Tanger Factory Outlet Centers, Inc. reported financial results for the three months ended March 31, 2020 and operating metrics for the first quarter of 2020 and provided a COVID-19 update.
“During these unprecedented times, the health and well-being of our team members, shoppers, tenants and communities are of utmost importance,” said Steven B. Tanger, Chief Executive Officer. “We continue to follow health agency guidelines and to offer our facilities to assist the communities we serve. We are also proud to have kept our dedicated work force employed with their health care benefits intact.”
“Liquidity and capital preservation are crucial in times of uncertainty. Due to our disciplined approach, we entered 2020 with one of the strongest balance sheets in our peer group. Our previously-undrawn $600 million lines of credit provided an important source of liquidity that we believe will sustain our business until there is more clarity regarding the impact of the COVID-19 pandemic.”
“Over many economic cycles during the past 39 years, we have shown that in good times people love a bargain and in tough times like these, they need a bargain. Outlet stores remain the ideal distribution channel for retailers to monetize inventory. We are currently working with several retailers with excess inventory due to pandemic-related closures that are interested in opening permanent stores and temporary pop-up stores as soon as possible. The vast majority of Tanger Outlet Centers are open-air shopping destinations, where customers are likely to be more comfortable.”
“With an exemplary leadership track record in the outlet industry and extensive retailer relationships, the addition of Steve Yalof as our new President further strengthens our senior management team. His unique perspective of having been both a landlord and a tenant is invaluable as we navigate these extraordinary times,” Mr. Tanger added.
First Quarter Results
- Net loss available to common shareholders was $0.30 per share, or $27.4 million, compared to net income available to common shareholders of $0.66 per share, or $61.7 million, for the prior year period. The current year period was impacted by a non-cash impairment charge totaling $45.7 million, or $0.47 per share, related to the Company’s outlet center in Manshantucket, CT (Foxwoods). The prior year period is inclusive of a gain on the sale of four outlet centers totaling $43.4 million, or $0.44 per share.
- Funds From Operations (“FFO”) and Core Funds From Operations (“Core FFO”) available to common shareholders were both $0.50 per share, or $48.7 million, compared to $0.57 per share, or $55.9 million, for the prior year period.
FFO and Core FFO (previously referred to as Adjusted Funds From Operations or 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 Core FFO, if applicable, are included in this release. Per share amounts for net income (loss), FFO and Core FFO are on a diluted basis.
Balance Sheet and Liquidity
As previously announced, the Company has taken several steps to increase liquidity, preserve financial flexibility and to meet its obligations for a sustained period of time until there is more clarity about the impact of the pandemic. These steps are discussed further below in the COVID-19 Update section.
In light of the importance of preserving liquidity, Tanger drew down substantially all of the capacity under its $600 million unsecured lines of credit on March 31, 2020 and did not repurchase any common shares during the first quarter of 2020. At the end of April, $594.0 million of cash remained on the Company’s balance sheet.
Other than its unsecured lines of credit, which mature in October of 2021 and may be extended for one additional year, Tanger has no significant debt maturities until December 2023.
As of March 31, 2020:
- The Company remained in compliance with all of its debt covenants
- Weighted average interest rate was 3.1% and weighted average term to maturity of outstanding consolidated debt, including extension options, was approximately 4.5 years
- Approximately 94% of the Company’s consolidated square footage was unencumbered by mortgages
- Interest coverage ratio (calculated as Adjusted EBITDA divided by interest expense) was 4.1 times for the first quarter of 2020 and 4.5 times for the trailing twelve months ended March 31, 2020
- Total outstanding floating rate debt was approximately $611 million, representing approximately 28% of total consolidated debt outstanding or 23% of total enterprise value
- FAD payout ratio was 83% for the first quarter of 2020
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) and Funds Available for Distribution (“FAD”) are supplemental non-GAAP financial measures of operating performance. Definitions of Adjusted EBITDA and FAD and reconciliations to the nearest comparable GAAP measures are included in this release.
Tanger intends to pay the dividend of $0.3575 per share declared in January 2020 as scheduled on May 15, 2020 to holders of record on April 30, 2020. Going forward, given the current uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors will temporarily suspend dividend distributions to conserve approximately $35 million in cash per quarter and preserve the Company’s balance sheet strength and flexibility. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis. Tanger intends to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.
The Company’s key portfolio results were as follows:
- Consolidated portfolio occupancy rate was 94.3% on March 31, 2020, compared to 97.0% on December 31, 2019 and 95.4% on March 31, 2019
- Blended average rental rates decreased 1.5% on a straight-line basis and 6.7% on a cash basis for all renewals and re-tenanted leases that commenced during the trailing twelve months ended March 31, 2020
- Lease termination fees totaled $0.2 million for the first quarter of 2020 compared to $1.1 million for the first quarter of 2019
- Same center net operating income (“Same Center NOI”) for the consolidated portfolio decreased 3.7% for the quarter due primarily to the impact of previously anticipated tenant bankruptcies, lease modifications and store closures
- Average tenant sales productivity for the consolidated portfolio was $387 per square foot for the twelve months ended March 31, 2020, compared to $391 per square foot in the comparable prior year period and $405 per square foot for the twelve months ended February 29, 2020
- Same center tenant sales performance for the overall portfolio decreased 0.8% for the twelve months ended March 31, 2020 and increased 4.0% for the twelve months ended February 29, 2020 compared to the comparable prior year periods
- Occupancy cost ratio for the trailing twelve months ended March 31, 2020 was 10.3%
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.
Total commenced leases for the trailing twelve months ended March 31, 2020 that were renewed or re-leased for all terms included 296 leases, totaling approximately 1.3 million square feet.
As of March 31, 2020, Tanger had lease renewals executed or in process for 62.7% of the space in the consolidated portfolio scheduled to expire during 2020 compared to 63.0% of the space scheduled to expire during 2019 that was executed or in process as of March 31, 2019.
Tanger recaptured approximately 332,000 square feet within its consolidated portfolio during the first quarter of 2020 related to bankruptcies and brand-wide restructurings by retailers. During the first quarter of 2019, approximately 82,000 square feet were recaptured.
- Community Support – Throughout the crisis, the Company’s centers have never closed and have been used for Red Cross blood drives, food collection sites, curbside food pickup and as staging areas for law enforcement and emergency medical services. In an effort to provide a healthy environment for its team members, tenants, shoppers and communities, Tanger has taken measures operationally to comply with CDC and other applicable public health guidelines as retailers begin to reopen their stores in applicable locations. These include frequent cleaning of common areas and other high-touch spaces, the closure of children’s play areas and other interactive features, the use of personal protective equipment by the Company’s customer service staff as well as third party maintenance, janitorial and security staff and assistance for retailers with managing social distancing guidelines when lines extend out of stores and into outlet center common areas.
- Guidance – Due to limited visibility regarding the duration and magnitude of the pandemic, Tanger previously withdrew its guidance. The Company is not providing updated guidance at this time.
- Reduction of Cash Outflows – Steps the Company has taken to help preserve financial flexibility include base salary reductions of 50% for Tanger’s CEO, 25% for other named executive officers, and lesser reductions for most other employees, as well as a 25% reduction in cash retainers for the Board of Directors. In addition, the Company reduced or deferred certain operating and general and administrative expenses, and deferred the Nashville pre-development-stage project and certain other planned capital expenditures.
- Stores Open – While Tanger’s portfolio has remained open, retailers began closing their stores in the Company’s portfolio in mid-March and by April 6, 2020, operations at all 39 Tanger Outlet Centers were restricted by order of local and state authorities. At the lowest point, on April 6, 2020, open stores represented 6% of the consolidated portfolio in terms of gross leasable area, or 2% in terms of annualized base rent. As of today, these percentages had improved to 16% and 12%, respectively, as mandates had eased or been lifted in jurisdictions where 20, or 63%, of the centers in Tanger’s consolidated portfolio are located. These totals include some stores that are open only for curbside pickup or where maximum store occupancy is restricted by governmental mandates. It remains unclear when mandates will be lifted completely or eased in additional locations.
- Rent Collections – In late March, Tanger offered all tenants in its consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. As expected, due to the deferral offer, April rent receipts represented approximately 12% of the amount billed. While the Company’s preference is to work with its tenant partners to reach a financial resolution that positions both parties for long-term growth, it reserves all rights under its lease agreements and will pursue legal remedies to collect rent as appropriate.
- Ample Liquidity – Based on Tanger’s estimated pre-COVID-19 cash expenditures of approximately $25 million per month, the Company expects to have sufficient liquidity to meet its obligations, even under its most conservative rent collection scenario of not receiving any rent, for approximately two years (assuming no dividend distributions or debt maturities and the Company remains in compliance with its debt covenants).
As previously announced, Stephen J. Yalof joined the Company on April 10, 2020 as President and Chief Operating Officer. Mr. Yalof was Chief Executive Officer of Simon Premium Outlets and will succeed Steven B. Tanger as Chief Executive Officer in January 2021. At that time, Mr. Tanger will transition to become Executive Chair and David B. Henry, current Non-Executive Chair, will become Lead Independent Director. Mr. Tanger’s employment contract was also extended through January 1, 2024.
First Quarter 2020 Conference Call
Tanger will host a conference call to discuss its first quarter 2020 results for analysts, investors and other interested parties on Tuesday, May 12, 2020, at 8:00 a.m. Eastern Time. To access the conference call, listeners should dial 1-888-317-6016 and request to join the Tanger Factory Outlets Centers, Inc. SKT 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 May 12, 2020 at 11:00 a.m. through May 26, 2020 at 11:59 p.m. by dialing 1-877-344-7529, replay access code # 10142484. An online archive of the webcast will also be available through May 26, 2020.
About Tanger Factory Outlet Centers, Inc.
Tanger Factory Outlet Centers, Inc., is a publicly-traded REIT headquartered in Greensboro, North Carolina that presently operates and owns, or has an ownership interest in, a portfolio of 39 upscale outlet shopping centers. Tanger’s operating properties are located in 20 states and in Canada, totaling approximately 14.3 million square feet, leased to over 2,800 stores which are operated by more than 510 different brand name companies. The Company has more than 39 years of experience in the outlet industry. Tanger Outlet Centers continue to attract more than 181 million visitors annually. Tanger is furnishing a Form 8-K with the Securities and Exchange Commission that includes a supplemental information package for the quarter ended March 31, 2020. For more information on Tanger Outlet Centers, call 1-800-4TANGER or visit the Company’s website at www.tangeroutlets.com.
Safe Harbor Statement
This news release contains certain 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. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and includes this statement for purposes of complying with the safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe the Company’s future plans, strategies and expectations, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “will,” “forecast” or similar expressions, and include the Company’s expectations regarding the impact of the COVID-19 pandemic on the Company’s business, financial results and financial condition, the Company’s estimated remaining months of cash under various rent collection scenarios, the financial condition of the Company’s major tenants, its leasing strategy and value proposition to retailers, occupancy and rent concessions, marketing programs, uses of capital, liquidity, dividend payments, cash flows, filling vacant space and share repurchases.
You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Important factors which may cause actual results to differ materially from current expectations include, but are not limited to: risks related to the impact of the COVID-19 pandemic on our tenants and on our business, financial condition, liquidity, results of operations and compliance with debt covenants; our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers; the relative illiquidity of real property investments; impairment charges affecting our properties; our dispositions of assets may not achieve anticipated results; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; the bankruptcy of one or more of the retailers in our centers; the fact certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration; environmental regulations affecting our business; risks associated with possible terrorist activity or other acts or threats of violence and threats to public safety; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; the risk that consumer, travel, shopping and spending habits may change; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risks associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; uncertainty relating to the potential phasing out of LIBOR; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders, including the recent changes in the U.S. federal income taxation of U.S. businesses; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism and other important factors 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, 2019, as may be updated or supplemented in the Company’s Quarterly Reports on Form 10-Q and the Company’s other filings with the SEC. Accordingly, there is no assurance that the Company’s expectations will be realized. The Company disclaims any intention or obligation to update the forward-looking statements, whether as a result of new information, future events or otherwise. You are advised to refer to any further disclosures the Company makes or related subjects in the Company’s Current Reports on Form 8-K that the Company files with the SEC.
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