Essential Properties(EPRT) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The company's financial statements for June 30, 2025, reflect significant growth in assets, revenues, and net income, primarily driven by portfolio expansion Consolidated Balance Sheets Consolidated Balance Sheets (in thousands) | Account | June 30, 2025 (Unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $6,289,589 | $5,798,682 | | Net Investments | $6,051,213 | $5,552,606 | | Cash and cash equivalents | $20,777 | $40,713 | | Total Liabilities | $2,451,603 | $2,226,555 | | Unsecured term loans, net | $1,723,074 | $1,721,114 | | Revolving credit facility | $200,000 | $0 | | Total Equity | $3,837,986 | $3,572,127 | - Total assets grew by 8.5% to $6.29 billion as of June 30, 2025, from $5.80 billion at the end of 2024, primarily due to an increase in net real estate investments Total liabilities increased by 10.1% to $2.45 billion, largely driven by a $200 million draw on the revolving credit facility[8] Consolidated Statements of Operations Consolidated Statements of Operations (in thousands, except per share) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $137,062 | $109,268 | $266,416 | $212,770 | | Rental Revenue | $129,108 | $104,369 | $250,900 | $202,880 | | Net Income Attributable to Stockholders | $63,212 | $51,517 | $119,320 | $98,491 | | Diluted Net Income Per Share | $0.32 | $0.29 | $0.61 | $0.57 | - Total revenues for Q2 2025 increased 25.4% YoY to $137.1 million, and for the first six months of 2025, revenues grew 25.2% YoY to $266.4 million This growth was primarily driven by an increase in rental revenue from portfolio expansion[12] - Net income attributable to stockholders for Q2 2025 rose 22.7% YoY to $63.2 million For the six-month period, it increased 21.1% YoY to $119.3 million[12] Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $176,939 | $147,888 | | Net cash used in investing activities | ($570,976) | ($560,906) | | Investment in real estate | ($548,275) | ($408,823) | | Net cash provided by financing activities | $370,128 | $388,547 | | Proceeds from issuance of common stock, net | $298,809 | $244,735 | | Borrowings under revolving credit facility | $355,000 | $255,000 | | Repayments under revolving credit facility | ($155,000) | ($10,000) | | Dividends paid | ($114,263) | ($97,418) | | Net decrease in cash | ($23,909) | ($24,471) | Notes to Consolidated Financial Statements - The company operates in one reportable segment, focusing on single-tenant properties net leased on a long-term basis to middle-market companies in service-oriented or experience-based businesses[30][36] Investment Activity (in thousands) | Investment Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | Number of properties acquired | 121 | 141 | | Total investments (including acquisition costs) | $605,000 | $506,857 | Debt Summary (in thousands) | Debt Summary | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Unsecured term loans | $1,730,000 | $1,730,000 | | Senior unsecured notes | $400,000 | $400,000 | | Revolving Credit Facility | $200,000 | $0 | | Total principal outstanding | $2,330,000 | $2,130,000 | - In March 2025, the company completed a follow-on offering of 9,430,000 shares via forward sale agreements, with expected net proceeds of $285.2 million As of June 30, 2025, no shares under these agreements have been settled[167] - As of June 30, 2025, the company had future commitments to fund $149.1 million for development, construction, and renovation costs at its properties[189] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong performance to a disciplined investment strategy, portfolio expansion, and prudent capital management Overview and Portfolio Characteristics - The company focuses on single-tenant properties net leased to middle-market companies in service-oriented or experience-based businesses, which are considered less susceptible to e-commerce pressures[217] Portfolio Characteristics | Portfolio Metric | As of June 30, 2025 | | :--- | :--- | | Number of Properties | 2,190 | | Annualized Base Rent | $507.8 million | | Occupancy | 99.6% | | Weighted Average Lease Term | 14.3 years | | Weighted Average Rent Coverage | 3.4x | | Average Investment per Property | $3.0 million | Business and Growth Strategies - The company's growth strategy is centered on originating sale-leaseback transactions with middle-market companies, leveraging its management team's extensive relationships During the first six months of 2025, 92% of new real estate investments were from sale-leasebacks[236] - A key strategic focus is maintaining a diversified portfolio, with a long-term goal that no single tenant exceeds 5% of annualized base rent and no single property exceeds 1%[234] Liquidity and Capital Resources - Primary liquidity needs include funding investment activities, servicing debt, and paying dividends The company expects to meet short-term needs with cash on hand, operating cash flow, borrowings under its $1.0 billion Revolving Credit Facility, and proceeds from its ATM program[248][251] - The company targets a net debt level of less than six times its annualized adjusted EBITDAre As of June 30, 2025, all long-term debt was either fixed-rate or effectively fixed through hedging strategies[241][255] - As of June 30, 2025, the company had a remaining commitment of approximately $149.1 million for tenant construction financing and reimbursements, expected to be funded by June 30, 2026[249] Results of Operations - For Q2 2025 vs Q2 2024, rental revenue increased by $24.7 million (23.7%) primarily due to the growth in the real estate portfolio Net income attributable to stockholders grew by $11.7 million (22.7%)[301][302] - For the six months ended June 30, 2025 vs 2024, rental revenue increased by $48.0 million (23.7%), and net income attributable to stockholders grew by $20.8 million (21.1%), driven by acquisitions made in 2024 and early 2025[315][316] - Interest expense increased by $15.8 million (48.0%) for the first six months of 2025 compared to the same period in 2024, due to a higher outstanding debt balance and increased interest rates[315][325] Non-GAAP Financial Measures Non-GAAP Financial Measures (in thousands) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | FFO | $100,455 | $84,241 | $192,585 | $162,089 | | Core FFO | $100,455 | $84,241 | $192,585 | $162,089 | | AFFO | $93,021 | $77,117 | $178,722 | $148,234 | Debt Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Debt | $2,319,755 | $2,117,517 | | Net Debt | $2,308,931 | $2,085,022 | Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk is managed through hedging, with the Revolving Credit Facility being the primary variable-rate exposure - The company's variable-rate term loans (2027, 2028, 2029, 2030 Term Loans) are hedged with interest rate swaps, effectively fixing the interest rates[349] - The main exposure to interest rate fluctuations is from the Revolving Credit Facility A sensitivity analysis indicates that a 100 basis point increase in rates would result in a $2.0 million increase in annual interest expense based on the balance at June 30, 2025[350] Item 4. Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures, with no material changes to internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[356] - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[357] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, not expecting a material adverse financial impact - Management believes that no current legal proceedings, individually or in aggregate, will have a material adverse effect on the company's business or financial condition[360] Item 1A. Risk Factors No material changes to previously disclosed risk factors were reported for the current period - No material changes to the risk factors disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024, have occurred[361] Other Items (Items 2, 3, 4, 5, 6) This section reports no unregistered equity sales, no senior security defaults, and no other material information - The report indicates no unregistered sales of equity securities (Item 2), no defaults upon senior securities (Item 3), and no other material information to disclose (Item 5) for the quarter ended June 30, 2025[362][363][365]