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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to
Commission File Number 001-38530
Essential Properties Realty Trust, Inc.
(Exact name of Registrant as specified in its Charter)
Maryland 82-4005693
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
   
902 Carnegie Center Blvd., Suite 520
Princeton, New Jersey
8540
(Address of Principal Executive Offices) (Zip Code)
 
Registrants telephone number, including area code: (609) 436-0619
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which
Registered
Common Stock, $0.01 par value   EPRT   New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒  No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒  No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company, “and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer  
   Accelerated filer  
Non-accelerated filer  
   Smaller reporting company  
Emerging growth company  
       
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
As of June 30, 2020 (the last business day of the registrant's most recently completed second fiscal quarter), the aggregate market value of the registrant's shares of common stock, $0.01 par value, held by non-affiliates of the registrant, was $1.4 billion based on the last reported sale price of $14.84 per share on the New York Stock Exchange on June 30, 2020.
The number of shares of the registrant's Common Stock outstanding as of February 23, 2021 was 106,934,874.
Documents Incorporated by Reference
Portions the Definitive Proxy Statement for the registrant's 2021 Annual Meeting of Stockholders are incorporated by reference into Part III of this report. The registrant expects to file such proxy statement within 120 days after the end of its fiscal year.



Table of Contents
 
    Page
PART I    
Item 1.
4
Item 1A.
14
Item 1B.
33
Item 2.
34
Item 3.
38
Item 4.
39
     
PART II    
Item 5.
40
Item 6.
41
Item 7.
44
Item 7A.
65
Item 8.
67
Item 9.
113
Item 9A.
113
Item 9B.
113
     
PART III    
Item 10.
114
Item 11.
114
Item 12.
114
Item 13.
114
Item 14.
114
     
PART IV    
Item 15.
115
Item 16
117
118
F-1

2


PART I
In this Annual Report, we refer to Essential Properties Realty Trust, Inc., a Maryland corporation, together with its consolidated subsidiaries, including, Essential Properties, L.P., a Delaware limited partnership and its operating partnership (the "Operating Partnership"), as "we," "us," "our" or "the Company" unless we specifically state otherwise or the context otherwise requires.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In particular, statements pertaining to our business and growth strategies, investment, financing and leasing activities and trends in our business, including trends in the market for long-term, net leases of freestanding, single-tenant properties, contain forward-looking statements. When used in this report, the words "estimate," "anticipate," "expect," "believe," "intend," "may," "will," "should," "seek," "approximately" and "plan," and variations of such words, and similar words or phrases, that are predictions of future events or trends and that do not relate solely to historical matters, are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans, beliefs or intentions of management.
Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results, performance or achievements to be materially different from the results of operations or plans expressed or implied by such forward-looking statements; accordingly, you should not rely on forward-looking statements as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise, and may not be realized. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
the ongoing adverse impact of the COVID-19 pandemic on the Company and its tenants;
general business and economic conditions;
risks inherent in the real estate business, including tenant defaults or bankruptcies, illiquidity of real estate investments, fluctuations in real estate values and the general economic climate in local markets, competition for tenants in such markets, potential liability relating to environmental matters and potential damages from natural disasters;
the performance and financial condition of our tenants;
the availability of suitable properties to acquire and our ability to acquire and lease those properties on favorable terms;
our ability to renew leases, lease vacant space or re-lease space as existing leases expire or are terminated;
volatility and uncertainty in the credit markets and broader financial markets, including potential fluctuations in the Consumer Price Index ("CPI");
the degree and nature of our competition;
our failure to generate sufficient cash flows to service our outstanding indebtedness;
our ability to access debt and equity capital on attractive terms;
fluctuating interest rates;
availability of qualified personnel and our ability to retain our key management personnel;
changes in, or the failure or inability to comply with, applicable law or regulation;
our failure to continue to qualify for taxation as a real estate investment trust ("REIT");
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changes in the U.S. tax law and other U.S. laws, whether or not specific to REITs; and
additional factors discussed in the sections entitled "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this Annual Report.
You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this report. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future events or of our performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes, except as required by law.
Because we operate in a highly competitive and rapidly changing environment, new risks emerge from time to time, and it is not possible for management to predict all such risks, nor can management assess the impact of all such risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual events or results.
Summary Risk Factors
Our business is subject to a number of risks that could materially and adversely impact our financial condition, results of operations, cash flows and liquidity, prospects, the market price of our common stock and our ability to, among other things, service our debt and to make distributions to our stockholders. The following risks, which, together with other material risks that are discussed more fully herein under “Risk Factors,” are the principal factors that make an investment in our company speculative or risky:
the ongoing adverse impact of the COVID-19 pandemic on us and our tenants;
adverse changes in the U.S., global and local markets and related economic conditions;
the failure of our tenants to successfully operate their businesses, or tenant defaults, bankruptcies or insolvencies;
defaults by borrowers on our mortgage loans receivable;
an inability to identify and complete acquisitions of suitable properties or yield the returns we seek with future acquisitions;
an inability to access debt and equity capital on commercially acceptable terms or at all;
a decline in the fair value of our real estate assets;
geographic, industry and tenant concentrations that reduce the diversity of our portfolio;
a reduction in the willingness or ability of consumers to physically patronize or use their discretionary income in the businesses of our tenants and potential tenants;
our significant indebtedness, which requires substantial cash flow to service, subjects us to covenants and exposes us to refinancing risk and the risk of default; and
failure to continue to qualify for taxation as a REIT.
Item 1. Business.
We are 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. We have assembled a diversified portfolio using a disciplined strategy that focuses on properties leased to tenants in businesses such as;
Car washes,
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Restaurants (primarily quick service restaurants),
Early childhood education,
Medical and dental services,
Convenience stores,
Automotive services,
Equipment rental,
Entertainment and
Health and fitness.
We believe that, in general, properties leased to tenants in these businesses and similar businesses are essential to the generation of the tenants' sales and profits. We also believe that these businesses have favorable growth potential and, because of their nature they are more insulated from e-commerce pressure than many other businesses.
We completed our initial public offering in June 2018 (our "IPO"), and we qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018. As of December 31, 2020, 95.1% of our $184.0 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses. "Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2020 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date.
Our primary business objective is to maximize stockholder value by generating attractive risk-adjusted returns through owning, managing and growing a diversified portfolio of commercially desirable properties. We have grown significantly since commencing our operations and investment activities in June 2016. As of December 31, 2020, our portfolio consisted of 1,181 properties, inclusive of two undeveloped land parcels and 115 properties which secure our investments in mortgage loans receivable. Our portfolio was built based on the following core investment attributes:
Diversified Portfolio.    As of December 31, 2020, our portfolio was 99.7% occupied by 238 tenants operating 336 different concepts (i.e., generally brands), in 17 industries across 43 states, with none of our tenants contributing more than 2.8% of our annualized base rent. Our goal is that, over time, no more than 5.0% of our annualized base rent will be derived from any single tenant or more than 1% from any single property.
Long Lease Term.    As of December 31, 2020, our leases had a weighted average remaining lease term of 14.5 years (based on annualized base rent), with only 4.8% of our annualized base rent attributable to leases expiring prior to January 1, 2026. Our properties generally are subject to, long-term net leases that we believe provide us a stable base of revenue from which to grow our portfolio.
Significant Use of Master Leases.   As of December 31, 2020, 61.1% of our annualized base rent was attributable to master leases. A master lease is a single lease pursuant to which multiple properties are leased to a single operator/tenant on a unitary (i.e., “all or none”) basis. The master lease structure spreads our investment risk across multiple properties, and we believe it reduces our exposure to operating and renewal risk at any one property, and promotes efficient asset management.
Healthy Rent Coverage Ratio and Tenant Financial Reporting. As of December 31, 2020, our portfolio's weighted average rent coverage ratio was 2.9x, and 98.2% of our leases (based on annualized base rent) obligate the tenant to periodically provide us with specified unit-level financial reporting. "Rent coverage ratio" means, as of a specified date, the ratio of (x) tenant-reported or, when unavailable, management's estimate (based on tenant-reported financial information) of annual earnings before interest, taxes, depreciation, amortization and cash rent attributable to the leased property (or properties, in the case of a master lease) to (y) the annualized base rental obligation.
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Contractual Base Rent Escalation. As of December 31, 2020, 99.2% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average rate of 1.5% per year. Rent escalation provisions provide contractually-specified incremental yield on our investments and provide a degree of protection from inflation or a rising interest rate environment.
Significant Use of Sale-Leaseback Investments.  We seek to acquire properties owned and operated by middle-market businesses and lease the properties back to the operators pursuant to our standard lease form. For the year ended December 31, 2020, approximately 90% of our investments were sale-leaseback transactions.
Smaller, Low Basis Single-Tenant Properties. We generally invest in freestanding "small-box" single-tenant properties. As of December 31, 2020 our average investment per property was $2.1 million (which equals our aggregate investment in our properties (including transaction costs, lease incentives and amounts funded for construction in progress) divided by the number of properties owned at such date), and we believe investments of similar size should allow us to grow our portfolio without concentrating a large amount of capital in individual properties and should allow us to limit our exposure to events that may adversely affect a particular property. Additionally, we believe that many of our properties are fungible and appropriate for multiple commercial uses, which reduces the risk that a particular property may become obsolete and increases their liquidity.
2020 Financial and Operating Highlights
During 2020, we completed $602.8 million of investments, including $541.5 million in 208 property acquisitions and $61.3 million in newly originated loans receivable secured by 25 properties.
As of December 31, 2020, our total gross investment in real estate was $2.5 billion, and we had total debt of $821.2 million.
During 2020, we made distributions totaling $0.93 per share of common stock.
On January 14, 2020, we completed an underwritten public offering of 7,935,000 shares of our common stock, raising net proceeds of approximately $191.5 million, and on September 22, 2020, we completed an underwritten public offering of 10,120,000 shares of our common stock, raising net proceeds of approximately $184.1 million. The net proceeds from these offerings were used to reduce outstanding indebtedness and for general corporate purposes, including funding investments.
In February 2020, we voluntarily prepaid, in part, $62.0 million of the Series 2017-1 Class A notes previously issued under our private conduit program (the "Master Trust Funding program").
In March 2020, we borrowed the remaining $180.0 million available under the November 2019 Term Loan (as defined herein) and used the proceeds facilitate general corporate purposes, including funding investments.
During 2020, we sold 4,499,057 shares of our common stock under the ATM Program (as defined herein), at a weighted average price per share of $19.02, raising gross proceeds of approximately $85.6 million.
During the later portion of the first quarter of 2020 through the second quarter of 2020, the COVID-19 pandemic materially and adversely affected our business and the businesses of many of our tenants, and significantly increased general uncertainty in the business environment. In response, we emphasized and focused on engaging with our tenants and, among other things, as of December 31, 2020, we had granted rent deferrals with respect to $18.5 million million of past and future rent, representing 10% of our annualized base rent as of such date. Our deferrals primarily involved tenants focused on industries that have been directly disrupted by the COVID-19 pandemic and restrictions intended to prevent its spread, particularly movie theaters, casual and family dining restaurants, entertainment, and health and fitness. During the earlier portion of the COVID-19 pandemic, we adopted a more defensive business posture and emphasized maintaining our liquidity and financial flexibility. While the COVID-19 pandemic continues to adversely affect us and our tenants, and considerable uncertainty continues to exist, more recently we have seen improvements in our operations, particularly our rent collection experience and the broader resumption of economic activity, allowing us to become less defensive and increase our acquisition activity in targeted industries, such as equipment rental, quick service restaurants and auto services, and resume our capital recycling activity during the second half of 2020.
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Our Target Market
We are an active investor in single-tenant, net leased real estate. Our target properties are generally freestanding commercial real estate facilities where a middle-market tenant conducts activities on property that are essential to the generation of its sales and profits. We believe that this market is underserved from a capital perspective and offers attractive risk-adjusted returns.
Within this market, we emphasize investment in properties leased to tenants engaged in targeted set of service-oriented or experience-based businesses noted above, because we believe these businesses are generally more insulated from the competitive pressure of e-commerce businesses than many others.
We focus on properties leased to middle-market companies, which we define as regional and national operators with between 10 and 250 locations and $20 million to $500 million in annual revenue, and we opportunistically invest in properties leased to smaller companies, which we define as regional operators with fewer than 10 locations and less than $20 million in annual revenue. Although it is not our primary investment focus, we opportunistically consider investing in properties leased to large companies. While most of our targeted tenants are not rated by a nationally recognized statistical rating organization, we primarily seek to invest in properties leased to companies that we determine have attractive credit characteristics and stable operating histories.
Despite the market's size, the market for single-tenant, net leased real estate is highly fragmented. In particular, we believe that there is a limited number of participants addressing the long-term capital needs of unrated middle-market and small companies. We believe that many publicly traded REITs that invest in net leased properties concentrate their investment activity in properties leased to investment grade-rated tenants, which tend to be larger organizations, with the result that unrated, middle-market and small companies are relatively underserved and offer us an opportunity to make investments with attractive risk-adjusted return potential.
Furthermore, we believe that there is strong demand for our net-lease capital solutions among middle-market and small owner-operators of commercial real estate, in part, due to the bank regulatory environment, which, since the turmoil in the housing and mortgage industries from 2007-2009, has generally been characterized by increased scrutiny and regulation. We believe that this environment has made commercial banks less responsive to the long-term capital needs of unrated middle-market and small companies, many of which have historically depended on commercial banks for their financing. Accordingly, we see an attractive opportunity to address the capital needs of these companies by offering them an efficient alternative to financing their real estate with traditional mortgage or bank debt and their own equity.
As a result, while we believe our net-lease financing solutions may be attractive to a wide variety of companies, we believe our most attractive opportunity is owning properties net leased to middle-market and small companies that are generally unrated and have less access to efficient sources of long-term capital than larger, rated companies.
Our Competitive Strengths
We believe the following competitive strengths distinguish us from our competitors and allow us to compete effectively in the single-tenant, net-lease market:
Carefully Constructed Portfolio of Properties Leased to Service-Oriented or Experience-Based Tenants.     We have strategically constructed a portfolio that is diversified by tenant, industry, concept and geography and generally avoids exposure to businesses that we believe are subject to pressure from e-commerce businesses. Our properties are generally subject to long-term net leases that we believe provide us with a stable base of revenue from which to grow our portfolio. As of December 31, 2020, our portfolio consisted of 1,181 properties, with annualized base rent of $184.0 million, which was carefully selected by our management team in accordance with our focused and disciplined investment strategy. Our portfolio is diversified with 238 tenants operating 336 different concepts across 43 states and 17 industries. None of our tenants contributed more than 2.8% of our annualized base rent as of December 31, 2020, and our strategy targets a scaled portfolio that, over time, derives no more than 5.0% of its annualized base rent from any single tenant or more than 1.0% from any single property.
We focus on investing in properties leased to tenants operating in the service-oriented or experience-based businesses noted above. As of December 31, 2020, 95.1% of our annualized base rent was attributable to tenants operating service-oriented and experience-based businesses.
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We believe that our portfolio's diversity and rigorous underwriting decrease the impact on us of an adverse event affecting a specific tenant, industry or region, and our focus on leasing to tenants in industries that we believe are well-positioned to withstand competition from e-commerce businesses increases the stability and predictability of our rental revenue.
Experienced and Proven Management Team.  Our senior management has significant experience in the net lease industry and a track record of growing net lease businesses to significant scale.
Our senior management team has been responsible for our focused and disciplined investment strategy and for developing and implementing our investment sourcing, underwriting, closing and asset management infrastructure, which we believe can support significant investment growth without a proportionate increase in our operating expenses. As of December 31, 2020, 84.5% of our portfolio's annualized base rent was attributable to internally originated sale-leaseback transactions and 85.3% was acquired from parties who had previously engaged in one or more transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources). The substantial experience, knowledge and relationships of our senior leadership team provide us with an extensive network of contacts that we believe allows us to originate attractive investment opportunities and effectively grow our business.
Growth-Oriented Balance Sheet Scalable Infrastructure.   We believe our financial position and existing infrastructure support our external growth strategy. As of December 31, 2020, we had the ability to borrow up to $382.0 million under our senior unsecured revolving credit facility that matures in April 2023, which allows for up to $400.0 million in principal borrowings and is available for general corporate purposes, including funding future acquisitions. Additionally, through our Master Trust Funding Program, we have the ability to seek additional debt capital in the asset-backed securities market. For more information about our indebtedness, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Description of certain Debt" and Note 5. Long Term Debt to our consolidated financial statements included elsewhere in this report. We also maintain an ATM Program, and as of December 31, 2020, we had the ability to issue additional common stock with an aggregate gross sales price of up to $170.7 million.
As of December 31, 2020, we had $821.2 million of gross debt outstanding, with a weighted average maturity of 3.82 years, and net debt of $788.2 million. For the three months ended December 31, 2020, our net income was $5.7 million, our Adjusted EBITDAre was $41.5 million, our Annualized Adjusted EBITDAre was $165.8 million and our ratio of net debt to Annualized Adjusted EBITDAre was 4.8x. Net debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre are non-GAAP financial measures. For definitions of net debt and Annualized Adjusted EBITDAre, reconciliations of these measures to total debt and net income, respectively, the most directly comparable financial measures calculated in accordance with accounting principles generally accepted in the United States ("GAAP"), and a statement of why our management believes the presentation of these non-GAAP financial measures provide useful information to investors and a discussion of how management uses these measures, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations' Non-GAAP Financial Measures."
As of December 31, 2020, we also had 923 unencumbered properties that contributed $154.5 million of annualized base rent.
We seek to manage our balance sheet so that we have access to multiple sources of debt capital in the future, such as term borrowings from insurance companies, banks and other sources, single-asset mortgage financing and CMBS borrowings, that may offer us the opportunity to lower our cost of funding and further diversify our sources of debt capital.
Differentiated Investment Strategy.    We seek to acquire and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities at the property that are essential to the generation of its sales and profits. We primarily seek to invest in properties leased to middle-market companies that we determine have attractive credit characteristics and stable operating histories. We believe middle-market companies are underserved from a capital perspective and that we can offer them attractive real estate financing solutions while allowing us to enter into leases that provide us with attractive risk-adjusted returns. Furthermore, many net lease transactions with middle-market companies involve properties that are individually relatively small, which allows us to avoid concentrating a large amount of capital in individual properties. We maintain close relationships with our tenants, which we believe allows us
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to source additional investments and become the capital provider of choice as our tenants' businesses grow and their real estate needs increase.
Asset Base Allows for Significant Growth.    Building on our senior leadership team's experience of more than 20 years in net lease real estate investing, we have developed leading origination, underwriting, financing, and property management capabilities. Our platform is scalable, and we seek to leverage our capabilities to improve our efficiency and processes to continue to seek attractive risk-adjusted growth. While we expect that our general and administrative expenses could increase as our portfolio grows, we expect that such expenses as a percentage of our portfolio and our revenues will decrease over time due to efficiencies and economies of scale. During the years ended December 31, 2020, 2019 and 2018, we invested in properties with aggregate investment values of $602.8 million, $598.1 million and $504.7 million, respectively. With our smaller asset base relative to other peers that focus on acquiring net leased real estate, we believe that we can achieve superior growth through manageable acquisition volume.
Disciplined Underwriting Leading to Strong Portfolio Characteristics.    We generally seek to execute transactions with an aggregate purchase price of $3 million to $50 million. Our size allows us to focus on investing in a segment of the market that we believe is underserved from a capital perspective and where we can originate or acquire relatively smaller assets on attractive terms that provide meaningful growth to our portfolio. In addition, we seek to invest in commercially desirable properties that are suitable for use by different tenants, offer attractive risk-adjusted returns and possess characteristics that reduce our real estate investment risks. As of December 31, 2020:
Our leases had a weighted average remaining lease term (based on annualized base rent) of 14.5 years, with only 4.8% of our annualized base rent attributable to leases expiring prior to January 1, 2026;
Master leases contributed 61.1% of our annualized base rent;
Our portfolio's weighted average rent coverage ratio was 2.9x, with leases contributing 55.9% of our annualized base rent having rent coverage ratios in excess of 2.0x (excluding leases that do not report unit-level financial information);
Our portfolio was 99.7% occupied;
Leases contributing 99.2% of our annualized base rent provided for increases in future annual base rent, ranging from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.5% of base rent; and
Leases contributing 94.1% of annualized base rent were triple-net.
Extensive Tenant Financial Reporting Supports Active Asset Management.    We seek to enter into leases that obligate our tenants to periodically provide us with corporate and/or unit-level financial reporting, which we believe enhances our ability to actively monitor our investments, negotiate lease renewals and proactively manage our portfolio to protect stockholder value. As of December 31, 2020, leases contributing 98.2% of our annualized base rent required tenants to provide us with specified unit-level financial information.
Our Business and Growth Strategies
Our primary business objective is to maximize stockholder value by generating attractive risk-adjusted returns through owning, managing and growing a diversified portfolio of commercially desirable properties. We intend to pursue our objective through the following business and growth strategies.
Structure and Manage Our Diverse Portfolio with Focused and Disciplined Underwriting and Risk Management.    We seek to maintain the stability of our rental revenue and maximize the long-term return on our investments while continuing our growth by using our focused and disciplined underwriting and risk management expertise. When underwriting assets, we emphasize commercially desirable properties, with strong operating performance, healthy rent coverage ratios and tenants with attractive credit characteristics.
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Leasing.    In general, we seek to enter into leases with (i) relatively long terms (typically with initial terms of 15 years or more and tenant renewal options); (ii) attractive rent escalation provisions; (iii) healthy rent coverage ratios; and (iv) tenant obligations to periodically provide us with financial information, which provides us with information about the operating performance of the leased property and/or tenant and allows us to actively monitor the security of payments under the lease on an ongoing basis. We strongly prefer to use master lease structures, pursuant to which we lease multiple properties to a single tenant on a unitary (i.e., "all or none") basis. In addition, in the context of our sale-leaseback investments, we generally seek to establish contract rents that are at or below prevailing market rents, which we believe enhances tenant retention and reduces our releasing risk if a lease is rejected in a bankruptcy proceeding or expires.
Diversification.    We monitor and manage the diversification of our portfolio in order to reduce the risks associated with adverse developments affecting a particular tenant, property, industry or region. Our strategy targets a scaled portfolio that, over time, will (i) derive no more than 5% of its annualized base from any single tenant or more than 1% of its annualized base rent from any single property, (ii) be primarily leased to tenants operating in service-oriented or experience-based businesses and (iii) avoid significant geographic concentration. While we consider these criteria when making investments, we may be opportunistic in managing our business and make investments that do not meet one or more of these criteria if we believe the opportunity presents an attractive risk-adjusted return.
Asset Management.    We are an active asset manager and regularly review each of our properties to evaluate, various factors, including, but not limited to, changes in the business performance at the property, credit of the tenant and local real estate market conditions. Among other things, we use Moody's Analytics RiskCalc ("RiskCalc") to proactively detect credit deterioration. RiskCalc is a model for predicting private company defaults based on Moody's Analytics Credit Research Database. Additionally, we monitor market rents relative to in-place rents and the amount of tenant capital expenditures in order to refine our tenant retention and alternative use assumptions. Our management team utilizes our internal credit diligence to monitor the credit profile of each of our tenants on an ongoing basis. We believe that this proactive approach enables us to identify and address issues in a timely manner and to determine whether there are properties in our portfolio that are appropriate for disposition.
In addition, as part of our active portfolio management, we may selectively dispose of assets that we conclude do not offer a return commensurate with the investment risk, contribute to unwanted geographic, industry or tenant concentrations, or may be sold at a price we determine is attractive. During the year ended December 31, 2020, we sold 50 properties for net sales proceeds of $81.7 million, including 6 properties that were vacant. We believe that our underwriting processes and active asset management enhance the stability of our rental revenue by reducing default losses and increasing the likelihood of lease renewals.
Focus on Relationship-Based Sourcing to Grow Our Portfolio by Originating Sale-Leaseback Transactions.    We plan to continue our disciplined growth by originating sale-leaseback transactions and opportunistically making acquisitions of properties subject to net leases that contribute to our portfolio’s tenant, industry and geographic diversification. As of December 31, 2020, 84.5% of our portfolio’s annualized base rent was attributable to internally originated sale-leaseback transactions and 85.3% was acquired from parties who had previously engaged in transactions that involved a member of our senior management team (including operators and tenants and other participants in the net lease industry, such as brokers, intermediaries and financing sources). In addition, we seek to enhance our relationships with our tenants to facilitate investment opportunities, including selectively agreeing to reimburse certain of our tenants for development costs at our properties in exchange for contractually specified rent that generally increases proportionally with our funding. We believe our senior management team’s reputation, in-depth market knowledge and extensive network of long-standing relationships in the net lease industry provide us access to an ongoing pipeline of attractive investment opportunities.
As of February 19, 2021, we have entered into purchase and sale agreements for 19 properties with an aggregate purchase price of $44.7 million.
Focus on Middle-Market Companies in Service-Oriented or Experience-Based Businesses.    We primarily focus on investing in properties that we lease on a long-term, triple-net basis to middle-market companies that we determine have attractive credit characteristics and stable operating histories. Properties leased to middle-market companies may offer us the opportunity to achieve superior risk-adjusted returns, as a result of our extensive and disciplined credit and real estate analysis, lease structuring and
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portfolio composition. We believe our capital solutions are attractive to middle-market companies as such companies often have limited financing options, as compared to larger, credit rated organizations. We also believe that, in many cases, smaller transactions with middle-market companies will allow us to maintain and grow our portfolio's diversification. Middle-market companies are often willing to enter into leases with structures and terms that we consider attractive (such as master leases and leases that require ongoing tenant financial reporting) and believe contribute to the stability of our rental revenue.
In addition, we emphasize investment in properties leased to tenants engaged in service-oriented or experience-based businesses, such as car washes, restaurants (primarily quick service restaurants), early childhood education, medical and dental services, convenience stores, automotive services, equipment rental, entertainment and health and fitness, as we believe these businesses are generally more insulated from e-commerce pressure than many others.
Internal Growth Through Long-Term Triple-Net Leases That Provide for Periodic Rent Escalations.    We seek to enter into long-term (typically with initial terms of 15 years or more and tenant renewal options), triple-net leases that provide for periodic contractual rent escalations. As of December 31, 2020, our leases had a weighted average remaining lease term of 14.5 years (based on annualized base rent), with only 4.8% of our annualized base rent attributable to leases expiring prior to January 1, 2026, and 99.2% of our leases (based on annualized base rent) provided for increases in future base rent at a weighted average of 1.5% per year.
Actively Manage Our Balance Sheet to Maximize Capital Efficiency.    We seek to maintain a prudent balance between debt and equity financing and to maintain funding sources that lock in long-term investment spreads and limit interest rate sensitivity. As of December 31, 2020, we had $821.2 million of gross debt outstanding and $788.2 million of net debt outstanding. Our net income for the three months ended December 31, 2020 was $5.7 million, our Adjusted EBITDAre was $41.5 million, our Annualized Adjusted EBITDAre was $165.8 million and our ratio of net debt to Annualized Adjusted EBITDAre was 4.8x. We target a level of net debt that, over time, is generally less than six times our Annualized Adjusted EBITDAre. We have access to multiple sources of debt capital, including bank debt, through our revolving credit and term loan facilities, and the investment grade-rated, asset-backed bond market, through our Master Trust Funding Program. Net debt, Adjusted EBITDAre and Annualized Adjusted EBITDAre are non-GAAP financial measures. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations' Non-GAAP Financial Measures."
Competition
We face competition for acquisitions of real property from other investors, including traded and non-traded public REITs, private equity investors and institutional investment funds, some of which have greater economies of scale, lower costs of capital, access to more sources of capital, a larger base of operating resources and greater name recognition than we do, and the ability to accept more risk. We also believe that competition for real estate financing comes from middle-market business owners themselves, many of whom have had a historic preference to own, rather than lease, the real estate they use in their businesses. This competition may increase the demand for the types of properties in which we typically invest and, therefore, may reduce the number of suitable investment opportunities available to us and increase the prices paid for such acquisition properties. This competition will increase if investments in real estate become more attractive relative to other forms of investment.
As a landlord, we compete in the multi-billion dollar commercial real estate market with numerous developers and owners of properties, many of which own properties similar to ours in the same markets in which our properties are located. Some of our competitors have greater economies of scale, lower costs of capital, access to more sources of capital, a larger base of operating resources and greater name recognition than we do, and the ability to accept more risk. If our competitors offer space at rental rates below current market rates or below the rental rates we currently charge our tenants, we may lose our tenants or prospective tenants, and we may be pressured to reduce our rental rates or to offer substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options in order to retain tenants when our leases expire.
Employees
As of December 31, 2020, we had 33 full-time employees. Our staff is mostly comprised of professionals engaged in originating, underwriting and closing investments; portfolio asset management; portfolio servicing (e.g.,
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collections, property tax compliance, etc.); and accounting, financial reporting, cash management and capital markets activities. Women comprise nearly 40% of our employees and hold approximately 36% of our management positions, providing significant leadership at our company. Our commitment to diversity extends to our board of directors, as three of its seven independent members, or approximately 43%, are women. Additionally, we have a consistent and strong record of hiring veterans of the U.S. military, including our chief executive officer.
We seek to provide a dynamic work environment that promotes the retention and development of our employees, and is a differentiating factor in our ability to attract new talent. We strive to offer our employees attractive and equitable compensation, regular opportunities to participate in professional development activities, outlets for civic engagement and reasonable flexibility to allow a healthy work/life balance.
We value equal opportunity in the workplace and fair employment practices. We have built an inclusive culture that encourages, supports and celebrates our diverse employee population. We endeavor to maintain a workplace that is free from discrimination or harassment on the basis of color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law. We conduct annual training in an effort to ensure that all employees remain aware of and help prevent harassment and discrimination.
Our compensation program is designed to attract and retain talent, and align our employee’s efforts with the interests of all of our stakeholders. Factors we evaluate in connection with hiring, developing, training, compensating and advancing individuals include, but are not limited to, qualification, performance, skill and experience. Our employees are fairly compensated based on merit, without regard to color, race, sex, national origin, ethnicity, religion, age, disability, sexual orientation, gender identification or expression, or any other status protected by applicable law.
Insurance
Our tenants are generally required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. These leases generally require our tenants to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. If there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged. See "Item 1A. Risk Factor-"Risks Related to Our Business and Properties-Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us."
In addition to being a named insured on our tenants' liability policies, we separately maintain commercial general liability and umbrella coverages. We also maintain full property coverage on all untenanted properties and other property coverage as may be required by our lenders, which are not required to be carried by our tenants under our leases.
Regulation and Requirements
Our properties are subject to various laws, ordinances and regulations, including those relating to fire and safety requirements, and affirmative and negative covenants and, in some instances, common area obligations. Compliance with applicable requirements may require modifications to our properties, and the failure to comply with applicable requirements could result in the imposition of fines or an award of damages to private litigants, as well as the incurrence of the costs of making modifications to attain compliance. Our tenants have primary responsibility for compliance with these requirements pursuant to our leases. We believe that each of our properties has the necessary permits and approvals.
Environmental Matters
Federal, state and local environmental laws and regulations regulate, and impose liability for, releases of hazardous or toxic substances into the environment. Under various of these laws and regulations, a current or
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previous owner, operator or tenant of real estate may be required to investigate and clean up hazardous or toxic substances, hazardous wastes or petroleum product releases or threats of releases at the property, and may be held liable to a government entity or to third parties for property damage and for investigation, clean-up and monitoring costs incurred by those parties in connection with the actual or threatened contamination. These laws may impose clean-up responsibility and liability without regard to fault, or whether or not the owner, operator or tenant knew of or caused the presence of the contamination. The liability under these laws may be joint and several for the full amount of the investigation, clean-up and monitoring costs incurred or to be incurred or actions to be undertaken, although a party held jointly and severally liable may seek to obtain contributions from other identified, solvent, responsible parties of their fair share toward these costs. These costs may be substantial, and can exceed the value of the property. In addition, some environmental laws may create a lien on the contaminated site in favor of the government for damages and costs it incurs in connection with the contamination. As the owner or operator of real estate, we also may be liable under common law to third parties for damages and injuries resulting from environmental contamination emanating from the real estate. The presence of contamination, or the failure to properly remediate contamination, on a property may adversely affect the ability of the owner, operator or tenant to sell or rent that property or to borrow using the property as collateral, and may adversely impact our investment in that property.
Some of our properties contain, have contained, or are adjacent to or near other properties that have contained or currently contain storage tanks for the storage of petroleum products or other hazardous or toxic substances. Similarly, some of our properties were used in the past for commercial or industrial purposes, or are currently used for commercial purposes, that involve or involved the use of petroleum products or other hazardous or toxic substances, or are adjacent to or near properties that have been or are used for similar commercial or industrial purposes. These operations create a potential for the release of petroleum products or other hazardous or toxic substances, and we could potentially be required to pay to clean up any contamination. In addition, environmental laws regulate a variety of activities that can occur on a property, including the storage of petroleum products or other hazardous or toxic substances, air emissions, water discharges and exposure to lead-based paint. Such laws may impose fines or penalties for violations, and may require permits or other governmental approvals to be obtained for the operation of a business involving such activities. As a result of the foregoing, we could be materially and adversely affected.
Environmental laws also govern the presence, maintenance and removal of asbestos-containing material ("ACM"). Federal regulations require building owners and those exercising control over a building's management to identify and warn, through signs and labels, of potential hazards posed by workplace exposure to installed ACM in their building. The regulations also have employee training, record keeping and due diligence requirements pertaining to ACM. Significant fines can be assessed for violation of these regulations. As a result of these regulations, building owners and those exercising control over a building's management may be subject to an increased risk of personal injury lawsuits by workers and others exposed to ACM. The regulations may affect the value of a building containing ACM in which we have invested. Federal, state and local laws and regulations also govern the removal, encapsulation, disturbance, handling and/or disposal of ACM when those materials are in poor condition or in the event of construction, remodeling, renovation or demolition of a building. These laws may impose liability for improper handling or a release into the environment of ACM and may provide for fines to, and for third parties to seek recovery from, owners or operators of real properties for personal injury or improper work exposure associated with ACM.
When excessive moisture accumulates in buildings or on building materials, mold growth may occur, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Some molds may produce airborne toxins or irritants. Indoor air quality issues can also stem from inadequate ventilation, chemical contamination from indoor or outdoor sources, and other biological contaminants such as pollen, viruses and bacteria. Indoor exposure to airborne toxins or irritants above certain levels can be alleged to cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, the presence of significant mold or other airborne contaminants at any of our properties could require us to undertake a costly remediation program to contain or remove the mold or other airborne contaminants from the affected property or increase indoor ventilation. In addition, the presence of significant mold or other airborne contaminants could expose us to liability from our tenants, employees of our tenants or others if property damage or personal injury occurs.
Before completing any property acquisition, we obtain environmental assessments in order to identify potential environmental concerns at the property. These assessments are carried out in accordance with the Standard Practice for Environmental Site Assessments (ASTM Practice E 1527-13) as set by ASTM International, formerly known as the American Society for Testing and Materials, and generally include a physical site inspection,
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a review of relevant federal, state and local environmental and health agency database records, one or more interviews with appropriate site-related personnel, review of the property's chain of title and review of historical aerial photographs and other information on past uses of the property. These assessments are limited in scope. If, however, recommended in the initial assessments, we may undertake additional assessments such as soil and/or groundwater samplings or other limited subsurface investigations and ACM or mold surveys to test for substances of concern. A prior owner or operator of a property or historic operations at our properties may have created a material environmental condition that is not known to us or the independent consultants preparing the site assessments. Material environmental conditions may have arisen after the review was completed or may arise in the future, and future laws, ordinances or regulations may impose material additional environmental liability. If environmental concerns are not satisfactorily resolved in any initial or additional assessments, we may obtain environmental insurance policies to insure against potential environmental risk or loss depending on the type of property, the availability and cost of the insurance and various other factors we deem relevant (i.e., an environmental occurrence affects one of our properties where our lessee may not have the financial capability to honor its indemnification obligations to us). Our ultimate liability for environmental conditions may exceed the policy limits on any environmental insurance policies we obtain, if any.
Generally, our leases require the lessee to comply with environmental law and provide that the lessee will indemnify us for any loss or expense we incur as a result of lessee's violation of environmental law or the presence, use or release of hazardous materials on our property attributable to the lessee. If our lessees do not comply with environmental law, or we are unable to enforce the indemnification obligations of our lessees, our results of operations would be adversely affected.
We cannot predict what other environmental legislation or regulations will be enacted in the future, how existing or future laws or regulations will be administered or interpreted or what environmental conditions may be found to exist on the properties in the future. Compliance with existing and new laws and regulations may require us or our tenants to spend funds to remedy environmental problems. If we or our tenants were to become subject to significant environmental liabilities, we could be materially and adversely affected.
About Us and Available Information
We were incorporated under the laws of Maryland on January 12, 2018. Since our June 2018 IPO, shares of our common stock have been listed on the New York Stock Exchange ("NYSE") under the ticker symbol "EPRT". Our offices are located at 902 Carnegie Center Blvd., Suite 520, Princeton, New Jersey, 08540. We lease approximately 13,453 square feet of office space from an unaffiliated third party. Our telephone number is (609) 436-0619 and our website is www.essentialproperties.com. Information contained on or hyperlinked from our website is not incorporated by reference into and should not be considered part of this Annual Report or our other filings with the Securities and Exchange Commission (the “SEC”).
We electronically file with the SEC our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, pursuant to Section 13(a) of the Exchange Act. You may obtain a free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, on the day of filing with the SEC on our website, or by sending an email message to info@essentialproperties.com.
Item 1A. Risk Factors.
There are many factors that affect our business and results of operation, some of which are beyond our control. The occurrence of any of the following risks could materially and adversely impact our financial condition, results of operations, cash flows and liquidity, prospects, the market price of our common stock, and our ability to, among other things, service our debt and to make distributions to our stockholders. Some statements in this report including statements in the following risk factors constitute forward-looking statements. See "Special Note Regarding Forward-Looking Statements."
Risks Related to Our Business and Properties
The COVID-19 pandemic is materially and adversely impacting our business and could further affect our financial condition, results of operations, cash flows and liquidity, prospects, access to and costs of
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capital, the trading price of our common stock and our ability to service our debt and make distributions to our stockholders.
The impact of the COVID-19 pandemic continues to rapidly evolve, and many states and cities, including many of those where we own properties, have instituted or may reinstitute lockdowns, quarantines, restrictions on travel, “shelter in place” rules, school closures and/or restrictions on the types of businesses that may continue to operate or limitations on certain business operations. These actions and the resulting decline in economic activity and consumer confidence have severely impaired the ability of many of our tenants to operate their businesses and meet their obligations to us, including rental payment obligations. It is unclear how long these restrictions will remain in place, whether they will be lifted partially over time or if they will be reinstituted in whole or in part in response to future surges or waves of the pandemic.
Many of our tenants have requested rent deferrals or other concessions due to the pandemic. During the year ended December 31, 2020, we have granted deferrals with respect to $18.5 million of past and future rent, representing 10% of our annualized base rent as of that date. 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 2020, with all of the deferred rent to be paid to us pursuant to a schedule that generally extends up to 24 months from the original due date of the deferred rent. It is possible that the existing deterioration, or further deterioration, in our tenants’ ability to operate their businesses, caused by the COVID-19 pandemic or otherwise, will cause our tenants to be unable or unwilling to meet their contractual obligations to us, including the payment of rent (including deferred rent) or to request further rent deferrals or other concessions. This possibility would increase if the COVID-19 pandemic intensifies or persists for a prolonged period or if there is an economic shut down; if the United States enters into a recessionary period or if reduced consumer confidence further weakens economic activity; or if ongoing vaccination efforts are unsuccessful or delayed. To the extent the pandemic causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants would be adversely affected and their ability to meet their obligations to us could be further impaired. The rent deferrals reduce our cash flow from operations, reduce our cash available for distribution and adversely affect our ability to service our debt and make cash distributions to common stockholders. Furthermore, if tenants are unable to pay their deferred rent, we will not receive cash in the future in accordance with our expectations. In addition to COVID-19’s impact on our rental revenues, it has resulted, and may continue to result, in an increase in our general and administrative expenses, as we have incurred and may continue to incur costs to negotiate rent deferrals, restructure or terminate leases and/or enforce our contractual rights (including through litigation), as we deem appropriate on a case-by-case basis. Similarly, to the extent the pandemic leads to decreased occupancy, it would further increase our property-level costs, as we would be responsible for costs that would otherwise be borne by our tenants under triple-net leases. These factors could also cause the value of our properties to be impaired.
The COVID-19 pandemic has significantly and adversely impacted global, national, regional and local economic activity and has contributed to significant volatility and negative pressure in the financial markets. The market price of our common stock on the NYSE has experienced significant volatility since the outbreak of the COVID-19 pandemic. Similarly, the availability and pricing of debt capital has become increasingly volatile. Accordingly, we could experience difficulty accessing debt and equity capital on attractive terms, or at all, which would adversely affect our ability to grow our business, conduct our operations or address maturing liabilities. Similarly, the deterioration in access to capital is likely adversely affecting our tenants’ abilities to finance their businesses and reducing their liquidity, which reduces their ability to meet their obligations to us.
The financial impact of the COVID-19 pandemic could negatively impact our future compliance with some of the financial covenants relating to our credit facility and term loans, some of which depend, in part, on the net operating income generated by certain of our properties or our EBITDA. Non-compliance would preclude us from borrowing further under our credit facility and, under certain circumstances, could result in an event of default and an acceleration of such indebtedness and, possibly, other indebtedness through cross-default provisions. Additionally, to the extent the COVID-19 pandemic intensifies or persists for a prolonged period of time, it is possible that we will be required to record significant further impairment charges to the value of our real estate assets.
The ultimate extent to which the COVID-19 pandemic adversely impacts us (and our tenants) will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment and mitigation measures, among others.
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We are subject to risks related to the ownership of commercial real estate that could adversely impact the value of our properties.
Factors beyond our control can affect the performance and value of our properties. Our performance is subject to risks incident to the ownership of commercial real estate, including: the possible inability to collect rents from tenants due to financial hardship, including bankruptcy; changes in local real estate conditions and tenant demand for our properties; changes in consumer trends and preferences that reduce the demand for products and services offered by our tenants; adverse changes in national, regional and local economic conditions; inability to re-lease or sell properties upon expiration or termination of leases; environmental risks; the subjectivity and volatility of real estate valuations and the relative illiquidity of real estate investments compared to most other financial assets, which may limit our ability to modify our portfolio promptly in response to changes in economic or other conditions; changes in laws and governmental regulations, including those governing real estate usage and zoning; acts of God, including natural disasters, which may result in uninsured losses; and acts of war or terrorism, including terrorist attacks.
Adverse changes in the U.S., global and local markets and related economic conditions may materially and adversely affect us and the ability of our tenants to make rental payments to us.
Our results of operations, as well as the results of operations of our tenants, are sensitive to changes in U.S., global and local regions or markets that impact our tenants’ businesses. Adverse changes or developments in U.S., global or regional economic conditions may impact our tenants’ financial condition, which may adversely impact their ability to make rental payments to us and may also impact their current or future leasing practices. During periods of economic slowdown and declining demand for real estate, we may experience a general decline in rents or increased rates of default under our leases. A lack of demand for rental space could adversely affect our ability to maintain our current tenants and attract new tenants, which may affect our growth, profitability and ability to pay dividends.
Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us.
The success of our investments is materially dependent on the financial stability and operating performance of our tenants. The success of any one of our tenants is dependent on its individual business and its industry, which could be adversely affected by poor management, economic conditions in general, changes in consumer trends and preferences that decrease demand for a tenant's products or services or other factors over which neither they nor we have control.
At any given time, any tenant may experience a downturn in its business that may weaken its operating results or the overall financial condition of individual properties or its business as whole. As a result, a tenant may delay lease commencement, fail to make rental payments when due, decline to extend a lease upon its expiration, become insolvent or declare bankruptcy. We depend on our tenants to operate the properties leased from us in a manner which generates revenues sufficient to allow them to meet their obligations to us, including their obligations to pay rent, maintain certain insurance coverage, pay real estate taxes and maintain the properties in a manner so as not to jeopardize their operating licenses or regulatory status. The ability of our tenants to fulfill their obligations under our leases generally depends, to a significant degree, upon the overall profitability of their operations. Cash flow generated by certain tenant businesses may not be sufficient for a tenant to meet its obligations to us. We could be materially and adversely affected if a number of our tenants were unable to meet their obligations to us.
Our assessment that certain businesses are more insulated from e-commerce pressure than many others may prove to be incorrect, and changes in macroeconomic trends may adversely affect our tenants, either of which could impair our tenants' ability to make rental payments to us and materially and adversely affect us.
Technology and business conditions, particularly in the retail industry, are rapidly changing, and our tenants may be adversely affected by technological innovation, changing consumer preferences and competition from non-traditional sources. Businesses previously thought to be internet resistant, such as the retail grocery industry, have proven to be susceptible to competition from e-commerce. To the extent our tenants face increased competition from non-traditional competitors, such as internet vendors, some of which may have different business models and larger profit margins, their businesses could suffer. There can be no assurance that our tenants will be successful in
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meeting any new competition, and a deterioration in our tenants’ businesses could impair their ability to meet their lease obligations to us and materially and adversely affect us.
Properties occupied by a single tenant pursuant to a single-tenant lease subject us to significant risk of tenant default.
Our strategy focuses primarily on investing in single-tenant triple-net leased properties throughout the United States. The financial failure of, or default in payment by, a single tenant under its lease is likely to cause a significant or complete reduction in our rental revenue from that property and a reduction in the value of the property. This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease. The default of a tenant that leases multiple properties from us or its decision not to renew its master lease upon expiration could materially and adversely affect us.
We may experience a decline in the fair value of our real estate assets which could result in impairments and would impact our financial condition and results of operations.
A decline in the fair market value of our long-lived assets may require us to recognize an impairment against such assets (as defined by the Financial Accounting Standards Board (“FASB”)) if certain conditions or circumstances related to an asset were to change and we were to determine that, with respect to any such asset, the cash flows no longer support the carrying value of the asset. The fair value of our long-lived assets depends on market conditions, including estimates of future demand for these assets, and the revenues that can be generated from such assets. If such a determination were to be made, we would recognize the estimated unrealized losses through earnings and write down the depreciated cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be impaired. Such impairment charges reflect non-cash losses at the time of recognition, and subsequent dispositions or sales of such assets could further affect our future losses or gains, as they are based on the difference between the sales price received and the adjusted depreciated cost of such assets at the time of sale.
Geographic, industry and tenant concentrations reduce the diversity of our portfolio and make us more susceptible to adverse economic or regulatory developments in those areas or industries.
Geographic, industry and tenant concentrations expose us to greater economic or regulatory risks than if we owned a more diverse portfolio. Our business includes substantial holdings in the following states as of December 31, 2020 (based on annualized base rent): Texas (14.9%), Georgia (9.6%), Florida (6.1%), Arkansas (4.8%) and Ohio (4.1%). We are susceptible to adverse developments in the economic or regulatory environments of the geographic areas in which we concentrate (or in which we may develop a substantial concentration of assets in the future), such as COVID-19 pandemic surges and measures intended to mitigate its spread, business layoffs or downsizing, industry slowdowns, relocations of businesses, increases in real estate and other taxes or costs of complying with governmental regulations. As of December 31, 2020, leases representing approximately 20.0% of our annualized base rent were with tenants in industries that have been particularly adversely affected by the COVID-19 pandemic, including casual and family dining (7.8% of annualized base rent), health and fitness (5.2% of annualized base rent), entertainment (3.4% of annualized base rent), movie theaters (2.3% of annualized base rent) and home furnishings (1.3% of annualized base rent). Accordingly, to the extent the pandemic or measures intended to mitigate its spread continue to adversely affect these industries, our tenants in these industries could fail to meet their obligations to us, and we could be required to provide further tenant concessions.
As of December 31, 2020, our five largest tenants contributed 12.3% of our annualized base rent, and our ten largest tenants contributed 21.2% of our annualized base rent. If one of these tenants, or another tenant that occupies a significant portion of our properties or whose lease payments represent a significant portion of our rental revenue, were to experience financial weakness or file for bankruptcy, it could have a material adverse effect on our business, financial condition, results of operations, cash flows and liquidity, and prospects.
As we continue to acquire properties, our portfolio may become more concentrated by geographic area, industry or tenant. If our portfolio becomes less diverse, our business will be more sensitive to the general economic downturn in a particular geographic area, to changes in trends affecting a particular industry and to the financial weakness, bankruptcy or insolvency of fewer tenants.
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The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis procedures. However, the tools we use to measure credit quality, such as property-level rent coverage ratio, may not be accurate.
The vast majority of our properties are leased to unrated tenants whose credit is evaluated through our internal underwriting and credit analysis. Substantially all of our tenants are required to provide corporate-level financial information to us periodically or, in some instances, at our request. As of December 31, 2020, leases contributing 98.2% of our annualized base rent required tenants to provide us with specified unit-level financial information and leases contributing 98.3% of our annualized base rent required tenants to provide us with corporate-financial information.
We analyze the creditworthiness of our tenants using Moody’s Analytics RiskCalc, which provides an estimated default frequency (“EDF”) and a “shadow rating”, and a lease's property-level rent coverage ratio. Our methods may not adequately assess the risk of an investment. An EDF score and a shadow rating are not the same as, and may not be as indicative of creditworthiness as, a rating published by a nationally recognized statistical rating organization. Our calculations of EDFs, shadow ratings and rent coverage ratios are unaudited and are based on financial information provided to us by our tenants and prospective tenants without independent verification on our part, and we assume the appropriateness of estimates and judgments that were made by the party preparing the financial information. If our assessment of credit quality proves to be inaccurate, we may be subject to defaults, and our cash flows may be less stable. The ability of an unrated tenant to meet its obligations to us may be more speculative than that of a rated tenant.
We may be unable to renew expiring leases with the existing tenants or re-lease the spaces to new tenants on favorable terms or at all.
Our results of operations depend on our ability to continue to lease our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring. As of December 31, 2020, our occupancy was 99.7% (excluding two undeveloped land parcels), and leases representing approximately 0.1% of our annualized base rent as of such date will expire during 2021. Current tenants may decline to renew leases and we may not be able to find replacement tenants. We cannot guarantee that leases that are renewed or new leases will have terms that are as economically favorable to us as the expiring leases, or that substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options will not be offered to retain tenants or attract new tenants or that we will be able to lease a property at all. We may experience significant costs in connection with re-leasing a significant number of our properties, which could materially and adversely affect us.
The tenants that occupy our properties compete in industries that depend upon discretionary spending by consumers. A reduction in the willingness or ability of consumers to physically patronize and use their discretionary income in the businesses of our tenants and potential tenants could adversely impact our tenants’ business and thereby adversely impact our ability to collect rents and reduce the demand for our properties.
Most of our portfolio is leased to tenants operating service-oriented or experience-based businesses at our properties. The largest industries in our portfolio are car washes, restaurants (including quick service and casual and family dining), early childhood education, medical services, convenience stores, automotive services, entertainment (including movie theaters) and health and fitness]. As of December 31, 2020, tenants operating in those industries represented approximately 87.5% of our annualized base rent. Captain D's, EquipmentShare, Mister Car Wash, Circle K, AMC, Mavis Discount Tire, Zaxby's, The Malvern School, Vasa Fitness and R-Store represent the largest concepts in our portfolio.These types of businesses have been severely affected by the COVID-19 pandemic, principally due to store closures or limitations on operations (which may be government-mandated or voluntary) and reduced economic activity. The success of most of these businesses depends on the willingness of consumers to physically patronize their businesses and use discretionary income to purchase their products or services. To the extent the COVID-19 pandemic causes a secular change in consumer behavior that reduces patronage of service-based and/or experience-based businesses, many of our tenants would be adversely affected and their ability to meet their obligations to us could be further impaired. Additional adverse economic conditions and other developments that discourage consumer spending, such as high unemployment levels, wage stagnation, interest rates, inflation, tax rates and fuel and energy costs, may have an impact on the results of operations and financial conditions of our tenants and their ability to pay rent to us.
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Our ability to realize future rent increases on some of our leases may vary depending on changes in the CPI.
Our leases often provide for periodic contractual rent escalations. As of December 31, 2020, leases contributing 99.2% of our annualized base rent provided for increases in future annual base rent, generally ranging from 1.0% to 4.0% annually, with a weighted average annual escalation equal to 1.5% of base rent. Although many of our rent escalators increase rent at a fixed amount on fixed dates, approximately 3.0% of our rent escalators relate to an increase in the CPI over a specified period. During periods of low inflation or deflation, small increases or decreases in the CPI will subject us to the risk of receiving lower rental revenue than we otherwise would have been entitled to receive if our rent escalators were based on higher fixed percentages or amounts.
Inflation may materially and adversely affect us and our tenants.
While our tenants are generally obligated to pay property-level expenses relating to the properties they lease from us (e.g., maintenance, insurance and property taxes), we incur other expenses, such as general and administrative expense, interest expense relating to our debt (some of which bears interest at floating rates) and carrying costs for vacant properties. These expenses would increase in an inflationary environment, and such increases may exceed any increase in revenue we receive under our leases. Additionally, increased inflation may have an adverse impact on our tenants if increases in their operating expenses exceed increases in their revenue, which may adversely affect the tenants' ability to pay rent owed to us.
Some of our tenants operate under franchise or license agreements, and, if they are terminated or not renewed prior to the expiration of their leases with us, that would likely impair their ability to pay us rent.
As of December 31, 2020, tenants contributing 16.1% of our annualized base rent operated under franchise or license agreements. Often, our tenants’ franchise or license agreements have terms that end prior to the expiration dates of the properties they lease from us. In addition, a tenant's rights as a franchisee or licensee typically may be terminated and the tenant may be precluded from competing with the franchisor or licensor upon termination. Usually, we have no notice or cure rights with respect to such a termination and have no rights to assignment of any such franchise agreement. This may have an adverse effect on our ability to mitigate losses arising from a default on any of our leases. A franchisor's or licensor's termination or refusal to renew a franchise or license agreement would likely have a material adverse effect on the ability of the tenant to make payments under its lease, which could materially and adversely affect us.
Certain provisions of our leases may be unenforceable.
Our rights and obligations with respect to our leases are governed by written agreements. A court could determine that one or more provisions of such an agreement are unenforceable. We could be adversely impacted if this were to happen with respect to a property or group of properties.
The bankruptcy or insolvency of a tenant could result in the termination or modification of such tenant's lease and material losses to us.
The occurrence of a tenant bankruptcy or insolvency could diminish the income we receive from that tenant's lease or leases or force us to “take back” a property as a result of a default or a rejection of a lease by a tenant in bankruptcy. Bankruptcy risk is more acute in situations where we lease multiple properties to a tenant pursuant to a master lease. If a tenant becomes bankrupt, the automatic stay created by the bankruptcy will prohibit us from collecting pre-bankruptcy debts from that tenant, or from its property, or evicting such tenant based solely upon such bankruptcy or insolvency, unless we obtain an order permitting us to do so from the bankruptcy court. In addition, a bankrupt or insolvent tenant may be authorized to reject and terminate its lease or leases with us. Any claims against such bankrupt tenant for unpaid future rent would be subject to statutory limitations that would likely result in our receipt of rental revenues that are substantially less than the contractually specified rent we are owed under the lease or leases. In addition, any claim we have for unpaid past rent, if any, may not be paid in full. We may also be unable to re-lease a terminated or rejected space or to re-lease it on comparable or more favorable terms. As a result, a significant number of tenant bankruptcies may materially and adversely affect us.
Tenants who are considering filing for bankruptcy protection may request that we agree to amendments of their master leases to remove certain of the properties they lease from us under such master leases. We cannot guarantee that we will be able to sell or re-lease properties that we agree to release from tenants' leases in the
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future or that lease termination fees, if any, will be sufficient to make up for the rental revenues lost as a result of lease amendments.
Property vacancies could result in us having to incur significant capital expenditures to re-tenant the properties.
Many of our leases relate to properties that have been designed or physically modified for a particular tenant. If such a lease is terminated or not renewed, we may be required to renovate the property at substantial costs, decrease the rent we charge or provide other concessions in order to lease the property to another tenant. In addition, if we determine to sell the property, we may have difficulty selling it to a party other than the tenant due to the special purpose for which the property may have been designed or modified. This potential illiquidity may limit our ability to quickly modify our portfolio in response to changes in economic or other conditions, including tenant demand.
Defaults by borrowers on mortgages we hold could lead to losses.
We make mortgage and other loans, which are often unsecured, to extend financing to tenants at our properties. A default by a borrower on its loan payments to us that would prevent us from earning interest or receiving a return of the principal of our loan could materially and adversely affect us. In the event of a default, we may also experience delays in enforcing our rights as lender and may incur substantial costs in collecting the amounts owed to us and in liquidating any collateral. Where collateral is available, foreclosure and other similar proceedings used to enforce payment of real estate loans are generally subject to principles of equity, which are designed to relieve the indebted party from the legal effect of that party's default. In the event we have to foreclose on a property, the amount we receive from the foreclosure sale of the property may be inadequate to fully pay the amounts owed to us by the borrower and our costs incurred to foreclose, repossess and sell the property.
We may be unable to identify and complete acquisitions of suitable properties, which may impede our growth, and our future acquisitions may not yield the returns we seek.
Our ability to expand through acquisitions requires us to identify, finance and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully integrate newly acquired properties into our portfolio, which may be constrained by the following significant risks: we face competition from other real estate investors, some of which have greater economies of scale, lowers costs of capital, access to more financial resources and greater name recognition than we do, a greater ability to borrow funds and the ability to accept more risk than we can prudently manage, which may significantly reduce our acquisition volume or increase the purchase price for property we acquire, which could reduce our growth prospects; we may be unable to locate properties that will produce a sufficient spread between our cost of capital and the lease rate we can obtain from a tenant, in which case our ability to profitably grow our company will decrease; we may fail to have sufficient capital resources to complete acquisitions or our cost of capital could increase; we may incur significant costs and divert management attention in connection with evaluating and negotiating potential acquisitions, including ones that we are subsequently unable to complete; we may acquire properties that are not accretive to our results upon acquisition; our cash flow from an acquired property may be insufficient to meet our required principal and interest payments with respect to debt used to finance the acquisition of such property; we may discover unexpected items, such as unknown liabilities, during our due diligence investigation of a potential acquisition or other customary closing conditions may not be satisfied, causing us to abandon an investment opportunity after incurring expenses related thereto; we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; we may acquire properties subject to liabilities and without any recourse, or with only limited recourse, with respect to unknown liabilities, such as liabilities for clean-up of undisclosed environmental contamination, claims by tenants, vendors or other persons dealing with the former owners of the properties, liabilities incurred in the ordinary course of business and claims for indemnification by general partners, directors, officers and others indemnified by the former owners of the properties; we may obtain only limited warranties when we acquire a property, including properties purchased in “as is” condition on a “where is” basis and “with all faults,” without warranties of merchantability or fitness for a particular purpose and pursuant to purchase agreements that contain only limited warranties, representations and indemnifications that survive for only a limited period after the closing. If any of these risks are realized, we may be materially and adversely affected.
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Our real estate investments are generally illiquid which could significantly impede our ability to respond to market conditions or adverse changes in the performance of our tenants or our properties and which would harm our financial condition.
Our investments are relatively difficult to sell quickly. As a result of this illiquidity, our ability to promptly sell one or more properties in our portfolio in response to changing economic, financial or investment conditions is limited. Return of capital and realization of gains, if any, from an investment generally will occur upon disposition or refinancing of the underlying property. We may be unable to realize our investment objective by sale, other disposition or refinancing at attractive prices within any given period of time or may otherwise be unable to complete any exit strategy. In particular, these risks could arise from weakness in or even the lack of an established market for a property, changes adversely affecting the tenant of a property, changes adversely affecting the area in which a particular property is located, adverse changes in the financial condition or prospects of prospective purchasers and changes in local, national or international economic conditions.
In addition, the Internal Revenue Code of 1986, as amended (the “Code”), imposes restrictions on a REIT's ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs effectively require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forgo or defer sales of properties that otherwise would be in our best interest. Therefore, we may not be able to vary our portfolio in response to economic or other conditions promptly or on favorable terms.
Our growth depends on third-party sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.
In order to qualify as a REIT, we are required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at the corporate rate to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Accordingly, we will not be able to fund all of our future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we rely on third-party sources to fund a portion of our capital needs. Our access to debt and equity capital, and the cost thereof, depends, in part, on general market conditions, the market's perception of our growth potential, our current debt levels, our current and expected future earnings, our cash flow and cash distributions, and the market price of our common stock. The COVID-19 pandemic has significantly and adversely impacted global, national, regional and local economic activity and has contributed to significant volatility and negative pressure in the financial markets.
If we cannot obtain capital from third-party sources, or if our cost of capital increases materially, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify as a REIT.
Loss of senior executives with long-standing business relationships could materially impair our ability to operate successfully.
Our continued success and our ability to grow our portfolio and business depend, in large part, upon the efforts of certain of our senior executives, in particular our President and Chief Executive Officer, Peter M. Mavoides, and Gregg A. Seibert, our Executive Vice President and Chief Operating Officer, who have extensive market knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity. Many of our executive personnel have extensive experience and strong reputations in the real estate industry and have been important in setting our strategic direction, operating our business, assembling and growing our portfolio, identifying, recruiting and training key personnel, and arranging necessary financing. In particular, the extent and nature of the relationships that these individuals have developed with financial institutions and existing and prospective tenants is important to our growth and the success of our business. The loss of services of one or more members of our management team, including due to the adverse health effects of the COVID-19 pandemic, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us.
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Risks Related to Environmental and Compliance Matters and Climate Change
The costs of compliance with or liabilities related to environmental laws may materially and adversely affect us.
The properties we own or have owned in the past may subject us to known and unknown environmental liabilities. We obtain Phase I environmental site assessments on all properties we finance or acquire. However, the Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Under various federal, state and local laws and regulations relating to the environment, as a current or former owner or operator of real property, we may be liable for costs and damages resulting from environmental matters, including the presence or discharge of hazardous or toxic substances, waste or petroleum products at, on, in, under or migrating from such property, including costs to investigate or clean up such contamination and liability for personal injury, property damage or harm to natural resources. If environmental contamination exists on our properties, we could be subject to strict, joint and/or several liability for the contamination by virtue of our ownership interest; we may face liability regardless of our knowledge of the contamination, the timing of the contamination, the cause of the contamination, or the party responsible for the contamination of the property.
If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Although our leases generally require our tenants to operate in compliance with all applicable laws and to indemnify us against any environmental liabilities arising from a tenant's activities on the property, we could be subject to strict liability by virtue of our ownership interest. We cannot be sure that our tenants will, or will be able to, satisfy their indemnification obligations, if any, under our leases. Furthermore, the discovery of environmental liabilities on any of our properties could lead to significant remediation costs or to other liabilities or obligations attributable to the tenant of that property or could result in material interference with the ability of our tenants to operate their businesses as currently operated. Noncompliance with environmental laws or discovery of environmental liabilities could each individually or collectively affect such tenant's ability to make payments to us, including rental payments and, where applicable, indemnification payments. Additionally the known or potential presence of hazardous substances on a property may adversely affect our ability to sell, lease or improve the property or to borrow using the property as collateral. Environmental laws may also create liens on contaminated properties in favor of the government for damages and costs it incurs to address such contamination. Moreover, if contamination is discovered on our properties, environmental laws may impose restrictions on the manner in which they may be used or businesses may be operated, and these restrictions may require substantial expenditures.
Insurance on our properties may not adequately cover all losses and uninsured losses could materially and adversely affect us.
Our tenants are required to maintain liability and property insurance coverage for the properties they lease from us pursuant to triple-net leases. Pursuant to such leases, our tenants are required to name us (and any of our lenders that have a mortgage on the property leased by the tenant) as additional insureds on their liability policies and additional named insured and/or loss payee (or mortgagee, in the case of our lenders) on their property policies. All tenants are required to maintain casualty coverage. Depending on the location of the property, losses of a catastrophic nature, such as those caused by earthquakes and floods, may be covered by insurance policies that are held by our tenant with limitations such as large deductibles or co-payments that a tenant may not be able to meet. In addition, losses of a catastrophic nature, such as those caused by wind/hail, hurricanes, terrorism or acts of war, may be uninsurable or not economically insurable. If there is damage to our properties that is not covered by insurance and such properties are subject to recourse indebtedness, we will continue to be liable for the indebtedness, even if these properties are irreparably damaged.
Inflation, changes in building codes and ordinances, environmental considerations and other factors, including terrorism or acts of war, may make any insurance proceeds we receive insufficient to repair or replace a property if it is damaged or destroyed. In that situation, the insurance proceeds received may not be adequate to restore our economic position with respect to the affected real property. Furthermore, if we experience a substantial or comprehensive loss of one of our properties, we may not be able to rebuild such property to its existing specifications without significant capital expenditures which may exceed any amounts received pursuant to insurance policies, as reconstruction or improvement of such a property would likely require significant upgrades to meet zoning and building code requirements. The loss of our capital investment in or anticipated future returns from our properties due to material uninsured losses could materially and adversely affect us.
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Compliance with the ADA and fire, safety and other regulations may require us to make unanticipated expenditures.
Our properties are subject to the ADA, fire and safety regulations, building codes and other regulations. Failure to comply with these laws and regulations could result in imposition of fines by the government or an award of damages to private litigants, or both. While our tenants are obligated by law to comply with the ADA and typically obligated under our leases to cover costs associated with compliance with the ADA and other property regulations, if required changes involve greater expenditures than anticipated or if the changes must be made on a more accelerated basis than anticipated, the ability of our tenants to cover costs could be adversely affected, and we could be required to expend our own funds to comply with applicable law and regulation.
Our operations and financial condition may be adversely affected by climate change, including possible changes in weather patterns, weather-related events, government policy, laws, regulations and economic conditions.
In recent years, the assessment of the potential impact of climate change has begun to impact the activities of government authorities, the pattern of consumer behavior and other areas that impact the business environment in the U.S., including, but not limited to, energy-efficiency measures, water use measures and land-use practices. The promulgation of policies, laws or regulations relating to climate change by governmental authorities in the U.S. and the markets in which we own properties may require us to invest additional capital in our properties. In addition, the impact of climate change on businesses operated by our tenants is not reasonably determinable at this time. While not generally known at this time, climate change may impact weather patterns or the occurrence of significant weather events which could impact economic activity or the value of our properties in specific markets. The occurrence of any of these events or conditions may adversely impact our ability to lease our properties, including our or our tenants’ ability to obtain property insurance on acceptable terms, which would materially and adversely affect us.
Risks Related to Our Indebtedness
As of December 31, 2020, we had $821.2 million of indebtedness outstanding, which requires substantial cash flow to service, subjects us to covenants and refinancing risk and the risk of default.
As of December 31, 2020, we had $821.2 million of indebtedness outstanding. This indebtedness consisted of $173.2 million aggregate principal amount of Class A Notes and Class B Notes issued under our Master Trust Funding Program, $18.0 million of borrowings under our Revolving Credit Facility and $630.0 million of combined borrowings under the April 2019 Term Loan and the November 2019 Term Loan. Payments of principal and interest on indebtedness may leave us with insufficient cash resources to meet our cash needs, including funding our investment program, or to make the distributions to our common stockholders currently contemplated or necessary to continue to qualify as a REIT. Our indebtedness and the limitations imposed on us by our debt agreements could have significant adverse consequences, including the following: our cash flow may be insufficient to make our required principal and interest payments; cash interest expense and financial covenants relating to our indebtedness may limit or eliminate our ability to make distributions to our common stockholders; we may be unable to borrow additional funds as needed or on favorable terms, which could, among other things, adversely affect our ability to consummate investment opportunities or meet operational needs; we may be unable to refinance our indebtedness at maturity, or the refinancing terms may be less favorable than the terms of the debt being refinanced; because a portion of our debt bears interest at variable rates, increases in interest rates could increase our interest expense; we may be unable to hedge floating rate debt, counterparties may fail to honor their obligations under our hedge agreements, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of our hedge agreements, we will be exposed to then-existing market rates of interest and future interest rate volatility; we may be forced to dispose of properties, possibly on unfavorable terms or in violation of certain covenants to which we may be subject; we may default on our obligations, and, with respect to our secured indebtedness, the lenders or mortgagees may foreclose on our properties or our interests in the entities that own the properties that secure their loans and receive an assignment of rents and leases; foreclosure on collateral securing indebtedness could create taxable income without accompanying cash proceeds, which could adversely affect our ability to meet the distribution requirement necessary to maintain our qualification for taxation as a REIT under the Code; we may be restricted from accessing some of our excess cash flow after debt service if certain of our tenants fail to meet certain financial performance metric thresholds; we may violate restrictive covenants in our loan documents, which would entitle the lenders to accelerate our debt obligations; and our default under any loan with cross-default provisions could result in a default on other indebtedness. The occurrence of any of these events could materially and adversely affect us.
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Our business plan depends on external sources of capital, including debt financings, and market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on commercially acceptable terms or at all.
Credit markets may experience significant price volatility, displacement and liquidity disruptions, including the bankruptcy, insolvency or restructuring of certain financial institutions. Such circumstances could materially impact liquidity in the financial markets, making financing terms for borrowers less attractive, and potentially result in the unavailability of various types of debt financing. As a result, we may be unable to obtain debt financing on favorable terms or at all or fully refinance maturing indebtedness with new indebtedness. Reductions in our available borrowing capacity or inability to obtain credit when required or when business conditions warrant could materially and adversely affect us.
If prevailing interest rates or other factors at the time of refinancing result in higher interest rates upon refinancing, then the interest expense relating to that refinanced indebtedness would increase. Higher interest rates on newly incurred debt may negatively impact us as well. If interest rates increase, our interest costs and overall costs of capital will increase, which could materially and adversely affect us and our ability to make distributions to our stockholders.
We have engaged in hedging transactions and may engage in additional hedging transactions in the future; such transactions may materially and adversely affect our results of operations and cash flows.
We use hedging strategies, in a manner consistent with the REIT qualification requirements, in an effort to reduce our exposure to changes in interest rates. As of December 31, 2020, we were party to eight interest rate swap agreements with third-party financial institutions having an aggregate notional amount of $630.0 million that are designated as cash flow hedges and designed to effectively fix the LIBOR component of the interest rate on the debt outstanding under our term loans. Unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions and may materially and adversely affect our business by increasing our cost of capital and reducing the net returns we earn on our portfolio.
A significant portion of our assets have been pledged to secure the borrowings of our subsidiaries.
A significant portion of our investment portfolio consists of assets owned by our consolidated, bankruptcy remote, special purpose entity subsidiaries that have been pledged to secure the long-term borrowings of those subsidiaries. As of December 31, 2020, we had 258 properties comprising $399.7 million of net investments pledged as collateral under our Master Trust Funding Program. We or our other consolidated subsidiaries are the equity owners of these special purpose entities, meaning we are entitled to the excess cash flows after debt service and all other required payments are made on the debt of these entities. If our subsidiaries fail to make the required payments on this indebtedness, distributions of excess cash flow to us may be reduced or eliminated and the indebtedness may become immediately due and payable. If the subsidiaries are unable to pay the accelerated indebtedness, the pledged assets could be foreclosed upon and distributions of excess cash flow to us may be suspended or terminated. In that case, our ability to make distributions to our stockholders could be materially and adversely affected.
Under certain circumstances, the subsidiaries included in our Master Trust Funding Program would be prohibited from distributing excess cash flow to us, and the assets of such subsidiaries could be foreclosed upon.
Through our Master Trust Funding Program, certain of our Operating Partnership's indirect wholly owned subsidiaries have issued net-lease mortgage notes payable with an aggregate outstanding principal balance of $173.2 million as of December 31, 2020. As of December 31, 2020, we had pledged 258 properties, with a net investment amount of $399.7 million, as collateral under this program. As the equity owner of the subsidiaries included in our Master Trust Funding Program, we are only entitled to the excess cash flows from such subsidiaries after debt service and all other required payments are made on the notes. If, at any time, the monthly debt service coverage ratio (as defined) generated by the collateral pool is less than or equal to 1.25x, excess cash flow (as defined) from the subsidiaries included in our Master Trust Funding Program will be deposited into a reserve account to be used for payments on the net-lease mortgage notes in the event there is a shortfall in cash at such subsidiaries to make required payments on the notes. Additionally, if at any time the three month average debt service coverage ratio generated by the collateral pool is less than or equal to 1.15x, excess cash flow from the subsidiaries included in our Master Trust Funding Program will be applied to an early amortization of the notes. For
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the year ended December 31, 2020, the debt service coverage ratio was approximately 2.27x. If we fail to maintain the required debt service coverage ratios, the excess cash flows we receive from these subsidiaries would be reduced or eliminated. This could materially and adversely affect us, including by reducing our ability to pay cash distributions on our common stock and possibly prevent us from maintaining our qualification for taxation as a REIT. In addition, if the subsidiaries included in our Master Trust Funding Program are unable to repay the notes, including in connection with any acceleration of maturity, the pledged assets could be foreclosed upon and our equity in such assets eliminated.
Changes to, or the elimination of, LIBOR may adversely affect interest expense related to borrowings under our Revolving Credit Facility, the April 2019 Term Loan and the November 2019 Term Loan.
The interest rate under our Revolving Credit Facility, our April 2019 Term Loan and our November 2019 Term Loan is calculated using LIBOR. In July 2017, the Financial Conduct Authority (“FCA”) that regulates LIBOR announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee, which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, announced plans to consult on ceasing publication of LIBOR on December 31, 2021 for only the one week and two month LIBOR tenors, and on June 30, 2023 for all other LIBOR tenors. The Federal Reserve Board concurrently issued a statement advising banks to stop new LIBOR issuances by the end of 2021. The future of LIBOR at this time is uncertain , and weather or not SOFR, or another alternative reference rate, attains market traction as a LIBOR replacement tool remains in question. The effect of the establishment of alternative reference rates or any other reforms to LIBOR or other reference rates (including whether LIBOR will continue to be an acceptable market benchmark) cannot be predicted at this time. Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates could materially and adversely affect us.
Our debt financing agreements contain restrictions and covenants which may limit our ability to enter into, or obtain funding for, certain transactions, operate our business or make distributions to our common stockholders.
Our debt financing agreements contain financial and other covenants with which we are required to comply and that limit our ability to operate our business. These covenants, as well as any additional covenants to which we may be subject in the future because of additional or replacement debt financing, could cause us to have to forego investment opportunities, reduce or eliminate distributions to our common stockholders or obtain financing that is more expensive than financing we could obtain if we were not subject to the covenants. The covenants impose limitations on, among other things, our ability to pay distributions to our stockholders under certain circumstances, subject to certain exceptions relating to our qualification as a REIT under the Code. In addition, these agreements have cross-default provisions that generally result in an event of default if we default under other material indebtedness.
The covenants and other restrictions under our debt agreements may affect, among other things, our ability to: incur indebtedness; create liens on assets; cause our subsidiaries to distribute cash to us to fund distributions to stockholders or to otherwise use in our business; (see “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Description of Certain Debt”); sell or substitute assets; modify certain terms of our leases; manage our cash flows; and make distributions to equity holders, including our common stockholders.
Additionally, these restrictions may adversely affect our operating and financial flexibility and may limit our ability to respond to changes in our business or competitive environment, all of which may materially and adversely affect us.
Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in any property subject to mortgage debt.
Future borrowings may be secured by mortgages on our properties. Incurring mortgage and other secured debt obligations increases our risk of losses because defaults on secured indebtedness may result in foreclosure actions initiated by lenders and ultimately our loss of the properties securing any loans for which we are in default. If
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we are in default under a cross-defaulted mortgage loan, we could lose multiple properties to foreclosure. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements. As we execute our business plan, we may assume or incur new mortgage indebtedness on our properties. Any default under any mortgage debt obligation we incur may increase the risk of our default on our other indebtedness.
Risks Related to Our Organizational Structure
Our charter and bylaws and Maryland law contain provisions that may delay, defer or prevent a change of control transaction, even if such a change in control may be in your interest, and as a result may depress the market price of our common stock. Our charter contains certain restrictions on ownership and transfer of our stock.
Our charter contains various provisions that are intended to, among other things, assist us in maintaining our qualification for taxation as a REIT and, subject to certain exceptions, authorizes our directors to take such actions as are necessary or appropriate to cause us to continue to qualify as a REIT. For example, our charter prohibits the actual, beneficial or constructive ownership by any person of more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of our common stock or more than 9.8% in value of the aggregate of the outstanding shares of all classes and series of our stock.
Our board of directors, in its sole and absolute discretion, may exempt a person, prospectively or retroactively, from these ownership limits if certain conditions are satisfied. The restrictions on ownership and transfer of our stock may, among other things: discourage a tender offer or other transactions or a change in management or of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interests; or result in the transfer of shares acquired in excess of the restrictions to a trust for the benefit of one or more charitable beneficiaries and, as a result, the forfeiture by the acquirer of the benefits of owning the additional shares.
We could increase or decrease the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval.
Our board of directors, without stockholder approval, has the power under our charter to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and to set the terms of such newly classified or reclassified shares. As a result, we may issue one or more classes or series of common stock or preferred stock with preferences, conversion or other rights, voting powers or rights, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption that are senior to, or otherwise conflict with, the rights of our common stockholders. Our board of directors could establish a class or series of common stock or preferred stock that could, depending on the terms of such class or series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or otherwise be in the best interest of our stockholders.
Termination of the employment agreements with certain members of our senior management team could be costly and could prevent a change in control of our company.
The employment agreements with certain members of our senior management team provide that if their employment with us terminates under certain circumstances (including in connection with a change in control of our company), we may be required to pay them significant amounts of severance compensation, thereby making it costly to terminate their employment. Furthermore, these provisions could delay or prevent a transaction or a change in control of our company that might involve a premium paid for shares of our common stock or otherwise be in the best interests of our stockholders.
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Our board of directors may change our investment and financing policies without stockholder approval, including those with respect to borrowing, and we may become more highly leveraged, which may increase our risk of default under our debt obligations.
Our investment and financing policies are exclusively determined by our board of directors. Accordingly, our stockholders do not control these policies. Further, our organizational documents do not limit the amount or percentage of indebtedness, funded or otherwise, that we may incur. Although we are not required by our organizational documents to maintain a particular leverage ratio and may not be able to do so, we generally intend to target a level of net debt (which includes recourse and non-recourse borrowings and any outstanding preferred stock issuance less unrestricted cash and cash equivalents) that, over time, is less than six times our Annualized Adjusted EBITDAre. However, from time to time, our ratio of net debt to our Annualized Adjusted EBITDAre may equal or exceed six times. Our board of directors may alter or eliminate our current policy on borrowing at any time without stockholder approval. If this policy changed, we could become more highly leveraged, which could result in an increase in our debt service and the risk of default on our obligations. In addition, a change in our investment policies, including the manner in which we allocate our resources across our portfolio or the types of assets in which we seek to invest, may increase our exposure to interest rate risk, real estate market fluctuations and liquidity risk. Changes to our policies with regard to the foregoing could materially and adversely affect us.
Our rights and the rights of our stockholders to take action against our directors and officers are limited.
As permitted by Maryland law, our charter limits the liability of our directors and officers to us and our stockholders for money damages to the maximum extent permitted by Maryland law. Therefore, our directors and officers are subject to monetary liability resulting only from: actual receipt of an improper benefit or profit in money, property or services; or active and deliberate dishonesty by the director or officer that was established by a final judgment as being material to the cause of action adjudicated.
As a result, we and our stockholders have rights against our directors and officers that are more limited than might otherwise exist. Accordingly, if actions taken by any of our directors or officers impede the performance of our company, your and our ability to recover damages from such director or officer will be limited. In addition, our charter and our bylaws require us to indemnify our directors and officers for actions taken by them in those and certain other capacities to the maximum extent permitted by Maryland law.
We are a holding company with no direct operations and rely on funds received from our Operating Partnership to make any distributions to stockholders and to pay liabilities.
We are a holding company and conduct substantially all of our operations through our Operating Partnership. We do not have any independent operations, and our only material asset is our interest in our Operating Partnership. As a result, we rely on distributions from our Operating Partnership to pay any distributions we might declare on shares of our common stock. We also rely on distributions from our Operating Partnership to meet any of our obligations, including any tax liability on taxable income allocated to us from our Operating Partnership. In addition, because we are a holding company, claims by our stockholders will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of our Operating Partnership and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation or reorganization, our assets and those of our Operating Partnership and its subsidiaries will be able to satisfy the claims of our stockholders only after all of our and our Operating Partnership's and its subsidiaries' liabilities and obligations have been paid in full.
In connection with our future acquisition of properties or otherwise, we may issue units of our Operating Partnership to third parties. Such issuances would reduce our ownership in our Operating Partnership. If you do not directly own units of our Operating Partnership, you will not have any voting rights with respect to any such issuances or other partnership level activities of our Operating Partnership.
Conflicts of interest could arise in the future between the interests of our stockholders and the interests of holders of units in our Operating Partnership, which may impede business decisions that could benefit our stockholders.
Conflicts of interest could arise in the future as a result of the relationships between us and our stockholders, on the one hand, and our Operating Partnership and its limited partners, on the other. Under the terms of the partnership agreement of our Operating Partnership, if there is a conflict between the interests of our stockholders, on one hand, and any limited partners, on the other, we will endeavor in good faith to resolve the conflict in a
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manner not adverse to either our stockholders or any limited partners; provided, however, that so long as we own a controlling economic interest in our Operating Partnership, any conflict that cannot be resolved in a manner not adverse to either our stockholders or any limited partners shall be resolved in favor of our stockholders.
Certain mergers, consolidations and other transactions require the approval of a majority in interest of the outside limited partners in our Operating Partnership (which excludes us and our subsidiaries), which could prevent certain transactions that may result in our stockholders receiving a premium for their shares or otherwise be in their best interest.
The partnership agreement requires the general partner or us, as the parent of the general partner, to obtain the approval of a majority in interest of the outside limited partners in our Operating Partnership (which excludes us and our subsidiaries) in connection with certain mergers, consolidations or other combinations of us, or a sale of all or substantially all of our assets. This approval right could prevent a transaction that might be in the best interests of our stockholders.
Risks Related to Our Status as a REIT
Failure to continue to qualify as a REIT would materially and adversely affect us and the value of our common stock, and even if we continue to qualify as a REIT, we may be subject to certain additional taxes.
We elected to be taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2018, and we believe that our current organization and operations have allowed and will continue to allow us to qualify as a REIT. We have not requested and do not plan to request a ruling from the Internal Revenue Service, or IRS, that we qualify as a REIT, and the statements in this Annual Report are not binding on the IRS or any court. Therefore, we cannot assure you that we will remain qualified as a REIT in the future. If we lose our REIT status, we will face significant tax consequences that would substantially reduce our cash available for distribution to you for each of the years involved because: we would not be allowed a deduction for distributions to stockholders in computing our taxable income and would be subject to federal income tax at the corporate rate; we also could be subject to increased state and local taxes; and unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified.
Any such corporate tax liability could be substantial and would reduce our cash available for, among other things, our operations and distributions to stockholders. In addition, if we fail to remain qualified as a REIT, we will not be required to make distributions to our stockholders. As a result of all these factors, our failure to remain qualified as a REIT also could impair our ability to expand our business and raise capital and could materially and adversely affect the trading price of our common stock.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within our control may affect our ability to continue to qualify as a REIT. In order to continue to qualify as a REIT, we must satisfy a number of requirements, including requirements regarding the ownership of our stock, requirements regarding the composition of our assets and a requirement that at least 95% of our gross income in any year must be derived from qualifying sources, such as “rents from real property.” Also, we must make distributions to stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gains. In addition, legislation, new regulations, administrative interpretations or court decisions may materially and adversely affect our investors, our ability to continue to qualify as a REIT for federal income tax purposes or the desirability of an investment in a REIT relative to other investments.
Even if we continue to qualify as a REIT for federal income tax purposes, we may be subject to some federal, state and local income, property and excise taxes on our income or property and, in certain cases, a 100% penalty tax, in the event we sell property as a dealer. In addition, any taxable REIT subsidiaries will be subject to tax as regular corporations in the jurisdictions in which they operate.
If our Operating Partnership fails to qualify as a partnership for federal income tax purposes, we will cease to qualify as a REIT and suffer other adverse consequences.
We believe that our Operating Partnership will be treated as a partnership for federal income tax purposes and, as a result, will generally not be subject to federal income tax on its income. Instead, for federal income tax
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purposes each of the partners of the Operating Partnership, including us, will be allocated, and may be required to pay tax with respect to, such partner's share of its income. Our Operating Partnership will generally be required to determine and pay an imputed underpayment of tax (plus interest and penalties) resulting from an adjustment of the Operating Partnership's items of income, gain, loss, deduction or credit at the partnership level. We cannot assure you that the IRS will not challenge the tax classification of our Operating Partnership or any other subsidiary partnership in which we own an interest, or that a court will not sustain such a challenge. If the IRS were successful in treating our Operating Partnership or any such other subsidiary partnership as an entity taxable as a corporation for federal income tax purposes, we will fail to meet the gross income tests and certain of the asset tests applicable to REITs and, accordingly, we will likely cease to qualify as a REIT. Also, the failure of our Operating Partnership or any subsidiary partnerships to qualify as a disregarded entity or partnership could cause it to become subject to federal and state corporate income tax, which will reduce significantly the amount of cash available for debt service and for distribution to its partners, including us.
To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions, and the unavailability of such capital on favorable terms at the desired times, or at all, may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, which could materially and adversely affect us and the per share trading price of our common stock.
To continue to qualify as a REIT, we generally must distribute to our stockholders at least 90% of our REIT taxable income each year, determined without regard to the dividends-paid deduction and excluding any net capital gains, and we will be subject to corporate income tax on our undistributed taxable income to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends-paid deduction and including any net capital gains, each year. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions paid by us in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
In order to maintain our REIT status and avoid the payment of income and excise taxes, we may need to borrow funds to meet the REIT distribution requirements even if market conditions are not favorable for these borrowings. We cannot assure you that we will have access to such capital on favorable terms at the desired times, or at all, which may cause us to curtail our investment activities and/or to dispose of assets at inopportune times, and could materially and adversely affect us and the per share trading price of our common stock.
Our ability to provide certain services to our tenants may be limited by the REIT rules or may have to be provided through a Taxable REIT Subsidiary.
As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at a disadvantage to competitors that are not subject to the same restrictions. However, we can provide such non-customary services to our tenants and receive our share in the revenue from such services if we do so through a taxable REIT subsidiary (“TRS”), though income earned by such TRS will be subject to U.S. federal corporate income taxation.
The IRS may treat sale-leaseback transactions as loans, which could jeopardize our REIT status or require us to make an unexpected distribution.
A significant portion of our investments were obtained through sale-leaseback transactions, where we purchase owner-occupied real estate and lease it back to the seller. We expect that a majority of our future investments will be obtained this way. The IRS may take the position that specific sale-leaseback transactions that we treat as leases are not true leases for federal income tax purposes but, instead, should be re-characterized as financing arrangements or loans.
If a sale-leaseback transaction were so re-characterized, we might fail to satisfy the REIT asset tests, the income tests or distribution requirements and consequently lose our REIT status effective with the year of re-characterization unless we elect to make an additional distribution to maintain our REIT status. The primary risk relates to our loss of previously incurred depreciation expenses, which could affect the calculation of our REIT taxable income and could cause us to fail the REIT distribution test that requires a REIT to distribute at least 90% of its REIT taxable income, determined without regard to the dividends-paid deduction and excluding any net capital gain. In this circumstance, we may elect to distribute an additional dividend of the increased taxable income so as
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not to fail the REIT distribution test. This distribution would be paid to all stockholders at the time of declaration rather than the stockholders existing in the taxable year affected by the re-characterization.
Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.
The maximum tax rate applicable to income from "qualified dividends" payable to U.S. stockholders that are individuals, trusts and estates is 20%. Dividends payable by REITs, however, generally are not eligible for the 20% rate except to the extent the REIT dividends are attributable to "qualified dividends" received by the REIT itself. However, for non-corporate U.S. stockholders, dividends payable by REITs that are not designated as capital gain dividends or otherwise treated as "qualified dividends" generally are eligible for a deduction of 20% of the amount of such dividends, for taxable years beginning before January 1, 2026. More favorable rates will nevertheless continue to apply for regular corporate "qualified dividends."  Although these rules do not adversely affect the taxation of REITs or dividends payable by REITs, if the 20% rate continues to apply to regular corporate qualified dividends, investors who are individuals, trusts and estates may regard investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations.
The tax imposed on REITs engaging in “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
A REIT's net income from “prohibited transactions” is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, held primarily for sale to customers in the ordinary course of business. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business, unless a sale or disposition qualifies under certain statutory safe harbors, no guarantee can be given that the IRS would agree with our characterization of our properties or that we will always be able to make use of the available safe harbors.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code substantially limit our ability to hedge our assets and liabilities. Any income from a hedging transaction that we enter into to manage the risk of interest rate changes with respect to borrowings made or to be made to acquire or carry real estate assets, or from certain terminations of such hedging positions, does not constitute “gross income” for purposes of the 75% or 95% gross income tests that apply to REITs, provided that certain identification requirements are met. To the extent that we enter into other types of hedging transactions or fail to properly identify such transaction as a hedge, the income is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may be required to limit our use of advantageous hedging techniques or implement those hedges through a TRS. This could increase the cost of our hedging activities because any TRS in which we own an interest may be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in any TRS in which we own an interest will generally not provide any tax benefit, except that such losses could theoretically be carried forward against future taxable income in such TRS.
Complying with REIT requirements may affect our profitability and may force us to liquidate or forgo otherwise attractive investments.
To qualify as a REIT, we must continually satisfy tests concerning, among other things, the nature and diversification of our assets, the sources of our income and the amounts we distribute to our stockholders. We may be required to liquidate or forgo otherwise attractive investments in order to satisfy the asset and income tests or to qualify under certain statutory relief provisions. We also may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. As a result, having to comply with the distribution requirement could cause us to: (i) sell assets in adverse market conditions; (ii) borrow on unfavorable terms; or (iii) distribute amounts that would otherwise be invested in future acquisitions, capital expenditures or repayment of debt. Accordingly, satisfying the REIT requirements could materially and adversely affect us. Moreover, if we are compelled to liquidate our investments to meet any of these asset, income or distribution tests, or to repay obligations to our lenders, we may be unable to comply with one or more of the requirements applicable to REITs or may be subject to a 100% tax on any resulting gain if such sales are prohibited transactions.
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There is a risk of changes in the tax law applicable to REITs.
Because the IRS, the United States Treasury Department and Congress frequently review federal income tax legislation, we cannot predict whether, when or to what extent new federal tax laws, regulations, interpretations or rulings will be adopted. Any of such legislative actions may prospectively or retroactively modify our tax treatment and, therefore, may adversely affect taxation of us and/or our investors. For example, the Tax Cuts and Jobs Act of 2017 (the “TCJA”) has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their stockholders. You are urged to consult with your tax advisor with respect to the status of legislative, regulatory, judicial or administrative developments and proposals and their potential effect on an investment in our securities.
Risks Related to the Ownership of Our Common Stock
Changes in market conditions and volatility of stock prices could adversely affect the market price of our common stock.
The market price of our common stock on the NYSE has experienced significant volatility, particularly since the outbreak of the COVID-19 pandemic. The market price of our common stock will fluctuate, and such fluctuations could be significant and frequent; accordingly, our common stockholders may experience a significant decrease in the value of their shares, including decreases that may be related to technical market factors and may be unrelated to our operating performance or prospects. Similarly, the trading volume of our common stock may decline, and our common stockholders could experience a decrease in liquidity. A number of factors could negatively affect the price per share of our common stock, including: actual or anticipated variations in our quarterly operating results or distributions; changes in our funds from operations (“FFO”), core FFO (“Core FFO”), adjusted FFO (“AFFO”) or guidance; changes in our net investment activity; difficulties or inability to access equity or debt capital on attractive terms or extend or refinance existing debt; increases in our leverage; changes in our management or business strategy; failure to comply with the NYSE listing requirements or other regulatory requirements; and the other factors described in this Risk Factors section. Many of these factors are beyond our control. These factors may cause the market price of shares of our common stock to decline significantly, regardless of our financial condition, results of operations, business or our prospects.
Increases in market interest rates may result in a decrease in the value of shares of our common stock.
One of the factors that may influence the price of shares of our common stock is the distribution yield on shares of our common stock (as a percentage of the price of shares of our common stock) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of shares of our common stock to expect a higher distribution yield. Additionally, higher interest rates would likely increase our borrowing costs and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the per share trading price of our common stock to decrease. Higher borrowing costs and a reduced trading price of our common stock would increase our overall cost of capital and adversely affect our ability to make accretive acquisitions.
We may be unable to continue to make distributions at our current distribution level, and our board may change our distribution policy in the future.
While we expect to continue to make regular quarterly distributions to the holders of our common stock, if sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital or net proceeds from asset sales, borrow to provide funds for such distributions, or reduce the amount of such distributions. To the extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distribution from what they otherwise would have been. If cash available for distribution generated by our assets is less than expected, or if such cash available for distribution decreases in future periods from expected levels, our inability to make distributions could result in a decrease in the market price of our common stock.
The decision to declare and pay distributions on our common stock, as well as the form, timing and amount of any such future distributions, is at the sole discretion of our board of directors and depends on upon a number of factors, including our actual and projected results of operations, FFO, Core FFO, AFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board
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of directors deems relevant. We may not be able to make distributions in the future, and our inability to make distributions, or to make distributions at expected levels, could have a material adverse effect on the market price of our common stock.
The incurrence of additional debt, which would be senior to shares of our common stock upon liquidation, and/or preferred equity securities that may be senior to shares of our common stock for purposes of distributions or upon liquidation, may materially and adversely affect the market price of shares of our common stock.
In the future, we may attempt to increase our capital resources by making additional offerings of debt or preferred equity securities, including by causing our Operating Partnership or its subsidiaries to issue additional debt securities, or by otherwise incurring additional indebtedness. Upon liquidation, holders of our debt securities, other lenders and creditors, and any holders of preferred stock with a liquidation preference will receive distributions of our available assets prior to our stockholders. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. Our stockholders are not entitled to preemptive rights or other protections against dilution. Our preferred stock, if issued, could have a preference on liquidating distributions or a preference on distribution payments that could limit our right to make distributions to our stockholders. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Our stockholders bear the risk of our future offerings reducing per share trading price of our common stock.
Sales of substantial amounts of our common stock or securities convertible into or exercisable or exchangeable therefor, or the perception that such sales might occur, could reduce the price of our common stock and may dilute your voting power and your ownership interest in us.
Sales of substantial amounts of our common stock or securities convertible into or exercisable or exchangeable therefor (such as OP Units), or the perception that such sales might occur, could adversely affect the market price of our common stock. Additionally, such sales would dilute the voting power and ownership interest of existing common stockholders. Our charter provides that we may issue up to 500,000,000 shares of common stock, and a majority of our entire board of directors has the power to amend our charter to increase the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue without stockholder approval. As of December 31, 2020, we had 106,361,524 shares of common stock outstanding and 553,847 OP Units outstanding (excluding OP Units held directly or indirectly by us). The currently outstanding OP Units are primarily held by members of our management team. OP Units are generally redeemable for cash or, at our election, shares of common stock on a one-for-one basis, which may result in stockholder dilution. In the future we may acquire properties through tax deferred contribution transactions in exchange for OP Units. This acquisition structure may have the effect of, among other things, reducing the amount of tax depreciation we could deduct over the tax life of the acquired properties, and may require that we agree to protect the contributors' ability to defer recognition of taxable gain through restrictions on our ability to dispose of the acquired properties and/or the allocation of partnership debt to the contributors to maintain their tax bases. These restrictions could limit our ability to sell an asset at a time, or on terms, that would be favorable absent such restrictions. As of December 31, 2020, 2119352 shares remain available for issuance under our 2018 Incentive Plan.
General Risk Factors
Any material failure, weakness, interruption or breach in security of our information systems could prevent us from effectively operating our business.
We rely on information systems across our operations and corporate functions, including finance and accounting, and depend on such systems to ensure payment of obligations, collection of cash, data warehousing to support analytics, and other various processes and procedures. Due to the COVID-19 pandemic, many of our business processes are being conducted remotely, which places increased reliance on our information technology systems. Our ability to efficiently manage our business depends significantly on the reliability and capacity of these systems. The failure of these systems to operate effectively, maintenance problems, upgrading or transitioning to new platforms or a breach in security of these systems, such as in the event of cyber-attacks, could adversely affect us. There can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging. A security breach or other significant disruption involving our information systems could disrupt the proper functioning of our networks and systems; result in
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misstated financial reports, violations of loan covenants and/or missed reporting deadlines; result in our inability to properly monitor our compliance with the rules and regulations regarding our qualification as a REIT; result in the unauthorized access to, and destruction, loss, theft, misappropriation or release of proprietary, confidential, sensitive or otherwise valuable information of ours or others, which others could use to compete against us or for disruptive, destructive or otherwise harmful purposes and outcomes; require significant management attention and resources to remedy any damages that result; subject us to claims for breach of contract, damages, credits, penalties or termination of leases or other agreements; or damage our reputation among our tenants and investors generally.
We are subject to litigation, which could materially and adversely affect us.
From time to time, we are party to various lawsuits, claims and other legal proceedings. These matters may involve significant expense and may result in judgments or settlements, which may be significant. There can be no assurance that insurance will be available to cover losses related to legal proceedings or that our tenants will meet any indemnification obligations that they have to us. Litigation may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. Resolution of these types of matters against us may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could materially and adversely affect us.
Material weaknesses in or a failure to maintain an effective system of internal control over financial reporting or disclosure controls could prevent us from accurately and timely reporting our financial results, which could materially and adversely affect us.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports, effectively prevent fraud and operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be harmed. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002. Designing and implementing an effective system of internal control over financial reporting and disclosure controls and procedures is a continuous effort that requires significant resources, including the expenditure of a significant amount of time by senior members of our management team.
In connection with our ongoing monitoring of our internal control over financial reporting or audits of our financial statements, we or our auditors may identify deficiencies in our internal control over financial reporting that may be significant or rise to the level of material weaknesses. Any failure to maintain effective internal control over financial reporting or disclosure controls and procedures or to timely effect any necessary improvements to such controls, including as a result of remote work arrangements due to the COVID-19 pandemic, could harm our operating results or cause us to fail to meet our reporting obligations (which could affect the listing of our common stock on the NYSE). Additionally, ineffective internal control over financial reporting or disclosure controls and procedures could also adversely affect our ability to prevent or detect fraud, harm our reputation and cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our common stock.
Changes in accounting standards may materially and adversely affect us.
From time to time FASB and the SEC, who create and interpret accounting standards, may change the financial accounting and reporting standards or their interpretation and application of these standards that will govern the preparation of our financial statements. These changes could materially and adversely affect our reported financial condition and results of operations, and, under certain circumstances, may cause us to fail to comply with financial covenants contained in agreements relating to our indebtedness. In some cases, we could be required to apply a new or revised standard retroactively, resulting in restating prior period financial statements. Similarly, these changes could materially and adversely affect our tenants’ reported financial condition or results of operations and affect their preferences regarding leasing real estate.
Item 1B. Unresolved Staff Comments.
None.
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Item 2. Properties.
Our Real Estate Investment Portfolio
As of December 31, 2020, we had a portfolio of 1,181 properties, inclusive of two undeveloped land parcels and 115 properties that secure our investments in mortgage loans receivable, that was diversified by tenant, industry and geography and had annualized base rent of $184.0 million. Our 238 tenants operate 336 different concepts in 16 industries across 43 states. None of our tenants represented more than 3.2% of our annualized base rent at December 31, 2020 and our top ten largest tenants represented 21.2% of our annualized base rent as of that date.
Diversification by Tenant
As of December 31, 2020, our top ten tenants included ten different concepts: Captain D's, Cadence Academy, EquipmentShare, Mister Car Wash, Circle K, AMC, Mavis Discount Tire, The Malvern School, Zaxby's, and Driver's Edge. Our 1,181 properties are operated by our 238 tenants. The following table details information about our tenants and the related concepts they operate as of December 31, 2020 (dollars in thousands):
Tenant(1)
Concept
Number of
Properties (2)
Annualized
Base Rent 
% of
Annualized
Base Rent
Captain D's, LLC Captain D's 74  $ 5,094  2.8  %
Cadence Education, LLC Cadence Academy 23  4,749  2.6  %
EQUIPMENTSHARE.COM INC EquipmentShare 16  4,730  2.6  %
CAR WASH PARTNERS, INC. Mister Car Wash 13  4,310  2.3  %
Mac's Convenience Stores, LLC (3)
Circle K 34  3,797  2.1  %
American Multi-Cinema, Inc (4)
AMC 3,535  1.9  %
Mavis Tire Express Services Corp. Mavis Discount Tire 19  3,395  1.8  %
Malvern School Properties, LP The Malvern School 13  3,208  1.7  %
1788 Chicken, LLC Zaxby's 20  3,141  1.7  %
GB Auto Service, Inc. Driver's Edge 14  3,111  1.7  %
Top 10 Subtotal 231  39,070  21.2  %
Other 945  144,907  78.8  %
Total 1,176  183,977  100.0  %
 __________________________________________
(1)Represents tenant or guarantor.
(2)Excludes two undeveloped land parcels and three vacant properties.
(3)Includes properties leased to a subsidiary of Alimentation Couche Tard Inc.
(4)Includes four properties leased to a subsidiary of AMC Entertainment Holdings, Inc.
As of December 31, 2020, our five largest tenants, who contributed 12.3% of our annualized base rent, had a rent coverage ratio of 4.2x, and our ten largest tenants, who contributed 21.2% of our annualized base rent, had a rent coverage ratio of 3.3x.
As of December 31, 2020, 94.1% of our leases (based on annualized base rent) were triple-net, and the tenant is typically responsible for all improvements and is contractually obligated to pay all operating expenses, such as maintenance, insurance, utility and tax expense, related to the leased property. Due to the triple-net structure of our leases, we do not expect to incur significant capital expenditures relating to our triple-net leased properties, and the potential impact of inflation on our operating expenses is reduced.
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Diversification by Concept
Our tenants operate their businesses through 336 concepts (i.e., generally brands). The following table provides information about the top ten concepts in our portfolio as of December 31, 2020 (dollars in thousands): 
Concept Type of
Business
Annualized
Base Rent
% of
Annualized
Base Rent
Number of
Properties (1)
Building
(Sq. Ft.)
Captain D's Service $ 5,939  3.2  % 83  215,022 
EquipmentShare Service 4,730  2.6  % 16  330,911 
Mister Car Wash Service 4,310  2.3  % 13  54,621 
Circle K Service 4,184  2.3  % 36  139,799 
AMC Experience 3,535  1.9  % 240,672 
Mavis Discount Tire Service 3,395  1.8  % 19  165,713 
Zaxby's Service 3,353  1.8  % 21  72,986 
The Malvern School Service 3,208  1.7  % 13  149,781 
Vasa Fitness Experience 2,948  1.6  % 258,085 
R-Store Service 2,854  1.6  % 25  105,703 
Top 10 Subtotal 38,456  20.9  % 236  1,733,293 
Other 145,521  79.1  % 940  8,416,250 
Total $ 183,977  100.0  % 1,176  10,149,543 
 ______________________________________
(1)Excludes two undeveloped land parcels.
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Diversification by Industry
Our tenants' business concepts are diversified across various industries. The following table summarizes those industries as of December 31, 2020 (dollars in thousands except per sq. ft amounts):
Tenant Industry Type of
Business
Annualized
Base Rent
% of
Annualized
Base Rent
Number of
Properties (1)
Building
(Sq. Ft.)
Rent Per
Sq. Ft. (2)
Car Washes Service $ 28,494  15.5  % 118  549,914  $ 50.60 
Quick Service Service 25,536  13.9  % 330  878,649  29.02 
Early Childhood Education Service 22,571  12.3  % 99  1,042,979  21.25 
Medical / Dental Service 19,593  10.6  % 118  752,604  25.29 
Convenience Stores Service 16,615  9.0  % 142  576,687  28.81 
Automotive Service Service 13,782  7.5  % 100  678,715  20.31 
Casual Dining Service 8,301  4.5  % 55  337,769  24.95 
Equipment Rental and Sales Service 6,136  3.3  % 26  500,710  12.25 
Family Dining Service 5,960  3.2  % 40  232,723  27.34 
Pet Care Services Service 4,781  2.6  % 35  281,475  16.98 
Other Services Service 3,114  1.7  % 19  198,144  15.71 
Service Subtotal 154,883  84.2  % 1,082  6,030,369  25.49 
Health and Fitness Experience 9,593  5.2  % 25  1,004,189  9.55 
Entertainment Experience 6,280  3.4  % 18  647,483  10.30 
Movie Theatres Experience 4,166  2.3  % 293,206  14.21 
Experience Subtotal 20,039  10.9  % 49  1,944,878  10.51 
Grocery Retail 2,833  1.5  % 16  609,908  4.64 
Home Furnishings Retail 2,476  1.3  % 307,371  15.79 
Retail Subtotal 5,309  2.9  % 22  917,279  6.92 
Building Materials Other 3,746  2.0  % 23  1,257,017  2.98 
Total $ 183,977  100.0  % 1,176  10,149,543  $ 18.33 
 ____________________________________________________
(1)Excludes two undeveloped land parcels.
(2)Excludes properties with no annualized base rent and properties under construction.
As of December 31, 2020, our tenants operating service-oriented businesses had a weighted average rent coverage ratio of 2.94x, our tenants operating experience-based businesses had a weighted average rent coverage ratio of 1.45x, our tenants operating retail businesses had a weighted average rent coverage ratio of 2.53x and our tenants operating other types of businesses had a weighted average rent coverage ratio of 8.63x.
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Diversification by Geography
Our 1,181 property locations are spread across 43 states. The following table details the geographical locations of our properties as of December 31, 2020 (dollars in thousands):
State Annualized Base Rent % of Annualized Base Rent Number of Properties Building (Sq. Ft.)
Texas $ 27,354  14.9  % 161  1,252,505 
Georgia 17,706  9.6  % 116  662,580 
Florida 11,183  6.1  % 56  561,235 
Arkansas 8,822  4.8  % 67  359,008 
Ohio 7,606  4.1  % 59  577,622 
Alabama 7,427  4.0  % 51  461,183 
Michigan 7,079  3.8  % 48  806,114 
Arizona 6,660  3.6  % 33  274,159 
Tennessee 6,242  3.4  % 49  242,029 
Wisconsin 6,341  3.4  % 38  258,723 
Minnesota 5,542  3.0  % 33  447,526 
North Carolina 4,971  2.7  % 24  308,950 
Pennsylvania 4,811  2.6  % 30  249,775 
New York 4,302  2.3  % 37  185,923 
Oklahoma 4,223  2.3  % 22  308,650 
Colorado 4,147  2.3  % 19  208,822 
Missouri 3,999  2.2  % 30  508,585 
Illinois 3,890  2.1  % 23  177,055 
South Carolina 3,763  2.0  % 27  253,137 
Mississippi 3,309  1.8  % 30  121,250 
Massachusetts 3,320  1.8  % 19  334,931 
New Mexico 3,027  1.6  % 19  113,697 
New Jersey 2,993  1.6  % 17  118,613 
Indiana 2,917  1.6  % 25  195,594 
Kentucky 2,885  1.6  % 25  148,000 
Iowa 2,812  1.5  % 19  113,101 
Maryland 1,923  1.0  % 68,324 
Louisiana 1,903  1.0  % 11  80,537 
South Dakota 1,702  0.9  % 41,472 
Kansas 1,677  0.9  % 102,545 
Washington 1,530  0.8  % 10  77,293 
Connecticut 1,315  0.7  % 75,988 
Virginia 1,187  0.6  % 54,130 
Oregon 1,093  0.6  % 124,931 
Utah 922  0.5  % 67,659 
West Virginia 915  0.5  % 18  44,915 
Nebraska 596  0.3  % 17,776 
Wyoming 428  0.2  % 14,001 
California 391  0.2  % 30,870 
Idaho 383  0.2  % 35,433 
New Hampshire 307  0.2  % 37,786 
Nevada 226  0.1  % 34,777 
Alaska 150  0.1  % 6,630 
Total $ 183,977  100.0  % 1,181  10,163,834 
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Lease Expirations
As of December 31, 2020, the weighted average remaining term of our leases was 14.5 years (based on annualized base rent), with only 4.8% of our annualized base rent attributable to leases expiring prior to January 1, 2026. The following table sets forth our lease expirations for leases in place as of December 31, 2020 (dollars in thousands): 
Lease Expiration Year (1) Annualized
Base Rent
% of
Annualized
Base Rent
Number of
Properties (2)
Weighted
Average Rent
Coverage Ratio (3)
2021 $ 133  0.1  % 2.3x
2022 490  0.3  % 3.0x
2023 798  0.4  % 3.4x
2024 4,759  2.6  % 46  4.3x
2025 2,710  1.5  % 19  3.0x
2026 2,425  1.3  % 15  2.2x
2027 4,466  2.4  % 28  3.0x
2028 3,967  2.2  % 14  1.8x
2029 5,083  2.8  % 71  3.9x
2030 4,154  2.3  % 50  3.8x
2031 9,165  5.0  % 59  2.5x
2032 10,966  6.0  % 55  3.6x
2033 7,149  3.9  % 27  1.8x
2034 29,722  16.2  % 212  3.4x
2035 19,455  10.6  % 129  3.1x
2036 2,341  1.3  % 19  1.7x
2037 5,943  3.2  % 35  5.0x
2038 13,056  7.1  % 83  2.4x
2039 26,154  14.2  % 151  2.6x
2040 29,215  15.9  % 141  2.2x
Thereafter 1,826  1.0  % 1.4x
Total/Weighted Average $ 183,977  100.0  % 1,176  2.9x
 _______________________________________________________________
(1)Expiration year of contracts in place as of December 31, 2020, excluding any tenant option renewal periods that have not been exercised.
(2)Excludes two undeveloped land parcels.
(3)Weighted by annualized base rent.
Item 3. Legal Proceedings.
We are subject to various lawsuits, claims and other legal proceedings. Management does not believe that the resolution of any of these matters either individually or in the aggregate will have a material adverse effect on our business, financial condition, results of operations or liquidity. Further, from time to time, we are party to various lawsuits, claims and other legal proceedings for which third parties, such as our tenants, are contractually obligated to indemnify, defend and hold us harmless. In some of these matters, the indemnitors have insurance for the potential damages. In other matters, we are being defended by tenants who may not have sufficient insurance, assets, income or resources to satisfy their defense and indemnification obligations to us. The unfavorable resolution of such legal proceedings could, individually or in the aggregate, materially adversely affect the indemnitors' ability to satisfy their respective obligations to us, which, in turn, could have a material adverse effect on our business, financial condition, results of operations or liquidity. It is management's opinion that there are currently no such legal proceedings pending that will, individually or in the aggregate, have such a material adverse effect. Despite management's view of the ultimate resolution of these legal proceedings, we may have significant legal expenses and costs associated with the defense of such matters. Further, management cannot predict the outcome of these legal proceedings and if management's expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, financial condition, results of operations or liquidity.
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Item 4. Mine Safety Disclosures.
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is listed on the NYSE under the symbol "EPRT". As of February 19, 2021, there were 157 holders of record of the 106,934,874 outstanding shares of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
Distributions
We have made and intend to continue to make quarterly cash distributions to our common stockholders. In particular, in order to maintain our qualification for taxation as a REIT, we intend to make annual distributions to our stockholders of at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding any net capital gain. However, any future distributions will be at the sole discretion of our board of directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, FFO, Core FFO, AFFO, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board of directors deems relevant. To the extent that our cash available for distribution is less than 90% of our REIT taxable income, we may consider various means to cover any such shortfall, including borrowing under the Revolving Credit Facility or other loans, selling certain of our assets, or using a portion of the net proceeds we receive from offerings of equity, equity-related or debt securities or declaring taxable share dividends. Agreements relating to our indebtedness, including our Master Trust Funding Program and our revolving and term loan credit facilities, limit and, under certain circumstances, could eliminate our ability to make distributions.  See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations-Description of Certain Debt."
We have determined that, for federal income tax purposes, approximately 59.0% of the distributions paid for the 2020 tax year represented taxable income and 41.0% represented a return of capital.
Issuer Purchases of Equity Securities
During the year ended December 31, 2020, the Company did not repurchase any of its equity securities.
Stock Performance Graph
The following performance graph and related table compare, for the period from June 21, 2018 (the first day our common stock was traded on the NYSE) through December 31, 2020, the cumulative total stockholder return on our common stock with that of the Standard & Poor's 500 Composite Stock Index ("S&P 500") and the FTSE NAREIT All Equity REITs index ("FNER"). The graph and related table assume $100.00 was invested on June 21, 2018 and assumes the reinvestment of all dividends. The historical stock price performance reflected in the graph and related table is not necessarily indicative of future stock price performance.

40


Essential Properties Realty Trust, Inc.
  EPRT-20201231_G1.JPG
 
Ticker / Index 6/21/2018 6/30/2018 12/31/2018 6/30/2019 12/31/2019 6/30/2020 12/31/2020
EPRT 100.00 99.27 103.16 153.26 193.63 119.31 175.07
S&P 500 100.00 98.86 92.65 112.12 126.83 121.72 147.49
FNER 100.00 101.35 94.04 110.07 116.57 97.92 105.02
 The performance graph and the related table are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K, and are not being filed for purposes of Section 18 of the Exchange Act and are not to be incorporated by reference into any filing of ours, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
Equity Compensation Plan Information
The information concerning our Equity Compensation Plan will be included in the Proxy Statement to be filed relating to our 2021 Annual Meeting of Stockholders and is incorporated herein by reference.
Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 6. Selected Financial Data.
The following tables set forth selected consolidated financial and other information of the Company as of and for the years ended December 31, 2020, 2019, 2018 and 2017 and for the period from March 30, 2016 (Commencement of Operations) to December 31, 2016. The tables should be read in conjunction with our consolidated financial statements and the notes thereto and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" included in this Annual Report on Form 10-K.  
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Operating Data:       Period from
March 30, 2016
(Commencement of Operations) to
December 31, 2016
  Year ended December 31,
(In thousands, except per share data) 2020 2019 2018 2017
Revenues:      
Rental revenue $ 155,792  $ 135,670  $ 94,944  $ 53,373  $ 15,271 
Interest on loans and direct financing lease receivables 8,136  3,024  656  293  161 
Other revenue 81  663  623  783  88 
Total revenues 164,009  139,357  96,223  54,449  15,520 
Expenses:      
General and administrative 24,444  21,745  13,762  8,775  4,321 
Property expenses 3,881  3,070  1,980  1,547  533 
Depreciation and amortization 59,446  42,745  31,352  19,516  5,428 
Provision for impairment of real estate 8,399  2,918  4,503  2,377  1,298 
Provision for loan losses 830  —  —  —  — 
Total expenses 97,000  70,478  51,597  32,215  11,580 
Other operating income:      
Gain on dispositions of real estate, net 5,821  10,932  5,445  6,748  871 
Income from operations 72,830  79,811  50,071  28,982  4,811 
Other (loss)/income:      
Loss on repayment and repurchase of secured borrowings (924) (5,240) —  —  — 
Interest expense (29,651) (27,037) (30,192) (22,574) (987)
Interest income 485  794  930  49 
Income before income tax expense 42,740  48,328  20,809  6,457  3,827 
Income tax expense 212  303  195  161  77 
Net income 42,528  48,025  20,614  6,296  3,750 
Net income attributable to non-controlling interests (255) (6,181) (5,001) —  — 
Net income attributable to stockholders and members $ 42,273  $ 41,844  $ 15,613  $ 6,296  $ 3,750 
Year ended December 31, Period from 
June 25, 2018 to 
December 31, 2018
  2020 2019
Basic net income per share $ 0.44  $ 0.65  $ 0.26 
Diluted net income per share 0.44  0.63  0.26 
Cash dividends declared per share 0.93  0.88  0.43 
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Consolidated Balance Sheet Data:        
  December 31,
(In thousands) 2020 2019 2018 2017 2016
Total real estate investments, at cost $ 2,359,395  $ 1,908,919  $ 1,377,044  $ 932,174  $ 455,008 
Total real estate investments, net 2,223,298  1,818,848  1,325,189  907,349  448,887 
Net investments 2,392,576  1,912,243  1,342,694  914,247  452,546 
Cash and cash equivalents 26,602  8,304  4,236  7,250  1,825 
Restricted cash 6,388  13,015  12,003  12,180  10,097 
Total assets 2,488,802  1,975,447  1,380,900  942,220  466,288 
Secured borrowings, net of deferred financing costs 171,007  235,336  506,116  511,646  272,823 
Unsecured term loans, net of deferred financing costs 626,272  445,586  —  —  — 
Notes payable to related party —  —  —  230,000  — 
Revolving credit facility 18,000  46,000  34,000  —  — 
Intangible lease liabilities, net 10,168  9,564  11,616  12,321  16,385 
Total liabilities 906,854  773,334  569,859  760,818  291,638 
Total stockholders'/members' equity 1,574,758  1,194,450  562,179  181,402  174,650 
Non-controlling interests 7,190  7,663  248,862  —  — 
 
Other Data:       Period from March 30, 2016 (Commencement of Operations) to December 31, 2016
  Year ended December 31,
(In thousands) 2020 2019 2018 2017
FFO (1)
$ 104,415  $ 82,660  $ 51,007  $ 21,438  $ 9,605 
Core FFO (1)
106,688  90,648  51,007  21,438  9,605 
AFFO (1)
106,995  86,251  48,442  20,337  8,579 
EBITDA (1)
131,352  117,316  81,423  48,498  10,239 
EBITDAre (1)
133,931  109,302  80,481  44,127  10,666 
 
  December 31,
(Dollar amounts in thousands) 2020 2019 2018 2017 2016
Net debt (2)
$ 821,193  $ 713,784  $ 532,881  $ 733,511  $ 278,609 
Number of investment property locations 1,181  1,000  677  508  344 
Occupancy 99.7  % 100.0  % 100.0  % 98.8  % 96.8  %
 __________________________________________________________
(1)FFO, Core FFO, AFFO, EBITDA and EBITDAre are non-GAAP financial measures. For definitions of these measures and reconciliations of these measures to net income, the most directly comparable GAAP financial measure, and a statement of why our management believes the presentation of these measures provides useful information to investors and any additional purposes for which management uses these measures, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures."
(2)Net debt is a non-GAAP financial measure. For a definition of this measure and a reconciliation of this measure to total debt, the most directly comparable GAAP financial measure, and a statement of why our management believes the presentation of this measure provides useful information to investors and any additional purposes for which management uses this measure, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures."
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Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes included elsewhere in this report, as well as the "Selected Financial Data" and "Business" sections of this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategies for our business, includes forward‑looking statements that involve risks and uncertainties. You should read "Item 1A. Risk Factors" and the "Special Note Regarding Forward‑Looking Statements" sections of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by these forward‑looking statements.
Overview
We are 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. We generally acquire and lease freestanding, single-tenant commercial real estate facilities where a tenant services its customers and conducts activities that are essential to the generation of the tenant's sales and profits. As of December 31, 2020, 95.1% of our $184.0 million of annualized base rent was attributable to properties operated by tenants in service-oriented and experience-based businesses. "Annualized base rent" means annualized contractually specified cash base rent in effect on December 31, 2020 for all of our leases (including those accounted for as loans or direct financing leases) commenced as of that date and annualized cash interest on our mortgage loans receivable as of that date.
We have assembled a diversified portfolio using a disciplined strategy that focuses on properties leased to tenants in businesses such as:
Car washes,
Restaurants (primarily quick service restaurants),
Early childhood education
Medical and dental services,
Convenience stores,
Automotive services,
Equipment rental,
Entertainment and
Health and fitness
We believe that, in general, properties leased to tenants in these businesses and similar businesses are essential to the generation of the tenants' sales and profits. We also believe that these business have favorable growth potential and, because of their nature they are more insulated from e-commerce pressure than many other businesses.
We were organized on January 12, 2018 as a Maryland corporation. We have 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 we believe that our current organization, operations and intended distributions will allow us to continue to so qualify.
We completed our IPO in June 2018. Our common stock is listed on the New York Stock Exchange under the symbol "EPRT".
Our primary business objective is to maximize stockholder value by generating attractive risk-adjusted returns through owning, managing and growing a diversified portfolio of commercially desirable properties. We have grown
44


significantly since commencing our operations and investment activities in June 2016. As of December 31, 2020, we had a portfolio of 1,181 properties (inclusive of two undeveloped land parcels and 115 properties which secure our investments in mortgage loans receivable) that was diversified by tenant, industry, concept and geography, had annualized base rent of $184.0 million and was 99.7% occupied. Our portfolio was built based on the following core investment attributes:
Diversified Portfolio
Long Lease Term
Significant use of Master Leases
Healthy Rent Coverage Ratio and Tenant Financial Reporting
Contractual Base Rent Escalations
Significant use of Sale-Leaseback Investments
Smaller, Low Basis Single-Tenant Properties
We generally lease each of our properties to a single tenant on a triple-net, long-term basis, and we generate our cash from operations primarily through the monthly lease payments, or base rent we receive from the tenants that occupy our properties.
Substantially all our leases provide for periodic contractual rent escalations. As of December 31, 2020, leases contributing 99.2% of our annualized base rent provided for increases in future annual base rent, generally ranging from 1% to 4%, with a weighted average annual escalation equal to 1.5% of base rent. As of December 31, 2020, leases contributing 94.1% of annualized base rent were triple-net, which means that our tenant is responsible for all operating expenses, such as maintenance, insurance, utility and tax, related to the leased property (including any increases in those costs that may occur as a result of inflation). Our remaining leases were "double net," where the tenant is responsible for certain expenses, such as taxes and insurance, but we retain responsibility for other expenses, generally related to maintenance and structural component replacement that may be required at such leased properties. Also, we incur property-level expenses associated with our vacant properties and we occasionally incur nominal property-level expenses that are not paid by our tenants, such as the costs of periodically making site inspections of our properties. We do not currently anticipate incurring significant capital expenditures or property costs. Since our properties are predominantly single-tenant properties, which are generally subject to long-term leases, it is not necessary for us to perform significant ongoing leasing activities with respect to our properties. As of December 31, 2020, the weighted average remaining term of our leases was 14.5 years (based on annualized base rent), excluding renewal options that have not been exercised, with 4.8% of our annualized base rent attributable to leases expiring prior to January 1, 2026. Renewal options are exercisable at the option of our tenants upon expiration of their base lease term. Our leases providing for tenant renewal options generally provide for periodic contractual rent escalations during any renewed term that are similar to those applicable during the initial term of the lease.
As of December 31, 2020, 61.1% of our annualized base rent was attributable to master leases, where we have leased multiple properties to a tenant under a master lease. Since properties are generally leased under a master lease on an "all or none" basis, the structure prevents a tenant from "cherry picking" locations, where it unilaterally gives up underperforming properties while maintaining its leasehold interest in well-performing properties.
COVID-19 Pandemic Update
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 us and our tenants, and the full extent to which it will adversely affect our financial condition, liquidity, and results of operations is difficult to predict and depends on evolving factors, including the duration and scope of the pandemic, and governmental and social responses thereto. We continue to closely monitor the impact of COVID-19 on all aspects of our business, including our portfolio and the creditworthiness of our tenants. As the pandemic intensified at the end of the first quarter of 2020, we adopted a more cautious investment strategy, as we placed an increased emphasis on liquidity, prudent
45


balance sheet management and financial flexibility. In March 2020, we initiated steps to safeguard the health and safety of our employees, and transitioned all of our employees to a remote work environment. We successfully executed our business continuity plan, with all of our core financial, operational and telecommunication systems operating from a cloud-based environment with no disruption. More recently, our employees have been able to work in our headquarters, located in Princeton, New Jersey, on a schedule designed to promote appropriate social distancing and health and safety.
The impact of the pandemic is rapidly evolving. It continues to adversely impact commercial activity and cause uncertainty and volatility in financial markets. The pandemic has adversely affected our tenants’ ability to meet their financial obligations to us (including the payment of rent and deferred rent), exposed us to increased risk of tenant default or bankruptcy, and impaired the value of certain of our properties. The pandemic has caused a large number of our tenants, to suspend or reduce their operations, which has adversely affected their ability to pay rent to us. As of December 31, 2020, we granted tenant-requested rent deferrals relating to approximately $18.5 million of rent, representing 10% of our annualized base rent as of December 31, 2020. During the year ended December 31, 2020, we collected substantially all of the $2.6 million in deferred rent we were owed from tenants where repayment was anticipated.
The adverse impacts of the pandemic and the responses designed to mitigate its effects (such as local, state, regional or national lockdowns or other limitations on business activities) have varied, and likely will continue to vary, by geography. It is possible that our properties and tenants located in certain areas will be more adversely affected than our properties and tenants located in other areas. While our properties are diversified by geography, our business includes substantial holdings in the following states as of December 31, 2020 (based on annualized base rent): Texas (14.9%), Georgia (9.6%), Florida (6.1%), Arkansas (4.8%) and Ohio (4.1%). If the pandemic surges in these states or other areas from which we derive significant revenue, the adverse impact of the pandemic on us and our tenants would likely increase.
Similarly, as of December 31, 2020, leases representing approximately 20.0% of our annualized base rent were with tenants in industries that have been particularly adversely affected by the COVID-19 pandemic, including casual and family dining (7.8% of annualized base rent), health and fitness (5.2% of annualized base rent), entertainment (3.4% of annualized base rent), movie theaters (2.3% of annualized base rent) and home furnishings (1.3% of annualized base rent).See “Our Real Estate Investment Portfolio—Diversification by Industry” and “—Diversification by Geography,” below for additional information about our exposure to various states and industries.
The pandemic could cause our occupancy to decrease, which would lead to increased property-level expenses, as we would be obligated to pay costs (e.g., real estate taxes, maintenance costs and insurance) that would otherwise be paid by a tenant at a property subject to a triple-net lease. Additionally, while we recently have begun to accelerate our investment program, the pandemic has caused us to adopt a more cautious investment strategy, as we emphasize liquidity and financial flexibility, that has slowed our pace of external growth. Conditions in the bank lending and capital markets have been volatile and may deteriorate as a result of the pandemic, and our ability, and that of our tenants, to access capital may become constrained or eliminated, or the terms on which capital may be accessed may deteriorate significantly.
One of our main operating functions is our proactive asset management approach. Accordingly, we continue to actively engage in discussions with our tenants regarding the impact of COVID-19 on their business operations, liquidity, and financial position, and, where appropriate, negotiate rent deferrals or other concessions. As noted above, as of December 31, 2020, we granted tenant-requested rent deferrals relating to approximately $18.5 million of rent, which represents 10% of our annualized base rent as of December 31, 2020. 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 2020, with all of the deferred rent to be paid to us pursuant to a schedule that generally extends up to 24 months from the original due date of the deferred rent.
It is possible that the existing deterioration, or further deterioration, in our tenants’ ability to operate their businesses caused by COVID-19 or otherwise, will cause our tenants to be unable or unwilling to meet their contractual obligations to us, including the payment of rent (including deferred rent) or to request further rent deferrals or other forms of rent relief, such as rent reductions. Given the significant uncertainty around the duration and severity of the impact of COVID-19, we are unable to predict the impact it will have on our tenants’ continued ability to pay rent (including deferred rent). Therefore, information provided regarding October rent collections should not serve as an indication of expected future rent collections.
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The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, geographic and industry variations in COVID-19’s impact and actions taken to contain COVID-19. The impact of COVID-19 on our tenants and properties will likely have a continuing adverse impact on us, particularly if tenants are unable to meet their rental payment obligations to us (including the payment of deferred rent), our vacancy rate increases or if we choose to grant further rent deferrals or other concessions.
Liquidity and Capital Resources
As of December 31, 2020, we had $2.4 billion of net investments in our investment portfolio, consisting of investments in 1,181 properties (inclusive of two undeveloped land parcels and 115 properties which secure our investments in mortgage loans receivable), with annualized base rent of $184.0 million. Substantially all of our cash from operations is generated by our investment portfolio.
Our liquidity requirements for operating our Company consist primarily of the funds necessary to pay principal and interest payments on our outstanding indebtedness, and the general and administrative expenses of operating our business and managing our portfolio. The occupancy level of our portfolio is high, just below 100% and because of substantially all of our leases are triple-net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with our properties. When a property becomes vacant because the existing tenant has vacated the property due to default or at the expiration of the lease term the existing tenant did not renew their lease and we had not re-leased the property, we incur the property costs not paid by the tenant, as well as those property costs accruing during the time it takes to locate a substitute tenant or to sell the property. As of December 31, 2020, only three properties were vacant, less than 1% of our portfolio, and all remaining properties were subject to a lease (excluding two undeveloped land parcels), which represents a 99.7% occupancy rate. We expect to incur some property costs from time to time in periods during which properties that become vacant are being marketed for lease or sale. In addition, we may recognize an expense for certain property costs, such as real estate taxes billed in arrears, if we believe the tenant is likely to vacate the property before making payment on those obligations. The amount of such property costs can vary quarter-to-quarter based on the timing of property vacancies and the level of underperforming properties; however, we do not expect that such costs will be significant to our operations.
We intend to continue to grow through additional investments in stand-alone single tenant properties. To accomplish this objective, we seek to acquire real estate with a combination of debt and equity capital and with cash from operations that we do not distribute to our stockholders. When we sell properties, we generally reinvest the cash proceeds from our sales in new property acquisitions. Our short-term liquidity requirements also include the funding needs associated with nine properties where we have agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in exchange for specified contractually payments of interest or increased rent that generally increases in proportion with our level of funding. As of December 31, 2020, we had agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in an aggregate amount of $61.9 million, and, as of such date, we had funded $45.6 million of this commitment. We expect to fund the balance of such commitment by December 31, 2021.
Additionally, as of February 19, 2021, we were under contract to acquire 21 properties with an aggregate purchase price of $51.9 million, subject to completion of our due diligence procedures and satisfaction of customary closing conditions. We expect to meet our short-term liquidity requirements, including our investment in potential future single tenant properties, primarily with our cash and cash equivalents, net cash from operating activities and borrowings under the Revolving Credit Facility, and potentially through proceeds generated from our ATM program which has approximately $170.7 million remaining.
Our long-term liquidity requirements consist primarily of funds necessary to acquire additional properties and repay indebtedness. We expect to meet our long-term liquidity requirements through various sources of capital, including net cash from operating activities, borrowings under our revolving credit and term loan facilities, future financings, sale of common stock under our ATM Program, proceeds from the sale of the properties in our portfolio and other secured and unsecured borrowings (including potential issuances under the Master Trust Funding Program). However, at any point in time, there may be a number of factors that could have a material and adverse effect on our ability to access these capital sources, including unfavorable conditions in the overall equity and credit markets, our level of leverage, the portion of our portfolio that is unencumbered, borrowing restrictions imposed by our existing debt agreements, general market conditions for real estate and potentially REITs specifically, our
47


operating performance, our liquidity and general market perceptions about us. The success of our business strategy will depend, to a significant degree, on our ability to access these various capital sources to fund our investment in single tenant properties and thereby grow our cash flows.
An additional liquidity need is funding the required level of distributions that are among the requirements for us to continue to qualify for taxation as a REIT. During the year ended December 31, 2020, our board of directors declared total cash distributions of $0.93 per share of common stock. Holders of OP Units are entitled to distributions per unit equivalent to those paid by us per share of common stock. During the year ended December 31, 2020, we paid $86.5 million of distributions to common stockholders and OP Unit holders, and as of December 31, 2020, we recorded $25.7 million of distributions payable to common stockholders and OP Unit holders. To continue to qualify for taxation as a REIT, we must make distributions to our stockholders aggregating annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. As a result of this requirement, we cannot rely on retained earnings to fund our business needs to the same extent as other entities that are not REITs. If we do not have sufficient funds available to us from our operations to fund our business needs, we will need to find alternative ways to fund those needs. Such alternatives may include, among other things, selling properties (whether or not the sales price is optimal or otherwise meets our strategic long-term objectives), incurring additional indebtedness or issuing equity securities in public or private transactions. The availability and attractiveness of the terms of these potential sources of financing cannot be assured.
Generally, our short-term debt capital is provided through our use of our Revolving Credit Facility. We manage our long-term leverage position through the issuance of long-term fixed-rate debt on a secured or unsecured basis. Generally, we will seek to issue long-term debt on an unsecured basis as we believe this facilitates greater flexibility in our management of our existing portfolio and our ability to retain optionality in our overall financing and growth strategy. By seeking to match the expected cash inflows from our long-term leases with the expected cash outflows necessary to service for our long-term debt, we seek to "lock in," for as long as is economically feasible, the expected positive difference between our scheduled cash inflows on our leases and the cash outflows on our debt obligations. In this way, we seek to reduce the risk that increases in interest rates would adversely impact our results of operations. Our ability to execute leases that contain annual rent escalations also contributes to our ability to manage the risk of a rising interest rate environment. We use various financial instruments designed to mitigate the impact of interest rate fluctuations on our cash flows and earnings, including hedging strategies such as interest rate swaps and caps, depending on our analysis of the interest rate environment and the costs and risks of such strategies. Although we are not required to maintain a particular leverage ratio and may not be able to do so, we generally consider that, over time, a level of net debt (which includes recourse and non-recourse borrowings and any outstanding preferred stock less unrestricted cash and cash held for the benefit of lenders) that is less than six times our annualized adjusted EBITDAre is prudent for the real estate company like ours.
As of December 31, 2020, all of our long-term debt was fixed-rate debt or was effectively converted to a fixed-rate for the term of the debt though hedging strategies and our weighted average debt maturity was 4.7 years. As we continue to invest in real estate properties and grow our real estate portfolio, we intend to manage our long-term debt maturities to reduce the risk that a significant amount of our debt will mature in any single year in the future.  
Over time, we may access additional long-term debt capital with future debt issuances through our Master Trust Funding Program, although we have no plans to currently do so. Future sources of debt capital may also include term borrowings from insurance companies, banks and other sources, mortgage financing of a single-asset or portfolio of assets and CMBS borrowings. These sources of debt capital may offer us the opportunity to lower our cost of funding and further diversify our sources of debt capital. Over time, we may choose to issue preferred equity as a part of our overall strategy for funding our investment objectives and growth goals. As our outstanding debt matures, we may refinance it as it comes due or choose to repay it using cash and cash equivalents or borrowings under the Revolving Credit Facility. Management believes that the cash generated by our operations, together with our cash and cash equivalents at December 31, 2020, our borrowing availability under the Revolving Credit Facility and our potential access to additional sources of capital, will be sufficient to fund our operations for the foreseeable future and allow us to acquire the real estate for which we currently have made commitments.     
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Description of Certain Debt
The following table summarizes our outstanding indebtedness as of December 31, 2020 and 2019:
Principal Outstanding
Weighted Average Interest Rate (1)
(in thousands) Maturity Date December 31, 2020 December 31,
2019
December 31, 2020 December 31,
2019
Unsecured term loans:
April 2019 Term Loan April 2024 $ 200,000  $ 200,000  3.3% 3.3%
November 2019 Term Loan November 2026 430,000  250,000  3.0% 3.1%
Revolving Credit Facility April 2023 18,000  46,000  1.4% 3.1%
Secured borrowings:
Series 2017-1 Notes June 2047 173,193  239,102  4.2% 4.2%
Total principal outstanding $ 821,193  $ 735,102  3.3% 3.5%
 _______________________________________________________________
(1)Interest rates are presented after giving effect to our interest rate swap agreements, where applicable.

Unsecured Revolving Credit Facility and April 2019 Term Loan
Through our Operating Partnership, we are party to an Amended Credit Agreement with a group of lenders, which provides for revolving loans of up to $400.0 million (the "Revolving Credit Facility") and up to an additional $200.0 million in term loans (the "April 2019 Term Loan").
The Revolving Credit Facility matures on April 12, 2023, with an extension option of up to one year exercisable by the Operating Partnership, subject to certain conditions, and the April 2019 Term Loan matures on April 12, 2024. 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 S&P or Moody's, the applicable margin will be a spread set according to the credit ratings provided by S&P and/or Moody's. Each of the Revolving Credit Facility and the April 2019 Term Loan is freely pre-payable at any time and is mandatorily payable if borrowings exceed the borrowing base or the revolving 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 we receive 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, we receive such a rating. 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 $200.0 million.
The Operating Partnership is the borrower under the Amended Credit Agreement, and we and each of the subsidiaries of the Operating Partnership 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, we are subject to various restrictive financial and nonfinancial covenants which, among other things, require us 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 our ability to pay distributions to our stockholders under certain circumstances. However, we may make distributions to the extent necessary to maintain our qualification as a REIT under the Code. The Amended Credit Agreement contains certain additional covenants that, subject to exceptions, limit or restrict our 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.
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November 2019 Term Loan
On November 26, 2019, we, through our Operating Partnership, entered into a $430.0 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 $430.0 million with a maturity of November 26, 2026. The loans under the November 2019 Term Loan are available to be drawn in up to three draws during the six-month period beginning on November 26, 2019. In December 2019, we made an initial borrowing of $250.0 million available under the November 2019 Term Loan and in March 2020 we borrowed the remaining $180.0 million available under the November 2019 Term Loan.
Borrowings under the November 2019 Term Loan bear interest at an annual rate of applicable LIBOR plus the applicable margin. The applicable LIBOR will be the rate with a term equivalent to the interest period applicable to the relevant borrowing. The applicable margin will initially be a spread set according to a leverage-based pricing grid. At the Operating Partnership's irrevocable election, on and after receipt of an investment grade corporate credit rating from S&P or Moody's, the applicable margin will be a spread set according to our corporate credit ratings provided by S&P and/or Moody's. The November 2019 Term Loan is pre-payable at any time by the Operating Partnership, provided, that if the loans under the November 2019 Term Loan are repaid 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 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 $500 million.
The Operating Partnership is the borrower under the November 2019 Term Loan, and our 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, we are subject to various restrictive financial and nonfinancial covenants which, among other things, require us to maintain certain leverage ratios, cash flow and debt service coverage ratios, secured borrowing ratios and a minimum level of tangible net worth.
The November 2019 Term Loan restricts our ability to pay distributions to our stockholders under certain circumstances. However, we may make distributions to the extent necessary to maintain our qualification as a REIT under the Code. The November 2019 Term Loan contains certain additional covenants that, subject to exceptions, limit or restrict our 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.
Master Trust Funding Program
SCF RC Funding I LLC, SCF RC Funding II LLC and SCF RC Funding III LLC (collectively, the "Master Trust Issuers"), all of which are indirect wholly-owned subsidiaries of the Operating Partnership, have issued net-lease mortgage notes payable (the "Notes") with an aggregate outstanding gross principal balance of $173.2 million as of December 31, 2020. The Notes are secured by all assets owned by the Master Trust Issuers. We provide property management services with respect to the mortgaged properties owned by the Master Trust Issuers and service the related leases pursuant to an amended and restated property management and servicing agreement, dated as of July 11, 2017, among the Master Trust Issuers, the Operating Partnership (as property manager and as special servicer), Midland Loan Services, a division of PNC Bank, National Association, (as back-up manager) and Citibank, N.A. (as indenture trustee).
Beginning in 2016, two series of Notes, each comprised of two classes, were issued under the program: (i) Notes originally issued by SCF RC Funding I LLC and SCF RC Funding II LLC (the "Series 2016-1 Notes"), which were repaid in full in November 2019 and (ii) Notes originally issued by SCF RC Funding I LLC, SCF RC Funding II LLC and SCF RC Funding III LLC (the "Series 2017-1 Notes"), with an aggregate outstanding principal balance of $173.2 million as of December 31, 2020. The Notes are the joint obligations of all Master Trust Issuers.
Notes issued under our Master Trust Funding Program are secured by a lien on all of the property owned by the Master Trust Issuers and the related leases. A substantial portion of our real estate investment portfolio serves as collateral for borrowings outstanding under our Master Trust Funding Program. As of December 31, 2020, we had pledged 258 properties, with a net investment amount of $399.7 million, under the Master Trust Funding Program. The agreement governing our Master Trust Funding Program permits substitution of real estate collateral from time to time, subject to certain conditions.
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Absent a plan to issue additional long-term debt through the Master Trust Funding Program, we are not required to add assets to, or substitute collateral in, the existing collateral pool. We can voluntarily elect to substitute assets in the collateral pool, subject to meeting prescribed conditions that are designed to protect the collateral pool by requiring the substitute assets to be of equal or greater measure in attributes such as: the asset's fair value, monthly rent payments, remaining lease term and weighted average coverage ratios. In addition, we can sell underperforming assets and reinvest the proceeds in new properties. Any substitutions and sales are subject to an overall limitation of 35% of the collateral pool which is typically reset at each new issuance unless the substitution or sale is credit- or risk-based, in which case there are no limitations.
A significant portion of our cash flows are generated by the special purpose entities comprising our Master Trust Funding Program. For the three months ended December 31, 2020, excess cash flow from the Master Trust Funding Program, after payment of debt service and servicing and trustee expenses, totaled $5.1 million on cash collections of $8.5 million, which represents a debt service coverage ratio (as defined in the program documents) of 2.27x. If at any time the monthly debt service coverage ratio (as defined in the program documents) generated by the collateral pool is less than or equal to 1.25x, excess cash flow from the Master Trust Funding Program entities will be deposited into a reserve account to be used for payments to be made on the Notes, to the extent there is a shortfall; if at any time the three month average debt service coverage ratio generated by the collateral pool is less than or equal to 1.15x, excess cash flow from the Master Trust Funding Program entities will be applied to an early amortization of the Notes. If cash generated by our properties held in the Master Trust Funding Program is required to be held in a reserve account or applied to an early amortization of the Notes, it would reduce the amount of cash available to us and could limit or eliminate our ability to make distributions to our common stockholders.
The Notes require monthly payments of principal and interest. The payment of principal and interest on any Class B Notes is subordinate to the payment of principal and interest on any Class A Notes. The Series 2017-1 Notes mature in June 2047 and have a weighted average interest rate of 4.19% as of December 31, 2020. However, the anticipated repayment date for the Series 2017-1 Notes is June 2024, and 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 Series 2017-1 Notes may be voluntarily prepaid, in whole or in part, at any time on or after the date that is 31 months prior to the anticipated repayment date in June 2024 without the payment of a make whole amount. Voluntary prepayments may be made before 31 months prior to the anticipated repayment date but will be subject to the payment of a make whole amount.
An event of default will occur under the Master Trust Funding Program if, among other things, the Master Trust Issuers fail to pay interest or principal on the Notes when due, materially default in complying with the material covenants contained in the documents evidencing the Notes or the mortgages on the mortgaged property collateral or if a bankruptcy or other insolvency event occurs. Under the master trust indenture, we have a number of Master Trust Issuer covenants including requirements to pay any taxes and other charges levied or imposed upon the Master Trust Issuers and to comply with specified insurance requirements. We are also required to ensure that all uses and operations on or of our properties comply in all material respects with all applicable environmental laws. As of December 31, 2020, we were in material compliance with all such covenants.
As of December 31, 2020, scheduled principal repayments on the Notes issued under the Master Trust Funding Program during 2021 were $4.1 million. We expect to meet these repayment requirements primarily through our net cash from operating activities.
Cash Flows
Comparison of the years ended December 31, 2020 and 2019
As of December 31, 2020, we had $26.6 million of cash and cash equivalents and $6.4 million of restricted cash as compared to $8.3 million and $13.0 million, respectively, as of December 31, 2019.
Cash Flows for the year ended December 31, 2020
During the year ended December 31, 2020, net cash provided by operating activities was $99.4 million as compared $88.6 million during the same period in 2019, an increase of approximately $10.8 million. Our cash flows from operating activities primarily depend on the occupancy of our portfolio, the rental rates specified in our leases, and the collectability of such rent and our operating expenses and other general and administrative costs. Cash
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inflows during 2020 related to net income adjusted for non-cash items of $107.2 million (net income of $42.5 million adjusted for non-cash items, including adding back depreciation and amortization of tangible, intangible and right-of-use real estate assets, amortization of deferred financing costs and other assets, loss on repayment of secured borrowings, provision for impairment of real estate, and subtracting gains on dispositions of real estate, net, straight-line rent receivable, equity-based compensation expense and adjustment to rental revenue for tenant credit, which in aggregate net to an addition of $64.7 million) and an increase in accrued liabilities and other payables of $4.2 million. These net cash inflows were offset by an outflow related to the increase in rent receivables, prepaid expenses and other assets of $12.1 million. The increase in net cash provided by operating activities was primarily by the increased size of our investment portfolio.
Net cash used in investing activities during the year ended December 31, 2020 was $545.5 million as compared to $607.8 million in the same period in 2019, a decrease of approximately $62.3 million. Our net cash used in investing activities is generally used to fund our investments in real estate, including capital expenditures, the development of our construction in progress and investments in loans receivable, offset by cash provided from the disposition of real estate and principal collections on our loans and direct financing lease receivables. The cash used in investing activities during 2020 included $541.3 million to fund investments in real estate, including capital expenditures, $14.4 million to fund construction in progress, $60.5 million of investments in loans receivable and $12.9 million paid to tenants as lease incentives. These cash outflows were partially offset by $82.9 million of proceeds from sales of investments, net of disposition costs and $0.3 million of principal collections on our loans and direct financing lease receivables. The increase in net cash used in investing was primarily due to our increased level of investments in real estate and loans receivables offset by increased asset sales.
Net cash provided by financing activities was $457.8 million during the year ended December 31, 2020 as compared to $524.4 million in the same period in 2019, a decrease of approximately $66.6 million. Our net cash provided by financing activities in 2020 related to cash inflows of $461.0 million from the issuance of common stock in follow-on equity offerings and through our ATM Program, $87.0 million of borrowings under the Revolving Credit Facility and $180.0 million of borrowings under the November 2019 Term Loan. These cash inflows were partially offset by a $65.9 million outflow related to principal payments on our Master Trust Funding notes, $115.0 million of repayments on the Revolving Credit Facility, the payment of $86.5 million in dividends, $2.8 million of offering costs paid related to our follow-on offerings and the ATM Program and the payment of deferred financing costs of approximately $25,000. The decrease in net cash provided by financing activities was due to our net borrowings being reduced during the year by nearly $100 million and increased dividends of approximately $22.6 million, offset by our increase proceeds from the issuance of stock of approximately $50 million.
Cash Flows for the year ended December 31, 2019
During the year ended December 31, 2019, net cash provided by operating activities was $88.6 million. Our cash flows from operating activities primarily depend on the occupancy of our portfolio, the rental rates specified in our leases, and the collectability of such rent and our operating expenses and other general and administrative costs. Cash inflows related to net income adjusted for non-cash items of $86.1 million (net income of $48.0 million adjusted for non-cash items, including depreciation and amortization of tangible, intangible and right-of-use real estate assets, amortization of deferred financing costs and other assets, loss on repurchase of secured borrowings, provision for impairment of real estate, gains on dispositions of real estate, net, straight-line rent receivable, equity-based compensation expense and adjustment to rental revenue for tenant credit, of $38.1 million), an increase in accrued liabilities and other payables of $1.2 million and a decrease in rent receivables, prepaid expenses and other assets of $1.2 million.
Net cash used in investing activities during the year ended December 31, 2019 was $607.8 million. Our net cash used in investing activities is generally used to fund our investments in real estate, including capital expenditures, the development of our construction in progress and investments in loans receivable, offset by cash provided from the disposition of real estate and principal collections on our loans and direct financing lease receivables. The cash used in investing activities included $570.0 million to fund investments in real estate, including capital expenditures, $17.9 million to fund construction in progress, $94.6 million of investments in loans receivable and $2.1 million paid to tenants as lease incentives. These cash outflows were partially offset by $66.8 million of proceeds from sales of investments, net of disposition costs and $9.5 million of principal collections on our direct financing lease receivables.
Net cash provided by financing activities of $524.4 million million during the year ended December 31, 2019 related to cash inflows of $411.6 million from the issuance of common stock in our follow-on offering and through
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our ATM program, $459.0 million of borrowings under the Revolving Credit Facility, $450.0 million of combined borrowings under the April 2019 Term Loan and November 2019 Term Loan and $1.7 million of principal collected on repurchased Master Trust Funding Notes. These cash inflows were partially offset by a net $277.4 million outflow related to principal payments and the repurchase and subsequent repayment of Master Trust Funding notes, payment of deferred financing costs of $6.1 million related to the Amended Credit Agreement, $447.0 million of repayments on the Revolving Credit Facility, the payment of $63.9 million in dividends and $1.8 million of offering costs related to our follow-on offering and the ATM Program.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2020.
Contractual Obligations
The following table provides information with respect to our commitments as of December 31, 2020: 
  Payment due by period
(in thousands) Total 2021 2022-2023 2024-2025 Thereafter
Secured Borrowings—Principal $ 173,193  $ 4,083  $ 8,804  $ 160,305  $ — 
Secured Borrowings—Fixed Interest (1)
24,372  7,183  13,844  3,345  — 
Unsecured Term Loans 630,000  —  —  200,000  430,000 
Revolving Credit Facility 18,000  —  18,000  —  — 
Tenant Construction Financing and Reimbursement Obligations (2)
16,264  16,264  —  —  — 
Operating Lease Obligations (3)
20,539  1,471  2,621  1,885  14,562 
Total $ 882,368  $ 29,002  $ 43,269  $ 365,535  $ 444,562 
_________________________________________________________ 
(1)Includes interest payments on outstanding indebtedness issued under our Master Trust Funding Program through the anticipated repayment dates.
(2)Includes obligations to reimburse certain of our tenants for construction costs that they incur in connection with construction at our properties in exchange for contractually-specified rent that generally increases proportionally with our funding.
(3)Includes of $17.5 million rental payments due under ground lease arrangements where our tenants are directly responsible for payment.
Additionally, we may enter into commitments to purchase goods and services in connection with the operation of our business. These commitments generally have terms of one-year or less and reflect expenditure levels comparable to our historical expenditures, as adjusted for our growth.
We have made an election to be taxed as a REIT for federal income tax purposes beginning with our taxable year ended December 31, 2018; accordingly, we generally will not be subject to federal income tax for the year ended December 31, 2020, if we distribute all of our REIT taxable income, determined without regard to the dividends paid deduction, to our stockholders.
Critical Accounting Policies and Estimates
Our accounting policies are determined in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that are subjective in nature and, as a result, our actual results could differ materially from our estimates. Estimates and assumptions include, among other things, subjective judgments regarding the fair values and useful lives of our properties for depreciation and lease classification purposes, the collectability of receivables and asset impairment analysis. Set forth below are the more critical accounting policies that require management judgment and estimates in the preparation of our consolidated financial statements.
Real Estate Investments
Investments in real estate are carried at cost less accumulated depreciation and impairment losses, if any. The cost of investments in real estate reflects their purchase price or development cost. We evaluate each
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acquisition transaction to determine whether the acquired asset meets the definition of a business. Under Accounting Standards Update ("ASU") 2017-01, 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.
We allocate 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.
We incur various costs in the leasing and development of our 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 incentive on our consolidated balance sheets. Tenant improvements are capitalized to building and improvements within our 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. We do not engage in speculative real estate development. We do, however, opportunistically agree to reimburse certain of our tenants for development costs at our properties in exchange for contractually specified rent that generally increases proportionally with our 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. We estimate 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 we consider 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, we include 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 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 our estimate of the fair market lease rate for the corresponding in-place lease, measured over the remaining non-cancelable term of the lease including any below-market fixed rate renewal options for below-market leases.
In making estimates of fair values for purposes of allocating purchase price, we use a number of sources, including real estate valuations prepared by independent valuation firms. We also consider 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, we consider information obtained about each property as a result of our pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. We use the information obtained as a result of our pre-acquisition due diligence as part of our 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
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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 our 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.
Allowance for Loan Losses
Prior to the adoption of ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), we periodically evaluated the collectability of our loans receivable, including accrued interest, by analyzing the underlying property level economics and trends, collateral value and quality and other relevant factors in determining the adequacy of its allowance for loan losses. A loan was determined to be impaired when, in management’s judgment based on current information and events, it was probable that we would be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses were provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeded the estimated fair value of the underlying collateral less disposition costs. As of December 31, 2019, we had no allowance for loan losses recorded in our consolidated financial statements.
On January 1, 2020, we adopted ASC 326 on a prospective basis. ASC 326 changed how we account for credit losses for all of our loans receivable and direct financing lease receivables. ASC 326 replaces the current “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information than used under the incurred losses model. Upon adoption of ASC 326, we recorded an initial allowance for loan losses of $0.2 million as of January 1, 2020, netted against loans and direct financing receivables on our consolidated balance sheet. Under ASC 326, we are required to re-evaluate the expected loss of our loans and direct financing lease receivable portfolio at each balance sheet date. As of December 31, 2020, we recorded an allowance for loan losses of $1.0 million. Changes in our allowance for loan losses are presented within provision for loan losses in our consolidated statements of operations.
In connection with our adoption of ASC 326 on January 1, 2020, we implemented a new process including the use of loan loss forecasting models. We have used the loan loss forecasting model for estimating expected lifetime credit losses, at the individual asset level, for our loans and direct financing lease receivable portfolio. The forecasting model used is the probability weighted expected cash flow method, depending on the type of loan and global assumptions.
We use a real estate loss estimate model (“RELEM”) which estimates losses on our loans and direct financing lease receivable portfolio, for purposes of calculating allowances for loan losses. The RELEM allows us to refine (on an ongoing basis) the expected loss estimate by incorporating loan specific assumptions as necessary, such as anticipated funding, interest payments, estimated extensions and estimated loan repayment/refinancing at maturity to estimate cash flows over the life of the loan. The model also incorporates assumptions related to underlying collateral values, various loss scenarios, and predicted losses to estimate expected losses. Our specific loan-level inputs include loan-to-stabilized-value “LTV” and debt service coverage ratio metrics, as well as principal balances, property type, location, coupon, origination year, term, subordination, expected repayment dates and future funding’s. We categorize the results by LTV range, which we consider the most significant indicator of credit quality for our loans and direct financing lease receivables. A lower LTV ratio typically indicates a lower credit loss risk.
Real estate lending has several risks that need to be considered. There is the potential for changes in local real estate conditions and subjectivity of real estate valuations. In addition, overall economic conditions may impact the borrowers’ financial condition. Adverse economic conditions such as high unemployment levels, interest rates, tax rates and fuel and energy costs may have an impact on the results of operations and financial conditions of borrowers.
We also evaluate each loan and direct financing lease receivable measured at amortized cost for credit deterioration at least quarterly. Credit deterioration occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan or direct financing lease receivables.
Our allowance for loan losses is adjusted to reflect our estimation of the current and future economic conditions that impact the performance of the real estate assets securing our loans. These estimations include various macroeconomic factors impacting the likelihood and magnitude of potential credit losses for our loans and direct financing leases during their anticipated term.
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Impairment of Long-Lived Assets
If circumstances indicate that the carrying value of a property may not be recoverable, we review the asset 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 statements of operations.
Adjustment to Rental Revenue for Tenant Credit/Allowance for Doubtful Accounts
We continually review receivables related to rent and unbilled rent receivables and determines collectability by taking into consideration the tenant's payment history, the financial condition of the tenant, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. 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 our 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.
As of 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 adjustment to rental revenue in the consolidated statements of operations.
Derivative Instruments
In the normal course of business, we use derivative financial instruments, which may include interest rate swaps, caps, options, floors and other interest rate derivative contracts, to protect us against adverse fluctuations in interest rates by reducing our exposure to variability in cash flows on a portion of our floating-rate debt. Instruments that meet these hedging criteria are formally designated as hedges at the inception of the derivative contract. We record 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 we have 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. We may also enter into derivative contracts that are intended to economically hedge certain risk, even though hedge accounting does not apply or we elect not to apply hedge accounting.
The accounting for subsequent changes in the fair value of these derivatives depends on whether each has been designed and qualifies for hedge accounting treatment. 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 we elect not to apply hedge accounting treatment (or for derivatives that do not qualify as hedges), any change in the fair value of these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statements of operations. We do not intend to use derivative instruments for trading or speculative purposes.
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Revenue Recognition
Our rental revenue is primarily related to 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, we record a straight-line rent receivable and recognize revenue on a straight-line basis through the expiration of the non-cancellable term of the lease. We take into account whether the collectability of rents is reasonably assured in determining the amount of straight-line rent to record.
We defer 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 our consolidated balance sheets.
Certain of our properties are subject to leases that provide for contingent rent based on a percentage of the tenant's gross sales. For these leases, we recognize contingent rental revenue when the threshold upon which the contingent lease payment is based is actually reached.
Equity-Based Compensation  
From time to time, we grant shares of restricted common stock and restricted share units ("RSUs") to our directors, executive officers and other employees that vest over multiple periods, subject to the recipient's continued service. Additionally, we also granted performance-based RSUs to our executive officers, the final number of which is determined based on market and subjective performance conditions and which vest over a multi-year period, subject to the recipient's continued service. We account 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 their 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 requisite service periods. We recognize 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 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.
Following the completion of the Formation Transactions, we concluded that the Operating Partnership is a VIE of which we are the primary beneficiary, as we have the power to direct the activities that most significantly impact the economic performance of the Operating Partnership. Substantially all of our 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 our consolidated balance sheet as of December 31, 2020.
Recently Issued Accounting Pronouncements
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. We adopted this guidance on January 1, 2020 and recorded estimates of expected loss on its loans receivable portfolio beginning on that date.
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. We adopted ASU 2017-12 while accounting for our interest rate swaps. As we did not have other derivatives outstanding at time of adoption, no prior period adjustments were required. Pursuant to the provisions of
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ASU 2017-12, we are no longer required to separately measure and recognize hedge ineffectiveness. Instead, we recognize 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 our 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. We adopted this guidance on January 1, 2020 and the adoption of ASU 2018-13 did not have a material impact on our related disclosures.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur. During the first quarter of 2020, the Company has 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. We continue 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 Financial Accounting Standards Board ("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 the cash flows in the original lease. We made this election and account for rent deferrals by increasing our rent receivables as receivables accrue and continuing to recognize income during the deferral period, resulting in $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. We continue to evaluate any amounts recognized for collectability, regardless of whether accounted for as a lease modification or not, and record 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, we reviewed all amounts recognized on a tenant-by-tenant basis for collectability.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance.
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Results of Operations
The following discusses our results of operations for the year ended December 31, 2020, as compared to our results of operations for the year ended December 31, 2019. A discussion of the changes in our results of operations for the year ended December 31, 2019, as compared to our results of operations for the year ended December 31, 2018 has been omitted from this Annual Report but may be found in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Comparison of the years ended December 31, 2019 and 2018 in our annual report for the year ended December 31, 2019.
Comparison of the years ended December 31, 2020 and 2019 
  Year ended December 31,    
(dollar amounts in thousands) 2020 2019 Change %
Revenues:    
Rental revenue $ 155,792  $ 135,670  $ 20,122  14.8  %
Interest income on loans and direct financing lease receivables 8,136  3,024  5,112  169.0  %
Other revenue, net 81  663  (582) (87.8) %
Total revenues 164,009  139,357  24,652  17.7  %
Expenses:    
General and administrative 24,444  21,745  2,699  12.4  %
Property expenses 3,881  3,070  811  26.4  %
Depreciation and amortization 59,446  42,745  16,701  39.1  %
Provision for impairment of real estate 8,399  2,918  5,481  187.8  %
Provision for loan losses 830  —  830  100.0  %
Total expenses 97,000  70,478  25,692  36.5  %
Other operating income:    
Gain on dispositions of real estate, net 5,821  10,932  (5,111) (46.8) %
Income from operations 72,830  79,811  (6,981) (8.7) %
Other (expense)/income:  
Loss on repayment and repurchase of secured borrowings (924) (5,240) 4,316  (82.4) %
Interest expense (29,651) (27,037) (2,614) 9.7  %
Interest income 485  794  (309) (38.9) %
Income before income tax expense 42,740  48,328  (5,588) (11.6) %
Income tax expense 212  303  (91) (30.0) %
Net income 42,528  48,025  (5,497) (11.4) %
Net income attributable to non-controlling interests (255) (6,181) 5,926  (95.9) %
Net income attributable to stockholders and members $ 42,273  $ 41,844  $ 429  1.0  %
Revenues:
Rental revenue. Rental revenue increased by $20.1 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase in revenues was driven primarily by the growth in the size of our real estate investment portfolio, which generated additional rental revenues. Our real estate investment portfolio grew from 1,000 properties, representing $1.9 billion in net investments in real estate, as of December 31, 2019 to 1,181 properties, representing $2.4 billion in net investments in real estate, as of December 31, 2020. Our real estate investments were acquired throughout the periods presented and were not all owned by us for the entirety of the periods; accordingly, a significant portion of the increase in rental revenue between periods is related to recognizing revenue in 2020 on acquisitions that were made during 2019 and 2020. A smaller component of the increase in revenues between periods is related to rent escalations recognized on our leases.
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Interest on loans and direct financing lease receivables. Interest on loans and direct financing lease receivables increased by $5.1 million during the year ended December 31, 2020, as compared to the year ended December 31, 2019, primarily due to our investments in loans receivable beginning in 2019 and additional investments in loans receivable during 2020, which led to a higher average daily balance of loans receivable outstanding during year ended December 31, 2020.
Other revenue. Other revenue for the year ended December 31, 2020, decreased by approximately $0.6 million, as compared to the year ended December 31, 2019, primarily due to the receipt of lease termination fees from former tenants during the year ended December 31, 2019. No lease termination income was recorded during the year ended December 31, 2020.
Expenses:
General and administrative expenses. General and administrative expenses increased $2.7 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase in general and administrative expenses was primarily due to the increase of personnel due to operating our larger real estate portfolio, including increased equity-based compensation expense, legal fees and directors' fees.  
Property expenses. Property expenses increased by $0.8 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The increase in property expenses was primarily due to increased reimbursable costs, insurance expenses and operational costs during the year ended December 31, 2020.
Depreciation and amortization expense. Depreciation and amortization expense increased by $16.7 million for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Depreciation and amortization expense increased in proportion to the general increase in the size of our real estate portfolio.    
Provision for impairment of real estate. Impairment charges on real estate investments were $8.4 million and $2.9 million, for the years ended December 31, 2020 and 2019, respectively. During the years ended December 31, 2020 and 2019, we recorded a provision for impairment of real estate at 17 and 8 of our real estate investments, respectively. We strategically seek to identify non-performing properties that we may re-lease or dispose of in an effort to improve our returns and manage risk exposure. An increase in vacancy associated with our disposition or re-leasing strategies may trigger impairment charges when the expected future cash flows from the properties from sale or re-lease are less than their net book value.
Other operating income:
Gain on dispositions of real estate, net. Gain on dispositions of real estate, net, decreased by $5.1 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. We disposed of 49 real estate properties during the year ended December 31, 2020, compared to 37 real estate properties during the year ended December 31, 2019.
Other (expense)/income:
Loss on repayment and repurchase of secured borrowings. Loss on repayment and repurchase of secured borrowings of $0.9 million during the year ended December 31, 2020 relates to the write-off of deferred financing costs upon our repayment of Class A Series 2017-1 Notes at par value. During the year ended December 31, 2019, we recorded a loss on repurchase Series 2016-1 Notes of $5.2 million, which includes the premium paid on the repurchase, the write-off of deferred financing costs and other associated legal expenses. Furthermore, the repurchased notes were subsequently canceled and the Series 2016-1 Notes that remained outstanding were fully repaid in November 2019. This repayment and repurchase were accounted for as debt extinguishments.
Interest expense. Interest expense increased by $2.6 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. This increase in interest expense was primarily due to an increase to debt held during the year ended December 31, 2020 compared to the year ended December 31, 2019. In March 2020, the Company borrowed the remaining amount of $180.0 million available under its November 2019 Term Loan and used the proceeds to acquire new investments and general corporate purposes.
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Interest income. Interest income decreased by $0.3 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. The decrease in interest income was primarily due lower daily cash balances and interest rates compared to the year ended December 31, 2019.
Income tax expense. Income tax expense decreased by $0.1 million for the year ended December 31, 2020, as compared to the year ended December 31, 2019. We are organized and operate as a REIT and are generally not subject to U.S. federal taxation. However, the Operating Partnership is subject to taxation in certain state and local jurisdictions that impose income taxes on a partnership. The changes in income tax expense are primarily due to changes in the proportion of our real estate portfolio located in jurisdictions where we are subject to taxation.
Non-GAAP Financial Measures
Our reported results are presented in accordance with GAAP. We also disclose the following non-GAAP financial measures: funds from operations ("FFO"), core funds from operations ("Core FFO"), adjusted funds from operations ("AFFO"), earnings before interest, taxes, depreciation and amortization ("EBITDA"), EBITDA further adjusted to exclude gains (or losses) on sales of depreciable property and real estate impairment losses ("EBITDAre"), adjusted EBITDAre, annualized adjusted EBITDAre, net debt, net operating income ("NOI") and cash NOI ("Cash NOI"). We believe these non-GAAP financial measures are industry measures used by analysts and investors to compare the operating performance of REITs.
We compute FFO in accordance with the definition adopted by the Board of Governors of the National Association of Real Estate Investment Trusts ("NAREIT"). NAREIT defines FFO as GAAP net income or loss adjusted to exclude extraordinary items (as defined by GAAP), net gain or loss from sales of depreciable real estate assets, impairment write-downs associated with depreciable real estate assets and real estate-related depreciation and amortization (excluding amortization of deferred financing costs and depreciation of non-real estate assets), including the pro rata share of such adjustments of unconsolidated subsidiaries. FFO is used by management, and may be useful to investors and analysts, to facilitate meaningful comparisons of operating performance between periods and among our peers primarily because it excludes the effect of real estate depreciation and amortization and net gains and losses on sales (which are dependent on historical costs and implicitly assume that the value of real estate diminishes predictably over time, rather than fluctuating based on existing market conditions).
We compute Core FFO by adjusting FFO, as defined by NAREIT, to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and/or not related to our core real estate operations. Exclusion of these items from similar FFO-type metrics is common within the equity REIT industry, and management believes that presentation of Core FFO provides investors with a metric to assist in their evaluation of our operating performance across multiple periods and in comparison to the operating performance of our peers, because it removes the effect of unusual items that are not expected to impact our operating performance on an ongoing basis. Core FFO is used by management in evaluating the performance of our core business operations. Items included in calculating FFO that may be excluded in calculating Core FFO include certain transaction related gains, losses, income or expense or other non-core amounts as they occur.
To derive AFFO, we modify our computation of Core FFO to include other adjustments to GAAP net income related to certain items that we believe are not indicative of our operating performance, including straight-line rental revenue, non-cash interest expense, non-cash compensation expense, other amortization and non-cash charges, capitalized interest expense and transaction costs. Such items may cause short-term fluctuations in net income but have no impact on operating cash flows or long-term operating performance. We believe that AFFO is an additional useful supplemental measure for investors to consider when assessing our operating performance without the distortions created by non-cash items and certain other revenues and expenses.
FFO, Core FFO and AFFO do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of FFO, Core FFO and AFFO may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.
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The following table reconciles net income (which is the most comparable GAAP measure) to FFO, Core FFO and AFFO attributable to stockholders and members and non-controlling interests:
Year ended December 31,
(in thousands) 2020 2019 2018
Net income $ 42,528  $ 48,025  $ 20,614 
Depreciation and amortization of real estate 59,309  42,649  31,335 
Provision for impairment of real estate 8,399  2,918  4,503 
Gain on dispositions of real estate, net (5,821) (10,932) (5,445)
FFO attributable to stockholders and members and non-controlling interests 104,415  82,660  51,007 
Other non-recurring expenses (1)(2)
2,273  7,988  — 
Core FFO attributable to stockholders and members and non-controlling interests 106,688  90,648  51,007 
Adjustments:
Straight-line rental revenue, net (11,905) (12,215) (8,214)
Non-cash interest 2,040  2,738  2,798 
Non-cash compensation expense 5,427  4,546  2,440 
Other amortization expense 3,854  815  495 
Other non-cash charges 829  84 
Capitalized interest expense (228) (290) (225)
Transaction costs 291  —  57 
AFFO attributable to stockholders and members and non-controlling interests $ 106,995  $ 86,251  $ 48,442 
_____________________________________
(1)Includes non-recurring expenses of approximately $39,000 related to reimbursement of executive relocation costs, $1.1 million for severance payments and acceleration of non-cash compensation expense in connection with the termination of one of our executive officers, $0.2 million of non-recurring recruiting costs, and our $0.9 million loss on repayment of secured borrowings during the year ended December 31, 2020.
(2)Includes non-recurring expenses of $2.4 million for costs and charges incurred in connection with the Eldridge secondary offering, $5.2 million loss on repayment and repurchase of secured borrowings and $0.3 million for a provision for settlement of litigation during the year ended December 31, 2019.
We compute EBITDA as earnings before interest, income taxes and depreciation and amortization. In 2017, NAREIT issued a white paper recommending that companies that report EBITDA also report EBITDAre. We compute EBITDAre in accordance with the definition adopted by NAREIT. NAREIT defines EBITDAre as EBITDA (as defined above) excluding gains (or losses) from the sales of depreciable property and real estate impairment losses. We present EBITDA and EBITDAre as they are measures commonly used in our industry. We believe that these measures are useful to investors and analysts because they provide supplemental information concerning our operating performance, exclusive of certain non-cash items and other costs. We use EBITDA and EBITDAre as measures of our operating performance and not as measures of liquidity.
EBITDA and EBITDAre do not include all items of revenue and expense included in net income, they do not represent cash generated from operating activities and they are not necessarily indicative of cash available to fund cash requirements; accordingly, they should not be considered alternatives to net income as a performance measure or cash flows from operations as a liquidity measure and should be considered in addition to, and not in lieu of, GAAP financial measures. Additionally, our computation of EBITDA and EBITDAre may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.
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The following table reconciles net income (which is the most comparable GAAP measure) to EBITDA and EBITDAre attributable to stockholders and members and non-controlling interests:
Year ended December 31,
(in thousands) 2020 2019 2018
Net income $ 42,528  $ 48,025  $ 20,614 
Depreciation and amortization 59,446  42,745  31,352 
Interest expense 29,651  27,037  30,192 
Interest income (485) (794) (930)
Income tax expense 212  303  195 
EBITDA attributable to stockholders and members and non-controlling interests 131,352  117,316  81,423 
Provision for impairment of real estate 8,399  2,918  4,503 
Gain on dispositions of real estate, net (5,821) (10,932) (5,445)
EBITDAre attributable to stockholders and members and non-controlling interests $ 133,931  $ 109,302  $ 80,481 
We further adjust EBITDAre for the most recently completed quarter i) based on an estimate calculated as if all re-leasing, investment and disposition activity that took place during the quarter had been made on the first day of the quarter, ii) to exclude certain GAAP income and expense amounts that we believe are infrequent and unusual in nature and iii) to eliminate the impact of lease termination fees and contingent rental revenue from certain of our tenants, which is subject to sales thresholds specified in the applicable leases ("Adjusted EBITDAre"). We then annualize quarterly Adjusted EBITDAre by multiplying it by four ("Annualized Adjusted EBITDAre"), which we believe provides a meaningful estimate of our current run rate for all of our investments as of the end of the most recently completed quarter. You should not unduly rely on this measure, as it is based on assumptions and estimates that may prove to be inaccurate. Our actual reported EBITDAre for future periods may be significantly less than our current Annualized Adjusted EBITDAre.
The following table reconciles net income (which is the most comparable GAAP measure) to Annualized Adjusted EBITDAre attributable to stockholders and non-controlling interests for the three months ended December 31, 2020:
(in thousands) Three months ended December 31, 2020
Net income $ 5,705 
Depreciation and amortization 19,004 
Interest expense 7,764 
Interest income (52)
Income tax expense 56 
EBITDA attributable to stockholders and members and non-controlling interests 32,475 
Provision for impairment of real estate 3,319 
Gain on dispositions of real estate, net (1,850)
EBITDAre attributable to stockholders and members and non-controlling interests 33,944 
Adjustment for current quarter re-leasing, acquisition and disposition activity (1) 4,681 
Adjustment to exclude other non-recurring expenses 2,826 
Adjustment to exclude lease termination fees and certain percentage rent (2) — 
Adjusted EBITDAre attributable to stockholders and members and non-controlling interests $ 41,451 
Annualized Adjusted EBITDAre attributable to stockholders and members and non-controlling interests $ 165,805 
_____________________________________
(1)Adjustment assumes all re-leasing activity, investments and dispositions of real estate investments made during the three months ended December 31, 2020 had occurred on October 1, 2020.
(2)Adjustment is made to exclude non-core expenses added back to compute Core FFO, our provision for loan losses and the write-off of receivables.
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We calculate our net debt as our gross debt (defined as total debt plus net deferred financing costs on our secured borrowings) less cash and cash equivalents and restricted cash deposits held for the benefit of lenders. We believe excluding cash and cash equivalents and restricted cash deposits held for the benefit of lenders from gross debt, all of which could be used to repay debt, provides an estimate of the net contractual amount of borrowed capital to be repaid, which we believe is a beneficial disclosure to investors and analysts.
The following table reconciles total debt (which is the most comparable GAAP measure) to net debt: 
December 31,
(in thousands) 2020 2019
Secured borrowings, net of deferred financing costs $ 171,007  $ 235,336 
Unsecured term loan, net of deferred financing costs 626,272  445,586 
Revolving credit facility 18,000  46,000 
Total debt 815,279  726,922 
Deferred financing costs, net 5,914  8,181 
Gross debt 821,193  735,103 
Cash and cash equivalents (26,602) (8,304)
Restricted cash deposits held for the benefit of lenders (6,388) (13,015)
Net debt $ 788,203  $ 713,784 
 We compute NOI as total revenues less property expenses. NOI excludes all other items of expense and income included in the financial statements in calculating net income or loss in accordance with GAAP. Cash NOI further excludes non-cash items included in total revenues and property expenses, such as straight-line rental revenue and other amortization and non-cash charges. We believe NOI and Cash NOI provide useful and relevant information because they reflect only those revenue and expense items that are incurred at the property level and present such items on an unlevered basis.
NOI and Cash NOI are not measures of financial performance under GAAP. You should not consider our NOI and Cash NOI as alternatives to net income or cash flows from operating activities determined in accordance with GAAP. Additionally, our computation of NOI and Cash NOI may differ from the methodology for calculating these metrics used by other equity REITs and, therefore, may not be comparable to similarly titled measures reported by other equity REITs.
The following table reconciles net income (which is the most comparable GAAP measure) to NOI and Cash NOI attributable to stockholders and members and non-controlling interests: 
Year ended December 31,
(in thousands) 2020 2019 2018
Net income $ 42,528  $ 48,025  $ 20,614 
General and administrative expense 24,444  21,745  13,762 
Depreciation and amortization 59,446  42,745  31,352 
Provision for impairment of real estate 8,399  2,918  4,503 
Provision for loan losses 830  —  — 
Gain on dispositions of real estate, net (5,821) (10,932) (5,445)
Loss on repayment and repurchase of secured borrowings 924  5,240  — 
Interest expense 29,651  27,037  30,192 
Interest income (485) (794) (930)
Income tax expense 212  303  195 
NOI attributable to stockholders and members and non-controlling interests 160,128  136,287  94,243 
Straight-line rental revenue, net (11,905) (12,215) (8,214)
Other amortization and non-cash charges 3,854  815  495 
Cash NOI attributable to stockholders and members and non-controlling interests $ 152,077  $ 124,887  $ 86,524 
64


Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Over time, we generally seek to match the expected cash inflows from our long-term leases with the expected cash outflows for our long-term debt. To achieve this objective, we borrow on a fixed-rate basis through longer-term debt issuances under our Master Trust Funding Program. Additionally, we incur debt that bears interest at floating rates under the Revolving Credit Facility, which we use in connection with our operations, including for funding investments, the April 2019 Term Loan and the November 2019 Term Loan. We have fixed the floating rates on borrowings under our term loan facilities by entering into interest rate swap agreements where we pay a fixed interest rate and receive a floating interest rate equal to the rate we pay on the respective term loan.
Principal Outstanding
Weighted Average Interest Rate (1)
(in thousands) Maturity Date December 31, 2020 December 31,
2019
December 31, 2020 December 31,
2019
Unsecured term loans:
April 2019 Term Loan April 2024 $ 200,000  $ 200,000  3.3% 3.3%
November 2019 Term Loan November 2026 430,000  250,000  3.0% 3.1%
Revolving Credit Facility April 2023 18,000  46,000  1.4% 3.1%
Secured borrowings:
Series 2017-1 Notes June 2047 173,193  239,102  4.2% 4.2%
Total principal outstanding $ 821,193  $ 735,102  3.3% 3.5%
 _______________________________________________________________
(1)Interest rates are presented after giving effect to our interest rate swap agreements, where applicable.
We have fixed the interest rates on the term loan facilities' variable-rates through the use of interest rate swap agreements. At December 31, 2020, our aggregate liability in the event of the early termination of our swaps was $40.2 million. At December 31, 2020, a 100-basis point increase of the interest rate on this facility would increase our related interest costs by approximately $4.0 million per year and a 100-basis point decrease of the interest rate would decrease our related interest costs by approximately $4.0 million per year.
Additionally, our borrowings under the Revolving Credit Facility bear interest at an annual rate equal to LIBOR plus a leverage-based credit spread. Therefore, an increase or decrease in interest rates would result in an increase or decrease to our interest expense related to the Revolving Credit Facility. We monitor our market interest rate risk exposures using a sensitivity analysis. Our sensitivity analysis estimates the exposure to market risk sensitive instruments assuming a hypothetical adverse change in interest rates. Based on the results of a sensitivity analysis, which assumes a 100-basis point adverse change in interest rates, the estimated market risk exposure for our variable‑rate borrowings under the Revolving Credit Facility was $0.2 million as of December 31, 2020.
We are exposed to interest rate risk between the time we enter into a sale-leaseback transaction or acquire a leased property and the time we finance the related real estate with long-term fixed-rate debt. In addition, when our long-term debt matures, we may have to refinance the debt at a higher interest rate. Market interest rates are sensitive to many factors that are beyond our control. Our interest rate risk management objective is to limit the impact of future interest rate changes on our earnings and cash flows. Additionally, our long-term debt under our Master Trust Funding Program generally provides for some amortization of the principal balance over the term of the debt, which serves to reduce the amount of refinancing risk at debt maturity.
In addition to amounts that we borrow under the Revolving Credit Facility, we may incur variable-rate debt in the future that we do not choose to hedge. Additionally, decreases in interest rates may lead to increased competition for the acquisition of real estate due to a reduction in desirable alternative income-producing investments. Increased competition for the acquisition of real estate may lead to a decrease in the yields on real estate we have targeted for acquisition. In such circumstances, if we are not able to offset the decrease in yields by obtaining lower interest costs on our borrowings, our results of operations will be adversely affected. Significant increases in interest rates may also have an adverse impact on our earnings if we are unable to acquire real estate with rental rates high enough to offset the increase in interest rates on our borrowings.
Fair Value of Fixed-Rate Indebtedness
The estimated fair value of our fixed-rate indebtedness under the Master Trust Funding Program is calculated based primarily on unobservable market inputs such as interest rates and discounted cash flow analyses using
65


estimates of the amount and timing of future cash flows, market rates and credit spreads. The following table discloses fair value information related to our fixed-rate indebtedness as of December 31, 2020: 
(in thousands)
Carrying
Value (1)
Estimated
Fair Value
Secured borrowings under Master Trust Funding Program $ 173,193  $ 176,382 
 _______________________________________________________________
(1)Excludes net deferred financing costs of $2.2 million.
66


Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm

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

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Essential Properties Realty Trust, Inc. 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 Essential Properties Realty Trust, Inc. and Essential Properties Realty Trust, Inc. Predecessor (the “Company”), and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’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) and our report dated February 23, 2021, expressed an unqualified opinion thereon.

Adoption of ASU No. 2016-02

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2020 and 2019 due to the adoption of ASU No. 2016-02, Leases.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

67


Impairment of Long-Lived Assets
Description of the Matter
At December 31, 2020, the Company’s real estate investments totaled approximately $2.2 billion. As described in Note 2 to the consolidated financial statements, investments in real estate are reviewed for impairment when circumstances indicate that the carrying value of a property may not be recoverable. For the year ended December 31, 2020, the Company recognized a $8.4 million provision for impairment of real estate.

Auditing the Company’s accounting for impairment of real estate investments was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in the determination of estimated future cash flows expected to result from the property’s use and eventual disposition and the estimated fair value of the property. In particular, management’s assumptions and estimates included projected rental rates during the holding period, property capitalization rates, and if applicable, discount rates, which were sensitive to expectations about future operations, market or economic conditions, demand and competition.

How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s real estate investment impairment process. This included testing of controls over management's review of the significant assumptions and data inputs utilized in the estimation of expected future cash flows and the determination of fair value.

To test the Company’s accounting for impairment of real estate investments, we performed audit procedures that included, among others, evaluating the methodologies applied and testing the significant assumptions discussed above and the underlying data used by the Company in its impairment analyses. In certain cases, we involved our valuation specialists to assist in performing these procedures. We compared the significant assumptions used by management to historical data and observable market-specific data. We assessed the precision of management’s process to develop certain assumptions by comparing current assumptions to historical trends. We also performed sensitivity analyses of significant assumptions to evaluate the changes in estimated future cash flows that would result from changes in the assumptions. In addition, we assessed information and events subsequent to the balance sheet date to corroborate certain of the key assumptions utilized by management.

68


Purchase Price Allocation for Acquired Real Estate Investments
Description of the Matter
During 2020, the Company acquired 208 properties for an aggregate purchase price of $526.3 million. As described in Notes 2 and 3 to the consolidated financial statements, the Company allocates the purchase price of acquired properties to tangible and identifiable intangible assets and liabilities based on their relative fair values.

Auditing the Company’s accounting for these acquisitions was especially challenging and involved a high degree of subjectivity as a result of the assumptions and estimates inherent in determining the fair values of the acquired tangible and identifiable intangible assets and liabilities. In particular, management’s significant assumptions and estimates included land prices per square foot, building and site improvements per square foot, terminal capitalization rates, market-based rents and discount rates, which were sensitive to individual market and economic conditions at the date of acquisition.

How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over management’s processes to determine the fair value of the assets and liabilities acquired for purposes of allocating the purchase price. This included testing of controls over management’s review of the significant assumptions and data inputs utilized in the underlying fair value determinations.

To test the Company’s allocation of purchase price for real estate investments, we involved our real estate valuation specialists and performed audit procedures that included, among others, evaluating the valuation methodologies employed and the significant assumptions utilized to determine the fair value of the acquired tangible and identified intangible assets and liabilities. We compared significant assumptions to third party evidence or other support. In addition, with the support of our valuation specialist, we independently calculated the fair values of certain acquired tangible and identified intangible assets and liabilities and compared the independently calculated values to the fair values developed by the Company. We also tested the completeness and accuracy of the underlying data utilized in the purchase price allocations.


/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2017.

New York, New York
February 23, 2021
69


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
February 23, 2021
70


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 $ 741,254  $ 588,279 
Building and improvements 1,519,665  1,224,682 
Lease incentives 14,297  4,908 
Construction in progress 3,908  12,128 
Intangible lease assets 80,271  78,922 
Total real estate investments, at cost 2,359,395  1,908,919 
Less: accumulated depreciation and amortization (136,097) (90,071)
Total real estate investments, net 2,223,298  1,818,848 
Loans and direct financing lease receivables, net 152,220  92,184 
Real estate investments held for sale, net 17,058  1,211 
Net investments 2,392,576  1,912,243 
Cash and cash equivalents 26,602  8,304 
Restricted cash 6,388  13,015 
Straight-line rent receivable, net 37,830  25,926 
Rent receivables, prepaid expenses and other assets, net 25,406  15,959 
Total assets (1)
$ 2,488,802  $ 1,975,447 
LIABILITIES AND EQUITY
Secured borrowings, net of deferred financing costs $ 171,007  $ 235,336 
Unsecured term loans, net of deferred financing costs 626,272  445,586 
Revolving credit facility 18,000  46,000 
Intangible lease liabilities, net 10,168  9,564 
Dividend payable 25,703  19,395 
Derivative liabilities 38,912  4,082 
Accrued liabilities and other payables 16,792  13,371 
Total liabilities (1)
906,854  773,334 
Commitments and contingencies (see Note 11)
—  — 
Stockholders' equity:
Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of December 31, 2020 and 2019
—  — 
Common stock, $0.01 par value; 500,000,000 authorized; 106,361,524 and 83,761,151 issued and outstanding as of December 31, 2020 and 2019, respectively
1,064  838 
Additional paid-in capital 1,688,540  1,223,043 
Distributions in excess of cumulative earnings (77,665) (27,482)
Accumulated other comprehensive loss (37,181) (1,949)
Total stockholders' equity 1,574,758  1,194,450 
Non-controlling interests 7,190  7,663 
Total equity 1,581,948  1,202,113 
Total liabilities and equity $ 2,488,802  $ 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 $25.6 million and $19.3 million, respectively, of dividends payable.
The accompanying notes are an integral part of these consolidated financial statements.
71


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 $ 155,792  $ 135,670  $ 94,944 
Interest on loans and direct financing lease receivables 8,136  3,024  656 
Other revenue, net 81  663  623 
Total revenues 164,009  139,357  96,223 
Expenses:      
General and administrative 24,444  21,745  13,762 
Property expenses 3,881  3,070  1,980 
Depreciation and amortization 59,446  42,745  31,352 
Provision for impairment of real estate 8,399  2,918  4,503 
Provision for loan losses 830  —  — 
Total expenses 97,000  70,478  51,597 
Other operating income:      
Gain on dispositions of real estate, net 5,821  10,932  5,445 
Income from operations 72,830  79,811  50,071 
Other (expense)/income:      
Loss on repayment and repurchase of secured borrowings (924) (5,240) — 
Interest expense (including $4,603 to related parties during the year ended December 31, 2018 )
(29,651) (27,037) (30,192)
Interest income 485  794  930 
Income before income tax expense 42,740  48,328  20,809 
Income tax expense 212  303  195 
Net income 42,528  48,025  20,614 
Net income attributable to non-controlling interests (255) (6,181) (5,001)
Net income attributable to stockholders and members $ 42,273  $ 41,844  $ 15,613 
 
Year ended December 31, Period from 
June 25, 2018 to 
December 31, 2018
2020 2019
Basic weighted average shares outstanding 95,311,035  64,104,058  42,634,678 
Basic net income per share $ 0.44  $ 0.65  $ 0.26 
Diluted weighted average shares outstanding 96,197,705  75,309,896  61,765,957 
Diluted net income per share $ 0.44  $ 0.63  $ 0.26 
 
The accompanying notes are an integral part of these consolidated financial statements.
72


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 $ 42,528  $ 48,025  $ 20,614 
Other comprehensive loss:
Unrealized loss on cash flow hedges (42,121) (2,799) — 
Cash flow hedge losses (gains) reclassified to interest expense 6,676  (106) — 
Total other comprehensive loss (35,445) (2,905) — 
Comprehensive income 7,083  45,120  20,614 
Net income attributable to non-controlling interests (255) (6,181) (5,001)
Adjustment for cash flow hedge losses (gains) attributable to non-controlling interests 213  956  — 
Comprehensive income attributable to stockholders and members $ 7,041  $ 39,895  $ 15,613 
 
The accompanying notes are an integral part of these consolidated financial statements.
73


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 —  $ —  $ —  $ —  $ —  $ 86,668  $ 574  $ 94,064  $ 96  $ 181,402  $ —  $ 181,402 
Contributions —  —  —  —  —  50,000  —  —  —  50,000  —  50,000 
Unit compensation expense —  —  —  —  —  —  373  —  70  443  —  443 
Net income —  —  —  —  —  2,414  —  1,871  —  4,285  —  4,285 
Balance at June 24, 2018 —  —  —  —  —  139,082  947  95,935  166  236,130  —  236,130 
Contribution of Predecessor equity in exchange for OP Units —  —  —  —  —  (139,082) (947) (95,935) (166) (236,130) 236,130  — 
Initial public offering 35,272,191  353  493,458  —  —  —  —  —  —  493,811  —  493,811 
Concurrent private placement of common stock 7,785,611  78  108,921  —  —  —  —  —  —  108,999  —  108,999 
Concurrent private placement of OP Units —  —  —  —  —  —  —  —  —  —  16,001  16,001 
Costs related to initial public offering —  —  (35,107) —  —  —  —  —  —  (35,107) —  (35,107)
Share-based compensation expense 691,290  —  1,692  —  —  —  —  —  —  1,692  —  1,692 
Unit-based compensation expense —  —  443  —  —  —  —  —  —  443  —  443 
Dividends declared on common stock and OP Units —  —  —  (18,987) —  —  —  —  —  (18,987) (8,270) (27,257)
Net income —  —  —  11,328  —  —  —  —  —  11,328  5,001  16,329 
Balance at December 31, 2018 43,749,092  431  569,407  (7,659) —  —  —  —  —  562,179  248,862  811,041 
Common stock issuance 21,462,986  215  423,472  —  —  —  —  —  —  423,687  —  423,687 
Costs related to issuance of common stock —  —  (13,901) —  —  —  —  —  —  (13,901) —  (13,901)
Conversion of equity in Secondary Offering 18,502,705  185  237,795  —  —  —  —  —  —  237,980  (237,980) — 
Unrealized losses on cash flow hedges —  —  —  —  (1,868) —  —  —  —  (1,868) (931) (2,799)
Cash flow hedge gains reclassified to interest expense —  —  —  —  (81) —  —  —  —  (81) (25) (106)
Share-based compensation expense 46,368  4,108  —  —  —  —  —  —  4,115  —  4,115 
Unit-based compensation expense —  —  2,162  —  —  —  —  —  —  2,162  —  2,162 
Dividends declared on common stock and OP Units —  —  —  (61,667) —  —  —  —  —  (61,667) (8,444) (70,111)
Net income —  —  —  41,844  —  —  —  —  —  41,844  6,181  48,025 
Balance at December 31, 2019 83,761,151  838  1,223,043  (27,482) (1,949) —  —  —  —  1,194,450  7,663  1,202,113 
Cumulative adjustment upon adoption of ASC 326 —  —  —  (187) —  (187) (1) (188)
Common stock issuance 22,554,057  225  477,574  —  —  —  —  —  —  477,799  —  477,799 
Costs related to issuance of common stock —  —  (18,154) —  —  —  —  —  —  (18,154) —  (18,154)
Unrealized losses on cash flow hedges —  —  —  —  (41,868) —  —  —  —  (41,868) (253) (42,121)
Cash flow hedge losses reclassified to interest expense —  —  —  —  6,636  —  —  —  —  6,636  40  6,676 
Share-based compensation expense 46,316  6,077  —  —  —  —  —  —  6,078  —  6,078 
Dividends declared on common stock and OP Units —  —  —  (92,269) —  —  —  —  —  (92,269) (514) (92,783)
Net income —  —  —  42,273  —  —  —  —  —  42,273  255  42,528 
Balance at December 31, 2020 106,361,524  $ 1,064  $ 1,688,540  $ (77,665) $ (37,181) $ —  $ —  $ —  $ —  $ 1,574,758  $ 7,190  $ 1,581,948 
 
 The accompanying notes are an integral part of these consolidated financial statements.
74


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 $ 42,528  $ 48,025  $ 20,614 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 59,406  42,745  31,352 
Amortization of lease incentive 3,847  282  159 
Amortization of above/below market leases and right of use assets, net 534  336 
Amortization of deferred financing costs and other assets 2,532  2,815  2,798 
Loss on repurchase and retirement of secured borrowings 924  5,240  — 
Provision for impairment of real estate 8,399  2,918  4,503 
Provision for loan losses 830  —  — 
Gain on dispositions of investments, net (5,821) (10,932) (5,445)
Straight-line rent receivable (15,137) (12,322) (8,812)
Equity-based compensation expense 6,085  6,238  2,440 
Adjustment to rental revenue for tenant credit/allowance for doubtful accounts 3,601  593  385 
Changes in other assets and liabilities:
Rent receivables, prepaid expenses and other assets (12,058) 1,242  (767)
Accrued liabilities and other payables 4,243  1,190  (1,646)
Net cash provided by operating activities 99,388  88,568  45,917 
Cash flows from investing activities:
Proceeds from sales of investments, net 82,889  66,765  60,446 
Principal collections on loans and direct financing lease receivables 286  9,519  74 
Investments in loans receivable (60,480) (94,637) (14,854)
Deposits for prospective real estate investments 475  530  (1,712)
Investment in real estate, including capital expenditures (541,307) (570,025) (490,040)
Investment in construction in progress (14,423) (17,858) (15,258)
Lease incentives paid (12,949) (2,133) (519)
Net cash used in investing activities (545,509) (607,839) (461,863)
Cash flows from financing activities:
Proceeds from issuance of notes payable to related parties —  —  154,000 
Payments of principal on notes payable to related parties —  —  (384,000)
Repurchase and repayment of secured borrowings (65,909) (279,123) (7,816)
Principal received on repurchased secured borrowings —  1,707  — 
Borrowings under term loan facilities 180,000  450,000  — 
Borrowings under revolving credit facility 87,000  459,000  34,000 
Repayments under revolving credit facility (115,000) (447,000) — 
Deferred financing costs (25) (6,128) (3,065)
Capital contributions by members in Predecessor —  —  50,000 
Proceeds from issuance of common stock, net 461,006  411,635  464,182 
Offering costs (2,805) (1,837) (5,478)
Proceeds from concurrent private placement of OP Units —  —  16,001 
Proceeds from concurrent private placement of common stock —  —  108,999 
Dividends paid (86,475) (63,903) (14,068)
Net cash provided by financing activities 457,792  524,351  412,755 
Net increase (decrease) in cash and cash equivalents and restricted cash 11,671  5,080  (3,191)
Cash and cash equivalents and restricted cash, beginning of period 21,319  16,239  19,430 
Cash and cash equivalents and restricted cash, end of period $ 32,990  $ 21,319  $ 16,239 
Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents $ 26,602  $ 8,304  $ 4,236 
Restricted cash 6,388  13,015  12,003 
Cash and cash equivalents and restricted cash, end of period $ 32,990  $ 21,319  $ 16,239 
The accompanying notes are an integral part of these consolidated financial statements.
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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 $ 27,071  $ 29,485  $ 27,901 
Cash paid for income taxes 546  60  55 
Non-cash investing and financing activities:
Adjustment upon adoption of ASC 326 $ 188  $ —  $ — 
Reclassification from construction in progress upon project completion 22,643  7,055  18,009 
Net settlement of proceeds on the sale of investments 860  4,960  — 
Non-cash investments in loan receivable activity (860) 10,439  — 
Lease liabilities arising from the recognition of right of use assets —  8,355  — 
Unrealized losses on cash flow hedges 44,920  2,905  — 
Contribution of Predecessor equity in exchange for OP Units —  —  236,130 
Conversion of equity in Secondary Offering —  237,795  — 
Payable and accrued offering costs —  66  — 
Discounts and fees on capital raised through issuance of common stock 16,674  12,048  29,629 
Payable and accrued deferred financing costs —  126  — 
Dividends declared 25,703  19,395  13,189 
The accompanying notes are an integral part of these consolidated financial statements.
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Notes to Consolidated Financial Statements
December 31, 2020
1. 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 $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 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.
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2. Summary of Significant Accounting Policies
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.
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 99.5% and 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
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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 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 40 years for buildings and 15 years for site improvements. 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 $ 51,736  $ 36,354  $ 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
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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.
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 five leases which were accounted for as loans receivable and eight mortgage loans held for long-term investment. As of December 31, 2019, the Company had two leases which were accounted for as loans receivable and 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
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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 $ 8,399  $ 2,918  $ 4,503 
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 $26.6 million and $8.3 million, respectively, of which $26.4 million and $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.
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 $ 7,149  $ 593  $ 235 
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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.
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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 $ 444  $ 855  $ 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 $67.2 million and $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.
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
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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
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support. 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 11 7 9
Aggregate carrying value $ 117,578  $ 60,500  $ 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 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 one reportable segment.
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.
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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 $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.
In August 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for the Company for fiscal years beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. The guidance must be adopted as of the beginning of the fiscal year of adoption. The Company is currently evaluating the impact of this new guidance.
3. 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)
1,056 897
Properties securing investments in mortgage loans (2)
115 91
Ground lease interests (3)
10 12
Total number of investments 1,181 1,000
_____________________________________
(1)Includes 11 and 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 8 and 6 mortgage loans receivable as of December 31, 2020 and 2019, respectively.
(3)Includes one building which is subject to a lease accounted for as a direct financing lease as of December 31, 2020 and 2019.
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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 2,359,395  1,908,919 
Loans and direct financing lease receivables, net 152,220  92,184 
Real estate investments held for sale, net 17,058  1,211 
Total gross investments $ 2,528,673  $ 2,002,314 
As of December 31, 2020 and 2019, 258 and 355 of these investments, comprising $399.7 million and $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 208 281
Purchase price allocation:
Land and improvements $ 181,297  $ 191,311 
Building and improvements 323,542 370,312
Construction in progress (3)
15,825 17,858
Intangible lease assets 7,737 18,802
Total purchase price 528,401  598,283 
Intangible lease liabilities (2,125) (188)
Purchase price (including acquisition costs) $ 526,276  $ 598,095 
_____________________________________
(1)During the year ended December 31, 2020, the Company acquired the fee interest in 206 properties and acquired two properties subject to ground lease arrangements.
(2)During the year ended December 31, 2019, the Company acquired the fee interest in 279 properties and acquired two properties subject to ground lease arrangements.
(3)Represents amounts incurred at and subsequent to acquisition and includes $0.2 million and $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 not have any investments that individually represented more than 5% of the Company’s total investment activity.

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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 508  $ 939,072 
Acquisitions of and additions to real estate investments 204  506,949 
Sales of investments in real estate (45) (58,084)
Relinquishment of properties at end of ground lease term (2) (853)
Provisions for impairment of real estate (1)
—  (4,543)
Investments in loans receivable (2)(3)
12  14,854 
Principal collections on and settlements of loans and direct financing lease receivables —  (74)
Other —  (2,772)
Gross investments, December 31, 2018 677  1,394,549 
Acquisitions of and additions to real estate investments 281  603,677 
Sales of investments in real estate (37) (65,571)
Relinquishment of properties at end of ground lease term (3) (700)
Provisions for impairment of real estate (4)
—  (2,918)
Investments in loans receivable 95  94,637 
Principal collections on and settlements of loans and direct financing lease receivables (13) (19,958)
Other —  (1,402)
Gross investments, December 31, 2019 1,000  2,002,314 
Acquisitions of and additions to real estate investments 208  568,204 
Sales of investments in real estate (49) (81,312)
Relinquishment of properties at end of ground lease term (3) (1,931)
Provisions for impairment of real estate (5)
—  (8,399)
Investments in loans receivable (6)
25  61,339 
Principal collections on and settlements of loans and direct financing lease receivables —  (286)
Other —  (11,256)
Gross investments, December 31, 2020 1,181  2,528,673 
Less: Accumulated depreciation and amortization (7)
—  (136,097)
Net investments, December 31, 2020 1,181  $ 2,392,576 
_____________________________________________ 
(1)During the year ended December 31, 2018, the Company identified and recorded provisions for impairment at 7 vacant and 14 tenanted properties. The amount in the table above excludes $40,000 related to intangible lease liabilities for these assets.
(2)Includes a $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 $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 1 vacant and 7 tenanted properties.
(5)During the year ended December 31, 2020, the Company identified and recorded provisions for impairment at 7 vacant and 10 tenanted properties.
(6)During the year ended December 31, 2020, the Company invested in 25 properties that secured five of its loans receivable for an aggregate investment of $57.0 million.
(7)Includes $112.1 million of accumulated depreciation as of December 31, 2020.
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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 13 and seven loans receivable outstanding, with an aggregate carrying amount of $150.8 million and $89.6 million, respectively. The maximum amount of loss due to credit risk is the Company's current principal balance of $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 2 8.80% 8.10% 2039 $ 12,000  $ 12,000 
Mortgage (3)
P+I 2 8.10% 8.10% 2059 6,114  5,125 
Mortgage (2)
I/O 2 8.53% 7.80% 2039 7,300  7,300 
Mortgage (2)
I/O 69 8.16% 7.70% 2034 28,000  28,000 
Mortgage (2)
I/O 18 8.05% 7.50% 2034 37,105  34,604 
Mortgage (2)
I/O 1 8.42% 7.70% 2040 5,300  — 
Mortgage (2)
I/O 1 7.00% 7.00% 2021 860  — 
Mortgage (2)
I/O 3 8.30% 8.25% 2022 2,324  — 
Mortgage (2)
I/O 19 7.30% 6.80% 2035 46,000  — 
Leasehold interest P+I 2 10.69% (4) 2039 1,435  1,435 
Leasehold interest P+I 1 2.25% (5) 2034 1,109  1,164 
Leasehold interest P+I 1 2.41% (5) 2034 1,645  — 
Leasehold interest P+I 1 4.97% (5) 2038 1,605  — 
Net investment         $ 150,797  $ 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 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.
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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 $ 1,068 
2022 2,545 
2023 236 
2024 252 
2025 268 
Thereafter 146,428 
Total $ 150,797 
As of December 31, 2020 and 2019, the Company had $2.4 million and $2.6 million of net investments accounted for as direct financing lease receivables, respectively. 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 $ 3,529  $ 3,866 
Estimated unguaranteed residual value of leased assets 270  270 
Unearned income from leased assets (1,357) (1,581)
Net investment $ 2,442  $ 2,555 
 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 $ 340 
2022 345 
2023 347 
2024 289 
2025 254 
Thereafter 1,954 
Total $ 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 $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.
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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 $ — 
Cumulative-effect adjustment upon adoption of ASC 326 188 
Current period provision for expected credit losses (1)
830 
Write-offs charged — 
Recoveries — 
Balance at December 31, 2020 $ 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.
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% $ 860  $ 28,000  $ —  $ —  $ 747  $ 29,607 
LTV 60%-70% —  —  —  —  988  988 
LTV >70% 56,874  65,063  —  —  706  122,643 
$ 57,734  $ 93,063  $ —  $ —  $ 2,441  $ 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 —  $ —  $ —  $ — 
Transfers to held for sale classification 7,450  —  7,450 
Sales (4) (6,239) —  (6,239)
Transfers to held and used classification —  —  —  — 
Held for sale balance, December 31, 2019 1,211  —  1,211 
Transfers to held for sale classification 17,058  —  17,058 
Sales (1) (1,211) —  (1,211)
Transfers to held and used classification —  —  —  — 
Held for sale balance, December 31, 2020 $ 17,058  $ —  $ 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.
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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 14.9% 12.4% 12.5%
Georgia 9.6% 10.8% 11.5%
Intangible Assets and Liabilities
Intangible assets and liabilities consisted of the following as of the dates presented: 
  December 31, 2020 December 31, 2019
(in thousands) Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Intangible assets:            
In-place leases $ 67,986  $ 18,767  $ 49,219  $ 64,828  $ 14,195  $ 50,633 
Intangible market lease assets 12,285  4,059  8,226  14,094  4,228  9,866 
Total intangible assets $ 80,271  $ 22,826  $ 57,445  $ 78,922  $ 18,423  $ 60,499 
Intangible market lease liabilities $ 12,772  $ 2,604  $ 10,168  $ 12,054  $ 2,490  $ 9,564 
 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 9.8
Intangible market lease assets 17.6
Total intangible assets 10.4
 
Intangible market lease liabilities 6.4
 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)
$ 7,067  $ 6,272  $ 6,465 
Amortization (accretion) of market lease intangibles, net (2)
866  780 
Amortization (accretion) of above- and below-market ground lease intangibles, net (3)
(395) (333) (443)
 ______________________________________________________
(1)Reflected within depreciation and amortization expense.
(2)Reflected within rental revenue.
(3)Reflected within property expenses.
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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 $ 5,998 
2022 5,839 
2023 5,418 
2024 4,739 
2025 3,685 
Thereafter 23,540 
Total $ 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 $ (732) $ 528  $ (204)
2022 (731) 587  (144)
2023 (700) 502  (198)
2024 (669) 570  (99)
2025 (662) 608  (54)
Thereafter (4,732) 7,373  2,641 
Total $ (8,226) $ 10,168  $ 1,942 
4. 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.
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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 $ 186,271 
2022 189,346 
2023 192,210 
2024 193,275 
2025 191,848 
Thereafter 2,092,267 
Total $ 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 $ 165,171  $ 134,879  $ 94,770 
Variable lease revenues (1)
1,341  2,282  1,671 
Total lease revenues (2)
$ 166,512  $ 137,161  $ 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 $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 $0.1 million of accrued rent expense reclassified from accrued liabilities and other payables and $1.2 million of acquired above-market lease liabilities, net, reclassified from intangible lease liabilities, net and increased by $0.1 million of acquired below-market lease assets, net, reclassified from intangible lease assets, net of accumulated depreciation and amortization and $0.2 million of prepaid lease payments. As of December 31, 2020, the Company's ROU assets and lease liabilities were $6.4 million and $8.8 million, respectively. As of December 31, 2019, the Company's ROU assets and lease liabilities were $4.8 million and $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.
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The following table sets forth information related to the measurement of the Company's lease liabilities as of the dates presented:
  December 31, 2020 December 31, 2019
Weighted average remaining lease term (in years) 22.4 21.9
Weighted average discount rate 6.41% 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 $ 905  $ 911  $ 1,010 
Fixed rent expense - Office Rent 512  514  273 
Variable rent expense —  —  — 
Total rent expense $ 1,418  $ 1,425  $ 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 $ 511  $ 151  $ 809  $ 1,471 
2022 518  151  811  1,480 
2023 525  131  485  1,141 
2024 531  24  436  991 
2025 538  —  356  894 
Thereafter —  —  14,562  14,562 
Total $ 2,623  $ 457  $ 17,459  20,539 
Present value discount (11,703)
Lease liabilities $ 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.
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5. 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 December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019
Unsecured term loans:
April 2019 Term Loan April 2024 $ 200,000  $ 200,000  1.4% 3.0%
November 2019 Term Loan November 2026 430,000  250,000  1.7% 3.2%
Revolving Credit Facility April 2023 18,000  46,000  1.4% 3.1%
Secured borrowings:
Series 2017-1 Notes June 2047 173,193  239,102  4.2% 4.2%
Total principal outstanding $ 821,193  $ 735,102  2.1% 3.5%
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 $ —  $ —  $ —  $ 4,084  $ 4,084 
2022 —  —  —  4,292  4,292 
2023 —  —  18,000  4,512  22,512 
2024 200,000  —  —  160,305  360,305 
2025 —  —  —  —  — 
Thereafter —  430,000  —  —  430,000 
Total $ 200,000  $ 430,000  $ 18,000  $ 173,193  $ 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 $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 $400.0 million (the “Revolving Credit Facility”) and to permit the incurrence of an additional $200.0 million in term loans thereunder (the “April 2019 Term Loan”).
The Revolving Credit Facility has a term of four years from April 12, 2019, with an extension option of up to one year exercisable by the Operating Partnership, subject to certain conditions, and the April 2019 Term Loan has a term of 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.
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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 $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 $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 $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, $ 46,000  $ 34,000  $ — 
Borrowings 87,000  459,000  34,000 
Repayments (115,000) (447,000) — 
Balance on December 31, $ 18,000  $ 46,000  $ 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 $ 1,367  $ 3,416  $ 442 
Amortization of deferred financing costs 1,165  1,094  494 
Total $ 2,532  $ 4,510  $ 936 
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Total deferred financing costs, net, of $2.5 million and $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 $382.0 million and $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 $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 $430 million with a maturity of November 26, 2026.
Borrowings under the November 2019 Term Loan bear interest at an annual rate of applicable LIBOR plus the applicable margin. The applicable LIBOR will be the rate with a term equivalent to the interest period applicable to the relevant borrowing. The applicable margin will initially be a spread set according to a leverage-based pricing grid. At the Operating Partnership’s irrevocable election, on and after receipt of an investment grade corporate credit rating from S&P or 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 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 $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 $ 11,685  $ 4,868 
Amortization of deferred financing costs 711  187 
Total $ 12,396  $ 5,055 
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Total deferred financing costs, net, of $3.7 million and $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 $263.5 million of Class A Notes and $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 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 $200 million for $201.4 million from an affiliate of Eldridge. On November 12, 2019, the Company cancelled all $200 million of these repurchased Class A Series 2016-1 Notes.
In November 2019, the Company prepaid all $70.4 million of the then outstanding Series 2016-1 Notes (consisting of the remaining $53.2 million Class A Series 2016-1 Notes and $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 $232.4 million of Class A Notes and $15.7 million of Class B Notes (together, the “Series 2017-1 Notes”). The Series 2017-1 Notes were issued by three SPEs formed to hold assets and issue the secured borrowings associated with the securitization.
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The Series 2017-1 Notes mature in June 2047 and have a weighted average interest rate of 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 31 months prior to the anticipated repayment date.
In February 2020, the Company voluntarily prepaid $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 $ 7,619  $ 16,328  $ 22,574 
Amortization of deferred financing costs 656  1,538  2,304 
Total $ 8,275  $ 17,866  $ 24,878 
Total deferred financing costs, net, of $2.2 million and $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 $0.9 million loss on repurchase and repayment of secured borrowings related to the amortization of deferred financing costs on the $62.3 million voluntary prepayment of the Class A Series 2017-1 Notes during the year ended December 31, 2020. The Company recorded a $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 20 Warehouse Notes for a combined $154.0 million. On January 31, 2018, the Company made principal payments on the Warehouse Notes of $50.0 million, repaying 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 36 of the then outstanding Warehouse Notes, with an aggregate outstanding principal amount of $334.0 million, in full, prior to maturity, and had 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 $ 230,000 
Borrowings 154,000 
Repayments (384,000)
Outstanding, December 31, 2018 $ — 
During the year ended December 31, 2018, the Company incurred $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. 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 $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 2.06% 5/14/2019 4/12/2024 $ 100,000  $ (6,176) $ (1,996)
Interest Rate Swap 2.06% 5/14/2019 4/12/2024 50,000  (3,089) (999)
Interest Rate Swap 2.07% 5/14/2019 4/12/2024 50,000  (3,094) (1,005)
Interest Rate Swap 1.61% 12/9/2019 11/26/2026 175,000  (11,838) 758 
Interest Rate Swap 1.61% 12/9/2019 11/26/2026 50,000  (3,396) 210 
Interest Rate Swap 1.60% 12/9/2019 11/26/2026 25,000  (1,675) 127 
Interest Rate Swap 1.36% 7/9/2020 11/26/2026 100,000  (5,353) — 
Interest Rate Swap 1.36% 7/9/2020 11/26/2026 80,000  (4,291) — 
$ 630,000  $ (38,912) $ (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 $38.9 million and $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 $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 $ (35,445) $ (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 $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 $4.1 million. As of December 31, 2020, there were 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 $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 $6.7 million and $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 $40.2 million and $3.1 million as of December 31, 2020 and December 31, 2019, respectively.
7. Equity
Stockholders' Equity
On June 25, 2018, the Company completed its IPO and issued 32,500,000 shares of its common stock at an initial public offering price of $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 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 $125.0 million investment from an affiliate of Eldridge Industries, LLC (“Eldridge”) in private placements (the “Concurrent Private Placement”) of 7,785,611 shares of its common stock and 1,142,960 OP Units at a price per share/unit of $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 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 4,875,000 shares of the Company’s common stock at the IPO price of $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 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 $583.7 million.
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On June 25, 2018, the Company issued 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 14,030,000 shares of its common stock, including 1,830,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $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 $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 26,288,316 shares of the Company’s common stock, including 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 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 7,935,000 shares its common stock, including 1,035,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $25.20 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $191.5 million.
On September 22, 2020, the Company completed a follow-on offering of 10,120,000 shares its common stock, including 1,320,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at an offering price of $19.00 per share. Net proceeds from this follow-on offering, after deducting underwriting discounts and commissions and other expenses, were $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 $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 $200 million and, prior to its termination, the Company issued common stock with an aggregate gross sales price of $184.4 million thereunder. As of December 31, 2020, the Company issued common stock with an aggregate gross sales price of $79.3 million under the 2020 ATM Program and could issue additional common stock with an aggregate gross sales price of up to $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."
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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 4,499,057  7,432,986 
Weighted average sale price per share $ 19.02  $ 23.97 
Gross proceeds $ 85,559  $ 178,161 
Net proceeds $ 84,104  $ 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 December 31, 2020 January 15, 2021 $ 0.24  $ 25,570 
September 4, 2020 September 30, 2020 October 15, 2020 $ 0.23  $ 24,115 
June 11, 2020 June 30, 2020 July 15, 2020 $ 0.23  $ 21,419 
March 18, 2020 March 31, 2020 April 15, 2020 $ 0.23  $ 21,168 
December 6, 2019 December 31, 2019 January 15, 2020 $ 0.23  $ 19,268 
September 6, 2019 September 30, 2019 October 15, 2019 $ 0.22  $ 17,531 
June 5, 2019 June 28, 2019 July 15, 2019 $ 0.22  $ 12,725 
March 7, 2019 March 29, 2019 April 16, 2019 $ 0.21  $ 12,143 
December 7, 2018 December 31, 2018 January 14, 2019 $ 0.21  $ 9,187 
August 29, 2018 September 28, 2018 October 12, 2018 $ 0.224  $ 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 59.0%, 58.8%, and 58.9%, respectively, of the distributions it paid represented taxable income and 41.0%, 41.2% and 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 $50.0 million direct equity contribution to EPRT Holdings. EPRT Holdings used these proceeds to repay $50.0 million of outstanding principal on the Warehouse Notes.
8. 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 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 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 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
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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 106,361,524 OP Units, representing a 99.5% limited partner interest in the Operating Partnership. As of the same date, the Non-controlling OP Unit Holders held 553,847 OP Units in the aggregate, representing a 0.5% limited partner interest in the Operating Partnership. As of December 31, 2019, the Company held 83,761,151 OP Units, representing a 98.3% limited partner interest in the Operating Partnership. As of the same date, the Non-controlling OP Unit Holders held 553,847 OP Units in the aggregate, representing a 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 one-for-one basis, provided, however, that such OP Units must have been outstanding for at least 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. 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 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
Shares Wtd. Avg. Grant Date Fair Value Units Wtd. Avg. Grant Date Fair Value
Unvested, January 1, 2018 —  $ —  —  $ —  6,940  2,400 
Granted 691,290  13.68  —  —  —  — 
Vested —  —  —  —  (1,710) (600)
Forfeited —  —  —  —  —  — 
Unvested, December 31, 2018 691,290  $ 13.68  —  $ —  5,230  1,800 
Unvested, January 1, 2019 691,290  $ 13.68  —  $ —  5,230  1,800 
Granted 46,368  14.12  100,814  22.80  —  — 
Vested (244,957) 13.69  —  —  (5,230) (1,800)
Forfeited —  —  —  —  —  — 
Unvested, December 31, 2019 492,701  $ 13.72  100,814  $ 22.80  —  — 
Unvested, January 1, 2020 492,701  $ 13.72  100,814  $ 22.80  —  — 
Granted 3,658  15.68  269,017  24.99  —  — 
Vested (255,761) 13.73  (42,658) 21.00  —  — 
Forfeited —  —  (5,571) —  —  — 
Unvested, December 31, 2020 240,598  $ 13.73  321,602  $ 25.27  —  — 
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Restricted Stock Awards
On June 25, 2018, an aggregate of 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 one year to 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 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 one year to 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 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 $ 3,405  $ 3,394  $ 1,692 
Dividends declared on unvested RSAs and charged directly to distributions in excess of cumulative earnings 279  486  300 
Fair value of shares vested during the period 3,512  3,354  — 
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 $ 1,678  $ 5,026 
Weighted average period over which compensation cost will be recognized (in years) 0.7 1.6
Restricted Stock Units
In January 2019 and 2020, the Company issued target grants of 119,085 and 84,684 performance-based RSUs, respectively, to the Company's executive officers under the Equity Incentive Plan. Of these awards, 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 0% to 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 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 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 20  % 18  %
Risk free rate 1.61  % 2.57  %
The remaining 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 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 $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 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 11,500 and 26,817 RSUs, respectively, to the Company's independent directors. These awards vest in full on the earlier of 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 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 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 $ 2,672  $ 714 
Dividend equivalents declared and charged directly to distributions in excess of cumulative earnings 125 
Fair value of units vested during the period 896  — 
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 $ 5,261  $ 1,584 
Weighted average period over which compensation cost will be recognized (in years) 2.4 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, 3,520 previously unvested Class B units and 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 $ —  $ 2,162  $ 747 
Fair value of units vested during the period —  2,283  718 
10. 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
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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 $ 42,528  $ 48,025  $ 16,329 
Less: net income attributable to non-controlling interests (255) (6,181) (5,001)
Less: net income allocated to unvested restricted common stock and RSUs (404) (493) (300)
Net income available for common stockholders: basic 41,869  41,351  11,028 
Net income attributable to non-controlling interests 255  6,181  5,001 
Net income available for common stockholders: diluted $ 42,124  $ 47,532  $ 16,029 
Denominator for basic and diluted earnings per share:
Weighted average common shares outstanding 95,664,071  64,714,087  43,325,968 
Less: weighted average number of shares of unvested restricted common stock (353,036) (610,029) (691,290)
Weighted average shares outstanding used in basic net income per share 95,311,035  64,104,058  42,634,678 
Effects of dilutive securities: (1)
OP Units 553,847  10,793,700  19,056,552 
Unvested restricted common stock and RSUs 332,823  412,138  74,727 
Weighted average shares outstanding used in diluted net income per share 96,197,705  75,309,896  61,765,957 
_____________________________________
(1)For the year ended December 31, 2020, excludes the impact of 124,295 unvested restricted stock units as the effect would have been antidilutive.
11. Commitments and Contingencies
As of December 31, 2020, the Company had remaining future commitments, under mortgage notes, reimbursement obligations or similar arrangements, to fund $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.
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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 100% of the first 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 $0.2 million, $0.2 million and $0.1 million, respectively.
Employment Agreements
The Company has employment agreements with its executive officers. These employment agreements have an initial term of four years, with automatic 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 12 months of base salary, monthly reimbursement for 12 months of COBRA premiums, and under certain situations, a pro rata bonus for the year of termination.
12. 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
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Level 3 within the fair value hierarchy. As of December 31, 2020, the Company's secured borrowings had an aggregate carrying value of $173.2 million (excluding net deferred financing costs of $2.2 million) and an estimated fair value of $176.4 million. As of December 31, 2019, the Company's secured borrowings had an aggregate carrying value of $239.1 million (excluding net deferred financing costs of $3.8 million) and an estimated fair value of 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 $38.9 million and $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
December 31, 2020          
Non-financial assets:          
Long-lived assets $ 4,754  $ 4,754  $ —  $ —  $ 4,754 
December 31, 2019
Non-financial assets:
Long-lived assets $ 3,864  $ 3,864  $ —  $ —  $ 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 $ 598  Sales comparison
approach
Binding sales contract $ 598 
Restaurant - Family Dining - Nashville, GA 598  Sales comparison
approach
Binding sales contract 598 
Restaurant - Family Dining - Barnesville, GA 300  Sales comparison
approach
Non-binding sales contract 300 
Vacant - Augusta, GA 25  Sales comparison
approach
Non-binding sales contract 25 
Pet Care Services - Arvada, CO 3,233  Sales comparison
approach
Comparable sales prices 3,233 
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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. 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 $200 million for $201.4 million from an affiliate of Eldridge. See Note 5—Long Term Debt for additional information.
14. 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 $ 41,487  $ 38,503  $ 42,908  $ 41,111 
Net income 14,043  10,444  12,334  5,707 
Net income attributable to non-controlling interests 84  63  74  34 
Net income per share of common stock—basic and diluted 0.15  0.11  0.13  0.05
Dividends declared per common share 0.23  0.23  0.23  0.24 
2019:
Total revenues $ 31,107  $ 32,755  $ 36,291  $ 39,204 
Net income 8,722  10,571  14,106  14,626 
Net income attributable to non-controlling interests 2,595  2,620  861  105 
Net income per share of common stock—basic and diluted 0.13  0.14  0.18  0.18
Dividends declared per common share 0.21  0.22  0.22  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 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 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.
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In February 2021, the Company issued an aggregate of 126,353 performance-based RSUs to the Company's executive officers under the Equity Incentive Plan. These are non-vested share awards and 75% of the award shall vest based on the Company's TSR as compared to the TSR of 10 peer companies and 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 0% to 250%. TSR will be calculated based upon the average closing price for the 20-trading day period ending January 1, 2021, divided by the average closing price for the 20-trading day period ending December 31, 2023.
Subsequent to December 31, 2020, the Company acquired 21 real estate properties with an aggregate investment (including acquisition costs) of $51.9 million and invested $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 11 real estate properties for an aggregate gross sales price of $14.1 million and incurred $0.7 million of disposition costs related to these transactions.
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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.
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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.
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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).
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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   February 23, 2021
Peter M. Mavoides   (Principal Executive Officer)    
         
/s/ Mark E. Patten   Chief Financial Officer, Treasurer and Executive Vice President   February 23, 2021
Mark E. Patten   (Principal Financial Officer)    
         
/s/ Timothy J. Earnshaw   Chief Accounting Officer and Senior Vice President   February 23, 2021
Timothy J. Earnshaw   (Principal Accounting Officer)    
         
/s/ Paul T. Bossidy   Director   February 23, 2021
Paul T. Bossidy        
         
/s/ Joyce DeLucca   Director   February 23, 2021
Joyce DeLucca        
         
/s/ Scott A. Estes   Director   February 23, 2021
Scott A. Estes        
         
/s/ Lawrence J. Minich   Director   February 23, 2021
Lawrence J. Minich        
         
/s/ Heather Leed Neary   Director   February 23, 2021
Heather Leed Neary        
         
/s/ Stephen D. Sautel   Director   February 23, 2021
Stephen D. Sautel        
         
/s/ Janaki Sivanesan   Director   February 23, 2021
Janaki Sivanesan        

119


ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR
Schedule III - Real Estate and Accumulated Depreciation
As of December 31, 2020
(Dollar amounts in thousands)
Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
  Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date Acquired
Tenant Industry City State Land & Improvements Building & Improvements Land & Improvements   Building & Improvements   Land & Improvements Building & Improvements Total
Restaurants - Quick Service Alexander City AL {f} $ 184  $ 242  $ —    $ —    $ 184  $ 242  $ 426  $ 44  1987 6/16/2016
Restaurants - Quick Service Zanesville OH {f} 397  277  —    —    397  277  674  43  1988 6/16/2016
Restaurants - Quick Service Belleville IL {f} 314  369  —    —    314  369  683  61  1988 6/16/2016
Restaurants - Quick Service Grand Rapids MI {f} 177  346  —    —    177  346  523  59  1989 6/16/2016
Restaurants - Quick Service Petaluma CA 467  533  —    —    467  533  1,000  90  1992 6/16/2016
Restaurants - Quick Service Clarkesville GA 178  —  —    —    178  —  178  —  6/16/2016
Restaurants - Quick Service Philadelphia PA 485  626  —    —    485  626  1,111  109  1980 6/16/2016
Other Services Nashville TN 332  106  —    —    332  106  438  35  1992 6/16/2016
Restaurants - Quick Service Ruskin FL {f} 641  —  —    —    641  —  641  —  1993 6/16/2016
Restaurants - Quick Service Brownsville TX 561  474  —    —    561  474  1,035  85  1995 6/16/2016
Restaurants - Quick Service Waco TX 633  382  (39) (g) (21) (g) 594  361  955  63  1991 6/16/2016
Restaurants - Family Dining Palantine IL {f} 926  354  —  —    926  354  1,280  81  1990 6/16/2016
Restaurants - Family Dining LaGrange IL {f} 446  851  —  682    446  1,533  1,979  125  1990 6/16/2016
Restaurants - Family Dining Jacksonville FL {f} 1,086  957  (620) (g) (536) (g) 466  421  887  210  1997 6/16/2016
Restaurants - Casual Dining Corpus Christi TX 1,160  —  —    —    1,160  —  1,160  —  2015 6/16/2016
Restaurants - Casual Dining Centennial CO {f} 1,593  3,400  —    —    1,593  3,400  4,993  428  1993 6/16/2016
Restaurants - Quick Service Redford MI 468  567  —    —    468  567  1,035  94  1998 6/16/2016
Other Services Landrum SC {f} 214  87  —    —    214  87  301  24  1992 6/16/2016
Restaurants - Family Dining Virginia Beach VA 90  192  —    —    90  192  282  150  1997 6/16/2016
Restaurants - Casual Dining Thomasville GA 903  233  —    600    903  833  1,736  109  1999 6/16/2016
Restaurants - Casual Dining Grapevine TX 1,385  977  —    —    1,385  977  2,362  168  1999 6/16/2016
Restaurants - Family Dining Plano TX 207  424  —    —    207  424  631  320  1998 6/16/2016
Restaurants - Family Dining Coon Rapids MN {f} 635  856  —    —    635  856  1,491  145  1991 6/16/2016
Restaurants - Family Dining Mankato MN {f} 700  585  —    —    700  585  1,285  125  1992 6/16/2016
Restaurants - Casual Dining Omaha NE {f} 465  1,184  (203) (g) (498) (g) 262  686  948  146  1979 6/16/2016
Restaurants - Family Dining Merrillville IN {f} 797  322  —    —    797  322  1,119  53  1977 6/16/2016
Restaurants - Family Dining Green Bay WI 549  373  —    —    549  373  922  89  1977 6/16/2016
Restaurants - Family Dining Appleton WI 441  590  —    —    441  590  1,031  113  1977 6/16/2016
Restaurants - Family Dining St. Joseph MO 559  371  —    —    559  371  930  81  1978 6/16/2016
Restaurants - Family Dining Gladstone MO 479  783  —    —    479  783  1,262  127  1979 6/16/2016
Restaurants - Family Dining Brainerd MN 761  547  —    —    761  547  1,308  104  1990 6/16/2016
Restaurants - Family Dining Cedar Rapids IA 804  563  —    —    804  563  1,367  103  1994 6/16/2016
Restaurants - Family Dining Brooklyn Park MN 725  693  —    —    725  693  1,418  131  1997 6/16/2016
Restaurants - Quick Service Pontiac MI {f} 316  423  —    —    316  423  739  79  2003 6/16/2016
Restaurants - Quick Service Troy MI 674  —  —    —    674  —  674  —  6/16/2016
Restaurants - Quick Service Clay NY {f} 129  413  1,654    —    1,783  413  2,196  504  1991 6/16/2016
Restaurants - Quick Service Buna TX 152  138  —    —    152  138  290  27  1976 6/16/2016
Restaurants - Quick Service Carthage TX 111  239  —    —    111  239  350  41  1975 6/16/2016
F-1


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Restaurants - Quick Service Dayton TX $ 195  $ 174  $ —  $ —  $ 195  $ 174  $ 369  $ 31  1969 6/16/2016
Restaurants - Quick Service Diboll TX 92  177  —  92  177  269  31  1990 6/16/2016
Restaurants - Quick Service Huntington TX 120  180  —  —  120  180  300  40  1980 6/16/2016
Restaurants - Quick Service Huntsville TX 120  290  —  —  120  290  410  44  1985 6/16/2016
Restaurants - Quick Service Jasper TX 111  209  —  —  111  209  320  35  1992 6/16/2016
Restaurants - Quick Service Kountze TX 120  290  —  —  120  290  410  44  1995 6/16/2016
Restaurants - Quick Service Rusk TX 129  142  —  —  129  142  271  30  1989 6/16/2016
Restaurants - Quick Service Sour Lake TX 204  114  —  —  204  114  318  27  1978 6/16/2016
Restaurants - Quick Service Vernon CT 155  208  —  —  155  208  363  70  1983 6/16/2016
Restaurants - Quick Service Battle Creek MI {f} 114  690  —  —  114  690  804  98  1969 6/16/2016
Restaurants - Quick Service Mt Clemens MI {f} —  —  —  —  —  —  —  1989 6/16/2016
Restaurants - Quick Service Clio MI {f} 350  889  —  —  350  889  1,239  135  1991 6/16/2016
Restaurants - Quick Service Charlotte MI {f} 190  722  —  —  190  722  912  101  1991 6/16/2016
Restaurants - Quick Service St. Johns MI {f} 218  403  —  —  218  403  621  77  1991 6/16/2016
Automotive Service Burnsville MN 734  309  180  25  914  334  1,248  80  1973 6/16/2016
Restaurants - Family Dining Albert Lea MN 337  463  —  —  337  463  800  95  1975 6/16/2016
Restaurants - Family Dining Crystal MN 821  178  —  —  821  178  999  56  1975 6/16/2016
Restaurants - Casual Dining West Monroe LA {f} 343  94  —  —  343  94  437  25  1988 6/16/2016
Restaurants - Quick Service Greenfield WI {f} 556  789  —  —  556  789  1,345  126  1983 6/16/2016
Restaurants - Quick Service Redford MI 479  —  —  —  479  —  479  —  6/16/2016
Restaurants - Quick Service Bridgeport MI 309  619  —  —  309  619  928  113  1989 6/16/2016
Restaurants - Quick Service Birmingham AL {f} 261  780  —  —  261  780  1,041  111  2000 6/16/2016
Restaurants - Quick Service Oneonta AL {f} 220  485  —  —  220  485  705  72  1993 6/16/2016
Restaurants - Quick Service Union City GA {f} 416  746  —  —  416  746  1,162  110  1976 6/16/2016
Restaurants - Quick Service Marietta GA {f} 214  618  —  —  214  618  832  87  1979 6/16/2016
Restaurants - Quick Service Vicksburg MS {f} 203  627  —  —  203  627  830  88  1979 6/16/2016
Restaurants - Quick Service Riverdale GA {f} 309  584  —  —  309  584  893  86  1978 6/16/2016
Restaurants - Quick Service Snellville GA {f} 242  484  —  —  242  484  726  75  1981 6/16/2016
Restaurants - Quick Service Trussville AL {f} 243  480  —  —  243  480  723  72  1996 6/16/2016
Restaurants - Quick Service Forest Park GA {f} 233  341  —  —  233  341  574  50  1988 6/16/2016
Restaurants - Quick Service Decatur GA {f} 239  714  —  —  239  714  953  101  1982 6/16/2016
Restaurants - Quick Service Monroe GA {f} 302  733  —  —  302  733  1,035  106  1985 6/16/2016
Restaurants - Quick Service Decatur GA {f} 292  463  —  —  292  463  755  64  1983 6/16/2016
Restaurants - Quick Service Columbia SC {f} 241  461  —  —  241  461  702  75  1981 6/16/2016
Restaurants - Quick Service Decatur GA {f} 302  721  —  —  302  721  1,023  105  1986 6/16/2016
Restaurants - Quick Service Conyers GA {f} 330  767  —  —  330  767  1,097  113  1982 6/16/2016
Restaurants - Quick Service Stockbridge GA {f} 396  771  —  —  396  771  1,167  107  1975 6/16/2016
Restaurants - Quick Service Lawrenceville GA {f} 306  550  —  —  306  550  856  88  1988 6/16/2016
Restaurants - Quick Service Lithonia GA {f} 290  606  —  —  290  606  896  86  1979 6/16/2016
Restaurants - Quick Service Tucker GA {f} 339  586  —  —  339  586  925  87  1976 6/16/2016
Restaurants - Quick Service Covington GA {f} 379  722  —  —  379  722  1,101  108  1979 6/16/2016
Restaurants - Quick Service Columbus GA {f} 174  442  —  —  174  442  616  65  1987 6/16/2016
Restaurants - Quick Service Tupelo MS {f} 731  329  —  —  731  329  1,060  60  2000 6/16/2016
Restaurants - Quick Service New Albany MS {f} 295  346  —  —  295  346  641  54  1993 6/16/2016
Restaurants - Quick Service Parkersburg WV {f} 185  570  —  —  185  570  755  85  1976 6/16/2016
Restaurants - Quick Service Ashland KY {f} 279  858  —  —  279  858  1,137  129  1979 6/16/2016
Restaurants - Quick Service Huntington WV {f} 223  539  —  —  223  539  762  81  1979 6/16/2016
F-2


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Restaurants - Quick Service North Little Rock AR {f} $ 190  $ 450  $ —  $ —  $ 190  $ 450  $ 640  74  1978 6/16/2016
Restaurants - Quick Service Jackson MS {f} 400  348  —  400  348  748  56  1981 6/16/2016
Restaurants - Quick Service Madison TN {f} 281  458  —  —  281  458  739  66  1988 6/16/2016
Restaurants - Quick Service Little Rock AR {f} 169  48  —  15  169  63  232  21  1979 6/16/2016
Restaurants - Quick Service Hurricane WV {f} 238  485  —  —  238  485  723  72  1981 6/16/2016
Restaurants - Quick Service Parkersburg WV {f} 261  513  —  —  261  513  774  81  1982 6/16/2016
Restaurants - Quick Service Chattanooga TN {f} 407  465  —  —  407  465  872  72  1983 6/16/2016
Restaurants - Quick Service Knoxville TN {f} 352  347  —  —  352  347  699  54  1981 6/16/2016
Restaurants - Quick Service Jacksonville NC 284  152  —  932  284  1,084  1,368  32  1986 6/16/2016
Restaurants - Quick Service Knoxville TN {f} 394  271  —  —  394  271  665  45  1982 6/16/2016
Restaurants - Quick Service Forestdale AL {f} 241  613  —  —  241  613  854  90  1975 6/16/2016
Restaurants - Quick Service Louisville KY 319  238  —  815  319  1,053  1,372  44  1988 6/16/2016
Restaurants - Quick Service Festus MO {f} 195  802  —  —  195  802  997  114  1979 6/16/2016
Restaurants - Quick Service Jacksonville FL {f} 330  542  —  —  330  542  872  85  1976 6/16/2016
Restaurants - Quick Service Jacksonville FL {f} 220  701  —  —  220  701  921  108  1979 6/16/2016
Restaurants - Quick Service Winter Garden FL {f} 326  383  —  —  326  383  709  63  1987 6/16/2016
Restaurants - Quick Service Sanford FL {f} 350  375  —  —  350  375  725  69  1986 6/16/2016
Restaurants - Quick Service Lebanon TN {f} 311  736  —  —  311  736  1,047  127  1974 6/16/2016
Restaurants - Quick Service Prattville AL {f} 551  524  —  —  551  524  1,075  82  1978 6/16/2016
Restaurants - Quick Service Calhoun GA {f} 346  673  —  —  346  673  1,019  102  1979 6/16/2016
Restaurants - Quick Service Mableton GA {f} 152  366  —  —  152  366  518  59  1977 6/16/2016
Restaurants - Quick Service Brunswick GA {f} 532  137  —  —  532  137  669  30  1995 6/16/2016
Restaurants - Quick Service Summerville SC {f} 215  720  —  —  215  720  935  109  1978 6/16/2016
Restaurants - Quick Service Thomaston GA {f} 193  364  —  —  193  364  557  62  1987 6/16/2016
Restaurants - Quick Service Smyrna GA {f} 392  311  —  —  392  311  703  53  1981 6/16/2016
Restaurants - Quick Service Smyrna TN {f} 221  556  —  —  221  556  777  82  1982 6/16/2016
Restaurants - Quick Service Tullahoma TN {f} 226  701  —  —  226  701  927  110  1975 6/16/2016
Restaurants - Quick Service Shelbyville TN {f} 323  456  —  —  323  456  779  72  1976 6/16/2016
Restaurants - Quick Service Dallas GA {f} 260  832  —  —  260  832  1,092  132  1985 6/16/2016
Restaurants - Quick Service North Charleston SC {f} 121  459  —  —  121  459  580  69  1990 6/16/2016
Restaurants - Quick Service LaGrange GA {f} 207  562  —  —  207  562  769  86  1985 6/16/2016
Restaurants - Quick Service Cullman AL {f} 260  723  —  —  260  723  983  114  1999 6/16/2016
Restaurants - Quick Service Batesville MS {f} 125  551  —  —  125  551  676  83  1992 6/16/2016
Restaurants - Quick Service Phenix City AL {f} 273  665  —  —  273  665  938  110  1979 6/16/2016
Restaurants - Quick Service Montgomery AL {f} 333  349  —  —  333  349  682  59  1986 6/16/2016
Restaurants - Quick Service Starke FL {f} 240  468  —  —  240  468  708  78  1980 6/16/2016
Restaurants - Quick Service Madisonville KY {f} 302  426  —  —  302  426  728  69  1976 6/16/2016
Restaurants - Quick Service Marietta OH {f} 175  506  —  —  175  506  681  75  1979 6/16/2016
Restaurants - Quick Service Hueytown AL {f} 133  711  —  —  133  711  844  106  1979 6/16/2016
Restaurants - Quick Service Gallipolis OH {f} 247  722  —  —  247  722  969  113  1979 6/16/2016
Restaurants - Quick Service Valdosta GA {f} 236  545  —  —  236  545  781  81  1980 6/16/2016
Restaurants - Quick Service Douglas GA {f} 243  557  —  —  243  557  800  83  1979 6/16/2016
Restaurants - Quick Service Fayetteville GA {f} 300  506  —  —  300  506  806  78  1984 6/16/2016
Restaurants - Quick Service Troy AL {f} 183  520  —  —  183  520  703  79  1985 6/16/2016
Restaurants - Quick Service Wetumpka AL {f} 273  416  —  —  273  416  689  68  1986 6/16/2016
Restaurants - Quick Service St. Albans WV {f} 154  491  —  —  154  491  645  73  1975 6/16/2016
Restaurants - Quick Service Huntington WV {f} 233  540  —  —  233  540  773  81  1992 6/16/2016
Restaurants - Quick Service Newburgh NY {f} 913  738  —  —  913  738  1,651  155  1975 6/16/2016
Restaurants - Quick Service Erie PA {f} 444  562  —  —  444  562  1,006  114  1977 6/16/2016
Restaurants - Quick Service Dickson TN {f} 292  79  —  29  292  108  400  23  1977 6/16/2016
Restaurants - Quick Service South Daytona FL {f} 416  668  —  —  416  668  1,084  110  1984 6/16/2016
Restaurants - Quick Service Milford NH {f} 409  355  —  —  409  355  764  69  1993 6/16/2016

F-3


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Restaurants - Quick Service Portland OR {f} $ 252  $ 131  —  —  $ 252  $ 131  $ 383  $ 29  2015 6/16/2016
Restaurants - Quick Service Superior CO {f} 370  434  —  370  434  804  72  2002 6/16/2016
Restaurants - Casual Dining Fond du Lac WI {f} 521  1,197  (222) (g) (459) (g) 299  739  1,037  135  1996 6/16/2016
Restaurants - Casual Dining Alexandria LA 837  889  —  —  837  889  1,726  189  1994 6/16/2016
Medical / Dental Hurst TX 1,462  1,493  —  300  1,462  1,793  3,255  267  1997 6/16/2016
Restaurants - Quick Service Jacksonville FL {f} 872  354  —  —  872  354  1,226  57  2006 6/16/2016
Restaurants - Casual Dining Fleming Island FL {f} 586  355  —  —  586  355  941  54  2006 6/16/2016
Restaurants - Casual Dining Port St. Lucie FL {f} 930  1,510  —  —  930  1,510  2,440  243  1988 6/16/2016
Restaurants - Casual Dining Waycross GA {f} 861  1,700  —  —  861  1,700  2,561  253  1994 6/16/2016
Restaurants - Casual Dining Kingsland GA {f} 602  1,256  —  —  602  1,256  1,858  199  1995 6/16/2016
Restaurants - Casual Dining Jacksonville FL {f} 821  1,215  —  30  821  1,245  2,066  212  1995 6/16/2016
Restaurants - Casual Dining North Fort Myers FL {f} 1,060  1,817  —  —  1,060  1,817  2,877  262  1994 6/16/2016
Restaurants - Casual Dining Cape Coral FL {f} 741  1,692  —  —  741  1,692  2,433  251  1996 6/16/2016
Restaurants - Casual Dining Panama City Beach FL {f} 750  959  —  —  750  959  1,709  157  1999 6/16/2016
Restaurants - Casual Dining Dothan AL {f} 577  1,144  —  —  577  1,144  1,721  175  1993 6/16/2016
Restaurants - Casual Dining Albany GA {f} 731  1,249  —  —  731  1,249  1,980  184  1991 6/16/2016
Restaurants - Casual Dining Panama City FL {f} 539  1,389  —  —  539  1,389  1,928  191  1991 6/16/2016
Restaurants - Casual Dining Valdosta GA {f} 626  957  —  —  626  957  1,583  157  1994 6/16/2016
Restaurants - Casual Dining Gainesville FL {f} 193  1,930  —  —  193  1,930  2,123  241  1994 6/16/2016
Restaurants - Casual Dining Panama City FL {f} 673  1,044  50  —  723  1,044  1,767  211  1999 6/16/2016
Restaurants - Family Dining Leesburg FL 808  720  —  —  808  720  1,528  168  2007 6/16/2016
N/A San Antonio TX 105  —  —  —  105  —  105  —  6/16/2016
Restaurants - Quick Service Augusta GA {f} 272  26  (221) (g) (26) (g) 51  —  51  27  6/16/2016
Restaurants - Quick Service Warner Robins GA {f} 130  174  —  443  130  617  747  37  1975 6/16/2016
Automotive Service Spring TX 805  1,577  —  —  805  1,577  2,382  234  2013 8/4/2016
Home Furnishings Frisco TX 2,224  4,779  —  —  2,224  4,779  7,003  568  2006 8/19/2016
Convenience Stores Binghamton NY 273  1,008  —  —  273  1,008  1,281  174  1970 8/22/2016
Convenience Stores Windsor NY 272  1,101  —  —  272  1,101  1,373  190  1980 8/22/2016
Convenience Stores Greene NY 557  1,974  —  —  557  1,974  2,531  340  1989 8/22/2016
Convenience Stores Afton NY 348  1,303  —  —  348  1,303  1,651  224  1994 8/22/2016
Convenience Stores Lansing NY 861  3,034  —  —  861  3,034  3,895  523  2010 8/22/2016
Convenience Stores Freeville NY 524  1,457  —  —  524  1,457  1,981  251  1994 8/22/2016
Convenience Stores Marathon NY 520  2,127  —  —  520  2,127  2,647  366  1995 8/22/2016
Convenience Stores New Hartford NY 301  863  —  —  301  863  1,164  149  1995 8/22/2016
Convenience Stores Chadwicks NY 213  784  —  —  213  784  997  135  1987 8/22/2016
Convenience Stores Liberty NY 219  811  —  —  219  811  1,030  140  2004 8/22/2016
Convenience Stores Earlville NY 258  985  —  —  258  985  1,243  170  1997 8/22/2016
Convenience Stores Vestal NY 324  1,285  —  —  324  1,285  1,609  222  1996 8/22/2016
Convenience Stores Delhi NY 275  1,066  —  —  275  1,066  1,341  184  1992 8/22/2016
Convenience Stores Franklin NY 423  774  —  —  423  774  1,197  133  1998 8/22/2016
Convenience Stores Endicott NY 188  576  —  —  188  576  764  99  1995 8/22/2016
Convenience Stores Davenport NY 324  1,194  —  —  324  1,194  1,518  206  1993 8/22/2016
Restaurants - Family Dining Salem NH 131  232  —  —  131  232  363  196  1998 9/16/2016
Other Services Anniston AL {f} 312  176  —  —  312  176  488  44  1992 9/16/2016
Early Childhood Education Cumming GA 876  2,357  —  —  876  2,357  3,233  316  2001 9/30/2016
F-4


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
  Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
  Building &
Improvements
  Land &
Improvements
Building &
Improvements
Total
Early Childhood Education Suwanee GA $ 922  $ 2,108  $ —    $ —    $ 922  $ 2,108  $ 3,030  $ 283  2009 9/30/2016
Medical / Dental Fort Worth TX 1,617  —  99  4,187  1,716  4,187  5,903  361  2017 10/12/2016
Car Washes Acworth GA {f} 1,346  2,615  —    —    1,346  2,615  3,961  340  2006 10/17/2016
Car Washes Douglasville GA {f} 1,974  2,882  —    —    1,974  2,882  4,856  374  2006 10/17/2016
Car Washes Hiram GA {f} 1,376  2,947  —    —    1,376  2,947  4,323  383  2004 10/17/2016
Car Washes Marietta GA {f} 1,302  2,136  —    —    1,302  2,136  3,438  277  2002 10/17/2016
Medical / Dental Port Charlotte FL {f} 1,820  2,072  —    —    1,820  2,072  3,892  299  2000 10/20/2016
Automotive Service Lackawanna NY 231  232  —    —    231  232  463  33  1987 10/28/2016
Automotive Service Cheektowaga NY 367  509  —    —    367  509  876  71  1978 10/28/2016
Automotive Service Amherst NY 410  606  —    —    410  606  1,016  85  1998 10/28/2016
Automotive Service Niagara Falls NY 615  1,025  —    —    615  1,025  1,640  144  1985 10/28/2016
Automotive Service Williamsville NY 419  1,302  —    —    419  1,302  1,721  182  1988 10/28/2016
Automotive Service Dunkirk NY 255  187  —    —    255  187  442  26  1980 10/28/2016
Car Washes Tucson AZ 1,048  2,190  —    —    1,048  2,190  3,238  279  2010 11/9/2016
Restaurants - Quick Service Burlington IA {f} 444  1,171  —    —    444  1,171  1,615  174  1976 11/15/2016
Restaurants - Quick Service Cedar Rapids IA {f} 436  1,179  —    —    436  1,179  1,615  176  1991 11/15/2016
Restaurants - Quick Service Fort Madison IA {f} 304  1,284  —    —    304  1,284  1,588  191  1987 11/15/2016
Restaurants - Quick Service Waterloo IA {f} 344  846  —    —    344  846  1,190  126  1982 11/15/2016
Restaurants - Quick Service Nebraska City NE {f} 363  748  —    —    363  748  1,111  111  2014 11/15/2016
Restaurants - Quick Service Plattsmouth NE {f} 304  1,302  —    —    304  1,302  1,606  194  1999 11/15/2016
Restaurants - Quick Service Red Oak IA {f} 254  1,010  —    —    254  1,010  1,264  150  2000 11/15/2016
Movie Theatres Florence AL {f} 1,519  6,294  117    —    1,636  6,294  7,930  834  2015 12/19/2016
Restaurants - Casual Dining Gardendale AL {f} 589  1,984  —    —    589  1,984  2,573  250  2005 12/29/2016
Restaurants - Casual Dining Jasper AL {f} 468  2,144  —    —    468  2,144  2,612  254  2005 12/29/2016
Restaurants - Casual Dining Homewood AL {f} 808  1,233  —    —    808  1,233  2,041  167  1976 12/29/2016
Medical / Dental Stevenson AL {f} 191  466  —    —    191  466  657  68  1990 12/30/2016
Medical / Dental Tucson AZ {f} 323  780  —    —    323  780  1,103  86  1967 12/30/2016
Medical / Dental Miami FL {f} 485  982  —    —    485  982  1,467  104  1981 12/30/2016
Medical / Dental Sarasota FL {f} 323  557  —    —    323  557  880  69  1973 12/30/2016
Medical / Dental Sarasota FL {f} 485  446  —    —    485  446  931  64  2001 12/30/2016
Medical / Dental Dalton GA {f} 323  406  —    —    323  406  729  73  1960 12/30/2016
Medical / Dental Alton IL {f} 252  568  —    —    252  568  820  87  2001 12/30/2016
Medical / Dental Quincy IL {f} 272  608  —    —    272  608  880  91  2001 12/30/2016
Medical / Dental Clarksville IN {f} 657  1,033  —    —    657  1,033  1,690  144  1994 12/30/2016
Medical / Dental Terre Haute IN {f} 292  325  —    —    292  325  617  54  1998 12/30/2016
Medical / Dental Brewster MA {f} 60  578  —    —    60  578  638  61  1986 12/30/2016
Medical / Dental Kansas City MO {f} 333  568  —    —    333  568  901  84  1979 12/30/2016
Medical / Dental Laurel MS {f} 100  1,033  —    —    100  1,033  1,133  114  1970 12/30/2016
Medical / Dental Picayune MS {f} 70  517  —    —    70  517  587  60  1977 12/30/2016
Medical / Dental Rochester NH {f} 181  426  —    —    181  426  607  56  1958 12/30/2016
Medical / Dental Canandaigua NY {f} 70  527  —    —    70  527  597  58  2009 12/30/2016
Medical / Dental Anderson SC {f} 211  487  —    —    211  487  698  57  1948 12/30/2016
Medical / Dental Camden SC {f} 211  537  —    —    211  537  748  73  1985 12/30/2016
Medical / Dental Columbia SC {f} 211  426  —    —    211  426  637  56  1986 12/30/2016
Medical / Dental Austin TX {f} 242  375  —    —    242  375  617  57  1970 12/30/2016
Medical / Dental Richmond TX {f} 495  446  —    —    495  446  941  77  1982 12/30/2016
Medical / Dental Terrell Hills TX {f} 282  588  —    —    282  588  870  70  2002 12/30/2016
Health and Fitness West Valley City UT 1,936  4,210  —    —    1,936  4,210  6,146  482  1984 12/30/2016
Medical / Dental Rock Springs WY {f} 620  2,550  —    —    620  2,550  3,170  299  2001 1/17/2017
F-5


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
  Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
  Building &
Improvements
  Land &
Improvements
Building &
Improvements
Total
Car Washes Conyers GA {f} $ 1,136  $ 4,332  $ —    $ —    $ 1,136  $ 4,332  $ 5,468  $ 551  2013 1/24/2017
Car Washes Covington GA {f} 824  3,759  —      824  3,759  4,583  495  2011 1/24/2017
Movie Theatres North Myrtle Beach SC 1,465  7,081  —    —    1,465  7,081  8,546  733  2006 1/31/2017
Medical / Dental Bridgeton MO {f} 199  578  —    —    199  578  777  68  1982 2/9/2017
Medical / Dental Mokena IL {f} 237  303  —    —    237  303  540  61  2008 2/9/2017
Medical / Dental Lexington KY {f} 199  474  —    —    199  474  673  63  2014 2/9/2017
Medical / Dental Islip Terrace NY {f} 313  436  —    —    313  436  749  54  1986 2/9/2017
Early Childhood Education Alpharetta GA 1,595  4,177  —    —    1,595  4,177  5,772  519  2016 2/28/2017
Home Furnishings Westland MI 1,858  14,560  —    1,125    1,858  15,685  17,543  1,525  1987 3/1/2017
Home Furnishings Ann Arbor MI 2,096  13,399  —    1,625    2,096  15,024  17,120  1,371  1992 3/1/2017
Home Furnishings Muskegon MI 1,113  6,436  —    125    1,113  6,561  7,674  675  1987 3/1/2017
Home Furnishings Battle Creek MI 1,212  7,904  —    125    1,212  8,029  9,241  852  1996 3/1/2017
Automotive Service Frisco TX 1,279  1,314  —    —    1,279  1,314  2,593  177  2003 3/8/2017
Automotive Service Grapevine TX 1,244  1,396  —    —    1,244  1,396  2,640  188  2001 3/8/2017
Automotive Service Prosper TX 1,161  2,534  —    —    1,161  2,534  3,695  303  2010 3/8/2017
Automotive Service Southlake TX 657  997  —    —    657  997  1,654  126  2002 3/8/2017
Restaurants - Quick Service Cedartown GA {f} 258  812  —    —    258  812  1,070  97  1987 3/9/2017
Restaurants - Quick Service Forsyth GA {f} 464  808  —    —    464  808  1,272  96  1989 3/9/2017
Convenience Stores Topeka KS 603  1,584  —    —    603  1,584  2,187  241  2008 3/10/2017
Automotive Service New Freedom PA {f} 904  872  —    —    904  872  1,776  122  1997 3/28/2017
Car Washes Huntingtown MD {f} 984  1,857  —    —    984  1,857  2,841  227  1998 3/28/2017
Automotive Service Gambrills MD {f} 2,461  6,139  —    —    2,461  6,139  8,600  636  2009 3/28/2017
Convenience Stores Tyler TX 404  1,433  —    —    404  1,433  1,837  214  1980 3/30/2017
Early Childhood Education San Antonio TX 928  3,312  —    —    928  3,312  4,240  350  2016 4/25/2017
Medical / Dental Payson AZ 548  1,944  —    —    548  1,944  2,492  201  1988 4/28/2017
Medical / Dental Brownsville TX 1,626  —  982    7,743    2,608  7,743  10,351  584  2018 5/5/2017
Medical / Dental Baytown TX 286  1,790  —    —    286  1,790  2,076  176  2008 5/18/2017
Car Washes Las Cruces NM 510  2,290  —    —    510  2,290  2,800  256  2008 5/24/2017
Car Washes Las Cruces NM 570  2,187  —    —    570  2,187  2,757  244  2010 5/24/2017
Restaurants - Quick Service Inverness FL —  —  —  —  —  —  —  2003 5/30/2017
Building Materials Columbia Station OH {f} 1,078  1,437  —    —    1,078  1,437  2,515  183  1961 6/1/2017
Building Materials Maumee OH {f} 733  1,238  —    —    733  1,238  1,971  157  1963 6/1/2017
Building Materials Troy OH {f} 403  693  —    —    403  693  1,096  88  1991 6/1/2017
Building Materials Jackson OH {f} 288  211  —    —    288  211  499  27  1995 6/1/2017
Building Materials Lancaster OH {f} 376  833  —    —    376  833  1,209  106  1995 6/1/2017
Building Materials Portsmouth OH {f} 133  160  —    —    133  160  293  21  1996 6/1/2017
Building Materials Radcliff KY {f} 414  200  —    —    414  200  614  26  1984 6/1/2017
Building Materials Gainesville FL {f} 934  638  —    —    934  638  1,572  81  2003 6/1/2017
Building Materials Cartersville GA {f} 1,313  1,743  —    —    1,313  1,743  3,056  221  2003 6/1/2017
Building Materials Douglasville GA {f} 1,026  2,421  —    —    1,026  2,421  3,447  307  2004 6/1/2017
Building Materials El Paso TX {f} 901  177  —    —    901  177  1,078  23  1984 6/1/2017
Building Materials Garland TX {f} 1,250  2,283  —    —    1,250  2,283  3,533  290  2001 6/1/2017
F-6


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Building Materials Conroe TX {f} $ 2,150  $ 631  $ —  $ —  $ 2,150  $ 631  $ 2,781  $ 80  2002 6/1/2017
Building Materials Amarillo TX {f} 927  655  —  —  927  655  1,582  83  2002 6/1/2017
Building Materials Grand Junction CO {f} 760  403  —  —  760  403  1,163  51  1983 6/1/2017
Building Materials Mt. Pleasant SC {f} 1,097  171  —  —  1,097  171  1,268  22  1983 6/1/2017
Building Materials Irondale AL {f} 546  227  —  —  546  227  773  29  1975 6/1/2017
Building Materials Bessemer AL {f} 1,514  3,413  —  —  1,514  3,413  4,927  433  2002 6/1/2017
Car Washes Farmington NM 634  4,945  —  —  634  4,945  5,579  552  2005 6/6/2017
Car Washes Farmington NM 746  2,795  —  —  746  2,795  3,541  312  2013 6/6/2017
Car Washes Pueblo CO 898  5,103  —  —  898  5,103  6,001  569  2008 6/6/2017
Restaurants - Quick Service Nashville GA —  —  —  —  —  —  —  —  1991 6/6/2017
Restaurants - Quick Service Soperton GA 312  443  —  —  312  443  755  71  1992 6/6/2017
Movie Theatres Kenosha WI 3,159  3,755  116  —  3,275  3,755  7,030  500  1997 6/8/2017
Entertainment Visalia CA 1,320  2,320  —  —  1,320  2,320  3,640  283  1984 6/30/2017
Automotive Service Knoxville TN {f} 518  695  —  —  518  695  1,213  102  2008 7/21/2017
Automotive Service Forest Park GA {f} 498  850  —  —  498  850  1,348  113  1992 7/21/2017
Automotive Service Martinez GA {f} 612  570  —  —  612  570  1,182  96  1992 7/21/2017
Automotive Service Clarksville TN {f} 498  633  —  —  498  633  1,131  90  1998 7/21/2017
Automotive Service Ocala FL {f} 518  715  —  —  518  715  1,233  106  1989 7/21/2017
Automotive Service Orlando FL {f} 456  664  —  —  456  664  1,120  88  1989 7/21/2017
Medical / Dental Montgomery AL 477  2,976  —  —  477  2,976  3,453  285  2001 8/7/2017
Restaurants - Quick Service Algona IA 150  528  —  —  150  528  678  63  1993 8/10/2017
Car Washes Buford GA {f} 1,353  3,693  —  —  1,353  3,693  5,046  426  2010 8/15/2017
Early Childhood Education Orlando FL 1,175  4,362  —  —  1,175  4,362  5,537  416  2010 8/25/2017
Automotive Service Garden City MI 366  961  —  —  366  961  1,327  106  1984 8/29/2017
Automotive Service Troy MI 794  1,389  —  —  794  1,389  2,183  153  1974 8/29/2017
Automotive Service Burton MI 188  1,180  —  —  188  1,180  1,368  120  1955 8/29/2017
Pet Care Services Arvada CO 1,342  2,808  (564) (g) (58) (g) 778  2,750  3,528  300  1982 9/5/2017
Medical / Dental Round Rock TX {f} 713  6,821  —  —  713  6,821  7,534  608  2016 9/12/2017
Car Washes Little Rock AR 685  3,361  —  —  685  3,361  4,046  309  1976 9/12/2017
Car Washes Bryant AR 489  2,790  —  —  489  2,790  3,279  250  1997 9/20/2017
Automotive Service Longwood FL {f} 887  1,263  —  —  887  1,263  2,150  164  2000 9/25/2017
Car Washes Anderson SC 793  4,031  —  —  793  4,031  4,824  385  2008 9/26/2017
Car Washes Cornelia GA 470  2,670  —  —  470  2,670  3,140  256  2001 9/26/2017
Car Washes South Commerce GA 607  3,072  —  —  607  3,072  3,679  299  2016 9/26/2017
Car Washes Seneca SC 255  2,994  —  —  255  2,994  3,249  269  2005 9/26/2017
Restaurants - Quick Service East Bethel MN 764  1,353  —  —  764  1,353  2,117  236  1996 9/27/2017
Restaurants - Quick Service Isanti MN 1,167  1,859  —  —  1,167  1,859  3,026  270  1989 9/27/2017
Convenience Stores Braham MN 289  1,043  —  —  289  1,043  1,332  125  1986 9/27/2017
Restaurants - Quick Service Grantsburg WI 640  1,673  —  —  640  1,673  2,313  239  2005 9/27/2017
Health and Fitness Hobbs NM 938  1,503  —  —  938  1,503  2,441  180  2016 9/28/2017
Health and Fitness Florence KY 868  2,186  —  —  868  2,186  3,054  227  1994 9/28/2017
Automotive Service Magnolia TX 1,402  2,480  —  —  1,402  2,480  3,882  311  2017 9/29/2017
Early Childhood Education Winter Garden FL 1,169  4,603  —  —  1,169  4,603  5,772  457  2015 9/29/2017
Car Washes Springdale AR 597  1,908  —  —  597  1,908  2,505  198  2009 9/29/2017
Car Washes Rogers AR 763  2,663  —  —  763  2,663  3,426  261  2005 9/29/2017
Car Washes Shreveport LA 460  2,615  —  —  460  2,615  3,075  255  2017 9/29/2017
Convenience Stores Jacksonville TX 587  1,357  —  —  587  1,357  1,944  188  2012 9/29/2017
Convenience Stores Daingerfield TX 269  1,135  —  798  269  1,933  2,202  125  1979 9/29/2017
Convenience Stores Jacksonville TX 368  916  —  807  368  1,723  2,091  126  1996 9/29/2017
F-7


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
  Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year Constructed Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
  Building &
Improvements
  Land &
Improvements
Building &
Improvements
Total
Entertainment Orlando FL 2,290  4,377  —    4,242    2,290  8,619  10,909  428  2007 9/29/2017
Medical / Dental North Lima OH 112  926  —    —    112  926  1,038  82  1976 10/5/2017
Medical / Dental West Lafayette IN 122  397  —    —    122  397  519  39  1976 10/5/2017
Medical / Dental Salem OH 92  468  —    —    92  468  560  45  1985 10/5/2017
Medical / Dental Toledo OH 448  1,750  —    —    448  1,750  2,198  156  1995 10/5/2017
Medical / Dental Pittsburgh PA —  —  —  —  —  —  —  —  1983 10/5/2017
Medical / Dental Youngstown OH 275  702  —    —    275  702  977  75  1971 10/5/2017
Medical / Dental Madison OH 387  488  —    —    387  488  875  53  1950 10/5/2017
Medical / Dental Youngstown OH 366  1,394  —    —    366  1,394  1,760  142  1995 10/5/2017
Medical / Dental Penn Yan NY 132  651  —    —    132  651  783  66  1986 10/5/2017
Medical / Dental Kent OH {f} 173  610  —    —    173  610  783  61  1970 10/5/2017
Convenience Stores Tyler TX 706  511  —    950    706  1,461  2,167  124  1996 10/16/2017
Entertainment Hoover AL 1,403  2,939  —    —    1,403  2,939  4,342  307  2017 10/13/2017
Convenience Stores Farmington NM 332  302  —    —    332  302  634  41  1966 11/8/2017
Convenience Stores Farmington NM 342  604  —    —    342  604  946  69  1972 11/8/2017
Convenience Stores Farmington NM 372  886  —    —    372  886  1,258  111  2013 11/8/2017
Convenience Stores Aztec NM 322  685  —    —    322  685  1,007  80  1982 11/8/2017
Convenience Stores Farmington NM 282  1,077  —    —    282  1,077  1,359  124  1980 11/8/2017
Convenience Stores Farmington NM 503  815  —    —    503  815  1,318  101  1980 11/8/2017
Convenience Stores Farmington NM 735  352  —    —    735  352  1,087  54  1982 11/8/2017
Convenience Stores Ignacio CO 272  1,047  —    —    272  1,047  1,319  115  1983 11/8/2017
Convenience Stores Farmington NM 332  775  —    —    332  775  1,107  96  1985 11/8/2017
Convenience Stores Farmington NM 453  1,027  —    —    453  1,027  1,480  137  1990 11/8/2017
Convenience Stores Kirtland NM 332  906  —    —    332  906  1,238  106  1980 11/8/2017
Restaurants - Quick Service Gray GA 293  374  —    —    293  374  667  47  1992 11/10/2017
Restaurants - Quick Service Sandersville GA 283  515  —    —    283  515  798  60  1989 11/10/2017
Restaurants - Quick Service Barnesville GA 243  414  (113) (g) (192) (g) 130  222  352  52  1996 11/10/2017
Health and Fitness Greeley CO 1,484  4,491  —    —    1,484  4,491  5,975  421  1989 11/16/2017
Restaurants - Quick Service Hutchinson KS {f} 194  777  —    —    194  777  971  81  1971 11/16/2017
Medical / Dental Tyler TX 985  5,675  —    —    985  5,675  6,660  519  1999 11/17/2017
Medical / Dental Lindale TX 394  1,429  —    —    394  1,429  1,823  153  2013 11/17/2017
Convenience Stores Farmington NM 554  785  —    —    554  785  1,339  119  1998 11/21/2017
Pet Care Services Franklin IN 395  2,319  —    —    395  2,319  2,714  215  2007 12/1/2017
Pet Care Services Fayetteville AR 905  1,456  —    —    905  1,456  2,361  153  1979 12/1/2017
Pet Care Services Greenwood IN 312  593  —    —    312  593  905  59  1952 12/1/2017
Pet Care Services Indianapolis IN 52  416  —    —    52  416  468  37  1954 12/1/2017
Early Childhood Education Lansdowne VA 2,167  2,982  —    —    2,167  2,982  5,149  298  2006 12/4/2017
Early Childhood Education Overland Park KS 1,189  4,062  —    —    1,189  4,062  5,251  388  2017 12/8/2017
Restaurants - Casual Dining Bossier City LA {f} 976  2,347  —    —    976  2,347  3,323  241  1993 12/15/2017
Restaurants - Casual Dining Augusta GA 1,663  1,909  —    —    1,663  1,909  3,572  187  1982 12/15/2017
Movie Theatres Dublin OH 2,126  10,097  —    —    2,126  10,097  12,223  882  1994 12/15/2017
Restaurants - Quick Service Daleville AL 127  409  —    —    127  409  536  41  1983 12/19/2017
Restaurants - Quick Service Roanoke AL 224  526  —    —    224  526  750  57  1990 12/19/2017
Restaurants - Quick Service Jasper AL 370  331  —    —    370  331  701  49  2005 12/19/2017
Restaurants - Quick Service Alexander City AL 263  506  —    —    263  506  769  58  2004 12/19/2017
Restaurants - Quick Service Headland AL 273  370  —    —    273  370  643  57  2007 12/19/2017
Restaurants - Quick Service Tallassee AL 195  302  —    —    195  302  497  39  2008 12/19/2017
Restaurants - Quick Service Talladega AL 88  273  —    —    88  273  361  30  1999 12/19/2017
Restaurants - Quick Service Enterprise AL 166  380  —    —    166  380  546  42  1974 12/19/2017
F-8


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Restaurants - Quick Service Valley AL 185  302  —  —  185  302  487  37  2004 12/19/2017
Restaurants - Quick Service Selma AL 175  409  —  —  175  409  584  45  1996 12/19/2017
Restaurants - Casual Dining Linthcum MD 1,691  1,124  —  —  1,691  1,124  2,815  147  2004 12/21/2017
Restaurants - Casual Dining Pocomoke City MD 653  849  —  —  653  849  1,502  123  2005 12/21/2017
Restaurants - Casual Dining D'Iberville MS 927  623  —  —  927  623  1,550  79  2004 12/21/2017
Restaurants - Casual Dining Clarksville TN 861  736  —  —  861  736  1,597  86  2003 12/21/2017
Restaurants - Casual Dining Scranton PA 785  755  —  —  785  755  1,540  114  1995 12/21/2017
Restaurants - Casual Dining Alexander City AL 511  802  —  —  511  802  1,313  93  2007 12/21/2017
Restaurants - Casual Dining Columbia SC 785  500  (338) (g) (208) (g) 447  292  739  67  2003 12/21/2017
Restaurants - Casual Dining Palm City FL 672  727  (59) (61) 613  666  1,279  86  2003 12/21/2017
Restaurants - Casual Dining St Robert MO 644  755  —  —  644  755  1,399  82  2001 12/21/2017
Restaurants - Quick Service Jasper IN {f} 226  931  —  —  226  931  1,157  91  1998 12/22/2017
Automotive Service Spring TX 721  932  —  300  721  1,232  1,953  153  2017 12/27/2017
Car Washes Bentonville AR —  —  —  —  —  —  —  —  2017 12/28/2017
Health and Fitness Auburn AL 1,104  2,411  —  —  1,104  2,411  3,515  259  2007 12/29/2017
Health and Fitness Columbus GA 2,175  2,540  —  —  2,175  2,540  4,715  298  2005 12/29/2017
Early Childhood Education Southaven MS 1,060  1,496  —  124  1,060  1,620  2,680  158  2002 12/29/2017
Restaurants - Quick Service Saginaw MI 528  1,086  —  —  528  1,086  1,614  118  2012 1/4/2018
Restaurants - Quick Service Grand Rapids MI 299  1,205  —  —  299  1,205  1,504  121  2016 1/4/2018
Restaurants - Quick Service Grand Rapids MI 349  1,166  —  —  349  1,166  1,515  106  2013 1/4/2018
Health and Fitness Wichita KS 2,594  —  326  4,812  2,920  4,812  7,732  346  2018 1/19/2018
Convenience Stores Bloomfield NM 221  784  —  —  221  784  1,005  77  1980 1/24/2018
Early Childhood Education Trumbull CT 864  —  206  3,392  1,070  3,392  4,462  140  2018 1/31/2018
Restaurants - Casual Dining Davenport IA {f} 57  479  —  —  57  479  536  39  1955 2/8/2018
Restaurants - Casual Dining Bettendorf IA {f} 402  1,050  —  —  402  1,050  1,452  92  1975 2/8/2018
Restaurants - Casual Dining Kewanee IL 115  432  —  —  115  432  547  41  1993 2/8/2018
Restaurants - Casual Dining Davenport IA 459  1,304  —  —  459  1,304  1,763  118  1990 2/8/2018
Restaurants - Casual Dining Davenport IA 153  1,268  —  —  153  1,268  1,421  104  1952 2/8/2018
Automotive Service Roseville MN 489  1,602  —  —  489  1,602  2,091  141  1971 2/16/2018
Automotive Service Woodbury MN 978  2,049  —  —  978  2,049  3,027  187  2000 2/16/2018
Grocery Burlington NC 762  1,300  —  —  762  1,300  2,062  128  1992 2/16/2018
Health and Fitness Aiken SC 1,063  3,787  —  —  1,063  3,787  4,850  322  1998 3/1/2018
Early Childhood Education Burlington CT 432  1,408  —  —  432  1,408  1,840  137  2004 3/9/2018
Early Childhood Education Canton CT 730  761  —  —  730  761  1,491  95  1979 3/9/2018
Early Childhood Education Farmington CT 278  1,459  —  —  278  1,459  1,737  129  1985 3/9/2018
Early Childhood Education Dublin OH 740  2,934  —  —  740  2,934  3,674  256  2008 3/13/2018
Movie Theatres Shelby NC 1,826  2,798  —  —  1,826  2,798  4,624  274  2004 3/22/2018
Health and Fitness Tulsa OK 2,856  —  108  4,329  2,964  4,329  7,293  253  2018 3/22/2018
Automotive Service Elk River MN 433  898  —  —  433  898  1,331  83  1996 3/29/2018
Early Childhood Education San Antonio TX 482  1,496  —  —  482  1,496  1,978  124  2007 3/29/2018
Pet Care Services Cave Creek AZ 1,789  2,540  —  1,405  1,789  3,945  5,734  227  2008 4/5/2018
F-9


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Pet Care Services Maricopa AZ $ 1,057  $ 1,057  $ —  $ 1,520  $ 1,057  $ 2,577  $ 3,634  $ 104  2008 4/5/2018
Early Childhood Education Byron Center MI {f} 513  1,591  —  —  513  1,591  2,104  159  2012 4/9/2018
Medical / Dental Russellville AR 710  1,297  —  —  710  1,297  2,007  110  2015 4/20/2018
Car Washes Bel Air MD {f} 321  3,120  —  —  321  3,120  3,441  266  2016 4/26/2018
Automotive Service Apex NC {f} 229  428  —  —  229  428  657  41  2000 5/1/2018
Automotive Service Holly Springs NC {f} 308  1,283  —  —  308  1,283  1,591  105  2003 5/1/2018
Automotive Service Fuquay Varina NC {f} 487  318  —  —  487  318  805  43  2008 5/1/2018
Movie Theatres Decatur AL 1,491  4,350  —  —  1,491  4,350  5,841  405  2013 5/10/2018
Automotive Service North Canton OH 481  982  —  —  481  982  1,463  86  1960 5/17/2018
Automotive Service Clinton Township MI 1,179  688  —  —  1,179  688  1,867  121  1983 5/17/2018
Automotive Service Baltimore MD 206  1,709  —  —  206  1,709  1,915  119  1952 5/17/2018
Convenience Stores Sartell MN 988  607  —  —  988  607  1,595  112  2013 5/17/2018
Convenience Stores St. Augusta MN 473  1,111  —  —  473  1,111  1,584  124  1978 5/17/2018
Convenience Stores Rice MN 782  1,461  14  104  796  1,565  2,361  194  2005 5/17/2018
Convenience Stores Pine City MN 792  1,173  —  —  792  1,173  1,965  163  1967 5/17/2018
Convenience Stores Cambridge MN 1,008  2,161  —  —  1,008  2,161  3,169  257  2007 5/17/2018
Early Childhood Education Acworth GA {f} 637  1,365  —  —  637  1,365  2,002  141  2000 5/18/2018
Pet Care Services Lakewood Ranch FL 442  —  1,054  2,677  1,496  2,677  4,173  194  2019 5/24/2018
Other Services Bluff City TN 146  1,347  —  —  146  1,347  1,493  94  1949 6/1/2018
Other Services Erwin TN 713  1,484  —  —  713  1,484  2,197  125  1981 6/1/2018
Other Services Sparta NC 713  1,942  —  —  713  1,942  2,655  181  1973 6/1/2018
Other Services Kingsport TN 1,220  3,143  —  —  1,220  3,143  4,363  302  1979 6/1/2018
Other Services Cleveland TN 673  1,083  —  —  673  1,083  1,756  95  1975 6/1/2018
Other Services Cleveland TN 615  2,938  —  —  615  2,938  3,553  209  1964 6/1/2018
Other Services Castlewood VA 1,259  1,786  —  —  1,259  1,786  3,045  181  1991 6/1/2018
Other Services Covington GA 849  3,309  —  —  849  3,309  4,158  283  1991 6/1/2018
Other Services Harlem GA 703  1,610  —  —  703  1,610  2,313  138  1895 6/1/2018
Other Services London KY 937  2,391  —  —  937  2,391  3,328  220  1999 6/1/2018
Other Services Elizabethton TN 254  517  —  —  254  517  771  59  2010 6/1/2018
Other Services Elizabethton TN 488  849  —  —  488  849  1,337  74  1996 6/1/2018
Other Services Mountain City TN 78  176  —  —  78  176  254  15  1936 6/1/2018
Convenience Stores Mosinee WI 260  509  —  —  260  509  769  63  1994 6/15/2018
Convenience Stores Wausau WI 311  372  —  —  311  372  683  57  1995 6/15/2018
Convenience Stores Wausau WI 402  1,470  —  —  402  1,470  1,872  131  1995 6/15/2018
Convenience Stores Wausau WI 502  361  —  —  502  361  863  79  1989 6/15/2018
Convenience Stores Wausau WI 412  445  —  —  412  445  857  70  1991 6/15/2018
Convenience Stores Prentice WI 1,164  753  —  —  1,164  753  1,917  230  1989 6/15/2018
Convenience Stores Rothschild WI 703  760  —  —  703  760  1,463  113  1985 6/15/2018
Convenience Stores Phillips WI 191  722  —  —  191  722  913  73  1970 6/15/2018
Convenience Stores Pound WI 321  478  —  —  321  478  799  81  1983 6/15/2018
Convenience Stores Gillett WI 241  591  —  —  241  591  832  75  1990 6/15/2018
Convenience Stores Tigerton WI 954  1,014  —  —  954  1,014  1,968  204  1998 6/15/2018
Convenience Stores Stevens Point WI 1,054  522  —  —  1,054  522  1,576  134  1993 6/15/2018
Convenience Stores Merrill WI 1,857  1,305  —  —  1,857  1,305  3,162  311  1996 6/15/2018
Convenience Stores Tomahawk WI 683  1,008  —  —  683  1,008  1,691  166  1992 6/15/2018
Convenience Stores Marathon WI 261  1,244  —  —  261  1,244  1,505  113  1987 6/15/2018
Convenience Stores Edgar WI 502  949  —  —  502  949  1,451  127  1984 6/15/2018
Convenience Stores Plover WI 1,275  883  —  —  1,275  883  2,158  154  2006 6/15/2018
Convenience Stores Hatley WI 783  851  —  —  783  851  1,634  149  1997 6/15/2018
F-10


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Convenience Stores Minoqua WI $ 371  $ 412  $ —  $ —  $ 371  $ 412  $ 783  $ 73  1984 6/15/2018
Convenience Stores Wittenberg WI 1,405  1,305  —  —  1,405  1,305  2,710  283  1999 6/15/2018
Convenience Stores Rudolph WI 412  840  —  —  412  840  1,252  106  1992 6/15/2018
Convenience Stores Mountain WI 371  663  —  —  371  663  1,034  98  1998 6/15/2018
Convenience Stores Park Falls WI 392  1,164  —  —  392  1,164  1,556  131  1984 6/15/2018
Convenience Stores Weston WI 622  843  —  —  622  843  1,465  120  1993 6/15/2018
Early Childhood Education Surprise AZ 1,546  1,736  —  21  1,546  1,757  3,303  148  2008 6/21/2018
Car Washes Fayetteville AR —  —  —  —  —  —  —  —  2018 6/21/2018
Early Childhood Education Malvern PA 701  2,084  —  —  701  2,084  2,785  182  2006 6/28/2018
Early Childhood Education Frazer PA 730  2,276  —  —  730  2,276  3,006  191  1998 6/28/2018
Early Childhood Education Glen Mills PA 3,938  3,246  —  —  3,938  3,246  7,184  375  1992 6/28/2018
Early Childhood Education Erial NJ 740  1,546  —  —  740  1,546  2,286  123  2000 6/28/2018
Early Childhood Education Exton PA 442  2,007  —  —  442  2,007  2,449  155  2000 6/28/2018
Early Childhood Education Voorhees NJ 509  1,892  —  —  509  1,892  2,401  154  2002 6/28/2018
Early Childhood Education Royersford PA 259  1,892  —  —  259  1,892  2,151  139  2002 6/28/2018
Early Childhood Education West Norriton PA 557  1,998  —  —  557  1,998  2,555  157  2003 6/28/2018
Early Childhood Education King of Prussia PA 490  2,171  —  —  490  2,171  2,661  160  2004 6/28/2018
Early Childhood Education Downingtown PA 605  2,219  —  —  605  2,219  2,824  173  2007 6/28/2018
Early Childhood Education Collegeville PA 423  1,940  —  —  423  1,940  2,363  147  2008 6/28/2018
Early Childhood Education Phoenixville PA 1,431  4,466  —  —  1,431  4,466  5,897  366  2010 6/28/2018
Early Childhood Education Blue Bell PA 788  3,218  —  —  788  3,218  4,006  238  1967 6/28/2018
Medical / Dental Mountain Grove MO 113  527  —  —  113  527  640  45  2012 6/28/2018
Medical / Dental Harrison AR 144  835  —  —  144  835  979  63  2006 6/28/2018
Medical / Dental Jonesboro AR 329  1,021  —  —  329  1,021  1,350  80  2005 6/28/2018
Medical / Dental El Dorado AR 93  228  —  —  93  228  321  18  2000 6/28/2018
Medical / Dental Berryville AR 62  120  —  —  62  120  182  13  2000 6/28/2018
Medical / Dental Batesville AR 237  1,139  —  —  237  1,139  1,376  94  2017 6/28/2018
Health and Fitness Salisbury MA 1,169  14,584  1,331  2,843  2,500  17,427  19,927  959  2004 6/29/2018
Health and Fitness Peabody MA 3,497  6,523  —  —  3,497  6,523  10,020  466  2009 6/29/2018
Health and Fitness Methuen MA 4,544  5,179  —  —  4,544  5,179  9,723  446  2002 6/29/2018
Health and Fitness Moncks Corner SC 978  1,439  —  —  978  1,439  2,417  146  2002 6/29/2018
Medical / Dental Brownsville TX 172  1,683  —  —  172  1,683  1,855  116  2008 7/13/2018
Pet Care Services Mesa AZ 1,329  1,531  —  55  1,329  1,586  2,915  123  1990 7/13/2018
Pet Care Services Chandler AZ 1,775  3,033  —  55  1,775  3,088  4,863  242  2002 7/13/2018
Pet Care Services Green Valley AZ 913  2,454  —  55  913  2,509  3,422  186  2015 7/13/2018
Restaurants - Quick Service Brownsville KY 297  1,024  —  —  297  1,024  1,321  87  1990 7/18/2018
Car Washes Athen GA 1,011  2,536  —  600  1,011  3,136  4,147  250  2006 7/26/2018
Car Washes Winder GA 683  2,027  —  —  683  2,027  2,710  180  2008 7/26/2018
Car Washes Decatur GA 703  3,031  —  —  703  3,031  3,734  233  1967 7/26/2018
Car Washes Decatur GA 828  2,029  —  —  828  2,029  2,857  183  2007 7/26/2018
Car Washes Duluth GA 1,261  2,187  —  —  1,261  2,187  3,448  187  2006 7/26/2018
Restaurants - Quick Service Fort Oglethorpe GA 1,283  1,045  —  —  1,283  1,045  2,328  85  2001 8/8/2018
Restaurants - Quick Service Ringgold GA 387  1,406  —  —  387  1,406  1,793  118  2015 8/8/2018
Restaurants - Quick Service Chattanooga TN 438  1,061  —  —  438  1,061  1,499  87  2009 8/8/2018
Restaurants - Quick Service Chattanooga TN 876  1,255  —  —  876  1,255  2,131  107  2004 8/8/2018
Restaurants - Quick Service Chattanooga TN 1,497  1,161  —  —  1,497  1,161  2,658  93  2012 8/8/2018
Restaurants - Quick Service Dayton TN 468  1,283  —  —  468  1,283  1,751  111  2016 8/8/2018
Restaurants - Quick Service Ooltewah TN 1,079  1,262  —  —  1,079  1,262  2,341  99  2003 8/8/2018
Restaurants - Quick Service Soddy Daisy TN 825  992  —  —  825  992  1,817  95  2006 8/8/2018
Automotive Service Oklahoma City OK 152  596  —  —  152  596  748  48  1980 8/9/2018
F-11


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Automotive Service Midwest City OK $ 253  $ 495  $ —  $ —  $ 253  $ 495  $ 748  $ 50  1995 8/9/2018
Automotive Service Del City OK 364  384  —  —  364  384  748  48  1985 8/9/2018
Automotive Service Midwest City OK 172  526  —  —  172  526  698  43  1980 8/9/2018
Early Childhood Education Eden Prairie MN {f} 1,264  1,651  —  —  1,264  1,651  2,915  146  1995 8/10/2018
Restaurants - Quick Service Blytheville AR 785  736  —  —  785  736  1,521  70  2007 8/22/2018
Restaurants - Quick Service Paragould AR 744  784  —  —  744  784  1,528  67  2008 8/22/2018
Restaurants - Quick Service Van Buren AR 642  946  —  —  642  946  1,588  79  2008 8/22/2018
Convenience Stores Seguin TX 435  995  —  —  435  995  1,430  85  1974 9/4/2018
Convenience Stores Burleson TX 823  1,660  —  —  823  1,660  2,483  159  1985 9/4/2018
Convenience Stores Winfield TX 908  2,474  —  —  908  2,474  3,382  240  1979 9/4/2018
Automotive Service Pontiac MI 445  1,077  —  —  445  1,077  1,522  95  1978 9/7/2018
Restaurants - Quick Service San Angelo TX 161  806  —  —  161  806  967  61  1978 9/12/2018
Health and Fitness Springfield OR {f} 2,024  2,468  —  —  2,024  2,468  4,492  232  1999 9/13/2018
Health and Fitness Eugene OR {f} 1,046  2,986  —  —  1,046  2,986  4,032  196  1980 9/13/2018
Early Childhood Education San Antonio TX 617  2,258  —  —  617  2,258  2,875  166  2008 9/14/2018
Early Childhood Education Colleyville TX 695  1,022  —  —  695  1,022  1,717  85  1997 9/18/2018
Restaurants - Quick Service Marion AR 459  920  —  —  459  920  1,379  80  2007 9/21/2018
Entertainment Metairie LA 1,323  2,143  —  —  1,323  2,143  3,466  174  2016 9/21/2018
Restaurants - Quick Service Montrose CO 698  1,036  —  —  698  1,036  1,734  89  2000 9/25/2018
Restaurants - Family Dining Augusta GA 825  894  —  —  825  894  1,719  68  1968 9/25/2018
Restaurants - Family Dining Macon GA 648  992  —  —  648  992  1,640  77  1983 9/25/2018
Restaurants - Family Dining Macon GA 923  972  —  —  923  972  1,895  90  1972 9/25/2018
Restaurants - Quick Service Fairbanks AK 438  1,524  —  —  438  1,524  1,962  125  1971 9/27/2018
Restaurants - Quick Service Fairbanks AK 687  1,633  177  692  1,810  2,502  137  2006 9/27/2018
Medical / Dental Abilene TX 336  1,959  —  —  336  1,959  2,295  132  2006 9/27/2018
Automotive Service Bremen IN {f} 221  1,284  —  —  221  1,284  1,505  86  1970 9/28/2018
Car Washes Springdale AR —  —  —  —  —  —  —  —  2018 9/28/2018
Restaurants - Quick Service Andalusia AL 384  727  —  —  384  727  1,111  61  1988 9/28/2018
Medical / Dental Forrest City AR 143  608  —  —  143  608  751  47  2007 9/28/2018
Early Childhood Education Ashburn VA 898  671  —  —  898  671  1,569  56  2001 9/28/2018
Restaurants - Quick Service North Richard Hills TX 875  1,113  —  —  875  1,113  1,988  105  2017 9/28/2018
Restaurants - Quick Service Grapevine TX 775  904  —  —  775  904  1,679  87  2016 9/28/2018
Restaurants - Quick Service St Augustine FL 917  1,964  —  —  917  1,964  2,881  146  2010 9/28/2018
Early Childhood Education Fleming Island FL {f} 872  2,523  —  —  872  2,523  3,395  164  2006 9/28/2018
Restaurants - Quick Service Hot Springs AR 240  899  —  —  240  899  1,139  63  1979 10/4/2018
Health and Fitness Tucson AZ 4,227  —  140  4,264  4,367  4,264  8,631  123  2019 10/10/2018
Restaurants - Quick Service Countryside IL 727  1,302  —  —  727  1,302  2,029  94  2013 10/26/2018
Medical / Dental Midland TX 298  1,760  —  —  298  1,760  2,058  106  1993 10/31/2018
Early Childhood Education McDonough GA 604  2,065  —  —  604  2,065  2,669  146  2002 11/2/2018
Convenience Stores Tucson AZ 977  827  —  —  977  827  1,804  107  1985 11/7/2018
Convenience Stores Phoenix AZ 1,037  429  —  —  1,037  429  1,466  47  1987 11/7/2018
Convenience Stores Centralia WA 568  509  —  —  568  509  1,077  62  1976 11/7/2018
Medical / Dental Montgomery AL {f} 454  1,528  —  —  454  1,528  1,982  107  2004 11/7/2018
Medical / Dental Prattville AL {f} 237  857  —  —  237  857  1,094  59  2012 11/7/2018
Convenience Stores Duncanville TX 469  538  —  —  469  538  1,007  57  1980 11/8/2018
Early Childhood Education Canton GA 504  2,079  —  —  504  2,079  2,583  146  2006 11/9/2018
Restaurants - Quick Service Pembroke NY 577  898  —  —  577  898  1,475  90  2017 11/28/2018
Medical / Dental Fort Worth TX 466  845  —  —  466  845  1,311  62  1997 11/30/2018
Medical / Dental Arlington TX 546  649  —  —  546  649  1,195  55  1999 11/30/2018
Medical / Dental Burleson TX 61  1,091  —  —  61  1,091  1,152  57  1942 11/30/2018
Medical / Dental Dallas TX 1,813  3,606  —  —  1,813  3,606  5,419  212  1979 11/30/2018
Early Childhood Education Olive Branch MS 1,027  1,050  —  —  1,027  1,050  2,077  108  2009 12/5/2018

F-12


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
  Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
  Building &
Improvements
  Land &
Improvements
Building &
Improvements
Total
Early Childhood Education Manchester CT $ 915  $ 939  $ —    $ 1,805    $ 915  $ 2,744  $ 3,659  $ 128  1977 12/7/2018
Early Childhood Education Macon GA {f} 538  1,067  —    —    538  1,067  1,605  88  2007 12/14/2018
Early Childhood Education Macon GA {f} 508  1,067  —    —    508  1,067  1,575  78  2008 12/14/2018
Entertainment Andover MN 898  1,208  —    —    898  1,208  2,106  91  2005 12/12/2018
Entertainment Rochester MN 379  968  —    —    379  968  1,347  60  1958 12/12/2018
Entertainment South St. Paul MN 1,008  928  —    —    1,008  928  1,936  78  1978 12/12/2018
Entertainment Mounds View MN 1,986  3,264  —    —    1,986  3,264  5,250  233  1967 12/12/2018
Entertainment St. Paul Park MN 529  1,058  —    —    529  1,058  1,587  79  1959 12/12/2018
Entertainment Oakdale MN 2,136  5,699  —    —    2,136  5,699  7,835  371  2009 12/12/2018
Entertainment Monticello MN 1,527  3,414  —    —    1,527  3,414  4,941  278  2007 12/12/2018
Entertainment St. Paul MN 1,218  1,407  —    —    1,218  1,407  2,625  99  1955 12/12/2018
Entertainment Ramsey MN 609  749  —    —    609  749  1,358  81  1988 12/12/2018
Health and Fitness Winston Salem NC 986  1,205  (75) (g) (90) (g) 911  1,115  2,026  62  1972 12/19/2018
Automotive Service Denton TX 1,278  1,582  —    —    1,278  1,582  2,860  130  1982 12/20/2018
Car Washes Dubuque IA 990  2,121  —    —    990  2,121  3,111  146  1992 12/20/2018
Car Washes Davenport IA 757  2,394  —    —    757  2,394  3,151  158  1990 12/20/2018
Car Washes Rock Island IL 1,030  2,949  —    —    1,030  2,949  3,979  195  1996 12/20/2018
Pet Care Services Georgetown TX 753  —  790    3,473    1,543  3,473  5,016  47  2020 12/21/2018
Pet Care Services Middleburg FL 803  —  1,842    2,384    2,645  2,384  5,029  167  2020 12/21/2018
Early Childhood Education Arlington TX 1,296  3,239  —    —    1,296  3,239  4,535  207  1989 12/27/2018
Home Furnishings Kansas City MO 273  4,683  —    —    273  4,683  4,956  256  2007 12/28/2018
Restaurants - Casual Dining Flint MI 619  274  —    —    619  274  893  38  1975 1/2/2019
Restaurants - Casual Dining Saginaw MI 335  294  —    —    335  294  629  34  1967 1/2/2019
Restaurants - Quick Service Alexandria LA {f} 271  953  —    —    271  953  1,224  63  1985 1/10/2019
Restaurants - Quick Service Leesville LA {f} 140  812  —    —    140  812  952  53  1983 1/10/2019
Restaurants - Quick Service Griffin GA {f} 923  1,103  —    —    923  1,103  2,026  77  1983 1/10/2019
Car Washes Springdale AR 1,032  2,325  (1,032) (2,325) —  —  —  —  2018 1/10/2019
Entertainment Nampa ID 886  2,768  —    —    886  2,768  3,654  157  2008 1/17/2019
Medical / Dental West Memphis AR 247  543  —    —    247  543  790  40  2007 1/22/2019
Early Childhood Education Gilbert AZ 1,074  —  632    3,641    1,706  3,641  5,347  100  2020 1/29/2019
Pet Care Services Denham Springs LA 485  701  —    —    485  701  1,186  50  2007 1/31/2019
Medical / Dental Little Rock AR 770  1,562  —    —    770  1,562  2,332  93  2004 1/31/2019
Medical / Dental Bryant AR 460  1,519  —    —    460  1,519  1,979  87  2014 1/31/2019
Restaurants - Quick Service Ruston LA 544  1,399  —    —    544  1,399  1,943  95  2016 2/14/2019
Restaurants - Quick Service El Dorado AR 661  1,448  —    —    661  1,448  2,109  103  2017 2/14/2019
Restaurants - Quick Service Percival IA {f} 578  1,252  —    —    578  1,252  1,830  94  2004 2/15/2019
Early Childhood Education Garner NC 378  1,962  —    —    378  1,962  2,340  108  2007 2/28/2019
Restaurants - Casual Dining Wilder KY 317  1,169  —    —    317  1,169  1,486  64  2010 2/28/2019
Medical / Dental Meridian MS 886  5,947  —    —    886  5,947  6,833  300  2006 3/8/2019
Health and Fitness Abilene TX 1,326  2,478  —    144    1,326  2,622  3,948  168  1974 3/8/2019
Early Childhood Education St. Augustine FL 183  1,436  —    —    183  1,436  1,619  77  2016 3/8/2019
Early Childhood Education St. Augustine FL 611  2,149  —    —    611  2,149  2,760  122  2006 3/8/2019
Early Childhood Education St. Augustine FL 1,385  2,108  —    —    1,385  2,108  3,493  145  1981 3/8/2019
Health and Fitness Las Vegas NV {f} 491  2,543  —    —    491  2,543  3,034  135  1970 3/13/2019
Automotive Service St. Augusta MN {f} 518  1,057  —  —  518  1,057  1,575  80  1991 3/13/2019



F-13


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Pet Care Services Carbondale IL $ 605  $ 713  $ —  $ —  $ 605  $ 713  $ 1,318  $ 61  1986 3/29/2019
Pet Care Services Energy IL 313  254  —  —  313  254  567  19  1995 3/29/2019
Pet Care Services Crete NE 381  332  —  —  381  332  713  38  1967 3/29/2019
Pet Care Services Ballwin MO 537  752  —  —  537  752  1,289  47  1986 3/29/2019
Pet Care Services Pea Ridge AR 518  654  —  —  518  654  1,172  46  1996 3/29/2019
Pet Care Services Norman OK 225  283  —  —  225  283  508  32  1993 3/29/2019
Pet Care Services Martinsville IN 88  664  —  —  88  664  752  33  1989 3/29/2019
Pet Care Services Carbondale IL 557  537  —  —  557  537  1,094  55  1976 3/29/2019
Pet Care Services Nashville IN 146  703  —  —  146  703  849  39  1970 3/29/2019
Entertainment Monroeville PA 823  2,028  —  —  823  2,028  2,851  140  2016 3/29/2019
Early Childhood Education Stockbridge GA 645  1,345  —  —  645  1,345  1,990  78  2004 3/29/2019
Entertainment Huntersville NC 4,087  9,719  —  —  4,087  9,719  13,806  502  1996 3/29/2019
Entertainment Greensboro NC 2,593  8,381  —  —  2,593  8,381  10,974  446  1988 3/29/2019
Medical / Dental Tuscaloosa AL 262  1,682  —  —  262  1,682  1,944  82  1991 3/29/2019
Early Childhood Education Duluth GA 843  2,539  —  150  843  2,689  3,532  134  1994 3/29/2019
Medical / Dental Indianapolis IN 509  3,504  —  —  509  3,504  4,013  168  2016 3/29/2019
Medical / Dental Fort Wayne IN 4,006  —  397  2,694  4,403  2,694  7,097  38  2020 3/29/2019
Restaurants - Quick Service Woodstock GA {f} 435  932  —  —  435  932  1,367  52  1990 4/5/2019
Restaurants - Quick Service Commerce GA {f} 435  851  —  —  435  851  1,286  47  1990 4/5/2019
Health and Fitness Norman OK 730  2,937  —  559  730  3,496  4,226  181  2018 4/17/2019
Convenience Stores Alpena AR 151  667  —  —  151  667  818  34  1970 4/19/2019
Convenience Stores Gassville AR 181  688  —  —  181  688  869  32  1995 4/19/2019
Convenience Stores Mountain Home AR 242  747  —  —  242  747  989  44  1977 4/19/2019
Early Childhood Education Alpharetta GA 835  865  —  400  835  1,265  2,100  55  1999 4/30/2019
Early Childhood Education Johns Creek GA 1,137  744  —  —  1,137  744  1,881  57  2004 4/30/2019
Medical / Dental Tyler TX 365  477  —  —  365  477  842  24  1940 5/15/2019
Medical / Dental Groesbeck TX 142  406  —  —  142  406  548  21  2005 5/15/2019
Medical / Dental Greenville TX 172  609  —  —  172  609  781  32  1985 5/15/2019
Medical / Dental Marshall TX 487  1,167  —  —  487  1,167  1,654  55  1969 5/15/2019
Pet Care Services Prescott AZ 223  1,277  —  —  223  1,277  1,500  58  1990 5/24/2019
Entertainment Trussville AL 4,403  5,693  —  —  4,403  5,693  10,096  303  2002 5/30/2019
Early Childhood Education Coral Springs FL 1,939  2,639  —  —  1,939  2,639  4,578  146  2004 5/31/2019
Convenience Stores New Lexington OH 595  832  —  —  595  832  1,427  67  1997 6/6/2019
Convenience Stores Waterford PA 467  383  —  —  467  383  850  49  1996 6/6/2019
Convenience Stores Creston OH 596  630  —  —  596  630  1,226  46  1997 6/6/2019
Convenience Stores Alexandria KY 425  502  —  —  425  502  927  51  1998 6/6/2019
Convenience Stores Richmond KY 1,132  357  —  —  1,132  357  1,489  55  1998 6/6/2019
Convenience Stores Canton OH 782  392  —  —  782  392  1,174  58  1998 6/6/2019
Convenience Stores Wooster OH 516  862  —  —  516  862  1,378  70  1998 6/6/2019
Convenience Stores Louisville KY 571  395  —  —  571  395  966  46  1998 6/6/2019
Convenience Stores Fairfield OH 426  305  —  —  426  305  731  40  1999 6/6/2019
Convenience Stores Nicholasville KY 864  264  —  —  864  264  1,128  39  1999 6/6/2019
Convenience Stores Louisville KY 634  772  —  —  634  772  1,406  60  1998 6/6/2019
Convenience Stores Paris KY 965  538  —  —  965  538  1,503  56  1998 6/6/2019
Convenience Stores Fairborn OH 553  386  —  —  553  386  939  45  1998 6/6/2019
Convenience Stores Eastlake OH 804  861  —  —  804  861  1,665  84  1998 6/6/2019
Convenience Stores Beavercreek OH 1,066  574  —  —  1,066  574  1,640  81  1999 6/6/2019
Convenience Stores Milford OH 675  738  —  —  675  738  1,413  73  1998 6/6/2019
Convenience Stores Louisville KY 883  402  —  —  883  402  1,285  53  1998 6/6/2019
Convenience Stores Wauseon OH 722  381  —  —  722  381  1,103  53  1998 6/6/2019
F-14


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Convenience Stores Milan OH $ 585  $ 770  $ —  $ —  $ 585  $ 770  $ 1,355  $ 76  1999 6/6/2019
Convenience Stores Canton OH 565  767  —  —  565  767  1,332  65  1999 6/6/2019
Convenience Stores Mount Sterling KY 721  383  —  —  721  383  1,104  37  1998 6/6/2019
Convenience Stores Lorain OH 696  854  —  —  696  854  1,550  88  1999 6/6/2019
Convenience Stores Fairdale KY 683  711  —  —  683  711  1,394  71  1999 6/6/2019
Convenience Stores South Bloomfield OH 1,381  894  —  —  1,381  894  2,275  144  1999 6/6/2019
Convenience Stores Newtown OH 373  346  —  —  373  346  719  34  1999 6/6/2019
Convenience Stores Hudson OH 1,270  670  —  —  1,270  670  1,940  99  1999 6/6/2019
Convenience Stores Seymour IN 840  838  —  —  840  838  1,678  92  1999 6/6/2019
Convenience Stores Powell OH 841  503  —  —  841  503  1,344  60  1996 6/6/2019
Convenience Stores Avon OH 561  392  —  —  561  392  953  37  1999 6/6/2019
Convenience Stores Columbus OH 644  702  —  —  644  702  1,346  74  1999 6/6/2019
Convenience Stores Louisville KY 1,119  450  —  —  1,119  450  1,569  64  1999 6/6/2019
Convenience Stores Bedford OH 655  619  —  —  655  619  1,274  60  1999 6/6/2019
Convenience Stores Elizabethtown KY 1,446  856  —  —  1,446  856  2,302  102  1999 6/6/2019
Convenience Stores Parma OH 884  903  —  —  884  903  1,787  78  2001 6/6/2019
Restaurants - Casual Dining Warren MI 983  1,685  —  —  983  1,685  2,668  105  1969 6/7/2019
Restaurants - Casual Dining Detroit MI 572  923  —  —  572  923  1,495  52  1948 6/7/2019
Restaurants - Casual Dining Dearborn MI 702  2,397  —  —  702  2,397  3,099  108  1992 6/7/2019
Restaurants - Casual Dining Farmington Hills MI 883  2,337  —  —  883  2,337  3,220  122  1964 6/7/2019
Restaurants - Casual Dining Livonia MI 943  1,725  —  —  943  1,725  2,668  99  1974 6/7/2019
Restaurants - Quick Service Albion NY 600  1,089  —  —  600  1,089  1,689  61  1968 6/12/2019
Medical / Dental Huntsville TX 277  503  —  —  277  503  780  28  2003 6/13/2019
Medical / Dental Longview TX 257  452  —  —  257  452  709  20  1998 6/13/2019
Convenience Stores Deming NM 384  676  —  —  384  676  1,060  43  1990 6/21/2019
Restaurants - Casual Dining Danville IL {f} 553  1,619  —  —  553  1,619  2,172  85  1991 6/26/2019
Restaurants - Casual Dining Wooster OH {f} 955  1,720  —  —  955  1,720  2,675  86  1995 6/26/2019
Restaurants - Casual Dining New Philadelphia OH 1,116  2,001  —  —  1,116  2,001  3,117  100  1991 6/26/2019
Restaurants - Casual Dining Bristol VA 1,136  1,991  —  —  1,136  1,991  3,127  97  2005 6/26/2019
Early Childhood Education Olympia WA 377  1,569  —  —  377  1,569  1,946  75  2002 6/27/2019
Early Childhood Education Tumwater WA 665  1,003  —  —  665  1,003  1,668  46  1997 6/27/2019
Early Childhood Education Klamath Falls OR 447  1,202  —  —  447  1,202  1,649  59  2010 6/27/2019
Early Childhood Education Gig Harbor WA 546  665  —  —  546  665  1,211  33  1990 6/27/2019
Early Childhood Education Olympia WA 477  566  —  —  477  566  1,043  33  1984 6/27/2019
Early Childhood Education Tacoma WA 427  1,410  —  —  427  1,410  1,837  69  1987 6/27/2019
Early Childhood Education Olympia WA 218  506  —  —  218  506  724  28  1924 6/27/2019
Restaurants - Casual Dining Cadillac MI 41  1,627  —  —  41  1,627  1,668  61  1906 6/27/2019
Restaurants - Casual Dining Alden MI 102  671  —  —  102  671  773  29  1952 6/27/2019
Medical / Dental Highland AR {f} 182  1,060  —  —  182  1,060  1,242  52  2008 6/27/2019
Restaurants - Family Dining Kelso WA 804  1,846  —  —  804  1,846  2,650  99  1982 6/27/2019
Restaurants - Family Dining Port Orchard WA 983  2,015  —  —  983  2,015  2,998  111  1999 6/27/2019
Restaurants - Family Dining Milwaukee WI 1,526  2,365  —  —  1,526  2,365  3,891  137  2018 6/28/2019
Restaurants - Quick Service Sisseton SD 70  259  —  —  70  259  329  15  1984 6/28/2019
Restaurants - Quick Service Knoxville IA 199  528  —  —  199  528  727  32  1972 6/28/2019
Restaurants - Quick Service Centerville IA 259  538  —  —  259  538  797  34  1975 6/28/2019
Pet Care Services Lancaster SC 554  1,017  —  —  554  1,017  1,571  55  1994 6/28/2019
Convenience Stores Yuma CO {f} 430  990  —  —  430  990  1,420  54  1977 6/28/2019
Car Washes Sioux Falls SD 757  2,519  —  —  757  2,519  3,276  114  2006 6/28/2019
Car Washes Sioux Falls SD 627  1,852  —  —  627  1,852  2,479  92  2015 6/28/2019
Car Washes Sioux Falls SD 1,225  2,678  —  —  1,225  2,678  3,903  127  2017 6/28/2019
Car Washes Sioux Falls SD 1,484  2,768  —  —  1,484  2,768  4,252  128  2017 6/28/2019
Medical / Dental Amarillo TX 396  2,588  —  —  396  2,588  2,984  107  1994 6/28/2019
F-15


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Early Childhood Education Nashville TN $ 1,326  $ 1,945  $ —  $ —  $ 1,326  $ 1,945  $ 3,271  $ 136  1996 7/5/2019
Early Childhood Education Myrtle Beach SC 319  532  —  386  319  918  1,237  34  1999 7/5/2019
Health and Fitness Champaign IL 1,133  2,226  —  2,150  1,133  4,376  5,509  165  1986 7/11/2019
Convenience Stores Flippin AR 518  269  —  113  518  382  900  39  2004 7/16/2019
Convenience Stores Mountain Home AR 229  348  —  —  229  348  577  24  1960 7/16/2019
Convenience Stores Milan TN 358  279  —  —  358  279  637  29  2003 7/16/2019
Convenience Stores Wynne AR 378  219  —  —  378  219  597  31  1992 7/16/2019
Convenience Stores Montain View AR 438  2,678  —  —  438  2,678  3,116  120  1999 7/16/2019
Convenience Stores Bull Shoals AR 319  259  —  —  319  259  578  26  1999 7/16/2019
Convenience Stores Marshall AR 856  2,011  —  —  856  2,011  2,867  111  2012 7/16/2019
Convenience Stores Mountain Home AR 368  378  —  45  368  423  791  35  1999 7/16/2019
Convenience Stores Midway AR 388  488  —  —  388  488  876  42  1995 7/16/2019
Convenience Stores West Plains MO 159  368  —  —  159  368  527  23  2000 7/16/2019
Restaurants - Quick Service Cabot AR 479  1,189  —  —  479  1,189  1,668  59  2008 7/31/2019
Restaurants - Quick Service Searcy AR 359  1,150  —  —  359  1,150  1,509  54  2008 7/31/2019
Restaurants - Quick Service Conway AR 528  1,045  —  —  528  1,045  1,573  50  2009 7/31/2019
Medical / Dental Amarillo TX 1,309  6,791  —  —  1,309  6,791  8,100  270  1994 7/31/2019
Restaurants - Quick Service Owosso MI 693  732  —  —  693  732  1,425  39  1998 8/15/2019
Restaurants - Quick Service Stevensville MI 655  712  —  —  655  712  1,367  36  1981 8/15/2019
Early Childhood Education Schaumburg IL 866  —  —  —  866  —  866  —  8/30/2019
Restaurants - Quick Service Cloverdale IN 226  288  —  420  226  708  934  49  1996 9/3/2019
Restaurants - Quick Service Port Huron MI 784  746  —  —  784  746  1,530  38  1973 9/5/2019
Restaurants - Quick Service Cedar Springs MI 671  1,369  —  —  671  1,369  2,040  54  2000 9/5/2019
Health and Fitness Gainesville FL 1,312  2,488  —  2,398  1,312  4,886  6,198  154  1983 9/6/2019
Restaurants - Quick Service Louisville MS 155  680  —  —  155  680  835  30  2018 9/13/2019
Restaurants - Quick Service Macon MS 330  340  —  —  330  340  670  20  1992 9/13/2019
Restaurants - Quick Service Ruleville MS 196  422  —  —  196  422  618  25  2017 9/13/2019
Restaurants - Quick Service Quitman MS 309  237  —  —  309  237  546  19  1978 9/13/2019
Restaurants - Quick Service Philadelphia MS 330  371  —  —  330  371  701  29  2003 9/13/2019
Restaurants - Quick Service Prentiss MS 350  350  —  —  350  350  700  24  1978 9/13/2019
Restaurants - Quick Service Aston PA 440  522  —  —  440  522  962  31  1963 9/13/2019
Restaurants - Quick Service Essex MD 338  624  —  —  338  624  962  31  2002 9/13/2019
Pet Care Services Kittrell NC {f} 303  394  —  —  303  394  697  27  2014 9/19/2019
Convenience Stores Gassville AR 1,178  673  —  —  1,178  673  1,851  91  1999 9/20/2019
Convenience Stores West Plains MO 663  327  —  —  663  327  990  53  1999 9/20/2019
Convenience Stores Bald Knob AR 1,258  743  —  —  1,258  743  2,001  115  2006 9/20/2019
Convenience Stores Willow Springs MO 663  1,327  —  —  663  1,327  1,990  90  2003 9/20/2019
Convenience Stores Mountain Home AR 852  396  —  —  852  396  1,248  61  1999 9/20/2019
Convenience Stores Calico Rock AR 475  327  —  —  475  327  802  44  1979 9/20/2019
Convenience Stores Atkins AR 525  376  —  —  525  376  901  38  1990 9/20/2019
Convenience Stores Russellville AR 426  455  —  —  426  455  881  46  1991 9/20/2019
Convenience Stores Russellville AR 525  396  —  —  525  396  921  43  2000 9/20/2019
Convenience Stores Harrisburg AR 446  842  —  —  446  842  1,288  55  2007 9/20/2019
Convenience Stores Horseshoe Bend AR 376  327  —  —  376  327  703  33  1999 9/20/2019
Convenience Stores Koshkonong MO 604  743  —  —  604  743  1,347  62  1997 9/20/2019
Health and Fitness Greenville SC 732  1,361  —  —  732  1,361  2,093  51  1993 9/25/2019
Health and Fitness Anderson SC 691  1,402  —  —  691  1,402  2,093  55  1997 9/25/2019
Health and Fitness Spartanburg SC 1,052  1,474  —  —  1,052  1,474  2,526  60  2010 9/25/2019
Car Washes Denver CO 1,594  1,484  —  —  1,594  1,484  3,078  71  2012 9/26/2019
Car Washes Aurora CO 703  1,504  —  —  703  1,504  2,207  63  2008 9/26/2019
F-16


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Car Washes Denver CO $ 1,103  $ 1,805  $ —  $ —  $ 1,103  $ 1,805  $ 2,908  $ 78  2014 9/26/2019
Car Washes Fort Collins CO 491  1,093  —  —  491  1,093  1,584  47  2002 9/26/2019
Car Washes Thornton CO 582  1,795  —  —  582  1,795  2,377  77  2018 9/26/2019
Restaurants - Family Dining Cheyenne WY 739  1,569  —  —  739  1,569  2,308  65  1982 9/27/2019
Early Childhood Education Frankfort KY 387  1,224  —  —  387  1,224  1,611  50  2002 9/27/2019
Pet Care Services Onalaska WI {f} 403  598  —  —  403  598  1,001  29  2011 9/27/2019
Restaurants - Quick Service Jonesboro AR 1,213  1,108  —  —  1,213  1,108  2,321  50  2006 9/30/2019
Restaurants - Quick Service Bryant AR 622  885  —  —  622  885  1,507  37  2008 9/30/2019
Restaurants - Casual Dining West Chester OH 878  1,088  —  —  878  1,088  1,966  54  2004 9/30/2019
Early Childhood Education Leawood KS {f} 867  851  —  —  867  851  1,718  50  2007 9/30/2019
Grocery Claremore OK {f} 246  3,330  —  —  246  3,330  3,576  116  1989 9/30/2019
Other Services Little Rock AR 1,492  1,037  —  —  1,492  1,037  2,529  30  1982 9/30/2019
Other Services Conyers GA 1,821  6,235  —  —  1,821  6,235  8,056  178  1999 9/30/2019
Other Services LaVergne TN 2,790  2,302  —  —  2,790  2,302  5,092  63  2018 9/30/2019
Other Services Seattle WA 2,905  3,287  —  —  2,905  3,287  6,192  81  1977 9/30/2019
Automotive Service Albany GA 410  421  —  —  410  421  831  19  1994 10/1/2019
Automotive Service Bainridge GA 339  288  —  —  339  288  627  13  1999 10/1/2019
Automotive Service Hinesville GA 298  310  —  —  298  310  608  13  1998 10/1/2019
Automotive Service Macon GA 154  287  —  —  154  287  441  12  2000 10/1/2019
Automotive Service Perry GA 133  447  —  —  133  447  580  17  1996 10/1/2019
Automotive Service Valdosta GA 215  274  —  —  215  274  489  13  1996 10/1/2019
Automotive Service Pratville AL 451  636  —  —  451  636  1,087  24  2003 10/1/2019
Automotive Service Montgomery AL 318  246  —  —  318  246  564  12  1991 10/1/2019
Pet Care Services Medford OR {f} 192  324  —  —  192  324  516  14  1990 10/4/2019
Medical / Dental Horizon City TX 3,587  11,550  —  —  3,587  11,550  15,137  425  2017 10/10/2019
Medical / Dental El Paso TX 121  11,529  —  —  121  11,529  11,650  371  2019 10/10/2019
Convenience Stores Houston TX 631  662  —  —  631  662  1,293  34  2009 10/11/2019
Convenience Stores Pasadena TX 869  2,152  —  —  869  2,152  3,021  101  2016 10/11/2019
Early Childhood Education Conway SC 201  —  —  —  201  —  201  —  10/17/2019
Convenience Stores Avon MN 673  1,204  —  —  673  1,204  1,877  73  2004 10/17/2019
Car Washes Davenport IA 1,038  1,705  —  —  1,038  1,705  2,743  83  2001 10/24/2019
Car Washes Moline IL 1,120  1,572  —  —  1,120  1,572  2,692  73  1998 10/24/2019
Medical / Dental West Helena AR 155  1,052  —  —  155  1,052  1,207  37  2003 10/28/2019
Other Services Springfield MO 1,313  1,663  —  —  1,313  1,663  2,976  44  2007 10/31/2019
Early Childhood Education Charlotte NC 860  1,657  —  —  860  1,657  2,517  59  1996 11/1/2019
Pet Care Services Brandon FL 134  876  —  —  134  876  1,010  29  2003 11/1/2019
Pet Care Services Griffin GA 196  495  —  —  196  495  691  19  1979 11/1/2019
Pet Care Services Indianapolis IN 165  453  —  —  165  453  618  19  1967 11/1/2019
Pet Care Services Wildwood FL 350  1,165  —  —  350  1,165  1,515  46  2005 11/1/2019
Early Childhood Education Tucson AZ 586  885  —  —  586  885  1,471  36  1965 11/5/2019
Early Childhood Education Tucson AZ 339  730  —  —  339  730  1,069  26  1975 11/5/2019
Early Childhood Education Tucson AZ 463  1,440  —  —  463  1,440  1,903  51  1985 11/5/2019
Early Childhood Education Tempe AZ 494  586  —  —  494  586  1,080  24  1971 11/5/2019
Early Childhood Education Tucson AZ 401  453  —  —  401  453  854  19  1971 11/5/2019
Early Childhood Education Tucson AZ 411  411  —  —  411  411  822  17  1932 11/5/2019
Early Childhood Education Tucson AZ 422  576  —  —  422  576  998  19  1986 11/5/2019
Early Childhood Education Tucson AZ 444  566  —  —  444  566  1,010  21  1958 11/5/2019
Early Childhood Education Tucson AZ 370  288  —  —  370  288  658  12  1976 11/5/2019
F-17


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Convenience Stores Houston TX $ 211  $ 1,414  $ —  $ —  $ 211  $ 1,414  $ 1,625  $ 49  1975 11/14/2019
Convenience Stores Houston TX 221  1,402  —  —  221  1,402  1,623  54  1965 11/14/2019
Convenience Stores Prairie View TX 241  1,178  —  —  241  1,178  1,419  49  1984 11/14/2019
Restaurants - Quick Service Lewisburg TN {f} 461  676  —  —  461  676  1,137  39  2016 11/18/2019
Restaurants - Quick Service Odessa TX 601  1,353  —  —  601  1,353  1,954  60  2019 11/21/2019
Restaurants - Quick Service Odessa TX 1,031  1,353  —  —  1,031  1,353  2,384  61  2019 11/21/2019
Other Services Salt Lake City UT 1,731  3,542  —  —  1,731  3,542  5,273  108  1973 11/27/2019
Other Services Sanford FL 1,498  1,859  —  —  1,498  1,859  3,357  66  1964 11/27/2019
Convenience Stores Mosinee WI 351  812  —  —  351  812  1,163  41  1975 12/2/2019
Car Washes Ocala FL 1,383  2,644  —  —  1,383  2,644  4,027  95  2019 12/10/2019
Car Washes Hampstead NC 1,129  2,644  —  —  1,129  2,644  3,773  93  2019 12/10/2019
Medical / Dental Conyers GA 393  2,078  —  —  393  2,078  2,471  72  1996 12/12/2019
Medical / Dental Covington GA 373  1,816  —  —  373  1,816  2,189  65  2004 12/12/2019
Automotive Service Fayetteville GA {f} 347  746  —  —  347  746  1,093  32  2006 12/13/2019
Early Childhood Education Boulder CO 742  801  —  —  742  801  1,543  23  1988 12/13/2019
Restaurants - Quick Service Columbia City IN 312  171  —  515  312  686  998  19  1973 12/17/2019
Restaurants - Quick Service North Manchester IN 363  272  —  504  363  776  1,139  23  1987 12/17/2019
Restaurants - Quick Service Winona MS 522  1,126  —  —  522  1,126  1,648  43  2019 12/19/2019
Restaurants - Quick Service Hazlehurst MS 522  1,269  —  —  522  1,269  1,791  50  2019 12/19/2019
Restaurants - Quick Service Vicksburg MS 553  1,238  —  —  553  1,238  1,791  47  2019 12/19/2019
Restaurants - Quick Service Blytheville AR 849  1,126  —  —  849  1,126  1,975  49  2019 12/19/2019
Restaurants - Quick Service Wynne AR 665  931  —  —  665  931  1,596  44  2019 12/19/2019
Restaurants - Quick Service Salem IN {f} 532  1,013  —  —  532  1,013  1,545  47  2019 12/19/2019
Restaurants - Quick Service Ashland City TN 614  1,044  —  —  614  1,044  1,658  43  2019 12/19/2019
Restaurants - Quick Service Shelbyville KY {f} 911  972  —  —  911  972  1,883  44  2018 12/19/2019
Restaurants - Quick Service Whiteland IN {f} 389  839  —  —  389  839  1,228  35  2003 12/19/2019
Restaurants - Quick Service Bloomington IN 225  665  —  —  225  665  890  26  2018 12/23/2019
Restaurants - Quick Service Cheektowaga NY 1,381  1,903  —  —  1,381  1,903  3,284  74  2000 12/23/2019
Restaurants - Quick Service Memphis TN 880  921  —  —  880  921  1,801  44  2019 12/23/2019
Restaurants - Quick Service Somerset KY 798  1,105  —  —  798  1,105  1,903  49  2019 12/23/2019
Car Washes Sioux Falls SD 1,075  3,384  —  —  1,075  3,384  4,459  100  1992 12/19/2019
Car Washes Sioux Falls SD 723  2,882  —  —  723  2,882  3,605  50  1987 12/19/2019
Car Washes Sioux City IA 707  —  285  2,478  992  2,478  3,469  48  2020 12/19/2019
Car Washes South Sioux City NE 303  —  248  2,157  551  2,157  2,708  2020 12/19/2019
Automotive Service Crystal Lake IL 265  1,103  —  —  265  1,103  1,368  37  1974 12/20/2019
Car Washes Jonesboro AR 1,217  4,776  —  —  1,217  4,776  5,993  129  2019 12/20/2019
Medical / Dental Grand Blanc MI 748  1,537  —  —  748  1,537  2,285  48  2007 12/23/2019
Convenience Stores Roscoe IL 656  832  —  —  656  832  1,488  50  1999 12/27/2019
Medical / Dental Arnold MO {f} 417  823  —  —  417  823  1,240  33  2015 12/30/2019
Medical / Dental Allen TX 397  2,230  —  397  2,230  2,627  39  1983 12/31/2019
Medical / Dental Flower Mound TX 427  905  —  —  427  905  1,332  30  1999 12/31/2019
Medical / Dental Plano TX 376  1,698  —  —  376  1,698  2,074  50  1998 12/31/2019




F-18


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Automotive Service Houston TX $ 292  $ 513  $ —  $ —  $ 292  $ 513  $ 805  $ 20  1986 1/30/2020
Automotive Service Pasadena TX 252  705  —  —  252  705  957  23  1971 1/30/2020
Early Childhood Education Weston MA 3,200  2,423  —  —  3,200  2,423  5,623  74  1990 2/7/2020
Grocery Tulsa OK 713  2,098  —  —  713  2,098  2,811  70  1991 3/24/2020
Grocery Tulsa OK 670  3,298  —  —  670  3,298  3,968  93  1993 3/24/2020
Restaurants - Quick Service Fall River MA 592  744  —  —  592  744  1,336  30  1984 1/15/2020
Restaurants - Quick Service Worcester MA 532  905  —  —  532  905  1,437  29  1965 1/15/2020
Restaurants - Quick Service Plainville MA 602  548  —  —  602  548  1,150  23  1984 1/15/2020
Restaurants - Quick Service Stoughton MA 552  615  —  —  552  615  1,167  24  1983 1/15/2020
Restaurants - Quick Service Fall River MA 612  550  —  —  612  550  1,162  26  1987 1/15/2020
Restaurants - Quick Service Worcester MA 402  811  —  —  402  811  1,213  29  1965 1/15/2020
Restaurants - Quick Service Leominster MA 512  461  —  —  512  461  973  17  1980 1/15/2020
Restaurants - Quick Service Dorchester MA 743  313  —  —  743  313  1,056  15  1984 1/15/2020
Restaurants - Quick Service Sudbury MA 703  182  —  —  703  182  885  12  1983 1/15/2020
Car Washes Manor TX 1,074  3,270  —  —  1,074  3,270  4,344  115  2019 1/21/2020
Early Childhood Education Charlotte NC 1,021 1,198  —  —  1,021  1,198  2,219  14  1987 8/17/2020
Restaurants - Quick Service Loudon TN 668  1,091  —  —  668  1,091  1,759  42  2020 2/26/2020
Restaurants - Quick Service St. Mary's PA {f} 878 1,080  —  —  878  1,080  1,958  38  2020 4/3/2020
Restaurants - Quick Service Dyersburg TN 675  959  —  —  675  959  1,634  33  2007 1/30/2020
Restaurants - Quick Service Memphis TN 1,358 1,283  —  —  1,358  1,283  2,641  41  2011 1/30/2020
Restaurants - Quick Service Memphis TN 828  1,131  —  —  828  1,131  1,959  36  2011 1/30/2020
Restaurants - Quick Service Memphis TN 801 1,198  —  —  801  1,198  1,999  40  2000 1/30/2020
Restaurants - Quick Service Memphis TN 984  1,202  —  —  984  1,202  2,186  40  1994 1/30/2020
Restaurants - Quick Service Senatobia MS 886 1,120  —  —  886  1,120  2,006  37  2013 1/30/2020
Restaurants - Quick Service Jackson MS 178  100  —  240  178  340  518  30  1985 1/29/2020
Car Washes Arvada CO 566 2,374  —  —  566  2,374  2,940  74  2008 1/24/2020
Car Washes Golden CO 1,031  1,566  —  400  1,031  1,966  2,997  56  2005 1/24/2020
Car Washes Sioux City IA 886 1,855  —  500  886  2,355  3,241  33  2020 8/13/2020
Restaurants - Casual Dining Fort Wayne IN 1,542  —  —  —  1,542  —  1,542  —  1999 1/7/2020
Early Childhood Education Naperville IL 1,564 4,638  —  —  1,564  4,638  6,202  126  2009 2/21/2020
Early Childhood Education Northbrook IL 1,080  5,347  —  —  1,080  5,347  6,427  141  2014 2/24/2020
Medical / Dental Tyler TX 463 3,250  —  —  463  3,250  3,713  101  2015 1/17/2020
Early Childhood Education Franklin TN {f} 617  1,025  —  —  617  1,025  1,642  13  1996 9/4/2020
Restaurants - Casual Dining Grand Rapids MI 1,055 1,754  —  —  1,055  1,754  2,809  59  2003 1/29/2020
Medical / Dental Flagstaff AZ 1,446  1,856  —  —  1,446  1,856  3,302  51  1980 2/27/2020
Medical / Dental Portland OR 1,457 1,230  —  —  1,457  1,230  2,687  42  1981 2/27/2020
Other Services Watsontown PA 751  1,678  —  —  751  1,678  2,429  67  1987 2/13/2020
Early Childhood Education Concord NC 1,283 2,419  —  —  1,283  2,419  3,702  33  2003 8/17/2020
Medical / Dental DeLand FL 909  4,404  —  —  909  4,404  5,313  118  2004 3/9/2020
Automotive Service King NC 408 153  —  —  408  153  561  1985 3/10/2020
Automotive Service Elkin NC 337  286  —  —  337  286  623  12  1997 3/10/2020
Automotive Service Yadkinville NC 235 347  —  —  235  347  582 11  2001 3/10/2020
Automotive Service Lancaster SC 388  286  —  —  388  286  674  11  2007 3/10/2020
Automotive Service Lenoir NC 326 235  —  —  326  235  561 10  1991 3/10/2020
Automotive Service Hickory NC 398  132  —  —  398  132  530  1988 3/10/2020
Automotive Service St. Albans WV 235 459  —  —  235  459  694 14  1987 3/10/2020
Automotive Service Hurricane WV 398  388  —  —  398  388  786  14  1989 3/10/2020
Automotive Service South Boston VA 224 734  —  —  224  734  958 21  1996 3/10/2020
F-19


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Automotive Service Pittsboro NC $ 520  $ 183  $ —  $ —  $ 520  $ 183  $ 703  $ 2006 3/10/2020
Early Childhood Education Hartland WI 462 3,390  —  —  462  3,390  3,852  83  2000 3/6/2020
Early Childhood Education Menomonee Falls WI 976  3,464  —  —  976  3,464  4,440  84  1978 3/6/2020
Early Childhood Education Menomonee Falls WI 1,354 4,314  —  —  1,354  4,314  5,668  107  2000 3/6/2020
Early Childhood Education Waukesha WI 577  3,485  —  —  577  3,485  4,062  83  1996 3/6/2020
Early Childhood Education Oconomowoc WI 882 4,734  —  —  882  4,734  5,616  113  2007 3/6/2020
Medical / Dental Lake City FL 1,046  2,450  —  —  1,046  2,450  3,496  64  1974 3/4/2020
Early Childhood Education Waterford MI {f} 419 783  —  —  419  783  1,202  1997 9/18/2020
Early Childhood Education Tucson AZ 956  906  —  —  956  906  1,862  29  2008 3/6/2020
Car Washes Casa Grande AZ 504  —  317  1,970  821  1,970  2,791  30  2020 2/6/2020
Early Childhood Education Marietta GA 1,799  3,234  —  —  1,799  3,234  5,033  78  1997 3/6/2020
Early Childhood Education Alpharetta GA 1,621  3,148  —  —  1,621  3,148  4,769  76  1995 3/6/2020
Automotive Service Arlington TX 833  3,603  —  —  833  3,603  4,436  104  2015 2/14/2020
Medical / Dental Orange TX 337  3,293  —  —  337  3,293  3,630  88  2015 2/21/2020
Automotive Service Little Elm TX 647  1,006  —  —  647  1,006  1,653  27  2007 3/6/2020
Automotive Service McKinney TX 1,016  807  —  —  1,016  807  1,823  28  2010 3/6/2020
Restaurants - Quick Service West Dundee IL 523  539  —  771  523  1,310  1,833  22  2020 3/6/2020
Pet Care Services Catonsville MD 586  1,881  16  34  602  1,915  2,517  35  1998 5/4/2020
Restaurants - Family Dining Greenville SC 626  1,091  —  —  626  1,091  1,717  35  1972 3/19/2020
Restaurants - Family Dining Charleston SC 1,303  1,020  —  —  1,303  1,020  2,323  32  1978 3/19/2020
Automotive Service Gilbert AZ {f} 370  2,108  —  —  370  2,108  2,478  45  2019 4/30/2020
Restaurants - Quick Service Yazoo City MS {f} 249  753  —  —  249  753  1,002  15  1975 5/7/2020
Other Services Richmond Hill GA 2,502  761  —  —  2,502  761  3,263  33  2019 6/8/2020
Other Services Centennial CO 3,003  2,972  1,021  3,008  3,993  7,000  113  2005 6/8/2020
Other Services Joplin MO 991  941  —  —  991  941  1,932  21  1997 6/8/2020
Other Services Kansas City MO 1,531  1,391  —  —  1,531  1,391  2,922  53  2015 6/8/2020
Automotive Service Tempe AZ {f} 915  3,304  —  —  915  3,304  4,219  66  1987 5/28/2020
Restaurants - Quick Service Byram MS {f} 775  584  —  150  775  734  1,509  15  2003 6/8/2020
Restaurants - Quick Service Big Spring TX 287  —  —  1,030  287  1,030  1,317  2020 6/25/2020
Car Washes Flagstaff AZ 1,873  3,456  —  —  1,873  3,456  5,329  56  2018 7/24/2020
Car Washes Phoenix AZ 2,204  2,634  —  —  2,204  2,634  4,838  47  2018 7/24/2020
Car Washes Sun City AZ 1,613  2,134  —  —  1,613  2,134  3,747  37  1988 7/24/2020
Car Washes Scottsdale AZ 3,666  2,093  —  —  3,666  2,093  5,759  45  1994 7/24/2020
Car Washes Yuma AZ 280  1,883  —  —  280  1,883  2,163  33  2001 7/24/2020
Restaurants - Quick Service Sparta TN 733  1,383  —  —  733  1,383  2,116  27  1997 6/25/2020
Restaurants - Quick Service McMinnville TN {f} 711  569  200  —  911  569  1,480  14  2017 7/16/2020
Restaurants - Quick Service Newnan GA 1,413  1,494  —  —  1,413  1,494  2,907  26  1987 8/19/2020
Restaurants - Quick Service Newnan GA 724  1,189  —  —  724  1,189  1,913  19  2005 8/19/2020
Restaurants - Quick Service Lawrenceville GA 1,122  1,363  —  —  1,122  1,363  2,485  22  2005 8/19/2020
Grocery Dexter MO 813  697  —  —  813  697  1,510  16  1998 9/30/2020
Grocery Kennett MO {f} 427  1,688  —  —  427  1,688  2,115  21  2013 9/30/2020
Grocery Park Hills MO 653  1,819  —  —  653  1,819  2,472  26  1970 9/30/2020
Grocery Piggott AR 614  789  —  —  614  789  1,403  15  1986 9/30/2020
Grocery Potosi MO 371  1,569  —  —  371  1,569  1,940  19  1970 9/30/2020
F-20


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Grocery Malden MO {f} $ 265  $ 1,873  $ —  $ —  $ 265  $ 1,873  $ 2,138  $ 19  1978 9/30/2020
Grocery Mayflower AR 1,460  3,042  —  —  1,460  3,042  4,502  45  2020 9/30/2020
Automotive Service East Brunswick NJ 1,173  1,540  —  —  1,173  1,540  2,713  19  1960 9/18/2020
Automotive Service Washington NJ 388  1,969  —  —  388  1,969  2,357  20  1969 9/18/2020
Automotive Service Princeton NJ 1,448  1,918  —  —  1,448  1,918  3,366  22  1947 9/18/2020
Automotive Service Lawrenceville NJ 632  1,999  —  —  632  1,999  2,631  24  1960 9/18/2020
Automotive Service Madison NJ 1,714  1,306  —  —  1,714  1,306  3,020  14  1950 9/18/2020
Automotive Service Chester NJ 1,295  1,550  —  —  1,295  1,550  2,845  20  1995 9/18/2020
Automotive Service Manville NJ 867  989  —  —  867  989  1,856  12  1977 9/18/2020
Automotive Service North Caldwell NJ 561  663  —  —  561  663  1,224  11  1968 9/18/2020
Automotive Service Kerhonkson NY 938  2,805  —  —  938  2,805  3,743  31  1982 9/18/2020
Automotive Service Bethlehem PA 602  1,642  —  —  602  1,642  2,244  16  1968 9/18/2020
Automotive Service Langhorne PA 898  1,550  —  —  898  1,550  2,448  23  1999 9/18/2020
Automotive Service Quakertown PA 1,652  1,295  —  —  1,652  1,295  2,947  19  2012 9/18/2020
Restaurants - Quick Service Hattiesburg MS 882  847  —  —  882  847  1,729  13  2000 9/11/2020
Car Washes Fort Worth TX 1,475  2,747  —  —  1,475  2,747  4,222  41  2020 8/31/2020
Car Washes Westminster CO 842  1,174  —  —  842  1,174  2,016  13  2003 9/24/2020
Car Washes Palatka FL 914  2,490  —  —  914  2,490  3,404  26  2020 9/30/2020
Car Washes 1,526  2,490  —  —  1,526  2,490  4,016  30  2020 9/30/2020
Restaurants - Quick Service Greenwood SC 273  652  —  —  273  652  925  2014 9/24/2020
Medical / Dental Flint TX 428  879  —  —  428  879  1,307  11  2008 9/24/2020
Other Services Alabaster AL 690  207  12  847  702  1,054  1,756  10  2003 9/29/2020
Other Services Albuquerque NM 1,686  286  25  1,862  1,711  2,148  3,859  22  1970 9/29/2020
Other Services Shreveport LA 1,006  227  16  1,164  1,022  1,391  2,412  18  2012 9/29/2020
Automotive Service Skiatook OK 324  2,695  —  —  324  2,695  3,019  26  2005 9/30/2020
Automotive Service Bartlesville OK 118  2,853  —  —  118  2,853  2,971  25  1967 9/30/2020
Automotive Service Owasso OK 275  6,094  —  —  275  6,094  6,369  54  2007 9/30/2020
Automotive Service Bartlesville OK 932  4,587  —  —  932  4,587  5,519  49  2003 9/30/2020
Automotive Service Broken Arrow OK 1,060  3,425  —  —  1,060  3,425  4,485  33  2014 9/30/2020
Automotive Service Tulsa OK 1,226  1,374  —  —  1,226  1,374  2,600  18  2019 9/30/2020
Automotive Service Bartlesville OK 177  599  —  —  177  599  776  1980 9/30/2020
Medical / Dental Taunton MA {f} 201  1,289  —  —  201  1,289  1,490  1972 10/1/2020
Medical / Dental Plymouth MA {f} 296  444  —  —  296  444  740  2005 10/1/2020
Medical / Dental Middleborough MA {f} 296  475  —  —  296  475  771  1925 10/1/2020
Car Washes Phenix City AL 1,111  2,722  —  —  1,111  2,722  3,833  22  2020 10/5/2020
Medical / Dental Pine Bluff AR 65  552  —  95  65  647  712  1983 10/9/2020
Early Childhood Education Jackson MI {f} 379  1,046  —  —  379  1,046  1,425  10  1990 10/14/2020
Early Childhood Education Jackson MI {f} 170  614  —  —  170  614  784  1987 10/14/2020
Medical / Dental Valdosta GA 262  1,726  —  —  262  1,726  1,988  14  1996 10/15/2020
Medical / Dental Valdosta GA 214  1,351  —  —  214  1,351  1,565  11  1990 10/15/2020
Grocery Jackson MO 458  1,719  —  —  458  1,719  2,177  15  1995 10/22/2020
Grocery Marble Hill MO 504  2,052  —  —  504  2,052  2,556  18  1999 10/22/2020
Equipment Rental and Sales Chatham NY 987  1,317  —  —  987  1,317  2,304  15  1974 10/22/2020
F-21


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Equipment Rental and Sales Clifton Park NY $551 $717 —  —  $ 551  $ 717  $ 1,268  $ 2000 10/22/2020
Equipment Rental and Sales Goshen NY 732  1,191  —  —  732  1,191  1,923  11  1974 10/22/2020
Equipment Rental and Sales Fultonville NY 1,775  858  —  —  1,775  858  2,633  12  1980 10/22/2020
Equipment Rental and Sales Lancaster MA 1,285  2,089  —  —  1,285  2,089  3,374  17  2012 10/22/2020
Equipment Rental and Sales Greenfield MA 304  815  —  —  304  815  1,119  1971 10/22/2020
Equipment Rental and Sales Farmington CT 411  1,410  —  —  411  1,410  1,821  12  2005 10/22/2020
Equipment Rental and Sales Pembroke NH 318  785  —  —  318  785  1,103  1978 10/22/2020
Grocery Farmington MO 789  1,990  —  —  789  1,990  2,779  21  2006 10/29/2020
Grocery Fredericktown MO 682  1,523  —  —  682  1,523  2,205  19  2001 10/29/2020
Automotive Service Byram NJ 1,193  1,182  —  —  1,193  1,182  2,375  13  1992 10/29/2020
Automotive Service Westfield NJ 1,904  1,606  —  —  1,904  1,606  3,510  15  1970 10/29/2020
Automotive Service East Windsor NJ 1,599  1,634  —  —  1,599  1,634  3,233  15  1965 10/29/2020
Automotive Service Fords NJ 1,300  1,180  —  —  1,300  1,180  2,480  12  1974 10/29/2020
Automotive Service Jackson NJ 1,464  1,100  —  —  1,464  1,100  2,564  11  1995 10/29/2020
Automotive Service West Berlin NJ 1,061  1,298  —  —  1,061  1,298  2,359  13  1995 10/29/2020
Other Services Zeeland MI 2,086  5,386  —  —  2,086  5,386  7,472  39  1973 11/2/2020
Other Services Wyoming MI 1,066  1,795  —  —  1,066  1,795  2,861  15  2020 11/2/2020
Other Services Waterford MI 1,286  1,243  —  —  1,286  1,243  2,529  13  1995 11/2/2020
Other Services Elkhart IN 544  1,061  —  —  544  1,061  1,605  1989 11/2/2020
Other Services Mishawaka IN 527  558  —  —  527  558  1,085  1979 11/2/2020
Restaurants - Quick Service Franklin IN 670  1,609  —  —  670  1,609  2,279  2017 11/12/2020
Car Washes Princeton TX 1,030  2,986  —  —  1,030  2,986  4,016  17  2020 11/16/2020
Automotive Service Point Pleasant NJ 1,763  1,166  —  —  1,763  1,166  2,929  1977 11/19/2020
Pet Care Services Douglasville GA {f} 640  748  —  —  640  748  1,388  1989 11/24/2020
Pet Care Services Alpharetta GA {f} 766  822  —  —  766  822  1,588  2007 11/24/2020
Grocery Fayetteville AR 423  1,410  —  —  423  1,410  1,833  1990 12/1/2020
Automotive Service Fairmont WV 232  539  —  —  232  539  771  1997 12/2/2020
Automotive Service Fairmont WV 291  860  —  —  291  860  1,151  1999 12/2/2020
Restaurants - Quick Service Richardson TX 501  682  —  —  501  682  1,183  1979 12/15/2020
Restaurants - Quick Service Arlington TX 949  86  —  —  949  86  1,035  1979 12/15/2020
Restaurants - Quick Service Oklahoma City OK 553  1,032  —  —  553  1,032  1,585  1979 12/15/2020
Restaurants - Quick Service Moore OK 605  1,152  —  —  605  1,152  1,757  1983 12/15/2020
Restaurants - Quick Service Norman OK 303  709  —  —  303  709  1,012  1992 12/15/2020
Restaurants - Quick Service Owasso OK 929  935  —  —  929  935  1,864  1986 12/15/2020
Restaurants - Quick Service Waco TX 553  548  —  —  553  548  1,101  1987 12/15/2020
Restaurants - Quick Service Carrollton TX 605  547  —  —  605  547  1,152  1992 12/15/2020
Restaurants - Quick Service Rowlett TX 553  665  —  —  553  665  1,218  1999 12/15/2020
Restaurants - Quick Service Mesquite TX 855  621  —  —  855  621  1,476  1999 12/15/2020
Restaurants - Quick Service Grand Prairie TX 814  73  —  —  814  73  887  1999 12/15/2020
Restaurants - Quick Service Dallas TX 845  286  —  —  845  286  1,131  1977 12/15/2020
Restaurants - Quick Service Oklahoma City OK 542  985  —  —  542  985  1,527  2010 12/15/2020
F-22


Description(a) Encumbrances Initial Cost to Company Cost Capitalized Subsequent
to Acquisition
Gross Amount at
December 31, 2020(b)(c)
Accumulated Depreciation
(d)(e)
Year
Constructed
Date
Acquired
Tenant Industry City State Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Land &
Improvements
Building &
Improvements
Total
Restaurants - Quick Service Kilgore TX $ 449  $ 710  $ —  $ —  $ 449  $ 710  $ 1,159  $ 1979 12/15/2020
Car Washes Fort Worth TX 1,590  2,724  —  —  1,590  2,724  4,314  1942 12/18/2020
Car Washes Hudson Oaks TX 1,824  2,745  —  —  1,824  2,745  4,569  1948 12/18/2020
Car Washes Garland TX 1,303  2,287  —  —  1,303  2,287  3,590  2012 12/18/2020
Car Washes Fort Worth TX 1,907  3,129  —  —  1,907  3,129  5,036  10  2013 12/18/2020
Car Washes Crowley TX 1,571  2,873  —  —  1,571  2,873  4,444  2016 12/18/2020
Car Washes Flower Mound TX 1,623  2,730  —  —  1,623  2,730  4,353  2018 12/18/2020
Car Washes Fort Worth TX 1,655  2,129  —  —  1,655  2,129  3,784  2018 12/18/2020
Medical / Dental Naperville IL 315  786  —  —  315  786  1,101  1998 12/21/2020
Automotive Service Washington Court House OH 550  1,061  —  —  550  1,061  1,611  2004 12/21/2020
Automotive Service Cincinnati OH 448  911  —  —  448  911  1,359  1991 12/21/2020
Restaurants - Quick Service Dothan AL 459  1,431  —  —  459  1,431  1,890  2019 12/22/2020
Restaurants - Quick Service Philadelphia MS 373  1,540  —  —  373  1,540  1,913  2020 12/22/2020
Restaurants - Quick Service Ashford AL 410  1,338  —  —  410  1,338  1,748  2020 12/22/2020
Restaurants - Quick Service Newton MS 471  1,316  —  —  471  1,316  1,787  2020 12/22/2020
Car Washes Slidell LA 962  2,919  —  —  962  2,919  3,881  2012 12/23/2020
Car Washes Gulfport MS 666  973  —  —  666  973  1,639  2008 12/23/2020
Car Washes Carbondale IL 1,674  3,227  —  —  1,674  3,227  4,901  10  2018 12/23/2020
Medical / Dental Arlington TX 176  329  —  —  176  329  505  1983 12/23/2020
Medical / Dental Austin TX 581  346  —  —  581  346  927  1968 12/23/2020
Medical / Dental Florissant MO 454  920  —  —  454  920  1,374  1987 12/23/2020
Medical / Dental Temple TX 145  854  —  —  145  854  999  2015 12/23/2020
Medical / Dental Norcross GA 652  981  —  —  652  981  1,633  1975 12/23/2020
Medical / Dental Carrolton TX 1,534  1,073  —  —  1,534  1,073  2,607  1983 12/23/2020
Car Washes Jacksonville NC 915  1,436  —  —  915  1,436  2,351  2003 12/29/2020
Other Services Pensacola FL 1,187  3,344  —  —  1,187  3,344  4,531  1970 12/29/2020
Medical / Dental Amarillo TX 221  990  —  —  221  990  1,211  2018 12/29/2020
Medical / Dental Amarillo TX 369  2,186  —  —  369  2,186  2,555  1978 12/29/2020
Medical / Dental Amarillo TX 468  848  —  —  468  848  1,316  2015 12/29/2020
Equipment Rental and Sales Milford NH 709  407  —  11  709  418  1,127  1982 12/30/2020
Equipment Rental and Sales Beaumon TX 1,314  2,728  —  —  1,314  2,728  4,042  1991 12/31/2020
Equipment Rental and Sales Cibilo TX 1,231  3,334  —  —  1,231  3,334  4,565  1980 12/31/2020
$ 733,562  $ 1,435,310  $ 7,680  $ 84,367  $ 741,242  $ 1,519,677  $ 2,260,919  $ 112,144 
(a)As of December 31, 2020, the Company had investments in 1,181 single-tenant real estate property locations including 1,056 owned properties and 10 ground lease interests. All or a portion of 6 of the Company’s owned properties and 1 property subject to ground lease interests are subject to leases accounted for as direct financing leases and the portions relating to the direct financing leases are excluded from the table above. The Company owns 5 properties which are accounted for as a loan receivable, as the leases contain purchase options. Initial costs exclude intangible lease assets totaling $68.0 million.
(b)The aggregate cost for federal income tax purposes is $2.3 billion.
F-23


(c)The following is a reconciliation of carrying value for land and improvements and building and improvements for the periods presented:
(in thousands)  Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018
Balance, beginning of period $ 1,812,961  $ 1,306,504  $ 866,762 
Additions
Acquisitions 527,482  568,680  495,265 
Improvements 28,889  3,283  1,689 
Deductions
Provisions for impairment of real estate (8,399) (1,527) (1,997)
Real estate investments held for sale (17,058) (1,211) — 
Cost of real estate sold (82,956) (62,768) (55,215)
Balance, end of period $ 2,260,919  $ 1,812,961  $ 1,306,504 
(d)The following is a reconciliation of accumulated depreciation for the periods presented:
(in thousands)  Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018
Balance, beginning of period $ 71,445  $ 37,904  $ 15,356 
Additions
Depreciation expense 51,736  36,354  24,854 
Deductions
Accumulated depreciation associated with real estate sold (11,037) (2,813) (2,306)
Balance, end of period $ 112,144  $ 71,445  $ 37,904 
 
(e)Depreciation is calculated using the straight-line method over the estimated useful lives of the properties, which is up to 40 years for buildings and improvements and 15 years for land improvements.
(f)Property is collateral for non-recourse debt obligations totaling $399.7 million issued under the Company’s Master Trust Funding Program.
(g)Amounts shown as reductions to cost capitalized subsequent to acquisition represent provisions recorded for impairment of real estate.

See accompanying report of independent registered public accounting firm.

F-24


ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR
Schedule IV - Mortgage Loans on Real Estate
As of December 31, 2020
(Dollar amounts in thousands) 
Description Interest
rate
Final
Maturity
Date
Periodic
Payment
Terms
Final
Payment
Terms
Prior
Liens
Face
Amount of
Mortgages
Carrying
Amount of
Mortgages
Principal Amount
of Loans Subject
to Delinquent
Principal or Interest
First mortgage loans:                
Two Early Childhood Education Centers located in Florida 8.80% 5/8/2039 Interest only
Balloon - $12,000
None $ 12,000  $ 11,782  None
Two Early Childhood Education Centers located in Florida 8.53% 7/15/2039 Interest only
Balloon - $7,300
None 7,300  7,160  None
Two Family Dining Restaurants located in Texas 8.10% 6/30/2059 Principal + Interest Fully amortizing None 6,114  6,009  None
Sixty-nine Quick Service Restaurants located in fifteen states 8.16% 8/31/2034 Interest only
Balloon - $28,000
None 28,000  27,997  None
Eighteen Car Washes located in six states 8.05% 12/31/2034 Interest only
Balloon - $37,105
None 37,105  37,027  None
One Early Childhood Education Centers located in Florida 8.42% 2/29/2040 Interest only
Balloon - $5,300
None 5,300  5,207  None
One Medical/Dental Center located in Texas 7.00% 4/21/2021 Interest only
Balloon - $860
None 860  860  None
Three Convenience Stores located in Minnesota 8.30% 12/10/2022 Interest only
Balloon - $2,323
None 2,323  2,199  None
Eight Car Washes located in three states 7.30% 12/31/2035 Interest only
Balloon - $18,638
None 18,638  18,575  None
Eleven Car Washes located in six states 7.30% 12/31/2035 Interest only
Balloon - $27,362
None 27,362  27,231  None
            $ 145,002  $ 144,048   
The following shows changes in carrying amounts of mortgage loans receivable during the years ended December 31, 2020, 2019 and 2018 (in thousands):
  Year ended December 31,
  2020 2019 2018
Balance, beginning of period $ 87,029  $ 14,854  $ — 
Additions:
New mortgage loans 54,484  92,036  14,854 
Subsequent funding on existing mortgage loans 3,500  —  — 
Deductions:
Collections of principal (11) (19,861) — 
Provision for loan losses (954) —  — 
Balance, end of period $ 144,048  $ 87,029  $ 14,854 
 
See accompanying report of independent registered public accounting firm.
F-25

Exhibit 4.4
DESCRIPTION OF REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934

Essential Properties Realty Trust, Inc. has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”): its common stock, par value $0.01 per share (the “common stock”). For purposes of this exhibit, unless the context otherwise requires, the words “we,” “our,” “us” and “our company” refer to Essential Properties Realty Trust, Inc., a Maryland corporation.

DESCRIPTION OF COMMON STOCK
General
The following summary sets forth some of the general terms of our common stock. Because this is a summary, it does not contain all of the information that may be important to you. For a more detailed description of our common stock, you should read our charter and bylaws, each of which is an exhibit to our Annual Report on Form 10-K to which this summary is also an exhibit, and the applicable provisions of the Maryland General Corporation Law (the “MGCL”).
Our charter authorizes us to issue up to 500,000,000 shares of common stock, $0.01 par value per share, and 150,000,000 shares of preferred stock, $0.01 par value per share. A majority of our entire board of directors has the power, without common stockholder approval, to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue.
Under Maryland law, our stockholders generally are not liable for our debts or obligations solely as a result of stockholders’ status as stockholders.
Terms
Our outstanding shares of common stock are duly authorized, fully paid and nonassessable. Holders of our common stock are entitled to receive distributions when authorized by our board of directors and declared by us out of assets legally available for the payment of dividends. Holders of our common stock are also entitled to share ratably in our assets legally available for distribution to our stockholders in the event of our liquidation, dissolution or winding up, after payment of, or adequate provision for, all of our known debts and liabilities. These rights are subject to the preferential rights of any other class or series of our stock, including any shares of preferred stock we may issue, ranking senior to our common stock and to the provisions of our charter regarding restrictions on ownership and transfer of our stock.
Subject to our charter restrictions on ownership and transfer of our stock and the terms of any other class or series of our stock, each outstanding share of our common stock entitles the holder thereof to one vote on all matters submitted to a vote of stockholders, including the election of directors. Cumulative voting in the election of directors is not permitted. Directors are elected by a plurality of the votes cast at the meeting at which directors are being elected and at which a quorum is present. This means that the holders of a majority of the outstanding shares of our common stock can effectively elect all of the directors then standing for election, and the holders of the remaining shares will not be able to elect any directors.
Our common stockholders have no preference, conversion, exchange, sinking fund or redemption rights and have no preemptive rights to subscribe for any of our capital stock. Our charter provides that our stockholders generally have no appraisal rights unless our board of directors determines that appraisal rights will apply to one or more transactions in which our common stockholders would otherwise



be entitled to exercise such rights. Subject to our charter restrictions on ownership and transfer of our stock, holders of shares of our common stock will initially have equal dividend, liquidation and other rights.
Under Maryland law, a Maryland corporation generally cannot dissolve, amend its charter, merge, sell all or substantially all of its assets, convert into another form of entity, engage in a statutory share exchange or engage in a similar transaction unless such transaction is declared advisable by the board of directors and approved by the affirmative vote of stockholders entitled to cast at least two-thirds of all of the votes entitled to be cast on the matter, unless a lesser percentage (but not less than a majority of the votes entitled to be cast on the matter) is set forth in the corporation’s charter. Our charter provides for approval of these matters by the affirmative vote of stockholders entitled to cast a majority of all the votes entitled to be cast on such matter, except that the affirmative vote of stockholders entitled to cast at least two-thirds of the votes entitled to be cast on such matter is required to amend the provisions of our charter relating to the removal of directors or the vote required to amend the removal provisions. Maryland law also permits a corporation to transfer all or substantially all of its assets without the approval of its stockholders to an entity, all of the equity interests of which are owned, directly or indirectly, by the corporation. Because our operating assets are held by our operating partnership, Essential Properties, L.P., or its wholly owned subsidiaries, these subsidiaries may be able to merge or transfer all or substantially all of their assets without the approval of our stockholders.
Power to Reclassify Unissued Shares of Common Stock and Issue Additional Shares of Common Stock
Our charter authorizes our board of directors to reclassify any unissued shares of our common stock into other classes or series of stock, including classes or series of preferred stock, and to establish the designation and number of shares of each such class or series and to set, subject to the provisions of our charter regarding the restrictions on ownership and transfer of our stock and the terms of any other class or series of our stock, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications or terms or conditions of redemption of each such class or series. Thus, our board of directors could authorize the issuance of shares of common stock or preferred stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control that might involve a premium price for our common stock or that our common stockholders otherwise believe to be in their best interests.
Transfer Agent and Registrar
The registrar and transfer agent for our common stock is Computershare Trust Company, N.A.
Listing
Our common stock is listed on the NYSE under the symbol “EPRT.”
Restrictions on Ownership and Transfer
In order for us to maintain our qualification for taxation as a REIT under Internal Revenue Code of 1986, as amended (the “Code”), our stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months (other than the first year for which an election to be a REIT has been made) or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of the outstanding shares of stock (after taking into account options to acquire shares of stock) may be owned, directly or through certain constructive ownership rules, by five or fewer individuals (as defined in the Code to include certain entities such as private foundations) at any time during the last half of a taxable year (other than the first year for which an election to be a REIT has been made).
Our charter contains restrictions on the ownership and transfer of our stock that are intended to assist us in complying with these requirements and maintaining our qualification as a REIT, among other



reasons. The relevant sections of our charter provide that no person or entity may actually or beneficially own, or be deemed to own by virtue of the applicable constructive ownership provisions of the Code, more than 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 9.8% in value of the aggregate of the outstanding shares of all classes and series of our stock, in each case excluding any shares of our stock that are not treated as outstanding for federal income tax purposes. We refer to each of these restrictions as an “ownership limit” and collectively as the “ownership limits.” A person or entity that would have acquired actual, beneficial or constructive ownership of our stock but for the application of the ownership limits or any of the other restrictions on ownership and transfer of our stock discussed below is referred to as a “prohibited owner.”
The constructive ownership rules under the Code are complex and may cause stock owned actually or constructively by a group of related individuals and/or entities to be owned constructively by one individual or entity. As a result, the acquisition of less than 9.8% of our common stock (or the acquisition of an interest in an entity that owns, actually or constructively, our common stock) by an individual or entity could, nevertheless, cause that individual or entity, or another individual or entity, to own constructively in excess of 9.8% (in value or in number of shares, whichever is more restrictive) of the outstanding shares of our common stock and thereby violate the applicable ownership limit.
In addition, certain entities that are defined as designated investment entities in our charter, which generally includes pension funds, mutual funds and certain investment management companies, are permitted to own up to 9.8% (in value or in number of shares, whichever is more restrictive) or our outstanding common stock, or 9.8% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of all classes and series of stock, so long as each beneficial owner of the shares owned by such designated investment entity would satisfy the ownership limits if those beneficial owners owned directly their pro-rata share of our stock owned by the designated investment entity.
Our charter provides that our board of directors, subject to certain limits, upon receipt of a request that complies with the requirements of our charter and any policy adopted by our board of directors, may retroactively or prospectively exempt a person from either or both of the ownership limits or the designated investment entity limit and establish a different limit on ownership for such person.
Our board of directors may increase or decrease one or both of the ownership limits or the designated investment entity limit for one or more persons, except that a decreased ownership limit will not be effective for any person whose actual, beneficial or constructive ownership of our stock exceeds the decreased ownership limit or decreased investment entity limit at the time of the decrease until the person’s actual, beneficial or constructive ownership of our stock equals or falls below the decreased ownership limit or decreased investment entity limit, although any further acquisition of our stock (other than by a previously exempted person) will violate the decreased ownership limit or decreased investment entity limit, as applicable. Our board of directors may not increase or decrease any ownership limit or the designated investment entity limit if the new ownership limit or the designated investment entity limit would allow five or fewer persons to actually or beneficially own more than 49.9% in value of our outstanding stock or could cause us to be “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us to fail to continue to qualify as a REIT.
Our charter further prohibits:
•    any person from actually, beneficially or constructively owning shares of our stock that could result in us being “closely held” under Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise cause us to fail to continue to qualify as a REIT (including, but not limited to, actual, beneficial or constructive ownership of shares of our stock that could result in us owning (actually or constructively) an interest in a tenant that is described in Section 856(d)(2)(B) of the Code if the income we derive from such tenant, taking into account our



other income that would not qualify under the gross income requirements of Section 856(c) of the Code, would cause us to fail to satisfy any the gross income requirements imposed on REITs); and
•    any person from transferring shares of our stock if such transfer would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code).
Any person who acquires or attempts or intends to acquire actual, beneficial or constructive ownership of shares of our stock that will or may violate the ownership limits, the designated investment entity limit or any of the other restrictions on ownership and transfer of our stock described above must give written notice immediately to us or, in the case of a proposed or attempted transaction, provide us at least 15 days prior written notice, and provide us with such other information as we may request in order to determine the effect, if any, of such transfer on our status as a REIT.
The ownership limits, the designated investment entity limit and other restrictions on ownership and transfer of our stock described above will not apply if our board of directors determines that it is no longer in our best interests to continue to qualify or attempt to qualify as a REIT or that compliance with any such restriction is no longer required in order for us to continue to qualify as a REIT.
Pursuant to our charter, if any purported transfer of our stock or any other event would otherwise result in any person violating the ownership limits, the designated investment entity limit or such other limit established by our board of directors, would result in us being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of a taxable year) or otherwise failing to continue to qualify as a REIT, then the number of shares causing the violation (rounded up to the nearest whole share) will be automatically transferred to, and held by, a trust for the exclusive benefit of one or more charitable beneficiaries selected by us. The prohibited owner will have no rights in shares of our stock held by the trustee. The automatic transfer will be effective as of the close of business on the business day prior to the date of the violative transfer or other event that results in the transfer to the trust. Any dividend or other distribution paid to the prohibited owner prior to our discovery that the shares had been automatically transferred to a trust as described above must be repaid to the trustee upon demand. If the transfer to the trust as described above is not automatically effective, for any reason, to prevent violation of the applicable restriction on ownership and transfer of our stock, then the transfer of the number of shares that otherwise would cause any person to violate the above restrictions will be void and of no force or effect, regardless of any action or inaction by the board of directors, and the intended transferee will acquire no rights in the shares. If any transfer of our stock would result in shares of our stock being beneficially owned by fewer than 100 persons (determined under the principles of Section 856(a)(5) of the Code), then any such purported transfer will be void and of no force or effect and the intended transferee will acquire no rights in the shares.
Shares of our stock transferred to the trustee are deemed offered for sale to us, or our designee, at a price per share equal to the lesser of (1) the price per share in the transaction that resulted in the transfer of the shares to the trust (or, in the event of a gift, devise or other such transaction, the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the last sale price reported on the NYSE on the date we accept, or our designee accepts, such offer. We must reduce the amount payable to the trustee by the amount of dividends and distributions paid to the prohibited owner and owed by the prohibited owner to the trustee and may pay the amount of such reduction to the trustee for the benefit of the charitable beneficiary. We have the right to accept such offer until the trustee has sold the shares of our stock held in the trust. Upon a sale to us, the interest of the charitable beneficiary in the shares sold terminates and the trustee must distribute the net proceeds of the sale to the prohibited owner and any dividends or other distributions held by the trustee with respect to such stock will be paid to the charitable beneficiary.
Within 20 days of receiving notice from us of the transfer of shares to the trust, the trustee must sell the shares to a person or persons designated by the trustee who can own the shares without violating the ownership limits, the designated investment entity limit or the other restrictions on ownership and



transfer of our stock. Upon such sale, the interest of the charitable beneficiary will terminate and the trustee must distribute to the prohibited owner an amount equal to the lesser of (1) the price paid by the prohibited owner for the shares (or, if the prohibited owner did not give value in connection with the transfer or other event that resulted in the transfer to the trust (e.g., a gift, devise or other such transaction), the last sale price reported on the NYSE on the day of the transfer or other event that resulted in the transfer of such shares to the trust) and (2) the sales proceeds (net of commissions and other expenses of sale) received by the trustee for the shares. The trustee must reduce the amount payable to the prohibited owner by the amount of dividends and other distributions paid to the prohibited owner and owed by the prohibited owner to the trustee. Any net sales proceeds in excess of the amount payable to the prohibited owner will be immediately paid to the charitable beneficiary, together with any dividends or other distributions thereon. In addition, if prior to discovery by us that shares of our stock have been transferred to the trustee, such shares of stock are sold by a prohibited owner, then such shares shall be deemed to have been sold on behalf of the trust and, to the extent that the prohibited owner received an amount for or in respect of such shares that exceeds the amount that such prohibited owner was entitled to receive, such excess amount must be paid to the trustee upon demand.
The trustee will be designated by us and will be unaffiliated with us and with any prohibited owner. Prior to the sale of any shares by the trust, the trustee will receive, in trust for the beneficiary, all dividends and other distributions paid by us with respect to such shares, and may exercise all voting rights with respect to such shares for the exclusive benefit of the charitable beneficiary.
Subject to Maryland law, effective as of the date that the shares have been transferred to the trust, the trustee may, at the trustee’s sole and absolute discretion:
•    rescind as void any vote cast by a prohibited owner prior to our discovery that the shares have been transferred to the trust; and
•    recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary.
However, if we have already taken irreversible corporate action, then the trustee may not rescind and recast the vote.
If our board of directors determines that a proposed transfer or other event has taken place that violates the restrictions on ownership and transfer of our stock set forth in our charter, our board of directors may take such action as it deems advisable to refuse to give effect to or to prevent such transfer, including, but not limited to, causing us to redeem shares of stock, refusing to give effect to the transfer on our books or instituting proceedings to enjoin the transfer.
Every owner of 5% or more (or such lower percentage as required by the Code or the Treasury Regulations promulgated thereunder) of the outstanding shares of our stock, within 30 days after the end of each taxable year, must give written notice to us stating the name and address of such owner, the number of shares of each class and series of our stock that the owner actually or beneficially owns and a description of the manner in which the shares are held. Each such owner also must provide to us in writing any additional information that we may request in order to determine the effect, if any, of the person’s actual or beneficial ownership on our status as a REIT and to ensure compliance with the ownership limits, the designated investment entity limit and the other restrictions on ownership and transfer of our stock set forth in our charter. In addition, any person that is an actual, beneficial owner or constructive owner of shares of our stock and any person (including the stockholder of record) who is holding shares of our stock for an actual, beneficial owner or constructive owner must disclose to us in writing such information as we may request in order to determine our status as a REIT and comply with requirements of any taxing authority or governmental authority or to determine such compliance.
Any certificates representing shares of our stock will bear a legend referring to the restrictions on ownership and transfer of our stock described above. However, in lieu of a legend, the certificate may



state that we will furnish a full statement regarding the applicable restrictions on ownership and transfer to the stockholder on request and without charge.
These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change of control of our company that might involve a premium price for our common stock that our stockholders believe to be in their best interest.
Our Board of Directors
Under our charter and bylaws, the number of directors of our company may be established, increased or decreased only by a majority of our entire board of directors but may not be fewer than the minimum number required under the MGCL (which is one) nor, unless our bylaws are amended, more than 15.
Removal of Directors
Our charter provides that, subject to the rights of holders of one or more classes or series of preferred stock to elect or remove one or more directors, a director may be removed only for cause (as defined in our charter), and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of directors.
Business Combinations
Under the MGCL, certain “business combinations” (including a merger, consolidation, statutory share exchange or, in certain circumstances specified under the statute, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any interested stockholder, or an affiliate of such an interested stockholder, are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. Maryland law defines an interested stockholder as:
• any person who beneficially owns, directly or indirectly, 10% or more of the voting power of the corporation’s outstanding voting stock; or
• an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.
A person is not an interested stockholder under the MGCL if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. In approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of the approval, with any terms and conditions determined by it.
After such five-year period, any such business combination must be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:
• 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation, voting together as a single voting group; and
• two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested stockholder, voting together as a single voting group.
These supermajority approval requirements do not apply if, among other conditions, the corporation’s common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares.



These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a corporation’s board of directors prior to the time that the interested stockholder becomes an interested stockholder. As permitted by the MGCL, our board of directors has adopted a resolution exempting any business combination between us and any other person from the provisions of this statute. Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations involving us. As a result, any person will be able to enter into business combinations with us that may not be in the best interests of our stockholders, without compliance with the supermajority vote requirements and other provisions of the statute. Our bylaws provide that this resolution or any other resolution of our board of directors exempting any business combination from the business combination provisions of the MGCL may only be revoked, altered or amended, and our board of directors may only adopt an inconsistent resolution, if approved by the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors.
Control Share Acquisitions
The MGCL provides that a holder of “control shares” of a Maryland corporation acquired in a “control share acquisition” has no voting rights with respect to those shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast by stockholders entitled to exercise or direct the exercise of voting power in the election of directors generally but excluding: (1) the person who has made or proposes to make the control share acquisition; (2) any officer of the corporation; or (3) any employee of the corporation who is also a director of the corporation. “Control shares” are voting shares of stock that, if aggregated with all other such shares of stock previously acquired by the acquirer or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing directors within one of the following ranges:
• one-tenth or more but less than one-third;
• one-third or more but less than a majority; or
• a majority or more of all voting power.
Control shares do not include shares that the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control share acquisition” means the acquisition, directly or indirectly, of ownership of, or the power to direct the exercise of voting power with respect to, issued and outstanding control shares, subject to certain exceptions.
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making an “acquiring person statement” as described in the MGCL), may compel the board of directors of the Maryland corporation to call a special meeting of stockholders to be held within 50 days of demand to consider the voting rights of the control shares. If no request for a special meeting is made, the corporation may itself present the question at any stockholders meeting.
If voting rights of control shares are not approved at the meeting or if the acquiring person does not deliver an “acquiring person statement” as required by the statute, then, subject to certain conditions and limitations, the corporation may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of the last control share acquisition by the acquirer or, if a meeting of stockholders is held at which the voting rights of such shares are considered and not approved, as of the date of such meeting. If voting rights for control shares are approved at a stockholders meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other stockholders may exercise appraisal rights. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.



The control share acquisition statute does not apply (1) to shares acquired in a merger, consolidation or statutory share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by the charter or bylaws of the corporation.
Our bylaws contain a provision exempting from the control share acquisition statute any and all control share acquisitions by any person of shares of our stock, and this provision of our bylaws cannot be amended without the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors.
Subtitle 8
Subtitle 8 of Title 3 of the MGCL permits a Maryland corporation with a class of equity securities registered under the Exchange Act and at least three independent directors to elect, by provision in its charter or bylaws or a resolution of its board of directors and notwithstanding any contrary provision in the charter or bylaws, to be subject to any or all of the following five provisions:
• a classified board;
• a two-thirds vote requirement for removing a director;
• a requirement that the number of directors be fixed only by vote of the directors;
• a requirement that a vacancy on the board be filled only by a vote of the remaining directors (whether or not they constitute a quorum) and for the remainder of the full term of the class of directors in which the vacancy occurred and until a successor is elected and qualifies; or
• a majority requirement for the calling of a special meeting of stockholders.
We have elected to be subject to the provision of Subtitle 8 providing that vacancies on our board of directors may be filled only by the remaining directors (whether or not they constitute a quorum) and that a director elected by the board of directors to fill a vacancy will serve for the remainder of the full term of the directorship. We have not elected to be subject to any of the other provisions of Subtitle 8, including the provisions that would permit us to classify our board of directors without stockholder approval. Moreover, our charter provides that, without the affirmative vote of a majority of the votes cast on the matter by stockholders entitled to vote generally in the election of directors, we may not elect to be subject to any of these additional provisions of Subtitle 8. Through provisions in our charter and bylaws unrelated to Subtitle 8, we (1) vest in our board of directors the exclusive power to fix the number of directors, (2) require, unless called by our chairman, our chief executive officer, our president or our board of directors, the request of stockholders entitled to cast a majority of all the votes entitled to be cast at the meeting to call a special meeting of stockholders and (3) provide that a director may be removed only for cause and by the affirmative vote of two-thirds of the votes entitled to be cast generally in the election of directors.
Amendments to Our Charter and Bylaws
Except as described herein and as provided in the MGCL, amendments to our charter must be advised by our board of directors and approved by the affirmative vote of our stockholders entitled to cast a majority of all of the votes entitled to be cast on the matter. Any amendment to the provisions of our charter relating to the removal of directors or amendments to such provisions will require the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter. Our board of directors has the power to amend our bylaws, provided that amendments to the provisions of our bylaws prohibiting our board of directors from revoking, altering or amending its resolution exempting any business combination from the “business combination” provisions of the MGCL or exempting any acquisition of our stock from the “control share” provisions of the MGCL without the approval of our stockholders must be approved by the affirmative vote of a majority of the votes cast on the matter by our stockholders entitled to vote generally in the election of directors. In addition, our stockholders may amend our bylaws, to the extent permitted by law, if any such amendment is approved by the affirmative vote of a majority of the votes entitled to be cast on the matter.



Meetings of Stockholders
Under our bylaws and pursuant to Maryland law, annual meetings of stockholders will be held each year at a date and at the time and place determined by our board of directors. Special meetings of stockholders may be called by our board of directors, the chairman of our board of directors, our president or our chief executive officer. Additionally, subject to the provisions of our bylaws, special meetings of the stockholders to act on any matter must be called by our secretary upon the written request of stockholders entitled to cast a majority of all the votes entitled to be cast on such matter at such meeting who have requested the special meeting in accordance with the procedures set forth in, and provided the information and certifications required by, our bylaws. Only matters set forth in the notice of the special meeting may be considered and acted upon at such a meeting. Our secretary will inform the requesting stockholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the requesting stockholder must pay such estimated cost before our secretary may prepare and deliver the notice of the special meeting.
Corporate Opportunities
Our charter provides that, to the maximum extent permitted by Maryland law, each of Eldridge Industries, LLC (“Eldridge”), its affiliates, each of their representatives, and each of our directors or officers that is an employee, affiliate or designee for nomination as a director of Eldridge or its affiliates has the right to, and has no duty not to, (x) directly or indirectly engage in the same or similar business activities or lines of business as us, including those deemed to be competing with us, or (y) directly or indirectly do business with any of our clients, customers or suppliers. In the event that Eldridge or any of its affiliates or employees, or any of their representatives or designees, acquires knowledge of a potential transaction or matter that may be a corporate opportunity for us, Eldridge, its affiliates and employees and any of their representatives or designees, to the maximum extent permitted by Maryland law, have no duty to communicate or present such corporate opportunity to us or any of our affiliates and shall not be liable to us or any of our affiliates, subsidiaries, stockholders or other equity holders for breach of any duty by reason of the fact that Eldridge or any of its affiliates or employees, or any of their representatives or designees, directly or indirectly, pursues or acquires such opportunity for themselves, directs such opportunity to another person or does not present such opportunity to us or any of our affiliates; provided, however, that such corporate opportunity is not presented to such person in his or her capacity as a director or officer of us. As of the date of filing, no affiliates of Eldridge currently serve as directors or officers of us.
Advance Notice of Director Nominations and New Business
Our bylaws provide that, with respect to an annual meeting of stockholders, nominations of individuals for election to our board of directors and the proposal of business to be considered by stockholders at the annual meeting may be made only:
• pursuant to our notice of the meeting;
• by or at the direction of our board of directors; or
• by a stockholder who was a stockholder of record at the record date set by the board of directors for the meeting, at the time of giving of the notice of the meeting and at the time of the annual meeting (and any postponement or adjustment thereof), who is entitled to vote at the meeting in the election of each individual so nominated or on such other business and who has complied with the advance notice procedures set forth in, and provided the information and certifications required by, our bylaws.
With respect to special meetings of stockholders, our bylaws provide that only the business specified in our company’s notice of meeting may be brought before the special meeting of stockholders, and nominations of individuals for election to our board of directors may be made only:
• by or at the direction of our board of directors; or



• provided that the meeting has been called in accordance with our bylaws for the purpose of electing directors, by a stockholder who is a stockholder of record at the record date set by the board of directors for the meeting, at the time of giving of the notice required by our bylaws and at the time of the meeting (and any postponement or adjustment thereof), who is entitled to vote at the meeting in the election of each individual so nominated and who has complied with the advance notice provisions set forth in, and provided the information and certifications required by, our bylaws.
Requiring stockholders to give advance notice of nominations and other proposals affords our board of directors and our stockholders the opportunity to consider the qualifications of the proposed nominees or the advisability of the other proposals and, to the extent considered necessary by our board of directors, to inform stockholders and make recommendations regarding the nominations or other proposals. Although our bylaws do not give our board of directors the power to disapprove timely stockholder nominations and proposals, our bylaws may have the effect of precluding a contest for the election of directors or proposals for other action if the proper procedures are not followed, and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors to our board of directors or to approve its own proposal.
Anti-Takeover Effect of Certain Provisions of Maryland Law and of Our Charter and Bylaws
The restrictions on ownership and transfer of our stock, the supermajority vote required to remove directors, our election to be subject to the provision of Subtitle 8 vesting in our board of directors the exclusive power to fill vacancies on our board of directors and the advance notice provisions of our bylaws could delay, defer or prevent a transaction or a change of control of our company.
Further, a majority of our entire board of directors has the power, without common stockholder action, to increase or decrease the aggregate number of authorized shares of stock or the number of shares of any class or series of stock that we are authorized to issue, to classify and reclassify any unissued shares of our stock into other classes or series of stock, and to authorize us to issue the newly classified shares, and could authorize the issuance of shares of common stock or another class or series of stock, including a class or series of preferred stock, that could have the effect of delaying, deferring or preventing a change in control of us. These actions may be taken without stockholder approval unless such approval is required by applicable law, the terms of any other class or series of our stock or the rules of any stock exchange or automated quotation system on which any of our stock is listed or traded. We believe that the power of our board of directors to increase or decrease the number of authorized shares of stock and to classify or reclassify unissued shares of our common stock or preferred stock and thereafter to cause us to issue such shares of stock will provide us with increased flexibility in structuring possible future financings and acquisitions and in meeting other needs which might arise.
Our charter and bylaws also provide that the number of directors may be established only by our board of directors, which prevents our stockholders from increasing the number of our directors and filling any vacancies created by such increase with their own nominees. The provisions of our bylaws discussed under the captions “Meetings of Stockholders” and “Advance Notice of Director Nominations and New Business” require stockholders seeking to call a special meeting, nominate an individual for election as a director or propose other business at an annual or special meeting to comply with certain notice and information requirements. We believe that these provisions will help to assure the continuity and stability of our business strategies and policies as determined by our board of directors and promote good corporate governance by providing us with clear procedures for calling special meetings, information about a stockholder proponent’s interest in us and adequate time to consider stockholder nominees and other business proposals. However, these provisions, alone or in combination, could make it more difficult for our stockholders to remove incumbent directors or fill vacancies on our board of directors with their own nominees and could delay, defer or prevent a change in control, including a proxy contest or tender offer that might involve a premium price for our common stockholders or otherwise be in the best interest of our stockholders.



Exclusive Forum
Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Baltimore Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the MGCL, (b) any derivative action or proceeding brought on our behalf, (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine.
Limitation of Liability and Indemnification of Directors and Officers
Maryland law permits a Maryland corporation to include in its charter a provision eliminating the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from actual receipt of an improper benefit or profit in money, property or services or active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our charter contains such a provision that eliminates such liability to the maximum extent permitted by Maryland law.
The MGCL requires a Maryland corporation (unless its charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he or she is made or threatened to be made a party by reason of his or her service in that capacity. The MGCL permits a Maryland corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to or in which they may be made or are threatened to be made a party or witness by reason of their service in those or other capacities unless it is established that:
• the act or omission of the director or officer was material to the matter giving rise to the proceeding and the action was committed in bad faith or was the result of active and deliberate dishonesty;
• the director or officer actually received an improper personal benefit in money, property or services; or
• in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful.
In addition, under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or on behalf of the corporation or if the director or officer was adjudged liable on the basis that personal benefit was improperly received, unless, in either case, a court orders indemnification and then only for expenses. A court may order indemnification for expenses if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received.
In addition, the MGCL permits a Maryland corporation to advance reasonable expenses to a director or officer upon the corporation’s receipt of:
• a written affirmation by the director or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification by the corporation; and
• a written undertaking, which may be unsecured, by the director or officer or on his or her behalf to repay the amount paid if it shall ultimately be determined that the standard of conduct was not met.



Our charter obligates us, to the maximum extent permitted by Maryland law in effect from time to time, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding without requiring a preliminary determination of the director’s or officer’s ultimate entitlement to indemnification to:
• any present or former director or officer who is made or threatened to be made a party to, or witness in, a proceeding by reason of his or her service in that capacity; or
• any individual who, while a director or officer of us and at our request, serves or has served as a director, officer, partner, member, manager, trustee, employee or agent of another corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise and who is made or threatened to be made a party to, or witness in, the proceeding by reason of his or her service in that capacity.
Our charter also permits us, with the approval of our board of directors, to indemnify and advance expenses to any person who served a predecessor of ours in any of the capacities described above and to any employee or agent of our company or a predecessor of our company.
REIT Qualification
Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without approval of our stockholders if it determines that it is no longer in our best interest to attempt to continue to qualify as a REIT.


Exhibit 21.1


List of Subsidiaries


Name of Subsidiary State of Incorporation
Essential Properties, L.P. Delaware
Essential Properties OP G.P., LLC Delaware
SCF TRS LLC Delaware
SCFRC-HW LLC Delaware
SCFRC-HW-V LLC Delaware
SCFRC-HW-G LLC Delaware
SCF RC Funding I LLC Delaware
SCF RC Funding II LLC Delaware
SCF RC Funding III LLC Delaware
SCF RC Funding IV LLC Delaware
SCF Realty Capital Trust LLC Delaware
SCF Realty IFH LLC Delaware
SCF Realty Funding LLC Delaware
SCF Realty Servicing Company LLC Delaware
SCFRC-HW-528 South Broadway-Salem LLC Delaware
SCF RC Funding Canal LLC Delaware
LB Funding I LLC Delaware


Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

a.Registration Statement (Form S-3 No. 333-232490) of Essential Properties Realty Trust, Inc., and

a.Registration Statement (Form S-8 No. 333-225837) pertaining to the 2018 Incentive Plan of Essential Properties Realty Trust, Inc.

of our reports dated February 23, 2021, with respect to the consolidated financial statements of Essential Properties Realty Trust, Inc. and the effectiveness of internal control over financial reporting of Essential Properties Realty Trust, Inc. included in this Annual Report (Form 10-K) of Essential Properties Realty Trust, Inc. for the year ended December 31, 2020.

/s/ Ernst & Young LLP

New York, New York
February 23, 2021



Exhibit 31.1
CERTIFICATION 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
I, Peter M. Mavoides, certify that:
(1)I have reviewed this Annual Report on Form 10-K of Essential Properties Realty Trust, Inc.;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5)The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 23, 2021 By: /s/ Peter M. Mavoides
Peter M. Mavoides
President and Chief Executive Officer
(Principal Executive Officer)


Exhibit 31.2
CERTIFICATION 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
I, Mark E. Patten, certify that:
(1)I have reviewed this Annual Report on Form 10-K of Essential Properties Realty Trust, Inc.;
(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4)The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
(5)The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: February 23, 2021 By: /s/ Mark E. Patten
      Mark E. Patten
      Chief Financial Officer, Treasurer and Executive Vice President
      (Principal Financial Officer)


Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Essential Properties Realty Trust, Inc. (the “Company”) for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter M. Mavoides, Chief Executive Officer of the Company, hereby certify as of the date hereof, solely for the purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
(1)The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: February 23, 2021 By: /s/ Peter M. Mavoides
Peter M. Mavoides
President and Chief Executive Officer
(Principal Executive Officer)

The foregoing certification is being furnished with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.


Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of Essential Properties Realty Trust, Inc. (the “Company”) for the year ended December 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark E. Patten, Chief Financial Officer of the Company, hereby certify as of the date hereof, solely for the purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of my knowledge:
(1)The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and
(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.
Date: February 23, 2021 By: /s/ Mark E. Patten
Mark E. Patten
Chief Financial Officer, Treasurer and Executive Vice President
(Principal Financial Officer)

The foregoing certification is being furnished with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.