10-Q 1 eprt-10q_20180930.htm 10-Q eprt-10q_20180930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________ to ________

 

Commission File Number: 001-38530

 

Essential Properties Realty Trust, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

82-4005693

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

47 Hulfish Street, Suite 210, Princeton, New Jersey

08542

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (609) 306-8676

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of November 5, 2018, the registrant had 43,749,092 shares of common stock, $0.01 par value per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets as of September 30, 2018 (unaudited) and December 31, 2017

1

 

Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2018 and 2017 (unaudited)

2

 

Consolidated Statements of Stockholders’/Members’ Equity for the nine months ended September 30, 2018 and 2017 (unaudited)

3

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2018 and 2017 (unaudited)

4

 

Notes to Consolidated Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

56

Item 4.

Controls and Procedures

56

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

58

Item 1A.

Risk Factors

58

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

58

Item 3.

Defaults Upon Senior Securities

58

Item 4.

Mine Safety Disclosures

58

Item 5.

Other Information

59

Item 6.

Exhibits

59

 

 

 

Signatures

60

 

 

i


 

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

(In thousands, except share, per share, unit and per unit data)

 

 

September 30, 2018

 

 

December 31, 2017

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Real estate investments, at cost:

 

 

 

 

 

 

 

Land and improvements

$

392,831

 

 

$

278,985

 

Building and improvements

 

828,944

 

 

 

584,385

 

Lease incentive

 

2,544

 

 

 

2,275

 

Construction in progress

 

3,932

 

 

 

4,076

 

Intangible lease assets

 

64,542

 

 

 

62,453

 

Total real estate investments, at cost

 

1,292,793

 

 

 

932,174

 

Less: accumulated depreciation and amortization

 

(43,630

)

 

 

(24,825

)

Total real estate investments, net

 

1,249,163

 

 

 

907,349

 

Loans and direct financing lease receivables, net

 

13,049

 

 

 

2,725

 

Real estate investments held for sale, net

 

1,407

 

 

 

4,173

 

Net investments

 

1,263,619

 

 

 

914,247

 

Cash and cash equivalents

 

73,271

 

 

 

7,250

 

Restricted cash

 

809

 

 

 

12,180

 

Straight-line rent receivable, net

 

11,213

 

 

 

5,498

 

Prepaid expenses and other assets, net

 

6,048

 

 

 

3,045

 

Total assets (1)

$

1,354,960

 

 

$

942,220

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Secured borrowings, net of deferred financing costs

$

507,481

 

 

$

511,646

 

Notes payable to related party

 

 

 

 

230,000

 

Intangible lease liabilities, net

 

11,885

 

 

 

12,321

 

Intangible lease liabilities held for sale, net

 

 

 

 

129

 

Dividend payable

 

14,068

 

 

 

 

Accrued liabilities and other payables (including $324 due to a related party as of December 31, 2017)

 

6,634

 

 

 

6,722

 

Total liabilities (1)

 

540,068

 

 

 

760,818

 

Commitments and contingencies (see Note 10)

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of September 30, 2018

 

 

 

 

 

Common stock, $0.01 par value; 500,000,000 authorized; 43,749,092 issued and outstanding as of September 30, 2018

 

431

 

 

 

 

Additional paid-in capital

 

568,369

 

 

 

 

Distributions in excess of cumulative earnings

 

(4,253

)

 

 

 

Members' equity:

 

 

 

 

 

 

 

Class A units, $1,000 per unit, 83,700 issued and outstanding as of December 31, 2017

 

 

 

 

86,668

 

Class B units, 8,550 issued, 1,610 vested and outstanding as of December 31, 2017

 

 

 

 

574

 

Class C units, $1,000 per unit, 91,450 issued and outstanding as of December 31, 2017

 

 

 

 

94,064

 

Class D Units, 3,000 issued, 600 vested and outstanding as of December 31, 2017

 

 

 

 

96

 

Total stockholders'/members' equity

 

564,547

 

 

 

181,402

 

Non-controlling interests

 

250,345

 

 

 

 

Total equity

 

814,892

 

 

 

181,402

 

Total liabilities and equity

$

1,354,960

 

 

$

942,220

 

 

(1)

The consolidated balance sheets of Essential Properties Realty Trust, Inc. and Essential Properties Realty Trust, Inc. Predecessor include assets and liabilities of consolidated variable interest entities (“VIEs”). See Notes 2 and 5. As of September 30, 2018, with the exception of $100 of cash and cash equivalents, $9.8 million of dividends payable and $3.1 million of accrued liabilities and other payables, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE. As of December 31, 2017, the consolidated balance sheets included the following amounts related to the Company’s consolidated VIEs: $191.7 million of land and improvements, $391.3 million of building and improvements, $2.1 million of lease incentive, $49.7 million of intangible lease assets, $21.4 million of accumulated depreciation and amortization, $2.4 million of direct financing lease receivables, net, $4.2 million of real estate investments held for sale, net, $5.0 million of straight-line rent receivable, $511.6 million of secured borrowings, net of deferred financing costs, $10.8 million of intangible lease liabilities, net, and $0.1 million of intangible lease liabilities held for sale, net.

1


 

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Operations and Comprehensive Income

(In thousands, except share and per share data)

(Unaudited)

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

25,496

 

 

$

13,427

 

 

$

67,119

 

 

$

36,105

 

Interest income on loans and direct financing lease receivables

 

 

220

 

 

 

65

 

 

 

379

 

 

 

230

 

Other revenue

 

 

26

 

 

 

88

 

 

 

75

 

 

 

648

 

Total revenues

 

 

25,742

 

 

 

13,580

 

 

 

67,573

 

 

 

36,983

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (including $0, $438, $4,603 and $2,361 to related parties during the three and nine months ended September 30, 2018 and 2017, respectively)

 

 

6,563

 

 

 

6,317

 

 

 

23,474

 

 

 

15,192

 

General and administrative

 

 

3,529

 

 

 

2,336

 

 

 

9,872

 

 

 

6,612

 

Property expenses

 

 

494

 

 

 

389

 

 

 

1,221

 

 

 

1,077

 

Depreciation and amortization

 

 

8,763

 

 

 

5,154

 

 

 

22,842

 

 

 

13,241

 

Provision for impairment of real estate

 

 

770

 

 

 

857

 

 

 

3,526

 

 

 

1,436

 

Total expenses

 

 

20,119

 

 

 

15,053

 

 

 

60,935

 

 

 

37,558

 

Other operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on dispositions of real estate, net

 

 

1,455

 

 

 

1,974

 

 

 

5,100

 

 

 

3,736

 

Income from operations

 

 

7,078

 

 

 

501

 

 

 

11,738

 

 

 

3,161

 

Other income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

 

655

 

 

 

12

 

 

 

719

 

 

 

23

 

Income (loss) before income tax expense (benefit)

 

 

7,733

 

 

 

513

 

 

 

12,457

 

 

 

3,184

 

Income tax expense (benefit)

 

 

26

 

 

 

(9

)

 

 

143

 

 

 

33

 

Net income

 

 

7,707

 

 

 

522

 

 

 

12,314

 

 

 

3,151

 

Net income attributable to non-controlling interests

 

 

(2,383

)

 

 

 

 

 

(2,482

)

 

 

 

Net income attributable to stockholders and members

 

 

5,324

 

 

 

522

 

 

 

9,832

 

 

 

3,151

 

Comprehensive income attributable to stockholders and members

 

$

5,324

 

 

$

522

 

 

$

9,832

 

 

$

3,151

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2018

 

 

 

 

 

 

Period from June 25, 2018 to September 30, 2018

 

 

 

 

 

Basic weighted-average shares outstanding

 

 

42,364,754

 

 

 

 

 

 

 

42,237,460

 

 

 

 

 

Basic net income per share

 

$

0.12

 

 

 

 

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted-average shares outstanding

 

 

61,472,675

 

 

 

 

 

 

 

61,342,278

 

 

 

 

 

Diluted net income per share

 

$

0.12

 

 

 

 

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.22

 

 

 

 

 

 

$

0.22

 

 

 

 

 

 

 

 

2


 

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’/Members’ Equity

(Unaudited, in thousands, except share data)

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Par Value

 

 

Additional Paid-In Capital

 

 

Distributions in Excess of Cumulative Earnings

 

 

SCF Funding LLC

 

 

Class A

Units

 

 

Class B Units

 

 

Class C Units

 

 

Class D Units

 

 

Total Stockholders' / Members' Equity

 

 

Non-controlling interests

 

 

Total Equity

 

Balance at December 31, 2016

 

 

 

 

$

 

 

$

 

 

$

 

 

$

174,650

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

174,650

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,308

 

 

 

83,700

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

101,008

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,222

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(101,222

)

Conversion of equity resulting from issuance of units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(90,823

)

 

 

 

 

 

 

 

 

90,823

 

 

 

 

 

 

 

 

 

 

 

 

 

Unit compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

417

 

 

 

 

 

 

82

 

 

 

 

 

 

 

 

 

499

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

87

 

 

 

1,464

 

 

 

 

 

 

1,600

 

 

 

 

 

 

 

 

 

 

 

 

3,151

 

Balance at September 30, 2017

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

85,164

 

 

$

417

 

 

$

92,423

 

 

$

82

 

 

$

 

 

$

 

 

$

178,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

86,668

 

 

$

574

 

 

$

94,064

 

 

$

96

 

 

$

181,402

 

 

$

 

 

$

181,402

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

50,000

 

Unit compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

373

 

 

 

 

 

 

70

 

 

 

443

 

 

 

 

 

 

443

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,414

 

 

 

 

 

 

1,871

 

 

 

 

 

 

4,285

 

 

 

 

 

 

4,285

 

Balance at June 24, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139,082

 

 

 

947

 

 

 

95,935

 

 

 

166

 

 

 

236,130

 

 

 

 

 

 

236,130

 

Contribution of Predecessor equity in exchange for OP Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139,082

)

 

 

(947

)

 

 

(95,935

)

 

 

(166

)

 

 

(236,130

)

 

 

236,130

 

 

 

 

Initial public offering

 

 

35,272,191

 

 

 

353

 

 

 

493,458

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

493,811

 

 

 

 

 

 

493,811

 

Concurrent private placement of common stock

 

 

7,785,611

 

 

 

78

 

 

 

108,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,999

 

 

 

 

 

 

108,999

 

Concurrent private placement of OP Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,001

 

 

 

16,001

 

Costs related to initial public offering

 

 

 

 

 

 

 

 

(35,107

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,107

)

 

 

 

 

 

(35,107

)

Share-based compensation expense

 

 

691,290

 

 

 

 

 

 

869

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

869

 

 

 

 

 

 

869

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

228

 

 

 

 

 

 

228

 

Dividends declared on common stock and OP Units

 

 

 

 

 

 

 

 

 

 

 

(9,800

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,800

)

 

 

(4,268

)

 

 

(14,068

)

Net income

 

 

 

 

 

 

 

 

 

 

 

5,547

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,547

 

 

 

2,482

 

 

 

8,029

 

Balance at September 30, 2018

 

 

43,749,092

 

 

$

431

 

 

$

568,369

 

 

$

(4,253

)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

564,547

 

 

$

250,345

 

 

$

814,892

 

 

 

 

3


 

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Nine months ended September 30,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

12,314

 

 

$

3,151

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and lease intangible amortization

 

 

22,843

 

 

 

13,241

 

Amortization of lease incentive

 

 

116

 

 

 

101

 

Amortization of above/below market leases

 

 

283

 

 

 

727

 

Amortization of deferred financing costs

 

 

1,982

 

 

 

1,310

 

Provision for impairment of real estate

 

 

3,526

 

 

 

1,436

 

Gain on dispositions of investments, net

 

 

(5,100

)

 

 

(3,736

)

Straight-line rent receivable

 

 

(5,770

)

 

 

(3,076

)

Equity-based compensation expense

 

 

1,398

 

 

 

581

 

Allowance for doubtful accounts

 

 

311

 

 

 

21

 

Changes in other assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

179

 

 

 

(440

)

Accrued liabilities and other payables

 

 

(3,300

)

 

 

2,979

 

Net cash provided by operating activities

 

 

28,782

 

 

 

16,295

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of investments, net

 

 

40,906

 

 

 

35,828

 

Principal collections on direct financing lease receivables

 

 

55

 

 

 

61

 

Investments in loans receivable

 

 

(10,379

)

 

 

 

Deposits for prospective real estate investments

 

 

(150

)

 

 

(297

)

Investment in real estate

 

 

(386,836

)

 

 

(353,332

)

Investment in construction in progress

 

 

(14,307

)

 

 

(4,026

)

Lease incentives paid

 

 

(269

)

 

 

 

Capital expenditures

 

 

(759

)

 

 

(323

)

Net cash used in investing activities

 

 

(371,739

)

 

 

(322,089

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of notes payable to related parties

 

 

154,000

 

 

 

412,000

 

Payments of principal on notes payable to related parties

 

 

(384,000

)

 

 

(313,000

)

Proceeds from secured borrowings

 

 

 

 

 

248,100

 

Repayments of secured borrowings

 

 

(5,875

)

 

 

(3,751

)

Deferred financing costs

 

 

(3,305

)

 

 

(5,565

)

Capital contributions by members in Predecessor

 

 

50,000

 

 

 

83,700

 

Distributions paid to members by Predecessor

 

 

 

 

 

(101,222

)

Proceeds from initial public offering, net

 

 

464,182

 

 

 

 

Initial public offering costs

 

 

(2,395

)

 

 

 

Proceeds from concurrent private placement of OP Units

 

 

16,001

 

 

 

 

Proceeds from concurrent private placement of common stock

 

 

108,999

 

 

 

 

Net cash provided by financing activities

 

 

397,607

 

 

 

320,262

 

Net increase (decrease) in cash and cash equivalents and restricted cash

 

 

54,650

 

 

 

14,468

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

19,430

 

 

 

11,922

 

Cash and cash equivalents and restricted cash, end of period

 

$

74,080

 

 

$

26,390

 

Reconciliation of cash and cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,271