Tanger Inc. 2023 Form 10-K Summary
Business context and reporting period
This combined Form 10-K covers Tanger Inc. and Tanger Properties Limited Partnership for the fiscal year ended December 31, 2023. Tanger Inc. is a self-managed REIT whose operating assets and debt are primarily held by the Operating Partnership. The company owns and operates outlet and open-air retail centers in the United States and Canada and changed its legal name from Tanger Factory Outlet Centers, Inc. to Tanger Inc. effective November 16, 2023.
At year-end, the consolidated portfolio comprised 32 centers totaling approximately 12.7 million square feet, with 97% occupancy, more than 2,400 stores and approximately 660 brands. The company also held interests in six unconsolidated centers totaling approximately 2.1 million square feet and managed two additional centers totaling approximately 760,000 square feet.
Key financial metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $464.4 million | $442.6 million | +$21.8 million, approximately 4.9% |
| Rental revenue | $438.9 million | $421.4 million | +$17.5 million |
| Net income | $103.9 million | $85.8 million | +$18.1 million |
| Net income attributable to Tanger Inc. | $99.2 million | $82.1 million | +$17.1 million |
| Diluted earnings per share | $0.92 | $0.77 | +$0.15 |
| FFO available to common shareholders | $218.4 million | $201.5 million | +$16.9 million |
| Core FFO per diluted share | $1.96 | $1.83 | +$0.13 |
| Portfolio NOI | $320.3 million | $299.4 million | +$20.9 million |
| Same Center NOI | $317.2 million | $298.1 million | +$19.2 million |
| Net cash provided by operating activities | $229.6 million | $214.0 million | +$15.6 million |
Net income margin was approximately 22.4% of total revenue, compared with approximately 19.4% in 2022. Rental revenue included $343.4 million of fixed revenue and $95.5 million of variable revenue, primarily percentage rent and tenant expense reimbursements.
Year-end total debt was $1.439 billion, compared with $1.428 billion in 2022. Unsecured borrowings represented 96% of outstanding debt, and 93% of the gross book value of the real estate portfolio was unencumbered. Cash and cash equivalents were $12.8 million, compared with $212.1 million at the prior year-end, and short-term investments were $9.2 million.
Cash flow used in investing activities was $409.6 million, driven primarily by $188.2 million of capital expenditures and $259.7 million spent to acquire Asheville and Huntsville. Cash flow used in financing activities was $19.3 million. The company paid $103.8 million in common dividends during 2023 and declared a quarterly dividend of $0.26 per share in January 2024.
Material changes versus the prior comparable period
- Occupancy increased to 97% from 95% on an average portfolio basis; year-end consolidated occupancy was approximately 97.3% versus 96.9% in 2022.
- Average annual base rent increased to $26.07 per square foot from $25.25.
- Comparable executed leasing activity improved: rent spreads increased to 14.2% from 10.1%, while new initial rent increased to $38.52 per square foot from $31.58. Tenant allowances increased to $5.81 per square foot from $2.22.
- Rental revenue growth reflected higher occupancy and rents, partially offset by a $2.3 million decline in lease termination fees and the absence of $2.1 million of revenue from the property sold in 2022.
- General and administrative expense increased $4.6 million, primarily from higher compensation, share-based compensation and employee benefit costs.
- Interest expense increased $1.0 million because of higher variable interest rates, partly mitigated by interest-rate hedging and lower borrowing spreads following Fitch’s assignment of a BBB rating with a stable outlook.
- FFO and Core FFO increased despite higher interest costs. The 2023 Core FFO adjustment included a $0.8 million reversal of previously expensed compensation related to a voluntary executive departure; 2022 included $2.4 million of executive severance and a $2.4 million gain on sale of a non-real-estate asset.
- The company issued approximately 3.5 million common shares through its at-the-market program at an average price of $25.75, generating approximately $88.9 million of net proceeds. No shares were repurchased under the $100 million authorization.
- Capital expenditures increased to $188.2 million from $77.3 million, primarily due to the Nashville development and other property investments.
Growth, outlook and management commentary
- Nashville, Tennessee opened in October 2023 as a 291,000-square-foot outlet center and was approximately 96.5% occupied at opening.
- In November 2023, Tanger acquired Asheville Outlets in North Carolina for $70.0 million and Bridge Street Town Centre in Huntsville, Alabama for $193.5 million. Huntsville represents the company’s first open-air lifestyle center acquisition.
- Management expects 2024 capital expenditures of approximately $100 million, substantially below 2023 because Nashville development spending has largely concluded.
- Management stated that operating cash flow, cash on hand, available credit facilities and potential debt or equity issuance should provide sufficient liquidity for planned 2024 capital expenditures and near-term obligations, subject to capital-market conditions.
- The company expects to continue pursuing selective development, acquisitions, renovations, joint ventures and management opportunities, but reported no projects in the pre-development period as of the filing date.
- Approximately 2.6 million square feet, or 19% of the total portfolio including the company’s share of unconsolidated joint ventures, is scheduled for renewal in 2024. As of January 31, 2024, renewals were executed or in process for 23.8% of that space; approximately 93.0% of 2023 expirations had been executed or were in process at that date.
Debt, liquidity and unusual items
- Scheduled consolidated debt maturities and principal amortization are $5.1 million in 2024, $14.5 million in 2025, $407.4 million in 2026, $625.0 million in 2027 and $400.0 million thereafter. The next significant maturity is $350 million of senior notes due September 2026.
- The company had $13.0 million outstanding under unsecured lines of credit with total capacity of $520 million, including a $500 million syndicated facility and a $20 million liquidity line. The syndicated facility may be increased to $1.2 billion through an accordion feature under certain circumstances.
- Debt covenant compliance remained strong at year-end. Reported ratios included total consolidated debt to adjusted total assets of 38%, unencumbered assets to unsecured debt of 251%, and consolidated income available for debt service to annual debt service charge of 5.7 times.
- Variable-rate debt exposure was managed with $300 million of swaps that expired February 1, 2024 and $325 million of forward-starting swaps entered into during 2023 at an average fixed pay rate of 3.9%. A 100-basis-point change in SOFR was estimated to affect annual interest expense by approximately $0.9 million.
- One center had an estimated fair value below its approximately $111.1 million carrying value, but management concluded the asset remained recoverable under its current plan. No impairment charge was recorded in 2023. Future impairment remains possible if occupancy, cash flow forecasts, capitalization rates or holding-period assumptions deteriorate.
- The company’s legal proceedings arise in the ordinary course of business, and management does not expect their resolution to have a material adverse effect. The filing reports no cybersecurity incident that materially affected or is reasonably likely to materially affect the company.
Principal risks and contingencies
- Operating performance depends heavily on tenant sales, consumer spending, tourism, tenant credit quality, lease renewals and the broader retail environment. Bankruptcy, store closures or co-tenancy provisions could reduce rents or occupancy.
- Higher interest rates, inflation, capital-market volatility and refinancing requirements could increase debt service costs or restrict access to financing.
- Approximately 42% of consolidated portfolio square footage is in coastal areas and 14% is in areas exposed to rising sea levels, creating potential severe-weather, insurance and capital-expenditure risks.
- Joint ventures involve partner-consent requirements, refinancing risks and potential support obligations. The Operating Partnership guaranteed up to $10 million of joint-venture mortgage debt at year-end.
- REIT qualification requires compliance with complex tax rules and generally distributing at least 90% of taxable income. Debt agreements also limit distributions based on FFO.
- Critical accounting judgments include real-estate impairment testing, valuation of acquisitions and joint ventures, revenue recognition and collectability of tenant receivables.
Most important facts for an investor to verify
- Reconciliation of the company’s liquidity after the sharp decline in cash and cash equivalents caused by 2023 acquisitions and development spending.
- Refinancing strategy for the $350 million September 2026 maturity and the $625 million of scheduled 2027 maturities.
- Performance, occupancy and lease-up progress at Nashville, Asheville and Huntsville, including whether the acquisitions produce expected NOI and FFO growth.
- Renewal outcomes for the approximately 2.6 million square feet scheduled to expire in 2024 and the effect of tenant allowances on future returns.
- Exposure to variable interest rates after the February 2024 swap transition and the effect of future SOFR movements on interest expense.
- Valuation and operating performance of the center with approximately $111.1 million of carrying value exposure and the potential for future impairment.
- Coverage of the $0.26 quarterly dividend by recurring operating cash flow and FFO after capital expenditures, acquisitions and debt service.