Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc. (Tanger Inc.)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2003
Business Overview: A fully-integrated, self-administered REIT developing, owning, and operating factory outlet centers. As of September 30, 2003, the Company operated 33 centers in 20 states totaling 6.3 million square feet.
Key Financial Metrics
| Metric (in thousands) | 9 Months Ended Sep 30, 2003 | 9 Months Ended Sep 30, 2002 |
|---|---|---|
| Total Revenues | $89,093 | $81,248 |
| Net Income | $8,018 | $5,847 |
| Net Income Available to Common Shareholders | $7,212 | $4,518 |
| Diluted EPS (Net Income) | $0.72 | $0.55 |
| Funds from Operations (FFO) | $33,121 | $28,594 |
| Net Cash Provided by Operating Activities | $32,712 | $27,600 |
| Total Debt Outstanding | $327,333 | $345,005 |
| Cash and Cash Equivalents | $209 | $1,072 |
Occupancy: 95% as of September 30, 2003 (down from 96% in 2002).
Dividends: $1.84 per common share paid for the nine months ended September 30, 2003.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 9.7% year-over-year for the nine-month period, driven by an 8% increase in base rentals due to the acquisition of the Howell, Michigan center and expansions in Sevierville, Tennessee.
- Profitability: Net income increased 37% to $8.0 million. Income from continuing operations rose to $8.6 million from $4.7 million.
- Expense Trends: Property operating expenses increased 17% due to new acquisitions and portfolio-wide increases in taxes and maintenance. Interest expense decreased 8% to $19.7 million due to lower outstanding debt and favorable interest rates.
- Discontinued Operations: The 2003 period included a $735,000 loss on the sale of the Martinsburg, West Virginia property. The 2002 period included gains from the sale of properties in Ft. Lauderdale and Bourne, Massachusetts.
- Capital Structure: Total debt decreased by approximately $17.7 million. The Company redeemed all outstanding Series A Preferred Shares in June 2003.
Outlook, Guidance, and Risks
Management Commentary and Outlook
- Major Acquisition: On October 6, 2003, the Company announced a definitive agreement to acquire a portfolio of nine factory outlet centers (3.3 million sq. ft.) from Charter Oak Partners for $491 million (including $187 million debt assumption) in a joint venture with Blackstone Real Estate Advisors. Closing is expected in Q4 2003.
- Development: Continued expansion at the Myrtle Beach, SC joint venture (Phase 3 expected summer 2004) and early development of a site near Pittsburgh, PA.
- Leasing: Approximately 2.4 million square feet of space is scheduled for renewal in 2003 and 2004. The Company has renewed 78% of 2003 expirations at rates equal to expiring rates and re-tenanted vacant space at a 4% rate increase.
- Liquidity: The Company increased its unsecured revolving lines of credit commitment to $100 million. Management believes cash flow and existing facilities are sufficient to fund operations and planned capital expenditures.
Risks and Contingencies
- Guarantees: The Company provides joint and several guarantees for debt in unconsolidated joint ventures (TWMB and Deer Park). Under FIN 45, the Company must recognize liabilities for certain guarantees, though no significant liability was recorded as of the filing date.
- Market Risk: Exposure to interest rate fluctuations. A 1% increase in interest rates would decrease the fair value of long-term debt by approximately $11.0 million.
- Occupancy Risk: Four centers experienced negative occupancy trends of at least 10% year-over-year, though offset by gains elsewhere.
Investor Verification Checklist
- Charter Oak Acquisition: Verify the closing status and financing details of the $491 million Charter Oak portfolio acquisition announced in October 2003.
- Joint Venture Accounting: Confirm the accounting treatment (consolidation vs. equity method) for the new Charter Oak joint venture and the existing TWMB venture under FIN 46.
- Debt Guarantees: Review the impact of FIN 45 on the balance sheet regarding guarantees for the Deer Park and TWMB joint venture debts.
- Occupancy Trends: Investigate the specific performance of the four centers with double-digit occupancy declines to assess portfolio health.
- Cash Position: Monitor cash and cash equivalents, which dropped to $209,000 by period end, against upcoming dividend obligations and capital expenditures.