SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
December 8, 2003
Date of Report (Date of earliest event reported)
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
Commission File Numbers:
33-99736-01
333-3526-01
333-39365-01
333-61394-01
56-18122494
(I.R.S. Employer Identification No.)
3200 Northline Avenue, Greensboro, NC 27408
(Address of principal executive offices, including zip code)
(336) 292-3010
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
1
TANGER PROPERTIES LIMITED PARTNERSHIP
CURRENT REPORT
ON
FORM 8-K
Item 5. Other Events
Tanger Properties Limited Partnership, (the "Operating Partnership"),
has formed a joint venture, COROC Holdings, L.L.C. ("COROC") with an
affiliate of Blackstone Real Estate Advisors ("Blackstone") to acquire
a portfolio of nine factory outlet centers with approximately 3.3
million square feet managed and leased by Charter Oak Partners (the
"Charter Oak Properties") and owned by the Public Employees Retirement
System of Ohio for which Rothschild Realty, Inc. is the investment
advisor. Closing on the transaction is expected to take place in
December 2003.
The Charter Oak Properties are being acquired by COROC for a purchase
price of $491.0 million, including the assumption of $187.1 million of
debt. We will be required to fund one-third of the net acquisition
costs plus closing costs and certain other escrows and reserves,
collectively estimated to be $107.9 million. Blackstone will be
required to contribute the remaining $215.8 million. We expect to
issue 2.3 million common shares with net proceeds of approximately
$91.8 million and borrow an additional $16.1 million under our
existing lines of credit to fund our investment. There can be no
assurance that closing on the transaction will actually occur or that
we will be able to issue the common shares to fund our transaction.
The Operating Partnership's management has considered the existing
tenant base, which is the primary revenue source, occupancy rate, the
competitive nature of the market and comparative rental rates.
Furthermore, current and anticipated maintenance and repair costs,
real estate taxes and capital improvement requirements were evaluated.
Management is not aware of any material factors that would cause the
reported financial information in the accompanying Statement of
Revenues and Certain Operating Expenses to be misleading or not
necessarily indicative of the Charter Oak Properties' future operating
results.
2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The financial statements, unaudited pro forma financial information
and exhibits filed herewith are as set forth below
(a) Financial Statements Page
(1) The Charter Oak Properties of The Separate Account of the
Public Employees Retirement System of Ohio for which
Rothschild Realty, Inc. is the Investment Advisor
Independent Auditors' Report 4
Statements of Revenues and Certain Operating Expenses
for the Year Ended December 31, 2002 and nine months
ended September 30, 2003 (unaudited) 5
Notes to Statements of Revenues and Certain Operating Expenses 6
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Consolidating Statements of Operations
for the nine months ended September 30, 2003 and 11
for the year ended December 31, 2002 12
(2) Unaudited Pro Forma Consolidating Balance Sheets
as of September 30, 2003 13
(3) Notes to Unaudited Pro Forma Consolidating
Financial Statements 14
(4) Unaudited Pro Forma Funds from Operations 15
(c) Exhibits
2.1 Purchase and Sale Agreement between COROC Holdings,
L.L.C. and various entities dated October 3, 2003 *
10.1 COROC Holdings L.L.C. Limited Liability Company Agreement
dated October 3, 2003 *
10.2 Form of Shopping Center Management Agreement between owners
of COROC Holdings, LLC and Tanger Properties Limited
Partnership *
23.1 Consent of Deloitte & Touche LLP.*
* Filed herewith
3
INDEPENDENT AUDITORS' REPORT
To the Partners of
Tanger Properties Limited Partnership:
We have audited the accompanying combined statement of revenues and certain
operating expenses of The Charter Oak Properties of The Separate Account of the
Public Employees Retirement System of Ohio for which Rothschild Realty, Inc. is
the Investment Advisor (collectively the "Charter Oak Properties") for the year
ended December 31, 2002. This financial statement is the responsibility of the
Investment Advisor. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statement of
revenues and certain operating expenses is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. An audit also includes assessing the
accounting principles used and the significant estimates made by management, as
well as evaluating the overall presentation of the financial statement. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain operating expenses
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the current report on Form
8-K of Tanger Factory Outlet Centers, Inc.) as described in Note 1 to the
financial statement and is not intended to be a complete presentation of the
Charter Oak Properties' revenues and expenses.
In our opinion, such combined financial statement presents fairly, in all
material respects, the revenues and certain operating expenses of the Charter
Oak Properties for the year ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
McLean, Virginia
December 5, 2003
4
The Charter Oak Properties of The Separate Account of the Public Employees
Retirement System of Ohio for which Rothschild Realty,
Inc. is the Investment Advisor
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(In thousands)
Nine Months Year
Ended Ended
September 30, December 31,
2003 2002
(unaudited)
Revenues
Base rentals $37,203 $49,718
Percentage rentals 1,085 1,838
Expense reimbursements 13,551 18,709
Other income 187 514
- -------------------------------------------------------- ----------------- ----------------
Total revenues 52,026 70,779
- -------------------------------------------------------- ----------------- ----------------
Certain operating expenses
Property operating 13,611 18,727
General and administrative 487 822
- -------------------------------------------------------- ----------------- ----------------
Total certain operating expenses 14,098 19,549
- -------------------------------------------------------- ----------------- ----------------
Revenues in excess of certain operating expenses $37,928 $51,230
- -------------------------------------------------------- ----------------- ----------------
The accompanying notes are an integral part of these financial statements.
5
NOTES TO COMBINED STATEMENTS OF REVENUES AND
CERTAIN OPERATING EXPENSES
(In thousands)
1. Organization and basis of presentation
The Combined Statement of Revenues and Certain Operating Expenses
relates to the operations of The Charter Oak Properties of the Separate
Account of The Public Employees Retirement System of Ohio for which
Rothschild Realty, Inc. is the Investment Advisor (collectively, the
"Charter Oak Properties"), a portfolio of nine factory outlet centers
located across the United States with approximately 3.3 million square
feet. The Charter Oak Properties are managed and leased by Charter Oak
Partners and are under common ownership. The Charter Oak Properties are
being acquired by COROC Holdings, Inc. ("COROC"), a joint venture
formed by Tanger Properties Limited Partnership (the "Operating
Partnership"), whose majority ownership is held by Tanger Factory
Outlet Centers, Inc. (the "Company"), and an affiliate of Blackstone
Real Estate Advisors.
The accompanying Combined Statement of Revenues and Certain Operating
Expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission Regulation S-X,
Rule 3-14. This statement is not representative of the actual
operations for the period presented, as certain expenses, which may not
be comparable to the expenses expected to be incurred by COROC in the
future operation of the Charter Oak Properties, have been excluded as
discussed below.
Certain Operating Expenses include advertising and promotional
expenses, common area maintenance, real estate taxes, and certain other
operating expenses related to the operations of the Charter Oak
Properties. In accordance with the regulations of the Securities and
Exchange Commission, mortgage interest, depreciation and amortization
and certain other costs have been excluded from certain operating
expenses, as they are dependent upon a particular owner, purchase price
or other financial arrangement. Certain other costs excluded include
(in thousands):
Nine Months Ended Year Ended
September 30, 2003 December 31,
(unaudited) 2002
- --------------------------------- ------------------------- -----------------
Management fees $2,043 $2,606
Legal expenses --- 1,312
- --------------------------------- ------------------------- -----------------
$2,043 $3,918
================================= ========================= =================
6
2. Leases
The Charter Oak Properties are leased to tenants under operating leases
with expiration dates extending to the year 2014. Future minimum
rentals (assuming lease renewal options, where applicable, are not
exercised) under noncancellable operating leases, exclusive of
additional rents from reimbursement of operating expenses are
approximately as follows (in thousands):
Year Ending December 31,
2003 $44,393
2004 37,135
2005 26,241
2006 15,331
2007 7,100
Thereafter 7,319
-------------------
-------------------
$137,519
===================
3. Revenue recognition
Base rentals are recognized on a straight-line basis over the lease
term. Certain lease agreements contain provisions for rents which are
calculated on a percentage of sales and recorded on an accrual basis.
These rents are accrued monthly once the required thresholds per the
lease agreement are exceeded. Virtually all lease agreements contain
provisions for additional rents representing reimbursements of real
estate taxes, insurance, advertising and common area maintenance costs.
Expense reimbursements are recognized in the period the applicable
expenses are incurred.
4. Use of estimates
The preparation of the Combined Statement of Revenues and Certain
Operating Expenses in conformity with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of revenues
and expenses during the period reported. Actual results may differ from
those estimates.
7
5. Risks and Uncertainties
The Charter Oak Properties' results of operations are significantly
dependent on the overall health of the retail industry. The Charter Oak
Properties' tenants are comprised almost exclusively of merchants in
the retail industry. The retail industry is subject to external factors
such as inflation, consumer confidence, unemployment rates and consumer
tastes and preferences. A decline in the retail industry could reduce
merchant sales, which could adversely affect the operating results of
the Charter Oak Properties. A number of merchants occupy space in the
Charter Oak Properties; however, no single merchant accounts for more
than 10% of the Charter Oak Properties' base rents and no one tenant
occupies more than 10% of the Charter Oak Properties' total gross
leasable area for either the year ended December 31, 2002 and the nine
months ended September 30, 2003 (unaudited).
6. Commitments and Contingencies
The Charter Oak Properties are not presently involved in any material
litigation nor, to management's knowledge, is any material litigation
threatened against the Charter Oak Properties, other than routine legal
matters arising in the ordinary course of business. Management believes
the costs, if any, incurred by the Charter Oak Properties related to
this litigation will not materially affect the operating results of the
Charter Oak Properties.
7. Interim Unaudited Financial Information
The financial statement for the nine months ended September 30, 2003 is
unaudited, however, in the opinion of management, all adjustments
(consisting solely of normal, recurring adjustments) necessary for the
fair presentation of the financial statement for the interim period
have been included. The results of the interim period are not
necessarily indicative of the results to be obtained for a full fiscal
year.
8
TANGER PROPERTIES LIMITED PARTNERSHIP
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
The accompanying unaudited Pro Forma Consolidating Financial Statements have
been derived from the historical statements of the Operating Partnership and
give effect to the proposed acquisition of the Charter Oak Properties, which is
expected to close in December 2003. The unaudited Pro Forma Consolidating
Statements of Operations for the nine months ended September 30, 2003 and the
year ended December 31, 2002 assume the acquisition had occurred as of January
1, 2002. The unaudited Pro forma Consolidating Balance Sheet assumes the
acquisition had occurred on September 30, 2003.
The Charter Oak Properties are being acquired by COROC for a purchase price of
$491.0 million, including the assumption of $187.1 million of debt. We will be
required to fund one-third of the net acquisition costs plus closing costs and
certain other escrows and reserves, collectively estimated to be $107.9 million.
Blackstone will be required to contribute the remaining $215.8 million. The Pro
Forma Consolidating Financial Statements reflect our assumption that the Company
will issue 2.3 million common shares with net proceeds of approximately $91.8
million and borrow an additional $16.1 million under our existing lines of
credit to fund our investment. There can be no assurance that closing on the
transaction will actually occur or that we will be able to issue the common
shares to fund our transaction.
The accompanying unaudited Pro Forma Consolidating Financial Statements reflect
a preliminary allocation of the purchase price under Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("FAS 141"). This
allocation is subject to final adjustment following the acquisition. Included in
the allocation is $76.8 million allocated to lease related intangible assets.
The ultimate allocation and estimated useful lives could change upon final
valuation of these lease related intangibles. The Operating Partnership expects
to finalize the valuation following the consummation of the transaction. Changes
in the allocation of the purchase price and/or estimated useful lives from those
used in the Pro Forma Consolidating Financial Statements would result in an
increase or decrease in pro forma net income and related pro forma earnings per
share. Further, the Pro Forma Consolidating Financial Statements reflect the
consolidation of the Charter Oak Properties as if it is a Variable Interest
Entity and we are the Primary Beneficiary under FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). Currently, there are
proposed amendments to FIN 46 that may ultimately lead us to conclude that we
should account for our investment in COROC under the equity method of accounting
in accordance with Accounting Principles Board Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock".
Certain amounts in the historical financial statements of the Operating
Partnership for the year ended December 31, 2002 have been reclassified to
reflect the requirements of Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS 144").
FAS 144 requires that results of operations and gains and losses from the sale
of properties to be reclassified as discontinued operations for all periods
presented.
9
The Operating Partnership's management has prepared the unaudited Pro Forma
Consolidating Financial Statements. These pro forma statements may not be
indicative of the results that would have actually occurred if the acquisition
had been in effect on the dates indicated, nor do they purport to represent the
results of operations for future periods. The unaudited Pro Forma Consolidating
Financial Statements should be read in conjunction with the unaudited Combined
Statement of Revenues and Certain Operating Expenses of the Charter Oak
Properties for the nine months ended September 30, 2003 (contained herein), the
audited Combined Statement of Revenues and Certain Operating Expenses of the
Charter Oak Properties for the year ended December 31, 2002 (contained herein),
the Operating Partnership's unaudited financial statements and notes thereto as
of September 30, 2003 and for the nine months then ended (which are contained in
the Operating Partnership's Form 10-Q for the period ended September 30, 2003),
and the Operating Partnership's audited financial statements and notes thereto
as of December 31, 2002 and for the year then ended (which are contained in the
Operating Partnership's Annual Report on Form 10-K for the year ended December
31, 2002).
10
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2003
(Unaudited)
(In thousands, except per unit data)
Operating Charter Pro forma Pro forma
Partnership Oak Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------
(a) (b)
REVENUES
Base rentals $ 59,498 $ 37,203 $ (998)(c) $ 95,703
Percentage rentals 1,743 1,085 2,828
Expense reimbursements 25,305 13,551 38,856
Other income 2,547 187 2,734
- ---------------------------------------------------------------------------------------------------------------
Total revenues 89,093 52,026 (998) 140,121
- ---------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 30,135 13,611 43,746
General and administrative 7,375 487 874 (d) 8,736
Interest 19,707 - 7,482 (e) 27,189
Depreciation and amortization 21,463 - 16,746 (f) 38,209
- ---------------------------------------------------------------------------------------------------------------
Total expenses 78,680 14,098 25,102 117,880
- ---------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint
ventures, minority interest and discontinued operations 10,413 37,928 (26,100) 22,241
Equity in earnings of unconsolidated joint ventures 639 639
Minority interest - (19,424)(g) (19,424)
- ---------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 11,052 $ 37,928 $ (45,524) $ 3,456
- ---------------------------------------------------------------------------------------------------------------
Basic earnings per unit:
Income from continuing operations $ .80 $ .17
Weighted average units 13,437 2,300 (h) 15,737
- ---------------------------------------------------------------------------------------------------------------
Diluted earnings per unit:
Income from continuing operations $ .79 $ .17
Weighted average units 13,615 2,300 (h) 15,915
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
11
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2002
(Unaudited)
(In thousands, except per unit data)
Operating Charter Pro forma Pro forma
Partnership Oak Adjustments Consolidated
- -----------------------------------------------------------------------------------------------------------------------
(i) (b)
REVENUES
Base rentals $ 75,560 $ 49,718 $ (1,330) (c) $ 123,948
Percentage rentals 3,558 1,838 5,396
Expense reimbursements 30,477 18,709 49,186
Other income 3,303 514 3,817
- -----------------------------------------------------------------------------------------------------------------------
Total revenues 112,898 70,779 (1,330) 182,347
- -----------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 35,898 18,727 54,625
General and administrative 9,227 822 1,165 (d) 11,214
Interest 28,460 - 10,228 (e) 38,688
Depreciation and amortization 28,551 - 22,328 (f) 50,879
- -----------------------------------------------------------------------------------------------------------------------
Total expenses 102,136 19,549 33,721 155,406
- -----------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint
ventures, minority interest and discontinued operations 10,762 51,230 (35,051) 26,941
Equity in earnings of unconsolidated joint ventures 392 392
Minority interest - (25,898)(g) (25,898)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 11,154 $ 51,230 $ (60,949) $ 1,435
- -----------------------------------------------------------------------------------------------------------------------
Basic earnings per unit:
Income from continuing operations $ .82 $ (.02)
Weighted average units 11,356 2,300 (h) 13,656
- -----------------------------------------------------------------------------------------------------------------------
Diluted earnings per unit:
Income from continuing operations $ .80 $ (.02)
Weighted average units 11,539 2,300 (h) 13,839
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
12
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
PRO FORMA CONSOLIDATING BALANCE SHEET
As of September 30, 2003
(Unaudited)
(In thousands )
Operating Charter Pro forma
Partnership Oak Consolidated
- -------------------------------------------------------------------------------------------------------------------
ASSETS (a)
Rental Property
Land $ 50,474 $ 70,100 (j) $ 120,574
Buildings, improvements and fixtures 583,269 367,792 (j) 951,061
- -------------------------------------------------------------------------------------------------------------------
633,743 437,892 1,071,635
Accumulated depreciation (191,628) (191,628)
- -------------------------------------------------------------------------------------------------------------------
Rental property, net 442,115 437,892 880,007
Cash and cash equivalents 200 200
Deferred charges, net 9,398 76,817 (j) 86,215
Other assets 13,510 8,636 (k) 22,146
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 465,223 $ 523,345 $ 988,568
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Debt
Senior, unsecured notes $ 147,509 $ 147,509
Mortgages payable 172,552 199,617 (l) 372,169
Lines of credit 7,272 16,093 (m) 23,365
- -------------------------------------------------------------------------------------------------------------------
327,333 215,710 543,043
Construction trade payables 7,188 7,188
Accounts payable and accrued expenses 13,784 13,784
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 348,305 215,710 564,015
- -------------------------------------------------------------------------------------------------------------------
Commitments
Minority interests - 215,819 (n) 215,819
Partners' equity
General partner 974 974
Limited partner 116,062 91,816 (h) 207,878
Accumulated other comprehensive loss (118) (118)
- -------------------------------------------------------------------------------------------------------------------
Total partners' equity 116,918 91,816 208,734
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and partners' equity $ 465,223 $ 523,345 $ 988,568
- -------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
13
Notes to Pro Forma Consolidating Financial Statements
a) As reported in the unaudited financial statements of Tanger Properties
Limited Partnership as of or for the nine months ended September 30,
2003.
b) Derived from the Combined Statements of Revenues and Certain Operating
Expenses of the Charter Oak Properties (contained herein).
c) To reflect amortization of the portion of the purchase price assigned
to above and below market leases in accordance with FAS 141.
d) To reflect estimated incremental personnel and overhead costs to be
incurred as a result of the acquisition. e) To reflect interest expense
from (1) the assumption of debt with a face value of $187.1 million
($199.6 million fair value,
4.97% imputed interest rate) and (2) additional borrowings under
existing lines of credit of $16.1 million at LIBOR plus 160 basis
points (assumed to be 2.7%). A 1% increase or decrease in the LIBOR
rate would equal $161,000.
f) To reflect depreciation and amortization based on an acquisition price
of $491.0 million (including debt assumption of $187.1 million and cash
paid to seller of $303.9), plus closing costs of $11.2 million and a
market value debt premium of $12.5 million. Estimated lives used are 35
years for buildings, 4 to 24 years for site improvements, 10 years for
lease in-place value, and remaining leases terms for tenant
improvements and other lease related intangibles.
g) To reflect minority interest in net income.
h) To reflect the planned issuance of 2.3 million common shares in
December 2003 by Tanger Factory Outlet Centers, Inc. with net proceeds
of $91.8 million as part of the funding of the acquisition of the
Charter Oak properties.
i) Derived from the audited financial statements of Tanger Properties
Limited Partnership for the year ended December 31, 2002, as
reclassified from that previously reported to reflect the requirements
of FAS 144.
j) To reflect total acquisition costs of $514.7 million, including
purchase price of $491.0 million (including debt assumption of $187.1
million and cash paid to seller of $303.9 million) plus estimated
closing costs of $11.2 million and market value of debt premium of
$12.5 million. In accordance with FAS 141, a portion of the acquisition
costs have been allocated to deferred charges to reflect the fair value
of in-place leases and other related intangibles.
k) To reflect initial escrows for insurance and real estate taxes and
other working capital reserves expected to be funded at the closing of
the acquisition.
l) To reflect the assumption of debt with a face value of $187.1 million
and fair value of $199.6 million. m) Represents additional borrowings
under existing lines of credit to be used along with the proceeds from
the expected common
share offering to fund the acquisition.
n) To reflect the minority interest in the consolidated joint venture
which will own the Charter Oak Properties.
14
FUNDS FROM OPERATIONS
Funds from operations, or "FFO," represents net income before extraordinary
items and gains (losses) on sale or disposal of depreciable operating
properties, plus depreciation and amortization uniquely significant to real
estate and after adjustments for unconsolidated partnerships and joint ventures.
FFO is intended to exclude GAAP historical cost depreciation of real estate,
which assumes that the value of real estate assets diminish ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique to real
estate, 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 and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of real estate
investment trusts, or "REITs", many of which present FFO when reporting their
results. FFO is widely used by us and others in our industry to evaluate and
price potential acquisition candidates. The National Association of Real Estate
Investment Trusts, Inc., of which we are a member, has encouraged its member
companies to report their FFO as a supplemental, industry-wide standard measure
of REIT operating performance. In addition, our employment agreements with
certain members of management base bonus compensation on our FFO 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:
o FFO does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
o FFO does not reflect changes in, or cash requirements for, our working
capital needs;
o 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;
o FFO may reflect the impact of earnings or charges resulting from matters
which may not to be indicative of our ongoing operations; and
o 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 supplementally.
15
The following tables represent a reconciliation of the unaudited pro forma FFO
to unaudited pro forma net income for the nine months ended September 30, 2003
and the year ended December 31, 2002 after giving effect to the acquisition of
the Charter Oak Properties (in thousands, except per share data):
Operating Charter Pro forma Pro forma
Reconciliation of Funds from Operations to Net Income: Partnership Oak Adjustments Consolidated
- ----------------------------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 2003
Funds from Operations:
Income from continuing operations $ 11,052 $ 37,928 $ (45,524) $ 3,456
Discontinued operations (815) (815)
Depreciation and amortization
attributable to discontinued operations 89 89
Depreciation and amortization uniquely significant to real estate
- consolidated 21,252 16,746 37,998
Depreciation and amortization uniquely significant to real estate
- unconsolidated joint ventures 808 808
Loss/(gain) on sale of real estate 735 735
- ----------------------------------------------------------------------------------------------------------------------------
Funds from operations $ 33,121 $37,928 $ (28,778) $ 42,271
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average units 13,410 2,300 15,710
- ----------------------------------------------------------------------------------------------------------------------------
Funds from operations per unit - diluted $ 2.47 $ 2.69
- ----------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2002
Funds from Operations:
Income from continuing operations $ 11,154 $ 51,230 $ (60,949) $ 1,435
Discontinued operations 3,126 3,126
Depreciation and amortization
attributable to discontinued operations 438 438
Depreciation and amortization uniquely significant to real estate
- consolidated 28,257 22,328 50,585
Depreciation and amortization uniquely significant to real estate
- unconsolidated joint ventures 422 422
Loss/(gain) on sale of real estate (1,702) (1,702)
- ----------------------------------------------------------------------------------------------------------------------------
Funds from operations $ 41,695 $51,230 $ (38,621) $ 54,304
- ----------------------------------------------------------------------------------------------------------------------------
Weighted average units 12,262 2,300 14,562
- ----------------------------------------------------------------------------------------------------------------------------
Funds from operations per unit - diluted $ 3.40 $ 3.73
- ----------------------------------------------------------------------------------------------------------------------------
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused the report to be signed its behalf by the
undersigned thereunto duly authorized.
TANGER PROPERTIES LIMITED PARTNERSHIP
By: Tanger GP Trust, its general partner
By: /s/ Frank C. Marchisello, Jr.
Frank C. Marchisello, Jr.
Treasurer and Assistant Secretary
Date: December 8, 2003