Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
SKT > SEC Filings for SKT > Form 10-Q on 8-May-2014All Recent SEC Filings

Show all filings for TANGER FACTORY OUTLET CENTERS INC

Form 10-Q for TANGER FACTORY OUTLET CENTERS INC


8-May-2014

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three months ended March 31, 2014 with the three months ended March 31, 2013. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term, "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, "Operating Partnership", refers to Tanger Properties Limited Partnership and subsidiaries. The terms "we", "our" and "us" refer to the Company or the Company and the Operating Partnership together, as the text requires.

Cautionary Statements

Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - "Risk Factors" in the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2013. There have been no material changes to the risk factors listed there through March 31, 2014.


General Overview

At March 31, 2014, we had 37 consolidated outlet centers in 24 states totaling
11.5 million square feet. The table below details our development activities at
consolidated centers that significantly impacted our results of operations and
liquidity from January 1, 2013 to March 31, 2014.
                                                                               Square Feet
             Center                Date Acquired/Open/Disposed/Demolished     (in thousands)     Centers     States
As of January 1, 2013                                                              10,737            36         24
Expansion:
Gonzales, LA                           First and second quarters 2013                  40             -          -
Sevierville, TN                              Third quarter 2013                        19             -          -
Acquisition:
Deer Park, NY (1)                            Third quarter 2013                       742             1          -
Other                                                                                  (1 )
As of December 31, 2013                                                            11,537            37         24
no activity
As of March 31, 2014                                                               11,537            37         24

(1) The Company acquired a controlling interest in the Deer Park, NY center on August 30, 2013.


The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of March 31, 2014. Except as noted, all properties are fee owned.

      Consolidated Outlet Centers           Square         %
Location                                     Feet       Occupied
Deer Park, New York                          741,981          92
Riverhead, New York (1)                      729,734          98
Rehoboth Beach, Delaware (1)                 564,593          98
Foley, Alabama                               557,014          96
Atlantic City, New Jersey (1)                489,762          93
San Marcos, Texas                            441,821         100
Sevierville, Tennessee (1)                   438,335          99
Myrtle Beach Hwy 501, South Carolina         425,247          98
Jeffersonville, Ohio                         411,776          95
Myrtle Beach Hwy 17, South Carolina (1)      402,791          99
Pittsburgh, Pennsylvania                     372,972          96
Commerce II, Georgia                         370,512          94
Charleston, South Carolina                   365,107          98
Howell, Michigan                             324,652          98
Locust Grove, Georgia                        321,070          99
Mebane, North Carolina                       318,910          99
Gonzales, Louisiana                          318,666          98
Branson, Missouri                            302,922          99
Park City, Utah                              298,391          97
Westbrook, Connecticut                       289,898          99
Williamsburg, Iowa                           277,230         100
Lincoln City, Oregon                         270,212          99
Lancaster, Pennsylvania                      254,002          99
Tuscola, Illinois                            250,439          90
Hershey, Pennsylvania                        247,500         100
Tilton, New Hampshire                        245,698          98
Hilton Head II, South Carolina               206,544          97
Fort Myers, Florida                          198,877          93
Ocean City, Maryland (1)                     198,840          97
Terrell, Texas                               177,800          97
Hilton Head I, South Carolina                177,199          98
Barstow, California                          171,300         100
West Branch, Michigan                        112,570          98
Blowing Rock, North Carolina                 104,154         100
Nags Head, North Carolina                     82,161         100
Kittery I, Maine                              51,737         100
Kittery II, Maine                             24,619         100
Totals                                    11,537,036          97

(1) These properties or a portion thereof are subject to a ground lease.


Unconsolidated joint venture properties     Square        %
Location                                     Feet      Occupied
Texas City, Texas (50% owned)               352,705          99
Washington D.C. (50% owned)                 338,786          97
Glendale, Arizona (58% owned)               331,739          99
Wisconsin Dells, Wisconsin (50% owned)      265,086          97
Bromont, Quebec (50% owned)                 161,449          81
Cookstown, Ontario (50% owned)              155,302          98
Saint-Sauveur, Quebec (50% owned)           115,697         100
Total                                     1,720,764

Leasing Activity

The following table provides information for our consolidated outlet centers
regarding space re-leased or renewed:
                                              Three months ended March 31, 2014
                                              Average                                            Net Average
                                               Annual             Average         Average          Annual
                                         Straight-line Rent       Tenant        Initial Term Straight-line Rent
              # of Leases   Square Feet        (psf)          Allowance (psf)    (in years)       (psf) (1)
 Re-tenant            75       273,000   $          32.14   $           37.91         9.03   $           27.94
  Renewal            184       870,000   $          23.24   $            0.29         4.78   $           23.18

                                              Three months ended March 31, 2013
                                              Average                                            Net Average
                                               Annual             Average         Average          Annual
                                         Straight-line Rent       Tenant        Initial Term Straight-line Rent
              # of Leases   Square Feet        (psf)          Allowance (psf)    (in years)       (psf) (1)
 Re-tenant            90       294,000   $          29.76   $           42.31         8.77   $           24.94
  Renewal            231     1,135,000   $          23.17   $            0.72         4.82   $           23.02

(1) Net average straight-line rentals is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line rent per year amount. The average annual straight-line rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. The average tenant allowance disclosed in the table above includes landlord costs.


RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2014 to the three months ended March 31, 2013

NET INCOME
Net income decreased $789,000 in the 2014 period to $15.4 million as compared to $16.2 million for the 2013 period. The decrease in net income was attributable to higher depreciation and amortization and property operating expenses from the acquisition of a controlling interest in the property in Deer Park, NY on August 30, 2013, which caused us to consolidate the property for financial reporting purposes. This change was partially offset by an increase in base rentals from the Deer Park consolidation, increases in base rentals from internal growth within our existing portfolio and an increase in our equity in earnings from unconsolidated joint ventures primarily due to the opening of our center in National Harbor during the fourth quarter of 2013.

BASE RENTALS
Base rentals increased $7.7 million, or 13%, in the 2014 period compared to the
2013 period. The following table sets forth the changes in various components of
base rentals (in thousands):
                                                      2014           2013          Change
Base rentals from existing properties             $   61,752     $   59,023     $    2,729
Base rentals from acquired properties                  5,364              -          5,364
Termination fees                                         415             80            335
Amortization of above and below market rent
adjustments, net                                        (555 )          141           (696 )
                                                  $   66,976     $   59,244     $    7,732

Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces, as well as incremental base rental income from the expansions at our Gonzales and Sevierville centers.

At March 31, 2014, the combined net value representing the amount of unamortized above market lease assets and below market lease liability values, recorded as a part of the purchase price of acquired properties, was a net above market lease asset which totaled approximately $10.1 million. If a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively. Amortization of above and below market lease values decreased due to leases from prior year acquisitions becoming fully amortized.

EXPENSE REIMBURSEMENTS
Expense reimbursements increased $6.2 million, or 25%, in the 2014 period
compared to the 2013 period. The following table sets forth the changes in
various components of expense reimbursements (in thousands):
                                                         2014        2013       Change
Expense reimbursements from existing properties        $ 28,395    $ 25,267    $ 3,128
Expense reimbursements from acquired properties           2,945           -      2,945
Termination fees allocated to expense reimbursements        202          39        163
                                                       $ 31,542    $ 25,306    $ 6,236

Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses, generally fluctuate consistently with the reimbursable property operating expenses to which they relate.


OTHER INCOME
Other income increased $119,000, or 6%, in the 2014 period as compared to the
2013 period. The following table sets forth the changes in various components of
other income (in thousands):
                                                       2014       2013      Change
Other income from existing properties                $ 1,556    $ 1,407    $  149
Other income from acquired properties                    119          -       119
Fees recognized from unconsolidated joint ventures       566        715      (149 )
                                                     $ 2,241    $ 2,122    $  119

PROPERTY OPERATING EXPENSES
Property operating expenses increased $7.9 million, or 28%, in the 2014 period
as compared to the 2013 period. The following table sets forth the changes in
various components of property operating expenses (in thousands):
                                                         2014        2013       Change
Property operating expenses from existing properties   $ 31,291    $ 28,135    $ 3,156
Property operating expenses from acquired properties      4,736           -      4,736
                                                       $ 36,027    $ 28,135    $ 7,892

Property operating expenses at our existing properties increased due to a significant increase in snow removal costs caused by the heavy snowfall during the first quarter of 2014 at our properties.

GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $1.2 million, or 12%, in the 2014 period compared to the 2013 period. This increase was mainly due to additional share-based compensation expense related to the 2014 grants of restricted common shares to directors and certain officers of the Company, the grant of performance shares to executive officers under a new long term incentive plan and the grant of options to employees to certain employees. Also, the 2014 period included higher payroll related expenses on a comparative basis to the 2013 period due to the addition of new employees since April 1, 2013.

INTEREST EXPENSE
Interest expense increased $2.0 million or 16%, in the 2014 period compared to the 2013 period. The primary reason for the increase in interest expense was the increase in the average amount of debt outstanding from approximately $1.1 billion for the 2013 period to approximately $1.3 billion for the 2014 period. The higher debt levels outstanding were a result of fundings for additional investments in unconsolidated joint ventures in both Canada and the United States and the acquisition of the additional ownership interest in Deer Park. In addition, we issued $250 million, 3.875% of unsecured bonds during the 4th quarter of 2013. The proceeds from these bonds repaid amounts outstanding on our unsecured lines of credit which had an interest rate of approximately 1.0%.

ABANDONED PRE-DEVELOPMENT COSTS
During the 2014 period, we decided to abandon pre-development projects in Clarksburg, Maryland and Scottsdale, Arizona. As a result of us no longer pursuing these projects, we recorded a $1.6 million charge in the first quarter of 2014, representing the cumulative related costs.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $3.78 million, or 17%, in the 2014
period compared to the 2013 period. The following table sets forth the changes
in various components of depreciation and amortization (in thousands):
                                                      2014           2013          Change
Depreciation and amortization expenses from
existing properties                               $   22,059     $   22,288     $     (229 )
Depreciation and amortization expenses from
acquired properties                                    4,004              -          4,004
                                                  $   26,063     $   22,288     $    3,775


EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings of unconsolidated joint ventures increased approximately $1.3 million in the 2014 period compared to the 2013 period. The increase is primarily due to the incremental equity in earnings from the National Harbor outlet center which opened during the fourth quarter of 2013, which was partially offset by the decrease in equity in earnings recognized in 2014 compared to 2013 related to our Deer Park property. We acquired a controlling interest in Deer Park in August 2013 and have consolidated the property's financial results since the acquisition date.

LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY

In this "Liquidity and Capital Resources of the Company" section, the term, the Company, refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership.

The Company's business is operated primarily through the Operating Partnership. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. The Company's principal funding requirement is the payment of dividends on its common shares. The Company's principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.

Through its ownership of the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership's day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership's partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership's partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.

The Company is a well-known seasoned issuer with a shelf registration that expires in June 2015 that allows the Company to register unspecified various classes of equity securities and the Operating Partnership to register unspecified, various classes of debt securities. As circumstances warrant, the Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. The Operating Partnership may use the proceeds to repay debt, including borrowings under its lines of credit, develop new or existing properties, to make acquisitions of properties or portfolios of properties, to invest in existing or newly created joint ventures or for general corporate purposes.

The liquidity of the Company is dependent on the Operating Partnership's ability to make sufficient distributions to the Company. The Company also guarantees some of the Operating Partnership's debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company's guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company's only material asset is its investment in the Operating Partnership.

The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured lines of credit, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its shareholders. However, there can be no assurance that the Operating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the Company. The unavailability of capital could adversely affect the Operating Partnership's ability to pay its distributions to the Company which will, in turn, adversely affect the Company's ability to pay cash dividends to its shareholders.

For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income. While historically the Company has satisfied this distribution requirement by making cash distributions to its shareholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the Company's own shares.


As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can. The Company may need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, as well as potential developments of new or existing properties, acquisitions or investments in existing or newly created joint ventures.

As the sole owner of the general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. The Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. However, all debt is held directly or indirectly at the Operating Partnership level, and the Company has guaranteed some of the Operating Partnership's unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled "Liquidity and Capital Resources of the Operating Partnership" should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.

On April 10, 2014, the Company's Board of Directors declared a $.24 cash dividend per common share payable on May 15, 2014 to each shareholder of record on April 30, 2014, and caused a $.24 per Operating Partnership unit cash distribution to the Operating Partnership's unitholders.

LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP

General Overview

In this "Liquidity and Capital Resources of the Operating Partnership" section, the terms "we", "our" and "us" refer to the Operating Partnership or the Operating Partnership and the Company together, as the text requires.

Property rental income represents our primary source to pay property operating expenses, debt service, capital expenditures and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover such non-recurring capital expenditures and acquisitions, we finance such activities from borrowings under our unsecured lines of credit or from the proceeds from the Operating Partnership's debt offerings and the Company's equity offerings.

We believe we achieve a strong and flexible financial position by attempting to:
(1) maintain a conservative leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our unsecured lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of underperforming assets and maintaining a conservative distribution payout ratio. We manage our capital structure to reflect a long term investment approach and utilize multiple sources of capital to meet our requirements.

The following table sets forth our changes in cash flows (in thousands):

                                                    Three months ended March 31,
                                                       2014               2013             Change
Net cash provided by operating activities        $      42,700       $      35,276     $      7,424
Net cash used in investing activities                  (48,207 )           (17,673 )        (30,534 )
Net cash provided by (used in) financing
activities                                               7,384             (25,262 )         32,646
Effect of foreign currency rate changes on
cash and equivalents                                       (14 )               (24 )             10
Net increase/(decrease) in cash and cash
equivalents                                      $       1,863       $      (7,683 )   $      9,536


Operating Activities

Cash provided by operating activities during 2014 was positively impacted by an increase in operating income throughout the consolidated portfolio and the acquisition of a controlling interest in our Deer Park property in August 2013. We have consolidated the Deer Park property's financial results since the acquisition date. In addition, we received an increase of $1.1 million in distributions of cumulative earnings from our joint venture properties.

Investing Activities

Cash used in investing activities was higher in the 2014 period compared to the . . .

  Add SKT to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for SKT - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.