A Rare REIT for the Ages
On occasion, companies are able to transcend from the mainstream performers and become highly differentiated leaders. In some cases, these rare leaders are able to sustain differentiation by providing a highly favorable risk-and-return model that is intelligently crafted to generate durable returns and sound risk controls.
A Premium REIT Brand
As Warren Buffett has said: "Your premium brand had better be delivering something special, or it's not going to get the business." Tanger Factory Outlets (SKT) is one such premium REIT brand that is delivering something very special for investors.
Founded in 1981 (and public since 1993), Tanger is headquartered in Greensboro, North Carolina, and this well-balanced REIT operates and owns or has ownership interests in a portfolio of 39 outlet centers in 25 states coast-to-coast (and Canada), totaling 11.9 million square feet, leased to over 2,500 stores that are operated by more than 430 different brand name companies.
The premium ingredients of the Tanger Factory Outlet brand are centered around the attractive supply-and-demand fundamentals of the retail outlet-based sector. This attraction to Tanger's exceptionally strong tenant base comprises some of the strongest retail ingredients in the retail sector, the majority of which are publicly held, high-credit retailers. Some of Tanger's core portfolio tenants include Gap, PVH, Dress Barn , Nike, Adidas, VF, Ann Taylor , Polo, Carter's and Hanes Brands .
As a result of Tanger's exceptionally strong tenant demand, the premium REIT has also maintained a consistent occupancy level over time. Currently the "best in class" brand has an occupancy rate of 97% (as of the first quarter) and the steady trends have made the Tanger brand a popular "recession-resistant" choice for investors. As explained by Tanger CEO and President Steven B. Tanger:
"In good times people love a bargain, and in tough times, people need a bargain."
Because Tanger has limited direct competition in the outlet sector, the premium REIT brand has built a powerfully recognized advantage that has resulted in sharper differentiation. Since the company's founding over 32 years ago, Tanger's retail strategies have evolved into one of the strongest outlet brands in the U.S. (and Canada).
One of the strengths of the premium brand are tenant sales. Since 2000, Tanger's long-term tenant sales have grown from $281 per square foot to $371 per square foot (March 2012), a 32% increase in 12 years.
Another Tanger strength, also related to demand, is the long runway for external growth by development. The oulet sector is small with about 50 million square feet of space (compared with less than 50 million square feet of retail space in all of Chicago). Recently, Tanger completed new projects in Hilton Head, South Carolina ($43 million cost and 177,000 square feet) and Mebane, North Carolina ($64.9 million cost and 310,000 square feet).