A portfolio of well-located properties in suburban and high-income areas of the United States, with peak concentrations in Florida, Georgia and North Carolina, positions SITE Centers‘ SITC good for growth. Additionally, the focus on tenants with necessity-based businesses and an aggressive capital recycling program bodes well.
A remote work scenario and consumer shifts to the suburbs have increased demand for this retail real estate investment trust (REIT) properties, driving steady traffic. In addition, working from home has led to increased traffic on weekdays. This positive trend has helped SITC generate decent cash flow and is expected to continue over the coming quarters.
In addition, the majority of SITC’s tenants in its shopping centers are essential to retail businesses that meet the daily needs of consumers. Of the 99 wholly-owned shopping centers, 67% had a quality grocer or discounter as their anchor tenant. This helps the company to generate stable income in times of uncertainty.
To improve its portfolio, SITE Centers has adopted an aggressive capital recycling program whereby it sheds slow-growing assets and redeploys the proceeds to acquire high-end shopping centers in the United States.
In the second quarter of 2022, SITE Centers disposed of 14 shopping centers and a parcel in a wholly-owned shopping center for $268.1 million ($94.6 million in company share). From early 2022 to July 22, 2022, SITE Centers acquired nine shopping centers for a total purchase price of $269.7 million. These co-financing initiatives reflect the company’s prudent capital management practices and relieve pressure on its balance sheet.
SITE Centers has a decent balance sheet position with ample liquidity. It ended the second quarter of 2022 with $864 million in cash and an average net debt prorated to adjusted EBITDA of 5.4X.
SITC also enjoys an investment grade credit rating of BBB-/Baa3/BBB with a stable outlook from S&P/Moody’s/Fitch, respectively, which gives it favorable access to the debt market. With a solid capital base and sufficient financial flexibility, it is well placed to capitalize on long-term growth opportunities.
Analysts seem bullish on this Zacks Rank #2 (Buy) stock. Zacks consensus estimate for funds from operations (FFO) per company share in 2022 has been revised up slightly in the past two months to $1.16.
However, given the conveniences of online shopping, the growing adoption of e-commerce is a concern for SITE Centers. Online retailing is likely to remain a popular choice among customers, which will negatively impact the market share of physical stores.
SITE Centers also faces fierce competition from several corporations and property developers, which limits its ability to increase rental rates, including renewal rates, and to fill vacancies.
In addition, an increase in interest rates will increase SITC’s borrowing costs and may affect its ability to purchase or develop real estate.
Shares of SITC have lost 17.2% over the past three months, compared to a 9.7% decline for the industry.
Image source: Zacks Investment Research
Other actions to consider
Some other top-ranked stocks in the REIT sector are Kimco Real Estate Kim, Regency centers REG and Kite Real Estate Group Trust KRG, each wearing a Zacks rank of 2. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks consensus estimate for Kimco Realty’s FFO per share for the year has moved 1.3% north in the past two months to $1.56.
The Zacks consensus estimate for Regency Centers’ FFO per share for the current year has risen 1.8% over the past two months to $3.96.
The Zacks consensus estimate for 2022 FFO per Kite Realty Group Trust share has risen 1.6% over the past two months to $1.85.
Note: Everything related to earnings presented in this description represents funds from operations (FFO) – a metric widely used to assess the performance of REITs.
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