Tanger Outlets: Considering This 'Black SWAN' Event For This Sleep Well At Night REIT by Brad Thomas
Summary
- ETFs have been lending out their shares to hedge funds who are shorting shares in hopes of earning above-average returns.
- Tanger appears to have caught the attention of short sellers who are concerned with its 6.3% rental exposure to Ascena.
- Ascena has zero outstanding on its revolver and ended the quarter with $680 million in available liquidity.
- This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »
As I'm sure you've seen, Tanger Outlets (SKT) remains one of the most beaten-down examples in the equity REIT universe. Shares have plunged by 20% during the last 12 months.
As one of our Strong Buy picks, we've become especially focused on its large index fund ownership. Although active investors - represented by mutual funds - have become an increasingly smaller portion of the overall equity REIT market. Index funds now represent more than $4 trillion of assets under management (or AUM).
That's more than $2.5 trillion more than assets held by hedge funds, according to consulting service ETFGI.
Photo Source
As REITs in out-of-favor sectors have increased their ownership limits, many index funds have become the largest owners. As we've witnessed lately, ETFs have been lending out their shares to hedge funds, which then short shares in hopes of earning above-average returns.
While REIT ownership typically restricts maximum single-shareholding percentages at 9.9%, companies do often provide exemption to some funds for 12% ownership or higher. And, of course, one of those REITs that appears to have caught the attention of short sellers is Tanger.
They're concerned with its 6.3% rental exposure to Ascena (ASNA), which is rated CCC+ and could potentially go bankrupt.
Source: Investor Presentation
That chance is remote, for the record. But let's take a deeper dive into the retail conglomerate to determine what could happen to Tanger if this so-called "black swan" event occurs.
...Originally Posted On Seeking Alpha
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