Despite an uncertain economic environment, Tanger Outlets (SKT 0.73%) is thriving. The real estate investment trust (REIT) that operates 37 mostly open-air outlets across the U.S. and Canada continued its post-pandemic comeback in the second quarter.
Tanger's success comes at a time when retailers, in general, are coping with volatile consumer demand. While Tanger would certainly feel some pain in a recession, the company offers a strong value proposition for both retailers and consumers.
Serious progress
Occupancy reached 97.2% in the second quarter, a full 5 percentage points above the pandemic year of 2020. This critical metric rose 2.3 percentage points year over year and 0.7 percentage points sequentially, and it's now at pre-COVID levels.
Tanger reported total revenue of $110.6 million, up 4.5% year over year and about $5.1 million higher than analysts expected. Funds from operations (FFO), a common profitability metric used by REITs, came in at $0.47 per share. That compares to $0.45 per share in the prior-year period, and it was $0.02 per share above the average analyst estimate. Same-center net operating income rose 4.3% year over year, driven by higher rents and cost efficiencies.
Tanger is making progress in other ways as well. In May, Fitch Ratings assigned Tanger a BBB default rating. This led to a reduction in pricing on Tanger's undrawn unsecured lines of credit and its term loan. The company has $233.8 million in cash, full availability of that $520 million line of credit, and total debt of $1.6 billion. Nearly all that debt comes with fixed rates, and 88% of the company's square footage is unencumbered by mortgages.
Tanger's strong performance led the company to boost its outlook for 2023. The company now expects adjusted FFO per share to be in a range of $1.85 to $1.92, up from a previous range of $1.82 to $1.90. Tanger also raised its outlook for same-center net operating income growth to a range of 3.5% to 5%.
Tanger's latest outlet center in Nashville, Tennessee, will begin contributing to its results later this year. The new center is scheduled to open its doors on Oct. 27, and the company has already leased 95% of the space available.
An inexpensive dividend stock
While Tanger isn't immune to economic conditions, the company has a strong pitch for both retail tenants and consumers. Tanger's centers offer retailers a low cost of occupancy and an effective way to clear out inventory without resorting to heavy markdowns in stores. For consumers, good deals on brand-name products play well in any economy.
Tanger stock trades at a price-to-FFO ratio of just 13 based on the midpoint of the company's 2023 guidance. The most recent quarterly dividend of $0.245 per share works out to a dividend yield of roughly 4%. The dividend eats up just over half of FFO, leaving plenty of cash flow for Tanger to invest in growth in new centers, existing center expansion, and projects to monetize peripheral land.
Shares of Tanger have soared nearly 40% this year. While an uncertain economic environment could act as a headwind, Tanger's progress in boosting occupancy, generating higher rents, and growing its bottom line is impressive. Even after the rally this year, Tanger stock looks like a solid value.
