Tanger Factory Outlet Centers, Inc. - 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2009. Tanger Factory Outlet Centers, Inc. is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating outlet shopping centers. As of June 30, 2009, the Company owned and operated 31 outlet centers totaling approximately 9.2 million square feet with an occupancy rate of 95%. The portfolio includes two unconsolidated joint ventures (Deer Park, NY and Wisconsin Dells, WI).
Key Financial Metrics
| Metric (Six Months Ended June 30, 2009) | Value (in thousands) |
|---|---|
| Total Revenues | $129,825 |
| Net Income | $50,055 |
| Net Income Attributable to Common Shareholders | $42,524 |
| Diluted EPS | $1.19 |
| Funds From Operations (FFO) | $60,755 |
| Net Cash Provided by Operating Activities | $57,795 |
| Total Debt | $714,423 |
| Cash and Cash Equivalents | $5,150 |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14% to $129.8 million for the six months ended June 30, 2009, compared to $114.3 million in 2008. This was driven by the consolidation of the Myrtle Beach Hwy 17 center (acquired Jan 2009) and the new Washington, PA center.
- Profitability: Net income attributable to common shareholders surged to $42.5 million from $7.2 million in the prior year. This significant increase is largely due to non-recurring gains: a $31.5 million gain on the fair value measurement of the previously held interest in the Myrtle Beach joint venture and a $10.5 million gain on the early extinguishment of debt.
- Impairment Charge: The Company recorded a $5.2 million non-cash impairment charge related to the Commerce I, GA outlet center due to deteriorating net operating income and expected occupancy declines.
- Depreciation: Depreciation and amortization increased 32% to $40.0 million, partly due to a change in the estimated useful life of the Hilton Head I, SC center (accelerated depreciation of $2.4 million).
- Debt Reduction: Total debt decreased from $786.9 million to $714.4 million. In May 2009, the Company exchanged $142.3 million of Exchangeable Notes for approximately 4.9 million common shares.
Guidance, Outlook, and Risks
- Outlook: Management expects results from the Deer Park joint venture to improve as the property stabilizes. The Company plans to continue growing its portfolio through development, expansion, or acquisition, though construction activity is being undertaken conservatively due to the economic environment.
- Liquidity: The Company maintains unsecured revolving lines of credit totaling $325.0 million. Management believes cash from operations and existing credit facilities are sufficient to fund planned capital expenditures and dividend obligations.
- Risks:
- Economic Conditions: Weakness in the US economy has negatively impacted tenant sales (comparable sales decreased 2.7%).
- Lease Renewals: Approximately 1.5 million square feet (16% of the portfolio) are up for renewal in 2009. Failure to renew on favorable terms could materially impact results.
- Capital Markets: Unpredictability in credit markets may affect access to affordable capital for debt maturities occurring in 2011.
- Unusual Items:
- Executive Departure: Stanley K. Tanger, Chairman and founder, notified the Company of his retirement effective September 1, 2009, with a severance package of $3.4 million and accelerated vesting of shares.
- Accounting Changes: Retrospective adoption of FSP APB 14-1 (convertible debt) and FAS 160 (noncontrolling interests) adjusted prior period equity and EPS figures.
Investor Verification Checklist
- Non-Recurring Gains: Verify the sustainability of net income by excluding the $31.5 million joint venture gain and $10.5 million debt extinguishment gain.
- Impairment Details: Review the specific occupancy and cash flow projections for the Commerce I, GA center that triggered the $5.2 million impairment.
- Debt Maturities: Confirm the status of refinancing for the $235 million term loan and other debt maturing in 2011 given current credit market conditions.
- Lease Renewal Rates: Monitor the success rate of renewing the 1.5 million square feet of space expiring in 2009 and the rental rate increases achieved.
- Joint Venture Exposure: Assess the financial health of the Deer Park joint venture, which is currently reporting losses and carries significant debt ($262.9 million).