Buried within the optimistic pronouncements and positive leasing figures of Tanger Factory Outlet Centers' Q1 2024 earnings call transcript (NYSE:SKT) lies a subtle shift in strategy – one that could be a ticking time bomb for short sellers. While analysts celebrate the REIT's continued rent growth and expansion, they seem to be missing a crucial detail: Tanger is about to weaponize its pricing power, and short sellers could be caught in the crossfire.

Tanger's story in recent years has been one of remarkable resilience. Defying the "retail apocalypse" narrative, they've not only maintained occupancy but also achieved impressive rent spreads, a testament to the enduring strength of the outlet model and Tanger's adept management. This success has fueled a surge in short interest, with many betting against the company's ability to sustain this momentum.

However, Tanger's recent moves suggest a bold new chapter. Their focus on "re-tenanting and right-sizing," prioritizing more productive retailers over long-term incumbents, signals a significant shift from the high renewal rates of the past. This, coupled with their emphasis on expanding into complementary uses like food and beverage, entertainment, and health and beauty, points to a deliberate strategy of maximizing the value of their real estate.

This strategy is not about simply maintaining occupancy – it's about optimizing it. Tanger is leveraging its strong market position and robust retailer demand to curate a more compelling tenant mix, driving higher sales and ultimately justifying even higher rents. This is where the short squeeze potential comes in.

Consider this: over the past two years, Tanger has enjoyed an unusually high renewal rate of 95%, meaning they've been renewing almost all expiring leases. While this ensured stable occupancy, it also limited their ability to reprice their space at current market rates. Now, emboldened by their 36% rent spreads on re-tenanted spaces, they're aiming to bring renewal rates back to historical levels, which typically hovered around 80-85%.

This means that a significant portion of Tanger's portfolio will be up for grabs in the coming years. Imagine the impact of replacing a 10,000 square foot tenant paying $30 per square foot with a new tenant willing to pay $45 – a 50% increase in rent for that single space. Extrapolate this across a sizable portion of their 15 million square feet portfolio, and the potential for explosive rent growth becomes clear.

The numbers back this up. Tanger's portfolio OCR currently stands at 9.3%, up 100 basis points from last year. This demonstrates their ability to push rents higher, even in a challenging economic environment. With a renewed focus on re-tenanting and lower renewal rates, they could realistically achieve an OCR of 11-12% within the next few years, leading to a substantial jump in NOI and FFO.

This is the hidden gem that short sellers seem to be overlooking. They're focusing on past sales performance and ignoring the seismic shift in Tanger's strategy. As the company unleashes its pricing power and reshapes its portfolio, they could be in for a rude awakening.

Projected Occupancy Cost Ratio (OCR) Growth

Based on Tanger's strategic shift and historical trends, the following chart depicts a potential scenario for OCR growth over the next few years. Note that this is a projection and actual results may vary.

Reference: Calculated based on information provided in the Q1 2024 earnings call transcript.

Here's why this matters for you: a short squeeze, triggered by unexpected positive earnings results, could send Tanger's stock soaring. While the exact timing is impossible to predict, the company's strategic moves suggest a high probability of this scenario unfolding within the next 12-24 months. This makes Tanger a compelling investment opportunity for those willing to bet on their ability to execute on this bold vision.

"Fun Fact: Did you know that Tanger Outlets was founded by Stanley K. Tanger in 1981, inspired by his experiences selling women's apparel in Burlington, NC? Starting with just a single center in Burlington, Tanger has grown to become a leading player in the outlet space, proving the enduring appeal of value shopping. Their recent strategic moves suggest that the company's best days may still be ahead."