Tanger Reports Third Quarter 2015 Results

GREENSBORO, N.C., Oct. 27, 2015 /PRNewswire/ -- Tanger Factory Outlet Centers, Inc. (NYSE: SKT) today reported funds from operations ("FFO") available to common shareholders, a widely accepted supplemental measure of REIT performance, increased 13.5% to $0.59 per share, or $59.4 million for the three months ended September 30, 2015, from $0.52 per share, or $51.7 million for the three months ended September 30, 2014.  For the nine months ended September 30, 2015, FFO increased 15.5% to $1.64 per share, or $163.3 million, from $1.42 per share, or $140.6 million for the nine months ended September 30, 2014.  Adjusted funds from operations ("AFFO") for  the three months ended September 30, 2015 also increased 13.5% to $0.59 per share, or $59.4 million, from $51.6 million for the three months ended September 30, 2014.  For the nine months ended September 30, 2015 AFFO increased 13.9% to $1.64 per share, or $163.3 million, from $1.44 per share, or $142.1 million for the nine months ended September 30, 2014.  A reconciliation of FFO to AFFO is shown in the table below.  

"The third quarter of 2015 was another fantastic quarter for Tanger Outlets, with FFO per share up 13.5% compared to the third quarter of 2014 and $0.02 per share ahead of First Call consensus.  Completing the sale of five non-core assets improved the overall quality and long-term growth profile of our portfolio," commented Steven B. Tanger, President & Chief Executive Officer. "In addition, we opened a new outlet center in Grand Rapids, Michigan on July 31, 2015, the third of four new Tanger Outlet Centers that we plan to open this year. We are looking forward to another successful grand opening next month in the Memphis, Tennessee market in Southaven, Mississippi," he added.

Net income available to common shareholders for the three months ended September 30, 2015, which was positively impacted by a $20.2 million gain on the sale of four outlet centers, was $43.6 million, or $0.46 per share, as compared to $22.5 million, or $0.24 per share, for the three months ended September 30, 2014.  Net income available to common shareholders for the nine months ended September 30, 2015, which was positively impacted by a $33.9 million gain on the sale of four outlet centers and the company's 50% ownership interest in the Wisconsin Dells, Wisconsin joint venture, was $101.9 million, or $1.08 per share, as compared to $55.1 million, or $0.59 per share, for the nine months ended September 30, 2014.

Net income, FFO and AFFO per share are on a diluted basis. FFO and AFFO are supplemental non-GAAP financial measures used in the real estate industry to measure and compare the operating performance of real estate companies. Complete reconciliations containing adjustments from GAAP net income to FFO and to AFFO are included in this release.

Highlights for the Quarter

• Same center net operating income increased 3.3% for the third quarter of 2015, compared to 1.4% for the the third quarter of 2014
• Blended average base rental rates on space renewed and released increased 24.6% throughout the consolidated portfolio during the first nine months of 2015, compared to 24.2% for the first nine months of 2014
• Period-end consolidated portfolio occupancy rate of 97.2% as of September 30, 2015, up 40 basis points from 96.8% as of June 30, 2015
• Average tenant sales for the consolidated portfolio increased 1% to $394 per square foot for the rolling twelve months ended September 30, 2015
• Debt-to-total market capitalization ratio of 32% as of September 30, 2015, compared to 31% as of September 30, 2014
• Interest coverage ratio of 4.68 times for the third quarter of 2015, compared to 4.40 for the three months ended September 30, 2014
• Opened a new Tanger Outlet Center in the Grand Rapids, Michigan market on July 31, 2015
• Completed the sale of 4 outlet centers on September 30, 2015 and one outlet center on October 5, 2015, all of which are excluded from current year consolidated portfolio operating metrics
• On October 27, 2015, elected David B. Henry to Board of Directors effective January 1, 2016

Core Portfolio Drives Operating Results

During the nine months ended September 30, 2015, Tanger executed 357 leases totaling 1,562,000 square feet throughout its consolidated portfolio with a 24.6% increase in average base rental rates, compared to a 24.2% increase for the nine months ended September 30, 2014.  Lease renewals accounted for 1,132,000 square feet, which generated a 21.8% increase in average base rental rates, compared to an 18.2% increase for the nine months ended September 30, 2014.  Leases renewed represent 75% of the space scheduled to expire in 2015.  Re-tenanted space accounted for the remaining 430,000 square feet, with an increase in average base rental rates of 31.1%, compared to a 36.0% increase for the nine months ended September 30, 2014. 

Consolidated portfolio same center net operating income for the three months ended September 30, 2015, increased 3.3%, compared to a 1.4% increase for the three months ended September 30, 2014.  For the nine months ended September 30, 2015, consolidated portfolio same center net operating income increased 3.9%, compared to a 2.6% increase for the nine months ended September 30, 2014.  Same center net operating income excludes lease termination fees of $1.6 million and $4.4 million for the three months and nine months ended September 30, 2015, respectively.  Consolidated portfolio average tenant sales for the twelve months ended September 30, 2015 increased approximately 1% to $394 per square foot.  Sales are based on reports by retailers leasing outlet center stores for the trailing twelve months for tenants which have occupied such stores for a minimum of twelve months.  In order to be more comparable to other retail REITs, sales per square foot are now based on all reporting tenants less than 20,000 square feet in size.

As of September 30, 2015, the company's consolidated portfolio was 97.2% occupied, up 40 basis points from 96.8% as of June 30, 2015, but down slightly from 97.7% as of  September 30, 2014, due primarily to bankruptcy-related and brand-wide store closings that occurred during the second half of 2014 and the first nine months of 2015.  Management believes the vacancy provides Tanger an exceptional opportunity to upgrade its tenant mix and mark rents to market. 

Investment Activities Provide Potential Future Growth

In 2015, Tanger expects to deliver four new Tanger Outlet Centers totaling 1.4 million square feet, which represents approximately a 10% expansion based on the company's footprint at the beginning of the year.  These projects represent a total investment of $386.5 million and are currently expected to generate a weighted average stabilized yield of approximately 10%.  Tanger's net equity requirement is expected to be approximately $153.5 million, substantially all of which had been funded as of September 30, 2015.

Following the April 16, 2015 opening of Tanger Outlets Savannah, and the May 21, 2015 opening of Tanger Outlets at Foxwoods, the company opened its newest Tanger Outlet Center on July 31, 2015 in the Grand Rapids, Michigan market. The 351,000 square foot center, which features local architectural details and 80 brand name and designer outlets, was 93% occupied as of September 30, 2015.  Record shopper turnout for the opening required the company to utilize nearby off-site overflow parking lots to accommodate the high volume of shopper traffic.

Construction of two additional Tanger Outlet Centers is ongoing.  Grand opening festivities are scheduled for November 20, 2015 in the Memphis, Tennessee market in Southaven, Mississippi.  Tanger currently expects to complete construction in the Columbus, Ohio market in time to open during the second quarter of 2016. In addition, the company has a pipeline of other development opportunities for which pre-development activities are ongoing.

Asset Recycling Activity Strengthens Portfolio

On September 30, 2015, the company closed on the sale of four outlet centers, which are located in Kittery, Maine (two centers); Tuscola, Illinois; and West Branch, Michigan, for $44.0 million, recognizing a gain of $20.2 million.  On October 5, 2015, Tanger closed on the sale of a 171,000 square foot outlet center located in Barstow, California for $106.7 million.  The company expects to recognize a gain of approximately $86.4 million on the transaction in the fourth quarter of 2015.

These centers had an average age of approximately 24 years, compared to Tanger's remaining portfolio average of 16 years.  Because of the potential upcoming capital expenditures necessary to enhance these centers, as well as changes within each market, the company no longer felt these assets could produce the growth in long-term internal cash flow and tenant sales that Tanger expects within its core portfolio.  While the Barstow center was performing at a very high level, the company believes it was an outlier in its portfolio given its relatively small size and exceptionally high reliance on foreign tourism.

Currently, the company estimates the total combined tax gains related to the sale of these five assets and the sale of its ownership interest in the Wisconsin Dells joint venture earlier in 2015 to be approximately $90 million to $100 million. The company continues to analyze the most efficient use of the net sales proceeds from the recent asset sales which have been placed with a third party qualified intermediary to potentially facilitate future reinvestment in a tax efficient manner.  Tanger currently expects it may be able to defer approximately 80% - 90% of the estimated gains. However, the actual amount of gain deferred, if any, is dependent on a number of factors, some of which the company does not control.  Any proceeds not deferred are expected to be used for the payment of a special dividend, if required, with the balance used to pay down the company's outstanding debt balances.

Tanger Elects New Board Member

At its meeting on October 27, 2015, the company's Board of Directors elected Mr. David B. Henry to serve as an independent director effective January 1, 2016.  Mr. Henry has more than 35 years of experience in the real estate industry, and is currently serving as Vice Chairman of the Board of Directors and Chief Executive Officer of Kimco Realty Corporation, until his retirement which becomes effective January 1, 2016.  He joined Kimco in April 2001 and prior to his current role, served in various other executive capacities including President and Chief Investment Officer.  Previously, Mr. Henry spent 23 years with G.E. Capital Real Estate, the last five of which he served as Senior Vice President and Chief Investment Officer.

FFO Per Share Guidance for 2015

Management currently believes its net income available to common shareholders and funds from operations for 2015 will be as follows:

Tanger's guidance reflects average general and administrative expense of approximately $11.5 million to $12.0 million per quarter and same center net operating income growth of 3.5% to 4.0%.  The components of the change in the company's FFO guidance since the previous quarter include a $0.02 per share increase related to stronger than expected operations and termination fees during the third quarter of 2015 compared to the company's previous forecast, offset by a $0.03 per share decrease related to fourth quarter 2015 dilution associated with the recent sale of five outlet centers.

Third Quarter Conference Call

Tanger will host a conference call to discuss its third quarter results for analysts, investors and other interested parties on Wednesday, October 28, 2015, at 10 a.m. Eastern Time.  To access the conference call, listeners should dial 1-877-277-5113 and provide conference ID # 34699255 to be connected to the Tanger Factory Outlet Centers Third Quarter 2015 Financial Results call.  Alternatively, the call will be web cast by SNL IR Solutions and can be accessed at Tanger's web site by clicking the Investor Relations link at www.tangeroutlets.com.  A telephone replay of the call will be available from October 28, 2015 at 1:00 p.m. through November 11, 2015 at 11:59 p.m. by dialing 1-855-859-2056, conference ID # 34699255.  An online archive of the broadcast will also be available through November 11, 2015.

About Tanger Factory Outlet Centers

Tanger Factory Outlet Centers, Inc. (NYSE:SKT), is a publicly-traded REIT that, as of October 27, 2015, operates and owns, or has an ownership interest in, a portfolio of 42 upscale outlet shopping centers in 21 states coast to coast and in Canada, totaling approximately 14.2 million square feet leased to over 3,000 stores operated by more than 470 different brand name companies.  With more than 30 years experience in the outlet industry and 2 additional centers currently under construction, Tanger Outlet Centers continue to attract more than 185 million shoppers annually.  Tanger is headquartered in Greensboro, North Carolina.  Tanger is furnishing a Form 8-K with the Securities and Exchange Commission that includes a supplemental information package for the quarter ended September 30, 2015.  For more information on Tanger Outlet Centers, call 1-800-4TANGER or visit the company's web site at www.tangeroutlet.com.

This news release contains forward-looking statements within the meaning of federal securities laws. These statements include, but are not limited to, estimates of future net income and FFO per share, same center net operating income, general and administrative expenses, and the dilutive impact from sales of certain properties and equity interests in unconsolidated joint ventures;  improvement in the overall quality and growth profile of the portfolio; plans for new developments, expansions, and dispositions; the projected openings of proposed developments; total costs and equity requirements to complete construction of new outlet centers and the expected average stabilized yield; tenant demand for space; the renewal and re-tenanting of space and the expected timing of rent commencement for executed leases; leasable space expected to be recaptured and the opportunity to upgrade tenant mix and rental rates for such space; the use of proceeds from the property sales, the company's ability to invest the proceeds in a tax efficient manner, the amount of taxable gains associated with asset sales, and the amount of such gains that can be deferred; expected growth in longer-term cash flow and tenant sales in the core portfolio; potential future dividends; tenant sales and sales trends as well as other statements regarding plans, estimates, intentions, and similar statements concerning anticipated future events, results, circumstances, performance or expectations that are not historical facts.

These forward-looking statements are subject to risks and uncertainties. Actual results could differ materially from those projected due to various factors including, but not limited to, the risks associated with general economic and real estate conditions in the United States and Canada, the company's ability to meet its obligations on existing indebtedness or refinance existing indebtedness on favorable terms, the availability and cost of capital, whether the company's regular evaluation of acquisition and disposition opportunities results in any consummated transactions, and whether or not any such consummated transaction results in an increase or decrease in liquidity, net income or funds from operations, whether projects in our pipeline convert into successful developments, the company's ability to lease its properties, the company's ability to implement its plans and strategies for joint venture properties that it does not fully control, the company's inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, and competition. For a more detailed discussion of the factors that affect our operating results, interested parties should review the Tanger Factory Outlet Centers, Inc. Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Contact: Frank C. Marchisello
              Executive Vice President and CFO         
              (336) 834-6834

              Cyndi Holt 
              Vice President of Finance & Investor Relations 
              (336) 834-6892

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SOURCE Tanger Factory Outlet Centers, Inc.