Essential Properties(US:EPRT)2023-10-26 20:25Financial Data and Key Metrics Changes - The company reported an AFFO of $66.3 million for Q3 2023, an increase of 24% compared to the same period in 2022, and up over 7% from Q2 2023 [29] - Core FFO per share was $0.45 for Q3 2023, representing an 18% increase versus Q3 2022 [29] - Total G&A was approximately $7.2 million in Q3 2023, with cash G&A at $5 million, resulting in a cash G&A as a percentage of total revenue decreasing to 5.5% [12] Business Line Data and Key Metrics Changes - The company acquired 65 properties in Q3 2023, with an initial cash cap rate of 7.6% and an average annual rent escalation of 2% [5] - Same-store rent growth was 1.2%, a decrease of 30 basis points from the previous quarter, impacted by a bankruptcy of a gym operator [7] - The weighted average unit level rent coverage for tenants was 4.0 times, with only 3.1% of ABR having less than 1 times rent coverage [24] Market Data and Key Metrics Changes - The company ended the quarter with 1,793 properties, 99.8% leased to 363 tenants across 16 industries [24] - The largest industry by ABR was car washes at 15.3%, down 30 basis points from the previous quarter [113] - The company sold 10 properties for $28.5 million in net proceeds at a weighted average cash yield of 6.5% [27] Company Strategy and Development Direction - The company aims to selectively take advantage of favorable market pricing to recycle capital and reduce industry concentrations [10] - The focus remains on maintaining a conservative leverage profile and strong liquidity position, with 2024 AFFO per share guidance set at $1.71 to $1.75, implying a 5% growth rate [23] - The company emphasizes portfolio diversity as a risk mitigation tool, focusing on non-credit rated tenants and middle market operators [9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the predictability of the business, citing a stable portfolio of long-dated leases and significant free cash flow [36] - The company anticipates continued healthy portfolio performance and improving pricing on new investments, despite a volatile capital markets backdrop [110] - Management noted that consumer discretionary industries tend to perform stably through consumer stress, with casual dining being the most vulnerable [68] Other Important Information - The company closed on a $450 million delayed draw term loan, utilizing $200 million to retire a near-term debt maturity [14] - Total liquidity at the end of Q3 was approximately $989.6 million, up $356 million from the previous quarter [32] - The company has nearly $100 million of forecasted retained free cash flow available for investment without additional reliance on capital markets [110] Q&A Session Summary Question: What gives confidence in the 2024 guidance? - Management highlighted the predictability of the business, stable portfolio, and significant free cash flow as key factors supporting the guidance [36] Question: What are the investment spread assumptions for 2024 guidance? - Management indicated that investment cap rates are expected to remain in the high-7% range [42] Question: Which industries are expected to be most impacted by a weaker consumer? - Management noted that casual dining tends to be hit hardest during economic downturns, but they expect overall portfolio stability [92]