Tanger Factory Outlet Centers Inc. (SKT) is a real estate investment trust that invests in shopping centers containing outlet stores.
The company operated 38 outlets across 20 U.S. states and Canada with about 60% of square footage located in tourism destinations, as of the third quarter of FY2020. With a lower cost of occupancy, higher margins and lower customer acquisition and logistics costs, the company’s outlets provide an advantage that has led to relatively high occupancy rates versus malls.
Improving Liquidity
The COVID-19 pandemic led to a sharp contraction in the retail sector. Tanger’s rent collection rates fell to 43% during the second quarter of FY2020 when it wrote off about 25% of its rents. Rent collection rebounded during the third quarter to 89% as restrictions were lifted and only 5% of rents were written off due to tenant bankruptcies and related issues.
During the second half of the year, the company reported a strong liquidity position with more than $80 million in cash and $600 million in undrawn lines of credit. The management team also cited positive traffic and rent collection trends despite the ongoing pandemic, which contributed to a positive free cash flow during the second half of 2020.
The company recently reinstated its quarterly dividend at $0.1775 per share due to the improving liquidity metrics, which represents a 5.6% forward yield. The dividend is payable on February 12, 2021 to shareholders on record as of January 29, 2021.
At present the company intends to maintain its REIT status by distributing the minimum required taxable distribution. Accordingly, the reinstated quarterly payout represents nearly 50% reduction compared to the last regular payout distributed in May 2020.
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