Picking A Winner In Regional Mall REITs
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Regional Mall REITs are off to a good start in 2023, gaining 3.58%, but trail the Equity REIT index (4.98%), as well as the S&P 500 (4.21%) and the NASDAQ (10.5).
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Picking a winner in Regional Mall REITs is relatively simple. COVID and its aftermath have driven three Mall REITs (CBL & Associates Properties (CBL), Pennsylvania REIT (OTC:PRET), and Washington Prime) into bankruptcy. Meanwhile Seritage Growth (SRG) recently sought and gained permission to sell off all its assets.
Of the 3 remaining companies, only Simon Property Group (SPG) and Tanger Factory Outlets (SKT) have acceptably strong balance sheets. Macerich (MAC) has a debt ratio of 65% and a Debt/EBITDA ratio of 9.5. With approximately 10% of their debt held at variable rates and subject to further rate increases from the Fed, Macerich management already expects interest payments alone to devour a whopping $0.21 per share of FFO (11% of the estimated total) in 2023.
So which of these is the better buy, Simon or Tanger? This article examines growth, balance sheet, dividend, and valuation metrics for these two companies, to help answer this question.
Meet the companies
Simon Property Group
Simon Property Group owns or has interest in 230 properties comprising 184 million square feet of premier shopping, dining, entertainment and mixed-use malls across North America, Europe, and Asia. Simon also owns an 80% interest in Taubman Realty Group (or TRG) and its 24 regional, super-regional, and outlet malls in the U.S. and Asia. With a market capitalization of $41 billion, SPG is by far the largest of the Mall REITs.
Simon derives 71% of its NOI from malls and premium outlets in the U.S., 11.3% from The Mills, 9.4% from other countries around the world, and 8.0% from its interests in Taubman.
Simon Property Group Q4 2022 Supplemental
Within the U.S., Florida, California, Texas, and New York combine to account for nearly half (49.2%) of Simon’s NOI.
Simon Property Group Q4 2022 Supplemental
SPG’s lease expirations are frontloaded over the next three years, peaking at 11.7% of gross annual rental revenue in 2024, tailing off every year after that.
Simon Property Group Q4 2022 Supplemental
Simon’s tenant base is well-diversified, with the top 10 tenants accounting for only 16.1% of ABR (annual base rent). The top 10 anchor tenants account for an even smaller percentage of ABR.
Simon Property Group Q4 2022 Supplemental
Simon’s Q4 2022 results, released February 6, are summarized in the table below. Simon had a strong fourth quarter, but full-year figures were essentially flat from the year before.
| Metric | Q4 2022 | YoY Incr. | 2022 full year | YoY Incr. |
| Revenue | $1.4 B | + 5.6% | $5.3 B | +3.4% |
| NOI | $674 M | +33.9% | $2.1 B | (-4.9)% |
| FFO | $1.27 B | + 9.8% | $4.5 B | (-0.1)% |
| FFO/share | $3.40 | +10.0% | $11.95 | 0.0% |
Source: Simon Property Group Q4 Earnings Supplemental
Tanger Factory Outlet Centers
Tanger Factory Outlet Centers owns and operates 33 retail outlet malls in 20 U.S. states and 4 more in Canada, totaling nearly 14 million square feet. Of that square footage, 61% is located in leading tourist destinations, and 90% is located in top 50 metropolitan statistical areas. Almost all (94%) of Tanger’s malls are open-air. Most are located across the southern and eastern U.S.
Tanger Q4 Earnings Presentation
With a market capitalization of $1.9 billion, Tanger is the third-largest Regional Mall REIT, though less than one-twentieth the size of Simon.
As of September 30, occupancy in SKT’s centers was a rapidly improving 97.0%, and the company was enjoying impressive 10.1% blended rent spreads, indicating a resurgence of demand. Some of that occupancy may be a bit illusory, however, since approximately 10% of Tanger’s GLA is currently occupied by short-term pop-up or other temporary tenants.
Tanger’s tenant base is somewhat less diverse than Simon’s, with the top 10 tenants accounting for 35.1% of ABR, and the top tenant alone (The Gap) accounting for 5.8%.
Tanger Q4 Earnings Presentation
Like Simon, Tanger faces lease expirations that are front-loaded over the next 3 years, only slightly more daunting, peaking at 23% of ABR in 2024, and tailing off thereafter.
Tanger Q4 Earnings Presentation
Tanger’s Q4 2022 results, released February 22, are summarized in the table below. Quarterly figures were modestly strong, while annual figures looked great, due to a weak 2021, making the comparables quite easy to beat, especially for FFO and NOI.
| Metric | Q4 2022 | YoY Incr. | 2022 full year | YoY Incr. |
| Revenue | $116 M | 3.9% | $443 M | 3.8% |
| NOI | $18.1 M | 39.7% | $81.2 M | 877% |
| FFO | $52.0 M | 3.9% | $203.2 M | 45.9% |
| FFO/share | $0.47 | 4.4% | $1.83 | 4.0% |
Source: Tanger Factory Outlet Centers Q4 Earnings Supplemental
Same-center NOI was up 5.1% for the quarter YoY, and 5.5% for the full year.
Growth metrics
Here are the 3-year growth figures for FFO (funds from operations), TCFO (total cash from operations), and market cap.
| Metric | 2019 | 2020 | 2021 | 2022 | 3-year CAGR |
| SPG FFO (millions) | $4272 | $3237 | $4487 | $4481 | — |
| SPG FFO Growth % | — | (-24.2) | 38.6 | 0.0 | +1.6% |
| SKT FFO (millions) | $222 | $154 | $138 | $203 | — |
| SKT FFO Growth % | — | (-30.6) | (-10.4) | 47.1 | (-2.9)% |
| SPG FFO per share | $12.04 | $9.11 | $11.94 | $11.98 | — |
| SPG FFO per share growth % | — | (-24.3) | 31.1 | 0.3 | (-0.2)% |
| SKT FFO per share | $2.27 | $1.58 | $1.29 | $1.83 | — |
| SKT FFO per share growth % | (-30.4) | (-18.4) | 41.8 | (-6.9)% | |
| SPG TCFO (millions) | $3808 | $2327 | $3637 | $3719 | — |
| SPG TCFO Growth % | — | (-38.9) | 56.3 | 2.3 | (-0.8)% |
| SKT TCFO (millions) | $220.4 | $164.7 | $217.7 | $196.5 | — |
| SKT TCFO Growth % | (-25.3) | 32.2 | (-9.7) | (-3.8)% | |
| SPG Market Cap (billions) | $47.73 | $27.98 | $52.50 | $43.96 | — |
| SPG Market Cap Growth % | — | (-41.4) | 87.6 | (-16.3) | (-2.7)% |
| SKT Market Cap (billions) | $1.36 | $0.93 | $2.00 | $1.87 | — |
| SKT Market Cap Growth % | — | (-31.6) | 115.1 | (-6.5) | 11.2% |
Source: TD Ameritrade, CompaniesMarketCap.com, and author calculations
SPG took less of a hit to growth than SKT during the pandemic, and bounced back faster. Both companies’ 3-year FFO growth figures are essentially flat, but SPG’s are slightly above zero, while SKT’s are slightly below. On FFO per share, however, SKT has performed well below zero, at (-6.9)%.
Similarly, SPG’s cash from operations growth CAGR has been essentially flat over the past 3 years, while SKT’s is significantly below zero, at (-3.8)%.
However, while SPG’s market cap has mostly mirrored its revenue and cash flow, averaging (-2.7)% over 3 years, SKT’s market cap has leapt by an average of 11.2% per year. This is due to the fact that while SPG shares have surged in even numbered years and sagged in odd numbered years, like the rest of the REIT world, SKT has posted share price gains each and every 12-month period since the pandemic began. That is truly remarkable.
| Metric | 2020 | 2021 | 2022 | 2023 | 3-yr CAGR |
| SPG share price Feb. 22 | $142.25 | $112.77 | $138.05 | $121.10 | — |
| SPG share price Gain % | — | (-20.7) | 22.4 | (-12.3) | |
| SKT share price Feb. 22 | $12.82 | $15.75 | $16.62 | $18.49 | — |
| SKT share price Gain % | — | 22.9 | 5.5 | 11.3 |
Source: MarketWatch.com and author calculations
Balance sheet metrics
Both companies have bond-rated balance sheets. SPG has the higher rating at A- and a slightly lower Debt Ratio at 40%, but SKT has slightly better liquidity and slightly better Debt/EBITDA. All in all, the two companies’ balance sheets are about equal.
| Company | Liquidity Ratio | Debt Ratio | Debt/EBITDA | Bond Rating |
| SPG | 1.13 | 40% | 6.4 | A- |
| SKT | 1.30 | 44% | 6.0 | BBB- |
Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations
SPG ended the year with approximately $7.8 billion of liquidity. The weighted average interest rate on their $25 billion debt is 3.43%, with a weighted average term of 6.7 years. Maturities are very smoothly arranged, ranging annually from 2.9% to 4.04% of the debt total for the next 6 years, generally tailing off after that.
SPG Debt Maturities (Simon Property Group Q4 2022 Supplemental)
Additional details in great depth are available in SPG’s Q4 supplemental.
Tanger’s maturity schedule is favorable. They have negligible payments due until 2026, when they begin a 3-year period averaging $362 million per year.
Tanger Q4 Earnings Presentation
Tanger ended 2022 with cash, cash equivalents, and short-term investments totaling $273 million, plus $520 million available on its lines of unsecured credit. The weighted average interest rate on Tanger’s $1.6 billion debt was 3.4%, with 93% of the debt at fixed rates and a weighted average maturity of 5.6 years. Approximately 88% of SKT’s total portfolio square footage is unencumbered by mortgages.
Dividend metrics
Simon never stopped paying dividends during the pandemic, but did slash them by more than one-third, from $2.10 to $1.30. They have raised the dividend in 5 of the past 7 quarters, but it is still only 86% of its pre-pandemic level.
Tanger stopped paying dividends entirely for three consecutive quarters, and when they reinstated dividends in Q1 2021, they were half what they had been. The current dividend of $0.22 per share is only about two-thirds of the pre-pandemic payoff.
SPG’s fat current yield of 5.95% tops both the overall REIT average and the Mall REIT average, whereas SKT’s current yield of 4.76% lags the Mall REIT standard by a full 102 basis points.
| Company | Div. Yield | 3-yr Div. Growth | Div. Score | Payout | Div. Safety |
| SPG | 5.95% | (- 4.6)% | 5.17 | 60% | D |
| SKT | 4.76% | (-14.6)% | 2.96 | 50% | B+ |
Source: Hoya Capital Income Builder, TD Ameritrade, Seeking Alpha Premium
Dividend Score projects the Yield three years from now, on shares bought today, assuming the Dividend Growth rate remains unchanged. By that measure, SPG routs SKT, 5.17 to 2.96.
As for Dividend Safety, as rated by Seeking Alpha Premium, SKT’s B+ rating is a little too safe for my taste, while SPG’s D rating indicates an aggressiveness on behalf of shareholders without being reckless.
SPG has both a much higher current yield and a much better track record for dividend safety, so it is no contest as to which company is the better payer.
Valuation metrics
Both companies are trading at hefty discounts to NAV, SKT more so than SPG, according to Hoya Capital Income Builder, and their Price/FFO ’22 is identical, at 10.1. But SPG’s clear superiority as a dividend payer makes it the better play for value investors in my view.
| Company | Div. Score | Price/FFO ’22 | Premium to NAV |
| SPG | 5.17 | 10.1 | (-16.5)% |
| SKT | 2.96 | 10.1 | (-23.0)% |
Source: Hoya Capital Income Builder, TD Ameritrade, and author calculations
Investor’s bottom line
Both companies appear to be worth holding. However, Simon Property Group is priced lower, growing faster, and paying better dividends than Tanger Factory Outlets. To the extent that these factors determine price, these numbers point strongly to SPG as the better bet going forward. But these factors do not determine price all by themselves, so as usual, it’s anybody’s guess.
Analyst ratings for SPG look like this.
Seeking Alpha Premium
The same analysis for SKT is as follows:
Seeking Alpha Premium
Here are the ratings from 4 other well-known rating services:
| Analyst/Service | SPG | SKT |
| The Street | Buy | Hold |
| Ford Equity Research | Hold | Hold |
| Zacks | Hold | Hold |
| TipRanks | 10/10 | 8/10 |
Of course, as always, the opinion that matters most is yours.