Tanger Reports Year End Results for 2008
10.1% Increase in Adjusted FFO
4.1% Increase in Same Center NOI
GREENSBORO, N.C., Feb. 17 /PRNewswire-FirstCall/ -- Tanger Factory Outlet Centers, Inc. (NYSE: SKT) today reported its financial results for the quarter and year ended December 31, 2008. Funds from operations available to common shareholders ("FFO"), a widely accepted supplemental measure of REIT performance, for the three months ended December 31, 2008, was $27.5 million, or $0.74 per share, as compared to FFO of $26.3 million, or $0.70 per share, for the three months ended December 31, 2007. For the year ended December 31, 2008, FFO was $91.9 million, or $2.46 per share, as compared to FFO of $93.7 million, or $2.48 per share, for the year ended December 31, 2007.
FFO for the fourth quarter ended December 31, 2008 included $1.7 million in lease termination fee income, as well as a $3.3 million charge relating to due diligence costs associated with opportunities the company deemed no longer probable.
FFO for the year ended December 31, 2008 was impacted by a $2.2 million increase in lease termination fees over the prior year, offset by a $3.3 million increase in abandoned due diligence costs, an $8.9 million charge relating to the settlement of two US Treasury locks and a $406,000 prepayment premium associated with the early extinguishment of debt. FFO as adjusted for these items would have been approximately $2.73 per share for 2008, representing a 10.1% increase over the prior year.
Net income available to common shareholders for the three months ended December 31, 2008 was $8.1 million, or $0.26 per share, compared to $9.1 million, or $0.29 per share for the fourth quarter of 2007. Net income available to common shareholders for the year ended December 31, 2008 was $22.4 million, or $0.71 per share, compared to $23.0 million, or $0.72 per share for the year ended December 31, 2007. Net income available to common shareholders for the year ended December 31, 2008 was also impacted by the 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 release.
Highlights of Achievements -- Received an upgrade from BBB- to BBB from Standard and Poor's Ratings Services on October 23, 2008 -- 34.7% debt-to-total market capitalization ratio, 3.67 times interest coverage ratio as of December 31, 2008 -- 4.1% increase in same center net operating income during 2008 -- 44.1% average increase in base rental rates on 492,000 square feet of re-leased space during 2008, compared to a 39.7% average increase in the prior year -- 17.5% increase in average base rental rates on 1.1 million square feet of signed renewals during 2008, compared to a 13.9% average increase in the prior year -- 96.6% occupancy rate for wholly-owned stabilized properties as of December 31, 2008 -- $336 per square foot in reported tenant comparable sales for the rolling twelve months ended December 31, 2008
Steven B. Tanger, President and Chief Executive Officer, commented, "During these difficult economic times, we are fortunate that the majority of our tenants remain financially strong. Our low occupancy cost to our tenants, and our tenant and geographic diversification should allow us to remain profitable. In addition, our balance sheet is conservatively positioned, and our dividend is well covered by our operating cash flow."
Successful Financing Activity Provides Additional Liquidity
During the first quarter of 2008, Tanger successfully increased its unsecured line of credit capacity by over 60% from $200.0 million to $325.0 million. Tanger maintains separate lines of credit, ranging in size from $25.0 million to $100.0 million, with six different financial institutions. Of the company's lines of credit, five lines of credit, totaling $300.0 million, mature on or about June 30, 2011, and one line of credit, totaling $25.0 million, matures on June 30, 2009. The borrowing rates on the company's lines of credit range from LIBOR plus 60 basis points to LIBOR plus 85 basis points.
On June 11, 2008, the company closed on a $235.0 million unsecured three- year term loan, with a syndication of nine banks. 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. Subsequently, Tanger entered into two LIBOR based interest rate swap agreements, which effectively changes the floating rate of interest on the entire unsecured three-year term loan facility to a fixed rate of 5.25%.
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. As a result of the repayment of this mortgage, Tanger's entire portfolio of wholly-owned properties was unencumbered as of December 31, 2008.
On October 23, 2008, Tanger was upgraded by Standard and Poor's Ratings Services from BBB- to BBB, making it one of only two REITs to receive a ratings upgrade in 2008. The company has an investment grade rating with Moody's Investors Service of Baa3.
As of December 31, 2008, the company had $161.5 million in floating rate debt outstanding, all of which is associated with its lines of credit, representing 20.3% of its total debt. Tanger's total market capitalization as of December 31, 2008 was approximately $2.3 billion, with $795.3 million of debt outstanding, equating to a debt to total market capitalization of 34.7% as of December 31, 2008. During the year ended December 31, 2008, the company maintained an interest coverage ratio of 3.67 times. Tanger remains in compliance with all of its bond covenants, which are disclosed in the company's supplemental information package for the quarter ended December 31, 2008.
National Platform Continues to Drive Operating Results
Tanger's broad geographic representation and established brand name within the factory outlet industry continues to generate solid operating results. The company's portfolio of properties had a year-end occupancy rate of 96.6%, representing the 28th consecutive year since the company commenced operations in 1981 that it has achieved a year-end portfolio occupancy rate at or above 95%.
During 2008, Tanger executed 377 leases, totaling 1,595,000 square feet relating to its existing, wholly-owned properties. For the year, 1,103,000 square feet of renewals generated a 17.5% increase in average base rental rates, and represented 82.5% of the square feet originally scheduled to expire during 2008. Average base rental rates on re-tenanted space during the year increased 44.1% and accounted for the remaining 492,000 square feet.
Tanger continues to derive its rental income from a diverse group of national brand name manufacturers and retailers with no single tenant accounting for more than 8.4% of its gross leasable area and 5.3% of its total base and percentage rentals.
Same center net operating income increased 2.5% for the fourth quarter and 4.1% for the year ended December 31, 2008 compared to the same periods in 2007. This follows same center annual net operating income increases of 5.3% in 2007, 3.1% in 2006, 3.8% in 2005 and 1.2% in 2004.
Excluding two properties undergoing major renovations, reported tenant comparable sales per square foot for the rolling twelve months ended December 31, 2008 decreased 1.6% to $336 per square foot. Tanger's average tenant occupancy cost as a percentage of average sales was 8.2% for 2008 compared to 7.7% in 2007, 7.4% in 2006, 7.5% in 2005 and 7.3% in 2004.
Investment Activities Provide Future Earnings Growth
On August 29, 2008, Tanger held a very successful grand opening celebration at its new center in Washington, PA, south of Pittsburgh, PA. As of December 31, 2008, the property was 85% occupied. The Washington, PA center is wholly owned by Tanger.
On October 23, 2008, Tanger held the grand opening of its center in Deer Park (Long Island), NY. As of December 31, 2008, the property was 78% occupied. The Deer Park property is owned through a joint venture of which Tanger and two venture partners each own a one-third interest.
Based upon the tremendous response by customers at both of these centers' grand opening events, the company feels there will continue to be additional tenant interest in the remaining available space and additional signed leases for both properties may be completed during the first year stabilization period.
Tanger has purchase options on new development sites located in Mebane, NC and Irving, TX, and is continuing with its predevelopment work at these locations. In October, 2008, Tanger made the decision to terminate its purchase options in Port St. Lucie, Florida and Phoenix, Arizona. As a result, the company recorded a $3.3 million charge relating to its predevelopment costs on these and other projects deemed no longer probable during the fourth quarter of 2008.
On January 5, 2009, the company acquired the remaining 50% interest in the joint venture which owns the Tanger Outlet Center located on Highway 17 in Myrtle Beach, South Carolina, for a cash purchase price of $32.0 million plus the assumption of a $35.8 million mortgage.
In 2009 Tanger Expects Additional Growth in FFO Per Share
Based on Tanger's internal budgeting process, the company's view on current market conditions, and the strength and stability of its core portfolio, Tanger currently believes its net income available to common shareholders for 2009 will be between $0.87 and $0.97 per share and its FFO available to common shareholders for 2009 will be between $2.73 and $2.83 per share. The company's earnings estimates reflect the accounting change relating to the recording of additional non-cash interest expense associated with its $149.5 million of outstanding convertible debt, which will have a negative impact on earnings of approximately $0.07 per share. Tanger's earnings estimates do not include the impact of any potential sales or acquisitions of properties. The following table provides the reconciliation of estimated diluted FFO per share to estimated diluted net income per share:
Low Range High Range Estimated diluted net income per common share $ 0.87 $ 0.97 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 1.86 1.86 Estimated diluted FFO per share $ 2.73 $ 2.83
Year End Conference Call
Tanger will host a conference call to discuss its year end 2008 results for analysts, investors and other interested parties on Wednesday, February 18, 2009, 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 fourth quarter and year end 2008 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 February 18, 2009 starting at 1:00 P.M. Eastern Time through 11:59 P.M., February 27, 2009, by dialing 1-800-642-1687 (conference ID # 81080427). Additionally, an online archive of the broadcast will also be available through February 27, 2009.
About Tanger Factory Outlet Centers
Tanger Factory Outlet Centers, Inc. (NYSE: SKT), is a fully integrated, self-administered and self-managed publicly traded REIT. As of December 31, 2008, the company owned 30 outlet centers in 21 states coast to coast, totaling approximately 8.8 million square feet of gross leasable area. Tanger also managed for a fee and owned an interest in three outlet centers containing approximately 1.4 million square feet. Tanger is filing a Form 8-K with the Securities and Exchange Commission that includes a supplemental information package for the quarter ended December 31, 2008. For more information on Tanger Outlet Centers, visit our web site at http://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 and opening 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 company's ability to meet its obligations on existing indebtedness or refinance existing indebtedness on favorable terms, 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 (and December 31, 2008, when available).
TANGER FACTORY OUTLET CENTERS, INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) (Unaudited) Three months ended Year ended December 31, December 31, 2008 2007 2008 2007 REVENUES Base rentals (a) $42,694 $38,210 $159,068 $146,824 Percentage rentals 2,949 3,323 7,058 8,757 Expense reimbursements 20,557 18,482 72,004 65,978 Other income 2,137 1,963 7,261 7,206 Total revenues 68,337 61,978 245,391 228,765 EXPENSES Property operating 21,139 20,244 77,974 73,737 General and administrative 5,099 4,911 22,264 19,007 Depreciation and amortization 16,733 14,940 62,326 63,810 Abandoned due diligence costs 3,336 246 3,923 646 Total expenses 46,307 40,341 166,487 157,200 Operating income 22,030 21,637 78,904 71,565 Interest expense (b) 10,252 9,851 38,443 40,066 Loss on settlement of US treasury rate locks --- --- 8,910 --- Income before equity in earnings of unconsolidated joint ventures, minority interest and discontinued operations 11,778 11,786 31,551 31,499 Equity in earnings (loss)of unconsolidated joint ventures (696) 443 852 1,473 Minority interest in operating partnership (1,577) (1,778) (4,371) (4,494) Income from continuing operations 9,505 10,451 28,032 28,478 Discontinued operations, net of minority interest (c) --- 22 --- 98 Net income 9,505 10,473 28,032 28,576 Less applicable preferred share dividends (1,406) (1,406) (5,625) (5,625) Net income available to common shareholders $8,099 $9,067 $22,407 $22,951 Basic earnings per common share: Income from continuing operations $.26 $.29 $.72 $.74 Net income $.26 $.29 $.72 $.74 Diluted earnings per common share: Income from continuing operations $.26 $.29 $.71 $.72 Net income $.26 $.29 $.71 $.72 Summary of discontinued operations (c) Operating income from discontinued operations $--- $21 $--- $112 Gain on sale of real estate --- 6 --- 6 Income from discontinued operations --- 27 --- 118 Minority interest in discontinued operations --- (5) --- (20) Discontinued operations, net of minority interest $--- $22 $--- $98 (a) Includes straight-line rent and market rent adjustments of $626 and $832 for the three months ended and $3,551 and $4,023 for the years ended December 31, 2008 and 2007, respectively. (b) Includes prepayment premium of $406 for the year ended December 31, 2008 related to the repayment of our only remaining mortgage which had a principal 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 or classified as held for sale during the above periods in which we have no significant continuing involvement have been reported above as discontinued operations for the periods presented. TANGER FACTORY OUTLET CENTERS, INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (Unaudited) December 31, December 31, 2008 2007 ASSETS: Rental property Land $135,689 $130,075 Buildings, improvements and fixtures 1,260,017 1,104,459 Construction in progress 3,823 52,603 1,399,529 1,287,137 Accumulated depreciation (359,298) (312,638) Rental property, net 1,040,231 974,499 Cash and cash equivalents 4,977 2,412 Investments in unconsolidated joint ventures 9,457 10,695 Deferred charges, net 37,942 44,804 Other assets 29,248 27,870 Total assets $1,121,855 $1,060,280 LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY: Liabilities Debt Senior, unsecured notes (net of discount of $681 and $759, respectively) $398,819 $498,741 Unsecured term loan 235,000 --- Mortgages payable (including premium of $0 and $1,046, respectively) --- 173,724 Unsecured lines of credit 161,500 33,880 Total debt 795,319 706,345 Construction trade payables 11,968 23,813 Accounts payable and accrued expenses 57,191 47,185 Total liabilities 864,478 777,343 Commitments Minority interest in operating partnership 29,321 33,733 Shareholders' equity Preferred shares, 7.5% Class C, liquidation preference $25 per share, 8,000,000 authorized, 3,000,000 shares issued and outstanding at December 31, 2008 and 2007 75,000 75,000 Common shares, $.01 par value, 150,000,000 authorized, at 31,667,501 and 31,329,241 shares issued and outstanding December 31, 2008 and 2007, respectively 317 313 Paid in capital 358,891 351,817 Distributions in excess of earnings (196,535) (171,625) Accumulated other comprehensive loss (9,617) (6,301) Total shareholders' equity 228,056 249,204 Total liabilities, minority interest and shareholders' equity $1,121,855 $1,060,280 TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES SUPPLEMENTAL INFORMATION (in thousands, except per share, state and center information) (Unaudited) Three months ended Year ended December 31, December 31, 2008 2007 2008 2007 FUNDS FROM OPERATIONS (a) Net income $9,505 $10,473 $28,032 $28,576 Adjusted for: Minority interest in operating partnership 1,577 1,778 4,371 4,494 Minority interest, depreciation and amortization attributable to discontinued operations --- 5 --- 165 Depreciation and amortization uniquely significant to real estate - consolidated 16,627 14,865 61,962 63,506 Depreciation and amortization uniquely significant to real estate - unconsolidated joint ventures 1,227 626 3,165 2,611 Gain on sale of real estate --- (6) --- (6) Funds from operations (FFO) 28,936 27,741 97,530 99,346 Preferred share dividends (1,406) (1,406) (5,625) (5,625) Funds from operations available to common shareholders $27,530 $26,335 $91,905 $93,721 Funds from operations available to common shareholders per share - diluted $.74 $.70 $2.46 $2.48 WEIGHTED AVERAGE SHARES Basic weighted average common shares 31,160 30,867 31,084 30,821 Effect of exchangeable notes --- 478 --- 478 Effect of outstanding share and unit options 98 202 136 214 Effect of unvested restricted share awards 112 178 142 155 Diluted weighted average common shares (for earnings per share computations) 31,370 31,725 31,362 31,668 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) 37,437 37,792 37,429 37,735 OTHER INFORMATION Gross leasable area open at end of period - Wholly owned 8,820 8,398 8,820 8,398 Partially owned - unconsolidated 1,352 667 1,352 667 Outlet centers in operation - Wholly owned 30 29 30 29 Partially owned - unconsolidated 3 2 3 2 States operated in at end of period (c) 21 21 21 21 Occupancy percentage at end of period (c) (d) 96.6% 97.6% 96.6% 97.6% TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES FOOTNOTES TO SUPPLEMENTAL INFORMATION (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 for the 2008 and 2007 periods which were operated by us through 50% ownership joint ventures and excludes Deer Park, New York property for the 2008 period which is operated by us through a 33.3% ownership joint venture. (d) Excludes our wholly-owned, non-stabilized center in Washington, Pennsylvania for the 2008 periods.
SOURCE Tanger Factory Outlet Centers, Inc.
Released February 17, 2009