Tanger Inc (SKT) 2004 Q3 法說會逐字稿

Good morning and welcome to the Tanger Factory Outlet Centers third quarter 2004 conference call.

Please note that during this conference call, some of management's comments may be forward-looking statement regarding the company's property, operations, leasing, [inaudible] trends, development, acquisition, expansion and disposition activities as well as the comments regarding the company's funds from operations, funds available for distribution and dividend.

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 and Exchange Commission for the 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 the management's comments include time-sensitive information that may be accurate only for today's date, October 27th, 2004.

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

Following the management's prepared comments, the call will be opened up for questions.

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

Please go ahead, sir

Thank you and good morning everyone.

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

We are pleased to report that third quarter 2004 funds from operations exceeded consensus estimates.

Consistent with our previously announced long-term strategic plan to improve the quality of our portfolio by disposing of non-core assets, we sold one property during the quarter, generating about $11 million in net proceeds.

The proceeds were used along with other available funds to repay our $47.5 million unsecured note on October 25th this year.

During the quarter, our board of directors approved the expansion of our board from five to six members and invited Allan Schuman to become a member of our board of directors.

Alan is currently chairman of the board of Ecolab Incorporated, and we are fortunate to have him as our newest member of our board.

Frank will now take you through our financial results.

Steve will follow with a summary of our operating performance and future development, and then we'll have time for questions that you may have.

Thank you, Mr. Tanger, and good morning, everyone.

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

For the quarter ended September 30, 2004, we had a net loss of 15 cents per share, compared to net income of 33 cents per share for the third quarter of 2003.

For the nine months ended September 30, 2004, net income was 20 cents per share, compared to 72 cents per share in the first nine months of 2003.

Comparative net income amounts for the quarter were impacted by the allocation of income to our consolidated joint venture partner in 2004, as well as a $3.5 million loss on the sale of one non-core property.

For the quarter ended September 30, 2004, funds from operations was 95 cents per share, as compared to 87 cents per share for the third quarter of 2003, representing a 9 .2% per share increase.

For the nine months ended September 30, 2004, FFO was $2.73 per share, as compared to $2.47 per share for the nine months ended September 30, 2003, representing a 10.5% percent per share increase.

Our FFO included $172,000 and $1.4 million in gains on the sale of land parcels for the three months and nine months ended September 30, 2004, respectively, compared to no land parcel sales in the previous year.

Excluding these gains, FFO for the third quarter and nine months ended September 30, 2004, would have been 94 cents and $2.64 per share, respectively, resulting in an 8% increase in FFO per share for the third quarter and a 6.9% increase in FFO per share for the nine months.

Our FFO payout ratio for the third quarter of 2004 was 66% as compared to 71% in the first quarter of 2003, and our FAD payout ratio was 84% for the third quarter of 2004 as compared to 82% in the third quarter of 2003.

On a consolidated basis, our debt-to-total market capitalization at the end of the quarter was approximately 40.1%, and our total market capital was approximately 1.3 billion, representing a 51.8% increase in our total market cap from a year ago.

We also saw continued improvement in our interest coverage, which was 3 .5 times for the third quarter of 2004 as compared to 2.6 times interest coverage in the same period last year.

Our GNA costs as a percentage of total revenue improved from 8.6% in the third quarter of 2003 to 6.8% in the third quarter of this year.

During the third quarter, we completed the release of two properties which had been securing $53.5 million in mortgage loans with Wells Fargo bank.

We also closed on an additional $25 million unsecured line of credit with Citicorp North America Inc., a subsidiary of Citigroup, which expands our total capacity from 100 million to 125 million.

We also extended the maturity on of all of our unsecured lines of credit until June of 2007.

On Monday of this week, we repaid the only significant debt maturity we have over the next two years, unsecured 7.875% note, that fell $47.5 million, were repaid with proceeds from our property and out parcels land sales, and amounts available under our unsecured line of credit.

We currently have $26 million outstanding on our line of credit after repayment of these notes.

The interest rates on our lines of credit ranges from 150 to 160 basis points over LIBOR.

We remain committed to our long-term strategic goal of earning an investment grade rating.

On April 8, 2004, we were pleased to report that Moody's Investor Service affirmed our BA1 senior unsecured debt rating and concurrently raised our rating outlook to positive from stable.

In addition, on September 30, 2004, Standard and Poors ratings services raised our corporate rating to investment grade at BBB-, while keeping our unsecured senior rating at BB+ with a stable outlook.

These ratings and outlook changes were a direct result of our ability to increase the size and market leadership of our outlet center portfolio, reduce single asset concentration, improve our coverage ratios and apply prudent balance sheet management.

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

Steve?

Thank you, Frank, and good morning everyone.

As of September 30, our portfolio consisted of 37 factory outlet shopping centers, which were owner operated, diversified across 23 states, totaling 9.2 million square feet.

From a leasing perspective, I am please today report that our positive rent spreads continued into the third quarter of 2004.

Through September 30, 2004, we have already renewed approximately 81% of the 1,800,000 square feet of leases scheduled to come up for renewal during the year at an average increase in base rents, on a cash basis, of 6%.

This compares favorably to last year at this time, when we had renewed 78% of the square feet coming up for renewal at rental rates that were flat with the expiring rates.

By the end of this year, we expect to have renewed approximately 85% of the space that came up for renewal during the current year with the existing tenant.

We have also retenanted approximately 420,000 square feet of space at an average increase in base rent, on a cash basis, of 3.6% over the rent that was being paid by the previous tenant prior to their vacating the space, compared to 251,000 square feet with a 4.4% increase last year at this time.

Same center net operating income increased 1.7% for the third quarter of 2004 compared to the same quarter last year.

Our overall occupancy rate at the end of the third quarter was 96%, up from 95% in the second quarter of 2004, and 95% in the third quarter of 2003.

This increase in average occupancy is partially due to a 1% increase in average occupancy within the Charter Oak portfolio, which, as of September 2004 had an average occupancy rate of 95%, compared to 94% as of June 2004.

As of September 30, we are off to a great start on the 2005 renewals.

In the original Tanger portfolio, we have fully executed 24.4% of the 857,000 square feet up for renewal at an average increase of 6.2%.

In the Charter Oak portfolio, we have fully executed 19.3% of the 794,000 square feet up for renewal with an average increase of 6.9%.

We are delighted to report that the integration of the Charter Oak portfolio of nine outlet centers into Tanger is now complete.

The consumer reaction to the new Tanger marketing programs for these nine centers continues to be positive, and our leasing efforts have been very successful.

We have signed renewals for 81 .6% of the 588,000 square feet of space coming up for renewal during 2004, and we have achieved a 4.1% increase in base rental rates on these renewals.

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

Sales and traffic in the third quarter were strong across our entire portfolio.

With the exception of those centers impacted by the numerous hurricanes during the third quarter of 2004, same space sales increased 5.3% for the three months ended September 30, 2004, as compared to the three months ended September 2003, an increase of 6.2% for the rolling 12 months ended September 2004.

Same store sales, excluding the centers affected by the hurricanes, increased 3% for the nine months ended September 30, 2004, and increased 0.1% for the three months ended September 30, 2004.

We continued to see positive results throughout the portfolio by continuing our plan to fill some of the existing vacancies, renew leases at increased rental rates, add new sources of miscellaneous income, and enhance the marketing of the center's increased traffic and sales.

Continuing the execution of this strategic plan should provide additional profitability for our company over time.

We are also working to improve the occupancy at our original 186,000 square foot shopping center in Commerce, Georgia, which currently has the lowest occupancy rate in our portfolio.

Over the past several months, we have opened a [Kado,] Dollar Tree, Hickory Roy Furniture, and an Old Navy store.

We have also just signed a lease with a six-screen movie theater that is taking 17,400 square feet of in-line space.

We are currently negotiating other leases that, if they are signed, would take this center to back over 90% occupancy in the next 6 to 12 months.

This center is rapidly being transformed into a community strip center while our other Commerce center located at the same interchange continues to thrive as an outlet center.

We remain a leader in a rapidly consolidating sector as the only fewer outlet center developer listed on the New York Stock Exchange.

Based on our 25 years of experience, we perceive a mismatch in our market.

There is more demand for space than space available.

Therefore, we are continuing to work on the pre-development and leasing of our four previously announced new sites, including Pittsburgh, Pennsylvania;

Deer Park, New York;

Charleston, South Carolina; and Wisconsin Dells, Wisconsin.

We are also continuing to explore other potential acquisitions and disposition opportunities; however, we have not projected any additional transactions to close in our earnings guidance for the remainder of 2004.

With respect to FFO guidance, based on current market conditions, the strength and stability of our core portfolio, we currently believe that our net income for 2004 will be between 37 and 39 cents per share, and our FFO for 2004 will be between $3.76 and $3 .78 per share, representing an increase in FFO over the prior year of approximately 9%.

As we have done in the past, we will be providing 2005 guidance at the time of our year-end conference call.

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

[Operator instructions.] Your first question comes from Michael Billerman with Smith Barney.

Good morning.

Steve, I was wondering if you can talk about -- you talked about the 2005 expirees and that you're, I think almost a quarter of the way through your portfolio and about 19% on Charter Oak.

How does that compare to previous years looking at this point in time, usually at this point of the year?

Michael, last year, obviously, we did not own Charter Oak.

But as of September 30, 2003, in the Tanger portfolio, we had renewed 17.9%.

So we are doing much better than we did last year.

Okay.

Non-core assets, what parameters do you look at to define whether something is non-core or not?

We are constantly reassessing each of our assets.

We go through a thorough review of each market and determine the center's long term viability as an outlet center.

We study a remerchandising strategy, both outlets and non-outlets, based upon the findings of our market review, and then we try to implement that strategy.

Sometimes centers just don't meet our threshold for ongoing investment and we take the opportunity to harvest the cash and reinvest at our higher growth rate.

Is there any other -- I mean, how many more assets would you consider non-core today?

We are looking at three small assets that total about 1.3, 1.4% of our net operating income, and we may well dispose of them or remerchandise them.

But it's, relatively speaking, a small percentage of our total portfolio.

And you would expect, if you have looked at these assets that there wouldn't be a loss on the sale?

You would not have taken an impairment charge?

You've reviewed all the assets values?

We've reviewed all the values and at this time we don't expect any impairment charge.

How much of the portfolio is in the same store [inaudible] --the first time you've actually put out that figure.

This is Frank, Michael.

It's virtually the entire Tanger portfolio, but because we did not own the Charter Oak portfolio last year, that is not included in the note.

Okay.

Thank you.

your next question comes from Ross Nussbaum with Banc of America Securities.

Hi.

It's actually Dustin Pizzo.

Ross is here as well..

Can you guys give us any more details on what factors led you to trim the high end of this year's guidance by two cents?

If you look at the average guidance -- I think it was 3.78 last quarter and it's down a penny to 3.77 -- so it's not a large differential.

Consensus, I think, was at 3 .77 already.

Really, the reason that we did it the way we did it was just to be a little on the safe side.

We did sell the Dalton property at the 11.3 cap rate, and the proceeds were used to pay down the debt, which obviously was a a lower rate than that.

So there's a small amount of dilution from that transaction short-term, but obviously, the better thing to do in the long term.

And then, we're just looking at sales in some of the centers where the hurricanes were and what effect it might have on percentage rents.

So it's just two or three things and we just thought it best to do it the way we did, versus take the bottom end up.

Okay.

Great.

And I know you talked about 2004 a little bit, but are you currently -- have any dispositions soon going forward for '05 and/or reviewing any potential acquisition opportunities?

Well, we have a long-term, previously announced strategy to continue to upgrade our portfolio and part of that operating process is selling some of the smaller non-core assets.

We have done that.

We have sold nine or ten properties in the last six years.

We will continue this previously announced long-term strategy which has been successful for us.

With regard to acquisitions, we are constantly looking at various acquisition opportunities although we have nothing to report at this point.

Okay, great.

Thanks.

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

Your next question comes from Craig Smith with Merrill Lynch.

Good morning.

I was wondering if you could break out other income.

I know you had land parcel sales, but any lease termination or anything else that explains the gain in that category?

This is Frank.

Most of the increase in our income is due to the fact that the Charter Oak portfolio was not on our income statement last year.

And then 172,000, obviously, is the out parcel sale, so it's roughly a couple hundred thousand dollars of increase in other income on an apples-to-apples basis.

And that's purely a function of our other income strategy and increasing our vending income and keep on book sales and things like that.

Great.

And do you have a same store in-line number for the quarter?

Yes.

We put that in the press release, 1.7%.

Thanks.

And then --this may be for Steve -- what order do you think you may be delivering the four projects, assuming they continue to go forward?

Craig, at this point in time, based on the demand from our tenants and if we do achieve the minimum threshold, which is 50% of preleasing before we will buy any of the land, we anticipate that Charleston, South Carolina will be the first one that we will deliver.

And would Wisconsin Dells be second?

I don't want to speculate on what will be second, third, or fourth.

The first right now, that we feel, will be Charleston.

Okay.

Thanks a lot.

Your next question comes from Eric Waltman with Wachovia Securities.

Yeah, good morning.

I was actually hoping to get just a little bit more detail on maybe the preleasing status of the four different developments.

Is that something you can share with us?

It's still in the early process right now, Eric.

We're not ready to announce any anchor tenants or leasing.

We're in the development process.

I hope within the next couple of quarters to have those announcement for you.

Because given that -- it sounds as though Deer Park and Pittsburgh have slipped now, sort of behind Charleston.

Is that to assume that maybe your expectations haven't been met for those first two?

[Inaudible] -- process in Pittsburgh, which is topographically challenged.

And Deer Park on Long Island, the development process is a little longer than in Charleston, South Carolina.

So just simply for that -- it has nothing to do with leasing.

The leasing activity and the support from the tenant community remains strong.

Typically, how long do you -- from when you've announced a project to when you expect to have it 50% leased, historically, how long has that period been?

It ranges anywhere from 6 to 18 months, depending upon the site.

Okay.

Wonderful.

Thank you very much.

Your next question comes from David Fick of Legg Mason.

Good morning, gentlemen.

First, I would like to congratulate you and thank you for your increased disclosure on same-store numbers this quarter.

I think it's wonderful.

Really, the only question I have -- most have been asked -- is you took a $2.8 million loss on the Dalton, Georgia sale, and I was wondering how it came about as part --the loss came in at the sale level as opposed to having been booked as an impairment previously.

Why wasn't it booked as an impairment I guess is the question.

Dave, this is Frank.

We had run the original -- the initial impairment test from what's required from an impairment standpoint and the cash flows were going to be more than cover our depreciated costs.

And during the quarter, we did get the offer on the sale of property and it it was consummated during the quarter; actually, right towards the end of the quarter.

And until it was closed, it was't closed, so we just -- we looked at that issue and decided that the cash flows, if it wasn't to close, the cash flows would have been there to cover our depreciated cost.

And then once the closing was imminent, we decided the way to present it was a loss on the sale during the quarter..

Okay.

Very good.

Thanks a lot.

And, again, congratulations on the additional disclosure.

Thank you, David.

Gentlemen, at this time, there are no further questions.

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

Steve, Frank and I are always available to answer any other questions you may have.

Thank you and have a great day.

Bye now.

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

You may now disconnect.