Tanger Inc. 2022 Q3 Form 10-Q Summary
Business Context and Reporting Period
Tanger Factory Outlet Centers, Inc. is a self-managed REIT that, through Tanger Properties Limited Partnership, owns and operates outlet shopping centers in the United States and Canada. As of September 30, 2022, the portfolio included 30 consolidated outlet centers totaling approximately 11.5 million square feet, one managed center, one center under construction, and six unconsolidated joint-venture centers totaling approximately 2.1 million square feet. This unaudited filing covers the three and nine months ended September 30, 2022, compared with the corresponding 2021 periods.
Financial Performance and Key Metrics
| Metric | Q3 2022 | Q3 2021 | 9M 2022 | 9M 2021 |
|---|---|---|---|---|
| Total revenue | $111.4 million | $112.5 million | $326.2 million | $314.4 million |
| Net income | $24.3 million | $(11.1) million | $66.6 million | $(4.1) million |
| Net income attributable to Tanger | $23.3 million | $(10.6) million | $63.7 million | $(4.0) million |
| Diluted EPS | $0.22 | $(0.11) | $0.60 | $(0.05) |
| FFO available to common shareholders | $51.7 million | $17.8 million | $149.9 million | $88.4 million |
| Core FFO available to common shareholders | $51.7 million | $51.8 million | $149.9 million | $138.7 million |
| Diluted Core FFO per share | $0.47 | $0.47 | $1.37 | $1.32 |
| Net cash from operating activities | Not separately reported | Not separately reported | $122.7 million | $144.0 million |
Revenue declined approximately 0.9% in the third quarter but increased approximately 3.7% for the first nine months. Net income margins were approximately 21.8% in Q3 2022 and 20.4% for the first nine months, compared with negative margins in the 2021 comparable periods because of prior-year debt-extinguishment charges. Consolidated same-center NOI increased to $75.3 million in Q3 from $73.8 million and to $219.6 million for the first nine months from $208.2 million.
- Portfolio occupancy was 96.4% at September 30, 2022, versus 94.3% at September 30, 2021. Total portfolio occupancy, including the pro rata share of joint ventures, was 96.5% versus 94.4%.
- Comparable executed lease rent spread was 5.6% for the trailing twelve months ended September 30, 2022, versus negative 3.1% in the prior-year period.
- Fixed rental revenue increased to $239.4 million for the nine months, while variable rental revenue declined to $72.2 million from $78.5 million.
- Cash and cash equivalents totaled $180.7 million at September 30, 2022, compared with $161.3 million at December 31, 2021.
- Total debt was $1.395 billion, consisting primarily of $1.038 billion of senior unsecured notes, $299.0 million of unsecured term-loan debt, and $59.0 million of mortgages.
- The Company reported approximately $700.7 million of total liquidity, including cash and the full undrawn capacity of its $520.0 million unsecured credit facilities.
Material Changes Versus the Prior Comparable Period
- Q3 and nine-month net income improved substantially because the 2021 periods included $33.8 million and $47.9 million, respectively, of losses on early extinguishment of debt.
- Interest expense declined by $1.6 million in Q3 and $6.1 million for the first nine months, primarily due to 2021 debt refinancing, redemptions, and term-loan paydowns.
- Rental revenue increased for the nine-month period because of higher occupancy and approximately $3.7 million of revenue-reserve reversals, partly offset by lower variable rent and the absence of certain prior-year lease-termination fees.
- General and administrative expense increased $2.6 million in Q3 and $4.9 million for the first nine months, primarily due to additional executives and key employees, higher travel costs, and $2.4 million of executive severance in 2022.
- Capital expenditures increased to $45.7 million from $23.7 million, primarily because of the Nashville development and other projects. Nashville is expected to open in fall 2023 and had approximately $21.8 million of costs incurred as of September 30, 2022.
- Net cash from operating activities declined by $21.0 million, while investing cash usage increased because of development spending and the Nashville land purchase. Financing cash usage decreased versus 2021 because the prior year included substantial debt redemptions and make-whole premiums.
Guidance, Outlook, Risks, and Unusual Items
The filing does not provide specific earnings or FFO guidance. Management expects available cash, operating cash flow, credit facilities, and access to debt or equity markets to fund operating expenses, debt service, planned capital expenditures, and REIT distributions for at least the next twelve months.
- Management cited continuing risks from COVID-19, inflation, rising interest rates, supply-chain disruptions, labor shortages, tenant bankruptcies, store closures, rent modifications, and weaker consumer or tenant sales.
- Percentage-rent provisions and tenant reimbursements may partially mitigate inflation, but lower tenant sales could reduce variable rent and increase tenant credit risk.
- Foxwoods continues to face leasing challenges and could require future impairment charges. Management stated that additional material impairment charges cannot be ruled out.
- At September 30, 2022, scheduled debt maturities were $44.9 million in 2023, $305.1 million in 2024, $355.7 million in 2026, and $700.0 million thereafter.
- In October 2022, the unsecured term loan was amended to increase borrowings from $300.0 million to $325.0 million and extend maturity to January 2027, with pricing changed from LIBOR plus 1.25% to Adjusted SOFR plus 1.20%.
- In October 2022, the Southaven joint-venture loan was increased to $51.7 million and extended to October 2026, with a one-year extension option.
- The Company had $14.9 million of interest-rate-swap assets at September 30, 2022 and expects approximately $10.5 million of accumulated hedge gains to be reclassified into earnings as a reduction of interest expense during the following twelve months.
- The Company and Operating Partnership were in compliance with debt covenants. Disclosure controls were effective, although new accounting-system technology was being implemented.
Important Facts for Investors to Verify
- Confirm the sustainability of occupancy gains, positive leasing spreads, and same-center NOI amid inflation and weakening retail-sector conditions.
- Assess exposure to variable-rate debt, the transition from LIBOR to Adjusted SOFR, and the effect of higher interest rates on joint ventures and interest expense.
- Review 2023-2026 debt maturities, refinancing requirements, covenant headroom, and the October 2022 term-loan amendment.
- Evaluate whether operating cash flow adequately covers dividends, recurring capital expenditures, development spending, and debt service.
- Monitor the Nashville development budget, construction progress, expected fall 2023 opening, and potential cost escalation.
- Review tenant collectibility, lease expirations, co-tenancy provisions, tenant bankruptcies, and the potential for additional impairment charges, particularly at Foxwoods.
- Distinguish GAAP earnings from FFO and Core FFO, which exclude or adjust for depreciation and other unusual items and are not measures of discretionary cash flow.