Tanger Outlets(SKT) - 2021 Q4 - Annual Report

Part I Explanatory Note This 10-K combines reports for Tanger Factory Outlet Centers, Inc. (REIT) and its Operating Partnership, providing a comprehensive enterprise view - The report combines the annual filings for Tanger Factory Outlet Centers, Inc. (the Company) and Tanger Properties Limited Partnership (the Operating Partnership), which are operated as a single enterprise[14][18] - The Company is a REIT whose primary asset is its ownership interest in the Operating Partnership. The Operating Partnership holds all outlet centers and assets, conducts all operations, and generates the required capital[15][19][20] - As of December 31, 2021, the Company and its subsidiaries owned 104,084,734 units of the Operating Partnership, while other limited partners held 4,761,559 Class A common limited partnership units, which are exchangeable for the Company's common shares[17] Item 1. Business Tanger is a leading outlet center owner/operator in the US and Canada, focused on portfolio growth and NOI, with 2021 marked by strategic financing and ESG initiatives Portfolio Overview as of December 31, 2021 | Portfolio Type | Number of Centers | Total Gross Leasable Area (sq. ft.) | | :--- | :--- | :--- | | Consolidated | 30 | ~11.5 million | | Unconsolidated | 6 | ~2.1 million | - The consolidated portfolio was 95% occupied as of year-end 2021, containing over 2,200 stores from approximately 500 brands[25] - The company's growth strategy includes increasing net operating income at existing centers, developing new centers, expanding and renovating properties, and acquiring outlet centers that meet strategic criteria[54][55][56] - As of December 31, 2021, the company had 310 full-time and 263 part-time employees. Females comprised 77% of the total workforce and 45% of the executive leadership team, while ethnic minorities made up 26% of the total workforce[82][85] - The company has established an ESG program with priority issues identified as Diversity, Equity and Inclusion; Energy Use and Efficiency; Community Involvement; Climate Change; and Tenants' Environmental and Social Footprint[87][90] Recent Developments In 2021, the company strengthened its capital structure via an ATM offering, debt refinancing, and credit line extension, while recording an impairment and selling an asset 2021 At-the-Market (ATM) Share Offering | Metric | Value | | :--- | :--- | | Shares Sold | 10.0 million | | Weighted Average Price | $18.97 per share | | Net Proceeds | $187.1 million | - The company issued $400.0 million in senior notes due 2031 at a 2.750% interest rate, using the proceeds to redeem all outstanding 3.875% notes due 2023 ($250.0 million total) and 3.750% notes due 2024 ($250.0 million). This resulted in a loss on early extinguishment of debt, including make-whole premiums[36][37] - A $7.0 million impairment charge was recorded in December 2021 for the Mashantucket (Foxwoods), Connecticut outlet center due to a decreased estimated hold period and declining operating results[40] - The company extended the maturity of its $520.0 million unsecured lines of credit from October 2021 to July 2025[35] Item 1A. Risk Factors The company faces risks from real estate illiquidity, tenant health, debt financing, interest rate volatility, cyber-attacks, and maintaining REIT status - Real Estate Risks: Investments are illiquid and subject to market volatility, economic conditions, and competition. The company may be unable to successfully develop new centers or expand existing ones, and properties may be subject to impairment charges[95][96][100][101] - Business & Operational Risks: The COVID-19 pandemic continues to pose a significant threat to tenant financial health and consumer spending. The company is substantially dependent on rental income and the operational success of its retail tenants, who face risks from changing consumer habits, e-commerce, and potential bankruptcy[110][113][116][125] - Financial & Market Risks: The company is subject to risks from debt financing, including the ability to refinance maturing debt on favorable terms. Interest rate fluctuations, particularly the phasing out of LIBOR, could adversely affect financing costs. The company also faces risks from cyber-attacks that could disrupt operations or expose sensitive data[130][134][143] - Tax & Structural Risks: Failure to qualify as a REIT would subject earnings to corporate-level taxation, significantly reducing cash available for distribution. The company is also dependent on distributions from the Operating Partnership to pay dividends and meet its financial obligations[137][142] Item 2. Properties Tanger's diversified portfolio includes 30 consolidated and 6 unconsolidated outlet centers, with 95% occupancy and key tenants contributing significantly to rent Consolidated Portfolio Occupancy and Rent (2017-2021) | Year | Occupancy | Average Annual Base Rent per sq. ft. | | :--- | :--- | :--- | | 2021 | 95% | $23.79 | | 2020 | 92% | $21.10 | | 2019 | 97% | $25.35 | | 2018 | 97% | $25.51 | | 2017 | 97% | $25.81 | Top 5 Tenants by Annualized Base Rent (as of Dec 31, 2021) | Tenant | % of Total GLA | % of Total Annualized Base Rent | | :--- | :--- | :--- | | The Gap, Inc. | 7.7% | 6.1% | | Premium Apparel, LLC; The Talbots, Inc. | 3.7% | 4.2% | | SPARC Group | 4.0% | 4.2% | | PVH Corp. | 2.6% | 3.6% | | Tapestry, Inc. | 2.0% | 3.4% | - Scheduled lease expirations for 2022 represent 18% of annualized base rent, covering approximately 1.8 million square feet[162] - The Deer Park, New York outlet center is the only property comprising 10% or more of consolidated total assets. Its occupancy recovered to 95% in 2021 from 89% in 2020[176] Item 3. Legal Proceedings The company is involved in routine legal proceedings, none of which are expected to materially impact financial results - The Company and Operating Partnership are engaged in routine legal proceedings, none of which are expected to have a material adverse effect on financial results[182] Information about the Executive Officers The company's executive leadership team, including Steven B. Tanger and Stephen J. Yalof, comprises experienced professionals, strengthened by key hires in 2021 Executive Officers | Name | Age | Position | | :--- | :--- | :--- | | Steven B. Tanger | 73 | Executive Chair of the Board | | Stephen J. Yalof | 59 | Director, President and Chief Executive Officer | | James F. Williams | 57 | Executive Vice President - Chief Financial Officer and Treasurer | | Chad D. Perry | 49 | Executive Vice President - General Counsel and Secretary | | Leslie A. Swanson | 51 | Executive Vice President - Chief Operating Officer | | Justin C. Stein | 42 | Executive Vice President - Leasing | | Andrew R. Wingrove | 39 | Executive Vice President - Chief Commercial Officer | Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities Tanger's shares trade on NYSE; the company reinstated dividends in 2021 and authorized a share repurchase program, though stock performance lagged REIT indices - The Board authorized an $80.0 million share repurchase program through May 31, 2023. No shares were repurchased under this program as of December 31, 2021[196][197] - Dividends were reinstated in January 2021 after a temporary suspension in May 2020. Quarterly dividends were paid for the full year 2021, with a total of $0.7150 per unit distributed by the Operating Partnership[199][208] Five-Year Cumulative Total Return Performance | Index | 12/31/2016 | 12/31/2021 | | :--- | :--- | :--- | | Tanger Factory Outlet Centers, Inc. | $100.00 | $72.60 | | Dow Jones Equity All REIT Index | $100.00 | $180.39 | | Dow Jones U.S. Real Estate Retail Index | $100.00 | $89.37 | Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 2021 saw significant operational and financial recovery, with increased net income and rental revenues, improved liquidity, and stronger non-GAAP metrics, despite a debt extinguishment loss - Net income increased to $9.6 million in 2021 from a net loss of $38.0 million in 2020. The improvement was primarily due to higher revenues post-pandemic and lower impairment charges, partially offset by a $47.9 million loss on early debt extinguishment[226] - Rental revenues increased by $29.8 million in 2021 compared to 2020, largely due to a $42.9 million increase in revenues from existing properties as business conditions normalized after the COVID-19 disruptions of 2020[227] - The company's liquidity position was strong, with approximately $681.3 million available as of December 31, 2021, consisting of cash and undrawn capacity on its unsecured lines of credit[290] Key Non-GAAP Performance Metrics (2021 vs 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | FFO available to common shareholders (in thousands) | $138,114 | $154,122 | | Core FFO available to common shareholders (in thousands) | $188,360 | $153,708 | | Core FFO per share - diluted | $1.76 | $1.57 | | Same Center NOI - Consolidated (in thousands) | $284,768 | $246,245 | Results of Operations Net income increased significantly in 2021 due to higher rental revenues and lower impairment, partially offset by a debt extinguishment loss and increased G&A expenses Change in Rental Revenues (2021 vs 2020, in thousands) | Component | 2021 | 2020 | Increase/(Decrease) | | :--- | :--- | :--- | :--- | | Rental revenues from existing properties | $407,164 | $364,214 | $42,950 | | Rental revenues from properties disposed | $272 | $7,315 | ($7,043) | | Lease termination fees | $2,225 | $12,125 | ($9,900) | | Total Rental Revenues | $407,766 | $377,932 | $29,834 | - General and administrative expenses increased by $18.1 million in 2021, primarily due to higher compensation costs from new executive hires, professional fees related to rent collections, and $3.6 million in severance and voluntary retirement costs[235] - Impairment charges decreased to $7.0 million in 2021 (related to the Foxwoods center) from $67.2 million in 2020 (related to the Foxwoods and Jeffersonville centers)[236] - A loss on early extinguishment of debt of $47.9 million was recorded in 2021 due to make-whole premiums and write-offs from the redemption of senior notes due in 2023 and 2024[238] Liquidity and Capital Resources The company maintained strong liquidity in 2021, with increased operating cash flow and strategic financing activities, including an ATM offering and debt refinancing Cash Flow Summary (2021 vs 2020, in thousands) | Cash Flow Activity | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $217,697 | $164,818 | $52,879 | | Net cash used in investing activities | ($22,739) | ($18,771) | ($3,968) | | Net cash used in financing activities | ($118,379) | ($77,593) | ($40,786) | - During 2021, the company sold 10.0 million shares under its ATM program at a weighted average price of $18.97 per share, generating net proceeds of $187.1 million, which were used primarily to reduce debt[291] - The company redeemed all of its 3.875% senior notes due 2023 and 3.750% senior notes due 2024, funded by a new public offering of $400.0 million in 2.750% senior notes due 2031[292][293] - As of December 31, 2021, the company was in compliance with all debt covenants, with its most restrictive covenants being those in its senior, unsecured notes[303][304] Non-GAAP Supplemental Measures While FFO decreased due to debt extinguishment, Core FFO and Same Center NOI significantly increased in 2021, reflecting strong operational recovery Reconciliation of Net Income to FFO and Core FFO (in thousands) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net income (loss) | $9,558 | ($38,013) | | Adjustments (Depreciation, Impairment, etc.) | $129,009 | $200,215 | | FFO | $139,567 | $156,025 | | FFO available to common shareholders | $138,114 | $154,122 | | Further Adjustments (Loss on debt extinguishment, etc.) | $50,246 | ($417) | | Core FFO available to common shareholders | $188,360 | $153,708 | FFO and Core FFO Per Share (Diluted) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | FFO available to common shareholders per share | $1.29 | $1.58 | | Core FFO available to common shareholders per share | $1.76 | $1.57 | - Same Center NOI for the consolidated portfolio increased by 15.6% to $284.8 million in 2021 from $246.2 million in 2020[334] Item 7A. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its variable-rate debt, alongside unhedged foreign currency risk from Canadian investments - As of year-end 2021, 3% of outstanding consolidated debt (excluding debt with interest rate protection) had variable interest rates. A 100 basis point change in LIBOR would change annual interest expense by approximately $401,000[359] - The company is exposed to foreign currency risk from its Canadian investments, which are denominated in Canadian Dollars, but generally does not hedge this exposure[364] Fair Value vs. Recorded Value of Debt (in thousands) | Date | Fair Value of Debt | Recorded Value of Debt | | :--- | :--- | :--- | | December 31, 2021 | $1,445,337 | $1,397,076 | | December 31, 2020 | $1,639,803 | $1,567,886 | Item 9A. Controls and Procedures Management and independent auditors concluded that disclosure controls and internal controls over financial reporting were effective as of December 31, 2021 - The Principal Executive Officer and Principal Financial Officer concluded that the disclosure controls and procedures for both the Company and the Operating Partnership were effective as of December 31, 2021[367][372] - Management concluded that the internal control over financial reporting for both entities was effective as of December 31, 2021, based on the COSO framework[369][374] - The independent auditor, Deloitte & Touche LLP, provided an unqualified opinion on the effectiveness of internal control over financial reporting for both the Company and the Operating Partnership[371][376] Part III Item 10. Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference from the Company's 2022 Proxy Statement[381][383] Item 11. Executive Compensation Executive compensation information is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference from the Company's 2022 Proxy Statement[385] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Security ownership information is incorporated by reference from the 2022 Proxy Statement, detailing equity compensation plan issuances Equity Compensation Plan Information as of December 31, 2021 | Plan Category | Number of Securities to be Issued Upon Exercise | Weighted Average Exercise Price | Number of Securities Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 2,421,866 | $16.62 | 2,110,394 | | Not approved by security holders | 1,000,000 | $7.15 | — | | Total | 3,421,866 | $10.68 | 2,110,394 | Item 13. Certain Relationships and Related Transactions, and Director Independence Information on related party transactions and director independence is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference from the Company's 2022 Proxy Statement[391] Item 14. Principal Accounting Fees and Services Principal accounting fees and services information is incorporated by reference from the 2022 Proxy Statement - Information required by this item is incorporated by reference from the Company's 2022 Proxy Statement[393] Part IV Item 15. Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and exhibits filed as part of the Form 10-K, including consolidated financials and auditor reports - This item contains the index to the consolidated financial statements for both the Company and the Operating Partnership, as well as the financial statement schedule for Real Estate and Accumulated Depreciation[395] - A comprehensive list of exhibits is provided, including articles of incorporation, bylaws, debt indentures, material contracts, and executive compensation plans[397] Financial Statements and Supplementary Data Audited consolidated financial statements for 2021, with an unqualified auditor opinion, detail the company's recovery, asset and equity changes, and critical audit matters - The independent auditor, Deloitte & Touche LLP, issued an unqualified opinion on the financial statements for both the Company and the Operating Partnership[411][428] - The critical audit matter identified by the auditor was the impairment of long-lived assets, due to the challenging, subjective, and complex judgments required for management's cash flow estimates used in the impairment analysis[416][433] Consolidated Balance Sheet Highlights - Tanger Factory Outlet Centers, Inc. (in thousands) | Account | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Total Assets | $2,157,384 | $2,189,531 | | Total Debt | $1,397,076 | $1,567,886 | | Total Equity | $499,789 | $358,883 | Consolidated Statement of Operations Highlights - Tanger Factory Outlet Centers, Inc. (in thousands) | Account | 2021 | 2020 | | :--- | :--- | :--- | | Total Revenues | $426,525 | $389,991 | | Net Income (Loss) | $9,558 | ($38,013) | | Diluted EPS | $0.08 | ($0.40) |