Essential Properties Realty Trust (NYSE:EPRT) reported fourth-quarter 2025 results that management said capped a “solid” year of performance, highlighting investment spreads, steady portfolio-level operating metrics and an improved credit watch list. In its earnings release, the company reported GAAP net income of $68.3 million and adjusted funds from operations (AFFO) of $99.7 million for the quarter.
Quarter results and updated outlook
Chief Financial Officer Rob Salisbury said AFFO per share was $0.49, up 9% from the fourth quarter of 2024, and came in consistent with the high end of the company’s prior expectations. Management raised its 2026 AFFO per share guidance range to $1.99 to $2.04, citing stronger-than-expected portfolio credit trends and continued visibility into an investment pipeline with cap rates “consistent with past quarters.”
Investment activity and cap rate commentary
Management said Essential Properties invested $296 million during the fourth quarter, with 85% sourced through existing relationships. The company reported an average initial cash yield of 7.7% and a GAAP yield of 9.1%, which executives repeatedly framed as a meaningful spread versus its cost of capital.
Chief Operating Officer Max Jenkins said the company closed 34 transactions comprising 58 properties in the quarter, all of which were sale-leasebacks. He added that investments carried a weighted average initial lease term of 19.4 years and weighted average annual rent escalations of 2%, with unit-level rent coverage averaging 4.7 times.
Looking forward, Jenkins said the investment pipeline remained strong, supported by “record subsequent quarter investment activity of over $200 million.” While management reiterated previously communicated investment guidance of $1 billion to $1.4 billion, executives cautioned that it was still early in the year and noted that some fourth-quarter deals slipped into early 2026.
CEO Pete Mavoides told analysts the cap rate environment appeared stable, and said that stabilization in competition has contributed to a slower decline in cap rates than the company previously anticipated. Management still expects “modest cap rate compression” in the back half of 2026, which Mavoides linked largely to broader capital markets and movements in the 10-year Treasury. He said a move in the 10-year into the “mid- to high 3s” could drive a material increase in competition.
Portfolio performance and credit trends
Executives emphasized steady portfolio performance, including same-store rent growth of 1.6% in the fourth quarter, portfolio occupancy of 99.7% (with six vacant properties), and rent coverage of 3.6 times. Chief Investment Officer AJ Peil said the company’s credit watch list declined sequentially to under 1% and that tenants on the watch list remained current on obligations.
Peil pointed to one notable tenant issue during the quarter: American Signature in the home furnishing industry. He said the bankruptcy occurred late in the quarter and that the company was early in marketing the asset, but expected the recovery to be “within the normal range of outcomes” and that the asset would not remain vacant for long.
During Q&A, management also addressed changes in rent coverage buckets, noting that movement into lower-coverage cohorts was largely tied to the timing of development assets coming online and being added into master leases, rather than a broad deterioration in credit. Peil added that if underlying credit were eroding, management would expect to see the watch list rise, but it declined during the quarter.
Dispositions and tenant diversification
Essential Properties sold 19 properties in the fourth quarter for $48.1 million in net proceeds at a 6.9% weighted average cash yield. Peil said disposition activity increased as the company capitalized on elevated buyer demand for car wash properties tied to the reinstatement of bonus depreciation tax benefits, which also contributed to further reducing car wash exposure to 13.7%.
Management said disposition activity is expected to normalize over time and align with the trailing eight-quarter average, driven by opportunistic sales and ongoing portfolio management. Mavoides said the company has operated with a “soft ceiling” of 15% exposure to any one industry and cautioned investors not to assume car wash exposure would be driven materially lower.
Tenant concentration continued to decline, with the top 10 tenants representing 16.5% of annual base rent (ABR) and the top 20 representing 27.1% at quarter end, which management described as industry-leading and a benefit of focusing on middle-market operators.
Balance sheet, capital markets activity, and dividend
Salisbury said income-producing gross assets exceeded $7 billion at quarter end. The company ended the period with pro forma net debt to annualized adjusted EBITDAre of 3.8 times and liquidity of $1.4 billion, which management said provides flexibility to fund growth.
On capital markets activity, management said it sold about $170 million of equity through its ATM program during the quarter, all on a forward basis, and settled $359 million of forward equity, using part of the proceeds to repay amounts on its revolving credit facility. Unsettled forward equity totaled $332 million at quarter end. Salisbury said there were no near-term expiration constraints and noted the company may emphasize unsecured bonds given what he described as attractive debt pricing relative to investment cap rates.
The company declared a fourth-quarter cash dividend of $0.31 per share, representing an AFFO payout ratio of 63%. Salisbury said retained free cash flow after dividends reached nearly $40 million in the quarter, and he indicated the board will determine future dividend decisions while balancing shareholder returns and retained capital to fund growth.
About Essential Properties Realty Trust (NYSE:EPRT)
Essential Properties Realty Trust, Inc (NYSE: EPRT) is a self-administered real estate investment trust that acquires, owns and manages single-tenant commercial properties subject to long-term, triple-net leases. The company’s portfolio primarily consists of small-box retail and industrial assets, including convenience stores, automotive service centers, quick-service restaurants, fitness centers and other necessity-based businesses. Under a triple-net lease structure, tenants assume responsibility for property taxes, insurance and most maintenance expenses, providing Essential Properties with predictable, stable cash flows.
Since its founding in April 2016 and its initial public offering later that year, Essential Properties has pursued a growth strategy focused on partnering with creditworthy tenants operating in densely populated trade areas.
