Tanger Factory Outlet Centers, Inc. - 2009 Annual Report (10-K) Summary
Business Context and Reporting Period
This report covers the fiscal year ended December 31, 2009. Tanger Factory Outlet Centers, Inc. is a fully-integrated, self-administered Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating outlet shopping centers. As of year-end, the Company owned and operated 31 wholly-owned outlet centers totaling approximately 9.2 million square feet across 21 states, with an occupancy rate of 96%. The Company also held partial ownership interests in two additional centers.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Total Revenues | $271.7 million | $245.4 million |
| Net Income | $67.5 million | $29.7 million |
| Net Income Available to Common Shareholders | $58.0 million | $25.8 million |
| Diluted EPS | $1.44 | $0.62 |
| Funds From Operations (FFO) | $120.9 million | $94.8 million |
| Operating Cash Flow | $127.3 million | $97.0 million |
| Total Debt | $584.6 million | $786.9 million |
| Debt to Adjusted Total Assets | 36% | Not provided |
| Cash and Equivalents | $3.3 million | $5.0 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 11% to $271.7 million, driven by a 10% increase in base rentals due to new developments, expansions, and the acquisition of the Myrtle Beach Hwy 17 center. Expense reimbursements rose 9%.
- Profitability Surge: Net income more than doubled to $67.5 million. This was significantly aided by a $31.5 million gain on the fair value measurement of a previously held interest in the Myrtle Beach joint venture and a $10.5 million gain on the early extinguishment of exchangeable debt.
- Debt Reduction: Total debt decreased by approximately $202 million (26%) to $584.6 million. The Company retired $142.3 million of exchangeable notes via an equity exchange and used $116.8 million in proceeds from a common share offering to repay unsecured lines of credit.
- Impairment Charge: The Company recorded a $5.2 million non-cash impairment charge related to the Commerce I, GA outlet center due to deteriorating net operating income and expected occupancy declines.
- Depreciation Increase: Depreciation and amortization expenses increased 29% to $80.5 million, largely due to the consolidation of new properties and accelerated depreciation on the Hilton Head I center pending redevelopment.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management believes 2009 financing activities strengthened the balance sheet. The primary focus for 2010 is to strengthen capital and liquidity by controlling costs, generating positive operating cash flow to cover dividends, and reducing outstanding debt. The Company expects to fund planned capital expenditures through operating cash flows and existing credit facilities.
Development Pipeline:
- Mebane, NC: Construction began on a new 317,000 sq. ft. center (73% pre-leased), expected to open for the 2010 holiday season.
- Hilton Head I, SC: Redevelopment approved; demolition expected in Q2 2010 with reopening in H2 2011. Closure is expected to decrease 2010 net income by approximately $2.0 million.
Risks and Contingencies:
- Capital Markets: Uncertainty regarding affordable access to capital between now and 2011, when significant debt maturities occur.
- Economic Conditions: Weakness in the U.S. economy negatively impacted tenant sales and percentage rentals. Re-leasing vacant space may take longer or yield lower rent increases.
- Joint Venture Debt: Significant exposure to debt in unconsolidated joint ventures (Deer Park, NY and Wisconsin Dells, WI), including guarantees totaling over $100 million.
Key Facts for Investor Verification
- Debt Maturities: Verify the Company's ability to refinance or repay approximately $300 million in debt maturing in 2011, given the uncertainty in credit markets.
- Non-GAAP Gains: Assess the sustainability of earnings by excluding the one-time $31.5 million gain on the Myrtle Beach acquisition and the $10.5 million debt extinguishment gain.
- Impairment Risks: Monitor the Commerce I, GA center and other underperforming assets for potential future impairment charges.
- Joint Venture Exposure: Review the financial health of the Deer Park joint venture, which carries significant leverage ($267.2 million total debt) and is currently in litigation regarding a former tenant.
- Dividend Coverage: Confirm that Funds From Operations (FFO) continue to cover the required REIT distributions, noting that dividends paid ($53.7 million) exceeded taxable income requirements.