-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V8bvm4hYYAgIy8uIZ+hJwvSjvtIRaYFHYHjg4Y/rTynRvyMiF0zHlVoNuuOBHPh8 wgvp1jPuw5Ucm+R/dL9I6g== 0000950168-97-003165.txt : 19971106 0000950168-97-003165.hdr.sgml : 19971106 ACCESSION NUMBER: 0000950168-97-003165 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971105 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TANGER FACTORY OUTLET CENTERS INC CENTRAL INDEX KEY: 0000899715 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 561815473 STATE OF INCORPORATION: NC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11986 FILM NUMBER: 97708332 BUSINESS ADDRESS: STREET 1: 1400 WEST NORTHWOOD ST CITY: GREENSBORO STATE: NC ZIP: 27408 BUSINESS PHONE: 9192741666 MAIL ADDRESS: STREET 1: 1400 WEST NORTHWOOD STREET CITY: GREENSBORO STATE: NC ZIP: 27408 10-Q 1 TANGER FACTORY OUTLET CENTERS 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ___________ [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________ to _________ Commission File No. 1-11986 TANGER FACTORY OUTLET CENTERS, INC. (Exact name of Registrant as specified in its Charter) NORTH CAROLINA 56-1815473 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 1400 West Northwood Street, Greensboro, North Carolina 27408 (Address of principal executive offices) (Zip code) 910-274-1666 (Registrant's telephone number, including area code) ________________ 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 ___ _____ 7,844,886 shares of Common Stock, $.01 par value, outstanding as of October 31, 1997 TANGER FACTORY OUTLET CENTERS, INC. Index Part I. Financial Information
Page Number Item 1. Financial Statements (Unaudited) Consolidated Statements of Operations For the three and nine months ended September 30, 1997 and 1996 3 Consolidated Balance Sheets As of September 30, 1997 and December 31, 1996 4 Consolidated Statements of Cash Flows For the nine months ended September 30, 1997 and 1996 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 Part II. Other Information Item 1. Legal proceedings 15 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16
2 TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands, except per share data)
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 --------- -------- --------- ------- REVENUES Base rentals $ 14,404 $ 12,779 $ 41,362 $ 37,497 Percentage rentals 779 566 1,482 1,164 Expense reimbursements 6,200 5,901 17,799 16,446 Other income 274 207 695 658 -------- -------- -------- -------- Total revenues 21,657 19,453 61,338 55,765 -------- -------- -------- -------- EXPENSES Property operating 6,584 6,372 18,732 17,737 General and administrative 1,500 1,365 4,528 4,036 Interest 4,414 3,614 12,193 10,282 Depreciation and amortization 4,790 4,178 13,694 12,285 -------- -------- -------- -------- Total expenses 17,288 15,529 49,147 44,340 -------- -------- -------- -------- Income before gain on sale of land, minority interest and extraordinary item 4,369 3,924 12,191 11,425 Gain on sale of land -- 159 -- 159 -------- -------- -------- -------- Income before minority interest and extraordinary item 4,369 4,083 12,191 11,584 Minority interest (1,207) (1,119) (3,357) (3,137) -------- -------- -------- -------- Income before extraordinary item 3,162 2,964 8,834 8,447 Extraordinary item - Loss on early extinguishment of debt, net of minority interest of $270 -- -- -- (561) -------- -------- -------- -------- Net income $ 3,162 $ 2,964 $ 8,834 $ 7,886 ======== ======== ======== ======== Per common share outstanding: Income before extraordinary item $ .40 $ .37 $ 1.11 $ 1.03 Net income .40 .37 1.11 .94 ======== ======== ======== ======== Dividends paid per common share $ .55 $ .52 $ 1.62 $ 1.54 ======== ======== ======== =======
The accompanying notes are an integral part of these consolidated financial statements. 3 TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS (Unaudited) (In thousands, except share data)
September 30, December 31, 1997 1996 ----------- ---------- ASSETS Rental property, net $ 382,737 $ 311,454 Cash and cash equivalents 3,358 2,585 Deferred charges, net 7,546 7,846 Other assets 11,393 10,253 ------------- -------- Total assets $ 405,034 $ 332,138 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Long-term debt $ 218,398 $ 178,004 Construction trade payables 19,160 8,320 Accounts payable and accrued expenses 8,418 9,558 --------- --------- Total liabilities 245,976 195,882 --------- --------- Commitments Minority interest 24,120 25,599 ========= ======== Shareholders' equity Preferred shares, $.01 par value, 1,000,000 shares authorized, 90,789 and 106,419 shares issued and outstanding at September 30, 1997 and December 31, 1996 1 1 Common shares, $.01 par value, 50,000,000 shares authorized, 7,763,985 and 6,602,510 shares issued and outstanding at September 30, 1997 and December 31, 1996 77 66 Paid in capital 149,069 121,384 Distributions in excess of net income (14,209) (10,794) --------- --------- Total shareholders' equity 134,938 110,657 --------- --------- Total liabilities and shareholders' equity $ 405,034 $ 332,138 ========= =========
The accompanying notes are an integral part of these consolidated financial statements. 4 TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended September 30, 1997 1996 ----- ----- OPERATING ACTIVITIES Net income $8,834 $7,886 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 13,694 12,285 Amortization of deferred financing costs 780 694 Minority interest 3,357 2,867 Loss on early extinguishment of debt --- 831 Gain on sale of land --- (159) Straight-line base rent adjustment (328) (946) Compensation under Unit Option Plan 253 254 Increase (decrease) due to changes in: Other assets (107) 984 Accounts payable and accrued expenses (1,140) 3,357 -------- -------- Net cash provided by operating activities 25,343 28,053 -------- -------- INVESTING ACTIVITIES Acquisition of rental properties (37,500) --- Additions to rental properties (36,231) (26,815) Additions to deferred lease costs (1,489) (1,275) Proceeds from sale of land --- 174 -------- --------- Net cash used in investing activities (75,220) (27,916) --------- --------- FINANCING ACTIVITIES Net proceeds from issuance of common shares 27,038 --- Cash dividends paid (12,249) (11,644) Distributions to minority interest (4,914) (4,672) Proceeds from notes payable --- 75,000 Repayments on notes payable (856) (747) Proceeds from revolving lines of credit 107,050 51,026 Repayments on revolving lines of credit (65,800) (107,927) Additions to deferred financing costs (102) (3,440) Proceeds from exercise of unit options 483 --- -------- -------- Net cash provided by (used in) financing activities 50,650 (2,404) --------- --------- Net increase (decrease) in cash and cash equivalents 773 (2,267) Cash and cash equivalents, beginning of period 2,585 5,111 --------- --------- Cash and cash equivalents, end of period $3,358 $2,844 ======== =========
The accompanying notes are an integral part of these consolidated financial statements. 5 TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS September 30, 1997 (Unaudited) 1. Interim Financial Statements The unaudited consolidated financial statements of Tanger Factory Outlet Centers, Inc., (the "Company"), have been prepared pursuant to the Securities and Exchange Commission's ("SEC") rules and regulations and should be read in conjunction with the financial statements and notes thereto of the Company's Annual Report on Form 10-K for the year ended December 31, 1996. Certain information and note disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. The accompanying consolidated financial statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. 2. Acquisition and Development of Rental Properties On February 28, 1997, the Company completed the acquisition of Five Oaks Factory Stores, a factory outlet center in Sevierville, Tennessee, containing approximately 123,000 square feet, for an aggregate purchase price of $18 million. On September 30, 1997, the Company acquired Shoppes on the Parkway, a factory outlet center in Blowing Rock, North Carolina, containing approximately 98,000 square feet, and Soundings Factory Stores, a factory outlet center in Nags Head, North Carolina, containing approximately 82,000 square feet, for an aggregate purchase price of $19.5 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 acquisition date. During the first nine months, construction was substantially completed on a 241,820 square foot expansion in Riverhead, NY, and a 26,111 square foot expansion in Lancaster, PA. Construction has also begun on properties in Commerce, GA (61,000 square feet); Sevierville, TN (50,000 square feet) and San Marcos, TX (23,000 square feet) as well as a further expansion in Riverhead, NY (60,000 square feet). Construction in progress amounted to $17.8 million and commitments to complete construction of expansions to existing properties amounted to approximately $6.8 million at September 30, 1997. Commitments for construction represent only those costs contractually required to be paid by the Company. Interest costs capitalized during the three months ended September 30, 1997 and 1996 amounted to $399,000 and $278,000, respectively, and during the nine months ended September 30, 1997 and 1996 amounted to $1,451,000 and $734,000, respectively. 3. Accumulated Depreciation Accumulated depreciation at September 30, 1997 and December 31, 1996 was approximately $59,722,000 and $46,907,000 respectively. 6 4. Common Shares On September 24, 1997, the Company completed a public offering of 1,000,000 Common Shares at a price of $29.0625 per share, receiving net proceeds of approximately $27.0 million. Subsequently, on October 15, 1997, the Company issued an additional 80,000 Common Shares pursuant to an over-allotment option granted to the underwriters and received net proceeds of approximately $2.2 million. The net proceeds, which were contributed to the Company's majority owned subsidiary, Tanger Properties Limited Partnership (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. 5. Income Per Share Income per share is computed by dividing income, less applicable preferred dividends, by the weighted average number of common shares outstanding. Options outstanding are not included since their inclusion would not be materially dilutive. The assumed conversion of preferred shares to common shares as of the beginning of the year would have been anti-dilutive. The assumed conversion of the partnership units held by the limited partner as of the beginning of the year, which would result in the elimination of earnings allocated to 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.
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- Applicable preferred dividends $ 450,000 $ 602,000 $1,358,000 $1,885,000 Weighted average shares 6,818,959 6,402,998 6,756,073 6,371,404 ========== ========== ========== ==========
In February 1997, the Financial Accounting Standards Board issued SFAS #128, EARNINGS PER SHARE, effective for fiscal periods ending after December 15, 1997. The new standard simplifies the computation of income per share by replacing primary income per share with basic income per share. Basic income per share will not include the effect of any potentially dilutive securities, as under the current accounting standard, and will be computed by dividing reported income available to common shareholders by the weighted average common shares outstanding during the period. Fully diluted income per share will now be called diluted income per share and will reflect the dilution of all potentially dilutive securities. Companies will be required to restate all prior period income per share data. The adoption of this standard by the Company will have no impact on the historical reported income per share amounts since the effect of potentially dilutive securities have been immaterial and, therefore, have been excluded from the historical income per share computations. 6. Supplemental schedule of non-cash investing activities 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 September 30, 1997 and 1996 amounted to $19,160,000 and $6,424,000, respectively. 7 7. Subsequent Events On October 24, the Operating Partnership issued $75 million of senior, unsecured notes, maturing October 24, 2004, with a coupon rate of 7.875%. The notes were priced at 99.799% of par with a yield to investors of 7.913%. The net proceeds were used to repay substantially all amounts outstanding under its existing lines of credit. On November 3, 1997, the Company and the Operating Partnership filed a new registration statement with the SEC to provide an issuance capacity under existing shelf registration statements of $200 million. In anticipation of the offering of the senior, unsecured notes, 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 $70,000,000. 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 $714,000 in proceeds. Such amount will be amortized as a reduction to interest expense over the life of the notes and will result in an overall effective interest rate on the notes of 7.75%. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. CAUTIONARY STATEMENTS Certain statements contained in the discussion below, including, without limitation, statements containing the words "believes," "anticipates," "expects," and words of similar import, constitute "forward-looking statements within the meaning of the Private Securities Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: the effects of future events on the Company's financial performance; the risk that the Company may not be able to finance its planned development activities; risks related to the retail industry in which the Company's outlet centers compete, including the potential adverse impact of external factors such as inflation, tenant demand for space, consumer confidence, unemployment rates and consumer tastes and preferences; risks associated with the Company's development activities, such as the potential for cost overruns, delays and lack of predictability with respect to the financial returns associated with these development activities; the risk of potential increase in market interest rates from current rates; risks associated with real estate ownership, such as the potential adverse impact of changes in the local economic climate on the revenues and the value of the Company's properties; and the risks that a significant number of tenants may become unable to meet their lease obligations or that the Company may be unable to renew or re-lease a significant amount of available space on economically favorable terms. Given these uncertainties, current and prospective investors are cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any obligation to update any such factors or to publicly announce the result of any revisions to any of the forward-looking statements contained herein to reflect future events or developments. 8 OVERVIEW The following discussion and analysis of the consolidated financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and Notes thereto. 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 three and nine months ended September 30, 1997 with the three and nine months ended September 30, 1996. Certain comparisons between the periods are also made on a percentage basis as well as on a weighted average gross leasable area ("GLA") basis, a technique which adjusts for certain increases or decreases in the number of centers and corresponding square feet related to the development and expansion or disposition of rental properties. The computation of weighted average GLA, however, does not adjust for fluctuations in occupancy during each period shown since GLA is not reduced when original occupied space subsequently becomes vacant. The Company continues to grow principally through acquisitions, new development and expansions of factory outlet centers. On February 28, 1997, the Company completed the acquisition of Five Oaks Factory Stores, a factory outlet center in Sevierville, Tennessee, containing approximately 123,000 square feet, for an aggregate purchase price of $18 million. On September 30, 1997, the Company acquired Shoppes on the Parkway, a factory outlet center in Blowing Rock, North Carolina, containing approximately 98,000 square feet, and Soundings Factory Stores, a factory outlet center in Nags Head, North Carolina, containing approximately 82,000 square feet, for an aggregate purchase price of $19.5 million. During the first nine months, construction was substantially completed on a 241,820 square foot expansion in Riverhead, NY, and a 26,111 square foot expansion in Lancaster, PA. Construction has also begun on properties in Commerce, GA (61,000 square feet); Sevierville, TN (50,000 square feet) and San Marcos, TX (23,000 square feet) as well as a further expansion in Riverhead, NY (60,000 square feet). 9 A summary of the operating results for the three and nine months ended September 30, 1997 and 1996, calculated on a weighted average GLA basis, is presented in the following table.
Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ------ -------- -------- ------ GLA at end of period (000's) 4,289 3,718 4,289 3,718 Weighted Average GLA(a) (000's) 4,079 3,686 3,928 3,614 Outlet centers in operation 30 27 30 27 New centers opened -- -- -- -- New centers acquired 2 -- 3 -- Centers expanded 1 2 2 6 States operated in at end of period 23 22 23 22 Per square foot Revenues Base rent $ 3.53 $ 3.47 $ 10.53 $ 10.38 Percentage rentals .19 .15 .38 .32 Expense reimbursements 1.52 1.60 4.53 4.55 Other income .07 .06 .18 .18 -------- --------- --------- --------- Total revenues 5.31 5.28 15.62 15.43 --------- --------- --------- --------- Expenses Property operating 1.61 1.73 4.77 4.91 General and administrative .37 .37 1.15 1.12 Interest 1.08 .98 3.10 2.85 Depreciation and amortization 1.17 1.13 3.49 3.40 ------- --------- --------- --------- Total expenses 4.23 4.21 12.51 12.28 ------- --------- --------- --------- Income before gain on sale of land, minority interest and extraordinary item $ 1.08 $ 1.07 $ 3.11 $ 3.15 ========= ========= ========= =========
(a) GLA weighted by months of operations RESULTS OF OPERATIONS Comparison of the three months ended September 30, 1997 to the three months ended September 30, 1996 Base rentals increased $1.6 million, or 13%, in the 1997 period when compared to the same period in 1996 primarily as a result of the 11% increase in weighted average GLA. Base rentals increased approximately $200,000 due to the effect of a full year's operation of expansions completed in 1996 and approximately $1.4 million for new or acquired leases added during 1997. Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, operating, property tax, promotional 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 92% in the 1996 period to 94% in the 1997 period due primarily to a reduction in nonreimbursable property operating expenses. 10 Property operating expenses increased by $212,000, or 3%, in the 1997 period as compared to the 1996 period but, on a weighted average GLA basis, decreased 7% to $1.61 from $1.73 per square foot. The decrease in cost per foot is due primarily to lower advertising and promotional expenses incurred during the 1997 period compared to the 1996 period. Interest expense increased $800,000 during the 1997 period as compared to the 1996 period due to higher average borrowings outstanding during the period. Average borrowings have increased principally to finance the acquisition of Five Oaks Factory Stores (see "Overview" above) and expansions to existing centers. Depreciation and amortization per weighted average GLA increased from $1.13 per square foot to $1.17 per square foot. The increase reflects the effect of accelerating the recognition of depreciation expense on certain tenant finishing allowances related to vacant space. Comparison of the nine months ended September 30, 1997 to the nine months ended September 30, 1996 Base rentals increased $3.9 million, or 10%, in the 1997 period when compared to the same period in 1996 primarily as a result of the 9% increase in weighted average GLA. Base rent increased approximately $1.3 million due to the effect of a full year's operation of expansions completed in 1996 and approximately $2.4 for new or acquired leases added during 1997. Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, operating, property tax, promotional 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 95% in the 1997 period due primarily to a reduction in nonreimbursable property operating expenses. Property operating expenses increased by $995,000, or 6%, in the 1997 period as compared to the 1996 period. However, on a weighted average GLA basis, property operating expenses decreased to $4.77 from $4.91 per square foot. The decrease is primarily due to lower advertising and promotional expenses incurred in the 1997 period compared to the 1996 period. Interest expense increased $1,911,000 during the 1997 period as compared to the 1996 period due to higher average borrowings outstanding during the period. Average borrowings have increased principally to finance the acquisition of Five Oaks Factory Stores (see "Overview" above) and expansions to existing centers. Depreciation and amortization per weighted average GLA increased from $3.40 per square foot to $3.49 per square foot. The increase reflects the effect of accelerating the recognition of depreciation expense on certain tenant finishing allowances related to vacant space. The extraordinary item in the 1996 period represents a write-off of the unamortized deferred financing costs related to the lines of credit which were extinguished using the proceeds from the Company's $75 million senior unsecured notes issued in March 1996. 11 LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $25.3 and $28.1 million for the nine months ended September 30, 1997 and 1996, respectively. The decrease of $2.8 million was primarily due to the timing of the Company's semiannual interest payment on the senior unsecured notes issued in March 1996 with payments due in March and September of each year. Net cash used in investing activities increased $47.3 million the first nine months of 1997 compared to the first nine months of 1996 due primarily to the acquisitions of the outlet centers in Tennessee and North Carolina and the construction of the Riverhead and Lancaster expansions. Net cash from financing activities increased $53.1 million as a result of net proceeds from the Common Share offering and the incremental financing used for the acquisitions and the construction of the expansions. Management believes, based upon its discussions with present and prospective tenants, that many tenants, including prospective tenants new to the factory outlet business, desire to open a number of new factory outlet stores in the next several years, particularly where there are successful factory outlet centers in which such tenants do not have a significant presence or where there are few factory outlet centers. During the year, the Company has substantially completed expansions totaling approximately 268,000 square feet and has five expansions totaling approximately 194,000 square feet currently under construction (See "General Overview"). In addition, the Board of Directors has approved further expansions in Riverhead, NY (44,000 square feet) and Commerce, GA (33,000 square feet). Commitments for construction of these projects (which represent only those costs contractually required to be paid by the Company) amounted to $17.8 million at September 30, 1997. The Company also is in the process of developing plans for additional expansions for completion in 1997 and beyond and new centers for completion in 1998 and beyond. For example, the Company is in the preleasing stages for future centers at two potential sites located in Concord, North Carolina (Charlotte) and Romulus, Michigan (Detroit). However, there can be no assurance that any of these anticipated or planned developments or expansions will be started or completed as scheduled, or that any development or, expansion will result in accretive funds from operations. In addition, the Company regularly evaluates acquisition proposals, engages from time to time in negotiations for acquisitions and may from time to time enter into letters of intent for the purchase of properties. No assurance can be given that any of the prospective acquisitions that are being evaluated or which are subject to a letter of intent will be consummated, or if consummated, will result in accretive funds from operations. Management intends to continually have access to the capital resources necessary to expand and develop its business and, accordingly, may seek to obtain additional funds through equity offerings or debt financing. The Company filed shelf registration statements with the SEC in November 1995 and March 1996 providing for the issuance of up to $100 million in additional equity securities and $100 million in additional debt securities. On September 24, 1997, the Company completed a public offering of 1,000,000 Common Shares at a price of $29.0625 per share, receiving net proceeds of approximately $27.0 million. Subsequently, on October 15, 1997, an additional 80,000 Common Shares were issued pursuant to an over-allotment option granted to the underwriters and the Company received net proceeds of approximately $2.2 million. The net proceeds were used to acquire, expand and develop factory outlet centers and for general corporate purposes. On October 24, the Operating Partnership issued $75 million of senior, unsecured notes, maturing October 24, 2004, with a coupon rate of 7.875%. The net proceeds were used to repay substantially all amounts outstanding under the Company's existing lines of credit. On November 3, 1997, the Company and the Operating Partnership filed a new registration statement with the SEC to provide an issuance capacity under shelf registration statements back to the original $200 million. In anticipation of the offering of the senior, unsecured notes, 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 $70,000,000. 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 $714,000 in proceeds. Such amount will be amortized as a reduction to interest expense over the life of the notes and will result in an overall effective interest rate on the notes of 7.75%. 12 The Company maintains revolving lines of credit which provide for borrowings of up to $100.0 million, of which $31.0 million was available for additional borrowings as of September 30, 1997. Subsequent to September 30, 1997, the Company used the proceeds from the issuance of the senior unsecured notes to repay substantially all amounts outstanding under the lines of credit. Based on existing credit facilities, ongoing negotiations with certain financial institutions and funds available under the shelf registration statements, management believes that the Company has access to the necessary financing to fund the planned capital expenditures during 1997 and 1998. The Company anticipates that adequate cash will be available to fund its operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long term. Although the Company receives most of its rental payments on a monthly basis, distributions are made quarterly. Amounts accumulated for distribution are invested in short-term money market or other suitable instruments. Certain of the Company's debt agreements limit the payment of dividends such that dividends will not exceed funds from operations ("FFO"), as defined in the agreements, on an annual basis or 95% of FFO on a cumulative basis from the date of the agreement. On October 9, 1997, the Board of Directors of the Company declared a $.55 cash dividend per common share payable on November 14, 1997 to each shareholder of record on October 24, 1997, and caused a $.55 per Operating Partnership unit cash distribution to be paid to the minority interests. The Board of Directors of the Company also declared a cash dividend of $.4955 per preferred depositary share payable on November 14, 1997 to each shareholder of record on October 24, 1997. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board issued SFAS #128, EARNINGS PER SHARE, effective for fiscal periods ending after December 15, 1997. The new standard simplifies the computation of income per share by replacing primary income per share with basic income per share. Basic income per share will not include the effect of any potentially dilutive securities, as under the current accounting standard, and will be computed by dividing reported income available to common shareholders by the weighted average common shares outstanding during the period. Fully diluted income per share will now be called diluted income per share and will reflect the dilution of all potentially dilutive securities. Companies will be required to restate all prior period income per share data. The adoption of this standard by the Company will have no impact on the historical reported income per share amounts since the effect of potentially dilutive securities have been immaterial and, therefore, have been excluded from the historical income per share computations. 13 FUNDS FROM OPERATIONS Management believes that to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be considered in conjunction with net income as presented in the unaudited consolidated financial statements included elsewhere in this report. Management generally considers FFO to be an appropriate measure of the performance of an equity real estate investment trust ("REIT"). FFO is generally defined as net income (loss), computed in accordance with generally accepted accounting principles, before extraordinary 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 computation of FFO for the three and nine months ended September 30, 1997 and 1996.
Three months ended Nine months ended September 30, September 30, ---------------- ---------------- 1997 1996 1997 1996 -------- ------- ------ -------- (In thousands) Income before minority interest and extraordinary $ 4,369 $ 3,924 $12,191 $11,425 item Adjusted for: Depreciation and amortization uniquely significant to real estate 4,745 4,132 13,556 12,171 ------- ------- ------- ------- Funds from operations before minority interest $ 9,114 $ 8,056 $25,747 $23,596 ======= ======= ======= ======= Weighted average shares outstanding(1) 10,835 10,611 10,786 10,611 ======= ======= ======= =======
(1) Assumes conversion of all partnership units held by the minority interest and preferred shares to common shares. ECONOMIC CONDITIONS AND OUTLOOK Substantially all of the Company's leases contain provisions designed to mitigate the impact of inflation. Such provisions include clauses for the escalation of base rent and clauses enabling the Company to receive percentage rentals based on tenants' gross sales (above predetermined levels, which the Company believes often are lower than traditional retail industry standards) which generally increase as prices rise. Most of the leases require the tenant to pay their share of property operating expenses, including common area maintenance, real estate taxes, insurance and promotion, thereby reducing exposure to increases in costs and operating expenses resulting from inflation. In addition, the Company has an interest rate protection agreement which limits the effect of changes in interest rates on approximately $10 million of its floating rate debt through October 1998. This agreement, combined with the existing fixed rate mortgages and notes payable, mitigate the Company's exposure to interest rate risk on approximately 100% of total debt outstanding as of September 30, 1997, after giving effect to the $75 million offering of senior unsecured notes in October 1997. 14 Approximately 81,000 square feet of space is currently up for renewal during the remainder of 1997 and approximately 426,000 square feet will come up for renewal in 1998. In addition, as typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its natural expiration or as a result of filing for protection under bankruptcy laws. Certain other tenants have, or may, from time to time, request reductions in rent to remain in operation. There can be no assurance that any tenant whose lease expires will renew such lease or that renewals or terminated leases will be released on economically favorable terms. Also, management may grant, from time to time, a tenant's request for rent reduction. The Company's portfolio is currently 98% leased. Existing tenants' sales have remained stable and renewals by existing tenants have remained strong. In addition, the Company has continued 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 credit 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 10% 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. CONTINGENCIES There are no recorded amounts resulting from environmental liabilities as there are no known material loss contingencies with respect thereto. Future claims for environmental liabilities are not measurable given the uncertainties surrounding whether there exists a basis for any such claims to be asserted and, if so, whether any claims will, in fact, be asserted. Furthermore, no condition is known to exist that would give rise to a material environmental liability for site restoration, post-closure and monitoring commitments, or other costs that may be incurred upon the sale or disposal of a property. Management has no plans to abandon any of the properties and is unaware of any other material loss contingencies. PART II. OTHER INFORMATION Item 1. Legal Proceedings Neither the Company nor the Operating Partnership is presently involved in any material litigation nor, to their knowledge, is any material litigation threatened against the Company or the Operating Partnership or its properties, other than routine litigation arising in the ordinary course of business and which is expected to be covered by the liability insurance. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K dated September 23, 1997 to file certain exhibits related to its offering of 1,000,000 Common Shares on September 24, 1997. 15 SIGNATURES Pursuant to the requirements of the Securities and 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/ FRANK C. MARCHISELLO, JR Frank C. Marchisello, Jr. Vice President, Chief Financial Officer DATE: November 4, 1997 16 EX-27 2 FDS
5 9-MOS DEC-31-1996 SEP-30-1997 3,358 0 0 0 0 0 442,459 59,722 405,034 0 218,398 0 1 77 134,860 405,034 0 61,338 0 18,732 13,694 0 12,193 12,191 0 8,834 0 0 0 8,834 1.11 1.11
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