Essential Properties Realty Trust Q1 2025 Earnings Report

Essential Properties Realty Trust EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.46
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: $0.42

Essential Properties Realty Trust Revenue Results

• Actual Revenue: $129.35 million
• Expected Revenue: $124.88 million
• Beat/Miss: Beat by +$4.48 million
• YoY Revenue Growth: +24.90%

Essential Properties Realty Trust Announcement Details

• Quarter: Q1 2025
• Date: 4/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, April 24, 2025
• Conference Call Time: 10:00AM ET

Essential Properties Realty Trust (NYSE:EPRT), a real estate company, acquires, owns, and manages single-tenant properties in the United States. The company leases its properties to middle-market companies, such as restaurants, car washes, automotive services, medical and dental services, convenience stores, equipment rental, entertainment, early childhood education, grocery, and health and fitness on a long-term basis. As of December 31, 2021, it had a portfolio of 1, 451 properties. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2016 and is headquartered in Princeton, New Jersey.

Essential Properties Realty Trust Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good morning, ladies and gentlemen, and welcome to the Essential Properties Realty Trust First Quarter twenty twenty five Earnings Conference Call. This conference call is being recorded and a replay of the call will be available three hours after the completion of the call for the next two 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 ninety days. On the call this morning are Pete Mavoides, President and Chief Executive Officer Mark Patton, Chief Financial Officer Max Jenkins, Chief Operating Officer A.

[Operator]

J. Peel, Chief Investment Officer and Rob Salisbury, Head of Corporate Finance and Strategy. It is now my pleasure to turn the conference over to Rob Salisbury.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties first quarter twenty twenty five earnings conference call. During this conference call, we will make certain statements that may be considered forward looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward looking statements, and we may not release revisions to these forward looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

With that, I'll turn the call over to Pete.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thank you, Rob, and thank you to everyone for joining us today for your interest in Essential Properties. In the first quarter, despite a choppy capital markets backdrop, the operating environment has remained favorable for our business. As our team continues to source attractive investment opportunities, focusing on middle market sale leasebacks with growing operators within our targeted industries. During the quarter, we invested $3.00 $8,000,000 as we continue to support our existing relationships, which contributed 86% of our investments, underscoring the value of recurring business within our tenant base. Our portfolio also continued to perform well with tenant credit trends and same store rent performance healthy and in line or slightly ahead of our expectations.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

We further solidified our capital position during the quarter issuing over $300,000,000 of equity and upsizing our credit facility, leaving us with pro form a leverage of 3.4 times and liquidity of $1,500,000,000 which positions us well to continue to grow our portfolio and continue to generate sustainable earnings growth for our shareholders. The continued healthy portfolio trends and the attractive investment environment remain supportive of our 2025 business plan. As a result, we have reaffirmed our 2025 AFFO per share guidance range of $1.85 to $1.89 On our fourth quarter earnings call, we discussed our expectation that competition could build as capital markets normalized, resulting in modest cap rate compression. We continue to expect our investment cap rates in 2025 to be slightly lower than 2024. However, the recent heightened volatility in the capital markets has resulted in less competition than we had anticipated at the beginning of the year.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Overall, our investment pipeline is supportive of the upper half of our articulated investment guidance of $900,000,000 to $1,100,000,000 Importantly, we do not need to raise any incremental capital to achieve our guidance range this year. Turning to the portfolio, we ended the quarter with investments in 2,138 properties that were leased to four twenty three tenants operating in 16 industries. Our weighted average lease term stood at fourteen years at quarter end, in line with a year ago, with just 5.4% of annual base rent expiring over the next five years. From a tenant health perspective, our weighted average unit level coverage ratio was 3.5 times this quarter, indicative of the profitability and cash flow generation by our tenants at the unit level. With that, I'd like to turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Max?

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

Thanks, Pete. On the investment side, during the first quarter, we invested $3.00 $8,000,000 through 21 separate transactions at a weighted average cash yield of 7.8%. Our investment activity in the quarter was broad based across most of our top industries with no notable departures from our well defined investment strategy. This quarter, our investments had a weighted average initial lease term of seventeen point five years and a weighted average annual rent escalation of 2.2%, generating a strong average GAAP yield of 9.4%. Our investments this quarter had a weighted average unit level rent coverage of three times and the average investment per property was $5,500,000 90 percent of the investments this quarter were sale leaseback transactions.

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

Looking ahead, our investment pipeline remains strong across all of our targeted industries. Pricing in our pipeline is relatively consistent with our first quarter transactions with cap rates in the high 7% range and strong contractual escalations, which is supportive of our long term growth trajectory. Including $135,000,000 of investments closed subsequent to quarter end, we have invested $443,000,000 year to date, providing a line of sight to our guidance range that is encouraging at this early point in the year. With that, I'll turn the call over to A. J.

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

Peel, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. A. J?

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

Thanks Max. At a high level, our portfolio credit trends remain healthy with same store rent growth in the first quarter of 1.5%, up slightly from last quarter. Tenant credit events remain muted with occupancy of 99.7% and collections of effectively 100%. While there were no noteworthy credit events during the first quarter, we continue to work through the Zipcar Wash bankruptcy, which impacts three of our properties in approximately 20 basis points of our ABR. Given the ongoing nature of the bankruptcy, it is premature to discuss any expectations around our lease on these three properties.

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

However, as an update, I would note that this tenant remains current on the rental obligations. From a tenant concentration perspective, our largest tenant represents 3.9% of our ABR at quarter end, and our top 10 tenants now account for just 17.3% of our ABR. Tenant diversity is an important risk mitigation tool and differentiator for us, It is a direct benefit of our focus on middle market operators, which offers an expansive opportunity set. Our carwash industry exposure further rationalized to 13.9% of ABR, comfortably below our soft ceiling of 15%. On the disposition front, after a busier fourth quarter, our asset sale activity normalized in the first quarter.

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

We sold 11 properties this quarter for $24,300,000 in net proceeds. This represents an average of approximately $2,200,000 per property, highlighting the importance of owning fungible, liquid properties, which allows us to proactively manage portfolio risk. The dispositions this quarter were executed at 6.9% weighted average cash yield. Over the near term, we expect our disposition activity to be consistent with our trailing eight quarter average, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I'd like to turn the call over to Mark Patton, our Chief Financial Officer, who will take you through the financials and balance sheet for the first quarter.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

Thanks, A. J. Overall, we had a good first quarter highlighted by the strong level of investments that Max outlined at a 7.8% cash cap rate. AFFO per share of $0.45 represented an increase of 7% versus Q1 of twenty twenty four. On a nominal basis, our AFFO totaled $85,700,000 for the quarter, which is up $14,600,000 over the same period in 2024, an increase of 21%.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

This AFFO performance was consistent with our expectations as reflected in our guidance range updated last quarter. Total G and A in Q1 twenty twenty five was $11,500,000 versus $9,400,000 for the same period in 2024, which is consistent with our expectations. The majority of the year over year increase is related to increased compensation expense as we continue to invest in our team. Our recurring cash G and A was $7,600,000 this quarter, which is consistent with our guidance range of $28,000,000 to $31,000,000 for the year and represents 5.9% of total revenue, which compares favorably to the 6.2 in the same period a year ago. We declared a cash dividend of $0.02 $95 in the first quarter, which represents an AFFO payout ratio of 66%.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

Our retained free cash flow after dividends, which we view as an attractive source of capital to support our growth goals, continues to build, reaching $30,100,000 in the first quarter, equating to over $120,000,000 per annum on a run rate basis. Based on our investment guidance for 2025, that would represent more than 10% of our capital needs to fund our external growth. Turning to our balance sheet. With the net investment activity in Q1 twenty twenty five, our income producing gross assets reached $6,300,000,000 at quarter end. The increasing scale of our income producing portfolio continues to build, improving our credit profile.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

On the capital markets front, we issued $292,000,000 in an equity offering in March, which complemented our ATM activity of approximately $21,000,000 giving us a total of $313,000,000 of equity raised in the quarter. We settled $279,000,000 of forward equity in the quarter with a portion of the proceeds utilized to repay our revolving credit facility balance. Our balance of unsettled forward equity totaled $410,000,000 at quarter end, which we expect to utilize to fund our near term investment activities, while preserving our flexibility by keeping our $1,000,000,000 revolver fully available. Similar to last quarter, our share price remained above the weighted average price of our unsettled forward equity of $30.51 at quarter end. As a result, under the treasury stock method, the potential dilution from these forward shares is included in our diluted share count.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

For the first quarter, our diluted share count of 191,000,000 shares included an adjustment for 1,100,000.0 shares from our unsettled forward equity related to this treasury stock calculation. This represented a modest headwind to our AFFO per share for the quarter. Based on our current share price, we continue to expect a modest headwind again in the second quarter. Our pro form a net debt to annualized adjusted EBITDAre as adjusted for unsettled forward equity was 3.4 times at quarter end. We remain committed to maintaining a well capitalized balance sheet with low leverage and significant liquidity to continue to fuel our external growth and allow us to service and protect our tenant relationships despite the choppy capital market environment.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

Our liquidity was bolstered this quarter with the previously announced closing of our amended $2,300,000,000 senior unsecured credit facility, which provides $1,000,000,000 of capacity on the revolver along with the aforementioned equity activity. Lastly,

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

as

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

we noted in the earnings press release, we have reaffirmed our 2025 AFFO per share guidance range of $1.85 to $1.89 representing over 7% growth at the midpoint. Importantly, this guidance range requires no incremental equity issuance, which we believe is a testament to our front footed approach to both investments and capitalization. With that, I'll turn the call back over to Pete.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thanks, Mark. In summary, we are happy with our first quarter results and remain excited about the prospects for the business. Operator, please open the call for questions.

[Operator]

And we'll take our first question from Spencer Glimcher with Green Street. Your line is open.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Thank you and good morning. You just comment on how you're thinking about the ongoing tariff situation in regards to tenant health? Are you guys expecting any impacts to tenants in the portfolio?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Know, especially we are not. I mean, obviously, we're watching it closely as it unfolds, but given the fact that we're 93% service and experience based and not really a lot of goods, the tariff impacts will be very tangential to our operators. But obviously, we pay close attention to the credits in the portfolio, but I think we'll be in a pretty good spot.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Okay, thank you. And then I know you mentioned there's been less competition than expected thus far in '25. Is it fair to say that that's a widespread theme across, all of your target industries? Or are there any pockets of the portfolio where you're seeing outsized competition?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah. I wouldn't really characterize it across industries. We're certainly finding more competition in bigger transactions. The larger the deal, the more eyes that are on it, and larger credits. The bigger the credit, the more eyes are on it, and the more competitive those opportunities become.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

So the small granular transactions in the 5,000,000 to $10,000,000 range and the mid size operators that we deal with day in, day out hasn't been as competitive.

[Spenser Glimcher, Managing Director at Green Street Advisors, LLC]

Great. Thank you so much.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thank you, Spencer.

[Operator]

We'll move next to Eric Borden with BMO Capital Markets. Your line is open.

[Eric Borden, Vice President at BMO Capital Markets]

Hey, good morning everyone. Just given the strong acquisition volumes in the first quarter and a solid start to the second quarter and your liquidity is full and the balance sheet continues to improve, what's really the governing factor from raising the acquisition guidance today?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yes. I'd ask Rob to handle that one.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

Hey, Eric. So you're right to point out that we're off to a great start to the year on volume. Cap rates have been coming in pretty favorably as well. And I think as we've talked about our portfolio, tenant credit continues to evolve very favorably as well. We hiked guidance last quarter.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

And while we're off to a great start and the balance sheet is fully loaded, it's still pretty early in the year. And we have visibility in the pipeline for, call it, sixty to ninety days. And typically, there's a little bit of a lull in the summertime and then people come back to school in September and there's more transaction volume into year end. While we have some great visibility into 2Q, it's still pretty early in the year and we'll just see how it evolves from here.

[Eric Borden, Vice President at BMO Capital Markets]

Helpful. Thanks. And then we appreciate that. And then on both Dave and Buster's saw that it moved into the top 10. Just curious on the investment thesis there.

[Eric Borden, Vice President at BMO Capital Markets]

Was it a strong sponsor relationship or just curious on any color incremental detail you can provide on the Dave and Buster's acquisition.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Hey Jay why don't you tackle that one for sure.

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

So you know

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

Dave and Buster's is a management team or a company that we've known probably for the better part of fifteen years. So we were presented with the opportunity to do a sale leaseback. You know, we structured our lease form which provides ongoing unit level reporting. We structured the rents so that we're we're generating greater than two times coverage went into it and we invested in some markets that we really like with the real estate that's positioned near other national retailers. So for us, it seemed like a really good risk adjusted opportunity to make an investment.

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

And then, don't know if you

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

have anything to add on on kind of how the deal came to us.

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

Sure. And Eric, I note that, we participated in various silly spec transactions over the years with main event Dave and Buster's team and historically they always price away from us. And in Q1, we were presented a unique opportunity and less competition because of the volatility in the capital markets. And so we were able to generate some pretty attractive pricing in terms and it was kind of a unique opportunity for us to transact there.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Great. I would add that given our diversity through the top 10 at 1.7%, it has higher prominence than probably warranted. Many of our competitors that would be down around a 15 to 20 tenants. Good investment, known for a while, well structured, good pricing and we feel good about it.

[Eric Borden, Vice President at BMO Capital Markets]

Well, thank you very much. I will leave it there.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thank you.

[Operator]

We'll take our next question from Michael Goldsmith with UBS. Your line is open.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Good morning. Thanks a lot for taking my question. Maybe just a follow-up on the Dave and Buster's. It seems like you have a good relationship there though it does seem that the operating metrics for the company have been a bit softer with negative comparable sales and some declining traffic. So just trying to get a sense of, it sounds like you've got good rent coverage and you're comfortable with the markets, but just trying to get a sense of your comfort level overall with the business in this environment?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Sure. And listen, we've been investing in the family entertainment space for a long time and have strong conviction there. We're making twenty year investments. And so, six month operating environment really has limited impact on that long duration investment. And ultimately, we own the real estate that generates the cash flows, and we're senior to the debt holders, and we're senior to the equity.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

And while there may be some noise around the equity story, there isn't noise around the landlord collecting rent story. In fact, in our diligence, found Dave and Buster's has only closed two sites in its history. And we feel imminently comfortable with the real estate that we own.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Very helpful context. And then beyond ZiPS, is there anything else on the watch list or any sort of notable movement on and off? I also know you have very good visibility into your tenants. Any sort of evolving dynamics that you're noticing or keeping an eye on?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

AJ, what's the current watch list?

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

It's about 1.6% down 50 basis points quarter over quarter.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yes. So the watch list is in a good spot. The watch list tends to be comprised of a bunch of idiosyncratic operator level events, nothing really thematic across industries or property types. And so it's in a good spot. It's down quarter over quarter.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

You should expect any sort of credit events are well baked into our guidance. And overall, we feel good about where the portfolio sits today.

[Michael Goldsmith, US REITs Analyst at UBS Securities LLC]

Thank you very much. Good luck in the second quarter.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Great. Thank you.

[Operator]

We'll take our next question from Haendel St. Hustee with Mizuho. Your line is open.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

St. Hustee, I love it. Good morning, Yeah. Good to hear from you. So I had a couple quick ones.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

First, just to follow-up one more on the Dave and Buster's. You mentioned the coverage was more than 2x. I was hoping we could get a bit more from you guys in light of some of the questions we've heard from investors about the discretionary nature and history of this tenant. So maybe any color on if you can get a bit more specific with the coverage, and then maybe color on the rent bumps and the term of these leases. Thanks.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

Yeah. We

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

generally don't disclose tenant specific coverage, and the lease term would generally be consistent fifteen to twenty years with 2% plus bumps. And the master lease is north of two times, absent of getting specific.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

Okay. Fair enough. I appreciate that, Pete. And then one more, maybe if you guys could perhaps, give us a bit more color on the transaction environment broadly out there. You know, last quarter, you're seeing more competition for private equity, this quarter less.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

Curious if you think they're waiting on the sideline for more stability and will be perhaps more active in the second half? I know a lot of them have raised capital, so they need to deploy. Are deals taking longer? Any retrading? Any thoughts on cap rates in the second half?

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

Would appreciate just some more context and color on the transaction environment. Thank you.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Sure. Max, why don't you tackle that, please?

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

Sure, Pete. Haendel, when we early in the year, spreads were pretty tight and we noted increased competition and there was less volatility. But then the volatility has continued to persist. So some of that competition, as Pete noted, has diminished. However, with larger portfolios, broadly marketed deals, we still see it there in some pretty more efficient pricing.

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

However, our bread and butter has always been those kind of smaller follow on repeat business sale leaseback transactions with our tenant partners. And so there we're still generating adequately attractive risk adjusted returns and the pipeline remains strong for us and we're focused on servicing our relationships and providing that surety of close with our tenant partners. As the markets normalize, we do expect competition to continue to compress cap rates, but we're frankly not seeing that right now. But we do expect it to probably happen once the markets normalize.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, Haendel, I would add, I think there's a growing appreciation for the asset class and the durability of the asset class. And the longer there's an operating track record of solid, stable performance, I think over time, it's going to continue to attract capital and make the market more efficient.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

No, that's great guys. If I could ask a quick follow-up on just if this would lead you to perhaps be more active in the first half of the year or maybe the first two to three quarters than you historically would have been just in this scenario where you seem to have just more of an opportunity in front of you and as you outlined, lots of capital at your disposal?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, I think you see that. You certainly see it in the numbers. You see it our this is our largest first quarter print. Going along with that is our highest GAAP yield at 9.4%, right? So, let's not ignore the fact that despite losing ten, twenty basis points on the initial cap rate, we gained significant economics throughout the life of these leases.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

And so, the narrative that this is a great buying environment for us that I was talking about pretty much all through last year continues, and we are working very hard to capitalize on it.

[Haendel St. Juste, Managing Director at Mizuho Financial Group]

Great. Thank you. Appreciate it.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thank you.

[Operator]

We'll move next to Caitlin Burrows with Goldman Sachs. Your line is open.

[Caitlin Burrows, Vice President at Goldman Sachs]

Hi. Good morning. Maybe just following up on that investment volume opportunity. It does seem like your business could be somewhat reliant on your operators expanding. So just wondering what impact you've seen or expect could be seen on any of your tenants and like their interest or ability to expand and how that could or wouldn't impact your volumes?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, there's been a consistent source of opportunities for us. Our tenants continue to engage with us expansion and M and A and development opportunities in these industries that we've targeted. And while that activity may diminish at the margin, I think the lack of competition will diminish as well, such that we continue to be well positioned as the first and last call and a valuable partner to these guys. And so it's a steady flow business, and we provide great disclosure around our investment activity on a quarterly basis. And there has not been a ton of variability, nor do we expect it.

[Caitlin Burrows, Vice President at Goldman Sachs]

Yeah, no, definitely seems like a steady business, which is surprising but great. Maybe on the leverage side, you guys are at 3.4 times, like you mentioned, which versus other REITs is quite low. So I was wondering if you could go through if there are any circumstances that you think could come up, not that they're necessarily likely, but in what scenario would that leverage go up? Yeah, wondering what you can talk about on the leverage side.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Mark, why don't you tackle that please?

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

Yeah, mean look, I guess historically we've been at about call it four or five, four or six times. We have been thoughtfully over equitized probably over the last year and a half given just the dynamics between the cost of our equity and the cost of debt. I think as we think about it, I'll kind of come at it maybe slightly differently for you. If you think about that four, six times, I've probably got we've probably got 4.5 quarters worth of liquidity before we'd reach that 4.6 times. So if you think about that, that kind of gets you through gets you into 2026.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

I'll say it another way, if you think about our unsettled forward equity at $410,000,000 you think about our recurring free cash flow through the next three quarters at about 90,000,000 even at the pace of dispositions they referenced, that's a good $560,000,000 worth of liquidity before you're using leverage. So we anticipate remaining pretty conservative on the leverage front.

[Caitlin Burrows, Vice President at Goldman Sachs]

Got it. Thanks.

[Operator]

We'll take our next question from John Kieliczewski with Wells Fargo. Your line is open. Thank

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

you. Good morning. Maybe just on the credit side, would you mind talking us through the increase in the sub one times coverage bucket? I think there was 70 bps quarter over quarter.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, I think it's all going to be kind of idiosyncratic stuff. AJ, any callouts there that you would point to?

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

Yeah, I wouldn't call anything out. And it's certainly a data point that we pay attention to. But that in of itself does not indicate a default scenario necessarily. And what we really think about is how that bucket kind of couples with the overall corporate credit. And so what I would what I would suggest is if you think about our watchlist being down 50 basis points quarter over quarter.

[AJ Peil, EVP & CIO at Essential Properties Realty Trust]

And if you think about the shadow rating that we provide in the histogram, the single B bucket and lower is down four twenty basis points sequentially. So, you know, our unit level coverage ebbs and flows over time. But but it's just moving to three seven doesn't necessarily that there's a theme or some type of risk that we get ahead of and what it will encourage us to do is to think about those assets and if they're permanently impaired we're gonna go to the disposition market and I think that's how you'll see us react over time.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Okay. Got it. And then I guess, have your credit loss or non reimbursable assumptions changed at all given any of the volatility we've seen?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Listen, we make a spot estimate and bake it in the guidance and then adjust throughout the year. And it changes, things situations get better than we anticipated and other situations crop up that are worse. But overall, I think the performance of the portfolio is pretty consistent with what's built into guidance. Certainly, a 1.5 same store sale growth would indicate strong kind of performance of the portfolio with lack of credit events.

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

John, I'm sure you noticed, by the way, that the under 1.5 times, so that 1.5 to one and the under one actually dropped 90 basis So at 12.3, that's lining up to be a pretty good data point for us relative to the portfolio.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Understood, appreciate the color, thank you.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Great. Thank you.

[Operator]

We'll take our next question from Jay Kornreich with Wedbush Securities. Your line is open.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Hi, thanks. Good morning. If I could just do one more follow-up on the transaction market. I guess besides competition being down, as you think about new potential tenants you've been targeting to transact with for the first time, are they being any more cautious or slower to conduct sale leaseback transactions? They wait more clarity on the economy?

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Or are those types of conversations still progressing at a normal pace?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, listen, forget the number, but it was in the mid-80s percent of repeat business in the first quarter. So as we said in the past, our existing relationships drive a good proportion of our investment opportunity, we focus on those first and foremost. On an ideal run rate, we're sourcing maybe 75% from our existing relationships and 25% new. So I think the fact that we're skewed off of that ideal would suggest our existing relationships are coming to us, and we're servicing those, and they're placing a high premium on our reliability. And there still remains active dialogue and new relationships, but I think the lack of new relationships really is more our focus than their cautiousness.

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

And Jay, I'd also add with ongoing discussions with our tenants that, yes, some may be a little bit more cautious on growth. It ebbs and flows on the specific business and industry, but, whereas they might slow down growth, they'll look to monetize the real estate on balance sheet to strengthen their liquidity position. So, using real estate to monetize those discussions have not slowed down and we're working with our tenant partners to help them achieve success and maximize EBITDA growth for their specific company.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Okay. Appreciate that. And then just for one follow-up, I guess, you look at your current portfolio segment exposures, it's in the current environment. Are there any areas where I guess you really like that maybe you want to drive exposure higher or on the flip side, maybe you want to increase dispositions and get some lower exposure given the volatility?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yes. As I said kind of earlier, we're taking a twenty year investment view and this industry list has been curated due to the real estate fundamentals that we like in these industries and the service and experience base. And then secondarily, we conduct sourcing activities across all these sectors. And so, general response to that question is you should expect the pie to grow ratably. But for for obviously, we've lightened up in casual dining.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

We continue to not invest in movie theaters and home furnishings at 30 basis points in home furnishings. Maybe we can just get rid of that little slice there at this point. But generally, it should grow ratably, and that's very purposeful on our part.

[Jay Kornreich, VP - Equity Research at Wedbush Securities]

Okay, thank you very much. I'll stop there.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thanks.

[Operator]

And we'll move next to Smedes Rose with Citi. Your line is open.

[Smedes Rose, Director at Citi]

Hi, thanks. I just wanted to ask a little bit about the car wash exposure. As expected, it came down from fourth quarter with some of the sales that you've highlighted. Could you just speak to a little bit about how trends were for your car wash tenants in the quarter?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Sure. Just looking at the operators, AUVs were flat and coverage was flat for all our operators across the board. Generally, there's not a material movement that I can see across any of them here. It's flat.

[Smedes Rose, Director at Citi]

Okay. And then you've talked about your twenty year outlook, etcetera, and I guess prices are adjusting within the various segments that you invest in. But with The US economy, people very much split as to whether or not we could head into a fairly severe recession here. I mean, do you find that pricing for, say, like your Gabe and Buster's investment, which would certainly be susceptible to any kind of US recession, I mean, is the cap rate adjusting enough? You clearly think it is.

[Smedes Rose, Director at Citi]

And maybe you could just talk a little bit about decisions to move into that kind of space more than maybe within your portfolio, something slightly more defensive, like I would think like medical and dental or even convenience stores. Just trying to think about how you're looking at the acquisition landscape, given what we are all seeing in the broader economy.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah. I think, ultimately, these deals are being priced in the competitive market. And we're finding the pricing that clears in each individual market, and then looking at those risk adjusted returns compared to our experience and our credit loss within those sectors over twenty years of investing. As Max said in his commentary, we've seen a lot of Dave and Buster's deals, and over the years, they've priced away from us. And so I think the recent noise in that sector tempered a lot of investors' appetite for entertainment space, such that it priced at a risk adjusted return that made sense for us.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

And ultimately, we transacted. That said, we didn't make any casual dining investments in the quarter, and we actually lightened up. But we look at each individual transaction relative to the market clearing pricing and our experience and our opportunity set and make pricing decisions. And I would say the industries have an impact, but bigger impacts are more idiosyncratic to those investment opportunities, the quality of the credit, the location of the real estate, the pricing of the real estate. And remember, we're a 93% service and experience base, so most of these businesses are not really getting hit by the tariff and the recent volatility.

[Smedes Rose, Director at Citi]

Right. Yeah. No. I think we understand it's not a tariff issue, but it is an issue related to the broader US economy and discretionary income. But I appreciate the extra discussion.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yep, great to meet. Thank you.

[Operator]

We'll take our next question from Jana Galon with Bank of America. Your line is open.

[Jana Galan, Director at Bank of America]

Thank you. Good morning. Question for Mark. And thank you for quantifying the impact of the treasury stock method in the first quarter and expectations for it to be similar in 2Q. Can you let us know how much of a headwind you have in your AFFO guidance for the year because of the accounting treatment on the forward shares?

[Mark Patten, EVP, CFO & Treasurer at Essential Properties Realty Trust]

Yeah, I think the guidance of the way we put it together, the headwinds was no more than a penny or 2 in terms of the treasury stock. By the way, Jana, just to put a finer point on my remarks, that headwind was sort of taking the current stock price and sort of assuming that it stays the same. That was how I kind of referenced.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

You. I appreciate your color. Was just going to add to that. If you look at page 25 of our supplemental package, we've recently added some disclosure on the from the shares from that dilution. So you can see for the first quarter is 1,100,000.0 shares.

[Robert Salisbury, SVP, Head of Corporate Finance and Strategy at Essential Properties Realty Trust]

So hopefully that's helpful from a modeling standpoint.

[Jana Galan, Director at Bank of America]

Great, thanks.

[Operator]

We'll take our next question from Jim Kamert with Evercore. Your line is open.

[James Kammert, Managing Director at Evercore ISI]

Good morning. Thank you. Going back to Dave and Buster's, how long have they operated in these five locations that you picked up?

[Max Jenkins, EVP & COO at Essential Properties Realty Trust]

It varies. They all have operating history and cash flowing in there. And as we said, the master lease coverage is north of two times, but on the individual locations, the opening date would vary across the portfolio.

[James Kammert, Managing Director at Evercore ISI]

And we're talking several years in each instance?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, I would imagine somewhere between three and ten. But we can do the math and get back to you.

[James Kammert, Managing Director at Evercore ISI]

No, these aren't brand new locations. No, got it because you said. And then you've got obviously play here with Dave and Buster's and Circle K. Can you remind me what percentage of your portfolio ABR is from public companies? And I'm just wondering, there enough assets on the markets that away from your traditional private middle market tenants, are there more opportunities for EPRT with public tenants?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Generally, I'm completely agnostic to the source of equity, whether it's public markets or private. Credit is credit. And generally, the public credits create a little more noise than the private credits, but that noise doesn't correlate to risk. And so it's not really a major consideration. But just off the top of my head, we have Dave and Buster's, we got Red Robin, we got Circle K, we got Mr.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Carwash. KinderCare, they're public now. Anyone else? AMC, Cinemark, obviously not major exposures. But it's not really something that factors into our calculus around credit.

[James Kammert, Managing Director at Evercore ISI]

Understood. Thank you.

[Operator]

We'll move next to Greg McGinnis with Scotiabank. Your line is open.

[Greg Mcginniss, Director at Scotiobank]

Hey, good morning. Pete, I just want to follow-up on that reduction in casual dining exposure. We saw it fell by 17 properties and $3,000,000 of ABR during the quarter, but you only sold 11 properties, that's around $1,500,000 of ABR during the quarter. So QSR exposure went up by 17 properties. So we're wondering if there were actually dispositions there or if it was just a reclassification or mix.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

It was a mix. When you start defining restaurants and the fast casual kind of in the middle there, it was a reclass in the quarter of some of those properties. We also sold some, and we didn't buy some.

[Greg Mcginniss, Director at Scotiobank]

Okay. And then if the lending environment were to worsen from here, does that maybe create an opportunity to do more deals as a financing option that otherwise wouldn't have been utilized? Or do you expect kind of middle market M and A deals to slow and negatively influence the level of available transactions?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, listen, I think we're coming off a very long period of difficult financing alternatives for middle market credits. It got better for a period of time, late in the third into the fourth. And here in the first, it's gotten worse. And then you have the impact of less transactions coupled with less competition, and so it's hard to say. I think challenging financial markets do create more opportunities from a tenant demand perspective, but that's also mitigated by less overall transaction activity.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

So I guess I would say the year is off to a great start. We got well on our way against our investment guidance for the year, and we remain aggressive on deploying capital.

[Greg Mcginniss, Director at Scotiobank]

Okay, thank you.

[Operator]

We'll move next to Daniel Guaglionelo with Capital One Securities. Your line is open.

[Daniel Guglielmo, Equity Research Analyst at Capital One Financial]

Hi, everyone. Thank you for taking my question. Just one for me. In the industry diversification table, the entertainment bucket increased to 9.5% of cash ABR. Dave and Buster's has been mentioned multiple times, but it feels like that's a pretty broad industry grouping.

[Daniel Guglielmo, Equity Research Analyst at Capital One Financial]

Can you just give us a sense of what other kinds of businesses are in there? And would there be potential for breaking that up into more detailed lines over time?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yes. I mean, there's not a ton of variability. The vast majority of that entertainment bucket is going to be eatertainment outlets like Dave and Buster's, like Chicken and Pickle, like bowling, family entertainment centers. And so we try to think about that, really a food driven entertainment experience with real estate that's relatively fungible and well located. And so there's a lot in it, but I don't think calling it out would materially enhance our disclosure.

[Daniel Guglielmo, Equity Research Analyst at Capital One Financial]

Great. Thank you.

[Daniel Guglielmo, Equity Research Analyst at Capital One Financial]

And I guess just one follow-up to that. Would that like soft 15 cap, would that be like for that line, would that be in effect then?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah. I think we would think about it that way.

[Daniel Guglielmo, Equity Research Analyst at Capital One Financial]

Great. Thank you.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Thank you.

[Operator]

We'll move next to Omotayo Okusanya with Deutsche Bank. Your line is open.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Yes. Good morning, everyone. Wanted to talk a little bit about the acquisition environment. Clearly, you mentioned you're seeing less competition. We also know that the lending environment is getting tougher for a typical middle market company.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Just curious if you're looking at opportunities to do more kind of like structured finance deals with your tenants rather than pretty simple deals. If you're moving in that direction, how you would think about that, if at all?

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yes. I mean, ultimately, our goal as a company is to own real estate with a durable cash flow that grows over time. We have done some structured finance lending products over the years. Our loan book has not grown materially and it's never really been a material part of our business given our focus on acquiring fee simple assets with long dated leases supporting the cash flows. And so we look at it, we consider it, we provide it on a kind of special situations for tenant relationships that we want to support.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

And when we do provide it, we want to get compensated for it relative to our core business or buying real estate and owning it. And so I wouldn't expect a material shift in our mix of fee ownership and loans. We'll do it to support a relationship, but ultimately look to get paid for it. Don't expect us to change what we're doing.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Okay. That's great. And if I may ask just one other quick one. Just again, appreciate the comments about tariffs and you guys being more service oriented, and that's helpful. But again, curious if you really are setting up for whether it's a recession or slowdown in the economy, however you want to define that, a higher or longer rate environment due to stubbornly high inflation.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

I guess how do we think about the middle market sector against that backdrop in general? Will there be potential areas of risk or you just kind of look at that as, again, they can pass on the cost, so there should be no impact? Just kind of curious how you're also kind of thinking about that scenario and how it could impact the tenant base.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Yeah, I mean, we start with the industries we selected, which are service and experience based, largely necessity. And then we focus on our position as a landlord, which, as I pointed out earlier in the call, is senior to the debt and senior to the equity. Most of our operators, many of our operators are really sale leaseback capital and equity in their capital stack. And so there will be operating pressures, but we do not expect them to materialize into situations where our tenants are looking for rent relief. Given our 3.5 times coverage of rent across the portfolio, it would take real prolonged dislocation to create a scenario where our guys are not paying their rent.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Appreciate that. Thank you.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Awesome. Thank you.

[Operator]

And it does appear that there are no further questions at this time. I would now like to turn the call back to Pete Mavoides for any additional or closing remarks.

[Pete Mavoides, CEO & President at Essential Properties Realty Trust]

Great. Well, first, thanks to the team. Great job this quarter and great momentum here into the second. We're going to be on the road quite a bit in the coming weeks and months with the Bank of Montreal Conference and the Wells Fargo Conference and the NAREIT, so we certainly look forward to the opportunity to engage with investors continue to talk about the business. Thank you all for your time today.

[Operator]

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful rest of your day.

Participants

Executives

• Robert Salisbury, SVP, Head of Corporate Finance and Strategy
• Pete Mavoides, CEO & President
• Max Jenkins, EVP & COO
• AJ Peil, EVP & CIO
• Mark Patten, EVP, CFO & Treasurer

Analysts

• Spenser Glimcher, Managing Director at Green Street Advisors, LLC
• Eric Borden, Vice President at BMO Capital Markets
• Michael Goldsmith, US REITs Analyst at UBS Securities LLC
• Haendel St. Juste, Managing Director at Mizuho Financial Group
• Caitlin Burrows, Vice President at Goldman Sachs
• John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo
• Jay Kornreich, VP - Equity Research at Wedbush Securities
• Smedes Rose, Director at Citi
• Jana Galan, Director at Bank of America
• James Kammert, Managing Director at Evercore ISI
• Greg Mcginniss, Director at Scotiobank
• Daniel Guglielmo, Equity Research Analyst at Capital One Financial
• Omotayo Okusanya, Managing Director at Deutsche Bank