Investing.com -- S&P Global Ratings has revised its outlook for Tanger Inc. from stable to positive, acknowledging the company’s commitment to maintain low leverage while expanding its assets. The company’s operating performance remains robust, backed by healthy retail fundamentals. Tanger’s credit ratings were affirmed at ’BBB-’ for both issuer credit and issue-level ratings on the company’s debt.
The positive outlook is based on the expectation that Tanger’s operating performance will remain stable despite inflationary pressures that may slow discretionary spending. It is projected that the company will maintain its S&P Global Ratings-adjusted debt to EBITDA in the low 5x, while funding its growth in a leverage-neutral manner.
Tanger has improved its S&P Global Ratings-adjusted debt to EBITDA while pursuing a substantial volume of external expansion. As of Dec. 31, 2024, this measure improved to 4.8x from 5.7x over the same period the previous year. The company is expected to operate with leverage in the low 5x area over the next several years while remaining opportunistic on the acquisition front.
Tanger’s debt fixed-charge coverage ( FCC (BME: FCC )) ratio remained above 4.0x (4.2x) for the 12 months ended Dec. 31, 2024, which was unchanged from the prior-year period. This was supported by minimal refinancing needs amid a high-rate environment and healthy EBITDA growth. The company’s FCC is expected to remain around 4x over the next two years as its positive operating performance should offset a modest increase in interest rate expense stemming from its upcoming maturities due in 2026 and 2027.
Tanger’s operating performance is expected to remain stable over the next couple of years, supported by healthy retail fundamentals. The company reported another solid year of financial results in 2024, supported by its diverse tenant base of national and regional retailers and healthy sales productivity. As of Dec. 31, 2024, Tanger’s portfolio was 98% occupied.
However, the company’s tenant base, which primarily comprises discretionary retailers, could face some pressure due to high interest rates and an uncertain macroeconomic environment. This could impact Tanger’s occupancy and rent growth as it works through a modestly elevated lease roll this year. The company’s portfolio has benefitted from consumers trading down the quality curve and its tenant credit watch list remains manageable.
Tanger is expected to continue to pursue a modest level of external growth, in the $100 million-$200 million range per year, which is expected to enhance the quality of its portfolio and the stability of its cash flows. Since 2023, the company has invested approximately $648.6 million to add five new properties to its portfolio spanning 2.23 million square feet.
The company employs a prudent, measured external growth strategy, therefore it is not expected to pursue any large-scale portfolio acquisitions. Instead, Tanger will continue to invest in external growth at a similar pace to the last 18 months when accretive.
The positive outlook reflects the expectation for positive operating performance over the next two years, buoyed by healthy retail fundamentals, despite the pressures stemming from cost-cautious consumers and an evolving macroeconomic landscape. The company’s portfolio is expected to remain highly occupied and its cash leasing spreads will remain positive as it navigates a modestly high lease expiration schedule over the next year.
S&P Global Ratings could revise its outlook on Tanger to stable if operating performance deteriorates or credit metrics weaken. Alternatively, the rating could be raised if Tanger reports a continued solid operating performance with above-average metrics relative to those of its peers, lengthens its weighted-average debt maturity through the issuance of longer-term debt to address upcoming maturities, and maintains S&P Global Ratings-adjusted debt to EBITDA of below 6x.
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