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SITE Takes Up Portfolio Overhaul, Divestures to Boost Growth

Zacks Equity Research

SITE Centers Corp. SITC has a well-diversified retail real estate portfolio with presence in various regions. Also, 80% of the company’s assets are anchored by grocers or well-known discount traffic drivers, which help in generating steady rental revenues. The company has also substantially addressed all of its 2019 lease expirations. In the first nine months of 2019, this retail REIT leased 2.3 million square feet of space through 507 leases.

Further, the company has been streamlining its organizational structure in order to improve efficiencies, achieve appropriate staffing level and curb operating costs. This is likely to boost growth in the long run.

SITE Centers is divesting its slow growth assets and investing the proceeds in acquisitions of premium U.S. shopping centers and redevelopment activities. The company’s active redevelopment projects are aimed at expanding, improving and re-tenanting various properties. Further, it remains on track to meet its five-year plan target of generating 5% average annual earnings growth and 2.75% same-store net operating income improvement. Such capital-recycling program is likely to fuel top-line growth over the long term.

Furthermore, SITE Centers’ deleveraging process has resulted in the extension of its weighted average maturities of debt to 5.5 years. The move also improved the company’s liquidity profile, thus strengthening its balance sheet. Hence, with minimal near-term debt maturities, the company remains well poised to tap growth opportunities and fund its redevelopment pipeline.

Furthermore, this Zacks Rank #3 (Hold) stock has gained 31.5% so far this year, outperforming 17.3% growth recorded by the industry. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

However, rapid shift in customers’ shopping preferences and patterns toward online purchase is hampering mall traffic, which has emerged as a concern for SITE Centers. While still high consumer’s confidence and a healthy labor market remains a plus for retailers, growing demand for online shopping is causing many retailers to reconsider their footprint and eventually opt for downsizing. This is impacting the company’s mall shop lease rate.

In fact, SITC Centers is not the only REIT battling such issues. Kimco Realty Corp. KIM, Macerich Company MAC and Taubman Centers, Inc. are also getting affected by the rapid shift toward e-retailing, store closures and retailer bankruptcies.

Further, SITE Centers is opting for divestitures in order to enhance its portfolio mix. Notably, in the first three quarters of 2019, the company sold eight shopping centers for $135.1 million at the company’s share. Though these actions are likely to benefit it in the long term, the near-term dilutive effect on earnings is unavoidable. In fact, the company’s third-quarter 2019 cash provided by operating activities was affected by asset sales and the Retail Value Inc. RVI spin-off of assets.

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