Essential Properties Realty Trust (EPRT) just held their Q1 2024 earnings call, and while analysts are busy dissecting cap rates and tenant diversity, a curious silence hangs over one crucial metric: tenant retention. EPRT, a company known for its transparency and granular data disclosures, chose not to quantify their tenant retention rate. This omission, especially within the context of their broader narrative, might be the most telling detail of the entire call.

EPRT emphasizes a "relationship-driven" approach, boasting about the stickiness of their tenant base and their ability to act as a reliable capital source for middle-market businesses. In Q1 2024, a staggering 87% of investments originated from existing relationships. This dependence on existing partnerships, while seemingly positive, raises a critical question: at what cost is EPRT maintaining these relationships?

The company readily admits that some tenants are "outgrowing" their capital solutions. This acknowledgment, coupled with the absence of a concrete tenant retention figure, hints at a potential vulnerability. Is EPRT sacrificing pricing power and favorable lease terms to keep these "outgrowing" tenants within their portfolio? Are they offering concessions or accepting less-than-ideal lease renewals to maintain their reported investment volume?

Delving into the Numbers

Let's delve into the numbers. EPRT reported a record $249 million in Q1 investments at an average cash yield of 8.1%. While impressive on the surface, this figure must be evaluated alongside potential behind-the-scenes arrangements. If EPRT is indeed prioritizing retention over maximizing individual deal economics, their long-term profitability could be at risk.

Furthermore, the lack of transparency surrounding tenant retention raises concerns about the sustainability of EPRT's growth trajectory. Their pipeline might be robust, but is it being fueled by a steady influx of new, profitable relationships, or is it artificially inflated by concessions made to retain existing, less-lucrative partnerships?

"Hypothetical Scenario: Impact of Declining Tenant Retention"

This illustration shows how even a small dip in tenant retention can significantly increase the need for new investments just to maintain the same business volume from existing partners.

The Importance of Transparency

This simple illustration underscores the importance of understanding EPRT's tenant retention rate. Without this crucial data point, investors are left to speculate about the true cost of EPRT's relationship-driven approach and its long-term implications for profitability and growth.

Earnings Call Highlights: A Glimpse into the Narrative

Here are some key takeaways from EPRT's Q1 2024 earnings call transcript: EPRT emphasized its "relationship-driven" approach and highlighted the high percentage of investments originating from existing relationships (87%). The company acknowledged that some tenants are "outgrowing" their capital solutions, potentially impacting retention rates. EPRT reported a record $249 million in Q1 investments at an average cash yield of 8.1%. Management expressed confidence in the robustness of their pipeline.

A Chart Tells a Thousand Words...Or Does It?

While EPRT did not disclose tenant retention data, let's visualize some available data from their earnings reports. The chart below shows EPRT's investment volume over the past year. While a growing investment volume can be positive, it doesn't reveal the full story without understanding the factors driving that growth, including tenant retention.

The Silence Speaks Volumes

EPRT's silence on tenant retention might be strategic, but it's a silence that speaks volumes. Until the company provides concrete data on this crucial metric, a shadow of doubt will linger over their impressive investment figures and optimistic outlook. The question remains: is EPRT's focus on relationships a sustainable competitive advantage, or is it a potential liability masked by impressive headlines and a carefully curated narrative? Only time, and perhaps a more transparent disclosure policy, will tell.

"Fun Fact:"

The phrase "silence speaks volumes" is called an oxymoron - a figure of speech where contradictory terms appear together. It highlights how silence, despite being the absence of sound, can convey a powerful message. In EPRT's case, the silence on tenant retention speaks to potential underlying issues that investors should carefully consider.