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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, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-11986
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its charter)
NORTH CAROLINA
(State or other jurisdiction of
incorporation or organization)
1400 WEST NORTHWOOD STREET
GREENSBORO, NC 27408
(Address of principal executive offices)
56-1815473
(I.R.S. Employer
Identification No.)
(910) 274-1666
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
Common stock, $.01 par value New York Stock Exchange
Series A Cumulative Convertible Redeemable
Preferred Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
The aggregate market value of voting shares held by nonaffiliates of the
Registrant was approximately $134,644,000 based on the closing price on the New
York Stock Exchange for such stock on February 28, 1997.
The number of shares of the Registrant's common stock outstanding as of February
28, 1997 was 6,715,855.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 9, 1997.
PART I
ITEM 1. BUSINESS
THE COMPANY
Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
focuses exclusively on developing, owning and operating factory outlet centers,
and provides all development, leasing and management services for its centers.
According to Value Retail News, an industry publication, the Company believes
that it is one of the largest owners and operators of factory outlet centers in
the United States. As of December 31, 1996, the Company owned and operated 27
factory outlet centers (the "Properties") with a total gross leasable area
("GLA") of approximately 3.8 million square feet. These centers are
approximately 99% leased, contain over 900 stores and represent over 220 brand
name companies as of such date.
The Properties are presently held by, and all of the Company's operations are
conducted by, the Company's majority-owned subsidiary, Tanger Properties Limited
Partnership (the "Operating Partnership"). Accordingly, the descriptions of the
business, employees and properties of the Company are also descriptions of the
business, employees and properties of the Operating Partnership.
The Company is the sole managing general partner of the Operating Partnership
and The Tanger Family Limited Partnership is the sole limited partner. As of
December 31, 1996, the ownership interests in the Operating Partnership (the
"Units") consisted of 6,602,510 general partnership Units and 106,419 general
preferred partnership Units (which are convertible into approximately 958,835
general partnership Units) held by the Company and 3,033,305 limited partnership
Units held by the Tanger Family Limited Partnership. The Units are exchangeable,
subject to certain limitations to preserve the Company's status as a REIT, into
shares of Common Stock. See "Business-The Operating Partnership". Management of
the Company beneficially owns approximately 33% of all outstanding Common Stock
and partnership interests exchangeable for Common Stock (without giving effect
to the exercise of any outstanding stock and Unit options).
The Company operates in a manner intended to enable it to qualify as a REIT
under the Internal Revenue Code of 1986, as amended (the "Code") and therefore
will not be subject to federal income tax. Direct or constructive ownership of
more than 29,400 shares of the Series A Preferred Stock (or a lesser amount in
certain cases), whether owned directly or through ownership of Depositary Shares
(each representing 1/10 of a share of the Series A Preferred Stock), or more
than 4% of the Common Stock (including as a result of the conversion of Series A
Preferred Stock) is restricted to preserve the Company's status as a REIT. To
maintain its qualification as a REIT for federal income tax purposes, the
Company is required, among other things, to make distributions (including
distributions on preferred stock) equal to at least 95% of its taxable income
each year.
The Company's executive offices are located at 1400 West Northwood Street,
Greensboro, North Carolina, 27408, its telephone number is (910) 274-1666 and
its web site is located at www.tangeroutlet.com. The Company is a North Carolina
corporation that was formed in March 1993.
RECENT DEVELOPMENTS
During 1996, the Company completed six expansions totalling 181,142 square feet.
Construction has also commenced on the initial phase of a new center in
Riverhead, New York totalling approximately 240,000 square feet. Approximately
93% of this additional GLA is leased or committed to be leased and is expected
to be opened by late Spring of 1997. In addition, the Company is in the
preleasing stages of three new sites located in Concord, NC (Charlotte),
Romulus, MI (Detroit) and Ashburn, VA (Washington, D.C.).
Subsequent to year end, on February 28, 1997, the Company completed the purchase
of an existing factory outlet center in Sevierville, Tennessee containing
approximately 123,000 square feet (the "Sevierville Property") for an aggregate
purchase price of $18.0 million. Information in Item 1 and Item 2 herein
provided as of February 28, 1997 does not include information with respect to
the Sevierville Property.
2
The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1998 and beyond and will consider other
acquisitions that are suitable for its portfolio. However, there can be no
assurance that any of these anticipated or planned developments or expansions
will be started or completed as scheduled, or that any acquisitions will be
made.
The Company and the Operating Partnership filed a shelf registration statement
in November 1995 with the Securities and Exchange Commission to issue up to $100
million in equity securities and $100 million in debt securities. During March
1996, the Company used a portion of its borrowing capacity under the shelf
registration to issue, through the Operating Partnership, $75 million of senior,
unsecured notes, maturing March 11, 2001, with a coupon rate of 8.75% (effective
yield of 8.926%). The proceeds of this offering were used to extinguish the
Company's revolving lines of credit existing prior to January 1996. In April
1996, the Company filed a new registration statement with the SEC to reestablish
the total amount of funds available under the shelf registration at $200
million.
During the year, the Company established a new $50 million secured line of
credit, with interest payable at LIBOR plus 1.5% and established other unsecured
lines of credit totalling $40 million with interest rates ranging from prime
less .25% to prime or LIBOR plus 1.75% to LIBOR plus 1.85%. Amounts available
under these lines of credit, based on debt outstanding at December 31, 1996,
totalled $62.2 million. When considered with the Company's existing interest
rate protection agreement covering $10 million of variable rate debt, the
Company's exposure to interest rate risk on variable rate borrowings outstanding
at December 31, 1996 was limited to $17.8 million. Also, with the addition of
the unsecured borrowings, the Company has effectively unencumbered approximately
55% of its gross real estate assets.
See "Business-Capital Strategy".
THE FACTORY OUTLET CONCEPT
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded goods 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 in a
factory outlet store are often able to charge customers lower prices for brand
name and designer products by eliminating the third party retailer, and because
factory outlet centers typically have low operating costs. 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.
The Company's factory outlet centers are typically located near interstate
highways and at least 20 miles from downtown areas, where major department
stores and manufacturer-owned full price retail stores are usually located.
Manufacturers prefer these locations so that they do not compete directly with
their major customers and their own stores. Factory outlet centers are located
near tourist destinations to attract tourists who consider shopping to be a
recreational activity. Close proximity to interstate highways provides
accessibility and visibility to potential customers.
Management believes that factory outlet centers continue to present attractive
opportunities for capital investment by the Company, particularly with respect
to strategic expansions of existing centers. Because of the moderate land and
construction costs and the availability of local government incentives provided
by communities seeking economic growth, factory outlet centers can be developed
or expanded relatively inexpensively. Management believes that under present
conditions such development costs, coupled with current market lease rates,
permit attractive investment returns. Management further believes, based upon
its contacts with present and prospective tenants, that many companies,
including new entrants into the factory outlet business, desire to open a number
of new factory outlet stores in the next several years, particularly where there
are successful factory outlet centers in which such companies do not have a
significant presence or where there are few factory outlet centers. Thus, the
Company believes that its commitment to developing and expanding factory outlet
centers is justified by the potential financial returns on such centers.
3
THE COMPANY'S FACTORY OUTLET CENTERS
The Company's factory outlet centers are designed to attract national brand name
tenants. As one of the original participants in this industry, the Company has
developed long-standing relationships with many national and regional
manufacturers. Because of its established relationships with many manufacturers,
the Company believes it is well positioned to capitalize on industry growth.
The Company's factory outlet centers range in size from 8,000 to 286,195 square
feet of GLA and are typically located a significant distance from downtown areas
and major department stores. All of the centers are located near a tourist
destination and/or an interstate highway, providing accessibility and visibility
to prospective customers.
As of December 31, 1996, the Company had a diverse tenant base comprised of over
220 different well-known, upscale, national designer or brand name companies.
Most stores are directly operated by the respective manufacturer. Unlike some
other outlet center developers, the Company has for the most part excluded
off-price retailers (retailers that sell merchandise from a number of sources,
often second quality, limited stock or non-name brand items) from its centers.
The Company believes that this policy helps it attract and maintain a high
quality tenant base.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 1996. During 1995 and 1994, one
tenant (including affiliates) accounted for approximately 10% and 11% of
combined base and percentage rental revenues. Because the typical tenant of the
Company is a large, national manufacturer, the Company has not experienced any
material problems with respect to rent collections or lease defaults.
Minimum base rental revenues and operating expense reimbursements accounted for
approximately 96% of the Company's total revenues in 1996. Percentage rental
revenues accounted for approximately 3% of 1996 revenues. As a result, only a
small portion of the Company's revenues are dependent on contingent revenue
sources, such as percentage rents, which fluctuate depending on tenant's sales
performance.
BUSINESS HISTORY
Stanley K. Tanger, the Company's 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"), whose
business included the operation of five factory outlet stores. Based on their
knowledge of the apparel and retail industries, as well as their experience
operating Tanger/Creighton's factory outlet stores, the Tangers recognized that
there would be a demand for factory outlet centers where a number of
manufacturers could operate in a single location and attract a large number of
shoppers. Since a single manufacturer was generally not in a position to build a
factory outlet center tenanted by other manufacturers and retailers, the Tangers
and the Company found a natural market for their experience.
Stanley K. Tanger's initial investments in the factory outlet business were
joint ventures with third party investors. Having gained experience in the
factory outlet center business and developed the nucleus of a management team
with close contacts with leading retailers, the Company's management made the
strategic decision that future growth would be through projects owned or
controlled by the Company.
Stanley K. Tanger continues to hold a non-controlling interest in three of the
original joint ventures that operate factory outlet centers, containing an
aggregate 109,080 square feet of GLA, which are currently managed by the
Company. Because Mr. Tanger does not hold a controlling interest in these joint
ventures, he was unable to contribute their properties in connection with the
formation of the Operating Partnership and the Company in 1993. Revenues from
managing the joint ventures (which the Company expects to continue to manage)
accounted for less than one tenth of one percent of the Company's revenues in
1996. The Company receives an annual management fee of not less than 5% of the
fixed rents received from the tenants occupying the properties. The management
arrangement is terminable upon notice by either party.
4
BUSINESS AND OPERATING STRATEGY
The Company intends to increase its cash flow and the value of its portfolio
over the long-term by continuing to own, manage, acquire, develop, and expand
factory outlet centers. The Company's strategy is to increase revenues through
selective acquisitions, new development and expansions of factory outlet centers
while minimizing its operating expenses by designing low maintenance properties
and achieving economies of scale. In connection with the ownership and
management of its properties, the Company places an emphasis on regular
maintenance and intends to make periodic renovations as necessary. In addition,
the Company will seek to maintain high occupancy rates and increasing rental
revenues with a tenant base of nationally recognized brand name tenants.
At December 31, 1996, the Company's centers were 99% leased and have averaged a
99% occupancy level for the last five years. For 1996, the Company has
successfully renewed or released 100% of the space that had come up for renewal
or had expired during the year. Approximately 90% of such space was renewed by
the existing tenant. Lease renewals for the year were at an average base rent
per square foot that was approximately 13% above the expiring rate.
The Company typically seeks locations for its new centers that have at least 3.5
million people residing within an hour's drive, an average household income
within a 50 mile radius of at least $35,000 to $40,000 per year and access to a
highway with a traffic count of at least 35,000 cars per day. The Company will
vary its minimum conditions based on the particular characteristics of a site,
especially if the site is located near or at a vacation destination. The
Company's current goal is to target sites that are large enough to construct
centers with approximately 75 stores totalling at least 300,000 square feet of
GLA. Generally, the Company will build such centers in phases, with the first
phase containing approximately at least 200,000 square feet of GLA. The first
phase usually is more expensive than the later phases because the Company
generally finishes most of the site work, including parking lots, utilities,
zoning and other developmental work, in the first phase.
The Company preleases a large part of the space in each center prior to
acquiring the site and beginning construction. Historically, the Company has not
begun construction until it has obtained a significant amount of signed leases.
Typically, construction of a new factory outlet center has taken the Company
four to six months from groundbreaking to the opening of the first tenant store.
Construction of expansions to existing properties typically takes less time,
usually between three to four months.
Currently, construction has commenced on the initial phase of a second center in
Riverhead, New York totalling approximately 240,000 square feet. Approximately
93% of this additional GLA is leased or committed to be leased and is expected
to be opened by late Spring of 1997. In addition, the Company is in the
preleasing stages of three new sites located in Concord, NC (Charlotte),
Romulus, MI (Detroit) and Ashburn, VA (Washington, D.C.) and, on February 28,
1997, completed the purchase of an existing factory outlet center containing
approximately 123,000 square feet for an aggregate purchase price of $18.0
million. The Company also is in the process of developing plans for additional
expansions and new centers for completion in 1998 and beyond and will consider
other acquisitions that are suitable for its portfolio. However, there can be no
assurance that any of these anticipated or planned developments or expansions
will be started or completed as scheduled, or that any acquisitions will be
made.
CAPITAL STRATEGY
The Company's capital strategy is to maintain a strong and flexible financial
position by: (1) maintaining a low level of leverage, (ii) extending and
sequencing debt maturity dates, (iii) managing its floating rate exposure, (iv)
maintaining its liquidity and (v) reinvesting a significant portion of its cash
flow by maintaining a low distribution payout ratio (distributions paid in
respect of a year as a percent of funds from operations ("FFO") for such year).
The Company's distribution payout ratio for the year ended December 31, 1996 was
69%, which the Company believes to be one of the lowest payout ratios in the
REIT industry. As a result, the Company retained approximately $10 million of
its 1996 FFO. The distribution payout ratio policy allows the Company to retain
capital to maintain the quality of its portfolio, as well as to develop and
expand properties.
The Company and the Operating Partnership filed a shelf registration statement
in November 1995 with the Securities and Exchange Commission to issue up to $100
million in equity securities and $100 million in debt securities. During March
1996, the Company used a portion of its borrowing capacity under the shelf
registration to issue, through the
5
Operating Partnership, $75 million of senior, unsecured notes, maturing March
11, 2001, with a coupon rate of 8.75% (effective yield of 8.926%). The proceeds
of this offering were used to extinguish the Company's revolving lines of credit
existing prior to January 1996. In April 1996, the Company filed a new
registration statement with the SEC to reestablish the total amount of funds
available under the shelf registration at $200 million.
During the year, the Company established a new $50 million secured line of
credit, with interest payable at LIBOR plus 1.5% and established other unsecured
lines of credit totalling $40 million with interest rates ranging from prime
less .25% to prime or LIBOR plus 1.75% to LIBOR plus 1.85%. Amounts available
under these lines of credit, based on debt outstanding at December 31, 1996,
totalled $62.2 million. When considered with the Company's existing interest
rate protection agreement covering $10 million of variable rate debt, the
Company's exposure to interest rate risk on variable rate borrowings outstanding
at December 31, 1996 was limited to $17.8 million. Also, with the addition of
the unsecured borrowings, the Company has effectively unencumbered approximately
55% of its real estate assets.
The Company's ratio of debt to total market capitalization (defined as the value
of the Company's outstanding shares, including Preferred shares and Operating
Partnership Units both of which are convertible into Common Shares, plus total
debt) at December 31, 1996 was approximately 40% (assuming that each type of
Unit has the same value as the equivalent shares of the Company, which at
February 28, 1997 had a market value of $24.875 per common share).
The Company intends to retain the ability to raise additional capital, including
additional debt, to pursue attractive investment opportunities that may arise
and to otherwise act in a manner that it believes to be in the best interests of
the Company and its shareholders. The organizational documents of the Company do
not impose a limit on the level of debt that the Company may incur.
THE OPERATING PARTNERSHIP
The Properties and other assets of the Company are held by, and all of the
Company's operations are conducted by, the Operating Partnership. As of December
31, 1996, the ownership interests in the Operating Partnership consisted of
6,602,510 general partnership Units and 106,419 general preferred partnership
Units (which are convertible into approximately 958,835 general partnership
Units) held by the Company and 3,033,305 limited partnership Units held by the
Tanger Family Limited Partnership. Each Unit of partnership interest in the
Operating Partnership issued to the Tanger Family Limited Partnership, in
connection with the formation of the Operating Partnership, and to the Company,
in respect of the Company's contribution to the Operating Partnership of the
proceeds from the public offerings, was designed to result in a distribution per
Unit approximately equal to a distribution per share of the Company's Common and
Preferred Shares. Each Unit of limited partnership interest is exchangeable into
one share of Common Stock (subject to certain antidilution adjustments and
certain limitations on exchange to preserve the Company's status as a REIT).
Each Preferred Unit entitles the Company to receive distributions from the
Operating Partnership, in an amount equal to the dividend payable with respect
to a share of Series A Preferred Shares, prior to the payment by the Operating
Partnership of distributions with respect to the general Units. Preferred Units
will be automatically converted into general partnership Units to the extent of
any conversion of Series A Preferred Shares into Common Stock, and will be
redeemed by the Operating Partnership to the extent of any redemption of Series
A Preferred Shares.
There are, however, certain differences between the ownership of Common Stock,
Series A Preferred Shares and Units, including:
Voting Rights. Holders of Common Stock may elect the Board of Directors
of the Company, which, as the general partner of the Operating
Partnership, controls the business of the Operating Partnership.
Holders of Series A Preferred Shares may not elect directors, except
under certain circumstances. Holders of limited partnership Units may
not elect directors, or elect or remove the general partner without the
consent of the Company. So long as holders of limited partnership Units
have at least 10% of the capital of the Operating Partnership, such
holders have certain rights to approve a liquidation of the Operating
Partnership, a merger of the Operating Partnership or the sale of all
or substantially all of its assets.
6
Transferability. The shares of Common Stock and Series A Preferred
Shares (and the Depositary Shares representing such Series A Preferred
Shares) will be freely transferable under the Securities Act of 1933,
as amended, by holders who are not affiliates of the Company or the
Underwriters. The Units are subject to transfer restrictions under
applicable securities laws and under the partnership agreement of the
Operating Partnership including the required consent of the general
partner to the admission of any new limited partner.
The Operating Partnership agreement may not be amended without consent of the
general partner and a majority interest of the limited partners, except certain
provisions with respect to distributions, conversion rights, and voting rights.
Each limited partnership Unit is exchangeable for one share of Common Stock at
any time (subject to certain limitations and antidilution adjustments). No
limited partner may exchange Units for Common Stock more than once in any six
month period. The issuance of additional Units will be at the discretion of the
Company as the general partner, subject to certain limitations as to the terms
of such issuance contained in the partnership agreement. The limited partners
have certain rights to make pro rata capital contributions in the event of the
admission of new partners. The Operating Partnership may not issue additional
Units that would result in the Company owning less than one-half of the
outstanding Units without the consent of the Company as the general partner. The
Company may not assign or substitute general partners without the consent of all
limited partners.
The Operating Partnership is a North Carolina limited partnership. Its principal
executive offices are located at 1400 West Northwood Street, Greensboro, NC
27408, its telephone number is (910) 274-1666.
COMPETITION
The Company's centers compete for customers primarily with factory outlet
centers built and operated by different developers, traditional shopping malls
and "off-price" retailers. The Company carefully considers the degree of
existing and planned competition in a proposed area before deciding to build a
new center.
The Company's centers compete, to a limited extent, with various full-and
off-price retailers in the highly fragmented retailing industry. However,
management believes that the majority of the Company's customers visit factory
outlet centers because they are intent on buying first-quality, name-brand goods
at discounted prices. Traditional full-and off-price retailers are often unable
to provide such a variety of products at attractive prices.
Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own stores, and therefore generally insist that the outlet
centers be located not less than 20 miles from the nearest major department
store or the tenants' own specialty stores. For this reason, the Company's
centers compete only to a very limited extent with traditional malls in or near
metropolitan areas.
Management believes that the Company competes with as many as four large
national developers of factory outlet centers and numerous small developers.
Competition with other factory outlet centers for new tenants is generally based
on location, quality and mix of the centers' existing tenants, degree and
quality of the support services (including marketing) provided by the property
manager and rental and other charges. The Company believes that its centers have
an attractive tenant mix, as a result of the Company's decision to lease
substantially all of its space to manufacturer operated factory outlets rather
than to off-price retailers, and also as a result of the strong brand identity
of the Company's major tenants.
CORPORATE AND REGIONAL HEADQUARTERS
The Company owns a small office building in Greensboro, North Carolina in which
its corporate headquarters is located. In addition, the Company rents a regional
office in New York City, New York under a lease agreement and sublease
agreement, respectively to better service its principal fashion-related tenants,
many of whom are based in and around that area.
The Company maintains on-site managers and offices at 21 Properties, excluding
the Sevierville Property, to closely monitor the development of those Properties
from construction through opening and operation and to provide effective and
efficient management services. In addition, the Company maintains an off-site
business office in Portland Maine to service the New England Properties.
7
INSURANCE
Management believes that the Properties are covered by adequate fire, flood and
property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
EMPLOYEES
As of February 28, 1997, excluding the Sevierville Property which was acquired
on such date, the Company had 95 full-time employees, located at the Company's
corporate headquarters in North Carolina, its regional office in New York and
its 22 business offices.
ITEM 2. BUSINESS AND PROPERTIES
As of February 28, 1997, the Company's portfolio, excluding the Sevierville
Property which was acquired on such date, consisted of 27 opened centers located
in 22 states. The Company's factory outlet centers range in size from 8,000 to
286,195 square feet of GLA. These factory outlet centers are typically strip
shopping centers which enable customers to view all of the shops from the
parking lot, and therefore minimizing the time needed to shop. The centers are
generally located near tourist destinations or along major interstate highways,
to increase visibility and accessibility to potential customers.
The Company believes that the Properties are well diversified geographically and
by tenant and that it is not dependent upon any single property or tenant. The
only property that represents more than 10% of the Company's consolidated total
assets or consolidated gross revenues as of December 31, 1996 is the property in
Riverhead, NY. See "Business and Properties - Significant Property". No other
property represented more than 10% of the Company's consolidated total assets or
consolidated gross revenues as of December 31, 1996.
LOCATION OF PROPERTIES
Number of Gross Leasable
State Centers Area (GLA) Percent of GLA
- ---------------------------------------------------------- ------------- ----------------- -----------------
Georgia 3 619,124 16%
Texas 2 396,580 10
New York 1 286,195 8
Iowa 1 275,706 7
Missouri 1 255,073 7
Louisiana 1 245,325 7
Pennsylvania 1 203,952 6
Oklahoma 1 197,878 5
Arizona 1 186,018 5
Indiana 1 141,051 4
Minnesota 1 134,480 4
Michigan 1 112,120 3
California 1 108,950 3
Oregon 1 97,749 3
Tennessee 1 94,750 2
Kansas 1 88,200 2
Maine 2 84,958 2
Alabama 1 80,730 2
New Hampshire 2 61,915 2
West Virginia 1 49,252 1
Massachusetts 1 23,417 1
Vermont 1 8,000 ---
Total 27 3,751,423 100%
============= ================= =================
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The table set forth below summarizes certain information with respect to the
Company's existing centers as of February 28, 1997, excluding the Sevierville
Property which was acquired on such date.
PROPERTY PORTFOLIO
MORTGAGE
DEBT FEE OR
GLA % OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FEET) LEASED (000'S) (5) LEASE
- ---------------- ------------------------------------- ------------------ ----------- ---------------- ------------
JUN. 1986 KITTERY I, ME 56,312 100% $6,053 Fee
Aug. 1993 Expansion 3,943
MAR. 1987 CLOVER, NORTH CONWAY, NH 11,000 100% --- Fee
NOV. 1987 MARTINSBURG, WV 42,346 --- Fee
Sep. 1994 Expansion 6,906 100%
APR. 1988 LL BEAN, NORTH CONWAY, NH 50,915 100% --- Fee
JUL. 1988 PIGEON FORGE, TN 94,480 100% --- Ground
Jul. 1994 Expansion 270 Lease
(2086)
AUG. 1988 BOAZ, AL 78,550 96% 1,550 Fee
May 1993 Expansion 2,180
OCT. 1988 MANCHESTER, VT 8,000 100% --- Fee
JUN. 1989 KITTERY II, ME 23,119 100% --- Fee
Nov. 1993 Expansion 1,584
JUL. 1989 COMMERCE, GA 100,100 99% 10,412 Fee
Mar. 1990 Expansion 58,650
May 1992 Expansion 4,500
May 1993 Expansion 12,500
Sep. 1994 Expansion 10,000
OCT. 1989 BOURNE, MA 23,417 100% --- Fee
FEB. 1991 WEST BRANCH, MI 75,120 100% 6,932 Fee
Oct. 1992 Expansion 25,000
May 1994 Expansion 12,000
MAY 1991 WILLIAMSBURG, IA 121,444 93% 17,184 Fee
Nov. 1991 Expansion 50,675
Nov. 1992 Expansion 34,000(1)
Dec. 1993 Expansion 43,400
Apr. 1996 Expansion 26,187
FEB. 1992 CASA GRANDE, AZ 94,223 99% --- Fee
Dec. 1992 Expansion 91,795
AUG. 1992 STROUD, OK 96,378 94% 3,875 Fee
Nov. 1992 Expansion 37,500
Aug. 1993 Expansion 64,000
DEC. 1992 NORTH BRANCH, MN 106,280 96% --- Fee
Aug. 1993 Expansion 28,200
FEB. 1993 GONZALES, LA 105,985 99% 4,650 Fee
Aug. 1993 Expansion 109,450
Feb. 1996 Expansion 29,890
9
MORTGAGE
DEBT FEE OR
GLA % OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FEET) LEASED (000'S) (5) LEASE
- ---------------- ------------------------------------- ------------------ ----------- ---------------- ------------
MAY 1993 SAN MARCOS, TX 98,820 94% 10,349 Fee
Oct. 1993 Expansion 40,200
Nov. 1994 Expansion 17,500(2)
April 1995 Expansion 32,750
July 1996 Expansion 29,875(3)
DEC. 1993 LAWRENCE, KS 88,200 93% --- Fee
DEC. 1993 MCMINNVILLE, OR 97,749 85% --- Fee
AUG. 1994 RIVERHEAD, NY 285,295 100% --- Ground
Nov. 1996 Expansion 900 Lease
(2004)(4)
AUG. 1994 TERRELL, TX 126,185 98% --- Fee
Oct. 1995 Expansion 51,250
SEP. 1994 SEYMOUR, IN 141,051 99% 8,299 Fee
ACQUIRED LANCASTER, PA 191,152 99% 15,975 Fee
OCT. 1994
Nov. 1995 Expansion 12,800
NOV. 1994 BRANSON, MO 230,073 97% 5,425 Fee
Jun. 1996 Expansion 25,000(3)
NOV. 1994 LOCUST GROVE, GA 168,700 96% --- Fee
Dec. 1995 Expansion 45,964
Aug. 96 Expansion 34,190(3)
JAN. 1995 BARSTOW, CA 108,950 95% --- Fee
DEC. 1995 COMMERCE II, GA 148,520 100% --- Fee
Aug. 1996 Expansion 36,000
Total 3,751,423(3) 97% $90,704
================ ===================================== ================== =========== ================ ============
(1) GLA EXCLUDES 21,781 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY PIZZA
HUT.
(2) GLA EXCLUDES 17,400 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY
WENDY'S.
(3) GLA INCLUDES SQUARE FEET OF NEW SPACE NOT YET OPEN AT DECEMBER 31, 1996,
WHICH IN THE AGGREGATE TOTALLED 12,400 SQUARE FEET.
(4) THE GROUND LEASE IS SUBJECT TO RENEWAL AT THE OPTION OF THE COMPANY FOR UP
TO SEVEN ADDITIONAL TERMS OF FIVE YEARS EACH.
(5) AS OF DECEMBER 31, 1996. THE WEIGHTED AVERAGE INTEREST RATE FOR DEBT
OUTSTANDING AT DECEMBER 31, 1996 WAS 8.67% AND THE WEIGHTED AVERAGE
MATURITY DATE WAS MAY 2001.
- --------------------------------
Management has an ongoing program for developing new and expanding existing
centers. See Management's Discussion and Analysis of Financial Condition and
Results of Operations under the caption "Liquidity and Capital Resources" for a
discussion of the cost of such programs and the sources of financing thereof. In
the opinion of management, all of the properties are adequately covered by
insurance.
Certain of the Company's properties serve as collateral for mortgage notes
payable and revolving lines of credit. Of the 27 Properties, the Company owns 25
and has ground leases on two. The land on which the Pigeon Forge center is
located is subject to a long-term ground lease expiring in 2086. The land on
which the Riverhead center is located is also subject to a ground lease with an
initial term expiring in 2004, with renewal at the option of the Company for up
to seven additional terms of five years each. The Company in turn leases to
tenants under leases that generally range from five to ten years. The rental
payments are customarily subject to upward adjustments based upon contractual
base
10
rent increases during the term of the lease, tenant sales volume and operating
expense reimbursements (including real estate taxes, insurance, common area
maintenance and advertising and promotion expenses).
Generally, leases provide for the payment of fixed monthly rent in advance. Most
leases provide for payment by the tenant of a portion of the real estate taxes,
insurance, common area maintenance, advertising and promotion expenses incurred
by the factory outlet center. As a result, substantially all operating expenses
for the centers are borne by the tenants.
LEASE EXPIRATIONS
The following table sets forth, as of February 28, 1997, scheduled lease
expirations, excluding the Sevierville Property which was acquired on such date
and assuming none of the tenants exercise renewal options. Most leases are
renewable for five year terms at lessee's option.
% of Gross
Annual
Rental
No. of Approx. Average Annual Represented
Leases GLA Base Rent Base by Expiring
Year Expiring(2) (sq. ft.) per sq. ft. Rent (1) Leases
- -------------------- --------------- --------------- ---------------- ---------------- ----------------
1997 60 232,000 $11.91 $2,764,000 5.6%
1998 108 428,000 14.40 6,163,000 12.4
1999 164 604,000 14.48 8,746,000 17.6
2000 147 514,000 14.51 7,457,000 15.0
2001 141 504,000 14.35 7,232,000 14.6
2002 109 422,000 13.49 5,691,000 11.5
2003 50 240,000 13.49 3,238,000 6.5
2004 71 429,000 12.86 5,517,000 11.1
2005 16 103,000 12.06 1,242,000 2.5
2006 3 56,000 10.59 593,000 1.2
Thereafter 13 108,000 9.38 1,013,000 2.0
Total 882 3,640,000 $13.64 $49,656,000 100.0%
==================== =============== =============== ================ ================ ===================
(1) BASE RENT IS DEFINED AS THE MINIMUM PAYMENTS DUE AS OF DECEMBER 31, 1996,
EXCLUDING PERIODIC CONTRACTUAL FIXED INCREASES.
(2) EXCLUDES LEASES THAT HAVE BEEN ENTERED INTO BUT WHICH TENANT HAS NOT YET
TAKEN POSSESSION AND EXCLUDES MONTH-TO- MONTH LEASES.
RENTAL AND OCCUPANCY RATES
The following table sets forth information regarding the expiring leases during
each of the last four calendar years.
Renewed by Existing
Tenants Released to New Tenants Total Expiring
--------- ------------------------- ---------------
% of % of % of % of Total
GLA Expiring GLA Expiring GLA Expiring Property
Year (Sq Ft.) GLA (Sq Ft.) GLA (Sq Ft.) GLA GLA
- ---------- ------------ ----------------- ------------- ---------------- ------------- ----------------- -----------------
1996 134,639 90% 15,050 10% 149,689 100% 4%
1995 91,250 97% 2,400 3% 93,650 100% 3%
1994 105,697 91% 10,000 9% 115,697 100% 3%
1993 123,569 96% 5,500 4% 129,069 100% 4%
11
The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last four calendar years.
Renewals of Existing Leases Stores Re-leased to New Tenants (1)
----------------------------- ------------------------------------
Average Annualized Base Rents Average Annualized Base Rents
($ per square ft) ($ per square ft)
------------------- ------------------
GLA GLA
Year (Sq Ft.) Expiring New % Increase (Sq Ft.) Expiring New % Increase
- ------------- ------------ ------------ ------------- ------------- ------------- ------------- ----------- --------------
1996 134,639 $12.44 $14.02 12.7% 78,268 $14.40 $14.99 4.1%
1995 91,250 11.54 13.03 12.9 59,445 13.64 14.80 8.5
1994 105,697 14.26 16.56 16.1 71,350 12.54 14.30 14.0
1993 123,569 12.83 13.94 8.7 29,000 10.81 14.86 37.5
- ---------------------
(1) THE SQUARE FOOTAGE RELEASED TO NEW TENANTS FOR 1996, 1995, 1994 AND 1993
CONTAIN 15,050, 2,400, 10,000 AND 5,500 SQUARE FEET, RESPECTIVELY, THAT WAS
RELEASED TO NEW TENANTS UPON EXPIRATION OF AN EXISTING LEASE. THE REMAINING
SPACE WAS RETENANTED PRIOR TO ANY LEASE EXPIRATION.
The following table shows certain information on rents and occupancy rates for
the Operating Partnership during each of the last five calendar years.
Average GLA Open Number of Aggregate
Base Rent at End of Operating Percentage
Year Occupancy Per Square Ft(1) Each Year Properties Rents
- ------------------------ --------------- ------------------- ------------------- ------------------- -------------------
1996 99% $13.89 3,739,000 27 $2,017,000
1995 99% 13.92 3,507,000 27 2,068,000
1994 99% 13.43 3,115,000 25 1,658,000
1993 98% 13.03 1,980,000 19 1,323,000
1992 99% 12.77 1,284,000 15 1,167,000
- ---------------------
(1) REPRESENTS TOTAL BASE RENTAL REVENUE DIVIDED BY WEIGHTED AVERAGE GLA OF THE
PORTFOLIO, WHICH AMOUNT DOES NOT TAKE INTO CONSIDERATION FLUCTUATIONS IN
OCCUPANCY THROUGHOUT THE YEAR.
OCCUPANCY COSTS
The Company believes that its average occupancy cost (which includes base rent,
common area maintenance, real estate taxes, insurance, and promotions) to
average sales per square foot ratio is low relative to other forms of retail
distribution. The following table sets forth, for each of the last five years,
occupancy costs per square foot as a percentage of reported tenant sales per
square foot.
Occupancy
Year Costs
- --------------------- -----------------------
1996 8.7%
1995 8.5%
1994 7.4%
1993 6.5%
1992 6.5%
12
TENANTS
The following table sets forth certain information with respect to the Company's
largest tenants and their store concepts as of February 28, 1997, excluding
stores in the Sevierville Property.
Number GLA % of Total
Tenant of Stores (Sq. Ft.) GLA open
- ---------------------------------------------------------- --------- ------------- ----------
Phillips-Van Heusen Corporation:
Bass Shoes 15 103,162 2.75%
Bass Apparel 2 9,300 0.25%
Bass Company Store 1 6,500 0.17%
Van Heusen 17 74,476 1.99%
Geoffrey Beene Co. Store 17 67,660 1.80%
Izod 17 38,802 1.03%
Gant 9 25,100 0.67%
--------- ------------- ----------
78 325,000 8.66%
Liz Claiborne:
Liz Claiborne 24 272,881 7.27%
Elizabeth 4 18,200 0.49%
--------- ------------- ----------
28 291,081 7.76%
Reebok International, Ltd. 19 141,800 3.78%
Sara Lee Corporation:
L'eggs, Hanes, Bali 18 85,150 2.27%
Champion 3 9,000 0.24%
Sara Lee Bakery 5 11,750 0.31%
Coach 3 7,800 0.21%
Socks Galore 4 4,868 0.13%
--------- ------------- ----------
33 118,568 3.16%
County Seat Stores, Inc.:
County Seat 6 49,000 1.31%
Levi's by County Seat 5 57,700 1.54%
--------- ------------- ----------
11 106,700 2.84%
American Commercial, Inc.:
Mikasa Factory Store 12 91,000 2.43%
Oshkosh B'Gosh, Inc.:
Oshkosh 12 67,540 1.80%
Genuine Kids 6 18,250 0.49%
--------- ------------- ----------
18 85,790 2.29%
VF Factory Outlet, Inc. 3 78,697 2.10%
Brown Group Retail, Inc.:
Famous Footwear 4 21,000 0.56%
Naturalizer 6 14,200 0.38%
Brown Shoe 2 10,500 0.28%
Factory Brand Shoes 6 30,200 0.81%
Air Step/Buster Brown 1 3,000 0.08%
--------- ------------- ----------
19 78,900 2.10%
Lechters, Inc. 14 57,000 1.52%
Total of all tenants shown 235 1,374,536 36.70%
========= ============= ==========
13
SIGNIFICANT PROPERTY
The Riverhead, NY property was constructed during 1994 and tenants began to
occupy space mid-year. At December 31, 1994, approximately 83% of the available
GLA had been occupied by tenants and the remaining GLA was occupied in 1995. The
average annualized base rental rate during 1996, 1995 and 1994 was approximately
$17.73, $17.63 and $18.18 per weighted average GLA. No one tenant occupies more
than 10% of the Riverhead property's available GLA. The tenants at the
Riverhead, NY property principally conduct retail sales operations. The Company
currently is constructing an additional property adjacent to the existing
Riverhead, NY property, which will contain an initial phase totalling
approximately 240,000 square feet. See "Business-Recent Developments" and
"Business-Business and Operating Strategy".
Depreciation on the Riverhead, NY property is recognized on a straight-line
basis over 33.33 years, resulting in a depreciation rate of 3% per year. At
December 31, 1996, the net federal tax basis of the property was approximately
$37,509,000. Real estate taxes assessed during 1996 amounted to $749,000.
The following table sets forth, as of February 28, 1997, scheduled lease
expirations at the Riverhead, NY property assuming that none of the tenants
exercise renewal options:
% of Gross
Annual
Rental
No. of Annual Represented
Leases GLA Base Rent Base by Expiring
Year Expiring (sq. ft.) per sq. ft. Rent (1) Leases
- -------------------- --------------- --------------- ---------------- ---------------- ----------------
1998 1 10,000 $16.00 $160,000 3.1%
1999 23 85,860 18.26 1,568,000 30.7%
2000 5 17,235 18.92 326,000 6.4%
2001 8 34,150 20.12 687,000 13.4%
2002 12 36,000 20.06 722,000 14.1%
2004 18 102,950 16.02 1,649,000 32.3%
Total 67 286,195 $17.86 $5,112,000 100.0%
==================== =============== =============== ================ ================ ================
(1) BASE RENT IS DEFINED AS THE MINIMUM PAYMENTS DUE AS OF DECEMBER 31, 1996,
EXCLUDING PERIODIC CONTRACTUAL FIXED INCREASES.
ITEM 3. LEGAL PROCEEDINGS
Except for claims arising in ordinary course of business, which are covered by
the Company's liability insurance, the Company is not presently involved in any
litigation involving claims against the Company, nor, to its knowledge, is any
material litigation threatened against the Company or its Properties which would
have a material adverse effect on the Company, its Properties or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1996.
14
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the executive
officers of the Company:
NAME AGE POSITION
Stanley K. Tanger....................... 73 Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger........................ 48 Director, President and Chief Operating Officer
Rochelle G. Simpson .................... 58 Secretary and Senior Vice President -
Administration and Finance
Willard A. Chafin, Jr................... 59 Senior Vice President - Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr................ 38 Vice President - Chief Financial Officer
Joseph H. Nehmen........................ 47 Vice President - Operations
Virginia R. Summerell................... 38 Treasurer and Assistant Secretary
C. Randy Warren, Jr..................... 32 Vice President - Leasing
Richard T. Parker....................... 48 Vice President - Development
Carrie A. Johnson....................... 34 Vice President - Marketing
The following is a biographical summary of the experience of the executive
officers of the Company:
STANLEY K. TANGER. Mr. Tanger is the Chief Executive Officer and Chairman
of the Board of Directors of the Company. He also served as President from
inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
STEVEN B. TANGER. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
ROCHELLE G. SIMPSON. Ms. Simpson was named Senior Vice President -
Administration and Finance of the Company in October 1995. She is also the
Secretary of the Company and previously served as Treasurer from May 1993
through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.
WILLARD A. CHAFIN, JR. Mr. Chafin was named Senior Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in October
1995. He joined the Company in April 1990, and since has held various executive
positions where his major responsibilities included supervising the Marketing,
Leasing and Property Management Departments, and leading the Asset Management
Team. Prior to joining the Company, Mr. Chafin was the Director of Store
Development for the Sara Lee Corporation, where he spent 21 years. Before
joining Sara Lee, Mr. Chafin was employed by Sears Roebuck & Co. for nine years
in advertising/sales promotion, inventory control and merchandising.
15
FRANK C. MARCHISELLO, JR. Mr. Marchisello was named Vice President and
Chief Financial Officer of the Company in November 1994. Previously, he served
as Chief Accounting Officer since joining the Company in January 1993 and
Assistant Treasurer since February 1994. He was employed by Gilliam, Coble &
Moser, certified public accountants, from 1981 to 1992, the last six years of
which he was a partner of the firm in charge of various real estate clients.
While at Gilliam, Coble & Moser, Mr. Marchisello worked directly with the
Tangers since 1982. Mr. Marchisello is a graduate of the University of North
Carolina at Chapel Hill and is a certified public accountant.
JOSEPH H. NEHMEN. Mr. Nehmen joined the Company in September 1995 and was
elected Vice President of Operations in October 1995. Mr. Nehmen has over 20
years experience in private business. Prior to joining Tanger, Mr. Nehmen was
owner of Merchants Wholesaler, a privately held distribution company in St.
Louis, Missouri. He is a graduate of Washington University. Mr. Nehmen is the
son-in-law of Stanley K. Tanger.
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 of service with NationsBank. Her major responsibilities include cash
management and oversight of all project and corporate finance transactions. Ms.
Summerell is a graduate of Davidson College and holds an MBA from the Babcock
School at Wake Forest University.
C. RANDY WARREN, JR. Mr. Warren is the Vice President - Leasing of the
Company and joined the Company in November 1995. He was previously director of
anchor leasing at Prime Retail, L.P., where he managed anchor tenant relations
and negotiation on a national basis. Prior to that, he worked as a leasing
executive for the company. Before entering the outlet industry, he was founder
of Preston Partners, a development consulting firm in Baltimore, MD. Mr. Warren
is a graduate of Towson State University and holds an MBA from Loyola College.
RICHARD T. PARKER. Mr. Parker is the Vice President - Development and
joined the Company in April 1996. Prior to joining Tanger, Mr. Parker was with
The Mills Corp for nine years where he served as Vice President of Land
Development responsible for organizing and planning the development,
merchandising and sale of peripheral land surrounding 2 million-plus square foot
super regional mall projects. Prior to joining The Mills Corp, Mr. Parker was
employed by Marriott International for 6 years where he served as Director of
Franchise Development. Mr. Parker is a graduate of Golden Gate University and a
veteran of the United States Air Force.
CARRIE A. JOHNSON. Ms. Johnson was named Vice President - Marketing in
September 1996. Previously, she held the position of Assistant Vice President -
Marketing since joining the Company in December 1995. Prior to joining Tanger,
Ms. Johnson was with Prime Retail, LP 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, Inc., Ms.
Johnson was Marketing Manager for North Hills, Inc. for five years and also
served in the same role for the Edward J. DeBartolo Corp. for two years. Ms.
Johnson is a graduate of East Carolina University.
16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
The Common Stock commenced trading on the New York Stock Exchange on May 28,
1993. The initial public offering price was $22.50 per share. The following
table sets forth the high and low sales prices of the Common Stock as reported
on the New York Stock Exchange Composite Tape, during the periods indicated.
Common
1996 High Low Dividends Paid
- ----------------------------- ------------------ ------------------ ------------------
First Quarter $26.00 $23.38 $.50
Second Quarter 25.38 22.63 .52
Third Quarter 24.88 22.88 .52
Fourth Quarter 27.38 23.50 .52
Year 1996 $27.38 $22.63 $2.06
- ----------------------------- ------------------ ------------------ ------------------
Common
1995 High Low Dividends Paid
- ----------------------------- ------------------ ------------------ ------------------
First Quarter $27.25 $22.75 $.46
Second Quarter 26.75 22.75 .50
Third Quarter 27.75 24.50 .50
Fourth Quarter 26.00 22.63 .50
Year 1995 $27.75 $22.63 $1.96
- ----------------------------- ------------------ ------------------ ------------------
As of February 28, 1997, there were approximately 467 shareholders of record.
Certain of the Company's debt agreements limit the payment of dividends such
that dividends shall not exceed 95% of funds from operations, as defined in the
agreements, on a cumulative basis. Based on continuing favorable operations and
available funds from operations, the Company intends to continue to pay regular
quarterly dividends.
17
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data) 1996 1995 1994 1993 1992
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
OPERATING DATA
Total revenues $75,500 $68,604 $45,988 $29,204 $17,931
EBITDA 46,474 41,058 26,089 17,519 10,926
Income before minority interest and
extraordinary item 16,177 15,352 15,147 8,555 1,991
Income before extraordinary
item(1) 11,752 11,218 11,168 4,574 ---
Net income (1)(3) 11,191 11,218 11,168 1,898 ---
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
SHARE DATA (2)
Income before extraordinary item $1.46 $1.36 $1.32 $.90
Net income (3) $1.37 $1.36 $1.32 $.35
Common dividends paid $2.06 $1.96 $1.80 $.535
Weighted average common shares
outstanding 6,402 6,095 5,177 4,858
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $358,361 $325,881 $292,406 $137,666 $85,460
Total assets 332,138 315,130 294,802 182,396 88,192
Long-term debt 178,004 156,749 121,323 20,316 90,188
Shareholders' equity (deficit) 110,657 114,813 118,177 120,067 (9,419)
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
OTHER DATA
Funds from operations (4) $32,313 $29,597 $23,189 $12,008 $4,471
Cash flows from:
Operating activities $38,051 $32,423 $21,304 $11,571 $4,263
Investing activities ($36,401) ($44,788) ($143,683) ($49,277) ($29,374)
Financing activities ($4,176) $13,802 $80,661 $81,324 $25,528
Gross leasable area open at year end 3,739 3,507 3,115 1,980 1,284
Number of centers 27 27 25 19 15
- --------------------------------------- ------------- ------------- -------------- --------------- --------------
(1) All earnings prior to the initial public offering ("IPO") on June 4, 1993
have been allocated to minority interest. Subsequent to the IPO, earnings
have been allocated to the Company and the minority interest based on their
respective weighted average ownership interests in the Operating
Partnership during the year.
(2) Not applicable in 1992 since the IPO took place in June 1993.
(3) Pro forma net income and net income per common share, which reflect
adjustments to historical information to present income information as if
the IPO had taken place on January 1, 1992, were $6,551 and $1.31 per share
during 1993 and $3,467 and $.71 per share during 1992.
(4) Funds from operations for all years presented have been restated in
accordance with the new definition provided by the National Association of
Real Estate Investment Trusts. See Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Liquidity
and Capital Resources" for a complete discussion of funds from operations.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the consolidated statements of operations,
including trends which might appear, are not necessarily indicative of future
operations.
The discussion of the Company's results of operations reported in the
consolidated statements of operations compares the years ended December 31, 1996
and 1995, as well as December 31, 1995 and 1994. 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 and expansion or disposition of rental properties. The computation
of weighted average GLA, however, does not adjust for fluctuations in occupancy
throughout each year shown since GLA is not reduced when original occupied space
subsequently becomes vacant.
GENERAL OVERVIEW
The Company continues to grow principally through the development of new factory
outlet centers, acquisitions and expansion of existing centers. During 1996, the
Company completed six expansions totalling 181,142 square feet. In addition,
construction has commenced on the initial phase of a new center in Riverhead,
New York totalling approximately 240,000 square feet. During 1995, the Company
substantially completed two new centers and expanded four existing centers.
Total square feet opened in 1995, including completion of certain projects that
commenced at the end of 1994, was 392,312 square feet.
A summary of the operating results for the years ended December 31, 1996, 1995
and 1994 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
Year Ended December 31,
---------------------------------------------
1996 1995 1994
----------- ---------------- ----------------
GLA open at end of period (000's) 3,739 3,507 3,115
Weighted average GLA (000's) (1) 3,642 3,292 2,230
Outlet centers in operation 27 27 25
New centers opened --- 2 6
Centers expanded 6 4 6
States operated in at end of period 22 22 21
PER SQUARE FOOT
Revenues
Base rentals $13.89 $13.92 $13.43
Percentage rentals .55 .63 .74
Expense reimbursements 6.04 6.05 5.96
Other income .25 .24 .49
Total revenues 20.73 20.84 20.62
----------- ---------------- ----------------
Expenses
Property operating 6.47 6.83 6.95
General and administrative 1.50 1.54 1.97
Mortgage interest 3.84 3.44 1.26
Depreciation and amortization 4.52 4.37 3.65
Total expenses 16.33 16.18 13.83
----------- ---------------- ----------------
Income before gain on sale of land, minority interest and
extraordinary item $4.40 $4.66 $6.79
=========== ================ ================
(1) GLA WEIGHTED BY MONTHS OF OPERATIONS.
19
CAUTIONARY STATEMENTS
The discussion below contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 which reflect
management's current views with respect to future events and financial
performance. Such forward-looking statements are subject to certain risks and
uncertainties; including, but not limited to, the effects of future events on
the Company's financial performance; the risk that the Company may not be able
to finance its planned development activities; risks related to the retail
industry in which the Company's outlet centers compete, including the potential
adverse impact of external factors such as inflation, tenant demand for space,
consumer confidence, unemployment rates and consumer tastes and preferences;
risks associated with the Company's development activities, such as the
potential for cost overruns, delays and lack of predictability with respect to
the financial returns associated with these development activities; the risk of
potential increase in market interest rates from current rates; risks associated
with real estate ownership, such as the potential adverse impact of changes in
the local economic climate on the revenues and the value of the Company's
properties; and the risks that a significant number of tenants may become unable
to meet their lease obligations or that the Company may be unable to renew or
re-lease a significant amount of available space on economically favorable
terms.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Base rentals increased $4.8 million, or 10%, for the year ended December 31,
1996 when compared to the same period in 1995 primarily as a result of a 11%
increase in weighted average GLA. Base rentals per weighted average GLA
decreased less than 1% from $13.92 per square foot to $13.89 per square foot
reflecting a slightly lower average occupancy rate during 1996 compared to 1995.
The increase in base rents in 1996 consists of $1.1 million associated with
leases added during 1996 and $3.7 million related to the effect of a full year's
operation of centers opened in 1995.
Percentage rentals decreased $51,000, or 2%, in 1996 compared to 1995 and
percentage rentals per weighted average GLA declined $.08 per square foot, or
13%, as a result of the dilutive effect of the increase in additional square
footage associated with the expansions since tenant sales at centers in their
first year of operation often do not reach the level on which percentage rentals
are required (the "breakpoint"). The decrease is also a result of escalating
breakpoints in certain leases renewing at existing centers without comparable
increases in sales. Tenant sales per square foot for centers which were opened
all of 1996 and 1995 increased 2% to approximately $226 per square foot.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, operating, property tax, promotional and
management expenses, increased $2.1 million during 1996 as compared to the same
period in 1995 due principally to the related increase in reimbursable operating
and maintenance expenses associated with the growth in GLA. Expense
reimbursements expressed as a percent of property operating expenses were 93% in
the 1996 period compared to 89% in the 1995 period due to certain contractual
increases and reductions in nonrecoverable operating and maintenance expenses.
Property operating expenses increased by $1.1 million, or 5%, in 1996 as
compared to 1995. On a weighted average GLA basis, property operating expenses
decreased from $6.83 per square foot to $6.47 per square foot primarily due to a
reduction in advertising and promotion expenses reflecting the Company's use of
cost efficient means in advertising and promoting its centers. The decrease was
partially offset by increases in real estate taxes as a result of reassessments
of recently completed properties, particularly the property in Riverhead, NY.
General and administrative expenses decreased 3% on a weighted average GLA basis
to $1.50 for the year ended 1996. General and administrative expenses as a
percent of revenues decreased 3% to 7.2% in 1996 compared to 7.4% in 1995.
Aggregate interest expense increased $2.7 million and $.40 per weighted average
GLA during 1996 period as compared to 1995. The increase is due to higher
average borrowings outstanding during the period associated with the growth in
GLA and due to a higher average interest rate under the senior unsecured notes
issued in March 1996 when compared with the short term lines of credit
previously utilized. Depreciation and amortization per weighted average GLA
increased 3% from $4.37 per square foot to $4.52 per square foot primarily due
to increases in tenant finishing allowances included in building and
improvements which are depreciated over shorter lives and the accelerated
depreciation of certain tenant finishing allowances related to tenants who
vacated or terminated their lease prior to the expiration of the lease term.
20
The extraordinary item represents the write off of previously deferred financing
costs of $831,000 in connection with the early retirement of debt with the
proceeds from the senior unsecured notes issued in March 1996.
1995 COMPARED TO 1994
Base rentals increased $15.9 million, or 53%, for the year ended December 31,
1995 when compared to the same period in 1994 primarily as a result of a 48%
increase in weighted average GLA as well as the impact of leases renewing at
higher base rental rates. The increase in base rents in 1995 consists of $2.2
million associated with leases added during 1995, $13.0 million related to the
effect of a full year's operation of centers opened in 1994, and $670,000
related to rental renewals in previously established outlet centers.
Percentage rents increased approximately $410,000 for the year ended December
31, 1995 over the same period in 1994. However, percentage rents per weighted
average GLA declined as a result of the dilutive effect of the increase in
additional square footage associated with the new centers (since tenant sales at
centers opening during the year often do not reach the level where percentage
rents are required) and due to a changing mix in the amount of base and
percentage rents on leases renewing at existing centers. Tenant sales per square
foot for centers which were opened all of 1995 and 1994 were virtually the same
as the prior year at approximately $226 per square foot.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, operating, property tax, promotional and
management expenses, increased $6.6 million during 1995 as compared to the same
period in 1994 due principally to the related increase in reimbursable property
operating expenses associated with the growth in GLA. Expense reimbursements
expressed as a percent of property operating expenses were 89% in the 1995
period compared to 86% in the 1994 period primarily as a result of certain
contractual increases.
Property operating expenses increased by $7.0 million, or 45%, in 1995 as
compared to 1994. On a weighted average GLA basis, property operating expenses
decreased from $6.95 per square foot to $6.83 per square foot. New developments
usually carry a higher than average cost per square foot until all the square
footage for that center is open for the entire period. Fewer new centers were
opened in 1995 as compared to the significant amount of openings in the 1994
period, contributing to the favorable decrease in property operating expenses
per weighted average GLA in 1995 compared to 1994. Excluding the new centers
which were opened in 1994, property operating expenses increased 4%, or $.27 per
square foot, due primarily to additional advertising and promotion expenses,
which reflect the Company's strategy to more actively promote its centers, and
increases in real estate taxes. General and administrative expenses decreased
22% on a weighted average GLA basis to $1.54 for the year ended 1995 and
decreased from 10% to 7% of total revenues reflecting continued economies of
scale achieved through controlling expenses despite the continued development
and growth in GLA.
Financing the Company's development resulted in further utilization of long-term
borrowings and aggregate interest expense increased $8.5 million during 1995 as
compared to 1994. The incremental borrowings in 1994 of $101 million, resulting
from the record development that year, did not significantly impact 1994
interest expense due to the effect of capitalizing the related interest costs
during the construction period. However, the completion of those projects,
combined with the impact of an additional $35.4 million of borrowings in 1995,
is reflected in the increase in interest expense per weighted average GLA from
$1.26 per square foot in 1994 to $3.44 per square foot in 1995. Depreciation and
amortization per weighted average GLA increased 20% due primarily to increases
in costs associated with site preparation and improvements in the layout and
design of new centers as well as increased tenant finishing allowances included
in building and improvements which are depreciated over shorter lives.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $38.1, $32.4 and $21.3 million for
the years ended December 31, 1996, 1995 and 1994, respectively. The increases
for all three years were primarily due to the incremental operating income
associated with new development. Net cash used in investing activities amounted
to $36.4, $44.8 and $143.7 million during 1996, 1995 and 1994 which reflects the
lower levels of development over the past two years (181,142 square feet
developed in 1996, 392,312 square feet in 1995 and 1,134,900 square feet in
1994). Due to the lower levels of construction activity, cash provided by
financing activities has also decreased from $80.7 in 1994 to $13.8 and $(4.2)
in 1995 and 1996.
21
During 1996 and 1995, the Company slowed its pace of new development in response
to a soft retail environment and lower tenant demand. In turn, management
concentrated its efforts on expanding and enhancing land in the current
portfolio while at the same time diligently searching for new sites which will
maximize value to both the Company's shareholders and tenants. However,
management believes, based upon its discussions with present and prospective
tenants, that many companies, including new entrants into the factory outlet
business, desire to open a 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.
Construction has begun on a second property in Riverhead, NY (expected to begin
opening in Spring 1997) totalling approximately 240,000 square feet. Upon total
build out of this development over the next several years, the combined GLA of
both properties should total approximately 750,000 square feet, making this
outlet shopping center one of the largest in the nation. In addition, the
Company is in the preleasing stages of three new sites located in Concord, NC
(Charlotte), Romulus, MI (Detroit) and Ashburn, VA (Washington, D.C.) and on
February 28, 1997, completed the purchase of an existing factory outlet center
containing approximately 123,000 square feet for an aggregate purchase price of
$18.0 million. The Company also is in the process of developing plans for
additional expansions and new centers for completion in 1998 and beyond and will
consider other acquisitions that are suitable for its portfolio. However, there
can be no assurance that any of these anticipated or planned developments or
expansions will be started or completed as scheduled, or that any acquisitions
will be made. Commitments for construction underway as of December 31, 1996
(which represent only those costs contractually required to be paid by the
Company) amounted to $18.2 million.
Management intends to continually have access to the capital resources necessary
to expand and develop its business and, accordingly, may seek to obtain
additional funds through equity offerings or debt financing. The Company has a
shelf registration with the Securities and Exchange Commission providing for the
issuance of up to $100 million in additional equity securities and $100 million
in additional debt securities. During March 1996, the Company used a portion of
its borrowing capacity under the shelf registration to issue, through the
Operating Partnership, $75 million of senior, unsecured notes, maturing March
11, 2001, with a coupon rate of 8.75% (effective yield of 8.926%). The proceeds
of this offering were used to extinguish the Company's revolving lines of credit
existing prior to January 1996. In April 1996, the Company filed a new
registration statement with the SEC to reestablish the total amount of funds
available under the shelf registration at $200 million.
During the year, the Company established a new $50 million secured line of
credit, with interest payable at LIBOR plus 1.5% and established other unsecured
lines of credit totalling $40 million with interest rates ranging from prime
less .25% to prime or LIBOR plus 1.75% to LIBOR plus 1.85%. Amounts available
under these lines of credit, based on debt outstanding at December 31, 1996,
totalled $62.2 million. When considered with the Company's existing interest
rate protection agreement covering $10 million of variable rate debt, the
Company's exposure to interest rate risk on variable rate borrowings outstanding
at December 31, 1996 was limited to $17.8 million. Also, with the addition of
the unsecured borrowings, the Company has effectively unencumbered approximately
55% of its real estate assets.
Based on existing credit facilities, ongoing negotiations with certain financial
institutions and funds available under the shelf registration, management
believes that the Company has access to the necessary financing to fund the
planned capital expenditures during 1997 and 1998.
The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, regular debt service obligations, and the
payment of dividends in accordance with REIT requirements in both the short and
long term. Although the Operating Partnership receives most of its rental
payments on a monthly basis, distributions are made quarterly. Amounts
accumulated for distribution will be invested in short-term money market or
other suitable instruments. Certain of the Company's debt agreements limit the
payment of dividends such that dividends will not exceed 95% of funds from
operations ("FFO"), as defined in the agreements, on a cumulative basis.
22
FUNDS FROM OPERATIONS
Management believes that to facilitate a clear understanding of the consolidated
historical operating results of the Company, FFO should be considered in
conjunction with net income as presented in the audited consolidated financial
statements included elsewhere in the annual report. Management generally
considers FFO to be an appropriate measure of the performance of an equity real
estate investment trust ("REIT"). FFO is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary item and gains (losses) on sale of properties, plus depreciation
and amortization and adjustments for other non-cash items. The Company cautions
that the calculation of FFO may vary from entity to entity and as such the
presentation of FFO by the Company may not be comparable to other similarly
titled measures of other reporting companies. FFO does not represent net income
or cash flow from operations as defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of operating performance or to cash from operations as a measure of
liquidity. FFO is not necessarily indicative of cash flows available to fund
dividends to shareholders and other cash needs.
In March 1995, the National Association of Real Estate Investment Trusts
("NAREIT") issued an interpretive letter providing guidance as to the use and
intent of its definition of funds from operations. Among other things, the
letter clarifies that the amortization of deferred financing costs and
depreciation of assets not uniquely significant to real estate should be
excluded from total depreciation and amortization added back to net income in
calculating funds from operations. All REIT's were encouraged to implement the
recommendations of the letter no later than fiscal periods beginning in 1996.
The Company adopted the new NAREIT definition of funds from operations beginning
January 1, 1996 and has reclassified the prior year amounts to conform with the
current year presentation. Below is a calculation of funds from operations for
the years ended December 31, 1996 and 1995.
FUNDS FROM OPERATIONS
(IN THOUSANDS)
1996 1995
----------------- -----------------
Income before gain on sale of land, minority interest
and extraordinary item $16,018 $15,352
Adjusted for:
Depreciation and amortization uniquely significant
to real estate 16,295 14,245
Funds from operations before minority interest $32,313 $29,597
================= =================
Weighted average shares outstanding(1) 10,670 10,601
================= =================
(1) ASSUMES CONVERSION OF ALL PARTNERSHIP UNITS HELD BY THE MINORITY INTEREST
AND PREFERRED SHARES TO COMMON SHARES.
ECONOMIC CONDITIONS AND OUTLOOK
Substantially all of the Company's leases contain provisions designed to
mitigate the impact of inflation. Such provisions include clauses for the
escalation of base rent and clauses enabling the Company to receive percentage
rentals based on tenants' gross sales (above predetermined levels, which the
Company believes often are lower than traditional retail industry standards)
which generally increase as prices rise. Most of the leases require the tenant
to pay their share of property operating expenses, including common area
maintenance, real estate taxes, insurance and promotion, thereby reducing
exposure to increases in costs and operating expenses resulting from inflation.
In addition, the Company has an interest rate protection agreement which limits
the effect of changes in interest rates on approximately $10 million of its
floating rate debt through October 1998. This agreement, combined with the
existing fixed rate mortgages, mitigate the Company's exposure to interest rate
risk on approximately 90% of total debt outstanding as of December 31, 1996.
Approximately 240,000 square feet of space is currently up for renewal or
re-tenanting in 1997. Existing tenants' sales have remained stable and renewals
to existing tenants have remained strong. In addition, the Company has continued
to attract and retain additional tenants. However, as typical in the factory
outlet industry, certain tenants have either filed
23
for protection under bankruptcy laws or have elected to close some or all of
their stores, resulting in approximately a 2% decrease in occupancy since
year end. Although there can be no assurance that any tenant whose lease
expires will renew such lease or that terminated leases will be re-leased on
economically favorable terms, management currently does not expect any material
adverse impact as a result of these leases up for renewal, bankruptcy filings or
notices of store closings. The Company's factory outlet centers typically
include well known, national, brand name companies. By maintaining a broad base
of credit tenants and a geographically diverse portfolio of properties located
across the United States, the Company reduces its operating and leasing risks.
CONTINGENCIES
There are no recorded amounts resulting from environmental liabilities as there
are no known material loss contingencies with respect thereto. Future claims for
environmental liabilities are not measurable given the uncertainties surrounding
whether there exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no condition is
known to exist that would give rise to a material environmental liability for
site restoration, post-closure and monitoring commitments, or other costs that
may be incurred upon the sale or disposal of a property. Management has no plans
to abandon any of the properties and is unaware of any other material loss
contingencies.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is set forth at the pages indicated in
Item 14(a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company' directors required by this Item is
incorporated by reference to the Company's Proxy Statement.
The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to the section in Part I, Item 4,
entitled "Executive Officers of the Registrant".
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS A PART OF THIS REPORT:
1. Financial Statements
Report of Independent Accountants F-1
Consolidated Balance Sheets-December 31, 1996 and 1995 F-2
Consolidated Statements of Operations-
Years Ended December 31, 1996, 1995 and 1994 F-3
Consolidated Statements of Shareholders' Equity-
For the Years Ended December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Cash Flows-
Years Ended December 31, 1996, 1995 and 1994 F-5
Notes to Consolidated Financial Statements F-6
2. Financial Statement Schedules
Schedule III
Report of Independent Accountants F-15
Real Estate and Accumulated Depreciation F-16,17
All other schedules have been omitted because of the absence of
conditions under which they are required or because the required
information is given in the above-listed financial statements or notes
thereto.
3. Exhibits
Exhibit No. Description
3.1 Amended and Restated Articles of Incorporation of the Company.
3.1A Amendment to Articles of Incorporation dated May 29, 1996.
3.2 Amended and Restated By-Laws of the Company. (Note 1)
3.3 Amended and Restated Agreement of Limited Partnership for the
Operating Partnership. (Note 1)
4.1 Form of Deposit Agreement, by and between the Company and the
Depositary, including Form of Depositary Receipt. (Note 1)
4.2 Form of Preferred Stock Certificate. (Note 1)
10.1 Unit Option Plan of the Company. (Note 2)
10.1A First Amendment to the Unit Option Plan. (Note 1)
10.1B Second Amendment to the Unit Option Plan. (Note 6)
10.1C Third Amendment to the Unit Option Plan.
10.2 Stock Option Plan of the Company. (Note 2)
10.2A First Amendment to the Stock Option Plan. (Note 1)
25
10.2B Second Amendment to the Stock Option Plan. (Note 6)
10.2C Third Amendment to the Stock Option Plan.
10.3 Form of Stock Option Agreement between the Company and certain
Directors. (Note 3)
10.4 Form of Unit Option Agreement between the Operating Partnership
and certain employees. (Note 3)
10.5 Amended and Restated Employment Agreement for Stanley K. Tanger.
10.6 Amended and Restated Employment Agreement for Steven B. Tanger.
10.7 Amended and Restated Employment Agreement for Willard Chafin.
10.8 Amended and Restated Employment Agreement for Rochelle Simpson.
10.9 Employment Agreement for Joseph H. Nehmen.
10.10 Registration Rights Agreement among the Company, the Tanger Family
Limited Partnership and Stanley K. Tanger. (Note 2)
10.10A Amendment to Registration Rights Agreement among the Company, the
Tanger Family Limited Partnership and Stanley K. Tanger. (Note 6)
10.11 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
(Note 2)
10.12 Assignment and Assumption Agreement among Stanley K. Tanger,
Stanley K. Tanger & Company, the Tanger Family Limited
Partnership, the Operating Partnership and the Company. (Note 2)
10.13 Promissory Notes by and between the Operating Partnership and John
Hancock Mutual Life Insurance Company aggregating $50,000,000,
dated as of December 13, 1994. (Note 4)
10.14 Promissory Note and Mortgage, Assignment of Leases and Rents, and
Security Agreement by and between the Operating Partnership and
New York Life Insurance Company, dated as of March 28, 1995. (Note
5)
10.15 Credit Agreement among Tanger Properties Limited Partnership,
Tanger Factory Outlet Centers, Inc. and National Westminister
Bank, Plc dated January 15, 1996. (Note 7)
10.15A Amendment No. 1 to Credit Agreement among Tanger Properties
Limited Partnership, Tanger Factory Outlet Centers, Inc. and
National Westminister Bank, Plc dated February 20, 1996. (Note 9)
10.15B Amendment No. 2 to Credit Agreement among Tanger Properties
Limited Partnership, Tanger Factory Outlet Centers, Inc. and
National Westminister Bank, Plc dated May 31, 1996.
10.16 Form of Senior Indenture. (Note 8)
10.17 Form of First Supplemental Indenture (to Senior Indenture).
(Note 8)
10.18 Loan Agreement dated as of October 14, 1996 between Tanger
Properties Limited Partnership and First National Bank of
Commerce.
26
10.19 Loan Agreement dated as of November 18, 1996 between Tanger
Properties Limited Partnership and Southtrust Bank of Alabama,
National Association
21.1 List of Subsidiaries. (Note 2)
23.1 Consent of Coopers & Lybrand L.L.P.
Notes to Exhibits:
1. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed October 6, 1993, as amended.
2. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed May 27, 1993, as amended.
3. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
4. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1994
5. Incorporated by reference to the exhibits to the Company's Quarterly
Report of Form 10-Q for the period ended March 31, 1995..
6. Incorporated by reference to the exhibits to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
7. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated January 23, 1996.
8. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated March 6, 1996.
9. Incorporated by reference to the exhibits to the Company's Quarterly
Report of Form 10-Q for the period ended March 31, 1996.
(B) REPORTS ON FORM 8-K - No reports on Form 8-K were filed by the Company
during the fourth quarter ended December 31, 1996.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ Stanley K. Tanger
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer
March 18, 1997
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 March 18, 1997
Stanley K. Tanger Chief Executive Officer
(Principal Executive Officer)
/s/ Steven B. Tanger Director, President and March 18, 1997
Steven B. Tanger Chief Operating Officer
/s/ Frank C. Marchisello, Jr. Vice President and March 18, 1997
Frank C. Marchisello, Jr. Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Jack Africk Director March 18, 1997
Jack Africk
/s/ William G. Benton Director March 18, 1997
William G. Benton
/s/ Thomas E. Robinson Director March 18, 1997
Thomas E. Robinson
28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY:
We have audited the accompanying consolidated balance sheets of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Greensboro, NC
January 27, 1997, except for Note 14, which is dated February 28, 1997
F-1
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
DECEMBER 31,
1996 1995
------------- -----------------
ASSETS
Rental property, net $311,454 $294,423
Cash and cash equivalents 2,585 5,111
Deferred charges, net 7,846 5,728
Other assets 10,253 9,868
TOTAL ASSETS $332,138 $315,130
============= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term debt $178,004 $156,749
Construction trade payables 8,320 11,305
Accounts payable and accrued expenses 9,558 4,679
TOTAL LIABILITIES 195,882 172,733
------------- -----------------
Commitments
Minority interest 25,599 27,584
------------- -----------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, 106,419 and 141,484
shares issued and outstanding at
December 31, 1996 and 1995 1 1
Common stock, $.01 par value, 50,000,000 shares
authorized, 6,602,510 and 6,286,581 shares
issued and outstanding at December 31, 1996
and 1995 66 63
Paid in capital 121,384 121,158
Distributions in excess of net income (10,794) (6,409)
TOTAL SHAREHOLDERS' EQUITY 110,657 114,813
------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $332,138 $315,130
============= =================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-2
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------- ------------- -------------
REVENUES
Base rentals $50,596 $45,818 $29,937
Percentage rentals 2,017 2,068 1,658
Expense reimbursements 21,991 19,913 13,295
Other income 896 805 1,098
Total revenues 75,500 68,604 45,988
------------- ------------- -------------
EXPENSES
Property operating 23,559 22,467 15,500
General and administrative 5,467 5,079 4,399
Interest 13,998 11,337 2,798
Depreciation and amortization 16,458 14,369 8,144
Total expenses 59,482 53,252 30,841
------------- ------------- -------------
INCOME BEFORE GAIN ON SALE OF LAND, MINORITY INTEREST
AND EXTRAORDINARY ITEM 16,018 15,352 15,147
Gain on sale of land 159 --- ---
------------- ------------- -------------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 16,177 15,352 15,147
Minority interest (4,425) (4,134) (3,979)
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM 11,752 11,218 11,168
Extraordinary item - Loss on early extinguishment of debt, net of
minority interest of $270 (561) --- ---
NET INCOME $11,191 $11,218 $11,168
============= ============= =============
PER COMMON SHARE OUTSTANDING:
Income before extraordinary item $1.46 $1.36 $1.32
Net income 1.37 1.36 1.32
============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(In thousands, except share data)
Distributions Total
Preferred Common Paid in in Excess of Shareholders'
Stock Stock Capital Net Income Equity
---------- ------------ ------------ ------------- ----------------
BALANCE, DECEMBER 31, 1993 $3 $49 $120,716 $(701) $120,067
Conversion of 70,556 preferred
shares into 635,679 common shares (1) 6 (5) --- ---
Compensation under Unit Option Plan --- --- 216 --- 216
Net income --- --- --- 11,168 11,168
Preferred dividends paid ($15.06 per share) --- --- --- (3,954) (3,954)
Common dividends paid ($1.80 per share) --- --- --- (9,320) (9,320)
BALANCE, DECEMBER 31, 1994 2 55 120,927 (2,807) 118,177
Conversion of 87,960 preferred
shares into 792,506 common shares (l) 8 (7) --- ---
Issuance of 600 common shares upon
exercise of unit options --- --- 14 --- 14
Compensation under Unit Option Plan --- --- 224 --- 224
Net income --- --- --- 11,218 11,218
Preferred dividends paid ($17.66 per share) --- --- --- (2,944) (2,944)
Common dividends paid ($1.96 per share) --- --- --- (11,876) (11,876)
BALANCE, DECEMBER 31, 1995 1 63 121,158 (6,409) 114,813
Conversion of 35,065 preferred shares
into 315,929 common shares --- 3 (3) --- ---
Compensation under Unit Option Plan --- --- 229 --- 229
Net Income --- --- --- 11,191 11,191
Preferred dividends paid ($18.56 per share) --- --- --- (2,416) (2,416)
Common dividends paid ($2.06 per share) --- --- --- (13,160) (13,160)
BALANCE, DECEMBER 31, 1996 $1 $66 $121,384 $(10,794) $110,657
========== ============ ============ ============= ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------- ------------- -------------
OPERATING ACTIVITIES
Net income $11,191 $11,218 $11,168
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 16,458 14,369 8,144
Amortization of deferred financing costs 953 955 690
Minority interest 4,155 4,134 3,979
Loss on early extinguishment of debt 831 --- ---
Gain on sale of land (159) --- ---
Straight-line base rent adjustment (1,192) (1,316) (941)
Compensation under Unit Option Plan 338 334 342
Increase (decrease) due to changes in:
Other assets 597 2,431 (3,610)
Accounts payable and accrued expenses 4,879 298 1,532
------------- ------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 38,051 32,423 21,304
------------- ------------- -------------
INVESTING ACTIVITIES
Acquisition of real estate --- --- (23,800)
Additions to rental properties (35,408) (43,758) (118,551)
Additions to deferred lease costs (1,167) (1,030) (1,332)
Proceeds from sale of land 174 --- ---
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (36,401) (44,788) (143,683)
------------- ------------- -------------
FINANCING ACTIVITIES
Cash dividends paid (15,576) (14,820) (13,274)
Distributions to minority interest (6,249) (5,945) (5,460)
Proceeds from notes payable 75,000 16,250 56,400
Repayments on notes payable (1,019) (949) (15,793)
Proceeds from revolving lines of credit 70,301 113,555 113,500
Repayments on revolving lines of credit (123,027) (93,430) (53,100)
Additions to deferred financing costs (3,606) (873) (1,612)
Proceeds from exercise of unit options --- 14 ---
------------- ------------- -------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (4,176) 13,802 80,661
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (2,526) 1,437 (41,718)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,111 3,674 45,392
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $2,585 $5,111 $3,674
============= ============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Tanger Factory Outlet Centers, Inc. (the "Company") is a self-administered,
self-managed real estate investment trust ("REIT") that develops, owns and
operates factory outlet centers. Recognized as one of the largest owners and
operators of factory outlet centers in the United States, the Company owned and
operated 27 factory outlet centers (the "Properties") located in 22 states with
a total gross leasable area of approximately 3.8 million square feet at the end
of 1996. The Company is a fully-integrated real estate company and provides all
development, leasing and management services for its centers. The Company is the
successor to a factory outlet business that consisted of 17 Properties (the
"predecessor business") that were individually owned and controlled by Stanley
K. Tanger and the Tanger Family Limited Partnership (the "Original Owners").
The factory outlet centers and other assets of the Company's business are held
by, and all of its operations are conducted by, the Company's majority owned
subsidiary, Tanger Properties Limited Partnership (the "Operating Partnership").
The Operating Partnership was formed in June 1993 through the contributions by
the Company, the sole general partner, the Tanger Family Limited Partnership,
the sole limited partner, and Stanley K. Tanger. The Company contributed the
proceeds of an initial public offering ("IPO") and two properties it had
acquired for shares of the Company's Common Stock. The Original Owners
contributed the remaining 15 Properties, subject to their related mortgage
indebtedness, as well as the net assets of the related property and lease
management business and certain other assets.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION-The Company, as sole general partner,
consolidates the Operating Partnership for financial reporting purposes. All
significant intercompany balances and transactions have been eliminated in
consolidation. In addition, the Company accounted for the transfer of the
Properties and the management business to the above mentioned entities as a
reorganization of entities under common control using an "as if pooling" method
of accounting, whereby historical results of operations and financial condition
of the properties and the management business were combined with the Company's
consolidated results of operations and financial condition.
MINORITY INTEREST-Minority interest reflects the limited partner's
percentage ownership of Operating Partnership Units (the "Units") . Allocation
of net income to the limited partner subsequent to the IPO is based on this
respective ownership interest (See Note 7).
USE OF ESTIMATES-The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RENTAL PROPERTIES-Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the acquisition, construction, and development
of properties are capitalized. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets. The Company generally uses
estimated lives ranging from 25 to 33 years for buildings, 15 years for land
improvements and seven years for equipment. Expenditures for ordinary
maintenance and repairs are charged to operations as incurred while significant
renovations and improvements, including tenant finishing allowances, that
improve and/or extend the useful life of the asset are capitalized and
depreciated over their estimated useful life.
The pre-construction stage of project development involves incurrence of
certain costs to secure land control and zoning and complete other initial tasks
which are essential to the development of the project. These costs are
transferred to developments under construction when the pre-construction tasks
are completed. The Company provides for the costs of potentially unsuccessful
pre-construction efforts by charges to operations.
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS-All highly liquid investments with an original
maturity of three months or less at the date of purchase are considered to be
cash and cash equivalents. Cash balances at a limited number of banks may
periodically exceed insurable amounts. The Company believes that it mitigates
its risk by investing in or through major financial institutions. Recoverability
of investments is dependent upon the performance of the issuer.
DEFERRED CHARGES-Deferred lease costs consist of fees and costs incurred to
initiate operating leases and are amortized over the average minimum lease term.
Deferred financing costs include fees and costs incurred to obtain long-term
financing and are being amortized over the terms of the respective loans.
Unamortized deferred financing costs are charged to expense when debt is retired
before the maturity date.
IMPAIRMENT OF LONG-LIVED ASSETS-In the event that facts and circumstances
indicate that the cost of the Company's long-lived assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation were required,
the estimated future undiscounted cash flows associated with the asset would be
compared to the asset's carrying amount to determine if a write-down to market
value or discounted cash flow value is required.
REVENUE RECOGNITION - Minimum rental income is recognized on a straight
line basis over the term of the lease. Substantially all leases contain
provisions which provide additional rents based on tenants' sales volume
("percentage rentals") and reimbursement of the tenants' share of advertising
and promotion, common area maintenance, insurance and real estate tax expenses.
Percentage rentals are recognized when earned. Expense reimbursements are
recognized in the period the applicable expenses are incurred. Payments received
from the early termination of leases are recognized when the applicable space is
released, or otherwise, are amortized over the remaining lease term.
INCOME TAXES-The Company operates in a manner intended to enable it to
qualify as a REIT under the Internal Revenue Code (the "Code"). A REIT which
distributes at least 95% of its taxable income to its shareholders each year and
which meets certain other conditions is not taxed on that portion of its taxable
income which is distributed to its shareholders. The Company intends to continue
to qualify as a REIT and to distribute substantially all of its taxable income
to its shareholders. Accordingly, no provision has been made for Federal income
taxes. The Company paid preferred dividends per share of $18.56, $17.66 and
$15.06 in 1996, 1995 and 1994, respectively, all of which are treated as
ordinary income. The table below summarizes the common dividends paid per share
and the amount representing estimated return of capital.
1996 1995 1994
------------ ------------ -------------
Common dividends per share
Ordinary income $1.607 $1.352 $1.458
Return of capital .453 .608 .342
$2.060 $1.960 $1.800
============ ============ =============
INCOME PER SHARE-Income per share is calculated by dividing income, less
applicable preferred dividends of $2,399, $2,903 and $4,351 for the years ended
December 31, 1996, 1995 and 1994, by the weighted average number of common
shares outstanding (6,401,505, 6,094,667 and 5,177,292 for the years ended
December 31, 1996, 1995 and 1994). Options outstanding are not included since
their inclusion would not be materially dilutive. The assumed conversion of
Depositary Shares as of the beginning of the year would have been anti-dilutive.
The assumed conversion of the partnership Units held by the limited partner as
of the beginning of the year, which would result in the elimination of earnings
allocated to the minority interest, would have no impact on earnings per share
since the allocation of earnings to an Operating Partnership Unit is equivalent
to earnings allocated to a share of Common Stock.
CONCENTRATION OF CREDIT RISK-The Company's management performs ongoing
credit evaluations of their tenants. Although the tenants operate principally in
the retail industry, the properties are geographically diverse. During 1995 and
1994, one tenant accounted for approximately 10% and 11% of combined base and
percentage rental income. No single tenant accounted for 10% or more of combined
base and percentage rental income during 1996.
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SUPPLEMENTAL CASH FLOW INFORMATION-The Company purchases capital equipment
and incurs costs relating to construction of new facilities, including tenant
finishing allowances. Expenditures included in construction trade payables as of
December 31, 1996, 1995 and 1994 amounted to $8,320, $11,305 and $21,636,
respectively. Interest paid, net of interest capitalized, in 1996, 1995 and 1994
was $10,637, $10,266 and $1,824, respectively.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform with the current year presentation.
3. RENTAL PROPERTIES
The following summarizes the carrying amounts of rental property as of December
31, 1996 and 1995:
1996 1995
-------------- -----------------
Land $43,339 $37,176
Buildings and improvements 299,534 284,292
Developments under construction 15,488 4,413
-------------- -----------------
358,361 325,881
Accumulated depreciation 46,907 31,458
-------------- -----------------
$311,454 $294,423
============== =================
Buildings and improvements 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
1996, 1995 and 1994 amounted to $1,044, $580 and $1,481, and development costs
capitalized amounted to $1,321, $1,253 and $1,599, respectively. Depreciation
expense for each of the years ended December 31, 1996, 1995 and 1994 was
$15,449, $13,451 and $7,571, respectively.
Commitments for construction of new developments and additions to existing
properties amounted to $18,242 at December 31, 1996. Commitments for
construction represent only those costs contractually required to be paid by the
Company.
4. DEFERRED CHARGES
Deferred charges as of December 31, 1996 and 1995 consist of the following:
1996 1995
--------------- -----------------
Deferred lease costs $6,705 $5,538
Deferred financing costs 4,657 3,628
--------------- -----------------
11,362 9,166
Accumulated amortization 3,516 3,438
--------------- -----------------
$7,846 $5,728
=============== =================
Amortization of deferred lease costs for the years ended December 31, 1996, 1995
and 1994 was $799, $731 and $434, respectively. Amortization of deferred
financing costs for the years ended December 31, 1996, 1995 and 1994 was $953,
$955 and $690, respectively. During 1996, the Company expensed the remaining
unamortized financing costs totalling $831 related to debt extinguished with
other current year borrowings. Such amount is shown as an extraordinary item in
the accompanying consolidated statements of operations.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
5. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
1996 1995
--------------- -----------------
8.75% Senior, unsecured notes, maturing March 2001 $75,000 $---
Mortgage notes with fixed interest at:
8.92%, maturing January 2002 48,817 49,435
8.625%, maturing September 2000 10,412 10,657
9.77%, maturing April 2005 15,975 16,131
Revolving lines of credit with variable interest
rates ranging from either prime less .25% to prime
or LIBOR plus 1.50% to LIBOR plus 1.80% 27,800 80,526
$178,004 $156,749
=============== =================
Maturities of the existing long-term debt are as follows:
%
1997 $1,153 1
1998 13,561 8
1999 16,880 9
2000 10,567 6
2001 76,184 43
Thereafter 59,659 33
$178,004 100
============= =============
The Company maintains revolving lines of credit which provide for borrowing up
to $90,000. The agreements expire at various times through 1999. Interest is
payable based on alternative interest rate bases at the Company's option.
Amounts available under these facilities at December 31, 1996 totalled $62,200.
Certain of the Company's properties, which had a net book value of approximately
$141,640 at December 31, 1996, serve as collateral for the fixed rate mortgages
and revolving lines of credit.
The credit agreements require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of dividends such that
dividends will not exceed 95% of funds from operations, as defined in the
agreements, on a cumulative basis. All three existing fixed rate mortgage notes
contain prepayment penalty clauses.
6. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company selectively enters into interest rate protection agreements to
mitigate changes in interest rates on its variable rate borrowings. The notional
amounts of such agreements are used to measure the interest to be paid or
received and do not represent the amount of exposure to loss. None of these
agreements are used for trading purposes. The cost of these agreements are
included in deferred financing costs and are being amortized on a straight-line
basis over the life of the agreements.
In October 1995, the Company entered into an interest rate swap, at no cost to
the Company, effective through October 1998 with a notional amount of $10,000
which fixed the 30 day LIBOR index at 5.99%. The impact of this agreement,
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
together with an interest rate swap agreement which expired during 1996, reduced
mortgage interest expense by $88, $693 and $275 during 1996, 1995 and 1994.
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, 1996, which is estimated as the present value of
future cash flows, discounted at interest rates available at the reporting date
for new debt of similar type and remaining maturity, was approximately $179,636.
The estimated fair value of the interest rate swap agreement at December 31,
1996, as determined by the issuing financial institution, was an unrealized loss
of approximately $23.
7. SHAREHOLDERS' AND PARTNERSHIP EQUITY
On June 4, 1993, the Company completed an initial public offering of 4,857,796
shares of $.01 par value Common Stock. The net proceeds totalled approximately
$91,916 and were contributed to the Operating Partnership in exchange for units
in the Operating Partnership equivalent to the number of shares issued in the
offering.
On December 9, 1993, the Company sold 3,000,000 Depositary Shares, each
representing 1/10 of a share of Series A Cumulative Convertible Redeemable
Preferred Shares, at $25 per share. Proceeds from this offering, net of
underwriters discount and estimated offering expenses, totalled $70,800 and were
contributed to the Operating Partnership in return for preferred general
partnership Units. The Preferred Shares have a liquidation preference equivalent
to $25 per Depositary Share and dividends accumulate per Depositary Share equal
to the greater of (i) $1.575 per year or (ii) the dividends on the Common Stock
or portion thereof, into which a depositary share is convertible. The Preferred
Shares rank senior to the Common Stock in respect of dividend and liquidation
rights.
The Preferred Shares are convertible at the option of the holder at any time
into shares of Common Stock of the Company at a rate equivalent to .901 shares
of Common Stock for each Depositary Share (equivalent to a conversion price of
$27.75 per share of Common Stock). At December 31, 1996, 958,835 shares of
Common Stock were reserved for the conversion of preferred Depositary Shares.
The Preferred Shares and the related Depositary Shares are not redeemable prior
to December 15, 1998. On and after December 15, 1998, the Preferred Shares and
Depositary Shares may be redeemed at the option of the Company, in whole or in
part, at a redemption price of $25 per Depositary Share, plus accrued and unpaid
dividends.
As of December 31, 1996, the ownership interests of the Operating Partnership
consisted of 6,602,510 general partnership Units held by the Company, 106,419
preferred general partnership Units (which are convertible into approximately
958,835 general partnership Units) held by the Company and 3,033,305 limited
partnership Units held by the Tanger Family Limited Partnership. The limited
partner's Units are exchangeable, subject to certain limitations to preserve the
Company's status as a REIT, on a one-for-one basis for shares of the Company's
common stock. Preferred Units are automatically converted into general
partnership Units to the extent of any conversion of Series A Preferred Shares
of the Company into common shares of the Company.
8. EMPLOYEE BENEFIT PLANS
The Company has a non-qualified and incentive stock option plan ("The 1993 Stock
Option Plan") and the Operating Partnership has a non-qualified Unit option plan
("The 1993 Unit Option Plan"). Units received upon exercise of Unit options are
exchangeable for Common Stock. The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
Had compensation cost for these plans been determined for options granted since
January 1, 1995 consistent with SFAS #123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, the Company's net income and earnings per share would have been
reduced to the following pro forma amounts:
1996 1995
-------------- ---------------
Net income: As reported $11,191 $11,218
Pro forma $11,114 $11,207
Primary EPS: As reported $1.37 $1.36
Pro forma $1.36 $1.36
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The Company may issue up to 1,000,000 shares under The 1993 Stock Option Plan
and The 1993 Unit Option Plan. The Company has granted 916,550 options, net of
options forfeited, through December 31, 1996. Under both plans, the option
exercise price is determined by the Stock and Unit Option Committee of the Board
of Directors. Non-qualified stock and Unit options granted expire 10 years from
the date of grant and are exercisable in five equal installments commencing one
year from the date of grant.
A summary of the status of the Company's two plans at December 31, 1996, 1995
and 1994 and changes during the years then ended is presented in the table and
narrative below:
1996 1995 1994
------ ------ -----
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
------------ ------------ ---------------- ------------- ------------- -------------
Outstanding at beginning of year 680,650 $23.58 546,000 $23.57 403,000 $22.50
Granted 237,700 24.29 154,550 23.50 143,000 26.63
Exercised --- --- (600) 22.50 --- ---
Forfeited (2,400) 23.59 (19,300) 22.70 --- ---
Outstanding at end of year 915,950 $23.77 680,650 $23.58 546,000 $23.57
------------ ------------ ---------------- ------------- ------------- -------------
Exercisable at end of year 320,410 $23.31 184,700 $23.11 80,600 $22.50
Weighted average fair value of
options granted $2.56 $2.18 N/A
Options outstanding at December 31, 1996 have exercise prices between $22.50 and
$31.25, with a weighted average exercise price of $23.31 and a weighted average
remaining contractual life of 7.9 years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995, respectively: expected dividend
yields of 8%; expected lives ranging from 5 years to 7 years; expected
volatility 20%; and risk-free interest rates ranging from 5.6% to 6.75% in 1996
and from 5.8% to 5.9% in 1995.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
Unamortized stock compensation, which relates to options that were granted at an
exercise price below the fair market value at the time of grant, was $533 and
$871 at December 31, 1996 and 1995. Compensation expense recognized during 1996,
1995 and 1994 was $338, $334 and $342, respectively.
During 1994, the Company established a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the "401(k)
Plan"), which covers substantially all officers and employees of the Company.
The 401(k) Plan permits employees of the Company, in accordance with the
provisions of Section 401(k) of the Code, to defer up to 20% of their eligible
compensation on a pre-tax basis subject to certain maximum amounts. Employee
contributions are fully vested and are matched by the Company at a rate of
compensation deferred to be determined annually at the Company's discretion. The
matching contribution is subject to vesting under a schedule providing for 20%
annual vesting starting with the third year of employment and 100% vesting after
seven years of employment.
9. LEASE AGREEMENTS
The Company is the lessor of a total of 916 stores in 27 factory outlet centers,
under operating leases with initial terms that expire from 1997 to 2014. Most
leases are renewable for five years at the lessee's option. Future minimum lease
receipts under noncancelable operating leases as of December 31, 1996 are as
follows:
1997 $49,125
1998 44,768
1999 39,219
2000 30,050
2001 21,863
Thereafter 41,516
$226,541
===============
10. COMMITMENTS
The Company purchased the rights to lease land on which two of the outlet
centers are situated for $1,520. These leasehold rights are being amortized on a
straight-line basis over 30 and 40 year periods. Accumulated amortization was
$419 and $371 at December 31, 1996 and 1995, respectively. The annual rental
payments for these leases aggregated $315, $312 and $231 for the years ended
December 31, 1996, 1995 and 1994, respectively. Minimum lease payments for the
next five years and thereafter are as follows:
1997 $318
1998 321
1999 338
2000 351
2001 354
Thereafter 26,166
$27,848
===============
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
11. RELATED PARTY INFORMATION
Vernon, Vernon, Wooten, Brown, Andrews & Garrett, P.A., a law firm in which a
partner served on the Company's Board of Directors from June 1993 to December
1994, provides legal services to the Company. During 1994, the Company paid
approximately $1,523 for these services.
12. ACQUISITION
On October 19, 1994, the Company completed its acquisition of the assets of
MillStream Factory Shops, a factory outlet center in Lancaster, Pennsylvania,
for an aggregate purchase price of $23,800. The acquisition was accounted for
using the purchase method whereby the purchase price was allocated to assets
acquired based on their fair values. The results of operations of the acquired
property have been included in the consolidated results of operations since the
acquisition date.
Pro forma total revenues, net income and net income per share for the year ended
December 31, 1994, which reflect adjustments to present the historical
information as if the acquisition had occurred as of the beginning of the
respective period, were $48,833, $11,035 and $1.29, respectively. The pro forma
information is presented for informational purposes only and may not be
indicative of what actual results of operations would have been had the
acquisition occurred at the beginning of the respective period, nor does it
purport to represent the results of operations for future periods.
13. SUPPLEMENTARY INCOME STATEMENT INFORMATION
The following amounts are included in operating and maintenance expense for the
years ended December 31:
1996 1995 1994
------------- --------------- ------------
Advertising and promotion $7,691 $8,884 $5,769
Common area maintenance 6,681 5,960 4,079
Real estate taxes 4,699 3,483 2,210
Other operating expenses 4,488 4,140 3,442
$23,559 $22,467 $15,500
============= =============== ============
14. SUBSEQUENT EVENT
On February 28, 1997, the Company completed its acquisition of Five Oaks Factory
Stores, a factory outlet center in Sevierville, Tennessee, for an aggregate
purchase price of $18,000. The acquisition will be accounted for using the
purchase method whereby the purchase price will be allocated to assets acquired
based on fair values.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
15. QUARTERLY FINANCIAL INFORMATION (Unaudited)
1996 QUARTER FIRST SECOND THIRD FOURTH
-------------- ---------------- ----------------- -----------------
Total revenues $18,123 $18,189 $19,453 $19,735
Income before minority interest and
extraordinary item 3,910 3,591 4,083 4,593
Income before extraordinary item 2,849 2,634 2,964 3,305
Net income 2,288 2,634 2,964 3,305
Per Share:
Income before extraordinary item .35 .32 .37 .42
Net income .26 .32 .37 .42
-------------- ---------------- ----------------- -----------------
1995 QUARTER First Second Third Fourth
-------------- ---------------- ----------------- -----------------
Total revenues $15,760 $17,235 $17,768 $17,841
Income before minority interest 3,744 3,525 3,847 4,236
Net income 2,748 2,597 2,808 3,065
Net income per share .33 .31 .34 .39
-------------- ---------------- ----------------- -----------------
F-14
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Tanger Factory
Outlet Centers, Inc. and Subsidiary is included on page F-1 of this Form 10-K.
In connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 25 of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
January 27, 1997, except for Note 14,
which is dated February 28, 1997
F-15
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1996
(Amounts in thousands)
Costs Capitalized
Depreciation in Income
Description Initial Cost to Company (Improvements)
- -------------------------------------- -------------------------- ---------------------------
Outlet Center Building Building
Name Location Encumbrances Land & Fixtures Land & Fixtures
- ---------------- -------------------- ---------------- ------------ ------------ --------- ----------------
Barstow Barstow, CA $ --- $3,941 $12,533 $ --- $883
Boaz Boaz, AL 1,550 616 2,195 --- 864
Bourne Bourne, MA --- 899 1,361 --- 185
Branch N. Branch, MN --- 423 5,644 249 2,408
Branson Branson, MO 5,425 4,557 25,040 --- 3,086
Casa Grande Casa Grande, AZ --- 753 9,091 --- 1,138
Clover North Conway, NH --- 393 672 --- 49
Commerce I Commerce, GA 10,412 755 3,511 492 5,121
Commerce II Commerce, GA --- 1,299 14,046 541 2,554
Gonzales Gonzales, LA 4,650 1,011 16,165 10 3,247
Kittery-I Kittery, ME 6,053 1,242 2,961 229 1,150
Kittery-II Kittery, ME --- 921 1,835 530 219
Lancaster Lancaster, PA 15,975 3,691 19,907 --- 2,225
Lawrence Lawrence, KS --- 1,013 5,542 439 681
LL Bean North Conway, NH --- 1,894 3,351 --- 128
Locust Grove Locust Grove, GA --- 2,609 11,801 --- 6,928
Manchester Manchester, VT --- 500 857 --- 66
Martinsburg Martinsburg, WV --- 800 2,812 --- 1,252
McMinnville McMinnville, OR --- 1,071 8,162 5 517
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 953
Riverhead Riverhead, NY --- --- 36,374 -- 190
Riverhead II Riverhead, NY --- 5191 14,837 --- ---
San Marcos San Marcos, TX 10,349 2,012 9,440 17 5,869
Seymour Seymour, IN 8,299 1,794 13,249 --- 92
Stroud Stroud, OK 3,875 446 7,048 --- 4,734
Terrell Terrell, TX --- 805 13,432 --- 3,905
West Branch West Branch, MI 6,932 350 3,428 120 3,250
Williamsburg Williamsburg, IA 17,184 706 6,781 716 8,745
Totals $90,704 $39,991 $254,583 $3,348 $60,439
================ ==================== ================ ============ ============ ========= ===============
Gross Amount Carried at Close of Period Life Used to
Description 12/31/96 (1) Compute
- --------------------------- ---------------------------------------- Depreciation
Outlet Center Building Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- --------------- ---------- ---------- ----------- -------------- --------------- ------------ --------------
Barstow Barstow, CA $3,941 $13,416 $17,357 $1,350 1995 (2)
Boaz Boaz, AL 616 3,059 3,675 1,057 1988 (2)
Bourne Bourne, MA 899 1,546 2,445 549 1989 (2)
Branch N. Branch, MN 672 8,052 8,724 1,738 1992 (2)
Branson Branson, MO 4,557 28,126 32,683 2,952 1994 (2)
Casa Grande Casa Grande, AZ 753 10,229 10,982 2,601 1992 (2)
Clover North Conway, NH 393 721 1,114 294 1987 (2)
Commerce I Commerce, GA 1,247 8,632 9,879 2,526 1989 (2)
Commerce II Commerce, GA 1,840 16,600 18,440 788 1995 (2)
Gonzales Gonzales, LA 1,021 19,412 20,433 3,423 1992 (2)
Kittery-I Kittery, ME 1,471 4,111 5,582 1,597 1986 (2)
Kittery-II Kittery, ME 1,451 2,054 3,505 644 1989 (2)
Lancaster Lancaster, PA 3,691 22,132 25,823 2,222 (3) (2)
Lawrence Lawrence, KS 1,452 6,223 7,675 978 1993 (2)
LL Bean North Conway, NH 1,894 3,479 5,373 1,247 1988 (2)
Locust Grove Locust Grove, GA 2,609 18,729 21,338 1,583 1994 (2)
Manchester Manchester, VT 500 923 1,423 315 1988 (2)
Martinsburg Martinsburg, WV 800 4,064 4,864 1,309 1987 (2)
McMinnville McMinnville, OR 1,076 8,679 9,755 1,535 1993 (2)
Pigeon Forge Pigeon Forge, TN 299 3,461 3,760 1,215 1988 (2)
Riverhead Riverhead, NY --- 36,564 36,564 3,551 1993 (2)
Riverhead II Riverhead, NY 5,191 14,837 20,028 --- (4) (2)
San Marcos San Marcos, TX 2,029 15,309 17,338 2,108 1993 (2)
Seymour Seymour, IN 1,794 13,341 15,135 1,581 1994 (2)
Stroud Stroud, OK 446 11,782 12,228 2,674 1992 (2)
Terrell Terrell, TX 805 17,337 18,142 1,978 1994 (2)
West Branch West Branch, MI 470 6,678 7,148 1,511 1991 (2)
Williamsburg Williamsburg, IA 1,422 15,526 16,948 3,581 1991 (2)
Totals $43,339 $315,022 $358,361 $46,907
================ ============================ ============== =============== =============== ============== ==============
(1) Aggregate cost for federal income tax purposes is approximately
$346,583,000.
(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) Acquired in October 1994.
(4) Under construction at December 31, 1996.
F-16
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
For the Year Ended December 31, 1996
(Amounts in thousands)
The changes in total real estate for the three years ended December 31, 1996 are
as follows:
1994 1995 1996
------------------- ------------------- ---------------------
Balance, beginning of year $137,666 $292,406 $325,881
Acquisition of real estate 23,598 --- ---
Improvements 131,142 33,475 32,511
Dispositions and other --- --- (31)
Balance, end of year $292,406 $325,881 $358,361
=================== =================== =====================
The changes in accumulated depreciation for the three years ended December 31,
1996 are as follows:
1994 1995 1996
------------------- ------------------- ---------------------
Balance, beginning of year $10,436 $18,007 $31,458
Depreciation for the period 7,571 13,451 15,449
Dispositions and other --- --- ---
Balance, end of year $18,007 $31,458 $46,907
=================== =================== =====================
F-17