Tanger Inc (SKT) 2004 Q1 法說會逐字稿

Good morning and welcome to Tanger Factory Outlet Centers' first quarter 2004 conference call.

Please note that during this conference call, some of management's comments may be forward-looking statements regarding the company's property operations, leasing, tenant sales trends, development, acquisitions, expansion and disposition activities, as well as their comments regarding the company's funds from operations, funds available for distribution and dividends.

These forward-looking statements are subject to numerous risks and uncertainties and actual results could cause differ materially from those projected, due to the 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 Security and 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, April 28th, 2004.

At this time, all participants are in a listen-only mode.

Following management's prepared remarks, the call will be opened for your questions.

I will now turn the call over to Mr. Stanley Tanger, the company's Chairman and Chief Executive Officer.

Go ahead, Mr. Tanger..

Thank you and good morning everyone.

With me today are Steven Tanger, our President and Chief Operating Officer, and Frank Marchisello, Executive Vice President and Chief Financial Officer.

We are pleased to report that 2004 has started off on the right foot.

Our first quarter results came in at a high-end of our expectations, as a result of stronger than anticipated percentage rentals and special leasing income.

Funds from operations increased by 35.2% in several dollars, and by 7.7% per share.

Also, we recently announced we will raise our dividend for the 11th straight year in the annual amount of $2.50 per share.

I 'm going to turn this over to Frank Marchisello, please.

Thank you.

Thank you Mr. Tanger and good morning everyone.

Please note, all per share net income and FFO calculations are on a diluted basis.

For the first quarter, ended March 31st, 2004, net income totaled $1 million or 8 cents per share, compared to $1.7 million or 19 cents per share.

As expected, compared of net income amounts were impacted by the allocation of net income to Tanger's consolidated joint-venture partner in 2004, as required under the company's current accounting policies.

Total funds from operations for the quarter increased by 35.2% to $13.9 million, compared to $10.3 million in 2003.

On a per-share basis, FFO for the quarter increased by 7.7% to 84 cents per share, as compared to 78 cents per share in 2003.

Our FFO payout ratio for the first quarter of 2004 was 73% ,as compared to 79% in 2003, and our FAD payout ratio was 95%, as compared to 97% in 2003.

We expect our FAD payout ratio will average above our historical rate of approximately 85% for the next few quarters as we work toward increasing occupancies, particularly within the Charter Oak portfolio.

On a consolidated basis, our debt to total market capitalization at the end of the quarter was approximately 40.5%.

Our total market capitalization was approximately $1.3 billion representing a 68.8% increase in our total market cap from a year ago.

This increase is a result of the issuance of 2,635,000 new common shares and the consolidation of Charter Oak assets onto our balance sheet.

We also saw continued improvement in our interest coverage ratio, which was 3.26 times for the first quarter of 2004, as compared to 2.46 times interest coverage in the same period last year.

We are comfortable with our exposure to an increase in interest rates.

Variable rate debt accounted for only 11.5% or $58.3 million of our total debt outstanding, and the remaining 88.5% debt or $450.9 million of debt was at fixed rates.

In addition, the only significant debt maturity we have over the next two years will occur in October of this year -- excuse me -- when our unsecured notes totaling 47.5 million and bearing interest at 7.875% mature.

Our current financial flexibility provides us with a number of refinancing options.

We are currently in the process of determining the best and most efficient way to refinance these notes at their maturity.

With respect to our unsecured credit lines, we had $4.8 million outstanding on our lines at March 31st, 2004, with a total capacity of $100 million.

On April 8th, 2004, Movies Investor Service affirmed our BA1Senior Unsecured Rating and concurrently raised our rating outlook to positive from stable.

This rating outlook change is a direct result of our ability to increase the size and market leadership our Outlet Center portfolio, reduce single-asset concentration and improve our coverage ratios and apply a prudent balance sheet management.

I'll now turn the call over the Steve Tanger.

Thank you Frank and good morning everyone.

As of March 31st, our portfolio consisted of 40 factory outlet shopping centers, which we own or operate, diversified across 23 states, totaling 9.3 million square feet.

I am pleased to report that the positive rent spreads we achieved last year have continue into the fist quarter of 2004.

Through March 31, 2004, we have already renewed over 42% of the 1.8 million square feet of leases scheduled to come up for renewal during the year at an average increase in base rent on a cash basis of 7.9%.

We have also re-tenanted over a 130,000 square feet at an average increase in base rent on a cash basis of 8.3% over the rent that was being paid by the previous tenant prior to their vacating space.

As was expected, our overall occupancy rate at the end of the first quarter was 94%, down 1% compared to the first quarter of 2003.

This 1% change was due to the consolidation of the Charter Oak acquisition and the closing of the only two Spiegel stores in our portfolio.

These two stores totaled 55,000 square feet or .5% of our consolidated portfolio.

We are focused on filling the vacant space with high-quality brand-name tenants.

Consistent with our experience over the past 20 years, we expect to see our overall occupancy rate increase during the year.

With respect to tenant productivity across our consolidated portfolio, same space sales increased 5.7% for the three months ended March 31, 2004, as compared to the three months ended March 31, 2003.

Sales increased 4.2% for the rolling 12 months ended March 2004 to $306 per square foot.

Sales ann traffic in the first quarter were strong across the entire portfolio and appear to be continuing into April.

From a development standpoint, we are completing a 79,000 square foot, third and final phase, at one of our highly successful -- at our highly successful outlet center located on Highway 17 North in Myrtle Beach, South Carolina.

Upon completion of the third expansion, this Myrtle Beach center will total approximately 403,000 square feet.

New leases have been executed with Banana Republic, Gap, Calvin Kline, Anne Taylor, Puma, Guess, Jones New York and several other tenants.

Stores are expected to start opening around Memorial Day and continue to open during the summer.

Including the recently purchased Charter Oak property in Myrtle Beach, we control the only two outlet centers, which in total -- which total approximately 830,000 square feet and is high-volume tourist market.

For those of you that may be interested in seeing our properties in Myrtle Beach, we have agreed to co-host an analyst and investor property tour with CBL Associates on May 17 and 18.

The tour will include CBL's new Grand Coastal -- Coastal Grand Mall, as well as the two Tanger Outlet Centers located in the Myrtle Beach market.

If you are interested in joining us, please call our assistant, Patty Ross, at 336-834-6863 for more details.

In terms of new development opportunities, we have started the early development and leasing of a sight located at Exit 41 on Interstate 79, south of Pittsburgh, Pennsylvania, and a sight located in Deer Park, New York, on Commack Road, about five miles south of Exit 52 on the Long Island Expressway.

We currently expect the Pittsburgh sight to be 420,000 square feet at total build-out, with the initial phase scheduled for delivery in late 2005, early 2006.

The Deer Park sight will be 790,000 square feet, a total build-out, with the initial phase scheduled for delivery in late 2006 or early 2007.

We have also identified two additional new development sights in tourist locations, which we plan to announce at the ICSC Convention next month.

We also continue to explore other potential acquisition and disposition opportunities, as well as opportunities to add revenue without incurring any significant outlay of capital or additional expense by performing leasing and management services for third-party owners.

I know many of you are interested in hearing how the integration of the Charter Oak portfolio of nine outlet centers has been going, so let me give you a few statistics on what we have accomplished in our first three-and-a-half months.

The consumer reaction to the new Tanger marketing program for these nine centers has been positive.

Same space sales per square foot at these properties average $293 per square foot for the rolling 12 months ended March 2004, an increase of 2% over the prior 12 months.

Same space sales per square foot for the three months ended March 2004 were up 5.8% over the three months ended March 2003.

We have signed renewals for 32.6% of the 565,000 square feet of space coming up for renewal during 2004, and we have achieved a 6.6% increase in base rental rates on these renewals.

First quarter and occupancy average slightly above 93% for the portfolio.

There is a lot of interest from our tenants to rent space in these centers, and we expect the overall occupancy rate at these centers will increase over time.

With respect to our FFO guidance, based on current market conditions, the strength and stability of our core portfolio, the continued successful integration of Charter Oak portfolio and our development acquisition and disposition strategy.

We currently believe that our net income available to common shareholders for 2004 will be between 62 cents and 70 cents per share.

And our FFO for 2004 will be between $3.68 and $3.76 per share, representing an increase in FFO over the prior year of approximately 7% to 9%.

In closing, we believe that our core business fundamentals remain solid and that we are properly positioned for a successful 2004.

With that, we will be happy to answer any questions that you may have.

Thank you.

The question-and-answer session will begin now.

If you are using a speakerphone, please pick-up your handset before pressing any numbers.

Should you have a question, please press star then the number one on your telephone keypad.

If you would like to withdraw your question, press the pound key.

Your questions will be taken in the order they are received.

Please stand by for your first question.

Your first question comes from the line of Ross Nesbaum with Smith Barney.

Hi.

This is David Carlisle on behalf of Ross.

Steve, I had a question for you related to the operating expenses as a percent of revenues.

It looks like, in this quarter, that calculation was about 42.8%, whereas, historically, it's run closer to 50%, including first quarter of '03 -- it was 51%.

What is the reason that it would be so much lower now?

Is that related to Charter Oak, or is there something else going on?

Operating expenses as a percentage of total revenues --

Yes.

-- David?

It's somewhat related to Charter Oak, because what happens is, in consolidation, the management fee we are paid is eliminated in consolidation; however, that management fee is computed in coming up with the cam charge for the tenants.

So there's actually recovery income associated with that management fee.

So the reimbursement revenues are higher for the Charter Oak properties relative to net expenses, once the management fee is eliminated.

So that, in essence, is increasing our revenues on a consolidated basis and therefore the percentage of operating expenses would go down.

Okay.

Does that make some sense?

Yeah.

Do you think, you know, that 43%, roughly, rate is a reason we're going forward estimates of that, or do you think it'll be a little bit higher than that?

I think, as of now, that's probably a good estimate until we get a few more quarters under our belt.

Okay.

And then secondly, on a related topic, the expense reimbursement percentage is much higher this quarter, about 88.6% versus 84% for this quarter last year.

Is that, in the recovery percent, a good number to use going forward?

Yes, it should be.

And again, it's for the same reason I spoke of earlier.

When the management fee is eliminating consolidation, the recovery revenue stayed there, but the management fee expense at the Charter Oak level is eliminated against our management fee income.

For example, if you look at just the Charter Oak portfolio, the recovery rate there, including the management fee expenses and expense is roughly the same as what Tanger was at about 86%, but if you take that management fee expense out of the expense side, the recovery rate's, you know, above a hundred percent.

So that's going to mathematically increase our overall recovery rate once that management fee expense is eliminated.

Okay.

Thank you.

I have no other questions.

Thank you.

Your next question comes from the line of Linda Humphers with Value Retail News.

Hi, Steve.

I'm working on the show bulletin for the ICSC Convention in Las Vegas.

I wonder if you can tell me what the two sights are that you're going to announce?

Hi, Linda.

We'd be happy to tell you when we announce it in Las Vegas.

Okay.

Thank you.

Once again, if you would like the ask a question, please press star, then the number 1 on your telephone keypad.

Your next question comes from the line of Eric Rothman with Wacovia Securities.

Hi there, guys.

Question about Pittsburgh, as well as Deer Park.

How many phases are each of those going to have and what portion of the total square footage of each is in phase one?

Good morning, Eric.

The Deer Park sight, we intend to build -- or we would plan to build as much of it as possible in phase one.

It will be a large sight, about 790,000 square feet.

Part of it will be outlets.

Part of it will be a multiplex theater.

Part will be some medium-size boxes.

We're -- we're looking at -- we own one-third of that investment, as you may know.

We're looking at a total cost of somewhere between $165 and $175 per square foot, so our cost should be between somewhere -- our equity participation, depending upon the financing of it, you know, will be variable, depending upon the financing we put in.

The Pittsburgh sight will be about 420,000 square feet.

Our intention, at this time, would be to build about half of it in phase one.

Obviously, we'll build more, depending upon tenant demand.

We're looking at a cost somewhere around about $140 to $150 a foot in Pittsburgh.

There is a lot of site work involved.

Right now, it's our intention to own 100% of the asset, depending upon the way we finance it.

We'll be able the let you know our equity participation.

And that 140 to 150, that's all in --

All in, including --

Including land.

-- land, site work, construction and additional tenant allowance to install tenants.

It's an all-in cost.

Great.

Thank you very much.

That's all I've got for questions.

I'm not showing any further questions at this time.

I will now turn the call back over the Mr. Tanger to conclude.

Thank you all for participating today and for your interest in our company.

We have filed a Form 8K with the SEC, which includes both our entries, press release and supplemental information for the quarter.

In addition Steve, Frank and myself are always available to answer your questions.

Thank you and have a great day.

Thank you for participating in today's Tanger Factory Outlet Centers' first quarter 2004 conference call.

This call will be available for a replay beginning at 1:00 PM Eastern time today through 11:59 PM.

Eastern time on Friday, April 30th, 2004.

The conference ID number for the replay is 6362865.

Again, the conference ID number for the replay is 6362865.

Again, the conference ID number number to dial for the replay is 6362865.

The number to dial for the replay is 1-800-642-1687.