Tanger Factory Outlet Centers, Inc. - 2007 Annual Report (10-K) Summary
Business Context and Reporting Period
Company: Tanger Factory Outlet Centers, Inc. (Tanger)
Reporting Period: Fiscal year ended December 31, 2007
Business Model: A fully-integrated, self-administered Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating factory outlet shopping centers.
Portfolio: As of December 31, 2007, Tanger owned 29 wholly-owned outlet centers totaling approximately 8.4 million square feet (GLA) across 21 states. The portfolio was 98% occupied with over 1,800 stores representing approximately 370 brands. The company also held a 50% interest in two unconsolidated joint ventures (Myrtle Beach Hwy 17 and Wisconsin Dells) totaling 667,000 square feet.
Key Financial Metrics
| Metric | 2007 | 2006 |
|---|---|---|
| Total Revenues | $228.8 million | $211.0 million |
| Operating Income | $71.6 million | $68.9 million |
| Net Income | $28.6 million | $37.3 million |
| Funds from Operations (FFO) | $99.3 million | $88.7 million |
| FFO Available to Common Shareholders | $93.7 million | $83.2 million |
| Diluted EPS (Net Income) | $0.72 | $1.03 |
| Cash Flow from Operating Activities | $98.6 million | $88.4 million |
| Total Debt | $706.3 million | $678.6 million |
| Shareholders' Equity | $249.2 million | $274.7 million |
Dividends: Common dividends paid were $1.42 per share in 2007. Preferred dividends were $1.875 per share on 3,000,000 Class C shares.
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 8.4% to $228.8 million. Base rentals increased 6.3% ($8.7 million) driven by lease renewals at higher rates and incremental rents from re-tenanting. Percentage rentals increased 22% due to high-volume tenants exceeding breakpoints.
- Net Income Decline: Net income decreased 23.4% to $28.6 million. This decline was primarily due to the absence of a $13.8 million gain on the sale of real estate recorded in 2006 (discontinued operations) and a $6.0 million charge for accelerated depreciation related to the reconfiguration of the Foley, Alabama center.
- Expense Increases: Property operating expenses rose 11% (excluding a one-time 2006 charge) due to the full-year impact of the Charleston, SC center, higher snow removal costs, and increased insurance premiums. General and administrative expenses increased 14% due to compensation costs for restricted shares and executive bonuses.
- Portfolio Changes: The company completed expansions in Gonzales, LA; Branson, MO; and Tilton, NH (totaling 82,000 sq. ft.). The Barstow, CA expansion was near completion. The company sold the Boaz, AL center in October 2007.
Guidance, Outlook, and Risks
Development Pipeline:
- Pittsburgh, PA: Wholly-owned development; initial phase (370,000 sq. ft.) expected to open Q3 2008. 63% pre-leased.
- Deer Park, NY: 33.3% joint venture; initial phase (682,000 sq. ft.) expected to open Q3 2008. 51% pre-leased.
- Future Sites: Options held for Mebane, NC, and Port St. Lucie, FL. Burlington, NJ project was put on hold.
Liquidity and Capital Resources:
- Extended maturity dates on five unsecured credit lines to June 2011.
- In Q1 2008, increased unsecured credit facility availability by $125 million to $325 million.
- Repaid $100 million in senior notes maturing Feb 2008 using credit facilities.
- One remaining mortgage ($172.7 million) becomes payable at option in July 2008; final maturity is 2028.
Risks and Contingencies:
- Interest Rate Risk: Exposure to variable rates on unsecured lines of credit and joint venture debt. The company utilizes interest rate swaps and treasury locks to hedge.
- Lease Expirations: Approximately 16% of GLA (1.34 million sq. ft.) is scheduled for renewal in 2008. Failure to renew at favorable rates could materially impact results.
- REIT Status: Must distribute at least 90% of taxable income to maintain tax-advantaged status.
- Market Conditions: High fuel prices may impact consumer travel to outlet centers, particularly those near tourist destinations.
Investor Verification Checklist
- Debt Refinancing: Verify the company's ability to refinance or repay the $172.7 million mortgage due July 2008 and the $100 million senior notes repaid in early 2008.
- Development Progress: Monitor the leasing status and opening dates for the Pittsburgh and Deer Park developments to ensure they meet Q3 2008 targets.
- Lease Renewals: Track the renewal rate and rental rate increases for the 1.34 million square feet of space expiring in 2008.
- FFO vs. Net Income: Note the significant divergence between Net Income ($28.6M) and FFO ($99.3M) due to non-cash depreciation and the absence of 2006 property sale gains.
- Joint Venture Guarantees: Review the company's exposure to joint venture debt guarantees, specifically the $87.3 million construction loan for Deer Park and $25.3 million for Wisconsin Dells.