In this post, I will be covering Tanger Outlets $SKT. Yesterday, Tanger reported earnings and bulls were cheering the results because the company slightly raised their 2019 guidance. Bulls were also cheering after hours yesterday because of the large move, but I cautioned many bulls to wait until after the conference call and after the open before celebrating the move. Turns out, I was correct and shares of Tanger completely reversed their after hours move yesterday of up 6%. Shares ended up closing down almost 2% from yesterday’s close or around 8% from the after hours highs yesterday. After combing through the results and looking beyond the headlines, it was easy to see why the stock is down today and I will be going through those reasons in this post. Occupancy & Same Center NOI Looking at the top locations, I would classify Q3 occupancy as worse than average. As you can see in the table below, seven locations posted lower occupancy year/year and three posted higher occupancy year/year. Having 7/10 locations with declining occupancy year/year is not ideal. Table data from Tanger Q3 supplemental presentation Looking at company-wide occupancy, the increase in occupancy last quarter was short lived as occupancy once again was lower year/year. This marks the 10th time out of the last 11 quarters that occupancy for Tanger has been down year/year. Part of the increased guidance Tanger gave was for occupancy to not be as bad as they had thought it was going to be. In the press release they guided for occupancy of between 95.5% and 95.8%, which is higher than previous estimates, but still below what occupancy was in 2018. Table data from Tanger 8-K filings The final chart puts into visual form occupancy rates and same-center NOI growth since the beginning of 2016. You can visually see the Q3/Q4 seasonal bounce in occupancy and then a move lower in Q1 and Q2. What is interesting is that this time, occupancy actual slightly fell from Q2 levels, which is not a good sign for Tanger. If there is a weakness in occupancy during a historically seasonally strong time for occupancy that is something to be wary of. When it comes to same-center NOI growth, it is very clear that the trend has been lower. Tanger has posted seven quarters in a row of negative same-center NOI growth. For the quarter Same Center NOI growth was -1.80%. In Tanger’s updated guidance, Same Center NOI was estimated to be between -1.40% and -1.80%. Through the first three quarters of the year, Same Center NOI is down -0.80%, which means to get to from -.80% to a spot between -1.40% and -1.80% in one quarter, Q4 is shaping up to be pretty bad. Chart data from Tanger 8-K filings Leasing Activity The first table below shows the year/year change for leases of all-terms. The green boxes highlight the data points I have used in the past because starting last quarter Tanger added a new column (middle column) into their presentation, so I wanted to make sure I continued using the same data points that I have compared in the past. The table below shows data for all-terms of leasing, and it clearly shows Tanger has little pricing power. For Q3 2019, the green boxes show Tanger is doing worse this year than they did last year. The continued deterioration is because of continued store closures and the use of short-term leases, which lead to no pricing power. Table data from Tanger Q2 supplemental presentation Next, I will look more specifically at long-term leasing spreads of greater than 12 months. This data is actually worse than it was last quarter. For all long-term leases spread went from +4.1% last year to -1% this year. Long-term leasing spreads that are negative is one of the more troubling developments this quarter. This will be something to watch very close going forward because if Tanger is unable to sign up tenants at positive leasing spreads over the long-term that essentially makes Tanger a melting ice cube. Table data from Tanger Q2 supplemental presentation The following chart puts into visual form the trends for leasing spreads of all-term and terms of greater than 12 months. I collected data since the beginning of 2017 and as you can see the trend for all-terms and more than twelve-months has been trending lower. It is clear that Tanger is not able to increase rents at the same percentage as they have in the past. So when someone says Tanger is trading at a discount to its historical price/FFO valuation ...there is a good reason why it is trading at a discount. Tanger Supplemental Presentations Conference Call Commentary Store Closures On the conference call, there was finally some quantification of the wave of store closures that will be coming in Q1 2020. For 2019, projected store closed are estimated to be at 225K square feet. When you look at the closings projected in early 2020, it is easy to see why the stock was down today and why when Tanger releases its 2020 guidance, it is likely going to be bad. As the “Closure List” below shows, just from those tenants Tanger is expecting 303K square feet in store closures, which is more than all of 2019. “Projected 2019 store closings related to tenant bankruptcies and restructurings of up to 225,000 square feet for the consolidated portfolio.” ~Tanger Q3 earnings release Closure List “With regard to anticipated closures, Dressbarn plans to close all of their stores at the beginning of 2020. In our consolidated portfolio, this comprises 22 stores with approximately 177,000 square feet” ~Steve Tanger, CEO Q3 earnings call “Kitchen Collection has announced plans to close all their retail stores. We currently have 30 stores in our consolidated portfolio representing 93,000 square feet” ~Steve Tanger, CEO Q3 earnings call “The current potential Tanger store closure list includes two Forever 21 stores and five Destination Maternity locations. Together, these seven stores represent only 33,000 square feet” ~Steve Tanger, CEO Q3 earnings call Q4 is going to be poor On the conference call EVP/CFO Jim Williams telegraphed that Q4 is going to be poor because of a number of factors ranging from fundamentals to tough year/year comps. “in fourth quarter we do anticipate a deceleration in NOI relative to our year-to-date performance due primarily to the impact of lower overall occupancy and selective lease modifications from the previously mentioned bankruptcies and restructurings as well as a tough comp over last years quarter, which included some favorable expense savings primarily from a mild winter.” Other Important Quotes The following two quotes are also important pieces of the puzzle as well. The first quote shows that around 5% of Tangers occupancy is made up of pop-ups/seasonal/temporary tenants. Many of these tenants leave in Q1, which can be seen in the occupancy section above where there is always a big drop off in occupancy from Q4 to Q1. The second quote shows that the Nashville location that bulls had been hoping to be a source of growth from won't be here until at least 2021. At the soonest it appears construction won’t even start until the end of 2020, which means 2020 will be another year of no growth for Tanger. “Right now pop-up temporary seasonal tenants account for about 5% of our occupancy.” ~Steve Tanger, CEO Q3 earnings call “So we are as far as I'm concerned on target and hopefully with the disciplines that we've maintained over many years, we will have the 60% pre-leased and all non-appealable permits by this time next year and be able to start construction. ~Steve Tanger, CEO Q3 earnings call Closing Thoughts In closing, Tanger was under $14.share earlier this year and after these results showing continued deterioration and a wave of coming store closures, I expect that Tanger will be a prime tax loss selling candidate at the end of the year and once again test 52-week lows. They might not retest them before the end of the year, but I strongly believe that the lows will be tested in Q1 2020. Also, as I mentioned starting last year in November and have continued to mention throughout 2019, investors need to be on the lookout for the closing price of Tanger at the end of the year. If the price is below around $16.55 at the end of year, Tanger runs the risk of being removed from the SPDR S&P Dividend ETF (SDY), which currently holds 20.69 million shares of Tanger, which is over 20% of the float. Disclosure/Disclaimer: I have no position in Tanger $SKT The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. As I have no knowledge of individual investor circumstances, goals, and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any stocks mentioned. The strategies discussed are strictly for illustrative and educational purposes and should not be construed as a recommendation to purchase or sell, or an offer to sell or a solicitation of an offer to buy any security. There is no guarantee that any strategies discussed will be effective. The information provided is not intended to be a complete analysis of every material fact respecting any strategy. The examples presented do not take into consideration commissions, tax implications or other transactions costs, which may significantly affect the economic consequences of a given strategy. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any security in particular.