The pandemic isn't over yet, but shoppers at Tanger Factory Outlet Centers' (SKT 1.24%) properties are acting like it is. The outlet center operator's fourth-quarter report was full of good news and signs that the company is on a clear path to recovery.
Tanger suffered during the worst of the pandemic last year as retail stores were shut down due to the pandemic. Tanger allowed tenants to defer some rents, and other rents due will never be collected due to tenant bankruptcies. At the same time, traffic was down even after stores reopened as shoppers avoided brick-and-mortar stores.
Almost back to normal
The situation has now improved dramatically. While fourth-quarter traffic was at 90% of prior-year levels, that improved to 96% in January. Excluding centers in Canada that were subject to restrictions, traffic rebounded to 99% of prior-year levels in January.
Rent collection has also rebounded. Tanger has collected 95% of rents billed for the fourth quarter, with a remaining 2% either under negotiation or deferred. Rent collections for previous quarters improved as well. Tanger has now collected 63% of second-quarter rents billed and 91% of third-quarter rents billed, up from 43% and 89%, respectively.
Some of those older rents will never be collected: Tanger has written off 26% of second-quarter rents, 7% of third-quarter rents, and 3% of fourth-quarter rents. Write-offs booked in the fourth quarter totaled $3.1 million related to fourth-quarter rents and $1.1 million related to bankruptcies and uncollectible accounts.
Total revenue was down 7.7% in the fourth quarter to $111.2 million due to lower rental revenue, but that figure was more than $7 million higher than the average analyst estimate. Adjusted funds from operations came in at $0.54 per share, down from $0.59 in the prior-year period and $0.17 better than analysts were expecting.
Cost-cutting helped the bottom line during the fourth quarter. Tanger managed to reduce cash outflows by $17.9 million during the final nine months of 2020, with most of that related to property operating costs. Total expenses were down 18% year over year.
Tanger announced that it had reinstated its quarterly dividend in January, a sign that the company is now confident enough in its liquidity and cash flow to resume making payments to shareholders. The first dividend of $0.1775 per share was payable on Feb. 12. The company now has total liquidity of $684 million, which includes unsecured credit lines of $600 million that are fully undrawn.
Despite the continued uncertainty due to the pandemic, Tanger was able to provide some guidance for fiscal 2021. The company expects to report earnings per share between $0.30 and $0.40, funds from operations per share between $1.45 and $1.55, and adjusted funds from operations per share between $1.47 and $1.57. Analysts were expecting adjusted FFO per share guidance of $1.44.
For comparison, adjusted FFO per share was $1.57 in 2020 and $2.31 in 2019.
This guidance is based on some assumptions. Tanger is expecting a decrease in lease termination fees and additional store closings and lease adjustments. The company also doesn't anticipate any additional government-mandated retail shutdowns.
Tanger's results this year will continue to be affected by tenant bankruptcies and store closings, and it may take quite a while for the bottom line to fully recover. But the company is on the mend, and the stock has the potential to soar as Tanger's results improve.