Essential Properties Realty Trust, Inc. — FY 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Comparisons below are principally with FY 2020.
Business context
The company is an internally managed REIT that primarily owns single-tenant, long-term net-leased properties serving middle-market businesses. At year-end, its portfolio comprised 1,451 property locations, including properties securing mortgage loans, across 46 states; annualized base rent was $242.9 million. Occupancy was 99.9%, the weighted-average remaining lease term was 14.0 years, and 93.1% of base rent came from service-oriented or experience-based businesses.
Financial and operating performance
| Metric | FY 2021 | FY 2020 | Change |
|---|---|---|---|
| Total revenue | $230.2 million | $164.0 million | +40.4% |
| Net income | $96.2 million | $42.5 million | +126.2% |
| Net income attributable to stockholders | $95.7 million | $42.3 million | +126.4% |
| Diluted net income per share | $0.82 | $0.44 | Up $0.38 |
| Net cash from operating activities | $167.4 million | $99.4 million | +$68.0 million |
| Net cash used in investing activities | $829.7 million | $545.5 million | Greater investment outflow |
| Net cash from financing activities | $689.1 million | $457.8 million | +$231.3 million |
- Revenue drivers: Rental revenue rose 36.9% to $213.3 million, primarily as acquisitions expanded the portfolio; loan and direct-financing-lease interest income increased 93.1% to $15.7 million.
- Supplemental REIT measures: NOI was $224.5 million versus $160.1 million; Cash NOI was $208.0 million versus $152.1 million. FFO was $162.0 million, Core FFO $166.5 million, and AFFO $158.0 million. These are non-GAAP measures and are not substitutes for GAAP earnings or operating cash flow.
- Investments and distributions: The company invested $974.0 million during 2021, including $842.8 million in property acquisitions and $131.1 million in newly originated loans. It declared distributions of $1.00 per common share and paid $112.3 million to common stockholders and OP unit holders.
- Balance sheet and liquidity: Total assets were $3.30 billion and net investments were $3.16 billion. Year-end cash and cash equivalents were $59.8 million. Principal debt outstanding was $1.174 billion; net debt was $1.114 billion, with a 5.6-year weighted-average debt maturity and net debt/annualized Adjusted EBITDAre of 4.7x. The company reported $256.0 million of unused capacity on its $400 million revolver at year-end.
- Margins and costs: Depreciation and amortization increased to $69.1 million as the portfolio grew. Interest expense rose 13.4% to $33.6 million. The filing does not present a single standardized operating-margin measure.
Material changes and unusual items
- Portfolio growth was substantial: total investments increased from $2.53 billion to $3.36 billion gross, and property locations from 1,181 to 1,451.
- The company raised $185.1 million net in an April follow-on stock offering and $271.9 million net through its ATM program. It also issued $400 million of 2.950% senior notes due 2031, receiving $396.6 million net.
- In June 2021, it prepaid the remaining $171.2 million of secured Master Trust Funding notes and paid a $2.5 million make-whole premium. The related debt-extinguishment loss was approximately $4.5 million.
- Real estate impairment charges were $6.1 million, down from $8.4 million in 2020; gains on property dispositions were $9.3 million. The company sold 38 properties during 2021.
- In February 2022, after year-end, the company amended its revolving credit facility: maximum availability increased to $600 million, maturity was extended to February 2026, and the benchmark shifted from LIBOR to Adjusted Term SOFR.
Outlook, risks and contingencies
The company gave no specific numerical earnings or investment guidance in the supplied filing text. Management said available operating cash, cash balances, revolver capacity and potential capital-market access should fund operations for the foreseeable future. It intends to continue acquiring net-leased properties and generally targets net debt below six times annualized Adjusted EBITDAre; this is a management target, not a guarantee.
- Management reported that tenants’ businesses had largely recovered from pandemic-related disruption, but warned that COVID-19 variants, renewed restrictions, supply-chain problems, or lasting changes in consumer behavior could impair rent collection or prompt further concessions. Industries identified as particularly affected represented 20.3% of annualized base rent.
- Other key exposures include unrated tenant credit, tenant defaults or bankruptcies, consumer discretionary spending, inflation and interest rates, acquisition competition, refinancing and covenant risk, and the concentration of 13.6% of annualized base rent in Texas. Casual/family dining, health and fitness, entertainment, movie theaters and home furnishings together represented the cited pandemic-sensitive exposure.
- At year-end, the company had $64.5 million of remaining tenant construction and reimbursement obligations scheduled for 2022; elsewhere it disclosed $116.9 million of total commitments, of which $52.4 million had been funded. It expected to fund the remainder by December 31, 2022.
- Management said pending litigation was not expected to have a material adverse effect, while noting legal defense costs and possible limits on tenant indemnification. No material environmental claim or condition was identified, but the company disclosed potential owner liability and possible uninsured losses.
- The auditor issued an unqualified opinion on the financial statements and internal controls; two critical audit matters concerned purchase-price allocation fair values and real estate impairment estimates.
Important facts for investors to verify
- Rent collection, tenant deferral repayments, and credit trends—particularly among pandemic-sensitive industries and the largest tenants.
- Whether acquisition returns and rent escalations support growth in recurring cash flow after financing costs, dilution and property impairments.
- Debt covenants, refinancing needs, floating-rate exposure, swap obligations and the effect of the 2022 revolver amendment.
- Funding and timing of the remaining tenant construction commitments, and the sustainability of distributions relative to AFFO and cash flow.
- Reconciliation of portfolio counts and investment measures across disclosures: the filing reports 1,451 total locations, while certain tenant and concept tables exclude the vacant property.