Essential Properties(US:EPRT)2024-07-25 18:23Financial Data and Key Metrics Changes - The company reiterated its AFFO per share guidance range of $1.72 to $1.75 for 2024, indicating a strong operational performance [4][41] - AFFO per share for Q2 2024 was $0.43, a 5% increase compared to Q2 2023, with total AFFO reaching $77.1 million, up 25% year-over-year [12][41] - General and administrative expenses (G&A) increased to $8.7 million in Q2 2024 from $7.6 million in Q2 2023, but G&A as a percentage of total revenue improved to 5.6% from 6.1% [13] Business Line Data and Key Metrics Changes - The company ended the quarter with investments in 2009 properties, 99.8% leased to 395 tenants across 16 industries, with a weighted average lease term of 14.1 years [4] - Same-store rent growth was 1.4% in Q2 2024, slightly down from the previous quarter, impacted by properties affected by the Red Lobster bankruptcy [4] Market Data and Key Metrics Changes - The company invested $334 million through 35 transactions in Q2 2024, maintaining a weighted average cash yield of 8%, consistent with the previous quarter and up 60 basis points year-over-year [8] - The investment pipeline remains solid, with expectations of modest cap rate compression later in the year due to potential Fed easing [9] Company Strategy and Development Direction - The company aims to maintain a well-capitalized balance sheet with low leverage and significant liquidity to support external growth, with pro forma net debt to annualized adjusted EBITDAre at 3.8x [16] - The focus remains on sale-leaseback transactions, which constitute 80% to 90% of the portfolio, as they provide a higher value-added way to deploy capital [78] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business prospects, highlighting strong tenant credit trends and investment volumes, despite short-term headwinds from conservative leverage posture [32] - The competitive landscape is expected to normalize as interest rates decline, which may lead to increased competition and downward pressure on lease terms and cap rates [81][95] Other Important Information - The company recognized $1.5 million of other income related to a legal settlement, which was included in AFFO for the quarter [36] - A cash dividend of $0.29 was declared, representing an AFFO payout ratio of 67% [37] Q&A Session Summary Question: Why not raise the AFFO guidance? - Management indicated that while performance is strong, the capital position poses a headwind, limiting visibility to raise guidance [44] Question: Details on acquisition guidance and pipeline? - The pipeline is ahead of last year, but timing variability affects closings, making it hard to forecast [26] Question: Will the company issue forward equity to lock in current share prices? - Management is open to being opportunistic with equity issuance but is currently well-funded [54] Question: How does the company view tenant categories amid consumer weakness? - The company remains focused on service and experience-based industries, which are less affected by consumer spending fluctuations [104] Question: What is the outlook for cap rates and competition? - Management expects some downward pressure on cap rates as competition normalizes with rate cuts [95][141]