Shares of real estate investment trust (REIT) Tanger Factory Outlet Centers (SKT -0.15%) fell a sharp 10.5% in the first half hour or so of trading on March 9. That said, the stock had clawed back a few percentage points after an hour or so, sitting at a loss of 7% at roughly 10:30 a.m. EST.
Tanger, as its name implies, owns factory outlets, which puts it in the mall REIT peer group. Malls have been hit hard by the coronavirus pandemic, as shoppers have chosen largely to stay home, shopping online, instead of heading out to group settings like malls. However, sentiment around malls has improved thanks to vaccine developments, and Tanger's stock is up more than 50% so far in 2021, including today's downturn. Which brings the story to today's price action.
Citing valuation concerns, Goldman Sachs downgraded Tanger to a sell. Investors clearly didn't like that news and did just as Goldman suggested, which explains the day's drop. However, the change in the rating is interesting and worth considering. Effectively, Goldman Sachs is suggesting that the price Tanger's stock is fetching has gotten ahead of its recovery. Which makes complete sense, given that the mall REIT has to find new tenants to replace ones that sank during the pandemic. That's a slow process that could take quarters, if not years, to complete.
Tanger is most definitely showing signs of strength, including reporting that traffic during the fourth quarter of 2020 was at 90% of year-ago levels. It also collected 90% of the rents it was due in January. But occupancy is still relatively weak (91.9% at year end versus 97% at the end of 2019), and that will just take time to fix and really can't be rushed. All in all, Tanger is not for the faint of heart, but the dark clouds do appear to be parting for more aggressive types willing to look at turnaround situations.