ESSENTIAL PROPERTIES REALTY TRUST, INC. Q4 FY2024 earnings call

• Relationship-driven investment strategy: 79% of investments in Q4 generated from existing relationships.
• Portfolio performance: Tenant credit trends healthy, same-store rent growth 1.4%, occupancy 99.7%, collections 100%.
• Balance sheet: Pro forma leverage 3.8 times, liquidity $1.4 billion.
• Investment activity: $333 million invested in Q4 with weighted average cash yield 8% and GAAP yield 9.2%.
• Dispositions: $60.4 million from selling 24 properties, reducing car wash exposure.
• Updated 2025 AFFO per share guidance to $1.85 to $1.89.

The portfolio had 413 tenants operating in sixteen industries. Weighted average lease term was fourteen years at quarter-end. Same-store rent growth in the fourth quarter was 1.4%, occupancy was 99.7% with seven vacant properties, and collections were 100%. In terms of investments, $333 million was invested through thirty-seven separate transactions in the fourth quarter at a weighted average cash yield of 8%, with a weighted average initial lease term of seventeen point seven years and a weighted average annual rent escalation of 2%, generating an average GAAP yield of 9.2%. Dispositions in the fourth quarter included selling twenty-four properties for $60.4 million in net proceeds, with approximately 70% of disposition volume in the car wash sector, reducing car wash exposure to 14.2% of ABR from above the soft ceiling of 15% last quarter.

• Updated 2025 AFFO per share guidance range to $1.85 to $1.89, a penny increase at the low end.
• Expect investment cap rates in 2025 to be slightly lower than 2024.
• Investment guidance remains $900 million to $1.1 billion.

• Competition leading to modest cap rate compression.
• Exposure to Zip's Car Wash filing for Chapter 11 bankruptcy, though exposure reduced from peak levels.

Q: On tenant credit, talk about Zips bankruptcy and car wash segment.

A: Pete Mavoides discussed Zips bankruptcy, reduced exposure, and car wash segment's performance.

Q: Expand on increased competition seen.

A: Max Jenkins noted increased competition from peers and new entrants, slight cap rate compression but favorable transaction environment.

Q: Impact of interest rate volatility on business.

A: Pete Mavoides said interest rate volatility doesn't impact pricing as deals are priced 60-120 days prior and capital is raised in advance.

Q: Dispositions in Q4, reason for moving forward.

A: Pete Mavoides said mostly portfolio management and risk management, reducing car wash exposure.

Q: Capital side, equity issuance and guidance.

A: Mark Patten discussed equity issuance and guidance, using free cash flow and unsettled forward equity.

Q: Acquisition volume cadence.

A: Rob Salisbury said historically Q4 larger, but ratable going forward.

Q: Consumer behavior feedback from tenants.

A: Pete Mavoides said feedback delayed, data on a one-quarter lag.

Q: Occupancy moderation and bad debt assumptions.

A: Pete Mavoides said occupancy moderation natural, bad debt assumptions built into guidance.

Q: Car wash industry pressure, broad-based or specific operators.

A: Pete Mavoides said specific operator trend, not systemic to car wash industry.

Q: Drivers for plus one cent in AFFO guide and acquisitions trend.

A: Pete Mavoides said pipeline full with modest cap rate compression, guidance driven by multiple assumptions.

Q: Dispositions focus and bad debt assumptions.

A: Pete Mavoides said disposition focus on portfolio rebalancing, bad debt assumptions built into guidance.

Q: Geography and industry diversification.

A: Pete Mavoides said geography and industry diversification driven by tenant relationships, ratable growth.

Q: Cash releasing spreads and tenant credit.

A: AJ Peil said cash releasing spreads positive due to large lease renewals, tenant credit coverage healthy.