Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc. (Tanger Inc.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 2003
Business Overview: A fully-integrated REIT developing, owning, and operating factory outlet centers. As of June 30, 2003, the company operated 33 centers in 20 states totaling 6.2 million square feet, with a portfolio occupancy rate of 96%.
Key Financial Metrics
| Metric (in thousands) | Six Months Ended June 30, 2003 |
Six Months Ended June 30, 2002 |
|---|---|---|
| Total Revenues | $58,738 | $53,224 |
| Net Income | $4,498 | $3,539 |
| Net Income Available to Common Shareholders | $3,692 | $2,653 |
| Diluted EPS (Net Income) | $0.38 | $0.33 |
| Funds from Operations (FFO) | $21,267 | $18,310 |
| Net Cash Provided by Operating Activities | $21,469 | $15,551 |
| Total Debt Outstanding | $332,587 | $345,005 |
| Cash and Cash Equivalents | $203 | $1,072 |
Dividends: $1.23 per common share paid for the six months ended June 30, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10.4% to $58.7 million, driven by an 8% increase in base rentals due to the acquisition of the Howell, Michigan center and an expansion in Sevierville, Tennessee.
- Profitability: Net income increased 27% to $4.5 million. Income from continuing operations rose to $5.1 million from $2.7 million.
- Discontinued Operations: The 2003 period included a $735,000 loss on the sale of the Martinsburg, West Virginia property, whereas the 2002 period included gains from the sale of properties in Florida and Massachusetts.
- Debt Reduction: Total debt decreased by approximately $12.4 million. Interest expense declined 7% due to lower outstanding debt balances and lower average interest rates.
- Preferred Shares: The company redeemed all outstanding Series A Preferred Shares in June 2003. Approximately 98% of holders converted to common stock, while the remainder was redeemed for cash.
Outlook, Risks, and Management Commentary
- Development & Acquisitions: Construction is underway on a 35,000 sq. ft. expansion in Sevierville, TN, and the second phase of the Myrtle Beach, SC joint venture (49,000 sq. ft.) opened in Q2 2003.
- Leasing Activity: As of June 30, 2003, 73% of the 1.07 million sq. ft. scheduled for renewal in 2003 had been renewed at an average base rental rate 1% higher than expiring rates. Vacant space re-tenanted in the first half of 2003 saw a 3% rent increase.
- Liquidity: The company maintains $85 million in unsecured revolving lines of credit and a shelf registration for up to $400 million in debt or equity. Management believes cash flow and existing facilities are sufficient to fund planned capital expenditures and dividends.
- Risks: Key risks include the ability to renew leases on favorable terms, tenant bankruptcies, and the potential requirement to consolidate the Myrtle Beach joint venture under new accounting rules (FIN 46).
- Accounting Changes: The company adopted FAS 123 for stock-based compensation in 2003, though the pro forma impact on net income was negligible.
Investor Verification Checklist
- Debt Structure: Verify the impact of the $28.7 million construction loan on the Myrtle Beach joint venture and the joint and several guarantee obligations.
- Lease Renewals: Monitor the remaining 27% of 2003 lease expirations to ensure renewal rates and rental rates meet projections.
- Discontinued Operations: Confirm the final tax and financial impact of the Martinsburg, WV property sale loss.
- Capital Expenditures: Track the completion and leasing velocity of the Sevierville, TN expansion and Myrtle Beach, SC Phase II.
- FIN 46 Compliance: Review future filings for potential consolidation of the Myrtle Beach joint venture, which could alter reported debt and asset levels.