Tanger Inc (SKT) 2003 Q2 法說會逐字稿

Good afternoon, and welcome to Tanger Factory Outlet Centers second quarter 2003 conference call. Please note that during this conference call, some of management's comments will be forward-looking statements regarding the company's property operations, leasing, tenant sales trends, development, acquisition, expansion and disposition activities, as well as their comments regarding the company's funds from operations, funds for dividends.

These forward-looking statements are subject to numerous risks and uncertainties and actual results could differ materially from those projected due to factors including but not limited to changes in economic and real estate conditions, the availability and cost of capital, the company's ongoing ability to lease, develop, and acquire properties, as well as potential tenant bankruptcies and competition. We direct you to the company's filings with the Securities & Exchange Commission for a detailed discussion of the risks and uncertainties.

This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management's comments include time sensitive information that may be accurate only as of today's date, July 29th, 2003. At this time, all participants are in a listen-only mode.

Following management's prepared comments, the call will be opened up four your questions. I will now turn the call over to Stanley Tanger the company's Chairman and Chief Executive Officer. Please go ahead sir.

Thank you and good afternoon everyone. With me today are Steven Tanger, President and Chief Operating Officer, Frank Marchisello, Executive Vice President and Chief Executive Officer, Rochelle Simpson, Executive Vice President of Administration, and Virginia Summerell, our Treasurer.

We are pleased to report another great quarter of growth for the company. We grew our funds from operations by 17% in total and by 5.1% per share during the second quarter.

Also, 61.5 cents per share in dividends were distributed to our common shareholders representing our 40th consecutive quarterly dividend paid since becoming a public company ten years ago. Our financial performance was underscored by our strong portfolio performance.

In the second quarter, tenant sales reached $300 per square foot. We increased our occupancy by 100 basis points, and again achieved positive rent growth with our releasing activity. Furthermore, we opened ahead of schedule, the second phase of our Myrtle Beach development and we are on track to complete, in the third quarter, our seventh expansion in six years at our successful Sevierville Tennessee Outlet Center.

Both these projects should add nicely to our bottom line in the second half of the year. The Tanger team has shown an ongoing ability to generate growth and deliver rye reliable dividends to our shareholders, as we remain on track with executing our strategies for 2003.

On July 11th, 2003, we were privileged to be added to the Standard & Poor's REIT index. We are particularly satisfied with the performance of the Tanger common stock. For the calendar year December 31st, 2003, Tanger delivered a total return including stock price appreciation and dividends paid of approximately 63%. This annual return was reported to be the best on the Morgan Stanley REIT index for the year. Since January 1 of 2003, the total year to date return to our shareholders has been in excess of 23%. With that, I'll turn the call over to Frank to take through our financial results.

Thank you, Mr. Tanger and good afternoon everyone. Please note all per share net income and FFO calculations are on a diluted basis. Total funds from operations for the second quarter of 2003 increased by 17% to $11 million, compared to $9.4 million in 2002. On a per-share basis FFO increased by 5.1% to 82 cents per share, as compared to 78 cents per share in the second quarter of 2002.

For the first six months of 2003, FFO totaled $21.3 million or $1.60 per share, as compared to $18.3 million, or $1.54 per share, representing a 16.4% increase in total FFO and a 3.9 per share increase. For the quarter ended June 30th, 2003, net income was $2.3 million or 20 cents per share, as compared to $2.1 million or 20 cents per share in 2002. Included in net income for the second quarter of 2003, is a noncash, nonrecurring book loss on sale of $735,000, in connection of sale of a noncore asset completed during the second quarter.

For the first 6 months of 2003 net income totaled $4.5 million or 38 cents per share, compared to $3.5 million or 33 cents per share, representing a 15.2% per share increase. As Mr. Tanger indicated, during the second quarter of 2003, we distributed 61.5 cents per share in common dividends, equating with an FFO payout ratio of 75% as compared to 79% in the second quarter of 2002.

Our FAD payout ratio for the second quarter was slightly higher at 87% as compared to 84% for the second quarter of 2002. Primarily, as a result of capex costs during the second quarter of 2003, in connection with our remerchandising program at our center in Barstow, California. We expect our FAD payout ratio for all of 2003 to be approximately 80% versus 78% last year.

Turning to our balance sheet at June 30, 2003, our total market cap was approximately $773 million with $333 million of debt outstanding, which equated to a 43% debt to total market cap ratio, as compared to 51% a year ago. The improvement is primarily a result of a higher stock price, the issuance of additional common shares and a reduction of approximately $25 million in debt outstanding since June of 2002.

Looking at our debt profile at June 30th, roughly 80% of our outstanding debt was fixed rate, long term debt with a weighted average interest rate of 8.54% and a weighted average maturity of 4.3 years. In terms of our maturity schedule, we have no debt maturing until October 2004, when our unsecured notes totaling $47.5 million and bearing interest at 7.875, mature. With respect to our unsecured credit line, at June 30th, we had $11.9 million outstanding on our lines, total capacity of $85 million.

As a result of lowering our outstanding debt and generating increased revenues, our interest coverage improved to 2.8 time for the second quarter of 2003, compared to 2.3 times interest coverage in the same period last year. Lastly during the second quarter we called redemption all of the company's series A convertible preferred shares. Prior to redemption each series A preferred share could have been converted to .901 common shares. As of June 20th the effective date of the redemption, 98.1% of the series A preferred shares have been converted to 709,078 shares.

The company redeemed the 14,889 series A preferred Shares, at a price of $25 per shared, plus accrued and unpaid dividends forever a total cost of approximately $375,000, which was funded from cash flows from operations.

As a result of the redemption process the company's public float on its common shares increased to over 7% to 10.3 million shares. I'll turn the call over to Steve.

Thank you, Frank and good afternoon everyone. As of June 30th our portfolio consisted of 33 factory outlet shopping centers which we own or operate, diversified across 20 states, totaling 6.2 million square feet.

Our leasing activity during the second quarter of 2003 was very successful. We executed 81 new and renewed leases, totaling approximately 308,000 square feet, compared to 43 leases totaling approximately 167,000 square feet during the second quarter of last year. Importantly, during the first six months, we have already renewed over 72% of the square feet associated with tenants whose leases were scheduled to expire in 2003, compared to 57% at this time last year.

And as a result of our strong leasing activity, our overall occupancy rate increased from 95% as of March 31st of this year, to 96% as of June 30th of this year. So far, this year, we have added several exciting new tenants to our portfolio, such as Charlotte Russe, Adrian Vitadini and Tommy Hilfiger (ph) Kids.

In terms of rent growth, the average initial base rental rate for new stores opened during the second quarter was $17.85, representing an increase of $2.18 or 13.9% over the rent paid by stores that closed during the same period. In addition, we achieved a 1.4% increase in base rental revenue per square foot on a cash basis, associated with the space that was renewed and retenanted during the second quarter, as compared to the previous base rental revenues associated with the same space. Our total occupancy cost to tenants remained at an industry low of 7.2% of tenant sales during the 12-month period ending June 2003.

With respect to tenant productivity across our portfolio, same-space sales increased 6.3% for the three month ended June 30, 2003, as compared to the three month ended June of 2002. In addition, for the rolling 12 month ended June 30, 2003, sales were $300 per square foot, representing an average -- representing an increase of 1.5% compared to the 12 month ended June of last year.

Turning to our investment activities, during the second quarter, we completed the 64,000 square foot second phase of our very successful center in Myrtle Beach, South Carolina bringing the total size of the property to 324,000 square feet. Our investment in the expansion was approximately $1.1 million dollars, with an expected return in excess of 20%. In addition, we have the ability to continue expanding the center by another 76,000 square feet. We are currently in the preliminary preleasing stage, and once we secure signed leases for leased 50% of the space, we intend to commence construction on the third phase. While it is still early in the process, we hope to be underway with construction in time for a targeted completion date in the fourth quarter of 2004.

In addition, we are nearing completion on a 35,000 square foot expansion at our outlet center in Sevierville Tennessee. The expansion is currently 100% preleased. We expect to complete the expansion in the third quarter of this year, at a cost of approximately $4 million with an expected return in excess of 13%. Upon completion, our Sevierville center will total 419,000 square feet.

We continue to make progress with our remerchandising program at our center in Barstow, California. The occupancy has increased from 62% on December 31, 2002, to 80% as of June 30, 2003. New stores currently open in Barstow include Polo Ralph Lauren, Tommy Hilfiger Coach Nautica to name a few.

Looking ahead we're looking for expansion opportunities. Consistent with our long term strategy not to build open speculation we believe that strong business fundamentals must be in place for us to consider future new development and expansion. In terms of development opportunities, we are currently studying several new markets and based on our due diligence we plan to announce specific sites for delivery in 2005 and 2006 by the end of this year.

Additionally we continue to explore potential acquisition opportunities, as well as you opportunities to add revenue without incurring significant outlay of capital or additional expenses by performing leasing and management services for third party owners. In terms of disposition, in May we sold, for $2.3 million, a small noncore property located in West Virginia. We utilized the proceeds to pay down our credit line debt.

With respect to FFO guidance, we remain comfortable with our previously stated guidance of achieving FFO for 2003 of between $3.45 and $3.49 per share. Our guidance is based on the following three conservative assumptions. First, while we are assuming that tenant sales during 2003 will increase modestly over 2002, we expect percentage rentals will be flat as compared to 2002. Second, we are assuming that our average occupancy during 2003 will be approximately 96%, which is equal to the average occupancy achieved during 2002. And third, we are assuming that no external growth beyond our recently completed expansion in Myrtle Beach and our expansion in Sevierville, Tennessee.

With that, I would be happy to answer any questions you may have. Thank you.

Thank you. The question-and-answer session will begin now. If you are using a speaker phone, please pick up the hand set before pressing any numbers. Should you have a question please press star, then 1, on your push button phone. If you would like to withdraw your question press the pound key. Your question will be taken in the order it is received.

Your first question comes from Liz Watson with Legg Mason.

Good afternoon. Congratulations on a good quarter. Just a quick question. What is, in the first quarter, you reported sales on a rolling 12 months at 293 a square foot and now it's 300. What's accounting for the movement? Is it Myrtle Beach or any idea?

Myrtle Beach did roll into that number but the majority of the increase is just due to the fact that the three-month sales for the period ended June of '03 were so much better than the three months of June of '02. The shift from first quarter to second quarter, our first quarter got hurt, second quarter we kind of bounced back and made up for that first quarter reduction.

So it's really the timing?

Timing of the holiday and all. First quarter we did discuss the fact that that hampered sales in the first quarter and in fact the second quarter kind of played out in that seams came back. So the average that we've been able to show for the year was increased dramatically.

so the next quarter will most likely be less than 300?

I don't know about that. I mean Myrtle Beach is doing very well. And if traffic indications that we've seen so far in July hold steady, and we don't get another period of extremely bad weather, we're still hopeful that we'll be able to be at or above the $300 per square foot number.

What are you calculating as your overall occupancy rate now?

7.2%.

Still maintaining at 7.2%. Any additional or possible expansion plans for Myrtle Beach?

As I stated we still have the ability and we own the land and it is fully permitted to add a third phase of approximately 76,000 square feet and we hope to have that delivered and occupied by the end of next year.

Of 2004?

Yes ma'am.

Thanks that's it for today.

Thanks Liz.

Next question comes from Fred Taylor from Fleet Securities.

I think you might have said this but I was on a bad line and couldn't review it. Could you review the six month and second quarter capital expenditures? I know we'll see it in the Q when that comes out.

Fred, it's actually in the supplement that we filed as well today.

Oh, was it? I apologize.

It's on page 15, we break out our capex per quarter, for the three months ended June between second generation allowance and capex we were close to $2 million.

$2 million in the second quarter?

Right.

Okay. I appreciate that. That's all I had right now, thanks.

Thank you. Next question comes from Greg Andrews with Green Street Advisors.

Good afternoon. In terms of Barstow, can you comment as to what kind of improvement in traffic you may be seeing related to the remerchandising there? And then secondarily, where you hope to get occupancy by, say, the end of the year?

Hi, Greg. Barstow has been a terrific turn-around for us. So far, traffic is up significantly. In July, it's up by double digits. We -- and that's in the face of bus traffic, we used to get 10,000 buses a year to Barstow. The bus traffic is down, and once the -- once our visitors from the orient start to come back to the states, we expect that really to accelerate.

And the stores are experiencing good sales growth, and seem to be satisfied. We are in discussions with additional tenants, and we hope to raise the occupancy rate by year end, to maybe the mid-80%s to possibly as high as 90%.

Great. And any update on some of the other development projects that you've been looking at, you know, in different places around the country?

Greg, just a quick addendum to what I mentioned with regard to Barstow. Just as a point of reference, this time last year as of June 30 of '02, Barstow's occupancy was 57%. And today, it's 80%. As far as new development, as I mentioned we are in the due diligence period on a couple of very exciting sites.

We're not prepared to make a formal announcement yet, but we are hopeful by the end of the year that everything will be in place that we can do that.

Okay. And then finally, you have a number of other centers, I think, listed for sale. Any activity there, any indications of pricing that that tell you anything about the market?

Lots of activity. So far, we have nothing to report. We normally only report transactions after they close.

Thank you.

Thank you Greg.

Thank you. Once again, should you have a question please press star then one on your push button phone. Your next question comes from Jay Haberman with CSFB.

Good afternoon. Wondering Steve if you could provide incites for current acquisition and where you're seeing cap rates?

Cap rates are coming down in our market. As was publicly disclosed, Chelsea purchased a property in Tannersville, Pennsylvania. I believe they paid in excess of $300 per square foot or approximately $300 per square foot. We'd certainly welcome that cap rate applied to our portfolio, and the per square foot, applied to our portfolio.

These cap rates have come down. We are in discussions and we are actively purchase pursuing several acquisitions although there is nothing to report at this time.

Is there much on the market currently?

There are always properties on the market.

Okay. And a specific question on San Marcos—looks like occupancy is down 400 basis points, looked like. Was there anything going on at that asset?

Simply two tenants that were in interrupt bankruptcy. One is Linen Barn and one is West Point Stevens. Both suites are in the process of being released. I believe we have leases out or leases executed on those spaces, and we expect them to be filled by the end of the year.

Okay. One final question for me. On Barstow is there additional capital still to be spent?

Not to my knowledge.

Okay, great, thank you.

I'm showing no further questions at this time, so I will turn the call back over to Stanley Tanger to conclude.

Thanks for participating today. And for your interest in our company. We have filed a form 8-K with the S.E.C. which includes supplemental information for the second quarter of 2003. This and all of our other public filings are available at our Website located at www.tangeroutlet.com. In addition, as you probably know, Steve, Frank and myself are available to answer any other questions you may have.

Incidentally, Frank mentioned our higher stock price. As many of you have probably noticed, yesterday we closed at an all-time high stock price of $36.78. Thanks for listening in. Thanks, have a good day, and God bless you all.

Thank you. This call will be available for replay beginning 600 p.m. eastern time today through 1159 p.m. August 1st, 2003 2003.

The conference id number is 1630709. Again the conference ID number for the replay is 1630709. The number to dial for the replay is 1-800-642-1687, or 706-645 45-9291. Thank you for participating in today's conference. You may now disconnect.