United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
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 numbers:
33-99736-01
333-3526-01
333-39365-01
333-61394-01
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina 56-1822494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 Northline Avenue
Suite 360
Greensboro, NC 27408 (336) 292-3010
(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
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.[ ]
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement of Tanger Factory Outlet Centers, Inc. to be filed
with respect to the Annual Meeting of Shareholders to be held May 9, 2003.
1
PART I
Item 1. Business
The Operating Partnership
Tanger Properties Limited Partnership, a North Carolina limited partnership,
focuses exclusively on developing, acquiring, owning, operating and managing
factory outlet centers. Since entering the factory outlet center business 22
years ago, we have become one of the largest owners and operators of factory
outlet centers in the United States. As of December 31, 2002, we had ownership
interests in or management responsibilities for 34 centers with a total gross
leasable area ("GLA") of approximately 6.2 million square feet. These centers
were approximately 98% occupied, contained over 1,300 stores and represented
over 300 store brands as of such date.
We are controlled by Tanger Factory Outlet Centers, Inc. and subsidiaries, a
fully-integrated, self-administered and self-managed real estate investment
trust ("REIT"), as the sole shareholder of our general partner, Tanger GP Trust.
Prior to 1999, the Company owned the majority of the units of partnership
interest issued by the Operating Partnership (the "Units) and served as its sole
general partner. During 1999, the Company transferred its ownership of Units
into two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust,
with Tanger GP Trust as the sole general partner and Tanger LP Trust as the
limited partner. The Tanger family, through its ownership of the Tanger Family
Limited Partnership ("TFLP"), holds the remaining Units. Stanley K. Tanger, the
Company's Chairman of the Board and Chief Executive Officer, is the sole general
partner of TFLP. Unless the context indicates otherwise, the term "Operating
Partnership" refers to Tanger Properties Limited Partnership and the term
"Company" refers to Tanger Factory Outlet Centers, Inc. and subsidiaries. The
terms, "we", "our" and "us" refer to the Operating Partnership or the Operating
Partnership and the Company together, as the text requires.
As of December 31, 2002, Tanger GP Trust owned 150,000 Units, the Tanger LP
Trust owned 8,911,025 Units and 80,190 Preferred Units (which are convertible
into approximately 722,509 limited partnership Units) and TFLP owned 3,033,305
Units. TFLP's Units are exchangeable, subject to certain limitations to preserve
the Company' status as a REIT, on a one-for-one basis for the Company's common
shares. As of March 21, 2003, management of the Company beneficially owns
approximately 25% of all outstanding common shares (assuming the Series A
Preferred Shares and the Tanger Famliy's Units are exchanged for common shares
but without giving effect to the exercise of any outstanding share options and
partnership Unit options).
Each preferred partnership Unit entitles the Company to receive distributions
from us, in an amount equal to the distribution payable with respect to a share
of Series A preferred shares, prior to the payment by us of distributions with
respect to the general partnership Units. Preferred partnership Units will be
automatically converted by holders into limited partnership Units to the extent
that the Series A preferred shares are converted into common shares and will be
redeemed by us to the extent that the Company redeems the Series A preferred
shares.
Ownership of the Company's common and preferred shares 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 common and preferred shares equal to at least 90% of its taxable
income each year.
We are a North Carolina limited partnership that was formed in May 1993. The
executive offices are currently located at 3200 Northline Avenue, Suite 360,
Greensboro, North Carolina, 27408 and the telephone number is (336) 292-3010.
The Company's website can be accessed at www.tangeroutlet.com. A copy of our
10-K's, 10-Q's, and 8-K's can be obtained, free of charge, on the Company's
website.
2
Recent Developments
At December 31, 2002, we had ownership interests in or management
responsibilities for 34 centers in 21 states totaling 6.2 million square feet of
operating GLA compared to 32 centers in 20 states totaling 5.4 million square
feet of operating GLA as of December 31, 2001. The increase is due to the
following events:
o Disposition of our wholly-owned property in Fort Lauderdale, Florida,
totaling 165,000 square feet
o Development, through a 50% ownership joint venture, of our property in
Myrtle Beach, South Carolina totaling 260,000 square feet
o Acquisition of our wholly-owned property in Howell, Michigan totaling
325,000 square feet
o Obtained management responsibilities of a property in Vero Beach, Florida
totaling 329,000 square feet
o Disposition of our wholly-owned property in Bourne, Massachusetts, totaling
23,000 square feet at which we retain limited management responsibilities
Any developments or expansions that we, or a joint venture that we are involved
in, have planned or anticipated, may not be started or completed as scheduled,
or may not result in accretive net income or funds from operations. In addition,
we regularly evaluate acquisition or disposition proposals and engage from time
to time in negotiations for acquisitions or dispositions of properties. We may
also enter into letters of intent for the purchase or sale of properties. Any
prospective acquisition or disposition that is being evaluated or which is
subject to a letter of intent may not be consummated, or if consummated, may not
result in accretive net income or funds from operations.
During 2002, we continued to maintain strong relationships with multiple sources
of capital. We completed the following liquidity transactions during the year:
o In September 2002, the Company completed a public offering of 1,000,000
common shares at a price of $29.25 per share, and contributed the net
proceeds of approximately $28.0 million to the Operating Partnership in
exchange for 1,000,000 limited partnership units. The net proceeds were
used, together with other available funds to acquire the Kensington Valley
Factory Shops in Howell, Michigan mentioned above, reduce the outstanding
balance on our lines of credit and for general corporate purposes.
o We extended the maturities of our existing three unsecured lines of credit
totaling $75 million with Bank of America, Fleet National Bank and
SouthTrust Bank until June 30, 2004 and added an additional $10 million
line of credit with Wells Fargo Bank which also matures on June 30, 2004.
This addition brings our total capacity under lines of credit to $85
million.
o In conjunction with the construction of the Myrtle Beach, South Carolina
center mentioned above, we, through our 50% ownership joint venture, TWMB
Associates, LLC ("TWMB"), closed on a variable rate, construction loan in
the amount of $36.2 million with Bank of America, NA (Agent) and SouthTrust
Bank. In August of 2002, TWMB entered into an interest rate swap agreement
with Bank of America, NA effective through August 2004 with a notional
amount of $19 million. This swap effectively changes the payment of
interest on $19 million of variable rate debt to fixed rate debt for the
contract period at a rate of 4.49%.
During 2002, we purchased primarily at par, $10.4 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. During
2001, we purchased $14.5 million of these notes at par. In total, $24.9 million
of the October 2004 notes were purchased in 2001 and 2002. We currently have
authority from the Company's Board of Directors to purchase an additional $25
million of our outstanding 7.875% senior, unsecured public notes and may, from
time to time, do so at management's discretion.
3
The Factory Outlet Concept
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products by eliminating the third party retailer.
Factory outlet centers also typically have lower operating costs than other
retailing formats, which enhance the manufacturer's profit potential. Factory
outlet centers enable manufacturers to optimize the size of production runs
while continuing to maintain control of their distribution channels. In
addition, factory outlet centers benefit manufacturers by permitting them to
sell out-of-season, overstocked or discontinued merchandise without alienating
department stores or hampering the manufacturer's brand name, as is often the
case when merchandise is distributed via discount chains.
Our factory outlet centers range in size from 11,000 to 729,238 square feet of
GLA and are typically located at least 10 miles from densely populated areas,
where major department stores and manufacturer-owned full-price retail stores
are usually located. Manufacturers prefer these locations so that they do not
compete directly with their major customers and their own stores. Many of our
factory outlet centers are located near tourist destinations to attract tourists
who consider shopping to be a recreational activity. These centers are typically
situated in close proximity to interstate highways that provide accessibility
and visibility to potential customers.
We believe that factory outlet centers continue to present attractive
opportunities for capital investment, particularly with respect to strategic
re-merchandising plans and expansions of existing centers. We believe that under
present conditions such development or expansion costs, coupled with current
market lease rates, permit attractive investment returns. We further believe,
based upon our 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.
Our Factory Outlet Centers
Each of our factory outlet centers carries the Tanger brand name. We believe
that both national manufacturers and consumers recognize the Tanger brand as one
that provides outlet shopping centers where consumers can trust the brand,
quality and price of the merchandise they purchase directly from the
manufacturers.
As one of the original participants in this industry, we have developed
long-standing relationships with many national and regional manufacturers.
Because of our established relationships with many manufacturers, we believe we
are well positioned to capitalize on industry growth.
As of March 1, 2003, we had a diverse tenant base comprised of over 300
different well-known, upscale, national designer or brand name concepts, such as
Dana Buchman, Liz Claiborne, Reebok, Nike, Tommy Hilfiger, Brooks Brothers,
Nautica, Coach, Polo Ralph Lauren, GAP, Old Navy and Banana Republic. Most of
the factory outlet stores are directly operated by the respective manufacturer.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 2002, 2001 and 2000. As of March 1,
2003, our largest tenant, including all of its store concepts, accounted for
approximately 6.6% of our GLA. Because our typical tenant is a large, national
manufacturer, we have not experienced any material problems with respect to rent
collections or lease defaults.
Revenues from fixed rents and operating expense reimbursements accounted for
approximately 91% of our total revenues in 2002. Revenues from contingent
sources, such as percentage rents, vending income and miscellaneous income,
accounted for approximately 8% of 2002 revenues. As a result, only small
portions of our revenues are dependent on contingent revenue sources.
4
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.
From 1981 to 1986, Stanley K. Tanger solely developed the first successful
factory outlet centers. Steven Tanger joined the company in 1986 and by June
1993, together, the Tangers had 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, through
strategic development, acquisitions and some dispositions, we have added
approximately 4.7 million square feet of GLA to our portfolio, bringing our
portfolio of owned and managed properties as of December 31, 2002 to 34 centers
totaling approximately 6.2 million square feet of GLA.
Business and Operating Strategy
Our strategy is to increase revenues through new development, selective
acquisitions and expansions of factory outlet centers while minimizing our
operating expenses by designing low maintenance properties and achieving
economies of scale. We continue to focus on strengthening our tenant base in our
centers by replacing low volume tenants with high volume anchor tenants.
We typically seek opportunities to develop or acquire new centers in locations
that have at least 5 million people residing within an hour's drive, an average
household income within a 50-mile radius of at least $35,000 per year and access
to frontage on a major or interstate highway with a traffic count of at least
50,000 cars per day. We also seek to enhance our customer base by developing
centers near or at established tourist destinations. Our current goal is to
target sites that are large enough to support centers with approximately 75
stores totaling at least 300,000 square feet of GLA.
We generally prelease at least 50% of the space in each center prior to
acquiring the site and beginning construction. Construction of a new factory
outlet center has normally taken us 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
We intend to achieve a strong and flexible financial position by: (1)
maintaining a quality portfolio of strong income producing properties, (2)
managing our leverage position relative to our portfolio when pursuing new
development and expansion opportunities, (3) extending and sequencing debt
maturities, (4) managing our interest rate risk, (5) maintaining our liquidity
and (6) utilizing internally generated sources of capital by maintaining a low
distribution payout ratio, defined as annual distributions as a percent of funds
from operations, and subsequently reinvesting a significant portion of our cash
flow into our portfolio. For a discussion of funds from operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Funds From Operations".
We have successfully increased our distribution each of our first nine years. At
the same time, we continue to have a low distribution payout ratio, which for
the year ended December 31, 2002, was 72%. As a result, we retained
approximately $12.3 million of our 2002 FFO. A low distribution payout ratio
allows us to retain capital to maintain the quality of our portfolio, as well as
to develop, acquire and expand properties and reduce outstanding debt.
5
Together with the Company, we intend to retain the ability to raise additional
capital, including public debt or equity, to pursue attractive investment
opportunities that may arise and to otherwise act in a manner that we believe to
be in our unitholders' best interests. During the second quarter of 2001, we
amended our shelf registration for the ability to issue up to $400 million,
($200 million in debt and $200 million in equity securities). In July 2002, we
again amended the shelf registration to allow us to issue the $400 million in
either all debt or all equity or any combination thereof up to $400 million. In
September 2002, the Company completed a public offering of 1,000,000 common
shares at a price of $29.25 per share, receiving net proceeds of approximately
$28.0 million, which were contributed to the Operating Partnership in exchange
for 1,000,000 limited partnership units. We used the net proceeds, together with
other available funds, to acquire one outlet center in Howell, Michigan, to
reduce the outstanding balance on our lines of credit and for general corporate
purposes. To generate capital to reinvest into other attractive investment
opportunities, we may also consider the use of operational and developmental
joint ventures, selling certain properties that do not meet our long-term
investment criteria as well as outparcels on existing properties.
We maintain unsecured, revolving lines of credit that provided for unsecured
borrowings up to $85 million at December 31, 2002, an increase of $10 million in
capacity from December 31, 2001. During 2002, we extended the maturity of all
lines of credit to June 30, 2004.
Based on cash provided by operations, existing credit facilities, ongoing
negotiations with certain financial institutions and our ability to sell debt or
equity subject to market conditions, we believe that we have access to the
necessary financing to fund the planned capital expenditures during 2003.
Competition
We carefully consider the degree of existing and planned competition in a
proposed area before deciding to develop, acquire or expand a new center. Our
centers compete for customers primarily with factory outlet centers built and
operated by different developers, traditional shopping malls and full- and
off-price retailers. However, we believe that the majority of our customers
visit factory outlet centers because they are intent on buying name-brand
products at discounted prices. Traditional full- and off-price retailers are
often unable to provide such a variety of name-brand products at attractive
prices.
Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own specialty stores, and, therefore, generally insist that
the outlet centers be located not less than 10 miles from the nearest major
department store or the tenants' own specialty stores. For this reason, our
centers compete only to a very limited extent with traditional malls in or near
metropolitan areas.
We compete favorably with two large national developers of factory outlet
centers and numerous small developers. Competition with other factory outlet
centers for new tenants is generally based on cost, location, quality and mix of
the centers' existing tenants, and the degree and quality of the support and
marketing services provided. As a result of these factors and due to the strong
tenant relationships that presently exist with the current major outlet
developers, we believe there are significant barriers to entry into the outlet
center industry by new developers. We also believe that our centers have an
attractive tenant mix, as a result of our decision to lease substantially all of
our space to manufacturer operated stores rather than to off-price retailers,
and also as a result of the strong brand identity of our major tenants.
Corporate and Regional Headquarters
We rent space in an office building in Greensboro, North Carolina in which our
corporate headquarters are located. In addition, we rent a regional office in
New York City, New York under a lease agreement and sublease agreement,
respectively, to better service our principal fashion-related tenants, many of
who are based in and around that area.
We maintain offices and employ on-site managers at 26 centers. The managers
closely monitor the operation, marketing and local relationships at each of
their centers.
6
Insurance
We believe that as a whole our properties are covered by adequate comprehensive
liability, fire, flood and extended loss insurance provided by reputable
companies with commercially reasonable and customary deductibles and limits.
Specified types and amounts of insurance are required to be carried by each
tenant under their lease agreement with us. There are however, types of losses,
like those resulting from wars or earthquakes, which may either be uninsurable
or not economically insurable in some or all of our locations. An uninsured loss
could result in a loss to us of both our capital investment and anticipated
profits from the affected property.
Employees
As of March 1, 2003, we had 157 full-time employees, located at our corporate
headquarters in North Carolina, our regional office in New York and our 26
business offices. At that date, we also employed 169 part-time employees at
various locations.
Item 2. Properties
As of March 1, 2003, our portfolio consisted of 34 centers located in 21 states.
Our centers range in size from 11,000 to 729,238 square feet of GLA. These
centers are typically strip shopping centers that enable customers to view all
of the shops from the parking lot, minimizing the time needed to shop. The
centers are generally located near tourist destinations or along major
interstate highways to provide visibility and accessibility to potential
customers.
We believe that the centers are well diversified geographically and by tenant
and that we are not dependent upon any single property or tenant. The only
center that represents more than 10% of our total assets or gross revenues as of
and for the year ended December 31, 2002 is the property in Riverhead, NY. See
"Business and Properties - Significant Property". No other center represented
more than 10% of our total assets or gross revenues as of December 31, 2002.
We have an ongoing strategy of acquiring centers, developing new centers and
expanding existing centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of the cost of such programs and the sources of financing
thereof.
Certain of our centers serve as collateral for mortgage notes payable. Of the 29
centers that we have ownership interests in, we own the land underlying 25 and
have ground leases on four. The land on which the Pigeon Forge and Sevierville
centers are located are subject to long-term ground leases expiring in 2086 and
2046, respectively. The land parcel on which the original Riverhead Center is
located, approximately 47 acres, is also subject to a ground lease with an
initial term expiring in 2004, with renewal at our option for up to seven
additional terms of five years each. The land parcel on which the Riverhead
Center expansion is located, containing approximately 43 acres, is owned by us.
The land parcel on which the Myrtle Beach center is located, is also subject to
a ground lease with an initial term expiring in 2026, with renewal at TWMB's
option for up to seven additional terms of ten years each.
The term of our typical tenant lease averages approximately five years.
Generally, leases provide for the payment of fixed monthly rent in advance.
There are often contractual base rent increases during the initial term of the
lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of real estate taxes, insurance, common area maintenance, advertising
and promotion expenses incurred by the applicable center. As a result,
substantially all operating expenses for the centers are borne by the tenants.
7
Location of Centers (as of March 1, 2003) (1)
Number of GLA %
State Centers (sq. ft.) of GLA
- ----------------------- ------------- -------------- ---------------
Georgia 4 950,590 17
New York 1 729,238 13
Texas 2 619,426 11
Tennessee 2 477,412 8
Michigan 2 437,651 8
Missouri 1 277,494 5
Iowa 1 277,230 5
South Carolina (2) 1 260,033 5
Pennsylvania 1 255,059 4
Louisiana 1 245,199 4
Florida 1 198,789 3
North Carolina 2 187,702 3
Arizona 1 184,768 3
Indiana 1 141,051 2
Minnesota 1 134,480 2
California 1 105,950 2
Maine 2 84,397 2
Alabama 1 79,575 1
New Hampshire 2 61,745 1
West Virginia 1 49,252 1
- ----------------------- ------------- -------------- ---------------
Total 29 5,757,041 100
======================= ============= ============== ===============
(1) Excludes centers managed by us but in which we have no ownership interests.
(2) Represents property that is currently held through an unconsolidated joint
venture in which we own a 50% interest.
8
The table set forth below summarizes certain information with respect to our
existing centers, excluding centers we manage but in which we have no ownership
interests, as of March 1, 2003. Except as noted, all properties are fee owned.
Mortgage
Debt
Outstanding
GLA % (000's) as of
Location (sq. ft.) Occupied December 31, 2002
- ----------------------------- ----------- ----------- ---------------------
Riverhead, NY (1) 729,238 98 ---
San Marcos, TX 441,936 99 37,946
Sevierville, TN (2) 382,854 100 ---
Commerce II, GA 342,556 90 29,500
Howell, MI 325,231 99 ---
Branson, MO 277,494 96 24,000
Williamsburg, IA 277,230 98 19,429
Myrtle Beach, SC (2) (3) 260,033 100 ---
Lancaster, PA 255,059 90 14,516
Locust Grove, GA 248,854 99 ---
Gonzales, LA 245,199 98 ---
Fort Meyers, FL 198,789 99 ---
Commerce I, GA 185,750 79 8,288
Casa Grande, AZ 184,768 89 ---
Terrell, TX 177,490 96 ---
Dalton, GA 173,430 93 11,133
Seymour, IN 141,051 74 ---
North Branch, MN 134,480 99 ---
West Branch, MI 112,420 95 7,067
Barstow, CA 105,950 60 ---
Blowing Rock, NC 105,448 94 9,655
Pigeon Forge, TN (2) 94,558 95 ---
Nags Head, NC 82,254 100 6,552
Boaz, AL 79,575 89 ---
Kittery I, ME 59,694 100 6,335
LL Bean, North Conway, NH 50,745 100 ---
Martinsburg, WV 49,252 73 ---
Kittery II, ME 24,703 66 ---
Clover, North Conway, NH 11,000 100 ---
- ---------------------------- ------------ ----------- ---------------------
5,757,041 95 $ 174,421
============================ ============ =========== =====================
(1) A portion of the Riverhead center (totaling approximately 298,000 square
feet) is subject to a ground lease through May 31, 2004 which may be
renewed at our option for up to seven additional terms of five years each.
(2) These properties are subject to a ground lease.
(3) Represents property that is currently held through an unconsolidated joint
venture in which we own a 50% interest. The joint venture had $25.5 million
of construction loan debt as of December 31, 2002.
9
Lease Expirations
The following table sets forth, as of March 1, 2003, 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
- ------------------------ ----------------- ----------------- ------------- --------------- --------------
2003 142 541,000 (3) $ 12.54 $6,783 10
2004 277 1,196,000 13.57 16,227 23
2005 190 835,000 15.69 13,098 16
2006 188 795,000 15.54 12,362 15
2007 204 839,000 18.10 15,177 16
2008 96 438,000 15.06 6,598 8
2009 20 137,000 12.30 1,689 3
2010 17 79,000 14.67 1,156 2
2011 9 94,000 12.75 1,193 2
2012 19 173,000 11.24 1,949 3
2013 & thereafter 21 110,000 12.50 1,375 2
- ------------------------ ----------- ----------------------- ---------- -------------- ------------------
Total 1,183 5,237,000 $ 14.82 $ 77,607 100
======================== =========== ======================= ========== ============== ==================
(1) Excludes leases that have been entered into but which tenant has not yet
taken possession, vacant suites, space under construction, temporary leases
and month-to-month leases totaling in the aggregate approximately 520,000
square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
(3) As of March 1, 2003, approximately 529,000 square feet of the total
scheduled to expire in 2003 had already renewed.
Rental and Occupancy Rates
The following table sets forth information regarding the expiring leases during
each of the last five calendar years.
Renewed by Existing Re-leased to
Total Expiring Tenants New Tenants
----------------------------------- ---------------------------- ----------------------------
% of % of % of
GLA Total Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- ---------------- --------------- ---------------- ------------- ----------- ------------ ------------
2002 935,000 16 819,000 88 56,000 6
2001 684,000 13 560,000 82 55,000 8
2000 690, 000 13 520,000 75 68,000 10
1999 715,000 14 606,000 85 23,000 3
1998 549,000 11 408,000 74 39,000 7
10
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 % Change
- --------- ---------- ----------- --------- ---------- ---------- ----------- --------- ----------
2002 819,000 $14.86 $15.02 1 229,000 $15.14 $15.74 4
2001 560,000 14.08 14.89 6 269,000 14.90 16.43 10
2000 520,000 13.66 14.18 4 303,000 14.68 15.64 7
1999 606,000 14.36 14.36 -- 241,000 15.51 16.57 7
1998 407,000 13.83 14.07 2 221,000 15.33 13.87 (9)
- ---------------------
(1) The square footage released to new tenants for 2002, 2001, 2000, 1999 and
1998 contains 56,000, 55,000, 68,000, 23,000,and 39,000 square feet,
respectively, that was released to new tenants upon expiration of an
existing lease during the current year.
Occupancy Costs
We believe that our ratio of average tenant occupancy cost (which includes base
rent, common area maintenance, real estate taxes, insurance, advertising and
promotions) to average sales per square foot is low relative to other forms of
retail distribution. The following table sets forth, for each of the last five
years, tenant occupancy costs per square foot as a percentage of reported tenant
sales per square foot.
Occupancy Costs as a
Year % of Tenant Sales
------------------------------ --------------------------
2002 7.2
2001 7.1
2000 7.4
1999 7.8
1998 7.9
11
Tenants
The following table sets forth certain information with respect to our ten
largest tenants and their store concepts as of March 1, 2003.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA
- -------------------------------------------- ------------- ------------- ---------------------
The Gap, Inc.:
GAP 18 157,702 2.7
Old Navy 13 183,585 3.2
Banana Republic 5 38,824 0.7
-------- ---------------- -----------------------
36 380,111 6.6
Phillips-Van Heusen Corporation:
Bass Shoe 22 146,666 2.5
Van Heusen 22 92,697 1.6
Geoffrey Beene Co. Store 12 46,001 0.8
Izod 14 33,300 0.6
-------- ---------------- -----------------------
70 318,664 5.5
Liz Claiborne:
Liz Claiborne 23 264,371 4.6
Elizabeth 7 25,984 0.5
DKNY Jeans 3 8,820 0.2
Dana Buchman 2 4,500 0.1
Special Brands By Liz Claiborne 2 5,880 0.1
Claiborne Mens 1 3,100 ---
-------- ---------------- -----------------------
38 312,655 5.5
Reebok International, Ltd.:
Reebok 21 171,661 3.0
Rockport 4 11,900 0.2
Greg Norman 1 3,000 ---
-------- ---------------- -----------------------
26 186,561 3.2
Dress Barn Inc. 20 143,512 2.5
Sara Lee Corporation:
L'eggs, Hanes, Bali 26 113,810 2.0
Socks Galore 5 6,230 0.1
Understatements 1 3,000 ---
-------- ---------------- -----------------------
32 123,040 2.1
Brown Group Retail, Inc:
Factory Brand Shoe 16 97,102 1.7
Naturalizer 9 23,344 0.4
-------- ---------------- -----------------------
25 120,446 2.1
American Commercial, Inc:
Mikasa Factory Store 15 120,086 2.1
Polo Ralph Lauren:
Polo Ralph Lauren 11 91,566 1.6
Polo Jeans 4 15,000 0.3
-------- ---------------- -----------------------
15 106,566 1.9
VF Factory Outlet, Inc. 4 105,697 1.8
- -------------------------------------------- -------- ---------------- -----------------------
Total of all tenants listed in table 281 1,917,338 33.3
============================================ ======== ================ =======================
12
Significant Property
The center in Riverhead, New York is our only center that comprises more than
10% of total assets or total gross revenues. The Riverhead, NY center
represented 19% of our total assets and 21% of our gross revenue for the year
ended December 31, 2002. The Riverhead center was originally constructed in 1994
and now totals 729,238 square feet.
Tenants at the Riverhead center principally conduct retail sales operations. The
occupancy rate as of the end of 2002, 2001 and 2000 was 100%, 99% and 94%.
Average annualized base rental rates during 2002, 2001 and 2000 were $19.71,
$18.68 and $19.72 per weighted average GLA, respectively.
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,
2002, the net federal tax basis of this center was approximately $80.5 million.
Real estate taxes assessed on this center during 2002 amounted to $3.4 million.
Real estate taxes for 2003 are estimated to be approximately $3.6 million.
The following table sets forth, as of March 1, 2003, 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
- --------------------------- ----------------- ----------------- ------------------ ---------------- ----------------
2003 7 19,000 $ 21.48 $ 409 3
2004 31 138,000 19.48 2,697 20
2005 19 90,000 22.33 2,009 13
2006 13 46,000 23.17 1,055 7
2007 53 190,000 25.78 4,900 27
2008 20 91,000 21.61 1,965 13
2009 2 38,000 10.27 388 5
2010 --- --- --- --- ---
2011 2 31,000 12.69 393 4
2012 2 20,000 6.00 117 3
2013 and thereafter 3 36,000 16.12 588 5
- ---------------------------- --------- --------------------- ------------------ --------------- --------------------
Total 152 699,000 $ 20.77 $ 14,521 100
============================ ========= ===================== ================== =============== ====================
(1) Excludes leases that have been entered into but which tenant has not taken
possession, vacant suites, temporary leases and month-to-month leases
totaling in the aggregate approximately 30,000 square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
Item 3. Legal Proceedings
We are subject to legal proceedings and claims that have arisen in the ordinary
course of our business and have not been finally adjudicated. In our opinion,
the ultimate resolution of these matters will have no material effect on our
results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2002.
13
EXECUTIVE OFFICERS OF THE COMPANY
The Operating Partnership does not have any officers. The following table
sets forth certain information concerning the executive officers of the Company
which controls the Operating Partnership through its ownership of the general
partner, Tanger GP Trust:
NAME AGE POSITION
- ------------------------ --- ------------------------------------------------
Stanley K. Tanger 79 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger 54 Director, President and Chief Operating Officer
Rochelle G. Simpson 64 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr 65 Executive Vice President - Leasing, Site
Selection, Operations and Marketing
Frank C. Marchisello, Jr 44 Senior Vice President - Chief Financial Officer
Joseph H. Nehmen 54 Senior Vice President - Operations
Carrie A. Warren 40 Senior Vice President - Marketing
Virginia R. Summerell 44 Treasurer and Assistant Secretary
Kevin M. Dillon 44 Vice President - Construction and Development
Lisa J. Morrison 43 Vice President - Leasing
The following is a biographical summary of the experience of the executive
officers of the Company:
Stanley K. Tanger. Mr. Tanger is the founder, Chief Executive Officer and
Chairman of the Board of Directors of the Company. He also served as President
from inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
Steven B. Tanger. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
Rochelle G. Simpson. Ms. Simpson was named Executive Vice President -
Administration and Finance in January 1999. She previously held the position of
Senior Vice President - Administration and Finance since October 1995. She is
also the Secretary of the Company and previously served as Treasurer from May
1993 through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.
Willard A. Chafin, Jr. Mr. Chafin was named Executive Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in January
1999. Mr. Chafin previously held the position of Senior Vice President -
Leasing, Site Selection, Operations and Marketing since October 1995. He joined
the Company in April 1990, and since has held various executive positions where
his major responsibilities included supervising the Marketing, Leasing and
Property Management Departments, and leading the Asset Management Team. Prior to
joining the Company, Mr. Chafin was the Director of Store Development for the
Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr.
Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales
promotion, inventory control and merchandising.
14
Frank C. Marchisello, Jr. Mr. Marchisello was named Senior Vice President and
Chief Financial Officer in January 1999. He was named Vice President and Chief
Financial Officer in November 1994. Previously, he served as Chief Accounting
Officer since joining the Company in January 1993 and Assistant Treasurer since
February 1994. He was employed by Gilliam, Coble & Moser, certified public
accountants, from 1981 to 1992, the last six years of which he was a partner of
the firm in charge of various real estate clients. Mr. Marchisello is a graduate
of the University of North Carolina at Chapel Hill and is a certified public
accountant.
Joseph H. Nehmen. Mr. Nehmen was named Senior Vice President of Operations in
January 1999. He joined the Company in September 1995 and was named Vice
President of Operations in October 1995. Mr. Nehmen has over 20 years experience
in private business. Prior to joining Tanger, Mr. Nehmen was owner of Merchants
Wholesaler, a privately held distribution company in St. Louis, Missouri. He is
a graduate of Washington University. Mr. Nehmen is the son-in-law of Stanley K.
Tanger and brother-in-law of Steven B. Tanger.
Carrie A. Warren. Ms. Warren was named Senior Vice President - Marketing in May
2000. Previously, she held the position of Vice President - Marketing since
September 1996 and Assistant Vice President - Marketing since joining the
Company in December 1995. Prior to joining Tanger, Ms. Warren was with Prime
Retail, L.P. for 4 years where she served as Regional Marketing Director
responsible for coordinating and directing marketing for five outlet centers in
the southeast region. Prior to joining Prime Retail, L.P., Ms. Warren was
Marketing Manager for North Hills, Inc. for five years and also served in the
same role for the Edward J. DeBartolo Corp. for two years. Ms. Warren is a
graduate of East Carolina University.
Virginia R. Summerell. Ms. Summerell was named Treasurer of the Company in May
1995 and Assistant Secretary in November 1994. Previously, she held the position
of Director of Finance since joining the Company in August 1992, after nine
years with NationsBank. Her major responsibilities include maintaining banking
relationships, oversight of all project and corporate finance transactions and
development of treasury management systems. Ms. Summerell is a graduate of
Davidson College and holds an MBA from the Babcock School at Wake Forest
University.
Kevin M. Dillon. Mr. Dillon was named Vice President - Construction and
Development in May 2002. Previously, he held the positions of Vice President -
Construction from October 1997 to May 2002, Director of Construction from
September 1996 to October 1997 and Construction Manager from November 1993, the
month he joined the Company, to September 1996. Prior to joining the Company,
Mr. Dillon was employed by New Market Development Company for six years where he
served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was
the Development Director of Western Development Company where he spent 6 years.
Lisa J. Morrison. Ms. Morrison was named Vice President - Leasing in May
2001. Previously, she held the position of Assistant Vice President of Leasing
from August 2000 to May 2001 and Director of Leasing from April 1999 until
August 2000. Prior to joining the Company, Ms. Morrison was employed by the
Taubman Company and Trizec Properties, Inc. where she served as a leasing agent.
Her major responsibilities include managing the leasing strategies for our
operating properties, as well as expansions and new development. She also
oversees the leasing personnel and the merchandising and occupancy for Tanger
properties.
15
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters
There is no established public trading market for our Units. As of December 31,
2002, the Company's wholly-owned subsidiaries owned 9,061,025 Units, 80,190
Preferred Units (which were convertible into approximately 722,509 limited
partnership Units) and TFLP owned 3,033,305 Units as a limited partner.
We made distributions per partnership unit during 2002 and 2001 as follows:
2002 2001
- ---------------------- --------------- ------------------
First Quarter $ .6100 $ .6075
Second Quarter .6125 .6100
Third Quarter .6125 .6100
Fourth Quarter .6125 .6100
- ---------------------- ---------------- ------------------
$ 2.4475 $ 2.4375
- ---------------------- ---------------- ------------------
Certain of our debt agreements limit the payment of distributions such that
distributions shall not exceed FFO, as defined in the agreements, for the prior
fiscal year on an annual basis or 95% of FFO on a cumulative basis. Based on
continuing favorable operations and available funds from operations, we intend
to continue to pay regular quarterly distributions.
16
Item 6. Selected Financial Data
2002 2001 2000 1999 1998
- ------------------------------------------ ------------- ------------- -------------- ------------ ----------------
(In thousands, except per unit and center data)
OPERATING DATA
Total revenues $ 113,167 $ 108,266 $ 106,137 $ 103,093 $ 97,094
Income before equity in earnings of
unconsolidated joint ventures,
discontinued operations,(loss)gain
on sale or disposal of real estate
and extraordinary item 10,642 7,790 10,598 16,505 14,688
Income from continuing operations 11,034 7,790 10,598 16,505 14,688
Income before extraordinary item 14,280 9,492 5,268 21,211 16,103
Net income 14,280 9,154 5,268 20,866 15,643
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
UNIT DATA
Basic:
Income from continuing operations $ .82 $ .55 $ .80 $ 1.34 $ 1.17
Net income $ 1.11 $ .67 $ .32 $ 1.74 $ 1.26
Weighted average units 11,356 10,959 10,928 10,894 10,919
Diluted:
Income from continuing operations $ .80 $ .55 $ .80 $ 1.34 $ 1.15
Net income $ 1.08 $ .67 $ .31 $ 1.74 $ 1.24
Weighted average units 11,539 10,979 10,953 10,904 11,040
Distributions paid $ 2.45 $ 2.44 $ 2.43 $ 2.42 $ 2.35
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 622,399 $ 599,266 $ 584,928 $ 566,216 $ 529,247
Total assets 477,380 476,079 487,273 489,851 471,568
Debt 345,005 358,195 346,843 329,647 302,485
Total partners' equity 114,265 97,877 117,974 141,054 149,363
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 39,175 $ 44,616 $ 38,420 $ 43,169 $ 35,791
Investing activities $ (26,363) $ (23,269) $ (25,815) $ (45,959) $ (79,236)
Financing activities $ (12,247) $ (21,476) $ (12,474) $ (3,043) $ 46,172
Funds from operations (1) $ 41,695 $ 37,768 $ 38,203 $ 41,673 $ 37,048
Gross leasable area open at year end 6,186 5,437 5,284 5,254 5,116
Number of centers 34 32 32 34 34
- -----------------------
(1) Funds from Operations ("FFO") is a widely accepted financial indicator used
by certain investors and analysts to analyze and compare companies on the
basis of operating performance. FFO is defined as net income (loss),
computed in accordance with generally accepted accounting principles,
before extraordinary items and gains (losses) on sale or disposal of
depreciable operating properties, plus depreciation and amortization
uniquely significant to real estate and after adjustments for
unconsolidated partnerships and joint ventures. We caution that the
calculation of FFO may vary from entity to entity and as such the
presentation of FFO by us may not be comparable to other similarly titled
measures of other reporting companies. FFO is not intended to represent
cash flows for the period. FFO has not been presented as an alternative to
operating income or 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.
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements appearing elsewhere in this report. Historical results and percentage
relationships set forth in the statements of operations, including trends which
might appear, are not necessarily indicative of future operations. Unless the
context indicates otherwise, the term "Operating Partnership" refers to Tanger
Properties Limited Partnership and the term "Company" refers to Tanger Factory
Outlet Centers, Inc. and subsidiaries. The terms "we", "our" and "us" refer to
the Operating Partnership or the Operating Partnership and the Company together,
as the text requires.
The discussion of our results of operations reported in the statements of
operations compares the years ended December 31, 2002 and 2001, as well as
December 31, 2001 and 2000. Certain comparisons between the periods are made on
a percentage basis as well as on a weighted average gross leasable area ("GLA")
basis, a technique which adjusts for certain increases or decreases in the
number of centers and corresponding square feet related to the development,
acquisition, expansion or disposition of rental properties. The computation of
weighted average GLA, however, does not adjust for fluctuations in occupancy
that may occur subsequent to the original opening date.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and included
this statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words `believe', `expect', `intend', `anticipate', `estimate', `project',
or similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond our control and which could materially affect our actual
results, performance or achievements. Factors which may cause actual results to
differ materially from current expectations include, but are not limited to, the
following:
o national and local general economic and market conditions;
o demographic changes; our ability to sustain, manage or forecast our growth;
existing government regulations and changes in, or the failure to comply
with, government regulations;
o adverse publicity; liability and other claims asserted against us;
o competition;
o the risk that we may not be able to finance our planned development
activities;
o risks related to the retail real estate industry in which we compete,
including the potential adverse impact of external factors such as
inflation, tenant demand for space, consumer confidence, unemployment rates
and consumer tastes and preferences;
o risks associated with our development activities, such as the potential for
cost overruns, delays and lack of predictability with respect to the
financial returns associated with these development activities;
o risks associated with real estate ownership, such as the potential adverse
impact of changes in the local economic climate on the revenues and the
value of our properties;
o risks that a significant number of tenants may become unable to meet their
lease obligations or that we may be unable to renew or re-lease a
significant amount of available space on economically favorable terms;
o fluctuations and difficulty in forecasting operating results; changes in
business strategy or development plans;
o business disruptions;
18
o the ability to attract and retain qualified personnel;
o the ability to realize planned costs savings in acquisitions; and
o retention of earnings.
General Overview
At December 31, 2002, we had ownership interests in or management
responsibilities for 34 centers in 21 states totaling 6.2 million square feet
compared to 32 centers in 20 states totaling 5.4 million square feet at December
31, 2001. The increase is due to the following events:
o Disposition of our wholly-owned property in Fort Lauderdale, Florida,
totaling 165,000 square feet
o Development, through a 50% ownership joint venture, of our property in
Myrtle Beach, South Carolina totaling 260,000 square feet
o Acquisition of our wholly-owned property in Howell, Michigan totaling
325,000 square feet
o Obtained management responsibilities of a property in Vero Beach, Florida
totaling 329,000 square feet
o Disposition of our wholly-owned property in Bourne, Massachusetts, totaling
23,000 square feet for which we retain limited management responsibilities
Results of Operations
In accordance with SFAS 144 "Accounting for the Impairment or Disposal of Long
Lived Assets," effective for financial statements issued for fiscal years
beginning after December 15, 2001, results of operations and gain/(loss) on
sales of real estate that have separable, identifiable cash flows for properties
sold subsequent to December 31, 2001 are reflected in the Statements of
Operations as discontinued operations for all periods presented.
19
A summary of the operating results for the years ended December 31, 2002, 2001
and 2000 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
2002 2001 2000
- --------------------------------------------------------- -------------- -------------- ------------
GLA open at end of period (000's)
Wholly owned 5,469 5,332 5,179
Partially owned (1) 260 --- ---
Managed 457 105 105
- --------------------------------------------------------- -------------- -------------- ------------
- --------------------------------------------------------- -------------- -------------- ------------
Total GLA at end of period (000's) 6,186 5,437 5,284
Weighted average GLA (000's) (2) 5,245 5,111 4,926
States operated in at end of period 21 20 20
Occupancy percentage at end of period 98% 96% 96%
Per square foot data
Revenues
Base rentals $ 14.44 $14.33 $14.08
Percentage rentals .68 .54 .66
Expense reimbursements 5.82 5.77 5.98
Other income .63 .54 .82
- --------------------------------------------------------- -------------- -------------- ------------
Total revenues 21.57 21.18 21.54
- --------------------------------------------------------- -------------- -------------- ------------
Expenses
Property operating 6.88 6.65 6.70
General and administrative 1.76 1.61 1.50
Interest 5.43 5.90 5.60
Depreciation and amortization 5.48 5.51 5.24
Asset write-down --- --- .37
- --------------------------------------------------------- -------------- -------------- ------------
Total expenses 19.55 19.67 19.41
- --------------------------------------------------------- -------------- -------------- ------------
- --------------------------------------------------------- -------------- -------------- ------------
Income before equity in earnings of unconsolidated
joint ventures, discontinued operations, loss on sale
or disposal of real estate and extraordinary item $ 2.02 $ 1.51 $ 2.13
- --------------------------------------------------------- -------------- -------------- ------------
(1) Includes one center totaling 260,033 square feet of which we own a 50%
interest through a joint venture arrangement.
(2) Represents GLA of wholly-owned operating properties weighted by months of
operation. GLA is not adjusted for fluctuations in occupancy that may occur
subsequent to the original opening date. Excludes GLA of properties for
which their results are included in discontinued operations.
2002 Compared to 2001
Base rentals increased $2.5 million, or 3%, in the 2002 period when compared to
the same period in 2001. The increase is primarily due to the full nine months
effect of an expansion at our San Marcos, TX center which we completed during
the fourth quarter of 2001 and the acquisition of our Howell, Michigan center in
September 2002. Base rent per weighted average GLA increased by $.11 per square
foot from $14.33 per square foot in the 2001 period compared to $14.44 per
square foot in the 2002 period. The increase is the result of the addition of
the San Marcos expansion to the portfolio which had a higher average base rent
per square foot compared to the portfolio average and an increase of 2% in
average base rent per square foot on approximately 1.0 million square feet
renewed or re-tenanted during 2002. While the overall portfolio occupancy at
December 31, 2002 increased 2% from 96% to 98% compared with the prior year end,
two centers experienced negative occupancy trends which were offset by positive
occupancy gains in other centers.
20
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $823,000
or 30%, and on a weighted average GLA basis, increased $.14 per square foot in
2002 compared to 2001. Reported same-space sales per square foot for the twelve
months ended December 31, 2002 were $294 per square foot, a 1.4% increase over
the prior year ended December 31, 2001. Same-space sales is defined as the
weighted average sales per square foot reported in space open for the full
duration of each comparison period. Our ability to attract high volume tenants
to many of our outlet centers continues to improve the average sales per square
foot throughout our portfolio. Reported tenant sales for 2002 for all Tanger
Outlet Centers reached a record level of $1.5 billion. Reported same-store sales
for the year ended 2002, defined as the weighted average sales per square foot
reported by tenants for stores open since January 1, 2001 were down 0.8%
compared to 2001.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
decreased to 85% in 2002 from 87% in 2001 primarily as a result of higher real
estate taxes due to revaluations, increases in property insurance premiums and
increases in other non-reimbursable expenses.
Other income increased $534,000, or 19%, in 2002 compared to 2001 primarily due
to gains on sales of outparcels of land in 2002 included in other income,
increases in vending and other miscellaneous income and the recognition of
management, leasing and development fee revenue from our TWMB Associates, LLC
("TWMB") joint venture.
Property operating expenses increased by $2.1 million, or 6%, in the 2002 period
as compared to the 2001 period and, on a weighted average GLA basis, increased
$.23 per square foot from $6.65 to $6.88. The increase is the result of
increased costs in marketing, common area maintenance, real estate taxes,
property insurance, and other non-reimbursable expenses.
General and administrative expenses increased $1.0 million, or 12%, in the 2002
period as compared to the 2001 period. The increase is primarily due to
increases in performance based bonus accruals, travel, legal and other
professional fees. Also, as a percentage of total revenues, general and
administrative expenses were 8% in both the 2002 and 2001 periods and, on a
weighted average GLA basis increased $.15 per square foot from $1.61 per square
foot in the 2001 period to $1.76 per square foot in the 2002 period.
Interest expense decreased $1.7 million during 2002 as compared to 2001 due
primarily to lower average interest rates during 2002 and a decrease in the
overall debt level due to the use of a portion of the proceeds received from the
Company's equity offering during the year to reduce outstanding debt. Also,
beginning in the fourth quarter of 2001 and continuing through 2002, we
purchased, primarily at par, approximately $24.9 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. The
replacement of the 2004 bonds with funding through lines of credit provided us
with a significant interest expense reduction as the lines of credit had a lower
interest rate.
Depreciation and amortization per weighted average GLA decreased slightly from
$5.51 per square foot in the 2001 period to $5.48 per square foot in the 2002
period due to a lower mix of tenant finishing allowances included in buildings
and improvements which are depreciated over shorter lives (i.e. over lives
generally ranging from 3 to 10 years as opposed to other construction costs
which are depreciated over lives ranging from 15 to 33 years).
Income from unconsolidated joint ventures increased $392,000 in the 2002 period
compared to the 2001 period due to the opening of the Myrtle Beach, South
Carolina outlet center by TWMB in June of 2002.
The increase in discontinued operations is due to the gains on sales of our Ft.
Lauderdale, Florida and Bourne, Massachusetts centers and the leased outparcels
of land in Seymour, Indiana and Casa Grande, Arizona, all of which were sold in
the 2002 period.
21
2001 Compared to 2000
Base rentals increased $3.9 million, or 6%, in the 2001 period when compared to
the same period in 2000. The increase is primarily due to the effect of the
expansion completed in 2001 at our San Marcos, Texas center and the full year
effect of expansions completed in the fourth quarter of 2000, offset by the loss
of rent from the sales of the centers in Lawrence, Kansas and McMinnville,
Oregon in June 2000. As noted above, FAS 144 applies only to properties sold
subsequent to December 31, 2001. Therefore, the results of operations and
resulting loss on sale of real estate from the Lawrence, Kansas and McMinnville,
Oregon properties are not included in discontinued operations. The loss from
these property sales is included in loss on sale or disposal of real estate in
the Statement of Operations. Base rent per weighted average GLA increased by
$.25 per square foot, or 2%, as a result of the expansions which had a higher
average base rent per square foot compared to the portfolio average and the
sales of the centers in Lawrence, Kansas and McMinnville, Oregon which had a
lower average base rent per square foot compared to the portfolio average.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels, decreased by $518,000, or 16%, and on a
weighted average GLA basis, decreased $.12 per square foot in 2001 compared to
2000. Same-space sales for the year ended December 31, 2001, defined as the
weighted average sales per square foot reported in space open for the full
duration of each comparison period, increased 5% to $294 per square foot due to
our efforts to re-merchandise selected centers by replacing low volume tenants
with high volume tenants. However, for the year ended December 31, 2001,
reported same-store sales, defined as the weighted average sales per square foot
reported by tenants for stores open since January 1, 2000, decreased by 2%
compared with the previous year.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
decreased to 87% in 2001 from 89% in 2000 primarily as a result of higher real
estate taxes due to revaluations, increases in property insurance premiums and
increases in other non-reimbursable expenses.
Other income decreased $1.3 million in 2001 as compared to 2000. The 2000 period
included gains on sales of land outparcels totaling $908,000 and the recognition
of business interruption insurance proceeds relating to the Stroud, Oklahoma
center, which was destroyed by a tornado in May 1999, totaling $985,000. These
items were offset in part by increases in vending and interest income in the
2001 period.
Property operating expenses increased by $1.0 million, or 3%, in 2001 as
compared to 2000. On a weighted average GLA basis, property operating expenses
decreased from $6.70 to $6.65 per square foot. The decrease per square foot is
the result of a company-wide effort to improve operating efficiencies and reduce
costs in common area maintenance and marketing partially offset by increases in
real estate taxes, property insurance and other non-reimbursable expenses.
General and administrative expenses increased $862,000, or 12%, in 2001 as
compared to 2000 primarily due to increases in professional fees and provisions
for bad debts. As a percentage of revenues, general and administrative expenses
were approximately 8% of revenues in 2001 and 7% in 2000. On a weighted average
GLA basis, general and administrative expenses increased $.11 per square foot
from $1.50 in 2000 to $1.61 in 2001.
Interest expense increased $2.6 million during 2001 as compared to 2000 due
primarily to our increased debt levels attributable to development completed in
2001 and the full year effect of expansions completed in the fourth quarter of
2000. Our strategy to replace short-term, variable rate debt with long-term,
fixed rate debt and extend our average debt maturities has resulted in an
overall higher interest rate on outstanding debt. Also, $295,200 paid to
terminate certain interest rate swap agreements during the first quarter of 2001
contributed to the increase in interest expense.
Depreciation and amortization per weighted average GLA increased 5% from $5.24
per square foot in the 2000 period to $5.51 per square foot in the 2001 period
due to a higher mix of tenant finishing allowances included in buildings and
improvements which are depreciated over shorter lives (i.e. over lives generally
ranging from 3 to 10 years as opposed to other construction costs which are
depreciated over lives ranging from 15 to 33 years).
22
The asset write-down recognized in 2000 represents the write off of all
development costs associated with our site in Ft. Lauderdale, Florida, as well
as additional costs associated with various other non-recurring development
activities at other sites, which were discontinued. The costs associated with
the Ft. Lauderdale site were written off because we terminated our contract to
purchase twelve acres of land in Dania Beach/Ft. Lauderdale, Florida.
The loss on sale of real estate during 2000 represents the loss recognized on
the sale of our centers in Lawrence, Kansas and McMinnville, Oregon and the land
and the remaining site improvements in Stroud, Oklahoma. Net proceeds received
from the sale of the centers totaled $7.1 million. The combined net operating
income of these two centers represented approximately 1% of the total
portfolio's operating income. We sold the Stroud land and site improvements in
December 2000 and received net proceeds of approximately $723,500 in January
2001. As noted above, FAS 144 applies only to properties sold subsequent to
December 31, 2001. Therefore, the results of operations and resulting losses on
sales of real estate from the properties which were sold in 2000 are not
included in discontinued operations. The losses from these property sales,
totaling $7.0 million, are included in loss on sale or disposal of real estate
in the Statements of Operations.
The extraordinary losses recognized in 2001 represent the write-off of
unamortized deferred financing costs related to debt that was extinguished prior
to its scheduled maturity.
Liquidity and Capital Resources
Net cash provided by operating activities was $39.2, $44.6 and $38.4 million for
the years ended December 31, 2002, 2001 and 2000, respectively. The decreases
and increases in cash provided by operating activities in 2002 compared to 2001
and 2001 compared to 2000 are primarily due to changes in other assets and
accounts payable and accrued expenses for those respective years. Net cash used
in investing activities amounted to $26.4, $23.3 and $25.8 million during 2002,
2001 and 2000, respectively, and reflects the acquisitions, expansions and
dispositions of real estate during each year. Cash used in financing activities
of $12.2, $21.5 and $12.5 in 2002, 2001 and 2000, respectively, has fluctuated
consistently with the capital needed to fund the current development and
acquisition activity and reflects increases in distributions paid during 2002,
2001 and 2000. The decrease in cash used in financing activities in 2002
compared to 2001 also reflects the net proceeds of $28.0 million received from
the Company's issuance of one million common shares and $2.8 million from the
exercise of unit options in 2002.
Acquisitions and Dispositions
In September 2002, we completed the acquisition of Kensington Valley Factory
Shops, a factory outlet center in Howell, Michigan containing approximately
325,000 square feet, for an aggregate purchase price of $37.5 million. The
acquisition was funded with $16.8 million of net proceeds from the sale of our
non-core property in Fort Lauderdale, Florida in June 2002 and a portion of the
proceeds received from the Company's common share offering in September 2002.
In November 2002, we completed the disposition of our non-core center in Bourne,
Massachusetts which totaled approximately 23,000 square feet. The net proceeds
from this sale were $3.1 million.
During 2002 we also sold five outparcels of land at various centers (Barstow,
California, Gonzales, Louisiana, North Branch, Minnesota, Seymour, Indiana and
Casa Grande, Arizona), the last two of which had associated leases with
identifiable cash flows. These five outparcel sales generated approximately $1.5
million in net proceeds.
Joint Ventures
In 2000, we formed a joint venture with C. Randy Warren Jr., former Senior Vice
President of Leasing of the Company. The new entity, Tanger-Warren Development,
LLC ("Tanger-Warren"), was formed to identify, acquire and develop sites
exclusively for us. We agreed to be co-managers of Tanger-Warren, each with 50%
ownership interest in the joint venture and any entities formed with respect to
a specific project. Our investment in Tanger-Warren amounted to approximately
$6,500 and $9,000 as of December 31, 2002 and 2001, respectively, and the impact
of this joint venture on our results of operations has been insignificant.
23
In September 2001, we established the TWMB joint venture with respect to our
Myrtle Beach, South Carolina project with Rosen-Warren Myrtle Beach LLC
("Rosen-Warren"). We and Rosen-Warren, each as 50% owners, contributed $4.3
million in cash for a total initial equity in TWMB of $8.6 million. In September
of 2001, TWMB began construction on its first phase of a new 400,000 square foot
Tanger Outlet Center in Myrtle Beach, South Carolina. The first phase opened
100% leased on June 28, 2002 at a cost of approximately $35.4 million with
approximately 260,000 square feet and 60 brand name outlet tenants. In November
2002, we began construction on a 64,000 square foot second phase which is
estimated to cost $6.5 million. We and Rosen-Warren have each contributed
approximately $1.1 million toward this second phase, with the majority of the
contribution being made in the first quarter of 2003.
In conjunction with the construction of the center, TWMB closed on a variable
rate, construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and SouthTrust Bank. As of December 31, 2002 the construction loan had a
balance of $25.5 million. In August of 2002, TWMB entered into an interest rate
swap agreement with Bank of America, NA effective through August 2004 with a
notional amount of $19 million. Under this agreement, TWMB receives a floating
interest rate based on the 30 day LIBOR index and pays a fixed interest rate of
2.49%. This swap effectively changes the payment of interest on $19 million of
variable rate debt to fixed rate debt for the contract period at a rate of
4.49%. All debt incurred by this unconsolidated joint venture is collateralized
by its property as well as joint and several guarantees by Rosen-Warren and us.
Either partner in TWMB has the right to initiate the sale or purchase of the
other party's interest. If such action is initiated, one partner would determine
the fair market value purchase price of the venture and the other would
determine whether they would take the role of seller or purchaser. The partners'
roles in this transaction would be determined by the tossing of a coin, commonly
known as a Russian roulette provision. If either Rosen-Warren or we enact this
provision and depending on our role in the transaction as either seller or
purchaser, we can potentially incur a cash outflow for the purchase of
Rosen-Warren's interest. However, we do not expect this event to occur in the
near future based on the positive results and expectations of developing and
operating an outlet center in the Myrtle Beach area.
Other Developments
On July 1, 2002, our option to purchase the retail portion of a site at the
Bourne Bridge Rotary in Cape Cod, Massachusetts was terminated due to the
seller's inability to obtain the proper approvals for the Bourne project from
the local authorities by such date. As a result of the termination, the net
carrying amount of assets remaining on this project includes a $150,000 note
receivable at 5% annual interest that becomes due from the seller and is payable
with accrued interest on July 1, 2003. At this time we believe that this note
receivable is fully collectible.
Any developments or expansions that we, or a joint venture that we are involved
in, have planned or anticipated may not be started or completed as scheduled, or
may not result in accretive net income or funds from operations. In addition, we
regularly evaluate acquisition or disposition proposals and engage from time to
time in negotiations for acquisitions or dispositions of properties. We may also
enter into letters of intent for the purchase or sale of properties. Any
prospective acquisition or disposition that is being evaluated or which is
subject to a letter of intent may not be consummated, or if consummated, may not
result in an increase in net income or funds from operations.
Financing Arrangements
During 2002, we purchased primarily at par, $10.4 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. During
2001, we purchased $14.5 million of these notes at par. In total, $24.9 million
of the October 2004 notes were purchased in 2001 and 2002. We currently have
authority from the Company's Board of Directors to purchase an additional $25
million of our outstanding 7.875% senior, unsecured public notes and may, from
time to time, do so at management's discretion.
24
At December 31, 2002, approximately 49% of our outstanding long-term debt
represented unsecured borrowings and approximately 61% of the gross book value
of our real estate portfolio was unencumbered. The average interest rate,
including loan cost amortization, on average debt outstanding for the years
ended December 31, 2002 and 2001 was 8.1% and 8.8%, respectively.
Together with the Company, we intend to retain the ability to raise additional
capital, including public debt or equity, to pursue attractive investment
opportunities that may arise and to otherwise act in a manner that we believe to
be in our unitholders' best interests. During the second quarter of 2001, we
amended our shelf registration for the ability to issue up to $400 million,
($200 million in debt and $200 million in equity securities). In July 2002, we
again amended the shelf registration to allow us to issue the $400 million in
either all debt or all equity or any combination thereof up to $400 million. On
September 4, 2002, the Company completed a public offering of 1,000,000 common
shares at a price of $29.25 per share, receiving net proceeds of approximately
$28.0 million, which were contributed to the Operating Partnership in exchange
for 1,000,000 limited partnership units. We used the net proceeds, together with
other available funds, to acquire one outlet center in Howell, Michigan, to
reduce the outstanding balance on our lines of credit and for general corporate
purposes. To generate capital to reinvest into other attractive investment
opportunities, we may also consider the use of operational and developmental
joint ventures, selling certain properties that do not meet our long-term
investment criteria as well as outparcels on existing properties.
We maintain unsecured, revolving lines of credit that provided for unsecured
borrowings up to $85 million at December 31, 2002, an increase of $10 million in
capacity from December 31, 2001. During 2002, we extended the maturity of all
lines of credit to June 30, 2004. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
our ability to sell debt or equity subject to market conditions, we believe that
we have access to the necessary financing to fund the planned capital
expenditures during 2003.
We anticipate that adequate cash will be available to fund our operating and
administrative expenses, regular debt service obligations, and the payment of
distributions in order for the Company to maintain its Real Estate Investment
Trust ("REIT") status in both the short and long term. Although we receive most
of our rental payments on a monthly basis, distributions to unitholders are made
quarterly and interest payments on the senior, unsecured notes are made
semi-annually. Amounts accumulated for such payments will be used in the interim
to reduce the outstanding borrowings under the existing lines of credit or
invested in short-term money market or other suitable instruments.
Contractual Obligations and Commercial Commitments
The following table details our contractual obligations over the next five years
and thereafter as of December 31, 2002 (in thousands):
Contractual Obligations 2003 2004 2005 2006 2007 Thereafter
--------- --------- ----------- --------- ----------- ---------------
Debt $2,519 $73,324 $23,100 $55,668 $2,349 $188,045
Operating leases 2,551 2,547 2,478 2,441 2,378 73,860
- ------------------------- ----------- ---------- ----------- ---------- ----------- ---------------
$5,070 $75,871 $25,578 $58,109 $4,727 $261,905
- ------------------------- ----------- ---------- ----------- ---------- ----------- ---------------
Our debt agreements require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of distributions such that
distributions will not exceed funds from operations, as defined in the
agreements, for the prior fiscal year on an annual basis or 95% of funds from
operations on a cumulative basis. We have historically been and currently are in
compliance with all of our debt covenants. We expect to remain in compliance
with all our existing debt covenants; however, should circumstances arise that
would cause us to be in default, the various lenders would have the ability to
accelerate the maturity on our outstanding debt.
The following table details our commercial commitments as of December 31, 2002
(in thousands):
Commercial Commitments 2004
----
Lines of credit $ 64,525
Joint venture guarantees 36,200
- --------------------------------------- ---------------
$ 100,725
- --------------------------------------- ---------------
25
We currently maintain four unsecured, revolving credit facilities with major
national banking institutions, totaling $85 million. As of December 31, 2002
amounts outstanding under these credit facilities totaled $20.5 million. All
four credit facilities expire in June 2004.
We are party to a joint and several guarantee with respect to the $36.2 million
construction loan obtained by TWMB. See "Joint Ventures" section above for
further discussion of the guarantee.
Related Party Transactions
During 2002, Stanley K. Tanger, the Company's Chairman of the Board and Chief
Executive Officer, completed the early repayment of a $2.5 million demand note
receivable to us through accelerated payments. In 2001, also through accelerated
payments, Steven B. Tanger, the Company's President and Chief Operating Officer,
completed the early repayment of a $845,000 demand note receivable to us.
As noted above in "Joint Ventures", we are a 50% owner of the TWMB joint
venture. TWMB pays us management, leasing and development fees for services
provided to the joint venture. During 2002, we recognized approximately $74,000
in management fees, $259,000 in leasing fees and $76,000 in development fees in
other income.
Market Risk
We are exposed to various market risks, including changes in interest rates.
Market risk is the potential loss arising from adverse changes in market rates
and prices, such as interest rates. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
We negotiate long-term fixed rate debt instruments and enter into interest rate
swap agreements to manage our exposure to interest rate changes. The swaps
involve the exchange of fixed and variable interest rate payments based on a
contractual principal amount and time period. Payments or receipts on the
agreements are recorded as adjustments to interest expense. At December 31,
2002, we had an interest rate swap agreement effective through January 2003 with
a notional amount of $25 million. Under this agreement, we receive a floating
interest rate based on the 30 day LIBOR index and pay a fixed interest rate of
5.97%. This swap effectively changes our payment of interest on $25 million of
variable rate debt to fixed rate debt for the contract period at a rate of
7.72%.
The fair value of the interest rate swap agreement represents the estimated
receipts or payments that would be made to terminate the agreement. At December
31, 2002, we would have paid approximately $98,000 to terminate the agreement.
The fair value is based on dealer quotes, considering current interest rates and
remaining term to maturity.
The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of our total long-term debt at December 31, 2002 was $349.7
million while the recorded value was $345.0 million, respectively. A 1% increase
from prevailing interest rates at December 31, 2002 would result in a decrease
in fair value of total long-term debt by approximately $10.6 million. Fair
values were determined from quoted market prices, where available, using current
interest rates considering credit ratings and the remaining terms to maturity.
26
Critical Accounting Policies
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our financial
statements.
Cost Capitalization
We capitalize all fees and costs incurred to initiate operating leases,
including certain general and overhead costs, as deferred charges. The amount of
general and overhead costs we capitalize is based on our estimate of the amount
of costs directly related to executing these leases. We amortize these costs to
expense over the average minimum lease term.
We capitalize all costs incurred for the construction and development of
properties, including certain general and overhead costs. The amount of general
and overhead costs we capitalize is based on our estimate of the amount of costs
directly related to the construction or development of these assets. Direct
costs to acquire assets are capitalized once the acquisition becomes probable.
Impairment of Long-Lived Assets
Rental property held and used by us is reviewed for impairment in the event that
facts and circumstances indicate the carrying amount of an asset may not be
recoverable. In such an event, we compare the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount, and if less,
recognize an impairment loss in an amount by which the carrying amount exceeds
its fair value. We believe that no impairment existed at December 31, 2002.
Revenue Recognition
Base rentals are recognized on a straight-line basis over the term of the lease.
Substantially all leases contain provisions which provide additional rents based
on tenants' sales volume ("percentage rentals") and reimbursement of the
tenants' share of advertising and promotion, common area maintenance, insurance
and real estate tax expenses. Percentage rentals are recognized when specified
targets that trigger the contingent rent are met. Expense reimbursements are
recognized in the period the applicable expenses are incurred. Payments received
from the early termination of leases are recognized when the applicable space is
released, or, otherwise are amortized over the remaining lease term.
Funds from Operations
We believe that for a clear understanding of our historical operating results,
FFO should be considered along with net income as presented in the audited
financial statements included elsewhere in this report. FFO is presented because
it is a widely accepted financial indicator used by certain investors and
analysts to analyze and compare one equity REIT with another on the basis of
operating performance. FFO is generally defined as net income (loss), computed
in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale or disposal of depreciable
operating properties, plus depreciation and amortization uniquely significant to
real estate and after adjustments for unconsolidated partnerships and joint
ventures. We caution that the calculation of FFO may vary from entity to entity
and as such the presentation of FFO by us 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 flows from operations as a
measure of liquidity. FFO is not necessarily indicative of cash flows available
to fund distributions to unitholders and other cash needs.
27
Below is a calculation of FFO for the years ended December 31, 2002, 2001 and
2000 as well as actual cash flow and other data for those respective periods (in
thousands):
2002 2001 2000
- ------------------------------------------------------------- ------------ -------------- ------------
Funds from Operations:
Net income $ 14,280 $ 9,154 $ 5,268
Adjusted for:
Extraordinary item-loss on early extinguishment of debt --- 338 ---
Depreciation and amortization
attributable to discontinued operations 235 427 423
Depreciation and amortization uniquely significant
to real estate - wholly owned 28,460 27,849 25,531
Depreciation and amortization uniquely significant
to real estate - unconsolidated joint ventures 422 --- ---
(Gain) loss on sale or disposal of real estate (1,702) --- 6,981
- -------------------------------------------------------------- ------------ -------------- ------------
Funds from operations (1) $ 41,695 $ 37,768 $ 38,203
Cash flow provided by (used in):
Operating activities $ 39,175 $ 44,616 $ 38,420
Investing activities $ (26,363) $ (23,269) $ (25,815)
Financing activities $ (12,247) $ (21,476) $ (12,474)
Weighted average units outstanding (2) 12,262 11,707 11,706
- -------------------------------------------------------------- ------------ -------------- ------------
(1) For the years ended December 31, 2002 and 2000, includes $728 and $908 in
gains on sales of outparcels of land.
(2) Assumes preferred units of the Operating Partnership and unit options are
all converted to limited partnership units.
New Accounting Pronouncements
In April 2002, the Financial Accounting Standards Board (FASB or the "Board")
issued FASB Statement No. 145 (FAS 145), "Rescission of FASB Statements No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections". In
rescinding FASB Statement No. 4 (FAS 4), "Reporting Gains and Losses from
Extinguishment of Debt", and FASB Statement No. 64 (FAS 64), "Extinguishments of
Debt Made to Satisfy Sinking-Fund Requirements", FAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. Generally, FAS 145 is effective for transactions occurring after
December 31, 2002. We adopted this statement effective January 1, 2003, the
effects of which will be the reclassification of a loss on early extinguishments
of debt for the year ended 2001, thereby decreasing income from continuing
operations for the year ended December 31, 2001 by $338,000.
In October 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" and realigns
liability recognition in accordance with FASB Concepts Statement No. 6,
"Elements of Financial Statements". The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this pronouncement will not have a material impact on our
results of operations or financial position.
28
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure, an amendment of FASB Statement No.
123", which is effective for fiscal years ending after December 15, 2002. This
Statement amends SFAS 123 "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. We are currently evaluating the effects of this
statement and at this time do not believe that it will have a material effect on
our results of operations or financial position.
In January of 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46 will be immediately effective for all variable interests in variable
interest entities created after January 31, 2003, and we will need to apply its
provisions to any existing variable interests in variable interest entities by
no later than June 30, 2003. We are currently evaluating the effects of this
statement and at this time do not believe that it will have a material effect on
our results of operations or financial position.
Economic Conditions and Outlook
The majority of our leases contain provisions designed to mitigate the impact of
inflation. Such provisions include clauses for the escalation of base rent and
clauses enabling us to receive percentage rentals based on tenants' gross sales
(above predetermined levels, which we believe often are lower than traditional
retail industry standards) which generally increase as prices rise. Most of the
leases require the tenant to pay their share of property operating expenses,
including common area maintenance, real estate taxes, insurance and advertising
and promotion, thereby reducing exposure to increases in costs and operating
expenses resulting from inflation.
While factory outlet stores continue to be a profitable and fundamental
distribution channel for brand name manufacturers, some retail formats are more
successful than others. As typical in the retail industry, certain tenants have
closed, or will close, certain stores by terminating their lease prior to its
natural expiration or as a result of filing for protection under bankruptcy
laws.
During 2003, we have approximately 1,070,000 square feet or 19% of our portfolio
coming up for renewal. If we were unable to successfully renew or release a
significant amount of this space on favorable economic terms, the loss in rent
could have a material adverse effect on our results of operations.
We renewed 88% of the 935,000 square feet that came up for renewal in 2002 with
the existing tenants at an average base rental rate approximately 1% higher than
the expiring rate. We also re-tenanted 229,000 square feet during 2002 at a 4%
increase in the average base rental rate.
Existing tenants' sales have remained stable and renewals by existing tenants
have remained strong. The existing tenants have already renewed approximately
529,000, or 49%, of the square feet scheduled to expire in 2003 as of March 1,
2003. In addition, we continue to attract and retain additional tenants. Our
factory outlet centers typically include well-known, national, brand name
companies. By maintaining a broad base of creditworthy tenants and a
geographically diverse portfolio of properties located across the United States,
we reduce our operating and leasing risks. No one tenant (including affiliates)
accounts for more than 6% of our combined base and percentage rental revenues.
Accordingly, we do not expect any material adverse impact on our results of
operation and financial condition as a result of leases to be renewed or stores
to be released.
As of December 31, 2002 and 2001, our centers were 98% and 96% occupied,
respectively. Consistent with our long-term strategy of re-merchandising
centers, we will continue to hold space off the market until an appropriate
tenant is identified. While we believe this strategy will add value to our
centers in the long-term, it may reduce our average occupancy rates in the near
term.
29
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's majority owner, the Company, 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 Operating Partnership does not have any directors or officers. The
information concerning the Company's 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 Company".
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Company's 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.
The following table provides information as of December 31, 2002 with
respect to compensation plans under which the Operating Partnership's equity
securities are authorized for issuance:
(c)
Number of
Securities Remaining
(a) (b) Available for Future
Number of Securities to Weighted Average Issuance Under Equity
be Issued Upon Exercise Exercise Price of Compensation Plans
of Outstanding Options, Outstanding Options, (Excluding Securities
Plan Category Warrants and Rights Warrants and Rights Reflected in Column (a))
- ------------- ------------------- ------------------- ------------------------
Equity compensation plans approved 1,253,300 $23.84 230,200
by security holders
Equity compensation plans not
approved by security holders --- --- ---
Total 1,253,300 $23.84 230,200
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
30
Item 14. Controls and Procedures
The Chief Executive Officer, Stanley K. Tanger, and Treasurer, Frank C.
Marchisello Jr., of Tanger GP Trust, the sole general partner of the registrant,
evaluated the effectiveness of the registrant's disclosure controls and
procedures on March 28, 2003 (Evaluation Date), and concluded that, as of the
Evaluation Date, the registrant's disclosure controls and procedures were
effective to ensure that the information the registrant is required to disclose
in its filings with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934 is recorded, processed, summarized and reported, within
the time periods specified in the Commission's rules and forms, and to ensure
that information required to be disclosed by the registrant in the reports that
it files under the Exchange Act is accumulated and communicated to the
registrant's management, including its principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
There were no significant changes in the registrant's internal controls or in
other factors that could significantly affect these controls subsequent to the
Evaluation Date.
31
PART IV
Item 15. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
Report of Independent Accountants F-1
Balance Sheets-December 31, 2002 and 2001 F-2
Statements of Operations-
Years Ended December 31, 2002, 2001 and 2000 F-3
Statements of Partners' Equity-
For the Years Ended December 31, 2002, 2001 and 2000 F-4
Statements of Cash Flows-
Years Ended December 31, 2002, 2001 and 2000 F-5
Notes to Financial Statements F-6 to F-18
2. Financial Statement Schedule
Schedule III
Report of Independent Accountants F-19
Real Estate and Accumulated Depreciation F-20 to F-22
32
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
3.3 Amended and Restated Agreement of Limited Partnership for the
Operating Partnership. (Note 8)
3.3A Amendment No. 1 to Tanger Properties Limited Partnership Amended
and Restated Agreement of Limited Partnership, dated September
10, 2002. (Note 11)
10.1 Amended and Restated Unit Option Plan. (Note 6)
10.4 Form of Unit Option Agreement between the Operating Partnership
and certain employees. (Note 2)
10.5 Amended and Restated Employment Agreement for Stanley K. Tanger,
as of January 1, 1998. (Note 6)
10.5A Amended Employment Agreement for Stanley K. Tanger, as of
January 1, 2001. (Note 10)
10.6 Amended and Restated Employment Agreement for Steven B. Tanger,
as of January 1, 1998. (Note 6)
10.6A Amended Employment Agreement for Steven B. Tanger, as of January
1, 2001. (Note 10)
10.7 Amended and Restated Employment Agreement for Willard Albea
Chafin, Jr., as of January 1, 2002. (Note 10)
10.8 Amended and Restated Employment Agreement for Rochelle Simpson,
as of January 1, 2002. (Note 10)
10.9 Not applicable.
10.10 Amended and Restated Employment Agreement for Frank C.
Marchisello, Jr., as of January 1, 2002. (Note 10)
10.11 Registration Rights Agreement among the Company, the Tanger
Family Limited Partnership and Stanley K. Tanger. (Note 1)
10.11A Amendment to Registration Rights Agreement among the Company,
the Tanger Family Limited Partnership and Stanley K. Tanger.
(Note 3)
10.12 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
(Note 1)
10.13 Assignment and Assumption Agreement among Stanley K. Tanger,
Stanley K. Tanger & Company, the Tanger Family Limited
Partnership, the Operating Partnership and the Company. (Note 1)
10.14 Promissory Notes by and between the Operating Partnership and
John Hancock Mutual Life Insurance Company aggregating
$66,500,000. (Note 7)
10.15 Form of Senior Indenture. (Note 4)
10.16 Form of First Supplemental Indenture (to Senior Indenture).
(Note 4)
10.16A Form of Second Supplemental Indenture (to Senior Indenture)
dated October 24, 1997 among Tanger Properties Limited
Partnership, Tanger Factory Outlet Centers, Inc. and State
Street Bank & Trust Company. (Note 5)
33
10.17 Promissory Note 05/16/2000 (Note 9)
10.18 Promissory Note 05/16/2000 (Note 9)
21.1 List of Subsidiaries. (Note 10)
23.1 Consent of PricewaterhouseCoopers LLP.
Notes to Exhibits:
1. Incorporated by reference to the exhibits to the Company's
Registration Statement on Form S-11 filed May 27, 1993, as
amended.
2. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1993.
3. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
4. Incorporated by reference to the exhibits to the Company's
Current Report on Form 8-K dated March 6, 1996.
5. Incorporated by reference to the exhibits to the Company's
Current Report on Form 8-K dated October 24, 1997.
6. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
7. Incorporated by reference to the exhibit to the Company's
Quarterly Report on 10-Q for the quarter ended March 31, 1999.
8. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
9. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 2000.
10. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 2001.
11. Incorporated by reference to the exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31, 2002.
(b) Reports on Form 8-K - none.
34
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 PROPERTIES LIMITED PARTNERSHIP
By: Tanger GP Trust, its sole general partner
By:/s/ Stanley K. Tanger
-------------------------------------------
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer
March 28, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ Stanley K. Tanger Chairman of the Board and Chief March 28, 2003
- ------------------------
Stanley K. Tanger Executive Officer (Principal
Executive Officer)
/s/ Steven B. Tanger Trustee and President March 28, 2003
- ------------------------
Steven B. Tanger
/s/ Frank C. Marchisello Jr. Trustee and Treasurer March 28, 2003
- ----------------------------
Frank C. Marchisello, Jr. (Principal Financial and
Accounting Officer)
/s/ Jack Africk Trustee March 28, 2003
- ------------------------
Jack Africk
/s/ William G. Benton Trustee March 28, 2003
- ------------------------
William G. Benton
/s/ Thomas E. Robinson Trustee March 28, 2003
- ----------------------
Thomas E. Robinson
35
CERTIFICATION
I, Stanley K. Tanger certify that:
1. I have reviewed this annual report on Form 10-K of Tanger Properties
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003 By: /s/ Stanley K. Tanger
---------------------
Stanley K. Tanger
Chief Executive Officer of Tanger GP Trust
Sole General Partner of the Registrant
36
CERTIFICATION
I, Frank C. Marchisello, Jr. certify that:
1. I have reviewed this annual report on Form 10-K of Tanger Properties
Limited Partnership;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of and for, the periods presented in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent functions):
a. All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 28, 2003 By: /s/ Frank C. Marchisello, Jr.
---------------------------------
Frank C. Marchisello, Jr.
Treasurer & Assistant Secretary of Tanger GP Trust
Sole General Partner of the Registrant
37
Certification of Chief Executive Officer
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger GP Trust, sole
general partner of Tanger Properties Limited Partnership hereby certifies, to
such officer's knowledge, that:
(i) the accompanying Annual Report on Form 10-K of the Operating
Partnership for the annual period ended December 31, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Operating Partnership.
Dated: March 28, 2003 /s/ Stanley K. Tanger
------------------------------------
Stanley K. Tanger
Chief Executive Officer of Tanger GP Trust
Sole General Partner of the Registrant
38
Certification of Chief Financial Officer
Pursuant to 18 U.S.C. ss. 1350, as created by Section 906 of the
Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger GP Trust, sole
general partner of Tanger Properties Limited Partnership hereby certifies, to
such officer's knowledge, that:
(i) the accompanying annual Report on Form 10-K of the Operating
Partnership for the annual period ended December 31, 2002 (the "Report")
fully complies with the requirements of Section 13(a) or Section 15(d), as
applicable, of the Securities Exchange Act of 1934, as amended; and
(ii) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Operating Partnership.
Dated: March 28, 2003 /s/ Frank C. Marchisello Jr.
----------------------------
Frank C. Marchisello, Jr.
Treasurer & Assistant Secretary of Tanger GP Trust
Sole General Partner of the Registrant
39
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of TANGER PROPERTIES LIMITED PARTNERSHIP:
In our opinion, the accompanying balance sheets and the related statements of
operations, of partners' equity and of cash flows present fairly, in all
material respects, the financial position of Tanger Properties Limited
Partnership at December 31, 2002 and 2001, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 2002, in conformity with accounting principles generally accepted in the
United States of America. These financial statements are the responsibility of
the Partnership's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 2 to the financial statements, the Partnership changed its
accounting policy for asset impairments and reporting discontinued operations,
in accordance with FAS 144 "Accounting for the Impairment or Disposal of Long
Lived Assets".
/s/ PricewaterhouseCoopers LLP
Raleigh, NC
January 17, 2003
F - 1
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(In thousands)
December 31,
2002 2001
- -------------------------------------------------------------------------------------------------------------
ASSETS
Rental Property
Land $ 51,274 $ 60,158
Buildings, improvements and fixtures 571,125 539,108
- -------------------------------------------------------------------------------------------------------------
622,399 599,266
Accumulated depreciation (174,199) (148,950)
- -------------------------------------------------------------------------------------------------------------
Rental property, net 448,200 450,316
Cash and cash equivalents 1,068 503
Deferred charges, net 10,104 11,413
Other assets 18,008 13,847
- -------------------------------------------------------------------------------------------------------------
Total assets $ 477,380 $ 476,079
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
Liabilites
Debt
Senior, unsecured notes $ 150,109 $ 160,509
Mortgages payable 174,421 176,736
Lines of credit 20,475 20,950
- -------------------------------------------------------------------------------------------------------------
345,005 358,195
Construction trade payables 3,310 3,722
Accounts payable and accrued expenses 14,800 16,285
- -------------------------------------------------------------------------------------------------------------
Total liabilities 363,115 378,202
- -------------------------------------------------------------------------------------------------------------
Commitments
Partners' Equity
General partner 1,141 1,346
Limited partners 113,361 97,504
Accumulated other comprehensive loss (237) (973)
- -------------------------------------------------------------------------------------------------------------
Total partners' equity 114,265 97,877
- -------------------------------------------------------------------------------------------------------------
Total liabilities and partners' equity $ 477,380 $ 476,079
- -------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F - 2
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
Year Ended December 31,
2002 2001 2000
- ------------------------------------------------------------------------------------------------------------------
REVENUES
Base rentals $ 75,755 $ 73,263 $ 69,368
Percentage rentals 3,558 2,735 3,253
Expense reimbursements 30,550 29,498 29,460
Other income 3,304 2,770 4,056
- ------------------------------------------------------------------------------------------------------------------
Total revenues 113,167 108,266 106,137
- ------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 36,083 33,970 33,013
General and administrative 9,228 8,227 7,366
Interest 28,460 30,134 27,565
Depreciation and amortization 28,754 28,145 25,795
Asset write-down --- --- 1,800
- ------------------------------------------------------------------------------------------------------------------
Total expenses 102,525 100,476 95,539
- ------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated
joint ventures, discontinued operations, loss on
sale or disposal of real estate and extraordinary item 10,642 7,790 10,598
Equity in earnings of unconsolidated joint ventures 392 --- ---
- ------------------------------------------------------------------------------------------------------------------
Income from continuing operations 11,034 7,790 10,598
Discontinued operations 3,246 1,702 1,651
- ------------------------------------------------------------------------------------------------------------------
Income before (loss) on sale or disposal of real estate
and extraordinary item 14,280 9,492 12,249
(Loss) on sale or disposal or real estate --- --- (6,981)
- ------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 14,280 9,492 5,268
Extraordinary item - Loss on early extinguishment of debt --- (338) ---
- ------------------------------------------------------------------------------------------------------------------
Net income 14,280 9,154 5,268
Less applicable preferred unit distributions (1,771) (1,771) (1,823)
- ------------------------------------------------------------------------------------------------------------------
Income available to partners 12,509 7,383 3,445
Income allocated to the limited partners (12,347) (7,282) (3,397)
- ------------------------------------------------------------------------------------------------------------------
Income allocated to the general partner 162 101 48
- ------------------------------------------------------------------------------------------------------------------
Basic earnings per unit:
Income from continuing operations $ 0.82 $ 0.55 $ 0.80
Net income $ 1.11 $ 0.67 $ 0.32
- ------------------------------------------------------------------------------------------------------------------
Diluted earnings per unit:
Income from continuing operations $ 0.80 $ 0.55 $ 0.80
Net income $ 1.08 $ 0.67 $ 0.31
- ------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F - 3
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 2002, 2001, and 2000
(In thousands, except unit data)
Other Total
General Limited Comprehensive Partners'
Partners Partnership Loss Equity
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 1,927 139,127 --- 141,054
Conversion of 4,670 preferred units
into 42,076 partnership units --- --- --- ---
Net income 48 5,220 --- 5,268
Preferred distributions ($21.87 per unit) --- (1,840) --- (1,840)
Distributions to partners ($2.43 per unit) (364) (26,144) --- (26,508)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 1,611 116,363 --- 117,974
Comprehensive income:
Net income 101 9,053 --- 9,154
Other comprehensive (loss) --- --- (973) (973)
- --------------------------------------------------------------------------------------------------------------------
Total comprehensive income 101 9,053 (973) 8,181
Issuance of 10,800 units upon --- 201 --- 201
exercise of unit options
Preferred distributions ($21.96 per unit) --- (1,770) --- (1,770)
Distributions to partners ($2.44 per unit) (366) (26,343) --- (26,709)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 1,346 97,504 (973) 97,877
Comprehensive income:
Net income 162 14,118 14,280
Other comprehensive gain 736 736
- --------------------------------------------------------------------------------------------------------------------
Total comprehensive income 1,508 111,622 (237) 112,893
Conversion of 410 preferred units
into 3,694 partnership units - - - -
Issuance of 127,620 units upon
exercise of share and unit options - 2,794 - 2,794
Issuance of 1,000,000 units in exchange for
proceeds from the common share offering
of the general partner's sole shareholder - 27,960 - 27,960
Preferred distributions ($22.05 per unit) - (1,771) - (1,771)
Common distributions ($2.45 per unit) (367) (27,244) - (27,611)
- --------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 1,141 $ 113,361 $ (237) $ 114,265
- --------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
F - 4
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2002 2001 2000
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 14,280 $ 9,154 $ 5,268
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 28,989 28,572 26,218
Amortization of deferred financing costs 1,209 1,309 1,264
Equity in earnings of unconsolidated joint ventures (392) --- ---
Loss on early extinguishment of debt --- 338 ---
Asset write-down --- --- 1,800
Loss (gain) on disposal or sale of real estate (1,702) --- 6,981
Gain on sale of outparcels of land (728) --- (908)
Straight-line base rent adjustment 248 342 92
Increase (decrease) due to changes in:
Other assets (2,058) 2,261 (2,104)
Accounts payable and accrued expenses (671) 2,640 (191)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 39,175 44,616 38,420
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of rental properties (37,500) --- ---
Additions to rental properties (5,847) (20,368) (36,056)
Additions to investments in joint ventures (130) (4,068) (117)
Additions to deferred lease costs (1,630) (1,618) (2,238)
Net proceeds from sale of real estate 21,435 723 8,598
Increase in escrow from rental property sale (4,008) --- ---
Net insurance proceeds from property losses --- --- 4,046
Distributions received from unconsolidated joint ventur 520 --- ---
Collections from (advances to) officers, net 797 2,062 (48)
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (26,363) (23,269) (25,815)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash distributions paid (29,382) (28,479) (28,348)
Contribution from sole shareholder of general and limited partner 27,960 --- ---
Proceeds from issuance of debt 126,320 279,075 172,595
Repayment of debt (139,510) (267,723) (155,399)
Additions to deferred financing costs (429) (4,550) (1,322)
Proceeds from exercise of share and unit options 2,794 201 ---
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (12,247) (21,476) (12,474)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 565 (129) 131
Cash and cash equivalents, beginning of period 503 632 501
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 1,068 $ 503 $ 632
===========================================================================================================================
The accompanying notes are an integral part of these financial statements.
F - 5
NOTES TO FINANCIAL STATEMENTS
1. Organization of the Operating Partnership
Tanger Properties Limited Partnership, a North Carolina limited partnership,
develops, owns and operates factory outlet centers. Recognized as one of the
largest owners and operators of factory outlet centers in the United States, we
have ownership interests in or management responsibilities for 34 centers in 21
states totaling approximately 6.2 million feet of gross leasable area at the end
of 2002. We provide all development, leasing and management services for our
centers. Unless the context indicates otherwise, the term "Operating
Partnership" refers to Tanger Properties Limited Partnership and the term
"Company" refers to Tanger Factory Outlet Centers, Inc. and subsidiaries. The
terms "we", "our" and "us" refer to the Operating Partnership or the Operating
Partnership and the Company together, as the text requires.
We are controlled by Tanger Factory Outlet Centers, Inc. and subsidiaries, a
fully-integrated, self-administered, self-managed real estate investment trust
("REIT") as the sole shareholder of the Operating Partnership's general partner,
Tanger GP Trust. Prior to 1999, the Company owned the majority of the units of
partnership interest issued by the Operating Partnership (the "Units") and
served as its sole general partner. During 1999, the Company transferred its
ownership of Units into two wholly-owned subsidiaries, the Tanger GP Trust and
the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as
its sole general partner. The Tanger LP Trust holds a limited partnership
interest. The Tanger family, through its ownership of the Tanger Family Limited
Partnership ("TFLP") holds the remaining Units. Stanley K. Tanger, the Company's
Chairman of the Board and Chief Executive Officer, is the sole general partner
of TFLP.
As of December 31, 2002, Tanger GP Trust owned 150,000 Units, the Tanger LP
Trust owned 8,911,025 Units and 80,190 Preferred Units (which are convertible
into approximately 722,509 limited partnership Units) and TFLP owned 3,033,305
Units. TFLP's Units are exchangeable, subject to certain limitations to preserve
the Company' status as a REIT, on a one-for-one basis for the Company's common
shares. Preferred Units are automatically converted into limited partnership
Units to the extent of any conversion of the Company's preferred shares into
common shares of the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation - Allocation of income to
the partners is based on each partner's respective ownership of Units issued by
the Operating Partnership. Investments in real estate joint ventures that
represent non-controlling ownership interests are accounted for using the equity
method of accounting.
Reclassifications - Certain amounts in the 2001 and 2000 financial statements
have been reclassified to conform to the 2002 presentation.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Operating Segments - We aggregate the financial information of all centers into
one reportable operating segment because the centers all have similar economic
characteristics and provide similar products and services to similar types and
classes of customers.
Rental Properties - Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the construction and development of properties,
including certain general and overhead costs, are capitalized. The amount of
general and overhead costs capitalized is based on our estimate of the amount of
costs directly related to the construction or development of these assets.
Direct costs to acquire assets are capitalized once the acquisition becomes
probable. Depreciation is computed on the straight-line basis over the estimated
useful lives of the assets. We generally use estimated lives ranging from 25 to
33 years for buildings, 15 years for land improvements and seven years for
equipment. Expenditures for ordinary maintenance and repairs are charged to
operations as incurred while significant renovations and improvements, including
tenant finishing allowances, that improve and/or extend the useful life of the
asset are capitalized and depreciated over their estimated useful life.
F - 6
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
2002, 2001 and 2000 amounted to $172,000, $551,000 and $1,020,000 and
development costs capitalized amounted to $467,000, $616,000 and $843,000,
respectively. Depreciation expense for each of the years ended December 31,
2002, 2001 and 2000 was $26,906,000, $26,585,000 and $24,239,000, respectively.
The pre-construction stage of project development involves certain costs to
secure land control and zoning and complete other initial tasks essential to the
development of the project. These costs are transferred from other assets to
rental property under construction when the pre-construction tasks are
completed. Costs of potentially unsuccessful pre-construction efforts are
charged to operations when the project is abandoned.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less at the date of purchase are considered to be
cash and cash equivalents. Cash balances at a limited number of banks may
periodically exceed insurable amounts. We believe that we mitigate our risk by
investing in or through major financial institutions. Recoverability of
investments is dependent upon the performance of the issuer.
Deferred Charges - Deferred lease costs consist of fees and costs incurred,
including certain general and overhead costs, to initiate operating leases and
are amortized over the average minimum lease term. Deferred financing costs
include fees and costs incurred to obtain long-term financing and are amortized
over the terms of the respective loans. Unamortized deferred financing costs are
charged to expense when debt is retired before the maturity date.
Guarantees of Indebtedness - In November 2002, the FASB issued FIN 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." This interpretation elaborates
on the disclosures to be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that it has issued. It
also clarifies that a guarantor is required to recognize, at the inception of a
guarantee, a liability for the fair value of the obligation undertaken in
issuing the guarantee. The initial recognition and initial measurement
provisions of this Interpretation are applicable on a prospective basis to
guarantees issued or modified after December 31, 2002, irrespective of the
guarantor's fiscal year-end. The disclosure requirements in this Interpretation
are effective for financial statements of interim or annual periods ending after
December 15, 2002. Currently we are a party to joint and several guarantees for
the construction loan of TWMB Associates, LLC, a 50% ownership joint venture,
for which our Myrtle Beach, South Carolina property serves as collateral. See
Footnote 4 "Real Estate Joint Ventures" for further disclosure regarding the
indebtedness and related guarantees. This guarantee was already in place as of
December 31, 2002 therefore no liability has been recognized for the fair value
of the obligation.
Impairment of Long-Lived Assets - Rental property held and used by us is
reviewed for impairment in the event that facts and circumstances indicate the
carrying amount of an asset may not be recoverable. In such an event, we compare
the estimated future undiscounted cash flows associated with the asset to the
asset's carrying amount, and if less, recognize an impairment loss in an amount
by which the carrying amount exceeds its fair value. We believe that no material
impairment existed at December 31, 2002.
On January 1, 2002 we adopted Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"), which replaces FAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). FAS 144 retains
the requirements of FAS 121 to recognize an impairment loss only if the carrying
amount of a long-lived asset is not recoverable from its undiscounted cash flows
and to measure an impairment loss as the difference between the carrying amount
and fair value of the asset. The provisions of FAS 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001.
Under both FAS No. 121 and 144, real estate assets designated as held for sale
are stated at their fair value less costs to sell. We classify real estate as
held for sale when it meets the requirements of FAS 144 and the Company's Board
of Directors approves the sale of the assets. Subsequent to this classification,
no further depreciation is recorded on the assets. Under FAS No. 121, the
operating results of real estate assets held for sale are included in continuing
operations. Upon implementation of FAS 144, the operating results of newly
designated real estate assets held for sale are included in discontinued
operations in our results of operations.
F - 7
Derivatives - We selectively enter into interest rate protection agreements to
mitigate changes in interest rates on our variable rate borrowings. The notional
amounts of such agreements are used to measure the interest to be paid or
received and do not represent the amount of exposure to loss. None of these
agreements are used for speculative or trading purposes.
On January 1, 2001 we adopted Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" as amended
by FAS 137 and FAS 138, (collectively, "FAS 133"). FAS 133 requires entities to
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at their fair value. FAS 133
also requires us to measure the effectiveness, as defined by FAS 133, of all
derivatives. We formally document our derivative transactions, including
identifying the hedge instruments and hedged items, as well as our risk
management objectives and strategies for entering into the hedge transaction. At
inception and on a quarterly basis thereafter, we assess the effectiveness of
derivatives used to hedge transactions. If a derivative is deemed effective, we
record the change in fair value in other comprehensive income. If after
assessment it is determined that a portion of the derivative is ineffective,
then that portion of the derivative's change in fair value will be immediately
recognized in earnings.
Income Taxes - As a partnership, the allocated share of income or loss for the
year is included in the income tax returns of the partners; accordingly, no
provision has been made for Federal income taxes in the accompanying financial
statements.
Revenue Recognition - Base rentals are recognized on a straight-line basis over
the term of the lease. Substantially all leases contain provisions which provide
additional rents based on tenants' sales volume ("percentage rentals") and
reimbursement of the tenants' share of advertising and promotion, common area
maintenance, insurance and real estate tax expenses. Percentage rentals are
recognized when specified targets that trigger the contingent rent are met.
Expense reimbursements are recognized in the period the applicable expenses are
incurred. Payments received from the early termination of leases are recognized
when the applicable space is released, or, otherwise are amortized over the
remaining lease term.
We provide management, leasing and development services for a fee for certain
properties that are not owned by us or are partly owned through a joint venture.
Fees received for these services are recognized as other income when earned.
Concentration of Credit Risk - We perform ongoing credit evaluations of our
tenants. Although the tenants operate principally in the retail industry, the
properties are geographically diverse. No single tenant accounted for 10% or
more of combined base and percentage rental income during 2002, 2001 or 2000.
Supplemental Cash Flow Information - We purchase capital equipment and incur
costs relating to construction of new facilities, including tenant finishing
allowances. Expenditures included in construction trade payables as of December
31, 2002, 2001 and 2000 amounted to $3,310,000, $3,722,000 and $9,784,000,
respectively. Interest paid, net of interest capitalized, in 2002, 2001 and 2000
was $27,512,000, $27,379,000 and $25,644,000, respectively.
New Accounting Pronouncements - In April 2002, the Financial Accounting
Standards Board (FASB or the "Board") issued FASB Statement No. 145 (FAS 145),
"Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections". In rescinding FASB Statement No. 4 (FAS 4),
"Reporting Gains and Losses from Extinguishment of Debt", and FASB Statement No.
64 (FAS 64), "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements", FAS 145 eliminates the requirement that gains and losses from the
extinguishment of debt be aggregated and, if material, classified as an
extraordinary item, net of the related income tax effect. Generally, FAS 145 is
effective for transactions occurring after December 31, 2002. We adopted this
statement effective January 1, 2003, the effects of which will be the
reclassification of a loss on early extinguishments of debt for the year ended,
thereby decreasing income from continuing operations for the year ended December
31, 2001 by $338,000.
In October 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)" and realigns
liability recognition in accordance with FASB Concepts Statement No. 6,
"Elements of Financial Statements". The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of this pronouncement will not have a material impact on our
results of operations or financial position.
F - 8
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure an amendment of FASB Statement No.
123", which is effective for fiscal years ending after December 15, 2002. This
Statement amends SFAS 123 "Accounting for Stock-Based Compensation", to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, this
Statement amends the disclosure requirements of Statement 123 to require
prominent disclosures in both annual and interim financial statements about the
method of accounting for stock-based employee compensation and the effect of the
method used on reported results. We are currently evaluating the effects of this
statement but and at this time do not believe that it will have a material
effect on our results of operations or financial position.
In January of 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities ("FIN 46"). FIN 46 clarifies the application of
existing accounting pronouncements to certain entities in which equity investors
do not have the characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The provisions of
FIN 46 will be immediately effective for all variable interests in variable
interest entities created after January 31, 2003, and we will need to apply its
provisions to any existing variable interests in variable interest entities by
no later than June 30, 2003. We are currently evaluating the effects of this
statement but and at this time do not believe that it will have a material
effect on our results of operations or financial position.
3. Acquisitions and Development of Rental Properties
In June 2002, through our unconsolidated 50% ownership joint venture, TWMB
Associates, LLC ("TWMB"), with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren"),
we opened the first phase of our new 400,000 square foot Tanger Outlet Center in
Myrtle Beach, South Carolina. The first phase consists of approximately 260,000
square feet and features 60 brand name designer outlet stores.
Also in September 2002, we completed the acquisition of Kensington Valley
Factory Shops, a factory outlet center in Howell, Michigan containing
approximately 325,000 square feet, for an aggregate purchase price of $37.5
million. The acquisition was 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 property have been included in the results
of operations since the acquisition date.
4. Investments in Real Estate Joint Ventures
In 2000, we formed a joint venture with C. Randy Warren Jr., former Senior Vice
President of Leasing of the Company. The new entity, Tanger-Warren Development,
LLC ("Tanger-Warren"), was formed to identify, acquire and develop sites
exclusively for us. We agreed to be co-managers of Tanger-Warren, each with 50%
ownership interest in the joint venture and any entities formed with respect to
a specific project. Our investment in Tanger-Warren amounted to approximately
$6,500 and $9,000 as of December 31, 2002 and 2001, respectively, and the impact
of this joint venture on our results of operations has been insignificant.
In September 2001, we established the TWMB joint venture with respect to our
Myrtle Beach, South Carolina project with Rosen-Warren. We and Rosen-Warren,
each as 50% owners, contributed $4.3 million in cash for a total initial equity
in TWMB of $8.6 million. In September of 2001, TWMB began construction on its
first phase of a new 400,000 square foot Tanger Outlet Center in Myrtle Beach,
South Carolina. The first phase opened 100% leased on June 28, 2002 at a cost of
approximately $35.4 million with approximately 260,000 square feet and 60 brand
name outlet tenants. In November 2002, we began construction on a 64,000 square
foot second phase which is estimated to cost $6.5 million. We and Rosen-Warren
have contributed approximately $1.1 million each toward this second phase, with
the majority of the contribution being made in the first quarter of 2003.
In conjunction with the construction of the center, TWMB closed on a variable
rate, construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and SouthTrust Bank. As of December 31, 2002 the construction loan had a
balance of $25.5 million. In August of 2002, TWMB entered into an interest rate
swap agreement with Bank of America, NA effective through August 2004 with a
notional amount of $19 million. Under this agreement, TWMB receives a floating
interest rate based on the 30 day LIBOR index and pays a fixed interest rate of
2.49%. This swap effectively changes the payment of interest on $19 million of
variable rate debt to fixed rate debt for the contract period at a rate of
4.49%. All debt incurred by this unconsolidated joint venture is collateralized
by its property as well as joint and several guarantees by Rosen-Warren and us.
F - 9
Our investment in unconsolidated real estate joint ventures, of which we own
50%, was $3.9 million and $4.2 million as of December 31, 2002 and 2001,
respectively. These investments are recorded initially at cost and subsequently
adjusted for our net equity in the venture's income (loss) and cash
contributions and distributions. Our investments in real estate joint ventures
are included in other assets and are reduced by 50% of the profits earned for
leasing and development services we provided to the joint ventures.
Summary unaudited financial information of joint ventures accounted for using
the equity method as of December 31, 2002 and 2001 is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures: 2002 2001
- ------------------------------------------------- --------------- --------------
Assets:
Investment properties at cost, net $32,153 $ 7,348
Cash and cash equivalents 514 136
Deferred charges, net 1,751 1,433
Other assets 1,491 766
- ------------------------------------------------- --------------- --------------
Total assets $35,909 $ 9,683
================================================= =============== ==============
Liabilities and Owners' Equity:
Mortgage payable $25,513 $ 10
Construction trade payables 1,644 586
Accounts payable and other liabilities 522 444
- ------------------------------------------------- --------------- --------------
Total liabilities 27,679 1,040
Owners' equity 8,230 8,643
- ------------------------------------------------- --------------- --------------
Total liabilities and owners' equity $35,909 $ 9,683
================================================= =============== ==============
Summary Statement of Operations - Unconsolidated
Joint Ventures:
2002
- ---------------------------------------------------- -------------------------
Revenues: $4,119
- ---------------------------------------------------- -------------------------
Expenses:
Property operating 1,924
General and administrative 13
Interest 578
Depreciation and amortization 884
- ---------------------------------------------------- -------------------------
Total expenses 3,399
- ---------------------------------------------------- -------------------------
Net income $ 720
- ---------------------------------------------------- -------------------------
Tanger Properties Limited Partnership
share of:
- ---------------------------------------------------- -------------------------
Net income $ 392
Depreciation (real estate related) $ 422
- ---------------------------------------------------- -------------------------
5. Disposition of Properties
We completed the sale of two of our non-core properties located in Ft.
Lauderdale, Florida and Bourne, Massachusetts in June and November 2002,
respectively. Net proceeds received from the sales of these properties were
approximately $19.9 million. We recorded a gain on sale of real estate of $1.7
million in discontinued operations.
Throughout 2002, we sold five outparcels of land, two of which had related land
leases with identifiable cash flows, at various properties in our portfolio.
These sales totaled $1.5 million in net proceeds. Gains of $167,000 were
recorded in other income for the three land outparcels sold and gains of
$561,000 were recorded in discontinued operations for the two outparcels with
identifiable cash flows as accounted for under FAS 144.
F - 10
In accordance with FAS 144, effective for financial statements issued for fiscal
years beginning after December 15, 2001, results of operations and gain/(loss)
on sales of real estate for properties with identifiable cash flows sold
subsequent to December 31, 2001 are reflected in the Statements of Operations as
discontinued operations for all periods presented. Below is a summary of the
results of operations of these properties through their respective disposition
dates (in thousands):
Summary Statements of Operations - Disposed
Properties:
2002 2001 2000
- ------------------------------------ ----------------- -------------------- -----------------
Revenues:
Base rentals $ 1,225 $ 2,091 $ 2,089
Expense reimbursements 399 709 586
Other income 5 2 9
- ------------------------------------ ----------------- -------------------- -----------------
Total revenues 1,629 2,802 2,684
- ------------------------------------ ----------------- -------------------- -----------------
Expenses:
Property operating 411 673 610
Depreciation and amortization 235 427 423
- ------------------------------------ ----------------- -------------------- -----------------
Total expenses 646 1,100 1,033
- ------------------------------------ ----------------- -------------------- -----------------
Discontinued operations before gain
on sale of real estate 983 1,702 1,651
Gain on sale of outparcels 561 --- ---
Gain on sale of real estate 1,702 --- ---
- ------------------------------------ ----------------- -------------------- -----------------
Discontinued operations $ 3,246 $ 1,702 $ 1,651
- ------------------------------------ ----------------- -------------------- -----------------
In June 2000, we sold our centers in Lawrence, Kansas and McMinnville, Oregon.
Net proceeds received from the sales totaled $7.1 million. The combined net
operating income of these two centers represented approximately 1% of our total
portfolio's operating income.
In December 2000, we sold the land and site improvements that the Stroud,
Oklahoma center was located on prior to its destruction in May 1999 by a
tornado. The net proceeds from the sale of this real estate of approximately
$723,500 were received in January 2001.
As noted above, FAS 144 applies only to properties sold subsequent to December
31, 2001. Therefore, the results of operations and resulting losses on sales of
real estate from the properties which were sold in 2000 are not included in
discontinued operations. The losses from these property sales, totaling $7.0
million are included in loss on sale or disposal of real estate in the
Statements of Operations.
F - 11
6. Deferred Charges
Deferred charges as of December 31, 2002 and 2001 consists of the following (in
thousands):
2002 2001
- --------------------------------- -------------- ---------------
Deferred lease costs $ 15,414 $14,467
Deferred financing costs 8,412 8,210
- --------------------------------- -------------- ---------------
23,826 22,677
Accumulated amortization (13,722) (11,264)
- --------------------------------- -------------- ---------------
$ 10,104 $ 11,413
================================= ============== ===============
Amortization of deferred lease costs for the years ended December 31, 2002, 2001
and 2000 was $1,739,000, $1,642,000 and $1,578,000, respectively. Amortization
of deferred financing costs, included in interest expense in the accompanying
Statements of Operations, for the years ended December 31, 2002, 2001 and 2000
was $1,209,000, $1,277,000 and $1,264,000, respectively. During 2001, we
expensed the unamortized financing costs totaling $338,000 related to debt
extinguished prior to its respective maturity date. Such amount is shown as an
extraordinary item in the accompanying Statements of Operations.
7. Related Party Transactions
During 2002, Stanley K. Tanger, the Chairman of the Board and Chief Executive
Officer of the Company, completed the early repayment of a $2.5 million demand
note receivable to the Company through accelerated payments. In 2001, also
through accelerated payments, Steven B. Tanger, the President and Chief
Operating Officer of the Company, completed the early repayment of a $845,000
demand note receivable to the Company.
As noted above in Note 4 "Investments in Real Estate Joint Ventures", we are a
50% owner of the TWMB joint venture. TWMB pays us management, leasing and
development fees for services provided to the joint venture. During 2002, we
recognized approximately $74,000 in management fees, $259,000 in leasing fees
and $76,000 in development fees.
8. Long-Term Debt
Long-term debt at December 31, 2002 and 2001 consists of the following (in thousands):
2002 2001
- ------------------------------------------------------------------------- -------------- ---------------
7.875% Senior, unsecured notes, maturing October 2004 $ 50,109 $ 60,509
9.125% Senior, unsecured notes, maturing February 2008 100,000 100,000
Mortgage notes with fixed interest:
9.77%, maturing April 2005 14,516 14,822
9.125%, maturing September 2005 8,288 8,723
7.875%, maturing April 2009 62,874 63,968
7.98%, maturing April 2009 19,036 19,303
8.86%, maturing September 2010 16,207 16,420
Mortgage notes with variable interest:
LIBOR plus 1.75%, maturing March 2006 53,500 53,500
Revolving lines of credit with variable interest rates ranging
from either prime less .25% to prime or from LIBOR plus
1.60% to LIBOR plus 1.75% 20,475 20,950
- ------------------------------------------------------------------------- -------------- ---------------
$ 345,005 $ 358,195
========================================================================= ============== ===============
During 2002, we added an additional $10 million revolving credit facility to
increase our unsecured lines of credit borrowing capacity to $85 million. All
lines of credit expire in June 2004. Interest is payable based on alternative
interest rate bases at our option. Certain of our properties, which had a net
book value of approximately $172.8 million at December 31, 2002, serve as
collateral for the fixed and variable rate mortgages.
The lines of credit require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of distributions such that
distributions will not exceed funds from operations, as defined in the
agreements, for the prior fiscal year on an annual basis or 95% of funds from
operations on a cumulative basis. All five existing fixed rate mortgage notes
are with insurance companies and contain prepayment penalty clauses.
F - 12
During 2002, we purchased primarily at par, $10.4 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. During
2001, we purchased $14.5 million of these notes at par. In total, $24.9 million
of the October 2004 notes were purchased in 2001 and 2002.
During 2001, we issued $100 million of 9.125% senior, unsecured notes, maturing
on February 15, 2008. The net proceeds of $97 million were used to repay all of
the outstanding indebtedness under our $75 million 8.75% notes which were due
March 11, 2001. The net proceeds were also used to repay the $20 million LIBOR
plus 2.25% term loan due January 2002 with Fleet National Bank and Bank of
America. The interest rate swap agreements associated with this loan were
terminated at a cost of $295,200 which has been included in interest expense.
The remaining proceeds were used for general operating purposes.
Maturities of the existing long-term debt are as follows ($ in thousands):
Year Amount %
----------------- ------------- ------------
2003 $ 2,519 1
2004 73,324 21
2005 23,100 7
2006 55,668 16
2007 2,349 1
Thereafter 188,045 54
----------------- ------------- ------------
$ 345,005 100
----------------- ------------- ------------
9. Derivatives and Fair Value of Financial Instruments
In August 2002, TWMB, our 50% unconsolidated joint venture, entered into a swap
agreement with Bank of America, NA effective through August 2004 with a notional
amount of $19 million. Under this agreement, TWMB receives a floating interest
rate based on the 30 day LIBOR index and pays a fixed interest rate of 2.49%.
This swap effectively changes the payment of interest on $19 million of variable
rate debt to fixed rate debt for the contract period at a rate of 4.49%. At
December 31, 2002, TWMB would have had to pay $277,000 to terminate the
agreement.
In December 2000, we entered an interest rate swap agreement effective through
January 2003 with a notional amount of $25 million that fixed the 30 day LIBOR
index at 5.97%. At December 31, 2002, we would have had to pay $98,000 to
terminate the agreement.
In January 2000, we entered into interest rate swap agreements on notional
amounts totaling $20.0 million. In order to fix the interest rate, we paid
$162,000. As mentioned above in Note 8, these agreements subsequently were
terminated in February 2001 at a cost of $295,200.
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, 2002 and 2001, was estimated, at the present
value of future cash flows, discounted at interest rates available at the
reporting date for new debt of similar type and remaining maturity, was
approximately $349.7 and $358.2 million, respectively.
F - 13
10. Partners' Equity
In September 2002, the Company completed a public offering of 1,000,000 common
shares at a price of $29.25 per share, receiving net proceeds of approximately
$28.0 million, which were contributed to the Operating Partnership in exchange
for 1,000,000 limited partnership units. The net proceeds were used, together
with other available funds to acquire the Kensington Valley Factory Shops in
Howell, Michigan mentioned in Note 3 above, reduce the outstanding balance on
our lines of credit and for general corporate purposes.
At December 31, 2002 and 2001, the ownership interests of the Operating
Partnership consisted of the following:
2002 2001
----------------------- -------------- --------------
Preferred units 80,190 80,600
----------------------- -------------- --------------
Common units:
General partner 150,000 150,000
Limited partners 11,944,330 10,813,016
----------------------- -------------- --------------
Total 12,094,330 10,963,016
======================= ============== ==============
The Company's Series A Cumulative Convertible Redeemable Preferred Shares (the
"Preferred Shares") were sold to the public during 1993 in the form of
Depositary Shares, each representing 1/10 of a Preferred Share. Proceeds from
this offering, net of underwriters discount and estimated offering expenses,
were contributed to the Operating Partnership in return for preferred
partnership Units. The Preferred Shares have a liquidation preference equivalent
to $25 per Depositary Share and dividends accumulate per Depositary Share equal
to the greater of (i) $1.575 per year or (ii) the dividends on the common shares
or portion thereof, into which a depositary share is convertible. The Preferred
Shares rank senior to the common shares in respect of dividend and liquidation
rights.
The Preferred Shares are convertible at the option of the holder at any time
into common shares at a rate equivalent to .901 common shares for each
Depositary Share. Preferred partnership Units are automatically converted into
limited partnership Units to the extent of any conversion of the Company's
Series A Preferred Shares into the Company's common shares. At December 31,
2002, 722,509 common shares of the Company (and 722,509 Units of the Operating
Partnership) were reserved for the conversion of Depositary Shares (and
Preferred Units). The Preferred Shares and Depositary Shares may be redeemed at
the option of the Company, in whole or in part, at a redemption price of $25 per
Depositary Share, plus accrued and unpaid dividends.
F - 14
11. Earnings Per Unit
A reconciliation of the numerators and denominators in computing earnings per
unit in accordance with Statement of Financial Accounting Standards No. 128,
"Earnings per Share", for the years ended December 31, 2002, 2001 and 2000 is
set forth as follows (in thousands, except per unit amounts):
2002 2001 2000
- ---------------------- -------------------------------------------- ------------ ---------------- -------------
NUMERATOR:
Income from continuing operations $11,034 $ 7,790 $ 10,598
Less applicable preferred unit distributions (1,771) (1,771) (1,823)
- ------------------------------------------------------------------- ------------ ---------------- -------------
Income from continuing operations available
to common unitholders - basic and diluted 9,263 6,019 8,775
Discontinued operations 3,246 1,702 1,651
(Loss) on sale or disposal of real estate --- --- (6,981)
Extraordinary item - early extinguishments of debt --- (338) ---
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income available to common unitholders-
basic and diluted $12,509 $ 7,383 $ 3,445
- ------------------------------------------------------------------- ------------ ---------------- -------------
DENOMINATOR:
Basic weighted average common units 11,356 10,959 10,928
Effect of outstanding unit options 183 21 25
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted weighted average common units 11,539 10,980 10,953
- ------------------------------------------------------------------- ------------ ---------------- -------------
Basic earnings per common unit:
Income from continuing operations $ .82 $ .55 $ .80
Discontinued operations .29 .15 .15
(Loss) on sale or disposal of real estate --- --- (.63)
Extraordinary item - early extinguishments of debt --- (.03) ---
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $1.11 $ .67 $ .32
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted earnings per common unit:
Income from continuing operations $ .80 $ .55 $ .80
Discontinued operations .28 .15 .15
(Loss) on sale or disposal of real estate --- --- (.64)
Extraordinary item - early extinguishments of debt --- (.03) ---
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $1.08 $ .67 $ .31
- ------------------------------------------------------------------- ------------ ---------------- -------------
Options to purchase units excluded from the computation of diluted earnings per
unit during 2002, 2001 and 2000 because the exercise price was greater than the
average market price of the Company's common shares totaled 211,000, 1,190,000
and 1,198,000 units, respectively. The assumed conversion of the preferred units
as of the beginning of each year would have been anti-dilutive.
12. Employee Benefit Plans
The Company has a non-qualified and incentive share option plan ("The Share
Option Plan") and the Operating Partnership has a non-qualified Unit option plan
("The Unit Option Plan"). Units received upon exercise of Unit options are
exchangeable for common shares of the Company. The Operating Partnership
accounts for these plans under APB Opinion No. 25, under which no compensation
cost has been recognized.
F - 15
Had compensation cost for these plans been determined for options granted since
January 1, 1995 consistent with FAS 123, our net income and earnings per unit
would have been reduced to the following pro forma amounts (in thousands, except
per unit amounts):
2002 2001 2000
- -------------- ------------- ------------ ----------------- ----------------
Net income: As reported $14,280 $ 9,154 $5,268
Pro forma 14,120 8,925 $4,985
Basic EPS: As reported $ 1.11 $ .67 $ .32
Pro forma $ 1.09 $ .65 $ .29
Diluted EPS: As reported $ 1.08 $ .67 $ .31
Pro forma $ 1.07 $ .65 $ .29
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for the grant in 2000: expected dividend yield of 11%; expected
lives ranging from 5 years to 7 years; expected volatility of 23%; and risk-free
interest rates ranging from 6.17% to 6.61%. There were no option grants in 2002
and 2001.
The Company and the Operating Partnership may issue up to a combined 1,750,000
shares and units under the Company's Share Option Plan and the Operating
Partnership's Unit Option Plan. The Company and the Operating Partnership have
granted 1,519,800 options, net of options forfeited, through December 31, 2002.
Under both plans, the option exercise price is determined by the Share and Unit
Option Committee of the Board of Directors. Non-qualified share and Unit options
granted expire 10 years from the date of grant and 20% of the options become
exercisable in each of the first five years commencing one year from the date of
grant.
Options outstanding at December 31, 2002 have exercise prices between $18.625
and $30.50, with a weighted average exercise price of $23.84 and a weighted
average remaining contractual life of 3.58 years.
A summary of the status of the Unit Option Plan at December 31, 2002, 2001 and
2000 and changes during the years then ended is presented in the table and
narrative below:
2002 2001 2000
--------------------------- --------------------------- -----------------------
Wtd Avg Wtd Avg Wtd Avg
Units Ex Price Units Ex Price Units Ex Price
- ------------------------------------- ------------- ------------- ------------ -------------- ----------- -----------
Outstanding at beginning 1,387,430 $ 23.68 1,406,870 $ 23.63 1,227,490 $ 24.55
of year
Granted --- --- --- --- 225,200 18.63
Exercised (124,620) 21.87 (10,800) 18.63 --- ---
Forfeited (9,510) 25.45 (8,640) 23.66 (45,820) 23.72
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Outstanding at end of year 1,253,300 $ 23.84 1,387,430 $ 23.68 1,406,870 $ 23.63
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Exercisable at end of year 1,001,480 $ 24.37 1,006,490 $ 24.16 858,230 $ 24.19
Weighted average fair value
of options granted $--- $ --- $ 1.20
We have a qualified retirement plan, with a salary deferral feature designed to
qualify under Section 401 of the Code (the "401(k) Plan"), which covers
substantially all of our officers and employees. The 401(k) Plan permits our
employees, in accordance with the provisions of Section 401(k) of the Code, to
defer up to 20% of their eligible compensation on a pre-tax basis subject to
certain maximum amounts. Employee contributions are fully vested and are matched
by us at a rate of compensation deferred to be determined annually at our
discretion. The matching contribution is subject to vesting under a schedule
providing for 20% annual vesting starting with the second year of employment and
100% vesting after six years of employment. The employer matching contribution
expense for the years 2002, 2001 and 2000 was immaterial.
F - 16
13. Asset Write-Down
During November 2000, we terminated our contract to purchase twelve acres of
land in Dania Beach/Ft. Lauderdale, FL. Because of this event, we wrote off all
development costs associated with the site in Ft. Lauderdale. In addition, other
costs associated with various other development activities at other sites were
written off. The total non-cash charge for abandoned development costs in the
fourth quarter of 2000 was $1.8 million.
14. Other Comprehensive Income
Effective January 1, 2001, we adopted FAS 133. Upon adoption we recorded a
cumulative effect adjustment of $299,500 loss, in other comprehensive loss. As
discussed in Note 9, certain interest rate swap agreements were terminated
during the first quarter of 2001 and the other comprehensive loss totaling
$147,000, recognized at adoption relating to these agreements was reclassified
to earnings. In accordance with the provisions of FAS 133, our interest rate
swap agreement and TWMB's interest rate swap agreement have been designated as
cash flow hedges and are carried on their respective balance sheets at fair
value. At December 31, 2002, the fair value of our hedge is recorded as a
liability of $98,000 in accounts payable and accrued expenses. Our portion of
the fair value of TWMB's hedge is recorded as a reduction in investment in joint
ventures of $139,000 in other assets. For the years ended December 31, 2002 and
2001, the change in the fair value of derivative instruments was recorded as a
$875,000 gain and $820,000 loss, to accumulated other comprehensive income.
Total comprehensive income for the years ended December 31, 2002 and 2001 is as
follows (in thousands):
2002 2001
- ----------------------------------------------------------------------- -------------- --------------
Net income $ 14,280 $ 9,154
- ----------------------------------------------------------------------- -------------- --------------
Other comprehensive income (loss):
Cumulative effect adjustment of FAS 133 adoption --- (300)
Reclassification to earnings on termination of cash
flow hedge --- 147
Change in fair value of our portion of TWMB cash
flow hedge (139) ---
Change in fair value of cash flow hedge 875 (820)
- ----------------------------------------------------------------------- -------------- --------------
Other comprehensive gain (loss) 736 (973)
- ----------------------------------------------------------------------- -------------- --------------
Total comprehensive income $15,016 $ 8,181
- ----------------------------------------------------------------------- -------------- --------------
15. Supplementary Income Statement Information
The following amounts are included in property operating expenses for the years
ended December 31, 2002, 2001 and 2000 (in thousands):
2002 2001 2000
- --------------------------------- ------------- ------------ ------------
Advertising and promotion $ 9,840 $ 9,206 $ 9,074
Common area maintenance 13,719 13,078 13,676
Real estate taxes 8,790 8,359 7,421
Other operating expenses 3,734 3,327 2,842
- --------------------------------- ------------- ------------ ------------
$ 36,083 $ 33,970 $ 33,013
- --------------------------------- ------------- ------------ ------------
F - 17
16. Lease Agreements
We are the lessor of a total of 1,338 stores in our 28 wholly-owned factory
outlet centers, under operating leases with initial terms that expire from 2003
to 2019. Most leases are renewable for five years at the lessee's option. Future
minimum lease receipts under non-cancelable operating leases as of December 31,
2002 are as follows (in thousands):
2003 $ 70,320
2004 59,079
2005 44,573
2006 31,079
2007 19,244
Thereafter 25,909
-------------------- --------------------
$ 250,204
-------------------- --------------------
17. Commitments and Contingencies
We purchased the rights to lease land on which two of the outlet centers are
situated for $1,520,000. These leasehold rights are being amortized on a
straight-line basis over 30 and 40 year periods. Accumulated amortization was
$713,000 and $664,000 at December 31, 2002 and 2001, respectively.
Our non-cancelable operating leases, with initial terms in excess of one year,
have terms that expire from 2003 to 2085. Annual rental payments for these
leases aggregated $2,437,000, $2,333,000 and $2,023,000, for the years ended
December 31, 2002, 2001 and 2000, respectively. Minimum lease payments for the
next five years and thereafter are as follows (in thousands):
2003 $ 2,551
2004 2,547
2005 2,478
2006 2,441
2007 2,378
Thereafter 73,860
------------------- ---------------------
$ 86,255
------------------- ---------------------
We are also subject to legal proceedings and claims which have arisen in the
ordinary course of its business and have not been finally adjudicated. In our
opinion, the ultimate resolution of these matters will have no material effect
on our results of operations, financial condition or cash flows.
F - 18
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Partners of Tanger Properties Limited Partnership:
Our audits of the financial statements referred to in our report dated January
17, 2003 appearing in the 2002 Form 10-K of Tanger Properties Limited
Partnership also included an audit of the financial statement schedule listed in
Item 15(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related financial statements.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
January 17, 2003
F - 19
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2002
(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
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Barstow Barstow, CA -- $3,672 $ 12,533 $ --- $ 1,226
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Blowing Rock Blowing Rock, NC $ 9,655 1,963 9,424 --- 2,250
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Boaz Boaz, AL --- 616 2,195 --- 2,251
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Branch North Branch, MN --- 243 5,644 249 4,072
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Branson Branson, MO 24,000 4,557 25,040 --- 8,345
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Casa Grande Casa Grande, AZ --- 741 9,091 --- 1,995
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Clover North Conway, NH --- 393 672 --- 250
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Commerce I Commerce, GA 8,288 755 3,511 492 9,467
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Commerce II Commerce, GA 29,500 1,262 14,046 541 18,072
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Dalton Dalton, GA 11,133 1,641 15,596 --- 552
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Gonzales Gonzales, LA --- 718 15,895 17 5,285
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Howell Howell, MI --- 2,250 35,250 --- 226
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Kittery-I Kittery, ME 6,335 1,242 2,961 229 1,346
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Kittery-II Kittery, ME --- 921 1,835 529 610
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Lancaster Lancaster, PA 14,516 3,691 19,907 --- 11,321
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
LL Bean North Conway, NH --- 1,894 3,351 --- 1,137
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Locust Grove Locust Grove, GA --- 2,558 11,801 --- 8,404
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Martinsburg Martinsburg, WV --- 800 2,812 --- 1,495
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Nags Head Nags Head, NC 6,552 1,853 6,679 --- 1,910
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 2,068
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Riverhead Riverhead, NY --- --- 36,374 6,152 73,585
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
San Marcos San Marcos, TX 37,946 1,801 9,440 18 35,755
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Sanibel Sanibel, FL --- 4,916 23,196 --- 3,052
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Sevierville Sevierville, TN --- --- 18,495 --- 26,213
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Seymour Seymour, IN --- 1,590 13,249 --- 721
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Terrell Terrell, TX --- 778 13,432 --- 6,484
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
West Branch West Branch, MI 7,067 350 3,428 121 5,257
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
Williamsburg Williamsburg, IA 19,429 706 6,781 716 12,630
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
$ 174,421 $42,210 $325,146 $9,064 $245,979
- ----------------- ------------------- -------------- --------- -------------- -------- --------------
F -20
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2002
(In thousands)
- ------------------------------------- -------------------------------------- ------------- ------------- --------------
Gross Amount Carried at Close of
Period
Description 12/31/02 (1)
- ------------------------------------- -------------------------------------- ------------- ------------- --------------
Life Used to
Compute
Buildings, Depreciation
Outlet Center Improvements Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Barstow Barstow, CA $3,672 $13,759 $17,431 $5,316 1995 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Blowing Rock Blowing Rock, NC 1,963 11,674 13,637 2,156 1997 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Boaz Boaz, AL 616 4,446 5,062 2,417 1988 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Branch North Branch, MN 492 9,716 10,208 4,760 1992 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Branson Branson, MO 4,557 33,385 37,943 12,820 1994 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Casa Grande Casa Grande, AZ 741 11,086 11,827 5,755 1992 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Clover North Conway, NH 393 922 1,315 588 1987 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Commerce I Commerce, GA 1,247 12,978 14,225 5,818 1989 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Commerce II Commerce, GA 1,803 32,118 33,921 9,627 1995 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Dalton Dalton, GA 1,641 16,148 17,789 2,592 1998 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Gonzales Gonzales, LA 735 21,180 21,915 10,132 1992 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Howell Howell, MI 2,250 35,476 37,726 388 2002 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Kittery-I Kittery, ME 1,471 4,307 5,778 2,758 1986 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Kittery-II Kittery, ME 1,450 2,445 3,895 1,233 1989 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Lancaster Lancaster, PA 3,691 31,228 34,919 10,398 1994 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
LL Bean North Conway, NH 1,894 4,488 6,382 2,472 1988 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Locust Grove Locust Grove, GA 2,558 20,205 22,763 7,447 1994 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Martinsburg Martinsburg, WV 800 4,307 5,107 2,439 1987 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Nags Head Nags Head, NC 1,853 8,589 10,442 1,974 1997 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Pigeon Forge Pigeon Forge, TN 299 4,576 4,875 2,527 1988 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Riverhead Riverhead, NY 6,152 109,959 116,111 29,259 1993 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
San Marcos San Marcos, TX 1,819 45,195 47,014 11,036 1993 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Sanibel Sanibel, FL 4,916 26,248 31,164 3,823 1998 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Sevierville Sevierville, TN --- 44,708 44,708 8,970 1997 (3) (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Seymour Seymour, IN 1,590 13,970 15,560 6,064 1994 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Terrell Terrell, TX 778 19,916 20,694 7,769 1994 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
West Branch West Branch, MI 471 8,685 9,156 3,944 1991 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
Williamsburg Williamsburg, IA 1,422 19,411 20,832 9,717 1991 (2)
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
$51,274 $571,125 $622,399 $174,199
- ----------------- ------------------- --------- --------------- ------------ ------------- ------------- --------------
(1) Aggregate cost for federal income tax purposes is approximately
$642,559,000
(2) The Operating Partnership generally uses estimated lives ranging from 25 to
33 years for buildings and 15 years for land improvements. Tenant finishing
allowances are depreciated over the initial lease term.
(3)Represents year acquired
F - 21
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2002
(In Thousands)
The changes in total real estate for the three years ended December 31, 2002 are
as follows:
2002 2001 2000
-------------- ---------------- -----------------
Balance, beginning of year $599,266 $584,928 $566,216
Acquisition of real estate 37,500 --- ---
Improvements 5,324 14,338 39,701
Dispositions and other (19,691) --- (20,989)
-------------- ---------------- -----------------
Balance, end of year $622,399 $599,266 $584,928
============== ================ =================
The changes in accumulated depreciation for the three years ended December 31,
2002 are as follows:
2002 2001 2000
-------------- ---------------- ----------------
Balance, beginning of year $ 148,950 $ 122,365 $104,511
Depreciation for the period 26,906 26,585 24,239
Dispositions and other (1,657) --- (6,385)
-------------- ---------------- ----------------
Balance, end of year $174,199 $148,950 $122,365
============== ================ ================
F - 22