Essential Properties Realty Trust Q1 2026 Earnings Call - Raising Guidance Amid Robust Deployment and Granular Credit Strength

Caitlin Burrows, Analyst, Goldman Sachs2: Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust first quarter 2026 earnings conference call. This conference call 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 Essential Properties’ website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Peter Mavoides, President and Chief Executive Officer, Robert Salisbury, Chief Financial Officer, Max Jenkins, Chief Operating Officer, AJ Peil, Chief Investment Officer, and Sheryl Kaul, Director of Financial Planning and Data Analytics. It is now my pleasure to turn the call over to Sheryl Kaul.

Caitlin Burrows, Analyst, Goldman Sachs6: Thank you, operator. Good morning, everyone, and thank you all for joining us today for Essential Properties’ first quarter 2026 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 provisions 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. In our earnings release last night for the quarter, we reported GAAP net income of $60 million and AFFO of $105.8 million. With that, I’ll turn the call over to Pete.

Caitlin Burrows, Analyst, Goldman Sachs3: Thanks, Cheryl. Thank you to everyone joining us today for your interest in Essential Properties. We had a productive first quarter, deploying $389 million into 126 properties and raising $419 million of equity in support of our pipeline, while growing our AFFO per share by 11% year-over-year. Despite a macro backdrop characterized by heightened volatility, our team continued to source and execute attractive investment opportunities, as our ability to deliver capital is highly valued in this environment. Our focus on servicing relationships and providing sale-leaseback capital to growing middle-market operators across our targeted industries continues to be a differentiator for our company. Investment cap rates were stable this quarter with an initial cap rate of 7.7% and a GAAP yield of 8.8%. This meaningful spread to our cost of capital is a key driver of our earnings growth.

With $1.5 billion of available liquidity and low leverage of 3.5x pro forma net debt to annualized adjusted EBITDAre, our balance sheet positions us well to continue to deliver compelling growth. Overall, investment activity and portfolio credit trends have started the year ahead of our budgeted expectations. Coupling this with our investment trajectory drives our ability to increase our 2026 AFFO per share guidance to a new range of $2-$2.05. We commensurately increase our investment volume guidance range by $100 million to a new range of $1.1 billion-$1.5 billion, and our cash G&A guidance has improved by $1 million as a result of cost discipline as the platform continues to scale. Turning to the portfolio. We ended the quarter with investments in 2,417 properties that were leased to over 400 tenants.

Our weighted average lease term increased to approximately 15 years, with just 2.8% of our annual base rent expiring over the next three years. With that, I’ll turn the call over to AJ Peil, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. AJ?

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Thanks, Pete. Overall, our portfolio credit trends remain healthy, with same-store rent growth in the first quarter of 1.4% and occupancy of 99.7% and just seven vacant properties. Portfolio rent coverage remains strong at 3.5 times, and the percentage of ABR under 1.5 times rent coverage declined by 140 basis points. Disposition volume moderated to $10.2 million at a cap rate of 6.9%, following an elevated fourth quarter of car wash property sales. Looking ahead, we continue to expect modest disposition activity driven by proactive asset management as well as overall portfolio construction shaping. Our focus on middle-market operators continues to yield a highly diversified tenant base, with our top 10 tenants comprising only 15.8% of ABR and our top 20 representing only 26% of ABR at quarter end.

We remain disciplined in actively managing the portfolio toward long-term credit stability and broad diversification as a pillar of our risk management framework. On the credit event side, during the quarter, one of our restaurant tenants filed for bankruptcy.

Caitlin Burrows, Analyst, Goldman Sachs5: We own seven properties that were leased to this tenant, which represented approximately 30 basis points of ABR. With identified backfill tenants on five sites and two locations under contract for sale, our expected recovery rate is consistent with our historical range of approximately 80%, which is better than our budgeted expectations. The relatively quick resolution timeline and reasonable recapture rate demonstrates the inherent fungibility of our restaurant assets. As is typical, this situation was operator specific in nature, and looking at our restaurant exposure overall, operator revenue and margin trends remain healthy and consistent with recent experience. With that, I’ll turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics.

Caitlin Burrows, Analyst, Goldman Sachs0: Thanks, AJ. On the investment side, during the first quarter, we invested $389 million at a weighted average cash yield of 7.7%. Our capital deployment was broad-based across most of our top industries, with no notable departures from our investment strategy. During the first quarter, our investments had a weighted average initial lease term of 17.7 years and a weighted average annual rent escalation of 2.1%, generating a strong average GAAP yield of 8.8%. Our investments this quarter had a weighted average unit level rent coverage of 3.1 times, reflecting a conservative rent level and healthy unit profitability for our operators. We closed 22 transactions comprising of 126 properties, of which 100% were sale leasebacks.

The average investment per property was $2.9 million this quarter, consistent with our historical range, reflecting our focus on investing in fungible assets. Though we don’t normally comment on specific investments, this quarter we closed on a large portfolio that is noteworthy and was reported publicly by this tenant. In January, we acquired 74 properties in a $147 million sale-leaseback with Denny’s as part of their privatization transaction. With an average price of under $2 million per asset and strong unit level coverage, the property profile exhibits the high level of fungibility that we seek in our restaurant investments. The transaction is a great example of how we add value to our relationships with a reliable and transparent closing process.

It also shows how our deep industry expertise, especially in the restaurant sector, enables us to leverage proprietary data to drive an efficient underwriting process. Looking ahead, pricing in our pipeline remains constructive, with cap rates in the mid to high 7% range, representing an attractive spread to our cost of capital, which is supportive of our long-term growth trajectory. After a great start to the year on the investment side, we increased our full year investment guidance by $100 million to a new range of $1.1 billion-$1.5 billion. With that, I’d like to turn the call over to Robert Salisbury, our Chief Financial Officer, who will take us through the financials for the first quarter.

Caitlin Burrows, Analyst, Goldman Sachs5: Thanks, Max. Overall, we were pleased with our first quarter results. The company generated AFFO per share totaling $0.50, representing an increase of 11% versus the first quarter of last year. On a nominal basis, our AFFO totaled $105.8 million for the quarter. This AFFO performance was slightly above our expectations, driven by a combination of earlier deployment timing, lower cash G&A, and favorable portfolio credit trends. Total G&A in the quarter was $12.3 million, and cash G&A was $8 million, representing just 5% of total revenue, down from 5.9% in the same period a year ago. As a result of continued cost discipline, we reduced our cash G&A guidance for the year by $1 million to a new range of $30 million-$34 million.

We declared a cash dividend of $0.31 in the first quarter, which represents an AFFO payout ratio of 62%. Our retained free cash flow after dividends reached $40 million in the first quarter, equating to approximately $160 million per annum and represents a substantial source of internally generated capital to support our future growth. Turning to our balance sheet, our income-producing gross assets increased to over $7.5 billion at quarter end. The increasing scale and diversity of our portfolio continues to enhance our credit profile. On the capital markets front, we completed an overnight equity offering in February, raising over $402 million. We also raised approximately $17 million of equity on our ATM program. All of our equity issuance this quarter was completed on a forward basis.

We settled $193 million of forward equity during the quarter, with a portion of the proceeds utilized to partially repay our revolving credit facility balance. Our balance of unsettled forward equity totaled $541 million at quarter end. The weighted average price of our unsettled forward equity was $30.55 at quarter end. During the quarter, our share price was modestly above this level. As a result, under the treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the first quarter, our diluted share count of 212 million shares included an adjustment for 671,000 shares related to this treasury stock calculation, representing a minimal headwind to our AFFO per share for the quarter.

Looking forward, our updated AFFO per share guidance range continues to include a conservative assumption for treasury stock method dilution of approximately $0.01-$0.02 for the full year. Our pro forma net debt to annualized adjusted EBITDAre remained low at 3.5x at quarter end, which is well below our long-term average in the mid-4s.

Leaving us with ample dry powder to execute our 2026 business plan. We remain committed to maintaining a conservative balance sheet with low leverage and significant liquidity. As we have previously discussed, we continue to anticipate an unsecured debt issuance in the middle of the year to fund our growth pipeline and extend the weighted average maturity of our liabilities. Lastly, as we noted earlier, we have increased our 2026 AFFO per share guidance to a new range of $2-$2.05, reflecting a growth rate of 7% at the midpoint and over 8% at the high end. With that, I’ll turn the call back over to Pete.

Caitlin Burrows, Analyst, Goldman Sachs3: Great. Thanks, Rob. In summary, we are happy with our first quarter results. Our high-quality portfolio is performing well with a compelling 15-year weighted average lease term, sector-leading diversity, and a deliberate commitment to fungibility that allows us to effectively and efficiently manage the potential risks in the portfolio. On the investment side, our differentiated sourcing and underwriting discipline focus on delivering value to our long-standing relationships, and a well-capitalized balance sheet position us well to continue to generate best-in-class total shareholder returns. Operator, please open the call for questions.

Caitlin Burrows, Analyst, Goldman Sachs2: Certainly. At this time, if you’d like to ask a question, please press star one on your telephone keypad. To leave the queue at any time, please press star two. Once again, that is star one to ask a question. We’ll take our first question from Caitlin Burrows with Goldman Sachs. Your line is open.

Caitlin Burrows, Analyst, Goldman Sachs: Hi, good morning, everyone. Maybe just looking at the acquisition volume and cap rates in the quarter. Volume was high. You mentioned cap rates were stable. I think they were maybe a little lower than recent quarters. On the cap rate side, could you just go through what drove that decline? Is it just reality of business today, industry mix, the portfolio deal, something else? Would you expect that level to continue?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. Hi, Caitlin, and thank you for the question. As we communicated on our last call, we expect cap rates in the mid- to high-7% range, obviously coming down from the 8% that we saw last quarter. Some of that is capital markets and competition. Some of that is industry mix. Certainly, the 7.7% is a healthy rate, and we feel pretty good about that.

Caitlin Burrows, Analyst, Goldman Sachs: Got it. Okay. Maybe just on the kind of macro side, as you think of the macro volatility that is going on, can you go through how that impacted EPRT in the quarter or not, and maybe how it impacts competition?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I think most of the volatility that we see today is going to impact us in next quarter, right? The deals that are closing and pricing in Q1 were really baked in Q4. It was much more stable in Q4. I think as we think about the current market volatility, a higher 10-year, I think all on balance help us as we are a consistent, reliable capital provider with a lot of liquidity and a long track record of reliably closing transactions, and counterparties value that in an uncertain and volatile market. On balance, I think it helps. Obviously, the volatility as it persists is going to put some strain on the consumer.

that puts strain at the margins on the portfolio, but certainly nothing that is outsized or gives us pause, which is one of the drivers of raising guidance here on this call.

Caitlin Burrows, Analyst, Goldman Sachs: Got it. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you, Caitlin.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from John Massocca with B. Riley Securities. Your line is open.

John Massocca, Analyst, B. Riley Securities: Good morning.

Caitlin Burrows, Analyst, Goldman Sachs3: Morning, John.

John Massocca, Analyst, B. Riley Securities: Can you provide a little more detail on the Denny’s transaction? I guess, maybe how is that sale-leaseback structured? Is everything kind of a maybe uniform distribution in terms of lease maturity, or is there some kind of variance there? I guess maybe bigger picture, what kind of made you comfortable with the tenant, given some of the news that’s been out there about location closures and take-private transaction, but obviously, maybe potentially usually that’s tied to having new owners in place.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I’ll have Max tackle that question, but I would start, first and foremost, as a real estate investor, we take comfort in the properties that we’re buying and the lease, and then the tenant comes into consideration. Max, why don’t you get into that deal a little bit for him?

Caitlin Burrows, Analyst, Goldman Sachs0: Sure. Thanks for the question, John. I think to start, at the end of the day, these are small bite-size, granular, fungible restaurant properties, which we’ve had tremendous success investing in over the years here. You have 74 properties, less than $2 million per asset. The key thing here was the average operating history was over 40 years across our portfolio. You have durable, strong unit level coverage, stable performance across the board, and attractive yield. That’s what we look for in restaurant investments. To your question about the structure, it was a combination of both corporate owned and operated stores as well as multiple franchisees, which is good for us because we have a tenant credit diversification.

Caitlin Burrows, Analyst, Goldman Sachs5: We put that all together, and we were very happy with the process, and we’ve known the equity group for a few years, and so a strong relationship. They relied on our certainty of close, and so we’re happy with how that transaction played out.

John Massocca, Analyst, B. Riley Securities: Okay. Relatively small numbers in terms of the overall ABR, but it seemed like there was a bit of an increase in rent in some kind of shorter lease maturity years, particularly 2026. Is there something driving that? Is it re-leasing, or is it something with one of the transactions that closed? Just kind of curious that number came up versus kind of prior quarters.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I would point to our weighted average lease term for our investments in the quarter was 17 years, so that’s unlikely.

Caitlin Burrows, Analyst, Goldman Sachs5: John, some of that, a little bit, was in the Denny’s portfolio. We got creative with some of the franchisee stores, and so it wasn’t all a contiguous lease termination, which is one of the reasons why we won the deal is because we were able to get creative and underwrite every individual property, every franchisee, the corporate credit as well. There’s a little bit of noise, but I wouldn’t look too deep into it.

John Massocca, Analyst, B. Riley Securities: Okay. The number of prior relationship transactions was a little bit lower this quarter. Was that all primarily tied to Denny’s, or was there any other transactions that are kind of with new kind of sale-leaseback partners?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I would say that decline is mostly related to Denny’s.

John Massocca, Analyst, B. Riley Securities: Okay. All right. That’s it for me. Thank you very much.

Caitlin Burrows, Analyst, Goldman Sachs3: All right. Thanks, John.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from John Kilichowski with Wells Fargo. Your line is open.

James Feldman, Analyst, Wells Fargo: Hey, good morning. It’s James Feldman filling in for John here. Couple questions for you. I guess number one, Denny’s was the result of a take private of a public company. Certainly seeing a lot of activity in the capital markets, whether it’s IPOs, take privates. We’ve got a lot going on in the private credit world. What are your thoughts on just larger scale deals going forward versus one-offs? I know the one-offs have been a little bit more of a sweet spot. As you think about the pipeline and the conversations you’re having with your seller-type clients, what do you think the world looks like over the next 12, 18 months, given all the movement we’re seeing?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I don’t think we’re gonna see a ton of ripple down effect into the middle market tenants we’re dealing with. Our larger transactions tend to be very episodic. Certainly, Denny’s is an outsized one, but I would expect our portfolio going forward to still be predominantly small, granular deals and not the larger kind of M&A-type transactions. It’s rare that they happen in our industries, and with size and with real estate, that really gives us an opportunity to get in there. I would imagine our pipeline going forward remains very granular.

James Feldman, Analyst, Wells Fargo: Okay. Thanks for that. I know your response to a prior question on cap rates was more competition. They’re coming in a little bit. How do you just think about your investment spread to your cost of capital going forward, given your different capital sources, and just the ability to create the same level of accretion for same dollar amount?

Caitlin Burrows, Analyst, Goldman Sachs3: Rob.

Caitlin Burrows, Analyst, Goldman Sachs5: Hey, Jamie, it’s Rob. As we’ve talked about in quarters past, the investment spread is really more of an output than an input. We tend to price deals in the marketplace based on where the facts and circumstances shake out for each individual deal. Of course, on the capital side, our weighted average cost of capital hasn’t moved that materially relative to the last time we gave an update. If you look at where our unsecured debt trades today, it’s probably in the mid- to high 5s. You look at our cost of equity, which we tend to use our AFFO yield as a proxy for that. It’s in the mid- to high 6s. As you know, we retain nearly $160 million now of annualized free cash flow after paying out dividends, which is a free source of capital for funding our investment pipeline.

When you throw all those sources of capital into the blender, we’re in the mid-5s on a WAC basis today. When you compare that to where we’re deploying capital in the mid- to high-7s, a healthy spread of 200 basis points plus, and very supportive of our long-term growth algorithm. From where we sit today, we certainly would love to see our share price at a higher level, but we’re very much in business deploying capital accretively for shareholders.

James Feldman, Analyst, Wells Fargo: Okay. Thanks for that. If I could just ask one more. We’re all kind of trying to make sense of the headlines, higher fuel costs, higher food costs. Now, a lot of talk lately about fertilizer costs. Just as you guys are all digesting the headlines and thinking about what could change the next month’s quarters. As you look at your tenant base, where do you think you’ll see the most flow-through or impact? I know your credit quality is all very good, but what are you just watching the most as you think about your portfolio?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I think the casual dining and the entertainment space has seen, and we expect to continue to see the most weakness. That weakness really manifests itself in kind of sort of flat to down-ish 2%-3% sales and some margin pressure, maybe 100-200 basis points, where that kind of flows through to maybe 10-20 basis points on rent coverage. Thematically, we don’t expect major shifts in our industries, and then you dig down to the idiosyncratic risk with specific operators that are either growing or over-levered or grew too fast or a lot of development, and really understanding how they’re performing and how our sites within those credits are performing. We’re watching it. Obviously, the portfolio is performing well. We are hiking guidance here today, early in the year. As we said, our credit performance is coming in better than anticipated.

We don’t expect material flow-throughs to our portfolio performance, but we’re watching the consumer and specifically our casual dining and entertainment space.

James Feldman, Analyst, Wells Fargo: Okay, great. Thank you for taking the questions.

Caitlin Burrows, Analyst, Goldman Sachs3: You got it. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from Michael Goldsmith with UBS. Your line is open.

Caitlin Burrows, Analyst, Goldman Sachs1: Good morning. Thanks a lot for taking my question. First question is just on the bad debt in the period. I think you’ve mentioned a restaurant property group, but presumably that’s the Applebee’s franchisee. In addition, I think I saw that there was an impairment on the income statement. Can you just talk a little bit about what you’re seeing from your tenants and if the environment has gotten particularly challenging for any of them? Thanks.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I would say, I’ll let AJ tackle the specific impairments, but in general, much like my earlier comments, people are performing and credit is coming in better than anticipated, which was supportive of our guidance increase this quarter. It tends to be very idiosyncratic events that drive impairments and bad debt. On the impairment for the quarter, AJ, you got some commentary?

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: Yeah. More broadly, just kind of on the health of the portfolio, to the question prior that Pete was addressing, we’re paying a little bit closer attention to the entertainment and casual dining space, and you referenced in your question the casual diner we called out in the prepared remarks. That was significantly more episodic than it was kind of a trend line. I would say broadly speaking, our restaurant portfolio is generating 2.5 times plus coverage across the board. We feel good about the portfolio. Specifically on the impairment, I’ll have Rob just kind of opine on what happened on the balance sheet.

Caitlin Burrows, Analyst, Goldman Sachs5: Yeah. Thanks, AJ. As AJ just mentioned, a lot of these situations are much more idiosyncratic in nature. As it relates to the impairment itself, we have a pretty robust quarterly impairment testing process that’s well established and been in place for a long time. As part of that rigorous process, we are constantly testing on a quarterly basis. For the impairment this quarter, it was driven primarily by one site on a former American Signature location. As I think we’ve talked about in quarters past, that tenant went bankrupt in the fourth quarter, and it was paying rent. Leases had not been rejected until a time during the first quarter. That triggered the impairment testing process. In general, we have not been bullish on the home furnishing industry.

That’s an industry that we have not invested in for many years, and we are down to one location now, representing effectively a rounding error in terms of exposure to the portfolio broadly. Not a huge surprise in terms of where the exposure is there, but I’m happy to report that’s not a material impact going forward.

Caitlin Burrows, Analyst, Goldman Sachs1: Thanks for that, all three of you. As a follow-up question, you have a term loan that’s expiring in early February at a particularly low rate. I just wanted to get a sense of how you were thinking about attacking that and refinancing that. The refinancing would be a bit of a headwind for your 2027 earnings. Would you look to accelerate transaction activity to kind of maintain that really strong growth that you have generated over the last several years? Or is that not like a way that you think about it, you just kind of proceed as normal? Thanks.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I’ll tackle that. Obviously, we’ve talked a lot about terming out our debt and getting long-term debt on the balance sheet to match fund our assets. We’re likely to look to the unsecured bond market at some point to take out that term loan, and there will be some incremental dilution as a result of that rate falling off. We think about our investment trajectory on a much longer-term basis and make investments in our team to be able to do more and source more and process more transactions, much to my earlier comment, that are granular, which is where we think we add value. When we come into developing a business plan for 2027, we’ll look at that. Our ambition has been and continues to be to offer total compelling shareholder return in the net lease space.

I think we have a lot of room to where we’re performing to do that. We’ll address that as it comes upon us. I would not say the automatic toggle is to build, buy more, just to cover up a little bit of the earnings. We’ll certainly look at a fulsome business plan in 2027 to position ourselves as a best-in-class grower.

Caitlin Burrows, Analyst, Goldman Sachs1: Thank you very much. Good luck in the second quarter.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you, sir.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from Haendel St. Juste with Mizuho. Your line is open.

Haendel St. Juste, Analyst, Mizuho: Hey, guys. A couple of quick ones left here for me. I guess first on the coverage for the investments in the quarter. Down a bit versus last quarter when I think you had more industrial deals, and below your overall portfolio average. I know this bounces around a bit, but just curious on how we should think about your coverage levels on deals going forward in this environment, if indeed this past quarter should prove more of an anomaly. Thanks.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I wouldn’t read too much into that subset of deals. It’s highly influenced by the mix of industries and the individual transactions, and that’s going to vary quite a bit, and it’s not really indicative of much because it is such a wide variety of investments. We had 22 investments in the quarter and across most of our industries. So there’s always going to be a wide variation in that number. I would say, restaurants tend to have some of the lower coverage. So the Denny’s in the mid- to high 2s would certainly kind of drag that down a little bit.

Haendel St. Juste, Analyst, Mizuho: Got it. Thanks, Pete. That’s helpful. Maybe some color on Chicken N’ Pickle, it’s top 10 of yours. There have been some reports that some of their assets may be lagging a bit in terms of sales. Curious on your comfort level with that exposure and anything within the sales trends or credit overall, that perhaps might be changing your view on your exposure to that particular tenant. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I don’t know where they’re a private company and I don’t know where there’d be public commentary around their sales. As we’ve said, the entertainment space has seen some challenge and certainly Chicken N’ Pickle sits within that bucket. We continue to believe we have good assets owned by that operator. We have seen some flat top line. Our coverage remains healthy and it’s a good relationship, but we’ll continue to watch the trends and overall our entertainment bucket.

Haendel St. Juste, Analyst, Mizuho: Got it. If I could just squeeze one in just on car wash. I think your exposure there in the quarter was down a bit. Is that just by virtue of other investments in the quarter? Is there more of an effort to get that exposure down a bit? Maybe remind us on kind of where you see the long-term exposure target for that particular segment. Thanks.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, we continue to think car wash is a very compelling industry with great cash flow dynamics and strong margins, and the real estate within that industry presents a compelling investment opportunity. As we have said in the past, we have a soft ceiling for any one industry of 15%. We certainly have run car wash up to that level or above it, and we have comfort doing that given our deep experience and our deep data within that space to underwrite incremental investments. As we disclosed in the past, we sold a bunch of car washes in the fourth quarter, where we saw an attractive bid for our assets, really with investors looking to take advantage of accelerated bonus depreciation. You’re likely to see that bounce around. I don’t know that it’s going to go up or down.

It’ll depend upon the opportunity set, but we’re happy where it is, and we’d be happy taking it up if we saw compelling investment opportunities.

Haendel St. Juste, Analyst, Mizuho: Got it. Thanks for the time and insights.

Caitlin Burrows, Analyst, Goldman Sachs3: Thanks. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question will come from Richard Hightower with Barclays. Your line is open.

Caitlin Burrows, Analyst, Goldman Sachs4: Hey, good morning, guys. Just a couple quick ones for me, but back to the impairment charge that was booked in the first quarter. I didn’t catch this. Was it just the one furniture location that led to the entire $16+ million? And then just help us understand the mechanics of how any potential sale of a vacant box or backfilling with a cash rent-paying tenant, how does that affect any potential change to that number going forward? Just help us understand the mechanics there.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. A good chunk of that was the furniture store, but there certainly was others. We operate almost 2,500 property portfolio, and there’s multiple scenarios happening in any given quarter. You take an impairment when it becomes apparent the value has changed from what’s on your balance sheet. You tend not to mark it up once something subsequent happens. But we’ll see what happens with that property, and our accountants will tell us. We’ll evaluate what to do accordingly.

Caitlin Burrows, Analyst, Goldman Sachs4: Okay, that’s helpful. Then, I think you guys have a relatively muted, I guess, official watch list, lower than even some other peers in the space in terms of, I guess everybody can define it how they like, but maybe walk us through how you define your watch list and kind of where that stands today, even relative to a couple of quarters ago, if you don’t mind.

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. We define our watch list, and we have a pretty defined definition so that investors can understand and track it. What we do on an asset actual portfolio management perspective is slightly more encompassing. We define our watch to a credit risk of single B, and unit level coverage risk of 1.5, and that’s tended to hover around 1%, and I think it’s slightly up, maybe 20 basis points within the quarter. AJ, what is it?

AJ Peil, Chief Investment Officer, Essential Properties Realty Trust: It’s at 1.3% today.

Caitlin Burrows, Analyst, Goldman Sachs3: it’s 1.3%.

Caitlin Burrows, Analyst, Goldman Sachs4: All right. Very helpful. Thanks, Pete. Thanks, guys.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: As a reminder, if you would like to ask a question, it is star one to join the question queue. Our next question will come from Jay Kornreich with Cantor Fitzgerald. Your line is open.

Jay Kornreich, Analyst, Cantor Fitzgerald: Hey, thanks. Good morning. You mentioned that volatility could cause some strain in the consumer, yet you still feel confident in the investment pipeline as you increase guidance to $1.3 billion at the midpoint. Just wanted to drill further into just kind of how the pipeline looks and what industry segments, I guess, beyond car washes that you may want to expand in as the year goes on.

Caitlin Burrows, Analyst, Goldman Sachs3: We focus a large part of our investment activity on our relationships, and our relationships exist within our targeted industries. Our investment pipeline and our opportunity set comes from there. Generally, we anticipate growing our pie ratably across all our industries. Clearly, we had an outsized transaction in Q1 within the restaurant space, and you see that flowing through. Overall, I would expect it to grow ratably. We’re pricing long-term investments, 20-year deals, and it’s taking a long view of performance, a long view of coverage and sales to develop that pricing, and that doesn’t change with short-term volatility that we’re seeing today.

Jay Kornreich, Analyst, Cantor Fitzgerald: Okay. Thank you. Just looking a little bit more into just the casual dining where you referenced maybe some weakness there. It looks like your exposure to casual dining actually declined 20 basis points this quarter, even though you did the Denny’s portfolio acquisition. Just curious, are those dynamics, was there maybe some movement in getting out of some less favorable operators while you were moving into Denny’s, or kind of what was going on there?

Caitlin Burrows, Analyst, Goldman Sachs3: Well, Denny’s is in the family dining category, given their focus on breakfast and lunch. Then we had some commentary around a casual diner on our prepared remarks, which is roughly 30 basis points of ABR, which we worked through. That’s probably what you saw flowing through the casual dining spot.

Jay Kornreich, Analyst, Cantor Fitzgerald: Got it. Okay. Thanks for clarifying. That’s it for me.

Caitlin Burrows, Analyst, Goldman Sachs3: Got it. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question will come from Smedes Rose with Citi. Your line is open.

Caitlin Burrows, Analyst, Goldman Sachs7: Hi. Thank you. I wanted to ask you just in general, as you’re working with these middle-market operators, either existing or potentially new clients, do you get the feeling that their access to capital from other sources is maybe more constrained now than it was a year ago, either through direct competitors to yourselves or maybe more traditional financing, like through regional banks, et cetera? Have you seen any changes there?

Caitlin Burrows, Analyst, Goldman Sachs3: Hey, Smedes. Thanks for the question. At the margin, I would say, and clearly, with 20 transactions during a quarter, there’s a lot of different scenarios, but I think overall, the capital market environment is a little more constrained, but not materially so.

Caitlin Burrows, Analyst, Goldman Sachs7: Okay. I just wanted to clarify, you mentioned of the 7 properties that were in that bankruptcy, I think they were all Applebee’s. 5 were backfilled. Are they now open or they’re just scheduled to have a new tenant come online at some point?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, they had a new Applebee’s tenant come right in and step in to the lease, and so they’re open and operating and selling hamburgers. Paying rent.

Caitlin Burrows, Analyst, Goldman Sachs7: Okay. Gotcha. Okay. Thank you. Appreciate it.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you, Smedes.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question will come from Greg McGinniss with Scotiabank. Your line is open.

Greg McGinniss, Analyst, Scotiabank: Hey, good morning. Denny’s is now a top five concept in the portfolio at around 1.6% of ABR. Are you able to disclose the split between corporate and franchise-owned exposure? How many different franchisees of Denny’s are now tenants as well?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, we’re not disclosing the split between corporate and franchisees, but it’s pretty diverse. I think we have up to 15 franchisees.

Greg McGinniss, Analyst, Scotiabank: Okay, thanks. For a company with your expected earnings growth, we were a bit surprised to see cash G&A guidance actually lowered. Could you talk about the drivers of that reduction?

Caitlin Burrows, Analyst, Goldman Sachs3: Robert.

Caitlin Burrows, Analyst, Goldman Sachs5: Yeah. As we look through the guidance range this quarter, a number of moving parts. On the cash G&A front, we had an initial budget that included a range of assumptions around hiring, technology spend, and other initiatives throughout the company. In general, we’re just trying to be as efficient as we can as we move through the year. That was on the cash G&A side. Then I think you saw the other drivers in the press release.

Greg McGinniss, Analyst, Scotiabank: Okay. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs3: Thanks, Greg.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from Eric Borden with BMO Capital Markets. Your line is open.

Eric Borden, Analyst, BMO Capital Markets: Hey, good morning. Just one for me. On the disposition front, are there any tenants or verticals where disposition yields in the market are tighter than your internal view and where you’d become more inclined to recycle capital just given the current market yields there?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. Pricing is very idiosyncratic. As Rob walked through earlier in the call, our weighted average cost of capital is in the mid- to high 5s. We do not see a lot of properties within our portfolio that would trade below that. Generally, our disposition activity is focused on de-risking sales. Obviously, as you think about selling a more risky asset, it’s not going to garner premium pricing. As we think about disposition, it’s more portfolio shaping, and we’re not using that to drive an accretive source of capital.

Eric Borden, Analyst, BMO Capital Markets: Great. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question will come from Jana Galan with Bank of America. Your line is open.

Jana Galan, Analyst, Bank of America: Thank you. Good morning. Maybe just quickly following up on the dispositions. It’s funny to see 2Q to date activity on dispositions higher than acquisitions. Can you just comment on if you think disposition activity will be elevated this year, or is this just a little bit more first half heavy?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I wouldn’t read too much into that. It’s really just timing. The closing timeline on our dispositions tends to be unpredictable, and we just don’t control when the buyer’s actually going to close. I wouldn’t read too much into it. I would expect normalized disposition activity in the $20 million a quarter type range.

Jana Galan, Analyst, Bank of America: Thanks, Pete.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you, Jana.

Caitlin Burrows, Analyst, Goldman Sachs2: Our next question comes from Daniel Guglielmo with Capital One Securities. Your line is open.

Daniel Guglielmo, Analyst, Capital One Securities: Hi, everyone. Thank you for taking my question. Just one from me. On the previous call, you mentioned that 10-year yields in the mid- to high 3s would be a spot where competition could increase, and in true market fashion, were there any changes to the transaction market or was it too quick to glean anything there?

Caitlin Burrows, Analyst, Goldman Sachs3: Daniel, you broke up. I didn’t catch your question. Can you repeat it? Hopefully it doesn’t break up again.

Daniel Guglielmo, Analyst, Capital One Securities: Hi, took my headphones. On the previous call, you mentioned that 10-year yields in the mid-to-high 3s was a spot where competition could increase. In true markets fashion, yields dove down towards 4% after the call, but have come up since. In that short period, were there any changes to the transaction market that you saw, or was it really too quick to glean anything there?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah, I would say it’s too quick. With a 90-day transaction cycle, we’re constantly pricing and closing on deals and the 2-week, 30-day volatility really doesn’t come into play.

Daniel Guglielmo, Analyst, Capital One Securities: Thank you.

Caitlin Burrows, Analyst, Goldman Sachs3: Thank you, Dan. Get a new headset.

Caitlin Burrows, Analyst, Goldman Sachs2: We do have a follow-up question from Caitlin Burrows with Goldman Sachs. Your line is open.

Caitlin Burrows, Analyst, Goldman Sachs: Hi again. Maybe just two more modeling or smaller questions, but it just seems that, I realize you increased full-year acquisition guidance, so it seems like you’re pretty confident, but it also looks like the start to 2Q has been slow. Do you think 2Q will end up being a lower volume quarter or not necessarily?

Caitlin Burrows, Analyst, Goldman Sachs3: Yeah. I think it’ll be likely lower than the first quarter, just given the start to the quarter. Generally, the pipeline is full and without putting too fine a point on it, something in the 300 range, 275-325. It’s too early to tell.

Caitlin Burrows, Analyst, Goldman Sachs: Okay. Just another specific one. On the straight line adjustment, it was $15.365 million in 1Q. It does seem like that’s higher than it has been. Is that just the new normal or was there something one-time in that?

Caitlin Burrows, Analyst, Goldman Sachs5: Hey, Caitlin, it’s Rob. Appreciate you getting into the weeds on the straight-line rent adjustment. Actually, in the fourth quarter, we had a couple of one-time items that had moved that around. If you look back to the trend line prior to fourth quarter, the number in 1Q is a little bit more in line with that trend. I would say, in general, the 1Q number is a pretty good run rate, absent any acquisition activity, which would obviously impact where the straight-line would go from here, booking cap rates in excess of our cash cap rates. Hopefully you can use that as a good run rate going forward.

Caitlin Burrows, Analyst, Goldman Sachs: Okay. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: It appears we have no further questions at this time. I’ll turn the call over to Pete Mavoides for any additional or closing remarks.

Caitlin Burrows, Analyst, Goldman Sachs3: Great. Well, thank you all for your participation in the call today and your questions. We look forward to seeing you all in the upcoming conferences, and have a great day. Thank you.

Caitlin Burrows, Analyst, Goldman Sachs2: This concludes today’s program. Thank you for your participation, and you may disconnect at any time.