Tanger Inc (SKT) 2004 Q4 法說會逐字稿

Good morning.

And welcome to Tanger Factory Outlet Centers fourth quarter 2004 conference call.

Please note that during this conference call, some of Management's comments maybe 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 available for distribution, and 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 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 Tuesday, March 1, 2005.

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

Following Management's prepared comments the call will be opened for 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 morning, everyone.

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

Frank will take you through our financial results, and Steve will follow with the summary of our operating performance and future developments, and then we'll have time for questions.

Before I turn the call over to Frank and Steve, I am pleased to announce that our Board of Directors approved a 3.2 percent increase to the annual dividend on our common shares from $1.25 per share to a $1.29 per share.

The increase is effective for the quarterly dividend/cash dividend payable on May 15, 2005, [indiscernible] on orders of record on April 29, 2005.

This marks the 12th consecutive year we've increased our dividend since becoming a public Company.

I will turn the call over to Frank Marchisello.

Thank you, Mr. Tanger.

And good morning, everyone.

Please note all per share net income and FFO calculations are on a diluted basis and have been adjusted for the 2-for-1 split of the Company's common shares that occurred in December of 2004.

For the quarter ended December 31, 2004, we had net income of $0.16 per share, as compared to net income of $0.22 per share in the fourth quarter of 2003.

For the year ended December 31, 2004, net income was $0.26 per share, compared to $0.59 per share in 2003.

Our comparable net income results were impacted by the allocation of income to Tanger's consolidated joint venture partner in 2004, as required under the company’s current accounting policies.

For the quarter ended December 31, 2004, funds from operations was $0.53 per share, as compared to $0.49 per share in the fourth quarter of 2003, representing an 8.2 percent per share increase.

For the year ended December 31, 2004, FFO was $1.89 per share, as compared to $1.72 per share for the year ended December 31, 2003, representing a 9.9 per share increase.

Our FFO for 2004 included $1.5 million in gains on the sale of land parcels, compared to no, land parcel sales, in the previous year.

Excluding these gains FFO for the year ended December 31, 2004, would have been $1.85 per share resulting in a 7.6 percent increase in FFO per share for the year.

Our FFO payout ratio for the fourth quarter of 2004 was 59 percent, as compared to 63 percent in the fourth quarter of 2003.

And for the year, our FFO payout ratio was 66 percent, compared to 71 percent in the prior year.

Our FAD payout ratio was 87 percent for 2004, compared to 86 percent in the prior year.

The 1 percent increase in our FAD payout ratio was due to capital improvement projects at 3 of our centers, and tenant allowances associated with increasing occupancies within the Charter Oak portfolio.

Taking into consideration the increase in the dividend, we expect our 2005 payout ratio will be in the mid 60s and our FAD payout ratio will be in the mid 80s as we continue our efforts to increase occupancy and upgrade our shopping centers.

On a consolidated basis, we significantly lowered our debt-to-total market capitalization at the end of the quarter to approximately 35.1 percent, compared to 44.8 percent last year.

Our total market capitalization was approximately $1.4 billion, representing a 15.8 percent increase in total market cap from a year ago.

We also saw continued improvement in our interest coverage, which was 3.47 times for the year ended 2004, as compared to 2.63 times interest coverage last year.

Our G&A cost, as a percentage of total revenues, improved from 8.1 percent in 2003 to 6.6 percent in 2004, even though we incurred substantial legal and accounting expenses associated with the implementation of our Sarbanes-Oxley Compliance.

During the year we did a number of things from a financial standpoint.

We completed the release of 2 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 expanded our total line capacity from 100 million to $125 million.

And we extended the maturity date on all of our unsecured lines of credit until June 30, 2007.

As of today, we have $37.2 million outstanding on our lines of credit.

We also repaid our unsecured 7.875 percent notes that totalled $47.5 million with proceeds from our property and outparcel land sales, and amounts available under our unsecured lines of credit.

During 2005 we have 2 secured loans maturing with New York Life Insurance Company, totaling $21 million and carrying an average interest rate of 9.5 percent.

We expect to repay these loans with amounts available under our unsecured lines of credit.

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

During 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.

Also during 2004 Standard & Poor's rating services raised our corporate rating to investment-graded 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 for review of our operating portfolio.

Thank you, Frank.

And good morning, everyone.

As of December 31st, our portfolio consisted of 36 factory outlet shopping centers, which we own or operate, diversified across 23 states, totaling 8.8 million sq. ft.

From a leasing perspective, I am pleased to report that we have successfully executed the integration of the Charter Oak portfolio of 9 outlet centers into our portfolio.

Through December 31, 2004, including the Charter Oak properties, we renewed approximately 88 percent of the 1.8 million sq. ft. of leases scheduled to come up for renewal during the year, at an average increase in base rent on a cash basis of 5.6 percent.

This compares favorably to 2003 when we had renewed 80 percent of the square feet coming up for renewal at rental rates that were flat with the expiring rates.

With respect to the Charter Oak portfolio, we successfully renewed about 89 percent of the 588,500 sq. ft. that came up for renewal in 2004, with an average increase in base rent of 2.5 percent on a cash basis.

We also retenanted approximately 427,000 sq. ft. of space throughout our entire portfolio during 2004 at an average increase in base rent on a cash basis of 5.1 percent over the rent that was being paid by the previous tenant, prior to their vacating the space, compared to 272,000 sq. ft. with a 4.1 percent increase in 2003.

We are continuing to drive rents and retain tenants in 2005.

As of the end of February 2005, we have executed or in process approximately 43 percent of the 1,818,000 sq. ft. of leases expiring this year, with an average increase on the executed renewals of 6.5 percent on a cash basis.

This compares favorably with last year, when as of the same time we had executed or in process 40 percent of the 1,790,000 sq. ft. of leases expiring with an average increase on the executed renewals of 6.7 percent.

With respect to the Charter Oak portfolio, we have executed or in process approximately 42 percent of the 869,000 sq. ft. of leases expiring in 2005, with an average increase on the executed renewals of 4.8 percent, compared to 29 percent of the 565,000 sq. ft. of leases expiring last year with an average increase on the executed renewals of 3.9 percent on a cash basis.

Same center net operating income increased 2 percent for the fourth quarter of 2004, compared to the same quarter last year.

On an overall occupancy -- our overall occupancy rate at the end of 2004 was 97 percent, up from 96 percent at the end of 2003, and 96 percent at the end of September 2004.

With this year-end occupancy rate of 97 percent, we continued our record of at least 95 percent occupancy at year-end for the past 23 years.

During 2004, we were successful in increasing the occupancy in the Charter Oak portfolio from 94 percent at the acquisition date to 95 percent at the end of 2004.

Sales and traffic in the fourth quarter were strong across our entire portfolio, particularly in December, in spite of the fact that we experienced terrible weather causing numerous days when stores were closed.

In addition, we had a number of centers still adversely affected by the aftermath of hurricanes late in the third quarter.

With the exception of those affected centers, same space sales increased 4.9 percent for the 3 months ended December 31, 2004, as it compared to the 3 months ended December 2003, and increased 6.1 percent to $332 per sq. ft. for the rolling 12 months ended December 2004.

Same store sales, excluding the centers affected by the hurricane increased 2.9 percent for the year ended December 31, 2004, and increased 2.6 percent for the 3 months ended December 31, 2004.

Our tenant occupancy costs averaged 7.3 percent of tenant sales in 2004, down slightly from 7.4 percent in 2003.

This low cost of occupancy has been a driving force in our ability to increase rental rates on the renewal and releasing of space.

Fortunately, our tenants average sales have been increasing throughout the entire portfolio at an even faster pace than the rental increases on the relatively small percentage of the portfolio square footage that comes up for renewal or is released each year.

This results in a decrease in the portfolio average occupancy costs to our tenants.

Increasing tenant sales should result in future increases in rental rates over time as leases continue to come up for renewal.

Our Management is creating 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 centers to increase traffic and sales.

The execution of this strategic plan should provide additional profitability for our Company over time.

The predevelopment and leasing of our 4 previously announced new sites, including Pittsburgh, Pennsylvania;

Deer Park, New York;

Charleston, South Carolina; and Wisconsin Dells, Wisconsin, is proceeding on schedule.

Tenant interest remains strong for our new sites in Charleston and Wisconsin Dells.

There does not appear to be any extraordinary development or permanent issues which would delay the plan 2006 opening of these centers.

Our longstanding policy prohibits construction of a new development project until at least 50 percent of the leases are fully executed.

Our leasing group is in the process of converting tenant commitments into signed leases.

At this time, we are on target to begin construction on both projects before year-end 2005, and plan to open next year.

As for our site South of Pittsburgh, we have applied to the local taxing authorities to the Washington County Redevelopment Authority for tax increment financing or a TIF to pay for some extraordinary development costs.

If approved, the proceeds of the TIF will go to the redevelopment authority and will be used to pay for unusual site expenses, such as relocating a high-tension power line.

Tenant interest remains robust and we anticipate opening stores in 2007.

Recently we were advised by Bass Pro Shops that they now control the option on the land adjacent to our site.

We are planning to meet with Bass Pro and attempt to coordinate site plans in order to maximize the potential of this site for both Companies.

With regard to our site in Deer Park, which is in Babylon Township, New York, we are proceeding with the permitting process.

Based upon advanced previews of the property, we have received commitments from several key magnet tenants.

Once the development and permitting process is complete, we will announce the turnover date to our tenants.

At that time we expect to receive signed leases and begin construction.

We remain comfortable with our previously announced opening in 2007.

Our solid balance sheet should allow us to fund the development pipeline and grow accretively.

We also continue to explore other potential acquisitions and disposition opportunities.

However, in our earnings guidance for 2005, we have not projected any of these transactions or projected any land parcel sales to close this year.

With respect to FFO guidance, based on current market conditions, the strength and stability of our core portfolio, we continue -- we currently believe our estimated diluted net income per share, excluding gain or loss on the sale of real estate for 2005 will be between $0.56 and $0.60 per share.

And our FFO for 2005 will be between $1.93 and $1.97 per share.

The mid point of this range represents an increase in FFO over the prior year of approximately 3 percent, and excluding the land parcel gains in 2004 and increase of approximately 5 percent.

We plan to thoroughly use -- we plan to thoughtfully use our resources and to maintain a conservative financial position.

We are very excited about the execution of our strategy by our Team in 2004 and look forward to another great year.

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

[OPERATOR INSTRUCTIONS].

Your first question comes from the line of Michael Bilerman, Smith Barney.

Good morning.

Jon Litt is on the phone with me as well.

Steve, I was wondering if you can spend some time on the development pipeline a little bit more.

How much effectively preleasing have you done at Charleston and Wisconsin?

As I reported, we are in the process of turning tenant commitments, which are nice to have, but meaningless -- to signed leases.

At this time we're not prepared to announce the name of any tenants.

Although we do anticipate that we will begin construction this year and turn over space next year.

And effectively you said that you have to be above 50 percent -- so -- to start construction?

So my sense is your commitments are greater than that?

You can draw whatever conclusions you want.

We will report when we are ready to break ground and actually have signed leases for at least 50 percent.

Okay.

In terms of Pittsburgh, how much is the TIF that you're looking for?

We're in the process of finalizing an appropriate amount with the redevelopment authority and the various taxing authorities that are impacted.

At this point we have not announced the exact amount.

Can you just give a range in terms of magnitude of how much it would be relative to the cost of the project?

We're looking at it in the range of about 10 to $15 million.

And if something like that does not come through, how are you thinking about alternatives or pursuing with the project if you can't get the TIF?

It may be difficult to pursue and complete the project without the TIF, but we're not ready to cross that bridge yet.

I think we will be able to -- I think the taxing authorities will see the benefits of the TIF for the future of that area.

Okay.

In terms of the impairment charge, I guess I was surprised by the magnitude given your comments last quarter that you had reviewed all of the assets in the portfolio and you didn't expect any impairment charges.

Yet you had an asset here that produced $114,000 of NOI, which had a book value of about 7 million.

So, help me reconcile when the review of the portfolio and what else may be out there?

I would ask you to please be careful with the words that you used.

There was no impairment charge.

So I'm going to turn this over to Frank.

But please be careful.

Okay.

Actually, when we look at our shopping centers, Michael, we look at each center individually and include any additional land that's located at the center as if it's "a particular asset."

In the case of Seymour, there's over 31 acres of additional land that we own, which has a market value well in excess of book.

So when we looked at Seymour not only did we value the shopping center, but we also valued the additional land associated.

When we sold Seymour we did not sell the additional 31 acres of land.

So, again, as we were looking at it from an impairment standpoint, we valued the asset of the center plus the additional land as one defined asset.

It just so happens that during the first quarter we, in fact, made the decision to sell the shopping center separate from the additional land.

And we still own the additional land, which has quite a bit of a value in excess of cost basis.

And the land is adjacent to the center?

It's adjacent to and also includes outparcels along the highway.

And the individual or company that bought the center wasn't interested in buying the land or you couldn't agree on price?

We were getting -- I don't think he was interested in the outparcels.

I think he was somewhat interested in the contiguous land to the center.

But at this point we felt the best -- our best option was to sell the shopping center and keep the additional land because we felt we could get a better price for it selling it in separate parcels.

And you have -- and I think you mentioned, Steve, that there was no outparcel sales in 2005 guidance.

Are you actively marketing some of these parcels currently?

We continue to market outparcels.

So the answer to that is, yes.

And as the population continues to expand from center cities out towards our sites, these outparcels become more valuable.

And adds entertainment and food uses to our property, which extends the stay of our shoppers.

So, yes, we are actively marketing them.

But since they are difficult to predict, to be conservative we have not included any land parcel sales in our guidance.

Okay.

And then just lastly on leasing at Myrtle Beach.

Occupancy dropped to 92 from 96, was that just development or the additional development coming online?

What was happening there?

Well, there is some rollover in tenants that occurs and we're in the process of filling that vacancy right now.

Okay.

Thank you.

Thank you, Michael.

Your next question comes from the line of Ross Nussbaum, Banc of America Securities.

Hi, good morning.

Steve, could you run through the projected construction costs on each of the 4 developments?

I think we've done that in prior calls.

But I'm happy to do it again.

Or I'm happy to send you a chart that --.

Well, I just -- have any of them changed since your last call?

None of them have changed at this point in time.

Beyond the extra cost at Pittsburgh?

Well, we had always factored in the cost of a TIF, it's just taking us a little bit longer to --.

Hello?

Thank you, Ross.

Operator, are you still there?

Yes, sir.

Your next question comes from the line of Craig Smith, Merrill Lynch.

Good morning.

I was wondering, how have sales been for the first couple of months, maybe now that you have sales numbers, but traffic?

And if, in fact, the Company -- I mean, the stores that were affected by the hurricanes might actually have reason to expect a little stronger sales going into '05?

Good morning, Craig.

One of the centers that was adversely affected was in Foley, Alabama, which unfortunately absorbed a direct hit of one of the 4 hurricanes that came through around Labor Day.

That's taking a little bit longer to come back online because of the devastation, and the hotel rooms now are being used by insurance adjusters, contractors, and people like that.

So it's going to take a while for Foley to come back.

We are seeing some of the other ones coming back.

But it's going to take a little time.

Okay.

And then on Charleston and Wisconsin, just how quick could you build that from, let's say, breaking ground to actually opening stores?

How many months would you need to do that?

We're looking at anywhere from 9 to 12 months at each site.

Great.

Thank you.

[OPERATOR INSTRUCTIONS].

At this time, there are no further questions.

Sir, at this time we have no further questions.

Thanks 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 very much and have a great day.

Thank you.

This concludes today's conference call.

You may now disconnect.