Benzinga  May 22  Comment 
On CNBC's "Fast Money Final Trade", Tim Seymour recommended ICICI Bank Ltd (ADR) (NYSE: IBN) as a buy. He thinks it's the best of breed in India. Its asset base is growing and India is growing, too. David Seaburg likes Tanger Factory Outlet...


Tanger Factory Outlet Centers, Inc., (SKT) along with its subsidiaries, is an owner and operator of factory outlet centers in the United States. The Company is a fully-integrated, self-administered and self-managed real estate investment trust (REIT) that focuses on developing, acquiring, owning, operating and managing factory outlet shopping centers.

Business Overview

Tanger Factory Outlet Centers, Inc.(SKT), founded in 1881 by Stanley K. Tanger, is an owner and operator of factory outlet centers in the United States. [1] The company is a real estate investment trust (REIT), which focuses on developing, acquiring, owning, operating and managing factory outlet shopping centers. REITs like Tanger Factory Outlets earn revenue by developing and leasing property to brand name manufacturers across the country. Tanger Outlets currently has 34 locations in 22 states across the nation. These locations total a gross area of 10.3 million square feet, leased to over 2,100 stores that are operated by over 370 brand name companies. [2] Tanger Factory Outlet Centers, Inc.’s stock trades on the NYSE under the symbol SKT. Tanger leases their space to a mix of designer and brand name manufactures, providing patrons with the opportunity to purchase a wide variety of brand name products at substantial savings.

SKT's Outlet Center Characteristics

As of Febuary 1, 2011, SKT had over 360 well known designer or brand name concepts, including: Polo Ralph Lauren, Saks Fifth Avenue – Off Fifth, Calvin Klein, Ann Taylor, GAP, Banana Republic, Old Navy, Juicy, Kate Spade, Lucky Brand Jeans, Reebok, Tommy Hilfiger, Abercrombie & Fitch, Eddie Bauer, Coach Leatherware, Brooks Brothers, BCBG, Michael Kors, Nike and many others.

SKT’s typical tenants are large, national retailers, which are less likely to have rent collections issues or lease defaults. The majority of outlet stores in Tanger Factory Outlet Centers are directly operated by the respective retailer leasing space from SKT. Stores generate, on average, $354,000 per square foot of leaseable space. [3]

Financial Highlights

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As you can see, SKT experienced a 2% increase in total revenues from the 2009 to 2010 fiscal year. Although funds from operations decreased by two million dollars, SKT experienced a 14% increase in operating income.

SKT's Top Ten Tenants

SKT’s top ten manufacturers are, by total square footage, respectively: The Gap, Inc., Phillips-Van Heusen Corporation, Dress Barn, Inc., Nike, VF Outlet Inc, Adidas, Ann Taylor, Carter’s Polo Ralph Lauren, and Hanesbrands Direct, LLC. These manufacturer’s top ten concepts are listed in the following chart by square footage. image:Picture 8.jpg

SKT's Property Portfolio

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The Riverhead, New York property is the only property that comprises more than 10% of SKT’s gross revenues. No property comprises more than 10% of their consolidated total assets. In addition, no tenant accounts for more than 8.4% of SKT’s leaseable space. These ratios ensure that in the case of bankruptcy, defaults on loans, or terminations of contracts, SKT will not suffer major operating losses due to loss of rental revenue. SKT has also managed to consistantly increase their overall occupancy rate. The experienced a 2% increase during the 2009-10 fiscal year. SKT also partially owns through joint ventures two other properties, in Wisconsin Dells, Wisconsin, and Deer Falls, New York.[4]

Trends and Forces

SKT Has Shown Growth During Subprime lending Crisis

REITs are required by by Federal Tax requirements to return 90% of their earnings to shareholders, making all companies operating as REITs extremely sensitive to changes in credit availability. [5]Despite increased restrictions on lending, SKT has continued to develop new properties. During 2010, SKT opened a new outlet center in Melbane, North Carolina. During this time, they also disposed of their Commerce 1, Georgia location. They began the redevelopment of a 162,000 square foot area in the second quarter of 2010, with plans of completing a 176,000 square foot outlet center some time in the second quarter of 2011. SKT also has potential future development sites in League City, Texas; Scottsdate, Arizona; and West Phoenix, Arizona. Projects are primarily funded through unsecured lines of credit, collateralized construction loans, public debt, or equity offerings.

SKT Embarking on International Joint Ventures

As of March, 2011, SKT entered into a joint venture agreement with REIT RioCan to purchase and develop a 35 acre parcel of land in the greater Toronto, Canada area. This development will be the first outlet center of its kind in Canada. RioCan (TSX:REI.UN) and Tanger expect to start development in the 4th quarter of 2011 and open the center in 2013. Canada holds the 5th largest retail market in North America, and developing outlet centers there gives SKT’s tenants access to more customers, which in turn increases SKT’s profit. "Given our investment leadership and successful track record in Canada's largest urban markets, we are confident that opening our first Tanger Outlet Center in the GTA market of Halton Hills will create a shopping destination with unparalleled reach and popularity," added Edward Sonshine, President and CEO of RioCan. With the economic downturn in the states, it is likely to see Tanger continue to develop outlet centers in expanding markets through joint ventures internationally. [6]

Financial Metrics:

Funds From Operations (FFO)

FFO is a metric commonly used to evaluate the cash generating potential of a REIT’s holdings, or rental income from tenants. This metric takes into account earnings from existing properties but not cash from acquisitions or sales of assets. FFO is the firm's Net Income plus depreciation less gains from property sales. SKT's FFO is $112,374,000.

Adjusted Funds from Operations (AFFO)

The AFFO of an REIT is Net Income plus depreciation less gains from property sales less capital expenditures. AFFO more accurately shows the cash flow of a REIT and is a useful metric to have in place of Net Income for further analysis. SKT’s AFFO is $189,861,000. [7]

PEG Ratio

The Peg ratio is simply a stock’s price to earnings ratio divided by its year-to-year growth. This ratio is important because the lower a PEG ratio, the more likely a stock is to be undervalued. [8] SKT’s 5 year expected PEG ratio is 2.87 where the industry’s is 6.24. [9]


SKT competes for customers with other outlet centers, shopping malls, and full and discount price retailers such as T.J.Maxx, Loehmann’s, and HomeGoods. In most cities, SKT competes only to a very limited extent with traditional shopping malls due to pressure from tenants. Most tenants want to avoid direct competition with their own specialty stores and major retailers that sell their products at full price, so most outlets are located over 10 miles away from the nearest major department store.

In addition to competing directly with retail centers, SKT also competes with other REIT firms.

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CBL and Associates Properties is a REIT that generates revenue through developing and operating shopping malls in 27 states across the country, although the majority of their properties are located in the Midwest and Southeast regions of the United States. CBL owns traditional shopping malls as well as multipurpose retail spaces that include dining and entertainment. In addition to rental revenue, CBL also generates revenue through advertising space and sale of property.[11]

GGP owns and manages shopping malls on properties in 44 states across the country, as well as planned communities and office buildings. They are the second largest REIT by revenue in the United States. GGP has an advantage when it comes to building retail centers, as it can use its master planned communities as pre-existing customer bases. [12]

Porters Five Forces Analysis

Because SKT's financial performance depends on the performance of its tenants, it can be difficult to understand the REIT's competitive environment. Looking at a Porter's Five Forces Analysis can be useful when trying to determine the firm's strategic position.

The Threat of New Competitors

SKT faces a complex, but relatively moderate threat of new entrants into the market. Purchasing and developing land requires large amounts of capital, and because of the subprime lending crisis, it is harder than ever for businesses to get funding to start new ventures. In addition to high barriers to entry, there are also high exit barriers in the real estate market. Real estate property is generally illiquid, and cannot be sold quickly if need be. Despite decreased access to easy credit, real estate prices have dropped in many places across the country, giving new entrants an opportunity to purchase land at a discount that will only appreciate over time.

The Threat of Substitute Services

SKT faces relatively low threat of substitute services. SKT leases storefronts to brand name and designer manufacturers to sell their merchandise at a discount. Up to 80% of the goods sold at Tanger Outlets are designed specifically for the manufacturer’s outlet stores. Manufacturers may also choose to sell their products at department stores, own their own discount store, or at discount retailers such as T.J.Maxx, Loehmann’s, or HomeGoods. Selling items at huge markdowns at department stores may compete with the manufacturer’s main line of merchandise, or what is often known as self-cannibalization. Another substitute for SKT’s outlet centers is for the manufacturer to own their own discount center, but that is costly, requires large amounts of research and advertising, and cannot draw the same amount of traffic as a group of 20 stores. Lastly, another threat to SKT’s outlet centers are discount retail chains such as T.J.Maxx and Loehmann’s. While these retailers could be a viable outlet for overflow and last-season merchandise, they do not have the capacity to hold the same quantities of goods specially made to be sold at a discount.

The bargaining power of customers (buyers)

SKT’s customers have moderate bargaining power. In SKT’s case, leases are generally short term in nature, so a significant portion of their properties comes up for renewal each year. In 2010, 16% of SKT’s portfolio was eligible for renewal options. Renewal options give buyers the option to switch to other REITs or seek alternative arrangements if rent gets too high. For example, in the second quarter of 2010, Liz Claiborne announced their decision to transition out their branded outlet stores. At that time, SKT had 22 stores occupied by the Liz Claiborne brand, totaling 233,000 square feet, or 2.6% of their total portfolio. Because each lease had a set expiration date, SKT has been able to replace 81% of the vacated space as of February 1, 2011. SKT’s performance also depends on the performance of their tenants. A portion on their rental revenue is derived from percentages that vary directly with the sales volume of their certain tenants. If the results of operations fall too much, tenants may not be able to pay their rent if rent expense becomes too large a percentage of sales. Additionally, several large retailers have gone bankrupt in recent years, including some of SKT’s tenants. Bankruptcy or financial distress often results in the closing of outlet stores, and SKT may face some time, and a loss of revenue, before they are able to lease that space once again for an equal or greater value. [13]

The bargaining power of suppliers

The bargaining power of SKT’s suppliers is fairly low. Due to the subprime lending crisis, credit is harder to come by, so SKT turns to unsecured lines of credit, collateralized construction loans, public debt, or equity offerings, or joint ventures to develop new sites. When looking to develop or redevelop a site, a REIT like SKT will lay out what they are looking to have done, and then let construction or excavation companies bid on the project. Because several companies in the market are bidding against one another, this ensures that SKT gets exactly what they want for the lowest price possible.

The Intensity of Competitive Rivalry

SKT faces a moderate level of competition from other retailers in the industry as well as other REITs. Because SKT’s performance is based in part upon the performance of its tenants, SKT competes with traditional shopping malls, full-price and discount retailers, other outlet centers, as well as online shopping. Because of this level of competition, SKT heavily advertises its designer and brand name tenants, and the “look” Tanger Outlets can provide you with. To mitigate the level of competition, SKT avoids developing outlet centers closer than 10 miles to the nearest department stores. SKT also competes with other REITs such as CBL & Associates Properties, which develops multi-purpose properties mainly in the Midwest and Southeast regions of the United States.

Human Resources

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  1. SKT Corporate Web Site
  2. http://www.snl.com/irweblinkx/corporateprofile.aspx?IID=103061
  3. http://www.snl.com/irweblinkx/corporateprofile.aspx?IID=103061
  4. http://www.snl.com/irweblinkx/corporateprofile.aspx?IID=103061
  5. http://hoovweb.hoovers.com/real-estate-investment-trusts-(reits)/--ID__160--/freeuk-ind-fr-profile-basic.xhtml
  6. http://www.tangeroutlet.com/company/newsPhotosDetails.aspx?frame=http%3a%2f%2fwww.snl.com%2firweblinkx
  7. [All data is from Yahoo finance ]http://www.wisewealthbook.com/what-are-all-the-financial-ratios-to-evaluate-an-reit/
  8. [All data is from Yahoo finance ]http://www.investopedia.com/terms/p/pegratio.asp
  9. [All data is from Yahoo finance ]http://finance.yahoo.com/q/co?s=SKT+Competitors
  10. [1]
  11. http://cblproperties.com/cbl.nsf/company_focus.html
  12. http://www.ggp.com/
  13. [Annual Report- Page 56]http://www2.snl.com/Cache/1001158123.PDF?D=&O=PDF&iid=103061&Y=&T=&fid=10011581231
  14. http://www2.snl.com/irweblinkx/od.aspx?iid=103061
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