2020 was a rough year for retail, and that’s especially true for malls and outlets, which are packed with “nonessential” businesses that were largely forced to shut down as the COVID-19 pandemic swept across the United States.
Outlet mall real estate investment trust (REIT) Tanger Factory Outlet Centers (NYSE: SKT) just gave investors an update on how their business is doing as we head into 2021. Here’s a rundown of the good and not-so-good news investors need to know.
Tanger’s business is financially stable
In the third quarter, Tanger reported its business had generated positive cash flow, and this hasn’t changed since then. Its recent business update confirmed the company was cash flow-positive for all of the second half of 2020.
Tanger reported that it collected more than 90% of its billed rent during the fourth quarter, an improvement from 89% in the third. As a nice surprise, Tanger also revealed its tenants had prepaid more than 40% of the deferred rent due in 2021.
Because of this positive cash flow (and the fact that Tanger’s dividend is still suspended), the company’s cash has doubled to $80 million from $40 million at the end of the third quarter. Including the company’s credit line, this means Tanger now has $680 million of total liquidity.
Occupancy has declined as expected
Tanger’s occupancy at its properties was 91.9% at the end of 2020, down from 92.9% at the end of the third quarter and nearly 96% at the end of 2019. This sounds like bad news at first glance, but it was largely expected. Some of Tanger’s biggest tenants declared bankruptcy in 2020, which was the primary reason for the increased vacancy rate.
While Tanger has spoken of potential uses for its vacant space in recent earnings calls (furniture outlets are an example), I’d expect this vacancy rate to get worse from here before it gets better as the 2020 bankruptcy wave continues to play out.
Customer traffic is declining — should investors be worried?
Here’s the only statistic that stood out to me as potentially troubling from the recent update. Tanger reported fourth-quarter customer traffic at 90% of 2019 levels. In other words, for every 1,000 people shopping at its outlets in the fourth quarter of 2019, there were 900 on average in the fourth quarter of 2020.
Now, 90% of prior-year levels might sound impressive given the pandemic. But it’s important to point out that Tanger previously reported that in September, customer traffic was at more than 98% of 2019 levels. So, things have slowed down a bit.
To be sure, this isn’t a cause for alarm — not yet, at least. After all, COVID-19 cases spiked following the Thanksgiving holiday and remain elevated, so many shoppers are likely staying away during the colder months. However, this is a number worth keeping an eye on over the next few quarters as the pandemic (hopefully) starts to fade away.
The Millionacres bottom line
Tanger’s business update is good news from a long-term investor’s point of view. The business is cash flow-positive, and the liquidity position has improved. These are things that should ensure Tanger makes it to the other side of the pandemic with significant capital to invest in growth opportunities.
On the other hand, as recent tenant bankruptcies have created more vacant space and customer traffic has declined as virus cases have surged in December and January, these could create near-term headwinds for the company and its stock. So this update shows the long-term thesis is still intact, but investors should brace for a bit of a roller-coaster ride while the COVID-19 pandemic continues.