Essential Properties Realty Trust (NYSE:EPRT) raised its 2026 outlook after reporting second-quarter results that management said were supported by stronger investment activity, stable portfolio fundamentals and a well-capitalized balance sheet.
The net-lease real estate investment trust reported GAAP net income of $74.5 million and adjusted funds from operations, or AFFO, of $110.1 million for the quarter, according to Sheryl Kaul, director of financial planning and data analytics. Chief Financial Officer Rob Salisbury said AFFO per share was $0.50, up 9% from the second quarter of 2025, while nominal AFFO increased 18% year over year.
Investment Activity Picks Up
Chief Operating Officer Max Jenkins said the company completed 36 transactions covering 103 properties in the second quarter. About 84% of investment volume was sourced through sale-leaseback transactions. The investments carried an average initial cash yield of 7.8%, a weighted average initial lease term of 16 years and weighted average annual rent escalations of 1.9%, producing an average GAAP yield of 9.1%.
Mavoides said cap rates were “slightly better” than in the prior quarter and preserved a meaningful spread to the company’s cost of capital. Jenkins said pricing in the forward pipeline continues to produce cap rates in the mid- to high-7% range.
The company increased its full-year 2026 investment volume guidance to a range of $1.2 billion to $1.5 billion. Mavoides said Essential Properties has more than $1 billion of closed plus identified opportunities year to date.
During the quarter, Essential Properties also completed its first operating partnership unit transaction. Jenkins said the transaction, in the early childhood education sector, was partially funded through OP units in a tax-efficient structure. In response to an analyst question, Mavoides said the transaction helped differentiate Essential Properties from competitors, but added that such opportunities are expected to be episodic because they require a “pretty unique seller.”
Portfolio Metrics Remain Stable
Chief Investment Officer AJ Peil said portfolio fundamentals remained healthy and continued to perform in line with management’s expectations. Occupancy was 99.6% at quarter-end, with nine vacant properties. Same-store rent growth improved sequentially to 1.5%, and portfolio rent coverage was stable at 3.5 times.
Peil said the share of annual base rent with rent coverage below 1.5 times declined by 50 basis points sequentially, reflecting continued improvement in credit quality. Mavoides later said the smaller under-1-times coverage bucket experienced normal “ebbs and flows” and that nothing in that group had created a credit concern for management.
Essential Properties ended the quarter with investments in 2,493 properties leased to more than 500 tenants. Mavoides said the portfolio had a weighted average lease term of more than 14 years, weighted average lease escalations of 1.9% and only 2.3% of annual base rent expiring through 2028.
Peil also emphasized the portfolio’s diversification. The top 10 tenants represented 15.2% of annual base rent, while the top 20 tenants represented 25.4%. The company’s top industry exposure declined by 40 basis points to 12.6% of annual base rent. Peil said the company’s top three industries — car wash, medical/dental and early childhood education — each represented approximately 12% of annual base rent.
Essential Properties disposed of $54.3 million of assets during the quarter at a weighted average cap rate of 7.3%. Peil said the dispositions were largely the result of proactive asset management decisions. Mavoides told analysts that dispositions are a regular part of the business and said activity should moderate to a normalized level of about $20 million to $30 million per quarter.
Balance Sheet Liquidity Strengthened
Salisbury said the company’s financial position remained robust. During the quarter, Essential Properties completed a $400 million 10-year unsecured bond offering with a 5.375% coupon. He said the transaction supports the company’s 2026 growth plan, extends its weighted average debt maturity and adds liquidity to its bond complex.
The company raised approximately $85 million of equity during the second quarter and after quarter-end through its at-the-market program and the OP unit transaction. Salisbury said Essential Properties did not settle any forward equity during the quarter because of the liquidity generated by the bond offering, leaving about $575 million of unsettled forward equity at quarter-end.
Pro forma net debt to annualized adjusted EBITDAre was 3.5 times at quarter-end, and total available liquidity increased to $1.7 billion. Salisbury said the liquidity gives the company capacity to execute on its investment pipeline “well into next year.” Income-producing gross assets totaled $7.8 billion at quarter-end.
Salisbury said the company declared a $0.32 cash dividend in the quarter, representing an AFFO payout ratio of 64%. Retained free cash flow after dividends totaled $43 million in the quarter, or about $170 million annualized.
Guidance Raised Despite Dilution Headwind
Essential Properties raised the low end of its 2026 AFFO per share guidance by $0.01, bringing the new range to $2.01 to $2.05. Mavoides said the revised guidance implies growth of more than 7% at the midpoint and more than 8% at the high end.
Salisbury said the guidance includes a conservative assumption for treasury stock method dilution related to the unsettled forward equity balance, amounting to a $0.01 to $0.02 headwind for the full year. In response to an analyst question, he said the company is currently trending closer to the high end of that range because of the recent movement in the stock price.
Management also discussed the company’s February 2027 term loan maturity, which Salisbury said carries a 2.26% all-in rate. He said refinancing it would likely be dilutive under most scenarios, with a potential AFFO impact of about $0.04 to $0.06 depending on the approach. Salisbury said Essential Properties has several options, including the bond market, term loan market, credit facility, forward equity and internally generated cash flow.
Management Addresses Tenant and Sector Trends
On restaurants, Mavoides said operators have generally been flat, with same-store flat margins resulting in largely flat coverage. He said management has not seen a material drop-off in restaurant coverage.
Asked about fitness sector exposure, Mavoides discussed tenants operating within the Crunch Fitness franchise system, saying the company likes the model because of its high-volume, low-price-point structure and comparatively moderate investment size. He said the company generally invests through new development or repositioning of older boxes, but added that management does not expect the category to grow disproportionately.
On the loan portfolio, Salisbury said the company had about $400 million of loans outstanding. He said the loan book was current with nothing on non-accrual, while a larger loan loss reserve in the quarter reflected management conservatism and was a non-cash item. Mavoides said loans are generally made as an accommodation to counterparties, and the company’s preference remains sale-leaseback transactions and owned real estate.
Mavoides concluded that management was pleased with the second-quarter results and said the company’s diversified portfolio and balance sheet capacity support its long-term growth trajectory.
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.
