What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2025-02-12 compared with 2024-02-14 · 70 added, 70 removed, 235 unchanged (37% of the section changed)

1 unchanged sentence

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

• Automotive services,

• Car washes,

• Convenience stores,

• Medical and dental services,

• Early childhood education,

• Quick service restaurants,

• Entertainment,

• Automotive services,

• Casual dining restaurants,

• Convenience stores,

• Equipment rental and sales,

• Health and fitness,

• Industrial,

• Medical and dental services, and

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

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

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

• Health and fitness, and

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

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

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

11 unchanged sentences

As of December 31, 2024, our leases had a weighted average remaining lease term of 14.0 years (based on annualized base rent), with only 5.8% of our annualized base rent attributable to leases expiring prior to January 1, 2030.

Significant Use of Sale-Leaseback Structure.

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

The structure of these transactions, which represent a significant majority of our investment activity, involves our acquisition of a property and the substantially concurrent leasing of the property back to the operator of the real estate (i.e., a sale-leaseback structure).

Among the benefits of the sale-leaseback structure is the use of a standard lease form that we structured, with terms we believe are favorable to us, including the requirement for the lessee/operator to provide us with unit-level and, in some instances, corporate-level financial statements on a quarterly basis, in arrears.

For the year ended December 31, 2024, 97.2% of our investments (weighted by annualized base rent) were through the sale-leaseback structure.

Smaller, Low Basis Single-Tenant Properties.

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

As of December 31, 2024, our average investment per property was $2.9 million (which equals our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date).

Investing in smaller, more

granular assets avoids concentrating a large amount of capital in a single asset and mitigates credit, lease and real estate risk.

Among other things, this limits our exposure to events that may adversely affect a particular property.

Additionally, smaller assets are often more liquid and can be sold more rapidly than larger assets, and they are often fungible, in that they are suitable for a variety of commercial uses.

These qualities enhance our ability to sell certain properties, which we may choose to do to manage tenant, concept, industry or geographic concentrations, or other reasons, and reduce the risk that a particular property may become obsolete.

Significant Use of Master Leases.

4 unchanged sentences

For the year ended December 31, 2024, 71% of our investments (weighted by annualized base rent) were in a master lease structure.

Significant Use of Sale-Leaseback Structure.

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

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

Among the benefits of executing the sale-leaseback

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

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

Contractual Base Rent Escalation.

1 unchanged sentence

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

Smaller, Low Basis Single-Tenant Properties.

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

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

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

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

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

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

Healthy Rent Coverage Ratio and Tenant Financial Reporting.

2 unchanged sentences

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

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

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

2024 Financial and Operating Highlights

• During 2024, we completed $1.2 billion of investments in 297 properties, including $138.5 million in newly originated mortgage loans receivable secured by 31 properties.

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

• As of December 31, 2024, our total gross investment in real estate, including our investments in mortgage loans receivable, was $6.0 billion and we had total debt of $2.1 billion.

• During 2024, our Board of Directors ("Board") declared quarterly distributions for the year ended December 31, 2024 that totaled $1.16 per share of common stock.

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

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

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

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

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

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

• In March 2024, we completed, on a forward basis, a primary underwritten public follow-on offering of 10,350,000 shares of our common stock, including 1,350,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $24.75 per share.

All shares were physically settled as of December 31, 2024 and the Company realized net proceeds from this offering, after deducting underwriting discounts and commissions and other expenses, of $245.0 million.

• During 2024, we sold 19,704,599 shares of our common stock under our ATM Program (as defined herein) at a weighted average price per share of $29.52 for gross proceeds of $581.7 million, including 13,119,110 shares sold on a forward basis that have not been physically settled for cash as of December 31, 2024.

• As of December 31, 2024, our liquidity totaled $1.0 billion, which includes $45.0 million of cash and cash equivalents and restricted cash available for future investment, $380.8 million available upon physical

settlement of our outstanding forward equity contracts and $600.0 million of availability under our revolving credit facility.

Our Target Market

17 unchanged sentences

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

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

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

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

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

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

As of December 31, 2024, our portfolio consisted of 2,104 properties, with total annualized base rent of $460.6 million, which was purposefully selected by our management team in accordance with our focused and disciplined investment

Our diversified portfolio is comprised of 413 tenants operating 592 different concepts across 49 states and in 16 distinct industries.

20 unchanged sentences

• Leases contributing 96.6% of annualized base rent were triple-net.

• Extensive Tenant Financial Reporting Supports Active Asset Management.

We seek to enter into leases that obligate our tenants to periodically provide us with corporate and/or unit-level financial reporting, which we believe enhances our ability to actively monitor our investments, actively evaluate credit risk, negotiate lease renewals and proactively manage our portfolio to protect stockholder value.

As of December 31, 2024, leases contributing 98.9% of our annualized base rent required tenants to provide us with specified unit-level financial information.

• Scalable Platform Allows for Significant Growth .

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

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

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

During the years ended December 31, 2024, 2023 and 2022, we completed $1.2 billion, $1.0 billion and $937.4 million of investments, respectively.

• Growth-Oriented Balance Sheet Scalable Infrastructure .

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

As of December 31, 2023, our

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

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

As of December 31, 2024, our total liquidity was $1.0 billion, including $45.0 million of cash and cash equivalents and restricted cash, $380.8 million available upon physical settlement of our outstanding forward equity contracts, and $600.0 million of availability under our revolving credit facility.

As of December 31, 2024, we had $2.1 billion of gross debt outstanding, with a weighted average maturity of 4.2 years, and net debt of $2.1 billion.

5 unchanged sentences

We also maintain an ATM Program and, as of December 31, 2024, we had the ability to sell additional common stock thereunder with an aggregate gross sales price of up to $671.1 million.

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

We have $380.8 million of equity sold on a forward basis under our ATM program that was unsettled as of December 31, 2024.

• Experienced and Proven Management Team .

3 unchanged sentences

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

• Scalable Platform Allows for Significant Growth .

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

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

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

• Extensive Tenant Financial Reporting Supports Active Asset Management.

As of December 31, 2023, leases contributing 98.8% of our annualized base rent required tenants to provide us with specified unit-level financial information.

Our Business and Growth Strategies

Our primary business objective is to maximize stockholder value by generating attractive risk-adjusted returns through owning, managing and growing a diversified portfolio of commercially desirable net lease properties.

We intend to pursue our objective through the following business and growth strategies.

We intend to pursue our primary business objective through the following business and growth strategies.

• Structure and Manage Our Diverse Portfolio with Focused and Disciplined Underwriting and Risk Management .

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

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

When underwriting assets, we focus on commercially desirable properties, with

strong operating performance, healthy rent coverage ratios and tenants with what we believe are attractive credit characteristics.

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

16 unchanged sentences

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

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

During the year ended December 31, 2024, we sold 46 properties for net sales proceeds of $94.2 million, including five properties that were vacant.

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

5 unchanged sentences

• Focus on Middle-Market Companies in Service-Oriented or Experience-Based Businesses .

We primarily focus on investing in properties that we lease on a long-term, triple-net basis to middle-market companies that we determine have attractive credit characteristics and stable operating histories.

We primarily focus on investing in properties that we lease on a long-term, triple-net basis to middle-

market companies that we determine have attractive credit characteristics and stable operating histories.

Properties leased to middle-market companies may offer us the opportunity to achieve superior risk-adjusted returns, as a result of our extensive and disciplined credit and real estate analysis, lease structuring and portfolio composition.

28 unchanged sentences

and accounting, financial reporting and cash management.

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

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

Women comprise 40% of our employee base and hold approximately 46% of our management positions, providing significant leadership at our company, and minorities comprise approximately 23% of our employee base and 14% of our management positions.

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

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

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

military, including our Chief Executive Officer and our Executive Vice President of Investments.

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

1 unchanged sentence

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

As of December 31, 2024, 100% of our employees were owners of our common stock.

Our compensation program is designed to attract and retain talent, and align our employees’ efforts with the interests of all of our stakeholders.

Factors we evaluate in connection with hiring, developing, training, compensating and advancing individuals include, but are not limited to, qualification, performance, skill and experience.

Our employees are fairly compensated based on merit, without regard to color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law.

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

3 unchanged sentences

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

Our compensation program is designed to attract and retain talent, and align our employee’s efforts with the interests of all of our stakeholders.

Factors we evaluate in connection with hiring, developing, training, compensating and advancing individuals include, but are not limited to, qualification, performance, skill and experience.

Environmental, Social and Governance (ESG)

2 unchanged sentences

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

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

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

Our Board actively oversees ESG initiatives, with the Nominating and Corporate Governance Committee responsible for reviewing and guiding ESG-related policies, risk management and reporting.

We integrate ESG considerations into our risk management framework, aligning with Task Force on Climate-related Financial Disclosures ("TCFD") recommendations to assess climate risks and implement mitigation strategies.

Additionally, we maintain a robust Code of Business Conduct and Ethics, reinforcing our commitment to transparency, integrity, and corporate responsibility.

To enhance accountability, we have integrated ESG performance metrics into executive compensation to align senior leadership incentives with our long-term sustainability goals.

Overall, our commitment to ESG and our strategy for pursuing the goals we’ve established to demonstrate that commitment include the following:

10 unchanged sentences

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

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

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

• Measurement.

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

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

• Engagement.

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

Establish the carbon footprint of our portfolio, specifically our Scope 3 emissions, as we have no Scope 1 emissions and no material Scope 2 emissions;

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

• Implementation.

3 unchanged sentences

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

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

Our leases generally require our tenants to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies.

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

Our leases generally require our tenants to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their general liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies.

Depending on the location of the property, other losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet.

In addition, other losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable.

In addition, other losses of a catastrophic nature, such as those caused by wind/hail, wildfires, hurricanes, terrorism or acts of war, may be uninsurable or not insurable on economically reasonable terms.

If there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged.

1 unchanged sentence

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

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

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

We also maintain full property coverage on all untenanted properties and other property coverage as may be required by our lenders, which are not required to be carried by our tenants under our leases.

6 unchanged sentences

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

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

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

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

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

20 unchanged sentences

When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time.

Some molds may produce airborne toxins or irritants.

may produce airborne toxins or irritants.

Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria.

3 unchanged sentences

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

These assessments are carried out in accordance with the

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

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

These assessments are limited in scope.

12 unchanged sentences

Our telephone number is (609) 436-0619 and our website is www.essentialproperties.com.

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

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

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

1 unchanged sentence

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

What changed 10-K

Item 1. Business