Outlet centers helping REITs to thrive

New York -- Since 2009, retail sales at North America’s 205 outlet centers have increased from $19.9 billion to $27.6 billion, an increase of $7.7 billion, according to an International Council of Shopping Centers report.

Six publicly traded REITs with notable outlet center portfolios have benefited from outlet center success, according to SNL Financial. They are:

  • Tanger Factory Outlet Centers Inc.
  • Simon Property Group Inc.
  • Taubman Centers Inc.
  • CBL & Associates Properties Inc.
  • Glimcher Realty Trust
  • Macerich Co.

With more than 12 million sq. ft. of owned outlet centers in the U.S. as of Nov. 15, Tanger is the only REIT focused solely on investing in the sector. Tanger has reported a portfolio occupancy rate of 98.7%, the highest among the six U.S. REITs focused on outlet centers. All of Tanger’s assets, 40 properties in the United States and Canada, delivered 4% same-store NOI growth in a recent reporting period. The company currently counts seven outlets in its development pipeline.

Analysts from KeyBanc Capital Markets don’t expect the outlet centers’ outperformance to carry over into a rising stock performance. In a November 3, 2013 report, KeyBanc acknowledged that outlet center REIT shares have outperformed malls since the beginning of the quarter but said that was the result of a lackluster mall environment.

“We suspect investors have perceived SKT (Tanger) as a ‘safety trade.’ However, longer term, we expect the stock to underperform its mall and shopping center REIT peers,” said the report, mentioning that leasing spreads are likely to decrease due to flattened sales growth and a softened retail climate.

The analysts also expect Tanger’s acquisition opportunities to remain sparse and for yields on new developments to fall “at (or below) the low end of the company’s forecasts,” given competition surrounding new projects.

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