Summary
- The management team at Tanger Factory Outlet Centers announced financial results for the final quarter of the company's 2022 fiscal year.
- The firm beat expectations on both its top and bottom lines, and the overall picture for the business looks promising.
- Add in how cheap SKT shares still are, and I believe they justify further upside from this point.
At first glance, a company that's focused on the ownership of outlet centers, notably open-air outlet centers in upscale areas, may not seem like the most attractive investment opportunity. But one business that operates this way, Tanger Factory Outlet Centers ( SKT ), just continues to impress. Most recently, on February 21st, the management team at the business reported financial results covering the final quarter of the firm's 2022 fiscal year. In addition to beating analysts' forecasts on both the top and bottom lines, the company also provided investors with a rather bullish forecast for 2023. Add on top of this how cheap shares are, and I believe that it warrants a rather solid ‘buy’ rating at this time.
Tanger Factory Outlet is a REIT that continues to impress
The last time I wrote about Tanger Factory Outlet Centers was in an article published in early July of 2022. Back at that time, I talked about how well the company was doing to recover from the COVID-19 pandemic. Robust financial performance was pushing shares up faster than what the broader market had experienced. Even so, the stock looked cheap enough to justify further upside from that point. Ultimately, this led me to keep the ‘buy’ rating I had assigned to the stock previously. This is a rating that reflects my belief that shares should outperform the broader market moving forward. And so far, the company has done just that. While the S&P 500 is up 6.1% since the publication of that article, shares of this REIT have seen upside of 36.6%. And since previously rating the company a ‘buy’ back in March of 2020, shares have generated a return of 262.9% compared to the 79.3% rise the S&P 500 saw.
This massive return disparity may seem peculiar to those who aren't overly familiar with the business. But the fact of the matter is that management continues to demonstrate robust financial performance. Take, as an example, the most recent quarter . This is the fourth quarter of the company's 2022 fiscal year that was just reported. Sales came in at $116.5 million. In addition to coming in above the $112.1 million reported one year earlier, it also beat what analysts anticipated to the tune of nearly $7.5 million. One of the key drivers behind this sales increase was a rise in occupancy at the firm's properties. This number came in at 97% at the end of the final quarter of 2022. This was up from the 95.3% reported one year earlier. In addition to this, the company reported a rise in the rates in which it charges for leases. The blended average rental rate for the company for the 2022 fiscal year in its entirety was 10.1% higher on a cash basis for leases executed for comparable space compared to what the company reported one year earlier. This is the power of having premium assets.
The rise in revenue was instrumental in pushing up profitability. FFO, or funds from operations, totaled $0.47 per share. That beat analysts' expectations by $0.02 per share. In absolute dollar terms, FFO came in at $51.6 million. That's up from the $49.7 million reported the final quarter of the company's 2021 fiscal year. Core FFO, meanwhile, grew from $49.6 million to $51.8 million. There were, of course, other profitability metrics to consider. For instance, NOI, or net operating income, rose from $76.3 million in the final quarter of 2021 to $79.8 million for the final quarter of 2022. Meanwhile, EBITDA expanded from $59.5 million to $60.3 million. Normally, I would also like to look at operating cash flow, since it is the financial metric for most companies that I think is most important. But as of this writing, the company has not revealed that for the final quarter.
The results reported by the company for the fourth quarter we're hopeful in pushing up financial performance for the entirety of the 2022 fiscal year. Revenue of $442.6 million beat out the $426.5 million in revenue generated in 2021. This brought with it a significant improvement in profitability. FFO, for instance, expanded from $138.1 million to $201.5 million. Core FFO, meanwhile, rose more modestly from $188.4 million to $201.8 million. NOI rose from $286.3 million to $299.4 million. And finally, EBITDA for the business managed to climb from $233.3 million to $238.3 million.
When it comes to the 2023 fiscal year, management provided some guidance for investors. For starters, same-center NOI is expected to continue growing, with a target increase of between 2% and 4%. FFO per share should be between $1.81 and $1.89. Management has not said whether or not the firm's share count will increase or decrease. More likely than not, an increase will take place. But if it doesn't, this would translate to FFO of $205.4 million at the midpoint. Meanwhile, core FFO per share should be between $1.80 and $1.88. At the midpoint, this would work out to $204.2 million. The company has not provided guidance on any other important profitability metrics. But assuming that they change at the same rate that core FFO is expected to improve, we should anticipate NOI of roughly $303 million and EBITDA of $241.1 million. Although management did not report any data for the final quarter when it comes to operating cash flow, I did estimate a reading of $222.4 million for the year. That would imply a reading of $225 million for 2023.
Based on these figures, the company seems to be trading at rather low levels on an absolute basis. This can be seen in the chart above. As part of my analysis, I then took two of the five pricing metrics and compare the company to five similar firms. On a price to operating cash flow basis, the multiples for these companies should be between 8 and 16.9. And when it comes to the EV to EBITDA approach, the range should be from 12.9 to 26.3. In both cases, only one of the five companies should be cheaper than our prospect.
Company | Price / Operating Cash Flow | EV / EBITDA |
Tanger Factory Outlet Centers | 9.1 | 14.1 |
Acadia Realty Trust ( AKR ) | 10.2 | 26.3 |
Saul Centers ( BFS ) | 8.0 | 17.1 |
InvenTrust Properties ( IVT ) | 13.2 | 12.9 |
Urban Edge Properties ( UE ) | 13.3 | 16.8 |
Getty Realty ( GTY ) | 16.9 | 14.5 |
Takeaway
Over the past couple of years, Tanger Factory Outlet Centers has had a fantastic run. At some point, upside potential for the company should become much more limited. However, that day does not appear to be today. Between growing occupancy rates, higher lease rates, and significant investments that the company is making, such as a new center it's opening in Nashville, Tennessee, that would total 290,000 square feet at a cost of up to $150 million, the outlook for the firm looks promising. Shares look cheap, both on an absolute basis and relative to similar firms. Given these factors, I do believe that the company still warrants a ‘buy’ prospect at this time.
For further details see:
Tanger Factory Outlet Q4 2022 Earnings: More Upside To Come