Tanger Reports Second Quarter 2008 Results
GREENSBORO, N.C., July 29 /PRNewswire-FirstCall/ -- Tanger Factory Outlet Centers, Inc. (NYSE: SKT) today reported funds from operations available to common shareholders ("FFO"), a widely accepted measure of REIT performance, for the three months ended June 30, 2008 of $15.1 million, or $0.40 per share, as compared to FFO of $22.1 million, or $0.59 per share, for the three months ended June 30, 2007. For the six months ended June 30, 2008, FFO was $37.9 million, or $1.01 per share, as compared to FFO of $43.5 million, or $1.16 per share, for the six months ended June 30, 2007.
FFO for the three and six months ended June 30, 2008 was impacted by a previously announced $8.9 million charge relating to the settlement of $200 million in 10 year US Treasury locks, as well as a $406,000 prepayment premium associated with the early extinguishment of debt. Excluding these two non- recurring charges, FFO for the second quarter and six months ended June 30, 2008 would have been $0.65 and $1.26 per share respectively, representing an increase of 10.2% for the three months ended June 30, 2008 and an increase of 8.6% for the six months ended June 30, 2008.
Net income available to common shareholders for the six months ended June 30, 2008 was $5.4 million or $0.17 per share, as compared to net income available to common shareholders of $6.9 million, or $0.22 per share, for the six months ended June 30, 2007. For the three months ended June 30, 2008, the company reported a net loss available to common shareholders of $119,000, or zero earnings per share, compared to net income of $5.0 million, or $0.16 per share, for the second quarter of 2007. Net income available to common shareholders for the three months and six months ended June 30, 2008 was also impacted by the non-recurring charges described above.
Net income and FFO per share amounts above are on a diluted basis. FFO is a supplemental non-GAAP financial measure used as a standard in the real estate industry to measure and compare the operating performance of real estate companies. A complete reconciliation containing adjustments from GAAP net income to FFO is included in this press release.
Second Quarter Highlights
-- Closed on a $235.0 million unsecured three year term loan with a rate of 160 basis points over LIBOR
-- Repaid last remaining mortgage loan with a principal balance of $170.7 million
-- 19.8% average increase in base rental rates on 184,000 square feet of signed renewals during the second quarter of 2008, 18.3% increase year to date compared to 13.6% year to date in 2007
-- 46.1% average increase in base rental rates on 124,000 square feet of re-leased space during the second quarter of 2008, 43.1% increase year to date compared to 40.1% year to date in 2007
-- 96.2% occupancy rate for wholly-owned properties, up 1.0% from March 31, 2008
-- $340 per square foot in reported same-space tenant sales for the rolling twelve months ended June 30, 2008
-- 3.9% increase in same center net operating income, 4.8% increase year to date
-- 34.8% debt-to-total market capitalization ratio, compared to 31.7% last year
-- 3.56 times interest coverage ratio for the three months ended June 30, 2008 compared to 3.24 times last year
Stanley K. Tanger, Chairman of the Board and Chief Executive Officer, commented, "Our results for the second quarter of 2008 were outstanding. Our adjusted funds from operations per share increased 10.2%, while same center net operating income increased almost 4% during the second quarter."
Portfolio Operating Results
During the second quarter of 2008, Tanger executed 79 leases, totaling 308,000 square feet within its wholly-owned properties. Lease renewals during the second quarter of 2008 accounted for 184,000 square feet and generated a 19.8% increase in average base rental rates on a straight-line basis. Base rental increases on re-tenanted space during the second quarter averaged 46.1% on a straight-line basis and accounted for the remaining 124,000 square feet. For the first six months of 2008, 984,000 square feet of renewals generated an 18.3% increase in average straight-line base rental rates, and represented approximately 73% of the square feet originally scheduled to expire during 2008. Re-tenanted space during the first six months totaled 403,000 square feet and generated a 43.1% increase in average base rental rates on a straight-line basis.
Same center net operating income increased 3.9% for the second quarter of 2008 compared to an increase of 2.3% during the second quarter of 2007 and increased 4.8% for the first six months of 2008 compared to 2.7% for the first six months of 2007. Reported tenant comparable sales per square foot for the rolling twelve months ended June 30, 2008 were $340 per square foot, up less than one percent compared to the twelve months ended June 30, 2007. Sales for the three months ended June 30, 2008 were down 3.8% and were impacted by the shift in the Easter holiday season to the first quarter, the general weakness in the U.S. economy, as well as severe weather and flooding in the Midwestern United States during the second quarter of the year.
Investment and Other Activities
Tanger continues the development, construction and leasing of two previously announced sites located in Washington County, south of Pittsburgh, Pennsylvania and in Deer Park (Long Island), New York. The first phase of the Washington County center will total 370,000 square feet, with leases for approximately 81% of the first phase signed and an additional 5% under negotiation or out for signature. The grand opening of this center is scheduled to occur on August 29, 2008. The Washington County center is wholly owned by Tanger.
The company currently expects the Deer Park center will contain over 800,000 square feet upon final build-out. Site work and construction continues on an initial phase of approximately 682,000 square feet. The company has approximately 69% of the space in the initial phase signed and an additional 9% under negotiation or out for signature. A grand opening celebration is currently scheduled for October 23, 2008. The Deer Park property is owned through a joint venture of which Tanger and two venture partners each own a one-third interest.
Tanger has entered into purchase options on new development sites located in Mebane, North Carolina; Port St. Lucie, Florida; Irving, Texas and most recently in Phoenix, Arizona. Tenant interest in these new locations remains high and Tanger is continuing with its predevelopment work at all four locations.
Financing Activities and Balance Sheet Summary
On June 11, 2008, Tanger closed on a $235.0 million unsecured three year term loan facility. The facility bears interest at a spread over LIBOR of 160 basis points, with the spread adjusting over time, based upon the debt ratings of the company. Tanger currently maintains investment grade ratings with Moody's Investors Service (Baa3 stable) and Standard and Poor's Ratings Services (BBB- positive).
In conjunction with the closing of the unsecured term loan facility discussed above, we settled interest rate lock protection agreements which were intended to fix the US Treasury index at an average rate of 4.62% for an aggregate amount of $200 million of new debt for 10 years from July 2008. We originally entered into these agreements in 2005 in anticipation of a public debt offering during 2008, based on the 10 year US Treasury rate. Upon the closing of the LIBOR based unsecured term loan facility, we determined the likelihood of such a US Treasury based debt offering to be not probable. The settlement of the interest rate lock protection agreements, at a total cost of $8.9 million, was reflected as a loss on settlement of US treasury rate locks in our consolidated statements of operations and funds from operations.
On June 26, 2008 the company used proceeds from the term loan to repay its only remaining mortgage loan with a principal balance of approximately $170.7 million two weeks ahead of its optional prepayment date. The $406,000 prepayment premium resulted from the lender's requirement that interest be paid through the optional prepayment date of July 10, 2008. As a result of the repayment of this mortgage, Tanger's entire portfolio of wholly-owned properties is now unencumbered. The remaining proceeds of approximately $62.8 million, net of closing costs, were applied against amounts outstanding on the company's unsecured lines of credit and to settle the interest rate lock protection agreements discussed above.
On July 9, 2008, Tanger entered into an interest rate swap agreement, which effectively changes the floating rate of interest on $118.0 million of the unsecured three year term loan facility to a fixed rate of 5.21%. The interest rate swap agreement expires on April 1, 2011.
As of June 30, 2008, Tanger had $762.1 million of debt outstanding, equating to a 34.8% debt-to-total market capitalization ratio. Taking into consideration the interest rate swap transaction discussed above, as of June 30, 2008, 67.8% of Tanger's debt was at fixed interest rates and the company had $128.3 million outstanding on its $325.0 million in available unsecured lines of credit. During the second quarter of 2008, Tanger continued to maintain a strong interest coverage ratio of 3.56 times, compared to 3.24 times during the second quarter of last year.
2008 FFO Per Share Guidance
Based on current market conditions and the strength and stability of its core portfolio, the company currently believes its net income for 2008, excluding gains or losses on the sale of real estate, will be between $0.65 and $0.71 per share and its FFO for 2008 will be between $2.40 and $2.46 per share. The company's earnings estimates do not include the impact of any potential gains on the sale of land parcels or the impact of any potential sales or acquisitions of properties. The following table provides the reconciliation of estimated diluted net income available to common shareholders per share to estimated diluted FFO per share:
For the twelve months ended December 31, 2008:
Low Range High Range
Estimated diluted net income per share $0.65 $0.71
Minority interest, gain/loss on the sale of
real estate, depreciation and amortization
uniquely significant to real estate including
minority interest share and our share of joint
ventures 1.75 1.75
Estimated diluted FFO per share $2.40 $2.46
Second Quarter Conference Call
Tanger will host a conference call to discuss its second quarter results for analysts, investors and other interested parties on Wednesday, July 30, 2008, at 10:00 A.M. eastern time. To access the conference call, listeners should dial 1-877-277-5113 and request to be connected to the Tanger Factory Outlet Centers Second Quarter Financial Results call. Alternatively, the call will be web cast by CCBN and can be accessed at Tanger Factory Outlet Centers, Inc.'s web site at http://www.tangeroutlet.com/investorrelations/news/ under the News Releases section.
A telephone replay of the call will be available from July 30, 2008 starting at 11:00 A.M. Eastern Time through August 12, 2008, by dialing 1-800-642-1687 (conference ID # 54104198). Additionally, an online archive of the broadcast will also be available through August 12, 2008.
About Tanger Factory Outlet Centers
Tanger Factory Outlet Centers, Inc. (NYSE: SKT), a fully integrated, self- administered and self-managed publicly traded REIT, presently owns and operates 29 outlet centers in 21 states coast to coast, totaling approximately 8.5 million square feet of gross leasable area. Tanger also operates two outlet centers containing approximately 667,000 square feet in which it owns a 50% interest. Tanger is filing a Form 8-K with the Securities and Exchange Commission that includes a supplemental information package for the quarter ended June 30, 2008. For more information on Tanger Outlet Centers, visit the company's web site at www.tangeroutlet.com.
Estimates of future net income per share and FFO per share are by definition, and certain other matters discussed in this press release regarding our re-merchandising strategy, the renewal and re-tenanting of space, tenant sales and sales trends, interest rates, funds from operations, the development of new centers, and coverage of the current dividend may be forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those projected due to various factors including, but not limited to, the risks associated with general economic and local real estate conditions, the availability and cost of capital, the company's ability to lease its properties, the company's inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, and competition. For a more detailed discussion of the factors that affect our operating results, interested parties should review the Tanger Factory Outlet Centers, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
TANGER FACTORY OUTLET CENTERS, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
REVENUES
Base rentals (a) $38,623 $36,318 $75,855 $71,407
Percentage rentals 1,120 1,662 2,298 3,129
Expense reimbursements 15,692 15,764 33,170 30,777
Other income 1,570 1,590 2,958 3,088
Total revenues 57,005 55,334 114,281 108,401
EXPENSES
Property operating 17,525 17,822 36,744 34,735
General and administrative 5,677 4,903 10,948 9,180
Depreciation and
amortization 14,690 15,490 30,273 33,929
Total expenses 37,892 38,215 77,965 77,844
Operating income 19,113 17,119 36,316 30,557
Interest expense (b) 9,496 10,072 19,044 20,128
Loss on settlement of US
treasury rate locks 8,910 --- 8,910 ---
Income before equity in
earnings of unconsolidated
joint ventures, minority
Interest and discontinued
operations 707 7,047 8,362 10,429
Equity in earnings of
unconsolidated joint ventures 558 334 952 569
Minority interest in operating
partnership 23 (982) (1,065) (1,346)
Income from continuing
operations 1,288 6,399 8,249 9,652
Discontinued operations, net of
minority interest (c) --- 26 --- 54
Net income 1,288 6,425 8,249 9,706
Preferred share dividends (1,407) (1,407) (2,813) (2,813)
Net income (loss) available to
common shareholders $(119) $5,018 $5,436 $6,893
Basic earnings per common
share:
Income (loss) from continuing
operations $--- $.16 $.18 $.22
Net income (loss) $--- $.16 $.18 $.22
Diluted earnings per common
share:
Income (loss) from continuing
operations $--- $.16 $.17 $.22
Net income (loss) $--- $.16 $.17 $.22
Funds from operations
available to common
shareholders (FFO) $15,117 $22,146 $37,920 $43,457
FFO per common share
- diluted $.40 $.59 $1.01 $1.16
Summary of discontinued
operations (c)
Income from discontinued
operations $--- $31 $--- $65
Minority interest in
discontinued operations --- (5) --- (11)
Discontinued operations, net
of minority interest $--- $26 $--- $54
(a) Includes straight-line rent and market rent adjustments of $1,283 and
$1,077 for the three months ended and $1,967 and $2,158 for the six
months ended June 30, 2008 and 2007, respectively.
(b) Includes prepayment premium of $406 for the three and six months ended
June 30, 2008 related to the repayment of our only remaining mortgage
which had a principle balance of $170.7 million.
(c) In accordance with SFAS No. 144 "Accounting for the Impairment or
Disposal of Long Lived Assets", the results of operations for
properties disposed of in which we have no significant continuing
involvement have been reported above as discontinued operations for
all periods presented.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
June 30, December 31,
2008 2007
(Unaudited) (Unaudited)
ASSETS:
Rental property
Land $130,077 $130,075
Buildings, improvements and fixtures 1,130,536 1,104,459
Construction in progress 90,430 52,603
1,351,043 1,287,137
Accumulated depreciation (333,995) (312,638)
Rental property, net 1,017,048 974,499
Cash and cash equivalents 1,088 2,412
Investments in unconsolidated joint ventures 11,667 10,695
Deferred charges, net 41,821 44,804
Other assets 28,097 27,870
Total assets $1,099,721 $1,060,280
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS'
EQUITY:
Liabilities
Debt
Senior, unsecured notes (net of discount of
$721 and $759, respectively) $398,779 $498,741
Unsecured term loan 235,000 ---
Mortgages payable (including a debt premium
of $0 and $1,046, respectively) --- 173,724
Unsecured lines of credit 128,300 33,880
Total debt 762,079 706,345
Construction trade payables 28,393 23,813
Accounts payable and accrued expenses 34,831 47,185
Total liabilities 825,303 777,343
Commitments
Minority interest in operating partnership 32,102 33,733
Shareholders' equity
Preferred shares, 7.5% Class C, liquidation
preference $25 per share, 8,000,000 shares
authorized, 3,000,000 shares issued and
outstanding at June 30, 2008 and December 31,
2007 75,000 75,000
Common shares, $.01 par value, 150,000,000
shares authorized, 31,619,721 and 31,329,241
shares issued and outstanding at June 30, 2008
and December 31, 2007, respectively 316 313
Paid in capital 355,733 351,817
Distributions in excess of earnings (189,458) (171,625)
Accumulated other comprehensive income (loss) 725 (6,301)
Total shareholders' equity 242,316 249,204
Total liabilities, minority interest
and shareholders' equity $1,099,721 $1,060,280
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except per share, state and center information)
Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
(unaudited) (unaudited) (unaudited) (unaudited)
FUNDS FROM OPERATIONS (a)
Net income $1,288 $6,425 $8,249 $9,706
Adjusted for:
Minority interest in
operating partnership (23) 982 1,065 1,346
Minority interest,
depreciation and
amortization
attributable to
discontinued operations --- 54 --- 108
Depreciation and
amortization uniquely
significant to real
estate - consolidated 14,608 15,412 30,116 33,776
Depreciation and
amortization uniquely
significant to real
estate -
unconsolidated joint
ventures 651 680 1,303 1,334
Funds from operations
(FFO) 16,524 23,553 40,733 46,270
Preferred share
dividends (1,407) (1,407) (2,813) (2,813)
Funds from operations
available to common
shareholders $15,117 $22,146 $37,920 $43,457
Funds from operations
available to common
shareholders per
share - diluted $.40 $.59 $1.01 $1.16
WEIGHTED AVERAGE SHARES
Basic weighted average
common shares 31,068 30,824 31,024 30,784
Effect of exchangeable
notes 223 381 223 381
Effect of outstanding
options 155 215 162 231
Effect of unvested
restricted share awards 102 127 120 141
Diluted weighted average
common shares (for
earnings per share
computations) 31,548 31,547 31,529 31,537
Convertible operating
partnership units (b) 6,067 6,067 6,067 6,067
Diluted weighted average
common shares (for funds
from operations per
share computations) 37,615 37,614 37,596 37,604
OTHER INFORMATION
Gross leasable area open
at end of period -
Wholly owned 8,453 8,354 8,453 8,354
Partially owned -
unconsolidated 667 667 667 667
Managed --- 229 --- 229
Outlet centers in
operation -
Wholly owned 29 30 29 30
Partially owned -
unconsolidated 2 2 2 2
Managed --- 2 --- 2
States operated in at end
of period (c) 21 21 21 21
Occupancy at end of
period (c) (d) 96.2% 96.6% 96.2% 96.6%
(a) FFO is a non-GAAP financial measure. The most directly comparable GAAP
measure is net income (loss), to which it is reconciled. We believe
that for a clear understanding of our operating results, FFO should be
considered along with net income as presented elsewhere in this
report. FFO is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and
compare one equity REIT with another on the basis of operating
performance. FFO is generally defined as net income (loss), computed
in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale or disposal of
depreciable operating properties, plus depreciation and amortization
uniquely significant to real estate and after adjustments for
unconsolidated partnerships and joint ventures. We caution that the
calculation of FFO may vary from entity to entity and as such the
presentation of FFO by us may not be comparable to other similarly
titled measures of other reporting companies. FFO does not represent
net income or cash flow from operations as defined by accounting
principles generally accepted in the United States of America and
should not be considered an alternative to net income as an indication
of operating performance or to cash flows from operations as a measure
of liquidity. FFO is not necessarily indicative of cash flows
available to fund dividends to shareholders and other cash needs.
(b) The convertible operating partnership units (minority interest in
operating partnership) are not dilutive on earnings per share computed
in accordance with generally accepted accounting principles.
(c) Excludes Myrtle Beach, South Carolina Hwy 17 and Wisconsin Dells,
Wisconsin properties which are operated by us through 50% ownership
joint ventures.
(d) Excludes our wholly-owned, non-stabilized center in Charleston, South
Carolina for the 2007 period.
SOURCE Tanger Factory Outlet Centers, Inc.
Released July 29, 2008