Essential Properties Realty Trust Delivers Strong Q1 Growth Amid Strategic Expansion

Essential Properties Realty Trust (EPRT) reported a robust first quarter of 2025, exceeding market expectations with revenue of $129.4 million, a 7.7% year-over-year increase and $9.2 million above the FactSet consensus of $120.2 million. The results underscore the REIT’s execution in a challenging macroeconomic environment, driven by disciplined investment strategies, resilient tenant performance, and strategic capital management.

Key Financial Highlights: A Balancing Act of Growth and Stability

EPRT’s adjusted funds from operations (AFFO) per share rose 7% to $0.45, outpacing its 2024 Q1 figure of $0.42, while net income per share increased 4% to $0.29. These metrics align with the company’s reaffirmed 2025 AFFO guidance of $1.85 to $1.89 per share—a range it appears well positioned to meet. The growth reflects both organic revenue expansion and accretive acquisitions.

Strategic Investments Fuel Portfolio Resilience

The REIT deployed $307.7 million in 48 properties during Q1, targeting assets with a weighted average cash cap rate of 7.8% and a 17.5-year lease term. These deals, part of EPRT’s focus on service- and experience-driven industries (which now account for 93.3% of cash adjusted base rent), signal a deliberate move to capitalize on sectors less vulnerable to economic volatility.

Notably, post-Q1, EPRT added another $135 million in investments, while dispositions totaled $24.3 million (6.9% cap rate), suggesting a strategy of rotating out of lower-yielding assets. The portfolio now spans 2,138 properties leased to 423 tenants, with an occupancy rate of 99.7%—a near-perfect metric that highlights operational excellence.

Leverage and Liquidity: A Buffer Against Uncertainty

EPRT’s net debt to annualized adjusted EBITDAre improved to 3.4x (pro forma), below the 4.3x unadjusted figure, reflecting the benefits of recent equity raises. Total liquidity stands at $1.5 billion, including $457.4 million in cash and a $1.0 billion revolving credit facility. The company also utilized forward equity sales to secure $410.4 million in additional liquidity, a tactic that mitigates reliance on volatile debt markets.

However, equity dilution is a trade-off. The March follow-on offering raised $292.3 million at $31.00 per share, while the ATM program added another $20.6 million. With $650.5 million remaining under the ATM, shareholders should monitor the impact of future issuances on per-share metrics.

Dividend Sustainability: A Conservative Payout Ratio

EPRT maintained its quarterly dividend of $0.29 per share, annualizing to $1.18. With AFFO guidance of $1.85–$1.89, the payout ratio remains comfortably below 65%, ensuring dividend sustainability even under conservative AFFO assumptions. This stability is critical for income-focused investors.

Risks and Considerations

While EPRT’s fundamentals are strong, risks persist. The company’s weighted average debt maturity of 3.9 years and interest rate of 4.1% mean refinancing costs could rise if rates stay elevated. Additionally, 66.3% of cash ABR is tied to master leases, which, while providing stability, limit near-term upside from rent resets.

CEO Pete Mavoides emphasized the “resilient portfolio performance” and “healthy pipeline,” but investors should remain cautious about the broader real estate sector’s exposure to rising interest rates and slowing consumer spending.

Conclusion: A Solid Bet on Defensive Sectors

EPRT’s Q1 results and strategic moves position it as a defensive play in an uncertain economy. Its focus on service-oriented industries, coupled with a fortress balance sheet and disciplined capital allocation, supports the case for long-term investors. Key data points—99.7% occupancy, 14-year weighted average lease terms, and a 3.5x rent coverage ratio—suggest tenant health is robust.

While the stock’s 12-month return of ~8% (vs. VNQ’s 5%) reflects this outperformance, the path forward hinges on execution. If EPRT can sustain its AFFO growth and leverage its liquidity to navigate rising rates, it could deliver consistent returns. For now, the evidence points to a REIT that’s weathering the storm—and thriving in it.