Many retail REITs (real estate investment trusts) weren't doing too well before the COVID-19 pandemic hit. Years of e-commerce competition took their toll on many mall-based retailers, and Tanger Factory Outlet Centers (NYSE: SKT) was feeling the pain. In fact, the REIT's funds from operations (FFO) had declined year over year in 2019.
So when the pandemic hit, many investors feared it would be a fatal blow for Tanger and other retail REITs. However, the company's second-quarter earnings results show that nothing could be further from the truth. Tanger got a new CEO in 2021 and has taken a targeted approach to getting the best tenants to fill its empty spaces, and the early results are very encouraging.
Here's a rundown of Tanger's second-quarter results and the key points investors need to know. Spoiler alert: Tanger knocked it out of the park.
Tanger Factory Outlet Centers just shattered expectations
First, the headline numbers. Tanger generated core funds from operations (the REIT version of "earnings") of $0.43 per share -- three times what it earned during the lockdown-plagued second quarter of last year. To be sure, this is still significantly below the $0.57 per share in FFO Tanger produced in the comparable 2019 quarter, but it's a sharp rebound.
Same-store net operating income (NOI) increased to $69.4 million in the second quarter from $37 million a year ago. The company cited a "better than expected" rebound in variable rents as its retail tenants have largely rebounded much faster than experts had expected.
Now for some really impressive statistics:
- Tanger's portfolio occupancy increased by 130 basis points during the second quarter, rising from 91.7% to 93.0%.
- Tanger's tenant sales per square foot were over 7% higher during the past 12 months than they were in the comparable period ending in mid-2019.
- Customer traffic to Tanger's domestic outlet centers exceeded pre-pandemic levels from the same quarter in 2019.
- Tanger has collected substantially all (98%) of deferred rent due in the first half of 2021.
Because of this stellar performance, Tanger increased its full-year guidance. It's now expecting core FFO in the range of $1.52 to $1.59 for 2021. At the midpoint, this implies that Tanger stock is trading for less than 11 times current year FFO, a very low valuation given the strong rebound in the business.
In a nutshell, Tanger's second quarter was a home run. There is very little investors can be disappointed about in the entire earnings report, and these numbers are extremely encouraging for the future profitability of Tanger's business, the future growth of the outlet shopping industry, and for the U.S. economy in general.
As CEO Stephen Yalof said, "The results of our business operations exceeded our expectations and drove higher variable rents and other revenues." Yalof went on to say that the company plans to take an "intentional approach" to leasing, aiming to set the company up to create maximum long-term value for shareholders.
The Millionacres bottom line
While these second-quarter numbers look absolutely phenomenal, it's important to note that Tanger isn't completely out of the woods yet. The COVID-19 pandemic is still an ongoing situation, and if the current delta variant surge gets much worse, further lockdowns are unlikely but not outside the realm of possibility.
With that (and the stellar results) in mind, I'm quite optimistic after reading Tanger's latest results. And keep in mind that for the first part of the second quarter, mask requirements and capacity limitations were still quite common. It'll be very interesting to see what kind of numbers Tanger can put up in the second half of 2021 and beyond.