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Section 1: 10-Q (10-Q)

eprt-10q_20190630.htm

 

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 June 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 August 7, 2019, the registrant had 76,328,165 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

 

Item 1.

Financial Statements (Unaudited)

 

 

Consolidated Balance Sheets as of June 30, 2019 (unaudited) and December 31, 2018

2

 

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

3

 

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

4

 

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

5

 

Consolidated Statements of Cash Flows for the six months ended June 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

41

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

65

Item 4.

Controls and Procedures

65

 

 

 

PART II.

OTHER INFORMATION

 

Item 1.

Legal Proceedings

67

Item 1A.

Risk Factors

67

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

68

Item 6.

Exhibits

68

 

 

 

Signatures

69

 

 

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)

 

 

June 30, 2019

 

 

December 31, 2018

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

Real estate investments, at cost:

 

 

 

 

 

 

 

Land and improvements

$

502,561

 

 

$

420,848

 

Building and improvements

 

1,038,589

 

 

 

885,656

 

Lease incentives

 

4,794

 

 

 

2,794

 

Construction in progress

 

7,079

 

 

 

1,325

 

Intangible lease assets

 

74,079

 

 

 

66,421

 

Total real estate investments, at cost

 

1,627,102

 

 

 

1,377,044

 

Less: accumulated depreciation and amortization

 

(69,010

)

 

 

(51,855

)

Total real estate investments, net

 

1,558,092

 

 

 

1,325,189

 

Loans and direct financing lease receivables, net

 

30,659

 

 

 

17,505

 

Real estate investments held for sale, net

 

2,474

 

 

 

 

Net investments

 

1,591,225

 

 

 

1,342,694

 

Cash and cash equivalents

 

7,816

 

 

 

4,236

 

Restricted cash

 

10,128

 

 

 

12,003

 

Straight-line rent receivable, net

 

19,610

 

 

 

14,255

 

Prepaid expenses and other assets, net

 

14,524

 

 

 

7,712

 

Total assets (1)

$

1,643,303

 

 

$

1,380,900

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

Secured borrowings, net of deferred financing costs

$

306,553

 

 

$

506,116

 

Unsecured term loan, net of deferred financing costs

 

199,097

 

 

 

 

Revolving credit facility

 

67,000

 

 

 

34,000

 

Intangible lease liabilities, net

 

9,778

 

 

 

11,616

 

Dividend payable

 

16,917

 

 

 

13,189

 

Accrued liabilities and other payables

 

13,442

 

 

 

4,938

 

Total liabilities (1)

 

612,787

 

 

 

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 June 30, 2019 and December 31, 2018

 

 

 

 

 

Common stock, $0.01 par value; 500,000,000 authorized; 57,825,460 and 43,749,092 issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

578

 

 

 

431

 

Additional paid-in capital

 

806,376

 

 

 

569,407

 

Distributions in excess of cumulative earnings

 

(18,447

)

 

 

(7,659

)

Accumulated other comprehensive loss

 

(2,913

)

 

 

 

Total stockholders' equity

 

785,594

 

 

 

562,179

 

Non-controlling interests

 

244,922

 

 

 

248,862

 

Total equity

 

1,030,516

 

 

 

811,041

 

Total liabilities and equity

$

1,643,303

 

 

$

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 June 30, 2019 and December 31, 2018, with the exception of $12.7 million and $9.2 million, respectively, of dividends payable and $0.2 million of prepaid expenses and other assets, net as of June 30, 2019, 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 June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental revenue

 

$

32,111

 

 

$

21,554

 

 

$

62,884

 

 

$

41,647

 

Interest on loans and direct financing lease receivables

 

 

403

 

 

 

89

 

 

 

729

 

 

 

159

 

Other revenue, net

 

 

241

 

 

 

22

 

 

 

248

 

 

 

25

 

Total revenues

 

 

32,755

 

 

 

21,665

 

 

 

63,861

 

 

 

41,831

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest (including $2,524 and $4,603 to related parties during the three and six months ended June 30, 2018)

 

 

5,779

 

 

 

8,634

 

 

 

12,867

 

 

 

16,911

 

General and administrative

 

 

4,737

 

 

 

2,987

 

 

 

8,925

 

 

 

6,343

 

Property expenses

 

 

645

 

 

 

380

 

 

 

1,892

 

 

 

727

 

Depreciation and amortization

 

 

10,105

 

 

 

7,611

 

 

 

19,225

 

 

 

14,079

 

Provision for impairment of real estate

 

 

481

 

 

 

907

 

 

 

1,921

 

 

 

2,756

 

Total expenses

 

 

21,747

 

 

 

20,519

 

 

 

44,830

 

 

 

40,816

 

Other operating income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain on dispositions of real estate, net

 

 

3,474

 

 

 

2,412

 

 

 

4,150

 

 

 

3,645

 

Income from operations

 

 

14,482

 

 

 

3,558

 

 

 

23,181

 

 

 

4,660

 

Other (loss)/income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss on repurchase of secured borrowings

 

 

(4,353

)

 

 

 

 

 

(4,353

)

 

 

 

Interest

 

 

518

 

 

 

28

 

 

 

609

 

 

 

64

 

Income before income tax expense

 

 

10,647

 

 

 

3,586

 

 

 

19,437

 

 

 

4,724

 

Income tax expense

 

 

76

 

 

 

87

 

 

 

143

 

 

 

117

 

Net income

 

 

10,571

 

 

 

3,499

 

 

 

19,294

 

 

 

4,607

 

Net income attributable to non-controlling interests

 

 

(2,620

)

 

 

(99

)

 

 

(5,214

)

 

 

(99

)

Net income attributable to stockholders and members

 

$

7,951

 

 

$

3,400

 

 

$

14,080

 

 

$

4,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended June 30, 2019

 

 

Period from June 25, 2018 to June 30, 2018

 

 

Six months ended June 30, 2019

 

 

Period from June 25, 2018 to June 30, 2018

 

Basic weighted average shares outstanding

 

 

57,103,676

 

 

 

40,976,901

 

 

 

51,204,733

 

 

 

40,976,901

 

Basic net income per share

 

$

0.14

 

 

$

0.01

 

 

$

0.27

 

 

$

0.01

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted weighted average shares outstanding

 

 

76,665,905

 

 

 

60,033,453

 

 

 

70,686,969

 

 

 

60,033,453

 

Diluted net income per share

 

$

0.14

 

 

$

0.01

 

 

$

0.27

 

 

$

0.01

 

 

 

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 June 30,

 

 

Six months ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

10,571

 

 

$

3,499

 

 

$

19,294

 

 

$

4,607

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedges

 

 

(3,774

)

 

 

 

 

 

(3,774

)

 

 

 

Cash flow hedge gains reclassified to interest expense

 

 

(99

)

 

 

 

 

 

(99

)

 

 

 

Total other comprehensive loss:

 

 

(3,873

)

 

 

 

 

 

(3,873

)

 

 

 

Comprehensive income

 

 

6,698

 

 

 

3,499

 

 

 

15,421

 

 

 

4,607

 

Net income attributable to non-controlling interests

 

 

(2,620

)

 

 

(99

)

 

 

(5,214

)

 

 

(99

)

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

 

 

960

 

 

 

 

 

 

960

 

 

 

 

Comprehensive income attributable to stockholders and members

 

$

5,038

 

 

$

3,400

 

 

$

11,167

 

 

$

4,508

 

 

 

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 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

 

Unrealized losses on cash flow hedges

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,839

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,839

)

 

 

(935

)

 

 

(3,774

)

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

)

 

$

(2,913

)

 

$

 

 

$

 

 

$

 

 

$

 

 

$

785,594

 

 

$

244,922

 

 

$

1,030,516

 

 

 

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

5


 

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

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders’/ Members’ 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

 

 

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, 2017

 

 

 

 

$

 

 

$

 

 

$

 

 

$

 

 

$

86,668

 

 

$

574

 

 

$

94,064

 

 

$

96

 

 

$

181,402

 

 

$

 

 

$

181,402

 

Contributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

 

 

50,000

 

 

 

 

 

 

50,000

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

193

 

 

 

 

 

 

49

 

 

 

242

 

 

 

 

 

 

242

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

528

 

 

 

 

 

 

581

 

 

 

 

 

 

1,109

 

 

 

 

 

 

1,109

 

Balance at March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

137,196

 

 

 

767

 

 

 

94,645

 

 

 

145

 

 

 

232,753

 

 

 

 

 

 

232,753

 

Unit-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

180

 

 

 

 

 

 

21

 

 

 

201

 

 

 

 

 

 

201

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,886

 

 

 

 

 

 

1,290

 

 

 

 

 

 

3,176

 

 

 

 

 

 

3,176

 

Balance at June 24, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

139,082

 

 

 

947

 

 

 

95,935

 

 

 

166

 

 

 

236,130

 

 

 

 

 

 

236,130

 

Contribution of Predecessor equity in exchange for OP Units

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(139,082

)

 

 

(947

)

 

 

(95,935

)

 

 

(166

)

 

 

(236,130

)

 

 

236,130

 

 

 

 

Initial public offering

 

 

32,500,000

 

 

 

325

 

 

 

454,675

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

455,000

 

 

 

 

 

 

455,000

 

Concurrent private placement of common stock

 

 

7,785,611

 

 

 

78

 

 

 

108,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

108,999

 

 

 

 

 

 

108,999

 

Concurrent private placement of OP Units