Tangier Factory Outlet Centers (NYSE: SKT) is a real estate investment trust (REIT) that operates right in the middle of the retail industry. Retail was among industries devastated by the global health crisis amid store closures and dashed hopes of recovery. But now there’s optimism that COVID could recede. So let’s see if Tanger is a buy now.
catch the disease
For those unfamiliar, Tangier operates a chain of malls occupied by discount stores. Many of them are low-cost outlets of major brands (Ralph Lauren, Vans, Nike, etc.). At the end of 2021, it owned or had an interest in 36 of these facilities. These could be found in 20 US states and Canada, with over 2,700 individual stores.
Like many retail businesses, Tangier was hit hard by widespread store closures at the start of the pandemic. Revenues, profitability and free cash flow plummeted when the REIT was forced to launch a rent deferral program for its beleaguered tenants. It even did the unthinkable for a REIT, cutting its quarterly dividend by more than 50%.
With the exception of free cash flow, none of these key elements have fully recovered from the hardships of the coronavirus.
Funds from operations (FFO, the most important profitability metric for REITS) declined year-over-year in Q4 and full-year 2021 (by 6% and 11%, respectively) ), while total revenue increased only marginally in the quarter.
FFO and revenue, meanwhile, for the quarter and the full year are still below their comparable periods in 2019. The same applies to the occupancy rate which, at the end of 2021, was rose to 95.3%, against 97% two years earlier.
The bargain hunters are back
And yet, there are very encouraging signs. In its latest earnings report, the company said domestic traffic to its outlets in the last quarter of 2021 exceeded 2019 levels. Meanwhile, in 2021, REIT tenants saw sales record $468 per square foot (which, by the way, was 18% higher than before the 2019 pandemic).
Even better, the company was forecasting a 2021 FFO per share of $1.68 to $1.76, which would be at least 6% higher than the 2019 result. This is certainly not bad for a company that was in a situation hopeless in the very recent past.
And while the dividend didn’t – surprise! – has yet to be restored to 2019 levels, the company increased it slightly late last year, and it now produces a very respectable 4.4%. It’s pretty much in the league with top retail REITs, including Real estate income, and not far from the traditional REIT shopping center Simon Real Estate Groupis 4.8%.
Foot traffic will surely increase across the retail sector if the recent downward trend in COVID cases and deaths continues. Within the sector, Tangier’s discount malls will always be attractive due to the perceived bargains available there. It should therefore come as no surprise to see the company exceed its anticipated growth objectives.
This recovery could be faster than expected, so I think Tangier stock is a compelling buy for those who believe in the future of retail, especially if they like to hit a nice dividend.
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Eric Volkman has no position in the stocks mentioned. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.