SKT

Tanger Factory Outlet Centers, Inc. - 10-Q Summary

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Tanger Factory Outlet Centers, Inc. for the period ended September 30, 2006. The Company is a fully-integrated, self-administered REIT focused on developing, acquiring, owning, and operating factory outlet shopping centers. As of the reporting date, the Company owned 30 centers with approximately 8.4 million square feet of gross leasable area (GLA), operating at 96.0% occupancy.

Key Financial Metrics (Nine Months Ended Sept 30, 2006)

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 5.5% year-over-year, driven by a 5% increase in base rentals due to lease renewals, re-tenanting, and the opening of the Charleston, SC center. Other income rose 43% due to joint venture fees and outparcel sales.
• Profitability Surge: Net income increased significantly ($23.6 million) primarily due to a $13.8 million gain on the sale of real estate (Pigeon Forge, TN and North Branch, MN) recorded in discontinued operations. Excluding discontinued operations, income from continuing operations was $16.8 million.
• Expense Increases: Interest expense rose 27% ($6.5 million) due to higher debt levels from recent unsecured note offerings. Depreciation and amortization increased 20% ($7.2 million) largely due to the November 2005 acquisition of the COROC joint venture.
• Debt Restructuring: In August 2006, the Company issued $149.5 million of 3.75% exchangeable senior unsecured notes. Proceeds were used to repay higher-cost mortgage debt and unsecured lines of credit, lowering the weighted average interest rate despite higher total debt.
• Liquidity: Cash and cash equivalents increased to $20.2 million from $2.9 million, bolstered by excess proceeds from the August 2006 debt offering.

Guidance, Outlook, and Risks

• Development Pipeline: The Charleston, SC center opened in August 2006 at 80.5% occupancy. A new development site near Pittsburgh, PA was purchased in October 2006, with an expected opening in Q1 2008.
• Leasing Outlook: Approximately 21% of the portfolio (1.76 million sq. ft.) is scheduled for renewal in 2006. As of Sept 30, 79% of expiring space had been renewed at an average base rental rate increase of 8.5%. Re-tenanted vacant space saw a 16.3% rate increase.
• Joint Venture Risks: The Deer Park, NY joint venture is involved in litigation regarding a sale-leaseback transaction with a tenant who vacated in 2005. The venture has ceased accruing rental revenue from this tenant due to uncertainty.
• Market Risk: The Company utilizes interest rate locks and swaps to hedge against rising rates. A 1% increase in interest rates would decrease the fair value of long-term debt by approximately $44.3 million.
• Dividends: The Board declared a $0.34 cash dividend per common share payable November 15, 2006.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the sustainability of earnings by analyzing results excluding the $13.8 million one-time gain on property sales.
• Debt Maturity Profile: Review the maturity dates of the new $149.5 million exchangeable notes (2026) and the remaining mortgage debt to assess refinancing risks.
• Joint Venture Guarantees: Assess the exposure related to the joint and several guarantees on the Wisconsin Dells ($26.2M) and Deer Park ($30.6M) construction loans.
• Lease Renewal Rates: Monitor the success of renewing the remaining 21% of the portfolio expiring in 2006 to ensure rental rate growth targets are met.
• Preferred Share Obligations: Note the issuance of 800,000 additional 7.5% Class C Preferred Shares, increasing annual dividend obligations.