REITs Not Acting Like Collapse Is Coming
On Tuesday, Cramer wondered why, if commercial real-estate stocks are supposed to be the next catastrophe, so many commercial real estate trusts – Boston Properties, Federal Realty Investment Trust, Vornado Realty Trust and Tanger Outlet Centers – are at or within striking distance of their 52-week highs and have ultra low vacancy rates?
“The action in these stocks screams triumph,” Cramer said, “not tragedy.”
Take Tanger, which has 31 outlets in 21 states that are located in suburban areas usually not far from a major metro area. SKT has a dividend yield of 3.5 percent, and it reported a better-than-expected quarter back on Feb. 23, with funds from operations – A key metric for REITS– coming in 6 cents higher than Wall Street predicated on better-than-expected revenues. Tanger’s overall occupancy rate for its wholly owned stabilized properties was 96 percent at the end of the year, and for 2010 the company expects its occupancy rate to be between flat and 2 percent. Plus, Cramer said, the company reported that tenant comparable sales increased by 4.1 percent in the last quarter.
This REIT has a history of outperformance, with the stock delivering an average annual return of 17.53 percent from the beginning of 2000 through the end of 2009, the Mad Money host said. That’s better than the Morgan Stanley REIT index and much better than the S&P 500.
Tanger has something new going on for it as well: Outlets are becoming more and more popular. The recession has changed the way customers shop, Cramer said, with people no longer as willing to pay full price when they can find similar products at outlets for less money. Macy’s announced it would roll out Bloomingdale outlets, and both Nordstrom and Saks have emphasized the strong performance of their outlet stores. So Tanger is a pure-play outlet owner that is poised to benefit enormously.
The company’s balance sheet is strong, having done a 3.5-million-share secondary offering at $35.50 back on Aug. 14, giving investors a 23 percent gain so far.
But the stock is expensive, Cramer said, trading at 15.8 times funds from operations, while the average REIT gets a 14.4 multiple. And SKT is at its 52-week high. For this reason, the Mad Money host wanted to do more homework.
To hear more about the company’s prospects and the state of the commercial real-estate business, Cramer invited Tanger Factory Outlet Center CEO Steve Tanger on to the show. Watch the video for the full interview.
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