Tanger Factory Outlet Centers, Inc. - Q1 2006 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Tanger Factory Outlet Centers, Inc., a fully-integrated REIT focused on factory outlet shopping centers. The reporting period covers the three months ended March 31, 2006. As of this date, the Company owned 29 centers with approximately 8.0 million square feet of gross leasable area (GLA), operating at 95% occupancy.
Key Financial Metrics
| Metric | Q1 2006 | Q1 2005 |
|---|---|---|
| Total Revenues | $48.2 million | $47.0 million |
| Net Income | $14.8 million | ($2.9 million) Loss |
| Net Income Available to Common Shareholders | $13.6 million | ($2.9 million) Loss |
| Diluted EPS | $0.44 | ($0.11) |
| Funds From Operations (FFO) | $20.1 million | $14.5 million |
| FFO Available to Common Shareholders | $18.9 million | $14.5 million |
| Operating Cash Flow | $16.2 million | $17.8 million |
| Total Debt | $649.4 million | $663.6 million |
| Cash and Equivalents | $2.2 million | $6.5 million |
Material Changes vs. Prior Period
- Discontinued Operations: The significant improvement in Net Income is primarily driven by discontinued operations. The Company sold two centers (Pigeon Forge, TN and North Branch, MN) in Q1 2006, recording a gain of $13.8 million. In contrast, Q1 2005 included a $3.8 million loss on the sale of the Seymour, IN center.
- Continuing Operations: Income from continuing operations was $3.1 million in Q1 2006 compared to $0.7 million in Q1 2005. This increase was due to higher base rentals (up 6%) and percentage rentals (up 32%), partially offset by increased depreciation ($3.2 million increase) and interest expense ($1.8 million increase) following the November 2005 acquisition of the remaining interest in COROC Holdings.
- Capital Structure: The Company issued 800,000 Class C Preferred Shares in February 2006, raising $19.5 million to repay unsecured lines of credit. Total debt decreased slightly due to repayments exceeding new issuances in the quarter.
Outlook, Risks, and Management Commentary
- Development Pipeline: Construction is underway for a new center in Charleston, SC (opening Q3 2006) and a joint venture in Wisconsin Dells (opening Q3 2006). An option to purchase land for a center near Pittsburgh, PA is also active.
- Leasing Activity: The Company renewed 54% of the space scheduled to expire in 2006 at an average 12% rent increase. Re-tenanting of vacant space occurred at a 21% rent increase.
- Liquidity: The Company maintains $150 million in unsecured revolving credit facilities and has approximately $275 million remaining capacity under its shelf registration for future debt or equity issuance.
- Risks: Management notes risks related to tenant bankruptcies, the ability to renew leases on favorable terms (1.76 million sq. ft. expiring in 2006), and interest rate fluctuations on variable-rate debt. There is ongoing litigation regarding lease payments for the Deer Park, NY joint venture property.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by analyzing Funds From Operations (FFO) and income from continuing operations, as Q1 2006 Net Income is heavily influenced by one-time property sale gains.
- Debt Maturities: Review the maturity schedule of the $649 million debt portfolio, noting that 69% is unsecured and the average interest rate is 6.82%.
- Development Commitments: Confirm the $20.3 million in construction commitments for the Charleston project and the $8.4 million for the Wisconsin Dells joint venture.
- Preferred Share Obligations: Note the quarterly dividend obligation on 3 million Class C Preferred Shares ($1.875 annual dividend per share).
- Joint Venture Guarantees: Assess the off-balance sheet exposure related to joint and several guarantees on the Wisconsin Dells ($30.25M loan) and Deer Park ($19M loan) construction loans.