Tanger Inc. 2015 Q1 SEC Filing Summary
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-managed REIT that operates through Tanger Properties Limited Partnership. The company develops, owns and manages outlet centers in the United States and Canada. For the quarter ended March 31, 2015, it operated 36 consolidated centers totaling approximately 11.3 million square feet and held interests in eight unconsolidated centers totaling approximately 2.4 million square feet. Consolidated portfolio occupancy was 97%.
The filing is an unaudited combined Form 10-Q for the Company and Operating Partnership. The Company owns approximately 95.8 million Operating Partnership units, while non-Company limited partners held approximately 5.1 million exchangeable Class A units at quarter-end.
Key Financial Metrics
| Metric | Q1 2015 | Q1 2014 | Change |
|---|---|---|---|
| Total revenues | $105.9 million | $102.8 million | +3.1% |
| Operating income | $32.9 million | $28.4 million | +16.0% |
| Operating margin | 31.1% | 27.6% | +350 bps |
| Net income | $36.4 million | $15.4 million | +$20.9 million |
| Net income attributable to Tanger | $34.5 million | $14.6 million | +$19.9 million |
| Basic and diluted EPS | $0.36 | $0.15 | +$0.21 |
| Cash flow from operations | $54.4 million | $42.5 million | +$11.9 million |
| FFO per diluted share | $0.50 | $0.43 | +16.3% |
| AFFO per diluted share | $0.50 | $0.45 | +11.1% |
Revenue growth reflected higher base rentals, percentage rentals, expense reimbursements and management, leasing and other service fees. Same-center NOI on a cash basis increased to $66.2 million from $63.8 million. Re-leasing of approximately 869,000 square feet produced a 23% average base-rent increase, while re-tenanting of approximately 269,000 square feet produced a 29% increase.
The Company paid a quarterly dividend of $0.240 per common share, compared with $0.225 in the prior-year quarter. On April 1, 2015, the board declared a subsequent quarterly dividend of $0.285 per share, payable May 15, 2015.
Balance Sheet, Debt and Liquidity
- Total assets were $2.129 billion at March 31, 2015, including $1.642 billion of net rental property and $205.1 million of investments in unconsolidated joint ventures.
- Total debt was $1.462 billion, compared with $1.443 billion at December 31, 2014. Debt included $793.7 million of senior unsecured notes, $267.3 million of unsecured term loans, $285.1 million of mortgages and $115.7 million drawn on unsecured lines of credit.
- Cash and cash equivalents were $14.7 million. Available borrowing capacity under unsecured lines of credit was approximately $404.3 million, based on total capacity of $520.0 million and outstanding borrowings of $115.7 million.
- Approximately 80% of outstanding debt was unsecured and 73% of the gross book value of the real estate portfolio was unencumbered.
- Debt maturities were $31.4 million in 2015, $30.3 million in 2016, $166.3 million in 2017, $153.2 million in 2018 and $253.4 million in 2019; $830.9 million matures thereafter.
- Management reported compliance with all debt covenants. Actual covenant measures included total debt to adjusted total assets of 50%, secured debt to adjusted total assets of 10% and unencumbered assets to unsecured debt of 174%.
Operating cash flow increased to $54.4 million, but investing activities used $49.6 million and financing activities used $6.6 million. Cash decreased by $2.2 million during the quarter to $14.7 million. Cash additions to rental property were $51.0 million, substantially above the prior-year $13.3 million, primarily because of development activity.
Material Changes and Unusual Items
- Net income benefited from a $13.7 million gain on the February 2015 sale of the Company’s interest in the Wisconsin Dells joint venture. Sale proceeds attributable to the Company were approximately $15.6 million.
- Interest expense declined 12% to $13.1 million, primarily following the issuance of $250 million of 3.75% senior notes in November 2014 and redemption of higher-cost 6.15% notes.
- Depreciation and amortization declined 8% to $24.0 million, partly because certain properties were classified as held for sale and certain assets became fully depreciated.
- Foreign currency translation losses and cash-flow hedge valuation changes produced $12.4 million of other comprehensive loss, compared with $3.3 million in the prior-year quarter.
- Four properties totaling approximately 712,000 square feet were classified as held for sale at a carrying value of $46.5 million. A letter of intent signed April 1, 2015 contemplated a potential third-quarter 2015 sale, but completion was not assured.
Guidance, Outlook, Risks and Contingencies
Management expects available operating cash flow, existing credit capacity and access to debt and equity markets to fund planned capital expenditures through the end of 2015 and into 2016, including regular debt service and REIT distributions. No specific full-year earnings guidance was provided in the filing.
- Development projects under construction totaled approximately 983,000 square feet with projected total net costs of $274.9 million: Foxwoods, Connecticut; Grand Rapids, Michigan; and Southaven, Mississippi. Expected openings were May 2015, July 2015 and the fourth quarter of 2015, respectively.
- The Savannah joint venture opened April 16, 2015. The Columbus joint venture was expected to open in the second quarter of 2016.
- The Company provided or could provide guarantees on joint-venture debt. Maximum disclosed principal guarantees totaled approximately $33.6 million, in addition to completion guarantees and customary non-recourse carve-outs.
- Unconsolidated joint ventures had total debt of approximately $370.2 million. The Company’s investments are exposed to partner decisions, refinancing needs, construction completion, occupancy and debt-service requirements.
- Approximately 28% of outstanding debt was variable-rate debt, excluding debt protected by interest-rate swaps. A 100-basis-point increase in LIBOR was estimated to increase annual interest expense by approximately $4.1 million.
- Key risks include tenant failures or bankruptcies, renewal and re-leasing risk, real-estate valuation and development risk, capital-market access, interest-rate and Canadian currency exposure, joint-venture obligations, environmental and uninsured-loss risks, REIT qualification and cybersecurity.
Management stated that legal proceedings arising in the ordinary course are not expected to have a material adverse effect. There were no material changes to previously disclosed risk factors, and disclosure controls were deemed effective.
Most Important Facts for Investors to Verify
- Separate recurring operating performance from the $13.7 million Wisconsin Dells gain when assessing earnings growth.
- Confirm development costs, opening dates, leasing progress and stabilization for Foxwoods, Grand Rapids, Southaven, Savannah and Columbus.
- Monitor the four properties held for sale and whether the proposed third-quarter transaction closes.
- Review debt maturities beginning in 2017, variable-rate exposure, credit-line availability and covenant headroom.
- Assess the Company’s maximum exposure under joint-venture completion, principal and non-recourse guarantees.
- Reconcile dividend growth with AFFO, capital expenditures, development funding needs and required REIT distributions.