Filed Pursuant to Rule 424B(5)
Registration No. 333-39365-1
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED JANUARY 31, 2001)
$100,000,000
[LOGO]
TANGER PROPERTIES LIMITED PARTNERSHIP
9 1/8% SENIOR NOTES DUE 2008
UNCONDITIONALLY GUARANTEED BY TANGER FACTORY OUTLET CENTERS, INC.
-------------
We will pay interest on the notes on February 15 and August 15 of each year,
beginning August 15, 2001. The notes will mature on February 15, 2008. We may
not redeem the notes before maturity. The notes will not be subject to any
mandatory sinking fund. Tanger Factory Outlet Centers, Inc. will unconditionally
guarantee the due and punctual payment of principal and interest on the notes as
these payments become due and payable.
The notes will be unsecured obligations and will rank equally with our
unsecured senior indebtedness. The guarantees will be unsecured obligations and
will rank equally with the unsecured senior obligations of Tanger Factory Outlet
Centers, Inc. The notes will be issued only in registered form in denominations
of $1,000 and integral multiples thereof.
INVESTING IN THE NOTES INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK
FACTORS" SECTION BEGINNING ON PAGE S-12 HEREOF AND ON PAGE 4 IN THE ACCOMPANYING
PROSPECTUS.
----------------
PER NOTE TOTAL
-------- -----
Public offering price (1)................................... 99.366% $99,366,000
Underwriting discount....................................... 2% $2,000,000
Proceeds, before expenses, to Tanger Properties Limited
Partnership............................................... 97.366% $97,366,000
(1) Plus accrued interest from February 15, 2001, if settlement occurs after
that date
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
The notes will be ready for delivery in book-entry form only through The
Depository Trust Company on or about February 15, 2001.
------------------
MERRILL LYNCH & CO. BANC OF AMERICA SECURITIES LLC
SOLE BOOKRUNNING MANAGER
------------------
The date of this prospectus supplement is February 9, 2001.
TABLE OF CONTENTS
PAGE
--------
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................... S-3
Forward-Looking Information................................. S-12
Risk Factors................................................ S-12
Use of Proceeds............................................. S-13
Capitalization.............................................. S-14
Selected Financial Data..................................... S-15
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. S-17
Business and Properties..................................... S-26
Management of the Company................................... S-38
Additional Indebtedness..................................... S-40
Description of Notes........................................ S-41
Underwriting................................................ S-50
Experts..................................................... S-51
Legal Matters............................................... S-51
Index to Financial Statements............................... F-1
PROSPECTUS
The Company and the Operating Partnership................... 3
Risk Factors................................................ 4
Use of Proceeds............................................. 6
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred
Share Dividends........................................... 6
Where You Can Find More Information......................... 7
Forward-Looking Statements.................................. 8
Description of Debt Securities.............................. 8
Description of Common Shares................................ 26
Description of Common Share Warrants........................ 28
Description of Preferred Shares............................. 29
Description of Depositary Shares............................ 39
Material Federal Income Tax Considerations to Tanger Factory
Outlet Centers, Inc....................................... 43
Tax Aspects of the Operating Partnership.................... 50
Plan of Distribution........................................ 52
Experts..................................................... 53
Legal Matters............................................... 53
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You should rely only on the information contained or incorporated by
reference in this prospectus supplement and the accompanying prospectus. We have
not, and the underwriters have not, authorized any other person to provide you
with different or additional information. If anyone provides you with different
or additional information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus supplement and the accompanying
prospectus is accurate as of their dates. Our business, financial condition,
results of operations and prospects may have changed since then.
S-2
PROSPECTUS SUPPLEMENT SUMMARY
THIS SUMMARY HIGHLIGHTS THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. THIS SUMMARY IS NOT COMPLETE AND
DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN THE NOTES. YOU SHOULD READ CAREFULLY THE PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS, AS WELL AS THE DOCUMENTS INCORPORATED HEREIN AND THEREIN BY
REFERENCE. UNLESS THE CONTEXT INDICATES OTHERWISE, THE TERM "OPERATING
PARTNERSHIP" REFERS TO TANGER PROPERTIES LIMITED PARTNERSHIP, AND THE TERM THE
"COMPANY" REFERS TO TANGER FACTORY OUTLET CENTERS, INC. THE TERMS "WE," "OUR"
AND "US" REFER TO THE OPERATING PARTNERSHIP OR THE OPERATING PARTNERSHIP AND THE
COMPANY TOGETHER, AS THE CONTEXT REQUIRES.
THE COMPANY AND THE OPERATING PARTNERSHIP
We are a fully-integrated, self-administered and self-managed real estate
company that focuses exclusively on developing, acquiring, owning and operating
factory outlet centers. Since entering the factory outlet center business 20
years ago, we have become one of the largest owners and operators of factory
outlet centers in the United States. We provide all development, leasing and
management services for our centers. As of December 31, 2000, we owned and
operated 29 centers with a total gross leasable area, or GLA, of approximately
5.2 million square feet. These centers were 96% occupied, contained
approximately 1,100 stores and represented over 250 store brands as of such
date. For the year ended December 31, 2000, the Company reported unaudited
revenue and EBITDA of $108.8 million and $67.8 million, respectively.
Stanley K. Tanger, the Company's Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. From 1981 to May 1993, we
developed 17 centers with a total GLA of approximately 1.5 million square feet.
Since the Company completed its initial public offering, or IPO, in May 1993,
the Operating Partnership has developed nine and acquired seven centers and,
together with expansions of existing centers net of centers disposed of, added
approximately 3.7 million square feet of GLA to its portfolio.
The Company is organized to operate as an equity real estate investment
trust, or REIT. The factory outlet centers and other assets of the Company's
business are held by, and all of its operations are conducted by, the Operating
Partnership. Accordingly, the descriptions of the business, employees and
properties of the Company are also descriptions of the business, employees and
properties of the Operating Partnership. To maintain its qualification as a REIT
for federal income tax purposes, the Company is required to distribute at least
90% of its taxable income each year.
The Company and the Operating Partnership are organized under the laws of
the state of North Carolina and maintain their principal executive offices at
3200 Northline Avenue, Suite 360, Greensboro, North Carolina 27408.
S-3
ORGANIZATIONAL CHART
[LOGO]
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. 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.
Our factory outlet centers range in size from 11,000 to 729,366 square feet
of GLA and are typically located at least 10 miles from densely populated areas,
where major department stores and manufacturer-owned full-price retail stores
are usually located. 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. These centers are typically
situated in close proximity to interstate highways that provide accessibility
and visibility to potential customers.
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 contracts 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 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.
S-4
PROPERTIES
The table set forth below summarizes certain information with respect to our
existing centers as of December 31, 2000.
MORTGAGE
DEBT
GLA(I) % OUTSTANDING FEE OR
LOCATION (SQ. FT.) OCCUPIED (000'S) GROUND LEASE
- -------- --------- -------- ----------- -----------------
Barstow, CA................................ 105,950 76% -- Fee
Blowing Rock, NC........................... 105,448 99% $ 9,898 Fee
Boaz, AL................................... 80,730 100% -- Fee
Bourne, MA................................. 23,417 100% -- Fee
Branson, MO................................ 277,494 100% -- Fee
Casa Grande, AZ............................ 184,768 88% -- Fee
Commerce, GA............................... 185,750 90% 9,120 Fee
Commerce II, GA............................ 342,556 97% 29,500 Fee
Dalton, GA................................. 173,430 96% 11,506 Fee
Fort Lauderdale, FL........................ 165,000 100% -- Fee
Gonzales, LA............................... 245,098 100% -- Fee
Kittery I, ME.............................. 59,694 100% 6,547 Fee
Kittery II, ME............................. 24,703 100% -- Fee
Lancaster, PA.............................. 255,059 99% 15,099 Fee
Locust Grove, GA........................... 248,854 99% -- Fee
Martinsburg, WV............................ 49,252 93% -- Fee
Nags Head, NC.............................. 82,254 99% 6,717 Fee
North Branch, MN........................... 134,480 97% -- Fee
North Conway, NH (Clover).................. 11,000 100% -- Fee
North Conway, NH (LL Bean)................. 50,915 100% -- Fee
Pigeon Forge, TN........................... 94,750 100% -- Ground Lease
Riverhead, NY.............................. 729,366 94% -- Ground Lease (ii)
San Marcos, TX............................. 401,343 98% 19,543 Fee
Sanibel, FL................................ 198,956 98% -- Fee
Sevierville, TN............................ 353,952 100% -- Ground Lease
Seymour, IN................................ 141,051 74% -- Fee
Terrell, TX................................ 177,435 84% -- Fee
West Branch, MI............................ 112,420 100% 7,304 Fee
Williamsburg, IA........................... 277,230 99% 20,080 Fee
--------- ---- -------- -----------------
Total...................................... 5,292,355 96% $135,314
========= ==== ========
- ------------------------
(i) GLA includes square feet of space not yet open as of December 31, 2000,
which totaled 113,212 square feet (including 9,800 square feet at
Commerce II, GA, 46,278 at Riverhead, NY and 57,134 at San Marcos, TX).
(ii) The original Riverhead, NY center is subject to a ground lease which may be
renewed at our option for up to seven additional terms of five years each.
The land on which the Riverhead, NY center expansion is located is owned by
us.
S-5
The following table shows certain information on rents and occupancy rates
for our outlet centers during each of the years presented.
AGGREGATE
AVERAGE PERCENTAGE
% ANNUALIZED BASE GLA (SQ. FT.) AT NUMBER OF RENTS
YEAR LEASED(1) RENT PER SQ. FT.(2) YEAR END CENTERS (000'S)
- --------------------- --------- ------------------- ---------------- --------- ----------
2000 96 $13.97 5,179,000 29 $3,253
1999 97 $13.85 5,149,000 31 $3,141
1998 97 $13.88 5,011,000 31 $3,087
1997 98 $14.04 4,458,000 30 $2,637
1996 99 $13.89 3,739,000 27 $2,017
- ------------------------
(1) As of December 31st of each year shown.
(2) Represents total base rental revenue divided by weighted average GLA of the
portfolio, which amount does not take into consideration fluctuations in
occupancy throughout the year.
BUSINESS OBJECTIVES AND STRATEGIES
We seek to enhance our operating performance and financial position by
pursuing the following business objectives and strategies:
- INCREASE CASH FLOW AND THE LONG-TERM VALUE OF THE REAL ESTATE
PORTFOLIO. Our strategy is to increase revenues through new development,
selective acquisitions and expansions of factory outlet centers while
minimizing our operating expenses by designing low maintenance properties
and achieving economies of scale. We continue to focus on strengthening
our tenant base in our centers by replacing low volume tenants with high
volume anchor tenants, such as Nike, GAP, Old Navy, Banana Republic, Polo
Ralph Lauren, Tommy Hilfiger and Nautica.
- DEVELOP AND ACQUIRE NEW PROPERTIES. We typically seek opportunities to
develop or acquire new centers in locations that have at least
3.5 million people residing within an hour's drive, an average household
income within a 50-mile radius of at least $35,000 per year and access to
frontage on a major or interstate highway with a traffic count of at least
35,000 cars per day. We will vary our minimum conditions based on the
particular characteristics of a site, especially if the site is located
near or at a tourist destination. 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.
- MAINTAIN A STRONG AND FLEXIBLE FINANCIAL POSITION. We intend to achieve a
strong and flexible financial position by: (1) maintaining a quality
portfolio of strong income producing properties, (2) managing our leverage
position relative to our portfolio when pursuing new development and
expansion opportunities, (3) extending and sequencing debt maturities,
(4) managing our interest rate risk, (5) maintaining our liquidity and
(6) accessing internally generated sources of capital by maintaining a low
distribution payout ratio and subsequently reinvesting a significant
portion of our cash flow into our portfolio.
- BRAND NAME RECOGNITION OF TANGER OUTLET CENTERS. Each of our factory
outlet centers carries the Tanger brand name. We believe that both
national manufacturers and consumers recognize the Tanger brand as one
that provides outlet shopping centers where consumers can trust the brand,
quality and price of the merchandise they purchase directly from the
manufacturers.
- MAINTAIN APPROPRIATE INFRASTRUCTURE TO ACTIVELY MANAGE PORTFOLIO. During
the 20 years we have been in operation, we have been successful in
identifying new and exciting brand name tenants. Members of our management
group have extensive experience in developing and refining systems for
property development, marketing, operation and investment as well as
actively monitoring and managing our portfolio of properties. Our
experience in the real estate and
S-6
outlet center industry has produced in-house efficiency with respect to
virtually every aspect of outlet center development and management.
COMPETITIVE STRENGTHS
We believe that our key competitive strengths are:
DIVERSE TENANT BASE AND GEOGRAPHIC DISTRIBUTION. We believe that our
centers are well diversified both geographically and by tenant. We are not
dependent upon any single property or tenant. We have a diverse tenant base
comprised of over 250 different well-known, upscale, national designer or brand
name store concepts, such as Liz Claiborne, Reebok, Tommy Hilfiger, Polo Ralph
Lauren, GAP, Nautica and Nike. No single tenant or their affiliates accounted
for 10% or more of combined base and percentage rental revenues during 1999,
1998 and 1997. As of September 30, 2000, our largest tenant, Liz Claiborne,
including all of its store concepts, accounted for approximately 6% of our total
GLA.
EXPERIENCED MANAGEMENT TEAM. Our management team, led by Stanley K. Tanger
and Steven B. Tanger, the Company's President and Chief Operating Officer, has
extensive experience developing and managing factory outlet centers. Over the
past 20 years, we have successfully developed 24 centers and acquired seven, and
we currently manage approximately 5.2 million square feet of GLA. Over the last
five years, we have increased total revenue from $68.6 million to
$108.8 million, and EBITDA from $41.1 million to $67.8 million. Additionally, as
of December 31, 2000, our management beneficially owned approximately 27% of all
our outstanding common shares (assuming our preferred shares and the partnership
units are exchanged for our common shares but without giving effect to the
exercise of any outstanding stock and partnership unit options).
PROVEN MERCHANDISING STRATEGY. Over the past 20 years, we have successfully
identified new and exciting brand name tenants for our centers. We believe our
brand name and low occupancy costs are attractive to our tenants and are assets
to our ongoing strategy to re-merchandise selected centers by replacing low
volume tenants with high volume tenants such as Nike, GAP, Old Navy, Banana
Republic, Polo Ralph Lauren, Tommy Hilfiger and Nautica. We believe this
strategy has contributed to an increase in our average same-space sales per
square foot of approximately 27% from September 1996 through December 2000.
SUCCESSFUL DEVELOPMENT AND EXPANSION EXPERIENCE. We are one of the largest
owners and operators of factory outlet centers in the United States. We provide
all development, leasing and management services for our centers. Since the IPO
in May 1993, we have developed, acquired and expanded our portfolio by 3.7
million square feet. As of December 31, 2000, we owned and operated 29 centers
with a total GLA of approximately 5.2 million square feet. These centers were
96% occupied, contained approximately 1,100 stores and represented over 250
store brands as of such date.
LONG-STANDING, LOYAL TENANT RELATIONSHIPS. As one of the original
participants in the outlet industry, we have developed long-standing
relationships with many national and regional manufacturers. Our relationship
with Polo Ralph Lauren began in 1984 with one of their first outlet stores. Our
relationship with Liz Claiborne began in 1986 with their first outlet store. Our
relationship with LL Bean began in 1987 with their first outlet store. Our
relationship with Brooks Brothers began in 1991 with their first outlet store.
Each of these relationships has expanded over time and continues today.
S-7
RECENT DEVELOPMENTS
YEAR END 2000 RESULTS
For the year ended December 31, 2000, the Company posted the following
results:
- Generated EBITDA of $67.8 million, a 2.5% increase over the $66.1 million
earned in 1999
- Increased base rental income 3% to $71.5 million from $69.2 million in
1999
- Increased percentage rental income 4% to $3.3 million from $3.1 million in
1999
- Increased total revenues 5% to $108.8 million from $104.0 million in 1999
- Had a distribution payout ratio of 71%, providing additional coverage of
the current dividend
- Reported tenant same-space sales increased 7% to $281 per square foot
- Renewed 75%, or 520,000 square feet, of the space that came up for renewal
during the year, with a 4% average increase in base rental rates
- Re-leased 305,000 square feet of space with an 8% average increase in base
rental rates
- Added 235,000 square feet of expansions in five existing centers
- Sold centers in Lawrence, KS and McMinnville, OR for net cash proceeds of
$7.1 million
- Generated $1.5 million in additional funds through the sale of four
out-parcels of land
- Closed on over $75 million in long-term financings
For the year ended December 31, 2000, funds from operations, or FFO, was
$40.0 million before a non-cash, non-recurring charge for costs written-off
associated with abandoned development projects, compared to $41.7 million in the
same period of 1999. For the quarter ended December 31, 2000, FFO was
$10.1 million, before the non-cash, non-recurring charge referred to above,
compared to $11.2 million in the same quarter of 1999. The results for the
fourth quarter and the year ended December 31, 2000 were negatively impacted by
higher average interest rates and dilution associated with the sale of two
properties in June 2000. Including the non-cash, non-recurring charge for costs
written-off associated with abandoned development projects of $1.8 million, FFO
was $8.3 million and $38.2 million for the fourth quarter and year ended
December 31, 2000, respectively.
The blizzards and extremely cold weather in December caused the closing of
our centers for the equivalent of more than 17 shopping days throughout the
portfolio. Even though our tenants had no sales while their stores were closed
during the highest volume month of the year, the same-store sales trends for the
year ended December 31, 2000 improved over the previous year. Same-store sales
were up 0.4% for the twelve months ended December 31, 2000 compared to a
decrease of 1% for the twelve months ended December 31, 1999. Reported tenant
sales in 2000 for all Tanger outlet centers increased 8% to $1.3 billion
compared to $1.2 billion in 1999.
The 7% increase in tenant same-space sales to a record $281 per square foot
reflects the ongoing execution of the our strategy to re-merchandise selected
centers by replacing low volume tenants with high volume tenants like Nike, GAP,
Old Navy, Banana Republic, Polo Ralph Lauren, Tommy Hilfiger and Nautica.
Average tenant occupancy costs decreased from 7.8% in 1999 to 7.4% in 2000.
In the second quarter of 2000, we sold centers in Lawrence, KS and
McMinnville, OR totaling approximately 186,000 square feet for net cash proceeds
of $7.1 million. Proceeds from the sale were used to reduce amounts outstanding
under existing lines of credit. The combined net operating income of these two
centers represented approximately 1% of our total portfolio's estimated net
operating income. As was previously reported, we recognized a $5.9 million loss
on the sale of these properties in the second quarter of 2000.
We also closed on the sale of our land and site improvements in Stroud, OK
for net proceeds of approximately $723,500. As a result of this sale, we
recognized a loss of $1 million on the sale of the property in the fourth
quarter of 2000. This was property remaining after the Stroud center was
completely destroyed by a tornado in May 1999. We maintain full replacement cost
insurance on our
S-8
properties as a whole and as a result, the Company had previously recognized a
gain on disposal of the Stroud center of $4.1 million during the year ended
December 31, 1999.
As was previously announced, on November 9, 2000 we terminated our contract
to purchase 12 acres of land in Dania Beach/Ft. Lauderdale, Florida. Because of
this event, we had written off all development costs associated with the site in
Ft. Lauderdale, as well as additional costs associated with various other
non-recurring development activities at other sites. The total non-cash,
non-recurring charge for abandoned development costs in the fourth quarter of
2000 was $1.8 million.
As of December 31, 2000, we had unencumbered properties totaling
$408 million in gross book value, or 70% of our real estate assets. We also had
a distribution payout ratio of 71%.
DEVELOPMENT AND EXPANSION
During 2000, we added approximately 235,000 square feet of expansions
throughout five existing centers. Currently, we are constructing approximately
57,000 square feet of expansion space at our center in San Marcos, TX, which is
scheduled to open in the second half of 2001. In addition, we are planning, but
have not yet begun, construction on a further 59,000 square foot expansion on
our adjacent San Marcos, TX land, which is anticipated for stabilization in the
fourth quarter of 2001.
We have an option to purchase the retail portion of a site at the Bourne
Bridge Rotary in Cape Cod, MA. Based on tenant demand, we plan to develop a new
250,000 square foot outlet center at this location. The entire site will contain
more than 750,000 square feet of mixed-use entertainment, retail, office and
residential community built in the style of a Cape Cod Village. The local and
state planning authorities are currently reviewing the project, and final
approvals are anticipated before the end of 2001. Due to the extensive amount of
site work and road construction, stores are not expected to open until mid 2003.
We cannot assure you that any of the anticipated or planned developments or
expansions discussed above will be started or completed as scheduled, as the
case may be, that any other acquisitions or dispositions will be made, or that
any development, expansion, acquisition or disposition will result in an
advantageous return on investment.
FINANCING ACTIVITIES
During 2000, we took a number of steps to insure access to capital
sufficient to complete our development pipeline and refinance debt maturing over
the next twelve months. These steps included the following:
In January 2000, Fleet National Bank and Bank of America provided us with an
aggregate $20.0 million, two year, unsecured loan at a variable rate of LIBOR
plus 2.25%. At the same time, we entered into interest rate swap agreements that
effectively fixed the interest rate on this loan at 8.75%.
In July 2000, Wells Fargo Bank provided us with a $29.5 million secured loan
for five years at a variable rate of LIBOR plus 1.75%. In December 2000, we
entered into an interest rate swap agreement that effectively fixed the interest
rate on $25 million of this loan at 7.72%.
In August 2000, Woodmen of the World Life Insurance Society provided us with
a $16.7 million secured loan for ten years at a fixed rate of 8.86%.
In September 2000, New York Life Insurance Company renewed a $9.2 million
secured loan for five years at a fixed rate of 9.125%.
We have extended the maturities of our four unsecured lines of credit
totaling $100 million with Bank of America, Bank One, Fleet National Bank and
SouthTrust Bank until at least June 30, 2002.
S-9
THE OFFERING
Issuer............................... Tanger Properties Limited Partnership.
Guarantor............................ Tanger Factory Outlet Centers, Inc.
Notes Offered........................ $100 million of 9 1/8% Senior Notes due 2008.
Maturity............................. The notes will mature on February 15, 2008.
Interest............................. We will pay interest on the notes at an annual rate of
9 1/8%. We will pay the interest due on the notes every six
months on February 15 and August 15. We will make the first
payment on August 15, 2001.
No Optional Redemption; No Sinking
Fund............................... We may not redeem the notes in whole or in part prior to
maturity. The notes will not be subject to any mandatory
sinking fund.
Certain Covenants.................... As more fully described and defined under "Description of
Notes--Certain Covenants" below, the terms of the notes will
restrict, among other things, our ability to:
- incur additional Debt if the aggregate principal amount
of all of our outstanding Debt is greater than 60% of
our Adjusted Total Assets or if, for a specified period,
our pro forma ratio of Consolidated Income Available for
Debt Service to Annual Service Charges would have been
less than 2.0 to 1;
- incur additional Debt, other than Permitted Debt, at the
Restricted Subsidiary level;
- incur Secured Debt if the aggregate principal amount of
all of our outstanding Secured Debt is greater than 40%
of our Adjusted Total Assets;
- make distributions of our assets;
- enter into certain transactions with affiliates; and
- restrict the ability of our Restricted Subsidiaries to
make certain payments or transfers to us.
Ranking of Notes and Guarantees...... The notes will be general unsecured obligations of the
Operating Partnership. The notes will rank equally in right
of payment with all senior indebtedness of the Operating
Partnership, and senior in right of payment to all future
subordinated indebtedness of the Operating Partnership. The
notes will be unconditionally guaranteed by the Company. The
guarantees will rank equally in right of payment to all
senior obligations of the Company, and senior in right of
payment to all future subordinated obligations of the
Company. The notes and guarantees will be effectively
subordinated to (1) any secured indebtedness of the
Operating Partnership or the Company, as applicable, to the
extent of the assets securing that indebtedness and (2) all
indebtedness for money borrowed and other liabilities of our
subsidiaries. As of September 30, 2000, after giving effect
to this offering and the application of the expected net
proceeds thereof, the Operating Partnership would have had
approximately $135.8 million of secured debt and
approximately $204.3 million of unsecured debt (including
the notes) outstanding.
Use of Proceeds...................... We will use the net proceeds from the sale of the notes to
repay existing indebtedness.
See "Risk Factors" beginning on page S-12 hereof and on page 4 in the
accompanying prospectus.
S-10
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table summarizes the information under the section "Selected
Financial Data" and should be read with our financial statements and the related
notes included in this prospectus supplement beginning on Page F-1. You should
also read the following information in conjunction with the sections in this
prospectus supplement entitled "Capitalization," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "Business and
Properties."
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Total revenues............................ $ 80,453 $ 76,207 $104,016 $ 97,766 $ 85,271
Interest expense.......................... $ 20,451 $ 17,968 $ 24,239 $ 22,028 $ 16,835
Income before gain (loss) on sale or
disposal of real estate and
extraordinary items..................... $ 10,543 $ 12,084 $ 17,070 $ 15,109 $ 17,583
Net income (1)............................ $ 4,608 $ 13,052 $ 20,866 $ 15,643 $ 17,583
OTHER DATA:
EBITDA (2)................................ $ 50,506 $ 48,577 $ 66,133 $ 61,991 $ 52,857
Funds from operations (3)................. $ 29,866 $ 30,447 $ 41,673 $ 37,048 $ 35,840
Distribution payout ratio (4)............. 71% 70% 68% 71% 67%
GLA at end of period (000's sq. ft.)...... 5,004 4,946 5,149 5,011 4,458
Number of centers......................... 29 30 31 31 30
Occupancy rate............................ 95% 95% 97% 97% 98%
BALANCE SHEET DATA:
Total assets.............................. $488,038 $467,511 $489,851 $471,568 $415,578
Total debt................................ $337,048 $306,591 $329,647 $302,485 $229,050
Total partners' equity.................... $124,408 $140,305 $141,054 $149,363 $160,525
- ------------------------
(1) Net income includes extraordinary items of $345 for the nine months ended
September 30, 1999 and $345 and $460 for the years ended December 31, 1999
and 1998 related to the early extinguishment of debt.
(2) EBITDA represents earnings before gain (loss) on sale or disposal of real
estate, extraordinary item, asset write-down, interest expense, income
taxes, depreciation and amortization. EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts
to analyze and compare companies on the basis of operating performance.
EBITDA is not intended to represent cash flows for the period, nor has it
been presented as an alternative to operating income as an indicator of
operating performance, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles, or GAAP. Other REITs (or their operating
partnerships) may define or interpret EBITDA differently than we do.
(3) Funds from Operations, or FFO, is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale of depreciable operating
properties, plus depreciation and amortization uniquely significant to real
estate. FFO is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. FFO is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance, and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP. We compute FFO in accordance with the
current standards established by the National Association of Real Estate
Investment Trusts, or NAREIT. Our computation may not be comparable to FFO
reported by other REITs (or their operating partnerships) that do not define
the term in accordance with the current NAREIT definition or that interpret
the current NAREIT definition differently than we do.
(4) Distribution paid in respect of the partnership units and preferred
partnership units for such year as a percentage of FFO before asset
write-downs.
S-11
FORWARD-LOOKING INFORMATION
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 in 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:
- general economic and local real estate conditions could change (for
example, our tenants' businesses may change if the economy changes which
might affect (1) the amount of rent they pay us or their ability to pay
rent to us, (2) their demand for new space, or (3) our ability to renew or
re-lease a significant amount of available space on favorable terms);
- the laws and regulations that apply to us could change (for instance, a
change in the tax laws that apply to REITs could result in unfavorable tax
treatment for us);
- availability and cost of capital (for instance, financing opportunities
may not be available to us, or may not be available to us on favorable
terms);
- our operating costs may increase or our costs to construct or acquire new
properties or expand our existing properties may increase or exceed our
original expectations.
RISK FACTORS
You should consider the following risks as well as those listed under "Risk
Factors" beginning on page 4 in the accompanying prospectus relating to the
manufacturers' outlet center industry, real estate investments, distribution
requirements applicable to the Company and REIT qualification matters, in
deciding whether to purchase the notes:
DEBT FINANCING RISKS
We are subject to the risks associated with debt financing, including the
risk that the cash provided by our operating activities will be insufficient to
meet required payments of principal and interest and the risk that we will not
be able to repay or refinance existing indebtedness or that the terms of any
refinancing will not be as favorable as the terms of existing indebtedness. If
we are unable to refinance our indebtedness on acceptable terms, we might be
forced to dispose of properties on disadvantageous terms, which might result in
losses.
TRADING MARKET FOR THE NOTES
Prior to the offering, there has been no public market for the notes. The
underwriters have advised us that they intend to make a market in the notes;
however, the underwriters are not obligated to do so. The underwriters may
discontinue any market-making at any time, and there is no assurance that an
active public market for the notes will develop or, if it develops, that it will
be maintained. Further, declines and volatility in the market for securities
generally, as well as changes in our financial performance or prospects, may
adversely affect the liquidity of, and trading market for, the notes.
S-12
LEASE RENEWAL RISK
As is customary in our industry, our leases with tenants typically have an
initial term of five to 10 years. Leases on a total of approximately 70% of the
leased square footage in our portfolio will expire on or prior to December 31,
2004. Approximately 535,889 square feet is up for renewal in 2001, approximately
886,380 square feet in 2002, approximately 864,383 square feet in 2003 and
approximately 940,437 square feet in 2004. If we are unable to promptly relet or
renew these expiring leases for all or a substantial portion of the expiring
square footage, or if the rental rates for renewal or reletting are
significantly lower than current market rates, our cash flow could be adversely
affected.
USE OF PROCEEDS
The net proceeds from the sale of the notes will be approximately
$97 million. We will use the net proceeds to repay all of the outstanding
indebtedness under our $75 million 8 3/4% notes due March 11, 2001. We will also
use the net proceeds to repay all of our $20 million term loan due January 2002
with Fleet National Bank and Bank of America, which currently bears interest at
a rate of LIBOR plus 2.25%. We will use the remaining proceeds for general
operating purposes.
Pending such use of the net proceeds, we may reduce amounts outstanding
under our lines of credit and/or may invest in short-term income producing
investments such as investments in commercial paper, government securities or
money market funds. We have four unsecured lines of credit that provide for
borrowings of up to $100 million with Bank of America, Bank One, Fleet National
Bank and South Trust Bank until at least June 30, 2002. Interest payable under
these facilities ranges from LIBOR plus 1.60% to LIBOR plus 1.80%.
S-13
CAPITALIZATION
The following table shows the capitalization of the Operating Partnership as
of September 30, 2000 and the adjusted capitalization as of that date after
giving effect to the sale of the notes and the application of the net proceeds
from the sale. This information should be read together with the information
under "Prospectus Supplement Summary," "Use of Proceeds" and "Selected Financial
Data" and the consolidated financial statements and related notes incorporated
by reference into this prospectus supplement and the accompanying prospectus.
SEPTEMBER 30, 2000
-------------------------
HISTORICAL AS ADJUSTED
----------- -----------
(DOLLARS IN THOUSANDS)
Debt:
Secured Debt
Mortgages Payable....................................... $135,759 $135,759
-------- --------
Total Secured Debt.................................... 135,759 135,759
-------- --------
Unsecured Debt
8 3/4% notes due 2001 (existing)........................ 75,000 --
7 7/8% notes due 2004 (existing)........................ 75,000 75,000
9 1/8% Notes due 2008 (offered hereby).................. -- 100,000
Unsecured term note....................................... 20,000 --
Unsecured lines of credit................................. 31,289 29,323
-------- --------
Total unsecured debt.................................. 201,289 204,323
-------- --------
Total debt.......................................... 337,048 340,082
-------- --------
Partners' equity:
General partner, 150,000 general partnership units
outstanding............................................. 1,699 1,699
Limited partner, 10,802,216 and 80,600 limited partnership
units
and preferred partnership units outstanding............. 122,709 122,709
-------- --------
Total partners' equity.................................. 124,408 124,408
-------- --------
Total capitalization.................................. $461,456 $464,490
======== ========
S-14
SELECTED FINANCIAL DATA
The Operating Partnership derived the historical financial information below
from its audited financial statements for 1995 through 1999 and unaudited
financial statements for the nine months ended September 30, 2000 and 1999,
respectively. The information is only a summary and you should read it together
with the historical financial statements and related notes contained in the
annual and quarterly reports and other information filed by the Operating
Partnership with the Securities and Exchange Commission and incorporated by
reference herein.
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
REVENUES
Base rentals............................ $ 52,912 $ 51,314 $ 69,180 $ 66,187 $ 56,807 $ 50,596 $ 45,818
Percentage rentals...................... 1,902 1,774 3,141 3,087 2,637 2,017 2,068
Expense reimbursements.................. 22,138 20,316 27,910 26,852 24,665 21,991 19,913
Other income............................ 3,501 2,803 3,785 1,640 1,162 896 805
-------- -------- -------- -------- -------- -------- --------
Total revenues........................ 80,453 76,207 104,016 97,766 85,271 75,500 68,604
-------- -------- -------- -------- -------- -------- --------
EXPENSES
Property operating...................... 24,458 22,221 30,585 29,106 26,269 23,559 22,467
General and administrative.............. 5,489 5,409 7,298 6,669 6,145 5,467 5,079
Interest................................ 20,451 17,968 24,239 22,028 16,835 13,998 11,337
Depreciation and amortization........... 19,512 18,525 24,824 22,154 18,439 16,458 14,369
Asset write-down.......................... 0 0 0 2,700 0 0 0
-------- -------- -------- -------- -------- -------- --------
Total expenses........................ 69,910 64,123 86,946 82,657 67,688 59,482 53,252
-------- -------- -------- -------- -------- -------- --------
Income before gain (loss) on sale or
disposal of real estate and
extraordinary item...................... 10,543 12,084 17,070 15,109 17,583 16,018 15,352
Gain (loss) on sale or disposal of real
estate.................................. (5,935) 1,313 4,141 994 -- 159 0
Income before extraordinary item.......... 4,608 13,397 21,211 16,103 17,583 16,177 15,352
Extraordinary item........................ -- (345) (345) (460) -- (831) 0
Net income................................ 4,608 13,052 20,866 15,643 17,583 15,346 15,352
Less applicable preferred unit
distributions........................... (1,382) (1,441) (1,917) (1,911) (1,808) (2,399) (2,903)
-------- -------- -------- -------- -------- -------- --------
Income available to partners.............. $ 3,226 $ 11,611 $ 18,949 $ 13,732 $ 15,775 $ 12,947 $ 12,449
======== ======== ======== ======== ======== ======== ========
UNIT DATA:
Basic:
Income before extraordinary item........ $ 0.30 $ 1.10 $ 1.77 $ 1.30 $ 1.57 $ 1.46 $ 1.36
Net income.............................. $ 0.30 $ 1.07 $ 1.74 $ 1.26 $ 1.57 $ 1.37 $ 1.36
Weighted average units.................... 10,919 10,895 10,894 10,919 10,061 9,435 9,128
Diluted:
Income before extraordinary item........ $ 0.29 $ 1.10 $ 1.77 $ 1.28 $ 1.55 $ 1.46 $ 1.36
Net income.............................. $ 0.29 $ 1.07 $ 1.74 $ 1.24 $ 1.55 $ 1.37 $ 1.36
Weighted average units.................... 10,944 10,916 10,904 11,040 10,171 9,441 9,129
Distributions paid per unit (1)........... $ 1.82 $ 1.81 $ 2.42 $ 2.35 $ 2.17 $ 2.06 $ 1.96
BALANCE SHEET DATA:
Undepreciated real estate assets.......... $580,911 $543,494 $566,216 $529,247 $454,708 $358,361 $325,881
Total assets.............................. $488,038 $467,511 $489,851 $471,568 $415,578 $331,954 $314,947
Long-term debt............................ $337,048 $306,591 $329,647 $302,485 $229,050 $178,004 $156,749
Total partners' equity.................... $124,408 $140,305 $141,054 $149,363 $160,525 $136,256 $142,397
OTHER DATA:
EBITDA(2)................................. $ 50,506 $ 48,577 $ 66,133 $ 61,991 $ 52,857 $ 46,474 $ 41,058
Funds from operations(3).................. $ 29,866 $ 30,447 $ 41,673 $ 37,048 $ 35,840 $ 32,313 $ 29,597
Cash flows from:
Operating activities.................... $ 30,240 $ 33,801 $ 43,169 $ 35,791 $ 39,232 $ 38,031 $ 32,455
Investing activities.................... $(15,504) $(20,918) $(45,959) $(79,236) $(93,636) $(36,401) $(44,788)
Financing activities.................... $(15,037) $(19,019) $ (3,043) $ 46,172 $ 55,444 $ (4,176) $ 13,802
S-15
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
--------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
--------- --------- -------- -------- -------- -------- --------
GLA at end of period (000's sq. ft.)...... 5,004 4,946 5,149 5,011 4,458 3,739 3,507
Number of centers......................... 29 30 31 31 30 27 27
RATIOS:
Earnings to fixed charges(4).............. 1.46 1.58 1.61 1.62 1.82 1.98 2.22
EBITDA to Annual Service Charge(4)(8)..... 2.5 2.7 2.7 2.9 3.0 3.3 3.7
Debt to Adjusted Total Assets(5)(6)....... 56.4% 54.7% 55.9% 55.6% 48.1% 49.3% 47.4%
Secured Debt to Adjusted Total
Assets(7)............................... 22.7% 16.3% 16.5% 13.4% 15.5% 25.1% 47.4%
Consolidated income available for debt
service to Annual Service Charge(8)..... 2.7 2.7 2.7 2.7 2.8 3.2 3.7
Distribution Payout Ratio(9).............. 71% 70% 68% 71% 67% 69% 71%
- ------------------------------
(1) Excludes distributions paid per unit to holders of preferred partnership
units of $14.78 and $14.69 for the nine months ended September 30, 2000 and
1999 and $21.76, $21.17, $19.55, $18.56 and $17.66 for the years ended
December 31, 1999, 1998, 1997, 1996 and 1995.
(2) EBITDA represents earnings before gain (loss) on sale or disposal of real
estate, extraordinary item, asset write-down, interest expense, income
taxes, depreciation and amortization. EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts
to analyze and compare companies on the basis of operating performance.
EBITDA is not intended to represent cash flows for the period, nor has it
been presented as an alternative to operating income as an indicator of
operating performance, and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles, or GAAP. Other REITs (or their operating
partnerships) may define or interpret EBITDA differently than we do.
(3) Funds from Operations, or FFO, is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale of depreciable operating
properties, plus depreciation and amortization uniquely significant to real
estate. FFO is presented because it is a widely accepted financial indicator
used by certain investors and analysts to analyze and compare companies on
the basis of operating performance. FFO is not intended to represent cash
flows for the period, nor has it been presented as an alternative to
operating income as an indicator of operating performance, and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with GAAP. We compute FFO in accordance with the
current standards established by NAREIT. Our computation may not be
comparable to FFO reported by other REITs (or their operating partnerships)
that do not define the term in accordance with the current NAREIT definition
or that interpret the current NAREIT definition differently than we do.
(4) For purposes of this calculation, earnings consist of income (loss) before
gain on sale of real estate and extraordinary items plus fixed charges
(excluding capitalized interest). Fixed charges consist of interest costs
(whether expensed or capitalized) and amortization of debt expense and
discount or premium relating to any indebtedness (whether expensed or
capitalized) and that portion of rental expense estimated to be attributed
to interest.
(5) As specified in the indenture, "Indebtedness" generally consists of
indebtedness in respect of borrowed money, secured indebtedness,
reimbursement obligations in connection with letters of credit and
capitalized leases.
(6) As specified in the indenture, "Adjusted Total Assets" consists of the
"Undepreciated Real Estate Assets" and all other assets (excluding
intangibles and accounts receivable) of the Operating Partnership and its
"Subsidiaries" on a consolidated basis. "Undepreciated Real Estate Assets"
means the cost (including capital improvements) of real estate assets of the
Operating Partnership and its "Subsidiaries," before depreciation and
amortization, determined on a consolidated basis.
(7) As specified in the indenture, "Secured Indebtedness" consists of
"Indebtedness" secured by any mortgage, pledge, lien, charge, encumbrance or
security interest of any kind upon any property of the Operating Partnership
or any Subsidiary.
(8) As specified in the indenture, "Consolidated Income Available for Debt
Service" consists of consolidated net income of the Operating Partnership
and its "Subsidiaries," plus amounts deducted for interest, provision for
income taxes, amortization of debt discount, provision of realized losses on
properties, depreciation and amortization, non-cash charges and amortization
of deferred charges, minus gains on sales of properties. As specified in the
indenture, "Annual Service Charge" as of any date means the amount which is
expensed or capitalized in such period for interest on Debt, excluding
amortization of deferred financing costs.
(9) Distributions paid in respect of the partnership units and preferred
partnership units for such year as a percentage of FFO before asset
write-downs.
S-16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements appearing elsewhere in this prospectus. Historical results and
percentage relationships set forth in the statements of operations, including
trends that might appear, are not necessarily indicative of future operations.
The discussion of our results of operations reported in the statements of
operations compares the nine months ended September 30, 2000 with the nine
months ended September 30, 1999, full year 1999 results with full year 1998
results and full year 1998 results with full year 1997 results. Certain
comparisons between the periods are made on a percentage basis as well as on a
weighted average 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.
GENERAL OVERVIEW
At September 30, 2000, we owned 29 centers in 20 states totaling
5.0 million square feet of GLA compared to 30 centers in 22 states totaling
4.9 million square feet of GLA at September 30, 1999. Since September 30, 1999,
we have acquired one center and expanded four existing centers, increasing GLA
by a net of approximately 244,000 square feet. In addition, we sold two centers
totaling 186,000 square feet in June 2000.
During the first nine months of 2000, we added 70,100 square feet to the
portfolio in Commerce, GA, San Marcos, TX and Sevierville, TN. In addition, we
had approximately 244,300 square feet of expansion space under construction in
four centers located in Lancaster, PA, Riverhead, NY, San Marcos, TX and
Sevierville, TN. In June 2000, we sold our centers in Lawrence, KS and
McMinnville, OR. Net proceeds received from the sale totaled $7.1 million. As a
result of the two sales, we recognized a loss on sale of real estate of $5.9
million. The combined net operating income of these two centers represented
approximately 1% of the total portfolio's operating income. During the first
nine months of 2000, we also sold four land outparcels for net proceeds of $1.5
million and have included in other income a gain on sale of $908,000.
A summary of the operating results for the nine months ended September 30,
2000 and 1999 and for the years ended December 31, 1999, 1998 and 1997 is
presented in the following table, with revenues and expenses expressed in
amounts calculated on a weighted average GLA basis.
S-17
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
GLA open at end of period (000's sq. ft.)......... 5,004 4,946 5,149 5,011 4,458
Weighted average GLA (000's sq. ft.) (1).......... 5,117 4,976 4,996 4,768 4,046
Outlet centers in operation....................... 29 30 31 31 30
New centers acquired.............................. -- -- 1 2 3
Centers sold...................................... 2 1 1 1 --
Centers expanded.................................. -- 4 5 1 5
States operated in at end of period............... 20 22 22 23 23
Occupancy percentage at end of period............. 95% 95% 97% 97% 98%
PER SQUARE FOOT
Revenues
Base rentals.................................. $10.34 $10.31 $13.85 $13.88 $14.04
Percentage rentals............................ .37 .36 .63 .65 .65
Expense reimbursements........................ 4.33 4.08 5.59 5.63 6.10
Other income.................................. .68 .56 .76 .34 .29
------ ------ ------ ------ ------
Total revenues.............................. 15.72 15.31 20.83 20.50 21.08
------ ------ ------ ------ ------
Expenses
Property operating............................ 4.78 4.47 6.12 6.10 6.49
General and administrative.................... 1.07 1.09 1.46 1.40 1.52
Interest...................................... 4.00 3.61 4.85 4.62 4.16
Depreciation and amortization................. 3.81 3.72 4.97 4.65 4.56
------ ------ ------ ------ ------
Total expenses.............................. 13.66 12.89 17.40 16.77 16.73
------ ------ ------ ------ ------
Income before gain (loss) on sale or disposal of
real estate and extraordinary item.............. $ 2.06 $ 2.42 $ 3.43 $ 3.73 $ 4.35
====== ====== ====== ====== ======
- ------------------------
(1) GLA weighted by months of operations. GLA not adjusted for fluctuations in
occupancy which may occur subsequent to the original opening date.
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2000 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
Base rentals increased $1.6 million, or 3%, in the 2000 period when compared
to the same period in 1999. The increase is primarily due to the effect of the
expansions and the acquisition completed since September 30, 1999, as mentioned
in the General Overview above, offset by the loss of rent from the sales of the
centers in Lawrence, KS and McMinnville, OR. Base rent per weighted average GLA
increased by $.03 per square foot from $10.31 per square foot in the nine months
ended September 30, 1999 to $10.34 per square foot in the nine months ended
September 30, 2000. The increase is the result of the expansions and acquisition
since September 30, 1999.
Percentage rentals increased $128,000, and on a weighted average GLA basis,
increased $.01 per square foot in 2000 compared to 1999. For the first nine
months of 2000, reported same-store sales, defined as the weighted average sales
per square foot reported by tenants for stores open since January 1, 1999,
increased by 1% when compared to the first nine months of 1999. Reported
same-space sales for the rolling twelve months ended September 30, 2000, defined
as the weighted average sales per square foot reported in space open for the
full duration of each comparison period, increased 7% to $278, reflecting the
continued success of our strategy to re-merchandise selected centers by
replacing low volume tenants with high volume tenants.
S-18
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, decreased from 91% in 1999 to 90% in 2000 primarily as a result of
higher operating costs and other non-reimbursable expenses during the 2000
period compared to the 1999 period.
Other income increased $698,000 in 2000 compared to 1999 primarily due to
the increased gains on sale of land outparcels totaling $221,000 in the 2000
period compared to the 1999 period. Also, business interruption insurance
proceeds relating to the Stroud center totaling $1.0 million were recognized in
2000 compared to $524,000 in 1999.
Property operating expenses increased by $2.2 million, or 10%, in the 2000
period as compared to the 1999 period and, on a weighted average GLA basis,
increased $.31 per square foot from $4.47 to $4.78. The increases are the result
of certain increases in real estate tax assessments and higher common area
maintenance expenses.
General and administrative expenses increased $80,000, or 1%, in the 2000
period as compared to the 1999 period and, as a percentage of total revenues,
general and administrative expenses were approximately 7% of total revenues in
both the 2000 and 1999 periods.
Interest expense increased $2.5 million during the 2000 period as compared
to the 1999 period due to the incremental financing needed to fund the
expansions since September 1999 and the November 1999 acquisition in Fort
Lauderdale, FL and higher interest rates on our variable rate debt. Depreciation
and amortization per weighted average GLA increased 2% from $3.72 per square
foot in the 1999 period to $3.81 per square foot in the 2000 period due to a
higher mix of tenant finishing allowances included in buildings and improvements
which are depreciated over shorter lives than other construction costs.
The extraordinary loss recognized in the 1999 period represents the
write-off of unamortized deferred financing costs related to debt that was
extinguished during the period prior to its scheduled maturity.
1999 COMPARED TO 1998
Base rentals increased $3.0 million, or 5%, in the 1999 period when compared
to the same period in 1998. The increase is primarily due to the effect of a
full year of rent in 1999 from the centers acquired on March 31, 1998 and
July 31, 1998 as well as certain other expansions, offset by the loss of rent
from the center in Stroud, OK. Base rent per weighted average GLA decreased $.03
per foot due to the portfolio of properties having a lower overall average
occupancy rate during 1999 compared to 1998. Base rent per square foot, however,
was favorably impacted during the year due to the loss of the Stroud center that
had a lower average base rent per square foot than the portfolio average.
Percentage rentals, which represent revenues based on a percentage of
tenants' sales volume above predetermined levels (the "breakpoint"), increased
by $54,000 and on a weighted average GLA basis, decreased $.02 per square foot
in 1999 compared to 1998. For the year ended December 31, 1999, reported
same-store sales, defined as the weighted average sales per square foot reported
by tenants for stores open since January 1, 1998, were down approximately 1%
with that of the previous year. However, same-space sales for the year ended
December 31, 1999 actually increased 5% to $261 per square foot due to the
Operating Partnership's efforts to re-merchandise selected centers by replacing
low volume tenants with high volume tenants.
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, decreased to 91%
S-19
in 1999 from 92% in 1998 primarily as a result of a lower average occupancy rate
in the 1999 period compared to the 1998 period.
Other income increased $2.1 million in 1999 as compared to 1998. The
increase is primarily due to gains on sale of out parcels of land totaling
$687,000 during 1999 as well as to the recognition of $880,000 of business
interruption insurance proceeds relating to the Stroud center.
Property operating expenses increased by $1.5 million, or 5%, in 1999 as
compared to 1998. On a weighted average GLA basis, property operating expenses
increased slightly from $6.10 to $6.12 per square foot. Higher real estate taxes
per square foot were offset by decreases in advertising and promotion expenses
per square foot and lower common area maintenance expenses per square foot.
General and administrative expenses increased $629,000, or 9%, in 1999 as
compared to 1998. As a percentage of revenues, general and administrative
expenses were approximately 7.0% of revenues in 1999 and 6.8% in 1998. On a
weighted average GLA basis, general and administrative expenses increased $.06
per square foot from $1.40 in 1998 to $1.46 in 1999. The increase in general and
administrative expenses per square foot reflects the rental and related expenses
for the new corporate office space to which the Operating Partnership relocated
its corporate headquarters in April 1999.
Interest expense increased $2.2 million during 1999 as compared to 1998 due
to financing the 1998 acquisitions and the 1998 and 1999 expansions. However,
interest expense was favorably impacted by the insurance proceeds received from
the loss of the Stroud center that were used to immediately reduce outstanding
amounts under the Operating Partnership's lines of credit. Depreciation and
amortization per weighted average GLA increased from $4.65 per square foot in
1998 to $4.97 per square foot in the 1999 period due to a higher 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.)
The gain on disposal of real estate during 1999 represents the amount of
insurance proceeds from the loss of the Stroud center in excess of the carrying
amount for the portion of the related assets destroyed by the tornado. The gain
on sale of real estate during 1998 is due primarily to the sale of an 8,000
square foot, single tenant property in Manchester, VT.
The extraordinary losses recognized in each year represent the write-off of
unamortized deferred financing costs related to debt that was extinguished
during each period prior to its scheduled maturity.
1998 COMPARED TO 1997
Base rentals increased $9.4 million, or 17%, in 1998 when compared to the
same period in 1997 primarily as a result of the 18% increase in weighted
average GLA. The increase in weighted average GLA is due primarily to the
acquisitions in October 1997 (180,000 square feet), March 1998 (173,000 square
feet), and July 1998 (186,000 square feet), as well as expansions completed in
the fourth quarter of 1997 and first quarter 1998. The decrease in base rentals
per weighted average GLA of $.16 in 1998 compared to 1997 reflects (1) the
impact of these acquisitions which collectively have a lower average base rental
rate per square foot and (2) lower average occupancy rates in 1998 compared to
1997. Base rentals per weighted average GLA, excluding these acquisitions,
during the 1998 period decreased $.08 per square foot to $13.96.
Percentage rentals increased $450,000, or 17%, in 1998 compared to 1997 due
to the acquisitions and expansions completed in 1997. Same store sales, defined
as the weighted average sales per square foot reported for tenant stores open
all of 1998 and 1997, decreased 2.7% to approximately $242 per square foot.
Expense reimbursements, which represent the contractual recovery from
tenants of certain common area maintenance, insurance, property tax, promotional
and advertising and management expenses generally fluctuates consistently with
the reimbursable property operating expenses to which it
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relates. Expense reimbursements, expressed as a percentage of property operating
expenses, decreased from 94% in 1997 to 92% in 1998 primarily as a result of the
decrease in occupancy.
Property operating expenses increased by $2.8 million, or 11%, in 1998 as
compared to 1997. On a weighted average GLA basis, property operating expenses
decreased from $6.49 to $6.10 per square foot. Higher expenses for real estate
taxes per square foot were offset by decreases in advertising and promotion and
common area maintenance expenses per square foot. The decrease in property
operating expenses per square foot is also attributable to the acquisitions that
collectively have a lower average operating cost per square foot. Excluding the
acquisitions, property operating expenses during 1998 were $6.19 per square
foot.
General and administrative expenses increased $524,000 in 1998 compared to
1997. As a percentage of revenues, general and administrative expenses decreased
from 7.2% in 1997 to 6.8% in 1998. On a weighted average GLA basis, general and
administrative expenses decreased $.12 per square foot to $1.40 in 1998,
reflecting the absorption of the acquisitions in 1997 and 1998 without relative
increases in general and administrative expenses.
Interest expense increased $5.2 million during 1998 as compared to 1997 due
to higher average borrowings outstanding during the period and due to less
interest capitalized during 1998 as a result of a decrease in ongoing
construction activity during 1998 compared to 1997. Average borrowings have
increased principally to finance the acquisitions and expansions to certain
existing centers. Depreciation and amortization per weighted average GLA
increased from $4.56 per square foot to $4.65 per square foot.
The asset write-down of $2.7 million in 1998 represents the write-off of
pre-development costs capitalized for certain projects, primarily the Romulus,
MI project, which were discontinued and terminated during the year.
The gain on sale of real estate for 1998 represents the sale of an 8,000
square foot, single tenant property in Manchester, VT for $1.85 million and the
sale of three outparcels at other centers for sales prices aggregating $940,000.
The extraordinary item in 1998 represents a write-off of unamortized deferred
financing costs due to the termination of a $50 million secured line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $30.2 million and
$33.8 million for the nine months ended September 30, 2000 and 1999,
respectively. The decrease in cash provided by operating activities is due
primarily to a decrease in accounts payable and accrued expenses. Net cash used
in investing activities was $15.5 million and $20.9 million during 2000 and
1999, respectively. Net cash used in investing was lower in 2000 primarily due
to the increase in cash received from the sale of real estate, a decrease in
insurance proceeds received from casualty losses and a decrease in advances to
officers. Net cash used in financing activities decreased to $15.0 million
during the first nine months of 2000 from $19.0 million in 1999 due to the
reduction of amounts outstanding under the lines of credit from the proceeds
from insurance and property sales.
During the first nine months of 2000, we added 70,100 square feet to our
portfolio in Commerce, GA, San Marcos, TX and Sevierville, TN. In addition, we
had approximately 244,300 square feet of expansion space under construction in
four centers located in Lancaster, PA, Riverhead, NY, San Marcos, TX and
Sevierville, TN. Commitments to complete construction of the expansions to the
existing properties and other capital expenditure requirements amounted to
approximately $5.7 million at September 30, 2000. Commitments for construction
represent only those costs contractually required to be paid by us.
We have an option to purchase the retail portion of a site at the Bourne
Bridge Rotary in Cape Cod, MA. Based on tenant demand, we plan to develop a new
250,000 square foot outlet center. The entire site will contain more than
750,000 square feet of mixed-use entertainment, retail, office and
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residential community built in the style of a Cape Cod Village. The local and
state planning authorities are currently reviewing the project and they
anticipate final approvals by next year. Due to the extensive amount of site
work and road construction, stores are not expected to be open until mid 2003.
On November 9, 2000, we terminated our contract to purchase twelve acres of
land in Dania Beach/Ft. Lauderdale, Florida. We are in the process of
determining the final cost associated with the termination of the contract,
which will be written off in the fourth quarter.
The developments or expansions that we have planned or anticipated may not
be started or completed as scheduled, or may not result in accretive 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 accretive funds from
operations.
During the first nine months of the year, to complete our development
pipeline and to put us in a position to handle the debt maturities that will be
occurring over the next twelve months, we have taken the following steps:
INTEREST TERM AND PRINCIPAL
LENDER RATE SECURITY AMOUNT
- ------ ---------------- ---------------------- -------------
Fleet National Bank and Bank of America LIBOR + 2.25% 2 yr. unsecured $20.0 million
Closed 01/00
Wells Fargo Bank LIBOR + 1.75% 5 yr. secured $29.5 million
Closed 07/00
Woodmen of the World Life Insurance 8.86% fixed 10 yr. secured $16.7 million
Society
Closed 08/00
New York Life Insurance Company 9.125% fixed 5 yr. secured $ 9.2 million
Closed 09/00 (renewal)
We have extended the maturities for our four lines of credit with Bank of
America, Bank One, Fleet National Bank and SouthTrust Bank until at least
June 30, 2002. This additional long-term financing, the proceeds from the
property sales, and internally generated cash flow will be used to fund
expansions over the next twelve months.
The financing transactions and the approximate 150 basis point increase in
LIBOR rates over the last twelve months have effectively increased the average
interest rate (including amortization of loan costs) on our outstanding debt
from 8.2% in 1999 to an estimated 8.7% in 2000. Because of the long-term nature
of the leases with tenants, we cannot immediately pass through the higher
interest expense caused by this increase in market rates, which has begun to
have an impact on earnings. At September 30, 2000, our total outstanding debt
was $337.0 million, approximately 60% of the outstanding long-term debt
represented unsecured borrowings and approximately 70% of our real estate
portfolio was unencumbered.
We maintain revolving lines of credit with Bank of America, Bank One, Fleet
National Bank and SouthTrust Bank that provide for unsecured borrowings up to
$100 million, of which $68.7 million was available for additional borrowings at
September 30, 2000. As a general matter, we plan to utilize our lines of credit
as an interim source of funds to acquire, develop and expand factory outlet
centers and to repay the credit lines with longer-term debt or equity when we
determine that market conditions are favorable. Under joint shelf registration,
Tanger Factory Outlet Centers, Inc, the sole owner of the Operating
Partnership's general partner, and the Operating Partnership could issue up to
$100 million
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in additional equity securities and $100 million in additional debt securities.
With the decline in the real estate debt and equity markets, we may not, in the
short term, be able to access these markets on favorable terms. We believe the
decline is temporary and we may utilize these funds as the markets improve to
continue our external growth. In the interim, we may consider other strategies
to generate additional capital to reinvest in attractive opportunities. These
strategies may include the use of operational and developmental joint ventures,
selling certain properties that do not meet our long-term investment criteria,
selling land outparcels at existing properties as well as other related
strategies. Based on cash provided by operations, existing credit facilities,
ongoing negotiations with certain financial institutions and funds available
under the shelf registration, we believe that we have access to the necessary
financing to fund the planned capital expenditures during 2001.
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 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. Certain of our debt agreements limit the payment of
dividends such that dividends 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 from the date of the agreement.
In May 2000, the demand notes receivable totaling $3.4 million from
Stanley K. Tanger, the Company's Chairman of the Board and Chief Executive
Officer of the general partner, were converted into two separate term notes of
which $2.5 million is due from Mr. Tanger and $845,000 is due from Steven B.
Tanger, President and Chief Operating Officer of the general partner. The notes
amortize evenly over five years with principal and interest at a rate of 8% per
annum due quarterly. The balances of these notes at September 30, 2000 were
$2.4 million and $810,000, respectively.
On October 12, 2000, the Board of Directors of the general partner declared
a $.6075 cash dividend per common unit payable on November 15, 2000 to each
unitholder of record on October 31, 2000. The Board of Directors of the general
partner also declared a cash dividend of $.5474 per preferred unit payable on
November 15, 2000 to each unitholder of record on October 31, 2000.
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. At September 30,
2000, we had interest rate swap agreements effective through January 2002 with a
notional amount of $20 million. Under this agreement, we receive a floating
interest rate based on the 30 day LIBOR index and pay a fixed interest rate of
6.5%. These swaps effectively change our payment of interest on $20 million of
variable rate debt for the contract period to a fixed rate of 8.75%.
The fair value of the interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At
September 30, 2000, we would have received $12,000 to terminate the agreements.
A 1% decrease in the 30-day LIBOR index would decrease this amount received by
approximately $238,000. The fair value is based on dealer quotes, considering
current interest rates.
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The fair market value of long-term fixed interest rate debt is subject to
market 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 September 30, 2000 was
$332.0 million and the recorded value was $337.0 million. A 1% increase from
prevailing interest rates at September 30, 2000 would result in a decrease in
fair value of total long-term debt by approximately $5.2 million. Fair values
were determined from quoted market prices, where available, using current
interest rates considering credit ratings and the remaining terms to maturity.
NEW ACCOUNTING PRONOUNCEMENTS
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires entities to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at their fair value. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of the FASB Statement No. 133" that revises SFAS No. 133 to become effective in
the first quarter of 2001. We anticipate that, due to our limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on our results of operations or our financial position.
FUNDS FROM OPERATIONS
We believe that for a clear understanding of the historical operating
results of the Operating Partnership, FFO should be considered along with net
income as presented in the unaudited financial statements included elsewhere in
this report. FFO is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare one
equity REIT with another on the basis of operating performance. FFO is generally
defined as net income (loss), computed in accordance with generally accepted
accounting principles, or GAAP, before extraordinary items and gains (losses) on
sale of depreciable operating properties, plus depreciation and amortization
uniquely significant to real estate. We caution that the calculation of FFO may
vary from entity to entity and as such our presentation of FFO may not be
comparable to other similarly titled measures of other reporting companies. FFO
does not represent net income or cash flow from operations as defined by
generally accepted accounting principles and should not be considered an
alternative to net income as an indication of operating performance or to cash
from operations as a measure of liquidity. FFO is not necessarily indicative of
cash flows available to fund distributions to unitholders and other cash needs.
In October 1999, the National Association of Real Estate Investment Trusts,
or NAREIT, issued interpretive guidance regarding the calculation of FFO.
NAREIT's leadership determined that FFO should include both recurring and
non-recurring operating results, except those results defined as extraordinary
items under generally accepted accounting principles and gains and losses from
sales of depreciable operating property. All REITS are encouraged to implement
the recommendations of this guidance effective for fiscal periods beginning in
2000 for all periods presented in financial statements or tables. We adopted the
new NAREIT clarification as of January 1, 2000 which had no impact on amounts
previously reported as FFO.
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Below is a calculation of FFO for the nine months ended September 30, 2000
and 1999 and for the years ended December 31, 1999, 1998 and 1997 as well as
actual cash flow and other data for those respective periods:
NINE MONTHS
ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS)
Net income.................................................. $ 4,608 $ 13,052 $ 20,866 $ 15,643 $ 17,583
Adjusted for:
Extraordinary item-loss on early extinguishment of debt... -- 345 345 460 --
Depreciation and amortization uniquely significant to real
estate.................................................. 19,323 18,363 24,603 21,939 18,257
(Gain) loss on sale or disposal of real estate............ 5,935 (1,313) (4,141) (994) --
-------- -------- -------- -------- --------
Funds from operations (1)................................. $ 29,866 $ 30,447 $ 41,673 $ 37,048 $ 35,840
======== ======== ======== ======== ========
Weighted average units outstanding (2)...................... 11,703 11,711 11,697 11,844 11,000
======== ======== ======== ======== ========
Cash flows provided by (used in):
Operating activities...................................... $ 30,240 $ 33,801 $ 43,169 $ 35,791 $ 39,232
Investing activities...................................... (15,504) (20,918) (45,959) (79,236) (93,636)
Financing activities...................................... (15,037) (19,019) (3,043) 46,172 55,444
- ------------------------------
(1) Includes gain on sales of outparcels of land of $908 and $687 for the nine
months ended September 30, 2000 and 1999 and $687 for the year ended
December 31, 1999.
(2) Assumes the preferred units and unit options are converted to common units.
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) that 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.
As part of our strategy of aggressively managing our assets, we are
strengthening the tenant base in several of our centers by adding strong new
anchor tenants, such as Polo, Nike, GAP, Tommy Hilfiger and Nautica. To
accomplish this goal, stores may remain vacant for a longer period of time in
order to recapture enough space to meet the size requirement of these upscale,
high volume tenants. As of September 30, 2000, our centers were 95% occupied.
As of September 30, 2000, we renewed approximately 498,000 square feet, or
71% of the square feet scheduled to expire in 2000. The existing tenants renewed
at an average base rental rate approximately 5% higher than the expiring rate.
An additional 27,400 feet, or 4%, was in renewal negotiation or was to be
negotiated during the fourth quarter with existing tenants. As of September 30,
2000, we were in the process of re-leasing approximately 175,000 square feet of
space that was not renewed this year by the existing tenants during the first
nine months of 2000. In addition, approximately 12% of our lease portfolio is
scheduled to expire during 2001. Consistent with our long-term strategy of
remerchandising 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 rate by one
to two percent over the next twelve to eighteen months. If we are unable to
successfully renew or re-lease 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.
S-25
BUSINESS AND PROPERTIES
We are one of the largest owners and operators of factory outlet centers in
the United States. We are organized to operate as a REIT. We are a
fully-integrated, self-administered and self-managed real estate company that
focuses exclusively on developing, acquiring, owning and operating factory
outlet centers. We provide all development, leasing and management services for
our centers. As of December 31, 2000, we owned and operated 29 centers with
total GLA of approximately 5.2 million square feet. These centers were 96%
occupied, contained approximately 1,100 stores and represented over 250 store
brands as of such date.
THE OPERATING PARTNERSHIP
The centers and other assets of the Company are held by, and all of the
Company's operations are conducted by, the Operating Partnership. Prior to 1999,
the Company owned the majority of the units of partnership interest issued by
the Operating Partnership, which we refer to as the Units, and served as its
sole general partner. During 1999, the Company transferred its ownership of
Units into 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 in an entity named The
Tanger Family Limited Partnership, or TFLP. TFLP holds a limited partnership
interest in and is a 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.
As of December 31, 2000, the Company's wholly owned subsidiaries owned
7,918,911 Units and 80,600 preferred partnership units, the Preferred Units,
which are convertible into approximately 726,203 limited partnership Units, and
TFLP owned 3,033,305 Units. TFLP's Units are exchangeable, subject to certain
limitations to preserve the Company's status as a REIT, on a one-for-one basis
for common shares of the Company. Preferred Units are automatically converted
into limited partnership Units to the extent of any conversion of preferred
shares of the Company into common shares of the Company. As of December 31,
2000, management of the Company beneficially owned approximately 27% of all
outstanding common shares of the Company (assuming the preferred shares of the
Company and the TFLP Units are exchanged for common shares of the Company but
without giving effect to the exercise of any outstanding stock and partnership
Unit options).
Each Preferred Unit entitles the wholly owned subsidiaries of the Company to
receive distributions from the Operating Partnership in an amount equal to the
distribution payable on each preferred share of the Company, prior to the
payment by the Operating Partnership of distributions on any other Units.
Preferred Units will be automatically converted by holders into limited
partnership Units to the extent that the preferred shares of the Company are
converted into common shares of the Company and will be redeemed by the
Operating Partnership to the extent that such preferred shares are redeemed by
the Company.
THE COMPANY
We are a fully integrated real estate company, focusing exclusively on
factory outlet centers. The Company expects to continue to qualify as a REIT
under the Internal Revenue Code of 1986, as amended. To maintain its
qualification as a REIT for federal income tax purposes, the Company is required
to distribute at least 90% of its taxable income each year. Dividends on
preferred shares are included as distributions for this purpose. Historically,
the Company's distributions have exceeded, and the Company expects that its
distributions will continue to exceed, taxable income in each year. As a result,
and because a portion of the distributions may constitute a return of capital,
the Company's, and
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therefore our consolidated net worth may decline. However, we do not believe
that consolidated net worth is a meaningful reflection of net real estate
values.
ORGANIZATIONAL CHART
[CHART]
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. 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.
Our factory outlet centers range in size from 11,000 to 729,366 square feet
of GLA and are typically located at least 10 miles from densely populated areas,
where major department stores and manufacturer-owned full-price retail stores
are usually located. 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. These centers are typically
situated in close proximity to interstate highways that provide accessibility
and visibility to potential customers.
We believe that factory outlet centers continue to present attractive
opportunities for capital investment by the Company, 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 where there are successful factory outlet
centers in which such companies do not have significant presence or where there
are few factory outlet centers.
S-27
Factory outlet center industry sales per square foot have grown at an
average rate of 6.2% per year since 1996 to $255 per square foot in 1999. Also
since 1996, total factory outlet sales have grown at an average rate of 7.2% per
year through 1999. While new center openings have declined from the decade high
of 32 openings in 1993 to five openings in 1999, manufacturers have increased
their participation in this distribution channel, increasing the total number of
stores in outlet centers 68% from 1991 to 1999, an average annual growth rate of
6.7%. Total factory outlet center industry GLA grew from 39.3 million square
feet to 56.2 million square feet in the 1993 to 1999 period, an average annual
growth rate of 6.0%. All of the foregoing information was obtained or derived
from the trade publication VALUE RETAIL NEWS, May 2000 edition.
OUR FACTORY OUTLET CENTERS
Each of our factory outlet centers carries the Tanger brand name. We believe
that both national manufacturers and consumers recognize the Tanger brand as one
that provides 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.
As of September 30, 2000, we had a diverse tenant base comprised of over 250
different well-known, upscale, national designer or brand name store concepts,
such as Dana Buchman, Liz Claiborne, Reebok, Rockport, Coach, Polo Ralph Lauren,
Polo Jeans, GAP and Banana Republic. Most of the factory outlet stores are
directly operated by the respective manufacturer.
No single tenant or their affiliates accounted for 10% or more of combined
base and percentage rental revenues during 1999, 1998 and 1997. As of
September 30, 2000, our largest tenant, Liz Claiborne, including all of its
store concepts, accounted for approximately 6.0% of our total GLA. Because our
typical tenant is a large, national manufacturer, we have not experienced any
material problems with respect to rent collections or lease defaults.
Revenues from fixed rents and operating expense reimbursements accounted for
approximately 90% of our total revenues in 1999. Revenues from contingent
sources, such as percentage rents, which fluctuate depending on tenants' sales
performance, accounted for approximately 6% of 1999 revenues. As a result, only
a small portion 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
the Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's
President and Chief Operating Officer, built and managed a successful
family-owned apparel manufacturing business, Tanger/Creighton Inc., which
included the operation of five factory outlet stores. Based on their knowledge
of the apparel and retail industries, as well as their experience operating the
factory outlet stores of Tanger/Creighton Inc., the Tangers 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.
From 1981 to 1986, Stanley K. Tanger solely developed the first successful
factory outlet centers. Steven B. Tanger joined the company in 1986 and by
May 1993, together, the Tangers had developed 17 centers with a total GLA of
approximately 1.5 million square feet. In May 1993, the Company
S-28
completed its IPO, making Tanger Factory Outlet Centers, Inc. the first publicly
traded outlet center company. Since its IPO in May 1993, the Company has
developed nine centers and acquired seven centers and, together with expansions
of existing centers net of centers disposed of, added approximately 3.7 million
square feet of GLA to its portfolio, bringing its portfolio of properties as of
December 31, 2000 to 29 centers totaling approximately 5.2 million square feet
of GLA.
BUSINESS OBJECTIVES AND STRATEGIES
- INCREASE CASH FLOW AND THE LONG-TERM VALUE OF THE REAL ESTATE
PORTFOLIO. Our strategy is to increase revenues through new development,
selective acquisitions and expansions of factory outlet centers while
minimizing our operating expenses by designing low maintenance properties
and achieving economies of scale. We continue to focus on strengthening
our tenant base in our centers by replacing low volume tenants with high
volume anchor tenants, such as Nike, GAP, Old Navy, Banana Republic, Polo
Ralph Lauren, Tommy Hilfiger and Nautica.
- DEVELOP AND ACQUIRE NEW PROPERTIES. We typically seek opportunities to
develop or acquire new centers in locations that have at least
3.5 million people residing within an hour's drive, an average household
income within a 50-mile radius of at least $35,000 per year and access to
frontage on a major or interstate highway with a traffic count of at least
35,000 cars per day. We will vary our minimum conditions based on the
particular characteristics of a site, especially if the site is located
near or at a tourist destination. 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.
- MAINTAIN A STRONG AND FLEXIBLE FINANCIAL POSITION. We intend to achieve a
strong and flexible financial position by: (1) maintaining a quality
portfolio of strong income producing properties, (2) managing our leverage
position relative to our portfolio when pursuing new development and
expansion opportunities, (3) extending and sequencing debt maturities,
(4) managing our interest rate risk, (5) maintaining our liquidity and
(6) accessing internally generated sources of capital by maintaining a low
distribution payout ratio and subsequently reinvesting a significant
portion of our cash flow into our portfolio.
- BRAND NAME RECOGNITION OF TANGER OUTLET CENTERS. Each of our factory
outlet centers carries the Tanger brand name. We believe that both
national manufacturers and consumers recognize the Tanger brand as one
that provides outlet shopping centers where consumers can trust the brand,
quality and price of the merchandise they purchase directly from the
manufacturers.
- MAINTAIN APPROPRIATE INFRASTRUCTURE TO ACTIVELY MANAGE PORTFOLIO. During
the 20 years we have been in operation, we have been successful in
identifying new and exciting brand name tenants. Members of our management
group have gained extensive experience in developing and refining systems
for property development, marketing, operation and investment as well as
actively monitoring and managing our portfolio of properties. Our
experience in the real estate and outlet center industry has produced
in-house efficiency with respect to virtually every aspect of outlet
center development and management.
S-29
COMPETITIVE STRENGTHS
We believe that our key competitive strengths are:
DIVERSE TENANT BASE AND GEOGRAPHIC DISTRIBUTION. We believe that our
centers are well diversified both geographically and by tenant. We are not
dependent upon any single property or tenant. We have a diverse tenant base
comprised of over 250 different well-known, upscale, national designer or brand
name store concepts, such as Liz Claiborne, Reebok, Tommy Hilfiger, Polo Ralph
Lauren, GAP, Nautica and Nike. No single tenant or their affiliates accounted
for 10% or more of combined base and percentage rental revenues during 1999,
1998 and 1997. As of September 30, 2000, our largest tenant, Liz Claiborne,
including all of its store concepts, accounted for approximately 6% of our total
GLA.
EXPERIENCED MANAGEMENT TEAM. Our management team, led by Stanley K. Tanger
and Steven B. Tanger, the Company's President and Chief Operating Officer, has
extensive experience developing and managing factory outlet centers. Over the
past 20 years, we have successfully developed 24 centers and acquired seven, and
we currently manage approximately 5.2 million square feet of GLA. Over the last
five years, we have increased total revenue from $68.6 million to
$108.8 million, and EBITDA from $41.1 million to $67.8 million. Additionally, as
of December 31, 2000, our management beneficially owned approximately 27% of all
our outstanding common shares (assuming our preferred shares and the partnership
units are exchanged for our common shares but without giving effect to the
exercise of any outstanding stock and partnership unit options).
PROVEN MERCHANDISING STRATEGY. Over the past 20 years, we have successfully
identified new and exciting brand name tenants for our centers. We believe our
brand name and low occupancy costs are attractive to our tenants and are assets
to our ongoing strategy to re-merchandise selected centers by replacing low
volume tenants with high volume tenants such as Nike, GAP, Old Navy, Banana
Republic, Polo Ralph Lauren, Tommy Hilfiger and Nautica. We believe this
strategy has contributed to an increase in our average same-space sales per
square foot of approximately 27% from September 1996 through December 2000.
SUCCESSFUL DEVELOPMENT AND EXPANSION EXPERIENCE. We are one of the largest
owners and operators of factory outlet centers in the United States. We provide
all development, leasing and management services for our centers. Since the IPO
in May 1993, we have developed, acquired and expanded our portfolio by 3.7
million square feet. As of December 31, 2000, we owned and operated 29 centers
with a total GLA of approximately 5.2 million square feet. These centers were
96% occupied, contained approximately 1,100 stores and represented over 250
store brands as of such date.
LONG-STANDING, LOYAL TENANT RELATIONSHIPS. As one of the original
participants in the outlet industry, we have developed long-standing
relationships with many national and regional manufacturers. Our relationship
with Polo Ralph Lauren began in 1984 with one of their first outlet stores. Our
relationship with Liz Claiborne began in 1986 with their first outlet store. Our
relationship with LL Bean began in 1987 with their first outlet store. Our
relationship with Brooks Brothers began in 1991 with their first outlet store.
Each of these relationships has expanded over time and continues today.
S-30
PROPERTIES
The table below set forth certain information with respect to our existing
centers as of December 31, 2000.
MORTGAGE
DEBT
GLA(I) % OUTSTANDING FEE OR
LOCATION (SQ. FT.) OCCUPIED (000'S) GROUND LEASE
- -------- --------- -------- ----------- -----------------
Barstow, CA................................ 105,950 76% -- Fee
Blowing Rock, NC........................... 105,448 99% $ 9,898 Fee
Boaz, AL................................... 80,730 100% -- Fee
Bourne, MA................................. 23,417 100% -- Fee
Branson, MO................................ 277,494 100% -- Fee
Casa Grande, AZ............................ 184,768 88% -- Fee
Commerce, GA............................... 185,750 90% 9,120 Fee
Commerce II, GA............................ 342,556 97% 29,500 Fee
Dalton, GA................................. 173,430 96% 11,506 Fee
Fort Lauderdale, FL........................ 165,000 100% -- Fee
Gonzales, LA............................... 245,098 100% -- Fee
Kittery I, ME.............................. 59,694 100% 6,547 Fee
Kittery II, ME............................. 24,703 100% -- Fee
Lancaster, PA.............................. 255,059 99% 15,099 Fee
Locust Grove, GA........................... 248,854 99% -- Fee
Martinsburg, WV............................ 49,252 93% -- Fee
Nags Head, NC.............................. 82,254 99% 6,717 Fee
North Branch, MN........................... 134,480 97% -- Fee
North Conway, NH (Clover).................. 11,000 100% -- Fee
North Conway, NH (LL Bean)................. 50,915 100% -- Fee
Pigeon Forge, TN........................... 94,750 100% -- Ground Lease
Riverhead, NY.............................. 729,366 94% -- Ground Lease (ii)
San Marcos, TX............................. 401,343 98% 19,543 Fee
Sanibel, FL................................ 198,956 98% -- Fee
Sevierville, TN............................ 353,952 100% -- Ground Lease
Seymour, IN................................ 141,051 74% -- Fee
Terrell, TX................................ 177,435 84% -- Fee
West Branch, MI............................ 112,420 100% 7,304 Fee
Williamsburg, IA........................... 277,230 99% 20,080 Fee
--------- ---- -------- -----------------
Total...................................... 5,292,355 96% $135,314
========= ==== ========
- ------------------------
(i) GLA includes square feet of space not yet open as of December 31, 2000,
which totaled 113,212 square feet (including 9,800 square feet at
Commerce II, GA, 46,278 at Riverhead, NY and 57,134 at San Marcos, TX).
(ii) The original Riverhead, NY center is subject to a ground lease which may be
renewed at our option for up to seven additional terms of five years each.
The land on which the Riverhead, NY center expansion is located is owned by
us.
S-31
As of December 31, 2000, our portfolio consisted of 29 centers located in 20
states. The centers range in size from 11,000 to 729,366 square feet. 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.
Certain of our centers serve as collateral for mortgage notes payable. Of
our 29 centers, we own the land underlying 26 and have ground leases on three.
The land on which the Pigeon Forge, TN and Sevierville, TN centers are located
are subject to long-term ground leases expiring in 2086 and 2046, respectively.
The land on which the original Riverhead, NY center is located, approximately 47
acres, is also subject to a ground lease with an initial term expiring in 2004,
with renewal at our option for up to seven additional terms of five years each.
The land on which the Riverhead, NY center expansion is located, containing
approximately 43 acres, is owned by us.
The term of our typical tenant lease ranges from five to 10 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.
SIGNIFICANT PROPERTY
We believe that our centers are well diversified geographically and by
tenant. We are not dependent upon any single property or tenant. The center in
Riverhead, NY is our only center that comprises more than 10% of consolidated
total assets or consolidated total gross revenues. The Riverhead, NY center
represented 20% of our consolidated total assets and 19% of our consolidated
gross revenue for the year ended December 31, 2000. The Riverhead, NY center was
originally constructed in 1994 and now totals 729,366 square feet.
Tenants at the Riverhead, NY center principally conduct retail sales
operations. The occupancy rate as of the end of 2000, 1999 and 1998 was 94%, 99%
and 97%, respectively. Average annualized base rental rates during 2000, 1999
and 1998 were $19.72, $19.15 and $18.89 per weighted average GLA, respectively.
S-32
LEASE EXPIRATIONS
The following table sets forth as of September 30, 2000, scheduled lease
expirations, assuming none of the tenants exercise renewal options. Most leases
are renewable for five-year terms at the tenant's option.
% OF GROSS
APPROX. AVERAGE ANNUALIZED BASE
GLA ANNUALIZED BASE ANNUALIZED RENT REPRESENTED
# LEASES(1) (SQ. FT.)(1) RENT/SQ. FT. BASE RENT(2) BY EXPIRING LEASES
----------- ------------ --------------- ------------ ------------------
2000........................ 35 92,236 $ 9.71 $ 895,323 1%
2001........................ 156 535,889 12.50 6,699,911 10%
2002........................ 221 886,380 14.43 12,792,072 20%
2003........................ 201 864,383 14.53 12,558,077 19%
2004........................ 187 940,437 14.51 13,645,628 21%
2005........................ 127 553,315 16.26 8,998,844 14%
2006........................ 43 241,323 15.39 3,712,780 6%
2007........................ 14 73,920 15.05 1,112,790 2%
2008........................ 8 59,888 13.96 836,203 1%
2009........................ 9 53,576 11.07 592,889 --
2010 and after.............. 30 405,686 9.04 3,665,969 6%
----- --------- ------ ----------- ----------
Total..................... 1,031 4,707,033 $13.92 $65,510,486 100%
===== ========= ====== =========== ==========
- ------------------------
(1) Excludes leases that have been entered into but which tenant has not yet
taken possession, vacant suites and month-to-month leases.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases.
TENANTS
The following table sets forth certain information with respect to our 10
largest tenants and their store concepts as of September 30, 2000.
NUMBER GLA % OF TOTAL
OF STORES (SQ. FT.) GLA
--------- --------- ----------
Liz Claiborne, Inc.:
Liz Claiborne............................................. 25 249,868 5.0%
Elizabeth................................................. 7 26,584 0.5%
DKNY Jeans................................................ 4 11,820 0.2%
Dana Buchman.............................................. 3 6,600 0.1%
Claiborne Mens............................................ 2 6,100 0.1%
--- --------- ----
41 300,972 6.0%
Phillips-Van Heusen Corporation:
Bass Shoe................................................. 20 135,816 2.7%
Van Heusen................................................ 20 85,623 1.7%
Geoffrey Beene............................................ 8 31,680 0.6%
Izod...................................................... 12 26,517 0.5%
--- --------- ----
60 279,636 5.6%
GAP, Inc.:
GAP....................................................... 14 120,187 2.4%
Banana Republic........................................... 5 33,823 0.7%
Old Navy.................................................. 2 30,000 0.6%
--- --------- ----
21 184,010 3.7%
S-33
NUMBER GLA % OF TOTAL
OF STORES (SQ. FT.) GLA
--------- --------- ----------
Reebok International, Ltd.:
Reebok.................................................... 19 153,461 3.1%
Rockport.................................................. 4 11,900 .2%
--- --------- ----
23 165,361 3.3%
Bass Pro Outdoor World...................................... 1 165,000 3.3%
Sara Lee Corporation:
L'eggs, Hanes, Bali....................................... 24 103,809 2.1%
Coach..................................................... 10 24,196 0.5%
Socks Galore.............................................. 6 7,430 0.1%
--- --------- ----
40 135,435 2.7%
Dress Barn, Inc............................................. 16 108,828 2.2%
American Commercial, Inc.:
Mikasa Factory Store...................................... 12 98,000 2.0%
Polo Ralph Lauren:
Polo Ralph Lauren......................................... 8 62,806 1.3%
Polo Jeans................................................ 6 21,960 0.4%
Club Monaco............................................... 1 3,885 0.1%
--- --------- ----
15 88,651 1.8%
Brown Group Retail, Inc.:
Factory Brand Shoe........................................ 19 68,580 1.4%
Naturalizer............................................... 6 16,040 0.3%
--- --------- ----
25 84,620 1.7%
Total of All Tenants Listed in Table........................ 254 1,610,513 32.2%
=== ========= ====
RENTAL AND OCCUPANCY RATES
The following table sets forth information regarding the expiring leases
during each of the years presented.
RENEWED BY EXISTING
TOTAL EXPIRING TENANTS RE-LEASED TO NEW TENANTS
------------------------ -------------------- -------------------------
% OF % OF % OF
GLA TOTAL CENTER GLA EXPIRING GLA EXPIRING
YEAR (SQ. FT.) GLA (SQ. FT.) GLA (SQ. FT.) GLA
- --------------------- --------- ------------ --------- -------- ----------- -----------
1999 715,197 14 606,450 85 22,882 3
1998 548,504 11 407,837 74 38,526 7
1997 238,250 5 195,380 82 18,600 8
1996 149,689 4 134,639 90 15,050 10
1995 93,650 3 91,250 97 2,400 3
S-34
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 years presented.
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 % CHANGE
- --------------------- --------- -------- -------- -------- -------- -------- -------- --------
1999 606,450 $14.36 $14.36 -- 240,851 $15.51 $16.57 7
1998 407,387 $13.83 $14.07 2 220,890 15.33 $13.87 (9)
1997 195,380 $14.21 $14.41 1 171,421 14.59 $13.42 (8)
1996 134,639 $12.44 $14.02 13 78,268 14.40 $14.99 4
1995 91,250 $11.54 $13.03 13 59,455 13.64 $14.80 9
- ------------------------
(1) The square footage re-leased to new tenants for 1999, 1998, 1997, 1996 and
1995 contains 22,882, 38,526, 18,600, 15,050 and 2,400 square feet,
respectively, that was re-leased to new tenants upon expiration of an
existing lease during the applicable year.
The following table shows certain information on rents and occupancy rates
for the centers during each of the years presented.
AGGREGATE
AVERAGE PERCENTAGE
% ANNUALIZED BASE GLA (SQ. FT.) NUMBER OF RENTS
YEAR LEASED(1) RENT PER SQ. FT.(2) AT YEAR END CENTERS (000'S)
- --------------------- --------- ------------------- ------------- --------- ----------
1999 97 $ 13.85 5,149,000 31 $3,141
1998 97 $ 13.88 5,011,000 31 $3,087
1997 98 $ 14.04 4,458,000 30 $2,637
1996 99 $ 13.89 3,739,000 27 $2,017
1995 99 $ 13.92 3,507,000 27 $2,068
- ------------------------
(1) As of December 31 of each year shown.
(2) Represents total base rental revenue divided by weighted average GLA of the
portfolio, which amount does not take into consideration fluctuations in
occupancy throughout the 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 years
presented, tenant occupancy costs per square foot as a percentage of reported
tenant sales per square foot.
OCCUPANCY COSTS AS A
YEAR % OF TENANT SALES
- --------------------- --------------------
1999 7.8
1998 7.9
1997 8.2
1996 8.7
1995 8.5
S-35
PROPERTY DEVELOPMENT AND EXPANSION
We have recently completed expansion projects on three of our existing
properties (Riverhead, NY, Lancaster, PA and Sevierville, TN) totaling
approximately 63,000 square feet. We are currently constructing approximately
57,000 square feet of expansion space at our center in San Marcos, TX, which is
scheduled to open in the second half of 2001. In addition, we are planning, but
have not yet begun, construction on a further 59,000 square foot expansion on
our adjacent San Marcos, TX land, which is anticipated for stabilization in the
fourth quarter of 2001.
We have an option to purchase the retail portion of a site at the Bourne
Bridge Rotary in Cape Cod, MA. Based on tenant demand, we plan to develop a new
250,000 square foot outlet center at this location. The entire site will contain
more than 750,000 square feet of mixed-use entertainment, retail, office and
residential community built in the style of a Cape Cod Village. The local and
state planning authorities are currently reviewing the project, and final
approvals are anticipated before the end of 2001. Due to the extensive amount of
site work and road construction, stores are not expected to open until mid 2003.
SALES AND MARKETING STRATEGY
We maintain a dedicated in-house leasing department of 13 employees as of
December 31, 2000, excluding senior management, through which we conduct our
sales and marketing activities to potential tenants. Our strategy is to provide
our tenant customer base with high quality outlet centers under the nationally
recognized Tanger name managed by industry experts with extensive experience.
Our development, leasing and merchandising expertise are significant marketing
points we emphasize when marketing new tenants and when working with existing
tenants to expand the scope of their brand name within the outlet distribution
channel.
Our sales and marketing personnel carry out all functions of the leasing
process, from site selection to a full service introduction and initial opening
of a manufacturer's outlet store. Our senior management and sales and marketing
personnel maintain regular contact with senior management of our tenant base.
The success of our strategy is evidenced by the high renewal rates we have
been able to achieve and the very high occupancy rates we have been able to
maintain. Throughout our 20 years in operation, our year end occupancy level has
been at least 96%.
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 believe that we compete favorably with as many as three large national
developers of factory outlet centers and numerous small developers. Competition
with other factory outlet centers for new tenants is generally based on cost,
location, quality and mix of the centers' existing tenants, and the degree and
quality of the support and marketing services provided. As a result of these
factors and due to the strong tenant relationships that presently exist with the
current major outlet developers, we believe there are significant barriers to
entry into the outlet center industry by new developers. We
S-36
believe that our centers have an attractive tenant mix, as a result of our
decision to lease substantially all of our space to manufacturer operated stores
rather than to off-price retailers, and also as a result of the strong brand
identity of our major tenants.
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 the 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 the Company and the Operating
Partnership of both their capital investment and anticipated profits from the
affected property.
EMPLOYEES
As of December 31, 2000, we had approximately 160 full-time employees,
located at our corporate headquarters in North Carolina, our regional office in
New York and our 21 business offices. At that date, we also employed
approximately 170 part-time employees at various locations.
ENVIRONMENTAL MATTERS
There are no recorded amounts resulting from environmental liabilities as
there are no known material loss contingencies with respect thereto. Future
claims for environmental liabilities are not measurable given the uncertainties
surrounding whether there exists a basis for any such claims to be asserted and,
if so, whether any claims will, in fact, be asserted. Furthermore, no condition
is known to exist that would give rise to a material environmental liability for
site restoration, post-closure and monitoring commitments, or other costs that
may be incurred upon the sale or disposal of a property. Management has no plans
to abandon any of the properties and is unaware of any other material loss
contingencies.
LEGAL PROCEEDINGS
We are not presently involved in any material litigation nor, to our
knowledge, is any material litigation threatened against us, other than routine
litigation arising in the ordinary course of business.
S-37
MANAGEMENT OF THE COMPANY
The following table sets forth certain information concerning the executive
officers of the Company:
NAME AGE POSITION
- ---- -------- ---------------------------------------------------
Stanley K. Tanger......................... 77 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger.......................... 52 Director, President and Chief Operating Officer
Rochelle G. Simpson....................... 61 Secretary and Executive Vice
President--Administration and Finance
Willard A. Chafin, Jr..................... 63 Executive Vice President--Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr.................. 42 Senior Vice President--Chief Financial Officer
Joseph H. Nehmen.......................... 51 Senior Vice President--Operations
Carrie A. Warren.......................... 37 Senior Vice President--Marketing
Virginia R. Summerell..................... 42 Treasurer and Assistant Secretary
Kevin M. Dillon........................... 42 Vice President--Construction
The following is a biographical summary of the experience of the executive
officers of the Company:
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.
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. Ms. Simpson oversees the accounting and finance
departments and has overall management responsibility for the Company's
headquarters.
S-38
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 22 years. Before
joining Sara Lee, Mr. Chafin was employed by Sears Roebuck & Co. for seven years
in advertising/sales promotion, inventory control and merchandising.
FRANK C. MARCHISELLO, JR. Mr. Marchisello was named Senior Vice President
and Chief Financial Officer in January 1999. He was 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.
JOSEPH H. NEHMEN. Mr. Nehmen was named Senior Vice President of 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.
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.
CARRIE A. WARREN. Ms. Warren was named Senior Vice President--Marketing in
May 2000. Previously, she held the positions 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 four 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 Vice President--Construction in
October 1997. Previously, he held the position of 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 six
years.
S-39
ADDITIONAL INDEBTEDNESS
We maintain revolving lines of credit with Bank of America, Bank One, Fleet
National Bank, and SouthTrust Bank that provide for unsecured borrowings of up
to $100 million. Interest is payable based on alternative interest rate bases at
our option. We have extended the maturities for our four lines of credit with
these banks until at least June 30, 2002. Amounts available under these
facilities at September 30, 2000 totaled $68.7 million, subject to borrowing
conditions. The Company also has a $20.0 million unsecured term loan maturing in
January 2002 which bears interest at LIBOR plus 2.25%. All of these agreements
require the maintenance of certain ratios, including debt service coverage and
leverage, and limit the payment of dividends.
Certain of our properties, which had a net book value of approximately
$137.8 million at September 30, 2000, serve as collateral for $135.8 million
principal amount of mortgage loans with various financial institutions. Our
mortgage loans had maturities ranging from April 2005 to September 2010 and
interest rates ranging from 7.875% to 9.770% at September 30, 2000. All of those
mortgage loans except one bear fixed rates of interest. We entered into an
interest rate swap agreement that effectively fixed the interest rate on
$25.0 million of the $29.5 million floating rate mortgage loan at 7.72%. All of
our mortgage loans except the floating rate mortgage loan contain prepayment
penalty clauses.
In addition, at September 30, 2000 we had two issues of outstanding public
debt consisting of $75 million of our 8 3/4% notes due 2001 and $75 million of
our 7 7/8% notes due 2004.
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DESCRIPTION OF NOTES
THE FOLLOWING DESCRIPTION OF THE PARTICULAR TERMS OF THE NOTES OFFERED
HEREBY SUPPLEMENTS AND, TO THE EXTENT INCONSISTENT, REPLACES THE DESCRIPTION OF
THE GENERAL TERMS AND PROVISIONS OF DEBT SECURITIES SET FORTH IN THE
ACCOMPANYING PROSPECTUS UNDER THE CAPTION "DESCRIPTION OF DEBT SECURITIES."
You can find the definitions of certain terms used in this description under
the subheading "--Definitions Used for the Debt Securities." In this
description, the words "Operating Partnership" refer only to Tanger Properties
Limited Partnership and not to any of its subsidiaries.
GENERAL
The notes constitute a series of Senior Debt Securities (which are more
fully described in the accompanying Prospectus) to be issued under a senior
indenture, dated as of March 1, 1996, among the Operating Partnership, the
Company and State Street Bank and Trust Company, as trustee. When we refer to
the indenture, we include all supplements, amendments or modifications to the
indenture. Initially the notes will be limited to an aggregate principal amount
of $100,000,000 and will be subject to the issuance of additional notes in the
future having the same terms other than the date of original issuance and the
date on which interest begins to accrue so as to form one series with the notes
offered hereby. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939.
The following summary sets forth the material terms and provisions of the
notes and indenture governing the notes. It does not restate that agreement in
its entirety. We urge you to read the indenture because it, and not this
description, defines your rights as registered holders of the notes. We have
filed copies of the senior indenture as an exhibit to the registration statement
which includes this prospectus supplement. Certain defined terms used in this
description but not defined below under "--Definitions Used for the Debt
Securities" have the meanings assigned to them in the indenture.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
The notes will be direct, unsecured obligations of the Operating Partnership
and will rank equally with each other and with all other unsecured and
unsubordinated indebtedness of the Operating Partnership from time to time
outstanding. The notes will be unconditionally guaranteed by the Company. The
guarantees will rank equally in right of payment to all senior obligations of
the Company, and senior in right of payment to all future subordinated
obligations of the Company. However, the notes and guarantees will be
effectively subordinated to the prior claims of creditors under our secured
indebtedness. As of September 30, 2000, on a pro forma basis after giving effect
to the use of proceeds from this offering, the Operating Partnership would have
had $340.1 million of indebtedness outstanding, $135.8 million of which would
have consisted of secured indebtedness. See "Capitalization." Subject to certain
limitations set forth in the indenture, and as described under "--Certain
Covenants" below, the Operating Partnership may incur additional secured and
unsecured indebtedness from time to time.
The notes will mature on February 15, 2008 and and will not be subject to
redemption prior to the maturity date. The notes will not be subject to any
mandatory sinking fund. The notes will be issued only in fully registered,
book-entry form without coupons, in denominations of $1,000 and integral
multiples thereof, except under the limited circumstances described below under
"--Book-Entry System."
Except as described under "--Merger, Consolidation or Sale" and "--Certain
Covenants" below and under "Description of Debt Securities--Merger,
Consolidation or Sale" and "--Certain Covenants" in the accompanying prospectus,
the indenture does not contain any other provisions that
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would limit the ability of the Operating Partnership to incur indebtedness or
that would afford registered holders of the notes protection in the event of:
- a highly leveraged or similar transaction involving the Operating
Partnership, the Company as the sole shareholder of the general partner of
the Operating Partnership, or any Affiliate of either such party,
- a change of control, or
- a reorganization, restructuring, merger or similar transaction involving
the Operating Partnership that may adversely affect the registered holders
of the notes.
In addition, subject to the limitations set forth under "--Merger,
Consolidation or Sale" and "--Certain Covenants" below or under "Description of
Debt Securities--Merger, Consolidation or Sale" and "--Certain Covenants" in the
accompanying prospectus, the Operating Partnership may, in the future, enter
into certain transactions such as the sale of all or substantially all of its
assets or the merger or consolidation of the Operating Partnership that would
increase the amount of the Operating Partnership's indebtedness or substantially
reduce or eliminate the Operating Partnership's assets, which may have an
adverse effect on the Operating Partnership's ability to service its
indebtedness, including the notes. The Operating Partnership and its management
have no present intention of engaging in a highly leveraged or similar
transaction involving the Operating Partnership.
GUARANTEE
The Company will unconditionally guarantee the due and punctual payment of
principal of and interest on the notes as these payments become due and payable.
PRINCIPAL AND INTEREST
The notes will bear interest at an annual rate of 9 1/8% from February 15,
2001 or from the immediately preceding Interest Payment Date (as defined below)
to which interest has been paid or duly provided for, payable semi-annually in
arrears on each February 15 and August 15, commencing August 15, 2001 (each, an
"Interest Payment Date"), to the persons (the "Holders") in whose names the
applicable notes are registered in the security register applicable to the notes
at the close of business 15 calendar days prior to the applicable Interest
Payment Date, regardless of whether such day is a Business Day, as defined
below. Interest on the notes will be computed on the basis of a 360-day year of
twelve 30-day months.
The principal of each note payable on the maturity date will be paid against
presentation and surrender of such note at the corporate trust office of the
Trustee, 61 Broadway, 15th Floor, New York, New York 10006, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
If any Interest Payment Date or the maturity date falls on a day that is not
a Business Day, the required payment shall be made on the next Business Day as
if made on the date such payment was due and no interest shall accrue on the
amount so payable for the period from and after such Interest Payment Date or
the maturity date, as the case may be, to the date of such payment on such next
Business Day. "Business Day" means any day other than a Saturday, Sunday or
other day on which banking institutions in The City of New York are authorized
or obligated by law, regulation or executive order to be closed.
MERGER, CONSOLIDATION OR SALE
In addition to the restrictions on merger, consolidation or sale contained
in the accompanying prospectus (see "Description of Debt Securities--Merger,
Consolidation or Sale"), the Operating
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Partnership will not consolidate with or merge with or into any corporation or
partnership or sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to any other corporation or partnership unless,
after giving pro forma effect to the consolidation, merger, sale, conveyance,
transfer, lease or other disposition, the Operating Partnership or successor
entity could incur at least $1.00 of Debt (other than Permitted Debt) in
accordance with the Indenture covenants limiting the incurrence of Debt.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF DEBT. The Operating Partnership will not, and
will not permit any Subsidiary to, incur any Debt, other than Permitted Debt if
immediately after giving effect to the incurrence of such additional Debt, the
aggregate principal amount of all outstanding Debt of the Operating Partnership
and its Subsidiaries on a consolidated basis determined in accordance with
generally accepted accounting principles, or GAAP, is greater than 60% of the
sum of:
(1) the Operating Partnership's Total Assets as of the end of the calendar
quarter covered in the Operating Partnership's Annual Report on
Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most
recently filed with the Commission (or, if such filing is not permitted
under the Exchange Act, with the Trustee) prior to the incurrence of such
additional Debt; and
(2) any increase in the Total Assets since the end of such quarter
including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Debt (such increase together with
the Operating Partnership's Total Assets shall be referred to as the
"Adjusted Total Assets").
In addition to the other limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Debt if, for the period consisting of the four consecutive fiscal quarters most
recently ended prior to the date on which such additional Debt is to be
incurred, the ratio of Consolidated Income Available for Debt Service to the
Annual Service Charge shall have been less than 2.0 to 1, on a pro forma basis
after giving effect to the incurrence of such Debt and to the application of the
proceeds therefrom, and calculated on the assumption that:
(1) such Debt and any other Debt incurred by the Operating Partnership or
its Subsidiaries since the first day of such four-quarter period and the
application of the proceeds therefrom, including to refinance other Debt,
had occurred at the beginning of such period;
(2) the repayment or retirement of any other Debt by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter
period had been incurred, repaid or retired at the beginning of such
period (except that, in making such computation, the amount of Debt under
any revolving credit facility shall be computed based upon the average
daily balance of such Debt during such period);
(3) any income earned as a result of any increase in Adjusted Total Assets
since the end of such four-quarter period had been earned, on an
annualized basis, during such period; and
(4) in the case of any acquisition or disposition by the Operating
Partnership or any Subsidiary of any asset or group of assets since the
first day of such four-quarter period, including, without limitation, by
merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Debt had occurred
as of the first day of such period with the appropriate adjustments with
respect to such acquisition or disposition being included in such pro
forma calculation.
In addition to any other limitations on the incurrence of Debt, the
Operating Partnership will not permit any Restricted Subsidiary to incur any
Debt, other than Permitted Debt.
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In addition to the other limitations on the incurrence of Debt, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Secured Debt, whether owned at the date of the Indenture or thereafter acquired,
if, immediately after giving effect to the incurrence of such additional Secured
Debt, the aggregate principal amount of all outstanding Secured Debt of the
Operating Partnership and its Subsidiaries on a consolidated basis is greater
than 40% of the Operating Partnership's Adjusted Total Assets.
For purposes of this covenant, Debt is deemed to be "incurred" by the
Operating Partnership and its Subsidiaries on a consolidated basis whenever the
Operating Partnership and its Subsidiaries on a consolidated basis shall create,
assume, guarantee or otherwise become liable in respect thereof.
LIMITATIONS ON DISTRIBUTIONS. The Operating Partnership will not make any
distribution, by reduction of capital or otherwise (other than distributions
payable in securities evidencing interests in the Operating Partnership's
capital for the purpose of acquiring interests in real property or otherwise)
unless, immediately after giving pro forma effect to such distribution:
(1) no default under the Indenture or event of default under any mortgage,
indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Debt of the Operating Partnership,
the Company or any Subsidiary shall have occurred and be continuing;
(2) the Operating Partnership could incur at least $1.00 of Debt (other than
intercompany Debt) under the terms of the Indenture; and
(3) the aggregate sum of all distributions made after the date of the
Indenture shall not exceed the sum of:
(a) 95% of the aggregate cumulative Funds From Operations of the
Operating Partnership accrued on a cumulative basis from the date of
the Indenture until the end of the last fiscal quarter prior to the
contemplated payment; and
(b) the aggregate Net Cash Proceeds received by the Operating Partnership
after the date of the Indenture from the issuance and sale of Capital
Stock of the Operating Partnership or the Company to the extent such
proceeds are contributed to the Operating Partnership; PROVIDED,
HOWEVER, that the foregoing limitation shall not apply to any
distribution or other action which is necessary to maintain the
Company's status as a REIT under the Code, if the aggregate principal
amount of all outstanding Debt of the Company and the Operating
Partnership on a consolidated basis at such time is less than 60% of
Adjusted Total Assets.
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Operating Partnership will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
any transaction, or series of transactions, with an Affiliate unless:
(1) such transaction, or series of transactions, is on terms that are no
less favorable than those available in an arm's-length transaction with
unrelated third parties;
(2) with respect to any transaction, or series of transactions, with total
consideration equal to or greater than $5.0 million, the Operating
Partnership shall have delivered an officer's certificate certifying that
such transaction, or series of transactions, complies with clause (1)
above and such transaction, or series of transactions, has been approved
by a majority of the Disinterested Directors, or in the case of
transactions included in this clause (2) for which
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there are no Disinterested Directors, the Operating Partnership shall
have obtained a written opinion from a nationally recognized investment
banking, appraisal or other appropriate expert firm to the effect that
such transaction, or series of transactions, is fair to the Operating
Partnership or Subsidiary from a financial point of view; and
(3) with respect to any transaction, or series of transactions, with total
consideration in excess of $15.0 million, the Operating Partnership shall
obtain a written opinion from a nationally recognized investment banking,
appraisal or appropriate expert firm as described above.
LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES. The Operating Partnership will not, and will not permit any
Restricted Subsidiary to, create or allow to exist any encumbrance that would
restrict the ability of a Restricted Subsidiary to:
(1) pay dividends on Capital Stock;
(2) pay Debt owed to the Operating Partnership or any Subsidiary;
(3) make loans or advances to the Operating Partnership or any Subsidiary;
(4) transfer any property or assets to the Operating Partnership or any
Subsidiary; or
(5) guarantee any Debt of the Operating Partnership or any Subsidiary.
LIMITATION ON THE SALE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES. The
Operating Partnership will not permit any Restricted Subsidiary to issue any
Capital Stock (other than to the Operating Partnership or a Restricted
Subsidiary) and shall not permit any Person (other than the Operating
Partnership or a Subsidiary) to own any Capital Stock of any Restricted
Subsidiary; PROVIDED, HOWEVER, that the foregoing shall not prohibit the
issuance or sale of all, but not less than all, of the issued and outstanding
Capital Stock of any Subsidiary owned by the Operating Partnership or any
Subsidiary in accordance with the provisions of the Indenture.
DEFINITIONS USED FOR THE DEBT SECURITIES
As used herein:
"AFFILIATE" of any specified Person means:
(1) any other Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified Person; or
(2) any other Person that owns, directly or indirectly, 10% or more of such
specified Person's Voting Stock or any executive officer, director,
manager or trustee of any such specified Person or other Person or, with
respect to any natural person, any person having a relationship with such
person by blood, marriage or adoption not more remote than first cousin.
For the purposes of this definition, "control," when used with respect to
any specified Person, means the power to direct the management and
policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the
foregoing.
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed or
capitalized in the immediately preceding four fiscal quarter period for interest
on Debt, excluding amounts relating to the amortization of deferred financing
costs.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital
S-45
stock), warrants or options exchangeable for or convertible into such capital
stock, whether now outstanding or hereafter issued.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries (1)
plus amounts which have been deducted for:
(a) interest on Debt of the Operating Partnership and its Subsidiaries,
(b) provision for taxes of the Operating Partnership and its Subsidiaries
based on income,
(c) amortization of debt discount,
(d) depreciation and amortization,
(e) the effect of any noncash charge resulting from a change in accounting
principles in determining Consolidated Net Income for such period,
(f) amortization of deferred charges, and
(g) provisions for or realized losses on properties;
(2) LESS amounts which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"DEBT" means any indebtedness, whether or not contingent, in respect of:
(1) borrowed money evidenced by bonds, notes, debentures or similar
instruments;
(2) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance
or any security interest existing on property;
(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued or amounts representing the
balance deferred and unpaid of the purchase price of any property except
any such balance that constitutes an accrued expense or trade payable; or
(4) any lease of property which would be reflected on a consolidated balance
sheet as a capitalized lease in accordance with GAAP, in the case of
items of indebtedness under (1) through (3) above to the extent that any
such items (other than letters of credit) would appear as a liability on
a consolidated balance sheet in accordance with GAAP, and also includes,
to the extent not otherwise included, any obligation to be liable for, or
to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another
person.
"DISINTERESTED DIRECTOR" means, with respect to any transaction or series of
transactions which a majority of the Disinterested Directors of the Company are
required to approve under the terms of the Indenture, a member of the Board of
Directors who does not have any material direct or indirect financial interest
in or with respect to such transaction or series of transactions.
"FUNDS FROM OPERATIONS" for any period means the Consolidated Net Income of
the Operating Partnership and its Subsidiaries for such period without giving
effect to depreciation and amortization uniquely significant to real estate,
gains or losses from extraordinary items, gains or losses on sales of real
estate, gains or losses with respect to the disposition of investments in
marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint ventures,
all determined on a consistent basis.
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"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"PERMITTED DEBT" means Indebtedness of the Operating Partnership, the
Company or any Subsidiary owing to any Subsidiary, the Company or the Operating
Partnership pursuant to an intercompany note, PROVIDED that such Indebtedness is
expressly subordinated in right of payment to the Securities; PROVIDED FURTHER
that any disposition, pledge or transfer of such Indebtedness to a Person (other
than the Operating Partnership or another Subsidiary) shall be deemed to be an
incurrence of such Indebtedness by the Operating Partnership, the Company or a
Subsidiary, as the case may be, and not Permitted Indebtedness as defined
herein.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Operating Partnership
unless such Subsidiary is an Unrestricted Subsidiary or is designated as an
Unrestricted Subsidiary pursuant to the terms of the Indenture.
"SECURED DEBT" means any Debt secured by any mortgage, pledge, lien, charge,
encumbrance or security interest of any kind upon any property of the Operating
Partnership or any Subsidiary.
"SUBSIDIARY" means any entity of which at the time of determination the
Operating Partnership or one or more other Subsidiaries owns or controls,
directly or indirectly, more than 50% of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (1) the Undepreciated Real
Estate Assets and (2) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivables).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"UNRESTRICTED SUBSIDIARY" means:
(1) any Subsidiary that at the time of determination shall be an
Unrestricted Subsidiary (as designated by the Board of Directors, as
provided below) and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary so long
as:
(a) neither the Operating Partnership nor any Restricted Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary,
(b) no default with respect to any Debt of such Subsidiary would permit
(upon notice, lapse of time or otherwise) any holder of any other
Debt of the Operating Partnership or any other Subsidiary to declare
a default on such other Debt or cause the payment thereof to be
accelerated or payable prior to its stated maturity,
(c) neither the Operating Partnership nor any Restricted Subsidiary has a
contract, agreement, arrangement, understanding or obligation of any
kind, whether written or oral, with such Subsidiary other than those
that might be obtained at the time from persons who are not
Affiliates of the Operating Partnership, and
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(d) neither the Operating Partnership nor any Restricted Subsidiary has
any obligation (1) to subscribe for additional shares of Capital
Stock or other equity interest in such Subsidiary or (2) to maintain
or preserve such Subsidiary's financial condition or to cause such
Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a copy of the board resolutions
giving effect to such designation. The Board of Directors may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if,
immediately after giving effect to such designation, there would be
no event of default under the Indenture, or any event that after
notice or passage of time would be an event of default, and the
Operating Partnership could incur $1.00 of additional Debt (other
than intercompany Debt) in accordance with the Indenture covenants
limiting the incurrence of Debt.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees (or persons performing similar functions), provided that stock that
carries only the right to vote conditionally on the happening of an event shall
not be considered Voting Stock.
Reference is made to the section entitled "Description of Debt
Securities--Certain Covenants" in the accompanying prospectus for a description
of additional covenants applicable to the notes. Compliance with the covenants
described herein and such additional covenants with respect to the notes
generally may not be waived by the Board of Directors of the Company, as the
sole shareholder of the general partner of the Operating Partnership, or by the
Trustee unless the Holders of at least a majority in principal amount of all
outstanding notes consent to such waiver; PROVIDED, HOWEVER, that the defeasance
and covenant defeasance provisions of the Indenture described under "Description
of Debt Securities--Discharge, Defeasance and Covenant Defeasance" in the
accompanying prospectus will apply to the notes, including with respect to the
covenants described in this prospectus supplement.
BOOK-ENTRY SYSTEM
The notes will be issued as global securities. See the section entitled
"Description of Debt Securities--Global Securities" in the accompanying
prospectus. The Depository Trust Company, or "DTC," will be the Depository with
respect to the notes. The notes will be issued as fully registered securities in
the name of Cede & Co., DTC's partnership nominee, and will be deposited with
DTC. DTC will keep a computerized record of its participants (for example, your
broker) whose clients have purchased the notes. The participant would then keep
a record of its clients who purchased the notes. A global security may not be
transferred, except that DTC, its nominees and their successors may transfer an
entire global security to one another.
The notes will be in book-entry only form, and we will not deliver
securities in certificated form to individual purchasers of the notes, and no
person owning a beneficial interest in a global security will be treated as a
holder for any purpose under the Indenture. Accordingly, owners of such
beneficial interests must rely on the procedures of DTC and the participant
through which such person owns its interest in order to exercise any rights of a
holder under such global security or the Indenture. Beneficial interests in
global securities will be shown on, and transfers of global securities will be
made only through, records maintained by DTC and its participants. The laws of
some jurisdictions require that certain purchasers of securities take physical
delivery of such securities in certificated form. Such limits and laws may
impair the ability to transfer beneficial interests in a global security.
DTC has provided us with the following information: DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the United States
Federal Reserve System, a "clearing corporation" within the meaning of the New
York Uniform Commercial Code and a "clearing corporation" registered under
Section 17A of the Securities Exchange Act of 1934. DTC holds securities that
its
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participants, or Direct Participants, deposit with DTC. DTC also facilitates the
settlement among Direct Participants of securities transactions, such as
transfers and pledges, in deposited securities through computerized records for
Direct Participants' accounts. This eliminates the need to exchange
certificates. Direct Participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations.
Other organizations, such as securities brokers and dealers, banks and trust
companies that work through a Direct Participant, also use DTC's book-entry
system. The rules that apply to DTC and its participants are on file with the
Securities and Exchange Commission.
A number of Direct Participants or their representatives, together with
other entities, own DTC.
We will wire principal and interest payments to DTC's nominee. We and the
Trustee will treat DTC's nominee as the owner of the global securities for all
purposes. Accordingly, we and the Trustee will have no direct responsibility or
liability to pay amounts due on the securities to owners of beneficial interests
in the global securities.
It is DTC's current practice, when it receives any payment of principal or
interest, to credit Direct Participants' accounts on the payment date according
to their respective holdings of beneficial interests in the global securities as
shown on DTC's records. In addition, it is DTC's current practice to assign any
consenting or voting rights to Direct Participants whose accounts are credited
with securities on a record date, by using an omnibus proxy. Customary practices
between the participants and owners of beneficial interests, as in the case with
securities held for the account of customers registered in "street name," will
govern payments by participants to owners of beneficial interests in the global
securities, and voting by participants. However, these payments will be the
responsibility of the participants and not of DTC, the Trustee, or us.
Notes represented by a global security will be exchangeable for notes in
certificated form with the same terms in authorized denominations only if:
- DTC notifies us that it is unwilling or unable to continue as depository
or if DTC ceases to be a clearing agency registered under applicable law
and we do not appoint a successor depository within 90 days;
- an Event of Default under the Indenture with respect to the notes has
occurred and is continuing and the beneficial owners representing a
majority in principal amount of the notes represented by the global
security advise DTC to cease acting as depository; or
- we determine at any time that all notes shall no longer be represented by
a global security.
DTC may discontinue providing its services as securities depository with
respect to global securities at any time by giving reasonable notice to us or
the Trustee. Under such circumstances, in the event that a successor securities
depository is not obtained, securities in certificated form are required to be
printed and delivered.
We may decide to discontinue use of the system of book-entry transfers
through DTC (or a successor securities depository). In that event, securities in
certificated form will be printed and delivered.
The information in this section concerning DTC and DTC's system has been
obtained from sources that we believe to be reliable, but we take no
responsibility for the accuracy thereof.
SAME-DAY SETTLEMENT AND PAYMENT
The underwriters will pay for the notes in immediately available funds. We
will make all payments due on the notes in immediately available funds so long
as such notes are in book-entry form.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
and related terms agreement (together, the "Underwriting Agreement") among us,
the Company, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of
America Securities LLC, we have agreed to sell to the underwriters, and the
underwriters have severally agreed to purchase, the principal amount of the
notes set forth opposite their names below. The underwriting agreement provides
that the obligations of the underwriters are subject to certain conditions
precedent and that when such conditions are satisfied the underwriters will be
obligated to purchase all of the notes.
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................... $ 90,000,000
Banc of America Securities LLC.............................. 10,000,000
------------
Total............................................. $100,000,000
============
The underwriters have advised us that they propose initially to offer the
notes to the public at the public offering price set forth on the cover of this
prospectus supplement and to certain dealers at such price less a concession not
in excess of .25% of the principal amount. The underwriters may allow, and such
dealers may reallow, a discount not in excess of .125% of the principal amount
on sales to certain other dealers. After the initial public offering of the
notes, the public offering price, concession and discount may be changed.
The notes are a new issue of securities with no established trading market.
We have been advised by the underwriters that they intend to make a market in
the notes, but are not obligated to do so and may discontinue market making at
any time without notice. We can give no assurance as to the liquidity of, or any
trading market for, the notes.
In connection with the offering, the underwriters are permitted to engage in
certain transactions that stabilize the price of the notes. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the notes. If the underwriters create a short position in the notes
in connection with the offering, i.e., if they sell a greater aggregate
principal amount of notes than is set forth on the cover of this prospectus
supplement, the underwriters may reduce that short position by purchasing notes
in the open market. In general, purchases of a security for the purpose of
stabilization or to reduce a short position could cause the price of the
security to be higher than it might be in the absence of such purchases.
Neither we nor any underwriter makes any representation or prediction as to
the direction or magnitude of any effect that the transactions described above
may have on the price of the notes. In addition, neither we nor any underwriter
makes any representation that the underwriters will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.
We have agreed to indemnify the several underwriters against, or contribute
to payments that the underwriters may be required to make in respect of, certain
liabilities, including liabilities under the Securities Act of 1933.
It is expected that delivery of the notes will be made against payment
therefor on February 15, 2001, which is the fourth business day following the
date hereof (such settlement cycle being herein referred to as "T+4").
Purchasers of notes should note that the ability to settle secondary market
trades of the notes effected on the date of pricing may be affected by the T+4
settlement.
From time to time, the underwriters and certain of their affiliates have
engaged, and may in the future engage, in transactions with, and perform
investment banking and/or commercial banking
S-50
services for, us and our affiliates in the ordinary course of business. We
estimate that our share of the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $400,000.
Affiliates of Banc of America Securities LLC are lenders under the term loan
and one of the lines of credit described under "Use of Proceeds" above. Because
more than 10% of the net proceeds of this offering will be used to repay amounts
outstanding under such loan and line of credit, this offering will be made
pursuant to the requirements of Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. This rule requires that the
yield of a debt security be no lower than the yield recommended by a qualified
independent underwriter which has participated in the preparation of the
registration statement and performed its usual standard of due diligence with
respect to that registration statement. Merrill Lynch, Pierce, Fenner & Smith
Incorporated has agreed to act as qualified independent underwriter with respect
to the offering. The yield on the notes will be no lower than that recommended
by Merrill Lynch, Pierce, Fenner & Smith Incorporated.
EXPERTS
The consolidated financial statements of Tanger Properties Limited
Partnership as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999 included in this prospectus have been
so included in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Tanger Factory Outlet Centers, Inc.
incorporated in this prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1999 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Latham & Watkins, New York, New York will pass upon the validity of the
notes and guarantees offered by this prospectus supplement. Brown & Wood LLP,
New York, New York, will pass upon various legal matters for the underwriters
relating to the offering. Brown & Wood LLP will rely on Vernon, Vernon, Wooten,
Brown, Andrews & Garrett, P.A., Burlington, North Carolina, counsel to the
Operating Partnership and the Company, as to certain matters of North Carolina
law.
S-51
INDEX TO FINANCIAL STATEMENTS
TANGER PROPERTIES LIMITED PARTNERSHIP
PAGE
--------
Balance Sheets--September 30, 2000 (unaudited) and
December 31, 1999......................................... F-2
Statements of Operations for the three and nine months ended
September 30, 2000 and 1999 (unaudited)................... F-3
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 (unaudited)................... F-4
Notes to Financial Statements (unaudited)................... F-5
Report of Independent Accountants........................... F-8
Balance Sheets--December 31, 1999 and 1998.................. F-9
Statements of Operations for the years ended December 31,
1999, 1998 and 1997....................................... F-10
Statements of Partners' Equity for the years ended
December 31, 1999, 1998 and 1997.......................... F-11
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997....................................... F-12
Notes to Financial Statements............................... F-13
Report of Independent Accountants........................... F-23
Schedule III--Real Estate and Accumulated Depreciation for
the Year Ended December 31, 1999.......................... F-24
F-1
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
ASSETS
Rental Property
Land.................................................... $ 60,303 $ 63,045
Buildings, improvements and fixtures.................... 498,830 484,277
Developments under construction......................... 21,778 18,894
--------- ---------
580,911 566,216
Accumulated depreciation................................ (117,367) (104,511)
--------- ---------
Rental property, net.................................... 463,544 461,705
Cash and cash equivalents............................... 200 501
Deferred charges, net................................... 8,872 8,176
Other assets............................................ 15,422 19,469
--------- ---------
Total assets.......................................... $ 488,038 $ 489,851
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Long-term debt
Senior, unsecured notes................................. $ 150,000 $ 150,000
Mortgages payable....................................... 135,759 90,652
Unsecured term note..................................... 20,000 --
Unsecured lines of credit............................... 31,289 88,995
--------- ---------
337,048 329,647
Construction trade payables............................... 13,110 6,287
Accounts payable and accrued expenses..................... 13,472 12,863
--------- ---------
Total liabilities..................................... 363,630 348,797
--------- ---------
Commitments
Partners' equity
General partner........................................... 1,699 1,927
Limited partners.......................................... 122,709 139,127
--------- ---------
Total partners' equity................................ 124,408 141,054
--------- ---------
Total liabilities and partners' equity................ $ 488,038 $ 489,851
========= =========
The accompanying notes are an integral part of these financial statements.
F-2
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
REVENUES
Base rentals........................................ $17,492 $17,151 $52,912 $51,314
Percentage rentals.................................. 898 888 1,902 1,774
Expense reimbursements.............................. 7,791 7,107 22,138 20,316
Other income........................................ 1,165 1,759 3,501 2,803
------- ------- ------- -------
Total revenues.................................... 27,346 26,905 80,453 76,207
------- ------- ------- -------
EXPENSES
Property operating.................................. 8,751 7,993 24,458 22,221
General and administrative.......................... 1,862 1,880 5,489 5,409
Interest............................................ 6,852 5,957 20,451 17,968
Depreciation and amortization....................... 6,537 6,200 19,512 18,525
------- ------- ------- -------
Total expenses.................................... 24,002 22,030 69,910 64,123
------- ------- ------- -------
Income before gain or loss on sale of real estate and
extraordinary item.................................. 3,344 4,875 10,543 12,084
Gain (loss) on sale of real estate.................... -- 1,313 (5,935) 1,313
------- ------- ------- -------
Income before extraordinary item...................... 3,344 6,188 4,608 13,397
Extraordinary item--Loss on early extinguishment of
debt................................................ -- -- -- (345)
------- ------- ------- -------
Net income............................................ 3,344 6,188 4,608 13,052
Less applicable preferred unit distributions.......... (449) (481) (1,382) (1,441)
------- ------- ------- -------
Income available to common unitholders................ 2,895 5,707 3,226 11,611
Income allocated to limited partners.................. (2,855) (1,591) (3,181) (3,234)
------- ------- ------- -------
Income allocated to general partner................... $ 40 $ 4,116 $ 45 $ 8,377
======= ======= ======= =======
Basic earnings per common unit:
Income before extraordinary item.................... $ .26 $ .52 $ .30 $ 1.10
Extraordinary item.................................. -- -- -- (.03)
------- ------- ------- -------
Net income.......................................... $ .26 $ .52 $ .30 $ 1.07
======= ======= ======= =======
Diluted earnings per common unit:
Income before extraordinary item.................... $ .26 $ .52 $ .29 $ 1.10
Extraordinary item.................................. -- -- -- (.03)
------- ------- ------- -------
Net income.......................................... $ .26 $ .52 $ .29 $ 1.07
======= ======= ======= =======
Distributions paid per common unit.................. $ .61 $ .61 $ 1.82 $ 1.81
======= ======= ======= =======
The accompanying notes are an integral part of these financial statements.
F-3
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
2000 1999
-------- --------
(UNAUDITED)
OPERATING ACTIVITIES
Net income................................................ $ 4,608 $ 13,052
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 19,512 18,525
Amortization of deferred financing costs................ 928 758
Loss on early extinguishment of debt.................... -- 345
Loss (gain) on disposal or sale of real estate.......... 5,935 (1,313)
Gain on sale of outparcels of land...................... (908) (687)
Straight-line base rent adjustment...................... 170 (211)
Increase (decrease) due to changes in:
Other assets............................................ (614) (95)
Accounts payable and accrued expenses................... 609 3,427
-------- --------
Net cash provided by operating activities............. 30,240 33,801
-------- --------
INVESTING ACTIVITIES
Additions to rental properties............................ (25,896) (26,613)
Additions to deferred lease costs......................... (1,894) (1,709)
Net proceeds from sale of real estate..................... 8,598 1,987
Insurance proceeds from casualty losses................... 4,046 7,853
Advances to officer, net of repayments.................... (358) (2,436)
-------- --------
Net cash used in investing activities................. (15,504) (20,918)
-------- --------
FINANCING ACTIVITIES
Repurchase of partnership units........................... -- (958)
Cash distributions paid................................... (21,254) (21,164)
Proceeds from mortgages payable........................... 46,160 66,500
Repayments on mortgages payable........................... (1,053) (48,192)
Proceeds from revolving lines of credit................... 93,924 74,448
Repayments on revolving lines of credit................... (131,630) (88,650)
Additions to deferred financing costs..................... (1,184) (1,015)
Proceeds from exercise of unit options.................... -- 12
-------- --------
Net cash used in financing activities................. (15,037) (19,019)
-------- --------
Net decrease in cash and cash equivalents................... (301) (6,136)
Cash and cash equivalents, beginning of period.............. 501 6,334
-------- --------
Cash and cash equivalents, end of period.................... $ 200 $ 198
======== ========
- ------------------------
Supplemental schedule of non-cash investing activities:
The Operating Partnership purchases capital equipment and incurs costs relating
to construction of new facilities, including tenant finishing allowances.
Expenditures included in construction trade payables as of September 30, 2000
and 1999 amounted to $13,110 and $6,692, respectively.
The accompanying notes are an integral part of these financial statements.
F-4
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The unaudited Financial Statements of Tanger Properties Limited Partnership,
a North Carolina limited partnership (the "Operating Partnership"), have been
prepared pursuant to generally accepted accounting principles and should be read
in conjunction with the Financial Statements and Notes thereto of the Operating
Partnership's Annual Report on Form 10-K for the year ended December 31, 1999.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's ("SEC") rules and regulations, although management believes that
the disclosures are adequate to make the information presented not misleading.
The accompanying Financial Statements reflect, in the opinion of management,
all adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature.
2. DEVELOPMENT AND DISPOSITION OF RENTAL PROPERTIES
During the first nine months of 2000, the Operating Partnership added 70,100
square feet to the portfolio in Commerce, GA, Sevierville, TN and San Marcos,
TX. In addition, the Operating Partnership has approximately 244,300 square feet
of expansion space under construction in four centers located in Riverhead, NY,
Lancaster, PA, Sevierville, TN and San Marcos, TX.
In June 2000, the Operating Partnership sold its centers in Lawrence, KS and
McMinnville, OR. Net proceeds received from the sale totaled $7.1 million. As a
result of the sale, the Operating Partnership recognized a loss on sale of real
estate of $5.9 million. The combined net operating income of these two centers
represented approximately 1% of the total portfolio's operating income. During
the third quarter, the Operating Partnership also sold two land outparcels at
its San Marcos center for net proceeds of $752,000 and has included in other
income a gain on sale of $482,000. During the first nine months of 2000, the
Operating Partnership in total has sold four land outparcels for net proceeds of
$1.5 million and has included in other income a gain on sale of $908,000.
Commitments to complete construction of the expansions to the existing
properties and other capital expenditure requirements amounted to approximately
$5.7 million at September 30, 2000. Commitments for construction represent only
those costs contractually required to be paid by the Operating Partnership.
Interest costs capitalized during the three months ended September 30, 2000 and
1999 amounted to $328,000 and $293,000, respectively, and for the nine months
ended September 30, 2000 and 1999 amounted to $687,000 and $903,000,
respectively.
3. OTHER ASSETS
In May 2000, the demand notes receivable totaling $3.4 million from Stanley
K. Tanger, Chairman of the Board and Chief Executive Officer of the general
partner, were converted into two separate term notes of which $2.5 million is
due from Mr. Tanger and $845,000 is due from Steven B. Tanger, President of the
general partner. The notes amortize evenly over five years with principal and
interest at a rate of 8% per annum due quarterly. The balances of these notes at
September 30, 2000 were $2.4 million and $810,000, respectively.
F-5
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
4. LONG-TERM DEBT
On September 8, 2000, the Operating Partnership refinanced its five year
$9.2 million secured loan with New York Life Insurance Company at a fixed
interest rate of 9.125%.
On August 29, 2000, the Operating Partnership entered into a ten year
secured term loan with Woodmen of the World Life Insurance Society for
$16.7 million with interest payable at a fixed rate of 8.86%. The proceeds were
used to reduce amounts outstanding under the existing lines of credit.
On July 28, 2000, the Operating Partnership entered into a five year secured
term loan with Wells Fargo Bank for $29.5 million with interest payable at LIBOR
plus 1.75%. The proceeds were used to reduce amounts outstanding under the
existing lines of credit.
In January 2000, the Operating Partnership entered into a $20.0 million two
year unsecured term loan with interest payable at LIBOR plus 2.25%. The proceeds
were used to reduce amounts outstanding under the existing lines of credit. Also
in January 2000, the Operating Partnership entered into interest rate swap
agreements on notional amounts totaling $20.0 million at a cost of $162,000. The
agreements mature in January 2002. The swap agreements have the effect of fixing
the interest rate on the new $20.0 million loan at 8.75%.
At September 30, 2000, the Operating Partnership had revolving lines of
credit with an unsecured borrowing capacity of $100 million, of which
$68.7 million was available for additional borrowings.
5. EARNINGS PER UNIT
The following table sets forth a reconciliation of the numerators and
denominators in computing earnings per unit in accordance with Statement of
Financial Accounting Standards No. 128, Earnings Per Share (in thousands, except
per unit amounts):
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Numerator:
Income before extraordinary item..................... $ 3,344 $ 6,188 $ 4,608 $13,397
Less applicable preferred unit distributions......... (449) (481) (1,382) (1,441)
------- ------- ------- -------
Income available to common unitholders--numerator for
basic and diluted earnings per unit................ $ 2,895 $ 5,707 $ 3,226 $11,956
======= ======= ======= =======
Denominator:
Basic weighted average common units.................. 10,938 10,883 10,919 10,895
Effect of outstanding unit options................... 49 68 25 21
------- ------- ------- -------
Diluted weighted average common units................ 10,987 10,951 10,944 10,916
======= ======= ======= =======
Basic earnings per unit before extraordinary item...... $ .26 $ .52 $ .30 $ 1.10
======= ======= ======= =======
Diluted earnings per unit before extaordinary item.... $ .26 $ .52 $ .29 $ 1.10
======= ======= ======= =======
The computation of diluted earnings per unit excludes options to purchase
common units when the exercise price is greater than the average market price of
the common units for the period. The market price of the common units is
considered to be equivalent to the market price of the common shares of
F-6
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
Tanger Factory Outlet Centers, Inc., the sole owner of the Operating
Partnership's general partner. Options excluded totaled 631,000 and 341,000 for
the three months ended September 30, 2000 and 1999, respectively, and 1,226,000
and 652,000 for the nine months ended September 30, 2000 and 1999, respectively.
The assumed conversion of preferred units to common units as of the beginning of
the year would have been anti-dilutive.
At September 30, 2000 and December 31, 1999, the ownership interests of the
Operating Partnership consisted of the following:
2000 1999
---------- ----------
Preferred units............................................. 80,600 85,270
---------- ----------
Partnership units:
General partner........................................... 150,000 150,000
Limited partners.......................................... 10,802,216 10,760,140
---------- ----------
Total................................................. 10,952,216 10,910,140
========== ==========
6. SUBSEQUENT EVENTS
On November 9, 2000, the Operating Partnership terminated its contract to
purchase twelve acres of land in Dania Beach/Ft. Lauderdale, Florida from Bass
Pro Outdoor World, L.P. ("Bass Pro"). Conditions that were required to have been
satisfied prior to consummation of the Operating Partnership's purchase of the
property, including the ability to obtain a building permit and the satisfaction
by the seller of various title and other matters, had not been satisfied by the
scheduled closing date of November 3, 2000. In accordance with, and as a result
of the termination of the purchase contract, Bass Pro has thirty business days
in which to exercise an option to reacquire the existing Outdoor World building
owned by the Operating Partnership at the site. The Operating Partnership is in
the process of determining the final cost associated with the termination of the
contract, which will be written off in the fourth quarter, or should Bass Pro
exercise its option to repurchase, at the time of close.
F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of TANGER PROPERTIES LIMITED PARTNERSHIP:
In our opinion, the accompanying balance sheets and the related statements
of operations, partners' equity and cash flows present fairly, in all material
respects, the financial position of Tanger Properties Limited Partnership at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999, in conformity
with accounting principles generally accepted in the United States. These
financial statements are the responsibility of the Operating Partnership'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 auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit 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 the opinion expressed above.
PricewaterhouseCoopers LLP
Greensboro, NC
January 26, 2000
F-8
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
--------------------
1999 1998
--------- --------
ASSETS
Rental Property
Land.................................................... $ 63,045 $ 53,869
Buildings, improvements and fixtures.................... 484,277 458,546
Developments under construction......................... 18,894 16,832
--------- --------
566,216 529,247
Accumulated depreciation................................ (104,511) (84,685)
--------- --------
Rental property, net.................................... 461,705 444,562
Cash and cash equivalents................................. 501 6,334
Deferred charges, net..................................... 8,176 8,218
Other assets.............................................. 19,469 12,454
--------- --------
Total assets.......................................... $ 489,851 $471,568
========= ========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Long-term debt
Senior, unsecured notes................................. $ 150,000 $150,000
Mortgages payable....................................... 90,652 72,790
Lines of credit......................................... 88,995 79,695
--------- --------
329,647 302,485
Construction trade payables............................... 6,287 9,224
Accounts payable and accrued expenses..................... 12,863 10,496
--------- --------
Total liabilities..................................... 348,797 322,205
--------- --------
Commitments
Partners' equity
General partner........................................... 1,927 128,746
Limited partners.......................................... 139,127 20,617
--------- --------
Total partners' equity................................ 141,054 149,363
--------- --------
Total liabilities and partners' equity................ $ 489,851 $471,568
========= ========
The accompanying notes are an integral part of these financial statements.
F-9
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER UNIT DATA)
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
REVENUES
Base rentals.............................................. $ 69,180 $66,187 $56,807
Percentage rentals........................................ 3,141 3,087 2,637
Expense reimbursements.................................... 27,910 26,852 24,665
Other income.............................................. 3,785 1,640 1,162
-------- ------- -------
Total revenues.......................................... 104,016 97,766 85,271
-------- ------- -------
EXPENSES
Property operating........................................ 30,585 29,106 26,269
General and administrative................................ 7,298 6,669 6,145
Interest.................................................. 24,239 22,028 16,835
Depreciation and amortization............................. 24,824 22,154 18,439
Asset write-down.......................................... -- 2,700 --
-------- ------- -------
Total expenses.......................................... 86,946 82,657 67,688
-------- ------- -------
Income before gain on disposal or sale of real estate, and
extraordinary item........................................ 17,070 15,109 17,583
Gain on disposal or sale of real estate..................... 4,141 994 --
-------- ------- -------
Income before extraordinary item............................ 21,211 16,103 17,583
Extraordinary item--Loss on early extinguishment of debt.... (345) (460) --
-------- ------- -------
Net income.................................................. 20,866 15,643 17,583
Less applicable preferred unit distributions................ (1,917) (1,911) (1,808)
-------- ------- -------
Income available to partners................................ 18,949 13,732 15,775
Income allocated to the limited partners.................... (5,278) (3,816) (4,756)
-------- ------- -------
Income allocated to the general partner..................... $ 13,671 $ 9,916 $11,019
======== ======= =======
Basic earnings per unit:
Income before extraordinary item.......................... $ 1.77 $ 1.30 $ 1.57
Extraordinary item........................................ (0.03) (0.04) --
-------- ------- -------
Net income................................................ $ 1.74 $ 1.26 $ 1.57
======== ======= =======
Diluted earnings per unit:
Income before extraordinary item.......................... $ 1.77 $ 1.28 $ 1.55
Extraordinary item........................................ (0.03) (0.04) --
-------- ------- -------
Net income................................................ $ 1.74 $ 1.24 $ 1.55
======== ======= =======
The accompanying notes are an integral part of these financial statements.
F-10
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
(IN THOUSANDS, EXCEPT UNIT DATA)
GENERAL LIMITED TOTAL PARTNERS'
PARTNER PARTNERS EQUITY
--------- -------- ---------------
Balance, December 31, 1996................................ $ 110,657 $ 25,599 $136,256
Conversion of 15,730 preferred units into 141,726
partnership units....................................... -- -- --
Issuance of 29,700 units upon exercise of unit options.... 703 -- 703
Issuance of 1,080,000 units to general partner in exchange
for proceeds from a common share offering............... 29,241 -- 29,241
Compensation under unit Option Plan....................... 234 104 338
Net income................................................ 12,827 4,756 17,583
Preferred distributions ($19.55 per unit)................. (1,789) -- (1,789)
Distributions to partners ($2.17 per unit)................ (15,224) (6,583) (21,807)
--------- -------- --------
Balance, December 31, 1997................................ 136,649 23,876 160,525
Conversion of 2,419 preferred units into 21,790
partnership units....................................... -- -- --
Issuance of 31,880 units upon exercise of share and unit
options................................................. 762 -- 762
Repurchase and retirement of 10,000 partnership units..... (216) -- (216)
Compensation under Unit Option Plan....................... 142 53 195
Net income................................................ 11,827 3,816 15,643
Preferred distributions ($21.17 per unit)................. (1,894) -- (1,894)
Distributions to partners ($2.35 per unit)................ (18,524) (7,128) (25,652)
--------- -------- --------
Balance, December 31, 1998................................ 128,746 20,617 149,363
Conversion of 3,000 preferred units into 27,029
partnership units....................................... -- -- --
Issuance of 500 units upon exercise of unit options....... 12 -- 12
Repurchase and retirement of 48,300 partnership units..... (958) -- (958)
Transfer of partnership interest.......................... (120,557) 120,557 --
Net income................................................ 15,588 5,278 20,866
Preferred distributions ($21.76 per unit)................. (1,918) -- (1,918)
Distributions to partners ($2.42 per unit)................ (18,986) (7,325) (26,311)
--------- -------- --------
Balance, December 31, 1999................................ $ 1,927 $139,127 $141,054
========= ======== ========
The accompanying notes are an integral part of these financial statements.
F-11
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
--------------------------------
1999 1998 1997
--------- -------- ---------
OPERATING ACTIVITIES
Net income................................................ $ 20,866 $ 15,643 $ 17,583
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 24,824 22,154 18,439
Amortization of deferred financing costs................ 1,005 1,076 1,094
Loss on early extinguishment of debt.................... 345 460 --
Asset write-down........................................ -- 2,700 --
Gain on disposal or sale of real estate................. (4,141) (994) --
Gain on sale of outparcels of land...................... (687) -- --
Straight-line base rent adjustment...................... (214) (688) (347)
Compensation under Unit Option Plan..................... -- 195 338
Increase (decrease) due to changes in:
Other assets............................................ (1,196) (2,161) (1,591)
Accounts payable and accrued expenses................... 2,367 (2,594) 3,716
--------- -------- ---------
Net cash provided by operating activities............. 43,169 35,791 39,232
--------- -------- ---------
INVESTING ACTIVITIES
Acquisition of rental properties.......................... (15,500) (44,650) (37,500)
Additions to rental properties............................ (34,224) (35,252) (54,795)
Additions to deferred lease costs......................... (1,862) (1,895) (1,341)
Net proceeds from sale of real estate..................... 1,987 2,561 --
Net insurance proceeds from property losses............... 6,451 -- --
Advances to officer....................................... (2,811) -- --
--------- -------- ---------
Net cash used in investing activities................. (45,959) (79,236) (93,636)
--------- -------- ---------
FINANCING ACTIVITIES
Contributions from the general partner.................... -- -- 29,241
Repurchase of partnership units........................... (958) (216) --
Cash distributions paid................................... (28,229) (27,546) (23,596)
Proceeds from mortgages payable........................... 66,500 -- 75,000
Repayments on mortgages payable........................... (48,638) (1,260) (1,154)
Proceeds from revolving lines of credit................... 118,555 152,760 118,450
Repayments on revolving lines of credit................... (109,255) (78,065) (141,250)
Additions to deferred financing costs..................... (1,030) (263) (1,950)
Proceeds from exercise of unit options.................... 12 762 703
--------- -------- ---------
Net cash provided by (used in) financing activities... (3,043) 46,172 55,444
--------- -------- ---------
Net increase (decrease) in cash and cash equivalents........ (5,833) 2,727 1,040
Cash and cash equivalents, beginning of period.............. 6,334 3,607 2,567
--------- -------- ---------
Cash and cash equivalents, end of period.................... $ 501 $ 6,334 $ 3,607
========= ======== =========
The accompanying notes are an integral part of these financial statements.
F-12
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION OF THE OPERATING PARTNERSHIP
Tanger Properties Limited Partnership, a North Carolina limited partnership
(the "Operating Partnership"), develops, owns and operates factory outlet
centers. Recognized as one of the largest owners and operators of factory outlet
centers in the United States, the Company owned and operated 31 factory outlet
centers located in 22 states with a total gross leasable area of approximately
5.1 million square feet at the end of 1999. The Company provides all
development, leasing and management services for its centers.
The Operating Partnership is controlled by Tanger Factory Outlet
Centers, Inc. (the "Company"), a fully-integrated, self-administered,
self-managed real estate investment trust ("REIT") as the sole shareholder of
the Operating Partnership's general partner, Tanger GP Trust. Prior to 1999, the
Company owned the majority of the units of partnership interest issued by the
Operating Partnership (the "Units") and served as its sole general partner.
During 1999, the Company transferred its ownership of Units into two
wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust, with
Tanger GP Trust as the sole general partner and Tanger LP Trust as a limited
partner. The Tanger Family Limited Partnership ("TFLP"), holds the remaining
Units as a limited partner. Stanley K. Tanger, the Company's Chairman of the
Board and Chief Executive Officer, is the sole general partner of TFLP.
As of December 31, 1999, the Tanger GP Trust owned 150,000 Units, the Tanger
LP Trust owned 7,726,835 Units and 85,270 Preferred Units (which are convertible
into approximately 795,309 limited partnership Units) and TFLP owned 3,033,305
Units. TFLP's Units are exchangeable, subject to certain limitations to preserve
the Company's status as a REIT, on a one-for-one basis for common shares of the
Company. Preferred Units are automatically converted into limited partnership
Units to the extent of any conversion of preferred shares of the Company into
common shares of the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION--Allocation of income to the partners is based on each
partner's respective ownership of Units issued by the Operating Partnership.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles 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--The Operating Partnership aggregates the financial
information of all its 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 PROPERTIES--Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the acquisition, construction, and development
of properties are capitalized. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets. The Operating Partnership
generally uses 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.
F-13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 1999, 1998 and 1997 amounted to $1,242,000, $762,000, and
$1,877,000, and development costs capitalized amounted to $1,711,000,
$1,903,000, and $1,637,000, respectively. Depreciation expense for each of the
years ended December 31, 1999, 1998 and 1997 was $23,095,000, $20,873,000, and
$17,327,000, respectively.
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
developments under construction when the pre-construction tasks are completed.
Costs of potentially unsuccessful pre-construction efforts are charged to
operations.
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. The Operating Partnership believes that
it mitigates its 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 consist of fees and costs incurred to
initiate operating leases and are amortized over the average minimum lease term.
Deferred financing costs include fees and costs incurred to obtain long-term
financing and are being amortized over the terms of the respective loans.
Unamortized deferred financing costs are charged to expense when debt is retired
before the maturity date.
IMPAIRMENT OF LONG-LIVED ASSETS--Rental property held and used by an entity
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, the
Operating Partnership compares the estimated future undiscounted cash flows
associated with the asset to the asset's carrying amount, and if less,
recognizes an impairment loss in an amount by which the carrying amount exceeds
its fair value. The Operating Partnership believes that no material impairment
existed at December 31, 1999.
DERIVATIVES--The Operating Partnership selectively enters into interest rate
protection agreements to mitigate changes in interest rates on its 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. The
cost of these agreements are included in deferred financing costs and are
amortized on a straight-line basis over the life of the agreements. As of
December 31, 1999, the Operating Partnership had no such agreements.
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
when the applicable space is re-leased, or, otherwise are amortized over the
remaining lease term. Business interruption insurance proceeds received are
recognized as other income over the estimated period of interruption.
F-14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--As a partnership, the allocated share of income or loss for
the year is included in the income tax returns of the partners; accordingly, no
provision has been made for Federal income taxes in the accompanying financial
statements.
CONCENTRATION OF CREDIT RISK--The Operating Partnership's management
performs ongoing credit evaluations of its 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 1999, 1998 or 1997.
SUPPLEMENTAL CASH FLOW INFORMATION--The Operating Partnership purchases
capital equipment and incurs costs relating to construction of new facilities,
including tenant finishing allowances. Expenditures included in construction
trade payables as of December 31, 1999, 1998 and 1997 amounted to $6,287,000,
$9,224,000, and $12,913,000, respectively. Interest paid, net of interest
capitalized, in 1999, 1998 and 1997 was $23,179,000, $20,690,000, and
$12,337,000, respectively. Other assets at December 31, 1999 include a property
loss receivable of $4.2 million from the Operating Partnership's property
insurance carrier.
3. DEFERRED CHARGES
Deferred charges as of December 31, 1999 and 1998 consist of the following
(in thousands):
1999 1998
-------- --------
Deferred lease costs...................................... $11,110 $ 9,551
Deferred financing costs.................................. 5,866 5,691
------- -------
16,976 15,242
Accumulated amortization.................................. 8,800 7,024
------- -------
$ 8,176 $ 8,218
======= =======
Amortization of deferred lease costs for the years ended December 31, 1999,
1998 and 1997 was $1,459,000, $1,019,000, and $873,000, respectively.
Amortization of deferred financing costs, included in interest expense in the
accompanying statements of operations, for the years ended December 31, 1999,
1998 and 1997 was $1,005,000, $1,076,000, and $1,094,000 respectively. During
1999 and 1998, the Operating Partnership expensed the remaining unamortized
financing costs totaling $345,000 and $460,000 related to debt extinguished
prior to its respective maturity date. Such amounts are shown as extraordinary
items in the accompanying statements of operations.
4. OTHER ASSETS
Included in other assets are notes receivable totaling $2.8 million from
Stanley K. Tanger, the Chairman of the Board and Chief Executive Officer of the
Company. Mr. Tanger and the Operating Partnership have entered into demand note
agreements whereby he may borrow up to $3.5 million through various advances
from the Operating Partnership for an investment in a separate e-commerce
business venture. The notes bear interest at a rate of 8% per annum and are
collateralized by Mr. Tanger's limited partnership interest in Tanger
Investments Limited Partnership. Mr. Tanger intends to fully repay the loan.
Also included in other assets is a receivable of $4.2 million from the
Operating Partnership's property insurance carrier. This amount, which was
collected in January 2000, represents the unpaid
F-15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. OTHER ASSETS (CONTINUED)
portion of an insurance settlement of $13.4 million related to the loss of the
Operating Partnership's outlet center in Stroud, Oklahoma. The center was
destroyed by a tornado in May 1999. Approximately $1.9 million of the settlement
proceeds represented business interruption insurance. The business interruption
proceeds are being amortized to other income over a period of fourteen months.
The unrecognized portion of the business interruption proceeds at December 31,
1999 totaled $985,200. The remaining portion of the settlement, net of related
expenses, was considered replacement proceeds for the portion of the center that
was totally destroyed. As a result, the Operating Partnership recognized a gain
on disposal of $4.1 million during 1999. The remaining carrying value for this
property consists of land and related site work totaling $1.7 million.
5. ASSET WRITE-DOWN
During 1998, the Operating Partnership discontinued the development of its
Concord, North Carolina, Romulus, Michigan and certain other projects as the
economics of these transactions did not meet an adequate return on investment
for the Operating Partnership. As a result, the Operating Partnership recorded a
$2.7 million charge in the fourth quarter of 1998 to write-off the carrying
amount of these projects, net of proceeds received from the sale of the
Operating Partnership's interest in the Concord project to an unrelated third
party.
6. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following (in
thousands):
1999 1998
-------- --------
8.75% Senior, unsecured notes, maturing March 2001...... $ 75,000 $ 75,000
7.875% Senior, unsecured notes, maturing
October 2004.......................................... 75,000 75,000
Mortgage notes with fixed interest at:
8.625%, maturing September 2000....................... 9,460 9,805
8.92%, maturing January 2002.......................... -- 47,405
9.77%, maturing April 2005............................ 15,351 15,580
7.875%, maturing April 2009........................... 65,841 --
Revolving lines of credit with variable interest rates
ranging from either prime less .25% to prime or from
LIBOR plus 1.55% to LIBOR plus 1.60%.................. 88,995 79,695
-------- --------
$329,647 $302,485
======== ========
The Operating Partnership maintains revolving lines of credit which provide
for borrowing up to $100 million. The agreements expire at various times through
the year 2002. Interest is payable based on alternative interest rate bases at
the Operating Partnership's option. Amounts available under these facilities at
December 31, 1999 totaled $11.0 million. Certain of the Operating Partnership's
properties, which had a net book value of approximately $88.9 million at
December 31, 1999, serve as collateral for the fixed rate mortgages.
The credit agreements require the maintenance of certain ratios, including
debt service coverage and leverage, and limit the payment of distributions such
that 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
F-16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
from operations on a cumulative basis. All three existing fixed rate mortgage
notes are with insurance companies and contain prepayment penalty clauses.
During March 1999, the Operating Partnership refinanced its 8.92% notes. The
refinancing reduced the interest rate to 7.875%, increased the loan amount to
$66.5 million and extended the maturity date to April 2009. The additional
proceeds were used to reduce amounts outstanding under the revolving lines of
credit.
Maturities of the existing long-term debt are as follows (in thousands):
YEAR AMOUNT %
- ---- -------- --------
2000........................................................ $ 10,654 3
2001........................................................ 117,291 36
2002........................................................ 49,381 15
2003........................................................ 1,497 --
2004........................................................ 76,618 23
Thereafter.................................................. 74,206 23
-------- ---
$329,647 100
======== ===
In January 2000, the Operating Partnership entered into a $20.0 million two
year unsecured term loan with interest payable at LIBOR plus 2.25%. The proceeds
were used to reduce amounts outstanding under the existing lines of credit. Also
in January 2000, the Operating Partnership entered into interest rate swap
agreements on notional amounts totaling $20.0 million at a cost of $162,000. The
agreements mature in January 2002. The swap agreements have the effect of fixing
the interest rate on the new $20.0 million loan at 8.75%.
7. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
In October 1998, the Operating Partnership entered into an interest rate
swap agreement effective through October 2001 with a notional amount of
$20 million that fixed the 30 day LIBOR index at 5.47%. The Operating
Partnership terminated this agreement in June 1999. The Operating Partnership
had a similar agreement with a notional amount of $10 million at a fixed 30 day
LIBOR index of 5.99% that expired during 1998. The impact of these agreements
had an insignificant effect on interest expense during 1999, 1998 and 1997.
In anticipation of offering the senior, unsecured notes due 2004, the
Operating Partnership entered into an interest rate protection agreement on
October 3, 1997 which fixed the index on the 10 year US Treasury rate at 5.995%
for 30 days on a notional amount of $70 million. The transaction settled on
October 21, 1997, the trade date of the $75 million offering, and, as a result
of an increase in the US Treasury rate, the Operating Partnership received
proceeds of $714,000. Such amount is being amortized as a reduction to interest
expense over the life of the notes. The overall effective interest rate on the
notes, after giving consideration to these proceeds, is 7.75%.
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, 1999, which is estimated as 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 $324.4
million.
F-17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. PARTNERSHIP EQUITY
At December 31, 1999 and 1998, the ownership interests of the Operating
Partnership consisted of the following:
1999 1998
---------- ----------
Preferred units...................................... 85,270 88,270
---------- ----------
Partnership Units:
General partner.................................... 150,000 7,897,606
Limited partners................................... 10,760,140 3,033,305
---------- ----------
Total............................................ 10,910,140 10,930,911
========== ==========
During 1997, the Company completed an additional public offering of
1,080,000 common shares at a price of $29.0625 per share, receiving net proceeds
of approximately $29.2 million. The net proceeds, which were contributed to the
Operating Partnership in exchange for 1,080,000 Units, were used to acquire,
expand and develop factory outlet centers and for general corporate purposes.
The Series A Cumulative Convertible Redeemable Preferred Shares (the
"Preferred Shares") were sold to the public during 1993 in the form of
Depositary Shares, each representing 1/10 of a Preferred Share. Proceeds from
this offering, net of underwriters discount and estimated offering expenses,
were contributed to the Operating Partnership in return for preferred
partnership Units. The Preferred Shares have a liquidation preference equivalent
to $25 per Depositary Share and dividends accumulate per Depositary Share equal
to the greater of (i) $1.575 per year or (ii) the dividends on the common shares
or portion thereof, into which a depositary share is convertible. The Preferred
Shares rank senior to the common shares in respect of dividend and liquidation
rights.
The Preferred Shares are convertible at the option of the holder at any time
into common shares at a rate equivalent to .901 common shares for each
Depositary Share. Preferred partnership Units are automatically converted into
limited partnership Units to the extent of any conversion of the Company's
Series A Preferred Shares into the Company's common shares. At December 31,
1999, 768,269 common shares of the Company (and 768,269 Units of the Operating
Partnership) were reserved for the conversion of Depositary Shares (and
Preferred Units). The Preferred Shares and Depositary Shares may be redeemed at
the option of the Company, in whole or in part, at a redemption price of $25 per
Depositary Share, plus accrued and unpaid dividends.
The Company's Board of Directors has authorized the repurchase of up to $6
million of the Company's common shares. Proceeds required to repurchase these
common shares are funded by the Operating Partnership in exchange for an
equivalent number of partnership units in the Operating Partnership. The timing
and amount of purchases will be at the discretion of management. During 1999 and
1998, the Company purchased and retired 48,300 and 10,000 common shares at a
price of $958,000 and $216,000, respectively. The amount authorized for future
repurchases remaining at December 31, 1999 totaled $4.8 million.
F-18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. EARNINGS PER UNIT
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, 1999, 1998 and
1997 is set forth as follows (in thousands, except per unit amounts):
1999 1998 1997
------- ------- -------
Numerator:
Income before extraordinary
item...................... $21,211 $16,103 $17,583
Less applicable preferred
unit distributions........ (1,917) (1,911) (1,808)
------- ------- -------
Income available to the
general and limited
partners--numerator for
basic and diluted earnings
per unit.................. $19,294 $14,192 $15,775
======= ======= =======
Denominator:
Basic weighted average
partnership units......... 10,894 10,919 10,061
Effect of outstanding unit
options................... 10 121 110
------- ------- -------
Diluted weighted average
partnership units......... 10,904 11,040 10,171
======= ======= =======
Basic earnings per unit before
extraordinary item.......... $ 1.77 $ 1.30 $ 1.57
======= ======= =======
Diluted earnings per unit
before extaordinary item.... $ 1.77 $ 1.28 $ 1.55
======= ======= =======
Options to purchase units excluded from the computation of diluted earnings
per unit during 1999 and 1998 because the exercise price was greater than the
average market price of the Company's common shares totaled 651,418 and 244,775
units. During 1997, all options had exercise prices less than the average market
price. The assumed conversion of the preferred units as of the beginning of each
year would have been anti-dilutive.
10. EMPLOYEE BENEFIT PLANS
The Company has a non-qualified and incentive share option plan ("The Share
Option Plan") and the Operating Partnership has a non-qualified Unit option plan
("The Unit Option Plan"). Units received upon exercise of Unit options are
exchangeable for common shares of the Company. The Operating Partnership
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized.
Had compensation cost for these plans been determined for options granted
since January 1, 1995 consistent with Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123), the
Operating Partnership's net income and earnings per unit would have been reduced
to the following pro forma amounts (in thousands, except per unit amounts):
1999 1998 1997
-------- -------- --------
Net income: As reported..................................... $20,866 $15,643 $17,583
Pro forma......................................... $20,599 $15,409 $17,403
Basic EPS: As reported...................................... $ 1.74 $ 1.26 $ 1.57
Pro forma......................................... $ 1.71 $ 1.24 $ 1.55
Diluted EPS: As reported.................................... $ 1.74 $ 1.24 $ 1.55
Pro forma........................................ $ 1.71 $ 1.23 $ 1.54
F-19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. EMPLOYEE BENEFIT PLANS (CONTINUED)
Because the SFAS 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. 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
grants in 1999 and 1998, respectively: expected distribution yields of 10%;
expected lives ranging from 5 years to 7 years; expected volatility 20%; and
risk-free interest rates ranging from 4.72% to 5.50%.
The Company and the Operating Partnership may issue up to a combined
1,750,000 shares and units under The Share Option Plan and The Unit Option Plan.
The Company and the Operating Partnership have granted 1,343,070 options, net of
options forfeited, through December 31, 1999. Under both plans, 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 are exercisable in five equal installments commencing one
year from the date of grant.
Options outstanding at December 31, 1999 have exercise prices between
$22.125 and $30.50, with a weighted average exercise price of $24.55 and a
weighted average remaining contractual life of 6.2 years.
Unamortized share compensation, which relates to options that were granted
at an exercise price below the fair market value at the time of grant, was fully
amortized in 1998. Compensation expense recognized during 1998 and 1997 was
$195,000, and $338,000, respectively.
A summary of the status of the Operating Partnership's plan at December 31,
1999, 1998 and 1997 and changes during the years then ended is presented in the
table and narrative below:
1999 1998 1997
------------------- ------------------- -------------------
WTD AVG WTD AVG WTD AVG
UNITS EX PRICE UNITS EX PRICE UNITS EX PRICE
--------- -------- --------- -------- --------- --------
Outstanding at beginning of year................... 1,030,660 $25.16 847,230 $23.67 888,950 $23.69
Granted............................................ 226,800 22.13 262,600 30.15 -- --
Exercised.......................................... (500) 23.80 (28,280) 23.94 (29,700) 23.68
Forfeited.......................................... (29,470) 26.94 (50,890) 26.94 (12,020) 24.41
--------- ------ --------- ------ ------- ------
Outstanding at end of year......................... 1,227,490 $24.55 1,030,660 $25.16 847,230 $23.67
--------- ------ --------- ------ ------- ------
Exercisable at end of year......................... 718,630 $23.97 592,320 $23.41 456,350 $23.37
Weighted average fair value of options granted..... $ 1.05 $ 1.60 --
The Operating Partnership has 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 officers and employees of the Operating
Partnership. The 401(k) Plan permits employees of the Operating Partnership, 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 the
Operating Partnership at a rate of compensation deferred to be determined
annually at the Operating Partnership's discretion. The matching contribution is
subject to vesting under a schedule providing for 20% annual vesting starting
with the third year of employment and 100% vesting after seven years of
employment. The employer matching contribution expense for the years 1999, 1998
and 1997 was immaterial.
F-20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following amounts are included in property operating expenses for the
years ended December 31, 1999, 1998 and 1997 (in thousands):
1999 1998 1997
-------- -------- --------
Advertising and promotion........................ $ 8,579 $ 9,069 $ 8,452
Common area maintenance.......................... 12,296 11,929 11,113
Real estate taxes................................ 7,396 6,202 5,004
Other operating expenses......................... 2,314 1,906 1,700
------- ------- -------
$30,585 $29,106 $26,269
======= ======= =======
12. LEASE AGREEMENTS
The Operating Partnership is the lessor of a total of 1,310 stores in 31
factory outlet centers, under operating leases with initial terms that expire
from 2000 to 2017. Most leases are renewable for five years at the lessee's
option. Future minimum lease receipts under noncancellable operating leases as
of December 31, 1999 are as follows (in thousands):
2000....................................................... $ 63,730
2001....................................................... 56,549
2002....................................................... 46,886
2003....................................................... 32,125
2004....................................................... 20,449
Thereafter................................................. 44,106
--------
$263,845
========
13. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, commitments for construction of new developments and
additions to existing properties amounted to $3.0 million. Commitments for
construction represent only those costs contractually required to be paid by the
Operating Partnership.
The Operating Partnership purchased the rights to lease land on which two of
the outlet centers are situated for $1,520,000. These leasehold rights are being
amortized on a straight-line basis over 30 and 40 year periods. Accumulated
amortization was $566,000 and $517,000 at December 31, 1999 and 1998,
respectively.
The Operating Partnership's noncancellable operating leases, with initial
terms in excess of one year, have terms that expire from 2000 to 2085. Annual
rental payments for these leases aggregated $1,481,000, 1,090,000, and $778,000,
for the years ended December 31, 1999, 1998 and 1997,
F-21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
respectively. Minimum lease payments for the next five years and thereafter are
as follows (in thousands):
2000........................................................ $ 1,821
2001........................................................ 1,759
2002........................................................ 1,705
2003........................................................ 1,550
2004........................................................ 1,507
Thereafter.................................................. 55,164
-------
$63,506
=======
The Operating Partnership is also subject to legal proceedings and claims
which have arisen in the ordinary course of its business and have not been
finally adjudicated. In management's opinion, the ultimate resolution of these
matters will have no material effect on the Operating Partnership's results of
operations or financial condition.
14. ACQUISITIONS
During 1998, the Operating Partnership completed the acquisitions of two
factory outlet centers containing approximately 359,000 square feet of gross
leasable area for purchase prices that aggregated $44.7 million. The
acquisitions were accounted for using the purchase method whereby the purchase
price was allocated to assets acquired based on their fair values. The results
of operations of the acquired properties have been included in the results of
operations since the applicable acquisition date.
The pro forma information is presented for informational purposes only and
may not be indicative of what actual results of operations would have been had
the acquisitions occurred at the beginning of each period presented, nor does it
purport to represent the results of operations for future periods. The following
unaudited summarized pro forma results of operations reflect adjustments to
present the historical information as if all of the acquisitions had occurred as
of January 1, 1998 (unaudited and in thousands, except per unit data).
1998
--------
Total revenues.............................................. $100,840
Income before extraordinary item............................ 16,366
Net income.................................................. 15,906
Basic net income per unit:
Income before extraordinary item.......................... 1.32
Net income................................................ 1.28
Diluted net income per unit:
Income before extraordinary item.......................... 1.31
Net income................................................ 1.27
F-22
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the financial statements of Tanger Properties Limited
Partnership is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page 26 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
PricewaterhouseCoopers LLP
Greensboro, North Carolina
January 26, 2000
F-23
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
COSTS CAPITALIZED
SUBSEQUENT TO
INITIAL COST ACQUISITION
TO COMPANY (IMPROVEMENTS)
DESCRIPTION ----------------------- -----------------------
- --------------------------------------- BUILDINGS, BUILDINGS,
OUTLET CENTER IMPROVEMENTS IMPROVEMENTS
NAME LOCATION ENCUMBRANCES LAND & FIXTURES LAND & FIXTURES LAND
- -------------- ---------------------- ------------ -------- ------------ -------- ------------ --------
Barstow Barstow, CA $ -- $ 3,941 $ 12,533 $ -- $ 1,110 $ 3,941
Blowing Rock Blowing Rock, NC -- 1,963 9,424 -- 2,032 1,963
Boaz Boaz, AL -- 616 2,195 -- 1,673 616
Bourne Bourne, MA -- 899 1,361 -- 255 899
Branch North Branch, MN -- 304 5,644 249 2,514 553
Branson Branson, MO -- 4,557 25,040 -- 6,146 4,557
Casa Grande Casa Grande, AZ -- 753 9,091 -- 1,233 753
Clover North Conway, NH -- 393 672 -- 246 393
Commerce I Commerce, GA 9,460 755 3,511 492 8,318 1,247
Commerce II Commerce, GA -- 1,262 14,046 541 16,986 1,803
Dalton Dalton, GA 11,658 1,641 15,596 -- 54 1,641
Ft. Lauderdale Ft. Lauderdale, FL 9,412 6,986 -- -- 9,412
Gonzales Gonzales, LA -- 947 15,895 17 3,908 964
Kittery-I Kittery, ME 6,634 1,242 2,961 229 1,288 1,471
Kittery-II Kittery, ME -- 921 1,835 529 236 1,450
Lancaster Lancaster, PA 15,351 3,691 19,907 -- 6,341 3,691
Lawrence Lawrence, KS -- 1,013 5,542 429 865 1,442
LL Bean North Conway, NH -- 1,894 3,351 -- 1,026 1,894
Locust Grove Locust Grove, GA -- 2,558 11,801 -- 7,304 2,558
Martinsburg Martinsburg, WV -- 800 2,812 -- 1,256 800
McMinnville McMinnville, OR -- 1,071 8,162 6 748 1,077
Nags Head Nags Head, NC -- 1,853 6,679 -- 1,016 1,853
Pigeon Forge Pigeon Forge, TN -- 299 2,508 -- 1,639 299
Riverhead Riverhead, NY -- -- 36,374 6,152 66,736 6,152
San Marcos San Marcos, TX 19,802 1,895 9,440 17 11,006 1,912
Sanibel Sanibel, FL -- 4,916 23,196 -- 2,121 4,916
Sevierville Sevierville, TN -- -- 18,495 -- 22,242 --
Seymour Seymour, IN -- 1,671 13,249 -- 693 1,671
Stroud Stroud, OK -- 446 2,242 -- -- 446
Terrell Terrell, TX -- 778 13,432 -- 4,387 778
West Branch West Branch, MI 7,401 350 3,428 121 4,382 471
Williamsburg Williamsburg, IA 20,346 706 6,781 716 11,221 1,422
------- ------- -------- ------ -------- -------
$90,652 $53,547 $314,189 $9,498 $188,982 $63,045
======= ======= ======== ====== ======== =======
GROSS AMOUNT
CARRIED AT
CLOSE OF PERIOD
12/31/99(1)
-----------------------
- -------------- BUILDINGS,
OUTLET CENTER IMPROVEMENTS
NAME & FIXTURES TOTAL
- -------------- ------------ --------
Barstow $ 13,643 $ 17,584
Blowing Rock 11,456 13,419
Boaz 3,868 4,484
Bourne 1,616 2,515
Branch 8,158 8,711
Branson 31,186 35,743
Casa Grande 10,324 11,077
Clover 918 1,311
Commerce I 11,829 13,076
Commerce II 31,032 32,835
Dalton 15,650 17,291
Ft. Lauderdale 6,986 16,398
Gonzales 19,803 20,767
Kittery-I 4,249 5,720
Kittery-II 2,071 3,521
Lancaster 26,248 29,939
Lawrence 6,407 7,849
LL Bean 4,377 6,271
Locust Grove 19,105 21,663
Martinsburg 4,068 4,868
McMinnville 8,910 9,987
Nags Head 7,695 9,548
Pigeon Forge 4,147 4,446
Riverhead 103,110 109,262
San Marcos 20,446 22,358
Sanibel 25,317 30,233
Sevierville 40,737 40,737
Seymour 13,942 15,613
Stroud 2,242 2,688
Terrell 17,819 18,597
West Branch 7,810 8,281
Williamsburg 18,002 19,424
-------- --------
$503,171 $566,216
======== ========
F-24
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
LIFE USED TO
COMPUTE
DEPRECIATION
OUTLET CENTER ACCUMULATED DATE OF IN INCOME
NAME DEPRECIATION CONSTRUCTION STATEMENT
- -------------------------------------------------------- ------------ ------------ ------------
Barstow................................................. $ 3,647 1995 (2)
Blowing Rock............................................ 786 1997(3) (2)
Boaz.................................................... 1,600 1988 (2)
Bourne.................................................. 757 1989 (2)
Branch.................................................. 2,966 1992 (2)
Branson................................................. 7,739 1994 (2)
Casa Grande............................................. 4,133 1992 (2)
Clover.................................................. 419 1987 (2)
Commerce I.............................................. 3,923 1989 (2)
Commerce II............................................. 4,454 1995 (2)
Dalton.................................................. 930 1998(3) (2)
Ft. Lauderdale.......................................... 44 1999(3) (2)
Gonzales................................................ 6,578 1992 (2)
Kittery-I............................................... 2,175 1986 (2)
Kittery-II.............................................. 923 1989 (2)
Lancaster............................................... 5,913 1994(3) (2)
Lawrence................................................ 1,839 1993 (2)
LL Bean................................................. 1,786 1988 (2)
Locust Grove............................................ 4,547 1994 (2)
Martinsburg............................................. 1,876 1987 (2)
McMinnville............................................. 3,021 1993 (2)
Nags Head............................................... 685 1997(3) (2)
Pigeon Forge............................................ 1,754 1988 (2)
Riverhead............................................... 14,376 1993 (2)
San Marcos.............................................. 4,984 1993 (2)
Sanibel................................................. 1,112 1998(3) (2)
Sevierville............................................. 2,878 1997(3) (2)
Seymour................................................. 3,920 1994 (2)
Stroud.................................................. 948 1992 (2)
Terrell................................................. 4,738 1994 (2)
West Branch............................................. 2,672 1991 (2)
Williamsburg............................................ 6,568 1991 (2)
-------- ------- --
$104,511
========
- ------------------------
(1) Aggregate cost for federal income tax purposes is approximately $559,611,000
(2) The Operating Partnership 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
F-25
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS)
The changes in total real estate for the three years ended December 31, 1999
are as follows:
1999 1998 1997
-------- -------- --------
Balance, beginning of year.................................. $529,247 $454,708 $358,361
Acquisition of real estate.................................. 15,500 44,650 37,500
Improvements................................................ 31,343 31,599 59,519
Dispositions and other...................................... (9,874) (1,710) (672)
-------- -------- --------
Balance, end of year........................................ $566,216 $529,247 $454,708
======== ======== ========
The changes in accumulated depreciation for the three years ended
December 31, 1999 are as follows:
1999 1998 1997
-------- -------- --------
Balance, beginning of year.................................. $ 84,685 $64,177 $46,907
Depreciation for the period................................. 23,095 20,873 17,327
Dispositions and other...................................... (3,269) (365) (57)
-------- ------- -------
Balance, end of year........................................ $104,511 $84,685 $64,177
======== ======= =======
F-26
PROSPECTUS
$100,000,000
TANGER FACTORY OUTLET CENTERS, INC.
PREFERRED SHARES, DEPOSITARY SHARES, COMMON SHARES AND COMMON SHARE WARRANTS
$100,000,000
TANGER PROPERTIES LIMITED PARTNERSHIP
DEBT SECURITIES
Tanger Factory Outlet Centers, Inc., may from time to time offer:
(1) our preferred shares, par value $.01 per share;
(2) our preferred shares represented by depositary shares;
(3) our common shares, par value $.01 per share; or
(4) warrants to purchase our common shares, with an aggregate public
offering price of up to $100,000,000 on terms to be determined at the
time of the offering.
Tanger Factory Outlet Centers, Inc is referred to in this prospectus as the
Company and Tanger Properties Limited Partnership referred to in this prospectus
as the Operating Partnership. The Operating Partnership may from time to time
offer in one or more series its unsecured debt securities, which may either be
senior or subordinated with an aggregate public offering price of up to
$100,000,000 on terms to be determined at the time of the offering.
The preferred shares, depositary shares, common shares, warrants to purchase
our common shares and debt securities may be offered, separately or together, in
separate series, in amounts, at prices and on terms that will be set forth in
one or more prospectus supplements to this prospectus. If any debt securities
issued by the Operating Partnership are rated below investment grade at the time
of issuance, then the Company will unconditionally guarantee the payment of
principal and a premium, if any, and interest on the debt securities so rated,
to the extent and on the terms described herein and in any accompanying
prospectus supplement to this prospectus. We may also guarantee debt securities
rated investment grade to the extent and on the terms described herein and in
the accompanying prospectus supplement.
The specific terms of the securities offered by this prospectus will be set
forth in each prospectus supplement and will include, where applicable:
-- in the case of our preferred shares, the specific title and stated value,
any dividend, liquidation, redemption, conversion, exchange, voting and
other rights, and any initial public offering price;
-- in the case of our depositary shares, the fractional share of preferred
shares represented by each such depositary share;
-- in the case of our common shares, any initial public offering price;
-- in the case of the warrants to purchase our common shares, the duration,
offering price, exercise price and detachability;
-- in the case of debt securities, the specific title, rank, aggregate
principal amount, currency, form (which may be registered or bearer, or
certificated or book-entry), authorized denominations, maturity, rate (or
manner of calculation thereof) and time of payment of interest, terms for
redemption at the option of the Operating Partnership or repayment at the
option of the holder, terms for sinking fund payments, applicability and
terms of any guarantee, and any initial public offering price; and
-- in addition, the specific terms may include limitations on direct or
beneficial ownership and restrictions on transfer, in each case as may be
appropriate to preserve our status as a real estate investment trust
("REIT") for federal income tax purposes.
Each prospectus supplement will also contain information, where applicable,
about United States federal income tax considerations, and any exchange listing
of, the securities covered by the prospectus supplement.
See "Risk Factors" beginning on page 4 of this Prospectus for a description
of certain factors that should be considered by purchasers of our securities.
Our common shares are traded on the New York Stock Exchange under the symbol
"SKT." On January 31, 2001, the last reported sale price of our common shares
was $22.20 per share.
Our securities may be offered directly, through agents designated from time
to time by us, or to or through underwriters or dealers. If any agents or
underwriters are involved in the sale of any of our securities, their names, and
any applicable purchase price, fee, commission or discount arrangement between
or among them, will be set forth, or will be calculable from the information set
forth, in the applicable prospectus supplement. None of our securities may be
sold without delivery of the applicable prospectus supplement describing the
method and terms of the offering of those securities.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is January 31, 2001.
2
PROSPECTUS
PAGE
----
The Company and the Operating Partnership................... 3
Risk Factors................................................ 4
Use of Proceeds............................................. 6
Ratios of Earnings to Fixed Charges and Earnings to Combined
Fixed Charges and Preferred Share Dividends............... 6
Where You Can Find More Information......................... 7
Forward-Looking Statements.................................. 8
Description of Debt Securities.............................. 8
Description of Common Shares................................ 26
Description of Common Share Warrants........................ 28
Description of Preferred Shares............................. 29
Description of Depositary Shares............................ 39
Material Federal Income Tax Considerations to Tanger Factory
Outlet Centers, Inc....................................... 43
Tax Aspects of the Operating Partnership.................... 50
Plan of Distribution........................................ 52
Experts..................................................... 53
Legal Matters............................................... 53
THE COMPANY AND THE OPERATING PARTNERSHIP
We are one of the largest owners and operators of factory outlet centers in
the United States. We are organized to operate as an equity real estate
investment trust, or REIT. We are a fully-integrated, self-administered and
self-managed real estate company that focuses exclusively on developing,
acquiring, owning and operating factory outlet centers. We provide all
development, leasing and management services for our centers. As of
December 31, 2000, we owned and operated 29 centers with a total gross leasable
area, or GLA, of approximately 5.2 million square feet. These centers were 96%
occupied, contained approximately 1,100 stores and represented over 250 store
brands as of such date.
The Company's wholly owned subsidiary, Tanger GP Trust, serves as the
general partner of the Operating Partnership. The factory outlet centers and
other assets of the Company's business are owned by, and all of its operations,
are conducted by the Operating Partnership. Accordingly, the descriptions of the
business, employees and properties of the Company are also descriptions of the
business, employees and properties of the Operating Partnership.
3
ORGANIZATIONAL CHART
[LOGO]
In order to maintain our qualification as a REIT for federal income tax
purposes, we are required to distribute at least 90% of our taxable income each
year.
The Company and the Operating Partnership are organized under the laws of
the state of North Carolina and maintain their principal executive offices at
3200 Northline Avenue, Suite 360, Greensboro, North Carolina 27408.
RISK FACTORS
You should carefully consider the following risk factors and other
information in this prospectus and the related prospectus supplement before
deciding to buy our securities:
WE FACE COMPETITION FROM SEVERAL REAL ESTATE COMPANIES.
Numerous developers and real estate companies are engaged in the development
or ownership of manufacturers' outlet centers and other commercial properties
and compete with us in seeking tenants for outlet centers. This results in
competition for the acquisition of prime properties and for tenants who will
lease space in our existing and subsequently acquired outlet centers.
THE MANUFACTURER'S OUTLET CENTER INDUSTRY HAS A RELATIVELY SHORT OPERATING
HISTORY, THEREFORE PAST PERFORMANCE MAY NOT BE INDICATIVE OF OUR FUTURE
PERFORMANCE.
Although the manufacturers' outlet center industry has grown over the last
several years, the industry represents a relatively new segment of the retailing
industry and, therefore, the long-term performance of these centers may not be
comparable to, and cash flows may not be as predictable as, traditional retail
malls.
THE ECONOMIC PERFORMANCE AND THE VALUE OF OUR MANUFACTURER'S OUTLET CENTERS
ARE DEPENDENT ON SEVERAL MARKET FACTORS.
Real property investments are subject to varying degrees of risk. The
economic performance and values of real estate may be affected by many factors,
including changes in the national, regional and local economic climate, local
conditions such as an oversupply of space or a reduction in demand for real
estate in the area, the attractiveness of the properties to tenants, competition
from other available space, the ability of the owner to provide adequate
maintenance and insurance and increased operating costs.
4
WE MAY BE UNABLE TO SUCCESSFULLY BID FOR AND DEVELOP ECONOMICALLY ATTRACTIVE
MANUFACTURER'S OUTLET CENTERS.
We intend to actively pursue manufacturers' outlet center development
projects, including the expansion of existing centers. These projects generally
require expenditure of capital on projects that may not be completed as well as
various forms of government and other approvals. We cannot be assured that we
will be able to get financing on acceptable terms or be able to get the
necessary approvals.
OUR EARNINGS AND THEREFORE OUR PROFITABILITY IS ENTIRELY DEPENDENT ON RENTAL
INCOME FROM REAL PROPERTY.
Substantially all of our income is derived from rental income from real
property. Our income and funds for distribution would be adversely affected if a
significant number of our tenants were unable to meet their obligations to us or
if we were unable to lease a significant amount of space in our centers on
economically favorable lease terms. In addition, the terms of manufacturers'
outlet store tenant leases traditionally have been significantly shorter than in
traditional segments of retailing. There can be no assurance that any tenant
whose lease expires in the future will renew such lease or that we will be able
to re-lease space on economically favorable terms.
WE ARE SUBSTANTIALLY DEPENDENT ON THE SUCCESS OF OUR RETAILERS TO GENERATE
SALES.
Our operations are necessarily subject to the changes in operations of our
retail tenants. A portion of our rental revenues are derived from percentage
rents that directly depend on the sales volume of certain tenants. In addition,
in recent years, a number of retailers have experienced financial difficulties.
The bankruptcy of a major tenant or number of tenants may have a material
adverse effect on our results of operations.
WE MAY BE SUBJECT TO ENVIRONMENTAL REGULATION.
Under various federal, state and local laws, ordinances and regulations, we
may be considered an owner or operator of real property and may be responsible
for paying for the disposal or treatment of hazardous or toxic substances
released on or in our property or disposed of by us, as well as certain other
potential costs which could relate to hazardous or toxic substances (including
governmental fines and injuries to persons and property). This liability may be
imposed whether or not we knew about, or were responsible for, the presence of
hazardous or toxic substances.
WE ARE REQUIRED BY LAW TO MAKE DISTRIBUTIONS TO OUR SHAREHOLDERS.
To obtain the favorable tax treatment associated with our REIT status,
generally, we will be required to distribute to our common and preferred
shareholders at least 90% of our net taxable income each year. We depend upon
distributions or other payments from the Operating Partnership to make
distributions to our common and preferred shareholders.
OUR FAILURE TO QUALIFY AS A REIT COULD SUBJECT OUR EARNINGS TO CORPORATE
LEVEL TAXATION.
We believe that we have operated and intend to operate in a manner so as to
permit us to qualify as a REIT under the Internal Revenue Code of 1986, as
amended. However, no assurance can be given that we have qualified or will
remain qualified as a REIT. If in any taxable year we were to fail to qualify as
a REIT, we would not be allowed a deduction for distributions to shareholders in
computing taxable income and would be subject to federal income tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. Such a failure to qualify for taxation as a REIT is likely to
have an adverse effect on the market value and marketability of our securities.
5
WE DEPEND ON DISTRIBUTIONS FROM OUR OPERATING PARTNERSHIP TO MEET OUR
FINANCIAL OBLIGATIONS, INCLUDING GUARANTEE OBLIGATIONS.
Our operations are conducted by the operating partnership, and our only
asset is our interests in the Operating Partnership. As a result, we depend upon
distributions or other payments from the Operating Partnership in order to meet
our financial obligations, including our obligations under any guarantees or to
pay dividends to our common and preferred shareholders. Any guarantee will be
effectively subordinated to existing and future liabilities of the Operating
Partnership. At September 30, 2000, the Operating Partnership had
$337.0 million of indebtedness outstanding, of which $135.8 million was secured
debt. The Operating Partnership is a party to loan agreements with various bank
lenders which requires the Operating Partnership to comply with various
financial and other covenants before it may make distributions to us. Although
the Operating Partnership presently is in compliance with such covenants, there
is no assurance that it will continue to be in compliance and that it will be
able to continue to make distributions to us.
USE OF PROCEEDS
We intend to contribute all of the proceeds from the sale of securities of
the Company to the Operating Partnership. Unless otherwise described in the
applicable prospectus supplement, the Operating Partnership intends to use the
net proceeds from the sale of our securities for general purposes, which may
include the development or the acquisition of additional portfolio properties as
suitable opportunities arise, the expansion and improvement of certain centers
in the Operating Partnership's portfolio, and the repayment of certain secured
or unsecured indebtedness outstanding at such time.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED SHARE DIVIDENDS
The following table set forth ratios of earnings to fixed charges and
earnings to combined fixed charges and preferred share dividends for the periods
shown. The ratios of earnings to fixed charges were computed by dividing
earnings by fixed charges. For this purpose, earnings consist of net income
before income before gain or (loss) on sale of real estate, minority interest
and extraordinary items plus fixed charges. Fixed charges consist of interest
costs (including capitalized interest), amortization of debt issuance costs and
that portion of rental expense estimated to be attributed to interest.
RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- -------------------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
- --------------------- -------- -------- -------- -------- -------- --------
1.46 1.58 1.61 1.62 1.82 1.98 2.22
RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED
SHARE DIVIDENDS
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
- -------------------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
- --------------------- -------- -------- -------- -------- -------- --------
1.37 1.47 1.50 1.50 1.66 1.71 1.79
6
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, or SEC, a
registration statement on Form S-3 (Reg. No. 333-39365/333-39365-01) with
respect to the securities we are offering. This prospectus does not contain all
the information contained in the registration statement, including its exhibits
and schedules. You should refer to the registration statement, including the
exhibits and schedules, for further information about us and the securities we
are offering. Statements we make in this prospectus about certain contracts or
other documents are not necessarily complete. When we make such statements, we
refer you to the copies of the contracts or documents that are filed as exhibits
to the registration statement, because those statements are qualified in all
respects by reference to those exhibits. The registration statement, including
exhibits and schedules, is on file at the offices of the SEC and may be
inspected without charge.
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings, including the registration statement,
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You also may read and copy any document we file at the SEC's
public reference rooms in Washington, D.C.; New York, New York; and Chicago,
Illinois. Please call the SEC at 1-800-SEC-0330 for further information about
their public reference rooms.
SEC rules allow us to include some of the information required to be in the
registration statement by incorporating that information by reference to
documents we file with them. That means we can disclose important information to
you by referring you those documents. The information incorporated by reference
is an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings made with the SEC
under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act (other than
information in such documents that is deemed not to be filed) until we sell all
of the securities covered by this prospectus:
- Annual Report on Form 10-K for the year ended December 31, 1999;
- Quarterly Report on Form 10-Q for the quarter ended March 31, 2000;
- Quarterly Report on Form 10-Q for the quarter ended June 30, 2000;
- Quarterly Report on Form 10-Q for the quarter ended September 30, 2000;
- Current Reports on Form 8-K, filed on January 29, 2001 and January 31,
2001; and
- Proxy Statement on Schedule 14A, dated May 16, 2000.
You may request a copy of any filings referred to above (excluding exhibits), at
no cost, by contacting us at the following address:
Tanger Factory Outlet Centers, Inc.
Attention: Investor Relations
3200 Northline Avenue, Suite 360
Greensboro, NC 27408
(336) 292-3010
7
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to risks,
uncertainties, and assumptions about the Company and the Operating Partnership,
including, among other things:
-- our anticipated growth strategies;
-- our intention to acquire additional properties;
-- anticipated trends in our business, including trends in the market for
long-term net leases of freestanding, multiple tenant manufacturer's
outlet center properties;
-- future expenditures for development projections; and
-- availability of capital to finance our business.
Additional factors that may cause risks, uncertainties and assumptions
include those discussed in the section entitled "Business" in our Annual Report
on Form 10-K for the fiscal year ended December 31, 1999 (the "Annual Report"),
including the subheadings entitled "The Company's Factory Outlet Center," "The
Factory Outlet Concept," "Business and Operating Strategy," "Capital Strategy,"
"Competition" and "Recent Developments," and the section entitled "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report and in our Quarterly Report on Form 10-Q for the quarter ended
September 30, 2000.
You should rely only on the information contained or incorporated by
reference in this prospectus and in any accompanying prospectus supplement. We
have not authorized any other person to provide you with different information.
If anyone provides you with different or inconsistent information, you should
not rely on it. We are not making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus, as well as information we
previously filed with the SEC and incorporated by reference, is accurate as of
its date only. Our business, financial condition, results of operations and
prospects may have changed since those dates.
DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description of the terms of the debt securities sets forth
certain general terms and provisions of our debt securities to which any
prospectus supplement may relate. The particular terms of the debt securities
being offered, the extent, if any, to which such general provisions may apply to
our debt securities and any modifications of or additions to the general terms
of the debt securities applicable in the case of the debt securities will be
described in the prospectus supplement relating to such debt securities.
Our senior debt securities will be issued under an indenture, dated as of
March 1, 1996 between the Operating Partnership, the Company and State Street
Bank and Trust Company, as trustee and the subordinated debt securities are to
be issued under an indenture to be dated as of a date on or prior to the first
issuance of subordinated debt securities, as supplemented from time to time
between the Operating Partnership, the Company and State Street Bank and Trust
Company, as trustee. The senior indenture was filed as an exhibit to our Current
Report on Form 8-K dated January 31, 2001 and the form of the subordinated
indenture was filed as an exhibit to the Registration Statement of which this
prospectus is a part and are available for inspection at the corporate trust
office of the trustee at 61 Broadway, 15th Floor, New York, New York 10006 or as
described above under "Where You Can Find More Information."
8
The indentures are subject to, and governed by, the Trust Indenture Act of
1939, as amended, or the TIA. The statements made hereunder relating to the
indentures and the debt securities to be issued thereunder are summaries of
certain provisions of those agreements and are not complete and are subject to,
and are qualified in their entirety by reference to, all provisions of the
Indentures and such debt securities.
Our debt securities will be direct, unsecured obligations of the Operating
Partnership. The indebtedness represented by the senior debt securities will
rank equally with all other unsecured and unsubordinated indebtedness of the
Operating Partnership. The indebtedness represented by the subordinated debt
securities will be subordinated in right of payment to the prior payment in full
of all senior indebtedness of the Operating Partnership (including the senior
debt securities) as described under "Subordination" below. The indentures
provide that our debt securities may be issued without limit as to aggregate
principal amount, in one or more series, in each case as established from time
to time in or pursuant to authority granted by a resolution of the general
partner of the Operating Partnership or as established in one or more indentures
supplemental to the indenture. All debt securities of one series need not be
issued at the same time and may vary as to interest rate or formula, maturity
and other provisions and, unless otherwise provided, a series may be reopened,
without the consent of the holders of the debt securities of such series, for
issuances of additional debt securities of such series.
If any of the debt securities are rated below investment grade by any
nationally recognized statistical rating organization at the time of issuance,
such debt securities will be unconditionally guaranteed by Tanger Factory Outlet
Centers Inc. as to payment of principal, premium, if any, and interest in
respect thereof.
The indentures provide or will provide that we may, but need not, designate
more than one trustee for the indenture, each with respect to one or more series
of our debt securities. Any trustee under an indenture may resign or be removed
with respect to one or more series of our debt securities, and a successor
trustee may be appointed to act with respect to that series. If two or more
persons are acting as trustee to different series of our debt securities, each
trustee shall be a trustee of a trust under the applicable indenture separate
and apart from the trust administered by any other trustee and, except as
otherwise indicated in this prospectus, any action taken by a trustee may be
taken by that trustee with respect to, and only with respect to, the one or more
series of debt securities for which it is trustee under the applicable
indenture.
This summary sets forth certain general terms and provisions of the
indentures, our debt securities and any guarantee. For a detailed description of
a specific series of debt securities, you should consult the prospectus
supplement for that series. The prospectus supplement may contain any of the
following information where applicable:
(1) the title of those debt securities;
(2) the aggregate principal amount of those debt securities and any limit on
the aggregate principal amount;
(3) the percentage of the principal amount at which those debt securities
will be issued and, if other than 100% of the principal amount thereof,
the portion of the principal amount payable upon acceleration of the
maturity;
(4) the date or dates, or the method for determining the date or dates, on
which the principal of (and premium, if any, on) those debt securities
will be payable;
(5) the rate or rates (which may be fixed or variable), or the method by
which the rate or rates shall be determined, at which those debt
securities will bear interest, if any;
(6) the date or dates, or the method for determining the date or dates, from
which any interest will accrue, the dates upon which that interest will
be payable, the record dates for Payment
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of that interest, or the method by which any of those dates shall be
determined, the persons to whom that interest shall be payable, and the
basis upon which that interest shall be calculated if other than that of
a 360-day year of twelve 30-day months;
(7) the place or places where the principal of (and premium, if any) and
interest, if any, on debt securities will be payable, where debt
securities may be surrendered for registration of transfer or exchange
and where notices or demands to or upon the Operating Partnership or the
Company, as applicable, relating to the debt securities, any applicable
guarantees and the applicable Indenture may be served;
(8) the date or dates on which, the period or periods within which, the
price or prices at which and the terms and conditions upon which those
debt securities may be redeemed, as a whole or in part, at the option of
the Operating Partnership, if the Operating Partnership is to have such
an option;
(9) the obligation, if any, of the Operating Partnership to redeem, repay or
purchase those debt securities pursuant to any sinking fund or analogous
provision or at the option of a holder of those debt securities of the
Operating Partnership to offer to redeem, repay or purchase those debt
securities, and the date or dates on which, the period or periods within
which, the price or prices at which and the terms and conditions upon
which such those debt securities will be redeemed, repaid or purchased,
as a whole or in part, pursuant to this obligation;
(10) if other than U.S. dollars, the currency or currencies in which those
debt securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite
currency or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if any) or
interest, if any, on those debt securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not, be, based on one or more currencies, currency
units or composite currencies) and the manner in which those amounts
shall be determined;
(12) any additions to, modifications of or deletions from the terms of the
events of default or covenants with respect to those debt securities;
(13) whether those debt securities will be issued in certificated or
book-entry form or both, and, if so, the identity of the depositary and
the terms of the depositary arrangement for those debt securities;
(14) whether those debt securities will be in registered or bearer form and,
if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the
denominations thereof if other than $5,000 and terms and conditions
relating thereto;
(15) with respect to those series of debt securities rated below investment
grade at the time of issuance, the applicability and specific terms of
the related guarantees;
(16) if the defeasance and covenant defeasance provisions of the applicable
indenture for those debt securities are to be inapplicable, or any
modifications to such provisions;
(17) whether and under what circumstances the Operating Partnership will pay
additional amounts as contemplated in the applicable indenture on those
debt securities in respect of any tax, assessment or governmental charge
and, if so, whether the Operating Partnership will have the option to
redeem such debt securities in lieu of making such payment;
(18) if other than the trustee, the identity of each security registrar
and/or paying agent; and
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(19) any other terms of those debt securities not inconsistent with the
provisions of the applicable indenture.
The debt securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof.
Any material, special U.S. federal income tax, accounting and other
considerations applicable to Original Issue Discount Securities will be
described in the applicable prospectus supplement.
Except as described in "Merger, Consolidation or Sale" or as may be set
forth in the applicable prospectus supplement, the indentures do not contain any
provisions that would limit the ability of the Operating Partnership or the
Company to incur indebtedness or that would afford holders of debt securities
protection in the event of:
(1) a highly leveraged or similar transaction involving the Operating
Partnership, the management of the Operating Partnership or the Company,
or any affiliate of any such party,
(2) a change of control, or
(3) a reorganization, restructuring, merger or similar transaction involving
the Operating Partnership or the Company that may adversely affect the
holders of the debt securities.
However, our organizational documents contain certain restrictions on
ownership and transfers of our common shares and preferred shares that are
designed to preserve our status as a REIT and may act to prevent or hinder a
change of control. See "Description of Common Shares" and "Description of
Preferred Shares." In addition, subject to the limitations set forth under
"Merger, Consolidation or Sale," the Operating Partnership or the Company may,
in the future, enter into certain transactions, such as the sale of all or
substantially all of its assets or the merger or consolidation of the Operating
Partnership or the Company, that would increase the amount of the Operating
Partnership's indebtedness or substantially reduce or eliminate the Operating
Partnership's assets, which may have an adverse effect on the Operating
Partnership's ability to service its indebtedness, including the debt
securities.
Reference is made to the applicable prospectus supplement for information
with respect to any deletions from, modifications of or additions to the events
of default or covenants of the Company and the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection. Reference is made to "Certain
Covenants" below and to the description of any additional covenants with respect
to a series of Debt Securities in the applicable prospectus supplement. Except
as otherwise described in the applicable prospectus supplement, compliance with
such covenants generally may not be waived with respect to a series of debt
securities by the Board of Directors of the Company as sole shareholder of the
general partner of the Operating Partnership or by the trustee unless the
holders of at least a majority in principal amount of all outstanding debt
securities of such series consent to such waiver, except to the extent that the
defeasance and covenant defeasance provisions of the indenture described under
"Discharge, Defeasance and Covenant Defeasance" below apply to such series of
debt securities. See "Modification of the Indenture."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable prospectus supplement, the debt
securities of any series which are registered securities, other than registered
securities issued in book-entry form (which may be in any denomination) will be
issuable in denominations of $1,000 and integral multiples thereof, and the debt
securities which are bearer securities, other than bearer securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $5,000.
Unless otherwise specified in the applicable prospectus supplement, the
principal of (and premium, if any) and interest on any series of debt securities
will be payable at the corporate trust office of the
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applicable trustee PROVIDED that, at the option of the Operating Partnership,
payment of interest may be made by check mailed to the address of the person
entitled thereto as it appears in the security register or by wire transfer of
funds to such person at an account maintained within the United States.
Any interest not punctually paid or duly provided for on any interest
payment date with respect to a debt security will forthwith cease to be payable
to the holder on the applicable record date and may either be paid to the person
in whose name such debt security is registered at the close of business on a
special record date for the payment of such defaulted interest to be fixed by
the applicable trustee, notice whereof shall be given to the holder of such debt
security not less than 10 days prior to such special record date, or may be paid
at any time in any other lawful manner, all as more completely described in the
indenture.
Subject to certain limitations imposed upon debt securities issued in
book-entry form, the debt securities of any series will be exchangeable for
other debt securities of the same series and rank and of a like aggregate
principal amount and tenor of different authorized denominations upon surrender
of such debt securities at the corporate trust office of the applicable trustee
referred to above. In addition, subject to certain limitations imposed upon debt
securities issued in book-entry form, the debt securities of any series may be
surrendered for registration of transfer thereof at the corporate trust office
of the applicable trustee. Every debt security surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any debt securities, but the Operating Partnership may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable prospectus supplement
refers to any transfer agent (in addition to the applicable trustee) initially
designated by the Operating Partnership with respect to any series of debt
securities, the Operating Partnership may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Operating Partnership will be required
to maintain a transfer agent in each place of payment for such series. The
Operating Partnership may at any time designate additional transfer agents with
respect to any series of debt securities.
Neither the Operating Partnership nor the applicable trustee shall be
required to:
(1) issue, register the transfer of or exchange any debt securities if such
debt security may be among those selected for redemption during a period
beginning at the opening of business 15 days before selection of the debt
securities to be redeemed and ending at the close of business on the day
of such selection;
(2) register the transfer of or exchange any registered security, or portion
thereof, called for redemption, except the unredeemed portion of any
registered security being redeemed in part; or
(3) issue, register the transfer of or exchange any debt security which has
been surrendered for repayment at the option of the holder, except the
portion, if any, of such debt security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
Each Indenture provides that the Operating Partnership or the Company may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity PROVIDED that:
(1) either the Operating Partnership or the Company, as the case may be,
shall be the continuing entity, or the successor entity (if other than
the Operating Partnership or the Company, as the case may be) formed by
or resulting from any such consolidation or merger or which shall have
received the transfer of such assets shall expressly assume payment of
the principal of (and premium, if any) and interest on all of the debt
securities issued under such indenture, in
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the case of any successor to the Operating Partnership, or any applicable
guarantee, in the case of any successor to the Company and the due and
punctual performance and observance of all of the covenants and
conditions contained in such indenture and, as applicable, such debt
securities or guarantees;
(2) immediately after giving effect to such transaction no event of default,
and no event which, after notice or the lapse of time, or both, would
become such an event of default, under such indenture shall have occurred
and be continuing; and
(3) an officer's certificate and legal opinion covering such conditions
shall be delivered to the applicable trustee.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. The Operating Partnership will
not, and will not permit any Subsidiary to, incur any Indebtedness (as defined
below), other than Permitted Indebtedness (as defined below), if, immediately
after giving effect to the incurrence of such additional Indebtedness, the
aggregate principal amount of all outstanding Indebtedness of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with U.S. generally accepted accounting principles, or GAAP, is
greater than 60% of the sum of:
(1) the Operating Partnership's Total Assets (as defined below) as of the
end of the calendar quarter covered in the Operating Partnership's Annual
Report on Form 10-K or Quarterly Report on Form 10-Q, as the case may be,
most recently filed with the Commission (or, if such filing is not
permitted under the Exchange Act, with the Trustee) prior to the
incurrence of such additional Indebtedness; and
(2) any increase in the Total Assets since the end of such quarter
including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Indebtedness (such increase
together with the Total Assets being referred to as the "Adjusted Total
Assets").
In addition to the other limitations on the incurrence of Indebtedness, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Indebtedness if, for the period consisting of the four consecutive fiscal
quarters most recently ended prior to the date on which such additional
Indebtedness is to be incurred, the ratio of Consolidated Income Available for
Debt Service (as defined below) to the Annual Service Charge (as defined below)
shall have been less than 2.0 to 1, on a pro forma basis after giving effect to
the incurrence of such Indebtedness and to the application of the proceeds
therefrom, and calculated on the assumption that:
(1) such Indebtedness and any other Indebtedness incurred by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter
period and the application of the proceeds therefrom, including to
refinance other Indebtedness, had occurred at the beginning of such
period;
(2) the repayment or retirement of any other Indebtedness by the Operating
Partnership or its Subsidiaries since the first day of such four-quarter
period had been incurred, repaid or retired at the beginning of such
period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based
upon the average daily balance of such Indebtedness during such period);
(3) any income earned as a result of any increase in Adjusted Total Assets
since the end of such four-quarter period had been earned, on an
annualized basis, during such period; and
(4) in the case of an acquisition or disposition by the Operating
Partnership or any Subsidiary or any asset or group of assets since the
first day of such four-quarter period, including, without limitation, by
merger, stock purchase or sale, or asset purchase or sale, such
acquisition or disposition or any related repayment of Indebtedness had
incurred as of the first day of such
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period with the appropriate adjustments with respect to such acquisition
or disposition being included in such pro forma calculation.
In addition to the other limitations on the incurrence of Indebtedness, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Secured Indebtedness (as defined below), whether owned at the date of the
indenture or thereafter acquired, if, immediately after giving effect to the
incurrence of such additional Secured Indebtedness, the aggregate principal
amount of all outstanding Secured Indebtedness of the Operating Partnership and
its Subsidiaries on a consolidated basis is greater than 40% of the Operating
Partnership's Adjusted Total Assets.
For purposes of this covenant, Indebtedness is deemed to be "incurred" by
the Operating Partnership or its Subsidiaries on a consolidated basis whenever
the Operating Partnership and its Subsidiaries on a consolidated basis shall
create, assume, guarantee or otherwise become liable in respect thereof.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The Operating
Partnership will not make any distribution, by reduction of capital or otherwise
(other than distributions payable in securities evidencing interests in the
Operating Partnership's capital for the purpose of acquiring interests in real
property or otherwise) unless, immediately after giving pro forma effect to such
distribution:
(a) no default under the Indenture or event of default under any mortgage,
indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Operating
Partnership, the Company or any Subsidiary shall have occurred or be
continuing and
(b) the aggregate sum of all distributions made after the date of the
Indenture shall not exceed the sum of
(i) 95% of the aggregate cumulative Funds From Operations (as defined
below) of the Operating Partnership accrued on a cumulative basis
from the date of the Indenture until the end of the last fiscal
quarter prior to the contemplated payment, and
(ii) the aggregate Net Cash Proceeds (as defined below) received by the
Operating Partnership after the date of the Indenture from the
issuance and sale of Capital Stock (as defined below) of the
Operating Partnership or the Company to the extent such proceeds
are contributed to the Operating Partnership; PROVIDED, HOWEVER,
that the foregoing limitation shall not apply to any distribution
or other action which is necessary to maintain the Company's status
as a REIT under the Code, if the aggregate principal amount of all
outstanding Indebtedness of the Company and the Operating
Partnership on a consolidated basis at such time is less than 60%
of Adjusted Total Assets.
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," each
of the Company and the Operating Partnership will be required to do or cause to
be done all things necessary to preserve and keep in full force and effect its
existence, rights and franchises; PROVIDED, HOWEVER, that neither the Company
nor the Operating Partnership shall be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
MAINTENANCE OF CENTERS. Each of the Company and the Operating Partnership
will be required to cause all of its material properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements,
14
betterments and improvements thereof, all as in the judgment of the Company and
the Operating Partnership may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the Operating Partnership, the Company and its
Subsidiaries shall not be prevented from selling or otherwise disposing for
value their respective properties except as otherwise provided in "Merger,
Consolidation or Sale."
INSURANCE. The Company and the Operating Partnership will be required to,
and will be required to cause each of its respective Subsidiaries to, keep all
of its insurable properties insured against loss or damage at least equal to
their then full insurable value with insurers of recognized responsibility and
having a rating of at least A:VIII in Best's Key Rating Guide.
PAYMENT OF TAXES AND OTHER CLAIMS. Each of the Company and the Operating
Partnership will be required to pay or discharge or cause to be paid or
discharged, before the same shall become delinquent,
(1) all taxes, assessments and governmental charges levied or imposed upon
it or any Subsidiary or upon the income, profits or property of it or any
Subsidiary; and
(2) all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien upon the property of the Operating
Partnership, the Company or any Subsidiary; PROVIDED, HOWEVER, that
neither the Company nor the Operating Partnership shall be required to
pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. Whether or not the Operating
Partnership or the Company is subject to Section 13 or 15(d) of the Exchange Act
and for so long as any debt securities are outstanding, the Company and the
Operating Partnership will, to the extent permitted under the Exchange Act, be
required to file with the Commission the annual reports, quarterly reports and
other documents which the Company and the Operating Partnership would have been
required to file with the Commission pursuant to such Section 13 or 15(d) of the
Exchange Act (the "Financial Statements") if the Company and the Operating
Partnership were so subject, such documents to be filed with the Commission on
or prior to the respective dates (the "Required Filing Dates") by which the
Company and the Operating Partnership would have been required so to file such
documents if the Company and the Operating Partnership were so subject.
The Company and the Operating Partnership will also in any event (x) within
15 days of each Required Filing Date
(1) transmit by mail to all Holders of debt securities, as their names and
addresses appear in the Security Register, without cost to such Holders
copies of the annual reports and quarterly reports which the Company and
the Operating Partnership would have been required to file with the
Commission pursuant to Sections 13 or 15(d) of the Exchange Act if the
Company and the Operating Partnership were subject to such Sections, and
(2) file with the applicable trustee, copies of the annual reports,
quarterly reports and other documents which the Company and the
Operating Partnership would have been required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act if the
Company and the Operating Partnership were subject to such Sections, and
(y) if filing such documents by the Company and the Operating Partnership with
the Commission is not permitted under the Exchange Act, promptly upon written
request and payment of the reasonable cost of duplication and delivery, supply
copies of such documents to any prospective Holder.
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DEFINITIONS USED FOR THE DEBT SECURITIES
As used herein,
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed or
capitalized in the immediately preceding four fiscal quarter period for interest
on Indebtedness, excluding amounts relating to the amortization of deferred
financing costs.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or hereafter
issued.
"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries
(1) plus amounts which have been deducted for
(a) interest on Indebtedness of the Operating Partnership and its
Subsidiaries,
(b) provision for taxes of the Operating Partnership and its Subsidiaries
based on income,
(c) amortization of debt discount,
(d) depreciation and amortization,
(e) the effect of any noncash charge resulting from a change in
accounting principles in determining Consolidated Net Income for such
period,
(f) amortization of deferred charges, and
(g) provisions for or realized losses on properties,
(2) less amounts which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with GAAP.
"FUNDS FROM OPERATIONS," or FFO, means for any period the Consolidated Net
Income of the Operating Partnership and its Subsidiaries for such period without
giving effect to depreciation and amortization uniquely significant to real
estate, gains or losses from extraordinary items, gains or losses on sales of
real estate, gains or losses with respect to the disposition of investments in
marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint ventures,
all determined on a consistent basis.
"INDEBTEDNESS" means any indebtedness, whether or not contingent, in respect
of
(1) borrowed money evidenced by bonds, notes, debentures or similar
instruments,
(2) indebtedness secured by any mortgage, pledge, lien, charge, encumbrance
or any security interest existing on property,
(3) the reimbursement obligations, contingent or otherwise, in connection
with any letters of credit actually issued or amounts representing the
balance deferred and unpaid of the purchase price of any property except
any such balance that constitutes an accrued expense or trade payable; or
(4) any lease of property as lessee which would be reflected on a
consolidated balance sheet as a capitalized lease in accordance with
GAAP, in the case of items of indebtedness under (1) through (3) above to
the extent that any such items (other than letters of credit) would
appear as a liability on a consolidated balance sheet in accordance with
GAAP, and also
16
includes, to the extent not otherwise included, any obligation to be liable for,
or to pay, as obligor, guarantor or otherwise (other than for purposes of
collection in the ordinary course of business), indebtedness of another person.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"PERMITTED INDEBTEDNESS" means Indebtedness of the Operating Partnership,
the Company or any Subsidiary owing to any Subsidiary, the Company or the
Operating Partnership pursuant to an intercompany note, PROVIDED that such
Indebtedness is expressly subordinated in right of payment to the Securities;
PROVIDED FURTHER that any disposition, pledge or transfer of such Indebtedness
to a Person (other than the Operating Partnership or another Subsidiary) shall
be deemed to be an incurrence of such Indebtedness by the Operating Partnership,
the Company or a Subsidiary, as the case may be, and not Permitted Indebtedness
as defined herein.
"SECURED INDEBTEDNESS" means any Indebtedness secured by any mortgage,
pledge, lien, charge, encumbrance or security interest of any kind upon any
property of the Operating Partnership or any Subsidiary.
"SUBSIDIARY" means any entity of which at the time of determination the
Operating Partnership or one or more other Subsidiaries owns or controls,
directly or indirectly, more than 50% of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (1) Undepreciated Real Estate
Assets and (2) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with GAAP (but
excluding intangibles and accounts receivables).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with GAAP.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees (or persons performing similar functions), PROVIDED that stock that
carries only the right to vote conditionally on the happening of an event shall
not be considered Voting Stock.
ADDITIONAL COVENANTS
Any additional or different covenants of the Company and the Operating
Partnership with respect to any series of debt securities will be set forth in
the prospectus supplement relating thereto.
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EVENTS OF DEFAULT, NOTICE AND WAIVER
Under each indenture, an event of default with respect to any series of debt
securities issuable thereunder means any one of the following events:
(1) default for 30 days in the payment of any installment of interest on any
debt security of any series when due and payable;
(2) default in the payment of the principal of (or premium, if any, on) any
debt security of such series at its maturity;
(3) default in making any sinking fund payment as required for any debt
security of such series;
(4) default in the performance, or breach, of any covenant or warranty
contained in the applicable indenture (other than a covenant added to the
applicable indenture solely for the benefit of a series of debt
securities issued thereunder other than that series), continued for
60 days after written notice as provided in the applicable indenture;
(5) default in the payment of an aggregate principal amount exceeding
$5,000,000 of any evidence of recourse indebtedness of the Operating
Partnership or the Company or any mortgage, indenture or other instrument
under which such indebtedness is issued or by which such indebtedness is
secured, such default having occurred after the expiration of any
applicable grace period and having resulted in the acceleration of the
maturity of such indebtedness, but only if such indebtedness is not
discharged or such acceleration is not rescinded or annulled;
(6) failure of the Operating Partnership or the Company within 60 days to
pay, bond or otherwise discharge any uninsured judgment or court order in
excess of $5,000,000 which is not stayed on appeal or contested in good
faith,
(7) certain events of bankruptcy, insolvency or reorganization, or court
appointment of a receiver, liquidator or trustee of the Company, the
Operating Partnership or any Significant Subsidiary (as defined in
Regulation S-X promulgated under the Securities Act) or either of its
property; and
(8) any other event of default provided with respect to a particular series
of debt securities of the Operating Partnership.
If an event of default with respect to debt securities of any series at the
time outstanding (other than one for certain events of bankruptcy, insolvency or
reorganization, or court appointment of a receiver, liquidator or trustee as
described above, which event of default shall result in an automatic
acceleration) occurs and is continuing, then the applicable trustee or the
holders of not less than 25% in principal amount of the outstanding debt
securities of that series may declare the principal amount (or, if the debt
securities of that series are Original Issue Discount Securities or indexed
securities, such portion of the principal amount as may be specified in the
terms thereof) of all of the debt securities of that series to be due and
payable immediately by written notice thereof to the Operating Partnership and
the Company (if the debt securities are guaranteed by the Company) (and to the
applicable trustee if given by the holders).
However, at any time after the declaration of acceleration with respect to
debt securities of a series (or of all debt securities then outstanding under
the applicable indenture, as the case may be) has been made, but before a
judgment or decree for payment of the money due has been obtained by the
applicable trustee, the holders of not less than a majority in principal amount
of outstanding debt securities of that series (or of all debt securities then
outstanding under such indenture, as the case may be) may rescind and annul such
acceleration and its consequences if:
(1) the Operating Partnership or the Company (if the debt securities are
guaranteed by the Company) had paid or deposited with the applicable
trustee all required payments of the
18
principal of (and premium, if any) and interest on the debt securities of
such series (or of all debt securities then outstanding under such
indenture, as the case may be), plus certain fees, expenses,
disbursements and advances of the applicable trustee and
(2) all events of default, other than the non-payment of accelerated
principal of (and premium, if any) and interest on the debt securities of
such series (or of all debt securities then Outstanding under such
Indenture, as the case may be) have been cured or waived as provided in
such indenture.
The indentures also provide or will provide that the holders of not less
than a majority in principal amount of the outstanding debt securities of any
series (or of all debt securities then Outstanding under the applicable
indenture, as the case may be) may waive any past default with respect to such
series and its consequences, except a default:
(1) in the payment of the principal of (or premium, if any) or interest on
any debt security of such series, or
(2) in respect of a covenant or provision contained in such indenture that
cannot be modified or amended without the consent of the holder of each
outstanding debt security affected thereby.
Each indenture requires or will require each trustee to give notice of a
default under the indenture to all holders of debt securities within 90 days,
unless the default shall have been cured or waived, subject to certain
exceptions; PROVIDED, HOWEVER, that the trustee shall be protected in
withholding notice to the holders of any series of debt securities of any
default with respect to that series (except a default in the payment of the
principal of (or premium, if any) or interest on any debt security of that
series or in the payment of any sinking fund installment in respect of any debt
security of that series) if specified responsible officers of the trustee
consider withholding the notice to be in that holders' interest.
Each indenture provides or will provide that no holders of debt securities
of any series may institute any proceedings, judicial or otherwise, with respect
to the indenture or for any remedy thereunder, except in the case of failure of
the trustee, for 60 days, to act after it has received a written request to
institute proceedings in respect of an event of default from the holders of not
less than 25% in principal amount of the outstanding debt securities of that
series, as well as an offer of indemnity reasonably satisfactory to it, and no
direction inconsistent with the written request has been given to the trustee
during the 60-day period by holders of a majority in principal amount of the
outstanding debt securities of that series. This provision will not prevent,
however, any holder of debt securities from instituting suit for the enforcement
of payment of the principal of (and premium, if any) and interest on those debt
securities at the respective due dates thereof.
Each indenture provides or will provide that, subject to provisions in the
Trust Indenture Act of 1939 relating to its duties in case of default, the
trustee is under no obligation to exercise any of its rights or powers under the
indenture at the request or direction of any holders of any series of the debt
securities then outstanding under the indenture, unless those holders shall have
offered to the trustee reasonable security or indemnity. The holders of not less
than a majority in principal amount of the outstanding debt securities of any
series shall have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the trustee, or of exercising any
trust or power conferred upon the trustee; PROVIDED that the direction shall not
conflict with any rule of law or the indenture, and PROVIDED FURTHER that the
trustee may refuse to follow any direction that may involve the trustee in
personal liability or that may be unduly prejudicial to the holders of debt
securities of that series not joining in the direction to the trustee.
Within 120 days after the close of each fiscal year, the Operating
Partnership and, if applicable, the Guarantor must deliver to each trustee a
certificate, signed by one of several specified officers, stating whether or not
such officer has knowledge of any default under the applicable indenture and, if
so, specifying each such default and the nature and status thereof.
19
MODIFICATION OF THE INDENTURE
Modifications and amendments of any indenture may be made only with the
consent of the holders of not less than a majority in principal amount of all
outstanding debt securities of each series issued under the indenture affected
by such modification or amendment; PROVIDED, HOWEVER, that no such modification
or amendment may, without the consent of the holder of each debt security
affected thereby:
(1) change the stated maturity of the principal of, or any installment of
interest (or premium, if any) on, any debt security;
(2) reduce the principal amount of, or the rate (or manner of calculation of
the rate) or amount of interest on, or any premium payable on redemption
of, any debt security, or reduce the amount of principal of an Original
Issue Discount Security that would be due and payable upon acceleration
of the maturity thereof or would be provable in bankruptcy;
(3) change the place of payment, or the coin or currency, for payment of
principal of, or premium, if any, or interest on, any debt security;
(4) impair the right to institute suit for the enforcement of any payment
right with respect to any debt security;
(5) change any redemption or repayment provisions applicable to any debt
security;
(6) reduce the above-stated percentage of outstanding debt securities of any
series necessary to modify or amend the applicable indenture, to waive
compliance with certain provisions thereof or certain defaults and
consequences thereunder or to reduce the quorum or voting requirements
set forth in such indenture;
(7) modify or affect in any manner adverse to the holders the terms and
conditions of the obligations of the guarantor under the related
guarantees in respect of the payment of principal (and premium, if any)
and interest on any guaranteed securities;
(8) make any change that adversely affects any right to exchange any debt
security;
(9) in the case of subordinated debt securities, modify any of the
subordination provisions in a manner adverse to the holders thereof; or
(10) modify any of the foregoing provisions or any of the provisions
relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect the action or to
provide that certain other provisions may not be modified or waived
without the consent of the holder of each outstanding debt security.
The holders of not less than a majority in principal amount of a series of
outstanding debt securities have the right insofar as that series is concerned,
to waive compliance by the Operating Partnership and, if applicable, the
guarantor with certain covenants relating to that series of debt securities in
the applicable indenture.
Modifications and amendments of each indenture may be made by the Operating
Partnership, the Company and the applicable trustee without the consent of any
holder of debt securities for any of the following purposes:
(1) to evidence the succession of another person to the Operating
Partnership as obligor under the debt securities issuable under the
applicable indenture or the Company as guarantor under the applicable
guarantees;
20
(2) to add to the covenants of the Operating Partnership or the Company for
the benefit of the holders of all or any series of debt securities or to
surrender any right or power conferred upon the Operating Partnership or
the Company;
(3) to add events of default for the benefit of the holders of all or any
series of debt securities issuable under each indenture;
(4) to add or change certain provisions of the applicable indenture relating
to certain debt securities in bearer form, or to permit or facilitate the
issuance of debt securities in uncertificated form, PROVIDED that such
action shall not adversely affect the interests of the holders of the
debt securities of any series issuable under such indenture in any
material respect;
(5) to secure the debt securities;
(6) to establish the form or terms of debt securities of any series;
(7) to provide for the acceptance of appointment by a successor trustee or
facilitate the administration of the trusts under the applicable
indenture by more than one trustee;
(8) to cure any ambiguity, defect or inconsistency in the applicable
indenture, PROVIDED that such action shall not adversely affect the
interests of holders of debt securities of any series issuable under any
indenture in any material respect;
(9) to supplement any of the provisions of the applicable indenture to the
extent necessary to permit or facilitate defeasance and discharge of any
series of debt securities, PROVIDED that this action shall not adversely
affect the interests of the holders of the debt securities of any series
issuable under such indenture in any material respect; or
(10) to effect the assumption by the guarantor or a subsidiary thereof to
the debt securities then outstanding under the applicable indenture.
(11) to amend or supplement any provisions of the applicable indenture,
PROVIDED that no such amendment or supplement shall materially adversely
affect the interests of the holders of any debt securities then
outstanding under any indenture;
Each indenture provides or will provide that in determining whether the
holders of the requisite principal amount of outstanding debt securities of a
series have given any request, demand, authorization, direction, notice, consent
or waiver thereunder or whether a quorum is present at a meeting of holders of
debt securities:
(1) the principal amount of an Original Issue Discount Security that shall
be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof;
(2) the principal amount of a debt security denominated in a foreign
currency that shall be deemed outstanding shall be the U.S. dollar
equivalent, determined on the issue date for such debt security, of the
principal amount (or, in the case of an Original Issue Discount Security,
the U.S. dollar equivalent on the issue date of such debt security of the
amount determined as provided above);
(3) the principal amount of an indexed security that shall be deemed
outstanding shall be the principal face amount of the indexed security at
original issuance, unless otherwise provided with respect to the indexed
security in the applicable Indenture; and
(4) debt securities owned by the Operating Partnership, the Company or any
other obligor upon the debt securities or any affiliate of the Operating
Partnership, the Company or of such other obligor shall be disregarded.
21
Each indenture contains or will contain provisions for convening meetings of
the holders of debt securities of a series. A meeting may be called at any time
by the applicable trustee, and also, upon request, by the Operating Partnership,
the Company (in respect of a series of guaranteed securities) or request of the
holders of at least 10% in principal amount of the outstanding debt securities
of such series, in any such case upon notice given as provided in the indenture.
Except for any consent or waiver that must be given by the holder of each debt
security affected by the indenture, any resolution presented at a meeting or
adjourned meeting duly reconvened at which a quorum is present may be adopted by
the affirmative vote of the holders of a majority in principal amount of the
outstanding debt securities of that series; PROVIDED, HOWEVER, that, except as
referred to above, any resolution with respect to any request, demand,
authorization, direction, notice, consent, waiver or other action that may be
made, given or taken by the holders of a specified percentage, which is less
than a majority, in principal amount of the outstanding debt securities of a
series may be adopted at a meeting or adjourned meeting duly reconvened at which
a quorum is present by the affirmative vote of the holders of such specified
percentage in principal amount of the outstanding debt securities of that
series. Any resolution passed or decision taken at any meeting of holders of
debt securities of any series duly held in accordance with the applicable
indenture will be binding on all holders of debt securities of that series. The
quorum at any meeting called to adopt a resolution, and at any reconvened
meeting, will be persons holding or representing a majority in principal amount
of the outstanding debt securities of a series; PROVIDED, HOWEVER, that if any
action is to be taken at a meeting with respect to a consent or waiver which may
be given by the holders of not less than a specified percentage in principal
amount of the outstanding debt securities of a series, the persons holding or
representing the specified percentage in principal amount of the outstanding
debt securities of that series will constitute a quorum.
SUBORDINATION
Upon any distribution of assets of the Operating Partnership upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of (and premium, if any) and interest on subordinated debt securities
is to be subordinated to the extent provided in the subordinated indenture in
right of payment to the prior payment in full of all senior indebtedness, but
the obligation of the Operating Partnership to make payment of the principal
(and premium, if any) and interest on the subordinated debt securities will not
otherwise be affected. In addition, no payment on account of principal (or
premium, if any), or interest, may be made on the subordinated debt securities
at any time unless full payment of all amounts due in respect of the senior
indebtedness has been made or duly provided for in money or money's worth.
In the event that, notwithstanding the foregoing, any such payment by the
Operating Partnership is received by the trustee or the holders of any of the
subordinated debt securities before all senior indebtedness is paid in full,
such payment or distribution shall be paid over to the holders of the senior
indebtedness or any representative on their behalf for application to the
payment of all of the senior indebtedness remaining unpaid until all of the
senior indebtedness has been paid in full, after giving effect to any concurrent
payment or distribution to the holders of the senior indebtedness.
Subject to the payment in full of all senior indebtedness upon the payment
or distribution of the Operating Partnership, the holders of the subordinated
debt securities will be subrogated to the rights of the holders of the senior
indebtedness to the extent of payments made to the holders of the senior
indebtedness out of the distributive share of the subordinated debt securities.
By reason of subordination, in the event of a distribution of assets upon
insolvency, certain general creditors of the Operating Partnership may recover
more, ratably, than holders of the subordinated debt securities.
22
Senior indebtedness is defined in the subordinated indenture as the
principal of (and premium, if any) and unpaid interest on indebtedness of the
Operating Partnership (including indebtedness of others guaranteed by the
Operating Partnership), whether outstanding on the date of the subordinated
indenture or thereafter created, incurred, assumed or guaranteed, for money
borrowed (other than the subordinated debt securities issued under the
subordinated indenture), unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is PROVIDED that such
indebtedness is not senior or prior in right of payment to the subordinated debt
securities, and renewals, extensions, modifications and refundings of any such
indebtedness.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to holders of
any series of debt securities that have not already been delivered to the
applicable trustee for cancellation and that either have become due and payable
or will become due and payable within one year (or scheduled for redemption
within one year) by irrevocably depositing with the trustee, in trust, funds in
such currency or currencies, currency unit or units or composite currency or
currencies in which the debt securities are payable in an amount sufficient to
pay the entire indebtedness on the debt securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if the debt
securities have become due and payable) or to the stated maturity or redemption
date, as the case may be.
Each indenture provides or will provide that, unless the provisions of
Section 402 are made inapplicable to the debt securities of or within any series
pursuant to Section 301 of the applicable indenture, the Operating Partnership
may elect either to:
(1) defease and discharge itself and, if applicable, to discharge the
guarantor from any and all obligations with respect to debt securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charges
with respect to payments on the debt securities and the obligations to
register the transfer or exchange of such debt securities, to replace
temporary or mutilated, destroyed, lost or stolen debt securities, to
maintain an office or agency in respect of the debt securities and to
hold moneys for payment in trust) ("defeasance"); or
(2) release the Operating Partnership and, if applicable, the guarantor from
certain obligations of the applicable indenture (including the
restrictions described under "Certain Covenants") and if provided
pursuant to Section 301 or Section 901 of the applicable indenture, their
obligations with respect to any other covenant, and any omission to
comply with such obligations shall not constitute a default or an Event
or Default with respect to such debt securities of any series ("covenant
defeasance").
in either case upon the irrevocable deposit by the Operating Partnership or the
Company (if the debt securities are guaranteed securities) with the trustee, in
trust, of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which those debt securities are payable at
stated maturity, or Government Obligations (as defined below), or both,
applicable to those debt securities through the scheduled payment of principal
and interest in accordance with their terms will provide money in an amount
sufficient to pay the principal of (and premium, if any) and interest on those
debt securities, and any mandatory sinking fund or analogous payments on those
debt securities, on the scheduled due dates.
A trust may only be established if, among other things, the Operating
Partnership or, if applicable, the guarantor has delivered to the applicable
trustee an opinion of counsel (as specified in the applicable indenture) to the
effect that the holders of those debt securities will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of the defeasance or
covenant defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
the defeasance or covenant defeasance had not occurred,
23
and such opinion of counsel, in the case of defeasance, must refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
United States federal income tax law occurring after the date of the applicable
indenture.
"GOVERNMENT OBLIGATIONS" means securities that are (1) direct obligations of
the United States of America or the government or governments in the
confederation which issued the foreign currency in which the principal of or any
premium or interest on the debt securities of a particular series are payable,
for the payment of which its full faith and credit is pledged or
(2) obligations of a person controlled or supervised by and acting as an agency
or instrumentality of the United States of America or other government which
issued the foreign currency in which the debt securities of that series are
payable, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America or the other government,
which, in either case, are not callable or redeemable at the option of the
issuer thereof, and shall also include a depository receipt issued by a bank or
trust company as custodian with respect to any Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by a custodian for the account of the holder of a depository receipt,
PROVIDED that (except as required by law) the custodian is not authorized to
make any deduction from the amount payable to the holder of such depository
receipt from any amount received by the custodian in respect of the Government
Obligation or the specific payment of interest on or principal of the Government
Obligation evidenced by such depository receipt.
Unless otherwise provided in the applicable prospectus supplement, if after
the Operating Partnership or, if applicable, the guarantor has deposited funds
and/or Government Obligations to effect defeasance or covenant defeasance with
respect to debt securities of any series:
(1) the Holder of a debt security of that series is entitled to, and does,
elect pursuant to the applicable indenture or the terms of that debt
security to receive payment in a currency, currency unit or composite
currency other than that in which the deposit has been made in respect of
that debt security; or
(2) a Conversion Event (as defined below) occurs in respect of the currency,
currency unit or composite currency in which the deposit has been made.
Then the indebtedness represented by that debt security shall be deemed to have
been, and will be, fully discharged and satisfied through the payment of the
principal of (and premium, if any) and interest on that debt security as they
become due out of the proceeds yielded by converting the amount so deposited in
respect of that debt security into the currency, currency unit or composite
currency in which the debt security becomes payable as a result of such election
or such Conversion Event based on the applicable market exchange rate.
"Conversion Event" means the cessation of use of:
(1) a currency, currency unit or composite currency both by the government
of the country which issued such currency and for the settlement of
transactions by a central bank or other public institutions of or within
the international banking community;
(2) the ECU, both within the European Monetary System and for the settlement
of transactions by public institutions of or within the European
Community; or
(3) any currency unit or composite currency other than the ECU for the
purposes for which it was established. Unless otherwise provided in the
applicable prospectus supplement, after the deposit of funds and/or
Government Obligations referred to above, all payments of principal of
(and premium, if any) and interest on any debt security that is payable
in a foreign currency that ceases to be used by its government of
issuance shall be made in U.S. dollars.
In the event the Operating Partnership effects a covenant defeasance with
respect to any debt securities and those debt securities are declared due and
payable because of the occurrence of certain events of default other than the
event of default described in clause 4 under "--Events of Default,
24
Notice and Waiver" with respect to sections no longer applicable to the debt
securities or described in clause 8 thereunder with respect to any other
covenant as to which there has been covenant defeasance, the amount in such
currency, currency unit or composite currency in which the debt securities are
payable, and Government Obligations on deposit with the trustee, will be
sufficient to pay amounts due on the debt securities at the time of their stated
maturity but may not be sufficient to pay amounts due on the debt securities at
the time of the acceleration resulting from the event of default. However, the
Operating Partnership and, if applicable, the guarantor would remain liable to
make payment of the amounts due at the time of acceleration.
The applicable prospectus supplement may further describe the provisions, if
any, permitting the defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the debt
securities of or within a particular series.
NO CONVERSION OR EXCHANGE RIGHTS
The debt securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The debt securities of a series may be issued in whole or in part in
book-entry form consisting of one or more global securities (the "Global
Securities") that will be deposited with, or on behalf of, a depositary
identified in the applicable prospectus supplement relating to that series.
Global Securities may be issued in either registered or bearer form and in
either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of debt securities will be described in the
applicable prospectus supplement relating to that series.
GUARANTEES OF DEBT SECURITIES
If the Operating Partnership issues any debt securities that are rated below
investment grade by any nationally recognized statistical rating organization at
the time of issuance, the Company, as Guarantor, will unconditionally and
irrevocably guarantee, on a senior or subordinated basis, the due and punctual
payment of principal of, and premium, if any, and interest on, those debt
securities, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at stated
maturity, upon redemption or otherwise. The applicability and any additional
terms of any guarantee relating to a series of debt securities will be set forth
in the applicable prospectus supplement. Guarantees will be unsecured
obligations of the guarantor. Any right of payment of the holders of senior debt
securities under the related guarantee will be prior to the right of payment of
the holders of subordinated debt securities under the related guarantee, upon
the terms set forth in the applicable prospectus supplement. The guarantees may
be subordinated to other indebtedness and obligations of the Guarantor to the
extent set forth in the applicable prospectus supplement.
If a guarantee is applicable to debt securities, reference is made to the
applicable indenture and the applicable prospectus supplement for a description
of the specific terms of that guarantee, including any additional covenants of
the guarantor, the outstanding principal amount of indebtedness and other
obligations, if any that will rank senior to such guarantee and, where
applicable, subordination provisions of such guarantee.
25
DESCRIPTION OF COMMON SHARES
The Company has authority to issue 50,000,000 common shares, $0.01 par value
per share. In this section, the terms "we," "our" and "us" refer to the Company
and not the Operating Partnership. As of September 30, 2000, we had outstanding
7,918,911 common shares.
GENERAL
The following description of our common shares sets forth certain general
terms and provisions of our common shares to which any prospectus supplement may
relate, including a prospectus supplement providing that our common shares will
be issuable upon conversion of our preferred shares or upon the exercise of our
common shares warrants. The statements below describing our common shares are in
all respects subject to and qualified in their entirety by reference to the
applicable provisions of our charter and bylaws.
TERMS
Holders of our outstanding common shares will be entitled to one vote on all
matters presented to shareholders for a vote. Holders of our common shares will
not have, or be subject to, any preemptive or similar rights.
Except for the election of a director to fill a vacancy on the board of
directors and the election of directors by holders of one or more class or
series of our preferred shares, directors will be elected by the holders of our
common shares at each annual meeting of shareholders by a plurality of the votes
cast. Holders of our common shares will not have cumulative voting rights for
the election of directors. Consequently, at each annual meeting of shareholders,
the holders of a plurality of the our common shares cast for the election of
directors at that meeting will be able to elect all of the directors, other than
any directors to be elected by the holders of one or more series of our
preferred shares. A director may be removed by a majority of votes cast. If a
director is elected by a voting group of shareholders, only the shareholders of
that voting group may participate in a vote to remove him.
Our common shares will, when issued, be fully paid and non-assessable.
Dividends and other distributions may be paid to the holders of our common
shares if and when declared by the board of directors of the Company out of
funds legally available therefor.
Under North Carolina law, shareholders are generally not liable for our
debts or obligations. Payment and declaration of dividends on our common shares
and purchases of our shares are subject to certain limitations under North
Carolina law and will be subject to certain restrictions if we fail to pay
dividends on one or more series of our preferred shares. See "Description of
Preferred Shares." If we were to experience a liquidation, dissolution or
winding up, holders of our common shares would, subject to the rights of any
holders of our preferred shares to receive preferential distributions, be
entitled to participate equally in the assets available for distribution to them
after payment of, or adequate provision for, all our known debts and
liabilities.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For us to qualify as a REIT under the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), not more than 50% in value of our
outstanding capital stock may be owned, actually or constructively, by five or
fewer individuals during the last half of our taxable year. This requirement is
referred to as the "five or fewer" requirement. For purposes of this five or
fewer requirement, individuals include the entities that are set forth in
Section 542(a)(2) of the Internal Revenue Code. Attribution rules in the
Internal Revenue Code determine if any individual or entity constructively owns
our stock under the "five or fewer" requirement. Our capital stock also must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of 12 months, or during a proportionate
26
part of a shorter taxable year. In addition, rent from a related party tenant,
is not qualifying income for purposes of the REIT gross income test. A related
party tenant is generally a tenant in which the REIT or an owner of 10% or more
of the REIT owns, actually or constructively, 10% or more of such tenant. To
assist us in meeting these requirements, we may take certain actions to limit
the actual, beneficial or constructive ownership by a single person or entity of
our outstanding equity securities. See "Material Federal Income Tax
Considerations to Tanger Factory Outlet Centers, Inc.," including discussion
under the subheadings "--Requirements for Qualification as a Real Estate
Investment Trust" and "--Income Tests."
Subject to certain exceptions specified in our charter, no shareholder
(other than Stanley K. Tanger, Steven B. Tanger, members of their families,
affiliated entities and their transferees) may own, or be deemed to own by
virtue of the constructive ownership provisions of the Internal Revenue Code,
more than 4% of our outstanding common shares. Our charter provides that Stanley
K. Tanger, Steven B. Tanger, members of their families, affiliated entities and
their transferees may acquire additional common stock, but may not acquire
additional shares, such that the five largest beneficial owners of our common
shares, taking into account the 4% limit and certain exemptions from such limit
that the board of directors has granted to other shareholders, could hold more
than 49% of our outstanding common shares. The constructive ownership rules are
complex and may cause common stock owned actually or constructively by a group
of related individuals and/or entities to be constructively owned by one
individual or entity. As a result, the acquisition of less than 4% of our
outstanding common shares (or the acquisition of an interest in an entity which
owns our common stock) by an individual or entity could cause that individual or
entity (or another individual or entity) to constructively own in excess of 4%
of our outstanding common shares, and thus subject those common shares to the
ownership limit in our charter.
If the board of directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own or may acquire
or own common shares in the Company in violation of the above limit, the board
of directors shall take such action as it deems advisable to refuse to give
effect to, or to prevent such ownership or acquisition, including, but not
limited to, the redemption of our common shares, refusal to give effect to the
ownership or acquisition on our books or instituting proceedings to enjoin such
ownership or acquisition.
The board of directors may waive the limit with respect to a particular
shareholder if evidence satisfactory to the board of directors and our tax
counsel is presented that such ownership will not then or in the future
jeopardize our status as a REIT. As a condition of such waiver, the board of
directors may require opinions of counsel satisfactory to it and/or an
undertaking from the applicant with respect to preserving our REIT status. If
our common shares are issued in excess if the ownership limit in our charter, or
if our stock is transferred in a way that would cause our stock to be
beneficially owned by fewer than 100 persons, then the issuance or transfer
shall be void, and the intended transferee will acquire no rights to our stock.
The ownership limit and the existing holder limit will be automatically
removed if our board of directors determines that it is no longer in our best
interest to attempt to qualify, or to continue to qualify, as a REIT. Except as
otherwise described above, any change in the ownership limit or the existing
holder limit would require an amendment to our charter. Amendments to our
charter require the affirmative vote of holders owning a majority of our
outstanding common shares. In addition to preserving our status as a REIT, the
ownership limit may have the effect of precluding an acquisition of control of
the REIT without the approval of the board of directors.
All certificates representing our common shares will bear a legend referring
to the restrictions described above.
All persons who own a specified percentage (or more) of our outstanding
common shares must file an affidavit with us containing information regarding
their ownership of our common shares, as set
27
forth in the applicable treasury regulations promulgated under the Internal
Revenue Code. Under these treasury regulations, the percentage will be set
between one-half of 1% and 5%, depending on the number of record holders of our
common shares. In addition, each shareholder shall upon demand be required to
disclose to us in writing the information with respect to the direct, indirect
and constructive ownership of stock as the board of directors deems necessary to
comply with the provisions of the Internal Revenue Code applicable to a REIT or
to comply with the requirements of any taxing authority or governmental agency.
TRANSFER AGENT
The registrar and transfer agent for our common shares is Boston EquiServe
Limited Partnership.
DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue warrants to purchase its common shares. In this
section, the terms "we," "our" and "us" refer to the Company and not the
Operating Partnership. These warrants may be issued independently or together
with any other securities offered pursuant to any prospectus supplement and may
be attached to or separate from these securities. Each series of warrants will
be issued under a separate warrant agreement to be entered into between us and a
warrant agent specified in the applicable prospectus supplement. The warrant
agent will act solely as our agent in connection with the warrants and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of the warrants.
The applicable prospectus supplement will describe the specific terms of the
warrants offered thereby, including, where applicable, the following:
(1) the title of the warrants;
(2) the aggregate number of the warrants;
(3) the price or prices at which the warrants will be issued;
(4) the designation, number and terms of the common shares purchasable upon
exercise of the warrants;
(5) the designation and terms of the other securities with which the
warrants are issued and the number of the warrants issued with each
security;
(6) the date, if any, on and after which the warrants and the related common
shares will be separately transferable;
(7) the price at which each common shares purchasable upon exercise of the
warrants may be purchased;
(8) the date on which the right to exercise the warrants shall commence and
the date on which that right shall expire;
(9) the minimum or maximum number of warrants which may be exercised at any
one time;
(10) information with respect to book-entry procedures, if any;
(11) a discussion of certain material federal income tax considerations; and
(12) any other material terms of the warrants, including terms, procedures
and limitations relating to the exchange and exercise of the warrants.
28
DESCRIPTION OF PREFERRED SHARES
The Company is authorized to issue 1,000,000 Class A Preferred Shares,
8,000,000 Class B Preferred Shares, 8,000,000 Class C Preferred Shares and
8,000,000 Class D Preferred Shares. As of September 30, 2000, 300,000 Class A
Preferred Shares were issued as Series A Cumulative Convertible Redeemable
Preferred Shares in the form of 3,000,000 depositary shares. As of
September 30, 2000, 80,600 Series A Preferred Shares remain outstanding in the
form of 805,997 Series A Depositary Shares. In this section, the terms "we,"
"our" and "us" refer to the Company and not the Operating Partnership.
Our Series A Preferred Shares are convertible at the option of the holders
into our common shares at a conversion price of $27.75 per common share, subject
to adjustment upon the occurrence of certain events. Dividends on the Series A
Preferred Shares are cumulative and payable quarterly in an amount per Series A
Depositary Share equal to the greater of (i) $1.575 per annum or (ii) the
quarterly dividends on the common shares, or portion thereof, into which a
Series A Depositary Share is convertible. On and after December 15, 1998, the
Series A Preferred Shares may be redeemed at our option, in whole or in part, at
a redemption price of $250.00 per share, plus accrued and unpaid dividends, if
any.
Holders of Series A Preferred Shares do not have voting rights except:
(1) whenever dividends on the Series A Preferred Shares are in arrears for
six or more consecutive quarterly periods, the holders of Series A
Preferred Shares are entitled to vote for the election of two additional
directors;
(2) so long as shares of Series A Preferred Shares remain outstanding, the
Company must obtain the consent of the holders of Series A Preferred
Shares prior to (a) authorizing, creating or issuing capital stock
ranking senior to the Series A Preferred Shares with respect to dividend
or liquidation rights, or (b) amending, altering or repealing provisions
of the Company's Articles of Incorporation, so as to materially and
adversely affect the holders of the Series A Preferred Shares; or
(3) as otherwise from time to time required by law.
In the event of any liquidation of the Company, the holders of Series A
Preferred Shares are entitled to a liquidation preference of $250.00 per share,
plus accrued and unpaid dividends, if any. The holders of our Series A Preferred
Shares have no preemptive rights and are not entitled to the benefit of any
sinking fund. Ownership of more than 9.8% of our Series A Preferred Shares (or a
lesser amount in certain cases) or more than 4% of our common shares is
restricted to preserve our status as a REIT for federal income tax purposes.
Conversion of the Series A Preferred Shares into common shares is also
restricted to the extent that ownership of our common shares would exceed the
REIT ownership limitation as describe above. See "Description of Common
Shares--Restrictions on Ownership and Transfer."
The following description of our preferred shares sets forth certain general
terms and provisions of the preferred shares to which any prospectus supplement
may relate. The statements below describing the preferred shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of our charter.
GENERAL
Subject to limitations prescribed by North Carolina law and our charter, the
board of directors shall determine, in whole or in part, the preferences,
limitations and relative rights of any class or series of our preferred shares,
including such provisions as may be desired concerning voting, redemption,
dividends, dissolution or the distribution of assets, conversion, and such other
subjects or matters as may be determined by the board of directors.
29
The prospectus supplement relating to the preferred shares offered thereby
will include specific terms of any preferred shares offered, including, if
applicable:
(1) the title of the preferred shares;
(2) the number of preferred shares offered, the liquidation preference per
share and the offering price of the preferred shares;
(3) the dividend rate(s), period(s) and/or payment date(s) or method(s) of
calculation thereof applicable to the preferred shares;
(4) whether the preferred shares are cumulative or not and, if cumulative,
the date from which dividends on the preferred shares shall accumulate;
(5) the procedures for any auction and remarketing, if any, for the
preferred shares;
(6) the provision for a sinking fund, if any, for the preferred shares;
(7) the provision for redemption, if applicable, of the preferred shares;
(8) any listing of the preferred shares on any securities exchange;
(9) the terms and conditions, if applicable, upon which the preferred shares
will be convertible into common shares, including the conversion price
(or manner of calculation thereof);
(10) a discussion of federal income tax considerations applicable to the
preferred shares;
(11) any limitations on actual, beneficial or constructive ownership and
restrictions on transfer, in each case as may be appropriate to preserve
our REIT status;
(12) the relative ranking and preferences of the preferred shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
our affairs;
(13) any limitations on issuance of any series or class of preferred shares
ranking senior to or on a parity with such series or class of preferred
shares as to dividend rights and rights upon liquidation, dissolution or
winding up of our affairs; and
(14) any other specific terms, preferences, rights, limitations or
restrictions of the preferred shares.
RANK
Unless otherwise specified in the applicable prospectus supplement, the
preferred shares will rank, with respect to rights to the payment of dividends
and distribution of our assets and rights upon our on, dissolution or winding
up:
(1) senior to all classes or series of common shares and to all equity
securities ranking junior to the preferred shares stock rights to the
payment of dividends and distribution of our assets and rights upon our
liquidation, dissolution or winding up;
(2) on a parity with all equity securities issued by us with terms
specifically providing that those equity securities rank on a parity with
the preferred shares with respect to rights to the payment of dividends
and distribution of our assets and rights upon our liquidation,
dissolution or winding up; and
(3) junior to all equity securities issued by us with terms specifically
providing that those equity securities rank senior to the preferred
shares with respect to rights to the payment of dividends and
distribution of our assets and rights upon our liquidation, dissolution
or winding up.
For these purposes, the term "equity securities" does not include
convertible debt securities.
30
DIVIDENDS
Holders of our preferred shares of each series or class shall be entitled to
receive, when, as and if authorized and declared by our board of directors, out
of our assets legally available for payment, dividends at rates and on dates and
terms as will be set forth in the applicable prospectus supplement. Each
dividend shall be payable to holders of record as they appear on our stock
transfer books on the record dates as shall be fixed by our board of directors.
Dividends on any series or class of our preferred shares may be cumulative
or noncumulative, as provided in the applicable prospectus supplement.
Dividends, if cumulative, will be cumulative from and after the date set forth
in the applicable prospectus supplement. If our board of directors fails to
authorize a dividend payable on a dividend payment date on any series or class
of preferred shares for which dividends are noncumulative, then the holders of
such series or class of preferred shares will have no right to receive a
dividend in respect of the dividend period ending on that dividend payment date,
and we will have no obligation to pay the dividend accrued for such period,
whether or not dividends on such series or class are declared or paid for any
future period.
If any preferred shares of any series or class are outstanding, no full
dividends shall be authorized or paid or set apart for payment on the preferred
shares of any other series or class ranking, as to dividends, on a parity with
or junior to the preferred shares of that series or class for any period unless:
(1) the series or class of preferred shares has a cumulative dividend, then
full cumulative dividends have been or contemporaneously are authorized
and paid or authorized and a sum sufficient for the payment thereof is
set apart for such payment on the preferred shares of such series or
class for all past dividend periods and the then current dividend period;
or
(2) the series or class of preferred shares does not have a cumulative
dividend, then full dividends for the then current dividend period have
been or contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof is set apart for the payment on the
preferred shares of such series or class.
When dividends are not paid in full (or a sum sufficient for the full
payment thereof is not set apart) upon the preferred shares of any series or
class and the shares of any other series or class of preferred shares ranking on
a parity as to dividends with the preferred shares of that series or class, then
all dividends authorized on preferred shares of that series or class and any
other series or class of preferred shares ranking on a parity as to dividends
with that preferred shares shall be authorized pro rata so that the amount of
dividends authorized per share on the preferred shares of that series or class
and such other series or class of preferred shares shall in all cases bear to
each other the same ratio that accrued and unpaid dividends per share on the
preferred shares of such series or class (which shall not include any
accumulation in respect of unpaid dividends for prior dividend periods if the
preferred shares do not have a cumulative dividend) and such other series or
class of preferred shares bear to each other. No interest, or sum of money in
lieu of interest, shall be payable in respect of any dividend payment or
payments on preferred shares of such series or class that may be in arrears.
Except as provided in the immediately preceding paragraph, unless:
(1) in the case of a series or class of preferred shares that has a
cumulative dividend, full cumulative dividends on the preferred shares of
such series or class have been or contemporaneously are authorized and
paid or authorized and a sum sufficient for the payment thereof is set
apart for payment for all past dividend periods and the then current
dividend period; and
(2) in the case of a series or class of preferred shares that does not have
a cumulative dividend, full dividends on the preferred shares of such
series or class have been or contemporaneously
31
are authorized and paid or authorized and a sum sufficient for the
payment thereof is set apart for payment for the then current dividend
period,
then no dividends (other than in the common shares or other shares of ours
ranking junior to the preferred shares of that series or class as to dividends
and as to the distribution of assets upon liquidation, dissolution or winding up
of the Company) shall be authorized or paid or set aside for payment nor shall
any other distribution be authorized or made on the common shares or any other
class or series of shares of ours ranking junior to or on a parity with the
preferred shares of that series or class as to dividends or as to the
distribution of assets upon liquidation, dissolution or winding up of the
Company, nor shall any common shares or any other shares of ours ranking junior
to or on a parity with the preferred shares of that series or class as to
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up of the Company be redeemed, purchased or otherwise acquired for any
consideration (or any amounts be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by us (except by conversion
into or exchange for other shares of ours ranking junior to the preferred shares
of that series or class as to dividends and as to the distribution of assets
upon liquidation, dissolution or winding up of the Company); provided, however,
that the foregoing shall not prevent the purchase or acquisition of our shares
stock to preserve our status as a REIT for federal and/or state income tax
purposes.
Any dividend payment made on shares of a series or class of preferred shares
shall first be credited against the earliest accrued but unpaid dividend due
with respect to shares of that series or class that remains payable.
If we properly designate any portion of a dividend as a "capital gain
dividend," a holder's share of such capital gain dividend will be an amount
which bears the same ratio to the total amount of dividends (as determined for
federal income tax purposes) paid to such holder for the year as the aggregate
amount designated as a capital gain dividend bears to the aggregate amount of
all dividends (as determined for federal income tax purposes) paid on all
classes of our shares for the year.
REDEMPTION
If the applicable prospectus supplement so states, the preferred shares will
be subject to mandatory redemption or redemption at our option, in whole or in
part, in each case on the terms, at the times and at the redemption prices set
forth in that prospectus supplement.
The prospectus supplement relating to a series or class of preferred shares
that is subject to mandatory redemption will specify the number of preferred
shares that shall be redeemed by us in each year commencing after a date to be
specified, at a redemption price per share to be specified, together with an
amount equal to all accumulated and unpaid dividends thereon (which shall not,
if such preferred shares does not have a cumulative dividend, include any
accumulation in respect of unpaid dividends for prior dividend periods) to the
date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable prospectus supplement. If the
redemption price for preferred shares of any series or class is payable only
from the net proceeds of the issuance of our shares, the terms of that preferred
shares may provide that, if no such shares shall have been issued or to the
extent the net proceeds from any issuance are insufficient to pay in full the
aggregate redemption price then due, that preferred shares shall automatically
and mandatorily be converted into shares of our applicable stock pursuant to
conversion provisions specified in the applicable prospectus supplement.
Notwithstanding the foregoing, unless:
(1) in the case of a the series or class of preferred shares that has a
cumulative dividend, full cumulative dividends on all outstanding shares
of such series or class of preferred shares have been or
contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period; and
32
(2) in the case of a series or class of preferred shares that does not have
a cumulative dividend, full dividends on the preferred shares of that
series or class have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for
payment for the then current dividend period,
then no shares of that series or class of preferred shares shall be redeemed
unless all outstanding preferred shares of that series or class are
simultaneously redeemed; provided, however, that the foregoing shall not prevent
the purchase or acquisition of preferred shares of that series or class to
preserve our REIT status or pursuant to a purchase or exchange offer made on the
same terms to holders of all outstanding preferred shares of that series or
class; or
(3) in the case of a series or class of preferred shares that has a
cumulative dividend, full cumulative dividends on all outstanding shares
of that series or class of preferred shares have been or
contemporaneously are authorized and paid or authorized and a sum
sufficient for the payment thereof is set apart for payment for all past
dividend periods and the then current dividend period; and
(4) in the case of a series or class of preferred shares that does not have
a cumulative dividend, full dividends on the preferred shares of that
series or class have been or contemporaneously are authorized and paid or
authorized and a sum sufficient for the payment thereof is set apart for
payment for the then current dividend period,
we shall not purchase or otherwise acquire directly or indirectly any shares of
preferred shares of such series or class (then except by conversion into or
exchange for stock of ours ranking junior to the preferred shares of that series
or class as to dividends and upon liquidation, dissolution and winding up of the
Company); provided, however, that the foregoing shall not prevent the purchase
or acquisition of preferred shares of such series or class to preserve our REIT
status or pursuant to a purchase or exchange offer made on the same terms to
holders of all outstanding preferred shares of that series or class.
If fewer than all the outstanding preferred shares of any series or class
are to be redeemed, the number of shares to be redeemed will be determined by us
and those shares may be redeemed pro rata from the holders of record of those
shares in proportion to the number of those shares held by such holders (with
adjustments to avoid redemption of fractional shares) or any other equitable
method determined by us.
Notice of redemption will be mailed at least 30, but not more than 60, days
before the redemption date to each holder of record of a preferred share of any
series or class to be redeemed at the address shown on our stock transfer books,
and notice of redemption will also be given by publication in The Wall Street
Journal or, if such newspaper is not then being published, another newspaper of
general circulation in The City of New York, such publication to be made at
least once a week for two successive weeks commencing not less than 30 nor more
than 60 days prior to the redemption date. Each notice shall state:
(1) The redemption date;
(2) The number of shares and series or class of the preferred shares to be
redeemed;
(3) The redemption price;
(4) The place or places (which shall include a place in the Borough of
Manhattan, The City of New York) where certificates for the preferred
shares are to be surrendered for payment of the redemption price;
(5) That dividends on the shares to be redeemed will cease to accumulate on
the redemption date; and
(6) The date on which the holder's conversion rights, if any, as to those
shares shall terminate.
33
If fewer than all the preferred shares of any series or class are to be
redeemed, the notice mailed to each holder thereof shall also specify the number
of preferred shares to be redeemed from each holder and, upon redemption, a new
certificate shall be issued representing the unredeemed shares without cost to
the holder thereof. If notice of redemption of any preferred shares has been
given and if the funds necessary for the redemption have been irrevocably set
aside by us in trust for the benefit of the holders of any preferred shares so
called for redemption, then from and after the redemption date dividends will
cease to accrue on the preferred shares, the preferred shares shall no longer be
deemed outstanding and all rights of the holders of the shares will terminate,
except the right to receive the redemption price. In order to facilitate the
redemption of preferred shares of any series or class, the board of directors
may fix a record date for the determination of shares of the series or class of
preferred shares to be redeemed.
Notwithstanding the foregoing, the persons who were holders of record of
shares of any class or series of preferred shares at the close of business on a
record date for the payment of dividends will be entitled to receive the
dividend payable on the corresponding dividend payment date notwithstanding the
redemption of those shares after the record date and on or prior to the dividend
payment date or our default in the payment of the dividend due on that dividend
payment date. In that case, the amount payable on the redemption of those
preferred shares would not include that dividend. Except as provided in the
preceding sentence and except to the extent that accrued and unpaid dividends
are payable as part of the redemption price, we will make no payment or
allowance for unpaid dividends, whether or not in arrears, on shares of
preferred stock called for redemption.
Subject to applicable law and the limitation on purchases when dividends on
a series or class of preferred shares are in arrears, we may, at any time and
from time to time, purchase any shares of such series or class of preferred
shares in the open market, by tender or by private agreement.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Company's affairs, then, before any distribution or payment will be made to
the holders of common shares or any other series or class of shares ranking
junior to any series or class of the preferred shares in the distribution of
assets upon any liquidation, dissolution or winding up, the holders of that
series or class of preferred shares shall be entitled to receive, out of our
assets but subject to the preferential rights of the holders of shares of any
class or series of our shares ranking senior to such series or class of
preferred shares with respect to our distribution of assets of liquidation,
dissolution or winding up legally available for distribution to shareholders,
liquidating distributions in the amount of the liquidation preference per share
(set forth in the applicable prospectus supplement), plus an amount equal to all
dividends accrued and unpaid thereon (which shall not include any accumulation
in respect of unpaid dividends for prior dividend periods if the preferred
shares do not have a cumulative dividend). After payment of the full amount of
the liquidating distributions to which they are entitled, the holders of
preferred shares will have no right or claim to any of our remaining assets. If,
upon any such voluntary or involuntary liquidation, dissolution or winding up,
the legally available assets are insufficient to pay the amount of the
liquidating distributions on all outstanding shares of any series or class of
preferred shares and the corresponding amounts payable on all shares of other
classes or series of shares of the Company ranking on a parity with that series
or class of preferred shares in the distribution of assets upon liquidation,
dissolution or winding up, then the holders of that series or class of preferred
shares and all other such classes or series of capital shares shall share
ratably in any such distribution of assets in proportion to the full liquidating
distributions to which they would otherwise be respectively entitled.
If liquidating distributions shall have been made in full to all holders of
any series or class of preferred shares, our remaining assets will be
distributed among the holders of any other classes or series of shares ranking
junior to that series or class of preferred shares upon liquidation, dissolution
or winding up, according to their respective rights and preferences and in each
case according to their
34
respective number of shares. For those purposes, the consolidation or merger of
us with or into any other entity, or the sale, lease, transfer or conveyance of
all or substantially all of our property or business, shall not be deemed to
constitute a liquidation, dissolution or winding up of our affairs.
VOTING RIGHTS
Except as set forth below or as otherwise from time to time required by law
or as indicated in the applicable prospectus supplement, holders of preferred
shares will not have any voting rights.
Unless provided otherwise for any class or series of preferred shares, so
long as any preferred shares remains outstanding, whenever dividends on any
preferred shares shall be in arrears for six or more quarterly periods,
regardless of whether such quarterly periods are consecutive, the holders of
preferred shares (voting separately as a class with all other class or series of
cumulative preferred shares upon which like voting rights have been conferred
and are exercisable) will be entitled to vote for the election of two additional
directors at a special meeting called by an officer of the company at the
request of a holder of the class or series of preferred shares or, if the
special meeting is not called by an officer of the company within 30 days, at a
special meeting called by a holder of the class or series of preferred shares
designated by the holders of record of at least 10% of any class or series of
preferred shares so in arrears (unless the request is received less than
90 days before the date fixed for the next annual or special meeting of the
shareholders) or at the next annual meeting of shareholders, and at each
subsequent meeting until:
(1) if such class or series of Preferred Shares has a cumulative dividend,
all dividends accumulated on such Preferred Shares for the past dividend
periods and the then current dividend period shall have been fully paid
or declared and irrevocably set apart for payment or
(2) if such class or series of Preferred Shares does not have a cumulative
dividend, four consecutive quarterly dividends are paid or declared and
irrevocably set apart for payment. In such case, the entire Board of
Directors of the Company will be increased by two directors.
Unless provided otherwise in the applicable prospectus supplement, for any
class or series of preferred shares, so long as any preferred shares remains
outstanding, the company shall not, without the affirmative vote or consent of
the holders of at least 66 2/3% of the shares of each class or series of
preferred stock outstanding at the time, given in person or by proxy, either in
writing or at a meeting (with each class or series of preferred shares that is
affected by the following voting separately as a class):
(1) authorize or create, or increase the authorized or issued amount of, any
class or series of equity securities ranking senior to such class or
series of preferred shares with respect to payment of dividends or the
distribution of assets upon liquidation, dissolution or winding up of the
Company or reclassify any authorized securities of the Company into any
such equity securities, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such
equity securities; or
(2) amend, alter or repeal the provisions of the charter including the
articles supplementary for such class or series of preferred shares,
whether by merger, consolidation or otherwise, so as to materially and
adversely affect any right, preference, privilege or voting power of such
class or series of preferred shares or the holders thereof; PROVIDED,
HOWEVER, that any increase in the amount of the authorized preferred
shares or the creation or issuance of any other class or series of
preferred shares, or any increase in the amount of authorized shares of
such class or series or any other class or series of preferred shares, in
each case ranking on a parity with or junior to the preferred shares of
such class or series with respect to payment of dividends and the
distribution of assets upon liquidation, dissolution or winding up of the
company, shall not be deemed to materially and adversely affect such
rights, preferences, privileges or voting powers.
35
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of preferred shares
shall have been redeemed or called for redemption and sufficient funds shall
have been irrevocably deposited in trust to effect such redemption.
Under the North Carolina Business Corporation Act, the holders of
outstanding Series A Preferred Shares are entitled to vote as a separate voting
group (if shareholder voting is otherwise required by that Act and even though
the charter provides that such shares are nonvoting shares) on a proposed
amendment to our charter if the amendment would affect the Series A Preferred
Shares in ways specified in that Act, including an increase or decrease in the
number of authorized Series A Preferred Shares, a change in the designation,
rights, preferences or limitations of all or part of the Series A Preferred
Shares or the creation of a new class of stock having rights or preferences with
respect to the payment of dividends or the distribution of assets upon
liquidation, dissolution or winding up of the company that are prior, superior
or substantially equal to the rights of the Series A Preferred Shares.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any class or series
of preferred shares are convertible into common shares will be set forth in the
applicable prospectus supplement relating thereto. Such terms will include the
number of common shares into which the preferred shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at our option or the option of the
holders of the preferred shares, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of preferred shares.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
As discussed above under "Description of Common Shares-Restrictions on
Ownership and Transfer," for us to qualify as a REIT under the Internal Revenue
Code, not more than 50% in value of our outstanding capital shares may be owned,
actually or constructively, by five or fewer individuals during the last half of
a taxable year. This requirement is referred to as the "five or fewer"
requirement. For purposes of this five or fewer requirement, individuals include
the entities that are set forth in Section 542(a)(2) of the Internal Revenue
Code. Attribution rules in the Internal Revenue Code determine if any individual
or entity constructively owns our stock under the "five or fewer" requirement.
Our capital shares must also be beneficially owned by 100 or more persons during
at least 335 days of a taxable year of 12 months, or during a proportionate part
of a shorter taxable year. In addition, rent from related party tenants is not
qualifying income for purposes of the gross income tests under the Internal
Revenue Code. See "Material Federal Income Tax Considerations to Tanger Factory
Outlet Centers, Inc.--Taxation of Tanger Factory Outlet Centers, Inc.,"
"--Requirements for Qualification as a Real Estate Investment Trust" and
"--Income Tests." Therefore, with regards to our charter each class or series of
preferred shares will contain provisions restricting the ownership and transfer
of the preferred shares. Except as otherwise described in the applicable
prospectus supplement relating thereto, the provisions of our charter relating
to the ownership limit for any class or series of preferred shares other than
the Series A Preferred Shares, with respect to which the ownership limit differs
slightly from that described below, will provide as follows:
Our preferred share ownership limit provision will provide that, subject to
certain exceptions, no holder of preferred shares may own, or be deemed to own
by virtue of the constructive ownership provisions of the Internal Revenue Code,
preferred shares in excess of the lesser of:
(1) 9.8% of the preferred shares issued in the offering;
(2) if the preferred shares are convertible into common shares, an amount of
preferred shares which, if so converted at a time when all outstanding
convertible shares were converted into
36
common shares, would cause any person to own, actually or constructively,
common shares in violation of the ownership limit or the existing holder
limit;
(3) an amount of preferred shares which would cause five or fewer
individuals to own, actually or constructively, more then 49% in value of
our outstanding capital shares (in the aggregate); or
(4) an amount of preferred shares which would cause any person (other than
Stanley K. Tanger, Steven B. Tanger and certain members of their families
and affiliates) to own, actually or constructively, more than 9.8% of the
value of our outstanding capital shares (in the aggregate).
The constructive ownership rules are complex and may cause preferred shares
owned actually or constructively by a group of related individuals and/or
entities to be deemed to be actually or constructively owned by one individual
or entity. As a result, the acquisition of preferred shares (or the acquisition
of an interest in any entity which owns our preferred shares or common shares)
by an individual or entity could cause that individual or entity (or another
individual or entity) to own constructively preferred shares in excess of the
preferred share ownership limit.
To the extent that any person purports to convert preferred shares into
common shares in violation of either the ownership limit or the preferred shares
ownership limit, and to the extent that any person would own or purport to
acquire preferred shares in excess of the preferred shares ownership limit,
then, depending upon the circumstances, as set forth below:
(1) the conversion of preferred shares or the purported acquisition of the
excess preferred shares would be void;
(2) the preferred shares would be automatically converted to excess
preferred shares which have limited economic rights; or
(3) we would automatically redeem the preferred shares.
Generally, an automatic redemption will occur to prevent a violation of the
preferred shares ownership limit that would not have occurred but for a
conversion of preferred shares, or a redemption or open market purchase of
preferred shares by the Company. In the case of such an automatic redemption,
the redemption price of each preferred share redeemed will be (x) if a purported
acquisition of preferred shares in which full value was paid for the preferred
shares caused the redemption, the price per share paid for the preferred shares
or (y) if the transaction that resulted in the redemption was not an acquisition
of preferred shares in which the full value was paid for the preferred shares, a
price per share equal to the market price of the shares on the date of the
purported transfer that resulted in the redemption. Any dividend or other
distribution paid to a holder of redeemed preferred shares (prior to a discovery
that the shares have been automatically redeemed by us as described above) will
be required to be repaid upon demand.
A transfer of preferred shares or other event that, if effective, would
result in a violation of the preferred shares ownership limit will be null and
void. In addition, our charter as heretofore or hereafter amended will provide
that preferred stock that would otherwise be actually or constructively owned by
a prohibited transferee in excess of the preferred share ownership limit as a
result of the transfer or other event, will be automatically exchanged for
excess preferred shares, a separate class of preferred shares that will
automatically be transferred to a trust for the benefit of a charitable
beneficiary, effective as of the close of business on the business day prior to
the purported acquisition by the prohibited transferee. While such shares are
held in trust, the trustee will have all voting rights with respect to the
shares, and all dividends or distributions paid on the shares will be paid to
the trustee of the trust for the benefit of the charitable beneficiary (any
dividend or distribution paid on capital shares prior to the discovery by us
that such shares have been automatically transferred to the trust must, upon
demand, be paid over to the trustee for the benefit of the charitable
beneficiary). Within 20 days of receiving notice from us of the transfer of
shares to the trust, the trustee of the trust
37
will be required to sell the shares held in the trust to a permitted holder who
may own such shares without violating the ownership restrictions. Upon such
sale, the excess preferred shares will be automatically converted into preferred
shares, and the price paid for the shares by any permitted holder will be
distributed to the prohibited transferee to the extent of the lesser of:
(1) the price paid by the prohibited transferee for the shares or, in the
case of a transfer of shares to a trust resulting from an event other
than an actual acquisition of shares by a prohibited transferee, the fair
market value, on the date of transfer to the trust, of the shares so
transferred; or
(2) the fair market value of the shares on the date of transfer by the
trustee.
Any proceeds in excess of this amount will be paid to the charitable
beneficiary. In addition, we would have the right, during the time period prior
to the sale of the excess preferred shares by the trustee, to purchase all or
any portion of such shares from the trustee at a price equal to the lesser of:
(1) the price paid by the prohibited transferee for the shares or, in the
case of a transfer of shares to a trust resulting from an event other
than an actual acquisition of shares by a prohibited transferee, the fair
market value, on the date of transfer to the trust, of the shares so
transferred; or
(2) the fair market value of the shares on the date the Company exercise our
option to purchase the shares.
In addition, if the board of directors shall at any time determine in good
faith that any person intends to own or acquire, has purported to own or acquire
or may own or acquire actual or constructive ownership of any preferred shares
in violation of the preferred share ownership limit, the board of directors is
authorized to take such action as it deems advisable to refuse to give effect to
or to prevent such ownership or acquisition, including, but not limited to:
(1) causing us to redeem the shares at the market price thereof determined
on the earlier of the date of such redemption and the date of the
purported ownership or acquisition, and upon such other terms and
conditions (including limited notice or no notice, except as otherwise
required by law) as may be specified by the board of directors in its
sole discretion;
(2) refusing to give effect to the ownership or acquisition on our books; or
(3) instituting proceedings to enjoin the ownership or acquisition.
The board of directors will be entitled to waive the preferred share
ownership limit with respect to a particular shareholder if evidence
satisfactory to the board of directors and the our tax counsel is presented that
such ownership will not then or in the future jeopardize our status as a REIT.
As a condition of such waiver, the board of directors may require opinions of
counsel satisfactory to it and/or an understanding from the applicant with
respect to preserving our REIT status.
All certificates representing preferred shares will bear a legend referring
to the restrictions described above.
All persons who own a specified percentage (or more) of our outstanding
capital shares must file an affidavit with us containing information regarding
their ownership of shares as set forth in the Treasury Regulations. Under
current Treasury Regulations, the percentage is set between one-half of one
percent and five percent, depending on the number of record holders of capital
shares. In addition, each shareholder shall upon demand be required to disclose
to us in writing the information with respect to the direct, indirect, and
constructive ownership of our capital shares as the board of directors deems
necessary to comply with the provisions of the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
38
DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue depositary receipts for depositary shares, each of
which will represent a fractional interest of a share of a particular class or
series of our preferred shares, as specified in the applicable prospectus
supplement. In this section, the terms "we," "our" and "us" refer to the Company
and not the Operating Partnership. Preferred shares of each class or series
represented by depositary shares will be deposited under a separate deposit
agreement among the Company, the depositary named therein and the holders from
time to time of the depositary receipts. Subject to the terms of the deposit
agreement, each owner of a depositary receipt will be entitled, in proportion to
the fractional interest of a share of a particular class or series of preferred
shares represented by the depositary shares evidenced by the depositary receipt,
to all the rights and preferences of the preferred shares represented by the
depositary shares (including dividend, voting, conversion, redemption and
liquidation rights).
The depositary shares will be evidenced by depositary receipts issued
pursuant to the applicable deposit agreement. Immediately following the issuance
and delivery of the preferred shares to the preferred shares depositary, we will
cause the preferred share depositary to issue, on our behalf, the depositary
receipts. Copies of the applicable form of deposit agreement and depositary
receipt may be obtained from us upon request, and the following summary is
qualified in its entirety by reference thereto.
DIVIDENDS AND OTHER DISTRIBUTIONS
The preferred share depositary will distribute all cash dividends or other
cash distributions received in respect of the preferred shares to the record
holders of depositary receipts evidencing the related depositary shares in
proportion to the number of the depositary receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the preferred share
depositary.
In the event of a distribution other than in cash, the preferred share
depositary will distribute property received by it to the record holders of
depositary receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the preferred share depositary, unless the preferred share
depositary determines that it is not feasible to make such distribution, in
which case the preferred share depositary may, with our approval sell such
property and distribute the net proceeds from such sale to such holders.
WITHDRAWAL
Upon surrender of the depositary receipts at the corporate trust office of
the preferred share depositary (unless the related depositary shares have
previously been called for redemption or converted), the holders thereof will be
entitled to delivery at such office, to or upon such holder's order, of the
number of whole or fractional preferred shares and any money or other property
represented by the depositary shares evidenced by the depositary receipts.
Holders of depositary receipts will be entitled to receive whole or fractional
shares of the related preferred shares on the basis of the proportion of
preferred shares represented by each depositary share as specified in the
applicable prospectus supplement, but holders of such preferred shares will not
thereafter be entitled to receive depositary shares therefor. If the depositary
receipts delivered by the holder evidence a number of depositary shares in
excess of the number of depositary shares representing the number of preferred
shares to be withdrawn, the preferred share depositary will deliver to such
holder at the same time a new depositary receipt evidencing such excess number
of depositary shares.
39
REDEMPTION
Whenever we redeems preferred shares held by the preferred share depositary,
the preferred share depositary will redeem as of the same redemption date the
number of depositary shares representing the preferred shares so redeemed,
provided us shall have paid in full to the preferred share depositary the
redemption price of the preferred shares to be redeemed plus an amount equal to
any accrued and unpaid dividends thereon to the date fixed for redemption. The
redemption price per depositary share will be equal to the related fractional
interest of the redemption price and any other amounts per share payable with
respect to the preferred shares. If fewer than all the depositary shares are to
be redeemed, the depositary shares to be redeemed will be selected pro rata (as
nearly as may be practicable without creating fractional depositary shares) or
by any other equitable method determined by us that will not result in the
automatic redemption of the preferred shares or the automatic conversion of
preferred shares into excess preferred shares which are transferred to a
charitable trust. See "Description of Preferred Shares--Restrictions on
Ownership and Transfer."
After the date fixed for redemption, the depositary shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the depositary receipts evidencing the depositary shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
depositary receipts are entitled upon such redemption upon surrender thereof to
the preferred share depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of the preferred
shares are entitled to vote, the preferred share depositary will mail the
information contained in such notice of meeting to the record holders of the
depositary receipts evidencing the depositary shares which represent such
preferred shares. Each record holder of depositary receipts evidencing
depositary shares on the record date (which will be the same date as the record
date for the preferred shares) will be entitled to instruct the preferred share
depositary as to the exercise of the voting rights pertaining to the amount of
preferred stock represented by such holder's depositary shares. The preferred
share depositary will vote the number of preferred shares represented by such
depositary shares in accordance with such instructions, and we have agreed to
take all reasonable action which may be deemed necessary by the preferred share
depositary in order to enable the preferred share depositary to do so. The
preferred share depositary will abstain from voting the number of preferred
shares represented by the depositary shares to the extent that it does not
receive specific instructions from the holders of depositary receipts evidencing
such depositary shares. The preferred share depositary shall not be responsible
for any failure to carry out any instruction to vote, or for the manner or
effect of any such vote made, as long as any such action or non-action is in
good faith and does not result from negligence or willful misconduct of the
preferred share depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each depositary share will be
entitled to the fractional interest of the liquidation preference accorded each
preferred share represented by the depositary share evidenced by the depositary
receipt, as set forth in the applicable prospectus supplement.
CONVERSION
The depositary shares, as such, are not convertible or exchangeable into our
common shares or any other securities or property, except in connection with
certain conversions in connection with the preservation of our status as a REIT.
See "Description of Preferred Shares--Restrictions on Ownership and Transfer."
Nevertheless, if the preferred shares represented by the depositary shares are
specified
40
in the applicable prospectus supplement to be convertible into common shares or
other preferred shares, the depositary receipts evidencing such depositary
shares may be surrendered by holders thereof to the preferred share depositary
with written instructions to the preferred share depositary to instruct us to
cause conversion of the preferred shares into whole common shares or other
preferred shares (including excess preferred shares), and we have agreed that
upon receipt of such instructions and any amounts payable in respect thereof, we
will cause the conversion thereof utilizing the same procedures as those
provided for delivery of preferred shares to effect such conversion. If the
depositary shares evidenced by a depositary receipt are to be converted in part
only, a new depositary receipt or receipts will be issued for any depositary
shares not to be converted. No fractional common shares will be issued upon
conversion, and if such conversion will result in a fractional share being
issued, an amount will be paid in cash by us equal to the value of the
fractional interest based upon the closing price of our common shares on the
last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The depositary receipt evidencing the depositary shares which represent the
preferred shares and any provision of the deposit agreement may at any time be
amended by agreement between the Company and the preferred share depositary.
However, any amendment that materially and adversely alters the rights of the
holders of depositary receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related preferred
shares will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the depositary shares evidenced by
the depositary receipts then outstanding. No amendment shall impair the right,
subject to certain exceptions in the depositary agreement, of any holder of
depositary receipts to surrender any depositary receipt with instructions to
deliver to the holder the related preferred shares and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding depositary receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the depositary receipt or
deposit agreement, as the case may be, as amended thereby.
We may terminate the deposit agreement upon not less than 30 days' prior
written notice to the preferred share depositary if:
(1) the termination is necessary to preserve our status as a REIT; or
(2) a majority of each series of preferred shares affected by termination
consents to such termination, whereupon the preferred share depositary
shall deliver or make available to each holder of depositary receipts,
upon surrender of the depositary receipts held by such holder, such
number of whole or fractional preferred shares as are represented by the
depositary shares evidenced by the depositary receipts, together with any
other property held by the preferred share depositary with respect to
each depositary receipt.
We have agreed that if the deposit agreement is terminated to preserve the
our status as a REIT, then we will use our best efforts to list the preferred
shares issued upon surrender of the related depositary shares on a national
securities exchange. In addition, the deposit agreement will automatically
terminate if:
(1) all outstanding depositary shares shall have been redeemed;
(2) there shall have been a final distribution in respect of the related
preferred shares in connection with any liquidation, dissolution or
winding up of the Company and such distribution shall have been
distributed to the holders of depositary receipts evidencing the
depositary shares representing the preferred shares; or
41
(3) all outstanding preferred shares shall have been converted into common
shares or other preferred shares.
CHARGES OF PREFERRED SHARE DEPOSITARY
We will pay all transfer and other taxes and governmental charges arising
solely from the existence of the deposit agreement. In addition, we will pay the
fees and expenses of the preferred share depositary in connection with the
performance of its duties under the deposit agreement. However, holders of
depositary receipts will pay certain other transfer and other taxes and
governmental charges, as well as the fees and expenses of the preferred share
depositary for any duties requested by such holder to be performed which are
outside of those expressly provided for in the deposit agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The preferred share depositary may resign at any time by delivering to us
notice of its election to do so, and we may at any time remove the preferred
share depositary, any resignation or removal to take effect upon the appointment
of a successor preferred share depositary. A successor preferred share
depositary must be appointed within 60 days after delivery of the notice of
resignation or removal and must be a bank or trust company having its principal
office in the United States and having a combined capital and surplus of at
least $50,000,000.
MISCELLANEOUS
The preferred share depositary will forward to holders of depositary
receipts any reports and communications from us which are received by it with
respect to the related preferred shares.
Neither we nor the preferred share depositary will be liable if prevented or
delayed, by law or any circumstances beyond its control, from performing its
obligations under the deposit agreement. Our obligations, and the preferred
share depositary under the deposit agreement will be limited to performing the
duties thereunder in good faith and without negligence (in the case of any
action or inaction in the voting of preferred shares represented by the
depositary shares), gross negligence or willful misconduct, and we and the
preferred share depositary will not be obligated to prosecute or defend any
legal proceeding in respect of any depositary receipts, depositary shares or any
preferred shares represented thereby unless satisfactory indemnity is furnished.
We and the Preferred Share Depositary may rely on written advice of counsel or
accountants, or information provided by persons presenting preferred shares
represented thereby for deposit, holders of depositary receipts or other persons
believed in good faith to be competent to give such information, and on
documents believed in good faith to be genuine and signed by a proper party.
In the event the preferred share depositary shall receive conflicting
claims, requests or instructions from any holders of depositary receipts, on the
one hand, and us, on the other hand, the preferred share depositary shall be
entitled to act on such claims, requests or instructions received from us.
42
MATERIAL FEDERAL INCOME TAX CONSIDERATIONS TO
TANGER FACTORY OUTLET CENTERS, INC.
The following is a summary of the federal income tax considerations to us
which are anticipated to be material to purchasers of our securities. This
summary is based on current law, is for general information only and is not tax
advice. The tax treatment of a holder of any of our securities will vary
depending upon the terms of the specific securities acquired by such holder, as
well as the holder's particular situation. This discussion does not attempt to
address any aspects of federal income taxation relating to holders of the
securities. Federal income tax considerations relevant to holders of the
securities may be provided in the applicable prospectus supplement relating
thereto. You are urged to review the applicable prospectus supplement in
connection with the purchase of any of our securities.
The information in this section is based on:
-- the Internal Revenue Code;
-- current, temporary and proposed treasury regulations promulgated
under the Internal Revenue Code;
-- the legislative history of the Internal Revenue Code;
-- current administrative interpretations and practices of the Internal
Revenue Service; and
-- court decisions,
all as of the date of this prospectus. In addition, the administrative
interpretations and practices of the Internal Revenue Service include its
practices and policies as expressed in private letter rulings which are not
binding on the Internal Revenue Service, except with respect to the particular
taxpayers who requested and received such rulings. Future legislation, treasury
regulations, administrative interpretations and practices and/or court decisions
may adversely affect, perhaps retroactively, the tax considerations contained in
this discussion. Any change could apply retroactively to transactions preceding
the date of the change. We have not requested, and do not plan to request, any
rulings from the Internal Revenue Service concerning our tax treatment and the
statements in this prospectus are not binding on the Internal Revenue Service or
a court. Thus, we can provide no assurance that the tax considerations contained
in this discussion will not be challenged by the Internal Revenue Service or
sustained by a court if challenged by the Internal Revenue Service.
YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE SPECIFIC TAX
CONSEQUENCES TO YOU OF:
-- THE ACQUISITION, OWNERSHIP AND SALE OR OTHER DISPOSITION OF OUR
SECURITIES, INCLUDING THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX CONSEQUENCES;
-- OUR ELECTION TO BE TAXED AS A REAL ESTATE INVESTMENT TRUST FOR
FEDERAL INCOME TAX PURPOSES; AND
-- POTENTIAL CHANGES IN THE TAX LAWS.
TAXATION OF TANGER FACTORY OUTLET CENTERS, INC.
GENERAL
We elected to be taxed as a real estate investment trust under Sections 856
through 860 of the Internal Revenue Code, commencing with our taxable year ended
December 31, 1993. We believe we have been organized and have operated in a
manner which allows us to qualify for taxation as a real estate investment trust
under the Internal Revenue Code commencing with our taxable year ended
December 31, 1993. We intend to continue to operate in this manner. However, no
assurance can be given that we have operated or will continue to operate in a
manner so as to qualify or remain qualified as a real estate investment trust.
See "--Failure to Qualify" on page 49.
The sections of the Internal Revenue Code that relate to the qualification
and operation as a real estate investment trust are highly technical and
complex. The following describes the material aspects of these sections of the
Internal Revenue Code that govern the federal income tax treatment of a real
estate investment trust. This summary is qualified in its entirety by the
Internal Revenue Code, relevant
43
rules and treasury regulations promulgated under the Internal Revenue Code, and
administrative and judicial interpretations of the Internal Revenue Code, and
these rules and treasury regulations.
Unless we specify otherwise in the applicable prospectus supplement, as a
condition of the closing of each offering of equity securities under this
prospectus, our tax counsel will render an opinion to the underwriters of the
offering to the effect that, commencing with our taxable year ended
December 31, 1993, we have been organized and have operated in conformity with
the requirements for qualification and taxation as a real estate investment
trust under the Internal Revenue Code, and our proposed method of operation will
enable us to continue to meet the requirements for qualification and taxation as
a real estate investment trust under the Internal Revenue Code. It must be
emphasized that this opinion will be based on various assumptions and
representations made by us as to factual matters, including representations made
by us in this prospectus, the applicable prospectus supplement and a factual
certificate provided by one of our officers. Our counsel will have no obligation
to update its opinion subsequent to its date. Moreover, such qualification and
taxation as a real estate investment trust depends upon our ability to meet the
various qualification tests imposed under the Internal Revenue Code and
discussed below, relating to our actual annual operating results, asset
diversification, distribution levels and diversity of share ownership, the
results of which have not been and will not be reviewed by our tax counsel.
Accordingly, no assurance can be given that the actual results of our operation
for any particular taxable year will satisfy such requirements. See "--Failure
to Qualify" on page 49.
If we qualify for taxation as a real estate investment trust, we generally
will not be required to pay federal corporate income taxes on our net income
that is currently distributed to our stockholders. This treatment substantially
eliminates the "double taxation" that generally results from investment in a
corporation. Double taxation means taxation once at the corporate level when
income is earned and once again at the shareholder level when such income is
distributed. We will be required to pay federal income taxes, however, as
follows:
-- We will be required to pay tax at regular corporate rates on any
undistributed "real estate investment trust taxable income,"
including undistributed net capital gains.
-- We may be required to pay the "alternative minimum tax" on our items
of tax preference.
-- If we have (a) net income from the sale or other disposition of
"foreclosure property," which is held primarily for sale to customers
in the ordinary course of business or (b) other nonqualifying income
from foreclosure property, we will be required to pay tax at the
highest corporate rate on this income. Foreclosure property is
generally defined as property acquired through foreclosure or after a
default on a loan secured by the property or on a lease of the
property.
-- We will be required to pay a 100% tax on any net income from
prohibited transactions. Prohibited transactions are, in general,
sales or other taxable dispositions of property, other than
foreclosure property, held primarily for sale to customers in the
ordinary course of business.
-- If we fail to satisfy the 75% or 95% gross income test, as described
below, but have maintained our qualification as a real estate
investment trust, we will be required to pay a 100% tax on an amount
equal to (a) the gross income attributable to the greater of the
amount by which we fail the 75% or 95% gross income test multiplied
by (b) a fraction intended to reflect our profitability.
-- We will be required to pay a 4% excise tax on the excess of the
required distribution over the amounts actually distributed if we
fail to distribute during each calendar year at least the sum of
(a) 85% of our ordinary income for the year, (b) 95% of our real
estate investment trust capital gain net income for the year, and
(c) any undistributed taxable income from prior periods.
44
-- If we acquire any asset from a corporation which is or has been a C
corporation in a transaction in which the basis of the asset in our
hands is determined by reference to the basis of the asset in the
hands of the C corporation, and we subsequently recognize gain on the
disposition of the asset during the ten-year period beginning on the
date on which we acquired the asset, then we will be required to pay
tax at the highest regular corporate tax rate on this gain to the
extent of the excess of (a) the fair market value of the asset over
(b) our adjusted basis in the asset, in each case determined as of
the date on which we acquired the asset. A C corporation is generally
defined as a corporation required to pay full corporate-level tax.
The results described in this paragraph with respect to the
recognition of such gain assume that we have made and will make a
timely election under the relevant Treasury Regulations. We have
timely filed the election provided by the relevant Treasury
Regulations and we intend to timely file all other similar elections.
REQUIREMENTS FOR QUALIFICATION AS A REAL ESTATE INVESTMENT TRUST
The Internal Revenue Code defines a real estate investment trust as a
corporation, trust or association:
(1) that is managed by one or more trustees or directors;
(2) that issues transferable shares or transferable certificates to evidence
beneficial ownership;
(3) that would be taxable as a domestic corporation, but for Sections 856
through 860 of the Internal Revenue Code;
(4) that is not a financial institution or an insurance company within the
meaning of the Internal Revenue Code;
(5) that is beneficially owned by 100 or more persons;
(6) not more than 50% in value of the outstanding stock of which is owned,
actually or constructively, by five or fewer individuals, including
specified entities, during the last half of each taxable year; and
(7) that meets other tests, described below, regarding the nature of its
income and assets and the amount of its distributions.
The Internal Revenue Code provides that conditions (1) to (4), inclusive,
must be met during the entire taxable year and that condition (5) must be met
during at least 335 days of a taxable year of twelve months, or during a
proportionate part of a taxable year of less than twelve months. Conditions
(5) and (6) do not apply until after the first taxable year for which an
election is made to be taxed as a real estate investment trust. For purposes of
condition (6), specified tax-exempt entities, including pension funds, generally
are treated as individuals, except a "look-through" exception applies with
respect to pension funds.
We believe that we have satisfied conditions (1) through (7) inclusive. In
addition, our charter provides for restrictions regarding the ownership and
transfer of our shares. These restrictions are intended to assist us in
continuing to satisfy the share ownership requirements described in (5) and
(6) above. These stock ownership and transfer restrictions are described in
"Restrictions on Ownership and Transfer." These restrictions, however, may not
ensure that we will, in all cases, be able to satisfy the share ownership
requirements described in (5) and (6) above. If we fail to satisfy these share
ownership requirements, our status as a real estate investment trust will
terminate. If, however, we comply with the rules contained in the treasury
regulations that require us to ascertain the actual ownership of our shares and
we do not know, or would not have known through the exercise of reasonable
diligence, that we failed to meet the requirement described in condition
(6) above, we will be treated as having met this requirement.
In addition, a corporation may not elect to become a real estate investment
trust unless its taxable year is the calendar year. We have and will continue to
have a calendar taxable year.
45
QUALIFIED REAL ESTATE INVESTMENT TRUST SUBSIDIARIES
We own a number of properties through wholly owned subsidiaries that we
believe will be treated as "qualified REIT subsidiaries" under Internal Revenue
Code Section 856(i). A qualified REIT subsidiary will not be treated as a
separate corporation, and all assets, liabilities, and items of income,
deduction, and credit of a qualified REIT subsidiary shall be treated as assets,
liabilities and such items, as the case may be, of the real estate investment
trust. Thus, in applying the requirements described in this prospectus, our
qualified REIT subsidiaries will be ignored, and all assets, liabilities and
items of income, deduction and credit of such subsidiaries will be treated as
our assets, liabilities and such items. A qualified REIT subsidiary will not be
subject to federal income tax, and our ownership of the shares of a qualified
REIT subsidiary will not violate the restrictions against ownership of
securities of any one issuer which constitutes more than 10% of such issuer's
securities or more than 5% of the value of our total assets.
INCOME TESTS
We must satisfy two gross income requirements annually to maintain our
qualification as a real estate investment trust.
-- First, each taxable year we must derive directly or indirectly at
least 75% of our gross income, excluding gross income from prohibited
transactions, from (a) investments relating to real property or
mortgages on real property, including "rents from real property" and,
in some circumstances, interest, or (b) specified types of temporary
investments.
-- Second, each taxable year we must derive at least 95% of our gross
income, excluding gross income from prohibited transactions, from
(a) the real property investments described above, (b) dividends,
interest and gain from the sale or disposition of shares or
securities, or (c) any combination of the foregoing.
For these purposes, the term "interest" generally does not include any
amount received or accrued, directly or indirectly, if the determination of all
or some of the amount depends in any way on the income or profits of any person.
An amount received or accrued generally will not be excluded from the term
"interest," however, solely by reason of being based on a fixed percentage or
percentages of receipts or sales.
Rents we receive will qualify as "rents from real property" in satisfying
the gross income requirements for a real estate investment trust described above
only if the following conditions are met:
-- the amount of rent must not be based in any way on the income or
profits of any person. An amount received or accrued generally will
not be excluded from the term "rents from real property," however,
solely by reason of being based on a fixed percentage or percentages
of receipts or sales;
-- the Internal Revenue Code provides that rents received from a tenant
will not qualify as "rents from real property" in satisfying the
gross income tests if we, or an actual or constructive owner of 10%
or more of our capital shares, actually or constructively owns 10% or
more of the interests in such tenant;
-- if rent attributable to personal property, leased in connection with
a lease of real property, is greater than 15% of the total rent
received under the lease, then the portion of rent attributable to
personal property will not qualify as "rents from real property"; and
-- for rents received to qualify as "rents from real property," we
generally must not operate or manage the property or furnish or
render services to the tenants of the property, subject to a 1% DE
MINIMIS exception, other than through an independent contractor from
whom we derive no revenue. We may, however, directly perform services
that are "usually or customarily rendered" in connection with the
rental of space for occupancy only and are not otherwise considered
"rendered to the occupant" of the property. Examples of such services
include the provision of light, heat, or other utilities, trash
removal and general
46
maintenance of common areas. In addition, we may employ a taxable
corporation, which is wholly or partially owned by us and which
elects jointly with us to be treated as our "taxable REIT
subsidiary," to provide both customary and noncustomary services to
our tenants without causing the rent we receive from those tenants to
fail to qualify as "rents from real property."
We do not intend to receive rent which fails to qualify as "rents from real
property." However, we may have failed to satisfy, and may continue to fail to
satisfy, some of the conditions described above to the extent these failures
will not, based on the advice of our tax counsel, jeopardize our status as a
real estate investment trust.
If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a real estate investment trust
for the year if we are entitled to relief under the Internal Revenue Code.
Generally, we may avail ourselves of the relief provisions if:
-- our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
-- we attach a schedule of the sources of our income to our federal
income tax return; and
-- any incorrect information on the schedule was not due to fraud with
intent to evade tax.
It is not possible, however, to state whether in all circumstances we would
be entitled to the benefit of these relief provisions. For example, if we fail
to satisfy the gross income tests because nonqualifying income that we
intentionally accrue or receive exceeds the limits on nonqualifying income, the
Internal Revenue Service could conclude that our failure to satisfy the tests
was not due to reasonable cause. If these relief provisions do not apply to a
particular set of circumstances, we will not qualify as a real estate investment
trust. As discussed above in "--Taxation of Tanger Factory Outlet
Centers, Inc.--General" on page 43, even if these relief provisions apply, and
we retain our status as a real estate investment trust, a tax would be imposed
with respect to our nonqualifying income. We may not always be able to maintain
compliance with the gross income tests for real estate investment trust
qualification despite our periodic monitoring of our income.
PROHIBITED TRANSACTION INCOME
Any gain realized by us on the sale of any property held as inventory or
other property held primarily for sale to customers in the ordinary course of
business will be treated as income from a prohibited transaction that is subject
to a 100% penalty tax. Our gain includes our share of any such gain realized by
any partnerships or limited liability companies in which we own an interest or
by our qualified REIT subsidiaries. This prohibited transaction income may also
adversely affect our ability to satisfy the income tests for qualification as a
real estate investment trust. Under existing law, whether property is held as
inventory or primarily for sale to customers in the ordinary course of a trade
or business depends on all the facts and circumstances surrounding the
particular transaction. We intend to hold our properties for investment with a
view to long-term appreciation, to engage in the business of acquiring,
developing and owning our properties and other properties. We intend to make
occasional sales of our properties as are consistent with our investment
objectives. The Internal Revenue Service may contend, however, that one or more
of these sales is subject to the 100% penalty tax.
ASSET TESTS
At the close of each quarter of our taxable year, we also must satisfy four
tests relating to the nature and diversification of our assets:
-- First, at least 75% of the value of our assets must be represented by
real estate assets, cash, cash items and government securities. For
purposes of this test, real estate assets include stock or debt
instruments that are purchased with the proceeds of a share offering
or a public debt offering with a term of at least five years, but
only for the one year period beginning on the date we received such
proceeds.
47
-- Second, not more than 25% of our total assets may be represented by
securities, other than those securities includable in the 75% asset
test.
-- Third, not more than 20% of the value of our total assets may be
represented by securities of one or more taxable REIT subsidiaries.
-- Fourth, except for the securities of a taxable REIT subsidiary and
securities included in the 75% asset test, not more than 5% of the
value of our assets may be represented by securities of any one
issuer, we may not own more than 10% of any one issuer's outstanding
voting securities and we may not own more than 10% of the value of
any one issuer's securities. For purposes of the 10% value test,
securities do not include straight debt that we own if the issuer is
an individual, neither we nor any of our taxable REIT subsidiaries
owns any security of the issuer other than straight debt or if the
issuer is a partnership, we own at least 20% of a profits interest in
the partnership. Straight debt is any written unconditional promise
to pay on demand or on a specified date a fixed amount of money if
the interest rate and interest payment dates are not contingent on
profits, the borrower's discretion or similar factors and the debt is
not convertible, directly or indirectly, into stock.
After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a real estate investment trust for failure to satisfy the
asset tests at the end of a later quarter solely by reason of changes in asset
values. If we fail to satisfy the asset tests because we acquire securities or
other property during a quarter, we can cure this failure by disposing of
sufficient nonqualifying assets within 30 days after the close of that quarter.
For this purpose, an increase in our interests in a partnership or limited
liability company will be treated as an acquisition of a portion of the
securities or other property owned by the partnership or limited liability
company. We believe we have maintained and intend to continue to maintain
adequate records of the value of our assets to ensure compliance with the asset
tests. In addition, we intend to take such other actions within the 30 days
after the close of any quarter as may be required to cure any noncompliance. If
we fail to cure noncompliance with the asset tests within this time period, we
would cease to qualify as a real estate investment trust.
ANNUAL DISTRIBUTION REQUIREMENTS
To maintain our qualification as a real estate investment trust, we are
required to distribute dividends, other than capital gain dividends, to our
shareholders in an amount at least equal to the sum of:
-- 90% of our "REIT taxable income;" and
-- 90% of our after tax net income, if any, from foreclosure property;
minus
-- the excess of the sum of specified items of non-cash income over 5%
of "REIT taxable income" as described above. Our "REIT taxable
income" is computed without regard to the dividends paid deduction
and our net capital gain. For purposes of this test, non-cash income
means income attributable to leveled stepped rents, original issue
discount on purchase money debt, or a like-kind exchange that is
later determined to be taxable.
In addition, if we dispose of any asset we acquired from a corporation which
is or has been a C corporation in a transaction in which our basis in the asset
is determined by reference to the basis of the asset in the hands of the C
corporation within the ten-year period following our acquisition of such asset,
we would be required, to distribute at least 90% of the after-tax gain, if any,
recognized by us on the disposition of the asset, to the extent such gain does
not exceed the excess of (a) the fair market value of the asset on the date we
acquired the asset over (b) our adjusted basis in the asset on the date we
acquired the asset.
These distributions must be paid in the taxable year to which they relate,
or in the following taxable year if they are declared before we timely file our
tax return for such year and if paid on or
48
before the first regular dividend payment after such declaration. The amount
distributed must not be preferential. To avoid this treatment, every shareholder
of the class of shares to which a distribution is made must be treated the same
as every other shareholder of that class, and no class of shares may be treated
other than according to its dividend rights as a class. To the extent that we do
not distribute all of our net capital gain or distribute at least 90%, but less
than 100%, of our "REIT taxable income," as adjusted, we will be required to pay
tax on this income at regular ordinary and capital gain corporate tax rates. We
believe we have made and intend to continue to make timely distributions
sufficient to satisfy these annual distribution requirements.
We expect that our "REIT taxable income" will be less than our cash flow due
to the allowance for depreciation and other non-cash charges in computing "REIT
taxable income." Accordingly, we anticipate that we will generally have
sufficient cash or liquid assets to enable us to satisfy the distribution
requirements described above. However, it is possible that we may not have
sufficient cash or other liquid assets to meet these distribution requirements
due to timing differences between the actual receipt of income and actual
payment of deductible expenses, and the inclusion of income and deduction of
expenses in arriving at our taxable income. If these timing differences occur,
in order to meet the distribution requirements, we may need to arrange for
short-term, or possibly long-term, borrowings or need to pay dividends in the
form of taxable share dividends.
We may be able to rectify an inadvertent failure to meet the distribution
requirement for a year by paying "deficiency dividends" to shareholders in a
later year, which may be included in our deduction for dividends paid for the
earlier year. Thus, we may be able to avoid being subject to tax on amounts
distributed as deficiency dividends. We will be required, however, to pay
interest to the Internal Revenue Service based upon the amount of any deduction
claimed for deficiency dividends.
Furthermore, we would be required to pay a 4% excise tax on the excess of
the required distribution over the amount, if any, by which our actual annual
distributions during a calendar year are less than the sum of 85% of our
ordinary income for the year, 95% of our capital gain income for the year and
any undistributed taxable income from prior periods. Distributions with
declaration and record dates falling in the last three months of the calendar
year, which are made by the end of January immediately following such year, will
be treated as made on December 31 of the prior year. Any taxable income and net
capital gain on which this excise tax is imposed for any year is treated as an
amount distributed during that year for purposes of calculating such tax.
FAILURE TO QUALIFY
If we fail to qualify for taxation as a real estate investment trust in any
taxable year, and the relief provisions of the Internal Revenue Code do not
apply, we will be required to pay tax, including any alternative minimum tax and
possibly increased state and local taxes, on our taxable income at regular
corporate rates. Distributions to shareholders in any year in which we fail to
qualify as a real estate investment trust will not be deductible by us and we
will not be required to distribute any amounts to our shareholders. As a result,
we anticipate that our failure to qualify as a real estate investment trust
would reduce the cash available for distribution by us to our shareholders. In
addition, if we fail to quality as a real estate investment trust, shareholders
will be required to pay tax on all distributions to them at ordinary income
rates to the extent of our current and accumulated earnings and profits. In this
event, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, we
will also be disqualified from taxation as a real estate investment trust for
the four taxable years following the year during which we lost our
qualification. It is not possible to state whether in all circumstances we would
be entitled to this statutory relief.
49
TAX ASPECTS OF THE OPERATING PARTNERSHIP
GENERAL
Substantially all of the Company's investments are held through the
Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to federal income tax. Rather, partners are allocated
their proportionate shares of the items of income, gain, loss, deduction and
credit of a partnership, and are potentially subject to tax thereon, without
regard to whether the partners receive a distribution from the partnership. The
Company includes in its income its proportionate share of the foregoing
Operating Partnership items for purposes of the various REIT income tests and in
the computation of its REIT taxable income. Moreover, for purposes of the REIT
asset tests, the Company includes its proportionate share of assets held by the
Operating Partnership.
ENTITY CLASSIFICATION
Treasury Regulations that apply for tax periods beginning on or after
January 1, 1997 provide that an "eligible entity" may elect to be taxed as a
partnership for federal income tax purposes. An eligible entity is a domestic
business entity not otherwise classified as a corporation and which has at least
two members. Unless it elects otherwise, an eligible entity in existence prior
to January 1, 1997 will have the same classification for federal income tax
purposes that it claimed under the entity classification Treasury Regulations in
effect prior to this date. Such an entity's claimed classification will be
respected for all prior periods so long as the entity had a reasonable basis for
its claimed classification and certain other requirements are met. In addition,
an eligible entity which did not exist, or did not claim a classification, prior
to January 1, 1997, will be classified as a partnership for federal income tax
purposes unless it elects otherwise. The Operating Partnership met the
requirements for classification as a partnership under prior law for all periods
prior to January 1, 1997 and has claimed and will continue to claim
classification as a partnership. Therefore, under the current treasury
regulations, the Operating Partnership will be taxed as a partnership.
TAX ALLOCATIONS WITH RESPECT TO THE CENTERS
Pursuant to Section 704(c) of the Code, income, gain, loss and deduction
attributable to appreciated or depreciated property (such as the Centers) that
is contributed to a partnership in exchange for an interest in the Partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of contributed property at the time of contribution, and
the adjusted tax basis of such property at the time of contribution (a "Book-Tax
Difference"). Such allocations are solely for federal income tax purposes and do
not affect the book capital accounts or other economic or legal arrangements
among the partners. The Operating Partnership was formed by way of contributions
of appreciated property. Consequently, the Partnership Agreement requires such
allocations to be made in a manner consistent with Section 704(c) of the Code.
In general, the Tanger Family Partnership will be allocated lower amounts of
depreciation deductions for tax purposes than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to the
Tanger Family Partnership, and the Company will generally be allocated only its
share of capital gains attributable to appreciation, if any, occurring after the
contribution of such assets to the Operating Partnership. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale.
50
Thus, the carryover basis of the contributed assets in the hands of the
Operating Partnership will cause the Company to be allocated lower depreciation
and other deductions, and possibly amounts of taxable income in the event of a
sale of such contributed assets in excess of the economic or book income
allocated to it as a result of such sale. This may cause the Company to
recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "--Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" under current law, or the
election of certain methods which would permit any distortions caused by a
Book-Tax Difference to be entirely rectified on an annual basis or with respect
to a specific taxable transaction such as a sale. The Operating Partnership and
the Company have determined to use the "traditional method" for accounting for
Book-Tax Differences with respect to the Centers initially contributed to the
Partnership. As a result of such determination, distributions to shareholders
will be comprised of a greater portion of taxable income rather than a return of
capital. The Operating Partnership and the Company have not determined which of
the alternative methods of accounting for Book-Tax Differences will be elected
with respect to Centers contributed to the Partnership in the future.
With respect to the Centers initially contributed to the Operating
Partnership by the Company, as well as any property purchased by the Operating
Partnership subsequent to the admission of the Company to the Operating
Partnership, such property will initially have a tax basis equal to its fair
market value and Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST
The Company's adjusted tax basis in its interest in the Operating
Partnership generally (i) will be equal to the amount of cash and the basis of
any other property contributed to the Operating Partnership by the Company,
(ii) will be increased by (a) its allocable share of the Operating Partnership's
income and (b) its allocable share of indebtedness of the Operating Partnership
and (iii) will be reduced, but not below zero, by the Company's allocable share
of (a) losses suffered by the Operating Partnership, (b) the amount of cash
distributed to the Company and (c) by constructive distributions resulting from
a reduction in the Company's share of indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year for corporations), the distributions and constructive
distributions will constitute long-term capital gains. Under current law,
capital gains and ordinary income of corporations are generally taxed at the
same marginal rates.
SALE OF THE CENTERS
The Company's share of any gain realized by the Operating Partnership on the
sale of any property held by the Operating Partnership as inventory or other
property held primarily for sale to customers in the ordinary course of the
Operating Partnership's trade or business will be treated as
51
income from a prohibited transaction that is subject to a 100% penalty tax. See
"--Income Tests." Such prohibited transaction income may also have an adverse
effect upon the Company's ability to satisfy the income tests for qualification
as a REIT. See "Taxation of Tanger Factory Outlet Centers, Inc.--General." Under
existing law, whether property is held as inventory or primarily for sale to
customers in the ordinary course of the Operating Partnership's trade or
business is a question of fact that depends on all the facts and circumstances
with respect to the particular transaction. The Operating Partnership intends to
hold the Centers for investment with a view to long-term appreciation, to engage
in the business of acquiring, developing, owning, and operating the Centers (and
other shopping centers) and to make such occasional sales of the Centers,
including peripheral land, as are consistent with the Operating Partnership's
investment objectives.
OTHER TAX CONSEQUENCES
The Company may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Company may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may offer the securities to one or
more underwriters for public offering and sale by them or may sell the
securities to investors directly or through agents. Any such underwriter or
agent involved in the offer and sale of the securities will be named in the
applicable prospectus supplement.
Underwriters may offer and sell the securities at a fixed price or prices,
which may be changed, at prices related to the prevailing market prices at the
time of sale or at negotiated prices. The Company and the Operating Partnership
may, from time to time, authorize underwriters acting as the Company's agents to
offer and sell the securities upon the terms and conditions as are set forth in
the applicable prospectus supplement. In connection with the sale of the
securities, underwriters may be deemed to have received compensation from the
Company or the Operating Partnership in the form of underwriting discounts or
commissions and may also receive commissions from purchasers of securities for
whom they may act as agent. Underwriters may sell the securities to or through
dealers, and such dealers may receive compensation in the form of discounts,
concessions or commissions from the underwriters and/or commissions from the
purchasers for whom they may act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of the
securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
prospectus supplement. Underwriters, dealers and agents participating in the
distribution of the securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended (the "Securities
Act"). Underwriters, dealers and agents may be entitled, under agreements
entered into with the Company and the Operating Partnership, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
If so indicated in the applicable prospectus supplement, the Company and the
Operating Partnership will authorize dealers acting as their agents to solicit
offers by certain institutions to purchase the securities from them at the
public offering price set forth in the prospectus supplement pursuant to delayed
delivery contracts providing for payment and delivery on the date or dates
stated in each prospectus supplement. Each contract will be for an amount not
less than, and the aggregate
52
principal amount of the securities sold pursuant to contracts shall be not less
nor more than, the respective amounts stated in the applicable prospectus
supplement. Institutions with whom contracts, when authorized, may be made
include commercial and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions, and other
institutions, but will in all cases be subject to the approval of the Company or
the Operating Partnership, as the case may be. Contracts will not be subject to
any conditions except:
-- the purchase by an institution of the securities covered by its
contracts shall not at the time of delivery be prohibited under the
laws of any jurisdiction in the United States to which such
institution is subject, and
-- if our securities are being sold to underwriters, the Company or the
Operating Partnership, shall have sold to the underwriters the total
principal amount of the securities less the principal amount thereof
covered by contracts.
Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and the Operating
Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements of Tanger Properties Limited
Partnership as of December 31, 1999 and 1998, and for each of the years in the
three-year period ended December 31, 1999 included in this prospectus have been
so included in reliance upon the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Tanger Factory Outlet Centers, Inc.
incorporated in this prospectus by reference to the Annual Report on Form 10-K
for the year ended December 31, 1999 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
LEGAL MATTERS
Latham & Watkins, New York, New York will pass upon the validity of the
securities offered by this prospectus. Brown & Wood LLP, New York, New York,
will pass upon various legal matters for the underwriters relating to the
offering. Latham & Watkins will rely on Vernon, Vernon, Wooten, Brown,
Andrews & Garrett, P.A., Burlington, North Carolina, counsel to the Operating
Partnership and the Company as to certain matters of North Carolina law.
In addition, the description of federal income tax consequences contained in
this prospectus entitled "Material Federal Income Tax Considerations to Tanger
Factory Outlet Centers, Inc." is based upon the opinion of Latham & Watkins.
53
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$100,000,000
TANGER PROPERTIES LIMITED PARTNERSHIP
9 1/8% SENIOR NOTES DUE 2008
UNCONDITIONALLY GUARANTEED BY TANGER FACTORY OUTLET CENTERS, INC.
----------------------------
PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
SOLE BOOKRUNNING MANAGER
BANC OF AMERICA SECURITIES LLC
February 9, 2001
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