Essential Properties Realty Trust, Inc. Q4 FY2025 earnings call

• Peter Mavoides highlighted ten years of solid performance, 200%+ total shareholder returns since IPO in 2018, and fourth quarter execution of differentiated investment strategy with 85% of $296M investments through existing relationships.
• A. Joseph Peil noted healthy portfolio credit trends with same-store rent growth of 1.6%, occupancy of 99.7%, credit watch list under 1%, and disposition of 19 properties with reduced exposure to car wash industry.
• R. Max Jenkins reported $296M invested in the fourth quarter with broad-based capital deployment, 34 transactions, 58 properties, all sale-leasebacks, and strong investment pipeline.
• Robert Salisbury discussed financials including AFFO per share of $0.49 (+9% vs 2024), G&A expenses, cash G&A at low end of guidance, dividend declaration, and balance sheet strength with pro forma leverage 3.8x and liquidity $1.4B.

In the fourth quarter, Essential Properties Realty Trust, Inc. reported GAAP net income of $68,300,000 and AFFO of $99,700,000. They invested $296,000,000 with an average initial cash yield of 7.7% and a compelling GAAP yield of 9.1%. They sold 19 properties for $48,100,000 in net proceeds. The portfolio ended the quarter with investments in 2,300 properties leased to over 400 tenants, with a weighted average lease term of approximately fourteen years for the nineteenth consecutive quarter and just 5.2% of annual base rent expiring over the next five years. Revenue contribution details weren't explicitly broken down by product segment beyond the overall investment and portfolio figures.

• Increased 2026 AFFO per share guidance range to $1.99 to $2.04, implying ~7% growth at midpoint and 8% at high end.
• Investment guidance remains $1,000,000,000 to $1,400,000,000 supported by year-to-date closed investments and pipeline.
• Expect modest cap rate compression in back half of 2026 with competition stabilizing.

• Tenant concentration, though top 10 tenants represent 16.5% of ABR and top 20 represent 27.1% (industry leading).
• Credit events like American Signature in the home furnishing industry, but recovery expected within normal range.
• Market competition and cap rate changes impacting investment and earnings.

Q: Good morning. Thanks a lot for taking my questions. Rob, you took the guidance range slightly higher at the bottom end. So can you just walk through what has changed over the month or so since you or since the third quarter, I guess, since you put out your initial guidance and how that has impacted the outlook for this year?

A: Hey, good morning, Michael. Thanks for the question. So as we have talked about in prior years, it is still really early in the year to do a whole lot of changes with our guidance range, just given we still have ten and a half months to go. That being said, as we updated all of our numbers and reviewed our portfolio credit trends, everything had been coming in a lot better on the portfolio credit side relative to our initial guidance back in October. We tend to be pretty conservative when we build that initial range. And so as a result, we are just feeling a lot better about the health of the portfolio. I think you saw some of the stats in the fourth quarter. Same-store rent growth of 1.6%. Credit watch list is down sequentially. So it was really in recognition of that. You saw the subsequent events that we have, a lot of acquisitions that we closed in the early part of this year, but it is still early in the year. And it felt appropriate to take the bottom end of the prior range off the table just given where portfolio credit is, but we will see how the rest of the year develops in terms of the pipeline and deployment.

Q: Hey. This is, Greg McGinnis at Scotiabank. You have had a busy beginning to the year. At this trend, you are well over one and a half billion for the year and above the guidance range. I know you are telling us not to necessarily read too much into that, but this is a pretty strong start so far. So just kinda curious what the driver was to date on some of those transactions?

A: You know, the fourth quarter was kind of a little light relative to our trailing average, and so there is certainly some deal slippage that you would see. And so, you know, we feel great. We feel good that have a good start to the year. But, you know, a lot of year left to play. I think more encouraging driving, you know, earnings is just the stabilization and the cap rate Q: Hi. Good morning, everyone. I guess maybe just on portfolio credit the prepared remarks mentioned that you guys are feeling good on that topic right now. You also mentioned American Signature was the only credit event in 4Q. Could you give us any detail on how that played out versus your expectation and what that can kinda tell us about your process and your visibility?

A: Yeah. You know, I would start by that is still playing out. And you know, I think it certainly will come in within our expectations as we tend to be conservative. But, AJ, you want to tackle that? AJ: Yeah. Hey, Caitlin. As Peter mentioned, that bankruptcy happened late in Q4. And so we are early in the process of marketing the asset. I do believe, based on what we are seeing in the marketplace, that it is gonna be a normal outcome for us and recovery should be well within the range which we historically have disclosed. I would not expect that asset to be on our balance sheet for too long.

Q: Thank you. Good morning. You know, just good to hear about that you are seeing this cap rate stabilization and just wanted to ask about your comment where you are saying you may see modest cap rate compression in the back half of the year. And then also curious on if there is anything else within the kind of sale-leasebacks you are discussing with your relationships in terms of term or escalators or other type of changes?

A: Yeah. I think, you know, we have been expecting a normalization in the capital markets, you know, a slight decline in the ten-year and an increase in competition to drive cap rates down. We have been expecting that for quite some time now, and, you know, as we sit today, we just really have not experienced it in a material way, which is great, but we continue to have some conservatism around those factors as we think about the business plan going forward. And as we said, that, you know, shades from a high sevens to a mid sevens sort of cap rate than our expectations. But, you know, obviously, where the market goes and the cap markets in the ten-year will ultimately drive that. You know, competition drives cap rate. It also drives the other terms that you refer to, Jana, like term and escalations. These are all sensitive terms to tenants, and they are also a key part of our economics, and you can see those kinda ebb and flow over time. I would expect, you know, some compression in our weighted average escalations. You know, certainly, you know, when we were seeing 2.2%, 2.3%, that is, you know, pretty high relative to historical averages. And, you know, with the historical average kinda being 1.6%-ish. So we are seeing some downward pressure there, but again, nothing material.

Q: Pete, I just want to go back to your comments around the stabilization and competition. And in your view, what factors are driving the stabilization? And what would need to change for competitive intensity to increase from here?

A: You know, I think it is really driven by the access to debt capital, which is, you know, gonna be driven by cost of that capital and availability of that capital. And, ultimately, you know, that is pricing. You know, these are long-dated assets that people tend to finance in the ABS market. And so I think a large driver of that is gonna be the ten-year Treasury rate. So as we have said on prior calls, higher for longer on the ten-year is probably a better scenario for us. And certainly, you know, 4.2, 4.3, you know, 4.1 is helping. I think if you saw, you know, mid to high threes on the ten-year, you know, we would see a material amount of increase in competition. All that said, you know, we very much go to market with an investment strategy deliberately designed to avoid competition by doing granular deals, follow-on transactions with relationships, leaning into sale-leasebacks to deliver capital to operators that have a capital need. And so I think, you know, hopefully, we have built a moat around that competition by transacting in a differentiated, value-added way, and we will continue to focus on that.

Q: Thank you. Good morning. You know, just good to hear about that you are seeing this cap rate stabilization and just wanted to ask about your comment where you are saying you may see modest cap rate compression in the back half of the year. And then also curious on if there is anything else within the kind of sale-leasebacks you are discussing with your relationships in terms of term or escalators or other type of changes?

A: Yeah. I think, you know, we have been expecting a normalization in the capital markets, you know, a slight decline in the ten-year and an increase in competition to drive cap rates down. We have been expecting that for quite some time now, and, you know, as we sit today, we just really have not experienced it in a material way, which is great, but we continue to have some conservatism around those factors as we think about the business plan going forward. And as we said, that, you know, shades from a high sevens to a mid sevens sort of cap rate than our expectations. But, you know, obviously, where the market goes and the cap markets in the ten-year will ultimately drive that. You know, competition drives cap rate. It also drives the other terms that you refer to, Jana, like term and escalations. These are all sensitive terms to tenants, and they are also a key part of our economics, and you can see those kinda ebb and flow over time. I would expect, you know, some compression in our weighted average escalations. You know, certainly, you know, when we were seeing 2.2%, 2.3%, that is, you know, pretty high relative to historical averages. And, you know, with the historical average kinda being 1.6%-ish. So we are seeing some downward pressure there, but again, nothing material.

Q: Hi there. Good morning. This is Ravi Vaidya on the line for Haendel. Hope you guys are doing well. Can you please describe the impact of the One Build Beautiful bill on the single-tenant transaction market? How do you think that is gonna impact broader industry pricing and volumes? And how are you guys seeing it within the sandbox that you are operating in going forward?

A: Did Haendel write that question for you? AJ: No. I wrote it. I sent it to him. Pete: Come on. He approved it. Listen, you know, the bonus depreciation that I mentioned earlier has certainly had an impact. You know, I do not think that bill really is gonna have a material impact on our business or the way we operate. And so I really do not see anything material coming out of that that will impact us.

Q: Thank you. Good morning. I would like to start by saying that Cheryl did a great job with the opening remarks and, Rob, congrats on the new role. My first one is for you, Pete. You know, we have talked about the competitive landscape a lot on this call, but I guess I am curious. Who are the entrants that maybe you thought you would be seeing that you are not seeing right now?

A: you know, because we just do not know. You see platforms stand up. You see, you know, capital commitments to those platforms, whether it is, you know, Apollo, TPG, Angelo Gordon, Black— you go down the list of big asset managers and you are just conservative about their ability around your assumptions of driving your business and their ability to, you know, take business away from you. And, you know, we fight hard to win deals. We fight hard to add value to our counterparties such that they choose to do business with us. And, you know, we are very protective of our relationships. So, you know, there is a bunch of new platforms out there. You saw Starwood motor platform. And, you know, it is just broad-based.

Q: Hi, everyone. Thank you for taking my questions. I know based on our conversation at REITworld that you all are focused on same-store metrics for your tenants. Have there been any diverging trends in kind of same-store between tenant types or any changes that you have noticed this year versus last A: Yeah. Well, same-store ABR and same-store rent is really driven by the contracts and the leases that we have. And, you know, that can vary from, you know, low of 1.5% to a high of 2.3%, and that really more depends upon what we negotiate going into those deals and when we negotiated those deals than anything on an industry-specific basis. In terms of, you know, same-store improvement in sales and margin and EBITDA, you know, that is something we track across all our industries and all our tenants. And there, you know, there is a lot of ebbs and flows within each sector and each specific operator. I would say most of those ebbs and flows are idiosyncratic around the operator and less around the industry. But there is nothing really I would call out materially changing in that Q: Good morning. We talked about it a little bit last quarter, but you added again the kind of the other industrial bucket, but it seems like the assets had a bit of a different kind of rent and footage profile per property. Just kind of curious maybe what those were in terms of acquisitions during the quarter. And I guess, with a couple of subsequent quarters of strong investment in that particular industry sector, what do you think is driving that as a growth vehicle in the current market?

A: Yeah. You know, we just see good opportunities in the industrial outdoor storage space. Those assets tend to be granular, tend to have a large land component, and you know, that the rent per square foot in that space varies wildly depending upon the amount of building prorated over the size of the land. And so, you know, a 10-acre lot with a 20,000 square foot building is a whole lot different than a five-acre lot with a 20,000 square foot building. And so we see good opportunities there with middle market operators and, you know, it is not growing at an outsized pace. And we will continue to invest there. And we certainly like that space.