Tanger Has Plenty of Black Friday Bargains for REIT Investors

NEW YORK ( TheStreet) -- Black Friday has been described as the busiest shopping day of the year and, thanks to the advent of the outlet center, many shoppers are now likely to enjoy cashing in on the bargains today.

According to SNL Financial, there are around 205 outlet centers in North America valued at around $27.6 billion, up by over 250 percent or $7.7 billion in 2009. A large part of the outlet growth has been driven by six publicly traded REITs that combined own 137 outlet properties.

The two largest players, Tanger Factory Outlets ( SKT) and Simon Property Group ( SPG) , account for a majority of the U.S. outlet growth with over 63 million square feet of bargain-based store space.

With roots going back as far as 1981, Greensboro-based Tanger is the only "pure play" REIT with 40 outlet centers located in 26 states coast to coast and in Canada, totaling approximately 12.9 million square feet leased to over 2,700 stores operated by more than 460 different brand name companies.

It was Stanley Tanger, CEO from inception thru 2009, who was the catalyst for the Tanger Factory Outlet brand. He was responsible for turning the city of Burlington, N.C., into a destination for shoppers who often arrived by the busload. Tanger died a little over two years ago and his son, Steven B. Tanger (president & CEO), has excelled under the company's leadership by following his father's bold and dynamic management style.

One of the most compelling investment attributes for the Tanger brand is the attractive supply dynamics. Tenant demand for outlet space continues to increase and new supply is limited, with only a few disciplined public REIT developers that have access to capital and the expertise to deliver new projects. I recently caught up with CEO Steve Tanger and he explained his company's value proposition:

"It is really all about the experience. Shoppers want destinations where they can shop, save and have fun, that have energy and are fashionable. We try to make our centers unique destinations that deliver on in all of these areas. It's about creating the experience to fit our shopper, not making the experience what we want it to be. Typically our centers have an average of 75 -80 brand and designer outlet stores with savings of 30-70% off everyday."

It was no surprise that Warren Buffett snapped up around 5.3% of Tanger shares back in 1999. According to sources, Buffett's original purchase was for around $8.7 million and the purchase was made individually by Buffett, not through Berkshire Hathaway ( BRK.A). I'm not sure if Buffett still owns shares in Tanger today, but it's clear to see that his investment would have been a spectacular wager for the Oracle from Omaha (SKT's total annualized ROR from 1999 is over 16%).

Due to limited acquisition opportunities, outlet landlords have been focusing on new development and Tanger and the other REITs have been partnering with many high credit quality retail chains. Some of Tanger's top tenants include Nike ( NKE), Ann Taylor ( ANN), Adidas ( ADDYY.PK), Dress Barn, Gap ( GPS), Polo/Ralph Lauren ( RL), VF Outlet ( VFC), Carter's ( CRI), Coach ( COH) and Under Armour ( UA).

While many retailers continue to allocate capital to e-commerce, the majority of them are also allocating capital to the growing outlet sector and Tanger has become an exceptional leader -- the "go to" outlet landlord of choice.

Tanger's third quarter earnings were impressive with funds from operations (or FFO) available to common shareholders increasing to $56.2 million compared to FFO of $41.9 million for the three months ended September 30, 2012. Same center net operating income (or NOI) increased 4% during the quarter, marking the 35th consecutive quarter of same-center net operating income growth. Portfolio occupancy was up 10 basis points to 98.7%.

Tanger is one of only a handful of REITs that has raised its dividend each year since going public. The short list includes Federal Realty ( FRT), HCP ( HCP), Universal Health Realty ( UHT), National Retail Properties ( NNN), Essex Property Trust ( ESS) and Omega Healthcare Investors.

Tanger has increased its dividend for 20 years in a row and the company is now an S&P "Dividend Aristocrat". The current share price is $43.19 with a dividend yield of 2.71%. With a Price to Funds from Operations (P/FFO) of 17.4x there are no Black Friday bargains for Tanger; however, I there are plenty of shopping days remaining. After all the legendary investor Ben Graham described a bargain (a "margin of safety") as a company with a "favorable difference between price on the one hand and indicated or appraised value on the other."

At the time of publication the author owns O.

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