Tanger Inc. 10-Q Summary — Quarter Ended September 30, 2021
Business context and reporting period
Tanger Factory Outlet Centers, Inc. is a self-managed REIT operating through Tanger Properties Limited Partnership. As of September 30, 2021, the company owned and operated 30 consolidated outlet centers totaling approximately 11.5 million square feet, plus six unconsolidated centers totaling approximately 2.1 million square feet. The filing covers the three and nine months ended September 30, 2021, compared with the same periods in 2020. The financial statements are unaudited.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Total revenue | $112.5 million | $103.2 million | $314.4 million | $278.8 million |
| Net income (loss) | $(11.1) million | $13.7 million | $(4.1) million | $(38.3) million |
| Net loss attributable to Tanger | $(10.6) million | $13.0 million | $(4.0) million | $(36.5) million |
| EPS | $(0.11) | $0.14 | $(0.05) | $(0.40) |
| Net cash provided by operating activities | Not separately provided | Not separately provided | $143.7 million | $92.0 million |
| Portfolio NOI | $73.9 million | $66.6 million | $210.0 million | $175.5 million |
| Same Center NOI | $73.8 million | $66.1 million | $208.2 million | $173.9 million |
| Core FFO per diluted share | $0.47 | $0.44 | $1.32 | $1.04 |
| Total debt | $1.411 billion at period-end | $1.568 billion at December 31, 2020 | Period-end comparison |
Q3 revenue increased approximately 9.0% year over year; nine-month revenue increased approximately 12.8%. Q3 Portfolio NOI margin was approximately 65.7%, compared with 64.5% in Q3 2020. Nine-month Portfolio NOI margin was approximately 66.8%, compared with 63.0% in the prior-year period.
Cash and cash equivalents were $143.1 million at September 30, 2021, compared with $84.8 million at December 31, 2020. Total liquidity was approximately $663.1 million, including cash and the full $520.0 million capacity of undrawn unsecured credit facilities.
Material changes versus the prior comparable period
- Rental revenue rose $7.0 million in Q3 and $30.5 million for the first nine months, primarily reflecting recovery from COVID-19-related traffic declines, store closures, reduced operating hours and rent collection issues in 2020. Variable rental revenue tied to tenant sales increased materially.
- Occupancy at consolidated centers improved to 94.3% at September 30, 2021, from 92.9% at September 30, 2020.
- Operating cash flow increased $51.7 million for the first nine months, principally from collections of rent deferred during 2020 and normalized cash collections.
- Net income remained negative in Q3 because of a $33.8 million loss on early extinguishment of debt. For the nine-month period, the comparable loss was $47.9 million. The prior-year period included a $45.7 million Foxwoods impairment charge and a $3.1 million share of an impairment at the Saint-Sauveur joint venture.
- Debt declined by approximately $157.1 million from December 31, 2020. The company repaid or redeemed its 2023 and 2024 notes and issued $400.0 million of 2.75% senior notes due 2031. It also paid down $50.0 million on its unsecured term loan.
- The company issued 10.0 million common shares under its ATM program during the first nine months, generating approximately $187.0 million of net proceeds. No shares were repurchased.
- Capital expenditures were $23.7 million for the first nine months, compared with $23.1 million in 2020. Net cash used in investing activities declined to $1.9 million from $12.3 million.
Guidance, outlook, commentary and risks
Management did not provide specific earnings or revenue guidance in the filing. Management stated that traffic and tenant sales had generally returned to near or above pre-pandemic levels and that rent collections had normalized. Through October 29, 2021, the company had collected 96% of 2020 rents deferred until 2021 and 98% of deferred rents due during the first nine months of 2021.
Management expects available cash, operating cash flow and financing sources to fund operating expenses, debt service, capital expenditures and dividends for at least the next 12 months. The company was in compliance with its debt covenants at September 30, 2021. Reported covenant metrics included total consolidated debt to adjusted total assets of 42%, total liabilities to total adjusted asset value of 41%, EBITDA to fixed charges of 4.1x and unencumbered interest coverage of 4.7x.
- COVID-19 remains a material uncertainty affecting tenant health, rent collections, occupancy, leasing, asset values, liquidity and debt covenant compliance.
- Retailer bankruptcies, store closures, staffing constraints, supply-chain disruptions and changes in consumer spending could reduce occupancy, rental revenue and NOI.
- Foxwoods continues to face leasing challenges, and management stated that additional impairment charges remain possible.
- The company has approximately $54.4 million of debt maturities during the remainder of 2021 and $305.1 million in 2024, primarily reflecting the unsecured term loan maturity.
- The company guarantees the Operating Partnership’s unsecured term loan and credit facilities and had maximum guarantees of $21.9 million on certain unconsolidated joint-venture debt.
- Moody’s downgraded the company to Baa3, stable, in April 2021, increasing applicable borrowing spreads.
- Variable-rate exposure was limited: 4% of consolidated debt, excluding debt protected by interest-rate swaps, was subject to market fluctuations. A 100-basis-point LIBOR increase was estimated to affect annual interest expense by approximately $514,000.
Most important facts for investors to verify
- Whether post-pandemic tenant sales, traffic and rent collections remain at or above 2019 levels.
- Progress on leasing vacant space and the effect of renewals and re-tenanting on rental rates; the trailing twelve-month blended change was a 0.6% decrease in average base rent.
- Future impairment risk at Foxwoods and other properties exposed to occupancy or cash-flow deterioration.
- Debt refinancing capacity and covenant compliance, particularly ahead of the April 2024 unsecured term loan maturity.
- The sustainability of dividends relative to Core FFO, capital expenditures and required debt service.
- The effect of share issuance under the ATM program on per-share results and any future use of the $80.0 million share repurchase authorization.
- Exposure to Canadian joint ventures, foreign currency movements and guarantees of unconsolidated joint-venture debt.