With stellar third quarter results, a raised earnings guidance and a dividend yield of 2.6%, Tanger Factory Outlet Centers Inc. (NYSE:SKT) should satisfy investors seeking both growth and income. Earnings for this Zacks #2 Rank (Buy) retail REIT (real estate investment trust) are expected to grow 12.9% in 2012 and 10.5% in 2013.
Healthy Third Quarter
Tanger Factory Outlet Centers reported healthy third quarter results on October 30, with a 10.6% rise in FFO (fund from operations) to $41.9 million. On a per share basis, FFO increased 7.7% year over year to 42 cents and matched the Zacks Consensus Estimate.
Total revenues surged 8.8% year over year to $90.5 million. Same-store net operating income (NOI) increased 5.6%. Consolidated portfolio occupancy remained relatively high at 98.6%, compared to 98.3% in the year-ago quarter.
Based on better-than-expected third quarter results, management raised the FFO guidance for 2012 to between $1.61 and $1.63 per share from the earlier range of $1.59 to $1.63. The increased guidance is based on a same-store NOI growth projection of about 6.0%.
Over the past 30 days, the Zacks Consensus Estimate for 2012 increased by a penny or 0.6% to $1.63, implying a year-over-year growth of 12.9%. The Zacks Consensus Estimate for 2013 has increased by 2 cents or 1.1% to $1.80 over the same period, representing growth of 10.5%.
Tanger Factory Outlet paid a dividend of 21 cents per share in the third quarter of 2012. The quarterly dividend represents a 5.0% increase from the payout in the year-ago quarter. The current dividend payment affirms a modest yield of 2.6%.
Tanger Factory Outlet's valuation metrics are at a premium on a price-to-earnings (P/E) and price-to-sales (P/S) basis. Shares of Tanger Factory Outlet are currently trading at a forward P/E of 19.88x versus the peer group average of 18.49x. On a P/S basis, shares are trading at 8.64x versus 8.13x for the peer group average. A healthy earnings growth prospect warrants the premium valuation of the company. Its PEG ratio is 2.74 based on a 5-year FFO growth rate of 7.3%.
Since November 28, 2011, Tanger Factory Outlet shares have consistently fared better than the simple moving average for 200 days or SMA (200), barring one or two minor hiccups. In addition, the stock has outperformed the S&P 500 index since August 9, 2011.
With a favorable supply/demand relationship, rising earnings estimates, robust growth projections and a decent dividend yield, Tanger Factory Outlet offers an enticing upside potential going forward.
Headquartered in Greensboro, North Carolina, Tanger Factory Outlet primarily develops and operates a portfolio of 40 upscale outlet shopping centers in 25 states in the U.S. and in Canada, spanning 12.3 million square feet. Each Tanger Factory Outlet shopping center provides a unique blend of a variety of brand-name products for the entire family at attractive prices. The company was the first outlet center developer to be listed on the New York Stock Exchange as a publicly traded REIT. The company currently has a market cap of $3.1 billion.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SKT over the next 72 hours.