Last week I was in Las Vegas attending ReCon and I ran into a well-known athlete who knows a thing or two about running an offense.
I’m sure you’ll agree that Roger Staubach is a legendary athlete and he’s also an expert in commercial real estate. Staubach famously said,
In any team sport, the best teams have consistency and chemistry.
This week I’m going to tell you about my “intelligent REIT of the week” and highlight the consistency and chemistry that makes this REIT uniquely positioned to outperform.
Tanger’s Chemistry
Let’s start with the business model: Tanger Factory Outlets (NYSE:SKT) is considered a Mall REIT and the North Carolina-based company is also the only “pure play” outlet REIT. Tanger commenced operations over 33 years ago when the company opened a clearance center in Burlington, NC. Back then the “outlet industry” was unknown and the business model was more of a clearance center to assist manufacturers with getting rid of excess merchandise.
Today Tanger can been seen in 45 markets in 25 states (coast to coast) and in Canada. The 14 million square foot portfolio has over 2,700 leases that provide continuous and predictable cash flows.
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Although Tanger is smaller than the mall peers, it delivers more financial muscle as evidenced by the percentage of secured debt. Tanger maintains strong (2014) interest coverage ratio of 4.09x and the company’s credit ratings include BBB+ (S&P) and Baa1 (Moody’s).
Because of Tanger’s disciplined risk management profile the company should continue moving up the ratings scale. The company prefers to use unsecured financing (limiting secured options) and the development profile is risk averse (pre-leases a majority of space before going vertical).
Collectively Tanger’s “chemistry” is rooted in its risk management model – a platform in which the company has become an exceptional marketer driving traffic to the outlet centers, thus cultivating a unique brand of its own.
