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Item 8. Financial Statements and Supplementary Data

2024-02-14 compared with 2023-02-16 · 231 added, 311 removed, 1062 unchanged (34% of the section changed)

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Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of Essential Properties Realty Trust, Inc.

(a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for the two years then ended, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

(a Maryland corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes and financial statement schedules included under Item 15(a) (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 14, 2024, expressed an unqualified opinion.

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We believe that our audits provide a reasonable basis for our opinion.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Evaluation of the measurement of the fair values used in the purchase price allocation of real estate acquisitions

As described further in Notes 2 and 3 to the consolidated financial statements, the acquisition of property for investment purposes is typically accounted for as an asset acquisition in which the Company allocates the purchase price of acquired properties to land, buildings, and identified intangible assets and liabilities, based in each case on their relative estimated fair values and without giving rise to goodwill.

The Company acquired approximately $806.8 million of real estate investments during the year ended December 31, 2022.

We identified the measurement of the fair values used in the purchase price allocation of real estate acquisitions as a critical audit matter.

The principal consideration for our determination that the measurement of the fair values used in the purchase price allocation of real estate acquisitions is a critical audit matter is the higher risk of estimation uncertainty in

determining estimates of fair value.

As described further in Notes 2 and 3 to the consolidated financial statements, the acquisition of real estate for investment purposes is typically accounted for as an asset acquisition in which the Company allocates the purchase price of acquired properties to land, buildings, site improvements and other identified tangible and intangible assets and liabilities on a relative fair value basis.

The Company acquired approximately $1.0 billion of real estate investments during the year ended December 31, 2023.

We identified fair value measurements used to allocate the purchase price to the assets acquired and liabilities assumed in the real estate acquisitions as a critical audit matter.

The principal consideration for our determination that the fair value measurements used to allocate the purchase price to the assets acquired and liabilities assumed in the real estate acquisitions is a critical audit matter is the

higher risk of estimation uncertainty in determining fair value estimates.

Specifically, fair value measurements were sensitive to establishing a range of market assumptions for land values, building replacement values, and rental rates.

Establishing the market assumptions for land, building and rent included identifying the relevant properties in the established range most comparable to the acquired property.

There was a high degree of subjective and complex auditor judgement in evaluating these key inputs assumptions.

Our audit procedures related to the measurement of the fair values used in the purchase price allocation of real estate acquisitions included the following, among others:

Establishing the market assumptions for land, building, site improvements and rent included identifying the relevant properties in the established range most comparable to the acquired property.

There was a high degree of subjective and complex auditor judgment in evaluating these key inputs assumptions.

Our audit procedures related to the fair value measurements used to allocate the purchase price to assets acquired and liabilities assumed in the real estate acquisitions included the following, among others.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant controls relating to the process to allocate the purchase price of real estate acquisitions, including internal controls over the selection and review of the inputs and assumptions to estimate fair value, including those used by third-party valuation professionals.

For a selection of real estate acquisitions, we involved our real estate valuation professionals with specialized skills and knowledge who assisted in evaluating the valuation techniques and assumptions to the fair value measurements used in the purchase price allocations.

We read the purchase agreements and tested the completeness and accuracy of underlying data used that was contractual in nature, including rental data.

We read the purchase agreements and tested the completeness and accuracy of underlying data used that was contractual in nature, including rental data where applicable.

The evaluation included comparison of the Company’s assumptions to independently developed ranges using market data from industry transaction databases and published industry reports.

We analyzed where the Company’s market rental rates fell compared to our valuation professionals’ independently developed ranges to evaluate if management bias was present.

Evaluation of the provision for impairment of real estate investments

As described further in Note 2 to the consolidated financial statements, the Company reviews its real estate investments for potential impairment when certain events or changes in circumstances indicate that the carrying amount may not be recoverable through operations plus estimated disposition proceeds.

Those events and circumstances include, but are not limited to, significant changes in real estate market conditions, estimated residual values, properties on non-accrual status, identified or pending vacancies, expiring leases, damaged properties, and an expectation to sell assets before the end of the previously estimated life.

For real estate investments that show an indication of impairment, management determines whether an impairment has occurred by comparing the estimated undiscounted future cash flows, including the residual value of the real estate, with the carrying amount of the individual asset.

Forecasting the estimated future cash flows requires management to make estimates and assumptions about significant variables, such as the probabilities of outcomes of leasing prospects and local market information, estimated holdings periods, direct and terminal capitalization rates, and potential disposal proceeds to be received upon a sale.

We identified the evaluation of the provision for impairment of real estate investments as a critical audit matter.

The principal consideration for our determination that the evaluation of impairment of investments in real estate is a critical audit matter is the higher risk of estimation uncertainty due to sensitivity of management judgements, not only regarding indicators of impairment, but also regarding estimates and assumptions utilized in forecasting cash flows for cost recoverability and determining fair value measurements.

Specifically, forecasted cash flows for recoverability and estimates of fair value were sensitive to changes in the probability of outcomes of leasing prospects and local market information, anticipated sale values, and capitalization rates.

There was a high degree of subjective and complex auditor judgement in evaluating these key inputs and assumptions.

Our audit procedures related to the evaluation of the provision for impairment of investments in real estate included the following, among others:

We obtained an understanding, evaluated the design, and tested the operating effectiveness of relevant controls over the evaluation of potential real estate investment impairments, such as internal controls over the Company’s monitoring of the real estate investment portfolio, the Company’s assessments of recoverability, and the Company’s estimates of fair value.

We evaluated the completeness of the population of investments in real estate requiring further analysis as compared to the criteria established in management’s accounting policies over impairment.

For a selection of impacted real estate investments, we tested the Company’s undiscounted cash flow analyses and estimates of fair value for real estate investments with indicators of impairment, including evaluating the reasonableness of the methods and significant inputs and assumptions used.

For a selection of impacted real estate investments, we compared the probability of outcomes with historical performance and considered any relevant prospective data, including property-specific industry and local market information.

For a selection of impacted real estate investments, we compared anticipated sale values and capitalization rates with comparable observable market data, which involved the use of our valuation specialists.

Our assessment included sensitivity analyses over these significant inputs and assumptions.

We analyzed where the Company’s market rental rates fell within our real estate valuation professionals’ independently developed ranges to evaluate if management bias was present.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2021.

Jacksonville, Florida

New York, New York

February 14, 2024

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/s/ GRANT THORNTON LLP

Jacksonville, Florida

February 15, 2023

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Essential Properties Realty Trust, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows, for the year ended December 31, 2020 of Essential Properties Realty Trust, Inc.

(the “Company”), and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with U.S.

generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Ernst & Young LLP

We served as the Company’s auditor from 2017 to 2021.

New York, New York

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Distributions in excess of cumulative earnings ( 105,545 ) ( 117,187 )

Accumulated other comprehensive income (loss) 40,719 ( 14,786 )

Accumulated other comprehensive income 4,019 40,719

Total stockholders' equity 2,978,579 2,488,261

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Net income $ 191,415 $ 134,742 $ 96,211

Other comprehensive income (loss):

Other comprehensive income:

Deferred loss on cash flow hedges — — ( 4,824 )

Unrealized income (loss) on cash flow hedges 56,736 17,273 ( 42,121 )

Cash flow hedge losses reclassified to interest expense 26 10,059 6,676

Total other comprehensive income (loss) 56,762 22,508 ( 35,445 )

Unrealized (loss) gain on cash flow hedges ( 9,187 ) 56,736 17,273

Cash flow hedge loss reclassified to interest expense ( 27,687 ) 26 10,059

Total other comprehensive (loss) income ( 36,874 ) 56,762 22,508

Comprehensive income 154,541 191,504 118,719

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Balance at December 31, 2020 106,361,524 $ 1,064 $ 1,688,540 $ ( 77,665 ) $ ( 37,181 ) $ 1,574,758 $ 7,190 $ 1,581,948

Cumulative adjustment upon adoption of ASC 326 — — — ( 187 ) — ( 187 ) ( 1 ) ( 188 )

Common stock issuance 18,230,721 182 469,018 — — 469,200 — 469,200

Common stock withheld related to net share settlement of equity awards — — — ( 353 ) — ( 353 ) — ( 353 )

Costs related to issuance of common stock — — ( 12,153 ) — — ( 12,153 ) — ( 12,153 )

Other comprehensive loss — — — — ( 35,232 ) ( 35,232 ) ( 213 ) ( 35,445 )

Other comprehensive income — — — — 22,395 22,395 113 22,508

Equity based compensation expense 56,808 — 5,683 — — 5,683 — 5,683

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Costs related to issuance of common stock — — ( 1,010 ) — — ( 1,010 ) — ( 1,010 )

Other comprehensive income — — — — 55,505 55,505 1,257 56,762

Other comprehensive loss — — — — ( 36,700 ) ( 36,700 ) ( 174 ) ( 36,874 )

Equity based compensation expense 283,751 3 9,003 — — 9,006 — 9,006

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Depreciation and amortization 102,219 88,562 69,146

Amortization of lease incentive 3,480 3,074 3,847

Amortization of lease incentives 1,782 3,480 3,074

Amortization of above/below market leases and right of use assets, net ( 275 ) ( 217 ) 749

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Changes in other assets and liabilities:

Rent receivables, prepaid expenses and other assets 4,507 2,216 ( 12,058 )

Rent receivables, prepaid expenses and other assets, net ( 5,956 ) 4,507 2,216

Accrued liabilities and other payables 767 ( 3,943 ) 14,433

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Repayment of secured borrowings — — ( 175,781 )

Borrowings under term loan facilities 397,523 — 180,000

Borrowings under term loans 247,972 397,523 —

Borrowings under revolving credit facility 70,000 299,000 393,000

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Payments for taxes related to net settlement of equity awards ( 3,671 ) ( 2,452 ) ( 353 )

Payments of debt extinguishment costs ( 467 ) — —

Payment of debt extinguishment costs — ( 467 ) —

Deferred financing costs ( 2,426 ) ( 4,991 ) ( 2,120 )

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Net cash provided by financing activities 580,014 506,798 689,059

Net increase in cash and cash equivalents and restricted cash 11,742 26,768 11,671

Net (decrease) increase in cash and cash equivalents and restricted cash ( 22,537 ) 11,742 26,768

Cash and cash equivalents and restricted cash, beginning of period 71,500 59,758 32,990

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Non-cash investing and financing activities:

Adjustment upon adoption of ASC 326 $ — $ — $ 188

Reclassification from construction in progress upon project completion $ 45,518 $ 26,948 $ 4,478

Non-cash repayment of term loan facility 200,000 — —

Non-cash borrowing under term loan facility ( 202,028 ) — —

Non-cash debt issuance costs 2,028 — —

Net settlement of proceeds on the sale of investments ( 4,625 ) ( 28,938 ) ( 960 )

Non-cash investments in real estate and loans receivable 22,679 1,227 ( 860 )

Unrealized (gains) losses on cash flow hedges ( 56,615 ) ( 27,890 ) 44,920

Non-cash investments in real estate and loan receivable activity — 22,679 1,227

Unrealized losses on cash flow hedges ( 9,187 ) ( 56,615 ) ( 27,890 )

Payable and accrued offering costs 24 30 —

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(the “Operating Partnership”).

On June 25, 2018, the Company completed the initial public offering (“IPO”) of its common stock.

The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”.

COVID-19 Pandemic

For much of 2020, the COVID-19 pandemic (“COVID-19”) created significant uncertainty and economic disruption that adversely affected the Company and its tenants.

The adverse impact of the pandemic moderated during 2021 and significantly diminished during 2022.

However, the continuing impact of the COVID-19 pandemic and its duration are unclear, and various factors could erode the progress that has been made against the virus to date.

If conditions similar to those experienced in 2020, at the height of the pandemic, were to reoccur, they would adversely impact the Company and its tenants.

The Company continues to closely monitor the impact of COVID-19 on all aspects of its business.

Summary of Significant Accounting Policies

Basis of Accounting

The accompanying unaudited consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the U.S.

The accompanying consolidated financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with the rules and regulations of the U.S.

Securities and Exchange Commission (the “SEC”).

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All intercompany accounts and transactions have been eliminated in consolidation.

As of December 31, 2022 and 2021, the Company, directly and indirectly, held a 99.6 % ownership interest in the Operating Partnership, and the consolidated financial statements include the financial statements of the Operating Partnership as of these dates.

See Note 7—Equity for changes in the ownership interest in the Operating Partnership.

As of December 31, 2023 and 2022, the Company, directly and indirectly, held a 99.7 % and 99.6 % ownership interest in the Operating Partnership, respectively, and the consolidated financial statements include the financial statements of the Operating Partnership as of these dates.

See Note 8—Non-controlling Interests for changes in the ownership interest in the Operating Partnership.

Use of Estimates

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Under Accounting Standards Update ("ASU") 2017-1, Business Combinations (Topic 805):

Clarifying the Definition of a Business , an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Clarifying the Definition of a

Business , an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred.

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Costs of repairs and maintenance are expensed as incurred.

The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values.

Tangible assets may include land, site improvements and buildings.

Intangible assets may include the value of in-place leases and above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.

The Company incurs various costs in the leasing and development of its properties.

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The Company does, however, opportunistically agree to reimburse certain of its tenants for development costs at its properties in exchange for contractually-specified rent that generally increases proportionally with its funding.

The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values.

Tangible assets may include land, site improvements and buildings.

The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to the tangible assets based on the fair value of the tangible assets.

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Real estate investments are no longer depreciated when they are classified as held for sale.

If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on the Company's operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations for all applicable periods.

If the disposal, or intended disposal, of certain

real estate investments represents a strategic shift that has had or will have a major effect on the Company's operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations for all applicable periods.

Depreciation and Amortization

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The Company recognizes interest income on loans receivable using the effective-interest method applied on a loan-by-loan basis.

Direct costs associated with originating loans are offset against any

related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method.

Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method.

Direct Financing Lease Receivables

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Allowance for Credit Losses

On January 1, 2020, the Company adopted ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”) on a prospective basis.

ASC 326 changed how the Company accounts for credit losses for all of its loans and direct financing lease receivables.

ASC 326 replaced the previous “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information than used under the incurred losses model.

Upon adoption of ASC 326, the Company recorded an initial allowance for credit losses of $ 0.2 million as of January 1, 2020, netted against loans and direct financing receivables on its consolidated balance sheet.

Under ASC 326, the Company is required to re-evaluate the expected loss of its loans and direct financing lease receivables portfolio at each balance sheet date.

As of December 31, 2022 and 2021, the Company recorded an allowance for credit losses of $ 0.8 million.

Changes in the Company's allowance for credit losses are presented within change in provision for credit losses in its consolidated statements of operations.

In connection with its adoption of ASC 326 on January 1, 2020, the Company implemented a new process including the use of a credit loss forecasting model.

The Company has used this credit loss forecasting model for estimating expected lifetime credit losses, at the individual asset-level, for its loans and direct financing lease receivable portfolio.

The forecasting model used is the probability weighted expected cash flow method, depending on the type of loan or direct financing lease receivable and global assumptions.

The Company uses a real estate loss estimate model (“RELEM”) which estimates losses on its loans and direct financing lease receivable portfolio, for purposes of calculating allowances for credit losses.

The RELEM allows the Company to refine (on an ongoing basis) the expected loss estimate by incorporating loan specific assumptions as necessary, such as anticipated funding, interest payments, estimated extensions and estimated loan repayment/refinancing at maturity to estimate cash flows over the life of the loan.

Under ASC Topic 326, Financial Instruments - Credit Losses, the Company uses a real estate loss estimate model (“RELEM”) which estimates losses on its loans and direct financing lease receivable portfolio, for purposes of calculating allowances for credit losses.

The RELEM allows the Company to refine (on an ongoing basis) the expected loss estimate by incorporating asset-specific assumptions as necessary, such as anticipated funding, interest payments, estimated extensions and estimated loan repayment/refinancing at maturity to estimate cash flows over the life of the loan or direct financing lease receivable.

The model also incorporates assumptions related to underlying collateral values, various loss scenarios, and predicted losses to estimate expected losses.

The Company's specific loan-level inputs include loan-to-stabilized-value (“LTV”), principal balance, property type, location, coupon, origination year, term, subordination, expected repayment date and future funding.

The Company's specific asset-level inputs include loan-to-stabilized-value (“LTV”), principal balance, property type, location, coupon, origination year, term, subordination, expected repayment date and future funding.

The Company categorizes the results by LTV range, which it considers the most significant indicator of credit quality for its loans and direct financing lease receivables.

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The Company also evaluates each loan and direct financing lease receivable measured at amortized cost for credit deterioration at least quarterly.

Credit deterioration occurs when it is deemed probable that the Company will not be able to collect all amounts due according to the contractual terms of the loan or direct financing lease receivables.

The Company's allowance for credit losses is adjusted to reflect its estimation of the current and future economic conditions that impact the performance of the real estate assets securing its loans.

These estimations include various macroeconomic factors impacting the likelihood and magnitude of potential credit losses for the Company's loans and direct financing lease receivables during their anticipated term.

Changes in the Company's allowance for credit losses are presented within change in provision for credit losses in it's consolidated statements of operations.

Impairment of Long-Lived Assets

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This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition.

These estimates

consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.

These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors.

If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used.

For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset.

Impairment losses, if any, are recorded directly within our consolidated statement of operations.

Impairment losses, if any, are recorded directly within the Company's consolidated statements of operations.

The Company recorded the following provisions for impairment of long lived assets during the periods presented:

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These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit.

As of December 31, 2022 and 2021, the Company had deposits of $ 62.3 million and $ 59.8 million, respectively, of which $ 62.1 million and $ 59.5 million, respectively, were in excess of the amount insured by the FDIC.

Although the Company bears risk with respect to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result.

As of December 31, 2023 and 2022, the Company had cash and cash equivalents of $ 39.8 million and $ 62.3 million, respectively, of which $ 39.6 million and $ 62.1 million, respectively, were not insured by the FDIC.

Although the Company bears risk with respect to amounts not insured by the FDIC, it has not experienced and does not anticipate any losses as a result due to the high quality of the financial institutions where balances are held.

Restricted Cash

Restricted cash primarily consists of cash proceeds from the sale of assets held by a qualified intermediary to facilitate tax-deferred exchange transactions under Section 1031 of the Internal Revenue Code.

Forward Equity Sales

The Company has and may continue to enter into forward sale agreements relating to shares of its common stock, either through its 2022 ATM Program (as defined herein) or through an underwritten public offering.

The Company has and may continue to enter into forward sale agreements relating to shares of its common stock, either through its 2022 ATM Program (as defined herein) or through underwritten public offerings.

These agreements may be physically settled in stock, settled in cash or net share settled at the Company’s election.

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Prior to settlement, a forward sale agreement will be reflected in the diluted earnings per share calculations using the treasury stock method.

Under this method, the number of shares of the Company’s common stock used in diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period).

Under this method, the number of shares of the Company’s common stock used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares of the Company’s common stock that would be issued upon full physical settlement of such forward sale agreement over the number of shares of the Company’s common stock that could be purchased by the Company in the market (based on the average market price during the reporting period) using the proceeds receivable upon full physical settlement (based on the adjusted forward sale price at the end of the reporting period).

Consequently, prior to settlement of a forward sale agreement, there will be no dilutive effect on the Company’s earnings per share except during periods when the average market price of the Company’s common stock is above the adjusted forward sale price.

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Financing costs related to establishing the Company’s Revolving Credit Facility (as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the facility and are reported as a component of rent receivables, prepaid expenses and other assets, net on the consolidated balance sheets.

Financing costs related to the issuance of the Company’s borrowings under the 2024 Term Loan, 2027 Term Loan, 2028 Term Loan and 2031 Notes were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related outstanding debt balance on the consolidated balance sheets.

Financing costs related to the incurrence of borrowings under the Company's unsecured term loans and the issuance of senior unsecured notes were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related debt balance on the consolidated balance sheets.

Derivative Instruments

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The Company may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment.

If a derivative is designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income to the extent that it is effective.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designated and qualifies for hedge accounting treatment.

If a derivative is designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other

comprehensive income (loss) in the consolidated statements of comprehensive income to the extent that it is effective.

Any ineffective portion of a change in derivative fair value is immediately recorded in earnings.

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Rent from tenants is recorded in accordance with the terms of each lease on a straight-line basis over the non-cancellable initial term of the lease from the later of the date of the commencement of the lease and the date of acquisition of the property subject to the lease.

Rental revenue recognition begins when the tenant controls the space and continues through the term of

the related lease.

Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease.

Because substantially all of the leases provide for rental increases at specified intervals, the Company records a straight-line rent receivable and recognizes revenue on a straight-line basis through the expiration of the non-cancelable term of the lease.

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If the assessment of the collectability of substantially all payments due under a lease changes from probable to not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current period reduction of rental revenue in the consolidated statements of operations.

The Company recorded the following amounts as increases to or reductions of rental revenue for tenant credit during the periods presented:

The Company recorded the following adjustments as increases or decreases to rental revenue for tenant credit during the periods presented:

Year ended December 31,

(in thousands) 2023 2022 2021

Adjustment to rental revenue for tenant credit $ ( 371 ) -371000 $ 2,900 $ ( 7,149 )

Adjustment to (decrease) increase rental revenue for tenant credit $ ( 640 ) $ ( 371 ) $ 2,900

Offering Costs

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As of December 31, 2023 and 2022, the Company capitalized a total of $ 91.3 million and $ 90.3 million, respectively, of such costs, which are presented as a reduction of additional paid-in capital in the Company's consolidated balance sheets.

The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"), commencing with its taxable year ended December 31, 2018.

The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Code commencing with its taxable year ended December 31, 2018.

REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed.

As a REIT, the Company will generally not be subject to U.S.

federal income tax to the extent that it

meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income.

federal income tax to the extent that it meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income.

For the period subsequent to the effective date of its REIT election, the Company continues to meet the organizational and operational requirements and expects distributions to exceed REIT taxable income.

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The Company’s policy is to classify interest expense and penalties relating to taxes in general and administrative expense in the consolidated statements of operations.

During the years ended December 31, 2022, 2021 and 2020, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with respect to taxes accrued as of December 31, 2022 or 2021.

During the years ended December 31, 2023, 2022 and 2021, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with

respect to taxes accrued as of December 31, 2023 or 2022.

The 2022, 2021, and 2020 taxable years remain open to examination by federal and/or state taxing jurisdictions to which the Company is subject.

Equity-Based Compensation

The Company grants shares of restricted common stock and restricted share units (“RSUs”) to its directors, executive officers and other employees that vest over specified time periods, subject to the recipient’s continued service.

The Company also grants performance-based RSUs to its executive officers, the final number of which is determined based on objective and subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service.

The Company accounts for the restricted common stock and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value.

The Company grants shares of restricted common stock ("RSAs") and restricted stock units (“RSUs”) to its directors, executive officers and other employees that vest over specified time periods, subject to the recipient’s continued service.

The Company also grants performance-based RSUs to executive officers, the final number of which is determined based on objective and subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service.

The Company accounts for RSAs and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value.

The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods.

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The assets and liabilities of the Operating Partnership are consolidated and reported as assets and liabilities on the Company’s consolidated balance sheets as of December 31, 2023 and 2022.

Additionally, the Company has concluded that certain entities to which it has provided mortgage loans are VIEs because the entities' equity was not sufficient to finance their activities without additional subordinated financial

The following table presents information about the Company’s mortgage loan-related VIEs as of the dates presented:

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Recent Accounting Developments

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848) (“ASU 2020-4”).

ASU 2020-4 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts.

The guidance in ASU 2020-4 is optional and may be elected over time as reference rate reform activities occur.

During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives.

Application of these expedients preserves the presentation of derivatives consistent with past presentation.

The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic.

Under existing lease guidance, the entity would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant, which would be accounted for under the lease modification framework, or if a lease concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework.

The Lease Modification Q&A provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease.

This election is only available when total cash flows resulting from the modified lease are substantially similar to or less than the cash flows in the original lease.

The Company made this election and accounts for rent deferrals by increasing its rent receivables as receivables accrue and continuing to recognize income during the deferral period.

Lease concessions or amendments other than rent deferrals are evaluated to determine if a substantive change to the consideration in the original lease contract has occurred and should be accounted for as a lease modification.

The Company continues to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and records an adjustment to rental revenue for amounts that are not probable of collection.

For lease concessions granted in conjunction with the COVID-19 pandemic, the Company reviewed all amounts recognized on a tenant-by-tenant basis for collectability.

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”).

The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity.

In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging:

Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities.

Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets.

The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

The guidance must be adopted as of the beginning of the fiscal year of adoption.

The Company adopted this guidance on January 1, 2021 and the adoption of ASU 2020-06 did not have a material impact on the Company's consolidated financial statements.

In July 2021, the FASB issued ASU 2021-05, Lease (Topic 842):

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and 2) the lessor would have otherwise recognized a day-one loss.

The amendments in ASU 2021-05 are effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The adoption of ASU 2020-05 is not expected to have a material impact on the Company's consolidated financial statements.

The amendments in ASU 2021-05 are

effective for fiscal years beginning after December 15, 2021, with early adoption permitted.

The adoption of ASU 2021-05 did not have a material impact on the Company's consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

The guidance in ASU 2023-07 improves reportable segment disclosure requirements through enhanced disclosures about significant segment expenses.

ASU 2023-07 includes requirements to disclose the title and position of the Chief Operating Decision Maker ("CODM") along with disclosure of the significant segment expenses regularly provided to the CODM, the extension of certain annual disclosures to interim periods, requirements that entities that have a single reportable segment must apply ASC 280 in its entirety, and requirements that permit more than one measure of segment profit or loss to be reported under certain conditions.

The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of the guidance on the Company's consolidated financial statements and related disclosures.

The following table presents information about the number of investments in the Company's real estate investment portfolio as of each date presented:

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_____________________________________

(1) Includes 8 and 11 properties which are subject to leases accounted for as direct financing leases or loans as of December 31, 2022 and 2021, respectively.

(2) Properties secure 20 and 17 mortgage loans receivable as of December 31, 2022 and 2021, respectively.

(3) Includes one building which is subject to a lease accounted for as a direct financing lease as of December 31, 2021.

(1) Includes six and eight properties which are subject to leases accounted for as direct financing leases or loans as of December 31, 2023 and 2022, respectively.

(2) Properties secure 20 mortgage loans receivable as of December 31, 2023 and 2022.

The following table presents information about the gross investment value of the Company's real estate investment portfolio as of each date presented:

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Investments in 2023 and 2022

The following table presents information about the Company’s acquisition activity during the years ended December 31, 2022 and 2021:

The following table presents information about the Company’s investment activity during the years ended December 31, 2023 and 2022:

Year ended December 31,

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Construction in progress (3)

105,075 51,870

Intangible lease assets 2,553 3,366

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_____________________________________

(1) During the year ended December 31, 2022, the Company acquired the fee interest in 223 properties and acquired one property subject to a ground lease.

(2) Represents amounts incurred at and subsequent to acquisition and includes $ 0.8 million and $ 0.1 million, respectively, of capitalized interest expense during the years ended December 31, 2022 and 2021.

During the years ended December 31, 2022 and 2021, the Company did no t have any investments that individually represented more than 5% of the Company’s total investment activity.

(1) During the year ended December 31, 2023, the Company acquired fee interests in 289 properties and acquired two properties subject to ground leases.

(2) During the year ended December 31, 2022, the Company acquired fee interests in 223 properties and acquired one property subject to a ground lease.

(3) Represents amounts incurred at and subsequent to initial investment and includes $ 2.4 million and $ 0.8 million, respectively, of capitalized interest expense during the years ended December 31, 2023 and 2022.

During the years ended December 31, 2023 and 2022, the Company did not make any new investments that individually represented more than 5% of the Company’s total real estate investment portfolio.

Gross Investment Activity

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Sales of investments in real estate ( 38 ) ( 57,154 )

Relinquishment of properties at end of ground lease term ( 3 ) ( 1,931 )

Provisions for impairment of real estate (1)

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Sales of investments in real estate ( 51 ) ( 120,809 )

Relinquishment of properties at end of ground lease term ( 2 ) ( 1,543 )

Provisions for impairment of real estate (3)

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_____________________________________________

(1) During the year ended December 31, 2020, the Company identified and recorded provisions for impairment at 7 vacant and 10 tenanted properties.

(2) During the year ended December 31, 2021, the Company identified and recorded provisions for impairment at 2 vacant and 16 tenanted properties.

(3) During the year ended December 31, 2022, the Company identified and recorded provisions for impairment at 4 vacant and 9 tenanted properties.

(1) During the year ended December 31, 2021, the Company identified and recorded provisions for impairment at two vacant and 16 tenanted properties.

(2) During the year ended December 31, 2022, the Company identified and recorded provisions for impairment at four vacant and nine tenanted properties.

(3) During the year ended December 31, 2023, the Company identified and recorded provisions for impairment at two vacant and six tenanted properties.

(4) Includes $ 321.9 million of accumulated depreciation as of December 31, 2023.

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Loans and Direct Financing Lease Receivables

As of December 31, 2022 and 2021, the Company had 23 and 22 loans receivable outstanding, with an aggregate carrying amount of $ 238.7 million and $ 187.8 million, respectively.

As of December 31, 2023 and 2022, the Company had 20 and 23 mortgage loans receivable outstanding, respectively.

As of December 31, 2023 and 2022, the Company had two and three leases accounted for as loans, respectively, with an aggregate carrying amount of $ 223.1 million and $ 238.7 million, respectively.

The maximum amount of loss due to credit risk is the Company's current principal balance of $ 223.1 million as of December 31, 2023.

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Loan Type Monthly Payment (1)

Number of Secured Properties Effective Interest Rate Stated Interest Rate Maturity Date December 31,

Number of Secured Properties Effective Interest Rate Stated Interest Rate Maturity Date Principal Balance Outstanding

December 31, 2023 December 31, 2022

Mortgage (2)(3)

I/O 2 8.80 % 8.00 % 2039 $ 12,000 $ 12,000

P+I 8.10 % 8.10 % 2059 — 6,096

I/O 2 8.53 % 7.75 % 2039 7,300 7,300

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I/O 1 8.10 % 8.10 % 2025 2,891 —

I/O 10 8.93 % 8.25 % 2037 28,938 —

Leasehold interest P+I 1 2.25 % (4)

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Leasehold interest P+I — 4.97 % (4)

2034 1,473 1,560

Leasehold interest P+I 1 4.97 % (5)

2038 1,517 1,562

Net investment $ 223,085 $ 238,695

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(3) Loan allows for prepayments in whole or in part without penalty.

(4) This leasehold interest was accounted for as a loan receivable, as the lease for two land parcels contained an option for the lessee to repurchase the leased parcels in 2024 or 2025.

(5) These leasehold interests are accounted for as loans receivable, as the leases for each property contain an option for the related lessee to repurchase the leased property in the future.

(4) These leasehold interests are accounted for as loans receivable, as the lease for each property contains an option for the lessee to repurchase the leased property in the future.

Scheduled principal payments due to be received under the Company's loans receivable as of December 31, 2023 were as follows:

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Allowance for Credit Losses

The Company utilizes a real estate estimate model (i.e.

a RELEM model) which estimates losses on loans and direct financing lease receivables for purposes of calculating an allowance for credit losses.

As of December 31, 2022 and 2021, the Company recorded an allowance for credit losses of $ 0.8 million and $ 0.8 million, respectively.

Changes in the Company’s allowance for credit losses are presented within provision for credit losses in the Company’s consolidated statements of operations.

The Company utilizes a real estate loss estimate model (i.e.

a RELEM) which estimates losses on loans and direct financing lease receivables for purposes of calculating an allowance for credit losses.

As of December 31, 2023 and 2022, the Company recorded an allowance for credit losses of $ 0.7 million and $ 0.8 million, respectively, which is recorded within loans and direct financing receivables on the Company's consolidated balance sheets.

Changes in the Company’s allowance for credit losses are presented within change in provision for credit losses in the Company’s consolidated statements of operations.

For the years ended December 31, 2023, 2022 and 2021, the changes to the Company's allowance for credit losses were as follows:

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Balance at December 31, 2020 $ 1,018

Cumulative-effect adjustment upon adoption of ASC 326 188

Current period provision for expected credit losses (1)

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_____________________________________

(1) The increase in expected credit losses was due to the changes in assumptions regarding then-current macroeconomic factors related to COVID-19.

(2) The decrease in expected credit losses is due to assumptions regarding current macroeconomic factors returning to pre-pandemic values due to the reduction of the adverse impact of the COVID-19 pandemic.

(1) The decrease in expected credit losses was due to assumptions regarding current macroeconomic factors returning to pre-pandemic values due to the reduction of the adverse impact of the COVID-19 pandemic.

(2) The change in expected credit loss was primarily due to an overall increase or decrease in the size of our loans and direct financing lease receivables portfolio.

The Company considers the ratio of loan to value ("LTV") to be a significant credit quality indicator for its loans and direct financing lease portfolio.

The following table presents information about the LTV of the Company's loans and direct financing lease receivables measured at amortized cost as of as of December 31, 2023:

Amortized Cost Basis by Origination Year Total Amortized Costs Basis

Amortized Cost Basis by Origination Year Total Amortized Cost Basis

(in thousands) 2023 2022 2021 2020 Prior to 2020

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The Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose rental revenue for the years ended December 31, 2023, 2022 or 2021 represented 10% or more of total rental revenue in the Company's consolidated statements of operations.

The following table lists the states where the rental revenue from the properties in that state during the periods presented represented 10% or more of total rental revenue in the Company's consolidated statements of operations:

The following table lists the state where the rental revenue from the properties in that state during the periods presented represented 10% or more of total rental revenue in the Company's consolidated statements of operations:

Year ended December 31,

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(2) Excludes the amortization and accretion of above- and below-market lease intangible assets and liabilities and lease incentives and the adjustment to rental revenue for tenant credit.

The Company has a number of ground leases, an office lease and other equipment leases which are classified as operating leases.

The Company has a number of ground leases, office leases and other equipment leases which are classified as operating leases.

As of December 31, 2023, the Company's ROU assets and lease liabilities were $ 8.9 million and $ 9.8 million, respectively.

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2028 Term Loan January 2028 400,000 400,000 6.3 % 5.3 %

2029 Term Loan February 2029 (2)

450,000 — 6.4 % — %

Senior unsecured notes July 2031 400,000 400,000 3.0 % 3.0 %

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(1) Interest rates are presented as stated in debt agreements and do not reflect the impact of the Company's interest rate swap and lock agreements, where applicable (see Note 6—Derivative and Hedging Activities).

(2) After giving effect to extension options exercisable at the Operating Partnership's election.

The following table summarizes the scheduled principal payments on the Company’s outstanding indebtedness as of December 31, 2023:

(in thousands) 2024 Tem Loan 2027 Term Loan 2028 Term Loan Senior Unsecured Notes Revolving Credit Facility Total

(in thousands) 2027 Term Loan 2028 Term Loan 2029 Term Loan (1)

Senior Unsecured Notes Revolving Credit Facility (2)

2024 $ — $ — $ — $ — $ — $ —

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Total $ 430,000 $ 400,000 $ 450,000 $ 400,000 $ — $ 1,680,000

______________________

(1) After giving effect to extension options exercisable at the Operating Partnership's election.

(2) Any amounts drawn will be due in February 2026.

The Company was not in default of any provisions under any of its outstanding indebtedness as of December 31, 2023 or 2022.

Revolving Credit Facility, 2024 Term Loan and 2028 Term Loan

On April 12, 2019, the Company, through the Operating Partnership, entered into an amended and restated credit agreement (the “Amended Credit Agreement”) with a group of lenders, amending and restating the terms of the Company’s previous $ 300.0 million revolving credit facility (the “2018 Credit Facility”) to increase the maximum aggregate initial original principal amount of the revolving loans available thereunder up to $ 400.0 million (the “Revolving Credit Facility”) and to permit the incurrence of an additional $ 200.0 million in term loans thereunder (the “2024 Term Loan”).

Revolving Credit Facility, 2024 Term Loan, 2028 Term Loan and 2029 Term Loan

In April 2019, the Company, through the Operating Partnership, entered into an amended and restated credit agreement (the “Amended Credit Agreement”) with a group of lenders, amending and restating the terms of the Company’s previous $ 300.0 million revolving credit facility to increase the maximum aggregate initial original principal amount of the revolving loans available thereunder up to $ 400.0 million (the “Revolving Credit Facility”) and to permit the incurrence of an additional $ 200.0 million in term loans thereunder (the “2024 Term Loan”).

The full amount available under the 2024 Term Loan was borrowed in May 2019.

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The Revolving Credit Facility matures on February 10, 2026, with two extension options of six months each, exercisable by the Operating Partnership subject to the satisfaction of certain conditions.

The 2024 Term Loan matures on April 12, 2024.

The loans under each of the Revolving Credit Facility and the 2024 Term Loan initially bear interest at an annual rate of applicable Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin (which applicable margin varies between the Revolving Credit Facility and the 2024 Term Loan).

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At the Operating Partnership's election, on and after receipt of an investment grade corporate credit rating from S&P, Moody's or Fitch, the applicable margin and the revolving facility fee rate will be a spread and rate, as applicable, set according to the credit ratings provided by S&P, Moody's and/or Fitch.

In July 2022, the Credit Agreement was further amended to provide for an additional $ 400.0 million of second tranche term loans, which could be borrowed on a delayed draw basis (the “2028 Term Loan”).

In July 2022, the Credit Agreement was further amended to provide for an additional $ 400.0 million of second tranche term loans (the “2028 Term Loan”).

Loans under the 2028 Term Loan in an aggregate principal amount of $ 250.0 million were drawn in July 2022, concurrently with the closing of such amendment, and the remaining $ 150 million was drawn in October 2022.

Such amendment also amended the applicable margin grid such that the applicable pricing for all borrowings under the Credit Agreement is based on the credit rating of the Company’s long-term senior unsecured non-credit enhanced debt for borrowed money (subject to a single step-down in the applicable pricing if the Company achieves a consolidated leverage ratio that is less than 0.35 to 1:00 while maintaining a credit rating of BBB/Baa2 from S&P, Moody's and/or Fitch), and reset the accordion feature to maintain the $ 600.0 million availability thereunder.

In August 2023, the Credit Agreement was further amended to provide for an additional $ 450.0 million of term loans (the "2029 Term Loan").

Concurrently with the closing of such amendment, loans under the 2029 Term Loan in an aggregate principal amount of $ 250.0 million were drawn, a portion of which was used to pay off the 2024 Term Loan in full.

Additional loans under the 2029 Term Loan were drawn in an aggregate principal amount of $ 125.0 million in September 2023 and $ 75.0 million in October 2023.

The 2029 Term Loan has an original maturity of three years, which may be extended, at the Operating Partnership's election, to February 2029 by exercising two one-year extension options and a six-month extension option.

The 2029 Term Loan will initially bear interest at an annual rate of applicable Adjusted Term SOFR plus an applicable margin.

Amounts previously borrowed and repaid under the 2024 Term Loan cannot be reborrowed.

The Company accounted for the repayment of the 2024 Term Loan as a debt extinguishment and recorded a $ 0.1 million loss on debt extinguishment during the year ended December 31, 2023.

Each of the Revolving Credit Facility, the 2028 Term Loan and the 2029 Term Loan is freely pre-payable at any time.

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Loans repaid under the 2028 Term Loan and 2029 Term Loan cannot be reborrowed.

The Operating Partnership is the borrower under the Credit Agreement, and the Company and certain of its subsidiaries that own direct or indirect interests in eligible real property assets are guarantors under the Credit Agreement.

The Operating Partnership is the borrower under the Credit Agreement, and the Company and certain of its subsidiaries that own direct or indirect interests in an eligible real property assets are guarantors under the Credit Agreement.

Under the terms of the Credit Agreement, the Company is subject to various restrictive financial and nonfinancial covenants which, among other things, require the Company to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios.

The Company was in compliance with all financial covenants and was not in default on any provisions under the Credit Agreement as of December 31, 2023 and 2022.

The following table presents information about the Revolving Credit Facility for the years ended December 31, 2022, 2021 and 2020:

The following table presents information about the Revolving Credit Facility for the periods presented:

(in thousands) 2023 2022 2021

Balance on Balance on January 1, $ 144,000 $ 18,000 $ 46,000

Balance on January 1, $ — $ 144,000 $ 18,000

Borrowings 70,000 299,000 393,000

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Total $ 2,241 $ 4,024 $ 2,717

Total deferred financing costs, net, of $ 3.7 million and $ 1.4 million related to the Revolving Credit Facility were included within rent receivables, prepaid expenses and other assets, net on the Company’s consolidated balance sheets as of December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the Company had $ 600.0 million and $ 256.0 million, respectively, of unused borrowing capacity under the Revolving Credit Facility.

Total deferred financing costs, net, of $ 2.5 million and $ 3.7 million related to the Revolving Credit Facility are included within rent receivables, prepaid expenses and other assets, net on the Company’s consolidated balance sheets as of December 31, 2023 and 2022, respectively.

As of December 31, 2023 and 2022, the Company had $ 600.0 million of unused borrowing capacity under the Revolving Credit Facility.

2027 Term Loan

On November 26, 2019, the Company, through the Operating Partnership, entered into a $ 430 million term loan (the “2027 Term Loan”) with a group of lenders.

The 2027 Term Loan provides for term loans to be drawn up to an aggregate amount of $ 430 million with a maturity of November 26, 2026.

The 2027 Term Loan provides for term loans to be drawn up to an aggregate amount of $ 430 million with an initial maturity of November 26, 2026.

The Company borrowed the entire $ 430.0 million available under the 2027 Term Loan in separate draws in December 2019 and March 2020.

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The Operating Partnership is the borrower under the 2027 Term Loan, and the Company and certain of its subsidiaries that own direct or indirect interests in eligible real property assets are guarantors under the facility.

Under the terms of the 2027 Term Loan, the Company is subject to various restrictive financial and nonfinancial covenants which, among other things, require the Company to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios.

The Company was in compliance with all financial covenants and was not in default of any provisions under the 2027 Term Loan as of December 31, 2023 and 2022.

The following table presents information about aggregate interest expense related to the 2024 Term Loan, 2027 Term Loan and 2028 Term Loan:

The following table presents information about aggregate interest expense related to the 2024 Term Loan, 2027 Term Loan, 2028 Term Loan and 2029 Term Loan:

Year ended December 31,

3 unchanged sentences

Total $ 68,199 $ 24,803 $ 10,555

Total deferred financing costs, net, of $ 4.5 million and $ 3.0 million as of December 31, 2022 and 2021, respectively, related to the Term Loan Facilities are included as a component of unsecured term loans, net of deferred financing costs on the Company’s consolidated balance sheets.

The Company fixed the interest rates on its term loan facilities’ variable-rate debt through the use of interest rate swap agreements.

As of December 31, 2023 and 2022, total deferred financing costs, net, of $ 7.2 million and $ 4.5 million, respectively, related to the term loan facilities are included as a component of unsecured term loans, net of deferred financing costs on the Company’s consolidated balance sheets.

The Company fixed the interest rates on its variable-rate term loan debt through the use of interest rate swap agreements.

See Note 6—Derivative and Hedging Activities for additional information.

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• a make-whole premium calculated in accordance with the indenture governing the notes.

In addition, if any of the 2031 Notes are redeemed on or after April 15, 2031 (three months prior to the stated maturity date of such notes), the redemption price will equal 100 % of the principal amount of the notes to be redeemed plus accrued and unpaid interest, if any, up to, but not including, the redemption date, without any make-whole premium.

The following table presents information about interest expense related to the Company's senior unsecured notes for the periods presented:

1 unchanged sentence

(in thousands)

2023 2022 2021

Interest expense $ 11,713 $ 11,711 $ 5,952

1 unchanged sentence

Total $ 12,273 $ 12,273 $ 6,247

Total deferred financing costs, net, of $ 4.0 million and $ 4.5 million related to the Company's senior unsecured notes were included within senior unsecured notes, net on the Company's consolidated balance sheet as of December 31, 2022 and 2021.

Total deferred financing costs, net, of $ 3.6 million and $ 4.0 million related to the Company's senior unsecured notes were included within senior unsecured notes, net on the Company's consolidated balance sheets as of December 31, 2023 and 2022, respectively.

The Company was in compliance with all financial covenants and was not in default of any provisions under the 2031 Notes as of December 31, 2023 and 2022.

Secured Borrowings

In the normal course of business, the Company has transferred financial assets in various transactions with Special Purpose Entities (“SPE”) determined to be VIEs, which primarily consisted of securitization trusts established for a limited purpose (the “Master Trust Funding Program”).

These SPEs were formed for the purpose of securitization transactions in which the Company transferred assets to an SPE, which then issued to investors various forms of debt obligations supported by those assets.

In these securitization transactions, the Company typically received cash from the SPE as proceeds for the transferred assets and retained the rights and obligations to service the transferred assets in accordance with servicing guidelines.

All debt obligations issued from the SPEs were non-recourse to the Company.

The Company determined that the SPEs created in connection with its Master Trust Funding Program should be consolidated as the Company was the primary beneficiary of each of these entities.

Series 2017-1 Notes

In July 2017, the Company issued a series of notes under the Master Trust Funding Program, consisting of $ 232.4 million of Class A Notes and $ 15.7 million of Class B Notes (together, the “Series 2017-1 Notes”).

The Series 2017-1 Notes were issued by three SPEs formed to hold assets and issue the secured borrowings associated with the securitization.

In February 2020, the Company voluntarily prepaid $ 62.3 million of the Class A Series 2017-1 Notes at par plus accrued interest pursuant to the terms of the agreements related to such securities.

The Company was not subject to the payment of a make whole amount in connection with this prepayment.

The Company accounted for this prepayment as a debt extinguishment and recorded a $ 0.9 million loss related to the amortization of deferred financing costs during the year ended December 31, 2020.

In June 2021, the Company voluntarily prepaid the remaining $ 171.2 million of principal outstanding on the Series 2017-1 Notes and paid a make-whole premium of $ 2.5 million pursuant to the terms of the agreements related to such securities.

The Company accounted for this prepayment as a debt extinguishment.

The following table presents information about interest expense related to the Master Trust Funding Program:

Year ended December 31,

(in thousands) 2022 2021 2020

Interest expense $ — $ 3,551 $ 7,619

Amortization of deferred financing costs — 312 656

Total $ — $ 3,863 $ 8,275

Derivative and Hedging Activities

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Interest Rate Swap 4.07 % 11/28/2022 1/25/2028 25,000 ( 492 ) ( 428 )

Interest Rate Swap 4.15 % 8/24/2023 2/28/2029 50,000 ( 1,550 ) —

Interest Rate Swap 4.38 % 9/29/2023 2/28/2029 75,000 ( 3,193 ) —

Interest Rate Swap 4.39 % 9/29/2023 2/28/2029 50,000 ( 2,114 ) —

Interest Rate Swap 4.32 % 10/11/2023 2/28/2029 25,000 ( 981 ) —

Interest Rate Swap 4.32 % 10/11/2023 2/28/2029 25,000 ( 980 ) —

Interest Rate Swap 4.51 % 10/31/2023 2/28/2029 25,000 ( 1,207 ) —

Interest Rate Swap (4)

4.48 % 4/12/2024 2/28/2029 100,000 ( 4,919 ) —

Interest Rate Swap (4)

4.48 % 4/12/2024 2/28/2029 100,000 ( 4,913 ) —

(1) In June 2022, the Company converted the reference rate used in these interest rate swaps from 1-month LIBOR to 1-month Adjusted Term SOFR.

$ 1,480,000 $ 7,975 $ 45,603

_____________________________________

(1) Notional value indicates the extent of the Company’s involvement in these instruments, but does not represent exposure to credit, interest rate or market risks.

(3) Derivatives in a liability position totaling $ 2.3 million as of December 31, 2022 are included within derivative liabilities in the Company’s consolidated balance sheets.

(4) Derivatives in an asset position totaling to $ 47.9 million as of December 31, 2022 are included within derivative assets in the Company’s consolidated balance sheets.

(2) Derivatives in an asset position are included within derivative assets and derivatives in a liability position are included within derivative liabilities in the Company's consolidated balance sheets.

(3) In June 2022, the Company converted the reference rate used in these interest rate swaps from 1-month LIBOR to 1-month Adjusted Term SOFR.

(4) The Company entered into two forward swap contracts during the year ended December 31, 2023.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company either defaults or is capable of being declared in default on any of its indebtedness, then the Company could also be declared in default on its derivative obligations.

In May 2021, in anticipation of the issuance of the 2031 Notes (which was completed in June 2021), the Company entered into a treasury rate lock agreement which was designated as a cash flow hedge associated with $ 330.0 million of principal.

In June 2021, the agreement was settled in accordance with its terms.

The Company recorded a deferred loss of $ 4.8 million from the settlement of this treasury rate lock agreement, which was recognized as a component of other comprehensive income (loss) in the Company's consolidated statements of comprehensive income/(loss) for the year ended December 31, 2021.

The following table presents amounts recorded to accumulated other comprehensive income/loss related to derivative and hedging activities for the periods presented:

The following table presents amounts recorded to accumulated other comprehensive income related to derivative and hedging activities for the periods presented:

Year ended December 31,

(in thousands) 2023 2022 2021

Accumulated other comprehensive income (loss) $ 56,762 $ 22,508 $ ( 35,445 )

As of December 31, 2022, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 48.2 million.

December 31, 2022, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 2.4 million.

As of December 31, 2021, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 11.9 million.

As of December 31, 2021, there were no derivatives in a net asset position.

During the year ended December 31, 2022, the Company recorded a gain on the change in fair value of its interest rate swaps of approximately $ 26,000 and during the years ended December 31, 2021 and 2020, the Company recorded a loss on the change in fair value of its interest rate swaps of $ 10.1 million and $ 6.7 million, respectively.

These gains and losses are included in interest expense in the Company's consolidated statements of operations for the respective periods.

Other comprehensive (loss) income $ ( 36,874 ) $ 56,762 $ 22,508

As of December 31, 2023, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 31.1 million and the fair value of derivatives in a net liability position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ 23.4 million.

As of December 31, 2022, the fair value of derivatives in a net asset position, including accrued interest but excluding any adjustment for nonperformance risk related to these agreements, was $ 48.2 million and the fair value of derivatives in a net liability position, including accrued interest but excluding an adjustment for nonperformance risk related to these agreements, was $ 2.4 million.

During the year ended December 31, 2023, the Company realized a gain on the change in fair value of its interest rate swaps of $ 27.7 million, which was included as a reduction of interest expense in the Company's consolidated statements of operations.

During the years ended December 31, 2022 and 2021, the Company realized a loss on the change in fair value of its interest rate swaps of approximately $ 26,000 and $ 10.1 million, respectively, which are included in interest expense in the Company's consolidated statements of operations.

As of December 31, 2023 and December 31, 2022, the Company had not posted any collateral related to these agreements and was not in breach of any provisions of such agreements.

If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, which were a $ 45.9 million asset and $ 11.9 million liability as of December 31, 2022 and 2021, respectively.

If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value, which were a $ 7.7 million net asset and a $ 45.9 million net asset as of December 31, 2023 and 2022, respectively.

Stockholders' Equity

In January 2020, the Company completed a follow-on offering of 7,935,000 shares its common stock, including 1,035,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $ 25.20 per share.

Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 191.5 million.

In September 2020, the Company completed a follow-on offering of 10,120,000 shares its common stock, including 1,320,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $ 19.00 per share.

Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 184.1 million.

In April 2021, the Company completed a follow-on offering of 8,222,500 shares of its common stock, including 1,072,500 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $ 23.50 per share.

In April 2021, the Company completed a follow-on primary offering of 8,222,500 shares of its common stock, including 1,072,500 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $ 23.50 per share.

Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 185.1 million.

In August 2022, the Company completed a follow-on offering of 8,740,000 shares of its common stock, including 1,140,000 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.

In August 2022, the Company completed a follow-on primary offering of 8,740,000 shares of its common stock, including the full exercise of the underwriters' option to purchase 1,140,000 additional shares of common stock, at a public offering price of $ 23.00 per share.

Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ 192.6 million.

In February 2023, the Company completed a follow-on primary offering of 8,855,000 shares of its common stock, including the full exercise of the underwriters' option to purchase 1,155,000 additional shares of common stock, at a public offering price of $ 24.60 per share, and entered into forward sale agreements relating to all such shares.

All shares were physically settled as of May 2023 and the Company realized net proceeds from this offering, after deducting underwriting discounts and commissions and other expenses, of $ 209.3 million.

In September 2023, the Company completed a follow-on primary offering of 12,006,000 shares of its common stock, including the full exercise of the underwriters' option to purchase up to 1,566,000 additional shares of common stock, at a public offering price of $ 23.00 per share, and entered into forward sale agreements relating to all such shares.

Through December 31, 2023, the Company physically settled 8,165,087 shares under the forward sale agreements relating to this offering, realizing net proceeds of $ 180.0 million.

Assuming full physical settlement of the remaining forward sale agreements, net proceeds from this offering, after deducting underwriting discounts and commissions and other expenses and making certain other adjustments as provided in the forward sale agreements, are expected to be $ 263.4 million.

The Company is required to settle the balance of the forward sale agreements by September 2024.

At the Market Program

In May 2022, the Company established a new at the market common equity offering program, pursuant to which it can publicly offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $ 500 million (the "2022 ATM Program") through the identified sales agents, as its sales agents or, if applicable, as forward sellers, or directly to such agents as principals.

In addition to the issuance and sale by the Company of shares to or through the agents, the 2022 ATM Program also permits the Company to enter into separate forward sale agreements with the identified forward purchasers.

Refernces to our "ATM Program" are to the 2022 ATM Program or the 2022 ATM Program and our prior ATM programs as the context requires.

In addition to the issuance and sale by the Company of shares to or through the agents, the 2022 ATM Program also permits the Company to enter into

separate forward sale agreements with the identified forward purchasers.

References to the Company's "ATM Program" are to the 2022 ATM Program or the 2022 ATM Program and its prior ATM programs as the context requires.

The following table presents information about the 2022 ATM Program and the Company's prior ATM Programs:

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_____________________________________

(1) Includes 957,453 shares as of December 31, 2022 that the Company sold on a forward basis that were physically settled for cash in January 2023.

(1) Includes 1,937,450 shares that the Company sold on a forward basis and were not physically settled as of December 31, 2023.

The following table details information related to activity under the ATM Program for each period presented:

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_____________________________________

(1) Includes 957,453 shares during the year ended December 31, 2022 that the Company sold on a forward basis that were physically settled for cash in January 2023.

(1) Includes 1,937,450 shares that the Company sold on a forward basis and were not physically settled as of December 31, 2023.

(2) During the year ended December 31, 2023, the Company issued an additional 957,453 shares of common stock which were previously sold on a forward basis under the ATM Program and were unsettled as of December 31, 2022.

Dividends on Common Stock

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Common Stock Total Dividend (dollars in thousands)

November 30, 2022 December 30, 2022 January 13, 2023 $ 0.275 $ 39,246

December 1, 2023 December 29, 2023 January 12, 2024 $ 0.285 $ 47,024

September 7, 2023 September 29, 2023 October 13, 2023 $ 0.28 $ 43,788

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March 7, 2023 March 31, 2023 April 14, 2023 $ 0.275 $ 41,031

December 3, 2021 December 31, 2021 January 13, 2022 $ 0.26 $ 32,466

November 30, 2022 December 30, 2022 January 13, 2023 $ 0.275 $ 39,246

September 2, 2022 September 30, 2022 October 14, 2022 $ 0.27 $ 38,533

May 27, 2021 June 30, 2021 July 15, 2021 $ 0.25 $ 29,559

June 2, 2022 June 30, 2022 July 14, 2022 $ 0.27 $ 35,916

March 14, 2022 March 31, 2022 April 13, 2022 $ 0.26 $ 34,188

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September 2, 2021 September 30, 2021 October 14, 2021 $ 0.25 $ 30,397

June 11, 2020 June 30, 2020 July 15, 2020 $ 0.23 $ 21,419

May 27, 2021 June 30, 2021 July 15, 2021 $ 0.25 $ 29,559

March 5, 2021 March 31, 2021 April 15, 2021 $ 0.24 $ 26,265

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The Company contributes the net proceeds from issuing shares of common stock to the Operating Partnership in exchange for a number of OP Units equal to the number of shares of common stock issued.

OP Units ("OP Units") are limited partnership interests in the Operating Partnership.

As of December 31, 2023, the Company held 164,635,150 OP Units, representing a 99.7 % limited partner interest in the Operating Partnership.

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Equity Incentive Plan

In 2018, the Company adopted an equity incentive plan (the “Equity Incentive Plan”), which provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, performance awards and LTIP units.

In May 2023, the Company’s stockholders approved the Essential Properties Realty Trust, Inc.

2023 Incentive Plan (the “2023 Equity Incentive Plan”), which replaced the Essential Properties Realty Trust, Inc.

2018 Incentive Plan (the “2018 Equity Incentive Plan” and, collectively with the 2023 Equity Incentive Plan, the “Equity Incentive Plans”).

The 2023 Equity Incentive Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, RSAs, RSUs, other stock awards, performance awards and LTIP units up to an aggregate of 4,300,808 shares of the Company’s common stock, subject to certain conditions.

Officers, employees, non-employee directors, consultants, independent contractors and agents who provide services to the Company or to any subsidiary of the Company are eligible to receive such awards.

A maximum of 3,550,000 shares may be issued under the Equity Incentive Plan, subject to certain conditions.

The following table presents information about the Company's restricted stock awards ("RSAs") and restricted stock units ("RSUs") during the years ended December 31, 2022, 2021 and 2020:

All subsequent awards of equity will be granted under the 2023 Equity Incentive Plan, and no further awards will be made under the 2018 Equity Incentive Plan.

The following table presents information about the Company's RSAs and RSUs during the years ended December 31, 2023, 2022 and 2021:

Restricted Stock Awards

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Restricted Stock Awards

On June 25, 2018, an aggregate of 691,290 shares of RSAs were issued to the Company's directors, executive officers and other employees under the Equity Incentive Plan.

In June 2018, an aggregate of 691,290 shares of RSAs were issued to the Company's directors, executive officers and other employees under the Equity Incentive Plans.

These RSAs vested over periods ranging from one year to three years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates.

In January 2019, RSAs relating to an aggregate of 46,368 shares of unvested restricted common stock were granted to the Company's executive officers, other employees and an external consultant under the Equity Incentive Plan.

These RSAs vest over periods ranging from one year to four years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates.

In June 2020, additional RSAs relating to an aggregate of 3,658 shares of unvested restricted common stock were granted to certain members of the Company's board of directors which vested immediately upon grant.

The Company estimates the grant date fair value of RSAs granted under the Equity Incentive Plan using the average market price of the Company's common stock on the date of grant.

These RSAs vested over periods ranging from one year to four years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates.

The Company estimates the grant date fair value of RSAs granted under the Equity Incentive Plans using the average market price of the Company's common stock on the date of grant.

The following table presents information about the Company's RSAs for the periods presented:

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Restricted Stock Units

In 2019, 2020, 2021, and 2022, the Company issued target grants of 119,085 , 84,684 , 126,353 , and 149,699 performance-based RSUs, respectively, to members of the Company's senior management team under the Equity Incentive Plan.

Of these awards, 75 % are non-vested RSUs for which vesting percentages and the ultimate number of units vesting will be calculated based on the total shareholder return ("TSR") of the Company's common stock as compared to the TSR of peer companies identified in the grant agreements.

In 2019, 2020, 2021, 2022 and 2023 the Company issued target grants of 119,085 , 84,684 , 126,353 , 149,699 and 147,587 performance-based RSUs, respectively, to the Company's senior management team under the Equity Incentive Plans.

Of these awards, 75 % are non-vested RSUs for which vesting percentages and the ultimate number of units vesting is calculated based on the total stockholder return ("TSR") of the Company's common stock as compared to the TSR of peer companies identified in the grant agreements.

The payout schedule can produce vesting percentages ranging from 0 % to 250 % of target.

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The remaining 25 % of these performance-based RSUs vest based on the Compensation Committee's subjective evaluation of the individual recipient's achievement of certain strategic objectives over the performance period of the award.

In May 2020, the Compensation Committee evaluated and subjectively awarded 7,596 of these RSUs to a former executive officer of the Company, which vested immediately.

In January 2022, the Compensation Committee identified specific performance targets and completed its subjective evaluation in relation to the performance-based RSUs granted in 2019 and concluded that 78,801 RSUs should be awarded.

50 % of these RSUs vested immediately and the remaining 50 % vested on December 31, 2022.

During the year ended December 31, 2022, the Company recorded $ 2.1 million of compensation expense with respect to these performance-based RSUs granted in 2019.

As of December 31, 2022, the Compensation Committee had not identified specific performance targets relating to the individual recipients' achievement of strategic objectives for the subjective awards granted in 2020, 2021 and 2022.

As such, these awards do not have either a service inception or

a grant date for GAAP accounting purposes and the Company recorded no compensation expense with respect to this portion of the performance-based RSUs during the years ended December 31, 2022, 2021 and 2020.

In June 2020 and May 2021, the Company issued 26,817 and 16,765 RSUs, respectively, to the Company's independent directors.

These awards vested in full on the earlier of one year from the grant date or the first annual meeting of stockholders that occurs after the grant date, to the individual recipient's continued provision of service to the Company through the applicable vesting date.

The Company estimated the grant date fair value of these RSUs using the average market price of the Company's common stock on the date of grant.

In January 2022 and February 2023, the Compensation Committee identified specific performance targets and completed its subjective evaluation in relation to the performance-based RSUs granted in 2019 and 2020 and concluded that 78,801 and 50,598 RSUs, respectively, should be awarded.

50 % of these RSUs vested immediately upon the Compensation Committee's certification and the remaining 50 % vested on December 31, 2022 and December 31, 2023.

The Company began recording compensation expense with respect to these subjective performance-based RSUs granted in 2019 and 2020 after the completion of the Compensation Committee's subjective evaluation.

In April 2023, the Compensation Committee evaluated and awarded 11,334 subjective performance-based RSUs to a former member of the Company's senior management team, which vested immediately.

During the year ended December 31, 2023, the Company recorded $ 0.3 million of compensation expense related to the subjective RSUs awarded to this former employee.

As of December 31, 2023, the Compensation Committee had not identified specific performance targets relating to the individual recipients' achievement of strategic objectives for the remainder of the subjective awards granted in 2021, 2022 and 2023.

As such, these awards do not have either a service inception or a grant date for GAAP accounting purposes and the Company recorded no compensation expense with respect to this portion of the performance-based RSUs during the years ended December 31, 2023, 2022 and 2021.

In 2020, 2021, 2022 and 2023, the Company issued an aggregate of 184,760 , 135,686 , 199,793 and 210,406 RSUs, respectively, to the Company’s executive officers, other employees and directors under the Equity Incentive Plan.

These awards vest over a period of up to five years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the applicable vesting dates.

In January 2022, the Company issued 69,372 performance-based RSUs (at target) to an executive officer

under the Equity Incentive Plan.

These RSUs vest based on the compound annual growth rate of the Company's

adjusted funds from operations ("AFFO CAGR") over a five year performance period, and the payout schedule can

produce vesting percentages ranging from 0 % to 200 % of target.

To the extent the performance goal is achieved,

these performance-based RSUs will vest in 50 % increments on each of the four-year and five-year anniversary of

the grant date, subject to the recipient's continued provision of service to the Company through the applicable

vesting dates.

As of December 31, 2022, based on its AFFO CAGR forecasts, the Company believes it is probable

that the maximum performance level will be achieved and recorded $ 0.9 million of compensation

expense based off of this estimate during the year ended December 31, 2022.

A portion of the RSUs that vested in 2022 and 2021 were net share settled such that the Company withheld shares with a value equal to the relevant employee's income and employment tax obligations with respect to the vesting and remitted a cash payment to the appropriate taxing authorities.

In January 2022, the Company issued 69,372 performance-based RSUs (at target) to an executive officer under the Equity Incentive Plans.

These RSUs vest based on the compound annual growth rate of the Company's adjusted funds from operations ("AFFO CAGR") over a five year performance period, and the payout schedule can produce vesting percentages ranging from 0 % to 200 % of target.

To the extent the performance goal is achieved, these performance-based RSUs will vest in 50 % increments on each of the four-year and five-year anniversary of

the grant date, subject to the recipient's continued provision of service to the Company through the applicable vesting dates.

As of December 31, 2023 and 2022, based on its AFFO CAGR forecasts, the Company believes it is probable that the maximum performance level will be achieved and recorded compensation expense based off of this estimate during the years ended December 31, 2023 and 2022.

A portion of the RSUs that vested in 2023, 2022, and 2021 were net share settled such that the Company withheld shares with a value equal to the relevant employee's income and employment tax obligations with respect to the vesting and remitted a cash payment to the appropriate taxing authority.

The following table presents information about the Company's RSUs for the periods presented:

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The guidance requires the classification of the Company’s unvested restricted common stock and units, which contain rights to receive non-forfeitable dividends or dividend equivalents, as participating securities requiring the two-class method of computing net income per share.

Diluted net income per share of common stock further considers the effect of potentially dilutive shares of common stock outstanding during the period, including the assumed vesting of restricted share units with a market-based or service-based vesting condition, where dilutive.

Diluted net income per share of common stock further considers the effect of potentially dilutive shares of common stock outstanding during the period, including the assumed vesting of RSUs with market-, performance- or service-based vesting conditions, where dilutive.

The OP Units held by non-controlling interests represent potentially dilutive securities as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one -for-one basis.

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net income attributable to non-controlling interests ( 708 ) ( 612 ) ( 486 )

net income allocated to unvested restricted common stock and RSUs ( 374 ) ( 311 ) ( 404 )

net income allocated to unvested RSAs and RSUs ( 407 ) ( 374 ) ( 311 )

Net income available for common stockholders:

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Weighted average common shares outstanding 152,140,896 134,950,418 116,479,322

weighted average number of shares of unvested restricted common stock ( 9,230 ) ( 121,263 ) ( 353,036 )

weighted average number of shares of unvested RSAs ( 161 ) ( 9,230 ) ( 121,263 )

Weighted average shares outstanding used in basic net income per share 152,140,735 134,941,188 116,358,059

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OP Units 553,847 553,847 553,847

Unvested restricted common stock and RSUs 356,044 554,432 332,823

Forward sales through ATM Program 4,837 — —

Unvested RSAs and RSUs 421,292 356,044 554,432

Forward sales 405,980 4,837 —

Weighted average shares outstanding used in diluted net income per share 153,521,854 135,855,916 117,466,338

_____________________________________

(1) For the years ended December 31, 2022 and 2020 excludes the impact of 171,059 and 124,295 unvested restricted stock units, respectively, as the effect would have been antidilutive.

(1) Excludes the impact of 179,807 and 171,059 unvested RSUs and unsettled forward equity sales for the years ended December 31, 2023 and 2022, respectively, as the effect would have been antidilutive.

Commitments and Contingencies

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In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters.

There are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.

As of December 31, 2023, there are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.

Environmental Matters

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Employment Agreements

The Company has employment agreements with its executive officers.

The Company has employment agreements with certain of its executive officers.

These employment agreements have an initial term of four years , with automatic one year extensions unless notice of non-renewal is provided by either party.

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However, the Company expects that changes in classifications between levels will be rare.

The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2022 and 2021.

In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not presented at their fair value on the consolidated balance sheet.The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2023 and 2022.

These estimates require management's judgment and may not be indicative of the future fair values of the assets and liabilities.

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash, accounts receivable included within prepaid expenses and other assets, dividends payable and accrued liabilities and other payables.

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash, accounts receivable included within rent receivables, prepaid expenses and other assets, net, dividends payable and accrued liabilities and other payables.

Generally, these assets and liabilities are short term in duration and their carrying value approximates fair value on the consolidated balance sheets.

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The Company believes the carrying value of its fixed-rate loans receivable approximates fair value as of December 31, 2023 and 2022.

The estimated fair values of the Company's borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan and the 2028 Term Loan have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads.

The estimated fair values of the Company’s borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan, the 2028 Term Loan and the 2029 Term Loan have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads.

These measurements are classified as Level 3 within the fair value hierarchy.

The Company believes the carrying value of its borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan and the 2028 Term Loan as of December 31, 2022 and 2021 approximate fair value.

The Company believes the carrying value of its borrowings under the Revolving Credit Facility, the 2024 Term Loan, the 2027 Term Loan, the 2028 Term Loan, and the 2029 Term Loan as of December 31, 2023 and 2022 approximate fair value.

The Company measures the fair value of its senior unsecured notes and derivative financial instruments on a recurring basis.

The fair values of these financial assets were determined using the following input levels as of the dates presented:

Carrying Fair Value Measurements Using Fair

The fair values of these financial assets and liabilities were determined using the following input levels as of the dates presented:

Net Carrying Value Fair Value Measurements Using Fair

Value Hierarchy

(in thousands) Value Fair Value Level 1 Level 2 Level 3

(in thousands) Fair Value Level 1 Level 2 Level 3

December 31, 2023

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The Company measures its real estate investments at fair value on a nonrecurring basis.

The fair values of these real estate investments were determined using the following input levels as of the dates presented:

Carrying Fair Value Measurements Using Fair

The fair values of real estate investments that were impaired as of the dates presented were determined using the following input levels:

Net Carrying Value Fair Value Measurements Using Fair

Value Hierarchy

(in thousands) Value Fair Value Level 1 Level 2 Level 3

(in thousands) Fair Value Level 1 Level 2 Level 3

December 31, 2023

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Long-lived assets

Equipment rental and sales $ 7,337 Sales comparison approach Comparable sales price $ 7,337

Convenience store $ 1,500 Sales comparison approach Non-binding sales agreement $ 1,500

Pet care services 2,139 Sales comparison approach Binding sales agreement 2,139

Quick service restaurant 871 Discounted cash flow approach Terminal value:

Discount rate:

Pet care services 2,699 Discounted cash flow approach Terminal Value:

Discount Rate:

Pet care services 1,643 Discounted cash flow approach Terminal Value:

Discount Rate:

The fair values of impaired real estate were determined by using the following information, depending on availability, in order of preference:

(i) signed purchase and sale agreements or letters of intent;

ii) recently quoted bid or ask prices;

(ii) recently quoted

bid or ask prices;

(iii) estimates of future cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, terminal capitalization rates, discount rates and expenses based upon market conditions;

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Subsequent Acquisition and Disposition Activity

Subsequent to December 31, 2022, the Company acquired 13 real estate properties with an aggregate investment (including acquisition costs) of $ 56.9 million and invested $ 5.5 million in new and ongoing construction in progress and reimbursements to tenants for development, construction and renovation costs.

Subsequent to December 31, 2023, the Company invested in 12 real estate properties for an aggregate investment amount (including acquisition-related costs) of $ 16.8 million and invested $ 10.1 million in new and ongoing construction in progress and reimbursements to tenants for development, construction and renovation costs related to properties leased from the Company.

In addition, the Company invested $ 14.0 million in mortgage loans receivable subsequent to December 31, 2023.

Subsequent to December 31, 2022, the Company sold or transferred its investment in 8 real estate properties for an aggregate gross sales price of $ 19.7 million and incurred approximately $ 1.0 million of disposition costs related to these transactions.

Subsequent to December 31, 2023, the Company sold its investment in four real estate properties for an aggregate gross sales price of $ 9.1 million and incurred $ 0.3 million of disposition costs related to these transactions.

2022 ATM Program Activity

In January 2023, the Company sold 857,643 shares of its common stock under the 2022 ATM Program for gross proceeds of $ 20.7 million.

Of these shares, 731,185 were sold on a forward basis.

Forward ATM Settlement

In January 2023, the Company physically settled 1,688,638 shares of its common stock sold on a forward basis under the 2022 ATM Program for net proceeds of $ 39.2 million, including 957,453 shares sold on a forward basis during the year ended December 31, 2022 and 731,185 shares sold a forward basis in January 2023

In January 2024, the Company sold 34,000 shares of its common stock on a forward basis under the 2022 ATM Program for gross proceeds of $ 0.9 million.

Forward Equity Settlement

In January 2024, the Company physically settled 1,374,363 shares of its common stock sold on a forward basis under the September 2023 follow-on primary offering for net proceeds of $ 30.0 million.

All settled shares were sold on a forward basis during the year ended December 31, 2023.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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 8. Financial Statements and Supplementary Data