Tanger Inc. 2020 Second-Quarter Form 10-Q Summary
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-administered and self-managed REIT operating through Tanger Properties Limited Partnership. As of June 30, 2020, the portfolio included 32 consolidated outlet centers totaling approximately 12.1 million square feet and seven unconsolidated outlet centers totaling approximately 2.2 million square feet.
This unaudited filing covers the three and six months ended June 30, 2020, compared with the corresponding 2019 periods. Results were heavily affected by COVID-19-related store closures, rent deferrals, concessions, tenant bankruptcies and reduced tenant sales.
Financial Performance and Key Metrics
| Metric | Three Months Ended June 30 | Six Months Ended June 30 |
|---|---|---|
| Total revenue | $64.0 million, down 44.7% from $115.7 million | $175.6 million, down 26.5% from $238.9 million |
| Rental revenue | $62.3 million, down $50.1 million | $170.8 million, down $61.5 million |
| Net income attributable to Tanger | $(22.7) million, or $(0.25) per share | $(49.6) million, or $(0.54) per share |
| Consolidated net income | $(23.9) million | $(52.0) million |
| FFO available to common shareholders | $10.0 million, or $0.10 per diluted share | $58.8 million, or $0.60 per diluted share |
| Core FFO available to common shareholders | $10.0 million, or $0.10 per diluted share | $58.8 million, or $0.60 per diluted share |
| Same Center NOI | $37.4 million, down 51.0% | $108.9 million, down 27.7% |
| Net cash from operating activities | Not separately reported for the quarter | $14.2 million, down from $92.7 million |
Reported revenue and profitability were materially reduced by approximately $33.9 million of COVID-19-related revenue reductions in the second quarter, rent write-offs and concessions. The filing does not provide a single consolidated GAAP operating margin; based on reported revenue and total expenses, the pre-interest operating loss was approximately $4.4 million in the quarter and $19.1 million for the six months.
At June 30, 2020, cash and cash equivalents were $338.6 million, compared with $16.7 million at December 31, 2019. Total debt was $2.0 billion, compared with $1.6 billion at year-end, primarily reflecting pandemic-related borrowings under the unsecured lines of credit. Debt consisted principally of $1.14 billion of senior unsecured notes, $350.0 million of unsecured term debt, $81.0 million of mortgages and $399.8 million outstanding under unsecured lines of credit.
Total assets were $2.56 billion and total equity was $330.0 million at June 30, 2020. Net accounts receivable increased to approximately $42.0 million from $4.8 million at December 31, 2019, reflecting tenant collection issues. Occupancy at consolidated centers was 93.8%, compared with 96.0% a year earlier.
Material Changes Versus the Prior Comparable Period
- Second-quarter rental revenue decreased 44.6%, primarily because substantially all stores were closed by April 6 under government mandates and operated with reduced hours during reopening.
- Six-month net loss attributable to Tanger was $49.6 million versus net income of $76.1 million in 2019. The comparison also reflects the absence of the $43.4 million gain from 2019 sales of four non-core outlet centers.
- The company recorded a $45.7 million non-cash impairment charge on the Foxwoods outlet center during the first quarter and recognized its $3.1 million share of a $6.2 million impairment at the Saint-Sauveur joint venture property in the second quarter.
- Operating cash flow fell by $78.6 million year over year to $14.2 million. Investing cash flow changed from $116.3 million provided in 2019 to $16.8 million used in 2020, largely because 2019 included property-sale proceeds of $128.2 million.
- Financing activities provided $324.7 million, primarily because the company drew approximately $599.8 million on its credit facilities in March and repaid $234.2 million during the six months.
- The company paid the dividend declared in January 2020, including the May 15 payment, but suspended future dividend distributions to conserve approximately $35 million of cash per quarter. The board will reassess distributions quarterly.
- Capital expenditures declined to $16.5 million from $20.6 million, as development and nonessential projects were deferred.
Guidance, Outlook, Commentary and Risks
Management did not provide quantitative earnings or revenue guidance. It stated that the impact of COVID-19 on second-half 2020 rental revenue and subsequent periods could not be determined and that revenue could be significantly lower than the comparable 2019 period.
- As of June 30, 2020, 88% of occupied stores had reopened, representing 88% of leased square footage and 87% of annualized base rent. As of July 31, 2020, those figures had increased to 95%.
- Second-quarter rents billed totaled $97.5 million. As of July 31, $32.6 million had been collected, $25.6 million was deferred, $5.4 million remained under negotiation, $13.9 million represented concessions, $8.9 million related primarily to bankruptcies and $1.4 million was considered at risk because of tenant financial weakness.
- The company recorded a $9.7 million reserve for portions of deferred and negotiated rents expected to become uncollectible and a $3.7 million write-off of straight-line rents. Management identified $21.3 million of receivables associated with deferred payments and unresolved leases as a significant collection uncertainty.
- Fourteen retailers had filed for bankruptcy or announced brand-wide restructuring by the filing date. Ascena, Brooks Brothers, J.Crew and G-III Apparel represented notable exposure. The company had recaptured approximately 380,000 square feet during the first six months due to bankruptcies and restructurings.
- After June 30 and through July 31, the company repaid an additional $320 million of credit-facility borrowings. Management reported approximately $564 million of liquidity as of July 31, including cash and unused credit capacity, and estimated monthly cash expenditures of approximately $24 million for the remainder of 2020, excluding dividends and debt maturities.
- June debt amendments increased permitted surge leverage thresholds from 60% to 65% for twelve months beginning July 1, modified covenant calculation periods and prohibited share repurchases during that period. Management stated that it was in compliance with debt covenants at June 30, but warned that COVID-19 could affect future compliance and potentially cause acceleration of debt.
- Debt maturities include approximately $457.0 million in 2021, $254.8 million in 2023 and $605.1 million in 2024. The unsecured credit facilities mature in October 2021, with a one-year extension option.
- The company guarantees certain Operating Partnership debt and had maximum guarantees of approximately $16.4 million on unconsolidated joint venture debt. The Galveston/Houston joint venture extended its mortgage to January 2021 and was prohibited from making partner distributions during the first extension period.
- Interest-rate exposure remains material. A 100-basis-point change in LIBOR was estimated to change annual interest expense by approximately $4.1 million. The company had $390 million of swaps fixing current debt and $250 million of forward-starting swaps beginning in January 2021.
Most Important Facts for Investors to Verify
- Whether rent collections, deferred rents and tenant concessions improve sufficiently to support recurring cash flow.
- The ultimate store closures, lease modifications and recovery rates associated with tenant bankruptcies and restructurings.
- Compliance with leverage, interest coverage and other debt covenants as pandemic effects continue.
- Availability and cost of refinancing for the October 2021 credit-facility maturity and other near-term obligations.
- Whether additional property or joint venture impairments are required as operating forecasts and market values change.
- The timing and amount of any reinstated shareholder dividends, and whether REIT distribution requirements remain satisfied.
- Performance of Same Center NOI, occupancy and re-leasing spreads after the temporary reopening period.