Tanger Factory Outlet Centers, Inc. (SKT)

Q2 2012 Earnings Call

August 1, 2012 10:00 am ET


Frank Marchisello – Executive Vice President and Chief Financial Officer

Cindy Holt – Vice President-Finance and Investor Relations

Steven Tanger – President and Chief Executive Officer


Michael Bilerman – Citi

Jeff Spector – Merrill Lynch

Rich Moore – RBC Capital Markets

Michael Mueller – JPMorgan

Andrew Johns – Green Street Advisors

Carol Kemple – Hilliard Lyons

Jordan Sadler – KeyBanc Capital Markets


Cindy Holt

Good morning. I am Cindy Holt, Vice President, Finance and Investor Relations, and I would like to welcome you to the Tanger Factory Outlet Centers' Second Quarter 2012 Conference Call.

Yesterday we issued our earnings release as well as our supplemental information package and our investor presentation. This information is available on our website under the Investor Relations tab.

Please note that during this call some of management's comments will be forward-looking statements regarding the Company's property operations, leasing, tenant sales trends, development, acquisition, expansion and disposition activities as well as our comments regarding the Company's funds from operations, funds available for distribution and dividends.

These forward-looking statements are subject to numerous risks and uncertainties. Actual results could differ materially from those projected due to factors including but not limited to changes in economic and real estate conditions, the availability and cost of capital, the Company's ability to lease, develop and acquire properties as well as potential tenant bankruptcies and competition. We direct you to the Company's filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the comparable GAAP financial measures are included in our earnings release and in our supplemental information. This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management's comments include time-sensitive information that may be accurate only as of today's date August 1, 2012.

At this time, all participants are in listen-only mode. Following management's comments, the call will be opened for your questions. We ask that you limit your questions to two, so that we will have the opportunity to address all callers'. We will address additional questions as time permits, so you may reenter the queue after your initial two questions.

On the call today will be Steven Tanger, President and Chief Executive Officer; and Frank Marchisello, Executive Vice President and Chief Financial Officer. I will now turn the call over to Steven Tanger. Please go ahead, Steve.

Steven Tanger

Thank you, Cindy, and good morning, everyone. Our ability to successfully increase rental rates resulted in strong same-center net operating income growth of 7% in the second quarter of 2012. This marks the 30th consecutive quarter of positive same center NOI growth dating back to when we first began reporting this metric in 2005.

Comparable traffic for the six months ended June 30, 2012, was up over 4%, marking the fifth consecutive year of positive traffic comps. Tenant comparable sales for the rolling 12 months ended June 30, 2012, increased 3.9% to $375 per square foot. Continued positive comparable tenant sales have allowed us to achieve a blended increase in rents of 23.7% in the first half of 2012. Our low cost of occupancy, which was 8.4% at the end of 2011, and increasing tenant sales should allow us to capture significant embedded value in our portfolio over time, while maintaining a very profitable distribution channel for our tenants.

Any of you who want to learn more about the progress we are making on the two Tanger Outlet Centers currently under construction, our domestic development pipeline, and our Canadian expansion plans through the co-ownership agreement with RioCan Real Estate Investment Trust, later in the call I will address these topics along with a summary of our operating performance and our current expectations for the balance of the year.

But, first let me turn the call over to Frank, who will take you through our financial results for the six months ended June 30, 2012. Please go ahead, Frank.

Frank Marchisello

Thank you, Steve, and good morning, everyone. Total funds from operations or FFO for the quarter ended June 30, 2012 increased 30.4% to $38.6 million compared to $29.6 million last year. Adjusted FFO per share increased 18.2% to $0.39 per share from $0.33 per share for the second quarter of last year, and met Street's consensus expectations. This year-over-year increase in AFFO per share is a direct result of our ability to continue to drive rental rates and same center NOI growth, as well as the accretive impact of the acquisitions made during 2011.

On a consolidated basis our total market capitalization at June 30, 2012 was approximately $4.2 billion, up from $3.4 billion last year. Our debt to total market capitalization was approximately 25% at June 30, 2012 compared to 26.2% last year. We also maintained a very strong interest coverage ratio of 4.08 times for the quarter.

As of June 30, 2012, approximately 63% of our debt was at fixed rates. Our balance sheet strategy continues to be conservative targeting minimal use of secured financing and a manageable schedule of debt maturities. The dividend continues to be well covered. Our 2012 FAD payout ratio is expected to be less than 60%, generating significant incremental cash flow over our dividend, which will be used to help fund our new developments, or to reduce amounts outstanding on our lines of credit. We have started to maintain a conservative approach to every aspect of our business, and we believe will continue to build value for all of our stakeholders over time.

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