Tanger Inc. 2011 Q3 Form 10-Q Summary
Business context and reporting period
Unaudited results for the three and nine months ended September 30, 2011, for Tanger Factory Outlet Centers, Inc. and its operating subsidiary, Tanger Properties Limited Partnership. Tanger is a self-managed REIT focused on developing, acquiring, owning and operating outlet shopping centers. At quarter-end, the consolidated portfolio comprised 36 centers in 24 states totaling approximately 10.7 million square feet, with 98% occupancy at consolidated centers.
Key financial metrics
| Metric | Three months ended Sept. 30, 2011 | Three months ended Sept. 30, 2010 | Nine months ended Sept. 30, 2011 | Nine months ended Sept. 30, 2010 |
|---|---|---|---|---|
| Total revenue | $83.2 million | $69.5 million | $226.1 million | $200.8 million |
| Operating income | $26.2 million | $23.7 million | $69.7 million | $54.8 million |
| Net income | $14.2 million | $14.8 million | $35.9 million | $23.1 million |
| Net income attributable to Tanger | $12.5 million | $13.0 million | $31.3 million | $20.7 million |
| Diluted EPS | $0.14 | $0.14 | $0.37 | $0.20 |
| FFO available to common shareholders and OP unitholders | $37.9 million | $31.1 million | $97.1 million | $82.2 million |
| FFO per share | $0.39 | $0.34 | $1.02 | $0.89 |
Operating margin was approximately 31.5% in the quarter and 30.8% for the nine-month period. Net margin was approximately 17.1% in the quarter and 15.9% for the nine-month period. Same-center NOI on a cash basis increased to $47.4 million for the quarter and $134.2 million for the nine months, compared with $45.1 million and $127.9 million, respectively.
- Net cash provided by operating activities was $104.8 million for the first nine months, compared with $97.2 million in 2010.
- Net cash used in investing activities was $322.6 million, including $262.5 million for property acquisitions and $44.9 million for rental-property additions.
- Net cash provided by financing activities was $215.7 million, including $485.4 million of debt issuances and $117.5 million of net common-share offering proceeds, partially offset by $330.6 million of debt repayments.
- Cash and cash equivalents totaled $3.7 million at September 30, 2011, compared with $5.8 million at December 31, 2010.
- Total debt was $982.2 million, up from $714.6 million at December 31, 2010. Debt consisted primarily of $547.7 million of senior unsecured notes, a $150.0 million bridge loan, $112.2 million of mortgages and $172.3 million drawn on unsecured lines of credit.
- Approximately 89% of outstanding debt was unsecured and 90% of the gross book value of real estate was unencumbered. Available unsecured credit capacity was $400 million, of which $172.3 million was drawn.
- Common dividends paid were $0.2000 per share in the third quarter and $0.5938 per share for the first nine months.
Material changes versus the prior comparable period
- Third-quarter revenue increased 19.8%, primarily from higher base rentals, new developments and acquisitions. Nine-month revenue increased 12.6%.
- Third-quarter base rentals increased 23% to $55.0 million; percentage rentals increased 41% to $2.7 million. Nine-month base rentals increased 13% and percentage rentals increased 22%.
- Reported tenant comparable sales for wholly owned properties increased 3.5% to $362 per square foot for the rolling twelve months ended September 30, 2011.
- Third-quarter net income declined slightly despite higher revenue because operating expenses increased $11.3 million and interest expense increased $3.2 million. The nine-month net income increase benefited from revenue growth and the absence of 2010 losses on derivative termination and debt extinguishment totaling approximately $6.7 million.
- Interest expense increased 36% in the quarter and 34% for the nine months, reflecting higher average debt balances used to fund acquisitions, development and other corporate purposes.
- Property operating expenses increased 12% in the quarter and 10% for the nine months. General and administrative expense increased 24% and 23%, respectively, partly because of higher share-based compensation, payroll and joint-venture formation costs.
- The company acquired Jeffersonville, Ohio; Atlantic City, New Jersey; Ocean City, Maryland; and Hershey, Pennsylvania. The acquisitions added approximately 1.3 million square feet and were funded with debt, credit facilities and equity proceeds.
- The company completed the Hilton Head I, South Carolina redevelopment and continued development joint ventures in Texas City, Texas, National Harbor and Canada.
Guidance, outlook, risks and unusual items
- Management stated that operating cash flow, existing credit facilities and access to debt and equity markets were expected to fund planned 2011 and 2012 capital expenditures, regular debt service and dividends. No quantitative earnings guidance was provided.
- Management expects to remain in compliance with debt covenants. Reported covenant metrics were debt to adjusted total assets of 46% versus a maximum of 60%, secured debt to adjusted total assets of 5% versus a maximum of 40%, and unencumbered assets to unsecured debt of 216% versus a minimum of 135%.
- The $150.0 million bridge loan matured in December 2011, with two 90-day extension options available through June 2012. Debt maturities included $150.6 million in 2011 and $176.9 million in 2013.
- Approximately 33% of debt carried variable interest rates. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $2.9 million.
- The Deer Park unconsolidated joint venture was in default on loans with principal balances of $252.0 million senior and $15.0 million mezzanine debt. Non-binding term sheets contemplated a three-year extension and a $20.0 million senior-loan paydown, of which Tanger expected to fund approximately $6.7 million. The renewal was expected in the fourth quarter of 2011, but completion was not assured.
- Management identified tenant bankruptcies, early lease terminations, renewal and re-leasing risk, changing retail conditions, capital-market access, interest-rate fluctuations and development or acquisition execution as material risks. No material changes to the risk factors in the 2010 Form 10-K were reported.
- The filing reported no material litigation and no material changes to internal controls. The Commerce I, Georgia disposition was completed, and 2011 results contained no discontinued-operations loss.
- On October 6, 2011, after the reporting date, the board declared a $0.20 per-share dividend payable November 15, 2011.
Most important facts for investors to verify
- Whether the Deer Park refinancing and required approximately $6.7 million Tanger capital contribution were completed as planned.
- How the December 2011 bridge-loan maturity was refinanced, repaid or extended, and the effect on leverage and interest expense.
- Post-acquisition occupancy, tenant sales and lease-up performance at Jeffersonville, Atlantic City, Ocean City and Hershey.
- Whether operating cash flow and available credit remain sufficient to fund dividends, capital expenditures, development commitments and debt maturities.
- The sustainability of comparable-sales growth, renewal spreads and re-leasing economics given the portfolio’s short lease durations.
- The effect of variable-rate debt and future capital-market conditions on interest expense and liquidity.
- The assumptions and limitations underlying FFO, AFFO and same-center NOI, which are supplemental non-GAAP measures and are not substitutes for GAAP results.