RPT Realty Is Outperforming Its Stock Price

Summary

• RPT’s stock looks dangerous, but looks can be deceiving.
• Rent collection has already improved to 90%.
• Cash flow declines should moderate, leading to improvement in leverage.
• RPT trades cheaply even based on the current cash flow profile.
• Looking for more investing ideas like this one? Get them exclusively at Best Of Breed. Get started today »

RPT Realty (RPT) trades 60% lower than it did prior to the pandemic even though its financials continue to improve. Rent collection hit 90% in October and the company is making progress in collecting past rent. While cash flows have taken a big hit, the improvements in rent collection may bode well for the bottom-line moving forward.

Steady Improvements

If you’re only following the stock price of RPT, you wouldn’t have noticed that things are improving.

RPT collected 87% of third-quarter rent. Second-quarter rent collection improved from 65% to 76%. Rent collection may improve moving forward because as of October 30, 94% of tenants were operating (based on annualized base rent).

Same-store net operating income (‘SS NOI’) declined 8.3%, with an 8.9% impact from reserves for uncollectible rent. In the quarter, RPT wrote off $4 million of rent, roughly 10.1% of billed rent. Considering that cash rent collection is already at 90%, it seems unlikely for reserves to remain at this elevated level moving forward. Even so, as I show later, RPT trades cheaply on current cash flows.

Occupancy of 92.1% was 100 basis points lower than last year - investors should keep a close eye in case of widespread bankruptcies.

Pricing power remained strong, as RPT generated 42.9% leasing spreads on new leases and 2.6% spreads on renewal leases for a 10.7% blended leasing spread.

All in all, this is a clear example of needing to look beyond the stock price to see what is really going on with the company. While business is not quite “normal” yet, the underlying fundamentals are clearly outperforming the stock price performance.

Balance Sheet Analysis

RPT has a reasonably leveraged balance sheet with a trailing twelve-month net debt to proforma adjusted EBITDA ratio of 7.2x. Based on this past quarter’s EBITDA annualized, debt to EBITDA

Analyst’s Disclosure:I am/we are long RPT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.