NYSE:EPRT Essential Properties Realty Trust Q2 2025 Earnings Report $30.24 -0.09 (-0.28%) Closing price 08/8/2025 03:59 PM EasternExtended Trading$30.28 +0.03 (+0.10%) As of 08/8/2025 06:30 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. ProfileEarnings HistoryForecast Essential Properties Realty Trust EPS ResultsActual EPS$0.46Consensus EPS $0.47Beat/MissMissed by -$0.01One Year Ago EPS$0.47Essential Properties Realty Trust Revenue ResultsActual Revenue$129.11 millionExpected Revenue$131.72 millionBeat/MissMissed by -$2.62 millionYoY Revenue Growth+25.40%Essential Properties Realty Trust Announcement DetailsQuarterQ2 2025Date7/23/2025TimeAfter Market ClosesConference Call DateThursday, July 24, 2025Conference Call Time10:00AM ETUpcoming EarningsEssential Properties Realty Trust's Q3 2025 earnings is scheduled for Wednesday, October 22, 2025, with a conference call scheduled on Thursday, October 23, 2025 at 10:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)SEC FilingEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Essential Properties Realty Trust Q2 2025 Earnings Call TranscriptProvided by QuartrJuly 24, 2025 ShareLink copied to clipboard.Key Takeaways Positive Sentiment: In 2Q, the company invested $334 million at a weighted average cash yield of 7.9% and GAAP yield of 9.7%, and raised full-year investment guidance to $1.0–1.2 billion thanks to a strong pipeline. Positive Sentiment: 2025 AFFO per share guidance was increased to a range of $1.86 to $1.89—an 8% midpoint boost—without the need for additional equity issuance. Positive Sentiment: Portfolio credit trends remain healthy with 1.4% same-store rent growth, 99.6% occupancy and a 3.4x unit-level coverage ratio, outperforming budgeted credit loss assumptions. Negative Sentiment: Management notes that competition for net-lease assets could intensify and lead to cap-rate compression, though this has not yet materialized in their deal pipeline. Positive Sentiment: Liquidity is robust with $1.3 billion available, pro forma leverage at 3.5x, and $119 million of equity raised via the ATM program, providing ample runway for growth. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallEssential Properties Realty Trust Q2 202500:00 / 00:00Speed:1x1.25x1.5x2xTranscript SectionsPresentationParticipantsPresentationSkip to Participants Operator00:00:00Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:12Later, you will have the opportunity to ask questions during the question and answer session. 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 Patten, chief financial officer Max Jenkins, chief operating officer AJ Peel, chief investment officer and Rob Salisbury, head of corporate finance and strategy. Operator00:01:20It is now my pleasure to turn the call over to Rob Salisbury. Please go ahead. Robert SalisburySVP & Head - Capital Markets at Essential Properties Realty Trust00:01:26Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties' Second 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 those 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. With that, I'll turn the call over to Pete. Pete MavoidesCEO & President at Essential Properties Realty Trust00:02:08Thanks, Rob, and thank you to everyone joining us today for your interest in Essential Properties. In the second quarter, despite a macroeconomic backdrop that remains volatile, the operating environment was favorable for our business as our team continued to source attractive investment opportunities, focusing on middle market sale leasebacks with growing operators within our targeted industries. During the quarter, we continued to support our existing relationships, which contributed 88% of our $334,000,000 of investments, underscoring the value of recurring business with our tenant base. Pricing was favorable in the quarter with weighted average cash yield of 7.9% and a particularly strong average GAAP yield of 9.7%. Our portfolio continued to perform well with tenant credit trends and same store rent performance healthy and ahead of our budgeted credit losses. Pete MavoidesCEO & President at Essential Properties Realty Trust00:03:11We further extended our capital position during the quarter, issuing $119,000,000 of equity through our ATM program. Our pro form a leverage is 3.5 times and we have $1,300,000,000 of liquidity. This positions us well to continue to invest, support our relationships and grow our portfolio, while generating sustainable earning growth for our shareholders. With the portfolio performance and investment activity ahead of budgeted expectations, we are increasing our twenty twenty five AFFO per share guidance to a range of $1.86 to $1.89 On our first quarter earnings call, we discussed our expectation that competition could build as capital markets normalize, resulting in cap rate compression. Though we have not yet seen this materialize in our opportunity set, we continue to expect our investment cap rates in 2025 to trend lower. Pete MavoidesCEO & President at Essential Properties Realty Trust00:04:13Having closed $642,000,000 of investments in the first half of the year, our pipeline today gives us conviction to also increase our investment guidance range by $100,000,000 to a new range of $1,000,000,000 to $1,200,000,000 Importantly, we do not need to raise any incremental capital to achieve our guidance range this year. If we executed at the midpoint of our investment guidance range and did not raise any additional equity capital, our year end leverage would be under four times, leaving us ample capital runway into next year. Turning to the portfolio. We ended the quarter with investments in 2,190 properties that were leased to over 400 tenants operating in our targeted core industries. Our weighted average lease term stood at fourteen years at quarter end, in line with a year ago, which is 4.9% of our annual base rent expiring over the next five years. Pete MavoidesCEO & President at Essential Properties Realty Trust00:05:15From a tenant health perspective, our weighted average unit level coverage ratio was 3.4 times this quarter, indicative of the profitability and cash flow generation by our tenants at the unit level. With that, I'll 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. Max JenkinsCOO at Essential Properties Realty Trust00:05:38Thanks, Pete. On the investment side, during the second quarter, we invested $334,000,000 at a weighted average cash yield of 7.9%. Our investment activity in the quarter was broad based across most of our top industries with no notable departures from our investment strategy. This quarter, our investments had a weighted average initial lease term of 19.5 years and a weighted average annual rent escalation of 2.2%, generating a strong GAAP yield of 9.7%. Our investments this quarter had a weighted average unit level rent coverage of 3.4 times, reflecting a conservative rent level and healthy unit profitability for our operators. Max JenkinsCOO at Essential Properties Realty Trust00:06:20During the quarter, we closed 25 transactions comprising of 77 properties, of which 93% were sale leasebacks. The average investment per property declined to $4,000,000 this quarter as our deal activity was characterized by granular freestanding properties, which is one of the core elements of our strategy. Looking ahead, our investment pipeline remains strong across all of our targeted industries. Pricing in our pipeline is relatively consistent with our second quarter transactions with cap rates in the high 7% range and strong contractual escalations, which is supportive of our long term growth trajectory. Combined with our investments of $642,000,000 in the first half of the year, we have sufficient line of sight to support our increased full year investment guidance range of $1,000,000,000 to 1,200,000,000.0 With that, I'll turn the call over to A. Max JenkinsCOO at Essential Properties Realty Trust00:07:11J. Peel, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:07:17Thanks, Max. At a high level, our portfolio credit trends remain healthy with same store rent growth in the second quarter of 1.4% and occupancy of 99.6%. As a reminder, the weighted average lease escalation in our same store portfolio was lower than our overall portfolio as the higher lease escalations on investments executed over the past several quarters have not entered the same store pool yet. While there were no noteworthy credit events during the second quarter, we received resolution regarding the Zips carwash bankruptcy. As a reminder, Zips filed for bankruptcy earlier this year, at which time we own three properties representing approximately 20 basis points of ABR. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:07:53Down from a peak exposure in twenty seventeen of 16 sites with over 5% of ABR. Of the three sites that remain in our portfolio at the time of bankruptcy, we sold two and one remains leased to the operator. The overall recovery rate was consistent with our historical recoveries and in line with our budgeted credit loss assumptions. From a tenant concentration perspective, our largest tenant equipment share represents 3.7% of our ABR at quarter end. Our top 10 tenants account for just 17.6% of ABR, and our top 20 account for 28.8% of ABR. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:08:25Tenant diversity is an important risk mitigation tool, and it is a direct benefit of our focus on middle market operators. On the disposition front, we had an active second quarter, selling 23 properties for $46,200,000 in net proceeds. This represents an average of approximately $2,000,000 per property, highlighting the importance of owning fungible liquid properties, allowing us to proactively manage portfolio risk. The dispositions this quarter were executed at a 7.3% weighted average cash yield. Over the near term, we expect our disposition activity to be more muted, driven by opportunistic asset sales and ongoing portfolio management activity. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:09:00With 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 second quarter. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:09:08Thanks, AJ. Overall, we were pleased with the second quarter results, highlighted by the strong level of investments that Pete and Max outlined at a 7.9% cash cap rate. Our AFFO per share totaled $0.46 which represents an increase of 7% versus Q2 twenty twenty four. On a nominal basis, our AFFO totaled $93,000,000 for the quarter, which is up 21% from the same period in 2024. This AFFO performance was consistent with our expectations as reflected in our guidance range. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:09:44Total G and A in Q2 twenty twenty five was $10,700,000 versus $8,700,000 for the same period in 2024, which is consistent with our budgeted expectations. The majority of the year over year increase is related to increased compensation expense as we continue to expand our team in support of driving our growth ambitions. Our cash G and A was $7,200,000 this quarter, which is consistent with our guidance range of $28,000,000 to $31,000,000 for the year and represents just 5.2% of total revenue, down from 5.6% the same period a year ago. We declared a cash dividend of $0.30 in the second quarter, which represents an AFFO payout ratio of 65%. Our retained free cash flow after dividends, which we view as an attractive source of capital to support our growth, continues to build, reaching 34,400,000 in the second quarter, equating to over $130,000,000 per annum on a run rate basis. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:10:48Based 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 Q2 twenty twenty five, our income producing gross assets reached $6,600,000,000 at quarter end. The increasing scale and diversity of our income producing portfolio continues to build, improving our credit profile. On the capital markets front, we raised approximately $119,000,000 of equity through our ATM program and settled $20,000,000 of forward equity in the quarter, leaving us with a balance of unsettled forward equity totaling $5.00 $7,000,000 at quarter end. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:11:31We expect to utilize these funds in the near term to support our investment activities and preserve our balance sheet flexibility by repaying our revolving credit facility balance in the third quarter. Similar to last quarter, our share price remained above the weighted average price of our unsettled forward equity of $30.73 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. For the second quarter, our diluted share count of 199,600,000.0 included an adjustment for 600,000.0 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, which was consistent with our budgeted expectations. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:12:22Based on our current share price, we continue to expect a modest headwind again in the third quarter. Our pro form a net debt to annualized adjusted EBITDAre as adjusted for unsettled forward equity was 3.5 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 our tenant relationships in this choppy capital market environment. Lastly, as we noted in the earnings press release, we have increased our twenty twenty five AFFO per share guidance to a new range of $1.86 to $1.89 representing 8% growth at the midpoint. Importantly, this guidance range requires no incremental equity issuance. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:13:09With that, I'll turn the call back over to Pete. Pete MavoidesCEO & President at Essential Properties Realty Trust00:13:11Thanks, Mark. In summary, we are happy with our second quarter results. The portfolio is performing well, the investment market is exceptional, and the capital markets are supportive. We remain excited about the prospects for our business. Operator, let's please open the call for questions. Operator00:13:30Thank you. We'll take our first question from Eric Borden with BMO Capital Markets. Please go ahead. Eric BordenVice President at BMO Capital Markets00:13:52Hey, good morning everyone. Just with acquisitions year to date tracking above the midpoint of your raised guidance and your positive commentary around the pipeline in your prepared remarks, Understand that you do expect some competition here, but just curious what's preventing you from leaning more into the acquisitions just given the presumably strong fourth quarter, but also understand there's some offset with seasonality in the third quarter? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:14:22Yes. Listen, I think we are leaning strong into acquisitions. And as I said in the prepared remarks, the investment market continues to be pretty exceptional for us was the word I used. So we are leading strong into acquisitions. I think your question is more around guidance. Pete MavoidesCEO & President at Essential Properties Realty Trust00:14:43And really, the guidance on investment volume more is just really conservatism because we rarely have more than ninety days of visibility on the pipeline. But you're correct, the fourth quarter tends to be elevated, and we'll see what the fourth quarter brings. From an earnings perspective, the fourth quarter investments don't impact 2025 a lot and more impact the out years, and we'll adjust the guidance accordingly throughout the year as we always do. Eric BordenVice President at BMO Capital Markets00:15:13Okay. Thank you. And then just on the occupancy side, occupancy dips slightly sequentially to still solid 99.6. Is there anything specific to call out there? And then just taking a step back as it relates to the 40 bps of total vacancy, what is the quantum of assets that make up that bucket? Eric BordenVice President at BMO Capital Markets00:15:34And then can you provide an update on either leasing progressions or potential dispositions? Pete MavoidesCEO & President at Essential Properties Realty Trust00:15:42Yes, listen, there's a lot in that and it really just all goes to asset management. In terms of vacancy, we have nine properties out of 2,100, and I think that was up from six. Is that correct, JJ? Correct. And you're talking with average property value of $3,000,000 $27,000,000 of value. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:03It's not really material. There's always ebbs and flows, tenants who no longer want to be in the properties or with expiring leases, and we're selling those, engaging those. Anything specific you'd call out, AJ? Eric BordenVice President at BMO Capital Markets00:16:16No, I would say the majority of the vacant is in the restaurant space. And I think what you'll see is the recoveries are consistent with our historical recoveries, which we're around $0.8 on the dollar when we relet those assets or sell them off. That's really what makes up the vacant bucket today. Gotcha. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:34Yeah, nothing material And I think the bigger point is the forward indicators of risk around coverage and same store sales. And back to the prepared remarks, the portfolio credit health is very strong. Eric BordenVice President at BMO Capital Markets00:16:53Well, thank you very much. Appreciate the time. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:56Hey, thank you for the questions. Operator00:16:59Thank you. Our next question comes from Michael Goldsmith with UBS. Please go ahead. Michael GoldsmithUS REITs Analyst at UBS Group00:17:06Good morning. Thanks a for taking my question. Just back to the competition piece, right? You noted on the first quarter call that you expected it could to show up and it hasn't yet. So I guess, what are you looking for in order for that to show up and start to drag cap rates down a little bit? Michael GoldsmithUS REITs Analyst at UBS Group00:17:26Like is it what is it exactly that you're looking for? And when are you expecting that to start to impact cap rates? Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:17:38Yeah. Listen, I've been saying it for almost a year now. And I really I don't control capital or competition. And when it comes, it comes. And we just know that there's substantial amount of capital that's been raised and targeted towards net lease investments, and we expect it to impact us in the transaction market. Pete MavoidesCEO & President at Essential Properties Realty Trust00:18:05But we continue to have an ample opportunity set. Our counterparties continue to value our consistency and reliability, and we continue to be very aggressive in deploying capital. And if you think about it, an average GAAP yield of 9.7 for the type of investing we build is pretty extraordinary. So I don't know. I don't know when it's coming. Pete MavoidesCEO & President at Essential Properties Realty Trust00:18:30I've been wrong, I guess, for the last two years. But I'll stick to my guns and say it's coming. Michael GoldsmithUS REITs Analyst at UBS Group00:18:40Got it. Thanks for that. And as my follow-up, I think your bread and butter has been doing kind of individual deals, small properties, now average acquisition size of a property value of $4,000,000 But now the past couple of quarters, you've done a couple of portfolio deals. So is that going to be an increase as you get larger and need to continue to acquire more, is that going to increase become part of your repertoire? Or is this just more just two opportunities that you have identified and you should get back to kind of doing a bunch of individual property deals going forward? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:19:24Yeah, so the average profile of our deal is going to be 10,000,000 to $15,000,000 involving two to five properties with a existing tenant, and that hasn't changed. And every quarter, that can flex up to 50,000,000 to $100,000,000 or and I think one of the reasons we provide the stats around our investments is to kind of give you a view as to our consistency there. And Max gave the commentary in the prepared remarks, and I think the second quarter was certainly consistent with past quarters. As we get bigger, we have the capacity to do bigger deals, whether it be $100,000,000 or and we did million dollars deal in the second quarter without sorry, that's my fault without blowing our concentration limits. But you should expect us to continue to be very granular in our investments and in our properties. Michael GoldsmithUS REITs Analyst at UBS Group00:20:29Thank you very much. Good luck in the back half. Pete MavoidesCEO & President at Essential Properties Realty Trust00:20:32Thank you very much. Appreciate it. Thanks, Michael. Thanks for question. Operator00:20:36Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead. Caitlin BurrowsVice President at Goldman Sachs00:20:43Hi, good morning. Maybe just back to the cap rate side. So like you mentioned, the cash cap rate of 7.9% in 2Q is pretty consistent with the past eight quarters, but then the GAAP rate was higher. So can you go through what drove that higher? Is it due to industry mix, a strategy on lease steps, some combination or something else? Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:02Yes. I think it's really, Caitlin, it just comes down to the math. When you have a longer average lease term, right, at 19.5% versus past quarters at 17%, and then you have better bumps. And I think overall, our ability to negotiate longer lease terms and better bumps is just reflective of the competition that we're facing in the market. And we're always trying to get the best economic returns we can in a deal, ultimately, drives our ability to drive those numbers. Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:36And we're pretty happy with the results in the second. Caitlin BurrowsVice President at Goldman Sachs00:21:40I guess, would you say then on that competition point that because there was less competition, you were able to push it more in the second quarter? Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:48I think that's accurate, yes. Caitlin BurrowsVice President at Goldman Sachs00:21:50Got it. Then sticking on the competition point, so you mentioned that 88 was repeat business. So I guess when you think of the other 12%, could you go through some of your strategy on how you identify that business? It seems like that could be a way to somewhat avoid the competition going forward as long as you have incremental new business to go after. Pete MavoidesCEO & President at Essential Properties Realty Trust00:22:11Max, that's your job. Why don't you answer it? Max JenkinsCOO at Essential Properties Realty Trust00:22:13Sure. Thanks, Pete. We kind of take a three pronged approach. Number one, it's always going to be repeat business and referrals. And then in the middle market, our operators, they all talk within their industries and the fact that we've been doing this consistently for years since inception and sticking to our core thesis of providing growth capital through sale leaseback financing to middle market operators. Max JenkinsCOO at Essential Properties Realty Trust00:22:37That's a strong sourcing method. We obviously do cold outreach and visit industry conferences. And so that three pronged approach continues to drive new operators and new relationships. And we're continuing to do that every quarter and have been since inception. And the percentage is kind of volume weighted. Max JenkinsCOO at Essential Properties Realty Trust00:22:55So we're always adding new relationships every quarter and just depends on the transaction size. And so sometimes that can be skewed one way or another. Caitlin BurrowsVice President at Goldman Sachs00:23:05Got it. Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:23:06Thanks, Kael. Operator00:23:09Thank you. Our next question comes from Haendel St. Juste with Mizuho. Please go ahead. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:23:18Hey guys, good morning. Thanks for taking my question. Pete, I was hoping you could give us maybe some insight into your thought process on acquiring the portfolio, Whistle car washes in the quarter. I think many of us have expected your car wash exposure to head lower. You're sitting here around 15%. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:23:34So maybe some color on that thought process. And also if there's any color you can share on the price pace for the portfolio, cap rate, rent coverage bumps, any of those details. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:23:44Well, thanks for the question, Haendel. I think I'll take arbitration question and then kick it to A. J. For the details on this transaction itself. But we always have articulated a soft ceiling of 15% on industry concentration, bringing car wash down through the fourth quarter into the first was very deliberate because we had visibility on the Whistle transaction. Pete MavoidesCEO & President at Essential Properties Realty Trust00:24:11And we're happy with our ability to manage that exposure, bring it down to fill up capacity to add new tenants with good investments. In terms of specifics, AJ, why don't you not get too specific, but give an overview that transaction? Sure, Haendel. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:24:29So, as Peter mentioned, we were working the exposure down Whistle was an existing tenant. We had the opportunity to partner with them on the sale leaseback transaction as they acquired the car wash portfolio from Driven Brands. The assets we acquired were well established season sites. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:24:49The portfolio coverage was greater than two times. We feel we have really good economics on the lease escalations. We're able to provide attractive sale leaseback financing to an existing tenant. We're really happy with the transaction. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:06Given Pete MavoidesCEO & President at Essential Properties Realty Trust00:25:10the size of the operator and the quality of the assets, the cap rate on that investment was probably inside of the average for the quarter. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:19Okay. I appreciate the details, comments. And just one more, going back to the conversation around the competition set. Obviously, the list of folks who have entered the single tenant space here has been growing here in recent quarters. I guess I'm curious, has there been anything about their strategies that you are able to identify or ascertain that suggests that they're maybe less likely or perhaps less of a competitive threat to what some people might perceive? Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:46I'm just curious if, you know, any insight into what perhaps they might be doing or targeting differently that could suggest less of a threat? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:25:57Yeah, listen, I can't really speak to other shops and how they're organized and what their competitive advantages are. I can certainly speak to ours. And I think our ability to consistently provide capital into these industries, our ability to do small transactions, and our proprietary data around to support those investments is what differentiates us in the market. We tend to see the most acute competition the bigger, broadly marketed deals. And you see cap rates on those deals really getting away from us and well inside of we're currently deploying capital. Pete MavoidesCEO & President at Essential Properties Realty Trust00:26:44And I think you're a new shop, you're going to rely on the brokerage network and compete solely based upon your cost of capital, which is not how we go to market. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:27:00Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:27:02Thank you. Operator00:27:04Thank you. Our next question comes from Rich Hightower with Barclays. Please go ahead. Rich HightowerMD - U.S. REIT Research at Barclays00:27:11Hey, good morning, everybody. I think, most of my questions have been asked and answered, but, maybe I was just curious for a little more color on the credit side of things. It sounds like maybe if we go back in time and think about expectations ninety days ago, I think sentiment was probably a little worse than it is today or has proven out to be. Why do you think that is? And what's in the crystal ball from what you can sort of tell with your existing portfolio companies and just what the feedback is, what you're seeing in the numbers? Rich HightowerMD - U.S. REIT Research at Barclays00:27:43Just give us a little more color on the credit side. Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:27:48Yeah, think I would start our position on the credit as a super senior secured landlord remains pretty durable, we don't see any erosion in our cash flows or delinquencies or things that give us concern. Looking at the operators and numbers and the industries, generally, we see flat trends with not sales that are same store sales that are growing at a high rate, and we're seeing slightly improved margins. But I think overall, we're encouraged by the stability that we're seeing in our industries. And we don't see any major concerns emerging. Rich HightowerMD - U.S. REIT Research at Barclays00:28:42Okay, that's good news. And then just to, I guess, ask another follow-up on the competition side. If you break down the typical deal between going in yield escalators, Walt industry exposure, that sort of thing. Mean, more and more competition comes in, even if it's not precisely in the sandbox that you guys typically play in, I mean, where would you expect deal terms to change out kind of those mix of different elements of every deal? Pete MavoidesCEO & President at Essential Properties Realty Trust00:29:15Yes. I think the you can certainly look back at our disclosure and where we're deploying capital back in 2020 and 2021. I think the low on the initial cap rate was 6.9% and the low on the escalations was 1.4% and a low on lease term was, call it, We negotiate all of those economic terms. I think the point of most sensitivity is going in cap rate, followed by escalations, with lease term being the least sensitive to these operators. And certainly, when we're doing a deal, we want an operator who's committing to the proper long term. Pete MavoidesCEO & President at Essential Properties Realty Trust00:29:57So I think the first place you're going to see it is in the initial cap rate, and then it will trickle down through escalations. Rich HightowerMD - U.S. REIT Research at Barclays00:30:07Very helpful. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:30:08Thank you. Operator00:30:11Thank you. Our next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead. Your line is open. Omotayo OkusanyaManaging Director at Deutsche Bank00:30:20Hi, good morning. Congrats on the continued solid execution. Quick question on the acquisition front. So we kind of had the Starwood fundamental deal. Just curious again, if something like that ends up being too large for you guys to look at, whether again, pricing on deals like that becomes an issue. Omotayo OkusanyaManaging Director at Deutsche Bank00:30:41Just kind of curious again, I know your wheelhouse is doing these smaller granular deals, but for something that's bigger but not too big, you know, as this deal, how do you guys kind of think through an opportunity set like that? Pete MavoidesCEO & President at Essential Properties Realty Trust00:30:57Yeah, quite frankly, we didn't even take a look at it. We have an ample opportunity set of freshly originated deals through our relationships. And I think the bar for me to buy someone else's underwriting, someone else's existing portfolio is pretty high. Would have to be wide of where we're deploying capital. And ultimately, I don't think that transaction was priced at a 7.9% was where we deployed capital in the second quarter. Pete MavoidesCEO & President at Essential Properties Realty Trust00:31:32And I think anecdotally, that transaction priced closer to 7 Omotayo OkusanyaManaging Director at Deutsche Bank00:31:39Fair enough. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:31:41Thank you, Teo. Operator00:31:44Thank you. Our next question comes from John Kielicowski with Wells Fargo. Please go ahead. John KilichowskiVP - Equity Research at Wells Fargo00:31:52Thank you. Good morning. Maybe it's on a topic we haven't really touched. It's been a quarter now since some tariffs have been in place, know, some have been paused. But I'm curious, you know, as you look across the sectors where you're getting unit level coverage data, if you're seeing any delta in performance by certain sectors being more impacted than others? Pete MavoidesCEO & President at Essential Properties Realty Trust00:32:13We really aren't. It's not our portfolio is largely service and experience, 90 plus percent. And they're not buying goods that are subject to tariffs that they're then reselling to the consumer. And so as I mentioned earlier, the portfolio trends have been incredibly stable. John KilichowskiVP - Equity Research at Wells Fargo00:32:36And then maybe just on the guidance raise, I think you touched on this a little bit earlier, but how do you think about raising the low end versus the high end? Is that more of a product of better than expected credit performance or is that the outperformance on the acquisition side or some grouping of both? Why does that not impact the high end? Pete MavoidesCEO & President at Essential Properties Realty Trust00:32:59It's just what the model is saying. But Mark, you want to? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:33:01Yes. I mean, listen, I think, John, the first two things you mentioned are probably right. We had a strong first and second quarter investment levels, strong cap rate, what we were expecting. So that gave us comfort on bottom end of the range and credit loss, think, was better than we were expecting. But when you're at an 8% growth rate on the AFFO per share for the year, for us I think it's a function of we just didn't think as Pete said, the model was telling us we should bump the top end. John KilichowskiVP - Equity Research at Wells Fargo00:33:35Got it. Thank you. Operator00:33:40Thank you. Our next question comes from Ryan Caviola with Green Street. Please go ahead. Ryan CaviolaAssociate at Green Street Advisors, LLC00:33:49Good morning. Thanks for taking my question. Since that 15% ABR soft ceiling was nearly achieved for car washes, assuming acquisitions in that segment slowed down, which other retail areas are most attractive and where you hope to grow exposure to close out the year? Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:09I think you're going to see our investment activity be pretty pro rata and the portfolio grow ratably. We'll continue to invest in car washes. And really, I think that as I look at the end of the year, the percentages of our industry mix will be pretty consistent. Ryan CaviolaAssociate at Green Street Advisors, LLC00:34:31Great. Thanks. And then there are two industrial acquisitions over the quarter. I know that's very small, but anything any expanded interest there? Or is this just sort of opportunistic as you see them? Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:45Yes. I think we don't we like industrial. We like doing sale leasebacks with middle market tenants. We like servicing our relationships. And when we find good opportunities, we deploy capital there. Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:59I would say our industrial investments tend to be characterized by very fungible real estate assets, industrial assets that have ready alternative uses. We try to avoid big chunky special use assets, but we do see good opportunities there. And when we do, we take advantage of Ryan CaviolaAssociate at Green Street Advisors, LLC00:35:25Awesome. Appreciate the color. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:35:28Thank you. Operator00:35:30Thank you. And our next question comes from Ki Bin Kim with Truist. Please go ahead. Ki Bin KimMD - US REIT Equity Research at Truist00:35:36Thanks. Good morning, guys. Just a couple of follow ups here. Can you just comment on any foot traffic or sales trends that you've noticed in your restaurants or entertainment segment? Pete MavoidesCEO & President at Essential Properties Realty Trust00:35:53AJ, what do got? AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:35:54So anecdotally, I would tell you that we use Placer AI internally to monitor that. And we have noticed a marked increase in particular in the entertainment sector as June rolled over on the calendar. I think that is flowing through the restaurant space as well. I wouldn't want to call it any one specific restaurant or entertainment concept is where we're noticing this, but we do keep an eye on and we have seen traffic increase. Ki Bin KimMD - US REIT Equity Research at Truist00:36:21Okay, and for the tenants that are under 1.5 times coverage bucket, just curious, has that coverage been stable or improving over time? Pete MavoidesCEO & President at Essential Properties Realty Trust00:36:36Yeah, listen, I would say it's we don't really think about it as tenants. We think about it as properties. Those individual properties are sub performing for some reason. And it tends to be very transitory. We have sites where it's underperforming and the operator hires a new manager and gets the site performing well or sites that lose a manager and tend to perform poorly. Pete MavoidesCEO & President at Essential Properties Realty Trust00:37:08We also have sites that are pro form a sites that are coming online that tend to ramp and come in and out of that bucket. So there's a lot of different situations going on within our 2,100 properties that kind of influence that. Ki Bin KimMD - US REIT Equity Research at Truist00:37:24Okay, thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:37:26You got it, Ki Bin. Operator00:37:29Thank you. Our next question comes from Smedes Rose with Citi. Please go ahead. Smedes RoseDirector at Citi00:37:37Hi, thanks. I just wanted to ask you, you mentioned, I think Mark, in your remarks that you guys will look to probably settle the forward equity over the balance of the year. And I was just wondering, as you think about next year, given your low pro form a leverage, would you anticipate using leverage as a higher percentage of external growth next year and kind of maybe kind of how would you think about getting to sort of a more normal leverage level, guess, since you're kind of on the low end, I think of where you would be over time? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:38:10I mean, you know what, appreciate that question Smedes. I guess what I would say is first and foremost, when you think about our capital sourcing, could probably use a split of 50%, 55% equity, 35% debt give or take and then that 10% free cash flow which is improving every quarter. So I think for us, every year we're going to be sourcing debt capital and certainly think Pete said in his remarks, maybe I even did as well. The good news for us today is we don't have to do anything on the equity side to achieve our ample dry powder to take us into 2026. For us in terms of accessing debt capital, it's opportunistic for us. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:39:00But in terms of the mix, I think you should expect for us to do what we've been doing for frankly since we've come public, but certainly just use the last twelve quarters, that leverage is somewhere around 4.5 times. So I think Pete MavoidesCEO & President at Essential Properties Realty Trust00:39:21Okay, thank you. Thanks, Louise. Operator00:39:26Thank you. Our next question comes from Jana Gallen with Bank of America. Please go ahead. Jana GalanDirector at Bank of America00:39:33Thank you. Good morning. Just a quick question on the strong growth of the company and the team growing, given Mark called out the compensation expense. How do you think about the scale of the platform? Are you targeting an overall G and A as a percent of revenue or assets? Or you're just looking to meet the needs of the company with new hires? Pete MavoidesCEO & President at Essential Properties Realty Trust00:39:54Yeah, I think more than anything, we're trying to drive sustainable earnings growth. And to do that, it requires, one, we grow our investment teams to meet the growing investment opportunity set that we capitalize on, and then growing the portfolio management team to manage the growing portfolio, and then growing the finance and accounting team accordingly. And so we've grown the company since coming public pretty steadily, both in terms of assets and people. And we'll continue to invest in our people to do that. G and A really is an output of that. Pete MavoidesCEO & President at Essential Properties Realty Trust00:40:37We look at our infrastructure, we look at our organization, we look at what we need to execute the business plan that really is ultimately driven by growth and growth in earnings. Jana GalanDirector at Bank of America00:40:50Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:40:53Thank you. Operator00:40:55Thank you. Our next question comes from Daniel Guilhermeux with Capital One Securities. Please go ahead. Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:41:04Hi, everyone. Thank you for taking my question. Just one from me. You all are always nimble on the industries you invest into and there was an uptick in the convenience store space with Allsup as a new top 10 tenant as well. What are some key characteristics you look for in that business type? Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:41:22Is it hot food option necessary or is fuel traffic and location most important? Anything you can give there would be helpful. Pete MavoidesCEO & President at Essential Properties Realty Trust00:41:31AJ, what do got? AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:41:32So just a quick clarifying point, Allsup's we previously branded that Yes Way. It's a dual brand and they're growing the Allsup's platform so we just put the new logo in. So that was not a new investment. It's something we've owned for well over a year at this point. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:41:48And then more broadly just in the convenience store space, we're looking for groups that have reasonable size and scale. We track gallons sold inside store sales and then underwrite the underlying profitability of the unit and make sure that the corporate credit is stable. So then when we make the investments, we're generally looking for well positioned C stores with ample inside store sales and very strong gallons sold. Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:42:18Great. I appreciate that clarification too. Thank you. Operator00:42:24Thank you. We will move next with Greg McGinnis with Scotiabank. Please go ahead. Greg McginnissDirector at Scotiobank00:42:32Hey, good morning. Keith, I appreciate your earlier commentary on the acquisitions of the industrial category. But given the size of those transactions with, on average, rents 4x, portfolio average, could you provide some more details on those and why you're comfortable making bigger bets in that space? Pete MavoidesCEO & President at Essential Properties Realty Trust00:42:50Yeah, listen, I don't think it was a bigger bet. They were very granular investments. And we like the real estate and the tenants that were signing long term leases to be in that space. Greg McginnissDirector at Scotiobank00:43:04ABR was up $2,500,000 with the two investments there. So it seems to imply they're at least bigger on the rent side, no? Pete MavoidesCEO & President at Essential Properties Realty Trust00:43:13Yeah, I mean part of that's the initial cap rate too. It was three different investments. And so yeah, they're bigger assets, but still under $20,000,000 And certainly, with the size and scale of our portfolio, we have not outsized risk. Greg McginnissDirector at Scotiobank00:43:32Okay, thanks. We understand there's no necessarily a need to raise equity in order to hit acquisition guidance given the ample dry powder. But with the stocks not materially below where you issued last quarter, is there reason to expect that you wouldn't use the ATM at this time to help continue to pre fund investments? Pete MavoidesCEO & President at Essential Properties Realty Trust00:43:55I would say we'll execute accordingly and see how the market performs. We're in a great position from a liquidity and leverage perspective. And if we see the opportunity to continue to maintain that position, we will. It'll just depend on how the market reacts. Greg McginnissDirector at Scotiobank00:44:16Okay, thank you. Operator00:44:21Thank you. And we will move next with John Massocca with B. Riley Securities. Please go ahead. John MassoccaSenior Research Analyst at B Riley Financial00:44:29Good morning, everybody. Pete MavoidesCEO & President at Essential Properties Realty Trust00:44:31Good morning, John. John MassoccaSenior Research Analyst at B Riley Financial00:44:33So how should we kind of feel about the cadence of transaction volume in the current quarter? Just kind of thinking about I know we're early in 3Q, but you've only closed $8,000,000 year to date sorry, quarter to date, and you had a pretty decent amount you'd think still left in kind of the PSA or LOI bucket, even kind of netting out what you closed between the May and the end of 2Q. So just kind of curious, is there something chunky out there? Is there stuff that's kind of falling in and out of the pipeline? Just trying to get a feel for transaction volume, maybe on a super short term basis. Pete MavoidesCEO & President at Essential Properties Realty Trust00:45:09Yes. Week over week, that's your fault. What do you want? Max JenkinsCOO at Essential Properties Realty Trust00:45:14Sure. I wouldn't look too much into it. The pipeline, we're happy with where it is. It's pretty consistent. Some timing with July 4 and the start of summer, but so I wouldn't look into read into the $8,000,000,000 but overall, the pipeline is strong and consistent with prior quarters. Pete MavoidesCEO & President at Essential Properties Realty Trust00:45:29What is the pipeline currently? Max JenkinsCOO at Essential Properties Realty Trust00:45:31Currently, we're sitting at about $290,000,000 at a 7.8%. John MassoccaSenior Research Analyst at B Riley Financial00:45:35Great. Helpful. And then on the debt side, how are you thinking about maybe potentially raising some debt? I know you talked about the ability to use the in place forward equity to fund the rest of the year's investment activity, but you took 200 down the line. It seems like markets are getting pretty accommodative from a spread perspective. John MassoccaSenior Research Analyst at B Riley Financial00:45:57I mean, would that be something you would consider in 2H? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:46:03Yes. I mean, I guess thanks for that question, by the way. Look, we I'd say we maintain our view regarding the merits of returning to the bond market. As a logical long term source of permanent debt capital, particularly that's really optimizing the alignment with our weighted average lease term. And gratefully since we last were on a call, the spread environment for us, if you use our current one existing bond, improved markedly. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:46:35Obviously, the ten year remains somewhat volatile. But I guess what I'd say is the equity deal we did in March, a good quarter on the ATM in second quarter really puts us in a position where we but I would tell you that I'd expect in the we'd be looking for that spot to but I guess said, and I think I did in my remarks, we don't need the capital today. We're in a great position in terms of liquidity and our dry powder runway. So that's why we're in John MassoccaSenior Research Analyst at B Riley Financial00:47:19Awesome. Thanks, John. Pete MavoidesCEO & President at Essential Properties Realty Trust00:47:20Good. John MassoccaSenior Research Analyst at B Riley Financial00:47:21I'm sorry. I was I breaking up, or was you breaking up? I couldn't hear the end of Mark's remark there. Pete MavoidesCEO & President at Essential Properties Realty Trust00:47:27You said you were a great analyst. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:47:30I I I did say that right at the tail end. I don't know if you heard the part about we still view the bond market as the logical long term source for permanent debt capital going forward, lined up with our wall. That the environment's improved certainly if you use our one issuance. I'm not sure if it's still coming through, but our liquidity position today really puts us in a spot where we can be opportunistic. Somewhere in the second half to your question, most likely. John MassoccaSenior Research Analyst at B Riley Financial00:48:03Is I know just because you have only the one piece of debt outstanding unsecured debt outstanding or unsecured bond outstanding. Is term loan market even more accommodative than that, just given it's a little bit of an orphan issuance at this point? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:48:22Well, I guess I'd say it a different way. The term loan market we think is still open to us and obviously has an attractive all in swap rate. But if you think about it, there's a real benefit in the bond market where we think that's the long term solution. As I mentioned in terms of the best long term permanent to perm out our debt needs, certainly aligned more closely with our weighted average lease term. So I guess what I'd say is there's a benefit to continuing to build your complex in the unsecured bond market, which is why even though they might price a little higher, let's call it in the high fives, we just think long term that's going to be a better strategic solution for us in terms of accessing debt capital. John MassoccaSenior Research Analyst at B Riley Financial00:49:09Understood. Thank you very much. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:49:13Yes. Thanks, John. Pete MavoidesCEO & President at Essential Properties Realty Trust00:49:14Thanks, John. Operator00:49:16Thank you. And this concludes our Q and A session. I will now turn the call back to Pete Mavoides for closing remarks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:49:26Great. Well, thank you all for participating in today's call. As we hope we conveyed, the business is in a great spot, and we look forward to engaging with you all in the coming months. Thank you. Operator00:49:41Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.Read moreParticipantsExecutivesRobert SalisburySVP & Head - Capital MarketsPete MavoidesCEO & PresidentMax JenkinsCOOAJ PeilEVP & Chief Investment OfficerMark PattenEVP, CFO & TreasurerAnalystsEric BordenVice President at BMO Capital MarketsMichael GoldsmithUS REITs Analyst at UBS GroupCaitlin BurrowsVice President at Goldman SachsHaendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial GroupRich HightowerMD - U.S. REIT Research at BarclaysOmotayo OkusanyaManaging Director at Deutsche BankJohn KilichowskiVP - Equity Research at Wells FargoRyan CaviolaAssociate at Green Street Advisors, LLCKi Bin KimMD - US REIT Equity Research at TruistSmedes RoseDirector at CitiJana GalanDirector at Bank of AmericaDan GuglielmoEquity Research Analyst - Consumer at Capital One FinancialGreg McginnissDirector at ScotiobankJohn MassoccaSenior Research Analyst at B Riley FinancialPowered by Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Essential Properties Realty Trust Earnings HeadlinesEssential Properties Realty Trust, Inc. (NYSE:EPRT) Receives $34.90 Average PT from AnalystsAugust 9 at 2:09 AM | americanbankingnews.comUrban Edge Properties (NYSE:UE) & Essential Properties Realty Trust (NYSE:EPRT) Critical ContrastAugust 3, 2025 | americanbankingnews.comMarket Panic: Trump Just Dropped a Bomb on Your Stockstock Market Panic: Trump Just Dropped a Bomb on Your Stocks The market is in freefall—and Trump's new tariffs just lit the fuse. Millions of investors are blindsided as stocks plunge… but this is only Phase 1. If you're still holding the wrong assets, you could lose 30% or more in the coming weeks.August 9 at 2:00 AM | American Alternative (Ad)Realty Income Vs. Essential Properties: My Winner May Surprise YouJuly 28, 2025 | seekingalpha.comEssential Properties Realty Trust Inc (EPRT) Q2 2025 Earnings Call Highlights: Strong ...July 26, 2025 | finance.yahoo.comEssential Properties nudges up low end of AFFO guidance range; Q2 revenue beatsJuly 24, 2025 | msn.comSee More Essential Properties Realty Trust Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Essential Properties Realty Trust? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Essential Properties Realty Trust and other key companies, straight to your email. Email Address About Essential Properties Realty TrustEssential 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.View Essential Properties Realty Trust ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Airbnb Beats Earnings, But the Growth Story Is Losing AltitudeDutch Bros Just Flipped the Script With a Massive Earnings BeatIs Eli Lilly’s 14% Post-Earnings Slide a Buy-the-Dip Opportunity?Constellation Energy’s Earnings Beat Signals a New EraRealty Income Rallies Post-Earnings Miss—Here’s What Drove ItDon't Mix the Signal for Noise in Super Micro Computer's EarningsWhy Monolithic Power's Earnings and Guidance Ignited a Rally Upcoming Earnings SEA (8/12/2025)Cisco Systems (8/13/2025)Alibaba Group (8/13/2025)NetEase (8/14/2025)Applied Materials (8/14/2025)Petroleo Brasileiro S.A.- Petrobras (8/14/2025)NU (8/14/2025)Deere & Company (8/14/2025)Palo Alto Networks (8/18/2025)Medtronic (8/19/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
PresentationSkip to Participants Operator00:00:00Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's Second Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. Operator00:00:12Later, you will have the opportunity to ask questions during the question and answer session. 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 Patten, chief financial officer Max Jenkins, chief operating officer AJ Peel, chief investment officer and Rob Salisbury, head of corporate finance and strategy. Operator00:01:20It is now my pleasure to turn the call over to Rob Salisbury. Please go ahead. Robert SalisburySVP & Head - Capital Markets at Essential Properties Realty Trust00:01:26Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties' Second 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 those 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. With that, I'll turn the call over to Pete. Pete MavoidesCEO & President at Essential Properties Realty Trust00:02:08Thanks, Rob, and thank you to everyone joining us today for your interest in Essential Properties. In the second quarter, despite a macroeconomic backdrop that remains volatile, the operating environment was favorable for our business as our team continued to source attractive investment opportunities, focusing on middle market sale leasebacks with growing operators within our targeted industries. During the quarter, we continued to support our existing relationships, which contributed 88% of our $334,000,000 of investments, underscoring the value of recurring business with our tenant base. Pricing was favorable in the quarter with weighted average cash yield of 7.9% and a particularly strong average GAAP yield of 9.7%. Our portfolio continued to perform well with tenant credit trends and same store rent performance healthy and ahead of our budgeted credit losses. Pete MavoidesCEO & President at Essential Properties Realty Trust00:03:11We further extended our capital position during the quarter, issuing $119,000,000 of equity through our ATM program. Our pro form a leverage is 3.5 times and we have $1,300,000,000 of liquidity. This positions us well to continue to invest, support our relationships and grow our portfolio, while generating sustainable earning growth for our shareholders. With the portfolio performance and investment activity ahead of budgeted expectations, we are increasing our twenty twenty five AFFO per share guidance to a range of $1.86 to $1.89 On our first quarter earnings call, we discussed our expectation that competition could build as capital markets normalize, resulting in cap rate compression. Though we have not yet seen this materialize in our opportunity set, we continue to expect our investment cap rates in 2025 to trend lower. Pete MavoidesCEO & President at Essential Properties Realty Trust00:04:13Having closed $642,000,000 of investments in the first half of the year, our pipeline today gives us conviction to also increase our investment guidance range by $100,000,000 to a new range of $1,000,000,000 to $1,200,000,000 Importantly, we do not need to raise any incremental capital to achieve our guidance range this year. If we executed at the midpoint of our investment guidance range and did not raise any additional equity capital, our year end leverage would be under four times, leaving us ample capital runway into next year. Turning to the portfolio. We ended the quarter with investments in 2,190 properties that were leased to over 400 tenants operating in our targeted core industries. Our weighted average lease term stood at fourteen years at quarter end, in line with a year ago, which is 4.9% of our annual base rent expiring over the next five years. Pete MavoidesCEO & President at Essential Properties Realty Trust00:05:15From a tenant health perspective, our weighted average unit level coverage ratio was 3.4 times this quarter, indicative of the profitability and cash flow generation by our tenants at the unit level. With that, I'll 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. Max JenkinsCOO at Essential Properties Realty Trust00:05:38Thanks, Pete. On the investment side, during the second quarter, we invested $334,000,000 at a weighted average cash yield of 7.9%. Our investment activity in the quarter was broad based across most of our top industries with no notable departures from our investment strategy. This quarter, our investments had a weighted average initial lease term of 19.5 years and a weighted average annual rent escalation of 2.2%, generating a strong GAAP yield of 9.7%. Our investments this quarter had a weighted average unit level rent coverage of 3.4 times, reflecting a conservative rent level and healthy unit profitability for our operators. Max JenkinsCOO at Essential Properties Realty Trust00:06:20During the quarter, we closed 25 transactions comprising of 77 properties, of which 93% were sale leasebacks. The average investment per property declined to $4,000,000 this quarter as our deal activity was characterized by granular freestanding properties, which is one of the core elements of our strategy. Looking ahead, our investment pipeline remains strong across all of our targeted industries. Pricing in our pipeline is relatively consistent with our second quarter transactions with cap rates in the high 7% range and strong contractual escalations, which is supportive of our long term growth trajectory. Combined with our investments of $642,000,000 in the first half of the year, we have sufficient line of sight to support our increased full year investment guidance range of $1,000,000,000 to 1,200,000,000.0 With that, I'll turn the call over to A. Max JenkinsCOO at Essential Properties Realty Trust00:07:11J. Peel, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:07:17Thanks, Max. At a high level, our portfolio credit trends remain healthy with same store rent growth in the second quarter of 1.4% and occupancy of 99.6%. As a reminder, the weighted average lease escalation in our same store portfolio was lower than our overall portfolio as the higher lease escalations on investments executed over the past several quarters have not entered the same store pool yet. While there were no noteworthy credit events during the second quarter, we received resolution regarding the Zips carwash bankruptcy. As a reminder, Zips filed for bankruptcy earlier this year, at which time we own three properties representing approximately 20 basis points of ABR. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:07:53Down from a peak exposure in twenty seventeen of 16 sites with over 5% of ABR. Of the three sites that remain in our portfolio at the time of bankruptcy, we sold two and one remains leased to the operator. The overall recovery rate was consistent with our historical recoveries and in line with our budgeted credit loss assumptions. From a tenant concentration perspective, our largest tenant equipment share represents 3.7% of our ABR at quarter end. Our top 10 tenants account for just 17.6% of ABR, and our top 20 account for 28.8% of ABR. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:08:25Tenant diversity is an important risk mitigation tool, and it is a direct benefit of our focus on middle market operators. On the disposition front, we had an active second quarter, selling 23 properties for $46,200,000 in net proceeds. This represents an average of approximately $2,000,000 per property, highlighting the importance of owning fungible liquid properties, allowing us to proactively manage portfolio risk. The dispositions this quarter were executed at a 7.3% weighted average cash yield. Over the near term, we expect our disposition activity to be more muted, driven by opportunistic asset sales and ongoing portfolio management activity. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:09:00With 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 second quarter. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:09:08Thanks, AJ. Overall, we were pleased with the second quarter results, highlighted by the strong level of investments that Pete and Max outlined at a 7.9% cash cap rate. Our AFFO per share totaled $0.46 which represents an increase of 7% versus Q2 twenty twenty four. On a nominal basis, our AFFO totaled $93,000,000 for the quarter, which is up 21% from the same period in 2024. This AFFO performance was consistent with our expectations as reflected in our guidance range. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:09:44Total G and A in Q2 twenty twenty five was $10,700,000 versus $8,700,000 for the same period in 2024, which is consistent with our budgeted expectations. The majority of the year over year increase is related to increased compensation expense as we continue to expand our team in support of driving our growth ambitions. Our cash G and A was $7,200,000 this quarter, which is consistent with our guidance range of $28,000,000 to $31,000,000 for the year and represents just 5.2% of total revenue, down from 5.6% the same period a year ago. We declared a cash dividend of $0.30 in the second quarter, which represents an AFFO payout ratio of 65%. Our retained free cash flow after dividends, which we view as an attractive source of capital to support our growth, continues to build, reaching 34,400,000 in the second quarter, equating to over $130,000,000 per annum on a run rate basis. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:10:48Based 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 Q2 twenty twenty five, our income producing gross assets reached $6,600,000,000 at quarter end. The increasing scale and diversity of our income producing portfolio continues to build, improving our credit profile. On the capital markets front, we raised approximately $119,000,000 of equity through our ATM program and settled $20,000,000 of forward equity in the quarter, leaving us with a balance of unsettled forward equity totaling $5.00 $7,000,000 at quarter end. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:11:31We expect to utilize these funds in the near term to support our investment activities and preserve our balance sheet flexibility by repaying our revolving credit facility balance in the third quarter. Similar to last quarter, our share price remained above the weighted average price of our unsettled forward equity of $30.73 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. For the second quarter, our diluted share count of 199,600,000.0 included an adjustment for 600,000.0 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, which was consistent with our budgeted expectations. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:12:22Based on our current share price, we continue to expect a modest headwind again in the third quarter. Our pro form a net debt to annualized adjusted EBITDAre as adjusted for unsettled forward equity was 3.5 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 our tenant relationships in this choppy capital market environment. Lastly, as we noted in the earnings press release, we have increased our twenty twenty five AFFO per share guidance to a new range of $1.86 to $1.89 representing 8% growth at the midpoint. Importantly, this guidance range requires no incremental equity issuance. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:13:09With that, I'll turn the call back over to Pete. Pete MavoidesCEO & President at Essential Properties Realty Trust00:13:11Thanks, Mark. In summary, we are happy with our second quarter results. The portfolio is performing well, the investment market is exceptional, and the capital markets are supportive. We remain excited about the prospects for our business. Operator, let's please open the call for questions. Operator00:13:30Thank you. We'll take our first question from Eric Borden with BMO Capital Markets. Please go ahead. Eric BordenVice President at BMO Capital Markets00:13:52Hey, good morning everyone. Just with acquisitions year to date tracking above the midpoint of your raised guidance and your positive commentary around the pipeline in your prepared remarks, Understand that you do expect some competition here, but just curious what's preventing you from leaning more into the acquisitions just given the presumably strong fourth quarter, but also understand there's some offset with seasonality in the third quarter? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:14:22Yes. Listen, I think we are leaning strong into acquisitions. And as I said in the prepared remarks, the investment market continues to be pretty exceptional for us was the word I used. So we are leading strong into acquisitions. I think your question is more around guidance. Pete MavoidesCEO & President at Essential Properties Realty Trust00:14:43And really, the guidance on investment volume more is just really conservatism because we rarely have more than ninety days of visibility on the pipeline. But you're correct, the fourth quarter tends to be elevated, and we'll see what the fourth quarter brings. From an earnings perspective, the fourth quarter investments don't impact 2025 a lot and more impact the out years, and we'll adjust the guidance accordingly throughout the year as we always do. Eric BordenVice President at BMO Capital Markets00:15:13Okay. Thank you. And then just on the occupancy side, occupancy dips slightly sequentially to still solid 99.6. Is there anything specific to call out there? And then just taking a step back as it relates to the 40 bps of total vacancy, what is the quantum of assets that make up that bucket? Eric BordenVice President at BMO Capital Markets00:15:34And then can you provide an update on either leasing progressions or potential dispositions? Pete MavoidesCEO & President at Essential Properties Realty Trust00:15:42Yes, listen, there's a lot in that and it really just all goes to asset management. In terms of vacancy, we have nine properties out of 2,100, and I think that was up from six. Is that correct, JJ? Correct. And you're talking with average property value of $3,000,000 $27,000,000 of value. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:03It's not really material. There's always ebbs and flows, tenants who no longer want to be in the properties or with expiring leases, and we're selling those, engaging those. Anything specific you'd call out, AJ? Eric BordenVice President at BMO Capital Markets00:16:16No, I would say the majority of the vacant is in the restaurant space. And I think what you'll see is the recoveries are consistent with our historical recoveries, which we're around $0.8 on the dollar when we relet those assets or sell them off. That's really what makes up the vacant bucket today. Gotcha. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:34Yeah, nothing material And I think the bigger point is the forward indicators of risk around coverage and same store sales. And back to the prepared remarks, the portfolio credit health is very strong. Eric BordenVice President at BMO Capital Markets00:16:53Well, thank you very much. Appreciate the time. Pete MavoidesCEO & President at Essential Properties Realty Trust00:16:56Hey, thank you for the questions. Operator00:16:59Thank you. Our next question comes from Michael Goldsmith with UBS. Please go ahead. Michael GoldsmithUS REITs Analyst at UBS Group00:17:06Good morning. Thanks a for taking my question. Just back to the competition piece, right? You noted on the first quarter call that you expected it could to show up and it hasn't yet. So I guess, what are you looking for in order for that to show up and start to drag cap rates down a little bit? Michael GoldsmithUS REITs Analyst at UBS Group00:17:26Like is it what is it exactly that you're looking for? And when are you expecting that to start to impact cap rates? Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:17:38Yeah. Listen, I've been saying it for almost a year now. And I really I don't control capital or competition. And when it comes, it comes. And we just know that there's substantial amount of capital that's been raised and targeted towards net lease investments, and we expect it to impact us in the transaction market. Pete MavoidesCEO & President at Essential Properties Realty Trust00:18:05But we continue to have an ample opportunity set. Our counterparties continue to value our consistency and reliability, and we continue to be very aggressive in deploying capital. And if you think about it, an average GAAP yield of 9.7 for the type of investing we build is pretty extraordinary. So I don't know. I don't know when it's coming. Pete MavoidesCEO & President at Essential Properties Realty Trust00:18:30I've been wrong, I guess, for the last two years. But I'll stick to my guns and say it's coming. Michael GoldsmithUS REITs Analyst at UBS Group00:18:40Got it. Thanks for that. And as my follow-up, I think your bread and butter has been doing kind of individual deals, small properties, now average acquisition size of a property value of $4,000,000 But now the past couple of quarters, you've done a couple of portfolio deals. So is that going to be an increase as you get larger and need to continue to acquire more, is that going to increase become part of your repertoire? Or is this just more just two opportunities that you have identified and you should get back to kind of doing a bunch of individual property deals going forward? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:19:24Yeah, so the average profile of our deal is going to be 10,000,000 to $15,000,000 involving two to five properties with a existing tenant, and that hasn't changed. And every quarter, that can flex up to 50,000,000 to $100,000,000 or and I think one of the reasons we provide the stats around our investments is to kind of give you a view as to our consistency there. And Max gave the commentary in the prepared remarks, and I think the second quarter was certainly consistent with past quarters. As we get bigger, we have the capacity to do bigger deals, whether it be $100,000,000 or and we did million dollars deal in the second quarter without sorry, that's my fault without blowing our concentration limits. But you should expect us to continue to be very granular in our investments and in our properties. Michael GoldsmithUS REITs Analyst at UBS Group00:20:29Thank you very much. Good luck in the back half. Pete MavoidesCEO & President at Essential Properties Realty Trust00:20:32Thank you very much. Appreciate it. Thanks, Michael. Thanks for question. Operator00:20:36Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead. Caitlin BurrowsVice President at Goldman Sachs00:20:43Hi, good morning. Maybe just back to the cap rate side. So like you mentioned, the cash cap rate of 7.9% in 2Q is pretty consistent with the past eight quarters, but then the GAAP rate was higher. So can you go through what drove that higher? Is it due to industry mix, a strategy on lease steps, some combination or something else? Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:02Yes. I think it's really, Caitlin, it just comes down to the math. When you have a longer average lease term, right, at 19.5% versus past quarters at 17%, and then you have better bumps. And I think overall, our ability to negotiate longer lease terms and better bumps is just reflective of the competition that we're facing in the market. And we're always trying to get the best economic returns we can in a deal, ultimately, drives our ability to drive those numbers. Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:36And we're pretty happy with the results in the second. Caitlin BurrowsVice President at Goldman Sachs00:21:40I guess, would you say then on that competition point that because there was less competition, you were able to push it more in the second quarter? Pete MavoidesCEO & President at Essential Properties Realty Trust00:21:48I think that's accurate, yes. Caitlin BurrowsVice President at Goldman Sachs00:21:50Got it. Then sticking on the competition point, so you mentioned that 88 was repeat business. So I guess when you think of the other 12%, could you go through some of your strategy on how you identify that business? It seems like that could be a way to somewhat avoid the competition going forward as long as you have incremental new business to go after. Pete MavoidesCEO & President at Essential Properties Realty Trust00:22:11Max, that's your job. Why don't you answer it? Max JenkinsCOO at Essential Properties Realty Trust00:22:13Sure. Thanks, Pete. We kind of take a three pronged approach. Number one, it's always going to be repeat business and referrals. And then in the middle market, our operators, they all talk within their industries and the fact that we've been doing this consistently for years since inception and sticking to our core thesis of providing growth capital through sale leaseback financing to middle market operators. Max JenkinsCOO at Essential Properties Realty Trust00:22:37That's a strong sourcing method. We obviously do cold outreach and visit industry conferences. And so that three pronged approach continues to drive new operators and new relationships. And we're continuing to do that every quarter and have been since inception. And the percentage is kind of volume weighted. Max JenkinsCOO at Essential Properties Realty Trust00:22:55So we're always adding new relationships every quarter and just depends on the transaction size. And so sometimes that can be skewed one way or another. Caitlin BurrowsVice President at Goldman Sachs00:23:05Got it. Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:23:06Thanks, Kael. Operator00:23:09Thank you. Our next question comes from Haendel St. Juste with Mizuho. Please go ahead. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:23:18Hey guys, good morning. Thanks for taking my question. Pete, I was hoping you could give us maybe some insight into your thought process on acquiring the portfolio, Whistle car washes in the quarter. I think many of us have expected your car wash exposure to head lower. You're sitting here around 15%. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:23:34So maybe some color on that thought process. And also if there's any color you can share on the price pace for the portfolio, cap rate, rent coverage bumps, any of those details. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:23:44Well, thanks for the question, Haendel. I think I'll take arbitration question and then kick it to A. J. For the details on this transaction itself. But we always have articulated a soft ceiling of 15% on industry concentration, bringing car wash down through the fourth quarter into the first was very deliberate because we had visibility on the Whistle transaction. Pete MavoidesCEO & President at Essential Properties Realty Trust00:24:11And we're happy with our ability to manage that exposure, bring it down to fill up capacity to add new tenants with good investments. In terms of specifics, AJ, why don't you not get too specific, but give an overview that transaction? Sure, Haendel. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:24:29So, as Peter mentioned, we were working the exposure down Whistle was an existing tenant. We had the opportunity to partner with them on the sale leaseback transaction as they acquired the car wash portfolio from Driven Brands. The assets we acquired were well established season sites. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:24:49The portfolio coverage was greater than two times. We feel we have really good economics on the lease escalations. We're able to provide attractive sale leaseback financing to an existing tenant. We're really happy with the transaction. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:06Given Pete MavoidesCEO & President at Essential Properties Realty Trust00:25:10the size of the operator and the quality of the assets, the cap rate on that investment was probably inside of the average for the quarter. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:19Okay. I appreciate the details, comments. And just one more, going back to the conversation around the competition set. Obviously, the list of folks who have entered the single tenant space here has been growing here in recent quarters. I guess I'm curious, has there been anything about their strategies that you are able to identify or ascertain that suggests that they're maybe less likely or perhaps less of a competitive threat to what some people might perceive? Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:25:46I'm just curious if, you know, any insight into what perhaps they might be doing or targeting differently that could suggest less of a threat? Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:25:57Yeah, listen, I can't really speak to other shops and how they're organized and what their competitive advantages are. I can certainly speak to ours. And I think our ability to consistently provide capital into these industries, our ability to do small transactions, and our proprietary data around to support those investments is what differentiates us in the market. We tend to see the most acute competition the bigger, broadly marketed deals. And you see cap rates on those deals really getting away from us and well inside of we're currently deploying capital. Pete MavoidesCEO & President at Essential Properties Realty Trust00:26:44And I think you're a new shop, you're going to rely on the brokerage network and compete solely based upon your cost of capital, which is not how we go to market. Haendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial Group00:27:00Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:27:02Thank you. Operator00:27:04Thank you. Our next question comes from Rich Hightower with Barclays. Please go ahead. Rich HightowerMD - U.S. REIT Research at Barclays00:27:11Hey, good morning, everybody. I think, most of my questions have been asked and answered, but, maybe I was just curious for a little more color on the credit side of things. It sounds like maybe if we go back in time and think about expectations ninety days ago, I think sentiment was probably a little worse than it is today or has proven out to be. Why do you think that is? And what's in the crystal ball from what you can sort of tell with your existing portfolio companies and just what the feedback is, what you're seeing in the numbers? Rich HightowerMD - U.S. REIT Research at Barclays00:27:43Just give us a little more color on the credit side. Thanks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:27:48Yeah, think I would start our position on the credit as a super senior secured landlord remains pretty durable, we don't see any erosion in our cash flows or delinquencies or things that give us concern. Looking at the operators and numbers and the industries, generally, we see flat trends with not sales that are same store sales that are growing at a high rate, and we're seeing slightly improved margins. But I think overall, we're encouraged by the stability that we're seeing in our industries. And we don't see any major concerns emerging. Rich HightowerMD - U.S. REIT Research at Barclays00:28:42Okay, that's good news. And then just to, I guess, ask another follow-up on the competition side. If you break down the typical deal between going in yield escalators, Walt industry exposure, that sort of thing. Mean, more and more competition comes in, even if it's not precisely in the sandbox that you guys typically play in, I mean, where would you expect deal terms to change out kind of those mix of different elements of every deal? Pete MavoidesCEO & President at Essential Properties Realty Trust00:29:15Yes. I think the you can certainly look back at our disclosure and where we're deploying capital back in 2020 and 2021. I think the low on the initial cap rate was 6.9% and the low on the escalations was 1.4% and a low on lease term was, call it, We negotiate all of those economic terms. I think the point of most sensitivity is going in cap rate, followed by escalations, with lease term being the least sensitive to these operators. And certainly, when we're doing a deal, we want an operator who's committing to the proper long term. Pete MavoidesCEO & President at Essential Properties Realty Trust00:29:57So I think the first place you're going to see it is in the initial cap rate, and then it will trickle down through escalations. Rich HightowerMD - U.S. REIT Research at Barclays00:30:07Very helpful. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:30:08Thank you. Operator00:30:11Thank you. Our next question comes from Omotayo Okusanya with Deutsche Bank. Please go ahead. Your line is open. Omotayo OkusanyaManaging Director at Deutsche Bank00:30:20Hi, good morning. Congrats on the continued solid execution. Quick question on the acquisition front. So we kind of had the Starwood fundamental deal. Just curious again, if something like that ends up being too large for you guys to look at, whether again, pricing on deals like that becomes an issue. Omotayo OkusanyaManaging Director at Deutsche Bank00:30:41Just kind of curious again, I know your wheelhouse is doing these smaller granular deals, but for something that's bigger but not too big, you know, as this deal, how do you guys kind of think through an opportunity set like that? Pete MavoidesCEO & President at Essential Properties Realty Trust00:30:57Yeah, quite frankly, we didn't even take a look at it. We have an ample opportunity set of freshly originated deals through our relationships. And I think the bar for me to buy someone else's underwriting, someone else's existing portfolio is pretty high. Would have to be wide of where we're deploying capital. And ultimately, I don't think that transaction was priced at a 7.9% was where we deployed capital in the second quarter. Pete MavoidesCEO & President at Essential Properties Realty Trust00:31:32And I think anecdotally, that transaction priced closer to 7 Omotayo OkusanyaManaging Director at Deutsche Bank00:31:39Fair enough. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:31:41Thank you, Teo. Operator00:31:44Thank you. Our next question comes from John Kielicowski with Wells Fargo. Please go ahead. John KilichowskiVP - Equity Research at Wells Fargo00:31:52Thank you. Good morning. Maybe it's on a topic we haven't really touched. It's been a quarter now since some tariffs have been in place, know, some have been paused. But I'm curious, you know, as you look across the sectors where you're getting unit level coverage data, if you're seeing any delta in performance by certain sectors being more impacted than others? Pete MavoidesCEO & President at Essential Properties Realty Trust00:32:13We really aren't. It's not our portfolio is largely service and experience, 90 plus percent. And they're not buying goods that are subject to tariffs that they're then reselling to the consumer. And so as I mentioned earlier, the portfolio trends have been incredibly stable. John KilichowskiVP - Equity Research at Wells Fargo00:32:36And then maybe just on the guidance raise, I think you touched on this a little bit earlier, but how do you think about raising the low end versus the high end? Is that more of a product of better than expected credit performance or is that the outperformance on the acquisition side or some grouping of both? Why does that not impact the high end? Pete MavoidesCEO & President at Essential Properties Realty Trust00:32:59It's just what the model is saying. But Mark, you want to? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:33:01Yes. I mean, listen, I think, John, the first two things you mentioned are probably right. We had a strong first and second quarter investment levels, strong cap rate, what we were expecting. So that gave us comfort on bottom end of the range and credit loss, think, was better than we were expecting. But when you're at an 8% growth rate on the AFFO per share for the year, for us I think it's a function of we just didn't think as Pete said, the model was telling us we should bump the top end. John KilichowskiVP - Equity Research at Wells Fargo00:33:35Got it. Thank you. Operator00:33:40Thank you. Our next question comes from Ryan Caviola with Green Street. Please go ahead. Ryan CaviolaAssociate at Green Street Advisors, LLC00:33:49Good morning. Thanks for taking my question. Since that 15% ABR soft ceiling was nearly achieved for car washes, assuming acquisitions in that segment slowed down, which other retail areas are most attractive and where you hope to grow exposure to close out the year? Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:09I think you're going to see our investment activity be pretty pro rata and the portfolio grow ratably. We'll continue to invest in car washes. And really, I think that as I look at the end of the year, the percentages of our industry mix will be pretty consistent. Ryan CaviolaAssociate at Green Street Advisors, LLC00:34:31Great. Thanks. And then there are two industrial acquisitions over the quarter. I know that's very small, but anything any expanded interest there? Or is this just sort of opportunistic as you see them? Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:45Yes. I think we don't we like industrial. We like doing sale leasebacks with middle market tenants. We like servicing our relationships. And when we find good opportunities, we deploy capital there. Pete MavoidesCEO & President at Essential Properties Realty Trust00:34:59I would say our industrial investments tend to be characterized by very fungible real estate assets, industrial assets that have ready alternative uses. We try to avoid big chunky special use assets, but we do see good opportunities there. And when we do, we take advantage of Ryan CaviolaAssociate at Green Street Advisors, LLC00:35:25Awesome. Appreciate the color. Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:35:28Thank you. Operator00:35:30Thank you. And our next question comes from Ki Bin Kim with Truist. Please go ahead. Ki Bin KimMD - US REIT Equity Research at Truist00:35:36Thanks. Good morning, guys. Just a couple of follow ups here. Can you just comment on any foot traffic or sales trends that you've noticed in your restaurants or entertainment segment? Pete MavoidesCEO & President at Essential Properties Realty Trust00:35:53AJ, what do got? AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:35:54So anecdotally, I would tell you that we use Placer AI internally to monitor that. And we have noticed a marked increase in particular in the entertainment sector as June rolled over on the calendar. I think that is flowing through the restaurant space as well. I wouldn't want to call it any one specific restaurant or entertainment concept is where we're noticing this, but we do keep an eye on and we have seen traffic increase. Ki Bin KimMD - US REIT Equity Research at Truist00:36:21Okay, and for the tenants that are under 1.5 times coverage bucket, just curious, has that coverage been stable or improving over time? Pete MavoidesCEO & President at Essential Properties Realty Trust00:36:36Yeah, listen, I would say it's we don't really think about it as tenants. We think about it as properties. Those individual properties are sub performing for some reason. And it tends to be very transitory. We have sites where it's underperforming and the operator hires a new manager and gets the site performing well or sites that lose a manager and tend to perform poorly. Pete MavoidesCEO & President at Essential Properties Realty Trust00:37:08We also have sites that are pro form a sites that are coming online that tend to ramp and come in and out of that bucket. So there's a lot of different situations going on within our 2,100 properties that kind of influence that. Ki Bin KimMD - US REIT Equity Research at Truist00:37:24Okay, thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:37:26You got it, Ki Bin. Operator00:37:29Thank you. Our next question comes from Smedes Rose with Citi. Please go ahead. Smedes RoseDirector at Citi00:37:37Hi, thanks. I just wanted to ask you, you mentioned, I think Mark, in your remarks that you guys will look to probably settle the forward equity over the balance of the year. And I was just wondering, as you think about next year, given your low pro form a leverage, would you anticipate using leverage as a higher percentage of external growth next year and kind of maybe kind of how would you think about getting to sort of a more normal leverage level, guess, since you're kind of on the low end, I think of where you would be over time? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:38:10I mean, you know what, appreciate that question Smedes. I guess what I would say is first and foremost, when you think about our capital sourcing, could probably use a split of 50%, 55% equity, 35% debt give or take and then that 10% free cash flow which is improving every quarter. So I think for us, every year we're going to be sourcing debt capital and certainly think Pete said in his remarks, maybe I even did as well. The good news for us today is we don't have to do anything on the equity side to achieve our ample dry powder to take us into 2026. For us in terms of accessing debt capital, it's opportunistic for us. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:39:00But in terms of the mix, I think you should expect for us to do what we've been doing for frankly since we've come public, but certainly just use the last twelve quarters, that leverage is somewhere around 4.5 times. So I think Pete MavoidesCEO & President at Essential Properties Realty Trust00:39:21Okay, thank you. Thanks, Louise. Operator00:39:26Thank you. Our next question comes from Jana Gallen with Bank of America. Please go ahead. Jana GalanDirector at Bank of America00:39:33Thank you. Good morning. Just a quick question on the strong growth of the company and the team growing, given Mark called out the compensation expense. How do you think about the scale of the platform? Are you targeting an overall G and A as a percent of revenue or assets? Or you're just looking to meet the needs of the company with new hires? Pete MavoidesCEO & President at Essential Properties Realty Trust00:39:54Yeah, I think more than anything, we're trying to drive sustainable earnings growth. And to do that, it requires, one, we grow our investment teams to meet the growing investment opportunity set that we capitalize on, and then growing the portfolio management team to manage the growing portfolio, and then growing the finance and accounting team accordingly. And so we've grown the company since coming public pretty steadily, both in terms of assets and people. And we'll continue to invest in our people to do that. G and A really is an output of that. Pete MavoidesCEO & President at Essential Properties Realty Trust00:40:37We look at our infrastructure, we look at our organization, we look at what we need to execute the business plan that really is ultimately driven by growth and growth in earnings. Jana GalanDirector at Bank of America00:40:50Thank you. Pete MavoidesCEO & President at Essential Properties Realty Trust00:40:53Thank you. Operator00:40:55Thank you. Our next question comes from Daniel Guilhermeux with Capital One Securities. Please go ahead. Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:41:04Hi, everyone. Thank you for taking my question. Just one from me. You all are always nimble on the industries you invest into and there was an uptick in the convenience store space with Allsup as a new top 10 tenant as well. What are some key characteristics you look for in that business type? Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:41:22Is it hot food option necessary or is fuel traffic and location most important? Anything you can give there would be helpful. Pete MavoidesCEO & President at Essential Properties Realty Trust00:41:31AJ, what do got? AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:41:32So just a quick clarifying point, Allsup's we previously branded that Yes Way. It's a dual brand and they're growing the Allsup's platform so we just put the new logo in. So that was not a new investment. It's something we've owned for well over a year at this point. AJ PeilEVP & Chief Investment Officer at Essential Properties Realty Trust00:41:48And then more broadly just in the convenience store space, we're looking for groups that have reasonable size and scale. We track gallons sold inside store sales and then underwrite the underlying profitability of the unit and make sure that the corporate credit is stable. So then when we make the investments, we're generally looking for well positioned C stores with ample inside store sales and very strong gallons sold. Dan GuglielmoEquity Research Analyst - Consumer at Capital One Financial00:42:18Great. I appreciate that clarification too. Thank you. Operator00:42:24Thank you. We will move next with Greg McGinnis with Scotiabank. Please go ahead. Greg McginnissDirector at Scotiobank00:42:32Hey, good morning. Keith, I appreciate your earlier commentary on the acquisitions of the industrial category. But given the size of those transactions with, on average, rents 4x, portfolio average, could you provide some more details on those and why you're comfortable making bigger bets in that space? Pete MavoidesCEO & President at Essential Properties Realty Trust00:42:50Yeah, listen, I don't think it was a bigger bet. They were very granular investments. And we like the real estate and the tenants that were signing long term leases to be in that space. Greg McginnissDirector at Scotiobank00:43:04ABR was up $2,500,000 with the two investments there. So it seems to imply they're at least bigger on the rent side, no? Pete MavoidesCEO & President at Essential Properties Realty Trust00:43:13Yeah, I mean part of that's the initial cap rate too. It was three different investments. And so yeah, they're bigger assets, but still under $20,000,000 And certainly, with the size and scale of our portfolio, we have not outsized risk. Greg McginnissDirector at Scotiobank00:43:32Okay, thanks. We understand there's no necessarily a need to raise equity in order to hit acquisition guidance given the ample dry powder. But with the stocks not materially below where you issued last quarter, is there reason to expect that you wouldn't use the ATM at this time to help continue to pre fund investments? Pete MavoidesCEO & President at Essential Properties Realty Trust00:43:55I would say we'll execute accordingly and see how the market performs. We're in a great position from a liquidity and leverage perspective. And if we see the opportunity to continue to maintain that position, we will. It'll just depend on how the market reacts. Greg McginnissDirector at Scotiobank00:44:16Okay, thank you. Operator00:44:21Thank you. And we will move next with John Massocca with B. Riley Securities. Please go ahead. John MassoccaSenior Research Analyst at B Riley Financial00:44:29Good morning, everybody. Pete MavoidesCEO & President at Essential Properties Realty Trust00:44:31Good morning, John. John MassoccaSenior Research Analyst at B Riley Financial00:44:33So how should we kind of feel about the cadence of transaction volume in the current quarter? Just kind of thinking about I know we're early in 3Q, but you've only closed $8,000,000 year to date sorry, quarter to date, and you had a pretty decent amount you'd think still left in kind of the PSA or LOI bucket, even kind of netting out what you closed between the May and the end of 2Q. So just kind of curious, is there something chunky out there? Is there stuff that's kind of falling in and out of the pipeline? Just trying to get a feel for transaction volume, maybe on a super short term basis. Pete MavoidesCEO & President at Essential Properties Realty Trust00:45:09Yes. Week over week, that's your fault. What do you want? Max JenkinsCOO at Essential Properties Realty Trust00:45:14Sure. I wouldn't look too much into it. The pipeline, we're happy with where it is. It's pretty consistent. Some timing with July 4 and the start of summer, but so I wouldn't look into read into the $8,000,000,000 but overall, the pipeline is strong and consistent with prior quarters. Pete MavoidesCEO & President at Essential Properties Realty Trust00:45:29What is the pipeline currently? Max JenkinsCOO at Essential Properties Realty Trust00:45:31Currently, we're sitting at about $290,000,000 at a 7.8%. John MassoccaSenior Research Analyst at B Riley Financial00:45:35Great. Helpful. And then on the debt side, how are you thinking about maybe potentially raising some debt? I know you talked about the ability to use the in place forward equity to fund the rest of the year's investment activity, but you took 200 down the line. It seems like markets are getting pretty accommodative from a spread perspective. John MassoccaSenior Research Analyst at B Riley Financial00:45:57I mean, would that be something you would consider in 2H? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:46:03Yes. I mean, I guess thanks for that question, by the way. Look, we I'd say we maintain our view regarding the merits of returning to the bond market. As a logical long term source of permanent debt capital, particularly that's really optimizing the alignment with our weighted average lease term. And gratefully since we last were on a call, the spread environment for us, if you use our current one existing bond, improved markedly. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:46:35Obviously, the ten year remains somewhat volatile. But I guess what I'd say is the equity deal we did in March, a good quarter on the ATM in second quarter really puts us in a position where we but I would tell you that I'd expect in the we'd be looking for that spot to but I guess said, and I think I did in my remarks, we don't need the capital today. We're in a great position in terms of liquidity and our dry powder runway. So that's why we're in John MassoccaSenior Research Analyst at B Riley Financial00:47:19Awesome. Thanks, John. Pete MavoidesCEO & President at Essential Properties Realty Trust00:47:20Good. John MassoccaSenior Research Analyst at B Riley Financial00:47:21I'm sorry. I was I breaking up, or was you breaking up? I couldn't hear the end of Mark's remark there. Pete MavoidesCEO & President at Essential Properties Realty Trust00:47:27You said you were a great analyst. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:47:30I I I did say that right at the tail end. I don't know if you heard the part about we still view the bond market as the logical long term source for permanent debt capital going forward, lined up with our wall. That the environment's improved certainly if you use our one issuance. I'm not sure if it's still coming through, but our liquidity position today really puts us in a spot where we can be opportunistic. Somewhere in the second half to your question, most likely. John MassoccaSenior Research Analyst at B Riley Financial00:48:03Is I know just because you have only the one piece of debt outstanding unsecured debt outstanding or unsecured bond outstanding. Is term loan market even more accommodative than that, just given it's a little bit of an orphan issuance at this point? Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:48:22Well, I guess I'd say it a different way. The term loan market we think is still open to us and obviously has an attractive all in swap rate. But if you think about it, there's a real benefit in the bond market where we think that's the long term solution. As I mentioned in terms of the best long term permanent to perm out our debt needs, certainly aligned more closely with our weighted average lease term. So I guess what I'd say is there's a benefit to continuing to build your complex in the unsecured bond market, which is why even though they might price a little higher, let's call it in the high fives, we just think long term that's going to be a better strategic solution for us in terms of accessing debt capital. John MassoccaSenior Research Analyst at B Riley Financial00:49:09Understood. Thank you very much. Mark PattenEVP, CFO & Treasurer at Essential Properties Realty Trust00:49:13Yes. Thanks, John. Pete MavoidesCEO & President at Essential Properties Realty Trust00:49:14Thanks, John. Operator00:49:16Thank you. And this concludes our Q and A session. I will now turn the call back to Pete Mavoides for closing remarks. Pete MavoidesCEO & President at Essential Properties Realty Trust00:49:26Great. Well, thank you all for participating in today's call. As we hope we conveyed, the business is in a great spot, and we look forward to engaging with you all in the coming months. Thank you. Operator00:49:41Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.Read moreParticipantsExecutivesRobert SalisburySVP & Head - Capital MarketsPete MavoidesCEO & PresidentMax JenkinsCOOAJ PeilEVP & Chief Investment OfficerMark PattenEVP, CFO & TreasurerAnalystsEric BordenVice President at BMO Capital MarketsMichael GoldsmithUS REITs Analyst at UBS GroupCaitlin BurrowsVice President at Goldman SachsHaendel St. JusteMD & Senior Equity Research Analyst at Mizuho Financial GroupRich HightowerMD - U.S. REIT Research at BarclaysOmotayo OkusanyaManaging Director at Deutsche BankJohn KilichowskiVP - Equity Research at Wells FargoRyan CaviolaAssociate at Green Street Advisors, LLCKi Bin KimMD - US REIT Equity Research at TruistSmedes RoseDirector at CitiJana GalanDirector at Bank of AmericaDan GuglielmoEquity Research Analyst - Consumer at Capital One FinancialGreg McginnissDirector at ScotiobankJohn MassoccaSenior Research Analyst at B Riley FinancialPowered by