Tanger Factory Outlet's Fundamentals Are Deteriorating, KeyBanc Says In Downgrade

Tanger Factory Outlet Centers Inc. SKT, the REIT owner of the Tanger Outlet chain, reported Tuesday after the market close with forecast-beating first-quarter results and lower full-year guidance. 

The Analyst

KeyBanc Capital Markets analyst Todd Thomas downgraded Tanger Factory Outlet from Sector Weight to Underweight with a $19 price target.

The Thesis

Tanger Factory Outlet's pure-play outlet center portfolio is witnessing a rapid deterioration, Thomas said in a Tuesday note, citing a 1.5-percent decline in same store net operating income, or SSNOI, in Q1 compared to a 0.4-percent drop in Q4.

Despite attempts to preserve occupancy by offering rent relief, the analyst said occupancy continued to fall by 30 basis points year-over-year.

The analyst said he expects leasing to continue to struggle, as the number of short-term deals increased.

KeyBanc attributed the lower FFO and SSNOI growth guidance for fiscal 2018 to a higher level of store closures and more rent relief being granted than anticipated. 

"While the increase in weather-related expenses should ease in future quarters, we expect the operating environment to remain challenging," Thomas said. 

The Price Action

Tanger was down 8.5 percent at $20.42 at the time of publication Wednesday afternoon. 

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