. were you the were at above we're to why look committed one the our second print a back $XXX that's why reasons prior guiding the million quarter in deals Xs half. largely and think here movements and rates to at in X% Those we that is to low of

in movement little and the -- in in a little rates move there's a rates. same muted. of lockstep interest And there's So lag but generally, takes cap direction, certainly cap it's a it they not And a just movement while, the do rates. to

Sheila McGrath

hasn’t X%. couple level of been rate for then tweaked for that at cap back And Okay. years. to It a acquisitions the GAAP

current able annual you were to escalations? higher originate Just product with wondering,

Peter Mavoides

And would that deals also a goes XX.X that's what originating what lockstep That years. with well. at indicate. that long was. that's -- Yes, WALT would so that it our longer as little being were were We

Operator

question Josh is next The of of Bank from coming America. Dennerlein

Lizzy Doykan

tenant to to you rent This wondering coverage ticked credit explain X.Xx X.Xx question the is the Josh. Doykan Back why for quarter. on I was about on from quality. could last Lizzy down if

explain that? could in the you trend If

Peter Mavoides

trend focus is trend our more the Yes. I to not on say overall in-quarterly individual overall the not of the would investments. -- our portfolio, important

number widely quarter the that industries by the types overall our made to quarter-to-quarter. it portfolio's mix we is expanding The by bigger a portfolio heavily that during property the influenced are so highest and has that specific small And X.Xx overall coverage deals that that Xx, from heavily of those is investments is really which influenced of for the and been. investments we the percentage do. the And is very vary trend and

Lizzy Doykan

just for conditions, wondering thinking acquisitions. been changed But you’re around my have It seems change track and for outlook I’m has on quarter you about your changed the haven’t And second average. new given thinking there trailing to the in if be that, X underwriting question, Okay. your for all underwriting? you any how

Peter Mavoides

there's questions within and One is guess I risk, Well, the that. business. really, inherent managing is growth underwriting two the and there's the business in two

tenants evolved in that and change. in evaluation to it and -- has likely this Our underwriting has not decades of class not changed risk our nor investing asset does over is

invest of grow lot that And year. been, relationships the isn’t of great and earnings. of our lot – terms us it were frankly, it’s the competition, still build as there’s and cost quite has of seeing formed while less opportunities our bring have a of and attractive, this continue a to with earlier to that out shaken has we capital portfolio pace market In volatility acquisitions, the competition you where we in opportunities

that. to going continue about the feel in to and here back deploy the we’re And so we seeing what towards capital we’re year, good of half

Operator

[Operator is of Bin from Instructions] next Ki coming Securities. question Truist The

Ki Bin Kim

– have raise I any debt what swap it if floating the and that you just cost plans about like? it’s believe you guys talk could look to you still did? Can

Mark Patten

do. it in that is funding lock said fund our for leverage unsecured that really strikes leases, that Thanks that certainly dislocation match we've But to to that Yes. we philosophy an start I'll to market. just question. our plan time see what the saying long-dated not we with long-term us is before given the opportune consistently to our now public which debt in

So we're not prepayment around why really loan really term of swapping our the the preserves optionality long capability. that's And sort there. X

Ki Bin Kim

would if If you be this the me though, what rate did of satisfy just kind type – can it swap market? of curiosity in help my you

Peter Mavoides

on ahead, do Dan, get you that? what Go

Daniel Donlan

X.X% now, a Bin, right around It's on Yes. basis. Ki X-year

Ki Bin Kim

And those it’s tick guessing do higher, for Okay. sort asking, would as you’d first? and assets that of to So cap rates And typically the all I’m types do you’re I’m cap be things be types up all loose think you going of interested not buy, as those to right? that move categories together, in? looking for rates would of assets shakes What be guess I things well? upwards

Peter Mavoides

Yes. on invest with sale-leaseback know growing that deals Listen, way we we our relationships and have to is relying done past. within it's the XX remember, -- industries, targeted providing capital largely in the operators

based price are the with two capital deals of factors. those is of competition, on competing Our competition the and really our One competition is sources. level two

what the price financing largely that tenants financing expensive And counterparties, sensitive. more our of so less less or capital, or extent other whether To forms compete it or sellers, be our becomes against our available, we unsecured capital are have you. mortgage

invest cap we’re investment-grade our our lease modest all of to ability the move like so seeing forces industries. cap a sets, rate the highly dynamic where we’re across at We entire – existing move across rates competitive auctioned in albeit a opportunity But we And situations the down, deals. to remain there’s rate. opportunities we that all that the continue to in cap ability avoid competitive seeing spectrum rates

Operator

from is question Massocca next The of John Thalmann. Ladenburg coming

John Massocca

disposition the was like on front, capital of Just loan the prepayments. of seems receivable kind based it a lot recycling on

lumpy what near the these quarters? of of last prepayments -- -- to the term, in big kind medium curious Just that three slugs given for is the more of last kind the tenant two kind of outlook you’ve of of had in

Peter Mavoides

$XXX-ish million. start would book is I loan -- our modest Yes. pretty at

we and -- it's of capital payoffs we but the We big the in that as there's control alternative expect on this to saw some I continue ton. would loan source repay. the quarter, not really it So or not get some those, as a back borrower half in don't decide depends year. level. to when at Probably they

So out comes comes it it's when -- it out.

John Massocca

kind bigger of Okay. forward. in picture, kind maybe of at or pullback, economic And with an going then and least recession people’s outlooks minds

As economic feel maybe middle your back mean transactions? economic because as you cycles, a and do activity? expand correlated or kind to maybe? you of in Essentially of how your prior to you your a through how deal in reliable credits, an sale-leaseback if experience that to kind maybe the there to think look is tenants either do it’s market consolidate? forward, of the in you’re in aren’t flow think market with do confident look flows kind you Or is capital that immune you position or of I slowdown, source

Peter Mavoides

immune is of and our our and somewhat the out of within to experiences our service the industries are investment a relative focus would tenants are we large and say go of our market and would our services a trend and cost we set. And one and I And great economy I set opportunity also well. the to doing with do industries well. alternatives. opportunity so of to is pretty experience-based modest industry that really continue the XX to are lot that point fighting relative spots volumes bright those capital to Yes. so because

And raising a so kind that’s guidance we’re of the of our our maintaining sunny is one what and why guidance completely outlook. despite not reasons

Operator

Capital of question next from One. is Lucas coming The Chris

Chris Lucas

back median issues. assets you of sort sold credit to are going thinking sort as some that the of kind mix just of well being disposition about a in mitigation maybe X risk quarters, of of appears to reviewing coverage-type the what guys more kind trailing low be as there’s of and pool just Pete, last terms

is that you pool? risk think curious fund you’re that into when about goes what pool of drives value Or I’m it disposition the guys acquisitions, at to mitigation? just it looking So is to sort relative as that

Peter Mavoides

to I there's meet long-term the for the when hit and really it's an that for off and value and goes assets is bid. that -- horizon we'll hold interesting them our get just by relative that part, it's would investment out. lease we're overall position. on asset on a a But price where more we'll But selling but our establishing occasion, the not assets large, the relative cute, be just that and position around risk offer assets affects an mitigation on and just moving more and dynamic it's remember, don't risk thinking we're a or rent -- a selling of master it's risk out And unsolicited on value, On specific mitigation. mitigation. that offer the way the most inbound to say charts

Chris Lucas

bit rates recession, to understand, interest as just a with about guess, down trying Okay. I’m cap in that increased I couple at? specific to to you’re talk relates seen looking it’s flight sort Obviously, to there just weeks. come I I of quite concerns last the benchmark a rate the its impact we a – the want about XX-year, is – that sure then of you’ve a guess And and rates. just make it on

we talking really Just curious that rate about about? what kind What when drives in potential think of cap are you move rates?

Peter Mavoides

nature best space to the asset fund liquid XX-year in underlying this the just XX-year. of of the and match to the becomes long-dated class think and nature proxy debt lease this term. the really looking Most given the are similar term I investors

becomes best And so the XX-year proxy. I think the

Operator

closing back the to this over turn time, like to Mavoides At for you. Thank I'd floor Mr. comments.

Peter Mavoides

you today summer. and in participation company. questions. interest our have for We your Well, Great. your a your all Thank appreciate you. thank everyone, And great

Operator

and concludes thank gentlemen, This for event. you today's your participation. Ladies

You day. at enjoy may time, and this of the lines disconnect your your rest

Essential Properties Realty Trust (EPRT) 29 Jul 222022 Q2 Earnings call transcript