Please ensure Javascript is enabled for purposes of website accessibility

This Is the Only Mall Operator I Own

By Rick Munarriz – Jun 16, 2020 at 9:00AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tanger Factory Outlet Centers is opening its discount havens, and shoppers are coming.

I'm not a fan of most bricks-and-mortar retail concepts, and that means that I'm not going to bother with traditional mall operators. The chunky distributions that come with many of these retail landlords structured as real estate investment trusts (REITs) don't impress me. The only thing worse than counting on a single physical retail concept to keep humming along is counting on having several of them humming along together in perfect harmony.

The mall concept isn't dead, but it is dying. Shoppers have gone online. Multiplex operators, video game arcades, and other entertainment concepts are now playing out in consumer living rooms and the smartphones in their hands. Third-party takeout delivery apps now provide restaurants a way to reach in-home diners without having to pay overpriced mall rents. As mall traffic slides, the entire ecosystem hollows out. So I'm not buying most mall landlords, but that didn't stop me from investing in Tanger Factory Outlet Centers (SKT 2.48%).

A Tanger outlet center in Fort Worth with several shoppers walking around.

Image source: Tanger Factory Outlet Stores.

Discounting the discounter

Tanger Factory Outlet Centers owns or has an interest in 39 upscale outlet shopping centers. Its empire spans 2,800 stores, divided among 510 different brand-name companies that turn to Tanger's malls to house their clearance shops. It attracts more than 181 million visitors annually across it properties, even if that isn't the norm these days.

Like most of the physical retail world, Tanger shut down its shopping centers in mid-March. Its cost-cutting moves included deferring rent for tenants during the shutdown as well as suspending its quarterly distributions after 27 consecutive years of increasing payouts.

The shares took a beating through the first few months of 2020, but now the stock -- and its operations -- are getting back into a good groove. Tanger put out an encouraging financial update after Monday's market close. Its largely outdoor shopping centers have opened for the most part. The stores that have reopened account for 72% of total occupied stores and 69% of pre-pandemic annualized base rent. 

The encouraging news is that shoppers are hungry for bargains. Weekly traffic is now more than 85% of prior year levels. Centers that have been open longer -- at least a month -- are seeing traffic exceeding 90% of year-ago levels, with the percentage of total occupied stores approaching 90%. 

There's no word on when the distributions will come back. If Tanger could return to where it was before the COVID-19 crisis, the quarterly payouts translate to 18.6% based on Monday's close. Tanger has shed nearly half of its value in 2020, but the stock has soared 90% since bottoming out in early April. 

Tanger is doing a lot of things right these days. Late last week, it completed amendments to debt agreements for its credit lines and bank-term loans that will afford it greater flexibility in the future. On Monday, it repaid $100 million in outstanding balances under its lines of credit, leaving it with $433 million in cash on hand. 

Things aren't all rosy at Tanger, though. Compass Point analyst Floris van Dijkum initiated coverage of the discount retail specialist with a sell rating, concerned about the inevitable bankruptcies among its tenants. That's a fair shot. Tanger isn't going to be back to the 97% occupancy rate it was operating at in the near future, and there are some default rent payments it will never see. However, outlet centers are a recession-resistant beacon for deal-seeking shoppers and retailers looking to move what isn't selling at their full-priced stores. The stores left behind by bankrupted concepts will be filled by more vibrant battle-tested chains. The quarterly distribution checks will start to go out again, even if they will initially be lower than before.

Tanger will get better over time, and for now it's the only retail landlord that I care to have in my portfolio. 

Rick Munarriz owns shares of Tanger Factory Outlet Centers. The Motley Fool recommends Tanger Factory Outlet Centers. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Tanger Factory Outlet Centers, Inc. Stock Quote
Tanger Factory Outlet Centers, Inc.
SKT
$14.02 (2.48%) $0.34

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/03/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.