SITE Centers (SITC) Stock Rises 11.2% in a Month: Here's How
Shares of SITE Centers Corp. SITC, currently carrying a Zacks Rank #3 (Hold), have gained 11.2% over the past month compared with the industry’s rally of 6.7%.
This Beachwood, OH-based retail real estate investment trust (REIT) has a portfolio of well-located properties in suburban and high-household-income regions of the United States, with maximum concentrations in Florida, Georgia and North Carolina.
Its focus on tenants with necessity-based businesses and aggressive capital-recycling efforts have enabled it to ride the growth curve so far.
Last month, this retail REIT reported third-quarter 2023 operating funds from operations (OFFO) per share of 33 cents, beating the Zacks Consensus Estimate of 28 cents. The quarterly results reflected better-than-anticipated revenues aided by a rise in pro-rata base rent per square foot.
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Let’s find out the factors behind the surge in the stock price.
SITE Centers announced plans to spin off its convenience retail assets into a separate, publicly-traded REIT — Curbline Properties Corp. (“Curbline”) — in late October 2023, concurrent with its third-quarter 2023 results. The move is aimed at streamlining the company’s portfolio of retail properties, opening up scope to maximize value through leasing and tactical redevelopment efforts.
This is likely to drive net operating income and cash flow growth in the upcoming period, making the move seem prudent and raising investors’ optimism in the stock.
Additionally, SITC expects its leverage to decline to less than 4.0X in the fourth quarter of 2023 from 5.1X reported in the third quarter of 2023 due to its dispositions in relation to the spin-off.
Notably, this will be the first and only public REIT exclusively focused on Convenience assets, offering attractive, inflation-protected returns driven by high renewal and retention rates and limited operating capital expenditures. The spin-off is anticipated to close in the second half of 2024, subject to certain customary closing conditions.
Based on its third-quarter results and announced transaction activity, SITE Centers revised its guidance for OFFO per share in the range of $1.16-$1.18, up from the earlier estimation of $1.13-$1.17. The Zacks Consensus Estimate for FFO per share has been raised marginally in the past month to $1.16, indicating a favorable outlook.
Demand for retail real estate has remained robust in recent quarters as retailers continue to rent more physical store space to distribute their goods more quickly and efficiently. The pandemic-related work-from-home trend and the shift of consumers to the suburbs have also boosted leasing activity and occupancy growth at SITE Centers properties.
Apart from the company’s recent spin-off plans, robust demand for retail real estate in recent quarters has aided SITE Centers. Retailers continue to rent more physical store space to meet this growing demand and to enhance their merchandise distribution process. Also, the company’s suburban properties are witnessing increased footfall due to the present remote working scenario and pandemic-induced migration of customers to the suburbs, aiding leasing activity and occupancy growth.
SITC leased around 3.1 million square feet of gross leasable area for a total of 350 leases from the beginning of 2023 through Sep 30. This included 91 new leases and 259 renewals. The shopping center portfolio occupancy, on a pro-rata basis, was 92.2% as of Sep 30, 2023, increasing from 91.4% witnessed at the end of the year-ago quarter.
Given SITC’s encouraging signed, not open leasing pipeline aggregating $14.4 million as of the end of the third quarter, 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. This assures stable rental revenues for the company.
Its aggressive capital-recycling efforts to enhance its portfolio quality augur well. Through this, it has divested slow-growth assets and redeployed the proceeds to acquire premium U.S. shopping centers.
From the beginning of 2023 through Oct 27, 2023, SITC disposed of five unconsolidated shopping centers for $112.2 million ($22.4 million at the company’s share). It also acquired ten convenience centers for $128.7 million during this period.
SITC’s robust balance sheet position has enabled it to capitalize on long-term growth opportunities. It exited third-quarter 2023 with $878 million of liquidity and an average pro-rata net debt to adjusted EBITDA of 5.1X. Also, investment-grade credit ratings of BBB-/Baa3/BBB with a stable outlook from S&P/ Moody's/ Fitch, respectively, render it favorable access to the debt market.
Nonetheless, higher e-commerce adoption and limited consumers’ willingness to spend amid persistent macroeconomic uncertainty and high interest rates pose key near-term concerns for the company.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are TANGER INC SKT and Urban Edge Properties UE, 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 TANGER’s 2023 FFO per share has moved marginally upward in the past week to $1.92.
The Zacks Consensus Estimate for Urban Edge’s current-year FFO per share has been raised 1.7% northward in the past two months to $1.19.
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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