Essential Properties Trust Yields Nearly 5% With An Underleveraged Balance Sheet

Seeking AlphaREITsEssential Properties Trust Yields Nearly 5% With An Underleveraged Balance SheetOct. 22, 2020 10:36 AM ET|| About: Essential Properties Realty Trust, Inc. (EPRT), Includes: ADC, FCPT, Oby: Julian LinJulian Lin Best Of BreedHigh conviction investment ideas in the high quality space.SummaryRent collection has bounced back to 90%, even before accounting for deferrals.
EPRT’s tenants have financially strong with 3.0 times rent coverage.
The balance sheet is underleveraged at 4.9 times debt to EBITDA.
I rate shares a buy with over 30% total return upside.
Essential Properties Trust (EPRT) has proven the skeptics wrong, and its shareholders have been rewarded for their conviction. As rent collection breaks into the 90% threshold, EPRT has returned over 80% since the retail real estate bloodbath in March and April. EPRT remains underleveraged, which should enable it to report significantly stronger bottom-line growth as compared to peers due to leverage ramp up. I rate shares a buy.
Up 80% With More Upside To Come
It wasn’t easy to be bullish on retail real estate in the months of March and April, as it seemed that no one on Wall Street was buying. At the time, the general consensus seemed to be the financial collapse of the entire brick and mortar economy. Value investors that ignored the overly pessimistic outlook considered the steep price declines buying opportunities instead of reasons to run away. Since my April buy alert, EPRT has returned over 80% in 6 months:

(Seeking Alpha)
The strong price run-up was not undeserved, as EPRT has seen rent collection steadily improve from 68% in April to 90% August rent collection:

(September Presentation)
Overall, second-quarter AFFO was flat at $0.27 per share, as writeoffs of uncollectible rent weighed on results, even if the writeoffs were significantly better than much of the rest of the retail REIT sector.
There’s reason for optimism regarding the... Read more