This REIT Looks Attractively Priced And Pays A 4% Yield
"Collect Passive Income From Real Estate"
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Current Price: $29.91
Portfolio Purpose: Income 💰
One of the most important lessons I’ve learned as an investor is that price matters. Even the highest-quality businesses can underperform if bought at inflated valuations, while buying solid companies at attractive prices can provide a margin of safety and improve long-term return potential.
While neither catching the bottom nor outperforming is ever guaranteed, valuation discipline tilts the odds in an investor’s favor.
That’s why Essential Properties Realty Trust (EPRT) stands out today. Based on management’s initial 2026 guidance and improving fundamentals, the REIT appears positioned to deliver potential double-digit total returns, especially if interest rates trend lower as expected.
Previous Buy Thesis Recap 👍🏾
I covered EPRT in September on Seeking Alpha, upgrading the stock from Hold to Buy after shares fell below $30. Since then, the stock has remained relatively flat—up less than 1%—while the S&P 500 (SP500) gained closer to 4%.
Rather than being a negative, this price consolidation could suggest the bottom is forming, particularly as fundamentals continue to improve.
During Q2, EPRT delivered solid revenue and AFFO growth, prompting management to raise full-year AFFO guidance to $1.86–$1.89, despite sector volatility and a modest occupancy dip. Strong fundamentals and upside to a ~$37–$40 valuation kept the stock attractive, even amid tenant-concentration concerns.
Q3 Earnings: Fundamentals Continue to Strengthen 🚀
EPRT’s Q3 earnings reinforced the bullish case:
FFO: $0.52 (beat by $0.01)
Revenue: $144.9M (beat by $4.5M)
AFFO: $0.48, up sequentially and year over year
Through the first nine months of the year:
FFO grew 21.9%
AFFO grew 23.5%
Occupancy improved to 99.8% from 99.6%, slightly above Agree Realty (ADC) and in line with Getty Realty (GTY)
Investment activity accelerated meaningfully, with $370M deployed in Q3, the highest quarterly total in nearly two years. These investments were completed at:
8% cash yield
10% GAAP yield
~450 bps spread over cost of capital
Same-store rent growth of 1.6%—the highest in two years—further supports improving operating conditions.
Dividend & Balance Sheet Strength ⚖️
Dividend increased 3% to $0.31
AFFO payout ratio: just 63%
Net debt / EBITDA: 3.8x (Anywhere below 5.0x is superb)
No debt maturities until 2027
100% unsecured debt
Liquidity: ~$1.4B available
While the latest dividend raise may appear modest, it exceeded inflation and leaves room for higher mid-single-digit growth if acquisition activity accelerates.
Raised Guidance & 2026 Outlook ↗️
Management raised full-year 2025 AFFO guidance again to $1.87–$1.89 and issued initial 2026 AFFO guidance of $1.98–$2.04, implying 6%–8% growth.
When combined with EPRT’s ~4% dividend yield, investors are looking at double-digit total return potential without requiring aggressive assumptions.
Valuation: Attractive Entry Below $30 💵
I continue to like EPRT under $30. If we avoid a material economic downturn, I see a reasonable path to $38–$40 over the next 12–24 months as rates normalize and investors rotate back into yield-oriented assets.
While not a deep bargain, EPRT’s:
Accretive spreads
Conservative leverage
Strong tenant coverage
justify a premium relative to peers, in my view.
Key Risks to Monitor ⚠️
Economic slowdown: Rising unemployment could pressure tenant performance
Cap rate compression: Could create short-term volatility
Tenant concentration:
Car washes: 14.2% of rent
QSR: 8.9%
Casual dining: 6.1%
While one tenant bankruptcy (Zips) was resolved, EPRT’s smaller, lesser-known tenants elevate risk during downturns.
Bottom Line ✅
EPRT’s latest quarter and 2026 outlook reinforce the case for long-term income investors. The stock offers:
Strong AFFO growth
A well-covered dividend
Conservative leverage
Attractive valuation relative to fundamentals
Tenant concentration remains a risk, but at current prices, the risk-reward profile remains favorable.
EPRT’s disciplined balance sheet, growing cash flows, and upside tied to falling rates keep me firmly at Buy.
What do you think?
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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