Essential Properties Realty Trust Q4 2025 Earnings Call - 2026 AFFO Guidance Raised as Cap Rates Stabilize and Portfolio Credit Improves

Conference Operator: Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust’s fourth quarter 2025 earnings conference call. This conference call is being recorded, and a replay of the call will be available 3 hours after the completion of the call for the next 2 weeks. The dial-in details for the replay can be found in yesterday’s press release. Additionally, there will be an audio webcast available on Essential Properties’ website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call with us this morning are Mr. Pete Mavoides, President and Chief Executive Officer, Rob Salisbury, Chief Financial Officer, Max Jenkins, Chief Operating Officer, AJ Peil, Chief Investment Officer, and Cheryl Kall, Director of Financial Planning and Data Analytics. It is now my pleasure to turn the conference over to Cheryl Kall. Please go ahead, ma’am.

Cheryl Kall, Director of Financial Planning and Data Analytics, Essential Properties Realty Trust: Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties’ fourth quarter 2025 earnings conference call. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company’s actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company’s filings with the SEC and in yesterday’s earnings press release. In our earnings release last night, for the quarter, we reported GAAP net income of $68.3 million and AFFO of $99.7 million. With that, I’ll turn the call over to Pete.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Cheryl, and thank you to everyone joining us today for your interest in Essential Properties. The fourth quarter capped off another year of solid performance by the team that delivered compelling earnings growth and solid returns for shareholders. It has been 10 years since we started this company, and I’m extremely proud of the team that we have developed, the dominant position that we have established as a real estate capital provider to middle-market operators that are growing in our targeted industries, and most importantly, the returns that we have delivered for shareholders, and over 200% total shareholder return since our IPO in 2018. In the fourth quarter, we continued to execute our differentiated investment strategy, sourcing 85% of our $296 million of investments through existing relationships, while continuing to add new operator relationships to our platform.

This robust investment volume was generated with a disciplined pricing, including an average initial cash yield of 7.7% and a compelling GAAP yield of 9.1%. This large spread to our cost of capital is a key driver of our earnings growth. Our portfolio once again demonstrated resilient tenant credit trends, with same-store rent growth of 1.6%, strong rent coverage of 3.6 times, and an improvement in our watch list. With better-than-budgeted credit trends and a large investment pipeline, with cap rates consistent with past quarters, we have increased our 2026 AFFO per share guidance range to $1.99-$2.04, which implies a growth rate of about 7% at the midpoint and 8% at the high end.

Our year-to-date closed investments and our current pipeline are supportive of our previously communicated investment guidance of $1 billion-$1.4 billion. While we continue to expect modest cap rate compression in the back half of 2026, competition appears to be stabilizing based upon our current visibility. Regarding our capital position, we started the year with pro forma leverage of 3.8 times and liquidity of $1.4 billion, providing ample runway to fund our investment pipeline. Turning to the portfolio, we ended the quarter with investments in 2,300 properties that were leased to over 400 tenants. Our weighted average lease term continued to be approximately 14 years for the 19th consecutive quarter, with just 5.2% of annual base rent expiring over the next five years.

With that, I’ll turn the call over to AJ Peil, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. AJ?

Conference Operator: Thanks, Pete. Overall, our portfolio credit trends remain healthy, with same-store rent growth in the fourth quarter of 1.6%, consistent with last quarter, and occupancy of 99.7%, with only 6 vacant properties. Portfolio rent coverage remains robust at 3.6 times, reflecting durable cash flow generation across our asset base. Additionally, our credit watch list declined from last quarter to under 1%, and the tenants within our watch list remain current on all obligations. Realized credit events in the quarter were limited, with just one notable tenant issue in the home furnishing industry, American Signature, which represented about 20 basis points of our ABR as of September 30 across 2 sites.

We expect our recovery to be within the normal range of outcomes, having fully anticipated this situation and incorporated it into our guidance range provided last quarter. On dispositions, during the fourth quarter, we sold 19 properties for $48.1 million in net proceeds at a 6.9% weighted average cash yield. Disposition activity increased as we opportunistically capitalized on elevated buyer demand created by the reinstatement of bonus depreciation tax benefits for car wash properties, resulting in a continued reduction in our exposure to this industry to 13.7%. Over the near term, we expect our disposition activity to normalize and align with our trailing eight-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity.

Tenant concentration continues to decline, with our top 10 tenants comprising only 16.5% of ABR, and our top 20 representing only 27.1% of ABR quarter end, which is industry-leading. Tenant diversity is an important risk mitigation tool and a direct benefit from our focus on middle-market operators. With that, I’ll turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

Max Jenkins, Chief Operating Officer, Essential Properties Realty Trust: Thanks, AJ. On the investment side, during the fourth quarter, we invested $296 million at a weighted average cash yield of 7.7%. Our capital deployment was broad-based across most of our top industries, with no notable departures from our investment strategy. During the fourth quarter, our investments had a weighted average initial lease term of 19.4 years and a weighted average annual rent escalation of 2%, generating a strong average gap yield of 9.1%. Our investments this quarter had a weighted average unit-level rent coverage of 4.7 times, reflecting a conservative rent level and healthy unit profitability for our operators. We closed 34 transactions comprising 58 properties, of which 100% were sale-leasebacks.

The average investment per property was $4.6 million this quarter, consistent with our historical range, with our deal activity characterized by granular, freestanding properties, one of the core elements of our strategy. Looking ahead, our investment pipeline remains strong, supported by record subsequent quarter investment activity of over $200 million. The cap rate environment remains stable today, with our pricing and our pipeline in the high 7% range, which represents a compelling spread to our cost of capital and is consistent with our updated guidance range. With that, I’d like to turn the call over to Rob Salisbury, our new Chief Financial Officer, who will take you through the financials for the fourth quarter.

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Thanks, Max. Before I begin my prepared remarks, I would like to thank the board of directors for the exciting opportunity to lead the company’s finance group alongside my partner, the company’s Chief Accounting Officer, Tim Earnshaw. As Pete mentioned earlier, our well-established platform is in a great position to deliver shareholder value, with the largest net investment spread in the industry today. And half of our value creation comes from optimizing our cost of capital, which is something my team has been, and will continue to be, laser-focused on over the coming years, in service to our focus on shareholder value creation over the long term. Turning to the fourth quarter results, our AFFO per share totaled $0.49, which represents an increase of 9% versus the fourth quarter of 2024.

This performance was consistent with the high end of our expectations, as reflected in our previous guidance range. Total G&A in the quarter was $8.4 million, representing a sequential decline due to a one-time compensation reversal related to an executive departure. Notably, this one-time benefit to net income of $2.4 million is reversed out of our Core FFO, AFFO, and cash G&A as a non-core item. For the year 2025, cash G&A was $28.8 million, which ended near the low end of our guidance range and represents just 5.1% of total revenue, down from 5.4% in 2024. We declared a cash dividend of $0.31 in the fourth quarter, which represents an AFFO payout ratio of 63%.

Our retained free cash flow after dividends continues to build, reaching nearly $40 million in the fourth quarter, representing a substantial source of internally generated capital to support our future growth. Turning to our balance sheet, our income-producing gross assets increased to over $7 billion at quarter end. The increasing scale and diversity of our portfolio continues to build, enhancing our credit profile. On the capital markets front, we remained active on our ATM program in the quarter, completing the sale of approximately $170 million of equity, all on a forward basis. We settled $359 million of forward equity in the fourth quarter, with a portion of the proceeds utilized to repay our revolving credit facility balance. Our balance of unsettled forward equity totaled $332 million at quarter end.

We expect to utilize these funds in the near term to support our investment program and retain balance sheet flexibility by keeping capacity available on our revolver. Our pro forma net debt to annualized adjusted EBITDA RE remained low at 3.8 times at quarter end. We remain committed to maintaining a well-capitalized and conservative balance sheet with low leverage and significant liquidity to continue to fuel our external growth. Lastly, as we noted earlier, we have increased our 2026 AFFO per share guidance to a new range of $1.99-$2.04, reflecting a growth rate of approximately 7% at the midpoint and 8% at the high end. With that, I’ll turn the call back over to Pete.

Conference Operator: Thanks, Rob, and congratulations on your promotion to CFO. I’ve appreciated your partnership over the last two and a half years, and we’re all grateful for your leadership in the finance group and across the broader organization.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: ...In summary, we are happy with the fourth quarter and full year results. The portfolio is performing well, the investment market remains compelling, and the capital markets continue to be supportive. Operator, please open the call for questions.

Conference Operator: Thank you, Mr. Mavoides. Ladies and gentlemen, at this time, if you do have any questions, please press star one at this time. If you find your question has been addressed, you may remove yourself from the queue by pressing star two. Once again, that is star one for questions. We go first this morning to Michael Goldsmith of UBS. Michael, please go ahead.

Michael Goldsmith, Analyst, UBS: Good morning, thanks a lot for taking my questions. Rob, you took the guidance range slightly higher at the bottom end. So can you just walk through, you know, what has changed over the, you know, month or so since you or since the third quarter, I guess, since you put out your initial guidance and how that has impacted the outlook for this year?

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Hey, good morning, Michael. Thanks for the question. So, you know, as we’ve talked about in prior years, it’s still really early in the year to do a whole lot of changes with our guidance range, just given we still got 10.5 months to go. That being said, as we updated all of our numbers and reviewed our credit, our portfolio credit trends, everything had been coming in a lot better on the portfolio credit side, relative to our initial guidance back in October. We tend to be pretty conservative when we build that initial range, and so as a result, we’re just feeling a lot better about the health of the portfolio. I think you saw some of the stats in the fourth quarter of the same store rent growth of 1.6%.

Credit Watch List is down sequentially. So it was really in recognition of that. You saw the subsequent events that we have a lot of acquisitions that we closed in the early part of this year, but it’s still early in the year, and so it felt appropriate to take the bottom end of the prior range off the table, just given where portfolio credit is. But we’ll see how the rest of the year develops in terms of the pipeline and deployment.

Michael Goldsmith, Analyst, UBS: Thanks for that. And just quickly, you know, the initial remarks, you mentioned that the expected competition or you’re seeing competition stabilize. So does that... What is the impact of that? Do you see cap rates stabilizing from here? Or, and then, like, I guess, also, does that mean that you would be willing to, you know, I guess, with the stabilizing cap rates or less competition, you could also go with a safer tenant base and, so just trying to understand, like, what are the implications of that stabilizing competition comment made at the opening of the call?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, and Michael, this is Pete. I would say I certainly reject your premise that we’re going with a safer tenant base. We feel pretty good comfort in our tenant base and the guys we’re investing with and the risk-adjusted returns we’re getting, and we think the durability of the portfolio has certainly proven that out. But you’re right, I think the stabilization in competition has really resulted in you know, a slower decrease in cap rate than we have anticipated. You know, certainly we model some conservatism into our future cap rates, particularly as the ten-year comes in and capital markets stabilize. And, you know, as we indicated on the call, we’re seeing cap rates kind of stable, which is great for us.

You know, I think that’s certainly going to help drive earnings, but it’s not going to change the way we invest or how we think about risk.

Michael Goldsmith, Analyst, UBS: Thank you very much. Good luck in 2020.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Michael.

Conference Operator: Thank you. We go next now to Greg McGinnis at Scotiabank.

Greg McGinnis, Analyst, Scotiabank: Hey, this is Greg McGinnis at Scotiabank, still. For the acquisitions. Sorry. You’ve had a busy beginning to the year. Should we not be reading anything into that? Is that, you know, holdovers from Q4 that fell into the early part of this year? I mean, you know, at this trend, you’re well over $1.5 billion for the year and above the guidance range. I know you’re telling us not to necessarily read too much into that, but this is a pretty strong start so far. So just kind of curious what the driver was to date on some of those transactions.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, and again, I think if we saw something different in our investment expectations, we would have bumped the guidance range. And to Rob’s comment earlier, certainly early in the year, you know, the fourth quarter was kind of a little light relative to our trailing average, and so there’s certainly some deal slippage that you would see. And so, you know, we feel great. We feel good that we have a good start to the year. But, you know, we have a lot of year left to play. I think more encouraging driving you know earnings is just the stabilization and the cap rate.

Greg McGinnis, Analyst, Scotiabank: Just to dig into that a little bit more, are you seeing that stabilization in cap rate across all the industries that you tend to invest in, or are there certain industries that are deviating from that norm? And on top of that, is there anything that you’re kind of particularly looking to increase acquisitions in from an industry perspective?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, you know, I think it’s stabilization against the, across the entire industry set that we invest in. Obviously, there’s a range of cap rates across our industries, from a low of 7 to a high of, you know, call it 8.5, depending on the specific industry. But there’s good stabilization there, and I think that speaks to the broader capital markets. In terms of our targeted growth, you know, we’re really following our relationships, which mirror our portfolio. You know, with 85% plus relationship business, we’re going to go where our relationships take us and where our reliability as a counterparty is rewarded. So I wouldn’t expect a material shift in the portfolio composition as we think about, you know, 2026.

Jana Gallen, Analyst, Bank of America: ... Great. Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Greg.

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Thank you. We’ll go next now. Thank you. We go next now to Caitlin Burrows at Goldman Sachs.

Caitlin Burrows, Analyst, Goldman Sachs: Hi, good morning, everyone. I guess maybe just on portfolio credit, the prepared remarks mentioned that you guys are feeling good on that topic right now. You also mentioned that American Signature was the only credit event in Q4. Could you give us any detail on how that played out versus your expectation and what that can kind of tell us about your process and your visibility?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, you know, I would start by. That’s still playing out. You know, I think it certainly will come in within our expectations as we tend to be conservative. But AJ, you want to tackle that?

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Yeah. Hey, Caitlin. As Pete mentioned, that bankruptcy happened late in Q4, and so we’re early in the process of marketing the asset. I do believe, based on what we’re seeing in the marketplace, that it’s going to be a normal outcome for us, and the recovery should be well within the range of which we historically have disclosed. I wouldn’t expect that asset to be on our balance sheet as vacant for too long.

Caitlin Burrows, Analyst, Goldman Sachs: Okay, got it. And then, Rob, you mentioned how EPRT generates, I think it was $40 million of free cash flow now. So how do you think about or balance retaining more cash versus increasing the dividend? Would you expect dividend to grow in line with AFFO per share from here, or more, or less?

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Yeah, thanks, Caitlin. So as you point out, the retained free cash flow is certainly a great source of internally generated capital for our very accretive investment program. I think it’s, it’s going to be a board decision as to where the dividend goes over time. But from a broad standpoint, you know, it’s certainly a balance between delivering current return to shareholders and retaining that capital. I think a reasonable expectation would be that our dividend payout ratio probably doesn’t go down from here at 63%. And you know, we seek to have a good balance between those two things. And as you know, having followed the REIT space for a long time, dividends are an important part of total shareholder return, and we certainly recognize that.

I would expect the dividend to grow, but don’t have a lot of guidance for you at this point.

Caitlin Burrows, Analyst, Goldman Sachs: Thanks.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thanks, Caitlin.

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Thank you. We’ll go next now to Jana Gallen at Bank of America.

Jana Gallen, Analyst, Bank of America: Thank you. Good morning. You know, just good to hear about that you’re seeing this cap rate stabilization. And just wanted to ask about your comment where you’re saying you may see modest cap rate compression in the back half of the year. And then also curious on if there’s anything else within the kind of sale-leasebacks you’re discussing with your relationships in terms of term or escalators or other type of changes.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I think, you know, we’ve been expecting a normalization in the capital markets, you know, a slight decline in the 10-year and an increase in competition to drive cap rates down. We’ve been expecting that for quite some time now, and, you know, as we sit today, we just really haven’t experienced it in a material way, which is great. But we continue to have some conservatism around those factors as we think about the business plan going forward. And as we’ve said, that, you know, shades from a high sevens to a mid-sevens sort of cap rate in our expectations. But, you know, obviously, where the market goes and capital markets in the 10-year will ultimately drive that. You know, competition drives cap rate.

It also drives the other terms that you referred to, Jana, like term and escalations. These are all sensitive terms to tenants, and they’re also a key part of our economics, and you can see those kind of ebb and flow over time. I would expect you know, some compression in our weighted average escalations. You know, certainly you know, when we were seeing 2.2%, 2.3%, that’s you know, kind of pretty high relative to historical averages, and you know, with the historical average kind of being 1.6-ish. So we’re seeing some you know, downward pressure there, but again nothing material.

Jana Gallen, Analyst, Bank of America: Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you.

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: We’ll go next now to Eric Borden at BMO Capital Markets.

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Great. Thanks. Pete, I just want to go back to your comments around the stabilization and competition. You know, in your, in your view, what factors are driving this stabilization, and what would need to change for the competitive intensity to increase from here?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: You know, I think it’s really driven by the access to debt capital and which is, you know, going to be driven by the cost of that capital and the availability of that capital. And ultimately, you know, that’s pricing. You know, these are long-dated assets and that people tend to finance in the ABS market. And so, I think a large driver that’s going to be the 10-year treasury rate. So as we’ve said on prior calls, higher for longer on the 10-year is probably a better scenario for us. And certainly, you know, 4.2, 4.3, you know, 4.1’s helping. I think if you saw, you know, a mid- to high 3s on the 10-year, you know, we would see material amount of increase in competition.

All that said, you know, we very much, you know, go to market with an investment strategy to avoid, deliberately designed to avoid competition by doing granular deals, follow-on transactions with relationships, leaning into sale-leasebacks to deliver capital to operators that have a capital need. And so I think, you know, you know, hopefully, we have built ourselves a moat around that competition by transacting in a differentiated, value-added way, and we’ll continue to focus on that.

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: ...Thank you. And one for Rob. Congrats, by the way. How should we be thinking about the cadence of forward equity issuance this year, you know, as you manage that cushion between, you know, the unsettled shares and acquisitions? And then with the remaining $322 million of unsettled equity, is there any near-term expiration or settlement constraints that we should be aware of? Thank you.

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Thanks for the comments, Eric. Yeah, we don’t have anything in the very near term from an expiration standpoint, so that’s probably not gonna be a consideration. From a funding standpoint, we tend to make an assumption that we fund equity first and then do debt later. However, as we sit here today with 3.8x leverage at the end of the year and a ton of liquidity, I think as we’ve mentioned on prior calls, having just reentered the unsecured bond market over this past summer, we’re very much focused on the unsecured bond market. That pricing today is pretty attractive relative to the high-7 cap rate that Max mentioned in his prepared remarks on the pipeline right now.

So, you know, in the 5.3%-5.5% territory for a cost of debt, really big spread. So, you know, we’ll certainly be spending some time focusing on the unsecured bonds over the course of this year. And then, you know, from an equity standpoint, you know, with the leverage capacity that we have right now, we really could go through the entire year without issuing any more equity, and hit the midpoint of our acquisition targets. And that’s a combination of just starting the year at such a low point. But then we also have, you know, as you mentioned, the prepared remarks, over $150 million of retained free cash flow after dividends. We tend to do about $100 million a year of dispositions.

You know, you know, we have lots of forward equity as well. So, from a liquidity and a leverage standpoint, we’re in a really good spot. And from a modeling standpoint, you know, we would assume that that gets settled in the near term, just as a conservative point, but we’ll see how everything plays out.

Conference Operator: Thank you. We’ll go next now to Smeads Rose at Citi.

Caitlin Burrows, Analyst, Goldman Sachs1: Thanks. It’s Nick Joseph here with Smedes Rose. Maybe just following up on that, Rob. Obviously, balance sheet’s in a really good position, robust acquisition pipeline and volume thus far in the first quarter. Have you issued any ATM equity or forward ATM equity year to date?

Rob Salisbury, Chief Financial Officer, Essential Properties Realty Trust: Yeah, we did a little bit earlier in the year. I don’t think it’s part of our disclosure package, but you know, there are a few days before we go into the blackout period, so it tends to never really be a huge amount in a particular quarter, but it was about $10 million that we did at the beginning of the year. So extended the runway a little bit, but again, as we sit here today with such a low leverage point, we just didn’t feel like we needed a whole lot.

Caitlin Burrows, Analyst, Goldman Sachs1: Got it. Thanks. And then just on rent coverage, obviously, it was flat sequentially, well covered at 3.6 times. But the sub-1x and sub-1.5x buckets moved up a bit. What drove that? You know, what moved into those buckets?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: AJ, what do you got on that?

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Yeah, so it’s a good question. On the sub-1 bucket, it really is within the range over the previous four quarters, where we’ve been as low as 2.7, as high as 3.9. So there’s a few tenants that are always kind of migrating in and out of that category. More on the 1-1.5 bucket, over the last few years, you’ve noted that we’ve done a lot of development deals, and as those deals come online and are entered into, oftentimes added to a master lease, it creates some noise around that coverage. So we had a couple of tenants where we had assets come online, pulled the coverage out of the 1.5-2 bucket into the 1-1.5.

But I think what you’ll see over the coming quarters is they ramp, and stabilize, and we revert back to our historical norm, where that, that cohort tends to kind of range between 7%-11%. So it’s more of a timing issue. What I would say, to add to that is it’s a data point, but what you would really see if, if the credit was starting to erode, is our Watch List would be increasing. And actually, quarter-over-quarter, it decreased by about 35 basis points. And to refresh you, the Watch List is the intersection of shadow rate B-minus and less than 1.5 times unit level coverage.

So, the 1-1.5 bucket certainly increased, but it tends to be more of a timing issue of when assets are coming online out of development than anything else.

Caitlin Burrows, Analyst, Goldman Sachs1: Thanks, AJ.

Conference Operator: Thank you. We’ll go next now to Rich Hightower with Barclays.

Caitlin Burrows, Analyst, Goldman Sachs5: Good morning, guys. So I wanna go, I guess, back to the transaction environment. I’m just curious, you know, as we’ve kind of seen some hiccups in the broader private credit market, kind of, you know, in different pockets, you know, does that help or hurt your business? Does it create opportunities that didn’t previously exist? Does it reduce, you know, sort of sponsor-backed deal flow in any way? How do we figure that out for your business?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: We really haven’t seen an impact over the last couple of years with the kind of advent and proliferation of private credit. I would say those borrowers tend to be of a size and a scale that’s a little larger than we’re focusing on and not generally in our industries. You know, certainly, you know, we’re real estate investors, and we’re senior, and, you know, our leases are in front of unsecured debt, but it really hasn’t driven incremental investment opportunities. You know, to the extent that it dries up, I don’t think it’s gonna change our investment market.

Caitlin Burrows, Analyst, Goldman Sachs5: Okay. That’s helpful. And then you made a point to point out that you did dispose of a little more of your car wash exposure last quarter, and I would probably expect that to continue again, you know, based on some of the tax law particulars that kicked in on January 1. So where do you see that exposure ticking down to over time? What’s sort of a longer-term target there? Thanks.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I wouldn’t create the expectation that’s going down materially. You know, we’ve always operated with a soft ceiling of 15% for any one industry. Car wash has been a great industry from a risk-adjusted return for us perspective. You know, so I wouldn’t expect it to, you know, we’re not driving that down to 10%. And, you know, to the extent that we find compelling risk-adjusted opportunities in that sector, we can continue to grow it. So, you know, we’ll just have to see what the market brings.

Caitlin Burrows, Analyst, Goldman Sachs7: Got it. Thank you.

Conference Operator: We’ll go next now to Handal St. Juste with Mizuho.

Caitlin Burrows, Analyst, Goldman Sachs4: Hi there. Good morning. This is Ravi Vady on the line for Handal. Hope you guys are doing well. Can you please describe the impact of the one big beautiful bill on the single-tenant transaction market? How do you think that’s going to impact broader industry pricing and volumes, and how are you guys seeing it within the sandbox that you’re operating in, going forward?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Did Haendel write that question for you?

Caitlin Burrows, Analyst, Goldman Sachs4: No, I wrote it. I sent it to him.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Come on.

Caitlin Burrows, Analyst, Goldman Sachs4: But he approved it.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Listen, you know, it’s you know, the bonus depreciation that we mentioned earlier certainly had an impact. You know, I don’t think that bill really is going to have a material impact on our business or the way we operate. And so I really don’t see anything material coming out of that that will impact us.

Caitlin Burrows, Analyst, Goldman Sachs4: Is it creating maybe more liquidity in transaction markets? Are there buyers that are looking to take advantage of maybe bonus depreciation or anything like that, that is leading to moves in cap rates?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Not materially. I mean, as AJ mentioned in his remarks, we were able to sell some car washes to tax-motivated buyers at the margin. But that’s, you know, it’s really at the margin and not a driver of our industry.

Caitlin Burrows, Analyst, Goldman Sachs4: Got it. Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you.

Conference Operator: We’ll go next now to John Kilowowski at Wells Fargo.

John Kilowowski, Analyst, Wells Fargo: Thank you. Good morning. I’d like to start by saying that Cheryl did a great job on the opening remarks, and Rob, congrats on the new role. My first one is for you, Pete. You know, we’ve talked about the competitive landscape a lot on this call, but I guess I’m curious, who are the entrants that maybe you thought you’d be seeing, that you aren’t seeing right now?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: You know, it’s, I would start—I don’t want to name specifics, you know, because we just don’t know. You see platforms stand up, you see, you know, capital commitments to those platforms, whether it’s, you know, Apollo, TPG, Angelo Gordon, Blackstone. You go down the list of big asset managers, and you’re just conservative about their ability around your assumptions of driving your business and their ability to, you know, take business away from you. And, you know, it’s we fight hard to win deals. We fight hard to add value to our counterparties such that they choose to do business with us. And, you know, we, you know, we, we’re very protective of our relationship. So, you know, there, there’s a bunch of new platforms out there.

You saw Starwood bought a platform, and you know, it’s just broad-based.

John Kilowowski, Analyst, Wells Fargo: Mm-hmm. Got it. And then my second one is just, given the current macro environment, how is that affecting the way you’re underwriting or influencing sectors you might be pivoting more towards or away from?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, you know, as I mentioned earlier, with 85% repeat business, our relationships really drive our opportunity set. And, you know, we starting this platform, you know, 10 years ago, we had a very focused service and experience base, leaseback, middle-market model, and we’re really sticking to that. And, you know, current trends in the market really hasn’t shifted that materially one way or the other.

John Kilowowski, Analyst, Wells Fargo: Very helpful. Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you, John.

Conference Operator: We’ll go next now to Ryan Caviolla with Green Street Advisors.

Caitlin Burrows, Analyst, Goldman Sachs7: Thank you. Good morning, everyone. It looks like the average investment per unit was record high for this quarter. I know you mentioned still close to historical norms, but could you share any details there? Was that simply a function of acquisition mix, or is there a slight appetite to purchase larger asset classes going forward? What led to that?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, it’s really going to be transaction mix and industry mix. You know, some of our sectors, like, early childhood education, our industrial outdoor storage sites and service sites, tend to have a higher price point than, you know, our QSR sites, or our casual dining sites. And so it’s not a material move, and it’s really, and it really isn’t indicative of our change in our underwriting or our risk appetite for larger assets. It’s more just industry mix in that quarter.

Caitlin Burrows, Analyst, Goldman Sachs7: Got it. Appreciate it. And then just a quick one. Could you remind us of the tenant credit assumptions included in the 2026 guide? And just any, you know, color on, if there’s industries specific in there or if it’s broad-based, anything you can share on, on tenant credit. Thanks.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah. So, we don’t guide to tenant credit losses. You know, we guide to AFFO growth and investments. I would say we take a very sharp pencil to our credit assumptions, really looking at specific situations and properties where we may have a credit event that results in a loss in ABR. And that tends to be around our historical average and our norm, and then we make a generic assumption for unknown events that may come at us. And we run a range of scenarios through the credit loss that support our guidance. So, you know, with a historical credit loss of 30 basis points, you can probably assume we’re a little more conservative than that, but you know, there’s a wide range of scenarios in underlying guidance.

Dan Guglielmo, Analyst, Capital One Securities: Great. Appreciate the color.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you.

Conference Operator: We’ll go next now to Jay Cornreich with Cantor Fitzgerald.

Jay Cornreich, Analyst, Cantor Fitzgerald: All right, thanks so much. I guess just following up on your comments about sticking to your relationships, which make up 85% of business, I guess, how do you assess kind of that balance between growing with current partners and forming new ones? If, you know, really the point is, does the 85% provide enough runway for investment and earnings growth for multiple years into the future that you don’t need to rely on new relationships?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: No, listen, as I said in the past, we like to kind of be a 75-25 ideally, and we spend a lot of effort and make a lot of investments to source and develop and build new relationships that we can grow with over time. Because we certainly see relationships grow out of us as they get bigger and establish, you know, access to more alternative forms of capital. So it’s a balance, and you know, I think we’ve done a good job of balancing that, and we have an ample pipeline of opportunities, and I think we’ve demonstrated, you know, great ability to continue to source and deploy capital.

Jay Cornreich, Analyst, Cantor Fitzgerald: Okay. And I guess just following up on that, you know, the strong sourcing and ample opportunities. You know, you also referenced, you know, some deal slippage in the fourth quarter. So I guess just wondering about the overall investment pipeline outlook, you know, if your cost of capital were to improve throughout the year, you know, do you feel like there’s ample opportunity to expand the investment volume, or is it a little bit more constrained as the outlook may have it?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: As we always say, you know, the opportunity set isn’t what’s driving our investment volume. Our desire to create compelling growth for shareholders is what drives it, and what we believe to be compelling is, you know, our current guidance, both in terms of AFFO per share, with growth of, you know, call it 6%-8%, supported by investments of, you know, conservative investments of, you know, $1 billion-$1.4 billion. And which is, you know, frankly, at the midpoint, down from what we did last year. So, the opportunity set is not a constraint of ours. You know, really our appetite and our desire to create stable growth over a prolonged period of time is what’s driving that.

Jay Cornreich, Analyst, Cantor Fitzgerald: Understood. Okay. Thanks very much.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you.

Conference Operator: Ladies and gentlemen, just a quick reminder, star one, please, for questions today. We’ll go next now to Dan Guglielmo with Capital One Securities.

Dan Guglielmo, Analyst, Capital One Securities: Hi, everyone. Thank you for taking my questions. I know based on our conversation at REWorld, that you all are focused on same-store metrics for your tenants. Have there been any diverging trends in kind of same-store between tenant types or any changes that you’ve noticed this year versus last?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, well, same-store ABR and same-store rent is really, really driven by the contracts and the leases that we have, and, you know, that can vary from, you know, low of 1.5 to a high of 2.3. And that really more depends upon what we negotiate going into those deals and when we negotiated those deals than anything on an industry-specific basis. In terms of, you know, same-store, improvement in sales and margin and EBITDA, you know, that’s something we track across all our industries and all our tenants. And there, you know, there’s a lot of ebbs and flows with in each sector and each specific operator. I would say most of those ebbs and flows are idiosyncratic around the operator and less around the industry. But...

There’s nothing really I would call out, materially changing in that.

Dan Guglielmo, Analyst, Capital One Securities: Okay, great. Appreciate that color. And then-

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: I would make-

Dan Guglielmo, Analyst, Capital One Securities: Okay.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: I would make a point on that. You know, with public comps in most of our industries, whether it be Mister Car Wash and car wash or some of the restaurant operators or KinderCare and childcare, you know, investors can look at those public comps and get a general read-through about what’s going on in the overall industries that we invest. You know, there tends to be a very strong correlation between those public comps and their performance and what’s going on in our portfolio.

Dan Guglielmo, Analyst, Capital One Securities: Great. Yeah, that’s very helpful. And then as a follow-up from one earlier, thinking about the size of the company with the kind of mid- to high single-digit growth each year, is there a certain size down the road where it gets harder to source the right deals, that kind of the volumes needed? And when you think about that, how far out is that?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, I wouldn’t put a number on that. I think we have, you know, 5-10 years of solid performance and opportunity in front of us to continue to grow our relationships and our investable universe and our portfolio and generate that sort of growth. You know, as you get bigger, you gotta do more. And you know, I think we continue to invest in the team and the infrastructure to do that, but I think this company has great runway without really too much concern around that. Particularly, because as we’ve done, you know, not growing too fast, right?

And, you know, growing moderately at a very measured pace over a long period of time has been our ambition, and I think we’ve got great runway in front of us.

Caitlin Burrows, Analyst, Goldman Sachs8: Appreciate that. Thank you.

Conference Operator: We’ll go next now to John Masaka at B. Riley Securities.

John Masaka, Analyst, B. Riley Securities: Good morning. We talked about it a little bit last quarter, but you added again to kind of the other industrial bucket. But it seems like the assets had a bit of a different kind of rent and square footage profile per property. Just kind of curious maybe what those were in terms of acquisitions during the quarter. And I guess, you know, with a couple of subsequent quarters of you know, strong investment in that particular industry sector, kind of what do you think is driving that as a growth vehicle, in the current market?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yeah, you know, we just see good opportunities in the industrial outdoor storage space. Those assets tend to be granular, tend to have a large land component, and, you know, that the rent per square foot in that space varies wildly, depending upon the amount of building prorated over the size of the land. And so, you know, a 10-acre lot with a 20,000 sq ft building is a whole lot different than a five-acre lot with a 20,000 sq ft building. And so we see good opportunities there with middle-market operators, and, you know, I don’t. It’s not growing at an outsized pace. And we’ll continue to invest there, and we certainly like that space.

John Masaka, Analyst, B. Riley Securities: The assets that were kind of acquired in the quarter were those kind of industrial outdoor storage type properties?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Yes, sir.

John Masaka, Analyst, B. Riley Securities: Okay. And then, I, you know, may have mentioned before, so apologies, but given the size of the subsequent to kind of quarter investment volume and maybe kind of characterization of that being a little bit of a, you know, transactions that maybe slipped from a 4Q closing, what was kind of the rough timing on that as we’re thinking about modeling? Was it a little bit front-end loaded in the year, or was it kind of spread out over the quarter to date?

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: January twenty-first, John.

John Masaka, Analyst, B. Riley Securities: I need, I need an hour, please.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: I’m just kidding. Rob, you got a response to that?

Caitlin Burrows, Analyst, Goldman Sachs8: You know, we’re a month on that, almost a month and a half into the year. I would just assume the middle of January is probably a reasonable ballpark estimate.

John Masaka, Analyst, B. Riley Securities: Okay, I appreciate that. That’s it for me. Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Thank you, John.

Conference Operator: Thank you.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: So we’re done?

Conference Operator: We are, Mr. Mavoides. I’ll turn it back to you, sir, for any closing comments.

Pete Mavoides, President and Chief Executive Officer, Essential Properties Realty Trust: Great. Well, thank you, all. We look forward to seeing you all. I know Citi’s Conference is right around the corner, and we’ll have a very active calendar down there. Stay warm. Talk to you soon.

Conference Operator: Thank you, ladies and gentlemen. Again, that will conclude the Essential Properties Realty Trust fourth quarter earnings conference call. Again, thanks so much for joining us, everyone. We wish you all a great day. Goodbye.