Essential Properties Announces Fourth Quarter and Full Year 2019 Results

3/2/20

PRINCETON, N.J.--(BUSINESS WIRE)--Essential Properties Realty Trust, Inc. (NYSE: EPRT), today announced operating results for the three months and year ended December 31, 2019.

Fourth Quarter 2019 Financial and Operating Highlights

  • Ended the year at 100.0% leased with a weighted average lease term (“WALT”) of 14.6 years and a weighted average rent coverage ratio of 2.9x
  • Grew Same-Store Contractual Cash Rents by 1.7%
  • Reduced top 10 tenant concentration to 23.4%, a 210 bps sequential decline
  • Invested $204.7 million in 94 properties at a 7.3% weighted average cash cap rate
  • Net income per fully diluted share increased 38% to $0.18 per share
  • Increased Funds from Operations (“FFO”) per fully diluted share 11% to $0.31 per share
  • Grew Core Funds from Operations (“Core FFO”) per fully diluted share by 14% to $0.32
  • Grew Adjusted Funds from Operations (“AFFO”) per fully diluted share by 11% to $0.30
  • Raised $103.2 million in gross proceeds from the sale of shares of common stock through the Company’s at-the-market equity program (“ATM Program”)
  • Net Debt to Annualized Adjusted EBITDAre was 5.0x at quarter end
  • Pro Forma Net Debt to Annualized Adjusted EBITDAre was 3.6x at quarter end, which incorporates the impact of the Company’s $200 million equity offering in January 2020

Full Year 2019 Financial and Operating Highlights

  • Invested $686.8 million in 375 properties at a 7.4% weighted average cash cap rate
  • Annualized fourth quarter dividend of $0.92 represented a 9.5% increase vs. last year
  • Raised $423.7 million of gross equity proceeds from the issuance of 21.5 million common shares
  • Sold $519.2 million of secondary shares to the public, which resulted in the Company’s founding capital partner fully exiting its position
  • Raised a $200 million five-year unsecured term loan and a $430 million seven-year unsecured term loan
  • Expanded unsecured revolving credit facility by $100 million to $400 million
  • Assigned investment grade credit rating of BBB- by Fitch Ratings

CEO Comments

Commenting on the fourth quarter and full year 2019 results, Essential Properties’ President and Chief Executive Officer, Pete Mavoides, said, “We are excited to close out 2019, which was our first full year as a public REIT. Looking back at the year, we closed approximately $687 million of investment activity, which helped to strengthen the durability and diversity of our newer vintage portfolio of net lease properties. With fourth quarter AFFO per share increasing 11% year-over-year, our quarterly results continue to illustrate the compelling growth potential of our disciplined investment platform. Our portfolio fundamentals remain strong with solid same-store rent growth, no vacancies, healthy unit-level coverages and improving tenant diversity. Looking ahead to 2020, our January stock offering has positioned our balance sheet for attractive earnings growth and continued execution of our investment pipeline.”

Net Investment Activity

Investments

During the quarter ended December 31, 2019, Essential Properties invested $204.7 million in 94 properties in 41 separate transactions at a weighted average cash and GAAP cap rate of 7.3% and 8.0%, respectively. These properties are 100% leased with a WALT of 16.3 years. As a percentage of cash ABR, 81.0% of the Company’s investments for the quarter ended December 31, 2019 came from sale-leaseback transactions, 41.1% were subject to a master lease and 99.0% are required to provide the Company with financial reporting.

During the year ended December 31, 2019, Essential Properties invested $686.8 million in 375 properties in 136 separate transactions at a weighted average cash and GAAP cap rate of 7.4% and 8.2%, respectively. These properties are 100% leased with a WALT of 15.9 years. As a percentage of cash ABR, 79.5% of the Company’s investments for the year ended December 31, 2019 came from sale-leaseback transactions, 57.5% were subject to a master lease and 99.7% are required to provide the Company with financial reporting.

Dispositions

During the quarter ended December 31, 2019, Essential Properties sold 8 properties, including one vacant property, for $15.2 million in aggregate, recording a net gain on these dispositions of $2.7 million. The disposition weighted average cash cap rate on the 7 leased properties sold in the quarter ended December 31, 2019 was 6.9%.

During the year ended December 31, 2019, Essential Properties sold 36 properties, including three vacant properties, for $72.0 million in aggregate, recording a net gain on these dispositions of $10.9 million. The disposition weighted average cash cap rate on the leased properties sold in the year ended December 31, 2019 was 6.8%.

Portfolio Update

Portfolio Highlights

As of December 31, 2019, Essential Properties’ portfolio consisted of 1,000 freestanding net lease properties, which included 91 properties that secured mortgage notes receivable, with a WALT of 14.6 years and a weighted average rent coverage ratio of 2.9x. As of the same date, the portfolio was 100.0% leased by 205 tenants operating 265 different concepts across 44 states in 16 industries. At year end, 94.4% of the Company’s cash ABR was generated from tenants that operate service-oriented or experience-based businesses, and 60.3% of its cash ABR was derived from properties subject to a master lease.

Leasing Activity

During the year ended December 31, 2019, the Company signed three new leases without vacancy, renewed two leases that were expiring during the year, and completed one lease assignment subject to a lease incentive for a total recovery rate of 103.9% vs. prior cash rents. Total leasing activity for the year ended December 31, 2019 represented 1.1% of total current cash ABR.

Leverage and Balance Sheet and Liquidity

Leverage

As of December 31, 2019, the Company’s ratio of net debt to Annualized Adjusted EBITDAre was 5.0x. As of the same date, Pro Forma Net Debt to Annualized Adjusted EBITDAre was 3.6x, which is adjusted to include the impact of the Company’s common stock offering in January 2020.

Balance Sheet and Liquidity

Essential Properties had $46.0 million in outstanding borrowings under its $400 million unsecured revolving credit facility as of December 31, 2019, and had $354 million of unused borrowing capacity as of the same date. Additionally, Essential Properties had $180.0 million of available borrowing capacity under its $430 million term loan as of December 31, 2019 and had $21.3 million of cash and cash equivalents and restricted cash as of the same date.

ATM Program

Essential Properties has a $200.0 million ATM Program through which it may, from time to time, sell shares of its common stock. Essential Properties uses the proceeds generated from its ATM Program for general corporate purposes, including funding its investment activity, the repayment or refinancing of outstanding indebtedness, working capital and other general purposes. During the quarter ended December 31, 2019, Essential Properties sold 4,088,181 shares of common stock through its ATM Program at an average price of $25.23 per share, raising gross proceeds of $103.2 million.

Subsequent to quarter end, Essential Properties sold an additional 253,698 shares under its ATM Program at an average price of $24.74, raising gross proceeds of $6.3 million.

January 2020 Follow-On Offering

In January 2020, Essential Properties completed a follow-on offering of 7,935,000 shares of its common stock, including 1,035,000 shares issued pursuant to the underwriters’ exercise of an option to purchase additional shares, raising gross proceeds of $200.0 million.

Dividend Information

As previously announced, on December 6, 2019 Essential Properties declared a cash dividend of $0.23 per share of common stock for the quarter ended December 31, 2019. The dividend was paid on January 15, 2020 to stockholders of record as of the close of business on December 31, 2019.

2020 Guidance

The Company reiterates its previously issued expectation that 2020 AFFO per share on a fully diluted basis will be within a range of $1.27 to $1.30.

Note: The Company does not provide a reconciliation for its guidance range of AFFO per diluted share to net income available to common stockholders per diluted share, the most directly comparable forward looking GAAP financial measure, due to the inherent variability in timing and/or amount of various items that could impact net income available to common stockholders per diluted share, including, for example, gains or losses on debt extinguishment, impairments and other items that are outside the control of the Company.

Supplemental Materials

The Company’s Supplemental Operating & Financial Data—Fourth Quarter Ended December 31, 2019 is available on Essential Properties’ website at investors.essentialproperties.com.

About Essential Properties Realty Trust, Inc.

Essential Properties Realty Trust, Inc. is an internally managed REIT that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to companies operating service-oriented or experience-based businesses. As of December 31, 2019, the Company’s portfolio consisted of 1,000 freestanding net lease properties with a weighted average lease term of 14.6 years and a weighted average rent coverage ratio of 2.9x. As of the same date, the Company’s portfolio was 100.0% leased to 205 tenants operating 265 different concepts in 16 industries across 44 states.