United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-11986
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its charter)
North Carolina 56-1815473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 Northline Avenue
Suite 360
Greensboro, NC 27408 (336) 292-3010
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common Shares, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934).
Yes X No
- -
The aggregate market value of voting shares held by non-affiliates of the
Registrant was approximately $568,705,090 based on the closing price on the New
York Stock Exchange for such stock on February 18, 2005.
The number of Common Shares of the Registrant outstanding as of February 1, 2005
was 27,443,016.
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 13, 2005.
1
PART I
Item 1. Business
The Company
Tanger Factory Outlet Centers, Inc. and subsidiaries, a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
focuses exclusively on developing, acquiring, owning, operating and managing
factory outlet shopping centers. Since entering the factory outlet center
business 24 years ago, we have become one of the largest owners and operators of
factory outlet centers in the United States. As of December 31, 2004, we owned
interests in 33 centers, with a total gross leasable area, or ("GLA"), of
approximately 8.7 million square feet, which were 97% occupied. In addition as
of December 31, 2004, we managed for a fee three centers, with a total GLA of
approximately 105,000 square feet, bringing the total number of centers we
operated to 36 with a total GLA of approximately 8.8 million square feet
containing over 1,900 stores and representing over 400 store brands.
Our factory outlet centers and other assets are held by, and all of our
operations are conducted by, Tanger Properties Limited Partnership and
subsidiaries. Accordingly, the descriptions of our business, employees and
properties are also descriptions of the business, employees and properties of
the Operating Partnership. 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.
We own the majority of the units of partnership interest issued by the Operating
Partnership (the "Units") through our two wholly-owned subsidiaries, the Tanger
GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating
Partnership as its sole general partner. The Tanger LP Trust holds a limited
partnership interest. The Tanger family, through its ownership of the Tanger
Family Limited Partnership ("TFLP"), holds the remaining Units as a limited
partner. Stanley K. Tanger, our Chairman of the Board and Chief Executive
Officer, is the sole general partner of TFLP.
As of December 31, 2004, our wholly-owned subsidiaries owned 13,721,508 Units
and TFLP owned the remaining 3,033,305 Units. TFLP's Units are exchangeable,
subject to certain limitations to preserve our status as a REIT, on a
two-for-one basis for our common shares. See "Business-The Operating
Partnership". As of February 18, 2005, our management beneficially owns
approximately 20% of all outstanding common shares (assuming TFLP's Units are
exchanged for common shares but without giving effect to the exercise of any
outstanding share and partnership Unit options).
Ownership of our common shares is restricted to preserve our status as a REIT
for federal income tax purposes. Subject to certain exceptions, a person may not
actually or constructively own more than 4% of our common shares. We also
operate in a manner intended to enable us to preserve our status as a REIT,
including, among other things, making distributions with respect to our
outstanding common shares equal to at least 90% of our taxable income each year.
We are a North Carolina corporation that was formed in March 1993. The executive
offices are currently located at 3200 Northline Avenue, Suite 360, Greensboro,
North Carolina, 27408 and the telephone number is (336) 292-3010. Our website
can be accessed at www.tangeroutlet.com. A copy of our 10-K's, 10-Q's, and 8-K's
can be obtained, free of charge, on our website.
2
Recent Developments
Our Board of Directors declared a 2 for 1 split of the Company's common shares
on November 29, 2004, effected in the form of a share dividend, payable on
December 28, 2004. All references to the number of shares outstanding, per share
amounts and share option data of our common shares have been restated to reflect
the effect of the split for all periods presented.
The most significant event of 2004 was the integration of the Charter Oak
Partners' portfolio of nine factory outlet centers totaling approximately 3.3
million square feet which was acquired in December 2003. We and an affiliate of
Blackstone Real Estate Advisors ("Blackstone") acquired the portfolio through a
joint venture in the form of a limited liability company, COROC Holdings, LLC
("COROC"). We own one-third and Blackstone owns two-thirds of the joint venture.
We provide operating, management, leasing and marketing services to the
properties for a fee.
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized over the life of the debt. We funded the majority of our equity in the
joint venture with proceeds from the issuance of 4.6 million common shares in
December 2003 at $20.25 per share. The successful equity financing allows us to
maintain a strong balance sheet and our current financial flexibility.
Our 50% ownership, unconsolidated joint venture, TWMB Associates, LLC ("TWMB"),
completed a 78,000 square foot expansion at its center located in Myrtle Beach,
South Carolina. Stores located in the expansion include Banana Republic, GAP,
Calvin Klein, Anne Taylor, Puma, Guess and Jones, NY and others.
We also were successful in divesting of three non-core assets, including our two
small properties, located in North Conway, New Hampshire and a property in
Dalton, Georgia. We also sold five land parcels located throughout four outlet
centers during the year. Net proceeds from these transactions totaled $20.4
million.
We continue our pre-development and leasing of four previously announced sites
located in Pittsburgh, Pennsylvania; Deer Park, New York; Charleston, South
Carolina; and Wisconsin Dells, Wisconsin, with expected deliveries during 2006
and 2007.
At December 31, 2004, we had ownership interests in or management
responsibilities for 36 centers in 23 states totaling 8.8 million square feet of
operating GLA compared to 40 centers in 23 states totaling 9.3 million square
feet of operating GLA as of December 31, 2003. The decrease is due to the
following events:
No.of GLA
Centers (000's) States
- ------------------------------------------------------------- --------- --------
As of December 31, 2003 40 9,330 23
- ------------------------------------------------------------- --------- --------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 78 ---
Dispositions:
North Conway, New Hampshire (wholly-owned) (2) (62) ---
Dalton, Georgia (wholly-owned) (1) (173) ---
Vero Beach, Florida (managed) (1) (329) ---
- ------------------------------------------------------------- ---------- -------
As of December 31, 2004 36 8,844 23
- ------------------------------------------------------------- ---------- -------
3
During 2004, we continued to utilize multiple sources of capital. We completed
the following liquidity transactions during the year:
o In December 2003, we completed a public offering of 4.6 million common
shares at a price of $20.25 per share, receiving net proceeds of
approximately $88.0 million. The net proceeds were used together with other
available funds to fund our portion of the equity required to acquire the
Charter Oak portfolio of outlet shopping centers as mentioned above and for
general corporate purposes. In addition in January 2004, the underwriters
of the December 2003 offering exercised in full their over-allotment option
to purchase an additional 690,000 common shares at the offering price of
$20.25 per share. We received net proceeds of approximately $13.2 million
from the exercise of the over-allotment.
o In September 2004, we obtained the release of two properties which had been
securing $53.5 million in mortgage loans with Wells Fargo Bank, thus
creating an unsecured note with Wells Fargo Bank for the same face amount.
o Also in September 2004, we obtained the release of the Dalton, Georgia
property mentioned above which served as collateral in a
cross-collateralized mortgage with John Hancock Life Insurance Company
("John Hancock") along with several other properties. Upon its disposition,
the Dalton property was released as collateral and replaced with a $6.4
million standby letter of credit issued by Bank of America. The letter of
credit includes an issuance fee of 1.25% annually. The required amount of
the letter of credit decreases ratably over the remaining term of the John
Hancock mortgage which matures in April 2009. Throughout the term of the
letter of credit, its required amount serves as a reduction in the amount
available under our unsecured $50 million line of credit with Bank of
America.
o In October 2004, we retired $47.5 million, 7.875% unsecured notes which
matured on October 24, 2004 with proceeds from our property and land parcel
sales and amounts available under our unsecured lines of credit.
o During 2004, we obtained an additional $25 million unsecured line of credit
from Citicorp North America, Inc., a subsidiary of Citigroup; bringing the
total committed unsecured lines of credit to $125 million. In addition, we
completed the extension of the maturity dates on all of our lines of credit
with Bank of America, Wachovia Corporation, Wells Fargo Bank and Citigroup
until June of 2007.
The Factory Outlet Concept
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products by eliminating the third party retailer.
Factory outlet centers also typically have lower operating costs than other
retailing formats, which enhance the manufacturer's profit potential. Factory
outlet centers enable manufacturers to optimize the size of production runs
while continuing to maintain control of their distribution channels. In
addition, factory outlet centers benefit manufacturers by permitting them to
sell out-of-season, overstocked or discontinued merchandise without alienating
department stores or hampering the manufacturer's brand name, as is often the
case when merchandise is distributed via discount chains.
We believe that factory outlet centers continue to present attractive
opportunities for capital investment, particularly with respect to strategic
re-merchandising plans and expansions of existing centers. We believe that under
present conditions such development or expansion costs, coupled with current
market lease rates, permit attractive investment returns. We further believe,
based upon our contacts with present and prospective tenants, that many
companies, including prospective new entrants into the factory outlet business,
desire to open a number of new factory outlet stores in the next several years,
particularly in markets where there are successful factory outlet centers in
which such companies do not have a significant presence or where there are few
factory outlet centers.
4
Our Factory Outlet Centers
Each of our factory outlet centers carries the Tanger brand name. We believe
that national manufacturers and consumers recognize the Tanger brand as one that
provides factory outlet shopping centers where consumers can trust the brand,
quality and price of the merchandise they purchase directly from the
manufacturers.
As one of the original participants in this industry, we have developed
long-standing relationships with many national and regional manufacturers.
Because of our established relationships with many manufacturers, we believe we
are well positioned to capitalize on industry growth.
Our factory outlet centers range in size from 24,619 to 729,238 square feet of
GLA and are typically located at least 10 miles from major department stores and
manufacturer-owned, full-price retail stores. Manufacturers prefer these
locations so that they do not compete directly with their major customers and
their own stores. Many of our factory outlet centers are located near tourist
destinations to attract tourists who consider shopping to be a recreational
activity. Our centers are typically situated in close proximity to interstate
highways that provide accessibility and visibility to potential customers.
As of February 1, 2005, we had a diverse tenant base comprised of over 400
different well-known, upscale, national designer or brand name concepts, such as
Liz Claiborne, GAP, Polo Ralph Lauren, Reebok, Tommy Hilfiger, Nautica, Coach
Leatherware and Brooks Brothers. Most of the factory outlet stores are directly
operated by the respective manufacturer.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 2004, 2003 and 2002. As of February
1, 2005, our largest tenant, including all of its store concepts, accounted for
approximately 6.7% of our GLA. Because our typical tenant is a large, national
manufacturer, we have not experienced any significant problems with respect to
rent collections or lease defaults.
Revenues from fixed rents and operating expense reimbursements accounted for
approximately 89% of our total revenues in 2004. Revenues from contingent
sources, such as percentage rents, vending income and miscellaneous income,
accounted for approximately 11% of 2004 revenues. As a result, only small
portions of our revenues are dependent on contingent revenue sources.
Business History
Stanley K. Tanger, the Company's founder, Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. Prior to founding our
company, Stanley K. Tanger and his son, Steven B. Tanger, our President and
Chief Operating Officer, built and managed a successful family owned apparel
manufacturing business, Tanger/Creighton Inc. ("Tanger/Creighton"), which
business included the operation of five factory outlet stores. Based on their
knowledge of the apparel and retail industries, as well as their experience
operating Tanger/Creighton's factory outlet stores, they recognized that there
would be a demand for factory outlet centers where a number of manufacturers
could operate in a single location and attract a large number of shoppers.
In 1981, Stanley K. Tanger began developing successful factory outlet centers.
Steven B. Tanger joined the company in 1986 and by June 1993, the Tangers had
developed 17 centers with a total GLA of approximately 1.5 million square feet.
In June 1993, we completed our initial public offering, making Tanger Factory
Outlet Centers, Inc. the first publicly traded outlet center company. Since our
initial public offering, we have grown our portfolio through strategic
development and acquisitions.
Since entering the factory outlet business 24 years ago, we have become one of
the largest owner operators of factory outlet centers in the country. As of
December 31, 2004, we owned interests in 33 shopping centers, with a total GLA
of approximately 8.7 million square feet, which were 97% occupied. In addition
as of December 31, 2004, we managed for a fee three shopping centers, with a
total GLA of approximately 105,000 square feet, bringing the total number of
centers we operated to 36 with a total GLA of approximately 8.8 million square
feet containing over 1,900 stores and representing over 400 store brands.
5
Business, Growth and Operating Strategy
BUSINESS STRATEGY
We maintain strong tenant relationships with high volume manufacturers and
retailers that have a selective presence in the outlet industry, such as GAP,
Tommy Hilfiger, Polo Ralph Lauren, Nautica, Coach Leatherware, Brooks Brothers
and Nike. These relationships help solidify our position in the manufacturer
outlet business.
As of December 31, 2004, our portfolio of properties was 97% occupied with
average tenant sales of $310 per square foot. Our properties have had an
occupancy rate on December 31st of 95% or greater for the last 24 years. The
ability to achieve such a goal is a testament to the relationships and quality
of our centers.
We are a very experienced company within the outlet industry with over 24 years
of experience in the sector and over 10 years as a public company. We have a
seasoned team of real estate professionals averaging over 21 years in the outlet
industry. We believe our competitive advantage in the manufacturers' outlet
business is a result of our experience in the business, long-standing
relationships with tenants and expertise in the development and operation of
manufacturers' outlet centers.
GROWTH STRATEGY
We seek growth through increasing rents in our existing centers; developing new
centers and expanding existing centers; and acquiring centers.
Increasing Rents at Existing Centers
Our leasing strategy includes aggressively marketing available space and
maintaining a high level of occupancy; providing for inflation-based contractual
rent increases or periodic fixed contractual rent increases in substantially all
leases; renewing leases at higher base rents per square-foot; re-tenanting space
occupied by under performing tenants and continuing to sign leases that provide
for percentage rents.
Developing New Centers and Expanding Existing Centers
We believe that there continues to be significant opportunities to develop
manufacturers' outlet centers across the United States of America. We intend to
undertake such development selectively, and believe that we will have a
competitive advantage in doing so as a result of our development expertise,
tenant relationships and access to capital. We expect that the development of
new centers and the expansion of existing centers will continue to be a
substantial part of our growth strategy. We believe that our development
experience and strong tenant relationships enable us to determine site viability
on a timely and cost-effective basis. However, there can be no assurance that
any development or expansion projects will be commenced or completed as
scheduled.
We typically seek opportunities to develop or acquire new centers in locations
that have at least 1 million people residing within an hour's drive, an average
household income within a 30-mile radius of at least $50,000 per year and access
to frontage on a major or interstate highway with a traffic count of at least
45,000 cars per day. We also seek to enhance our customer base by developing
centers near or at established tourist destinations with at least 5 million
annual visitors. Our current goal is to target sites that are large enough to
support centers with approximately 75 stores totaling at least 300,000 square
feet of GLA.
We generally pre-lease at least 50% of the space in each center prior to
acquiring the site and beginning construction. Construction of a new factory
outlet center has normally taken us nine to twelve months from groundbreaking to
the opening of the first tenant store. Construction of expansions to existing
properties typically takes less time, usually between six to nine months.
Acquiring Centers
We may selectively acquire individual properties or portfolios of properties
that meet our strategic investment criteria as suitable opportunities arise. We
believe that our extensive experience in the outlet center business, access to
capital markets, familiarity with real estate markets and management experience
will allow us to evaluate and execute our acquisition strategy successfully.
Furthermore, we believe that we will be able to enhance the operation of
acquired properties as a result of our strong tenant relationships as has been
the result in 2004 with the Charter Oak property portfolio. However, there can
be no assurance that any acquisitions will be consummated or, if consummated,
will result in a positive return on investment to us.
6
OPERATING STRATEGY
Our primary business objective is to enhance the value of our properties and
operations by increasing cash flow. We plan to achieve this objective through
continuing efforts to improve tenant sales and profitability, and to enhance the
opportunity for higher base and percentage rents.
Leasing
We pursue an active leasing strategy through long-standing relationships with a
broad range of tenants including manufacturers of men's, women's and children's
ready-to-wear, lifestyle apparel, footwear, accessories, tableware, housewares,
linens and domestic goods. Key tenants are placed in strategic locations to draw
customers into each center and to encourage shopping at more than one store. We
continually monitor tenant mix, store size, store location and sales
performance, and work with tenants to improve each center through re-sizing,
re-location and joint promotion.
Marketing
We develop branded property-specific marketing plans annually to deliver the
message of superior outlet brand name assortment, selection and savings. We
closely examine our plans each year to ensure we are hitting the right markets
and shoppers with the right message to drive traffic to our centers nationwide.
Our plans include strategic advertising, enticing promotions, incentives and
events to targeted audiences for meaningful and measurable results. Customer
satisfaction and retention are always a high priority. The majority of
consumer-marketing expenses incurred by the Company are reimbursable by tenants.
Capital Strategy
We achieve a strong and flexible financial position by: (1) managing our
leverage position relative to our portfolio when pursuing new development and
expansion opportunities, (2) extending and sequencing debt maturities, (3)
managing our interest rate risk through a proper mix of fixed and variable rate
debt, (4) maintaining our liquidity by having available lines of credit and (5)
preserving internally generated sources of capital by strategically divesting
our underperforming assets, maintaining a conservative distribution payout ratio
and reinvesting a significant portion of our cash flow into our portfolio.
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 our shareholders' best
interests. Prior to the 2002, 2003 and 2004 common share offerings, we had
established a shelf registration to allow us to issue up to $400 million in
either all debt or all equity or any combination thereof. In September 2002, we
completed a public offering of 2.0 million common shares at a price of $14.625
per share, receiving net proceeds of approximately $28.0 million. We used the
net proceeds, together with other available funds, to acquire one outlet center
in Howell, Michigan, to reduce the outstanding balance on our lines of credit
and for general corporate purposes. In December 2003, we completed a public
offering of 4.6 million common shares at a price of $20.25 per share, receiving
net proceeds of approximately $88.0 million. The net proceeds were used together
with other available funds to finance our portion of the equity required to
acquire the Charter Oak portfolio of outlet shopping centers and for general
corporate purposes. In addition in January 2004, the underwriters of the
December 2003 offering exercised in full their over-allotment option to purchase
an additional 690,000 common shares at the offering price of $20.25 per share.
We received net proceeds of approximately $13.2 million from the exercise of the
over-allotment. To generate capital to reinvest into other attractive investment
opportunities, we may also consider the use of additional operational and
developmental joint ventures, selling certain properties that do not meet our
long-term investment criteria as well as selling outparcels on existing
properties.
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $125 million at December 31, 2004, an increase of $25 million
in capacity from December 31, 2003. During 2004, we extended the maturity of all
lines of credit to June 30, 2007. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
our ability to sell debt or equity subject to market conditions, we believe that
we have access to the necessary financing to fund the planned capital
expenditures during 2005.
7
The Operating Partnership
Our centers and other assets are held by, and all of our operations are
conducted by, the Operating Partnership. As of December 31, 2004, our
wholly-owned subsidiaries owned 13,721,508 Units and TFLP owned the remaining
3,033,305 Units. The Operating Partnership and TFLP's Units are exchangeable,
subject to certain limitations to preserve our status as a REIT, on a
two-for-one basis for our common shares.
Competition
We carefully consider the degree of existing and planned competition in a
proposed area before deciding to develop, acquire or expand a new center. Our
centers compete for customers primarily with factory outlet centers built and
operated by different developers, traditional shopping malls and full- and
off-price retailers. However, we believe that the majority of our customers
visit factory outlet centers because they are intent on buying name-brand
products at discounted prices. Traditional full- and off-price retailers are
often unable to provide such a variety of name-brand products at attractive
prices.
Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own specialty stores, and, therefore, generally insist that
the outlet centers be located not less than 10 miles from the nearest major
department store or the tenants' own specialty stores. For this reason, our
centers compete only to a very limited extent with traditional malls in or near
metropolitan areas.
We compete favorably with two large national owners of factory outlet centers
and numerous small owners. During the last several years, the factory outlet
industry has been consolidating with smaller, less capitalized operators
struggling to compete with, or being acquired by, larger, national factory
outlet operators. Since 1997 the number of factory outlet centers in the United
States has decreased while the average size factory outlet center has increased.
During this period of consolidation, the high barriers to entry in the factory
outlet industry, including the need for extensive relationships with premier
brand name manufacturers, have minimized the number of new factory outlet
centers. This consolidation trend and the high barriers to entry, along with our
national presence, access to capital and extensive tenant relationships, have
allowed us to grow our business and improve our market position.
Corporate and Regional Headquarters
We rent space in an office building in Greensboro, North Carolina in which our
corporate headquarters are located. In addition, we rent a regional office in
New York City, New York under a lease agreement and sublease agreement,
respectively, to better service our principal fashion-related tenants, many of
whom are based in and around that area.
We maintain offices and employ on-site managers at 31 centers. The managers
closely monitor the operation, marketing and local relationships at each of
their centers.
Insurance
We believe that as a whole our properties are covered by adequate comprehensive
liability, fire, flood and extended loss insurance provided by reputable
companies with commercially reasonable and customary deductibles and limits.
Specified types and amounts of insurance are required to be carried by each
tenant under their lease agreement with us. There are however, types of losses,
like those resulting from wars or earthquakes, which may either be uninsurable
or not economically insurable in some or all of our locations. An uninsured loss
could result in a loss to us of both our capital investment and anticipated
profits from the affected property.
Employees
As of February 1, 2005, we had 188 full-time employees, located at our corporate
headquarters in North Carolina, our regional office in New York and our 31
business offices. At that date, we also employed 219 part-time employees at
various locations.
8
Item 2. Properties
As of February 1, 2005, our portfolio consisted of 36 centers totaling 8.8
million square feet of GLA located in 23 states. We owned interests in 33
centers with a total GLA of approximately 8.7 million square feet and managed
for a fee three centers with a total GLA of approximately 105,000 square feet.
Our centers range in size from 24,619 to 729,238 square feet of GLA. These
centers are typically strip shopping centers that enable customers to view all
of the shops from the parking lot, minimizing the time needed to shop. The
centers are generally located near tourist destinations or along major
interstate highways to provide visibility and accessibility to potential
customers.
We believe that the centers are well diversified geographically and by tenant
and that we are not dependent upon any single property or tenant. Our Riverhead,
New York and Rehoboth Beach, Delaware centers are the only properties that
represented more than 10% of our 2004 annual consolidated gross revenues
(Riverhead) or more than 10% of our consolidated total assests (Rehoboth Beach)
as of December 31, 2004. See "Business and Properties - Significant Properties".
We have an ongoing strategy of acquiring centers, developing new centers and
expanding existing centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of the cost of such programs and the sources of financing
thereof.
Certain of our centers serve as collateral for mortgage notes payable. Of the 33
centers that we have ownership interests in, we own the land underlying 28 and
have ground leases on five. The land on which the Pigeon Forge and Sevierville
centers are located are subject to long-term ground leases expiring in 2086 and
2046, respectively. The land parcel on which the original Riverhead Center is
located, approximately 47 acres, is also subject to a ground lease with an
initial term that was automatically renewed for an additional five years in
2004, with renewal at our option for up to six more additional terms of five
years each. Terms on the Riverhead Center ground lease are renewed automatically
unless we give notice otherwise. The land parcel on which the Riverhead Center
expansion is located, containing approximately 43 acres, is owned by us. The
land parcel on which the Myrtle Beach center is located, is also subject to a
ground lease with an initial term expiring in 2026, with renewal at TWMB's
option for up to seven additional terms of ten years each. The 2.7 acre land
parcel on which part of the Rehoboth Beach center is located, is also subject to
a ground lease with an initial term expiring in 2044, with renewal at our option
for additional terms of twenty years each.
The term of our typical tenant lease averages approximately five years.
Generally, leases provide for the payment of fixed monthly rent in advance.
There are often contractual base rent increases during the initial term of the
lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of real estate taxes, insurance, common area maintenance, advertising
and promotion expenses incurred by the applicable center. As a result,
substantially all operating expenses for the centers are borne by the tenants.
9
The table set forth below summarizes certain information with respect to our
existing centers, excluding centers we manage but in which we have no ownership
interests, as of February 1, 2005.
Location of Centers (as of February 1, 2005)
Number of GLA %
State Centers (sq. ft.) of GLA
- -------------------------- ------------- -------------- ---------------
South Carolina (1)(2) 3 1,222,474 14
Georgia 3 775,760 9
New York 1 729,238 8
Texas 2 619,976 7
Alabama (2) 2 615,126 7
Delaware (2) 1 568,873 7
Tennessee 2 513,732 6
Michigan 2 437,051 5
Utah (2) 1 300,602 3
Connecticut (2) 1 291,051 3
Missouri 1 277,883 3
Iowa 1 277,230 3
Oregon (2) 1 270,280 3
Illinois (2) 1 256,514 3
Pennsylvania 1 255,152 3
Louisiana 1 245,199 3
New Hampshire (2) 1 227,998 3
Florida 1 198,924 2
North Carolina 2 187,510 2
Indiana 1 141,051 2
Minnesota 1 134,480 2
California 1 108,950 1
Maine 2 84,313 1
- -------------------------- ------------- -------------- ---------------
Total 33 8,739,367 100
========================== ============= ============== ===============
(1) Includes one center in Myrtle Beach, SC of which we own a 50% interest
through a joint venture arrangement.
(2) Includes centers from the Charter Oak portfolio acquired on December 19,
2003 of which we own a one-third interest through a joint venture
arrangement.
10
The table set forth below summarizes certain information with respect to our
existing centers, excluding centers we manage but in which we have no ownership
interests, as of February 1, 2005. Except as noted, all properties are fee
owned.
GLA %
Location (sq. ft.) Occupied
- -------------------------------------------- ----------- ----- -----------
Riverhead, NY (1) 729,238 98
Rehoboth, DE (1) (3) 568,873 99
Foley, AL (3) 535,551 96
San Marcos, TX 442,486 99
Myrtle Beach 501, SC (3) 427,388 91
Sevierville, TN (1) 419,038 99
Myrtle Beach 17, SC (1) (2) 401,992 99
Hilton Head, SC (3) 393,094 90
Commerce II, GA 342,556 98
Howell, MI 324,631 98
Park City, UT (3) 300,602 94
Westbrook, CT (3) 291,051 91
Branson, MO 277,883 100
Williamsburg, IA 277,230 99
Lincoln City, OR (3) 270,280 95
Tuscola, IL (3) 256,514 78
Lancaster, PA 255,152 98
Locust Grove, GA 247,454 98
Gonzales, LA 245,199 98
Tilton, NH (3) 227,998 97
Fort Meyers, FL 198,924 93
Commerce I, GA 185,750 79
Terrell, TX 177,490 97
Seymour, IN 141,051 82
North Branch, MN 134,480 100
West Branch, MI 112,420 98
Barstow, CA 108,950 100
Blowing Rock, NC 105,332 100
Pigeon Forge, TN (1) 94,694 96
Nags Head, NC 82,178 100
Boaz, AL 79,575 95
Kittery I, ME 59,694 100
Kittery II, ME 24,619 100
- ------------------------------------------- ------------ ----- --------
8,739,367 96
=========================================== ============ ===== ========
(1) These properties or a portion thereof are subject to a ground lease.
(2) Represents property that is currently held through an unconsolidated joint
venture in which we own a 50% interest. The joint venture had $35.1 million
of construction loan debt as of December 31, 2004.
(3) Represents properties that are currently held through a consolidated joint
venture in which we own a one-third interest.
11
The table set forth below summarizes certain information related to GLA and debt
with respect to our existing centers in which we consolidate for financial
reporting purposes as of December 31, 2004.
Mortgage
Debt (000's)
as of
GLA December Interest Maturity
Location (sq. ft.) 31, 2004 Rate Date
-------------------------------------- ------------ ---------- -----------
Lancaster, PA 255,152 $13,807 9.770% 4/10/2005
Commerce I, GA 185,750 7,291 9.125% 9/10/2005
Williamsburg, IA 277,230
San Marcos I, TX 221,049
West Branch, MI 112,420
Kittery I, ME 59,694
-------------------------------------- ------------ ---------- -----------
670,393 60,408 7.875% 4/01/2009
San Marcos II, TX 221,437 18,433 7.980% 4/01/2009
Blowing Rock, NC 105,332 9,366 8.860% 9/01/2010
Nags Head, NC 82,178 6,356 8.860% 9/01/2010
Rehoboth Beach, DE 568,873
Foley, AL 535,675
Myrtle Beach Hwy 501, SC 427,388
Hilton Head, SC 393,094
Park City, UT 300,602
Westbrook, CT 291,051
Lincoln City, OR 270,280
Tuscola, IL 256,514
Tilton, NH 227,998
-------------------------------------- ------------ ---------- -----------
3,271,475 183,335 6.590% 7/10/2008
Debt premium 9,346
-------------------------------------- ------------ ---------- -----------
Totals 4,791,717 $308,342
====================================== ============ ========== ===========
12
Lease Expirations
The following table sets forth, as of February 1, 2005, scheduled lease
expirations, assuming none of the tenants exercise renewal options for our
existing centers, excluding centers we manage but in which we have no ownership
interests. Most leases are renewable for five year terms at the tenant's option.
% of Gross
Annualized
Average Base Rent
No. of Approx. Annualized Represented
Leases GLA Base Rent Annualized by Expiring
Year Expiring(1) (sq. ft.) (1) per sq. ft. Base Rent(2) Leases
- ------------------------ -------------- ----------------- ------------- ---------------- --------------
2005 268 1,119,000 (3) $ 14.17 $15,858,000 13
2006 402 1,665,000 15.22 25,348,000 21
2007 358 1,539,000 15.16 23,333,000 19
2008 275 1,212,000 16.26 19,713,000 16
2009 271 1,177,000 15.24 17,938,000 15
2010 129 540,000 16.97 9,161,000 8
2011 34 248,000 14.03 3,479,000 3
2012 27 217,000 12.50 2,712,000 2
2013 16 82,000 18.66 1,530,000 1
2014 13 57,000 15.77 899,000 1
2015 & thereafter 19 94,000 13.57 1,276,000 1
- --------------------------------------- ------------------ ---------- ------------------- ---------------
Total 1,812 7,950,000 $ 15.25 $ 121,247,000 100
======================== ============== ================== ========== =================== ===============
(1) Excludes leases that have been entered into but which tenant has not yet
taken possession, vacant suites, space under construction, temporary leases
and month-to-month leases totaling in the aggregate approximately 789,000
square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
(3) As of February 1, 2005, approximately 689,000 square feet of the 1,891,000
square feet scheduled to expire in 2005 had already renewed.
Rental and Occupancy Rates
The following table sets forth information regarding the expiring leases during
each of the last five calendar years for our existing centers, excluding centers
we manage but in which we have no ownership interests.
Renewed by Existing Re-leased to
Total Expiring Tenants New Tenants
---------------------------- ---------------------------- ----------------------------
% of % of % of
Total Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- ------------- ------------- -------------- ------------- ----------- ------------ ------------
2004 1,790,000 20 1,571,000 88 94,000 5
2003 1,070,000 12 854,000 80 49,000 5
2002 935,000 16 819,000 88 56,000 6
2001 684,000 13 560,000 82 55,000 8
2000 690,000 13 520,000 75 68,000 10
13
The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last five calendar years for our existing centers, excluding centers we manage
but in which we have no ownership interests.
Renewals of Existing Leases Stores Re-leased to New Tenants (1)
------------------------------------------------------- ------------------------------------------------------
Average Annualized Base Rents
Average Annualized Base Rents
($ per sq. ft.) ($ per sq. ft.)
--------------------------------------- ----------------------------------------
GLA % GLA %
Year (sq. ft.) Expiring New Increase (sq. ft.) Expiring New Increase
- --------- ------------ ----------- -------- ---------- ---------- ----------- --------- -----------
2004 1,571,000 $13.63 $14.40 6 427,000 $16.43 $17.27 5
2003 854,000 $13.29 $13.32 -- 272,000 $16.47 $17.13 4
2002 819,000 $14.86 $15.02 1 229,000 $15.14 $15.74 4
2001 560,000 14.08 14.89 6 269,000 14.90 16.43 10
2000 520,000 13.66 14.18 4 303,000 14.68 15.64 7
(1) The square footage released to new tenants for 2004, 2003, 2002, 2001 and
2000 contains 94,000, 49,000, 56,000, 55,000 and 68,000 square feet,
respectively, that was released to new tenants upon expiration of an existing
lease during the current year.
Occupancy Costs
We believe that our ratio of average tenant occupancy cost (which includes base
rent, common area maintenance, real estate taxes, insurance, advertising and
promotions) to average sales per square foot is low relative to other forms of
retail distribution. The following table sets forth, for each of the last five
years, tenant occupancy costs per square foot as a percentage of reported tenant
sales per square foot for our existing centers, excluding centers we manage but
in which we have no ownership interests.
Occupancy Costs as a
Year % of Tenant Sales
------------------------------ --------------------------
2004 7.3
2003 7.4
2002 7.2
2001 7.1
2000 7.4
14
Tenants
The following table sets forth certain information with respect to our ten
largest tenants and their store concepts as of February 1, 2005 for our existing
centers, excluding centers we manage but in which we have no ownership
interests.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA
- ------------------------------------------------------- ------------- ------------- ---------------------
The Gap, Inc.:
GAP 26 233,890 2.7
Old Navy 16 231,801 2.7
Banana Republic 14 112,092 1.3
Baby Gap 1 3,885 ---
Gap Kids 1 3,142 ---
-------- ---------------- -----------------------
58 584,810 6.7
Phillips-Van Heusen Corporation:
Bass Shoe 29 191,873 2.2
Van Heusen 28 121,247 1.4
Geoffrey Beene Co. Store 16 61,140 0.7
Calvin Klein, Inc. 8 44,692 0.5
Izod 14 36,180 0.4
-------- ---------------- -----------------------
95 455,132 5.2
Liz Claiborne:
Liz Claiborne 28 316,014 3.6
Liz Claiborne Women 7 24,284 0.3
Dana Buchman 3 6,975 0.1
Ellen Tracy 2 6,656 0.1
DKNY Jeans 3 5,820 0.1
Special Brands By Liz Claiborne 1 3,780 ---
Claiborne Mens 1 3,100 ---
-------- ---------------- -----------------------
45 366,629 4.2
VF Factory Outlet:
VF Factory Outlet, Inc 7 184,122 2.1
Nautica Factory Stores 22 97,686 1.1
Vans 4 9,415 0.1
Nautica Kids 2 5,841 0.1
-------- ---------------- -----------------------
35 297,064 3.4
Reebok International, Ltd.:
Reebok 26 224,852 2.6
Rockport 4 11,900 0.1
Greg Norman 1 3,000 ---
-------- ---------------- -----------------------
31 239,752 2.7
Dress Barn Inc. 30 220,119 2.5
Retail Brand Alliance, Inc.:
Casual Corner 16 119,197 1.4
Brooks Brothers 11 66,840 0.8
Petite Sophisticate 4 11,488 0.1
Casual Corner Woman 4 10,500 0.1
Adrienne Vitadini 2 9,494 0.1
-------- ---------------- -----------------------
37 217,519 2.5
Polo Ralph Lauren:
Polo Ralph Lauren 21 183,569 2.1
Polo Jeans Outlet 3 11,500 0.1
-------- ---------------- -----------------------
24 195,069 2.2
Jones Retail Corporation:
Jones NY 17 58,511 0.7
Nine West 21 53,477 0.6
Easy Spirit 14 39,896 0.5
Kasper 11 28,238 0.3
Anne Klein 2 4,855 0.1
-------- ---------------- -----------------------
65 184,977 2.2
Brown Group Retail, Inc:
Factory Brand Shoe 23 133,824 1.5
Naturalizer 15 39,856 0.5
-------- ---------------- -----------------------
38 173,680 2.0
- ------------------------------------------------------- -------- ---------------- -----------------------
Total of all tenants listed in table 458 2,934,751 33.6
======================================================= ======== ================ =======================
15
Significant Properties
The centers in Riverhead, New York and Rehoboth Beach, Delaware are our only
centers that comprise more than 10% of our consolidated total gross revenues for
the year ended December 31, 2004 (Riverhead) or more than 10% of our
consolidated total assests as of December 31, 2004 (Rehoboth Beach). The
Riverhead center represented 13% of our consolidated gross revenue for the year
ended December 31, 2004. The Riverhead center was originally constructed in 1994
and now totals 729,238 square feet. The Rehoboth Beach center represents 12% of
our consolidated total assests as of December 31, 2004. The Rehoboth Beach
center was acquired in December 2003 as a part of the COROC portfolio and totals
568,873 square feet.
Tenants at the Riverhead center principally conduct retail sales operations. The
occupancy rate as of the end of 2004, 2003 and 2002 was 99%, 100% and 100%,
respectively. Average annualized base rental rates during 2004, 2003 and 2002
were $21.39, $20.90 and $19.71 per weighted average GLA, respectively.
Tenants at the Rehoboth Beach center also principally conduct retail sales
operations. The occupancy rate as of the end of 2004 was 99%. Average annualized
base rental rates during 2004 were $19.56 per weighted average GLA.
Depreciation on the centers is recognized on a straight-line basis over 33.33
years, resulting in depreciation rate of 3% per year. At December 31, 2004, the
net federal tax basis of the Riverhead and Rehoboth Beach centers was
approximately $76.1 and $109.1 million, respectively. Real estate taxes assessed
on Riverhead during 2004 amounted to $3.8 million. Real estate taxes for 2005
are estimated to be approximately $3.9 million. Real estate taxes assessed on
Rehoboth Beach during 2004 amounted to approximately $185,000. Real estate taxes
for 2005 are estimated to be approximately $195,000.
The following table sets forth, as of February 1, 2005, scheduled lease
expirations at the Riverhead and Rehoboth Beach centers combined assuming that
none of the tenants exercise renewal options:
% of Gross
Annualized
Base Rent
No. of Annualized Represented
Leases GLA Base Rent Annualized by Expiring
Year Expiring (1) (sq. ft.) (1) per sq. ft. Base Rent (2) Leases
- ------------------------ ----------------- ----------------- ------------------ ---------------- ---------------
2005 32 131,000 $ 17.23 $ 2,257,000 9
2006 38 141,000 19.72 2,780,000 11
2007 65 245,000 21.36 5,233,000 21
2008 53 246,000 19.62 4,826,000 20
2009 40 193,000 18.75 3,619,000 15
2010 29 143,000 19.96 2,854,000 12
2011 6 48,000 17.33 832,000 3
2012 6 38,000 12.32 468,000 2
2013 4 39,000 19.69 768,000 3
2014 5 20,000 20.35 407,000 2
2015 and thereafter 4 21,000 19.29 405,000 2
- ------------------------ --------- --------------------- ------------------ --------------- --------------------
Total 282 1,265,000 $ 19.33 $ 24,449,000 100
======================== ========= ===================== ================== =============== ====================
(1) Excludes leases that have been entered into but which tenant has not taken
possession, vacant suites, temporary leases and month-to-month leases
totaling in the aggregate approximately 34,000 square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
16
Item 3. Legal Proceedings
We are subject to legal proceedings and claims that have arisen in the ordinary
course of our business and have not been finally adjudicated. In our opinion,
the ultimate resolution of these matters will have no material effect on our
results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2004.
17
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning our executive
officers:
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------------------
Stanley K. Tanger.............. 81 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger............... 56 Director, President and Chief Operating Officer
Frank C. Marchisello, Jr....... 46 Executive Vice President - Chief Financial Officer
Rochelle G. Simpson ........... 65 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr.......... 67 Executive Vice President - Leasing, Site Selection,
Operations and Marketing
Joseph H. Nehmen............... 56 Senior Vice President - Operations
Carrie A. Warren............... 42 Senior Vice President - Marketing
Kevin M. Dillon................ 46 Senior Vice President - Construction and Development
Lisa J. Morrison............... 45 Senior Vice President - Leasing
Virginia R. Summerell.......... 46 Treasurer and Assistant Secretary
James F. Williams.............. 40 Vice President - Controller
The following is a biographical summary of the experience of our executive
officers:
Stanley K. Tanger. Mr. Tanger is the founder, Chief Executive Officer and
Chairman of the Board of Directors of the Company. He also served as President
from inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
Steven B. Tanger. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
Frank C. Marchisello, Jr. Mr. Marchisello was named Executive Vice
President and Chief Financial Officer in April 2003. Previously he was named
Senior Vice President and Chief Financial Officer in January 1999 after being
named Vice President and Chief Financial Officer in November 1994. Previously,
he served as Chief Accounting Officer since joining the Company in January 1993
and Assistant Treasurer since February 1994. He was employed by Gilliam, Coble &
Moser, certified public accountants, from 1981 to 1992, the last six years of
which he was a partner of the firm in charge of various real estate clients. Mr.
Marchisello is a graduate of the University of North Carolina at Chapel Hill and
is a certified public accountant.
Rochelle G. Simpson. Ms. Simpson was named Executive Vice President -
Administration and Finance in January 1999. She previously held the position of
Senior Vice President - Administration and Finance since October 1995. She is
also the Secretary of the Company and previously served as Treasurer from May
1993 through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company.
18
Willard A. Chafin, Jr. Mr. Chafin was named Executive Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in January
1999. Mr. Chafin previously held the position of Senior Vice President -
Leasing, Site Selection, Operations and Marketing since October 1995. He joined
the Company in April 1990, and since has held various executive positions where
his major responsibilities included supervising the Marketing, Leasing and
Property Management Departments, and leading the Asset Management Team. Prior to
joining the Company, Mr. Chafin was the Director of Store Development for the
Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr.
Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales
promotion, inventory control and merchandising.
Joseph H. Nehmen. Mr. Nehmen was named Senior Vice President - Operations
in January 1999. He joined the Company in September 1995 and was named Vice
President of Operations in October 1995. Mr. Nehmen has over 20 years experience
in private business. Prior to joining Tanger, Mr. Nehmen was owner of Merchants
Wholesaler, a privately held distribution company in St. Louis, Missouri. He is
a graduate of Washington University. Mr. Nehmen is the son-in-law of Stanley K.
Tanger and brother-in-law of Steven B. Tanger.
Carrie A. Warren. Ms. Warren was named Senior Vice President - Marketing in
May 2000. Previously, she held the position of Vice President - Marketing since
September 1996 and Assistant Vice President - Marketing since joining the
Company in December 1995. Prior to joining Tanger, Ms. Warren was with Prime
Retail, L.P. for 4 years where she served as Regional Marketing Director
responsible for coordinating and directing marketing for five outlet centers in
the southeast region. Prior to joining Prime Retail, L.P., Ms. Warren was
Marketing Manager for North Hills, Inc. for five years and also served in the
same role for the Edward J. DeBartolo Corp. for two years. Ms. Warren is a
graduate of East Carolina University.
Kevin M. Dillon. Mr. Dillon was named Senior Vice President - Construction
and Development in August 2004. Previously, he held the positions of Vice
President - Construction and Development from May 2002 to August 2004, Vice
President - Construction from October 1997 to May 2002, Director of Construction
from September 1996 to October 1997 and Construction Manager from November 1993,
the month he joined the Company, to September 1996. Prior to joining the
Company, Mr. Dillon was employed by New Market Development Company for six years
where he served as Senior Project Manager. Prior to joining New Market, Mr.
Dillon was the Development Director of Western Development Company where he
spent 6 years.
Lisa J. Morrison. Ms. Morrison was named Senior Vice President - Leasing in
August 2004. Previously, she held the positions of Vice President - Leasing from
May 2001 to August 2004, Assistant Vice President of Leasing from August 2000 to
May 2001 and Director of Leasing from April 1999 until August 2000. Prior to
joining the Company, Ms. Morrison was employed by the Taubman Company and Trizec
Properties, Inc. where she served as a leasing agent. Her major responsibilities
include managing the leasing strategies for our operating properties, as well as
expansions and new development. She also oversees the leasing personnel and the
merchandising and occupancy for Tanger properties.
Virginia R. Summerell. Ms. Summerell was named Treasurer of the Company in
May 1995 and Assistant Secretary in November 1994. Previously, she held the
position of Director of Finance since joining the Company in August 1992, after
nine years with NationsBank. Her major responsibilities include maintaining
banking relationships, oversight of all project and corporate finance
transactions and development of treasury management systems. Ms. Summerell is a
graduate of Davidson College and holds an MBA from the Babcock School at Wake
Forest University.
James F. Williams. Mr. Williams was named Vice President and Controller in
April 2004. Mr. Williams joined the Company in September 20, 1993, was promoted
to Controller in January 1995 and was named Assistant Vice President in January
1997. Prior to joining the Company Mr. Williams was the Financial Reporting
Manager of Guilford Mills, Inc. from April 1991 to September 1993 and was
employed by Arthur Andersen for 5 years from 1987 to 1991. Mr. Williams
graduated from the University of North Carolina at Chapel Hill in December 1986
and is a certified public accountant.
19
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters
(a) The common shares commenced trading on the New York Stock Exchange on May
28, 1993. The following table sets forth the high and low sales prices of
the common shares as reported on the New York Stock Exchange Composite
Tape, during the periods indicated. Note that per share amounts have been
restated to reflect a two-for-one split of our common shares in December
2004.
Common
2004 High Low Dividends Paid
------------------------ -------------- --------------- ------------------
First Quarter $ 22.415 $ 20.350 $ .30750
Second Quarter 23.390 17.675 .31250
Third Quarter 22.670 19.155 .31250
Fourth Quarter 26.485 22.385 .31250
------------------------ ---------------- ---------------- ---------------
Year 2004 $ 26.485 $ 17.675 $ 1.24500
------------------------ ---------------- ---------------- ---------------
Common
2003 High Low Dividends Paid
------------------------ -------------- --------------- ------------------
First Quarter $ 15.575 $ 14.400 $ .30625
Second Quarter 16.815 15.295 .30750
Third Quarter 18.410 16.470 .30750
Fourth Quarter 21.500 18.145 .30750
------------------------ ---------------- ---------------- ---------------
Year 2003 $ 21.500 $ 14.400 $ 1.22875
------------------------ ---------------- ---------------- ---------------
As of February 1, 2005, there were approximately 696 shareholders of
record. Certain of our debt agreements limit the payment of dividends such
that dividends shall not exceed funds from operations ("FFO"), as defined
in the agreements, for the prior fiscal year on an annual basis or 95% of
FFO on a cumulative basis. Based on continuing favorable operations and
available FFO, we intend to continue to pay regular quarterly dividends.
(b) Not applicable.
(c) During 1998, our Board of Directors authorized the repurchase of up to $6
million of our common shares. The timing and amount of the repurchases is
at the discretion of management. We have not made any repurchases since
1999 and the amount authorized for future repurchases remaining at December
31, 2004 totaled $4.8 million.
20
Item 6. Selected Financial Data
2004 2003 2002 2001 2000
- ------------------------------------------ ------------- ------------- -------------- ------------ ----------------
(In thousands, except per share and center data)
OPERATING DATA
Total revenues $ 194,553 $ 118,059 $ 106,488 $ 101,093 $ 98,570
Operating income 70,528 41,309 36,645 34,817 34,613
Income from continuing operations 7,608 11,532 6,827 3,651 5,602
Net income 7,046 12,849 11,007 7,112 4,312
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
SHARE DATA
Basic:
Income from continuing operations $ .28 $ .53 $ .30 $ .12 $ .24
Net income $ .26 $ .60 $ .55 $ .34 $ .16
Weighted average common shares 27,044 20,103 16,645 15,851 15,789
Diluted:
Income from continuing operations $ .28 $ .52 $ .30 $ .12 $ .24
Net income $ .26 $ .59 $ .54 $ .34 $ .15
Weighted average common shares 27,261 20,566 17,029 15,895 15,843
Common dividends paid $ 1.25 $ 1.23 $ 1.22 $ 1.22 $ 1.21
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 1,077,393 $1,078,553 $ 622,399 $ 599,266 $ 584,928
Total assets 936,378 987,437 477,675 476,272 487,408
Debt 488,007 540,319 345,005 358,195 346,843
Shareholders' equity 161,133 167,418 90,635 76,371 90,877
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 84,816 $ 46,561 $ 39,687 $ 44,626 $ 38,420
Investing activities $ 2,607 $ (327,068) $ (26,883) $ (23,269) $ (25,815)
Financing activities $ (93,156) $ 289,271 $ (12,247) $ (21,476) $ (12,474)
Gross Leasable Area Open:
Wholly-owned 5,066 5,299 5,469 5,332 5,179
Partially-owned (consolidated) 3,271 3,273 --- --- ---
Partially-owned (unconsolidated) 402 324 260 --- ---
Managed 105 434 457 105 105
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total GLA open at end of period 8,844 9,330 6,186 5,437 5,284
Number of centers:
Wholly-owned 23 26 28 29 29
Partially-owned (consolidated) 9 9 --- --- ---
Partially-owned (unconsolidated) 1 1 1 --- ---
Managed 3 4 5 3 3
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total outlet centers in operation 36 40 34 32 32
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and Blackstone acquired the portfolio through a joint venture in
the form of a limited liability company, COROC Holdings, LLC ("COROC"). We own
one-third and Blackstone owns two-thirds of the joint venture. We provide
operating, management, leasing and marketing services to the properties for a
fee. COROC is consolidated for financial reporting purposes under the provisions
of FASB Interpretation No. 46 (Revised 2003): "Consolidation of Variable
Interest Entities: An Interpretation of ARB No. 51 ("FIN 46R").
21
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the 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.
The discussion of our results of operations reported in the consolidated
statements of operations compares the years ended December 31, 2004 and 2003, as
well as December 31, 2003 and 2002. Certain comparisons between the periods are
made on a percentage basis as well as on a weighted average gross leasable area
("GLA") basis, a technique which adjusts for certain increases or decreases in
the number of centers and corresponding square feet related to the development,
acquisition, expansion or disposition of rental properties. The computation of
weighted average GLA, however, does not adjust for fluctuations in occupancy
that may occur subsequent to the original opening date.
Cautionary Statements
Certain statements made 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. 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 and expectations, are generally identifiable by use
of the words `believe', `expect', `intend', `anticipate', `estimate', `project',
or similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond our control and which could materially affect our actual
results, performance or achievements. Factors which may cause actual results to
differ materially from current expectations include, but are not limited to, the
following:
o national and local general economic and market conditions;
o demographic changes; our ability to sustain, manage or forecast our
growth; existing government regulations and changes in, or the failure
to comply with, government regulations;
o adverse publicity; liability and other claims asserted against us;
o competition;
o the risk that we may not be able to finance our planned development
activities;
o risks related to the retail real estate industry in which we compete,
including the potential adverse impact of external factors such as
inflation, tenant demand for space, consumer confidence, unemployment
rates and consumer tastes and preferences;
o risks associated with our development activities, such as the
potential for cost overruns, delays and lack of predictability with
respect to the financial returns associated with these development
activities;
o risks associated with real estate ownership, such as the potential
adverse impact of changes in the local economic climate on the
revenues and the value of our properties;
22
o risks that we incur a material, uninsurable loss of our capital
investment and anticipated profits from one of our properties, such as
those resulting from wars, earthquakes or hurricanes;
o risks that a significant number of tenants may become unable to meet
their lease obligations or that we may be unable to renew or re-lease
a significant amount of available space on economically favorable
terms;
o fluctuations and difficulty in forecasting operating results; changes
in business strategy or development plans;
o business disruptions;
o the ability to attract and retain qualified personnel;
o the ability to realize planned costs savings in acquisitions; and
o retention of earnings.
General Overview
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC Holdings, LLC ("COROC"). We own one-third and
Blackstone owns two-thirds of the joint venture. We provide operating,
management, leasing and marketing services to the properties for a fee. COROC is
consolidated for financial reporting purposes under the provisions of FASB
Interpretation No. 46 (Revised 2003): "Consolidation of Variable Interest
Entities: An Interpretation of ARB No. 51 ("FIN 46R").
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized using the effective interest method over the life of the debt. We
financed the majority of our equity in the joint venture with proceeds from the
issuance of 4.6 million common shares in December 2003 at $20.25 per share. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2004, we had ownership interests in or management
responsibilities for 36 centers in 23 states totaling 8.8 million square feet of
operating GLA compared to 40 centers in 23 states totaling 9.3 million square
feet of operating GLA as of December 31, 2003. The decrease is due to the
following events:
No. of GLA
Centers (000's) States
- ------------------------------------------------- --------- ---------- ---------
As of December 31, 2003 40 9,330 23
- ------------------------------------------------- --------- ---------- ---------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 78 ---
Dispositions:
North Conway, New Hampshire (wholly-owned) (2) (62) ---
Dalton, Georgia (wholly-owned) (1) (173) ---
Vero Beach, Florida (managed) (1) (329) ---
- ------------------------------------------------- --------- ---------- ---------
As of December 31, 2004 36 8,844 23
- ------------------------------------------------- --------- ---------- ---------
23
Results of Operations
A summary of the operating results for the years ended December 31, 2004, 2003
and 2002 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
2004 2003 2002
- --------------------------------------------------------- -------------- -------------- ---------------
GLA open at end of period (000's)
Wholly owned 5,066 5,299 5,469
Partially owned consolidated (1) 3,271 3,273 ---
Partially owned unconsolidated (2) 402 324 260
Managed 105 434 457
- --------------------------------------------------------- -------------- -------------- ---------------
Total GLA at end of period (000's) 8,844 9,330 6,186
Weighted average GLA (000's) (1) (3) 8,338 5,158 4,776
Occupancy percentage at end of period (4) 97% 96% 98%
Per square foot data for wholly owned and partially owned (consolidated) properties
Revenues
Base rentals $ 15.58 $ 15.18 $14.89
Percentage rentals .64 .62 .74
Expense reimbursements 6.30 6.41 6.00
Other income .81 .68 .67
- --------------------------------------------------------- -------------- -------------- ---------------
Total revenues 23.33 22.89 22.30
- --------------------------------------------------------- -------------- -------------- ---------------
Expenses
Property operating 7.17 7.56 7.03
General and administrative 1.54 1.85 1.93
Depreciation and amortization 6.17 5.47 5.66
- --------------------------------------------------------- -------------- -------------- ---------------
Total expenses 14.88 14.88 14.62
- --------------------------------------------------------- -------------- -------------- ---------------
Operating income 8.45 8.01 7.68
Interest expense 4.21 5.14 5.96
- --------------------------------------------------------- -------------- -------------- ---------------
Income before equity in earnings of unconsolidated
joint ventures, minority interests and discontinued
operations $ 4.24 $ 2.87 $ 1.72
- --------------------------------------------------------- -------------- -------------- ---------------
(1) Includes nine centers totaling 3,271,475 square feet of which we own a
one-third interest through a joint venture arrangement but consolidate for
financial reporting purposes under FIN 46R.
(2) Includes one center totaling 401,992 square feet of which we own a 50%
interest through a joint venture arrangement.
(3) Represents GLA of wholly-owned and partially owned consolidated operating
properties weighted by months of operation. GLA is not adjusted for
fluctuations in occupancy that may occur subsequent to the original opening
date. Excludes GLA of properties for which their results are included in
discontinued operations.
(4) Represents occupancy only at centers in which we have an ownership interest.
24
2004 Compared to 2003
Base rentals increased $51.6 million, or 66%, in the 2004 period when compared
to the same period in 2003. The increase is primarily due to the December 2003
acquisition of the COROC portfolio of nine outlet center properties. Base rent
per weighted average GLA increased by $.40 per square foot from $15.18 per
square foot in the 2003 period to $15.58 per square foot in the 2004 period. The
increase is primarily the result of the COROC portfolio acquisition which had a
higher average base rent per square foot compared to the pre-acquisition
portfolio average. In addition, the overall portfolio occupancy at December 31,
2004 increased 1% from 96% to 97% compared to December 31, 2003. Also, base rent
is impacted by the amortization of above/below market rate lease values
associated with the required purchase price allocation associated with the
acquisition of the COROC portfolio. The values of the above and below market
leases are amortized and recorded as either an increase (in the case of below
market leases) or a decrease (in the case of above market leases) to rental
income over the remaining term of the associated lease. For the 2004 period we
recorded $1.1 million of rental income for net amortization of market leases
compared to $37,000 for the 2003 period of 13 days that we owned the COROC
portfolio. If a tenant vacates its space prior to the contractual termination of
the lease and no rental payments are being made on the lease, any unamortized
balance of the related above/below market lease value will be written off and
could materially impact our net income positively or negatively.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $2.2
million or 68%, and on a weighted average GLA basis, increased $.02 per square
foot in 2004 compared to 2003 from $.62 per square foot to $.64 per square foot.
Reported same-space sales per square foot for the twelve months ended December
31, 2004 were $310 per square foot, a 3.2% increase over the prior year ended
December 31, 2003. Same-space sales is defined as the weighted average sales per
square foot reported in space open for the full duration of each comparison
period. Our ability to attract high volume tenants to many of our outlet centers
continues to improve the average sales per square foot throughout our portfolio.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses, were
88% and 85% in the 2004 and 2003 periods, respectively. The increase in this
percentage is due to higher reimbursement rates at the COROC portfolio.
Other income increased $3.2 million, or 92%, in 2004 compared to 2003 primarily
due to an increase in gains on sales of outparcels of land of $1.5 million in
2004. Also, there were increases in vending and other miscellaneous income and
an increase in fees from managed properties.
Property operating expenses increased by $20.8 million, or 53%, in the 2004
period as compared to the 2003 period however, on a weighted average GLA basis,
these expenses decreased $.39 per square foot from $7.56 to $7.17. The dollar
increase is the result of the additional operating costs of the COROC portfolio
in the 2004 period. The decrease on a weighted average GLA basis is due to
expenses at the COROC portfolio per square foot being lower than the
pre-acquisition portfolio average.
General and administrative expenses increased $3.3 million, or 34%, in the 2004
period as compared to the 2003 period. The increase is primarily due to the
additional employees hired as a result of the acquisition of the COROC
portfolio. However, as a percentage of total revenues, general and
administrative expenses decreased from 8% in the 2003 period to 7% in the 2004
period and, on a weighted average GLA basis, decreased from $1.85 per square
foot in the 2003 period to $1.54 per square foot in the 2004 period.
Interest expense increased $8.6 million, or 33%, during the 2004 period as
compared to the 2003 period due primarily to the assumption of $186.4 million of
cross-collateralized debt in the fourth quarter of 2003 related to the
acquisition of the COROC portfolio. The increase was offset by the retirement of
$47.5 million of bonds, which matured in October 2004 at an interest rate of
7.875%, with proceeds from our property and land parcel sales and amounts
available under our unsecured lines of credit.
25
Depreciation and amortization per weighted average GLA increased from $5.47 per
square foot in the 2003 period to $6.17 per square foot in the 2004 period. In
the acquisition of the COROC portfolio in December 2003, accounted for under
SFAS 141 "Business Combinations" ("FAS 141"), significant amounts were allocated
to deferred lease costs and other intangible assets which are amortized over
shorter lives than building costs.
Equity in earnings from unconsolidated joint ventures increased $223,000 in the
2004 period compared to the 2003 period due to the expansions during the summers
of 2003 and 2004 at TWMB Associates, LLC ("TWMB") outlet center in Myrtle Beach,
South Carolina of approximately 64,000 and 78,000 square feet respectively. The
total square footage of the center is now approximately 402,000 square feet.
Discontinued operations resulted in a loss of approximately $562,000 due mainly
to the loss on sale of the Dalton, Georgia property in the 2004 period of
approximately $3.5 million. This loss was partially offset by the gain on sale
of the Clover and LL Bean, New Hampshire properties of approximately $2.1
million in the 2004 period. Also, included in the 2003 period is the sale of the
Martinsburg, West Virginia center and the Casa Grande, Arizona center which
resulted in a net gain of approximately $147,000.
2003 Compared to 2002
Base rentals increased $7.2 million, or 10%, in the 2003 period when compared to
the same period in 2002. The increase is primarily due to the full year effect
of the acquisition of our Howell, Michigan center in September 2002 along with
our acquisition of additional GLA in January 2003 at our Sevierville, Tennessee
center and subsequent expansion at that center in the summer of 2003. Also, in
December 2003, through a joint venture of which we own a one-third interest, we
completed the acquisition of nine properties in the Charter Oak portfolio which
are consolidated for financial reporting purposes. Base rent per weighted
average GLA increased by $.29 per square foot from $14.89 per square foot in the
2002 period to $15.18 per square foot in the 2003 period. The increase was
attributable to the average initial base rent for new stores opened during 2003,
$18.83, being 11.7% higher than the average base rent of $16.86 for stores
closed during 2003. The overall portfolio occupancy at December 31, 2003
decreased 2% from 98% to 96% due to the acquired properties having a lower
occupancy rate, 94%, than our portfolio, 97%, just prior to the acquisition. One
center experienced a negative occupancy trend of at least 10% from December 31,
2002 to December 31, 2003.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), decreased $347,000
or 10%, and on a weighted average GLA basis, decreased $.12 per square foot in
2003 compared to 2002 from $.74 per square foot to $.62 per square foot.
Reported same-space sales per square foot for the twelve months ended December
31, 2003 were $301 per square foot, a 2.3% increase over the prior year ended
December 31, 2002. Same-space sales is defined as the weighted average sales per
square foot reported in space open for the full duration of each comparison
period. Our ability to attract high volume tenants to many of our outlet centers
continues to improve the average sales per square foot throughout our portfolio.
However, many tenants' breakpoints are adjusted along with their base rent upon
renewal, resulting in a reduction in percentage rentals, but an increase in base
rentals.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses
remained constant at 85% in 2003 and 2002.
Other income increased $297,000, or 9%, in 2003 compared to 2002 primarily due
to increases in vending and other miscellaneous income and an increase in fees
from managed properties.
Property operating expenses increased by $5.4 million, or 16%, in the 2003
period as compared to the 2002 period and, on a weighted average GLA basis,
increased $.53 per square foot from $7.03 to $7.56. The increase is the result
of the additional operating costs of the Howell, Michigan center that we
acquired in late September 2002 and the acquisition and expansion in our
Sevierville, Tennessee center during 2003 as well as portfolio wide increases in
advertising, common area maintenance and property taxes.
26
General and administrative expenses increased $340,000, or 4%, in the 2003
period as compared to the 2002 period. The increase is primarily due to normal
increases in salaries and payroll taxes offset by a decrease in bad debt expense
as compared to the prior year. Also, as a percentage of total revenues, general
and administrative expenses were 8% and 9% respectively in the 2003 and 2002
periods and, on a weighted average GLA basis, decreased $.08 per square foot
from $1.93 per square foot in the 2002 period to $1.85 per square foot in the
2003 period.
Interest expense decreased $2.0 million during 2003 as compared to 2002 due
primarily to lower average interest rates during 2003 and a decrease in the
overall debt level due to the use of the proceeds from the exercise of 1,781,080
share and unit options during the year to reduce outstanding debt. Also, during
2003, we purchased, at a 2% premium, $2.6 million of our outstanding 7.875%
senior, unsecured public notes that mature in October 2004. The purchases were
funded by amounts available under our unsecured lines of credit. These purchases
bring the total amount of these notes purchased in the last three years to $27.5
million. The replacement of the 2004 bonds with funding through lines of credit
provided us with a significant interest expense reduction as the lines of credit
had a lower interest rate.
Depreciation and amortization per weighted average GLA decreased from $5.66 per
square foot in the 2002 period to $5.47 per square foot in the 2003 period due
to a lower mix of tenant finishing allowances included in buildings and
improvements which are depreciated over shorter lives (i.e. over lives generally
ranging from 3 to 10 years as opposed to other construction costs which are
depreciated over lives ranging from 15 to 33 years).
Equity in earnings from unconsolidated joint ventures increased $427,000 in the
2003 period compared to the 2002 period due to the TWMB's outlet center in
Myrtle Beach, South Carolina being open for a full year in 2003 compared to six
months in 2002, and an expansion of 64,000 square feet that occurred in May of
2003.
Discontinued operations resulted in a gain of approximately $1.3 million due
mainly to a number of centers with positive operating income included in
discontinued operations for the period. The 2002 period included gains of $1.7
million from the sales of our centers in Fort Lauderdale, Florida and Bourne,
Massachusetts and $561,000 in gains from the sales of leased land outparcels
which had identifiable cash flows associated with them and were therefore
accounted for under the provisions of SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144").
Liquidity and Capital Resources
Net cash provided by operating activities was $84.8, $46.6 and $39.7 million for
the years ended December 31, 2004, 2003 and 2002, respectively. The increase in
cash provided from operating activities from 2003 to 2004 is primarily due to
the incremental income from the COROC acquisition in December 2003. The increase
from 2002 to 2003 is due to the increase in income after adjustments for
non-cash items and changes in accounts payable and accrued expenses and other
assets as well as a decrease of $2.0 million in interest expense. The increase
in other assets is due primarily to the cash paid for the ground lease at the
Rehoboth Beach, Delaware center acquired in December 2003.
Net cash provided by (used in) investing activities amounted to $2.6, ($327.1)
and ($26.9) million during 2004, 2003 and 2002, respectively, and reflects the
acquisitions, expansions and dispositions of real estate during each year.
Net cash provided by (used in) financing activities of ($93.2) $289.3 and
($12.2) million in 2004, 2003 and 2002, respectively, has fluctuated
consistently with the capital needed to fund the current development and
acquisition activity and reflects increases in dividends paid during 2004, 2003
and 2002. In addition, 2004 reflects $22.6 million of distributions to our
partner in the COROC joint venture which was created in December 2003. Also, the
increase in cash provided by financing activities in 2003 is due primarily to
the contribution by Blackstone related to the COROC acquisition and the net
proceeds from the issuance of common shares. In 2003, 4.6 million common shares
were issue versus 2.0 million common shares in 2002. Also, approximately 1.5
million more share and unit options were exercised in 2003 versus 2002.
27
Dispositions and Current Developments
Any developments or expansions that we, or a joint venture that we are involved
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. 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 net income or funds from operations.
DISPOSITIONS
In June and September 2004, we completed the sale of properties located in North
Conway, New Hampshire and Dalton, Georgia, respectively. Net proceeds received
from the sale of these properties were approximately $17.5 million. We recorded
a loss on sale of real estate of approximately $1.5 million, which is included
in discontinued operations for the year ended December 31, 2004.
Throughout 2004, we sold five outparcels of land at various properties in our
portfolio. These sales totaled $2.9 million in net proceeds. Gains of $1.5
million were recorded in other income for the year ended December 31, 2004.
In May and October 2003, we completed the sale of properties located in
Martinsburg, West Virginia and Casa Grande, Arizona, respectively. Net proceeds
received from the sales of these properties were approximately $8.7 million. We
recorded a loss on sale of real estate of approximately $147,000 in discontinued
operations for the year ended December 31, 2003.
In June and November 2002, we completed the sale of two of our non-core
properties located in Ft. Lauderdale, Florida and Bourne, Massachusetts,
respectively. Net proceeds received from the sales of these properties were
approximately $19.9 million. We recorded a gain on sale of real estate of
approximately $1.7 million in discontinued operations for the year ended
December 31, 2002.
Throughout 2002, we sold five outparcels of land, two of which had related land
leases with identifiable cash flows, at various properties in our portfolio.
These sales totaled $1.5 million in net proceeds. Gains of $167,000 were
recorded in other income for the three land outparcels sold and gains of
$561,000 were recorded in discontinued operations for the two outparcels with
identifiable cash flows as accounted for under FAS 144 for the year ended
December 31, 2004.
CURRENT DEVELOPMENTS
We have an option to purchase land and have begun the early development and
leasing of a site located near Pittsburgh, Pennsylvania. We currently expect the
center to be approximately 420,000 square feet upon total build out with the
initial phase scheduled to open in 2007.
We have an option to purchase land and have begun the early development and
leasing of a site located near Charleston, South Carolina. We currently expect
the center to be approximately 350,000 square feet upon total build out with the
initial phase scheduled to open in 2006.
We have begun the early development and leasing of a site located near Wisconsin
Dells, Wisconsin. We currently expect the center to be approximately 250,000
square feet upon total build out with the initial phase scheduled to open in
2006.
28
Joint Ventures
COROC HOLDINGS, LLC
On December 19, 2003, COROC, a joint venture in which we have a one-third
ownership interest and consolidate for financial reporting purposes under the
provisions of FIN 46R, purchased the 3.3 million square foot Charter Oak
portfolio of outlet center properties for $491.0 million, including the
assumption of $186.4 million of cross-collateralized debt which has a stated,
fixed interest rate of 6.59% and matures in July 2008. We recorded the debt at
its fair value of $198.3 million, with an effective interest rate of 4.97%.
Accordingly, a debt premium of $11.9 million was recorded and is being amortized
over the life of the debt. The premium was $9.4 million at December 31, 2004. We
funded the majority of our share of the equity required for the transaction
through the issuance of 4.6 million common shares on December 10, 2003,
generating approximately $88.0 million in net proceeds. The results of the
Charter Oak portfolio have been included in the consolidated financial
statements since December 19, 2003. We believe the Charter Oak acquisition
solidifies our position in the outlet industry. In addition, the centers
acquired provide an excellent geographic fit, a diversified tenant portfolio and
are in line with our strategy of creating an increased presence in high-end
resort locations.
We have joint control with Blackstone over major decisions. If Blackstone does
not receive an annual minimum cash return of 6% on their invested capital during
any of the first three years and 7% in any year thereafter, Blackstone shall
gain the right to become the sole managing member of the joint venture with
complete authority to act for the joint venture, including the ability to
dispose of one or more of the joint venture properties to a third party. Based
on current available cash flows from the properties, we do not believe there is
a significant risk of default under this provision.
We provide operating, management, leasing and marketing services to the
properties and earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We also earn an additional annual incentive
fee of up to approximately $800,000 if certain annual increases in the net
operating income are met on an annual basis. These fees are payable prior to,
and are not subordinate to, any member distributions that may be required.
Blackstone has the right to terminate the management agreement for the joint
venture if it does not receive its minimum cash return as described above.
After an initial 42-month lock-up period, either party can enter into an
agreement for the sale of the Charter Oak portfolio, subject to a right of first
offer of the other party to acquire the entire portfolio.
During the operation of the joint venture, Blackstone receives a preferred cash
distribution of 10% on their invested capital. We then receive a preferred cash
distribution of 10% on our invested capital. Any remaining cash flows from
ongoing operations are distributed one-third to Blackstone and two-thirds to us.
Upon exit or the sale of the properties, to the extent that cash is available,
Blackstone will first receive a distribution equal to their invested capital and
any unpaid preferred cash distribution. We will then receive any unpaid
preferred cash distribution. Blackstone will then receive an additional 2%
annual preferred cash distribution. We will then receive a distribution equal to
our invested capital and an additional 2% annual preferred cash distribution.
Finally, any remaining proceeds will be distributed one-third to Blackstone and
two-thirds to us.
TWMB ASSOCIATES, LLC
In September 2001, we established TWMB, a joint venture in which we have a 50%
ownership interest with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren") as our
venture partner, to construct and operate a Tanger Outlet center in Myrtle
Beach, South Carolina. The Company and Rosen-Warren each contributed $4.3
million in cash for a total initial equity in TWMB of $8.6 million. In June 2002
the first phase opened 100% leased at a cost of approximately $35.4 million with
approximately 260,000 square feet and 60 brand name outlet tenants.
During 2003, we completed our 64,000 square foot second phase. The second phase
cost approximately $6.0 million. The Company and Rosen-Warren each contributed
approximately $1.1 million toward the second phase which contains 22 additional
brand name outlet tenants.
29
During 2004, we completed a 78,000 square foot third phase. The third phase cost
approximately $9.7 million. The Company and Rosen-Warren each made capital
contributions during the fourth quarter of 2003 of $1.7 million for the third
phase. TWMB's Myrtle Beach center now totals 402,000 square feet.
In conjunction with the construction of the center, TWMB closed on a
construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and Wachovia Corporation due in September 2005. As of December 31, 2004
the construction loan had a balance of $35.1 million. In August of 2002, TWMB
entered into an interest rate swap agreement with Bank of America, NA effective
through August 2004 with a notional amount of $19 million. Under this agreement,
TWMB received a floating interest rate based on the 30 day LIBOR index and paid
a fixed interest rate of 2.49%. This swap effectively changed the payment of
interest on $19 million of variable rate debt to fixed rate debt for the
contract period at a rate of 4.49%. The construction loan incurred by this
unconsolidated joint venture is collateralized by its property as well as joint
and several guarantees by Rosen-Warren and the Company.
TWMB has a commitment letter from Bank of America for permanent financing with
the center serving as collateral. The loan is expected to be $36.8 million with
a variable interest rate of LIBOR plus 1.40%. The term is for five years with
interest payments only and may be extended for an additional two years. There
are no guarantees associated with the loan. We expect to close on the permanent
financing during the first half of 2005.
Either partner in TWMB has the right to initiate the sale or purchase of the
other party's interest at certain times. If such action is initiated, one member
would determine the fair market value purchase price of the venture and the
other would determine whether they would take the role of seller or purchaser.
The members' roles in this transaction would be determined by the tossing of a
coin, commonly known as a Russian roulette provision. If either partner enacts
this provision and depending on our role in the transaction as either seller or
purchaser, we could potentially incur a cash outflow for the purchase of our
partner's interest. However, we do not expect this event to occur in the near
future based on the positive results and expectations of developing and
operating an outlet center in the Myrtle Beach, South Carolina area.
DEER PARK ENTERPRISE, LLC
During the third quarter of 2003, we established a wholly owned subsidiary,
Tanger Deer Park, LLC ("Tanger Deer Park"). In September 2003, Tanger Deer Park
entered into a joint venture agreement with two other members to create Deer
Park Enterprise, LLC ("Deer Park"). All members in the joint venture have an
equal ownership interest of 33.33%. Deer Park was formed for the purpose of, but
not limited to, developing a site located in Deer Park, New York with
approximately 790,000 square feet planned at total buildout. We expect the site
will contain both outlet and big box retail tenants.
Each of the three members made an equity contribution of $1.6 million. In
conjunction with the real estate purchase, Deer Park closed on a loan in the
amount of $19 million with Bank of America due in October 2005 and a purchase
money mortgage note with the seller in the amount of $7 million. Deer Park's
Bank of America loan incurs interest at a floating interest rate equal to LIBOR
plus 2.00% and is collateralized by the property as well as joint and several
guarantees by all three parties. The purchase money mortgage note bears no
interest. However, interest has been imputed for financial statement purposes at
a rate which approximates fair value.
In October 2003, Deer Park entered into a sale-leaseback transaction for the
above mentioned real estate located in Deer Park, New York. The agreement
consisted of the sale of the property to Deer Park for $29 million which is
being leased back to the seller under an operating lease agreement. In November
2004, the tenant gave notice (within the terms of the lease) that they intend to
vacate the facility in May 2005, thus ending the existing operating lease
agreement. Under the provisions of FASB Statement No. 67 "Accounting for Costs
and Initial Rental Operations of Real Estate Projects", current rents received
from this project, net of applicable expenses, are treated as incidental
revenues and will be recognized as a reduction in the basis of the assets, as
opposed to rental revenues over the life of the lease, until such time that the
current project is demolished and the intended assets are constructed.
30
Preferred Share Redemption
On June 20, 2003, we redeemed all of our outstanding Series A Cumulative
Convertible Redeemable Preferred Shares (the "Preferred Shares") held by the
Preferred Stock Depositary in the form of Depositary Shares, each representing
1/10th of a Preferred Share. The redemption price was $250 per Preferred Share
($25 per Depositary Share), plus accrued and unpaid dividends, if any, to, but
not including, the redemption date. In total, 787,008 of the Depositary Shares
were converted into 1,418,156 common shares and we redeemed the remaining 14,889
Depositary Shares for $25 per share, plus accrued and unpaid dividends. We
funded the redemption, totaling approximately $372,000, from cash flows from
operations.
Financing Arrangements
During 2004 we retired $47.5 million, 7.875% unsecured notes which matured on
October 24, 2004 with proceeds from our property and land parcel sales and
amounts available under our unsecured lines of credit. We also obtained the
release of two properties which had been securing $53.5 million in mortgage
loans with Wells Fargo Bank, thus creating an unsecured note with Wells Fargo
Bank for the same face amount.
As part of the acquisition of the Charter Oak Partners' portfolio, we assumed
$186.4 million of cross-collateralized debt which has a stated, fixed interest
rate of 6.59% and matures in July 2008. We recorded the debt at its fair value
of $198.3 million with an effective interest rate of 4.97%. Accordingly, a debt
premium of $11.9 million was recorded and is being amortized over the life of
the debt. The premium had a value of $9.3 million as of December 31, 2004.
The Dalton, Georgia property as mentioned above in "Dispositions" served as
collateral in a cross-collateralized mortgage with John Hancock Life Insurance
Company ("John Hancock") along with several other properties. Upon its
disposition, the Dalton property was released as collateral and replaced with a
$6.4 million standby letter of credit issued by Bank of America. The letter of
credit includes an issuance fee of 1.25% annually. The required amount of the
letter of credit decreases ratably over the remaining term of the John Hancock
mortgage which matures in April 2009. Throughout the term of the letter of
credit, its required amount serves as a reduction in the amount available under
our unsecured $50 million line of credit with Bank of America.
During 2004, we obtained an additional $25 million unsecured line of credit from
Citicorp North America, Inc., a subsidiary of Citigroup; bringing the total
committed unsecured lines of credit to $125 million. In addition, we completed
the extension of the maturity dates on all of our lines of credit with Bank of
America, Wachovia Corporation, Wells Fargo Bank and Citigroup until June of
2007. Amounts available under these facilities at December 31, 2004 totaled
$92.5 million. Interest is payable based on alternative interest rate bases at
our option.
During 2005, we have two secured loans maturing with New York Life Insurance
Company totaling approximately $21.1 million and carrying an average interest
rate of 9.5%. We expect to repay these loans with amounts available under our
unsecured lines of credit.
31
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 our shareholders' best
interests. Prior to the 2002, 2003 and 2004 common share offerings, we had
established a shelf registration to allow us to issue up to $400 million in
either all debt or all equity or any combination thereof. In September 2002, we
completed a public offering of 2.0 million common shares at a price of $14.625
per share, receiving net proceeds of approximately $28.0 million. We used the
net proceeds, together with other available funds, to acquire one outlet center
in Howell, Michigan, to reduce the outstanding balance on our lines of credit
and for general corporate purposes. In December 2003, we completed a public
offering of 4.6 million common shares at a price of $20.25 per share, receiving
net proceeds of approximately $88.0 million. The net proceeds were used together
with other available funds to finance our portion of the equity required to
acquire the Charter Oak portfolio of outlet shopping centers and for general
corporate purposes. In addition in January 2004, the underwriters of the
December 2003 offering exercised in full their over-allotment option to purchase
an additional 690,000 common shares at the offering price of $20.25 per share.
We received net proceeds of approximately $13.2 million from the exercise of the
over-allotment. To generate capital to reinvest into other attractive investment
opportunities, we may also consider the use of additional operational and
developmental joint ventures, selling certain properties that do not meet our
long-term investment criteria as well as the sale of outparcels on existing
properties.
At December 31, 2004, approximately 37% of our outstanding long-term debt
represented unsecured borrowings and approximately 42% of the gross book value
of our real estate portfolio was unencumbered. The average interest rate,
including loan cost amortization, on average debt outstanding for the years
ended December 31, 2004 and 2003 was 7.5% and 7.6%, respectively.
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $125 million at December 31, 2004, an increase of $25 million
in capacity from December 31, 2003. During 2004, we extended the maturity of all
lines of credit to June 30, 2007. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
our ability to sell debt or equity subject to market conditions, we believe that
we have access to the necessary financing to fund the planned capital
expenditures during 2005.
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 Real Estate Investment Trust ("REIT") requirements
in both the short and long term. Although we receive most of our rental payments
on a monthly basis, distributions to shareholders are 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 the existing lines of credit or invested in
short-term money market or other suitable instruments.
Contractual Obligations and Commercial Commitments
The following table details our contractual obligations over the next five years
and thereafter as of December 31, 2004 (in thousands):
Contractual Obligations 2005 2006 2007 2008 2009 Thereafter
- ----------------------- -------- -------- -------- -------- -------- ----------
Debt $26,418 $59,215 $32,305 $275,223 $71,441 $14,059
Interest payments (1) 32,764 29,924 28,499 18,263 3,128 925
Operating leases 3,101 3,050 2,907 2,596 2,242 85,444
- -------------------------- ----------- ---------- ----------- ----------- ----------- ---------------
$62,283 $92,189 $63,711 $296,082 $76,811 $100,428
- -------------------------- ----------- ---------- ----------- ----------- ----------- ---------------
(1) 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. All of our variable rate agreements are based
on the 30-day LIBOR rate. For calculating future interest amounts on
variable interest rate debt, the rate at December 31, 2004 was used.
32
Our 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 FFO, as defined in the agreements,
for the prior fiscal year on an annual basis or 95% of FFO on a cumulative
basis. We have historically been and currently are in compliance with all of our
debt covenants. We expect to remain in compliance with all our existing debt
covenants; however, should circumstances arise that would cause us to be in
default, the various lenders would have the ability to accelerate the maturity
on our outstanding debt.
We operate in a manner intended to enable us to qualify as a REIT under the
Internal Revenue Code (the "Code"). A REIT which distributes at least 90% of its
taxable income to its shareholders each year and which meets certain other
conditions is not taxed on that portion of its taxable income which is
distributed to its shareholders. Based on our 2004 taxable income to
shareholders, we were required to distribute approximately $9.0 million in order
to maintain our REIT status as described above. We distributed approximately
$33.8 million to common shareholders which significantly exceeds our required
distributions. If events were to occur that would cause our dividend to be
reduced, we believe we still have an adequate margin regarding required dividend
payments based on our historic dividend and taxable income levels to maintain
our REIT status.
The following table details our commercial commitments as of December 31, 2004
(in thousands):
Commercial Commitments 2005
- ---------------------- ----
Lines of credit $ 92,435
Unconsolidated joint venture guarantees 55,200
- -------------------------------------------------- ---------------
$ 147,635
- -------------------------------------------------- ---------------
We currently maintain four unsecured, revolving credit facilities with major
national banking institutions, totaling $125 million. As of December 31, 2004,
amounts outstanding under these credit facilities totaled $26.2 million. All
four credit facilities expire in June 2007.
Off-Balance Sheet Arrangements
We are party to a joint and several guarantee with respect to the $36.2 million
construction loan obtained by TWMB. We are also party to a joint and several
guarantee with respect to the $19 million loan obtained by Deer Park. See "Joint
Ventures" section above for further discussion of off-balance sheet arrangements
and their related guarantees.
Related Party Transactions
As noted above in "Unconsolidated Joint Ventures", we are a 50% owner of the
TWMB joint venture. TWMB pays us management, leasing and development fees for
services provided to the joint venture. During 2004, 2003 and 2002, we
recognized approximately $288,000, $174,000 and $74,000 in management fees,
$212,000, $214,000 and $259,000 in leasing fees and $28,000, $9,000 and $76,000
in development fees.
Tanger Family Limited Partnership ("TFLP") is a related party which holds a
limited partnership interest in and is the minority owner of the Operating
Partnership. Stanley K. Tanger, the Company's Chairman of the Board and Chief
Executive Officer, is the sole general partner of TFLP. The only material
related party transaction with TFLP is the payment of quarterly distributions of
earnings which were $7.6, $7.5 and $7.4 million for the years ended December 31,
2004, 2003 and 2002, respectively.
33
Market Risk
We are exposed to various market risks, including changes in interest rates.
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as interest rates. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
We negotiate long-term fixed rate debt instruments and enter into interest rate
swap agreements to manage our exposure to interest rate changes. The swaps
involve the exchange of fixed and variable interest rate payments based on a
contractual principal amount and time period. Payments or receipts on the
agreements are recorded as adjustments to interest expense. During August 2004,
TWMB had an interest rate swap agreement with a notional amount of $19 million
that expired naturally. Under this agreement, TWMB received a floating interest
rate based on the 30 day LIBOR index and paid a fixed interest rate of 2.49%.
This swap effectively changed the payment of interest on $19 million of variable
rate construction debt to fixed rate debt for the contract period at a rate of
4.49%. As of December 31, 2004, we had no interest rate swap agreements.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of our total long-term debt at December 31, 2004 was $508.5
million while the recorded value was $488.0 million, respectively. A 1% increase
from prevailing interest rates at December 31, 2004 would result in a decrease
in fair value of total long-term debt by approximately $13.3 million. Fair
values were determined from quoted market prices, where available, using current
interest rates considering credit ratings and the remaining terms to maturity.
Critical Accounting Policies
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Principles of Consolidation
The consolidated financial statements include our accounts, our wholly-owned
subsidiaries, as well as the Operating Partnership and its subsidiaries.
Intercompany balances and transactions have been eliminated in consolidation.
Investments in real estate joint ventures that represent non-controlling
ownership interests are accounted for using the equity method of accounting.
Under the provisions of FIN 46R, we are considered the primary beneficiary of
our joint venture, COROC. Therefore, the results of operations and financial
position of COROC are included in our Consolidated Financial Statements.
In 2003, the FASB issued FIN 46R which clarifies the application of existing
accounting pronouncements to certain entities in which equity investors do not
have the characteristics of a controlling financial interest or do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46R were effective for all variable interests in variable interest entities
in 2004 and thereafter. We have evaluated Deer Park and TWMB (Note 5) and have
determined that under the current facts and circumstances we are not required to
consolidate these entities under the provisions of FIN 46R.
34
Acquisition of Real Estate
In accordance with Statement of Financial Accounting Standards No. 141 "Business
Combinations" ("FAS 141"), we allocate the purchase price of material
acquisitions based on the fair value of land, building, tenant improvements,
debt and deferred lease costs and other intangibles, such as the value of leases
with above or below market rents, origination costs associated with the in-place
leases, and the value of in-place leases and tenant relationships, if any. We
depreciate the amount allocated to building, deferred lease costs and other
intangible assets over their estimated useful lives, which generally range from
three to 40 years. The values of the above and below market leases are amortized
and recorded as either an increase (in the case of below market leases) or a
decrease (in the case of above market leases) to rental income over the
remaining term of the associated lease. The value associated with in-place
leases and tenant relationships is amortized over the expected term of the
relationship, which includes an estimated probability of the lease renewal and
its estimated term. If a tenant vacates its space prior to the contractual
termination of the lease and no rental payments are being made on the lease, any
unamortized balance of the related deferred lease costs will be written off. The
tenant improvements and origination costs are amortized as an expense over the
remaining life of the lease (or charged against earnings if the lease is
terminated prior to its contractual expiration date). We assess fair value based
on estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information.
If we do not allocate appropriately to the separate components of rental
property, deferred lease costs and other intangibles or if we do not estimate
correctly the total value of the property or the useful lives of the assets, our
computation of depreciation expense may be significantly understated or
overstated.
Cost Capitalization
In accordance with SFAS No. 91 "Accounting for Nonrefundable Fees and Costs
Associated with Originating or Acquiring Loans and Initial Direct Costs of
Leases--an amendment of FASB Statements No. 13, 60, and 65 and a rescission of
FASB Statement No. 17", we capitalize all incremental, direct fees and costs
incurred to initiate operating leases, including certain general and overhead
costs, as deferred charges. The amount of general and overhead costs we
capitalized is based on our estimate of the amount of costs directly related to
executing these leases. We amortize these costs to expense over the estimated
average minimum lease term.
We capitalize all costs incurred for the construction and development of
properties, including certain general and overhead costs and interest costs. The
amount of general and overhead costs we capitalize is based on our estimate of
the amount of costs directly related to the construction or development of these
assets. Direct costs to acquire assets are capitalized once the acquisition
becomes probable.
If we incorrectly estimate the amount of costs to capitalize, our financial
condition and results of operations could be adversely affected.
Impairment of Long-Lived Assets
Rental property held and used by us is reviewed for impairment in the event that
facts and circumstances indicate the carrying amount of an asset may not be
recoverable. In such an event, we compare the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount, and if less,
recognize an impairment loss in an amount by which the carrying amount exceeds
its fair value. If we do not recognize impairments at appropriate times and in
appropriate amounts, our consolidated balance sheet may overstate the value of
our long-lived assets. We believe that no impairment existed at December 31,
2004.
35
Revenue Recognition
Base rentals are recognized on a straight-line basis over the term of the lease.
Substantially all leases contain provisions which provide additional rents based
on tenants' sales volume ("percentage rentals") and reimbursement of the
tenants' share of advertising and promotion, common area maintenance, insurance
and real estate tax expenses. Percentage rentals are recognized when specified
targets that trigger the contingent rent are met. Expense reimbursements are
recognized in the period the applicable expenses are incurred. Payments received
from the early termination of leases are recognized as revenue over the
remaining lease term, as adjusted to reflect the early termination date.
New Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123R (Revised), "Share-Based Payment"
("FAS 123R"). FAS 123R is a revision of FAS No. 123, "Accounting for Stock Based
Compensation", and supersedes APB 25. Among other items, FAS 123R eliminates the
use of APB 25 and the intrinsic value method of accounting and requires
companies to recognize the cost of employee services received in exchange for
awards of equity instruments, based on the grant date fair value of those
awards, in the financial statements. FAS 123R is effective beginning with the
third quarter of 2005. FAS 123R should have no affect on our results of
operations as we adopted its requirements effective January 1, 2003 as described
above.
Economic Conditions and Outlook
The majority of our leases contain provisions designed to mitigate the impact of
inflation. Such provisions include clauses for the escalation of base rent and
clauses enabling us to receive percentage rentals based on tenants' gross sales
(above predetermined levels, which we believe often are lower than traditional
retail industry standards) which generally increase as prices rise. Most of the
leases require the tenant to pay their share of property operating expenses,
including common area maintenance, real estate taxes, insurance and advertising
and promotion, thereby reducing exposure to increases in costs and operating
expenses resulting from inflation.
While factory outlet stores continue to be a profitable and fundamental
distribution channel for brand name manufacturers, some retail formats are more
successful than others. As typical in the retail industry, certain tenants have
closed, or will close, certain stores by terminating their lease prior to its
natural expiration or as a result of filing for protection under bankruptcy
laws.
During 2005, we have approximately 1,891,000 square feet or 22% of our portfolio
coming up for renewal. If we were unable to successfully renew or release a
significant amount of this space on favorable economic terms, the loss in rent
could have a material adverse effect on our results of operations.
We renewed 88% of the 1,790,000 square feet that came up for renewal in 2004
with the existing tenants at an average base rental rate approximately equal to
the expiring rate. We also re-tenanted 427,000 square feet during 2004 at a 5%
increase in the average base rental rate.
Existing tenants' sales have remained stable and renewals by existing tenants
have remained strong. The existing tenants have already renewed approximately
689,000, or 36%, of the square feet scheduled to expire in 2005 as of February
1, 2005. In addition, we continue to attract and retain additional tenants. Our
factory outlet centers typically include well-known, national, brand name
companies. By maintaining a broad base of creditworthy tenants and a
geographically diverse portfolio of properties located across the United States,
we reduce our operating and leasing risks. No one tenant (including affiliates)
accounts for more than 6.1% of our combined base and percentage rental revenues.
Accordingly, we do not expect any material adverse impact on our results of
operation and financial condition as a result of leases to be renewed or stores
to be released.
36
As of December 31, 2004, occupancy at our portfolio of centers in which we have
an ownership interest increased 1% from 96% to 97% compared to December 31,
2003. Consistent with our long-term strategy of re-merchandising centers, we
will continue to hold space off the market until an appropriate tenant is
identified. While we believe this strategy will add value to our centers in the
long-term, it may reduce our average occupancy rates in the near term.
Sales at our outlet centers along the east coast and the Gulf of Mexico were
adversely affected by the hurricanes in September 2004. Fortunately, the
structural damage caused by the hurricanes was minimal and our property
insurance will cover the vast majority of the repair work that is being
completed as well as lost revenues during the days the centers were closed.
Customer traffic at these centers, particularly our center in Foley, Alabama,
however continues to be down significantly. We do not expect this to have a
material impact on our financial results.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth on the pages indicated in
Item 15(a) below.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of disclosure control procedures.
The Chief Executive Officer, Stanley K. Tanger, and Chief Financial
Officer, Frank C. Marchisello Jr., evaluated the effectiveness of the
registrant's disclosure controls and procedures on December 31, 2004
(Evaluation Date), and concluded that, as of the Evaluation Date, the
registrant's disclosure controls and procedures were effective to ensure
that the information the registrant is required to disclose in its filings
with the Securities and Exchange Commission under the Securities and
Exchange Act of 1934 is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms, and
to ensure that information required to be disclosed by the registrant in
the reports that it files under the Exchange Act is accumulated and
communicated to the registrant's management, including its principal
executive officer and principal financial officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Management's report on internal control over financial reporting.
Management's Report on Internal Control over Financial Reporting, which
appears on page F-1, is incorporated by reference herein.
(c) Changes in internal controls.
There were no significant changes in the registrant's internal controls or
in other factors that could significantly affect these controls subsequent
to the Evaluation Date.
37
PART III
Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
The information concerning our directors required by this Item is incorporated
by reference to our Proxy Statement.
The information concerning our executive officers required by this Item is
incorporated by reference herein to the section in Part I, Item 4, entitled
"Executive Officers of the Registrant".
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.
The information concerning our Company Code of Ethics required by this Items is
incorporated by reference to our Proxy statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to our Proxy
Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to our Proxy
Statement.
The following table provides information as of December 31, 2004 with
respect to compensation plans under which the Company's equity securities are
authorized for issuance: (c)
(c)
Number of
(a) (b) Securities Remaining
Number of Securities to Weighted Average Available for Future
be Issued Upon Exercise Exercise Price of Issuance Under Equity
of Outstanding Options, Outstanding Options, Compensation Plans
Plan Category Warrants and Rights Warrants and Rights (Excluding Securities
- ------------- ------------------- ------------------- Reflected in Column (a)
-----------------------
Equity compensation plans 818,120 $17.19 2,166,870
approved by security holders
Equity compensation plans not
approved by security holders --- --- ---
---------------------------------------------------------------------------------
Total 818,120 $17.19 2,166,870
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to our Proxy
Statement.
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A is incorporated by
reference to our Proxy Statement.
38
PART IV
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
Management's Report on Internal Control over Financial Reporting F-1
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets-December 31, 2004 and 2003 F-4
Consolidated Statements of Operations-
Years Ended December 31, 2004, 2003 and 2002 F-5
Consolidated Statements of Shareholders' Equity-
Years Ended December 31, 2004, 2003 and 2002 F-6
Consolidated Statements of Cash Flows-
Years Ended December 31, 2004, 2003 and 2002 F-7
Notes to Consolidated Financial Statements F-6 to F-26
2. Financial Statement Schedule
Schedule III
Report of Independent Registered Public Accounting Firm F-27
Real Estate and Accumulated Depreciation F-28 to F-30
All other schedules have been omitted because of the absence of conditions
under which they are required or because the required information is given
in the above-listed financial statements or notes thereto.
39
3. Exhibits
Exhibit No. Description
2.1 Purchase and Sale Agreement between COROC Holdings, LLC and various
entities dated October 3, 2003. (Note 16)
3.1 Amended and Restated Articles of Incorporation of the Company. (Note
6)
3.1A Amendment to Amended and Restated Articles of Incorporation dated
May 29, 1996. (Note 6)
3.1B Amendment to Amended and Restated Articles of Incorporation dated
August 20, 1998. (Note 9)
3.1C Amendment to Amended and Restated Articles of Incorporation dated
September 30, 1999. (Note 11)
3.2 Restated By-Laws of the Company. (Note 11)
3.3 Amended and Restated Agreement of Limited Partnership for the
Operating Partnership. (Note 11)
3.3A Amendment No. 1 to Tanger Properties Limited Partnership Amended and
Restated Agreement of Limited Partnership, dated September 10, 2002.
(Note 14)
4.1 Form of Deposit Agreement, by and between the Company and the
Depositary, including Form of Depositary Receipt. (Note 1)
4.2 Form of Preferred Stock Certificate. (Note 1)
4.3 Rights Agreement, dated as of August 20, 1998, between Tanger
Factory Outlet Centers, Inc. and BankBoston, N.A., which includes
the form of Articles of Amendment to the Amended and Restated
Articles of Incorporation, designating the preferences, limitations
and relative rights of the Class B Preferred Stock as Exhibit A, the
form of Right Certificate as Exhibit B and the Summary of Rights as
Exhibit C. (Note 8)
4.3A Amendment to Rights Agreement, dated as of October 30, 2001. (Note
13)
10.1 Amended and Restated Incentive Award Plan of Tanger Factory Outlet
Centers, Inc. and Tanger Properties Limited Partnership, effective
May 14, 2004. (Note 19)
10.3 Form of Stock Option Agreement between the Company and certain
Directors. (Note 3)
10.4 Form of Unit Option Agreement between the Operating Partnership and
certain employees. (Note 3)
10.5 Amended and Restated Employment Agreement for Stanley K. Tanger, as
of January 1, 2004. (Note 18)
10.6 Amended and Restated Employment Agreement for Steven B. Tanger, as
of January 1, 2004. (Note 18)
10.7 Amended and Restated Employment Agreement for Frank C. Marchisello,
Jr., as of January 1, 2004. (Note 18)
10.8 Amended and Restated Employment Agreement for Willard Albea Chafin,
Jr., as of January 1, 2002. (Note 13)
40
10.9 Amended and Restated Employment Agreement for Joe Nehmen, as of
January 1, 2003. (Note 15)
10.11 Registration Rights Agreement among the Company, the Tanger Family
Limited Partnership and Stanley K. Tanger. (Note 2)
10.11A Amendment to Registration Rights Agreement among the Company, the
Tanger Family Limited Partnership and Stanley K. Tanger. (Note 4)
10.11B Second Amendment to Registration Rights Agreement among the Company,
the Tanger Family Limited Partnership and Stanley K. Tanger dated
September 4, 2002. (Note 17)
10.11C Third Amendment to Registration Rights Agreement among the Company,
the Tanger Family Limited Partnership and Stanley K. Tanger dated
December 5, 2003. (Note 17)
10.12 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
(Note 2)
10.13 Assignment and Assumption Agreement among Stanley K. Tanger, Stanley
K. Tanger & Company, the Tanger Family Limited Partnership, the
Operating Partnership and the Company. (Note 2)
10.14 Promissory Notes by and between the Operating Partnership and John
Hancock Mutual Life Insurance Company aggregating $66,500,000. (Note
10)
10.15 Form of Senior Indenture. (Note 5)
10.16 Form of First Supplemental Indenture (to Senior Indenture). (Note 5)
10.16A Form of Second Supplemental Indenture (to Senior Indenture) dated
October 24, 1997 among Tanger Properties Limited Partnership, Tanger
Factory Outlet Centers, Inc. and State Street Bank & Trust Company.
(Note 7)
10.16B Form of Third Supplemental Indenture (to Senior Indenture) dated
February 15, 2001. (Note 12)
10.17 COROC Holdings, LLC Limited Liability Company Agreement dated
October 3, 2003. (Note 16)
10.18 Form of Shopping Center Management Agreement between owners of COROC
Holdings, LLC and Tanger Properties Limited Partnership. (Note 16)
21.1 List of Subsidiaries. (Note 17)
23.1 Consent of PricewaterhouseCoopers LLP.
31.1 Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.
31.2 Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes -
Oxley Act of 2002.
32.1 Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
32.2 Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes -
Oxley Act of 2002.
41
Notes to Exhibits:
1. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed October 6, 1993, as amended.
2. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed May 27, 1993, as amended.
3. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
4. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.
5. Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated March 6, 1996.
6. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
7. Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated October 24, 1997.
8. Incorporated by reference to Exhibit 1.1 to the Company's Registration
Statement on Form 8-A, filed August 24, 1998.
9. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
10. Incorporated by reference to the exhibit to the Company's Quarterly Report
on 10-Q for the quarter ended March 31, 1999.
11. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1999.
12. Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated February 16, 2001.
13. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 2001.
14. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 2002.
15. Incorporated by reference to the exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003.
16. Incorporated by reference to the exhibits to the Company's Current Report
on Form 8-K dated December 8, 2003.
17. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 2003.
18. Incorporated by reference to the exhibits to the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 2004.
19. Incorporated by reference to the Appendix A of the Company's definitive
proxy statement filed on Schedule 14A dated April 12, 2004.
(b) Reports on Form 8-K
October 26, 2004 8-K - We furnished a Current Report on Form 8-K containing
under Item 2.02 our press release for the quarter ended September 30, 2004
and under Item 7.01 the September 30, 2004 Supplemental Operating and
Financial Data.
October 27, 200 8-K/A - We furnished a Current Report on Form 8-K which
contained our press release as furnished to the public on October 26, 2004
under Item 2.02.
November 29, 2004 8-K - We filed a Current Report on Form 8-K containing
under Item 8.01 our press release to announce that our Board of Directors
declared a 2 for 1 split of our common shares.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ Stanley K. Tanger
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer
March 14, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Stanley K. Tanger Chairman of the Board and Chief March 14, 2005
Stanley K. Tanger Executive Officer (Principal
Executive Officer)
/s/ Steven B. Tanger Director, President and March 14, 2005
Steven B. Tanger Chief Operating Officer
/s/ Frank C. Marchisello Jr. Executive Vice President and March 14, 2005
Frank C. Marchisello Jr. Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Jack Africk Director March 14, 2005
Jack Africk
/s/ William G. Benton Director March 14, 2005
William G. Benton
/s/ Thomas E. Robinson Director March 14, 2005
Thomas E. Robinson
/s/ Allan L. Schuman Director March 14, 2005
Allan L. Schuman
43
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate
internal control over financial reporting, and for performing an assessment of
the effectiveness of internal control over financial reporting as of December
31, 2004. Internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. The Company's system of internal
control over financial reporting includes those policies and procedures that (i)
pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2004 based upon
criteria in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO"). Based on our
assessment, management determined that the Company's internal control over
financial reporting was effective as of December 31, 2004 based on the criteria
in Internal Control-Integrated Framework issued by COSO.
Our management's assessment of the effectiveness of the Company's internal
control over financial reporting as of December 31, 2004 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which appears herein.
March 14, 2005
/s/ Stanley K. Tanger
Stanley K. Tanger
Chairman of the Board of Directors and Chief Executive Officer
/s/ Frank C. Marchisello Jr.
Frank C. Marchisello Jr.
Executive Vice President and Chief Financial Officer
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of Tanger Factory Outlet Centers, Inc.:
We have completed an integrated audit of Tanger Factory Outlet Centers, Inc.'s
2004 consolidated financial statements and of its internal control over
financial reporting as of December 31, 2004 and audits of its 2003 and 2002
consolidated financial statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Our opinions, based on our
audits, are presented below.
Consolidated financial statements
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of shareholders' equity and of cash flows
present fairly, in all material respects, the financial position of Tanger
Factory Outlet Centers, Inc. and its subsidiaries at December 31, 2004 and 2003,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2004 in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit of financial statements includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Internal control over financial reporting
Also, in our opinion, management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that the
Company maintained effective internal control over financial reporting as of
December 31, 2004 based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO), is fairly stated, in all material respects, based on those
criteria. Furthermore, in our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31,
2004, based on criteria established in Internal Control - Integrated Framework
issued by COSO. The Company's management is responsible for maintaining
effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our
responsibility is to express opinions on management's assessment and on the
effectiveness of the Company's internal control over financial reporting based
on our audit. We conducted our audit of internal control over financial
reporting in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material
respects. An audit of internal control over financial reporting includes
obtaining an understanding of internal control over financial reporting,
evaluating management's assessment, testing and evaluating the design and
operating effectiveness of internal control, and performing such other
procedures as we consider necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinions.
F-2
A company's internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (i) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 14, 2005
F-3
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2004 2003
- --------------------------------------------------------------------------------------------------------------
ASSETS
Rental property
Land $ 113,830 $ 119,833
Buildings, improvements and fixtures 963,563 958,720
- --------------------------------------------------------------------------------------------------------------
1,077,393 1,078,553
Accumulated depreciation (224,622) (192,698)
- --------------------------------------------------------------------------------------------------------------
Rental property, net 852,771 885,855
Cash and cash equivalents 4,103 9,836
Deferred charges, net 58,851 68,568
Other assets 20,653 23,178
- --------------------------------------------------------------------------------------------------------------
Total assets $ 936,378 $ 987,437
- --------------------------------------------------------------------------------------------------------------
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
Liabilities
Debt
Senior, unsecured note $ 100,000 $ 147,509
Mortgages payable (including a premium of $9,346 and $11,852, respectively) 308,342 370,160
Unsecured note 53,500 ---
Lines of credit 26,165 22,650
- --------------------------------------------------------------------------------------------------------------
Total debt 488,007 540,319
Construction trade payables 11,918 4,345
Accounts payable and accrued expenses 17,026 18,025
- --------------------------------------------------------------------------------------------------------------
Total liabilities 516,951 562,689
- --------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interests
Consolidated joint venture 222,673 218,148
Operating partnership 35,621 39,182
- --------------------------------------------------------------------------------------------------------------
Total minority interests 258,294 257,330
Shareholders' equity
Common shares, $.01 par value, 50,000,000 shares authorized,
27,443,016 and 25,921,286 shares issued and outstanding
at December 31, 2004 and 2003, respectively 274 260
Paid in capital 274,340 249,940
Distributions in excess of net income (109,506) (82,737)
Deferred compensation (3,975) ---
Accumulated other comprehensive loss --- (45)
- --------------------------------------------------------------------------------------------------------------
Total shareholders' equity 161,133 167,418
- --------------------------------------------------------------------------------------------------------------
Total liabilities, minority interests and shareholders' equity $ 936,378 $ 987,437
- --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
REVENUES
Base rentals $ 129,884 $ 78,319 $ 71,109
Percentage rentals 5,338 3,179 3,526
Expense reimbursements 52,585 33,053 28,642
Other income 6,746 3,508 3,211
- --------------------------------------------------------------------------------------------------------------------
Total revenues 194,553 118,059 106,488
- --------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 59,759 38,968 33,584
General and administrative 12,820 9,551 9,211
Depreciation and amortization 51,446 28,231 27,048
- --------------------------------------------------------------------------------------------------------------------
Total expenses 124,025 76,750 69,843
- --------------------------------------------------------------------------------------------------------------------
Operating income 70,528 41,309 36,645
Interest expense 35,117 26,486 28,460
- --------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint ventures,
minority interests and discontinued operations 35,411 14,823 8,185
Equity in earnings of unconsolidated joint ventures 1,042 819 392
Minority interests:
Consolidated joint venture (27,144) (941) ---
Operating partnership (1,701) (3,169) (1,750)
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations 7,608 11,532 6,827
Discontinued operations, net of minority interest (562) 1,317 4,180
- --------------------------------------------------------------------------------------------------------------------
Net income 7,046 12,849 11,007
Less applicable preferred share dividends --- (806) (1,771)
- --------------------------------------------------------------------------------------------------------------------
Net income available to common shareholders $ 7,046 $ 12,043 $ 9,236
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Income from continuing operations $ .28 $ .53 $ .30
Net income $ .26 $ .60 $ .55
- --------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Income from continuing operations $ .28 $ .52 $ .30
Net income $ .26 $ .59 $ .54
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 2004, 2003, and 2002
(In thousands, except share data)
Accumulated
Distributions Other Total
Preferred Common Paid in in Excess of Deferred Comprehensive Shareholders'
Shares Shares Capital Net Income Compensation Income Equity
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 $ 1 $ 158 $ 136,450 $ (59,534) $ - $ (704) $ 76,371
Comprehensive income:
Net income - - - 11,007 - - 11,007
Other comprehensive gain - - - - - 541 541
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 11,007 - 541 11,548
Conversion of 410 preferred shares
into 7,388 common shares - - - - - - -
Issuance of 255,240 common shares upon
exercise of unit options - 2 2,792 - - - 2,794
Issuance of 2.0 million common shares,
net of issuance costs of $1.3 million - 20 27,940 - - - 27,960
Adjustment for minority interest in
the Operating Partnership - - (6,080) - - - (6,080)
Preferred dividends ($22.05 per share) - - - (1,771) - - (1,771)
Common dividends ($1.225 per share) - - - (20,187) - - (20,187)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 1 180 161,102 (70,485) - (163) 90,635
Comprehensive income:
Net income - - - 12,849 - - 12,849
Other comprehensive gain - - - - - 118 118
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 12,849 - 118 12,967
Conversion of 78,701 preferred shares
into 1,418,156 common shares (1) 14 (13) - - - -
Redemption of 1,489 preferred shares - - (372) - - - (372)
Compensation under Share and Unit Option Plan- - 80 - - - 80
Issuance of 1,781,080 common shares upon
exercise of unit options - 20 20,593 - - - 20,613
Issuance of 4.6 million common shares,
net of issuance costs of $5.2 million - 46 87,946 - - - 87,992
Adjustment for minority interest in
the Operating Partnership - - (19,396) - - - (19,396)
Preferred dividends ($13.21 per share) - - - (890) - - (890)
Common dividends ($1.23 per share) - - - (24,211) - - (24,211)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 - 260 249,940 (82,737) - (45) 167,418
Comprehensive income:
Net income - - - 7,046 - - 7,046
Other comprehensive gain - - - - - 45 45
- ------------------------------------------------------------------------------------------------------------------------------------
Total comprehensive income - - - 7,046 - 45 7,091
Compensation under Incentive Award Plan - - 54 - 1,422 - 1,476
Issuance of 619,480 common shares upon
exercise of unit options - 6 8,160 - - - 8,166
Issuance of 690,000 common shares,
net of issuance costs of $799 - 6 13,167 - - - 13,173
Grant of share and unit options and 212,250
restricted shares, net of forfeitures - 2 5,395 - (5,397) - -
Adjustment for minority interest in
the Operating Partnership - - (2,376) - - - (2,376)
Common dividends ($1.245 per share) - - - (33,815) - - (33,815)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 $ - $ 274 $ 274,340 $ (109,506) $ (3,975) $ - $ 161,133
- ------------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 7,046 $ 12,849 $ 11,007
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization (including discontinued operations) 51,999 29,697 28,989
Amortization of deferred financing costs 1,454 1,304 1,209
Equity in earnings of unconsolidated joint ventures (1,042) (819) (392)
Distributions received from unconsolidated joint ventures 1,975 1,775 520
Consolidated joint venture minority interest 27,144 941 ---
Operating partnership minority interest (including discontinued operations) 1,580 3,550 3,273
Compensation expense related to restricted shares and share options granted 1,476 102 ---
Amortization of premium on assumed indebtedness (2,506) (149) ---
(Gain) loss on sale of real estate 1,460 147 (1,702)
(Gain) on sale of outparcels of land (1,510) --- (728)
Net accretion of market rent rate adjustment (1,065) (37) ---
Straight-line base rent adjustment (389) 149 248
Increase (decrease) due to changes in:
Other assets (1,889) (6,194) (2,168)
Accounts payable and accrued expenses (917) 3,246 (569)
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activites 84,816 46,561 39,687
- --------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of rental properties --- (324,557) (37,500)
Additions to rental properties (15,836) (9,342) (5,847)
Additions to investments in unconsolidated joint ventures --- (4,270) (130)
Additions to deferred lease costs (1,973) (1,576) (1,630)
Net proceeds from sale of real estate 20,416 8,671 21,435
Increase (decrease) in escrow from rental property sale --- 4,008 (4,008)
Other --- (2) 797
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 2,607 (327,068) (26,883)
- --------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash dividends paid (33,815) (25,101) (21,958)
Distributions to consolidated joint venture minority interest (22,619) --- ---
Distributions to operating partnership minority interest (7,554) (7,453) (7,424)
Net proceeds from sale of common shares 13,173 87,992 27,960
Contributions from minority interest partner in consolidated joint venture --- 217,207 ---
Proceeds from issuance of debt 88,600 133,631 126,320
Repayments of debt (138,406) (136,574) (139,510)
Additions to deferred financing costs (701) (672) (429)
Payments for redemption of preferred shares --- (372) ---
Proceeds from exercise of share and unit options 8,166 20,613 2,794
- ------------------------------------------------------------------------------------------------------------------------
Net cash (used in)provided by financing activities (93,156) 289,271 (12,247)
- ------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (5,733) 8,764 557
Cash and cash equivalents, beginning of year 9,836 1,072 515
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 4,103 $ 9,836 $ 1,072
- ------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of the Company
Tanger Factory Outlet Centers, Inc., a fully-integrated, self-administered,
self-managed real estate investment trust ("REIT"), develops, owns and operates
factory outlet centers. We are recognized as one of the largest owners and
operators of factory outlet centers in the United States with ownership
interests in or management responsibilities for 36 centers in 23 states totaling
approximately 8.8 million feet of gross leasable area at the end of 2004. We
provide all development, leasing and management services for our centers. 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.
Our factory outlet centers and other assets are held by, and all of our
operations are conducted by, Tanger Properties Limited Partnership. The majority
of the units of partnership interest issued by the Operating Partnership (the
"Units") are held by two wholly owned subsidiaries, the Tanger GP Trust and the
Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its
sole general partner. The Tanger LP Trust holds a limited partnership interest.
All of the remaining Units are owned by the Tanger Family through the Tanger
Family Limited Partnership ("TFLP").
As of December 31, 2004, our wholly-owned subsidiaries owned 13,721,508 Units
and TFLP owned the remaining 3,033,305 Units. The Operating Partnership and
TFLP's Units are exchangeable, subject to certain limitations to preserve our
status as a REIT, on a two-for-one basis for our common shares.
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include our
accounts, our wholly-owned subsidiaries, as well as the Operating Partnership
and its subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation. Investments in real estate joint ventures that
represent non-controlling ownership interests are accounted for using the equity
method of accounting.
In 2003, the Financial Accounting Standards Board ("FASB") issued Financial
Accountings Standards Board Interpretation No. 46 (Revised 2003): "Consolidation
of Variable Interest Entities: An Interpretation of ARB No. 51 ("FIN 46R") which
clarifies the application of existing accounting pronouncements to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from other parties. The provisions of FIN 46R were effective for all
variable interests in variable interest entities in 2004 and thereafter. We are
considered the primary beneficiary of our joint venture, COROC Holdings, LLC
("COROC"), under the provisions of FIN 46R. Therefore, the results of operations
and financial position of COROC are included in our Consolidated Financial
Statements. We have evaluated Deer Park Enterprise, LLC ("Deer Park") and TWMB
Associates, LLC ("TWMB") (Note 5) and have determined that under the current
facts and circumstances we are not required to consolidate these entities under
the provisions of FIN 46R.
Share Split - Our Board of Directors declared a 2 for 1 split of our common
shares on November 29, 2004, effected in the form of a share dividend, payable
on December 28, 2004. We retained the current par value of $.01 per share for
all common shares. All references to the number of shares outstanding, per share
amounts and share option data of our common shares have been restated to reflect
the effect of the split for all periods presented. Shareholders' equity reflects
the split by reclassifying from additional paid-in capital to common shares an
amount equal to the par value of the additional shares arising from the split.
Minority Interests - "Minority Interest Operating Partnership" reflects TFLP's
percentage ownership of the Operating Partnership's Units. Income is allocated
to the TFLP based on its respective ownership interest. "Minority interest
Consolidated Joint Venture" reflects our partner's ownership interest in the
COROC joint venture which is consolidated under the provisions of FIN 46R.
F-8
Related Parties - We account for related party transactions under the guidance
of Statement of Financial Accounting Standards No. 57 "Related Party
Disclosures". TFLP (Note 1) is a related party which holds a limited partnership
interest in and is the minority owner of the Operating Partnership. Stanley K.
Tanger, the Company's Chairman of the Board and Chief Executive Officer, is the
sole general partner of TFLP. The only material related party transaction with
TFLP is the payment of quarterly distributions of earnings which were $7.6, $7.5
and $7.4 million for the years ended December 31, 2004, 2003 and 2002,
respectively.
The nature of our relationships and the related party transactions for our
unconsolidated joint ventures are discussed in Footnote 5.
Reclassifications - Certain amounts in the 2003 and 2002 financial statements
have been reclassified to conform to the 2004 presentation.
Use of Estimates - The preparation of financial statements 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 assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Operating Segments - We aggregate the financial information of all centers into
one reportable operating segment because the centers all have similar economic
characteristics and provide similar products and services to similar types and
classes of customers.
Rental Property - Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the construction and development of properties,
including certain general and overhead costs, are capitalized. The amount of
general and overhead costs capitalized is based on our estimate of the amount of
costs directly related to the construction or development of these assets.
Direct costs to acquire assets are capitalized once the acquisition becomes
probable. Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. We generally use estimated lives ranging from 25 to
33 years for buildings, 15 years for land improvements and seven years for
equipment. Expenditures for ordinary maintenance and repairs are charged to
operations as incurred while significant renovations and improvements, including
tenant finishing allowances, that improve and/or extend the useful life of the
asset are capitalized and depreciated over their estimated useful life.
In accordance with Statement of Financial Accounting Standards No. 141 "Business
Combinations" ("FAS 141"), we allocate the purchase price of material
acquisitions based on the fair value of land, building, tenant improvements,
debt and deferred lease costs and other intangibles, such as the value of leases
with above or below market rents, origination costs associated with the in-place
leases, and the value of in-place leases and tenant relationships, if any. We
depreciate the amount allocated to building, deferred lease costs and other
intangible assets over their estimated useful lives, which generally range from
three to 40 years. The values of the above and below market leases are amortized
and recorded as either an increase (in the case of below market leases) or a
decrease (in the case of above market leases) to rental income over the
remaining term of the associated lease. The value associated with in-place
leases and tenant relationships is amortized over the expected term of the
relationship, which includes an estimated probability of the lease renewal and
its estimated term. If a tenant vacates its space prior to the contractual
termination of the lease and no rental payments are being made on the lease, any
unamortized balance of the related deferred lease costs will be written off. The
tenant improvements and origination costs are amortized as an expense over the
remaining life of the lease (or charged against earnings if the lease is
terminated prior to its contractual expiration date). We assess fair value based
on estimated cash flow projections that utilize appropriate discount and
capitalization rates and available market information.
Buildings, improvements and fixtures consist primarily of permanent buildings
and improvements made to land such as landscaping and infrastructure and costs
incurred in providing rental space to tenants. Interest costs capitalized during
2004, 2003 and 2002 amounted to $201,000, $141,000 and $172,000, respectively
and development costs capitalized amounted to $684,000, $479,000 and $467,000,
respectively. Depreciation expense for each of the years ended December 31,
2004, 2003 and 2002 was $38,968,000, $27,211,000 and $26,906,000, respectively.
F-9
The pre-construction stage of project development involves certain costs to
secure land control and zoning and complete other initial tasks essential to the
development of the project. These costs are transferred from other assets to
rental property under construction when the pre-construction tasks are
completed. Costs of unsuccessful pre-construction efforts are charged to
operations when the project is abandoned.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less at the date of purchase are considered to be
cash and cash equivalents. Cash balances at a limited number of banks may
periodically exceed insurable amounts. We believe that we mitigate our risk by
investing in or through major financial institutions. Recoverability of
investments is dependent upon the performance of the issuer.
Deferred Charges - Deferred lease costs and other intangible assets consist of
fees and costs incurred, including certain general and overhead costs, to
initiate operating leases and are amortized over the average minimum lease term.
Deferred lease costs and other intangible assets also include the value of
leases and origination costs deemed to have been acquired in real estate
acquisitions in accordance with FAS 141. See "Rental Property" under this
section above for a discussion. Deferred financing costs include fees and costs
incurred to obtain long-term financing and are amortized over the terms of the
respective loans. Unamortized deferred financing costs are charged to expense
when debt is retired before the maturity date.
Guarantees of Indebtedness - In November 2002, the FASB issued Interpretation
No. 45, "Guarantors Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"), which
addresses the disclosure to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees. FIN 45 applies to
all guarantees entered into or modified after December 31, 2002. Based on this
criterion, the guarantee of indebtedness by us in Deer Park (Note 5) is
accounted for under the provisions of FIN 45. FIN 45 requires the guarantor to
recognize a liability for the non-contingent component of the guarantee; this is
the obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. We recorded at inception, the fair value of
our guarantee of the Deer Park joint venture's debt as a debit to our investment
in Deer Park and a credit to a liability of approximately $121,000. We have
elected to account for the release from obligation under the guarantee by the
straight-line amortization method over the life of the guarantee. The value of
the guarantee was $48,000 and $109,000 at December 31, 2004 and 2003,
respectively.
Impairment of Long-Lived Assets - Rental property held and used by us is
reviewed for impairment in the event that facts and circumstances indicate the
carrying amount of an asset may not be recoverable. In such an event, we compare
the estimated future undiscounted cash flows associated with the asset to the
asset's carrying amount, and if less, recognize an impairment loss in an amount
by which the carrying amount exceeds its fair value. We believe that no material
impairment existed at December 31, 2004.
Real estate assets designated as held for sale are stated at their fair value
less costs to sell. We classify real estate as held for sale when it meets the
requirements of Statement of Financial Accounting Standards No. 144, "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("FAS 144") and our Board
of Directors approves the sale of the assets. Subsequent to this classification,
no further depreciation is recorded on the assets. The operating results of
newly designated real estate assets held for sale and for assets sold are
included in discontinued operations in our results of operations.
Derivatives - We selectively enter into interest rate protection agreements to
mitigate changes in interest rates on our variable rate borrowings. The notional
amounts of such agreements are used to measure the interest to be paid or
received and do not represent the amount of exposure to loss. None of these
agreements are used for speculative or trading purposes.
F-10
We recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at their fair value in accordance
with Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by FAS 137 and FAS
138, (collectively, "FAS 133"). FAS 133 also requires us to measure the
effectiveness, as defined by FAS 133, of all derivatives. We formally document
our derivative transactions, including identifying the hedge instruments and
hedged items, as well as our risk management objectives and strategies for
entering into the hedge transaction. At inception and on a quarterly basis
thereafter, we assess the effectiveness of derivatives used to hedge
transactions. If a derivative is deemed effective, we record the change in fair
value in other comprehensive income. If after assessment it is determined that a
portion of the derivative is ineffective, then that portion of the derivative's
change in fair value will be immediately recognized in earnings.
Income Taxes - We operate in a manner intended to enable us to qualify as a REIT
under the Internal Revenue Code (the "Code"). A REIT which distributes at least
90% of its taxable income to its shareholders each year and which meets certain
other conditions is not taxed on that portion of its taxable income which is
distributed to its shareholders. We intend to continue to qualify as a REIT and
to distribute substantially all of our taxable income to our shareholders.
Accordingly, no provision has been made for Federal income taxes. We paid
preferred dividends per share of $13.21, and $22.05, in 2003 and 2002,
respectively, all of which are treated as ordinary income except for the 2002
dividend of which $.02 was treated as a long-term capital gain. For income tax
purposes, distributions paid to common shareholders consist of ordinary income,
capital gains, return of capital or a combination thereof. For the year ended
December 31, 2002, we elected to distribute all of our taxable capital gains.
Dividends per share were taxable as follows:
Common dividends per share: 2004 2003 2002
- ------------------------------------ -------------- ----------- ------------
Ordinary income $ .448 $ .270 $ .367
Return of capital .797 .959 .845
Long-term capital gain --- --- .012
- ------------------------------------ -------------- ----------- ------------
$1.245 $1.229 $1.224
- ------------------------------------ -------------- ----------- ------------
The following reconciles net income available to common shareholders to taxable
income available to common shareholders for the years ended December 31, 2004,
2003 and 2002:
2004 2003 2002
- ----------------------------------------------- ------------ ------------- --------------
Net income available to common shareholders $7,046 $ 12,043 $ 9,236
Book/tax difference on:
Depreciation and amortization 356 (474) (1,092)
Loss on sale or disposal of real estate (1,180) (2,470) (1,580)
COROC income allocation 6,237 --- ---
Stock option compensation (3,782) (6,689) (407)
Other differences 1,287 (31) (542)
- ----------------------------------------------- ------------ ------------- --------------
Taxable income available to common shareholders $ 9,964 $ 2,379 $ 5,615
- ----------------------------------------------- ------------ ------------- --------------
Revenue Recognition - Base rentals are recognized on a straight-line basis over
the term of the lease. Substantially all leases contain provisions which provide
additional rents based on tenants' sales volume ("percentage rentals") and
reimbursement of the tenants' share of advertising and promotion, common area
maintenance, insurance and real estate tax expenses. Percentage rentals are
recognized when specified targets that trigger the contingent rent are met.
Expense reimbursements are recognized in the period the applicable expenses are
incurred. Payments received from the early termination of leases are recognized
as revenue over the remaining lease term, as adjusted to reflect the early
termination date.
We provide management, leasing and development services for a fee for certain
properties that are not owned by us or are partly owned through a joint venture.
Fees received for these services are recognized as other income when earned.
Concentration of Credit Risk - We perform ongoing credit evaluations of our
tenants. Although the tenants operate principally in the retail industry, the
properties are geographically diverse. No single tenant accounted for 10% or
more of combined base and percentage rental income during 2004, 2003 or 2002.
F-11
Supplemental Cash Flow Information - We purchase capital equipment and incur
costs relating to construction of new facilities, including tenant finishing
allowances. Expenditures included in construction trade payables as of December
31, 2004, 2003 and 2002 amounted to $11,918,000, $4,345,000 and $3,310,000,
respectively. Interest paid, net of interest capitalized, in 2004, 2003 and 2002
was $36,735,000, $24,906,000 and $27,512,000, respectively.
Non cash financing activities that occurred during 2003 included the assumption
of mortgage debt in the amount of $198,258,000, including a premium of
$11,852,000 related to the acquisition of the Charter Oak portfolio by COROC.
Also, in 2003 and as discussed in Note 10, we converted 78,701 of our Preferred
Shares into 1,418,156 of our Common Shares.
Accounting for Stock Based Compensation - The Company may issue non-qualified
share options and other share-based awards under the Amended and Restated
Incentive Award Plan ("the Incentive Award Plan"). Prior to 2003, this plan was
accounted for under the recognition and measurement provisions of APB Opinion
No. 25, "Accounting for Stock Issued to Employees", and related interpretations.
No share-based employee compensation cost was reflected in net income prior to
2003, as all options granted under those plans had an exercise price equal to
the market value of the underlying common shares on the date of grant. Effective
January 1, 2003, we adopted the fair value recognition provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). Under the modified prospective method of adoption
selected by us under the provisions of Statement of Financial Accounting
Standards No. 148, "Accounting for Stock-Based Compensation-Transition and
Disclosure - An Amendment of FAS 123" ("FAS 148"), compensation cost recognized
in 2003 is the same as that which would have been recognized had the recognition
provisions of FAS 123 been applied from its original effective date. In
accordance with this adoption method under FAS 148, results for prior periods
have not been restated. See Note 13 for an illustration of the effect on net
income and earnings per share if the fair value based method had been applied to
all outstanding awards in 2002.
New Accounting Pronouncements - In December 2004, the FASB issued SFAS No. 123R
(Revised), "Share-Based Payment" ("FAS 123R"). FAS 123R is a revision of FAS No.
123, "Accounting for Stock Based Compensation", and supersedes APB 25. Among
other items, FAS 123R eliminates the use of APB 25 and the intrinsic value
method of accounting and requires companies to recognize the cost of employee
services received in exchange for awards of equity instruments, based on the
grant date fair value of those awards, in the financial statements. FAS 123R
should have no affect on our results of operations as we adopted its
requirements effective January 1, 2003 as described above.
3. Acquisitions and Development of Rental Properties
In January 2003, we acquired a 29,000 square foot, 100% leased expansion located
contiguous to our existing factory outlet center in Sevierville, Tennessee at a
purchase price of $4.7 million. Construction of an additional 35,000 square foot
expansion of the center was completed during the third quarter of 2003 and
opened 100% occupied. The cost of the expansion was approximately $4 million.
The Sevierville center now totals approximately 419,000 square feet.
In September 2002, we completed the acquisition of Kensington Valley Factory
Shops, a factory outlet center in Howell, Michigan containing approximately
325,000 square feet, for an aggregate purchase price of $37.5 million. The
acquisition was funded with $16.8 million of net proceeds from the sale of our
non-core property in Fort Lauderdale, Florida in June 2002 and a portion of the
proceeds from the common share offering in September 2002 described in Note 10.
F-12
4. Investments in Consolidated Real Estate Joint Ventures
COROC Holdings, LLC
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet which is consolidated for financial reporting purposes under the
provisions of FIN 46R. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC, for $491.0 million, including the assumption
of $186.4 million of cross-collateralized debt which has a stated, fixed
interest rate of 6.59% and matures in July 2008. We recorded the debt at its
fair value of $198.3 million with an effective interest rate of 4.97%.
Accordingly, a debt premium of $11.9 million was recorded and is being amortized
over the life of the debt. We financed the majority of our share of the equity
required for the transaction through the issuance of 4.6 million common shares
on December 10, 2003, generating approximately $88.0 million in net proceeds.
The results of the Charter Oak portfolio have been included in the consolidated
financial statements since December 19, 2003.
We have joint control with Blackstone over major decisions. If Blackstone does
not receive an annual minimum cash return of 6% on their invested capital during
any of the first three years and 7% in any year thereafter, Blackstone shall
gain the right to become the sole managing member of the joint venture with
complete authority to act for the joint venture, including the ability to
dispose of one or more of the joint venture properties to a third party. Based
on current available cash flows from the properties, we do not believe there is
a significant risk of default under this provision.
We provide operating, management, leasing and marketing services to the
properties and earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We may also earn an additional annual
incentive fee of up to approximately $800,000 if certain annual increases in the
net operating income are met on an annual basis. These fees are payable prior
to, and are not subordinate to, any member distributions that may be required.
Blackstone shall have the right to terminate the management agreement for the
joint venture if it does not receive its minimum cash return as described above.
After an initial 42-month lock-up period, either party can enter into an
agreement for the sale the Charter Oak portfolio, subject to a right of first
offer of the other party to acquire the entire portfolio.
During the operation of the joint venture, Blackstone will receive a preferred
cash distribution of 10% on their invested capital. We will then receive a
preferred cash distribution of 10% on our invested capital. Any remaining cash
flows from ongoing operations will be distributed one-third to Blackstone and
two-thirds to us.
Upon exit or the sale of the properties, to the extent that cash is available,
Blackstone will first receive a distribution equal to their invested capital and
any unpaid preferred cash distribution. We will then receive any unpaid
preferred cash distribution. Blackstone will then receive an additional 2%
annual preferred cash distribution. We will then receive a distribution equal to
our invested capital and an additional 2% annual preferred cash distribution.
Finally, any remaining proceeds will be distributed one-third to Blackstone and
two-thirds to us.
F-13
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed as of December 19, 2003, the date of acquisition (in
thousands).
- ---------------------------------------------------------- ---------------------
Rental property $ 454,846
Deferred lease costs and other intangibles:
Below market lease value (878)
Lease in place value 56,856
Present value of lease costs 2,103
Present value of legal costs 1,902
- ---------------------------------------------------------- ---------------------
Total deferred lease costs and other intangibles 59,983
Other assets 3,285
- ---------------------------------------------------------- ---------------------
Subtotal 518,114
Debt (including debt premium of $11,852) (198,258)
- ---------------------------------------------------------- ---------------------
Net assets acquired $ 319,856
- ---------------------------------------------------------- --------------------
The total deferred lease costs and other intangibles in the table above have a
weighted average useful life of 8.6 years.
The following table reconciles the purchase price of $491 million to the total
assets recorded (in thousands):
- ---------------------------------------------------------- ---------------------
Purchase price $ 491,000
Acquisition costs 15,262
Debt premium 11,852
- ---------------------------------------------------------- ---------------------
Total $ 518,114
- ---------------------------------------------------------- ---------------------
F-14
The following condensed pro forma (unaudited) information assumes the
acquisition had occurred as of the beginning of each respective period and that
the issuance of 4.6 million common shares also occurred as of the beginning of
each respective period (in thousands except per share data):
For the Year Ended
December 31,
2003 2002
- ---------------------------------------------- --------------- ---------------
Revenues $ 190,844 $ 182,476
- ---------------------------------------------- --------------- ---------------
Net income $ 6,380 $ 4,963
- ---------------------------------------------- --------------- ---------------
Basic earnings per share:
Net income $ .23 $ .15
Weighted average common shares outstanding 24,500 21,244
- ---------------------------------------------- --------------- ---------------
Diluted earnings per share:
Net income $ .22 $ .15
Weighted average common shares outstanding 24,964 21,628
- ---------------------------------------------- --------------- ---------------
5. Investments in Unconsolidated Real Estate Joint Ventures
Our investment in unconsolidated real estate joint ventures as of December 31,
2004 and 2003 was $6.7 million and $7.5 million, respectively. These investments
are recorded initially at cost and subsequently adjusted for our net equity in
the venture's income (loss) and cash contributions and distributions. Our
investments in real estate joint ventures are included in other assets and are
also reduced by 50% of the profits earned for leasing and development services
we provided to TWMB. The following management, leasing and development fees were
recognized from services provided to TWMB during the year ended December 31,
2004, 2003 and 2002 (in thousands):
Year Ended
December 31,
2004 2003 2002
- ----------------------------------- ------------ ------------ ------------
Fee:
Management $288 $ 174 $74
Leasing 212 214 259
Development 28 9 76
- ----------------------------------- ------------ ------------ ------------
Total Fees $528 $ 397 $409
- ----------------------------------- ------------ ------------ ------------
Our carrying value of investments in unconsolidated joint ventures differs from
our share of the assets reported in the "Summary Balance Sheets - Unconsolidated
Joint Ventures" shown below due to adjustments to the book basis, including
intercompany profits on sales of services that are capitalized by the
unconsolidated joint ventures. The differences in basis are amortized over the
various useful lives of the related assets.
TWMB Associates, LLC
In September 2001, we established TWMB to construct and operate the Tanger
Outlet Center in Myrtle Beach, South Carolina. The Company and Rosen-Warren each
contributed $4.3 million in cash for a total initial equity in TWMB of $8.6
million. In June 2002 the first phase opened with approximately 260,000 square
feet. Since 2002 we have opened two additional phases with the final one opening
in the summer of 2004. Total additional equity contributions for the second and
third phases were $2.8 million by each partner. The Myrtle Beach center now
consists of approximately 402,000 square feet and has over 90 name brand
tenants. The center cost approximately $51.1 million to construct.
F-15
In conjunction with the construction of the center, TWMB closed on a
construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and Wachovia Corporation due in September 2005. As of December 31, 2004
the construction loan had a balance of $35.1 million. In August of 2002, TWMB
entered into an interest rate swap agreement with Bank of America, NA effective
through August 2004 with a notional amount of $19 million. Under this agreement,
TWMB received a floating interest rate based on the 30 day LIBOR index and paid
a fixed interest rate of 2.49%. This swap effectively changed the payment of
interest on $19 million of variable rate debt to fixed rate debt for the
contract period at a rate of 4.49%. The construction loan incurred by this
unconsolidated joint venture is collateralized by its property as well as joint
and several guarantees by Rosen-Warren and the Company.
TWMB has a commitment letter from Bank of America for permanent financing with
the center serving as collateral. The loan is expected to be $36.8 million with
a variable interest rate of LIBOR plus 1.40%. The term is for five years with
interest payments only and may be extended for an additional two years. There
are no guarantees associated with the debt. We expect to close on the permanent
financing during the first half of 2005.
Deer Park Enterprise, LLC
During the third quarter of 2003, we established a wholly owned subsidiary,
Tanger Deer Park, LLC ("Tanger Deer Park"). In September 2003, Tanger Deer Park
entered into a joint venture agreement with two other members to create Deer
Park. All members in the joint venture have an equal ownership interest of
33.33%. Deer Park was formed for the purpose of, but not limited to, developing
a site located in Deer Park, New York with approximately 790,000 square feet
planned at total buildout. We expect the site will contain both outlet and big
box retail tenants.
Each of the three members made an equity contribution of $1.6 million. In
conjunction with the real estate purchase, Deer Park closed on a loan in the
amount of $19 million with Fleet Bank due in October 2005 and a purchase money
mortgage note with the seller in the amount of $7 million. Deer Park's Fleet
loan incurs interest at a floating interest rate equal to LIBOR plus 2.00% and
is collateralized by the property as well as joint and several guarantees by all
three parties. The purchase money mortgage note bears no interest. However,
interest has been imputed for financial statement purposes at a rate which
approximates fair value.
In October 2003, Deer Park entered into a sale-leaseback transaction for the
above mentioned real estate located in Deer Park, New York. The agreement
consisted of the sale of the property to Deer Park for $29 million which is
being leased back to the seller under an operating lease agreement. In November
2004, the tenant gave notice (within the terms of the lease) that they intend to
vacate the facility in May 2005, thus ending the existing operating lease
agreement. Under the provisions of FASB Statement No. 67 "Accounting for Costs
and Initial Rental Operations of Real Estate Projects", current rents received
from this project, net of applicable expenses, are treated as incidental
revenues and will be recognized as a reduction in the basis of the assets, as
opposed to rental revenues, over the life of the lease until such time that the
current project is demolished and the intended assets are constructed.
F-16
Condensed combined summary unaudited financial information of joint ventures
accounted for using the equity method is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures: 2004 2003
- ------------------------------------------------ --------------- --------------
Assets:
Investment properties at cost, net $69,865 $63,899
Cash and cash equivalents 2,449 4,145
Deferred charges, net 1,973 1,652
Other assets 2,826 3,277
- ------------------------------------------------ --------------- --------------
Total assets $77,113 $72,973
- ------------------------------------------------ --------------- --------------
Liabilities and Owners' Equity:
Mortgage payable $59,708 $54,683
Construction trade payables 578 1,164
Accounts payable and other liabilities 702 564
- ------------------------------------------------ --------------- --------------
Total liabilities 60,988 56,411
Owners' equity 16,125 16,562
- ------------------------------------------------ --------------- --------------
Total liabilities and owners' equity $77,113 $72,973
- ------------------------------------------------ --------------- --------------
Summary Statement of Operations
- Unconsolidated Joint Ventures: 2004 2003 2002
- -------------------------------------------------------- --------------- -------------- --------------
Revenues $9,821 $8,178 $4,119
- -------------------------------------------------------- --------------- -------------- --------------
Expenses:
Property operating 3,539 2,972 1,924
General and administrative 31 47 13
Depreciation and amortization 2,742 2,292 884
- -------------------------------------------------------- --------------- -------------- --------------
Total expenses 6,312 5,311 2,821
- -------------------------------------------------------- --------------- -------------- --------------
Operating income 3,509 2,867 1,298
Interest expense 1,532 1,371 578
- -------------------------------------------------------- --------------- -------------- --------------
Net income $1,977 $1,496 $ 720
- -------------------------------------------------------- --------------- -------------- --------------
Tanger Factory Outlet Centers, Inc. share of:
- -------------------------------------------------------- --------------- -------------- --------------
Net income $ 1,042 $ 819 $ 392
Depreciation (real estate related) $1,334 $1,101 $ 422
- -------------------------------------------------------- --------------- -------------- --------------
6. Disposition of Properties
In September 2004, we completed the sale of our property located in Dalton,
Georgia. Net proceeds received from the sale of the property were approximately
$11.1 million. We recorded a loss on sale of real estate of approximately $3.5
million, which is included in discontinued operations for the year ended
December 31, 2004.
In June 2004, we completed the sale of two non-core properties located in North
Conway, New Hampshire. Net proceeds received from the sales of these properties
were approximately $6.5 million. We recorded a gain on sale of real estate of
approximately $2.1 million, which is included in discontinued operations for the
year ended December 31, 2004.
Throughout 2004, we sold five outparcels of land at various properties in our
portfolio. These sales totaled $2.9 million in net proceeds. Gains of $1.5
million were recorded in other income for the year ended December 31, 2004.
F-17
In May and October 2003, we completed the sale of properties located in
Martinsburg, West Virginia and Casa Grande, Arizona, respectively. Net proceeds
received from the sales of these properties were approximately $8.7 million. We
recorded a loss on sale of real estate of approximately $147,000 in discontinued
operations.
In June and November 2002, we completed the sale of two of our non-core
properties located in Ft. Lauderdale, Florida and Bourne, Massachusetts,
respectively. Net proceeds received from the sales of these properties were
approximately $19.9 million. We recorded a gain on sale of real estate of
approximately $1.7 million in discontinued operations.
Throughout 2002, we sold five outparcels of land, two of which had related land
leases with identifiable cash flows, at various properties in our portfolio.
These sales totaled $1.5 million in net proceeds. Gains of $167,000 were
recorded in other income for the three land outparcels sold and gains of
$561,000 were recorded in discontinued operations for the two outparcels with
identifiable cash flows as accounted for under FAS 144.
Below is a summary of the results of operations of these properties through
their respective disposition dates (in thousands):
Summary Statements of Operations -
Disposed Properties:
2004 2003 2002
- --------------------------------------------------- ------------ -------------- -----------------
Revenues:
Base rentals $ 1,452 $ 3,763 $ 5,868
Percentage rentals 4 28 32
Expense reimbursements 618 1,569 2,307
Other income 28 108 101
- --------------------------------------------------- ------------ -------------- -----------------
Total revenues 2,102 5,468 8,308
- --------------------------------------------------- ------------ -------------- -----------------
Expenses:
Property operating 763 2,145 2,910
General and administrative 9 12 17
Depreciation and amortization 553 1,466 1,941
- --------------------------------------------------- ------------ -------------- -----------------
Total expenses 1,325 3,623 4,868
- --------------------------------------------------- ------------ -------------- -----------------
Discontinued operations before gain (loss)
on sale of real estate 777 1,845 3,440
Gain on sale of outparcels --- --- 561
Gain (loss) on sale of real estate (1,460) (147) 1,702
- --------------------------------------------------- ------------ -------------- -----------------
Discontinued operations before
minority interest (683) 1,698 5,703
Minority interest 121 (381) (1,523)
- --------------------------------------------------- ------------ -------------- -----------------
Discontinued operations $ (562) $ 1,317 $ 4,180
- --------------------------------------------------- ------------ -------------- -----------------
F-18
7. Deferred Charges
Deferred charges as of December 31, 2004 and 2003 consists of the following (in
thousands):
2004 2003
- ------------------------------------------- -------------- ---------------
Deferred lease costs and other intangibles $ 78,713 $ 76,191
Deferred financing costs 9,728 9,027
- ------------------------------------------- -------------- ---------------
88,441 85,218
Accumulated amortization (29,590) (16,650)
- ------------------------------------------- -------------- ---------------
$ 58,851 $ 68,568
- ------------------------------------------- -------------- ---------------
Amortization of deferred lease costs and other intangibles for the years ended
December 31, 2004, 2003 and 2002 was $11,700,000, $2,162,000 and $1,739,000,
respectively. Amortization of deferred financing costs, included in interest
expense in the accompanying Consolidated Statements of Operations, for the years
ended December 31, 2004, 2003 and 2002 was $1,454,000, $1,304,000 and
$1,209,000, respectively.
8. Long-Term Debt
Long-term debt at December 31, 2004 and 2003 consists of the following (in thousands):
2004 2003
- ------------------------------------------------------------------------- -------------- ---------------
Senior, unsecured notes:
7.875% Senior, unsecured notes, matured October 2004 $ --- $ 47,509
9.125% Senior, unsecured notes, maturing February 2008 100,000 100,000
Unsecured note:
LIBOR plus 1.75%, maturing March 2006 53,500 ---
Mortgage notes with fixed interest:
9.77%, maturing April 2005 13,807 14,179
9.125%, maturing September 2005 7,291 7,812
4.97%, maturing July 2008, including net premium of $9,346 and
$11,852, respectively 192,681 198,258
7.875%, maturing April 2009 60,408 61,690
7.98%, maturing April 2009 18,433 18,746
8.86%, maturing September 2010 15,722 15,975
Mortgage notes with variable interest:
LIBOR plus 1.75%, refinanced in 2004 --- 53,500
Revolving lines of credit with variable interest rates ranging
from either prime to prime + .50% or from LIBOR plus
1.35% to LIBOR plus 1.50% 26,165 22,650
- ------------------------------------------------------------------------- -------------- ---------------
$ 488,007 $ 540,319
- ------------------------------------------------------------------------- -------------- ---------------
During 2004, we retired $47.5 million, 7.875% unsecured notes which matured on
October 24, 2004 with proceeds from our property and land parcel sales and
amounts available under our unsecured lines of credit. We also obtained the
release of two properties which had been securing $53.5 million in mortgage
loans with Wells Fargo Bank, thus creating an unsecured note with Wells Fargo
Bank for the same face amount.
As part of the acquisition of the Charter Oak Partners' portfolio, we assumed
$186.4 million of cross-collateralized debt which has a stated, fixed interest
rate of 6.59% and matures in July 2008. We recorded the debt at its fair value
of $198.3 million with an effective interest rate of 4.97%. Accordingly, a debt
premium of $11.9 million was recorded and is being amortized over the life of
the debt. The premium had a value of $9.3 million as of December 31, 2004.
The Dalton, Georgia property as mentioned above in Footnote 6 served as
collateral in a cross-collateralized mortgage with John Hancock Life Insurance
Company ("John Hancock") along with several other properties. Upon its
disposition, the Dalton property was released as collateral and replaced with a
$6.4 million standby letter of credit issued by Bank of America. The letter of
credit includes an issuance fee of 1.25% annually. The required amount of the
letter of credit decreases ratably over the remaining term of the John Hancock
mortgage which matures in April 2009. Throughout the term of the letter of
credit, its required amount serves as a reduction in the amount available under
our unsecured $50 million line of credit with Bank of America.
F-19
During 2004, we obtained an additional $25 million unsecured line of credit from
Citicorp North America, Inc., a subsidiary of Citigroup; bringing the total
committed unsecured lines of credit to $125 million. In addition, we completed
the extension of the maturity dates on all of our lines of credit with Bank of
America, Wachovia Corporation, Wells Fargo Bank and Citigroup until June of
2007. Amounts available under these facilities at December 31, 2004 totaled
$92.5 million. Interest is payable based on alternative interest rate bases at
our option. Certain of our properties, which had a net book value of
approximately $551.0 million at December 31, 2004, serve as collateral for the
fixed and variable rate mortgages.
The lines of credit 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% of funds
from operations on a cumulative basis. Five of the six existing fixed rate
mortgage notes are with insurance companies and contain prepayment penalty
clauses.
During 2003, we purchased at a 2% premium, $2.6 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. These
purchases were in addition to $24.9 million of the notes that were purchased in
2001 and 2002.
Maturities of the existing long-term debt are as follows ($ in thousands):
Year Amount
----------------------------- -------------
2005 $ 26,418
2006 59,215
2007 32,305
2008 275,223
2009 71,441
Thereafter 14,059
----------------------------- -------------
Subtotal 478,661
Net premium 9,346
----------------------------- -------------
Total $488,007
----------------------------- -------------
9. Derivatives and Fair Value of Financial Instruments
In August 2004, TWMB's $19 million interest rate swap agreement with Bank of
America, NA expired as scheduled. Under this agreement, TWMB received a floating
interest rate based on the 30 day LIBOR index and paid a fixed interest rate of
2.49%. This swap effectively changed the payment of interest on $19 million of
variable rate debt to fixed rate debt for the contract period at a rate of
4.49%.
In January 2003, our interest rate swap agreement originally entered into during
2000 with a notional amount of $25 million that fixed the 30 day LIBOR index at
5.97% expired as scheduled.
The carrying amount of cash equivalents approximates fair value due to the
short-term maturities of these financial instruments. The fair value of
long-term debt at December 31, 2004 and 2003, estimated at the present value of
future cash flows, discounted at interest rates available at the reporting date
for new debt of similar type and remaining maturity, was approximately $508.5
and $571.5 million, respectively.
F-20
10. Shareholders' Equity
In December 2003, we completed a public offering of 4.6 million common shares at
a price of $20.25 per share, receiving net proceeds of approximately $88.0
million. The net proceeds were used together with other available funds to fund
our portion of the equity required to acquire the Charter Oak portfolio of
outlet shopping centers as mentioned in Note 4 above and for general corporate
purposes. In addition in January 2004, the underwriters of the December 2003
offering exercised in full their over-allotment option to purchase an additional
690,000 common shares at the offering price of $20.25 per share. We received net
proceeds of approximately $13.2 million from the exercise of the over-allotment.
In September 2002, we completed a public offering of 2.0 million common shares
at a price of $14.625 per share, receiving net proceeds of approximately $28.0
million. The net proceeds were used, together with other available funds to
acquire the Kensington Valley Factory Shops in Howell, Michigan mentioned in
Note 3 above, reduce the outstanding balance on our lines of credit and for
general corporate purposes.
On June 20, 2003, we redeemed all of our outstanding Series A Cumulative
Convertible Redeemable Preferred Shares (the "Preferred Shares") held by the
Preferred Stock Depositary in the form of Depositary Shares, each representing
1/10th of a Preferred Share. The redemption price was $250 per Preferred Share
($25 per Depositary Share), plus accrued and unpaid dividends, if any, to, but
not including, the redemption date.
In lieu of receiving the cash redemption price, holders of the Depositary
Shares, at their option, could exercise their right to convert each Depositary
Share into 1.802 common shares by following the instructions for, and completing
the Notice of Conversion located on the back of their Depositary Share
certificates. Those Depositary Shares, and the corresponding Preferred Shares,
that were converted to common shares did not receive accrued and unpaid
dividends, if any, but were entitled to receive common dividends declared after
the date on which the Depositary Shares were converted to common shares.
On or after the redemption date, the Depositary Shares, and the corresponding
Preferred Shares, were no longer deemed to be outstanding, dividends on the
Depositary Shares, and the corresponding Preferred Shares, ceased to accrue, and
all rights of the holders of the Depositary Shares, and the corresponding
Preferred Shares, ceased, except for the right to receive the redemption price
and accrued and unpaid dividends, without interest thereon, upon surrender of
certificates representing the Depositary Shares, and the corresponding Preferred
Shares.
In total, 787,008 of the Depositary Shares were converted into 1,418,156 common
shares and we redeemed the remaining 14,889 Depositary Shares for $25 per share,
plus accrued and unpaid dividends. We funded the redemption, totaling
approximately $372,000, from cash flows from operations.
11. Shareholders' Rights Plan
On July 30, 1998, our Board of Directors declared a distribution of one
Preferred Share Purchase Right (a "Right") for each then outstanding common
share to shareholders of record on August 27, 1998, directed and authorized the
issuance of one Right with respect to each common share which shall become
outstanding prior to the occurrence of certain specified events, and directed
that proper provision shall be made for the issuance of Rights to the holders of
the Operating Partnership's units upon the occurrence of specified events. The
Rights are exercisable only if a person or group acquires 15% or more of our
outstanding common shares or announces a tender offer the consummation of which
would result in ownership by a person or group of 15% or more of the common
shares. Each Right entitles shareholders to buy one-hundredth of a share of a
new series of Junior Participating Preferred Shares at an exercise price of
$120, subject to adjustment.
F-21
If an acquiring person or group acquires 15% or more of our outstanding common
shares, an exercisable Right will entitle its holder (other than the acquirer)
to buy, at the Right's then-current exercise price, our common shares having a
market value of two times the exercise price of one Right. If an acquirer
acquires at least 15%, but less than 50%, of our common shares, the Board may
exchange each Right (other than those of the acquirer) for one common share (or
one-hundredth of a Class B Preferred Share) per Right. In addition, under
certain circumstances, if we are involved in a merger or other business
combination where we are not the surviving corporation, an exercisable Right
will entitle its holder to buy, at the Right's then-current exercise price,
common shares of the acquiring company having a market value of two times the
exercise price of one Right. We may redeem the Rights at $.01 per Right at any
time prior to a person or group acquiring a 15% position. The Rights will expire
on August 26, 2008.
12. Earnings Per Share
A reconciliation of the numerators and denominators in computing earnings per
share in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share", for the years ended December 31, 2004, 2003 and 2002 is
set forth as follows (in thousands, except per share amounts):
2004 2003 2002
- ------------------------------------------------------------------- ------------ ---------------- -------------
NUMERATOR:
Income from continuing operations $7,608 $11,532 $ 6,827
Less applicable preferred share dividends -- (806) (1,771)
- ------------------------------------------------------------------- ------------ ---------------- -------------
Income from continuing operations available
to common shareholders - basic and diluted 7,608 10,726 5,056
Discontinued operations (562) 1,317 4,180
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income available to common shareholders-
basic and diluted $7,046 $12,043 $ 9,236
- ------------------------------------------------------------------- ------------ ---------------- -------------
DENOMINATOR:
Basic weighted average common shares 27,044 20,103 16,645
Effect of outstanding share and unit options 187 463 384
Effect of unvested restricted share awards 30 --- ---
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted weighted average common shares 27,261 20,566 17,029
- ------------------------------------------------------------------- ------------ ---------------- -------------
Basic earnings per common share:
Income from continuing operations $ .28 $ .53 $ .30
Discontinued operations (.02) .07 .25
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $ .26 $ .60 $ .55
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted earnings per common share:
Income from continuing operations $ .28 $ .52 $ .30
Discontinued operations (.02) .07 .24
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $ .26 $ .59 $ .54
- ------------------------------------------------------------------- ------------ ---------------- -------------
Options to purchase common shares excluded from the computation of diluted
earnings per share during 2004 and 2002 because the exercise price was greater
than the average market price of the common shares totaled approximately 1,000
and 470,000 shares, respectively. During 2003 there were no options excluded
from the computation. The assumed conversion of the preferred shares as of the
beginning of each year would have been anti-dilutive. The assumed conversion of
the Units held by TFLP as of the beginning of the year, which would result in
the elimination of earnings allocated to the minority interest in the Operating
Partnership, would have no impact on earnings per share since the allocation of
earnings to an Operating Partnership Unit is equivalent to earnings allocated to
a common share.
F-22
13. Employee Benefit Plans
During the second quarter of 2004, the Board of Directors approved amendments to
the Company's Share Option Plan to add restricted shares and other share-based
grants to the Plan, to merge the Operating Partnership's Unit Option Plan into
the Share Option Plan and to rename the Plan as the Amended and Restated
Incentive Award Plan. The Incentive Award Plan was approved by a vote of
shareholders at our Annual Shareholders' Meeting. The Board of Directors
approved the grant of 212,250 restricted common shares to the independent
directors and certain executive officers in April 2004. As a result of the
granting of the restricted common shares, we recorded a charge to deferred
compensation of $4.1 million in the shareholders' equity section of the
consolidated balance sheet. During 2004 we recognized expense related to the
amortization of the deferred compensation of approximately $1.3 million in
accordance with the vesting schedule of the restricted shares.
We may issue up to 6.0 million shares under the Incentive Award Plan. We have
granted 3,620,880 options, net of options forfeited, and 212,250 restricted
share awards through December 31, 2004. Under the plan, the option exercise
price is determined by the Share and Unit Option Committee of the Board of
Directors. Non-qualified share and Unit options granted expire 10 years from the
date of grant and 20% of the options become exercisable in each of the first
five years commencing one year from the date of grant. Units received upon
exercise of Unit options are exchangeable for common shares.
Effective January 1, 2003, we adopted the fair value recognition provisions of
FAS 123. Under the modified prospective method of adoption selected by us under
the provisions of FAS 148, compensation cost recognized in 2003 is the same as
that which would have been recognized had the recognition provisions of FAS 123
been applied from its original effective date. In accordance with FAS 148,
results for prior periods have not been restated.
The following table illustrates the effect on net income and earnings per share
if the fair value based method had been applied to all outstanding awards for
the years ended December 31, 2004, 2003 and 2002 (in thousands except per share
data):
2004 2003 2002
-------------------------------------------------------------- ------------ ------------ ------------
Net income $7,046 $ 12,849 $11,007
Add: Share-based employee compensation expense
included in net income, net of minority interest
of $41 and $22 184 80 ---
Less: Total share based employee compensation expense
determined under fair value based method for all
awards, net of minority interest of ($41), ($22) and
($44), respectively (184) (80) (127)
-------------------------------------------------------------- ------------ ------------ ------------
Pro forma net income 7,046 $ 12,849 $10,880
-------------------------------------------------------------- ------------ ------------ ------------
Earnings per share:
Basic - as reported $.26 $.60 $.55
Basic - pro forma .26 .60 .54
Diluted - as reported $.26 $.59 $.54
Diluted - pro forma .26 .59 .53
-------------------------------------------------------------- ------------ ------------ ------------
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for the grants in 2004: expected dividend yield ranging from
5.5% to 6.5%; expected life of 7 years; expected volatility of 23%; and
risk-free interest rates ranging from 3.71% to 3.99%. There were no option
grants in 2003 and 2002.
Options outstanding at December 31, 2004 have exercise prices between $9.3125
and $23.625, with a weighted average exercise price of $17.19 and a weighted
average remaining contractual life of 7.79 years.
F-23
A summary of the status of the plan at December 31, 2004, 2003 and 2002 and
changes during the years then ended is presented in the table and narrative
below:
2004 2003 2002
-------------------- ----------------------- ---------------------
Shares Wtd Avg Shares Wtd Avg Shares Wtd Avg
Ex Price Ex Price Ex Price
- ------------------------------------- ------------- ------------- ------------ -------------- ----------- -----------
Outstanding at beginning 855,120 $ 12.72 2,637,400 $ 11.95 2,911,660 $ 11.86
of year
Granted 605,400 19.45 --- --- --- ---
Exercised (619,480) 13.18 (1,781,080) 11.58 (255,240) 10.95
Forfeited (22,920) 18.69 (1,200) 9.32 (19,020) 12.73
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Outstanding at end of year 818,120 $ 17.19 855,120 $ 12.72 2,637,400 $ 11.95
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Exercisable at end of year 144,920 $ 12.88 586,120 $ 14.02 2,097,760 $ 12.23
Weighted average fair value
of options granted $2.18 $ --- $ ---
We have a qualified retirement plan, with a salary deferral feature designed to
qualify under Section 401 of the Code (the "401(k) Plan"), which covers
substantially all of our officers and employees. The 401(k) Plan permits our
employees, in accordance with the provisions of Section 401(k) of the Code, to
defer up to 20% of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Employee contributions are fully vested and are matched
by us at a rate of compensation deferred to be determined annually at our
discretion. The matching contribution is subject to vesting under a schedule
providing for 20% annual vesting starting with the second year of employment and
100% vesting after six years of employment. The employer matching contribution
expense for the years 2004, 2003 and 2002 was immaterial.
14. Other Comprehensive Income
We account for derivative instruments under the guidance of FAS 133. In January
2003, an interest rate swap agreement with a notional amount of $25 million,
designated as a cash flow hedge in accordance with the provisions of FAS 133,
expired as scheduled. Upon expiration, the fair market value recorded on the
balance sheet as a liability in accounts payable and accrued expenses was
adjusted to zero through accumulated other comprehensive income. TWMB's interest
rate swap agreement expired as scheduled during the third quarter of 2004. It
had also been designated as a cash flow hedge and carried on its respective
balance sheet at fair value.
Total comprehensive income for the years ended December 31, 2004, 2003 and 2002
is as follows (in thousands):
2004 2003 2002
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Net income $7,046 $12,849 $ 11,007
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Other comprehensive income:
Change in fair value of our portion of TWMB cash
flow hedge, net of minority interest of $37, $12 and ($37) 45 44 (102)
Change in fair value of cash flow hedge,
net of minority interest of $24 and $232 --- 74 643
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Other comprehensive income 45 118 541
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Total comprehensive income $ 7,091 $ 12,967 $11,548
- ----------------------------------------------------------------------- -------------- -------------- ---------------
F-24
15. Supplementary Income Statement Information
The following amounts are included in property operating expenses for the years
ended December 31, 2004, 2003 and 2002 (in thousands):
2004 2003 2002
- ------------------------------- ------------- ------------ ------------
Advertising and promotion $ 15,455 $ 10,006 $ 9,178
Common area maintenance 25,345 14,988 12,740
Real estate taxes 12,537 9,041 8,074
Other operating expenses 6,422 4,933 3,592
- ------------------------------- ------------- ------------ ------------
$ 59,759 $ 38,968 $ 33,584
- ------------------------------- ------------- ------------ ------------
16. Lease Agreements
We are the lessor of a total of 1,988 stores in our 32 consolidated factory
outlet centers, under operating leases with initial terms that expire from 2005
to 2021. Most leases are renewable for five years at the lessee's option. Future
minimum lease receipts under non-cancelable operating leases as of December 31,
2004 are as follows (in thousands):
2005 $ 114,232
2006 90,321
2007 68,151
2008 47,011
2009 30,531
Thereafter 34,424
-------------------- --------------------
$ 384,670
-------------------- --------------------
17. Commitments and Contingencies
We purchased the rights to lease land on which two of the outlet centers are
situated for $1,536,000. These leasehold rights are being amortized on a
straight-line basis over 30 and 40 year periods, respectively. Accumulated
amortization was $811,000 and $762,000 at December 31, 2004 and 2003,
respectively.
Our non-cancelable operating leases, with initial terms in excess of one year,
have terms that expire from 2005 to 2085. Annual rental payments for these
leases totaled approximately $2,927,000, $2,572,000 and $2,437,000, for the
years ended December 31, 2004, 2003 and 2002, respectively. Minimum lease
payments for the next five years and thereafter are as follows (in thousands):
2005 $ 3,101
2006 3,050
2007 2,907
2008 2,596
2009 2,242
Thereafter 85,444
------------------- ---------------------
$ 99,340
------------------- ---------------------
We are also subject to legal proceedings and claims which have arisen in the
ordinary course of our business and have not been finally adjudicated. In our
opinion, the ultimate resolution of these matters will have no material effect
on our results of operations, financial condition or cash flows.
F-25
18. Subsequent Events
On February 24, 2005, we completed the sale of our property located in Seymour,
Indiana. Net proceeds received from the sale of the property were approximately
$1.9 million. We recorded a loss on sale of real estate of approximately $4.7
million. We retained the excess land and outparcels which were part of the
original purchase of the Seymour property. No impairment charges were previously
recognized since this land is deemed to have a fair value in excess of the loss
recognized from the sale of the shopping center. Accordingly, the sale of the
shopping center was recorded as a loss on sale of real estate and will be
reflected in discontinued operations in our results of operations in the first
quarter of 2005.
On March 1, 2005, our Board of Directors declared a $.3225 cash dividend per
common share payable on May 16, 2005 to each shareholder of record on April 29,
2005, and caused a $.645 per Operating Partnership unit cash distribution to be
paid to the Operating Partnership's minority interest, TFLP.
19. Quarterly Financial Data (Unaudited)
We have restated previously reported quarterly financial results for the years
ended December 31, 2004 and December 31, 2003 to give effect to the
reclassification of revenues, expenses and gains or losses on sales of real
estate to discontinued operations based upon the adoption of FAS 144 for the
sale of real estate with separate, identifiable cash flows. The following table
sets forth summary quarterly financial information for the years ended December
31, 2004 and 2003 (unaudited and in thousands, except per common share data).
Year Ended December 31, 2004
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Previously As Previously As
Reported Restated Reported Restated As Reported As Reported
------------ ---------- ------------- ----------- -- -------------- ------------------
Total revenues $45,779 $44,907 $ 48,965 $ 48,397 $ 49,044 $ 52,205
Income from continuing
operations 1,012 719 1,979 1,815 770 4,304
Net income 1,012 1,012 3,745 3,745 (2,015) 4,304
Basic earnings
per share:
Income from
continuing operations .04 .03 .07 .07 .03 .16
Net income .04 .04 .14 .14 (.07) .16
Diluted earnings
per share:
Income from
continuing operations .04 .03 .07 .07 .03 .16
Net income .04 .04 .14 .14 (.07) .16
(1) Quarterly amounts may not add to annual amounts due to the effect of rounding on a quarterly basis.
Year Ended December 31, 2003
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
Previously As Restated Previously As Restated Previously As Restated
Reported Reported As Reported Reported
------------ ------------ ------------ ------------- -------------- ------------- ------------
Total revenues $ 28,665 $ 27,639 $ 28,872 $ 28,204 $ 28,966 $ 34,167 $ 33,250
Income from continuing
operations 2,187 1,832 2,758 2,515 3,140 4,339 4,044
Net income 2,191 2,191 2,307 2,307 3,520 4,831 4,831
Basic earnings
per share:
Income from
continuing operations .10 .08 .12 .11 .15 .19 .18
Net income .10 .10 .10 .10 .17 .22 .22
Diluted earnings
per share:
Income from
continuing operations .09 .07 .12 .11 .15 .19 .18
Net income .09 .09 .10 .10 .17 .22 .22
(1) Quarterly amounts may not add to annual amounts due to the effect of rounding on a quarterly basis.
F-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON FINANCIAL STATEMENT SCHEDULE
To the Shareholders and Board of Directors of
Tanger Factory Outlet Centers, Inc.
and Subsidiaries
Our audits of the consolidated financial statements referred to in our report
dated March 14, 2005 appearing in the 2004 Form 10-K of Tanger Factory Outlet
Centers, Inc. also included an audit of the financial statement schedule listed
in Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 14, 2005
F-27
TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2004 (In thousands)
Description Costs Capitalized
Subsequent to Gross Amount Carried at Close
Initial cost to Acquisition of Period
Company (Improvements) 12/31/04 (1)
- ---------------------------------------- ------------ --------------------- ----------------------- --------------------------------
Building Building Building
Outlet Center Encumbrances Improvements Improvements Improvements
Name Location (4) Land & Fixtures Land & Fixtures Land & Fixtures Total
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Barstow Barstow, CA -- $3,672 $ 12,533 $ --- $5,149 $3,672 $17,682 $21,354
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Blowing Rock Blowing Rock, NC $ 9,366 1,963 9,424 --- 3,023 1,963 12,447 14,410
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Boaz Boaz, AL --- 616 2,195 --- 2,349 616 4,544 5,160
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Branson Branson, MO --- 4,407 25,040 --- 9,124 4,407 34,164 38,571
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Commerce I Commerce, GA 7,291 755 3,511 492 11,332 1,247 14,843 16,090
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Commerce II Commerce, GA --- 1,262 14,046 541 21,234 1,803 35,280 37,083
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Foley Foley, AL 33,719 4,400 82,410 --- 711 4,400 83,121 87,521
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Gonzales Gonzales, LA --- 679 15,895 --- 5,814 679 21,709 22,388
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Hilton Head Blufton, SC 19,340 9,900 41,504 --- 205 9,900 41,709 51,609
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Howell Howell, MI --- 2,250 35,250 --- 1,162 2,250 36,412 38,662
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Kittery-I Kittery, ME 6,086 1,242 2,961 229 1,630 1,471 4,591 6,062
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Kittery-II Kittery, ME --- 921 1,835 530 731 1,451 2,566 4,017
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Lancaster Lancaster, PA 13,807 3,691 19,907 --- 13,266 3,691 33,173 36,864
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Lincoln City Lincoln City, OR 10,887 6,500 28,673 --- 80 6,500 28,753 35,253
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Locust Grove Locust Grove, GA --- 2,558 11,801 --- 10,245 2,558 22,046 24,604
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Myrtle Beach 501 Myrtle Beach, SC 23,941 10,300 57,094 --- 433 10,300 57,527 67,827
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Nags Head Nags Head, NC 6,356 1,853 6,679 --- 2,665 1,853 9,344 11,197
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
North Branch North Branch, MN --- 243 5,644 249 4,139 492 9,783 10,275
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Park City Park City, UT 13,175 6,900 33,597 --- 528 6,900 34,125 41,025
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 2,181 299 4,689 4,988
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Rehoboth Rehoboth Beach, DE 41,234 20,600 74,209 --- 3,969 20,600 78,178 98,778
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Riverhead Riverhead, NY --- --- 36,374 6,152 75,127 6,152 111,501 117,653
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
San Marcos San Marcos, TX 36,599 1,801 9,440 16 37,492 1,817 46,932 48,749
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Sanibel Sanibel, FL --- 4,916 23,196 --- 6,405 4,916 29,601 34,517
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Sevierville Sevierville, TN --- --- 18,495 --- 35,038 --- 53,533 53,533
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Seymour Seymour, IN --- 1,590 13,249 --- 749 1,590 13,998 15,588
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Terrell Terrell, TX --- 778 13,432 --- 6,556 778 19,988 20,766
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Tilton Tilton, NH 13,603 1,800 24,838 --- 641 1,800 25,479 27,279
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Tuscola Tuscola, IL 21,128 1,600 15,428 --- 178 1,600 15,606 17,206
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
West Branch West Branch, MI 6,790 319 3,428 120 7,681 439 11,109 11,548
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Westbrook Westbrook, CT 15,655 6,264 26,991 --- 359 6,264 27,350 33,614
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
Williamsburg Williamsburg, IA 18,668 706 6,781 716 14,999 1,422 21,780 23,202
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
$ 297,645 $104,785 $678,368 $9,045 $285,195 $113,830 $963,563 $1,077,393
- ------------------- -------------------- ------------ --------- ----------- -------- ----------- --------- ------------ -----------
F-28
TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2004 (In thousands)
(Continued)
Life Used to
Compute
Depreciation
Outlet Center Accumulated Date of in Income
Name Location Depreciation Construction Statement
- ------------------- -------------------- ------------- ------------- -----------
Barstow Barstow, CA $7,055 1995 (2)
- ------------------- -------------------- ------------- ------------- -----------
Blowing Rock Blowing Rock, NC 3,085 1997 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Boaz Boaz, AL 2,851 1988 (2)
- ------------------- -------------------- ------------- ------------- -----------
Branson Branson, MO 16,026 1994 (2)
- ------------------- -------------------- ------------- ------------- -----------
Commerce I Commerce, GA 12,321 1989 (2)
- ------------------- -------------------- ------------- ------------- -----------
Commerce II Commerce, GA 7,063 1995 (2)
- ------------------- -------------------- ------------- ------------- -----------
Foley Foley, AL 2,859 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Gonzales Gonzales, LA 12,331 1992 (2)
- ------------------- ---------------------------------- ------------- -----------
Hilton Head Blufton, SC 1,679 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Howell Howell, MI 2,812 2002 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Kittery-I Kittery, ME 3,119 1986 (2)
- ------------------- -------------------- ------------- ------------- -----------
Kittery-II Kittery, ME 1,457 1989 (2)
- ------------------- -------------------- ------------- ------------- -----------
Lancaster Lancaster, PA 13,360 1994 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Lincoln City Lincoln City, OR 1,141 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Locust Grove Locust Grove, GA 9,352 1994 (2)
- ------------------- -------------------- ------------- ------------- -----------
Myrtle Beach 501 Myrtle Beach, SC 2,014 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Nags Head Nags Head, NC 2,826 1997 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
North Branch North Branch, MN 5,947 1992 (2)
- ------------------- -------------------- ------------- ------------- -----------
Park City Park City, UT 1,228 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Pigeon Forge Pigeon Forge, TN 2,976 1988 (2)
- ------------------- -------------------- ------------- ------------- -----------
Rehoboth Rehoboth Beach, DE 2,609 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Riverhead Riverhead, NY 38,401 1993 (2)
- ------------------- -------------------- ------------- ------------- -----------
San Marcos San Marcos, TX 16,245 1993 (2)
- ------------------- -------------------- ------------- ------------- -----------
Sanibel Sanibel, FL 5,787 1998 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Sevierville Sevierville, TN 13,420 1997 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Seymour Seymour, IN 7,160 1994 (2)
- ------------------- -------------------- ------------- ------------- -----------
Terrell Terrell, TX 9,939 1994 (2)
- ------------------- -------------------- ------------- ------------- -----------
Tilton Tilton, NH 941 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Tuscola Tuscola, IL 687 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
West Branch West Branch, MI 4,845 1991 (2)
- ------------------- -------------------- ------------- ------------- -----------
Westbrook Westbrook, CT 1,236 2003 (3) (2)
- ------------------- -------------------- ------------- ------------- -----------
Williamsburg Williamsburg, IA 11,850 1991 (2)
- ------------------- -------------------- ------------- ------------- -----------
$224,622
- ------------------- -------------------- ------------- ------------- -----------
(1) Aggregate cost for federal income tax purposes is approximately
$1,140,272,000
(2) The Company generally uses estimated lives ranging from 25 to 33 years for
buildings and 15 years for land improvements. Tenant finishing allowances
are depreciated over the initial lease term
(3) Represents year acquired
(4) An additional $10,697 encumbrance previously related to our Dalton, Georgia
center which was sold during 2004 exists at December 31, 2004 but is
secured by a $6.4 million letter of credit, thus bringing our total
encumbrances to $308,342
F-29
TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2004
(In Thousands)
The changes in total real estate for the three years ended December 31, 2004 are
as follows:
2004 2003 2002
-------------- -------------- ---------------
Balance, beginning of year $1,078,553 $622,399 $599,266
Acquisition of real estate --- 463,875 37,500
Improvements 23,420 9,342 5,324
Dispositions and other (24,580) (17,063) (19,691)
-------------- -------------- ---------------
Balance, end of year $1,077,393 $1,078,553 $622,399
============== ============== ===============
The changes in accumulated depreciation for the three years ended December 31,
2004 are as follows:
2004 2003 2002
-------------- --------------- ---------------
Balance, beginning of year $ 192,698 $ 174,199 $ 148,950
Depreciation for the period 38,968 27,211 26,906
Dispositions and other (7,044) (8,712) (1,657)
-------------- --------------- ---------------
Balance, end of year $224,622 $192,698 $174,199
============== =============== ===============
F-30