Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc. (Tanger)
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2000
Tanger is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating factory outlet centers. As of December 31, 2000, the Company owned and operated 29 centers in 20 states with approximately 5.2 million square feet of gross leasable area (GLA). The portfolio was approximately 96% occupied, containing roughly 1,100 stores representing over 250 brands. The Company operates through Tanger Properties Limited Partnership (the Operating Partnership).
Key Financial Metrics
| Metric | 2000 | 1999 |
|---|---|---|
| Total Revenues | $108.8 million | $104.0 million |
| Net Income | $4.3 million | $15.6 million |
| Funds From Operations (FFO) | $38.2 million | $41.7 million |
| EBITDA | $67.8 million | $66.1 million |
| Operating Cash Flow | $38.3 million | $43.2 million |
| Total Assets | $487.4 million | $490.1 million |
| Long-Term Debt | $346.8 million | $329.6 million |
| Shareholders' Equity | $90.9 million | $107.8 million |
| Dividends Paid (Common) | $2.43 per share | $2.42 per share |
Liquidity: The Company maintained revolving lines of credit totaling $100 million, with $58.5 million available at year-end. Cash and cash equivalents totaled $0.6 million as of December 31, 2000.
Material Changes vs. Prior Period
- Net Income Decline: Net income dropped significantly from $15.6 million in 1999 to $4.3 million in 2000. This decrease was primarily driven by a $6.0 million loss on the sale of real estate (Lawrence, KS and McMinnville, OR centers) and a $1.8 million asset write-down for abandoned development costs in Fort Lauderdale, FL.
- Revenue Growth: Total revenues increased 4.6% to $108.8 million, driven by base rental increases from expansions and the acquisition of the Fort Lauderdale center, partially offset by the loss of rent from sold properties.
- Expense Increases: Property operating expenses rose 10% to $33.6 million due to higher real estate taxes and common area maintenance. Interest expense increased 13.7% to $27.6 million due to higher debt levels and interest rates.
- Portfolio Changes: The Company reduced its center count from 31 to 29 but increased GLA by 30,000 square feet through expansions in five existing centers, offsetting the sale of two centers.
Guidance, Outlook, and Risks
Outlook and Strategy: Management intends to increase revenues through new development, selective acquisitions, and expansions while minimizing operating expenses. The Company plans to strengthen its tenant base by replacing low-volume tenants with high-volume anchors. A low distribution payout ratio (71% of FFO in 2000) allows the retention of capital for reinvestment and debt reduction.
Development Pipeline:
- San Marcos, TX: ~97,000 sq. ft. expansion under construction, scheduled to open in 2001.
- Myrtle Beach, SC: Pre-development of a 400,000 sq. ft. center via a joint venture (Tanger-Warren), with stores expected to open in late 2002.
- Cape Cod, MA: Option to purchase a site for a 250,000 sq. ft. center; approvals anticipated by end of 2001, with openings expected mid-2003.
Risks and Contingencies:
- Lease Expirations: Approximately 30% of the lease portfolio is scheduled to expire in the next two years (701,000 sq. ft. in 2001 and 868,000 sq. ft. in 2002). Failure to renew or re-lease this space on favorable terms could materially impact results.
- Interest Rate Risk: The Company is exposed to interest rate fluctuations on variable-rate debt, though it utilizes interest rate swaps to mitigate this risk.
- Development Risks: Planned developments may not be completed as scheduled or may not result in accretive funds from operations.
Subsequent Event: In February 2001, the Operating Partnership issued $100 million of 9.125% senior unsecured notes to refinance maturing debt and repay a $20 million term loan.
Investor Verification Checklist
- Loss on Sale of Real Estate: Verify the $5.9 million loss recognized on the sale of the Lawrence, KS and McMinnville, OR centers and its impact on net income.
- Asset Write-Down: Confirm the $1.8 million non-cash charge related to the termination of the Fort Lauderdale, FL land purchase contract.
- Debt Maturities: Review the debt maturity schedule, noting that $76.9 million (22% of total debt) was due in 2001, which was addressed by the February 2001 bond offering.
- Lease Renewals: Assess the risk associated with the 30% of the portfolio expiring in 2001-2002 and the Company's ability to re-lease at current market rates.
- FFO vs. Net Income: Note the significant divergence between Net Income ($4.3M) and FFO ($38.2M) due to non-cash charges and depreciation, which is standard for REITs but critical for valuation.