ESSENTIAL PROPERTIES REALTY TRUST, INC. Q3 FY2024 earnings call

Pete Mavoides highlighted that the portfolio had strong operating trends in Q3 with high occupancy, healthy same-store growth, and improving credit trends. 79% of investments were from existing relationships. They established 2025 AFFO per share guidance range of $1.84 to $1.89. Invested $308 million through 37 transactions in Q3 with a weighted average cash yield of 8.1%. Ended Q3 with 2,053 properties 99.9% leased to 407 tenants. Declared a $0.29 cash dividend with an AFFO payout ratio of 67%. Retained free cash flow was $26.8 million in Q3. Income-producing gross assets reached $5.8 billion at quarter-end. Mark Patten discussed financials: AFFO per share was $0.43, up 2% year-over-year. Total AFFO was $77.9 million, up 17% year-over-year. Cash G&A was expected to be between $28 million and $31 million. The balance sheet showed income-producing gross assets at $5.8 billion, expected to reach ~$6 billion by year-end, and active on the ATM program with unsettled forward equity of $626 million at quarter-end.

Established 2025 AFFO per share guidance range of $1.84 to $1.89, implying over 7% growth at the midpoint. Expect to invest between $900 million and $1.1 billion in 2025 at approximately 25 basis points below the pricing achieved in 2024. Cash G&A is expected to be between $28 million and $31 million. 2024 AFFO per share guidance remains $1.72 to $1.75.

Tenant concentration risk with the largest tenant representing 4.3% of ABR and top 10 tenants accounting for 17.7% of ABR. Potential cap rate compression due to capital market normalization. Volatility in interest rates and capital market conditions posing risks to investment and portfolio performance.

Q: On guidance, why provide acquisition guidance now and sustainability of AFFO growth?

A: Pete Mavoides stated it's a natural evolution due to more predictability in the pipeline and stable cost of capital, with a robust business plan for 2025 but short-term focus.

Q: Bad debt or tenant credit assumptions?

A: Pete Mavoides mentioned a watch list for tenants with credit risk B and below and unit level coverage [1,5], with conservatism in guidance and historical credit loss ~30 bps per annum.

Q: Funding side, when to use existing forward shares?

A: Mark Patten said they expect to settle forward equity in Q4 for investments and revolver paydown.

Q: Disposition side, driving factors and buyers?

A: Pete Mavoides said to manage industry concentrations, lighten on car wash, redeploy capital, and sell assets with tenant risk, with buyers being third parties and local/regional 1031 motivated.

Q: Remainder of 2024 acquisitions, M&A opportunities?

A: Pete Mavoides said there's a lot of time left in Q4, with an eight-quarter average ~250M, and M&A supports tenant relationships.

Q: Cap rate compression, ABR coverage?

A: Pete Mavoides said competition may return, and ABR coverage has idiosyncratic ebbs, with an early childhood education operator turnaround mentioned.

Q: Investment terms, rent coverage?

A: Pete Mavoides said rent coverage depends on industry mix, not much to read into step up.

Q: Top 10 tenants, movement?

A: Pete Mavoides said diversity, new entrants are long-term relationships, and movements in the top 10 are natural.

Q: ABS, CMBS competition?

A: Pete Mavoides said ABS structured bonds are wide of corporate, more capital in net lease space, and competitive on smaller transactions.

Q: Cash G&A guidance 2025?

A: Mark Patten said it's a reflection of investing in the platform, normal inflation, and timing of hires.

Q: Dilution from treasury stock method?

A: Rob Salisbury said headwind ~$0.01-$0.02 in 2025, impacted by unsettled forwards.

Q: Car wash diversification?

A: Pete Mavoides said it's portfolio construction with a soft ceiling on industry concentration.

Q: Acquisition guidance, competition?

A: Pete Mavoides said conservative approach, with capital market normalization leading to competition.

Q: Tenure, competition next year?

A: Pete Mavoides said tenure volatility, spreads tight, and competition may reorganize.

Q: Q4 AFFO guidance, dilution?

A: Pete Mavoides said $600M unsettled forwards impact Q4 AFFO guidance.

Q: Competitive environment, tangible signs?

A: Pete Mavoides said overall sense, with spreads and tenure impacting competition.

Q: Restaurant portfolio performance?

A: Pete Mavoides said large operators affected, smaller regional operators less leveraged, with topline sales pressure but margin expansion.

Q: Unit level coverage drift?

A: Pete Mavoides said it's specific to industries like building supply and equipment rental, with varying impacts.

Q: 7/11 in c-store sector?

A: Pete Mavoides said 7/11 is specific to that tenant, with no systemic issues in the c-store sector.

Q: New relationships in portfolio?

A: Pete Mavoides said 20% new relationships, sourced through industry events, with an 80/20 mix of recurring.

Q: Headcount for underwriting?

A: Pete Mavoides said it's a constant process with ongoing hiring and investment in infrastructure.