Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and six months ended June 30, 1999
Business Overview: The Company owns and operates factory outlet centers. As of June 30, 1999, the portfolio consisted of 31 centers in 23 states totaling 5.1 million square feet of Gross Leasable Area (GLA). Occupancy stood at 95%.
Key Financial Metrics
| Metric (in thousands) | 3 Months Ended June 30, 1999 |
6 Months Ended June 30, 1999 |
6 Months Ended June 30, 1998 |
|---|---|---|---|
| Total Revenues | $25,139 | $49,302 | $47,156 |
| Net Income | $2,844 | $5,221 | $7,048 |
| Net Income Available to Common Shareholders | $2,363 | $4,261 | $6,096 |
| Diluted EPS (Common) | $0.30 | $0.54 | $0.76 |
| Funds From Operations (FFO) | $9,850 | $19,423 | $19,453 |
| Net Cash Provided by Operating Activities | N/A | $24,567 | $16,729 |
| Total Debt | $308,759 | $308,759 | $302,485 |
| Cash and Cash Equivalents | $200 | $200 | $6,330 |
Note: FFO figures represent funds from operations before minority interest.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 3.2% for the quarter and 4.6% for the six-month period compared to 1998. Base rentals rose due to acquisitions and expansions, partially offset by the loss of rent from the Stroud, Oklahoma center destroyed by a tornado on May 3, 1999.
- Profitability Decline: Net income available to common shareholders decreased 15% for the quarter and 30% for the six-month period. This decline is primarily attributed to increased interest expense ($1.8M increase for six months) and depreciation, alongside an extraordinary loss of $249,000 related to the early extinguishment of debt.
- Expense Trends: Property operating expenses decreased on a per-square-foot basis due to lower advertising and common area maintenance costs. General and administrative expenses increased due to the relocation of corporate headquarters in April 1999.
- Liquidity: Cash and cash equivalents dropped significantly from $6.33 million to $0.2 million, driven by capital expenditures for expansions and dividend payments.
Guidance, Outlook, and Risks
- Expansion Pipeline: Approximately 204,000 square feet of expansions in five centers are under construction, scheduled to open in the second half of 1999. Commitments for these projects total approximately $4.3 million.
- Debt Refinancing: On March 18, 1999, the Company refinanced a $47.3 million loan with John Hancock Mutual Life Insurance, increasing the principal to $66.5 million, lowering the interest rate from 8.92% to 7.875%, and extending the maturity to 2009. This is expected to save approximately $300,000 in interest costs over the next twelve months.
- Dividends: The Board declared a quarterly common dividend of $0.605 per share, payable August 16, 1999.
- Material Risks:
- Stroud, Oklahoma Center: A tornado destroyed this center. Management believes insurance coverage for replacement cost and business interruption will prevent a material adverse effect, though the center remains non-operational.
- Related Party Transaction: The Company holds a $1.4 million note receivable from Chairman Stanley K. Tanger for an investment in a separate E-commerce business.
- Y2K Compliance: The Company is actively addressing Year 2000 issues. Estimated total compliance costs are expected to be less than $400,000. Risks include potential billing failures or third-party system disruptions.
- Market Conditions: Management notes a decline in real estate debt and equity markets, which may limit access to capital on favorable terms in the short term.
Investor Verification Checklist
- Verify the status of insurance claims and business interruption payments for the Stroud, Oklahoma center.
- Confirm the timeline and funding sources for the $4.3 million in committed construction expenditures.
- Monitor the repayment status of the $1.4 million related-party note to the Chairman.
- Assess the impact of the $32.7 million remaining availability on revolving credit lines against future capital needs.
- Review the progress of Y2K compliance testing for third-party vendors and tenants.