SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-11986
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA 56-1815473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1400 WEST NORTHWOOD STREET (336) 274-1666
GREENSBORO, NC 27408 (Registrant's telephone number)
(Address of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- ------------------- ------------------------------------
Common Shares, $.01 par value New York Stock Exchange
Series A Cumulative Convertible Redeemable
Preferred Shares, $.01 par value New York Stock Exchange
-------------------------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting shares held by nonaffiliates of the
Registrant was approximately $193,306,000 based on the closing price on the New
York Stock Exchange for such stock on February 26, 1998.
The number of Common Shares of the Registrant outstanding as of February 26,
1998 was 7,856,706.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 8, 1998.
PART I
ITEM 1. BUSINESS
THE COMPANY
Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
focuses exclusively on developing, acquiring, owning and operating factory
outlet centers, and provides all development, leasing and management services
for its centers. According to Value Retail News, an industry publication, the
Company is one of the largest owners and operators of factory outlet centers in
the United States. As of December 31, 1997, the Company owned and operated 30
factory outlet centers (the "Centers") with a total gross leasable area ("GLA")
of approximately 4.6 million square feet. These centers were approximately 98%
leased, contained over 1,210 stores and represented over 250 brand name
companies as of such date.
The Centers are presently held by, and all of the Company's operations are
conducted by, the Company's majority-owned subsidiary, Tanger Properties Limited
Partnership (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.
The Company is the sole managing general partner of the Operating Partnership
and The Tanger Family Limited Partnership ("TFLP") is the sole limited partner.
As of December 31, 1997, the ownership interests in the Operating Partnership
(the "Units") consisted of 7,853,936 partnership Units and 90,689 preferred
partnership Units (which are convertible into approximately 817,108 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner. The Units held by the limited partner are exchangeable,
subject to certain limitations to preserve the Company's status as a REIT, into
Common Shares. See "Business-The Operating Partnership". Management of the
Company beneficially owns approximately 27% of all outstanding Common Shares
(assuming the Series A Preferred Shares and the limited partner's Units are
exchanged for Common Shares but without giving effect to the exercise of any
outstanding stock and partnership Unit options).
Ownership of the Company's capital stock is restricted to preserve the Company's
status as a REIT for federal income tax purposes. Subject to certain exceptions,
a person may not actually or constructively own more than 4% of the Company's
Common Shares (including Common Shares which may be issued as a result of
conversion of Series A Preferred Shares) or more than 29,400 Series A Preferred
Shares (or a lesser number in certain cases). The Company also operates in a
manner intended to enable it to preserve its status as a REIT, including, among
other things, making distributions with respect to its outstanding capital stock
equal to at least 95% of its taxable income each year.
The Company's executive offices are located at 1400 West Northwood Street,
Greensboro, North Carolina, 27408 and its telephone number is (336) 274-1666.
The Company is a North Carolina corporation that was formed in March 1993.
RECENT DEVELOPMENTS
During 1997, the Company acquired three centers in resort areas totaling 302,554
square feet. Five Oaks Factory Stores, a factory outlet center in Sevierville,
Tennessee, was acquired in February 1997 at a purchase price of $18 million.
Shoppes on the Parkway, a factory outlet center in Blowing Rock, North Carolina,
and Soundings Factory Stores, a factory outlet center in Nags Head, North
Carolina, were acquired in September 1997 for an aggregate purchase price of
$19.5 million.
In addition, the Company has completed, or has under construction to be
completed by the end of the first quarter of 1998, the expansion of five
existing centers totaling 538,979 square feet. A summary of the 1997 acquired
centers and expansions is recapped below:
2
1997 DEVELOPMENT Aggregate Open at
- ---------------- Size 12/31/97
(sq. ft.) (sq. ft.)
------------- --------------
ACQUISITIONS
Sevierville, TN 122,684 122,684
Blowing Rock, NC 97,408 97,408
Nags Head, NC 82,462 82,462
------------- --------------
302,554 302,554
------------- --------------
EXPANSIONS
Riverhead, NY 345,164 284,745
Commerce, GA 94,247 58,455
Sevierville, TN 50,357 25,060
Lancaster, PA 26,111 23,434
San Marcos, TX 23,100 11,000
------------- --------------
538,979 402,694
------------- --------------
841,533 705,248
============= ==============
The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1998 and beyond. Currently, the Company is in
the preleasing stages for future centers at two potential sites located in
Concord, North Carolina (Charlotte) and Romulus, Michigan (Detroit) and for
further expansions of four existing centers. 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 development or expansion will
result in accretive funds from operations. In addition, the Company regularly
evaluates acquisition proposals, engages from time to time in negotiations for
acquisitions and may from time to time enter into letters of intent for the
purchase of properties. No assurance can be given that any of the prospective
acquisitions that are being evaluated or which are subject to a letter of intent
will be consummated, or if consummated, will result in accretive funds from
operations.
During September and October 1997, the Company completed a 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 were used to acquire, expand
and develop factory outlet centers and for general corporate purposes. On
October 24, the Operating Partnership issued $75 million of 7.875% senior,
unsecured notes, maturing October 24, 2004. The net proceeds were used to repay
substantially all amounts outstanding under the Company's existing lines of
credit. On November 3, 1997, the Company and the Operating Partnership filed a
new registration statement with the SEC to provide an issuance capacity under
shelf registration statements back to the original $100 million in equity
securities and $100 million in debt securities.
In anticipation of offering the senior, unsecured notes due 2004, the Company
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 senior, unsecured note issuance, and, as a result
of an increase in the US Treasury rate, the Company received $714,000 in
proceeds. Such amount is being amortized as a reduction to interest expense over
the life of the notes and will result in an overall effective interest rate on
the notes of 7.75%.
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,
and because factory outlet centers 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.
3
The Company's factory outlet centers range in size from 8,000 to 631,359 square
feet of GLA and are typically located at least 10 miles from downtown 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 the
Company's factory outlet centers are located near tourist destinations to
attract tourists who consider shopping to be a recreational activity and are
typically situated in close proximity to interstate highways to provide
accessibility and visibility to potential customers.
Management believes that factory outlet centers continue to present attractive
opportunities for capital investment by the Company, particularly with respect
to strategic expansions of existing centers. Management believes that under
present conditions such development or expansion costs, coupled with current
market lease rates, permit attractive investment returns. Management further
believes, based upon its 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 a significant presence or where there are few
factory outlet centers. Thus, the Company believes that its commitment to
developing and expanding factory outlet centers is justified by the potential
financial returns on such centers.
THE COMPANY'S FACTORY OUTLET CENTERS
The Company's factory outlet centers are designed to attract national brand name
tenants. As one of the original participants in this industry, the Company has
developed long-standing relationships with many national and regional
manufacturers. Because of its established relationships with many manufacturers,
the Company believes it is well positioned to capitalize on industry growth.
As of December 31, 1997, the Company had a diverse tenant base comprised of over
250 different well-known, upscale, national designer or brand name companies,
such as Liz Claiborne, Reebok International, Ltd., Tommy Hilfiger, Polo Ralph
Lauren, Off 5th- SAKS Fifth Avenue Outlet Store, The Gap, Nautica and Nike. A
majority of the factory outlet stores leased by the Company are directly
operated by the respective manufacturer. During 1997, the Company added
approximately 55 new national designers and brand name companies to its tenant
base.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 1997 and 1996. During 1995, one
tenant (including affiliates) accounted for approximately 10% of combined base
and percentage rental revenues. As of February 1, 1998, the Company's largest
tenant accounted for approximately 6.8% of its GLA. Because the typical tenant
of the Company is a large, national manufacturer, the Company has not
experienced any material problems with respect to rent collections or lease
defaults.
Minimum base rental revenues and operating expense reimbursements accounted for
approximately 96% of the Company's total revenues in 1997. Percentage rental
revenues accounted for approximately 3% of 1997 revenues. As a result, only a
small portion of the Company's revenues are dependent on contingent revenue
sources, such as percentage rents, which fluctuate depending on tenant's sales
performance.
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.
("Tanger/Creighton"), which business included the operation of five factory
outlet stores. Based on their knowledge of the apparel and retail industries, as
well as their experience operating Tanger/Creighton's factory outlet stores, 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.
4
From 1981 to June of 1993, the Tangers developed 17 Centers with a total GLA of
approximately 1.5 million square feet. In June of 1993, the Company completed
its initial public offering ("IPO"), making Tanger Factory Outlet Centers, Inc.
the first publicly traded outlet center company. Since its IPO, the Company has
developed nine Centers and acquired four Centers and, together with expansions
of existing Centers, added approximately 3.1 million square feet of GLA to its
portfolio, bringing its portfolio of properties as of December 31, 1997 to 30
Centers totaling approximately 4.6 million square feet of GLA.
BUSINESS AND OPERATING STRATEGY
The Company intends to increase its cash flow and the value of its portfolio
over the long-term by continuing to own, manage, acquire, develop, and expand
factory outlet centers. The Company's strategy is to increase revenues through
new development, selective acquisitions and expansions of factory outlet centers
while minimizing its operating expenses by designing low maintenance properties
and achieving economies of scale. In connection with the ownership and
management of its properties, the Company places an emphasis on regular
maintenance and intends to make periodic renovations as necessary. In addition,
the Company will seek to maintain high occupancy rates and increasing rental
revenues with a tenant base of nationally recognized brand name tenants.
The Company typically seeks locations for its new centers 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 a highway
with a traffic count of at least 35,000 cars per day. The Company will vary its
minimum conditions based on the particular characteristics of a site, especially
if the site is located near or at a tourist destination. The Company's current
goal is to target sites that are large enough to construct centers with
approximately 75 stores totaling at least 300,000 square feet of GLA. Generally,
the Company will build such centers in phases, with the first phase containing
150,000 to 200,000 square feet of GLA. Future phases have historically been less
expensive to build than the first phase because the Company generally
consummates land acquisition and finishes most of the site work, including
parking lots, utilities, zoning and other developmental work, in the first
phase.
The Company generally preleases at least 50% of the space in each center prior
to acquiring the site and beginning construction. Historically, the Company has
not begun construction until it has obtained a significant amount of signed
leases. Typically, construction of a new factory outlet center has taken the
Company four to six months from groundbreaking to the opening of the first
tenant store. Construction of expansions to existing properties typically takes
less time, usually between three to four months.
CAPITAL STRATEGY
The Company's capital strategy is to maintain a strong and flexible financial
position by: (1) maintaining a low level of leverage, (ii) extending and
sequencing debt maturity dates, (iii) managing its floating interest rate
exposure, (iv) maintaining its liquidity and (v) reinvesting a significant
portion of its cash flow by maintaining a low distribution payout ratio (defined
as annual distributions as a percent of funds from operations ("FFO" - See
discussion of FFO below) for such year).
FFO and EBITDA are widely accepted financial indicators 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,
before extraordinary items and gains (losses) on sale of properties, plus
depreciation and amortization uniquely significant to real estate. EBITDA is
generally defined as earnings before minority interest, interest expense, income
taxes, depreciation and amortization. The Company cautions that the calculations
of FFO and EBITDA may vary from entity to entity and as such the presentation of
FFO and EBITDA by the Company may not be comparable to other similarly titled
measures of other reporting companies. Neither FFO nor EBITDA represent net
income or cash flow from operations as defined by generally accepted accounting
principles and neither should be considered an alternative to net income as an
indication of operating performance or to cash from operations as a measure of
liquidity. FFO and EBITDA are not necessarily indicative of cash flows available
to fund dividends to shareholders and other cash needs.
The Company has successfully increased its dividend each of its first four years
as a public company. At the same time, the Company has reduced its payout ratio
in each of those years. The distribution payout ratio for the year ended
December 31, 1997 was 67%. As a result, the Company retained approximately $11
million of its 1997 FFO. A low distribution payout ratio policy allows the
Company to retain capital to maintain the quality of its portfolio as well as to
develop, acquire and expand properties.
5
The Company's ratio of EBITDA to Annual Service Charge (defined as the amount
which is expensed or capitalized for interest on debt, excluding amortization of
deferred finance charges) was a strong 3.0 for the year ended December 31, 1997.
The Company's ratio of debt to total market capitalization (defined as the value
of the Company's outstanding Common Shares on a fully diluted basis after giving
effect to the conversion or exchange of outstanding partnership Units in the
Operating Partnership held by TFLP and the Series A Preferred Shares, plus total
consolidated debt) at December 31, 1997 was approximately 39% (assuming a value
for the Common Shares of the Company at December 31, 1997 of $30.5625 per
share).
During September and October 1997, the Company completed a 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 were used to acquire, expand
and develop factory outlet centers and for general corporate purposes. On
October 24, the Operating Partnership issued $75 million of 7.875% senior,
unsecured notes, maturing October 24, 2004. The net proceeds were used to repay
substantially all amounts outstanding under the Company's existing lines of
credit. On November 3, 1997, the Company and the Operating Partnership filed a
new registration statement with the SEC to provide, under shelf registration
statements, for the issuance of up to $100 million in additional equity
securities and $100 million in additional debt securities.
At December 31, 1997, the Company had revolving lines of credit with a borrowing
capacity of up to $125 million, of which $120 million was available for
additional borrowings. Based on the $5 million in variable rate debt outstanding
at December 31, 1997, the Company had an insignificant amount of exposure to
interest rate risk at year end. Also, with additional unsecured borrowings
during the year, the Company has effectively unencumbered approximately 64% of
its real estate assets as of December 31, 1997. In February 1998, the Company
amended two of its revolving lines to increase the amounts available by $20
million, bringing the total borrowing capacity under the lines to $145 million.
The Company intends to retain the ability to raise additional capital, including
additional debt, to pursue attractive investment opportunities that may arise
and to otherwise act in a manner that it believes to be in the best interests of
the Company and its shareholders.
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. As of December
31, 1997, the ownership interests in the Operating Partnership consisted of
7,853,936 partnership Units and 90,689 preferred partnership Units (which are
convertible into approximately 817,107 general partnership Units) held by the
Company and 3,033,305 partnership Units held by TFLP, the sole limited partner.
Each partnership Unit held by TFLP is exchangeable into one Common Share
(subject to certain antidilution adjustments and certain limitations on exchange
to preserve the Company's status as a REIT).
Each preferred partnership Unit entitles the Company to receive distributions
from the Operating Partnership, in an amount equal to the distribution payable
with respect to a share of Series A Preferred Shares, prior to the payment by
the Operating Partnership of distributions with respect to the general
partnership Units. Preferred partnership Units will be automatically converted
by holders into general partnership Units to the extent that the Series A
Preferred Shares are converted into Common Shares and will be redeemed by the
Operating Partnership to the extent that the Series A Preferred Shares are
redeemed by the Company.
COMPETITION
The Company carefully considers the degree of existing and planned competition
in a proposed area before deciding to develop, acquire or expand a new center.
The Company's 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, management believes that the
majority of the Company's 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 to 20 miles from the nearest
major department store or the tenants' own specialty stores. For this reason,
the Company's centers compete only to a very limited extent with traditional
malls in or near metropolitan areas.
6
Management believes that the Company competes favorably with as many as four
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 by the property manager. The Company believes that its centers have an
attractive tenant mix, as a result of the Company's decision to lease
substantially all of its space to manufacturer operated stores rather than to
off-price retailers, and also as a result of the strong brand identity of the
Company's major tenants.
CORPORATE AND REGIONAL HEADQUARTERS
The Company owns a small office building in Greensboro, North Carolina in which
its corporate headquarters is located. In addition, the Company rents a regional
office in New York City, New York under a lease agreement and sublease
agreement, respectively to better service its principal fashion-related tenants,
many of whom are based in and around that area.
The Company maintains on-site managers and offices at 25 Centers and one
off-site manager and business office in Portsmouth, New Hampshire to service the
remaining 5 Centers in the New England area. The managers closely monitor the
development of those Centers from construction through opening and operation and
also provide effective and efficient management and marketing services.
INSURANCE
Management believes that the Centers are covered by adequate fire, flood and
property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
EMPLOYEES
As of February 1, 1998, the Company had 110 full-time employees, located at the
Company's corporate headquarters in North Carolina, its regional office in New
York and its 26 business offices.
7
ITEM 2. BUSINESS AND PROPERTIES
As of February 1, 1998, the Company's portfolio consisted of 30 Centers located
in 23 states. The Company's Centers range in size from 8,000 to 631,359 square
feet of GLA. These Centers are typically strip shopping centers which 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.
The Company believes that the Centers are well diversified geographically and by
tenant and that it is not dependent upon any single property or tenant. The only
Center that represents more than 10% of the Company's consolidated total assets
or consolidated gross revenues as of and for the year ended December 31, 1997 is
the property in Riverhead, NY. See "Business and Properties - Significant
Property". No other Center represented more than 10% of the Company's
consolidated total assets or consolidated gross revenues as of December 31,
1997.
LOCATION OF CENTERS (AS OF FEBRUARY 1, 1998)
Number of GLA %
State Centers (sq. ft.) of GLA
- ----------------- ------------- ----------------- ------------
Georgia 3 713,371 16%
New York 1 631,359 14
Texas 2 419,750 9
Iowa 1 275,706 6
Tennessee 2 267,791 6
Missouri 1 255,073 6
Louisiana 1 245,325 5
Pennsylvania 1 230,063 5
Oklahoma 1 197,878 4
Arizona 1 186,018 4
North Carolina 2 179,870 4
Indiana 1 141,051 3
Minnesota 1 134,480 3
Michigan 1 112,120 2
California 1 108,950 2
Oregon 1 97,749 2
Kansas 1 88,200 2
Maine 2 84,897 2
Alabama 1 80,730 2
New Hampshire 2 61,915 1
West Virginia 1 49,252 1
Massachusetts 1 23,417 1
Vermont 1 8,000 ---
------------- ----------------- ------------
Total 30 4,592,965 100%
============= ================= ============
8
The table set forth below summarizes certain information with respect to the
Company's existing centers as of February 1, 1998.
PROPERTY PORTFOLIO
MORTGAGE
DEBT FEE OR
GLA OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FT.) % LEASED (000'S) (4) LEASE
- ----------------- ---------------------------------------- ------------ ------------- ---------------- -------------
JUN. 1986 KITTERY I, ME 56,312 100% $5,970 Fee
Aug. 1993 Expansion 3,882
--------
60,194
MAR. 1987 CLOVER, NORTH CONWAY, NH 11,000 100 --- Fee
NOV. 1987 MARTINSBURG, WV 42,346 89 --- Fee
Sep. 1994 Expansion 6,906
--------
49,252
APR. 1988 LL BEAN, NORTH CONWAY, NH 50,915 100 --- Fee
JUL. 1988 PIGEON FORGE, TN 94,480 100 --- Ground
Jul. 1994 Expansion 270 Lease
---------
94,750 (2086)
AUG. 1988 BOAZ, AL 78,550 100 --- Fee
May 1993 Expansion 2,180
--------
80,730
OCT. 1988 MANCHESTER, VT 8,000 100 --- Fee
JUN. 1989 KITTERY II, ME 23,119 100 --- Fee
Nov. 1993 Expansion 1,584
-------
24,703
JUL. 1989 COMMERCE, GA 100,100 97 10,121 Fee
Mar. 1990 Expansion 58,650
May 1992 Expansion 4,500
May 1993 Expansion 12,500
Sep. 1994 Expansion 10,000
--------
185,750
OCT. 1989 BOURNE, MA 23,417 100 --- Fee
FEB. 1991 WEST BRANCH, MI 75,120 98 6,836 Fee
Oct. 1992 Expansion 25,000
May 1994 Expansion 12,000
--------
112,120
MAY 1991 WILLIAMSBURG, IA 121,444 94 16,946 Fee
Nov. 1991 Expansion 50,675
Nov. 1992 Expansion 34,000 (1)
Dec. 1993 Expansion 43,400
Apr. 1996 Expansion 26,187
--------
275,706
FEB. 1992 CASA GRANDE, AZ 94,223 89 --- Fee
Dec. 1992 Expansion 91,795
--------
186,018
9
MORTGAGE
DEBT FEE OR
GLA OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FT.) % LEASED (000'S) (4) LEASE
- ----------------- ---------------------------------------- ------------ ------------- ---------------- -------------
AUG. 1992 STROUD, OK 96,378 93 --- Fee
Nov. 1992 Expansion 37,500
Aug. 1993 Expansion 64,000 Fee
--------
197,878
DEC. 1992 NORTH BRANCH, MN 106,280 96 --- Fee
Aug. 1993 Expansion 28,200
--------
134,480
FEB. 1993 GONZALES, LA 105,985 98 --- Fee
Aug. 1993 Expansion 109,450
Feb. 1996 Expansion 29,890
--------
245,325
MAY 1993 SAN MARCOS, TX 98,820 100 10,206 Fee
Oct. 1993 Expansion 40,200
Nov. 1994 Expansion 17,500 (2)
April 1995 Expansion 32,750
July 1996 Expansion 29,945
Dec. 1997 Expansion 23,100 (6)
--------
242,315
DEC. 1993 LAWRENCE, KS 88,200 87 --- Fee
DEC. 1993 MCMINNVILLE, OR 97,749 72 --- Fee
AUG. 1994 RIVERHEAD, NY 286,195 99 --- Ground
Aug. 1997 Expansion 241,820 Lease
Dec. 1997 Expansion 103,344 (6) (2004)(3)
-------
631,359
AUG. 1994 TERRELL, TX 126,185 98 --- Fee
Oct. 1995 Expansion 51,250
--------
177,435
SEP. 1994 SEYMOUR, IN 141,051 95 8,184 Fee
OCT. 1994 (5) LANCASTER, PA 191,152 99 15,787 Fee
Nov. 1995 Expansion 12,800
Sep. 1997 Expansion 26,111 (6)
--------
230,063
NOV. 1994 BRANSON, MO 230,073 95 --- Fee
Jun. 1996 Expansion 25,000
--------
255,073
NOV. 1994 LOCUST GROVE, GA 168,700 97 --- Fee
Dec. 1995 Expansion 45,964
Aug. 1996 Expansion 34,190
--------
248,854
JAN. 1995 BARSTOW, CA 108,950 100 --- Fee
DEC. 1995 COMMERCE II, GA 148,520 98 --- Fee
Aug. 1996 Expansion 36,000
Dec. 1997 Expansion 94,247 (6)
--------
278,767
10
MORTGAGE
DEBT FEE OR
GLA OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FT.) % LEASED (000'S) (4) LEASE
- ----------------- ---------------------------------------- ------------ ------------- ---------------- -------------
FEB. 1997 (5) SEVIERVILLE, TN 122,684 92 --- Ground
Dec. 1997 Expansion 50,357 (6) Lease
--------
173,041 (2046)
SEP. 1997 (5) BLOWING ROCK, NC 97,408 95 --- Fee
SEP. 1997 (5) NAGS HEAD, NC 82,462 93 --- Fee
- ----------------- ---------------------------------------- ------------ ------------- ---------------- -------------
Total 4,592,965 96% $74,050
================= ======================================== ============ ============= ================ =============
(1) GLA EXCLUDES 21,781 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY PIZZA HUT.
(2) GLA EXCLUDES 17,400 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY WENDY'S.
(3) THE ORIGINAL RIVERHEAD CENTER IS SUBJECT TO A GROUND LEASE WHICH MAY BE
RENEWED AT THE OPTION OF THE COMPANY FOR UP TO SEVEN ADDITIONAL TERMS OF
FIVE YEARS EACH. THE LAND ON WHICH THE RIVERHEAD CENTER EXPANSION IS
LOCATED IS OWNED BY THE COMPANY.
(4) AS OF DECEMBER 31, 1997. THE WEIGHTED AVERAGE INTEREST RATE FOR DEBT OUTSTANDING AT DECEMBER 31, 1997 WAS
8.5% AND THE WEIGHTED AVERAGE MATURITY DATE WAS OCTOBER 2002.
(5) REPRESENTS DATE ACQUIRED BY THE COMPANY.
(6) GLA INCLUDES SQUARE FEET OF NEW SPACE NOT YET OPEN AS OF DECEMBER 31, 1997,
WHICH TOTALED 136,285 SQUARE FEET (SAN MARCOS - 12,100; RIVERHEAD - 60,419;
LANCASTER - 2,677; COMMERCE II - 35,792; SEVIERVILLE - 25,297)
- --------------------------------
Management has an ongoing program for acquiring Centers, developing new Centers
and expanding existing Centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
incorporated herein by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997 for a discussion of the cost of such
programs and the sources of financing thereof.
Certain of the Company's Centers serve as collateral for mortgage notes payable
and the secured revolving line of credit. Of the 30 Centers, the Company owns
the land underlying 27 and has ground leases on three. The land on which the
Pigeon Forge and Sevierville Centers are located are subject to long-term ground
leases expiring in 2086 and 2046, respectively. The land on which the original
Riverhead Center is located, approximately 47 acres, is also subject to a ground
lease with an initial term expiring in 2004, with renewal at the option of the
Company for up to seven additional terms of five years each. The land on which
the Riverhead Center expansion is located, approximately 43 acres, is owned by
the Company.
The term of the Company's typical tenant lease ranges from five to ten 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.
11
LEASE EXPIRATIONS
The following table sets forth, as of February 1, 1998, 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
Annualized
Average Base Rent
No. of Approx. Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring(1) (sq. ft.)(1) per sq. ft. (000's)(2) Leases
- ------------------------- --------------- --------------- --------------- --------------- ----------------
1998 75 306,000 $12.78 $3,910 7%
1999 190 695,000 14.24 9,895 17
2000 168 581,000 14.39 8,363 14
2001 140 549,000 13.81 7,581 13
2002 242 904,000 15.14 13,684 24
2003 73 353,000 13.56 4,786 8
2004 61 314,000 14.32 4,497 8
2005 132 102,000 11.23 1,145 2
2006 4 58,000 10.91 633 1
2007 10 64,000 14.59 934 2
2008 & thereafter 36 255,000 8.76 2,235 4
- -------------------------------------------------------------------------------------------------------------
Total 1,131 4,181,000 $13.79 $57,663 100%
========================= =============== =============== =============== =============== ================
(1) EXCLUDES LEASES THAT HAVE BEEN ENTERED INTO BUT WHICH TENANT HAS NOT YET
TAKEN POSSESSION, VACANT SUITES AND MONTH-TO-MONTH LEASES TOTALING
APPROXIMATELY 412,000 SQUARE FEET.
(2) BASE RENT IS DEFINED AS THE MINIMUM PAYMENTS DUE, EXCLUDING PERIODIC
CONTRACTUAL FIXED INCREASES.
RENTAL AND OCCUPANCY RATES
The following table sets forth information regarding the expiring leases during
each of the last five calendar years.
Renewed by Existing Re-leased to
Total Expiring Tenants New Tenants
--------------------------------- ------------------------------------ --------------------------------
% of
Total % of % of
GLA Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- ----------- --------------- ------------- --------------- -------------- ------------- ---------------
1997 238,250 5% 195,380 82% 18,600 8%
1996 149,689 4 134,639 90 15,050 10
1995 93,650 3 91,250 97 2,400 3
1994 115,697 3 105,697 91 10,000 9
1993 129,069 4 123,569 96 5,500 4
12
The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last five calendar years.
Renewals of Existing Leases Stores Re-leased to New Tenants (1)
------------------------------------------------------------- -------------------------------------------------------
Average Annualized Base Rents Average Annualized Base Rents
($ per sq. ft.) ($ per sq. ft.)
-------------------------------------------- ----------------------------------------
GLA % GLA %
Year (sq. ft.) Expiring New Increase (sq. ft.) Expiring New Increase
- --------- ----------- ------------ ---------- ----------- ---------- ---------- ---------- ---------
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 59,445 13.64 14.80 9
1994 105,697 14.26 16.56 16 71,350 12.54 14.30 14
1993 123,569 12.83 13.94 9 29,000 10.81 14.86 38
- ---------------------
(1) THE SQUARE FOOTAGE RELEASED TO NEW TENANTS FOR 1997, 1996, 1995, 1994 AND
1993 CONTAIN 18,600, 15,050, 2,400, 10,000 AND 5,500 SQUARE FEET,
RESPECTIVELY, THAT WAS RELEASED TO NEW TENANTS UPON EXPIRATION OF AN
EXISTING LEASE. THE REMAINING SPACE WAS RETENANTED PRIOR TO ANY LEASE
EXPIRATION.
The following table shows certain information on rents and occupancy rates for
the Centers during each of the last five calendar years.
Aggregate
Average GLA Open at Percentage
% Anualized Base End of Each Number of Rents
Year Leased Rent per sq.ft. (1) Year Centers (000's)
- --------- ------------------ ----------------- ----------------- -------------- ---------------
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
1994 99% 13.43 3,115,000 25 1,658
1993 98% 13.03 1,980,000 19 1,323
- ---------------------
(1) 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
The Company believes that its ratio of average tenant occupancy cost (which
includes base rent, common area maintenance, real estate taxes, insurance,
advertising and promotions) to average sales per square foot is low relative to
other forms of retail distribution. The following table sets forth, for each of
the last five years, tenant occupancy costs per square foot as a percentage of
reported tenant sales per square foot.
Occupancy Costs as a
Year % of Tenant Sales
- --------------------- ----------------------------
1997 8.2%
1996 8.7
1995 8.5
1994 7.4
1993 6.5
13
TENANTS
The following table sets forth certain information with respect to the Company's
ten largest tenants and their store concepts as of February 1, 1998.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA open
- ------------------------------------------------------- ------------------- --------------
PHILLIPS-VAN HEUSEN CORPORATION (1):
Bass Shoes 18 121,342 2.6%
Bass Apparel 1 3,300 0.1
Bass Company Store 1 6,500 0.1
Van Heusen 19 81,556 1.8
Geoffrey Beene Co. Store 12 48,640 1.1
Izod 15 35,567 0.8
Gant 5 13,000 0.3
----------------- ------------------- --------------
71 309,905 6.8
LIZ CLAIBORNE, INC.:
Liz Claiborne 25 285,041 6.2
Elizabeth 5 20,700 0.5
----------------- ------------------- --------------
30 305,741 6.7
REEBOK INTERNATIONAL, LTD. 22 158,400 3.5
SARA LEE CORPORATION:
L'eggs, Hanes, Bali 23 107,192 2.3
Champion 2 6,500 0.2
Coach 6 13,815 0.3
Socks Galore 7 8,680 0.2
----------------- ------------------- --------------
38 136,187 3.0
COUNTY SEAT STORES, INC. (2):
County Seat 3 15,000 0.3
Levi's by County Seat 8 91,700 2.0
----------------- ------------------- --------------
11 106,700 2.3
AMERICAN COMMERCIAL, INC.:
Mikasa Factory Store 13 105,500 2.3
BROWN GROUP RETAIL, INC.:
Famous Footwear 6 33,150 0.7
Naturalizer 7 17,200 0.4
Brown Shoes 2 10,500 0.2
Factory Brand Shoes 6 29,050 0.6
Air Step/Buster Brown 1 3,000 0.1
----------------- ------------------- --------------
22 92,900 2.0
VF FACTORY OUTLET, INC. 3 78,697 1.7
OSHKOSH B"GOSH, INC. 15 76,790 1.6
SAMSONITE CORPORATION:
American Tourister 11 31,392 0.7
Samsonite 13 43,395 0.9
----------------- ------------------- --------------
24 74,787 1.6
----------------- ------------------- --------------
Total of all tenants listed in table 249 1,455,607 31.5%
================= =================== ==============
14
(1) PHILLIPS-VAN HEUSEN CORPORATION ("PVH") HAS ANNOUNCED THE CLOSING OF A
SIGNIFICANT PORTION OF ITS UNDERPERFORMING STORES. GENERALLY, THE COMPANY'S
LEASES WITH PVH ARE LONG-TERM AND DO NOT PERMIT THE TENANT TO CLOSE THE STORE
DURING THE LEASE TERM. MANAGEMENT BELIEVES THAT THE RENTS DERIVED FROM STORES
THAT MIGHT BE CONSIDERED FOR CLOSING IN THE FUTURE BY PVH WOULD NOT HAVE A
MATERIAL EFFECT ON THE COMPANY'S RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
(2) COUNTY SEAT STORES, INC. ("COUNTY SEAT") IS CURRENTLY IN BANKRUPTCY
PROCEEDINGS. MANAGEMENT BELIEVES THAT THIS BANKRUPTCY WILL NOT HAVE A MATERIAL
EFFECT ON THE COMPANY'S RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
SIGNIFICANT PROPERTY
The Center in Riverhead, New York is the Company's only Center which comprises
more than 10% of consolidated total assets or consolidated total revenues. The
Riverhead Center was originally constructed in 1994. During 1997, the company
substantially completed an expansion totaling 241,820 square feet and is nearing
final completion of a further expansion which will total approximately 103,300
square feet. Upon completion of the expansions, the Riverhead Center will total
631,359 square feet.
Tenants at the Riverhead Center principally conduct retail sales operations. The
occupancy rate as of the end of 1997, 1996, 1995 and 1994, excluding expansions
under construction, was 99%, 100%, 100% and 100%. Average annualized base rental
rates during 1997, 1996, 1995 and 1994 were $18.65, $17.73, $17.63 and $18.18
per weighted average GLA.
Depreciation on the Riverhead Center is recognized on a straight-line basis over
33.33 years, resulting in a depreciation rate of 3% per year. At December 31,
1997, the net federal tax basis of this Center was approximately $73,134,000.
Real estate taxes assessed on this Center during 1997 amounted to $826,000. Real
estate taxes for 1998 are estimated to be approximately $1.6 million.
The following table sets forth, as of February 1, 1998, scheduled lease
expirations at the Riverhead Center assuming that none of the tenants exercise
renewal options:
% of Gross
Annualized
Base Rent
No. of Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring (1) (sq. ft.) (1) per sq. ft. (000) (2) Leases
- --------------------- ---------------- -------------- ----------------- ----------------- --------------------
1998 --- --- $ --- $ --- ---%
1999 22 91,000 19.30 1,756 16
2000 5 17,000 19.94 339 3
2001 8 34,000 20.97 713 7
2002 70 240,000 20.77 4,985 46
2003 4 23,000 18.65 452 4
2004 18 79,000 19.24 1,520 14
2005 1 2,000 17.50 35 1
2006 --- --- --- --- ---
2007 4 24,000 16.83 404 4
2007 & thereafter 5 57,000 9.33 532 5
- --------------------- ---------------- -------------- ----------------- ----------------- --------------------
Total 137 567,000 $18.93 $10,736 100%
===================== ================ ============== ================= ================= ====================
(1) EXCLUDES LEASES THAT HAVE BEEN ENTERED INTO BUT WHICH TENANT HAS NOT TAKEN
POSSESSION AND EXCLUDES MONTH-TO-MONTH LEASES.
(2) BASE RENT IS DEFINED AS THE MINIMUM PAYMENTS DUE, EXCLUDING PERIODIC
CONTRACTUAL FIXED INCREASES.
15
ITEM 3. LEGAL PROCEEDINGS
Except for claims arising in the ordinary course of business, which are covered
by the Company's liability insurance, the Company is not presently involved in
any litigation involving claims against the Company, nor, to its knowledge, is
any material litigation threatened against the Company or its Centers which
would have a material adverse effect on the Company, its Centers or its
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company:
NAME AGE POSITION
---- --- --------
Stanley K. Tanger..........74 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger...........49 Director, President and Chief Operating Officer
Rochelle G. Simpson .......59 Secretary and Senior Vice President -
Administration and Finance
Willard A. Chafin, Jr......60 Senior Vice President - Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr...39 Vice President - Chief Financial Officer
Joseph H. Nehmen...........49 Vice President - Operations
Virginia R. Summerell......39 Treasurer and Assistant Secretary
C. Randy Warren, Jr........33 Vice President - Leasing
Richard T. Parker..........49 Vice President - Development
Carrie A. Johnson..........35 Vice President - Marketing
Kevin M. Dillon............39 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 Senior Vice President -
Administration and Finance of the Company in 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.
16
WILLARD A. CHAFIN, JR. Mr. Chafin was named Senior Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in October
1995. He joined the Company in April 1990, and since has held various executive
positions where his major responsibilities included supervising the Marketing,
Leasing and Property Management Departments, and leading the Asset Management
Team. Prior to joining the Company, Mr. Chafin was the Director of Store
Development for the Sara Lee Corporation, where he spent 21 years. Before
joining Sara Lee, Mr. Chafin was employed by Sears Roebuck & Co. for nine years
in advertising/sales promotion, inventory control and merchandising.
FRANK C. MARCHISELLO, JR. Mr. Marchisello was named Vice President and
Chief Financial Officer of the Company 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.
While at Gilliam, Coble & Moser, Mr. Marchisello worked directly with the
Tangers since 1982. 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 joined the Company in September 1995 and was
elected 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 cash management
and oversight of all project and corporate finance transactions. Ms. Summerell
is a graduate of Davidson College and holds an MBA from the Babcock School at
Wake Forest University.
C. RANDY WARREN, JR. Mr. Warren is the Vice President - Leasing of the
Company and joined the Company in November 1995. He was previously director of
anchor leasing at Prime Retail, L.P., where he managed anchor tenant relations
and negotiation on a national basis. Prior to that, he worked as a leasing
executive for the company. Before entering the outlet industry, he was founder
of Preston Partners, a development consulting firm in Baltimore, MD. Mr. Warren
is a graduate of Towson State University and holds an MBA from Loyola College.
RICHARD T. PARKER. Mr. Parker is the Vice President - Development and
joined the Company in April 1996. Prior to joining Tanger, Mr. Parker was with
The Mills Corporation for nine years where he served as Vice President of Land
Development responsible for organizing and planning the development,
merchandising and sale of peripheral land surrounding 2 million-plus square foot
super regional mall projects. Prior to joining The Mills Corporation, Mr. Parker
was employed by Marriott International for 6 years where he served as Director
of Franchise Development. Mr. Parker is a graduate of Golden Gate University and
a veteran of the United States Air Force.
CARRIE A. JOHNSON. Ms. Johnson was named Vice President - Marketing in
September 1996. Previously, she held the position of Assistant Vice President -
Marketing since joining the Company in December 1995. Prior to joining Tanger,
Ms. Johnson was with Prime Retail, L.P. for 4 years where she served as Regional
Marketing Director responsible for coordinating and directing marketing for five
outlet centers in the southeast region. Prior to joining Prime Retail, L.P., Ms.
Johnson 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.
Johnson 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 since November 1993, the
month he joined the Company, to September 1996. Prior to joining the Company,
Mr. Dillon was employed by New Market Development Company for six years where he
served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was
the Development Director of Western Development Company where he spent 6 years.
17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
The Common Shares commenced trading on the New York Stock Exchange on May 28,
1993. The initial public offering price was $22.50 per share. The following
table sets forth the high and low sales prices of the Common Shares as reported
on the New York Stock Exchange Composite Tape, during the periods indicated.
Common
1997 High Low Dividends Paid
- ---------------------------- --------- ------------------ -------------------
First Quarter $27.500 $24.000 $.52
Second Quarter 27.250 23.000 .55
Third Quarter 29.875 26.875 .55
Fourth Quarter 31.000 26.500 .55
- ---------------------------- --------- ------------------ -------------------
Year 1997 $31.000 $23.000 $2.17
- ---------------------------- --------- ------------------ -------------------
Common
1996 High Low Dividends Paid
- ---------------------------- --------- ------------------ -------------------
First Quarter $26.000 $23.375 $.50
Second Quarter 25.375 22.625 .52
Third Quarter 24.875 22.875 .52
Fourth Quarter 27.375 23.500 .52
- ---------------------------- --------- ------------------ -------------------
Year 1996 $27.375 $22.625 $2.06
- ---------------------------- --------- ------------------ -------------------
As of February 1, 1998, there were approximately 510 shareholders of record.
Certain of the Company's debt agreements limit the payment of dividends such
that dividends shall not exceed FFO, as defined in the agreements, on an annual
basis or 95% of FFO on a cumulative basis. Based on continuing favorable
operations and available funds from operations, the Company intends to continue
to pay regular quarterly dividends.
18
ITEM 6. SELECTED FINANCIAL DATA
1997 1996 1995 1994 1993
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
(In thousands, except per share and center data)
OPERATING DATA
Total revenues $85,271 $75,500 $68,604 $45,988 $29,204
Income before minority interest and
extraordinary item 17,583 16,177 15,352 15,147 8,555
Income before extraordinary
item(1) 12,827 11,752 11,218 11,168 4,574
Net income (1)(3) 12,827 11,191 11,218 11,168 1,898
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
SHARE DATA (2) Basic:
Income before extraordinary item $1.57 $1.46 $1.36 $1.32 $.90
Net income (3) $1.57 $1.37 $1.36 $1.32 $.35
Weighted average common shares 7,028 6,402 6,095 5,177 4,858
Diluted:
Income before extraordinary item $1.54 $1.46 $1.36 $1.31 $.90
Net income (3) $1.54 $1.37 $1.36 $1.31 $.35
Weighted average common shares 7,140 6,408 6,096 5,211 4,869
Common dividends paid $2.17 $2.06 $1.96 $1.80 $.535
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $454,708 $358,361 $325,881 $292,406 $137,666
Total assets 416,014 332,138 315,130 294,802 182,396
Long-term debt 229,050 178,004 156,749 121,323 20,316
Shareholders' equity 136,649 110,657 114,813 118,177 120,067
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
OTHER DATA
EBITDA (5) $52,857 $46,633 $41,058 $26,089 $17,519
Funds from operations (4) $35,840 $32,313 $29,597 $23,189 $12,008
Cash flows provided by (used in):
Operating activities $39,214 $38,051 $32,423 $21,304 $11,571
Investing activities $(93,636) $(36,401) $(44,788) $(143,683) $(49,277)
Financing activities $55,444 $(4,176) $13,802 $80,661 $81,324
Gross leasable area open at year end 4,458 3,739 3,507 3,115 1,980
Number of centers 30 27 27 25 19
- -----------------------
(1) All earnings prior to the initial public offering ("IPO") on June 4, 1993
have been allocated to minority interest. Subsequent to the IPO, earnings
have been allocated to the Company and the minority interest based on their
respective weighted average ownership interests in the Operating
Partnership during the year.
(2) In 1997, the Company adopted SFAS 128, EARNINGS PER SHARE. As a result, the
Company's reported income per common share amounts for prior years have
been restated to conform with the current year presentation.
(3) Pro forma net income and net income per common share, which reflect
adjustments to historical information to present income information as if
the IPO had taken place on January 1, 1993, were $6,551 and $1.31 per basic
and diluted share during 1993.
(4) In 1996, the Company adopted the National Association of Real Estate
Investment Trusts' definition of funds from operations and restated all
prior year amounts. See Management's Discussion and Analysis of Financial
Condition and Results of Operations under the caption "Funds from
Operations" for a complete discussion of funds from operations.
(5) EBITDA represents earnings before minority interest, 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. The Company cautions that the calculation of EBITDA may vary
from entity to entity and as such the presentation of EBITDA by the Company
may not be comparable to other similarly titled measures of other reporting
companies. 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.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the consolidated statements of operations,
including trends which might appear, are not necessarily indicative of future
operations.
The discussion of the Company's results of operations reported in the
consolidated statements of operations compares the years ended December 31, 1997
and 1996, as well as December 31, 1996 and 1995. Certain comparisons between the
periods are made on a percentage basis as well as on a weighted average gross
leasable area ("GLA") basis, a technique which adjusts for certain increases or
decreases in the number of centers and corresponding square feet related to the
development, expansion or disposition of rental properties. The computation of
weighted average GLA, however, does not adjust for fluctuations in occupancy
since GLA is not reduced when original occupied space subsequently becomes
vacant.
CAUTIONARY STATEMENTS
Certain statements contained in the discussion below, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the effects of future events on the Company's financial performance; the risk
that the Company may not be able to finance its planned development, acquisition
and expansion activities; risks related to the retail industry in which the
Company's outlet centers compete, including the potential adverse impact of
external factors such as inflation, tenant demand for space, consumer
confidence, unemployment rates and consumer tastes and preferences; risks
associated with the Company's development, acquisition and expansion activities,
such as the potential for cost overruns, delays and lack of predictability with
respect to the financial returns associated with these development activities;
the risk of potential increase in market interest rates from current rates;
risks associated with real estate ownership, such as the potential adverse
impact of changes in the local economic climate on the revenues and the value of
the Company's properties; and the risks that a significant number of tenants may
become unable to meet their lease obligations or that the Company may be unable
to renew or re-lease a significant amount of available space on economically
favorable terms. Given these uncertainties, current and prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Company disclaims any obligation to update any such factors or to publicly
announce the result of any revisions to any of the forward-looking statements
contained herein to reflect future events or developments.
GENERAL OVERVIEW
The Company continues to grow principally through acquisitions, new development
and expansions of factory outlet centers. During 1997, the Company acquired
three centers in resort areas totaling 302,554 square feet. Five Oaks Factory
Stores, a factory outlet center in Sevierville, Tennessee, was acquired in
February 1997 at a purchase price of $18 million. Shoppes on the Parkway, a
factory outlet center in Blowing Rock, North Carolina, and Soundings Factory
Stores, a factory outlet center in Nags Head, North Carolina, were acquired in
September 1997 for an aggregate purchase price of $19.5 million.
In addition, the Company has completed, or has under construction to be
completed by the end of the first quarter of 1998, the expansion of five
existing centers totaling 538,979 square feet. During 1996, the Company
completed six expansions totaling 181,142 square feet. A summary of the 1997
acquired centers and expansions is recapped below:
20
1997 DEVELOPMENT Aggregate Open at
- ---------------- Size 12/31/97
(sq. ft.) (sq. ft.)
------------- --------------
ACQUISITIONS
Sevierville, TN 122,684 122,684
Blowing Rock, NC 97,408 97,408
Nags Head, NC 82,462 82,462
------------- --------------
302,554 302,554
------------- --------------
EXPANSIONS
Riverhead, NY 345,164 284,745
Commerce, GA 94,247 58,455
Sevierville, TN 50,357 25,060
Lancaster, PA 26,111 23,434
San Marcos, TX 23,100 11,000
------------- --------------
538,979 402,694
------------- --------------
841,533 705,248
============= ==============
A summary of the operating results for the years ended December 31, 1997, 1996
and 1995 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
Year Ended December 31,
---------------------------------------------
1997 1996 1995
----------- ---------------- ----------------
GLA open at end of period (000's) 4,458 3,739 3,507
Weighted average GLA (000's) (1) 4,046 3,642 3,292
Outlet centers in operation 30 27 27
New centers opened --- --- 2
New centers acquired 3 --- ---
Centers expanded 5 6 4
States operated in at end of period 23 22 22
PER SQUARE FOOT
---------------
Revenues
Base rentals $14.04 $13.89 $13.92
Percentage rentals .65 .55 .63
Expense reimbursements 6.10 6.04 6.05
Other income .29 .25 .24
-------- ---------------- ----------------
Total revenues 21.08 20.73 20.84
-------- ---------------- ----------------
Expenses
Property operating 6.49 6.47 6.83
General and administrative 1.52 1.50 1.54
Interest 4.16 3.84 3.44
Depreciation and amortization 4.56 4.52 4.37
-------- ---------------- ----------------
Total expenses 16.73 16.33 16.18
-------- ---------------- ----------------
Income before gain on sale of land, minority interest and
extraordinary item $4.35 $4.40 $4.66
=========== ================ =============
(1) GLA WEIGHTED BY MONTHS OF OPERATIONS.
21
RESULTS OF OPERATIONS
1997 COMPARED TO 1996
Base rentals increased $6.2 million, or 12%, in 1997 when compared to the same
period in 1996 primarily as a result of the 11% increase in weighted average
GLA. Base rent increased approximately $1.5 million due to the effect of a full
year's operation of expansions completed in 1996 and approximately $4.8 million
for new or acquired leases added during 1997.
Percentage rentals increased $620,000, or $.10 per square foot, in 1997 compared
to 1996. The increase is primarily attributable to leases acquired during 1997,
leases added in 1996 completing their first full year of operation in 1997 and
due to increases in tenant sales. Same store sales, defined as weighed average
sales per square foot reported for tenant stores open all of 1997 and 1996,
increased approximately 2.3% to $241 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 relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
increased from 93% in the 1996 period to 94% in the 1997 period due primarily to
a reduction in nonreimbursable property operating expenses.
Property operating expenses increased by $2.7 million, or 11%, in 1997 as
compared to the 1996 period. On a weighted average GLA basis, property operating
expenses increased to $6.49 from $6.47 per square foot. Slightly lower
promotional, real estate taxes, and insurance expenses per square foot incurred
in the 1997 period compared to the 1996 period were offset by higher common area
maintenance expenses per square foot due to additional customer service
amenities, such as trolleys, customer service counters and security and as
result of expanding the Riverhead Center which has a cost per foot higher than
the portfolio average.
General and administrative expenses increased $678,000 in 1997 as compared to
1996. As a percentage of revenues, general and administrative expenses remained
level at 7.2% in each year. On a weighted average GLA basis, general and
administrative expenses increased $.02 to $1.52 in 1997.
Interest expense increased $2.8 million during the 1997 period as compared to
the 1996 period due to higher average borrowings outstanding during the period.
Average borrowings increased principally to finance the first quarter
acquisition of Five Oaks Factory Stores (see "Overview" above) and expansions to
existing centers until the Company was able to issue additional equity in
October 1997. Depreciation and amortization per weighted average GLA increased
from $4.52 per square foot to $4.56 per square foot. The increase reflects the
effect of accelerating the recognition of depreciation expense on certain tenant
finishing allowances related to vacant space.
The extraordinary item in the 1996 period represents a 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.
1996 COMPARED TO 1995
Base rentals increased $4.8 million, or 10%, for the year ended December 31,
1996 when compared to the same period in 1995 primarily as a result of a 11%
increase in weighted average GLA. Base rentals per weighted average GLA
decreased less than 1% from $13.92 per square foot to $13.89 per square foot
reflecting a slightly lower average occupancy rate during 1996 compared to 1995.
The increase in base rents in 1996 consists of $1.1 million associated with
leases added during 1996 and $3.7 million related to the effect of a full year's
operation of centers opened in 1995.
Percentage rentals decreased $51,000, or 2%, in 1996 compared to 1995 and
percentage rentals per weighted average GLA declined $.08 per square foot, or
13%, as a 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 on which percentage rentals
are required (the "breakpoint"). The decrease is also a result of escalating
breakpoints in certain leases renewing at existing centers without comparable
increases in sales. Tenant sales per square foot for centers which were opened
all of 1996 and 1995 increased 2% to approximately $226 per square foot.
22
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, operating, property tax, promotional and
management expenses, increased $2.1 million during 1996 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 percent of property operating expenses were 93% in
the 1996 period compared to 89% in the 1995 period due to certain contractual
increases and reductions in nonrecoverable operating and maintenance expenses.
Property operating expenses increased by $1.1 million, or 5%, in 1996 as
compared to 1995. On a weighted average GLA basis, property operating expenses
decreased from $6.83 per square foot to $6.47 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.
General and administrative expenses decreased 3% on a weighted average GLA basis
to $1.50 for the year ended 1996. General and administrative expenses as a
percent of revenues decreased 3% to 7.2% in 1996 compared to 7.4% in 1995.
Aggregate interest expense increased $2.7 million and $.40 per weighted average
GLA during 1996 period as compared to 1995. 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 $4.37 per square foot to $4.52 per square foot primarily due
to increases in tenant finishing allowances included in building and
improvements which are depreciated over shorter lives and the accelerated
depreciation of certain tenant finishing allowances related to tenants who
vacated or terminated their lease prior to the expiration of the lease term.
The extraordinary item represents the write off of previously deferred financing
costs of $831,000 in connection with the early retirement of debt with the
proceeds from the senior unsecured notes issued in March 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $39.2, $38.1, and $32.4 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases for all three years were primarily due to the incremental operating
income associated with acquired or developed centers. Net cash used in investing
activities amounted to $93.6, $36.4, and $44.8 million during 1997, 1996 and
1995, respectively, and reflects the levels of development and acquisition
activity over the past three years (841,533 square feet developed or acquired in
1997, 181,142 square feet in 1996, 392,312 square feet in 1995). Cash provided
by (used in) financing activities of $55.4, $(4.2) and $13.8 million in 1997,
1996 and 1995, respectively, and has fluctuated consistently with the capital
needed to fund the current development and acquisition activity. In 1997, the
significant increase was due to the equity offering ($29 million) and additional
debt to fund acquisitions and expansions.
Management believes, based upon its discussions with present and prospective
tenants, that many tenants, including prospective tenants new to 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 tenants do not have a significant presence or where there
are few factory outlet centers. During 1997, the Company acquired three centers
totaling 302,554 square feet and completed, or has under construction to be
completed by the end of the first quarter of 1998, the expansion of five
existing centers totaling 538,879 square feet. (See "General Overview").
Commitments for construction of these projects (which represent only those costs
contractually required to be paid by the Company) amounted to $862,000 at
December 31, 1997.
The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1998 and beyond. Currently, the Company is in
the preleasing stages for future centers at two potential sites located in
Concord, North Carolina (Charlotte) and Romulus, Michigan (Detroit) and for
further expansions of four existing Centers. 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 development or expansion will
result in accretive funds from operations. In addition, the Company regularly
evaluates acquisition proposals, engages from time to time in negotiations for
acquisitions and may from time to time enter into letters of intent for the
purchase of properties. No assurance can be given that any of the prospective
acquisitions that are being evaluated or which are subject to a letter of intent
will be consummated, or if consummated, will result in accretive funds from
operations.
23
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. During September
and October 1997, the Company completed a 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 were used to acquire, expand and develop factory
outlet centers and for general corporate purposes. On October 24, the Operating
Partnership issued $75 million of 7.875% senior, unsecured notes, maturing
October 24, 2004. The net proceeds were used to repay substantially all amounts
outstanding under the Company's existing lines of credit. On November 3, 1997,
the Company and the Operating Partnership filed a new registration statement
with the SEC to provide, under shelf registration statements, for the issuance
of up to $100 million in additional equity securities and $100 million in
additional debt securities.
In anticipation of the offering of the senior, unsecured notes, the Company
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 Company received $714,000 in proceeds. Such amount is
being amortized as a reduction to interest expense over the life of the notes
and will result in an overall effective interest rate on the notes of 7.75%.
At December 31, 1997, the Company had revolving lines of credit with a borrowing
capacity of up to $125 million, of which $120 million was available for
additional borrowings. Based on the $5 million in variable rate debt outstanding
at December 31, 1997, the Company had an insignificant amount of exposure to
interest rate risk at year end. Also, with additional unsecured borrowings
during the year, the Company has effectively unencumbered approximately 64% of
its real estate assets as of December 31, 1997. In February 1998, the Company
amended two of its revolving lines to increase amounts available by $20 million,
bringing the total borrowing capacity under the lines to $145 million. Based on
existing credit facilities, ongoing negotiations with certain financial
institutions and funds available under the shelf registration statements,
management believes that the Company has access to the necessary financing to
fund the planned capital expenditures during 1998.
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 Company 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 from the date of the agreement.
NEW ACCOUNTING PRONOUNCEMENTS
In 1997, the Company adopted the Financial Accounting Standards Board's, SFAS
No. 128, EARNINGS PER SHARE, effective for fiscal periods ending after December
15, 1997. The new standard simplifies the computation of earnings per share by
replacing primary earnings per share with basic earnings per share. Basic
earnings per share does not include the effect of any potentially dilutive
securities, as under the previous accounting standard, and is computed by
dividing reported income available to common shareholders by the weighted
average common shares outstanding during the period. Fully diluted earnings per
share is now called diluted earnings per share and reflects the dilution of all
potentially dilutive securities. In adopting the standard, Companies are
required to restate all prior period earnings per share data. The adoption of
this standard by the Company had no impact on the historical reported earnings
per share amounts in 1996 and 1995 as the effect of potentially dilutive
securities were immaterial.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, "
Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires public business enterprises to adopt its provisions for periods
beginning after December 15, 1997, and to report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to shareholders.
The Company is evaluating the provisions of SFAS No. 131, but has not yet
determined if additional disclosures will be required.
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
24
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 real estate investment trust ("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, before extraordinary items 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.
Below is a calculation of funds from operations for the years ended December 31,
1997, 1996 and 1995 as well as actual cash flow and other data for those
respective years:
1997 1996 1995
----------------- ----------------- ----------------
(IN THOUSANDS)
FUNDS FROM OPERATIONS:
Income before gain on sale of land, minority interest
and extraordinary item $17,583 $16,018 $15,352
Adjusted for depreciation and amortization uniquely
significant to real estate 18,257 16,295 14,245
----------------- ----------------- ----------------
Funds from operations before minority interest $35,840 $32,313 $29,597
================= ================= ================
CASH FLOWS PROVIDED BY (USED IN):
Operating activities $39,214 $38,051 $32,423
Investing activities $(93,636) $(36,401) $(44,788)
Financing activities $55,444 $(4,176) $13,802
WEIGHTED AVERAGE SHARES OUTSTANDING (1) 11,000 10,601 10,596
================= ================= ================
(1) ASSUMES THE PARTNERSHIP UNITS OF THE OPERATING PARTNERSHIP HELD BY THE
MINORITY INTEREST, PREFERRED SHARES OF THE COMPANY AND STOCK AND UNIT OPTIONS
ARE CONVERTED TO COMMON SHARES OF THE COMPANY.
ECONOMIC CONDITIONS AND OUTLOOK
Substantially all of the Company's leases contain provisions designed to
mitigate the impact of inflation. Such provisions include clauses for the
escalation of base rent and clauses enabling the Company to receive percentage
rentals based on tenants' gross sales (above predetermined levels, which the
Company believes often are lower than traditional retail industry standards)
which generally increase as prices rise. Most of the leases require the tenant
to pay their share of property operating expenses, including common area
maintenance, real estate taxes, insurance and advertising and promotion, thereby
reducing exposure to increases in costs and operating expenses resulting from
inflation.
Approximately 306,000 square feet of space is up for renewal during 1998 and
approximately 695,000 square feet will come up for renewal in 1999. In addition,
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. Also, management may
grant, from time to time, a tenant's request for reduction in rent to remain in
operation. There can be no assurance that any tenant whose lease expires will
renew such lease or that renewals or terminated leases will be released on
economically favorable terms.
The Company's portfolio is currently 96% leased. Existing tenants' sales have
remained stable and renewals by existing tenants have remained strong. In
addition, the Company has continued to attract and retain additional tenants.
The Company's factory outlet centers typically include well known, national,
brand name companies. By maintaining a broad base of credit tenants and a
geographically diverse portfolio of properties located across the United States,
the Company reduces its operating and leasing risks. No one tenant (including
affiliates) accounts for more than 10% of the Company's combined base and
percentage rental revenues. Accordingly, management currently does not expect
any material adverse impact on the Company's results of operation and financial
condition as a result of leases to be renewed or stores to be released.
25
The Company has evaluated its computer systems and applications for potential
software failures as a result of recognizing the year 2000 and beyond. Most of
the systems are compliant with the year 2000, or will be with normal upgrades
currently available to the Company. Therefore, the Company believes the costs to
bring the remaining systems and applications in compliance will be
insignificant.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth at the pages indicated in
Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company' directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to the section in Part I, Item 4,
entitled "Executive Officers of the Registrant".
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
26
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. Financial Statements
Report of Independent Accountants F-1
Consolidated Balance Sheets-December 31, 1997 and 1996 F-2
Consolidated Statements of Operations-
Years Ended December 31, 1997, 1996 and 1995 F-3
Consolidated Statements of Shareholders' Equity-
For the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statements of Cash Flows-
Years Ended December 31, 1997, 1996 and 1995 F-5
Notes to Consolidated Financial Statements F-6 to F-14
2. Financial Statement Schedule
Schedule III
Report of Independent Accountants F-15
Real Estate and Accumulated Depreciation F-16 to F-18
All other schedules have been omitted because of the absence of
conditions under which they are required or because the required
information is given in the above-listed financial statements or notes
thereto.
3. Exhibits
Exhibit No. Description
----------- -----------
3.1 Amended and Restated Articles of Incorporation of the Company. (Note 10)
3.1A Amendment to Articles of Incorporation dated May 29, 1996. (Note 10)
3.2 Amended and Restated By-Laws of the Company. (Note 1)
3.3 Amended and Restated Agreement of Limited Partnership for the Operating Partnership. (Note 1)
4.1 Form of Deposit Agreement, by and between the Company and the
Depositary, including Form of Depositary Receipt. (Note 1)
4.2 Form of Preferred Stock Certificate. (Note 1)
10.1 Unit Option Plan of the Company. (Note 2)
10.1A First Amendment to the Unit Option Plan. (Note 1)
10.1B Second Amendment to the Unit Option Plan. (Note 6)
10.1C Third Amendment to the Unit Option Plan. (Note 10)
10.1D Fourth Amendment to the Unit Option Plan.
10.2 Stock Option Plan of the Company. (Note 2)
10.2A First Amendment to the Stock Option Plan. (Note 1)
27
10.2B Second Amendment to the Stock Option Plan. (Note 6)
10.2C Third Amendment to the Stock Option Plan. (Note 10).
10.2D Fourth Amendment to the Stock Option Plan.
10.3 Form of Stock Option Agreement between the Company and certain Directors. (Note 3)
10.4 Form of Unit Option Agreement between the Operating Partnership and certain employees. (Note 3)
10.5 Amended and Restated Employment Agreement for Stanley K. Tanger. (Note 10)
10.6 Amended and Restated Employment Agreement for Steven B. Tanger. (Note 10)
10.7 Amended and Restated Employment Agreement for Willard Chafin. (Note 10)
10.8 Amended and Restated Employment Agreement for Rochelle Simpson. (Note 10)
10.9 Employment Agreement for Joseph H. Nehmen. (Note 10)
10.10 Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley
K. Tanger. (Note 2)
10.10A Amendment to Registration Rights Agreement among the Company, the Tanger Family Limited Partnership
and Stanley K. Tanger. (Note 6)
10.11 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Note 2)
10.12 Assignment and Assumption Agreement among Stanley K. Tanger,
Stanley K. Tanger & Company, the Tanger Family Limited
Partnership, the Operating Partnership and the Company. (Note 2)
10.13 Promissory Notes by and between the Operating Partnership and John
Hancock Mutual Life Insurance Company aggregating $50,000,000,
dated as of December 13, 1994. (Note 4)
10.14 Promissory Note and Mortgage, Assignment of Leases and Rents, and
Security Agreement by and between the Operating Partnership and
New York Life Insurance Company, dated as of March 28, 1995. (Note
5)
10.15 Credit Agreement among Tanger Properties Limited Partnership, Tanger Factory Outlet Centers, Inc. and
National Westminister Bank, Plc dated January 15, 1996. (Note 7)
10.15A 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. (Note 9)
10.15B Amendment No. 2 to Credit Agreement among Tanger Properties Limited Partnership, Tanger Factory
Outlet Centers, Inc. and National Westminister Bank, Plc dated May 31, 1996. (Note 10)
10.16 Form of Senior Indenture. (Note 8)
10.17 Form of First Supplemental Indenture (to Senior Indenture). (Note 8)
10.17A Form of Second Supplemental Indenture (to Senior Indenture) dated October 24, 1997 among Tanger
Propeties Limited Partnership, Tanger Factory Outlet Centers, Inc. and State Street Bank & Trust
Company. (Note 11)
10.18 Loan Agreement dated as of October 14, 1996 between Tanger Properties Limited Partnership and First
National Bank of Commerce. (Note 10)
28
10.18A First Amendment to Loan Agreement between Tanger Properties
Limited Partnership and First National Bank of Commerce dated as
of August 13, 1997.
10.19 Loan Agreement dated as of November 18, 1996 between Tanger Properties Limited Partnership and
Southtrust Bank of Alabama, National Association. (Note 10)
10.19A First Amendment to Loan Agreement between Tanger Properties
Limited Partnership and Southtrust Bank of Alabama, National
Association dated as of May 22, 1997.
10.20 Revolving Credit Agreement dated as of December 18, 1997 between Tanger Properties Limited
Partnership and Fleet National Bank.
21.1 List of Subsidiaries. (Note 2)
23.1 Consent of Coopers & Lybrand L.L.P.
Notes to Exhibits:
1. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed October 6, 1993, as amended.
2. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed May 27, 1993, as amended.
3. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
4. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
5. Incorporated by reference to the exhibits to the Company's Quarterly
Report of Form 10-Q for the period ended March 31, 1995..
6. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
7. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated January 23, 1996.
8. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated March 6, 1996.
9. Incorporated by reference to the exhibits to the Company's Quarterly
Report of Form 10-Q for the period ended March 31, 1996.
10. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1996.
11. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated October 24, 1997.
(B) REPORTS ON FORM 8-K - The Company filed the following reports on Form 8-K
during the quarter ended December 31, 1997:
The Company filed a Current Report on Form 8-K dated September 12, 1997 to
file the Consent of Coopers & Lybrand L.L.P, independent public
accountants, as an exhibit to a prospectus filed in September 1997.
The Company filed a Current Report on Form 8-K dated September 24, 1997 to
file a supplemental indenture agreement related to the issuance of $75
million in 7.875% senior unsecured notes.
The Company filed a Current Report on Form 8-K dated September 30, 1997 to
file financial statements and related schedules related to the acquisition
of Five Oaks Factory Stores, a factory outlet center in Sevierville,
Tennessee; Shoppes on the Parkway, a factory outlet center in Blowing Rock,
North Carolina; and Soundings Factory Stores, a factory outlet center in
Nags Head, North Carolina.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ Stanley K. Tanger
---------------------------
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer
February 28, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Stanley K. Tanger Chairman of the Board and February 28, 1998
- --------------------- Chief Executive Officer
Stanley K. Tanger (Principal Executive Officer)
/s/ Steven B. Tanger Director, President and February 28, 1998
- -------------------- Chief Operating Officer
Steven B. Tanger
/s/ Frank C. Marchisello, Jr. Vice President and February 28, 1998
- ----------------------------- Chief Financial Officer
Frank C. Marchisello, Jr. (Principal Financial and
Accounting Officer)
/s/ Jack Africk Director February 28, 1998
- ---------------
Jack Africk
/s/ William G. Benton Director February 28, 1998
- ---------------------
William G. Benton
/s/ Thomas E. Robinson Director February 28, 1998
- ----------------------
Thomas E. Robinson
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Greensboro, NC
January 19, 1998
F-1
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
1997 1996
------------- -----------------
ASSETS
Rental property
Land $48,059 $43,339
Buildings, improvements and fixtures 379,842 299,534
Developments under construction 26,807 15,488
------------- -----------------
454,708 358,361
Accumulated depreciation (64,177) (46,907)
------------- -----------------
Rental property, net 390,531 311,454
Cash and cash equivalents 3,607 2,585
Deferred charges, net 8,651 7,846
Other assets 13,225 10,253
------------- -----------------
TOTAL ASSETS $416,014 $332,138
============= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term debt
Senior, unsecured notes $150,000 $75,000
Mortgages payable 74,050 75,204
Lines of credit 5,000 27,800
------------- -----------------
229,050 178,004
Construction trade payables 12,913 8,320
Accounts payable and accrued expenses 13,526 9,558
------------- -----------------
TOTAL LIABILITIES 255,489 195,882
------------- -----------------
Commitments
Minority interest 23,876 25,599
------------- -----------------
SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 shares authorized, 90,689 and
106,419 shares issued and outstanding at December 31, 1997 and 1996 1 1
Common shares, $.01 par value, 50,000,000 shares authorized, 7,853,936 and
6,602,510 shares issued and outstanding at December 31, 1997 and 1996 78 66
Paid in capital 151,550 121,384
Distributions in excess of net income (14,980) (10,794)
------------- -----------------
TOTAL SHAREHOLDERS' EQUITY 136,649 110,657
------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $416,014 $332,138
============= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
REVENUES
Base rentals $56,807 $50,596 $45,818
Percentage rentals 2,637 2,017 2,068
Expense reimbursements 24,665 21,991 19,913
Other income 1,162 896 805
------------- ------------- -------------
Total revenues 85,271 75,500 68,604
------------- ------------- -------------
EXPENSES
Property operating 26,269 23,559 22,467
General and administrative 6,145 5,467 5,079
Interest 16,835 13,998 11,337
Depreciation and amortization 18,439 16,458 14,369
------------- ------------- -------------
Total expenses 67,688 59,482 53,252
------------- ------------- -------------
INCOME BEFORE GAIN ON SALE OF LAND, MINORITY INTEREST
AND EXTRAORDINARY ITEM 17,583 16,018 15,352
Gain on sale of land --- 159 ---
------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 17,583 16,177 15,352
Minority interest (4,756) (4,425) (4,134)
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 12,827 11,752 11,218
Extraordinary item - Loss on early extinguishment of debt, net of
minority interest of $270 --- (561) ---
------------- ------------- -------------
NET INCOME $12,827 $11,191 $11,218
============= ============= =============
BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item $1.57 $1.46 $1.36
Extraordinary item --- (.09) ---
------------- ------------- -------------
Net income $1.57 $1.37 $1.36
============= ============= =============
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item $1.54 $1.46 $1.36
Extraordinary item --- (.09) ---
------------- ------------- -------------
Net income $1.54 $1.37 $1.36
============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
(In thousands, except share data)
Distributions Total
Preferred Common Paid in in Excess of Shareholders'
Shares Shares Capital Net Income Equity
---------- ------------ ------------ ------------- ----------------
BALANCE, DECEMBER 31, 1994 $2 $55 $120,927 $(2,807) $118,177
Conversion of 87,960 preferred
shares into 792,506 common shares (l) 8 (7) --- ---
Issuance of 600 common shares upon
exercise of unit options --- --- 14 --- 14
Compensation under Unit Option Plan --- --- 224 --- 224
Net income --- --- --- 11,218 11,218
Preferred dividends ($17.66 per share) --- --- --- (2,944) (2,944)
Common dividends ($1.96 per share) --- --- --- (11,876) (11,876)
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 1 63 121,158 (6,409) 114,813
Conversion of 35,065 preferred shares
into 315,929 common shares --- 3 (3) --- ---
Compensation under Unit Option Plan --- --- 229 --- 229
Net income --- --- --- 11,191 11,191
Preferred dividends ($18.56 per share) --- --- --- (2,416) (2,416)
Common dividends ($2.06 per share) --- --- --- (13,160) (13,160)
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 1 66 121,384 (10,794) 110,657
Conversion of 15,730 preferred shares
into 141,726 common shares --- 1 (1) --- ---
Issuance of 29,700 common shares upon
exercise of unit options --- --- 703 --- 703
Issuance of 1,080,000 common shares,
net of issuance costs --- 11 29,230 --- 29,241
Compensation under Unit Option Plan --- --- 234 --- 234
Net income --- --- --- 12,827 12,827
Preferred dividends ($19.55 per share) --- --- --- (1,789) (1,789)
Common dividends ($2.17 per share) --- --- --- (15,224) (15,224)
---------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 $1 $78 $151,550 $(14,980) $136,649
========== ============ ============ ============= ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- ------------- -------------
OPERATING ACTIVITIES
Net income $12,827 $11,191 $11,218
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18,439 16,458 14,369
Amortization of deferred financing costs 1,094 953 955
Minority interest 4,756 4,155 4,134
Loss on early extinguishment of debt --- 831 ---
Gain on sale of land --- (159) ---
Straight-line base rent adjustment (347) (1,192) (1,316)
Compensation under Unit Option Plan 338 338 334
Increase (decrease) due to changes in:
Other assets (1,861) 597 2,431
Accounts payable and accrued expenses 3,968 4,879 298
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,214 38,051 32,423
------------- ------------- -------------
INVESTING ACTIVITIES
Additions to rental properties (92,295) (35,408) (43,758)
Additions to deferred lease costs (1,341) (1,167) (1,030)
Proceeds from sale of land --- 174 ---
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (93,636) (36,401) (44,788)
------------- ------------- -------------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares 29,241 --- ---
Cash dividends paid (17,013) (15,576) (14,820)
Distributions to minority interest (6,583) (6,249) (5,945)
Proceeds from notes payable 75,000 75,000 16,250
Repayments on notes payable (1,154) (1,019) (949)
Proceeds from revolving lines of credit 118,450 70,301 113,555
Repayments on revolving lines of credit (141,250) (123,027) (93,430)
Additions to deferred financing costs (1,950) (3,606) (873)
Proceeds from exercise of unit options 703 --- 14
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 55,444 (4,176) 13,802
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 1,022 (2,526) 1,437
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,585 5,111 3,674
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $3,607 $2,585 $5,111
============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. Organization and Formation of the Company
Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated,
self-administered, self-managed real estate investment trust ("REIT"), 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 30 factory outlet centers (the "Properties") located in 23
states with a total gross leasable area of approximately 4.6 million square feet
at the end of 1997. The Company provides all development, leasing and management
services for its centers.
The factory outlet centers and other assets of the Company's business are held
by, and all of its operations are conducted by, the Company's majority owned
subsidiary, Tanger Properties Limited Partnership (the "Operating Partnership").
The Company is the sole general partner of the Operating Partnership and the
Tanger Family Limited Partnership ("TFLP") is the sole limited partner. Stanley
K. Tanger, the Company's Chairman of the Board and Chief Executive Officer, is
the general partner of TFLP.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The Company, as sole general partner,
consolidates the Operating Partnership for financial reporting purposes. All
significant intercompany balances and transactions have been eliminated in
consolidation.
MINORITY INTEREST - Minority interest reflects the limited partner's
percentage ownership of Operating Partnership Units (the "Units") . Allocation
of net income to the limited partner is based its respective ownership interest
(See Note 6).
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.
The more significant estimates include reserves for uncollectible receivables
and reserves for potentially unsuccessful pre-construction costs.
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 Company 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.
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 1997, 1996 and 1995 amounted to $1,877, $1,044, and $580, and
development costs capitalized amounted to $1,637, $1,321 and $1,253,
respectively. Depreciation expense for each of the years ended December 31,
1997, 1996 and 1995 was $17,327, $15,449 and $13,451, 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 Company 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.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 - The Company has adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED
ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires that
long-lived assets and certain intangibles to be held and used by an entity be
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
Company 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
Company believes that no material impairment existed at December 31, 1997.
DERIVATIVES - The Company 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 being
amortized on a straight-line basis over the life of the agreements.
REVENUE RECOGNITION - Minimum rental income is 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 earned. 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
released, or, otherwise are amortized over the remaining lease term.
INCOME TAXES - The Company operates in a manner intended to enable it to
qualify as a REIT under the Internal Revenue Code (the "Code"). A REIT which
distributes at least 95% of its taxable income to its shareholders each year and
which meets certain other conditions is not taxed on that portion of its taxable
income which is distributed to its shareholders. The Company intends to continue
to qualify as a REIT and to distribute substantially all of its taxable income
to its shareholders. Accordingly, no provision has been made for Federal income
taxes. The Company paid preferred dividends per share of $19.55, $18.56, and
$17.66 in 1997, 1996 and 1995, respectively, all of which are treated as
ordinary income. The table below summarizes the common dividends paid per share
and the amount representing estimated return of capital.
Common dividends per share 1997 1996 1995
- -------------------------- ------------ ------------ -------------
Ordinary income $1.779 $1.607 $1.352
Return of capital .391 .453 .608
------------ ------------ -------------
$2.170 $2.060 $1.960
============ ============ =============
CONCENTRATION OF CREDIT RISK - The Company's management performs ongoing
credit evaluations of their tenants. Although the tenants operate principally in
the retail industry, the properties are geographically diverse. During 1995, one
tenant accounted for approximately 10% of combined base and percentage rental
income. No single tenant accounted for 10% or more of combined base and
percentage rental income during 1997 and 1996.
SUPPLEMENTAL CASH FLOW INFORMATION - 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 December 31, 1997, 1996 and 1995 amounted to $12,913, $8,320, and
$11,305, respectively. Interest paid, net of interest capitalized, in 1997, 1996
and 1995 was $12,337, 10,637, and $10,266, respectively.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with the current year presentation.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
3. DEFERRED CHARGES
Deferred charges as of December 31, 1997 and 1996 consist of the following:
1997 1996
------------- -----------------
Deferred lease costs $7,658 $6,705
Deferred financing costs 6,607 4,657
------------- -----------------
14,265 11,362
Accumulated amortization 5,614 3,516
------------- -----------------
$8,651 $7,846
============= =================
Amortization of deferred lease costs for the years ended December 31, 1997, 1996
and 1995 was $873, $799 and $731, respectively. Amortization of deferred
financing costs, included in interest expense in the accompanying consolidated
statements of operations, for the years ended December 31, 1997, 1996 and 1995
was $1,094, $953 and $955, respectively. During 1996, the Company expensed the
remaining unamortized financing costs totaling $831 related to debt extinguished
with other current year borrowings. Such amount is shown as an extraordinary
item in the accompanying consolidated statements of operations.
4. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
------------- -----------------
8.75% Senior, unsecured notes, maturing March 2001 $75,000 $75,000
7.875% Senior, unsecured notes, maturing October 2004 75,000 ---
Mortgage notes with fixed interest at:
8.92%, maturing January 2002 48,142 48,817
8.625%, maturing September 2000 10,121 10,412
9.77%, maturing April 2005 15,787 15,975
Revolving lines of credit with variable interest rates ranging from
either prime less .25% to prime or from LIBOR plus 1.50%
to LIBOR plus 1.80% 5,000 27,800
------------- -----------------
$229,050 $178,004
============= =================
The Company maintains revolving lines of credit which provide for borrowing up
to $125,000. The agreements expire at various times through the year 2000.
Interest is payable based on alternative interest rate bases at the Company's
option. Amounts available under these facilities at December 31, 1997 totaled
$120,000. Certain of the Company's properties, which had a net book value of
approximately $141,221 at December 31, 1997, serve as collateral for the fixed
rate mortgages and one revolving line of credit.
The credit agreements require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of dividends such that
dividends will not exceed funds from operations, as defined in the agreements,
on an annual basis or 95% of funds from operations on a cumulative basis. All
three existing fixed rate mortgage notes are with insurance companies and
contain prepayment penalty clauses.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
Maturities of the existing long-term debt are as follows:
Amount %
------------- -------------
1998 $1,261 1
1999 1,379 1
2000 15,566 6
2001 76,184 33
2002 45,117 20
Thereafter 89,543 39
------------- -------------
$229,050 100
============= =============
5. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
In October 1995, the Company entered into an interest rate swap effective
through October 1998 with a notional amount of $10,000 which fixed the 30 day
LIBOR index at 5.99%. The impact of this agreement, together with an interest
rate swap agreement which expired during 1996, reduced mortgage interest expense
by $693 during 1995. The agreements had an insignificant effect on interest
expense during 1997 and 1996.
In anticipation of offering the senior, unsecured notes due 2004, the Company
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 $70,000. The transaction settled on October 21, 1997, the
trade date of the $75,000 offering, and, as a result of an increase in the US
Treasury rate, the Company received proceeds of $714. Such amount is being
amortized as a reduction to interest expense over the life of the notes and will
result in an overall effective interest rate on the notes of 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, 1997, 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 $232,152.
The estimated fair value of the interest rate swap agreement at December 31,
1997, as determined by the issuing financial institution, was an unrealized loss
of approximately $17.
6. SHAREHOLDERS' AND PARTNERSHIP EQUITY
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 partnership 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. At December 31, 1997, 817,107 Common Shares were reserved for
the conversion of Depositary Shares. The Preferred Shares and the related
Depositary Shares are not redeemable prior to
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
December 15, 1998. On and after December 15, 1998, 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.
As of December 31, 1997, the ownership interests of the Operating Partnership
consisted of 7,853,936 partnership Units held by the Company, 90,689 preferred
partnership Units (which are convertible into approximately 817,107 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner. The limited partner'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 general partnership Units to the extent of any conversion of
Preferred Shares of the Company into Common Shares of the Company.
7. EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, EARNINGS PER SHARE. The impact of
adopting this statement had no effect on reported earnings per share for 1996
and 1995.
YEAR ENDED DECEMBER 31,
1997 1996 1995
------------- --------------- ------------
BASIC EARNINGS PER SHARE
Income before extraordinary item $12,827 $11,752 $11,218
Less: Preferred Share dividends (1,808) (2,399) (2,903)
------------- --------------- ------------
Income available to Common Shareholders $11,019 $9,353 $8,315
Weighted average Common Shares (in thousands) 7,028 6,402 6,095
Basic earnings per share $1.57 $1.46 $1.36
============= =============== ============
DILUTED EARNINGS PER SHARE
Income before extraordinary item $12,827 $11,752 $11,218
Less: preferred share dividends (1,808) (2,399) (2,903)
------------- --------------- ------------
Income available to Common Shareholders $11,019 $9,353 $8,315
------------- --------------- ------------
Shares (in thousands):
Weighted average Common Shares 7,028 6,402 6,095
Effect of outstanding share and unit options 112 6 1
------------- --------------- ------------
Weighted average Common Shares plus assumed
conversions 7,140 6,408 6,096
------------- --------------- ------------
Diluted earnings per share $1.54 $1.46 $1.36
============= =============== ============
Options to purchase Common Shares excluded from the computation of diluted
earnings per share during 1997, 1996 and 1995 because the exercise price was
greater than the average market price of the Common Shares totaled 9,000,
150,992 and 538,391 shares. The assumed conversion of the preferred shares as of
the beginning of each year would have been anti-dilutive. The assumed conversion
of the Units held by the limited partner as of the beginning of the year, which
would result in the elimination of earnings allocated to the 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 Common
Share.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
8. EMPLOYEE BENEFIT PLANS
The Company 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 Company. The 401(k) Plan
permits employees of the Company, 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 Company at a rate of compensation deferred
to be determined annually at the Company'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 Company has a non-qualified and incentive stock option plan ("The 1993 Stock
Option Plan") and the Operating Partnership has a non-qualified Unit option plan
("The 1993 Unit Option Plan"). Units received upon exercise of Unit options are
exchangeable for Common Shares. The Company 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 SFAS #123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
1997 1996 1995
------------- ------------- --------------
Net income: As reported $12,827 $11,191 $11,218
Pro forma $12,696 $11,114 $11,207
Basic EPS: As reported $1.57 $1.37 $1.36
Pro forma $1.55 $1.36 $1.36
Diluted EPS: As reported $1.54 $1.37 $1.36
Pro forma $1.53 $1.36 $1.36
Because the Statement 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 1996 and 1995, respectively: expected dividend yields of 8%; expected
lives ranging from 5 years to 7 years; expected volatility 20%; and risk-free
interest rates ranging from 5.6% to 6.75% in 1996 and from 5.8% to 5.9% in 1995.
The Company may issue up to 1,500,000 shares under The 1993 Stock Option Plan
and The 1993 Unit Option Plan. The Company has granted 904,530 options, net of
options forfeited, through December 31, 1997. Under both plans, the option
exercise price is determined by the Stock and Unit Option Committee of the Board
of Directors. Non-qualified stock 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, 1997 have exercise prices between $22.50 and
$31.25, with a weighted average exercise price of $23.76 and a weighted average
remaining contractual life of 6.9 years. On January 6, 1998, the Company granted
to its directors and employees options to purchase an additional 15,000 Common
Shares and 242,600 Units in the Operating Partnership (which are exchangeable
for 242,600 Common Shares of the Company). The exercise price per share and unit
was set at the previous day's market closing price of $30.125.
Unamortized stock compensation, which relates to options that were granted at an
exercise price below the fair market value at the time of grant, was $195 and
$533 at December 31, 1997 and 1996. Compensation expense recognized during 1997,
1996 and 1995 was $338, $338 and $334, respectively.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
A summary of the status of the Company's two plans at December 31, 1997, 1996
and 1995 and changes during the years then ended is presented in the table and
narrative below:
1997 1996 1995
------ ------ -----
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------------ ------------ ---------------- ------------- ------------- -------------
Outstanding at beginning of year 915,950 $23.77 680,650 $23.58 546,000 $23.57
Granted --- --- 237,700 24.29 154,550 23.50
Exercised (29,700) 23.68 --- --- (600) 22.50
Forfeited (12,020) 24.41 (2,400) 23.59 (19,300) 22.70
------------ ------------ ---------------- ------------- ------------- -------------
Outstanding at end of year 874,230 $23.76 915,950 $23.77 680,650 $23.58
------------ ------------ ---------------- ------------- ------------- -------------
Exercisable at end of year 470,750 $23.46 320,410 $23.31 184,700 $23.11
Weighted average fair value of
options granted --- $2.70 $2.18
9. SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following amounts are included in property operating expenses for the years
ended December 31:
1997 1996 1995
------------- --------------- ------------
Advertising and promotion $8,452 $7,691 $8,884
Common area maintenance 11,113 9,497 8,403
Real estate taxes 5,004 4,699 3,483
Other operating expenses 1,700 1,672 1,697
------------- --------------- ------------
$26,269 $23,559 $22,467
============= =============== ============
10. LEASE AGREEMENTS
The Company is the lessor of a total of 1,210 stores in 30 factory outlet
centers, under operating leases with initial terms that expire from 1998 to
2015. Most leases are renewable for five years at the lessee's option. Future
minimum lease receipts under noncancellable operating leases as of December 31,
1997 are as follows:
1998 $57,242
1999 51,775
2000 42,204
2001 34,410
2002 25,180
Thereafter 41,353
---------------
$252,164
===============
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
11. COMMITMENTS
At December 31, 1997, commitments for construction of new developments and
additions to existing properties amounted to $862. Commitments for construction
represent only those costs contractually required to be paid by the Company.
The Company purchased the rights to lease land on which two of the outlet
centers are situated for $1,520. These leasehold rights are being amortized on a
straight-line basis over 30 and 40 year periods. Accumulated amortization was
$468 and $419 at December 31, 1997 and 1996, respectively. These land leases and
other land and equipment 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 $778, $315 and $312 for the years ended
December 31, 1997, 1996 and 1995, respectively. Minimum lease payments for the
next five years and thereafter are as follows:
1998 $1,052
1999 1,069
2000 1,070
2001 1,063
2002 1,015
Thereafter 43,121
---------------
$48,390
===============
12. ACQUISITIONS
During 1997, the Company completed the acquisition of three factory outlet
centers containing approximately 303,000 square feet of gross leasable area for
purchase prices which aggregated $37,500. 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 consolidated results of operations since
the applicable acquisition date.
The following unaudited summarized pro forma results of operations reflect
adjustments to present the historical information as if the acquisitions had
occurred as of the beginning of the respective period. 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 the respective period, nor does it purport to represent the
results of operations for future periods.
1997 1996
------------- ---------------
(Unaudited)
Total revenues $87,314 $81,006
Income before extraordinary item 12,967 11,722
Net income 12,967 11,161
Basic net income per common share:
Income before extraordinary item 1.59 1.46
Net income 1.59 1.37
Diluted net income per common share:
Income before extraordinary item 1.56 1.46
Net income 1.56 1.37
============= ===============
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
13. QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following table sets forth summary quarterly financial information
for the years ended December 31, 1997 and 1996.
1997 BY QUARTER FIRST SECOND THIRD FOURTH
-------------- ---------------- ----------------- -----------------
Total revenues $19,225 $20,456 $21,657 $23,933
Income before minority interest 3,965 3,857 4,369 5,392
Net income 2,858 2,814 3,162 3,993
Basic net income per common share (1) .36 .34 .40 .45
Diluted net income per common share (1) .36 .34 .39 .44
-------------- ---------------- ----------------- -----------------
1996 BY QUARTER FIRST SECOND THIRD FOURTH
-------------- ---------------- ----------------- -----------------
Total revenues $18,123 $18,189 $19,453 $19,735
Income before minority interest and
extraordinary item 3,910 3,591 4,083 4,593
Income before extraordinary item 2,849 2,634 2,964 3,305
Net income 2,288 2,634 2,964 3,305
Basic earnings per common share:
Income before extraordinary item .35 .32 .37 .42
Net income .26 .32 .37 .42
Diluted earnings per common share:
Income before extraordinary item .35 .32 .37 .42
Net income .26 .32 .37 .42
-------------- ---------------- ----------------- -----------------
(1) Quarterly amounts do not add to annual amounts due to the effect of
rounding on a quarterly basis.
F-14
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Tanger Factory
Outlet Centers, Inc. and Subsidiary 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 27 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.
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
January 19, 1998
F-15
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
Costs Capitalized
Subsequent to Acquisition
Initial Cost to Company (Improvements)
Description -------------------------- --------------------------
- -------------------------------------- Buildings, Buildings,
Outlet Center Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures
- ---------------- -------------------- ---------------- ------------ ------------ --------- ----------------
Barstow Barstow, CA $ --- $3,941 $12,533 $ --- $863
Blowing Rock Blowing Rock, NC --- 1,963 9,424 --- ---
Boaz Boaz, AL --- 616 2,195 --- 1,048
Bourne Bourne, MA --- 899 1,361 --- 185
Branch N. Branch, MN --- 423 5,644 249 2,321
Branson Branson, MO --- 4,557 25,040 --- 3,296
Casa Grande Casa Grande, AZ --- 753 9,091 --- 1,196
Clover North Conway, NH --- 393 672 --- 49
Commerce I Commerce, GA 10,121 755 3,511 492 5,509
Commerce II Commerce, GA --- 1,299 14,046 541 9,661
Gonzales Gonzales, LA --- 947 15,895 17 3,381
Kittery-I Kittery, ME 5,970 1,242 2,961 229 1,173
Kittery-II Kittery, ME --- 921 1,835 530 222
Lancaster Lancaster, PA 15,787 3,691 19,907 --- 5,416
Lawrence Lawrence, KS --- 1,013 5,542 439 443
LL Bean North Conway, NH --- 1,894 3,351 --- 165
Locust Grove Locust Grove, GA --- 2,609 11,801 --- 6,980
Manchester Manchester, VT --- 500 857 --- 66
Martinsburg Martinsburg, WV --- 800 2,812 --- 1,256
McMinnville McMinnville, OR --- 1,071 8,162 5 518
Nags Head Nags Head, NC --- 1,853 6,679 --- ---
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 995
Riverhead Riverhead, NY --- --- 36,374 6,152 53,088
San Marcos San Marcos, TX 10,206 2,012 9,440 17 8,940
Sevierville Sevierville, TN --- --- 18,495 --- 4,303
Gross Amount Carried at Close of Period
12/31/97 (1) Life Used to
Description ------------------------------------------ Compute
- ------------------------------------- Buildings, Depreciation
Outlet Center Improvements Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- ---------------- ------------------- --------- -------------- --------------- --------------- -------------- -------------
Barstow Barstow, CA $3,941 $13,396 $17,337 $2,132 1995 (2)
Blowing Rock Blowing Rock, NC 1,963 9,424 11,387 79 1997 (3) (2)
Boaz Boaz, AL 616 3,243 3,859 1,232 1988 (2)
Bourne Bourne, MA 899 1,546 2,445 623 1989 (2)
Branch N. Branch, MN 672 7,965 8,637 2,226 1992 (2)
Branson Branson, MO 4,557 28,336 32,893 4,446 1994 (2)
Casa Grande Casa Grande, AZ 753 10,287 11,040 3,205 1992 (2)
Clover North Conway, NH 393 721 1,114 326 1987 (2)
Commerce I Commerce, GA 1,247 9,020 10,267 2,968 1989 (2)
Commerce II Commerce, GA 1,840 23,707 25,547 1,691 1995 (2)
Gonzales Gonzales, LA 964 19,276 20,240 4,494 1992 (2)
Kittery-I Kittery, ME 1,471 4,134 5,605 1,785 1986 (2)
Kittery-II Kittery, ME 1,451 2,057 3,508 737 1989 (2)
Lancaster Lancaster, PA 3,691 25,323 29,014 3,314 1994 (3) (2)
Lawrence Lawrence, KS 1,452 5,985 7,437 1,287 1993 (2)
LL Bean North Conway, NH 1,894 3,516 5,410 1,404 1988 (2)
Locust Grove Locust Grove, GA 2,609 18,781 21,390 2,542 1994 (2)
Manchester Manchester, VT 500 923 1,423 355 1988 (2)
Martinsburg Martinsburg, WV 800 4,068 4,868 1,500 1987 (2)
McMinnville McMinnville, OR 1,076 8,680 9,756 2,053 1993 (2)
Nags Head Nags Head, NC 1,853 6,679 8,532 63 1997 (3) (2)
Pigeon Forge Pigeon Forge, TN 299 3,503 3,802 1,373 1988 (2)
Riverhead Riverhead, NY 6,152 89,462 95,614 5,843 1993 (2)
San Marcos San Marcos, TX 2,029 18,380 20,409 2,929 1993 (2)
Sevierville Sevierville, TN --- 22,798 22,798 503 1997 (3) (2)
F-16
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III - (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
Costs Capitalized
Subsequent to Acquisition
Description Initial Cost to Company (Improvements)
- -------------------------------------- -------------------------- --------------------------
Buildings, Buildings,
Outlet Center Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures
- ---------------- -------------------- ---------------- ------------ ------------ --------- --------------- -
Seymour Seymour, IN 8,184 1,794 13,249 --- 16
Stroud Stroud, OK --- 446 7,048 --- 4,782
Terrell Terrell, TX --- 805 13,432 --- 3,850
West Branch West Branch, MI 6,836 350 3,428 120 3,516
Williamsburg Williamsburg, IA 16,946 706 6,781 716 9,337
- ---------------- -------------------- ---------------- ------------ ------------ --------- ---------------
Totals $74,050 $38,552 $274,074 $9,507 $132,575
================ ==================== ================ ============ ============ ========= =============== =
Gross Amount Carried at Close of Period
Description 12/31/97 (1) Life Used to
- -------------------------------------- ------------------------------------------ Compute
Buildings, Depreciation
Outlet Center Improvements Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- ---------------- -------------------- --------- -------------- --------------- --------------- -------------- --------------
Seymour Seymour, IN 1,794 13,265 15,059 2,397 1994 (2)
Stroud Stroud, OK 446 11,830 12,276 3,348 1992 (2)
Terrell Terrell, TX 805 17,282 18,087 2,881 1994 (2)
West Branch West Branch, MI 470 6,944 7,414 1,863 1991 (2)
Williamsburg Williamsburg, IA 1,422 16,118 17,540 4,578 1991 (2)
- ---------------- -------------------- --------- -------------- --------------- --------------- -------------- --------------
Totals $48,059 $406,649 $454,708 $64,177
================ ==================== ========= ============== =============== =============== ============== ==============
(1) AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS APPROXIMATELY $429,597,000
(2) THE COMPANY GENERALLY USES ESTIMATED LIVES RANGING FROM 25 TO 33 YEARS FOR
BUILDINGS AND 15 YEARS FOR LAND IMPROVEMENTS. TENANT FINISHING ALLOWANCES
ARE DEPRECIATED OVER THE INITIAL LEASE TERM.
(3) REPRESENTS YEAR ACQUIRED
F-17
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III - (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1997
(In thousands)
The changes in total real estate for the three years ended December 31, 1997 are
as follows:
1995 1996 1997
------------------- ------------------- ---------------------
Balance, beginning of year $292,406 $325,881 $358,361
Acquisition of real estate --- --- 37,500
Improvements 33,475 32,511 59,519
Dispositions and other --- (31) (672)
------------------- ------------------- ---------------------
Balance, end of year $325,881 $358,361 $454,708
=================== =================== =====================
The changes in accumulated depreciation for the three years ended December 31,
1997 are as follows:
1995 1996 1997
------------------- ------------------- ---------------------
Balance, beginning of year $18,007 $31,458 $46,907
Depreciation for the period 13,451 15,449 17,327
Dispositions and other --- --- (57)
------------------- ------------------- ---------------------
Balance, end of year $31,458 $46,907 $64,177
=================== =================== =====================
F-18