Essential Properties Realty Trust, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. The company is a REIT focused on long-term net leases of primarily single-tenant properties serving middle-market businesses.
Business context and portfolio
- At September 30, the portfolio comprised 1,397 investments, including 1,229 owned properties and 158 properties securing mortgage loans; net investments totaled $2.95 billion.
- Annualized base rent was $225.5 million; occupancy was 99.9%. The portfolio included 297 tenants across 423 concepts, 17 industries and 45 states. No tenant represented more than 2.7% of annualized base rent.
- Weighted-average remaining lease term was 13.9 years, average rent coverage was 3.5x, and 98.3% of leases (by annualized base rent) had contractual rent increases averaging 1.6% annually.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $59.6m | $42.9m | $165.2m | $122.9m |
| Income from operations | $36.6m | $20.0m | $95.4m | $59.4m |
| Net income | $27.6m | $12.3m | $66.4m | $36.8m |
| Net income attributable to stockholders | $27.5m | $12.3m | $66.1m | $36.6m |
| Diluted earnings per share | $0.23 | $0.13 | $0.57 | $0.39 |
| FFO attributable to stockholders and non-controlling interests | $43.6m | $28.5m | $113.8m | $78.3m |
| AFFO attributable to stockholders and non-controlling interests | $40.2m | $26.3m | $112.6m | $78.2m |
Management attributed revenue growth chiefly to portfolio acquisitions; loan interest income also rose with higher loan balances. The filing does not provide a clear headline operating-margin measure.
- Cash flow, nine months: $115.5m provided by operations, $604.3m used in investing, and $483.3m provided by financing. Cash and cash equivalents were $27.5m at quarter-end; cash and restricted cash decreased $5.5m from year-end 2020.
- Debt and liquidity: Principal debt was $1.03bn, with a 3.1% weighted-average rate after swaps and a 6.4-year weighted-average maturity. Net debt was $1.00bn. The $400m revolving facility was undrawn, providing $400m of stated unused capacity. The company reported covenant compliance and no debt defaults.
- Distributions: The board declared $0.74 per share for the first nine months. Dividends and distributions paid were $81.8m; $30.5m was payable at quarter-end.
Material changes versus comparable periods
- Q3 revenue increased 38.9% year over year; nine-month revenue increased 34.4%. Nine-month stockholder net income rose to $66.1m from $36.6m.
- Portfolio expansion drove higher rental revenue and depreciation. Nine-month interest income on loans and direct financing leases increased to $11.6m from $6.0m.
- Common shares outstanding grew substantially through equity issuance: basic weighted-average shares were 119.2m in Q3 2021 versus 94.3m in Q3 2020. The company raised $365.8m net from common stock issuance during the first nine months.
- In June, the company issued $400m of 2031 senior notes at 2.95% and used proceeds, alongside other funding, to repay the remaining $171.2m of secured Series 2017-1 notes. The repayment generated a $4.5m nine-month extinguishment loss, including a make-whole premium and financing-cost write-off.
- Nine-month real estate impairment charges were $6.1m versus $5.1m a year earlier; there were no Q3 2021 impairment charges, compared with $3.2m in Q3 2020.
Outlook, risks and unusual items
- No specific earnings or investment guidance was provided. Management stated that available operating cash flow, cash, revolving capacity and potential capital-market access were expected to fund operations and current commitments for the foreseeable future.
- Management cited $53.5m of remaining tenant construction, development and reimbursement commitments in contractual-obligation disclosures. Separately, it reported total commitments of $84.5m, of which $31.1m had been funded, and expected to fund the balance by December 31, 2022.
- As of October 29, the company was under contract to acquire 19 properties for $58.2m, subject to due diligence and customary closing conditions. Subsequent to quarter-end, it invested $47.1m in 22 properties and sold or transferred two properties for gross proceeds of $4.6m.
- COVID-19 and the Delta variant remained risks to tenant operations, rent collection and repayment of rent deferred during 2020. Management said tenant businesses had largely returned to pre-pandemic levels, but future conditions and any lasting changes in consumer behavior remained uncertain.
- Other stated risks include tenant credit deterioration or default, interest rates, access to debt and equity markets, acquisition competition, lease renewals, and maintaining REIT qualification. The filing reported no material change to previously disclosed risk factors, no material pending legal proceedings, and effective disclosure controls.
Key facts for investors to verify
- Tenant rent collections, tenant credit trends, and repayment status of COVID-era deferred rent.
- Whether acquisition-driven revenue and FFO/AFFO growth translate into durable per-share performance amid share issuance and dilution.
- Remaining construction commitments, pending acquisitions, and the company’s ability to fund growth while preserving liquidity and leverage discipline.
- Performance of impaired or underperforming properties, future impairment charges, and loan-portfolio credit quality.
- Debt maturities, hedge costs and exposure to interest-rate or capital-market changes; confirm that stated revolver availability and covenant compliance remain current.