Tanger Factory Outlet Centers, Inc. - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Tanger Factory Outlet Centers, Inc., a self-administered and self-managed Real Estate Investment Trust (REIT) focused on factory outlet shopping centers. The reporting period covers the three and six months ended June 30, 2006. As of this date, the Company owned 29 wholly-owned centers totaling approximately 8.0 million square feet with an occupancy rate of 96.2%.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2006 | Six Months Ended June 30, 2005 |
|---|---|---|
| Total Revenues | $98.7 million | $94.5 million |
| Net Income | $21.1 million | $0.6 million |
| Net Income Available to Common Shareholders | $18.5 million | $0.6 million |
| Diluted EPS (Net Income) | $0.60 | $0.02 |
| Funds From Operations (FFO) | $41.3 million | $30.2 million |
| FFO Available to Common Shareholders | $38.6 million | $30.2 million |
| Net Cash Provided by Operating Activities | $36.7 million | $41.3 million |
| Total Debt | $650.6 million | $663.6 million |
| Cash and Cash Equivalents | $1.8 million | $2.9 million |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 4% year-over-year, driven by a 4% increase in base rentals due to lease renewals at higher rates and incremental rents from re-tenanting. Percentage rentals increased 20%.
- Profitability Surge: Net income increased significantly from $0.6 million to $21.1 million. This was primarily driven by a $13.8 million gain on the sale of real estate (Pigeon Forge, TN and North Branch, MN) classified as discontinued operations, and a reduction in minority interest allocations following the full acquisition of the COROC joint venture in late 2005.
- Expense Increases: Depreciation and amortization rose 23% ($5.5 million) and interest expense rose 22% ($3.5 million) due to the consolidation of the COROC portfolio and higher overall debt levels.
- Capital Structure: The Company sold 800,000 Class C Preferred Shares for $19.4 million in February 2006, using proceeds to repay unsecured lines of credit. Total debt decreased slightly to $650.6 million.
Outlook, Risks, and Unusual Items
- Development Pipeline: Construction is nearing completion on a new center in Charleston, SC (opening August 2006) and a joint venture center in Wisconsin Dells (opening August 2006). A new site near Pittsburgh, PA is in early development.
- Leasing Outlook: Approximately 22% of the portfolio (1.76 million sq. ft.) is up for renewal in 2006. As of June 30, 71% of expiring space had been renewed at an average 9% rent increase. Re-tenanted vacant space saw a 22% rent increase.
- Debt Repayment: The Company intends to repay a $15.3 million mortgage (8.86% interest) on September 1, 2006, using unsecured lines of credit. This will trigger an estimated $0.7 million charge for early extinguishment.
- Joint Venture Risks: The Deer Park, NY joint venture is involved in litigation regarding a sale-leaseback transaction with a tenant who vacated in 2005. Accrual of rental revenue for this project was discontinued in April 2006 due to uncertainty.
- Market Risk: The Company holds interest rate locks on $200 million of anticipated debt. A 1% increase in interest rates would decrease the fair value of long-term debt by approximately $22.8 million.
Investor Verification Checklist
- Discontinued Operations Impact: Verify the sustainability of earnings by excluding the $13.8 million one-time gain on property sales from the six-month net income.
- Preferred Dividends: Confirm the impact of the new 7.5% Class C Preferred Shares (3 million outstanding) on cash flow available to common shareholders ($2.6 million in dividends for the six months).
- Debt Maturity Wall: Review the schedule for the $15.3 million mortgage repayment in September 2006 and the associated prepayment penalty.
- Lease Renewals: Monitor the remaining 29% of the portfolio expiring in 2006 to ensure renewal rates and rent increases match current projections.
- Joint Venture Guarantees: Assess the exposure related to the $30.25 million construction loan guarantee for the Wisconsin Dells joint venture and the litigation risk in Deer Park, NY.