• Investments: $333 million invested through 37 transactions at an 8% weighted average cash yield.
• Average Lease Term: 17.7 years with a 2% annual rent escalation.
• Dispositions: Sold 24 properties for $60.4 million in net proceeds at a 7.0% weighted average cash yield.
• AFFO Per Share: $0.45, a 7% increase from Q4 2023.
• Total AFFO: $81.8 million, up 22% from the same period in 2023.
• Total G&A Expenses: $8.5 million, compared to $7.3 million in Q4 2023.
• Recurring Cash G&A: 4.8% of total revenue for the quarter.
• Cash Dividend: $0.295 with an AFFO payout ratio of 66%.
• Retained Free Cash Flow: $30.6 million in Q4, over $120 million annually.
• Income-Producing Gross Assets: $6 billion at quarter end.
• Forward Equity Sales: $79 million of stock sold on a forward basis at $32.01 per share.
• Net Debt to Annualized Adjusted EBITDAre: 3.8x at quarter end.
• Senior Unsecured Credit Facility: Amended to $2.3 billion with a $1 billion upsized revolver.
• 2025 AFFO Guidance: $1.85 to $1.89 per share, implying over 7% growth at the midpoint.

• Warning! GuruFocus has detected 5 Warning Signs with EPRT.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Essential Properties Realty Trust Inc (NYSE:EPRT) invested $333 million in the fourth quarter through 37 transactions, maintaining a strong investment pace.
• The company achieved an AFFO per share of $0.45, marking a 7% increase compared to Q4 2023.
• Tenant concentration is low, with the largest tenant representing only 4.2% of ABR, enhancing risk diversification.
• The company declared a cash dividend of $0.295, with a payout ratio of 66%, indicating strong cash flow management.
• EPRT's balance sheet remains strong with a pro forma net debt to annualized adjusted EBITDAre of 3.8x, reflecting low leverage and significant liquidity.

Negative Points

• The company is dealing with a bankruptcy situation involving Zips Car Wash, which could impact future lease expectations.
• There was a slight increase in total G&A expenses, rising to $8.5 million in Q4 2024 from $7.3 million in Q4 2023.
• The carwash sector exposure remains a concern, with efforts to reduce it from above the 15% soft ceiling.
• Interest rate volatility poses challenges, potentially affecting transaction pricing and cap rate compression.
• Occupancy slightly decreased, with vacant properties increasing from 3 to 7, indicating potential leasing challenges.

Q & A Highlights

Q: Can you provide more details on the Zips bankruptcy and your exposure to the carwash segment? A: Peter Mavoides, President and CEO, explained that it's too early to discuss specifics about Zips as negotiations are ongoing. However, the company feels well-positioned with only three properties and 20 basis points of ABR exposure. Historically, recoveries have been $0.70 to $0.80 on the dollar. The carwash industry remains a strong investment area, with robust risk-adjusted returns and deep industry expertise across 54 operators.

Q: How has interest rate volatility impacted your business recently? A: Peter Mavoides noted that their transaction cycle is 60-90 days, so short-term interest rate volatility doesn't significantly affect pricing. The company raises capital in advance to insulate from such volatility. They expect downward pressure on cap rates, which was more pronounced in Q4 but is easing in Q1.

Q: Could you elaborate on the increased competition in the market and its impact on your transactions? A: Max Jenkins, Head of Investments, stated that competition has increased slightly, leading to modest cap rate compression. However, the transaction environment remains favorable, with ample opportunities for growth capital to middle-market operators. The company expects to transact in the mid- to high 7% cap rate range this year.

Q: What are your thoughts on equity issuance and capital needs for 2025? A: Mark Patten, CFO, mentioned that minimal equity issuance is needed to meet investment targets, with growing free cash flow and unsettled forward equity providing significant capital. The company remains opportunistic in capital raising, with a strong liquidity position and leverage at 3.8x.

Q: Can you discuss your disposition strategy and any focus areas for 2025? A: Peter Mavoides explained that dispositions are primarily for portfolio and risk management, not as a capital source. The focus in Q4 was on reducing carwash exposure below the 15% soft ceiling. Future dispositions will be driven by tenant and asset-level risks rather than systemic industry concerns.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.