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Why Essential Properties Realty Trust Stock Dropped 17% in February

By Beth McKenna - Mar 8, 2020 at 10:51AM

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Shares of the retail REIT were taken down by the coronavirus-driven market sell-off last month but have partially bounced back in March.

What happened

Shares of Essential Properties Realty Trust (EPRT -0.60%), a retail real estate investment trust (REIT), fell 17% in February, according to data from S&P Global Market Intelligence.

For context, the S&P 500 index dropped 8.2% last month. The market's sell-off was driven by concerns that the spread of the novel coronavirus, COVID-19, could blunt global economic growth.

Essential Properties stock -- whose dividend is yielding 3.7% -- bounced back during the first week of March, gaining 5.4%. In 2020, shares have returned negative 2.7% through March 6, compared with the broader market's negative 7.7% return. That's a modest pullback when you consider the stock returned 86.8% in 2019, making it the year's third best-performing REIT behind Safehold (118%) and Universal Health Realty Income Trust (96.9%), and ahead of Hannon Armstrong Sustainable Infrastructure Capital (77.1%) and Innovative Industrial Properties (72.5%).

Four white cubes with the blue letters REIT, each sitting atop a pile of coins.

Image source: Getty Images.

So what

February performance

Last month, Essential Properties didn't release any news that we can definitively tie to its stock's decline, nor was it the specific subject of any such news. So we can't know for sure why its stock fell about twice as much as the market in February.

We probably can attribute at least some of its market underperformance to profit taking in the wake of the coronavirus epidemic. Moreover, some investors are likely concerned about the company's portfolio. It leases to restaurants, car washes, auto service providers, medical service providers, convenience stores, entertainment companies, health and fitness companies, and child care providers. Many of these types of tenants are particularly vulnerable to losing business during the COVID-19 epidemic. 

March performance

We can attribute Essential Properties stock's robust performance last week to the company's March 2 release of fourth-quarter 2019 results that pleased investors. Shares jumped 7.7% that day, compared with the S&P 500's 4.6% rise.

In Q4, revenue jumped 37% year over year to $39.2 million, slightly topping the Wall Street consensus estimate. Net income soared 151% to $14.5 million, which translated to earnings per share (EPS) increasing 38% to $0.18. That result beat the $0.17 analysts had expected. Adjusted funds from operations (AFFO) rose 11% to $0.30 per share. (AFFO is a key profitability metric for REITs that drives dividend changes.)

Now what

Essential Properties reaffirmed its previously issued full-year 2020 guidance. It expects AFFO per share to be in the range of $1.27 to $1.30. In 2019, this metric was $1.14, so the company's outlook implies growth of 11.4% to 12.3% year over year.

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Stocks Mentioned

Essential Properties Realty Trust, Inc. Stock Quote
Essential Properties Realty Trust, Inc.
$21.49 (-0.60%) $0.13
Universal Health Realty Income Trust Stock Quote
Universal Health Realty Income Trust
$53.21 (-1.15%) $0.62
Hannon Armstrong Sustainable Infrastructure Capital, Inc. Stock Quote
Hannon Armstrong Sustainable Infrastructure Capital, Inc.
$37.48 (2.39%) $0.88
Innovative Industrial Properties Stock Quote
Innovative Industrial Properties
$109.87 (-0.70%) $0.78
Safehold Inc. Stock Quote
Safehold Inc.
$35.37 (-0.90%) $0.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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