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

Tanger Factory Outlet Centers Inc. (NYSE: 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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