Tanger Factory Outlet Centers Inc. (SKT, Financial) owns and operates retail outlets across the U.S. and Canada as a self-administered and self-managed REIT. It has built an impressive group of assets by becoming a great landlord and trusted developer with a lot of high-quality tenant relationships.
Tanger is the only "pure-play" outlet center REIT; there are no department stores in the portfolio and, as retailers cycle in and out, Tanger will continue to be the best choice. More on the company’s brands here.
Over the last decade, Tanger’s total revenue has continued to rise, increasing from $229 million to over $476 million. In the same time, net income pushed upward to $189 million from $29 million in 2007. These numbers were achieved on 67% gross margins. The company has a solid balance sheet and captured over 250% in book value growth since 2007. By sticking to the outlet sector rather than malls or high-end retail space, it has carved out a small durable competitive advantage.
With a market cap of $2.5 billion, the company’s market price has been cut almost in half over the last year; however, it continues to increase the dividend - now at $1.30 per share. Tanger’s debt stands at $1.7 billion, mostly wrapped up in its 44 locations occupying over 15 million square feet, with an active pipeline of deals, including recently completed projects in Columbus, Ohio and Daytona, Florida. New projects in Fort Worth, Texas (opening in late October) and a major expansion in Lancaster, Pennsylvania (opening in September) should add tremendously to the bottom line. Plus, with Tanger operating in just 22 states, there remains a ton of growth potential.
From its last quarterly release
Tanger raised its regular quarterly dividend by 5.4% on an annualized basis to $1.37 per share, marking the 24th consecutive year of increased dividends.
Net income available to common shareholders was 23 cents per share, or $22 million, compared to 28 cents per share, or $26.9 million, for the first quarter of 2016, positively impacted by a five cents per share, or $4.9 million, gain on the sale of an outlet center.
Blended average base rental rates increased 8.4% on 206 leases, totaling approximately 1,014,000 square feet renewed or released throughout the consolidated portfolio.
Excluding seven leases with an average suite size of approximately 19,700 square feet, blended average base rental rates increased 13.8% on 199 leases, totaling approximately 876,000 square feet renewed or released throughout the consolidated portfolio during the first quarter.
Same center net operating income ("Same Center NOI") increased for the 54th consecutive quarter with an occupancy rate of 96.2% on March 31.
Average tenant sales productivity for the consolidated portfolio was down to $380 per square foot, compared to $401 per square foot from the prior trailing 12 months.
Bottom line
Tanger generates just under $11 million per location in sales, and will continue to open or acquire new outlets each year. Over the long term, the company will raise rent, pushing revenue higher, and if it can keep profit margins high, the future earnings and dividend payout will be even sweeter.
To me, it is simple. People will not stop shopping and the Tanger Outlets will continue to be a destination for consumers to find excellent brands at bargain prices.
With the stock trading where it was six years ago, investors should now be able to capitalize on dividend growth and price appreciation long term. It could get cheaper with the coming bear market correction, but barring a complete halt in consumerism, it is a good bet Tanger will remain the leader for decades to come.
Disclosure: I have no position in Tanger.
