Business Context and Reporting Period
This Form 8-K, dated June 20, 2018, reports the closing of the initial public offering (IPO) and related formation transactions for Essential Properties Realty Trust, Inc. (the "Company"), a Maryland corporation. The reporting period covers events occurring between June 19, 2018, and June 25, 2018, culminating in the Company's public debut.
Key Financial Metrics and Capital Structure
The filing details the capital raised and debt facilities established in connection with the IPO, though it does not provide historical revenue, profit, or cash flow data as the Company was not previously public.
- Public Offering: Issued 32,500,000 shares of Common Stock.
- Private Placement: Concurrently sold 7,785,611 shares of Common Stock and 1,142,960 Operating Partnership (OP) Units to an affiliate of Eldridge Industries, LLC.
- Underwriting Option: Underwriters hold an option to purchase an additional 4,875,000 shares.
- Debt Facility: Established a senior unsecured revolving credit facility with an initial maximum principal amount of $300 million.
- Debt Capacity: The facility includes an accordion feature allowing for an increase of up to $200 million.
- Equity Reserve: The 2018 Incentive Award Plan reserves 3,550,000 shares for issuance, with 691,290 shares of restricted stock already issued.
Material Changes and Agreements
The Company entered into several material definitive agreements effective June 25, 2018:
- Underwriting Agreement: Executed with Goldman Sachs & Co. LLC and Citigroup Global Markets Inc. as representatives.
- Operating Partnership Structure: Entered into an Agreement of Limited Partnership for Essential Properties, L.P. The Company owns approximately 68.3% of the OP Units. OP Unit holders may redeem units for cash or Common Stock on a one-for-one basis after one year.
- Stockholders Agreement: Executed with Eldridge and other stockholders to define governance rights.
- Registration Rights Agreement: Granted registration rights to Eldridge affiliates regarding shares purchased in the private placement and those received via OP Unit exchange.
- Corporate Governance: Elected a new Board of Directors including Paul T. Bossidy (Chairman), Scott A. Estes, Todd J. Gilbert, Anthony D. Minella, Stephen D. Sautel, and Joyce DeLucca.
Outlook, Risks, and Covenants
The Revolving Credit Facility imposes significant financial covenants and restrictions on the Company's operations:
- Leverage Limits: Total consolidated leverage must not exceed 60% of total consolidated assets (with a step-up to 65% allowed under specific conditions). Secured leverage is capped at 50% of total assets.
- Coverage Ratios: Must maintain a consolidated fixed charge coverage ratio of at least 1.50x and an unencumbered interest coverage ratio of at least 1.75x.
- Net Worth: Must maintain consolidated tangible net worth of at least 75% of the tangible net worth at the facility date plus 75% of future net equity proceeds.
- Interest Rate: Initially based on LIBOR plus a margin determined by a leverage-based pricing grid. The margin may adjust based on investment-grade credit ratings from S&P or Moody's, though no assurance of such ratings is provided.
- Distribution Restrictions: The facility restricts distributions to stockholders under certain circumstances, though distributions necessary to maintain REIT qualification are permitted.
- Management Compensation: Employment agreements were executed for the CEO, COO, and CFO, and a 2018 Incentive Award Plan was adopted to align interests with stockholders.
Investor Verification Checklist
- Verify the final offering price per share and total net proceeds from the IPO and private placement, as these specific dollar amounts are not explicitly stated in the text of this filing.
- Confirm the Company's current leverage ratio and fixed charge coverage ratio to ensure compliance with the new $300 million credit facility covenants.
- Review the full text of the Stockholders Agreement to understand the specific governance rights and voting thresholds granted to Eldridge Industries, LLC.
- Monitor the Company's progress in obtaining an investment-grade credit rating from S&P or Moody's, as this will impact the interest rate margin on the revolving credit facility.
- Check subsequent filings for the exercise of the underwriters' option to purchase the additional 4,875,000 shares.