Tanger Inc. 10-Q Summary — Quarter Ended June 30, 2022
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-administered REIT that owns and operates outlet shopping centers through Tanger Properties Limited Partnership. As of June 30, 2022, the company operated 30 consolidated outlet centers totaling approximately 11.5 million square feet and held interests in six unconsolidated centers totaling approximately 2.1 million square feet. The filing presents combined unaudited results for the three and six months ended June 30, 2022, compared with the corresponding 2021 periods.
Key Financial Metrics
| Metric | Three Months 2022 | Three Months 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Total revenue | $105.8 million | $101.3 million | $214.7 million | $202.0 million |
| Net income | $20.8 million | $2.6 million | $42.3 million | $6.9 million |
| Net income attributable to Tanger | $19.9 million | $2.5 million | $40.4 million | $6.6 million |
| Diluted EPS | $0.19 | $0.02 | $0.38 | $0.06 |
| FFO available to common shareholders | $48.8 million | $32.4 million | $98.2 million | $70.6 million |
| Core FFO per diluted share | $0.45 | $0.43 | $0.90 | $0.84 |
| Net cash from operating activities | Not separately provided | Not separately provided | $89.1 million | $91.6 million |
Reported net income margin was approximately 19.7% for the second quarter and 19.7% for the first six months, compared with approximately 2.6% and 3.4%, respectively, in the prior-year periods. Portfolio occupancy was 94.8% at June 30, 2022, compared with 93.0% a year earlier; total portfolio occupancy including unconsolidated joint ventures was 94.9%, compared with 93.2%.
- Rental revenue increased 4.7% year over year in the second quarter and 6.0% for the first six months, primarily reflecting higher occupancy, lease termination fees, and reversals of revenue reserves.
- Same-center NOI increased to $73.0 million in the quarter from $69.4 million and to $144.3 million for six months from $134.5 million.
- Adjusted EBITDA increased to $58.6 million in the quarter from $57.7 million and to $118.0 million for six months from $110.7 million.
- Cash and cash equivalents totaled approximately $194.2 million at June 30, 2022, compared with $161.3 million at December 31, 2021.
- Total debt was $1.396 billion, modestly below $1.397 billion at year-end 2021. Approximately 96% of outstanding debt was unsecured, and 92% of the gross book value of real estate was unencumbered.
- Debt consisted principally of $1.037 billion of senior unsecured notes, a $300 million unsecured term loan, and $60.1 million of mortgages.
- The company had $520 million of undrawn unsecured credit capacity, resulting in reported total liquidity of approximately $714.2 million including cash.
Material Changes Versus the Prior Comparable Period
- Second-quarter net income increased $18.2 million, while six-month net income increased $35.3 million.
- The 2021 periods included a $14.0 million loss on early extinguishment of debt; no comparable charge was recorded in 2022.
- Interest expense declined by $1.8 million in the second quarter and $4.5 million for six months, primarily reflecting debt refinancing, redemptions, and prior-term-loan repayments.
- 2022 included a $2.4 million gain from the sale of a non-real-estate asset, identified in management’s discussion as the corporate aircraft, partially offset by $2.4 million of executive severance costs.
- General and administrative expense increased $3.6 million in the quarter and $2.3 million for six months, driven by executive severance, additional personnel, travel, and employee benefit costs.
- Capital expenditures increased to $25.7 million for the first six months from $11.8 million, including land acquisition and development activity for a new Nashville outlet center.
- The company paid $40.3 million of common dividends during the first six months, compared with $34.9 million in the prior-year period. No shares were sold under the ATM program and no shares were repurchased during the 2022 periods.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
Management did not provide a specific full-year earnings or FFO guidance figure in the supplied filing text. Management stated that it expects adequate cash to fund operations, debt service, capital expenditures, and REIT-required dividends for at least the next twelve months, but noted that access to capital remains subject to market conditions.
- A wholly owned Nashville outlet center of approximately 290,000 square feet began development during the second quarter. Project costs incurred to date were approximately $18.3 million, with a projected opening in fall 2023.
- Debt maturities include approximately $44.9 million in 2023, $305.1 million in 2024, $355.7 million in 2026, and $700.0 million thereafter. The unsecured term loan matures in April 2024.
- Management reported compliance with all debt covenants. Key reported actual covenant measures included total consolidated debt to adjusted total assets of 41%, unencumbered assets to unsecured debt of 236%, and consolidated income available for debt service to annual debt service charge of 5.7 times.
- Interest-rate risk remains material. Only approximately 3% of consolidated debt, after considering interest-rate protection, was variable-rate debt exposed to market fluctuations. A 100-basis-point increase in LIBOR was estimated to change annual interest expense by approximately $0.4 million. The phase-out of LIBOR remains an uncertainty.
- The company had interest-rate swaps with aggregate notional amounts of $300 million. Approximately $7.0 million of accumulated hedge losses was expected to be reclassified into earnings as a reduction of interest expense over the following twelve months.
- The company guarantees up to $21.9 million of unconsolidated joint-venture debt and may be required to provide additional support to certain joint ventures with negative investment carrying values.
- Management highlighted risks from COVID-19, inflation, rising interest rates, supply-chain disruptions, labor shortages, tenant bankruptcies, store closures, rent modifications, occupancy declines, and potential property impairments. Foxwoods was specifically identified as facing leasing challenges that could result in future impairment charges.
- Approximately 2.1 million square feet, or 17% of the total portfolio including the company’s share of unconsolidated joint ventures, was scheduled for renewal during 2022. As of July 31, 2022, renewals for 66.4% of that space were executed or in process.
- A $0.20 per-share dividend declared in July 2022 was payable August 15, 2022.
Most Important Facts for Investors to Verify
- Whether elevated occupancy, lease termination fees, and revenue-reserve reversals are recurring or represent temporary support to rental revenue and NOI.
- The company’s ability to refinance or otherwise fund the approximately $305 million of debt maturing in 2024 and the $356 million maturing in 2026.
- Exposure to higher interest rates, the transition away from LIBOR, and the performance of variable-rate joint-venture debt.
- Progress, cost requirements, leasing assumptions, and expected returns for the Nashville development.
- Tenant renewal rates, store closures, bankruptcies, rent concessions, and the effect of inflation and labor pressures on tenant sales.
- Potential impairment exposure, particularly at Foxwoods and other properties affected by declining occupancy or cash flows.
- The sustainability of dividends and FFO coverage after recurring capital expenditures, debt service, and joint-venture obligations.
- The terms and remaining availability of the $60.1 million ATM program and the $80.0 million share-repurchase authorization.