Outlet stores

Are Tangier Factory Outlets Resisting the Retail Apocalypse?

The topic of the day in the consumer retail space is the continued assault on brick and mortar stores. Over the past few years, dozens of retailers have filed for bankruptcy and / or closed thousands of stores in a phenomenon that has been called the “retail apocalypse”.

In the center of the scene is the American Mall, which once served as the town square. A combination of the convenience of online shopping and an oversupply of retail stores in the United States has resulted in lower mall traffic. This resulted in an overall decline in retail sales and put financial pressure on the entire industry.

Tangier factory outlet centers (NYSE: SKT) is a real estate investment trust (REIT) specializing in the development and operation of shopping centers. Although he is in the mall business and has similarly seen his stock prices suffer with other mall operators, malls are actually somewhat resilient to the broader trends of the market. retail.

Image source: Getty Images.

The concept of the shopping center

Shopping centers are not like your typical Main Street mall. Retailers use factory outlets to sell old or surplus inventory for less than the prices listed in department stores. To avoid direct competition with full-price stores, shopping centers operated by Tangier are generally located outside of city centers and at least 10 miles from traditional department stores. The advantage of locating in less densely populated areas is that the cost of land is generally lower, which strengthens retailer margins.

Consumers are generally interested in finding great deals and are willing to take a day trip without shopping. In many cases, shopping malls will be located in more touristy areas near beaches or other popular travel destinations. Tangier specifically draws a lot of business from US domestic tourists who enjoy shopping when traveling.

The strong value proposition for both retailers and consumers is reflected in Tangier’s key operating indicators. It reports a high 96% occupancy rate in its shopping centers and has maintained an occupancy rate above 95% since its IPO in 1993, indicating strong demand from retailers to maintain the locations. points of sale. The traffic of visits by buyers is also important. In 2019, the REIT saw buyer traffic increase 1.5%, despite less than stellar traffic figures in shopping malls overall.

A healthier tenant mix

A mall operator is as healthy as his tenants. The biggest headache for traditional shopping center operators such as CBL & Associates was the question of replacing department stores, which have deserted real estate en masse. Department stores serve as anchor points in shopping malls and have not only historically driven traffic to malls, but have paid healthy rents as well. Additionally, it is not easy to replace one retail outlet with another retailer as their retail store bases tend to be massive.

The good news here is that Tangier doesn’t have exposure to department stores or anchor-style real estate imprints. This is a key differentiator between the quality of Tangier’s tenant base compared to shopping centers.

This does not mean that its tenants are in perfect condition. Its main tenants are Ann Taylor, Loft (both owned by Ascena Retail Group), and Difference. Ascena and Gap are closing stores. However, Tangier also enjoys significant exposure to booming brands, such as Nike and VF‘s The North Face and Timberland.

The health of Tangiers tenants is important, but regardless of that, outlets are usually not the first stores to close when a retailer is in trouble, as they typically outperform full-price stores in traditional malls. Therefore, Tangier can do well and maintain a high occupancy rate even though some of its clients are not performing at their peak.

The numbers suggest resilience

The bottom line for investors is that the financial figures released by Tangier continue to support the idea that its business model is resilient. It continued to generate strong operating income and increased its dividend every year (as shown in the graph below). The stock now generates a huge dividend yield of 9.1%! Of course, a high dividend yield could be partly linked to the share price falling 22.8% year-to-date, but the REIT has the free cash flow to support the rate, and this reflects the continued strength of Tangier’s earnings. Tangier having the confidence to continue increasing its dividend should reassure investors here.

SKT Operating Revenue Chart (TTM)

SKT operating result (TTM) given by YCharts. TTM = 12 rolling months. Note: Dividends paid are a dollar amount per share.

His stock price chart is another story. Investors have sold its shares in the same way as other shopping center operators since the entire sector is now for sale. Tangier appears to be a cut above many of its retail counterparts in terms of financial stability and differentiation of its business model. But it has to be argued that it is indirectly affected by poor performance of shopping centers due to exposure to many of the same brands of retailers.

Either way, Tangier may be worth considering as a long-term value investment for people who are interested in dividend-paying stocks and are not afraid of some exposure to the consumer sector in the past. detail.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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