Tanger Inc. (NYSE:SKT) is one of the leading owners and operators of outlet and open-air shopping centers in the United States and Canada. The company reported strong financial results for the fiscal year 2023, with annual net income of $99,151,000, annual revenue of $464,407,000, annual operating cash flow of $229,608,000, and annual free cash flow of $218,835,000.
In the first quarter of 2024, Tanger continued its positive momentum, delivering solid financial and operational performance. The company reported net income of $23,306,000 and total revenues of $123,371,000 for the quarter. Tanger's same-center net operating income (NOI) grew by 5.2% in the first quarter, driven by robust leasing activity and positive rent spreads.
Business Overview
Tanger's portfolio consists of 31 consolidated outlet centers and one open-air lifestyle center, totaling approximately 12.7 million square feet of gross leasable area. The company also has partial ownership interests in six unconsolidated centers totaling approximately 2.1 million square feet, including two centers in Canada. Additionally, Tanger manages two centers totaling approximately 760,000 square feet.
The company's strategic initiatives have been focused on enhancing the merchandising mix, improving the tenant experience, and driving incremental growth through its peripheral land strategy. Tanger has been successful in attracting new-to-portfolio brands and diversifying its tenant mix, which has contributed to increased traffic and sales at its centers.
Robust Leasing Activity and Positive Rent Spreads
Tanger's leasing activity remains strong, with the company leasing more than 2.3 million square feet of gross leasable area over the trailing 12 months, representing nearly 20% of its portfolio. The company has achieved an average rent spread of 13% on these leases, demonstrating its ability to reprice its space effectively.
In the first quarter of 2024, Tanger reported rent spreads of 36% for re-tenanted space and 11% for renewals. This reflects the company's focus on enhancing the overall merchandising mix and driving higher rents through strategic re-tenanting efforts.
Occupancy and Sales Performance
Tanger's portfolio occupancy remained stable at 96.5% as of March 31, 2024, consistent with the prior year period. The company's same-center portfolio occupancy increased by 60 basis points year-over-year, highlighting its ability to maintain high occupancy levels.
Tanger's total portfolio sales per square foot increased to $437 on a trailing 12-month basis, driven by strong performance from family apparel, athletic, and footwear brands. The company's focus on diversifying its tenant mix and adding new categories, such as food and beverage, entertainment, and health and beauty, has contributed to the improved sales performance.
Successful Integration of Recent Acquisitions
In the fourth quarter of 2023, Tanger added three new centers to its portfolio: Nashville, Tennessee; Asheville, North Carolina; and Huntsville, Alabama. The company has successfully integrated these assets into its platform, and they have already proven to be strong contributors to Tanger's overall performance.
The Nashville center, in particular, has been building momentum, benefiting from both tourist and local shopper traffic. Tanger has executed leases for most of the remaining space and is looking forward to welcoming new and exciting retailers to the center.
Financials
Balanced Capital Allocation and Liquidity Position
Tanger maintains a strong balance sheet, with a largely fixed-rate debt structure and minimal near-term maturities. As of March 31, 2024, the company had an equity market capitalization of $3.4 billion and $1.6 billion of pro rata net debt, resulting in a net debt to adjusted EBITDA ratio of 5.7x on a trailing 12-month basis.
In April 2024, Tanger amended its unsecured lines of credit, increasing the borrowing capacity to $620 million, with an accordion feature to increase the total capacity to $1.2 billion. The company also extended the maturity of the lines to 2029 and reduced the applicable pricing margin, further enhancing its financial flexibility.
Tanger's strong liquidity position and disciplined capital allocation strategy provide the company with the resources to pursue both internal and external growth opportunities, while maintaining a conservative leverage profile.
Increased Guidance and Dividend Raise
Tanger has increased its core FFO per share guidance for 2024 to a range of $2.03 to $2.11, representing growth of 4% to 8% over the prior year. The company has also increased its same-center NOI growth expectations to a range of 2.25% to 4.25%.
In April 2024, Tanger's Board of Directors approved a 5.8% increase in the company's quarterly cash dividend to $0.275 per share, or $1.10 per share on an annualized basis. This dividend increase reflects Tanger's confidence in its ability to generate consistent cash flow and its commitment to delivering value to its shareholders.
Recent Developments
Diversified Tenant Mix and Peripheral Land Strategy
Tanger's tenant mix continues to evolve, with the company actively pursuing new-to-portfolio brands and diversifying its offerings beyond traditional apparel and footwear retailers. The company has been successful in attracting tenants in categories such as food and beverage, entertainment, and health and beauty, which have contributed to increased traffic and sales.
Tanger's peripheral land strategy has also been a key driver of growth, as the company has been able to activate and monetize its real estate with complementary uses and attractions. This has added to the diversity of experiences at Tanger's centers and has helped drive both local and tourist traffic.
Risks and Challenges
Navigating Macroeconomic Challenges
Tanger is closely monitoring the impact of the overall macroeconomic environment, including rising interest rates, inflationary pressures, and supply chain and labor issues. While the company believes many of its tenants are proactively navigating these challenges, the ultimate impact remains uncertain.
Tanger's diversified tenant mix, focus on productivity, and strong balance sheet position the company to weather potential headwinds. The company's short-term lease structure and ability to reprice space also provide flexibility in adapting to changing market conditions.
Conclusion
Tanger Outlets has demonstrated its ability to deliver consistent financial performance and execute on its strategic initiatives. The company's diversified portfolio, robust leasing activity, and successful integration of recent acquisitions have positioned it for continued growth. Tanger's strong balance sheet, liquidity position, and disciplined capital allocation strategy further support its ability to capitalize on both internal and external opportunities. As Tanger navigates the evolving retail landscape, the company's focus on enhancing the shopper experience and driving incremental revenue streams positions it well for long-term success.