SEC Info - Essential Properties Realty Trust, Inc.

Report of Independent Registered Public Accounting Firm

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

Opinion on Internal Control over Financial Reporting

We have audited Essential Properties Realty Trust, Inc.’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Essential Properties Realty Trust, Inc. (the “Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, stockholders’/members’ equity and cash flows for each of the three years in the period ended December 31, 2020 of the Company and Essential Properties Realty Trust, Inc. Predecessor, and the related notes and financial statement schedules listed in the Index at Item 15(a) and our report dated February 23, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

New York, New York

ESSENTIAL PROPERTIES REALTY TRUST, INC.

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheets

December 31,

(In thousands, except share and per share data)

2020

2019

ASSETS

Investments:

Real estate investments, at cost:

Land and improvements

i 741,254

i 588,279

Building and improvements

i 1,519,665

i 1,224,682

Lease incentives

i 14,297

i 4,908

Construction in progress

i 3,908

i 12,128

Intangible lease assets

i 80,271

i 78,922

Total real estate investments, at cost

i 2,359,395

i 1,908,919

Less: accumulated depreciation and amortization

( i 136,097)

( i 90,071)

Total real estate investments, net

i 2,223,298

i 1,818,848

Loans and direct financing lease receivables, net

i 152,220

i 92,184

Real estate investments held for sale, net

i 17,058

i 1,211

Net investments

i 2,392,576

i 1,912,243

Cash and cash equivalents

i 26,602

i 8,304

Restricted cash

i 6,388

i 13,015

Straight-line rent receivable, net

i 37,830

i 25,926

Rent receivables, prepaid expenses and other assets, net

i 25,406

i 15,959

Total assets (1)

i 2,488,802

i 1,975,447

LIABILITIES AND EQUITY

Secured borrowings, net of deferred financing costs

i 171,007

i 235,336

Unsecured term loans, net of deferred financing costs

i 626,272

i 445,586

Revolving credit facility

i 18,000

i 46,000

Intangible lease liabilities, net

i 10,168

i 9,564

Dividend payable

i 25,703

i 19,395

Derivative liabilities

i 38,912

i 4,082

Accrued liabilities and other payables

i 16,792

i 13,371

Total liabilities (1)

i 906,854

i 773,334

Commitments and contingencies (see Note 11)

i —

Stockholders' equity:

Preferred stock, $ i i 0.01 / par value; i i 150,000,000 / authorized; i i i i none / / / issued and outstanding as of December 31, 2020 and 2019

i —

Common stock, $ i i 0.01 / par value; i i 500,000,000 / authorized; i i 106,361,524 / and i i 83,761,151 / issued and outstanding as of December 31, 2020 and 2019, respectively

i 1,064

i 838

Additional paid-in capital

i 1,688,540

i 1,223,043

Distributions in excess of cumulative earnings

( i 77,665)

( i 27,482)

Accumulated other comprehensive loss

( i 37,181)

( i 1,949)

Total stockholders' equity

i 1,574,758

i 1,194,450

Non-controlling interests

i 7,190

i 7,663

Total equity

i 1,581,948

i 1,202,113

Total liabilities and equity

i 2,488,802

i 1,975,447

_____________________________________

(1)The Company's consolidated balance sheets include assets and liabilities of consolidated variable interest entities ("VIEs"). See Note 2—Summary of Significant Accounting Policies. As of December 31, 2020 and 2019, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE, with the exception of $ i 25.6 million and $ i 19.3 million, respectively, of dividends payable.

The accompanying notes are an integral part of these consolidated financial statements.

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Operations

Year ended December 31,

(In thousands, except share and per share data)

2020

2019

2018

Revenues:

Rental revenue

i 155,792

i 135,670

i 94,944

Interest on loans and direct financing lease receivables

i 8,136

i 3,024

i 656

Other revenue, net

i 81

i 663

i 623

Total revenues

i 164,009

i 139,357

i 96,223

Expenses:

General and administrative

i 24,444

i 21,745

i 13,762

Property expenses

i 3,881

i 3,070

i 1,980

Depreciation and amortization

i 59,446

i 42,745

i 31,352

Provision for impairment of real estate

i 8,399

i 2,918

i 4,503

Provision for loan losses

i 830

i —

Total expenses

i 97,000

i 70,478

i 51,597

Other operating income:

Gain on dispositions of real estate, net

i 5,821

i 10,932

i 5,445

Income from operations

i 72,830

i 79,811

i 50,071

Other (expense)/income:

Loss on repayment and repurchase of secured borrowings

( i 924)

( i 5,240)

i —

Interest expense (including $ i 4,603 to related parties during the year ended December 31, 2018 )

( i 29,651)

( i 27,037)

( i 30,192)

Interest income

i 485

i 794

i 930

Income before income tax expense

i 42,740

i 48,328

i 20,809

Income tax expense

i 212

i 303

i 195

Net income

i 42,528

i 48,025

i 20,614

Net income attributable to non-controlling interests

( i 255)

( i 6,181)

( i 5,001)

Net income attributable to stockholders and members

i 42,273

i 41,844

i 15,613

Year ended December 31,

Period from
June 25, 2018 to
December 31, 2018

2020

2019

Basic weighted average shares outstanding

i 95,311,035

i 64,104,058

i 42,634,678

Basic net income per share

i 0.44

i 0.65

i 0.26

Diluted weighted average shares outstanding

i 96,197,705

i 75,309,896

i 61,765,957

Diluted net income per share

i 0.44

i 0.63

i 0.26

The accompanying notes are an integral part of these consolidated financial statements.

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Comprehensive Income

Year ended December 31,

(In thousands)

2020

2019

2018

Net income

i 42,528

i 48,025

i 20,614

Other comprehensive loss:

Unrealized loss on cash flow hedges

( i 42,121)

( i 2,799)

i —

Cash flow hedge losses (gains) reclassified to interest expense

i 6,676

( i 106)

i —

Total other comprehensive loss

( i 35,445)

( i 2,905)

i —

Comprehensive income

i 7,083

i 45,120

i 20,614

Net income attributable to non-controlling interests

( i 255)

( i 6,181)

( i 5,001)

Adjustment for cash flow hedge losses (gains) attributable to non-controlling interests

i 213

i 956

i —

Comprehensive income attributable to stockholders and members

i 7,041

i 39,895

i 15,613

The accompanying notes are an integral part of these consolidated financial statements.

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Stockholders'/Members' Equity

Common Stock

(In thousands, except share data)

Number of
Shares

Par
Value

Additional
Paid-In
Capital

Distributions in Excess of Cumulative
Earnings

Accumulated
Other
Comprehensive
Income (Loss)

Class A
Units

Class B
Units

Class C
Units

Class D
Units

Total Stockholders' /Members' Equity

Non-
Controlling
Interests

Total
Equity

Balance at December 31, 2017

i —

i 86,668

i 574

i 94,064

i 96

i 181,402

i —

i 181,402

Contributions

—

i 50,000

—

i 50,000

—

i 50,000

Unit compensation expense

—

i 373

—

i 70

i 443

—

i 443

Net income

—

i 2,414

—

i 1,871

—

i 4,285

—

i 4,285

Balance at June 24, 2018

i —

i 139,082

i 947

i 95,935

i 166

i 236,130

i —

i 236,130

Contribution of Predecessor equity in exchange for OP Units

—

( i 139,082)

( i 947)

( i 95,935)

( i 166)

( i 236,130)

i 236,130

i —

Initial public offering

i 35,272,191

i 353

i 493,458

—

i 493,811

—

i 493,811

Concurrent private placement of common stock

i 7,785,611

i 78

i 108,921

—

i 108,999

—

i 108,999

Concurrent private placement of OP Units

—

i 16,001

Costs related to initial public offering

—

( i 35,107)

—

( i 35,107)

—

( i 35,107)

Share-based compensation expense

i 691,290

—

i 1,692

—

i 1,692

—

i 1,692

Unit-based compensation expense

—

i 443

—

i 443

—

i 443

Dividends declared on common stock and OP Units

—

( i 18,987)

—

( i 18,987)

( i 8,270)

( i 27,257)

Net income

—

i 11,328

—

i 11,328

i 5,001

i 16,329

Balance at December 31, 2018

i 43,749,092

i 431

i 569,407

( i 7,659)

i —

i 562,179

i 248,862

i 811,041

Common stock issuance

i 21,462,986

i 215

i 423,472

—

i 423,687

—

i 423,687

Costs related to issuance of common stock

—

( i 13,901)

—

( i 13,901)

—

( i 13,901)

Conversion of equity in Secondary Offering

i 18,502,705

i 185

i 237,795

—

i 237,980

( i 237,980)

i —

Unrealized losses on cash flow hedges

—

( i 1,868)

—

( i 1,868)

( i 931)

( i 2,799)

Cash flow hedge gains reclassified to interest expense

—

( i 81)

—

( i 81)

( i 25)

( i 106)

Share-based compensation expense

i 46,368

i 7

i 4,108

—

i 4,115

—

i 4,115

Unit-based compensation expense

—

i 2,162

—

i 2,162

—

i 2,162

Dividends declared on common stock and OP Units

—

( i 61,667)

—

( i 61,667)

( i 8,444)

( i 70,111)

Net income

—

i 41,844

—

i 41,844

i 6,181

i 48,025

Balance at December 31, 2019

i 83,761,151

i 838

i 1,223,043

( i 27,482)

( i 1,949)

i —

i 1,194,450

i 7,663

i 1,202,113

Cumulative adjustment upon adoption of ASC 326

—

( i 187)

—

( i 187)

( i 1)

( i 188)

Common stock issuance

i 22,554,057

i 225

i 477,574

—

i 477,799

—

i 477,799

Costs related to issuance of common stock

—

( i 18,154)

—

( i 18,154)

—

( i 18,154)

Unrealized losses on cash flow hedges

—

( i 41,868)

—

( i 41,868)

( i 253)

( i 42,121)

Cash flow hedge losses reclassified to interest expense

—

i 6,636

—

i 6,636

i 40

i 6,676

Share-based compensation expense

i 46,316

i 1

i 6,077

—

i 6,078

—

i 6,078

Dividends declared on common stock and OP Units

—

( i 92,269)

—

( i 92,269)

( i 514)

( i 92,783)

Net income

—

i 42,273

—

i 42,273

i 255

i 42,528

Balance at December 31, 2020

i 106,361,524

i 1,064

i 1,688,540

( i 77,665)

( i 37,181)

i —

i 1,574,758

i 7,190

i 1,581,948

The accompanying notes are an integral part of these consolidated financial statements.

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows

Year ended December 31,

(In thousands)

2020

2019

2018

Cash flows from operating activities:

Net income

i 42,528

i 48,025

i 20,614

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

i 59,406

i 42,745

i 31,352

Amortization of lease incentive

i 3,847

i 282

i 159

Amortization of above/below market leases and right of use assets, net

i 9

i 534

i 336

Amortization of deferred financing costs and other assets

i 2,532

i 2,815

i 2,798

Loss on repurchase and retirement of secured borrowings

i 924

i 5,240

i —

Provision for impairment of real estate

i 8,399

i 2,918

i 4,503

Provision for loan losses

i 830

i —

Gain on dispositions of investments, net

( i 5,821)

( i 10,932)

( i 5,445)

Straight-line rent receivable

( i 15,137)

( i 12,322)

( i 8,812)

Equity-based compensation expense

i 6,085

i 6,238

i 2,440

Adjustment to rental revenue for tenant credit/allowance for doubtful accounts

i 3,601

i 593

i 385

Changes in other assets and liabilities:

Rent receivables, prepaid expenses and other assets

( i 12,058)

i 1,242

( i 767)

Accrued liabilities and other payables

i 4,243

i 1,190

( i 1,646)

Net cash provided by operating activities

i 99,388

i 88,568

i 45,917

Cash flows from investing activities:

Proceeds from sales of investments, net

i 82,889

i 66,765

i 60,446

Principal collections on loans and direct financing lease receivables

i 286

i 9,519

i 74

Investments in loans receivable

( i 60,480)

( i 94,637)

( i 14,854)

Deposits for prospective real estate investments

i 475

i 530

( i 1,712)

Investment in real estate, including capital expenditures

( i 541,307)

( i 570,025)

( i 490,040)

Investment in construction in progress

( i 14,423)

( i 17,858)

( i 15,258)

Lease incentives paid

( i 12,949)

( i 2,133)

( i 519)

Net cash used in investing activities

( i 545,509)

( i 607,839)

( i 461,863)

Cash flows from financing activities:

Proceeds from issuance of notes payable to related parties

i —

i 154,000

Payments of principal on notes payable to related parties

i —

( i 384,000)

Repurchase and repayment of secured borrowings

( i 65,909)

( i 279,123)

( i 7,816)

Principal received on repurchased secured borrowings

i —

i 1,707

i —

Borrowings under term loan facilities

i 180,000

i 450,000

i —

Borrowings under revolving credit facility

i 87,000

i 459,000

i 34,000

Repayments under revolving credit facility

( i 115,000)

( i 447,000)

i —

Deferred financing costs

( i 25)

( i 6,128)

( i 3,065)

Capital contributions by members in Predecessor

i —

i 50,000

Proceeds from issuance of common stock, net

i 461,006

i 411,635

i 464,182

Offering costs

( i 2,805)

( i 1,837)

( i 5,478)

Proceeds from concurrent private placement of OP Units

i —

i 16,001

Proceeds from concurrent private placement of common stock

i —

i 108,999

Dividends paid

( i 86,475)

( i 63,903)

( i 14,068)

Net cash provided by financing activities

i 457,792

i 524,351

i 412,755

Net increase (decrease) in cash and cash equivalents and restricted cash

i 11,671

i 5,080

( i 3,191)

Cash and cash equivalents and restricted cash, beginning of period

i 21,319

i 16,239

i 19,430

Cash and cash equivalents and restricted cash, end of period

i 32,990

i 21,319

i 16,239

Reconciliation of cash and cash equivalents and restricted cash:

Cash and cash equivalents

i 26,602

i 8,304

i 4,236

Restricted cash

i 6,388

i 13,015

i 12,003

Cash and cash equivalents and restricted cash, end of period

i 32,990

i 21,319

i 16,239

The accompanying notes are an integral part of these consolidated financial statements.

ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Cash Flows (continued)

Year ended December 31,

(In thousands)

2020

2019

2018

Supplemental disclosure of cash flow information:

Cash paid for interest, net of amounts capitalized

i 27,071

i 29,485

i 27,901

Cash paid for income taxes

i 546

i 60

i 55

Non-cash investing and financing activities:

Adjustment upon adoption of ASC 326

i 188

i —

Reclassification from construction in progress upon project completion

i 22,643

i 7,055

i 18,009

Net settlement of proceeds on the sale of investments

i 860

i 4,960

i —

Non-cash investments in loan receivable activity

( i 860)

i 10,439

i —

Lease liabilities arising from the recognition of right of use assets

i —

i 8,355

i —

Unrealized losses on cash flow hedges

i 44,920

i 2,905

i —

Contribution of Predecessor equity in exchange for OP Units

i —

i 236,130

Conversion of equity in Secondary Offering

i —

i 237,795

i —

Payable and accrued offering costs

i —

i 66

i —

Discounts and fees on capital raised through issuance of common stock

i 16,674

i 12,048

i 29,629

Payable and accrued deferred financing costs

i —

i 126

i —

Dividends declared

i 25,703

i 19,395

i 13,189

The accompanying notes are an integral part of these consolidated financial statements.

Notes to Consolidated Financial Statements

1. i Organization

Description of Business

Essential Properties Realty Trust, Inc. (the “Company”) is an internally managed real estate company that acquires, owns and manages primarily single-tenant properties that are net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses. The Company generally invests in and leases 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.

The Company was organized on January 12, 2018 as a Maryland corporation. It elected to be taxed as a real estate investment trust (“REIT”) for federal income tax purposes beginning with the year ended December 31, 2018, and it believes that its current organizational and operational status and intended distributions will allow it to continue to so qualify. Substantially all of the Company’s business is conducted directly and indirectly through its operating partnership, Essential Properties, L.P. (the “Operating Partnership”).

On June 25, 2018, the Company completed the initial public offering (“IPO”) of its common stock. The common stock of the Company is listed on the New York Stock Exchange under the ticker symbol “EPRT”. See Note 7—Equity for additional information.

COVID-19 Pandemic

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus (“COVID-19”) a pandemic. The global spread of COVID-19 has created significant uncertainty and economic disruption, which is likely to persist, or increase, for a period of unknown duration. The pandemic has adversely affected the Company and its tenants, and the full extent to which it will adversely affect the Company’s financial condition, liquidity, and results of operations is impossible to predict and depends on evolving factors, including the duration and scope of the pandemic, and governmental and social responses thereto.

The Company is closely monitoring the impact of COVID-19 on all aspects of its business, including its portfolio and the creditworthiness of its tenants. As the pandemic intensified at the end of the first quarter of 2020, the Company adopted a more cautious investment strategy, as it placed an increased emphasis on liquidity, prudent balance sheet management and financial flexibility.

The Company has entered into deferral agreements with certain of its tenants, and during the year ended December 31, 2020, recognized $ i 12.4 million of contractual base rent related to these agreements as a component of rental revenue in its consolidated statement of operations. These rent deferrals were negotiated on a tenant-by-tenant basis, and, in general, allow a tenant to defer all or a portion of its rent for a portion of 2020, with all of the deferred rent to be paid to the Company pursuant to a schedule that generally extends up to i 24 months from the original due date of the deferred rent. It is possible that the existing deterioration, or further deterioration, in the Company's tenants’ ability to operate their businesses, or delays in the supply of products or services to the Company's tenants from vendors that they need to operate their businesses, caused by COVID-19 or otherwise, will cause the Company's tenants to be unable or unwilling to meet their contractual obligations to the Company, including the payment of rent (including deferred rent), or to request further rent deferrals or other concessions. The likelihood of this would increase if COVID-19 intensifies or persists for a prolonged period. To the extent COVID-19 causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of the Company's tenants would be adversely affected and their ability to meet their obligations to us could be further impaired. These deferrals reduce the Company's cash flow from operations, reduce its cash available for distribution and adversely affect its ability to make cash distributions to common stockholders. Furthermore, if tenants are unable to pay their deferred rent, the Company will not receive cash in the future in accordance with its expectations.

2. i Summary of Significant Accounting Policies

i Basis of Accounting

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

Reclassification

Certain amounts previously reported in the consolidated balance sheets and statements of operations have been reclassified to conform with the current period by presenting derivative liabilities separate from accrued liabilities and other payables and by presenting interest expense as a component of other expense/income.

i Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and subsidiaries in which the Company has a controlling financial interest. All intercompany accounts and transactions have been eliminated in consolidation. As of December 31, 2020 and 2019, the Company, directly or indirectly, held a i 99.5% and i 99.3% ownership interest in the Operating Partnership and the consolidated financial statements include the financial statements of the Operating Partnership as of these dates. See Note 7—Equity for changes in the ownership interest in the Operating Partnership.

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Real Estate Investments

Investments in real estate are carried at cost less accumulated depreciation and impairment losses. The cost of investments in real estate reflects their purchase price or development cost. The Company evaluates each acquisition transaction to determine whether the acquired asset meets the definition of a business. Under Accounting Standards Update ("ASU") 2017-1, Business Combinations (Topic 805): Clarifying the Definition of a Business, an acquisition does not qualify as a business when there is no substantive process acquired or substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets or the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay. Transaction costs related to acquisitions that are asset acquisitions are capitalized as part of the cost basis of the acquired assets, while transaction costs for acquisitions that are deemed to be acquisitions of a business are expensed as incurred. Improvements and replacements are capitalized when they extend the useful life or improve the productive capacity of the asset. Costs of repairs and maintenance are expensed as incurred.

The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, site improvements and buildings. Intangible assets may include the value of in-place leases and above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics.

The Company incurs various costs in the leasing and development of its properties. Amounts paid to tenants that incentivize them to extend or otherwise amend an existing lease or to sign a new lease agreement are capitalized to lease incentives on the Company's consolidated balance sheets. Tenant improvements are capitalized to building and improvements within the Company's consolidated balance sheets. Costs incurred which are directly related to properties under development, which include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs and real estate taxes and insurance, are capitalized during the period of development as construction in progress. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that benefited. Determination of when a development project

commences, and capitalization begins, and when a development project has reached substantial completion, and is available for occupancy and capitalization must cease, involves a degree of judgment. The Company does not engage in speculative real estate development. The Company does, however, opportunistically agree to reimburse certain of its tenants for development costs at its properties in exchange for contractually-specified rent that generally increases proportionally with its funding.

The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the "as-if-vacant" value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant's lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. Factors the Company considers in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from six to i 12 months. 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 the Company's 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.

In making estimates of fair values for purposes of allocating purchase price, the Company uses a number of sources, including real estate valuations prepared by independent valuation firms. The Company also considers information and other factors including market conditions, the industry that the tenant operates in, characteristics of the real estate (e.g., location, size, demographics, value and comparative rental rates), tenant credit profile and the importance of the location of the real estate to the operations of the tenant's business. Additionally, the Company considers information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. The Company uses the information obtained as a result of its pre-acquisition due diligence as part of its consideration of the accounting standard governing asset retirement obligations and, when necessary, will record an asset retirement obligation as part of the purchase price allocation.

Real estate investments that are intended to be sold are designated as "held for sale" on the consolidated balance sheets at the lesser of carrying amount and fair value less estimated selling costs. Real estate investments are no longer depreciated when they are classified as held for sale. If the disposal, or intended disposal, of certain real estate investments represents a strategic shift that has had or will have a major effect on the Company's operations and financial results, the operations of such real estate investments would be presented as discontinued operations in the consolidated statements of operations for all applicable periods.

Depreciation and Amortization

Depreciation is computed using the straight-line method over the estimated useful lives of up to i 40 years for buildings and i 15 years for site improvements. i The Company recorded the following amounts of depreciation expense on its real estate investments during the periods presented:


	Year ended December 31,
(in thousands)	2020		2019		2018
Depreciation on real estate investments	$	i 51,736	$	i 36,354	$	i 24,849

Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter.

Capitalized above-market lease values are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease values are

accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods.

Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable.

The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases.

If a tenant terminates its lease, the unamortized portion of each intangible, including in-place lease values, is charged to depreciation and amortization expense, while above- and below-market lease adjustments are recorded within rental revenue in the consolidated statements of operations.

i Loans Receivable

The Company holds its loans receivable for long-term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any, less the Company's estimated allowance for loan losses. The Company recognizes interest income on loans receivable using the effective-interest method applied on a loan-by-loan basis. Direct costs associated with originating loans are offset against any related fees received and the balance, along with any premium or discount, is deferred and amortized as an adjustment to interest income over the term of the related loan receivable using the effective-interest method. As of December 31, 2020, the Company had i five leases which were accounted for as loans receivable and i eight mortgage loans held for long-term investment. As of December 31, 2019, the Company had i two leases which were accounted for as loans receivable and i five loans receivable for long-term investment.

Direct Financing Lease Receivables

Certain of the Company's real estate investment transactions are accounted for as direct financing leases. The Company records the direct financing lease receivables at their net investment, determined as the aggregate minimum lease payments and the estimated non-guaranteed residual value of the leased property less unearned income. The unearned income is recognized over the term of the related lease so as to produce a constant rate of return on the net investment in the asset. The Company's investment in direct financing lease receivables is reduced over the applicable lease term to its non-guaranteed residual value by the portion of rent allocated to the direct financing lease receivables. Subsequent to the adoption of ASC 842, Leases ("ASC 842"), existing direct financing lease receivables will continue to be accounted for in the same manner, unless the underlying contracts are modified.

If and when an investment in direct financing lease receivables is identified for impairment evaluation, the Company will apply the guidance in both ASC 310, Receivables ("ASC 310") and ASC 840, Leases ("ASC 840") (prior to January 1, 2019) and ASC 842. Under ASC 310, the lease receivable portion of the net investment in a direct financing lease receivable is evaluated for impairment when it becomes probable the Company, as the lessor, will be unable to collect all rental payments associated with the Company's investment in the direct financing lease receivable. Under ASC 840 and ASC 842, the Company reviews the estimated non-guaranteed residual value of a leased property at least annually. If the review results in a lower estimate than had been previously established, the Company determines whether the decline in estimated non-guaranteed residual value is other than temporary. If a decline is judged to be other than temporary, the accounting for the transaction is revised using the changed estimate and the resulting reduction in the net investment in direct financing lease receivables is recognized by the Company as a loss in the period in which the estimate is changed. As of December 31, 2020 and 2019, the Company determined that none of its direct financing lease receivables were impaired.

Impairment of Long-Lived Assets

If circumstances indicate that the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as

the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. Impairment assessments have a direct impact on the consolidated statements of operations because recording an impairment loss results in an immediate negative adjustment to the consolidated statement of operations.

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


	Year ended December 31,
(in thousands)	2020		2019		2018
Provision for impairment of real estate	$	i 8,399	$	i 2,918	$	i 4,503

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Cash and Cash Equivalents

Cash and cash equivalents includes cash in the Company’s bank accounts. The Company considers all cash balances and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. The Company deposits cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit.

As of December 31, 2020 and 2019, the Company had deposits of $ i 26.6 million and $ i 8.3 million, respectively, of which $ i 26.4 million and $ i 8.1 million, respectively, were in excess of the amount insured by the FDIC. Although the Company bears risk with respect to amounts in excess of those insured by the FDIC, it does not anticipate any losses as a result.

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Restricted Cash

Restricted cash primarily consists of cash held with the trustee for the Company’s Master Trust Funding Program (as defined in Note 5—Long Term Debt). This restricted cash is used to make principal and interest payments on the Company’s secured borrowings, to pay trust expenses and to invest in future real estate investments which will be pledged as collateral under the Master Trust Funding Program. See Note 5—Long Term Debt for further discussion.

Adjustment to Rental Revenue/Allowance for Doubtful Accounts

The Company continually reviews 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. Prior to January 1, 2019, if the collectability of a receivable was in doubt, the accounts receivable and straight-line rent receivable balances were reduced by an allowance for doubtful accounts on the consolidated balance sheets or a direct write-off of the receivable was recorded in the consolidated statements of operations. The provision for doubtful accounts was included in property expenses in the Company’s consolidated statements of operations. If the accounts receivable balance or straight-line rent receivable balance was subsequently deemed to be uncollectible, such receivable amounts were written-off to the allowance for doubtful accounts.

Subsequent to January 1, 2019, if the assessment of the collectability of substantially all payments due under a lease changes from probable to not probable, any difference between the rental revenue recognized to date and the lease payments that have been collected is recognized as a current period reduction of rental revenue in the consolidated statements of operations.

The Company recorded the following amounts as adjustments to rental revenue or allowance for doubtful accounts during the periods presented:


	Year ended December 31,
(in thousands)	2020		2019		2018
Adjustment to rental revenue/allowance for doubtful accounts	$	i 7,149	$	i 593	$	i 235

Deferred Financing Costs

Financing costs related to establishing the Company’s 2018 Credit Facility and Revolving Credit Facility (as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the facility and are reported as a component of rent receivables, prepaid expenses and other assets, net on the consolidated balance sheets.

Financing costs related to the issuance of the Company’s secured borrowings under the Master Trust Funding Program, the April 2019 Term Loan and the November 2019 Term Loan (each as defined below) were deferred and are being amortized as an increase to interest expense in the consolidated statements of operations over the term of the related debt instrument and are reported as a reduction of the related debt balance on the consolidated balance sheets.

Derivative Instruments

In the normal course of business, the Company uses derivative financial instruments, which may include interest rate swaps, caps, options, floors and other interest rate derivative contracts, to protect the Company against adverse fluctuations in interest rates by reducing its exposure to variability in cash flows on a portion of the Company’s floating-rate debt. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.

The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. If a derivative is designated and qualifies for cash flow hedge accounting treatment, the change in the estimated fair value of the derivative is recorded in other comprehensive income (loss) in the consolidated statements of comprehensive income to the extent that it is effective. Any ineffective portion of a change in derivative fair value is immediately recorded in earnings. If the Company elects not to apply hedge accounting treatment (or for derivatives that do not qualify as hedges), any change in the fair value of such derivative instruments would be recognized immediately as a gain or loss on derivative instruments in the consolidated statements of operations.

Fair Value Measurement

The Company estimates fair value of financial and non-financial assets and liabilities based on the framework established in fair value accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows:

Level 1—Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date.

Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability.

Level 3—Unobservable inputs that reflect the Company's own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques.

Revenue Recognition

The Company’s rental revenue is primarily rent received from tenants. Rent from tenants is recorded in accordance with the terms of each lease on a straight-line basis over the non-cancellable initial term of the lease from the later of the date of the commencement of the lease and the date of acquisition of the property subject to the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Because substantially all of the leases provide for rental increases at specified intervals, the Company records a straight-line rent receivable and recognizes revenue on a straight-line basis through the expiration of the non-cancelable term of the lease. The Company considers whether the collectability of rents is reasonably assured in determining the amount of straight-line rent to record.

Generally, the Company’s leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions provided under the initial lease term, including rent increases. If economic incentives make it reasonably certain that an option period to extend the lease will be exercised, the Company will include these options in determining the non-cancelable term of the lease.

The Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented within accrued liabilities and other payables on the Company’s consolidated balance sheets.

Certain properties in the Company’s investment portfolio are subject to leases that provide for contingent rent based on a percentage of the tenant’s gross sales. For these leases, the Company recognizes contingent rental revenue when the threshold upon which the contingent lease payment is based is actually reached.

The Company recorded the following amounts as contingent rent, which are included as a component of rental revenue in the Company's consolidated statements of operations, during the periods presented:


	Year ended December 31,
(in thousands)	2020		2019		2018
Contingent rent	$	i 444	$	i 855	$	i 1,083

Offering Costs

In connection with the completion of equity offerings, the Company incurs legal, accounting and other offering-related costs. Such costs are deducted from the gross proceeds of each equity offering when the offering is completed. As of December 31, 2020 and 2019, the Company had capitalized a total of $ i 67.2 million and $ i 49.0 million, respectively, of such costs in the Company’s consolidated balance sheets. These costs are presented as a reduction of additional paid-in capital as of December 31, 2020 and 2019.

Legal, accounting and other offering-related costs incurred in connection with the Secondary Offering (as defined below) were expensed when incurred and were recorded within general and administrative expense in the Company’s consolidated statements of operations.

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Income Taxes

The Company elected and qualified to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ended December 31, 2018. REITs are subject to a number of organizational and operational requirements, including a requirement that 90% of ordinary “REIT taxable income” (as determined without regard to the dividends paid deduction or net capital gains) be distributed. As a REIT, the Company will generally not be subject to U.S. federal income tax to the extent that it meets the organizational and operational requirements and its distributions equal or exceed REIT taxable income. For the period subsequent to the effective date of its REIT election, the Company continues to meet the organizational and operational requirements and expects distributions to exceed REIT taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even though the Company has elected and qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income and

excise tax on its undistributed income. Franchise taxes and federal excise taxes on the Company’s undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations. Additionally, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary is subject to federal, state, and local taxes.

The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in such jurisdictions. The Company follows a two-step process to evaluate uncertain tax positions. Step one, recognition, occurs when an entity concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited.

As of December 31, 2020 and 2019, the Company had no accruals recorded for uncertain tax positions. The Company’s policy is to classify interest expense and penalties relating to taxes in general and administrative expense in the consolidated statements of operations. During the years ended December 31, 2020, 2019 and 2018, the Company recorded de minimis interest or penalties relating to taxes, and there were no interest or penalties with respect to taxes accrued as of December 31, 2020 or 2019. The 2019, 2018, 2017 and 2016 taxable years remain open to examination by federal and/or state taxing jurisdictions to which the Company is subject.

Equity-Based Compensation

The Company grants shares of restricted common stock and restricted share units (“RSUs”) to its directors, executive officers and other employees that vest over specified time periods, subject to the recipient’s continued service. The Company also grants performance-based RSUs to its executive officers, the final number of which is determined based on objective and subjective performance conditions and which vest over a multi-year period, subject to the recipient’s continued service. The Company accounts for the restricted common stock and RSUs in accordance with ASC 718, Compensation – Stock Compensation, which requires that such compensation be recognized in the financial statements based on its estimated grant-date fair value. The value of such awards is recognized as compensation expense in general and administrative expenses in the accompanying consolidated statements of operations over the applicable service periods.

The Company recognizes compensation expense for equity-based compensation using the straight-line method based on the terms of the individual grant. Forfeitures of equity-based compensation awards, if any, are recognized as they occur.

Variable Interest Entities

The Financial Accounting Standards Board (“FASB”) provides guidance for determining whether an entity is a variable interest entity (a “VIE”). VIEs are defined as entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. A VIE is required to be consolidated by its primary beneficiary, which is the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses, or the right to receive benefits, of the VIE that could potentially be significant to the VIE.

The Company has concluded that the Operating Partnership is a VIE of which the Company is the primary beneficiary, as the Company has the power to direct the activities that most significantly impact the economic performance of the Operating Partnership. Substantially all of the Company’s assets and liabilities are held by the Operating Partnership. The assets and liabilities of the Operating Partnership are consolidated and reported as assets and liabilities on the Company’s consolidated balance sheets as of December 31, 2020 and 2019.

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

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

December 31,

(Dollars in thousands)

2020

2019

2018

Number of VIEs

i 11

i 7

i 9

Aggregate carrying value

i 117,578

i 60,500

i 5,700

The Company was not the primary beneficiary of any of these entities, because the Company did not have the power to direct the activities that most significantly impact the entities’ economic performance as of December 31, 2020. and 2019. The Company’s maximum exposure to loss in these entities is limited to the carrying amount of its investment. The Company had i i no / liabilities associated with these VIEs as of December 31, 2020 and 2019.

Reportable Segments

ASC Topic 280, Segment Reporting, establishes standards for the manner in which enterprises report information about operating segments. Substantially all of the Company's investments, at acquisition, are comprised of real estate owned that is leased to tenants on a long-term basis. Therefore, the Company aggregates these investments for reporting purposes and operates in i one reportable segment.

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Recent Accounting Developments

In February 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) establishing ASC 326, as amended by subsequent ASUs on the topic. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. The Company adopted this guidance on January 1, 2020 and recorded estimates of expected loss on its loans and direct financing lease receivable portfolio beginning on that date, as discussed above.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities (“ASU 2017-12”), which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The Company adopted ASU 2017-12 while accounting for its initial interest rate swaps in 2019 (see Note 6—Derivative and Hedging Activities). As the Company did not have other derivatives outstanding at time of adoption, no prior period adjustments were required. Pursuant to the provisions of ASU 2017-12, the Company is no longer required to separately measure and recognize hedge ineffectiveness. Instead, the Company recognizes the entire change in the fair value of cash flow hedges included in the assessment of hedge effectiveness in other comprehensive (loss) income. The amounts recorded in other comprehensive (loss) income will subsequently be reclassified to earnings when the hedged item affects earnings. The adoption of ASU 2017-12 did not have a material impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement: Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which changes the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. ASU 2018-13 is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company adopted this guidance on January 1, 2020 and the adoption of ASU 2018-13 did not have a material impact on the Company’s related disclosures.

In March 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848) (“ASU 2020-4”). ASU 2020-4 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-4 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.

In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the entity would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant, which would be accounted for under the lease modification framework, or if a lease concession was under the enforceable rights and obligations that existed in the original lease, which would be accounted for outside the lease modification framework. The Lease Modification Q&A provides entities with the option to elect to account for lease concessions as though the enforceable rights and obligations existed in the original lease. This election is only available when total cash flows resulting from the modified lease are substantially similar to or less than the cash flows in the original lease. The Company made this election and accounts for rent deferrals by increasing its rent receivables as receivables accrue and continuing to recognize income during the deferral period, resulting in $ i 12.4 million of deferrals being recognized in rental revenues for the year ended December 31, 2020. Lease concessions or amendments other than rent deferrals are evaluated to determine if a substantive change to the consideration in the original lease contract has occurred and should be accounted for as a lease modification. The Company continues to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and records an adjustment to rental income for tenant credit for amounts that are not probable of collection. For lease concessions granted in conjunction with the COVID-19 pandemic, the Company reviewed all amounts recognized on a tenant-by-tenant basis for collectability.

3. i Investments

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

December 31,

2020

2019

Owned properties (1)

i 1,056

i 897

Properties securing investments in mortgage loans (2)

i 115

i 91

Ground lease interests (3)

i 10

i 12

Total number of investments

i 1,181

i 1,000

_____________________________________

(1)Includes i 11 and i 8 properties which are subject to leases accounted for as direct financing leases or loans as of December 31, 2020 and 2019, respectively.

(2)Properties secure i 8 and i 6 mortgage loans receivable as of December 31, 2020 and 2019, respectively.

(3)Includes i i one / building which is subject to a lease accounted for as a direct financing lease as of December 31, 2020 and 2019.

The following table presents information about the Company’s gross investment portfolio as of each date presented:

December 31,

(in thousands)

2020

2019

Gross investment portfolio:

Real estate investments, at cost

i 2,359,395

i 1,908,919

Loans and direct financing lease receivables, net

i 152,220

i 92,184

Real estate investments held for sale, net

i 17,058

i 1,211

Total gross investments

i 2,528,673

i 2,002,314

As of December 31, 2020 and 2019, i 258 and i 355 of these investments, comprising $ i 399.7 million and $ i 601.3 million, respectively, of gross investments, were assets of consolidated special purpose entity subsidiaries and were pledged as collateral under the non-recourse obligations of the Company’s Master Trust Funding Program. (See Note 5—Long Term Debt.)

Acquisitions in 2020 and 2019

The following table presents information about the Company’s acquisition activity during the years ended December 31, 2020 and 2019:

Year ended December 31,

(Dollars in thousands)

2020

2019

Ownership type

(1)

(2)

Number of properties

i 208

i 281

Purchase price allocation:

Land and improvements

i 181,297

i 191,311

Building and improvements

i 323,542

i 370,312

Construction in progress (3)

i 15,825

i 17,858

Intangible lease assets

i 7,737

i 18,802

Total purchase price

i 528,401

i 598,283

Intangible lease liabilities

( i 2,125)

( i 188)

Purchase price (including acquisition costs)

i 526,276

i 598,095

_____________________________________

(1)During the year ended December 31, 2020, the Company acquired the fee interest in i 206 properties and acquired i two properties subject to ground lease arrangements.

(2)During the year ended December 31, 2019, the Company acquired the fee interest in i 279 properties and acquired i two properties subject to ground lease arrangements.

(3)Represents amounts incurred at and subsequent to acquisition and includes $ i 0.2 million and $ i 0.3 million, respectively, of capitalized interest expense as of December 31, 2020 and 2019.

During the years ended December 31, 2020 and 2019, the Company did i i no / t have any investments that individually represented more than 5% of the Company’s total investment activity.

Gross Investment Activity

During the years ended December 31, 2020, 2019 and 2018, the Company had the following gross investment activity:

(Dollar amounts in thousands)

Number of
Investment
Locations

Dollar
Amount of
Investments

Gross investments, December 31, 2017

i 508

i 939,072

Acquisitions of and additions to real estate investments

i 204

i 506,949

Sales of investments in real estate

( i 45)

( i 58,084)

Relinquishment of properties at end of ground lease term

( i 2)

( i 853)

Provisions for impairment of real estate (1)

—

( i 4,543)

Investments in loans receivable (2)(3)

i 12

i 14,854

Principal collections on and settlements of loans and direct financing lease receivables

i —

( i 74)

Other

—

( i 2,772)

Gross investments, December 31, 2018

i 677

i 1,394,549

Acquisitions of and additions to real estate investments

i 281

i 603,677

Sales of investments in real estate

( i 37)

( i 65,571)

Relinquishment of properties at end of ground lease term

( i 3)

( i 700)

Provisions for impairment of real estate (4)

—

( i 2,918)

Investments in loans receivable

i 95

i 94,637

Principal collections on and settlements of loans and direct financing lease receivables

( i 13)

( i 19,958)

Other

—

( i 1,402)

Gross investments, December 31, 2019

i 1,000

i 2,002,314

Acquisitions of and additions to real estate investments

i 208

i 568,204

Sales of investments in real estate

( i 49)

( i 81,312)

Relinquishment of properties at end of ground lease term

( i 3)

( i 1,931)

Provisions for impairment of real estate (5)

—

( i 8,399)

Investments in loans receivable (6)

i 25

i 61,339

Principal collections on and settlements of loans and direct financing lease receivables

i —

( i 286)

Other

—

( i 11,256)

Gross investments, December 31, 2020

i 1,181

i 2,528,673

Less: Accumulated depreciation and amortization (7)

—

( i 136,097)

Net investments, December 31, 2020

i 1,181

i 2,392,576

_____________________________________________

(1)During the year ended December 31, 2018, the Company identified and recorded provisions for impairment at i 7 vacant and i 14 tenanted properties. The amount in the table above excludes $ i 40,000 related to intangible lease liabilities for these assets.

(2)Includes a $ i 3.5 million of loan receivable made to the purchaser of one real estate property as of December 31, 2018.

(3)Excludes improvements at one property securing a $ i 3.2 million development construction loan as the land at this location is included in acquisitions of and additions to real estate investments for 2018.

(4)During the year ended December 31, 2019, the Company identified and recorded provisions for impairment at i 1 vacant and i 7 tenanted properties.

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

(6)During the year ended December 31, 2020, the Company invested in i 25 properties that secured i five of its loans receivable for an aggregate investment of $ i 57.0 million.

(7)Includes $ i 112.1 million of accumulated depreciation as of December 31, 2020.

Real Estate Investments

The Company's investment properties are leased to tenants under long-term operating leases that typically include one or more renewal options. See Note 4—Leases for more information about the Company's leases.

Loans and Direct Financing Lease Receivables

As of December 31, 2020 and 2019, the Company had i 13 and i seven loans receivable outstanding, with an aggregate carrying amount of $ i 150.8 million and $ i 89.6 million, respectively. The maximum amount of loss due to credit risk is the Company's current principal balance of $ i 150.8 million as of December 31, 2020.

The Company's loans receivable principal portfolio as of December 31, 2020 and 2019 are summarized below (dollars in thousands):

Loan Type

Monthly Payment

Number of Secured Properties

Effective Interest Rate

Stated Interest Rate

Maturity Date

December 31,

2020

2019

Mortgage (2)(3)

I/O

i 2

i 8.80%

i 8.10%

2039

i 12,000

Mortgage (3)

P+I

i 2

i 8.10%

2059

i 6,114

i 5,125

Mortgage (2)

I/O

i 2

i 8.53%

i 7.80%

2039

i 7,300

Mortgage (2)

I/O

i 69

i 8.16%

i 7.70%

2034

i 28,000

Mortgage (2)

I/O

i 18

i 8.05%

i 7.50%

2034

i 37,105

i 34,604

Mortgage (2)

I/O

i 1

i 8.42%

i 7.70%

2040

i 5,300

i —

Mortgage (2)

I/O

i 1

i 7.00%

2021

i 860

i —

Mortgage (2)

I/O

i 3

i 8.30%

i 8.25%

2022

i 2,324

i —

Mortgage (2)

I/O

i 19

i 7.30%

i 6.80%

2035

i 46,000

i —

Leasehold interest

P+I

i 2

i 10.69%

(4)

2039

i 1,435

Leasehold interest

P+I

i 1

i 2.25%

(5)

2034

i 1,109

i 1,164

Leasehold interest

P+I

i 1

i 2.41%

(5)

2034

i 1,645

i —

Leasehold interest

P+I

i 1

i 4.97%

(5)

2038

i 1,605

i —

Net investment

i 150,797

i 89,628

________________________________________________

(1)I/O: Interest Only; P+I: Principal and Interest

(2)Loan requires monthly payments of interest only with a balloon payment due at maturity.

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

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

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

Scheduled principal payments due to be received under the Company's loans receivable as of December 31, 2020 are as follows:


(in thousands)	Loans Receivable
2021	$	i 1,068
2022	i 2,545
2023	i 236
2024	i 252
2025	i 268
Thereafter	i 146,428
Total	$	i 150,797

As of December 31, 2020 and 2019, the Company had $ i 2.4 million and $ i 2.6 million of net investments accounted for as direct financing lease receivables, respectively. i The components of the investments accounted for as direct financing lease receivables were as follows:

December 31,

(in thousands)

2020

2019

Minimum lease payments receivable

i 3,529

i 3,866

Estimated unguaranteed residual value of leased assets

i 270

Unearned income from leased assets

( i 1,357)

( i 1,581)

Net investment

i 2,442

i 2,555

i Scheduled future minimum non-cancelable base rental payments due to be received under the direct financing lease receivables as of December 31, 2020 were as follows:


(in thousands)	Future Minimum Base Rental Payments
2021	$	i 340
2022	i 345
2023	i 347
2024	i 289
2025	i 254
Thereafter	i 1,954
Total	$	i 3,529

Allowance for Loan Losses

As discussed in Note 2—Summary of Significant Accounting Policies, the Company utilizes a RELEM model which estimates losses on loans and direct financing lease receivables for purposes of calculating an allowance for loan losses. As of December 31, 2020, the Company recorded an allowance for loan losses of $ i 1.0 million. Changes in the Company’s allowance for loan losses are presented within provision for loan losses in the Company’s consolidated statements of operations.

For the year ended December 31, 2020, the changes to allowance for loan losses were as follows:


(in thousands)	Loans and Direct Financing Lease Receivables
Balance at December 31, 2019	$	i —
Cumulative-effect adjustment upon adoption of ASC 326	i 188
Current period provision for expected credit losses (1)	i 830
Write-offs charged	i —
Recoveries	i —
Balance at December 31, 2020	$	i 1,018

_____________________________________

(1)The increase in expected credit losses is due to the changes in assumptions regarding current macroeconomic factors related to COVID and our investment in new loans receivable during the period.

/ i

The significant credit quality indicators for the Company’s loans and direct financing lease receivables measured at amortized cost, were as follows as of December 31, 2020:

Amortized Cost Basis by Origination Year

(in thousands)

2020

2019

2018

2017

2016

Total Amortized Costs Basis

Credit Quality Indicator:

LTV <60%

i 860

i 28,000

i —

i 747

i 29,607

LTV 60%-70%

i —

i 988

LTV >70%

i 56,874

i 65,063

i —

i 706

i 122,643

i 57,734

i 93,063

i —

i 2,441

i 153,238

Real Estate Investments Held for Sale

The Company continually evaluates its portfolio of real estate investments and may elect to dispose of investments considering criteria including, but not limited to, tenant concentration, tenant credit quality, tenant operation type (e.g., industry, sector or concept), unit-level financial performance, local market conditions and lease rates, associated indebtedness and asset location. Real estate investments held for sale are expected to be sold within twelve months.

The following table shows the activity in real estate investments held for sale and intangible lease liabilities held for sale during the years ended December 31, 2020 and 2019:

(Dollar amounts in thousands)

Number of
Properties

Real Estate
Investments

Intangible Lease
Liabilities

Net Carrying
Value

Held for sale balance, December 31, 2018

i —

Transfers to held for sale classification

i 5

i 7,450

i —

i 7,450

Sales

( i 4)

( i 6,239)

i —

( i 6,239)

Transfers to held and used classification

i —

Held for sale balance, December 31, 2019

i 1

i 1,211

i —

i 1,211

Transfers to held for sale classification

i 8

i 17,058

i —

i 17,058

Sales

( i 1)

( i 1,211)

i —

( i 1,211)

Transfers to held and used classification

i —

Held for sale balance, December 31, 2020

i 8

i 17,058

i —

i 17,058

Significant Concentrations

The Company did not have any tenants (including for this purpose, all affiliates of such tenants) whose rental revenue for the years ended December 31, 2020, 2019 or 2018 represented 10% or more of total rental revenue in the Company's consolidated statements of operations.

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

Year ended December 31,

State

2020

2019

2018

Texas

i 14.9%

i 12.4%

i 12.5%

Georgia

i 9.6%

i 10.8%

i 11.5%

Intangible Assets and Liabilities

Intangible assets and liabilities consisted of the following as of the dates presented:

(in thousands)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Intangible assets:

In-place leases

i 67,986

i 18,767

i 49,219

i 64,828

i 14,195

i 50,633

Intangible market lease assets

i 12,285

i 4,059

i 8,226

i 14,094

i 4,228

i 9,866

Total intangible assets

i 80,271

i 22,826

i 57,445

i 78,922

i 18,423

i 60,499

Intangible market lease liabilities

i 12,772

i 2,604

i 10,168

i 12,054

i 2,490

i 9,564

i The remaining weighted average amortization period for the Company's intangible assets and liabilities as of December 31, 2020, by category and in total, were as follows:


			Years Remaining
In-place leases			i 9.8
Intangible market lease assets			i 17.6
Total intangible assets			i 10.4

Intangible market lease liabilities			i 6.4

i The following table discloses amounts recognized within the consolidated statements of operations related to amortization of in-place leases, amortization and accretion of above- and below-market lease assets and liabilities, net and the amortization and accretion of above- and below-market ground leases for the periods presented:

Year ended December 31,

(in thousands)

2020

2019

2018

Amortization of in-place leases (1)

i 7,067

i 6,272

i 6,465

Amortization (accretion) of market lease intangibles, net (2)

i 9

i 866

i 780

Amortization (accretion) of above- and below-market ground lease intangibles, net (3)

( i 395)

( i 333)

( i 443)

______________________________________________________

(1)Reflected within depreciation and amortization expense.

(2)Reflected within rental revenue.

(3)Reflected within property expenses.

The following table provides the estimated amortization of in-place lease assets to be recognized as a component of depreciation and amortization expense for the next five years and thereafter:

(in thousands)

In-Place Lease Assets

2021

i 5,998

2022

i 5,839

2023

i 5,418

2024

i 4,739

2025

i 3,685

Thereafter

i 23,540

Total

i 49,219

The following table provides the estimated net amortization of above- and below-market lease intangibles to be recognized as a component of rental revenue for the next five years and thereafter:

(in thousands)

Above Market Lease Asset

Below Market Lease Liabilities

Net Adjustment to Rental Revenue

2021

( i 732)

i 528

( i 204)

2022

( i 731)

i 587

( i 144)

2023

( i 700)

i 502

( i 198)

2024

( i 669)

i 570

( i 99)

2025

( i 662)

i 608

( i 54)

Thereafter

( i 4,732)

i 7,373

i 2,641

Total

( i 8,226)

i 10,168

i 1,942

4 i . Leases

As Lessor

The Company’s investment properties are leased to tenants under long-term operating leases that typically include one or more tenant renewal options. The Company’s leases provide for annual base rental payments (generally payable in monthly installments), and generally provide for increases in rent based on fixed contractual terms or as a result of increases in the Consumer Price Index.

Substantially all of the leases are triple-net, which means that the lessees are responsible for paying all property operating expenses, including maintenance, insurance, utilities, property taxes and, if applicable, ground rent expense; therefore, the Company is generally not responsible for repairs or other capital expenditures related to the properties while the triple-net leases are in effect and, at the end of the lease term, the lessees are responsible for returning the property to the Company in a substantially similar condition as when they took possession. Some of the Company’s leases provide that in the event the Company wishes to sell the property subject to that lease, it first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which it intends to accept for the sale of the property.

Scheduled future minimum base rental payments due to be received under the remaining non-cancelable term of the operating leases in place as of December 31, 2020 were as follows:


(in thousands)	Future Minimum Base Rental Receipts
2021	$	i 186,271
2022	i 189,346
2023	i 192,210
2024	i 193,275
2025	i 191,848
Thereafter	i 2,092,267
Total	$	i 3,045,217

Since lease renewal periods are exercisable at the option of the lessee, the preceding table presents future minimum base rental payments to be received during the initial non-cancelable lease term only. In addition, the future minimum lease payments exclude contingent rent payments, as applicable, that may be collected from certain tenants based on provisions related to performance thresholds and exclude increases in annual rent based on future changes in the Consumer Price Index, among other items.

The fixed and variable components of lease revenues for the years ended December 31, 2020, 2019, and 2018 were as follows:

Year ended December 31,

(in thousands)

2020

2019

2018

Fixed lease revenues

i 165,171

i 134,879

i 94,770

Variable lease revenues (1)

i 1,341

i 2,282

i 1,671

Total lease revenues (2)

i 166,512

i 137,161

i 96,441

_____________________________________

(1)Includes contingent rent based on a percentage of the tenant’s gross sales and costs paid by the Company for which it is reimbursed by its tenants.

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

As Lessee

The Company has a number of ground leases, an office lease and other equipment leases which are classified as operating leases. On January 1, 2019, the Company recorded $ i i 4.8 / million of right of use ("ROU") assets and lease liabilities related to these operating leases. The Company's ROU assets were reduced by $ i 0.1 million of accrued rent expense reclassified from accrued liabilities and other payables and $ i 1.2 million of acquired above-market lease liabilities, net, reclassified from intangible lease liabilities, net and increased by $ i 0.1 million of acquired below-market lease assets, net, reclassified from intangible lease assets, net of accumulated depreciation and amortization and $ i 0.2 million of prepaid lease payments. As of December 31, 2020, the Company's ROU assets and lease liabilities were $ i 6.4 million and $ i 8.8 million, respectively. As of December 31, 2019, the Company's ROU assets and lease liabilities were $ i 4.8 million and $ i 7.5 million, respectively.

The discount rate applied to measure each ROU asset and lease liability is based on the Company's incremental borrowing rate ("IBR"). The Company considers the general economic environment and its historical borrowing activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply hindsight, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. Certain of the Company's ground leases offer renewal options which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset.

The following table sets forth information related to the measurement of the Company's lease liabilities as of the dates presented:

Weighted average remaining lease term (in years)

i 22.4

i 21.9

Weighted average discount rate

i 6.41%

i 7.00%

The Company recognizes rent expense on its ground leases as a component of property expenses and rent expense on its office lease and other equipment leases as a component of general and administrative expense on its consolidated statements of operations. At certain of these ground leased properties, the Company’s lease as lessor of the building directly obligates the building lessee to pay rents due under the ground lease to the ground lessor; under ASC 840, such ground lease rents are presented on a net basis in the Company’s consolidated statements of operations for the years ended December 31, 2018. Upon adoption of ASC 842 on January 1, 2019 (see Note 2—Summary of Significant Accounting Policies), ground lease rents are no longer presented on a net basis and instead are reflected on a gross basis in the Company’s consolidated statements of operations for the years ended December 31, 2020 and 2019.

The following table sets forth the details of rent expense for the years ended December 31, 2020, 2019 and 2018:

Year ended December 31,

(in thousands)

2020

2019

2018

Fixed rent expense - Ground Rent

i 905

i 911

i 1,010

Fixed rent expense - Office Rent

i 512

i 514

i 273

Variable rent expense

i —

Total rent expense

i 1,418

i 1,425

i 1,284

As of December 31, 2020, under ASC 842, future lease payments due from the Company under the ground, office and equipment operating leases where the Company is directly responsible for payment and the future lease payments due under the ground operating leases where the Company's tenants are directly responsible for payment over the next five years and thereafter were as follows:

(in thousands)

Office and Equipment Leases

Ground Leases
to be Paid by
the Company

Ground Leases
to be Paid
Directly by the
Company’s
Tenants

Total Future
Minimum
Base Rental
Payments

2021

i 511

i 151

i 809

i 1,471

2022

i 518

i 151

i 811

i 1,480

2023

i 525

i 131

i 485

i 1,141

2024

i 531

i 24

i 436

i 991

2025

i 538

i —

i 356

i 894

Thereafter

i —

i 14,562

Total

i 2,623

i 457

i 17,459

i 20,539

Present value discount

( i 11,703)

Lease liabilities

i 8,836

The Company has adopted the short-term lease policy election and accordingly, the table above excludes future minimum base cash rental payments by the Company or its tenants on leases that have a term of less than 12 months at lease inception. The total of such future obligations is not material.

5. i Long Term Debt

The following table summarizes the Company's outstanding indebtedness as of December 31, 2020 and 2019:

Principal Outstanding

Weighted Average Interest Rate

(in thousands)

Maturity Date

Unsecured term loans:

April 2019 Term Loan

April 2024

i 200,000

i 1.4%

i 3.0%

November 2019 Term Loan

November 2026

i 430,000

i 250,000

i 1.7%

i 3.2%

Revolving Credit Facility

April 2023

i 18,000

i 46,000

i 1.4%

i 3.1%

Secured borrowings:

Series 2017-1 Notes

June 2047

i 173,193

i 239,102

i 4.2%

Total principal outstanding

i 821,193

i 735,102

i 2.1%

i 3.5%

/ i

The following table summarizes the scheduled principal payments on the Company’s outstanding indebtedness as of December 31, 2020:

(in thousands)

April 2019 Term Loan

November 2019 Term Loan

Revolving Credit Facility

Secured Borrowings

Total

2021

i —

i 4,084

2022

i —

i 4,292

2023

i —

i 18,000

i 4,512

i 22,512

2024

i 200,000

i —

i 160,305

i 360,305

2025

i —

Thereafter

i —

i 430,000

i —

i 430,000

Total

i 200,000

i 430,000

i 18,000

i 173,193

i 821,193

The Company was not in default of any provisions under any of its outstanding indebtedness as of December 31, 2020 or 2019.

Revolving Credit Facility and April 2019 Term Loan

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

The Revolving Credit Facility has a term of i four years from April 12, 2019, with an extension option of up to i one year exercisable by the Operating Partnership, subject to certain conditions, and the April 2019 Term Loan has a term of i five years from the effective date of the amended agreement. The loans under each of the Revolving Credit Facility and the April 2019 Term Loan initially bear interest at an annual rate of applicable LIBOR plus the applicable margin (which applicable margin varies between the Revolving Credit Facility and the April 2019 Term Loan).

The applicable LIBOR is the rate with a term equivalent to the interest period applicable to the relevant borrowing. The applicable margin initially is a spread set according to a leverage-based pricing grid. At the Operating Partnership’s election, on and after receipt of an investment grade corporate credit rating from Standard & Poor’s (“S&P”) or Moody’s Investors Services, Inc. (“Moody’s”), the applicable margin will be a spread set according to the Company’s corporate credit ratings provided by S&P and/or Moody’s. The Revolving Credit Facility and the April 2019 Term Loan are freely pre-payable at any time and the Revolving Credit Facility is mandatorily payable if borrowings exceed the borrowing base or the facility limit. The Operating Partnership may re-borrow amounts paid down on the Revolving Credit Facility but not on the April 2019 Term Loan.

The Operating Partnership is required to pay revolving credit fees throughout the term of the Revolving Credit Agreement based upon its usage of the Revolving Credit Facility, at a rate which depends on its usage of such facility during the period before the Company receives an investment grade corporate credit rating from S&P or Moody’s, and which rate shall be based on the corporate credit rating from S&P and/or Moody’s after the time, if applicable, the Company receives such a rating. The Operating Partnership was required to pay a ticking fee on the April 2019 Term Loan for the period from April 12, 2019 through May 14, 2019, the date the term loan was fully drawn. The Amended Credit Agreement has an accordion feature to increase, subject to certain conditions, the maximum availability of credit (either through increased revolving commitments or additional term loans) by up to $ i 200 million.

Additionally, on November 22, 2019, the Company further amended the Amended Credit Agreement to update certain terms to be consistent with those as described under, and to acknowledge, where applicable, the November 2019 Term Loan (as defined below) and to make certain other changes to the Amended Credit Agreement consistent with market practice on future replacement of the LIBOR rate and qualified financial contracts.

The Operating Partnership is the borrower under the Amended Credit Agreement, and the Company and each of its subsidiaries that owns a direct or indirect interest in an eligible real property asset are guarantors under the Amended Credit Agreement.

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

The Amended Credit Agreement restricts the Company’s ability to pay distributions to its stockholders under certain circumstances. However, the Company may make distributions to the extent necessary to maintain its qualification as a REIT under the Internal Revenue Code of 1986, as amended. The Amended Credit Agreement contains certain additional covenants that, subject to exceptions, limit or restrict the Company’s incurrence of indebtedness and liens, disposition of assets, transactions with affiliates, mergers and fundamental changes, modification of organizational documents, changes to fiscal periods, making of investments, negative pledge clauses and lines of business and REIT qualification.

In May 2019, the Company borrowed the entire $ i 200.0 million available under the April 2019 Term Loan and used the proceeds to repurchase, in part, notes previously issued under its Master Trust Funding Program. The Company borrowed the entire $ i 430.0 million available under the November 2019 Term Loan in separate draws in December 2019 and March 2020 and used the proceeds to voluntarily prepay notes previously issued under its Master Trust Funding Program at par, to repay amounts outstanding under the Revolving Credit Facility and for general working capital purposes.

The Company was in compliance with all financial covenants and was not in default of any other provisions under the Amended Credit Facility as of December 31, 2020 and 2019.

The following table presents information about the Revolving Credit Facility and the 2018 Credit Facility in effect for the years ended December 31, 2020, 2019 and 2018:

(in thousands)

2020

2019

2018

Balance on Balance on January 1,

i 46,000

i 34,000

i —

Borrowings

i 87,000

i 459,000

i 34,000

Repayments

( i 115,000)

( i 447,000)

i —

Balance on December 31,

i 18,000

i 46,000

i 34,000

The following table presents information about interest expense related to the Revolving Credit Facility and the 2018 Credit Facility:

Year ended December 31,

(in thousands)

2020

2019

2018

Interest expense

i 1,367

i 3,416

i 442

Amortization of deferred financing costs

i 1,165

i 1,094

i 494

Total

i 2,532

i 4,510

i 936

Total deferred financing costs, net, of $ i 2.5 million and $ i 3.5 million related to the Revolving Credit Facility were included within rent receivables, prepaid expenses and other assets, net on the Company’s consolidated balance sheets as of December 31, 2020 and 2019, respectively.

As of December 31, 2020 and 2019, the Company had $ i 382.0 million and $ i 354.0 million, respectively, of unused borrowing capacity related to the Revolving Credit Facility.

November 2019 Term Loan

On November 26, 2019, the Company, through the Operating Partnership, entered into a new $ i 430 million term loan credit facility (the “November 2019 Term Loan”) with a group of lenders. The November 2019 Term Loan provides for term loans to be drawn up to an aggregate amount of $ i 430 million with a maturity of November 26, 2026.

The November 2019 Term Loan is pre-payable at any time by the Operating Partnership (as borrower), provided, that if the loans under the November 2019 Term Loan are repaid on or before November 26, 2020, they are subject to a two percent prepayment premium, and if repaid thereafter but on or before November 26, 2021, they are subject to a one percent prepayment premium. After November 26, 2021, the loans may be repaid without penalty. The Operating Partnership may not re-borrow amounts paid down on the November 2019 Term Loan. The Operating Partnership was required to pay a ticking fee on any undrawn portion of the November 2019 Term Loan for the period from November 26, 2019 through March 26, 2020, the date that the November 2019 Term Loan was fully drawn. The November 2019 Term Loan has an accordion feature to increase, subject to certain conditions, the maximum availability of the facility up to an aggregate of $ i 500 million.

The Operating Partnership is the borrower under the November 2019 Term Loan, and the Company and each of its subsidiaries that owns a direct or indirect interest in an eligible real property asset are guarantors under the facility. Under the terms of the November 2019 Term Loan, the Company is subject to various restrictive financial and nonfinancial covenants which, among other things, require the Company to maintain certain leverage ratios, cash flow and debt service coverage ratios, secured borrowing ratios and a minimum level of tangible net worth.

Additionally, the November 2019 Term Loan restricts the Company’s ability to pay distributions to its stockholders under certain circumstances. However, the Company may make distributions to the extent necessary to maintain its qualification as a REIT under the Internal Revenue Code of 1986, as amended. The facility contains certain covenants that, subject to exceptions, limit or restrict the Company’s incurrence of indebtedness and liens, disposition of assets, transactions with affiliates, mergers and fundamental changes, modification of organizational documents, changes to fiscal periods, making of investments, negative pledge clauses and lines of business and REIT qualification.

The Company was in compliance with all financial covenants and was not in default of any other provisions under the November 2019 Term Loan as of December 31, 2020 and 2019.

The following table presents information about aggregate interest expense related to the April 2019 and November 2019 Term Loan Facilities:

Year ended December 31,

(in thousands)

2020

2019

Interest expense

i 11,685

i 4,868

Amortization of deferred financing costs

i 711

i 187

Total

i 12,396

i 5,055

Total deferred financing costs, net, of $ i 3.7 million and $ i 4.4 million as of December 31, 2020 and 2019, respectively, related to the Term Loan Facilities are included as a component of unsecured term loans, net of deferred financing costs on the Company’s consolidated balance sheets.

The Company fixed the interest rates on its term loan facilities’ variable-rate debt through the use of interest rate swap agreements. See Note 6—Derivative and Hedging Activities for additional information.

Secured Borrowings

In the normal course of business, the Company transfers financial assets in various transactions with Special Purpose Entities (“SPE”) determined to be VIEs, which primarily consist of securitization trusts established for a limited purpose (the “Master Trust Funding Program”). These SPEs are formed for the purpose of securitization transactions in which the Company transfers assets to an SPE, which then issues to investors various forms of debt obligations supported by those assets. In these securitization transactions, the Company typically receives cash from the SPE as proceeds for the transferred assets and retains the rights and obligations to service the transferred assets in accordance with servicing guidelines. All debt obligations issued from the SPEs are non-recourse to the Company.

In accordance with the accounting guidance for asset transfers, the Company considers any ongoing involvement with transferred assets in determining whether the assets can be derecognized from the balance sheets. For transactions that do not meet the requirements for derecognition and remain on the consolidated balance sheets, the transferred assets may not be pledged or exchanged by the Company.

The Company evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Company is the primary beneficiary and, therefore, should consolidate the entity based on the variable interests it held both at inception and when there was a change in circumstances that required a reconsideration. The Company has determined that the SPEs created in connection with its Master Trust Funding Program should be consolidated as the Company is the primary beneficiary of each of these entities. Tenant rentals received on assets transferred to SPEs under the Master Trust Funding Program are sent to the trustee and used to pay monthly principal and interest payments.

Series 2016-1 Notes

In December 2016, the Company issued its first series of notes under the Master Trust Funding Program, consisting of $ i 263.5 million of Class A Notes and $ i 17.3 million of Class B Notes (together, the “Series 2016-1 Notes”). These notes were issued to an affiliate of Eldridge Industries, LLC (“Eldridge”) through underwriting agents. The Series 2016-1 Notes were issued by i two SPEs formed to hold assets and issue the secured borrowings associated with the securitization.

The Series 2016-1 Notes were scheduled to mature in November 2046, but the terms of the Class A Notes required principal to be paid monthly through November 2021, with a balloon repayment at that time, and the terms of the Class B Notes required no monthly principal payments but required the full principal balance to be paid in November 2021.

In May 2019, the Company repurchased a portion of its Class A Series 2016-1 Notes with a face value of $ i 200 million for $ i 201.4 million from an affiliate of Eldridge. On November 12, 2019, the Company cancelled all $ i 200 million of these repurchased Class A Series 2016-1 Notes.

In November 2019, the Company prepaid all $ i 70.4 million of the then outstanding Series 2016-1 Notes (consisting of the remaining $ i 53.2 million Class A Series 2016-1 Notes and $ i 17.2 million Class B Series 2016-1 Notes) at par plus accrued interest pursuant to the terms of the agreements related to such securities.

Series 2017-1 Notes

In July 2017, the Company issued its second series of notes under the Master Trust Funding Program, consisting of $ i 232.4 million of Class A Notes and $ i 15.7 million of Class B Notes (together, the “Series 2017-1 Notes”). The Series 2017-1 Notes were issued by i three SPEs formed to hold assets and issue the secured borrowings associated with the securitization.

The Series 2017-1 Notes mature in June 2047 and have a weighted average interest rate of i 4.19% as of December 31, 2020. If the notes are not repaid in full on or before such anticipated repayment date, additional interest will begin to accrue on the notes. The anticipated repayment date for the Series 2017-1 Notes is June 2024.

The Series 2017-1 Notes may be voluntarily prepaid, in whole or in part, beginning in November 2021 without the payment of a make whole amount. Voluntary prepayments may be made before i 31 months prior to the anticipated repayment date.

In February 2020, the Company voluntarily prepaid $ i 62.3 million of the Class A Series 2017-1 Notes at par plus accrued interest pursuant to the terms of the agreements related to such securities. The Company was not subject to the payment of a make whole amount in connection with this prepayment. The Company accounted for this prepayment as a debt extinguishment.

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

Year ended December 31,

(in thousands)

2020

2019

2018

Interest expense

i 7,619

i 16,328

i 22,574

Amortization of deferred financing costs

i 656

i 1,538

i 2,304

Total

i 8,275

i 17,866

i 24,878

Total deferred financing costs, net, of $ i 2.2 million and $ i 3.8 million related to the Master Trust Funding Program were included within secured borrowings, net of deferred financing costs on the Company’s consolidated balance sheets as of December 31, 2020 and 2019, respectively.

The Company recorded a $ i 0.9 million loss on repurchase and repayment of secured borrowings related to the amortization of deferred financing costs on the $ i 62.3 million voluntary prepayment of the Class A Series 2017-1 Notes during the year ended December 31, 2020. The Company recorded a $ i 5.2 million loss on the repurchase of a portion of the Class A Series 2016-1 during the year end December 31, 2019, which includes the write-off of unamortized deferred financing charges and the amount paid above par to repurchase these notes.

Notes Payable to Related Parties

Until the completion of the IPO, the Company had a secured warehouse line of credit with an affiliate of Eldridge through which it issued short-term notes (the “Warehouse Notes”) and used the proceeds to acquire investments in real estate. During the year ended December 31, 2018, the Company issued i 20 Warehouse Notes for a combined $ i 154.0 million. On January 31, 2018, the Company made principal payments on the Warehouse Notes of $ i 50.0 million, repaying i three of the Warehouse Notes in full and one of the Warehouse Notes in part, prior to maturity. On June 25, 2018, the Company used a portion of the net proceeds from the IPO and the Concurrent Private Placement (as defined in Note 7—Equity below) to repay all i 36 of the then outstanding Warehouse Notes, with an aggregate outstanding principal amount of $ i 334.0 million, in full, prior to maturity, and had i i i no / / amounts outstanding related to the Warehouse Notes as of December 31, 2020, 2019 and 2018.

The following table presents the activity related to the Company’s notes payable to related parties for the year ended December 31, 2018:

(in thousands)

Warehouse
Notes

Outstanding, January 1, 2018

i 230,000

Borrowings

i 154,000

Repayments

( i 384,000)

Outstanding, December 31, 2018

i —

During the year ended December 31, 2018, the Company incurred $ i 4.6 million of interest expense related to these notes payable to related parties. No interest expense from notes payable related parties was incurred during the years ended December 31, 2020 and 2019.

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6. i Derivative and Hedging Activities

The Company does not enter into derivative financial instruments for speculative or trading purposes. The Company's objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish these objectives, the Company uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

These derivatives are considered cash flow hedges and are recorded on a gross basis at fair value. Subsequent to the adoption of ASU 2017-12, assessments of hedge effectiveness are performed quarterly using either a qualitative or quantitative approach. The Company recognizes the entire change in the fair value in accumulated other comprehensive income (loss) and the change is reflected as derivative changes in fair value in the supplemental disclosures of non-cash financing activities in the consolidated statements of cash flows. The amounts recorded in accumulated other comprehensive income (loss) will subsequently be reclassified to interest expense as interest payments are made on the Company's borrowings under its variable-rate term loan facilities. During the next twelve months, the Company estimates that $ i 9.8 million will be reclassified from accumulated other comprehensive loss as an increase to interest expense. The Company does not have netting arrangements related to its derivatives.

The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings and with major financial institutions with which the Company and its affiliates may also have other financial relationships. The Company does not anticipate that any of the counterparties will fail to meet their obligations. As of December 31, 2020 and 2019, there were no events of default related to the interest rate swaps.

The following table summarizes the notional amount at inception and fair value of these instruments on the Company's balance sheet as of December 31, 2020 and 2019 (dollar amounts in thousands):

Fair Value of Asset/(Liability)

Derivatives

Designated as

Hedging Instruments (1)

Fixed Rate Paid by
Company

Effective Date

Maturity Date

Notional Value (2)

December 31, 2020 (3)

December 31,

2019 (3)(4)

Interest Rate Swap

i 2.06%

5/14/2019

4/12/2024

i 100,000

( i 6,176)

( i 1,996)

Interest Rate Swap

i 2.06%

5/14/2019

4/12/2024

i 50,000

( i 3,089)

( i 999)

Interest Rate Swap

i 2.07%

5/14/2019

4/12/2024

i 50,000

( i 3,094)

( i 1,005)

Interest Rate Swap

i 1.61%

12/9/2019

11/26/2026

i 175,000

( i 11,838)

i 758

Interest Rate Swap

i 1.61%

12/9/2019

11/26/2026

i 50,000

( i 3,396)

i 210

Interest Rate Swap

i 1.60%

12/9/2019

11/26/2026

i 25,000

( i 1,675)

i 127

Interest Rate Swap

i 1.36%

7/9/2020

11/26/2026

i 100,000

( i 5,353)

i —

Interest Rate Swap

i 1.36%

7/9/2020

11/26/2026

i 80,000

( i 4,291)

i —

i 630,000

( i 38,912)

( i 2,905)

_____________________________________

(1)All interest rate swaps have a 1 month LIBOR variable rate paid by the bank.

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

(3)Derivatives in a liability position are included within derivative liabilities in the Company’s consolidated balance sheets totaling to $ i 38.9 million and $ i 4.0 million at December 31, 2020 and December 31, 2019, respectively.

(4)Derivatives in a net asset position are included within rent receivables, prepaid expenses and other assets, net in the Company’s consolidated balance sheets totaling to $ i 1.1 million at December 31, 2019.

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

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


	Year ended December 31,
(in thousands)	2020		2019
Accumulated other comprehensive loss	$	( i 35,445)	$	( i 2,905)

As of December 31, 2020, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ i 38.9 million. As of December 31, 2019, the fair value of derivatives in a net liability position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ i 4.1 million. As of December 31, 2020, there were i no derivatives in a net asset position. As of December 31, 2019, the fair value of derivatives in a net asset position including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $ i 1.0 million.

During the year ended December 31, 2020 and 2019, the Company recorded a loss on the change in fair value of its interest rate swaps of $ i 6.7 million and $ i 0.1 million, respectively, which included in interest expense in the Company's consolidated statements of operations.

As of December 31, 2020 and December 31, 2019, the Company had not posted any collateral related to these agreements and was not in breach of any provisions of such agreements. If the Company had breached any of these provisions, it could have been required to settle its obligations under the agreements at their aggregate termination value of $ i 40.2 million and $ i 3.1 million as of December 31, 2020 and December 31, 2019, respectively.

7. i Equity

Stockholders' Equity

On June 25, 2018, the Company completed its IPO and issued i 32,500,000 shares of its common stock at an initial public offering price of $ i 14.00 per share, pursuant to a registration statement on Form S-11 (File No. 333-225215), filed with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).

Prior to the completion of the IPO, a number of formation transactions (the “Formation Transactions”) took place that were designed to facilitate the completion of the IPO. Among other things, on June 20, 2018, Essential Properties Realty Trust LLC (“EPRT LLC”) converted from a Delaware limited liability company into a Delaware limited partnership, changed its name to Essential Properties, L.P. and became the subsidiary through which the Company holds substantially all of its assets and conducts its operations. Prior to the completion of the Formation Transactions, EPRT LLC was a wholly owned subsidiary of EPRT Holdings LLC (“EPRT Holdings” and, together with EPRT LLC, the “Predecessor”), and EPRT Holdings received i 17,913,592 units of limited partnership interest in the Operating Partnership (“OP Units”) in connection with EPRT LLC’s conversion into a Delaware limited partnership. Essential Properties OP G.P., LLC, a wholly owned subsidiary of the Company, became the sole general partner of the Operating Partnership. The Formation Transactions were accounted for as a reorganization of entities under common control in the consolidated financial statements and the assets and liabilities of the Predecessor were recorded by the Company at their historical carrying amounts.

Concurrently with the completion of the IPO, the Company received an additional $ i 125.0 million investment from an affiliate of Eldridge Industries, LLC (“Eldridge”) in private placements (the “Concurrent Private Placement”) of i 7,785,611 shares of its common stock and i 1,142,960 OP Units at a price per share/unit of $ i 14.00. The issuance and sale of the shares and OP Units in the Concurrent Private Placement were made pursuant to private placement purchase agreements and there were i no underwriting discounts or commissions associated with the sales.

As part of the IPO, the underwriters of the IPO were granted an option to purchase up to an additional i 4,875,000 shares of the Company’s common stock at the IPO price of $ i 14.00 per share, less underwriting discounts and commissions. On July 20, 2018, the underwriters of the IPO exercised this option in part, and on July 24, 2018, the Company issued an additional i 2,772,191 shares of common stock. The net proceeds to the Company from the IPO (including the purchase of additional shares pursuant to the underwriters’ option) and the Concurrent Private Placement, after deducting underwriting discounts and commissions and other expenses, were $ i 583.7 million.

102

On June 25, 2018, the Company issued i 691,290 shares of restricted common stock to certain of its directors, executive officers and other employees under the Equity Incentive Plan. See Note 9—Equity Based Compensation for additional information.

On March 18, 2019, the Company completed a follow-on offering of i 14,030,000 shares of its common stock, including i 1,830,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $ i 17.50 per share, pursuant to a registration statement on Form S-11 (File Nos. 333-230188 and 333-230252) filed with the SEC under the Securities Act of 1933, as amended (the “Securities Act”). Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ i 234.6 million.

On July 22, 2019, EPRT Holdings and Security Benefit Life Insurance Company (together, the “Selling Stockholders”), affiliates of Eldridge, completed a secondary public offering (the “Secondary Offering”) of i 26,288,316 shares of the Company’s common stock, including i 3,428,910 shares of common stock purchased by underwriters pursuant to an option to purchase additional shares. Prior to completion of the Secondary Offering, the Selling Stockholders exchanged i 18,502,705 OP Units of the Operating Partnership for a like number of shares of the Company’s common stock. The Company did not receive any proceeds from this transaction.

On January 14, 2020, the Company completed a follow-on offering of i 7,935,000 shares its common stock, including i 1,035,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $ i 25.20 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ i 191.5 million.

On September 22, 2020, the Company completed a follow-on offering of i 10,120,000 shares its common stock, including i 1,320,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $ i 19.00 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $ i 184.1 million.

At the Market Program

In June 2020, the Company established a new at the market common equity offering program, pursuant to which it can publicly offer and sell, from time to time, shares of its common stock with an aggregate gross sales price of up to $ i 250 million (the “2020 ATM Program”). In connection with establishing the 2020 ATM Program, the Company terminated its prior at the market program, which it established in August 2019 (the “2019 ATM Program”). and no additional stock can be issued thereunder. Pursuant to the 2019 ATM Program, the Company could publicly offer and sell shares of its common stock with an aggregate gross sales price of up to $ i 200 million and, prior to its termination, the Company issued common stock with an aggregate gross sales price of $ i 184.4 million thereunder. As of December 31, 2020, the Company issued common stock with an aggregate gross sales price of $ i 79.3 million under the 2020 ATM Program and could issue additional common stock with an aggregate gross sales price of up to $ i 170.7 million under the 2020 ATM Program. As the context requires, the 2020 ATM Program and the 2019 ATM Program are referred to herein as the “ATM Program."

103

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

Year ended December 31,

(in thousands, except share and per share data)

2020

2019

Shares of common stock sold

i 4,499,057

i 7,432,986

Weighted average sale price per share

i 19.02

i 23.97

Gross proceeds

i 85,559

i 178,161

Net proceeds

i 84,104

i 175,147

Dividends on Common Stock

During the years ended December 31, 2020 and 2019 and the period from June 25, 2018 to December 31, 2018, the Company's board of directors declared the following quarterly cash dividends on common stock:

Date Declared

Record Date

Date Paid

Dividend per Share of
Common Stock

Total Dividend (dollars in thousands)

December 3, 2020

January 15, 2021

i 0.24

i 25,570

September 4, 2020

September 30, 2020

October 15, 2020

i 0.23

i 24,115

June 11, 2020

June 30, 2020

July 15, 2020

i 0.23

i 21,419

March 18, 2020

March 31, 2020

April 15, 2020

i 0.23

i 21,168

December 6, 2019

January 15, 2020

i 0.23

i 19,268

September 6, 2019

September 30, 2019

October 15, 2019

i 0.22

i 17,531

June 5, 2019

June 28, 2019

July 15, 2019

i 0.22

i 12,725

March 7, 2019

March 29, 2019

April 16, 2019

i 0.21

i 12,143

December 7, 2018

December 31, 2018

January 14, 2019

i 0.21

i 9,187

August 29, 2018

September 28, 2018

October 12, 2018

i 0.224

i 9,800

The Company has determined that, during the years ended December 31, 2020 and 2019 and the period from June 25, 2018 to December 31, 2018, approximately i 59.0%, i 58.8%, and i 58.9%, respectively, of the distributions it paid represented taxable income and i 41.0%, i 41.2% and i 41.1%, respectively, of the distributions it paid represented return of capital for federal income tax purposes.

Members' Equity

EPRT LLC was initially capitalized in 2017 by SCF Funding LLC, Stonebriar Holdings LLC and certain members of EPRT LLC's management and board of managers through direct and indirect capital contributions.

On December 31, 2017, EPRT LLC reorganized (the "EPRT LLC Reorganization") and the holders of interests in EPRT LLC contributed all of their interests in EPRT Holdings, in exchange for interests in EPRT Holdings with the same rights as the interests they held in EPRT LLC. As of such date, EPRT LLC became a wholly owned subsidiary of EPRT Holdings.

On January 31, 2018, Stonebriar Holdings LLC made a $ i 50.0 million direct equity contribution to EPRT Holdings. EPRT Holdings used these proceeds to repay $ i 50.0 million of outstanding principal on the Warehouse Notes.

8. i Non-controlling Interests

Essential Properties OP G.P., LLC, a wholly owned subsidiary of the Company, is the sole general partner of the Operating Partnership and holds a i 1.0% general partner interest in the Operating Partnership. The Company contributes the net proceeds from issuing shares of common stock to the Operating Partnership in exchange for a number of OP Units equal to the number of shares of common stock issued.

Prior to completion of the Secondary Offering, the Selling Stockholders exchanged i 18,502,705 OP Units of the Operating Partnership for a like number of shares of the Company's common stock. Concurrently, EPRT Holdings, one of the Selling Stockholders, distributed the remaining i 553,847 OP Units it held to former members of EPRT Holdings (the "Non-controlling OP Unit Holders"). The Selling Stockholders thereafter sold all of the shares of

104

common stock that they owned through the Secondary Offering and accordingly no longer owned shares of the Company's common stock or held OP Units following the completion of the Secondary Offering.

As of December 31, 2020, the Company held i 106,361,524 OP Units, representing a i 99.5% limited partner interest in the Operating Partnership. As of the same date, the Non-controlling OP Unit Holders held i 553,847 OP Units in the aggregate, representing a i 0.5% limited partner interest in the Operating Partnership. As of December 31, 2019, the Company held i 83,761,151 OP Units, representing a i 98.3% limited partner interest in the Operating Partnership. As of the same date, the Non-controlling OP Unit Holders held i 553,847 OP Units in the aggregate, representing a i 0.7% limited partner interest in the Operating Partnership. The OP Units held by EPRT Holdings and Eldridge prior to the completion of the Secondary Offering and the OP Units held by the Non-controlling OP Unit Holders are presented as non-controlling interests in the Company's consolidated financial statements.

A holder of OP Units has the right to distributions per unit equal to dividends per share paid on the Company's common stock and has the right to redeem OP Units for cash or, at the Company's election, shares of the Company's common stock on a i one-for-one basis, provided, however, that such OP Units must have been outstanding for at least i one year. Distributions to OP Unit holders are declared and paid concurrently with the Company's cash dividends to common stockholders. See Note 7—Equity for details.

9. i Equity Based Compensation

Equity Incentive Plan

In 2018, the Company adopted an equity incentive plan (the “Equity Incentive Plan”), which provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, other stock awards, performance awards and LTIP units. Officers, employees, non-employee directors, consultants, independent contractors and agents who provide services to the Company or to any subsidiary of the Company are eligible to receive such awards. A maximum of i 3,550,000 shares may be issued under the Equity Incentive Plan, subject to certain conditions.

The following table presents information about the Company's restricted stock awards ("RSAs"), restricted stock units ("RSUs"), Class B Units and Class D Units during the years ended December 31, 2020, 2019 and 2018:

Restricted Stock Awards

Restricted Stock Units

Class B Units

Class D Units

Wtd. Avg. Grant Date Fair Value

Units

Wtd. Avg. Grant Date Fair Value

Unvested, January 1, 2018

i —

i 6,940

i 2,400

Granted

i 691,290

i 13.68

i —

Vested

i —

( i 1,710)

( i 600)

Forfeited

i —

Unvested, December 31, 2018

i 691,290

i 13.68

i —

i 5,230

i 1,800

Unvested, January 1, 2019

i 691,290

i 13.68

i —

i 5,230

i 1,800

Granted

i 46,368

i 14.12

i 100,814

i 22.80

i —

Vested

( i 244,957)

i 13.69

i —

( i 5,230)

( i 1,800)

Forfeited

i —

Unvested, December 31, 2019

i 492,701

i 13.72

i 100,814

i 22.80

i —

Unvested, January 1, 2020

i 492,701

i 13.72

i 100,814

i 22.80

i —

Granted

i 3,658

i 15.68

i 269,017

i 24.99

i —

Vested

( i 255,761)

i 13.73

( i 42,658)

i 21.00

i —

Forfeited

i —

( i 5,571)

i —

Unvested, December 31, 2020

i 240,598

i 13.73

i 321,602

i 25.27

i —

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Restricted Stock Awards

On June 25, 2018, an aggregate of i 691,290 shares of unvested restricted common stock awards ("RSAs") were issued to the Company's directors, executive officers and other employees under the Equity Incentive Plan. These RSAs vest over periods ranging from i one year to i three years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates.

In January 2019, an aggregate of i 46,368 shares of unvested RSAs were issued to the Company's executive officers, other employees and an external consultant under the Equity Incentive Plan. These RSAs vest over periods ranging from i one year to i four years from the date of grant, subject to the individual recipient's continued provision of service to the Company through the applicable vesting dates. In June 2020, an additional i 3,658 RSAs were issued to certain members of the Company's board of directors which vested immediately upon grant. The Company estimates the grant date fair value of RSAs granted under the Equity Incentive Plan using the average market price of the Company's common stock on the date of grant.

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

Year ended December 31,

(in thousands)

2020

2019

2018

Compensation cost recognized in general and administrative expense

i 3,405

i 3,394

i 1,692

Dividends declared on unvested RSAs and charged directly to distributions in excess of cumulative earnings

i 279

i 486

i 300

Fair value of shares vested during the period

i 3,512

i 3,354

i —

/ i

The following table presents information about the Company's RSAs as of the dates presented:

December 31,

(Dollars in thousands)

2020

2019

Total unrecognized compensation cost

i 1,678

i 5,026

Weighted average period over which compensation cost will be recognized (in years)

i 0.7

i 1.6

Restricted Stock Units

In January 2019 and 2020, the Company issued target grants of i 119,085 and i 84,684 performance-based RSUs, respectively, to the Company's executive officers under the Equity Incentive Plan. Of these awards, i 75% are non-vested RSUs for which vesting percentages and the ultimate number of units vesting will be calculated based on the total shareholder return ("TSR") of the Company's common stock as compared to the TSR of peer companies identified in the grant agreements. The payout schedule can produce vesting percentages ranging from i 0% to i 250%. TSR will be calculated based upon the average closing price for the 20-trading day period ending December 31, 2021 (for the 2019 grants) or December 31, 2022 (for the 2020 grants), divided by the average closing price for the i 20-trading day period ended January 1, 2019 (for the 2019 grants) or January 1, 2020 (for the 2020 grants). The target number of units is based on achieving a TSR equal to the i 50th percentile of the peer group. The Company recorded expense on these TSR RSUs based on achieving the target.

The grant date fair value of the TSR RSUs was measured using a Monte Carlo simulation model based on the following assumptions:


	January
	2020		2019
Volatility	i 20	%	i 18	%
Risk free rate	i 1.61	%	i 2.57	%

The remaining i 25% of these performance-based RSUs vest based on the Compensation Committee's subjective evaluation of the individual recipient's achievement of certain strategic objectives. In May 2020, the Compensation Committee evaluated and subjectively awarded i 7,596 of these RSUs to a former executive officer of the Company, which vested immediately. During the year ended December 31, 2020, the Company recorded $ i 0.1 million of compensation expense related to the subjective RSUs awarded to this former executive. As of December 31, 2020, the Compensation Committee had not identified specific performance targets relating to the

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individual recipients' achievement of strategic objectives for the remainder of the subjective awards. As such, these awards do not have either a service inception or a grant date for GAAP accounting purposes and the Company recorded i i no / compensation cost with respect to this portion of the performance-based RSUs during the years ended December 31, 2020 and 2019.

In June 2019 and 2020, the Company issued i 11,500 and i 26,817 RSUs, respectively, to the Company's independent directors. These awards vest in full on the earlier of i one year from the grant date or the first annual meeting of stockholders that occurs after the grant date, subject to the individual recipient's continued provision of service to the Company through the applicable vesting date. The Company estimated the grant date fair value of these RSUs using the average market price of the Company's common stock on the date of grant.

Additionally, during the year ended December 31, 2020, the Company issued an aggregate i 157,943 RSUs to the Company’s executive officers, other employees and directors under the Equity Incentive Plan. These awards vest over a period of up to i four years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the applicable vesting dates.

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

Year ended December 31,

(in thousands)

2020

2019

Compensation cost recognized in general and administrative expense

i 2,672

i 714

Dividend equivalents declared and charged directly to distributions in excess of cumulative earnings

i 125

i 8

Fair value of units vested during the period

i 896

i —

The following table presents information about the Company's RSUs as of the date presented:

December 31,

(Dollars in thousands)

2020

2019

Total unrecognized compensation cost

i 5,261

i 1,584

Weighted average period over which compensation cost will be recognized (in years)

i 2.4

Unit-Based Compensation

In 2017, the Company's predecessor approved and issued unvested Class B and Class D units equity interests to members of EPRT Management, the predecessor's board of managers and external unitholders. Following the completion of the Formation Transactions, the Class B and Class D unit holders continued to hold vested and unvested interests in EPRT Holdings and, indirectly, the OP Units held by EPRT Holdings.

On July 22, 2019, in conjunction with the completion of the Secondary Offering, i 3,520 previously unvested Class B units and i 1,200 previously unvested Class D units in EPRT Holdings automatically vested in accordance with the terms of the grant agreements, which represented all of the remaining outstanding unvested Class B and Class D units. Due to this accelerated vesting, the Company recorded all remaining unrecognized compensation cost on the Class B and Class D units to general and administrative expenses in its consolidated statements of operations during the year ended December 31, 2019.

The following table presents information about the Class B and Class D units for the periods presented:

Year ended December 31,

(in thousands)

2020

2019

2018

Compensation cost recognized in general and administrative expense

i —

i 2,162

i 747

Fair value of units vested during the period

i —

i 2,283

i 718

10. i Net Income Per Share

The Company computes net income per share pursuant to the guidance in the FASB ASC Topic 260, Earnings Per Share. The guidance requires the classification of the Company’s unvested restricted

107

common stock and units, which contain rights to receive non-forfeitable dividends or dividend equivalents, as participating securities requiring the two-class method of computing net income per share. Diluted net income per share of common stock further considers the effect of potentially dilutive shares of common stock outstanding during the period, including the assumed vesting of restricted share units with a market-based or service-based vesting condition, where dilutive. The OP Units held by non-controlling interests represent potentially dilutive securities as the OP Units may be redeemed for cash or, at the Company’s election, exchanged for shares of the Company’s common stock on a one-for-one basis.

The following is a reconciliation of the numerator and denominator used in the computation of basic and diluted net income per share (dollars in thousands):

Year ended December 31,

Period from
June 25, 2018 to
December 31, 2018

(dollar amounts in thousands)

2020

2019

Numerator for basic and diluted earnings per share:

Net income

i 42,528

i 48,025

i 16,329

Less: net income attributable to non-controlling interests

( i 255)

( i 6,181)

( i 5,001)

Less: net income allocated to unvested restricted common stock and RSUs

( i 404)

( i 493)

( i 300)

Net income available for common stockholders: basic

i 41,869

i 41,351

i 11,028

Net income attributable to non-controlling interests

i 255

i 6,181

i 5,001

Net income available for common stockholders: diluted

i 42,124

i 47,532

i 16,029

Denominator for basic and diluted earnings per share:

Weighted average common shares outstanding

i 95,664,071

i 64,714,087

i 43,325,968

Less: weighted average number of shares of unvested restricted common stock

( i 353,036)

( i 610,029)

( i 691,290)

Weighted average shares outstanding used in basic net income per share

i 95,311,035

i 64,104,058

i 42,634,678

Effects of dilutive securities: (1)

OP Units

i 553,847

i 10,793,700

i 19,056,552

Unvested restricted common stock and RSUs

i 332,823

i 412,138

i 74,727

Weighted average shares outstanding used in diluted net income per share

i 96,197,705

i 75,309,896

i 61,765,957

_____________________________________

(1)For the year ended December 31, 2020, excludes the impact of i 124,295 unvested restricted stock units as the effect would have been antidilutive.

11. i Commitments and Contingencies

As of December 31, 2020, the Company had remaining future commitments, under mortgage notes, reimbursement obligations or similar arrangements, to fund $ i 16.3 million to its tenants for development, construction and renovation costs related to properties leased from the Company.

Litigation and Regulatory Matters

In the ordinary course of business, the Company may become subject to litigation, claims and regulatory matters. There are no material legal or regulatory proceedings pending or known to be contemplated against the Company or its properties.

Environmental Matters

In connection with the ownership of real estate, the Company may be liable for costs and damages related to environmental matters. As of December 31, 2020, the Company had not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition that it believes will have a material adverse effect on the Company's business, financial condition, results of operations or liquidity.

108

Defined Contribution Retirement Plan

The Company has a defined contribution retirement savings plan qualified under Section 401(a) of the Code (the "401(k) Plan"). The 401(k) Plan is available to all of the Company's full-time employees. The Company provides a matching contribution in cash equal to i 100% of the first i 5% of eligible compensation contributed by participants which vests immediately. During the years ended December 31, 2020, 2019 and 2018, the Company made matching contributions of $ i 0.2 million, $ i 0.2 million and $ i 0.1 million, respectively.

Employment Agreements

The Company has employment agreements with its executive officers. These employment agreements have an initial term of i four years, with automatic i one-year extensions unless notice of non-renewal is provided by either party. These agreements provide for initial annual base salaries and an annual performance bonus. If an executive officer's employment terminates under certain circumstances, the Company would be liable for any annual performance bonus awarded for the year prior to termination, to the extent unpaid, continued payments equal to i 12 months of base salary, monthly reimbursement for i 12 months of COBRA premiums, and under certain situations, a pro rata bonus for the year of termination.

12. i Fair Value Measurements

GAAP establishes a hierarchy of valuation techniques based on the observability of inputs used in measuring financial instruments at fair value. GAAP establishes market-based or observable inputs as the preferred source of values, followed by valuation models using management assumptions in the absence of market inputs.

The determination of where an asset or liability falls in the hierarchy requires significant judgment and considers factors specific to the asset or liability. In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company evaluates its hierarchy disclosures regularly and, depending on various factors, it is possible that an asset or liability may be classified differently from period to period. However, the Company expects that changes in classifications between levels will be rare.

In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not presented at their fair value on the consolidated balance sheet. The fair values of financial instruments are estimates based upon market conditions and perceived risks at December 31, 2020 and 2019. These estimates require management's judgment and may not be indicative of the future fair values of the assets and liabilities.

Financial assets and liabilities for which the carrying values approximate their fair values include cash and cash equivalents, restricted cash, accounts receivable included within prepaid expenses and other assets, dividends payable and accrued liabilities and other payables. Generally, these assets and liabilities are short term in duration and their carrying value approximates fair value on the consolidated balance sheets.

The estimated fair values of the Company's fixed‑rate loans receivable have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 3 within the fair value hierarchy. The Company believes the carrying value of its fixed-rate loans receivable approximates fair value as of December 31, 2020 and 2019.

The estimated fair values of the Company's borrowings under the Revolving Credit Facility, the April 2019 Term Loan and the November 2019 Term Loan have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as Level 3 within the fair value hierarchy. The Company believes the carrying value of its borrowings under the Revolving Credit Facility, the April 2019 Term Loan and the November 2019 Term Loan as of December 31, 2020 and 2019 approximate fair value.

The estimated fair values of the Company's secured borrowings have been derived based on primarily unobservable market inputs such as interest rates and discounted cash flow analyses using estimates of the amount and timing of future cash flows, market rates and credit spreads. These measurements are classified as

109

Level 3 within the fair value hierarchy. As of December 31, 2020, the Company's secured borrowings had an aggregate carrying value of $ i 173.2 million (excluding net deferred financing costs of $ i 2.2 million) and an estimated fair value of $ i 176.4 million. As of December 31, 2019, the Company's secured borrowings had an aggregate carrying value of $ i 239.1 million (excluding net deferred financing costs of $ i 3.8 million) and an estimated fair value of i 247.1 million.

The Company measures its derivative financial instruments at fair value on a recurring basis. The fair values of the Company's derivative financial instruments were determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of the derivative financial instrument. This analysis reflected the contractual terms of the derivative, including the period to maturity, and used observable market-based inputs, including interest rate market data and implied volatilities in such interest rates. While it was determined that the majority of the inputs used to value the derivatives fall within Level 2 of the fair value hierarchy under authoritative accounting guidance, the credit valuation adjustments associated with the derivatives also utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default. However, as of December 31, 2020, the significance of the impact of the credit valuation adjustments on the overall valuation of the derivative financial instruments was assessed and it was determined that these adjustments were not significant to the overall valuation of the derivative financial instruments. As a result, it was determined that the derivative financial instruments in their entirety should be classified in Level 2 of the fair value hierarchy. As of December 31, 2020 and 2019, the Company estimated the fair value of its interest rate swap contracts to be a $ i 38.9 million and $ i 2.9 million, respectively.

The Company measures its real estate investments at fair value on a nonrecurring basis. The fair values of these real estate investments were determined using the following input levels as of the dates presented:

Net
Carrying

Fair Value Measurements Using Fair
Value Hierarchy

(in thousands)

Value

Fair Value

Level 1

Level 2

Level 3

Non-financial assets:

Long-lived assets

i 4,754

i —

i 4,754

Non-financial assets:

Long-lived assets

i 3,864

i —

i 3,864

Long-Lived Assets

The Company reviews its investments in real estate when events or circumstances change indicating that the carrying amount of an asset may not be recoverable. In the evaluation of an investment in real estate for impairment, many factors are considered, including estimated current and expected operating cash flows from the asset during the projected holding period, costs necessary to extend the life or improve the asset, expected capitalization rates, projected stabilized net operating income, selling costs, and the ability to hold and dispose of the asset in the ordinary course of business.

Quantitative information about Level 3 fair value measurements as of December 31, 2020 is as follows:

(dollar amounts in thousands)

Fair Value

Valuation Techniques

Significant Unobservable
Inputs

Non-financial assets:

Long-lived assets:

Restaurant - Family Dining - Inverness, FL

i 598

Sales comparison
approach

Binding sales contract

i 598

Restaurant - Family Dining - Nashville, GA

i 598

Sales comparison
approach

Binding sales contract

i 598

Restaurant - Family Dining - Barnesville, GA

i 300

Sales comparison
approach

Non-binding sales contract

i 300

Vacant - Augusta, GA

i 25

Sales comparison
approach

Non-binding sales contract

i 25

Pet Care Services - Arvada, CO

i 3,233

Sales comparison
approach

Comparable sales prices

i 3,233

110

The fair values of impaired real estate were determined by using the following information, depending on availability, in order of preference: i) signed purchase and sale agreements or letters of intent; ii) recently quoted bid or ask prices; iii) estimates of future cash flows, which consider, among other things, contractual and forecasted rental revenues, leasing assumptions, terminal capitalization rates, discount rates and expenses based upon market conditions; or iv) expectations for the use of the real estate. Based on these inputs, the Company determined that its valuation of the impaired real estate falls within Level 3 of the fair value hierarchy.

13. i Related-Party Transactions

During the years ended December 31, 2019 and 2018, an affiliate of Eldridge provided certain treasury and information technology services to the Company. The Company incurred a de minimis amount of expense for these services during the years ended December 31, 2019 and 2018, which is included in general and administrative expense in the Company’s consolidated statements of operations. No services were provided to the Company by Eldridge during the year ended December 31, 2020.

During the year ended December 31, 2018, the Company issued and repaid short-term notes to affiliates of Eldridge. See Note 5—Long Term Debt for additional information.

In May 2019, the Company repurchased a portion of its Class A Series 2016-1 Notes with a face value of $ i 200 million for $ i 201.4 million from an affiliate of Eldridge. See Note 5—Long Term Debt for additional information.

14. i Quarterly Results (Unaudited)

Presented below is a summary of unaudited quarterly financial information for the years ended December 31, 2020 and 2019. All adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the interim periods presented are included. The calculation of basic and diluted per share amounts for each quarter is based on the weighted average shares outstanding for that period; consequently, the sum of the quarters may not necessarily be equal to the full year basic and diluted net income per share.

Three months ended

(in thousands, except per share data)

March 31

June 30

September 30

December 31

2020:

Total revenues

i 41,487

i 38,503

i 42,908

i 41,111

Net income

i 14,043

i 10,444

i 12,334

i 5,707

Net income attributable to non-controlling interests

i 84

i 63

i 74

i 34

Net income per share of common stock—basic and diluted

i 0.15

i 0.11

i 0.13

i 0.05

Dividends declared per common share

i 0.23

i 0.24

2019:

Total revenues

i 31,107

i 32,755

i 36,291

i 39,204

Net income

i 8,722

i 10,571

i 14,106

i 14,626

Net income attributable to non-controlling interests

i 2,595

i 2,620

i 861

i 105

Net income per share of common stock—basic and diluted

i 0.13

i 0.14

i 0.18

Dividends declared per common share

i 0.21

i 0.22

i 0.23

15. Subsequent Events

The Company has evaluated all events and transactions that occurred after December 31, 2020 through the filing of this Annual Report on Form 10-K and determined that there have been no events that have occurred that would require adjustment to disclosures in the consolidated financial statements except as disclosed below.

In January and February 2021, the Company issued an aggregate of i 102,156 shares of unvested RSUs to the Company’s executive officers and other employees under the Equity Incentive Plan. These awards vest over a period of up to i four years from the date of grant, subject to the individual recipient’s continued provision of service to the Company through the applicable vesting dates.

111

In February 2021, the Company issued an aggregate of i 126,353 performance-based RSUs to the Company's executive officers under the Equity Incentive Plan. These are non-vested share awards and i 75% of the award shall vest based on the Company's TSR as compared to the TSR of i 10 peer companies and i 25% of the award shall vest based on the compensation committee's subjective evaluation of the achievement of strategic objectives deemed relevant by the committee. The performance schedule can produce vesting percentages ranging from i 0% to i 250%. TSR will be calculated based upon the average closing price for the i 20-trading day period ending January 1, 2021, divided by the average closing price for the i 20-trading day period ending December 31, 2023.

Subsequent to December 31, 2020, the Company acquired i 21 real estate properties with an aggregate investment (including acquisition costs) of $ i 51.9 million and invested $ i 1.4 million in new and ongoing construction in progress and reimbursements to tenants for development, construction and renovation costs.

Subsequent to December 31, 2020, the Company sold or transferred its investment in i 11 real estate properties for an aggregate gross sales price of $ i 14.1 million and incurred $ i 0.7 million of disposition costs related to these transactions.

112

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this Annual Report on Form 10-K, our management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Annual Report on Form 10-K, our disclosure controls and procedures were effective in providing reasonable assurance of compliance.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles in the United States. Due to inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness of the internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate. Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our internal control over financial reporting as of the end of the period covered by this Annual Report on Form 10-K based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations (2013 Framework) (COSO). Based on such evaluation, our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report on Form 10-K.

The effectiveness of our internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report which is presented in this Annual Report on Form 10-K.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information.

None.

113

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The information concerning our directors and executive officers required by Item 10 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 11. Executive Compensation.

The information concerning our executive compensation required by Item 11 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information concerning our security ownership of certain beneficial owners and management and related stockholder matters (including equity compensation plan information) required by Item 12 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

The information concerning certain relationships, related transactions and director independence required by Item 13 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services.

The information concerning our principal accounting fees and services required by Item 14 will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.

114

PART IV

Item 15. Exhibits, Financial Statement Schedules.

(a)(1) and (2) The following financial statements and financial statement schedules are filed as part of this Annual Report on Form 10-K.

Financial Statements. (see Item 8)

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders'/Members' Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Notes to Consolidated Financial Statements

Financial Statement Schedules. (see schedules beginning on page F-1)

Schedule III - Real Estate and Accumulated Depreciation

Schedule IV - Mortgage Loans on Real Estate

All other schedules are omitted since the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.

(b)Exhibits. The following exhibits are included or incorporated by reference in this Annual Report on Form 10-K (and are numbered in accordance with Item 601 of Regulation S-K).

115


Exhibit Number						Description
3.1						Articles of Amendment and Restatement of Essential Properties Realty Trust, Inc., dated as of June 19, 2018 (Incorporated by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K filed on February 28, 2019)
3.2						Certificate of Correction to the Articles of Amendment and Restatement of Essential Properties Realty Trust, Inc., dated as of February 27, 2019 (Incorporated by reference to Exhibit 3.2 to the Company's Annual Report on Form 10-K filed on February 28, 2019)
3.3						Certificate of Notice, dated August 8, 2019 (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on August 8, 2019)
3.4						Certificate of Notice, dated February 28, 2020 (Incorporated by reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K filed on March 2, 2020
3.5						Amended and Restated Bylaws of Essential Properties Realty Trust, Inc. (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on November 16, 2020)
4.1						Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-11 filed on May 25, 2018)
4.2						Amended and Restated Master Indenture dated as of July 11, 2017, among SCF RC Funding I LLC, SCF RC Funding II LLC and SCF RC Funding III LLC, each a Delaware limited liability company, collectively as issuers, and Citibank, N.A., as indenture trustee, relating to Net-Lease Mortgage Notes (Incorporated by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-11 filed on May 25, 2018)
4.3						Series 2017-1 Indenture Supplement dated as of July 11, 2017, among SCF RC Funding I LLC, SCF RC Funding II LLC, SCF RC Funding III LLC and Citibank, N.A., as indenture trustee (Incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-11 filed on May 25, 2018)
4.4*						Description of the Company's Common Stock, $0.01 par value
10.1						Agreement of Limited Partnership of Essential Properties, L.P. (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 26, 2018)
10.2						Amended and Restated Credit Agreement, dated as of April 12, 2019, among the Company, the Operating Partnership, the several lenders from time to time parties thereto, Barclays Bank PLC, as administrative agent, and Citigroup Global Markets Inc. and Bank of America, N.A., as co-syndication agents (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on April 18, 2019)
10.3						First Amendment to Amended and Restated Credit Agreement, dated November 22, 2019, among the Company, the Operating Partnership, Barclays Bank PLC, as administrative agent, and the lenders party thereto (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on November 27, 2019)
10.4						Credit Agreement, dated as of November 26, 2019, among the Company, the Operating Partnership, the several lenders from time to time parties thereto, Capital One, National Association, as administrative agent, Suntrust Robinson Humphrey, Inc. and Mizuho Bank Ltd., as co-syndication agents, and Chemical Bank, a division of TCF National Bank, as documentation agent (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on November 27, 2019)
10.5						Amended and Restated Property Management and Servicing Agreement dated as of July 11, 2017, among SCF RC Funding I LLC, SCF RC Funding II LLC and SCF RC Funding III LLC, each a Delaware limited liability company, collectively as issuers, SCF Realty Capital LLC, a Delaware limited liability company, as property manager and special servicer, and Midland Loan Services, a division of PNC Bank, National Association, as back-up manager and Citibank, N.A., as indenture trustee (Incorporated by reference to Exhibit 10.14 to the Company's Registration Statement on Form S-11 filed on May 25, 2018)
10.6†						Employment Agreement between Essential Properties Realty Trust, Inc. and Peter M. Mavoides, effective as of June 25, 2018 (Incorporated by reference to Exhibit 10.15 to the Company's Current Report on Form 8-K filed on June 26, 2018)
10.7†						Employment Agreement between Essential Properties Realty Trust, Inc. and Gregg A. Seibert, effective as of June 25, 2018 (Incorporated by reference to Exhibit 10.16 to the Company's Current Report on Form 8-K filed on June 26, 2018)
10.8†						Essential Properties Realty Trust, Inc. 2018 Incentive Award Plan, effective as of June 19, 2018 (Incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K filed on June 26, 2018)
10.9†						Employment Agreement between Essential Properties Realty Trust, Inc. and Mark E. Patten, effective as of August 10, 2020 (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2020)

116


Exhibit Number						Description
10.10						Form of Indemnification Agreement between Essential Properties Realty Trust, Inc. and each of its directors and executive officers (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 7, 2020)
21.1*						Subsidiaries of the Company
23.1*						Consent of Independent Registered Public Accounting Firm.
24.1*						Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K)
31.1*						Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*						Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**						Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**						Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


101.INS*						XBRL Instance Document
101.SCH*						XBRL Taxonomy Extension Schema Document
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document
104*						Cover Page Interactive Data File (embedded within the Inline XBRL document)


*			Filed herewith.
**			Furnished herewith.
†			Indicates management contract or compensatory plan.

Item 16. Form 10-K Summary

None

117

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ESSENTIAL PROPERTIES REALTY TRUST, INC.

Date:	February 23, 2021	By:	/s/ *Peter M. Mavoides*
			Peter M. Mavoides
			President and Chief Executive Officer
			(Principal Executive Officer)

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Peter M. Mavoides and Mark E. Patten, and each of them singly, his or her true and lawful attorneys with full power to them, and each of them singly, to sign for each of the undersigned and in his or her name in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K, and generally to do all such things in our names and in our capacities as officers and directors to enable Essential Properties Realty Trust, Inc. to comply with the provisions of the Securities Exchange Act of 1934, as amended, and all requirements of the Securities and Exchange Commission in connection therewith.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

118

Name

Title

Date

/s/ Peter M. Mavoides

Director, President and Chief Executive Officer

Peter M. Mavoides

(Principal Executive Officer)

/s/ Mark E. Patten

Chief Financial Officer, Treasurer and Executive Vice President

Mark E. Patten

(Principal Financial Officer)

/s/ Timothy J. Earnshaw

Chief Accounting Officer and Senior Vice President

Timothy J. Earnshaw

(Principal Accounting Officer)

/s/ Paul T. Bossidy

Director

Paul T. Bossidy

/s/ Joyce DeLucca

Director

Joyce DeLucca

/s/ Scott A. Estes

Director

Scott A. Estes

/s/ Lawrence J. Minich

Director

Lawrence J. Minich

/s/ Heather Leed Neary

Director

Heather Leed Neary

/s/ Stephen D. Sautel

Director

Stephen D. Sautel

/s/ Janaki Sivanesan

Director