Earnings call transcript: Essential Properties Realty Trust Q3 2025 beats expectations

Essential Properties Realty Trust Inc. (EPRT), a real estate investment trust with a market capitalization of $6.31 billion, reported its third-quarter 2025 earnings, surpassing Wall Street expectations with an earnings per share (EPS) of $0.33, compared to the forecasted $0.31. The company also exceeded revenue forecasts, reporting $144.93 million against the expected $135.44 million. Following the earnings announcement, the stock price saw a slight increase of 0.99% in regular trading hours, closing at $31.37, although it dipped by 0.38% in premarket trading. According to InvestingPro analysis, the stock is currently trading near its Fair Value, with analysts setting price targets between $32 and $40.

Key Takeaways

• Essential Properties reported a 6.45% EPS surprise, with actual earnings of $0.33 per share.
• The company achieved a 7.01% revenue surprise, reporting $144.93 million.
• Stock price increased by 0.99% post-earnings, despite a slight premarket dip.
• Strong investment activity, with $370 million invested in 87 properties.
• Portfolio occupancy remains high at 99.8%.

Company Performance

Essential Properties demonstrated robust performance in Q3 2025, with a notable increase in adjusted funds from operations (AFFO) per share by 12% year-over-year. The total AFFO reached $96.2 million, marking a 24% increase compared to the same period last year. InvestingPro data reveals impressive metrics, including a 98.64% gross profit margin and a strong 25.14% revenue growth over the last twelve months. The company’s strategic investments and high occupancy rates underscore its competitive position in the real estate market. InvestingPro subscribers have access to 8 additional key insights about EPRT’s financial health, which has received a "GREAT" overall score.

Financial Highlights

• Revenue: $144.93 million, up from expectations of $135.44 million.
• Earnings per share: $0.33, compared to a forecast of $0.31.
• AFFO per share: $0.48, a 12% increase year-over-year.
• Cash dividend: $0.30 per share.
• Retained free cash flow: $36.4 million.

Earnings vs. Forecast

Essential Properties outperformed analysts’ expectations with a 6.45% EPS surprise and a 7.01% revenue surprise. This performance reflects a positive deviation from forecasts, indicating strong operational execution and strategic investments.

Market Reaction

The company’s stock experienced a 0.99% increase in regular trading following the earnings announcement, closing at $31.37. However, in premarket trading, the stock saw a slight decrease of 0.38%, reflecting mixed investor sentiment despite the positive earnings surprise.

Outlook & Guidance

Looking ahead, Essential Properties has provided an AFFO per share guidance of $1.87 to $1.89 for 2025 and $1.98 to $2.04 for 2026, indicating a projected growth of 6-8%. The company plans to invest between $1.0 billion and $1.4 billion in 2026, focusing on service and experience-based industries. InvestingPro highlights that EPRT has raised its dividend for 7 consecutive years, currently offering a 3.88% yield, with a healthy current ratio of 2.47 indicating strong liquidity. A comprehensive Pro Research Report analyzing EPRT’s growth trajectory and investment potential is available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Peter Mavoides emphasized the company’s reliability and execution capabilities, stating, "We compete on our reliability and our ability to execute and deliver capital." He also highlighted the importance of data-driven assumptions, noting, "Our assumptions are based on the most current data that we have in the shop."

Risks and Challenges

• Market volatility could impact investment opportunities and cap rates.
• Economic downturns may affect tenant stability and rent collection.
• Potential increase in interest rates could raise financing costs.
• Competition in the sale-leaseback market may pressure margins.
• Geographic diversification remains a strategic consideration.

Q&A

During the Q&A session, analysts focused on cap rate expectations and potential compression, credit loss assumptions, and the company’s industrial property investment strategy. The discussion also addressed the competitive landscape in sale-leaseback transactions, highlighting Essential Properties’ strategic positioning.

Full transcript - Essential Properties Realty Trust Inc (EPRT) Q3 2025:

Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you.

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust’s third quarter 2025 earnings conference call. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the star and one on your telephone keypad. This conference call is being recorded, and a replay of the call will be available three hours after the completion of the call for the next two weeks. The dial-in details for the replay can be found in yesterday’s press release. Additionally, there will be an audio webcast available on Essential Properties website at www.essentialproperties.com, an archive of which will be available for 90 days.

On the call this morning are Peter Mavoides, President and Chief Executive Officer, Mark Patten, Chief Financial Officer, Max Jenkins, Chief Operating Officer, AJ Peil, Chief Investment Officer, and Rob Salisbury, Head of Corporate Finance and Strategy. It is now my pleasure to turn the call over to Rob Salisbury.

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Thank you, Operator. Good morning, everyone, and thank you for joining us today for Essential Properties Realty Trust’s third quarter 2025 earnings conference call. During this conference call, we will make certain statements that may be considered forward-looking statements under Federal Securities Law. The company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company’s filings with the SEC and in yesterday’s earnings press release. With that, I’ll turn the call over to Pete.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Rob, and thank you to everyone joining us today for your interest in Essential Properties. In the third quarter, we continued to execute on our focused investment strategy as our team sourced attractive opportunities to deploy capital accretively into middle-market sale-leasebacks with growing operators. During the quarter, we added new operators in our portfolio while continuing to support our existing relationships, which contributed to 70% of our $370 million of investments, highlighting a healthy balance within our investment sourcing. Pricing was very favorable again this quarter, with a weighted average initial cash yield of 8% and a strong average gap yield of 10%, which represents the highest level for us and an approximately 450 basis points spread to our estimated weighted average cost of capital.

Our portfolio performance was another highlight this quarter, with same-store rent growth of 1.6%, an increase in overall rent coverage to 3.6 times, a 120 basis point decline in the percentage of annual base rent under one times rent coverage, and a decline in the tenant credit watch list, all of which is better than our budgeted expectations. Our capital position remains healthy, with a performance leverage of 3.8 times and $1.4 billion of liquidity, which was supported by our unsecured bond issuance during the quarter. This positions us well to continue to invest, support our relationships, and grow our portfolio, all to generate sustainable earnings growth for our shareholders.

With operating and financial trends coming in ahead of budgeted expectations, we are again increasing our 2025 AFFO per share guidance to a range of $1.87 to $1.89, and our investment volume guidance to a range of $1.2 billion to $1.4 billion. Additionally, we are establishing our initial 2026 AFFO per share guidance range of $1.98 to $2.04, which implies a growth rate of 6% to 8%. Our guidance for 2026 reflects continued strong portfolio performance and a pace of investments generally consistent with our trailing eight-quarter average. Cap rates are expected to compress modestly over the coming quarters, reflecting a lower and stable interest rate environment. Specifically, we expect to invest between $1 billion and $1.4 billion in 2026. Additionally, we expect cash G&A expense to be between $31 million and $35 million, resulting in continued efficiency gains.

Turning to the portfolio, we ended the quarter with investments in 2,266 properties that were leased to over 400 tenants. Our weighted average lease terms continue to be approximately 14 years for the 18th consecutive quarter, which is 4.5% of our annual base rent expiring over the next five years. With that, I’ll turn the call over to AJ Peil, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities.

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Thanks, Pete. As Pete mentioned, at a high level, our portfolio credit trends remain very healthy, with same-store rent growth in the third quarter of 1.6%, up from 1.4% last quarter, and occupancy of 99.8%, with only five vacant properties. Overall portfolio rent coverage increased to 3.6 times from 3.4 times last quarter, and the percentage of ABR under one times rent coverage declined by 120 basis points. There were no noteworthy credit events during the third quarter, and overall tenant credit trends have performed better than our budgeted expectations and our historical credit loss levels of 30 basis points. From a portfolio diversification perspective, our top tenant concentration continues to decline, with our largest tenant equipment share representing just 3.5% of ABR at quarter end, our top 10 tenants overall accounting for just 16.9% of ABR, and our top 20 accounting for only 27.6% of ABR.

Tenant diversity is an important risk mitigation tool, and it is a direct benefit of our focus on middle-market operators. On the disposition front, during the third quarter, we sold seven properties for $11.5 million in net proceeds. This represents an average of $1.6 million per property, highlighting the importance of owning fungible, liquid properties, allowing us to proactively manage portfolio risk. The dispositions this quarter were executed at a 6.6% weighted average cash yield. Over the near term, we expect our disposition activity to be consistent with our trailing eight-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I’ll turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

Max Jenkins, Chief Operating Officer, Essential Properties Realty Trust: Thanks, AJ. On the investment side, during the third quarter, we invested $370 million at a weighted average cash yield of 8%. Our capital deployment was broad-based across most of our top industries, with no notable departures from our investment strategy. During the third quarter, our investments had a weighted average initial lease term of 18.6 years and a weighted average annual rent escalation of 2.3%, generating a strong average gap yield of 10%. During the quarter, we closed 35 transactions, comprising 87 properties, of which 97% were sale-leasebacks. Investment per property was $3.8 million this quarter, as our deal activity was characterized by granular freestanding properties, which is one of our core elements of our investment strategy. Looking ahead, our investment pipeline remains strong.

Pricing in our pipeline has cap rates in the mid to high 7% range, which represents a healthy spread to our cost of capital, with elevated contractual escalations supporting our long-term growth trajectory. Combined with our investments of $1 billion year to date, we have again increased our full-year investment guidance to a new range of $1.2 to $1.4 billion. With that, I’d like to turn the call over to Mark Patten, our Chief Financial Officer, who will take you through the financials for the third quarter.

Mark Patten, Chief Financial Officer, Essential Properties Realty Trust: Thanks, Max. Overall, we were very pleased with our third quarter results, highlighted by the record level of investments and our AFFO per share, which totaled $0.48, representing an increase of 12% versus Q3 of 2024. On a nominal basis, our AFFO totaled $96.2 million for the quarter, which is up 24% from the same period in 2024. This AFFO performance was consistent with our expectations, as reflected in our guidance range. Total G&A in Q3 2025 was $10.2 million versus $8.6 million for the same period in 2024, which is consistent with our budgeted expectations. The majority of the year-over-year increase is related to increased compensation expense, including stock compensation, as we continue to invest in our team in support of driving our growth ambitions.

Our cash G&A was approximately $6.7 million this quarter, which is consistent with our guidance range of $28 million to $31 million for the full year and represents just 4.6% of total revenue, down from 5.1% from the same period a year ago. We declared a cash dividend of $0.30 in the quarter, which represents an AFFO payout ratio of 63%. Our retained free cash flow after dividends continues to build, reaching $36.4 million in the third quarter, equating to over $140 million per annum on a run-rate basis, or approximately 10% of the top end of our 2026 investment guidance. Turning to our balance sheet with the net investment activity in Q3 2025, our income-producing gross assets reached nearly $7 billion at quarter end. The increasing scale and diversity of our income-producing portfolio continues to build, improving our credit profile.

On the capital markets front, we successfully executed a $400 million 10-year unsecured bond offering in August with a 5.4% coupon. This achieves an important advancement in a strategic objective of our capital markets program, as we continue to build a more liquid bond complex and work to more closely align the weighted average duration on our liabilities with our long-dated assets. Our weighted average debt maturity improved by approximately 18% to 4.5 years, owing in large part to this issuance. With the liquidity from the bond offering, we were able to be more selective on the equity side this quarter, raising approximately $14 million through our ATM program. We did not settle any forward equity during the quarter, leaving us with a balance of unsettled forward equity totaling $521 million at quarter end.

We expect to utilize these funds in the near term to support our investment activities and preserve our balance sheet flexibility by repaying our revolving credit facility balance. Similar to last quarter, our share price remained above the weighted average price of our unsettled forwards of $30.71 at quarter end. As a result, under the Treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the third quarter, our diluted share count of 199.9 million shares included an adjustment for 0.2 million shares from our unsettled forward equity related to this Treasury stock calculation. This represented a modest headwind to our AFFO per share for the quarter, which was consistent with our budgeted expectations. Based on our current share price, we expect a very modest headwind from the impact of the Treasury stock method in the fourth quarter.

Our pro forma net debt to annualized adjusted EBITDAre, as adjusted for unsettled forward equity, remained low at 3.8 times as of quarter end. We remain committed to maintaining a well-capitalized and conservative balance sheet with low leverage and significant liquidity to continue to fuel our external growth and allow us to service our tenant relationships in this dynamic environment. Lastly, as we noted in the earnings press release, we have increased our 2025 AFFO per share guidance to a new range of $1.87 to $1.89. Importantly, this guidance range requires no incremental equity issuance to achieve, and we anticipate ending the year at pro forma leverage of approximately 4 times, leaving us ample runway to fund our growth ambition in 2026.

Turning to 2026, as Pete noted, we have established an initial AFFO per share guidance range for 2026 of $1.98 to $2.04, reflecting a growth rate of approximately 6% to 8%. With that, I’ll turn the call back over to Pete.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Mark. We are happy with our third quarter of results. The portfolio is performing well, the investment market is exceptional, and the capital markets are supportive. Operator, please open the call for questions.

Operator: At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. Once again, to ask a question, that is star one. We’ll take our first question from Haendel St. Juste with Mizuho. Your line is open.

Yes, good morning. Thank you. First, congrats on another strong quarter. I wanted to ask, I was intrigued, Pete, by your comments about expecting lower cap rates going forward. I understand a lot of that is from lower cost of debt here, but I’m also curious if any of that is from the increased competition we’re hearing about, and if you expect any of this new competition to impact your ability to source sale-leasebacks going forward. Thanks.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Sure. Thanks, Haendel, and thanks for the compliment on the quarter. It was a great quarter, and we feel pretty good about it. The 10-year is down materially, and the interest rate environment is more stable than it has been, which all contributes to a lower cap rate environment. We continue to source a strong pipeline of sale-leaseback opportunities, as evidenced by the fourth quarter, as evidenced by our increase in investment guidance for the fourth quarter. We can compete with any competition in the market. There is always competition. I think the cap rates are going to be driven down more by the stability in the interest rate environment, and we have an ample opportunity set.

Okay, appreciate that. One more, I wanted to ask about the new industrial assets you acquired. I know you have a little bit of exposure there already, but they were really high rent coverage, and I’m curious if there’s, you know, an expectation perhaps to do more of that asset type going forward. Thanks.

Yeah, sure. We’ve been investing in industrial outdoor storage sites with service-based companies for quite some time now. Our investment in the industrial space really focuses on granular, fungible assets. One of the important considerations when we’re doing those deals is making sure that we’re having a very fungible piece of real estate. We like it. We like the sale-leaseback where we can structure master leases on our lease, and that’s been a part of our business and will continue to be a part of our business going forward. I wouldn’t expect it to be disproportional. I would expect it to grow rapidly.

Thank you. Appreciate the color.

Haendel, appreciate the questions.

Operator: Our next question comes from Michael Goldsmith with UBS. Your line is open.

Good morning. Thanks a lot for taking my question. Maybe to follow up on Haendel’s first question on the expectation for cap rates to come down. When you marry that with your initial 2026 outlook, are you contemplating compressing spreads in that? I’m just trying to understand the flow-through, just trying to understand the flow-through of cap rates going down.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I mean, I’ve been saying this consistently for the past two years that we expect cap rates to come down. Certainly, as we look at the business, we did in the third quarter, initial cap rate of 8% with a 10% gap yield. As I’ve said in past calls, that’s pretty much as good as it gets. As I said earlier, a 10-year going from 4.5 to 4 certainly contributes to downward pressure on cap rates. If you think about the lag in the business, there’s generally going to be a 60 to 90-day lag between movements in underlying interest rates and movements in cap rates. Similar to last year, as we look out here very early, 15 months in advance, we anticipate some downward pressure on cap rates. Overall, as we think about the forward yield curve, I think it really results in a static spread, if anything.

Maybe some compression in the spread. I certainly feel like there’s some room for that with our historically wide spreads. There’s certainly, as there always is, a certain amount of conservatism baked into our forward assumptions because it is pretty early.

Thanks for that. As a follow-up, the percentage of ABR with less than 1% or one times rent coverage came down. It looks like you sold some, you sold some stuff there. Can you provide a little bit of color about what you sold there, what you still have left in the portfolio in that less than one times coverage? If you have plans for further disposals of that type of product, thanks.

Yeah, selling seven assets at $11 million really isn’t going to drive a material movement in that. It’s at the margin. As we generally say, we take a very close look at those assets, and if they’re permanently impaired, we come up with a strategy, whether disposal, restructuring, or whatever to fix that. Many of the assets in those buckets are assets that are transitional, and we expect to come out of that bucket over time. We take an asset-by-asset look, and if we see permanently impaired assets, we’ll move them out of the portfolio. I think what you see in the quarter is a decrease in that bucket, which is just general improvement in some of the underlying operating conditions.

Thank you very much. Good luck in the fourth quarter.

Thank you very much.

Operator: Our next question comes from John Kilichowski with Wells Fargo. Your line is open.

Hi, good morning. Thank you. Maybe, Pete, just to kind of go back into the guide here and talk about the drivers, I think it’d be really helpful to talk about your assumptions, this year versus last year. I understand for the past two years you’ve been assuming some cap rate compression. I don’t know if on the low and the high end if you could talk to maybe the sizing of that and how that looked on this guide versus the last guide, and then maybe also on credit loss. Maybe if there’s more conservatism there, and if that’s just general conservatism given weakness in some of the private credit markets, or if there’s specific tenants that are on your credit watch list today that weren’t last year, that would be really helpful.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I would say I would start by saying we build up our guide really targeting an AFFO per share range and looking at what we need to do to achieve that. As we said on the call, 6 to 8 is implied in our guide, and the investment volumes are there to support it. As we think about cap rates, ironically, the cap rates assumptions are pretty similar to what we were looking at this time last year, which assumes a modest downtick in cap rates. As we saw when interest rates were rising and cap rates were rising, cap rates were sticky on the way up. We anticipate cap rates to be a little sticky on the way down. Just to frame that, I wouldn’t expect something in the, I don’t know, mid to low sevens maybe at the end of the year.

Obviously, there’s a range of assumptions built into guidance. As it pertains to credit loss assumptions, we take a very deep dive into our portfolio, look at specific assets and specific tenants, and try to create scenarios around where we might potentially take losses. Then we build in on top of that an unknown credit loss assumption to make sure we’re covered for the unknown events. I think as we look at the credit loss scenarios built into this year’s guidance, again, it’s very similar to what we were looking at and thinking about this time last year. We would be hopeful that as the year progresses, the credit loss experience turns out to be favorable to our underlying assumption. I don’t know, Rob, you Mark, you add anything to that?

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Yeah, hey, John, it’s Rob. As you think about the low end and the high end of the range, one of the biggest drivers is actually just the timing of when we close investments and close on capital markets activities. Cap rates and credit losses, of course, will move it a little bit, but it’s really when you’re going to close deals throughout. That’s the main flux in the bottom versus the high end.

Okay, that’s very helpful. Thank you for that. Maybe just on the credit side, given the issues we’ve seen with BDCs and private credit this year, can you talk about how you’ve been able to outperform on the credit side as it relates to the migration out of that sub-one times coverage bucket and just your overall coverage?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I would really look at the outperformance in our same-store rent growth, right, which at 1.6% reflects a pretty strong pass-through of our contractual rent escalations. I think our outperformance is really due to our focused and disciplined investment strategy by focusing on service and experience-based industries that are a little less volatile than general retailing, focusing on owning assets at a conservative basis and owning granular, fungible assets that give us the ability to manage risk. Ultimately, being the most secured creditor as a landlord in these businesses puts us first in line for the cash flows. I think it’s really a tribute to the team and the discipline in the underwriting and a tribute to the assets that we own.

Got it. Thanks, Pete. Congrats on a great quarter.

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Thank you very much. Appreciate the questions.

Operator: Our next question comes from Smedes Rose with Citi. Your line is open.

Hi, thank you. I just wanted to ask a little bit about maybe if you could just repeat what you’re seeing kind of in the fourth quarter in terms of activity. It looks like, historically, the fourth quarter has picked up seasonally, I guess people kind of, you know, rushing into year-end. Are you seeing that, and can you maybe provide what you’ve closed on so far and what the, what the, maybe the LOI pipeline looks like?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Sure, Smyth, I think with our revised guidance, we provide a pretty good landing zone of what the fourth quarter might look like. You know, it’s early in the fourth quarter, and the year-end rush has yet to start. We didn’t disclose subsequent activities because they just weren’t material. Generally, I would expect the fourth quarter to look pretty similar to our eight-quarter trailing average in that kind of $300 million range. There are events that could be a lot bigger, it could be a little smaller, but that’s kind of where we’re guiding at this point.

Okay, thank you. I just wanted to, did you say you would expect to settle the forward equity, and is that reflected in your 2026 guidance in terms of just the share count we should be thinking about?

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Yeah, actually, thanks, Smyth. That actually is reflected still in our 2025 guide as well. That’s, that would be reflective there, and it would also be reflective of how we see the capital markets activity playing out for 2026 and the way we’ve utilized the reverse and then utilized forward equity to wipe that off the balance sheet.

Okay, thank you.

Thanks, Smyth.

Operator: Our next question comes from Jana Galan with Bank of America. Your line is open.

Thank you. Good morning. Sorry, one more on cap rate expectations. In the prepared remarks, there was a comment of kind of the mid to high 7% range, and I’m just curious if that’s the current pipeline or if that’s kind of the range embedded in the 2026 guide.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I think it’s really both, right? You know, we have visibility on part of our fourth quarter pipeline, and that’s in the mid to high sevens. You know, as we look out, as I said, we don’t anticipate, you know, cap rates falling off a cliff. We anticipate them to be sticky, but, you know, it’s really going to be driven by the capital markets. Overall, we would expect to maintain our spread. Yeah, you know, as I always say, we really don’t have visibility past, you know, kind of 90 days, but that’s kind of what our expectations would be.

Thank you. Back to the, I think Mark had mentioned the historical credit loss has been 30 basis points. If you can just help frame the scenarios you’ve considered for 2026.

Yeah, Rob, Mark?

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Yeah, I mean, you know, look, Jana, as you might have suspected, the range in our guidance, and I’ll let Rob dig into it, but the range of our guidance incorporates a wide range of assumptions around credit. Certainly, we orient the first aspect of it to be our historical experience at that 30 basis points. As Pete said, we do a deep dive on the portfolio and just look at both a general assumption and some risk mitigation or otherwise kind of orientation around it would be appropriate. That tends to be for us, as we move through the year, as Pete, I think, alluded to, if our experience is better than we expected so far this year, that would be a scenario like that that gives us an opportunity to tighten the range on our guidance.

Thank you. I’m sorry. I don’t know if the line was cut off.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: No, we’re here.

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: We’re here.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, we don’t guide specific credit loss assumptions, and there was a wide range in there, Yana.

Rob Salisbury, Head of Corporate Finance and Strategy, Essential Properties Realty Trust: Yana, as we mentioned earlier in the call, our credit loss experience has come in much better than we had anticipated, which has been part of the driver for our guidance increases over the period.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Cool.

Thank you. Appreciate it.

Thank you.

Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Your line is open.

Hi, good morning, everyone. Pete, in the press release, you mentioned the expanding platform that Essential Properties Realty Trust has. You also mentioned G&A efficiencies in the prepared remarks. I was wondering if you could talk more about the potential of the platform and maybe why the 2026 midpoint volume guidance isn’t necessarily a continuation of growth from 2025.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I think, as I said a little earlier, Galen, we targeted an AFFO per share growth and try to present a business plan that is de-risked from an execution perspective. While we continue to scale the platform, we continue to source more opportunities and have the ability to close more opportunities, we’re fighting the desire to just do more, and to get bigger. We’re more trying to execute a business plan that gives us outsized sustainable growth for a long period of time. The platform’s growing. Our relationship base is growing. Our ability to close transactions is improving. We certainly feel 6% to 8% guide to our AFFO per share growth is ample and adequate and de-risked from an execution perspective.

Got it. Okay, that makes sense. As you guys think about funding, obviously, you did use debt during the quarter, a small amount of dispositions. Could you go through, to what extent did share price moves in the quarter impact your equity issuance activity and maybe even bigger picture, not just 3Q, but how you think of it over time?

Yeah, I guess what I’d say is I’d sort of flip that around. We were, you know, I’d say in any given year, if you think about our equity and debt issuance, capital raising, it might be anywhere from, you know, $50 million and $40 million because, as I mentioned in my remarks, over 10% of our capital needs in any given year is now available through free cash flows. An important source for us. If you think we were looking at where to access the bond market because I think our ambition is to be in that bond market, build the bond complex, and really align our debt ladder, our maturity ladder with our long-dated leases. We were looking at the bond market, and what I’d say instead is, being able to do that bond execution really put us in a position to be selective on the equity front.

We already had over $500 million of unsettled forward equity, so we didn’t really need to lean in too hard in the quarter. With the bond deal, that made it even more so. I guess what I’d say in 2026, as you think about it, we remain very low levered. I think, depending on the pricing of both our debt and our equity, that’s where we would orient kind of our decisions around equity, access to equity, and then otherwise utilizing the bond market on the debt side.

Okay, got it. Thanks.

Thank you, Candice.

Operator: Our next question will come from Jay Kornreich with Cantor Fitzgerald. Your line is open.

Hey, thanks very much. Just curious, you know, you added a new top 10 tenant this quarter with Primrose Schools. As the majority of your deal flow comes from repeat business, I’m just curious, how do you think about prioritizing obtaining new tenants that can really set the stage for continued business going forward? Can we expect more additions to that top 10 quadrant as the next 12 months come on?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, Max, why don’t you tackle that for us?

Sure. Thanks, Pete. Primrose is a premium child care concept with over 500 locations across the country. We’ve been partnering with their largest franchisee over the last couple of years, and a subsequent transaction put them in the top 10. On the sourcing front, we’re constantly adding new tenants and relationships to the portfolio, and frankly, it’s been pretty consistent over the years. Every quarter we’re adding anywhere between 5 and 10 new tenants. We’re obviously focused on repeat business and growing rapidly with those operators throughout our industries. It’s always going to be a two-pronged approach.

Okay. Just as a follow-up, you know, in addition to sticky cap rates lately, you also ticked up the lease escalations to 2.3%. I’m curious, you know, what’s driving that lease negotiation leverage? Is that something on the lease escalations that you feel like you can continue to increase even in an environment where lowering interest rates could lower cap rates?

Yeah, listen, I think that, you know, that’s a key economic term of the sale-leasebacks we’re negotiating. Ultimately, you know, in any deal, we’re negotiating the best terms we can. Whether or not we win a deal is really a factor of competition and having an ample opportunity set to focus on the deals with the least amount of competition. I would not anticipate that going higher. As I said in our prepared remarks, you know, a 10% average cap rate over the life of these leases is as high as we’ve seen and pretty darn compelling. If you look back to, you know, 2020, 2021, where interest rates were low and competition was a very, very high level, our escalators were down around 1.4%, 1.5%. Over a longer period of time, I would expect downward pressure on that key economic term.

Okay, thank you.

Operator: Our next question comes from Rich Hightower with Barclays. Your line is open.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Hi, good morning, guys, and thanks for taking the question. I guess just to maybe follow up on the same theme, I mean, obviously, one of the big headlines in net lease this year has been that added private market competition. We probably asked this question last quarter as well, but just tell us about what you’re seeing in the marketplace and how the different features of deal negotiation are impacted as more capital flows into the space. Does that affect the way you underwrite, you think about guidance, etc.? Thanks. Yeah, I mean, it’s always a competitive market. There are always competitive forces, competitive sources of capital, competitive alternatives for our tenants. Ultimately, we compete on our reliability and our ability to execute and deliver capital and to capital needs.

I think when you have a lot of new entrants, there are a lot of foot faults and a lot of missed starts. I think the priority on reliability and certainty and relationships and the ability to service those relationships reliably gets rewarded. That’s been our operating thesis since starting this company and will continue to be the way we go to market. I’m confident that we’ll be able to offer more compelling and certain capital to our counterparties than new market participants. I appreciate that, Pete. Maybe just to follow up or put a finer point on it. If you are losing out on a transaction, where are you typically losing and on what terms and that sort of thing? Yeah, we’re going to lose on price. We’re going to lose on, I think, the initial cap rate is ultimately the highest point of sensitivity.

If I view it as if we lose a deal, it’s because we’re choosing not to do it and we’re choosing not to chase the price. We see a different risk-adjusted return dynamic and opt to deploy our capital somewhere else. It’s not necessarily losing a deal. It’s just deciding to invest somewhere else.

All right, great. Thank you.

Thank you.

Operator: Our next question comes from Eric Borden with BMO Capital Markets. Your line is open.

Hey, good morning, everyone. Just a quick question on the tenant credit watch list. You know, understand that it’s coming in above your underwriting. Just curious if you could provide an update on the watch list and where it sits today. I believe last quarter you said it was approximately 160 bps. Thanks.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Hey, Jay. That’s on you, buddy.

Yeah, our watch list, just to refresh, is the intersection of B minus and less than 1.5 times coverage. Today, that sits at 1.2 times. There’s a variety of tenants on the list that we keep a close eye on, but it is down 40 basis points quarter over quarter.

All right, thank you very much. That’s all I had.

Nice. Thank you.

Operator: Our next question comes from Daniel Guglielmo with Capital One Securities. Your line is open.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Hi, everyone. Thank you for taking my questions. There were some changes to the ABR by state, but nothing that jumps off the page. When looking at the existing pipeline, are there states or regions where you see better investment opportunities over the next year or so? Yeah, as we think about it, geography is always an output, not an input. We go where our tenant relationships bring us, you know, in the United States. There are certainly good opportunities across all states. We just prioritize the best opportunities with the best operators. I wouldn’t expect any material deviation in our geographies as we think about 2026. Yeah, I appreciate that. As a follow-up to the question on the elevated lease escalation number, are there any additional risks you think through for the higher annual rent bumps on some of the newer tenant leases? Anything kind of incremental?

You know, listen, rent escalations are a key economic term. One of the benefits of lower escalations is a more compelling rent basis for the counterparty, right? The inverse of that is, the higher the rent escalations, the more inherent credit risk as you get in the out years to your assets. Certainly, we feel comfortable at the level we’re at, kind of roughly CPI-ish. To the extent that your lease rates are growing faster than the CPI, the tenant’s underlying ability to generate profit may not keep up with rent. That’s an important consideration as we structure these leases, making sure there’s a healthy rent payment and season and healthy coverage as we think about the out years in, you know, 10, 10 through 20. It’s a balance.

Certainly, more is better, but making sure you’re getting the right level and having tenants that can service those obligations throughout the life of the lease. Thank you. That’s really helpful. Thank you.

Operator: Our next question comes from James Kammert with Evercore. Your line is open.

Hi, good morning. Thank you. You’ve covered a lot. Just to go back on the credit loss assumptions for 2026, would you just say as a platform, you’re adopting more conservative expectation for credit loss for 2026, given the economy or the portfolio, or you know, I’m reading too much into this, or it’s very similar to what you kind of started the 2025 outlook for when you’re in late 2024?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, you know, I would say we’re looking at it through the same lens. We have the same guys doing the same work, taking the same assumptions with the same base of experience. You know, our assumptions are based on the most current data that we have in the shop. Ultimately, the result of that process is very consistent to what we were looking at last year at this time. You know, the risks in the portfolio tend to be very idiosyncratic and not really driven by macro trends. It’s more just specific operators who are not operating the way we would expect. It’s a consistent process. The result just happens to be very consistent to last year, as we sit today, but nothing out of the norm.

Okay, great. That’s very helpful. Thank you.

Operator: As a reminder, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star and two. We’ll take our next question from Omotayo Okusanya with Deutsche Bank. Your line is open.

Hi, yes, good morning. The group of tenants where the rent coverage is less than one time, could you just kind of at a high level tell us who that is, whether if you can’t mention the specific client or tenant, you know, in what sector or what industry it is?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, hey, Teo. It’s a group of assets. First and foremost, let’s focus on the real estate properties that we own. There’s really not a consistent theme. It’s very much specific idiosyncratic risk to those assets and the lease obligations that the tenants have at those assets. It’s going to be across all our industries. It’s going to be across all our geographies and it’s just specific sites that aren’t working. It could be very idiosyncratic, as a childcare center lost an operator or a manager, or it could be a restaurant where there’s a road widening and the access is offline, or it can be a car wash that’s just opened and really ramping into its membership base. Very idiosyncratic stuff, not terribly material. Certainly, we’re happy that it’s come down, but nothing thematic that I would point out.

Thank you.

Thank you, Teo.

Operator: Our next question comes from Greg McGinniss with Scotiabank. Your line is open.

Hey, good morning. Now, it’s never particularly low, but acquisitions through existing relationships hit 70% this quarter, which, you know, maybe one could argue is relatively lower than usual. I’m curious if this is an indicator for the growth of Essential Properties Realty Trust’s name as a source of capital, or how do those non-relationship deals come about? Is it markets deals, a seller approaching you? I’m just trying to understand if you start having even more investment opportunities as you grow.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I think you see that we’re having more investment opportunities. Our underwritten pipeline has grown consistently over the years. I think the opportunity set that we’ve written offers on this year is approaching $7 billion, versus $5 billion last year. We’re doing the hard work and attending conferences, sending out mailers, dialing the phone to find new relationships in our industries and find new partners. I think our execution and our reliability has given us a good reputation as a capital provider, and that continues to drive incremental opportunities. Having that number at 70% is great. It wouldn’t concern me if that was 50% because, certainly, relationships outgrow us from a concentration perspective, and it’s important that we’re finding new people to bring deals in the coming years. Mm-hmm.

Thank you. I just wanted to confirm whether or not you started seeing any indications of increased competition today, or if this is similar to last year at this time, when you expected greater competition to materialize given historically wide spreads and the success that you’ve been having.

Yeah, there are other buyers out there. We’re seeing them bid on deals. We continue to be successful where we choose and where we see appropriate risk-adjusted returns. There are platforms out there, people investing, and competition. You know, we’re continuing to execute well, have a good reputation, and are able to pick and choose the deals that we do.

Okay, thank you.

Thank you.

Operator: Our next question comes from Ryan Caviola with Green Street. Your line is open.

Hello, good morning. Is there any color you could share on the differences in yields between your traditional retail portfolio versus the industrial properties that we mentioned earlier in this call? Is that expectation of cap rate compression, does that apply to these industrial properties as well, or is that mostly in the retail space? Thanks.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I would say it’s across, there’s really no differentiation. The biggest driver of differences in cap rates is going to be the counterparty, the credit, and the real estate pricing, not necessarily whether it’s retail, service, or industrial. There’s really not a differentiation. We would expect cap rate compression across our entire opportunity set driven by, as I said on the call, lower interest rates and more stable capital markets.

Great, thank you. I know you’ve mentioned a few times that credit losses have been better than expected throughout this year. The only notable story across retail that comes to mind for this quarter is some distress in autos. Has any of that flowed into the portfolio, or how are you viewing that space for the rest of the year and going into 2026?

We haven’t seen it. Our auto exposure is largely focused on automotive service. The noise around automotive retailing and dealerships isn’t in our portfolio. The noise around auto parts suppliers isn’t in our portfolio. We still think automotive service is a good industry for us, and we like the real estate in that industry, which is granular, bite-sized, well-located boxes. We’ll most likely continue to invest rapidly across that industry as we think about 2026.

Thanks. Appreciate the color.

Thank you.

Operator: Our next question comes from John Kilichowski with BMO Capital Markets. Your line is open.

Good morning. Sticking with the industrial assets, and sorry if I missed this earlier in the call, do those properties house consumer-facing businesses, or are they part of a tenant’s internal supply chain? If it’s the latter, how are you calculating rent coverage?

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, they’re not, I mean, they’re industrial properties, industrial outdoor storage yards where service-based operators are running their business. You know, the coverage is based upon the revenue generated at that site and the profitability from that site. I would acknowledge that that revenue and that profitability is less tethered to that piece of real estate than a traditional, you know, retail box like a restaurant. Those sites are still essential to that operator’s business, and switching costs are very high such that, you know, we would expect durable tenancy in those assets.

Are they selling, you know, goods made there directly to other businesses, or is it kind of an internal thing within a tenant that you’re just getting whatever their estimate is of the revenue contribution from that particular, you know, manufacturing facility or storage facility or whatever it may be?

It’s a wide range of businesses and operations. I would say there’s probably a little of both of that.

Okay. As you do your credit underwriting for potential investments with private equity-backed tenants, does the size of the private equity sponsor matter to you at all? I mean, especially in the current environment where private equity capital raising and liquidity events are a little bit more uncertain versus in years past?

Yeah, we start underwriting real estate and underwriting the unit-level profitability and the economics of the site, then take a look at the corporate credit. I tend to be agnostic to the equity source. It could be private. It could be large private equity, and credit’s credit. We ultimately hang our hat on owning a good piece of real estate at the appropriate basis with a good lease structure, with rent supported by the operating business.

Is there any difference versus maybe a smaller regional private equity operator versus a bigger brand name one? Would there be a trend, do you think, in the current kind of credit environment to move one way or another between the two in terms of how you’re thinking about valuing potential transactions with those tenants and their sponsors?

No, you know, there’s good big operators and bad big operators, and there’s good small operators and bad small operators. We really focus on our history and our relationships. The bigger the operator, we find the more use of leverage, and we certainly take that into consideration. It’s underwriting credit.

Okay. I appreciate the color. That’s it for me. Thank you.

You got it, John. Thank you.

Operator: It appears we have no further questions at this time. I’ll turn the program back to the speakers for any additional or closing remarks.

Peter Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Super. Thank you all for your questions today, and thank you for your time. We look forward to seeing everyone in the conferences in the upcoming months. Have a great day.

Operator: This concludes today’s program. Thank you for your participation, and you may disconnect at any time.

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