Tanger Inc. 2022 Form 10-K Summary
Business context and reporting period
This combined Form 10-K covers Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership for the fiscal year ended December 31, 2022. Tanger is a self-managed REIT focused on developing, owning, operating and managing outlet shopping centers. The Operating Partnership owns the properties, conducts operations and holds substantially all debt.
At year-end, the consolidated portfolio included 29 outlet centers totaling approximately 11.4 million square feet, more than 2,200 stores and approximately 600 brands. Consolidated occupancy was 97%, compared with 95% at December 31, 2021. Tanger also held 50% interests in six unconsolidated outlet centers totaling approximately 2.1 million square feet and managed one additional center in Palm Beach, Florida.
Financial and operating metrics
| Metric | 2022 | 2021 | Change or commentary |
|---|---|---|---|
| Total revenues | $442.6 million | $426.5 million | Up $16.1 million |
| Rental revenues | $421.4 million | $407.8 million | Up $13.7 million |
| Net income | $85.8 million | $9.6 million | Improved primarily because 2021 included debt-extinguishment and impairment charges |
| Net income attributable to Tanger | $82.1 million | $9.1 million | Diluted EPS was $0.77 versus $0.08 |
| Funds from operations available to common shareholders | $201.5 million | $138.1 million | Diluted FFO per share was $1.83 versus $1.29 |
| Core FFO available to common shareholders | $201.8 million | $188.4 million | Diluted Core FFO per share was $1.83 versus $1.76 |
| Same Center NOI | $298.1 million | $283.5 million | Up $14.6 million, or approximately 5.2% |
| Net cash from operating activities | $214.0 million | $217.7 million | Down $3.7 million |
| Capital expenditures, cash basis | $77.3 million | $45.2 million | Up $32.1 million, driven largely by Nashville |
| Total debt | $1.428 billion | $1.397 billion | Increased primarily from term-loan and Southaven mortgage borrowings |
| Liquidity | $784.6 million | Not clearly provided in the filing text | Includes $264.6 million of cash, cash equivalents and short-term investments plus $520 million of undrawn credit capacity |
| Common dividend per share | $0.8025 | $0.7150 | Approximately 12% increase |
Rental revenue consisted of $319.2 million of fixed rent and $102.2 million of variable rent, including percentage rents and expense reimbursements. Average annual base rent was $25.25 per square foot in 2022 versus $23.79 in 2021. Executed comparable leasing produced a 10.1% rent spread in 2022 versus negative 0.6% in 2021.
Year-end assets totaled $2.218 billion, including $1.631 billion of net rental property. Approximately 95% of consolidated debt was unsecured, and 92% of the gross book value of the real estate portfolio was unencumbered. Interest expense declined to $47.0 million from $52.9 million.
Material changes versus the prior comparable period
- Occupancy improved, rental rates increased and same-center NOI grew, supported by recovery in tenant sales and collections.
- Net income benefited from the absence of the $47.9 million loss on early extinguishment of debt and the $7.0 million Foxwoods impairment recorded in 2021.
- 2022 included a $3.2 million gain on the sale of the Blowing Rock, North Carolina center for $12.4 million of net proceeds.
- Property operating expenses increased $3.2 million, primarily due to higher property insurance and real estate taxes.
- General and administrative expense increased $5.7 million; 2022 included $2.4 million of executive severance costs.
- Depreciation and amortization increased $1.9 million, including $4.4 million of incremental depreciation from shortening the estimated useful lives of solar assets from 20 years to 10 years.
- Cash used in investing activities increased to $98.8 million from $22.7 million, mainly because of Nashville land acquisition and construction costs and increased short-term investments.
- The Company did not issue shares under its ATM program in 2022 and did not repurchase shares. Approximately $60.1 million remained available under the ATM program and $80.0 million remained available under the share repurchase authorization.
Guidance, outlook, risks and unusual items
Tanger expects approximately $210 million of 2023 capital expenditures, including approximately $110 million to complete the Nashville center. The approximately 290,000-square-foot Nashville center is expected to open in the third quarter of 2023, with an estimated total cost of $142 million to $150 million and projected stabilized yield of 7.0% to 7.5%. Costs incurred through December 31, 2022 were $36.0 million.
Management stated that it expects sufficient liquidity to fund planned 2023 capital expenditures, operating expenses, debt service and REIT-required distributions. The next significant consolidated debt maturity is the $350 million senior note due September 2026. Scheduled consolidated debt maturities and principal amortization are $4.8 million in 2023, $5.1 million in 2024, $1.5 million in 2025, $407.4 million in 2026 and $625.0 million in 2027, with $400.0 million thereafter.
In October 2022, the $325 million unsecured term loan was amended to extend maturity to January 2027, with a one-year extension option, and its rate was converted from LIBOR plus 1.25% to adjusted SOFR plus 1.20%. The Southaven mortgage was increased to $51.7 million and extended to October 2026, with a one-year extension option. The Company also converted its unsecured credit facilities from LIBOR to adjusted SOFR.
- Key risks include rising interest rates, inflation, tenant sales declines, retailer bankruptcies, lease expirations, co-tenancy provisions, supply-chain and labor pressures, and limited access to capital markets.
- Approximately 1.7 million square feet, or 14% of the total portfolio including Tanger's share of unconsolidated joint ventures, is scheduled for renewal during 2023.
- One outlet center has an estimated fair value significantly below its approximately $113 million carrying value, although management concluded that the carrying amount remained recoverable under its current plans. Future impairment charges remain possible.
- Unconsolidated joint ventures had approximately $329 million of debt at year-end; Tanger's maximum guaranteed amount was $10 million. The Galveston/Houston joint venture had $64.5 million of debt maturing in July 2023.
- Interest-rate swaps with total notional amounts of $300 million were outstanding. Management estimated that a 100-basis-point change in SOFR would affect annual interest expense by approximately $0.8 million.
- COVID-19-related operating impacts improved materially in 2021 and 2022, and 99% of deferred 2020 rents had been collected through year-end 2022. A renewed wave of store closures could materially affect results.
- Management reported compliance with all debt covenants at December 31, 2022. Deloitte & Touche issued unqualified audit opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the filing's average occupancy references: average portfolio occupancy for 2022 is presented as 95% in the results discussion, while year-end consolidated occupancy is 97%.
- Review 2023 leasing progress, particularly the approximately 1.7 million square feet scheduled to expire and renewal coverage reported as of January 31, 2023.
- Evaluate funding requirements and execution risk for the Nashville development, including the expected $110 million of 2023 development spending and projected yield.
- Assess refinancing and interest-rate exposure around the 2026 and 2027 debt maturities, including the variable-rate term loan, mortgages and joint-venture obligations.
- Monitor the outlet center with approximately $113 million of carrying value that management identified as having materially lower estimated fair value.
- Distinguish GAAP net income from FFO, Core FFO, NOI and other non-GAAP measures when evaluating dividend coverage and operating performance.