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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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file numbers: 33-99736-01
333-3526-01
333-39365-01
TANGER PROPERTIES LIMITED PARTNERSHIP
(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)
56-1822494
(I.R.S. Employer
Identification No.)
(336) 274-1666
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of
the Act and listed on the New York Stock
Exchange:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Documents Incorporated By Reference
Part III incorporates certain information by reference from the definitive proxy
statement of Tanger Factory Outlet Centers, Inc. to be filed with respect to the
Annual Meeting of Shareholders to be held May 8, 1998.
PART I
Item 1. Business
The Operating Partnership
Tanger Properties Limited Partnership, a North Carolina limited partnership (the
"Operating Partnership"), focuses exclusively on developing, acquiring, owning
and operating factory outlet centers, and provides all development, leasing and
management services for its centers. The Operating Partnership is the majority
owned subsidiary of Tanger Factory Outlet Centers, Inc. (the "Company"), a
fully-integrated, self-administered and self-managed real estate investment
trust ("REIT"). According to Value Retail News, an industry publication, the
Operating Partnership is one of the largest owners and operators of factory
outlet centers in the United States. As of December 31, 1997, the Operating
Partnership owned and operated 30 factory outlet centers (the "Centers") with a
total gross leasable area ("GLA") of approximately 4.6 million square feet.
These centers were approximately 98% leased, contained over 1,210 stores and
represented over 250 brand name companies as of such date.
The Company is the sole managing general partner of the Operating Partnership
and The Tanger Family Limited Partnership ("TFLP") is the sole limited partner.
As of December 31, 1997, the ownership interests in the Operating Partnership
(the "Units") consisted of 7,853,936 partnership Units and 90,689 preferred
partnership Units (which are convertible into approximately 817,107 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner. The Units held by the limited partner are exchangeable,
subject to certain limitations to preserve the Company's status as a REIT, into
Common Shares. See "Business-The Company".
Each preferred partnership Unit entitles the Company to receive distributions
from the Operating Partnership, in an amount equal to the distribution payable
with respect to a share of Series A Preferred Shares, prior to the payment by
the Operating Partnership of distributions with respect to the general
partnership Units. Preferred partnership Units will be automatically converted
by holders into general partnership Units to the extent that the Series A
Preferred Shares are converted into Common Shares and will be redeemed by the
Operating Partnership to the extent that the Series A Preferred Shares are
redeemed by the Company.
The Operating Partnership's executive offices are located at 1400 West Northwood
Street, Greensboro, North Carolina, 27408 and its telephone number is (336)
274-1666. The Operating Partnership is a North Carolina limited partnership that
was formed in May 1993.
Recent Developments
During 1997, the Operating Partnership acquired three centers in resort areas
totaling 302,554 square feet. Five Oaks Factory Stores, a factory outlet center
in Sevierville, Tennessee, was acquired in February 1997 at a purchase price of
$18 million. Shoppes on the Parkway, a factory outlet center in Blowing Rock,
North Carolina, and Soundings Factory Stores, a factory outlet center in Nags
Head, North Carolina, were acquired in September 1997 for an aggregate purchase
price of $19.5 million.
In addition, the Operating Partnership has completed, or has under construction
to be completed by the end of the first quarter of 1998, the expansion of five
existing centers totaling 538,979 square feet. A summary of the 1997 acquired
centers and expansions is recapped below:
2
1997 Development Aggregate Open at
---------------- Size 12/31/97
(sq. ft.) sq. ft.)
--------- --------
Acquisitions
Sevierville, TN 122,684 122,684
Blowing Rock, NC 97,408 97,408
Nags Head, NC 82,462 82,462
------- -------
302,554 302,554
------- -------
Expansions
Riverhead, NY 345,164 284,745
Commerce, GA 94,247 58,455
Sevierville, TN 50,357 25,060
Lancaster, PA 26,111 23,434
San Marcos, TX 23,100 11,000
------- -------
538,979 402,694
------- -------
841,533 705,248
======= =======
The Operating Partnership also is in the process of developing plans for
additional expansions and new centers for completion in 1998 and beyond.
Currently, the Operating Partnership is in the preleasing stages for future
centers at two potential sites located in Concord, North Carolina (Charlotte)
and Romulus, Michigan (Detroit) and for further expansions of four existing
centers. However, there can be no assurance that any of these anticipated or
planned developments or expansions will be started or completed as scheduled, or
that any development or expansion will result in accretive funds from
operations. In addition, the Operating Partnership regularly evaluates
acquisition proposals, engages from time to time in negotiations for
acquisitions and may from time to time enter into letters of intent for the
purchase of properties. No assurance can be given that any of the prospective
acquisitions that are being evaluated or which are subject to a letter of intent
will be consummated, or if consummated, will result in accretive funds from
operations.
During September and October 1997, the Company completed a public offering of
1,080,000 Common Shares at a price of $29.0625 per share, receiving net proceeds
of approximately $29.2 million. The net proceeds, which were contributed to the
Operating Partnership in exchange for 1,080,000 partnership Units, were used to
acquire, expand and develop factory outlet centers and for general corporate
purposes. On October 24, the Operating Partnership issued $75 million of 7.875%
senior, unsecured notes, maturing October 24, 2004. The net proceeds were used
to repay substantially all amounts outstanding under the Operating Partnership's
existing lines of credit. On November 3, 1997, the Company and the Operating
Partnership filed a new registration statement with the SEC to provide an
issuance capacity under shelf registration statements back to the original $100
million in equity securities and $100 million in debt securities.
In anticipation of offering the senior, unsecured notes due 2004, the Operating
Partnership entered into an interest rate protection agreement on October 3,
1997, which fixed the index on the 10 year US Treasury rate at 5.995% for 30
days on a notional amount of $70 million. The transaction settled on October 21,
1997, the trade date of the $75 million senior, unsecured note issuance, and, as
a result of an increase in the US Treasury rate, the Operating Partnership
received $714,000 in proceeds. Such amount is being amortized as a reduction to
interest expense over the life of the notes and will result in an overall
effective interest rate on the notes of 7.75%.
The Factory Outlet Concept
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products by eliminating the third party retailer,
and because factory outlet centers typically have lower operating costs than
other retailing formats. Factory outlet centers enable manufacturers to optimize
the size of production runs while continuing to maintain control of their
distribution channels. In addition, factory outlet centers benefit manufacturers
by permitting them to sell out-of-season, overstocked or discontinued
merchandise without alienating department stores or hampering the manufacturer's
brand name, as is
3
often the case when merchandise is distributed via discount chains.
The Operating Partnership's factory outlet centers range in size from 8,000 to
631,359 square feet of GLA and are typically located at least 10 miles from
downtown areas, where major department stores and manufacturer-owned full-price
retail stores are usually located. Manufacturers prefer these locations so that
they do not compete directly with their major customers and their own stores.
Many of the Operating Partnership's factory outlet centers are located near
tourist destinations to attract tourists who consider shopping to be a
recreational activity and are typically situated in close proximity to
interstate highways to provide accessibility and visibility to potential
customers.
Management believes that factory outlet centers continue to present attractive
opportunities for capital investment by the Operating Partnership, particularly
with respect to strategic expansions of existing centers. Management believes
that under present conditions such development or expansion costs, coupled with
current market lease rates, permit attractive investment returns. Management
further believes, based upon its contacts with present and prospective tenants,
that many companies, including prospective new entrants into the factory outlet
business, desire to open a number of new factory outlet stores in the next
several years, particularly where there are successful factory outlet centers in
which such companies do not have a significant presence or where there are few
factory outlet centers. Thus, the Operating Partnership believes that its
commitment to developing and expanding factory outlet centers is justified by
the potential financial returns on such centers.
The Operating Partnership's Factory Outlet Centers
The Operating Partnership's factory outlet centers are designed to attract
national brand name tenants. As one of the original participants in this
industry, the Operating Partnership has developed long-standing relationships
with many national and regional manufacturers. Because of its established
relationships with many manufacturers, the Operating Partnership believes it is
well positioned to capitalize on industry growth.
As of December 31, 1997, the Operating Partnership had a diverse tenant base
comprised of over 250 different well-known, upscale, national designer or brand
name companies, such as Liz Claiborne, Reebok International, Ltd., Tommy
Hilfiger, Polo Ralph Lauren, Off 5th- SAKS Fifth Avenue Outlet Store, The Gap,
Nautica and Nike. A majority of the factory outlet stores leased by the
Operating Partnership are directly operated by the respective manufacturer.
During 1997, the Operating Partnership added approximately 55 new national
designers and brand name companies to its tenant base.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 1997 and 1996. During 1995, one
tenant (including affiliates) accounted for approximately 10% of combined base
and percentage rental revenues. As of February 1, 1998, the Operating
Partnership's largest tenant accounted for approximately 6.8% of its GLA.
Because the typical tenant of the Operating Partnership is a large, national
manufacturer, the Operating Partnership 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 Operating Partnership's total revenues in 1997.
Percentage rental revenues accounted for approximately 3% of 1997 revenues. As a
result, only a small portion of the Operating Partnership'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 founder, Chairman and Chief Executive Officer of the
general partner, entered the factory outlet center business in 1981. Prior to
founding the Operating Partnership, Stanley K. Tanger and his son, Steven B.
Tanger, the President and Chief Operating Officer of the general partner, built
and managed a successful family owned apparel manufacturing business,
Tanger/Creighton Inc. ("Tanger/Creighton"), which business included the
operation of five factory outlet stores. Based on their knowledge of the apparel
and retail industries, as well as their experience operating Tanger/Creighton's
factory outlet stores, the Tangers recognized that there would be a demand for
factory outlet centers where a number of manufacturers could operate in a single
location and attract a large number of shoppers.
4
From 1981 to June of 1993, the Tangers developed 17 Centers with a total GLA of
approximately 1.5 million square feet. In June of 1993, the Company completed
its initial public offering ("IPO"), making Tanger Factory Outlet Centers, Inc.
the first publicly traded outlet center company. Since the Company's IPO, the
Operating Partnership has developed nine Centers and acquired four Centers and,
together with expansions of existing Centers, added approximately 3.1 million
square feet of GLA to its portfolio, bringing its portfolio of properties as of
December 31, 1997 to 30 Centers totaling approximately 4.6 million square feet
of GLA.
Business and Operating Strategy
The Operating Partnership 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 Operating Partnership's strategy is to
increase revenues through new development, selective acquisitions and expansions
of factory outlet centers while minimizing its operating expenses by designing
low maintenance properties and achieving economies of scale. In connection with
the ownership and management of its properties, the Operating Partnership places
an emphasis on regular maintenance and intends to make periodic renovations as
necessary. In addition, the Operating Partnership will seek to maintain high
occupancy rates and increasing rental revenues with a tenant base of nationally
recognized brand name tenants.
The Operating Partnership typically seeks locations for its new centers that
have at least 3.5 million people residing within an hour's drive, an average
household income within a 50 mile radius of at least $35,000 per year and access
to a highway with a traffic count of at least 35,000 cars per day. The Operating
Partnership will vary its minimum conditions based on the particular
characteristics of a site, especially if the site is located near or at a
tourist destination. The Operating Partnership's current goal is to target sites
that are large enough to construct centers with approximately 75 stores totaling
at least 300,000 square feet of GLA. Generally, the Operating Partnership will
build such centers in phases, with the first phase containing 150,000 to 200,000
square feet of GLA. Future phases have historically been less expensive to build
than the first phase because the Operating Partnership generally consummates
land acquisition and finishes most of the site work, including parking lots,
utilities, zoning and other developmental work, in the first phase.
The Operating Partnership generally preleases at least 50% of the space in each
center prior to acquiring the site and beginning construction. Historically, the
Operating Partnership 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 Operating Partnership four to six months from
groundbreaking to the opening of the first tenant store. Construction of
expansions to existing properties typically takes less time, usually between
three to four months.
Capital Strategy
The Operating Partnership's capital strategy is to maintain a strong and
flexible financial position by: (1) maintaining a low level of leverage, (ii)
extending and sequencing debt maturity dates, (iii) managing its floating
interest rate exposure, (iv) maintaining its liquidity and (v) reinvesting a
significant portion of its cash flow by maintaining a low distribution payout
ratio (defined as annual distributions as a percent of funds from operations
("FFO" - See discussion of FFO below) for such year).
FFO and EBITDA are widely accepted financial indicators used by certain
investors and analysts to analyze and compare one equity REIT with another on
the basis of operating performance. FFO is generally defined as net income
(loss), computed in accordance with generally accepted accounting principles,
before extraordinary items and gains (losses) on sale of properties, plus
depreciation and amortization uniquely significant to real estate. EBITDA is
generally defined as earnings before interest expense, income taxes,
depreciation and amortization. The Operating Partnership cautions that the
calculations of FFO and EBITDA may vary from entity to entity and as such the
presentation of FFO and EBITDA by the Operating Partnership may not be
comparable to other similarly titled measures of other reporting companies.
Neither FFO nor EBITDA represent net income or cash flow from operations as
defined by generally accepted accounting principles and neither should be
considered an alternative to net income as an indication of operating
performance or to cash from operations as a measure of liquidity. FFO and EBITDA
are not necessarily indicative of cash flows available to fund distributions to
unitholders and other cash needs.
The Operating Partnership has successfully increased its distribution each of
its first four years in existence. At the same time, the Operating Partnership
has reduced its payout ratio in each of those years. The distribution payout
ratio for the year ended December 31, 1997 was 67%. As a result, the Operating
Partnership retained approximately $11 million of its 1997 FFO. A low
distribution payout ratio policy allows the Operating Partnership to retain
capital to maintain the quality of its portfolio as well as to develop, acquire
and expand properties.
5
The Operating Partnership's ratio of EBITDA to Annual Service Charge (defined as
the amount which is expensed or capitalized for interest on debt, excluding
amortization of deferred finance charges) was a strong 3.0 for the year ended
December 31, 1997. The Operating Partnership's ratio of debt to total market
capitalization (defined as the value of the outstanding Units plus total debt)
at December 31, 1997 was approximately 39% (assuming that each type of Unit has
the same value as the equivalent Common Shares of the Company, which at December
31, 1997 had a market value of $30.5625 per share).
During September and October 1997, the Company completed a public offering of
1,080,000 Common Shares at a price of $29.0625 per share, and contributed the
net proceeds of approximately $29.2 million to the Operating Partnership in
exchange for 1,080,000 partnership Units. The net proceeds were used to acquire,
expand and develop factory outlet centers and for general corporate purposes. On
October 24, the Operating Partnership issued $75 million of 7.875% senior,
unsecured notes, maturing October 24, 2004. The net proceeds were used to repay
substantially all amounts outstanding under the Operating Partnership's existing
lines of credit. On November 3, 1997, the Company and the Operating Partnership
filed a new registration statement with the SEC to provide, under shelf
registration statements, for the issuance of up to $100 million in additional
equity securities and $100 million in additional debt securities.
At December 31, 1997, the Operating Partnership had revolving lines of credit
with a borrowing capacity of up to $125 million, of which $120 million was
available for additional borrowings. Based on the $5 million in variable rate
debt outstanding at December 31, 1997, the Operating Partnership had an
insignificant amount of exposure to interest rate risk at year end. Also, with
additional unsecured borrowings during the year, the Operating Partnership had
effectively unencumbered approximately 64% of its real estate assets as of
December 31, 1997. In February 1998, the Operating Partnership amended two of
its revolving lines to increase the amounts available by $20 million, bringing
the total borrowing capacity under the lines to $145 million.
The Operating Partnership 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 Operating Partnership and its unitholders.
The Company
The Company is a fully integrated real estate company, focusing exclusively on
factory outlet centers. Management of the Company beneficially owns
approximately 27% of all outstanding Common Shares (assuming the Series A
Preferred Shares and the limited partner's Units are exchanged for Common Shares
but without giving effect to the exercise of any outstanding stock and
partnership Unit options). The Company owned, as of February 1, 1998, 74.1% of
the Operating Partnership (assuming conversion of the preferred partnership
Units), and is the sole general partner.
Ownership of the Company's capital stock is restricted to preserve the Company's
status as a REIT for federal income tax purposes. Subject to certain exceptions,
a person may not actually or constructively own more than 4% of the Company's
Common Shares (including Common Shares which may be issued as a result of
conversion of Series A Preferred Shares) or more than 29,400 Series A Preferred
Shares (or a lesser number in certain cases). The Company also operates in a
manner intended to enable it to preserve its status as a REIT, including, among
other things, making distributions with respect to its outstanding capital stock
equal to at least 95% of its taxable income each year. Dividends on preferred
shares are included as distributions for this purpose. Historically, the
Company's distributions have exceeded, and the Company expects that its
distribution will continue to exceed, taxable income in each year. As a result,
and because a portion of the distributions may constitute a return of capital,
the consolidated net worth of the Company may decline. However, the Company does
not believe that consolidated net worth is a meaningful reflection of net real
estate values.
The Company's executive offices are located at 1400 West Northwood Street,
Greensboro, North Carolina, 27408 and its telephone number is (336) 274-1666.
The Company is a North Carolina corporation that was formed on March 3, 1993.
Competition
The Operating Partnership carefully considers the degree of existing and planned
competition in a proposed area before deciding to develop, acquire or expand a
new center. The Operating Partnership's centers compete for customers primarily
with factory outlet centers built and operated by different developers,
traditional shopping malls and full- and off-price retailers. However,
management believes that the majority of the Operating Partnership's customers
visit
6
factory outlet centers because they are intent on buying name-brand products at
discounted prices. Traditional full- and off-price retailers are often unable to
provide such a variety of name-brand products at attractive prices.
Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own specialty stores, and, therefore, generally insist that
the outlet centers be located not less than 10 to 20 miles from the nearest
major department store or the tenants' own specialty stores. For this reason,
the Operating Partnership's centers compete only to a very limited extent with
traditional malls in or near metropolitan areas.
Management believes that the Operating Partnership competes favorably with as
many as four large national developers of factory outlet centers and numerous
small developers. Competition with other factory outlet centers for new tenants
is generally based on cost, location, quality and mix of the centers' existing
tenants, and the degree and quality of the support and marketing services
provided by the property manager. The Operating Partnership believes that its
centers have an attractive tenant mix as a result of the strong brand identity
of the Operating Partnership's major tenants.
Corporate and Regional Headquarters
The Operating Partnership owns a small office building in Greensboro, North
Carolina in which its corporate headquarters is located. In addition, the
Operating Partnership 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 Operating Partnership maintains on-site managers and offices at 25 Centers
and one off-site manager and office in Portsmouth, New Hampshire to service the
remaining 5 Centers in the New England area. The managers closely monitor the
development of those Centers from construction through opening and operation and
also provide effective and efficient management and marketing services.
Insurance
Management believes that the Centers are covered by adequate fire, flood and
property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
Employees
As of February 1, 1998, the Operating Partnership had 110 full-time employees,
located at the Operating Partnership's corporate headquarters in North Carolina,
its regional office in New York and its 26 business offices.
7
Item 2. Business and Properties
As of February 1, 1998, the Operating Partnership's portfolio consisted of 30
Centers located in 23 states. The Operating Partnership's Centers range in size
from 8,000 to 631,359 square feet of GLA. These Centers are typically strip
shopping centers which enable customers to view all of the shops from the
parking lot, minimizing the time needed to shop. The Centers are generally
located near tourist destinations or along major interstate highways to provide
visibility and accessibility to potential customers.
The Operating Partnership believes that the Centers are well diversified
geographically and by tenant and that it is not dependent upon any single Center
or tenant. The only Center that represents more than 10% of the Operating
Partnership's total assets or gross revenues as of and for the year ended
December 31, 1997 is the property in Riverhead, NY. See "Business and Properties
- - Significant Property". No other Center represented more than 10% of the
Operating Partnership's total assets or gross revenues as of December 31, 1997.
Location of Centers (as of February 1, 1998)
Number of GLA %
State Centers (sq. ft.) of GLA
- --------------------------------------------------------------------------------
Georgia 3 713,371 16%
New York 1 631,359 14
Texas 2 419,750 9
Iowa 1 275,706 6
Tennessee 2 267,791 6
Missouri 1 255,073 6
Louisiana 1 245,325 5
Pennsylvania 1 230,063 5
Oklahoma 1 197,878 4
Arizona 1 186,018 4
North Carolina 2 179,870 4
Indiana 1 141,051 3
Minnesota 1 134,480 3
Michigan 1 112,120 2
California 1 108,950 2
Oregon 1 97,749 2
Kansas 1 88,200 2
Maine 2 84,897 2
Alabama 1 80,730 2
New Hampshire 2 61,915 1
West Virginia 1 49,252 1
Massachusetts 1 23,417 1
Vermont 1 8,000 --
----------------------------------------
Total 30 4,592,965 100%
========================================
8
The table set forth below summarizes certain information with respect to the
Operating Partnership's existing centers as of February 1, 1998.
Property Portfolio
Mortgage
Debt Fee or
GLA Outstanding Ground
Date Opened Location (sq. ft.) % Leased (000's) (4) Lease
- ------------------------------------------------------------------------------------------------------------------------
Jun. 1986 Kittery I, ME 56,312 100% $5,970 Fee
Aug. 1993 Expansion 3,882
--------
60,194
Mar. 1987 Clover, North Conway, NH 11,000 100 -- Fee
Nov. 1987 Martinsburg, WV 42,346 89 -- Fee
Sep. 1994 Expansion 6,906
--------
49,252
Apr. 1988 LL Bean, North Conway, NH 50,915 100 -- Fee
Jul. 1988 Pigeon Forge, TN 94,480 100 -- Ground
Jul. 1994 Expansion 270 Lease
--------
94,750 (2086)
Aug. 1988 Boaz, AL 78,550 100 -- Fee
May 1993 Expansion 2,180
--------
80,730
Oct. 1988 Manchester, VT 8,000 100 -- Fee
Jun. 1989 Kittery II, ME 23,119 100 -- Fee
Nov. 1993 Expansion 1,584
--------
24,703
Jul. 1989 Commerce, GA 100,100 97 10,121 Fee
Mar. 1990 Expansion 58,650
May 1992 Expansion 4,500
May 1993 Expansion 12,500
Sep. 1994 Expansion 10,000
--------
185,750
Oct. 1989 Bourne, MA 23,417 100 -- Fee
Feb. 1991 West Branch, MI 75,120 98 6,836 Fee
Oct. 1992 Expansion 25,000
May 1994 Expansion 12,000
--------
112,120
May 1991 Williamsburg, IA 121,444 94 16,946 Fee
Nov. 1991 Expansion 50,675
Nov. 1992 Expansion 34,000 (1)
Dec. 1993 Expansion 43,400
Apr. 1996 Expansion 26,187
--------
275,706
Feb. 1992 Casa Grande, AZ 94,223 89 -- Fee
Dec. 1992 Expansion 91,795
--------
186,018
9
Mortgage
Debt Fee or
GLA Outstanding Ground
Date Opened Location (sq. ft.) % Leased (000's) (4) Lease
- ------------------------------------------------------------------------------------------------------------------------
Aug. 1992 Stroud, OK 96,378 93 -- Fee
Nov. 1992 Expansion 37,500
Aug. 1993 Expansion 64,000 Fee
--------
197,878
Dec. 1992 North Branch, MN 106,280 96 -- Fee
Aug. 1993 Expansion 28,200
--------
134,480
Feb. 1993 Gonzales, LA 105,985 98 -- Fee
Aug. 1993 Expansion 109,450
Feb. 1996 Expansion 29,890
--------
245,325
May 1993 San Marcos, TX 98,820 100 10,206 Fee
Oct. 1993 Expansion 40,200
Nov. 1994 Expansion 17,500 (2)
April 1995 Expansion 32,750
July 1996 Expansion 29,945
Dec. 1997 Expansion 23,100 (6)
--------
242,315
Dec. 1993 Lawrence, KS 88,200 87 -- Fee
Dec. 1993 McMinnville, OR 97,749 72 --- Fee
Aug. 1994 Riverhead, NY 286,195 99 --- Ground
Aug. 1997 Expansion 241,820 Lease
Dec. 1997 Expansion 103,344 (6) (2004)(3)
--------
631,359
Aug. 1994 Terrell, TX 126,185 98 -- Fee
Oct. 1995 Expansion 51,250
--------
177,435
Sep. 1994 Seymour, IN 141,051 95 8,184 Fee
Oct. 1994 (5) Lancaster, PA 191,152 99 15,787 Fee
Nov. 1995 Expansion 12,800
Sep. 1997 Expansion 26,111 (6)
--------
230,063
Nov. 1994 Branson, MO 230,073 95 -- Fee
Jun. 1996 Expansion 25,000
--------
255,073
Nov. 1994 Locust Grove, GA 168,700 97 -- Fee
Dec. 1995 Expansion 45,964
Aug. 1996 Expansion 34,190
--------
248,854
Jan. 1995 Barstow, CA 108,950 100 -- Fee
Dec. 1995 Commerce II, GA 148,520 98 -- Fee
Aug. 1996 Expansion 36,000
Dec. 1997 Expansion 94,247 (6)
--------
278,767
10
Mortgage
Debt Fee or
GLA Outstanding Ground
Date Opened Location (sq. ft.) % Leased (000's) (4) Lease
- ------------------------------------------------------------------------------------------------------------------------
Feb. 1997 (5) Sevierville, TN 122,684 92 -- Ground
Dec. 1997 Expansion 50,357 (6) Lease
--------
173,041 (2046)
Sep. 1997 (5) Blowing Rock, NC 97,408 95 -- Fee
Sep. 1997 (5) Nags Head, NC 82,462 93 -- Fee
- ----------------------------------------------------------------------------------------------------------------------
Total 4,592,965 96% $74,050
======================================================================================================================
(1) GLA excludes 21,781 square foot land lease on outparcel occupied by Pizza
Hut.
(2) GLA excludes 17,400 square foot land lease on outparcel occupied by
Wendy's.
(3) The original Riverhead Center is subject to a ground lease which may be
renewed at the option of the Operating Partnership for up to seven
additional terms of five years each. The land on which the Riverhead Center
expansion is located is owned by the Operating Partnership.
(4) As of December 31, 1997. The weighted average interest rate for debt
outstanding at December 31, 1997 was 8.5% and the weighted average maturity
date was October 2002.
(5) Represents date acquired by the Operating Partnership.
(6) GLA includes square feet of new space not yet open as of December 31, 1997,
which totaled 136,285 square feet (San Marcos - 12,100; Riverhead - 60,419;
Lancaster - 2,677; Commerce II - 35,792; Sevierville - 25,297)
- --------------------------------
Management has an ongoing program for acquiring Centers, developing new Centers
and expanding existing Centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of the cost of such programs and the sources of financing
thereof.
Certain of the Operating Partnership's Centers serve as collateral for mortgage
notes payable and the secured revolving line of credit. Of the 30 Centers, the
Operating Partnership owns the land underlying 27 and has ground leases on
three. The land on which the Pigeon Forge and Sevierville Centers are located
are subject to long-term ground leases expiring in 2086 and 2046, respectively.
The land on which the original Riverhead Center is located, approximately 47
acres, is also subject to a ground lease with an initial term expiring in 2004,
with renewal at the option of the Operating Partnership for up to seven
additional terms of five years each. The land on which the Riverhead Center
expansion is located, approximately 43 acres, is owned by the Operating
Partnership.
The term of the Operating Partnership's typical tenant lease ranges from five to
ten years. Generally, leases provide for the payment of fixed monthly rent in
advance. There are often contractual base rent increases during the initial term
of the lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of real estate taxes, insurance, common area maintenance, advertising
and promotion expenses incurred by the applicable Center. As a result,
substantially all operating expenses for the Centers are borne by the tenants.
11
Lease Expirations
The following table sets forth, as of February 1, 1998, scheduled lease
expirations, assuming none of the tenants exercise renewal options. Most leases
are renewable for five year terms at the tenant's option.
% of Gross
Annualized
Average Base Rent
No. of Approx. Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring(1) (sq. ft.)(1) per sq. ft. (000's)(2) Leases
- ---------------------------------------------------------------------------------------------------------
1998 75 306,000 $12.78 $3,910 7%
1999 190 695,000 14.24 9,895 17
2000 168 581,000 14.39 8,363 14
2001 140 549,000 13.81 7,581 13
2002 242 904,000 15.14 13,684 24
2003 73 353,000 13.56 4,786 8
2004 61 314,000 14.32 4,497 8
2005 132 102,000 11.23 1,145 2
2006 4 58,000 10.91 633 1
2007 10 64,000 14.59 934 2
2008 & thereafter 36 255,000 8.76 2,235 4
----------------------------------------------------------------------------------------------
Total 1,131 4,181,000 $13.79 $57,663 100%
=======================================================================================================
(1) Excludes leases that have been entered into but which tenant has not yet
taken possession, vacant suites and month-to-month leases totaling
approximately 412,000 square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases.
Rental and Occupancy Rates
The following table sets forth information regarding the expiring leases during
each of the last five calendar years.
Renewed by Existing Re-leased to
Total Expiring Tenants New Tenants
--------------------------- ---------------------------- ----------------------------
% of
Total % of % of
GLA Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- -----------------------------------------------------------------------------------------------------------------
1997 238,250 5% 195,380 82% 18,600 8%
1996 149,689 4 134,639 90 15,050 10
1995 93,650 3 91,250 97 2,400 3
1994 115,697 3 105,697 91 10,000 9
1993 129,069 4 123,569 96 5,500 4
12
The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last five calendar years.
Renewals of Existing Leases Stores Re-leased to New Tenants (1)
------------------------------------------------------- -------------------------------------------------------
Average Annualized Base Rents Average Annualized Base Rents
($ per sq. ft.) ($ per sq. ft.)
--------------------------------------- ----------------------------------------
%
GLA % GLA Increase
Year (sq. ft.) Expiring New Increase (sq. ft.) Expiring New (Decrease)
- ---- --------- -------- ------ -------- --------- -------- ------ ---------
1997 195,380 $14.21 $14.41 1% 171,421 $14.59 $13.42 (8)%
1996 134,639 12.44 14.02 13 78,268 14.40 14.99 4
1995 91,250 11.54 13.03 13 59,445 13.64 14.80 9
1994 105,697 14.26 16.56 16 71,350 12.54 14.30 14
1993 123,569 12.83 13.94 9 29,000 10.81 14.86 38
- ----------
(1) The square footage released to new tenants for 1997, 1996, 1995, 1994 and
1993 contain 18,600, 15,050, 2,400, 10,000 and 5,500 square feet,
respectively, that was released to new tenants upon expiration of an
existing lease. The remaining space was retenanted prior to any lease
expiration.
The following table shows certain information on rents and occupancy rates for
the Centers during each of the last five calendar years.
Aggregate
Average GLA Open at Percentage
% Anualized Base End of Each Number of Rents
Year Leased Rent per sq.ft. (1) Year Centers (000's)
- ---- ------ ------------------- ----------- --------- ----------
1997 98% $14.04 4,458,000 30 $2,637
1996 99% 13.89 3,739,000 27 2,017
1995 99% 13.92 3,507,000 27 2,068
1994 99% 13.43 3,115,000 25 1,658
1993 98% 13.03 1,980,000 19 1,323
- ----------
(1) Represents total base rental revenue divided by Weighted Average GLA of the
portfolio, which amount does not take into consideration fluctuations in
occupancy throughout the year.
Occupancy Costs
The Operating Partnership believes that its ratio of average tenant
occupancy cost (which includes base rent, common area maintenance, real estate
taxes, insurance, advertising and promotions) to average sales per square foot
is low relative to other forms of retail distribution. The following table sets
forth, for each of the last five years, tenant occupancy costs per square foot
as a percentage of reported tenant sales per square foot.
Occupancy Costs as a
Year % of Tenant Sales
---- --------------------
1997 8.2%
1996 8.7
1995 8.5
1994 7.4
1993 6.5
13
Tenants
The following table sets forth certain information with respect to the Operating
Partnership's ten largest tenants and their store concepts as of February 1,
1998.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA open
- -------------------------------------------------------------------------------
Phillips-Van Heusen Corporation (1):
Bass Shoes 18 121,342 2.6%
Bass Apparel 1 3,300 0.1
Bass Company Store 1 6,500 0.1
Van Heusen 19 81,556 1.8
Geoffrey Beene Co. Store 12 48,640 1.1
Izod 15 35,567 0.8
Gant 5 13,000 0.3
-------------------------------------
71 309,905 6.8
Liz Claiborne, Inc.:
Liz Claiborne 25 285,041 6.2
Elizabeth 5 20,700 0.5
-------------------------------------
30 305,741 6.7
Reebok International, Ltd. 22 158,400 3.5
Sara Lee Corporation:
L'eggs, Hanes, Bali 23 107,192 2.3
Champion 2 6,500 0.2
Coach 6 13,815 0.3
Socks Galore 7 8,680 0.2
-------------------------------------
38 136,187 3.0
County Seat Stores, Inc. (2):
County Seat 3 15,000 0.3
Levi's by County Seat 8 91,700 2.0
-------------------------------------
11 106,700 2.3
American Commercial, Inc.:
Mikasa Factory Store 13 105,500 2.3
Brown Group Retail, Inc.:
Famous Footwear 6 33,150 0.7
Naturalizer 7 17,200 0.4
Brown Shoes 2 10,500 0.2
Factory Brand Shoes 6 29,050 0.6
Air Step/Buster Brown 1 3,000 0.1
-------------------------------------
22 92,900 2.0
VF Factory Outlet, Inc. 3 78,697 1.7
Oshkosh B"Gosh, Inc. 15 76,790 1.6
Samsonite Corporation:
American Tourister 11 31,392 0.7
Samsonite 13 43,395 0.9
-------------------------------------
24 74,787 1.6
-------------------------------------
Total of all tenants listed in table 249 1,455,607 31.5%
=====================================
14
(1) Phillips-Van Heusen Corporation ("PVH") has announced the closing of a
significant portion of its underperforming stores. Generally, the Operating
Partnership's leases with PVH are long-term and do not permit the tenant to
close the store during the lease term. Management believes that the rents
derived from stores that might be considered for closing in the future by PVH
would not have a material effect on the Operating Partnership's results of
operations or financial condition.
(2) County Seat Stores, Inc. ("County Seat") is currently in bankruptcy
proceedings. Management believes that this bankruptcy will not have a material
effect on the Operating Partnership's results of operations or financial
condition.
Significant Property
The Center in Riverhead, New York is the Operating Partnership's only Center
which comprises more than 10% of total assets or total revenues. The Riverhead
Center was originally constructed in 1994. During 1997, the Operating
Partnership substantially completed an expansion totaling 241,820 square feet
and is nearing final completion of a further expansion which will total
approximately 103,300 square feet. Upon completion of the expansions, the
Riverhead Center will total 631,359 square feet.
Tenants at the Riverhead Center principally conduct retail sales operations. The
occupancy rate as of the end of 1997, 1996, 1995 and 1994, excluding expansions
under construction, was 99%, 100%, 100% and 100%. Average annualized base rental
rates during 1997, 1996, 1995 and 1994 were $18.65, $17.73, $17.63 and $18.18
per weighted average GLA.
Depreciation on the Riverhead Center is recognized on a straight-line basis over
33.33 years, resulting in a depreciation rate of 3% per year. At December 31,
1997, the net federal tax basis of this Center was approximately $73,134,000.
Real estate taxes assessed on this Center during 1997 amounted to $826,000. Real
estate taxes for 1998 are estimated to be approximately $1.6 million.
The following table sets forth, as of February 1, 1998, scheduled lease
expirations at the Riverhead Center assuming that none of the tenants exercise
renewal options:
% of Gross
Annualized
Base Rent
No. of Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring (1) (sq. ft.) (1) per sq. ft. (000) (2) Leases
- ------------------------------------------------------------------------------------------------------------------------
1998 -- -- $ -- $ -- --%
1999 22 91,000 19.30 1,756 16
2000 5 17,000 19.94 339 3
2001 8 34,000 20.97 713 7
2002 70 240,000 20.77 4,985 46
2003 4 23,000 18.65 452 4
2004 18 79,000 19.24 1,520 14
2005 1 2,000 17.50 35 1
2006 -- -- -- -- --
2007 4 24,000 16.83 404 4
2007 & thereafter 5 57,000 9.33 532 5
- ------------------------------------------------------------------------------------------------------------------------
Total 137 567,000 $18.93 $10,736 100%
========================================================================================================================
(1) Excludes leases that have been entered into but which tenant has not taken
possession and excludes month-to-month leases.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases.
15
Item 3. Legal Proceedings
Except for claims arising in the ordinary course of business, which are covered
by the Operating Partnership's liability insurance, the Operating Partnership is
not presently involved in any litigation involving claims against the Operating
Partnership, nor, to its knowledge, is any material litigation threatened
against the Operating Partnership or its Centers which would have a material
adverse effect on the Operating Partnership, its Centers or its operations.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1997.
EXECUTIVE OFFICERS OF THE GENERAL PARTNER
The Operating Partnership does not have any officers. The following table
sets forth certain information concerning the executive officers of the general
partner, Tanger Factory Outlet Centers, Inc.:
NAME AGE POSITION
- ---------------------------------------- --- -----------------------------------------------
Stanley K. Tanger....................... 74 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger........................ 49 Director, President and Chief Operating Officer
Rochelle G. Simpson .................... 59 Secretary and Senior Vice President -
Administration and Finance
Willard A. Chafin, Jr................... 60 Senior Vice President - Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr................ 39 Vice President - Chief Financial Officer
Joseph H. Nehmen........................ 49 Vice President - Operations
Virginia R. Summerell................... 39 Treasurer and Assistant Secretary
C. Randy Warren, Jr..................... 33 Vice President - Leasing
Richard T. Parker....................... 49 Vice President - Development
Carrie A. Johnson....................... 35 Vice President - Marketing
Kevin M. Dillon......................... 39 Vice President - Construction
The following is a biographical summary of the experience of the executive
officers of the Company:
Stanley K. Tanger. Mr. Tanger is the founder, Chief Executive Officer and
Chairman of the Board of Directors of the Company. He also served as President
from inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
Steven B. Tanger. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
Rochelle G. Simpson. Ms. Simpson was named Senior Vice President -
Administration and Finance of the Company in October 1995. She is also the
Secretary of the Company and previously served as Treasurer from May 1993
through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.
16
Willard A. Chafin, Jr. Mr. Chafin was named Senior Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in October
1995. He joined the Company in April 1990, and since has held various executive
positions where his major responsibilities included supervising the Marketing,
Leasing and Property Management Departments, and leading the Asset Management
Team. Prior to joining the Company, Mr. Chafin was the Director of Store
Development for the Sara Lee Corporation, where he spent 21 years. Before
joining Sara Lee, Mr. Chafin was employed by Sears Roebuck & Co. for nine years
in advertising/sales promotion, inventory control and merchandising.
Frank C. Marchisello, Jr. Mr. Marchisello was named Vice President and
Chief Financial Officer of the Company in November 1994. Previously, he served
as Chief Accounting Officer since joining the Company in January 1993 and
Assistant Treasurer since February 1994. He was employed by Gilliam, Coble &
Moser, certified public accountants, from 1981 to 1992, the last six years of
which he was a partner of the firm in charge of various real estate clients.
While at Gilliam, Coble & Moser, Mr. Marchisello worked directly with the
Tangers since 1982. Mr. Marchisello is a graduate of the University of North
Carolina at Chapel Hill and is a certified public accountant.
Joseph H. Nehmen. Mr. Nehmen joined the Company in September 1995 and was
elected Vice President of Operations in October 1995. Mr. Nehmen has over 20
years experience in private business. Prior to joining Tanger, Mr. Nehmen was
owner of Merchants Wholesaler, a privately held distribution company in St.
Louis, Missouri. He is a graduate of Washington University. Mr. Nehmen is the
son-in-law of Stanley K. Tanger and brother-in-law of Steven B. Tanger.
Virginia R. Summerell. Ms. Summerell was named Treasurer of the Company in
May 1995 and Assistant Secretary in November 1994. Previously, she held the
position of Director of Finance since joining the Company in August 1992, after
nine years with NationsBank. Her major responsibilities include cash management
and oversight of all project and corporate finance transactions. Ms. Summerell
is a graduate of Davidson College and holds an MBA from the Babcock School at
Wake Forest University.
C. Randy Warren, Jr. Mr. Warren is the Vice President - Leasing of the
Company and joined the Company in November 1995. He was previously director of
anchor leasing at Prime Retail, L.P., where he managed anchor tenant relations
and negotiation on a national basis. Prior to that, he worked as a leasing
executive for the company. Before entering the outlet industry, he was founder
of Preston Partners, a development consulting firm in Baltimore, MD. Mr. Warren
is a graduate of Towson State University and holds an MBA from Loyola College.
Richard T. Parker. Mr. Parker is the Vice President - Development and
joined the Company in April 1996. Prior to joining Tanger, Mr. Parker was with
The Mills Corporation for nine years where he served as Vice President of Land
Development responsible for organizing and planning the development,
merchandising and sale of peripheral land surrounding 2 million-plus square foot
super regional mall projects. Prior to joining The Mills Corporation, Mr. Parker
was employed by Marriott International for 6 years where he served as Director
of Franchise Development. Mr. Parker is a graduate of Golden Gate University and
a veteran of the United States Air Force.
Carrie A. Johnson. Ms. Johnson was named Vice President - Marketing in
September 1996. Previously, she held the position of Assistant Vice President -
Marketing since joining the Company in December 1995. Prior to joining Tanger,
Ms. Johnson was with Prime Retail, L.P. for 4 years where she served as Regional
Marketing Director responsible for coordinating and directing marketing for five
outlet centers in the southeast region. Prior to joining Prime Retail, L.P., Ms.
Johnson was Marketing Manager for North Hills, Inc. for five years and also
served in the same role for the Edward J. DeBartolo Corp. for two years. Ms.
Johnson is a graduate of East Carolina University.
Kevin M. Dillon. Mr. Dillon was named Vice President - Construction in
October 1997. Previously, he held the position of Director of Construction from
September 1996 to October 1997 and Construction Manager since November 1993, the
month he joined the Company, to September 1996. Prior to joining the Company,
Mr. Dillon was employed by New Market Development Company for six years where he
served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was
the Development Director of Western Development Company where he spent 6 years.
17
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholders' Matters
There is no established public trading market for the Operating Partnership's
Units. As of December 31, 1997, the ownership interests in the Operating
Partnership consisted of 7,853,936 partnership Units and 90,689 preferred
partnership Units (which are convertible into approximately 817,107 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner.
The Operating Partnership made distributions per partnership Unit during 1997
and 1996 as follows:
1997 1996
-------------------------------------------------------
First Quarter $ .52 $ .50
Second Quarter .55 .52
Third Quarter .55 .52
Fourth Quarter .55 .52
-------------------------------------------------------
Year 1997 $2.17 $2.06
-------------------------------------------------------
Certain of the Operating Partnership's debt agreements limit the payment of
distributions such that distributions shall not exceed FFO, as defined in the
agreements, on an annual basis or 95% of FFO on a cumulative basis. Based on
continuing favorable operations and available funds from operations, the
Operating Partnership intends to continue to pay regular quarterly
distributions.
18
Item 6. Selected Financial Data
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
(In thousands, except per unit and center data)
OPERATING DATA (1)
Total revenues $ 85,271 $ 75,500 $ 68,604 $ 45,988 $ 29,204
Income before extraordinary item 17,583 16,177 15,352 15,147 8,555
Net income (3) 17,583 15,346 15,352 15,147 4,012
- ----------------------------------------------------------------------------------------------------------
UNIT DATA (2)
Basic:
Income before extraordinary item $ 1.57 $ 1.46 $ 1.36 $ 1.32 $ .90
Net income (3) $ 1.57 $ 1.37 $ 1.36 $ 1.32 $ .35
Weighted average partnership units 10,061 9,435 9,128 8,211 7,891
Diluted:
Income before extraordinary item $ 1.55 $ 1.46 $ 1.36 $ 1.31 $ .90
Net income (3) $ 1.55 $ 1.37 $ 1.36 $ 1.31 $ .35
Weighted average partnership units 10,171 9,441 9,129 8,244 7,902
Distributions paid $ 2.17 $ 2.06 $ 1.96 $ 1.80 $ .535
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 454,708 $ 358,361 $ 325,881 $ 292,406 $ 137,666
Total assets 415,578 331,954 314,947 294,643 182,322
Long-term debt 229,050 178,004 156,749 121,323 20,316
Partners' equity 160,525 136,256 142,397 147,462 150,707
- ----------------------------------------------------------------------------------------------------------
OTHER DATA
EBITDA (5) $ 52,857 $ 46,633 $ 41,058 $ 26,089 $ 17,519
Funds from operations (4) $ 35,840 $ 32,313 $ 29,597 $ 23,189 $ 12,008
Cash flows provided by (used in):
Operating activities $ 39,232 $ 38,031 $ 32,455 $ 21,274 $ 11,571
Investing activities $ (93,636) $ (36,401) $ (44,788) $(143,683) $ (49,277)
Financing activities $ 55,444 $ (4,176) $ 13,802 $ 80,661 $ 81,324
Gross leasable area open at year end 4,458 3,739 3,507 3,115 1,980
Number of centers 30 27 27 25 19
- ----------
(1) The selected financial data reflects the financial and operating
information of Tanger Properties Limited Partnership for periods subsequent
to June 1993 and combined financial and operating information of Tanger
Properties, the predecessor business, for the period prior to June 1993.
(2) In 1997, the Operating Partnership adopted SFAS 128, Earnings Per Share. As
a result, the Operating Partnership's reported income per unit amounts for
prior years have been restated to conform with the current year
presentation.
(3) Pro forma net income and net income per unit, which reflect adjustments to
historical information to present income information as if the formation of
the Operating Partnership had taken place on January 1, 1993, were $10,519
and $1.31 per basic and diluted unit during 1993.
(4) In 1996, the Operating Partnership adopted the National Association of Real
Estate Investment Trusts' definition of funds from operations and restated
1995 and prior year amounts. See Management's Discussion and Analysis of
Financial Condition and Results of Operations under the caption "Funds from
Operations" for a complete discussion of funds from operations.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. The
Operating Partnership cautions that the calculation of EBITDA may vary from
entity to entity and as such the presentation of EBITDA by the Operating
Partnership may not be comparable to other similarly titled measures of
other reporting companies. EBITDA is not intended to represent cash flows
for the period, nor has it been presented as an alternative to operating
income as an indicator of operating performance, and should not be
considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
19
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the financial
statements appearing elsewhere in this report. Historical results and percentage
relationships set forth in the statements of operations, including trends which
might appear, are not necessarily indicative of future operations.
The discussion of the Operating Partnership's results of operations reported in
the statements of operations compares the years ended December 31, 1997 and
1996, as well as December 31, 1996 and 1995. Certain comparisons between the
periods are made on a percentage basis as well as on a weighted average gross
leasable area ("GLA") basis, a technique which adjusts for certain increases or
decreases in the number of centers and corresponding square feet related to the
development, expansion or disposition of rental properties. The computation of
weighted average GLA, however, does not adjust for fluctuations in occupancy
since GLA is not reduced when original occupied space subsequently becomes
vacant.
Cautionary Statements
Certain statements contained in the discussion below, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Operating Partnership, or industry results, to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the effects of future events on the Operating Partnership's financial
performance; the risk that the Operating Partnership may not be able to finance
its planned development, acquisition and expansion activities; risks related to
the retail industry in which the Operating Partnership'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 Operating Partnership's
development, acquisition and expansion activities, such as the potential for
cost overruns, delays and lack of predictability with respect to the financial
returns associated with these development activities; the risk of potential
increase in market interest rates from current rates; risks associated with real
estate ownership, such as the potential adverse impact of changes in the local
economic climate on the revenues and the value of the Operating Partnership's
properties; and the risks that a significant number of tenants may become unable
to meet their lease obligations or that the Operating Partnership may be unable
to renew or re-lease a significant amount of available space on economically
favorable terms. Given these uncertainties, current and prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Operating Partnership disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
General Overview
The Operating Partnership continues to grow principally through acquisitions,
new development and expansions of factory outlet centers. During 1997, the
Operating Partnership acquired three centers in resort areas totaling 302,554
square feet. Five Oaks Factory Stores, a factory outlet center in Sevierville,
Tennessee, was acquired in February 1997 at a purchase price of $18 million.
Shoppes on the Parkway, a factory outlet center in Blowing Rock, North Carolina,
and Soundings Factory Stores, a factory outlet center in Nags Head, North
Carolina, were acquired in September 1997 for an aggregate purchase price of
$19.5 million.
In addition, the Operating Partnership has completed, or has under construction
to be completed by the end of the first quarter of 1998, the expansion of five
existing centers totaling 538,979 square feet. During 1996, the Operating
Partnership completed six expansions totaling 181,142 square feet. A summary of
the 1997 acquired centers and expansions is recapped below:
20
1997 Development Aggregate Open at
---------------- Size 12/31/97
(sq. ft.) (sq. ft.)
---------- ---------
Acquisitions
Sevierville, TN 122,684 122,684
Blowing Rock, NC 97,408 97,408
Nags Head, NC 82,462 82,462
------- -------
302,554 302,554
------- -------
Expansions
Riverhead, NY 345,164 284,745
Commerce, GA 94,247 58,455
Sevierville, TN 50,357 25,060
Lancaster, PA 26,111 23,434
San Marcos, TX 23,100 11,000
------- -------
538,979 402,694
------- -------
841,533 705,248
======= =======
A summary of the operating results for the years ended December 31, 1997, 1996
and 1995 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
Year Ended December 31,
---------------------------------
1997 1996 1995
---------------------------------
GLA open at end of period (000's) 4,458 3,739 3,507
Weighted average GLA (000's) (1) 4,046 3,642 3,292
Outlet centers in operation 30 27 27
New centers opened -- -- 2
New centers acquired 3 -- --
Centers expanded 5 6 4
States operated in at end of period 23 22 22
Per square foot
Revenues
Base rentals $ 14.04 $ 13.89 $ 13.92
Percentage rentals .65 .55 .63
Expense reimbursements 6.10 6.04 6.05
Other income .29 .25 .24
---------------------------------
Total revenues 21.08 20.73 20.84
---------------------------------
Expenses
Property operating 6.49 6.47 6.83
General and administrative 1.52 1.50 1.54
Interest 4.16 3.84 3.44
Depreciation and amortization 4.56 4.52 4.37
---------------------------------
Total expenses 16.73 16.33 16.18
---------------------------------
Income before gain on sale of land and
extraordinary item $ 4.35 $ 4.40 $ 4.66
=================================
(1) GLA weighted by months of operations.
21
Results of Operations
1997 Compared to 1996
Base rentals increased $6.2 million, or 12%, in 1997 when compared to the same
period in 1996 primarily as a result of the 11% increase in weighted average
GLA. Base rent increased approximately $1.5 million due to the effect of a full
year's operation of expansions completed in 1996 and approximately $4.8 million
for new or acquired leases added during 1997.
Percentage rentals increased $620,000, or $.10 per square foot, in 1997 compared
to 1996. The increase is primarily attributable to leases acquired during 1997,
leases added in 1996 completing their first full year of operation in 1997 and
due to increases in tenant sales. Same store sales, defined as weighed average
sales per square foot reported for tenant stores open all of 1997 and 1996,
increased approximately 2.3% to $241 per square foot.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional and
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
increased from 93% in the 1996 period to 94% in the 1997 period due primarily to
a reduction in nonreimbursable property operating expenses.
Property operating expenses increased by $2.7 million, or 11%, in 1997 as
compared to the 1996 period. On a weighted average GLA basis, property operating
expenses increased to $6.49 from $6.47 per square foot. Slightly lower
promotional, real estate taxes, and insurance expenses per square foot incurred
in the 1997 period compared to the 1996 period were offset by higher common area
maintenance expenses per square foot due to additional customer service
amenities, such as trolleys, customer service counters and security and as a
result of expanding the Riverhead Center which has a cost per foot higher than
the portfolio average.
General and administrative expenses increased $678,000 in 1997 as compared to
1996. As a percentage of revenues, general and administrative expenses remained
level at 7.2% in each year. On a weighted average GLA basis, general and
administrative expenses increased $.02 to $1.52 in 1997.
Interest expense increased $2.8 million during the 1997 period as compared to
the 1996 period due to higher average borrowings outstanding during the period.
Average borrowings increased principally to finance the first quarter
acquisition of Five Oaks Factory Stores (see "Overview" above) and expansions to
existing centers until the Operating Partnership received the proceeds from the
Company's equity offering in October 1997. Depreciation and amortization per
weighted average GLA increased from $4.52 per square foot to $4.56 per square
foot. The increase reflects the effect of accelerating the recognition of
depreciation expense on certain tenant finishing allowances related to vacant
space.
The extraordinary item in the 1996 period represents a write-off of the
unamortized deferred financing costs related to the lines of credit which were
extinguished using the proceeds from the Operating Partnership's $75 million
senior unsecured notes issued in March 1996.
1996 Compared to 1995
Base rentals increased $4.8 million, or 10%, for the year ended December 31,
1996 when compared to the same period in 1995 primarily as a result of a 11%
increase in weighted average GLA. Base rentals per weighted average GLA
decreased less than 1% from $13.92 per square foot to $13.89 per square foot
reflecting a slightly lower average occupancy rate during 1996 compared to 1995.
The increase in base rents in 1996 consists of $1.1 million associated with
leases added during 1996 and $3.7 million related to the effect of a full year's
operation of centers opened in 1995.
Percentage rentals decreased $51,000, or 2%, in 1996 compared to 1995 and
percentage rentals per weighted average GLA declined $.08 per square foot, or
13%, as a result of the dilutive effect of the increase in additional square
footage associated with the expansions since tenant sales at centers in their
first year of operation often do not reach the level on which percentage rentals
are required (the "breakpoint"). The decrease is also a result of escalating
breakpoints in certain leases renewing at existing centers without comparable
increases in sales. Tenant sales per square foot for centers which were opened
all of 1996 and 1995 increased 2% to approximately $226 per square foot.
22
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, operating, property tax, promotional and
management expenses, increased $2.1 million during 1996 as compared to the same
period in 1995 due principally to the related increase in reimbursable operating
and maintenance expenses associated with the growth in GLA. Expense
reimbursements expressed as a percent of property operating expenses were 93% in
the 1996 period compared to 89% in the 1995 period due to certain contractual
increases and reductions in nonrecoverable operating and maintenance expenses.
Property operating expenses increased by $1.1 million, or 5%, in 1996 as
compared to 1995. On a weighted average GLA basis, property operating expenses
decreased from $6.83 per square foot to $6.47 per square foot primarily due to a
reduction in advertising and promotion expenses reflecting the Operating
Partnership's use of cost efficient means in advertising and promoting its
centers. The decrease was partially offset by increases in real estate taxes as
a result of reassessments of recently completed properties, particularly the
property in Riverhead, NY.
General and administrative expenses decreased 3% on a weighted average GLA basis
to $1.50 for the year ended 1996. General and administrative expenses as a
percent of revenues decreased 3% to 7.2% in 1996 compared to 7.4% in 1995.
Aggregate interest expense increased $2.7 million and $.40 per weighted average
GLA during 1996 period as compared to 1995. The increase is due to higher
average borrowings outstanding during the period associated with the growth in
GLA and due to a higher average interest rate under the senior unsecured notes
issued in March 1996 when compared with the short term lines of credit
previously utilized. Depreciation and amortization per weighted average GLA
increased 3% from $4.37 per square foot to $4.52 per square foot primarily due
to increases in tenant finishing allowances included in building and
improvements which are depreciated over shorter lives and the accelerated
depreciation of certain tenant finishing allowances related to tenants who
vacated or terminated their lease prior to the expiration of the lease term.
The extraordinary item represents the write off of previously deferred financing
costs of $831,000 in connection with the early retirement of debt with the
proceeds from the senior unsecured notes issued in March 1996.
Liquidity and Capital Resources
Net cash provided by operating activities was $39.2, $38.0, and $32.5 million
for the years ended December 31, 1997, 1996 and 1995, respectively. The
increases for all three years were primarily due to the incremental operating
income associated with acquired or developed centers. Net cash used in investing
activities amounted to $93.6, $36.4, and $44.8 million during 1997, 1996 and
1995, respectively, and reflects the levels of development and acquisition
activity over the past three years (841,533 square feet developed or acquired in
1997, 181,142 square feet in 1996, 392,312 square feet in 1995). Cash provided
by (used in) financing activities of $55.4, $(4.2) and $13.8 million in 1997,
1996 and 1995, respectively, and has fluctuated consistently with the capital
needed to fund the current development and acquisition activity. In 1997, the
significant increase was due to the proceeds received from the Company's equity
offering ($29 million) and additional debt to fund acquisitions and expansions.
Management believes, based upon its discussions with present and prospective
tenants, that many tenants, including prospective tenants new to the factory
outlet business, desire to open a number of new factory outlet stores in the
next several years, particularly where there are successful factory outlet
centers in which such tenants do not have a significant presence or where there
are few factory outlet centers. During 1997, the Operating Partnership acquired
three centers totaling 302,554 square feet and completed, or has under
construction to be completed by the end of the first quarter of 1998, the
expansion of five existing centers totaling 538,879 square feet. (See "General
Overview"). Commitments for construction of these projects (which represent only
those costs contractually required to be paid by the Operating Partnership)
amounted to $862,000 at December 31, 1997.
The Operating Partnership also is in the process of developing plans for
additional expansions and new centers for completion in 1998 and beyond.
Currently, the Operating Partnership is in the preleasing stages for future
centers at two potential sites located in Concord, North Carolina (Charlotte)
and Romulus, Michigan (Detroit) and for further expansions of four existing
Centers. However, there can be no assurance that any of these anticipated or
planned developments or expansions will be started or completed as scheduled, or
that any development or expansion will result in accretive funds from
operations. In addition, the Operating Partnership regularly evaluates
acquisition proposals, engages from time to time in negotiations for
acquisitions and may from time to time enter into letters of intent for the
purchase of properties. No assurance can be given that any of the prospective
acquisitions that are being evaluated or which are subject to a letter of intent
will be consummated, or if consummated, will result in accretive funds from
operations.
23
Management intends to continually have access to the capital resources necessary
to expand and develop its business and, accordingly, may seek to obtain
additional funds through equity offerings or debt financing. During September
and October 1997, the Company completed a public offering of 1,080,000 Common
Shares at a price of $29.0625 per share, and contributed the net proceeds of
approximately $29.2 million to the Operating Partnership in exchange for
1,080,000 partnership Units. The net proceeds were used to acquire, expand and
develop factory outlet centers and for general corporate purposes. On October
24, the Operating Partnership issued $75 million of 7.875% senior, unsecured
notes, maturing October 24, 2004. The net proceeds were used to repay
substantially all amounts outstanding under the Operating Partnership's existing
lines of credit. On November 3, 1997, the Company and the Operating Partnership
filed a new registration statement with the SEC to provide, under shelf
registration statements, for the issuance of up to $100 million in additional
equity securities and $100 million in additional debt securities.
In anticipation of the offering of the senior, unsecured notes, the Operating
Partnership entered into an interest rate protection agreement on October 3,
1997, which fixed the index on the 10 year US Treasury rate at 5.995% for 30
days on a notional amount of $70 million. The transaction settled on October 21,
1997, the trade date of the $75 million offering, and, as a result of an
increase in the US Treasury rate, the Operating Partnership received $714,000 in
proceeds. Such amount is being amortized as a reduction to interest expense over
the life of the notes and will result in an overall effective interest rate on
the notes of 7.75%.
At December 31, 1997, the Operating Partnership had revolving lines of credit
with a borrowing capacity of up to $125 million, of which $120 million was
available for additional borrowings. Based on the $5 million in variable rate
debt outstanding at December 31, 1997, the Operating Partnership had an
insignificant amount of exposure to interest rate risk at year end. Also, with
additional unsecured borrowings during the year, the Operating Partnership had
effectively unencumbered approximately 64% of its real estate assets as of
December 31, 1997. In February 1998, the Operating Partnership amended two of
its revolving lines to increase amounts available by $20 million, bringing the
total borrowing capacity under the lines to $145 million. Based on existing
credit facilities, ongoing negotiations with certain financial institutions and
funds available under the shelf registration statements, management believes
that the Operating Partnership has access to the necessary financing to fund the
planned capital expenditures during 1998.
The Operating Partnership anticipates that adequate cash will be available to
fund its operating and administrative expenses, regular debt service
obligations, and the payment of distributions 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 are invested in short-term money
market or other suitable instruments. Certain of the Operating Partnership's
debt agreements limit the payment of distributions such that distributions will
not exceed funds from operations ("FFO"), as defined in the agreements, on an
annual basis or 95% of FFO on a cumulative basis from the date of the agreement.
New Accounting Pronouncements
In 1997, the Operating Partnership adopted the Financial Accounting Standards
Board's, SFAS No. 128, Earnings Per Share, effective for fiscal periods ending
after December 15, 1997. The new standard simplifies the computation of earnings
per unit by replacing primary earnings per unit with basic earnings per unit.
Basic earnings per unit does not include the effect of any potentially dilutive
securities, as under the previous accounting standard, and is computed by
dividing reported income available to general unitholders by the weighted
average units outstanding during the period. Fully diluted earnings per unit is
now called diluted earnings per unit and reflects the dilution of all
potentially dilutive securities. In adopting the standard, Companies are
required to restate all prior period earnings per unit data. The adoption of
this standard by the Operating Partnership had no impact on the historical
reported earnings per unit amounts in 1996 and 1995 as the effect of potentially
dilutive securities were immaterial.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." SFAS No.
131 requires public business enterprises to adopt its provisions for periods
beginning after December 15, 1997, and to report certain information about
operating segments in complete sets of financial statements of the enterprise
and in condensed financial statements of interim periods issued to unitholders.
The Operating Partnership is evaluating the provisions of SFAS No. 131, but has
not yet determined if additional disclosures will be required.
24
Funds from Operations
Management believes that to facilitate a clear understanding of the historical
operating results of the Operating Partnership, FFO should be considered in
conjunction with net income as presented in the unaudited financial statements
included elsewhere in this report. FFO is presented because it is a widely
accepted financial indicator used by certain investors and analysts to analyze
and compare one equity real estate investment trust ("REIT") with another on the
basis of operating performance. FFO is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale of properties, plus depreciation
and amortization uniquely significant to real estate. The Operating Partnership
cautions that the calculation of FFO may vary from entity to entity and as such
the presentation of FFO by the Operating Partnership 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 distributions to unitholders and other cash needs.
Below is a calculation of funds from operations for the years ended December 31,
1997, 1996 and 1995 as well as actual cash flow and other data for those
respective years:
1997 1996 1995
----------------------------------------
(In thousands)
Funds from Operations:
Income before gain on sale of land and extraordinary item $ 17,583 $ 16,018 $ 15,352
Adjusted for depreciation and amortization uniquely
significant to real estate 18,257 16,295 14,245
----------------------------------------
Funds from operations $ 35,840 $ 32,313 $ 29,597
========================================
Cash flows provided by (used in):
Operating activities $ 39,232 $ 38,031 $ 32,455
Investing activities $(93,636) $(36,401) $(44,788)
Financing activities $ 55,444 $ (4,176) $ 13,802
Weighted average units outstanding (1) 11,000 10,601 10,596
----------------------------------------
- ----------
(1) Assumes the preferred partnership units and unit options are converted to
general partnership Units.
Economic Conditions and Outlook
Substantially all of the Operating Partnership'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 Operating Partnership
to receive percentage rentals based on tenants' gross sales (above predetermined
levels, which the Operating Partnership believes often are lower than
traditional retail industry standards) which generally increase as prices rise.
Most of the leases require the tenant to pay their share of property operating
expenses, including common area maintenance, real estate taxes, insurance and
advertising and promotion, thereby reducing exposure to increases in costs and
operating expenses resulting from inflation.
Approximately 306,000 square feet of space is up for renewal during 1998 and
approximately 695,000 square feet will come up for renewal in 1999. In addition,
as typical in the retail industry, certain tenants have closed, or will close,
certain stores by terminating their lease prior to its natural expiration or as
a result of filing for protection under bankruptcy laws. Also, management may
grant, from time to time, a tenant's request for reduction in rent to remain in
operation. There can be no assurance that any tenant whose lease expires will
renew such lease or that renewals or terminated leases will be released on
economically favorable terms.
The Operating Partnership's portfolio is currently 96% leased. Existing tenants'
sales have remained stable and renewals by existing tenants have remained
strong. In addition, the Operating Partnership has continued to attract and
retain additional tenants. The Operating Partnership'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 Operating Partnership reduces
its operating and leasing risks. No one tenant (including affiliates) accounts
for more than 10% of the Operating Partnership's combined base and percentage
rental revenues.
25
Accordingly, management currently does not expect any material adverse impact on
the Operating Partnership's results of operation and financial condition as a
result of leases to be renewed or stores to be released.
The Operating Partnership has evaluated its computer systems and applications
for potential software failures as a result of recognizing the year 2000 and
beyond. Most of the systems are compliant with the year 2000, or will be with
normal upgrades currently available to the Operating Partnership. Therefore, the
Operating Partnership believes the costs to bring the remaining systems and
applications in compliance will be insignificant.
Contingencies
There are no recorded amounts resulting from environmental liabilities as there
are no known material loss contingencies with respect thereto. Future claims for
environmental liabilities are not measurable given the uncertainties surrounding
whether there exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no condition is
known to exist that would give rise to a material environmental liability for
site restoration, post-closure and monitoring commitments, or other costs that
may be incurred upon the sale or disposal of a property. Management has no plans
to abandon any of the properties and is unaware of any other material loss
contingencies.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is set forth at the pages indicated in
Item 14(a) below.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in that the
registrant's sole general partner, Tanger Factory Outlet Centers, Inc., will
file a definitive proxy statement pursuant to Regulation 14A (the "Proxy
Statement") not later than 120 days after the end of the fiscal year covered by
this Report, and certain information included therein is incorporated herein by
reference. Only those sections of the Proxy Statement which specifically address
the items set forth herein are incorporated by reference.
Item 10. Directors and Executive Officers of the Registrant
The Operating Partnership does not have any directors or officers. The
information concerning the directors of the general partner required by this
Item is incorporated by reference to the Proxy Statement of Tanger Factory
Outlet Centers, Inc.
The information concerning the executive officers of the general partner
required by this Item is incorporated by reference herein to the section in Part
I, Item 4, entitled "Executive Officers of the General Partner".
The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement of Tanger Factory
Outlet Centers, Inc. and is hereby incorporated by reference.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the Proxy
Statement of Tanger Factory Outlet Centers, Inc.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to the Proxy
Statement of Tanger Factory Outlet Centers, Inc.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to the Proxy
Statement of Tanger Factory Outlet Centers, Inc.
26
PART IV
Item 14. Exhibits, Financial Statements Schedules, and Reports on Form 8-K
(a) Documents filed as a part of this report:
1. Financial Statements
Report of Independent Accountants F-1
Balance Sheets-December 31, 1997 and 1996 F-2
Statements of Operations-
Years Ended December 31, 1997, 1996 and 1995 F-3
Statements of Partners' Equity-
For the Years Ended December 31, 1997, 1996 and 1995 F-4
Statements of Cash Flows-
Years Ended December 31, 1997, 1996 and 1995 F-5
Notes to Financial Statements F-6 to F-13
2. Financial Statement Schedule
Schedule III
Report of Independent Accountants F-14
Real Estate and Accumulated Depreciation F-15 to F-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
- ----------- -----------
3.3 Amended and Restated Agreement of Limited Partnership for the
Operating Partnership. (Note 1)
10.1 Unit Option Plan of the Company. (Note 2)
10.1A First Amendment to the Unit Option Plan. (Note 1)
10.1B Second Amendment to the Unit Option Plan. (Note 6)
10.1C Third Amendment to the Unit Option Plan. (Note 10)
10.1D Fourth Amendment to the Unit Option Plan. (Note 12)
10.4 Form of Unit Option Agreement between the Operating Partnership and
certain employees. (Note 3)
10.5 Amended and Restated Employment Agreement for Stanley K. Tanger. (Note
10)
10.6 Amended and Restated Employment Agreement for Steven B. Tanger. (Note
10)
10.7 Amended and Restated Employment Agreement for Willard Chafin. (Note
10)
10.8 Amended and Restated Employment Agreement for Rochelle Simpson. (Note
10)
10.9 Employment Agreement for Joseph H. Nehmen. (Note 10)
10.10 Registration Rights Agreement among the Company, the Tanger Family
Limited Partnership and Stanley K. Tanger. (Note 2)
27
10.10A Amendment to Registration Rights Agreement among the Company, the
Tanger Family Limited Partnership and Stanley K. Tanger. (Note 6)
10.11 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Note
2)
10.12 Assignment and Assumption Agreement among Stanley K. Tanger, Stanley
K. Tanger & Company, the Tanger Family Limited Partnership, the
Operating Partnership and the Company. (Note 2)
10.13 Promissory Notes by and between the Operating Partnership and John
Hancock Mutual Life Insurance Company aggregating $50,000,000, dated
as of December 13, 1994. (Note 4)
10.14 Promissory Note and Mortgage, Assignment of Leases and Rents, and
Security Agreement by and between the Operating Partnership and New
York Life Insurance Company, dated as of March 28, 1995. (Note 5)
10.15 Credit Agreement among Tanger Properties Limited Partnership, Tanger
Factory Outlet Centers, Inc. and National Westminister Bank, Plc dated
January 15, 1996. (Note 7)
10.15A Amendment No. 1 to Credit Agreement among Tanger Properties Limited
Partnership, Tanger Factory Outlet Centers, Inc. and National
Westminister Bank, Plc dated February 20, 1996. (Note 9)
10.15B Amendment No. 2 to Credit Agreement among Tanger Properties Limited
Partnership, Tanger Factory Outlet Centers, Inc. and National
Westminister Bank, Plc dated May 31, 1996. (Note 10)
10.16 Form of Senior Indenture. (Note 8)
10.17 Form of First Supplemental Indenture (to Senior Indenture). (Note 8)
10.17A Form of Second Supplemental Indenture (to Senior Indenture) dated
October 24, 1997 among Tanger Propeties Limited Partnership, Tanger
Factory Outlet Centers, Inc. and State Street Bank & Trust Company.
(Note 11)
10.18 Loan Agreement dated as of October 14, 1996 between Tanger Properties
Limited Partnership and First National Bank of Commerce. (Note 10)
10.18A First Amendment to Loan Agreement between Tanger Properties Limited
Partnership and First National Bank of Commerce dated as of August 13,
1997. (Note 12)
10.19 Loan Agreement dated as of November 18, 1996 between Tanger Properties
Limited Partnership and Southtrust Bank of Alabama, National
Association. (Note 10)
10.19A First Amendment to Loan Agreement between Tanger Properties Limited
Partnership and Southtrust Bank of Alabama, National Association dated
as of May 22, 1997. (Note 12)
10.20 Revolving Credit Agreement dated as of December 18, 1997 between
Tanger Properties Limited Partnership and Fleet National Bank. (Note
12)
21.1 List of Subsidiaries. (Note 2)
23.1 Consent of Coopers & Lybrand L.L.P.
28
Notes to Exhibits:
1. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Registration Statement on Form S-11 filed October 6,
1993, as amended.
2. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Registration Statement on Form S-11 filed May 27,
1993, as amended.
3. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1993.
4. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1994.
5. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Quarterly Report of Form 10-Q for the period ended
March 31, 1995.
6. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1995.
7. Incorporated by reference to the exhibits to the Operating
Partnership's Current Report on Form 8-K dated January 23, 1996.
8. Incorporated by reference to the exhibits to the Operating
Partnership's Current Report on Form 8-K dated March 6, 1996.
9. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Quarterly Report of Form 10-Q for the period ended
March 31, 1996.
10. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1996.
11. Incorporated by reference to the exhibits to the Operating
Partnership's Current Report on Form 8-K dated October 24, 1997.
12. Incorporated by reference to the exhibits to the Tanger Factory Outlet
Centers, Inc.'s Annual Report on Form 10-K for the year ended December
31, 1997.
(b) Reports on Form 8-K - The Operating Partnership filed the following reports
on Form 8-K during the quarter ended December 31, 1997:
The Operating Partnership filed a Current Report on Form 8-K dated
September 12, 1997 to file the Consent of Coopers & Lybrand L.L.P,
independent public accountants, as an exhibit to a prospectus filed in
September 1997.
The Operating Partnership filed a Current Report on Form 8-K dated
September 24, 1997 to file a supplemental indenture agreement related to
the issuance of $75 million in 7.875% senior unsecured notes.
The Operating Partnership filed a Current Report on Form 8-K dated
September 30, 1997 to file financial statements and related schedules
related to the acquisition of Five Oaks Factory Stores, a factory outlet
center in Sevierville, Tennessee; Shoppes on the Parkway, a factory outlet
center in Blowing Rock, North Carolina; and Soundings Factory Stores, a
factory outlet center in Nags Head, North Carolina.
29
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TANGER PROPERTIES LIMITED PARTNERSHIP
By: Tanger Factory Outlet Centers, Inc.,
its general partner
By: /s/ Stanley K. Tanger
-----------------------------
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer
March 11, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities as officers or directors of the general partner
and on the dates indicated:
Signature Title Date
/s/ Stanley K. Tanger Chairman of the Board and March 11, 1998
- ----------------------------- Chief Executive Officer
Stanley K. Tanger (Principal Executive Officer)
/s/ Steven B. Tanger Director, President and March 11, 1998
- ----------------------------- Chief Operating Officer
Steven B. Tanger
/s/ Frank C. Marchisello, Jr. Vice President and March 11, 1998
- ----------------------------- Chief Financial Officer
Frank C. Marchisello, Jr. (Principal Financial and
Accounting Officer)
/s/ Jack Africk Director March 11, 1998
- -----------------------------
Jack Africk
/s/ William G. Benton Director March 11, 1998
- -----------------------------
William G. Benton
/s/ Thomas E. Robinson Director March 11, 1998
- -----------------------------
Thomas E. Robinson
30
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
TANGER PROPERTIES LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of Tanger Properties Limited
Partnership as of December 31, 1997 and 1996, and the related statements of
operations, partners' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Partnership'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 financial position of Tanger Properties Limited
Partnership as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Greensboro, NC
January 19, 1998
F-1
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(In thousands)
December 31,
1997 1996
----------------------
ASSETS
Rental property
Land $ 48,059 $ 43,339
Buildings, improvements and fixtures 379,842 299,534
Developments under construction 26,807 15,488
----------------------
454,708 358,361
Accumulated depreciation (64,177) (46,907)
----------------------
Rental property, net 390,531 311,454
Cash and cash equivalents 3,607 2,567
Deferred charges, net 8,651 7,846
Other assets 12,789 10,087
----------------------
Total assets $ 415,578 $ 331,954
======================
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Long-term debt
Senior, unsecured notes $ 150,000 $ 75,000
Mortgages payable 74,050 75,204
Lines of credit 5,000 27,800
----------------------
229,050 178,004
Construction trade payables 12,913 8,320
Accounts payable and accrued expenses 13,090 9,374
----------------------
Total liabilities 255,053 195,698
----------------------
Commitments
Partners' equity
General partner 136,649 110,657
Limited partner 23,876 25,599
----------------------
Total partners' equity 160,525 136,256
----------------------
Total liabilities and partners' equity $ 415,578 $ 331,954
======================
The accompanying notes are an integral part of these financial statements.
F-2
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
Year Ended December 31,
1997 1996 1995
--------------------------------
REVENUES
Base rentals $ 56,807 $ 50,596 $ 45,818
Percentage rentals 2,637 2,017 2,068
Expense reimbursements 24,665 21,991 19,913
Other income 1,162 896 805
--------------------------------
Total revenues 85,271 75,500 68,604
--------------------------------
EXPENSES
Property operating 26,269 23,559 22,467
General and administrative 6,145 5,467 5,079
Interest 16,835 13,998 11,337
Depreciation and amortization 18,439 16,458 14,369
--------------------------------
Total expenses 67,688 59,482 53,252
--------------------------------
Income before gain on sale of land and extraordinary item 17,583 16,018 15,352
Gain on sale of land -- 159 --
--------------------------------
Income before extraordinary item 17,583 16,177 15,352
Extraordinary item - Loss on early extinguishment of debt -- (831) --
--------------------------------
Net income 17,583 15,346 15,352
Income allocated to limited partner (4,756) (4,155) (4,134)
--------------------------------
Income allocated to general partner $ 12,827 $ 11,191 $ 11,218
================================
Basic earnings per unit:
Income before extraordinary item $ 1.57 $ 1.46 $ 1.36
Extraordinary item -- (.09) --
-------------------------------
Net income $ 1.57 $ 1.37 $ 1.36
================================
Diluted earnings per unit:
Income before extraordinary item $ 1.55 $ 1.46 $ 1.36
Extraordinary item -- (.09) --
--------------------------------
Net income $ 1.55 $ 1.37 $ 1.36
================================
The accompanying notes are an integral part of these financial statements.
F-3
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
For the Years Ended December 31, 1997, 1996, and 1995
(In thousands, except unit data)
Total
General Limited Partners'
Partner Partner Equity
------------------------------------
Balance, December 31, 1994 $ 118,177 $ 29,285 $ 147,462
Conversion of 87,960 preferred Units into 792,506
partnership Units -- -- --
Issuance of 600 Units upon exercise of unit options 14 -- 14
Compensation under Unit Option Plan 224 110 334
Net income 11,218 4,134 15,352
Preferred distributions ($17.66 per unit) (2,944) -- (2,944)
Distributions to partners ($1.96 per unit) (11,876) (5,945) (17,821)
------------------------------------
Balance, December 31, 1995 114,813 27,584 142,397
Conversion of 35,065 preferred Units into 315,929
partnership Units -- -- --
Compensation under Unit Option Plan 229 109 338
Net income 11,191 4,155 15,346
Preferred distributions ($18.56 per unit) (2,416) -- (2,416)
Distributions to partners ($2.06 per unit) (13,160) (6,249) (19,409)
------------------------------------
Balance, December 31, 1996 110,657 25,599 136,256
Conversion of 15,730 preferred Units into 141,726
partnership Units -- -- --
Issuance of 29,700 Units upon exercise of unit options 703 -- 703
Issuance of 1,080,000 Units to general partner in exchange
for the proceeds from an offering of common shares 29,241 -- 29,241
Compensation under Unit Option Plan 234 104 338
Net income 12,827 4,756 17,583
Preferred distributions ($19.55 per unit) (1,789) -- (1,789)
Distributions to partners ($2.17 per unit) (15,224) (6,583) (21,807)
------------------------------------
Balance, December 31, 1997 $ 136,649 $ 23,876 $ 160,525
====================================
The accompanying notes are an integral part of these financial statements.
F-4
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
1997 1996 1995
-----------------------------------
OPERATING ACTIVITIES
Net income $ 17,583 $ 15,346 $ 15,352
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 18,439 16,458 14,369
Amortization of deferred financing costs 1,094 953 955
Loss on early extinguishment of debt -- 831 --
Gain on sale of land -- (159) --
Straight-line base rent adjustment (347) (1,192) (1,316)
Compensation under Unit Option Plan 338 338 334
Increase (decrease) due to changes in:
Other assets (1,591) 578 2,487
Accounts payable and accrued expenses 3,716 4,878 274
-----------------------------------
Net cash provided by operating activities 39,232 38,031 32,455
-----------------------------------
INVESTING ACTIVITIES
Additions to rental properties (92,295) (35,408) (43,758)
Additions to deferred lease costs (1,341) (1,167) (1,030)
Proceeds from sale of land -- 174 --
-----------------------------------
Net cash used in investing activities (93,636) (36,401) (44,788)
-----------------------------------
FINANCING ACTIVITIES
Contributions from general partner 29,241 -- --
Cash distributions paid (23,596) (21,825) (20,765)
Proceeds from notes payable 75,000 75,000 16,250
Repayments on notes payable (1,154) (1,019) (949)
Proceeds from revolving lines of credit 118,450 70,301 113,555
Repayments on revolving lines of credit (141,250) (123,027) (93,430)
Additions to deferred financing costs (1,950) (3,606) (873)
Proceeds from exercise of unit options 703 -- 14
-----------------------------------
Net cash provided by (used in) financing activities 55,444 (4,176) 13,802
-----------------------------------
Net increase (decrease) in cash and cash equivalents 1,040 (2,546) 1,469
Cash and cash equivalents, beginning of period 2,567 5,113 3,644
-----------------------------------
Cash and cash equivalents, end of period $ 3,607 $ 2,567 $ 5,113
===================================
The accompanying notes are an integral part of these financial statements.
F-5
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
1. Organization and Formation of the Operating Partnership
Tanger Properties Limited Partnership (the "Operating Partnership"),a North
Carolina limited partnership, develops, owns and operates factory outlet
centers. The Operating Partnership is a majority owned subsidiary of Tanger
Factory Outlet Centers, Inc., (the "Company") a fully-integrated,
self-administered, self-managed real estate investment trust ("REIT").
Recognized as one of the largest owners and operators of factory outlet centers
in the United States, the Operating Partnership owned and operated 30 factory
outlet centers located in 23 states with a total gross leasable area of
approximately 4.6 million square feet at the end of 1997. The Operating
Partnership provides all development, leasing and management services for its
centers.
The Company is the sole general partner of the Operating Partnership and the
Tanger Family Limited Partnership ("TFLP") is the sole limited partner. Stanley
K. Tanger, the Company's Chairman of the Board and Chief Executive Officer, is
the general partner of TFLP.
2. Summary of Significant Accounting Policies
Basis of presentation - Allocation of net income to the general and limited
partner is based each partner's respective ownership of Operating Partnership
Units (the "Units") (See Note 6).
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The more significant estimates include reserves for uncollectible receivables
and reserves for potentially unsuccessful pre-construction costs.
Rental Properties - Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the acquisition, construction, and development
of properties are capitalized. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets. The Operating Partnership
generally uses estimated lives ranging from 25 to 33 years for buildings, 15
years for land improvements and seven years for equipment. Expenditures for
ordinary maintenance and repairs are charged to operations as incurred while
significant renovations and improvements, including tenant finishing allowances,
that improve and/or extend the useful life of the asset are capitalized and
depreciated over their estimated useful life.
Buildings, improvements and fixtures consist primarily of permanent
buildings and improvements made to land such as landscaping and infrastructure
and costs incurred in providing rental space to tenants. Interest costs
capitalized during 1997, 1996 and 1995 amounted to $1,877, $1,044, and $580, and
development costs capitalized amounted to $1,637, $1,321 and $1,253,
respectively. Depreciation expense for each of the years ended December 31,
1997, 1996 and 1995 was $17,327, $15,449 and $13,451, respectively.
The pre-construction stage of project development involves certain costs to
secure land control and zoning and complete other initial tasks essential to the
development of the project. These costs are transferred from other assets to
developments under construction when the pre-construction tasks are completed.
Costs of potentially unsuccessful pre-construction efforts are charged to
operations.
Cash and Cash Equivalents - All highly liquid investments with an original
maturity of three months or less at the date of purchase are considered to be
cash and cash equivalents. Cash balances at a limited number of banks may
periodically exceed insurable amounts. The Operating Partnership 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.
F-6
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
2. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets - The Operating Partnership has adopted
Statement of Financial Accounting Standards No. 121, Accounting for Impairment
of Long-Lived Assets and Long-Lived Assets to be Disposed of. This statement
requires that long-lived assets and certain intangibles to be held and used by
an entity be reviewed for impairment in the event that facts and circumstances
indicate the carrying amount of an asset may not be recoverable. In such an
event, the Operating Partnership compares the estimated future undiscounted cash
flows associated with the asset to the asset's carrying amount, and if less,
recognizes an impairment loss in an amount by which the carrying amount exceeds
its fair value. The Operating Partnership believes that no material impairment
existed at December 31, 1997.
Derivatives - The Operating Partnership selectively enters into interest
rate protection agreements to mitigate changes in interest rates on its variable
rate borrowings. The notional amounts of such agreements are used to measure the
interest to be paid or received and do not represent the amount of exposure to
loss. None of these agreements are used for speculative or trading purposes. The
cost of these agreements are included in deferred financing costs and are being
amortized on a straight-line basis over the life of the agreements.
Revenue Recognition - Minimum rental income is recognized on a straight
line basis over the term of the lease. Substantially all leases contain
provisions which provide additional rents based on tenants' sales volume
("percentage rentals") and reimbursement of the tenants' share of advertising
and promotion, common area maintenance, insurance and real estate tax expenses.
Percentage rentals are recognized when earned. Expense reimbursements are
recognized in the period the applicable expenses are incurred. Payments received
from the early termination of leases are recognized when the applicable space is
released, or, otherwise are amortized over the remaining lease term.
Income Taxes - As a partnership, the allocated share of income or loss for
the year is included in the income tax returns of the partner; accordingly, no
provision has been made for Federal income taxes in the accompanying financial
statements.
Concentration of Credit Risk - The Operating Partnership's management
performs ongoing credit evaluations of their tenants. Although the tenants
operate principally in the retail industry, the properties are geographically
diverse. During 1995, one tenant accounted for approximately 10% of combined
base and percentage rental income. No single tenant accounted for 10% or more of
combined base and percentage rental income during 1997 and 1996.
Supplemental Cash Flow Information - The Operating Partnership purchases
capital equipment and incurs costs relating to construction of new facilities,
including tenant finishing allowances. Expenditures included in construction
trade payables as of December 31, 1997, 1996 and 1995 amounted to $12,913,
$8,320, and $11,305, respectively. Interest paid, net of interest capitalized,
in 1997, 1996 and 1995 was $12,337, 10,637, and $10,266, respectively.
Reclassifications - Certain prior year amounts have been reclassified to
conform with the current year presentation.
3. Deferred Charges
Deferred charges as of December 31, 1997 and 1996 consist of the following:
1997 1996
-------------------------
Deferred lease costs $7,658 $6,705
Deferred financing costs 6,607 4,657
-------------------------
14,265 11,362
Accumulated amortization 5,614 3,516
-------------------------
$8,651 $7,846
=========================
F-7
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
Amortization of deferred lease costs for the years ended December 31, 1997, 1996
and 1995 was $873, $799 and $731, respectively. Amortization of deferred
financing costs, included in interest expense in the accompanying statements of
operations, for the years ended December 31, 1997, 1996 and 1995 was $1,094,
$953 and $955, respectively. During 1996, the Operating Partnership expensed the
remaining unamortized financing costs totaling $831 related to debt extinguished
with other current year borrowings. Such amount is shown as an extraordinary
item in the accompanying statements of operations.
4. Long-term Debt
Long-term debt at December 31, 1997 and 1996 consists of the following:
1997 1996
--------------------
8.75% Senior, unsecured notes, maturing March 2001 $75,000 $75,000
7.875% Senior, unsecured notes, maturing October 2004 75,000 ---
Mortgage notes with fixed interest at:
8.92%, maturing January 2002 48,142 48,817
8.625%, maturing September 2000 10,121 10,412
9.77%, maturing April 2005 15,787 15,975
Revolving lines of credit with variable interest rates
ranging from either prime less .25% to prime or from
LIBOR plus 1.50% to LIBOR plus 1.80% 5,000 27,800
--------------------
$229,050 $178,004
====================
The Operating Partnership maintains revolving lines of credit which provide for
borrowing up to $125,000. The agreements expire at various times through the
year 2000. Interest is payable based on alternative interest rate bases at the
Operating Partnership's option. Amounts available under these facilities at
December 31, 1997 totaled $120,000. Certain of the Operating Partnership's
properties, which had a net book value of approximately $141,221 at December 31,
1997, serve as collateral for the fixed rate mortgages and one revolving line of
credit.
The credit agreements require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of distributions such that
distributions will not exceed funds from operations, as defined in the
agreements, on an annual basis or 95% of funds from operations on a cumulative
basis. All three existing fixed rate mortgage notes are with insurance companies
and contain prepayment penalty clauses.
Maturities of the existing long-term debt are as follows:
Amount %
-------- ---
1998 $ 1,261 1
1999 1,379 1
2000 15,566 6
2001 76,184 33
2002 45,117 20
Thereafter 89,543 39
-----------------------
$229,050 100
=======================
F-8
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
5. Derivatives and Fair Value of Financial Instruments
In October 1995, the Operating Partnership entered into an interest rate swap
effective through October 1998 with a notional amount of $10,000 which fixed the
30 day LIBOR index at 5.99%. The impact of this agreement, together with an
interest rate swap agreement which expired during 1996, reduced mortgage
interest expense by $693 during 1995. The agreements had an insignificant effect
on interest expense during 1997 and 1996.
In anticipation of offering the senior, unsecured notes due 2004, the Operating
Partnership entered into an interest rate protection agreement on October 3,
1997 which fixed the index on the 10 year US Treasury rate at 5.995% for 30 days
on a notional amount of $70,000. The transaction settled on October 21, 1997,
the trade date of the $75,000 offering, and, as a result of an increase in the
US Treasury rate, the Operating Partnership received proceeds of $714. Such
amount is being amortized as a reduction to interest expense over the life of
the notes and will result in an overall effective interest rate on the notes of
7.75%.
The carrying amount of cash equivalents approximates fair value due to the
short-term maturities of these financial instruments. The fair value of
long-term debt at December 31, 1997, which is estimated as the present value of
future cash flows, discounted at interest rates available at the reporting date
for new debt of similar type and remaining maturity, was approximately $232,152.
The estimated fair value of the interest rate swap agreement at December 31,
1997, as determined by the issuing financial institution, was an unrealized loss
of approximately $17.
6. Partners' Equity
During 1997, the Company completed an additional public offering of 1,080,000
Common Shares at a price of $29.0625 per share, receiving net proceeds of
approximately $29.2 million. The net proceeds, which were contributed to the
Operating Partnership in exchange for 1,080,000 partnership units, were used to
acquire, expand and develop factory outlet centers and for general corporate
purposes.
Series A Cumulative Convertible Redeemable Preferred Shares (the "Preferred
Shares") were sold by the general partner to the public during 1993 in the form
of Depositary Shares, each representing 1/10 of a Preferred Share. Proceeds from
this offering, net of underwriters discount and estimated offering expenses,
were contributed to the Operating Partnership in return for preferred
partnership Units. Preferred partnership Units issued by the Operating
Partnership have the same characteristics, with respect to liquidation rights,
distribution and conversion, as the Preferred Shares. The Preferred Shares have
a liquidation preference equivalent to $25 per Depositary Share and dividends
accumulate per Depositary Share equal to the greater of (i) $1.575 per year or
(ii) the dividends on the Common Shares or portion thereof, into which a
depositary share is convertible. The Preferred Shares rank senior to the Common
Shares in respect of dividend and liquidation rights.
The Preferred Shares are convertible at the option of the holder at any time
into Common Shares at a rate equivalent to .901 Common Shares for each
Depositary Share. Preferred 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. At December 31, 1997, 817,107
Common Shares were reserved for the conversion of Depositary Shares. The
Preferred Shares and the related Depositary Shares are not redeemable prior to
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.
F-9
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
At December 31, 1997 and 1996, the ownership interests of the Operating
Partnership consisted of the following:
1997 1996
-------------------------
Preferred Units, held by the general partner 90,689 106,419
=========================
Partnership Units:
General partner 7,853,936 6,602,510
Limited partner 3,033,305 3,033,305
-------------------------
Total 10,887,241 9,635,815
=========================
Preferred Units outstanding at December 31, 1997 were convertible into
approximately 817,107 general partnership Units. The limited partner's Units are
exchangeable, subject to certain limitations to preserve the Company's status as
a REIT, on a one-for-one basis for Common Shares of the Company.
7. Earnings Per Unit
In 1997, the Operating Partnership adopted SFAS No. 128, Earnings Per Share. The
impact of adopting this statement had no effect on reported earnings per unit
for 1996 and 1995.
Year Ended December 31,
1997 1996 1995
--------------------------------
Basic earnings per unit
Income before extraordinary item $ 17,583 $ 16,177 $ 15,352
Less: Preferred Unit distributions (1,808) (2,399) (2,903)
--------------------------------
Income available to the general and limited partners $ 15,775 $ 13,778 $ 12,449
Weighted average partnership Units (in thousands) 10,061 9,435 9,128
--------------------------------
Basic earnings per unit $ 1.57 $ 1.46 $ 1.36
================================
Diluted earnings per unit
Income before extraordinary item $ 17,583 $ 16,177 $ 15,352
Less: preferred unit distributions (1,808) (2,399) (2,903)
--------------------------------
Income available to the general and limited partners $ 15,775 $ 13,778 $ 12,449
Units (in thousands):
Weighted average partnership Units 10,061 9,435 9,128
Effect of outstanding unit options 110 6 1
--------------------------------
Weighted average partnership Units plus assumed
conversions 10,171 9,441 9,129
--------------------------------
Diluted earnings per unit $ 1.55 $ 1.46 $ 1.36
================================
Options to purchase partnership Units excluded from the computation of diluted
earnings per unit during 1996 and 1995 because the exercise price was greater
than the average market price of the Company's Common Shares totaled 130,172 and
519,708 units. During 1997, all options had exercise prices less than the
average market price. The assumed conversion of the preferred units as of the
beginning of each year would have been anti-dilutive.
F-10
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
8. Employee Benefit Plans
The Operating Partnership has a qualified retirement plan, with a salary
deferral feature designed to qualify under Section 401 of the Code (the "401(k)
Plan"), which covers substantially all employees of the Operating Partnership.
The 401(k) Plan permits employees of the Operating Partnership, 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 Operating
Partnership at a rate of compensation deferred to be determined annually at the
Operating Partnership's discretion. The matching contribution is subject to
vesting under a schedule providing for 20% annual vesting starting with the
third year of employment and 100% vesting after seven years of employment.
The Operating Partnership has a non-qualified Unit option plan ("The 1993 Unit
Option Plan"). Units received upon exercise of Unit options are exchangeable for
Common Shares of the Company. The Operating Partnership accounts for these plans
under APB Opinion No. 25, under which no compensation cost has been recognized.
Had compensation cost for these plans been determined for options granted since
January 1, 1995 consistent with SFAS #123, Accounting for Stock-Based
Compensation, the Operating Partnership's net income and earnings per unit would
have been reduced to the following pro forma amounts:
1997 1996 1995
--------------------------------------
Net income: As reported $17,583 $15,346 $15,232
Pro forma $17,403 $15,243 $15,339
Basic EPS: As reported $1.57 $1.37 $1.36
Pro forma $1.55 $1.36 $1.36
Diluted EPS: As reported $1.55 $1.37 $1.36
Pro forma $1.54 $1.36 $1.36
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in 1996 and 1995, respectively: expected distribution yields of 8%;
expected lives ranging from 5 years to 7 years; expected volatility 20%; and
risk-free interest rates ranging from 5.6% to 6.75% in 1996 and from 5.8% to
5.9% in 1995.
The Operating Partnership and the Company may issue up to a combined 1,500,000
shares and units under the Company's 1993 Stock Option Plan and The 1993 Unit
Option Plan. The Operating Partnership and the Company have granted a total of
904,530 options, net of options forfeited, through December 31, 1997. Under both
plans, the option exercise price is determined by the Stock and Unit Option
Committee of the Company's Board of Directors. Nonqualified stock and Unit
options granted expire 10 years from the date of grant and are exercisable in
five equal installments commencing one year from the date of grant.
Options outstanding at December 31, 1997 have exercise prices between $22.50 and
$26.625, with a weighted average exercise price of $23.67 and a weighted average
remaining contractual life of 6.9 years. On January 6, 1998, the Operating
Partnership granted to employees options to purchase an additional 242,600 Units
in the Operating Partnership (which are exchangeable for 242,600 Common Shares
of the Company). The exercise price per unit was set at the previous day's
market closing price of $30.125.
Unamortized stock compensation, which relates to options that were granted at an
exercise price below the fair market value at the time of grant, was $195 and
$533 at December 31, 1997 and 1996. Compensation expense recognized during 1997,
1996 and 1995 was $338, $338 and $334, respectively.
F-11
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
A summary of the status of the Operating Partnership's plan at December 31,
1997, 1996 and 1995 and changes during the years then ended is presented in the
table and narrative below:
1997 1996 1995
------ ------ ------
Wtd Avg Wtd Avg Wtd Avg
Units Ex Price Units Ex Price Units Ex Price
-------------------------------------------------------------------------------
Outstanding at beginning of year 888,950 $23.69 656,650 $23.47 525,000 $23.53
Granted -- -- 234,700 24.27 145,550 23.48
Exercised (29,700) 23.68 -- -- (600) 22.50
Forfeited (12,020) 24.41 (2,400) 23.59 (13,300) 25.79
-------------------------------------------------------------------------------
Outstanding at end of year 847,230 $23.67 888,950 $23.69 656,650 $23.47
-------------------------------------------------------------------------------
Exercisable at end of year 456,350 $23.37 310,210 $23.23 180,500 $23.05
Weighted average fair value of
options granted -- $ 2.71 $ 2.17
9. Supplementary Income Statement Information
The following amounts are included in property operating expenses for the years
ended December 31:
1997 1996 1995
-----------------------------------
Advertising and promotion $ 8,452 $ 7,691 $ 8,884
Common area maintenance 11,113 9,497 8,403
Real estate taxes 5,004 4,699 3,483
Other operating expenses 1,700 1,672 1,697
-----------------------------------
$26,269 $23,559 $22,467
===================================
10. Lease Agreements
The Operating Partnership is the lessor of a total of 1,210 stores in 30 factory
outlet centers, under operating leases with initial terms that expire from 1998
to 2015. Most leases are renewable for five years at the lessee's option. Future
minimum lease receipts under noncancellable operating leases as of December 31,
1997 are as follows:
1998 $57,242
1999 51,775
2000 42,204
2001 34,410
2002 25,180
Thereafter 41,353
--------
$252,164
========
F-12
NOTES TO FINANCIAL STATEMENTS
(In thousands, except unit data)
11. Commitments
At December 31, 1997, commitments for construction of new developments and
additions to existing properties amounted to $862. Commitments for construction
represent only those costs contractually required to be paid by the Operating
Partnership.
The Operating Partnership purchased the rights to lease land on which two of the
outlet centers are situated for $1,520. These leasehold rights are being
amortized on a straight-line basis over 30 and 40 year periods. Accumulated
amortization was $468 and $419 at December 31, 1997 and 1996, respectively.
These land leases and other land and equipment noncancellable operating leases,
with initial terms in excess of one year, have terms that expire from 2000 to
2085. Annual rental payments for these leases aggregated $778, $315 and $312 for
the years ended December 31, 1997, 1996 and 1995, respectively. Minimum lease
payments for the next five years and thereafter are as follows:
1998 $1,052
1999 1,069
2000 1,070
2001 1,063
2002 1,015
Thereafter 43,121
-------
$48,390
=======
12. Acquisitions
During 1997, the Operating Partnership completed the acquisition of three
factory outlet centers containing approximately 303,000 square feet of gross
leasable area for purchase prices which aggregated $37,500. The acquisitions
were accounted for using the purchase method whereby the purchase price was
allocated to assets acquired based on their fair values. The results of
operations of the acquired properties have been included in the results of
operations since the applicable acquisition date.
The following unaudited summarized pro forma results of operations reflect
adjustments to present the historical information as if the acquisitions had
occurred as of the beginning of the respective period. The pro forma information
is presented for informational purposes only and may not be indicative of what
actual results of operations would have been had the acquisitions occurred at
the beginning of the respective period, nor does it purport to represent the
results of operations for future periods.
1997 1996
---------------------------
(Unaudited)
---------------------------
Total revenues $ 87,314 $ 81,006
Income before extraordinary item 17,784 16,140
Net income 17,784 15,309
Basic net income per unit:
Income before extraordinary item 1.59 1.46
Net income 1.59 1.37
Diluted net income per unit:
Income before extraordinary item 1.57 1.46
Net income 1.57 1.37
===========================
F-13
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the financial statements of Tanger Properties Limited
Partnership is included on page F-1 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedule listed in the index on page 27 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
January 19, 1998
F-14
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 1997
(In thousands)
Costs Capitalized
Subsequent to
Acquisition
Description Initial Cost to Company (Improvements)
- -------------------------------------- ------------------------- ----------------------------
Buildings, Buildings,
Outlet Center Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures
- -----------------------------------------------------------------------------------------------------------------------
Barstow Barstow, CA $ -- $ 3,941 $12,533 $ -- $ 863
Blowing Rock Blowing Rock, NC -- 1,963 9,424 -- --
Boaz Boaz, AL -- 616 2,195 -- 1,048
Bourne Bourne, MA -- 899 1,361 -- 185
Branch N. Branch, MN -- 423 5,644 249 2,321
Branson Branson, MO -- 4,557 25,040 -- 3,296
Casa Grande Casa Grande, AZ -- 753 9,091 -- 1,196
Clover North Conway, NH -- 393 672 -- 49
Commerce I Commerce, GA 10,121 755 3,511 492 5,509
Commerce II Commerce, GA -- 1,299 14,046 541 9,661
Gonzales Gonzales, LA -- 947 15,895 17 3,381
Kittery-I Kittery, ME 5,970 1,242 2,961 229 1,173
Kittery-II Kittery, ME -- 921 1,835 530 222
Lancaster Lancaster, PA 15,787 3,691 19,907 -- 5,416
Lawrence Lawrence, KS -- 1,013 5,542 439 443
LL Bean North Conway, NH -- 1,894 3,351 -- 165
Locust Grove Locust Grove, GA -- 2,609 11,801 -- 6,980
Manchester Manchester, VT -- 500 857 -- 66
Martinsburg Martinsburg, WV -- 800 2,812 -- 1,256
McMinnville McMinnville, OR -- 1,071 8,162 5 518
Nags Head Nags Head, NC -- 1,853 6,679 -- --
Pigeon Forge Pigeon Forge, TN -- 299 2,508 -- 995
Riverhead Riverhead, NY -- -- 36,374 6,152 53,088
Gross Amount Carried at Close of Period
Description 12/31/97 (1) Life Used to
- -------------------------------------- --------------------------------------- Compute
Buildings, Depreciation
Outlet Center Improvements Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- ------------------------------------------------------------------------------------------------------------------------------
Barstow Barstow, CA $ 3,941 $13,396 $17,337 $ 2,132 1995 (2)
Blowing Rock Blowing Rock, NC 1,963 9,424 11,387 79 1997(3) (2)
Boaz Boaz, AL 616 3,243 3,859 1,232 1988 (2)
Bourne Bourne, MA 899 1,546 2,445 623 1989 (2)
Branch N. Branch, MN 672 7,965 8,637 2,226 1992 (2)
Branson Branson, MO 4,557 28,336 32,893 4,446 1994 (2)
Casa Grande Casa Grande, AZ 753 10,287 11,040 3,205 1992 (2)
Clover North Conway, NH 393 721 1,114 326 1987 (2)
Commerce I Commerce, GA 1,247 9,020 10,267 2,968 1989 (2)
Commerce II Commerce, GA 1,840 23,707 25,547 1,691 1995 (2)
Gonzales Gonzales, LA 964 19,276 20,240 4,494 1992 (2)
Kittery-I Kittery, ME 1,471 4,134 5,605 1,785 1986 (2)
Kittery-II Kittery, ME 1,451 2,057 3,508 737 1989 (2)
Lancaster Lancaster, PA 3,691 25,323 29,014 3,314 1994(3) (2)
Lawrence Lawrence, KS 1,452 5,985 7,437 1,287 1993 (2)
LL Bean North Conway, NH 1,894 3,516 5,410 1,404 1988 (2)
Locust Grove Locust Grove, GA 2,609 18,781 21,390 2,542 1994 (2)
Manchester Manchester, VT 500 923 1,423 355 1988 (2)
Martinsburg Martinsburg, WV 800 4,068 4,868 1,500 1987 (2)
McMinnville McMinnville, OR 1,076 8,680 9,756 2,053 1993 (2)
Nags Head Nags Head, NC 1,853 6,679 8,532 63 1997(3) (2)
Pigeon Forge Pigeon Forge, TN 299 3,503 3,802 1,373 1988 (2)
Riverhead Riverhead, NY 6,152 89,462 95,614 5,843 1993 (2)
F-15
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 1997
(In thousands)
Costs Capitalized
Subsequent to
Acquisition
Description Initial Cost to Company (Improvements)
- -------------------------------------- ------------------------- --------------------------
Buildings, Buildings,
Outlet Center Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures
- ---------------------------------------------------------------------------------------------------------------------
San Marcos San Marcos, TX 10,206 2,012 9,440 17 8,940
Sevierville Sevierville, TN -- -- 18,495 -- 4,303
Seymour Seymour, IN 8,184 1,794 13,249 -- 16
Stroud Stroud, OK -- 446 7,048 -- 4,782
Terrell Terrell, TX -- 805 13,432 -- 3,850
West Branch West Branch, MI 6,836 350 3,428 120 3,516
Williamsburg Williamsburg, IA 16,946 706 6,781 716 9,337
- ---------------------------------------------------------------------------------------------------------------------
Totals $ 74,050 $ 38,552 $274,074 $ 9,507 $132,575
=====================================================================================================================
Gross Amount Carried at Close of Period
Description 12/31/97 (1) Life Used to
- -------------------------------------- --------------------------------------- Compute
Buildings, Depreciation
Outlet Center Improvements Accumulated Date of in Income
Name Location Land & Fixtures Total Depreciation Construction Statement
- ------------------------------------------------------------------------------------------------------------------------------
San Marcos San Marcos, TX 2,029 18,380 20,409 2,929 1993 (2)
Sevierville Sevierville, TN -- 22,798 22,798 503 1997(3) (2)
Seymour Seymour, IN 1,794 13,265 15,059 2,397 1994 (2)
Stroud Stroud, OK 446 11,830 12,276 3,348 1992 (2)
Terrell Terrell, TX 805 17,282 18,087 2,881 1994 (2)
West Branch West Branch, MI 470 6,944 7,414 1,863 1991 (2)
Williamsburg Williamsburg, IA 1,422 16,118 17,540 4,578 1991 (2)
- ------------------------------------------------------------------------------------------------------------------------------
Totals $ 48,059 $406,649 $454,708 $ 64,177
==============================================================================================================================
(1) Aggregate cost for federal income tax purposes is approximately
$429,597,000
(2) The Operating Partnership generally uses estimated lives ranging from
25 to 33 years for buildings and 15 years for land improvements.
Tenant finishing allowances are depreciated over the initial lease
term.
(3) Represents year acquired
F-16
TANGER PROPERTIES LIMITED PARTNERSHIP
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 1997
(In thousands)
The changes in total real estate for the three years ended December 31, 1997 are
as follows:
1995 1996 1997
-----------------------------------------
Balance, beginning of year $ 292,406 $ 325,881 $ 358,361
Acquisition of real estate -- -- 37,500
Improvements 33,475 32,511 59,519
Dispositions and other -- (31) (672)
-----------------------------------------
Balance, end of year $ 325,881 $ 358,361 $ 454,708
=========================================
The changes in accumulated depreciation for the three years ended December 31,
1997 are as follows:
1995 1996 1997
-------------------------------------
Balance, beginning of year $ 18,007 $ 31,458 $ 46,907
Depreciation for the period 13,451 15,449 17,327
Dispositions and other -- -- (57)
-------------------------------------
Balance, end of year $ 31,458 $ 46,907 $ 64,177
====================================
F-17