EPRT Stock Overview
Essential Properties Realty Trust, Inc., a real estate company, acquires, owns, and manages single-tenant properties in the United States.
Essential Properties Realty Trust, Inc. Competitors
Price History & Performance
|Historical stock prices|
|Current Share Price||US$19.07|
|52 Week High||US$31.23|
|52 Week Low||US$18.95|
|1 Month Change||-16.98%|
|3 Month Change||-13.67%|
|1 Year Change||-31.70%|
|3 Year Change||-20.77%|
|5 Year Change||n/a|
|Change since IPO||39.81%|
Recent News & Updates
Comparing Spirit Realty Capital And Essential Properties Realty Trust
Summary Stock prices for Spirit Realty Capital and Essential Properties Realty Trust have fallen substantially this year. Both pay a relatively high dividend yield amongst the net lease REITs. The present article examines their business models and the ways that they differ. The pending demise of STORE Capital (STOR) came as a deep disappointment, but not as a deep surprise. One risk of investing in firms that are very undervalued is that other people with deeper pockets than you can figure that out too and can do something about it. However, the potential long-term gains from STOR are now water under the bridge, with near certainty. In the event, I sold my substantial (for me) holdings of STOR in the premarket the day of the announcement. Ultimately, my gains on those holdings were significant but below my target of a 15% CAGR. STOR was my only investment in the space of REITs that lease free-standing, single-tenant properties on a triple-net basis, under which tenants pay for all maintenance, taxes, and insurance. The reflects my decision a year ago to concentrate my portfolio on larger positions in firms I study deeply. Since there is much to like about the growth potential of the net-lease business model, I looked for a place to reinvest some of the principal. In the context of the present bear market, I wanted a firm whose stock was clearly undervalued. From a longer-term perspective, my preference is for firms whose business model produces higher growth. In several ways Essential Properties Realty Trust (EPRT) has both of those properties. I deployed some funds there. But since my most recent close look at EPRT was last December, it was a good time for an update. I soon noticed that some investors in our chat room at High Yield Landlord were strongly attracted to Spirit Realty Capital (SRC). The high yield clearly has an appeal. YCHARTS SRC has not attracted much attention from me for quite a long time. I look at the various articles that feature it, but they do not paint a clear picture. The reasons for the research that led to the present article were to improve my own understanding and then to share it with readers. As usual, both EPRT and SRC have the litany of risks spelled out in their SEC filings. In my view most of those are extremely small. Very Brief Histories EPRT is pretty new. They were formed and did their IPO in 2018. Management includes members with prior experience at REITs of which Chris Volk was CEO. Since 2018, they have pursued growth using a model similar in many ways to that of STORE. In contrast, SRC has a longer history. They experienced several years of difficulty associated with the merger and then the bankruptcy of two of their tenants. The current management team, led by Jackson Hsieh, came into control in 2017. Since 2017 SRC has shed their problematic properties, reworked their portfolio, and sought to grow earnings. Their ability to grow has been hurt by the high dividend yield demanded by the market, especially in 2017 and 2018. The yield came down throughout 2019, and then the pandemic hit. We will examine the connection of yield and growth below. The best measure of earnings for net lease REITs like these is per share Adjusted Funds From Operations, or AFFO. AFFO can have complexities (see this article), but tends to be pretty straightforward for this type of REIT. Here is a comparison of AFFO/share as determined by REIT/base for these two REITs: REIT/base chart One can see the downward trend of AFFO/sh for SRC, until it bottomed during the pandemic. EPRT shows AFFO/sh as flat until 2021, when it began growing. Both these REITs grew earnings strongly in 2021, as did many others. This continues in 2022 as recovery from the pandemic is still having an impact this year. Forward growth rate projections after 2022 tend to be quite a bit smaller. We will look at mine below. Business Models A: Direct Sources of Earnings Growth After a bit of underlying theory, we will look here at specific numbers for these two REITs. A Bit of Theory A combination of elements determine the growth of AFFO/share that a REIT achieves. My understanding of it came from discussions with Chris Volk. The relationship is mathematical and precise, although variations in timing of its parts can produce some lumpiness. Here it is: RP Drake This formula ignores the dilutive impact of stock-based compensation, which is far smaller than total share issuance for these REITs (and most REITs). I discussed what goes into this formula, and why it is the only quantitative and precise way to evaluate AFFO/share growth, in these two articles. Important points here are that all REITs produce some level of internal growth (shown under the red label in the formula). This is independent of the stock price. REITs also aspire to grow by issuing shares. The impact of this (shown under the purple label) depends on the ratio of the yield they get buying AFFO to the yield they get selling AFFO. (In the math above, these are the Investment Yield, IY, and the Traded Yield, TY, respectively.) REITs buy AFFO by buying properties (or sometimes by developing them). REITs sell AFFO by selling shares — increasing the share count by 10% transfers ownership of about 10% of AFFO to those who buy the shares. Funding the Acquisitions REITs grow earnings by adding property, which in turn produces income from rents. It helps to understand a given REIT by looking at how they fund this. Here is the summary of this aspect for these two REITs: RP Drake SRC has been adding property at a bit higher rate than EPRT has. Both no doubt aspire to increase this rate. Over the last year, the funds for this came from the three usual places. The new debt issued and funds from share issuance are both shown above the row shaded green. The row shaded green shows the funds needed after debt and share issuance. A note here is that EPRT issued their first fairly ordinary, unsecured notes in Q2 of 2021, raising $400M. This year they commented in the Q2 earnings call that: Our philosophy is really to match fund our leverage to our long-dated leases, which we certainly plan to do. But it just strikes us that now is not an opportune time to lock in that long-term funding given the dislocation that we see in the public unsecured debt market. In due course, EPRT will issue more debt. Overall, though, their debt is 33% of their gross assets. This seems to be their target, though it is an unusually low number for net lease REITs. SRC has a more typical target of 40%. They issued that much debt during the past four quarters. The increase in shares has been running about 10% for SRC and 20% for EPRT in recent years. A higher rate is common for newer REITs. The rows shaded purple show the elements that determine the funds available to support growth from retained earnings. The table first shows the NAREIT Funds From Operations, or FFO. Some fraction of that is paid out as dividends. But the remainder of FFO is not all available for investment. For these two REITs, the non-cash components of FFO are straight-line rents and recurring capex. These do vary even across net lease REITs, distorting the meaning of the oft-quoted ratio of price to FFO. These two REITs have non-cash earnings that are just over 10% of FFO. I obtained the estimates shown using the REIT/base values for straight-line rents and recurring capex over recent years. The row shaded gold shows the implied retained earnings. One can see that these numbers are close to the values shown on the row shaded green. This completes the square regarding how growth has been supported recently. The only long-term difference one would expect is that EPRT will issue relatively more debt and less stock over time than they have in the past year. Buying and Selling AFFO We next look at the yields obtained for these two REITs by buying or selling AFFO. We can put that together using this table: RP Drake Working with the income statement and the previous table lets one generate the first two rows here, shaded purple. One finds that AFFO is a percentage of Cash NOI in the 70s. The exact value is smaller for SRC because of their higher leverage and interest costs. To look ahead we need a debt ratio for new acquisitions. The table uses 40% for SRC and 33% for EPRT (cell shaded yellow). The latter is based on my long-term expectation discussed above. Both these REITs report the recent cash cap rate on new acquisitions in their earnings presentations. For reasons discussed below, this is larger for EPRT than for SRC. The yield from buying AFFO is then implied by the three unshaded rows. It is shown on the row shaded gold to be 7.7% for SRC and 8.0% for EPRT. This is referred to in the math above as the Investment Yield, or IY. In order for share issuance to increase AFFO/share, the yield from buying AFFO (row shaded gold) must exceed that for selling AFFO (rows shaded blue and green). This is symbolized as the Traded Yield, or TY, in the math above. You can see that today (row shaded blue), SRC cannot increase AFFO/share using funds generated by issuing shock. In contrast, EPRT still can. Both could do so a year ago, since the traded yield shown in the row shaded green is less than the investment yield shown in the row shaded gold for both of them. AFFO/share Growth For some assumed increase in the share count, we can now apply the formula above to find the AFFO/share growth. This table shows how that comes together. RP Drake Rents increase at different rates for these two REITs. The escalators are 2% for SRC and 1.5% for EPRT. The associated increase in AFFO/share is decreased by the properties that become non-performing. SRC claims in their presentation that this has become negligible recently. It will not stay that way. EPRT does not say. I took this rent growth drag to be 0.3%. To evaluate the impact at neutral leverage, one levers the result up at the leverage target. The growth from retained earnings shown above is used to buy AFFO at the return on equity just discussed. The combined result is that SRC obtains an internal growth rate of 4.4%, an excellent value. EPRT obtains a smaller rate, 3.9%. Issuing shares dilutes the internal growth. It also provides an increase or dilution of AFFO/share, depending on the ratio of IY to TY. You can see both cases here. The row shaded blue shows what happens today when SRC sells stock and buys properties. It has the impact of reducing AFFO/share growth. In contrast, the row shaded green shows the increase of AFFO/share for stock issued by SRC a year ago. One can see that selling shares increases AFFO/share for EPRT in both periods, but that the increase was a lot larger a year ago. What’s more, EPRT has been issuing shares at a rate closer to 20%. If this continues, their AFFO/share growth will be quite a bit larger. This comparison illustrates the problem that the high dividend creates for SRC. If today’s stock prices were going to be typical, they ought to quit issuing shares. Investors would get a total return near 10% from the dividends plus the internal growth. But SRC will not do that because they expect their share price to recover. In addition, they have ongoing relationships with businesses that rely on them for financing. It would be a long-term mistake to turn those off in reaction to what is likely a temporary bear market. Investors who buy after stock prices recover are still likely to end up with a total return near 10% from SRC. But that is not a great deal. You can get the same returns from National Retail Properties (NNN), in my view a much more secure investment. In contrast, EPRT is likely to be one of the net lease REITs that will produce a higher rate of growth and higher total return. This is thanks mainly to the larger cap rates they get within their business model. This takes us to the other aspects of the business model, which impact the security and endurance of the growth these REITs can obtain. Business Models B: Quality All REITs have attributes that contribute to their quality, but only indirectly impact the growth of AFFO/share. I call them quality related attributes. Several of these are shown here: RP Drake The rows with purple shading show occupancy, corporate reporting of financials, and an emphasis on sustaining relationships with tenants as a primary element of sourcing new ones. These are all important, and both REITs are excellent here. The rows with blue shading show attributes that in my view are very important to minimizing losses in difficult times. In each of these aspects EPRT is of significantly higher quality than SRC: Obtaining financials from each unit helps the REIT proactively address locations becoming weaker. The rent coverage of any unit is a key measure of how well they can handle difficult times. Master leases prevent a corporation from selectively abandoning individual locations. The two rows with orange shading show aspects whose beauty lies in the eye of the beholder. EPRT has explicitly emphasized service-oriented and experience-based properties, in part from the perspective that these are more resistant to e-commerce. If you value such a focus, you will value that aspect of EPRT. SRC, in contrast, while having a substantial fraction of such tenants, also has 20% of its property leased to industrial firms. This is relatively large for this type of REIT. If you think industrial rents are going to infinity and beyond, you will value this aspect of SRC. You can also see in the unshaded row that SRC favors large tenant corporations, so that 85% of their properties are leased to corporations with revenues above $100M. EPRT does not report this statistic, but my estimate from various indirect indicators is that the fraction is much smaller. All else equal, one would expect corporations with larger revenue to be more robust. But this may not do a REIT much good unless they also have master leases. Who’s Your Tenant? The two rows shaded yellow in the table just above highlight a way in which these two REITs differ qualitatively. SRC reports the fraction of tenants that is investment grade, while EPRT does not. When you look at SRC presentations, you see qualitative information about assessing tenant quality. You also see that the average purchase price per property in recent quarters has been near $10M. Here is what SRC chooses to emphasize as operating metrics: SRC Q2 2022 Investor Presentation SRC emphasizes the increase in the fraction of properties with investment-grade tenants. They also emphasize the increase in industrial properties. Their average industrial property has around 100,000 sq. ft
Essential Properties declares $0.27 dividend
Essential Properties (NYSE:EPRT) declares $0.27/share quarterly dividend, in line with previous. Forward yield 4.8% Payable Oct. 14; for shareholders of record Sept. 30; ex-div Sept. 29. See EPRT Dividend Scorecard, Yield Chart, & Dividend Growth.
Essential Properties Realty, Getty Realty upgraded at BofA Securities
Essential Properties Realty Trust (NYSE:EPRT) stock has risen 1.0% and Getty Realty (NYSE:GTY) stock is up 1.4% after BofA Securities analyst Joshua Dennerlein upgraded both net-lease REITs. EPRT was raised to Buy from Neutral as the stock has underperformed year-to-date and screens well on the analyst's price/earnings to growth and dividend yield ("PEGY") ratio. Also, Essential's (EPRT) recent equity raise "eliminates equity funding risk during a period of volatile equity capital markets," he added. Getty (GTY) was upgraded to Neutral from Underperform as Dennerlein expects that management "has a higher appetite for external growth which would likely accelerate earnings growth in the years ahead." Dennerlein's Buy rating on EPRT aligns with the Quant rating, and his Neutral rating on GTY is more cautious than the Quant rating of Buy. After analyzing Essential Properties (EPRT)'s Q2 results, SA contributor Yannick Frey said now is the time to buy
Essential Properties Realty Trust: Now Is Your Chance To Buy
Management raises outlook and expects 2022 AFFO to increase 14% YoY. The portfolio is becoming more diversified in other industries. Tenant credit metrics show a rosy picture over the course of this year. The stock valuation is favorable, and the stock is a strong buy. A quick look back at my previous September 8, 2021, article on Essential Properties Realty Trust, Inc. (EPRT), my second article on Seeking Alpha. I gave a hold rating at the time, stating that the company has strong prospects, but the stock was valued more expensive than the 5-year average. Since the publication of my article, the stock has fallen 19% (including pre-tax dividends). My article clearly indicated the peak. Return Essential Properties (Seeking Alpha) Currently, the stock is valued more cheaply and management raised expectations for 2022: management expects 2022 AFFO per share to be between $1.52 and $1.54. What I especially like about Essential Properties are the concepts of the tenants. Look at the concept of Chicken 'n Pickle, which could easily become the next McDonald's (MCD) in size. It's a great concept. Essential Properties is growing rapidly and exceeding analyst expectations. The stock is valued cheaply, and a strong stock return can be expected. The stock is a strong buy. Expanding Portfolio Diversification Essential Properties is a real estate investment trust ("REIT") whose portfolio consists of 1,561 freestanding net lease properties. The company primarily rents out its freestanding properties to service-oriented and experiential tenants in the United States. The company's tenants are well-diversified by industry. More than 80% of the cash annualized base rent ("ABR") consists of service-oriented tenants. Just over 10% of ABR's cash comes from rent from the more volatile experience industry. A small portion of cash ABR is received from tenants in the retail and industrial sectors. Service-oriented tenants provide services that customers need, there is always demand, even during recessions. The table below shows the diversification by industry and tenants. But keep in mind that the presentation is from the first quarter of 2022. 1Q 2022 presentation (Essential Properties Investor Relations) Since my last September 2021 article, Essential Properties has invested less in service-oriented customers (81.2% vs. 84.5% last year), but significantly more in retail (4.6% vs. 2.8% last year). A portion of the retail sector consists of grocery stores (3.7% of the cash ABR). Essential Properties receive more rent from tenants in the industrial sector compared to last year (2.6% compared to 1.9% last year). The sector diversification from tenants is currently greater than last year, and this will pose a lower downside risk in times of recession. Second Quarter Results Were Strong The results of the second quarter are strong. Revenue grew 25% year-over-year to $71.4 million, and same-store rents grew 1.9%. Adjusted Funds From Operations ("AFFO") grew 12% to $0.38 per share. The company is growing strongly. The average rental term is 13.8 years and 4.3% of the ABR expires until 2026. The weighted average rental coverage ratio is even higher than when I first published my article, standing at 4 compared to 3.2 in September 2021. Management raised its expectations and now expects 2022 to approach AFFO in the $1.52 to $1.54 range. This equates to a growth of 13.4% to 14.9% compared to 2021. AFFO is growing steadily, from 2019 to 2021 the AFFO grew on average 35.5% per year. The company has been able to achieve this rapid growth by issuing shares. AFFO grew on average by 8.4% over the same period. Year AFFO AFFO per share 2019 $86M $1.14 2020 $107M $1.11 2021 $158M $1.34 2022 1Q $48.9M $0.38 2022 2Q $50.6M $0.38 (23% increase) Repay Amounts Outstanding On Its Revolving Credit Facility Recently, Essential Properties offered investors the opportunity to purchase an additional 7.6M shares at a public offering price of $23 per share. And underwriters granted a 30-day option to buy up to 1.14M additional shares. The net proceeds will total $201 million. This will be used for the repayment of outstanding amounts on the revolving credit facility and for general corporate purchases. As of June 30, 2022, the revolving credit facility offers a maximum principal amount (including accordion feature to increase maximum availability) of up to $600 million. Currently, $218 million is being drawn from the revolving credit facility. The decrease in the amount outstanding in the revolving credit facility will benefit the company as it reduces the interest payable, and this is especially beneficial during the current rising interest rates. One drawback is that it will dilute shares. As of June 30, 2022, there are 132.7 million shares outstanding, so it will dilute the shares by 6.6%. That is a lot. I expect management made a thoughtful decision and the revolving credit facility rate was much higher than 6.6% to offset the stock dilution. Dividends And Stock Valuation In my previous article I showed a table of expected dividend payments for the coming years. 10 analysts expected the dividend per share for 2021 to be $0.99. For 2021, Essential Properties paid more dividend than analysts had predicted ($1 dividend per share). The dividend grew TTM by no less than 8.3%. Dividend expectations for the coming years have been revised upwards by analysts: Analyst Forecast Source: Seeking Alpha as of August 15, 2022 Year # estimates Dividend per share 2022 10 $ 1.07 2023 10 $ 1.13 2024 7 $ 1.15 In my article, I explained that I preferred to value the stock based on the average dividend yield of recent years. The ratio P/FFO reflects the current valuation, and discounted cash flow analysis gives the valuation into the distant future. My stock valuation is somewhere in between, because the distant future is uncertain. But it also has its limitations, the average dividend yield of recent years has been taken while interest rates are now being raised sharply. Higher interest rates affect the share price because investors demand more dividend yields in times of higher interest rates. The average dividend yield from 2018 to 2021 is 3.8%. The share price for the coming years is calculated in the table below: Analyst Forecast Source: Seeking Alpha as of August 15, 2022 Year # estimates Dividend per share Expected Share Price (own calculation) 2022 10 $ 1.07 $28.2 2023 10 $ 1.13 $29.7 2024 7 $ 1.15 $30.3 According to this method, the stock is currently undervalued at $25.30. If the shares are purchased and held until the end of 2024, this will yield an average annual pre-tax return of 11.7%. Risks There are a few points that I would point out as risky in this strong REIT business, these are: 1) negative GDP growth; 2) inflation and interest rate hikes; and 3) debt maturities.
|EPRT||US REITs||US Market|
Return vs Industry: EPRT underperformed the US REITs industry which returned -19.2% over the past year.
Return vs Market: EPRT underperformed the US Market which returned -20.3% over the past year.
|EPRT Average Weekly Movement||3.5%|
|REITs Industry Average Movement||4.0%|
|Market Average Movement||6.9%|
|10% most volatile stocks in US Market||15.7%|
|10% least volatile stocks in US Market||2.8%|
Stable Share Price: EPRT is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 3% a week.
Volatility Over Time: EPRT's weekly volatility (3%) has been stable over the past year.
About the Company
Essential Properties Realty Trust, Inc., a real estate company, acquires, owns, and manages single-tenant properties in the United States. The company leases its properties to middle-market companies, such as restaurants, car washes, automotive services, medical and dental services, convenience stores, equipment rental, entertainment, early childhood education, grocery, and health and fitness on a long-term basis. As of December 31, 2021, it had a portfolio of 1, 451 properties.
Essential Properties Realty Trust, Inc. Fundamentals Summary
|EPRT fundamental statistics|
Is EPRT overvalued?See Fair Value and valuation analysis
Earnings & Revenue
|EPRT income statement (TTM)|
|Cost of Revenue||US$5.10m|
Last Reported Earnings
Jun 30, 2022
Next Earnings Date
|Earnings per share (EPS)||0.84|
|Net Profit Margin||45.07%|
How did EPRT perform over the long term?See historical performance and comparison
5.7%Current Dividend Yield
Does EPRT pay a reliable dividends?See EPRT dividend history and benchmarks
|Essential Properties Realty Trust dividend dates|
|Ex Dividend Date||Sep 29 2022|
|Dividend Pay Date||Oct 14 2022|
|Days until Ex dividend||2 days|
|Days until Dividend pay date||13 days|
Does EPRT pay a reliable dividends?See EPRT dividend history and benchmarks