Updated: Jun 1
With the vaccine rollout, a return of customer traffic, new tenants, paying down debt, and a resumption of rent collections Tanger Factory Outlets Centers, is clearly going to survive over the longer term.
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, it has been a rough few years for Tanger Outlets, which operates lower cost open-air outlet centers. Store closures, an increase in empty space, decreasing rental rates, not to mention the pandemic which hit Tangers ability to collect rents have all made it difficult for Tanger to operate. Not surprisingly the stock crashed from a high of over $40 just a few years ago, all the way to a low of $5.00 during the depths of the pandemic, and worse they had to cancel the dividend.
Fortunately moving into 2021 it appears Tanger has turned a page. Tanger has sold non-core outlets of the last few years, cut back on expenses, adjusted its tenant mix and as of the fourth-quarter 2020 rent collections were over 90%. Better yet customer traffic returned strongly, at 90% of the previous year's traffic levels.
The stock has performed exceedingly well, going from a low of $5 to just over $16 at the time of this article, that's a three-fold increase! Tanger has also decided to restart the dividend and new CEO, Stephen Yalof, who directed Simon’s Premium Outlets division for six years before joining Tanger Factory Outlets has taken the helm.
Stephen has not been sitting ideally by and has already made a bold move. He initiated the sale of 6.9 million shares of common stock under its at-the-market equity offering ("ATM") program at a weighted average price of $19.02 per share, generating gross proceeds of approximately $130.6 million. This was a good opportunity for Tangers CEO to raise cash to pay down debt.
Tanger plans to use the proceeds of the stock sales for the partial redemption of $150 million aggregate principal amount of its 3.875% senior notes due December 2023 (the "Notes"), of which $250 million aggregate principal amount is currently outstanding. The early redemption is currently expected to occur on April 30, 2021. Also, Tanger paid down $25 million of borrowings under its $350 million unsecured term loan on March 11, 2021. The interest rate for this portion of the term loan principal was 1.25%. Source
Although not significant, the sale of shares and debt paydown helps Tanger stabilize and strengthen its already strong balance sheet. Additionally, as of March 30, 2021, the Company's liquidity exceeds $790 million, including $600 million of undrawn lines of credit and more than $190 million of cash, not bad for a 1.4 Billion dollar company.
Tanger Factory Outlet Centers Inc with its strong balance sheet, high quality open-air outlet centers makes it a stable investement that can survive the retail apocolypes.
Outlook for Tanger?
There is no question Tanger Outlets has been challenged in the last few years, for example, consolidated portfolio occupancy was down to 91.9% as of December 31, 2020. This reflected 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 . However, I believe the outlook for Tanger is better and we are close to a low point in terms of occupancy rates for the outlet center. We could see an improvement over the coming year.
As I had mentioned in another article, "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. A good sign people will continue to shop at outlets."
Tanger a Buy?
Tanger Factory Outlets will survive, additionally, it's well-capitalized and is in a great niche retail REIT market. Many naysayers believe retail REITs such as Tanger Outlets will not survive the retail apocalypse. However, there will be survivors and Tanger Outlets looks like it will be one of those survivors. Their lower-cost open-air outlet centers are attractive to retailers and the quick return to customer levels close to pre-pandemic levels shows Tanger continues to be a popular destination. I am not surprised as in my experience visiting Outlets I have always found Tanger Outlets to be high-quality when comparing to others.
Tanger Outlets is not a high growth story and do not expect any major expansions from this REIT in the near to mid-term but it's a good way to receive income with possibly some share appreciation. Overall we are neutral on the retail-focused REIT space with exception of Tanger and Simon Property Group Inc (SPG). Take the time and review Tanger Factory Outlets and see if this is a stock to add to your portfolio.
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.