Essential Properties Realty Trust Sees Favorable Operating Environment in Q1 2025
Despite a choppy capital markets backdrop, Essential Properties Realty Trust's operating environment has remained favorable for its business. According to the company's President and Chief Executive Officer, Pete Mavoides, the team continues to source attractive investment opportunities, focusing on middle market sale leasebacks with growing operators within targeted industries.
In the first quarter of 2025, the company invested $308 million, with a significant portion coming from recurring business within its tenant base. This underscores the value of established relationships and the stability they bring. The investments were made through 21 separate transactions at a weighted average cash yield of 7.8%.
The company's portfolio performed well during the quarter, with tenant credit trends and same-store rent performance healthy and in line or slightly ahead of expectations. Essential Properties further solidified its capital position by issuing over $300 million of equity and upsizing its credit facility, leaving it with pro forma leverage of 3.4x and liquidity of $1.5 billion.
This strong financial foundation positions the company well to continue growing its portfolio and generating sustainable earnings growth for shareholders. The continued healthy portfolio trends and attractive investment environment remain supportive of the company's 2025 business plan, which includes reaffirming its guidance range for annual funds from operations (AFFO) per share of $1.85 to $1.89.
While competition in the market was expected to build as capital markets normalized, resulting in modest cap rate compression, recent heightened volatility has resulted in less competition than anticipated. This means that Essential Properties' investment pipeline is supportive of the upper half of its articulated investment guidance of $900 million to $1.1 billion, without needing to raise any incremental capital.
The company's portfolio stands at 2,138 properties leased to 423 tenants operating in 16 industries. The weighted average lease term is 14 years, with just 5.4% of annual base rent expiring over the next five years. Tenant health-wise, the weighted average unit level coverage ratio was 3.5x this quarter, indicative of the profitability and cash flow generation by tenants at the unit level.
Essential Properties' Chief Operating Officer, Max Jenkins, provided an update on investment activities and current market dynamics. The company's investments in the first quarter had a weighted average initial lease term of 17.5 years and a weighted average annual rent escalation of 2.2%, generating a strong average GAAP yields of 9.4%. The investments also had a weighted average unit level rent coverage of 3x, with an average investment per property of $5.
