Tanger takes a bow as outlet centers shine

A mid the downbeat news of faltering fundamentals and scarce credit, an unlikely star is turning heads in the world of real estate investment trusts (REITs).

Tanger Outlet Centers, based in Greensboro, N.C., is garnering praise for the performance of its stock and bottom line at a time when many shopping center and mall owners are struggling to stay afloat. The outlet REIT's stock price closed at $35.03 on April 24, down from a 52-week high of $46.30, but up 3% from the previous close. Considering that some retail stocks have plunged by 80%, Tanger's stock is considered relatively robust.

The company operates 33 outlet centers in 22 states, offering upscale labels such as Nike, Liz Claiborne, Polo Ralph Lauren and Tommy Hilfiger. Tanger's 2,000 stores feature factory direct merchandise, which the REIT says can lead to consumer discounts of 20% to 40%.

In the first quarter, CEO Steven Tanger announced that the company would increase its common share dividend for the 16th consecutive year. Same-center net operating income increased 2.4% for the quarter compared with 2.5% in the fourth quarter of 2008 and 5.7% in the first quarter of 2008.

“That's an absolutely excellent story. The outlet center space is a place where retailers are opening lots of stores. The demand for outlet center space is very high,” says Rich Moore, an analyst with investment bank RBC Capital Markets. Other outlet companies also are flourishing, he says.

William Morrill, managing director of CB Richard Ellis Global Real Estate Securities, ranks Tanger's chance of surviving the recession as high as that of the far larger Simon Property Group. “Tanger has a very good debt structure.” And consumers want to save cash by buying goods at lower prices, he adds.

Unlike many REITs, Tanger stock is trading at prices that closely reflect the estimated value of its underlying assets, says Keven Lindemann, director of the real estate group at SNL Financial in Charlottesville, Va. “That does suggest that the market believes them to be a bit more resilient and maybe better positioned to perform well in this kind of market.”