Essential Properties Realty Trust, Inc.

Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust's second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. This conference call is being recorded, and a replay of the call will be available two hours after the completion of the call for the next two 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 Realty Trust's website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Pete Mavoides, EPRT's President and Chief Executive Officer, and Mark Patton, EPRT's Executive Vice President and Chief Financial Officer. It is now my pleasure to turn the call over to Mark Patton.

Thank you, Operator. Good morning, everyone, and thank you for joining us today for the second quarter 2023 Earnings Conference Call of Essential Properties Realty Trust. During this call, we will make certain statements that may be considered forward-looking statements under federal securities law. Companies' 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. With that, I'll turn the call over to Pete.

Thanks, Mark. And thank you to everyone who is joining us today for your interest in EPRT. As our second quarter earnings release indicates, we are pleased to report another quarter of strong results driven by the strength and stability of our portfolio that continues to perform exceptionally well and impacted favorably by our strong investment activity. Our tenants continue to perform at a high level as reflected by our unit level rent coverage that increased to 4.1 times. Our same store rent growth which remained favorable at 1.5%, and just two vacant properties. The overall health of our portfolio is a testament to our disciplined underwriting process, the quality of our operators, and the resiliency of our service-oriented and experience-based businesses. In the second quarter, we acquired 78 properties and 29 separate transactions that were 99% sale-leaseback transactions with 66% of those opportunities generated from existing relationships. The initial cap rate on our second quarter investments was 7.4%, and the average annual escalation in those leases was 1.9% on 19.3 years of weighted average lease term, which results in an average yield over the primary lease term of 8.7%. Our balance sheet remained conservatively positioned and our liquidity remained strong with quarter end leverage of 4.3 times and pro forma leverage of 4.2 times when taking into account our unsettled forward equity and liquidity of approximately $634 million. As we've said, we are committed to maintaining a conservative balance sheet. Based on our second quarter results, the visibility of our third quarter investment pipeline, and our anticipated capital markets activity, we have increased our guidance for 2023 AFFO per share to a range of $1.62 to $1.65. Turning to the portfolio, we ended the quarter with 1,742 properties in our portfolio that were 99.9% leased to 360 tenants operating in 16 industries. Our weighted average lease term stood at 14 years, with only 5.2% of our ABR expiring through 2027. From a tenant health perspective, our unit level rent coverage ratio at quarter end was 4.1 times, and the percentage of our ABR that had less than one times rent coverage level remained relatively consistent quarter of 2023, totaling just 3.1% at quarter end. Regarding our second quarter investments, we invested $277 million in 29 separate transactions and properties representing 12 of our 16 targeted industries, with approximately 77% of those investments in properties operated in the car wash, equipment rental, casual dining restaurants, grocery, entertainment, and medical industries. The weighted average lease term of our investments this quarter was 19.3 years, and as I mentioned earlier, the weighted average annual rent escalation remains strong at 1.9%. The weighted average unit level rent coverage of tenants at these properties was 3.9 times, and our average investment per property was 3.4 million. In the quarter, 99% of our investments were originated through direct sale leaseback transactions completed on our lease form with ongoing financial reporting requirements. In addition, 57% of our investments were in a master lease structure. Looking ahead to the third quarter, we remain active and our pipeline should support investment levels relatively consistent with our recent activity. From an industry perspective at quarter end, car washes was our largest industry at 15.6% of ABR, followed by early childhood education at 12%, quick service restaurants at 10.8%, and medical dental office at 10.6%. From a diversity perspective, our largest tenant, equipment share, represented 3.6% of ABR at quarter end. And our top 10 tenants continue to demonstrate the diversity in our portfolio, accounting for 17.5% of ABR. As we've consistently stated, tenant diversity is an important risk mitigation tool for us and a product of our differentiated investment strategy. A direct benefit of our focus on non-credit rated tenants and middle market operators, which offers an expansive opportunity sets and, in our view, generate superior risk-adjusted returns. In terms of dispositions, we sold 16 properties this quarter for $41.7 million in net proceeds at a weighted average cash yield of 6.2%. The weighted average unit-level rent coverage ratio for the properties we sold was 2.2 times. Owning fungible and liquid properties and capitalizing on that liquidity is an important aspect of our investment discipline, and it allows us to proactively manage our industry's tenant and unit level risks within our portfolio. For the remainder of 2023, we expect our level of quarterly investments to align with our eight-quarter average. as we selectively take advantage of favorable market pricing to accretively recycle capital away from identifiable risks, reduce our industry concentrations, and importantly, support our tenant relationships. With that, I'd like to turn the call over to Mark, who will take you through our operating results and the balance sheet for the second quarter and discuss our capital markets activity.