TANGER FACTORY OUTLET CENTERS INC - 10-K Annual Report

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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________

Commission file number 1-11986

TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its charter)

NORTH CAROLINA 56-1815473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

1400 WEST NORTHWOOD STREET
GREENSBORO, NC 27408 (336) 274-1666
(Address of principal executive offices) (Registrant's telephone number)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class Name of exchange on which registered
Common Shares, $.01 par value New York Stock Exchange

Series A Cumulative Convertible Redeemable
Preferred Shares, $.01 par value New York Stock Exchange

-------------------------
Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]

The aggregate market value of voting shares held by nonaffiliates of the
Registrant was approximately $135,938,000 based on the closing price on the New
York Stock Exchange for such stock on March 1, 1999.

The number of Common Shares of the Registrant outstanding as of March 1, 1999
was 7,874,706.

DOCUMENTS INCORPORATED BY REFERENCE

Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 7, 1999.

PART I

ITEM 1. BUSINESS

THE COMPANY

Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
focuses exclusively on developing, acquiring, owning and operating factory
outlet centers, and provides all development, leasing and management services
for its centers. According to Value Retail News, an industry publication, the
Company is one of the largest owners and operators of factory outlet centers in
the United States. As of December 31, 1998, the Company owned and operated 31
factory outlet centers (the "Centers") with a total gross leasable area ("GLA")
of approximately 5.1 million square feet. These centers were approximately 97%
leased, contained over 1,180 stores and represented over 250 brand name
companies as of such date.

The Centers are presently held by, and all of the Company's operations are
conducted by, the Company's majority-owned subsidiary, Tanger Properties Limited
Partnership (the "Operating Partnership"). Accordingly, the descriptions of the
business, employees and properties of the Company are also descriptions of the
business, employees and properties of the Operating Partnership.

The Company is the sole managing general partner of the Operating Partnership
and The Tanger Family Limited Partnership ("TFLP") is the sole limited partner.
As of December 31, 1998, the ownership interests in the Operating Partnership
(the "Units") consisted of 7,897,606 partnership Units and 88,270 preferred
partnership Units (which are convertible into approximately 795,309 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner. The Units held by the limited partner are exchangeable,
subject to certain limitations to preserve the Company's status as a REIT, into
common shares. See "Business-The Operating Partnership". Management of the
Company beneficially owns approximately 27% of all outstanding common Shares
(assuming the Series A Preferred Shares and the limited partner's Units are
exchanged for common shares but without giving effect to the exercise of any
outstanding stock and partnership Unit options).

Ownership of the Company's common and preferred shares are restricted to
preserve the Company's status as a REIT for federal income tax purposes. Subject
to certain exceptions, a person may not actually or constructively own more than
4% of the Company's common shares (including common shares which may be issued
as a result of conversion of Series A Preferred Shares) or more than 29,400
Series A Preferred Shares (or a lesser number in certain cases). The Company
also operates in a manner intended to enable it to preserve its status as a
REIT, including, among other things, making distributions with respect to its
outstanding common and preferred shares equal to at least 95% of its taxable
income each year.

The Company is a North Carolina corporation that was formed in March 1993. The
executive offices are currently located at 1400 West Northwood Street,
Greensboro, North Carolina, 27408 and the telephone number is (336) 274-1666.
Management anticipates completing the move to a new office at a nearby facility
in April 1999. The Company's new address will be 3200 Northline Drive, Suite
360, Greensboro, North Carolina, 27408 and the new telephone number will be
(336) 292-3010.

RECENT DEVELOPMENTS

During 1998, the Company added a total of 569,086 square feet to its portfolio
including: Dalton Factory Stores, a 173,430 square foot factory outlet center
located in Dalton, GA, acquired in March 1998; Sanibel Factory Stores, a 186,070
square foot factory outlet center located in Fort Myers, FL, acquired in July
1998; 132,223 square feet of expansions which were under construction at the end
of 1997; a 25,069 square foot expansion to its property in Branson, MO and
52,294 square feet out of a total of 243,674 square feet of expansion space
which is currently under construction throughout six of its centers. The
remaining 191,380 square feet is scheduled to open during the second half of
1999. Also during 1998, the Company completed the sale of its 8,000 square foot,
single tenant property in Manchester, VT for $1.85 million.

The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1999 and beyond. Currently, the Company is in
the preleasing stages for a future center in Bourne, Massachusetts and for
further expansions of three existing Centers. However, these anticipated or
planned developments or expansions may not be started or completed as scheduled,
or may not result in accretive funds from operations. In addition, the Company
regularly evaluates acquisition or disposition proposals, engages from time to
time in negotiations for

2

acquisitions or dispositions and may from time to time enter into letters of
intent for the purchase or sale of properties. Any prospective acquisition or
disposition that is being evaluated or which is subject to a letter of intent
also may not be consummated, or if consummated, may not result in accretive
funds from operations.

During 1998, the Company discontinued the development of its Concord, North
Carolina; Romulus, Michigan and certain other projects as the economics of these
transactions did not meet an adequate return on investment for the Company. As a
result, the Company recorded a $2.7 million charge in the fourth quarter to
write-off the carrying amount of these projects, net of proceeds received from
the sale of the Company's interest in the Concord project to an unrelated third
party.

During 1998, the Company terminated a $50 million secured line of credit and
increased its unsecured lines of credit by $25 million. At December 31, 1998,
approximately 76% of the outstanding long-term debt represented unsecured
borrowings and approximately 79% of the Company's real estate portfolio was
unencumbered. The weighted average interest rate on debt outstanding on December
31, 1998 was 8.2%.

During March 1999, the Company refinanced its 8.92% notes which had a carrying
amount of $47.4 million at December 31, 1998. The refinancing reduced the
interest rate to 7.875%, increased the loan amount to $66.5 million and extended
the maturity date to April 2009. The additional proceeds were used to reduce
amounts outstanding under the revolving lines of credit. As a result of this
refinance, management expects to realize a savings in interest cost of
approximately $300,000 over the next twelve months. In addition, the Company
extended the maturity of one of its revolving lines of credit from June 2000 to
June 2001.

THE FACTORY OUTLET CONCEPT

Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products by eliminating the third party retailer,
and because factory outlet centers typically have lower operating costs than
other retailing formats. Factory outlet centers enable manufacturers to optimize
the size of production runs while continuing to maintain control of their
distribution channels. In addition, factory outlet centers benefit manufacturers
by permitting them to sell out-of-season, overstocked or discontinued
merchandise without alienating department stores or hampering the manufacturer's
brand name, as is often the case when merchandise is distributed via discount
chains.

The Company's factory outlet centers range in size from 11,000 to 699,644 square
feet of GLA and are typically located at least 10 miles from downtown areas,
where major department stores and manufacturer-owned full-price retail stores
are usually located. Manufacturers prefer these locations so that they do not
compete directly with their major customers and their own stores. Many of the
Company's factory outlet centers are located near tourist destinations to
attract tourists who consider shopping to be a recreational activity and are
typically situated in close proximity to interstate highways to provide
accessibility and visibility to potential customers.

Management believes that factory outlet centers continue to present attractive
opportunities for capital investment by the Company, particularly with respect
to strategic expansions of existing centers. Management believes that under
present conditions such development or expansion costs, coupled with current
market lease rates, permit attractive investment returns. Management further
believes, based upon its contacts with present and prospective tenants, that
many companies, including prospective new entrants into the factory outlet
business, desire to open a number of new factory outlet stores in the next
several years, particularly where there are successful factory outlet centers in
which such companies do not have a significant presence or where there are few
factory outlet centers. Thus, the Company believes that its commitment to
developing and expanding factory outlet centers is justified by the potential
financial returns on such centers.

With the decline in the real estate debt and equity markets, the Company may
not, in the short term, be able to access these markets on favorable terms in
order to maintain its historical rate of external growth. See ABusiness-Capital
Strategy" below.

THE COMPANY'S FACTORY OUTLET CENTERS

The Company's factory outlet centers are designed to attract national brand name
tenants. As one of the original participants in this industry, the Company has
developed long-standing relationships with many national and regional

3

manufacturers. Because of its established relationships with many manufacturers,
the Company believes it is well positioned to capitalize on industry growth.

As of December 31, 1998, the Company had a diverse tenant base comprised of over
250 different well-known, upscale, national designer or brand name companies,
such as Liz Claiborne, Reebok International, Ltd., Tommy Hilfiger, Polo Ralph
Lauren, Off 5th- SAKS Fifth Avenue Outlet Store, The Gap, Nautica and Nike. A
majority of the factory outlet stores leased by the Company are directly
operated by the respective manufacturer. During 1998, the Company added
approximately 17 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 1998, 1997 and 1996. As of March 1,
1999, the Company's largest tenant accounted for approximately 6.6% of its GLA.
Because the typical tenant of the Company is a large, national manufacturer, the
Company has not experienced any material problems with respect to rent
collections or lease defaults.

Revenues from fixed rents and operating expense reimbursements accounted for
approximately 92% of the Company's total revenues in 1998. Revenues from
contingent sources, such as percentage rents, which fluctuate depending on
tenant's sales performance, accounted for approximately 6% of 1998 revenues. As
a result, only a small portion of the Company's revenues are dependent on
contingent revenue sources.

BUSINESS HISTORY

Stanley K. Tanger, the Company's founder, Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. Prior to founding the
Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's
President and Chief Operating Officer, built and managed a successful family
owned apparel manufacturing business, Tanger/Creighton Inc.
("Tanger/Creighton"), which business included the operation of five factory
outlet stores. Based on their knowledge of the apparel and retail industries, as
well as their experience operating Tanger/Creighton's factory outlet stores, the
Tangers recognized that there would be a demand for factory outlet centers where
a number of manufacturers could operate in a single location and attract a large
number of shoppers.

From 1981 to 1986, Stanley K. Tanger solely developed the first successful
factory outlet centers. Steven Tanger joined the company in 1986 and by June
1993, together, the Tangers had developed 17 Centers with a total GLA of
approximately 1.5 million square feet. In June of 1993, the Company completed
its initial public offering ("IPO"), making Tanger Factory Outlet Centers, Inc.
the first publicly traded outlet center company. Since its IPO, the Company has
developed nine Centers and acquired six Centers and, together with expansions of
existing Centers, added approximately 3.5 million square feet of GLA to its
portfolio, bringing its portfolio of properties as of December 31, 1998 to 31
Centers totaling approximately 5.1 million square feet of GLA.

BUSINESS AND OPERATING STRATEGY

The Company intends to increase its cash flow and the value of its portfolio
over the long-term by continuing to own, manage, acquire, develop, and expand
factory outlet centers. The Company's strategy is to increase revenues through
new development, selective acquisitions and expansions of factory outlet centers
while minimizing its operating expenses by designing low maintenance properties
and achieving economies of scale. In connection with the ownership and
management of its properties, the Company places an emphasis on regular
maintenance and intends to make periodic renovations as necessary.

While factory outlet stores continue to be a profitable and fundamental
distribution channel for brand name manufacturers, some retail formats are more
successful than others. As typical in the retail industry, certain tenants have
closed, or will close, certain stores by terminating their lease prior to its
natural expiration or as a result of filing for protection under bankruptcy
laws.

As part of its strategy of aggressively managing its assets, the Company is
strengthening the tenant base in several of its centers by adding strong new
anchor tenants, such as Nike, GAP and Nautica. To accomplish this goal, stores
may remain vacant for a longer period of time in order to recapture enough space
to meet the size requirement of these upscale, high volume tenants.
Consequently, the Company anticipates that its average occupancy level will
remain strong, but may be more in line with the industry average.

The Company typically seeks locations for its new centers that have at least 3.5
million people residing within an hour's drive, an average household income
within a 50 mile radius of at least $35,000 per year and access to a highway
with a traffic count of at least 35,000 cars per day. The Company will vary its
minimum conditions based on the particular

4

characteristics of a site, especially if the site is located near or at a
tourist destination. The Company's current goal is to target sites that are
large enough to support centers with approximately 75 stores totaling at least
300,000 square feet of GLA. Generally, the Company will build such centers in
phases, with the first phase containing 150,000 to 200,000 square feet of GLA.
Future phases have historically been less expensive to build than the first
phase because the Company generally consummates land acquisition and finishes
most of the site work, including parking lots, utilities, zoning and other
developmental work, in the first phase.

The Company generally preleases at least 50% of the space in each center prior
to acquiring the site and beginning construction. Historically, the Company has
not begun construction until it has obtained a significant amount of signed
leases. Typically, construction of a new factory outlet center has taken the
Company four to six months from groundbreaking to the opening of the first
tenant store. Construction of expansions to existing properties typically takes
less time, usually between three to four months.

CAPITAL STRATEGY

The Company's capital strategy is to maintain a strong and flexible financial
position by: (1) maintaining a low level of leverage, (ii) extending and
sequencing debt maturity dates, (iii) managing its floating interest rate
exposure, (iv) maintaining its liquidity and (v) reinvesting a significant
portion of its cash flow by maintaining a low distribution payout ratio (defined
as annual distributions as a percent of funds from operations ("FFO" See
discussion of FFO below) for such year).

FFO and EBITDA are widely accepted financial indicators used by certain
investors and analysts to analyze and compare one equity REIT with another on
the basis of operating performance. FFO is generally defined as net income
(loss), computed in accordance with generally accepted accounting principles,
before extraordinary items and gains (losses) on sale of properties, plus
depreciation and amortization uniquely significant to real estate. EBITDA is
generally defined as earnings before minority interest, interest expense, income
taxes, depreciation and amortization. The Company cautions that the calculations
of FFO and EBITDA may vary from entity to entity and as such the presentation of
FFO and EBITDA by the Company may not be comparable to other similarly titled
measures of other reporting companies. Neither FFO nor EBITDA represent net
income or cash flow from operations as defined by generally accepted accounting
principles and neither should be considered an alternative to net income as an
indication of operating performance or to cash from operations as a measure of
liquidity. FFO and EBITDA are not necessarily indicative of cash flows available
to fund dividends to shareholders and other cash needs.

The Company has successfully increased its dividend each of its first five years
as a public company. At the same time, the Company continues to have of one of
the lowest payout ratios in the REIT industry. The distribution payout ratio for
the year ended December 31, 1998 was 71%. As a result, the Company retained
approximately $11.6 million of its 1998 FFO. A low distribution payout ratio
policy allows the Company to retain capital to maintain the quality of its
portfolio as well as to develop, acquire and expand properties.

The Company's ratio of EBITDA to Annual Service Charge (defined as the amount
which is expensed or capitalized for interest on debt, excluding amortization of
deferred finance charges) was a strong 2.8 for the year ended December 31, 1998.
The Company's ratio of debt to total market capitalization (defined as the value
of the Company's outstanding Common Shares on a fully diluted basis after giving
effect to the conversion or exchange of outstanding partnership Units in the
Operating Partnership held by TFLP and the Series A Preferred Shares, plus total
consolidated debt) at December 31, 1998 was approximately 55% (assuming a value
for the Common Shares of the Company at December 31, 1998 of $21.1875 per
share).

The Company intends to retain the ability to raise additional capital, including
additional debt, to pursue attractive investment opportunities that may arise
and to otherwise act in a manner that it believes to be in the best interest of
the Company and its shareholders. The Company maintains revolving lines of
credit which provide for unsecured borrowings up to $100 million, of which $20.3
million was available for additional borrowings at December 31, 1998. As a
general matter, the Company anticipates utilizing its lines of credit as an
interim source of funds to acquire, develop and expand factory outlet centers
and repaying the credit lines with longer-term debt or equity when management
determines that market conditions are favorable. Under joint shelf registration,
the Company and the Operating Partnership could issue up to $100 million in
additional equity securities and $100 million in additional debt securities.
With the decline in the real estate debt and equity markets, the Company may
not, in the short term, be able to access these markets on favorable terms.
Management believes the decline is temporary and may utilize these funds as the
markets improve to continue its external growth. In the interim, the Company may
consider the use of operational and developmental joint ventures and other
related strategies to generate additional cash funding. Based on cash provided

5

by operations, existing credit facilities, ongoing negotiations with certain
financial institutions and funds available under the shelf registration,
management believes that the Company has access to the necessary financing to
fund the planned capital expenditures during 1999.

THE OPERATING PARTNERSHIP

The Centers and other assets of the Company are held by, and all of the
Company's operations are conducted by, the Operating Partnership. As of December
31, 1998, the ownership interests in the Operating Partnership consisted of
7,897,606 partnership Units and 88,270 preferred partnership Units (which are
convertible into approximately 795,309 general partnership Units) held by the
Company and 3,033,305 partnership Units held by TFLP, the sole limited partner.
Each partnership Unit held by TFLP is exchangeable into one Common Share
(subject to certain antidilution adjustments and certain limitations on exchange
to preserve the Company's status as a REIT).

Each preferred partnership Unit entitles the Company to receive distributions
from the Operating Partnership, in an amount equal to the distribution payable
with respect to a share of Series A Preferred Shares, prior to the payment by
the Operating Partnership of distributions with respect to the general
partnership Units. Preferred partnership Units will be automatically converted
by holders into general partnership Units to the extent that the Series A
Preferred Shares are converted into Common Shares and will be redeemed by the
Operating Partnership to the extent that the Series A Preferred Shares are
redeemed by the Company.

COMPETITION

The Company carefully considers the degree of existing and planned competition
in a proposed area before deciding to develop, acquire or expand a new center.
The Company's centers compete for customers primarily with factory outlet
centers built and operated by different developers, traditional shopping malls
and full- and off-price retailers. However, management believes that the
majority of the Company's customers visit factory outlet centers because they
are intent on buying name-brand products at discounted prices. Traditional full-
and off-price retailers are often unable to provide such a variety of name-brand
products at attractive prices.

Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own specialty stores, and, therefore, generally insist that
the outlet centers be located not less than 10 to 20 miles from the nearest
major department store or the tenants' own specialty stores. For this reason,
the Company's centers compete only to a very limited extent with traditional
malls in or near metropolitan areas.

Management believes that the Company competes favorably with as many as three
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. The Company believes that its centers have an attractive tenant mix,
as a result of the Company's decision to lease substantially all of its space to
manufacturer operated stores rather than to off-price retailers, and also as a
result of the strong brand identity of the Company's major tenants.

CORPORATE AND REGIONAL HEADQUARTERS

The Company currently owns a small office building in Greensboro, North Carolina
in which its corporate headquarters is located. The Company has outgrown this
space and has entered into an agreement to lease a larger office space at a
nearby facility in Greensboro, North Carolina to relocate its corporate
headquarters in April 1999. The current office building in Greensboro will be
offered for sale. In addition, the Company rents a regional office in New York
City, New York under a lease agreement and sublease agreement, respectively to
better service its principal fashion-related tenants, many of whom are based in
and around that area.

The Company maintains offices and employee on-site managers at 26 Centers. The
managers closely monitor the operation, marketing and local relationships at
each of their centers.

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.

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EMPLOYEES

As of March 1, 1999, the Company had 125 full-time employees, located at the
Company's corporate headquarters in North Carolina, its regional office in New
York and its 26 business offices.

ITEM 2. BUSINESS AND PROPERTIES

As of March 1, 1999, the Company's portfolio consisted of 31 Centers located in
23 states. The Company's Centers range in size from 11,000 to 699,644 square
feet of GLA. These Centers are typically strip shopping centers which enable
customers to view all of the shops from the parking lot, minimizing the time
needed to shop. The Centers are generally located near tourist destinations or
along major interstate highways to provide visibility and accessibility to
potential customers.

The Company believes that the Centers are well diversified geographically and by
tenant and that it is not dependent upon any single property or tenant. The only
Center that represents more than 10% of the Company's consolidated total assets
or consolidated gross revenues as of and for the year ended December 31, 1998 is
the property in Riverhead, NY. See "Business and Properties - Significant
Property". No other Center represented more than 10% of the Company's
consolidated total assets or consolidated gross revenues as of December 31,
1998.

LOCATION OF CENTERS (AS OF MARCH 1, 1999)

Number of GLA %
State Centers (sq. ft.) of GLA
- --------------------------------------------- ---------- ------------- ---------
Georgia 4 886,794 17%
New York 1 699,644 14
Texas 2 414,830 8
Tennessee 2 362,280 7
Missouri 1 280,142 5
Iowa 1 277,237 5
Louisiana 1 245,325 5
Pennsylvania 1 230,063 4
Oklahoma 1 197,878 4
Florida 1 186,072 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 1 105,950 2
Oregon 1 97,749 2
Kansas 1 88,200 2
Maine 2 84,897 2
Alabama 1 80,730 1
New Hampshire 2 61,915 1
West Virginia 1 49,252 1
Massachusetts 1 23,417 ---
============================================= ========== ============= =========
Total 31 5,125,914 100%
============================================= ========== ============= =========

Management has an ongoing strategy of acquiring Centers, developing new Centers
and expanding existing Centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of the cost of such programs and the sources of financing
thereof.

Certain of the Company's Centers serve as collateral for mortgage notes payable.
Of the 31 Centers, the Company owns the land underlying 28 and has ground leases
on three. The land on which the Pigeon Forge and Sevierville Centers are located
are subject to long-term ground leases expiring in 2086 and 2046, respectively.
The land on which the original Riverhead Center is located, approximately 47
acres, is also subject to a ground lease with an initial term expiring in 2004,
with renewal at the option of the Company for up to seven additional terms of
five years each. The land on which the Riverhead Center expansion is located,
approximately 43 acres, is owned by the Company.

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The term of the Company's typical tenant lease ranges from five to ten years.
Generally, leases provide for the payment of fixed monthly rent in advance.
There are often contractual base rent increases during the initial term of the
lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of real estate taxes, insurance, common area maintenance, advertising
and promotion expenses incurred by the applicable Center. As a result,
substantially all operating expenses for the Centers are borne by the tenants.

The table set forth below summarizes certain information with respect to the
Company's existing centers as of March 1, 1999.

MORTGAGE
GLA DEBT FEE OR
(SQ. % OUTSTANDING GROUND
DATE OPENED LOCATION FT.) LEASED (000'S) (4) LEASE
- ----------------- --------------------------- --------- ----- ------- ------------ -------------

Jun. 1986 Kittery I, ME 60,194 100% $5,878 Fee
Mar. 1987 Clover, North Conway, NH 11,000 100 --- Fee
Nov. 1987 Martinsburg, WV 49,252 69 --- Fee
Apr. 1988 LL Bean, North Conway, NH 50,915 100 --- Fee
Jul. 1988 Pigeon Forge, TN 94,750 94 --- Ground lease
Aug. 1988 Boaz, AL 80,730 96 --- Fee
Jun. 1989 Kittery II, ME 24,703 100 --- Fee
Jul. 1989 Commerce, GA 185,750 97 9,805 Fee
Oct. 1989 Bourne, MA 23,417 100 --- Fee
Feb. 1991 West Branch, MI 112,120 88 6,732 Fee
May 1991 Williamsburg, IA 277,237 (1) 99 16,686 Fee
Feb. 1992 Casa Grande, AZ 186,018 83 --- Fee
Aug. 1992 Stroud, OK 197,878 77 --- Fee
Dec. 1992 North Branch, MN 134,480 91 --- Fee
Feb. 1993 Gonzales, LA 245,325 94 --- Fee
May 1993 San Marcos, TX 237,395 (2) 100 10,050 Fee
Dec. 1993 Lawrence, KS 88,200 48 --- Fee
Dec. 1993 McMinnville, OR 97,749 77 --- Fee
Aug. 1994 Riverhead, NY 699,644 (6) 98 --- Ground lease (3)
Aug. 1994 Terrell, TX 177,435 96 --- Fee
Sep. 1994 Seymour, IN 141,051 86 8,059 Fee
Oct. 1994 (5) Lancaster, PA 230,063 (6) 96 15,580 Fee
Nov. 1994 Branson, MO 280,142 99 --- Fee
Nov. 1994 Locust Grove, GA 248,854 93 --- Fee
Jan. 1995 Barstow, CA 105,950 92 --- Fee
Dec. 1995 Commerce II, GA 278,760 100 --- Fee
Feb. 1997 (5) Sevierville, TN 267,530 (6) 100 --- Ground lease
Sep. 1997 (5) Blowing Rock, NC 97,408 93 --- Fee
Sep. 1997 (5) Nags Head, NC 82,462 100 --- Fee
Mar. 1998 (5) Dalton, GA 173,430 97 --- Fee
Jul. 1998 (5) Fort Myers, FL 186,072 97 --- Fee
================= =========================== ========= ===== ======= ============ =================
TOTAL 5,125,914 94% $72,790
================= =========================== ========= ===== ======= ============ =================

(1) GLA EXCLUDES 21,781 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY PIZZA
HUT.
(2) GLA EXCLUDES 17,400 SQUARE FOOT LAND LEASE ON OUTPARCEL OCCUPIED BY
WENDY'S.
(3) THE ORIGINAL RIVERHEAD CENTER IS SUBJECT TO A GROUND LEASE WHICH MAY BE
RENEWED AT THE OPTION OF THE COMPANY FOR UP TO SEVEN ADDITIONAL TERMS OF
FIVE YEARS EACH. THE LAND ON WHICH THE RIVERHEAD CENTER EXPANSION IS LOCATED
IS OWNED BY THE COMPANY.
(4) AS OF DECEMBER 31, 1998. THE WEIGHTED AVERAGE INTEREST RATE FOR DEBT
OUTSTANDING AT DECEMBER 31, 1998 WAS 8.2% AND THE WEIGHTED AVERAGE MATURITY
DATE WAS APRIL 2002.
(5) REPRESENTS DATE ACQUIRED BY THE COMPANY.
(6) GLA INCLUDES SQUARE FEET OF NEW SPACE NOT YET OPEN AS OF DECEMBER 31, 1998,
WHICH TOTALED 114,554 SQUARE FEET (RIVERHEAD - 45,689; LANCASTER - 2,677;
SEVIERVILLE - 66,188)
- --------------------------------

8

LEASE EXPIRATIONS

The following table sets forth, as of March 1, 1999, 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
- --------------------- ------------ ----------- ------------ ------------ -----------

1999 115 386,000 $13.06 $5,040 8%
2000 176 663,000 13.73 9,103 14
2001 181 652,000 13.84 9,025 14
2002 254 942,000 15.11 14,232 22
2003 207 889,000 14.23 12,652 20
2004 112 549,000 15.15 8,319 13
2005 22 123,000 13.00 1,599 2
2006 8 80,000 12.70 1,016 2
2007 8 62,000 14.23 882 1
2008 8 56,000 13.54 758 1
2009 & thereafter 28 254,000 8.26 2,097 3
===================== ============ =========== ============ ============ ===========
Total 1,119 4,656,000 $13.90 $64,723 100%
===================== ============ =========== ============ ============ ===========

(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 470,000 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
GLA Total GLA % of % of
(sq. Center (sq. Expiring GLA Expiring
Year ft.) GLA ft.) GLA (sq.ft.) GLA
- ---------- ------------ ---------- ------------- ------------ ----------- ------------

1998 548,504 11% 407,837 74% 38,526 7%
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

9

The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last five calendar years.

Renewals of Existing Leases Stores Re-leased to New Tenants (1)
------------------------------------------ ------------------------------------
Average Annualized Base Rents Average Annualized Base Rents
($ per sq. ft.) ($ per sq. ft.)
------------------------------- ------------------------------
GLA % GLA %
Year (sq.ft.) Expiring New Increase (sq.ft.) Expiring New Change
- --------- --------- --------- -------- -------- -------- --------- -------- --------

1998 407,387 $13.83 $14.07 2% 220,890 $15.33 $13.87 (9)%
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

- ---------------------
(1) THE SQUARE FOOTAGE RELEASED TO NEW TENANTS FOR 1998, 1997, 1996, 1995 AND
1994 CONTAIN 38,526, 18,600, 15,050, 2,400, AND 10,000 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.

Average Aggregate
Annualized GLA Open at Percentage
% Base Rent End of Each Number of Rents
Year Leased per sq.ft.(1) Year Centers (000's)
- --------- -------------- -------------- -------------- -------------- ------------

1998 97% $13.88 5,011,000 31 $3,087
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

- ---------------------
(1) REPRESENTS TOTAL BASE RENTAL REVENUE DIVIDED BY WEIGHTED AVERAGE GLA OF THE
PORTFOLIO, WHICH AMOUNT DOES NOT TAKE INTO CONSIDERATION FLUCTUATIONS IN
OCCUPANCY THROUGHOUT THE YEAR.

OCCUPANCY COSTS

The Company believes that its ratio of average tenant occupancy cost
(which includes base rent, common area maintenance, real estate taxes,
insurance, advertising and promotions) to average sales per square foot is low
relative to other forms of retail distribution. The following table sets forth,
for each of the last five years, tenant occupancy costs per square foot as a
percentage of reported tenant sales per square foot.

Occupancy Costs as a
Year % of Tenant Sales
------------------ -----------------------
1998 7.9%
1997 8.2
1996 8.7
1995 8.5
1994 7.4

10

TENANTS

The following table sets forth certain information with respect to the Company's
ten largest tenants and their store concepts as of March 1, 1999.

% of
Number GLA Total
Tenant of Stores (sq. ft.) GLA open
- ----------------------------------------------- ------------- -------------- -----------

PHILLIPS-VAN HEUSEN CORPORATION:
Bass 22 146,053 2.8%
Van Heusen 21 89,656 1.8
Geoffrey Beene Co. Store 13 51,640 1.0
Izod 17 39,617 0.8
Gant 4 10,500 0.2
------------- -------------- -----------
77 337,466 6.6
LIZ CLAIBORNE, INC.:
Liz Claiborne 24 277,041 5.4
Liz Claiborne Shoes 1 2,000 ---
Elizabeth 6 23,700 0.5
DKNY Jeans 2 5,820 0.1
------------- -------------- -----------
33 308,561 6.0

REEBOK INTERNATIONAL, LTD. 24 172,161 3.4

SARA LEE CORPORATION:
L'eggs, Hanes, Bali 26 117,809 2.3
Champion 1 4,000 0.1
Coach 11 26,561 0.5
Socks Galore 7 8,680 0.2
------------- -------------- -----------
45 157,050 3.1

DRESS BARN INC. 16 107,878 2.1

AMERICAN COMMERCIAL, INC.:
Mikasa Factory Store 13 105,500 2.0

BROWN GROUP RETAIL, INC.:
Factory Brand Shoes 14 71,880 1.4
Naturalizer 8 20,240 0.4
Brown Shoes 2 10,500 0.2
------------- -------------- -----------
24 102,620 2.0
COUNTY SEAT STORES, INC. (1):
County Seat 3 15,000 0.3
Levi's by County Seat 7 81,700 1.6
------------- -------------- -----------
10 96,700 1.9

CORNING REVERE 19 83,267 1.6

VF FACTORY OUTLET, INC. 3 78,697 1.5

============= ============== ===========
Total of all tenants listed in table 264 1,549,900 30.2%
============= ============== ===========

(1) COUNTY SEAT STORES, INC. ("COUNTY SEAT") IS CURRENTLY IN BANKRUPTCY
PROCEEDINGS. MANAGEMENT BELIEVES THAT THIS BANKRUPTCY WILL NOT HAVE A MATERIAL
EFFECT ON THE COMPANY'S RESULTS OF OPERATIONS OR FINANCIAL CONDITION.

11

SIGNIFICANT PROPERTY

The Center in Riverhead, New York is the Company's only Center which comprises
more than 10% of consolidated total assets or consolidated total revenues. The
Riverhead Center was originally constructed in 1994. Upon completion of
expansions currently underway totaling approximately 68,000 square feet, the
Riverhead Center will total 699,644 square feet.

Tenants at the Riverhead Center principally conduct retail sales operations. The
occupancy rate as of the end of 1998, 1997, and 1996, excluding expansions under
construction, was 97%, 99%, and 100%. Average annualized base rental rates
during 1998, 1997, and 1996 were $18.89, $18.65, and $17.73 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,
1998, the net federal tax basis of this Center was approximately $84,975,000.
Real estate taxes assessed on this Center during 1998 amounted to $1,623,000.
Real estate taxes for 1999 are estimated to be approximately $2.1 million.

The following table sets forth, as of March 1, 1999, 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
- ------------------ ------------- ----------- ------------ ------------- ---------------

1999 9 27,000 $21.96 $593 5%
2000 5 18,000 19.72 355 3
2001 8 48,000 19.23 923 8
2002 68 227,000 21.19 4,809 40
2003 21 86,000 18.90 1,625 14
2004 27 127,000 19.31 2,452 20
2005 1 2,000 17.50 35 ---
2006 --- --- --- --- ---
2007 3 21,000 16.76 352 3
2008 1 7,000 19.29 135 1
2009 & thereafter 5 73,000 9.95 726 6
================== ============= =========== ============ ============= ===============
Total 148 636,000 $18.88 $12,005 100%
================== ============= =========== ============ ============= ===============

(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.

ITEM 3.LEGAL PROCEEDINGS

Except for claims arising in the ordinary course of business, which are covered
by the Company's liability insurance, the Company is not presently involved in
any litigation involving claims against the Company, nor, to its knowledge, is
any material litigation threatened against the Company or its Centers which
would have a material adverse effect on the Company, its Centers or its
operations.

ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 1998.

12

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth certain information concerning the executive
officers of the Company:

NAME AGE POSITION

Stanley K. Tanger................ 75 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger................. 50 Director, President and Chief Operating Officer
Rochelle G. Simpson ............. 60 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr............ 61 Executive Vice President - Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr......... 40 Senior Vice President - Chief Financial Officer
Joseph H. Nehmen................. 50 Senior Vice President - Operations
Virginia R. Summerell............ 40 Treasurer and Assistant Secretary
C. Randy Warren, Jr.............. 34 Senior Vice President - Leasing
Carrie A. Johnson-Warren......... 36 Vice President - Marketing
Kevin M. Dillon.................. 40 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 Executive Vice President -
Administration and Finance in January 1999. She previously held the position of
Senior Vice President - Administration and Finance since October 1995. She is
also the Secretary of the Company and previously served as Treasurer from May
1993 through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.

WILLARD A. CHAFIN, JR. Mr. Chafin was named Executive Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in January
1999. Mr. Chafin previously held the position of Senior Vice President -
Leasing, Site Selection, Operations and Marketing since October 1995. He joined
the Company in April 1990, and since has held various executive positions where
his major responsibilities included supervising the Marketing, Leasing and
Property Management Departments, and leading the Asset Management Team. Prior to
joining the Company, Mr. Chafin was the Director of Store Development for the
Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr.
Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales
promotion, inventory control and merchandising.

FRANK C. MARCHISELLO, JR. Mr. Marchisello was named Senior Vice President
and Chief Financial Officer in January 1999. He was named Vice President and
Chief Financial Officer in November 1994. Previously, he served as Chief
Accounting Officer since joining the Company in January 1993 and Assistant
Treasurer since February 1994. He was employed by Gilliam, Coble & Moser,
certified public accountants, from 1981 to 1992, the last six years of which he
was a partner of the firm in charge of various real estate clients. While at
Gilliam, Coble & Moser, Mr. Marchisello

13

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 was named Senior Vice President of Operations
in January 1999. He joined the Company in September 1995 and was named Vice
President of Operations in October 1995. Mr. Nehmen has over 20 years experience
in private business. Prior to joining Tanger, Mr. Nehmen was owner of Merchants
Wholesaler, a privately held distribution company in St. Louis, Missouri. He is
a graduate of Washington University. Mr. Nehmen is the son-in-law of Stanley K.
Tanger and brother-in-law of Steven B. Tanger.

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 was named Senior Vice President of Leasing
in January 1999. He joined the Company in November 1995 as Vice President of
Leasing. 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. Mr. Warren is the husband of
Ms. Carrie Johnson-Warren.

CARRIE A. JOHNSON-WARREN. Ms. Johnson-Warren 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-Warren was with Prime Retail, L.P. for 4 years where
she served as Regional Marketing Director responsible for coordinating and
directing marketing for five outlet centers in the southeast region. Prior to
joining Prime Retail, L.P., Ms. Johnson-Warren was Marketing Manager for North
Hills, Inc. for five years and also served in the same role for the Edward J.
DeBartolo Corp. for two years. Ms. Johnson-Warren is a graduate of East Carolina
University and is the wife of Mr. C. Randy Warren, Jr.

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 from November 1993, the
month he joined the Company, to September 1996. Prior to joining the Company,
Mr. Dillon was employed by New Market Development Company for six years where he
served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was
the Development Director of Western Development Company where he spent 6 years.

14

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS

The Common Shares commenced trading on the New York Stock Exchange on May 28,
1993. The initial public offering price was $22.50 per share. The following
table sets forth the high and low sales prices of the Common Shares as reported
on the New York Stock Exchange Composite Tape, during the periods indicated.

Common
Dividends
1998 High Low Paid
------------------------ ------------------ ------------- --------------

First Quarter $31.1875 $28.5625 $.55
Second Quarter 31.8750 29.1250 .60
Third Quarter 31.8125 22.0000 .60
Fourth Quarter 23.8750 18.8125 .60
------------------------ ------------------- ------------- --------------
Year 1998 $31.8750 $18.8125 $2.35
------------------------ ------------------- ------------- --------------

Common
1997 High Low Dividends
Paid
------------------------ ------------------- ------------- --------------
First Quarter $27.500 $24.000 $.52
Second Quarter 27.250 23.000 .55
Third Quarter 29.875 26.875 .55
Fourth Quarter 31.000 26.500 .55
------------------------ ------------------- ------------- --------------
Year 1997 $31.000 $23.000 $2.17
------------------------ ------------------- ------------- --------------

As of March 1, 1999, there were approximately 519 shareholders of record.
Certain of the Company's debt agreements limit the payment of dividends such
that dividends shall not exceed FFO, as defined in the agreements, for the prior
fiscal year on an annual basis or 95% of FFO on a cumulative basis. Based on
continuing favorable operations and available funds from operations, the Company
intends to continue to pay regular quarterly dividends.

15

ITEM 6. SELECTED FINANCIAL DATA
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
(In thousands, except per share and center data)

OPERATING DATA
Total revenues $ 97,766 $ 85,271 $ 75,500 $ 68,604 $ 45,988
Income before minority interest and
extraordinary item 16,103 17,583 16,177 15,352 15,147
Income before extraordinary item 12,159 12,827 11,752 11,218 11,168
Net income 11,827 12,827 11,191 11,218 11,168
- ---------------------------------------------------------------------------------------------------------
SHARE DATA
Basic:
Income before extraordinary item $ 1.30 $ 1.57 $ 1.46 $ 1.36 $ 1.32
Net income $ 1.26 $ 1.57 $ 1.37 $ 1.36 $ 1.32
Weighted average common shares 7,886 7,028 6,402 6,095 5,177
Diluted:
Income before extraordinary item $ 1.28 $ 1.54 $ 1.46 $ 1.36 $ 1.31
Net income $ 1.24 $ 1.54 $ 1.37 $ 1.36 $ 1.31
Weighted average common shares 8,009 7,140 6,408 6,096 5,211
Common dividends paid $ 2.35 $ 2.17 $ 2.06 $ 1.96 $ 1.80
- ---------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 529,247 $ 454,708 $ 358,361 $ 325,881 $ 292,406
Total assets 471,795 416,014 332,138 315,130 294,802
Long-term debt 302,485 229,050 178,004 156,749 121,323
Shareholders' equity 114,039 122,119 101,738 107,560 115,413
- ---------------------------------------------------------------------------------------------------------
OTHER DATA
EBITDA (1) $ 60,285 $ 52,857 $ 46,633 $ 41,058 $ 26,089
Funds from operations (1) $ 39,748 $ 35,840 $ 32,313 $ 29,597 $ 23,189
Cash flows provided by (used in):
Operating activities $ 35,787 $ 39,214 $ 38,051 $ 32,423 $ 21,304
Investing activities $ (79,236) $ (93,636) $ (36,401) $ (44,788) $(143,683)
Financing activities $ 46,172 $ 55,444 $ (4,176) $ 13,802 $ 80,661
Gross leasable area open at year end 5,011 4,458 3,739 3,507 3,115
Number of centers 31 30 27 27 25

- -----------------------
(1) EBITDA and Funds from Operations ("FFO") are widely accepted financial
indicators used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA represents earnings
before minority interest, interest expense, income taxes, depreciation and
amortization. Funds from operations is defined as net income (loss),
computed in accordance with generally accepted accounting principles,
before extraordinary items and gains (losses) on sale of properties, plus
depreciation and amortization uniquely significant to real estate. The
Company cautions that the calculations of EBITDA and FFO may vary from
entity to entity and as such the presentation of EBITDA and FFO by the
Company may not be comparable to other similarly titled measures of other
reporting companies. EBITDA and FFO are not intended to represent cash
flows for the period. EBITDA and FFO have not 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.

16

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the consolidated statements of operations,
including trends which might appear, are not necessarily indicative of future
operations.

The discussion of the Company's results of operations reported in the
consolidated statements of operations compares the years ended December 31, 1998
and 1997, as well as December 31, 1997 and 1996. Certain comparisons between the
periods are made on a percentage basis as well as on a weighted average gross
leasable area ("GLA") basis, a technique which adjusts for certain increases or
decreases in the number of centers and corresponding square feet related to the
development, acquisition, expansion or disposition of rental properties. The
computation of weighted average GLA, however, does not adjust for fluctuations
in occupancy which may occur subsequent to the original opening date.

CAUTIONARY STATEMENTS

Certain statements made below are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995 and included this statement for purposes of complying with these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project", or similar expressions. You should not rely
on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
which could materially affect our actual results, performance or achievements.
Factors which may cause actual results to differ materially from current
expectations include, but are not limited to, the following:

o general economic and local real estate conditions could change (for
example, our tenant's business may change if the economy changes, which
might effect (1) the amount of rent they pay us or their ability to pay
rent to us, (2) their demand for new space, or (3) our ability to renew
or re-lease a significant amount of available space on favorable terms;
o the laws and regulations that apply to us could change (for instance,
a change in the tax laws that apply to REITs could result in unfavorable
tax treatment for us);
o capital availability (for instance, financing opportunities may not be
available to us, or may not be available to us on favorable terms);
o our operating costs may increase or our costs to construct or acquire
new properties or expand our existing properties may increase or exceed
our original expectations.

GENERAL OVERVIEW

During 1998, the Company added a total of 569,086 square feet to its portfolio
including: Dalton Factory Stores, a 173,430 square foot factory outlet center
located in Dalton, GA, acquired in March 1998; Sanibel Factory Stores, a 186,070
square foot factory outlet center located in Fort Myers, FL, acquired in July
1998; 132,223 square feet of expansions which were under construction at the end
of 1997; a 25,069 square foot expansion to its property in Branson, MO and
52,294 square feet out of a total of 243,674 square feet of expansion space
which is currently under construction throughout six of its centers. The
remaining 191,380 square feet is scheduled to open during the second half of
1999. Also during 1998, the Company completed the sale of its 8,000 square foot,
single tenant property in Manchester, VT for $1.85 million.

17

A summary of the operating results for the years ended December 31, 1998, 1997
and 1996 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.

1998 1997 1996
- --------------------------------------------------------- ------------ ----------- ------------
GLA open at end of period (000's) 5,011 4,458 3,739
Weighted average GLA (000's) (1) 4,768 4,046 3,642
Outlet centers in operation 31 30 27
New centers acquired 2 3 ---
Centers sold 1 --- ---
Centers expanded 1 5 6
States operated in at end of period 23 23 22

PER SQUARE FOOT
Revenues
Base rentals $13.88 $14.04 $13.89
Percentage rentals .65 .65 .55
Expense reimbursements 5.63 6.10 6.04
Other income .34 .29 .25
- --------------------------------------------------------- ------------ ----------- ------------
Total revenues 20.50 21.08 20.73
- --------------------------------------------------------- ------------ ----------- ------------
Expenses
Property operating 6.10 6.49 6.47
General and administrative 1.40 1.52 1.50
Interest 4.62 4.16 3.84
Depreciation and amortization 4.65 4.56 4.52
- --------------------------------------------------------- ------------ ----------- ------------
Total expenses 16.77 16.73 16.33
- --------------------------------------------------------- ------------ ----------- ------------
Income before gain on sale of real estate, minority
interest and extraordinary item $3.73 $4.35 $4.40

========================================================= ============ =========== ============

(1) GLA WEIGHTED BY MONTHS OF OPERATIONS. GLA IS NOT ADJUSTED FOR FLUCTUATIONS
IN OCCUPANCY WHICH MAY OCCUR SUBSEQUENT TO THE ORIGINAL OPENING DATE.

RESULTS OF OPERATIONS

1998 COMPARED TO 1997

Base rentals increased $9.4 million, or 17%, in 1998 when compared to the same
period in 1997 primarily as a result of the 18% increase in weighted average
GLA. The increase in weighted average GLA is due primarily to the acquisitions
in October 1997 (180,000 square feet), March 1998 (173,000 square feet), and
July 1998 (186,000 square feet), as well as expansions completed in the fourth
quarter of 1997 and first quarter 1998. The decrease in base rentals per
weighted average GLA of $.16 in 1998 compared to 1997 reflects (1) the impact of
these acquisitions which collectively have a lower average base rental rate per
square foot and (2) lower average occupancy rates in 1998 compared to 1997. Base
rentals per weighted average GLA, excluding these acquisitions, during the 1998
period decreased $.08 per square foot to $13.96.

Percentage rentals increased $450,000, or 17%, in 1998 compared to 1997 due to
the acquisitions and expansions completed in 1997. Same store sales, defined as
the weighted average sales per square foot reported for tenant stores open all
of 1998 and 1997, decreased 2.7% to approximately $242 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,
decreased from 94% in 1997 to 92% in 1998 primarily as a result of the decrease
in occupancy.

Property operating expenses increased by $2.8 million, or 11%, in 1998 as
compared to 1997. On a weighted average GLA basis, property operating expenses
decreased from $6.49 from $6.10 per square foot. Higher expenses for real estate
taxes per square foot were offset by considerable decreases in advertising and
promotion and common area maintenance expenses per square foot. The decrease in
property operating expenses per square foot is also attributable

18

to the acquisitions which collectively have a lower average operating cost per
square foot. Excluding the acquisitions, property operating expenses during 1998
were $6.19 per square foot.

General and administrative expenses increased $524,000 in 1998 compared to 1997.
As a percentage of revenues, general and administrative expenses decreased from
7.2% in 1997 to 6.8% in 1998. On a weighted average GLA basis, general and
administrative expenses decreased $.12 per square foot to $1.40 in 1998,
reflecting the absorption of the acquisitions in 1997 and 1998 without relative
increases in general and administrative expenses.

Interest expense increased $5.2 million during 1998 as compared to 1997 due to
higher average borrowings outstanding during the period and due to less interest
capitalized during 1998 as a result of a decrease in ongoing construction
activity during 1998 compared to 1997. Average borrowings have increased
principally to finance the acquisitions and expansions to existing centers (see
"General Overview" above). Depreciation and amortization per weighted average
GLA increased from $4.56 per square foot to $4.65 per square foot.

The asset write-down of $2.7 million in 1998 represents the write-off of
pre-development costs capitalized for certain projects, primarily the Romulus,
MI project, which were discontinued and terminated during the year.

The gain on sale of real estate for 1998 represents the sale of an 8,000 square
foot, single tenant property in Manchester, VT for $1.85 million and the sale of
three outparcels at other centers for sales prices aggregating $940,000. The
extraordinary item in 1998 represents a write-off of unamortized deferred
financing costs due to the termination of a $50 million secured line of credit.

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 and expansions to existing centers until
the Company was able to issue additional equity in October 1997. Depreciation
and amortization per weighted average GLA increased from $4.52 per square foot
to $4.56 per square foot. The increase reflects the effect of accelerating the
recognition of depreciation expense on certain tenant finishing allowances
related to vacant space.

19

The extraordinary item in the 1996 period represents a write-off of the
unamortized deferred financing costs related to the lines of credit which were
extinguished using the proceeds from the Company's $75 million senior unsecured
notes issued in March 1996.

LIQUIDITY AND CAPITAL RESOURCES

Net cash provided by operating activities was $35.8, $39.2 and $38.1 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Net cash
provided by operating activities during 1997 and 1996 increased primarily due to
the incremental operating income associated with acquired or expanded centers.
Net cash provided by operating activities decreased $3.4 million in 1998
compared to 1997 as decreases in accounts payable offset the increases from the
incremental operating income associated with acquired or expanded centers. Net
cash used in investing activities amounted to $79.2, $93.6 and $36.4 million
during 1998, 1997 and 1996, respectively, and reflects the fluctuation in
construction and acquisition activity during each year. Net cash used in
investing activities also decreased in 1998 compared to 1997 due to
approximately $2.6 million in net proceeds received from the sale of one factory
outlet center and three parcels of land from other existing centers. Cash
provided by (used in) financing activities of $46.2, $55.4 and $(4.2) million in
1998, 1997 and 1996, respectively, and has fluctuated consistently with the
capital needed to fund the current development and acquisition activity. In
1998, net cash provided by financing activities was further reduced by the
dividends paid on the additional 1.1 million common shares outstanding during
all of 1998 as a result of a common share offering in September of 1997.

During 1998, the Company added a total of 569,086 square feet to its portfolio
including: Dalton Factory Stores, a 173,430 square foot factory outlet center
located in Dalton, GA, acquired in March 1998; Sanibel Factory Stores, a 186,070
square foot factory outlet center located in Fort Myers, FL, acquired in July
1998; 132,223 square feet of expansions which were under construction at the end
of 1997; a 25,069 square foot expansion to its property in Branson, MO and
52,294 square feet out of a total of 243,674 square feet of expansion space
which is currently under construction throughout six of its centers. The
remaining 191,380 square feet is scheduled to open during the second half of
1999 (See "General Overview"). Commitments for construction of these projects
(which represent only those costs contractually required to be paid by the
Company) amounted to $5.6 million at December 31, 1998.

The Company also is in the process of developing plans for additional expansions
and new centers for completion in 1999 and beyond. Currently, the Company is in
the preleasing stages for a future center in Bourne, Massachusetts and for
further expansions of three existing Centers. However, these anticipated or
planned developments or expansions may not be started or completed as scheduled,
or may not result in accretive funds from operations. In addition, the Company
regularly evaluates acquisition or disposition proposals, engages from time to
time in negotiations for acquisitions or dispositions and may from time to time
enter into letters of intent for the purchase or sale of properties. Any
prospective acquisition or disposition that is being evaluated or which is
subject to a letter of intent also may not be consummated, or if consummated,
may not result in accretive funds from operations.

During 1998, the Company discontinued the development of its Concord, North
Carolina; Romulus, Michigan and certain other projects as the economics of these
transactions did not meet an adequate return on investment for the Company. As a
result, the Company recorded a $2.7 million charge in the fourth quarter to
write-off the carrying amount of these projects, net of proceeds received from
the sale of the Company's interest in the Concord project to an unrelated third
party.

The Company maintains revolving lines of credit which provide for unsecured
borrowings up to $100 million, of which $20.3 million was available for
additional borrowings at December 31, 1998. As a general matter, the Company
anticipates utilizing its lines of credit as an interim source of funds to
acquire, develop and expand factory outlet centers and repaying the credit lines
with longer-term debt or equity when management determines that market
conditions are favorable. Under joint shelf registration, the Company and the
Operating Partnership could issue up to $100 million in additional equity
securities and $100 million in additional debt securities. With decline in the
real estate debt and equity markets, the Company may not, in the short term, be
able to access these markets on favorable terms. Management believes the decline
is temporary and may utilize these funds as the markets improve to continue its
external growth. In the interim, the Company may consider the use of operational
and developmental joint ventures and other related strategies to generate
additional capital. Based on cash provided by operations, existing credit
facilities, ongoing negotiations with certain financial institutions and funds
available under the shelf registration, management believes that the Company has
access to the necessary financing to fund the planned capital expenditures
during 1999.

20

During 1998, the Company terminated a $50 million secured line of credit and
increased its unsecured lines of credit by $25 million. At December 31, 1998,
approximately 76% of the outstanding long-term debt represented unsecured
borrowings and approximately 79% of the Company's real estate portfolio was
unencumbered. The weighted average interest rate on debt outstanding on December
31, 1998 was 8.2%.

During March 1999, the Company refinanced its 8.92% notes which had a carrying
amount of $47.4 million at December 31, 1998. The refinancing reduced the
interest rate to 7.875%, increased the loan amount to $66.5 million and extended
the maturity date to April 2009. The additional proceeds were used to reduce
amounts outstanding under the revolving lines of credit. As a result of this
refinance, management expects to realize a savings in interest cost of
approximately $300,000 over the next twelve months. In addition, the Company
extended the maturity of one of its revolving lines of credit from June 2000 to
June 2001.

The Company anticipates that adequate cash will be available to fund its
operating and administrative expenses, regular debt service obligations, and the
payment of dividends in accordance with REIT requirements in both the short and
long term. Although the Company receives most of its rental payments on a
monthly basis, distributions to shareholders are made quarterly and interest
payments on the senior, unsecured notes are made semi-annually. Amounts
accumulated for such payments will be used in the interim to reduce the
outstanding borrowings under the existing lines of credit or invested in
short-term money market or other suitable instruments. Certain of the Company's
debt agreements limit the payment of dividends such that dividends will not
exceed funds from operations ("FFO"), as defined in the agreements, for the
prior fiscal year on an annual basis or 95% of FFO on a cumulative basis from
the date of the agreement.

MARKET RISK

The Company is exposed to various market risks, including changes in interest
rates. Market risk is the potential loss arising from adverse changes in market
rates and prices, such as interest rates. The Company does not enter into
derivatives or other financial instruments for trading or speculative purposes.

The Company enters into interest rate swap agreements to manage its exposure to
interest rate changes. The swaps involve the exchange of fixed and variable
interest rate payments based on a contractual principal amount and time period.
Payments or receipts on the agreements are recorded as adjustments to interest
expense. At December 31, 1998, the Company had an interest rate swap agreement
effective through October 2001 with a notional amount of $20 million. Under this
agreement, the Company receives a floating interest rate based on the 30 day
LIBOR index and pays a fixed interest rate of 5.47%. These swaps effectively
change the Company's payment of interest on $20 million of variable rate debt to
fixed rate debt for the contract period.

The fair value of the interest rate swap agreement represents the estimated
receipts or payments that would be made to terminate the agreements. At December
31, 1998, the Company would have paid $218,000 to terminate the agreements. A 1%
decrease in the 30 day LIBOR index would increase the amount paid by
approximately $491,000. The fair value is based on dealer quotes, considering
current interest rates.

The fair market value of long-term fixed interest rate debt is subject to
interest rate risk. Generally, the fair market value of fixed interest rate debt
will increase as interest rates fall and decrease as interest rates rise. The
estimated fair value of the Company's total long-term debt at December 31, 1998
was $309.1 million. A 1% increase from prevailing interest rates at December 31,
1998 would result in a decrease in fair value of total long-term debt by
approximately $4.2 million. Fair values were determined from quoted market
prices, where available, using current interest rates considering credit ratings
and the remaining terms to maturity.

NEW ACCOUNTING PRONOUNCEMENTS

In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("SFAS 131"). SFAS 131 requires public
business enterprises to adopt its provisions for fiscal years beginning after
December 15, 1997, and to report certain information about operating segments in
complete sets of financial statements of the enterprise issued to shareholders.
The Company believes all of its centers have similar economic characteristics
and provide similar products and services to similar types and classes of
customers. In accordance with the provisions of SFAS 131, the Company has
aggregated the financial information of all of its centers into one reportable
operating segment.

21

On June 15, 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (ASFAS
133"). SFAS 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. SFAS 133 requires that all derivative instruments
be recorded on the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. Management of
the Company anticipates that, due to its limited use of derivative instruments,
the adoption of SFAS 133 will not have a significant effect on the Company's
results of operations or its financial position.

FUNDS FROM OPERATIONS

Management believes that for a clear understanding of the consolidated
historical operating results of the Company, FFO should be considered along with
net income as presented in the audited consolidated 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 Company cautions that
the calculation of FFO may vary from entity to entity and as such the
presentation of FFO by the Company may not be comparable to other similarly
titled measures of other reporting companies. FFO does not represent net income
or cash flow from operations as defined by generally accepted accounting
principles and should not be considered an alternative to net income as an
indication of operating performance or to cash from operations as a measure of
liquidity. FFO is not necessarily indicative of cash flows available to fund
dividends to shareholders and other cash needs.

Below is a calculation of funds from operations for the years ended December 31,
1998, 1997 and 1996 as well as actual cash flow and other data for those
respective years (in thousands):

1998 1997 1996
- ------------------------------------------------- ------------- ------------ -------------
FUNDS FROM OPERATIONS:
Income before gain on sale of real estate,
minority interest $15,109 $17,583 $16,018
and extraordinary item
Adjusted for:
Depreciation and amortization uniquely 21,939 18,257 16,295
significant to real estate
Asset write-down 2,700 -- --
- ------------------------------------------------- ------------- ------------ -------------
Funds from operations before minority interest $39,748 $35,840 $32,313
================================================= ============= ============ =============
CASH FLOWS PROVIDED BY (USED IN):
Operating activities $35,787 $39,214 $38,051
Investing activities $(79,236) $(93,636) $(36,401)
Financing activities $46,172 $55,444 $(4,176)

WEIGHTED AVERAGE SHARES OUTSTANDING (1) 11,847 11,000 10,601
================================================= ============= ============ =============

(1) ASSUMES THE PARTNERSHIP UNITS OF THE OPERATING PARTNERSHIP HELD BY THE
MINORITY INTEREST, PREFERRED SHARES OF THE COMPANY AND SHARE AND UNIT OPTIONS
ARE ALL CONVERTED TO COMMON SHARES OF THE COMPANY.

ECONOMIC CONDITIONS AND OUTLOOK

The majority of the Company's leases contain provisions designed to mitigate the
impact of inflation. Such provisions include clauses for the escalation of base
rent and clauses enabling the Company to receive percentage rentals based on
tenants' gross sales (above predetermined levels, which the Company believes
often are lower than traditional retail industry standards) which generally
increase as prices rise. Most of the leases require the tenant to pay their
share of property operating expenses, including common area maintenance, real
estate taxes, insurance and advertising and promotion, thereby reducing exposure
to increases in costs and operating expenses resulting from inflation.

22

While factory outlet stores continue to be a profitable and fundamental
distribution channel for brand name manufacturers, some retail formats are more
successful than others. As typical in the retail industry, certain tenants have
closed, or will close, certain stores by terminating their lease prior to its
natural expiration or as a result of filing for protection under bankruptcy
laws.

As part of its strategy of aggressively managing its assets, the Company is
strengthening the tenant base in several of its centers by adding strong new
anchor tenants, such as Nike, GAP and Nautica. To accomplish this goal, stores
may remain vacant for a longer period of time in order to recapture enough space
to meet the size requirement of these upscale, high volume tenants.
Consequently, the Company anticipates that its average occupancy level will
remain strong, but may be more in line with the industry average.

Approximately 29% of the Company's lease portfolio is scheduled to expire during
the next two years. Approximately 778,000 square feet of space is up for renewal
during 1999 and approximately 663,000 square feet will come up for renewal in
2000. If the Company were unable to successfully renew or release a significant
amount of this space on favorable economic terms, the loss in rent could have a
material adverse effect on our results of operations.

Existing tenants' sales have remained stable and renewals by existing tenants
have remained strong. Approximately 323,000, or 41%, of the square feet
scheduled to expire in 1999 has already been renewed. In addition, the Company
continues to attract and retain additional tenants. The Company's factory outlet
centers typically include well known, national, brand name companies. By
maintaining a broad base of creditworthy tenants and a geographically diverse
portfolio of properties located across the United States, the Company reduces
its operating and leasing risks. No one tenant (including affiliates) accounts
for more than 8% of the Company's combined base and percentage rental revenues.
Accordingly, management currently does not expect any material adverse impact on
the Company's results of operation and financial condition as a result of leases
to be renewed or stores to be released.

YEAR 2000 COMPLIANCE

The year 2000 ("Y2K") issue refers generally to computer applications using only
the last two digits to refer to a year rather than all four digits. As a result,
these applications could fail or create erroneous results if they recognize "00"
as the year 1900 rather than the year 2000. The Company has taken Y2K
initiatives in three general areas which represent the areas that could have an
impact on the company - Information technology systems, non-information
technology systems and third-party issues. The following is a summary of these
initiatives:

INFORMATION TECHNOLOGY SYSTEMS. The Company has focused its efforts on the
high-risk areas of the corporate office computer hardware, operating systems and
software applications. The Company's assessment and testing of existing
equipment and software revealed that certain older desktop personal computers,
the network operating system and the DOS-based accounting system were not Y2K
compliant. The non-compliant personal computers have since been replaced. The
Company is currently in the process of installing and testing current upgrades
for the DOS-based accounting and the network operating systems which will make
these systems compliant with Y2K and expects to complete this process by June
30, 1999.

NON-INFORMATION TECHNOLOGY SYSTEMS. Non-information technology consists mainly
of facilities management systems such as telephone, utility and security systems
for the corporate office and the outlet centers. The Company is in the process
of relocating its corporate office to a nearby facility. The Company has
reviewed the corporate facility management systems and made inquiry of the
building owner/manager and concluded that the corporate office building systems
including telephone, utilities, fire and security systems are Y2K compliant. The
Company is in the process of identifying date sensitive systems and equipment
including HVAC units, telephones, security systems and alarms, fire warning
systems and general office systems at its 31 outlet centers. Assessment and
testing of these systems is about 84% complete and expected to be completed by
June 30, 1999. Critical non-compliant systems will be replaced in early 1999.
Based on preliminary assessment, the cost of replacement is not expected to be
significant.

THIRD PARTIES. The Company has third-party relationships with approximately 260
tenants and over 8,000 suppliers and contractors. Many of these third parties
are publicly-traded corporations and subject to disclosure requirements. The
Company has begun assessment of major third parties' Y2K readiness including
tenants, key suppliers of outsourced services including stock transfer, debt
servicing, banking collection and disbursement, payroll and benefits, while
simultaneously responding to their inquiries regarding the Company's readiness.
The majority of the Company's vendors are small suppliers that the Company
believes can manually execute their business and are readily replaceable.
Management also believes there is no material risk of being unable to procure
necessary supplies and services from third

23

parties who have not already indicated that they are currently Y2K compliant.
Third-party assessment is abut 50% complete and the Company is diligently
working to substantially complete this part of the project. The Company also
intends to monitor Y2K disclosures in SEC filings of publicly-owned third
parties commencing with the current quarter filings.

COSTS. The accounting software and network operating system upgrades are being
executed under existing maintenance and support agreements with software
vendors, and thus the Company does not expect to incur additional costs to bring
those systems in compliance . Approximately $220,000 has been spent to upgrade
or replace equipment or systems specifically to bring them in compliance with
Y2K. The total cost of Y2K compliance activities, expected to be less than
$400,000, has not been, and is not expected to be material to the operating
results or financial position of the Company.

The identification and remediation of systems at the outlet centers is being
accomplished by in-house business systems personnel and outlet center general
managers whose costs are recorded as normal operating expenses. The assessment
of third-party readiness is also being conducted by in-house personnel whose
costs are recorded as normal operating expenses. The Company is not yet in a
position to estimate the cost of third-party compliance issues, but has no
reason to believe, based upon its evaluations to date, that such costs will
exceed $100,000.

RISKS. The principal risks to the Company relating to the completion of its
accounting software conversion is failure to correctly bill tenants by December
31, 1999 and to pay invoices when due. Management believes it has adequate
resources, or could obtain the needed resources, to manually bill tenants and
pay bills until the systems became operational.

The principal risks to the Company relating to non-information systems at the
outlet centers are failure to identify time-sensitive systems and inability to
find a suitable replacement system. The Company believes that adequate
replacement components or new systems are available at reasonable prices and are
in good supply. The Company also believes that adequate time and resources are
available to remediate these areas as needed.

The principal risks to the Company in its relationships with third parties are
the failure of third-party systems used to conduct business such as tenants
being unable to stock stores with merchandise, use cash registers and pay
invoices; banks being unable to process receipts and disbursements; vendors
being unable to supply needed materials and services to the centers; and
processing of outsourced employee payroll. Based on Y2K compliance work done to
date, the Company has no reason to believe that key tenants, banks and suppliers
will not be Y2K compliant in all material respects or can not be replaced within
an acceptable time frame. The Company will attempt to obtain compliance
certification from suppliers of key services as soon as such certifications are
available.

CONTINGENCY PLANS. The Company intends to deal with contingency planning during
the first half of 1999 after the results of the above assessments are known. The
Company description of its Y2K compliance issues are based upon information
obtained by management through evaluations of internal business systems and from
tenant and vendor compliance efforts. No assurance can be given that the Company
will be able to address the Y2K issues for all its systems in a timely manner or
that it will not encounter unexpected difficulties or significant expenses
relating to adequately addressing the Y2K issue. If the Company or the major
tenants or vendors with whom the Company does business fail to address their
major Y2K issues, the Company's operating results or financial position could be
materially adversely affected.

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.

24

PART III

Certain information required by Part III is omitted from this Report in that the
registrant will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information concerning the Company' directors required by this Item is
incorporated by reference to the Company's Proxy Statement.

The information concerning the Company's executive officers required by this
Item is incorporated by reference herein to the section in Part I, Item 4,
entitled "Executive Officers of the Registrant".

The information regarding compliance with Section 16 of the Securities and
Exchange Act of 1934 is to be set forth in the Proxy Statement and is hereby
incorporated by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the
Company's Proxy Statement.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

(A) DOCUMENTS FILED AS A PART OF THIS REPORT:

1. Financial Statements

Report of Independent Accountants F-1
Consolidated Balance Sheets-December 31, 1998 and 1997 F-2
Consolidated Statements of Operations-
Years Ended December 31, 1998, 1997 and 1996 F-3
Consolidated Statements of Shareholders' Equity-
For the Years Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Cash Flows-
Years Ended December 31, 1998, 1997 and 1996 F-5
Notes to Consolidated Financial Statements F-6 to F-14

2. Financial Statement Schedule

Schedule III
Report of Independent Accountants F-15
Real Estate and Accumulated Depreciation F-16 to F-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.

25

3. Exhibits

Exhibit No. Description
----------- -----------

3.1 Amended and Restated Articles of Incorporation of the Company. (Note 7)

3.1A Amendment to Amended and Restated Articles of Incorporation dated May 29, 1996. (Note 7)

3.1B Amendment to Amended and Restated Articles of Incorporation dated August 20, 1998.

3.2 Restated By-Laws of the Company.

3.3 Amended and Restated Agreement of Limited Partnership for the Operating Partnership. (Note 1)

4.1 Form of Deposit Agreement, by and between the Company and the
Depositary, including Form of Depositary Receipt. (Note 1)

4.2 Form of Preferred Stock Certificate. (Note 1)

4.3 Rights Agreement, dated as of August 20, 1998, between Tanger Factory
Outlet Centers, Inc. and BankBoston, N.A., which includes the form of
Articles of Amendment to the Amended and Restated Articles of
Incorporation, designating the preferences, limitations and relative
rights of the Class B Preferred Stock as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights as Exhibit C.
(Note 9)

10.1 Amended and Restated Unit Option Plan.

10.2 Amended and Restated Share Option Plan of the Company.

10.3 Form of Stock Option Agreement between the Company and certain Directors. (Note 3)

10.4 Form of Unit Option Agreement between the Operating Partnership and certain employees. (Note 3)

10.5 Amended and Restated Employment Agreement for Stanley K. Tanger, as of January 1, 1998.

10.6 Amended and Restated Employment Agreement for Steven B. Tanger, as of January 1, 1998.

10.7 Amended and Restated Employment Agreement for Willard Albea Chafin,
Jr., as of January 1, 1999.

10.8 Amended and Restated Employment Agreement for Rochelle Simpson, as of
January 1, 1999.

10.9 Amended and Restated Employment Agreement for Joseph Nehmen, as of
January 1, 1999.

10.10 Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley K.
Tanger. (Note 2)

10.10A Amendment to Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and
Stanley K. Tanger. (Note 5)

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 Form of Senior Indenture. (Note 6)

26

10.15 Form of First Supplemental Indenture (to Senior Indenture). (Note 6)

10.15A Form of Second Supplemental Indenture (to Senior Indenture) dated
October 24, 1997 among Tanger Properties Limited Partnership, Tanger
Factory Outlet Centers, Inc. and State Street Bank & Trust Company.
(Note 8)

21.1 List of Subsidiaries. (Note 2)

23.1 Consent of PricewaterhouseCoopers LLP.

Notes to Exhibits:

1. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed October 6, 1993, as amended.
2. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed May 27, 1993, as amended.
3. Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1993.
4. Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1994.
5. Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1995.
6. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated March 6, 1996.
7. Incorporated by reference to the exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
8. Incorporated by reference to the exhibits to the Company's Current
Report on Form 8-K dated October 24, 1997.
9. Incorporated by reference to Exhibit 1.1 to the Company's Registration
Statement on Form 8-A, filed August 24, 1998.

(B) REPORTS ON FORM 8-K - none.

27

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ Stanley K. Tanger
Stanley K. Tanger
Chairman of the Board and
Chief Executive Officer

March 26, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:

Signature Title Date
----------- ----- -----
/s/ Stanley K. Tanger Chairman of the Board and March 26, 1999
- ----------------------------- Chief Executive Officer
Stanley K. Tanger (Principal Executive Officer)

/s/ Steven B. Tanger Director, President and March 26, 1999
- ----------------------------- Chief Operating Officer
Steven B. Tanger

/s/ Frank C. Marchisello, Jr. Senior Vice President and March 26, 1999
- ----------------------------- Chief Financial Officer
Frank C. Marchisello, Jr. (Principal Financial and
Accounting Officer)

/s/ Jack Africk Director March 26, 1999
- -----------------------------
Jack Africk

/s/ William G. Benton Director March 26, 1999
- -----------------------------
William G. Benton

/s/ Thomas E. Robinson Director March 26, 1999
- -----------------------------
Thomas E. Robinson

28

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY:

We have audited the accompanying consolidated balance sheets of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Tanger Factory
Outlet Centers, Inc. and Subsidiary as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.

PricewaterhouseCoopers LLP

Greensboro, NC
January 18, 1999

F-1

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

DECEMBER 31,
1998 1997
- ------------------------------------------------------------------------ ----------- ----------

ASSETS
Rental property
Land $53,869 $48,059
Buildings, improvements and fixtures 458,546 379,842
Developments under construction 16,832 26,807
- ------------------------------------------------------------------------ ----------- ----------
529,247 454,708
Accumulated depreciation (84,685) (64,177)
- ------------------------------------------------------------------------ ----------- ----------
Rental property, net 444,562 390,531
Cash and cash equivalents 6,330 3,607
Deferred charges, net 8,218 8,651
Other assets 12,685 13,225
- ------------------------------------------------------------------------ ----------------------
TOTAL ASSETS $471,795 $416,014
======================================================================== =========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Long-term debt
Senior, unsecured notes $150,000 $150,000
Mortgages payable 72,790 74,050
Lines of credit 79,695 5,000
- ------------------------------------------------------------------------ ----------- ----------
302,485 229,050
Construction trade payables 9,224 12,913
Accounts payable and accrued expenses 10,723 13,526
- ------------------------------------------------------------------------ ----------- ----------
TOTAL LIABILITIES 322,432 255,489
- ------------------------------------------------------------------------ ----------- ----------
Commitments
Minority interest 35,324 38,406
- ------------------------------------------------------------------------ ----------- ----------
SHAREHOLDERS' EQUITY
Preferred shares, $.01 par value, 1,000,000 shares authorized, 88,270 and
90,689 shares issued and outstanding
at December 31, 1998 and 1997 1 1
Common shares, $.01 par value, 50,000,000 shares authorized,
7,897,606 and 7,853,936 shares issued and outstanding
at December 31, 1998 and 1997 79 78
Paid in capital 137,530 137,020
Distributions in excess of net income (23,571) (14,980)
- ------------------------------------------------------------------------ ----------- ----------
TOTAL SHAREHOLDERS' EQUITY 114,039 122,119
- ------------------------------------------------------------------------ ----------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $471,795 $416,014
======================================================================== =========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-2

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

YEAR ENDED DECEMBER 31,
1998 1997 1996
- --------------------------------------------------------------- --------- ---------- ----------

REVENUES
Base rentals $66,187 $56,807 $50,596
Percentage rentals 3,087 2,637 2,017
Expense reimbursements 26,852 24,665 21,991
Other income 1,640 1,162 896
- --------------------------------------------------------------- --------- ---------- ----------
Total revenues 97,766 85,271 75,500
- --------------------------------------------------------------- --------- ---------- ----------
EXPENSES
Property operating 29,106 26,269 23,559
General and administrative 6,669 6,145 5,467
Interest 22,028 16,835 13,998
Depreciation and amortization 22,154 18,439 16,458
Asset write-down 2,700 --- ---
- --------------------------------------------------------------- --------- ---------- ----------
Total expenses 82,657 67,688 59,482
- --------------------------------------------------------------- --------- ---------- ----------
INCOME BEFORE GAIN ON SALE OF REAL ESTATE, MINORITY INTEREST
AND EXTRAORDINARY ITEM 15,109 17,583 16,018
Gain on sale of real estate 994 --- 159
- --------------------------------------------------------------- --------- ---------- ----------
INCOME BEFORE MINORITY INTEREST AND EXTRAORDINARY ITEM 16,103 17,583 16,177
Minority interest (3,944) (4,756) (4,425)
- --------------------------------------------------------------- --------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 12,159 12,827 11,752
Extraordinary item - Loss on early extinguishment of debt,
net of minority interest of $128 in 1998 and $270 in 1996 (332) --- (561)
- --------------------------------------------------------------- --------- ---------- ----------
NET INCOME 11,827 12,827 11,191
Less preferred share dividends (1,911) (1,808) (2,399)
- --------------------------------------------------------------- --------- ---------- ----------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $9,916 $11,019 $8,792
=============================================================== ========= ========== ==========

BASIC EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.30 $ 1.57 $ 1.46
Extraordinary item (.04) --- (.09)
- --------------------------------------------------------------- --------- ---------- ----------
Net income $ 1.26 $ 1.57 $ 1.37
=============================================================== ========= ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Income before extraordinary item $ 1.28 $ 1.54 $ 1.46
Extraordinary item (.04) --- (.09)
- --------------------------------------------------------------- --------- ---------- ----------
Net income $ 1.24 $ 1.54 $ 1.37
=============================================================== ========= ========== ==========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-3

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(In thousands, except share data)

Distributions
in Equity
Preferred Common Paid in Excess of Total
Shares Shares Capital Net Income Shareholders'
- ------------------------------------ ------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1995 $1 $ 63 $113,905 $(6,409) $107,560
Conversion of 35,065 preferred
shares into 315,929 common shares --- 3 (3) --- ---
Compensation under Unit Option Plan --- --- 229 --- 229
Adjustment for minority interest
in the Operating Partnership --- --- (1,666) --- (1,666)
Net income --- --- --- 11,191 11,191
Preferred dividends ($18.56 per share) --- --- --- (2,416) (2,416)
Common dividends ($2.06 per share) --- --- --- (13,160) (13,160)
- ------------------------------------ ------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1996 1 66 112,465 (10,794) 101,738
Conversion of 15,730 preferred
shares into 141,726 common shares --- 1 (1) --- ---
Issuance of 29,700 common shares
upon exercise of unit options --- --- 703 --- 703
Issuance of 1,080,000 common
shares, net of issuance costs --- 11 29,230 --- 29,241
Compensation under Unit Option Plan --- --- 234 --- 234
Adjustment for minority interest
in the Operating Partnership --- --- (5,611) --- (5,611)
Net income --- --- --- 12,827 12,827
Preferred dividends ($19.55 per share) --- --- --- (1,789) (1,789)
Common dividends ($2.17 per share) --- --- --- (15,224) (15,224)
- ------------------------------------ ------- --------- --------- --------- ----------
BALANCE, DECEMBER 31, 1997 1 78 137,020 (14,980) 122,119
Conversion of 2,419 preferred
shares into 21,790 common shares --- 1 (1) --- ---
Issuance of 31,880 common shares
upon exercise of unit options --- --- 762 --- 762
Repurchase and retirement of 10,000
common shares --- --- (216) --- (216)
Compensation under Unit Option Plan --- --- 142 --- 142
Adjustment for minority interest
in the Operating Partnership --- --- (177) --- (177)
Net income --- --- --- 11,827 11,827
Preferred dividends ($21.17 per
share) --- --- --- (1,894) (1,894)
Common dividends ($2.35 per share) --- --- --- (18,524) (18,524)
- ------------------------------------ ------- --------- --------- --------- ---------
BALANCE, DECEMBER 31, 1998 $ 1 $ 79 $137,530 $(23,571) $114,039
==================================== ======= ========= ========= ========= =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-4

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

YEAR ENDED DECEMBER 31,
1998 1997 1996
-------------------------------------------------------------- --------- ---------- ---------

OPERATING ACTIVITIES
Net income $11,827 $12,827 $11,191
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,154 18,439 16,458
Amortization of deferred financing costs 1,076 1,094 953
Minority interest 3,816 4,756 4,155
Loss on early extinguishment of debt 460 --- 831
Asset write-down 2,700 --- ---
Gain on sale of real estate (994) --- (159)
Straight-line base rent adjustment (688) (347) (1,192)
Compensation under Unit Option Plan 195 338 338
Increase (decrease) due to changes in:
Other assets (1,956) (1,861) 597
Accounts payable and accrued expenses (2,803) 3,968 4,879
-------------------------------------------------------------- --------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 35,787 39,214 38,051
-------------------------------------------------------------- --------- ---------- ---------
INVESTING ACTIVITIES
Acquisition of real estate (44,650) (37,500) ---
Additions to rental properties (35,252) (54,795) (35,408)
Additions to deferred lease costs (1,895) (1,341) (1,167)
Proceeds from sale of real estate 2,561 --- 174
-------------------------------------------------------------- --------- ---------- ---------
NET CASH USED IN INVESTING ACTIVITIES (79,236) (93,636) (36,401)
-------------------------------------------------------------- --------- ---------- ---------
FINANCING ACTIVITIES
Net proceeds from issuance of common shares --- 29,241 ---
Repurchase of common shares (216) --- ---
Cash dividends paid (20,418) (17,013) (15,576)
Distributions to minority interest (7,128) (6,583) (6,249)
Proceeds from notes payable --- 75,000 75,000
Repayments on mortgages payable (1,260) (1,154) (1,019)
Proceeds from revolving lines of credit 152,760 118,450 70,301
Repayments on revolving lines of credit (78,065) (141,250) (123,027)
Additions to deferred financing costs (263) (1,950) (3,606)
Proceeds from exercise of unit options 762 703 ---
-------------------------------------------------------------- --------- ---------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 46,172 55,444 (4,176)
-------------------------------------------------------------- --------- ---------- ---------
Net increase (decrease) in cash and cash equivalents 2,723 1,022 (2,526)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 3,607 2,585 5,111
-------------------------------------------------------------- --------- ---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,330 $3,607 $2,585
============================================================== ========= ========== =========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.

F-5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND FORMATION OF THE COMPANY

Tanger Factory Outlet Centers, Inc. (the "Company"), a fully-integrated,
self-administered, self-managed real estate investment trust ("REIT"), develops,
owns and operates factory outlet centers. Recognized as one of the largest
owners and operators of factory outlet centers in the United States, the Company
owned and operated 31 factory outlet centers located in 23 states with a total
gross leasable area of approximately 5.1 million square feet at the end of 1998.
The Company provides all development, leasing and management services for its
centers.

The factory outlet centers and other assets of the Company's business are held
by, and all of its operations are conducted by, the Company's majority owned
subsidiary, Tanger Properties Limited Partnership (the "Operating Partnership").
The Company is the sole general partner of the Operating Partnership and the
Tanger Family Limited Partnership ("TFLP") is the sole limited partner. Stanley
K. Tanger, the Company's Chairman of the Board and Chief Executive Officer, is
the general partner of TFLP.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION - The Company, as sole general partner,
consolidates the Operating Partnership for financial reporting purposes. All
significant intercompany balances and transactions have been eliminated in
consolidation.

MINORITY INTEREST - Minority interest reflects the limited partner's
percentage ownership of Operating Partnership Units (the "Units"). Income is
allocated to the limited partner based on its respective ownership interest (See
Note 7).

USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

OPERATING SEGMENTS - The Company aggregates the financial information of
all its centers into one reportable operating segment because the centers all
have similar economic characteristics and provide similar products and services
to similar types and classes of customers.

RENTAL PROPERTIES - Rental properties are recorded at cost less accumulated
depreciation. Costs incurred for the acquisition, construction, and development
of properties are capitalized. Depreciation is computed on the straight-line
basis over the estimated useful lives of the assets. The Company generally uses
estimated lives ranging from 25 to 33 years for buildings, 15 years for land
improvements and seven years for equipment. Expenditures for ordinary
maintenance and repairs are charged to operations as incurred while significant
renovations and improvements, including tenant finishing allowances, that
improve and/or extend the useful life of the asset are capitalized and
depreciated over their estimated useful life.

Buildings, improvements and fixtures consist primarily of permanent
buildings and improvements made to land such as landscaping and infrastructure
and costs incurred in providing rental space to tenants. Interest costs
capitalized during 1998, 1997 and 1996 amounted to $762,000, $1,877,000 and
$1,044,000, and development costs capitalized amounted to $1,903,000, $1,637,000
and $1,321,000, respectively. Depreciation expense for each of the years ended
December 31, 1998, 1997 and 1996 was $20,873,000, $17,327,000 and $15,449,000,
respectively.

The pre-construction stage of project development involves certain costs to
secure land control and zoning and complete other initial tasks essential to the
development of the project. These costs are transferred from other assets to
developments under construction when the pre-construction tasks are completed.
Costs of potentially unsuccessful pre-construction efforts are charged to
operations.

CASH AND CASH EQUIVALENTS - All highly liquid investments with an original
maturity of three months or less at the date of purchase are considered to be
cash and cash equivalents. Cash balances at a limited number of banks may
periodically exceed insurable amounts. The Company believes that it mitigates
its risk by investing in or through major financial institutions. Recoverability
of investments is dependent upon the performance of the issuer.

F-6

DEFERRED CHARGES - Deferred lease costs consist of fees and costs
incurred to initiate operating leases and are amortized over the average minimum
lease term. Deferred financing costs include fees and costs incurred to obtain
long-term financing and are being amortized over the terms of the respective
loans. Unamortized deferred financing costs are charged to expense when debt is
retired before the maturity date.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company has adopted Statement of
Financial Accounting Standards No. 121, ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED
ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF. This statement requires that
long-lived assets and certain intangibles to be held and used by an entity be
reviewed for impairment in the event that facts and circumstances indicate the
carrying amount of an asset may not be recoverable. In such an event, the
Company compares the estimated future undiscounted cash flows associated with
the asset to the asset's carrying amount, and if less, recognizes an impairment
loss in an amount by which the carrying amount exceeds its fair value. The
Company believes that no material impairment existed at December 31, 1998.

DERIVATIVES - The Company selectively enters into interest rate protection
agreements to mitigate changes in interest rates on its variable rate
borrowings. The notional amounts of such agreements are used to measure the
interest to be paid or received and do not represent the amount of exposure to
loss. None of these agreements are used for speculative or trading purposes. The
cost of these agreements are included in deferred financing costs and are being
amortized on a straight-line basis over the life of the agreements.

REVENUE RECOGNITION - Minimum rental income is recognized on a straight
line basis over the term of the lease. Substantially all leases contain
provisions which provide additional rents based on tenants' sales volume
("percentage rentals") and reimbursement of the tenants' share of advertising
and promotion, common area maintenance, insurance and real estate tax expenses.
Percentage rentals are recognized when specified targets that trigger the
contingent rent are met. Expense reimbursements are recognized in the period the
applicable expenses are incurred. Payments received from the early termination
of leases are recognized when the applicable space is released, or, otherwise
are amortized over the remaining lease term.

INCOME TAXES - The Company operates in a manner intended to enable it to
qualify as a REIT under the Internal Revenue Code (the "Code"). A REIT which
distributes at least 95% of its taxable income to its shareholders each year and
which meets certain other conditions is not taxed on that portion of its taxable
income which is distributed to its shareholders. The Company intends to continue
to qualify as a REIT and to distribute substantially all of its taxable income
to its shareholders. Accordingly, no provision has been made for Federal income
taxes. The Company paid preferred dividends per share of $21.17, $19.55, and
$18.56 in 1998, 1997, and 1996, respectively, all of which are treated as
ordinary income. The table below summarizes the common dividends paid per share
and the amount representing estimated return of capital.

Common dividends per share: 1998 1997 1996
------------------------------------------- --------- --------- ---------
Ordinary income $1.340 $1.779 $1.607
Return of capital 1.010 .391 .453
------------------------------------------- --------- --------- ---------
$2.350 $2.170 $2.060
=========================================== ========= ========= =========

CONCENTRATION OF CREDIT RISK - The Company's management performs ongoing
credit evaluations of their tenants. Although the tenants operate principally in
the retail industry, the properties are geographically diverse. No single tenant
accounted for 10% or more of combined base and percentage rental income during
1998, 1997 and 1996.

SUPPLEMENTAL CASH FLOW INFORMATION - The Company purchases capital
equipment and incurs costs relating to construction of new facilities, including
tenant finishing allowances. Expenditures included in construction trade
payables as of December 31, 1998, 1997 and 1996 amounted to $9,224,000,
$12,913,000 and $8,320,000 respectively. Interest paid, net of interest
capitalized, in 1998, 1997 and 1996 was $20,690,000, $12,337,000 and
$10,637,000, respectively.

F-7

3. DEFERRED CHARGES

Deferred charges as of December 31, 1998 and 1997 consist of the following
(in thousands):

1998 1997
-------------------------------------------------------- -------- --------
Deferred lease costs $9,551 $7,658
Deferred financing costs 5,691 6,607
-------------------------------------------------------- -------- --------
15,242 14,265
Accumulated amortization 7,024 5,614
-------------------------------------------------------- -------- --------
$8,218 $8,651
======================================================== ======== ========

Amortization of deferred lease costs for the years ended December 31, 1998, 1997
and 1996 was $1,019,000, $873,000 and $799,000, respectively. Amortization of
deferred financing costs, included in interest expense in the accompanying
consolidated statements of operations, for the years ended December 31, 1998,
1997 and 1996 was $1,076,000, $1,094,000 and $953,000 respectively. During 1998
and 1996, the Company expensed the remaining unamortized financing costs
totaling $460,000 and $831,000 related to debt extinguished prior to its
respective maturity date. Such amounts are shown as extraordinary items in the
accompanying consolidated statements of operations.

4. ASSET WRITE-DOWN

During 1998, the Company discontinued the development of its Concord, North
Carolina, Romulus, Michigan and certain other projects as the economics of these
transactions did not meet an adequate return on investment for the Company. As a
result, the Company recorded a $2.7 million charge in the fourth quarter to
write-off the carrying amount of these projects, net of proceeds received from
the sale of the Company's interest in the Concord project to an unrelated third
party.

5. LONG-TERM DEBT

Long-term debt at December 31, 1998 and 1997 consists of the following
(in thousands):

1998 1997
---------------------------------------------------------- ---------- ---------
8.75% Senior, unsecured notes, maturing March 2001 $75,000 $75,000
7.875% Senior, unsecured notes, maturing October 2004 75,000 75,000
Mortgage notes with fixed interest at:
8.92%, maturing January 2002 47,405 48,142
8.625%, maturing September 2000 9,805 10,121
9.77%, maturing April 2005 15,580 15,787
Revolving lines of credit with variable interest rates
ranging from
either prime less .25% to prime or from LIBOR plus 79,695 5,000
1.55% to LIBOR plus 1.60%
------------------------------------------------------ ---------- ---------
$302,485 $229,050
====================================================== ========== =========

The Company maintains revolving lines of credit which provide for borrowing up
to $100 million. The agreements expire at various times through the year 2001.
Interest is payable based on alternative interest rate bases at the Company's
option. Amounts available under these facilities at December 31, 1998 totaled
$20.3 million. Certain of the Company's properties, which had a net book value
of approximately $85.1 million at December 31, 1998, serve as collateral for the
fixed rate mortgages.

The credit agreements require the maintenance of certain ratios, including debt
service coverage and leverage, and limit the payment of dividends such that
dividends and distributions will not exceed funds from operations, as defined in
the agreements, for the prior fiscal year on an annual basis or 95% of funds
from operations on a cumulative basis. All three existing fixed rate mortgage
notes are with insurance companies and contain prepayment penalty clauses.

F-8

During March 1999, the Company refinanced its 8.92% notes. The refinancing
reduced the interest rate to 7.875%, increased the loan amount to $66.5 million
and extended the maturity date to April 2009. The additional proceeds were used
to reduce amounts outstanding under the revolving lines of credit. In addition,
the Company extended the maturity of one of its revolving lines of credit from
June 2000 to June 2001.

Maturities of the existing long-term debt, after giving consideration to the
refinance and extension as described above, are as follows (in thousands):

Year Amount %
----------------------- --------- ----------
1999 $1,461 ---
2000 15,273 5
2001 132,316 44
2002 1,403 ---
2003 1,521 1
Thereafter 150,511 50
----------------------- --------- ----------
$302,485 100
======================= ========= ==========

6. DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS

In October 1998, the Company entered into an interest rate swap agreement
effective through October 2001 with a notional amount of $20 million which fixed
the 30 day LIBOR index at 5.47%. A similar agreement with a notional amount of
$10 million at a fixed 30 day LIBOR index of 5.99% expired during 1998 . The
impact of these agreements had an insignificant effect on interest expense
during 1998, 1997 and 1996.

In anticipation of offering the senior, unsecured notes due 2004, the Company
entered into an interest rate protection agreement on October 3, 1997 which
fixed the index on the 10 year US Treasury rate at 5.995% for 30 days on a
notional amount of $70 million. The transaction settled on October 21, 1997, the
trade date of the $75 million offering, and, as a result of an increase in the
US Treasury rate, the Company received proceeds of $714,000. Such amount is
being amortized as a reduction to interest expense over the life of the notes
and results 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, 1998, 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 $309.1
million. The estimated fair value of the interest rate swap agreement at
December 31, 1998, as determined by the issuing financial institution, was an
unrealized loss of approximately $218,000.

On June 15, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999. SFAS 133 requires
that all derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period in
current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the type
of hedge transaction. Management of the Company anticipates that, due to its
limited use of derivative instruments, the adoption of SFAS 133 will not have a
significant effect on the Company's results of operations or its financial
position.

F-9

7. SHAREHOLDERS' AND PARTNERSHIP EQUITY

During 1997, the Company completed an additional public offering of 1,080,000
common shares at a price of $29.0625 per share, receiving net proceeds of
approximately $29.2 million. The net proceeds, which were contributed to the
Operating Partnership in exchange for 1,080,000 partnership units, were used to
acquire, expand and develop factory outlet centers and for general corporate
purposes.

The Series A Cumulative Convertible Redeemable Preferred Shares (the "Preferred
Shares") were sold to the public during 1993 in the form of Depositary Shares,
each representing 1/10 of a Preferred Share. Proceeds from this offering, net of
underwriters discount and estimated offering expenses, were contributed to the
Operating Partnership in return for preferred partnership Units. The Preferred
Shares have a liquidation preference equivalent to $25 per Depositary Share and
dividends accumulate per Depositary Share equal to the greater of (i) $1.575 per
year or (ii) the dividends on the common shares or portion thereof, into which a
depositary share is convertible. The Preferred Shares rank senior to the common
shares in respect of dividend and liquidation rights.

The Preferred Shares are convertible at the option of the holder at any time
into common shares at a rate equivalent to .901 common shares for each
Depositary Share. At December 31, 1998, 795,309 common shares were reserved for
the conversion of Depositary Shares. The Preferred Shares and Depositary Shares
may be redeemed at the option of the Company, in whole or in part, at a
redemption price of $25 per Depositary Share, plus accrued and unpaid dividends.

As of December 31, 1998, the ownership interests of the Operating Partnership
consisted of 7,897,606 partnership Units held by the Company, 88,270 preferred
partnership Units (which are convertible into approximately 795,309 general
partnership Units) held by the Company and 3,033,305 partnership Units held by
the limited partner. The limited partner's Units are exchangeable, subject to
certain limitations to preserve the Company's status as a REIT, on a one-for-one
basis for common shares of the Company. Preferred Units are automatically
converted into general partnership Units to the extent of any conversion of
Preferred Shares of the Company into common shares of the Company.

On October 13, 1998, the Company's Board of Directors authorized the repurchase
of up to $5 million of the Company's common shares. The timing and amount of
purchases will be at the discretion of management. As of December 31, 1998, the
Company had paid $216,000 for the repurchase and retirement of 10,000 common
shares, leaving a balance of $4,784,000 authorized for future repurchases.

8. SHAREHOLDERS' RIGHTS PLAN

On July 30, 1998, the Company's Board of Directors declared a distribution of
one Preferred Share Purchase Right (a "Right") for each then outstanding common
share of the Company to shareholders of record on August 27, 1998. The Rights
are exercisable only if a person or group acquires 15% or more of the Company's
outstanding common shares or announces a tender offer the consummation of which
would result in ownership by a person or group of 15% or more of the common
shares. Each Right entitles shareholders to buy one-hundredth of a share of a
new series of Junior Participating Preferred Shares of the Company at an
exercise price of $120, subject to adjustment.

If an acquiring person or group acquires 15% or more of the Company's
outstanding common shares, an exercisable Right will entitle its holder (other
than the acquirer) to buy, at the Right's then-current exercise price, common
shares of the Company having a market value of two times the exercise price of
one Right. If an acquirer acquires at least 15%, but less than 50%, of the
Company's common shares, the Board may exchange each Right (other than those of
the acquirer) for one common share (or one-hundredth of a Class B Preferred
Share) per Right. In addition, under certain circumstances, if the Company is
involved in a merger or other business combination where it is not the surviving
corporation, an exercisable Right will entitle its holder to buy, at the Right's
then-current exercise price, common shares of the acquiring company having a
market value of two times the exercise price of one Right. The Company may
redeem the Rights at $.01 per Right at any time prior to a person or group
acquiring a 15% position. The Rights will expire on August 26, 2008.

F-10

9. EARNINGS PER SHARE

A reconciliation of the numerators and denominators in computing earnings per
share in accordance with Statement of Financial Accounting Standards No. 128,
EARNINGS PER SHARE, for the years ended December 31, 1998, 1997 and 1996 is set
forth as follows (in thousands, except per share amounts):

1998 1997 1996
-------------------------------------------------- --------- --------- ---------
Numerator:
Income before extraordinary item $12,159 $12,827 $11,752
Less preferred share dividends (1,911) (1,808) (2,399)
-------------------------------------------------- --------- --------- ---------
Income available to common shareholders -
numerator for basic and diluted earnings per share $10,248 $11,019 $9,353
-------------------------------------------------- --------- --------- ---------

Denominator:
Basic weighted average common shares 7,886 7,028 6,402
Effect of outstanding share and unit options 123 112 6
-------------------------------------------------- --------- --------- ---------
Diluted weighted average common shares 8,009 7,140 6,408
-------------------------------------------------- --------- --------- ---------

Basic earnings per share before extraordinary item $ 1.30 $ 1.57 $ 1.46
================================================== ========= ========= =========
Diluted earnings per share before extraordinary item $ 1.28 $ 1.54 $ 1.46
================================================== ========= ========= =========

Options to purchase common shares excluded from the computation of diluted
earnings per share during 1998, 1997 and 1996 because the exercise price was
greater than the average market price of the common shares totaled 268,569,
9,000, and 150,992 shares. The assumed conversion of the preferred shares as of
the beginning of each year would have been anti-dilutive. The assumed conversion
of the Units held by the limited partner as of the beginning of the year, which
would result in the elimination of earnings allocated to the minority interest,
would have no impact on earnings per share since the allocation of earnings to
an Operating Partnership Unit is equivalent to earnings allocated to a common
share.

10. EMPLOYEE BENEFIT PLANS

The Company has a non-qualified and incentive stock option plan ("The 1993 Stock
Option Plan") and the Operating Partnership has a non-qualified Unit option plan
("The 1993 Unit Option Plan"). Units received upon exercise of Unit options are
exchangeable for common shares. The Company accounts for these plans under APB
Opinion No. 25, under which no compensation cost has been recognized.

Had compensation cost for these plans been determined for options granted since
January 1, 1995 consistent with Statement of Financial Accounting Standards No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION (SFAS 123), the Company's net
income and earnings per share would have been reduced to the following pro forma
amounts (in thousands, except per share amounts):

1998 1997 1996
---------------- ---------------- -------- -------- --------

Net income: As reported $11,827 $12,827 $11,191
Pro forma $11,651 $12,696 $11,114

Basic EPS: As reported $ 1.26 $ 1.57 $ 1.37
Pro forma $ 1.24 $ 1.55 $ 1.36

Diluted EPS: As reported $ 1.24 $ 1.54 $ 1.37
Pro forma $ 1.22 $ 1.53 $ 1.36

F-11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Because the SFAS 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 1998 and 1996, respectively: expected dividend yields ranging from 8%
to 10%; expected lives ranging from 5 years to 7 years; expected volatility 20%;
and risk-free interest rates ranging from 5.42% to 6.75%.

The Company may issue up to 1,750,000 shares under The 1993 Stock Option Plan
and The 1993 Unit Option Plan. The Company has granted 1,131,240 options, net of
options forfeited, through December 31, 1998. Under both plans, the option
exercise price is determined by the Stock and Unit Option Committee of the Board
of Directors. Non-qualified stock and Unit options granted expire 10 years from
the date of grant and are exercisable in five equal installments commencing one
year from the date of grant.

Options outstanding at December 31, 1998 have exercise prices between $22.50 and
$31.25, with a weighted average exercise price of $25.27 and a weighted average
remaining contractual life of 6.6 years. On January 8, 1999, the Company granted
to its directors and employees options to purchase an additional 15,000 common
shares and 229,300 Units in the Operating Partnership (which are exchangeable
for 229,300 common shares of the Company). The exercise price per share and unit
was set at the previous day's market closing price of $22.125.

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 fully
amortized in 1998 and was $195,000 and $533,000 at December 31, 1997 and 1996.
Compensation expense recognized during 1998, 1997 and 1996 was $195,000,
$338,000 and $338,000, respectively.

A summary of the status of the Company's two plans at December 31, 1998, 1997
and 1996 and changes during the years then ended is presented in the table and
narrative below:

1998 1997 1996
----------------- ----------------- --------------------
Wtd Avg Wtd Avg Wtd Avg
Shares Ex Price Shares Ex Price Shares Ex Price
- ------------------------------ --------- --------- ------------ --------- ---------- ----------

Outstanding at beginning of 874,230 $23.76 915,950 $23.77 680,650 $23.58
year
Granted 277,600 30.15 --- --- 237,700 24.29
Exercised (31,880) 23.91 (29,700) 23.68 --- ---
Forfeited (50,890) 26.94 (12,020) 24.41 (2,400) 23.59
- ------------------------------ --------- --------- ------------ --------- ---------- ----------
Outstanding at end of year 1,069,060 $25.27 874,230 $23.76 915,950 $23.77
============================== ========= ========= ============ ========= ========== ==========
Exercisable at end of year 608,520 $23.51 470,750 $23.46 320,410 $23.31
Weighted average fair value
of options granted $1.59 --- $2.70

The Company has a qualified retirement plan, with a salary deferral feature
designed to qualify under Section 401 of the Code (the "401(k) Plan"), which
covers substantially all officers and employees of the Company. The 401(k) Plan
permits employees of the Company, in accordance with the provisions of Section
401(k) of the Code, to defer up to 20% of their eligible compensation on a
pre-tax basis subject to certain maximum amounts. Employee contributions are
fully vested and are matched by the Company at a rate of compensation deferred
to be determined annually at the Company's discretion. The matching contribution
is subject to vesting under a schedule providing for 20% annual vesting starting
with the third year of employment and 100% vesting after seven years of
employment.

F-12

11. SUPPLEMENTARY INCOME STATEMENT INFORMATION

The following amounts are included in property operating expenses for the years
ended December 31, 1998, 1997 and 1996 (in thousands):

1998 1997 1996
-------------------------------------------------- -------- -------- -------
Advertising and promotion $ 9,069 $ 8,452 $7,691
Common area maintenance 11,929 11,113 9,497
Real estate taxes 6,202 5,004 4,699
Other operating expenses 1,906 1,700 1,672
-------------------------------------------------- -------- -------- -------
$29,106 $26,269 $23,559
================================================== ======== ======== =======

12. LEASE AGREEMENTS

The Company is the lessor of a total of 1,182 stores in 31 factory outlet
centers, under operating leases with initial terms that expire from 1999 to
2017. Most leases are renewable for five years at the lessee's option. Future
minimum lease receipts under noncancellable operating leases as of December 31,
1998 are as follows (in thousands):

1999 $63,145
2000 54,895
2001 46,451
2002 36,508
2003 20,956
Thereafter 35,479
----------------------- ------
$257,434
======================= ===========

13. COMMITMENTS

At December 31, 1998, commitments for construction of new developments and
additions to existing properties amounted to $5.6 million. Commitments for
construction represent only those costs contractually required to be paid by the
Company.

The Company purchased the rights to lease land on which two of the outlet
centers are situated for $1,520,000. These leasehold rights are being amortized
on a straight-line basis over 30 and 40 year periods. Accumulated amortization
was $517,000 and $468,000 at December 31, 1998 and 1997, 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 $1,090,000, $778,000, and
$315,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Minimum lease payments for the next five years and thereafter are as follows (in
thousands):
1999 $1,522
2000 1,777
2001 1,715
2002 1,669
2003 1,550
Thereafter 56,604
----------------------- ------
$64,837
======================= =========

F-13

14. QUARTERLY FINANCIAL INFORMATION

The following table sets forth summary quarterly financial information
for the years ended December 31, 1998 and 1997 (unaudited and in
thousands, except per share data).

1998 BY QUARTER First Second Third Fourth
-------- --------- -------- --------
Total revenues $22,806 $24,350 $25,067 $25,543
Income before minority interest and
extraordinary item 5,523 4,335 3,891 2,354
Income before extraordinary item 4,115 3,265 2,945 1,834
Net income 3,783 3,265 2,945 1,834
Basic earnings per common share:
Income before extraordinary item .46 .35 .31 .17
Net income .42 .35 .31 .17
Diluted earnings per common share:
Income before extraordinary item (1) .45 .34 .31 .17
Net income (1) .41 .34 .31 .17

-------- --------- -------- --------

1997 BY QUARTER First Second Third Fourth
-------- --------- -------- --------
Total revenues $19,225 $20,456 $21,657 $23,933
Income before minority interest 3,965 3,857 4,369 5,392
Net income 2,858 2,814 3,162 3,993
Basic net income per common share (1) .36 .34 .40 .45
Diluted net income per common share (1) .36 .34 .39 .44
-------- --------- -------- --------

(1) Quarterly amounts do not add to annual amounts due to the effect of
rounding on a quarterly basis.

15. ACQUISITIONS

During 1998, the Company completed the acquisitions of two factory outlet
centers containing approximately 359,000 square feet of gross leasable area for
purchase prices which aggregated $44.7 million. During 1997, the Company
completed the acquisitions of three factory outlet centers containing
approximately 303,000 square feet for purchase prices which aggregated $37.5
million. The acquisitions were accounted for using the purchase method whereby
the purchase price was allocated to assets acquired based on their fair values.
The results of operations of the acquired properties have been included in the
consolidated results of operations since the applicable acquisition date.

The 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 each period presented, nor does it
purport to represent the results of operations for future periods. The following
unaudited summarized pro forma results of operations reflect adjustments to
present the historical information as if the all of the acquisitions had
occurred as of the January 1, 1997 (unaudited and in thousands, except per share
data).
1998 1997
-------------------------------------------------- --------- ----- --------
Total revenues $100,840 $93,988
Income before extraordinary item 12,349 13,020
Net income 12,017 13,020
Basic net income per common share:
Income before extraordinary item 1.32 1.60
Net income 1.28 1.60
Diluted net income per common share:
Income before extraordinary item 1.30 1.57
Net income 1.26 1.57
================================================== ========= ===== ========

F-14

REPORT OF INDEPENDENT ACCOUNTANTS

Our report on the consolidated financial statements of Tanger Factory
Outlet Centers, Inc. and Subsidiary is included on page F-1 of this Form 10-K.
In connection with our audits of such financial statements, we have also audited
the related financial statement schedule listed in the index on page 25 of this
Form 10-K.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.

PricewaterhouseCcoopers LLP

Greensboro, North Carolina
January 18, 1999

F-15

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)

Costs Capitalized
Initial Cost to Subsequent to Acquisition Gross Amount Carried at Close of Period
Description Company (Inprovements) 12/31/98 (1)
- ------------------------------- ---------------- ------------------- ----------------------------------------
Buildings, Buildings, Buildings,
Outlet Center Improvements Improvements Improvements
Name Location Encumbrances Land & Fixtures Land & Fixtures Land & Fixtures Total
- -------------- ---------------- ----------- -------- ---------- ------ ----------- ---- ----------- -----------

Barstow Barstow, CA $ --- $3,941 $12,533 $ --- $1,034 $3,941 $13,567 $17,508
Blowing Rock Blowing Rock, NC --- 1,963 9,424 --- 138 1,963 9,562 11,525
Boaz Boaz, AL --- 616 2,195 --- 1,153 616 3,348 3,964
Bourne Bourne, MA --- 899 1,361 --- 303 899 1,664 2,563
Branch N. Branch, MN --- 329 5,644 249 2,349 578 7,993 8,571
Branson Branson, MO --- 4,557 25,040 --- 6,055 4,557 31,095 35,652
Casa Grande Casa Grande, AZ --- 753 9,091 --- 1,196 753 10,287 11,040
Clover North Conway, NH --- 393 672 --- 246 393 918 1,311
Commerce I Commerce, GA 9,805 755 3,511 492 5,647 1,247 9,158 10,405
Commerce II Commerce, GA --- 1,299 14,046 541 11,614 1,840 25,660 27,500
Dalton Dalton, GA --- 1,641 15,596 --- --- 1,641 15,596 17,237
Gonzales Gonzales, LA --- 947 15,895 17 3,447 964 19,342 20,306
Kittery-I Kittery, ME 5,878 1,242 2,961 229 1,193 1,471 4,154 5,625
Kittery-II Kittery, ME --- 921 1,835 530 233 1,451 2,068 3,519
Lancaster Lancaster, PA 15,580 3,691 19,907 --- 6,074 3,691 25,981 29,672
Lawrence Lawrence, KS --- 1,013 5,542 429 443 1,442 5,985 7,427
LL Bean North Conway, NH --- 1,894 3,351 --- 552 1,894 3,903 5,797
Locust Grove Locust Grove, GA --- 2,609 11,801 --- 7,065 2,609 18,866 21,475
Martinsburg Martinsburg, WV --- 800 2,812 --- 1,259 800 4,071 4,871
McMinnville McMinnville, OR --- 1,071 8,162 5 756 1,076 8,918 9,994
Nags Head Nags Head, NC --- 1,853 6,679 --- 564 1,853 7,243 9,096
Pigeon Forge Pigeon Forge, TN --- 299 2,508 --- 1,334 299 3,842 4,141
Riverhead Riverhead, NY --- --- 36,374 6,152 63,049 6,152 99,423 105,575
San Marcos San Marcos, TX 10,050 1,953 9,440 17 9,988 1,970 19,428 21,398
Sanibel Sanibel, FL 4,916 23,196 --- --- 4,916 23,196 28,112
Sevierville Sevierville, TN --- --- 18,495 --- 13,143 --- 31,638 31,638
Seymour Seymour, IN 8,059 1,710 13,249 --- 248 1,710 13,497 15,207
Stroud Stroud, OK --- 446 7,048 --- 4,840 446 11,888 12,334
Terrell Terrell, TX --- 805 13,432 --- 3,906 805 17,338 18,143
West Branch West Branch, MI 6,732 350 3,428 120 4,323 470 7,751 8,221
Williamsburg Williamsburg,IA 16,686 706 6,781 716 11,217 1,422 17,998 19,420
============== ================ ======== ======== ========== = ===== =========== == ==== =========== ===========
Totals $72,789 $44,372 $312,009 $9,497 $163,369 $53,869 $475,378 $529,247
============== ================ ======== ======== ========== = ===== =========== == ==== =========== ===========

Description Life Used to
- --------------- Compute
Depreciation
Outlet Center Accumulated Date of in Income
Name Depreciation Construction Statement
- -------------- ----------- ---------- -----------

Barstow $2,793 1995 (2)
Blowing Rock 402 1997 (3) (2)
Boaz 1,414 1988 (2)
Bourne 690 1989 (2)
Branch 2,598 1992 (2)
Branson 6,057 1994 (2)
Casa Grande 3,650 1992 (2)
Clover 361 1987 (2)
Commerce I 3,419 1989 (2)
Commerce II 3,034 1995 (2)
Dalton 398 1998 (3) (2)
Gonzales 5,542 1992 (2)
Kittery-I 1,977 1986 (2)
Kittery-II 830 1989 (2)
Lancaster 4,558 1994 (3) (2)
Lawrence 1,584 1993 (2)
LL Bean 1,572 1988 (2)
Locust Grove 3,516 1994 (2)
Martinsburg 1,685 1987 (2)
McMinnville 2,549 1993 (2)
Nags Head 342 1997 (3) (2)
Pigeon Forge 1,541 1988 (2)
Riverhead 9,889 1993 (2)
San Marcos 3,918 1993 (2)
Sanibel 315 1998 (3) (2)
Sevierville 1,321 1997 (3) (2)
Seymour 3,123 1994 (2)
Stroud 4,007 1992 (2)
Terrell 3,795 1994 (2)
West Branch 2,277 1991 (2)
Williamsburg 5,528 1991 (2)
============== ========== ========== ===========
Totals $84,685
============== =========== ========== ===========

(1) AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS APPROXIMATELY $527,122,000
(2) THE COMPANY GENERALLY USES ESTIMATED LIVES RANGING FROM 25 TO 33 YEARS FOR
BUILDINGS AND 15 YEARS FOR LAND IMPROVEMENTS. TENANT FINISHING ALLOWANCES
ARE DEPRECIATED OVER THE INITIAL LEASE TERM.
(3) REPRESENTS YEAR ACQUIRED

F-16

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY
SCHEDULE III - (CONTINUED)
REAL ESTATE AND ACCUMULATED DEPRECIATION
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands)

The changes in total real estate for the three years ended December 31, 1998 are
as follows:

1998 1997 1996
-------- --------- --------
Balance, beginning of year $454,708 $358,361 $325,881
Acquisition of real estate 44,650 37,500 ---
Improvements 31,599 59,519 32,511
Dispositions and other (1,710) (672) (31)
-------- --------- --------
Balance, end of year $529,247 $454,708 $358,361
======== ========= ========

The changes in accumulated depreciation for the three years ended December 31,
1998 are as follows:

1998 1997 1996
-------- --------- --------
Balance, beginning of year $64,177 $46,907 $31,458
Depreciation for the period 20,873 17,327 15,449
Dispositions and other (365) (57) ---
-------- --------- --------
Balance, end of year $84,685 $64,177 $46,907
======== ========= ========

F-17

INDEX TO EXHIBITS

Exhibit No. Description
- ----------- -----------

3.1 Amended and Restated Articles of Incorporation of the Company.
(Note 7)

3.1A Amendment to Amended and Restated Articles of Incorporation dated
May 29, 1996. (Note 7)

3.1B Amendment to Amended and Restated Articles of Incorporation dated
August 20, 1998.

3.2 Restated By-Laws of the Company.

3.3 Amended and Restated Agreement of Limited Partnership for the
Operating Partnership. (Note 1)

4.1 Form of Deposit Agreement, by and between the Company and the
Depositary, including Form of Depositary Receipt. (Note 1)

4.2 Form of Preferred Stock Certificate. (Note 1)

4.3 Rights Agreement, dated as of August 20, 1998, between Tanger
Factory Outlet Centers, Inc. and BankBoston, N.A., which includes
the form of Articles of Amendment to the Amended and Restated
Articles of Incorporation, designating the preferences,
limitations and relative rights of the Class B Preferred Stock as
Exhibit A, the form of Right Certificate as Exhibit B and the
Summary of Rights as Exhibit C. (Note 9)

10.1 Amended and Restated Unit Option Plan.

10.2 Amended and Restated Share Option Plan of the Company.

10.3 Form of Stock Option Agreement between the Company and certain
Directors. (Note 3)

10.4 Form of Unit Option Agreement between the Operating Partnership
and certain employees. (Note 3)

10.5 Amended and Restated Employment Agreement for Stanley K. Tanger,
as of January 1, 1998.

10.6 Amended and Restated Employment Agreement for Steven B. Tanger,
as of January 1, 1998.

10.7 Amended and Restated Employment Agreement for Willard Albea
Chafin, Jr., as of January 1, 1999.

10.8 Amended and Restated Employment Agreement for Rochelle Simpson,
as of January 1, 1999.

10.9 Amended and Restated Employment Agreement for Joseph Nehmen, as
of January 1, 1999.

10.10 Registration Rights Agreement among the Company, the Tanger
Family Limited Partnership and Stanley K. Tanger. (Note 2)

10.10A Amendment to Registration Rights Agreement among the Company, the
Tanger Family Limited Partnership and Stanley K. Tanger. (Note 5)

10.11 Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K.
(Note 2)

F-18

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)

10.15 Form of Senior Indenture. (Note 6)

10.16 Form of First Supplemental Indenture (to Senior Indenture). (Note
6)

10.16A Form of Second Supplemental Indenture (to Senior Indenture) dated
October 24, 1997 among Tanger Properties Limited Partnership,
Tanger Factory Outlet Centers, Inc. and State Street Bank & Trust
Company. (Note 8)

21.1 List of Subsidiaries. (Note 2)

23.1 Consent of PricewaterhouseCoopers LLP.

Notes to Exhibits:

1. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed October 6, 1993, as amended.

2. Incorporated by reference to the exhibits to the Company's Registration
Statement on Form S-11 filed May 27, 1993, as amended.

3. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.

4. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1994.

5. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1995.

6. Incorporated by reference to the exhibits to the Company's Current Report on
Form 8-K dated March 6, 1996.

7. Incorporated by reference to the exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.

8. Incorporated by reference to the exhibits to the Company's Current Report on
Form 8-K dated October 24, 1997.

9. Incorporated by reference to Exhibit 1.1 to the Company's Registration
Statement on Form 8-A, filed August 24, 1998.