Tanger Factory Outlet Centers Inc’s SKT tenant risk has expanded beyond department stores, Goldman Sachs’ Andrew Rosivach said in a report. He downgraded the rating on the company from Buy to Neutral, while reducing the 12-month price target from $44 to $40.
Analyst Rosivach cited three reasons for the downgrade:
- A slowdown in expected internal and external growth
- Greater headline risk beyond department stores
- Less attractive valuation
Tanger Factory Outlet’s shares have gained 15.4 percent since December 8, 2015, versus a 5.8 percent gain in the S&P 500 and a 10.5 percent gain in the RMZ. “Additionally, SKT’s 2017E FFO multiple has expanded by 13.3% over the same time period, versus REITs +6.9% and mall REITs +5.2%, Rosivach mentioned and removed Tanger Factory Outlet from Americas Buy List.
Slowing Growth
While the company is expected to generate 6.3 percent FFO growth in 2016, this is expected to slow to 4.6 percent in 2017. “We expect external growth to slow due to a smaller volume of development projects, while internal growth could moderate due to tough expense comps and possibly smaller leasing spreads,” the analyst wrote.
Greater Headline Risk
Earlier Tanger Factory Outlet could avoid headline risk from a lack of department store exposure. The portfolio had now been impacted by inline retailer closures from companies like Aeropostale Inc AROPQ and Wolverine World Wide, Inc. WWW, Rosivach noted.
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