With the return of the dividend, solid collection rates, and a return of traffic in the last quarter, is Tanger Factory Outlets Centers, a popular outlet mall in the USA and Canada a place to put your money to work?
By: Allan R. Kirby
Tanger Factory Outlet Centers (SKT)
Dividend Rate ($0.1775 per Quarter).
Tanger Factory Outlet Centers is a real estate investment trust (REIT) that owns 38 shopping centers comprising 14.1 million square feet and over 2,700 stores with locations across the U.S. and Canada. Unfortunately for this investment trust, it has not been a good couple of years; with its stock crashing from a high of just over $41 in 2016 all the way down to a low of $4.05 in April 2021. This was arguably way overdone but it did not detract many nonbelievers from piling up article after article about the demise of such a high-quality retail REIT.
When I last wrote about Tanger Factory Outlet Centers KeyBanc Capital had cut its price target of Tanger to a mere $3 from $12. But there is a good reason, no one at the time knew what the impact would be from the coronavirus pandemic on the retail industry. Tanger depends on the retail stores to pay rent, so when all the outlet stores were closed, it was rather hard for them to collect rents. Additionally, they stopped paying the dividend and did see continued store closures and more But the worst-case scenario never played out, Tanger has been able to reopen their outlets, collect rents, and build-up over $680 million in liquidity, Specifically fourth-quarter 2020 rent collections were over 90%, and customer traffic returned as well at 90% of the previous year's level. This comes as no surprise to me as I have pointed out on many occasions that unlike some analysts of Tanger I have actually been to a few of Tanger outlets and was surprised this past year to see the traffic was considerably higher than at closed malls. It does not appear to me that the business model is fundamentally flawed, indoor malls is a different story.
Tanger Factory Outlet Centers Inc is one of the most shorted stocks on the NYSE, Although there are some headwinds, there is nothing fundamentally wrong with the company that would justify such a high short position.
The stock was crushed particularly in 2020, to put it mildly, and heavily shorted but it appears the stock and the company itself have recovered nicely in the past few months. Additionally, on January 14, 2020, it reinstated its quarterly dividend at $0.1775 per share and they now have a new CEO, Stephen Yalof, who directed Simon’s Premium Outlets division for six years before joining Tanger Factory Outlets. He replaces long time Stephen B. Tanger, now chairman of Tanger’s board of directors.
"While 2020 brought unprecedented challenges, our outlook is improving,” Yalof said. “We are curating new ways to serve our customers in a safe, secure manner to grow our business for the long-term."
Outlook for Tanger?
While most of its occupied retail space is now open for business, the pandemic did force many of Tanger's tenants into bankruptcy, which has lead to the company having the highest vacancy rate since its founding. It will take time to fill the empty spaces and this is where management will likely be focused so I do not expect to see any major expansions or new builds in the near term. Consolidated portfolio occupancy was 91.9% as of December 31, 2020. This reflects approximately 317,000 square feet of space recaptured during the fourth quarter of 2020 related to tenant bankruptcies and restructuring announcements by retailers for a total of 903,000 square feet during 2020 . Although occupancy is at historic lows, I still do not have concerns with Tangers' business model, debt, or funding of the Dividend, in fact, I would not be surprised to see an increase in the dividend at some point but likely not until we have a full reopening and the pandemic is behind us.
I still do not believe the retail apocalypse will destroy outlet centers but many lower-tier malls will close but this is necessary to properly align retail space to the new realities. The fact that traffic had returned to a high of 90% of pandemic volumes speaks volumes about its ability to attract customers during the pandemic. Indoor malls especially the lower tired malls are in trouble, but being an outlet shopper myself, I am not seeing anything that concerns me with outlets such as Tanger.
"Tanger Outlets in Southaven was packed with last-minute Christmas shoppers in 2020"
Tanger a Buy?
I am not a big REIT focused investor, however, this is a well-capitalized, small mall operator that has carved out a niche in the retail space. This stock is a little risky but it's been able to survive the pandemic in a relatively good position and is poised to start building its tenants back up. The company provides a dividend of .1775 which is just over 5% on an annualized basis with its current share price. This is a good stock to secure a decent dividend in a low-interest environment. However, I do need to stress this is not a high growth story and do not expect any major expansions from this REIT in the near to mid-term. Additionally, the stock has appreciated significantly from its lows, but this was expected given how low the stock had gotten. I do see some possibility of the share price appreciation but the stock is starting to get closer to being fully priced so you could wait for a pullback.
Tanger is a REIT with a $1.2 billion market capitalization, and has close to $700 million in liquidity .
Take the time and review Tanger Factory Outlets and see if this is a stock to add to your portfolio. Overall we are neutral with the retail-focused REIT space with exception of Tanger and Simon Property Group Inc (SPG).
Disclosure: mysmallbank.com nor the author received any compensation from any securities highlighted in this article. The article is our opinion only and is written to help readers learn more about the stocks mentioned in this article. Consider this as basic information only and utilize professional services and additional sources before making an investment decision.