Tanger's (SKT) 2026 capital expenditure project of $65 million to $75 million will likely be a headwind to adjusted funds from operations, or AFFO, growth, BofA Securities said in a Friday note.

Building on this, BofA said that while Tanger's re-tenanting efforts have led to healthy spreads and higher productivity, near-term rise in capex spend due to lower renewal rates will likely continue to weigh on AFFO growth.

The company's capex guidance currently does not assume retailer Saks' lease rejections, given well-below-market rents, but any potential rejections will bring on incremental capex to refill the vacated plots, thus, representing a risk to AFFO, BofA said.

However, given strong leasing demand as well as the company's ability to backfill with temporary leases, the financial impact on FFO is more likely to be limited from retailers' store closures, BofA added.

The firm downgraded Tanger to neutral from buy and maintained its $39 price target.

Price: 36.04, Change: -0.70, Percent Change: -1.91