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Tanger Factory: An Outlet for Success
04/23/2019 5:00 am EST
Focus: REAL ESTATE
Tanger Factory Outlet Centers (SKT) is one of the largest owners and operators of outlet centers in the United States and Canada. SKT operates and owns, or has a stake in, a portfolio of 44 upscale outlet shopping centers, notes Ben Reynolds, income expert and editor of Sure Retirement.
SKT owns properties across 22 states and in Canada, totaling 15.3 million square feet. SKT leases to over 3,100 stores operated by over 530 different brand name companies. More than 189 million shoppers frequent Tanger Outlet Centers every year. SKT is headquartered in Greensboro, North Carolina.
The centers are known for their tenant mix comprised of leading designer and brand-name manufacturers. Each outlet center allows for customer to purchase a variety of brand-name products directly from the manufacturer for big savings.
Manufacturers are able to charge customers lower prices for their products by eliminating the third party retailer. They allow manufacturers and brand name retailers to establish direct relationships with their customers.
Since becoming a public company in May 1993, SKT has paid a cash dividend each quarter and has increased the dividend every year. 2018 is no exception, as the Board of Directors approved a 1.4% increase to the annualized dividend, from $1.40 to $1.42.
The dividend has grown by 9.3% compounded in the last 5 years, and by 6.4% in the last 10 years. We estimate that dividends will continue to grow by at least 6% over the next 5 years.
The dividend yield has been pushed to significant highs lately as the stock price has fallen. The 5-year average yield is 4.4%, but the current yield is 7.0% — about 263 basis points higher, which is attractive in our low interest rate environment.
Management has a track record of success spanning nearly four decades. This 38 years of outlet industry experience, extensive development expertise, and strong retail relationships give them their competitive advantage in the outlet business.
SKT went through the Great Recession virtually unscathed as AFFO fell only 2.2% from 2008 to 2010. Outlet centers provide good value for the cost and so this industry should see similar or growing foot traffic and earnings when the population tightens their purse strings.
Tanger can expect EPS growth in the next five years to compound around 5.0%, roughly in line with the average over the past five years. We estimate that SKT will see growth of 6.4% due to PE multiple expansion. Combined with the current yield of 7.2%, total returns going forward are estimated at 18.6%.
Considering the REIT trades 27% below our calculated fair value and expects 18.6% in total returns moving forward, we are assigning a "Buy" rating on the stock. SKT also offers investors peace of mind through tough times as their industry saves consumers money and thus they can expect similar or growing foot traffic in tough economic times.
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