Tanger Factory Outlet Centers Inc. (SKT -0.52%) announced strong fourth-quarter 2017 results on Tuesday after the market closed. The outlet mall real estate investment trust highlighted healthy occupancy rates, continued progress on construction and remerchandising projects, and solid growth in funds from operations.
But with shares down around 7% on Wednesday, Tanger's forward outlook obviously left the market wanting more. Let's take a closer look at what the company accomplished over the past few months and what investors should expect in the coming quarters.
Image source: Tanger Factory Outlet Centers.
Tanger Factory Outlets results: The raw numbers
| Metric |
Q4 2017 |
Q4 2016 |
Year-Over-Year Growth |
|---|---|---|---|
|
Revenue |
$126.5 million |
$124.6 million |
1.5% |
|
Net income available to Tanger common shareholders |
$31.2 million |
$23.8 million |
31.1% |
|
Net income per diluted share |
$0.33 |
$0.25 |
32% |
Data source: Tanger Factory Outlet Centers.
What happened with Tanger Factory Outlets this quarter?
- Adjusted FFO -- which essentially measures Tanger's cash flow from operations -- grew 8% year over year to $65.6 million, or $0.66 per share.
- As expected, Tanger completed major remerchandising of five outlet centers, enhancing its tenant mix with the aim of increasing shopper traffic, driving demand from additional tenants, and increasing overall outlet center productivity.
- Trailing-12-month blended average rental rates increased 12.1% year over year on 343 leases totaling roughly 1,508,000 square feet (excluding nine leases totaling 165,000 square feet in centers with major remerchandising projects last year).
- Consolidated portfolio occupancy was 97.3% as of Dec. 31, 2017, up from 96.9% at the end of last quarter.
- Same-center tenant sales grew 1% year over year.
- Renewed roughly 84% of the consolidated portfolio space scheduled to expire in 2017.
- Recaptured roughly 201,000 square feet last year, including 35,000 square feet in the fourth quarter, related to bankruptcies and brandwide restructurings by retailers.
What management had to say
Tanger CEO Steven Tanger noted that the company marked its 37th straight year maintaining a portfolio occupancy rate of at least 95%, elaborating:
Outlets remain an important and profitable channel of distribution for retailers and manufacturers, as evidenced by this high level of occupancy. With a tenant occupancy cost ratio of 10% for 2017, Tanger continues to have the lowest cost of occupancy among all public mall REITs, and many of the company's tenants report that outlet stores remain one of their most profitable and important retail distribution channels. Given the outlet channel's appeal with the tenant community and the flexibility afforded by the strength of our balance sheet, we believe Tanger is well-positioned to weather headwinds in the retail environment and emerge stronger as the retail cycle improves.
Looking forward
For full-year 2018, however, Tanger expects net income per diluted share in the range of $1.02 to $1.08 -- below investors' expectations for $1.09 per share -- and adjusted FFO per diluted share in the range of $2.43 to $2.49. These ranges assume same-center net operating income will be flat to down 1% from 2017, driven partly by a combination of lower average occupancy rates given an elevated level of store closings in 2017, as well as additional store closings expected in 2018.
After all, while Tanger is uniquely poised to benefit should the retail industry take a turn for the better, it's hard to deny the retail headwinds that have left so many of its brick-and-mortar tenants struggling to compete given the growing influence of e-commerce. So despite Tanger ending the year on a high note, it's unsurprising to see the stock pulling back as the market absorbs its underwhelming forward outlook.
