TANGER INC. quarterly report, Q1 FY2022

Tanger Inc. — Q1 2022 Form 10-Q Summary

Business Context and Reporting Period

Tanger Factory Outlet Centers, Inc. is a self-managed REIT focused on owning, operating and managing outlet shopping centers through Tanger Properties Limited Partnership. For the quarter ended March 31, 2022, the company operated 30 consolidated outlet centers totaling approximately 11.5 million square feet and held interests in six unconsolidated centers totaling approximately 2.1 million square feet.

The filing presents combined unaudited results for Tanger Inc. and the Operating Partnership. Unless otherwise noted, financial results are substantially the same for both entities. The results are compared with the three months ended March 31, 2021.

Financial Performance and Key Metrics

Metric	Q1 2022	Q1 2021	Change
Total revenues	$108.9 million	$100.7 million	+$8.2 million
Net income	$21.5 million	$4.3 million	+$17.1 million
Net income attributable to Tanger	$20.5 million	$4.1 million	+$16.4 million
Diluted EPS	$0.19	$0.04	+$0.15
FFO available to common shareholders	$49.4 million	$38.2 million	+$11.2 million
Core FFO per diluted share	$0.45	$0.40	+$0.05
Portfolio NOI	$71.2 million	$65.1 million	+$6.1 million
Same Center NOI	$71.3 million	$65.0 million	+$6.2 million
Net cash from operating activities	$18.9 million	$31.2 million	-$12.5 million

Revenue growth reflected higher occupancy, increased variable rent tied to tenant sales, higher lease termination fees and approximately $3.0 million of revenue reserve reversals, compared with $1.6 million in the prior-year quarter. Net income margins were approximately 19.7% in Q1 2022 versus 4.3% in Q1 2021; the comparison was affected by unusual items in the prior-year period.

Rental revenue increased 7.3% to $104.6 million.
Property operating expense increased 4.1% to $36.8 million.
General and administrative expense decreased 7.9% to $15.5 million.
Depreciation and amortization decreased 6.8% to $26.2 million.
Interest expense decreased 19.0% to $11.6 million.
Consolidated occupancy was 94.1% at March 31, 2022, compared with 91.7% at March 31, 2021. Total portfolio occupancy, including the company’s pro rata share of joint ventures, was 94.3% versus 92.0%.

Balance Sheet, Debt and Liquidity

Total assets were $2.13 billion at March 31, 2022, compared with $2.16 billion at December 31, 2021.
Total debt was $1.40 billion, consisting primarily of $1.04 billion of senior unsecured notes, a $300.0 million unsecured term loan and $60.6 million of mortgages.
The company had no borrowings outstanding under its $520.0 million unsecured lines of credit, consisting of a $20.0 million liquidity line and a $500.0 million syndicated facility.
Cash and cash equivalents were $152.8 million for the Operating Partnership and $152.8 million for the Company at quarter-end. Management reported total liquidity of approximately $672.8 million, including cash and undrawn credit capacity.
Debt maturities include $3.4 million for the remainder of 2022, $44.9 million in 2023, $305.1 million in 2024, $1.5 million in 2025, $355.7 million in 2026 and $700.0 million thereafter.
Approximately 96% of outstanding debt was unsecured, and 92% of the gross book value of real estate was unencumbered.
Management stated that all debt covenants were satisfied. Reported covenant measures included total consolidated debt to adjusted total assets of 41%, unencumbered assets to unsecured debt of 232% and consolidated income available for debt service to annual debt service of 5.5 times.

Cash Flow and Capital Allocation

Operating cash flow declined primarily because of changes in accounts payable and accrued expenses, despite stronger rental revenue.
Capital additions to rental property were $5.9 million, compared with $7.4 million in Q1 2021.
Investing activities used $3.3 million, versus $2.7 million of cash provided in the prior-year period.
Financing activities used $23.9 million, compared with $83.0 million provided in Q1 2021, when the company received $128.7 million of net proceeds from an ATM share offering.
Cash dividends paid increased to $19.3 million from $16.9 million. The Board subsequently declared a $0.20 per-share dividend payable May 13, 2022.
No shares were sold under the ATM program in Q1 2022. Approximately $60.1 million remained available under the program, and approximately $80.0 million remained authorized for share repurchases; no shares were repurchased during the quarter.

Material Changes Versus the Prior Comparable Period

Improved occupancy, tenant sales and variable rents drove higher rental revenue and NOI.
Q1 2021 included an approximately $3.6 million foreign-currency loss related to the sale of the Saint-Sauveur outlet center by the RioCan joint venture. This item did not recur in Q1 2022.
Q1 2021 included approximately $2.4 million of voluntary retirement plan and executive severance costs; these costs did not recur in Q1 2022.
Interest expense declined following the issuance of $400.0 million of 2.75% senior notes, redemption of higher-cost notes and repayment of approximately $50.0 million of term-loan borrowings during 2021.
The company’s 2022 leasing activity improved: comparable executed leases covered 1.50 million square feet at an initial rent of $30.73 per square foot and a 1.1% rent spread, compared with 1.17 million square feet, $23.53 per square foot and a negative 7.9% spread in the prior-year period.

Guidance, Outlook, Risks and Unusual Items

The filing does not provide explicit full-year earnings, FFO or revenue guidance. Management expects available cash, operating cash flow, existing credit capacity and other financing sources to fund operating needs, debt service, planned capital expenditures and REIT dividend requirements for at least the next 12 months.

Management reported improving traffic, tenant sales and collections, with several metrics at or above pre-pandemic levels. Approximately 99% of 2020 deferred rents had been collected by the end of 2021.
COVID-19 effects remain uncertain and could affect tenant sales, occupancy, rent collections, liquidity, capital-market access and property valuations.
Inflation, labor shortages, supply-chain disruptions and rising interest rates could pressure retailers, operating costs and leasing activity.
Approximately 2.1 million square feet, or 17% of the total portfolio including joint ventures, was scheduled for renewal during 2022. As of April 30, 2022, renewals executed or in process covered 52.4% of that space.
Foxwoods continues to face leasing challenges, and additional impairment charges could result if occupancy, cash flows or expected holding periods deteriorate.
The company has exposure to variable-rate debt and the transition away from LIBOR. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $0.4 million, while a 100-basis-point increase in prevailing rates would reduce the estimated fair value of debt by approximately $55.8 million.
The company guaranteed up to $21.9 million of unconsolidated joint-venture debt and provides additional customary guarantees and indemnifications.

Important Facts for Investors to Verify

Whether higher occupancy, tenant sales and leasing spreads persist as 2022 lease renewals and tenant demand progress.
The sustainability of revenue growth given the approximately $3.0 million Q1 2022 revenue reserve reversal and higher lease termination fees.
Liquidity and refinancing plans for the $300.0 million term loan maturing in April 2024 and other scheduled maturities.
Exposure to rising interest rates, LIBOR replacement and potential covenant pressure.
Potential impairment risk at Foxwoods and other properties affected by vacancies, tenant closures or weaker cash flows.
The timing, funding and expected returns of the potential Nashville development and other future projects.
The effect of COVID-19, inflation, labor constraints and supply-chain disruptions on retailers, rent collections and occupancy.
FFO and Core FFO reconciliations and adjustments, which are non-GAAP measures and should not be treated as a substitute for GAAP cash flow or earnings.