Tanger Factory Outlet Centers Inc. (NYSE: SKT) announced fourth-quarter 2018 results on Thursday after the market closed. The outlet-center real estate investment trust once again showcased its ability to keep its properties filled with motivated tenants and shoppers -- though some investors are less than pleased with its seemingly soft forward outlook.
With shares down around 2% on Friday in response, let's take a closer look at how Tanger ended 2018, as well as what shareholders should expect in the coming year.
Tanger Factory Outlets results: The raw numbers
|Metric||Q4 2018||Q4 2017||Year-Over-Year Growth|
|Revenue||$127.2 million||$126.5 million||0.6%|
|Net income (loss) available to Tanger common shareholders||$19.4 million||$31.2||(37.8%)|
|Net income (loss) per diluted share||$0.21||$0.33||(36.4%)|
Data source: Tanger Factory Outlet Centers.
What happened with Tanger Factory Outlets this quarter?
- Tanger's net income this quarter was impacted by a $7.2 million (or $0.07 per-share) non-cash impairment charge related to assets in a Canadian unconsolidated joint venture.
- Adjusted funds from operations (AFFO), an industry metric that essentially measures Tanger's cash flow from operations, were $63.1 million, or $0.64 per share, down from $65.6 million, or $0.66 per share in the same year-ago period.
- Full-year adjusted FFO arrived at $243.3 million, or $2.48 per share, up from $2.46 per share in 2017.
- Trailing-12-month (TTM) blended average rental rates (excluding strategic remerchandising activities) improved 5.3% on a straight-line basis and fell 1.4% on a cash basis.
- Consolidated portfolio occupancy stood at 96.8% at the end of 2018, up from 96.4% last quarter and down from 97.3% a year earlier.
- Portfolio net operating income grew 0.4%.
- TTM average tenant sales productivity was $385 per square foot, up from $383 last quarter and $380 in the same year-ago period.
- TTM same-center tenant sales climbed 1.9%.
- Tanger commenced 373 leases totaling 1.8 million square feet over the past year, and recaptured 126,000 square feet (including 3,000 square feet in Q4) related to bankruptcies and brandwide restructurings by retailers.
- Tanger commenced early due diligence for the future development of a new 280,000 square-foot outlet center in Nashville, Tennessee.
- Tanger raised its annualized dividend by 1.4% (or $0.02) this quarter to $1.42 per share, marking its 26th consecutive year of increasing its payout.
What management had to say
Tanger CEO Steven Tanger stated:
Better performance in the fourth quarter enabled us to deliver sequential improvement in net operating income and to surpass expectations for 2018. In particular, we maintained high consolidated portfolio occupancy, ending the year at 96.8%. Sales growth and stable traffic also demonstrated the consumer's ongoing desire to buy the best brands at the best prices at our centers. As we move through 2019, our companywide focus remains on leasing and marketing our properties. We will realize the full year impact of rent adjustments made in prior years as our leasing teams work to fill vacancies and maintain exciting, highly occupied centers for our customers to enjoy the experience. However, this will continue to take time as we anticipate that on a select basis tenants will pursue bankruptcy, store closures or lease adjustments. That said, we are encouraged by the tone of many of our tenant interactions and the opportunity to continue to upgrade our tenancy with vibrant successful retailers.
Mr. Tanger added that the company will continue to maintain its dividend "supported by one of the lowest payout ratios in the sector, along with a fortress low-levered balance sheet."
For the full year of 2019, Tanger expects net income per diluted share in the range of $0.90 to $0.96 -- roughly in line with Wall Street's consensus estimates -- and FFO per share of $2.31 to $2.37.
In the end, this was another encouraging quarter in which Tanger once again demonstrated the viability of its outlet model in today's fast-changing retail landscape. And while the market may not be pleased that its outlook assumes more tenant bankruptcies and store closures in the coming year, the company remains well-positioned to continue renting its properties as consumers and retailers alike seek the value they provide.
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