Tanger Factory Outlet Centers (SKT -0.23%) had an impressive 2021. After several years of pressure from e-commerce headwinds, and then the COVID-19 pandemic, Tanger's occupancy and rent growth finally turned a corner. In this Fool Live video clip, recorded on Nov. 16, Fool.com contributor Matt Frankel talks about Tanger's growth potential with editors Deidre Woollard and Kayla Schorr. 

Matt Frankel: But Tanger Outlets, they were suffering before the pandemic. It's the key thing to realize going into this. Tanger was suffering with declining occupancy, declining rent, and things like that before the pandemic. Some of their biggest tenants went bankrupt before COVID was ever even a household name. Then the pandemic came, everyone thought that no one was going to outlets again.

Some of their biggest tenants went bankrupt, Ascena Brands, which is the parent company of Loft, they went bankrupt. My dogs are playing behind me, sorry about that. But we just got their third-quarter results. To hear that a retail REIT, it has increasing occupancy right now is something we haven't heard in years. Their occupancy went from 93% at the end of the second quarter to 94.3% at the end of the third quarter. They're doing a great job of leasing up their empty space. The rent spreads are better than anyone thought they would be.

Here's really the key statistic that everyone needs to pay attention to in Tanger's report. Their tenant sales were $448 per square foot. That is an all-time high, and 13% more than their average tenant was selling in comparable prepandemic levels. Tanger and its tenants are selling a maximum amount of product right now and everyone really thought they would be out of business at this point last year. Their traffic is virtually unchanged from prepandemic levels despite no international travel in their third-quarter results, which is a big part of the outlet shopping business. They reinstituted their dividend, it's still a 3.5% yield, which is less than it used to be, but they paid out less than half of their FFO in the most recent quarter. A lot of room to grow.

Speaking of growth, Tanger's a $2 billion company with over $1 billion of potential credit capacity right now. They've got brand-new credit line that they haven't touched that they have the opportunity to expand to $1.2 billion. A massive amount of borrowing capacity for a $2 billion company. The outlet space is very, very young. The reason I was emphasizing that tenant sales-per-square-foot statistic so much is that's the best ammunition they could have for expansion. "Look how great our properties are doing, we're going to open a new one. Who wants a space in it?" It's a really underappreciated advantage when it comes to expansion. They're building a property in Nashville right now, that's their next expansion market. The outlet industry in the U.S. is very, very small right now. I read that it's less than the retail square footage of one major city is outlet space and it's pretty clustered on the coasts. I know in Matt's market, Matt's in Charleston, I think, where there's outlet shopping everywhere. But that's not the case in most parts of the U.S. I think Tanger could have some pretty bright days ahead of it.

Deidre Woollard: One of the things I wanted to ask you, though, is, there was a story recently about dollar stores and supermarkets and things like that moving into Tanger, how much does that worry you about like diluting the value of the shopping experience?

Frankel: I think it adds to it. Traditionally, Tanger has been a place you go to buy things, buy clothes and buy knickknacks and then leave. It makes customers stay longer, it gives them reasons to go to the outlets if they weren't already going. They're talking about opening up, say entertainment venues in some Tanger outlets. It's the same thing Simon's been doing for years. It causes people to go to the properties that wouldn't normally be there, and it causes the customers that are going anyway to stay longer. People spend the day at Simon malls. No one spends the day at Tanger Outlets, at least they didn't. They are trying to change that. The longer they can get people to stay there, the more money they're going to spend and the happier they are tenants are going to be.

Kayla Schorr: What would be the disadvantage of adding a grocery store to a property like this? That seems like a win to me.

Frankel: Generally, they get less per square foot from grocery stores is my understanding. But it's a much more stable tenant. I don't know if that's necessarily the case in outlet shopping because outlet tenants pay less than, say a comparable mall tenant would anyway. There's not that big of a disadvantage and it fills a lot more square footage. With Tanger, we're seeing in the pandemic, Ascena Brands, I mentioned Loft went bankrupt, J.Crew, pretty much everyone that Simon bought out of bankruptcy.

There are a lot that went bankrupt, but these left blocks of two or three empty spaces all strung together. They opened a Dick's Sporting Goods outlet in there, in one of those recently that filled up a big chunk of space. They're in negotiations with big furniture retailers, which tend to take up a lot of space to open outlets for the first time. There's a lot of outside the box ways, but grocery stores are definitely a great way to fill a lot of space. If they really start pursuing these large square footage opportunities, they could definitely fill up a lot of space.

Schorr: I feel like grocery stores, in my eyes, I look at them as anchor stores. People are visiting the shopping center probably for the grocery store primarily, but then "Oh, there's a Nike store right next to this. Let's run in and get sneakers."

Frankel: There are a lot of shopping center REITs that won't buy a property that's not anchored by a grocery store. I think Kimco is one that comes to mind that only pretty much only buys properties with grocery store anchors. There's a reason for that, it's a very stable tenant and it brings people to the property. It really hasn't been tested in the outlet industry, at least to my knowledge, but it could definitely have the same effect.