Essential Properties Goes Public Despite the ‘Retail Apocalypse’

(Bloomberg) -- U.S. landlord Essential Properties Realty Trust Inc. just went public as shares of other retail real estate owners struggle. What’s its angle?

Don’t just sell stuff.

“We focus on a very specific set of properties that have this service component, so it’s not just a generic box selling retail goods,” Chief Executive Officer Pete Mavoides said in an interview. “We own fitness centers, dental clinics, restaurants -- granular tenants that provide a service.”

Behind him are investment firm Eldridge Industries LLC, which seeded Essential Properties, and Todd Boehly, a co-founder of Guggenheim Partners LLC who left Guggenheim in 2015 to run Eldridge.

Essential Properties said Thursday that it sold 32.5 million shares at $14 apiece. The company expects to have raised $540 million by the time it closes its offering on Monday. The shares -- priced at the low end of the range it had said it was seeking -- declined on their first day of trading, closing at $13.64.

Brick-and-mortar retail shops have flailed, and failed, amid the rise of online shopping. This “retail apocalypse” has turned many of America’s malls into boneyards as consumers opt to buy everything from groceries and clothing to houses on the web.

Service-based retailers have proved less vulnerable to the advances of e-commerce companies like Amazon.com Inc. Essential Properties focuses on “triple net” leases, in which the tenant agrees to pay real estate taxes, building insurance and maintenance fees in addition to rent and utilities. Triple-net real estate investment trusts own such properties as gas stations and standalone big-box stores and lease them out for long periods, typically with an initial term of at least 10 years.

Essential owns 530 properties across 42 U.S. states, according to a company statement; most are in Georgia, Florida or Texas, Mavoides said. Members of the Princeton, New Jersey-based management team, which includes Chief Operating Officer Gregg Seibert and Chief Financial Officer Hillary Hai, worked at Spirit Realty Capital Inc. That triple-net REIT has outperformed the broader sector, climbing 8.1 percent so far this year, while the Bloomberg U.S. REIT index fell 2.4 percent.

Eldridge, which seeded Essential Properties in March 2016, agreed to a private placement of $125 million and will hold a 44.6 percent stake in the REIT. It has agreed to lock up its shares for a year and will have minority representation on the board, Movaides said.

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