What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-02-14 compared with 2023-02-16 · 94 added, 230 removed, 211 unchanged (61% of the section changed)

We are an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses.

We have assembled a diversified portfolio using a disciplined strategy that focuses on properties leased to tenants in businesses such as:

• Early childhood education,

• Car washes,

• Restaurants (primarily quick service restaurants and casual dining),

• Medical and dental services,

We have assembled a diversified portfolio using a disciplined strategy that focuses on properties leased to tenants in businesses including, but not limited to,:

• Automotive services,

• Car washes,

• Convenience stores,

• Early childhood education,

• Entertainment,

• Equipment rental and sales,

• Health and fitness,

• Equipment rental and

• Industrial,

• Medical and dental services, and

• Restaurants (primarily quick service restaurants and casual dining).

We believe that, in general, properties leased to tenants in these businesses and similar businesses are essential to the generation of the tenants' sales and profits.

We also believe that these businesses have favorable growth potential and, because of their nature, they are more insulated from e-commerce pressure than many other businesses.

We completed our initial public offering in June 2018 (our "IPO") and we qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018.

As of December 31, 2022, 93.0% of our $297.2 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses.

We completed our initial public offering in June 2018 and we qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018.

As of December 31, 2023, 92.9% of our total annualized base rent of $364.8 million was attributable to properties operated by tenants in service-oriented and experience-based businesses.

"Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2023 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date.

4 unchanged sentences

Diversified Portfolio.

As of December 31, 2022, our portfolio was 99.9% occupied by 350 tenants operating 538 different concepts (i.e., generally brands) in 16 industries across 48 states, with none of our tenants contributing more than 3.4% of our annualized base rent.

Our goal is that, over time, no more than 5% of our annualized base rent will be derived from any single-tenant or more than 1% from any single property.

As of December 31, 2023, our portfolio was 99.8% occupied by 374 tenants operating 588 different concepts (i.e., generally brands) in 16 industries across 48 states, with none of our tenants contributing more than 3.8% of our annualized base rent.

Long Lease Term.

As of December 31, 2022, our leases had a weighted average remaining lease term of 13.9 years (based on annualized base rent), with only 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028.

Our properties generally are subject to long-term net leases that we believe provide us a stable base of revenue from which to grow our portfolio.

As of December 31, 2023, our leases had a weighted average remaining lease term of 14.0 years (based on annualized base rent), with only 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029.

Significant Use of Master Leases.

3 unchanged sentences

We seek to acquire properties owned and operated by middle-market businesses and lease the properties back to the operators pursuant to our standard lease form.

For the year ended December 31, 2022, approximately 97.3% of our investments were sale-leaseback transactions.

For the year ended December 31, 2023, 68% of our investments (weighted by annualized base rent) were in a master lease structure.

Significant Use of Sale-Leaseback Structure.

Because the focus of our investment strategy is on middle-market and smaller operators, our investment in their real estate operating assets is typically either the first time the real estate has transacted, or we are the capital provider for the portion of a merger/acquisition transaction with another operator involving the real estate properties.

The structure of these transactions, which represent the majority of our investment activity, involves our acquisition of the property and then the leasing back of the property to the operator of the real estate, a sale-leaseback structure.

Among the benefits of executing the sale-leaseback

structure is that we use a standard lease form that we structured, and which includes terms favorable to us, including the requirement for the operator to provide us with unit-level and, in some instances, corporate level financial statements on a quarterly basis, in arrears.

For the year ended December 31, 2023, 98.8% of our investments (weighted by annualized base rent) were through the sale-leaseback structure.

Contractual Base Rent Escalation.

As of December 31, 2023, 98.7% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average rate of 1.7% per year.

Rent escalation provisions provide contractually-specified incremental yield on our investments and provide a degree of protection from inflation or a rising interest rate environment.

Fixed rent escalation provisions provide contractually-specified incremental increases in the yield on our investments, provide a degree of protection from inflation or a rising interest rate environment, and provide our tenants with predictability and stability in managing their operating expenses.

Smaller, Low Basis Single-Tenant Properties.

We generally invest in freestanding "small-box" single-tenant properties.

As of December 31, 2022, our average investment per property was $2.4 million (which equals our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date), and we believe investments of similar size should allow us to grow our portfolio without concentrating a large amount of capital in individual properties and should allow us to limit our exposure to events that may adversely affect a particular property.

Additionally, we believe that many of our properties are fungible and appropriate for multiple commercial uses, which reduces the risk that a particular property may become obsolete and enhances our ability to sell a property if we choose to do so.

As of December 31, 2023, our average investment per property was $2.7 million (which equals our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date).

We believe that investing in smaller more granular assets provides us with an element of risk mitigation with regard to credit risk, real estate risk, and the risk associated with the applicable lease, and allows us to not have large concentrations of our capital allocated to any single asset.

This should provide us with an ability to limit our exposure to events that may adversely affect a particular property.

Because of the smaller investment size of individual investments, we believe we benefit from our properties being fungible in terms of the alternative commercial uses that could be operated at any given property we own.

This also reduces the risk that the particular property might become obsolete and enhances our ability to sell a property if we choose to do so, in part to alleviate credit risk.

Healthy Rent Coverage Ratio and Tenant Financial Reporting.

1 unchanged sentence

"Rent coverage ratio" means, as of a specified date, the ratio of (x) tenant-reported or, when unavailable, management's estimate (based on tenant-reported financial information) of annual earnings before interest, taxes, depreciation, amortization and cash rent attributable to the leased property (or properties, in the case of a master lease) to (y) the annualized base rental obligation.

The benefits of receiving periodic unit-level and, in some instances, corporate-level financial reporting is that we can assess the ongoing operating effectiveness of a particular property and utilize that information to make informed decisions regarding credit risk.

In addition, the financial reporting we receive from out tenants provides us with an expansive data set from which to underwrite new investments for properties in similar industries or operating platforms.

2023 Financial and Operating Highlights

• During 2022, we completed $937.4 million of investments, including $793.3 million in 224 property acquisitions and $144.0 million in newly originated loans receivable secured by 49 properties.

• During 2023, we completed $1.0 billion of investments in 293 properties, including $13.1 million in newly originated mortgage loans receivable secured by 2 properties.

• As of December 31, 2023, our total gross investment in real estate was $4.9 billion and we had total debt of $1.7 billion.

• During 2022, we declared distributions totaling $1.075 per share of common stock.

• In August 2022, we completed a follow-on offering of 8,740,000 shares of our common stock, including 1,140,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares raising net proceeds of $192.6 million.

• During 2022, we sold 9,794,137 shares of our common stock under the ATM Program (as defined herein) at a weighted average price per share of $24.00 for gross proceeds of $235.1 million, including 957,453 shares of our common stock that were physically settled for cash in January 2023.

• During 2023, our Board of Directors ("Board") declared quarterly distributions for the year ended December 31, 2023 that totaled $1.12 per share of common stock.

• In February 2023, we completed, on a forward basis, a primary underwritten public follow-on offering of 8,855,000 shares of our common stock, including 1,155,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $24.60 per share.

Net proceeds, after settlement of the related forward sale agreements, were $209.3 million.

• In September 2023, we completed, on a forward basis, a primary underwritten public follow-on offering of 12,006,000 shares of our common stock, including 1,566,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $23.00 per share.

Net proceeds, after settlement of the related forward sale agreements, are expected to be $263.4 million.

• During 2023, we sold 5,931,654 shares of our common stock under the ATM Program (as defined herein) at a weighted average price per share of $24.48 for gross proceeds of $145.2 million, including 1,937,450 shares sold on a forward basis that have not been physically settled for cash as of December 31, 2023.

• As of December 31, 2023, our liquidity totaled $779.6 million, which includes $49.0 million of cash and cash equivalents and restricted cash, $130.6 million available upon settlement of our outstanding forward equity contracts and $600.0 million of availability under our revolving credit facility.

Our Target Market

We are an active investor in single-tenant, net leased commercial real estate.

Our target properties are generally freestanding commercial real estate facilities where a middle-market tenant conducts activities on property that are essential to the generation of its sales and profits.

We believe that this market is underserved from a capital perspective and therefore offers attractive risk-adjusted returns from an investment perspective.

The properties we target for investment are generally freestanding commercial real estate facilities in which a single middle-market tenant conducts activities that are essential to the generation of its sales and profits.

We believe that this market is underserved, from a capital perspective, and therefore offers attractive risk-adjusted investment returns.

Within this market, we focus our investment activities on properties leased to tenants engaged in a targeted set of 13 service-oriented or experience-based businesses.

We believe that operating properties are the essential venues through which these businesses transact with their customers, and therefore that such properties and businesses are generally more insulated from the competitive pressure of e-commerce than many other businesses where significant activity can take place online.

We focus on properties leased to middle-market companies, which we define as regional and national operators with between 10 and 250 locations and $20 million to $500 million in annual revenue, and we opportunistically invest in properties leased to smaller companies, which we define as regional operators with fewer than 10 locations and less than $20 million in annual revenue.

We believe that operating properties in these 13 industries are the essential venues through which these businesses transact with their customers, and therefore that such properties and businesses are generally more insulated from the competitive pressure of e-commerce than many other businesses where significant activity can take place online.

We define middle-market companies as regional and national operators with between 10 and 250 locations and $20 million to $1 billion in annual revenue, and we also opportunistically invest in properties leased to smaller companies, which we define as regional or local operators with fewer than 10 locations and less than $20 million in annual revenue.

Although it is not our primary investment focus, we will opportunistically consider investing in properties leased to larger companies.

3 unchanged sentences

We believe that many publicly traded REITs that invest in net leased properties concentrate their investment activity in properties leased to tenants whose creditworthiness has been rated by a nationally recognized statistical rating organization, which tend to be larger and often publicly traded organizations, with the result that unrated, middle-market and smaller companies are relatively underserved and offer us an opportunity to make investments with attractive risk-adjusted return potential.

Furthermore, we believe that there is strong demand for our net-lease capital solutions among middle-market and smaller owner-operators that own commercial real estate, in part, due to the bank regulatory environment, which, since the turmoil in the housing and mortgage industries from 2007-2009, has generally been characterized by increased scrutiny and regulation.

We believe that this environment has made commercial banks less responsive to the long-term capital needs of unrated middle-market and small companies, many of which have historically depended on commercial banks for their financing.

Furthermore, we believe that there is strong demand for our net-lease capital solutions among middle-market and smaller companies that own commercial real estate, in part, due to the bank regulatory environment, which, since the turmoil in the housing and mortgage industries from 2007-2009, has generally been characterized by increased scrutiny and regulation.

We believe that this environment has made commercial banks less responsive to the long-term capital needs of unrated middle-market and smaller companies, many of which have historically depended on commercial banks for their financing.

Accordingly, we see an attractive opportunity to address capital needs of these companies by offering them an efficient alternative for financing their real estate versus accessing traditional mortgage or bank debt and/or using their own equity.

3 unchanged sentences

• Carefully Constructed Portfolio of Properties Leased to Service-Oriented or Experience-Based Tenants .

We have strategically constructed a portfolio that is diversified by tenant, industry, concept and geography and generally avoids exposure to businesses that we believe are subject to pressure from e-commerce.

We have strategically constructed a portfolio that is diversified by tenant, industry, concept and

geography and generally avoids exposure to businesses that we believe are subject to pressure from e-commerce.

Our properties are generally subject to long-term net leases that we believe provide us with a stable and predictable base of revenue from which to grow our portfolio.

As of December 31, 2022, our portfolio consisted of 1,653 properties, with annualized base rent of $297.2 million, which was purposefully selected by our management team in accordance with our focused and disciplined investment strategy.

Our portfolio is diversified with 350 tenants operating 538 different concepts across 48 states and in 16 distinct industries.

None of our tenants contributed more than 3.4% of our annualized base rent as of December 31, 2022, and our strategy targets a scaled portfolio that, over time, allows us to derive no more than 5.0% of our annualized base rent from any single tenant or more than 1.0% from any single property.

We focus on investing in properties leased to tenants operating in the service-oriented or experience-based businesses noted above.

As of December 31, 2022, 93.0% of our annualized base rent was attributable to tenants operating service-oriented and experience-based businesses.

We believe that our portfolio's diversity and our rigorous underwriting decrease the impact on us of an adverse event affecting an individual tenant, industry or region, and our focus on leasing to tenants in industries where operating properties are essential to generating their revenues and profits (and that we believe are well-positioned to withstand competition from e-commerce businesses), increases the stability and predictability of our rental revenue.

As of December 31, 2023, our portfolio consisted of 1,873 properties, with total annualized base rent of $364.8 million, which was purposefully selected by our management team in accordance with our focused and disciplined investment strategy.

Our diversified portfolio is comprised of 374 tenants operating 588 different concepts across 48 states and in 16 distinct industries.

No single tenant contributed more than 3.8% of our annualized base rent as of December 31, 2023, consistent with our strategy of having a scaled portfolio that, over time, allows us to derive no more than 5.0% of our annualized base rent from any single-tenant or more than 1.0% from any single property.

We believe that our portfolio's diversity and the rigorous underwriting process we utilize decreases the impact on us of an adverse event affecting an individual tenant, industry or region.

Our focus on leasing to tenants in industries where the operator's properties are essential to generating their revenues and profits (and that we believe are well-positioned to withstand competition from e-commerce businesses) increases the stability and predictability of our rental revenue.

• Differentiated Investment Strategy .

We seek to acquire and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities at the property that are essential to the generation of its sales and profits.

We seek to acquire and lease freestanding, single-tenant commercial real estate properties where a tenant engages with or services its customers and conducts activities at the property that are essential to the generation of its sales and profits.

We primarily seek to invest in properties leased to middle-market companies that we determine have attractive credit characteristics and stable operating histories.

We believe middle-market companies are underserved from a capital perspective and that we can offer them attractive real estate financing solutions while allowing us to enter into leases that provide us with attractive risk-adjusted returns.

Furthermore, many net lease transactions with middle-market companies involve properties that are individually relatively small, which allows us to avoid concentrating a large amount of capital in individual properties.

We maintain close relationships with our tenants, which we believe allows us

to source additional investments and become the capital provider of choice as our tenants' businesses grow and their real estate needs increase.

Furthermore, the properties we invest in with middle-market companies typically are smaller assets, in terms of square footage.

As a result, our average size investment of $2.7 million as of December 31, 2023 provides a level of diversity in our portfolio, in that we do not have oversized amounts of capital attributable to any individual property.

Our differentiated strategy benefits from us maintaining a close relationship with our existing tenants, allowing us to source additional investments from these tenants and establishing a position as a preferred capital provider, helping our tenants grow their businesses and address their real estate needs.

• Disciplined Underwriting Leading to Strong Portfolio Characteristics .

We generally seek to invest in single assets or portfolios of assets through transactions which range in aggregate purchase price from $2 million to $100 million.

Our size allows us to focus on investing in a segment of the market that we believe is underserved from a capital perspective and where we can originate or acquire relatively smaller assets on attractive terms that provide meaningful growth to our portfolio.

In addition, we seek to invest in commercially desirable properties that are suitable for use by different tenants, offer attractive risk-adjusted returns and possess characteristics that reduce our real estate investment risks.

Our focus on investing in properties operated by middle market and smaller operators provides us with what we believe is a large addressable market of investment opportunities, one in which our tenants are largely undeserved from a capital perspective.

In addition, because we invest in smaller sized, more granular properties, our assets are more fungible in that the properties typically are more commercially desirable given their smaller footprint, and as such there are more potential tenants that could operate in the property were we to need to re-tenant for any reason.

As of December 31, 2023:

6 unchanged sentences

• Growth-Oriented Balance Sheet Scalable Infrastructure .

We believe our financial position and existing infrastructure support our external growth strategy.

As of December 31, 2022, we had the ability to borrow up to $600.0 million under our $600.0 million senior unsecured revolving credit facility that matures in April 2026.

We believe our financial position, liquidity and existing operating infrastructure are supportive of our external growth strategy.

As of December 31, 2023, our

total liquidity was $779.6 million, including $49.0 million of cash and cash equivalents and restricted cash, $130.6 million available upon settlement of our outstanding forward equity contracts, and $600.0 million of availability under our senior unsecured revolving credit facility that matures in February 2026.

As of December 31, 2023, we had $1.7 billion of gross debt outstanding, with a weighted average maturity of 4.9 years, and net debt of $1.6 billion.

5 unchanged sentences

We also maintain an ATM Program and, as of December 31, 2023, we had the ability to sell additional common stock thereunder with an aggregate gross sales price of up to $279.4 million.

We have $130.6 million of unsettled forward equity as of December 31, 2023, including $83.7 million sold through our equity offering completed in September 2023 and $46.9 million sold on a forward basis under our ATM program in the fourth quarter of 2023 and early 2024.

• Experienced and Proven Management Team .

1 unchanged sentence

Our senior management team has been responsible for our focused and disciplined investment strategy and for developing and implementing our investment sourcing, underwriting, closing and asset management infrastructure, which we believe can support significant investment growth without a proportionate increase in our operating expenses.

As of December 31, 2022, 87.6% of our portfolio's annualized base rent was attributable to internally originated sale-leaseback transactions and 85.8% was acquired from parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).

The substantial experience, knowledge and relationships of our senior

leadership team provide us with an extensive network of contacts that we believe allows us to originate attractive investment opportunities and effectively grow our business.

During the year ended December 31, 2023, 98.8% of our new investments in real estate were attributable to internally originated sale-leaseback transactions and 85.1% of our new investments were consummated with parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).

The substantial experience, knowledge and relationships of our senior leadership team provide us with an extensive network of contacts that we believe allows us to originate attractive investment opportunities and effectively grow our business.

• Scalable Platform Allows for Significant Growth .

Building on our senior leadership team's experience in net lease real estate investing, we have developed leading origination, underwriting, financing, and property management capabilities.

Our platform is scalable, and we seek to leverage our capabilities to improve our efficiency and processes to continue to seek attractive risk-adjusted growth.

We believe our platform is scalable, and we consistently seek to leverage our capabilities to improve our efficiency and processes to continue to seek attractive risk-adjusted growth.

While we expect that our general and administrative expenses could increase as our portfolio grows, we expect that such expenses as a percentage of our portfolio and our revenues will decrease over time due to efficiencies and economies of scale.

During the years ended December 31, 2022, 2021 and 2020, we invested in properties with aggregate investment values of $937.4 million, $974.0 million and $602.8 million, respectively.

During the years ended December 31, 2023, 2022 and 2021, we invested in properties with aggregate investment values of $1.0 billion, $937.4 million and $974.0 million, respectively.

• Extensive Tenant Financial Reporting Supports Active Asset Management.

6 unchanged sentences

We seek to maintain the stability of our rental revenue and maximize the long-term return on our investments while continuing our growth by using our focused and disciplined underwriting and risk management expertise.

When underwriting assets, we emphasize commercially desirable properties, with strong operating performance, healthy rent coverage ratios and tenants with attractive credit characteristics.

In general, we seek to enter into leases with (i) relatively long terms (typically with initial terms of 15 years or more and tenant renewal options);

When underwriting assets, we focus on commercially desirable properties, with strong operating performance, healthy rent coverage ratios and tenants with what we believe are attractive credit characteristics.

In general, we seek to enter into leases with (i) relatively long contractual terms (typically with initial terms of 15 years or more and tenant renewal options);

(ii) attractive rent escalation provisions;

(iii) healthy rent coverage ratios;

and (iv) tenant obligations to periodically provide us with financial information, which provides us with information about the operating performance of the leased property and/or tenant and allows us to actively monitor the security of payments under the lease on an ongoing basis.

We strongly prefer to use master lease structures, pursuant to which we lease multiple properties to a single tenant on a unitary (i.e., "all or none") basis.

We prefer to use master lease structures, pursuant to which we lease multiple properties to a single-tenant on a unitary (i.e., "all or none") basis.

In addition, in the context of our sale-leaseback investments, we generally seek to establish contract rents that are at or below prevailing market rents, which we believe enhances tenant retention and reduces our releasing risk if a lease is rejected in a bankruptcy proceeding or expires.

9 unchanged sentences

Our management team utilizes our internal credit diligence to monitor the credit profile of each of our tenants on an ongoing basis.

We believe that this proactive approach

enables us to identify and address issues in a timely manner and to determine whether there are properties in our portfolio that are appropriate for disposition.

We believe that this proactive approach enables us to identify and address issues in a timely manner and to determine whether there are properties in our portfolio that are appropriate for disposition.

In addition, as part of our active portfolio management, we may selectively dispose of assets that we conclude do not offer a return commensurate with the investment risk, contribute to unwanted geographic, industry or tenant concentrations, or may be sold at a price we determine is attractive.

During the year ended December 31, 2022, we sold 52 properties for net sales proceeds of $155.6 million, including one property that was vacant.

During the year ended December 31, 2023, we sold 52 properties for net sales proceeds of $138.0 million, including three properties that were vacant.

We believe that our underwriting processes and active asset management enhance the stability of our rental revenue by reducing default losses and increasing the likelihood of lease renewals.

1 unchanged sentence

We plan to continue our disciplined growth by originating sale-leaseback transactions and opportunistically making acquisitions of properties subject to net leases that contribute to our portfolio’s tenant, industry and geographic diversification.

As of December 31, 2022, 87.6% of our portfolio’s annualized base rent was attributable to internally originated sale-leaseback transactions and 85.8% was acquired from parties who had previously engaged in transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).

In addition, we seek to enhance our relationships with our tenants to facilitate investment opportunities, including selectively agreeing to reimburse certain of our tenants for development costs at our properties in exchange for contractually specified rent that generally increases proportionally with our funding.

6 unchanged sentences

Middle-market companies are often willing to enter into leases with structures and terms that we consider attractive (such as master leases and leases that require ongoing tenant financial reporting) and believe contribute to the stability of our rental revenue.

In addition, we emphasize investment in properties leased to tenants engaged in service-oriented or experience-based businesses, such as car washes, restaurants (primarily quick service restaurants), early childhood education, medical and dental services, convenience stores, automotive services, equipment rental, entertainment and health and fitness, as we believe these businesses are generally more insulated from e-commerce pressure than many others.

In addition, we emphasize investment in properties leased to tenants engaged in service-oriented or experience-based businesses, such as restaurants (primarily quick service and casual dining), car washes, early childhood education, medical and dental services, convenience stores, automotive services, equipment rental, entertainment and health and fitness, as we believe these businesses are generally more insulated from e-commerce pressure than many others.

• Internal Growth Through Long-Term Triple-Net Leases That Provide for Periodic Rent Escalations .

7 unchanged sentences

We have access to multiple sources of debt capital, including, but not limited to, the investment grade-rated unsecured bond market and bank debt, through our revolving credit facility and our unsecured term loan facilities.

EBITDA re and Annualized Adjusted EBITDA re are non-GAAP financial measures.

Net debt, EBITDA re and Annualized Adjusted EBITDA re are non-GAAP financial measures.

Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures."

10 unchanged sentences

portfolio servicing (e.g., collections, property tax compliance, etc.);

and accounting, financial reporting, cash management and capital markets activities.

Women comprise 43% of our employees and hold approximately 47% of our management positions, providing significant leadership at our company, and minorities comprise approximately 23% of our employees and 18% of our management team.

Our commitment to diversity also extends to our board of directors, as three of its eight members, or approximately 38%, are women.

capital markets activity;

sustainability initiatives;

and accounting, financial reporting and cash management.

Women comprise 40% of our employee base and hold approximately 50% of our management positions, providing significant leadership at our company, and minorities comprise approximately 25% of our employee base and 14% of our management team.

Our commitment to diversity also extends to our Board, as three of its seven members, or approximately 43%, are women.

Additionally, we have a consistent and strong record of hiring veterans of the U.S.

military, including our chief executive officer.

military, including our chief executive officer and our senior vice president of investments.

We seek to provide a dynamic work environment that promotes the retention and development of our employees, and is a differentiating factor in our ability to attract new talent.

We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement and reasonable flexibility to allow a healthy work/life balance.

All of our employees are eligible to participate in our Equity Incentive Plan through the annual performance review process.

We value equal opportunity in the workplace and fair employment practices.

1 unchanged sentence

We endeavor to maintain a workplace that is free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law.

We have implemented a Human Rights Policy consistent with these values.

We conduct annual training in an effort to ensure that all employees remain aware of and help prevent harassment and discrimination.

5 unchanged sentences

EPRT is committed to conducting its business in accordance with the highest ethical standards.

responsibilities to all of our stakeholders, including our stockholders, creditors, employees, tenants, and business relationships, very seriously.

We take our responsibilities to all of our stakeholders, including our stockholders, creditors, employees, tenants, and business relationships, very seriously.

We are dedicated to being trusted stewards of capital and also providing our employees with a rewarding and dynamic work environment.

1 unchanged sentence

• Accountability and Transparency.

Our Board of Directors ("Board") and our management team are committed to strong corporate governance.

As stewards of our stockholder’s capital, we are committed to accountability and transparency regarding our ESG efforts;

Our Board and our management team are committed to strong corporate governance.

As stewards of capital, we are committed to accountability and transparency regarding our ESG efforts;

• Reducing our Carbon Footprint.

Implement sustainability upgrades at our corporate headquarters and our income properties to reduce our carbon footprint;

Implement sustainability upgrades at our corporate offices and our income properties to reduce our carbon footprint;

• Expanding our Relationships with our Tenants through Sustainability.

4 unchanged sentences

Maintain strong oversight and visibility over our ESG strategy and initiatives led by our independent and experienced Board, and specifically our Nominating and Corporate Governance Committee;

Publish our inaugural Corporate Responsibility Report during the first quarter of 2023, aligned with the Sustainability Accounting Standards Board and The Financial Stability Board Task Force on Climate-related Financial Disclosure indices;

Publish our Corporate Responsibility Report during the first quarter of 2024, aligned with the Sustainability Accounting Standards Board and The Financial Stability Board Task Force on Climate-related Financial Disclosure indices;

• Measurement.

Establish the carbon footprint of our portfolio, specifically our Scope 3 emissions, as we have immaterial Scope 1 and 2 emissions;

Continue to enhance our robust cybersecurity program including using third-party experts to facilitate our system penetration testing;

• Engagement.

Perform a survey of our tenants in 2024 to increase our understanding of their sustainability initiatives, expand our tenant engagement and understand how we can continue to contribute to our tenants' operational effectiveness;

4 unchanged sentences

Maintain our annual employee survey process to ensure consistent engagement with our team and promote our understanding of our work environment and opportunities for improvement.

Our approach to ESG begins with strong corporate governance.

We believe that the structure of our Board, its policies and practices and its oversight role are the overarching indicators of EPRT’s commitment to accountability regarding ESG.

We are committed to managing our Company for the benefit of all of our stakeholders and achieving long-term stockholder value.

Maintaining effective corporate governance is a critical component of our Company.

Importantly, we have a Board that is diverse and independent, notably including, but not limited to, these key attributes:

Independence:

Nearly 90% (all but one) of our Board is comprised of independent directors.

We value board refreshment, and the average tenure of our Board is less than 4 years.

We demonstrably value gender and racial/ethnic diversity on our Board;

nearly 40% of our Board is female and 13% (1 director) represent an ethnic minority.

We value diversity, not simply gender or minority representation, but experience and professional qualifications.

Our Board leads by example in our ESG efforts.

In addition, the following are additional elements of our corporate governance that are key considerations underlying our commitment to ESG:

We Have an Independent Non-Executive Board Chairman.

We separate the roles of Chairman and Chief Executive Officer and have an independent non-executive Chairman of the Board.

Our Board Committees Are Fully Independent.

Each member of our Audit, Compensation and Nominating and Corporate Governance Committees is an independent director.

Our Independent Directors Meet Without Management.

Our independent directors hold regular executive sessions without management present.

We Do Not Have a Staggered Board.

We hold annual elections for all our directors.

We Have an Active and Engaged Nominating and Corporate Governance Committee.

Our Nominating and Corporate Governance Committee plays an active role in managing our corporate governance and our risk management function, including environmental and sustainability initiatives, and developing, adopting and monitoring our corporate policies, processes and procedures in compliance with applicable rules and regulations of the Securities and Exchange Commission (“SEC”) and the New York Stock Exchange (“NYSE”).

We Assess Board Performance.

We conduct annual assessments of our Board and Board committees.

Whistleblower Protection.

We have implemented and updated our “whistleblower” policy that allows directors, officers and employees to file reports on a confidential and anonymous basis regarding issues of impropriety, violations of law, violations of corporate or other policies, or unethical business practices.

Our Stockholders Have the Authority to Amend our Bylaws.

In November of 2020, we adopted amended and restated bylaws that permit stockholders, by the affirmative vote of a majority of the votes entitled to be cast on the matter, to amend our bylaws, which power was previously vested exclusively in our Board.

Ethical Business Practices .

Our Board has adopted Corporate Governance Guidelines and a Code of Business Conduct and Ethics that applies to all of our officers, directors and employees.

In addition, we have adopted other business and workplace policies that apply to all of our directors, officers, employees, vendors and service providers that seek to create a culture that values high ethical standards, including integrity, honesty,

transparency and compliance with applicable laws, rules and regulations.

In particular the following policies, all of which are available on our website, reflect our commitment to ethical business practices:

Whistleblower Policy;

Insider Trading Policy;

Human Rights Policy;

Executive Compensation Clawback Policy;

Vendor Code of Conduct.

Transparency in our Reporting and Disclosures .

We are committed to being a leader in providing detailed public disclosure about our business, promoting transparency and accountability.

Our commitment to robust and transparent disclosures includes, but is not limited to, our filings with the SEC, our quarterly earnings releases and the associated supplemental information reporting packages, our corporate responsibility report, and our investor presentations.

Investor Engagement.

We value investor input and are committed to maintaining an active dialogue with our investors through extensive outreach.

During 2022, we held over 165 virtual or face-to-face meetings with investors, in addition to attending 11 industry/REIT conferences.

Stock Ownership Guidelines .

We have adopted a stock ownership policy applicable to our executive officers and independent directors under which each individual is expected to maintain beneficial ownership of shares of our common stock (including securities convertible into or exercisable or exchangeable for common stock) with a value equal to a specified multiple of their annual base cash compensation.

No Hedging or Pledging.

We have policies that prohibit our officers, directors and employees from hedging their investment in our stock, and prohibit our directors and executive officers from pledging or otherwise encumbering their investment in our securities as collateral for indebtedness.

Opted out of MUTA.

We have opted out of certain provisions of the Maryland General Corporation Law that may make it more difficult for or prevent a change in control.

We have opted out of the control share acquisition and the business combination statutes in the Maryland General Corporation Law, and we may not opt back into these without stockholder approval.

In addition, we are prohibited from adopting certain takeover protections, including classifying the Board, without first obtaining stockholder approval.

No “Poison Pill.” We do not maintain a stockholder rights plan (commonly referred to as a “poison pill”).

We will not adopt one in the future without (a) the approval of our stockholders or (b) seeking ratification from our stockholders within 12 months after adoption of the plan if the Board determines, in the exercise of its duties under applicable law, that it is in the Company’s best interest to adopt a rights plan without the delay of seeking prior stockholder approval.

One of the key responsibilities of our Board is informed oversight of our risk management process.

Our Board administers this oversight function directly, with support from its three standing committees, the Audit Committee , the Compensation Committee and the Nominating and Corporate Governance Committee, each of which is comprised solely of non-employee, independent directors and addresses risks specific to its respective areas of oversight.

Audit Committee.

The principal functions of our Audit Committee include oversight relating to:

The integrity of our financial statements;

Our complia nce with legal and regulatory requirements;

The ev aluation of the qualifications and independence of our independent registered public accounting firm;

The perform ance of our internal audit function.

The Audit Committee is also responsible for engaging, evaluating, compensating and overseeing an independent registered public accounting firm charged with auditing our financial statements, reviewing the

independence of the independent registered public accounting firm, considering the range of audit and non-audit fees and reviewing the adequacy of our internal accounting controls.

Compensation Committee.

The principal functions of our Compensation Committee include:

Assisting the independent directors in discharging the Board’s responsibilities relating to compensation of the Company’s executive officers and directors and approving individual executive officer compensation intended to attract, retain and appropriately reward employees in order to motivate their performance in the achievement of the Company’s business objectives and align their interests with the long-term interests of the Company’s stockholders;

Reviewing and recommending to the Board compensation plans, policies and programs.

Nominating and Corporate Governance Committee.

The principal functions of our Nominating and Corporate Governance Committee include:

Identifying, evaluating and recommending individuals qualified to become members of the Board;

Selecting, or recommending that the Board select, the director nominees to stand for election at each annual meeting of stockholders or to fill vacancies on the Board;

Developing and recommending to the Board a set of corporate governance guidelines applicable to the Company;

Direct oversight of the Company’s ESG strategy and implementation of initiatives, including but not limited to, the Company's commitment to environmental stewardship and sustainability, corporate social responsibility and effective corporate governance;

Overseeing the annual performance evaluation of the Board and its committees and management.

In addition, the Nominating and Corporate Governance Committee monitors our overall risk management process at an enterprise level, and periodically evaluates various risks and the processes in place to monitor and mitigate such risks, including portfolio risks, operational risks, balance sheet risks and human capital risks.

As a part of its oversight function, the Nominating and Corporate Governance Committee also reviews quarterly management reports addressing various matters including ESG and governance matters, and our progress in achieving related objectives.

Environmental Sustainability

We recognize that our commercial real estate assets can substantially impact the environment and the health and safety of building occupants.

We believe that being aware of and addressing these issues are important aspects of maintaining a successful and sustainable business.

Our commitment to environmental stewardship starts at our corporate headquarters in Princeton, New Jersey, and extends to our portfolio of income-producing properties, our investment and leasing practices, and to our tenants.

We are committed to expanding and enhancing our efforts to incorporate sustainability initiatives in our corporate governance and applicable business processes, including underwriting our investments, asset management activities, and disclosure and reporting practices.

Our position on sustainability is that reducing our carbon footprint and, where possible, that of our tenants is a strategic imperative, not simply because we believe it’s the right thing to do, but because we believe it is consistent with our core business objective of maximizing stockholder value and it also provides opportunities for us to help our tenants produce operating efficiencies and customer attraction opportunities.

We are committed to environmental stewardship and operating our business in a sustainable manner.

Accordingly, our investment, leasing and asset management practices are informed by our commitment to operate in a sustainable manner that we believe will support long-term value.

We are focused on advancing and continuing to develop our sustainability agenda.

Our Properties .

As a net-lease REIT, we do not control the day-to-day operations and activities at our properties that are leased to tenants.

Generally, our tenants have exclusive control over, and the ability to institute energy conservation and environmental management programs at, our properties.

While we are not able to mandate the sustainability practices of our tenants, our leases generally require our tenants to fully comply with all

applicable environmental laws, rules and regulations, and our asset management department actively monitors our properties in an effort to ensure that tenants are meeting their obligations with respect to environmental matters.

Prior to acquiring a property, we obtain a Phase I environmental site assessment to seek to identify any environmental issues and structure the related lease accordingly.

Our Green Lease .

The properties in our portfolio are generally leased to our tenants under long-term triple net leases, which give our tenants exclusive control over and the ability to institute energy conservation and environmental management programs at our properties.

In December 2021, we modified our standard lease form, which we use in our sale-leaseback transactions, to provide us with the contractual right to make sustainability improvements to our properties and to require our tenants to periodically provide us, at least annually, with information regarding their resource consumption, such as electricity and water usage (the “Green Lease”).

We believe that being aware of and, to the extent that we are able, addressing environmental issues are important aspects of maintaining a business that is successful and sustainable over the long-term.

Accordingly, we believe that supporting our tenants’ efforts to implement sustainability initiatives enhances their operations and prospects for success and therefore our own.

As of December 31, 2022, approximately 80% of our 299 new property investments in 2022 were subject to our Green Lease.

Sustainability Partnership .

In September 2022, we entered into a partnership with Budderﬂy Inc.

(“Budderfly”), a growing Energy-Efﬁciency-as-a-Service ("EEaaS") provider in the United States.

The Essential Sustainability Program intends to deploy signiﬁcant energy infrastructure improvements aimed to improve the energy efﬁciency at our buildings and to deliver operating savings to our tenants through a guaranteed monthly utility usage reduction.

Through the Essential Sustainability Program, we will invest capital in energy-efﬁcient technologies and equipment upgrades that Budderﬂy will install and manage at no cost to our tenants.

A 6% energy cost savings per month is passed through to the tenant.

The sustainability upgrades will include, but are not limited to:

the installation of LED lighting and lighting controls, higher efﬁciency HVAC units along with HVAC controls and monitoring, refrigeration controls and monitoring, solar solutions, and net metering and controls through Budderﬂy’s Facility Smart Grid System.

As part of the Essential Sustainability Partnership, for each agreement our tenants enter into with Budderfly and for which we invest the capital for the energy efficiency upgrades, Budderfly will identify, apply for and obtain payments, grants, credits or similar financial incentives related to the upgrades which will contribute to the return we achieve on our investment.

Our Headquarters.

In addition to assisting our tenants with their sustainability initiatives, we recognize that our Company has a direct carbon footprint at space occupied by us that we are committed to reducing.

We emphasize sustainability at our corporate headquarters, lease space in a building that is certified under the EPA’s Energy Star certification program and implement sustainability measures that seek to reduce our environmental impact and carbon footprint, such as:

Using energy efficient lighting and automated lighting control systems;

Minimizing HVAC and heating run times;

Maintaining an active single-stream recycling program for paper, plastic and cans;

Purchasing Energy Star certified computers, monitors and printers;

Using Energy Star power management settings on our computers and monitors;

Disposing all ink cartridges utilizing the manufacturer’s recycling program;

Providing water dispensing machines and eliminating the use of plastic and styrofoam cups and plastic water bottles.

Social Matters:

Company Culture

We seek to provide a dynamic, rewarding work environment that promotes the retention and career development of our employees and is a differentiating factor in our ability to attract new talent.

We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement, and reasonable flexibility to allow a healthy work-life balance.

Our employees further our commitment to social responsibility through their efforts to become involved in outside organizations that promote education, environmental and social well-being.

We are committed to maximizing value for our stockholders and believe it’s essential for all of our employees to be aligned in that commitment.

For that reason, all of our employees participate in the annual opportunity to beneﬁt from our equity incentive program.

All of our employees are stockholders in EPRT.

We have built a diverse and inclusive culture that encourages, supports and celebrates our employees' diverse voices and experiences.

We believe a diverse employee base enhances our execution as a company, encourages innovative thinking, and increases alignment with our tenants and the community around us.

The following charts highlight our workforce diversity as of December 31, 2022:

Diversity, equity and inclusion are key to executing our business plan and generating differentiated results.

We value equal opportunity in the workplace and fair employment practices.

We have a talented and diverse group of employees, and we are committed to maintaining an inclusive and rewarding work environment.

Among the programs and benefits that we offer employees are:

Competitive market-based compensation;

We cover nearly 100% of the cost of health benefits for each employee as part of providing comprehensive medical, dental and vision insurance for all employees and their families;

A 401(k) plan with a matching contribution of 100% up to 6% of amounts deferred;

We also utilize a “personal time off” (or PTO) program for our employees, which allows for, at a minimum, four weeks of paid time off per year per employee;

Access to a free onsite gym;

Continuing education reimbursement;

Paid internship program;

Ten paid company holidays.

Our commitment to maintaining a positive work environment extends beyond offering attractive compensation and opportunities for professional development.

We actively promote a dynamic and inclusive work environment by:

• Employee Engagement .

We hold weekly all-hands staff meetings virtually or at our corporate headquarters, where developments in, and objectives of, our business are broadly communicated.

After each quarter, we hold a company-wide meeting, where we summarize overall corporate achievements and acknowledge significant employee contributions.

At our weekly and quarterly meetings, all employees are encouraged to provide input into the development of our business and voice any suggestions or concerns that they may have.

• Team Building .

We believe that fostering a collegial work environment is an important element of driving long-term success.

Accordingly, we strive to develop a supportive work environment through various events, such as Company-sponsored sports teams, an annual summer outing and a holiday celebration near year end, which are designed to foster an increasing level of collegiality among our employees and develop a shared sense of mission.

• Civic Engagement .

We are committed to improving the community around us, and we believe that giving back is an important part of being a responsible corporate citizen.

We actively support many organizations in the greater Princeton, New Jersey area surrounding our corporate headquarters, and we encourage our employees to volunteer with organizations that are meaningful to them.

We have been proud to support organizations such as :

The Capital Area YMCA;

The Victor Green Foundation (an organization that provides opportunity for underserved youth, by focusing on teaching and encouraging the value of continuing education, physical fitness and wellness and a positive character);

Better Beginnings Child Development Center (an organization that provides affordable childcare for working parents);

Alex’s Lemonade Stand Foundation (an organization that seeks to cure childhood cancer and support families with children battling cancer).

Our tenants are generally contractually required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases.

4 unchanged sentences

See "Item 1A.

Risk Factor-"Risks Related to Our Business and Properties-Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us."

Risk Factors—Risks Related to Our Business and Properties—Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us."

In addition to being a named insured on our tenants' liability and property insurance policies, we separately maintain commercial insurance policies providing general liability and umbrella coverages associated with our portfolio.

7 unchanged sentences

Federal, state and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances, hazardous waste or petroleum products into the environment.

Under various of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with the actual or threatened contamination.

Under various of these laws and regulations, a current or previous owner, operator or tenant of real estate may be required to

investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with the actual or threatened contamination.

These laws may impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination.

The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain

contributions from other identified, solvent, responsible parties of their fair share toward these costs.

These costs may be substantial, and can exceed the value of the property.

24 unchanged sentences

Before completing any property acquisition, we obtain environmental assessments in order to identify potential environmental concerns at the property.

These assessments are carried out in accordance with the Standard Practice for Environmental Site Assessments (ASTM Practice E 1527-13) as set by ASTM International, formerly known as the American Society for Testing and Materials, and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property's chain of title and review of historical aerial photographs and other information on past uses of the property.

These assessments are carried out in accordance with the

Standard Practice for Environmental Site Assessments (ASTM Practice E 1527-13) as set by ASTM International, formerly known as the American Society for Testing and Materials, and generally include a physical site inspection, a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property's chain of title and review of historical aerial photographs and other information on past uses of the property.

These assessments are limited in scope.

If, however, recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances

A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments.

11 unchanged sentences

Information contained on or hyperlinked from our website is not incorporated by reference into and should not be considered part of this Annual Report or our other filings with the the SEC.

We electronically file with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, pursuant to Section 13(a) of the Exchange Act.

We electronically file with the Securities and Exchange Commission (“SEC”) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, pursuant to Section 13(a) of the Exchange Act.

You may obtain these reports and any amendments thereto free of charge on our website as soon as reasonably practicable after we file such material with, or furnish it to, the SEC, or by sending an email message to info@essentialproperties.com.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business