Tanger Inc. 2023 Q2 Form 10-Q Summary
Business Context and Reporting Period
Unaudited results for the three and six months ended June 30, 2023, compared with the comparable 2022 periods. Tanger is a self-managed REIT focused on owning and operating outlet shopping centers in the United States and Canada through Tanger Properties Limited Partnership.
- 29 consolidated outlet centers totaling approximately 11.3 million square feet; occupancy was 97.1% at June 30, 2023.
- Six unconsolidated outlet centers totaling approximately 2.1 million square feet and one managed center.
- Approximately 2,300 stores and 600 brands across the consolidated portfolio.
Financial Results and Key Metrics
| Metric | Q2 2023 | Q2 2022 | Change |
|---|---|---|---|
| Total revenues | $110.6 million | $105.8 million | +4.5% |
| Net income | $25.3 million | $20.8 million | +21.5% |
| Net income attributable to Tanger | $24.2 million | $19.9 million | +21.6% |
| Diluted EPS | $0.23 | $0.19 | +$0.04 |
| FFO available to common shareholders | $52.4 million | $48.8 million | +7.3% |
| Core FFO available to common shareholders | $52.4 million | $48.8 million | +7.3% |
| FFO per diluted share | $0.47 | $0.45 | +4.4% |
| Same Center NOI | $76.3 million | $72.8 million | +4.8% |
Net income margin increased to approximately 22.9% from 19.7%. Revenue growth reflected higher occupancy, positive leasing spreads, increased management and leasing fees, and higher ancillary revenue. Property operating expenses rose 3.1%, while general and administrative expenses declined 5.3% because prior-year executive severance costs did not recur. Interest expense increased 3.4% due to higher rates and increased variable-rate debt. Equity earnings from unconsolidated joint ventures declined because of higher interest expense at certain ventures.
| Metric | Six months 2023 | Six months 2022 | Change |
|---|---|---|---|
| Total revenues | $219.6 million | $214.7 million | +2.3% |
| Net income | $50.2 million | $42.3 million | +18.6% |
| Net income attributable to Tanger | $47.7 million | $40.4 million | +18.1% |
| Diluted EPS | $0.45 | $0.38 | +$0.07 |
| FFO available to common shareholders | $104.4 million | $98.2 million | +6.3% |
| Core FFO available to common shareholders | $103.6 million | $98.3 million | +5.4% |
| Same Center NOI | $153.0 million | $143.8 million | +6.4% |
Six-month net income margin was approximately 22.8%, compared with 19.7% in the prior-year period. Operating cash flow increased to $98.9 million from $89.1 million. Capital expenditures increased substantially to $71.8 million from $25.7 million, primarily because of the Nashville development and other projects. Cash dividends paid increased to $50.5 million from $40.3 million.
Balance Sheet, Debt and Liquidity
- Total assets were $2.20 billion and total liabilities were $1.69 billion at June 30, 2023.
- Total debt was $1.43 billion, consisting primarily of $1.04 billion of senior unsecured notes, a $325.0 million unsecured term loan, and $66.5 million of mortgages.
- No borrowings were outstanding under the $520.0 million unsecured credit facilities, comprising a $20.0 million liquidity line and a $500.0 million syndicated line.
- Cash and cash equivalents were $213.0 million, and short-term investments were $15.4 million.
- Management reported total liquidity of approximately $748.4 million, including cash, short-term investments and undrawn credit capacity.
- Approximately 95% of outstanding debt was unsecured, and 93% of the gross book value of real estate was unencumbered.
- Scheduled debt maturities are $2.4 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.
- The Company and Operating Partnership were in compliance with all debt covenants. Fitch assigned a first-time BBB rating with a Stable outlook in May 2023.
Material Changes and Unusual Items
- Portfolio occupancy improved to 97.1% from 94.8% for comparable consolidated properties.
- Comparable executed lease spreads increased to 13.8% from 4.0%, with higher initial rent per square foot.
- Management and leasing revenue benefited from additional property management responsibilities added in 2022.
- Six-month property operating expenses benefited from lower snow removal costs and timing of advertising and promotional spending.
- Six-month results included an $806,000 reversal of previously expensed compensation related to a voluntary executive departure; 2022 included $2.4 million of executive severance.
- The prior-year six-month period included a $2.4 million gain on the sale of a corporate aircraft and $2.6 million of lease termination fees, neither of which materially recurred in 2023.
- Capital expenditures for new developments and expansions were $58.8 million in the first half of 2023, versus $18.6 million in the prior-year period.
Development, Capital Allocation and Outlook
- The Nashville outlet center is approximately 290,000 square feet, with an estimated total cost of $143 million to $147 million, projected opening in October 2023 and projected stabilized yield of 7.5% to 8.0%. Costs incurred through June 30, 2023 were $89.3 million.
- Management expects available cash, operating cash flow, credit facilities and access to debt or equity markets to fund planned capital expenditures and obligations for at least the next twelve months.
- The ATM program had approximately $60.1 million of remaining capacity; no shares were sold under the program during the first half of 2023.
- A new $100 million share repurchase authorization was approved through May 31, 2025. No shares were repurchased during the quarter.
- The quarterly dividend was increased to $0.245 per common share for the May 2023 payment, and the same amount was declared for payment in August 2023.
Risks and Contingencies
Management highlighted risks from rising interest rates, inflation, labor and supply-chain pressures, weaker consumer spending, retailer financial stress, lease renewals, co-tenancy and sales-based rent provisions, property impairment, capital-market access, refinancing, joint-venture debt and guarantees, Canadian investments, and the ability to maintain REIT qualification. Approximately 1.9 million square feet, or 16% of the total portfolio including the Company’s share of joint ventures, was scheduled for renewal during 2023; 64.4% had been executed or was in process as of June 30, 2023.
One property had an estimated fair value materially below its approximately $111.4 million carrying value, and Foxwoods continued to face leasing challenges. Management stated that additional impairment charges could occur if market conditions, occupancy, cash-flow forecasts, capitalization rates or expected holding periods deteriorate. Legal proceedings were described as routine, with no expected material adverse effect.
Important Facts for Investors to Verify
- Progress, cost and opening timing of the Nashville development.
- Refinancing plans for the $407.4 million of debt maturing in 2026 and $625.0 million maturing in 2027.
- Sustainability of occupancy, leasing spreads, tenant sales and same-center NOI amid retail and macroeconomic pressure.
- Interest-rate sensitivity, including the stated approximate $767,000 annual interest-expense impact from a 100-basis-point SOFR change.
- Potential impairment exposure, particularly at Foxwoods and the property with carrying value materially above estimated fair value.
- Coverage of the $0.245 quarterly dividend after capital expenditures, debt service and joint-venture requirements.
- Use of the $100 million repurchase authorization and the remaining ATM capacity.