SKT

Tanger Factory Outlet Centers, Inc. - Q1 2008 Filing Summary

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended March 31, 2008. Tanger Factory Outlet Centers, Inc. is a fully-integrated, self-administered REIT focused on developing, acquiring, owning, and operating factory outlet shopping centers. As of the reporting date, the company owned and operated 29 wholly-owned outlet centers totaling approximately 8.4 million square feet with a 95% occupancy rate. The company also holds interests in two unconsolidated joint ventures.

Key Financial Metrics

Dividends: The company paid $0.36 per common share in Q1 2008. On April 10, 2008, the Board declared a dividend of $0.38 per common share payable May 15, 2008.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 8% to $57.3 million. Base rentals rose 6% ($2.1 million) driven by lease renewals and re-tenanting at higher rates. Expense reimbursements increased 16%.
• Profitability: Net income more than doubled to $7.0 million. This was primarily due to a significant decrease in depreciation and amortization expenses ($2.9 million reduction) compared to Q1 2007, which included accelerated depreciation charges related to the demolition of buildings at the Foley, Alabama center.
• Interest Expense: Decreased 5% to $9.5 million following the repayment of $100 million in 9.125% senior notes in February 2008 using lower-cost unsecured credit facilities.
• Debt Structure: Total debt increased by $21.4 million. The company increased its unsecured credit facility availability by $125 million to $325 million and utilized these lines to fund construction activities and repay maturing notes.

Outlook, Risks, and Management Commentary

• Development Pipeline: The company is actively developing a new center in Washington County, PA (expected Q3 2008 opening) and expanding centers in Barstow, CA, and Myrtle Beach, SC. Capital commitments for construction and renovations total approximately $46.7 million.
• Leasing Activity: In Q1 2008, the company executed 239 leases totaling 1.1 million square feet with an average rental rate increase of 24.1%. Approximately 59.5% of the square footage scheduled to expire in 2008 has been renewed at an average 18% increase over expiring rates.
• Derivatives and Market Risk: The company holds two US Treasury rate lock derivatives with a combined fair value liability of $17.8 million. Management noted that the forecasted transactions for these hedges are now considered "reasonably possible" rather than "probable," meaning hedge accounting will be discontinued going forward, and future fair value changes will be recognized immediately in operations.
• Joint Ventures: The Deer Park, NY joint venture (33% interest) is under construction with a $112.2 million loan balance. The company provides joint and several guarantees for portions of debt in the Wisconsin Dells and Deer Park ventures.

Investor Verification Checklist

• Derivative Accounting Change: Verify the impact of discontinuing hedge accounting on future earnings volatility regarding the $17.8 million liability on US Treasury locks.
• Debt Refinancing: Monitor the refinancing decision for the $171.7 million mortgage maturing July 10, 2008, which carries an option to reset the interest rate to 8.59% if not repaid.
• Construction Progress: Track the opening timeline and leasing status of the Washington County, PA development and the Deer Park, NY joint venture.
• Lease Renewals: Assess the ability to renew the remaining 40.5% of 2008 expiring leases at favorable rates to maintain occupancy and rental growth.