Essential Properties Realty Trust, Inc. (EPRT) Earnings & Analysis

Latest quarter

Essential Properties reported third-quarter revenue of $168.7 million, above the consensus estimate of $168.5 million. Adjusted earnings per share as counted by the consensus were $0.27, below the $0.51 estimate. On the call, the company also discussed adjusted funds from operations, a separate measure used by real estate investment trusts.

Revenue rose from $144.9 million a year earlier. The filing attributed higher rental revenue primarily to growth in the property portfolio, including revenue from acquisitions made during the prior year and the current year. Interest on loans and direct financing lease receivables also increased as the mortgage loan portfolio grew.

Diluted earnings per share fell to $0.27 from $0.33. The filing said depreciation and amortization rose with the size of the portfolio, while interest expense increased primarily because outstanding debt was higher. Operating margin was 56.0%, compared with 64.7% a year earlier; gross margin remained at 98.7%.

Essential Properties reported free cash flow of −$187.8 million, compared with −$215.6 million a year earlier. Separately, CFO Rob Salisbury said the company retained free cash flow after its dividend during the quarter.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Pete Mavoides said Essential Properties was being selective with new investments as its cost of capital changed, prioritizing transactions priced to maintain a spread over that cost. He said sale-leasebacks remained a source of capital for middle-market operators and that new investments were being priced at higher capitalization rates than those contracted for the third quarter.

President and COO Max Jenkins said “pricing is front and center for us.” He attributed the company’s pricing position partly to reduced competition from private investors and a more restrictive middle-market lending environment. Jenkins said the company was pushing for higher returns in its pipeline without taking on additional risk, while operators continued to use sale-leasebacks as alternative financing became harder to access.

On the portfolio, Chief Investment Officer Craig Vakris said same-store rent growth continued and occupancy remained high. He said the tenant credit watch list improved and that the company’s largest tenants accounted for 15.2% of annual base rent. Vakris also said car wash exposure declined during the quarter to 12.0% of annual base rent. Property sales were led primarily by restaurant and car wash assets, he said.

Salisbury said the company expanded its revolving credit facility to $1.3 billion and used the additional liquidity to support prepayment of its $430.0 million term loan. He said pro forma net debt was 3.8× annualized adjusted EBITDA at quarter-end.

In the Q&A, Salisbury discussed refinancing the revolver borrowing associated with the prepaid loan. He said its interest-rate swap would expire at the end of November, after which the borrowing would become floating-rate, and the company was evaluating debt alternatives. He said guidance included “a range of scenarios for that” refinancing.

Mavoides said the company was repricing assets and its pipeline, and anticipated lower volumes as sellers adjusted their expectations. He also anticipated fewer transaction opportunities but less competition, and said the company would react as the market evolved.

Guidance

Essential Properties raised the lower end of its 2026 AFFO-per-share guidance to a range of $2.02 to $2.05. It also raised the lower end of its 2026 investment-volume guidance to $1.3 billion to $1.5 billion.

For 2027, the company established initial AFFO-per-share guidance of $2.10 to $2.18, with gross investment volume of $1.0 billion to $1.5 billion and cash general and administrative expenses of $32.0 million to $37.0 million. Salisbury said the investment guidance was expected to be weighted toward the latter part of the year.