Tanger Factory Outlet Centers Inc. has closed on the sale of four non-core outlet centers for total gross proceeds of $130.5 million. The four properties are located in Nags Head, North Carolina; Ocean City, Maryland; Park City, Utah; and Williamsburg, Iowa and represent 6.8% of the company’s consolidated portfolio square footage and approximately 5.1% of its forecasted 2019 portfolio net operating income.
According to a prepared statement, this transaction is consistent with the company’s long-standing history of financial stewardship and strategic portfolio management. Since December 2014, Tanger has now sold 13 assets generating gross proceeds of $402 million.
“By completing these asset sales, we are strengthening the overall quality, reducing the average age, and improving the longer-term growth profile of the portfolio. We believe the benefits of these dispositions over time will more than offset the expected short-term earnings dilution, given that these assets are not expected to produce the long-term growth in cash flow that we anticipate from our core portfolio. Our dividend remains well-covered even with the sale of these assets,” said Steven B. Tanger, Chief Executive Officer.
The purchase price represents a 12.6% blended capitalization rate on the Company’s forecasted 2019 Portfolio NOI. Initially, Tanger expects to use the $128.7 million of net proceeds from the sale of these unencumbered assets to repay balances under its lines of credit. Ultimately, the Company intends to allocate the proceeds between two of its key capital allocation priorities – opportunistically repurchasing its common shares as market conditions warrant and reducing outstanding debt balances to maintain a strong and flexible balance sheet.
Tanger expects to record a gain of approximately $44 million during the first quarter of 2019. The Company has elected not to defer any taxable gain on this transaction and currently does not expect a special dividend to be necessary during 2019.
Assuming all proceeds are used to reduce debt, Tanger expects a net accretive effect on 2019 net income of approximately $0.40 per share, which reflects the expected gain on the transaction and the impact of the use of proceeds, partially offset by the loss of nine months of earnings from the properties sold. The effect on 2019 funds from operations (“FFO”), which is not impacted by the gain or depreciation expense, is expected to be a reduction of approximately $0.09 per share. The transaction is not expected to have a significant impact on Tanger’s 2019 same center net operating income trend.
FFO and Portfolio NOI are widely accepted supplemental non-GAAP measures used in the real estate industry to measure and compare the operating performance of real estate companies.