10q10k10q10k.net

What changed in ESSENTIAL PROPERTIES REALTY TRUST, INC.'s 10-K — 2022 vs 2023

vs

Paragraph-level year-over-year comparison of ESSENTIAL PROPERTIES REALTY TRUST, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+341 added−463 removedSource: 10-K (2024-02-14) vs 10-K (2023-02-16)

Top changes in ESSENTIAL PROPERTIES REALTY TRUST, INC.'s 2023 10-K

341 paragraphs added · 463 removed · 299 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

74 edited+18 added−69 removed75 unchanged
Biggest change"Rent coverage ratio" means, as of a specified date, the ratio of (x) tenant-reported or, when unavailable, management's estimate (based on tenant-reported financial information) of annual earnings before interest, taxes, depreciation, amortization and cash rent attributable to the leased property (or properties, in the case of a master lease) to (y) the annualized base rental obligation. 2022 Financial and Operating Highlights • During 2022, we completed $937.4 million of investments, including $793.3 million in 224 property acquisitions and $144.0 million in newly originated loans receivable secured by 49 properties. • As of December 31, 2022, our total gross investment in real estate was $4.1 billion and we had total debt of $1.4 billion. • During 2022, we declared distributions totaling $1.075 per share of common stock. • In August 2022, we completed a follow-on offering of 8,740,000 shares of our common stock, including 1,140,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares raising net proceeds of $192.6 million. • During 2022, we sold 9,794,137 shares of our common stock under the ATM Program (as defined herein) at a weighted average price per share of $24.00 for gross proceeds of $235.1 million, including 957,453 shares of our common stock that were physically settled for cash in January 2023.
Biggest changeIn addition, the financial reporting we receive from out tenants provides us with an expansive data set from which to underwrite new investments for properties in similar industries or operating platforms. 2023 Financial and Operating Highlights • During 2023, we completed $1.0 billion of investments in 293 properties, including $13.1 million in newly originated mortgage loans receivable secured by 2 properties. • As of December 31, 2023, our total gross investment in real estate was $4.9 billion and we had total debt of $1.7 billion. • During 2023, our Board of Directors ("Board") declared quarterly distributions for the year ended December 31, 2023 that totaled $1.12 per share of common stock. • In February 2023, we completed, on a forward basis, a primary underwritten public follow-on offering of 8,855,000 shares of our common stock, including 1,155,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $24.60 per share.
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 14 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.
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 13 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.
The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain 18 contributions from other identified, solvent, responsible parties of their fair share toward these costs.
The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs.
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.
We have strategically constructed a portfolio that is diversified by tenant, industry, concept and 7 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.
Our management team utilizes our internal credit diligence to monitor the credit profile of each of our tenants on an ongoing basis. We believe that this proactive approach 9 enables us to identify and address issues in a timely manner and to determine whether there are properties in our portfolio that are appropriate for disposition.
Our management team utilizes our internal credit diligence to monitor the credit profile of each of our tenants on an ongoing basis. We believe that this proactive approach enables us to identify and address issues in a timely manner and to determine whether there are properties in our portfolio that are appropriate for disposition.
We believe our senior management team’s reputation, in-depth market knowledge and extensive network of long-standing relationships in the net lease industry provide us access to an ongoing pipeline of attractive investment opportunities. • Focus on Middle-Market Companies in Service-Oriented or Experience-Based Businesses .
We believe our senior management team’s reputation, in-depth market knowledge and extensive network of long-standing relationships in the net lease industry provide us access to an ongoing pipeline of attractive investment opportunities. 10 • Focus on Middle-Market Companies in Service-Oriented or Experience-Based Businesses .
We believe that this market is underserved from a capital perspective and therefore offers attractive risk-adjusted returns from an investment perspective. Within this market, we focus our investment activities on properties leased to tenants engaged in a targeted set of 13 service-oriented or experience-based businesses.
We believe that this market is underserved, from a capital perspective, and therefore offers attractive risk-adjusted investment returns. Within this market, we focus our investment activities on properties leased to tenants engaged in a targeted set of 13 service-oriented or experience-based businesses.
The substantial experience, knowledge and relationships of our senior 8 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 .
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 .
These assessments are limited in scope. If, however, recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances 19 of concern.
These assessments are limited in scope. If, however, recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances of concern.
In addition, we emphasize investment in properties leased to tenants engaged in service-oriented or experience-based businesses, such as car washes, restaurants (primarily quick service restaurants), early childhood education, medical and dental services, convenience stores, automotive services, equipment rental, entertainment and health and fitness, as we believe these businesses are generally more insulated from e-commerce pressure than many others. • Internal Growth Through Long-Term Triple-Net Leases That Provide for Periodic Rent Escalations .
In addition, we emphasize investment in properties leased to tenants engaged in service-oriented or experience-based businesses, such as restaurants (primarily quick service and casual dining), car washes, early childhood education, medical and dental services, convenience stores, automotive services, equipment rental, entertainment and health and fitness, as we believe these businesses are generally more insulated from e-commerce pressure than many others. • Internal Growth Through Long-Term Triple-Net Leases That Provide for Periodic Rent Escalations .
We take our 11 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 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.
In general, we seek to enter into leases with (i) relatively long terms (typically with initial terms of 15 years or more and tenant renewal options); (ii) attractive rent escalation provisions; (iii) healthy rent coverage ratios; and (iv) tenant obligations to periodically provide us with financial information, which provides us with information about the operating performance of the leased property and/or tenant and allows us to actively monitor the security of payments under the lease on an ongoing basis.
In general, we seek to enter into leases with (i) relatively long contractual terms (typically with initial terms of 15 years or more and tenant renewal options); (ii) attractive rent escalation provisions; (iii) healthy rent coverage ratios; and (iv) tenant obligations to periodically provide us with financial information, which provides us with information about the operating performance of the leased property and/or tenant and allows us to actively monitor the security of our rent payments under the lease on an ongoing basis.
We intend to pursue our objective through the following business and growth strategies. • Structure and Manage Our Diverse Portfolio with Focused and Disciplined Underwriting and Risk Management .
We intend to pursue our objective through the following business and growth strategies. 9 • Structure and Manage Our Diverse Portfolio with Focused and Disciplined Underwriting and Risk Management .
We strongly prefer to use master lease structures, pursuant to which we lease multiple properties to a single tenant on a unitary (i.e., "all or none") basis.
We prefer to use master lease structures, pursuant to which we lease multiple properties to a single-tenant on a unitary (i.e., "all or none") basis.
Risk Factor-"Risks Related to Our Business and Properties-Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us." 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.
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.
Building on our senior leadership team's experience in net lease real estate investing, we have developed leading origination, underwriting, financing, and property management capabilities. Our platform is scalable, and we seek to leverage our capabilities to improve our efficiency and processes to continue to seek attractive risk-adjusted growth.
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.
"Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2022 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date.
"Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2023 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date.
Furthermore, we believe that there is strong demand for our net-lease capital solutions among middle-market and smaller owner-operators that own commercial real estate, in part, due to the bank regulatory environment, which, since the turmoil in the housing and mortgage industries from 2007-2009, has generally been characterized by increased scrutiny and regulation.
Furthermore, we believe that there is strong demand for our net-lease capital solutions among middle-market and smaller companies that own commercial real estate, in part, due to the bank regulatory environment, which, since the turmoil in the housing and mortgage industries from 2007-2009, has generally been characterized by increased scrutiny and regulation.
We believe that this environment has made commercial banks less responsive to the long-term capital needs of unrated middle-market and small companies, many of which have historically depended on commercial banks for their financing.
We believe that this environment has made commercial banks less responsive to the long-term capital needs of unrated middle-market and smaller companies, many of which have historically depended on commercial banks for their financing.
Our diversity is our strength, creating an inclusive work environment is our culture, and all of our employees are owners, thus 100% aligned with our fellow stockholders. Our ESG goals include the following: a. Oversight.
Our diversity is our strength, creating an inclusive work environment is our culture, and all of our employees are owners, thus aligned with our fellow stockholders. Our ESG goals include the following: • Oversight.
Net debt, 10 EBITDA re and Annualized Adjusted EBITDA re are non-GAAP financial measures. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations'—Non-GAAP Financial Measures." Competition We face competition for acquisitions of real property from other investors, including traded and non-traded public REITs, private equity investors and institutional investment funds.
Net debt, EBITDA re and Annualized Adjusted EBITDA re are non-GAAP financial measures. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures." Competition We face competition for acquisitions of real property from other investors, including traded and non-traded public REITs, private equity investors and institutional investment funds.
We believe that operating properties are the essential venues through which these businesses transact with their customers, and therefore that such properties and businesses are generally more insulated from the competitive pressure of e-commerce than many other businesses where significant activity can take place online.
We believe that operating properties in these 13 industries are the essential venues through which these businesses transact with their customers, and therefore that such properties and businesses are generally more insulated from the competitive pressure of e-commerce than many other businesses where significant activity can take place online.
As of December 31, 2022, leases contributing 98.6% 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.
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 seek to acquire and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities at the property that are essential to the generation of its sales and profits. We primarily seek to invest in properties leased to middle-market companies that we determine have attractive credit characteristics and stable operating histories.
We seek to acquire and lease freestanding, single-tenant commercial real estate properties where a tenant engages with or services its customers and conducts activities at the property that are essential to the generation of its sales and profits. We primarily seek to invest in properties leased to middle-market companies that we determine have attractive credit characteristics and stable operating histories.
Additionally, we have a consistent and strong record of hiring veterans of the U.S. military, including our chief executive officer. 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.
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. 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.
Our goal is that, over time, no more than 5% of our annualized base rent will be derived from any single tenant or more than 1% from any single property. Long Lease Term.
Our goal is that, over time, no more than 5% of our annualized base rent will be derived from any single-tenant or more than 1% from any single property.
We seek to maintain the stability of our rental revenue and maximize the long-term return on our investments while continuing our growth by using our focused and disciplined underwriting and risk management expertise. When underwriting assets, we emphasize commercially desirable properties, with strong operating performance, healthy rent coverage ratios and tenants with attractive credit characteristics. Leasing.
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.
We seek to maintain a prudent balance between debt and equity financing and to maintain funding sources that lock in long-term investment spreads and limit interest rate sensitivity. As of December 31, 2022, we had $1.4 billion of gross debt outstanding and $1.4 billion of net debt outstanding.
We seek to maintain a prudent balance between debt and equity financing and to maintain funding sources that lock in long-term investment spreads and limit interest rate sensitivity. As of December 31, 2023, we had $1.7 billion of gross debt outstanding and $1.6 billion of net debt outstanding.
We electronically file with the SEC our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, pursuant to Section 13(a) of the Exchange Act.
We electronically file with the Securities and Exchange Commission (“SEC”) our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, pursuant to Section 13(a) of the Exchange Act.
Our Target Market We are an active investor in single-tenant, net leased commercial real estate. Our target properties are generally freestanding commercial real estate facilities where a middle-market tenant conducts activities on property that are essential to the generation of its sales and profits.
Our Target Market We are an active investor in single-tenant, net leased commercial real estate. The properties we target for investment are generally freestanding commercial real estate facilities in which a single middle-market tenant conducts activities that are essential to the generation of its sales and profits.
Reducing our Carbon Footprint. Implement sustainability upgrades at our corporate headquarters and our income properties to reduce our carbon footprint; c. Expanding our Relationships with our Tenants through Sustainability. Implement sustainability upgrades at our properties to positively impact our tenants' operations and prospects for success; and d. Our People are EPRT.
Implement sustainability upgrades at our corporate offices and our income properties to reduce our carbon footprint; • Expanding our Relationships with our Tenants through Sustainability. Implement sustainability upgrades at our properties to positively impact our tenants' operations and prospects for success; and • Our People are EPRT.
Our ratio of net debt to Annualized Adjusted EBITDA re was 4.6x as of December 31, 2022. Net debt, EBITDA re and Annualized Adjusted EBITDAre are non-GAAP financial measures.
Our ratio of net debt to Annualized Adjusted EBITDA re was 4.4x as of December 31, 2023. Net debt, EBITDA re and Annualized Adjusted EBITDAre are non-GAAP financial measures.
During the years ended December 31, 2022, 2021 and 2020, we invested in properties with aggregate investment values of $937.4 million, $974.0 million and $602.8 million, respectively. • Extensive Tenant Financial Reporting Supports Active Asset Management.
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, 2022: • Our leases had a weighted average remaining lease term (based on annualized base rent) of 13.9 years, with only 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028; • Master leases contributed 65.0% of our annualized base rent; • Our portfolio's weighted average rent coverage ratio was 4.0x, with leases contributing 72.6% of our annualized base rent having rent coverage ratios in excess of 2.0x (excluding leases that do not report unit-level financial information); • Our portfolio was 99.9% occupied; • Leases contributing 98.2% of our annualized base rent provide for increases in future annual base rent that generally range from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.6% of base rent; and • Leases contributing 94.9% of annualized base rent were triple-net. • Growth-Oriented Balance Sheet Scalable Infrastructure .
As of December 31, 2023: • Our leases had a weighted average remaining lease term (based on annualized base rent) of 14.0 years, with only 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029; • Master leases contributed 65.7% of our annualized base rent; • Our portfolio's weighted average rent coverage ratio was 3.8x, with leases contributing 73.2% of our annualized base rent having rent coverage ratios in excess of 2.0x (excluding leases that do not report unit-level financial information); • Our portfolio was 99.8% occupied; • Leases contributing 98.7% of our annualized base rent provide for increases in future annual base rent that generally range from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.7% of base rent; and • Leases contributing 95.9% of annualized base rent were triple-net. • Growth-Oriented Balance Sheet Scalable Infrastructure .
Overall, our commitment to ESG and our strategy for pursuing the goals we’ve established to demonstrate that commitment include the following: a. Accountability and Transparency. Our Board of Directors ("Board") and our management team are committed to strong corporate governance. As stewards of our stockholder’s capital, we are committed to accountability and transparency regarding our ESG efforts; b.
Overall, our commitment to ESG and our strategy for pursuing the goals we’ve established to demonstrate that commitment include the following: • Accountability and Transparency. Our Board and our management team are committed to strong corporate governance. As stewards of capital, we are committed to accountability and transparency regarding our ESG efforts; • Reducing our Carbon Footprint.
As of December 31, 2022, our portfolio consisted of 1,653 properties, inclusive of 153 properties which secure our investments in mortgage loans receivable. Our portfolio was built based on the following core investment attributes: Diversified Portfolio.
As of December 31, 2023, our portfolio consisted of 1,873 properties, inclusive of 136 properties which secure our investments in mortgage loans receivable. Our portfolio was built based on the following core investment attributes: Diversified Portfolio.
We endeavor to maintain a workplace that is free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law.
We endeavor to maintain a workplace that is free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law. We have implemented a Human Rights Policy consistent with these values.
As of December 31, 2022, our portfolio's weighted average rent coverage ratio was 4.0x, and 98.6% of our leases (based on annualized base rent) obligate the tenant to periodically provide us with specified unit-level financial reporting.
As of December 31, 2023, our portfolio's weighted average rent coverage ratio was 3.8x, and 98.8% of our leases (based on annualized base rent) obligate the tenant to periodically provide us with specified unit-level financial reporting.
If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose our tenants or prospective tenants, and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when our leases expire.
If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose our tenants or prospective tenants, and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when our leases expire. 11 Employees As of December 31, 2023, we had 40 full-time employees.
We focus on properties leased to middle-market companies, which we define as regional and national operators with between 10 and 250 locations and $20 million to $500 million in annual revenue, and we opportunistically invest in properties leased to smaller companies, which we define as regional operators with fewer than 10 locations and less than $20 million in annual revenue.
We define middle-market companies as regional and national operators with between 10 and 250 locations and $20 million to $1 billion in annual revenue, and we also opportunistically invest in properties leased to smaller companies, which we define as regional or local operators with fewer than 10 locations and less than $20 million in annual revenue.
Management's Discussion and Analysis of Financial Condition and Results of Operations'—Non-GAAP Financial Measures." We also maintain an ATM Program and, as of December 31, 2022, we had the ability to sell additional common stock thereunder with an aggregate gross sales price of up to $424.6 million. • Experienced and Proven Management Team .
Management's Discussion and Analysis of Financial Condition and Results of Operations'—Non-GAAP Financial Measures." We also maintain an ATM Program and, as of December 31, 2023, we had the ability to sell additional common stock thereunder with an aggregate gross sales price of up to $279.4 million.
As of December 31, 2022, our leases had a weighted average remaining lease term of 13.9 years (based on annualized base rent), with only 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028, and 98.2% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average of 1.6% per year. • Actively Manage Our Balance Sheet to Maximize Capital Efficiency .
As of December 31, 2023, our leases had a weighted average remaining lease term of 14.0 years (based on annualized base rent), with only 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029, and 98.7% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average of 1.7% per year. • Actively Manage Our Balance Sheet to Maximize Capital Efficiency .
None of our tenants contributed more than 3.4% of our annualized base rent as of December 31, 2022, and our strategy targets a scaled portfolio that, over time, allows us to derive no more than 5.0% of our annualized base rent from any single tenant or more than 1.0% from any single property.
No single tenant contributed more than 3.8% of our annualized base rent as of December 31, 2023, consistent with our strategy of having a scaled portfolio that, over time, allows us to derive no more than 5.0% of our annualized base rent from any single-tenant or more than 1.0% from any single property.
As of December 31, 2022, our portfolio consisted of 1,653 properties, with annualized base rent of $297.2 million, which was purposefully selected by our management team in accordance with our focused and disciplined investment strategy. Our portfolio is diversified with 350 tenants operating 538 different concepts across 48 states and in 16 distinct industries.
As of December 31, 2023, our portfolio consisted of 1,873 properties, with total annualized base rent of $364.8 million, which was purposefully selected by our management team in accordance with our focused and disciplined investment strategy. Our diversified portfolio is comprised of 374 tenants operating 588 different concepts across 48 states and in 16 distinct industries.
As of December 31, 2022, we had $1.4 billion of gross debt outstanding, with a weighted average maturity of 5.2 years, and net debt of $1.4 billion. For the year ended December 31, 2022, our net income was $134.7 million, our EBITDA re was $251.4 million and our Annualized Adjusted EBITDA re was $294.8 million.
As of December 31, 2023, we had $1.7 billion of gross debt outstanding, with a weighted average maturity of 4.9 years, and net debt of $1.6 billion. For the year ended December 31, 2023, our net income was $191.4 million, our EBITDA re was $324.2 million and our Annualized Adjusted EBITDA re was $374.6 million.
As of December 31, 2022, our portfolio was 99.9% occupied by 350 tenants operating 538 different concepts (i.e., generally brands) in 16 industries across 48 states, with none of our tenants contributing more than 3.4% of our annualized base rent.
As of December 31, 2023, our portfolio was 99.8% occupied by 374 tenants operating 588 different concepts (i.e., generally brands) in 16 industries across 48 states, with none of our tenants contributing more than 3.8% of our annualized base rent. Long Lease Term.
While the creditworthiness of most of our targeted tenants is not rated by a nationally recognized statistical rating organization, we seek to invest in properties leased to companies in our targeted middle-market that we determine have attractive credit characteristics and stable operating histories. 6 Despite the size of the overall commercial retail real estate market, the market for single-tenant, net leased commercial real estate is highly fragmented.
While the creditworthiness of most of our targeted tenants is not rated by a nationally recognized statistical rating organization, we seek to invest in properties leased to companies in our targeted middle-market that we determine have attractive credit characteristics and stable operating histories.
We have assembled a diversified portfolio using a disciplined strategy that focuses on properties leased to tenants in businesses such as: • Early childhood education, 4 • Car washes, • Restaurants (primarily quick service restaurants and casual dining), • Medical and dental services, • Automotive services, • Convenience stores, • Entertainment, • Health and fitness, • Equipment rental and • Grocery 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 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, 4 • Early childhood education, • Entertainment, • Equipment rental and sales, • Grocery, • Health and fitness, • Industrial, • Medical and dental services, and • Restaurants (primarily quick service restaurants and casual dining).
We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement, and reasonable flexibility to allow a healthy work-life balance.
We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement and reasonable flexibility to allow a healthy work/life balance. All of our employees are eligible to participate in our Equity Incentive Plan through the annual performance review process.
Employees As of December 31, 2022, we had 37 full-time employees. Our staff is mostly comprised of professionals engaged in originating, underwriting and closing investments; portfolio asset management; portfolio servicing (e.g., collections, property tax compliance, etc.); and accounting, financial reporting, cash management and capital markets activities.
Our staff is mostly comprised of professionals engaged in originating, underwriting and closing investments; portfolio asset management; portfolio servicing (e.g., collections, property tax compliance, etc.); capital markets activity; sustainability initiatives; and accounting, financial reporting and cash management.
We believe middle-market companies are underserved from a capital perspective and that we can offer them attractive real estate financing solutions while allowing us to enter into leases that provide us with attractive risk-adjusted returns.
We believe middle-market companies are underserved from a capital perspective and that we can offer them attractive real estate financing solutions while allowing us to enter into leases that provide us with stable cash flows and attractive risk-adjusted returns. Furthermore, the properties we invest in with middle-market companies typically are smaller assets, in terms of square footage.
We believe that our portfolio's diversity and our rigorous underwriting decrease the impact on us of an adverse event affecting an individual tenant, industry or region, and our focus on leasing to tenants in industries where operating properties are essential to generating their revenues and profits (and that we believe are well-positioned to withstand competition from e-commerce businesses), increases the stability and predictability of our rental revenue. • Differentiated Investment Strategy .
Our focus on leasing to tenants in industries where the operator's properties are essential to generating their revenues and profits (and that we believe are well-positioned to withstand competition from e-commerce businesses) increases the stability and predictability of our rental revenue. • Differentiated Investment Strategy .
Women comprise 43% of our employees and hold approximately 47% of our management positions, providing significant leadership at our company, and minorities comprise approximately 23% of our employees and 18% of our management team. Our commitment to diversity also extends to our board of directors, as three of its eight members, or approximately 38%, are women.
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.
As of December 31, 2022, 87.6% of our portfolio's annualized base rent was attributable to internally originated sale-leaseback transactions and 85.8% was acquired from parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).
During the year ended December 31, 2023, 98.8% of our new investments in real estate were attributable to internally originated sale-leaseback transactions and 85.1% of our new investments were consummated with parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).
We seek to acquire properties owned and operated by middle-market businesses and lease the properties back to the operators pursuant to our standard lease form. For the year ended December 31, 2022, approximately 97.3% of our investments were sale-leaseback transactions. Contractual Base Rent Escalation.
We seek to acquire properties owned and operated by middle-market businesses and lease the properties back to the operators pursuant to our standard lease form. For the year ended December 31, 2023, 68% of our investments (weighted by annualized base rent) were in a master lease structure. Significant Use of Sale-Leaseback Structure.
Our properties generally are subject to long-term net leases that we believe provide us a stable base of revenue from which to grow our portfolio. Significant Use of Master Leases. As of December 31, 2022, 65.0% of our annualized base rent was attributable to master leases.
Our properties generally are subject to long-term net leases that we believe provide us a stable base of revenue from which to grow our portfolio.
During the year ended December 31, 2022, we sold 52 properties for net sales proceeds of $155.6 million, including one property that was vacant.
During the year ended December 31, 2023, we sold 52 properties for net sales proceeds of $138.0 million, including three properties that were vacant.
In particular, we believe that there is a limited number of participants addressing the long-term capital needs of unrated middle-market and smaller companies.
Despite the size of the overall commercial retail real estate market, the market for single-tenant, net leased commercial real estate is highly fragmented. In particular, we believe that there is a limited number of participants addressing the long-term capital needs of unrated middle-market and smaller companies.
As of December 31, 2022, our leases had a weighted average remaining lease term of 13.9 years (based on annualized base rent), with only 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028.
As of December 31, 2023, our leases had a weighted average remaining lease term of 14.0 years (based on annualized base rent), with only 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029. Significant Use of Master Leases. As of December 31, 2023, 65.7% of our annualized base rent was attributable to master leases.
As of December 31, 2022, 87.6% of our portfolio’s annualized base rent was attributable to internally originated sale-leaseback transactions and 85.8% was acquired from parties who had previously engaged in transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).
During the year ended December 31, 2023, 98.8% of our new investments in real estate were attributable to internally originated sale-leaseback transactions and 85.1% of our new investments were consummated with parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources).
Our net income for the year ended December 31, 2022 was $134.7 million, our EBITDA re was $251.4 million, our Annualized Adjusted EBITDA re was $294.8 million and our ratio of net debt to Annualized Adjusted EBITDA re was 4.6x.
Our net income for the year ended December 31, 2023 was $191.4 million, our EBITDA re was $324.2 million, our Annualized Adjusted EBITDA re was $374.6 million and our ratio of net debt to Annualized Adjusted EBITDA re was 4.4x.
Additionally, we believe that many of our properties are fungible and appropriate for multiple commercial uses, which reduces the risk that a particular property may become obsolete and enhances our ability to sell a property if we choose to do so. Healthy Rent Coverage Ratio and Tenant Financial Reporting.
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.
As of December 31, 2022, our average investment per property was $2.4 million (which equals our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date), and we believe investments of similar size should allow us to grow our portfolio without concentrating a large amount of capital in individual properties and should allow us to limit our exposure to events that may adversely affect a particular property.
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).
Perform a survey of our tenants in 2023 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; f. Implementation. Continue to implement energy efficiency upgrades throughout our income property portfolio; g. Equity.
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; • Implementation.
We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement and reasonable flexibility to allow a healthy work/life balance. We value equal opportunity in the workplace and fair employment practices. We have built an inclusive culture that encourages, supports and celebrates our diverse employee population.
We value equal opportunity in the workplace and fair employment practices. We have built an inclusive culture that encourages, supports and celebrates our diverse employee population.
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. Governance Our approach to ESG begins with strong corporate governance.
Continue to ensure that diversity is at the forefront of our hiring practices and maintained as a key input to our operations; and • Inclusion. 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.
Continue to invest in our employees through our various benefit programs and incentive structures that maintain our alignment with our stockholders at an employee level; h. Diversity. Continue to ensure that diversity is at the forefront of our hiring practices and maintained as a key input to our operations; and i. Inclusion.
Continue to implement energy efficiency upgrades throughout our income property portfolio; • Equity. Continue to invest in our employees through our various benefit programs and incentive structures that maintain our alignment with our stockholders at an employee level; • Diversity.
We maintain close relationships with our tenants, which we believe allows us 7 to source additional investments and become the capital provider of choice as our tenants' businesses grow and their real estate needs increase. • Disciplined Underwriting Leading to Strong Portfolio Characteristics .
Our differentiated strategy benefits from us maintaining a close relationship with our existing tenants, allowing us to source additional investments from these tenants and establishing a position as a preferred capital provider, helping our tenants grow their businesses and address their real estate needs. • Disciplined Underwriting Leading to Strong Portfolio Characteristics .
Better Beginnings Child Development Center (an organization that provides affordable childcare for working parents); and d. Alex’s Lemonade Stand Foundation (an organization that seeks to cure childhood cancer and support families with children battling cancer). Insurance 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.
Insurance 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.
We also believe that these businesses have favorable growth potential and, because of their nature they are more insulated from e-commerce pressure than many other businesses. We completed our initial public offering in June 2018 (our "IPO") and we qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018.
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.
As of December 31, 2022, 98.2% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average rate of 1.6% per year. Rent escalation provisions provide contractually-specified incremental yield on our investments and provide a degree of protection from inflation or a rising interest rate environment. 5 Smaller, Low Basis Single-Tenant Properties.
Fixed rent escalation provisions provide contractually-specified incremental increases in the yield on our investments, provide a degree of protection from inflation or a rising interest rate environment, and provide our tenants with predictability and stability in managing their operating expenses. Smaller, Low Basis Single-Tenant Properties. We generally invest in freestanding "small-box" single-tenant properties.
As of December 31, 2022, 93.0% of our $297.2 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses.
We completed our initial public offering in June 2018 and we qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018. As of December 31, 2023, 92.9% of our total annualized base rent of $364.8 million was attributable to properties operated by tenants in service-oriented and experience-based businesses.
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; b. Reporting. Publish our inaugural Corporate Responsibility Report during the first quarter of 2023, aligned with the Sustainability Accounting Standards Board and The Financial Stability Board Task Force on Climate-related Financial Disclosure indices; c.
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; 12 • Reporting.
Removed
We generally invest in freestanding "small-box" single-tenant properties.
Added
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.
Removed
We focus on investing in properties leased to tenants operating in the service-oriented or experience-based businesses noted above. As of December 31, 2022, 93.0% of our annualized base rent was attributable to tenants operating service-oriented and experience-based businesses.
Added
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.
Removed
Furthermore, many net lease transactions with middle-market companies involve properties that are individually relatively small, which allows us to avoid concentrating a large amount of capital in individual properties.
Added
Among the benefits of executing the sale-leaseback 5 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.

… 81 more changes not shown on this page.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

83 edited+10 added−18 removed224 unchanged
Biggest changeOur bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees and could discourage lawsuits against us and our directors, officers and employees.
Biggest changeOur Board could establish a class or series of common stock or preferred stock that could, depending on the terms of such class or series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders. 26 Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees and could discourage lawsuits against us and our directors, officers and employees.
As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. A deterioration in our credit or credit rating, reductions in our available borrowing capacity or inability to obtain credit when required or when business conditions warrant could materially and adversely affect us.
As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. A deterioration in our credit or credit rating, reductions in our available borrowing capacity or our inability to obtain credit when required or when business conditions warrant could materially and adversely affect us.
Security breaches, cyber attacks, or disruption, of our or our third-party service providers’ physical or information technology infrastructure, networks and related management systems could result in, among other things, a breach of our networks and information technology infrastructure, the misappropriation of our or our tenants’ proprietary or confidential information, interruptions or malfunctions in our or our tenants’ operations, misstated financial reports, violations of loan covenants, an inability to monitor compliance with REIT qualification requirements, breach of our legal, regulatory or contractual obligations, inability to access or rely upon critical business records, unauthorized access to our facilities or other disruptions in our operations.
Security breaches, cyber attacks, or disruption, of our or our third-party service providers’ physical or information technology infrastructure, networks and related management systems could result in, among other things, a breach of our networks and information technology infrastructure, the misappropriation of our or our tenants’ proprietary or confidential information, interruptions or malfunctions in our or our tenants’ operations, misstated financial reports, violations of loan covenants, an inability to monitor compliance with REIT qualification requirements, breach of our legal, regulatory or contractual obligations, our inability to access or rely upon critical business records, unauthorized access to our facilities or other disruptions in our operations.
Our ability to expand through acquisitions requires us to identify, finance and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully finance and integrate newly acquired properties into our portfolio, which may be constrained by the following significant risks: we face competition from other real estate investors, some of which have greater economies of scale, lower costs of capital, access to more financial resources and greater name recognition than we do, a greater ability to borrow funds and the ability to accept more risk than we can prudently manage, which may significantly reduce our acquisition volume or increase the purchase price for property we acquire, which could reduce our growth prospects; we may be unable to locate properties that will produce a sufficient spread between our cost of capital and the lease rate we can obtain from a tenant, in which case our ability to profitably grow our company will decrease; we may fail to have sufficient capital resources to complete acquisitions or our cost of capital could increase; we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete; we may acquire properties that are not accretive to our results upon acquisition; our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property; we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be satisfied, causing us to abandon an investment opportunity after incurring expenses related thereto; we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties; we may obtain only limited warranties when we acquire a property, including properties purchased in “as is” condition on a “where is” basis and “with all faults,” without warranties of merchantability or fitness for a particular purpose and pursuant to purchase agreements that contain only limited warranties, representations and indemnifications that survive for only a limited period after the closing.
Our ability to expand through acquisitions requires us to identify, finance and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully finance and integrate newly acquired properties into our portfolio, which may be constrained by the following significant risks: we face competition from other real estate investors, some of which have greater economies of scale, lower costs of capital, access to more financial resources, greater name recognition than we do, and a greater ability to borrow funds and the ability to accept more risk than we can prudently manage, which may significantly reduce our acquisition volume or increase the purchase price for property we acquire, which could reduce our growth prospects; we may be unable to locate properties that will produce a sufficient spread between our cost of capital and the lease rate we can obtain from a tenant, in which case our ability to profitably grow our company will decrease; we may fail to have sufficient capital resources to complete acquisitions or our cost of capital could increase; we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete; we may acquire properties that are not accretive to our results upon acquisition; our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property; we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be satisfied, causing us to abandon an investment opportunity after incurring expenses related thereto; we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in 20 the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties; and we may obtain only limited warranties when we acquire a property, including properties purchased in “as is” condition on a “where is” basis and “with all faults,” without warranties of merchantability or fitness for a particular purpose and pursuant to purchase agreements that contain only limited warranties, representations and indemnifications that survive for only a limited period after the closing.
If we lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to our stockholders for each of the years involved because: we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at the corporate rate; we also could be subject to increased state and local taxes; and unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.
If we lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution 28 to our stockholders for each of the years involved because: we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at the corporate rate; we also could be subject to increased state and local taxes; and unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.
Our Board, without stockholder approval, has the power under our charter to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred 31 stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and to set the terms of such newly classified or reclassified shares.
Our Board, without stockholder approval, has the power under our charter to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and to set the terms of such newly classified or reclassified shares.
Secured debt subjects us to certain risks, including the potential loss of the property securing such debt through foreclosure or otherwise and the possible inability to refinance any such debt at maturity at a similar loan-to-value ratio. 29 A downgrade in our credit ratings could have a material adverse effect on our business and financial condition.
Secured debt subjects us to certain risks, including the potential loss of the property securing such debt through foreclosure or otherwise and the possible inability to refinance any such debt at maturity at a similar loan-to-value ratio. A downgrade in our credit ratings could have a material adverse effect on our business and financial condition.
If any credit rating agency downgrades or lowers our credit rating, places any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise publishes a negative outlook for that rating, it could materially adversely affect the market price of our debt securities and possibly our common stock, and generally the cost and availability of our capital.
If any credit rating agency downgrades or lowers our credit rating, places any such rating on a so-called “watch list” for a possible downgrading or lowering or otherwise publishes a negative outlook for that rating, it could materially 24 adversely affect the market price of our debt securities and possibly our common stock, and generally the cost and availability of our capital.
As a result of this illiquidity, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial or investment conditions is 25 limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property.
As a result of this illiquidity, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial or investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property.
These covenants, as well as any additional covenants to which we may be subject in the future because of additional or replacement debt financing, could cause us to have to forego 30 investment opportunities, reduce or eliminate distributions to our common stockholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants.
These covenants, as well as any additional covenants to which we may be subject in the future because of additional or replacement debt financing, could cause us to have to forego investment opportunities, reduce or eliminate distributions to our common stockholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our 37 control, we cannot predict or estimate the amount, timing or nature of our future offerings. Our stockholders bear the risk of our future offerings reducing per share trading price of our common stock.
Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Our stockholders bear the risk of our future offerings reducing per share trading price of our common stock.
As a result, a significant number of tenant bankruptcies may materially and adversely affect us. Tenants who are considering filing for bankruptcy protection may request that we agree to amendments of their master leases to remove certain of the properties they lease from us under such master leases.
As a result, a significant number of tenant bankruptcies may materially and adversely affect us. 19 Tenants who are considering filing for bankruptcy protection may request that we agree to amendments of their master leases to remove certain of the properties they lease from us under such master leases.
In addition, the impact of climate change on businesses operated by our tenants is not reasonably determinable at this time. Climate change may impact weather patterns, the occurrence of significant weather events and rising sea 28 levels, which could impact economic activity or the value of our properties in specific markets.
In addition, the impact of climate change on businesses operated by our tenants is not reasonably determinable at this time. Climate change may impact weather patterns, the occurrence of significant weather events and rising sea levels, which could impact economic activity or the value of our properties in specific markets.
Conversely, during periods of relatively high inflation, fixed rate rent increases may be lower than the rate of inflation, resulting in a deterioration of the real return on our assets. Recently, numerous measures of inflation have 23 been relatively high, and our fixed rent escalators have not resulted in increases that equal or exceed the rate of inflation.
Conversely, during periods of relatively high inflation, fixed rate rent increases may be lower than the rate of inflation, resulting in a deterioration of the real return on our assets. Recently, numerous measures of inflation have been relatively high, and our fixed rent escalators have not resulted in increases that equal or exceed the rate of inflation.
The market price of our common stock will fluctuate, and such fluctuations 36 could be significant and frequent; accordingly, our common stockholders may experience a significant decrease in the value of their shares, including decreases that may be related to technical market factors and may be unrelated to our operating performance or prospects.
The market price of our common stock will fluctuate, and such fluctuations could be significant and frequent; accordingly, our common stockholders may experience a significant decrease in the value of their shares, including decreases that may be related to technical market factors and may be unrelated to our operating performance or prospects.
Some statements in this report including statements in the following risk factors constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements." Risks Related to Our Business and Properties We are subject to risks related to the ownership of commercial real estate that could adversely impact the value of our properties.
Some statements in this report including statements in the following risk factors constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements." 15 Risks Related to Our Business and Properties We are subject to risks related to the ownership of commercial real estate that could adversely impact the value of our properties.
Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property or could result in material interference with the ability of our 27 tenants to operate their businesses as currently operated.
Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property or could result in material interference with the ability of our tenants to operate their businesses as currently operated.
Sales of substantial amounts of our common stock or securities convertible into or exercisable or exchangeable therefor (such as OP Units), or the perception that such sales might occur, could adversely affect the market price of our common stock. OP Units (“OP Units”) are limited partnership interests in the Operating Partnership.
Sales of substantial amounts of our common stock or securities convertible into or exercisable or exchangeable therefor (such as OP Units), or the perception that such sales might occur, could adversely affect the market price of our common stock. OP Units (“OP Units”) are limited partnership interests in the Operating 32 Partnership.
In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, 32 may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.
In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk.
Many of these factors are beyond our control. These factors may cause the market price of shares of our common stock to decline significantly, regardless of our financial condition, results of operations, business or our prospects. Increases in market interest rates may result in a decrease in the value of shares of our common stock.
Many of 31 these factors are beyond our control. These factors may cause the market price of shares of our common stock to decline significantly, regardless of our financial condition, results of operations, business or our prospects. Increases in market interest rates may result in a decrease in the value of shares of our common stock.
We recognize the increasing volume of cyber attacks and employ commercially practical efforts to provide reasonable assurance such attacks are appropriately mitigated. We may be required to expend significant financial resources and management time to protect against or respond to such breaches.
We recognize the increasing volume of cyber attacks and employ commercially reasonable efforts to provide reasonable assurance such attacks are appropriately mitigated. We may be required to expend significant financial resources and management time to protect against or respond to such breaches.
If an actual or perceived security breach occurs, the market’s perception of our security measures could be harmed and we could lose current and potential tenants, and 38 such a breach could be harmful to our brand and reputation.
If an actual or perceived security breach occurs, the market’s perception of our security measures could be harmed and we could lose current and potential tenants, and such a breach could be harmful to our brand and reputation.
Similarly, these changes could materially and adversely affect our tenants’ reported financial condition or results of operations and affect their preferences regarding leasing real estate. Item 1B. Unresolved Staff Comments. None.
Similarly, these changes could materially and adversely affect our tenants’ reported financial condition or results of operations and affect their preferences regarding leasing real estate. 34 Item 1B. Unresolved Staff Comments. None.
Most of our portfolio is leased to tenants operating service-oriented or experience-based businesses at our properties. As of December 31, 2022, the largest industries in our portfolio were restaurants (including quick service and casual and family dining), car washes, early childhood education, medical and dental services, automotive services, entertainment (including movie theaters), convenience stores, and equipment rental and sales.
Most of our portfolio is leased to tenants operating service-oriented or experience-based businesses at our properties. As of December 31, 2023, the largest industries in our portfolio were restaurants (including quick service, casual dining and family dining), car washes, early childhood education, medical and dental services, entertainment (including movie theaters), automotive service, equipment rental and sales, and convenience stores.
Our performance is subject to risks incident to the ownership of commercial real estate, including: the possible inability to collect rents from tenants due to financial hardship, including tenant bankruptcies; changes in local real estate conditions and tenant demand for our properties; changes in consumer trends and preferences that reduce the demand for products and services offered by our tenants; adverse changes in national, regional and local economic conditions; inability to re-lease or sell properties upon expiration or termination of leases; environmental risks; the subjectivity and volatility of real estate valuations and the relative illiquidity of real estate investments compared to many other financial assets, which may limit our ability to modify our portfolio promptly in response to changes in economic or other conditions; changes in laws and governmental regulations, including those governing real estate usage and 20 zoning; acts of God, including natural disasters, which may result in uninsured losses; and acts of war or terrorism, including terrorist attacks.
Our performance is subject to risks incident to the ownership of commercial real estate, including: the possible inability to collect rents from tenants due to financial hardship, including tenant bankruptcies; changes in local real estate conditions and tenant demand for our properties; changes in consumer trends and preferences that reduce the demand for products and services offered by our tenants; adverse changes in national, regional and local economic conditions; inability to re-lease or sell our properties upon expiration or termination of leases; environmental risks; the subjectivity and volatility of real estate valuations and the relative illiquidity of real estate investments compared to many other financial assets, which may limit our ability to modify our portfolio promptly in response to changes in economic or other conditions; changes in laws and governmental regulations, including those governing real estate usage and zoning; changes in interest rates and the availability of financing; acts of God, including natural disasters, which may result in uninsured losses; and acts of war or terrorism, including terrorist attacks.
Credit markets have recently experienced significant price volatility, displacement and liquidity disruptions. In particular, credit spreads in certain credit markets have recently been wider relative to historical levels. Such circumstances could materially impact liquidity in the financial markets, making financing terms for borrowers less attractive, and potentially result in the unavailability of various types of debt financing.
Credit markets have recently experienced significant price volatility, interest rate fluctuations, displacement and liquidity disruptions. In particular, credit spreads in certain credit markets have recently been wider relative to historical levels. Such circumstances could materially impact liquidity in the financial markets, making financing terms for borrowers less attractive, and potentially result in the unavailability of various types of debt financing.
In addition, if we determine to sell the property, we may have difficulty selling it to a party other than the tenant due to 24 the special purpose for which the property may have been designed or modified.
In addition, if we determine to sell the property, we may have difficulty selling it to a party other than the current tenant due to the special purpose for which the property may have been designed or modified.
Some of our tenants operate under franchise or license agreements, and, if they are terminated or not renewed prior to the expiration of their leases with us, that would likely impair their ability to pay us rent. As of December 31, 2022, tenants contributing 11.9% of our annualized base rent operated under franchise or license agreements.
Some of our tenants operate under franchise or license agreements, and, if they are terminated or not renewed prior to the expiration of their leases with us, that would likely impair their ability to pay us rent. As of December 31, 2023, tenants contributing 9.1% of our annualized base rent operated under franchise or license agreements.
We could be materially and adversely affected if a number of our tenants were unable to meet their obligations to us.
We could be materially and adversely affected if a number of our tenants are unable to meet their obligations to us.
This indebtedness consisted of $1.0 billion of combined borrowings under our term loans and $400.0 million outstanding principal amount of senior unsecured notes. We had no indebtedness outstanding under our Revolving Credit Facility as of December 31, 2022, but we may borrow from this facility in the future.
As of December 31, 2023, we had $1.7 billion of indebtedness outstanding. This indebtedness consisted of $1.3 billion of combined borrowings under our term loans and $400.0 million outstanding principal amount of senior unsecured notes. We had no indebtedness outstanding under our Revolving Credit Facility as of December 31, 2023, but we may borrow from this facility in the future.
Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or businesses may be operated, and these restrictions may require substantial expenditures. Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.
Moreover, if 22 contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used, and these restrictions may require substantial expenditures. Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.
We analyze the creditworthiness of our tenants using Moody’s Analytics RiskCalc, which provides an estimated default frequency (“EDF”) and a “shadow rating”, and a lease's property-level rent coverage ratio. Our 22 methods may not adequately assess the risk of an investment.
We analyze the creditworthiness of our tenants using Moody’s Analytics RiskCalc, which provides an estimated default frequency (“EDF”) and a “shadow rating,” and a lease's property-level rent coverage ratio. Our methods may not adequately assess the risk of an investment.
To the extent the COVID-19 pandemic causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants would be adversely affected and their ability to meet their obligations to us could be further impaired.
To the extent that the COVID-19 pandemic or the responses thereto caused a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants would be adversely affected and their ability to meet their obligations to us could be impaired.
Additionally, ineffective internal control over financial reporting or disclosure controls and procedures could also adversely affect our ability to prevent or detect fraud, harm our reputation and cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock. 39 Changes in accounting standards may materially and adversely affect us.
Additionally, ineffective internal control over financial reporting or disclosure controls and procedures could also adversely affect our ability to prevent or detect fraud, harm our reputation and cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock.
Although many of our rent escalators increase rent at a fixed amount on fixed dates, approximately 3.0% of our rent escalators relate to an increase in the CPI over a specified period.
Although many of our rent escalators increase rent at a fixed amount on fixed dates, approximately 2.4% of our rent escalators relate to an increase in the CPI over a specified period.
To the extent the pandemic causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants would be adversely affected and their ability to meet their obligations to us could be impaired; this could also reduce the value of our properties and cause us to realize impairment charges.
More broadly, to the extent the COVID-19 pandemic has caused or causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants will be adversely affected and their ability to meet their obligations to us could be impaired; this could also reduce the value of our properties and cause us to realize impairment charges.
At any given time, any tenant may experience a downturn in its business that may weaken its operating results or the overall financial condition of individual properties or its business as whole.
At any given time, any tenant may experience a downturn in its business, including as a result of adverse economic conditions, that may weaken its operating results or the overall financial condition of individual properties or its business as whole.
The loss of services of one or more members of our senior management team, including due to the adverse health effects of the COVID-19 pandemic, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us.
The loss of services of one or more members of our senior management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us.
As of December 31, 2022, leases contributing 98.6% of our annualized base rent required tenants to provide us with specified unit-level financial information and leases contributing 98.9% of our annualized base rent required tenants to provide us with corporate-level financial information.
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 and leases contributing 98.8% of our annualized base rent required tenants to provide us with corporate-level financial information.
From time to time FASB and the SEC, who create and interpret accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that will govern the preparation of our financial statements.
Changes in accounting standards may materially and adversely affect us. From time to time FASB and the SEC, who create and interpret accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that will govern the preparation of our financial statements.
We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we own substantial assets (or in which we may develop a substantial concentration of assets in the future), such as COVID-19 pandemic surges and measures intended to mitigate its spread, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations.
We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we own substantial assets (or in which we may develop a substantial concentration of assets in the future), such as epidemics, pandemics or public health crises and measures intended to mitigate their spread, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations.
These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions. As of December 31, 2022, 958,515 shares remain available for issuance under our 2018 Incentive Plan.
These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions. As of December 31, 2023, 4,365,504 shares remain available for issuance under our 2023 Incentive Plan.
Risks Related to the Ownership of Our Common Stock Changes in market conditions and volatility of stock prices could adversely affect the market price of our common stock. The market price of our common stock on the NYSE has experienced significant volatility, particularly since the outbreak of the COVID-19 pandemic.
Risks Related to the Ownership of Our Common Stock Changes in market conditions and volatility of stock prices could adversely affect the market price of our common stock. The market price of our common stock on the NYSE has experienced significant volatility.
Our business includes substantial holdings in the following states as of December 31, 2022 (based on annualized base rent): Texas (13.1%), Georgia (7.0%), Ohio (6.7%), Florida (6.5%) and Wisconsin (4.4%).
Our business includes substantial holdings in the following states as of December 31, 2023 (based on annualized base rent): Texas (13.1%), Georgia (8.0%), Ohio (6.0%), Florida (5.9%) and Wisconsin (5.2%).
As of December 31, 2022, our occupancy was 99.9% and leases representing approximately 0.4% of our annualized base rent as of such date will expire prior to 2024. Current tenants may decline to renew leases and we may not be able to find replacement tenants.
As of December 31, 2023, our occupancy was 99.8% and leases representing approximately 4.7% of our annualized base rent as of such date will expire prior to 2029. Current tenants may decline to renew leases and we may not be able to find replacement tenants.
Additional adverse economic conditions and other developments that discourage consumer spending, such as high unemployment levels, wage stagnation, interest rates, inflation, tax rates and fuel and energy costs, may have an impact on the results of operations and financial conditions of our tenants and their ability to pay rent to us.
Additional adverse economic conditions and other developments that discourage consumer spending, such as high unemployment levels, wage stagnation, interest rates, inflation, tax rates and fuel and energy costs, may have an adverse impact on the results of operations and financial conditions of our tenants and their ability to pay rent to us. 18 Our ability to realize future rent increases on some of our leases may vary depending on changes in the CPI.
As of December 31, 2022, we were party to 19 interest rate swap agreements with third-party financial institutions having an aggregate notional amount of $1.0 billion that are designated as cash flow hedges and designed to effectively fix the LIBOR component of the interest rate on the debt outstanding under our term loans.
As of December 31, 2023, we were party to 25 interest rate swap agreements with third-party financial institutions having an aggregate notional amount of $1.3 billion that are designated as cash flow hedges and designed to effectively fix the Secured Overnight Financing Rate (“SOFR”) component of the interest rate on the debt outstanding under our term loans.
The success of most of these businesses depends on the willingness of consumers to physically patronize their businesses and use discretionary income to purchase their products or services.
These types of businesses depend on the willingness of consumers to physically patronize their businesses and use discretionary income to purchase their products or services.
The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us. Compliance with the ADA and fire, safety and other regulations may require us to make unanticipated expenditures. Our properties are subject to the ADA, fire and safety regulations, building codes and other regulations.
The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us. Compliance with the Americans with Disability Act of 1990 (the “ADA”), fire and safety regulations, and other regulations may require us to make unanticipated expenditures.
Therefore, our directors and officers are subject to monetary liability resulting only from: actual receipt of an improper benefit or profit in money, property or services; or active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
Therefore, our directors and officers are subject to monetary liability resulting only from: actual receipt of an improper benefit or profit in money, property or services; or active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated. 27 As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist.
The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis. However, the tools we use to measure credit quality, such as property-level rent coverage ratio, may not be accurate.
However, the tools and methods we use, such as property-level rent coverage ratio, may not accurately assess the investment related credit risk. The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis.
Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors. 30 Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The Secured Overnight Financing Rate (“SOFR”), which is expected to replace LIBOR as the principal floating rate benchmark, has a limited history, is different than LIBOR and rates derived from SOFR may perform differently than LIBOR would have performed, which could create increased volatility in our cost of borrowing or increase our interest expense.
SOFR, which has replaced the London Interbank Offer Rate (“LIBOR”) as the principal floating rate benchmark, has a limited history, is different than LIBOR and rates derived from SOFR may perform differently than LIBOR would have performed, which could create increased volatility in our cost of borrowing or increase our interest expense.
If we cannot obtain capital from third-party sources, or if our cost of capital increases materially, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify as a REIT.
If we cannot obtain capital from third-party sources, or if our cost of capital increases materially, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify as a REIT. 21 Loss of senior executives with long-standing business relationships could materially impair our ability to operate successfully.
As of December 31, 2022, leases contributing 98.2% of our annualized base rent provided for increases in future annual base rent, generally ranging from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.6% of base rent.
The vast majority of our leases provide for periodic contractual rent escalations. As of December 31, 2023, leases contributing 98.7% of our annualized base rent provided for increases in future annual base rent, generally ranging from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.7% of base rent.
More favorable rates will nevertheless continue to apply for regular corporate "qualified dividends." Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, if the 20% rate continues to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may regard investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations. 35 The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
More favorable rates will nevertheless continue to apply for regular corporate "qualified dividends." Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, if the 20% rate continues to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may regard investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations.
Failure to comply with these laws and regulations could result in imposition of fines by the government or an award of damages to private litigants, or both.
Our properties are subject to the ADA, fire and safety regulations, building codes and other regulations. Failure to comply with these laws and regulations could result in imposition of fines by the government or an award of damages to private litigants, or both.
LIBOR is a forward-looking rate reflecting expectations regarding interest rates for those tenors. Thus, LIBOR is intended to be sensitive to bank credit risk and to short-term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of U.S. Treasury securities as collateral.
Thus, LIBOR was intended to be sensitive to bank credit risk and to short-term interest rate risk. In contrast, SOFR is a secured overnight rate reflecting the credit of U.S. Treasury securities as collateral. Thus, SOFR is intended to be insensitive to credit risk and to risks related to interest rates other than overnight rates.
This approval right could prevent a transaction that might be in the best interests of our stockholders. 33 Risks Related to Our Status as a REIT Failure to continue to qualify as a REIT would materially and adversely affect us and the value of our common stock, and even if we continue to qualify as a REIT, we may be subject to certain additional taxes.
Risks Related to Our Status as a REIT Failure to continue to qualify as a REIT would materially and adversely affect us and the value of our common stock, and even if we continue to qualify as a REIT, we may be subject to certain additional taxes.
Similarly, the availability and pricing of debt and equity capital has become increasingly volatile and, in many instances, more expensive. Accordingly, we could experience difficulty accessing debt and equity capital on attractive terms, or at all, which would adversely affect our ability to grow our business, conduct our operations or address maturing liabilities.
Accordingly, we could experience difficulty accessing debt and equity capital on attractive terms, or at all, which would adversely affect our ability to grow our business, conduct our operations or address maturing liabilities.
As of December 31, 2022, tenants operating in those industries represented approximately 84.9% of our annualized base rent. EquipmentShare, Captain D's, Chicken N Pickle, WhiteWater Express Car Wash, Festival Foods, Mister Car Wash, Spare Time, The Nest Schools, Zaxby's and Crunch Fitness represent the largest concepts in our portfolio.
As of December 31, 2023, tenants operating in those industries represented approximately 84.7% of our annualized base rent. EquipmentShare, Chicken N Pickle , Crunch Fitness, Captain D's, Tidal Wave Auto Spa, Festival Foods, Five Star, Mister Car Wash, Spare Time Entertainment and John Deere represent the largest concepts in our portfolio.
Technology and business conditions, particularly in the retail industry, are rapidly changing, and our tenants may be adversely affected by technological innovation, changing consumer preferences and competition from non-traditional sources. Businesses previously thought to be internet resistant, such as the retail grocery industry, have proven to be susceptible to competition from e-commerce.
Technology and business conditions, particularly in the retail industry, are rapidly changing, and our tenants may be adversely affected by technological innovation, changing consumer preferences and competition from non-traditional sources.
A REIT's net income from “prohibited transactions” is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business.
Loss of senior executives with long-standing business relationships could materially impair our ability to operate successfully. Our ability to operate our business and grow our portfolio depend, in large part, upon the efforts of our senior executive team.
Our ability to operate our business and grow our portfolio depend, in large part, upon the efforts of our senior executive team.
As of December 31, 2022, our five largest tenants contributed 10.3% of our annualized base rent, and our ten largest tenants contributed 18.0% of our annualized base rent.
As of December 31, 2023, our five largest tenants contributed 11.2% of our annualized base rent, and our ten largest tenants contributed 18.1% of our annualized base rent.
In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. 29 In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if market conditions are not favorable for these borrowings.
As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, if actions taken by any of our directors or officers impede the performance of our company, your and our ability to recover damages from such director or officer will be limited.
Accordingly, if actions taken by any of our directors or officers impede the performance of our company, your and our ability to recover damages from such director or officer will be limited.
Our results of operations depend to a significant degree on our ability to continue to lease our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring and leasing vacant space.
We may be unable to renew expiring leases with existing tenants or re-lease spaces to new tenants on favorable terms or at all. Our results of operations depend to a significant degree on our ability to continue to lease our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring.
We cannot guarantee that any backup systems, regular data backups, security protocols, network protection mechanisms and other procedures currently in place, or that may be in place in the future, will be adequate to prevent network and service interruption, system failure, damage to one or more of our systems or data loss in the event of a security breach or attack.
We cannot guarantee that any backup systems, regular data backups, security protocols, network protection mechanisms and other procedures currently in place, or that may be in place in the future, will be adequate to prevent network and service interruption, system failure, damage to one or more of our systems or data loss in the event of a security breach or attack. 33 In addition, the regulatory framework around data custody, data privacy and breaches varies by jurisdiction and is an evolving area of law with increasingly complex and rigorous regulatory standards enacted to protect business and personal data in the United States.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities. The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities.
Thus, SOFR is intended to be insensitive to credit risk and to risks related to interest rates other than overnight rates. However, like LIBOR, some SOFR-based rates, including the ones used in connection with our floating rate debt obligations, are forward-looking term rates.
However, like LIBOR, some SOFR-based rates, including the ones used in connection with our floating rate debt obligations, are forward-looking term rates.
In anticipation of the discontinuation of LIBOR as a floating rate benchmark, we transitioned the reference interest rate used in connection with our floating rate debt obligations to ones based on SOFR, which is generally expected to replace LIBOR as the principal floating rate benchmark in the financial markets. SOFR-based rates differ from LIBOR, and the differences may be material.
In anticipation of the discontinuation of LIBOR as a floating rate benchmark, we transitioned the reference interest rate used in connection with our floating rate debt obligations to ones based on SOFR, which the Alternative Reference Rates Committee, convened by the Federal Reserve Board and the Federal Reserve Bank of New York, selected as the principal floating rate benchmark in the financial markets.
As we continue to acquire properties, our portfolio may become more concentrated by geographic area, industry or tenant. If our portfolio becomes less diverse, our business will be more sensitive to the general economic downturn in a particular geographic area, to changes in trends affecting a particular industry and to the financial weakness, bankruptcy or insolvency of fewer tenants.
If our portfolio becomes less diverse, our business will be more sensitive to a general economic downturn in a particular geographic area, to changes in trends affecting a particular industry and to the financial weakness, bankruptcy or insolvency of fewer tenants. 17 The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis.
Also, the failure of our Operating Partnership or any subsidiary partnerships to qualify as a disregarded entity or partnership could cause it to become subject to federal and state corporate income tax, which will reduce significantly the amount of cash available for debt service and for distribution to its partners, including us. 34 To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times.
Also, the failure of our Operating Partnership or any subsidiary partnerships to qualify as a disregarded entity or partnership could cause it to become subject to federal and state corporate income tax, which will reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease.
We may also experience difficulty or a significant delay in re-leasing or selling such property. This risk is magnified in situations where we lease multiple properties to a single-tenant under a master lease.
As of December 31, 2022, we had 142,379,655 shares of common stock outstanding and 553,847 OP Units outstanding (excluding OP Units held directly or indirectly by us). The currently outstanding OP Units are primarily held by members of our management team. Any exchange of OP Units for common stock may result in stockholder dilution.
As of December 31, 2023, we had 164,635,150 shares of common stock outstanding and 553,847 OP Units outstanding (excluding OP Units held directly or indirectly by us). Any exchange of OP Units for common stock may result in stockholder dilution. In the future we may acquire properties through tax deferred contribution transactions in exchange for OP Units.
For example, SOFR is intended to be a broad measure of the cost of borrowing funds overnight in transactions that are collateralized by U.S. Treasury securities. Because SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR, which is intended to be an unsecured rate that represents interbank funding costs for different short-term tenors.
Because SOFR is a financing rate based on overnight secured funding transactions, it differs fundamentally from LIBOR, which was intended to be an unsecured rate that represents interbank funding costs for different short-term tenors. LIBOR was a forward-looking rate reflecting expectations regarding interest rates for those tenors.
The default of a tenant that leases multiple properties from us or its decision not to renew its master lease upon expiration could materially and adversely affect us. 21 Periodically, we have experienced, and we may experience in the future, a decline in the fair value of our real estate assets, resulting in impairment charges that impact our financial condition and results of operations.
Periodically, we have experienced, and we may experience in the future, a decline in the fair value of our real estate assets, resulting in impairment charges that impact our financial condition and results of operations.
The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis. Substantially all of our tenants are required to provide financial information to us periodically or, in some instances, at our request.
Substantially all of our tenants are required to provide financial information to us periodically or, in some instances, at our request.
The occurrence of any of these events or conditions may adversely impact our ability to lease our properties or our or our tenants’ ability to obtain property insurance on acceptable terms, which would materially and adversely affect us.
The occurrence of any of these events or conditions may adversely impact our ability to lease our properties or our or our tenants’ ability to obtain property insurance on acceptable terms, which would materially and adversely affect us. 23 Risks Related to Our Indebtedness As of December 31, 2023, we had $1.7 billion of indebtedness outstanding, which requires substantial cash flow to service, subjects us to covenants and refinancing risk and the risk of default.

… 31 more changes not shown on this page.

Item 2. Properties

Properties — owned and leased real estate

17 edited+4 added−3 removed2 unchanged
Biggest change(2) Car Washes Service $ 39,192 13.2 % 137 697,050 $ 56.23 Early Childhood Education Service 37,905 12.8 % 170 1,825,083 20.77 Quick Service Service 34,468 11.6 % 397 1,095,609 31.47 Medical / Dental Service 32,902 11.1 % 193 1,379,947 23.84 Automotive Service Service 25,455 8.6 % 195 1,256,845 20.06 Casual Dining Service 21,237 7.1 % 102 801,106 25.83 Convenience Stores Service 14,664 4.9 % 131 491,449 30.25 Equipment Rental and Sales Service 13,993 4.7 % 57 1,013,151 13.10 Other Services Service 7,541 2.5 % 35 438,901 17.18 Pet Care Services Service 5,142 1.7 % 46 371,069 14.44 Family Dining Service 4,746 1.6 % 32 179,942 26.38 Service Subtotal 237,245 79.8 % 1,495 9,550,152 24.78 Entertainment Experience 23,459 7.9 % 46 1,416,208 17.18 Health and Fitness Experience 11,495 3.9 % 29 1,125,329 9.44 Movie Theatres Experience 4,301 1.4 % 6 293,206 14.67 Experience Subtotal 39,255 13.2 % 81 2,834,743 13.81 Grocery Retail 9,747 3.3 % 28 1,341,200 7.27 Home Furnishings Retail 2,048 0.7 % 4 217,339 9.42 Retail Subtotal 11,795 4.0 % 32 1,558,539 7.57 Other Industrial Industrial 5,008 1.7 % 20 852,888 5.87 Building Materials Industrial 3,855 1.3 % 23 1,257,017 3.07 Industrial Subtotal 8,863 3.0 % 43 2,109,905 4.20 Total/Weighted Average $ 297,158 100.0 % 1,651 16,053,339 $ 18.46 ____________________________________________________ (1) Excludes two vacant properties.
Biggest change(2) Car Washes Service $ 55,177 15.1 % 179 887,863 $ 62.53 Early Childhood Education Service 42,288 11.6 % 191 1,990,269 21.25 Quick Service Service 39,101 10.7 % 427 1,145,403 34.48 Medical / Dental Service 38,581 10.6 % 206 1,557,129 24.78 Automotive Service Service 30,003 8.2 % 224 1,526,876 19.65 Casual Dining Service 25,506 7.0 % 115 817,546 31.20 Equipment Rental and Sales Service 18,572 5.1 % 72 1,252,458 14.83 Convenience Stores Service 18,415 5.0 % 145 578,272 33.09 Other Services Service 8,634 2.4 % 46 600,191 14.39 Family Dining Service 6,835 1.9 % 38 249,173 27.43 Pet Care Services Service 5,904 1.6 % 38 260,429 23.92 Service Subtotal 289,016 79.2 % 1,681 10,865,609 26.73 Entertainment Experience 29,970 8.2 % 54 1,727,559 17.35 Health and Fitness Experience 15,633 4.3 % 38 1,427,431 11.34 Movie Theatres Experience 4,398 1.2 % 6 293,206 15.00 Experience Subtotal 50,001 13.7 % 98 3,448,196 14.71 Grocery Retail 11,604 3.2 % 32 1,477,780 7.85 Home Furnishings Retail 1,491 0.4 % 3 176,809 8.44 Retail Subtotal 13,095 3.6 % 35 1,654,589 7.91 Other Industrial Industrial 8,754 2.4 % 33 1,367,097 6.40 Building Materials Industrial 3,910 1.1 % 23 1,257,017 3.11 Industrial Subtotal 12,664 3.5 % 56 2,624,114 4.83 Total/Weighted Average $ 364,776 100.0 % 1,870 18,592,508 $ 19.73 ____________________________________________________ (1) Excludes three vacant properties.
The following table provides information about the top ten concepts in our portfolio as of December 31, 2022 (dollars in thousands): Concept Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq.
The following table provides information about the top ten concepts in our portfolio as of December 31, 2023 (dollars in thousands): Concept Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq.
The following table summarizes those industries as of December 31, 2022 (dollars in thousands except per sq. ft amounts): Tenant Industry Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq. Ft.) (1) Rent Per Sq. Ft.
The following table summarizes those industries as of December 31, 2023 (dollars in thousands except per sq. ft amounts): Tenant Industry Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq. Ft.) (1) Rent Per Sq. Ft.
The following table illustrates the portions of our annualized base rent as of December 31, 2022 attributable to leases with tenants having specified implied credit ratings based on their Moody’s RiskCalc scores: Credit Rating NR 1.00 to 1.49x 1.50 to 1.99x ≥ 2.00x CCC+ — % 0.4 % 0.3 % 0.2 % 0.6 % B- — % 0.1 % — % — % 1.6 % B — % 0.3 % — % 2.5 % 1.3 % B+ 0.1 % 0.9 % 0.6 % 0.6 % 3.8 % BB- — % 0.1 % 2.0 % 1.7 % 13.6 % BB 0.2 % 0.5 % 0.7 % 0.6 % 12.4 % BB+ 0.1 % 0.2 % 1.3 % 1.3 % 8.6 % BBB- 0.2 % — % 0.4 % 1.2 % 7.7 % BBB — % 0.4 % 1.7 % 5.3 % 11.3 % BBB+ — % 0.1 % 1.1 % — % 2.0 % A- — % — % — % 0.1 % 5.2 % A — % — % — % — % 2.6 % A+ — % — % — % — % 0.7 % AA- — % — % — % — % — % _____________________________________ NR Not reported
The following table illustrates the portions of our annualized base rent as of December 31, 2023 attributable to leases with tenants having specified implied credit ratings based on their Moody’s RiskCalc scores: Credit Rating NR 1.00 to 1.49x 1.50 to 1.99x ≥ 2.00x CCC+ 0.1 % 0.4 % 0.1 % 0.8 % 0.5 % B- — % 0.1 % 0.1 % — % 1.1 % B 0.2 % 0.1 % 1.9 % 1.1 % 7.4 % B+ 0.1 % 1.1 % 2.3 % 0.7 % 13.4 % BB- — % — % 0.7 % 2.9 % 9.6 % BB 0.2 % 0.3 % 1.0 % 0.7 % 5.4 % BB+ — % 0.2 % 1.4 % 2.1 % 9.8 % BBB- — % 0.4 % 1.0 % 1.7 % 8.2 % BBB 0.2 % 0.1 % 0.3 % 1.5 % 7.7 % BBB+ — % — % 0.3 % 0.1 % 2.3 % A- — % — % 0.1 % 0.1 % 2.2 % A — % — % — % 0.4 % 1.9 % A+ — % — % 0.6 % — % 0.2 % AA- — % — % — % — % — % _____________________________________ NR Not reported
The following table details the geographical locations of our properties as of December 31, 2022 (dollars in thousands): State Annualized Base Rent % of Annualized Base Rent Number of Properties Building (Sq.
The following table details the geographical locations of our properties as of December 31, 2023 (dollars in thousands): State Annualized Base Rent % of Annualized Base Rent Number of Properties Building (Sq.
As of December 31, 2022, 94.9% of our leases (based on annualized base rent) were triple-net, and the tenant is typically responsible for all improvements and is contractually obligated to pay all operating expenses, such as maintenance, insurance, utility and tax expense, related to the leased property.
As of December 31, 2023, 95.9% of our leases (based on annualized base rent) were triple-net, where the tenant is typically responsible for all improvements and is contractually obligated to pay all operating expenses, such as maintenance, insurance, utility and tax expense, related to the leased property.
Due to the triple- 40 net structure of our leases, we do not expect to incur significant capital expenditures relating to our triple-net leased properties, and the potential impact of inflation on our operating expenses is reduced. Diversification by Concept Our tenants operate their businesses through 538 concepts (i.e., generally brands).
Due to the triple-net structure of our leases, we do not expect to incur significant capital expenditures relating to our triple-net leased properties, and the potential impact of inflation on our operating expenses is reduced. 37 Diversification by Concept Our tenants operate their businesses across 588 concepts (i.e., generally brands).
(2) Excludes two vacant properties. (3) Weighted by annualized base rent. Unit Level Rent Coverage Generally, we seek to acquire investments with healthy rent coverage ratios, and as of December 31, 2022, the weighted average rent coverage ratio of our portfolio was 4.0x.
(2) Excludes three vacant properties. (3) Weighted by annualized base rent. Unit Level Rent Coverage Generally, we seek to acquire investments with healthy rent coverage ratios, and as of December 31, 2023, the weighted average rent coverage ratio of our portfolio was 3.8x.
Our portfolio’s unit-level rent coverage ratios (by annualized base rent and excluding leases that do not report unit-level financial information) as of December 31, 2022 are displayed below: Unit Level Coverage Ratio % of Total ≥ 2.00x 72.6 % 1.50x to 1.99x 14.3 % 1.00x to 1.49x 8.4 % 3.0 % Not reported 1.7 % 100.0 % 44 Implied Tenant Credit Ratings Tenant financial distress is typically caused by consistently poor or deteriorating operating performance, near-term liquidity issues or unexpected liabilities.
Our portfolio’s unit-level rent coverage ratios (by annualized base rent and excluding leases that do not report unit-level financial information) as of December 31, 2023 are displayed below: Unit Level Coverage Ratio % of Total ≥ 2.00x 73.2 % 1.50x to 1.99x 12.5 % 1.00x to 1.49x 9.9 % 3.1 % Not reported 1.3 % 100.0 % 41 Implied Tenant Credit Ratings Tenant financial distress is typically caused by consistently poor or deteriorating operating performance, near-term liquidity issues or unexpected liabilities.
Item 2. Properties. Our Real Estate Investment Portfolio As of December 31, 2022, we had a portfolio of 1,653 properties, inclusive of 153 properties that secure our investments in mortgage loans receivable, that was diversified by tenant, concept, industry and geography and had annualized base rent of $297.2 million.
Item 2. Properties. Our Real Estate Investment Portfolio As of December 31, 2023, we had a portfolio of 1,873 properties, inclusive of 136 properties that secure our investments in mortgage loans receivable, that was diversified by tenant, concept, industry and geography and had annualized base rent of $364.8 million.
Diversification by Tenant As of December 31, 2022, our top ten tenants included ten different concepts. The following table details information about our tenants and the related concepts they operate as of December 31, 2022 (dollars in thousands): Tenant (1) Concept Number of Properties (2) Annualized Base Rent % of Annualized Base Rent Equipmentshare.com Inc.
The following table details information about our tenants and the related concepts they operate as of December 31, 2023 (dollars in thousands): Tenant (1) Concept Number of Properties (2) Annualized Base Rent % of Annualized Base Rent EquipmentShare.com Inc.
As of December 31, 2022, our tenants operating service-oriented businesses had a weighted average rent coverage ratio of 3.6x, our tenants operating experience-based businesses had a weighted average rent coverage ratio of 2.2x, our tenants operating retail businesses had a weighted average rent coverage ratio of 4.1x and our tenants operating other types of businesses had a weighted average rent coverage ratio of 24.5x. 42 Diversification by Geography Our 1,653 property locations are spread across 48 states.
As of December 31, 2023, our tenants operating service-oriented businesses had a weighted average rent coverage ratio of 3.7x, our tenants operating experience-based businesses had a weighted average rent coverage ratio of 2.8x, our tenants operating retail businesses had a weighted average rent coverage ratio of 4.2x and our tenants operating other types of businesses had a weighted average rent coverage ratio of 10.9x. 39 Diversification by Geography Our 1,873 properties locations are located in 48 states.
As of December 31, 2022, our five largest tenants, who contributed 10.3% of our annualized base rent, had a rent coverage ratio of 5.8x, and our ten largest tenants, who contributed 18.0% of our annualized base rent, had a rent coverage ratio of 4.7x.
As of December 31, 2023, our five largest tenants, who contributed 11.2% of our annualized base rent, had a rent coverage ratio of 7.3x while our ten largest tenants, who contributed 18.1% of our annualized base rent, had a rent coverage ratio of 5.4x.
Our 350 tenants operate 538 different concepts in 16 industries across 48 states. None of our tenants represented more than 3.4% of our annualized base rent at December 31, 2022 and our top ten largest tenants represented 18.0% of our annualized base rent as of that date.
None of our tenants represented more than 3.8% of our portfolio at December 31, 2023 and our top ten largest tenants represented 18.1% of our annualized base rent as of that date. 36 Diversification by Tenant As of December 31, 2023, our top ten tenants included ten different concepts.
The following table sets forth our lease expirations for leases in place as of December 31, 2022 (dollars in thousands): Lease Expiration Year (1) Annualized Base Rent % of Annualized Base Rent Number of Properties (2) Weighted Average Rent Coverage Ratio (3) 2023 $ 1,306 0.4 % 14 3.1 x 2024 5,076 1.7 % 49 5.8 x 2025 2,246 0.8 % 19 2.1 x 2026 2,790 0.9 % 19 4.5 x 2027 6,852 2.3 % 66 2.5 x 2028 4,056 1.4 % 13 2.2 x 2029 5,671 1.9 % 78 3.9 x 2030 4,495 1.5 % 49 6.2 x 2031 13,773 4.6 % 80 2.9 x 2032 11,295 3.8 % 46 3.8 x 2033 7,446 2.5 % 25 2.9 x 2034 28,544 9.6 % 206 5.8 x 2035 14,916 5.0 % 101 6.7 x 2036 42,248 14.2 % 176 3.7 x 2037 26,486 8.9 % 129 7.3 x 2038 11,451 3.9 % 77 2.4 x 2039 19,157 6.4 % 94 3.8 x 2040 29,976 10.1 % 140 2.7 x 2041 22,841 7.7 % 113 2.4 x 2042 34,316 11.5 % 155 3.3 x Thereafter 2,217 0.7 % 2 2.3 x Total/Weighted Average $ 297,158 100.0 % 1,651 4.0 x _______________________________________________________________ (1) Expiration year of leases in place as of December 31, 2022, excluding any tenant option renewal periods that have not been exercised.
The following table sets forth our lease expirations for leases in place as of December 31, 2023 (dollars in thousands): Lease Expiration Year (1) Annualized Base Rent % of Annualized Base Rent Number of Properties (2) Weighted Average Rent Coverage Ratio (3) 2024 $ 1,506 0.4 % 20 2.3 x 2025 2,226 0.6 % 15 3.2 x 2026 3,046 0.8 % 19 3.0 x 2027 6,140 1.7 % 55 2.9 x 2028 4,323 1.2 % 16 2.7 x 2029 9,701 2.7 % 113 5.2 x 2030 4,116 1.1 % 45 4.7 x 2031 13,059 3.6 % 78 2.8 x 2032 12,209 3.3 % 47 4.2 x 2033 7,842 2.1 % 24 3.4 x 2034 28,169 7.7 % 200 6.6 x 2035 14,795 4.1 % 98 3.7 x 2036 39,372 10.8 % 159 4.4 x 2037 21,714 6.0 % 127 6.0 x 2038 42,516 11.7 % 178 3.6 x 2039 17,471 4.8 % 80 2.5 x 2040 28,548 7.8 % 126 2.5 x 2041 23,060 6.3 % 111 2.6 x 2042 40,198 11.0 % 177 3.3 x 2043 37,333 10.2 % 158 2.9 x Thereafter 7,432 2.0 % 24 4.1 x Total/Weighted Average $ 364,776 100.0 % 1,870 3.8 x _______________________________________________________________ (1) Expiration year of contracts in place as of December 31, 2023, excluding any tenant option renewal periods that have not been exercised.
Ft.) (1) EquipmentShare Service $ 9,962 3.4 % 33 589,550 Captain D's Service 6,595 2.2 % 88 228,470 Chicken N Pickle Service 5,546 1.9 % 6 202,057 WhiteWater Express Car Wash Service 4,953 1.7 % 16 77,746 Festival Foods Retail 4,681 1.6 % 5 379,640 Mister Car Wash Service 4,479 1.5 % 13 54,621 Spare Time Experience 4,443 1.5 % 6 272,979 The Nest Schools Service 4,146 1.4 % 17 217,282 Zaxby's Service 4,062 1.4 % 22 76,790 Crunch Fitness Experience 4,022 1.4 % 10 348,072 Top 10 Subtotal 52,889 17.8 % 216 2,447,207 Other 244,269 82.2 % 1,435 13,606,130 Total $ 297,158 100.0 % 1,651 16,053,337 ______________________________________ (1) Excludes two vacant properties. 41 Diversification by Industry Our tenants' business concepts are diversified across various industries.
Ft.) (1) EquipmentShare Service $ 14,039 3.8 % 48 823,701 Chicken N Pickle Experience 8,346 2.3 % 8 279,483 Crunch Fitness Experience 8,028 2.2 % 19 675,084 Captain D's Service 6,707 1.8 % 88 228,470 Tidal Wave Auto Spa Service 5,943 1.6 % 16 30,497 Festival Foods Retail 5,778 1.6 % 6 465,660 Five Star Experience 4,717 1.3 % 9 65,455 Mister Car Wash Service 4,566 1.3 % 13 54,621 Spare Time Entertainment Experience 4,521 1.2 % 6 272,979 John Deere Service 4,259 1.2 % 22 395,014 Top 10 Subtotal 66,904 18.3 % 235 3,290,964 Other 297,872 81.7 % 1,635 15,301,544 Total $ 364,776 100.0 % 1,870 18,592,508 ______________________________________ (1) Excludes three vacant properties. 38 Diversification by Industry Our tenants' business concepts are diversified across various industries.
Festival Foods 5 4,681 1.6 % The Track Holdings, LLC Five Star 9 4,649 1.6 % Mammoth Holdings, LLC. Various 17 4,552 1.5 % Car Wash Partners, Inc. Mister Car Wash 13 4,479 1.5 % Bowl New England, Inc.
Festival Foods 6 5,778 1.6 % The Track Holdings, LLC Five Star 10 5,695 1.6 % Captain D's, LLC Captain D's 77 5,627 1.5 % SB Pep Holdco, LLC (3) Various 12 4,650 1.3 % Premier Early Childhood Education Partners LLC Various 26 4,619 1.3 % Car Wash Partners, Inc.
Removed
EquipmentShare 33 $ 9,962 3.4 % CNP Holdings, LLC Chicken N Pickle 6 5,546 1.9 % Captain D's, LLC Captain D's 75 5,353 1.8 % Whitewater Holding Company, LLC WhiteWater Express Car Wash 16 4,953 1.7 % Cadence Education, LLC Various 23 4,941 1.7 % MDSFest, Inc.
Added
Our 374 tenants operate 588 different concepts in 16 industries across 48 states.
Removed
Spare Time 6 4,444 1.5 % Top 10 Subtotal 203 53,559 18.0 % Other 1,448 243,599 82.0 % Total 1,651 $ 297,158 100.0 % __________________________________________ (1) Represents tenant or guarantor. (2) Excludes two vacant properties.
Added
EquipmentShare 48 $ 14,039 3.8 % CNP Holdings, LLC Chicken N Pickle 8 8,346 2.3 % Busy Bees US Holdings Limited Various 31 6,943 1.9 % New Potato Creek Holdings, LLC Tidal Wave Auto Spa 16 5,943 1.6 % Mdsfest, Inc.
Removed
Ft.) Texas $ 38,919 13.1 % 193 2,114,977 Georgia 20,761 7.0 % 123 745,559 Ohio 19,919 6.7 % 139 1,153,163 Florida 19,266 6.5 % 78 786,740 Wisconsin 12,953 4.4 % 56 778,137 North Carolina 11,253 3.8 % 57 641,085 Missouri 11,038 3.7 % 58 792,979 Michigan 9,363 3.2 % 60 950,862 Arizona 8,492 2.9 % 46 503,403 Oklahoma 8,418 2.8 % 51 524,865 New Jersey 8,337 2.8 % 27 215,705 Alabama 8,083 2.7 % 52 458,898 Tennessee 7,998 2.7 % 50 344,772 Minnesota 7,261 2.4 % 36 496,939 Arkansas 7,207 2.4 % 55 447,342 Illinois 7,150 2.4 % 43 311,152 New York 6,555 2.2 % 44 223,324 Pennsylvania 6,389 2.2 % 35 338,665 Virginia 6,336 2.1 % 24 262,428 Massachusetts 5,861 2.0 % 29 406,159 Colorado 5,659 1.9 % 27 262,068 South Carolina 5,645 1.9 % 34 378,796 Iowa 5,464 1.8 % 34 327,473 Mississippi 4,755 1.6 % 41 271,991 Indiana 4,700 1.6 % 38 303,066 Kentucky 4,165 1.4 % 37 220,095 Kansas 3,695 1.2 % 17 130,257 Connecticut 3,449 1.2 % 13 217,985 New Mexico 3,380 1.1 % 22 130,210 Nevada 3,115 1.1 % 10 90,620 California 3,087 1.0 % 15 151,566 New Hampshire 2,740 0.9 % 13 230,149 South Dakota 2,410 0.8 % 9 124,912 Louisiana 2,368 0.8 % 13 124,161 Maryland 2,276 0.8 % 9 79,028 Washington 1,731 0.6 % 11 87,243 West Virginia 1,636 0.6 % 24 66,746 Oregon 1,240 0.4 % 8 127,673 Utah 945 0.3 % 2 67,659 Nebraska 880 0.3 % 9 33,103 Maine 509 0.2 % 1 32,115 Wyoming 444 0.2 % 2 14,001 Idaho 403 0.1 % 1 35,433 Alaska 246 0.1 % 2 6,630 Vermont 219 0.1 % 2 30,508 North Dakota 197 0.1 % 1 13,050 Rhode Island 164 0.1 % 1 5,800 Montana 77 — % 1 — Total $ 297,158 100.0 % 1,653 16,059,492 43 Lease Expirations As of December 31, 2022, the weighted average remaining term of our leases was 13.9 years (based on annualized base rent), with only 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028.
Added
Mister Car Wash 13 4,566 1.3 % Top 10 Subtotal 247 66,205 18.1 % Other 1,623 298,571 81.9 % Total 1,870 $ 364,776 100.0 % __________________________________________ (1) Represents tenant or guarantor. (2) Excludes three vacant properties. (3) Includes properties leased to a subsidiary of Accelerated Brands.
Added
Ft.) Texas $ 47,745 13.1 % 215 2,312,947 Georgia 29,165 8.0 % 153 1,051,818 Ohio 22,002 6.0 % 141 1,198,456 Florida 21,455 5.9 % 86 775,400 Wisconsin 19,048 5.2 % 72 1,011,950 Missouri 13,274 3.6 % 69 849,260 North Carolina 12,394 3.4 % 63 642,318 Arizona 11,874 3.3 % 52 562,798 Oklahoma 10,849 3.0 % 59 831,399 Michigan 10,400 2.9 % 60 1,002,532 Alabama 9,791 2.7 % 56 514,795 New Jersey 9,296 2.6 % 29 373,874 New York 8,749 2.4 % 58 304,086 Arkansas 8,675 2.4 % 58 480,277 Virginia 8,662 2.4 % 29 321,102 Illinois 8,659 2.4 % 51 403,037 Minnesota 8,633 2.4 % 40 551,746 Tennessee 8,592 2.4 % 51 349,388 South Carolina 8,310 2.3 % 50 456,252 Pennsylvania 7,402 2.0 % 39 391,321 Indiana 7,140 2.0 % 49 365,594 Mississippi 6,718 1.8 % 53 316,851 Connecticut 6,513 1.8 % 20 508,568 Colorado 6,202 1.7 % 28 319,000 Massachusetts 6,119 1.7 % 31 431,281 Iowa 5,297 1.5 % 32 363,483 Nevada 4,385 1.2 % 13 104,860 Kentucky 4,234 1.2 % 38 234,363 Kansas 3,918 1.1 % 17 162,837 California 3,647 1.0 % 17 125,741 Louisiana 3,624 1.0 % 19 133,848 New Hampshire 3,499 1.0 % 15 255,981 New Mexico 3,359 0.9 % 21 128,455 South Dakota 2,684 0.7 % 9 130,152 Washington 2,382 0.7 % 12 99,374 Maryland 2,379 0.7 % 9 75,410 West Virginia 1,655 0.5 % 24 66,746 Maine 1,002 0.3 % 3 56,981 Utah 956 0.3 % 2 67,659 Nebraska 911 0.3 % 8 32,892 Idaho 644 0.2 % 2 41,146 North Dakota 559 0.2 % 4 62,270 Rhode Island 466 0.1 % 2 22,865 Wyoming 453 0.1 % 2 14,001 Oregon 403 0.1 % 7 119,584 Alaska 250 0.1 % 2 6,630 Vermont 223 0.1 % 1 30,508 Montana 179 0.1 % 1 — Total $ 364,776 100.0 % 1,873 18,661,836 40 Lease Expirations As of December 31, 2023, the weighted average remaining term of our leases was 14.0 years (based on annualized base rent), with only 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed5 unchanged
Biggest changeFurther, management cannot predict the outcome of these legal proceedings and if management's expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, financial condition, results of operations or liquidity. Item 4. Mine Safety Disclosures. Not applicable. 45 PART II
Biggest changeFurther, management cannot predict the outcome of these legal proceedings and if management's expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, financial condition, results of operations or liquidity. Item 4. Mine Safety Disclosures. Not applicable. 42 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

7 edited+0 added−0 removed5 unchanged
Biggest changeTicker / Index 6/21/2018 12/31/2018 12/31/2019 12/31/2020 6/30/2021 12/31/2021 12/31/2022 EPRT 100.00 103.16 193.63 175.07 228.11 245.86 210.91 S&P 500 100.00 92.65 126.83 147.49 168.77 187.69 150.84 FNER 100.00 94.04 116.57 105.02 127.84 146.21 105.57 The performance graph and the related table are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Biggest changeTicker / Index 1/1/2019 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 EPRT 100.00 187.70 169.71 238.32 204.45 233.36 S&P 500 100.00 136.89 159.19 202.58 162.81 202.31 FNER 100.00 123.96 113.69 156.04 113.51 121.37 The performance graph and the related table are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Equity Compensation Plan Information The information concerning our Equity Compensation Plan will be included in the Proxy Statement to be filed relating to our 2023 Annual Meeting of Stockholders and is incorporated herein by reference. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 6. [Reserved] 47
Equity Compensation Plan Information The information concerning our Equity Compensation Plan will be included in the Proxy Statement to be filed relating to our 2024 Annual Meeting of Stockholders and is incorporated herein by reference. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. Item 6. [Reserved] 44
Issuer Purchases of Equity Securities During the year ended December 31, 2022, the Company did not repurchase any of its equity securities.
Issuer Purchases of Equity Securities During the year ended December 31, 2023, the Company did not repurchase any of its equity securities.
The graph and related table assume $100.00 was invested on June 21, 2018 and assumes the reinvestment of all dividends. The historical stock price performance reflected in the graph and related table is not necessarily indicative of future stock price performance. 46 Essential Properties Realty Trust, Inc.
The graph and related table assume $100.00 was invested on January 1, 2019 and assumes the reinvestment of all dividends. The historical stock price performance reflected in the graph and related table is not necessarily indicative of future stock price performance. 43 Essential Properties Realty Trust, Inc.
Management's Discussion and Analysis of Financial Condition and Results of Operations — Description of Certain Debt." We have determined that, for federal income tax purposes, approximately 79.7% of the distributions paid for the 2022 tax year represented taxable income and 20.3% represented a return of capital.
Management's Discussion and Analysis of Financial Condition and Results of Operations — Description of Certain Debt." We have determined that, for federal income tax purposes, approximately 86.0% of the distributions paid for the 2023 tax year represented taxable income and 14.0% represented a return of capital.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is listed on the NYSE under the symbol "EPRT". As of February 10, 2023, there were 191 holders of record of the 144,350,885 outstanding shares of our common stock.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our common stock is listed on the NYSE under the symbol "EPRT". As of February 9, 2024, there were 196 holders of record of the 166,102,747 outstanding shares of our common stock.
Stock Performance Graph The following performance graph and related table compare, for the period from June 21, 2018 (the first day our common stock was traded on the NYSE) through December 31, 2022, the cumulative total stockholder return on our common stock with that of the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the FTSE NAREIT All Equity REITs index ("FNER").
Stock Performance Graph The following performance graph and related table compare, for the five year period ended December 31, 2023, the cumulative total stockholder return on our common stock with that of the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the FTSE NAREIT All Equity REITs index ("FNER").

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

112 edited+8 added−73 removed80 unchanged
Biggest changeHistorical Investment and Disposition Activity The following table sets forth select information about our quarterly investment activity for the quarters ended March 31, 2021 through December 31, 2022 (dollars in thousands): Three Months Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Investment Activity $ 237,795 $ 175,738 $ 195,454 $ 328,370 Number of transactions 23 23 27 39 Property count 105 39 40 115 Avg. investment per unit $ 2,187 $ 3,870 $ 3,750 $ 2,782 Cash Cap Rates 1 7.0 % 7.0 % 7.1 % 7.5 % GAAP Cap Rates 2 7.8 % 8.0 % 8.2 % 8.8 % Master Lease Percentage 3,4 83 % 86 % 68 % 90 % Sale-Leaseback Percentage 3,5 100 % 100 % 89 % 99 % Existing Relationship Percentage 83 % 79 % 94 % 95 % Percentage of Financial Reporting 3,6 100 % 100 % 100 % 100 % Rent Coverage Ratio 3.3 x 2.7 x 4.4 x 3.2 x Lease Term Years 15.0 17.2 16.5 18.7 Three Months Ended March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Investment Activity $ 197,816 $ 223,186 $ 230,755 $ 322,203 Number of transactions 22 34 31 55 Property count 74 94 85 96 Avg. investment per unit $ 2,650 $ 2,354 $ 2,676 $ 3,230 Cash Cap Rates 1 7.0 % 7.1 % 7.0 % 6.9 % GAAP Cap Rates 2 7.9 % 7.8 % 7.9 % 7.8 % Master Lease Percentage 3,4 79 % 83 % 80 % 59 % Sale-Leaseback Percentage 3,5 85 % 88 % 84 % 96 % Existing Relationship Percentage 81 % 97 % 81 % 89 % Percentage of Financial Reporting 3,6 100 % 100 % 100 % 98 % Rent Coverage Ratio 3.0 x 2.7 x 2.8 x 3.0 x Lease Term Years 16.1 13.5 16.4 16.3 _____________________________________ (1) Cash annualized base rent for the first full month after the investment divided by the gross investment in the property plus transaction costs.
Biggest changeHistorical Investment and Disposition Activity The following table sets forth select information about our investment activity for the previous eight quarters beginning with the quarter ended March 31, 2022 through December 31, 2023 (dollars in thousands): Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Investment activity $ 207,147 $ 277,361 $ 213,327 $ 314,865 Number of transactions 24 29 30 43 Property count 57 78 65 93 Avg. investment per unit $ 3,401 $ 3,350 $ 2,812 $ 3,008 Cash cap rate 1 7.6% 7.4% 7.6% 7.9% GAAP cap rate 2 9.0% 8.7% 8.7% 9.1% Master lease percentage 3,4 86% 57% 60% 72% Sale-leaseback percentage 3,5 100% 99% 100% 97% Existing relationship percentage 94% 66% 86% 96% Percentage of financial reporting 3 100% 100% 100% 100% Rent coverage ratio 3.3x 3.9x 3.3x 3.3x Lease term (years) 19.0 19.3 17.6 17.6 Three Months Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Investment activity $ 237,795 $ 175,738 $ 195,454 $ 328,370 Number of transactions 23 23 27 39 Property count 105 39 40 115 Avg. investment per unit $ 2,187 $ 3,870 $ 3,750 $ 2,782 Cash cap rate 1 7.0% 7.0% 7.1% 7.5% GAAP cap rate 2 7.8% 8.0% 8.2% 8.8% Master lease percentage 3,4 83% 86% 68% 90% Sale-leaseback percentage 3,5 100% 100% 89% 99% Existing relationship percentage 83% 79% 94% 95% Percentage of financial reporting 3 100% 100% 100% 100% Rent coverage ratio 3.3x 2.7x 4.4x 3.2x Lease term (years) 15.0 17.2 16.5 18.7 _____________________________________ (1) Cash annualized base rent for the first full month after the investment divided by the gross investment in the property plus transaction costs.
However, at any point in time, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our level of leverage, the portion of our portfolio that is unencumbered, borrowing restrictions imposed by our existing debt agreements, general market conditions for real estate and potentially REITs specifically, our operating performance, our liquidity and general market perceptions about us.
However, at any point in time, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our level of leverage, the portion of our portfolio that is unencumbered, our credit ratings, borrowing restrictions imposed by our existing debt agreements, general market conditions for real estate and potentially REITs specifically, our operating performance, our liquidity and general market perceptions about us.
Although we are not required to maintain a particular leverage ratio and may not be able to do so, we generally consider that, over time, a level of net debt (which includes recourse and non-recourse borrowings and 54 any outstanding preferred stock less cash and cash equivalents and restricted cash available for future investment) that is less than six times our annualized adjusted EBITDA re is prudent for a real estate company like ours.
Although we are not required to maintain a particular leverage ratio and may not be able to do so, we generally consider that, over time, a level of net debt (which includes recourse and non-recourse borrowings and any outstanding preferred stock less cash and cash equivalents and restricted cash available for future investment) that is less than six times our annualized adjusted EBITDA re is prudent for a real estate company like ours.
The fair value of above- or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases.
The fair value of above- or below-market leases is recorded based on the net present value (using a discount rate that reflects the risks associated with the leases acquired) of the difference between the contractual amount to be paid pursuant to the in-place lease and our estimate of the fair market lease rate for the corresponding in-place lease, measured over the 53 remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases.
The model also incorporates assumptions related to underlying collateral values, various loss scenarios, and predicted losses to estimate expected losses. Our 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 model also incorporates assumptions related to underlying collateral values, various loss scenarios, and predicted losses to estimate expected losses. Our 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.
Future sources of debt capital may include public issuances of senior unsecured notes, term borrowings, mortgage financing of a single-asset or a portfolio of assets and CMBS borrowings. These sources of debt capital may offer us the opportunity to lower our cost of funding and further diversify our sources of debt capital.
Future sources of debt capital may include public issuances of senior unsecured notes, term loan borrowings, mortgage financing of a single-asset or a portfolio of assets and CMBS borrowings. These sources of debt capital may offer us the opportunity to lower our cost of funding and further diversify our sources of debt capital.
Our net cash used in investing activities is generally used to fund our investments in real estate, the development of our construction in progress and investments in loans receivable, offset by cash provided from the disposition of real estate and principal collections on our loans and direct financing lease receivables.
Our net cash used in investing activities is generally used to fund our investments in real estate, the development of our construction in progress and investments in mortgage loans receivable, offset by cash provided from the disposition of real estate and principal collections on our loans and direct financing lease receivables.
Generally, we will seek to issue long-term debt on an unsecured basis as we believe this facilitates greater flexibility in the management of our existing portfolio and our ability to retain optionality in our overall financing and growth strategy.
Generally, we will seek to issue long-term debt on an unsecured basis as we believe this facilitates greater flexibility in the management of our portfolio and our ability to retain optionality in our overall financing and growth strategy.
As we continue to invest in real estate properties and grow our real estate portfolio, we intend to manage our long-term debt maturities to reduce the risk that a significant amount of our debt will mature in any single year in the future.
As 48 we continue to invest in real estate properties and grow our real estate portfolio, we intend to manage our long-term debt maturities to reduce the risk that a significant amount of our debt will mature in any single year in the future.
The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which, unless otherwise specified, will be fully and unconditionally guaranteed by the Company. At December 31, 2022, the Operating Partnership had issued and outstanding $400.0 million of senior notes.
The Company and the Operating Partnership have filed a registration statement on Form S-3 with the SEC registering, among other securities, debt securities of the Operating Partnership, which, unless otherwise specified, will be fully and unconditionally guaranteed by the Company. At December 31, 2023, the Operating Partnership had issued and outstanding $400.0 million of senior notes.
Under the terms of the 2027 Term Loan, we are subject to customary restrictive financial and nonfinancial covenants which, among other things, require us to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios. As of December 31, 2022, we were in compliance with these covenants.
Under the terms of the 2027 Term Loan, we are subject to customary restrictive financial and nonfinancial covenants which, among other things, require us to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios. As of December 31, 2023, we were in compliance with these covenants.
We may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or we elect 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.
We may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or we elect not to apply hedge accounting. 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.
"Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2022 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date. We were organized on January 12, 2018 as a Maryland corporation.
"Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2023 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date. We were organized on January 12, 2018 as a Maryland corporation.
To derive AFFO, we modify our computation of Core FFO to include other adjustments to GAAP net income related to certain items that we believe are not indicative of our operating performance, including straight-line rental revenue, non-cash interest expense, non-cash compensation expense, other amortization and non-cash charges, capitalized interest expense and transaction costs.
To derive AFFO, we modify our computation of Core FFO to include other adjustments to GAAP net income related to certain items that we believe are not indicative of our operating performance, including straight-line rental revenue, non-cash interest expense, non-cash compensation expense, other amortization expense, other non-cash charges and capitalized interest expense.
Adjustment to Rental Revenue for Tenant Credit We continually review receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
Adjustment to Rental Revenue for Tenant Credit We continually review receivables related to rent and unbilled rent receivables and determine collectability by taking into consideration the tenant’s payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located.
We believe NOI and Cash NOI provide useful and relevant 68 information because they reflect only those revenue and expense items that are incurred at the property level and present such items on an unlevered basis. NOI and Cash NOI are not measures of financial performance under GAAP.
We believe NOI and Cash NOI provide useful and relevant 61 information because they reflect only those revenue and expense items that are incurred at the property level and present such items on an unlevered basis. NOI and Cash NOI are not measures of financial performance under GAAP.
Core FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating Core FFO include certain transaction related gains, losses, income or expense or other non-core amounts as they occur.
Core FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating Core FFO include certain transaction related gains, losses, income or expenses or other non-core amounts as they occur.
Generally, our short-term debt capital needs are provided through the use of our Revolving Credit Facility. We manage our long-term leverage position through the issuance of long-term fixed-rate debt on a secured or unsecured basis.
Generally, our short-term debt capital needs are provided through the use of our Revolving Credit Facility. We manage our long-term leverage position through the issuance of long-term fixed-rate debt on an unsecured or secured basis.
Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or direct financing lease receivables.
Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or direct financing lease receivable.
Our short-term liquidity requirements also include the funding needs associated with 40 properties where we have agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in exchange for contractual payments of interest or increased rent that generally increases in proportion with our level of funding.
Our short-term liquidity requirements also include the funding needs associated with 74 properties where we have agreed to reimburse the tenant for certain development, construction, or renovation costs or to provide construction financing in exchange for contractual payments of interest or increased rent that generally increases in proportion with our level of funding.
Our allowance for credit losses is adjusted to reflect our estimation of the current and future economic conditions that impact the performance of the real estate assets securing our loans. These estimations include various macroeconomic factors impacting the likelihood and magnitude of potential credit losses for our loans and direct financing leases during their anticipated term.
Our allowance for credit losses is adjusted to reflect our estimation of the current and future economic conditions that impact the performance of the real estate assets securing our loans. These estimations include various macroeconomic factors impacting the likelihood and magnitude of potential credit losses for our loans and direct financing lease receivables during their anticipated term.
We expect to meet our long-term liquidity requirements through various sources of capital, including net cash from operating activities, borrowings under our Revolving Credit Facility, future debt financings, sales of common stock under our ATM Program, and proceeds from the sale of selected properties in our portfolio.
We expect to meet our long-term liquidity requirements through various sources of capital, including net cash from operating activities, borrowings under our Revolving Credit Facility, future debt financings, proceeds from the sale of our common stock and proceeds from the sale of selected properties in our portfolio.
(2) Includes $18.9 million of rental payments due under ground lease arrangements where our tenants are directly responsible for payment. Additionally, we may enter into commitments to purchase goods and services in connection with the operation of our business.
(2) Includes $22.2 million of rental payments due under ground lease arrangements where our tenants are directly responsible for payment. Additionally, we may enter into commitments to purchase goods and services in connection with the operation of our business.
As of December 31, 2022, our average investment per property was $2.4 million (which equals 48 our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date), and we believe investments of similar size allow us to grow our portfolio without concentrating a large amount of capital in individual properties and limit our exposure to events that may adversely affect a particular property.
As of December 31, 2023, our average investment per property was $2.7 million (which equals 45 our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date), and we believe investments of similar size allow us to grow our portfolio without concentrating a large amount of capital in individual properties and limit our exposure to events that may adversely affect a particular property.
Outstanding credit extensions under the Revolving Credit Facility are mandatorily payable if the amount of such credit extensions exceeds the revolving facility limit. The Operating Partnership may re-borrow amounts paid down on the Revolving Credit Facility prior to its maturity. Loans repaid under the 2024/2028 Term Loan cannot be reborrowed.
Outstanding credit extensions under the Revolving Credit Facility are mandatorily payable if the amount of such credit extensions exceeds the revolving facility limit. The Operating Partnership may re-borrow amounts paid down on the Revolving Credit Facility prior to its maturity. Loans repaid under the CF Term Loans cannot be reborrowed.
By seeking to match the expected cash inflows from our long-term leases with the expected cash outflows for our long-term debt, we seek to "lock in," for as long as is economically feasible, the expected positive spread between our scheduled cash inflows on our leases and the cash outflows on our debt obligations.
By seeking to match the expected cash inflows from our long-term income producing investments with the expected cash outflows for our long-term debt, we seek to "lock in," for as long as is economically feasible, the expected positive spread between our scheduled cash inflows from our investments and the cash outflows on our debt obligations.
Equity-Based Compensation From time to time, we grant shares of restricted common stock and restricted share units ("RSUs") to our directors, executive officers and other employees that vest over multiple periods, subject to the recipient's continued service.
Equity-Based Compensation We grant shares of restricted common stock ("RSAs") and restricted stock units ("RSUs") to our directors, executive officers and other employees that vest over multiple periods, subject to the recipient's continued service.
As of December 31, 2022, 98.2% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average rate of 1.6% per year. Smaller, Low Basis Single-Tenant Properties. We generally invest in freestanding “small-box” single- tenant properties.
As of December 31, 2023, 98.7% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average rate of 1.7% per year. Smaller, Low Basis Single-Tenant Properties. We generally invest in freestanding “small-box” single- tenant properties.
Our real estate investments were acquired throughout the periods presented and were not all owned by us for the entirety of the periods; accordingly, a significant portion of the increase in rental revenue between periods is related to recognizing revenue in 2022 on acquisitions that were made during 2021 and 2022.
Our real estate investments were acquired throughout the periods presented and were not all owned by us for the entirety of the applicable periods; accordingly, a significant portion of the increase in rental revenue between periods is related to recognizing revenue in 2023 from acquisitions that were made during 2022 and 2023.
The loans under each of the Revolving Credit Facility and the 2024/2028 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 2024/2028 Term Loan).
The loans under each of the Revolving Credit Facility and the CF Term Loans 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 CF Term Loans).
During the years ended December 31, 2022 and 2021, we recorded a provision for impairment of real estate on 13 and 18 of our real estate investments, respectively, with the average size of our impairments being smaller in 2021.
During the years ended December 31, 2023 and 2022, we recorded a provision for impairment of real estate on 8 and 13 of our real estate investments, respectively, with the average size of our impairments being smaller in 2023.
The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources to fund our future investments in single tenant properties and thereby grow our cash flows.
The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources to fund our future investments and thereby grow our cash flows.
The occupancy level of our portfolio is high (99.9% as of December 31, 2022) and, because substantially all of our leases are triple-net (with our tenants generally responsible for the maintenance, insurance and property taxes associated with the leased properties), our liquidity requirements are not significantly impacted by property costs.
The occupancy level of our portfolio is high (99.8% as of December 31, 2023) and, because substantially all of our leases are triple-net (whereby our tenants are generally responsible for all maintenance, costs for operating the property, and insurance and property taxes associated with the leased properties), our liquidity requirements are not significantly impacted by property costs.
The RELEM allows us 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.
The RELEM allows us 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.
To accomplish this objective, we seek to invest in real estate with a combination of debt and equity capital and with 53 cash from operations that we do not distribute to our stockholders. When we sell properties, we generally reinvest the cash proceeds from our sales in new property acquisitions.
To accomplish this objective, we seek to invest in real estate utilizing a combination of debt and equity capital and with cash from operations that we do not distribute to our stockholders. When we sell properties, we generally reinvest the cash proceeds from our sales in new single-tenant properties.
Additionally, we also granted performance-based RSUs to our executive officers, the final number of which is determined based on market and subjective performance conditions and which vest over a multi-year period, subject to the recipient's continued service.
We also grant performance-based RSUs to our 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.
Overall, our 2022 dispositions had a higher sales price in relation to their net book value as compared to our 2021 dispositions. Other (expense)/income: Loss on debt extinguishment.
Overall, our 2023 dispositions had a lower sales price in relation to their net book value as compared to our 2022 dispositions. Other (expense)/income: Loss on debt extinguishment.
The applicable margin and the revolving facility fee rate are a spread and rate, as applicable, set according to the credit ratings provided by S&P, Moody's and/or Fitch. Each of the Revolving Credit Facility and the 2024/2028 Term Loan is freely pre-payable at any time.
The applicable margin and the revolving facility fee rate are a spread and rate, as applicable, set according to the Company's credit ratings provided by S&P, Moody's and/or Fitch. Each of the Revolving Credit Facility and the CF Term Loans is freely pre-payable at any time.
(2) GAAP rent and interest income for the first twelve months after the investment divided by the gross investment in the property plus transaction costs. (3) As a percentage of annualized base rent. (4) Includes investments in mortgage loans receivable collateralized by more than one property.
(2) GAAP rent and interest income for the first twelve months after the investment divided by the gross investment in the property plus transaction costs. 46 (3) As a percentage of annualized base rent. (4) Includes investments in mortgage loans receivable collateralized by more than one property. (5) Includes investments in mortgage loans receivable made in support of sale-leaseback transactions.
We believe that the cash generated by our operations, together with our cash and cash equivalents at December 31, 2022, our borrowing availability under the Revolving Credit Facility and our potential access to additional sources of capital, will be sufficient to fund our operations for the foreseeable future and allow us to invest in the real estate for which we currently have made commitments.
We believe that the cash generated by our operations, together with our cash and cash equivalents at December 31, 2023, our borrowing availability under the Revolving Credit Facility, issuance of common stock subject to outstanding forward purchase commitments, and our potential access to additional sources of capital, will be sufficient to fund our operations for the foreseeable future and allow us to invest in the real estate for which we currently have made commitments.
Depreciation and amortization expense increased by $19.4 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. Depreciation and amortization expense increased in proportion to the general increase in the size of our real estate investment portfolio. Provision for impairment of real estate .
Depreciation and amortization expense increased by $13.7 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. Depreciation and amortization expense increased in proportion to the general increase in the size of our real estate investment portfolio. Provision for impairment of real estate .
Interest expense increased by $6.8 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. This increase in interest expense was primarily due to an increase in our outstanding debt balance and increased interest rates during the year ended December 31, 2022 compared to the year ended December 31, 2021. Interest income .
Interest expense increased by $12.2 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase in interest expense was primarily due to an increase in our outstanding debt balance and increased interest rates during the year ended December 31, 2023 compared to the year ended December 31, 2022. Interest income .
We generally invest in and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant’s sales and profits. As of December 31, 2022, 93.0% of our $297.2 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses.
We generally invest in and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant’s sales and profits. As of December 31, 2023, 92.9% of our $364.8 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses.
As of December 31, 2022, two of our properties were vacant, significantly less than 1% of our portfolio, and all remaining properties were subject to a lease. We expect to incur property costs from time to time in periods during which properties that become vacant are being marketed for lease or sale.
As of December 31, 2023, three of our investment properties were vacant, significantly less than 1% of our portfolio, and all remaining properties were subject to a lease or mortgage loan receivable. We expect to incur property costs from time to time in periods during which properties that become vacant are being marketed for lease or sale.
Loss on debt extinguishment of $2.1 million during the year ended December 31, 2022 relates to the write-off of deferred financing costs and the payment of fees in conjunction with amendments to our term loans and revolving credit facility.
During the year ended December 31, 2022, we recorded a loss on debt extinguishment of $2.1 million related to the write-off of deferred financing costs and the payment of fees in conjunction with amendments to our term loans and revolving credit facility. Interest expense .
We calculate our net debt as our gross debt (defined as total debt plus net deferred financing costs and original issue discount on our borrowings) less cash and cash equivalents and restricted cash deposits available for future investment.
We calculate our net debt as our gross debt (defined as total debt plus net deferred financing costs on our secured borrowings) less cash and cash equivalents and restricted cash available for future investment.
As of December 31, 2022, all of our long-term debt was fixed-rate debt or was effectively converted to a fixed-rate for the term of the debt though hedging strategies and our weighted average debt maturity was 5.2 years.
As of December 31, 2023, all of our long-term debt was fixed-rate debt or was effectively converted to a fixed-rate for the term of the debt though hedging strategies and our weighted average debt maturity was 4.9 years.
Additionally, our computation of EBITDA and EBITDA re may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs. 66 The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA and EBITDA re attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2022 2021 2020 Net income $ 134,742 $ 96,211 $ 42,528 Depreciation and amortization 88,562 69,146 59,446 Interest expense 40,370 33,614 29,651 Interest income (2,825) (94) (485) Income tax expense 998 227 212 EBITDA attributable to stockholders and non-controlling interests 261,847 199,104 131,352 Provision for impairment of real estate 20,164 6,120 8,399 Gain on dispositions of real estate, net (30,647) (9,338) (5,821) EBITDA re attributable to stockholders and non-controlling interests $ 251,364 $ 195,886 $ 133,931 We further adjust EBITDA re for the most recently completed quarter i) based on an estimate calculated as if all re-leasing, investment and disposition activity that took place during the quarter had been made on the first day of the quarter, ii) to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and iii) to eliminate the impact of lease termination fees and contingent rental revenue from certain of our tenants, which is subject to sales thresholds specified in the applicable leases ("Adjusted EBITDA re" ).
Additionally, our computation of EBITDA and EBITDA re may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs. 59 The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA and EBITDA re attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2023 2022 2021 Net income $ 191,415 $ 134,742 $ 96,211 Depreciation and amortization 102,219 88,562 69,146 Interest expense 52,597 40,370 33,614 Interest income (2,011) (2,825) (94) Income tax expense 636 998 227 EBITDA attributable to stockholders and non-controlling interests 344,856 261,847 199,104 Provision for impairment of real estate 3,548 20,164 6,120 Gain on dispositions of real estate, net (24,167) (30,647) (9,338) EBITDA re attributable to stockholders and non-controlling interests $ 324,237 $ 251,364 $ 195,886 We further adjust EBITDA re for the most recently completed quarter i) based on an estimate calculated as if all re-leasing, investment and disposition activity that took place during the quarter had been made on the first day of the quarter, ii) to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and iii) to eliminate the impact of lease termination fees and contingent rental revenue from certain of our tenants, which is subject to sales thresholds specified in the applicable leases ("Adjusted EBITDA re" ).
In August 2022, the 2027 Term Loan was further amended to revise the applicable margin grid such that the applicable pricing 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 provided by S&P, Moody's and/or Fitch).
In August 2022, the 2027 Term Loan was further amended to revise the applicable margin grid such that the applicable pricing 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 provided by S&P, Moody's and/or Fitch). 50 The borrowings under the 2027 Term Loan, as amended, bear interest at an annual rate of applicable Adjusted Term SOFR (as defined in the Credit Agreement) plus an applicable margin.
As of December 31, 2022, we had a portfolio of 1,653 properties (inclusive of 153 properties which secure our investments in mortgage loans receivable) that was diversified by tenant, industry, concept and geography, had annualized base rent of $297.2 million and was 99.9% occupied. Our portfolio is built based on the following core investment attributes: Diversification.
As of December 31, 2023, we had a portfolio of 1,873 properties (inclusive of 136 properties which secure our investments in mortgage loans receivable) that was diversified by tenant, industry, concept and geography, had annualized base rent of $364.8 million and was 99.8% occupied. Our portfolio is built based on the following core investment attributes: Diversification.
As of December 31, 2022, our portfolio’s weighted average rent coverage ratio was 4.0x, and 98.6% of our leases (based on annualized base rent) obligate the tenant to periodically provide us with specified unit-level financial reporting.
As of December 31, 2023, our portfolio’s weighted average rent coverage ratio was 3.8x, and 98.8% of our leases (based on annualized base rent) obligate the tenant to periodically provide us with specified unit-level financial reporting.
Under the terms of the Credit Agreement, we are subject to customary restrictive financial and nonfinancial covenants which, among other things, require us to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios.
Under the terms of the Credit Agreement, we are subject to customary restrictive financial and nonfinancial covenants which, among other things, require us to maintain certain leverage ratios, cash flow and debt service coverage ratios and secured borrowing ratios. As of December 31, 2023, we were in compliance with these covenants.
A smaller component of the increase in revenues between periods is related to rent escalations recognized on our leases. Interest on loans and direct financing lease receivables .
Another component of the increase in revenues between periods relates to rent escalations recognized on our leases. Interest on loans and direct financing lease receivables .
As of December 31, 2022, our portfolio was 99.9% occupied by 350 tenants operating 538 different brands, or concepts, in 16 industries across 48 states, with none of our tenants contributing more than 3.4% of our annualized base rent.
As of December 31, 2023, our portfolio was 99.8% occupied by 374 tenants operating 588 different brands, or concepts, in 16 industries across 48 states, with none of our tenants contributing more than 3.8% of our annualized base rent.
Income tax expense increased by $0.8 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. The increase was primarily due to the accrual of income taxes for a transaction consummated in 2022 through our taxable REIT subsidiary.
Income tax expense decreased by $0.4 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. The decrease was primarily due to the accrual of income taxes 57 for a transaction consummated in 2022 through our taxable REIT subsidiary.
Our long-term liquidity requirements consist primarily of funds necessary to acquire additional properties and repay indebtedness.
Our long-term liquidity requirements consist primarily of the funds necessary to make additional investments and repay indebtedness.
(2) Adjustment is made to exclude non-core expenses added back to compute Core FFO, to exclude changes in our provision for credit losses and to eliminate the impact of seasonal fluctuation in certain non-cash compensation expense recorded in the period.
(2) Adjustment is made to i) exclude non-core income and expense adjustments made in computing Core FFO, ii) exclude changes in our provision for credit losses and iii) eliminate the impact of seasonal fluctuation in certain non-cash compensation expense recorded in the period.
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 and the 2028 Term Loan matures on January 25, 2028.
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.
Additionally, as of February 10, 2023, we were under contract to acquire 7 properties with an aggregate purchase price of $16.2 million, subject to completion of our due diligence procedures and satisfaction of customary closing conditions.
Additionally, as of February 9, 2024, we were under contract to acquire 20 properties with an aggregate purchase price of $59.4 million, subject to completion of our due diligence procedures and satisfaction of customary closing conditions.
For the year ended December 31, 2022, approximately 97.3% of our investments were sale-leaseback transactions. Significant Use of Master Leases. As of December 31, 2022, 65.0% of our annualized base rent was attributable to master leases. Contractual Base Rent Escalation.
During the year ended December 31, 2023, approximately 98.8% of our investments were sale-leaseback transactions. Significant Use of Master Leases. As of December 31, 2023, 65.7% of our annualized base rent was attributable to master leases. Contractual Base Rent Escalation.
As of December 31, 2022, we agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in an aggregate amount of $107.6 million, and, as of such date, we funded $73.0 million of this commitment. We expect to fund the remainder of this commitment by December 31, 2023.
As of December 31, 2023, we agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in an aggregate amount of $435.2 million, and, as of such date, we have funded 47 $254.6 million of this commitment. We expect to fund the remaining commitment totaling $180.6 million by December 31, 2024.
Our cash flows from operating activities primarily depend on the occupancy of our portfolio, the rental rates specified in our leases and the collectability of such rent, our property operating expenses and other general and administrative costs.
Our cash flows from operating activities primarily depend on the occupancy of our portfolio, the rental rates specified in our leases, the interest on our loans and direct financing lease receivables, the collectability of rent and interest and the level of our operating expenses and general and administrative costs.
The following table reconciles net income (which is the most comparable GAAP measure) to NOI and Cash NOI attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2022 2021 2020 Net income $ 134,742 $ 96,211 $ 42,528 General and administrative expense 29,464 24,329 24,444 Depreciation and amortization 88,562 69,146 59,446 Provision for impairment of real estate 20,164 6,120 8,399 Change in provision for credit losses 88 (204) 830 Gain on dispositions of real estate, net (30,647) (9,338) (5,821) Loss on debt extinguishment 2,138 4,461 924 Interest expense 40,370 33,614 29,651 Interest income (2,825) (94) (485) Income tax expense 998 227 212 NOI attributable to stockholders and non-controlling interests 283,054 224,472 160,128 Straight-line rental revenue, net (20,615) (19,116) (11,905) Other amortization and non-cash charges 2,912 2,675 3,854 Cash NOI attributable to stockholders and non-controlling interests $ 265,351 $ 208,031 $ 152,077 69
The following table reconciles net income (which is the most comparable GAAP measure) to NOI and Cash NOI attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2023 2022 2021 Net income $ 191,415 $ 134,742 $ 96,211 General and administrative expense 30,678 29,464 24,329 Depreciation and amortization 102,219 88,562 69,146 Provision for impairment of real estate 3,548 20,164 6,120 Change in provision for credit losses (99) 88 (204) Gain on dispositions of real estate, net (24,167) (30,647) (9,338) Loss on debt extinguishment 116 2,138 4,461 Interest expense 52,597 40,370 33,614 Interest income (2,011) (2,825) (94) Income tax expense 636 998 227 NOI attributable to stockholders and non-controlling interests 354,932 283,054 224,472 Straight-line rental revenue, net (30,375) (20,615) (19,116) Other amortization and non-cash charges 1,507 2,912 2,675 Cash NOI attributable to stockholders and non-controlling interests $ 326,064 $ 265,351 $ 208,031 62
Gain on dispositions of real estate, net, increased by $21.3 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. We disposed of 54 real estate properties during the year ended December 31, 2022, compared to 38 real estate properties during the year ended December 31, 2021.
Gain on dispositions of real estate, net, decreased by $6.5 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. We disposed of 52 real estate properties during the year ended December 31, 2023, compared to 54 real estate properties during the year ended December 31, 2022.
As of December 31, 2022, our leases had a weighted average remaining lease term of 13.9 years (based on annualized base rent), with 6.1% of our annualized base rent attributable to leases expiring prior to January 1, 2028.
As of December 31, 2023, our leases had a weighted average remaining lease term of 14.0 years (based on annualized base rent), with 4.7% of our annualized base rent attributable to leases expiring prior to January 1, 2029.
As of December 31, 2022, we were in compliance with these covenants. 56 The Credit Agreement also restricts our ability to pay distributions to our stockholders under certain circumstances. However, we may make distributions to the extent necessary to maintain our qualification as a REIT under the Code.
The Credit Agreement also restricts our ability to pay distributions to our stockholders under certain circumstances. However, we may make distributions to the extent necessary to maintain our qualification as a REIT under the Code.
Change in provision for credit losses. During the year ended December 31, 2022, our provision for credit losses increased by $0.1 million, as compared to a decrease of $0.2 million during the year ended December 31, 2021.
Change in provision for credit losses. During the year ended December 31, 2023, our provision for credit losses decreased by $0.1 million, compared to a $0.1 million increase in our provision for credit losses during the year ended December 31, 2022.
The following table reconciles total debt (which is the most comparable GAAP measure) to net debt: December 31, (in thousands) 2022 2021 Unsecured term loan, net of deferred financing costs $ 1,025,492 $ 626,983 Revolving credit facility — 144,000 Senior unsecured notes 395,286 394,723 Total debt 1,420,778 1,165,706 Deferred financing costs and original issue discount, net 9,222 8,294 Gross debt 1,430,000 1,174,000 Cash and cash equivalents (62,345) (59,758) Restricted cash available for future investment (9,155) — Net debt $ 1,358,500 $ 1,114,242 We compute NOI as total revenues less property expenses.
The following table reconciles total debt (which is the most comparable GAAP measure) to net debt: December 31, (in thousands) 2023 2022 Unsecured term loan, net of deferred financing costs $ 1,272,772 $ 1,025,492 Revolving credit facility — — Senior unsecured notes 395,846 395,286 Total debt 1,668,618 1,420,778 Deferred financing costs and original issue discount, net 11,382 9,222 Gross debt 1,680,000 1,430,000 Cash and cash equivalents (39,807) (62,345) Restricted cash available for future investment (9,156) (9,155) Net debt $ 1,631,037 $ 1,358,500 We compute NOI as total revenues less property expenses.
These commitments generally have terms of one-year or less and reflect expenditure levels comparable to our historical expenditures, as adjusted for our growth.
These commitments generally have terms of one-year or less and reflect expenditure levels comparable to our historical expenditures, as adjusted for growth. Critical Accounting Estimates Our accounting policies are determined in accordance with GAAP.
These cash outflows were partially offset by $126.6 million of proceeds from sales of investments, net of disposition costs, and $70.4 million of principal collections on our loans and direct financing lease receivables. The decrease in net cash used in investing activities was primarily due to our increased level of proceeds from sales of investments during 2022.
These cash outflows were partially offset by $126.6 million of proceeds from sales of investments, net of disposition costs, and $70.4 million of principal collections on our loans and direct financing lease receivables. Net cash provided by financing activities was $506.8 million during the year ended December 31, 2022.
Additionally, our computation of FFO, Core FFO and AFFO may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs. 65 The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO and AFFO attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2022 2021 2020 Net income $ 134,742 $ 96,211 $ 42,528 Depreciation and amortization of real estate 88,459 69,043 59,309 Provision for impairment of real estate 20,164 6,120 8,399 Gain on dispositions of real estate, net (30,647) (9,338) (5,821) FFO attributable to stockholders and non-controlling interests 212,718 162,036 104,415 Non-core expenses (1)(2)(3) 2,388 4,461 2,273 Core FFO attributable to stockholders and non-controlling interests 215,106 166,497 106,688 Adjustments: Straight-line rental revenue, net (20,615) (19,116) (11,905) Non-cash interest 2,616 2,554 2,040 Non-cash compensation expense 9,489 5,683 5,427 Other amortization expense 2,912 2,675 3,854 Other non-cash charges 74 (212) 829 Capitalized interest expense (757) (81) (228) Transaction costs — — 291 AFFO attributable to stockholders and non-controlling interests $ 208,825 $ 158,000 $ 106,995 _____________________________________ (1) Includes $0.2 million of fees incurred in conjunction with the August 2022 amendment to our 2027 Term Loan and our $2.1 million loss on debt extinguishment during the year ended December 31, 2022.
Additionally, our computation of FFO, Core FFO and AFFO may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs. 58 The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO and AFFO attributable to stockholders and non-controlling interests: Year ended December 31, (in thousands) 2023 2022 2021 Net income $ 191,415 $ 134,742 $ 96,211 Depreciation and amortization of real estate 102,103 88,459 69,043 Provision for impairment of real estate 3,548 20,164 6,120 Gain on dispositions of real estate, net (24,167) (30,647) (9,338) FFO attributable to stockholders and non-controlling interests 272,899 212,718 162,036 Non-core expense (income) (1)(2)(3) (510) 2,388 4,461 Core FFO attributable to stockholders and non-controlling interests 272,389 215,106 166,497 Adjustments: Straight-line rental revenue, net (30,375) (20,615) (19,116) Non-cash interest 3,187 2,616 2,554 Non-cash compensation expense 9,192 9,489 5,683 Other amortization expense 1,507 2,912 2,675 Other non-cash charges (73) 74 (212) Capitalized interest expense (2,430) (757) (81) AFFO attributable to stockholders and non-controlling interests $ 253,397 $ 208,825 $ 158,000 _____________________________________ (1) Includes $0.1 million loss on debt extinguishment, $0.9 million of insurance recovery income and $0.4 million of cash and non-cash separation costs with the departures of a junior executive and a Board member during the year ended December 31, 2023.
During the year ended December 31, 2022, our Board declared total cash distributions of $1.075 per share of common stock. Holders of OP Units are entitled to distributions per unit equivalent to those paid by us per share of common stock.
Holders of OP Units are entitled to distributions per unit equivalent to those paid by us per share of common stock. During the year ended December 31, 2023, our Board declared total cash distributions of $1.12 per share of common stock/OP Unit totaling $176.0 million and $47.2 million is payable as of December 31, 2023.
We have elected to be taxed as a REIT for federal income tax purposes beginning with the year ended December 31, 2018, and we believe that our current organization, operations and intended distributions will allow us to continue to so qualify. We completed our initial public offering in June 2018.
We elected to be taxed as a REIT for federal income tax purposes beginning with the year ended December 31, 2018, and we believe that our current organization, operations and intended distributions will allow us to continue to so qualify. Our common stock is listed on the New York Stock Exchange under the symbol “EPRT”.
Liquidity and Capital Resources As of December 31, 2022, we had $3.8 billion of net investments in our investment portfolio, consisting of investments in 1,653 properties (inclusive of 153 properties which secure our investments in mortgage loans receivable), with annualized base rent of $297.2 million. Substantially all of our cash from operations is generated by our investment portfolio.
Liquidity and Capital Resources As of December 31, 2023, the net investment value of our income property portfolio totaled $4.5 billion, consisting of investments in 1,873 properties (inclusive of 136 properties which secure our investments in mortgage loans receivable), with annualized base rent of $364.8 million. Substantially all of our cash from operations is generated by our investment portfolio.
General and administrative expense increased by $5.1 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021. This increase in general and administrative expense was primarily due to an increase in non-cash share-based compensation of $3.8 million, salary expense and professional fees. Property expenses .
General and administrative expense increased by $1.2 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022. This increase in general and administrative expense was primarily due to an increase in salary expense, severance costs, and professional fees during the year ended December 31, 2023. Property expenses .
Cash Flows for the year ended December 31, 2022 During the year ended December 31, 2022, net cash provided by operating activities was $211.0 million, as compared $167.4 million during 2021, an increase of $43.6 million.
Cash Flows for the year ended December 31, 2022 During the year ended December 31, 2022, net cash provided by operating activities was $211.0 million.
These cash inflows were partially offset by $267.0 million of repayments on the Revolving Credit Facility, $175.8 million of repayments of secured borrowing principal, the payment of $112.3 million in dividends, $1.2 million of offering costs paid related to our follow-on offerings and the ATM Program, the payment of deferred financing costs of $2.1 million and $0.4 million of payments for taxes related to the net settlement of equity awards.
These cash inflows were partially offset by the payment of $168.2 million in dividends, $0.9 million of offeing costs paid related to our follow-on offerings and the ATM program, repayment of $70.0 million of borrowings under the Revolving Credit Facility, the payment of deferred financing costs of $2.4 million, and the payment of $3.7 million in taxes related to the net settlement of equity awards.
(5) Includes investments in mortgage loans receivable made in support of sale-leaseback transactions. 52 The following table sets forth select information about our quarterly disposition activity for the quarters ended March 31, 2021 through December 31, 2022 (dollars in thousands): Three Months Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Disposition Volume 1 $ 18,443 $ 26,091 $ 35,513 $ 75,522 Cash cap rate on leased assets 2 7.1 % 6.2 % 6.2 % 6.9 % Leased properties sold 3 6 8 12 25 Vacant properties sold 3 — — — 1 Three Months Ended March 31, 2021 June 30, 2021 September 30, 2021 December 31, 2021 Disposition Volume 1 $ 25,197 $ 19,578 $ 10,089 $ 4,466 Cash cap rate on leased assets 2 7.1 % 7.1 % 6.5 % 6.0 % Leased properties sold 3 15 6 11 2 Vacant properties sold 3 1 1 — — _____________________________________ (1) Net of transaction costs.
The following table sets forth select information about our quarterly disposition activity for the quarters ended March 31, 2022 through December 31, 2023 (dollars in thousands): Three Months Ended March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Disposition volume 1 $ 37,161 $ 41,736 $ 28,496 $ 30,602 Cash cap rate on leased assets 2 6.1% 6.2% 6.5% 6.6% Leased properties sold 3 17 14 9 9 Vacant properties sold 3 — 2 1 — Three Months Ended March 31, 2022 June 30, 2022 September 30, 2022 December 31, 2022 Disposition volume 1 $ 18,443 $ 26,091 $ 35,513 $ 75,522 Cash cap rate on leased assets 2 7.1% 6.2% 6.2% 6.9% Leased properties sold 3 6 8 12 25 Vacant properties sold 3 — — — 1 _____________________________________ (1) Net of transaction costs.
As of December 31, 2022, we were in compliance with these covenants. 57 Cash Flows Comparison of the years ended December 31, 2022 and 2021 As of December 31, 2022, we had $62.3 million of cash and cash equivalents and $9.2 million of restricted cash, as compared to $59.8 million and none, respectively, as of December 31, 2021.
Cash Flows Comparison of the years ended December 31, 2023 and 2022 As of December 31, 2023, we had $39.8 million of cash and cash equivalents and $9.2 million of restricted cash, as compared to $62.3 million of cash and cash equivalents and $9.2 million of restricted cash as of December 31, 2022.
The applicable margin was initially a spread set according to a leverage-based pricing grid. In May 2022, the Operating Partnership made an irrevocable election to have the applicable margin be a spread set according to the Company’s corporate credit ratings provided by S&P, Moody’s and/or Fitch.
In May 2022, the Operating Partnership made an irrevocable election to have the applicable margin be a spread set according to the Company’s corporate credit ratings provided by S&P, Moody’s and/or Fitch. The 2027 Term Loan is pre-payable at any time by the Operating Partnership without penalty.

… 113 more changes not shown on this page.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−1 removed7 unchanged
Biggest changeAt December 31, 2022, our aggregate asset in the event of the early termination of our swaps was $45.9 million.
Biggest changeAt December 31, 2023, our aggregate asset in the event of the early termination of our swaps was $7.7 million. Our borrowings under the Revolving Credit Facility, if any, bear interest at a variable rate equal to 1-month SOFR plus a leverage-based credit spread.
To achieve this objective, we borrow on a fixed-rate basis through the issuance of senior unsecured notes or incur debt that bears interest at floating rates under the Revolving Credit Facility, which we use in connection with our operations, including for funding investments, the 2024 Term Loan, the 2027 Term Loan and the 2028 Term Loan.
To achieve this objective, we borrow on a fixed-rate basis through the issuance of senior unsecured notes or incur debt that bears interest at floating rates under the Revolving Credit Facility, which we use in connection with our operations, including for funding investments, the 2027 Term Loan, the 2028 Term Loan and the 2029 Term Loan.
Principal Outstanding Weighted Average Interest Rate (1) (in thousands) Maturity Date December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Unsecured term loans: 2024 Term Loan April 2024 $ 200,000 $ 200,000 2.9% 3.3% 2027 Term Loan February 2027 430,000 430,000 2.4% 3.0% 2028 Term Loan January 2028 400,000 — 4.6% —% Senior unsecured notes July 2031 400,000 400,000 3.1% 3.1% Revolving Credit Facility February 2026 — 144,000 —% 1.3% Total principal outstanding $ 1,430,000 $ 1,174,000 3.3% 2.9% _______________________________________________________________ (1) Interest rates are presented after giving effect to our interest rate swap and lock agreements, where applicable.
Principal Outstanding Weighted Average Interest Rate (1) (in thousands) Maturity Date December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022 Unsecured term loans: 2024 Term Loan April 2024 $ — $ 200,000 —% 2.9% 2027 Term Loan February 2027 430,000 430,000 2.4% 2.4% 2028 Term Loan January 2028 400,000 400,000 4.6% 4.6% 2029 Term Loan February 2029 (2) 450,000 — 4.3% —% Senior unsecured notes July 2031 400,000 400,000 3.1% 3.1% Revolving Credit Facility February 2026 — — —% —% Total principal outstanding $ 1,680,000 $ 1,430,000 3.6% 3.3% _______________________________________________________________ (1) Interest rates are presented after giving effect to our interest rate swap and lock agreements, where applicable.
The following table discloses fair value information related to our fixed-rate indebtedness as of December 31, 2022: (in thousands) Carrying Value (1) Estimated Fair Value Senior unsecured notes $ 400,000 $ 292,120 _____________________________________ (1) Excludes net deferred financing costs of $4.0 million and net discount of $0.7 million. 70
The following table discloses fair value information related to our fixed-rate indebtedness as of December 31, 2023: (in thousands) Carrying Value (1) Estimated Fair Value Senior unsecured notes $ 400,000 $ 315,336 _____________________________________ (1) Excludes net deferred financing costs of $3.6 million and net discount of $0.6 million. 63
We have fixed the floating rates on borrowings under our term loan facilities by entering into interest rate swap agreements where we pay a fixed interest rate and receive a floating interest rate equal to the rate we pay on the respective loan.
While our borrowings under the 2027 Term Loan, 2028 Term Loan and 2029 Term Loan are variable-rate, we have effectively fixed the interest rate under these term loans by entering into interest rate swap agreements where we pay a fixed interest rate and receive a floating interest rate equal to the rate we pay on the respective loan.
Removed
At December 31, 2022, a 100-basis point increase of the interest rate on our unsecured term loan borrowings would increase our related interest costs by $10.3 million per year and a 100-basis point decrease of the interest rate would decrease our related interest costs by $10.3 million per year.
Added
(2) After giving effect to extension options exercisable at the Operating Partnership's election.
Added
Therefore, an increase or decrease in interest rates would result in an increase or decrease to our interest expense related to the Revolving Credit Facility.

Other EPRT 10-K year-over-year comparisons