Tanger Factory Outlet Centers Inc. Outlook Revised To Negative On Reduced Expected Rent Payments Due To The Coronavirus

  • We believe retail outlet REIT Tanger Factory Outlet Centers Inc. could face material top-line headwinds in the next few quarters because of the coronavirus pandemic impacting outlet operations and growing exposure to tenant distress.
  • We expect the economic implications of the coronavirus outbreak to weaken the credit quality of retail tenants as mass closures and social distancing strain their ability to pay their contracted rents, which could further pressure Tanger's credit protection measures.
  • We are revising our outlook on Tanger to negative from stable and are affirming our 'BBB' ratings on the company.
  • The negative outlook reflects our belief that some of the company's tenants may defer or skip their rental payments in upcoming quarters hurting cash flow, which would further weaken Tanger's operating and credit metrics relative to our expectations. In addition, an increase in retail bankruptcies and store closings could add additional pressure in the next year.
NEW YORK (S&P Global Ratings) March 27, 2020--S&P Global Ratings today took the rating actions listed above.
The negative outlook reflects our concerns about the potential negative effects of the coronavirus pandemic on Tanger's sales and cash flow.  We believe Tanger's operating results may be even weaker than we previously expected, which will likely depress its credit metrics. The company's reported a 0.4% decrease in its same-center net operating income (NOI) during the fourth quarter of 2019, a 0.7% decrease for the full year, and issued weaker-than-expected guidance for 2020. This decline was due primarily to tenant bankruptcies, lease modifications, and store closures. The spread of the coronavirus has led to mass store closures and a decline in consumer spending on discretionary merchandise, which could further pressure our forecast relative to our already lowered assumptions for 2020.
The negative outlook reflects the heightened uncertainty regarding the effects of the coronavirus outbreak and impending global recession on Tanger's financial and operating metrics. It also reflects our expectation that bankruptcies and the ongoing pressure on the retail sector will weaken the company's re-leasing rates, significantly pressure its same-center NOI growth, and decrease its occupancy levels.
We could lower our ratings if the effects of the pandemic, and the subsequent recession are more severe and prolonged than we expect resulting in greater tenant distress, consuming the company's liquidity and delaying the improvement in its operating performance that we currently forecast for the second half of the year.
Additionally, we could lower our ratings on Tanger if its debt to EBITDA rises above the 7.0x area or its fixed-charge coverage falls below 3.0x. This could occur if the company's longer-term business prospects deteriorate to such an extent that it no longer displays above-average profitability and occupancy levels relative to those of its peers.

We could revise our outlook on Tanger to stable if its underlying metrics stabilize such that its same-center NOI turns positive on a sustained basis, likely due to a more favorable retail environment. Additionally, we could consider revising our outlook on the company to stable if its debt to EBITDA improves such that its leverage declines to the mid-5x area on a sustained basis. We would also expect Tanger to resume its planned developments that are currently halted because of the coronavirus pandemic and improve its growth profile relative to those of its similarly rated peers.
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