Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc. (Tanger)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2005
Business Overview: Tanger is a self-administered, self-managed REIT developing, owning, and operating factory outlet centers. As of September 30, 2005, the Company owned interests in or managed 33 centers in 22 states totaling 8.7 million square feet of gross leasable area (GLA). Occupancy stood at 97%.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended Sept 30, 2005 |
3 Months Ended Sept 30, 2004 |
9 Months Ended Sept 30, 2005 |
9 Months Ended Sept 30, 2004 |
|---|---|---|---|---|
| Total Revenues | $51,639 | $49,044 | $148,250 | $142,348 |
| Operating Income | $19,893 | $16,703 | $54,548 | $50,342 |
| Net Income (Loss) | $4,413 | $(2,015) | $4,964 | $2,742 |
| Diluted EPS | $0.15 | $(0.07) | $0.18 | $0.10 |
| Net Cash from Operating Activities | N/A | N/A | $60,303 | $62,696 |
| Total Debt | $434,569 | N/A | N/A | N/A |
| Cash and Equivalents | $6,219 | N/A | N/A | N/A |
Note: Total Debt and Cash figures are as of September 30, 2005. Nine-month operating cash flow is provided for the 9-month period.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 5.3% for the quarter and 4.2% for the nine months compared to the prior year periods. Base rentals increased due to a 6% average increase in renewal rates (quarter) and 7% (nine months). Percentage rentals rose significantly (41% quarter-over-quarter) driven by higher tenant sales.
- Profitability: Net income improved significantly from a loss of $2.0 million in Q3 2004 to a profit of $4.4 million in Q3 2005. This improvement is partly due to the absence of discontinued operations losses recorded in the prior year (sales of North Conway, NH and Dalton, GA properties).
- Expense Management: Property operating expenses increased 7% (quarter) and 9% (nine months), primarily due to higher advertising, common area maintenance, and snow removal costs. Interest expense decreased 11% (quarter) and 9% (nine months) due to reduced debt levels.
- Portfolio Changes: The Company sold the Seymour, Indiana outlet center in February 2005, recording a $3.8 million loss on sale. Conversely, the Company completed expansions in Locust Grove, GA, and Foley, AL.
Guidance, Outlook, and Risks
- Major Acquisition: In August 2005, Tanger agreed to acquire the remaining two-thirds interest in the Charter Oak portfolio (9 centers, 3.3 million sq. ft.) from Blackstone for $282.5 million. Closing is expected in November 2005, which will increase wholly-owned square footage by 66%.
- Debt Refinancing: On October 3, 2005 (subsequent to period end), the Company repaid $77.4 million in John Hancock mortgages. This triggered a non-recurring charge of approximately $9.8 million in Q4 2005 due to prepayment premiums and write-offs.
- Capital Markets: In September 2005, the Company issued 3 million common shares for net proceeds of $81.0 million. Moody's and S&P upgraded the Company's senior unsecured debt rating to investment grade (Baa3 and BBB-, respectively) following debt reductions.
- Development Pipeline: Construction is underway for expansions in Foley, AL, and Charleston, SC (new development). A new joint venture in Wisconsin Dells is expected to open in late 2006.
- Risks: Risks include the ability to finance the Blackstone acquisition, potential cost overruns in development, tenant bankruptcies, and the impact of high fuel prices on consumer travel to outlet centers.
Investor Verification Checklist
- Blackstone Acquisition Closing: Verify the successful closing of the $282.5 million Charter Oak portfolio acquisition and the associated financing terms.
- Q4 2005 Charge Impact: Confirm the recording of the ~$9.8 million non-recurring charge related to the early extinguishment of John Hancock debt and its impact on Q4 earnings.
- Debt Structure: Review the updated debt maturity schedule and interest rates following the repayment of the John Hancock mortgages and the potential new debt issuance for the Blackstone deal.
- Lease Renewals: Monitor the renewal rate for the 1.8 million square feet (21% of portfolio) coming up for renewal in 2005 to ensure rent growth targets are met.
- Joint Venture Litigation: Track the status of the litigation regarding the Deer Park, NY joint venture tenant who vacated the property but failed to satisfy lease termination conditions.