Tanger Factory Outlet Centers, Inc. - 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2007. Tanger Factory Outlet Centers, Inc. is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating factory outlet shopping centers. As of June 30, 2007, the Company owned 30 outlet centers totaling approximately 8.4 million square feet of gross leasable area (GLA) with an occupancy rate of 97%. The Company also holds 50% interests in two joint ventures and manages two additional centers.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2007 | Six Months Ended June 30, 2006 |
|---|---|---|
| Total Revenues | $108.8 million | $98.7 million |
| Net Income | $9.7 million | $21.1 million |
| Net Income Available to Common Shareholders | $6.9 million | $18.5 million |
| Diluted EPS (Net Income) | $0.22 | $0.60 |
| Funds From Operations (FFO) | $46.3 million | $41.2 million |
| FFO Available to Common Shareholders | $43.5 million | $38.6 million |
| Net Cash Provided by Operating Activities | $42.9 million | $36.7 million |
| Total Debt | $683.5 million | $678.6 million |
| Cash and Cash Equivalents | $1.2 million | $8.5 million (Dec 31, 2006) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 10% year-over-year, driven by the addition of the Charleston, South Carolina center (opened August 2006) and higher rental rates on lease renewals. Base rentals increased 7% for the six-month period.
- Net Income Decline: Net income decreased significantly from $21.1 million to $9.7 million. This decline is primarily due to the absence of a $13.8 million gain on the sale of real estate recorded in the first half of 2006 (discontinued operations) and an increase in depreciation expenses.
- Depreciation Increase: Depreciation and amortization increased 15% to $34.0 million. This includes approximately $4.5 million in accelerated depreciation related to the reconfiguration and demolition of space at the Foley, Alabama center.
- Operating Expenses: Property operating expenses rose 14% due to the new Charleston center, higher snow removal costs, and increased property insurance rates.
- Liquidity: Cash and cash equivalents decreased from $8.5 million at year-end 2006 to $1.2 million at June 30, 2007, reflecting significant capital expenditures for development and expansions.
Guidance, Outlook, and Risks
- Development Pipeline: The Company is developing a new center in Pittsburgh, Pennsylvania (expected opening Q3 2008) and expanding four existing centers (Barstow, CA; Branson, MO; Gonzales, LA; Tilton, NH) with openings projected for Q1 2008. Total construction commitments are approximately $28.4 million.
- Leasing Outlook: Approximately 19% of the portfolio (1.55 million sq. ft.) is scheduled for renewal in 2007. As of June 30, 66% of expiring space had been renewed at an average base rental rate increase of 14%.
- Dividends: On July 12, 2007, the Board declared a quarterly common dividend of $0.36 per share and a preferred dividend of $0.46875 per share.
- Risks and Contingencies:
- Interest Rate Risk: The Company utilizes interest rate swaps and treasury locks to hedge floating rate debt. A 1% change in interest rates could impact the fair value of long-term debt by approximately $40.0 million.
- Off-Balance Sheet Guarantees: The Company provides joint and several guarantees for construction loans held by unconsolidated joint ventures in Wisconsin Dells ($25.3 million balance) and Deer Park ($51.2 million balance).
- Lease Renewals: Failure to renew or re-lease significant space on favorable terms could materially adversely affect results.
Investor Verification Checklist
- Accelerated Depreciation Impact: Verify the $4.5 million reduction in net income due to the Foley, Alabama reconfiguration to understand the non-recurring nature of the expense.
- Discontinued Operations: Confirm that the 2006 net income included a one-time $13.8 million gain from property sales, making year-over-year net income comparisons less reflective of ongoing operations.
- Liquidity Position: Review the low cash balance ($1.2 million) against the $28.4 million in construction commitments and reliance on credit facilities ($7.9 million outstanding of $200 million available).
- Joint Venture Exposure: Assess the risk associated with the $76.5 million in guaranteed construction loans for unconsolidated joint ventures (Wisconsin Dells and Deer Park).
- FFO vs. Net Income: Note that Funds From Operations (FFO) increased 12% to $46.3 million, providing a more stable view of operating performance than GAAP net income.