Tanger: Strong Performance Obscured by Lease Risks and Funding Uncertainty

Tanger's 2024 results showed clear strength, with funds from operations hitting a record $2.13 per share, up 8.7% year-over-year, underpinned by sustained 98% occupancy and solid 5.1% same-center net operating income growth. This performance backdrop made the simultaneous decline in net income to $0.88 per share a notable point of scrutiny, especially as revenue continued to rise. The divergence raises questions about the underlying earnings quality and cost

structure pressures impacting the bottom line according to the earnings report.

However, the most immediate challenge facing the portfolio now stems from the significant tenant renewal cycle. Roughly 23% of the company's gross leasable area is scheduled to reach lease expiration in 2025. This massive wave of upcoming renewals creates substantial pressure on both occupancy maintenance and future rental income stability. According to financial analysis, managing this scale of tenant turnover inherently carries the risk of vacancies, potential downtime between leases, and the uncertainty of achieving comparable rental rates upon re-letting. While the current high occupancy is impressive, the near-term focus shifts decisively to execution on these renewals and managing the inherent friction and potential income disruption.

Growth Engine Mechanics & Tenant Risks

Tanger's 2024 performance shows aggressive expansion momentum, with total rent spreads hitting 15% alongside $240 million in new acquisitions. This execution strength, however, raises immediate questions about funding sustainability. Such acquisition volumes typically require disciplined capital allocation, yet no clear path to financing these moves appears in available disclosures, creating potential pressure on future cash flow and debt management.

The portfolio's heavy reliance on temporary tenants-now occupying a significant portion of space-masks underlying vulnerability. These short-term leases create renewal risks that could spike vacancy rates when contracts expire, likely depressing future tenant sales. Compounding this exposure, the absence of disclosed tenant sales data leaves investors without critical visibility into actual rent-paying capacity across the portfolio. Combined with nearly a quarter of GLA scheduled to renew by mid-decade, these structural weaknesses suggest that near-term growth metrics may not translate into sustainable long-term performance.

Balance Sheet Constraints & Valuation Pressure

While tenant risk remains a concern, the company's financial flexibility hinges on a mixed balance sheet profile. On the positive side, its net debt/EBITDA ratio sits at 5.4x-a level manageable for BBB-rated peers-supported by $620 million in liquidity, expandable to $1.2 billion through an extendable credit facility. These buffers suggest capacity to absorb near-term shocks without immediate distress. Yet opaque dividend policies and unclear maturities loom. The undisclosed payout ratio and lack of transparency around 2025-2026 debt repayments create hidden leverage risks, particularly if refinancing conditions tighten.

A S&P BBB- rating with a positive outlook according to credit ratings nudges sentiment higher, but investors should note this reflects forward-looking assumptions rather than current strength. Structural uncertainties-especially unmodeled refinancing timelines and dividend sustainability-erode valuation upside. Even with liquidity headroom, the absence of clarity on future cash flow commitments tempers enthusiasm, leaving room for downward revisions if market stress tests reveal weaker-than-expected flexibility.

Risk Guardrails & Scenario Testing

Building on our balance sheet review, lease expiration concentration now emerges as the most acute macro risk. Nearly 23% of our portfolio's gross leasable area faces renewal within two years. This creates direct pressure on net operating income, as historical renewal spreads have averaged 15%. Should current tenant market leverage push spreads below that threshold, NOI growth could stall abruptly.

Temporary occupancies further weaken our position. With a significant portion of space occupied by short-term tenants, any economic shift triggers immediate vacancy risks. These occupants lack the stability of long-term leases, making occupancy rates vulnerable to minor market fluctuations.

Operational transparency gaps compound these risks. Dividend distribution policies remain undefined, creating uncertainty for income-focused investors. Simultaneously, liquidity visibility is limited, obscuring our capacity to navigate near-term obligations without asset monetization. These factors collectively warrant cautious positioning until clearer occupancy renewal patterns emerge.