Tanger Inc. (formerly Tanger Factory Outlet Centers, Inc.) — Q3 2023 Form 10-Q Summary
Business context and reporting period
Unaudited combined quarterly report for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership for the three and nine months ended September 30, 2023, compared with the same periods in 2022. The Company operates as a self-managed REIT through the Operating Partnership and owns, operates or manages outlet shopping centers in the United States and Canada.
- At September 30, 2023: 29 consolidated centers totaling approximately 11.3 million square feet, approximately 2,300 stores and 98% portfolio occupancy; six unconsolidated centers totaled approximately 2.1 million square feet.
- Nashville, Tennessee, a 291,000-square-foot center under development at quarter-end, opened October 27, 2023, approximately 96.5% leased.
- The Company changed its name to Tanger Inc. effective November 16, 2023.
Key financial metrics
| Metric | Q3 2023 | Q3 2022 | Change |
|---|---|---|---|
| Total revenues | $117.3 million | $111.4 million | +5.3% |
| Net income | $28.9 million | $24.3 million | +18.6% |
| Net income attributable to Company | $27.6 million | $23.3 million | +18.7% |
| Diluted EPS | $0.26 | $0.22 | +18.2% |
| FFO available to common shareholders | $55.8 million | $51.7 million | +8.0% |
| Diluted FFO per share | $0.50 | $0.47 | +6.4% |
| Same-center NOI | $80.5 million | $74.9 million | +7.5% |
For the nine months ended September 30, 2023, revenue was $336.9 million versus $326.2 million, net income was $79.0 million versus $66.6 million, diluted EPS was $0.70 versus $0.60, FFO available to common shareholders was $160.2 million versus $149.9 million, and same-center NOI was $233.5 million versus $218.6 million.
- Q3 rental revenue increased $5.3 million, supported by higher occupancy and positive leasing spreads, partly offset by lower variable rent tied to tenant sales.
- Comparable executed leasing volume increased to 1.762 million square feet from 1.732 million, while the rent spread increased to 15.2% from 5.6%.
- Q3 property operating expenses increased $0.7 million, while general and administrative expense increased $1.6 million due primarily to hiring, healthcare costs and executive placement fees.
- Nine-month interest expense increased $1.1 million to $36.0 million, reflecting higher rates and increased variable-rate debt, partly offset by higher capitalized interest.
Cash flow, liquidity and capital structure
| Metric | Nine months 2023 | Nine months 2022 |
|---|---|---|
| Cash flow from operating activities | $152.1 million | $122.7 million |
| Cash used in investing activities | $(87.1) million | $(31.4) million |
| Cash used in financing activities | $(88.3) million | $(71.8) million |
| Capital expenditures | $120.1 million | $45.7 million |
| Cash and cash equivalents at September 30 | $188.5 million | $180.7 million |
- Total debt was $1.427 billion at September 30, 2023, modestly below $1.428 billion at December 31, 2022. Debt consisted primarily of $1.039 billion of senior unsecured notes, a $325 million unsecured term loan and $65.3 million of mortgages.
- No borrowings were outstanding under the $520 million unsecured credit facilities, which include a $20 million liquidity line and a $500 million syndicated line. Reported total liquidity was approximately $721.6 million, including cash, short-term investments and undrawn credit capacity.
- Approximately 95% of outstanding debt was unsecured and 93% of the gross book value of real estate was unencumbered. The Company reported compliance with all debt covenants.
- Scheduled debt maturities are $1.2 million for the remainder of 2023, $5.1 million in 2024, $1.5 million in 2025, $407.4 million in 2026, $625.0 million in 2027 and $400.0 million thereafter.
- Cash dividends paid during the first nine months were $76.3 million, compared with $61.2 million in 2022. The quarterly dividend increased from $0.245 to $0.26 per share for the dividend declared in October 2023.
Material changes versus the prior comparable period
- Occupancy improved to 97.9% for consolidated centers from 96.4% in the comparable period; total portfolio occupancy was approximately 98% versus 96.5%.
- Leasing spreads strengthened materially, and management reported higher rental revenue from existing properties.
- Development spending increased substantially, primarily because of the Nashville project and other development, expansion and capital projects.
- Operating cash flow improved by $29.4 million, but increased capital expenditures and distributions produced a $23.7 million decrease in cash and cash equivalents during the first nine months, compared with a $19.5 million increase in 2022.
- Equity in earnings from unconsolidated joint ventures decreased $0.8 million for the first nine months, primarily because higher interest rates negatively affected two ventures.
- 2023 included an $0.8 million reversal of previously expensed compensation related to a voluntary executive departure; 2022 included $2.4 million of executive severance and a $2.4 million gain on sale of a non-real-estate asset.
Guidance, outlook, risks and unusual items
The filing does not provide clear quantitative earnings or FFO guidance. Management expects available cash, operating cash flow, existing credit capacity and potential debt or equity issuance to fund operations, debt service, dividends and planned capital expenditures for at least the next twelve months, while cautioning that capital-market access and pricing are subject to macroeconomic conditions.
- Key risks include inflation, rising interest rates, retail sales weakness, tenant bankruptcies or closures, supply-chain and labor disruptions, co-tenancy and sales-based rent provisions, lease rollover, property-value declines and access to capital.
- Approximately 1.9 million square feet, or 16% of the total portfolio including the Company’s share of joint ventures, was scheduled for renewal during 2023; 88.0% was executed or in process at September 30, 2023.
- One outlet center had an estimated fair value significantly below its approximately $110.6 million carrying value. Foxwoods continued to face leasing challenges that could result in additional impairment charges.
- The Company had a maximum guarantee of $10.0 million on unconsolidated joint-venture debt. Several joint-venture investments had negative carrying values because distributions exceeded contributions and equity earnings.
- Interest-rate swaps covered substantial variable-rate exposure. A 100-basis-point increase in SOFR was estimated to increase annual interest expense by approximately $0.8 million on unprotected exposure.
- Fitch assigned the Company and Operating Partnership a first-time BBB rating with a Stable outlook in May 2023, reducing applicable pricing margins on the term loan and credit facilities.
- Subsequent to quarter-end, the Company declared a $0.26 dividend, entered into additional forward-starting interest-rate swaps, changed its name to Tanger Inc. and increased its common-share ownership limit from 4% to 9.8%.
Important facts for investors to verify
- Whether Nashville achieves projected leasing, occupancy and NOI contributions after its October 2023 opening.
- The timing and refinancing plan for the $407.4 million of 2026 and $625.0 million of 2027 debt maturities.
- The sustainability of occupancy, leasing spreads, tenant sales and variable rental revenue amid changing consumer and retail conditions.
- Whether the center with estimated fair value below carrying value or the Foxwoods property requires future impairment charges.
- The effect of higher interest rates on consolidated debt and unconsolidated joint ventures, including the $10.0 million maximum joint-venture guarantee.
- Actual use of the $100 million share-repurchase authorization and the remaining approximately $57.4 million capacity under the ATM offering.
- Coverage of dividends by FFO and operating cash flow after development and recurring capital expenditures.