By: Jeff Yastine — April 23, 2021
This Fed-Fueled REIT Could Hand You a Quick 50%
Editor's Note: Today we're very pleased to present a second fine column by guest editor Jeff Yastine. Jeff is a veteran market analyst and researcher with a vast knowledge of the financial markets. You can read more about Jeff here.
I recently struck up a conversation with a fellow Little League Dad whose son, like mine, has returned to the baseball diamond, now that the pandemic has started to lift.
Jason is an attorney by trade. And as we chatted my ears perked up when he mentioned that his real business is property speculation and development.
Jason performs these services on behalf of a family trust fund.
Now, real estate is a keen interest of mine.
You’ll recall that I wrote last week about Lennar (LEN), the home builder that constructs planned subdivisions and multifamily housing developments across much of the United States.
We saw how right now the Buildings sector is a ripe hunting ground for strong potential returns.
So my talk with Jason gave me a great chance to glean some on-the-ground intelligence.
As we talked about the property market, my friend made a great point about property values.
“You can overpay, for sure,” he said. “But what have we learned over the past few decades? The Fed has no choice but to keep its foot on the monetary gas pedal.”
“So, sooner or later the land parcel you thought looked expensive now winds up looking cheap in the rear view mirror.”
Makes me wonder...
With such an excellent opportunity staring us in the face, why have so many investors for so long ignored the stock market version of the same opportunity.
I’m talking about the opportunity to bank profits with REITs -- Real Estate Investment Trusts.
A REIT is a publicly traded company that owns, operates or finances income-producing real estate across a range of property sectors -- offices, warehouses, retail, apartments.
REITs might not be sexy, like crypto. And they’ve always lacked the excitement of growth stocks. Mention REITs at your next post-pandemic cocktail party and you’ll probably find yourself drinking alone.
That reputation isn’t justified at all.
Over the last 6 months, REITs have been quietly catching fire:
- First Trust S&P REIT Index Fund (FRI) up +25.3%
- iShares Core US REIT ETF (USRT) up +26%
- US Mortgage REIT Income ETF (MORT) up +37%
Now, as you can see from this screenshot of the Sector Relative Strength Matrix, the Real Estate sector is only ranked #27 out of the 45 sectors we track here at True Market Insiders.
(Click any image to enlarge)
But my bet is that, as the pandemic lifts but the Fed continues its zero-rates-for-longer policies, REIT performance is going to turn the sector from a brush fire into a raging inferno.
The sector is in a column of X's on its Bullish Percent Index (BPI) chart (highlighted at the far right). That's an indication that the sector is strong over the short-term.
This indicator shows the percentage of stocks within the sector that are currently on point-and-figure Buy signals on their own price charts.
So when it comes to identifying opportunities, I’m looking for leading companies in this sector poised to rise much higher from here.
Tanger Factory Outlets (SKT), headquartered in Greensboro, North Carolina, owns 39 upscale outlet shopping centers across 20 states and Canada. In all, this REIT controls more than 14 million square feet of retail space, leased to over 2,800 stores.
Those stores represent some of the biggest global brand names, from Armani to Nike, and Oakley to Williams-Sonoma.
Here's a look at SKT through the lens of the Position Key, a custom research tool that comes with Sector Prophets Pro, the premium data platform offered by True Market Insiders.)
Reading the four blue arrows from left to right, here’s what this tool is telling us about Tanger Factory Outlets.
- It's in a strong sector -- Real Estate. The sector is on bull confirmed status on its BPI chart. That’s as strong as you can get when it comes to this indicator.
- The sector is performing well versus the Equal-Weighted S&P 500 (Sector RS).
- The REIT is an out-performer compared to its sector peers (Peer RS).
- Tanger Factory Outlets is strong against the market (Market RS).
The stock has had quite a run. So far this year it’s up 70%. The share price rose more than 200% since last spring.
Right now SKT is finding support at its 50-day moving average (the blue line in the price chart above).
I think the shares will continue to surprise skeptics.
- In its most recent quarterly report, issued in February, Tanger reported $111 million in revenue - 13% more than analysts forecast.
- Customer traffic rose to 90% of pre-pandemic levels of the prior year, and in January, improved to 99%.
- The company says it now collects rents on 95% of its leased space, despite the lingering nature of the pandemic.
- Retail tenants have already prepaid nearly 60% of pandemic-affected rents from 2020, despite Tanger's giving them the option to defer those payments into this year.
In all, the company generated FFO -- funds from operations, the key metric for measuring earnings with REITs -- of $0.54 a share for the quarter. That’s very good, considering it was only a nickel less than the year-ago period before the pandemic.
The company even felt comfortable enough with its outlook that it resumed its quarterly dividend which it had suspended during the early dark days of the pandemic after 38 consecutive years of rising annual payments to shareholders.
I think the impact of massive stimulus payments, the Federal Reserve’s backing, minimum-wage increases in many states, and the “back to normal” U.S. economic recovery all bode extremely well for SKT.
Also, we shouldn’t discount the general optimism that will come with being free from the virus, either. When people feel good, they shop more.
Long story short, I think Tanger Factory Outlets stock is a good bet to rise at least another 50% from here.
Lastly, let’s not forget that ticking clock -- the impact of the Federal Reserve’s interest rate policies, and the potential for rising inflationary pressures within the economy.
Recent economic data is starting to point in this direction.
As one expert at Institutional Property Advisors noted recently, “commercial real estate’s historical performance as an inflation hedge with tax benefits should allow it to outperform other asset classes that already appear priced for perfection in the early stages of the current expansion.”
Tanger owns real estate worth nearly $3 billion. If the Fed really is intent on supporting the economy this way, then a conservatively managed real estate investment trust like Tanger will see a steady increase in the value of its underlying assets.
If that turns out to be the case, then it's a powerful force that’s yet to be factored into the price of Tanger’s stock.
Thanks for reading and enjoy your weekend,
Guest Editor, True Market Insiders