Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1998
Business Overview: The Company operates factory outlet centers across the United States, growing primarily through acquisitions and expansions. As of September 30, 1998, the portfolio included 31 centers with a weighted average gross leasable area (GLA) of approximately 4.87 million square feet and an occupancy rate of 95%.
Key Financial Metrics
| Metric (in thousands) | 9 Months Ended Sep 30, 1998 | 9 Months Ended Sep 30, 1997 |
|---|---|---|
| Total Revenues | $72,223 | $61,338 |
| Net Income | $9,993 | $8,834 |
| Funds From Operations (FFO) | $29,005 | $25,747 |
| Net Cash from Operating Activities | $29,907 | $25,343 |
| Net Cash Used in Investing Activities | ($70,247) | ($75,220) |
| Total Debt Outstanding | $288,446 | $229,050 |
| Cash and Cash Equivalents | $2,659 | $3,607 |
| Dividends Paid per Common Share | $1.75 | $1.62 |
Debt Structure: Total long-term debt includes $150 million in senior unsecured notes, $73.1 million in mortgages, and $65.3 million in lines of credit. Approximately 75% of outstanding debt is unsecured, and 79% of the real estate portfolio is unencumbered. The weighted average interest rate on debt was 8.2%.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 18% ($10.9 million) for the nine months ended September 30, 1998, compared to the prior year. This was driven by a 20% increase in weighted average GLA due to acquisitions (Sanibel, FL and Dalton, GA) and expansions.
- Occupancy and Rates: Occupancy decreased from 98% in 1997 to 95% in 1998. Base rentals per weighted average GLA decreased by $0.13 due to the inclusion of newly acquired properties with lower average rental rates and the occupancy decline.
- Expenses: Interest expense increased by $3.9 million due to higher average borrowings financing acquisitions and reduced capitalization of interest. Property operating expenses increased 18% in total but decreased $0.08 per square foot on a weighted average GLA basis.
- Unusual Items: The Company recognized a $994,000 gain on the sale of real estate (Manchester, VT property and outparcels). Conversely, an extraordinary loss of $332,000 was recorded due to the write-off of deferred financing costs from terminating a $50 million secured line of credit.
Guidance, Outlook, and Risks
- Development Pipeline: The Company has commitments of approximately $4.8 million to complete expansions in Sevierville, TN, and Riverhead, NY. Pre-leasing is underway for a planned site in Romulus, Michigan.
- Liquidity: Management believes existing credit facilities (including $34.7 million available on unsecured lines) and an active shelf registration for up to $100 million in equity and $100 million in debt are sufficient to fund planned capital expenditures for 1999.
- Dividends: A quarterly dividend of $0.60 per common share was declared for payment in November 1998.
- Risks and Contingencies:
- Year 2000 Compliance: Estimated costs are less than $200,000. Management does not anticipate material business interruption but is developing contingency plans.
- Lease Renewals: Approximately 731,000 square feet of leases expire in 1999. There is no assurance renewals will occur on economically favorable terms.
- Market Conditions: Risks include inflation, consumer confidence, and tenant bankruptcy. No single tenant accounts for more than 10% of revenues.
Investor Verification Checklist
- Verify the impact of the 3% decrease in occupancy (98% to 95%) on future cash flows and expense reimbursement ratios.
- Confirm the accretive nature of the Sanibel and Dalton acquisitions given the lower base rental rates per square foot compared to the existing portfolio.
- Review the status of the $4.8 million in construction commitments and the pre-leasing progress for the Romulus, Michigan site.
- Assess the Company's ability to maintain dividend coverage given the increase in interest expense and the termination of the secured line of credit.
- Monitor the Year 2000 compliance project timeline and potential third-party supplier risks.