Good morning, ladies and gentlemen, and welcome to the Essential Properties Realty Trust Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded, and a replay of the call will be available three 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 the Essential Properties' website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Pete Mavoides, President and Chief Executive Officer; Mark Patten, Chief Financial Officer; Rob Salisbury, Head of Capital Markets; Max Jenkins, Head of Investments; and AJ Peil, Head of Asset Management. It is now my pleasure to turn the call over to Rob Salisbury. Please proceed, sir.

Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties' third quarter 2024 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. With that, I'll turn the call over to Pete.

Thank you, Rob, and thank you to everyone joining us today for your interest in Essential Properties. On our last earnings call, we discussed how our portfolio continued to exhibit strong operating trends against the dynamic market backdrop. This resilient portfolio performance continued during the third quarter with high occupancy, healthy same-store growth and improving credit trends. As a long-term capital provider focused on owning real estate at a conservative basis, leased under our lease form to growing operators in service and experience-based industries, we expect our portfolio to perform at a high level. Maintaining relationships with and providing value to operators continues to drive investment activity as well. In the third quarter, 79% of our investments were generated from existing relationships, underscoring the value of recurring business with our tenant base. With quarter-end pro forma leverage of 3.5x and liquidity of $1.2 billion, our balance sheet positions us well to continue to grow our portfolio by investing in our core industries at attractive spreads, generating sustainably attractive earnings growth for our shareholders. We are establishing our 2025 AFFO per share guidance range of $1.84 to $1.89, which implies a growth rate of over 7% at the midpoint. Our guidance for 2025 reflects continued portfolio performance and a steady pace of investments with cap rates expected to compress modestly over the coming quarters as competition reemerges through the continued normalization of capital market conditions. Specifically, we expect to invest between $900 million and $1.1 billion in 2025 at approximately 25 basis points below the pricing achieved in 2024. Additionally, we expect cash G&A expense to be between $28 million and $31 million, resulting in continued efficiency gains as a percentage of revenue as the company is able to invest in its infrastructure while still scaling the platform to generate stronger margins for shareholders. We ended the quarter with investments in 2,053 properties that were 99.9% leased to 407 tenants operating in 16 industries. Our weighted average lease terms stood at 14.1 years at quarter end, which is up year-over-year with only 3.9% of annual base rent expiring through 2028. From a tenant health perspective, our weighted average unit level rent coverage ratio was 3.6x this quarter, indicative of the strong profitability of our tenants at the unit level. Same-store rent growth in the third quarter was 1.4%. Over the past month, two hurricanes hit the Southeastern United States. Our thoughts and prayers go out to the people, business owners, and operators impacted by these storms as they rebuild in the aftermath. Looking at our portfolio, we own 103 properties located in areas identified as severely impacted by FEMA, of which five properties reported damage, causing substantial disruption and warranting an insurance claim. As a reminder, as a condition to providing our capital in a sale-leaseback transaction, our tenants are required to enter into our lease agreement, which requires them to maintain property, rent, and business interruption insurance. This provides an important layer of safety for our portfolio in the event of property damage events such as hurricanes. On the investment side, during the quarter, we invested $308 million through 37 separate transactions at a weighted average cash yield of 8.1%, up slightly from last quarter and up 50 basis points from a year ago. Our investment activity in the quarter was broad-based across most of our top industries with no notable departures from our investment strategy. This quarter, our investments had a weighted average lease term of 17.2 years, and a weighted average annual rental escalation of 2.1%, generating an average GAAP yield of 9.1%. Our investments this quarter had a weighted average unit level rent coverage of 4.7x, and the average investment per property was $4.1 million. The vast majority of the investments in this quarter were originated through direct sale-leasebacks. Moving ahead to the fourth quarter, our investment pipeline remains solid, reflecting M&A and new unit expansion activity across a variety of our targeted industries. As we have discussed in the past, we expect the normalization of the capital markets to result in increased competition causing modest cap rate compression in the near term. We have not yet seen this in our current pipeline, which implies cap rates remaining similar to the past four quarters. From a tenant concentration perspective, our largest tenant represents 4.3% of ABR at quarter end, and our top 10 tenants now account for just 17.7% of ABR. Tenant diversity is an important risk mitigation tool and a differentiator for us and is a direct benefit of our focus on middle-market operators, which offers an expansive opportunity set. Dispositions were in line with our trailing eight-quarter average in Q3. We sold nine properties this quarter for $17 million in net proceeds. This represents an average of approximately $1.9 million per property, highlighting the importance of owning fungible liquid properties, which allows us to proactively manage portfolio risks. The dispositions this quarter were executed at a 6.8% weighted average cash yield. Over the near term, we expect our disposition activity to remain in line with our trailing eight-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity.

Thanks, Pete, and good morning, everyone. As Pete detailed, we had a good third quarter highlighted by a strong level of investments at an 8.1% cash cap rate. Among the headlines from the quarter was our AFFO per share of $0.43. That's an increase of 2% versus Q3 2023. On a nominal basis, our AFFO totaled $77.9 million for the quarter, which is up $11.6 million over the same period in 2023, an increase of 17%. This AFFO performance was in line with our expectations as reflected in our guidance range provided last quarter. Stronger-than-anticipated investment volume was partially offset by incremental dilution from the treasury stock method on our unsettled forward equity. Total G&A in Q3 2024 was a $0.6 million versus $7.6 million for the same period in 2023 with the majority of the increase relating to increased compensation expense as we continue to invest in our team. Our recurring cash G&A as a percentage of total revenue was 5.1% for the quarter, which compares favorably to the 5.5% in the same period a year ago. Our total G&A and recurring cash G&A were also in line with our expectations for the quarter and year-to-date. We continue to expect that on an annual basis, our cash G&A as a percentage of total revenue will decline as our platform generates operating leverage over a scaling asset base, enabling us to manage a larger portfolio and invest at higher levels. We declared a cash dividend of $0.29 in the third quarter, which represents an AFFO payout ratio of 67%. Our retained free cash flow after dividends continues to build, reaching $26.8 million in the third quarter, equating to over $100 million per annum on a run rate basis. We continue to view our retained free cash flow as an attractive source of capital to support our investment program. Turning to our balance sheet. With the net investment activity in Q3 2024, our income-producing gross assets reached $5.8 billion at quarter-end. The increasing scale of our income-producing portfolio continues to build and we expect to approach and perhaps eclipse $6 billion by year-end. The significant diversity and increasing scale of our asset base continues to improve our credit profile. Turning to capital markets. We remained active on our ATM program in the quarter, completing the sale of approximately $312 million of stock all on a forward basis at an average price of $31.04 per share. With no settlements during the quarter, our balance of unsettled forward equity totaled $626 million at quarter-end. We expect to begin drawing upon this unsettled forward equity in the fourth quarter as a source of funds for our investment activity and paying down any outstanding balance on our revolver. Similar to last quarter, our current share price remains well above the weighted average price of our unsettled forwards of $27.29 at quarter-end. As a result, under the treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the third quarter, our diluted share count of 179.6 million included an adjustment for 2.7 million shares from our unsettled forward equity related to this treasury stock calculation. This represents a headwind of approximately $0.01 to AFFO per share this quarter, and we estimate the headwind to AFFO per share for the full year in 2024 will reach $0.02. As we begin to settle this equity in the near term, we expect the headwind to shrink to a de minimis amount in 2025. During the quarter, we closed on the previously announced $450 million term loan, which was fully drawn and swapped at an all-in rate of approximately 4.9%. Our pro forma net debt to annualized adjusted EBITDAre as adjusted for unsettled forward equity was 3.5x at quarter-end. We remain committed to maintaining a well-capitalized balance sheet with low leverage and significant liquidity to continue to fuel our external growth. As we noted last quarter, our leverage has trended below average levels over the past year as heightened debt costs and capital markets volatility warranted a more conservative posture. With the first Fed cut materializing in September and capital markets normalizing, our funding costs have improved. Thus, we expect to carefully and prudently increase our leverage from here to levels more consistent with our average over the past several years. Lastly, as we noted in the earnings press release, we have reiterated our 2024 AFFO per share guidance range of $1.72 to $1.75 and established as Pete mentioned, our 2025 AFFO per share guidance range of $1.84 to $1.89, representing over 7% growth at the midpoint. Importantly, both of these guidance ranges require minimal equity issuance in 2025, which we believe is a testament to our front-footed approach to capital raising.

Thanks, Mark. We are pleased with our third quarter results and remain optimistic about the prospects for the business. Operator, please open the call for questions.

Thank you. We will now conduct a question-and-answer session. Our first question comes from Haendel St. Juste with Mizuho Securities. Please proceed.

Hey. Good morning, guys. Thanks for taking my questions and also for the early read into 2025. My first question is on the guidance, which includes acquisitions – an acquisition guidance for the first time ever, I think. So I guess I'm curious, why now in providing that acquisition guidance and what gives you the confidence to put out a forward year acquisition guidance at this point? And then do you think the upper single-digit 7%, 8% implied AFFO growth in that guide is a sustainable multi-year growth rate? Thanks.

Great. Thanks, Haendel. Listen, I think providing the acquisition guidance really just is a natural evolution in the maturation of the company. We've grown our tenant base expansively from 100 tenants to 400 tenants. Our acquisition team has now been in their seats and seasoned over five years. And there's just more predictability in our forward pipeline than we've seen in the past. We also have a much more stable cost of capital that allows us to look at deploying capital more consistently and reliably. And so I think it's just – it's a natural evolution. I think as you've been following us for many years, you've seen we've been pretty predictable. We've been pretty transparent. And I thought supporting the guide with some acquisition guidance was appropriate. As we think about the out years. It's early, right? We're just guiding for 2025 and I would say we have a very robust business plan. We have a very differentiated investment strategy that allows us to deploy capital accretively and are well positioned to continue to do that. But I would stop short of trying to give growth rates beyond next year.

Well, I had to try. Appreciate the color there. One more maybe I was hoping you could talk about your bad debt or tenant credit assumptions embedded in the outlook for next year. I'm curious if there's any potential opportunity for upside or conservatism baked in, and maybe you can add some color around the watchlist and categories you're monitoring today? Thanks.

Sure. Well, the watchlist is easy. As we define that, the intersection of tenant credit risk of B and below, and the unit level coverage of 1.5 continues to be under 100 basis points and continues to be in a good spot historically. Generally, as I hope you've seen, there tends to be conservatism in all of our guidance and in all of the assumptions that support guidance. And in past years, as we've indicated, as we tightened guidance or increased guidance throughout the range, one of the main drivers is the lack of the materialization of credit events that we've budgeted for or provisioned for. We provided some good credit loss statistics in our NAREIT deck of 30 basis points per annum is our historical experience. You can assume guidance has some conservative assumptions starting from there. And so we'll see how the year plays and how we work through these scenarios that may come at us or if they come at us. But we feel like we're in a good spot and certainly have the appropriate level of conservatism built into our guidance.

Great. Thank you.

Thanks, Haendel.

The next question comes from Caitlin Burrows with Goldman Sachs. Please proceed.

Hi. Good morning, everyone. Maybe on the funding side, you guys were active with your ATM in the quarter, despite already having unsettled forward shares that you went through. So could you just go through the thought process of when to use the existing forward shares versus continue to issue more?

I think when to use the existing forward shares, I think we may have mentioned in the remarks that our expectations in the fourth quarter will begin to settle a fair amount of that activity going into the end of the year. That's both to address our investment pipeline as well as to pay down anything we have outstanding on the revolver. I think from there, I probably referenced it as well in the remarks that gives – we've got a fair amount of dry powder, that dry powder is probably a good three and a half quarters' worth of liquidity to execute and still stay – low end of our leverage range. And I think good news embedded in that as well is that we – assumptions around equity needs in 2025 and they're pretty low amount of equity needed, in fact, very little.

Got it. You're kind of breaking up for me. I don't know about for everybody else. Can you still hear me?

Yes. I can hear you.

Okay. And then maybe just moving over to the disposition side maybe also like the watchlist. As you guys are looking to sell properties, I guess what's driving you to dispose of the properties you choose to pursue? Kind of who are the buyers? How deep is that pipeline of buyers, and is it generally other third parties?

Yes. It's always other third parties. On occasion it may be tenants coming back to us, but mostly it's third parties. Really, there's three reasons we're going to sell an asset. One is to manage industry concentrations. As you can see our car wash exposure has been high. And so we've been proactively trying to lighten up on that industry exposure really to create some more capacity, continue to invest in that industry, lightening up on individual tenants. In the quarter, we sold an equipment share. And again, we really like that tenant, but to the extent that we're able to sell some assets off in the low-6s, mid-6s, we can redeploy that capital accretively that continue to support that tenant relationship. And then lastly, just selling assets that don't work for whatever reason. We see risk of tenant continuing to be able to pay the rent or a lack of probability that they wouldn't renew as we see through the unit level coverage. And so selling those assets is important to our business plan. Granularity and fungibility in our real estate is an important fundamental of our portfolio. So we have good liquidity in our assets and there's a deep pool for us to dispose into to local and regional sometimes motivated buyers. And we've demonstrated that since coming public and we'll continue to do that.

Got it. Thanks. Maybe just as an update, I could hear that response much better. So I don’t know if you guys are together or sitting in different places or what. But that was very clear. Thank you.

Great. Well, I tend to be clearer than Mark, anyway.

The next question comes from Eric Borden with BMO Capital. Please proceed.

Hey. Good morning, guys. Thanks for taking the question. Maybe just on the remainder of the 2024 acquisitions. You mentioned some possible M&A opportunities. Maybe some singles and doubles. You've closed a little over $50 million today, which is above where you were the same time last year. And so investments seem to be tracking well. Maybe you could talk about how much you have under LOI or PSA?

Yes. There's a lot of time left in the quarter. And the fourth quarter tends to have some volatility. It could be a lot of deal volume or few and or a little. And so I think our general guide to the eight-quarter average is probably a good indicator and kind of 250-ish. But it's really too soon to put a pin in that. When we go out to NAREIT, we'll update our investor deck and give a good snapshot then. But it shouldn't be materially different from that. And to be clear on the M&A, it's really supporting our tenant relationships in M&A and not us seeking to endeavor in any M&A transactions.

All right. Thank you. And then looking to the 2025 acquisition guidance that you provided, if we square that with your trailing 12 or trailing eight-quarter average, it seems to be implying that acquisitions are a little lighter than expected. So is there something that you're seeing in the market that is preventing you from acquiring more? Or is it potential conservatism given that we're one month after closing the three-quarter books?

Yes. I think, consistent over the last three or four quarters, we've indicated it's been a unique buying environment with the dislocation in the capital markets and a lack of competition where we really have been pressing our advantage to put capital to work at rates and levels that really are historic highs in my 20-year plus career of investing. And so we've been aggressive this year. And so I think that's part of it. Another part of it is, as we've always said, we want to communicate a business strategy that's de-risked from an execution perspective. And so supporting guidance with flat investments I think is conservative and appropriate. We're not going to come to the market with guidance that's predicated on us growing our activity 25%, 50%. We just don't think that's prudent. So there's a number of factors going on there. I would also say, as we've said with the normalization of the capital markets, we expect competition to return to the market which could lead to the mispricing of risk by aggressive competitors. And to the extent that deals get priced away from us, we want to be in a position where we can be patient and prudent and conservative. So we put a lot of thought into building this 2025 business case to support guidance and we believe it's imminently achievable and conservative.

All right. Thank you for the time. I'll leave it there.

Thank you.

The next question comes from Smedes Rose with Citi. Please proceed.

Hi. Thank you. I appreciate the guidance around the acquisitions outlook. And you mentioned that you expect cap rate compression, I guess over the course of the year, but you're not seeing it yet. And I was just wondering, could you just talk a little bit about sort of cap rate sensitivity on the short end versus maybe what we're seeing with an upward movement in the tenure at this point? And maybe how you think that will play out for cap rates maybe over sort of the first half of 2025?

Yes, sure. We compete against alternative forms of capital on the short end of the curve, bank debt and the like for our tenant relationships. More of our competitors on the investment side and the sale-leaseback and net lease side are competing against. We're competing against them based on the long end of the curve, kind of the 10-year and long-term financing as they match funds these long-dated assets. The 10-year has been volatile. I guess, three weeks ago, it was in the mid-3s; now it's in the low-4s and that's pretty volatile. I think a high tenure supports us and limits competition. But to the extent that you see tenure in the mid-3s, I think the leveraged private buyers are going to be more aggressive and create competition and downward pressure on cap rates. So it's going to be a while before the banks come back and the low end is really in play as an alternative form of competitive capital. I think we're more sensitive to the tenure and what that does for our private competitors.

Okay. And then I just wanted to ask you on your ABR coverage levels. The coverage under 1x declines sequentially to 3% from I think over 4% last quarter. Can you just talk about what's going on there, if anything? And is 3% sort of where you think it would consolidate in terms of ABR under 1x?

Yes. I would stop short of saying that that's our expectation to stabilize there. There's always going to be idiosyncratic ebbs and flows in that bucket. It's going to be less than a dozen tenants and when you have master leases it could be multiple properties. Specifically in the quarter, we had an early childhood education operator that was of size, i.e., 1% ABR that was executing a turnaround play on some sites. And we were glad to see them finally get traction and get those sites open and operating and profitable. It was a strong credit; we supported multiple times over the years. So it wasn't really a credit concern for us. And it just took some time to get those sites to the spot where they're out of that sub one bucket, and we're glad to see that. But it's going to be idiosyncratic. It never really gives us too much pause because generally, it's backed by strong credits and solid real estate. And we're likely to see some noise in that bucket.

Great. Thank you, guys.

Thank you, Smedes.

The next question comes from John Kilichowski with Wells Fargo. Please proceed.

Hi. Thank you. So I'll start on the investment activity side. Just looking at the terms here, so cap rates ticked up a bit, really strong on the lease escalations at 2.1 and then great rent coverage. What allowed you to kind of get those terms here, especially the rent coverage step up versus your trailing eight quarters?

Yes. I wouldn't read too much into the rent coverage step up. That number is really an output of the mix of industries that we do in any given quarter. And so some of our industries have higher coverage just by the nature of the industries like medical, dental, equipment rental, and things like that. And some have lower like gyms and things like in that – in entertainment bucket. So I wouldn't read too much into that number. That's really just an industry mix. I would say big picture, as has been the commentary, there's just not a lot of capital providers out there in the middle-market sale-leaseback space currently, and we're able to drive attractive terms with our counterparties, and that's what you see going on.

Got it. And then maybe just jump into your top 10 tenants. There seems to be a fair bit of shake-up there quarter-over-quarter. Maybe if you could just talk about strategically the new entrants and the exits and how you think about shaping your book moving forward?

Yes. We always want to maintain diversity, and I think the bigger picture from my perspective is having 17.7% in our top 10 represents good diversity and more importantly having kind of 1% to 2% exposures through a bunch of tenants is good diversity, but also creates a good opportunity set to continue to invest. The names that came into our top 10, or operators that we've been investing with in a series of transactions over multiple years or years. As we continue to invest, they grow and as they grow, other guys where we've not invested just fall out. So every quarter, we're going to have ebbs and flows in that; it's a natural cycle. The current fitness operator is a great operator. We've been doing deals with him for a long time and has done a great job. And we continue to see opportunities to grow with him and do that. And so it's been nice to see them up there and certainly a name that we like and are comfortable with. But just given our diversity, it's natural to see movements in that top 10.

Got it. Thank you.

Thank you.

There are no further questions at this time. I would like to turn the floor back over to Pete Mavoides for closing comments. Please proceed.

Great. Thank you all very much for your time today. We look forward to meeting with you all out in Vegas for NAREIT next month, and thanks very much. Have a great day.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.