Tanger Factory Outlet Centers (NYSE:SKT) is profitable again, and that's naturally going to turn the market's attention to when its once bountiful quarterly distributions will resume. The operator of 38 upscale outlet shopping centers suspended its dividend in May, but last week it suggested that the payouts will return again next year.
As a real estate investment trust -- or REIT -- Tanger is required to distribute at least 90% of its taxable income to its stakeholders. The discount mall operator argues that it paid enough through the first half of this year to comply with REIT payout requirements, disbursing $0.355 a share in January and another $0.358 a share in April. However, Tanger is evaluating future distributions on a quarterly basis. It's also committing to continuing as a REIT, so if it can remain profitable at this point the distributions should return us as early as Tanger's next quarterly report.
Yielding to shoppers
Tanger Factory Outlet Centers posted better-than-expected results late last week. We're still not to where we were a year ago, but most metrics are showing signs of operational improvement. More than 99% of its occupied stores have now reopened, and traffic has rebounded to 98% of prior-year levels despite operating on shorter hours.
An important distinction in that last bragging point is that 99% of its occupied stores are open again, because vacancies not in that metric are still inching higher. Its consolidated portfolio occupancy rate was 92.9% at the end of September, down from 93.8% three months earlier and 95.9% a year earlier. It's not Tanger's fault. A lot of retailers are going out of business in this dicey climate, faster than Tanger can fill the empty storefronts.
Momentum overall is still encouraging, and that also goes for Tanger's rent collection rates. Things are getting back to normal, and the performance is starting to show up on the bottom line. Tanger rattled off three consecutive quarters of losses before last week's return to profitability, even if the first two of those periods would've been in the black if not one-time accounting hits.
Tanger's funds from operations -- an important metric in dictating how much money REITs have available for distributions -- clocked in at $0.44 a share in the third quarter. Analysts were only holding out for funds from operations of $0.28 a share.
Tanger isn't out of the woods just yet. Shoppers continue to flock to e-commerce solutions, sidestepping local brick-and-mortar destinations. We are in a pandemic, even if Tanger's outlet center bent helps offset some of the economic sting as folks flock to discounted retail.
If Tanger is able to get its performance back to where it was before the COVID-19 crisis -- generating the funds available for distribution in line with where it was when it declared its final $0.358 a share quarterly dividend -- investors would be in for a high-yielding treat. The payouts would annualize to a rate just above 20% based on Friday's close. A lot can happen between now and then, but dividend income investors will be watching.