TRADE ALERT - Core Portfolio June 2025 (Capital Recycling)

We have decided to sell our position in Essential Properties Realty Trust (EPRT) and to reinvest the proceeds into Blue Owl Capital (OWL).

Our rationale here is simple.

Essential Properties Realty Trust (EPRT) is a great REIT, and it has long been our biggest holding. However, it now trades near its fair value, limiting its immediate upside potential. Moreover, its dividend yield has dropped to just 3.5%, which is quite low for our high-yield seeking portfolio.

I also fear that its high exposure to car washes could eventually pose some problems, as this sector has become oversupplied. Moreover, EPRT could be more heavily exposed to the trade war and/or a potential recession since most of its tenants are smaller private equity-backed companies. You may remember that NNN REIT (NNN), a close peer of EPRT, faced some minor tenant issues last year, and its stock took a big hit from it. I fear that these troubles could be a potential red flag for EPRT shareholders as well.

So the risk-to-reward is not as attractive as it once was. If everything goes well, it should still be able to generate about 10% annual returns from its yield and growth. But if and when it faces a setback from a lease default, even a minor one, the market could quickly reprice EPRT at a much lower valuation multiple, which would then also slow down its growth.

EPRT was a great investment for us, especially since it was our largest holding for a long time, but it has now run its course:

Data by YCharts

Blue Owl Capital (OWL), on the other hand, is an asset manager with a significant net lease business.

It offers a higher dividend yield.

It is growing a lot faster.

It has less leverage.

And it has more upside potential.

Therefore, we expect it to earn much higher returns than EPRT in the coming years, and this is why it makes sense for us to redeploy our capital in Blue Owl.

Is it riskier? Some would argue yes. Others would argue no. But ultimately, the goal of our Core Portfolio is to maximize total returns, and the risk-to-reward is superior in our opinion.

Below, we share our investment thesis:

Blue Owl: The Successor to STORE Capital