Tanger Factory Outlet Centers (SKT +0.50%) released fourth-quarter 2019 results on Monday, and at a glance its initial 4.5% post-earnings decline seemed to indicate investors weren't pleased.
Of course, that drop was partly fueled by the broader market's decline on coronavirus fears. And it ignores the fact that the outlet-center real estate investment trust (REIT) not only exceeded expectations, but also modestly raised its already massive dividend (which boasts an annual yield of 9.1% at current prices). Indeed, Tanger stock has all but recovered from its early plunge in the days since.
So starting with its headline numbers, let's look at how Tanger ended 2019, as well as what investors should be watching in the coming year.
IMAGE SOURCE: GETTY IMAGES
| Metric |
Q4 2019 |
Q4 2018 |
YOY Change (Decline) |
|---|---|---|---|
|
Revenue |
$120.5 million |
$127.2 million |
(5.3%) |
|
Net income (loss) available to Tanger common shareholders |
($12.1 million) |
$19.4 million |
N/A |
|
Net income (loss) per diluted share |
($0.13) |
$0.21 |
N/A |
Data source: Tanger Factory Outlet Centers. YOY = year over year.
Breaking it down
Adjusted funds from operations (AFFO) is a more useful metric than earnings to help measure cash flowing into REITs. Tanger's AFFO this quarter declined to $57.5 million, or $0.59 per share, from $0.64 a year earlier -- though this quarter included a $0.04-per-share dilution related to strategic asset sales.
Next, Tanger Outlets' consolidated portfolio occupancy rate stood at a healthy 97%, up from 95.9% last quarter and 96.8% at the end of 2018. Trailing 12-month (TTM) blended average rental rates for both renewals and re-tenanted leases also grew 2.7% on a straight-line basis, while falling 1.3% on a cash basis.
Same-center net operating income fell 0.4% year over year as the company worked to offset the impact of tenant bankruptcies, store closures, and lease modifications. At the same time, TTM average tenant sales productivity remained steady from last quarter at $395 per square foot, rising from $385 per square foot in the year-ago period.
On the leasing front, Tanger commenced 337 leases totaling 1.5 million square feet in 2019, and recaptured 198,000 square feet related to bankruptcies and brandwide restructurings.
"[T]his is the fastest way to restore internal growth"
CEO Steven Tanger credited "strong leasing execution" for this "better than anticipated performance," adding:
Increases in traffic and sales validate consumers' ongoing desire for the best brands, prices and shopping experience at Tanger Outlets. As we enter 2020, we are focused on building on last year's leasing success, as we believe this is the fastest way to restore internal growth. Maintaining strong occupancy remains our top priority as our team works to overcome the challenges associated with the recapture of space due to both previously announced closures and any additional space that could come back from ongoing negotiations with select tenants. Along with leasing, we will also continue to focus on our strategic marketing efforts to further increase traffic and shopper engagement. ... Brand name retailers remain committed to the outlet distribution channel and continue to benefit from our value proposition, including our low cost of occupancy.
But Tanger also warned that re-leasing the hundreds of thousands of square feet of recaptured space "will take time," and will likely mean the company needs to endure rent and occupancy headwinds in the near term.
Nonetheless, Tanger raised its annual dividend by a penny per share to $1.43 (extending its streak of increasing its payout each year since going public in 1993). It's payable on May 15, 2020, to shareholders of record on April 30, 2020.
Tanger Outlets provided guidance for full-year 2020 net income per diluted share of $0.65 to $0.73, and for diluted FFO per share of $1.96 to $2.04. Of note here: This outlook assumes average portfolio occupancy will decline to a range of 92% to 93%, including the impact of 303,000 square feet of January closures related to Dressbarn, Kitchen Collection, Forever 21, and Destination Maternity stores. Tanger is also modeling between 322,000 and 372,000 of potential additional closures that remain "unknown or unresolved" for the coming year.
In the end, however, it's clear that Tanger believes it will be able to weather this retail disruption and remain a crucial channel in the retail industry's ecosystem. And I think the stock is still worth considering for patient investors willing to collect that juicy dividend as its long-term story continues to unfold.
