Tanger Inc. 2020 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-managed REIT that owns and operates outlet shopping centers through Tanger Properties Limited Partnership. For the quarter ended March 31, 2020, the portfolio included 32 consolidated outlet centers totaling approximately 12.0 million square feet and seven unconsolidated centers totaling approximately 2.2 million square feet. The filing is unaudited and compares the three months ended March 31, 2020 with the comparable 2019 period.
Key Financial Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $111.6 million | $123.2 million | Down $11.5 million |
| Rental revenue | $108.6 million | $120.0 million | Down $11.4 million |
| Net income (loss) | $(28.1) million | $65.8 million | Down $94.0 million |
| Net income (loss) attributable to Tanger | $(26.9) million | $62.3 million | Down $89.2 million |
| Diluted EPS | $(0.30) | $0.66 | Down $0.96 |
| FFO available to common shareholders | $48.7 million | $55.9 million | Down $7.2 million |
| Diluted FFO per share | $0.50 | $0.57 | Down $0.07 |
| Same-center NOI | $71.5 million | $74.2 million | Down $2.8 million |
| Net cash from operating activities | $27.3 million | $33.2 million | Down $5.9 million |
Reported net margin was approximately negative 25.2% in Q1 2020 versus approximately 53.5% in Q1 2019, primarily reflecting the 2020 impairment charge and the prior-year property-sale gain. Adjusted EBITDA was $62.2 million versus $70.5 million, and EBITDAre was $67.1 million versus $75.7 million.
- Cash and cash equivalents were $600.5 million at March 31, 2020, compared with $16.7 million at December 31, 2019.
- Total debt was $2.17 billion, up from $1.57 billion at year-end 2019.
- The increase in debt and cash primarily resulted from a $599.8 million draw on the company’s $600.0 million unsecured credit facilities in March 2020.
- Debt maturities totaled $2.18 billion of principal, including $657.0 million in 2021, $254.8 million in 2023, and $605.1 million in 2024.
- At March 31, 2020, management reported compliance with debt covenants. Senior-note covenant measures included 55% total debt to adjusted total assets, 2% secured debt to adjusted total assets, and 175% unencumbered assets to unsecured debt.
- Occupancy was 94.3% at March 31, 2020, compared with 95.4% at March 31, 2019.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because of lower occupancy, tenant bankruptcies and closures, the 2019 disposition of four outlet centers, and reduced tenant sales during the initial COVID-19-related closures.
- The company recorded a $45.7 million non-cash impairment charge on the Foxwoods outlet center in Mashantucket, Connecticut. The estimated fair value was $60.0 million, based on a 7.8% terminal capitalization rate and an 8.5% discount rate.
- Q1 2019 included a $43.4 million gain on the sale of four non-core outlet centers. No comparable sale gain was recorded in Q1 2020.
- Same-center NOI declined approximately 3.7%, and the company recaptured approximately 332,000 square feet during Q1 2020 from tenant bankruptcies and brand restructurings versus 82,000 square feet in Q1 2019.
- Net cash from investing activities changed from $127.3 million provided in Q1 2019 to $6.4 million used in Q1 2020 because the prior-year period included approximately $128.2 million of property-sale proceeds.
- Capital expenditures on a cash basis were $10.6 million, compared with $9.9 million in Q1 2019. The company subsequently deferred the Nashville project and certain planned capital expenditures.
- Interest-rate spreads increased in February 2020 following a credit-rating change. The spread over LIBOR increased to 1.00% on both the credit facility and term loan, and the credit-facility fee increased to 0.20%.
Guidance, Outlook, Commentary, Risks and Unusual Items
- The filing does not provide formal earnings or revenue guidance. Management stated that 2020 Same Center NOI is expected to be adversely affected and that Q2 2020 revenue could be significantly below the comparable 2019 period.
- COVID-19 caused retailers to begin closing stores in mid-March; by April 6, substantially all stores were closed under government mandates. At the lowest point, open stores represented approximately 6% of consolidated gross leasable area and 2% of annualized base rent. By May 11, those figures had improved to 16% and 12%, respectively.
- The company offered tenants the ability to defer 100% of April and May rent interest-free, with repayment scheduled in January and February 2021. April rent receipts represented approximately 12% of amounts billed.
- The Board intended to pay the $0.3575 per-share dividend declared in January on May 15, 2020, but announced a temporary suspension of future dividend distributions to preserve approximately $35 million of cash per quarter. Share repurchases were also suspended.
- Management stated that cash of approximately $594 million remained on the balance sheet at the end of April and estimated that liquidity could cover approximately two years of pre-COVID monthly cash expenditures under a zero-rent-collection scenario, excluding dividends and debt maturities and assuming covenant compliance.
- Key risks include tenant bankruptcies and store closures, rent deferrals or abatements, reduced collections, additional property impairments, lower consumer spending, difficulty accessing capital, credit-rating pressure, covenant breaches or debt acceleration, and refinancing risk.
- J. Crew Group, which occupied approximately 140,000 square feet across 26 consolidated stores, had recently filed for bankruptcy. The filing states that the effect on revenue was not yet known.
- The company had interest-rate swaps with aggregate notional amounts of $540.0 million. A 100-basis-point change in LIBOR was estimated to affect annual interest expense by approximately $6.1 million on unprotected variable-rate debt.
- The company guaranteed up to $19.2 million of unconsolidated joint-venture debt. Certain joint-venture maturities included $80.0 million due in July 2020, $85.0 million due in November 2020, and $8.3 million due in May 2020.
- Subsequent events included the appointment of Stephen Yalof as President and Chief Operating Officer in April 2020, with a planned transition to Chief Executive Officer on January 1, 2021.
Most Important Facts for Investors to Verify
- Whether tenant collections, occupancy, rent deferrals and rent abatements recover as government restrictions ease.
- The duration and financial effect of the dividend suspension, including compliance with REIT taxable-income distribution requirements.
- Liquidity usage and refinancing plans for the $599.8 million credit-facility draw and the significant 2021, 2023 and 2024 debt maturities.
- Continued compliance with leverage, debt-service and unencumbered-asset covenants under prolonged COVID-19 stress.
- Potential additional impairments, particularly for Foxwoods and other properties affected by declining operating results.
- The financial impact of tenant bankruptcies, including J. Crew and other retailers, on rental revenue, occupancy and Same Center NOI.
- Future cash flow effects from rent deferrals, lease concessions, joint-venture support obligations and guaranteed debt.
- The comparability and limitations of FFO, Core FFO, NOI and EBITDAre as non-GAAP measures, particularly given the impairment charge and the prior-year asset-sale gain.