Essential Properties Realty Trust, Inc. (NYSE: EPRT) — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are to the year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter filing.
Business context
EPRT is an internally managed REIT that primarily owns single-tenant properties under long-term net leases to middle-market businesses, especially service-oriented and experience-based operators. At year-end, its portfolio comprised 1,873 property locations across 48 states, with $364.8 million of annualized base rent and 99.8% occupancy. The weighted-average remaining lease term was 14.0 years; 65.7% of annualized base rent came from master leases, and 95.9% from triple-net leases.
Key financial results
Amounts are in millions, except per-share data and ratios.
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $359.6 | $286.5 | +25.5% |
| Net income | $191.4 | $134.7 | +42.1% |
| Net income attributable to stockholders | $190.7 | $134.1 | +42.2% |
| Diluted net income per share | $1.24 | $0.99 | +$0.25 |
| Operating cash flow | $254.6 | $211.0 | +$43.6 |
| Net cash used in investing | $857.1 | $706.1 | Outflow increased |
| Net cash from financing | $580.0 | $506.8 | +$73.2 |
| AFFO attributable to stockholders and non-controlling interests | $253.4 | $208.8 | +21.3% |
| EBITDAre | $324.2 | $251.4 | +29.0% |
| Cash NOI | $326.1 | $265.4 | +22.9% |
Revenue growth primarily reflected portfolio expansion and lease escalations. Interest expense rose 30.3% to $52.6 million, mainly due to higher debt balances and interest rates. Property impairments fell to $3.5 million from $20.2 million. Net income also included $24.2 million of net gains on property dispositions; the company reported a $27.7 million realized gain on interest-rate swaps as a reduction of interest expense.
Operating cash flow was $254.6 million. Investing outflows included approximately $1.0 billion of real estate and loan investment activity, partly offset by $128.6 million of net property-sale proceeds and $27.9 million of loan and lease principal collections. Financing included $507.3 million of net common-stock issuance proceeds and $248.0 million of net term-loan borrowings; dividends paid were $168.2 million.
Debt, liquidity and distributions
- Gross debt was $1.68 billion at year-end, up from $1.43 billion; net debt was $1.63 billion versus $1.36 billion. Debt consisted of $1.28 billion of term loans and $400 million of 2031 senior notes. No revolving-credit balance was outstanding.
- The company reported $600 million available under its revolving facility, $49.0 million of cash and restricted cash, and $130.6 million available upon settlement of forward equity contracts, for stated total liquidity of $779.6 million. This total includes potential equity proceeds, not solely cash or committed borrowing capacity.
- Weighted-average debt maturity was 4.9 years. The company reported a 3.6% weighted-average interest rate after applicable swaps and locks; its debt table also reports 5.5% before the effect of swaps. It had $1.3 billion of term-loan principal effectively fixed with swaps and reported compliance with debt covenants.
- Net debt to Annualized Adjusted EBITDAre was 4.4x. Management said it generally considers net debt below 6.0x that measure prudent. Annualized Adjusted EBITDAre is a non-GAAP run-rate estimate based on quarterly results and assumptions, not a forecast of future reported results.
- The Board declared $1.12 per common share/OP Unit for 2023, totaling $176.0 million. The fourth-quarter $0.285 distribution was payable in January 2024. The Board retains discretion over future distributions; REIT status generally requires annual distributions of at least 90% of REIT taxable income.
Material changes, outlook and risks
- Investments totaled $1.0 billion in 2023 across 293 properties, including $13.1 million of new mortgage loans; 2022 investment activity was $937.4 million. EPRT sold 52 properties for $138.0 million of net proceeds. The investment portfolio grew, while interest expense increased and cash and cash equivalents declined to $39.8 million from $62.3 million.
- In 2023, EPRT issued common shares through follow-on offerings and its ATM program. Net proceeds from common-stock issuance were $507.3 million in the cash-flow statement. The September offering’s remaining forward agreements were expected to generate $83.4 million after $180.0 million had been realized through year-end; the filing also reports $130.6 million of total unsettled forward equity, including other forward sales.
- No formal earnings or investment guidance for 2024 is provided in the supplied filing text. Management expects available operating cash, cash balances, revolving availability and access to capital to fund operations and current commitments for the foreseeable future, while noting that capital-market access is not assured.
- At December 31, 2023, $180.6 million remained under tenant construction, development and reimbursement commitments, which the company expected to fund by December 31, 2024. As of February 9, 2024, it was also under contract to acquire 20 properties for $59.4 million, subject to due diligence and customary conditions.
- Portfolio credit is a key risk: most tenants are unrated and assessed internally. The weighted-average rent coverage ratio was 3.8x, but 3.1% of reported unit-level rent coverage was below 1.0x; coverage data exclude leases without unit-level reporting. Restaurants, car washes, early-childhood education and medical/dental uses are significant industry exposures; Texas represented 13.1% of annualized base rent.
- Nearly all rent escalators are contractual, with a 1.7% weighted-average annual increase; management cautioned that fixed increases have not kept pace with recent inflation. Other principal risks include tenant defaults or bankruptcies, master-lease exposure, refinancing and higher-rate risk, property illiquidity, uninsured losses, environmental liabilities, REIT qualification and reliance on external capital.
- Legal proceedings were described as not expected by management to have a material adverse effect. The auditor issued unqualified opinions on the financial statements and internal controls. The filing identifies acquisition purchase-price allocation and related fair-value assumptions as a critical audit matter.
Important facts for investors to verify
- Reconcile reported liquidity, particularly the $130.6 million of forward equity proceeds, and confirm timing and settlement of remaining forward contracts.
- Review debt maturities, variable-rate exposure, swap coverage and the distinction between stated debt rates before and after hedging.
- Assess tenant-level credit quality and rent coverage, especially below-1.0x coverage, unrated tenants, master leases and major industry and state concentrations.
- Compare AFFO, Cash NOI and Annualized Adjusted EBITDAre with GAAP results and cash flows; these non-GAAP measures are not interchangeable with cash available for distributions.
- Monitor the $180.6 million construction/reimbursement commitment, the contracted acquisitions, and whether distributions remain supported by operating cash generation and REIT requirements.