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 September 30, 2019

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: (609) 436-0619

 

 

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, 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 6, 2019, the registrant had 81,032,709 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 September 30, 2019 (unaudited) and December 31, 2018

2

 

Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)

3

 

Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2018 (unaudited)

4

 

Consolidated Statements of Stockholders’/Members’ Equity for the three and nine months ended September 30, 2019 and 2018 (unaudited)

5

 

Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

8

Item 2.

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

43

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

67

Item 4.

Controls and Procedures

67

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

69

Item 1A.

Risk Factors

69

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

69

Item 3.

Defaults Upon Senior Securities

69

Item 4.

Mine Safety Disclosures

69

Item 5.

Other Information

70

Item 6.

Exhibits

70

 

 

 

Signatures

71

 

 

i


 

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

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

September 30, 2019

 

 

December 31, 2018

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Real estate investments, at cost:

 

 

 

 

 

 

 

Land and improvements

$

547,549

 

 

$

420,848

 

Building and improvements

 

1,117,702

 

 

 

885,656

 

Lease incentives

 

4,831

 

 

 

2,794

 

Construction in progress

 

10,229

 

 

 

1,325

 

Intangible lease assets

 

74,973

 

 

 

66,421

 

Total real estate investments, at cost

 

1,755,284

 

 

 

1,377,044

 

Less: accumulated depreciation and amortization

 

(79,482

)

 

 

(51,855

)

Total real estate investments, net

 

1,675,802

 

 

 

1,325,189

 

Loans and direct financing lease receivables, net

 

62,505

 

 

 

17,505

 

Net investments

 

1,738,307

 

 

 

1,342,694

 

Cash and cash equivalents

 

23,446

 

 

 

4,236

 

Restricted cash

 

2,776

 

 

 

12,003

 

Straight-line rent receivable, net

 

22,592

 

 

 

14,255

 

Prepaid expenses and other assets, net

 

18,357

 

 

 

7,712

 

Total assets (1)

$

1,805,478

 

 

$

1,380,900

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Secured borrowings, net of deferred financing costs

$

305,702

 

 

$

506,116

 

Unsecured term loan, net of deferred financing costs

 

199,144

 

 

 

 

Revolving credit facility

 

155,000

 

 

 

34,000

 

Intangible lease liabilities, net

 

9,635

 

 

 

11,616

 

Dividend payable

 

17,652

 

 

 

13,189

 

Accrued liabilities and other payables

 

17,316

 

 

 

4,938

 

Total liabilities (1)

 

704,449

 

 

 

569,859

 

Commitments and contingencies (see Note 12)

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of September 30, 2019 and December 31, 2018

 

 

 

 

 

Common stock, $0.01 par value; 500,000,000 authorized; 79,672,970 and 43,749,092 issued and outstanding as of September 30, 2019 and December 31, 2018, respectively

 

796

 

 

 

431

 

Additional paid-in capital

 

1,120,300

 

 

 

569,407

 

Distributions in excess of cumulative earnings

 

(22,733

)

 

 

(7,659

)

Accumulated other comprehensive loss

 

(5,001

)

 

 

 

Total stockholders' equity

 

1,093,362

 

 

 

562,179

 

Non-controlling interests

 

7,667

 

 

 

248,862

 

Total equity

 

1,101,029

 

 

 

811,041

 

Total liabilities and equity

$

1,805,478

 

 

$

1,380,900

 

 

 

(1)

The consolidated balance sheets of Essential Properties Realty Trust, Inc. include assets and liabilities of consolidated variable interest entities (“VIEs”). See Notes 2 and 6. As of September 30, 2019 and December 31, 2018, with the exception of $17.5 million and $9.2 million, respectively, of dividends payable, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE.

 

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

2


 

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

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Operations

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

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

34,958

 

 

$

25,496

 

 

$

97,842

 

 

$

67,119

 

Interest on loans and direct financing lease receivables

 

 

940

 

 

 

220

 

 

 

1,669

 

 

 

379

 

Other revenue, net

 

 

393

 

 

 

26

 

 

 

641

 

 

 

75

 

Total revenues

 

 

36,291

 

 

 

25,742

 

 

 

100,152

 

 

 

67,573

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (including $4,603 to related parties during the nine months ended September 30, 2018)

 

 

7,207

 

 

 

6,563

 

 

 

20,074

 

 

 

23,474

 

General and administrative

 

 

7,530

 

 

 

3,529

 

 

 

16,455

 

 

 

9,872

 

Property expenses

 

 

442

 

 

 

494

 

 

 

2,334

 

 

 

1,221

 

Depreciation and amortization

 

 

11,141

 

 

 

8,763

 

 

 

30,367

 

 

 

22,842

 

Provision for impairment of real estate

 

 

 

 

 

770

 

 

 

1,921

 

 

 

3,526

 

Total expenses

 

 

26,320

 

 

 

20,119

 

 

 

71,151

 

 

 

60,935

 

Other operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on dispositions of real estate, net

 

 

4,087

 

 

 

1,455

 

 

 

8,237

 

 

 

5,100

 

Income from operations

 

 

14,058

 

 

 

7,078

 

 

 

37,238

 

 

 

11,738

 

Other (loss)/income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on repurchase of secured borrowings

 

 

 

 

 

 

 

 

(4,353

)

 

 

 

Interest

 

 

114

 

 

 

655

 

 

 

723

 

 

 

719

 

Income before income tax expense

 

 

14,172

 

 

 

7,733

 

 

 

33,608

 

 

 

12,457

 

Income tax expense

 

 

66

 

 

 

26

 

 

 

209

 

 

 

143

 

Net income

 

 

14,106

 

 

 

7,707

 

 

 

33,399

 

 

 

12,314

 

Net income attributable to non-controlling interests

 

 

(861

)

 

 

(2,383

)

 

 

(6,076

)

 

 

(2,482

)

Net income attributable to stockholders and members

 

$

13,245

 

 

$

5,324

 

 

$

27,323

 

 

$

9,832

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30,

 

 

Nine months ended September

 

 

Period from June 25, 2018 to September

 

 

 

2019

 

 

2018

 

 

30, 2019

 

 

30, 2018

 

Basic weighted average shares outstanding

 

 

72,483,932

 

 

 

42,364,754

 

 

 

58,375,745

 

 

 

42,237,460

 

Basic net income per share

 

$

0.18

 

 

$

0.12

 

 

$

0.46

 

 

$

0.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

77,612,949

 

 

 

61,472,675

 

 

 

73,021,273

 

 

 

61,342,278

 

Diluted net income per share

 

$

0.18

 

 

$

0.12

 

 

$

0.45

 

 

$

0.13

 

 

 

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

3


 

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

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Income

(Unaudited, in thousands)

 

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

14,106

 

 

$

7,707

 

 

$

33,399

 

 

$

12,314

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges

 

 

(2,010

)

 

 

 

 

 

(5,784

)

 

 

 

Cash flow hedge gains reclassified to interest expense

 

 

(94

)

 

 

 

 

 

(193

)

 

 

 

Total other comprehensive loss

 

 

(2,104

)

 

 

 

 

 

(5,977

)

 

 

 

Comprehensive income

 

 

12,002

 

 

 

7,707

 

 

 

27,422

 

 

 

12,314

 

Net income attributable to non-controlling interests

 

 

(861

)

 

 

(2,383

)

 

 

(6,076

)

 

 

(2,482

)

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

 

 

15

 

 

 

 

 

 

975

 

 

 

 

Comprehensive income attributable to stockholders and members

 

$

11,156

 

 

$

5,324

 

 

$

22,321

 

 

$

9,832

 

 

 

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

 

 

 

 

4


 

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

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

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, 2018

 

 

43,749,092

 

 

$

431

 

 

$

569,407

 

 

$

(7,659

)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

562,179

 

 

$

248,862

 

 

$

811,041

 

Common stock issuance

 

 

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

 

Unrealized losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,838

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,838

)

 

 

(935

)

 

 

(3,773

)

Cash flow hedge gains reclassified to interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(74

)

 

 

(25

)

 

 

(99

)

Share-based compensation expense

 

 

 

 

 

7

 

 

 

1,021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,028

 

 

 

 

 

 

1,028

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

216

 

 

 

 

 

 

216

 

Dividends declared on common stock and OP Units

 

 

 

 

 

 

 

 

 

 

 

(12,725

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(12,725

)

 

 

(4,192

)

 

 

(16,917

)

Net income

 

 

 

 

 

 

 

 

 

 

 

7,951

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,951

 

 

 

2,620

 

 

 

10,571

 

Balance at June 30, 2019

 

 

57,825,460

 

 

 

578

 

 

 

806,376

 

 

 

(18,447

)

 

 

(2,912

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

785,595

 

 

 

244,922

 

 

 

1,030,517

 

Common stock issuances

 

 

3,344,805

 

 

 

33

 

 

 

74,967

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

75,000

 

 

 

 

 

 

75,000

 

Costs related to issuances of common stock

 

 

 

 

 

 

 

 

(1,607

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,607

)

 

 

 

 

 

(1,607

)

Conversion of equity in Secondary Offering

 

 

18,502,705

 

 

 

185

 

 

 

237,795

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

237,980

 

 

 

(237,980

)

 

 

 

Unrealized losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,996

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,996

)

 

 

(14

)

 

 

(2,010

)

Cash flow hedge gains reclassified to interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(93

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(93

)

 

 

(1

)

 

 

(94

)

Share-based compensation expense

 

 

 

 

 

 

 

 

 

1,050

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,050

 

 

 

 

 

 

1,050

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

1,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,719

 

 

 

 

 

 

1,719

 

Dividends declared on common stock and OP Units

 

 

 

 

 

 

 

 

 

 

 

(17,531

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,531

)

 

 

(121

)

 

 

(17,652

)

Net income

 

 

 

 

 

 

 

 

 

 

 

13,245