Tanger Inc (SKT) 2005 Q3 法說會逐字稿

Good morning and welcome to Tanger Factory Outlet Centers' third-quarter 2005 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, 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, October 21, 2005.

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

Following management's prepared comments, the call will be opened up 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 Steve 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 a summary of our operating performance and future developments, and then we will have time for any questions you may have.

I'd like to turn the call over to Frank Marchisello.

Thank you, Mr. Tanger.

Good morning, everyone.

FFO for the third quarter and nine months ended September 30, 2005, was $0.50 and $1.40 per share, respectively, resulting in an increase excluding land parcel gains of 6.4% for the third quarter of 2005 and 6.1% for the nine months ended September 30, 2005.

For the three months ended September 30, 2005, net income was 4.4 million or $0.15 per share, as compared to a net loss of 2 million or $0.07 per share for the third quarter of 2004.

For the nine months ended September 30, 2005, net income was $5 million or $0.18 per share, compared to $2.7 million or $0.10 per share for the first nine months of 2004.

Our FFO payout ratio for the third quarter of 2005 was 65% compared to 66% in 2004, and as expected, our FAD payout ratio for the third quarter of 2005 improved to 79%, as compared to 84% in 2004 and down from 104% in the second quarter of 2005.

On September 2, 2005, we completed the sale of 3 million common shares at a net price to the Company of $27.09 per share, proceeds of which were used to pay short-term unsecured lines of credit.

On September 10, 2005, we repaid at maturity a loan with New York Life with a face amount of $7 million and an interest rate of 9.125%, with amounts available under our unsecured lines of credit.

The repayment of this loan unencumbered are 186,000-square-foot, 90%-occupied center in Commerce, Georgia.

On October 3, 2005, we repaid in full our mortgage debt outstanding with John Hancock Mutual Life Insurance Company totaling approximately $77.4 million, with interest rates ranging from 7.879% to 7.98% and an original maturity date of April 1, 2009.

As a result of the early repayment, we expect to incur a nonrecurring charge for the early extinguishment of the John Hancock mortgage debt of approximately $9.8 million.

The nonrecurring charge will be recorded in the fourth quarter of 2005 and will consist of a prepayment premium of approximately $9.4 million and the write-off of deferred loan fees totaling approximately $400,000.

Accordingly, we have reduced our year-end 2005 guidance to reflect this one-time nonrecurring charge of about $0.27 per share.

In the short term, we have used current available cash in amounts available under our $125 million unsecured lines of credit to repay the John Hancock mortgage debt and the associated prepayment premium.

Following the early repayment of the John Hancock mortgage debt, Standard & Poor's Rating Services announced an upgrade of our senior unsecured debt rating to an investment-grade rating of BBB minus, citing our progress in unencumbering a number of our properties, resulting in over half of our fully consolidated net operating income now being generated by unencumbered properties.

Moody's Investors Service had previously announced on June 27, 2005, their upgrade of our senior unsecured debt rating to an investment-grade rating of Baa3.

Obtaining an investment-grade rating has been an important goal and part of our long-range financial plan for many years.

Per the terms of our various debt securities, the attainment of the investment grade will save us approximately 45 basis points on our outstanding lines of credit and approximately 60 basis points on our $53.5 million unsecured term loan.

Having an investment-grade rating from both agencies should be beneficial in obtaining a better execution and lower long-term costs on any future public fixed-income securities we may choose to issue.

I will now turn the call over to Steve Tanger to bring you up to date on our operating results and new development sites.

Thank you, Frank, and good morning, everyone.

As of September 30, our portfolio consisted of 33 factory outlet shopping centers which we own or operate, diversified across 22 states, totaling 8.7 million square feet.

I am pleased to report that same-center net operating income increased 6.8% for the third quarter of 2005, compared to the same quarter last year.

This compares favorably to the 4.3% increase during the second quarter of 2005 and the 1.1% increase during the first quarter of 2005.

As discussed in our previous conference calls, we have been successful in increasing rent as sales increase, and a percentage of our portfolio no longer has renewal options each year.

During the last couple of years, we have renovated several of our centers and upgraded the overall cotenancy in our portfolio.

We are now seeing an acceptable return on these investments as we continue to increase rents.

In 2002, rents increased by 1.7%, in 2003, rents increased by 1.3%, and in 2004, rents increased by 5.5%.

The positive rent spreads we achieved during the first half of 2005 have continued into the third quarter.

Through September 30, 2005, we have executed or in process 80% of the 1,821,000 square feet of leases scheduled to come up for renewal during the year, with an average increase on the executed renewals of 6.8% on a cash basis.

This compares with last year, when, as of the same time, we had executed or in process approximately 85% of the 1,790,000 square feet of leases expiring, with an average increase on the executed renewals of 6% on a cash basis.

We have also retenanted over 395,000 square feet at an average increase in base rent on a cash basis of 7.2% over the rent that was being paid by the previous tenant prior to their vacating the space.

Our overall occupancy rate at the end of the third quarter was 97%, which compared favorably to 96% as of September 30, 2004.

With respect to tenant productivity across our consolidated portfolio, same-space sales increased 1.4% for the three months ended September 30, 2005, as compared to the three months ended September 2004, and increased 2.8% for the rolling 12 months ended September 2005 to approximately $317 per square foot.

Reported same-store sales for the three months ended September 30 decreased 0.7%, compared to the same period in 2004, and were up 0.3% for the nine months of 2005.

Reported comparable sales results include the sales at our 536,000-square-foot high-volume center in Foley, Alabama, which were down 19% for the first nine months of 2005, as the area continues to struggle from the devastation of Hurricane Katrina in August of this year and the direct hit it incurred during last year's hurricane season.

Excluding the Foley Center, same-space sales were up 2.5% for the three months ended September 2005 and were up 4% to $321 per square foot for the rolling 12 months ended September 2005.

Same-store sales excluding the Foley Center were actually up 0.1% for the third quarter of 2005 and up 1.5% for the first nine months of 2005.

We fully believe that Foley will recover, but it will take some time.

From a development standpoint, we have completed a 46,400-square-foot expansion in our center in Locust Grove, Georgia, which is south of Atlanta.

Tenants in the expansion include Polo Ralph Lauren, Skechers, Children's Place and others.

The majority of the stores are now open, with the remaining stores scheduled to open during the fourth quarter of 2005.

We are also completing a 21,000-foot expansion to our center in Foley, Alabama, where stores are expected to start opening during the fourth quarter of this year.

Tenants in the expansion include Ann Taylor, Skechers, Tommy Hilfiger and others.

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

Deer Park, New York;

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

I'm happy to report that we have surpassed our internal 50% preleasing requirement on our new site in Charleston, South Carolina, and expect to meet the 50% threshold in our site in Wisconsin Dells by the end of October of this year.

We're currently in the process of closing on the acquisition of the land for both projects, subject to closing conditions within the respective purchase agreements, and expect to begin construction before the end of this year.

We currently believe these projects can both be completed in time for our planned fourth-quarter 2006 opening.

Our leasing group is continuing the process of converting additional tenant commitments and to sign leases.

We expect to have most of the space in both centers leased by the time construction is completed next year.

As for our site south of Pittsburgh, we were advised by Bass Pro Shops that they now control the option on the land adjacent to our site.

We have met with the senior management of Bass Pro, and they are coordinating site plans with us in order to maximize the potential for both of our companies.

In addition, Bass Pro has been actively participating with us in the TIF approval process.

Bass Pro has announced plans for a 200,000-square-foot Bass Pro Shop, a 200-room lodge surrounding the store, a spa, 26 cabins and a driving range.

The Bass Pro site is about 211 acres and also has room for restaurants and an aquarium.

As discussed in our previous calls, we're in the process of seeking approval from the local taxing authorities for a TIF to fund certain infrastructure necessary to develop the site.

The school board and the county commissioners have approved the TIF.

We're currently before the Township Board of Supervisors, who have continued the hearing and have not voted on the motion at this time.

Tenant interest for space in our Pittsburgh site remains robust, and we anticipate stores opening in the fourth quarter of 2007.

With regard to our site in Deer Park, which is Babylon Township on Long Island in New York, we are proceeding with the permitting process, which should be completed by year-end.

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 to begin construction.

We remain comfortable with our previously announced opening in the fourth quarter of 2007.

On August 22, 2005, we announced an agreement to acquire for $282.5 million the remaining two-thirds interest in the Charter Oak portfolio, owned by an affiliate of Blackstone Real Estate Advisors.

The Charter Oak portfolio, comprised of nine factory outlet centers, approximately 3.3 million square feet, was acquired in December 2003 by a joint venture company owned one-third by Tanger and two-thirds by Blackstone.

Since then we have provided operating, management, leasing and marketing services for the properties.

As a result of this transaction, the total amount of wholly owned space -- wholly owned square footage in our real estate portfolio will increase by 66% from approximately 5 million to 8.2 million square feet.

Closing of this transaction is subject to certain conditions, including those contained within an existing GMAC loan currently collateralizing the properties.

We believe these conditions will be met and expect that the transaction will close in November of this year.

We also are continuing to explore other new development sites, potential acquisitions and disposition opportunities.

With respect to earnings guidance, based on current market conditions, the strength and stability of our core portfolio and the impact of the $9.8 million nonrecurring charge related to the John Hancock mortgage repayment, we currently believe our estimated diluted net income per share will be between $0.29 and $0.33 per share, and our FFO for 2005 will be between $1.66 and $1.70 per share.

Adjusting these estimates to exclude the nonrecurring charge, FFO for 2005 is expected to be between $1.93 and $1.97 per share.

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

Our earnings guidance excludes the impact of any potential gains on the sale of land parcels, the impact of any sales or acquisition of properties and also excludes the expected closing of the Charter Oak transaction.

As previously stated, when we announced the buyout of Blackstone's interest in the Charter Oak joint venture, we will update our earnings guidance upon the closing of this transaction.

We plan to continue to thoughtfully use our resources and to maintain a conservative financial position.

We're excited about the execution of our strategy for growth by our team so far this year and look forward to another great year in 2006.

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

(OPERATOR INSTRUCTIONS).

Michael Bilerman, Citigroup.

Jon Litt is on the phone as well.

Steve, I was wondering if you could just give an update on the Charter Oak deal in terms of closing.

I know you said that sometimes it takes a little bit longer dealing with the agencies to get this no downgrades letter.

When the deal was announced, you came out and you said you thought it was going to close in October.

It sounds like it's going to be November.

Can you just give us a sense of where you are today and when you think the deal would actually close?

To the best our knowledge, it should close within the next 30 days, and it's out of our control.

GMAC is dealing with the rating agencies, and they have to issue whatever documents necessary.

We fully expect that they will, since we now are rated investment-grade credit by both of the agencies.

It's just a matter of time;

I don't think it's a matter of the --

Michael, this is Frank.

We have been informed that GMAC has sent the materials to the rating agencies.

So it is definitely in the hands of the agencies now to look through that information and issue their letter.

So there has been movement; we're just not sure that we can peg a date quite yet.

And you guys can't push that process along or be involved in that process at all to--?

We're dealing with the CMBS side of the agencies, and of course, we're dealing with the unsecured credit side.

And we can make a couple calls, but there's really not a whole lot we can do to move it forward.

In terms of debt issuances, I guess you have to fund the balance of Charter Oak and then fund the balance of this refinancing that you did.

Have you entered into any swamps, hedges to swap that cost at all?

We have actually entered into a hedge on an amount that will take us through the end of the year so that, when this deal does close, should we do any issuance of unsecured debt, that we have at least fixed the treasury rate on a certain amount, and a little more specifics on that will be in the 10-Q when we file that.

But we did in fact enter into a hedge, which is at this point in the money.

And when did you enter into that hedge?

Where was the 10-year at?

4.24, something like that.

About $200 million worth?

No; we only did about one and a quarter.

One and a quarter.

And you would expect that your debt issuance probably would be closer to 200?

Because of the John Hancock repayment, most likely it would be higher, yes.

And are you still thinking about doing preferred, or is that off the table?

No, it's not off the table.

We are still looking at all our options.

But no additional equity at all?

We're not expecting to do any additional equity, no.

Okay.

Can we just spend a moment on the below-market rent adjustment, which has been, I guess, volatile quarter to quarter?

And Frank, I know you have talked about how it's a little bit out of your control.

Do you have a forecast what that will be in the fourth quarter?

It has basically flip-flopped from being positive to negative, and does have some impact on your numbers.

It does, and it's an unfortunate number because that's literally something that is calculated per lease.

And if a tenant leaves early, we have to fully amortize that number.

If it happens to be a below-market lease, then I guess we get a pickup.

And if it's above market, then it's a negative number.

What makes it even more difficult, Michael, we will have to revalue all of these leases when we buy out Blackstone and remark them to market, if you will.

So at this point, we could forecast what they are, but we would be in the process of redoing that once we close on Blackstone.

So it's unfortunately a difficult number to get our hands on.

Luckily, because of our share count now, it's less volatile to the bottom-line number.

And the accretion that you set out for Blackstone excluded all that income?

That is correct.

We have not been looking at whether we would gain any additional revenue or bottom-line income from the market rent as yet.

And the last question I had was just on Myrtle Beach and Hilton Head, two of the Charter Oak assets, which seem to have dropped sequentially in occupancy by about 300 basis points -- I think this is about 25,000 square feet.

Was there anything going on there?

Was it a tenant movement?

We're in the process of doing what we call the Tanger shuffle and moving tenants around.

We've had the properties under our control now for about 18 months and we're repositioning them for future growth.

Do you have leases in place to come back up in the fourth quarter?

That's our expectation.

If not long-term leases, the spaces certainly will be filled with seasonal tenants as we try to find the right mix of tenants going forward.

Was it one space or a couple of small spaces?

In Myrtle Beach, there were two or three large spaces that left, and in Hilton Head, they are relatively very small spaces.

National tenants or more local?

In which property?

Both.

In Myrtle Beach, they were national tenants.

We lost a couple of concepts from The Gap and Saks Off 5th.

We have replaced one of those with Columbia Sportswear, and we're in the process of replacing the other two.

And in Hilton Head, they are smaller tenants, some national brands, some local, and we are in the process of replacing them.

We have two properties in each market, as you probably know, and we're trying to balance the two properties.

We are marketing both properties as Tanger Outlet Centers and promoting cross-shopping between the two properties.

That's helpful for the color.

Thanks, Steve.

David Fick, Legg Mason.

Have you guys ordered steel yet on either of your two imminent projects?

We're in the process of closing on the transactions right now.

I don't know if contracts have been signed for the steel, but we certainly are in line for delivery.

How do you feel about your budgets, given what is happening in construction costs and materials these days?

And what are your current yield targets on those projects, stabilized deals?

I think we can still come in around an 11% stabilized yield on both projects.

The only comment on the Pittsburgh vote -- in talking to reporters there, there's a real mix of opinion as to what is going to happen.

I know it's hard to say.

But do you have a sense at this point?

Two of the taxing authorities, the county commissioners and the school board, which receive in excess of 90% of the taxable income, have voted overwhelmingly in favor of the TIF.

The third taxing authority is the township board, and I suspect that they will vote very shortly.

And we are hopeful that they will vote in favor of the TIF also.

It certainly is in the best interest of the township and the taxpayers in the town.

One of the local reporters indicated that the school board is considering reversing their vote.

Have you heard anything like that?

We have been given no indication that that's an option.

Traffic since the gas price spike -- is it having an impact on you?

Well, we got a triple whammy, the two major hurricanes and a gas price spike and continuing ramp-up in interest rates in September.

And sales were adversely affected in September.

When you have a hurricane announced, for the week before it's announced and depending upon the location of the direct hit, anywhere from a couple of days to a couple of weeks after, it really affects the traffic.

So yes, we have been affected, like most other retail venues.

Anecdotally, from conversations with our larger tenants, we are told that sales and traffic have bounced back in October.

We don't have October sales figures, though.

Harvey Shore (ph), East-West Investment.

I'd like to follow up on this Pittsburgh property.

I recently visited the site in Washington County, PA.

And from talking to local officials, it seemed as though, if you did not get this particular access road, that the project would not be viable and you would pull out of the proposed site.

Could you comment and give us a little clarity on that?

And when do you think that would start construction, if indeed the vote does go your way?

We have publicly stated, as has Bass Pro Shops, but for the approval of the TIF, we will not go forward.

The TIF is being used to fund a portion of $50 million of infrastructure which includes sewer, moving high power tension lines, roadwork, improvements to the interstate interchanges.

So there's a lot of work that needs to be done there.

However, you're talking about a large site with two very well-financed large tenants, the Tanger Outlet Center and Bass Pro Shops, which will create a major regional tourist shopping destination in Southwest Pennsylvania.

So we are hopeful that the vote will be positive and that we can deliver on this terrific new site.

Is the timeframe as such that you can still stick to the 2007 opening?

That is what we have publicly committed to.

And as of this point in time, we don't see anything that leads us to change that.

At this time, there are no further questions.

This is Stanley Tanger speaking.

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

Steve, Frank and I are always available to answer any of your questions that you might have.

Thank you and have a great day.

God bless you all.

Thank you.

This concludes the Tanger Factory Outlet Centers' third-quarter 2005 conference call.

You may now disconnect.