Tanger Outlets: Goldman Is Wrong
- A broader lowering of our retail REIT coverage view to neutral from Attractive as SKT is our third retail downgrade in the last three weeks.
Valuation: Our $30 price target implies -10% total return vs. 13% average upside for our coverage universe.
Less earnings dynamism than peers, despite strong current fundamentals as a large amount of floating-rate debt limits refinance potential and reduces the sensitivity to top-line growth.
Tanger and the company's exceptional dividend record have been the subject of a number of recent research reports, so it should not surprise anyone that Goldman's recent downgrade is similar to "a raised nail getting hammered."
In the case of Tanger, the only raised nail that I hear (and see) is the sound of high-quality growth in the outlet sector. First off, let's look at Tanger's incredible record of paying out dividends; after all, that is the reason Tanger is so often in the news.
Twenty years is an incredible record and later this year, Tanger will be admitted to the prestigious group of companies hand selected from the S&P 500 . That means that Tanger will join other S&P 500 Dividend Aristocrats such as Lowes (LOW) , AFLAC (AFL) and T. Rowe Price (TROW) in the broad equally weighted index that measures the performance of large cap, blue chip companies within the S&P 500 -- notably, the ones that have followed a policy of increasing dividends every year for at least 20 consecutive years.
So why is Goldman hammering nails at Tanger while other analysts are continuing to buy the "pure play" outlet REIT?
Analysts at Citigroup upgraded Tanger shares from a neutral rating to a buy rating (Dec. 17). They now have a $37.50 price target on the stock, up previously from $31.75. Also analysts at Jefferies Group upgraded shares of Tanger from a hold to a buy (Nov. 2). They now have a $37.00 price target on the stock, up previously from $34.00. Finally, analysts at Evercore Partners initiated coverage on shares of Tanger in October. They set an equal weight rating on the stock.
I know one good reason that Tanger shares are continuing to climb. Just take a look at the parking lots of the outlet centers. Not only are the customers lining up but the tenants are lining up to rent space at Tanger's high-quality outlets. 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?