RPT Realty: Underwhelming 2023 Guidance

Galeanu Mihai

RPT Realty (NYSE:RPT) owns and operates a nationalist portfolio of open-air shopping destinations, located principally successful nan apical 40 metropolitan statistical areas (“MSAs”). Some apical individual markets representing much than 10% of annualized guidelines rents (“ABR”) see Detroit (12.9%), Boston (11.5%), and Cincinnati (10.1%).

Their apical tenants see The TJX Companies (TJX) and DICK'S Sporting Goods (DKS), among others. And these 2 are nan only ones that represented complete 2.5% of ABR astatine nan extremity of fiscal 2022. Similar to different shopping center-focused REITs, RPT besides has its stock of vulnerability to weaker tenants, specified arsenic Bed Bath & Beyond (BBBY).

Currently, shares are up astir 5% YTD but are still down complete 15% complete nan past year. The banal is lightly covered by Seeking Alpha (“SA”) authors and Wall Street alike, but those covering nan banal successful caller periods thin to beryllium neutral to bullish, pinch the SA organization mostly bullish. Wall Street, connected nan different hand, position shares much neutrally.

Seeking Alpha - RPT Average Wall Street Analyst Price Target

Currently, shares are caller disconnected their Q4FY22 net release. While location were affirmative takeaways successful their leasing activity, guardant guidance appears underwhelming. Even though shares are attractively priced astatine a aggregate of 10.9x, pinch nan anticipation of further dividend growth, nan banal is improbable to supply meaningful shareholder returns successful nan coming periods.

Recent Performance and Current Portfolio Metrics

As of December 31, 2022, RPT’s total portfolio was 93.8% leased. While this is up 70 ground points (“bps”) from past year, it’s somewhat down connected a sequential basis, astatine 20bps. This, however, is connected higher beingness occupancy levels of 89.9%. This is up 100bps from past quarter.

Q4FY22 Investor Supplement - Summary Of Portfolio Occupancy By Quarter

Though nan pipeline of pending commencements is little successful nan existent quarter, astatine 390bps, from 510bps past quarter, nan pipeline is still significant. Overall, nan full pipeline, successful summation to betterment income, amounted to +$11.2M. This is complete 7% of their nett guidelines rents earned successful 2022.

During nan quarter, RPT signed 503K SF of abstraction astatine spreads of 5.6% connected comparable renewals and 24.3% connected caller signings. This brought their afloat twelvemonth full up to 2.2M, which is their highest leasing measurement successful astir a decade. In addition, re-leasing spreads connected caller and renewal leases came successful astatine 42.6% and 6.5%, respectively.

Higher guidelines rents contributed successful portion to maturation successful aforesaid spot nett operating income (“NOI”) during Q4 of 1.1% compared to nan aforesaid play past year. On a afloat twelvemonth basis, aforesaid spot NOI was up 4.3%. All considered, operating costs from operations (“FFO”) was little changed during nan 4th but up astir 9.4% YOY.

Looking ahead, guidance expects aforesaid spot NOI maturation betwixt 1.5% to 3.25% successful 2023. Weighing connected maturation are nan effects of higher assumed bad indebtedness disbursal and occupancy nonaccomplishment owed to tenant bankruptcies. And fixed nan existent marketplace environment, nary multi-tenant acquisition aliases disposition activity is expected successful 2023.

Liquidity and Debt Profile

At twelvemonth end, RPT’s full leverage, arsenic measured by their full nett indebtedness arsenic a aggregate of adjusted EBITDA, was 6.9x. When including their signed but not commenced pipeline (“SNO”) and betterment income balance, nan ratio would beryllium somewhat lower, astatine 6.3x.

Though nan institution operates connected a somewhat higher aggregate than their peers; Urstadt Biddle (UBA), for example, reported a multiple of conscionable 3.6x astatine twelvemonth end. The risks look limited.

Presently, RPT remains successful compliance pinch each their required covenants. And they besides person ample cushion afforded to them. Interest coverage, arsenic calculated done their covenant requirements, for example, stands astatine 4.1x. This is connected a request of 1.75x.

In addition, nan institution has nary important maturities until 2025 astatine nan earliest. This was made imaginable by a caller repayment made successful October of 2022.

Q4FY22 Investor Supplement - Debt Maturity Schedule

On apical of this, they person disposable liquidity of complete +$450M, comprised of rate connected manus and readiness connected their revolving in installments facility. And if request be, they person entree to astir +$133M connected their at-the-market equity distribution programme (“ATM”). This is pursuing their December colony of 1.2M shares that were antecedently sold connected a guardant ground astatine a weighted stock value of $13.85/share.

Dividend Safety

RPT recently increased their quarterly payout by 7.7% to $0.14/share. This follows an 8.3% summation astatine nan opening of 2022 and a 60% summation successful 2021.

Seeking Alpha - RPT Recent Dividend Payout History

The payout, however, is still astir 60% beneath nan complaint provided successful 2020 conscionable anterior to nan COVID-19 pandemic. At that clip connected nan payout day of 4/1/2020, nan dividend yielded a guardant 14.6% based connected a closing value of $5.40/share.

Seeking Alpha - Snapshot Of Historical Prices In April Of 2020

The trim past was apt justified, fixed nan uncertainty. But nan payout has made a dependable tally higher since then. This emergence has besides been successful statement pinch nan stock price. At existent pricing, nan caller payout represents an annualized output of 5.3%.

For investors, further hikes are apt successful nan periods ahead. During nan quarter, RPT generated $0.24/share successful FFO. The caller payout, then, represents little than 60% of FFO. By contrast, astatine nan extremity of 2019, nan payout ratio for nan twelvemonth came successful astatine 81.5%.

At an 80% payout level, nan quarterly dividend would beryllium conscionable complete $0.19/share. That represents complete 35% upside from existent rates. And assuming location is nary activity connected nan banal price, nan annualized output connected that would beryllium complete 7%.

Final Thoughts

In 2023, RPT is expecting afloat twelvemonth FFO per diluted stock to onshore betwixt $0.97 to $1.01/share. This would beryllium down astir 5% from 2022’s reported figures connected nan debased extremity of nan scope and somewhat beneath connected nan apical end. Contributing to nan little scope is weakness successful their aforesaid spot portfolio, which is expected to spot elevated bad indebtedness disbursal and occupancy nonaccomplishment owed to tenant bankruptcies.

In November of 2022, shares were downgraded by Credit Suisse connected immoderate of these expectations apt coming to fruition. But markets mostly discounted nan view, arsenic shares person been mostly trending higher since that downgrade. And moreover pinch nan downgrade, shares are still estimated to beryllium fairly valued astatine astir $12/share. This would correspond upside of astir 13% from existent trading levels.

In addition, nan institution has been steadily expanding their dividend payout to levels person to wherever they were anterior to nan pandemic. At a payout ratio of little than 60%, nan dividend still has ample capacity to beryllium accrued further. Should nan quarterly complaint return to its erstwhile levels, investors would person a output of complete 7%. This would beryllium successful summation to nan estimated upside embedded wrong nan stock price.

At 10.9x guardant FFO, shares are attractively priced. And while nan upside is there, nan underwhelming guidance is disappointing. Sure, their portfolio remains well-anchored by value tenants, pinch TJX Companies and DICK'S Sporting Goods together representing 8.7% of annualized guidelines rents, but nan near-term net deed from losses relating to Bed Bath & Beyond and different weaker tenants reduces nan entreaty of nan stock.

For investors seeking entry, waiting different 4th aliases 2 to get a consciousness for really nan portfolio shakes retired apt wouldn’t consequence successful missing retired connected immoderate meaningful interim upside.

Focused chiefly connected companies pinch a clip tested business exemplary and a committedness to paying a dividend. Opinions are wished done comparative financial connection analysis, net coverage, and various valuation techniques. My occupation is successful accounting, and I americium a licensed CPA.