SKT

Tanger Factory Outlet Centers, Inc. - 10-Q Summary

Business Context and Reporting Period

This is a Quarterly Report (Form 10-Q) for Tanger Factory Outlet Centers, Inc., a self-administered REIT developing and operating factory outlet centers. The reporting period covers the three and nine months ended September 30, 2004. As of this date, the Company owned or managed 37 centers in 23 states totaling 9.2 million square feet of gross leasable area (GLA), a significant increase from 33 centers and 6.3 million square feet in the prior year due to the December 2003 acquisition of the Charter Oak Partners portfolio (COROC).

Key Financial Metrics

Note: Net income for the three months ended September 30, 2004, reflects a loss primarily due to discontinued operations.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 69% for the three months and 68% for the nine months compared to 2003. This is primarily driven by the consolidation of the COROC portfolio acquired in late 2003.
• Net Income Volatility: Net income for the three months ended September 30, 2004, was a loss of $2.0 million compared to a profit of $3.5 million in the prior year. This was caused by a $3.5 million loss on the sale of the Dalton, Georgia property (classified as discontinued operations). For the nine-month period, net income was $2.7 million, down from $8.0 million in 2003, also impacted by the Dalton sale loss.
• Expense Increases: Property operating expenses rose 57% (quarterly) and 51% (year-to-date) due to the added scale of the COROC portfolio. Interest expense increased 39% (quarterly) and 35% (year-to-date) due to assumed debt from the acquisition.
• Portfolio Expansion: GLA increased from 6.3 million to 9.2 million square feet. Occupancy improved from 95% to 96%.

Guidance, Outlook, and Risks

• Development Pipeline: The Company is developing new centers in Pittsburgh, PA; Charleston, SC; and Wisconsin Dells, WI, with initial phases scheduled to open in 2006. An expansion of the Myrtle Beach center (unconsolidated joint venture) is nearing completion.
• Leasing Outlook: Approximately 1.79 million square feet of leases are up for renewal in 2004. As of September 30, 81% of this space has been renewed at an average base rental rate 6% higher than expiring rates.
• Liquidity and Debt: The Company extended maturity dates on all lines of credit to June 2007 and increased total committed unsecured lines to $125 million. On October 25, 2004 (subsequent to period end), the Company repaid $47.5 million in unsecured notes using proceeds from property sales.
• Risks and Contingencies:
  • Discontinued Operations: The sale of the Dalton, GA property resulted in a significant loss. Two non-core properties in North Conway, NH, were sold for a gain.
  • Weather Impact: Hurricane activity in September 2004 adversely affected sales at East Coast and Gulf of Mexico centers, though structural damage was minimal and covered by insurance.
  • Joint Ventures: Significant earnings are allocated to minority interests in the COROC joint venture based on a preferred return, which reduces net income available to common shareholders.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the extent to which the $3.5 million loss on the Dalton, GA sale distorts the reported Net Income for the quarter.
• FFO vs. Net Income: Confirm that Funds from Operations ($15.8M for the quarter) is the primary metric for operational performance, given the non-cash nature of depreciation and the impact of property sales on Net Income.
• Minority Interest Allocation: Review the specific terms of the preferred return allocation to the COROC joint venture partner, which significantly reduced consolidated net income despite strong operating results.
• Debt Maturity Profile: Assess the impact of the $47.5 million debt repayment in October 2004 on future liquidity and interest expense.
• Lease Renewal Rates: Monitor the remaining 19% of 2004 lease renewals to ensure the 6% rent increase trend holds.