Despite their size, which is almost as large as National Retail Properties, Spirit has yet to achieve valuation multiples that compare with National Retail. A major issue is that Spirit has struggled with concentration by Shopko, their major tenant. Since they have merged with Cole Credit Property Trust II, Inc. in mid-2013, Spirit has certainly come a long way in reducing Shopko’s representation down from sixteen percent to ten percent, but it is still relatively high. Also, the short public history with modest dividend increases may have contributed additional risks to the company.
In addition, the Haggen event certainly does not help to improve the company’s profile, especially a large company by REIT standards that has far more resources to make better decisions. Spirit relayed in late November that they have agreed with Haggen about the future of the master lease for the twenty properties they have acquired. Nine will be sold to other companies, Haggen will keep five stores as part of a thirty-two-store portfolio (that will be marketed), and six stores have been rejected and will be leased by Spirit. Of course this is all contingent on approval from the bankruptcy court.
Spirit Realty shares plummeted to their lowest levels of 2015 on September 10, which happens to be the same week in which Haggen announced their bankruptcy filing. Since that time there has not been much of a rebound, and the stock continues to have the lowest AFFO multiple when compared with their sector peers. Given the current risks and circumstances the company’s share price drop is completely justifiable. That being said, it very may well continue for a long time to come, or at least until the resolution of the Haggen situation is completely taken care of.
In conclusion, we are not sure whether the Haggen bankruptcy has significantly diminished Spirit’s management team. It certainly has thrown some great uncertainties to the manner in which they operate. You do not need to be a real estate expert in order to see that Haggen was a risky tenant. If Spirit is keen on make-or-break transactions, shareholders should most definitely be aware of this fact.
Source: Spirit Realty Capital (NYSE:SRC), Seeking Alpha, National Retail Properties, Inc. (NYSE:NNN), Realty Income Corporation (NYSE:O), Haggen
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