Essential Properties Realty Trust, Inc.

Greetings and welcome to the Essential Properties Realty Trust, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Donlan, Senior Vice President of Capital Markets. Thank you. You may begin.

Thank you, operator, and good morning, everyone. We appreciate you joining us today for Central Properties' fourth quarter 2020 conference call. Here with me today to discuss our fourth quarter and full year results are Pete Mavoides, our president and CEO, Greg Seibert, our COO, and Mark Patton, our CFO. 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, 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 funds with the SEC and in yesterday's earnings release. With that, Pete, please go ahead.

Thank you, Dan, and thank you to everyone who is joining us today for your interest in essential properties. We are excited to report our fourth quarter and full year results, and more importantly, turn the calendar to a new year. While the COVID-19 pandemic is still very much with us, our tenants have adapted their businesses to profitably operate in the current environment, and most importantly, pay rent reliably and timely. I want to take a moment to acknowledge all of our employees at Essential Properties and their incredible efforts over this unprecedented year. Our team members rose to the challenges presented by the pandemic by effectively managing tenant relationships, negotiating, structuring, and documenting the appropriate tenant accommodations, working through necessary lease restructurings and asset repositionings, and then seamlessly and aggressively shifting back to growth when the conditions warranted in the back half of 2020. These actions have stabilized the portfolio with high occupancy and sustained rent collections, and we are firmly on track to deliver attractive earnings growth in 2021 and beyond. Turning to the fourth quarter, we saw a continued improvement in our rent collections and an increase to our occupancy as we re-let properties and restructured leases for a handful of larger tenants. In addition to these positive operating trends, our cost of capital has continued to improve and the capital markets remain conducive towards investing in external growth opportunities and maintaining a conservative balance sheet to support that growth. As such, with pent-up demand from our existing relationships and renewed M&A activity from various growth-oriented tenants, we invested $244 million at a 7.1 initial cash yield in the fourth quarter, which was a record level of activity for us. Consistent with our investment strategy, 88% of our investments were direct sale leasebacks, and 90% were transactions that involved an existing relationship, which speaks to the quality of our market relationships and the predictability of our investment platform from both a sourcing and underwriting perspective. All of these combined factors gave us the visibility in late January to provide 2021 AFFO guidance of $1.22 to $1.26 per share. Turning to the fourth quarter collections, we collected approximately 91% of our contractual cash AVR, with another 3% attributable to recognized rent deferrals. In January, we collected 95% of our contractual cash AVR, with another 2% attributable to recognized rent deferrals. The majority of these rent deferrals were granted due to the reintroduction of state and or local mandated shutdowns that disproportionately impacted certain tenants due to the geographic concentration of their operations. Over half of the recognized deferrals in January was provided to one tenant in the entertainment industry whose entire business has been mandated to close since mid-December. With that in mind, Now that our rent collections are mostly on par with our net lease peers, many of whom derive the majority of their rents from investment-grade tenants, we remain convinced that our disciplined investment strategy continues to provide for some of the best risk-adjusted returns in the net lease sector. Turning to portfolio, we ended the quarter with investments in 1,181 properties that were 99.7% leased, to 237 tenants operating in 17 industries. This is up from 16 industries last quarter as we broke out our 3.3% concentration in the equipment, rental, and sales industry. On a different note, I would like to highlight our progress towards reducing exposures to the more challenged industries of casual and family dining, health and fitness, home furnishings, and movie theaters. Combined, these five industries now represent less than 17% of our ABR, which is nearly a 50% decline since the second quarter of 2018, our first reported quarter as a public company. This deliberate reduction in exposure was driven not only by our ability to dispose of assets in a timely manner, but also the smaller size of our asset base, which has allowed us to efficiently manage our diversity, in order to adapt our portfolio to changing market and industry dynamics. That said, we continue to view both casual and family dining and health and fitness as core industries for Essential, but we will remain highly selective when exploring new opportunities. Due to the fungible nature of our real estate and our active releasing efforts, we had just three vacant properties at quarter end. As we have stated before, The value of our company does not reside in our leases. It resides in our properties and our ability to keep them consistently leased. Therefore, we see high and stable occupancy as a key indicator of that value. Our weighted average lease terms stood at 14.5 years at quarter end, with 0.1% of our ABR expiring in 2021 and 4.8% expiring over the next five years. our weighted average unit level coverage ratio was 2.9 times, which was a slight improvement over last quarter's 2.8 times coverage. This was a pleasant surprise for us as we had expected our coverage to migrate lower. However, due to the positive impact of fourth quarter investments, which had an average coverage ratio of 3.6 times, and various tenants over two times coverage seeing their profitability accelerate year over year, our coverage managed to tick up. As we have mentioned previously, our traditional credit statistics, which focus on implied credit ratings and unit-level coverage, are somewhat skewed as these metrics have been negatively impacted by the pandemic-related shutdowns, yet they do not pick up the benefits of forgivable loan programs and rent deferrals. Turning to the balance sheet, We finished the quarter with leverage of 4.8 times net debt to annualized adjusted EBITDA or RE, which has us well positioned to finance our growth plans. While we are confident in our ability to grow alongside our operators and capture attractive investment opportunities, we recognize the pandemic could have a lingering impact on certain tenants and industries. As such, we remain diligent in our underwriting, and highly focused on tenants and locations that have shown resiliency and an ability to adapt throughout the pandemic. With that, I'd like to turn it over to Greg Seibert, our COO, who will take you through the portfolio and investment activity in greater detail.