With the holidays right around the corner, investors are probably starting to think about discount retail. What about trying to play the owners of factory outlets? The largest operator of outlet malls in the U.S. is Tanger Factory Outlet Centers (SKT).
Based in Greensboro, N.C., Tanger is a publicly traded real estate investment trust (REIT) that owns, or has an ownership in, 42 outlet shopping centers in 21 states and Canada. The REIT operates 14 million square feet leased to over 3,000 stores. More than 185 million people shop at Tanger outlet malls annually.
Year to date, the stock is down about 5%, but recently the shares have started to climb. Investors have been buying the stock after the REIT announced a deal to sell a few less productive outlets. For example, Tanger was able to sell five properties that were old and in need of extensive repairs, for $150 million.
You may recall that earlier in the year Tanger had several deals fall through because the buyer failed to get financing. Investors dumped the stock because they feared the REIT would be stuck with aging properties that no longer provided any growth. With the recent sale, that no longer seems a concern.
Meanwhile, Tanger continues to develop new outlet malls. Two of the four new Tanger Outlet Centers planned for 2015 opened during the second quarter. It also opened outlet centers in Savannah, Ga, at Foxwoods Resort Casino in Mashantucket, Conn, and in Grand Rapids, Mich. What's more, the REIT announced construction just began on a center in Columbus, Ohio, which will be completed by the end of next year. Beyond those projects, Tanger hasn't laid out its future development plans.
Because Tanger hasn't outlined its development plans beyond next year, I believe it has held back analyst estimates. For example, analysts expect the REIT will grow its funds from operations (FFO) 21.6% this year, but only 5%-6% next year. If management can clear up some confusion regarding 2017 growth expectations, I think the stock will move higher. FFO in the second quarter grew 14.9% and for the first six months of 2015 FFO increased 13%.
Tanger is expected to report third-quarter results on Oct. 27, when it could provide more details on future projects. If I'm right, it could be a happy holiday season for shareholders.