Tanger Reports Fourth Quarter And Full Year Results

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) today reported financial and operating results for the three months and year ended December 31, 2019.

Fourth Quarter Results

• Net loss available to common shareholders was $0.13 per share, or $12.1 million, compared to net income available to common shareholders of $0.21 per share, or $19.4 million, for the prior year period. The current year period is inclusive of a $0.04 per share dilutive impact related to assets sold in March 2019, net of interest expense savings related to the use of proceeds. The current year period was also impacted by a non-cash impairment charge totaling $37.6 million, or $0.39 per share, related to the Company’s outlet center in Jeffersonville, Ohio. The prior year period was impacted by a non-cash impairment charge related to certain assets in a Canadian unconsolidated joint venture totaling $7.2 million, or $0.07 per share.
• Funds from operations (“FFO”) and adjusted funds from operations (“AFFO”) available to common shareholders were both $0.59 per share, or $57.5 million, compared to $0.64 per share, or $63.1 million, for the prior year period. The current year period is inclusive of a $0.04 per share dilutive impact related to the asset sales discussed above.

Full Year Results

• Net income available to common shareholders was $0.93 per share, or $86.5 million, compared to $0.45 per share, or $42.4 million, for the prior year. The current year is inclusive of a $0.38 per share accretive impact related to the asset sales, net of interest expense savings, discussed above, including a gain on the sale of four outlet centers totaling $43.4 million, or $0.44 per share. The current and prior years were impacted by non-cash impairment charges totaling $37.6 million, or $0.39 per share, and $56.9 million, or $0.58 per share, respectively.
• FFO available to common shareholders was $2.27 per share, or $221.7 million, compared to $2.48 per share, or $243.3 million, for the prior year. The current year period is inclusive of an $0.11 per share dilutive impact related to the asset sales, net of interest expense savings, discussed above.
• AFFO available to common shareholders was $2.31 per share, or $226.1 million, compared to $2.48 per share, or $243.3 million, for the prior year. AFFO excludes certain items that the Company does not consider indicative of its ongoing operating performance. The current year is inclusive of an $0.11 per share dilutive impact related to the asset sales, net of interest expense savings, discussed above and excludes $4.4 million, or $0.04 per share, of general and administrative expense for the accelerated recognition of compensation cost related to the retirement of an executive officer.

FFO and AFFO are widely accepted supplemental non-GAAP financial measures used 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 and AFFO are included in this release. Per share amounts for net income, FFO and AFFO are on a diluted basis.

“Better than anticipated performance in the fourth quarter and throughout 2019 enabled us to surpass our expectations,” said Steven B. Tanger, Chief Executive Officer. “With strong leasing execution, we ended the year with consolidated portfolio occupancy above that of the prior year at 97.0%, contributing to better than expected same center net operating income. Increases in traffic and sales validate consumers’ ongoing desire for the best brands, prices and shopping experience at Tanger Outlets.”

“As we enter 2020, we are focused on building on last year’s leasing success, as we believe this is the fastest way to restore internal growth. Maintaining strong occupancy remains our top priority as our team works to overcome the challenges associated with the recapture of space due to both previously announced closures and any additional space that could come back from ongoing negotiations with select tenants. Along with leasing, we will also continue to focus on our strategic marketing efforts to further increase traffic and shopper engagement. However, releasing the recaptured space will take time. While we anticipate potential near-term occupancy and rent pressure, we plan to lease strategically to upgrade our tenancy and the consumer experience in order to drive long-term growth. Brand name retailers remain committed to the outlet distribution channel and continue to benefit from our value proposition, including our low cost of occupancy,” Mr. Tanger added.

Operating Metrics

The Company’s key portfolio results were as follows:

• Consolidated portfolio occupancy rate was 97.0% on December 31, 2019, compared to 95.9% on September 30, 2019 and 96.8% on December 31, 2018
• Blended average rental rates increased 2.7% on a straight-line basis and decreased 1.3% on a cash basis for all renewals and re-tenanted leases that commenced during the trailing twelve months ended December 31, 2019
• Lease termination fees totaled $1.6 million for 2019, including $0.1 million for the fourth quarter of 2019, compared to $1.2 million for 2018, including $0.1 million for the fourth quarter of 2018
• Same center net operating income (“Same Center NOI”) for the consolidated portfolio decreased 0.4% for the quarter and 0.7% for the full year due primarily to the impact of tenant bankruptcies, lease modifications and store closures
• Average tenant sales productivity for the consolidated portfolio was $395 per square foot for the twelve months ended December 31, 2019, compared to $385 per square foot in the comparable prior year period
• Same center tenant sales performance for the overall portfolio increased 1.5% for the twelve months ended December 31, 2019 compared to the twelve months ended December 31, 2018
• Occupancy cost ratio for the trailing twelve months ended December 31, 2019 was 10.0%

Same Center NOI is a supplemental non-GAAP financial measure of operating performance. A complete definition of Same Center NOI and a reconciliation to the nearest comparable GAAP measure is included in this release.

Leasing Activity

Total commenced leases for the trailing twelve months ended December 31, 2019 that were renewed or re-leased for all terms included 337 leases, totaling approximately 1.5 million square feet.

As of January 22, 2020, Tanger had lease renewals executed or in process for 45.8% of the space in the consolidated portfolio scheduled to expire during 2020 compared to 58.6% of the space scheduled to expire during 2019 that was executed or in process as of January 31, 2019.

Tanger recaptured approximately 198,000 square feet within its consolidated portfolio during 2019 related to bankruptcies and brand-wide restructurings by retailers, including 3,000 square feet in the fourth quarter. During 2018, approximately 126,000 square feet were recaptured, including 3,000 square feet during the fourth quarter.

Dividend Increase

In January 2020, the Company’s Board of Directors approved a 0.7%, or $0.01 per share, increase in the annualized dividend on its common shares to $1.43 per share and simultaneously declared a quarterly dividend of $0.3575 per share for the first quarter ended March 31, 2020. This cash dividend will be payable on May 15, 2020 to holders of record on April 30, 2020. Since becoming a public company in May 1993, the Company has paid a cash dividend each quarter and has increased its dividend each year, putting it among a very small group of equity REITs to achieve such a milestone.

Balance Sheet and Capital Market Activity

As of December 31, 2019:

• Total enterprise value was $3.0 billion
• Total outstanding floating rate debt was approximately $11 million, representing less than 1% of both total consolidated debt outstanding and total enterprise value
• Unused capacity under the Company’s $600 million unsecured lines of credit was nearly 100%, or $599.8 million
• Weighted average interest rate was 3.5% and weighted average term to maturity of outstanding consolidated debt, including extension options, was approximately 5.5 years
• Approximately 94% of the Company’s consolidated square footage was unencumbered by mortgages
• Interest coverage ratio was 4.3 times for 2019
• FAD payout ratio was 70% for 2019

FAD payout ratio is a supplemental non-GAAP financial measure of operating performance. A definition of FAD payout ratio is included in this release.

Tanger has reduced its outstanding consolidated debt by $143.1 million since December 31, 2018.

During 2019, the Company repurchased approximately 1,209,000 common shares for total consideration of approximately $20.0 million. As of December 31, 2019, $80.0 million remains under the current repurchase authorization, which is valid through May 2021.

Guidance for 2020

Based on the Company’s internal budgeting process and its view on current market conditions, management currently believes the Company’s net income and FFO per share for 2020 will be as follows:

Tanger’s estimates reflect the following key assumptions:

• Same Center NOI guidance for the consolidated portfolio between (6.75)% and (8.25)%, which reflects the following:
  • Approximately (0.7%) impact related to the Jeffersonville, Ohio property, for which the Company recorded a significant impairment as discussed above
  • Projected average occupancy for the year is expected to be between 92% and 93%
  • Projected store closures related to tenant bankruptcies and restructurings
    • 303,000 square feet of known closures related to all of the Dressbarn and Kitchen Collection stores and certain Forever 21 and Destination Maternity stores that all closed in January and which, if not released, would represent 350 basis points of Same Center NOI (27,000 square feet and 10 basis points attributable to the Jeffersonville, Ohio property)
    • 322,000 to 372,000 square feet of potential additional closures that are unknown or unresolved at this time
• Projected full-year lease termination fees (which are not included in Same Center NOI) of approximately $1.5 million for the consolidated portfolio
• Annual general and administrative expense of between $48.0 million and $50.0 million
• Annual consolidated portfolio interest expense of $59.5 million to $60.0 million
• The Company’s share of annual interest expense in the unconsolidated portfolio of $7.2 million to $7.6 million
• 2020 weighted average diluted common shares of approximately 92.5 million for earnings per share and 97.5 million for FFO per share
• Combined annual recurring capital expenditures and second generation tenant allowances of approximately $44 million to $48 million
• Does not include the impact of any financing activity, the sale of any outparcels, properties or joint venture interests, or the acquisition of any properties or joint venture partner interests

The following table provides a bridge from the Company’s 2019 actual FFO per diluted share to the low and high ranges of the Company’s 2020 diluted FFO per share guidance:

Fourth Quarter and Full Year Conference Call

Tanger will host a conference call to discuss its fourth quarter and full year results for analysts, investors and other interested parties on Monday, January 27, 2020, at 8:30 a.m. Eastern Time. To access the conference call, listeners should dial 1-877-277-5113 and provide conference ID # 8599609 to be connected to the Tanger Factory Outlet Centers Fourth Quarter 2019 Financial Results call. Alternatively, a live audio webcast of this call will be available to the public on Tanger’s Investor Relations website, investors.tangeroutlets.com, hosted by S&P Global Market Intelligence. A telephone replay of the call will be available from January 27, 2020 at 11:30 a.m. through February 3, 2020 at 11:59 p.m. by dialing 1-855-859-2056, conference ID # 8599609. An online archive of the webcast will also be available through February 3, 2020.