Tanger Outlets, lifted by strong leasing and rent gains, reported a lift in second-quarter income and raised its outlook for the year.
Tanger’s net income rose to $23.9 million, or $0.23 a share, for the quarter ended June 30, from $19.7 million, or $0.19 a share, in the prior-year period.
Funds from operations (FFO) were $0.47 a share, or $52.4 million, compared to $0.45 a share, or $48.8 million, for the prior-year period.
Same-center net operating income increased 4.3 percent to $83 million for the second quarter of 2023 from $79.5 million for the second quarter of 2022.
Occupancy was 97.2 percent as of June 30, compared to 96.5 percent on March 31 and 94.9 percent on June 30, 2022.
“We continue to beat the street’s expectations and raise our guidance on a quarterly basis,” Stephen Yalof, Tanger’s president and chief executive officer, told WWD.
Raising its outlook, Tanger estimated diluted net income per share to come in between $0.90 and $0.97 for the year, up from the previous estimate of $0.89 to $0.97 a share. Estimated diluted FFO per share for the year has been raised to between $1.86 and $1.93, from $1.83 to $1.91.
Wall Street liked Tanger’s Q2 report, issued after the market closed Thursday, lifting the stock 4 percent, or $0.99, to $24.60.
While sales at the outlets have been down slightly, Yalof told WWD he’s optimistic for the second half this year. He believes the economy will “soft land” and questions about the economy and a potential recession are being “demystified,” bringing more confidence in the retail marketplace than in the last 12 months. “I anticipate strong back-to-school sales. The Fourth of July was a great sales period — those 10 days. That is a great indication.”
Average tenant sales productivity of $443 a square foot for the 12 months ended June 30 decreased 1.3 percent from $449 a square foot for the 12 months ended June 30, 2022. On a same-center basis, average tenant sales per square foot of $443 for the 12 months ended June 30 decreased 1.8 percent from $451 a square foot in the year-ago period.
“Sales are always going to be a snapshot in time,” Yalof said. “Compared to 2019, pre-COVID[-19], our sales are up over 15 percent. We rode the wave of post-COVID[-19] openings. In open-air environments, retailers and shoppers came back. 2021 was a great year but 2022 saw a lot of excess merchandise retailers had to move. Now inventories are pretty right-sized. But the headwind is the purchasing power of the consumer. People are getting on planes and going to Europe. Higher-priced purchases are softening across all channels.
“The flip side is, somebody has got to be performing. It’s athletic brands and athleisure. We are really heavy into both categories.”
During a conference call with analysts, Yalof said, “Higher price-point product is struggling, while promotionally priced great brands are doing well.”
On Oct. 27, Tanger will open its 37th outlet center, in Nashville, Tennessee. “We’ve got a best-in-class lineup of retailers particularly for that market,” he said. “The center is 95 percent leased, which is unheard-of for a new center opening.” He said that speaks to the economic strength of the area and the demand for outlet product. The center, at 290,000 square feet, is estimated to cost between $143 million and $147 million.
“We are looking at a lot of opportunities for acquisitions as well as for development, and adding density to existing sites where the land is owned by Tanger,” Yalof said. “There is room to grow this platform across the country.” He did not cite any potential acquisitions or developments.
The CEO commented that Tanger “continues to elevate and diversify tenant mix” and that the company has had six consecutive quarters of positive lease spreads and occupancy gains. Rent increases are averaging 12 percent on renewals, he noted.
He said the company is at its highest occupancy rate since pre-COVID-19, is executing solid increases in renewal rents, and continues to bring in new brands, particularly in the home sector, to Tanger centers while downsizing or eliminating under-performing ones. Among the brands more aggressive in opening outlets, Yalof cited Adidas, Victoria’s Secret and RH, among others.
Regarding leasing activity, Tanger reported:
- Total renewed or re-tenanted leases (including leases for both comparable and non-comparable space) executed during the 12 months ended June 30 included 513 leases, totaling over 2.1 million square feet.
- Blended average rental rates increased for the sixth consecutive quarter, increasing 13.2 percent on a cash basis for leases executed for comparable space during the 12 months ended June 30. These blended rent spreads, which were up 910 basis points year-over-year, are comprised of re-tenanted rent spreads of 30.9 percent and renewal rent spreads of 12.1 percent.