Shares of outlet-focused real estate investment trust (REIT) Tanger Factory Outlet Centers (SKT 1.69%) dropped as much as 12.5% within the first half hour of trading on April 30. That loss had been pared to the mid-single digits by lunchtime, but it was still a change from recent days when Tanger and its enclosed mall peers were steadily rising.
Tanger recently announced that it was extending the contract of its current CEO Steven Tanger, who plans to step down from the position at the end of this year. Tanger, a highly respected figure in the retail space, will remain with the company as executive chair until the end of 2023. This, however, isn't the type of news that pushes a stock price down 12.5%.
The news that made the difference today was another large increase in unemployment claims. Tanger is a retail landlord, and with roughly 30 million people applying for unemployment in just six weeks, the retail environment is getting harder, not easier. While Steven Tanger likes to say that outlet centers provide bargains to shoppers during difficult financial times, which is true, the current environment is well outside of the norm. In fact, even after non-essential businesses are allowed to reopen across the country, COVID-19 health concerns coupled with unemployment could be a one-two punch that keeps many consumers sitting at home.
It wasn't just Tanger that fell, of course; enclosed-mall owners like Macerich (MAC 2.53%), Simon Property Group (SPG 0.80%), and Pennsylvania REIT (PEI 2.39%) also dropped in early trading, though only Penn REIT fell more than 10%. Interestingly, the highly leveraged Penn REIT was still down around 12% at lunch time despite the other names here managing to recoup some losses (Simon and Macerich were lower by about as much as Tanger, around 5%, in the middle of the day). Bankruptcy rumors surrounding competitor CBL & Associates, which is the only mall owner with more leverage than Penn REIT, might be causing some to question Penn REIT's turnaround potential.
The last few days have seen dramatic gains in the mall REIT space. But today shows that the situation in this niche of the retail property market is still in a state of flux. Only investors with very strong stomachs should be looking to invest here.