Tanger Inc. 10-Q Summary — Quarter Ended September 30, 2020
Business context and reporting period
Tanger Factory Outlet Centers, Inc. is a self-managed REIT that owns and operates outlet shopping centers through Tanger Properties Limited Partnership. At September 30, 2020, the portfolio included 31 consolidated outlet centers totaling approximately 11.9 million square feet and seven unconsolidated centers totaling approximately 2.2 million square feet. The filing covers the three and nine months ended September 30, 2020 and compares results with the corresponding 2019 periods.
Financial performance and key metrics
| Metric | Q3 2020 | Q3 2019 | 9M 2020 | 9M 2019 |
|---|---|---|---|---|
| Total revenue | $103.2 million | $119.0 million | $278.8 million | $357.9 million |
| Net income (loss) | $13.7 million | $24.8 million | $(38.3) million | $105.1 million |
| Net income (loss) attributable to Tanger | $13.0 million | $23.5 million | $(36.5) million | $99.6 million |
| Diluted earnings per share | $0.14 | $0.25 | $(0.40) | $1.06 |
| FFO available to common shareholders | $42.6 million | $56.8 million | $101.4 million | $164.2 million |
| Core FFO per diluted share | $0.44 | $0.58 | $1.04 | $1.72 |
| Same Center NOI | $66.6 million | $77.5 million | $175.1 million | $227.3 million |
Q3 total revenue declined approximately 13.3% year over year, while the reported net margin was approximately 13.3% versus 20.8% in Q3 2019. For the first nine months, revenue declined approximately 22.1% and the reported net margin shifted to negative 13.7% from 29.4%.
- Rental revenue declined to $100.3 million in Q3 and $271.1 million for the nine months, primarily from COVID-19-related rent reductions, lower occupancy, tenant bankruptcies, concessions and reduced tenant sales.
- Property operating expense declined 10.1% in Q3 and 13.8% for the nine months due largely to reduced operating hours and lower activity during store closures.
- Interest expense increased to $15.6 million in Q3 and $47.8 million for the nine months, partly reflecting debt amendment costs, facility fees and the temporary revolver draw.
- Net cash provided by operating activities was $92.0 million for the nine months, down from $159.0 million in 2019.
- Capital additions to rental property were $23.1 million, compared with $35.2 million in the prior-year period.
- Cash and cash equivalents totaled $19.8 million at September 30, 2020, compared with $16.7 million at December 31, 2019.
Balance sheet, debt and liquidity
- Total debt was $1.568 billion at September 30, 2020, broadly unchanged from $1.570 billion at year-end 2019. Debt consisted primarily of $1.140 billion of senior unsecured notes, a $347.2 million unsecured term loan and $80.9 million of mortgages.
- The Company drew approximately $599.8 million under its $600 million unsecured lines of credit in March 2020 and repaid the entire balance between June and August. The lines had no outstanding balance at September 30.
- The Company reported approximately $640 million of total liquidity as of October 31, 2020, including cash and unused line capacity, and estimated monthly cash expenditures of approximately $22.5 million excluding dividends and debt maturities.
- Management stated that it was in compliance with debt covenants. Actual covenant metrics included total consolidated debt to adjusted assets of 47%, total secured debt to adjusted assets of 3%, and total unencumbered assets to unsecured debt of 203%.
- Approximately 92% of the gross book value of the real estate portfolio was unencumbered. Debt maturities totaled $57.2 million in 2021, $254.8 million in 2023 and $605.1 million in 2024.
Material changes versus the prior comparable period
- COVID-19 materially reduced collections, tenant sales, rental revenue and occupancy. Consolidated occupancy was 92.9% at September 30, 2020 versus 95.9% at September 30, 2019.
- By September 30, 99% of occupied stores had reopened, representing 98% of leased square footage and annualized base rent, but centers operated at reduced hours.
- Third-quarter rent collections improved to 89% by October 31, compared with 43% for the second quarter. Rent deferrals and other unresolved amounts remained significant.
- The Company recorded a $45.7 million non-cash impairment charge on the Foxwoods outlet center in the first quarter and recognized its $3.1 million share of an impairment charge at the Saint-Sauveur joint venture property.
- The Company sold the Terrell, Texas outlet center for net proceeds of $7.6 million and recorded a $2.3 million gain. The prior-year period included approximately $128.2 million of proceeds and a $43.4 million gain from four property sales.
- The Board suspended dividend distributions after the May 2020 payment, conserving approximately $35 million per quarter. Share repurchases were also suspended, and no shares were repurchased in 2020 through September 30.
- The Company recaptured approximately 586,000 square feet during the first nine months due to tenant bankruptcies and brand restructurings, compared with 195,000 square feet in the prior-year period.
Guidance, outlook, risks and unusual items
Management did not provide a quantitative earnings or revenue forecast. It stated that fourth-quarter 2020 revenue could be significantly lower than the comparable 2019 period and that the future impact of COVID-19 could not be determined.
- Management expected approximately 80 stores, representing about 400,000 square feet, to close between the fourth quarter of 2020 and the second quarter of 2021. The ultimate impact on occupancy, rents and termination fees remained uncertain.
- Tenant bankruptcies, rent deferrals, abatements, concessions and lease modifications could produce additional revenue reductions and impairments. Net tenant accounts receivable increased to approximately $32.3 million from $4.8 million at December 31, 2019.
- The Company recorded a $2.2 million reserve in Q3 and an $11.8 million reserve for the nine months for deferred and under-negotiation billings expected to become uncollectible. It also wrote off approximately $2.4 million of straight-line rent in Q3 and $6.1 million for the nine months.
- The Board continued to evaluate future dividends and expected to satisfy 2020 REIT taxable-income distribution requirements.
- The Nashville pre-development project and certain planned capital expenditures were deferred. Management expected center hours to increase to an average of 10 hours per day beginning November 6, 2020, from approximately eight hours after reopening.
- Material risks included renewed store closures, tenant bankruptcies, lower consumer spending, additional property impairments, covenant compliance, refinancing and capital-market access, joint-venture debt guarantees, interest-rate and LIBOR transition risk, Canadian currency exposure and cybersecurity threats.
Investor verification checklist
- Verify subsequent rent collections, deferred-rent repayments and the collectability of the approximately $18.5 million of deferred or unresolved receivables identified as particularly uncertain.
- Track tenant closures, bankruptcies, re-leasing spreads and occupancy through 2021, including the expected 80 store closures.
- Confirm the timing and amount of any resumed dividends and the effect of the suspension on REIT distribution requirements.
- Review Foxwoods and joint-venture property valuations for potential additional impairment charges.
- Monitor 2021–2024 debt maturities, credit-line renewal or extension terms, covenant headroom and access to debt or equity capital.
- Reconcile FFO and Core FFO trends with GAAP earnings and required capital expenditures, recognizing that non-GAAP measures do not represent discretionary cash flow.