Why You Have To Buy Tanger Factory Outlets

A Super-High Yield Rebound Play

With the COVID-19 pandemic past its peak and the economic reopening underway market attention has been focused on reopening-plays. Stocks from airlines to casinos, cruise ships to movie theaters, restaurants to retailers are all seeing elevated market activity. The basic premise is the reopening will bring business back and that will drive profits which in turn will drive share values.

The companies best positioned to benefit from the retail reopening are the landlords. Landlords like Simon Property Group (SPG) , Brixmor (BRX), and Tanger Factory Outlets (SKT) are all reporting solid figures in the wake of their respective reopenings that are driving their shares higher.

What these companies all have in common, aside from mall ownership, is high-yield. Yields in the +10% range make them all interesting for income investors but there is one name that stands out.  At today’s prices, Tanger Factory Outlets is yielding a mind-boggling 17%. If you are looking for some way to invest in the reopening and maximize your income this is the REIT for you.

Five Reasons To Love This Tanger Factory Outlets

#1 The Rebound Factor - Tanger just updated the market on its reopening and the figures are good. The company says non-essential in-store shopping is allowed (by local ordinances)  at all 39 of its locations, most of which are open-air facilities. As of 6/4, 72% of the stores in the occupied portion of the portfolio were open with the remainder expected sometime mid-summer. In terms of volume, foot traffic is nearing 90% of the YOY levels and rising.

#2 The Retail Sales Factor - The May Retail Sales figures were robust, to say the least. At +17.7% the headline figure beat consensus by roughly 1000 basis points as consumers demand drove sales in all categories. While Tanger Factory Outlets does not engage in direct sales to consumers its business health is dependent on consumerism and by all accounts, the consumer is still alive and well. Assuming the reopening continues to gain momentum rising employment levels will underpin retail traffic into year-end.

#3 The Balance Sheet Factor - Along with the update on business conditions, Tanger also revealed several moves intended to free up capital, improve the balance sheet, and position the company for greater flexibility. Among these are a credit payment of $100 million, amendments to credit and term loan agreements that allow the company to access its Surge Leverage Provision. Under the provision, the company is able to increase total leverage by 500 basis points during times of need. Until then, Tanger Factory Outlets is sitting on $433 million in cash and $100 million in unused credit.

#4 The Dividend Factor - Tanger Factory Outlets is paying such a high dividend it is almost scary. At 18% the first thought that comes to mind is the distribution is about to be cut or suspended. If not for the reopening that might be true but, in light of today’s news, the risk of distribution cuts is, not low but lower than it would be otherwise.

What Tanger and its dividend has in their favor is a 26-year history of distribution increases that gives it a solid Dividend Aristocrat pedigree. Dividend Artistocrats are not immune to dividend issues but they have proven year after year that distributions and distribution increases are a priority. Even if Tanger were to cut the distribution in half, which I think is unlikely, it would still b paying a comfortable 9%.

#5 The Value Factor - Tanger Factory Outlets is trading at a considerable discount to its peers. Simon Property Group and Brixmoor are both trading around 7.5X their forward earnings (and at a great value too) while Tanger trades closer to 5X earnings. Kimco, the largest and highest-valued of the mall REITs, is trading more than 10X its forward earnings … and it only pays about 8% at today’s prices. The bottom line, Tanger Factory Outlets is set up to produce a multiple-expansion that could add 40% to 100% of value to its share price.

The Technical Outlook: The Bottom Is In, Now We’re Waiting For The Analysts

The technical outlook for Tanger Factory Outlets is growing more bullish by the day. After consolidating near the post-correction low the REIT is now trading above previous resistance and indicating a reversal. Today’s action confirms support at the short-term moving and the idea of reversal if not a new rally. The caveat is that reversal, more often than not, means a change from bearish to neutral rather than bearish to bullish and there is reason to believe that’s what we have going on now.

A look at the analyst’s ratings will show you the sell-side community has not warmed up to Tanger yet. While most analysts have turned bullish on Simon Property Group and Brixmor they are still bearish on Tanger. But that is a good thing. When the analysts begin changing their minds, and that should start happening soon, this stock is going to start rising and keep rising until it trades in line with its peers.