SKT

Business Context and Reporting Period

Company: Tanger Factory Outlet Centers, Inc. (Tanger Inc.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2003
Business Overview: A fully-integrated, self-administered REIT developing, owning, and operating factory outlet centers. As of March 31, 2003, the company operated 34 centers in 21 states totaling 6.2 million square feet, with a portfolio occupancy rate of 95%.

Key Financial Metrics

Dividends: $0.6125 per common share paid in Q1 2003. A new dividend of $0.6150 per common share was declared on April 10, 2003.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 10.2% ($2.7 million) year-over-year. Base rentals rose 9% ($1.6 million) driven by the acquisition of the Howell, Michigan center and an expansion in Sevierville, Tennessee. Percentage rentals decreased 34% due to lower tenant sales volume, attributed to severe winter weather and the timing of Easter.
• Profitability: Net income increased 51.6% ($746,000). Income from continuing operations rose to $2.191 million from $1.162 million. This improvement was aided by a 6% reduction in interest expense due to lower debt levels and interest rates.
• Portfolio Expansion: The portfolio grew from 32 centers (5.4M sq. ft.) in Q1 2002 to 34 centers (6.2M sq. ft.) in Q1 2003. Key activity included the acquisition of a 29,000 sq. ft. expansion in Sevierville, TN, and the opening of the Myrtle Beach, SC joint venture.
• Discontinued Operations: Q1 2002 included $283,000 in income from discontinued operations (sales of Ft. Lauderdale and Bourne properties), whereas Q1 2003 had none.

Outlook, Risks, and Management Commentary

• Preferred Stock Redemption: On May 2, 2003, the company announced the redemption of all outstanding Series A Cumulative Convertible Redeemable Preferred Shares on June 20, 2003. The redemption price is $250 per share. Holders may elect to convert to common stock instead. Full redemption could require approximately $20 million in cash.
• Development Pipeline: Construction is underway on a 35,000 sq. ft. expansion in Sevierville, TN (expected summer 2003 opening) and a 64,000 sq. ft. second phase in Myrtle Beach, SC (joint venture, expected May 2003 opening).
• Leasing Outlook: Approximately 19% of the portfolio (1.07M sq. ft.) is scheduled for renewal in 2003. As of March 31, 50% of this space had been renewed at an average 1% rent increase. The company maintains a strategy of holding space off-market to secure higher-quality tenants, which may temporarily impact occupancy rates.
• Liquidity: The company maintains $85 million in unsecured revolving lines of credit maturing June 30, 2004. Management believes existing cash flows and credit facilities are sufficient to fund operations, debt service, and planned capital expenditures.
• Risks: Key risks include national economic conditions, tenant bankruptcies, inability to renew leases on favorable terms, and potential cost overruns in development projects.

Investor Verification Checklist

• Preferred Stock Conversion: Verify the extent to which preferred shareholders elect conversion to common stock versus cash redemption, as this impacts dilution and cash outflow.
• Joint Venture Exposure: Review the financial health of the Tanger-Warren Myrtle Beach (TWMB) joint venture, specifically the $25.7 million construction loan balance and the "Russian roulette" buy-sell provision.
• Lease Renewals: Monitor the renewal rate and rental rate increases for the remaining 50% of the 1.07M sq. ft. expiring in 2003.
• Debt Maturity: Confirm the status of the $85 million credit facility maturing in June 2004 and the company's refinancing plans.
• Weather Impact: Assess whether the Q1 2003 sales decline due to winter weather was a one-time anomaly or indicative of broader regional economic trends.