Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc.
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2010
Business Overview: A fully-integrated REIT focused on developing, acquiring, owning, and operating outlet shopping centers. As of March 31, 2010, the company owned and operated 31 wholly-owned outlet centers totaling approximately 9.1 million square feet with 95% occupancy. The company also holds partial ownership interests in two additional joint venture centers.
Key Financial Metrics
| Metric | Q1 2010 | Q1 2009 |
|---|---|---|
| Total Revenues | $66.2 million | $65.2 million |
| Net Income (GAAP) | $3.0 million | $36.5 million |
| Net Income Attributable to Tanger | $2.8 million | $30.8 million |
| Diluted EPS | $0.03 | $0.92 |
| Funds From Operations (FFO) | $30.7 million | $26.4 million |
| FFO Available to Common Shareholders | $29.0 million | $24.7 million |
| Operating Cash Flow | $28.7 million | $30.5 million |
| Total Debt | $584.8 million | $584.6 million |
| Cash and Equivalents | $3.2 million | $3.1 million |
Material Changes vs. Prior Period
- Net Income Decline: Net income dropped significantly from $36.5 million in Q1 2009 to $3.0 million in Q1 2010. The 2009 period included a one-time gain of $31.5 million from the fair value measurement of a previously held interest in an acquired joint venture, which was absent in 2010.
- Depreciation Increase: Depreciation and amortization expenses rose 30% to $26.5 million. This was driven by a $9.2 million charge to fully depreciate the Hilton Head I, SC outlet center, which was vacated for redevelopment.
- Impairment Charge: A non-cash impairment charge of $0.7 million was recorded for land parcels in Seymour, Indiana, classified as "held for sale."
- Interest Expense Reduction: Interest expense decreased 29% to $7.9 million due to a significant reduction in average debt outstanding following equity transactions in 2009.
- FFO Growth: Despite the GAAP net income decline, FFO increased to $30.7 million (up from $26.4 million), reflecting the exclusion of the one-time 2009 gain and the impact of depreciation adjustments.
Outlook, Commentary, and Risks
- Dividend Increase: The Board approved an increase in the annual common share dividend from $1.53 to $1.55 per share, marking the 17th consecutive year of increases. A quarterly dividend of $0.3875 was declared.
- Development Pipeline: Construction continues on a new 317,000 sq. ft. center in Mebane, NC, scheduled to open for the 2010 holiday season. The company terminated an option for a new site in Irving, Texas, resulting in an expected $0.4 million write-off in Q2 2010.
- Liquidity and Debt: The company maintains $325 million in unsecured lines of credit. All outstanding debt is unsecured, and 100% of the real estate portfolio is unencumbered. The company is in compliance with all debt covenants.
- Market Risks: The company faces risks related to interest rate fluctuations on variable-rate debt (approximately 16% of total debt) and the ability to re-lease space as leases expire. Approximately 16% of the portfolio is up for renewal in 2010.
- Joint Ventures: The company holds interests in Deer Park (33.3%) and Wisconsin Dells (50%). Deer Park is classified as a Variable Interest Entity (VIE) but is not consolidated as the company is not the primary beneficiary.
Investor Verification Checklist
- One-Time Gains: Verify the impact of the $31.5 million gain in Q1 2009 on year-over-year net income comparisons; FFO is a more stable metric for this period.
- Redevelopment Costs: Monitor the capital expenditure requirements and timeline for the Hilton Head I redevelopment, which caused a significant non-cash depreciation charge.
- Debt Maturities: Confirm the status of the $235 million term loan and the $325 million credit facility, with no significant maturities until 2011.
- Occupancy Trends: Track the re-leasing success of the 1.5 million square feet coming up for renewal in 2010, particularly given the economic environment.
- Joint Venture Exposure: Review the debt levels and occupancy of the Deer Park joint venture ($267.2 million total debt), where the company has a 33.3% interest and limited guarantee obligations.