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, 2003
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.[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934). Yes X No - -
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to Tanger Factory Outlet Centers, Inc. to be filed
with respect to the Annual Meeting of Shareholders to be held May 14, 2004.
1
PART I
Item 1. Business
The Operating Partnership
Tanger Properties Limited Partnership and subsidiaries, a North Carolina limited
partnership, focuses exclusively on developing, acquiring, owning, operating and
managing factory outlet shopping centers. Since entering the factory outlet
center business 23 years ago, we have become one of the largest owners and
operators of factory outlet centers in the United States. As of December 31,
2003, we owned interests in 36 centers, with a total gross leasable area, or
("GLA"), of approximately 8.9 million square feet, which were 96% occupied. In
addition as of December 31, 2003, we managed for a fee four centers, with a
total GLA of approximately 434,000 square feet, bringing the total number of
centers we operated to 40 with a total GLA of approximately 9.3 million square
feet containing over 2,000 stores and representing over 400 store brands.
We are controlled by Tanger Factory Outlet Centers, Inc. and subsidiaries, a
fully-integrated, self-administered and self-managed real estate investment
trust ("REIT"). The Company owns the majority of the units of partnership
interest issued by the Operating Partnership (the "Units") through its 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 as a limited partner. Stanley K. Tanger, our 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 subsidiaries 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, 2003, Tanger GP Trust owned 150,000 Units, the Tanger LP
Trust owned 12,810,643 and TFLP owned 3,033,305 Units. TFLP's Units are
exchangeable, subject to certain limitations to preserve the Company's status as
a REIT, on a one-for-one basis for the Company's common shares. As of February
2, 2004, Company's management beneficially owns approximately 20% of all
outstanding common shares (assuming TFLP's Units are exchanged for common shares
but without giving effect to the exercise of any outstanding share and
partnership Unit options).
Ownership of the Company's common 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. 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 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.
Our 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 our website.
2
Recent Developments
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC Holdings, LLC ("COROC"). We own one-third and
Blackstone owns two-thirds of the joint venture. We provide operating,
management, leasing and marketing services to the properties for a fee.
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized over the life of the debt. We financed the majority of our equity in
the joint venture with proceeds from the Company's issuance of 2.3 million
common shares at $40.50 per share which were contributed to the Operating
Partnership in exchange for 2.3 million limited partnership units and we expect
that the transaction will be accretive to our operating results in 2004. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2003, we had ownership interests in or management
responsibilities for 40 centers in 23 states totaling 9.3 million square feet of
operating GLA compared to 34 centers in 21 states totaling 6.2 million square
feet of operating GLA as of December 31, 2002. The increase is due to the
following events:
No.
of GLA
Centers (000's) States
- --------------------------------------------------------------------- ------------ ------------ -----------
As of December 31, 2002 34 6,186 21
- --------------------------------------------------------------------- ------------ ------------ -----------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 64 ---
Acquisitions/Expansions:
Sevierville, Tennessee (wholly-owned) --- 64 ---
Charter Oak portfolio (consolidated joint venture):
Rehoboth, Delaware 1 569 1
Foley, Alabama 1 536 ---
Myrtle Beach Hwy 501, South Carolina 1 427 ---
Hilton Head, South Carolina 1 393 ---
Park City, Utah 1 301 1
Westbrook, Connecticut 1 291 1
Lincoln City, Oregon 1 270 1
Tuscola, Illinois 1 258 1
Tilton, New Hampshire 1 228 ---
Dispositions:
Martinsburg, West Virginia (wholly-owned) (1) (49) (1)
Casa Grande, Arizona (wholly-owned) (1) (185) (1)
Bourne, Massachusetts (managed) (1) (23) (1)
- --------------------------------------------------------------------- ------------ ------------ -----------
As of December 31, 2003 40 9,330 23
- --------------------------------------------------------------------- ------------ ------------ -----------
During 2003, we continued to utilize multiple sources of capital. We completed
the following liquidity transactions during the year:
o In December 2003, the Company completed a public offering of 2,300,000
common shares at a price of $40.50 per share, and contributed the net
proceeds of approximately $88.0 million to the Operating Partnership in
exchange for 2.3 million limited partnership units. The net proceeds were
used together with other available funds to fund our portion of the equity
required to acquire the Charter Oak portfolio of outlet shopping centers as
mentioned above and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full
their over-allotment option to purchase an additional 345,000 of the
Company's common shares at the offering price of $40.50 per share. The
Company contributed the net proceeds of approximately $13.2 million from
the exercise of the over-allotment in exchange for 345,000 limited
partnership units.
3
o We extended the maturities of our existing four unsecured lines of credit
with Bank of America, Fleet National Bank, SouthTrust Bank and Wells Fargo
Bank until June 30, 2005 and increased our line of credit with Wells Fargo
Bank from $10 million to $25 million. This addition brings the total
capacity under our lines of credit to $100 million.
o During 2003, we purchased, at a 2% premium, $2.6 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. These purchases bring the total amount of these notes purchased in
the last three years to $27.5 million. We currently have authority from our
Board of Trustees to purchase an additional $22.4 million of our
outstanding 7.875% senior, unsecured public notes and may, from time to
time, do so at management's discretion.
o On June 20, 2003, the Company redeemed all of its outstanding Series A
Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares")
held by the Preferred Stock Depositary in the form of Depositary Shares,
each representing 1/10th of a Preferred Share. Since preferred units held
by the Company's majority owned subsidiary, Tanger LP Trust, are to be
redeemed by the Operating Partnership to the extent any Preferred Shares of
the Company are redeemed, proceeds required to redeem the Company's
preferred shares were funded by the Operating Partnership in exchange for
the preferred units held by the Company. Likewise, preferred units are
automatically converted into limited partnership units to the extent of any
conversion of the Company's preferred shares into common shares. The
redemption price was $250 per Preferred Share ($25 per Depositary Share),
plus accrued and unpaid dividends, if any, to, but not including, the
redemption date. In total, 787,008 of the Depositary Shares were converted
into 709,078 common shares and the Company redeemed the remaining 14,889
Depositary Shares for $25 per share, plus accrued and unpaid dividends.
Likewise, 787,008 preferred units were converted into 709,078 limited
partnership units and the Operating Partnership redeemed the remaining
14,889 preferred units. The Operating Partnership funded the redemption,
totaling approximately $372,000, from cash flows from operations.
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.
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 national manufacturers and consumers recognize the Tanger brand as one that
provides factory 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.
4
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 major department stores and
manufacturer-owned, full-price retail stores. 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. Our centers are typically situated in close proximity to interstate
highways that provide accessibility and visibility to potential customers.
As of February 1, 2004, we had a diverse tenant base comprised of over 400
different well-known, upscale, national designer or brand name concepts, such as
Liz Claiborne, GAP, Polo Ralph Lauren, Reebok, Tommy Hilfiger, Nautica, Coach
Leatherware and Brooks Brothers. 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 2003, 2002 and 2001. As of February
1, 2004, our largest tenant, including all of its store concepts, accounted for
approximately 6.1% 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 90% of our total revenues in 2003. Revenues from contingent
sources, such as percentage rents, vending income and miscellaneous income,
accounted for approximately 10% of 2003 revenues. As a result, only small
portions of our revenues are dependent on contingent revenue sources.
Business History
Stanley K. Tanger, the Company's founder, Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. Prior to founding the
Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's
President and Chief Operating Officer, built and managed a successful family
owned apparel manufacturing business, Tanger/Creighton Inc.
("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,
they 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.
In 1981, Stanley K. Tanger began developing successful factory outlet centers.
Steven B. Tanger joined the company in 1986 and by June 1993, the Tangers had
developed 17 centers with a total GLA of approximately 1.5 million square feet.
In June 1993, we completed our initial public offering, making Tanger Factory
Outlet Centers, Inc. the first publicly traded outlet center company. Since our
initial public offering, we have grown our portfolio through strategic
development and acquisitions.
Since entering the factory outlet business 23 years ago, we have become one of
the largest owner operators of factory outlet centers in the country. As of
December 31, 2003, we owned interests in 36 shopping centers, with a total GLA
of approximately 8.9 million square feet, which were 96% occupied. In addition
as of December 31, 2003, we managed for a fee four shopping centers, with a
total GLA of approximately 434,000 square feet, bringing the total number of
centers we operated to 40 with a total GLA of approximately 9.3 million square
feet containing over 2,000 stores and representing over 400 store brands.
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 premier brand name
manufacturers, such as Liz Claiborne, Reebok, Tommy Hilfiger, Polo Ralph Lauren,
GAP, Nautica, Coach Leatherware, Brooks Brothers, Zales and Nike.
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
45,000 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.
5
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 achieve a strong and flexible financial position by: (1) managing our
leverage position relative to our portfolio when pursuing new development and
expansion opportunities, (2) extending and sequencing debt maturities, (3)
managing our interest rate risk through a proper mix of fixed and variable rate
debt, (4) maintaining our liquidity by having available lines of credit and (5)
preserving internally generated sources of capital by strategically divesting
our underperforming assets, maintaining a conservative distribution payout ratio
and reinvesting a significant portion of our cash flow into our portfolio.
We have successfully increased our distributions each of our first ten years. At
the same time, we continue to have a low distribution payout ratio, defined as
annual distributions as a percent of Funds From Operations ("FFO"), which for
the year ended December 31, 2003, was 71%. As a result, we retained
approximately $14.5 million of our 2003 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. For a
discussion of FFO, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Funds From Operations".
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. Prior to the 2002 and 2003 common share
offerings of the Company, we had established a shelf registration to allow us to
issue up to $400 million in either all debt or all equity of the Company or any
combination thereof. 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. In December 2003, the Company completed a public
offering of 2,300,000 common shares at a price of $40.50 per share, receiving
net proceeds of approximately $88.0 million, which were contributed to the
Operating Partnership in exchange for 2,300,000 limited partnership units.. The
net proceeds were used together with other available funds to finance our
portion of the equity required to acquire the Charter Oak portfolio of outlet
shopping centers and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full their
over-allotment option to purchase an additional 345,000 of the Company's common
shares at the offering price of $40.50 per share. We received net proceeds of
approximately $13.2 million from the exercise of the over-allotment, which was
also contributed to the Operating Partnership in exchange for 345,000 limited
partnership units. To generate capital to reinvest into other attractive
investment opportunities, we may also consider the use of additional 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 provide for unsecured
borrowings up to $100 million at December 31, 2003, an increase of $15 million
in capacity from December 31, 2002. During 2003, we extended the maturity of all
lines of credit to June 30, 2005. 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 2004.
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.
6
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. During the last several years, the
factory outlet industry has been consolidating with smaller, less capitalized
operators struggling to compete with, or being acquired by, larger, national
factory outlet operators. Since 1997 the number of factory outlet centers in the
United States has decreased while the average size factory outlet center has
increased. During this period of consolidation, the high barriers to entry in
the factory outlet industry, including the need for extensive relationships with
premier brand name manufacturers, has minimized the number of new factory outlet
centers. Since January 2000 only 11 new factory outlet centers have opened. This
consolidation trend and the high barriers to entry, along with our national
presence, access to capital and extensive tenant relationships, have allowed us
to grow our business and improve our market position.
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
whom are based in and around that area.
We maintain offices and employ on-site managers at 32 centers. The managers
closely monitor the operation, marketing and local relationships at each of
their centers.
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 February 1, 2004, we had 207 full-time employees, located at our corporate
headquarters in North Carolina, our regional office in New York and our 32
business offices. At that date, we also employed 226 part-time employees at
various locations.
Item 2. Properties
As of February 1, 2004, our portfolio consisted of 40 centers totaling 9.3
million square feet of GLA located in 23 states. We owned interests in 36
centers with a total GLA of approximately 8.9 million square feet and managed
for a fee four centers with a total GLA of approximately 434,000 square feet.
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. Our Riverhead,
New York center is the only property that represented more than 10% of our 2003
annual consolidated gross revenues. No center represented more than 10% of our
consolidated total assets as of December 31, 2003. See "Business and Properties
- - Significant Property.
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.
7
Certain of our centers serve as collateral for mortgage notes payable. Of the 36
centers that we have ownership interests in, we own the land underlying 31 and
have ground leases on five. 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. Terms on the Riverhead Center ground lease
are renewed automatically unless we give notice otherwise. 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 land parcel on which part of the Rehoboth Beach center is
located, is also subject to a ground lease with an initial term expiring in
2044, with renewal at our option for additional terms of twenty 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.
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 February 1, 2004.
Location of Centers (as of February 1, 2004)
Number of GLA %
State Centers (sq. ft.) of GLA
- -------------------------------- ------------- -------------- ---------------
South Carolina (1)(2) 3 1,144,899 13
Georgia 4 949,190 11
New York 1 729,238 8
Texas 2 619,976 7
Alabama (2) 2 615,250 7
Delaware (2) 1 568,787 6
Tennessee 2 513,581 6
Michigan 2 437,651 5
Utah (2) 1 300,602 3
Connecticut (2) 1 291,051 3
New Hampshire (2) 3 289,711 3
Missouri 1 277,883 3
Iowa 1 277,230 3
Oregon (2) 1 270,280 3
Illinois (2) 1 258,114 3
Pennsylvania 1 255,152 3
Louisiana 1 245,199 3
Florida 1 198,789 2
North Carolina 2 187,702 2
Indiana 1 141,051 2
Minnesota 1 134,480 2
California 1 105,950 1
Maine 2 84,313 1
- -------------------------------- ------------- -------------- ---------------
Total 36 8,896,079 100
================================ ============= ============== ===============
(1) Includes one center in Myrtle Beach, SC of which we own a 50% interest
through a joint venture arrangement.
(2) Includes centers from the Charter Oak portfolio acquired on December 19,
2003 of which we own a one-third interest through a joint venture
arrangement.
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 February 1, 2004. Except as noted, all properties are fee
owned.
Mortgage
Debt
Outstanding
GLA % (000's) as of
Location (sq. ft.) Occupied December 31, 2003
- -------------------------------------------- ----------- ----- ----------- ---------------------
Riverhead, NY (1) 729,238 99 $ ---
Rehoboth, DE (1) (3) 568,787 99 42,427
Foley, AL (3) 535,675 98 34,695
San Marcos, TX 442,486 99 37,299
Myrtle Beach 501, SC (3) 427,472 96 24,634
Sevierville, TN (1) 419,023 100 ---
Hilton Head, SC (3) 393,094 89 19,900
Commerce II, GA 342,556 94 29,500
Howell, MI 325,231 100 ---
Myrtle Beach 17, SC (1) (2) 324,333 100 ---
Park City, UT (3) 300,602 96 13,556
Westbrook, CT (3) 291,051 91 16,108
Branson, MO 277,883 100 24,000
Williamsburg, IA 277,230 96 19,064
Lincoln City, OR (3) 270,280 92 11,202
Tuscola, IL (3) 258,114 78 21,739
Lancaster, PA 255,152 98 14,179
Locust Grove, GA 247,454 99 ---
Gonzales, LA 245,199 95 ---
Tilton, NH (3) 227,966 96 13,997
Fort Meyers, FL 198,789 93 ---
Commerce I, GA 185,750 69 7,812
Terrell, TX 177,490 96 ---
Dalton, GA 173,430 76 10,923
Seymour, IN 141,051 77 ---
North Branch, MN 134,480 100 ---
West Branch, MI 112,420 98 6,934
Barstow, CA 105,950 87 ---
Blowing Rock, NC 105,448 99 9,517
Pigeon Forge, TN (1) 94,558 88 ---
Nags Head, NC 82,254 100 6,458
Boaz, AL 79,575 97 ---
Kittery I, ME 59,694 100 6,216
LL Bean, North Conway, NH 50,745 100 ---
Kittery II, ME 24,619 100 ---
Clover, North Conway, NH 11,000 100 ---
- ------------------------------------------- ------------ ----- -------- ---------------------
8,896,079 95 $ 370,160
=========================================== ============ ===== ======== =====================
(1) These properties or a portion thereof are subject to a ground lease.
(2) Represents property that is currently held through an unconsolidated joint
venture in which we own a 50% interest. The joint venture had $29.5 million
of construction loan debt as of December 31, 2003.
(3) Represents properties that are currently held through a consolidated joint
venture in which we own a one-third interest.
9
Lease Expirations
The following table sets forth, as of February 1, 2004, scheduled lease
expirations, assuming none of the tenants exercise renewal options for our
existing centers, excluding centers we manage but in which we have no ownership
interests. 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
- ------------------------ ----------------- ----------------- ------------- --------------- --------------
2004 337 1,341,000 (3) $ 12.97 $17,403 14
2005 368 1,800,000 13.38 24,086 20
2006 339 1,302,000 17.14 22,304 19
2007 296 1,322,000 15.94 21,085 18
2008 264 1,149,000 17.01 19,542 16
2009 110 480,000 15.37 7,373 6
2010 28 138,000 13.53 1,864 2
2011 14 119,000 12.67 1,507 1
2012 25 206,000 11.65 2,405 2
2013 17 86,000 19.30 1,667 1
2014 & thereafter 18 80,000 12.30 977 1
- ------------------------ ----------- ----------------------- ---------- -------------- ------------------
Total 1,816 8,023,000 $ 14.98 $ 120,213 100
======================== =========== ======================= ========== ============== ==================
(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 873,000
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 February 1, 2004, approximately 449,000 square feet of the 1,790,000
square feet scheduled to expire in 2004 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 for our existing centers, excluding centers
we manage but in which we have no ownership interests.
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
- ---------------- --------------- ---------------- ------------- ----------- ------------ ------------
2003 1,070,000 12 854,000 80 49,000 5
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
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 for our existing centers, excluding centers we manage
but in which we have no ownership interests.
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
- --------- ---------- ----------- --------- ---------- ---------- ----------- --------- ----------
2003 854,000 $13.29 $13.32 -- 272,000 $16.47 $17.13 4
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
- ---------------------
(1) The square footage released to new tenants for2003, 2002, 2001, 2000 and
1999 contains 49,000, 56,000, 55,000, 68,000 and 23,000 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 for our existing centers, excluding centers we manage but
in which we have no ownership interests.
Occupancy Costs as a
Year % of Tenant Sales
------------------------------ --------------------------
2003 7.4
2002 7.2
2001 7.1
2000 7.4
1999 7.8
11
Tenants
The following table sets forth certain information with respect to our ten
largest tenants and their store concepts as of February 1, 2004 for our existing
centers, excluding centers we manage but in which we have no ownership
interests.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA
- --------------------------------------------- ------------- ------------- ---------------------
The Gap, Inc.:
GAP 25 227,554 2.6
Old Navy 16 231,801 2.6
Banana Republic 10 80,853 0.9
Baby Gap 1 3,885 ---
Gap Kids 1 3,142 ---
-------- ---------------- -----------------------
53 547,235 6.1
Phillips-Van Heusen Corporation:
Bass Shoe 31 206,273 2.3
Van Heusen 30 128,847 1.4
Geoffrey Beene Co. Store 19 72,984 0.8
Izod 16 40,480 0.5
-------- ---------------- -----------------------
96 448,584 5.0
Liz Claiborne:
Liz Claiborne 34 320,778 3.6
Elizabeth 7 24,284 0.3
DKNY Jeans 3 8,820 0.1
Special Brands By Liz Claiborne 3 7,850 0.1
Dana Buchman 3 6,975 0.1
Claiborne Mens 2 4,897 0.1
-------- ---------------- -----------------------
52 373,604 4.3
VF Factory Outlet:
VF Factory Outlet, Inc 7 184,122 2.1
Nautica Factory Store 25 106,441 1.2
Nautica Jeans Co. Outlet 1 4,500 0.1
-------- ---------------- -----------------------
33 295,063 3.4
Reebok International, Ltd.:
Reebok 28 239,102 2.7
Rockport 4 11,900 0.1
Greg Norman 1 3,000 ---
-------- ---------------- -----------------------
33 254,002 2.8
Dress Barn Inc. 32 226,729 2.5
Polo Ralph Lauren:
Polo Ralph Lauren 19 160,604 1.8
Polo Jeans 4 15,000 0.2
-------- ---------------- -----------------------
23 175,604 2.0
Brown Group Retail, Inc:
Factory Brand Shoe 24 140,124 1.6
Naturalizer 11 28,784 0.3
-------- ---------------- -----------------------
35 168,908 1.9
Sara Lee Corporation:
L'eggs, Hanes, Bali 34 152,238 1.7
Socks Galore 7 9,290 0.1
-------- ---------------- -----------------------
41 161,528 1.8
Nike 11 160,078 1.8
-------- ---------------- -----------------------
- --------------------------------------------- -------- ---------------- -----------------------
Total of all tenants listed in table 409 2,811,335 31.6
============================================= ======== ================ =======================
12
Significant Property
The center in Riverhead, New York is our only center that comprises more than
10% of our consolidated total gross revenues for the year ended December 31,
2003. No center represents more than 10% of our consolidated total assets as of
December 31, 2003. The Riverhead center represented 21% of our consolidated
gross revenue for the year ended December 31, 2003. 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 2003, 2002 and 2001 was 100%, 100% and 99%.
Average annualized base rental rates during 2003, 2002 and 2001 were $20.90,
$19.71 and $18.68 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,
2003, the net federal tax basis of this center was approximately $76.6 million.
Real estate taxes assessed on this center during 2003 amounted to $3.6 million.
Real estate taxes for 2004 are estimated to be approximately $3.9 million.
The following table sets forth, as of February 1, 2004, 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
- --------------------------- ----------------- ----------------- ------------------ ---------------- ----------------
2004 17 74,000 $ 19.58 $ 1,450 10
2005 16 80,000 22.09 1,765 13
2006 12 44,000 23.49 1,043 7
2007 52 192,000 23.23 4,450 31
2008 30 118,000 22.93 2,702 19
2009 16 96,000 15.03 1,441 10
2010 --- --- --- --- ---
2011 2 31,000 12.69 394 3
2012 2 20,000 6.00 117 1
2013 3 35,000 19.02 673 5
2014 and thereafter 2 9,000 15.35 146 1
- ---------------------------- --------- --------------------- ------------------ --------------- --------------------
Total 152 699,000 $ 20.29 $ 14,181 100
============================ ========= ===================== ================== =============== ====================
(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, 2003.
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......... 80 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger.......... 55 Director, President and Chief Operating Officer
Rochelle G. Simpson ...... 64 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr..... 66 Executive Vice President - Leasing,
Site Selection, Operations and Marketing
Frank C. Marchisello, Jr.. 45 Executive Vice President -
Chief Financial Officer
Joseph H. Nehmen.......... 55 Senior Vice President - Operations
Carrie A. Warren.......... 41 Senior Vice President - Marketing
Virginia R. Summerell..... 45 Treasurer and Assistant Secretary
Kevin M. Dillon........... 45 Vice President - Construction and Development
Lisa J. Morrison.......... 44 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 Executive Vice
President and Chief Financial Officer in April 2003. Previously he held the
position of Senior Vice President and Chief Financial Officer since 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,
2003, the Company's wholly-owned subsidiaries owned 12,960,643 Units and TFLP
owned 3,033,305 Units as a limited partner.
We made distributions per partnership unit during 2003 and 2002 as follows:
2003 2002
----------------------------------- -------------- --------------------
First Quarter $ .6125 $ .6100
Second Quarter .6150 .6125
Third Quarter .6150 .6125
Fourth Quarter .6150 .6125
----------------------------------- ---------------- ------------------
$ 2.4575 $ 2.4475
----------------------------------- ---------------- ------------------
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
2003 2002 2001 2000 1999
- ------------------------------------------ ------------- ------------- -------------- ------------- ----------------
(In thousands, except per unit and center data)
OPERATING DATA
Total revenues $ 121,972 $ 110,809 $ 105,497 $ 102,999 $ 99,954
Operating income 43,052 38,762 37,090 37,001 39,492
Income from continuing operations 16,444 10,694 6,618 9,436 14,908
Net income 16,399 14,280 9,154 5,268 20,866
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
UNIT DATA
Basic:
Income from continuing operations $ 1.20 $ .79 $ .44 $ .70 $ 1.19
Net income $ 1.19 $ 1.11 $ .67 $ .32 $ 1.74
Weighted average units 13,085 11,356 10,959 10,928 10,894
Diluted:
Income from continuing operations $ 1.18 $ .77 $ .44 $ .69 $ 1.19
Net income $ 1.17 $ 1.08 $ .67 $ .31 $ 1.74
Weighted average units 13,300 11,539 10,979 10,953 10,904
Distributions paid $ 2.46 $ 2.45 $ 2.44 $ 2.43 $ 2.42
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 1,078,533 $ 622,399 $ 599,266 $ 584,928 $ 566,216
Total assets 986,815 477,380 476,079 487,273 489,851
Debt 540,319 345,005 358,195 346,843 329,647
Total partners' equity 206,600 114,265 97,877 117,974 141,054
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 44,818 $ 39,175 $ 44,616 $ 38,420 $ 43,169
Investing activities $ (325,293) $ (26,363) $ (23,269) $ (25,815) $ (45,959)
Financing activities $ 289,271 $ (12,247) $ (21,476) $ (12,474) $ (3,043)
Funds from operations (1) $ 47,039 $ 41,695 $ 37,430 $ 38,203 $ 41,328
Gross Leasable Area Open:
Wholly-owned 5,299 5,469 5,332 5,179 5,149
Partially-owned (consolidated) 3,273 --- --- --- ---
Partially-owned (unconsolidated) 324 260 --- --- ---
Managed 434 457 105 105 105
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total GLA open at end of period 9,330 6,186 5,437 5,284 5,254
Number of centers:
Wholly-owned 26 28 29 29 31
Partially-owned (consolidated) 9 --- --- --- ---
Partially-owned (unconsolidated) 1 1 --- --- ---
Managed 4 5 3 3 3
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total outlet centers in operation 40 34 32 32 34
- -----------------------
(1) Funds from Operations ("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. For a complete discussion of FFO, see Item
7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Funds from Operations".
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 consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the consolidated statements of operations,
including trends which might appear, are not necessarily indicative of future
operations. Unless the context indicates otherwise, the term "Operating
Partnership" refers to Tanger Properties Limited Partnership and subsidiaries
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 consolidated
statements of operations compares the years ended December 31, 2003 and 2002, as
well as December 31, 2002 and 2001. 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;
o our ability to sustain, manage or forecast our growth and operating
results;
o existing government regulations and changes in, or the failure to comply
with, government regulations;
o adverse publicity;
o 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;
18
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 changes in business strategy or development plans;
o business disruptions;
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
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC Holdings, LLC ("COROC"). We own one-third and
Blackstone owns two-thirds of the joint venture. We provide operating,
management, leasing and marketing services to the properties for a fee.
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized over the life of the debt. We financed the majority of our equity in
the joint venture with proceeds from the Company's issuance of 2.3 million
common shares at $40.50 per share which were contributed to the Operating
Partnership in exchange for 2.3 million limited partnership units and we expect
that the transaction will be accretive to our operating results in 2004. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2003, we had ownership interests in or management
responsibilities for 40 centers in 23 states totaling 9.3 million square feet of
operating GLA compared to 34 centers in 21 states totaling 6.2 million square
feet of operating GLA as of December 31, 2002. The increase is due to the
following events:
No.
of GLA
Centers (000's) States
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
As of December 31, 2002 34 6,186 21
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 64 ---
Acquisitions/Expansions:
Sevierville, Tennessee (wholly-owned) --- 64 ---
Charter Oak portfolio (consolidated joint venture):
Rehoboth, Delaware 1 569 1
Foley, Alabama 1 536 ---
Myrtle Beach Hwy 501, South Carolina 1 427 ---
Hilton Head, South Carolina 1 393 ---
Park City, Utah 1 301 1
Westbrook, Connecticut 1 291 1
Lincoln City, Oregon 1 270 1
Tuscola, Illinois 1 258 1
Tilton, New Hampshire 1 228 ---
Dispositions:
Martinsburg, West Virginia (wholly-owned) (1) (49) (1)
Casa Grande, Arizona (wholly-owned) (1) (185) (1)
Bourne, Massachusetts (managed) (1) (23) (1)
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
As of December 31, 2003 40 9,330 23
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
19
Results of Operations
A summary of the operating results for the years ended December 31, 2003, 2002
and 2001 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
The results of operations for 2003, 2002 and 2001 related to properties sold
since December 31, 2001 are excluded from the table below in accordance with
SFAS 144 "Accounting for the Impairment or Disposal of Long Lived Assets," ("FAS
144"). FAS 144 requires that 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 be reflected in the Consolidated Statements of
Operations as discontinued operations for all periods presented.
2003 2002 2001
- --------------------------------------------------------- -------------- -------------- ---------------
GLA open at end of period (000's)
Wholly owned 5,299 5,469 5,332
Partially owned consolidated (1) 3,273 --- ---
Partially owned unconsolidated (2) 324 260 ---
Managed 434 457 105
- --------------------------------------------------------- -------------- -------------- ---------------
Total GLA at end of period (000's) 9,330 6,186 5,437
Weighted average GLA (000's) (1) (3) 5,393 5,011 4,877
Occupancy percentage at end of period (4) 96% 98% 96%
Per square foot data
Revenues
Base rentals $ 15.02 $ 14.79 $ 14.62
Percentage rentals .59 .71 .56
Expense reimbursements 6.34 5.96 5.89
Other income .66 .65 .56
- --------------------------------------------------------- -------------- -------------- ---------------
Total revenues 22.61 22.11 21.63
- --------------------------------------------------------- -------------- -------------- ---------------
Expenses
Property operating 7.46 6.96 6.73
General and administrative 1.78 1.84 1.68
Depreciation and amortization 5.40 5.58 5.61
- --------------------------------------------------------- -------------- -------------- ---------------
Total expenses 14.64 14.38 14.02
- --------------------------------------------------------- -------------- -------------- ---------------
Operating income 7.97 7.73 7.61
Interest expense 4.91 5.68 6.25
- --------------------------------------------------------- -------------- -------------- ---------------
Income before equity in earnings of unconsolidated
joint ventures and discontinued operations $ 3.06 $ 2.05 $ 1.36
- --------------------------------------------------------- -------------- -------------- ---------------
(1) Includes nine centers totaling 3,273,041 square feet of which we own a
one-third interest through a joint venture arrangement but consolidate for
financial reporting purposes under FIN 46.
(2) Includes one center totaling 324,333 square feet of which we own a 50%
interest through a joint venture arrangement.
(3) Represents GLA of wholly-owned and partially owned consolidated 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.
(4) Represents occupancy only at centers in which we have an ownership
interest.
20
2003 Compared to 2002
Base rentals increased $6.9 million, or 9%, in the 2003 period when compared to
the same period in 2002. The increase is primarily due to the full year effect
of the acquisition of our Howell, Michigan center in September 2002 along with
our acquisition of additional GLA in January 2003 at our Sevierville, Tennessee
center and subsequent expansion at that center in the summer of 2003. Also, in
December 2003, through a joint venture of which we own a one-third interest, we
completed the acquisition of nine properties in the Charter Oak portfolio which
are consolidated for financial reporting purposes. Base rent per weighted
average GLA increased by $.23 per square foot from $14.79 per square foot in the
2002 period to $15.02 per square foot in the 2003 period. The increase was
attributable to the average initial base rent for new stores opened during 2003,
$18.83, being 11.7% higher than the average base rent of $16.86 for stores
closed during 2003. The overall portfolio occupancy at December 31, 2003
decreased 2% from 98% to 96% due to the acquired properties having a lower
occupancy rate, 94%, than our portfolio, 97%, just prior to the acquisition. One
center experienced a negative occupancy trend of at least 10% from December 31,
2002 to December 31, 2003.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), decreased $362,000
or 10%, and on a weighted average GLA basis, decreased $.12 per square foot in
2003 compared to 2002 from $.71 per square foot to $.59 per square foot.
Reported same-space sales per square foot for the twelve months ended December
31, 2003 were $301 per square foot, a 2.3% increase over the prior year ended
December 31, 2002. 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.
However, many tenants' breakpoints are adjusted along with their base rent upon
renewal, resulting in a reduction in percentage rentals, but an increase in base
rentals.
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 2003 from 86% in 2002 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 $300,000, or 9%, in 2003 compared to 2002 primarily due
to increases in vending and other miscellaneous income and an increase in fees
from managed properties.
Property operating expenses increased by $5.4 million, or 15%, in the 2003
period as compared to the 2002 period and, on a weighted average GLA basis,
increased $.50 per square foot from $6.96 to $7.46. The increase is the result
of the additional operating costs of the Howell, Michigan center that we
acquired in late September 2002 and the acquisition and expansion in our
Sevierville, Tennessee center during 2003 as well as portfolio wide increases in
advertising, common area maintenance and property taxes.
General and administrative expenses increased $337,000, or 4%, in the 2003
period as compared to the 2002 period. The increase is primarily due to normal
increases in salaries and payroll taxes offset by a decrease in bad debt expense
as compared to the prior year. Also, as a percentage of total revenues, general
and administrative expenses were 8% in both the 2003 and 2002 periods and, on a
weighted average GLA basis, decreased $.06 per square foot from $1.84 per square
foot in the 2002 period to $1.78 per square foot in the 2003 period.
Interest expense decreased $2.0 million during 2003 as compared to 2002 due
primarily to lower average interest rates during 2003 and a decrease in the
overall debt level due to the use of the proceeds from the exercise of 890,540
share and unit options during the year to reduce outstanding debt. Also, during
2003, we purchased, at a 2% premium, $2.6 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. These purchases
bring the total amount of these notes purchased in the last three years to $27.5
million. 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.
21
Depreciation and amortization per weighted average GLA decreased from $5.58 per
square foot in the 2002 period to $5.40 per square foot in the 2003 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).
Equity in earnings from unconsolidated joint ventures increased $427,000 in the
2003 period compared to the 2002 period due to the TWMB Associates, LLC ("TWMB")
outlet center in Myrtle Beach, South Carolina being open for a full year in 2003
compared to six months in 2002, as the center opened in June 2002 and an
expansion of 64,000 square feet that occurred in 2003.
The decrease 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. In 2003, only the Martinsburg, West Virginia and Casa Grande,
Arizona centers were sold and included in discontinued operations.
2002 Compared to 2001
Base rentals increased $2.8 million, or 4%, 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 $.17 per square
foot from $14.62 per square foot in the 2001 period compared to $14.79 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.
Percentage rentals increased $834,000 or 31%, and on a weighted average GLA
basis, increased $.15 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.
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 86% in 2002 from 88% 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 $526,000, 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 $2.0 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 $6.73 to $6.96. 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 $.16 per square foot from $1.68 per square
foot in the 2001 period to $1.84 per square foot in the 2002 period.
22
Interest expense decreased $2.0 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
$5.61 per square foot in the 2001 period to $5.58 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).
Equity in earnings 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.
Liquidity and Capital Resources
Net cash provided by operating activities was $44.8, $39.2 and $44.6 million for
the years ended December 31, 2003, 2002 and 2001, respectively. The increase in
cash provided from operating activities from 2002 to 2003 is primarily due to
the increase in income after adjustments for non-cash items and changes in
accounts payable and accrued expenses and other assets as well as a decrease of
$2.0 million in interest expense. The increase in other assets is due primarily
to the cash paid for the ground lease at the Rehoboth Beach, Delaware center
acquired in December 2003. The decrease from 2001 to 2002 is due to changes in
accounts payable and accrued expenses and other assets. Net cash used in
investing activities amounted to $325.3, $26.4 and $23.3 million during 2003,
2002 and 2001, respectively, and reflects the acquisitions, expansions and
dispositions of real estate during each year. Cash provided by (used in)
financing activities of $289.3, ($12.2) and ($21.5) million in 2003, 2002 and
2001, respectively, has fluctuated consistently with the capital needed to fund
the current development and acquisition activity and reflects increases in
distributions paid during 2003, 2002 and 2001. Also, the increase in cash
provided by financing activities in 2003 compared to 2002 is due primarily to
the contribution by Blackstone related to COROC and the increase in net proceeds
from the issuance by the Company of common shares in 2003 compared to 2002,
which were contributed to the Operating Partnership in exchange for limited
partnership units. In 2003, 2,300,000 common shares were issue by the Company
versus 1,000,000 common shares in 2002. Also, approximately 763,000 more share
and unit options were exercised in 2003 versus 2002.
Acquisitions and Dispositions
In January 2003, we acquired a 29,000 square foot, 100% leased expansion located
contiguous to our existing factory outlet center in Sevierville, Tennessee at a
purchase price of $4.7 million. Construction of an additional 35,000 square foot
expansion of the center was completed during the third quarter and opened 100%
occupied. The cost of the expansion was approximately $4 million. The
Sevierville center now totals approximately 419,000 square feet.
In May 2003, we completed the sale of our 49,000 square foot property located in
Martinsburg, West Virginia. Net proceeds received from the sale of this property
were approximately $2.1 million. As a result of the sale, we recognized a loss
on sale of real estate of approximately $735,000, which is included in
discontinued operations.
In October 2003, we completed the sale of our 185,000 square foot property
located in Casa Grande, Arizona. Net proceeds received from the sale of this
property were approximately $6.6 million. As a result of the sale, we recognized
a gain on sale of real estate of approximately $588,000.
We have an option to purchase land and have begun the early development and
leasing of a site located near Pittsburgh, Pennsylvania. We currently expect the
center to be approximately 420,000 square feet upon total build out with the
initial phase scheduled to open in the fourth quarter of 2005.
23
Joint Ventures
COROC HOLDINGS, LLC
On December 19, 2003, COROC, a joint venture in which we have a one-third
ownership interest and consolidate for financial reporting purposes under the
provisions of Financial Accountings Standards Board Interpretation No. 46 ("FIN
46"), purchased the 3.3 million square foot Charter Oak portfolio of outlet
center properties for $491.0 million, including the assumption of $186.4 million
of cross-collateralized debt which has a stated, fixed interest rate of 6.59%
and matures in July 2008. We recorded the debt at its fair value of $198.3
million, with an effective interest rate of 4.97%. Accordingly, a debt premium
of $11.9 million was recorded and is being amortized over the life of the debt.
We financed the majority of our share of the equity required for the transaction
through proceeds from the Company's issuance of 2.3 million common shares on
December 10, 2003, generating approximately $88.0 million in net proceeds. These
proceeds were contributed to us by the Company in exchange for 2.3 million
limited partnership units. The results of the Charter Oak portfolio have been
included in the consolidated financial statements since December 19, 2003. The
acquisition of the Charter Oak portfolio solidifies our position in the outlet
industry. In addition, the centers acquired provide an excellent geographic fit,
a diversified tenant portfolio and are in line with our strategy of creating an
increased presence in high-end resort locations.
We will have joint control with Blackstone over major decisions. If Blackstone
does not receive an annual minimum cash return of 6% on their invested capital
during any of the first three years and 7% in any year thereafter, Blackstone
shall gain the right to become the sole managing member of the joint venture
with complete authority to act for the joint venture, including the ability to
dispose of one or more of the joint venture properties to a third party. Based
on current available cash flows from the properties, we do not believe there is
a significant risk of default under this provision.
We will provide operating, management, leasing and marketing services to the
properties and will earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We may also earn an additional annual
incentive fee of up to approximately $800,000 if certain annual increases in the
net operating income are met on an annual basis. These fees are payable prior
to, and are not subordinate to, any member distributions that may be required.
Blackstone shall have the right to terminate the management agreement for the
joint venture if it does not receive its minimum cash return as described above.
After an initial 42-month lock-up period, either party can enter into an
agreement for the sale of the Charter Oak portfolio, subject to a right of first
offer of the other party to acquire the entire portfolio.
During the operation of the joint venture, Blackstone will receive a preferred
cash distribution of 10% on their invested capital. We will then receive a
preferred cash distribution of 10% on our invested capital. Any remaining cash
flows from ongoing operations will be distributed one-third to Blackstone and
two-thirds to us.
Upon exit or the sale of the properties, to the extent that cash is available,
Blackstone will first receive a distribution equal to their invested capital and
any unpaid preferred cash distribution, if any. We will then receive an unpaid
preferred cash distribution, if any. Blackstone will then receive an additional
2% annual preferred cash distribution. We will then receive a distribution equal
to our invested capital and an additional 2% annual preferred cash distribution.
Finally, any remaining proceeds will be distributed one-third to Blackstone and
two-thirds to us.
TWMB ASSOCIATES, LLC
In September 2001, we established the TWMB Associates, LLC ("TWMB"), a joint
venture in which we have a 50% ownership interest with Rosen-Warren Myrtle Beach
LLC ("Rosen-Warren") as our venture partner, to construct and operate a Tanger
Outlet center in Myrtle Beach, South Carolina. The Company and Rosen-Warren each
contributed $4.3 million in cash for a total initial equity in TWMB of $8.6
million. In June 2002 the first phase opened 100% leased at a cost of
approximately $35.4 million with approximately 260,000 square feet and 60 brand
name outlet tenants.
During 2003, we completed our 64,000 square foot second phase. The second phase
cost approximately $6.0 million. The Company and Rosen-Warren each contributed
approximately $1.1 million each toward the second phase which contains 22
additional brand name outlet tenants.
24
In addition, TWMB is currently underway with a 79,000 square foot third phase
expansion of the Myrtle Beach center with an estimated cost of $9.7 million.
TWMB expects to complete the expansion with stores commencing operations during
the summer of 2004. The Company and Rosen-Warren each made capital contributions
during the fourth quarter of 2003 of $1.7 million for the third phase. Upon
completion of this third phase in 2004, TWMB's Myrtle Beach center will total
403,000 square feet. At December 31, 2003, commitments for construction of the
third phase expansion amounted to $9.6 million. Commitments for construction
represent only those costs contractually required to be paid by TWMB.
In conjunction with the construction of the center, TWMB closed on a
construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and SouthTrust Bank due in September 2005. As of December 31, 2003 the
construction loan had a balance of $29.5 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 the Company.
Either partner in TWMB has the right to initiate the sale or purchase of the
other party's interest at certain times. If such action is initiated, one member
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 members' 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 could 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.
DEER PARK ENTERPRISE, LLC
During the third quarter of 2003, we established a wholly owned subsidiary,
Tanger Deer Park, LLC ("Tanger Deer Park"). In September 2003, Tanger Deer Park
entered into a joint venture agreement with two other members to create Deer
Park Enterprise, LLC ("Deer Park"). All members in the joint venture have an
equal ownership interest of 33.33%. Deer Park was formed for the purpose of, but
not limited to, developing a site located in Deer Park, New York with
approximately 790,000 square feet planned at total buildout. We expect the site
will contain both outlet and big box retail tenants.
Each of the three members made an equity contribution of $1.6 million. In
conjunction with the real estate purchase, Deer Park closed on a loan in the
amount of $19 million with Fleet Bank due in October 2005 and a purchase money
mortgage note with the seller in the amount of $7 million. Deer Park's Fleet
loan incurs interest at a floating interest rate equal to LIBOR plus 2.00% and
is collateralized by the property as well as joint and several guarantees by all
three parties. The purchase money mortgage note bears no interest. However,
interest has been imputed for financial statement purposes at a rate which
approximates fair value.
In October 2003, Deer Park entered into a sale-leaseback transaction for the
above mentioned real estate located in Deer Park, New York. The agreement
consists of the sale of the property to Deer Park for $29 million which is being
leased back to the seller under a 24 month operating lease agreement. Under the
provisions of FASB Statement No. 67 "Accounting for Costs and Initial Rental
Operations of Real Estate Projects", current rents received from this project,
net of applicable expenses, are treated as incidental revenues and will be
recognized as a reduction in the basis of the assets, as opposed to rental
revenues over the life of the lease, until such time that the current project is
demolished and the intended assets are constructed.
25
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.
Preferred Share Redemption
On June 20, 2003, the Company redeemed all of its outstanding Series A
Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares") held
by the Preferred Stock Depositary in the form of Depositary Shares, each
representing 1/10th of a Preferred Share. Since preferred units held by the
Company's majority owned subsidiary, Tanger LP Trust, are to be redeemed by the
Operating Partnership to the extent any Preferred Shares of the Company are
redeemed, proceeds required to redeem the Company's preferred shares were funded
by the Operating Partnership in exchange for the preferred units held by the
Company. Likewise, preferred units are automatically converted into limited
partnership units to the extent of any conversion of the Company's preferred
shares into common shares. The redemption price was $250 per Preferred Share
($25 per Depositary Share), plus accrued and unpaid dividends, if any, to, but
not including, the redemption date. In total, 787,008 of the Depositary Shares
were converted into 709,078 common shares and the Company redeemed the remaining
14,889 Depositary Shares for $25 per share, plus accrued and unpaid dividends.
Likewise, 787,008 preferred units were converted into 709,078 limited
partnership units and the Operating Partnership redeemed the remaining 14,889
preferred units. The Operating Partnership funded the redemption, totaling
approximately $372,000, from cash flows from operations.
Financing Arrangements
During 2003, we purchased, at a 2% premium, $2.6 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. These
purchases bring the total amount of these notes purchased in the last three
years to $27.5 million. We currently have authority from our Board of Trustees
to purchase an additional $22.4 million of our outstanding 7.875% senior,
unsecured public notes and may, from time to time, do so at management's
discretion.
At December 31, 2003, approximately 31% of our outstanding long-term debt
represented unsecured borrowings and approximately 33% 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, 2003 and 2002 was 7.6% and 8.1%, 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. Prior to the 2002 and 2003 common share
offerings of the Company, we had established a shelf registration to allow us to
issue up to $400 million in either all debt or all equity of the Company or any
combination thereof. 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. In December 2003, the Company completed a public
offering of 2,300,000 common shares at a price of $40.50 per share, receiving
net proceeds of approximately $88.0 million, which were contributed to the
Operating Partnership in exchange for 2,300,000 limited partnership units.. The
net proceeds were used together with other available funds to finance our
portion of the equity required to acquire the Charter Oak portfolio of outlet
shopping centers and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full their
over-allotment option to purchase an additional 345,000 of the Company's common
shares at the offering price of $40.50 per share. We received net proceeds of
approximately $13.2 million from the exercise of the over-allotment, which was
also contributed to the Operating Partnership in exchange for limited
partnership units. To generate capital to reinvest into other attractive
investment opportunities, we may also consider the use of additional operational
and developmental joint ventures, selling certain properties that do not meet
our long-term investment criteria as well as outparcels on existing properties.
26
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $100 million at December 31, 2003, an increase of $15 million
in capacity from December 31, 2002. During 2003, we extended the maturity of all
lines of credit to June 30, 2005. 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 2004.
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 status with Real Estate
Investment Trust ("REIT") requirements 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, 2003 (in thousands):
Contractual Obligations 2004 2005 2006 2007 2008 Thereafter
--------- --------- ---------- ---------- ---------- --------------
Debt $53,530 $49,253 $59,410 $6,344 $274,430 $ 85,500
Operating leases 2,941 2,855 2,768 2,675 2,402 87,556
- -------------------------------------- ----------- ---------- ----------- ---------- ----------- ---------------
$56,471 $52,108 $62,178 $9,019 $276,832 $173,056
- -------------------------------------- ----------- ---------- ----------- ---------- ----------- ---------------
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, 2003
(in thousands):
Commercial Commitments 2005
--------
Lines of credit $ 77,350
Unconsolidated joint venture construction commitments 9,618
Unconsolidated joint venture guarantees 55,200
- ---------------------------------------------------------- ---------------
$ 142,168
- ---------------------------------------------------------- ---------------
We currently maintain four unsecured, revolving credit facilities with major
national banking institutions, totaling $100 million. As of December 31, 2003
amounts outstanding under these credit facilities totaled $22.65 million. All
four credit facilities expire in June 2005.
We are party to a joint and several guarantee with respect to the $36.2 million
construction loan obtained by TWMB. We are also party to a joint and several
guarantee with respect to the $19 million loan obtained by Deer Park. We are
only responsible for a guarantee equal to our ownership interest percentage of
one-third. See "Joint Ventures" section above for further discussion of the
guarantees.
27
Related Party Transactions
As noted above in "Unconsolidated 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 2003 and 2002, we recognized
approximately $174,000 and $74,000 in management fees, $214,000 and $259,000 in
leasing fees and $9,000 and $76,000 in development fees.
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.
To manage our exposure to interest rate changes, we negotiate long-term fixed
rate debt instruments and from time to time enter into interest rate swap
agreements. 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, 2003, TWMB had an interest rate swap agreement 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 construction debt to fixed debt for the
contract period at a rate of 4.49%.
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, 2003, TWMB would have paid approximately $165,000 to terminate the
agreement. A 1% decrease in the 30 day LIBOR index would increase the amount
paid by TWMB by $129,000 to approximately $294,000. The fair value is based on
dealer quotes, considering current interest rates and remaining term to
maturity. TWMB does not intend to terminate the interest rate swap agreement
prior to its maturity. The fair value of this derivative is currently recorded
as a liability in TWMB's Balance Sheet; however, if held to maturity, the value
of the swap will be zero at that time.
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, 2003 was $571.5
million while the recorded value was $540.3 million, respectively. A 1% increase
from prevailing interest rates at December 31, 2003 would result in a decrease
in fair value of total long-term debt by approximately $10.0 million. Fair
values were determined from quoted market prices, where available, using current
interest rates considering credit ratings and the remaining terms to maturity.
Critical Accounting Policies
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.
Principles of Consolidation
The consolidated financial statements include our accounts and our wholly-owned
subsidiaries. Intercompany balances and transactions have been eliminated in
consolidation. Investments in real estate joint ventures that represent
non-controlling ownership interests are accounted for using the equity method of
accounting. Under the provisions of FIN 46, we are considered the primary
beneficiary of our joint venture, COROC. Therefore, the results of operations
and financial position of COROC are included in our Consolidated Financial
Statements.
28
In January of 2003, the FASB issued FIN 46 which 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 are effective immediately for all variable interests in variable interest
entities created after January 31, 2003 and we will apply its provisions to any
variable interests in variable interest entities existing as of January 31, 2003
as of March 31, 2004 and thereafter. Certain of the disclosure requirements
apply to all financial statements issued after January 31, 2003, regardless of
when the variable interest entity was established. We have evaluated Deer Park,
which was created after January 31, 2003 (Note 5) and have determined that under
the current facts and circumstances we will not be required to consolidate this
entity under the provisions of FIN 46. We are in the process of evaluating TWMB
Associates, LLC ("TWMB"), a joint venture in which we have a 50% ownership
interest with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren") as our venture
partner, which was created prior to January 31, 2003 (Note 5) in order to
determine whether the entity is a variable interest entity and whether we are
considered to be the primary beneficiary or whether we hold a significant
variable interest. TWMB is a joint venture arrangement where it is possible that
we may be required to consolidate or disclose additional information about our
50% interest in TWMB in the future. Our maximum exposure to loss as a result of
our involvement in this joint venture, $41.9 million, is equal to our investment
in the joint venture, $5.7 million, and our obligation under our joint and
several guarantee of TWMB's debt, $36.2 million.
Acquisition of Real Estate
In accordance with Statement of Financial Accounting Standards No. 141 "Business
Combinations" ("FAS 141"), we allocate the purchase price based on the fair
value of land, building, tenant improvements, debt and deferred lease costs and
other intangibles, such as the value of leases with above or below market rents,
origination costs associated with the in-place leases, and the value of in-place
leases and tenant relationships, if any. We depreciate the amount allocated to
building, deferred lease costs and other intangible assets over their estimated
useful lives, which generally range from three to 40 years. The values of the
above and below market leases are amortized and recorded as either an increase
(in the case of below market leases) or a decrease (in the case of above market
leases) to rental income over the remaining term of the associated lease. The
value associated with in-place leases and tenant relationships is amortized over
the expected term of the relationship, which includes an estimated probability
of the lease renewal and its estimated term. If a tenant vacates its space prior
to the contractual termination of the lease and no rental payments are being
made on the lease, any unamortized balance of the related deferred lease costs
will be written off. The tenant improvements and origination costs are amortized
as an expense over the remaining life of the lease (or charged against earnings
if the lease is terminated prior to its contractual expiration date). We assess
fair value based on estimated cash flow projections that utilize appropriate
discount and capitalization rates and available market information.
If we do not allocate appropriately to the separate components of rental
property, deferred lease costs and other intangibles or if we do not estimate
correctly the total value of the property or the useful lives of the assets, our
computation of depreciation expense may be significantly understated or
overstated.
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 capitalized is based on our estimate of the amount
of costs directly related to executing these leases. We amortize these costs to
expense over the estimated 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.
If we incorrectly estimate the amount of costs to capitalize, our financial
condition and results of operations could be adversely affected.
29
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. If we do not recognize impairments at appropriate times and in
appropriate amounts, our consolidated balance sheet may overstate the value of
our long-lived assets. We believe that no impairment existed at December 31,
2003.
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 as revenue over the
remaining lease term, as adjusted to reflect the early termination date.
Funds from Operations
Funds from Operations ("FFO"), represents income 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.
FFO is intended to exclude GAAP historical cost depreciation of real estate,
which assumes that the value of real estate assets diminish ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique to real
estate, gains and losses from property dispositions and extraordinary items, it
provides a performance measure that, when compared year over year, reflects the
impact to operations from trends in occupancy rates, rental rates, operating
costs, development activities and interest costs, providing perspective not
immediately apparent from net income.
We present FFO because we consider it an important supplemental measure of our
operating performance and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of REITs, any of which
present FFO when reporting their results. FFO is widely used by us and others in
our industry to evaluate and price potential acquisition candidates. The
National Association of Real Estate Investment Trusts, Inc., of which we are a
member, has encouraged its member companies to report their FFO as a
supplemental, industry-wide standard measure of REIT operating performance. In
addition, our employment agreements with certain members of management base
bonus compensation on our FFO performance.
FFO has significant limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
o FFO does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
o FFO does not reflect changes in, or cash requirements for, our working
capital needs;
o Although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and FFO does not reflect any cash requirements for such
replacements;
o FFO may reflect the impact of earnings or charges resulting from matters
which may not be indicative of our ongoing operations; and
o Other companies in our industry may calculate FFO differently than we do,
limiting its usefulness as a comparative measure.
Because of these limitations, FFO should not be considered as a measure of
discretionary cash available to us to invest in the growth of our business or
our dividend paying capacity. We compensate for these limitations by relying
primarily on our GAAP results and using FFO only supplementally. See the
Statements of Cash Flow included in our consolidated financial statements.
30
Below is a calculation of FFO for the years ended December 31, 2003, 2002 and
2001 as well as other data for those respective periods (in thousands):
2003 2002 2001
- -------------------------------------------------------------- ------------- -------------- ------------
Funds from Operations:
Net income $ 16,399 $ 14,280 $ 9,154
Adjusted for:
Minority interest adjustment - consolidated joint venture (33) --- ---
Depreciation and amortization
attributable to discontinued operations 572 1,048 1,232
Depreciation and amortization uniquely significant
to real estate - consolidated 28,853 27,647 27,044
Depreciation and amortization uniquely significant
to real estate - unconsolidated joint venture 1,101 422 ---
Loss (Gain) on sale or disposal of real estate 147 (1,702) ---
- -------------------------------------------------------------- ------------- -------------- ------------
Funds from operations (1) $ 47,039 $ 41,695 $ 37,430
- -------------------------------------------------------------- ------------- -------------- ------------
Weighted average units outstanding (2) 13,625 12,262 11,707
- -------------------------------------------------------------- ------------- -------------- ------------
(1) For the year ended December 31, 2002 includes $728 in gains on sales of
outparcels of land.
(2) Assumes the preferred units of the Operating Partnership and unit options
are all converted to limited partnership units.
New Accounting Pronouncements
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity" ("FAS 150"),
effective at the beginning of the first interim period beginning after June 15,
2003. The FASB initiated its liabilities and equity project in response to
concerns regarding the current balance sheet classifications of certain
financial instruments. The standard specifies that instruments within its scope,
which include mandatorily redeemable financial instruments, obligations to
repurchase the issuer's equity shares by transferring assets, and certain
obligations to issue a variable number of shares, represent obligations of the
issuer and, therefore, the issuer must classify them as liabilities. We adopted
this statement effective July 1, 2003, and it had no impact on our results of
operations or financial position.
31
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 2004, we have approximately 1,790,000 square feet or 20% 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 80% of the 1,070,000 square feet that came up for renewal in 2003
with the existing tenants at an average base rental rate approximately equal to
the expiring rate. We also re-tenanted 272,000 square feet during 2003 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
449,000, or 25%, of the square feet scheduled to expire in 2004 as of February
1, 2004. 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, 2003, occupancy at our portfolio of centers in which we have
an ownership interest decreased 2% from 98% to 96% compared to December 31, 2002
due to the acquired properties having a lower occupancy rate, 94%, than our
original Tanger portfolio, 97%, just prior to the acquisition. 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.
32
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.
Item 9A. Controls and Procedures
The Chief Executive Officer, Stanley K. Tanger, and Treasurer and Assistant
Secretary, Frank C. Marchisello Jr., of Tanger GP Trust, sole general partner of
the registrant, evaluated the effectiveness of the registrant's disclosure
controls and procedures on December 31, 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.
33
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.
The information concerning our Company Code of Ethics required by this Items is
incorporated by reference to the Company's Proxy statement.
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, 2003 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 427,560 $25.44 730,800
by security holders
Equity compensation plans not
approved by security holders --- --- ---
Total 427,560 $25.44 730,800
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by Item 9(e) of Schedule 14A is incorporated by
reference to the Company's Proxy Statement.
34
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 Auditors F-1
Consolidated Balance Sheets-December 31, 2003 and 2002 F-2
Consolidated Statements of Operations-
Years Ended December 31, 2003, 2002 and 2001 F-3
Consolidated Statements of Partners' Equity-
For the Years Ended December 31, 2003, 2002 and 2001 F-4
Consolidated Statements of Cash Flows-
Years Ended December 31, 2003, 2002 and 2001 F-5
Notes to Consolidated Financial Statements F-6 to F-21
2. Financial Statement Schedule
Schedule III
Report of Independent Auditors F-22
Real Estate and Accumulated Depreciation F-23 to F-24
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.
35
3. Exhibits
Exhibit No. Description
2.1 Purchase and Sale Agreement between COROC Holdings, LLC and
various entities dated October 3, 2003. (Note 13)
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)
10.1A First Amendment to the Amended and Restated Unit Option Plan.
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 July 1, 2003. (Note 12)
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)
10.11B Second Amendment to Registration Rights Agreement among the
Company, the Tanger Family Limited Partnership and Stanley K.
Tanger.
10.11C Third Amendment to Registration Rights Agreement among the
Company, the Tanger Family Limited Partnership and Stanley K.
Tanger.
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)
10.17 Promissory Note 05/16/2000 (Note 9)
36
10.18 Promissory Note 05/16/2000 (Note 9)
21.1 List of Subsidiaries.
23.1 Consent of PricewaterhouseCoopers LLP.
31.1 Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes
- Oxley Act of 2002.
31.2 Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes
- Oxley Act of 2002.
32.1 Principal Executive Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes
- Oxley Act of 2002.
32.2 Principal Financial Officer Certification Pursuant to 18 U.S.C.
Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes
- Oxley Act of 2002.
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.
12. Incorporated by reference to the exhibits to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 2003.
13. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated December 8, 2003.
(b) Reports on Form 8-K
December 8, 2003 8-K - We filed a Current Report on Form 8-K dated
December 8, 2003 to announce the formation of a joint venture, COROC
Holdings, L.L.C. ("COROC"), with an affiliate of Blackstone Real
Advisors ("Blackstone") to acquire The Charter Oak Partners'
Portfolio.
December 12, 2003 8-K/A - We filed a Current Report on Form 8-K
amending the pro forma information previously included under Item 7
(b) in our Current Report on Form 8-K, dated December 8, 2003 in order
to reflect the actual offering price of the Company's common share
offering which priced on December 10, 2003.
37
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 11 , 2004
------
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 11, 2004
- ----------------------------
Stanley K. Tanger Executive Officer (Principal
Executive Officer)
/s/Steven B. Tanger Trustee and President March 11, 2004
- ----------------------------
Steven B. Tanger
/s/Frank C. Marchisello, Jr. Trustee and Treasurer March 11, 2004
- ----------------------------
Frank C. Marchisello, Jr. (Principal Financial and
Accounting Officer)
/s/Jack Africk Trustee March 11, 2004
- ----------------------------
Jack Africk
/s/William G. Benton Trustee March 11, 2004
- ----------------------------
William G. Benton
/s/Thomas E. Robinson Trustee March 11, 2004
- ----------------------------
Thomas E. Robinson
38
REPORT OF INDEPENDENT AUDITORS
To the Partners of
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of partners' equity and of cash flows
present fairly, in all material respects, the financial position of Tanger
Properties Limited Partnership and its subsidiaries at December 31, 2003 and
2002, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Operating Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States 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 Notes 2 and 4, the Operating Partnership adopted the provisions
of Financial Accounting Standards Board Interpretation No. 46 (revised December
2003) "Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51" for entities created after January 31,
2003.
/s/ PricewaterhouseCoopers LLP
Raleigh, NC
March 5, 2004
F-1
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2003 2002
- ---------------------------------------------------------------------------------------------------------
ASSETS
Rental Property
Land $ 119,833 $ 51,274
Buildings, improvements and fixtures 958,720 571,125
- ---------------------------------------------------------------------------------------------------------
1,078,553 622,399
Accumulated depreciation (192,698) (174,199)
- ---------------------------------------------------------------------------------------------------------
Rental property, net 885,855 448,200
Cash and cash equivalents 9,864 1,068
Deferred charges, net 68,568 10,104
Other assets 22,528 18,008
- ---------------------------------------------------------------------------------------------------------
Total assets $ 986,815 $ 477,380
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Debt
Senior, unsecured notes $ 147,509 $ 150,109
Mortgages payable 370,160 174,421
Lines of credit 22,650 20,475
- ---------------------------------------------------------------------------------------------------------
540,319 345,005
Construction trade payables 4,345 3,310
Accounts payable and accrued expenses 17,403 14,800
- ---------------------------------------------------------------------------------------------------------
Total liabilities 562,067 363,115
- ---------------------------------------------------------------------------------------------------------
Commitments and contingencies
Minority interest consolidated joint venture 218,148 ---
- ---------------------------------------------------------------------------------------------------------
Partners' Equity
General partner 949 1,141
Limited partners 205,733 113,361
Accumulated other comprehensive loss (82) (237)
- ---------------------------------------------------------------------------------------------------------
Total partners' equity 206,600 114,265
- ---------------------------------------------------------------------------------------------------------
Total liabilities and partners' equity $ 986,815 $ 477,380
- ---------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
F-2
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Year Ended December 31,
2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
REVENUES
Base rentals $ 81,039 $ 74,117 $ 71,295
Percentage rentals 3,190 3,552 2,718
Expense reimbursements 34,181 29,878 28,748
Other income 3,562 3,262 2,736
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 121,972 110,809 105,497
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 40,235 34,882 32,848
General and administrative 9,561 9,224 8,220
Depreciation and amortization 29,124 27,941 27,339
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 78,920 72,047 68,407
- ---------------------------------------------------------------------------------------------------------------------------
Operating income 43,052 38,762 37,090
Interest expense 26,486 28,460 30,472
- ---------------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint ventures
and discontinued operations 16,566 10,302 6,618
Equity in earnings of unconsolidated joint ventures 819 392 ---
Minority interest consolidated joint venture (941) --- ---
- ---------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 16,444 10,694 6,618
Discontinued operations (45) 3,586 2,536
- ---------------------------------------------------------------------------------------------------------------------------
Net income 16,399 14,280 9,154
Less applicable preferred share distributions (806) (1,771) (1,771)
- ---------------------------------------------------------------------------------------------------------------------------
Net income available to partners $ 15,593 $ 12,509 $ 7,383
Income allocated to the limited partners $ (15,417) $ (12,347) $ (7,282)
- ---------------------------------------------------------------------------------------------------------------------------
Income allocated to the general partner $ 176 $ 162 $ 101
- ---------------------------------------------------------------------------------------------------------------------------
Basic earnings per common unit:
Income from continuing operations $ 1.20 $ .79 $ .44
Net income $ 1.19 $ 1.11 $ .67
- ---------------------------------------------------------------------------------------------------------------------------
Diluted earnings per common unit:
Income from continuing operations $ 1.18 $ .77 $ .44
Net income $ 1.17 $ 1.08 $ .67
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
F-3
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 2003, 2002, and 2001
(In thousands, except unit data)
Other
General Limited Comprehensive Total Partners'
Partners Partners Loss Equity
- --------------------------------------------------------------------------------------------------------------------------
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
exercise of share and unit options - 201 - 201
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 162 14,118 736 15,016
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 share) - (1,771) - (1,771)
Distributions to partners ($2.45 per share) (367) (27,244) - (27,611)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ 1,141 $ 113,361 $ (237) $ 114,265
Comprehensive income:
Net income 176 16,223 - 16,399
Other comprehensive gain - - 155 155
- --------------------------------------------------------------------------------------------------------------------------
Total comprehensive income 176 16,223 155 16,554
Conversion of 78,701 preferred units
into 709,078 partnership units - - - -
Redemption of 1,489 preferred units - (372) - (372)
Compensation under Unit Option Plan - 102 - 102
Issuance of 890,540 units upon
exercise of share and unit options - 20,613 - 20,613
Issuance of 2,300,000 units in exchange
for proceeds from the common share offering
of the general partner's sole shareholder - 87,992 - 87,992
Preferred distributions ($13.21 per unit) - (890) - (890)
Distributions to partners ($2.46 per unit) (368) (31,296) - (31,664)
- --------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2003 $ 949 $ 205,733 $ (82) $ 206,600
- --------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
F-4
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
2003 2002 2001
- ---------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 16,399 $ 14,280 $ 9,154
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 29,697 28,989 28,572
Amortization of deferred financing costs 1,304 1,209 1,309
Equity in earnings of unconsolidated joint ventures (819) (392) ---
Minority interest consolidated joint venture 941 --- ---
Loss on extinguishment of debt --- --- 338
Compensation under Unit Option Plan 102 --- ---
(Gain) loss on sale or disposal of real estate 147 (1,702) ---
(Gain) on sale of outparcels of land --- (728) ---
Amortization of premium on assumed indebtedness (149) --- ---
Market rent adjustment (37) --- ---
Straight-line base rent adjustment 149 248 342
Increase (decrease) due to changes in:
Other assets (5,835) (2,058) 2,261
Accounts payable and accrued expenses 2,919 (671) 2,640
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activites 44,818 39,175 44,616
- ---------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Acquisition of rental properties (324,557) (37,500) ---
Additions to rental properties (9,342) (5,847) (20,368)
Additions to investments in unconsolidated joint ventures (4,270) (130) (4,068)
Additions to deferred lease costs (1,576) (1,630) (1,618)
Net proceeds from sale of real estate 8,671 21,435 723
Increase (decrease) in escrow from rental property sale 4,008 (4,008) ---
Distributions received from unconsolidated joint ventures 1,775 520 ---
Other (2) 797 2,062
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (325,293) (26,363) (23,269)
- ---------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Cash distributions paid (32,554) (29,382) (28,479)
Contributions from sole shareholder of general and limited partner 87,992 27,960 ---
Contributions from minority interest partner in consolidated joint venture 217,207 --- ---
Proceeds from issuance of debt 133,631 126,320 279,075
Repayments of debt (136,574) (139,510) (267,723)
Additions to deferred financing costs (672) (429) (4,550)
Payments for redemption of preferred units (372) --- ---
Proceeds from exercise of share and unit options 20,613 2,794 201
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) used in financing activities $ 289,271 $ (12,247) $ (21,476)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 8,796 565 (129)
Cash and cash equivalents, beginning of period 1,068 503 632
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9,864 $ 1,068 $ 503
- ---------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of the Operating Partnership
Tanger Properties Limited Partnership and subsidiaries, a North Carolina limited
partnership, focuses exclusively on developing, acquiring, owning, operating and
managing factory outlet shopping centers. Since entering the factory outlet
center business 23 years ago, we have become one of the largest owners and
operators of factory outlet centers in the United States. As of December 31,
2003, we owned interests in 36 centers, with a total gross leasable area, or
("GLA"), of approximately 8.9 million square feet, which were 96% occupied. In
addition as of December 31, 2003, we managed for a fee four centers, with a
total GLA of approximately 434,000 square feet, bringing the total number of
centers we operated to 40 with a total GLA of approximately 9.3 million square
feet containing over 2,000 stores and representing over 400 store brands.
We are controlled by Tanger Factory Outlet Centers, Inc. and subsidiaries, a
fully-integrated, self-administered and self-managed real estate investment
trust ("REIT"). The Company owns the majority of the units of partnership
interest issued by the Operating Partnership (the "Units") through its 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 as a limited partner. Stanley K. Tanger, our 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 subsidiaries 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, 2003, Tanger GP Trust owned 150,000 Units, the Tanger LP
Trust owned 12,810,643 and TFLP owned 3,033,305 Units. TFLP's Units are
exchangeable, subject to certain limitations to preserve the Company's status as
a REIT, on a one-for-one basis for the Company's common shares. As of February
2, 2004, Company's management beneficially owns approximately 20% of all
outstanding common shares (assuming TFLP's Units are exchanged for common shares
but without giving effect to the exercise of any outstanding share and
partnership Unit options).
2. Summary of Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include our
accounts and our wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation. Investments in real estate
joint ventures that represent non-controlling ownership interests are accounted
for using the equity method of accounting. We are considered the primary
beneficiary of our joint venture, COROC Holdings, LLC ("COROC"), under the
provisions of Financial Accountings Standards Board Interpretation No. 46 ("FIN
46"). Therefore, the results of operations and financial position of COROC are
included in our Consolidated Financial Statements.
In January of 2003, the FASB issued FIN 46 which 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 are effective immediately for all variable interests in variable interest
entities created after January 31, 2003 and we will apply its provisions to any
variable interests in variable interest entities existing as of January 31, 2003
as of March 31, 2004 and thereafter. Certain of the disclosure requirements
apply to all financial statements issued after January 31, 2003, regardless of
when the variable interest entity was established. We have evaluated Deer Park,
which was created after January 31, 2003 (Note 5) and have determined that under
the current facts and circumstances we will not be required to consolidate this
entity under the provisions of FIN 46. We are in the process of evaluating TWMB
Associates, LLC ("TWMB"), a joint venture in which we have a 50% ownership
interest with Rosen-Warren Myrtle Beach LLC ("Rosen-Warren") as our venture
partner, which was created prior to January 31, 2003 (Note 5) in order to
determine whether the entity is a variable interest entity and whether we are
considered to be the primary beneficiary or whether we hold a significant
variable interest. TWMB is a joint venture arrangement where it is possible that
we may be required to consolidate or disclose additional information about our
50% interest in TWMB in the future. Our maximum exposure to loss as a result of
our involvement in this joint venture, $41.9 million, is equal to our investment
in the joint venture, $5.7 million, and our obligation under our joint and
several guarantee of TWMB's debt, $36.2 million.
F-6
Minority Interest - "Minority interest Consolidated Joint Venture" reflects our
partner's ownership interest in the COROC joint venture which is consolidated
under the provisions of FIN 46.
Reclassifications - Certain amounts in the 2002 and 2001 financial statements
have been reclassified to conform to the 2003 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 Property - 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.
In accordance with Statement of Financial Accounting Standards No. 141 "Business
Combinations" ("FAS 141"), we allocate the purchase price based on the fair
value of land, building, tenant improvements, debt and deferred lease costs and
other intangibles, such as the value of leases with above or below market rents,
origination costs associated with the in-place leases, and the value of in-place
leases and tenant relationships, if any. We depreciate the amount allocated to
building, deferred lease costs and other intangible assets over their estimated
useful lives, which generally range from three to 40 years. The values of the
above and below market leases are amortized and recorded as either an increase
(in the case of below market leases) or a decrease (in the case of above market
leases) to rental income over the remaining term of the associated lease. The
value associated with in-place leases and tenant relationships is amortized over
the expected term of the relationship, which includes an estimated probability
of the lease renewal and its estimated term. If a tenant vacates its space prior
to the contractual termination of the lease and no rental payments are being
made on the lease, any unamortized balance of the related deferred lease costs
will be written off. The tenant improvements and origination costs are amortized
as an expense over the remaining life of the lease (or charged against earnings
if the lease is terminated prior to its contractual expiration date). We assess
fair value based on estimated cash flow projections that utilize appropriate
discount and capitalization rates and available market information.
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
2003, 2002 and 2001 amounted to $141,000, $172,000 and $551,000 and development
costs capitalized amounted to $479,000, $467,000 and $616,000, respectively.
Depreciation expense for each of the years ended December 31, 2003, 2002 and
2001 was $27,211,000, $26,906,000 and $26,585,000, 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.
F-7
Deferred Charges - Deferred lease costs and other intangible assets 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 lease costs and other intangible assets also include the value of
leases and origination costs deemed to have been acquired in real estate
acquisitions in accordance with FAS 141. See "Rental Property" under this
section above for a discussion. 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 Financial Accounting
Standards Board ("FASB") issued Interpretation No. 45, "Guarantors Accounting
and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FIN 45"), which addresses the disclosure to be made by
a guarantor in its interim and annual financial statements about its obligations
under guarantees. FIN 45 applies to all guarantees entered into or modified
after December 31, 2002. Based on this criterion, the guarantee of indebtedness
by us in our Deer Park Enterprise, LLC joint venture ("Deer Park") (Note 5) is
accounted for under the provisions of FIN 45. FIN 45 requires the guarantor to
recognize a liability for the non-contingent component of the guarantee; this is
the obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. We recorded at inception, the fair value of
our guarantee of the Deer Park joint venture's debt as a debit to our investment
in Deer Park and a credit to a liability. We have elected to account for the
release from obligation under the guarantee by the straight-line amortization
method over the life of the guarantee.
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, 2003.
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 held and used 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 our Board of
Trustees 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 and for assets sold are included in
discontinued operations in our results of operations.
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.
We recognize all derivatives as either assets or liabilities in the consolidated
balance sheets and measure those instruments at their fair value in accordance
with 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 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.
F-8
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
consolidated 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
as revenue over the remaining lease term, as adjusted to reflect the early
termination date.
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 2003, 2002 or 2001.
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, 2003, 2002 and 2001 amounted to $4,345,000, $3,310,000 and $3,722,000,
respectively. Interest paid, net of interest capitalized, in 2003, 2002 and 2001
was $24,906,000, $27,512,000 and $27,379,000, respectively.
Non cash financing activities that occurred during 2003 included the assumption
of mortgage debt in the amount of $198,258,000, including a premium of
$11,852,000 related to the acquisition of the Charter Oak portfolio by COROC.
Also, in 2003 and as discussed in Note 10, the Company converted 78,701 of its
preferred shares into 709,078 of its common shares.
Early Extinguishment of Debt - In April 2002, the FASB 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 Statements
No. 4, 44 and 64, 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. FAS 145 was effective
for transactions occurring after December 31, 2002. We adopted this statement
effective January 1, 2003, the effects of which were the reclassification of a
loss on early extinguishments of debt for the year ended 2001 from an
extraordinary item to a component of interest expense, thereby decreasing income
from continuing operations for the year ended December 31, 2001 by $338,000.
Accounting for Stock Based Compensation - 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"). Prior
to 2003, these plans were accounted for under the recognition and measurement
provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees",
and related interpretations. No share-based employee compensation cost was
reflected in net income prior to 2003, as all options granted under those plans
had an exercise price equal to the market value of the underlying units on the
date of grant. Effective January 1, 2003, we adopted the fair value recognition
provisions of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123"). Under the modified prospective method
of adoption selected by us under the provisions of Statement of Financial
Accounting Standards No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure - An Amendment of FAS 123" ("FAS 148"),
compensation cost recognized in 2003 is the same as that which would have been
recognized had the recognition provisions of FAS 123 been applied from its
original effective date. In accordance with this adoption method under FAS 148,
results for prior periods have not been restated. See Note 13 for an
illustration of the effect on net income and earnings per unit if the fair value
based method had been applied to all outstanding awards in 2002 and 2001.
F-9
New Accounting Pronouncements - In May 2003, the FASB issued SFAS No. 150,
"Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity" ("FAS 150"), effective at the beginning of the first
interim period beginning after June 15, 2003. The FASB initiated its liabilities
and equity project in response to concerns regarding the current balance sheet
classifications of certain financial instruments. The standard specifies that
instruments within its scope, which include mandatorily redeemable financial
instruments, obligations to repurchase the issuer's equity shares by
transferring assets, and certain obligations to issue a variable number of
shares, represent obligations of the issuer and, therefore, the issuer must
classify them as liabilities. We adopted this statement effective July 1, 2003,
and it had no impact on our results of operations or financial position.
3. Acquisitions and Development of Rental Properties
In January 2003, we acquired a 29,000 square foot, 100% leased expansion located
contiguous to our existing factory outlet center in Sevierville, Tennessee at a
purchase price of $4.7 million. Construction of an additional 35,000 square foot
expansion of the center was completed during the third quarter and opened 100%
occupied. The cost of the expansion was approximately $4 million. The
Sevierville center now totals approximately 419,000 square feet.
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 contributed to us from the Company from its common share offering in
September 2002 described in Note 10.
4. Investments in Consolidated Real Estate Joint Ventures
COROC Holdings, LLC
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet which is consolidated for financial reporting purposes under the
provisions of FIN 46. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC, for $491.0 million, including the assumption
of $186.4 million of cross-collateralized debt which has a stated, fixed
interest rate of 6.59% and matures in July 2008. We recorded the debt at its
fair value of $198.3 million with an effective interest rate of 4.97%.
Accordingly, a debt premium of $11.9 million was recorded and is being amortized
over the life of the debt. We financed the majority of our share of the equity
required for the transaction through the issuance of 2,300,000 common shares on
December 10, 2003, generating approximately $88.0 million in net proceeds, which
were contributed to the Operating Partnership in exchange for 2,300,000 limited
partnership units. The results of the Charter Oak portfolio have been included
in the consolidated financial statements since December 19, 2003.
We will have joint control with Blackstone over major decisions. If Blackstone
does not receive an annual minimum cash return of 6% on their invested capital
during any of the first three years and 7% in any year thereafter, Blackstone
shall gain the right to become the sole managing member of the joint venture
with complete authority to act for the joint venture, including the ability to
dispose of one or more of the joint venture properties to a third party. Based
on current available cash flows from the properties, we do not believe there is
a significant risk of default under this provision.
We will provide operating, management, leasing and marketing services to the
properties and will earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We may also earn an additional annual
incentive fee of up to approximately $800,000 if certain annual increases in the
net operating income are met on an annual basis. These fees are payable prior
to, and are not subordinate to, any member distributions that may be required.
Blackstone shall have the right to terminate the management agreement for the
joint venture if it does not receive its minimum cash return as described above.
After an initial 42-month lock-up period, either party can enter into an
agreement for the sale of the Charter Oak portfolio, subject to a right of first
offer of the other party to acquire the entire portfolio.
F-10
During the operation of the joint venture, Blackstone will receive a preferred
cash distribution of 10% on their invested capital. We will then receive a
preferred cash distribution of 10% on our invested capital. Any remaining cash
flows from ongoing operations will be distributed one-third to Blackstone and
two-thirds to us.
Upon exit or the sale of the properties, to the extent that cash is available,
Blackstone will first receive a distribution equal to their invested capital and
any unpaid preferred cash distribution, if any. We will then receive an unpaid
preferred cash distribution, if any. Blackstone will then receive an additional
2% annual preferred cash distribution. We will then receive a distribution equal
to our invested capital and an additional 2% annual preferred cash distribution.
Finally, any remaining proceeds will be distributed one-third to Blackstone and
two-thirds to us.
The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition (in thousands).
December 19, 2003
- -------------------------------------------------- ---------------------
Rental property $ 454,846
Deferred lease costs 59,983
Other assets 3,285
- -------------------------------------------------- ---------------------
Subtotal 518,114
Debt (including debt premium of $11,852) (198,258)
- -------------------------------------------------- ---------------------
Net assets acquired $ 319,856
- -------------------------------------------------- ---------------------
The following condensed pro forma (unaudited) information assumes the
acquisition had occurred as of the beginning of each respective period and that
the issuance of 2,300,000 of the Company's common shares and subsequent
contribution of net proceeds to the Operating Partnership in exchange for
2,300,000 limited partnership units, also occurred as of the beginning of each
respective period (in thousands except per unit data):
For the Year Ended
December 31,
2003 2002
- --------------------------------------------- ---------------- ---------------
Revenues $ 190,844 $ 182,476
- --------------------------------------------- ---------------- ---------------
Net income $ 8,002 $ 5,875
- --------------------------------------------- ---------------- ---------------
Basic earnings per unit:
Net income $ .47 $ .30
Weighted average common units outstanding 15,283 13,656
- --------------------------------------------- ---------------- ---------------
Diluted earnings per unit:
Net income $ .46 $ .30
Weighted average common units outstanding 15,499 13,839
- --------------------------------------------- ---------------- ---------------
5. Investments in Unconsolidated Real Estate Joint Ventures
TWMB Associates, LLC
In September 2001, we established TWMB to construct and operate the Tanger
Outlet Center in Myrtle Beach, South Carolina. The Company and Rosen-Warren each
contributed $4.3 million in cash for a total initial equity in TWMB of $8.6
million. In June 2002 the first phase opened 100% leased at a cost of
approximately $35.4 million with approximately 260,000 square feet and 60 brand
name outlet tenants.
During 2003, we completed our 64,000 square foot second phase. The second phase
cost approximately $6.0 million. The Company and Rosen-Warren each contributed
approximately $1.1 million each toward the second phase which contains 22
additional brand name outlet tenants.
F-11
In addition, TWMB is currently underway with a 79,000 square foot third phase
expansion of the Myrtle Beach center with an estimated cost of the expansion of
$9.7 million. TWMB expects to complete the expansion with stores commencing
operations during the summer of 2004. The Company and Rosen-Warren each made
capital contributions during the fourth quarter of 2003 of $1.7 million for the
third phase. Upon completion of this third phase in 2004, TWMB's Myrtle Beach
center will total 403,000 square feet. At December 31, 2003, commitments for
construction of the third phase expansion amounted to $9.6 million. Commitments
for construction represent only those costs contractually required to be paid by
TWMB.
In conjunction with the construction of the center, TWMB closed on a
construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and SouthTrust Bank due in September 2005. As of December 31, 2003 the
construction loan had a balance of $29.5 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 the Company.
Deer Park Enterprise, LLC
During the third quarter of 2003, we established a wholly owned subsidiary,
Tanger Deer Park, LLC ("Tanger Deer Park"). In September 2003, Tanger Deer Park
entered into a joint venture agreement with two other unrelated party members to
create Deer Park Enterprise, LLC ("Deer Park"). All members in the joint venture
have an equal ownership interest of 33.33%. Deer Park was formed for the purpose
of, but not limited to, developing a site located in Deer Park, New York with
approximately 790,000 square feet planned at total buildout. We expect the site
will contain both outlet and big box retail tenants.
Each of the three members made an equity contribution of $1.6 million. In
conjunction with the real estate purchase, Deer Park closed on a loan in the
amount of $19 million with Fleet Bank due in October 2005 and a purchase money
mortgage note with the seller in the amount of $7 million. Deer Park's Fleet
loan incurs interest at a floating interest rate equal to LIBOR plus 2.00% and
is collateralized by the property as well as joint and several guarantees by all
three parties. The purchase money mortgage note bears no interest. However,
interest has been imputed for financial statement purposes at a rate which
approximates fair value.
In October 2003, Deer Park entered into a sale-leaseback transaction for the
above mentioned real estate located in Deer Park, New York. The agreement
consists of the sale of the property to Deer Park for $29 million which is being
leased back to the seller under a 24 month operating lease agreement. Under the
provisions of FASB Statement No. 67 "Accounting for Costs and Initial Rental
Operations of Real Estate Projects", current rents received from this project,
net of applicable expenses, are treated as incidental revenues and will be
recognized as a reduction in the basis of the assets, as opposed to rental
revenues over the life of the lease, until such time that the current project is
demolished and the intended assets are constructed.
Our investment in unconsolidated real estate joint ventures as of December 31,
2003 and December 31, 2002 was $7.5 million and $3.9 million, 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 investment in real estate joint ventures are included in
other assets and are also reduced by 50% of the profits earned for leasing and
development services we provided to TWMB. The following management, leasing and
development fees were recognized from services provided to TWMB during the year
ended December 31, 2003 and 2002 (in thousands):
Year Ended
December 31,
2003 2002
- ---------------------------------------- ------------ ------------
Fee:
Management $ 174 $ 74
Leasing 214 259
Development 9 76
- ---------------------------------------- ------------ ------------
Total Fees $ 397 $ 409
- ---------------------------------------- ------------ ------------
F-12
Our carrying value of investments in unconsolidated joint ventures differs from
our share of the assets reported in the "Summary Balance Sheets - Unconsolidated
Joint Ventures" shown below due to the cost of our investment in excess of the
historical net book values of the unconsolidated joint ventures and other
adjustments to the book basis, including intercompany profits on sales of
services that are capitalized by the unconsolidated joint ventures. The
differences in basis are amortized over the various useful lives of the related
assets.
Summary unaudited financial information of joint ventures accounted for using
the equity method as of December 31, 2003 and 2002 is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures: 2003 2002
- ------------------------------------------------------------------ --------------- --------------
Assets:
Investment properties at cost, net $ 63,899 $ 32,153
Cash and cash equivalents 4,145 514
Deferred charges, net 1,652 1,751
Other assets 3,277 1,491
- ------------------------------------------------------------------ --------------- --------------
Total assets $ 72,973 $ 35,909
- ------------------------------------------------------------------ --------------- --------------
Liabilities and Owners' Equity:
Mortgage payable $ 54,683 $ 25,513
Construction trade payables 1,164 1,644
Accounts payable and other liabilities 564 522
- ------------------------------------------------------------------ --------------- --------------
Total liabilities 56,411 27,679
Owners' equity 16,562 8,230
- ------------------------------------------------------------------ --------------- --------------
Total liabilities and owners' equity $ 72,973 $ 35,909
- ------------------------------------------------------------------ --------------- --------------
Summary Statement of Operations
- Unconsolidated Joint Ventures: 2003 2002
- ------------------------------------------------------------------ --------------- ---------------
Revenues $ 8,178 $ 4,119
- ------------------------------------------------------------------ --------------- ---------------
Expenses:
Property operating 2,972 1,924
General and administrative 47 13
Depreciation and amortization 2,292 884
- ------------------------------------------------------------------ --------------- ---------------
Total expenses 5,311 2,821
- ------------------------------------------------------------------ --------------- ---------------
Operating income 2,867 1,298
Interest expense 1,371 578
- ------------------------------------------------------------------ --------------- ---------------
Net income $ 1,496 $ 720
- ------------------------------------------------------------------ --------------- ---------------
Tanger Properties Limited Partnership share of:
- ------------------------------------------------------------------ --------------- ---------------
Net income $ 819 $ 392
Depreciation (real estate related) $ 1,101 $ 422
- ------------------------------------------------------------------ --------------- ---------------
6. Disposition of Properties
In May and October 2003, we completed the sale of properties located in
Martinsburg, West Virginia and Casa Grande, Arizona, respectively. Net proceeds
received from the sales of these properties were approximately $8.7 million. We
recorded a loss on sale of real estate of approximately $147,000 in discontinued
operations.
In June and November 2002, we completed the sale of two of our non-core
properties located in Ft. Lauderdale, Florida and Bourne, Massachusetts,
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
approximately $1.7 million in discontinued operations.
F-13
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.
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 Consolidated 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:
2003 2002 2001
- --------------------------------------------------- ----------------- -------------------- -----------------
Revenues:
Base rentals $ 1,043 $ 2,863 $ 4,058
Percentage rentals 17 6 17
Expense reimbursements 440 1,071 1,459
Other income 55 50 36
- --------------------------------------------------- ----------------- -------------------- -----------------
Total revenues 1,555 3,990 5,570
- --------------------------------------------------- ----------------- -------------------- -----------------
Expenses:
Property operating 878 1,615 1,796
General and Administrative 3 4 6
Depreciation and amortization 572 1,048 1,232
- --------------------------------------------------- ----------------- -------------------- -----------------
Total expenses 1,453 2,667 3,034
- --------------------------------------------------- ----------------- -------------------- -----------------
Discontinued operations before gain/(loss)
on sale of real estate 102 1,323 2,536
Gain on sale of outparcels --- 561 ---
Gain/(loss) on sale of real estate (147) 1,702 ---
- --------------------------------------------------- ----------------- -------------------- -----------------
Discontinued operations $ (45) $ 3,586 $ 2,536
- --------------------------------------------------- ----------------- -------------------- -----------------
7. Deferred Charges
Deferred charges as of December 31, 2003 and 2002 consists of the following (in
thousands):
2003 2002
- ---------------------------------------------- -------------- ---------------
Deferred lease costs and other intangibles $ 76,191 $15,414
Deferred financing costs 9,027 8,412
- ---------------------------------------------- -------------- ---------------
85,218 23,826
Accumulated amortization (16,650) (13,722)
- ---------------------------------------------- -------------- ---------------
$ 68,568 $ 10,104
- ---------------------------------------------- -------------- ---------------
Amortization of deferred lease costs and other intangibles for the years ended
December 31, 2003, 2002 and 2001 was $2,162,000, $1,739,000 and $1,642,000,
respectively. Amortization of deferred financing costs, included in interest
expense in the accompanying Consolidated Statements of Operations, for the years
ended December 31, 2003, 2002 and 2001 was $1,304,000, $1,209,000 and
$1,277,000, respectively.
F-14
8. Long-Term Debt
Long-term debt at December 31, 2003 and 2002 consists of the following (in thousands):
2003 2002
- ------------------------------------------------------------------------- -------------- ---------------
7.875% Senior, unsecured notes, maturing October 2004 $ 47,509 $ 50,109
9.125% Senior, unsecured notes, maturing February 2008 100,000 100,000
Mortgage notes with fixed interest:
9.77%, maturing April 2005 14,179 14,516
9.125%, maturing September 2005 7,812 8,288
4.97%, maturing July 2008, including net premium of $11,852 198,258 ---
7.875%, maturing April 2009 61,690 62,874
7.98%, maturing April 2009 18,746 19,036
8.86%, maturing September 2010 15,975 16,207
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% 22,650 20,475
- ------------------------------------------------------------------------- -------------- ---------------
$ 540,319 $ 345,005
- ------------------------------------------------------------------------- -------------- ---------------
As part of the acquisition of the Charter Oak Partners' portfolio, we assumed
$186.4 million of cross-collateralized debt which has a stated, fixed interest
rate of 6.59% and matures in July 2008. We recorded the debt at its fair value
of $198.3 million with an effective interest rate of 4.97%. Accordingly, a debt
premium of $11.9 million was recorded and is being amortized over the life of
the debt.
We extended the maturities of our existing four unsecured lines of credit with
Bank of America, Fleet National Bank, SouthTrust Bank and Wells Fargo Bank until
June 30, 2005 and increased our line of credit with Wells Fargo Bank from $10
million to $25 million. This addition brings the total capacity under our lines
of credit to $100 million. Amounts available under these facilities at December
31, 2003 totaled $77.35 million. Interest is payable based on alternative
interest rate bases at our option. Certain of our properties, which had a net
book value of approximately $704.8 million at December 31, 2003, 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. Five of the six existing fixed rate mortgage
notes are with insurance companies and contain prepayment penalty clauses.
F-15
During 2003, we purchased at a 2% premium, $2.6 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. These
purchases were in addition to $24.9 million of the notes that were purchased in
2001 and 2002. We currently have authority from our Board of Trustees to
purchase an additional $22.4 million of our outstanding 7.875% senior, unsecured
public notes and may, from time to time, do so at management's discretion.
Maturities of the existing long-term debt are as follows ($ in thousands):
Year Amount
---------------------------------- -------------
2004 $ 53,530
2005 49,253
2006 59,410
2007 6,344
2008 274,430
Thereafter 85,500
---------------------------------- -------------
Subtotal $ 528,467
Net premium 11,852
---------------------------------- -------------
Total $ 540,319
---------------------------------- -------------
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, 2003, TWMB would have had to pay $165,000 to terminate the
agreement.
In January 2003, our interest rate swap agreement originally entered into in
December of 2000 with a notional amount of $25 million that fixed the 30 day
LIBOR index at 5.97% expired as scheduled.
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, 2003 and 2002, 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 $571.5 and $349.7 million, respectively.
10. Partners' Equity
In December 2003, the Company completed a public offering of 2,300,000 common
shares at a price of $40.50 per share, receiving net proceeds of approximately
$88.0 million, which were contributed to the Operating Partnership in exchange
for 2,300,000 limited partnership units. The net proceeds were used together
with other available funds to fund our portion of the equity required to acquire
the Charter Oak portfolio of outlet shopping centers as mentioned in Note 4
above and for general corporate purposes. In addition in January 2004, the
underwriters of the December 2003 offering exercised in full their
over-allotment option to purchase an additional 345,000 of the Company's common
shares at the offering price of $40.50 per share. The Company received net
proceeds of approximately $13.2 million from the exercise of the over-allotment,
which were contributed to the Operating Partnership in exchange for 345,000
limited partnership units.
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.
F-16
At December 31, 2003 and 2002, the ownership interests of the Operating
Partnership consisted of the following:
2003 2002
- ---------------------------------- -------------- --------------
Preferred units --- 80,190
- ---------------------------------- -------------- --------------
Common units:
General partner 150,000 150,000
Limited partners 15,843,948 11,944,330
- ---------------------------------- -------------- --------------
Total 15,993,948 12,094,330
- ---------------------------------- -------------- --------------
On June 20, 2003, the Company redeemed all of its outstanding Series A
Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares") held
by the Preferred Stock Depositary in the form of Depositary Shares, each
representing 1/10th of a Preferred Share. Since preferred units held by the
Company's majority owned subsidiary, Tanger LP Trust, are to be redeemed by the
Operating Partnership to the extent any Preferred Shares of the Company are
redeemed, proceeds required to redeem the Company's preferred shares were funded
by the Operating Partnership in exchange for the preferred units held by the
Company. Likewise, preferred units are automatically converted into limited
partnership units to the extent of any conversion of the Company's preferred
shares into Common Shares. The redemption price was $250 per Preferred Share
($25 per Depositary Share), plus accrued and unpaid dividends, if any, to, but
not including, the redemption date.
In lieu of receiving the cash redemption price, holders of the Depositary
Shares, at their option, could exercise their right to convert each Depositary
Share into .901 common shares by following the instructions for, and completing
the Notice of Conversion located on the back of their Depositary Share
certificates. Those Depositary Shares, and the corresponding Preferred Shares,
that were converted to common shares did not receive accrued and unpaid
dividends, if any, but were entitled to receive common dividends declared after
the date on which the Depositary Shares were converted to common shares.
On or after the redemption date, the Depositary Shares, and the corresponding
Preferred Shares, were no longer deemed to be outstanding, dividends on the
Depositary Shares, and the corresponding Preferred Shares, ceased to accrue, and
all rights of the holders of the Depositary Shares, and the corresponding
Preferred Shares, ceased, except for the right to receive the redemption price
and accrued and unpaid dividends, without interest thereon, upon surrender of
certificates representing the Depositary Shares, and the corresponding Preferred
Shares.
In total, 787,008 of the Depositary Shares were converted into 709,078 common
shares and the Company redeemed the remaining 14,889 Depositary Shares for $25
per share, plus accrued and unpaid dividends. Likewise, 787,008 preferred units
were converted into 709,078 limited partnership units and the Operating
Partnership redeemed the remaining 14,889 preferred units. The Operating
Partnership funded the redemption, totaling approximately $372,000, from cash
flow from operations.
F-17
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, 2003, 2002 and 2001 is
set forth as follows (in thousands, except per unit amounts):
2003 2002 2001
- --------------------- --------------------------------------------- ------------ ---------------- -------------
NUMERATOR:
Income from continuing operations $16,444 $10,694 $ 6,618
Less applicable preferred unit distributions (806) (1,771) (1,771)
- ------------------------------------------------------------------- ------------ ---------------- -------------
- ------------------------------------------------------------------- ------------ ---------------- -------------
Income from continuing operations available
to common unitholders - basic and diluted 15,638 8,923 4,847
Discontinued operations (45) 3,586 2,536
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income available to common unitholders-
basic and diluted 15,593 12,509 7,383
- ------------------------------------------------------------------- ------------ ---------------- -------------
DENOMINATOR:
Basic weighted average common units 13,085 11,356 10,959
Effect of outstanding share and unit options 215 183 21
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted weighted average common units 13,300 11,539 10,980
- ------------------------------------------------------------------- ------------ ---------------- -------------
Basic earnings per common unit:
Income from continuing operations $ 1.20 $ .79 $ .44
Discontinued operations (.01) .32 .23
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $ 1.19 $ 1.11 $ .67
- ------------------------------------------------------------------- ------------ ---------------- -------------
Diluted earnings per common unit:
Income from continuing operations $ 1.18 $ .77 $ .44
Discontinued operations (.01) .31 .23
- ------------------------------------------------------------------- ------------ ---------------- -------------
Net income $ 1.17 $ 1.08 $ .67
- ------------------------------------------------------------------- ------------ ---------------- -------------
Options to purchase units excluded from the computation of diluted earnings per
unit during 2002 and 2001 because the exercise price was greater than the
average market price of the Company's common shares totaled 211,000 and
1,190,000 shares, 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 the Company's common shares. Effective January 1, 2003, we
adopted the fair value recognition provisions of FAS 123. Under the modified
prospective method of adoption selected by us under the provisions of FAS 148,
compensation cost recognized in 2003 is the same as that which would have been
recognized had the recognition provisions of FAS 123 been applied from its
original effective date. In accordance with FAS 148, results for prior periods
have not been restated.
F-18
The following table illustrates the effect on net income and earnings per unit
if the fair value based method had been applied to all outstanding awards for
the years ended December 31, 2003, 2002 and 2001 (in thousands except per unit
data):
2003 2002 2001
- -------------------------------------------------------------- ------------ ------------ ------------
Net income $16,399 $ 14,280 $9,154
Add: Unit-based employee compensation expense
included in net income 102 --- ---
Less: Total unit based employee compensation expense
determined under fair value based method for all
Awards (102) (160) (229)
- -------------------------------------------------------------- ------------ ------------ ------------
Pro forma net income 16,399 $ 14,120 $8,925
- -------------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------------- ------------ ------------ ------------
Earnings per unit:
Basic - as reported $1.19 $1.11 $.67
Basic - pro forma 1.19 1.09 .65
Diluted - as reported $1.17 $1.08 $.67
Diluted - pro forma 1.17 1.07 .65
- -------------------------------------------------------------- ------------ ------------ ------------
- -------------------------------------------------------------- ------------ ------------ ------------
The Company and the Operating Partnership may issue up to a combined 2,250,000
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 1,519,200 options, net of options forfeited, through December 31, 2003.
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, 2003 have exercise prices between $18.625
and $31.25, with a weighted average exercise price of $25.48 and a weighted
average remaining contractual life of 4.43 years.
A summary of the status of our two plans at December 31, 2003, 2002 and 2001 and
changes during the years then ended is presented in the table and narrative
below:
2003 2002 2001
-------------------- ----------------------- ---------------------
Wtd Avg Wtd Avg Wtd Avg
Units Ex Price Units Ex Price Units Ex Price
- ------------------------------------- ------------- ------------- ------------ -------------- ----------- -----------
Outstanding at beginning 1,253,300 $ 23.84 1,387,430 $ 23.68 1,406,870 $ 23.63
of year
Granted --- --- --- --- --- ---
Exercised (886,940) 23.16 (124,620) 21.87 (10,800) 18.63
Forfeited (600) 18.63 (9,510) 25.45 (8,640) 23.66
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Outstanding at end of year 365,760 $ 25.48 1,253,300 $ 23.84 1,387,430 $ 23.68
- ------------------------------------- -------------- ---------- -------------- ------------- ------------- ----------
Exercisable at end of year 240,260 $ 28.46 1,001,480 $ 24.37 1,006,490 $ 24.16
Weighted average fair value
of options granted $--- $ --- $ ---
F-19
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 2003, 2002 and 2001 was immaterial.
13. Other Comprehensive Income
Effective January 1, 2001, we adopted FAS 133. Upon adoption we recorded a
cumulative effect adjustment of $300,000 loss in other comprehensive income
(loss). 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 January
2003, our remaining interest rate swap agreement with a notional amount of $25
million, designated as a cash flow hedge in accordance with the provisions of
FAS 133, expired as scheduled. Upon expiration, the fair market value recorded
on the balance sheet as a liability in accounts payable and accrued expenses was
adjusted to zero through accumulated other comprehensive income. TWMB's interest
rate swap agreement has been designated as a cash flow hedge and is carried on
its respective balance sheet at fair value. At December 31, 2003, our portion of
the fair value of TWMB's hedge is recorded as a reduction in investment in
unconsolidated joint ventures of $82,000 in other assets.
Total comprehensive income for the years ended December 31, 2003, 2002 and 2001
is as follows (in thousands):
2003 2002 2001
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Net income $16,399 $ 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 57 (139) ---
Change in fair value of cash flow hedge 98 875 (820)
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Other comprehensive income (loss) 155 736 (973)
- ----------------------------------------------------------------------- -------------- -------------- ---------------
Total comprehensive income $ 16,554 $15,016 $ 8,181
- ----------------------------------------------------------------------- -------------- -------------- ---------------
14. Supplementary Income Statement Information
The following amounts are included in property operating expenses for the years
ended December 31, 2003, 2002 and 2001 (in thousands):
2003 2002 2001
- --------------------------------------------------------- ------------- ------------ ------------
Advertising and promotion $ 10,358 $ 9,578 $ 8,964
Common area maintenance 15,542 13,256 12,636
Real estate taxes 9,312 8,387 7,985
Other operating expenses 5,023 3,661 3,263
- --------------------------------------------------------- ------------- ------------ ------------
$ 40,235 $ 34,882 $ 32,848
- --------------------------------------------------------- ------------- ------------ ------------
F-20
15. Lease Agreements
We are the lessor of a total of 2,040 stores in our 35 consolidated factory
outlet centers, under operating leases with initial terms that expire from 2004
to 2021. 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,
2003 are as follows (in thousands):
2004 $ 112,145
2005 89,397
2006 64,631
2007 43,900
2008 24,282
Thereafter 34,985
-------------------- --------------------
$ 369,340
-------------------- --------------------
16. Commitments and Contingencies
We purchased the rights to lease land on which two of the outlet centers are
situated for $1,536,000. These leasehold rights are being amortized on a
straight-line basis over 30 and 40 year periods, respectively. Accumulated
amortization was $762,000 and $713,000 at December 31, 2003 and 2002,
respectively.
Our non-cancelable operating leases, with initial terms in excess of one year,
have terms that expire from 2004 to 2085. Annual rental payments for these
leases totaled approximately $2,572,000, $2,437,000 and $2,333,000, for the
years ended December 31, 2003, 2002 and 2001, respectively. Minimum lease
payments for the next five years and thereafter are as follows (in thousands):
2004 $ 2,941
2005 2,855
2006 2,768
2007 2,675
2008 2,402
Thereafter 87,556
------------------- ---------------------
$ 101,197
------------------- ---------------------
We are also subject to legal proceedings and claims which 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, financial condition or cash flows.
F-21
REPORT OF INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
To the Partners of Tanger Properties Limited Partnership and subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated March 5, 2004 appearing in the 2003 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 consolidated financial
statements.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
March 5, 2004
F-22
TANGER PROPERTIES LIMITED PARTNERSHIP and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2003 (In thousands)
- ---------------------------------------- -------------- ----------------------- -----------------------
Costs Capitalized
Subsequent to
Initial cost to Acquisition
Description Company (Improvements)
- ---------------------------------------- -------------- ----------------------- -----------------------
Buildings, Buildings
Outlet Center Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Barstow Barstow, CA -- $3,672 $ 12,533 $ --- $4,403
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Blowing Rock Blowing Rock, NC $ 9,517 1,963 9,424 --- 2,360
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Boaz Boaz, AL --- 616 2,195 --- 2,281
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Branson Branson, MO 24,000 4,557 25,040 --- 8,773
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Clover North Conway, NH --- 393 672 --- 252
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Commerce I Commerce, GA 7,812 755 3,511 492 9,541
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Commerce II Commerce, GA 29,500 1,262 14,046 541 18,376
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Dalton Dalton, GA 10,923 1,641 15,596 --- 650
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Foley Foley, AL 34,695 4,400 82,410 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Gonzales Gonzales, LA --- 718 15,895 17 5,322
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Hilton Head Blufton, SC 19,900 9,900 41,504 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Howell Howell, MI --- 2,250 35,250 --- 310
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Kittery-I Kittery, ME 6,216 1,242 2,961 229 1,319
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Kittery-II Kittery, ME --- 921 1,835 530 731
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Lancaster Lancaster, PA 14,179 3,691 19,907 --- 12,789
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Lincoln City Lincoln City, OR 11,202 6,500 28,673 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
LL Bean North Conway, NH --- 1,894 3,351 --- 1,159
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Locust Grove Locust Grove, GA --- 2,558 11,801 --- 8,537
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Myrtle Beach 501 Myrtle Beach, SC 24,634 10,300 57,094 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Nags Head Nags Head, NC 6,458 1,853 6,679 --- 2,151
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
North Branch North Branch, MN --- 243 5,644 249 4,112
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Park City Park City, UT 13,556 6,900 33,597 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 2,076
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Rehoboth Rehoboth Beach, DE 42,427 21,500 74,209 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Riverhead Riverhead, NY --- --- 36,374 6,152 74,035
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
San Marcos San Marcos, TX 37,299 1,801 9,440 16 36,432
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Sanibel Sanibel, FL --- 4,916 23,196 --- 3,645
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Sevierville Sevierville, TN --- --- 18,495 --- 34,468
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Seymour Seymour, IN --- 1,590 13,249 --- 732
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Terrell Terrell, TX --- 778 13,432 --- 6,508
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Tilton Tilton, NH 13,997 1,800 24,838 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Tuscola Tuscola, IL 21,739 1,600 15,428 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
West Branch West Branch, MI 6,934 350 3,428 121 5,495
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Westbrook Westbrook, CT 16,108 7,200 26,991 --- ---
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
Williamsburg Williamsburg, IA 19,064 706 6,781 717 14,276
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
$ 370,160 $110,769 $697,987 $9,064 $260,733
- ------------------- -------------------- -------------- --------- ------------- -------- --------------
F-23
TANGER PROPERTIES LIMITED PARTNERSHIP and SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2003 (In thousands)
- ---------------------------------------- ------------------------------------- ------------- ------------- -------------
Gross Amount Carried at Close of
Period
Description 12/31/03 (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 $16,936 $20,608 $6,065 1995 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Blowing Rock Blowing Rock, NC 1,963 11,784 13,747 2,601 1997 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Boaz Boaz, AL 616 4,476 5,092 2,676 1988 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Branson Branson, MO 4,557 33,813 38,370 14,444 1994 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Clover North Conway, NH 393 924 1,317 641 1987 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Commerce I Commerce, GA 1,247 13,052 14,299 6,454 1989 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Commerce II Commerce, GA 1,803 32,422 34,225 11,019 1995 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Dalton Dalton, GA 1,641 16,246 17,887 3,170 1998 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Foley Foley, AL 4,400 82,410 86,810 112 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Gonzales Gonzales, LA 735 21,217 21,952 11,321 1992 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Hilton Head Blufton, SC 9,900 41,504 51,404 68 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Howell Howell, MI 2,250 35,560 37,810 1,560 2002 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Kittery-I Kittery, ME 1,471 4,280 5,751 2,938 1986 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Kittery-II Kittery, ME 1,451 2,566 4,017 1,347 1989 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Lancaster Lancaster, PA 3,691 32,696 36,387 11,801 1994 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Lincoln City Lincoln City, OR 6,500 28,673 35,173 41 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
LL Bean North Conway, NH 1,894 4,510 6,404 2,681 1988 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Locust Grove Locust Grove, GA 2,558 20,338 22,896 8,426 1994 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Myrtle Beach 501 Myrtle Beach, SC 10,300 57,094 67,394 84 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Nags Head Nags Head, NC 1,853 8,830 10,683 2,423 1997 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
North Branch North Branch, MN 492 9,756 10,248 5,495 1992 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Park City Park City, UT 6,900 33,597 40,497 53 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Pigeon Forge Pigeon Forge, TN 299 4,584 4,883 2,798 1988 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Rehoboth Rehoboth Beach, DE 21,500 74,209 95,709 101 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Riverhead Riverhead, NY 6,152 110,409 116,561 33,872 1993 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
San Marcos San Marcos, TX 1,817 45,872 47,689 13,650 1993 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Sanibel Sanibel, FL 4,916 26,841 31,757 4,778 1998 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Sevierville Sevierville, TN --- 52,963 52,963 11,243 1997 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Seymour Seymour, IN 1,590 13,981 15,571 6,625 1994 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Terrell Terrell, TX 778 19,940 20,718 8,885 1994 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Tilton Tilton, NH 1,800 24,838 26,638 39 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Tuscola Tuscola, IL 1,600 15,428 17,028 35 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
West Branch West Branch, MI 471 8,923 9,394 4,402 1991 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Westbrook Westbrook, CT 7,200 26,991 34,191 51 2003 (3) (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
Williamsburg Williamsburg, IA 1,423 21,057 22,480 10,799 1991 (2)
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
119,833 $958,720 $1,078,553 $192,698
- ------------------- -------------------- --------- --------------- ----------- ------------- ------------- -------------
(1) Aggregate cost for federal income tax purposes is approximately
$1,149,657,000
(2) The Company generally uses estimated lives ranging from 25 to 33 years for
buildings and 15 years for land improvements. Tenant finishing allowances
are depreciated over the initial lease term.
(3) Represents year acquired
F-24
TANGER PROPERTIES LIMITED PARTNERSHIP and SUBSIDIARIES
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2003
(In Thousands)
The changes in total real estate for the three years ended December 31, 2003 are
as follows:
2003 2002 2001
-------------- ---------------- -----------------
Balance, beginning of year $622,399 $599,266 $584,928
Acquisition of real estate 463,875 37,500 ---
Improvements 9,342 5,324 14,338
Dispositions and other (17,063) (19,691) ---
-------------- ---------------- -----------------
Balance, end of year $1,078,553 $622,399 $599,266
============== ================ =================
The changes in accumulated depreciation for the three years ended December 31,
2003 are as follows:
2003 2002 2001
-------------- ---------------- ----------------
Balance, beginning of year $ 174,199 $ 148,950 $ 122,365
Depreciation for the period 27,211 26,906 26,585
Dispositions and other (8,712) (1,657) ---
-------------- ---------------- ----------------
Balance, end of year $192,698 $174,199 $148,950
============== ================ ================
F-25