Tanger Inc. 2019 Third-Quarter Form 10-Q Summary
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-administered and self-managed REIT focused on owning and operating outlet shopping centers through Tanger Properties Limited Partnership. The filing covers the unaudited quarter and nine months ended September 30, 2019, compared with the corresponding 2018 periods.
- Portfolio at September 30, 2019: 32 consolidated outlet centers totaling approximately 12.0 million square feet and seven unconsolidated centers totaling approximately 2.2 million square feet.
- Consolidated portfolio occupancy was 95.9%, compared with 96.4% at September 30, 2018.
- Four non-core centers were sold in March 2019, reducing the consolidated portfolio by approximately 878,000 square feet.
Financial Results and Key Metrics
| Metric | Q3 2019 | Q3 2018 | 9M 2019 | 9M 2018 |
|---|---|---|---|---|
| Total revenues | $119.0 million | $124.2 million | $357.9 million | $367.5 million |
| Net income | $24.8 million | $(23.0) million | $105.1 million | $24.9 million |
| Net income attributable to Tanger | $23.5 million | $(21.9) million | $99.6 million | $23.9 million |
| EPS | $0.25 | $(0.24) | $1.06 | $0.25 |
| FFO available to common shareholders | $56.8 million | $61.9 million | $164.2 million | $180.3 million |
| AFFO available to common shareholders | $56.8 million | $61.9 million | $168.6 million | $180.3 million |
| Same Center NOI | $78.0 million | $79.5 million | $228.7 million | $230.5 million |
| Operating cash flow | Not separately provided | Not separately provided | $159.0 million | $180.0 million |
- Q3 revenue declined approximately 4.2%, primarily because of the March 2019 dispositions. Nine-month revenue declined approximately 2.6%.
- Q3 net income improved by $47.8 million year over year because the 2018 period included a $49.7 million non-cash impairment charge.
- Nine-month net income increased $80.2 million, primarily reflecting the $43.4 million gain on property sales and the absence of the 2018 impairment charge.
- Q3 Same Center NOI declined approximately 1.8%; nine-month Same Center NOI declined approximately 0.8%.
- FFO per diluted share was $0.58 in Q3 and $1.68 for the nine months, compared with $0.63 and $1.83, respectively, in 2018. AFFO per diluted share was $0.58 in Q3 and $1.72 for the nine months.
Balance Sheet, Debt and Liquidity
- Total assets were $2.32 billion and total debt was $1.57 billion at September 30, 2019, compared with $1.71 billion of debt at December 31, 2018.
- Debt consisted principally of $1.14 billion of senior unsecured notes, a $350.0 million unsecured term loan, $84.7 million of mortgages and $4.1 million drawn under unsecured lines of credit.
- The unsecured lines of credit had $600.0 million of borrowing capacity and approximately $595.7 million available after outstanding letters of credit.
- Cash and cash equivalents were $4.7 million at September 30, 2019, versus $9.1 million at year-end 2018.
- Unsecured borrowings represented 95% of outstanding debt, and 92% of the gross book value of real estate was unencumbered.
- Debt maturities include approximately $61.3 million in 2021 and $254.8 million in 2023, with $1.26 billion due thereafter. The unsecured lines of credit mature in 2021 and have a one-year extension option.
- Management stated that the Company was in compliance with its debt covenants and believed available operating cash flow and credit capacity were adequate for at least the next twelve months.
Material Changes Versus the Prior Comparable Period
- Sold four non-core outlet centers for gross proceeds of $130.5 million and net proceeds of approximately $128.2 million; proceeds were primarily used to repay unsecured line borrowings.
- Rental revenue decreased $5.2 million in Q3 and $10.1 million for the nine months. Existing-property rental revenue declined $0.9 million for the nine months, reflecting lower occupancy, tenant bankruptcies, closures and rent modifications.
- General and administrative expense increased $1.5 million in Q3 and $8.0 million for the nine months. The increase included costs from ASC 842 lease accounting and a $4.4 million charge related to the planned retirement of the President and Chief Operating Officer.
- Interest expense declined $1.2 million in Q3 and $1.7 million for the nine months following repayment of unsecured line borrowings.
- Capital expenditures were $35.2 million for the nine months, down from $53.3 million in 2018.
- The Company repurchased 1.21 million shares for approximately $20.0 million during the first nine months, including 650,929 shares in Q3. Approximately $80.0 million remained authorized for repurchases at September 30, 2019.
- ASC 842 was adopted January 1, 2019, resulting in $86.8 million of operating lease right-of-use assets and $91.7 million of operating lease liabilities at September 30, 2019. Prior periods were not restated.
Guidance, Outlook, Risks and Unusual Items
- Management expected 2019 Same Center NOI to decline from 2018 because of tenant bankruptcies, store closures and rent adjustments.
- Potential 2020 tenant impacts included planned closures by Dressbarn and Kitchen Collection, plus possible closures associated with Forever 21 and Destination Maternity bankruptcies.
- During the year, the Company recaptured approximately 195,000 square feet related to bankruptcies and brand restructurings, compared with 123,000 square feet at the comparable point in 2018.
- Management was evaluating potential developments, including a possible Nashville, Tennessee site, but stated that no assurance existed that proposed projects would proceed or be accretive.
- Key risks include dependence on retailer sales and rental payments, tenant bankruptcies and changing consumer behavior, competition, property impairment, access to capital, interest-rate and LIBOR transition risk, foreign currency exposure from Canadian investments, joint-venture debt guarantees and REIT distribution requirements.
- Interest-rate swaps had $390.0 million of notional value. Management estimated that a 100-basis-point LIBOR increase would affect annual interest expense by approximately $155,000, excluding other effects.
- The Company guaranteed up to $19.4 million of unconsolidated joint-venture debt as of September 30, 2019.
- In October 2019, the Board declared a $0.355 per-share dividend payable November 15, 2019. A corresponding $0.355 per-unit distribution was declared for Operating Partnership unitholders.
- Management reported no material changes to previously disclosed risk factors, and stated that routine legal proceedings were not expected to have a material adverse effect.
Important Facts for Investors to Verify
- Whether declining occupancy, tenant closures and bankruptcies cause further deterioration in Same Center NOI and rental collections.
- The renewal and re-leasing performance of approximately 1.3 million square feet scheduled for renewal during 2019 and the impact on 2020 results.
- Debt refinancing and repayment plans for the 2021 and 2023 maturities, including continued access to the unsecured credit facilities.
- The sustainability of dividends and share repurchases relative to FFO, AFFO, operating cash flow and debt covenant limits.
- The effect of property dispositions on recurring revenue, cash flow and portfolio quality.
- Potential additional impairments, particularly at properties affected by competition or weak operating performance.
- Exposure under joint-venture guarantees and the ability of joint ventures to refinance or extend near-term debt maturities.