North Carolina | 1-11986 | 56-1815473 | ||||||||
(State or other jurisdiction of Incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
3200 Northline Avenue, Greensboro, North Carolina 27408 | ||||
(Address of principal executive offices) (Zip Code) |
(336) 292-3010 | ||||
(Registrants' telephone number, including area code) |
N/A | ||||
(former name or former address, if changed since last report) |
• | Net income available to common shareholders increased 32% to $0.33 per share, or $31.2 million, compared to $0.25 per share, or $23.8 million, for the prior year period |
• | Funds from operations ("FFO") available to common shareholders increased 11% to $0.68 per share, or $67.5 million, compared to $0.61 per share, or $60.9 million, for the prior year period |
• | Adjusted funds from operations ("AFFO") available to common shareholders, which excludes certain items that the Company does not consider indicative of its ongoing operating performance, increased 8% to $0.66 per share, or $65.6 million, for the 2017 period compared to $0.61 per share, or $60.9 million, for the 2016 period. |
• | Raised regular quarterly common share cash dividend in April by 5.4% on an annualized basis to $1.37 per share, marking the 24th consecutive year of increased dividends |
• | Results for the 2017 period include a $35.6 million charge, or $0.36 per share, related to the redemption of certain senior notes due 2020, a $9.0 million charge, or $0.09 per share, related to the impairment of certain non-core assets, and a gain on the sale of a non-core outlet center of $6.9 million, or $0.07 per share. Results for the 2016 period include gains on the sale of an outlet center and the acquisition of interests in previously held joint ventures totaling $101.8 million, or $1.01 per share. Including the effect of these items, net income attributable to common shareholders was $66.8 million, or $0.71 per share, compared to $191.8 million, or $2.01 per share for the prior year period. |
• | FFO available to common shareholders, which also includes the charges related to the redemption of certain senior notes due 2020 discussed above, was $211.2 million, or $2.12 per share, compared to $236.9 million, or $2.36 per share, for the prior year period |
• | AFFO available to common shareholders was $245.3 million, or $2.46 per share, for the 2017 period and $238.4 million, or $2.37 per share, for the 2016 period |
• | Blended average rental rates increased 12.1% on 343 leases totaling approximately 1,508,000 square feet renewed or released throughout the consolidated portfolio during the trailing twelve months ended December 31, 2017, excluding 9 leases totaling 165,000 square feet in the centers with major re-merchandising projects during 2017 |
• | These new stores required the consolidation of 25 storefronts with an average size of 6,600 square feet to create 9 new storefronts with an average size of 18,400 square feet |
• | Including these 9 leases, blended average rental rates increased 8.8% on 352 leases totaling approximately 1,673,000 square feet renewed or released throughout the consolidated portfolio during the twelve months ended December 31, 2017 |
• | Consolidated portfolio occupancy rate was 97.3% on December 31, 2017, compared to 96.9% on September 30, 2017 and 97.7% on December 31, 2016 |
• | Average tenant sales productivity for the consolidated portfolio was $380 per square foot for the twelve months ended December 31, 2017 |
• | Same center tenant sales performance for the three months ended December 31, 2017 increased approximately 1% for the overall portfolio compared to the three months ended December 31, 2016 |
• | Same center tenant sales performance for the twelve months ended December 31, 2017 for the overall portfolio was stable compared to the twelve months ended December 31, 2016 |
• | Tanger renewed approximately 84% of the consolidated portfolio space scheduled to expire during 2017, compared to a 2016 renewal rate of 85% |
• | Portfolio net operating income ("Portfolio NOI") for the consolidated portfolio increased 3.6% during the fourth quarter and increased 6.8% on a year-to-date basis |
• | Same center net operating income ("Same Center NOI") increased for the 14th consecutive year |
• | Excluding the centers with major re-merchandising projects during 2017, Same Center NOI for the consolidated portfolio increased 0.6% during the fourth quarter and increased 1.4% on a year-to-date basis |
• | Including these centers, Same Center NOI for the consolidated portfolio decreased 0.4% during the fourth quarter and increased 0.5% on a year-to-date basis |
• | For the consolidated portfolio, lease termination fees, which are excluded from Same Center NOI and Portfolio NOI, totaled $0.8 million and $0.1 million for the the fourth quarters of 2017 and 2016, respectively and totaled $3.6 million for both respective year-to-date periods. In addition, Tanger's share of lease termination fees in its unconsolidated joint ventures, which is included in equity in earnings of unconsolidated joint ventures, totaled $0.1 million and $0.3 million for the the fourth quarters of 2017 and 2016, respectively and totaled $0.9 million and $1.7 million for the respective year-to-date periods. |
• | Completed two construction projects: Lancaster, Pennsylvania (123,000 square foot expansion) and Fort Worth, Texas (352,000 square foot new outlet center). Combined, these wholly-owned projects represent a 3.2% expansion of the Company's overall footprint at the beginning of the year and a total investment of approximately $138.8 million with an expected weighted average stabilized yield of approximately 9.2%. |
• | Increased Tanger's legal ownership interest in the Foxwoods (Mashantucket, Connecticut) center to 100%. Previously, the Company had two-thirds legal ownership interest, but a 100% economic interest in the consolidated joint venture as a result of its preferred equity interest and the capital and distribution provisions in the joint venture agreement. |
• | Sold a 22 year-old non-core outlet center in Westbrook, Connecticut |
• | Repurchased a total of 1.9 million common shares during the year at a weighted average price of $25.80 per share for total consideration of $49.3 million, leaving $75.7 million remaining under Tanger's $125.0 million share repurchase authorization, which is valid through May 2019. No shares were repurchased during the fourth quarter. |
• | Completed a public offering of $300 million of 3.875% unsecured senior notes due July 2027 and used the net proceeds and unsecured lines of credit borrowings to redeem $300 million of outstanding 6.125% unsecured senior notes due June 2020 |
• | Entered into forward starting interest rate swaps in December 2017 to hedge our variable interest rate exposure on notional amounts aggregating $150.0 million. These interest rate swap agreements fix the base LIBOR rate, effective August 2018 through January 2021, at an average of 2.20%. |
• | Unencumbered the outlet center in Foxwoods (Mashantucket), CT by repaying the $70.3 million mortgage loan with borrowings under the unsecured lines of credit |
• | Total enterprise value was $4.4 billion and debt-to-enterprise value ratio was 40% |
• | Total outstanding floating rate debt was $268 million, representing 15% of total debt outstanding, or about 6% of total enterprise value |
• | Unused capacity was $306 million under the Company's $520 million unsecured lines of credit |
• | Weighted average interest rate was 3.33% |
• | Weighted average term to maturity of outstanding debt, including extension options, was approximately 6.3 years |
• | Approximately 94% of the Company's consolidated square footage was unencumbered by mortgages |
• | Interest coverage ratio was 4.46 times for 2017, compared to 4.40 times for 2016 |
For the year ended December 31, 2018: | |||
Low Range | High Range | ||
Estimated diluted net income per share | $1.02 | $1.08 | |
Noncontrolling interest, depreciation and amortization of real estate assets | |||
including noncontrolling interest share and our share of unconsolidated | |||
joint ventures | 1.41 | 1.41 | |
Estimated diluted FFO per share | $2.43 | $2.49 |
• | Portfolio NOI growth for the consolidated portfolio between 0.5% and 1.5%, reflecting the full year impact of the new Fort Worth, Texas center and the Lancaster, Pennsylvania expansion |
• | Same Center NOI guidance for the consolidated portfolio between (1.0)% and 0.0%, reflecting the following: |
◦ | Lower average occupancy related to the elevated level of store closings in 2017 resulting from bankruptcy filings and brand-wide restructurings by retailers, as well as an assumption of additional store closings in 2018 at approximately half the level of the 2017 stores recaptured |
◦ | Negative impact of short-term lease renewals and lease modifications commencing in 2018 and 2017, which the Company strategically executed to preserve upside potential and maintain high occupancy |
• | Projected full year lease termination fees (which are not included in Same Center NOI) of approximately $1.0 million for the consolidated portfolio |
• | Tenant sales remain stable |
• | Average general and administrative expense of between $11.1 million and $11.5 million per quarter |
• | Interest expense for the year for the consolidated portfolio of $64.0 million to $66.0 million, and our share of interest expense in the unconsolidated portfolio of $6.0 million to $7.0 million |
• | 2018 weighted average diluted common shares of approximately 93.1 million for earnings per share and 98.1 million for FFO per share |
• | Combined recurring capital expenditures and second generation tenant allowances of approximately $34 million |
• | Does not include the impact of any additional financing activity, the sale of any outparcels, properties or joint venture interests, or the acquisition of any properties or joint venture partner interests |
Three months ended | Year ended | ||||||||||||||
December 31, | December 31, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenues: | |||||||||||||||
Base rentals (a) | $ | 82,518 | $ | 81,158 | $ | 323,985 | $ | 308,353 | |||||||
Percentage rentals | 3,055 | 3,750 | 9,853 | 11,221 | |||||||||||
Expense reimbursements | 38,016 | 36,697 | 142,817 | 133,818 | |||||||||||
Management, leasing and other services | 676 | 588 | 2,452 | 3,847 | |||||||||||
Other income | 2,222 | 2,366 | 9,127 | 8,595 | |||||||||||
Total revenues | 126,487 | 124,559 | 488,234 | 465,834 | |||||||||||
Expenses: | |||||||||||||||
Property operating | 40,161 | 41,689 | 155,235 | 152,017 | |||||||||||
General and administrative | 10,158 | 11,328 | 44,004 | 46,696 | |||||||||||
Acquisition costs | — | — | — | 487 | |||||||||||
Abandoned pre-development costs | — | — | 528 | — | |||||||||||
Depreciation and amortization | 32,569 | 33,279 | 127,744 | 115,357 | |||||||||||
Total expenses | 82,888 | 86,296 | 327,511 | 314,557 | |||||||||||
Operating income | 43,599 | 38,263 | 160,723 | 151,277 | |||||||||||
Other income (expense): | |||||||||||||||
Interest expense | (15,329 | ) | (16,469 | ) | (64,825 | ) | (60,669 | ) | |||||||
Loss on early extinguishment of debt | — | — | (35,626 | ) | — | ||||||||||
Gain on sale of assets | — | — | 6,943 | 6,305 | |||||||||||
Gain on previously held interest in acquired joint ventures | — | — | — | 95,516 | |||||||||||
Other non-operating income | 2,041 | 650 | 2,724 | 1,028 | |||||||||||
Income before equity in earnings of unconsolidated joint ventures | 30,311 | 22,444 | 69,939 | 193,457 | |||||||||||
Equity in earnings of unconsolidated joint ventures | 3,138 | 3,192 | 1,937 | 10,872 | |||||||||||
Net income | 33,449 | 25,636 | 71,876 | 204,329 | |||||||||||
Noncontrolling interests in Operating Partnership | (1,689 | ) | (1,278 | ) | (3,609 | ) | (10,287 | ) | |||||||
Noncontrolling interests in other consolidated partnerships | (265 | ) | (285 | ) | (265 | ) | (298 | ) | |||||||
Net income attributable to Tanger Factory Outlet Centers, Inc. | 31,495 | 24,073 | 68,002 | 193,744 | |||||||||||
Allocation of earnings to participating securities | (302 | ) | (280 | ) | (1,209 | ) | (1,926 | ) | |||||||
Net income available to common shareholders of Tanger Factory Outlet Centers, Inc. | $ | 31,193 | $ | 23,793 | $ | 66,793 | $ | 191,818 | |||||||
Basic earnings per common share: | |||||||||||||||
Net income | $ | 0.33 | $ | 0.25 | $ | 0.71 | $ | 2.02 | |||||||
Diluted earnings per common share: | |||||||||||||||
Net income | $ | 0.33 | $ | 0.25 | $ | 0.71 | $ | 2.01 |
a. | Includes straight-line rent and market rent adjustments of $275 and $809 for the three months ended and $3,258 and $4,155 for the years ended December 31, 2017 and 2016, respectively. |
December 31, | December 31, | ||||||
2017 | 2016 | ||||||
Assets | |||||||
Rental property: | |||||||
Land | $ | 279,978 | $ | 272,153 | |||
Buildings, improvements and fixtures | 2,793,638 | 2,647,477 | |||||
Construction in progress | 14,854 | 46,277 | |||||
3,088,470 | 2,965,907 | ||||||
Accumulated depreciation | (901,967 | ) | (814,583 | ) | |||
Total rental property, net | 2,186,503 | 2,151,324 | |||||
Cash and cash equivalents | 6,101 | 12,222 | |||||
Investments in unconsolidated joint ventures | 119,436 | 128,104 | |||||
Deferred lease costs and other intangibles, net | 132,061 | 151,579 | |||||
Prepaids and other assets | 96,004 | 82,985 | |||||
Total assets | $ | 2,540,105 | $ | 2,526,214 | |||
Liabilities and Equity | |||||||
Liabilities | |||||||
Debt: | |||||||
Senior, unsecured notes, net | $ | 1,134,755 | $ | 1,135,309 | |||
Unsecured term loan, net | 322,975 | 322,410 | |||||
Mortgages payable, net | 99,761 | 172,145 | |||||
Unsecured lines of credit, net | 206,160 | 58,002 | |||||
Total debt | 1,763,651 | 1,687,866 | |||||
Accounts payable and accrued expenses | 90,416 | 78,143 | |||||
Other liabilities | 73,736 | 54,764 | |||||
Total liabilities | 1,927,803 | 1,820,773 | |||||
Commitments and contingencies | |||||||
Equity | |||||||
Tanger Factory Outlet Centers, Inc.: | |||||||
Common shares, $.01 par value, 300,000,000 shares authorized, 94,560,536 and 96,095,891 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively | 946 | 961 | |||||
Paid in capital | 784,782 | 820,251 | |||||
Accumulated distributions in excess of net income | (184,865 | ) | (122,701 | ) | |||
Accumulated other comprehensive loss | (19,285 | ) | (28,295 | ) | |||
Equity attributable to Tanger Factory Outlet Centers, Inc. | 581,578 | 670,216 | |||||
Equity attributable to noncontrolling interests: | |||||||
Noncontrolling interests in Operating Partnership | 30,724 | 35,066 | |||||
Noncontrolling interests in other consolidated partnerships | — | 159 | |||||
Total equity | 612,302 | 705,441 | |||||
Total liabilities and equity | $ | 2,540,105 | $ | 2,526,214 |
December 31, | ||||||
2017 | 2016 | |||||
Gross leasable area open at end of period (in thousands): | ||||||
Consolidated | 12,930 | 12,740 | ||||
Partially owned - unconsolidated | 2,370 | 2,348 | ||||
Outlet centers in operation at end of period: | ||||||
Consolidated | 36 | 36 | ||||
Partially owned - unconsolidated | 8 | 8 | ||||
States operated in at end of period (1) | 22 | 22 | ||||
Occupancy at end of period (1), (2) | 97.3 | % | 97.7 | % |
(1) | Excludes the centers in which we have ownership interests but are held in unconsolidated joint ventures. |
(2) | Excludes the occupancy rate at our Fort Worth and Daytona Beach outlet centers which opened during the fourth quarter of 2017 and 2016, respectively and have not yet stabilized. |
• | FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
• | FFO does not reflect changes in, or cash requirements for, our working capital needs; |
• | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements; |
• | FFO, which includes discontinued operations, may not be indicative of our ongoing operations; and |
• | Other companies in our industry may calculate FFO differently than we do, limiting its usefulness as a comparative measure. |
• | AFFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; |
• | AFFO does not reflect changes in, or cash requirements for, our working capital needs; |
• | Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and AFFO does not reflect any cash requirements for such replacements; |
• | AFFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and |
• | Other companies in our industry may calculate AFFO differently than we do, limiting its usefulness as a comparative measure. |
Three months ended | Year ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 33,449 | $ | 25,636 | $ | 71,876 | $ | 204,329 | ||||||||
Adjusted for: | ||||||||||||||||
Depreciation and amortization of real estate assets - consolidated | 31,987 | 32,653 | 125,621 | 113,645 | ||||||||||||
Depreciation and amortization of real estate assets - unconsolidated joint ventures | 2,886 | 3,438 | 13,857 | 18,910 | ||||||||||||
Impairment charges - unconsolidated joint ventures | — | — | 9,021 | 2,919 | ||||||||||||
Gain on sale of assets | — | — | (6,943 | ) | (4,887 | ) | ||||||||||
Gain on previously held interest in acquired joint ventures | — | — | — | (95,516 | ) | |||||||||||
FFO | 68,322 | 61,727 | 213,432 | 239,400 | ||||||||||||
FFO attributable to noncontrolling interests in other consolidated partnerships | (265 | ) | (286 | ) | (265 | ) | (348 | ) | ||||||||
Allocation of earnings to participating securities | (597 | ) | (520 | ) | (1,943 | ) | (2,192 | ) | ||||||||
FFO available to common shareholders (1) | $ | 67,460 | $ | 60,921 | $ | 211,224 | $ | 236,860 | ||||||||
As further adjusted for: | ||||||||||||||||
Compensation related to director and executive officer terminations (2) | — | — | — | 1,180 | ||||||||||||
Acquisition costs | — | — | — | 487 | ||||||||||||
Abandoned pre-development costs | — | — | 528 | — | ||||||||||||
Recoveries from litigation settlement | (1,844 | ) | — | (1,844 | ) | — | ||||||||||
Demolition costs | — | — | — | 441 | ||||||||||||
Gain on sale of outparcel | — | — | — | (1,418 | ) | |||||||||||
Make-whole premium due to early extinguishment of debt (3) | — | — | 34,143 | — | ||||||||||||
Write-off of debt discount and debt origination costs due to early extinguishment of debt (3) | — | — | 1,483 | 882 | ||||||||||||
Impact of above adjustments to the allocation of earnings to participating securities | 16 | — | (238 | ) | (15 | ) | ||||||||||
AFFO available to common shareholders (1) | $ | 65,632 | $ | 60,921 | $ | 245,296 | $ | 238,417 | ||||||||
FFO available to common shareholders per share - diluted (1) | $ | 0.68 | $ | 0.61 | $ | 2.12 | $ | 2.36 | ||||||||
AFFO available to common shareholders per share - diluted (1) | $ | 0.66 | $ | 0.61 | $ | 2.46 | $ | 2.37 | ||||||||
Weighted Average Shares: | ||||||||||||||||
Basic weighted average common shares | 93,691 | 95,186 | 94,506 | 95,102 | ||||||||||||
Effect of notional units | — | 202 | — | 175 | ||||||||||||
Effect of outstanding options and restricted common shares | — | 67 | 16 | 68 | ||||||||||||
Diluted weighted average common shares (for earnings per share computations) | 93,691 | 95,455 | 94,522 | 95,345 | ||||||||||||
Exchangeable operating partnership units | 5,023 | 5,053 | 5,027 | 5,053 | ||||||||||||
Diluted weighted average common shares (for FFO and AFFO per share computations) (1) | 98,714 | 100,508 | 99,549 | 100,398 |
(1) | Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company. Each Class A common limited partnership unit is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's REIT status. |
(2) | Represents cash severance and accelerated vesting of restricted shares associated with the departure of an executive officer in August 2016 and the accelerated vesting of restricted shares due to the death of a director in February 2016. |
(3) | Charges in 2017 relate to the early redemption of our $300.0 million 6.125% senior notes due 2020. Charges in 2016 relate to the early repayment of the $150.0 million mortgage secured by the Deer Park property, which was scheduled to mature August 30, 2018. |
Three months ended | Year ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 33,449 | $ | 25,636 | $ | 71,876 | $ | 204,329 | ||||||||
Adjusted to exclude: | ||||||||||||||||
Equity in earnings of unconsolidated joint ventures | (3,138 | ) | (3,192 | ) | (1,937 | ) | (10,872 | ) | ||||||||
Interest expense | 15,329 | 16,469 | 64,825 | 60,669 | ||||||||||||
Gain on sale of assets | — | — | (6,943 | ) | (6,305 | ) | ||||||||||
Gain on previously held interest in acquired joint venture | — | — | — | (95,516 | ) | |||||||||||
Loss on early extinguishment of debt | — | — | 35,626 | — | ||||||||||||
Other non-operating income | (2,041 | ) | (650 | ) | (2,724 | ) | (1,028 | ) | ||||||||
Depreciation and amortization | 32,569 | 33,279 | 127,744 | 115,357 | ||||||||||||
Other non-property expenses | 239 | 817 | 1,232 | 382 | ||||||||||||
Abandoned pre-development costs | — | — | 528 | — | ||||||||||||
Acquisition costs | — | — | — | 487 | ||||||||||||
Demolition Costs | — | — | — | 441 | ||||||||||||
Corporate general and administrative expenses | 10,268 | 11,149 | 43,767 | 46,138 | ||||||||||||
Non-cash adjustments (1) | (141 | ) | (674 | ) | (2,721 | ) | (3,613 | ) | ||||||||
Termination rents | (837 | ) | (107 | ) | (3,633 | ) | (3,599 | ) | ||||||||
Portfolio NOI | 85,697 | 82,727 | 327,640 | 306,870 | ||||||||||||
Non-same center NOI (2) | (12,807 | ) | (9,558 | ) | (42,450 | ) | (23,072 | ) | ||||||||
Same Center NOI | $ | 72,890 | $ | 73,169 | $ | 285,190 | $ | 283,798 |
(1) | Non-cash items include straight-line rent, above and below market rent amortization and gains or losses on outparcel sales. |
(2) | Excluded from Same Center NOI: |
Outlet centers opened: | Outlet centers sold: | Outlet centers acquired: | Outlet center expansions: | |||||||
Daytona Beach | November 2016 | Fort Myers | January 2016 | Glendale (Westgate) | June 2016 | Lancaster | September 2017 | |||
Fort Worth | October 2017 | Westbrook | May 2017 | Savannah | August 2016 |