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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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 March 31, 2020

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.)

 

 

902 Carnegie Center Blvd., Suite 520

Princeton, New Jersey

08540

(Address of Principal Executive Offices)

(Zip Code)

 

Registrant’s telephone number, including area code: (609436-0619

 

 

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value

EPRT

New York Stock Exchange

 

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, a 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 May 11, 2020, the registrant had 91,992,507 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

2

 

Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)

3

 

Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)

5

 

Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

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

40

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

61

Item 4.

Controls and Procedures

62

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

64

Item 1A.

Risk Factors

64

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

66

Item 3.

Defaults Upon Senior Securities

66

Item 4.

Mine Safety Disclosures

66

Item 5.

Other Information

66

Item 6.

Exhibits

66

 

 

 

Signatures

68

 

 

i


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

March 31, 2020

 

 

December 31, 2019

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Real estate investments, at cost:

 

 

 

 

 

 

 

Land and improvements

$

632,628

 

 

$

588,279

 

Building and improvements

 

1,317,406

 

 

 

1,224,682

 

Lease incentives

 

5,358

 

 

 

4,908

 

Construction in progress

 

11,558

 

 

 

12,128

 

Intangible lease assets

 

80,592

 

 

 

78,922

 

Total real estate investments, at cost

 

2,047,542

 

 

 

1,908,919

 

Less: accumulated depreciation and amortization

 

(100,473

)

 

 

(90,071

)

Total real estate investments, net

 

1,947,069

 

 

 

1,818,848

 

Loans and direct financing lease receivables, net

 

99,487

 

 

 

92,184

 

Real estate investments held for sale, net

 

1,528

 

 

 

1,211

 

Net investments

 

2,048,084

 

 

 

1,912,243

 

Cash and cash equivalents

 

192,616

 

 

 

8,304

 

Restricted cash

 

21,456

 

 

 

13,015

 

Straight-line rent receivable, net

 

29,117

 

 

 

25,926

 

Prepaid expenses and other assets, net

 

14,173

 

 

 

15,959

 

Total assets (1)

$

2,305,446

 

 

$

1,975,447

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Secured borrowings, net of deferred financing costs

$

173,470

 

 

$

235,336

 

Unsecured term loans, net of deferred financing costs

 

625,770

 

 

 

445,586

 

Revolving credit facility

 

65,000

 

 

 

46,000

 

Intangible lease liabilities, net

 

9,306

 

 

 

9,564

 

Dividend payable

 

21,295

 

 

 

19,395

 

Accrued liabilities and other payables

 

54,825

 

 

 

17,453

 

Total liabilities (1)

 

949,666

 

 

 

773,334

 

Commitments and contingencies (see Note 11)

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of March 31, 2020 and December 31, 2019

 

 

 

 

 

Common stock, $0.01 par value; 500,000,000 authorized; 91,949,849 and 83,761,151 issued and outstanding as of March 31, 2020 and December 31, 2019, respectively

 

919

 

 

 

838

 

Additional paid-in capital

 

1,422,169

 

 

 

1,223,043

 

Distributions in excess of cumulative earnings

 

(34,878

)

 

 

(27,482

)

Accumulated other comprehensive loss

 

(39,820

)

 

 

(1,949

)

Total stockholders' equity

 

1,348,390

 

 

 

1,194,450

 

Non-controlling interests

 

7,390

 

 

 

7,663

 

Total equity

 

1,355,780

 

 

 

1,202,113

 

Total liabilities and equity

$

2,305,446

 

 

$

1,975,447

 

 

(1)

The Company’s consolidated balance sheets include assets and liabilities of consolidated variable interest entities (“VIEs”). See Notes 2 and 6. As of March 31, 2020 and December 31, 2019, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE, with the exception of $21.2 million and $19.3 million, respectively, of dividends payable,

 

The accompanying notes are an integral part of these consolidated financial statements.

2


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Operations

(Unaudited, in thousands, except share and per share data)

 

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Rental revenue

 

$

39,542

 

 

$

30,774

 

Interest on loans and direct financing lease receivables

 

 

1,938

 

 

 

326

 

Other revenue, net

 

 

7

 

 

 

7

 

Total revenues

 

 

41,487

 

 

 

31,107

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

Interest

 

 

6,833

 

 

 

7,089

 

General and administrative

 

 

7,536

 

 

 

4,188

 

Property expenses

 

 

373

 

 

 

1,247

 

Depreciation and amortization

 

 

13,012

 

 

 

9,120

 

Provision for impairment of real estate

 

 

373

 

 

 

1,440

 

Provision for loan losses

 

 

468

 

 

 

 

Total expenses

 

 

28,595

 

 

 

23,084

 

Other operating income:

 

 

 

 

 

 

 

 

Gain on dispositions of real estate, net

 

 

1,875

 

 

 

676

 

Income from operations

 

 

14,767

 

 

 

8,699

 

Other (loss)/income:

 

 

 

 

 

 

 

 

Loss on repayment of secured borrowings

 

 

(924

)

 

 

 

Interest

 

 

231

 

 

 

91

 

Income before income tax expense

 

 

14,074

 

 

 

8,790

 

Income tax expense

 

 

31

 

 

 

67

 

Net income

 

 

14,043

 

 

 

8,723

 

Net income attributable to non-controlling interests

 

 

(84

)

 

 

(2,594

)

Net income attributable to stockholders

 

$

13,959

 

 

$

6,129

 

 

 

 

 

 

 

 

 

 

Basic weighted average shares outstanding

 

 

90,322,402

 

 

 

45,240,247

 

Basic net income per share

 

$

0.15

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

91,332,297

 

 

 

64,640,054

 

Diluted net income per share

 

$

0.15

 

 

$

0.13

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

3


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive (Loss) Income

(Unaudited, in thousands)

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Net income

 

$

14,043

 

 

$

8,723

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges

 

 

(38,432

)

 

 

 

Cash flow hedge losses reclassified to interest expense

 

 

332

 

 

 

 

Total other comprehensive loss

 

 

(38,100

)

 

 

 

Comprehensive (loss) income

 

 

(24,057

)

 

 

8,723

 

Net income attributable to non-controlling interests

 

 

(84

)

 

 

(2,594

)

Adjustment for cash flow hedge losses attributable to non-controlling interests

 

 

229

 

 

 

 

Comprehensive (loss) income attributable to stockholders

 

$

(23,912

)

 

$

6,129

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

4


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’ Equity

(Unaudited, in thousands, except share data)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Par Value

 

 

Additional Paid-In Capital

 

 

Distributions in Excess of Cumulative Earnings

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Total Stockholders' Equity

 

 

Non-controlling interests

 

 

Total Equity

 

Balance at December 31, 2019

 

 

83,761,151

 

 

$

838

 

 

$

1,223,043

 

 

$

(27,482

)

 

$

(1,949

)

 

$

1,194,450

 

 

$

7,663

 

 

$

1,202,113

 

Cumulative adjustment upon adoption of ASC 326

 

 

 

 

 

 

 

 

 

 

 

(187

)

 

 

 

 

 

(187

)

 

 

(1

)

 

 

(188

)

Common stock issuance

 

 

8,188,698

 

 

 

81

 

 

 

206,157

 

 

 

 

 

 

 

 

 

206,238

 

 

 

 

 

 

206,238

 

Costs related to issuance of common stock

 

 

 

 

 

 

 

 

(8,539

)

 

 

 

 

 

 

 

 

(8,539

)

 

 

 

 

 

(8,539

)

Unrealized losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(38,201

)

 

 

(38,201

)

 

 

(231

)

 

 

(38,432

)

Cash flow hedge losses reclassified to interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

330

 

 

 

330

 

 

 

2

 

 

 

332

 

Share-based compensation expense

 

 

 

 

 

 

 

 

1,508

 

 

 

 

 

 

 

 

 

1,508

 

 

 

 

 

 

1,508

 

Dividends declared on common stock and OP Units

 

 

 

 

 

 

 

 

 

 

 

(21,168

)

 

 

 

 

 

(21,168

)

 

 

(127

)

 

 

(21,295

)

Net income

 

 

 

 

 

 

 

 

 

 

 

13,959

 

 

 

 

 

 

13,959

 

 

 

84

 

 

 

14,043

 

Balance at March 31, 2020

 

 

91,949,849

 

 

$

919

 

 

$

1,422,169

 

 

$

(34,878

)

 

$

(39,820

)

 

$

1,348,390

 

 

$

7,390

 

 

$

1,355,780

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

5


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’ Equity (continued)

(Unaudited, in thousands, except share data)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of Shares

 

 

Par Value

 

 

Additional Paid-In Capital

 

 

Distributions in Excess of Cumulative Earnings

 

 

 

 

Total Stockholders'  Equity

 

 

 

 

Non-controlling interests

 

 

Total Equity

 

Balance at December 31, 2018

 

 

43,749,092

 

 

$

431

 

 

$

569,407

 

 

$

(7,659

)

 

 

 

$

562,179

 

 

 

 

$

248,862

 

 

$

811,041

 

Common stock issued

 

 

14,030,000

 

 

 

140

 

 

 

245,385

 

 

 

 

 

 

 

 

245,525

 

 

 

 

 

 

 

 

245,525

 

Costs related to issuance of common stock

 

 

 

 

 

 

 

 

(10,887

)

 

 

 

 

 

 

 

(10,887

)

 

 

 

 

 

 

 

(10,887

)

Share-based compensation expense

 

 

46,368

 

 

 

 

 

 

1,007

 

 

 

 

 

 

 

 

1,007

 

 

 

 

 

 

 

 

1,007

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

227

 

 

 

 

 

 

 

 

227

 

 

 

 

 

 

 

 

227

 

Dividends declared on common stock and OP Units

 

 

 

 

 

 

 

 

 

 

 

(12,143

)

 

 

 

 

(12,143

)

 

 

 

 

(4,002

)

 

 

(16,145

)

Net income

 

 

 

 

 

 

 

 

 

 

 

6,129

 

 

 

 

 

6,129

 

 

 

 

 

2,594

 

 

 

8,723

 

Balance at March 31, 2019

 

 

57,825,460

 

 

$

571

 

 

$

805,139

 

 

$

(13,673

)

 

 

 

$

792,037

 

 

 

 

$

247,454

 

 

$

1,039,491

 

 

The accompanying notes are an integral part of these consolidated financial statements

 

 

 

6


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

 

 

 

Three months ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

14,043

 

 

$

8,723

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

13,012

 

 

 

9,120

 

Amortization of lease incentive

 

 

475

 

 

 

57

 

Amortization of above/below market leases and right of use assets, net

 

 

80

 

 

 

171

 

Amortization of deferred financing costs and other assets

 

 

663

 

 

 

816

 

Loss on repayment of secured borrowings

 

 

924

 

 

 

 

Provision for impairment of real estate

 

 

373

 

 

 

1,440

 

Provision for loan losses

 

 

468

 

 

 

 

Gain on dispositions of investments, net

 

 

(1,875

)

 

 

(676

)

Straight-line rent receivable

 

 

(3,188

)

 

 

(2,903

)

Share and unit based compensation expense

 

 

1,508

 

 

 

1,242

 

Adjustment to rental revenue for tenant credit

 

 

 

 

 

4

 

Changes in other assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

1,950

 

 

 

(299

)

Accrued liabilities and other payables

 

 

(2,084

)

 

 

(713

)

Net cash provided by operating activities

 

 

26,349

 

 

 

16,982

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sales of investments, net

 

 

19,601

 

 

 

10,481

 

Principal collections on loans and direct financing lease receivables

 

 

66

 

 

 

21

 

Investments in loans receivable

 

 

(8,024

)

 

 

(207

)

Deposits for prospective real estate investments

 

 

608

 

 

 

1,988

 

Investment in real estate, including capital expenditures

 

 

(155,878

)

 

 

(114,896

)

Investment in construction in progress

 

 

(3,655

)

 

 

(1,135

)

Lease incentives paid

 

 

(900

)

 

 

(2,000

)

Net cash used in investing activities

 

 

(148,182

)

 

 

(105,748

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Repayments of secured borrowings

 

 

(62,978

)

 

 

(1,965

)

Borrowings under term loan facilities

 

 

180,000

 

 

 

 

Borrowings under revolving credit facility

 

 

69,000

 

 

 

52,000

 

Repayments under revolving credit facility

 

 

(50,000

)

 

 

(86,000

)

Proceeds from issuance of common stock, net

 

 

198,162

 

 

 

235,704

 

Offering costs

 

 

(203

)

 

 

 

Dividends paid

 

 

(19,395

)

 

 

(13,189

)

Net cash provided by financing activities

 

 

314,586

 

 

 

186,550

 

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

 

 

192,753

 

 

 

97,784

 

Cash and cash equivalents and restricted cash, beginning of period

 

 

21,319

 

 

 

16,239

 

Cash and cash equivalents and restricted cash, end of period

 

$

214,072

 

 

$

114,023

 

Reconciliation of cash and cash equivalents and restricted cash:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

192,616

 

 

$

109,113

 

Restricted cash

 

 

21,456

 

 

 

4,910

 

Cash and cash equivalents and restricted cash, end of period

 

$

214,072

 

 

$

114,023

 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7


 

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows (continued)

(Unaudited, in thousands)

 

Supplemental disclosure of cash flow information: