Essential Properties Realty Trust
Annual Report 2019

Plain-text annual report

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, 2019 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 (State or other jurisdiction of incorporation or organization) 902 Carnegie Center Blvd., Suite 520 Princeton, New Jersey (Address of Principal Executive Offices) 82-4005693 (I.R.S. Employer Identification No.) 08540 (Zip Code) Registrant’s telephone number, including area code: (609) 436-0619 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Common Stock, $0.01 par value Trading Symbol(s) EPRT Securities registered pursuant to Section 12(g) of the Act: None Name of Each Exchange on Which Registered New York Stock Exchange 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 Non-accelerated filer Emerging growth company ☒ ☐   ☐ Accelerated filer Smaller reporting 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 ☒ As of June 28, 2019 (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 $985.8 million based on the last reported sale price of $20.04 per share on the New York Stock Exchange on June 28, 2019. The number of shares of registrant’s Common Stock outstanding as of March 2, 2020 was 91,949,849. Documents Incorporated by Reference Portions the Definitive Proxy Statement for the registrant’s 2020 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.                                         PART I Item 1. Item 1A. Item 1B. Item 2. Item 3. Item 4. PART II Item 5. Item 6. Item 7. Item 7A. Item 8. Item 9. Item 9A. Item 9B. PART III Item 10. Item 11. Item 12. Item 13. Item 14. PART IV Item 15. Item 16 Table of Contents Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Mine Safety Disclosures Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management’s Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accounting Fees and Services Exhibits, Financial Statement Schedules Form 10-K Summary i Page 2 11 35 35 39 39 40 42 44 65 66 109 109 109 111 111 111 111 111 112 114                                                                           In this Annual Report on Form 10-K, 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. PART I SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This annual 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 annual 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: • • • • • • • • • • • • • • • 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”); 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. 1                               You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this annual 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. 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 an investment strategy that focuses on properties leased to tenants in businesses such as restaurants (including quick service and casual and family dining), car washes, automotive services, medical services, convenience stores, entertainment, early childhood education and health and fitness. We believe that, in general, properties leased to tenants in these businesses are essential to the generation of the tenants’ sales and profits, that these businesses have favorable growth potential and that they are more insulated from e-commerce pressure than many others. We were organized on January 12, 2018 as a Maryland corporation and qualified to be taxed as a REIT beginning with our taxable year ended December 31, 2018. As of December 31, 2019, 94.4% of our $151.2 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, 2019 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 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 strategically since commencing investment activities in June 2016. As of December 31, 2019, we had a portfolio of 1,000 properties, 897 of which were owned properties (eight being accounted for as direct financing leases or loans), 12 of which were ground lease interests (one building being accounted for as a direct financing lease), and 91 of which were collateral securing our investments in six loans receivable built on the following core attributes: Diversified Portfolio. Our portfolio was 100% occupied by 205 tenants operating 265 different concepts (i.e., generally brands), in 16 industries across 44 states, with none of our tenants contributing more than 3.4% 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. Remaining Lease Term of 14.6 Years. Our leases had a weighted average remaining lease term of 14.6 years (based on annualized base rent), with only 6.8% of our annualized base rent attributable to leases expiring prior to January 1, 2025. Our properties 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. 60.3% of our annualized base rent was attributable to master leases. Healthy Rent Coverage Ratio and Extensive Tenant Financial Reporting. 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. Contractual Base Rent Escalation. 98.6% 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. 2 Differentiated Investment Approach. Our average investment per property was $2.0 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 December 31, 2019), 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. 2019 Financial and Operating Highlights • • • • • • • • • During the year ended December 31, 2019, we had total investments of $686.8 million, including $592.2 million invested through 281 property acquisitions and $94.6 million invested in loans receivable secured by 94 properties. As of December 31, 2019, our total gross investment in real estate totaled $2.0 billion, and we had total debt of $726.9 million. For the year ended December 31, 2019, we made distributions totaling $0.88 per share of common stock. In March 2019, we completed a follow-on primary public offering (the “Follow-On Offering”) of 14,030,000 shares of common stock, including 1,830,000 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares, at a public offering price of $17.50 per share. In April 2019, we entered into a restated credit agreement (the “Amended Credit Agreement”), restating the terms of our existing revolving credit facility to increase the maximum aggregate revolving credit commitments available to us to $400.0 million (the “Revolving Credit Facility”), and to permit the incurrence of $200.0 million of variable-rate long-term indebtedness through term loans (the “April 2019 Term Loan”). In May 2019, we borrowed the entire $200.0 million available under our April 2019 Term Loan and used the proceeds to repurchase, in part, Series 2016-1 notes previously issued under our private conduit program (the “Master Trust Funding Program”). In November 2019, we cancelled the repurchased Series 2016-1 notes and voluntarily prepaid the remaining $70.4 million of Series 2016-1 notes (consisting of $53.2 million of Class A notes and $17.2 million of Class B notes) using borrowings under our Revolving Credit Facility. In July 2019, affiliates of Eldridge Industries, LLC completed a secondary public offering of 26,288,316 shares of our common stock, including 3,428,910 shares of common stock purchased by the underwriters pursuant to an option to purchase additional shares. This resulted in a complete divestiture of their remaining equity investment in our Company. In August 2019, we established an “at the market” common equity distribution program (“ATM Program”), through which we may, from time to time, publicly offer and sell shares of our common stock having an aggregate gross sales price of up to $200 million. Through December 31, 2019, we sold a total of 7,432,986 shares of our common stock under the ATM program for aggregate gross proceeds of $178.2 million. In November 2019, we entered into a new term loan credit facility (the “November 2019 Term Loan”) which permits the incurrence of up to $430.0 million of variable-rate long-term indebtedness through term loans. In December 2019, we borrowed $250.0 million under the November 2019 Term Loan. 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 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 investment opportunities. Within this market, we emphasize investment in properties leased to tenants engaged in a targeted set of service-oriented or experience-based businesses, such as restaurants (including quick service and casual and family dining), car washes, automotive services, medical services, convenience stores, entertainment, early childhood education, and health and fitness because we believe these businesses are generally more insulated from e- commerce pressure than many 3                     others. In addition, we believe that many of these businesses are favorably impacted by current macroeconomic trends that support consumer spending, such as generally declining unemployment and positive consumer sentiment. We also 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 will opportunistically consider investments 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 attractive investment opportunity. Furthermore, we believe that there is strong demand for our net-lease 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. Accordingly, 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. Our properties are generally subject to long-term net leases that we believe provide us a stable base of revenue from which to grow our portfolio. As of December 31, 2019, we had a portfolio of 1,000 properties, with annualized base rent of $151.2 million, which was selected by our management team in accordance with our focused investment strategy. Our portfolio is diversified with 205 tenants operating 265 different concepts across 44 states and 16 industries. None of our tenants contributed more than 3.4% of our annualized base rent as of December 31, 2019, 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% from any single property. We focus on investing in properties leased to tenants operating in service-oriented or experience-based businesses, such as restaurants (including quick service and casual and family dining), car washes, automotive services, medical services, convenience stores, entertainment, early childhood education and health and fitness, which we believe are generally more insulated from e-commerce pressure than many others. As of December 31, 2019, 94.4% of our annualized base rent was attributable to tenants operating service-oriented and experience-based businesses. We believe that our portfolio’s diversity and recent underwriting decreases 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 increases the stability of our rental revenue. 4   • • Experienced and Proven Net Lease 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 refined investment strategy and for developing and implementing our investment sourcing, underwriting, closing and asset management functions, which we believe can support significant investment growth without a proportionate increase in our operating expenses. As of December 31, 2019, 81.4% of our portfolio’s annualized base rent was attributable to internally originated sale-leaseback transactions and 86.4% 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), exclusive of our investment in the GE Seed Portfolio. The “GE Seed Portfolio” refers to a portfolio of 262 net leased properties that we acquired on June 16, 2016 in our first investment from General Electric Capital Corporation for an aggregate purchase price of $279.8 million (including transaction costs). 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 Supporting Scalable Infrastructure. As of December 31, 2019, we had $735.1 million of gross debt outstanding, with a weighted average maturity of 5.2 years, and net debt of $713.8 million. For the three months ended December 31, 2019, our net income was $14.6 million, our Adjusted EBITDAre was $35.8 million, our Annualized Adjusted EBITDAre was $143.3 million and our ratio of net debt to Annualized Adjusted EBITDAre was 5.0x. Net debt 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.” In April 2019, we entered into the Revolving Credit Facility, which is a four-year, senior unsecured revolving credit facility that allows for up to $400.0 million in principal borrowings and is available for general corporate purposes, including funding future acquisitions. As of December 31, 2019, we had borrowed $46.0 million under the Revolving Credit Facility and had an available borrowing capacity of $354.0 million. Our borrowings under the Revolving Credit Facility bear interest at an annual rate of (i) applicable LIBOR plus an applicable margin between 1.25% and 1.85%; or (ii) the base rate (which rate is equal to the greatest of the prime rate, the federal funds effective rate plus 0.5% or LIBOR plus 1.0%) plus an applicable margin of between 0.25% and 0.85%. Our $200 million April 2019 Term Loan has been fully funded and matures on April 12, 2024. Our borrowings under the April 2019 Term Loan bear interest at an annual rate of (i) applicable LIBOR plus an applicable margin between 1.20% and 1.75%; or (ii) the base rate (which rate is equal to the greatest of the prime rate, the federal funds effective rate plus 0.5% or LIBOR plus 1.0%) plus an applicable margin of between 0.20% and 0.75%. Our November 2019 Term Loan provides for a loan of up to $430 million, and, as of December 31, 2019, we had borrowed $250 million of this amount. The November 2019 Term Loan matures on November 26, 2026. Our borrowings under the November 2019 Term Loan bear interest at an annual rate of (i) applicable LIBOR plus an applicable margin between 1.50% and 2.20%; or (ii) the base rate (which rate is equal to the greatest of the prime rate, the federal funds effective rate plus 0.5% or LIBOR plus 1.0%) plus an applicable margin of between 0.50% and 1.20%. Our Master Trust Funding Program, under which we may, subject to applicable covenants, issue multiple series and classes of notes from time to time to institutional investors in the asset-backed securities market, has provided us with a significant amount of debt financing. As of December 31, 2019, we had Class A Notes and Class B Notes outstanding under our Master Trust Funding Program with an aggregate outstanding principal balance of $239.1 million and a weighted average annual interest rate of 4.17%. These notes were secured by a pool of 355 properties and the related leases as of December 31, 2019. 5     We are the property manager and servicer for the leases that are the collateral for the notes under our Master Trust Funding Program and, in that capacity, have discretion in managing the collateral pool. We believe that this discretion enhances our operational flexibility by enabling us to: issue additional notes in future series that reflect the increase in the value of properties or the entire collateral pool; substitute assets in the collateral pool (subject to meeting certain prescribed conditions and criteria); and sell underperforming assets and reinvest the proceeds in better performing properties, subject, in the case of substitutions and sales, to certain limitations unless the substitution or sale is credit- or risk- based. We also have the ability to add properties to the collateral pool between series issuances, thereby further increasing the pool’s size and diversity. By issuing investment grade-rated debt through the Master Trust Funding Program, we seek to lower our borrowing costs and, in turn, to be in a position to deliver more competitive financial terms to our tenants and attractive returns to our stockholders. We also have 645 unencumbered properties that contribute $102.3 million of annualized base rent as of December 31, 2019. 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 that are essential to the generation of its sales and profits. We primarily seek to invest in properties leased to unrated 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 and 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 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 these capabilities to improve our efficiency and processes to seek attractive risk-adjusted growth. While we expect that our general and administrative expenses will continue to rise as our portfolio grows, we expect that such expenses as a percentage of our portfolio will decrease over time due to efficiencies and economies of scale. During the years ended December 31, 2019, 2018 and 2017, we invested in properties with aggregate investment value of $686.6 million, $521.8 million and $535.4 million, respectively. With our smaller asset base relative to other institutional investors that focus on acquiring net leased real estate, we believe that superior growth can be achieved 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, 2019: • • • • • • • Our leases had a weighted average remaining lease term (based on annualized base rent) of 14.6 years, with only 6.8% of our annualized base rent attributable to leases expiring prior to January 1, 2025; Master leases contributed 60.3% of our annualized base rent; Our portfolio’s weighted average rent coverage ratio was 2.9x, with leases contributing 72.6% 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 100% occupied; 6               • • Leases contributing 98.6% 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 93.5% 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 through lease renewals and proactively manage our portfolio to protect stockholder value. As of December 31, 2019, 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 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 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 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. 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 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 for 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 expeditiously 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, 2019, we sold 37 properties for net sales proceeds of $66.8 million. 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. 7         • • • • 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, 2019, exclusive of the GE Seed Portfolio, 81.4% of our portfolio’s annualized base rent was attributable to internally originated sale-leaseback transactions and 86.4% 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. As of December 31, 2019, exclusive of the GE Seed Portfolio, approximately 43.0% of our investments were sourced from operators and tenants who had previously consummated a transaction involving a member of our management team, and approximately 43.4% were sourced from participants in the net lease industry, such as brokers, intermediaries or financing sources, who had previously been involved with a transaction involving a member of our management team. 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 28, 2020, we have entered into purchase and sale agreements for 29 properties with an aggregate purchase price of $65.5 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 unrated 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 intensive credit and real estate analysis, lease structuring and portfolio construction. We believe our capital solutions are attractive to middle-market companies due to their more limited financing options, as compared to larger, 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 restaurants (including quick service and casual and family dining), car washes, automotive services, medical services, convenience stores, entertainment, early childhood education, 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, 2019, our leases had a weighted average remaining lease term of 14.6 years (based on annualized base rent), with only 6.8% of our annualized base rent attributable to leases expiring prior to January 1, 2025, and 98.6% 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, 2019, we had $735.1 million of gross debt outstanding and $713.8 million of net debt outstanding. Our net income for the three months ended December 31, 2019 was $14.6 million, our Adjusted EBITDAre was $35.8 million, our Annualized Adjusted EBITDAre was $143.3 million and our ratio of net debt to Annualized Adjusted EBITDAre was 5.0x. 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 the investment grade-rated, asset- backed bond market, through our Master Trust Funding Program, and bank debt, through our revolving credit and term loan facilities. 8         Net debt 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 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 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 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, 2019, we had 27 full-time employees. Our staff is mostly comprised of professional employees engaged in origination, underwriting, closing, portfolio management, accounting, financial reporting and capital markets activities essential to our business. 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 Factors—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 coverage. 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 General. 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. 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. Americans With Disabilities Act (“ADA”). Under Title III of the ADA, and rules promulgated thereunder, in order to protect individuals with disabilities, public accommodations must remove architectural and communication barriers that are structural in nature from existing places of public accommodation to the extent “readily achievable.” In addition, under the ADA, alterations to a place of public accommodation or a commercial facility are to be made so that, to the maximum extent feasible, such altered portions are readily accessible to and usable by disabled individuals. The “readily achievable” standard takes into account, among other factors, the financial resources of the affected site and the owner, lessor or other applicable person. 9 Compliance with the ADA, as well as other federal, state and local laws, may require modifications to properties we currently own or may purchase, or may restrict renovations of those properties. Failure to comply with these laws or regulations 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, and future legislation could impose additional obligations or restrictions on our properties. Although our tenants are generally responsible for all maintenance and repairs of the property pursuant to our lease, including compliance with the ADA and other similar laws or regulations, we could be held liable as the owner of the property for a failure of one of our tenants to comply with these laws or regulations. 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 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. 10 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, 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. We electronically file with the Securities and Exchange Commission (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 the results of our operation, some of which are beyond our control. Set forth below are the risks that we believe are material. You should carefully consider the following risks in evaluating us and our business. The occurrence of any of the following risks could materially and adversely impact our financial condition, results of operations, cash flows and liquidity, the market price of our common stock, and our ability to, among other things, satisfy our debt service obligations and to make distributions to our stockholders, which in turn could cause our stockholders to lose all or a part of their investment. Some statements in this report including statements in the following risk factors constitute forward-looking statements. Please refer to the section entitled “Special Note Regarding Forward-Looking Statements.” 11 We are subject to risks related to commercial real estate ownership that could reduce the value of our properties. Our core business is the ownership of real estate that is net leased on a long-term basis to middle-market companies operating service-oriented or experience-based businesses. Accordingly, our performance is subject to risks incident to the ownership of commercial real estate, including: Risks Related to Our Business and Properties • • • • • • • • • • inability to collect rents from tenants due to financial hardship, including bankruptcy; changes in local real estate conditions in the markets in which we operate, including the availability and demand for single-tenant restaurant and retail space; changes in consumer trends and preferences that affect the demand for products and services offered by our tenants; inability to re-lease or sell properties upon expiration or termination of existing leases; environmental risks, including the potential presence of hazardous or toxic substances on our properties; the subjectivity of real estate valuations and changes in such valuations over time; the illiquid nature of real estate compared to most other financial assets; changes in laws and governmental regulations, including those governing real estate usage and zoning; changes in interest rates and the availability of financing; and changes in the general economic and business climate, including any changes resulting from potential global health emergencies, such as COVID-19 (coronavirus). The occurrence of any of the risks described above may cause our cash flows and the value of our real estate to decline, which could materially and adversely affect us. Global market and economic conditions may materially and adversely affect us and the ability of our tenants to make rental payments to us pursuant to our leases. Our results of operations are sensitive to changes in the overall economic conditions that impact our tenants’ financial condition and leasing practices. 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 our tenants. During periods of economic slowdown, rising interest rates and declining demand for real estate may result in a general decline in rents or an increased incidence of defaults under existing leases. A lack of demand for rental space could adversely affect our ability to maintain our current tenants and gain new tenants, which may affect our growth and profitability. Accordingly, a decline in economic conditions could materially and adversely affect us. Our business is dependent upon our tenants successfully operating their businesses, and their failure to do so could materially and adversely affect us. Generally, each of our properties is operated and occupied by a single tenant. Therefore, the success of our investments is materially dependent on the financial stability 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. Our portfolio consists primarily of properties leased to single tenants that operate in multiple locations, which means we own numerous properties operated by the same tenant. To the extent we own, or finance numerous properties operated by and leased to one company, the general failure of that single tenant or a loss or significant decline in its business could materially and adversely affect us. 12                     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 we own 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. We primarily invest in properties leased to tenants engaged in a targeted set of service-oriented or experience-based businesses, and we believe these businesses are generally more insulated from e-commerce pressure than many others. While we believe this to be the case, businesses previously thought to be internet resistant, such as the retail grocery industry, have proven to be susceptible to competition from e-commerce. 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. 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 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. Additionally, we believe that many of the businesses operated by our tenants are favorably impacted by current macroeconomic trends that support consumer spending, such as generally declining unemployment and positive consumer sentiment. Economic conditions are cyclical, and developments that discourage consumer spending, such as increasing unemployment, wage stagnation, decreases in the value of real estate and/or financial assets, inflation or increasing interest rates, could adversely affect our tenants, impair their ability to meet their lease obligations to us and materially and adversely affect us. Single-tenant leases involve significant risks 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. We may also experience difficulty or a significant delay in re-leasing or selling such property. This risk is magnified in situations where we lease multiple properties to a single tenant under a master lease. A tenant failure or default under a master lease could reduce or eliminate rental revenue from multiple properties and reduce the value of such properties. Although the master lease structure may be beneficial to us because it restricts the ability of tenants to remove individual underperforming assets, there is no guarantee that a tenant will not default in its obligations to us or decline to renew its master lease upon expiration. 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. Our portfolio has geographic market concentrations that make us especially susceptible to adverse developments in those geographic markets. In addition to general, regional, national and international economic conditions, our operating performance is impacted by the economic conditions of the specific geographic markets in which we have concentrations of properties. Our business includes substantial holdings in the following states as of December 31, 2019 (based on annualized base rent): Texas (13.2%), Georgia (9.9%), Florida (6.6%), Arkansas (5.8%) and Michigan (5.3%). In addition, a significant portion of our holdings as of that date (based on annualized rent) were located in the South (56.0%) and Midwest (25.7%) regions of the United States (as defined by the U.S. Census Bureau). This geographic concentration could adversely affect our operating performance if conditions become less favorable in any of the states or markets within such states in which we have a concentration of properties. We cannot guarantee that any of our markets will grow, not experience adverse developments or that underlying real estate fundamentals will be favorable to owners and operators of service-oriented or experience-based properties. Our operations may also be affected if competing properties are built in our markets. A downturn in the economy in the states or regions in which we have a concentration of properties, or markets within such states or regions, could adversely affect our tenants operating businesses in those states, impair their ability to pay rent to us and materially and adversely affect us. 13 We are subject to risks related to tenant concentration, and an adverse development with respect to a large tenant could materially and adversely affect us. As of December 31, 2019, Captain D’s (Captain D’s, LLC), our largest tenant, contributed 3.4% of our annualized base rent. Additionally, we derived 2.8%, 2.5% and 2.5% of our annualized base rent as of December 31, 2019 from Mister Car Wash (Car Wash Partners, Inc.), Art Van Furniture (AVF Parent, LLC), and AMC (American Multi-Cinema, Inc.), respectively. As a result, our financial performance depends significantly on the revenues generated from these tenants and, in turn, the financial condition of these tenants. Additionally, as of December 31, 2019, our five largest tenants contributed 13.6% of our annualized base rent, and our ten largest tenants contributed 23.4% of our annualized base rent. Our strategy targets a scaled portfolio that generally, over time, derives no more than 5.0% of its annualized base from any single tenant or more than 1% from any single property. In the future, we may experience additional tenant and property concentrations. 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 or liquidity. The vast majority of our properties are leased to unrated tenants whom we determine are creditworthy via 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 whom we determine, through our internal underwriting and credit analysis, to be creditworthy. Substantially all of our tenants are required to provide corporate-level financial information to us periodically or, in some instances, at our request. This financial information generally includes balance sheet, income statement and cash flow statement data, or other financial and operating data, on an annual basis. Additionally, as of December 31, 2019, leases contributing 98.2% of our annualized base rent required tenants to provide us with specified unit-level financial information and leases contributing 98.6% of our annualized base rent required tenants to provide us with corporate-financial information. To assist us in determining a tenant’s credit quality, we utilize RiskCalc. RiskCalc is a model for predicting private company defaults, based on Moody’s Analytics Credit Research Database. RiskCalc provides an estimated default frequency (“EDF”) and a “shadow rating” that we use, together with a lease’s property-level rent coverage ratio, to evaluate credit. Our methods may not adequately assess the risk of an investment. An EDF score and shadow rating from RiskCalc are not the same as a published credit rating and lacks the extensive company participation that is typically involved when a rating agency publishes a rating; accordingly, an EDF score or a shadow rating may not be as indicative of creditworthiness as a rating published by Moody’s Investors Services, Inc. (“Moody’s”), S&P Global Ratings, a division of S&P Global, Inc. (“S&P”), or another nationally recognized statistical rating organization. An EDF is only an estimate of default probability based, in part, on assumptions incorporated into the product. 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 must 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. Decreases in demand for restaurant and retail space or other industries may materially and adversely affect us. As of December 31, 2019, leases representing approximately 23.4% and 3.9% of our annualized base rent were with tenants in the restaurant and retail industries, respectively. In the future we may acquire additional restaurant and retail properties. Accordingly, decreases in the demand for restaurant and/or retail spaces may have a greater adverse effect on us than if we had fewer investments in these industries. The market for restaurant and retail space has been, and could continue to be, adversely affected by weakness in the national, regional and local economies, the adverse financial condition of some large restaurant and retail companies, the ongoing consolidation in the restaurant and retail industries, the excess amount of restaurant and retail space in a number of markets and, in the case of the retail industry, increasing consumer purchases through the internet. To the extent that these conditions continue, they are likely to negatively affect market rents for restaurant and retail space and could materially and adversely affect us. Similarly, while our portfolio is diversified by industry, it is possible that adverse trends could affect multiple industries simultaneously and reduce or eliminate the benefits our industry diversification is intended to achieve. 14 As leases expire, we may be unable to renew leases, lease vacant space or re-lease space on favorable terms or at all. Our results of operations depend on our ability to continue to strategically lease space in our properties, including renewing expiring leases, leasing vacant space and re-leasing space in properties where leases are expiring, optimizing our tenant mix or leasing properties on more economically favorable terms. As of December 31, 2019, leases representing approximately 0.5% of our annualized base rent will expire during 2020. As of December 31, 2019, exclusive of one vacant land parcel that we own, our occupancy was 100%. Current tenants may decline, or may not have the financial resources available, to renew current leases, and we cannot guarantee that leases that are renewed will have terms that are as economically favorable to us as the expiring lease terms. If tenants do not renew the leases as they expire, we will have to find new tenants to lease our properties and there is no guarantee that we will be able to find new tenants or that our properties will be re-leased at rental rates equal to or above the current average rental rates or that substantial rent abatements, tenant improvement allowances, early termination rights or below-market renewal options will not be offered to attract new tenants. We may experience significant costs in connection with re-leasing a significant number of our properties, which could materially and adversely affect us. As we continue to acquire properties, we may decrease or fail to increase the diversity of our portfolio. While we seek to maintain or increase our portfolio’s tenant, geographic and industry diversification with future acquisitions, it is possible that we may determine to consummate one or more acquisitions that actually decrease our portfolio’s diversity. If our portfolio becomes less diverse, our business will be more sensitive to the bankruptcy or insolvency of fewer tenants, to changes in trends affecting a particular industry and to a general economic downturn in a particular geographic area. We have investments in industries that depend upon discretionary spending by consumers. A reduction in the willingness or ability of consumers to use their discretionary income in the businesses of our tenants and potential tenants could reduce the demand for our properties. Most of our portfolio is leased to tenants operating service-oriented or experience-based businesses at our properties. Restaurants (including quick service and casual and family dining), car washes, medical services, home furnishings, convenience stores, automotive services, entertainment (including movie theaters), early childhood education and health and fitness represent the largest industries in our portfolio. Captain D’s, Mister Car Wash, Art Van Furniture, AMC Theaters, Circle K, Zips Car Wash, The Malvern School, R-Store, Vasa Fitness, and Boston Sports Club, represent the largest concepts in our portfolio. The success of most of these businesses depends on the willingness of consumers to use discretionary income to purchase their products or services. A downturn in the economy could cause consumers to reduce their discretionary spending, which may have a material adverse effect on our business, financial condition, results of operations or liquidity. 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, 2019, leases contributing 98.6% 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 5.5% of our rent escalators relate to an increase in the CPI over a specified period. Therefore, 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 costs 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. 15 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, 2019, tenants contributing 18.1% of our annualized base rent operated under franchise or license agreements. Generally, franchise agreements have terms that end earlier than the respective expiration dates of the related leases. 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. The bankruptcy or insolvency of a tenant could result in the termination or modification of such tenant’s lease. 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. 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 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 significant capital expenditures. The loss of a tenant, either through lease expiration or tenant bankruptcy or insolvency, may require us to spend significant amounts of capital to renovate the property before it is suitable for a new tenant and cause us to incur significant costs. Many of the leases we enter into or acquire are for properties that are specially suited to the particular business of our tenants. Because these properties have been designed or physically modified for a particular tenant, if the current 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 are required 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. These limitations may materially and adversely affect us. Defaults by borrowers on mortgages we hold could lead to losses. From time to time, we have made and may, in the future, assume a limited number of mortgage or other loans 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. 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. Foreclosure and other similar laws may limit our right to obtain a deficiency judgment against the defaulting party after a foreclosure or sale. The application of any of these principles may lead to a loss or delay in the payment on loans we hold. Further, 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. Any of such events could materially and adversely affect us. 16 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 and complete acquisitions or investment opportunities that are compatible with our growth strategy and to successfully integrate newly acquired properties into our portfolio. We continually evaluate investment opportunities and may acquire properties when strategic opportunities exist. Our ability to acquire properties on favorable terms and successfully operate them may be constrained by the following significant risks: • • • • • • • • • • • • we face competition from other real estate investors, including REITs and institutional investment funds, some of which have greater economies of scale, lower costs of capital, access to more resources and greater name recognition than we do, and the ability to accept more risk than we can, including risks associated with paying higher acquisition prices; we face competition from other potential acquirers which may significantly increase the purchase price for a 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 equity, adequate capital resources or other financing available to complete acquisitions; 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, and we may be unsuccessful in managing and leasing such properties in accordance with our expectations; 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 fail to obtain financing for an acquisition on favorable terms or at all; we may spend more than budgeted amounts to make necessary improvements or renovations to acquired properties; market conditions may result in higher than expected vacancy rates and lower than expected rental rates; or 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 not revealed in Phase I environmental reports or otherwise through due diligence, 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. If any of these risks are realized, we may be materially and adversely affected. We may not acquire the properties that we evaluate in our pipeline. We generally maintain a pipeline of investment opportunities. Transactions may fail to close for a variety of reasons, including the discovery of previously unknown liabilities or other items uncovered during our diligence process. Similarly, we may never execute binding purchase agreements with respect to properties that are currently subject to non-binding letters of intent, and properties with respect to which we are negotiating may never lead to the execution of any letter of 17                         intent. For many other reasons, we may not ultimately acquire the properties currently in our pipeline. Accordingly, you should not place undue reliance on the concept of a pipeline as we have referred to in this Annual Report. Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and 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 in the financial condition or prospects of prospective purchasers, changes in national or international economic conditions and changes in laws, regulations or fiscal policies of the jurisdiction in which the property is located. 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, which may materially and adversely affect us. We face significant competition for acquisitions, which may reduce the number of acquisitions we are able to complete and increase the costs of these acquisitions. We face competition for acquisitions of real property from investors, including traded and non-traded public REITs, private equity investors and institutional investment funds, some of which have greater financial resources than we do, a greater ability to borrow funds to acquire properties and the ability to accept more risk than we can prudently manage. This competition may increase the demand for the types of properties in which we typically invest and, therefore, 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 types of investment. Accordingly, competition for the acquisition of real property could materially and adversely affect us. 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. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we rely on third-party sources to fund our capital needs, including for funding acquisitions and refinancing indebtedness as it matures. We may not be able to obtain the financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of debt and equity capital 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 per share of our common stock. 18             If we cannot obtain capital from third-party sources, 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. Periods of volatility in the credit and capital markets negatively affect the amounts, sources and cost of capital available to us. If sufficient sources of third-party financing are not available to us on cost effective terms, we could be forced to limit our acquisition activity and/or to take other actions to fund our business activities and repayment of debt, such as selling assets. To the extent that we access capital at a higher cost (reflected in higher interest rates for debt financing or lower stock price for equity financing), our investment returns, earnings per share and cash flow could be adversely affected. 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, 2019, we were party to six interest rate swap agreements with third party financial institutions having an aggregate notional amount of $450.0 million that are designated as cash flow hedges and designed to effectively fix the LIBOR component of the interest rate on a portion of the debt outstanding under our term loans. While these transactions are designed to reduce interest rate risk, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. Interest rate hedging may fail to protect or could adversely affect us, because, among other things, it may not fully eliminate interest rate risk, it exposes us to counterparty and default risk that may result in greater losses or the loss of unrealized profits, and it creates additional expense, while any income it generates to offset losses may be limited by federal tax provisions applicable to REITs. Thus, hedging activity, while intended to limit losses, may materially and adversely affect our business, financial condition, liquidity, results of operations and ability to pay dividends to our stockholders. 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, 2019, we had 355 properties comprising $601.3 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. Loss of senior executives with long-standing business relationships could materially impair our ability to operate successfully. Our continued success and our ability to manage anticipated future growth depend, in large part, upon the efforts of certain of our senior executives, including our President and Chief Executive Officer, Peter M. Mavoides, and Gregg A. Seibert, our Executive Vice President and Chief Operating Officer. Messrs. Mavoides and Seibert have extensive market knowledge and relationships and exercise substantial influence over our operational, financing, acquisition and disposition activity. Among the reasons that Messrs. Mavoides and Seibert are important to our success is that each has a national or regional industry reputation that attracts business and investment opportunities and assists us in negotiations with lenders, existing and potential tenants and industry personnel. Many of our other executive personnel also have extensive experience and strong reputations in the real estate industry and have been important in setting our strategic direction, operating our business, 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 the success of our business. We cannot guarantee the continued employment of any of our management team, who may choose to leave our company for any number of reasons, such as other business opportunities, differing views on our strategic direction or other personal reasons. The loss of services of one or more members of our management team, or our inability to attract and retain highly qualified personnel, could adversely affect our business, diminish our investment opportunities and 19 weaken our relationships with lenders, business partners, existing and prospective tenants and industry personnel, which could materially and adversely affect us. 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. 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. Although we make efforts to maintain the security and integrity of our information systems, and we have implemented various measures to manage the risk of a security breach or disruption, 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. Even the best-protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed to not be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk. A security breach or other significant disruption involving our information systems could disrupt the proper functioning of our networks and systems; result in 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. In addition, we implemented a new enterprise resource planning system in 2019. We may experience difficulties with this system, which could result in disruptions to our accounting procedures or adversely affect our internal control over financial reporting. For example, inaccuracies in importing our electronic data into the new system and difficulties integrating the various components and processes of the system could occur and disrupt our financial reporting process or other business processes. Additionally, we may incur significant additional costs as we continue to refine the system’s functionality. We are subject to litigation, which could materially and adversely affect us. 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. In the future, we may become subject to additional litigation. Some of these claims 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 adversely impact our business, financial condition, results of operations or liquidity. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage, which could materially and adversely impact us, expose us to increased risks that would be uninsured, and materially and adversely impact our ability to attract directors and officers. Material weaknesses or a failure to maintain an effective system of internal control over financial reporting could prevent us from accurately reporting our financial results in a timely manner, which could materially and adversely affect us. As a publicly traded company, we are required to report annual audited financial statements and quarterly unaudited interim financial statements prepared in accordance with GAAP. We rely on our internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. More broadly, effective internal control over financial reporting is a necessary component of our program to seek to prevent, and detect any, fraud and to operate successfully as a public company. There can be no guarantee that we will not identify material weaknesses in the future or that our internal control over financial reporting will be effective in accomplishing all of its objectives. Furthermore, as we grow, our business, and hence our internal control over financial reporting, will likely become more complex, and we may require significantly more resources to develop and maintain effective controls. Designing and implementing an effective system of internal control 20 over financial reporting 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 to timely effect any necessary improvements to such controls 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 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. If we fail to implement and maintain effective disclosure controls and procedures, we may not be able to meet applicable reporting requirements or prevent or detect fraud, which could harm our reputation, cause investors to lose confidence in our reports, and materially and adversely affect us. We are subject to the informational requirements of the Exchange Act and are required to file reports and other information with the SEC. As a publicly traded company, we are required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file with, or submit to, the SEC is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. They include controls and procedures designed to ensure that information required to be disclosed in reports filed with, or submitted to, the SEC is accumulated and communicated to management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure. Effective disclosure controls and procedures are necessary for us to provide reliable reports, effectively prevent and detect fraud, and to operate successfully as a public company. Designing and implementing effective disclosure controls and procedures is a continuous effort that requires significant resources and devotion of time. We may discover deficiencies in our disclosure controls and procedures that may be difficult or time consuming to remediate in a timely manner. Any failure to maintain effective disclosure controls and procedures or to timely effect any necessary improvements thereto could cause us to fail to meet our reporting obligations (which could affect the listing of our common stock on the NYSE). Additionally, ineffective 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 reports filed with, or submitted to, the SEC, which would likely have a negative effect on the trading price of our common stock. We will continue to incur significant expenses as a result of being a public company, which will negatively impact our financial performance. We incur, and will continue to incur, significant legal, accounting, insurance and other expenses as a result of being a public company. The Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), as well as related rules implemented by the SEC and the NYSE, have required changes in corporate governance practices of public companies. As of December 31, 2019, we ceased to qualify as an “emerging growth company” under the Jumpstart Our Business Startups (JOBS) Act of 2012, and as a result of the additional regulatory and other requirements, we will experience an increase in legal, accounting, insurance and certain other expenses. In addition, rules that the SEC is implementing or is required to implement pursuant to the Dodd-Frank Act are expected to require additional changes. Compliance with these and other similar laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act, may substantially increase our expenses, including our legal and accounting costs, and make some activities more time-consuming and costly. We also expect these laws, rules and regulations to make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage, which may make it more difficult for us to attract and retain qualified directors and officers. 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. 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. We may face liability regardless of: • our knowledge of the contamination; 21   • • • the timing of the contamination; the cause of the contamination; or the party responsible for the contamination of the property. There may be environmental liabilities associated with our properties of which we are unaware. We obtain Phase I environmental site assessments on all properties we finance or acquire. The Phase I environmental site assessments are limited in scope and therefore may not reveal all environmental conditions affecting a property. Therefore, there could be undiscovered environmental liabilities on the properties we own. Some of our properties use, or may have used in the past, underground tanks for the storage of petroleum-based products or waste products that could create a potential for release of hazardous substances or penalties if tanks do not comply with legal standards. 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. Some of our properties may contain asbestos-containing materials (“ACM”). Environmental laws govern the presence, maintenance and removal of ACM and such laws may impose fines, penalties, or other obligations for failure to comply with these requirements or expose us to third-party liability (e.g., liability for personal injury associated with exposure to asbestos). Environmental laws also apply to other activities that can occur on a property, such as storage of petroleum products or other hazardous toxic substances, air emissions, water discharges and exposure to lead-based paint. Such laws may impose fines and penalties for violations and may require permits or other governmental approvals to be obtained for the operation of a business involving such activities. 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. In addition, environmental laws may 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. In addition, 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. Our environmental liabilities may include property and natural resources damage, personal injury, investigation and clean-up costs, among other potential environmental liabilities. These costs could be substantial. Although we may obtain insurance for environmental liability for certain properties that are deemed to warrant coverage, our insurance may be insufficient to address any particular environmental situation and we may be unable to continue to obtain insurance for environmental matters, at a reasonable cost or at all, in the future. If our environmental liability insurance is inadequate, we may become subject to material losses for environmental liabilities. Our ability to receive the benefits of any environmental liability insurance policy will depend on the financial stability of our insurance company and the position it takes with respect to our insurance policies. If we were to become subject to significant environmental liabilities, we could be materially and adversely affected. Our properties may contain or develop harmful mold, which could lead to liability for adverse health effects and costs of remediation. 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. Concern about indoor exposure to mold has been increasing, as exposure to mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. As a result, should our tenants or their employees or customers be exposed to mold at any of our properties we could be required to undertake a costly remediation program to contain or remove the mold from the affected property. In addition, exposure to mold by our tenants or others could subject us to liability if property damage or health concerns arise. If we were to become subject to significant mold-related liabilities, we could be materially and adversely affected. 22       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 and most carry limits at 100% of replacement cost. 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. Natural disasters, terrorist attacks, other acts of violence or war, or other unexpected events could materially and adversely impact us. Natural disasters, terrorist attacks, other acts of violence or war or other unexpected events could materially interrupt our business operations (or those of our tenants), cause consumer confidence and spending to decrease or result in increased volatility in the U.S. and worldwide financial markets and economy. They also could result in or prolong an economic recession in the United States. Any of these occurrences could materially and adversely affect us. Compliance with the ADA and fire, safety and other regulations may require us to make unanticipated expenditures. Our properties are subject to the ADA. Under the ADA, all public accommodations must meet federal requirements related to access and use by disabled persons. Compliance with the ADA requirements could require removal of access barriers and non-compliance could result in imposition of fines by the U.S. 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, 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 the provisions of the ADA. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations. We may be required to make substantial capital expenditures to comply with those requirements and may be required to obtain approvals from various authorities with respect to our properties, including prior to acquiring a property or when undertaking renovations of any of our existing properties. There can be no assurance that existing laws and regulatory policies will not adversely affect us or the timing or cost of any future acquisitions or renovations, or that additional regulations will not be adopted that increase such delays or result in additional costs. Additionally, failure to comply with any of these requirements could result in the imposition of fines by governmental authorities or awards of damages to private litigants. While we intend to only acquire properties that we believe are currently in substantial compliance with all regulatory requirements, these requirements may change and new requirements may be imposed which could require significant unanticipated expenditures by us. 23 Changes in accounting standards may materially and adversely affect us. From time to time the Financial Accounting Standards Board (“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. In the future, we may acquire properties through transactions where a party contributes such properties to our Operating Partnership in exchange for interests therein that are exchangeable for shares of our common stock, which could result in stockholder dilution and limit our ability to sell such properties. In the future we may acquire properties through tax deferred contribution transactions in exchange for interests in our Operating Partnership that are exchangeable for shares of our common stock, which may result in stockholder dilution. 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. Risks Related to Our Indebtedness As of December 31, 2019, we had $735.1 million principal balance 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, 2019, we had $735.1 million of indebtedness outstanding. This indebtedness consisted of $239.1 million aggregate principal amount of Class A Notes and Class B Notes issued under our Master Trust Funding Program, which allows us to issue multiple series of rated notes from time to time to institutional investors in the asset-backed securities market, $46.0 million of borrowings under our Revolving Credit Facility and $450.0 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 or make the distributions to our common stockholders currently contemplated or necessary to continue to qualify as a REIT. Our level of 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 any hedge agreements we enter into, such agreements may not effectively hedge interest rate fluctuation risk, and, upon the expiration of any hedge agreements we enter into, we would 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; 24               • • • • • we may default on our obligations, and 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 qualify 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. Market conditions could adversely affect our ability to refinance existing indebtedness or obtain additional financing for growth on 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. 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. We pay interest under our Revolving Credit Facility, our April 2019 Term Loan and our November 2019 Term Loan based on 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. The Company is not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form. It is likely that, over time, LIBOR will be replaced by SOFR. However, the manner and timing of this shift is currently unknown. SOFR is an overnight rate instead of a term rate, making SOFR an inexact replacement for LIBOR. Market participants are still considering how various types of financial instruments should react to a discontinuation of LIBOR. Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread. Industry organizations are attempting to structure the spread calculation in a manner that minimizes the possibility of value transfer between counterparties, borrowers, and lenders by virtue of the transition, but there is no assurance that the calculated spread will be fair and accurate. It is also possible that no transition will occur for many financial instruments, meaning that those instruments would continue to be subject to the weaknesses of the LIBOR calculation process. 25           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. The agreements that include these covenants govern, among other things, the Revolving Credit Facility, the April 2019 Term Loan, the November 2019 Term Loan and the Master Trust Funding Program. 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. 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 $239.1 million as of December 31, 2019. As of December 31, 2019, we had pledged 355 properties, with a net investment amount of $601.3 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 the year ended December 31, 2019, the debt service coverage ratio was approximately 2.33x. 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. 26               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. 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 27     become more highly leveraged, which could result in an increase in our debt service. Higher leverage also increases 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. Our directors and officers have duties to our company under applicable Maryland law in connection with the management of our company. At the same time, one of our wholly owned subsidiaries, Essential Properties General OP Holdings, LLC, as the general partner of our Operating Partnership, has fiduciary duties and obligations to our Operating Partnership and its limited partners under Delaware law and the partnership agreement of our Operating Partnership. The fiduciary duties and obligations of Essential Properties General OP Holdings, LLC, as general partner of our Operating Partnership, to our Operating Partnership and its limited partners may conflict with the duties of our directors and officers to our company and its stockholders. 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 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. 28 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. As of December 31, 2019, we are no longer an “emerging growth company,” and, as a result, the reduced disclosure requirements applicable to “emerging growth companies” no longer apply, which will increase our costs as a result of, among other things, compliance requirements with Section 404 of the Sarbanes-Oxley Act and increased demands on management. Because the aggregate worldwide market value of common stock held by our non-affiliate stockholders exceeded $700 million on June 28, 2019, we became a large accelerated filer as of December 31, 2019, and, accordingly, we no longer qualify as an emerging growth company. As such, we will incur significant additional expenses that we did not previously incur in complying with the Sarbanes-Oxley Act and rules implemented by the SEC. The cost of compliance with Section 404 requires us to incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements. Moreover, if we or our independent registered public accounting firm identifies deficiencies in our internal control over financial reporting as material weaknesses, we may be required to make prospective or retroactive changes to our financial statements, consider other areas for further attention or improvement, or be unable to obtain the required attestation in a timely manner, if at all. In addition, the market price of our stock could decline and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources. 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. 29       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. As a partnership, our Operating Partnership will generally not be subject to federal income tax on its income. Instead, for federal income tax purposes, if our Operating Partnership is treated as a partnership, each of its partners, 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 status of our Operating Partnership or any other subsidiary partnership in which we own an interest as a disregarded entity or partnership for federal income tax purposes, 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. These borrowing needs could result from, among other things, differences in timing between the actual receipt of cash and recognition of income for federal income tax purposes, or the effect of non-deductible capital expenditures, the creation of reserves or required debt or amortization payments. These sources, however, may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of factors, including the market’s perception of our growth potential, our debt level and creditworthiness, the market price of our common stock, and our then current and potential future earnings. 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. 30 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 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 applicable to “qualified dividends” 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, such characterization is a factual determination and 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 taxable REIT subsidiary (“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. 31 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. 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. 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. Changes made by the TCJA that could affect us and our stockholders include: • • • • • • • temporarily reducing individual U.S. federal income tax rates on ordinary income; the highest individual U.S. federal income tax rate was reduced from 39.6% to 37% for taxable years beginning after December 31, 2017 and before January 1, 2026; permanently eliminating the progressive corporate tax rate structure, with a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%; permitting a deduction for certain pass-through business income, including dividends received by our stockholders from us that are not designated by us as capital gain dividends or qualified dividend income, which will generally allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026; reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%; limiting our deduction for net operating losses to 80% of REIT taxable income (prior to the application of the dividends paid deduction); generally limiting the deduction for net business interest expense in excess of 30% of a business’s adjusted taxable income except for taxpayers that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system for certain property); and eliminating the corporate alternative minimum tax. 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. 32               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 may be volatile. In addition, the NYSE, on which our common stock is listed, and other equity markets, have experienced significant price and volume fluctuations. The market price of our common stock will fluctuate, and such fluctuations could be significant and frequent; accordingly, our common stockholders may experience a 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: • • • • • • • • • • • • • • • • • • general market and economic conditions; actual or anticipated variations in our quarterly operating results or distributions or our payment of distributions in shares of our common stock; changes in our funds from operations (“FFO”), core FFO (“Core FFO”), adjusted FFO (“AFFO”) or earnings estimates; difficulties or inability to access capital or extend or refinance existing debt; changes in market valuations of similar companies; publication of research reports about us or the real estate industry; the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities; general stock and bond market conditions, including changes in interest rates on fixed income securities, that may lead prospective purchasers of our stock to demand a higher annual yield from future distributions; a change in ratings issued by any analyst following us or any nationally recognized statistical rating organization; additions or departures of key management personnel; adverse market reaction to any additional debt we may incur in the future; speculation in the press or investment community; terrorist activity which may adversely affect the markets in which our securities trade, possibly increasing market volatility and causing further erosion of business and consumer confidence and spending; failure to meet and to continue to maintain our qualification as a REIT; strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business strategy; failure to satisfy listing requirements of the NYSE; governmental regulatory action and changes in tax laws; and the issuance of additional shares of our common stock or securities convertible into or exercisable or exchangeable therefor (such as units of limited partnership in our Operating Partnership (“OP Units”) that are exchangeable for our common stock), or the perception that such issuances might occur. 33                                     Many of the factors listed above are beyond our control. These factors may cause the market price of shares of our common stock to decline, regardless of our financial condition, results of operations, business or our prospects. Furthermore, in recent years, the stock markets have experienced significant price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. The changes frequently appear to occur without regard to the operating performance of the affected companies. Hence, the price of our common stock could fluctuate based upon factors that have little or nothing to do with us in particular, and these fluctuations could materially reduce the price of our common stock. 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. 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, 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 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. 34 Sales of substantial amounts of our common stock in the public markets, or the perception that they 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, 2019, we had 83,761,151 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. Additionally, we have an effective registration statement relating to up to 3,550,000 shares of our common stock or securities convertible into or exchangeable for shares of our common stock that may be issued pursuant to our 2018 Incentive Plan. As of December 31, 2019, 2,800,842 shares remain available for issuance under such plan. Item 1B. Unresolved Staff Comments. None. Item 2. Properties. As of December 31, 2019, we had a portfolio of 1,000 properties, including one undeveloped land parcel and 91 properties that secure our investments in mortgage loans receivable, that was diversified by tenant, industry and geography and had annualized base rent of $151.2 million Our 205 tenants operate 265 different concepts in 16 industries across 44 states. None of our tenants represented more than 3.4% of our annualized base rent at December 31, 2019, and our top ten largest tenants represented 23.4% of our annualized base rent as of that date. Our Real Estate Investment Portfolio Diversification by Tenant As of December 31, 2019, our top ten tenants included ten different concepts: Captain D’s, Mister Car Wash, Art Van Furniture, AMC Theatres, Circle K, Zips Car Wash, Malvern School, R-Store, Vasa Fitness, and Boston Sports Club. Our 1,000 properties are operated by our 205 tenants. The following table details information about our tenants and the related concepts they operate as of December 31, 2019 (dollars in thousands): Tenant(1) Captain D's, LLC Car Wash Partners, Inc. Avf Parent LLC American Multi-Cinema, Inc (3) Mac's Convenience Stores, LLC (4) Zips Car Wash LLC Malvern School Properties, LP GPM Investments, LLC (5) Vasa Fitness LLC Town Sports International Holdings, Inc. Top 10 Subtotal Other Total (1) Represents tenant or guarantor. Concept Captain D's Mister Car Wash Art Van Furniture AMC Circle K Zips Car Wash The Malvern School R-Store Vasa Fitness Boston Sports Clubs 35 Number of Properties (2) Annualized Base Rent % of Annualized Base Rent 74 $ 13 4 5 34 12 13 26 5 3 189 810 999 $ 5,094 4,227 3,817 3,710 3,686 3,220 3,145 2,956 2,862 2,708 35,425 115,802 151,227 3.4% 2.8% 2.5% 2.5% 2.4% 2.1% 2.1% 2.0% 1.9% 1.8% 23.4% 76.6% 100.0%       (2) (3) (4) (5) Excludes one undeveloped land parcel. Includes four properties leased to a subsidiary of AMC Entertainment Holdings, Inc. Includes properties leased to a subsidiary of Alimentation Couche Tard Inc. Includes one property leased to a subsidiary of GPM investments, LLC. As of December 31, 2019, our five largest tenants, who contributed 13.6% of our annualized base rent, had a rent coverage ratio of 3.3x, and our ten largest tenants, who contributed 23.4% of our annualized base rent, had a rent coverage ratio of 2.7x. As of December 31, 2019, 93.5% 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. Diversification by Concept Our tenants operate their businesses across 265 concepts (i.e., generally brands). The following table details those concepts as of December 31, 2019 (dollars in thousands): Concept Captain D's Mister Car Wash Circle K Art Van Furniture AMC Zips Car Wash The Malvern School Applebee's Vasa Fitness R-Store Top 10 Subtotal Other Total (1) Excludes one undeveloped land parcel. Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq. Ft.) Service Service Service Retail Experience Service Service Service Experience Service 6,089 4,227 4,020 3,817 3,710 3,220 3,145 2,932 2,862 2,812 36,834 114,393 151,227 $ $ 36 4.0% 2.8% 2.7% 2.5% 2.5% 2.1% 2.1% 1.9% 1.9% 1.9% 24.4% 75.6% 100.0% 85 13 36 4 5 12 13 17 5 25 215 784 999 220,365 54,621 139,799 240,591 240,672 46,596 149,781 87,989 207,383 105,703 1,493,500 6,373,803 7,867,303       Diversification by Industry Our tenants’ business concepts are diversified across various industries. The following table summarizes those industries as of December 31, 2019 (dollars in thousands): Tenant Industry Quick Service Car Washes Convenience Stores Early Childhood Education Medical / Dental Casual Dining Automotive Service Family Dining Other Services Pet Care Services Service Subtotal Health and Fitness Entertainment Movie Theatres Experience Subtotal Home Furnishings Grocery Retail Subtotal Building Materials Total Type of Business Annualized Base Rent % of Annualized Base Rent Number of Properties (1) Building (Sq. Ft.) Rent Per Sq. Ft. (2) Service Service Service Service Service Service Service Service Service Service Experience Experience Experience Retail Retail Other $ $ 21,545 18,946 16,942 16,846 16,029 8,785 7,286 5,099 4,975 4,861 121,314 9,971 7,072 4,341 21,384 5,367 467 5,834 2,695 151,227 14.2% 12.5% 11.2% 11.1% 10.6% 5.8% 4.8% 3.4% 3.3% 3.2% 80.2% 6.6% 4.7% 2.9% 14.1% 3.5% 0.3% 3.9% 1.8% 100.0% 304 82 149 82 95 61 62 31 24 32 922 25 18 6 49 7 2 9 19 999 810,104 382,429 598,940 830,575 594,299 369,841 382,394 194,188 257,823 201,540 4,622,133 953,487 647,483 293,206 1,894,176 383,415 70,623  454,038 896,956 7,867,303 $ $ 26.82 49.31 28.29 19.70 26.11 23.75 19.05 26.26 19.30 19.94 25.87 9.82 10.92 14.81 10.97 14.00 6.61 12.85 3.01 18.92 (1) (2) Excludes one undeveloped land parcel. Excludes properties with no annualized base rent and properties under construction. As of December 31, 2019, our tenants operating service-oriented businesses had a weighted average rent coverage ratio of 2.9x, our tenants operating experience-based businesses had a weighted average rent coverage ratio of 2.1x, our tenants operating retail businesses had a weighted average rent coverage ratio of 3.0x and our tenants operating other types of businesses had a weighted average rent coverage ratio of 7.6x. 37           Diversification by Geography Our 1,000 property locations are spread across 44 states. The following table details the geographical locations of our properties as of December 31, 2019 (dollars in thousands): State Texas Georgia Florida Arkansas Michigan Alabama Ohio Minnesota Wisconsin Pennsylvania Tennessee Arizona South Carolina North Carolina New York Colorado Massachusetts New Mexico Kentucky Iowa Missouri Louisiana Indiana Oklahoma Mississippi Illinois Maryland Kansas Washington South Dakota Virginia Connecticut Oregon West Virginia Utah Nebraska New Jersey Wyoming California Idaho Alaska Nevada New Hampshire Maine Total Annualized Base Rent % of Annualized Base Rent Number of Properties Building (Sq. Ft.) 20,009 14,914 9,913 8,732 8,058 6,504 7,299 5,660 4,673 4,003 4,226 4,607 3,726 4,110 3,407 3,390 2,754 2,762 2,889 2,660 2,134 1,936 2,294 1,870 2,319 2,323 1,675 1,632 1,515 1,677 1,101 1,050 890 785 911 482 420 420 386 374 306 222 140 72 151,227 $ $ 38 13.2% 9.9% 6.6% 5.8% 5.3% 4.3% 4.8% 3.7% 3.1% 2.6% 2.8% 3.0% 2.5% 2.7% 2.3% 2.2% 1.8% 1.8% 1.9% 1.8% 1.4% 1.3% 1.5% 1.2% 1.5% 1.5% 1.1% 1.1% 1.0% 1.1% 0.7% 0.7% 0.6% 0.5% 0.6% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.1% 0.1% 0.0% 100.0% 124 104 51 69 42 50 58 31 34 26 37 23 24 15 32 22 4 18 26 21 18 11 21 11 22 18 7 7 10 7 6 6 5 15 2 7 3 2 3 1 2 1 3 1 1,000 1,065,570 578,354 440,778 304,278 455,967 457,082 569,040 442,872 204,951 202,626 201,019 138,856 233,227 263,697 77,817 182,461 247,875 83,651 150,592 119,173 99,406 72,930 95,467 147,498 98,731 134,573 55,147 103,977 77,293 41,472 48,471 51,551 114,239 67,117 67,659 17,776 19,091 14,001 30,870 35,433 6,630 34,777 9,914 3,395 7,867,303     Lease Expirations As of December 31, 2019, the weighted average remaining term of our leases was 14.6 years (based on annualized base rent), with only 6.8% of our annualized base rent attributable to leases expiring prior to January 1, 2025. The following table sets forth our lease expirations for leases in place as of December 31, 2019 (dollars in thousands): $ Lease Expiration Year (1) 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 Thereafter(4) Total/Weighted Average $ Annualized Base Rent % of Annualized Base Rent Number of Properties (2) Weighted Average Rent Coverage Ratio (3) 703 333 773 2,228 6,264 839 2,395 4,991 2,875 4,267 4,423 5,821 12,249 9,484 25,480 1,501 2,697 20,955 17,806 23,171 1,972 151,227 0.5 %   0.2 %   0.5 %   1.5 %   4.1 %   0.6 %   1.6 %   3.3 %   1.9 %   2.8 %   2.9 %   3.8 %   8.1 %   6.3 %   16.8 %   1.0 %   1.8 %   13.9 %   11.8 %   15.3 %   1.3 %   100.0% 7 3 5 13 61 8 14 32 17 68 42 34 67 43 208 14 22 87 95 152 7 999 2.1x 2.3x 3.7x 2.9x 3.6x 4.3x 2.6x 3.1x 2.9x 4.2x 3.7x 3.9x 3.2x 2.5x 3.1x 3.4x 2.2x 3.0x 2.1x 2.5x 2.3x 2.9x Expiration year of contracts in place as of December 31, 2019, excluding any tenant option renewal periods that have not been exercised. Excludes one undeveloped land parcel. (1) (2) (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. Item 4. Mine Safety Disclosures. Not applicable. 39           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 25, 2020, there were 144 holders of record of the 91,949,849 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. PART II Distributions We intend to make quarterly 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 58.8% of the distributions paid in 2019 represented taxable income and 41.2% represented a return of capital. Issuer Purchases of Equity Securities During the three months ended December 31, 2019, 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, 2019, 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. Ticker / Index EPRT S&P 500 FNER 6/30/2018 9/30/2018 12/31/2018 3/31/2019 6/30/2019 9/30/2019 12/31/2019 6/21/2018 99.27 104.03 103.16 147.65 153.26 177.16 193.63 100.00 92.65 106.48 112.12 115.15 126.83 98.86 105.97 100.00 94.04 109.18 110.07 117.51 116.57 100.00 101.35 101.22 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 2020 Annual Meeting of Stockholders and is incorporated herein by reference. Unregistered Sales of Equity Securities and Use of Proceeds Not applicable. 41       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, 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. Operating Data: (In thousands, except per share data) Revenues: Rental revenue $ Interest income on loans and direct financing lease receivables Other revenue Total revenues Expenses: Interest General and administrative Property expenses Depreciation and amortization Provision for impairment of real estate Total expenses Other operating income: Gain on dispositions of real estate, net Income from operations Other (loss)/income: Loss on repurchase and retirement of secured borrowings Interest Income before income tax expense Income tax expense Net income Net income attributable to non-controlling interests Net income attributable to stockholders $ 2019 Year ended December 31, 2018 2017 Period from March 30, 2016 (Commencement of Operations) to December 31, 2016 135,670 $ 3,024 663 139,357 27,037 21,745 3,070 42,745 2,918 97,515 10,932 52,774 (5,240) 794 48,328 303 48,025 (6,181) 41,844 $ 94,944 $ 656 623 96,223 30,192 13,762 1,980 31,352 4,503 81,789 5,445 19,879 — 930 20,809 195 20,614 (5,001) 15,613 $ 53,373 $ 293 783 54,449 22,574 8,775 1,547 19,516 2,377 54,789 6,748 6,408 — 49 6,457 161 6,296 — 6,296 $ 15,271 161 88 15,520 987 4,321 533 5,428 1,298 12,567 871 3,824 — 3 3,827 77 3,750 — 3,750 Basic net income per share Diluted net income per share Cash dividends declared per share Year ended December 31, 2019 Period from June 25, 2018 to December 31, 2018 $ 0.65 $ 0.63 0.88 0.26 0.26 0.43 42     Consolidated Balance Sheet Data: (In thousands) Total real estate investments, at cost Total real estate investments, net Net investments Cash and cash equivalents Restricted cash Total assets Secured borrowings, net of deferred financing costs Unsecured term loans, net of deferred financing costs Notes payable to related party Revolving credit facility Intangible lease liabilities, net Total liabilities Total stockholders'/members' equity Non-controlling interests Other Data: (In thousands) FFO (1) Core FFO (1) AFFO (1) EBITDA (1) EBITDAre (1) (Dollar amounts in thousands) Net debt (2) Number of investment property locations Occupancy $ $ $ $ $ $ $ 2019 1,908,919 $ 1,818,848 1,912,243 8,304 13,015 1,975,447 235,336 445,586 — 46,000 9,564 773,334 1,194,450 7,663 December 31, 2018 1,377,044 $ 1,325,189 1,342,694 4,236 12,003 1,380,900 506,116 — — 34,000 11,616 569,859 562,179 248,862 2017 2016 932,174 $ 907,349 914,247 7,250 12,180 942,220 511,646 — 230,000 — 12,321 760,818 181,402 — 455,008 448,887 452,546 1,825 10,097 466,288 272,823 — — — 16,385 291,638 174,650 — 2019 Year ended December 31, 2018 2017 82,660 $ 90,648 $ 86,251 $ 117,316 $ 109,302 $ 51,007 $ 51,007 $ 48,442 $ 81,423 $ 80,481 $ December 31, Period from March 30, 2016 (Commencement of Operations) to December 31, 2016 9,605 9,605 8,579 10,239 10,666 21,438 $ 21,438 $ 20,337 $ 48,498 $ 44,127 $ 2019 2018 2017 2016 $ 713,784 1,000 100.0% $ 532,881 677 100.0% $ 733,511 508 98.8% 278,609 344 96.8% (1) (2) 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures.” 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.” 43             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 Annual Report on Form 10-K, as well as the “Selected Financial Data” and “Business” sections of this Annual Report on Form 10-K. 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 Annual Report on Form 10-K 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. 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 has allowed and will continue to allow us to continue to so qualify. On June 25, 2018, we completed the initial public offering (“IPO”) of our common stock. Our common stock is listed on the New York Stock Exchange under the ticker symbol “EPRT”. We generally lease each of our properties to a single tenant on a triple-net long-term lease 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. As of December 31, 2019, we had a portfolio of 1,000 properties (inclusive of one undeveloped land parcel and ninety-one properties which secure our investments in mortgage loans receivable) that was diversified by tenant, industry, concept and geography, had annualized base rent of $151.2 million and was 100.0% occupied. Substantially all our leases provide for periodic contractual rent escalations. As of December 31, 2019, leases contributing 98.6% 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, 2019, leases contributing 93.5% 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 any significant ongoing leasing activities on our properties. As of December 31, 2019, the weighted average remaining term of our leases was 14.6 years (based on annualized base rent), excluding renewal options that have not been exercised, with 6.8% of our annualized base rent attributable to leases expiring prior to January 1, 2025. 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, 2019, 60.3% 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. 44 Liquidity and Capital Resources As of December 31, 2019, we had $1.9 billion of net investments in our investment portfolio, consisting of investments in 1,000 properties (inclusive of one undeveloped land parcel and 91 properties which secure our investments in mortgage loans receivable), with annualized base rent of $151.2 million. Substantially all of our cash from operations is generated by our investment portfolio. Our short-term liquidity requirements consist primarily of funds necessary to pay for our operating expenses, including principal and interest payments on our outstanding indebtedness, and the general and administrative expenses of servicing our portfolio and operating our business. Since our occupancy level is high and substantially all of our leases are triple-net, our tenants are generally responsible for the maintenance, insurance and property taxes associated with the properties they lease from us. When a property becomes vacant through a tenant default or expiration of the lease term with no tenant renewal or re-leasing, 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, 2019, none of our properties were vacant, and all were subject to a lease (excluding one undeveloped land parcel), which represents a 100.0% 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. From time to time, we may also sell properties that no longer meet our long-term investment objectives. We intend to continue to grow through additional real estate investments. 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 those sales in new property acquisitions. Our short-term liquidity requirements also include the funding needs associated with 23 properties where we have agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in exchange for contractually-specified interest or rent that generally increases in proportion with our funding. As of December 31, 2019, we had agreed to provide construction financing or reimburse the tenant for certain development, construction and renovation costs in an aggregate amount of $78.7 million, and, as of the same date, we had funded $47.9 million of this commitment. We expect to fund the balance of such commitment by December 31, 2021. Additionally, as of February 28, 2020, we were under contract to acquire 29 properties with an aggregate purchase price of $65.5 million, subject to completion of our due diligence procedures and customary closing conditions. We expect to meet our short-term liquidity requirements, including our investment in potential future acquisitions, primarily with cash and cash equivalents, net cash from operating activities and borrowings under the Revolving Credit Facility. 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 select sales of our properties 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 degree of leverage, our unencumbered asset base, borrowing restrictions imposed by our lenders, general market conditions for REITs, our operating performance, liquidity and 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. An additional liquidity need is funding the distributions that are among the requirements for us to continue to qualify for taxation as a REIT. During the year ended December 31, 2019, our board of directors declared total cash distributions of $0.88 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, 2019, we paid $63.9 million of distributions to common stockholders and OP Unit holders, and as of December 31, 2019, we recorded $19.4 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 45 securities in public or private transactions. The availability and attractiveness of the terms of these potential sources of financing cannot be assured. Generally, our debt capital is initially provided on a short-term, temporary basis through 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. By seeking to match the expected cash inflows from our long-term leases with the expected cash outflows for our long-term, we seek to “lock in,” for as long as is economically feasible, the expected positive difference between our scheduled cash inflows on the 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. 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 intend to target, 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. As of December 31, 2019, all of our long-term debt was fixed-rate debt or was effectively converted to a fixed-rate for the term of the debt and our weighted average debt maturity was 5.2 years. As we 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. Future sources of debt capital may also include term borrowings from insurance companies, banks and other sources, single-asset mortgage financing and CMBS borrowings, and 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 funding strategy. 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, 2019, our borrowing availability under the Revolving Credit Facility and the November 2019 Term Loan 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.                    Description of Certain Debt 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”). Under the Revolving Credit Facility, as of December 31, 2019, we had $46.0 million in outstanding borrowings and had $354.0 million of unused borrowing capacity. Additionally, as of December 31, 2019, we had $200.0 million of principal borrowings outstanding under 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. 46                 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. 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. On December 9, 2019, we borrowed $250.0 million 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, 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 is required to pay a ticking fee on any undrawn portion of the November 2019 Term Loan for the period from and including the 91st day after November 26, 2019 until the earlier of the date the initial term loans are fully drawn or May 26, 2020. 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 $239.1 million as of December 31, 2019. 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, 47 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 $239.1 million as of December 31, 2019. 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, 2019, we had pledged 355 properties, with a net investment amount of $601.3 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. 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 year ended December 31, 2019, excess cash flow from the Master Trust Funding Program, after payment of debt service and servicing and trustee expenses, totaled $8.6 million on cash collections of $14.6 million, which represents a debt service coverage ratio (as defined in the program documents) of 2.33x. 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 4.17% as of December 31, 2019. 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, 2019, we were in material compliance with all such covenants. 48 As of December 31, 2019, scheduled principal repayments on the Notes issued under the Master Trust Funding Program during 2020 were $3.9 million. We expect to meet these repayment requirements primarily through our net cash from operating activities. Cash Flows The following discussion of changes in cash flows includes the results of the Company and the Predecessor collectively for the periods presented. The term Predecessor refers to Essential Properties Realty Trust LLC, the predecessor of our Operating Partnership, and EPRT Holdings LLC, its parent prior to a series of transactions that took place to facilitate the IPO. Comparison of the years ended December 31, 2019 and 2018 As of December 31, 2019, we had $8.3 million of cash and cash equivalents and $13.0 million of restricted cash as compared to $4.2 million and $12.0 million, respectively, as of December 31, 2018. 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, gain 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 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 loans and direct financing lease receivables. Net cash provided by financing activities of $524.4 million during the year ended December 31, 2019 related to cash inflows of $411.6 million from the issuance of common stock in the Follow-On Offering and through 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 the Follow-On Offering and the ATM Program. Cash Flows for the year ended December 31, 2018 During the year ended December 31, 2018, net cash provided by operating activities was $45.9 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 a net income adjusted for non-cash items of $48.3 million (net income of $20.6 million adjusted for non-cash items, including depreciation and amortization of tangible and intangible real estate assets, amortization of deferred financing costs, provision for impairment of real estate, gains on dispositions of investments, net, straight-line rent receivable, equity-based compensation and allowance for doubtful accounts, of $27.7 million). These cash inflows were partially offset by a decrease of $1.6 million in accrued liabilities and other payables and an increase of $0.8 million in prepaid expenses and other assets. 49 Net cash used in investing activities during the year ended December 31, 2018 was $461.9 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 $490.0 million to fund investments in real estate, including capital expenditures, $15.3 million to fund construction in progress, $14.9 million of investments in loans receivable, $1.7 million for capital expenditures subsequent to acquisition, $0.5 million paid to tenants as lease incentives and an increase of $1.7 million in deposits on prospective real estate investments. These cash outflows were partially offset by $60.4 million of proceeds from sales of investments, net of disposition costs, and $0.1 million of principal collections on our direct financing lease receivables. Net cash provided by financing activities of $412.8 million during the year ended December 31, 2018 related to cash inflows of $464.2 million from the issuance of common stock in the IPO (inclusive of the shares issued pursuant to the partial exercise by the underwriters of their option to purchase additional shares), $109.0 million from a private placement of common stock that took place concurrently with the IPO, $16.0 million from a private placement of OP Units that took place concurrently with the IPO, $154.0 million from the issuance of notes payable to related parties, $34.0 million of borrowings under the Revolving Credit Facility and $50.0 million of capital contributions to the Predecessor. These cash inflows were partially offset by the payment of $5.5 million of IPO costs, $384.0 million of payments of principal on notes payable to related parties, $7.8 million of repayments of secured borrowing principal, payment of $3.1 million of deferred financing costs related to the Revolving Credit Facility and the payment of $14.1 million in dividends. Off-Balance Sheet Arrangements We had no off-balance sheet arrangements as of December 31, 2019. Contractual Obligations The following table provides information with respect to our commitments as of December 31, 2019: (in thousands) Secured Borrowings—Principal Secured Borrowings—Fixed Interest (1) Unsecured Term Loans (2) Revolving Credit Facility (3) Tenant Construction Financing and Reimbursement Obligations (4) Operating Lease Obligations (5) Total Total 239,102 $ 43,162 450,000 46,000 30,830 18,560 827,654 $ $ $ 2020 2021-2022 2023-2024 Thereafter 3,885 $ 9,889 — — 30,830 1,409 46,013 $ 8,376 $ 19,281 — — — 2,651 30,308 $ 226,842 $ 13,992 200,000 46,000 — 1,795 488,629 $ — — 250,000 — — 12,705 262,705 Payment due by period (1) (2) (3) (4) (5) Includes interest payments on outstanding indebtedness issued under our Master Trust Funding Program through the anticipated repayment dates. Borrowings under the April 2019 Term Loan and November 2019 Term Loan bear interest at an annual rate of applicable LIBOR plus an applicable margin. Balances on the Revolving Credit Facility bear interest at an annual rate of applicable LIBOR plus an applicable margin. We also pay a facility fee on the total unused commitment amount of 0.15% or 0.25%, depending on our current unused commitment. 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. Includes $5.5 million of 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. 50               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, 2019, 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 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. 51 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 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 and comprehensive income 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. Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter. Capitalized above-market lease values are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease values are accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods. Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable. The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases. 52 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 statement of operations and comprehensive income. Loans Receivable We hold our loans receivable for long-term investment. Loans receivable are carried at amortized cost, including related unamortized discounts or premiums, if any. We recognize 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. We periodically evaluate 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 our allowance for loan losses. A loan is determined to be impaired when, in management’s judgment based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. Direct Financing Lease Receivables Certain of our real estate investment transactions are accounted for as direct financing leases. We record 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 life of the related lease contracts so as to produce a constant rate of return on the net investment in the asset. Our 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. If and when an investment in direct financing lease receivables is identified for impairment evaluation, we will apply the guidance in both the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, Receivables (“ASC 310”) and ASC 840, Leases (“ASC 840”). 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 we, as the lessor, will be unable to collect all rental payments associated with our investment in the direct financing lease receivable. Under ASC 840, we review 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, we determine 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 us as a loss in the period in which the estimate is changed. 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 and comprehensive income, because recording an impairment loss results in an immediate negative adjustment to the consolidated statements of operations and comprehensive income. Cash and Cash Equivalents Cash and cash equivalents includes cash in the our bank accounts. We consider all cash balances and highly liquid investments with original maturities of three months or less to be cash and cash equivalents. We deposit cash with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to an insurance limit. 53 Restricted Cash Restricted cash primarily consists of cash held with the trustee for our Master Trust Funding Program. This restricted cash is used to make principal and interest payments on our secured borrowings, to pay trust expenses and to acquire future real estate investments which will be pledged as collateral under the Master Trust Funding Program. See Note 6—Secured Borrowings to our financial statements for the year ended December 31, 2019, included elsewhere in this Annual Report on Form 10-K, for further discussion of our Master Trust Funding Program. 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. Deferred Financing Costs Financing costs related to establishing our Revolving Credit Facility were deferred, 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 prepaid expenses and other assets, net on the consolidated balance sheets. Financing costs related to the issuance of our secured borrowings under the Master Trust Funding Program, the April 2019 Term Loan and November 2019 Term Loan were deferred, 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, 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 54 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. Fair Value Measurement We estimate 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 we have the ability to access at the measurement date. Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3—Unobservable inputs that reflect our 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 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 properties in our investment portfolio 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. Gains and Losses on Dispositions of Real Estate Through December 31, 2017, gains and losses on dispositions of real estate investments were recorded in accordance with ASC 360-20, Property, Plant and Equipment—Real Estate Sales, and include realized proceeds from real estate disposed of in the ordinary course of business, less their related net book value and less any costs incurred in association with the disposition. On January 1, 2018, we adopted ASU 2017-05, “Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”), using the modified retrospective transition method. As leasing is our primary activity, we determined that our sales of real estate, which are nonfinancial assets, are sold to noncustomers and fall within the scope of ASC 610-20. We recognize the full gain on the disposition of our real estate investments as we (i) have no controlling financial interest in the real estate and (ii) have no continuing interest or obligation with respect to the disposed real estate. We re-assessed and determined that there were no open contracts or partial sales and that the adoption of ASU 2017-05 (i) did not result in a cumulative adjustment as of January 1, 2018 and (ii) did not have any impact on our consolidated financial statements. 55 Income Taxes We have elected and qualified to be taxed as a REIT under sections 856 through 860 of the Code, commencing with our 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, we will generally not be subject to U.S. federal entity-level income tax to the extent that we meet the organizational and operational requirements and our distributions equal or exceed REIT taxable income. For the period subsequent to the effective date of our intended REIT election, we intend to meet the organizational and operational requirements and expect distributions to exceed net taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even if we qualify for taxation as a REIT, we may be subject to state and local income and franchise taxes, and to federal income and excise tax on our undistributed income. Franchise taxes and federal excise taxes on our undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations and comprehensive income. Additionally, taxable income from our non-REIT activities managed through our taxable REIT subsidiary is subject to federal, state and local taxes. From the Predecessor’s commencement of operations through January 31, 2017, the Predecessor and its subsidiaries included in the consolidated financial statements were treated as disregarded entities for U.S. federal and state income tax purposes, and, accordingly, the Predecessor was not subject to entity-level tax. Therefore, until the Predecessor’s issuance of Class A and Class C units on January 31, 2017, the Predecessor’s net income flowed through to SCF Funding LLC, its initial sole member, for federal income tax purposes. Following the issuance of Class A and Class C units, the Predecessor’s net income flowed through to Class A and Class C unitholders for federal income tax purposes. With regard to state income taxes, the Predecessor was a taxable entity only in certain states that tax all entities, including partnerships. We analyze our tax filing positions in all of the U.S. federal, state and local tax jurisdictions where we are required to file income tax returns, as well as for all open tax years in such jurisdictions. We follow 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 we subsequently determine 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. Equity-Based Compensation In 2019 and 2018, we granted 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. In 2019, 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. In 2017, the Predecessor granted unit-based compensation awards to certain of its employees and managers, as well as non-employees, consisting of units that vest over a multi-year period, subject to the recipient’s continued service. We account for the restricted common stock, RSUs and unit-based compensation 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. 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. 56 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, 2019. As of December 31, 2019, we concluded that seven entities to which we had provided mortgage loans were VIEs because the entities’ equity was not sufficient to finance their activities without additional subordinated financial support. However, we were not the primary beneficiary of the entities, because we did not have the power to direct the activities that most significantly impact the entities’ economic performance. As of December 31, 2019, the carrying amount of our loans receivable with these entities was $60.5 million and our maximum exposure to loss in these entities is limited to the carrying amount of our investment. We had no liabilities associated with these VIEs as of December 31, 2019. Net Income per Share Net income per share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings Per Share. The guidance requires the classification of our unvested restricted common stock and units, which contain rights to receive non‑forfeitable dividends, 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 our election, exchanged for shares of our common stock on a one-for-one basis. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) to amend the accounting for leases. This standard requires lessees to classify leases as either finance or operating leases based on certain criteria and record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to the previous guidance for sales-type leases, direct financing leases and operating leases. The standard also eliminates current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, lease modifications and lease executory costs for all entities. Certain changes to the guidance pertaining to sale-leaseback transactions may impact us. For example, the inclusion of a purchase option in the lease associated with a sale-leaseback transaction will now result in the lessor accounting for such transaction as a financing arrangement. ASU 2016-02 was effective for us on January 1, 2019 and, in accordance with the provisions of ASU 2018-11, Leases (Topic 842), Targeted Improvements, was adopted by us using the modified retrospective approach as of the beginning of the period of adoption. There was no impact to retained earnings at the time of adoption and, therefore, no cumulative-effect adjustment was recorded. At the time of adoption, both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. We applied this package of practical expedients and, as such, at the time of adoption did not reassess the classification of existing lease contracts, whether existing or expired contracts contain a lease or whether a portion of initial direct costs for existing leases should have been expensed. In addition, we adopted the practical expedient provided in ASU 2018-11 that allows lessors to not separate non-lease components from the related lease components. We made this determination as the timing and pattern of transfer for the lease and non-lease components associated with our leases are the same and the lease components, if accounted for separately, would be classified as operating leases in accordance with ASC 842. The accounting applied by a lessor is largely unchanged under ASU 2016-02; however, the standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in obtaining a lease. Under the previous standards, certain of these costs were capitalizable. Although primarily a lessor, we are also a lessee under several ground lease arrangements and under our corporate office and office equipment leases. We completed our inventory and evaluation of these leases, calculated a right-of-use asset and a lease liability for the present value of the minimum lease payments and recognized an initial $4.8 million right-of-use asset and lease liability upon adoption on January 1, 2019. For a portion of our ground lease arrangements, the sublessees, or our tenants, are responsible for making payment directly to the ground lessors. Prior to the new standard such amounts were presented on a net basis; however, upon adoption of ASU 2016-02 the expense related to the ground lease obligations, along with the related sublease revenues, is presented on a gross basis in the consolidated statements of operations. ASU 2016-02 also requires additional disclosures within the notes accompanying the consolidated financial statements. 57 Substantially all of our lease contracts (under which we are the lessor) are “triple-net” leases, which means that our tenants are responsible for making payments to third parties for operating expenses such as property taxes and insurance costs associated with the properties we lease to them. Under the previous lease accounting guidance, these payments were excluded from rental revenue. In December 2018, the FASB issued ASU 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. This update requires us to exclude from variable lease payments, and therefore revenue and expense, costs paid by our tenants directly to third parties (a net presentation). Costs paid by us and reimbursed by our tenants are included in rental revenue and property expenses (a gross presentation) in our consolidated statements of operations. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, with the result of aligning the guidance on share-based payments to nonemployees with that for share-based payments to employees, with certain exceptions, and eliminating the need to re-value awards to nonemployees at each balance sheet date. ASU 2018-07 is effective for annual periods, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted for companies who have previously adopted ASU 2017-09. We early adopted ASU 2018-07 effective July 1, 2018 for accounting for our liability-classified non-employee awards that had not vested as of that date. No adjustment to our retained earnings was required as a result of the adoption of ASU 2018-07. 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 the interest rate swaps that we entered into in 2019. As we did not have other derivatives outstanding at the time of adoption, no prior period adjustments were required. Pursuant to the provisions of 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 are currently evaluating the impact of adopting ASU 2018-13 on our related disclosures. In February 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) establishing ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as amended by subsequent ASUs on the topic. ASU 2016-13 changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. The adoption will not materially impact our consolidated financial statements with an adjustment to beginning retained earnings of less than 0.50% of our total loan portfolio. Additionally, the adoption had no material impact on our internal control framework. Results of Operations The following discussion includes the changes in the results of the Company’s and the Predecessor’s operations collectively for the years ended December 31, 2019 and 2018. A discussion of the changes in our results of operations for the years ended December 31, 2018 and 2017 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, 2018 and 2017” in our Annual Report on Form 10-K for the year ended December 31, 2018. 58 Comparison of the years ended December 31, 2019 and 2018 (dollar amounts in thousands) Revenues: Year ended December 31, 2018 2019 Change % Rental revenue Interest income on loans and direct financing lease receivables Other revenue, net $ Total revenues 135,670 $ 3,024 663 139,357 94,944 $ 656 623 96,223 Expenses: Interest General and administrative Property expenses Depreciation and amortization Provision for impairment of real estate Total expenses Other operating income: Gain on dispositions of real estate, net Income from operations Other (loss)/income: Loss on repurchase of secured borrowings Interest Income before income tax expense Income tax expense Net income Net income attributable to non-controlling interests Net income attributable to stockholders and members $ Revenues: 27,037 21,745 3,070 42,745 2,918 97,515 10,932 52,774 (5,240) 794 48,328 303 48,025 (6,181) 41,844 $ 30,192 13,762 1,980 31,352 4,503 81,789 5,445 19,879 — 930 20,809 195 20,614 (5,001) 15,613 $ 40,726 2,368 40 43,134 (3,155) 7,983 1,090 11,393 (1,585) 15,726 5,487 32,895 (5,240) (136) 27,519 108 27,411 (1,180) 26,231 42.9% 361.0% 6.4% 44.8% -10.4% 58.0% 55.1% 36.3% -35.2% 19.2% 100.8% 165.5% — -14.6% 132.2% 55.4% 133.0% 23.6% 168.0% Rental revenue. Rental revenue increased by $40.7 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018. The increase in revenues period over period 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 677 properties, representing $1.4 billion in net investments in real estate, as of December 31, 2018 to 1,000 properties, representing $1.9 billion in net investments in real estate, as of December 31, 2019. Our real estate investments were made throughout the periods presented and were not all outstanding for the entire period; accordingly, a significant portion of the increase in revenues between periods is related to recognizing revenue in 2019 on acquisitions that were made during 2018. A smaller component of the increase in revenues between periods is related to rent escalations recognized on our lease contracts; these rent increases can be a source of revenue growth. Interest on loans and direct financing lease receivables. Interest on loans and direct financing lease receivables increased by $2.4 million during the year ended December 31, 2019, as compared to the year ended December 31, 2018, primarily due to our investments in loans receivable beginning in 2018 and additional investments in loans receivable during 2019, which led to a higher average daily balance of loans receivable outstanding during year ended December 31, 2019. Other revenue. Other revenue for the year ended December 31, 2019, increased by approximately $40,000, as compared to year ended December 31, 2018, 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, 2018. 59       Expenses: Interest expense. Interest expense decreased by $3.2 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018. In May 2019, the Company borrowed the entire amount available under its April 2019 Term Loan and used the proceeds to repurchase Master Trust Funding notes with a face value of $200 million. The repurchase and retirement of Master Trust Funding notes resulted in a decrease of $6.2 million in cash interest expense and a $0.8 million decrease of amortization of deferred financing costs for the year ended December 31, 2019. In May 2019, we repurchased $200 million of Series 2016-1 Notes and in November 2019, we canceled the repurchased Series 2016-1 Notes and repaid the remaining Series 2016-1 Notes that were outstanding. Repayment of notes payable to related parties in 2018 resulted in a decrease in cash interest expense of $4.6 million for year ended December 31, 2019, as compared to the year ended December 31, 2018. These decreases were partially offset by additional borrowings under the 2018 Credit Facility (as defined below) and the Revolving Credit Facility which resulted in additional interest expense of $2.6 million and unused facility fees of $0.3 million for the year ended December 31, 2019. Borrowing of funds under the April 2019 Term Loan and November 2019 Term Loan resulted in additional cash interest expense of $4.9 million during for the year ended December 31, 2019. In addition, amortization of deferred financing costs incurred for obtaining the 2018 Credit Facility, the Amended Credit Agreement and the November 2019 Term Loan resulted in additional expenses of $0.8 million, for the year ended December 31, 2019 as compared for year ended December 31, 2018. General and administrative expenses. General and administrative expenses increased $8.0 million for the year ended December 31, 2019. as compared to the year ended December 31, 2018. This increase in general and administrative expenses was primarily due to the increased costs of operating as a public company in 2019 and operating our larger real estate portfolio, including increased equity-based compensation expense, legal fees and directors’ fees. Property expenses. Property expenses increased by $1.1 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018. The increase in property expenses was primarily due to reimbursable costs, insurance expenses and operational costs during the year ended December 31, 2019. Depreciation and amortization expense. Depreciation and amortization expense increased by $11.4 million for the year ended December 31, 2019 as compared to the year ended December 31, 2018. Depreciation and amortization expense increased in proportion to the increase in the size of our real estate portfolio.     Provision for impairment of real estate. Impairment charges on real estate investments were $2.9 million and $4.5 million, for the years ended December 31, 2019 and 2018, respectively. During the years ended December 31, 2019 and 2018, we recorded a provision for impairment of real estate at 8 and 20 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, increased by $5.5 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018. We disposed of 37 real estate properties during the year ended December 31, 2019, compared to 45 real estate properties during the year ended December 31, 2018. Other income and expenses: Loss on repurchase of secured borrowings. Loss on repurchase of secured borrowings of $5.2 million during the year ended December 31, 2019, relates to the repurchase by the Company of its Class A Series 2016-1 Notes with a face value of $200.0 million for $201.4 million. The repurchase was accounted for as a debt extinguishment and, accordingly, the Company recorded a loss on repurchase of $4.4 million, which includes the premium paid on the repurchase, 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. The Company wrote off $0.8 million related to the remaining unamortized deferred financing costs and included it in the loss related to the repurchase. Interest income. Interest income decreased by $0.1 million for the year ended December 31, 2019, as compared to the year ended December 31, 2018. The decrease in interest income was primarily due to higher average daily cash 60 balances in our interest-bearing bank accounts for, the year ended December 31, 2018 because of funds we had on hand following our IPO in June 2018. Income tax expense. Income tax expense increased by $0.1 million for the year ended December 31, 2019 , as compared to the year ended December 31, 2018. 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. Comparison of the years ended December 31, 2018 and 2017 See our Annual Report on Form 10-K for the year ended December 31, 2018, “Item 7. Management Discussion and Analysis: Results of Operations” for the comparison discussion between the years ended December 31, 2018 and 2017. 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. 61 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: (in thousands) Net income Depreciation and amortization of real estate Provision for impairment of real estate Gain on dispositions of real estate, net $ FFO attributable to stockholders and members and non-controlling interests Other non-recurring expenses (1) Core FFO attributable to stockholders and members and non-controlling interests Adjustments: Straight-line rental revenue, net Non-cash interest Non-cash compensation expense Other amortization and non-cash charges Capitalized interest expense Transaction costs AFFO attributable to stockholders and members and non-controlling interests $ 2019 Year ended December 31, 2018 2017 48,025 $ 42,649 2,918 (10,932) 82,660 7,988 20,614 $ 31,335 4,503 (5,445) 51,007 — 90,648 51,007 (12,215) 2,738 4,546 824 (290) — 86,251 $ (8,214) 2,798 2,440 579 (225) 57 48,442 $ 6,296 19,513 2,377 (6,748) 21,438 — 21,438 (4,254) 1,884 841 670 (242) — 20,337 (1) Includes non-recurring expenses of $2.4 million for costs and charges incurred in connection with the Eldridge secondary offering, our $5.2 million loss on repurchase and retirement 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. 62           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: (in thousands) Net income Depreciation and amortization Interest expense Interest income Income tax expense $ EBITDA attributable to stockholders and members and non-controlling interests Provision for impairment of real estate Gain on dispositions of real estate, net 2019 Year ended December 31, 2018 2017 48,025 $ 42,745 27,037 (794) 303 117,316 2,918 (10,932) 20,614 $ 31,352 30,192 (930) 195 81,423 4,503 (5,445) EBITDAre attributable to stockholders and members and non-controlling interests $ 109,302 $ 80,481 $ 6,296 19,516 22,574 (49) 161 48,498 2,377 (6,748) 44,127 We further adjust EBITDAre for the most recently completed quarter i) based on an estimate calculated as if all 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, 2019: (in thousands) Net income Depreciation and amortization Interest expense Interest income Income tax expense EBITDA attributable to stockholders and members and non-controlling interests Provision for impairment of real estate Gain on dispositions of real estate, net EBITDAre attributable to stockholders and members and non-controlling interests Adjustment for current quarter acquisition and disposition activity (1) Adjustment to exclude other non-recurring expenses Adjustment to exclude lease termination fees and certain percentage rent (2) Adjusted EBITDAre attributable to stockholders and members and non-controlling interests Annualized Adjusted EBITDAre attributable to stockholders and members and non-controlling interests Three months ended December 31, 2019 14,626 12,378 6,963 (71) 94 33,990 997 (2,695) 32,292 2,121 1,428 (19) 35,822 143,288 $ $ $ (1) (2) Adjustment assumes all investments and dispositions of real estate investments made during the three months ended December 31, 2019 had occurred on October 1, 2019. Adjustment excludes contingent rent (based on a percentage of the tenant’s gross sales at the leased property) where payment is subject to exceeding a sales threshold specified in the lease. 63             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: (in thousands) Secured borrowings, net of deferred financing costs Unsecured term loan, net of deferred financing costs Revolving credit facility Total debt Deferred financing costs, net Gross debt Cash and cash equivalents Restricted cash deposits held for the benefit of lenders Net debt December 31, 2019 2018 $ $ 235,336 $ 445,586 46,000 726,922 8,181 735,103 (8,304) (13,015) 713,784 $ 506,116 — 34,000 540,116 9,004 549,120 (4,236) (12,003) 532,881 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: (in thousands) Net income Interest expense General and administrative expense Depreciation and amortization Loss on repurchase of secured borrowings Provision for impairment of real estate Interest income Income tax expense (benefit) Gain on dispositions of real estate, net NOI attributable to stockholders and members and non-controlling interests Straight-line rental revenue, net Other amortization and non-cash charges 2019 Year ended December 31, 2018 2017 $ 48,025 $ 27,037 21,745 42,745 5,240 2,918 (794) 303 (10,932) 136,287 (12,215) 815 20,614 $ 30,192 13,762 31,352 — 4,503 (930) 195 (5,445) 94,243 (8,214) 500 Cash NOI attributable to stockholders and members and non-controlling interests $ 124,887 $ 86,529 $ 64 6,296 22,574 8,775 19,516 — 2,377 (49) 161 (6,748) 52,902 (4,254) 670 49,318               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. As of December 31, 2019, we had $239.1 million of principal outstanding under our Master Trust Funding Program, which bears interest at a weighted average fixed rate of 4.17% per annum as of such date and had $450.0 million of combined principal outstanding on the April 2019 Term Loan and the November 2019 Term Loan. The variable interest rates in effect on our borrowings under the April 2019 Term Loan and November 2019 Term Loan as of December 31, 2019 were 3.00% and 3.22%,respectively. We have fixed the interest rates on the term loan facilities’ variable-rates through the use of interest rate swap agreements. At December 31, 2019, our aggregate liability in the event of the early termination of our swaps was $3.1 million. At December 31, 2019, a 100-basis point increase of the interest rate on this facility would increase our related interest costs by approximately $31,000 per year and a 100-basis point decrease of the interest rate would decrease our related interest costs by approximately $31,000 per year. Additionally, as of December 31, 2019, we had $46.0 million in borrowings outstanding under the Revolving Credit Facility, which bear interest at an annual rate equal to LIBOR plus a leverage-based credit spread of 1.30% as of such date. 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 $0.4 million as of December 31, 2019. 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 estimates of the amount and timing of future cash flows, market rates and credit spreads. During year ended December 31, 2019, we repurchased and retired an aggregate of $270.4 million of fixed-rate indebtedness issued under the Master Trust Funding Program. The following table discloses fair value information related to our fixed-rate indebtedness as of December 31, 2019: (in thousands) Secured borrowings under Master Trust Funding Program (1) Excludes net deferred financing costs of $3.8 million. 65 Carrying Value (1) Estimated Fair Value $ 239,102 $ 247,057       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, 2019 and 2018, 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, 2019 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 as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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 March 2, 2020 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 for accounting for leases in 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) relates 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. 66                       Description of the Matter How We Addressed the Matter in Our Audit Description of the Matter Impairment of Long-Lived Assets At December 31, 2019, the Company’s real estate investments totaled approximately $1.9 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, 2019, the Company recognized a $2.9 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. 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 also assessed the historical accuracy of management’s estimates and 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. Purchase Price Allocation for Acquired Real Estate Investments During 2019, the Company acquired 281 properties for an aggregate purchase price of $598.1 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 process to 67             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 March 2, 2020 68       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, 2019, 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, 2019, 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, 2019 and 2018, 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, 2019 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 March 2, 2020 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 March 2, 2020 69                             ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2019 2018 ASSETS Investments: Real estate investments, at cost: Land and improvements Building and improvements Lease incentives Construction in progress Intangible lease assets Total real estate investments, at cost Less: accumulated depreciation and amortization Total real estate investments, net Loans and direct financing lease receivables, net Real estate investments held for sale, net Net investments Cash and cash equivalents Restricted cash Straight-line rent receivable, net Prepaid expenses and other assets, net Total assets (1) LIABILITIES AND EQUITY Secured borrowings, net of deferred financing costs Unsecured term loans, net of deferred financing costs Revolving credit facility Intangible lease liabilities, net Dividend payable Accrued liabilities and other payables Total liabilities (1) Commitments and contingencies (see Note 12) Stockholders' equity: Preferred stock, $0.01 par value; 150,000,000 authorized; none issued and outstanding as of December 31, 2019 and 2018 Common stock, $0.01 par value; 500,000,000 authorized; 83,761,151 and 43,749,092 issued and outstanding as of December 31, 2019 and 2018, respectively Additional paid-in capital Distributions in excess of cumulative earnings Accumulated other comprehensive loss Total stockholders' equity Non-controlling interests Total equity Total liabilities and equity $ $ $ $ 588,279 $ 1,224,682 4,908 12,128 78,922 1,908,919 (90,071) 1,818,848 92,184 1,211 1,912,243 8,304 13,015 25,926 15,959 1,975,447 $ 235,336 $ 445,586 46,000 9,564 19,395 17,453 773,334 — 420,848 885,656 2,794 1,325 66,421 1,377,044 (51,855) 1,325,189 17,505 — 1,342,694 4,236 12,003 14,255 7,712 1,380,900 506,116 — 34,000 11,616 13,189 4,938 569,859 — — — 838 1,223,043 (27,482) (1,949) 1,194,450 7,663 1,202,113 1,975,447 $ 431 569,407 (7,659) — 562,179 248,862 811,041 1,380,900 (1) The consolidated balance sheets of Essential Properties Realty Trust, Inc. include assets and liabilities of consolidated variable interest entities (“VIEs”). See Notes 2 and 6. As of December 31, 2019 and 2018, all of the assets and liabilities of the Company were held by its operating partnership, a consolidated VIE, with the exception of $19.3 million and $9.2 million, respectively, of dividends payable. The accompanying notes are an integral part of these consolidated financial statements. 70           ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations (In thousands, except share and per share data) 2019 Year ended December 31, 2018 2017 Revenues: Rental revenue Interest on loans and direct financing lease receivables Other revenue Total revenues Expenses: Interest (including $4,603 and $3,478 to related parties during the years ended December 31, 2018 and 2017, respectively) General and administrative Property expenses Depreciation and amortization Provision for impairment of real estate Total expenses Other operating income: Gain on dispositions of real estate, net Income from operations Other (loss)/income: Loss on repurchase and retirement of secured borrowings Interest Income before income tax expense Income tax expense Net income Net income attributable to non-controlling interests Net income attributable to stockholders and members Basic weighted average shares outstanding Basic net income per share Diluted weighted average shares outstanding Diluted net income per share $ $ $ $ 135,670 $ 3,024 663 139,357 27,037 21,745 3,070 42,745 2,918 97,515 10,932 52,774 (5,240) 794 48,328 303 48,025 (6,181) 41,844 $ 94,944 $ 656 623 96,223 30,192 13,762 1,980 31,352 4,503 81,789 5,445 19,879 — 930 20,809 195 20,614 (5,001) 15,613 $ 53,373 293 783 54,449 22,574 8,775 1,547 19,516 2,377 54,789 6,748 6,408 — 49 6,457 161 6,296 — 6,296 Year ended December 31, 2019 Period from June 25, 2018 to December 31, 2018 64,104,058 0.65 $ 75,309,896 0.63 $ 42,634,678 0.26 61,765,957 0.26 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 Comprehensive Income (In thousands) Net income Other comprehensive loss: Unrealized loss on cash flow hedges Cash flow hedge gains reclassified to interest expense Total other comprehensive loss Comprehensive income Net income attributable to non-controlling interests Adjustment for cash flow hedge losses attributable to non-controlling interests Comprehensive income attributable to stockholders and members $ $ Year ended December 31, 2019 2018 2017 48,025 $ 20,614 $ (2,799) (106) (2,905) 45,120 (6,181) 956 39,895 $ — — — 20,614 (5,001) — 15,613 $ 6,296 — — — 6,296 — — 6,296 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 Stockholders’/Members’ Equity (in thousands, except share data) Common Stock Number of Shares Par Value Additional Paid-In Capital Distributions in Excess of Cumulative Earnings Accumulated Other Comprehensive Income (Loss) SCF Funding LLC Class A Units Class B Class C Class D Units Units Units Total Stockholders' / Members' Equity Non- Controlling Interests Total Equity — — 35,272,191 353 — $ — $ — — — — — — — — — — — — — — — — — — — — Balance at December 31, 2016 Contributions Distributions Conversion of equity resulting from issuance of units Unit compensation expense Net income Balance at December 31, 2017 Contributions Unit compensation expense Net income Balance at June 24, 2018 Contribution of Predecessor equity in exchange for OP Units Initial public offering Concurrent private placement of common stock 7,785,611 Concurrent private placement of OP Units Costs related to initial public offering Share-based compensation expense Unit-based compensation expense Dividends declared on common stock and OP Units Net income Balance at December 31, 2018 Common stock issuance Costs related to issuance of common stock Conversion of equity in Secondary Offering Unrealized losses on cash flow hedges Cash flow hedge gains reclassified to interest expense Share-based compensation expense Unit-based compensation expense Dividends declared on common stock and OP Units Net income Balance at December 31, 2019 46,368 — — — — 691,290 — — — — — — — 43,749,092 431 21,462,986 215 — — 18,502,705 185 — — — — — $ — — — $ — — — $ 174,650 $ 17,308 — (101,222 ) — — $ 83,700 — — $ — — — $ — — — $ — — 174,650 $ 101,008 (101,222 ) — $ — — 174,650 101,008 (101,222 ) — — — (90,823 ) — — 90,823 — — — — — — — — — — — — 493,458 — — — — — — — — — — — — — — — — — — — 87 — 2,968 574 — — 3,241 96 — 670 6,296 — — 670 6,296 — — 86,668 50,000 574 94,064 — — 96 — 181,402 50,000 — — 181,402 50,000 — — — 2,414 373 — — 1,871 70 — 443 4,285 — — 443 4,285 — 139,082 947 95,935 166 236,130 — 236,130 — (139,082 ) (947 ) (95,935 ) (166 ) (236,130 ) 236,130 — — — — — — 493,811 — 493,811 78 108,921 — — — — — — — 108,999 — 108,999 — — — — — — — — — 16,001 16,001 (35,107 ) — — — — — — — (35,107 ) — (35,107 ) 1,692 — — — — — — — 1,692 — 1,692 443 — — — — — — — 443 — 443 — — (18,987 ) 11,328 569,407 (7,659 ) 423,472 — — — — — — — — — — — — — — — — — (18,987 ) 11,328 (8,270 ) 5,001 (27,257 ) 16,329 — — — — 562,179 248,862 811,041 — — — — 423,687 — 423,687 (13,901 ) — — — — — — — (13,901 ) — (13,901 ) 237,795 — — — — — — — 237,980 (237,980 ) — — — (1,868 ) — — — — — (1,868 ) (931 ) (2,799 ) — — (81 ) — — — — — (81 ) (25 ) (106 ) 7 4,108 — — — — — — — 4,115 — 4,115 — — — — — — 2,162 — — — — — — — 2,162 — 2,162 — — (61,667 ) 41,844 — — — — — — — — — — — — (61,667 ) 41,844 (8,444 ) 6,181 (70,111 ) 48,025 83,761,151 $ 838 $ 1,223,043 $ (27,482 ) $ (1,949 ) $ — $ — $ — $ — $ — $ 1,194,450 $ 7,663 $ 1,202,113 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 Cash Flows (In thousands) Cash flows from operating activities: Net income Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization Amortization of lease incentive Amortization of above/below market leases and right of use assets, net Amortization of deferred financing costs and other assets Loss on repurchase and retirement of secured borrowings Provision for impairment of real estate Gain on dispositions of investments, net Straight-line rent receivable Equity-based compensation expense Adjustment to rental revenue for tenant credit/allowance for doubtful accounts Changes in other assets and liabilities: Prepaid expenses and other assets Accrued liabilities and other payables Net cash provided by operating activities Cash flows from investing activities: Proceeds from sales of investments, net Principal collections on loans and direct financing lease receivables Investments in loans receivable Deposits for prospective real estate investments Investment in real estate, including capital expenditures Investment in construction in progress Lease incentives paid Net cash used in investing activities Cash flows from financing activities: Proceeds from issuance of notes payable to related parties Payments of principal on notes payable to related parties Proceeds from secured borrowings Repurchase and repayment of secured borrowings Principal received on repurchased secured borrowings Borrowings under term loan facilities Borrowings under revolving credit facility Repayments under revolving credit facility Deferred financing costs Capital contributions by members in Predecessor Distributions paid to members by Predecessor Proceeds from issuance of common stock, net Offering costs Proceeds from concurrent private placement of OP Units Proceeds from concurrent private placement of common stock Dividends paid Net cash provided by financing activities Net increase (decrease) in cash and cash equivalents and restricted cash Cash and cash equivalents and restricted cash, beginning of period Cash and cash equivalents and restricted cash, end of period Reconciliation of cash and cash equivalents and restricted cash: Cash and cash equivalents Restricted cash Cash and cash equivalents and restricted cash, end of period 2019 Year ended December 31, 2018 2017 $ 48,025 $ 20,614 $ 6,296 42,745 282 534 2,815 5,240 2,918 (10,932) (12,322) 6,238 593 1,242 1,190 88,568 66,765 9,519 (94,637) 530 (570,025) (17,858) (2,133) (607,839) — — — (279,123) 1,707 450,000 459,000 (447,000) (6,128) — — 411,635 (1,837) — — (63,903) 524,351 5,080 16,239 21,319 8,304 13,015 21,319 $ $ $ 31,352 159 336 2,798 — 4,503 (5,445) (8,812) 2,440 385 (767) (1,646) 45,917 60,446 74 (14,854) (1,712) (490,040) (15,258) (519) (461,863) 154,000 (384,000) — (7,816) — — 34,000 — (3,065) 50,000 — 464,182 (5,478) 16,001 108,999 (14,068) 412,755 (3,191) 19,430 16,239 $ 4,236 $ 12,003 16,239 $ 19,516 139 531 1,884 — 2,377 (6,749) (4,329) 841 148 (2,301) 4,121 22,474 53,626 79 — (251) (509,825) (7,737) (275) (464,383) 543,000 (313,000) 248,100 (5,597) — — — — (5,564) 83,700 (101,222) — — — — — 449,417 7,508 11,922 19,430 7,250 12,180 19,430 $ $ $ 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 (continued) (In thousands) Supplemental disclosure of cash flow information: Cash paid for interest, net of amounts capitalized Cash paid for income taxes Non-cash investing and financing activities: Reclassification from construction in progress upon project completion Net settlement of proceeds on the purchase and sale of investments Non-cash investments in real estate and loan receivable activity Lease liabilities arising from the recognition of right of use assets Unrealized losses on cash flow hedges Non-cash equity contributions Real estate investments acquired through direct equity investment Contribution of Predecessor equity in exchange for OP Units Conversion of equity in Secondary Offering Payable and accrued offering costs Discounts and fees on capital raised through issuance of common stock Payable and accrued deferred financing costs Dividends declared $ $ 2019 Year ended December 31, 2018 2017 $ $ 29,485 60 7,055 4,960 10,439 8,355 2,905 — — — 237,795 66 12,048 126 19,395 27,901 $ 55 18,009 $ — — — — — — 236,130 — — 29,629 — 13,189 20,439 6 4,618 — — — — 17,308 (17,308) — — — — — — The accompanying notes are an integral part of these consolidated financial statements. 75           Notes to Consolidated Financial Statements December 31, 2019 1. Organization Essential Properties Realty Trust, Inc. (“EPRT Inc.” or 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. EPRT Inc. generally acquires 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. EPRT Inc. was organized on January 12, 2018 as a Maryland corporation. It has 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. On June 25, 2018, EPRT Inc. completed the initial public offering (“IPO”) of its common stock. The common stock of EPRT Inc. is listed on the New York Stock Exchange under the ticker symbol “EPRT”. See Note 8 – Equity for additional information. 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. In the opinion of management, all adjustments of a normal recurring nature necessary for a fair presentation have been included. Reclassification Certain amounts previously reported in the consolidated financial statements have been reclassified in the accompanying consolidated financial statements to conform to the current period’s presentation of gain on dispositions of real estate, net on the consolidated statement of operations and comprehensive income for the year ended December 31, 2017. The Company has presented gain on dispositions of real estate, net as a component of income from operations in order to present gains and losses on dispositions of properties in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) 360-10-45-5. This change in presentation was made for the prior periods as the SEC has eliminated Rule 3-15(a) of Regulation S-X, which previously had required the Company to present gains and losses on sale of properties outside of continuing operations in the Company’s consolidated statements of operations. Additionally, certain amounts previously reported in the consolidated statements of operations have been reclassified to conform to the current period’s presentation of rental revenue (due to the adoption of the new lease accounting standard, as discussed further below), interest income and income tax expense. 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, 2019 and 2018, the Company held a 98.3% and 69.7% 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 8—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. 76 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”) 2017-01, 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. The Company allocates the purchase price of acquired properties accounted for as asset acquisitions to tangible and identifiable intangible assets or liabilities based on their relative fair values. Tangible assets may include land, site improvements and buildings. Intangible assets may include the value of in- place leases and above- and below-market leases and other identifiable intangible assets or liabilities based on lease or property specific characteristics. The Company incurs various costs in the leasing and development of its properties. Amounts paid to tenants that incentivize them to extend or otherwise amend an existing lease or to sign a new lease agreement are capitalized to lease incentives on the Company’s consolidated balance sheets. Tenant improvements are capitalized to building and improvements within the Company’s consolidated balance sheets. Costs incurred which are directly related to properties under development, which include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs and real estate taxes and insurance, are capitalized during the period of development as construction in progress. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that benefited. Determination of when a development project commences, and capitalization begins, and when a development project has reached substantial completion, and is available for occupancy and capitalization must cease, involves a degree of judgment. The Company does not engage in speculative real estate development. The Company does, however, opportunistically agree to reimburse certain of its tenants for development costs at its properties in exchange for contractually-specified rent that generally increases proportionally with its funding. The fair value of the tangible assets of an acquired property with an in-place operating lease is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to the tangible assets based on the fair value of the tangible assets. The fair value of in-place leases is determined by considering estimates of carrying costs during the expected lease-up periods, current market conditions, as well as costs to execute similar leases based on the specific characteristics of each tenant’s lease. The Company estimates the cost to execute leases with terms similar to the remaining lease terms of the in-place leases, including leasing commissions, legal and other related expenses. Factors the Company considers in this analysis include an estimate of the carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses, and estimates of lost rentals at market rates during the expected lease-up periods, which primarily range from six to 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. 77 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 and comprehensive income 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. During the years ended December 31, 2019, 2018 and 2017, the Company recorded $36.4 million, $24.8 million and $14.0 million, respectively, of depreciation on its real estate investments. Lease incentives are amortized on a straight-line basis as a reduction of rental income over the remaining non-cancellable terms of the respective leases. If a tenant terminates its lease, the unamortized portion of the lease incentive is charged to rental revenue. Construction in progress is not depreciated until the development has reached substantial completion. Tenant improvements are depreciated over the non-cancellable term of the related lease or their estimated useful life, whichever is shorter. Capitalized above-market lease values are amortized on a straight-line basis as a reduction of rental revenue over the remaining non-cancellable terms of the respective leases. Capitalized below-market lease values are accreted on a straight-line basis as an increase to rental revenue over the remaining non-cancellable terms of the respective leases including any below-market fixed rate renewal option periods. Capitalized above-market ground lease values are accreted as a reduction of property expenses over the remaining terms of the respective leases. Capitalized below-market ground lease values are amortized as an increase to property expenses over the remaining terms of the respective leases and any expected below-market renewal option periods where renewal is considered probable. The value of in-place leases, exclusive of the value of above-market and below-market lease intangibles, is amortized to depreciation and amortization expense on a straight-line basis over the remaining periods of the respective leases. If a tenant terminates its lease, the unamortized portion of each intangible, including in-place lease values, is charged to depreciation and amortization expense, while above- and below-market lease adjustments are recorded within rental revenue in the consolidated statements of operations and comprehensive income. 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. 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. The Company periodically evaluates the collectability of its 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 is determined to be impaired when, in management’s judgment based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Specific allowances for loan losses are provided for impaired loans on an individual loan basis in the amount by which the carrying value exceeds the estimated fair value of the underlying collateral less disposition costs. As of December 31, 2019 and 2018, the Company had no allowance for loan losses recorded in its consolidated financial statements. 78 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, 2019 and 2018, the Company determined that none of its direct financing lease receivables were impaired. Impairment of Long-Lived Assets If circumstances indicate that the carrying value of a property may not be recoverable, the Company reviews the property for impairment. This review is based on an estimate of the future undiscounted cash flows, excluding interest charges, expected to result from the property’s use and eventual disposition. These estimates consider factors such as expected future operating income, market and other applicable trends and residual value, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a property, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property for properties to be held and used. For properties held for sale, the impairment loss is the adjustment to fair value less estimated cost to dispose of the asset. Impairment assessments have a direct impact on the consolidated statements of operations, because recording an impairment loss results in an immediate negative adjustment to the consolidated statements of operations. During the years ended December 31, 2019, 2018 and 2017, the Company recorded a provision for impairment of real estate of $2.9 million, $4.5 million and $2.4 million, respectively. 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, 2019 and 2018, the Company had deposits of $8.3 million and $4.2 million, respectively, of which and $8.1 million and $4.0 million, respectively, were in excess of the amount insured by the FDIC. Although the Company bears risk 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 6—Secured Borrowings). This restricted cash is used to make principal and interest payments on the Company’s secured borrowings, to pay trust expenses and to acquire future real estate investments which will be pledged as collateral under the Master Trust Funding Program. See Note 6—Secured Borrowings for further discussion. 79 Adjustment to Rental Revenue for Tenant Credit/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. 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. As of December 31, 2018, the Company recorded an allowance for doubtful accounts of $0.2 million related to base rent receivable and recorded no allowance for doubtful accounts related to straight-line rent receivable. During the year ended December 31, 2019, the Company recognized an adjustment to rental revenue for tenant credit of $0.6 million. Deferred Financing Costs Financing costs related to establishing the Company’s 2018 Credit Facility and Revolving Credit Facility (as defined below) were deferred, 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 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 were deferred, 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 these derivative instruments is recognized immediately in gains (losses) on derivative instruments in the consolidated statements of operations. 80 Fair Value Measurement The Company estimates fair value of financial and non-financial assets and liabilities based on the framework established in fair value accounting guidance. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). The hierarchy described below prioritizes inputs to the valuation techniques used in measuring the fair value of assets and liabilities. This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring the most observable inputs to be used when available. The hierarchy is broken down into three levels based on the reliability of inputs as follows: Level 1—Quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date. Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset and liability or can be corroborated with observable market data for substantially the entire contractual term of the asset or liability. Level 3—Unobservable inputs that reflect the Company’s own assumptions that market participants would use in the pricing of the asset or liability and are consequently not based on market activity, but rather through particular valuation techniques. Revenue Recognition The Company’s rental revenue is primarily rent received from tenants. Rent from tenants is recorded in accordance with the terms of each lease on a straight-line basis over the non-cancellable initial term of the lease from the later of the date of the commencement of the lease and the date of acquisition of the property subject to the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Because substantially all of the leases provide for rental increases at specified intervals, the Company records a straight-line rent receivable and recognizes revenue on a straight-line basis through the expiration of the non-cancelable term of the lease. The Company takes into account 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. During the years ended December 31, 2019, 2018 and 2017, the Company recorded contingent rent of $0.9 million, $1.1 million, and $1.1 million, respectively. Organizational Costs Costs related to the initial organization of the Company and its subsidiaries are expensed as they are incurred and are recorded within general and administrative expense in the Company’s consolidated statements of operations. Offering Costs In connection with the IPO, the Follow-On Offering, and its ATM Program, the Company incurred legal, accounting and other offering-related costs. Such costs have been deducted from the gross proceeds of each of the IPO, the Follow-On Offering and the ATM Program. As of December 31, 2019 and 2018, the Company had capitalized $49.0 million and $35.1 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, 2019 and December 31, 2018. 81 Legal, accounting and other offering-related costs incurred in connection with the Secondary Offering were expensed as incurred and are recorded within general and administrative expense in the Company’s consolidated statements of operations. Gains and Losses on Dispositions of Real Estate Through December 31, 2017, gains and losses on dispositions of real estate investments were recorded in accordance with ASC 360-20, Property, Plant and Equipment—Real Estate Sales, and include realized proceeds from real estate disposed of in the ordinary course of business, less their related net book value and less any costs incurred in association with the disposition. On January 1, 2018, the Company adopted FASB ASU 2017-05, Other Income — Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), using the modified retrospective transition method. As leasing is the Company’s primary activity, the Company determined that its sales of real estate, which are nonfinancial assets, are sold to noncustomers and fall within the scope of ASC 610-20. The Company recognizes the full gain on the disposition of its real estate investments as the Company (i) has no controlling financial interest in the real estate and (ii) has no continuing interest or obligation with respect to the disposed real estate. The Company re-assessed and determined that there were no open contracts or partial sales and, that the adoption of ASU 2017-05 (i) did not result in a cumulative adjustment as of January 1, 2018 and (ii) did not have any impact on the Company’s consolidated financial statements. Income Taxes EPRT Inc. 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 net taxable income. Accordingly, no provision has been made for U.S. federal income taxes. Even though the Company has elected and qualifies for taxation as a REIT, it may be subject to state and local income and franchise taxes, and to federal income and excise tax on its undistributed income. Franchise taxes and federal excise taxes on the Company’s undistributed income, if any, are included in general and administrative expenses on the accompanying consolidated statements of operations. Additionally, taxable income from non-REIT activities managed through the Company's taxable REIT subsidiary is subject to federal, state, and local taxes. The Company analyzes its tax filing positions in all of the U.S. federal, state and local tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in such jurisdictions. The Company follows a two-step process to evaluate uncertain tax positions. Step one, recognition, occurs when an entity concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Step two, measurement, determines the amount of benefit that is more-likely-than-not to be realized upon settlement. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained. The use of a valuation allowance as a substitute for derecognition of tax positions is prohibited. As of December 31, 2019 and 2018, the Company did not record any accruals for uncertain tax positions. The Company’s policy is to classify interest expense and penalties in general and administrative expense in the consolidated statements of operations. During the years ended December 31, 2019 and 2018, the Company did not record any interest or penalties, and there are no interest or penalties accrued at December 31, 2019 and 2018. The 2019, 2018, 2017 and 2016 taxable years remain open to examination by federal and state taxing jurisdictions to which the Company is subject. Equity-Based Compensation In 2019 and 2018, EPRT Inc. granted shares of restricted common stock and restricted share units (“RSUs”) to its directors, executive officers and other employees that vest over multiple periods, subject to the recipient’s continued service. In 2019, EPRT Inc. granted performance-based RSUs to its 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. In 2017, the Predecessor granted unit-based compensation awards to certain of its employees and managers, as well as non-employees, consisting of units that vest over a multi-year period, subject to the 82 recipient’s continued service. The Company accounts for the restricted common stock, RSUs and unit-based compensation 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. The Company recognizes compensation expense for equity-based compensation using the straight-line method based on the terms of the individual grant. 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, the Company 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 sheet as of December 31, 2019 and December 31, 2018. As of December 31, 2018, the Company concluded that an entity which it had provided a $5.7 million mortgage loan receivable was a VIE because the terms of the loan agreement limited the entity’s ability to absorb expected losses or the entity’s right to receive expected residual returns. However, the Company was not the primary beneficiary of the entity, because the Company did not have the power to direct the activities that most significantly impact the entity’s economic performance. As of December 31, 2018, the carrying amount of the Company’s loan receivable with this entity was $5.7 million, and the Company’s maximum exposure to loss in this entity is limited to the carrying amount of its investment. The Company had no liabilities associated with this investment as of December 31, 2018. In March 2019, the borrowing entity under this mortgage loan settled the principal amount in full and the Company had no loan receivable from this entity as of December 31, 2019. As of December 31, 2019, the Company concluded that seven entities to which it had provided mortgage loans were VIEs, because the entities’ equity was not sufficient to finance their activities without additional subordinated financial support. However, the Company was not the primary beneficiary of the 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, 2019, the carrying amount of the Company’s loans receivable with these entities was $60.5 million and 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, 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. Net Income per Share Net income per share has been computed pursuant to the guidance in the FASB ASC Topic 260, Earnings Per Share. The guidance requires the classification of the Company’s unvested restricted common stock and units, which contain rights to receive non‑forfeitable dividends, 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. 83 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): (dollar amounts in thousands) Numerator for basic and diluted earnings per share: Net income Less: net income attributable to non-controlling interests Less: net income allocated to unvested restricted common stock and RSUs Net income available for common stockholders: basic Net income attributable to non-controlling interests Net income available for common stockholders: diluted Denominator for basic and diluted earnings per share: Weighted average common shares outstanding Less: weighted average number of shares of unvested restricted common stock Weighted average shares outstanding used in basic net income per share Effects of dilutive securities: (1) OP Units Unvested restricted common stock and RSUs Weighted average shares outstanding used in diluted net income per share Year Ended December 31, 2019 Period from June 25, 2018 to December 31, 2018 $ $ 48,025 (6,181) (493) 41,351 6,181 47,532 $ $ 64,714,087 (610,029) 64,104,058 10,793,700 412,138 75,309,896 16,329 (5,001) (300) 11,028 5,001 16,029 43,325,968 (691,290) 42,634,678 19,056,552 74,727 61,765,957 (1) Assumes the most dilutive issuance of potentially issuable shares between the two-class and treasury stock method unless the result would be anti- dilutive. Recent Accounting Developments In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) (“ASU 2016-02”) to amend the accounting for leases. This standard requires lessees to classify leases as either finance or operating leases based on certain criteria and record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months, regardless of their classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to the previous guidance for sales-type leases, direct financing leases and operating leases. The standard also eliminates current real estate-specific provisions and changes the guidance on sale-leaseback transactions, initial direct costs, lease modifications and lease executory costs for all entities. Certain changes to the guidance pertaining to sale-leaseback transactions may impact the Company. For example, the inclusion of a purchase option in the lease associated with a sale-leaseback transaction will now result in the lessor accounting for such transaction as a financing arrangement. ASU 2016-02 was effective for the Company on January 1, 2019 and, in accordance with the provisions of ASU 2018-11, Leases (Topic 842), Targeted Improvements, was adopted by the Company using the modified retrospective approach as of the beginning of the period of adoption. There was no impact to retained earnings at the time of adoption and, therefore, no cumulative-effect adjustment was recorded. At the time of adoption, both lessees and lessors are permitted to make an election to apply a package of practical expedients available for implementation under the standard. The Company applied this package of practical expedients and, as such, at the time of adoption did not reassess the classification of existing lease contracts, whether existing or expired contracts contain a lease or whether a portion of initial direct costs for existing leases should have been expensed. In addition, the Company adopted the practical expedient provided in ASU 2018-11 that allows lessors to not separate non-lease components from the related lease components. The Company made this determination as the timing and pattern of transfer for the lease and non-lease components associated with its leases are the same and the lease components, if accounted for separately, would be classified as operating leases in accordance with ASC 842. The accounting applied by a lessor is largely unchanged under ASU 2016-02; however, the standard requires that lessors expense, on an as-incurred basis, certain initial direct costs that are not incremental in obtaining a lease. Under the previous standards, certain of these costs were capitalizable. Although primarily a lessor, the Company is also a lessee under several ground lease arrangements and under its corporate office and office equipment leases. The Company completed its inventory and evaluation of these leases, calculated a right-of-use asset and a lease liability for the present value of the minimum lease payments and recognized an initial $4.8 million right-of-use asset and lease liability upon adoption on January 1, 2019. For a portion of the Company’s ground lease arrangements, the sublessees, or the Company’s tenants, are responsible for making payment directly to the ground lessors. Prior to the new standard such amounts were presented on a net basis; however, upon adoption of ASU 2016-02 the expense related to the ground lease obligations, along with the related sublease revenues, is presented on a gross basis in the consolidated statements 84     of operations. ASU 2016-02 also requires additional disclosures within the notes accompanying the consolidated financial statements. Substantially all of the Company’s lease contracts (under which the Company is the lessor) are “triple-net” leases, which means that its tenants are responsible for making payments to third parties for operating expenses such as property taxes and insurance costs associated with the properties the Company leases to them. Under the previous lease accounting guidance, these payments were excluded from rental revenue. In December 2018, the FASB issued ASU 2018-20 Leases (Topic 842), Narrow-Scope Improvements for Lessors. This update requires the Company to exclude from variable lease payments, and therefore revenue and expense, costs paid by its tenants directly to third parties (a net presentation). Costs paid by the Company and reimbursed by its tenants are included in rental revenue and property expenses (a gross presentation) in the Company’s consolidated statements of operations. In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees, with the result of aligning the guidance on share-based payments to nonemployees with that for share-based payments to employees, with certain exceptions, and eliminating the need to re-value awards to nonemployees at each balance sheet date. ASU 2018-07 is effective for annual periods, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted for companies who have previously adopted ASU 2017-09. The Company early adopted ASU 2018-07 effective July 1, 2018 for accounting for its liability-classified non-employee awards that had not vested as of that date. No adjustment to the Company’s retained earnings was required as a result of the adoption of ASU 2018-07. 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 interest rate swaps, see Note 5. 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 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. The Company is currently evaluating the impact of adopting ASU 2018-13 on its related disclosures. In February 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) establishing ASC Topic 326, Financial Instruments - Credit Losses (“ASC 326”), as amended by subsequent ASUs on the topic. ASU 2016-13 changes how entities will account for credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The guidance replaces the current “incurred loss” model with an “expected loss” model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the financial asset. ASU 2016-13 is effective for interim and annual reporting periods in fiscal years beginning after December 15, 2019. The adoption will not materially impact the Company’s consolidated financial statements with an adjustment to beginning retained earnings of less than 0.50% of our total loan portfolio. 3. Investments As of December 31, 2019, the Company had investments in 1,000 properties, including eight developments in progress and one undeveloped land parcel. Of these 1,000 properties, 897 represented owned properties (of which eight were subject to leases accounted for as direct financing leases or loans), 12 represented ground lease interests (of which one building was subject to a lease accounted for as a direct financing lease) and 91 represented properties which secure the Company’s investments in six mortgage loans receivable. The Company’s gross investment portfolio totaled $2.0 billion as of December 31, 2019 and consisted of gross acquisition cost of real estate investments (including transaction costs) totaling $1.9 billion and loans and direct financing lease receivables, net, with an aggregate carrying amount of $92.2 million. As of December 31, 2019, 355 of these investments, comprising $601.3 million of net 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 6—Secured Borrowings). 85 As of December 31, 2018, the Company had investments in 665 properties, including four developments in progress and one undeveloped land parcel, and three mortgage loans receivable secured by 12 additional properties. Of these 665 properties, 652 represented owned properties (of which five were subject to leases accounted for as direct financing leases) and 13 represented ground lease interests (of which one building was subject to a lease accounted for as a direct financing lease). The Company’s gross investment portfolio totaled $1.4 billion as of December 31, 2018 and consisted of gross acquisition cost of real estate investments (including transaction costs) totaling $1.4 billion and loans and direct financing lease receivables, net, with an aggregate carrying amount of $17.5 million. As of December 31, 2018, 347 of these investments comprising $609.2 million of net investments were assets of consolidated special purpose entity subsidiaries and were pledged as collateral under the non-recourse obligations of these special purpose entities (See Note 6—Secured Borrowings). Acquisitions in 2019 During the year ended December 31, 2019, the Company did not have any acquisitions that represented more than 5% of the Company’s total investment activity as of December 31, 2019. The following table presents information about the Company’s acquisition activity during the year ended December 31, 2019: (Dollar amounts in thousands) Ownership type Number of properties acquired Allocation of purchase price: Land and improvements Building and improvements Construction in progress (2) Intangible lease assets Assets acquired Intangible lease liabilities Liabilities assumed Purchase price (including acquisition costs) Total Investments (1)  281 191,311 370,312 17,858 18,802 598,283 (188) (188) 598,095 $ $ (1) (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. Represents amounts incurred at and subsequent to acquisition and includes approximately $0.3 million of capitalized interest expense. Acquisitions in 2018 During the year ended December 31, 2019, the Company did not complete any acquisitions that represented more than 5% of its total investment activity as of December 31, 2018. The following table presents information about the Company’s acquisition activity during the year ended December 31, 2018: (Dollar amounts in thousands) Ownership type Number of properties acquired Allocation of purchase price: Land and improvements Building and improvements Construction in progress (2) Intangible lease assets Assets acquired Intangible lease liabilities Liabilities assumed Purchase price (including acquisition costs) 86 Total Investments (1)  204 160,362 316,894 15,258 12,227 504,741 (1,132) (1,132) 503,609 $ $             (1) (2) During the year ended December 31, 2018, the Company acquired the fee interest in 203 properties and acquired one property subject to a ground lease arrangement. Represents amounts incurred at and subsequent to acquisition and includes $0.2 million of capitalized interest expense. Gross Investment Activity During the years ended December 31, 2019, 2018 and 2017, the Company had the following gross investment activity: (Dollar amounts in thousands) Gross investments, December 31, 2016 Acquisitions of and additions to real estate investments Sales of investments in real estate and direct financing lease receivables Relinquishment of property at end of ground lease term Provisions for impairment of real estate (1) Principal collections on direct financing lease receivables Other Gross investments, December 31, 2017 Acquisitions of and additions to real estate investments Sales of investments in real estate Relinquishment of properties at end of ground lease term Provisions for impairment of real estate (2) Investments in loans receivable (5) Principal collections on direct financing lease receivables Other Gross investments, December 31, 2018 Acquisitions of and additions to real estate investments Sales of investments in real estate Relinquishment of properties at end of ground lease term Provisions for impairment of real estate (3) Investments in loans receivable Principal collections on and settlements of loans and direct financing lease receivables (6) Other Gross investments, December 31, 2019 Less: Accumulated depreciation and amortization (7) Net investments, December 31, 2019 Number of Investment Locations Dollar Amount of Investments 344 $ 212 (47) (1) 508 $ 204 (45) (2) 12(4)  677 $ 281 (37) (3) 95 (13) 1,000 $ 458,667 535,394 (51,120) (542) (2,466) (79) (782) 939,072 506,949 (58,084) (853) (4,543) 14,854 (74) (2,772) 1,394,549 603,677 (65,571) (700) (2,918) 94,637 (19,958) (1,402) 2,002,314 (90,071) 1,912,243 (1) (2) (3) (4) (5) (6) (7) During the year ended December 31, 2017, the Company identified and recorded provisions for impairment at 6 vacant and 3 tenanted properties. The amount in the table above excludes $0.1 million related to intangible lease liabilities for these assets. 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 approximately $40,000 related to intangible lease liabilities for these assets. During the year ended December 31, 2019, the Company identified and recorded provisions for impairment at 1 vacant and 7 tenanted properties. 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. Includes $3.5 million of loan receivable made to the purchaser of one real estate property as of December 31, 2018. During the year ended December 31, 2019, the Company acquired 11 properties that had secured three of its loans receivable for an aggregate purchase price of $12.9 million. These loans receivable had a carrying value of $11.6 million prior to their settlement. Includes $71.6 million of accumulated depreciation as of December 31, 2019. 87     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 11—Leases for more information about the Company’s leases. Loans and Direct Financing Lease Receivables During the years ended December 31, 2019 and 2018, the Company has seven and four loan receivable outstanding, with an aggregate carrying amount of $89.6 million and $14.9 million, respectively. The Company had no loan receivable activity during the year ended December 31, 2017. The maximum amount of loss due to credit risk is our current principal balance of $89.6 million. During the year ended December 31, 2019 the borrowers under four of the Company’s loans receivable, with carrying values of $2.4 million, $5.7 million, $3.5 million and $3.4 million, settled or repaid the loans in full. Additionally, the borrower under one of the Company’s loans receivable, with a maturity date in 2039, made a partial prepayment to the Company of $4.8 million during 2019. The Company also entered into seven arrangements accounted for as loans receivable during the year ended December 31, 2019 with an aggregate carrying value of $89.6 million as of December 31, 2019. The Company’s loans receivable as of December 31, 2019 are summarized below (dollars in thousands): Loan Type Mortgage (1)(2) Mortgage (1) Mortgage (1)(2) Mortgage (1)(2) Mortgage (2) Mortgage (1) Mortgage (1) Mortgage (1) Development construction (2) (3) Leasehold interest (4) Leasehold interest (5) Net investment Monthly Payment Interest only Interest only Interest only Interest only Principal + Interest Interest only Interest only Principal + Interest Principal + Interest Principal + Interest Principal + Interest Number of Secured Properties Interest Rate 10.00% 7.55% 5.25% 8.80% 8.10% 8.53% 8.16% 8.05% 8.00% 10.69% 2.25% 2 2 2 69 18 (4) 1 Maturity Date 2021 2019 2019 2039 2059 2039 2034 2034 2058 2039 2034 $ $ Principal Balance Outstanding, December 31, 2019 2018 — $ — — 12,000 5,125 7,300 28,000 34,604 — 1,435 1,164 89,628 $ 2,376 5,748 3,500 — — — — — 3,230 — — 14,854 (1) (2) (3) (4) (5) Loan requires monthly payments of interest only with a balloon payment due at maturity. Loan allows for prepayments in whole or in part without penalty. Loan was secured by a mortgage on the building and improvements at the development property. The Company provided periodic funding to the borrower under this arrangement as construction progressed. This leasehold interest transaction is accounted for as a loan receivable, as the lease for two land parcels contains an option for the lessee to repurchase the leased assets in 2024 or 2025. This leasehold interest transaction is accounted for as a loan receivable, as the lease for one property contains an option for the lessee to repurchase the leased asset in 2034. 88                         Scheduled principal payments due to be received under the Company’s loans receivable as of December 31, 2019 are as follows: (in thousands) 2020 2021 2022 2023 2024 Thereafter Total $ $ Loans Receivable As of December 31, 2019 and 2018, the Company had $2.6 million and $2.7 million of net investments accounted for as direct financing lease receivables. The components of the investments accounted for as direct financing lease receivables were as follows: (in thousands) Minimum lease payments receivable Estimated unguaranteed residual value of leased assets Unearned income from leased assets Net investment December 31, 2019 2018 $ $ 3,866 $ 270 (1,581) 2,555 $ 63 77 82 87 92 89,227 89,628 4,198 270 (1,817) 2,651 Scheduled future minimum non-cancelable base rental payments due to be received under the direct financing lease receivables as of December 31, 2019 are as follows: (in thousands) 2020 2021 2022 2023 2024 Thereafter Total Future Minimum Base Rental Payments 337 340 345 347 289 2,208 3,866 $ $ 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, 2019 and 2018. (Dollar amounts in thousands) Held for sale balance, December 31, 2017 Transfers to held for sale classification Sales Transfers to held and used classification Held for sale balance, December 31, 2018 Transfers to held for sale classification Sales Transfers to held and used classification Held for sale balance, December 31, 2019 89 Number of Properties Real Estate Investments Intangible Lease Liabilities Net Carrying Value 3 $ 12 (15) — — 5 (4) — 1 $ $ 4,173 $ 14,487 (18,660) — — 7,450 (6,239) — 1,211 $ (129) $ (256) 385 — — $ $ — — — 4,044 14,231 (18,275) — — 7,450 (6,239) — 1,211                   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, 2019, 2018 or 2017 represented 10% or more of total rental revenue in the Company’s consolidated statements of operations. The following table lists the states where the rental revenue from the properties in that state during the periods presented represented 10% or more of total rental revenue in the Company’s consolidated statements of operations: State Texas Georgia Florida 2019 12.4% 10.8% * Year ended December 31, 2018 12.5% 11.5% * 2017 13.1% * 10.2% * State's rental revenue was not greater than 10% of total rental revenue for all portfolio properties during the period specified. Intangible Assets and Liabilities Intangible assets and liabilities consisted of the following as of the dates presented: (in thousands) Intangible assets: In-place leases Intangible market lease assets Total intangible assets December 31, 2019 December 31, 2018 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount $ $ 64,828 $ 14,094 78,922 $ 14,195 $ 4,228 18,423 $ 50,633 $ 9,866 60,499 $ 50,317 $ 16,104 66,421 $ 9,498 $ 4,144 13,642 $ 40,819 11,960 52,779 Intangible market lease liabilities $ 12,054 $ 2,490 $ 9,564 $ 14,894 $ 3,278 $ 11,616 The remaining weighted average amortization period for the Company’s intangible assets and liabilities as of December 31, 2019, by category and in total, were as follows: In-place leases Intangible market lease assets Total intangible assets Intangible market lease liabilities Years Remaining 9.8 14.2 10.6 17.1 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: (in thousands) Amortization of in-place leases (1) Amortization (accretion) of market lease intangibles, net (2) Amortization (accretion) of above- and below-market ground lease intangibles, net (3) $ 2019 Year ended December 31, 2018 2017 6,272 $ 866 (333) 6,465 $ 780 (443) 5,461 1,071 (540) (1) (2) (3) Reflected within depreciation and amortization expense. Reflected within rental revenue. Reflected within property expenses. 90                   The following table provides the projected amortization of in-place lease assets to depreciation and amortization expense and net amortization of above- and below-market lease intangibles to rental revenue for the next five years: (in thousands) In-place lease assets Adjustment to amortization expense Above-market lease assets Below-market lease liabilities Net adjustment to rental revenue 4. Credit Facilities 2020 2021 2022 2023 2024 $ $ $ $ 6,377 $ 6,377 $ (829) $ 551 (278) $ 6,164 $ 6,164 $ (810) $ 552 (258) $ 6,013 $ 6,013 $ (809) $ 552 (257) $ 5,578 $ 5,578 $ (777) $ 501 (276) $ 4,781 4,781 (744) 500 (244) On June 25, 2018, the Company, through the Operating Partnership, entered into a revolving credit agreement with a group of lenders for a four-year, senior unsecured revolving credit facility (the “2018 Credit Facility”) with aggregate revolving credit commitments of $300.0 million. The 2018 Credit Facility had a term of four years, with an extension option of up to one year exercisable by the Operating Partnership, subject to certain conditions, and initially bore interest at (i) an annual rate of applicable LIBOR, as defined therein, plus an applicable margin; or (ii) the prime rate plus an applicable margin. The 2018 Credit Facility provided an accordion feature to increase, subject to certain conditions, the maximum availability of the 2018 Credit Facility by up to an additional $200.0 million. On April 12, 2019, the Company, through the Operating Partnership, entered into a restated credit agreement (the “Amended Credit Agreement”) with a group of lenders, amending and restating the terms of the 2018 Credit Facility to increase the maximum aggregate initial original principal amount of 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. 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 loans were 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. 91       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 also 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. The Company was in compliance with all financial covenants and was not in default of any other provisions under the Amended Credit Agreement and the 2018 Credit Facility as of December 31, 2019 and 2018, respectively. 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. 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. On December 9, 2019, the Company borrowed $250.0 million 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 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 is required to pay a ticking fee on any undrawn portion of the November 2019 Term Loan for the period from and including the 91st day after November 26, 2019 until the earlier of the date the initial term loans are fully drawn or May 26, 2020. 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, 2019. 92 Revolving Credit Facility The following table presents information about the Revolving Credit Facility and the 2018 Credit Facility for the years ended December 31, 2019 and 2018: (in thousands) Balance on January 1, Borrowings Repayments Balance on December 31, 2019 2018 $ $ 34,000 459,000 (447,000) 46,000 $ $ — 34,000 — 34,000 Total deferred financing costs, net, of $3.5 million and $3.0 million related to the Revolving Credit Facility and the 2018 Credit Facility were included within prepaid expenses and other assets, net on the Company’s consolidated balance sheets as of December 31, 2019 and 2018, respectively. The Company recorded $1.1 million and $0.5 million, respectively, to interest expense during the years ended December 31, 2019 and 2018 related to amortization of these deferred financing costs. Additionally, the Company recorded $3.4 million and $0.4 million of interest expense on borrowings and unused facility fees during the year ended December 31, 2019 and 2018, respectively, related to the Revolving Credit Facility and the 2018 Credit Facility. The weighted average interest rate in effect on the Company’s borrowings under the Revolving Credit Facility and the 2018 Credit Facility as of December 31, 2019 and 2018 was 3.06% and 5.95%, respectively. As of December 31, 2019 and 2018, the Company had $354.0 million and $266.0 million of unused borrowing capacity under the Revolving Credit Facility and the 2018 Credit Facility, respectively. Term Loan Facilities On May 14, 2019, the Company borrowed the entire $200.0 million available under the April 2019 Term Loan and used the entire proceeds to repurchase, in part, notes previously issued under its Master Trust Funding Program. On December 9, 2019, the Company borrowed $250.0 million of the $430.0 million available under the November 2019 Term Loan and used the proceeds to voluntarily prepay $70.4 million of the Series 2016-1 Notes at par and to repay amounts outstanding under the Revolving Credit Facility. See Note 6—Secured Borrowings for additional information. Total deferred financing costs, net, of $4.4 million related to the Company’s term loan facilities are included as a component of unsecured term loans, net of deferred financing costs on the Company’s consolidated balance sheet as of December 31, 2019. The Company recorded $0.2 million to interest expense during the year ended December 31, 2019 related to the amortization of these fees and direct costs of its term loan facilities. During the year ended December 31, 2019, the Company recorded $5.1 million of cash interest expense, respectively, including delayed draw ticking fees, related to its term loan facilities. The variable interest rates in effect on the Company’s borrowings under the April 2019 Term Loan and November 2019 Term Loan as of December 31, 2019 were 3.00% and 3.22%, respectively. The Company fixed the interest rates on its term loan facilities’ variable-rate debt through the use of interest rate swap agreements. See Note 5—Derivative and Hedging Activities for additional information. 5. 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 statement 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 $0.9 million will be reclassified from other comprehensive income as an increase to interest expense. The Company does not have netting arrangements related to its derivatives. 93     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, 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, 2019 (dollar amounts in thousands): Derivatives Designated as Hedging Instruments Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Interest Rate Swap Fixed Rate Paid by Company 2.06% 2.06% 2.07% 1.61% 1.61% 1.60% Variable Rate Paid by Bank 1 month LIBOR 1 month LIBOR 1 month LIBOR 1 month LIBOR 1 month LIBOR 1 month LIBOR Effective Date 5/14/2019 5/14/2019 5/14/2019 12/9/2019 12/9/2019 12/9/2019 $   Maturity Date   4/12/2024 4/12/2024 4/12/2024 11/26/2026 11/26/2026 11/26/2026 Notional Value (1) 100,000 $ 50,000 50,000 175,000 50,000 25,000   $ 450,000 $ Fair Value of Asset/ (Liability) (2) (3) (1,996) (999) (1,005) 758 210 127 (2,905) (1) (2) (3) 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. Derivatives in a liability position are included within accrued liabilities and other payables in the Company’s consolidated balance sheets totaling to $4.0 million. Derivatives in an asset position are included within prepaid expenses and other assets in the Company’s consolidated balance sheets totaling to $1.1 million. During the year ended December 31, 2019, the Company recorded a loss on the change in the fair value of its interest rate swaps of $0.1 million, which is included in interest expense in the Company’s consolidated statements of operations. 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. 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, 2019, the fair value of derivatives in a net asset position was including accrued interest but excluding any adjustment for nonperformance risk related to these agreements was $1.0 million. As of 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 $3.1 million as of December 31, 2019. 6. 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. 94                                       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. 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. 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”). Of these notes, $75.1 million of the Class A Notes and all of the Class B Notes were issued to an affiliate of Eldridge through underwriting agents. The Series 2017-1 Notes were issued by three SPEs formed to hold assets and issue the secured borrowings associated with the securitization. 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. 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. The Series 2017-1 Notes mature in June 2047, but the terms of the Class A Notes require principal to be paid monthly through June 2024, with a balloon repayment at that time, and the terms of the Class B Notes require no monthly principal payments but require the full principal balance to be paid in June 2024. The Series 2017-1 Notes contain interest rate escalation provisions if these repayment schedules are not met. 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 may be subject to the payment of a make whole amount.   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. The Company accounted for the repurchase as a debt extinguishment and recorded a loss on repurchase of $4.4 million, including the write-off of unamortized deferred financing costs. On November 12, 2019, the Company cancelled all $200 million of these repurchased Class A Series 2016-1 Notes. In November 2019, the Company voluntarily 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. The Company accounted for this prepayment as a debt extinguishment and recorded a loss on retirement of $0.8 million due to the write-off of unamortized deferred financing costs. As of December 31, 2019 and 2018, the Company had $239.1 million and $515.1 million, respectively, of combined principal outstanding under the notes issued through its Master Trust Funding Program. Total deferred financing costs, net, of $3.8 million and $9.0 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, 2019 and 2018. The Company recorded $1.5 million, $2.3 million and $1.9 million to interest expense during the years ended December 31, 2019, 2018 and 2017, respectively, related to the amortization of these deferred financing costs. 95 During the years ended December 31, 2019, 2018 and 2017, the Company recorded $16.3 million, $22.6 million and $17.4 million, respectively, of interest expense on borrowings under the Master Trust Funding Program. The Company’s secured borrowings issued under the Master Trust Funding Program bear interest at a weighted average interest rate of 4.17% as of December 31, 2019. The following table summarizes the scheduled principal payments on the Company’s secured borrowings under the Master Trust Funding Program as of December 31, 2019: (in thousands) 2020 2021 2022 2023 2024 Total Future Principal Payments 3,885 4,083 4,292 4,512 222,330 239,102 $ $ The Company was not in default of any provisions under the Master Trust Funding Program as of December 31, 2019 and 2018. 7. 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. The Warehouse Notes accrued interest at a rate equal to LIBOR plus a spread of between 2.14% and 2.76% and matured within one year of the date of issuance. During the year ended December 31, 2017, the Company issued 33 short-term Warehouse Notes for a combined $523.0 million and separately issued one additional short-term note for $20.0 million payable to a different affiliate of Eldridge. The $20.0 million short-term note accrued interest at a rate of 8.0%. During the year ended December 31, 2017, the Company repaid 14 of the Warehouse Notes and the $20.0 million short-term note at or prior to maturity. 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 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, 2019 and 2018. The following table presents the activity related to the Company’s notes payable to related parties for the years ended December 31, 2019, 2018 and 2017: (in thousands) Outstanding, January 1, 2017 Borrowings Repayments Outstanding, December 31, 2017 Borrowings Repayments Outstanding, December 31, 2018 Borrowings Repayments Outstanding, December 31, 2019 Warehouse Notes Other Short- term Note Total $ — $ 523,000 (293,000) 230,000 154,000 (384,000) — — — — $ $ — $ 20,000 (20,000) — — — — — — — $ — 543,000 (313,000) 230,000 154,000 (384,000) — — — — During the years ended December 31, 2018 and 2017, the Company incurred $4.6 million and $3.5 million of interest expense related to these notes payable to related parties. No interest expense from notes payable to related parties was incurred during the year ended December 31, 2019. 96         8. Equity Stockholders’ Equity On June 25, 2018, EPRT Inc. completed the 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. (the “Operating Partnership”) and became the subsidiary through which EPRT Inc. 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 EPRT Inc., 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 EPRT Inc. at their historical carrying amounts. Concurrently with the completion of the IPO, EPRT Inc. 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 EPRT Inc.’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 EPRT Inc. 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. On June 25, 2018, EPRT Inc. 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, EPRT Inc. completed a follow-on public offering (the “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. Net proceeds from the 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 the 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. At the Market Program In August 2019, the Company established an “at the market” common equity distribution program (“ATM Program”), through which the Company may, from time to time, publicly offer and sell shares of its common stock having an aggregate gross sales price of up to $200 million. During the year ended December 31, 2019, the Company sold 7,432,986 shares of its common stock under the ATM Program, at a weighted average price per share of $23.97, raising $178.2 million in gross proceeds. Net proceeds from selling shares under the ATM Program during the year ended December 31, 2019, after deducting sales agent fees and other expenses associated with establishing and maintaining the ATM Program, were $175.1 million. 97 Dividends on Common Stock During the year ended December 31, 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 December 6, 2019 September 6, 2019 June 5, 2019 March 7, 2019 December 7, 2018 August 29, 2018 Record Date December 31, 2019 September 30, 2019 June 28, 2019 March 29, 2019 December 31, 2018 September 28, 2018 Date Paid January 15, 2020 October 15, 2019 July 15, 2019 April 16, 2019 January 14, 2019 October 12, 2018 $ $ $ $ $ $ Dividend per Share of Common Stock Total Dividend (dollars in thousands) 0.23 $ $ 0.22 $ 0.22 $ 0.21 $ 0.21 $ 0.224 19,268 17,531 12,725 12,143 9,187 9,800 The Company has determined that, during the year ended December 31, 2019 and the period from June 25, 2018 to December 31, 2018, approximately 58.8 % and 58.9%, respectively, of the distributions it paid represented taxable income and 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 capitalized by the SCF Funding LLC (the “Parent”) through direct and indirect capital contributions. In January 2017, the Parent made indirect capital contributions of $17.3 million. In these indirect capital contributions, the Parent made direct cash payments to sellers of real estate investments acquired by EPRT LLC. On January 31, 2017, in exchange for Class A units of EPRT LLC, Stonebriar Holdings LLC (“Stonebriar Holdings”) made a direct equity contribution of $80.0 million and certain members of EPRT LLC’s management and board of managers made direct equity contributions of $3.7 million. Concurrently, EPRT LLC issued Class C units to the Parent in exchange for the Parent’s retention of an equity investment in EPRT LLC of $91.5 million. The Class A and Class C units were issued at $1,000 per unit and both classes contained liquidation preferences equal to the per unit value of $1,000 plus 8% per annum compounded quarterly. Additionally, on January 31, 2017, EPRT LLC approved and issued unvested Class B units to members of EPRT Management and a member of EPRT LLC’s board of managers and approved and issued unvested Class D units to members of EPRT LLC’s board of managers and external unitholders. See Note 10 – Equity Based Compensation for additional information. Pursuant to the EPRT LLC Operating Agreement, distributions to unitholders were to be made in the following order and priority: • • • • First, to the holders of Class A and Class C units until each holder of these units has first received an amount equal to each class’ yield, as defined in the EPRT LLC Operating Agreement, and then until each holder of these units has received an amount equal to each class’ aggregate unreturned class contributions; Next, to the holders of Class B and Class D units in an aggregate amount based on a return threshold defined in the EPRT LLC Operating Agreement for each class of units; Then, to the holders of Class B and Class D units in an aggregate amount equal to each class’ unit percentage of distributions, as defined in the EPRT LLC Operating Agreement; and Lastly, any remaining amounts to the holders of Class A and Class C units. Pursuant to the EPRT LLC Operating Agreement, EPRT LLC’s net income or loss was allocated to the holders of the Class A, B, C and D units in a similar manner as the distribution allocation outlined above. On December 31, 2017, EPRT LLC reorganized (the “EPRT LLC Reorganization”) and the holders of the Class A, Class B, Class C and Class D units contributed all of their interests in EPRT LLC to 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. Additionally, EPRT Holdings issued a new grant of 500 unvested Class B units to a member of EPRT LLC’s management on the same date. 98             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. 9. 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 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, 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. As of December 31, 2018, the Company held 43,749,092 OP Units, representing a 68.7% limited partner interest in the Operating Partnership. As of the same date, EPRT Holdings and Eldridge directly or indirectly held 17,913,592 and 1,142,960 OP Units, representing 28.5% and 1.8% limited partner interests in the Operating Partnership, respectively. 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. During the years ended December 31, 2019 and 2018, the Company declared total cash dividends of $0.88 and $0.434 per share of common stock, respectively. Distributions to OP Unit holders were declared and paid concurrently with the Company’s cash dividends to common stockholders. 10. Equity Based Compensation 2018 Incentive Plan Effective immediately prior to the closing of the IPO, the Company adopted 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. On June 22, 2018, the Company registered 3,550,000 shares of common stock, reserved for issuance under the Equity Incentive Plan, pursuant to a registration statement on Form S-8 (File No. 333-225837), filed with the SEC under the Securities Act. 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 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 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 Company estimates the grant date fair value of the unvested RSAs granted under the Equity Incentive Plan using the average market price of the Company’s common stock on the date of grant. 99 The following table presents information about the Company’s RSAs for the periods presented: (in thousands) Compensation cost recognized in general and administrative expense Dividends declared on unvested RSAs and charged directly to distributions in excess of cumulative earnings Fair value of shares vested during the period Year ended December 31, 2019 2018 $ 3,394 $ 486 3,354 1,692 300 — The following table presents information about the Company’s RSAs as of the dates presented: (Dollars in thousands) Total unrecognized compensation cost Weighted average period over which compensation cost will be recognized (in years) December 31, 2019 2018 $ 5,026 $ 1.6 7,764 2.5 Restricted Stock Units In January 2019, the Compensation Committee of the Company’s board of directors approved target grants of 119,085 performance-based restricted stock units (“RSUs”) 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 11 peer companies. 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, divided by the average closing price for the 20-trading day period ended January 1, 2019. 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: Volatility Risk-free rate 18% 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. As of December 31, 2019, the Compensation Committee had not identified specific performance targets relating to the individual recipients’ achievement of strategic objectives. 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 year ended December 31, 2019. In June 2019, the Compensation Committee of the Company’s board of directors approved a grant of 11,500 RSUs 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. The following table presents information about the Company’s RSUs for the period presented: (in thousands) Compensation cost recognized in general and administrative expense Dividend equivalents declared and charged directly to distributions in excess of cumulative earnings Fair value of units vested during the period 100 Year ended December 31, 2019 $ 714 8 —                   The following table presents information about the Company’s RSUs as of the date presented: (Dollars in thousands) Total unrecognized compensation cost Weighted average period over which compensation cost will be recognized (in years) $ December 31, 2019 1,584 2.4 The following table presents information about the Company’s RSA and RSU activity during the years ended December 31, 2019 and 2018: Unvested, January 1, 2018 Granted Vested Forfeited Unvested, December 31, 2018 Granted Vested Forfeited Unvested, December 31, 2019 Unit-Based Compensation Restricted Stock Awards Restricted Stock Units Weighted Average Grant Date Fair Value — 13.68 — — 13.68 14.12 13.69 — 13.72 Shares — 691,290 — — 691,290 46,368 (244,957) — 492,701 Units — — — — — 100,814 — — 100,814 Weighted Average Grant Date Fair Value — — — — — 22.80 — — 22.80 On January 31, 2017, EPRT LLC approved the issuance of Class B and Class D units and issued 8,050 unvested Class B units to members of EPRT Management and a member of EPRT LLC’s board of managers and issued 3,000 unvested Class D units to members of EPRT LLC’s board of managers and external unitholders. The Class B and Class D units were scheduled to vest in five equal installments beginning on March 30, 2017 and continuing on each anniversary thereof through March 30, 2021. On December 31, 2017, in the EPRT LLC Reorganization, the holders of Class B and Class D units contributed all of their interests in EPRT LLC to EPRT Holdings in exchange for interests in EPRT Holdings with the same rights as the interests they held in EPRT LLC. The EPRT LLC units were exchanged on a one-for-one basis for equivalent units in EPRT Holdings with the same vesting conditions, distribution rights, priority and income allocation rights, among others. Additionally, EPRT Holdings issued a new grant of 500 unvested Class B units to a member of EPRT Management on the same date. The Class B units granted on December 31, 2017 were scheduled to vest in five equal installments beginning on May 1, 2018 and continuing on each anniversary thereof through May 1, 2022. Following the completion of the Formation Transactions, the Class B and Class D unitholders 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. 101               The following table presents information about the unvested Class B and Class D units during the years ended December 31, 2019, 2018 and 2017: Unvested, January 1, 2017 Granted Vested Forfeited Unvested, December 31, 2017 Granted Vested Forfeited Unvested, December 31, 2018 Granted Vested Forfeited Unvested, December 31, 2019 Class B Units Class D Units Total — 8,550 (1,610) — 6,940 — (1,710) — 5,230 — (5,230) — — — 3,000 (600) — 2,400 — (600) — 1,800 — (1,800) — — — 11,550 (2,210) — 9,340 — (2,310) — 7,030 — (7,030) — — The Company estimated the grant date fair value of the unvested Class B and Class D awards granted to employees on January 31, 2017 and the fair value of the Class D awards granted to non-employees as of July 1, 2018 and December 31, 2017 using a Black-Scholes valuation model. Effective July 1, 2018, the Company adopted ASU 2018-07 (see Note 2 – Summary of Significant Accounting Policies) and did not subsequently remeasure the value of the unvested Class D awards granted to non-employees after this date. The Company's assumptions for expected volatility were based on daily historical volatility data related to market trading of publicly traded companies that invest in similar types of real estate as the Company, plus an adjustment to account for differences in the Company’s leverage compared to the publicly traded companies. The risk-free interest rate assumptions were determined by using U.S. treasury rates of the same period as the expected vesting term of each award. The marketability discounts were calculated using a Finnerty Model. The Company determined that the grant date per unit fair value of the unvested Class B and Class D units granted on January 31, 2017 was $323.65 and $152.16, respectively, and the grant date per unit fair value of the unvested Class B units granted on December 31, 2017 was $1,280.35. As of July 1, 2018, the Company determined that the per unit fair value of the Class D units granted to non-employees on January 31, 2017 was $79.09. The following table presents information about the Class B and Class D units for the periods presented: (in thousands) Compensation cost recognized in general and administrative expense Fair value of units vested during the period Year ended December 31, 2019 2018 2017 $ 2,162 2,283 $ $ 747 718 The following table presents information about the Class B and Class D units as of December 31, 2018. No Class B or Class D units remained outstanding as of December 31, 2019. (Dollars in thousands) Total unrecognized compensation cost Liability on units granted to non-employees Weighted average period over which compensation cost will be recognized (in years) Class B Units Class D Units $ $ 1,899 — 2 841 612 231 33 2.3 102                   11. Leases As Lessor The Company’s investment properties are leased to tenants under long-term operating leases that typically include one or more 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 they provide that the lessees are responsible for the payment of 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. Under ASC 842, 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, 2019 were as follows: (in thousands) 2020 2021 2022 2023 2024 Thereafter Total Future Minimum Base Rental Receipts 144,265 145,663 147,584 148,604 147,773 1,618,734 2,352,623 $ $ 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 during the year ended December 31, 2019 were as follows: (in thousands) Fixed lease revenues Variable lease revenues (1) Total lease revenues (2) Year Ended December 31, 2019 $ $ 134,879 2,282 137,161 (1) (2) 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. 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, 2019, the Company’s ROU assets and lease liabilities were $4.8 million and $7.5 million, respectively. 103         The discount rate applied to measure each ROU asset and lease liability is based on the Company’s incremental borrowing rate ("IBR"). The Company considers the general economic environment and its historical borrowing activity and factors in various financing and asset specific adjustments to ensure the IBR is appropriate to the intended use of the underlying lease. As the Company did not elect to apply hindsight, lease term assumptions determined under ASC 840 were carried forward and applied in calculating the lease liabilities recorded under ASC 842. Certain of the Company’s ground leases offer renewal options which it assesses against relevant economic factors to determine whether it is reasonably certain of exercising or not exercising the option. Lease payments associated with renewal periods that the Company is reasonably certain will be exercised, if any, are included in the measurement of the corresponding lease liability and ROU asset. The following table sets forth information related to the measurement of the Company’s lease liabilities as of December 31, 2019: Weighted average remaining lease term (in years) Weighted average discount rate December 31, 2019 21.9 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 six 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, and 2017. Upon adoption of ASC 842 on January 1, 2019 (see Note 2—Summary of Significant Accounting Policies), these 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 year ended December 31, 2019. The following table sets forth the details of rent expense for the year ended December 31, 2019: (in thousands) Fixed rent expense Variable rent expense Total rent expense Year Ended December 31, 2019 $ $ 1,425 — 1,425 During the years ended December 31, 2018 and 2017, the Company recorded $0.5 million and $0.7 million of ground rent expense within property expenses and recorded $0.2 million and $0.2 million, respectively, of rent expense related to its office and equipment leases within general and administrative expense in the Company’s consolidated statements of operations. As of December 31, 2019, 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) 2020 2021 2022 2023 2024 Thereafter Total Present value discount Lease liabilities Office and 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 $ $ 763 $ 680 669 656 556 538 3,862 $ 646 $ 650 652 318 265 12,167 14,698 $ 1,409 1,330 1,321 974 821 12,705 18,560 (11,038) 7,522 104             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. 12. Commitments and Contingencies As of December 31, 2019, the Company had remaining future commitments, under mortgage notes, reimbursement obligations or similar arrangements, to fund $30.8 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, 2019, 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. 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 3% of eligible compensation contributed by participants and 50% of the next 2% of eligible compensation contributed by participants, which vests immediately. During the years ended December 31, 2019, 2018 and 2017, the Company made matching contributions of $0.2 million, $0.1 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. 13. 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 105   based upon market conditions and perceived risks at December 31, 2019 and 2018. 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, notes payable to related party, 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. The estimated fair values of the Company’s borrowings under the 2018 Credit Facility, 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, 2019 and the 2018 Credit Facility as of December 31, 2018 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 Level 3 within the fair value hierarchy. 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. As of December 31, 2018, the Company’s secured borrowings had an aggregate carrying value of $515.1 million (excluding net deferred financing costs of $9.0 million) and an estimated fair value of $520.6 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, 2019, 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, 2019, the Company estimated the fair value of its interest rate swap contracts to be a $2.9 million net liability. 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: (in thousands) December 31, 2019 Non-financial assets: Long-lived assets December 31, 2018 Non-financial assets: Long-lived assets Net Carrying Value Fair Value Fair Value Measurements Using Fair Value Hierarchy Level 2 Level 1 Level 3 $ 3,864 $ 3,864 $ — $ — $ 3,864 $ 3,238 $ 3,238 $ — $ — $ 3,238 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 106       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, 2019 is as follows: (dollar amounts in thousands) Non-financial assets: Long-lived assets: Casual Dining - Omaha, NE Health and Fitness - Winston Salem, NC Fair Value Valuation Techniques Significant Unobservable Inputs $ 864 3,000 Discounted cash flow approach Sales comparison approach Terminal Value: 7.5% Discount Rate: 7.5% Non-binding sales contract $ 864 3,000 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. 14. Related-Party Transactions During the years ended December 31, 2019, 2018 and 2017, an affiliate of Eldridge provided certain treasury and information technology services. Additionally, during the first three months of 2017, the Manager provided certain administrative services to the Company. The Manager charged the Company a flat monthly fee for its services based on the estimated cost incurred in the provision of the services, and the fee was reviewed by the Company’s management and determined to be reasonable. The Company incurred $0.1 million of expense for these services during the year ended December 31, 2017, and incurred a de minimis amount 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. The costs for the services provided by the affiliate of Eldridge and the Manager would likely be different if such services were provided by unrelated parties. During the years ended December 31, 2018 and 2017, the Company issued and repaid short-term notes to affiliates of Eldridge. See Note 7 – Notes Payable to Related Parties 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 6—Secured Borrowings for additional information. 107     15. Quarterly Results (Unaudited) Presented below is a summary of unaudited quarterly financial information for the years ended December 31, 2019, 2018 and 2017. All adjustments (consisting of only normal recurring accruals) necessary for a fair presentation of the interim periods presented are included. As presented under the three months ended June 30, 2018 heading below, net income per share of common stock — basic and diluted represents amounts for the period from June 25, 2018 to June 30, 2018, following the completion of the IPO. 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. (in thousands, except per share data) 2019: Total revenues Net income Net income attributable to non-controlling interests Net income per share of common stock — basic and diluted Dividends declared per common share 2018: Total revenues Net income Net income attributable to non-controlling interests Net income per share of common stock — basic and diluted Dividends declared per common share $ $ 16. Subsequent Events March 31 June 30 September 30 December 31 Three months ended 31,107 $ 8,722 2,595 0.13 0.21 20,167 $ 1,109 — — — 32,755 $ 10,571 2,620 0.14 0.22 21,664 $ 3,499 99 0.01 — 36,291 $ 14,106 861 0.18 0.22 25,742 $ 7,707 2,383 0.12 0.22 39,204 14,626 105 0.20 0.18 0.23 28,650 8,299 2,519 0.13 0.21 The Company has evaluated all events and transactions that occurred after December 31, 2019 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 2020, the Company issued an aggregate of 84,684 performance-based restricted stock units (“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 total stockholder return (“TSR”) as compared to the TSR of 13 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, 2020, divided by the average closing price for the 20-trading day period ending December 31, 2022. Additionally, in January 2020, the Company issued an aggregate of 71,607 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 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 January 2020, the Company completed a follow-on offering of its common stock and issued 7,935,000 shares of common stock, including 1,035,000 shares of common stock to the underwriters pursuant to an option to purchase additional shares, at an offering price of $25.20 per share. In February 2020, the Company used a portion of the proceeds from this offering to retire $62.0 million of Series 2017-1 Class A Notes. Subsequent to December 31, 2019, the Company acquired 36 real estate properties with an aggregate investment (including acquisition-related costs) of $85.5 million and invested $5.6 million in new and ongoing construction in progress and reimbursements to tenants for development, construction and renovation costs. In addition, the Company invested $5.3 million in loans receivable subsequent to December 31, 2019. Subsequent to December 31, 2019, the Company sold or transferred its investment in 5 real estate properties for an aggregate gross sales price of $6.2 million and incurred $0.3 million of disposition costs related to these transactions. 108         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, 2019 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 During the fourth quarter of 2019, we implemented a new enterprise resource planning system (the “ERP System”) that affects many of our financial processes. The new ERP System is a significant component of our internal control over financial reporting. We believe that this system has improved the efficiency and effectiveness of our processes for recording and reporting financial and other business transactions, as well as our overall systems environment. Other than the ERP System implementation, there was no change in our internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth fiscal quarter of the year to which this Annual Report on Form 10-K relates that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. For a discussion of risks related to the implementation of our new ERP System, see “Item 1A. Risk Factors—Any material failure, weakness interruption or breach in security of our information systems could prevent us from effectively operating our business.” Item 9B. Other Information. On February 28, 2020, Essential Properties Realty Trust, Inc. filed a Certificate of Notice (the “Certificate of Notice”) relating to its charter with the State Department of Assessments and Taxation of Maryland. The Certificate of Notice states that the Stockholders Agreement, dated as of June 25, 2018, by and among Essential Properties Realty Trust, Inc., 109 and parties named therein, terminated on July 22, 2019 in accordance with its terms. The Certificate of Notice is attached as Exhibit 3.4 to this Annual Report on Form 10-K and is incorporated by reference herein. 110 Item 10. Directors, Executive Officers and Corporate Governance PART III 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 2020 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 2020 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 2020 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 2020 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 2020 Annual Meeting of Stockholders and is incorporated herein by reference. 111 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. PART IV Financial Statements. (see Item 8) Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets as of December 31, 2019 and 2018 Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2019, 2018 and 2017. Consolidated Statements of Stockholders’/Members’ Equity for the years ended December 31, 2019, 2018 and 2017 Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017 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). Exhibit Number 3.1 3.2 3.3 3.4* 3.5 4.1 4.2 4.3 4.4* 10.1 10.2 10.3 10.4 10.5 10.6 10.7   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)   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)   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) Description   Certificate of Notice, dated February 28, 2020   Bylaws of Essential Properties Realty Trust, Inc. (Incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   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)   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)   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) Description of the Company’s Common Stock, $0.01 par value   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)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Paul T. Bossidy, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Daniel P. Donlan, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Joyce DeLucca, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Scott A. Estes, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Hillary P. Hai, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Peter M. Mavoides, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on June 26, 2018)                                                                                     10.8 10.9 10.10 10.11 10.12 10.13 10.14* 10.15 10.16 10.17   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Stephen D. Sautel, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Gregg A. Seibert, dated as of June 25, 2018 (Incorporated by reference to Exhibit 10.13 to the Company’s Current Report on Form 8-K filed on June 26, 2018)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Anthony K. Dobkin, dated as of September 3, 2019 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 3, 2019)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Lawrence J. Minich, dated as of January 24, 2020 (Incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 27, 2020)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Heather Leed Neary, dated as of January 24, 2020 (Incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 27, 2020)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Janaki Sivanesan, dated as of January 24, 2020 (Incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 27, 2020)   Indemnification Agreement between Essential Properties Realty Trust, Inc. and Timothy J. Earnshaw, dated as of January 24, 2020   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)   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)   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) 112                                         Exhibit Number 10.18 10.19† 10.20† Description   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)   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)   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) 10.21†   Employment Agreement between Essential Properties Realty Trust, Inc. and Hillary P. Hai, effective as of June 25, 2018 (Incorporated by reference to Exhibit 10.17 to the Company’s Current Report on Form 8-K filed on June 26, 2018) 10.22†   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) 21.1* 23.1* 24.1* 31.1*   Subsidiaries of the Company   Consent of Independent Registered Public Accounting Firm.   Power of Attorney (set forth on the signature page to this Annual Report on Form 10-K)   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* 101.SCH* 101.CAL* 101.DEF* 101.LAB* 101.PRE* XBRL Instance Document   XBRL Taxonomy Extension Schema Document   XBRL Taxonomy Extension Calculation Linkbase Document   XBRL Taxonomy Extension Definition Linkbase Document   XBRL Taxonomy Extension Label Linkbase Document   XBRL Taxonomy Extension Presentation Linkbase Document * ** † Filed herewith. Furnished herewith. Indicates management contract or compensatory plan. Item 16. Form 10-K Summary None 113                                                                   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. SIGNATURES ESSENTIAL PROPERTIES REALTY TRUST, INC. Date: March 2, 2020 By: /s/ Peter M. Mavoides Peter M. Mavoides President and Chief Executive Officer (Principal Executive Officer) KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below does hereby constitute and appoint Peter M. Mavoides and Hillary P. Hai, 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. POWER OF ATTORNEY 114           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. Name Title Date /s/ Peter M. Mavoides Peter M. Mavoides Director, President and Chief Executive Officer (Principal Executive Officer) /s/ Hillary P. Hai Hillary P. Hai Executive Vice President, Chief Financial Officer (Principal Financial Officer) /s/ Timothy J. Earnshaw Timothy J. Earnshaw Chief Accounting Officer (Principal Accounting Officer) /s/ Paul T. Bossidy Paul T. Bossidy /s/ Joyce DeLucca Joyce DeLucca /s/ Anthony K. Dobkin Anthony K. Dobkin /s/ Scott A. Estes Scott A. Estes /s/ Lawrence J. Minich Lawrence J. Minich /s/ Heather Leed Neary Heather Leed Neary /s/ Stephen D. Sautel Stephen D. Sautel /s/ Janaki Sivanesan Janaki Sivanesan Director Director Director Director Director Director Director Director 115 March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020   March 2, 2020                                                                                                     ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR Schedule III - Real Estate and Accumulated Depreciation As of December 31, 2019 (Dollar amounts in thousands) State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 184 $ 242 $ — $ — $ 184 $ 242 $ 426 $ Description(a) City IL IL IL MI MI CO TX VA SC AL TX FL TN CA OH Nashville Grand Rapids Alexander City Landrum Virginia Beach Tenant Industry Restaurants - Quick Service Restaurants - Quick Service Zanesville Restaurants - Quick Service Belleville Restaurants - Quick Service Restaurants - Quick Service Petaluma Restaurants - Quick Service Clarkesville GA Restaurants - Quick Service Philadelphia PA Other Services Restaurants - Quick Service Ruskin Restaurants - Quick Service Brownsville TX Restaurants - Quick Service Waco Restaurants - Family Dining Palantine Restaurants - Family Dining LaGrange Restaurants - Family Dining Jacksonville FL Corpus Restaurants - Casual Dining Christi Restaurants - Casual Dining Centennial Restaurants - Quick Service Redford Other Services Restaurants - Family Dining Restaurants - Casual Dining Thomasville GA Restaurants - Casual Dining Grapevine Restaurants - Family Dining Plano Restaurants - Family Dining Coon Rapids MN Restaurants - Family Dining Mankato Restaurants - Casual Dining Omaha Restaurants - Family Dining Merrillville Restaurants - Family Dining Blaine Restaurants - Family Dining Green Bay Restaurants - Family Dining Appleton Restaurants - Family Dining Waterloo Restaurants - Family Dining St. Joseph Restaurants - Family Dining Gladstone Restaurants - Family Dining Brainerd Restaurants - Family Dining Restaurants - Family Dining Restaurants - Quick Service Pontiac Restaurants - Quick Service Troy The Restaurants - Quick Service Woodlands Restaurants - Quick Service Ellsworth Restaurants - Quick Service Clay Restaurants - Quick Service Buna Restaurants - Quick Service Carthage Cedar Rapids Brooklyn Park TX TX MO MO MN TX ME NY TX MN NE MN MN WI WI MI MI IN IA IA TX {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 397 314 177 467 178 485 332 641 561 633 926 446 1,086 1,160 277 369 346 533 — 626 106 — 474 382 354 851 957 — 1,593 3,400 468 214 90 903 1,385 207 635 700 567 87 192 233 977 424 856 585 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 600 — — — — 465 1,184 (203 ) (g) (498 ) (g) 797 609 549 441 466 559 479 761 804 725 316 674 — 37 129 152 111 322 780 373 590 391 371 783 547 563 693 423 — — 51 413 138 239 — — ` — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 116 397 314 177 467 178 485 332 641 561 633 926 446 277 674 369 683 346 523 533 1,000 — 178 626 1,111 106 438 — 641 474 1,035 382 1,015 354 1,280 851 1,297 34 33 47 45 69 — 84 27 — 66 49 63 97 1987 6/16/2016 1988 6/16/2016 1988 6/16/2016 1989 6/16/2016 1992 6/16/2016 6/16/2016 1980 6/16/2016 1992 6/16/2016 1993 6/16/2016 1995 6/16/2016 1991 6/16/2016 1990 6/16/2016 1990 6/16/2016 1,086 957 2,043 163 1997 6/16/2016 1,160 — 1,160 — 2015 6/16/2016 1,593 3,400 4,993 333 1993 6/16/2016 468 214 90 903 567 1,035 87 301 192 282 833 1,736 1,385 977 2,362 424 631 856 1,491 73 18 80 76 130 173 112 1998 6/16/2016 1992 6/16/2016 1997 6/16/2016 1999 6/16/2016 1999 6/16/2016 1998 6/16/2016 1991 6/16/2016 207 635 700 262 797 609 549 441 466 559 479 761 804 725 316 674 — 37 129 152 111 585 1,285 97 1992 6/16/2016 686 948 126 1979 6/16/2016 322 1,119 41 1977 6/16/2016 780 1,389 102 1978 6/16/2016 373 922 590 1,031 391 857 371 930 783 1,262 547 1,308 563 1,367 69 87 66 63 99 80 80 1977 6/16/2016 1977 6/16/2016 1978 6/16/2016 1978 6/16/2016 1979 6/16/2016 1990 6/16/2016 1994 6/16/2016 693 1,418 102 1997 6/16/2016 423 739 — 674 — — 51 88 61 — — 69 2003 6/16/2016 6/16/2016 2001 6/16/2016 1979 6/16/2016 413 542 236 1991 6/16/2016 138 290 239 350 21 32 1976 6/16/2016 1975 6/16/2016        State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Building & Land & Building & Improvements Improvements Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 195 $ 174 $ — $ — $ 195 $ 174 $ 369 $ 92 177 269 Description(a) City MI MI MI MI MI MI MI WI NJ TX TX TX TX TX TX CT TX TX TX TX MN MN MN Burnsville College Station Tenant Industry Restaurants - Quick Service Dayton Restaurants - Quick Service Diboll Restaurants - Quick Service Huntington Restaurants - Quick Service Huntsville Restaurants - Quick Service Jasper Restaurants - Quick Service Kountze Restaurants - Quick Service Rusk Restaurants - Quick Service Sour Lake Restaurants - Quick Service Vernon Restaurants - Quick Service Battle Creek Restaurants - Quick Service Mt Clemens Restaurants - Quick Service Clio Restaurants - Quick Service Charlotte Restaurants - Quick Service St. Johns Automotive Service Restaurants - Family Dining Albert Lea Restaurants - Family Dining Crystal Restaurants - Casual Dining West Monroe LA Restaurants - Quick Service Greenfield Restaurants - Casual Dining Desoto Restaurants - Quick Service West Berlin Restaurants - Quick Service Redford Restaurants - Quick Service Bridgeport Restaurants - Quick Service Restaurants - Quick Service Birmingham AL Restaurants - Quick Service Oneonta Restaurants - Quick Service Union City Restaurants - Quick Service Marietta Restaurants - Quick Service Vicksburg Restaurants - Quick Service Riverdale Restaurants - Quick Service Snellville Restaurants - Quick Service Trussville Restaurants - Quick Service Forest Park Restaurants - Quick Service Decatur Restaurants - Quick Service Monroe Restaurants - Quick Service Decatur Restaurants - Quick Service Columbia Restaurants - Quick Service Decatur Restaurants - Quick Service Conyers Restaurants - Quick Service Stockbridge Restaurants - Quick Service Lawrenceville GA Restaurants - Quick Service Lithonia Restaurants - Quick Service Tucker Restaurants - Quick Service Covington Restaurants - Quick Service Columbus Restaurants - Quick Service Owensboro Restaurants - Quick Service Tupelo Restaurants - Quick Service New Albany Restaurants - Quick Service Parkersburg Restaurants - Quick Service Ashland Restaurants - Quick Service Huntington MS MS WV KY WV GA GA SC GA GA GA GA KY GA GA GA GA GA MS GA GA AL GA AL GA {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 92 120 120 111 120 129 204 155 114 446 350 190 218 734 337 821 343 556 728 250 479 309 383 261 220 416 214 203 309 242 243 233 239 302 292 241 302 330 396 306 290 339 379 174 263 731 295 185 279 223 177 180 290 209 290 142 114 208 690 394 889 722 403 309 463 178 94 789 156 399 — 619 569 780 485 746 618 627 584 484 480 341 714 733 463 461 721 767 771 550 606 586 722 442 155 329 346 570 858 539 — — — — — — — — — — — — — 6 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 754 — — — — — — — — — — — — — — — — — — 180 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-1 24 24 31 34 27 34 23 21 54 76 74 1969 6/16/2016 1990 6/16/2016 1980 6/16/2016 1985 6/16/2016 1992 6/16/2016 1995 6/16/2016 1989 6/16/2016 1978 6/16/2016 1983 6/16/2016 1969 6/16/2016 1989 6/16/2016 180 300 290 410 209 320 290 410 142 271 114 318 208 363 690 804 394 840 889 1,239 104 1991 6/16/2016 722 912 403 621 315 1,229 463 800 178 999 94 437 789 1,345 156 884 399 649 - 479 619 928 569 952 780 1,041 485 705 746 1,162 618 832 627 830 584 893 484 726 480 723 341 574 714 953 733 1,035 463 755 461 702 721 1,023 767 1,097 771 1,167 550 856 606 896 586 925 722 1,101 442 616 909 1,172 329 1,060 346 641 570 755 79 60 61 73 44 19 98 29 57 — 88 63 86 56 86 68 68 67 58 56 39 78 82 50 58 81 87 83 68 67 67 84 50 23 46 41 66 1991 6/16/2016 1991 6/16/2016 1973 6/16/2016 1975 6/16/2016 1975 6/16/2016 1988 6/16/2016 1983 6/16/2016 1985 6/16/2016 1992 6/16/2016 6/16/2016 1989 6/16/2016 1984 6/16/2016 2000 6/16/2016 1993 6/16/2016 1976 6/16/2016 1979 6/16/2016 1979 6/16/2016 1978 6/16/2016 1981 6/16/2016 1996 6/16/2016 1988 6/16/2016 1982 6/16/2016 1985 6/16/2016 1983 6/16/2016 1981 6/16/2016 1986 6/16/2016 1982 6/16/2016 1975 6/16/2016 1988 6/16/2016 1979 6/16/2016 1976 6/16/2016 1979 6/16/2016 1987 6/16/2016 1986 6/16/2016 2000 6/16/2016 1993 6/16/2016 1976 6/16/2016 858 1,137 100 1979 6/16/2016 539 762 63 1979 6/16/2016 120 120 111 120 129 204 155 114 446 350 190 218 914 337 821 343 556 728 250 479 309 383 261 220 416 214 203 309 242 243 233 239 302 292 241 302 330 396 306 290 339 379 174 263 731 295 185 279 223      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Building & Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 190 $ 450 $ — $ — $ 190 $ 450 $ 640 $ Description(a) City GA GA GA GA AL TN KY AL TN TN FL FL MO AR WV AR TN MS North Little Rock Tenant Industry Restaurants - Quick Service Restaurants - Quick Service Jackson Restaurants - Quick Service Madison Restaurants - Quick Service Little Rock Restaurants - Quick Service Hurricane Restaurants - Quick Service Parkersburg WV Restaurants - Quick Service Chattanooga TN Restaurants - Quick Service Knoxville Restaurants - Quick Service Jacksonville NC Restaurants - Quick Service Knoxville Restaurants - Quick Service Forestdale Restaurants - Quick Service Louisville Restaurants - Quick Service Festus Restaurants - Quick Service Jacksonville FL Restaurants - Quick Service Jacksonville FL Winter Restaurants - Quick Service Garden Restaurants - Quick Service Sanford Restaurants - Quick Service Lebanon Restaurants - Quick Service Prattville Restaurants - Quick Service Calhoun Restaurants - Quick Service Mableton Restaurants - Quick Service Brunswick Restaurants - Quick Service Summerville SC Restaurants - Quick Service Thomaston Restaurants - Quick Service Smyrna Restaurants - Quick Service Smyrna Restaurants - Quick Service Tullahoma Restaurants - Quick Service Shelbyville Restaurants - Quick Service Dallas North Restaurants - Quick Service Charleston Restaurants - Quick Service LaGrange Restaurants - Quick Service Cullman Restaurants - Quick Service Batesville Restaurants - Quick Service Phenix City Restaurants - Quick Service Montgomery AL Restaurants - Quick Service Starke Restaurants - Quick Service Madisonville KY Restaurants - Quick Service Marietta Restaurants - Quick Service Hueytown Restaurants - Quick Service Gallipolis Restaurants - Quick Service Valdosta Restaurants - Quick Service Douglas Restaurants - Quick Service Fayetteville Restaurants - Quick Service Troy Restaurants - Quick Service Wetumpka Restaurants - Quick Service St. Albans Restaurants - Quick Service Huntington Restaurants - Quick Service Newburgh Restaurants - Quick Service Erie Restaurants - Quick Service Dickson Restaurants - Quick Service Restaurants - Quick Service Milford South Daytona GA OH GA GA AL AL WV NY PA TN FL NH WV MS AL OH AL TN TN GA SC GA AL GA TN FL {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 400 281 169 238 261 407 352 284 394 241 319 195 330 220 326 350 311 551 346 152 532 215 193 392 221 226 323 260 121 207 260 125 273 333 240 302 175 133 247 236 243 300 183 273 154 233 913 444 292 416 409 348 458 48 485 513 465 347 152 271 613 238 802 542 701 383 375 736 524 673 366 137 720 364 311 556 701 456 832 459 562 723 551 665 349 468 426 506 711 722 545 557 506 520 416 491 540 738 562 79 668 355 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 15 — — — — 878 — — 739 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 29 — — 400 281 169 238 261 407 352 348 748 458 739 63 232 485 723 513 774 465 872 347 699 284 1,030 1,314 271 665 613 854 977 1,296 802 997 542 872 701 921 383 709 375 725 736 1,047 524 1,075 673 1,019 366 518 137 669 720 935 364 557 311 703 556 777 701 927 456 779 57 43 51 16 56 63 56 41 24 35 69 34 88 66 84 49 53 98 64 79 45 23 85 48 41 64 85 55 1978 6/16/2016 1981 6/16/2016 1988 6/16/2016 1979 6/16/2016 1981 6/16/2016 1982 6/16/2016 1983 6/16/2016 1981 6/16/2016 1986 6/16/2016 1982 6/16/2016 1975 6/16/2016 1988 6/16/2016 1979 6/16/2016 1976 6/16/2016 1979 6/16/2016 1987 6/16/2016 1986 6/16/2016 1974 6/16/2016 1978 6/16/2016 1979 6/16/2016 1977 6/16/2016 1995 6/16/2016 1978 6/16/2016 1987 6/16/2016 1981 6/16/2016 1982 6/16/2016 1975 6/16/2016 1976 6/16/2016 832 1,092 102 1985 6/16/2016 459 580 562 769 723 983 551 676 665 938 349 682 468 708 426 728 506 681 711 844 722 969 545 781 557 800 506 806 520 703 416 689 491 645 540 773 53 67 88 64 85 46 60 53 58 82 88 63 65 60 61 52 56 63 1990 6/16/2016 1985 6/16/2016 1999 6/16/2016 1992 6/16/2016 1979 6/16/2016 1986 6/16/2016 1980 6/16/2016 1976 6/16/2016 1979 6/16/2016 1979 6/16/2016 1979 6/16/2016 1980 6/16/2016 1979 6/16/2016 1984 6/16/2016 1985 6/16/2016 1986 6/16/2016 1975 6/16/2016 1992 6/16/2016 738 1,651 121 1975 6/16/2016 562 1,006 108 400 668 1,084 355 764 88 19 86 53 1977 6/16/2016 1977 6/16/2016 1984 6/16/2016 1993 6/16/2016 394 241 319 195 330 220 326 350 311 551 346 152 532 215 193 392 221 226 323 260 121 207 260 125 273 333 240 302 175 133 247 236 243 300 183 273 154 233 913 444 292 416 409     F-2  State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired Description(a) City Hurst FL GA GA AL FL FL TX LA CO OR FL FL GA GA FL FL Panama City Beach Fleming Island Port St. Lucie North Fort Myers Port Charlotte FL San Antonio TX Tenant Industry Restaurants - Quick Service Portland Restaurants - Quick Service Superior Restaurants - Casual Dining Fond du Lac WI Restaurants - Casual Dining Alexandria Medical / Dental Restaurants - Quick Service Jacksonville FL Restaurants - Casual Dining Restaurants - Casual Dining Restaurants - Casual Dining Waycross Restaurants - Casual Dining Kingsland Restaurants - Casual Dining Jacksonville FL Restaurants - Casual Dining Restaurants - Casual Dining Restaurants - Casual Dining Cape Coral Restaurants - Casual Dining Restaurants - Casual Dining Dothan Restaurants - Casual Dining Albany Restaurants - Casual Dining Panama City FL Restaurants - Casual Dining Valdosta Restaurants - Casual Dining Gainesville Restaurants - Casual Dining Panama City FL Restaurants - Casual Dining Thomasville GA Restaurants - Family Dining Leesburg N/A Restaurants - Quick Service Augusta Warner Restaurants - Quick Service Robins Restaurants - Quick Service Beloit Automotive Service Home Furnishings Home Furnishings Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Restaurants - Family Dining Salem Restaurants - Quick Service Mansfield Other Services Anniston Early Childhood Education New Hartford NY Binghamton NY OH AL Chadwicks Fort Worth Davenport Cumming Marathon Freeville Windsor Endicott Franklin Lansing Earlville Greene Liberty NY NY NY NY NY NY GA NY NY NY NY NH TX TX NY NY NY NY GA GA TX Spring Vestal Frisco Afton Delhi WI {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 580 1,523 96 2002 6/16/2016 $ 252 $ 131 $ — $ — $ 252 $ 131 $ 383 $ 370 434 521 1,197 837 889 1,462 1,493 872 586 354 355 930 1,510 861 1,700 602 1,256 821 1,215 1,060 1,817 — — — — — — — — — — — — — — 300 — — — — — — — 370 434 804 521 1,197 1,718 837 889 1,726 1,462 1,793 3,255 872 586 354 1,226 355 941 930 1,510 2,440 861 1,700 2,561 602 1,256 1,858 821 1,215 2,036 1,060 1,817 2,877 1,021 850 (95 ) (g) (79 ) (g) 926 771 1,697 741 1,692 750 959 577 1,144 731 1,249 539 1,389 626 957 193 1,930 673 1,044 943 808 105 272 130 580 720 — 26 174 144 1,134 805 1,577 2,224 4,779 1,348 7,847 273 1,008 272 1,101 557 1,974 348 1,303 861 3,034 524 1,457 520 2,127 301 213 219 258 863 784 811 985 324 1,285 275 1,066 423 188 774 576 324 1,194 131 91 312 232 112 176 — — — — — — — 50 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (26 ) — — — — — — — — — — — — — — — — — — — — — — (52 ) (g) — (69 ) (g) — 741 1,692 2,433 750 959 1,709 577 1,144 1,721 731 1,249 1,980 539 1,389 1,928 626 957 1,583 193 1,930 2,123 723 1,044 1,767 943 808 105 272 130 720 1,528 105 — — 272 174 304 144 1,134 1,278 805 1,577 2,382 2,224 4,779 7,003 1,348 7,847 9,195 273 1,008 1,281 272 1,101 1,373 557 1,974 2,531 348 1,303 1,651 861 3,034 3,895 524 1,457 1,981 520 2,127 2,647 301 213 219 258 863 1,164 784 997 811 1,030 985 1,243 324 1,285 1,609 275 1,066 1,341 774 1,197 423 188 22 56 107 147 220 44 42 189 196 155 165 203 105 195 122 136 143 148 122 187 165 2015 6/16/2016 2002 6/16/2016 1996 6/16/2016 1994 6/16/2016 1997 6/16/2016 2006 6/16/2016 2006 6/16/2016 1988 6/16/2016 1994 6/16/2016 1995 6/16/2016 1995 6/16/2016 1994 6/16/2016 1995 6/16/2016 1996 6/16/2016 1999 6/16/2016 1993 6/16/2016 1991 6/16/2016 1991 6/16/2016 1994 6/16/2016 1994 6/16/2016 1999 6/16/2016 130 — 20 28 115 181 436 717 133 146 261 172 402 193 281 114 104 107 130 170 141 102 2007 6/16/2016 6/16/2016   6/16/2016 1975 6/16/2016 1999 6/16/2016 2013 8/4/2016 2006 8/19/2016 2007 8/19/2016 1970 8/22/2016 1980 8/22/2016 1989 8/22/2016 1994 8/22/2016 2010 8/22/2016 1994 8/22/2016 1995 8/22/2016 1995 8/22/2016 1987 8/22/2016 2004 8/22/2016 1997 8/22/2016 1996 8/22/2016 1992 8/22/2016 1998 8/22/2016 576 764 76 1995 8/22/2016 324 1,194 1,518 131 39 312 232 363 43 176 82 488 158 103 65 34 1993 8/22/2016 1998 9/16/2016 1988 9/16/2016 1992 9/16/2016 876 2,357 — — 876 2,357 3,233 241 2001 9/30/2016 F-3      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 922 $ 2,108 $ — $ — $ 922 $ 2,108 $ 3,030 $ Description(a) City IA IA IA IA IA IA NE GA NY Amherst Red Oak Waterloo Suwanee Burlington Muscatine Fort Worth Cedar Falls Plattsmouth Fort Madison Cedar Rapids NY AZ Nebraska City NE Port Charlotte FL Williamsville NY Niagara Falls NY Cheektowaga NY Lackawanna NY Tenant Industry Early Childhood Education Medical / TX Dental Car Washes Acworth GA Car Washes Douglasville GA GA Car Washes Hiram Car Washes Marietta GA Medical / Dental Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Dunkirk Car Washes Tucson Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Movie Theatres Restaurants - Quick Service Restaurants - Casual Dining Restaurants - Casual Dining Restaurants - Casual Dining Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Canandaigua NY Terre Haute Kansas City Gardendale Homewood Stevenson Rochester Clarksville Richmond Anderson Columbia Picayune Sarasota Sarasota Brewster Florence Camden Tucson Quincy Jasper AL AL AZ FL AL PA AL AL MO MS MS NH SC SC GA MA SC TX TX FL Baden Dalton Laurel Austin Miami Alton IN IN IA IL IL FL   {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 1,617 1,346 1,974 1,376 1,302 — 2,615 2,882 2,947 2,136 1,820 2,072 231 367 410 232 509 606 615 1,025 419 1,302 255 1,048 187 2,190 444 1,171 436 1,179 264 854 304 1,284 344 846 375 771 363 748 304 1,302 254 1,010 99 (g) — — — — — — — — — — — — — — — — — — — — — 1,519 6,294 117 4,185 (g) — — — — — — — — — — — — — — — — — — — — — — 1,716 1,346 1,974 1,376 1,302 4,185 5,901 2,615 3,961 2,882 4,856 2,947 4,323 2,136 3,438 1,820 2,072 3,892 231 367 410 232 463 509 876 606 1,016 615 1,025 1,640 419 1,302 1,721 255 1,048 187 442 2,190 3,238 216 244 258 284 290 211 227 25 54 64 109 138 20 210 2009 9/30/2016 2017 10/12/2016 2006 10/17/2016 2006 10/17/2016 2004 10/17/2016 2002 10/17/2016 2000 10/20/2016 1987 10/28/2016 1978 10/28/2016 1998 10/28/2016 1985 10/28/2016 1988 10/28/2016 1980 10/28/2016 2010 11/9/2016 444 1,171 1,615 131 1976 11/15/2016 436 1,179 1,615 132 1991 11/15/2016 264 854 1,118 96 1993 11/15/2016 304 1,284 1,588 144 1987 11/15/2016 344 846 1,190 95 1982 11/15/2016 375 771 1,146 86 2004 11/15/2016 363 748 1,111 84 2014 11/15/2016 304 1,302 1,606 146 1999 11/15/2016 254 1,010 1,264 1,636 6,294 7,930 113 629 2000 11/15/2016 2015 12/19/2016 191 245 (133 ) (g) (187 ) (g) 58 58 116 97 1962 12/28/2016 589 1,984 468 2,144 808 1,233 191 323 485 323 485 323 252 272 466 780 982 557 446 406 568 608 657 1,033 292 60 333 325 578 568 100 1,033 70 181 70 211 211 211 242 495 517 426 527 487 537 426 375 446 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 589 1,984 2,573 187 2005 12/29/2016 468 2,144 2,612 190 2005 12/29/2016 808 1,233 2,041 125 1976 12/29/2016 191 323 485 323 485 323 252 272 466 657 780 1,103 982 1,467 557 880 446 931 406 729 568 820 608 880 51 65 78 52 48 55 65 68 1990 12/30/2016 1967 12/30/2016 1981 12/30/2016 1973 12/30/2016 2001 12/30/2016 1960 12/30/2016 2001 12/30/2016 2001 12/30/2016 657 1,033 1,690 108 1994 12/30/2016 292 60 333 325 617 578 638 568 901 100 1,033 1,133 70 181 70 211 211 211 242 495 517 587 426 607 527 597 487 698 537 748 426 637 375 617 446 941 40 45 63 85 45 42 44 42 54 42 42 58 1998 12/30/2016 1986 12/30/2016 1979 12/30/2016 1970 12/30/2016 1977 12/30/2016 1958 12/30/2016 2009 12/30/2016 1948 12/30/2016 1985 12/30/2016 1986 12/30/2016 1970 12/30/2016 1982 12/30/2016   Medical / Dental Health and Fitness Medical / Dental Terrell Hills West Valley City TX UT Rock Springs WY {f} {f} {f} 282 588 1,936 4,210 620 2,550 — — — — — — 282 588 870 52 2002 12/30/2016 1,936 4,210 6,146 620 2,550 3,170 361 222 1984 12/30/2016 2001 1/17/2017 F-4    State Encumbrances GA GA {f} {f} $ 1,136 $ 824 Initial Cost to Company Land & Improvements Building & Improvements Land & Improvements — — 4,332 $ 3,759 Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Battle Creek MI Islip Terrace NY North Myrtle Beach Description(a) Frisco Alpena Prosper Mokena Lakeway Westland Bridgeton Lexington Ann Arbor Alpharetta Grapevine Muskegon Southlakle New Freedom City Conyers Covington Tenant Industry Car Washes Car Washes Movie Theatres Medical / Dental Medical / Dental Medical / Dental Medical / Dental Early Childhood Education Home Furnishings Home Furnishings Home Furnishings Home Furnishings Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Restaurants - Quick Service Cedartown Restaurants - Quick Service Forsyth Convenience Stores Convenience Stores Car Washes Car Washes Automotive Service Car Washes Automotive Service Convenience Stores Convenience Stores Early Childhood Education Early Childhood Education Medical / Dental Medical / Dental Medical / Dental Medical / Dental Car Washes Car Washes Restaurants - Quick Service Inverness Columbia Building Station Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Bridgeport Lancaster Gambrills Maumee Jackson Garland El Paso Payson Radcliff Atlanta Tyler Katy Troy Gainesville Baytown Las Cruces Las Cruces Cartersville SC MO IL KY GA MI MI MI TX TX TX TX TX GA GA AR MD TX TX AZ TX TX NM NM FL OH OH OH OH OH WV KY FL GA TX TX Topeka KS Bossier City LA LA Shreveport PA Huntingtown MD Kernersville NC San Antonio TX Portsmouth OH Douglasville GA {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} 1,465 7,081 199 237 199 313 578 303 474 436 1,595 4,177 1,858 14,560 2,096 13,399 1,113 6,436 1,212 7,904 1,279 1,314 1,244 1,396 1,161 2,534 657 997 774 1,678 258 464 252 603 463 836 904 984 812 808 703 1,584 2,637 2,812 872 1,857 2,461 6,139 404 1,433 — — — — — — — — — — — — — — — — — — — — — — — — — Building & Improvements — — $ — — — — — — — — — — — — — — — — — — — — — — — — — 605 1,408 928 3,312 548 1,944 — — — — — — Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) $ 1,136 $ 824 4,332 $ 5,468 $ 4,583 3,759 1,465 7,081 8,546 199 237 199 313 578 777 303 540 474 673 436 749 410 368 546 50 45 46 40 Year Constructed Date Acquired 2013 1/24/2017 2011 1/24/2017 2006 1/31/2017 1982 2/9/2017 2008 2/9/2017 2014 2/9/2017 1986 2/9/2017 1,595 4,177 5,772 383 2016 2/28/2017 1,858 14,560 16,418 1,127 1987 3/1/2017 2,096 13,399 15,495 1,013 1992 3/1/2017 1,113 6,436 7,549 1,212 7,904 9,116 1,279 1,314 2,593 1,244 1,396 2,640 1,161 2,534 3,695 499 629 131 139 224 1987 3/1/2017 1996 3/1/2017 2003 3/8/2017 2001 3/8/2017 2010 3/8/2017 657 997 1,654 93 2002 3/8/2017 774 1,678 2,452 145 1998 3/8/2017 258 464 252 603 463 836 904 984 812 1,070 808 1,272 703 955 1,584 2,637 2,812 2,187 3,100 3,648 872 1,857 1,776 2,841 2,461 6,139 8,600 404 1,433 1,837 71 71 79 178 213 239 89 166 466 156 124 1987 3/9/2017 1989 3/9/2017 1985 3/10/2017 2008 3/10/2017 2010 3/22/2017 2012 3/22/2017 1997 3/28/2017 1998 3/28/2017 2009 3/28/2017 1980 3/30/2017 1995 3/30/2017 605 1,408 2,013 120 1997 4/3/2017 928 3,312 4,240 548 1,944 2,492 254 146 324 2016 4/25/2017 1988 4/28/2017 2018 5/5/2017 392 1,204 (13 ) (g) (155 ) (g) 379 1,049 1,428 233 1,228 286 510 570 382 1,790 2,290 2,187 493 1,078 1,437 733 1,238 403 288 376 133 386 414 934 693 211 833 160 273 200 638 1,313 1,743 1,026 2,421 901 177 1,250 2,283 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-5 233 1,228 1,461 88 2012 5/18/2017 286 510 570 382 1,790 2,290 2,187 2,076 2,800 2,757 127 184 176 2008 5/18/2017 2008 5/24/2017 2010 5/24/2017 493 875 56 2003 5/30/2017 1,078 1,437 2,515 733 1,238 1,971 403 288 376 133 386 414 934 693 1,096 211 499 833 1,209 160 293 273 659 200 614 638 1,572 1,313 1,743 3,056 1,026 2,421 3,447 131 113 63 19 76 15 25 18 58 159 221 1961 6/1/2017 1963 6/1/2017 1991 6/1/2017 1995 6/1/2017 1995 6/1/2017 1996 6/1/2017 1978 6/1/2017 1984 6/1/2017 2003 6/1/2017 2003 6/1/2017 2004 6/1/2017 901 177 1,078 16 1984 6/1/2017 1,250 2,283 3,533 209 2001 6/1/2017 Brownsville TX 1,626 — 982 7,743 2,608 7,743 10,351      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Building & Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 2,150 $ 631 $ — $ — $ 2,150 $ 631 $ 2,781 $ {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} {f} Mt. Pleasant Bessemer Farmington Farmington Pueblo Forest Park Clarksville Description(a) City Visalia Conroe Irondale Martinez Knoxville Amarillo Grand Junction Tenant Industry Building Materials Building Materials Building Materials Building Materials Building Materials Building Materials Car Washes Car Washes Car Washes Restaurants - Quick Service Nashville Restaurants - Quick Service Soperton Movie Theatres Kenosha Entertainment Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Medical / Dental Restaurants - Quick Service Algona Car Washes Buford Early Childhood Education Automotive Service Automotive Service Automotive Service Pet Care Services Medical / Dental Car Washes Car Washes Automotive Service Automotive Service Automotive Service Car Washes Car Washes Car Washes Memphis Orlando Orlando Smyrna Arvada Burton Ocala Troy Longwood Anderson Cornelia South Commerce Hobbs Braham Seneca Greenville Car Washes Car Washes Restaurants - Quick Service East Bethel Restaurants - Quick Service Isanti Convenience Stores Restaurants - Quick Service Grantsburg Health and Fitness Health and Fitness Automotive Service Early Childhood Education Car Washes Car Washes Car Washes Convenience Stores Convenience Stores Convenience Stores Winter Garden Springdale Rogers Shreveport Magnolia Florence TX TX CO SC AL AL NM NM CO GA GA WI CA TN GA GA TN FL FL IA GA FL MI MI CO GA TN FL SC GA GA SC SC MN MN MN WI NM KY TX FL AR AR LA Montgomery AL Garden City MI Round Rock TX AR Little Rock AR Bryant Jacksonville TX Daingerfield TX Jacksonville TX 927 760 1,097 546 1,514 634 746 898 655 403 171 227 3,413 4,945 2,795 5,103 181 513 312 3,159 1,320 443 3,755 2,320 518 498 612 498 518 456 695 850 570 633 715 664 477 2,976 150 1,353 528 3,693 1,175 4,362 366 961 794 1,389 188 1,180 1,342 2,808 713 685 489 689 6,821 3,361 2,790 470 417 1,294 887 793 470 607 255 715 1,263 4,031 2,670 3,072 2,994 2,724 764 1,353 1,167 1,859 289 1,043 640 1,673 938 1,503 868 2,186 1,402 2,480 1,169 597 763 460 4,603 1,908 2,663 2,615 587 1,357 269 1,135 368 916 — — — — — — — — — — 116 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-6 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 927 760 655 1,582 403 1,163 1,097 171 1,268 546 227 773 1,514 634 746 898 3,413 4,927 4,945 5,579 2,795 3,541 5,103 6,001 58 60 37 16 21 312 398 225 410 2002 6/1/2017 2002 6/1/2017 1983 6/1/2017 1983 6/1/2017 1975 6/1/2017 2002 2005 2013 2008 6/1/2017 6/6/2017 6/6/2017 6/6/2017 181 513 694 49 1991 6/6/2017 312 3,275 1,320 443 755 3,755 7,030 2,320 3,640 518 498 612 498 518 456 695 1,213 850 1,348 570 1,182 633 1,131 715 1,233 664 1,120 477 2,976 3,453 150 1,353 528 678 3,693 5,046 51 362 202 72 80 68 63 75 62 202 45 297 1992 6/6/2017 6/8/2017 1997 1984 6/30/2017 2008 7/21/2017 1992 7/21/2017 1992 7/21/2017 1998 7/21/2017 1989 7/21/2017 1989 7/21/2017 2001 8/7/2017 1993 8/10/2017 2010 8/15/2017 1,175 4,362 5,537 291 2010 8/25/2017 366 961 1,327 74 1984 8/29/2017 794 1,389 2,183 107 1974 8/29/2017 188 1,180 1,368 83 1955 8/29/2017 713 685 489 689 6,821 7,534 3,361 4,046 2,790 3,279 470 1,159 417 1,294 1,711 887 793 470 607 255 715 1,263 2,150 4,031 4,824 2,670 3,140 3,072 3,679 2,994 3,249 2,724 3,439 764 1,353 2,117 1,167 1,859 3,026 610 425 216 173 42 87 113 266 177 207 186 181 163 187 1982 9/5/2017 2016 9/12/2017 1976 9/12/2017 1997 9/20/2017 1997 9/25/2017 1985 9/25/2017 2000 9/25/2017 2008 9/26/2017 2001 9/26/2017 2016 9/26/2017 2005 9/26/2017 2005 9/26/2017 1996 9/27/2017 1989 9/27/2017 289 1,043 1,332 87 1986 9/27/2017 640 1,673 2,313 938 1,503 2,441 868 2,186 3,054 1,402 2,480 3,882 1,169 597 763 460 4,603 5,772 1,908 2,505 2,663 3,426 2,615 3,075 587 1,357 1,944 269 1,135 1,404 368 916 1,284 165 124 157 215 316 137 181 176 130 86 87 2005 9/27/2017 2016 9/28/2017 1994 9/28/2017 2017 9/29/2017 2015 9/29/2017 2009 9/29/2017 2005 9/29/2017 2017 9/29/2017 2012 9/29/2017 1979 9/29/2017 1996 9/29/2017 1,162 1,342 3,970 5,312      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 269 $ 2,290 1,103 $ 4,377 (10 ) (g) $ — (41 ) (g) $ — 259 $ 2,290 1,062 $ 1,321 $ 6,667 4,377 Description(a) City IN MI Kent Tyler Aztec Salem CO NM OH PA OH OH OH NY Toledo Ignacio Kirtland Madison Penn Yan Southfield Pittsburgh TX AL TX FL West Lafayette Farmington NM Farmington NM Farmington NM Farmington NM Farmington NM Youngstown OH North Lima OH Farmington NM Farmington NM Youngstown OH Farmington NM Tenant Industry Convenience Stores Kilgore Entertainment Orlando Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Convenience Stores Entertainment Hoover Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Restaurants - Quick Service Gray Restaurants - Quick Service Sandersville GA Restaurants - Quick Service Barnesville GA Health and Fitness Restaurants - Quick Service Hutchinson KS Medical / Dental Medical / Dental Convenience Stores Pet Care Services Pet Care Services Pet Care Services Pet Care Services Early Childhood Education Early Childhood Education Restaurants - Casual Dining Bossier City LA Restaurants - Casual Dining Augusta Movie Theatres Restaurants - Quick Service Sylacauga Restaurants - Quick Service Daleville Restaurants - Quick Service Roanoke Restaurants - Quick Service Jasper Restaurants - Quick Service Restaurants - Quick Service Headland Restaurants - Quick Service Tallassee Restaurants - Quick Service Talladega Restaurants - Quick Service Enterprise Farmington NM Fayetteville AR Lansdowne VA Alexander City Overland Park Indianapolis Greenwood Franklin Greeley Lindale KS GA OH AL AL AL AL AL AL AL AL AL TX NM GA CO TX Dublin Tyler IN IN IN {f} {f} {f} {f} 112 926 193 1,536 122 92 397 468 448 1,750 112 1,221 275 387 702 488 366 1,394 132 173 706 1,403 332 342 372 322 651 610 511 2,939 302 604 886 685 282 1,077 503 735 815 352 272 1,047 332 775 453 1,027 332 293 283 243 906 374 515 414 1,484 4,491 194 777 985 5,675 394 1,429 554 785 395 2,319 905 1,456 312 52 593 416 2,167 2,982 1,189 4,062 976 2,347 1,663 1,909 2,126 10,097 166 127 224 370 263 273 195 88 166 351 409 526 331 506 370 302 273 380 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 950 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 448 1,750 2,198 108 1995 10/5/2017 1,461 2,939 2,167 4,342 76 212 1996 10/16/2017 2017 10/13/2017 112 926 1,038 193 1,536 1,729 122 92 397 519 468 560 112 1,221 1,333 275 387 702 977 488 875 366 1,394 1,760 132 173 706 1,403 332 342 372 322 651 783 610 783 302 634 604 946 886 1,258 685 1,007 282 1,077 1,359 503 735 815 1,318 352 1,087 272 1,047 1,319 332 775 1,107 453 1,027 1,480 332 293 283 243 906 1,238 374 667 515 798 414 657 86 296 57 94 27 31 1978 9/29/2017 2007 9/29/2017 1976 10/5/2017 1968 10/5/2017 1976 10/5/2017 1985 10/5/2017 72 52 37 98 46 42 1983 10/5/2017 1971 10/5/2017 1950 10/5/2017 1995 10/5/2017 1986 10/5/2017 1970 10/5/2017 28 47 76 55 85 69 37 79 65 93 72 32 41 36 1966 11/8/2017 1972 11/8/2017 2013 11/8/2017 1982 11/8/2017 1980 11/8/2017 1980 11/8/2017 1982 11/8/2017 1983 11/8/2017 1985 11/8/2017 1990 11/8/2017 1980 11/8/2017 1992 11/10/2017 1989 11/10/2017 1996 11/10/2017 1,484 4,491 5,975 284 1989 11/16/2017 194 777 971 55 1971 11/16/2017 985 5,675 6,660 394 1,429 1,823 350 103 1999 11/17/2017 2013 11/17/2017 554 785 1,339 80 1998 11/21/2017 395 2,319 2,714 905 1,456 2,361 312 52 593 905 416 468 145 103 40 25 2007 12/1/2017 1979 12/1/2017 1952 12/1/2017 1954 12/1/2017 2,167 2,982 5,149 201 2006 12/4/2017 1,189 4,062 5,251 976 2,347 3,323 1,663 1,909 3,572 2,126 10,097 12,223 166 127 224 370 263 273 195 88 166 351 517 409 536 526 750 331 701 506 769 370 643 302 497 273 361 380 546 262 163 126 596 25 27 38 32 38 38 25 20 28 2017 12/8/2017 1993 12/15/2017 1982 12/15/2017 1994 12/15/2017 1976 12/19/2017 1983 12/19/2017 1990 12/19/2017 2005 12/19/2017 2004 12/19/2017 2007 12/19/2017 2008 12/19/2017 1999 12/19/2017 1974 12/19/2017     F-7  State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Building & Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 195 $ 302 $ — $ — $ 195 $ 302 $ 497 $ Description(a) City IN MI AL MS GA PA TN MS MD GA MD AL AL MO FL SC AL AL Auburn Columbus Southaven TX AR AR AR OK OK OK Spring Fayetteville Fayetteville Bentonville Stillwater Stillwater Stillwater Tenant Industry Restaurants - Quick Service Childersburg AL Restaurants - Quick Service Valley Restaurants - Quick Service Selma Restaurants - Casual Dining Linthcum Restaurants - Casual Dining East Point Pocomoke Restaurants - City Casual Dining Restaurants - Casual Dining D'Iberville Restaurants - Casual Dining Clarksville Restaurants - Casual Dining Scranton Alexander Restaurants - City Casual Dining Restaurants - Casual Dining Columbia Restaurants - Casual Dining Palm City Restaurants - Casual Dining St Robert Restaurants - Casual Dining Jasper Restaurants - Quick Service Jasper Automotive Service Car Washes Car Washes Car Washes Car Washes Car Washes Car Washes Health and Fitness Health and Fitness Early Childhood Education Restaurants - Quick Service Saginaw Restaurants - Quick Service Restaurants - Quick Service Health and Fitness Convenience Stores Early Childhood Education Restaurants - Casual Dining Davenport Restaurants - Casual Dining Bettendorf Restaurants - Casual Dining Kewanee Restaurants - Casual Dining Davenport Restaurants - Casual Dining Davenport Automotive Service Automotive Service Grocery Health and Fitness Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Movie Theatres Health and Fitness Restaurants - Family Dining Pittsburg Automotive Service Early Childhood Education Pet Care Services Grand Rapids Grand Rapids Woodbury Burlington San Antonio TX Cave Creek AZ MN NC Farmington Bloomfield Burlington Roseville Elk River Trumbull Wichita Canton OK KS NM SC CT CT CT OH NC CT MN KS MN Shelby Dublin Aiken Tulsa MI MI IA IA IA IA IL {f} {f} {f} {f} {f} 185 175 302 487 409 584 1,691 1,124 2,815 1,153 831 1,984 653 927 861 785 511 785 672 644 766 226 721 567 597 1,307 320 669 825 849 1,502 623 1,550 736 1,597 755 1,540 802 1,313 500 1,285 727 1,399 755 1,399 292 1,058 931 1,157 1,232 1,953 1,377 1,944 1,675 2,272 2,436 3,743 924 1,244 1,634 2,303 750 1,575 1,104 2,411 3,515 2,175 2,540 4,715 22 24 30 98 69 82 53 57 76 62 46 58 54 31 60 107 95 117 166 57 113 70 172 199 1989 12/19/2017 2004 12/19/2017 1996 12/19/2017 2004 12/21/2017 2003 12/21/2017 2005 12/21/2017 2004 12/21/2017 2003 12/21/2017 1995 12/21/2017 2007 12/21/2017 2003 12/21/2017 2003 12/21/2017 2001 12/21/2017 1998 12/21/2017 1998 12/22/2017 2017 12/27/2017 2011 12/28/2017 1980 12/28/2017 2017 12/28/2017 2002 12/28/2017 2006 12/28/2017 2007 12/28/2017 2007 12/29/2017 2005 12/29/2017 185 175 302 409 1,691 1,124 1,153 653 927 861 785 511 785 672 644 766 226 721 567 597 1,307 320 669 825 831 849 623 736 755 802 500 727 755 292 931 932 1,377 1,675 2,436 924 1,634 750 1,104 2,411 2,175 2,540 1,060 1,496 528 1,086 299 1,205 349 1,166 2,594 221 864 57 — 784 — 479 402 1,050 115 432 459 1,304 153 1,268 489 1,602 978 762 2,049 1,300 1,063 3,787 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 300 — — — — — — — — 124 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-8 1,060 1,620 2,680 104 2002 12/29/2017 528 1,086 1,614 299 1,205 1,504 349 1,166 1,515 78 80 70 2012 1/4/2018 2016 1/4/2018 2013 1/4/2018 326 4,812 2,920 4,812 7,732 201 2018 1/19/2018 — — 221 784 1,005 50 1980 1/24/2018 206 3,392 1,070 3,392 4,462 57 479 536 402 1,050 1,452 115 432 547 459 1,304 1,763 153 1,268 1,421 489 1,602 2,091 978 762 2,049 3,027 1,300 2,062 1,063 3,787 4,850 41 25 60 27 77 68 91 121 83 208 2018 1/31/2018 1955 2/8/2018 1975 2/8/2018 1993 2/8/2018 1990 2/8/2018 1952 2/8/2018 1971 2/16/2018 2000 2/16/2018 1992 2/16/2018 1998 3/1/2018 432 1,408 1,840 88 2004 3/9/2018 730 761 1,491 61 1979 3/9/2018 278 1,459 1,737 83 1985 3/9/2018 740 2,934 3,674 1,826 2,798 4,624 465 433 792 1,257 898 1,331 163 174 135 51 53 2008 3/13/2018 2004 3/22/2018 2018 3/22/2018 2016 3/29/2018 1996 3/29/2018 108 4,329 2,964 4,329 7,293 482 1,496 1,978 79 2007 3/29/2018 867 1,789 3,407 5,196 145 2008 4/5/2018 432 1,408 — 730 761 — 278 1,459 — 740 2,934 1,826 2,798 — — 2,856 465 433 — 792 898 482 1,496 1,789 2,540      State Encumbrances Improvements Improvements Improvements Initial Cost to Company Land & Building & Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Building & Improvements Land & Building & Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired Description(a) City MI Rice Apex Sartell GA MN MN MD AL MN MN AZ MO NC NC AR AR Rogers Decatur Acworth Pine City Maricopa Baltimore Springfield Cambridge Russellville Fuquay Varina Paris Bel Air TX MD Clinton Township Byron Center MI Lakewood Ranch St. Augusta MN North Canton OH Holly Springs NC Tenant Industry Pet Care Services Early Childhood Education Medical / Dental Medical / Dental Medical / Dental Medical / Dental Car Washes Automotive Service Automotive Service Automotive Service Movie Theatres Automotive Service Automotive Service Automotive Service Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Early Childhood Education Pet Care FL Services TN Other Services Bluff City TN Other Services Erwin NC Other Services Sparta TN Other Services Kingsport TN Other Services Cleveland Other Services Cleveland TN Other Services Castlewood VA GA Other Services Covington GA Other Services Harlem Other Services London KY Other Services Elizabethton TN Other Services Elizabethton TN Other Services Mountain City TN Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Tigerton Stevens Point Tomahawk Rothschild Marathon Mosinee Wausau Wausau Wausau Wausau Prentice Phillips Pound Plover Hatley Merrill Edgar Gillett WI WI WI WI WI WI WI WI WI WI WI WI WI WI WI WI WI WI $ 1,057 $ 1,057 $ — $ 969 $ 1,057 $ 2,026 $ 3,083 $ 66 2008 4/5/2018 {f} {f} {f} {f} {f} {f} 513 1,591 660 1,326 599 1,229 710 1,297 416 321 229 1,020 3,120 428 308 1,283 487 318 1,491 4,350 481 1,179 982 688 206 1,709 988 607 473 1,111 782 1,461 792 1,173 1,008 2,161 {f} 637 1,365 442 146 713 713 1,220 673 615 1,259 849 703 937 254 488 78 260 311 — 1,347 1,484 1,942 3,143 1,083 2,938 1,786 3,309 1,610 2,391 517 849 176 509 372 402 1,470 502 412 1,164 703 191 321 241 361 445 753 760 722 478 591 954 1,014 1,054 522 1,857 1,305 683 1,008 261 1,244 502 1,275 783 949 883 851 — — — — — — — — — — — — — — — — — — — 2,677 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 1,054 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-9 513 1,591 2,104 101 2012 4/9/2018 660 1,326 1,986 599 1,229 1,828 710 1,297 2,007 416 321 229 1,020 1,436 3,120 3,441 428 657 308 1,283 1,591 487 318 805 76 73 69 59 166 26 66 27 2014 4/20/2018 2013 4/20/2018 2015 4/20/2018 2013 4/20/2018 2016 4/26/2018 2000 5/1/2018 2003 5/1/2018 2008 5/1/2018 1,491 4,350 5,841 253 2013 5/10/2018 481 982 1,463 1,179 688 1,867 206 1,709 1,915 988 607 1,595 473 1,111 1,584 782 1,461 2,243 792 1,173 1,965 1,008 2,161 3,169 52 74 73 69 75 119 100 157 1960 5/17/2018 1983 5/17/2018 1952 5/17/2018 2013 5/17/2018 1978 5/17/2018 2005 5/17/2018 1967 5/17/2018 2007 5/17/2018 637 1,365 2,002 86 2000 5/18/2018 1,496 146 713 713 1,220 673 615 1,259 849 703 937 254 488 78 260 311 2,677 4,173 1,347 1,493 1,484 2,197 1,942 2,655 3,143 4,363 1,083 1,756 2,938 3,553 1,786 3,045 3,309 4,158 1,610 2,313 2,391 3,328 517 771 849 1,337 254 176 509 769 372 683 402 1,470 1,872 502 412 361 863 445 857 56 57 76 111 185 58 128 111 173 84 135 36 45 9 38 35 80 48 43 2019 5/24/2018 6/1/2018 1949 6/1/2018 1981 6/1/2018 1973 6/1/2018 1979 6/1/2018 1975 6/1/2018 1964 6/1/2018 1991 6/1/2018 1991 6/1/2018 1895 6/1/2018 1999 6/1/2018 2010 6/1/2018 1996 6/1/2018 1936 1994 6/15/2018 1995 6/15/2018 1995 6/15/2018 1989 6/15/2018 1991 6/15/2018 1,164 753 1,917 141 1989 6/15/2018 703 191 321 241 760 1,463 722 913 478 799 591 832 69 44 50 46 1985 6/15/2018 1970 6/15/2018 1983 6/15/2018 1990 6/15/2018 954 1,014 1,968 125 1998 6/15/2018 1,054 522 1,576 82 1993 6/15/2018 1,857 1,305 3,162 683 1,008 1,691 261 1,244 1,505 502 949 1,451 1,275 883 2,158 783 851 1,634 190 101 69 78 94 91 1996 6/15/2018 1992 6/15/2018 1987 6/15/2018 1984 6/15/2018 2006 6/15/2018 1997 6/15/2018      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Land & Building & Improvements Improvements Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired Description(a) City WI WI WI WI WI WI Erial Exton Frazer PA PA PA NJ PA NJ PA PA PA Weston Malvern Rudolph Minoqua Mountain Voorhees Glen Mills Park Falls Wittenberg Royersford Collegeville Phoenixville King of Prussia AZ AR West Norriton PA Downingtown PA Surprise Fayetteville Tenant Industry Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Early Childhood Education Car Washes Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Medical / Dental Health and Fitness Health and Fitness Health and Fitness Health and Fitness Medical / Dental Pet Care Services Pet Care Services Pet Care Services Restaurants - Quick Service Brownsville Car Washes Car Washes Car Washes Car Washes Car Washes Restaurants - Quick Service Restaurants - Quick Service Ringgold Restaurants - Quick Service Chattanooga TN Restaurants - Quick Service Chattanooga TN Restaurants - Quick Service Chattanooga TN Restaurants - Quick Service Dayton Restaurants - Quick Service Ooltewah Restaurants - Quick Service Soddy Daisy TN Automotive Athen Winder Decatur Decatur Duluth Fort Oglethorpe KY GA GA GA GA GA Blue Bell Mountain Grove Methuen Moncks Corner Green Valley AZ Brownsville Jonesboro El Dorado Batesville Salisbury Berryville Chandler Oklahoma Peabody Harrison GA TN TN TX AZ AZ GA AR AR AR MA MA SC PA PA MO AR AR MA Mesa $ 371 $ 412 $ — $ — $ 371 $ 412 $ 783 $ 45 1984 6/15/2018 1,405 1,305 412 371 840 663 392 1,164 622 843 1,546 675 1,736 2,405 — — — — — — — — 1,405 1,305 2,710 174 1999 6/15/2018 — — — — 21 — 412 371 840 1,252 663 1,034 392 1,164 1,556 622 843 1,465 65 60 80 74 1992 6/15/2018 1998 6/15/2018 1984 6/15/2018 1993 6/15/2018 1,546 675 1,757 2,405 3,303 3,080 89 111 2008 6/21/2018 2018 6/21/2018 701 2,084 — — 701 2,084 2,785 109 2006 6/28/2018 730 2,276 — — 730 2,276 3,006 114 1998 6/28/2018 3,938 3,246 — — 3,938 3,246 7,184 225 1992 6/28/2018 740 1,546 — — 740 1,546 2,286 73 2000 6/28/2018 442 2,007 — — 442 2,007 2,449 93 2000 6/28/2018 509 1,892 — — 509 1,892 2,401 92 2002 6/28/2018 259 1,892 — — 259 1,892 2,151 83 2002 6/28/2018 557 1,998 — — 557 1,998 2,555 94 2003 6/28/2018 490 2,171 — — 490 2,171 2,661 96 2004 6/28/2018 605 2,219 — — 605 2,219 2,824 103 2007 6/28/2018 423 1,940 — — 423 1,940 2,363 88 2008 6/28/2018 1,431 4,466 — — 1,431 4,466 5,897 219 2010 6/28/2018 788 3,218 4,006 143 1967 6/28/2018 788 3,218 113 144 527 835 329 1,021 93 62 228 120 237 1,139 1,169 14,584 3,497 6,523 4,544 5,179 978 1,439 172 1,683 1,329 1,531 1,775 3,033 913 2,454 297 1,011 683 703 828 1,261 1,024 2,536 2,027 3,031 2,029 2,187 1,283 1,045 387 1,406 438 1,061 876 1,255 1,497 1,161 468 1,283 1,079 1,262 825 992 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 113 144 527 640 835 979 329 1,021 1,350 93 62 228 321 120 182 237 1,139 1,376 — 1,169 14,584 15,753 — 3,497 6,523 10,020 — 4,544 5,179 9,723 — — 978 1,439 2,417 172 1,683 1,855 1,225 1,329 2,756 4,085 1,200 1,775 4,233 6,008 920 913 3,374 4,287 — 600 — — — — 297 1,011 683 703 828 1,261 1,024 3,136 2,027 3,031 2,029 2,187 1,321 4,147 2,710 3,734 2,857 3,448 — 1,283 1,045 2,328 — — — 387 1,406 1,793 438 1,061 1,499 876 1,255 2,131 — 1,497 1,161 2,658 — 468 1,283 1,751 — 1,079 1,262 2,341 — 825 992 1,817 27 37 48 11 8 56 566 279 267 88 69 74 145 111 51 164 105 136 107 109 50 69 51 63 55 65 58 55 2012 6/28/2018 2006 6/28/2018 2005 6/28/2018 2000 6/28/2018 2000 6/28/2018 2017 6/28/2018 2004 6/29/2018 2009 6/29/2018 2002 6/29/2018 2002 6/29/2018 2008 7/13/2018 1990 7/13/2018 2002 7/13/2018 2015 7/13/2018 1990 7/18/2018 2006 7/26/2018 2008 7/26/2018 1967 7/26/2018 2007 7/26/2018 2006 7/26/2018 2001 8/8/2018 2015 8/8/2018 2009 8/8/2018 2004 8/8/2018 2012 8/8/2018 2016 8/8/2018 2003 8/8/2018 2006 8/8/2018   Service City OK 152 596 — — 152 596 748 28 1980 8/9/2018 F-10    State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Building & Land & Building & Improvements Improvements Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 253 $ 495 $ — $ — $ 253 $ 495 $ 748 $ 364 172 384 526 {f} 1,264 1,651 — — 364 172 384 748 526 698 29 28 25 1995 8/9/2018 1985 8/9/2018 1980 8/9/2018 — 1,264 1,651 2,915 106 1995 8/10/2018 785 744 642 435 736 1,521 784 1,528 946 1,588 995 1,430 823 1,660 2,483 40 38 45 48 91 2007 8/22/2018 2008 8/22/2018 2008 8/22/2018 1974 9/4/2018 1985 9/4/2018 908 2,474 3,382 137 1979 9/4/2018 445 1,077 1,522 161 806 967 — 2,024 2,468 4,492 — 1,046 2,986 4,032 54 35 132 125 1978 9/7/2018 1978 9/12/2018 1999 9/13/2018 1980 9/13/2018 — — — — — — — — 617 2,258 — — 617 2,258 2,875 95 2008 9/14/2018 {f} {f} {f} {f} {f} Description(a) City MI GA GA CO GA TX AK AK OR OR TX TX TX AR AR AR OK Seguin Pontiac Eugene Del City Winfield Burleson Colleyville Springfield AR LA Eden Prairie MN Midwest City OK San Antonio TX Midwest City OK Tenant Industry Automotive Service Automotive Service Automotive Service Early Childhood Education Restaurants - Quick Service Blytheville Restaurants - Quick Service Paragould Restaurants - Quick Service Van Buren Convenience Stores Convenience Stores Convenience Stores Automotive Service Restaurants - Quick Service San Angelo TX Health and Fitness Health and Fitness Early Childhood Education Early Childhood Education Restaurants - Quick Service Marion Entertainment Metairie Restaurants - Quick Service Montrose Restaurants - Family Dining Augusta Restaurants - Family Dining Macon Restaurants - Family Dining Macon Restaurants - Quick Service Fairbanks Restaurants - Quick Service Fairbanks Medical / Dental Automotive Service Car Washes Restaurants - Quick Service Andalusia Medical / Dental Early Childhood Education Restaurants - Quick Service Restaurants - Quick Service Grapevine Restaurants - Quick Service St Augustine FL Early Childhood Education Restaurants - Quick Service Hot Springs Health and Fitness Restaurants - Quick Service Countryside Medical / Dental Early Childhood Education Convenience Stores Convenience Stores Convenience Stores Medical / Dental Medical / Dental Convenience Stores Early Childhood Education Restaurants - Quick Service Pembroke Medical / Dental Medical / Dental Medical / Dental Medical / Dental Ashburn North Richard Hills TX Bremen Springdale McDonough GA Montgomery AL IN AR Fleming Island Forrest City Fort Worth Duncaville Centralia Burleson Arlington Prattville Phoenix Midland Abilene Tucson Tucson Canton AL TX AL AR VA FL NY TX TX TX TX TX AR AZ TX AZ AZ WA TX GA Dallas IL 785 744 642 435 736 784 946 995 823 1,660 908 2,474 445 1,077 161 806 2,024 2,468 1,046 2,986 695 1,022 459 1,323 920 2,143 698 1,036 825 648 923 894 992 972 438 1,524 687 1,633 336 1,959 221 1,405 384 143 1,284 3,139 727 608 898 671 875 1,113 775 904 917 1,964 {f} 872 2,523 {f} {f} 240 4,227 899 — 727 1,302 298 1,760 604 2,065 977 1,037 568 827 429 509 454 1,528 237 469 857 538 504 2,079 577 466 546 898 845 649 61 1,091 1,813 3,606 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 695 1,022 1,717 459 1,323 920 1,379 2,143 3,466 698 1,036 1,734 825 648 923 894 1,719 992 1,640 972 1,895 438 1,524 1,962 687 1,633 2,320 336 1,959 2,295 47 44 97 49 38 42 50 69 75 76 1997 9/18/2018 2007 9/21/2018 2016 9/21/2018 2000 9/25/2018 1968 9/25/2018 1983 9/25/2018 1972 9/25/2018 1971 9/27/2018 2006 9/27/2018 2006 9/27/2018 1,284 1,505 3,139 4,544 48 131 1970 9/28/2018 2018 9/28/2018 221 1,405 384 143 727 1,111 608 751 898 671 1,569 875 1,113 1,988 775 904 1,679 917 1,964 2,881 872 2,523 3,395 240 899 1,139 — — — — 727 1,302 2,029 298 1,760 2,058 604 2,065 2,669 977 827 1,804 — 1,037 429 1,466 — — — — — — — — — 568 509 1,077 454 1,528 1,982 237 469 857 1,094 538 1,007 504 2,079 2,583 577 466 546 898 1,475 845 1,311 649 1,195 61 1,091 1,152 34 26 31 58 48 81 91 35 8 51 57 78 57 25 33 57 31 30 78 47 32 28 30 1988 9/28/2018 2007 9/28/2018 2001 9/28/2018 2017 9/28/2018 2016 9/28/2018 2010 9/28/2018 2006 9/28/2018 1979 10/4/2018 2019 10/10/2018 2013 10/26/2018 1993 10/31/2018 2002 11/2/2018 1985 11/7/2018 1987 11/7/2018 1976 11/7/2018 2004 11/7/2018 2012 11/7/2018 1980 11/8/2018 2006 11/9/2018 2017 11/28/2018 1997 11/30/2018 1999 11/30/2018 1942 11/30/2018 — 1,813 3,606 5,419 110 1979 11/30/2018 114 3,466 4,341 3,466 7,807   Early Childhood Education Olive Branch MS 1,027 1,050 — — 1,027 1,050 2,077 56 2009 12/5/2018 F-11    TX 1,296 3,239 {f} {f} {f} GA GA MN MN MN MN MN MN MN MN MN NC MI MI CO CO CO Denton Dubuque Davenport Rock Island TX IA IA IL Georgetown TX Middleburg FL Kansas City MO Garden City CO CO Brighton Description(a) Manchester City Macon Tenant Industry Early Childhood Education Early Childhood Education Early Childhood Education Entertainment Andover Entertainment Rochester South St. Entertainment Paul Mounds View St. Paul Park Entertainment Entertainment Macon Springdale Brighton Arlington Longmont Ft. Lupton Entertainment Oakdale Entertainment Monticello Entertainment St. Paul Entertainment Ramsey Winston Health and Fitness Salem Automotive Service Car Washes Car Washes Car Washes Pet Care Services Pet Care Services Early Childhood Education Home Furnishings Restaurants - Casual Dining Flint Restaurants - Casual Dining Saginaw Automotive Service Automotive Service Automotive Service Automotive Service Car Washes Restaurants - Quick Service Alexandria Restaurants - Quick Service Leesville Restaurants - Quick Service Griffin Car Washes Entertainment Nampa Medical / Dental Car Washes Early Childhood Education Pet Care Services Medical / Dental Medical / Dental Restaurants - Quick Service Ruston Restaurants - Quick Service El Dorado Restaurants - Quick Service Percival Early Childhood Education Restaurants - Casual Dining Wilder Medical / Dental Health and Fitness Early Childhood Education Early Childhood Education Early Childhood Education Automotive Service Automotive Service Health and Fitness St. Augustine St. Augustine St. Augustine West Memphis Denham Springs Little Rock Las Vegas Thornton Meridian Brighton Abilene Rogers Garner Gilbert Bryant {f} {f} {f} {f} {f} {f} LA LA GA AR ID AR AR AZ LA AR AR LA AR IA NC KY MS TX FL FL FL CO CO State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired CT $ 915 $ 939 $ — $ 568 $ 915 $ 1,507 $ 2,422 $ 35 1977 12/7/2018 538 1,067 1,605 45 2007 12/14/2018 538 1,067 508 898 379 1,067 1,208 968 1,008 928 1,986 3,264 529 2,136 1,527 1,218 609 1,058 5,699 3,414 1,407 749 — — — — — — — — — — — — — — — — — — — — — — 986 1,205 (75 ) (g) (90 ) (g) 911 1,115 2,026 508 898 379 1,067 1,575 1,208 2,106 968 1,347 1,008 928 1,936 1,986 3,264 5,250 529 2,136 1,527 1,218 609 1,058 1,587 5,699 7,835 3,414 4,941 1,407 2,625 749 1,358 1,278 990 757 1,030 753 803 1,582 2,860 2,121 3,111 2,394 3,151 2,949 3,979 — 753 — 803 1,296 3,239 4,535 273 4,683 4,956 619 335 339 274 893 294 629 309 648 226 1,024 1,250 390 134 205 271 140 923 1,032 886 247 550 415 805 544 156 678 361 953 1,224 812 952 1,103 2,026 2,325 3,357 2,768 3,654 543 790 2,200 2,750 1,074 — 1,074 485 701 1,186 770 1,562 2,332 460 1,519 1,979 544 1,399 1,943 661 1,448 2,109 578 1,252 1,830 378 1,962 2,340 317 1,169 1,486 40 47 31 40 121 41 193 144 51 42 36 65 73 79 97 — — 103 128 19 17 14 30 16 18 7 31 26 38 82 75 19 69 — 24 44 41 45 49 45 49 29 2008 12/14/2018 2005 12/12/2018 1958 12/12/2018 1978 12/12/2018 1967 12/12/2018 1959 12/12/2018 2009 12/12/2018 2007 12/12/2018 1955 12/12/2018 1988 12/12/2018 1972 12/19/2018 1982 12/20/2018 1992 12/20/2018 1990 12/20/2018 1996 12/20/2018 12/21/2018 12/21/2018 1989 12/27/2018 2007 12/28/2018 1975 1/2/2019 1967 1/2/2019 2006 1/7/2019 1994 1/7/2019 1985 1/7/2019 1984 1999 1/7/2019 1/7/2019 1985 1/10/2019 1983 1/10/2019 1983 1/10/2019 2018 1/10/2019 2008 1/17/2019 2007 1/22/2019 2018 1/25/2019 1/29/2019 2007 1/31/2019 2004 1/31/2019 2014 1/31/2019 2016 2/14/2019 2017 2/14/2019 2004 2/15/2019 2007 2/28/2019 2010 2/28/2019 886 5,947 6,833 136 2006 3/8/2019 144 1,326 2,622 3,948 77 1974 3/8/2019 — — — — — — 183 1,436 1,619 35 2016 3/8/2019 611 2,149 2,760 56 2006 3/8/2019 1,385 2,108 3,493 551 337 569 1,120 355 692 491 2,543 3,034 66 19 10 61 1981 3/8/2019 2003 3/13/2019 1980 3/13/2019 1970 3/13/2019 1,278 990 757 1,030 753 803 1,582 2,121 2,394 2,949 — — 273 4,683 619 335 339 274 294 309 226 1,024 390 134 205 271 140 923 1,032 886 247 550 1,074 485 415 544 156 953 812 1,103 2,325 2,768 543 2,200 — 701 770 1,562 460 1,519 544 1,399 661 1,448 578 1,252 378 1,962 317 1,169 886 5,947 1,326 2,478 183 1,436 611 2,149 1,385 2,108 551 337 569 355 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-12 NV {f} 491 2,543      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Building & Land & Building & Improvements Improvements Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired St. Augusta MN {f} $ 518 $ 1,057 $ — $ — $ 518 $ 1,057 $ 1,575 $ Carbondale IL IL NE MO AR OK IN IL IN PA AL GA IN IN Carbondale Stockbridge GA Huntersville NC Greensboro NC Indianapolis Fort Wayne {f} {f} GA GA OK AR AR AR AR GA Johns Creek GA Coral Springs FL Description(a) Tuscaloosa Nashville Monroeville Martinsville City Crete Duluth Alpena Ballwin Energy Norman Norman Pea Ridge Mountain Home Gassville Mountain Home Tenant Industry Automotive Service Pet Care Services Pet Care Services Pet Care Services Pet Care Services Pet Care Services Pet Care Services Pet Care Services Pet Care Services Pet Care Services Entertainment Early Childhood Education Entertainment Entertainment Medical / Dental Early Childhood Education Medical / Dental Medical / Dental Restaurants - Quick Service Woodstock Restaurants - Quick Service Commerce Health and Fitness Convenience Stores Convenience Stores Convenience Stores Convenience Stores Early Childhood Education Early Childhood Education Medical / Dental Medical / Dental Medical / Dental Medical / Dental Pet Care Services Entertainment Early Childhood Education Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Prescott Trussville New Lexington Groesbeck Alexandria Alpharetta Richmond Greenville Waterford Wauseon Louisville Louisville Louisville Eastlake Marshall Wooster Fairborn Fairfield Creston Canton Milford Paris Tyler TX TX TX TX AZ AL OH PA OH KY KY OH OH KY OH KY KY OH OH OH KY OH Nicholasville KY Beavercreek OH 605 313 381 537 518 225 88 557 146 823 645 4,087 2,593 713 254 332 752 654 283 664 537 703 2,028 1,345 9,719 8,381 262 1,682 843 2,539 509 3,504 4,006 435 435 — 932 851 730 2,937 151 171 181 242 835 1,137 365 142 172 667 476 688 747 865 744 477 406 609 487 1,167 223 4,403 1,277 5,693 1,939 2,639 595 467 596 425 1,132 782 516 571 426 864 634 965 553 804 1,066 675 883 722 832 383 630 502 357 392 862 395 305 264 772 538 386 861 574 738 402 381 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-13 — — — — — — — — — — — — — — — — 605 313 381 537 518 225 88 557 146 823 645 4,087 2,593 713 1,318 254 567 332 713 752 1,289 654 1,172 283 508 664 752 537 1,094 703 2,028 849 2,851 1,345 1,990 9,719 13,806 8,381 10,974 262 1,682 1,944 843 2,539 3,382 509 3,504 4,013 — 4,006 — 4,006 — — 435 435 932 1,367 851 1,286 559 730 3,496 4,226 — — — — 151 171 181 242 667 818 476 647 688 869 747 989 400 835 1,265 2,100 — 1,137 744 1,881 365 142 172 477 842 406 548 609 781 487 1,167 1,654 — — — — — — 36 26 8 16 20 20 14 14 23 17 60 33 215 191 35 55 72 — 22 20 86 13 12 13 17 22 23 9 8 13 22 1991 3/13/2019 1986 3/29/2019 1995 3/29/2019 1967 3/29/2019 1986 3/29/2019 1996 3/29/2019 1993 3/29/2019 1989 3/29/2019 1976 3/29/2019 1970 3/29/2019 2016 3/29/2019 2004 3/29/2019 1996 3/29/2019 1988 3/29/2019 1991 3/29/2019 1994 3/29/2019 2016 3/29/2019    3/29/2019 1990 4/5/2019 1990 4/5/2019 2018 4/17/2019 1970 4/19/2019 1988 4/19/2019 1995 4/19/2019 1977 4/19/2019 1999 4/30/2019 2004 4/30/2019 1940 5/15/2019 2005 5/15/2019 1985 5/15/2019 1969 5/15/2019 223 4,403 1,277 1,500 5,693 10,096 21 111 1990 5/24/2019 2002 5/30/2019 — 1,939 2,639 4,578 — — — — 595 467 596 425 832 1,427 383 850 630 1,226 502 927 — 1,132 357 1,489 — — — — — — — — — 782 516 571 426 864 634 965 553 804 392 1,174 862 1,378 395 966 305 731 264 1,128 772 1,406 538 1,503 386 939 861 1,665 — 1,066 574 1,640 — — — 675 883 722 738 1,413 402 1,285 381 1,103 53 25 18 17 19 20 21 26 17 14 14 22 20 16 31 30 27 19 19 2004 5/31/2019 1997 6/6/2019 1996 6/6/2019 1997 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019 1999 6/6/2019 1999 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019 1999 6/6/2019 1998 6/6/2019 1998 6/6/2019 1998 6/6/2019      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Land & Building & Improvements Improvements Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 585 $ 770 $ — $ — $ 585 $ 770 $ 1,355 $ Mount Sterling KY Elizabethtown KY Description(a) Farmington Hills City Avon Milan Lorain Powell Parma Canton Hudson Bedford Seymour Louisville Newtown Longview Huntsville Columbus Fairdale South Bloomfield Tenant Industry Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Restaurants - Casual Dining Warren Restaurants - Casual Dining Detroit Restaurants - Casual Dining Dearborn Restaurants - Casual Dining Restaurants - Casual Dining Livonia Restaurants - Quick Service Albion Medical / Dental Medical / Dental Convenience Stores Restaurants - Casual Dining Danville Restaurants - Casual Dining Wooster Restaurants - Casual Dining Restaurants - Casual Dining Bristol Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Restaurants - Casual Dining Cadillac Restaurants - Casual Dining Alden Medical / Dental Restaurants - Family Dining Restaurants - Family Dining Restaurants - Family Dining Restaurants - Quick Service Sisseton Restaurants - Quick Service Knoxville Restaurants - Quick Service Centerville Pet Care Services Convenience Stores Car Washes Car Washes Car Washes Car Washes Medical / Dental Yuma Sioux Falls Sioux Falls Sioux Falls Sioux Falls Gig Harbor Milwaukee Tumwater Lancaster Highland Olympia Olympia Olympia Tacoma Amarillo Deming Kelso New Philadelphia OH OH OH KY OH OH OH IN OH OH OH KY OH OH MI MI MI MI MI TX TX NM IL OH OH VA WA WA {f} {f} WA WA WA WA MI MI WI SD IA IA SC CO SD SD SD SD {f} Klamath Falls OR NY {f} 600 1,089 AR {f} 182 1,060 WA 804 1,846 Port Orchard WA TX {f} 396 2,588 565 721 696 683 1,381 373 1,270 840 841 561 644 1,119 655 1,446 884 767 383 854 711 894 346 670 838 503 392 702 450 619 856 903 983 1,685 572 923 702 2,397 883 2,337 943 1,725 277 257 384 503 452 676 553 1,619 955 1,720 1,116 2,001 1,136 1,991 377 1,569 665 1,003 447 1,202 546 477 665 566 427 1,410 218 506 41 1,627 102 671 983 2,015 1,526 2,365 70 199 259 259 528 538 554 1,017 430 757 627 1,225 1,484 990 2,519 1,852 2,678 2,768 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 565 721 696 683 767 1,332 383 1,104 854 1,550 711 1,394 1,381 894 2,275 373 346 719 1,270 670 1,940 840 841 561 644 838 1,678 503 1,344 392 953 702 1,346 1,119 450 1,569 655 619 1,274 1,446 856 2,302 884 903 1,787 983 1,685 2,668 572 923 1,495 702 2,397 3,099 883 2,337 3,220 943 1,725 2,668 600 1,089 1,689 277 257 384 503 780 452 709 676 1,060 553 1,619 2,172 955 1,720 2,675 1,116 2,001 3,117 1,136 1,991 3,127 377 1,569 1,946 665 1,003 1,668 447 1,202 1,649 546 477 665 1,211 566 1,043 427 1,410 1,837 218 506 724 41 1,627 1,668 102 671 773 182 1,060 1,242 804 1,846 2,650 983 2,015 2,998 1,526 2,365 3,891 70 199 259 259 329 528 727 538 797 554 1,017 1,571 430 757 627 1,225 1,484 990 1,420 2,519 3,276 1,852 2,479 2,678 3,903 2,768 4,252 396 2,588 2,984 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — F-14 28 24 14 32 26 53 12 36 34 22 13 27 24 22 37 29 39 19 40 45 36 22 10 7 14 28 29 33 32 25 15 20 11 11 23 9 20 9 17 33 37 46 5 11 11 18 18 38 30 42 43 35 1999 6/6/2019 1999 6/6/2019 1998 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1996 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 1999 6/6/2019 2001 6/6/2019 1969 6/7/2019 1948 6/7/2019 1992 6/7/2019 1964 6/7/2019 1974 6/7/2019 1968 6/12/2019 2003 6/13/2019 1998 6/13/2019 1990 6/21/2019 1991 6/26/2019 1995 6/26/2019 1991 6/26/2019 2005 6/26/2019 2002 6/27/2019 1997 6/27/2019 2010 6/27/2019 1990 6/27/2019 1984 6/27/2019 1987 6/27/2019 1924 6/27/2019 1906 6/27/2019 1952 6/27/2019 2008 6/27/2019 1982 6/27/2019 1999 6/27/2019 2018 6/28/2019 1984 6/28/2019 1972 6/28/2019 1975 6/28/2019 1994 6/28/2019 1977 6/28/2019 2006 6/28/2019 2015 6/28/2019 2017 6/28/2019 2017 6/28/2019 1994 6/28/2019      State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Land & Building & Improvements Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired Description(a) City IL IL IN MI MI MI Milan Flippin TX TN AR TN AR AR AR AR AR MO AR AR AR AR Wynne Midway Amarillo Nashville Gainesville Bull Shoals Champaign West Plains Cedar Springs Schaumburg Mountain Home Myrtle Beach SC Montain View AR Marshall Mountain Home Tenant Industry Early Childhood Education Early Childhood Education Health and Fitness Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Restaurants - Quick Service Cabot Restaurants - Quick Service Searcy Restaurants - Quick Service Conway Medical / Dental Restaurants - Quick Service Owosso Restaurants - Quick Service Stevensville MI Early Childhood Education Restaurants - Quick Service Cloverdale Restaurants - Quick Service Port Huron Restaurants - Quick Service Health and Fitness Restaurants - Quick Service Louisville Restaurants - Quick Service Macon Restaurants - Quick Service Ruleville Restaurants - Quick Service Quitman Restaurants - Quick Service Philadelphia MS Restaurants - Quick Service Prentiss Restaurants - Quick Service Aston Restaurants - Quick Service Essex Pet Care Services Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Convenience Stores Health and Fitness Health and Fitness Health and Fitness Car Washes Car Washes Spartanburg SC CO Denver CO Aurora Willow Springs Mountain Home Harrisburg Horseshoe Bend Koshkonong MO Calico Rock West Plains Russellville Russellville Jonesboro Bald Knob Greenville Anderson Wheatley Gassville AR MO AR AR AR AR AR AR AR AR SC SC PA MD NC AR MO AR FL MS MS MS MS MS Kittrell Atkins $ 1,326 $ 1,945 $ — $ — $ 1,326 $ 1,945 $ 3,271 $ 45 1996 7/5/2019 319 532 1,133 2,226 518 229 358 378 269 348 279 219 438 2,678 319 259 856 2,011 368 388 159 378 488 368 479 1,189 359 1,150 528 1,045 1,309 6,791 693 655 866 226 784 732 712 — 288 746 671 1,369 1,312 2,488 155 330 196 309 330 350 440 338 303 1,178 663 1,258 680 340 422 237 371 350 522 624 394 673 327 743 663 1,327 852 1,396 475 733 525 426 525 446 376 604 396 505 327 535 376 455 396 842 327 743 732 1,361 691 1,402 1,052 1,594 703 1,474 1,484 1,504 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — 36 2,150 319 568 887 1,133 4,376 5,509 — — — — — — — — — — — — — — — — — 341 — — 581 — — — — — — — — — — — — — — — — — — — — — — — — — — — — 518 229 358 378 269 787 348 577 279 637 219 597 438 2,678 3,116 319 259 578 856 2,011 2,867 368 388 159 378 746 488 876 368 527 479 1,189 1,668 359 1,150 1,509 528 1,045 1,573 1,309 6,791 8,100 693 655 866 226 784 732 1,425 712 1,367 — 866 629 855 746 1,530 671 1,369 2,040 1,312 3,069 4,381 155 330 196 309 330 350 440 338 303 680 835 340 670 422 618 237 546 371 701 350 700 522 962 624 962 394 697 1,178 673 1,851 663 327 990 1,258 743 2,001 663 1,327 1,990 852 396 1,248 1,396 505 1,901 475 733 525 426 525 446 376 604 327 802 535 1,268 376 901 455 881 396 921 842 1,288 327 703 743 1,347 732 1,361 2,093 691 1,402 2,093 1,052 1,594 703 1,474 2,526 1,484 3,078 1,504 2,207 11 50 11 7 8 9 35 8 33 10 12 7 17 16 14 79 11 11 — 5 9 14 24 7 5 6 5 7 6 8 8 5 18 11 23 18 12 21 9 14 7 9 9 11 6 12 10 11 12 14 13 1999 7/5/2019 1986 7/11/2019 2004 7/16/2019 1960 7/16/2019 2003 7/16/2019 1992 7/16/2019 1999 7/16/2019 1999 7/16/2019 2012 7/16/2019 1999 7/16/2019 1995 7/16/2019 2000 7/16/2019 2008 7/31/2019 2008 7/31/2019 2009 7/31/2019 1994 7/31/2019 1998 8/15/2019 1981 8/15/2019 8/30/2019 1996 9/3/2019 1973 9/5/2019 2000 9/5/2019 1983 9/6/2019 2018 9/13/2019 1992 9/13/2019 2017 9/13/2019 1978 9/13/2019 2003 9/13/2019 1978 9/13/2019 1963 9/13/2019 2002 9/13/2019 2014 9/19/2019 1999 9/20/2019 1999 9/20/2019 2006 9/20/2019 2003 9/20/2019 1999 9/20/2019 1998 9/20/2019 1979 9/20/2019 1993 9/20/2019 1990 9/20/2019 1991 9/20/2019 2000 9/20/2019 2007 9/20/2019 1999 9/20/2019 1997 9/20/2019 1993 9/25/2019 1997 9/25/2019 2010 9/25/2019 2012 9/26/2019 2008 9/26/2019 {f} {f} {f} {f} {f} {f} {f}     F-15  WI {f} 403 598 Denver Fort Collins Thornton State Encumbrances CO CO CO $ WY KY {f} {f} AR AR OH KS OK AR GA TN WA GA GA GA GA GA GA AL Montgomery AL OR {f} Horizon City TX Description(a) City Perry Macon El Paso Pratville Medford Houston Valdosta Bainridge Hinesville Frankfort Onalaska West Chester Tenant Industry Car Washes Car Washes Car Washes Restaurants - Family Dining Cheyenne Early Childhood Education Pet Care Services Restaurants - Quick Service Jonesboro Restaurants - Quick Service Bryant Restaurants - Casual Dining Early Childhood Education Leawood Claremore Grocery Other Services Little Rock Other Services Conyers Other Services LaVergne Other Services Seattle Albany Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Automotive Service Pet Care Services Medical / Dental Medical / Dental Convenience Stores Convenience Stores Early Childhood Education Convenience Stores Car Washes Car Washes Medical / Dental Other Services Springfield Early Childhood Education Pet Care Services Pet Care Services Pet Care Services Pet Care Services Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Early Childhood Education Davenport Moline Pasadena Wildwood Charlotte Brandon Conway Tucson Tucson Tucson Tucson Tucson Tucson Tucson Tucson Tempe Griffin Avon West Helena AR Indianapolis IN TX TX TX SC MN IA IL MO NC FL GA FL AZ AZ AZ AZ AZ AZ AZ AZ AZ Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Gross Amount at December 31, 2019(b)(c) Land & Building & Land & Building & Improvements Improvements Improvements Improvements Total Accumulated Depreciation (d)(e) 1,103 $ 491 582 1,805 $ 1,093 1,795 739 1,569 387 1,224 1,213 1,108 622 885 878 1,088 867 246 1,492 1,821 2,790 2,905 410 339 298 154 133 215 451 318 192 851 3,330 1,037 6,235 2,302 3,287 421 288 310 287 447 274 636 246 324 3,587 11,550 121 11,529 631 662 869 2,152 201 673 1,038 1,120 155 1,313 - 1,204 1,705 1,572 1,052 1,663 860 1,657 134 196 165 876 495 453 350 1,165 — $ — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — $ — — 1,103 $ 491 582 1,805 $ 2,908 $ 1,584 1,093 2,377 1,795 — 739 1,569 2,308 — — 387 1,224 1,611 403 598 1,001 — 1,213 1,108 2,321 — — — — — — — — — — — — — — — — — 622 885 1,507 878 1,088 1,966 867 246 1,492 1,821 2,790 2,905 410 339 298 154 133 215 451 318 192 851 3,330 1,037 6,235 2,302 3,287 1,718 3,576 2,529 8,056 5,092 6,192 421 831 288 627 310 608 287 441 447 580 274 489 636 1,087 246 564 324 516 — 3,587 11,550 15,137 — — — — — — — — — — — — — — 121 11,529 11,650 631 662 1,293 869 2,152 3,021 201 — 201 673 1,038 1,120 155 1,313 1,204 1,705 1,572 1,877 2,743 2,692 1,052 1,663 1,207 2,976 860 1,657 2,517 134 196 165 876 1,010 495 691 453 618 350 1,165 1,515 586 885 — — 586 885 1,471 339 730 — — 339 730 1,069 463 1,440 — — 463 1,440 1,903 494 586 — — 494 586 1,080 401 453 — — 401 453 854 411 411 — — 411 411 822 422 576 — — 422 576 998 444 566 — — 444 566 1,010 370 288 — — 370 288 658 F-16 Year Constructed Date Acquired 2014 9/26/2019 2002 9/26/2019 2018 9/26/2019 1982 9/27/2019 2002 9/27/2019 2011 9/27/2019 2006 9/30/2019 2008 9/30/2019 2004 9/30/2019 2007 9/30/2019 1989 9/30/2019 1982 9/30/2019 1999 9/30/2019 2018 9/30/2019 1977 9/30/2019 1994 10/1/2019 1999 10/1/2019 1998 10/1/2019 2000 10/1/2019 1996 10/1/2019 1996 10/1/2019 2003 10/1/2019 1991 10/1/2019 1990 10/4/2019 2017 10/10/2019 2019 10/10/2019 2009 10/11/2019 2016 10/11/2019 10/17/2019 2004 10/17/2019 2001 10/24/2019 1998 10/24/2019 2003 10/28/2019 2007 10/31/2019 1996 11/1/2019 2003 11/1/2019 1979 11/1/2019 1967 11/1/2019 2005 11/1/2019 1965 11/5/2019 1975 11/5/2019 1985 11/5/2019 1971 11/5/2019 1971 11/5/2019 1932 11/5/2019 1986 11/5/2019 1958 11/5/2019 1976 11/5/2019 15 9 15 13 10 6 10 7 11 10 23 6 36 13 16 4 2 3 2 3 3 5 2 3 85 74 7 20 — 10 12 10 5 6 8 4 3 3 7 5 4 7 3 3 2 3 3 2     Prairie View TX Salt Lake City UT TX TX TN TX TX FL WI FL NC GA GA GA CO IN IN MS MS MS AR AR IN Columbia City Description(a) North Manchester Boulder Odessa Odessa Sanford Conyers Houston Mosinee Covington Lewisburg Fayetteville City Houston Tenant Industry Convenience Stores Convenience Stores Convenience Stores Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Other Services Other Services Convenience Stores Car Washes Ocala Car Washes Hampstead Medical / Dental Medical / Dental Automotive Service Early Childhood Education Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Restaurants - Quick Service Car Washes Sioux Falls Car Washes Sioux Falls Car Washes Sioux City Car Washes Hazlehurst Shelbyville Blytheville Whiteland Vicksburg Somerset Memphis Winona Wynne Salem Roscoe Automotive Service Car Washes Jonesboro Medical / Dental Convenience Stores Medical / Dental Medical / Dental Medical / Dental Medical / Dental Flower Mound Plano Arnold Allen Ashland City TN IN IN Bloomington Cheektowaga NY TN KY SD SD IA NE South Sioux City Crystal Lake IL AR Grand Blanc MI State Encumbrances Initial Cost to Company Land & Improvements Building & Improvements Cost Capitalized Subsequent to Acquisition Land & Building & Improvements Improvements Gross Amount at December 31, 2019(b)(c) Land & Improvements Building & Improvements Total Accumulated Depreciation (d)(e) Year Constructed Date Acquired $ 211 $ 1,414 $ — $ — $ 211 $ 1,414 $ 1,625 221 1,402 241 1,178 — — — — 221 1,402 1,623 241 1,178 1,419 {f} 461 676 — — 461 676 1,137 601 1,353 — — 601 1,353 1,954 1,031 1,353 1,731 3,542 1,498 1,859 351 1,383 1,129 812 2,644 2,644 393 2,078 373 1,816 {f} 347 746 — — — — — — — — — — — — — — — — — — 1,031 1,353 2,384 1,731 3,542 5,273 1,498 1,859 3,357 351 1,383 1,129 812 2,644 2,644 1,163 4,027 3,773 393 2,078 2,471 373 1,816 2,189 347 746 1,093 742 801 — — 742 801 1,543 7 8 7 3 5 5 8 5 3 7 7 6 5 2 2 1975 11/14/2019 1965 11/14/2019 1984 11/14/2019 2016 11/18/2019 2019 11/21/2019 2019 11/21/2019 1973 11/27/2019 1964 11/27/2019 1975 12/2/2019 2019 12/10/2019 2019 12/10/2019 1996 12/12/2019 2004 12/12/2019 2006 12/13/2019 1988 12/13/2019 312 171 — — 312 171 483 — 1973 12/17/2019 363 272 — — 363 272 635 — 1987 12/17/2019 522 1,126 — — 522 1,126 1,648 — 2019 12/19/2019 522 1,269 — — 522 1,269 1,791 — 2019 12/19/2019 553 1,238 — — 553 1,238 1,791 — 2019 12/19/2019 849 1,126 — — 849 1,126 1,975 — 2019 12/19/2019 665 931 — — 665 931 1,596 — 2019 12/19/2019 532 1,013 — — 532 1,013 1,545 — 2019 12/19/2019 KY 614 1,044 — — 614 1,044 1,658 — 2019 12/19/2019 911 972 — — 911 972 1,883 — 2018 12/19/2019 389 839 — — 389 839 1,228 — 2003 12/19/2019 225 665 — — 225 665 890 — 2018 12/23/2019 1,381 1,903 — — 1,381 1,903 3,284 — 2000 12/23/2019 880 921 — — 880 921 1,801 — 2019 12/23/2019 798 1,075 723 707 1,105 3,384 2,882 — 303 — 265 1,217 1,103 4,776 748 1,537 656 417 832 823 397 2,230 427 905 — — — — — — — — — — — — — — — — — — — — — — 798 1,075 723 707 1,105 3,384 2,882 — 1,903 4,459 3,605 707 303 — 303 265 1,217 1,103 4,776 1,368 5,993 748 1,537 2,285 656 417 832 1,488 823 1,240 397 2,230 2,627 — 427 905 1,332 — — — — — — — — — — — — $ 376 585,508 $ 1,698 1,178,786 $ — 2,771 $ — 45,897 $ 376 588,279 $ 1,698 2,074 1,224,682 $ 1,812,961 $ — 71,445 2019 12/23/2019 1992 12/19/2019 1987 12/19/2019 12/19/2019 12/19/2019 1974 12/20/2019 2019 12/20/2019 2007 12/23/2019 1999 12/27/2019 2015 12/30/2019 1983 12/31/2019 1999 12/31/2019 1998 12/31/2019 {f} IL MO TX TX TX (a) As of December 31, 2018, the Company had investments in 1,000 single-tenant real estate property locations including 906 owned properties and 12 ground lease interests. All or a portion of 5 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 three properties which are accounted for as a loan receivable, as the leases contain purchase options. Initial costs exclude intangible lease assets totaling $64.9 million. (b) The aggregate cost for federal income tax purposes is $1.9 billion. F-17     (c) The following is a reconciliation of carrying value for land and improvements and building and improvements for the periods presented: Balance, beginning of period Additions Acquisitions Improvements Deductions Provisions for impairment of real estate Real Estate Investments Held for Sale Cost of real estate sold Balance, end of period Year ended December 31, 2019 Year ended December 31, 2018 Year ended December 31, 2017 $ $ 1,306,504 $ 866,762 $ 568,680 3,283 (1,527) (1,211) (62,768) 1,812,961 $ 495,265 1,689 (1,997) — (55,215) 1,306,504 $ 396,193 514,354 4,666 (2,277) — (46,174) 866,762 (d) The following is a reconciliation of accumulated depreciation for the periods presented: Balance, beginning of period Additions Depreciation expense Deductions Accumulated depreciation associated with real estate sold Balance, end of period Year ended December 31, 2019 Year ended December 31, 2018 Year ended December 31, 2017 $ $ 37,904 $ 36,354 (2,813) 71,445 $ 15,356 $ 24,854 (2,306) 37,904 $ 2,903 14,045 (1,592 ) 15,356 (e) (f) (g) 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. Property is collateral for non-recourse debt obligations totaling $239.1 million issued under the Company’s Master Trust Funding Program. 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-18                     ESSENTIAL PROPERTIES REALTY TRUST, INC. AND ESSENTIAL PROPERTIES REALTY TRUST, INC. PREDECESSOR Schedule IV - Mortgage Loans on Real Estate As of December 31, 2019 (Dollar amounts in thousands) Description First mortgage loans: Two Early Childhood Education Centers located in Florida Two Early Childhood Education Centers located in Florida Two Family Dining Restaurants located in Texas Sixty-nine Quick Service Restaurants located in fifteen states Eighteen Car Washes located in six states Interest rate Final Maturity Date Periodic Payment Terms Final Payment Terms 8.80% 5/8/2039 Interest only 8.53% 7/15/2039 Interest only Balloon of $12,000 Balloon of $7,300 Prior Liens None None Face Amount of Mortgages Carrying Amount of Mortgages Principal Amount of Loans Subject to Delinquent Principal or Interest $ 12,000 $ 12,000 7,300 7,300 8.10% 6/30/2059 Principal + Interest Fully amortizing None 5,125 5,125 8.16% 8/31/2034 Interest only 8.05% 12/31/2034 Interest only Balloon of $28,000 Balloon of $34,605 None None 28,000 28,000 34,604 34,604 $ 87,029 $ 87,029 None None None None None The following shows changes in carrying amounts of mortgage loans receivable during the years ended December 31, 2019 and 2018 and 2017 (in thousands): Balance, beginning of period Additions New mortgage loans Deductions Collections of principal Balance, end of period 2019 2018 2017 Year ended December 31, $ 14,854   $ 92,036   (19,861)   87,029   $ $ —   $ 14,854   —   14,854   $ — — — — See accompanying report of independent registered public accounting firm. F-19                             ESSENTIAL PROPERTIES REALTY TRUST, INC. CERTIFICATE OF NOTICE EXHIBIT 3.4 THIS IS TO CERTIFY THAT: a Maryland corporation (the “Corporation”), and parties named therein, terminated on July 22, 2019 in accordance with its terms. FIRST: The Stockholders Agreement, dated as of June 25, 2018, by and among Essential Properties Realty Trust, Inc., SECOND:  The undersigned officer acknowledges this Certificate of Notice to be the corporate act of the Corporation and as to all matters or facts required to be verified under oath, the undersigned officer acknowledges that to the best of such officer’s knowledge, information and belief, these matters and facts are true in all material respects and that this statement is made under the penalties for perjury. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Notice to be signed in its name and on its behalf by its President and Chief Executive Officer and attested to by its Executive Vice President and Secretary on this 28th day of February, 2020. ATTEST: ESSENTIAL PROPERTIES REALTY TRUST, INC. /s/ Gregg A. Seibert Gregg A. Seibert Executive Vice President and Secretary /s/ Peter M. Mavoides  Peter M. Mavoides President and Chief Executive Office                                                       DESCRIPTION OF REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934 Exhibit 4.4 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.” 2   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. Subject to certain conditions, we have established an excepted holder limit for (i) a group of affiliated investors that authorizes such investors to own up to 18% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 18% in value of the aggregate of the outstanding shares of all classes and series of our stock; and (ii) another group of affiliated investors that authorizes such investors to own up to 15% (in value or in number of shares, whichever is more restrictive) of the aggregate of the outstanding shares of our common stock or 15% in value of the aggregate of the outstanding shares of all classes and series of our stock. 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. 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. 3       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 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 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. 4   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 us with 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. 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. 5       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. 6           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 the 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. 7         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 that provides 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, and our board of directors has the exclusive power to amend our bylaws. 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. In addition, 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. 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. 8             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. 9             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. 10   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 our company 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. 11                 INDEMNIFICATION AGREEMENT Exhibit 10.14 THIS INDEMNIFICATION AGREEMENT (“Agreement”) is made and entered into as of the 24th day of January, 2020, by and between Essential Properties Realty Trust, Inc., a Maryland corporation (the “Company”), and Timothy J. Earnshaw (“Indemnitee”). WHEREAS, at the request of the Company, Indemnitee currently serves as the Chief Accounting Officer of the Company and may, therefore, be subjected to claims, suits or proceedings arising as a result of such service; WHEREAS, as an inducement to Indemnitee to serve or continue to serve in such capacity, the Company has agreed to indemnify Indemnitee and to advance expenses and costs incurred by Indemnitee in connection with any such claims, suits or proceedings, to the maximum extent permitted by law; and WHEREAS, the parties by this Agreement desire to set forth their agreement regarding indemnification and advance of expenses; NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows: Section 1. Definitions.  For purposes of this Agreement: (a) “Change in Control” means a change in control of the Company occurring after the Effective Date of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in response to any similar item on any similar schedule or form) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), whether or not the Company is then subject to such reporting requirement; provided, however, that, without limitation, such a Change in Control shall be deemed to have occurred if, after the Effective Date (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of all of the Company’s then-outstanding securities entitled to vote generally in the election of directors without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such person’s attaining such percentage interest; (ii) the Company is a party to a merger, consolidation, sale of assets, plan of liquidation or other reorganization not approved by at least two-thirds of the members of the Board of Directors then in office, as a consequence of which members of the Board of Directors in office immediately prior to such transaction or event constitute less than a majority of the Board of Directors thereafter; or (iii) at any time, a majority of the members of the Board of Directors are not individuals (A) who were directors as of the Effective Date or (B) whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by the affirmative         vote of at least two-thirds of the directors then in office who were directors as of the Effective Date or whose election or nomination for election was previously so approved. (b) “Corporate Status” means the status of a person as a present or former director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company.  As a clarification and without limiting the circumstances in which Indemnitee may be serving at the request of the Company, service by Indemnitee shall be deemed to be at the request of the Company:  (i) if Indemnitee serves or served as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any corporation, partnership, limited liability company, joint venture, trust or other enterprise (1) of which a majority of the voting power or equity interest is or was owned directly or indirectly by the Company or (2) the management of which is controlled directly or indirectly by the Company and (ii) if, as a result of Indemnitee’s service to the Company or any of its affiliated entities, Indemnitee is subject to duties by, or required to perform services for, an employee benefit plan or its participants or beneficiaries, including as deemed fiduciary thereof. (c) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification and/or advance of Expenses is sought by Indemnitee. (d) (e) “Effective Date” means the date set forth in the first paragraph of this Agreement. “Expenses” means any and all reasonable and out-of-pocket attorneys’ fees and costs, retainers, court costs, arbitration and mediation costs, transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, ERISA excise taxes and penalties and any other disbursements or expenses incurred in connection with prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness in or otherwise participating in a Proceeding.  Expenses shall also include Expenses incurred in connection with any appeal resulting from any Proceeding including, without limitation, the premium, security for and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent.   (f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporation law and neither is, nor in the past five years has been, retained to represent:  (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements), or (ii) any other party to or participant or witness in the Proceeding giving rise to a claim for indemnification or advance of Expenses hereunder.  Notwithstanding the foregoing, the       term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement.   (g) “Proceeding” means any threatened, pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing, claim, demand, discovery request or any other actual, threatened or completed proceeding, whether brought by or in the right of the Company or otherwise and whether of a civil (including intentional or unintentional tort claims), criminal, administrative or investigative (formal or informal) nature, including any appeal therefrom, except one pending or completed on or before the Effective Date, unless otherwise specifically agreed in writing by the Company and Indemnitee.  If Indemnitee reasonably believes that a given situation may lead to or culminate in the institution of a Proceeding, such situation shall also be considered a Proceeding. Section 2. Services by Indemnitee.  Indemnitee will serve in the capacity or capacities set forth in the first WHEREAS clause above.  However, this Agreement shall not impose any independent obligation on Indemnitee or the Company to continue Indemnitee’s service to the Company.  This Agreement shall not be deemed an employment contract between the Company (or any other entity) and Indemnitee. Section 3. General.  The Company shall indemnify, and advance Expenses to, Indemnitee (a) as provided in this Agreement and (b) otherwise to the maximum extent permitted by Maryland law in effect on the Effective Date and as amended from time to time; provided, however, that no change in Maryland law shall have the effect of reducing the benefits available to Indemnitee hereunder based on Maryland law as in effect on the Effective Date.  The rights of Indemnitee provided in this Section 3 shall include, without limitation, the rights set forth in the other sections of this Agreement, including any additional indemnification permitted by the Maryland General Corporation Law (the “MGCL”), including, without limitation, Section 2-418 of the MGCL. Section 4. Standard for Indemnification.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall indemnify Indemnitee against all judgments, penalties, fines and amounts paid in settlement and all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with any such Proceeding unless it is established that (a) the act or omission of Indemnitee was material to the matter giving rise to the Proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) Indemnitee actually received an improper personal benefit in money, property or services or (c) in the case of any criminal Proceeding, Indemnitee had reasonable cause to believe that Indemnitee’s conduct was unlawful. Section 5. Certain Limits on Indemnification. Notwithstanding any other provision of this Agreement (other than Section 6), Indemnitee shall not be entitled to:       indemnification hereunder if the Proceeding was one by or in the right of the Company and Indemnitee is adjudged, in a final adjudication of the Proceeding not subject to further appeal, to be liable to the Company; (a) (b) indemnification hereunder if Indemnitee is adjudged, in a final adjudication of the Proceeding not subject to further appeal, to be liable on the basis that personal benefit was improperly received in any Proceeding charging improper personal benefit to Indemnitee, whether or not involving action in the Indemnitee’s Corporate Status; or (c) indemnification or advance of Expenses hereunder if the Proceeding was brought by Indemnitee, unless: (i) the Proceeding was brought to enforce indemnification under this Agreement, and then only to the extent in accordance with and as authorized by Section 12 of this Agreement, or (ii) the Company’s charter or Bylaws, a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors or an agreement approved by the Board of Directors to which the Company is a party expressly provide otherwise. Section 6. Court-Ordered Indemnification.  Notwithstanding any other provision of this Agreement, a court of appropriate jurisdiction, upon application of Indemnitee and such notice as the court shall require, may order indemnification of Indemnitee by the Company in the following circumstances: (a) if such court determines that Indemnitee is entitled to reimbursement under Section 2-418(d)(1) of the MGCL, the court shall order indemnification, in which case Indemnitee shall be entitled to recover the Expenses of securing such reimbursement; or (b) if such court determines that Indemnitee is fairly and reasonably entitled to indemnification in view of all the relevant circumstances, whether or not Indemnitee (i) has met the standards of conduct set forth in Section 2- 418(b) of the MGCL or (ii) has been adjudged liable for receipt of an improper personal benefit under Section 2-418(c) of the MGCL, the court may order such indemnification as the court shall deem proper without regard to any limitation on such court- ordered indemnification contemplated by Section 2-418(d)(2)(ii) of the MGCL.   Section 7. Indemnification for Expenses of an Indemnitee Who is Wholly or Partially Successful.  Notwithstanding any other provision of this Agreement, and without limiting any such provision, to the extent that Indemnitee was or is, by reason of Indemnitee’s Corporate Status, made a party to (or otherwise becomes a participant in) any Proceeding and is successful, on the merits or otherwise, in the defense of such Proceeding, the Company shall indemnify Indemnitee for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith.  If Indemnitee is not wholly successful in such Proceeding but is successful, on the merits or otherwise, as to one or more but less than all claims, issues or matters in such Proceeding, the Company shall indemnify Indemnitee under this Section 7 for all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection with each such claim, issue or matter, allocated on a reasonable and proportionate basis.  For purposes of this Section 7 and, without limitation, the termination of any claim, issue       or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. Section 8. Advance of Expenses for Indemnitee.  If, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be, made a party to any Proceeding, the Company shall, without requiring a preliminary determination of Indemnitee’s ultimate entitlement to indemnification hereunder, advance all Expenses incurred by or on behalf of Indemnitee in connection with such Proceeding.  The Company shall make such advance within ten days after the receipt by the Company of a statement or statements requesting such advance from time to time, whether prior to or after final disposition of such Proceeding and may be in the form of, in the reasonable discretion of the Indemnitee (but without duplication) (a) payment of such Expenses directly to third parties on behalf of Indemnitee, (b) advance of funds to Indemnitee in an amount sufficient to pay such Expenses or (c) reimbursement to Indemnitee for Indemnitee’s payment of such Expenses.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee and shall include or be preceded or accompanied by a written affirmation by Indemnitee and a written undertaking by or on behalf of Indemnitee, in substantially the form attached hereto as Exhibit A or in such form as may be required under applicable law as in effect at the time of the execution thereof.  To the extent that Expenses advanced to Indemnitee do not relate to a specific claim, issue or matter in the Proceeding, such Expenses shall be allocated on a reasonable and proportionate basis.  The undertaking required by this Section 8 shall be an unlimited general obligation by or on behalf of Indemnitee and shall be accepted without reference to Indemnitee’s financial ability to repay such advanced Expenses and without any requirement to post security therefor. Section 9. Indemnification and Advance of Expenses as a Witness or Other Participant.  Notwithstanding any other provision of this Agreement, to the extent that Indemnitee is or may be, by reason of Indemnitee’s Corporate Status, made a witness or otherwise asked to participate in any Proceeding, whether instituted by the Company or any other person, and to which Indemnitee is not a party, Indemnitee shall be advanced and indemnified against all Expenses actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf in connection therewith within ten days after the receipt by the Company of a statement or statements requesting any such advance or indemnification from time to time, whether prior to or after final disposition of such Proceeding.  Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee.  In connection with any such advance of Expenses, the Company may require Indemnitee to provide an undertaking and affirmation substantially in the form attached hereto as Exhibit A. Section 10. Procedure for Determination of Entitlement to Indemnification. (a) To obtain indemnification under this Agreement, Indemnitee shall submit to the Company a written request, including therein or therewith such documentation and information as is reasonably available to Indemnitee and is reasonably necessary or appropriate to determine whether and to what extent Indemnitee is entitled to indemnification.  Indemnitee may submit one or more such requests from time to time and at such time(s) as Indemnitee deems appropriate in Indemnitee’s sole discretion.  The officer of the Company receiving any such request from Indemnitee shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that Indemnitee has requested indemnification.       Upon written request by Indemnitee for indemnification pursuant to Section 10(a) above, a determination, if required by applicable law, (b) with respect to Indemnitee’s entitlement thereto shall promptly be made in the specific case: (i) if a Change in Control has occurred, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee, which Independent Counsel shall be selected by the Indemnitee and approved by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL, which approval shall not be unreasonably withheld; or (ii) if a Change in Control has not occurred, (A) by a majority vote of the Disinterested Directors or, by the majority vote of a  group of Disinterested Directors designated by the Disinterested Directors to make the determination, (B) if Independent Counsel has been selected by the Board of Directors in accordance with Section 2-418(e)(2)(ii) of the MGCL and approved by the Indemnitee, which approval shall not be unreasonably withheld or delayed, by Independent Counsel, in a written opinion to the Board of Directors, a copy of which shall be delivered to Indemnitee or (C) if so directed by the Board of Directors, by the stockholders of the Company, other than directors or officers who are parties to the Proceeding.  If it is so determined that Indemnitee is entitled to indemnification, the Company shall make payment to Indemnitee within ten days after such determination.  Indemnitee shall cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary or appropriate to such determination in the discretion of the Board of Directors or Independent Counsel if retained pursuant to clause (ii)(B) of this Section 10(b).  Any Expenses incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification) and the Company shall indemnify and hold Indemnitee harmless therefrom. (c) The Company shall pay the reasonable fees and expenses of Independent Counsel, if one is appointed. Section 11. Presumptions and Effect of Certain Proceedings. (a) In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 10(a) of this Agreement, and the Company shall have the burden of overcoming that presumption in connection with the making of any determination contrary to that presumption.   (b) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, upon a plea of nolo contendere or its equivalent, or entry of an order of probation prior to judgment, does not create a presumption that Indemnitee did not meet the requisite standard of conduct described herein for indemnification. (c) The knowledge and/or actions, or failure to act, of any other director, officer, employee or agent of the Company or any other director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation,       partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise shall not be imputed to Indemnitee for purposes of determining any other right to indemnification under this Agreement. Section 12. Remedies of Indemnitee. (a) If (i) a determination is made pursuant to Section 10(b) of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advance of Expenses is not timely made pursuant to Sections 8 or 9 of this Agreement, (iii) no determination of entitlement to indemnification shall have been made pursuant to Section 10(b) of this Agreement within 60 days after receipt by the Company of the request for indemnification, (iv) payment of indemnification is not made pursuant to Sections 7 or 9 of this Agreement within ten days after receipt by the Company of a written request therefor, or (v) payment of indemnification pursuant to any other section of this Agreement or the charter or Bylaws of the Company is not made within ten days after a determination has been made that Indemnitee is entitled to indemnification, Indemnitee shall be entitled to an adjudication in an appropriate court located in the State of Maryland, or in any other court of competent jurisdiction, or in an arbitration conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association, of Indemnitee’s entitlement to indemnification or advance of Expenses.  Indemnitee shall commence a proceeding seeking an adjudication or an award in arbitration within 180 days following the date on which Indemnitee first has the right to commence such proceeding pursuant to this Section 12(a); provided, however, that the foregoing clause shall not apply to a proceeding brought by Indemnitee to enforce Indemnitee’s rights under Section 7 of this Agreement.  Except as set forth herein, the provisions of Maryland law (without regard to its conflicts of laws rules) shall apply to any such arbitration.  The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.   (b) In any judicial proceeding or arbitration commenced pursuant to this Section 12, Indemnitee shall be presumed to be entitled to indemnification or advance of Expenses, as the case may be, under this Agreement and the Company shall have the burden of proving that Indemnitee is not entitled to indemnification or advance of Expenses, as the case may be.  If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 12, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 8 of this Agreement until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).  The Company shall, to the fullest extent not prohibited by law, be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 12 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all of the provisions of this Agreement. (c) If a determination shall have been made pursuant to Section 10(b) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 12, absent a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification that was not disclosed in connection with the determination.       (d) In the event that Indemnitee is successful in seeking, pursuant to this Section 12, a judicial adjudication of or an award in arbitration to enforce Indemnitee’s rights under, or to recover damages for breach of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be indemnified by the Company for, any and all Expenses actually and reasonably incurred by Indemnitee in such judicial adjudication or arbitration.  If it shall be determined in such judicial adjudication or arbitration that Indemnitee is entitled to receive part but not all of the indemnification or advance of Expenses sought, the Expenses incurred by Indemnitee in connection with such judicial adjudication or arbitration shall be appropriately prorated.   (e) Interest shall be paid by the Company to Indemnitee at the maximum rate allowed to be charged for judgments under the Courts and Judicial Proceedings Article of the Annotated Code of Maryland for amounts which the Company pays or is obligated to pay for the period (i) commencing with either the tenth day after the date on which the Company was requested to advance Expenses in accordance with Sections 8 or 9 of this Agreement or the 60th day after the date on which the Company was requested to make the determination of entitlement to indemnification under Section 10(b) of this Agreement, as applicable, and (ii) ending on the date such payment is made to Indemnitee by the Company. Section 13. Defense of the Underlying Proceeding. (a) Indemnitee shall notify the Company promptly in writing upon being served with any summons, citation, subpoena, complaint, indictment, request or other document relating to any Proceeding which may result in the right to indemnification or the advance of Expenses hereunder and shall include with such notice a description of the nature of the Proceeding and a summary of the facts underlying the Proceeding.  The failure to give any such notice shall not disqualify Indemnitee from the right, or otherwise affect in any manner any right of Indemnitee, to indemnification or the advance of Expenses under this Agreement unless the Company’s ability to defend in such Proceeding or to obtain proceeds under any insurance policy is materially and adversely prejudiced thereby, and then only to the extent the Company is thereby actually so prejudiced. (b) Subject to the provisions of the last sentence of this Section 13(b) and of Section 13(c) below, the Company shall have the right to defend Indemnitee in any Proceeding which may give rise to indemnification hereunder; provided, however, that the Company shall notify Indemnitee of any such decision to defend within 15 calendar days following receipt of notice of any such Proceeding under Section 13(a) above.  The Company shall not, without the prior written consent of Indemnitee, which shall not be unreasonably withheld or delayed, consent to the entry of any judgment against Indemnitee or enter into any settlement or compromise which (i) includes an admission of fault of Indemnitee, (ii) does not include, as an unconditional term thereof, the full release of Indemnitee from all liability in respect of such Proceeding, which release shall be in form and substance reasonably satisfactory to Indemnitee, or (iii) would impose any Expense, judgment, fine, penalty or limitation on Indemnitee.  This Section 13(b) shall not apply to a Proceeding brought by Indemnitee under Section 12 of this Agreement.       (c) Notwithstanding the provisions of Section 13(b) above, if in a Proceeding to which Indemnitee is a party by reason of Indemnitee’s Corporate Status, (i) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that Indemnitee may have separate defenses or counterclaims to assert with respect to any issue which may not be consistent with other defendants in such Proceeding, (ii) Indemnitee reasonably concludes, based upon an opinion of counsel approved by the Company, which approval shall not be unreasonably withheld or delayed, that an actual or apparent conflict of interest or potential conflict of interest exists between Indemnitee and the Company, or (iii) if the Company fails to assume the defense of such Proceeding in a timely manner, Indemnitee shall be entitled to be represented by separate legal counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld or delayed, at the expense of the Company.  In addition, if the Company fails to comply with any of its obligations under this Agreement or in the event that the Company or any other person takes any action to declare this Agreement void or unenforceable, or institutes any Proceeding to deny or to recover from Indemnitee the benefits intended to be provided to Indemnitee hereunder, Indemnitee shall have the right to retain counsel of Indemnitee’s choice, subject to the prior approval of the Company, which approval shall not be unreasonably withheld or delayed, at the expense of the Company (subject to Section 12(d) of this Agreement), to represent Indemnitee in connection with any such matter. Section 14. Non-Exclusivity; Survival of Rights; Subrogation. (a) The rights of indemnification and advance of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled under applicable law, the charter or Bylaws of the Company, any agreement or a resolution of the stockholders entitled to vote generally in the election of directors or of the Board of Directors, or otherwise.  Unless consented to in writing by Indemnitee, no amendment, alteration or repeal of the charter or Bylaws of the Company, this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in Indemnitee’s Corporate Status prior to such amendment, alteration or repeal, regardless of whether a claim with respect to such action or inaction is raised prior or subsequent to such amendment, alteration or repeal.  No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right or remedy shall be cumulative and in addition to every other right or remedy given hereunder or now or hereafter existing at law or in equity or otherwise.  The assertion of any right or remedy hereunder, or otherwise, shall not prohibit the concurrent assertion or employment of any other right or remedy. (b) In the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights. Section 15. Insurance.         (a) The Company will use its reasonable best efforts to acquire directors and officers liability insurance, on terms and conditions deemed appropriate by the Board of Directors, with the advice of counsel, covering Indemnitee or any claim made against Indemnitee by reason of Indemnitee’s Corporate Status and covering the Company for any indemnification or advance of Expenses made by the Company to Indemnitee for any claims made against Indemnitee by reason of Indemnitee’s Corporate Status.  In the event of a Change in Control, the Company shall maintain in force any and all directors and officers liability insurance policies that were maintained by the Company immediately prior to the Change in Control for a period of six years with the insurance carrier or carriers and through the insurance broker in place at the time of the Change in Control; provided, however, (i) if the carriers will not offer the same policy and an expiring policy needs to be replaced, a policy substantially comparable in scope and amount shall be obtained and (ii) if any replacement insurance carrier is necessary to obtain a policy substantially comparable in scope and amount, such insurance carrier shall have an AM Best rating that is the same or better than the AM Best rating of the existing insurance carrier; provided, further, however, in no event shall the Company be required to expend in the aggregate in excess of 250% of the annual premium or premiums paid by the Company for directors and officers liability insurance in effect on the date of the Change in Control.  In the event that 250% of the annual premium paid by the Company for such existing directors and officers liability insurance is insufficient for such coverage, the Company shall spend up to that amount to purchase such lesser coverage as may be obtained with such amount. (b) Without in any way limiting any other obligation under this Agreement, the Company shall indemnify Indemnitee for any payment by Indemnitee which would otherwise be indemnifiable hereunder arising out of the amount of any deductible or retention and the amount of any excess of the aggregate of all judgments, penalties, fines, settlements and Expenses incurred by Indemnitee in connection with a Proceeding over the coverage of any insurance referred to in Section 15(a).  The purchase, establishment and maintenance of any such insurance shall not in any way limit or affect the rights or obligations of the Company or Indemnitee under this Agreement except as expressly provided herein, and the execution and delivery of this Agreement by the Company and the Indemnitee shall not in any way limit or affect the rights or obligations of the Company under any such insurance policies.  If, at the time the Company receives notice from any source of a Proceeding to which Indemnitee is a party or a participant (as a witness or otherwise) the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. (c) any Proceeding. The Indemnitee shall cooperate with the Company or any insurance carrier of the Company with respect to Section 16. Coordination of Payments.  The Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable or payable or reimbursable as Expenses hereunder if and to the extent that Indemnitee has otherwise actually received such payment under any insurance policy, contract, agreement or otherwise. Section 17. Contribution.  If the indemnification provided in this Agreement is unavailable in whole or in part and may not be paid to Indemnitee for any reason, other than for failure to satisfy the standard of conduct set forth in Section 4 or due to the provisions of Section       5, then, in respect to any Proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such Proceeding), to the fullest extent permissible under applicable law, the Company, in lieu of indemnifying and holding harmless Indemnitee, shall pay, in the first instance, the entire amount incurred by Indemnitee, whether for Expenses, judgments, penalties, and/or amounts paid or to be paid in settlement, in connection with any Proceeding without requiring Indemnitee to contribute to such payment, and the Company hereby waives and relinquishes any right of contribution it may have at any time against Indemnitee. Section 18. Reports to Stockholders.  To the extent required by the MGCL, the Company shall report in writing to its stockholders the payment of any amounts for indemnification of, or advance of Expenses to, Indemnitee under this Agreement arising out of a Proceeding by or in the right of the Company with the notice of the meeting of stockholders of the Company next following the date of the payment of any such indemnification or advance of Expenses or prior to such meeting. Section 19. Duration of Agreement; Binding Effect. (a) This Agreement shall continue until and terminate on the later of (i) the date that Indemnitee shall have ceased to serve as a director, officer, employee or agent of the Company or as a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, real estate investment trust, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company and (ii) the date that Indemnitee is no longer subject to any actual or possible Proceeding (including any rights of appeal thereto and any Proceeding commenced by Indemnitee pursuant to Section 12 of this Agreement).   (b) The indemnification and advance of Expenses provided by, or granted pursuant to, this Agreement shall be binding upon and be enforceable by the parties hereto and their respective successors and assigns (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), shall continue as to an Indemnitee who has ceased to be a director, officer, employee or agent of the Company or a director, trustee, officer, partner, manager, managing member, fiduciary, employee or agent of any other foreign or domestic corporation, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise that such person is or was serving in such capacity at the request of the Company, and shall inure to the benefit of Indemnitee and Indemnitee’s spouse, assigns, heirs, devisees, executors and administrators and other legal representatives. (c) The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all, substantially all or a substantial part, of the business and/or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform if no such succession had taken place.       (d) The Company and Indemnitee agree that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm.  Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled.  Indemnitee shall further be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertakings in connection therewith.  The Company acknowledges that, in the absence of a waiver, a bond or undertaking may be required of Indemnitee by a court, and the Company hereby waives any such requirement of such a bond or undertaking. Section 20. Severability.  If any provision or provisions of this Agreement shall be held to be invalid, void, illegal or otherwise unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including, without limitation, each portion of any Section, paragraph or sentence of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Section 21. Counterparts.  This Agreement may be executed in one or more counterparts, (delivery of which may be by facsimile, or via e-mail as a portable document format (.pdf) or other electronic format), each of which will be deemed to be an original and it will not be necessary in making proof of this agreement or the terms of this Agreement to produce or account for more than one such counterpart.  One such counterpart signed by the party against whom enforceability is sought shall be sufficient to evidence the existence of this Agreement. Section 22. Headings.  The headings of the paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. Section 23. Modification and Waiver.  No supplement, modification or amendment of this Agreement shall be binding unless executed in writing by both of the parties hereto.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor, unless otherwise expressly stated, shall such waiver constitute a continuing waiver.       Section 24. Notices.  All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given if (i) delivered by hand and receipted for by the party to whom said notice or other communication shall have been directed, on the day of such delivery, or (ii) mailed by certified or registered mail with postage prepaid, on the third business day after the date on which it is so mailed: (a) (b) If to Indemnitee, to the address set forth on the signature page hereto. If to the Company, to: Essential Properties Realty Trust, Inc. 902 Carnegie Center Boulevard Suite 520 Princeton, New Jersey 08540 or to such other address as may have been furnished in writing to Indemnitee by the Company or to the Company by Indemnitee, as the case may be. Section 25. Governing Law.  This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of Maryland, without regard to its conflicts of laws rules. [SIGNATURE PAGE FOLLOWS]             IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COMPANY: Essential Properties Realty Trust, Inc. By: Name: Title: /s/Hillary P. Hai Hillary P. Hai Chief Financial Officer INDEMNITEE By: Name: Title: /s/ Timothy J. Earnshaw     Timothy J. Earnshaw 902 Carnegie Center Boulevard, Suite 520    Princeton, New Jersey 08540                           AFFIRMATION AND UNDERTAKING TO REPAY EXPENSES ADVANCED EXHIBIT A To:  The Board of Directors of Essential Properties Realty Trust, Inc. Re:  Affirmation and Undertaking Ladies and Gentlemen: This Affirmation and Undertaking is being provided pursuant to that certain Indemnification Agreement dated the _____ day of ______________, 20____, by and between Essential Properties Realty Trust, Inc., a Maryland corporation (the “Company”), and the undersigned Indemnitee (the “Indemnification Agreement”), pursuant to which I am entitled to advance of Expenses in connection with [Description of Proceeding] (the “Proceeding”). Terms used herein and not otherwise defined shall have the meanings specified in the Indemnification Agreement. I am subject to the Proceeding by reason of my Corporate Status or by reason of alleged actions or omissions by me in such capacity.  I hereby affirm my good faith belief that at all times, insofar as I was involved as [a director] [and] [an officer] of the Company, in any of the facts or events giving rise to the Proceeding, I (1) did not act with bad faith or active or deliberate dishonesty, (2) did not receive any improper personal benefit in money, property or services and (3) in the case of any criminal proceeding, had no reasonable cause to believe that any act or omission by me was unlawful. In consideration of the advance by the Company for Expenses incurred by me in connection with the Proceeding (the “Advanced Expenses”), I hereby agree that if, in connection with the Proceeding, it is established that (1) an act or omission by me was material to the matter giving rise to the Proceeding and (a) was committed in bad faith or (b) was the result of active and deliberate dishonesty or (2) I actually received an improper personal benefit in money, property or services or (3) in the case of any criminal proceeding, I had reasonable cause to believe that the act or omission was unlawful, then I shall promptly reimburse the portion of the Advanced Expenses relating to the claims, issues or matters in the Proceeding as to which the foregoing findings have been established.   IN WITNESS WHEREOF, I have executed this Affirmation and Undertaking on this ___ day of ____________________, 20____. Name: _____________________________                     List of Subsidiaries Exhibit 21.1 Name of Subsidiary Essential Properties, L.P. Essential Properties OP G.P., LLC SCF TRS LLC SCFRC-HW LLC SCFRC-HW-V LLC SCFRC-HW-G LLC SCF RC Funding I LLC SCF RC Funding II LLC SCF RC Funding III LLC SCF RC Funding IV LLC SCF Realty Capital Trust LLC SCF Realty IFH LLC SCF Realty Funding LLC SCF Realty Servicing Company LLC SCFRC-HW-528 South Broadway-Salem LLC SCF RC Funding Canal LLC LB Funding I LLC State of Incorporation Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware Delaware               Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the following Registration Statements: (1) Registration Statement (Form S-3 No. 333-232490) of Essential Properties Realty Trust, Inc., and (2) Registration Statement (Form S-8 No. 333-225837) pertaining to the 2018 Incentive Plan of Essential Properties Realty Trust, Inc.; of our reports dated March 2, 2020, 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, 2019. Exhibit 23.1 /s/ Ernst & Young LLP New York, New York March 2, 2020       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 Exhibit 31.1 I, Peter M. Mavoides, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of Essential Properties Realty Trust, Inc.; 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; 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; 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) (b) (c) (d) 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; 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; 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 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) (b) 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 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: March 2, 2020 By: /s/ Peter M. Mavoides Peter M. Mavoides President and Chief Executive Officer (Principal Executive Officer)               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 Exhibit 31.2 I, Hillary P. Hai, certify that: 1. 2. 3. 4. I have reviewed this Annual Report on Form 10-K of Essential Properties Realty Trust, Inc.; 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; 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; 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) (b) (c) (d) 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; 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; 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 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) (b) 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 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: March 2, 2020 By: /s/ Hillary P. Hai Hillary P. Hai Chief Financial Officer (Principal Financial Officer)               CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.1 In connection with the Annual Report on Form 10-K of Essential Properties Realty Trust, Inc. (the “Company”) for the year ended December 31, 2019 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) (2) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 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: March 2, 2020 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, 2019 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.               CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Exhibit 32.2 In connection with the Annual Report on Form 10-K of Essential Properties Realty Trust, Inc. (the “Company”) for the year ended December 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Hillary P. Hai, 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) (2) The Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and 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: March 2, 2020 By: /s/ Hillary P. Hai Hillary P. Hai Chief Financial Officer (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, 2019 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.                   

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