Tanger Factory Outlets Traded Lower After Earnings, Despite 2014's 23% Rent Bumps

Tanger Factory Outlet Centers Inc. (NYSE: SKT), the only pure-play outlet mall operator in the shopping center/mall REIT space, appears to be doing a lot of things right. During Wednesday's Q4 2014 earnings call, Tanger reported these highlights:

• AFFO per share of $1.97, a 4.8 percent increase over $1.88/share Y/Y.
• Debt to total market cap of 28 percent, "Best In Mall REIT Class."
• Occupancy of 98 percent as of December 31, 2014, (the 34th consecutive year end of occupancy at 95 percent or above).
• Same-center NOI growth for a record 40 consecutive quarters.
• Blended base rental rates up 23 percent for year ended December 31, 2014.

During 2014, Tanger delivered nearly 1 million square feet of new outlet space, increasing its total footprint 7.3 percent Y/Y. The company has four new outlet malls under construction slated to open in 2015.

Tough Trading After Q4 Earnings Release

On Thursday, Evercore ISI downgraded Tanger from Buy to Hold. Back in January, Bank of America had cut Tanger from Neutral to Underperform.

Capital Recycling & 2015 Guidance

On December 13, 2014, Tanger sold its former outlet center in Lincoln City, Oregon for $39.9 million to an undisclosed buyer. This buyer also has an option to purchase four additional centers; three would close in 2015 if the buyer proceeds, which in turn would allow the buyer to proceed on the fourth acquisition, with an anticipated closing in Q1 2016.Estimated 2015 FFO Guidance was given to be $2.07 to $2.13 per share, assuming:

• $0.10 per share dilution related to capital recycling dispositions and uses of funds in 2015.
• Foreign exchange (FX) dilution of $0.02 per share related to Canadian operations.
• Same-center NOI growth of 3 to 3.5 percent.
• G&A expenses of $11.5 to $12 million per quarter.

Dividends

Tanger has raised its dividend for 21 consecutive years since becoming a public company in May 1993. The current dividend appears to be well covered, with expected FAD payout in the mid-50s range.Tanger expects to generate approximately $100 million free cash flow above the dividend to reinvest in new developments and expansions of existing successful properties.

Tanger Vs. REIT 'Peers'

Although there are no true pure-play outlet center peers, there are alternatives for both retailers and investors interested in this retail category.Power center focused DDR Corp (NYSE: DDR) is growing its number of off-price anchors, such as Nordstrom Rack. Large shopping center REITs, such as Kimco Realty Corp (NYSE: KIM) and Regency Centers Corp (NYSE: REG) who lease to discounters like TJ Maxx (operated by TJX Companies Inc) and Ross Stores, could look to fill "junior anchor" slots with strong off-price retailers who help draw traffic to support small-shop leasing.Mall giant Simon Property Group Inc (NYSE: SPG) has a large portfolio of outlet centers, as well as an active development arm. Simon opened three new outlet centers in 2014 and currently has four more under active development.

Tanger: Notable Developments

Back in July 2014, Tanger and Simon Property Group jointly opened a new 398,000 square feet outlet mall in Charlotte, North Carolina, which is owned on a 50/50 basis.During the conference call, Steve Tanger confirmed that the company was no longer involved and had ceased pre-leasing efforts for the WS Development in Cheshire, Connecticut project.Tanger also revealed that the company had triggered a Sell to its 50/50 JV partner in the Wisconsin Dells outlet property. Noting that Wisconsin Dells was "stable," but not in the top of the Tanger portfolio.Additionally, during the Q&A, Tanger clarified that there were no new Canadian projects in its current shadow pipeline.