Essential Properties (EPRT) Earnings Transcript

Core Insights - The company executed a differentiated investment strategy in Q4, sourcing 85% of $296 million in investments through existing relationships, achieving an average initial cash yield of 7.7% and a GAAP yield of 9.1, which are key drivers of earnings growth [1][9][12] - The company reported a GAAP net income of $68.3 million and an AFFO of $99.7 million for the quarter, with an AFFO per share of $0.49, reflecting a 9% increase compared to the previous year [3][12] - The company has increased its 2026 AFFO per share guidance to a range of $1.99 to $2.04, indicating a growth rate of about 7% at the midpoint and 8% at the high end [5][15] Investment Strategy - The investment volume was characterized by disciplined pricing, with a large spread to the cost of capital being a significant factor in earnings growth [1][9] - The company closed 34 transactions comprising 58 properties, all of which were sale-leasebacks, with an average investment per property of $4.6 million [9][10] - The investment pipeline remains strong, supported by record subsequent-quarter investment activity of over $200 million [10] Portfolio Performance - The portfolio consists of 2,300 properties leased to over 400 tenants, with a weighted average lease term of approximately 14 years and only 5.2% of annual base rent expiring over the next five years [6][8] - Same-store rent growth was reported at 1.6%, with occupancy at 99.7% and a robust rent coverage of 3.6 times [6][9] - The credit watch list declined to under 1%, indicating healthy credit trends among tenants [6][29] Financial Position - The company started the year with pro forma leverage of 3.8 times and liquidity of $1.4 billion, providing ample runway to fund its investment pipeline [5][14] - Total G&A for the quarter was $8.4 million, with a cash G&A of $28.8 million for the year, representing 5.1% of total revenue [12][13] - The company declared a cash dividend of $0.31 in Q4, resulting in an AFFO payout ratio of 63% [13] Market Dynamics - The company expects modest cap rate compression in the latter half of 2026, with competition stabilizing based on current visibility [5][22] - The average cash yield and GAAP yield from investments reflect a compelling spread to the cost of capital, indicating a favorable investment environment [1][10] - The company remains focused on middle-market operators, with tenant concentration declining, as the top 10 tenants represent only 16.5% of annual base rent [8][9]