Tanger Inc. — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. The filing is an annual report, not a standalone fourth-quarter filing; it includes unaudited quarterly data for 2013 and 2012. The report combines Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership, which management operates as one enterprise.
Business context
- Tanger is a self-administered and self-managed REIT focused on developing, acquiring, owning and operating outlet shopping centers in the United States and Canada.
- At year-end, the consolidated portfolio included 37 centers totaling approximately 11.5 million square feet, with approximately 99% occupancy, more than 2,400 stores and about 400 brands.
- The company also held interests in seven unconsolidated joint-venture centers totaling approximately 1.7 million square feet.
Key financial metrics
| Metric | 2013 | 2012 | Change |
|---|---|---|---|
| Total revenues | $385.0 million | $357.0 million | +7.8% |
| Operating income | $127.9 million | $109.6 million | +16.7% |
| Operating margin | 33.2% | 30.7% | Expanded |
| Net income | $113.3 million | $56.5 million | +100.7% |
| Net income attributable to Tanger | $107.6 million | $53.2 million | +102.1% |
| Diluted earnings per share | $1.13 | $0.57 | +98.2% |
| Funds from operations | $194.3 million | $162.5 million | +19.6% |
| Diluted FFO per share | $1.94 | $1.63 | +19.0% |
| AFFO available to common shareholders and OP noncontrolling interests | $186.0 million | $162.4 million | +14.6% |
| Diluted AFFO per share | $1.88 | $1.65 | +13.9% |
| Cash flow from operating activities | $187.5 million | $165.8 million | +13.1% |
| Capital expenditures, cash basis | $47.4 million | $41.3 million | +14.9% |
Revenue growth was led by an $18.2 million increase in base rentals and an $8.5 million increase in expense reimbursements. Same-center NOI on a cash basis increased to $244.3 million from $234.2 million, or approximately 4.3%.
Common dividends paid increased to $0.885 per share from $0.830. The company distributed approximately $83.4 million to shareholders versus an estimated $59.7 million required to maintain REIT status.
Balance sheet, debt and liquidity
- Total assets increased to $2.01 billion from $1.68 billion, primarily reflecting the consolidation of Deer Park and continued investment in properties and joint ventures.
- Total debt was $1.33 billion versus $1.09 billion. Approximately 81% of outstanding debt was unsecured, and approximately 80% of the gross book value of the real estate portfolio was unencumbered.
- The company had $15.2 million of cash and $520.0 million of unsecured revolving credit capacity, of which $16.2 million was outstanding at year-end. The facilities mature in October 2017, with a one-year extension option.
- Debt maturities include approximately $282.3 million in 2015, $30.3 million in 2016, $26.7 million in 2017 and $153.2 million in 2018, based on scheduled contractual payments.
- Debt covenant compliance was reported, with actual total debt to adjusted total assets of 48% versus a covenant limit below 60%, secured debt to adjusted total assets of 9% versus a limit below 40%, and unencumbered assets to unsecured debt of 188% versus a required minimum of 150%.
- Variable-rate exposure was approximately 21% of outstanding debt, excluding debt protected by interest-rate agreements. Management estimated that a 100-basis-point increase in LIBOR would increase annual interest expense by approximately $2.7 million.
Material changes versus the prior comparable period
- Deer Park acquisition and consolidation: In August 2013, Tanger acquired an additional one-third interest in Deer Park, Long Island, bringing its ownership to two-thirds and resulting in consolidation. The transaction added approximately $237.9 million of debt and produced a $26.0 million gain on the previously held interest. Deer Park contributed $11.1 million of revenue and a $3.5 million net loss from the acquisition date through year-end.
- Joint-venture earnings improved: Equity in earnings of unconsolidated joint ventures increased to $11.0 million from a $3.3 million loss. The improvement included Tanger’s share of a Deer Park debt-extinguishment gain and litigation settlement proceeds totaling approximately $7.8 million.
- Financing activity: Tanger issued $250.0 million of 3.875% senior notes due 2023, receiving approximately $243.6 million of net proceeds used to repay revolver borrowings. It also extended its revolving credit maturities and reduced the LIBOR spread to 1.00%.
- Portfolio expansion: Gonzales and Sevierville expansions added approximately 40,000 and 20,000 square feet, respectively. Construction began at Foxwoods, Connecticut, and several joint-venture developments advanced, including National Harbor, Charlotte, Ottawa and Cookstown.
- Leasing performance: Approximately 2.0 million square feet expired in 2013. Tanger renewed 81% of that space at a 19% average base-rent increase and re-leased 510,000 square feet to new tenants at a 38% average base-rent increase.
Outlook, management commentary and risks
- Management expected sufficient liquidity to fund 2014 operating needs, debt service, dividends and planned capital expenditures through operating cash flow, credit facilities, joint ventures and potential debt or equity offerings.
- Planned developments included Foxwoods, expected to open in the second quarter of 2015, and Grand Rapids, expected to open in the second half of 2015. The company was also evaluating additional developments and expansions but cautioned that these projects might not proceed.
- Five consolidated centers were being marketed for potential sale, but no binding contracts or board approvals had been obtained. Proceeds, if realized, could be used for development, debt reduction or general corporate purposes.
- Material risks include tenant bankruptcies or store closures, short lease terms and renewal risk, dependence on consumer spending and tenant sales, competition for outlet properties, development delays and cost overruns, real estate impairment, interest-rate and refinancing risk, joint-venture partner decisions, environmental and insurance exposures, cyberattacks, and the ability to maintain REIT qualification.
- Outstanding commitments included approximately $71.4 million for consolidated construction and development contracts, $14.4 million of tenant allowances, $42.9 million for the company’s share of joint-venture construction commitments and $3.7 million of joint-venture tenant allowances. A Deer Park redemption obligation of $28.4 million was recorded as a deferred financing obligation.
- Legal proceedings arose in the ordinary course of business; management stated that their resolution was not expected to materially affect results, financial condition or cash flows.
- PricewaterhouseCoopers issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported effective disclosure controls and internal controls for both registrants.
Most important facts for investors to verify
- Reconcile reported 2013 earnings and EPS for the $26.0 million Deer Park remeasurement gain and approximately $7.8 million of unusual joint-venture gains.
- Assess recurring FFO and AFFO growth separately from acquisition, litigation and debt-extinguishment items.
- Review the 2015–2018 debt maturities, revolver availability, covenant headroom and refinancing assumptions.
- Monitor Deer Park performance, its $150.0 million mortgage, the $28.4 million redemption obligation and the property’s lease expirations.
- Evaluate the funding requirements and execution risks for Foxwoods, Grand Rapids and joint-venture projects, including approximately $85.8 million of consolidated and joint-venture capital commitments.
- Track occupancy, tenant sales, renewal spreads and exposure to major tenant failures or changes in consumer shopping behavior.
- Confirm whether the proposed asset dispositions and Savannah development were completed after the filing date.