Tanger Inc. 2019 Form 10-K Summary
Business Context and Reporting Period
The filing combines the annual reports of Tanger Factory Outlet Centers, Inc., a REIT, and Tanger Properties Limited Partnership, for the fiscal year ended December 31, 2019. The Operating Partnership owns and operates substantially all assets and conducts the business. The portfolio included 32 consolidated outlet centers totaling 12.0 million square feet, 97% occupied, plus seven unconsolidated centers totaling 2.2 million square feet.
Key Financial Metrics
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $478.3 million | $494.7 million | Down $16.3 million |
| Rental revenue | $463.9 million | $480.7 million | Down $16.8 million |
| Net income | $92.7 million | $45.6 million | Up $47.2 million |
| Net income available to common shareholders | $86.5 million | $42.4 million | Up $44.1 million |
| Diluted EPS | $0.93 | $0.45 | Up $0.48 |
| FFO available to common shareholders | $221.7 million | $243.3 million | Down $21.6 million |
| AFFO available to common shareholders | $226.1 million | $243.3 million | Down $17.3 million |
| Same-center NOI | $309.9 million | $312.0 million | Down $2.1 million |
| Cash flow from operations | $220.5 million | $258.3 million | Down $37.9 million |
| Total debt | $1.570 billion | $1.713 billion | Down $143.1 million |
| Cash and cash equivalents | $16.7 million | $9.1 million | Up $7.6 million |
Net income margin was approximately 19.4%, compared with 9.2% in 2018; however, the comparison was substantially affected by nonrecurring property gains and impairment charges. FFO per diluted share was $2.27 versus $2.48 in 2018, and AFFO per diluted share was $2.31 versus $2.48.
Rental revenue consisted of $360.5 million of fixed revenue and $103.4 million of variable revenue, primarily percentage rents and reimbursed operating expenses. Year-end occupancy was 97%, average tenant sales were $395 per square foot, and average annual base rent was $25.35 per square foot.
Material Changes Versus the Prior Comparable Period
- Revenue declined primarily because four properties sold in March 2019 reduced rental revenue by $19.3 million; rental revenue from existing properties declined modestly due to bankruptcies, store closures, lower occupancy and rent modifications.
- Net income benefited from a $43.4 million gain on the sale of four non-core centers and the absence of the $49.7 million Jeffersonville impairment recorded in 2018. These benefits were partly offset by a new $37.6 million Jeffersonville impairment in 2019.
- Operating cash flow declined 14.7% to $220.5 million, reflecting property dispositions, working-capital changes and weaker operating performance.
- Net investing cash flow improved to $99.3 million, primarily from approximately $128.2 million of net proceeds from property sales. Proceeds were used principally to repay unsecured credit-line borrowings.
- Debt declined to $1.570 billion, and no borrowings were outstanding under the $600 million unsecured revolving facilities at year-end. Approximately 95% of outstanding debt was unsecured and 92% of gross real estate book value was unencumbered.
- Portfolio scale decreased from 36 to 32 consolidated centers and from 12.9 million to 12.0 million consolidated square feet following the dispositions.
- Renewals and re-leasing covered approximately 1.5 million square feet during 2019 at a blended 2.7% increase in average base rents. Existing-tenant renewals were broadly flat, while re-leasing to new tenants produced a 9% increase before tenant allowances.
Outlook, Risks and Unusual Items
- Management expected additional store closures to pressure 2020 results. In January 2020, 303,000 square feet had been recaptured from Dressbarn, Kitchen Collection and certain Forever 21 and Destination Maternity stores. If unreleased, management estimated a reduction of approximately 350 basis points in same-center NOI, with a further 322,000 to 372,000 square feet of potential closures unresolved.
- Management expected 2020 same-center NOI to decline compared with 2019 and cautioned that new developments and expansions may proceed more slowly because of e-commerce competition, retailer bankruptcies and store closures.
- One center had an estimated fair value significantly below its approximately $100 million carrying value, although management concluded the asset remained recoverable under its current plan. The filing states that further material impairment charges could occur in 2020 or later.
- Debt maturities include approximately $57.2 million in 2021, $254.8 million in 2023 and $605.1 million in 2024. The revolving facilities mature in 2021, with a one-year extension option.
- The Company had $401.4 million of debt and $390 million of interest-rate swaps indexed to LIBOR. LIBOR discontinuation after 2021 could affect borrowing costs, swaps and liquidity.
- Joint ventures had approximately $368 million of debt, with maximum Company guarantees of approximately $19.4 million. Certain joint-venture loans mature in 2020 and may require refinancing or extension.
- ASC 842 adoption increased reported operating lease assets and liabilities and caused approximately $4.9 million of previously capitalized indirect leasing costs to be expensed in 2019. The filing also recorded $6.4 million of additional straight-line rental revenue related to executory costs.
- Other unusual 2019 items included a $4.4 million executive transition-related compensation charge and a $3.6 million foreign-currency loss related to the sale of the Bromont joint-venture property.
- The Company paid $1.415 per common share in 2019 and had approximately $80 million remaining under its share-repurchase authorization after repurchasing 1.2 million shares for approximately $20.0 million.
Important Facts for Investors to Verify
- Assess 2020 lease-up progress for the 303,000 square feet already recaptured and the additional 322,000 to 372,000 square feet of potential closures.
- Monitor same-center NOI, occupancy, tenant sales, percentage rents and renewal spreads rather than relying solely on GAAP net income, which was materially affected by property sales and impairments.
- Review refinancing plans and liquidity for the 2021 revolving-facility maturities and the larger 2023-2024 debt maturities.
- Evaluate the recoverability of the center with approximately $100 million of carrying value exposed to potential future impairment, including management’s occupancy, cash-flow and capitalization-rate assumptions.
- Verify the effect of retailer bankruptcies, co-tenancy provisions, rent concessions and tenant allowances on future rental revenue and NOI.
- Review LIBOR-transition provisions, interest-rate swap counterparties and the February 2020 credit-rating-related increases in borrowing spreads and facility fees.
- Consider joint-venture debt maturities, refinancing requirements and the Company’s guarantees and other support obligations.
- Reconcile FFO and AFFO to GAAP results and account for capital expenditures, tenant allowances and other cash requirements not captured by these non-GAAP measures.