What is an Essential?

Easy Income Strategy – Is EPRT Essential or Not?

One clever way to sell something is to declare that it is “essential.” Some would say that there are certain oils that are essential. They may help with life, but I will admit to a bit of skepticism about the declaration “essential oils.” I don’t feel the same way about the oil in our snowblower, lawnmower or Ford Escapes. Those lubricants are essential. It pays to be just a bit skeptical of the use of the word “essential” in any product name.

The names of companies, including REITs, can include a marketing angle. So while some might consider cable TV an essential, others are just fine with normal broadcast television. There is a REIT that is called Essential Properties Realty Trust, Inc. The ticker symbol is EPRT. The question one must ask is “what is essential about their properties?”

If you look at their website, you will find that they buy and lease properties in the following categories: Single-tenant properties, Restaurants, Car washes, Automotive services, Medical and Dental Services, Convenience Stores, Equipment Rental, Entertainment, Early Childhood Education, Grocery Stores, and Health and Fitness. Some of these might be deemed essential, but I’m not certain I would call all of them “essential oils” in the USA economy. However, I think EPRT is a good REIT investment.

Company Profile

Essential Properties Realty Trust, Inc., a real estate company, acquires, owns, and manages single-tenant properties in the United States. The company leases its properties to middle-market companies, such as restaurants, car washes, automotive services, medical and dental services, convenience stores, equipment rental, entertainment, early childhood education, grocery, and health and fitness on a long-term basis. As of December 31, 2022, it had a portfolio of 1,653 properties. The company qualifies as a real estate investment trust for federal income tax purposes. It generally would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 2016 and is headquartered in Princeton, New Jersey.

EPRT Geographic diversification is good and 99.9% are leased properties.

What Do Others Say?

“EPRT is a self-managed REIT that owns and manages single-tenant net leased properties with long-term leases. At present, it has a portfolio of 1,653 freestanding net lease properties and is well diversified by geography, with a presence in 48 states. What sets EPRT apart from its net lease peers such as Realty Income (O) and National Retail Properties (NNN) is its sale-leaseback focus on the middle market, a sector that’s highly fragmented with smaller regional tenants. This usually comes with higher cap rates due to lower competition from institutional players.” SOURCE: Seeking Alpha

The “Service” industry might be considered essential by many. Experience probably not.

Wayne’s Easy Income Strategy Score

My conclusion is that EPRT is a worthy addition to our portfolio. Therefore, I purchased shares of EPRT for both my IRA and Cindie’s IRA.

I plan to buy more shares of EPRT in the next several months. I will use incoming dividends.

Fidelity Dividend and Earnings Graphs

It pays to buy investments that tend to beat the earnings estimates of the analysts. In other words, when the analysts aren’t overly optimistic, and the company exceeds the estimates, that is a good sign.

Earnings Beats are a Good Bet
Dividend Growth is slower, but that is OK with a good REIT.

Seeking Alpha Data

As always, I always check Seeking Alpha for some key information. I want to see, of course, the QUANT Rating. But I also want to see the FFO for each REIT investment. Funds From Operations is a key metric for REITS. It is comparable to earnings. I would, however, avoid buying EPRT shares in a taxable account. It is better to buy them in a ROTH or a traditional IRA for tax reasons. Therefore, the shares I bought yesterday are in my ROTH and Cindie’s ROTH accounts.

Both Revenue and FFO are solid.
Seeking Alpha has a “Strong Buy” QUANT rating. Think long-term and add EPRT gradually.
Dividends are proving to be consistent. However, this REIT only has 4 years of dividend growth, so be just a bit cautious. Don’t buy REIT investments if you don’t like volatility.

Stock Rover Data

It never hurts to check multiple sources to see different opinions. Here are some additional images that helped me decide to buy shares.

IF the target price is $27, then I would buy or add shares under $25.50 per share.
EPRT’s total returns are very solid.
I like the way StockRover overlays the price graph with the dividend income graph

Wrapping It Up

A good easy income strategy is to include REITs in your investment mix. Be careful to buy quality REITs. There are five bad ones for every good one. In fact, there are probably 165 bad ones (based on the QUANT rating) and only 12 good ones in the Real Estate sector. Realty Income Corporation (O) is also one of the good ones.

Full Disclosure

Cindie and I now own a total of 150 shares of EPRT.