Essential Properties Announces Second Quarter 2018 Results
August 08, 2018 4:15 PM
- Completed Initial Public Offering and a Concurrent Institutional Private Placement -
- Closed Record Quarterly Investments of
- Grew Service-Oriented and Experience-Based Tenancy to 90% of Cash ABR -
Second Quarter 2018 Financial and Operating Highlights
-
Invested
$214.4 million in 86 properties at a 7.6% weighted average cash cap rate -
Increased total revenues 63% to
$21.7 million -
Net income increased 71% to
$3.5 million -
Increased Funds from Operations (“FFO”) 81% to
$9.6 million -
Increased Adjusted Funds from Operations (“AFFO”) 68% to
$8.5 million
First Half 2018 Financial and Operating Highlights
-
Invested
$278.5 million in 114 properties at a 7.7% weighted average cash cap rate -
Increased total revenue 79% to
$41.9 million -
Net income increased 75% to
$4.6 million -
Increased FFO 87% to
$17.8 million -
Increased AFFO 79% to
$15.9 million
CEO Comments
Commenting on the second quarter results, Essential Properties’
President and Chief Executive Officer,
Financial Results
Total Revenue
Total revenue for the quarter ended
Total revenue for the six months ended
Net Income
Net income for the quarter ended
Net income for the six months ended
Funds from Operations (“FFO”)
FFO for the quarter ended
FFO for the six months ended
Adjusted Funds from Operations (“AFFO”)
AFFO for the quarter ended
AFFO for the six months ended
Net Investment Activity
Acquisitions
During the quarter ended
During the six months ended
Dispositions
During the three months ended
During the six months ended
Portfolio Update
Portfolio Highlights
As of
Leasing Activity
During the six months ended
Capital Markets, Leverage and Balance Sheet and Liquidity
Capital Markets Activity
On
Leverage
As of
Balance Sheet and Liquidity
Conference Call Information
In conjunction with the release of Essential Properties’ operating
results, the Company will host a conference call on
A telephone replay of the conference call can also be accessed by
calling (877)-481-4010 and entering the access code: 36648. The
telephone replay will be available through
A replay of the conference call webcast will be available approximately two hours after the conclusion of the live broadcast. The webcast replay will be available for 90 days. No access code is required for this replay.
Supplemental Materials
The Company’s Supplemental Operating & Financial Data—Second Quarter
Ended
About
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the federal securities laws. When used in this press release, the words “estimate,” “anticipate,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “seek,” “approximately” or “plan,” or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and the Company may not be able to realize them. The Company does not guarantee that the transactions and events described will happen as described (or that they will happen at all). You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this press release. While forward-looking statements reflect the Company’s good faith beliefs, they are not guarantees of future performance. The Company undertakes no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as required by law. In light of these risks and uncertainties, the forward-looking events discussed in this press release might not occur as described, or at all.
Additional information concerning factors that could cause actual
results to differ materially from these forward-looking statements is
contained from time to time in the company’s
The results reported in this press release are preliminary and not
final. There can be no assurance that these results will not vary from
the final results reported in our Quarterly Report on Form 10-Q for the
quarter ended
Non-GAAP Financial Measures and Certain Definitions
FFO and AFFO
In addition to net income computed in accordance with
FFO and AFFO do not include all items of revenue and expense included in net income, nor do they represent cash generated from operating activities and are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures.
We compute FFO in accordance with the definition adopted by the
To derive AFFO, we modify the NAREIT computation of FFO to include other adjustments to GAAP net income related to non-cash and certain other revenues and expenses such as straight-line rental revenue, non-cash interest expense, non-cash compensation expense, amortization of market lease-related intangibles, amortization of capitalized lease incentives, capitalized interest expense and transaction costs. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We believe that AFFO is an additional useful supplemental measure for investors to consider, because it will help them to better assess our operating performance without the distortions created by non-cash and certain other revenues or expenses.
FFO and AFFO may not be comparable to similarly titled measures employed by other companies.
EBITDA and EBITDAre
We calculate earnings before interest, taxes and depreciation and amortization (“EBITDA”) as earnings (GAAP net income) before interest expense, taxes and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDA further adjusted to exclude gains (or losses) on sales of depreciable property and real estate impairment losses (“EBITDAre”). We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and real estate impairment losses. We present EBITDA and EBITDAre as they are measures commonly used in our industry, and we believe that these measures are useful to investors and analysts because they provide important supplemental information concerning our operating performance exclusive of certain non-cash items and other costs.
EBITDA and EBITDAre are not measurements of financial performance under GAAP, and our EBITDA and EBITDAre may not be comparable to similarly titled measures of other companies. You should not consider EBITDA and EBITDAre as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.
Net Debt
Net debt represents our gross debt (defined as total debt plus deferred financing costs, net) less cash and cash equivalents and restricted cash deposits held for the benefit of lenders. We believe excluding cash and cash equivalents and restricted cash deposits held for the benefit of lenders from gross debt, both of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid, which we believe is a beneficial disclosure to investors and analysts.
NOI and Cash NOI
Net operating income (“NOI”) and cash NOI (“Cash NOI”) are non-GAAP financial measures used by us to evaluate the operating performance of our real estate. NOI is equal to total revenues less property expenses. NOI excludes all other items of expense and income included in the financial statements in calculating net income or loss. Cash NOI further excludes non-cash items included in total revenues and property expenses, such as straight-line rental revenue and amortization of capitalized lease incentives and above- and below-market lease-related intangibles. We believe NOI and Cash NOI provide useful and relevant information because they reflect only those income and expense items that are incurred at the property level and present such items on an unlevered basis.
NOI and Cash NOI are not measurements of financial performance under GAAP, and our NOI and Cash NOI may not be comparable to similarly titled measures of other companies. You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP.
Adjusted EBITDAre / Adjusted NOI / Adjusted Cash NOI
We report Adjusted EBITDAre, Adjusted NOI and Adjusted Cash NOI as if all acquisition and disposition activity that took place during the relevant quarter had occurred on the first day of the quarter. We then annualize these estimates for the relevant quarter by multiplying them by four, which we believe provides a meaningful estimate of our current run rate for all properties owned as of the end of the relevant quarter. You should not unduly rely on these metrics as they are based on assumptions and estimates that may prove to be inaccurate. Our actual reported EBITDAre, NOI and Cash NOI for future periods may be significantly less than these estimates of current run rates for a variety of reasons.
Cash ABR
Cash ABR means annualized contractually specified cash base rent in effect as of the end of the relevant quarter for all of our leases (including those accounted for as direct financing leases) commenced as of that date, as well as interest on our mortgage loans receivable.
Cash Cap Rate
Cash Cap Rate means annualized contractually specified cash base rent for the first full month after acquisition or disposition divided by the purchase or sale price, as applicable, for the property.
GAAP Cap Rate
GAAP Cap Rate means annualized rental income computed in accordance with GAAP for the first full month after acquisition divided by the purchase price, as applicable, for the property.
Rent Coverage Ratio
Rent coverage ratio means the ratio of tenant-reported or, when unavailable, management’s estimate based on tenant-reported financial information, annual EBITDA and cash rent attributable to the leased property (or properties, in the case of a master lease) to the annualized base rental obligation as of a specified date.
|
Consolidated Statements of Operations |
|||||||||||||||
|
Three Months Ended |
Six Months Ended |
||||||||||||||
| (unaudited, in thousands) | 2018 | 2017 | 2018 | 2017 | |||||||||||
| Revenues: | |||||||||||||||
| Rental revenue1 | $ | 21,548 | $ | 12,670 | $ | 41,623 | $ | 22,678 | |||||||
| Interest income on loans and direct financing leases | 89 | 82 | 159 | 165 | |||||||||||
| Other revenue | 56 | 565 | 113 | 571 | |||||||||||
| Total revenues | 21,693 | 13,317 | 41,895 | 23,414 | |||||||||||
| Expenses: | |||||||||||||||
| Interest | 8,634 | 5,160 | 16,911 | 8,875 | |||||||||||
| General and administrative | 2,987 | 2,331 | 6,343 | 4,275 | |||||||||||
| Property expenses | 380 | 479 | 727 | 689 | |||||||||||
| Depreciation and amortization | 7,611 | 4,305 | 14,079 | 8,087 | |||||||||||
| Provision for impairment of real estate | 907 | 428 | 2,756 | 579 | |||||||||||
| Total expenses | 20,519 | 12,703 | 40,816 | 22,505 | |||||||||||
| Income before income tax expense | 1,174 | 614 | 1,079 | 909 | |||||||||||
| Income tax expense | 87 | 35 | 117 | 42 | |||||||||||
| Income before gain on dispositions of real estate | 1,087 | 579 | 962 | 867 | |||||||||||
| Gain on dispositions of real estate, net | 2,412 | 1,468 | 3,645 | 1,762 | |||||||||||
| Net income | $ | 3,499 | $ | 2,047 | $ | 4,607 | $ | 2,629 | |||||||
1. Includes
|
Consolidated Balance Sheets |
||||||||
| (in thousands, except share, per share, unit and per unit amounts) |
|
|
||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Investments: | ||||||||
| Real estate investments, at cost: | ||||||||
| Land and improvements | $ | 355,184 | $ | 278,985 | ||||
| Building and improvements | 748,004 | 584,385 | ||||||
| Lease incentive | 2,275 | 2,275 | ||||||
| Construction in progress | 11,263 | 4,076 | ||||||
| Intangible lease assets | 64,315 | 62,453 | ||||||
| Total real estate investments, at cost | 1,181,041 | 932,174 | ||||||
| Less: accumulated depreciation and amortization | (36,310 | ) | (24,825 | ) | ||||
| Total real estate investments, net | 1,144,731 | 907,349 | ||||||
| Loans and direct financing lease receivables, net | 6,322 | 2,725 | ||||||
| Real estate investments held for sale, net | 7,195 | 4,173 | ||||||
| Net investments | 1,158,248 | 914,247 | ||||||
| Cash and cash equivalents | 131,387 | 7,250 | ||||||
| Restricted cash | 8,644 | 12,180 | ||||||
| Straight-line rent receivable, net | 9,015 | 5,498 | ||||||
| Prepaid expenses and other assets, net | 5,115 | 3,045 | ||||||
| Total assets | $ | 1,312,409 | $ | 942,220 | ||||
| LIABILITIES AND EQUITY | ||||||||
| Secured borrowings, net of deferred financing costs | $ | 508,821 | $ | 511,646 | ||||
| Notes payable to related party | — | 230,000 | ||||||
| Intangible lease liabilities, net | 12,152 | 12,321 | ||||||
| Intangible lease liabilities held for sale, net | 256 | 129 | ||||||
| Accrued liabilities and other payables | 6,736 | 6,722 | ||||||
| Total liabilities | 527,965 | 760,818 | ||||||
| Commitments and contingencies | — | — | ||||||
| Stockholders' equity: | ||||||||
|
Preferred stock, |
— | — | ||||||
|
Common stock, |
403 | — | ||||||
| Additional paid-in capital | 531,589 | — | ||||||
| Retained earnings | 222 | — | ||||||
| Members' equity: | ||||||||
|
Class A units, |
— | 86,668 | ||||||
|
Class B units, 8,550 issued, 1,610 vested and outstanding as of
|
— | 574 | ||||||
|
Class C units, |
— | 94,064 | ||||||
|
Class |
— | 96 | ||||||
| Total stockholders' / members' equity | 532,214 | 181,402 | ||||||
| Non-controlling interests | 252,230 | — | ||||||
| Total equity | 784,444 | 181,402 | ||||||
| Total liabilities and equity | $ | 1,312,409 | $ | 942,220 | ||||
|
Reconciliation of Non-GAAP Financial Measures |
||||||||||||||||
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
| (in thousands) | 2018 | 2017 | 2018 | 2017 | ||||||||||||
| Net income | $ | 3,499 | $ | 2,047 | $ | 4,607 | $ | 2,629 | ||||||||
| Depreciation and amortization of real estate | 7,610 | 4,304 | 14,077 | 8,086 | ||||||||||||
| Provision for impairment of real estate | 907 | 428 | 2,756 | 579 | ||||||||||||
| Gain on dispositions of real estate | (2,412 | ) | (1,468 | ) | (3,645 | ) | (1,762 | ) | ||||||||
| Funds from Operations | 9,604 | 5,311 | 17,795 | 9,532 | ||||||||||||
| Adjustments: | ||||||||||||||||
| Straight-line rental revenue, net | (1,867 | ) | (1,020 | ) | (3,517 | ) | (1,960 | ) | ||||||||
| Non-cash interest expense | 589 | 380 | 1,165 | 758 | ||||||||||||
| Non-cash compensation expense | 169 | 233 | 347 | 399 | ||||||||||||
| Amortization of market lease-related intangibles | (8 | ) | 134 | 130 | 143 | |||||||||||
| Amortization of capitalized lease incentives | 39 | 34 | 77 | 67 | ||||||||||||
| Capitalized interest expense | (83 | ) | (44 | ) | (136 | ) | (75 | ) | ||||||||
| Transaction costs | 18 | — | 26 | — | ||||||||||||
| Adjusted Funds from Operations | $ | 8,461 | $ | 5,028 | $ | 15,887 | $ | 8,864 | ||||||||
|
Reconciliation of Non-GAAP Financial Measures |
||||
| Three Months Ended | ||||
| (in thousands) |
|
|||
| Net income | $ | 3,499 | ||
| Depreciation and amortization | 7,611 | |||
| Interest expense | 8,634 | |||
| Income tax expense | 87 | |||
| EBITDA | 19,831 | |||
| Provision for impairment of real estate | 907 | |||
| Gain on dispositions of real estate | (2,412 | ) | ||
| EBITDAre | 18,326 | |||
| Adjustment for current quarter acquisition and disposition activity1 | 3,379 | |||
| Adjusted EBITDAre | 21,705 | |||
| General and administrative | 2,987 | |||
| Adjusted net operating income ("NOI") | 24,692 | |||
| Straight-line rental revenue, net1 | (2,207 | ) | ||
| Amortization of market lease-related intangibles | (8 | ) | ||
| Amortization of capitalized lease incentives | 39 | |||
| Adjusted Cash NOI | $ | 22,515 | ||
| Annualized EBITDAre | $ | 73,304 | ||
| Annualized Adjusted EBITDAre | $ | 86,818 | ||
| Annualized Adjusted NOI | $ | 98,766 | ||
| Annualized Adjusted Cash NOI | $ | 90,061 | ||
1. These adjustments are made to reflect EBITDAre, NOI and Cash NOI as
if all acquisitions and dispositions of real estate investments made
during the three months ended
|
Reconciliation of Non-GAAP Financial Measures |
||||
| (in thousands, except share and per share amounts) |
|
|||
| Secured debt: | ||||
| Series 2016-1, Class A | $ | 257,156 | ||
| Series 2016-1, Class B | 17,243 | |||
| Series 2017-1, Class A | 228,909 | |||
| Series 2017-1, Class B | 15,669 | |||
| Total secured debt | 518,977 | |||
| Unsecured debt: | ||||
| Revolving credit facility1 | — | |||
| Total unsecured debt | — | |||
| Gross debt | 518,977 | |||
| Less: cash & cash equivalents | (131,387 | ) | ||
| Less: restricted cash deposits held for the benefit of lenders | (8,611 | ) | ||
| Net debt | 378,979 | |||
| Equity: | ||||
| Preferred stock | — | |||
|
Common stock & OP units (60,033,453 shares @ |
812,853 | |||
| Total equity | 812,853 | |||
| Total enterprise value ("TEV") | $ | 1,191,832 | ||
| Pro forma adjustments to Net Debt and TEV3: | ||||
| Net debt | $ | 378,979 | ||
| Less: cash received - overallotment option | (36,482 | ) | ||
| Pro forma net debt | 342,497 | |||
| Total equity | 812,853 | |||
|
Common stock - overallotment option (2,772,191 shares @ |
37,535 | |||
| Pro forma TEV | $ | 1,192,885 | ||
| Net Debt / TEV | 31.8 | % | ||
| Pro Forma Net Debt / Pro Forma TEV | 28.7 | % | ||
| Net Debt / Annualized EBITDAre | 5.2 | x | ||
| Pro Forma Net Debt / Annualized EBITDAre | 4.7 | x | ||
| Net Debt / Annualized Adjusted EBITDAre | 4.4 | x | ||
| Pro Forma Net Debt / Annualized Adjusted EBITDAre | 3.9 | x | ||
1. Our revolving credit facility provides a maximum aggregate initial
original principal amount of up to
2. Common equity & units as of
3. Pro forma adjustments have been made to reflect the impact of the
partial exercise of the underwriters' overallotment option in the IPO.
On
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Investor/Media:
Senior Vice President, Capital Markets
info@essentialproperties.com
Source: