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Tanger Outlets: Goldman Is Wrong

Stocks in this article: SKT SPGTCO GGP CBL

Take a look at the latest occupancy trends.

Wow. 99% occupancy. That means there are actually retailers standing in line to rent space to the namesake Tanger brand. Why then would Goldman paint Tanger by the same brush as the broader "retail" landscape when the stalwart outlet brand is simply in a class of its own?

Why also would Goldman value Tanger shares at $30.00 when there is such an incredible runway for growth in the sector? Tanger, founded in 1981 (and public since 1993) operates a portfolio of 40 upscale outlet shopping centers in 25 states in the U.S. and in Canada, spanning 12.3 million square feet.

The outlet industry is small -- about 50 million square feet -- which is smaller than the retail space in the city of Chicago. Maybe Goldman does not factor in the attractive supply dynamics and strong tenant demand that makes Tanger one of the most significant REIT-doms.

Tanger's value proposition is sound as the BBB-rated (by S&P) REIT has been busy growing its brand across the U.S. and Canada. New Tanger projects under way are in Houston (recently opened) and Glendale as well as projects in Washington, D.C., Scottsdale (AZ) and Mashantucket (CT). Also, Tanger has begun to tap into the Canadian pipeline with announced projects north of Toronto in Cookstown.

There is compelling reason for growth north of the U.S. border as Canadians are driving the demand (16 retail sf/person in Canada) fueled by limited retail outlet options (the U.S. market has 24.5 retail sf/person).

With such a favorable supply/demand platform, rising earnings estimates, robust growth projections and a decent dividend yield, Tanger offers an enticing upside potential going forward. Tanger reported a strong third quarter with a 10.6% rise in funds from operations, to $41.9 million. On a per-share basis, FFO increased 7.7% year over year.

Tanger has the lowest leverage of its closest peer group. According to Tanger's CEO, low leverage is simply a "way of life" as the company's "stellar balance sheet has supported generally smart historical capital choices."

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