FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NO. 1-11986
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its Charter)
NORTH CAROLINA 56-1815473
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 WEST NORTHWOOD STREET, GREENSBORO, NORTH CAROLINA 27408
(Address of principal executive offices)
(Zip code)
(910) 274-1666
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
6,336,537 shares of Common Stock,
$.01 par value, outstanding as of August 1, 1996
TANGER FACTORY OUTLET CENTERS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Page Number
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Operations
For the three and six months ended June 30, 1996 and 1995 3
Consolidated Balance Sheets
As of June 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows
For the six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
2
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
------------- -------------- ------------- -------------
REVENUES
Base rentals $12,423 $11,357 $24,718 $22,300
Percentage rentals 331 327 598 729
Expense reimbursements 5,210 5,374 10,545 9,657
Other income 225 177 451 309
------------- -------------- ------------- -------------
Total revenues 18,189 17,235 36,312 32,995
------------- -------------- ------------- -------------
EXPENSES
Operating and maintenance 5,561 5,906 11,365 10,760
General and administrative 1,268 1,349 2,671 2,493
Mortgage interest 3,605 2,882 6,668 5,450
Depreciation and amortization 4,164 3,573 8,107 7,023
------------- -------------- ------------- -------------
Total expenses 14,598 13,710 28,811 25,726
------------- -------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST 3,591 3,525 7,501 7,269
Minority interest (957) (928) (2,018) (1,924)
------------- -------------- ------------- -------------
Income before extraordinary item 2,634 2,597 5,483 5,345
Extraordinary item - Loss on early extinguishment of
debt, net of minority interest of $270 --- --- (561) ---
------------- -------------- ------------- -------------
NET INCOME $2,634 $2,597 $4,922 $5,345
============= ============== ============= =============
PER COMMON SHARE OUTSTANDING:
Income before extraordinary item $.32 $.31 $.67 $.63
Net income $.32 $.31 $.58 $.63
============= ============== ============= =============
DIVIDENDS PER COMMON SHARE $.52 $.50 $1.02 $.96
============= ============== ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
3
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share data)
JUNE 30, DECEMBER 31,
1996 1995
-------------- -----------------
ASSETS
Rental property, net $298,734 $294,423
Cash and cash equivalents 2,757 5,111
Tenant receivables, net 3,103 5,228
Deferred charges, net 8,108 5,728
Other assets 5,260 4,640
-------------- -----------------
TOTAL ASSETS $317,962 $315,130
============== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term debt $165,743 $156,749
Construction trade payables 7,363 11,305
Accounts payable and accrued expenses 6,427 4,679
-------------- -----------------
TOTAL LIABILITIES 179,533 172,733
-------------- -----------------
Commitments
Minority interest 26,292 27,584
-------------- -----------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized, 135,939 and
141,484 shares issued and outstanding at June 30, 1996 and
December 31, 1995 1 1
Common stock, $.01 par value, 50,000,000 shares authorized, 6,336,537
and 6,286,581 shares issued and outstanding at June 30, 1996 and
December 31, 1995 63 63
Paid in capital 121,272 121,158
Distributions in excess of net income (9,199) (6,409)
-------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 112,137 114,813
-------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $317,962 $315,130
============== =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
4
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
SIX MONTHS ENDED
JUNE 30,
1996 1995
------------ --------------------
OPERATING ACTIVITIES
Net income $4,922 $5,345
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 8,107 7,023
Amortization of deferred financing costs 474 426
Minority interest 1,748 1,924
Loss on early extinguishment of debt 831 ---
Straight-line base rent adjustment (707) (708)
Compensation under Unit Option Plan 169 168
Increase (decrease) due to changes in:
Tenant receivables 2,832 2,114
Other assets (712) 336
Accounts payable and accrued expenses 1,748 77
------------ --------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,412 16,705
------------ --------------------
INVESTING ACTIVITIES
Additions to rental properties (15,845) (23,755)
Additions to deferred lease costs (903) (622)
------------ --------------------
NET CASH USED IN INVESTING ACTIVITIES (16,748) (24,377)
------------ --------------------
FINANCING ACTIVITIES
Cash dividends paid (7,712) (7,259)
Distributions to minority interest (3,095) (2,912)
Proceeds from notes payable 75,000 16,250
Repayments on notes payable (480) (455)
Proceeds from revolving lines of credit 32,201 65,044
Repayments on revolving lines of credit (97,727) (60,550)
Additions to deferred financing costs (3,205) (684)
------------ --------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,018) 9,434
------------ --------------------
Net increase (decrease) in cash and cash equivalents (2,354) 1,762
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,111 3,674
------------ --------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,757 $5,436
============ ====================
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
The Company purchases capital equipment and incurs costs relating to
construction of new facilities, including tenant finishing allowances.
Expenditures included in construction trade payables as of June 30, 1996 and
1995 amounted to $7,363 and $10,022, respectively.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
5
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(Unaudited)
1. INTERIM FINANCIAL STATEMENTS
The unaudited consolidated financial statements of Tanger Factory Outlet
Centers, Inc., (the "Company"), have been prepared pursuant to the
Securities and Exchange Commissions' ("SEC") rules and regulations and
should be read in conjunction with the financial statements and notes
thereto of the Company's Annual Report on Form 10-K for the year ended
December 31, 1995. 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 such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not
misleading.
The accompanying consolidated 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 OF REAL ESTATE
During the first six months of 1996, the Company substantially completed
expansions totalling approximately 110,952 square feet in Gonzales,
Louisiana - 29,890 square feet; Williamsburg, Iowa - 26,187 square feet;
Branson, Missouri - 25,000 square feet; and San Marcos, Texas - 29,875
square feet. In addition, construction has commenced on the initial
phase of one new center in Riverhead, New York totalling 241,344 square
feet, as well as expansions in Locust Grove, Georgia totalling
approximately 34,190 square feet and Commerce, Georgia totalling
approximately 36,000 square feet.
Construction in progress amounted to $8.8 million and commitments to
complete construction of new developments and additions to existing
properties amounted to approximately $9.7 million at June 30, 1996.
Commitments for construction represent only those costs contractually
required to be paid by the Company.
Interest costs capitalized during the three months ended June 30, 1996
and 1995 amounted to $166,000 and $64,000, respectively, and during the
six months ended June 30, 1996 and 1995 amounted to $456,000 and
$161,000, respectively.
3. ACCUMULATED DEPRECIATION
Accumulated depreciation at June 30, 1996 and December 31, 1995 was
$39,083,000 and $31,458,000, respectively.
4. LONG-TERM DEBT
In January 1996, the Company established a new $50 million line of
credit maturing in January 1999 with interest payable at LIBOR plus
1.5%. In March 1996, the Company used a portion of its borrowing
capacity under a shelf registration statement by issuing, through the
Operating Partnership, $75 million of senior, unsecured notes, maturing
March 11, 2001, priced at 99.302% with a coupon rate of 8.75% to yield
8.9626%. The proceeds of this offering were used to extinguish all
revolving lines of credit which were established prior to January 1996.
In April, 1996, the Company and the Operating Partnership filed a new
registration statement with the SEC to reestablish the total amount of
funds available under the shelf
6
registration at $200 million. In June 1996, the Company amended an
unsecured line of credit, previously established in April 1996, to total
$10 million maturing in January 1998 with interest payable at prime or
LIBOR plus 1.85%. Total borrowings outstanding under the lines of credit
at June 30, 1996 amounted to $15 million.
5. INCOME PER SHARE
Income per share is computed by dividing income, less applicable
preferred dividends, by the weighted average number of common shares
outstanding. Options outstanding are not included since their inclusion
would not be materially dilutive. The assumed conversion of preferred
shares to common shares as of the beginning of the year would have been
anti-dilutive. The assumed conversion of the partnership units held by
the limited partner as of the beginning of the year, which would result
in the elimination of earnings allocated to minority interest, would
have no impact on earnings per share since the allocation of earnings to
an Operating Partnership Unit is equivalent to earnings allocated to a
share of Common Stock.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------------ ---------------- ----------------- ----------------
Applicable preferred dividends $636,000 $729,000 $1,283,000 $1,567,000
Weighted average shares 6,335,111 6,103,460 6,313,197 5,960,072
================== ================ ================= ================
6. RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform with the
current year presentation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The following discussion and analysis of the consolidated financial condition
and results of operations should be read in conjunction with the Consolidated
Financial Statements and Notes thereto. Historical results and percentage
relationships set forth in the Consolidated Statements of Operations, including
trends which might appear, are not necessarily indicative of future operations.
The discussion of the Company's results of operations reported in the
Consolidated Statements of Operations compares the three and six months ended
June 30, 1996 with the three and six months ended June 30, 1995. Certain
comparisons between the periods are also made on a percentage basis as well as
on a weighted average gross leasable area ("GLA") basis, a technique which
adjusts for certain increases or decreases in the number of centers and
corresponding square feet related to the development and expansion or
disposition of rental properties.
The Company continues to grow principally through the development of new factory
outlet centers and the expansion of existing centers. During the first six
months of 1996, the Company substantially completed expansions totalling
approximately 110,952 square feet in Gonzales, Louisiana - 29,890 square feet;
Williamsburg, Iowa - 26,187 square feet; Branson, Missouri - 25,000 square feet;
and San Marcos, Texas - 29,875 square feet. In addition, construction has
commenced on the initial phase of a new center in Riverhead, New York totalling
approximately 241,344 square feet, as well as expansions in Locust Grove,
Georgia totalling approximately 34,190 square feet and Commerce, Georgia
totalling approximately 36,000 square feet.
7
A summary of the operating results for three and six months ended June 30, 1996
and 1995, calculated on a weighted average GLA basis, is presented in the
following table.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----------------- -------------- --------------- ----------------
GLA at end of period 3,652,583 3,286,613 3,652,583 3,286,613
Weighted Average GLA(a) 3,612,134 3,264,190 3,577,401 3,215,123
Outlet centers in operation 27 26 27 26
New centers opened --- --- --- 1
Centers expanded 3 1 4 1
States operated in at end of period 22 22 22 22
Per square foot
Revenues
Base rent $3.44 $3.48 $6.91 $6.94
Percentage rentals .09 .10 .17 .23
Expense reimbursements 1.44 1.65 2.95 3.00
Other income .06 .05 .13 .10
----------------- -------------- ------------- ----------------
Total revenues 5.03 5.28 10.16 10.27
----------------- -------------- ------------- ----------------
Expenses
Operating and maintenance 1.54 1.81 3.18 3.35
General and administrative .35 .41 .75 .78
Mortgage interest 1.00 .88 1.86 1.70
Depreciation and amortization 1.15 1.09 2.27 2.18
----------------- -------------- ------------- ----------------
Total expenses 4.04 4.19 8.06 8.01
----------------- --------------- -------------- ----------------
Income before minority interest and
extraordinary item $0.99 $1.09 $2.10 $2.26
================= =============== =============== =================
(A) GLA WEIGHTED BY MONTHS OF OPERATIONS
In October 1995, the Financial Accounting Standards Board issued SFAS #123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, effective for fiscal years beginning
after December 15, 1995, which encourages companies to account for employee
stock options and other stock compensation awards based on their estimated fair
value at the date they are granted. The resulting cost would be recorded as an
expense on the income statement. Alternatively, companies may disclose in the
footnotes the effect on net income and earnings per share had the Company
recognized expense for stock compensation awards based on Statement 123. The
Company intends to adopt the latter method in the fiscal year ending December
31, 1996. The disclosure requirements of Statement 123 generally are not
required in interim reports on Form 10-Q.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 TO THE THREE MONTHS ENDED
JUNE 30, 1995
Base rentals increased $1.1 million, or 9%, in the 1996 period when compared to
the same period in 1995 primarily as a result of the 11% increase in weighted
average GLA. The increase is related to the effect of a full year's
8
operation of new centers and expansions opened in 1995. Base rentals per
weighted average GLA, however, decreased 1% from $3.48 per square foot to $3.44
per square foot as a result of a 1% reduction in the occupancy rate from 99% in
1995 to 98% in 1996.
Reported tenant sales for centers that were open the three months ended June 30,
1996 and 1995 increased approximately 2%. Percentage rentals, both in terms of
dollars and per weighted average GLA, however, remained flat when compared to
the same period in the prior year primarily. This is primarily the result
certain leases being renewed with increased levels of sales on which percentage
rentals are required (the "Breakpoint") without comparable increases in sales.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, operating, property tax, promotional and
management expenses, decreased $164,000, or 3%, in the 1996 period as compared
to the same period in 1995 due principally to the related decrease in
reimbursable operating and maintenance expenses. Expense reimbursements
expressed as a percentage of operating and maintenance expenses increased from
91% in the 1995 period to 94% in the 1996 period due to contractual increases
and reductions in nonrecoverable operating and maintenance expenses.
Operating and maintenance expenses decreased by $345,000, or 6%, in the 1996
period as compared to the 1995 period. On a weighted average GLA basis,
operating and maintenance expenses decreased 15% from $1.81 to $1.54 per square
foot primarily due to a reduction in advertising and promotion expenses,
reflecting the Company's use of cost efficient means in advertising and
promoting its centers, as well as fewer grand opening ceremonies held during the
1996 period compared to the 1995 period. The decrease in advertising and
promotion expenses was partially offset by increases in real estate taxes as a
result of reassessments of recently completed properties, particularly the
property in Riverhead, NY.
General and administrative expenses for the current quarter decreased slightly
by $81,000 and $.06 per weighted average GLA. General and administrative
expenses, as a percent of revenues, also decreased from 8% in the 1995 period to
7% in the 1996 period.
Aggregate interest expense increased $723,000 and $.12 per weighted average GLA
during the 1996 period as compared to the 1995 period. The increase is due to
higher average borrowings outstanding during the period associated with the
growth in GLA and due to a higher average interest rate under the senior
unsecured notes issued in March 1996 when compared with the short term lines of
credit previously utilized. Depreciation and amortization per weighted average
GLA increased 6% from $1.09 per square foot to $1.15 per square foot primarily
due to increases in costs associated with site preparation and improvements in
the layout and design of new centers, increased tenant finishing allowances
included in building and improvements which are depreciated over shorter lives,
as well as the accelerated recognition of depreciation on certain tenant
finishing allowances related to vacant space.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 TO THE SIX MONTHS ENDED JUNE
30, 1995
Base rentals increased $2.4 million, or 11%, in the 1996 period when compared to
the same period in 1995 primarily as a result of the 11% increase in weighted
average GLA. The increase is related to the effect of a full year's operation of
new centers and expansions opened in 1995. Base rentals per weighted average GLA
decreased less than 1% from $6.94 per square foot to $6.91 per square foot
reflecting the 1% reduction in the occupancy rate from 99% to 98%.
Percentage rentals decreased $131,000, or 18%, in the 1996 period compared to
the 1995 period and percentage rentals per weighted average GLA declined from
$.23 per square foot to $.17 per square foot primarily as a result of the
dilutive effect of the increase in additional square footage associated with the
new centers and expansions,
9
since tenant sales at centers in their first year of operation often do not
reach the Breakpoint, and as a result of escalating Breakpoints in certain
leases renewing at existing centers without comparable increases in sales.
Reported tenant sales for centers that were open the six months ended June 30,
1996 and 1995 increased approximately 1.4%.
Expense reimbursements, increased $888,000, or 9%, in the 1996 period as
compared to the same period in 1995 due principally to the related increase in
reimbursable operating and maintenance expenses associated with the growth in
GLA. Expense reimbursements expressed as a percentage of operating and
maintenance expenses increased from 90% in the 1995 period to 93% in the 1996
period due to contractual increases and reductions in nonrecoverable operating
and maintenance expenses.
Operating and maintenance expenses increased by $605,000, or 6%, in the 1996
period as compared to the 1995 period. On a weighted average GLA basis,
operating and maintenance expenses decreased 5% from $3.35 to $3.18 per square
foot primarily due to a reduction in advertising and promotion expenses
reflecting the Company's use of cost efficient means in advertising and
promoting its centers as well as fewer grand opening ceremonies held during the
1996 period compared to the 1995 period. The decrease was partially offset by
increases in real estate taxes as a result of reassessments of recently
completed properties, particularly the property in Riverhead, NY, as well as
increases in maintenance costs due to the inclement weather conditions in the
first quarter of 1996.
General and administrative expenses during the first six months increased by
$178,000 but decreased $.03, or 4%, per weighted average GLA. General and
administrative expenses, as a percent of revenues, remained flat for the first
six months compared to the 1995 period.
Aggregate interest expense increased $1.2 million and $.16 per weighted average
GLA during the 1996 period as compared to the 1995 period. The increase is due
to higher average borrowings outstanding during the period associated with the
growth in GLA and due to a higher average interest rate under the senior
unsecured notes issued in March 1996 when compared with the short term lines of
credit previously utilized. Depreciation and amortization per weighted average
GLA increased 4% from $2.18 per square foot to $2.27 per square foot primarily
due to increases in costs associated with site preparation and improvements in
the layout and design of new centers, increased tenant finishing allowances
included in building and improvements which are depreciated over shorter lives
as well as the accelerated recognition of depreciation on certain tenant
finishing allowances related to vacant space.
The extraordinary item represents the first quarter write-off of the unamortized
deferred financing costs related to the lines of credit which were extinguished
using the proceeds from the Company's $75 million senior unsecured notes issued
in March 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $19.4 and $16.7 million for the
six months ended June 30, 1996 and 1995, respectively. The increase of $2.7
million was primarily due to the incremental operating income associated with
new and expanded centers. Net cash used in investing activities decreased $7.6
million during the first six months of 1996 compared to the first six months of
1995 due to decreased construction activity. Net cash from financing activities
decreased $14.4 million as less debt was required to fund the current
construction activity.
Management believes, based upon its discussions with present and prospective
tenants, that many companies, including new entrants into the factory outlet
business, desire to open a significant 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. Two expansions (scheduled to open in the
second half of 1996) totalling approximately 70,190 square feet and one new
center
10
(expected to open in Spring 1997) totalling approximately 241,344 square feet
are currently under construction (See "General Overview"). Commitments for
construction of these projects (which represent only those costs contractually
required to be paid by the Company) amounted to $9.7 million at June 30, 1996.
The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1997 and beyond and will consider acquisitions
that are suitable for its portfolio. However, there can be no assurance that any
of these anticipated or planned developments or expansions will be started or
completed as scheduled, or that any acquisitions will be made.
Management intends to continually have access to the capital resources necessary
to expand and develop its business and, accordingly, may seek to obtain
additional funds through equity offerings or debt financing. The Company has a
shelf registration with the SEC providing for the issuance of up to $100 million
in additional equity securities and $100 million in additional debt securities.
During March 1996, the Company used a portion of its borrowing capacity under
the shelf registration to issue, through the Operating Partnership, $75 million
of senior, unsecured notes, maturing March 11, 2001, priced at 99.302% with a
coupon rate of 8.75% to yield 8.926%. The proceeds of this offering were used to
extinguish the Company's revolving lines of credit existing prior to January
1996. In April 1996, the Company filed a new registration statement with the SEC
to reestablish the total amount of funds available under the shelf registration
at $200 million.
Also during the first six months, the Company established a new $50 million line
of credit, with interest payable at LIBOR plus 1.5% and a $10 million unsecured
line of credit with interest payable at prime or LIBOR plus 1.85%. Amounts
available under the lines of credit at June 30, 1996 totalled $45 million. When
considered with the Company's existing interest rate protection agreement
covering $10 million of variable rate debt, the Company's exposure to interest
rate risk on variable rate borrowings was limited to $5 million on debt
outstanding at June 30, 1996. Based on existing credit facilities, ongoing
negotiations with certain financial institutions and funds available under the
shelf registration, management believes that the Company has access to the
necessary financing to fund the planned capital expenditures during 1996.
The Company anticipates that adequate cash will be available to fund its
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 the Operating Partnership receives most of its rental
payments on a monthly basis, distributions are made quarterly. Amounts
accumulated for distribution are invested in short-term money market or other
suitable instruments. Certain of the Company's debt agreements limit the payment
of dividends such that dividends will not exceed funds from operations ("FFO"),
as defined in the agreements, on an annual basis or 95% of FFO on a cumulative
basis.
On July 12, 1996, the Board of Directors of the Company declared a $.52 cash
dividend per common share payable on August 15, 1996 to each shareholder of
record on July 26, 1996, and caused a $.52 per Operating Partnership unit cash
distribution to be paid to the minority interests. The Board of Directors of the
Company also declared a cash dividend of $.4685 per preferred depositary share
payable on August 15, 1996 to each shareholder of record on July 26, 1996.
FUNDS FROM OPERATIONS
Management believes that to facilitate a clear understanding of the consolidated
historical operating results of the Company, FFO should be considered in
conjunction with net income as presented in the unaudited consolidated financial
statements included elsewhere in this report. Management generally considers FFO
to be an appropriate measure of the performance of an equity real estate
investment trust ("REIT"). FFO is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary item and gains (losses) on sale of properties, plus depreciation
and amortization uniquely significant to real estate. The Company cautions that
the calculation of FFO may vary from entity to entity and as such the
presentation of FFO
11
by the Company 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 dividends to shareholders
and other cash needs.
In March 1995, the National Association of Real Estate Investment Trusts
("NAREIT") issued an interpretive letter providing guidance as to the use and
intent of its definition of funds from operations. Among other things, the
letter clarified that the amortization of deferred financing costs and
depreciation of assets not uniquely significant to real estate should be
excluded from total depreciation and amortization added back to net income in
calculating funds from operations. All REIT's were encouraged to implement the
recommendations of the letter no later than fiscal periods beginning in 1996.
The Company has adopted the new NAREIT definition of funds from operations
beginning January 1, 1996. Below is a calculation of funds from operations for
the three and six months ended June 30, 1996 and 1995 under the new current
method and under the previous method.
(In thousands, except per share data)
Current Method Previous Method
------------------------- -----------------------------
THREE MONTHS ENDED JUNE 30, 1996 1996 1995 1996 1995
----------- ------------- ------------- --------------
Income before minority interest and extraordinary item $3,591 $3,525 $3,591 $3,525
Adjusted for:
Depreciation and amortization uniquely significant
to real estate 4,129 3,543 4,129 3,543
Amortization of deferred financing costs 255 234
Other depreciation and amortization 35 30
Straight-line base rent adjustment (335) (310)
Compensation under Unit Option Plan 85 85
----------- ------------- ------------- --------------
Funds from operations before minority interest $7,720 $7,068 $7,760 $7,107
=========== ============= ============= ==============
Weighted average shares outstanding(1) 10,602 10,598 10,602 10,598
Distributions paid per share(1) $.52 $.50 $.52 $.50
=========== ============= ============= ==============
Current Method Previous Method
------------------------- -----------------------------
SIX MONTHS ENDED JUNE 30, 1996 1996 1995 1996 1995
----------- ------------- ------------- --------------
Income before minority interest and extraordinary item $7,501 $7,269 $7,501 $7,269
Adjusted for:
Depreciation and amortization uniquely significant
to real estate 8,039 6,963 8,039 6,963
Amortization of deferred financing costs 474 426
Other depreciation and amortization 68 60
Straight-line base rent adjustment (707) (708)
Compensation under Unit Option Plan 169 168
----------- ------------- ------------- --------------
Funds from operations before minority interest $15,540 $14,232 $15,544 $14,178
=========== ============= ============= ==============
Weighted average shares outstanding(1) 10,605 10,598 10,605 10,598
Distributions paid per share(1) $1.02 $.96 $1.02 $.96
=========== ============= ============= ==============
(1) Assumes conversion of all partnership units held by the minority interest
and preferred shares to common shares.
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CONTINGENCIES
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.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor the Operating Partnership is presently involved in any
material litigation nor, to their knowledge, is any material litigation
threatened against the Company or the Operating Partnership or its properties,
other than routine litigation arising in the ordinary course of business and
which is expected to be covered by the liability insurance.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 9, 1996, the Company held its Annual Meeting of Shareholders. The matters
on which common shareholders voted were the election of five directors to serve
until the next Annual Meeting of Shareholders; to amend the Company's Articles
of Incorporation to create three new classes of preferred shares, each having
8,000,000 shares with a par value of $.01 per share; and the ratification of an
amendment to the 1993 Stock Option Plan and Unit Option Plan to increase the
number of shares of the Company's Common Shares which may be issued under the
Stock Option Plan and the number of units of the Operating Partnership which may
be issued under the Unit Option Plan from 800,000 in the aggregate to 1,000,000
in the aggregate. The results of the voting are shown below:
ELECTION OF DIRECTORS
Nominees Votes For Votes Withheld
-------- --------- --------------
Stanley K. Tanger 4,985,339 23,178
Steven B. Tanger 4,986,489 22,028
Jack Africk 4,985,106 23,411
William G. Benton 4,986,206 22,311
Thomas E. Robinson 4,983,947 24,570
AMENDMENT TO ARTICLES OF INCORPORATION
Votes cast for amendment 1,885,123
Votes cast against amendment 1,705,084
Votes abstained 77,527
No Vote 1,340,783
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AMENDMENT TO STOCK AND UNIT OPTION PLANS
Votes cast for amendment 4,502,385
Votes cast against amendment 464,479
Votes abstained 41,652
No vote 1
Preferred shareholders voted only on the issue to amend the Company's Articles
of Incorporation to create new classes of preferred shares. The results of the
preferred shareholders' votes were:
Votes cast for amendment 630,187
Votes cast against amendment 182,740
Votes abstained 700
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Credit Agreement among Tanger Properties Limited Partnership,
Tanger Factory Outlet Centers, Inc and National Westminister
Bank, Plc dated January 15, 1996.**
10.1A Amendment No. 1 to Credit Agreement among Tanger Properties
Limited Partnership, Tanger Factory Outlet Centers, Inc and
National Westminister Bank, Plc dated February 20, 1996.*
10.2 Form of Senior Indenture.***
10.2A Form of First Supplemental Indenture (to Senior Indenture).***
* Incorporated by reference to the exhibits to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1996.
** Incorporated by reference to the Company's Current Report on Form
8-K dated January 23, 1996.
*** Incorporated by reference to the Company's Current Report on Form
8-K dated March 6, 1996.
(b) Reports on Form 8-K - None
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ FRANK C. MARCHISELLO, JR
Frank C. Marchisello, Jr.
Vice President, Chief Financial Officer
DATE: August 9, 1996
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