SITE Centers (NYSE: SITC) isn't a household name to many retail real estate investment trust (REIT) investors, but it isn't exactly new. It was known as DDR Corp. until 2018, and prior to the financial crisis a decade earlier, the company was known as Developers Diversified Realty. The company has survived but has a far more focused investment strategy than it did under its previous names.
In this article, we'll take a closer look at SITE Centers' history, the current state of its business, how the COVID-19 pandemic affected the company, and its performance history for investors.
SITE Centers company profile
SITE Centers has been around since 1965 when it was founded as Developers Diversified Realty. The company started with a single Kmart store in Ohio and evolved into a portfolio of shopping center properties all over the country.
Over the years, the company has changed names a couple of times. It pivoted its strategy after the financial crisis and again as e-commerce headwinds forced some of its biggest tenants into bankruptcy 10 years later (more on that in the next section).
In its present form, SITE Centers is a retail REIT that owns 80 shopping center properties. The company not only focuses on properties located in markets where the average income is significantly higher than the U.S. average but also prioritizes exposure to top-notch anchor tenants -- like Publix, Kroger (NYSE: KR), Walmart (NYSE: WMT), Home Depot (NYSE: HD), and Target (NYSE: TGT), to name just a few.
Because COVID-19's impact has consumed much of the headlines for the past year and a half (and rightfully so), it's also worth reminding investors that retail real estate was struggling a bit before the pandemic.
That's why SITE Centers specifically focuses on properties with anchor tenants that are considered essential businesses (which tend to hold up nicely during typical recessions as well) and makes an effort to fill its properties with tenants whose businesses are growing.
For the most part, retailers that sell discretionary products (things people want but don't need) or sell items at full retail price aren't expanding. On the other hand, retailers that sell things people need, provide a service (like banking or food service), or use a discount-based model are largely doing fine. And these are the tenants that SITE Centers focuses on.
SITE Centers grows in a few different ways. Since adopting the SITE Centers brand name in 2018, the primary growth mechanism has been acquisitions. Of the 80 wholly owned properties in the portfolio, 17 were acquired in the past three years. SITE Centers certainly could develop new properties from the ground up, but the company has made it clear that it prefers to grow its property count by buying rather than building.
In addition to acquisitions, a big focus of SITE Centers' strategy is on redevelopment. Simply put, taking an outdated property and turning it into a modern retail center can be a very efficient way to boost rental income. With just over $1 billion in total liquidity available at the end of the second quarter -- a lot for a company with a $3.2 billion market cap -- SITE Centers certainly has the flexibility to deploy capital as opportunities arise.
SITE Centers news
Like most retail REITs, the most significant news item to impact SITE Centers recently is the COVID-19 pandemic. However, because of its focus on essential anchor tenants and affluent markets, SITE Centers' business wasn't nearly as impacted as some of its peers.
Even at the height of the pandemic shutdowns (Q2 2020), SITE Centers collected 89% of its billed rent. Other retail REITs saw rent collections in the 75% ballpark at that time -- far less in some cases. A substantial portion of unpaid rent during 2020 and 2021 was deferred. And as of mid-2021, nearly three-fourths of all deferred rent had been repaid.
At the worst point in the COVID-19 crash in early 2020, SITE Centers' stock price had lost about 70% of its pre-COVID value. But because of the strong rent-collection figures and generally positive business performance, the stock has rebounded -- and then some.
As of mid-August, SITE Centers trades for 11% more than it did at the beginning of 2020. Along with its Q2 2021 earnings, SITE Centers increased its full-year funds from operations FFO) guidance (the REIT version of earnings) by 13%.
Looking back a bit further, investors should be aware of two significant events in SITE Centers' history. I briefly alluded to these in the previous section.
First, because physical retail was already struggling due to e-commerce headwinds in the years before the pandemic, some of SITE Centers' (then known as DDR) key tenants eventually went out of business, including some anchors. To name one example, electronics retailer hhgregg was a major tenant that left big holes after its bankruptcy.
So, the company ended up spinning off about 40 of its properties, choosing to focus on what it felt were the highest-value opportunities in the portfolio, and rebranded itself as SITE Centers.
Even further back than that, SITE Centers got absolutely crushed when the real estate bubble of the late 2000s blew up. Long story short, the Great Recession led the company to start selling assets to survive. SITE Centers (during its DDR time) owned or managed more than 700 properties in 2008, compared to 80 properties owned today. From the start of 2007 through the end of 2009, the stock lost more than 91% of its value.
SITE Centers stock price
As mentioned, SITE Centers has existed under one name or another for decades and been on the public markets since the early 1990s. And a quick glance at the company's long-term stock chart shows that SITE Centers' stock price is actually lower than it was since it first went public nearly 30 years ago. Plus, the stock is trading for about 85% less than its all-time high reached more than a decade ago.
However, it's important for investors to realize that SITE Centers is a very different company today than it was in its earlier days, especially before the financial crisis devastated it (and many other retail REITs). The company (known as DDR then) owned 373 properties at the end of 2008, compared with only 80 in 2021.
The point is that if you really want to focus on just the modern form of SITE Centers, performance history should only be evaluated back to 2018, when DDR underwent a major strategic restructuring. DDR spun off some of its assets in July 2018 into a newly created company, Retail Value (NYSE: RVI), which still trades on the NYSE today.
The new SITE Centers name was adopted three months later, but we can look at the spinoff date as the "birth" of the company's current form.
Since the spinoff of Retail Value was completed about three years ago, SITE Centers' stock price has been higher by about 6%, pretty slow growth considering the S&P 500 is up by 62% since that time. However, keep in mind that REITs are designed as total return investments (dividends plus stock price growth), and if we include dividends, the results are slightly better, with a 21% total return in about three years.
The bottom line on SITE Centers
SITE Centers has a far more focused investment strategy now than it has had throughout most of its history, but the returns from the first three years of its current form aren't exactly encouraging.
To be sure, SITE Centers' new leaner and more focused strategy could prove to be a winner. Still, there are too many proven winners in the retail REIT space that have delivered consistent market-beating total returns for decades and are likely to be a better fit for most investors.
However, if you're a patient investor with a high risk tolerance, SITE Centers could be worth keeping on your radar.