Tracy Targets Tanger
05/30/2003 12:00 am EST
"Although most of the companies we analyze never make it into our portfolios (we only add the cream of the crop to our portfolios, and even then, we only do so when a firm's stock is trading at a discount to its intrinsic value), we continually track hundreds of such ideas," says Paul Tracy, editor of StreetAuthority. "Whenever a company's risk/reward profile meets our stringent criteria, we then add its shares to our holdings." Here's the latest stock to make the grade.
" Tanger Factory Outlet Centers (SKT NYSE) is a highly profitable factory outlet center owner that has been growing at a solid clip and its shares are now paying a healthy 7.6% annual dividend yield, making it an excellent candidate for addition to our Income Portfolio. Tanger owns 34 factory outlet centers in 21 different states across the country. All told, the firm's outlet centers contain over 6 million square feet of leasable area divided up into 1,300 unique storefronts, which Tanger then leases to a diverse lineup of more than 300 major national retail brands. The firm's list of well-known tenants includes the likes of Polo, Nike, Banana Republic, Liz Claiborne, and others. Thanks to the fact that consumer spending has stayed strong throughout the economic downturn, retail ownership REITs like Tanger have held up extremely well over the past several years."
"To say that Tanger has high traffic at many of its more popular outlet locations would be an understatement. The firm's occupancy rates stood at 98% at the end of 2002--a nearly unheard-of figure in the retailing industry. What's more, Tanger's above-average occupancy rates aren't just a fluke--the firm's popular outlet centers have been over-achieving for decades now. In fact, Tanger's occupancy rates have now held strong at or above 95% at year-end for 22 years running. On the basis of FFO (Funds From Operations -- the most commonly-used earnings metric for real estate investment trusts), Tanger's growth has been slow but steady. The firm posted FFO of $42 million, or $3.40 per share last year--a solid 5.3% increase over 2001 figures--and management is currently calling for 2003 FFO of somewhere in the neighborhood of $3.50 per share. By slowly improving rental rates and continuing to expand across the country, Tanger should have no trouble boosting its FFO at a steady clip in the years to come."
"And finally, the other factor that makes Tanger's shares so attractive is their above-average dividend yield, which currently stands at around 7.6%. The company has paid dividends each and every quarter since it went public in 1993 and has boosted that payment for 10 consecutive years now. With all of the above factors in mind, I have decided to add Tanger's shares to our Income Portfolio with a buy rating and a 12-month target of $40 per share."
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