Essential Properties Realty Trust’s Robust Q2 Earnings Call

Essential Properties Realty Trust ((EPRT)) has held its Q2 earnings call. Read on for the main highlights of the call.

Essential Properties Realty Trust’s recent earnings call painted a picture of robust growth and strategic investments, despite facing minor challenges. The sentiment was overwhelmingly positive, with the company showcasing significant investments at favorable yields, increased guidance, and a healthy portfolio. However, the discussion also touched on some hurdles, such as the impact of a tenant bankruptcy and rising general and administrative expenses.

Strong Investment Performance

Essential Properties Realty Trust reported a strong investment performance during the second quarter, with a total of $334 million invested at a weighted average cash yield of 7.9% and a GAAP yield of 9.7%. The majority of these investments were in sale-leaseback transactions, highlighting the company’s strategic focus on securing high-yield opportunities.

Increased Guidance

The company raised its 2025 AFFO per share guidance to a range of $1.86 to $1.89, signaling an 8% growth at the midpoint. This upward revision reflects the company’s confidence in its growth trajectory and its ability to deliver value to shareholders.

Healthy Portfolio Metrics

Essential Properties maintained a healthy portfolio with same-store rent growth of 1.4% and an impressive occupancy rate of 99.6%. The weighted average lease term stood at 14 years, and the tenant credit trends remained robust, underscoring the stability and resilience of the company’s asset base.

Significant Liquidity and Low Leverage

With $1.3 billion in liquidity and a pro forma leverage of 3.5x, Essential Properties is well-positioned for future investments. This strong financial position allows the company to pursue growth opportunities without the immediate need for additional equity.

Successful Disposition Strategy

The company successfully executed its disposition strategy by selling 23 properties for $46.2 million in net proceeds, achieving a 7.3% weighted average cash yield. This strategy emphasizes the company’s focus on owning fungible and liquid properties, enhancing its financial flexibility.

Zips Car Wash Bankruptcy Impact

Essential Properties faced a challenge with the bankruptcy of Zips Car Wash, which was a significant tenant. Despite this, the company managed to sell two out of the three affected properties, mitigating the potential impact on its financials.

Slight Dip in Occupancy

There was a slight decline in occupancy to 99.6% from the previous quarter, attributed to some properties remaining vacant due to underperformance, particularly in the restaurant sector. This dip, however, was minor and did not significantly affect the overall portfolio performance.

Increase in General and Administrative Expenses

General and administrative expenses rose to $10.7 million from $8.7 million in the prior year, primarily due to increased compensation expenses as the company expanded its team. This increase reflects the company’s investment in its workforce to support future growth.

Forward-Looking Guidance

Looking ahead, Essential Properties Realty Trust anticipates a favorable operating environment, with investments for the quarter totaling $334 million at attractive yields. The company raised its 2025 AFFO per share guidance, reflecting an 8% growth at the midpoint, and increased its investment guidance by $100 million to a new range of $1 billion to $1.2 billion. With a strong tenant credit profile and substantial liquidity, the company is well-prepared to capitalize on future opportunities.

In summary, Essential Properties Realty Trust’s earnings call conveyed a positive outlook, driven by strong investment performance, increased guidance, and a healthy portfolio. Despite minor challenges, the company remains well-positioned for continued growth, supported by significant liquidity and strategic asset management.