TANGER INC. quarterly report, Q1 FY2023

Tanger Inc. Form 10-Q Summary

Business context and reporting period

Tanger Factory Outlet Centers, Inc. is a self-administered and self-managed REIT that owns and operates outlet shopping centers through Tanger Properties Limited Partnership. This combined, unaudited Form 10-Q covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022.

29 consolidated outlet centers totaling approximately 11.4 million square feet; portfolio occupancy was 97% at March 31, 2023.
Six unconsolidated outlet centers totaling approximately 2.1 million square feet, including two Canadian centers, plus one managed center.
One Nashville, Tennessee outlet center was under construction, with an expected opening in fall 2023.

Key financial metrics

Metric	Q1 2023	Q1 2022	Change
Total revenues	$108.9 million	$108.9 million	Approximately flat
Net income	$24.9 million	$21.5 million	+$3.4 million
Net income attributable to Tanger	$23.5 million	$20.5 million	+$3.0 million
Diluted EPS	$0.22	$0.19	+$0.03
FFO available to common shareholders	$52.0 million	$49.4 million	+$2.6 million
Core FFO available to common shareholders	$51.2 million	$49.4 million	+$1.8 million
Diluted FFO per share	$0.47	$0.45	+$0.02
Net cash provided by operating activities	$25.5 million	$18.7 million	+$6.8 million

Net income margin was approximately 22.8% in Q1 2023, compared with 19.7% in Q1 2022. FFO and Core FFO are non-GAAP measures and should not be viewed as substitutes for GAAP net income or as measures of discretionary cash available for dividends or investment.

Rental revenues decreased to $103.6 million from $104.6 million, primarily because the prior-year period included $2.6 million of significant lease termination fees. Existing-property rental revenue increased $1.3 million, supported by higher occupancy, but variable rental revenue declined.
Property operating expenses decreased $3.6 million to $33.1 million, primarily due to lower advertising and promotional costs and reduced snow-removal costs from a mild winter.
General and administrative expense increased $2.0 million to $17.4 million due to additional personnel and operating and growth initiatives.
Interest expense increased $0.7 million to $12.3 million because of higher interest rates and increased variable-rate debt.
Other income increased by approximately $2.6 million, primarily from higher investment income on short-term investments.

Liquidity, debt and capital expenditures

Cash and cash equivalents were $202.8 million at March 31, 2023, compared with $212.1 million at December 31, 2022. Short-term investments were $32.9 million.
Total debt was $1.428 billion, consisting principally of $1.039 billion of senior unsecured notes, a $325.0 million unsecured term loan and $67.6 million of mortgages. No borrowings were outstanding under the unsecured lines of credit.
Unsecured lines of credit provided total capacity of $520.0 million, including a $500.0 million syndicated facility and a $20.0 million liquidity line. Total reported liquidity was approximately $755.8 million, including cash, short-term investments and undrawn credit capacity.
Approximately 95% of outstanding debt was unsecured, and 92% of the gross book value of the real estate portfolio was unencumbered.
Scheduled debt maturities were $3.6 million for the remainder of 2023, $5.1 million in 2024, $1.5 million in 2025, $407.4 million in 2026, $625.0 million in 2027 and $400.0 million thereafter.
Capital expenditures on a cash basis were $25.9 million, up from $5.9 million, primarily due to the Nashville development and other projects.
Cash flow was used for $33.0 million of financing activities, including $24.6 million of dividends, $1.2 million of debt repayments and $5.6 million of employee tax withholding related to equity awards. Cash decreased $9.3 million during the quarter.

Material changes versus the prior comparable period

Portfolio occupancy improved: total portfolio occupancy, including the Company’s share of unconsolidated joint ventures, increased to 96.5% from 94.3%; consolidated existing-property occupancy increased to 96% from 94%.
Comparable executed lease rent spread increased to 14.1% from 1.1%, while comparable initial rent increased to $34.38 per square foot from $30.73.
Same Center NOI increased to $76.7 million from $71.0 million on a consolidated basis and to $83.6 million from $77.8 million including the pro rata share of unconsolidated joint ventures.
Net cash from operations increased despite nearly flat revenue, reflecting lower property operating expenses and working-capital changes.
In March 2023, the Company entered into $80.0 million of forward-starting interest-rate swaps effective February 1, 2024. In April 2023, it entered into an additional $20.0 million swap.
The Company granted approximately 323,829 restricted shares and units in March 2023 and issued 758,814 restricted shares under the 2020 Performance Share Plan in February 2023.

Guidance, outlook, risks and unusual items

No quantitative full-year earnings or FFO guidance is provided in the filing.
Nashville construction was approximately $62.8 million complete at March 31, 2023, with estimated total net costs of $142 million to $150 million, expected opening in the third quarter of 2023 and projected stabilized yield of 7.0% to 7.5%.
Management expects sufficient liquidity to fund operations, debt service, dividends and planned capital expenditures for at least the next twelve months, but notes that future access to capital could be affected by rising interest rates, inflation, economic uncertainty and credit-market conditions.
Management reported compliance with all debt covenants. Covenant compliance and dividend capacity could be affected by future operating performance or economic conditions.
Key risks include tenant sales and retailer health, consumer spending, lease renewals, co-tenancy and sales-based rent provisions, inflation, labor and supply-chain pressures, interest-rate exposure, refinancing risk, property impairment, joint-venture obligations, Canadian currency exposure and continued REIT qualification.
Foxwoods continues to face leasing challenges, and one outlet center had an estimated fair value significantly below its approximately $112.6 million carrying value. The filing states that additional impairment charges may occur.
Unconsolidated joint ventures had approximately $328.9 million of net debt, and the Company’s maximum guarantee of joint-venture debt was $10.0 million.
The April 2023 dividend was increased to $0.245 per common share and per Operating Partnership unit, payable May 15, 2023.

Important facts for investors to verify

Whether the Nashville project opens on schedule and within the $142 million to $150 million estimated cost range.
Progress on refinancing or otherwise addressing the $407.4 million of 2026 and $625.0 million of 2027 scheduled debt maturities.
Future interest expense and debt covenant headroom as SOFR and other market rates change.
Occupancy, tenant sales, lease renewal spreads and the potential effect of co-tenancy or sales-based rent provisions.
Whether the Foxwoods property or the center with approximately $112.6 million of carrying value requires an impairment charge.
The sustainability of dividends relative to FFO, operating cash flow and required capital expenditures.
Performance and refinancing requirements of unconsolidated joint ventures, including the Galveston/Houston maturity in July 2023 and the related guarantee exposure.