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 SEPTEMBER 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
6,586,203 shares of Common Stock,
$.01 par value, outstanding as of November 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 nine months ended September 30, 1996 and 1995 3
Consolidated Balance Sheets
As of September 30, 1996 and December 31, 1995 4
Consolidated Statements of Cash Flows
For the nine months ended September 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 14
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ -------------- --- ------------ ------------
REVENUES
Base rentals $12,779 $11,575 $37,497 $33,875
Percentage rentals 566 569 1,164 1,298
Expense reimbursements 5,901 5,377 16,446 15,034
Other income 207 247 658 556
------------ -------------- --- ------------ ------------
Total revenues 19,453 17,768 55,765 50,763
------------ -------------- --- ------------ ------------
EXPENSES
Operating and maintenance 6,372 6,138 17,737 16,898
General and administrative 1,365 1,216 4,036 3,709
Mortgage interest 3,614 2,925 10,282 8,375
Depreciation and amortization 4,178 3,642 12,285 10,665
------------ -------------- --- ------------ ------------
Total expenses 15,529 13,921 44,340 39,647
------------ -------------- --- ------------ ------------
Income before gain on sale of land, minority
interest and extraordinary item 3,924 3,847 11,425 11,116
Gain on sale of land 159 --- 159 ---
------------ -------------- --- ------------ ------------
Income before minority interest and
extraordinary item 4,083 3,847 11,584 11,116
Minority interest (1,119) (1,039) (3,137) (2,963)
------------ -------------- --- ------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 2,964 2,808 8,447 8,153
Extraordinary item - Loss on early extinguishment of
debt, net of minority interest of $270 --- --- (561) ---
============ ============== === ============ ============
Net income $2,964 $2,808 $7,886 $8,153
============ ============== === ============ ============
Per common share outstanding:
Income before extraordinary item $.37 $.34 $1.03 $.98
Net income $.37 $.34 $.94 $.98
============ ============== === ============ ============
DIVIDENDS PER COMMON SHARE $.52 $.50 $1.54 $1.46
============ ============== === ============ ============
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)
September 30, December 31,
1996 1995
------------------ ----------------
ASSETS
Rental property, net $304,918 $294,423
Cash and cash equivalents 2,844 5,111
Tenant receivables, net 4,245 5,228
Deferred charges, net 8,208 5,728
Other assets 5,434 4,640
================== ================
TOTAL ASSETS $325,649 $315,130
================== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term debt $174,101 $156,749
Construction trade payables 6,424 11,305
Accounts payable and accrued expenses 8,036 4,679
------------------ ----------------
TOTAL LIABILITIES 188,561 172,733
------------------ ----------------
Commitments
Minority interest 25,861 27,584
------------------ ----------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000 shares authorized,
115,259 and 141,484 shares issued and outstanding at September
30, 1996 and December 31, 1995 1 1
Common stock, $.01 par value, 50,000,000 shares authorized,
6,522,863 and 6,286,581 shares issued and outstanding at
September 30, 1996 and December 31, 1995 65 63
Paid in capital 121,328 121,158
Distributions in excess of net income (10,167) (6,409)
------------------ ----------------
Total shareholders' equity 111,227 114,813
------------------ ----------------
Total liabilities and shareholders' equity $325,649 $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)
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
------------- ------------------
OPERATING ACTIVITIES
Net income $7,886 $8,153
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 12,285 10,665
Amortization of deferred financing costs 694 702
Minority interest 2,867 2,963
Loss on early extinguishment of debt 831 ---
Gain on sale of land (159) ---
Straight-line base rent adjustment (946) (1,002)
Compensation under Unit Option Plan 254 253
Increase (decrease) due to changes in:
Tenant receivables 1,929 2,395
Other assets (945) 38
Accounts payable and accrued expenses 3,357 1,537
------------- ------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 28,053 25,704
------------- ------------------
INVESTING ACTIVITIES
Additions to rental properties (26,815) (32,753)
Additions to deferred lease costs (1,275) (911)
Proceeds on sale of land 174 ---
------------- ------------------
NET CASH USED IN INVESTING ACTIVITIES (27,916) (33,664)
------------- ------------------
FINANCING ACTIVITIES
Cash dividends paid (11,644) (11,039)
Distributions to minority interest (4,672) (4,428)
Proceeds from notes payable 75,000 16,250
Repayments on notes payable (747) (699)
Proceeds from revolving lines of credit 51,026 86,569
Repayments on revolving lines of credit (107,927) (76,745)
Additions to deferred financing costs (3,440) (781)
Proceeds from exercise of unit options --- 14
------------- ------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,404) 9,141
------------- ------------------
Net increase (decrease) in cash and cash equivalents (2,267) 1,181
Cash and cash equivalents, beginning of period 5,111 3,674
------------- ------------------
Cash and cash equivalents, end of period $2,844 $4,855
============= ==================
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
September 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 nine months of 1996, the Company substantially completed
expansions totalling approximately 181,142 square feet in Gonzales,
Louisiana - 29,890 square feet; Williamsburg, Iowa - 26,187 square feet;
Branson, Missouri - 25,000 square feet; San Marcos, Texas - 29,875 square
feet; Locust Grove, Georgia - 34,190 square feet and Commerce, Georgia -
36,000 square feet. In addition, construction has commenced on the initial
phase of one new center in Riverhead, New York totalling 241,344 square
feet.
Construction in progress amounted to $6.3 million and commitments to
complete construction of new developments and additions to existing
properties amounted to approximately $27.3 million at September 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 September 30, 1996
and 1995 amounted to $278,000 and $126,000, respectively, and during the
nine months ended September 30, 1996 and 1995 amounted to $734,000 and
$287,000, respectively.
3. ACCUMULATED DEPRECIATION
Accumulated depreciation at September 30, 1996 and December 31, 1995 was
$42,935,000 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 its majority owned subsidiary,
Tanger Properties Limited Partnership (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
6
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 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 September 30, 1996 amounted to $23.6 million.
On October 14, 1996, the Company established an additional unsecured line of
credit totalling $15 million maturing in October 1998 with interest payable
at LIBOR plus 1.75%.
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 Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---------------- ---------------- ---------------- ----------------
Applicable preferred dividends $602,000 $692,000 $1,885,000 $2,259,000
Weighted average shares 6,402,998 6,175,473 6,371,404 6,032,662
================ ================ ================ ================
6. 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 September 30,
1996 and 1995 amounted to $6,424,000 and $10,188,000, respectively.
7. 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 nine months ended
September 30, 1996 with the three and nine months ended September 30, 1995.
Certain comparisons between the periods are also made on a percentage basis as
well as on a weighted
7
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 nine
months of 1996, the Company substantially completed expansions totalling
approximately 181,142 square feet in Gonzales, Louisiana - 29,890 square feet;
Williamsburg, Iowa - 26,187 square feet; Branson, Missouri - 25,000 square feet;
San Marcos, Texas - 29,875 square feet; Locust Grove, Georgia - 34,190 square
feet and Commerce, Georgia - 36,000 square feet. In addition, construction has
commenced on the initial phase of one new center in Riverhead, New York
totalling 241,344 square feet.
A summary of the operating results for three and nine months ended September 30,
1996 and 1995, calculated on a weighted average GLA basis, is presented in the
following table.
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------------- -------------- ----- -------------- ----------------
GLA at end of period 3,718,198 3,320,773 3,718,198 3,320,773
Weighted Average GLA(a) 3,686,000 3,306,844 3,613,931 3,245,675
Outlet centers in operation 27 26 27 26
New centers opened --- --- --- 1
Centers expanded 2 --- 6 1
States operated in at end of period 22 22 22 22
Per square foot
Revenues
Base rent $3.47 $3.50 $10.38 $10.44
Percentage rentals 0.15 0.17 0.32 0.40
Expense reimbursements 1.60 1.63 4.55 4.63
Other income 0.06 0.07 0.18 0.17
--------------- -------------- ----- -------------- ----------------
Total revenues 5.28 5.37 15.43 15.64
--------------- -------------- ----- -------------- ----------------
Expenses
Operating and maintenance 1.73 1.86 4.91 5.21
General and administrative 0.37 0.37 1.12 1.14
Mortgage interest 0.98 0.88 2.85 2.58
Depreciation and amortization 1.13 1.10 3.40 3.28
--------------- -------------- ----- -------------- ----------------
Total expenses 4.21 4.21 12.28 12.21
--------------- -------------- ----- -------------- ----------------
Income before gain on sale of land, minority
interest and extraordinary item $1.07 $1.16 $3.15 $3.43
=============== ============== ===== ============== ================
(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,
8
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 are
not required in interim reports on Form 10-Q.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THE THREE MONTHS
ENDED SEPTEMBER 30, 1995
Base rentals increased $1.2 million, or 10%, in the 1996 period when compared to
the same period in 1995 primarily as a result of the 12% 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, however, decreased 1% from $3.50 per square foot to $3.47 per square foot
primarily as a result of a slightly lower average occupancy rate in the 1996
period when compared to the 1995 period.
Reported tenant sales for centers that were open the three months ended
September 30, 1996 and 1995 increased approximately 1%. Percentage rentals, in
terms of dollars, remained flat when compared to the same period in the prior
year; however, percentage rental per weighted average per GLA decreased $.02 per
square foot from $.17 per square foot to $.15 per square foot. This is primarily
the result of the dilutive effect of the increase in additional square footage
associated with the expansions, since tenant sales at centers in their first
year of operation often do not reach the level of sales on which percentage
rentals are required (the "Breakpoint"), and as a result of escalating
Breakpoints in certain leases renewing at existing centers 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, increased $524,000, or 10%, in the 1996 period as compared
to the same period in 1995 due principally to the related increase in
reimbursable operating and maintenance expenses. Expense reimbursements
expressed as a percentage of operating and maintenance expenses increased from
88% 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 $234,000, or 4%, in the 1996
period as compared to the 1995 period. On a weighted average GLA basis,
operating and maintenance expenses decreased 7% from $1.86 to $1.73 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. 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 increased by
$149,000. General and administrative expenses, both per weighted average GLA and
as a percent of revenues, remained flat when compared to the same period in the
prior year.
Aggregate interest expense increased $689,000 and $.10 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 3% from $1.10 per square foot to $1.13 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 depreciation of certain tenant finishing allowances
related to tenants who vacated or terminated their lease prior to the original
expiration of the lease term.
9
The gain on sale of land of $159,000 in the current quarter represents the sale
of an outparcel at an existing factory outlet center.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Base rentals increased $3.6 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 $10.44 per square foot to $10.38 per square foot
reflecting the slightly lower average occupancy rate during the 1996 period when
compared to the 1995 period.
Percentage rentals decreased $134,000, or 10%, in the 1996 period compared to
the 1995 period and percentage rentals per weighted average GLA declined from
$.40 per square foot to $.32 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, 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 nine
months ended September 30, 1996 and 1995 increased approximately 1.2%.
Expense reimbursements, increased $1.4 million, 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 89% 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 $839,000, or 5%, in the 1996
period as compared to the 1995 period. On a weighted average GLA basis,
operating and maintenance expenses decreased 6% from $5.21 to $4.91 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. 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 nine months increased by
$327,000 but decreased $.02, or 2%, per weighted average GLA. General and
administrative expenses, as a percent of revenues, remained flat for the first
nine months of the 1996 period compared to the 1995 period.
Aggregate interest expense increased $1.9 million and $.27 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 3% from $3.29 per square foot to $3.40 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 depreciation of certain tenant finishing allowances
related to tenants who vacated or terminated their lease prior to the original
expiration of the lease term.
10
The gain on sale of land of $159,000 in the third quarter represents the sale of
an outparcel at an existing factory outlet center. 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 $28.1 and $25.7 million for the
nine months ended September 30, 1996 and 1995, respectively. The increase of
$2.4 million was primarily due to the incremental operating income associated
with new and expanded centers. Net cash used in investing activities decreased
$5.7 million during the first nine months of 1996 compared to the first nine
months of 1995 due to decreased construction activity. Net cash from financing
activities decreased $11.5 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. One new center (expected to begin opening
in Spring 1997) totalling 241,344 square feet is currently under construction
(See "General Overview"). Commitments for construction of this project (which
represent only those costs contractually required to be paid by the Company)
amounted to $27.3 million at September 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 nine 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%. In
October 1996, the Company established an additional unsecured line of credit
totalling $15 million with interest payable at LIBOR plus 1.75%. Amounts
available under these lines of credit, based on debt outstanding at September
30, 1996, totalled $51.4 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 $13.6 million on debt outstanding at September 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 and 1997.
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
11
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 95% of funds from operations
("FFO"), as defined in the agreements, on a cumulative basis.
On October 11, 1996, the Board of Directors of the Company declared a $.52 cash
dividend per common share payable on November 15, 1996 to each shareholder of
record on October 25, 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 November 15, 1996 to each shareholder of record on October 25,
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 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 nine months ended September 30, 1996 and 1995 under the new
current method and under the previous method.
12
(In thousands, except per share data)
Current Method Previous Method
----------------------- -------- ---------------------------
THREE MONTHS ENDED SEPTEMBER 30, 1996 1995 1996 1995
---------- ------------ -------- ------------ --------------
Income before gain on sale of land, minority interest
and extraordinary item $3,924 $3,847 $3,924 $3,847
Adjusted for:
Depreciation and amortization uniquely significant
to real estate 4,132 3,611 4,132 3,611
Amortization of deferred financing costs 220 276
Other depreciation and amortization 46 31
Straight-line base rent adjustment (239) (294)
Compensation under Unit Option Plan 85 85
========== ============ ======== ============ ==============
Funds from operations before minority interest $8,056 $7,458 $8,168 $7,556
========== ============ ======== ============ ==============
Weighted average shares outstanding(1) 10,611 10,615 10,611 10,615
Distributions paid per share(1) $.52 $.50 $.52 $.50
========== ============ ======== ============ ==============
Current Method Previous Method
----------------------- -------- ---------------------------
NINE MONTHS ENDED SEPTEMBER 30, 1996 1995 1996 1995
---------- ------------ -------- ------------ --------------
Income before gain on sale of land, minority interest
and extraordinary item $11,425 $11,116 $11,425 $11,116
Adjusted for:
Depreciation and amortization uniquely significant
to real estate 12,171 10,574 12,171 10,574
Amortization of deferred financing costs 694 702
Other depreciation and amortization 114 91
Straight-line base rent adjustment (946) (1,002)
Compensation under Unit Option Plan 254 253
========== ============ ======== ============ ==============
Funds from operations before minority interest $23,596 $21,690 $23,712 $21,734
========== ============ ======== ============ ==============
Weighted average shares outstanding(1) 10,611 10,594 10,611 10,594
Distributions paid per share(1) $1.54 $1.46 $1.54 $1.46
========== ============ ======== ============ ==============
(1) Assumes conversion of all partnership units held by the minority interest
and preferred shares to common shares.
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.
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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 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: November 8, 1996
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