Tanger Inc. 2020 Form 10-K Summary
Business context and reporting period
Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership jointly filed this Form 10-K for the fiscal year ended December 31, 2020. Tanger is a self-managed REIT focused on developing, owning and operating outlet shopping centers through the Operating Partnership. The consolidated portfolio comprised 31 centers totaling approximately 11.9 million square feet in 19 states, with 92% occupancy and more than 2,200 stores representing approximately 400 brands. Tanger also held interests in seven unconsolidated centers totaling approximately 2.2 million square feet, including three in Canada.
Results were materially affected by COVID-19-related store closures, rent concessions, tenant bankruptcies, reduced traffic and lower occupancy. The filing presents consolidated results for both the public Company and the Operating Partnership; the Operating Partnership holds substantially all assets and debt.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenues | $390.0 million | $478.3 million | Down $88.4 million |
| Rental revenues | $377.9 million | $463.9 million | Down $86.0 million |
| Net income (loss) | $(38.0) million | $92.7 million | Down $130.7 million |
| Net loss available to common shareholders | $(37.0) million | $86.5 million | Down $123.5 million |
| Diluted EPS | $(0.40) | $0.93 | Declined $1.33 |
| FFO available to common shareholders | $154.1 million | $221.7 million | Down $67.6 million |
| Core FFO available to common shareholders | $153.7 million | $226.1 million | Down $72.4 million |
| Same Center NOI | $248.0 million | $307.9 million | Down $59.9 million |
| Adjusted EBITDA | $209.8 million | $279.9 million | Down $70.1 million |
| Net cash provided by operating activities | $164.7 million | $220.5 million | Down $55.7 million |
Rental revenue consisted of $289.7 million of fixed rent and $88.3 million of variable rent, which primarily includes percentage rent and expense reimbursements. The filing attributes approximately $47.3 million of negative earnings impact to COVID-19-related tenant bankruptcies, uncollectible accounts, rent concessions, reserves and straight-line rent write-offs.
Year-end cash and cash equivalents were $84.8 million, compared with $16.7 million at December 31, 2019. Total assets were $2.19 billion and total equity was $358.9 million. Real estate assets before depreciation were $2.79 billion, with net rental property of $1.74 billion.
Debt, liquidity and capital resources
- Total debt was $1.568 billion at December 31, 2020, consisting primarily of $1.141 billion of senior unsecured notes, a $347.4 million unsecured term loan and $79.9 million of mortgages.
- The Company had no borrowings under its $600.0 million unsecured revolving credit facilities at year-end. It drew approximately $599.8 million in March 2020 and repaid the full amount between June and August.
- Total liquidity was approximately $684.8 million, including cash and unused revolving credit capacity. Management estimated monthly 2021 cash expenditures of approximately $26.1 million, excluding dividends and debt maturities.
- Debt maturities included approximately $57.2 million in 2021, $254.8 million in 2023 and $605.1 million in 2024. The revolving credit facilities mature in October 2021, with a one-year extension option to October 2022.
- As of year-end, covenant metrics were reported as compliant, including total consolidated debt to adjusted total assets of 46%, total liabilities to adjusted asset value of 36%, EBITDA to fixed charges of 3.4x and unencumbered interest coverage of 3.8x.
- Capital expenditures were $28.6 million on a cash basis, down from $47.9 million in 2019. The Nashville pre-development project and certain other planned expenditures were deferred.
Material changes versus the prior comparable period
- Occupancy declined to 91.9% at December 31, 2020 from 97.0% at December 31, 2019. Average annual base rent per square foot declined to $21.10 from $25.35.
- Approximately 903,000 square feet was recaptured during 2020 from retailer bankruptcies and brand-wide restructurings, compared with 198,000 square feet in 2019.
- Renewals and re-leasing completed during 2020 covered approximately 1.5 million square feet at a blended 6.7% decrease in average base rental rates versus expiring leases.
- The Company recorded $67.2 million of consolidated impairment charges in 2020, including $64.9 million related to Foxwoods and $2.4 million related to Jeffersonville. It also recorded its $3.1 million share of an impairment at the Saint-Sauveur Canadian joint venture.
- In August 2020, Tanger sold the Terrell, Texas outlet center for net proceeds of $7.6 million and a $2.3 million gain. This compares with approximately $128.5 million of 2019 property-sale proceeds and a $43.4 million gain from four outlet centers sold in March 2019.
- Dividends were suspended after the first and second quarters to conserve approximately $35.0 million per quarter. The Board reinstated dividends in January 2021 at $0.1775 per share, paid in February 2021.
- Share repurchases were suspended under amended debt agreements and for liquidity preservation. No shares were repurchased in 2020, leaving approximately $80.0 million authorized under the program.
- Management changes included Stephen Yalof becoming CEO on January 1, 2021, while Steven B. Tanger became Executive Chair.
Guidance, outlook, commentary and risks
Management did not provide a quantified 2021 earnings or revenue outlook. It stated that the effect of COVID-19 on 2021 rental revenue, cash flows and operating results could not be determined and would depend on the duration and severity of the pandemic, government restrictions, vaccines and treatments, variants, consumer behavior and tenant financial condition.
- As of December 31, 2020, 99.9% of occupied stores, leased square footage and annualized base rent had reopened. Fourth-quarter traffic was approximately 90% of prior-year levels and January domestic traffic, excluding Canadian centers, exceeded 99% of prior-year levels.
- Management expected approximately 50 additional stores, representing approximately 200,000 square feet, to close primarily during the first half of 2021. The ultimate effects on occupancy, rent spreads and termination fees remained uncertain.
- Approximately 1.7 million square feet, or 15% of the consolidated portfolio, was scheduled to expire in 2021. Lower renewals, co-tenancy provisions and sales-based rent clauses could further pressure revenue.
- Key risks include additional tenant bankruptcies, rent collection shortfalls, further impairment charges, reduced consumer spending, e-commerce competition, refinancing and covenant compliance risk, interest-rate and LIBOR transition risk, joint-venture debt guarantees, Canadian currency exposure, climate and insurance risks, and the possibility of uninsured losses.
- The Company guaranteed up to $21.9 million of unconsolidated joint-venture debt as of December 31, 2020. In February 2021, the Galveston/Houston joint venture extended its loan maturity to July 2023 after reducing principal from $80.0 million to $64.5 million.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Critical audit matters included property impairment, joint-venture investment impairment and collectibility of operating lease receivables.
Most important facts for investors to verify
- Whether occupancy, traffic, rent collections and tenant sales recover sufficiently to support 2021 rental revenue and Same Center NOI.
- The amount and timing of additional tenant bankruptcies, store closures, rent concessions and lease modifications.
- Refinancing or extension plans for the October 2021 revolving credit maturity and the ability to address the 2023 and 2024 debt maturities.
- Whether covenant compliance remains intact as COVID-19 effects, impairments and lower operating income flow through covenant calculations.
- Potential additional impairments at Foxwoods, Atlantic City, Jeffersonville or unconsolidated joint ventures.
- The sustainability of the reinstated $0.1775 quarterly dividend in light of cash flow, debt requirements, REIT distribution rules and lender restrictions.
- Collectibility of deferred and under-negotiation rents, including the $8.3 million receivable balance identified as having significant uncertainty.
- The effect of lease expirations, declining renewal spreads and co-tenancy provisions on future occupancy and rent growth.