Essential Properties Realty Trust, Inc. (EPRT) is an internally managed real estate investment trust (REIT) that has established itself as a leading acquirer, owner, and manager of single-tenant properties net leased to middle-market companies operating service-oriented or experience-based businesses. The company's strategic focus on diversification, long-term leases, and relationships with reliable tenants has enabled it to navigate the evolving real estate landscape and deliver sustainable growth for its shareholders.
Diversified Portfolio Anchored in Essential Industries
Essential Properties was founded on January 12, 2018, as a Maryland corporation and elected to be taxed as a REIT beginning with the year ended December 31, 2018. The company's common stock is listed on the New York Stock Exchange under the ticker symbol EPRT. As of December 31, 2024, the company's portfolio consisted of 2,100 properties, inclusive of 150 properties securing its investments in mortgage loans receivable. This diverse portfolio was leased to 413 tenants operating 592 different concepts across 16 industries and 49 states, with no single tenant contributing more than 4.2% of the company's annualized base rent (ABR).
The company's strategic focus on service-oriented and experience-based businesses, such as car washes, early childhood education, medical and dental services, and quick-service restaurants, has proven resilient in the face of evolving consumer trends. As of December 31, 2024, 93.2% of the company's $460.6 million in annualized base rent was attributable to properties operated by tenants in these industries, which the company believes are generally more insulated from the competitive pressures presented by e-commerce.
Essential Properties generally invests in and leases freestanding, single-tenant commercial real estate facilities where a tenant provides services to its customers and conducts activities that are essential to the generation of the tenant's sales and profits. This focus has been a key part of the company's strategy since its inception.
Disciplined Underwriting and Asset Management
Essential Properties' disciplined underwriting and active asset management have been instrumental in maintaining the quality and stability of its portfolio. The company seeks to invest in properties with healthy rent coverage ratios, long lease terms, and tenants that are contractually obligated to provide periodic financial reporting. As of December 31, 2024, the portfolio's weighted average rent coverage ratio was 3.5x, and 98.9% of the company's leases based on ABR required tenants to provide unit-level financial information.
The company's proactive approach to asset management, including the use of Moody's Analytics RiskCalc to detect credit deterioration, has enabled it to identify and address issues in a timely manner. This has allowed Essential Properties to maintain a high occupancy rate of 99.7% as of December 31, 2024, with only seven vacant properties out of its 2,100-property portfolio.
Balanced Capital Structure and Liquidity
Essential Properties has maintained a well-capitalized balance sheet, with a pro forma net debt to annualized adjusted EBITDA ratio of 3.8x as of December 31, 2024. The company has access to multiple sources of debt capital, including investment-grade-rated unsecured bonds and bank debt through its revolving credit facility and term loan facilities.
In February 2025, the company announced the closing of an amendment to its existing senior unsecured credit facility, which increased the size of its revolving credit facility to $1.0 billion and extended the maturity date to February 2030. This expanded liquidity, combined with $381 million in unsettled forward equity as of December 31, 2024, provides Essential Properties with ample flexibility to fund its ongoing investment activities.
As of December 31, 2024, the company had a debt-to-equity ratio of 0.597, cash and cash equivalents of $40.71 million, and $600 million undrawn on its revolving credit facility. The company's strong liquidity position is further evidenced by its current ratio and quick ratio, both at 6.41.
Resilient Financial Performance and Guidance
Despite the challenges posed by the COVID-19 pandemic and inflationary pressures, Essential Properties has delivered resilient financial performance. For the full year 2024, the company reported total revenues of $449.6 million, net income of $203.6 million, EBITDA of $410.8 million, and adjusted EBITDA of $451.7 million. The company also generated annual operating cash flow of $308.48 million and annual free cash flow of -$102.99 million.
In the fourth quarter of 2024, Essential Properties saw a 22.5% year-over-year increase in revenue, reaching $119.71 million. Net income for the quarter was $55.375 million. The company's Q4 2024 AFFO per share of $0.45 was in line with their expectations as reflected in their previous guidance range. Additionally, EPRT's recurring cash G&A as a percentage of total revenue was 4.8% for Q4 2024, comparing favorably to 5.2% in the same period a year ago.
Looking ahead, the company has updated its 2025 AFFO per share guidance range to $1.85 to $1.89, representing a penny increase at the low end compared to their previous guidance. This updated guidance implies over 7% growth at the midpoint and requires minimal equity issuance, which the company views as a testament to their front-footed approach to capital raising. Essential Properties expects their investment cap rates in 2025 to be slightly lower than 2024, reflecting modest cap rate compression. The company has maintained its 2025 investment guidance range of $900 million to $1.1 billion.
Geographic Diversification
Essential Properties' portfolio is well-diversified across 49 states, with the largest exposures by annualized base rent in Texas (12.6%), Georgia (7.3%), Florida (6.4%), Ohio (5.7%), and Wisconsin (5.0%). This geographic diversification helps mitigate risks associated with regional economic fluctuations and provides opportunities for growth across various markets.
Navigating Industry Challenges with Prudence
While the retail real estate industry has faced headwinds, such as the growth of e-commerce and the COVID-19 pandemic, Essential Properties has demonstrated its ability to adapt and capitalize on opportunities. The company's strategic focus on service-oriented and experience-based businesses, coupled with its proactive asset management and prudent capital structure, have enabled it to weather these challenges and continue delivering value for its shareholders.
In the fourth quarter of 2024, the company experienced a credit event with one of its tenants, Zip's Car Wash, filing for Chapter 11 bankruptcy protection. However, the company's exposure to this tenant had been reduced significantly over time, with the three remaining Zip's Car Wash locations representing only 20 basis points of the company's ABR at the end of 2024. This highlights Essential Properties' disciplined approach to portfolio management and its ability to mitigate risks through active asset monitoring and strategic dispositions.
The company's growth trajectory has been impressive since its founding. By the end of 2021, Essential Properties had grown its portfolio to 1,650 properties with $4 billion in total gross investments. This rapid growth was enabled by the company's relationship-driven sourcing approach, with over 80% of investments coming from existing tenant relationships or referrals. Despite facing challenges in 2022 due to rising interest rates and economic uncertainty, the company successfully navigated this period, maintaining a high occupancy rate above 99% and continuing to expand its portfolio selectively. By the end of 2023, Essential Properties' portfolio had grown to 1,870 properties with $4.9 billion in total gross investments, showcasing the resilience of its business model and disciplined investment approach even in more challenging market conditions.
Conclusion
Essential Properties Realty Trust, Inc. (EPRT) has established itself as a well-diversified and resilient REIT, navigating the evolving real estate landscape with a disciplined approach to underwriting, asset management, and capital allocation. The company's focus on service-oriented and experience-based businesses, long-term lease structures, and strong tenant relationships have enabled it to deliver consistent financial performance and position it for continued growth.
With a robust balance sheet, ample liquidity, and a proven track record of prudent decision-making, Essential Properties appears well-equipped to capitalize on future opportunities and generate attractive risk-adjusted returns for its shareholders. The company's updated guidance for 2025, along with its maintained investment targets, demonstrates confidence in its ability to execute its growth strategy while maintaining financial discipline. As Essential Properties continues to expand its portfolio and leverage its expertise in the net lease real estate sector, it remains an attractive investment opportunity for those seeking exposure to a diversified and resilient REIT with strong growth potential.