Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three months ended March 31, 2020 with the three months ended March 31, 2019. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term “Operating Partnership” refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.
Cautionary Statements
Certain statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding: the expected impact of the novel coronavirus (“COVID-19”) pandemic on our business, financial results and financial condition; our ability to raise additional capital, including via future issuances of equity and debt, and the use of proceeds from such issuances; our results of operations and financial condition; capital expenditure and working capital needs and the funding thereof; the repurchase of the Company's common shares, including the potential use of a 10b5-1 plan to facilitate repurchases; future dividend payments; the possibility of future asset impairments; potential developments, expansions, renovations, acquisitions or dispositions of outlet centers; compliance with debt covenants; renewal and re-lease of leased space; the outlook for the retail environment, potential bankruptcies, and other store closings; the outcome of legal proceedings arising in the normal course of business; and real estate joint ventures. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements.
Currently, one of the most significant factors, however, is the potential adverse effect of the COVID-19 pandemic, on the financial condition, results of operations, cash flows, compliance with debt covenants and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
Other important factors which may cause actual results to differ materially from current expectations include, but are not limited to: our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers; the relative illiquidity of real property investments; impairment charges affecting our properties; our dispositions of assets may not achieve anticipated results; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; environmental regulations affecting our business; risk associated with a possible terrorist activity or other acts or threats of violence, public health crises and threats to public safety; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; risks related to changes in consumer spending habits; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risk associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; uncertainty relating to the potential phasing out of LIBOR; risk associated with our interest rate hedging arrangements; risk associated to uncertainty related to determination of LIBOR; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism and other important factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2019, as updated in Part II, Item 1A- “Risk Factors” in this Quarterly Report on Form 10-Q.
General Overview
As of March 31, 2020, we had 32 consolidated outlet centers in 19 states totaling 12.0 million square feet. We also had 7 unconsolidated outlet centers in 6 states or provinces totaling 2.2 million square feet.
The table below details our new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2019 to March 31, 2020 (square feet in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Outlet Centers
|
|
Unconsolidated Joint Venture Outlet Centers
|
Outlet Center
|
|
Quarter Opened/Disposed
|
|
Square Feet
|
|
Number of Outlet Centers
|
|
Square Feet
|
|
Number of Outlet Centers
|
As of January 1, 2019
|
|
|
|
12,923
|
|
|
36
|
|
|
2,371
|
|
|
8
|
|
Dispositions:
|
|
|
|
|
|
|
|
|
|
|
Nags Head
|
|
First Quarter
|
|
(82
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Ocean City
|
|
First Quarter
|
|
(200
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Park City
|
|
First Quarter
|
|
(320
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Williamsburg
|
|
First Quarter
|
|
(276
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
Bromont
|
|
Second Quarter
|
|
—
|
|
|
—
|
|
|
(161
|
)
|
|
(1
|
)
|
Other
|
|
|
|
3
|
|
|
—
|
|
|
2
|
|
|
—
|
|
As of December 31, 2019
|
|
|
|
12,048
|
|
|
32
|
|
|
2,212
|
|
|
7
|
|
Other
|
|
|
|
(4
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
As of March 31, 2020
|
|
|
|
12,044
|
|
|
32
|
|
|
2,212
|
|
|
7
|
|
The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of March 31, 2020. Except as noted, all properties are fee owned.
|
|
|
|
|
|
|
|
|
|
Consolidated Outlet Centers
|
|
Legal
|
|
Square
|
|
%
|
Location
|
|
Ownership %
|
|
Feet
|
|
Occupied
|
Deer Park, New York
|
|
100
|
|
739,110
|
|
|
98
|
|
Riverhead, New York (1)
|
|
100
|
|
729,778
|
|
|
92
|
|
Rehoboth Beach, Delaware (1)
|
|
100
|
|
557,353
|
|
|
95
|
|
Foley, Alabama
|
|
100
|
|
554,587
|
|
|
88
|
|
Atlantic City, New Jersey (1) (3)
|
|
100
|
|
489,718
|
|
|
79
|
|
San Marcos, Texas
|
|
100
|
|
471,816
|
|
|
95
|
|
Sevierville, Tennessee (1)
|
|
100
|
|
447,815
|
|
|
99
|
|
Savannah, Georgia
|
|
100
|
|
429,089
|
|
|
96
|
|
Myrtle Beach Hwy 501, South Carolina
|
|
100
|
|
426,523
|
|
|
96
|
|
Jeffersonville, Ohio
|
|
100
|
|
411,904
|
|
|
84
|
|
Glendale, Arizona (Westgate)
|
|
100
|
|
410,751
|
|
|
97
|
|
Myrtle Beach Hwy 17, South Carolina (1)
|
|
100
|
|
403,425
|
|
|
99
|
|
Charleston, South Carolina
|
|
100
|
|
379,328
|
|
|
100
|
|
Lancaster, Pennsylvania
|
|
100
|
|
375,857
|
|
|
91
|
|
Pittsburgh, Pennsylvania
|
|
100
|
|
373,863
|
|
|
95
|
|
Commerce, Georgia
|
|
100
|
|
371,408
|
|
|
96
|
|
Grand Rapids, Michigan
|
|
100
|
|
357,119
|
|
|
90
|
|
Fort Worth, Texas
|
|
100
|
|
351,741
|
|
|
99
|
|
Daytona Beach, Florida
|
|
100
|
|
351,721
|
|
|
98
|
|
Branson, Missouri
|
|
100
|
|
329,861
|
|
|
99
|
|
Southaven, Mississippi (2) (3)
|
|
50
|
|
324,717
|
|
|
99
|
|
Locust Grove, Georgia
|
|
100
|
|
321,082
|
|
|
95
|
|
Gonzales, Louisiana
|
|
100
|
|
321,066
|
|
|
96
|
|
Mebane, North Carolina
|
|
100
|
|
318,886
|
|
|
100
|
|
Howell, Michigan
|
|
100
|
|
314,438
|
|
|
88
|
|
Mashantucket, Connecticut (Foxwoods) (1)
|
|
100
|
|
311,507
|
|
|
93
|
|
Tilton, New Hampshire
|
|
100
|
|
250,107
|
|
|
93
|
|
Hershey, Pennsylvania
|
|
100
|
|
249,696
|
|
|
99
|
|
Hilton Head II, South Carolina
|
|
100
|
|
206,564
|
|
|
98
|
|
Hilton Head I, South Carolina
|
|
100
|
|
181,670
|
|
|
97
|
|
Terrell, Texas
|
|
100
|
|
177,800
|
|
|
87
|
|
Blowing Rock, North Carolina
|
|
100
|
|
104,009
|
|
|
85
|
|
Totals
|
|
|
|
12,044,309
|
|
|
94
|
|
|
|
(1)
|
These properties or a portion thereof are subject to a ground lease.
|
|
|
(2)
|
Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture’s cash flow to be greater than our legal ownership percentage. We currently receive substantially all the economic interest of the property.
|
|
|
(3)
|
Property encumbered by mortgage. See Notes 6 and 7 to the consolidated financial statements for further details of our debt obligations.
|
|
|
|
|
|
|
|
|
|
|
Unconsolidated joint venture properties
|
|
Legal
|
|
Square
|
|
%
|
|
Location
|
|
Ownership %
|
|
Feet
|
|
Occupied
|
|
Charlotte, North Carolina (1)
|
|
50
|
|
398,676
|
|
|
97
|
|
Ottawa, Ontario
|
|
50
|
|
357,218
|
|
|
96
|
|
Columbus, Ohio (1)
|
|
50
|
|
355,245
|
|
|
97
|
|
Texas City, Texas (Galveston/Houston) (1)
|
|
50
|
|
352,705
|
|
|
92
|
|
National Harbor, Maryland (1)
|
|
50
|
|
341,156
|
|
|
96
|
|
Cookstown, Ontario
|
|
50
|
|
307,895
|
|
|
100
|
|
Saint-Sauveur, Quebec (1)
|
|
50
|
|
99,405
|
|
|
92
|
|
Total
|
|
|
|
2,212,300
|
|
|
96
|
|
|
|
(1)
|
Property encumbered by mortgage. See Note 5 to the consolidated financial statements for further details of the joint venture debt obligations.
|
Leasing Activity
The tables below show changes in rent (base rent and common area maintenance (“CAM”)) for leases for new stores that opened or renewals that started during the respective trailing twelve month periods ended March 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trailing twelve months ended March 31, 2020(1),(2)
|
|
# of Leases
|
Square Feet
(in 000’s)
|
Average
Annual
Straight-line Rent (psf)
|
Average
Tenant
Allowance (psf)
|
Average Initial Term
(in years)
|
Net Average
Annual
Straight-line Rent (psf) (3)
|
Re-tenant
|
118
|
|
504
|
|
$
|
36.13
|
|
$
|
47.70
|
|
7.75
|
|
$
|
29.98
|
|
Renewal
|
178
|
|
839
|
|
$
|
28.20
|
|
$
|
0.90
|
|
3.90
|
|
$
|
27.97
|
|
|
|
|
|
|
|
|
|
Trailing twelve months ended March 31, 2019(1),(2)
|
|
# of Leases
|
Square Feet
(in 000’s)
|
Average
Annual
Straight-line Rent (psf)
|
Average
Tenant
Allowance (psf)
|
Average Initial Term
(in years)
|
Net Average
Annual
Straight-line Rent (psf) (3)
|
Re-tenant
|
81
|
|
388
|
|
$
|
33.32
|
|
$
|
45.13
|
|
7.83
|
|
$
|
27.56
|
|
Renewal
|
280
|
|
1,404
|
|
$
|
34.37
|
|
$
|
0.49
|
|
3.82
|
|
$
|
34.24
|
|
|
|
(1)
|
Excludes license agreements, seasonal tenants, and month-to-month leases.
|
|
|
(2)
|
Excludes outlet centers sold in March 2019 (Nags Head, Ocean City, Park City, and Williamsburg Outlets Centers).
|
|
|
(3)
|
Net average annual straight-line base rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line base rent per year amount. The average annual straight-line base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. The average tenant allowance disclosed in the table above includes other landlord costs.
|
COVID-19 Pandemic
The current COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on our results of operations, liquidity (including our ability to access capital markets), and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows could be materially affected.
Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates have, with respect to some portion of our tenants, (i) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business, (ii) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses, and/or (iii) impacted supply chains from local, national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants’ operations, all of which have adversely affected, and are likely to continue to adversely affect, their ability to maintain profitability and make rental payments to us under their leases. Tenants may also, as a result of such public health crisis, orders or mandates and the resulting economic downturn, request rent deferrals, rent abatement or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends. Specifically, as a result of COVID-19 and various governmental orders currently in place, a number of our tenants have either closed their business or are operating with limited operations and/or have submitted requests for rent relief or failed to pay rent. Certain other of our tenants have declared bankruptcy. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a clear contractual right to cease paying rent due to government mandated closures and we intend to enforce our rights under the lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions and the impact on our results of operations and cash flows is uncertain and cannot be predicted.
While our outlet centers have remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, operations at all 39 Tanger Outlet Centers were restricted by order of local and state authorities. At the lowest point, open stores represented 6% of the consolidated portfolio in terms of gross leasable area, or 2% in terms of annualized base rent. As of May 11, 2020, these percentages had improved to 16% and 12%, respectively, as mandates had eased or been lifted in 20, or 63%, of the locations where we operate. These totals include some stores that are open only for curb-side pickup or where maximum store occupancy is restricted by governmental mandates. It remains unclear when mandates will be lifted completely or eased in additional locations.
A number of our tenants have requested rent deferrals, rent abatements or other types of rent relief during this pandemic. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. As expected due to the deferment offer, April rent receipts represented approximately 12% of the amount billed. Due to the potential impact of COVID-19, our revenues may be significantly lower in the quarter ended June 30, 2020 than the comparable period in 2019. The extent of tenant requests and actions and the impact to our results of operations and cash flows is uncertain and cannot be predicted at this time. While our preference is to work with its tenant partners to reach a financial resolution that positions both parties for long-term growth, it reserves all rights under its lease agreements and will pursue legal remedies to collect rent as appropriate. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables was not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent could have a significant impact in future periods.
Also in March 2020, to increase liquidity, preserve financial flexibility and help ensure that we are able to meet our obligations for a sustained period of time until there is more clarity regarding the impact of the pandemic, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. We have also taken steps to reduce future cash outflows, including the reduction or deferral of certain operating and general and administrative expenses, as well as the deferral of the Nashville project and certain other planned capital expenditures. We intend to pay the dividend that was declared in January as scheduled on May 15, 2020. Going forward, given the current uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors will temporarily suspend dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis.
While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, we are unable to predict the ultimate impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. The impact of the COVID-19 pandemic on our rental revenue for the second quarter of 2020 and thereafter cannot, however, be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with tenants, government officials and business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on us, see Part II, Item 1A titled “Risk Factors.”
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019
NET INCOME (LOSS)
Net income decreased $94.0 million in the 2020 period to net loss of $28.1 million as compared to net income of $65.8 million for the 2019 period. The decrease in income is primarily due to:
|
|
•
|
the $43.4 million gain recorded on the sale of the four outlet centers in March 2019;
|
|
|
•
|
the loss of revenues from the four outlet centers sold in March 2019; and
|
|
|
•
|
the $45.7 million impairment charge recognized in March 2020 on the center in Mashantucket, Connecticut.
|
In the tables below, information set forth for properties disposed includes the four outlet centers sold in late March 2019.
RENTAL REVENUES
Rental revenues decreased $11.4 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of rental revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Increase/(Decrease)
|
Rental revenues from existing properties
|
|
$
|
106,778
|
|
|
$
|
110,822
|
|
|
$
|
(4,044
|
)
|
Rental revenues from properties disposed
|
|
12
|
|
|
6,402
|
|
|
(6,390
|
)
|
Straight-line rent adjustments
|
|
1,873
|
|
|
1,970
|
|
|
(97
|
)
|
Lease termination fees
|
|
164
|
|
|
1,130
|
|
|
(966
|
)
|
Amortization of above and below market rent adjustments, net
|
|
(269
|
)
|
|
(370
|
)
|
|
101
|
|
|
|
$
|
108,558
|
|
|
$
|
119,954
|
|
|
$
|
(11,396
|
)
|
Rental revenues from existing properties decreased primarily due to lower average occupancy, rent modifications for certain tenants, in large part as a result of a number of bankruptcy filings, and other tenant closures during 2019 and 2020. We recaptured approximately 332,000 square feet within our consolidated portfolio during the three months ended March 31, 2020 from the early termination of leases related to bankruptcies and brand-wide restructurings by retailers, compared to 82,000 square feet for the three months ended March 31, 2019. In addition, variable revenue which is derived from tenant sales were negatively impacted due to mandatory closures of several centers for the second half of March 2020 as a result of the COVID-19 pandemic.
OTHER REVENUES
The following table sets forth the changes in other revenues (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Increase/(Decrease)
|
Other revenues from existing properties
|
|
$
|
1,632
|
|
|
$
|
1,805
|
|
|
$
|
(173
|
)
|
Other revenues from property disposed
|
|
—
|
|
|
54
|
|
|
(54
|
)
|
|
|
$
|
1,632
|
|
|
$
|
1,859
|
|
|
$
|
(227
|
)
|
Other revenues from existing properties decreased primarily due to mandatory closures of several centers for the second half of March 2020 due to COVID-19 pandemic.
PROPERTY OPERATING EXPENSES
Property operating expenses decreased $3.8 million in the 2020 period as compared to the 2019 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Increase/(Decrease)
|
Property operating expenses from existing properties
|
|
$
|
37,293
|
|
|
$
|
38,480
|
|
|
$
|
(1,187
|
)
|
Property operating expenses from property disposed
|
|
—
|
|
|
2,592
|
|
|
(2,592
|
)
|
Expenses related to unconsolidated joint ventures
|
|
882
|
|
|
745
|
|
|
137
|
|
Other property operating expense
|
|
452
|
|
|
560
|
|
|
(108
|
)
|
|
|
$
|
38,627
|
|
|
$
|
42,377
|
|
|
$
|
(3,750
|
)
|
Property operating expenses incurred at existing properties during the 2020 period decreased primarily due to lower snow removal costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $439,000 in the 2020 period compared to the 2019 period primarily due to higher professional fees partially offset by lower employee related costs.
IMPAIRMENT CHARGE
During the first quarter of 2020, we determined that the estimated future undiscounted cash flows of our Foxwoods outlet center in Mashantucket, Connecticut did not exceed the property's carrying value due to a decline in operating results. Therefore, we recorded a $45.7 million non-cash impairment charge in our consolidated statement of operations which equaled the excess of the property's carrying value over its estimated fair value.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs decreased $2.3 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 2019 period to the 2020 period (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Increase/(Decrease)
|
Depreciation and amortization expenses from existing properties
|
|
$
|
29,417
|
|
|
$
|
30,504
|
|
|
$
|
(1,087
|
)
|
Depreciation and amortization from property disposed
|
|
—
|
|
|
1,256
|
|
|
(1,256
|
)
|
|
|
$
|
29,417
|
|
|
$
|
31,760
|
|
|
$
|
(2,343
|
)
|
Depreciation and amortization decreased at our existing properties primarily due to the lower basis in our Jeffersonville property due to the impairment recorded in the fourth quarter of 2019.
INTEREST EXPENSE
Interest expense decreased $1.1 million in the 2020 period compared to the 2019 period primarily from the use of the net proceeds from the sale of four properties in March 2019, as well as other general operating cash flows to reduce amounts outstanding on our unsecured lines of credit throughout 2019. During the 2020 period, we had minimal borrowings outstanding on our unsecured lines of credit until March 2020 when in response to the COVID-19 pandemic, we borrowed approximately $599.8 million under our lines of credit to increase liquidity and preserve financial flexibility. Interest expense related to these borrowings partially offset the decrease in interest expense from having no amounts outstanding on our lines prior to the COVID-19 pandemic.
GAIN ON SALE OF ASSETS
In March 2019, we sold four outlet centers for net proceeds of approximately $128.2 million, which resulted in a gain on sale of assets of $43.4 million. The proceeds from the sale of these unencumbered assets were used to pay down balances outstanding under our unsecured lines of credit.
EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings of unconsolidated joint ventures decreased approximately $102,000 in the 2020 period compared to the 2019 period. In the table below, information set forth for properties disposed includes the RioCan joint venture’s Bromont outlet center, which was sold in May 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
Increase/(Decrease)
|
Equity in earnings from existing properties
|
|
$
|
1,527
|
|
|
$
|
1,627
|
|
|
$
|
(100
|
)
|
Equity in earnings from property disposed
|
|
—
|
|
|
2
|
|
|
(2
|
)
|
|
|
$
|
1,527
|
|
|
$
|
1,629
|
|
|
$
|
(102
|
)
|
Equity in earnings of unconsolidated joint ventures decreased primarily due to a decrease in average occupancy between the 2020 and 2019 periods partially offset by a decrease in interest expense related to the Galveston/Houston and Columbus outlet centers which have variable rate financing related to them. The average variable interest rate related to the two mortgages decreased approximately 1.1% in the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
In this “Liquidity and Capital Resources of the Company” section, the term “the Company” refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership.
The Company’s business is operated primarily through the Operating Partnership. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. The Company’s principal funding requirement is the payment of dividends on its common shares. The Company’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.
Through its ownership of the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership’s partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.
We are a well-known seasoned issuer with a shelf registration that expires in March 2021 that allows the Company to register unspecified various classes of equity securities and the Operating Partnership to register unspecified, various classes of debt securities. As circumstances warrant, the Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. The Operating Partnership may use the proceeds to repay debt, including borrowings under its lines of credit, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, to invest in existing or newly created joint ventures or for general corporate purposes.
The liquidity of the Company is dependent on the Operating Partnership’s ability to make sufficient distributions to the Company. The Operating Partnership is a party to loan agreements with various bank lenders that require the Operating Partnership to comply with various financial and other covenants before it may make distributions to the Company. The Company also guarantees some of the Operating Partnership’s debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company’s guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company’s only material asset is its investment in the Operating Partnership.
The Company believes the Operating Partnership’s sources of working capital, specifically its cash flow from operations and cash on hand, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its minimum dividend payments to its shareholders and to finance its continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, there can be no assurance that the Operating Partnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the Company. The unavailability of capital could adversely affect the Operating Partnership’s ability to pay its distributions to the Company which will, in turn, adversely affect the Company’s ability to pay cash dividends to its shareholders. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors.”
For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income (excluding capital gains). While historically the Company has satisfied this distribution requirement by making cash distributions to its shareholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the Company’s own shares.
As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can. The Company may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, as well as potential new developments, expansions and renovations of existing properties, acquisitions, or investments in existing or newly created joint ventures.
The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant. The Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. However, all debt is held directly or indirectly at the Operating Partnership level, and the Company has guaranteed some of the Operating Partnership’s unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.
In February 2019, the Company’s Board of Directors authorized the repurchase of an additional $44.3 million of our outstanding common shares for an aggregate authorization of $169.3 million until May 2021. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. We did not repurchase any shares for the periods ended March 31, 2020 and March 31, 2019. The remaining amount authorized to be repurchased under the program as of March 31, 2020 was approximately $80.0 million. For more information, see “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in Part II of this Quarterly Report on Form 10-Q.
In January 2020, the Company's Board of Directors declared a $0.355 cash dividend per common share payable on February 14, 2020 to each shareholder of record on January 31, 2020, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
Additionally in January 2020, the Company's Board of Directors declared a quarterly dividend of $0.3575 cash dividend per common share payable on May 15, 2020 to holders of record on April 30, 2020, and the Trustees of Tanger GP Trust declared $0.3575 a cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
As discussed above, given the current uncertainty related to the COVID-19 near and potential long term impact, the Company will temporarily suspend dividend distributions and share repurchases in order to preserve our liquidity position. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.
LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP
General Overview
In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we”, “our” and “us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the text requires.
Property rental income represents our primary source to pay property operating expenses, debt service, capital expenditures and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover such non-recurring capital expenditures and acquisitions, we finance such activities from borrowings under our unsecured lines of credit, to the extent available, or from the proceeds from the Operating Partnership’s debt offerings and the Company’s equity offerings.
We believe we achieve a strong and flexible financial position by attempting to: (1) maintain a conservative leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our unsecured lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of underperforming assets and maintaining a conservative distribution payout ratio. We manage our capital structure to reflect a long term investment approach and utilize multiple sources of capital to meet our requirements.
Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors.” In late March, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. As expected due to the deferment offer, April rent receipts represented approximately12% of the amount billed. Due to the potential impact of COVID-19, our revenues may be significantly lower in the quarter ended June 30, 2020 than the comparable period in 2019. The extent of tenant requests and actions and the impact to the Company’s results of operations and cash flows is uncertain and cannot be predicted at this time. While our preference is to work with its tenant partners to reach a financial resolution that positions both parties for long-term growth, it reserves all rights under its lease agreements and will pursue legal remedies to collect rent as appropriate. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables was not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent in could have a significant impact in future periods.
Cash Flows
The following table sets forth our changes in cash flows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Net cash provided by operating activities
|
|
$
|
27,340
|
|
|
$
|
33,214
|
|
|
$
|
(5,874
|
)
|
Net cash provided by (used in) investing activities
|
|
(6,377
|
)
|
|
127,273
|
|
|
(133,650
|
)
|
Net cash provided by (used) in financing activities
|
|
562,901
|
|
|
(167,898
|
)
|
|
730,799
|
|
Effect of foreign currency rate changes on cash and equivalents
|
|
(24
|
)
|
|
(10
|
)
|
|
(14
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
$
|
583,840
|
|
|
$
|
(7,421
|
)
|
|
$
|
591,261
|
|
Operating Activities
The decrease in net cash provided by operating activities in the 2019 period was primarily due to the sale of the four outlet centers in March 2019 in addition to lower average occupancy and rent modifications for certain tenants.
Investing Activities
The primary cause for the decrease in net cash provided by investing activities was due to the net proceeds of approximately $128.2 million from the sale of the four outlet centers in the 2019 period.
Financing Activities
The primary cause for the increase in net cash provided by financing activities was due to the $599.8 million draw down under our unsecured lines of credit in response to the COVID-19 pandemic. In addition, in the prior year we used the proceeds from the sale of our Nags Head, Ocean City, Park City and Williamsburg outlet centers to pay down our unsecured lines of credit.
Capital Expenditures
The following table details our capital expenditures (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31,
|
|
|
|
|
2020
|
|
2019
|
|
Change
|
Capital expenditures analysis:
|
|
|
|
|
|
|
New outlet center developments and expansions
|
|
$
|
843
|
|
|
$
|
939
|
|
|
$
|
(96
|
)
|
Major outlet center renovations
|
|
2,170
|
|
|
197
|
|
|
1,973
|
|
Second generation tenant allowances
|
|
908
|
|
|
2,974
|
|
|
(2,066
|
)
|
Other capital expenditures
|
|
2,976
|
|
|
2,907
|
|
|
69
|
|
|
|
6,897
|
|
|
7,017
|
|
|
(120
|
)
|
Conversion from accrual to cash basis
|
|
3,654
|
|
|
2,889
|
|
|
765
|
|
Additions to rental property-cash basis
|
|
$
|
10,551
|
|
|
$
|
9,906
|
|
|
$
|
645
|
|
Potential Future Developments, Acquisitions and Dispositions
We are in the initial study period for potential new developments, including a potential site in Nashville, Tennessee. We may also use joint venture arrangements to develop other potential sites. Given the uncertainties of the COVID-19 Pandemic, we have temporarily deferred the Nashville project and certain other planned capital expenditures. Accordingly, there can be no assurance that these potential future projects will ultimately be developed.
In the case of projects to be wholly-owned by us, we expect to fund these projects from amounts available under our unsecured lines of credit, but may also fund them with capital from additional public debt and equity offerings. For projects to be developed through joint venture arrangements, we may use collateralized construction loans to fund a portion of the project, with our share of the equity requirements funded from sources described above. See “Off-Balance Sheet Arrangements” for a discussion of unconsolidated joint venture development activities.
We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations (“FFO”). See the section “Non-GAAP Supplemental Earnings Measures - Funds From Operations” below for further discussion of FFO. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.
Financing Arrangements
As of December 31, 2019, there was no balance outstanding under our unsecured lines of credit. During the second half of March 2020 in response to the COVID-19 pandemic, we drew down approximately $599.8 million under our unsecured lines of credit, which has a maximum borrowing capacity of $600.0 million, and plan to hold as cash to increase liquidity, preserve financial flexibility and assist the Company and Operating Partnership in meeting their obligations for a sustained period of time until there is more clarity regarding the impact of the COVID-19 pandemic. Based on the Operating Partnership's current debt ratings, the interest rate for borrowings under our unsecured lines of credit is LIBOR plus 1.00%.
As of March 31, 2020, unsecured borrowings represented 96% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered. The Company guarantees the Operating Partnership’s obligations under our lines of credit.
We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in the best interests of our shareholders and unitholders. The Company is a well-known seasoned issuer with a joint shelf registration on Form S-3 with the Operating Partnership, expiring in March 2021, that allows us to register unspecified amounts of different classes of securities. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, existing lines of credit, ongoing relationships with certain financial institutions and our ability to sell debt or issue equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures for at least the next twelve months.
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are typically made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing unsecured lines of credit or invested in short-term money market or other suitable instruments.
While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, we are unable to predict at the present time the ultimate impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows for the second quarter of 2020 and thereafter due to numerous uncertainties. At the end of April 2020, we had $594.0 million of cash on our balance sheet. Based on pre-COVID-19 estimated monthly cash expenditures of approximately $25 million per month, we expect to have sufficient liquidity to meet our obligations, even under our most conservative rent collection scenario of not receiving any rent, for approximately two years (this scenario excludes common share dividends and debt maturities during that period and assumes we remain in compliance with all debt covenants). For further discussion of COVID-19, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.
We believe our current balance sheet position is financially sound; however, due to the economic uncertainty caused by the COVID-19 pandemic and the inherent uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our unsecured lines of credit. The unsecured lines of credit expire in October 2021, with a one-year extension option whereby we may extend the maturity to 2022.
The interest rate spreads associated with our unsecured lines of credit and our unsecured term loan are based on the higher of our two investment grade credit ratings. Changes to our credit ratings could cause our interest rate spread to adjust accordingly. In February 2020, due to a change in our credit rating, our interest rate spread over LIBOR on our $600.0 million unsecured line of credit facility increased from 0.875% to 1.0% and our annual facility fee increased from 0.15% to 0.20%. In addition, our interest rate spread over LIBOR on our $350.0 million unsecured term loan increased from 0.90% to 1.0%.
The Operating Partnership’s debt agreements require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% on a cumulative basis.
We have historically been and currently are in compliance with all of our debt covenants. The financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facilities, term loan and other debt agreements and result in a default and potentially an acceleration of indebtedness. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic. Failure to comply with these covenants would result in a default which, if we were unable to cure or obtain a waiver from the lenders, could accelerate the repayment obligations. Further, in the event of default, the Company may be restricted from paying dividends to its shareholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on us. As a result, we have considered our short-term (one year or less from the date of filing these financial statements) liquidity needs and the adequacy of our estimated cash flows from operating activities and other financing sources to meet these needs. These other sources include but are not limited to: existing cash, ongoing relationships with certain financial institutions, our ability to sell debt or issue equity subject to market conditions and proceeds from the potential sale of non-core assets. We believe that we have access to the necessary financing to fund our short-term liquidity needs.
As of March 31, 2020, we believe our most restrictive covenants are contained in our senior, unsecured notes. Key financial covenants and their covenant levels, which are calculated based on contractual terms, include the following:
|
|
|
|
|
Senior unsecured notes financial covenants
|
Required
|
Actual
|
|
Total consolidated debt to adjusted total assets
|
<60%
|
55
|
%
|
Total secured debt to adjusted total assets
|
<40%
|
2
|
%
|
Total unencumbered assets to unsecured debt
|
>150%
|
175
|
%
|
Depending on the future economic impact of COVID-19, other convents related to credit facilities, term loans, and other debt obligations could become one of our most restrictive covenants.
CONTRACTUAL OBLIGATIONS
There were no material changes in our commitments during the three months ended March 31, 2020 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, other than the following table updates to our contractual obligations for debt and interest payments over the next five years and thereafter as of March 31, 2020 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Remainder of 2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
Thereafter
|
|
Total
|
Debt (1)
|
|
$
|
2,694
|
|
|
$
|
657,023
|
|
|
$
|
4,436
|
|
|
$
|
254,768
|
|
|
$
|
605,140
|
|
|
$
|
657,206
|
|
|
$
|
2,181,267
|
|
Interest payments (2)
|
|
$
|
50,588
|
|
|
$
|
63,205
|
|
|
$
|
52,022
|
|
|
$
|
50,883
|
|
|
$
|
34,838
|
|
|
$
|
48,516
|
|
|
$
|
300,052
|
|
|
|
(1)
|
These amounts represent total future cash payments related to debt obligations outstanding as of March 31, 2020.
|
|
|
(2)
|
These amounts represent future interest payments related to our debt obligations based on the fixed and variable interest rates specified in the associated debt agreements, including the effects of our interest rate swaps. All of our variable rate debt agreements are based on the one month LIBOR rate, thus for purposes of calculating future interest amounts on variable interest rate debt, the one month LIBOR rate as of March 31, 2020 was used.
|
OFF-BALANCE SHEET ARRANGEMENTS
We have partial ownership interests in seven unconsolidated outlet centers totaling approximately 2.2 million square feet, including three outlet centers in Canada. See Note 5 to the consolidated financial statements for details of our individual joint ventures, including, but not limited to, carrying values of our investments, fees we receive for services provided to the joint ventures, recent development and financing transactions and condensed combined summary financial information.
We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not typically required contractually or otherwise. We separately report investments in joint ventures for which accumulated distributions have exceeded investments in, and our share of net income or loss of, the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. We believe our joint ventures will be able to fund their operating and capital needs for the next twelve months based on their sources of working capital, specifically cash flow from operations, access to contributions from partners, and ability to refinance debt obligations, including the ability to exercise upcoming extensions of near term maturities.
Our joint ventures are typically encumbered by a mortgage on the joint venture property. We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. A default by a joint venture under its debt obligations may expose us to liability under the guaranty. For construction and mortgage loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal. The principal guarantees include terms for release based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. Our joint ventures may contain make whole provisions in the event that demands are made on any existing guarantees.
Debt of unconsolidated joint ventures
The following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as of March 31, 2020 (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joint Venture
|
|
Total Joint
Venture Debt
|
|
Maturity Date
|
|
Interest Rate
|
|
Percent Guaranteed by the Operating Partnership
|
|
Maximum Guaranteed Amount by the Company
|
Charlotte
|
|
$
|
100.0
|
|
|
July 2028
|
|
4.27%
|
|
|
—
|
%
|
|
$
|
—
|
|
Columbus
|
|
85.0
|
|
|
November 2020
|
|
LIBOR + 1.65%
|
|
|
7.5
|
%
|
|
6.4
|
|
Galveston/Houston
|
|
80.0
|
|
|
July 2020
|
|
LIBOR + 1.65%
|
|
|
12.5
|
%
|
|
10.0
|
|
National Harbor
|
|
95.0
|
|
|
January 2030
|
|
4.63
|
%
|
|
—
|
%
|
|
—
|
|
RioCan Canada
|
|
8.3
|
|
|
May 2020
|
|
5.75
|
%
|
|
33.7
|
%
|
|
2.8
|
|
Debt premium and debt origination costs
|
|
(1.1
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
367.2
|
|
|
|
|
|
|
|
|
$
|
19.2
|
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to our 2019 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies which include principles of consolidation, acquisition of real estate, cost capitalization, impairment of long-lived assets and revenue recognition. Other than noted below, there have been no material changes to these policies in 2020.
If the effects of the COVID-19 pandemic cause economic and market conditions to continue to deteriorate or if our expected holding period for assets change, subsequent tests for impairment could result in additional impairment charges in the future. We can provide no assurance that material impairment charges with respect to our investment properties will not occur during the remaining quarters in 2020 or future periods.
When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 has been COVID-19. We generally assess collectability based on an analysis of creditworthiness, economic trends, and other facts and circumstances related to the applicable tenants. If the collection of substantially all of the future lease payments is less than probable, we will write-off the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables were not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent could have a significant impact in future periods.
In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A did not have a material impact on our consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to us is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering into such concessions.
NON-GAAP SUPPLEMENTAL MEASURES
Beginning with the three months ended March 31, 2020, we have elected to supplement our disclosure with three additional non-GAAP measures, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre (each as defined below), that are commonly provided in the REIT industry. See “Adjusted EBITDA, EBITDAre and Adjusted EBITDAre” below for more information. We also now refer to Adjusted Funds from Operations (“AFFO”) as Core Funds From Operations (“Core FFO”), but there has been no change to the definition of this measure.
Funds From Operations
Funds From Operations (“FFO”) is a widely used measure of the operating performance for real estate companies that supplements net income (loss) determined in accordance with generally accepted accounting principles in the United States (“GAAP”). We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts (“NAREIT”), of which we are a member. In December 2018, NAREIT issued “NAREIT Funds From Operations White Paper - 2018 Restatement” which clarifies, where necessary, existing guidance and consolidates alerts and policy bulletins into a single document for ease of use. NAREIT defines FFO as net income/(loss) available to the Company’s common shareholders computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.
FFO is intended to exclude historical cost depreciation of real estate as required by GAAP which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization of real estate assets, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.
We present FFO because we consider it an important supplemental measure of our operating performance. In addition, a portion of cash bonus compensation to certain members of management is based on our FFO or Core FFO, which is described in the section below. We believe it is useful for investors to have enhanced transparency into how we evaluate our performance and that of our management. In addition, FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. We believe that FFO payout ratio, which represents regular distributions to common shareholders and unit holders of the Operating Partnership expressed as a percentage of FFO, is useful to investors because it facilitates the comparison of dividend coverage between REITs. NAREIT has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance.
FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
|
|
•
|
FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
•
|
FFO does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
•
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements; and
|
|
|
•
|
Other companies in our industry may calculate FFO differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, FFO should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or our dividend paying capacity. We compensate for these limitations by relying primarily on our GAAP results and using FFO only as a supplemental measure.
Core Funds From Operations
If applicable, we present Core FFO (formerly referred to as AFFO) as a supplemental measure of our performance. We define Core FFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized in the table below, if applicable. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Core FFO you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Core FFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
We present Core FFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we believe it is useful for investors to have enhanced transparency into how we evaluate management’s performance and the effectiveness of our business strategies. We use Core FFO when certain material, unplanned transactions occur as a factor in evaluating management’s performance and to evaluate the effectiveness of our business strategies, and may use Core FFO when determining incentive compensation.
Core FFO has limitations as an analytical tool. Some of these limitations are:
|
|
•
|
Core FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
•
|
Core FFO does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
•
|
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Core FFO does not reflect any cash requirements for such replacements;
|
|
|
•
|
Core FFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
|
|
|
•
|
Other companies in our industry may calculate Core FFO differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, Core FFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Core FFO only as a supplemental measure.
Below is a reconciliation of net income to FFO available to common shareholders (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
Net income (loss)
|
|
$
|
(28,119
|
)
|
|
$
|
65,841
|
|
Adjusted for:
|
|
|
|
|
Depreciation and amortization of real estate assets - consolidated
|
|
28,801
|
|
|
31,148
|
|
Depreciation and amortization of real estate assets - unconsolidated joint ventures
|
|
3,018
|
|
|
3,130
|
|
Impairment charge - consolidated
|
|
45,675
|
|
|
—
|
|
Gain on sale of assets
|
|
—
|
|
|
(43,422
|
)
|
FFO
|
|
49,375
|
|
|
56,697
|
|
FFO attributable to noncontrolling interests in other consolidated partnerships
|
|
(190
|
)
|
|
(195
|
)
|
Allocation of earnings to participating securities
|
|
(516
|
)
|
|
(611
|
)
|
FFO available to common shareholders (1)
|
|
$
|
48,669
|
|
|
$
|
55,891
|
|
FFO available to common shareholders per share - diluted (1)
|
|
$
|
0.50
|
|
|
$
|
0.57
|
|
|
|
|
|
|
Weighted Average Shares:
|
|
|
|
|
Basic weighted average common shares
|
|
92,500
|
|
|
93,303
|
|
Diluted weighted average common shares (for earnings per share computations)
|
|
92,500
|
|
|
93,303
|
|
Exchangeable operating partnership units
|
|
4,911
|
|
|
4,961
|
|
Diluted weighted average common shares (for FFO per share computations) (1)
|
|
97,411
|
|
|
98,264
|
|
|
|
(1)
|
Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company. Each Class A common limited partnership unit is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s REIT status.
|
Portfolio Net Operating Income and Same Center NOI
We present portfolio net operating income (“Portfolio NOI”) and same center net operating income (“Same Center NOI”) as supplemental measures of our operating performance. Portfolio NOI represents our property level net operating income which is defined as total operating revenues less property operating expenses and excludes termination fees and non-cash adjustments including straight-line rent, net above and below market rent amortization, impairment charges and gains or losses on the sale of assets recognized during the periods presented. We define Same Center NOI as Portfolio NOI for the properties that were operational for the entire portion of both comparable reporting periods and which were not acquired, or subject to a material expansion or non-recurring event, such as a natural disaster, during the comparable reporting periods.
We believe Portfolio NOI and Same Center NOI are non-GAAP metrics used by industry analysts, investors and management to measure the operating performance of our properties because they provide performance measures directly related to the revenues and expenses involved in owning and operating real estate assets and provide a perspective not immediately apparent from net income, FFO or Core FFO. Because Same Center NOI excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Portfolio NOI and Same Center NOI, and accordingly, our Portfolio NOI and Same Center NOI may not be comparable to other REITs.
Portfolio NOI and Same Center NOI should not be considered alternatives to net income (loss) or as an indicator of our financial performance since they do not reflect the entire operations of our portfolio, nor do they reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. Because of these limitations, Portfolio NOI and Same Center NOI should not be viewed in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Portfolio NOI and Same Center NOI only as supplemental measures.
Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
March 31,
|
|
|
2020
|
|
2019
|
Net income (loss)
|
|
$
|
(28,119
|
)
|
|
$
|
65,841
|
|
Adjusted to exclude:
|
|
|
|
|
Equity in earnings of unconsolidated joint ventures
|
|
(1,527
|
)
|
|
(1,629
|
)
|
Interest expense
|
|
15,196
|
|
|
16,307
|
|
Gain on sale of assets
|
|
—
|
|
|
(43,422
|
)
|
Other non-operating income
|
|
(220
|
)
|
|
(224
|
)
|
Impairment charge
|
|
45,675
|
|
|
—
|
|
Depreciation and amortization
|
|
29,417
|
|
|
31,760
|
|
Other non-property expense
|
|
139
|
|
|
150
|
|
Corporate general and administrative expenses
|
|
12,579
|
|
|
12,132
|
|
Non-cash adjustments(1)
|
|
(1,502
|
)
|
|
(1,472
|
)
|
Lease termination fees
|
|
(164
|
)
|
|
(1,130
|
)
|
Portfolio NOI
|
|
71,474
|
|
|
78,313
|
|
Non-same center NOI(2)
|
|
—
|
|
|
(4,081
|
)
|
Same Center NOI
|
|
$
|
71,474
|
|
|
$
|
74,232
|
|
|
|
(1)
|
Non-cash items include straight-line rent, above and below market rent amortization, straight-line rent expense on land leases and gains or losses on outparcel sales, as applicable.
|
|
|
(2)
|
Excluded from Same Center NOI:
|
|
|
|
Outlet centers sold:
|
Nags Head, Ocean City, Park City, and Williamsburg
|
March 2019
|
Adjusted EBITDA, EBITDAre and Adjusted EBITDAre
We present Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) as adjusted for items described below (“Adjusted EBITDA”), EBITDA for Real Estate (“EBITDAre”) and Adjusted EBITDAre, all non-GAAP measures, as supplemental measures of our operating performance. Each of these measures is defined as follows:
We define Adjusted EBITDA as net income/(loss) available to the Company’s common shareholders computed in accordance with GAAP before interest expense, income taxes, depreciation and amortization, gains and losses on sale of operating properties, gains and losses on change of control, impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate, gains and losses on extinguishment of debt, net and other items that we do not consider indicative of the Company's ongoing operating performance.
We determine EBITDAre based on the definition set forth by NAREIT, which is defined as net income/(loss) available to the Company’s common shareholders computed in accordance with GAAP before interest expense, income taxes, depreciation and amortization, gains and losses on sale of operating properties, gains and losses on change of control and impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate and after adjustments to reflect our share of the EBITDAre of unconsolidated joint ventures.
If applicable, Adjusted EBITDAre is defined as EBITDAre excluding gains and losses on extinguishment of debt, net and other items that that we do not consider indicative of the Company's ongoing operating performance.
We present Adjusted EBITDA, EBITDAre and, if applicable, Adjusted EBITDAre as we believe they are useful for investors, creditors and rating agencies as they provide additional performance measures that are independent of a Company’s existing capital structure to facilitate the evaluation and comparison of the Company’s operating performance to other REITs and provide a more consistent metric for comparing the operating performance of the Company’s real estate between periods.
Adjusted EBITDA, EBITDAre and Adjusted EBITDAre have significant limitations as analytical tools, including:
|
|
•
|
They do not reflect our interest expense;
|
|
|
•
|
They do not reflect gains or losses on sales of operating properties or impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate;
|
|
|
•
|
Adjusted EBITDA and Adjusted EBITDAre do not reflect gains and losses on extinguishment of debt and other items that may affect operations; and
|
|
|
•
|
Other companies in our industry may calculate these measures differently than we do, limiting its usefulness as a comparative measure.
|
Because of these limitations, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, EBITDAre and Adjusted EBITDAre only as supplemental measures.
Below is a reconciliation of Net Income to Adjusted EBITDA (in thousands):