SITE Centers (SITC) Up 13.7% in 6 Months: Will the Trend Last?
Shares of SITE Centers SITC, currently carrying a Zacks Rank #3 (Hold), have gained 13.7% over the past six months compared with its industry’s rally of 5.2%.
With robust retail real estate demand and muted new supply driving the industry’s recovery, SITE Centers’ portfolio of well-located properties in suburban and high-household-income regions of the United States is likely to have benefited from robust leasing activity, leading to occupancy gains.
Also, this Beachwood, OH-based retail real estate investment trust’s (REIT) focus on essential retail business and aggressive capital-recycling efforts have enabled it to ride the growth curve so far.
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Let us decipher the factors behind the surge in the stock price.
Demand for retail real estate has remained robust over the recent quarters, with retailers continuing to rent out more physical store spaces to improve their speed and efficiency of merchandise distribution. Also, the pandemic-induced work-from-home trend and consumers’ shift toward the suburbs have aided leasing activity and occupancy growth at SITE Centers properties.
The company leased around 1.8 million square feet of gross leasable area for a total of 231 leases from the beginning of 2023 through Jun 30. This included 65 new leases and 166 renewals. The shopping center portfolio occupancy, on a pro-rata basis, was 92.3% as of Jun 30, 2023, increasing from 90.9% witnessed at the end of the year-ago quarter.
With an encouraging signed not open leasing pipeline representing $18.3 million of annualized base rent on a pro-rata basis, the company remains well-poised for growth.
A significant portion of SITC’s shopping centers comprises essential retail components, adding resiliency to its business. The majority of its tenants cater to day-to-day consumer needs, with a focus on value and convenience retailers.
Moreover, its tenant roster includes several industry bellwethers like TJX Companies, Inc., DICK's Sporting Goods, Inc., Ross Stores, Inc., Burlington, Inc. and Five Below, Inc., with a relatively strong financial position. As of Jun 30, 2023, 88% of the tenants were national by the company’s annualized base rent. This encouraging tenant mix assures stable revenues even during economic downturns.
SITE Centers follows an aggressive capital-recycling program to enhance its overall portfolio quality. Through this, it divests its slow-growth assets and uses the proceeds for acquisitions of premium U.S. shopping centers. These centers are convenience-oriented properties that offer strong opportunities for rent growth and redevelopment activities. Such measures highlight its prudent capital-management practices and bode well for growth.
From the beginning of 2023 through Jul 31, 2023, SITC disposed of five unconsolidated shopping centers for $112.2 million ($22.4 million at the company’s share). It acquired five shopping centers for $74.6 million during this time period.
The company maintains a healthy balance sheet position with limited near-term maturities. As of Jun 30, 2023, it had $803 million of liquidity and an average pro-rata net debt to adjusted EBITDA of 5.5X. Also, it enjoys credit ratings of BBB-/Baa3/BBB, with a stable outlook from S&P/ Moody's/ Fitch, respectively, rendering it favorable access to the debt market. Hence, with a strong financial footing, SITC seems well-positioned to capitalize on long-term growth opportunities.
Nonetheless, rising e-commerce adoption and a high interest rate environment pose concerns for the company.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Phillips Edison & Company PECO, Tanger Factory Outlet Centers SKT and Saul Centers BFS, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Phillips Edison & Company’s current-year FFO per share has been raised marginally in the past two months to $2.32.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share has been revised marginally northward in the past week to $1.89.
The Zacks Consensus Estimate for Saul Centers’ 2023 FFO per share has moved 1.6% upward in the past month to $3.12.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Tanger Factory Outlet Centers, Inc. (SKT) : Free Stock Analysis Report
Saul Centers, Inc. (BFS) : Free Stock Analysis Report
SITE CENTERS CORP. (SITC) : Free Stock Analysis Report
Phillips Edison & Company, Inc. (PECO) : Free Stock Analysis Report
