United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file numbers:
33-99736-01
333-3526-01
333-39365-01
333-61394-01
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina 56-1822494
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 Northline Avenue
Suite 360
Greensboro, NC 27408 (336) 292-3010
(Address of principal executive offices) Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities and Exchange Act of 1934). Yes X No - -
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to Tanger Factory Outlet Centers, Inc. to be filed
with respect to the Annual Meeting of Shareholders to be held May 14, 2004.
1
PART I
Item 1. Business
The Operating Partnership
Tanger Properties Limited Partnership and subsidiaries, a North Carolina limited
partnership, focuses exclusively on developing, acquiring, owning, operating and
managing factory outlet shopping centers. Since entering the factory outlet
center business 23 years ago, we have become one of the largest owners and
operators of factory outlet centers in the United States. As of December 31,
2003, we owned interests in 36 centers, with a total gross leasable area, or
("GLA"), of approximately 8.9 million square feet, which were 96% occupied. In
addition as of December 31, 2003, we managed for a fee four centers, with a
total GLA of approximately 434,000 square feet, bringing the total number of
centers we operated to 40 with a total GLA of approximately 9.3 million square
feet containing over 2,000 stores and representing over 400 store brands.
We are controlled by Tanger Factory Outlet Centers, Inc. and subsidiaries, a
fully-integrated, self-administered and self-managed real estate investment
trust ("REIT"). The Company owns the majority of the units of partnership
interest issued by the Operating Partnership (the "Units") through its two
wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The
Tanger GP Trust controls the Operating Partnership as its sole general partner.
The Tanger LP Trust holds a limited partnership interest. The Tanger family,
through its ownership of the Tanger Family Limited Partnership ("TFLP"), holds
the remaining Units as a limited partner. Stanley K. Tanger, our Chairman of the
Board and Chief Executive Officer, is the sole general partner of TFLP. Unless
the context indicates otherwise, the term "Operating Partnership" refers to
Tanger Properties Limited Partnership and subsidiaries and the term "Company"
refers to Tanger Factory Outlet Centers, Inc. and subsidiaries. The terms "we",
"our" and "us" refer to the Operating Partnership or the Operating Partnership
and the Company together, as the text requires.
As of December 31, 2003, Tanger GP Trust owned 150,000 Units, the Tanger LP
Trust owned 12,810,643 and TFLP owned 3,033,305 Units. TFLP's Units are
exchangeable, subject to certain limitations to preserve the Company's status as
a REIT, on a one-for-one basis for the Company's common shares. As of February
2, 2004, Company's management beneficially owns approximately 20% of all
outstanding common shares (assuming TFLP's Units are exchanged for common shares
but without giving effect to the exercise of any outstanding share and
partnership Unit options).
Ownership of the Company's common shares is restricted to preserve the Company's
status as a REIT for federal income tax purposes. Subject to certain exceptions,
a person may not actually or constructively own more than 4% of the Company's
common shares. The Company also operates in a manner intended to enable it to
preserve its status as a REIT, including, among other things, making
distributions with respect to its outstanding common shares equal to at least
90% of its taxable income each year.
We are a North Carolina limited partnership that was formed in May 1993. The
executive offices are currently located at 3200 Northline Avenue, Suite 360,
Greensboro, North Carolina, 27408 and the telephone number is (336) 292-3010.
Our website can be accessed at www.tangeroutlet.com. A copy of our 10-K's,
10-Q's, and 8-K's can be obtained, free of charge, on our website.
2
Recent Developments
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC Holdings, LLC ("COROC"). We own one-third and
Blackstone owns two-thirds of the joint venture. We provide operating,
management, leasing and marketing services to the properties for a fee.
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized over the life of the debt. We financed the majority of our equity in
the joint venture with proceeds from the Company's issuance of 2.3 million
common shares at $40.50 per share which were contributed to the Operating
Partnership in exchange for 2.3 million limited partnership units and we expect
that the transaction will be accretive to our operating results in 2004. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2003, we had ownership interests in or management
responsibilities for 40 centers in 23 states totaling 9.3 million square feet of
operating GLA compared to 34 centers in 21 states totaling 6.2 million square
feet of operating GLA as of December 31, 2002. The increase is due to the
following events:
No.
of GLA
Centers (000's) States
- --------------------------------------------------------------------- ------------ ------------ -----------
As of December 31, 2002 34 6,186 21
- --------------------------------------------------------------------- ------------ ------------ -----------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 64 ---
Acquisitions/Expansions:
Sevierville, Tennessee (wholly-owned) --- 64 ---
Charter Oak portfolio (consolidated joint venture):
Rehoboth, Delaware 1 569 1
Foley, Alabama 1 536 ---
Myrtle Beach Hwy 501, South Carolina 1 427 ---
Hilton Head, South Carolina 1 393 ---
Park City, Utah 1 301 1
Westbrook, Connecticut 1 291 1
Lincoln City, Oregon 1 270 1
Tuscola, Illinois 1 258 1
Tilton, New Hampshire 1 228 ---
Dispositions:
Martinsburg, West Virginia (wholly-owned) (1) (49) (1)
Casa Grande, Arizona (wholly-owned) (1) (185) (1)
Bourne, Massachusetts (managed) (1) (23) (1)
- --------------------------------------------------------------------- ------------ ------------ -----------
As of December 31, 2003 40 9,330 23
- --------------------------------------------------------------------- ------------ ------------ -----------
During 2003, we continued to utilize multiple sources of capital. We completed
the following liquidity transactions during the year:
o In December 2003, the Company completed a public offering of 2,300,000
common shares at a price of $40.50 per share, and contributed the net
proceeds of approximately $88.0 million to the Operating Partnership in
exchange for 2.3 million limited partnership units. The net proceeds were
used together with other available funds to fund our portion of the equity
required to acquire the Charter Oak portfolio of outlet shopping centers as
mentioned above and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full
their over-allotment option to purchase an additional 345,000 of the
Company's common shares at the offering price of $40.50 per share. The
Company contributed the net proceeds of approximately $13.2 million from
the exercise of the over-allotment in exchange for 345,000 limited
partnership units.
3
o We extended the maturities of our existing four unsecured lines of credit
with Bank of America, Fleet National Bank, SouthTrust Bank and Wells Fargo
Bank until June 30, 2005 and increased our line of credit with Wells Fargo
Bank from $10 million to $25 million. This addition brings the total
capacity under our lines of credit to $100 million.
o During 2003, we purchased, at a 2% premium, $2.6 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The
purchases were funded by amounts available under our unsecured lines of
credit. These purchases bring the total amount of these notes purchased in
the last three years to $27.5 million. We currently have authority from our
Board of Trustees to purchase an additional $22.4 million of our
outstanding 7.875% senior, unsecured public notes and may, from time to
time, do so at management's discretion.
o On June 20, 2003, the Company redeemed all of its outstanding Series A
Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares")
held by the Preferred Stock Depositary in the form of Depositary Shares,
each representing 1/10th of a Preferred Share. Since preferred units held
by the Company's majority owned subsidiary, Tanger LP Trust, are to be
redeemed by the Operating Partnership to the extent any Preferred Shares of
the Company are redeemed, proceeds required to redeem the Company's
preferred shares were funded by the Operating Partnership in exchange for
the preferred units held by the Company. Likewise, preferred units are
automatically converted into limited partnership units to the extent of any
conversion of the Company's preferred shares into common shares. The
redemption price was $250 per Preferred Share ($25 per Depositary Share),
plus accrued and unpaid dividends, if any, to, but not including, the
redemption date. In total, 787,008 of the Depositary Shares were converted
into 709,078 common shares and the Company redeemed the remaining 14,889
Depositary Shares for $25 per share, plus accrued and unpaid dividends.
Likewise, 787,008 preferred units were converted into 709,078 limited
partnership units and the Operating Partnership redeemed the remaining
14,889 preferred units. The Operating Partnership funded the redemption,
totaling approximately $372,000, from cash flows from operations.
The Factory Outlet Concept
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products by eliminating the third party retailer.
Factory outlet centers also typically have lower operating costs than other
retailing formats, which enhance the manufacturer's profit potential. Factory
outlet centers enable manufacturers to optimize the size of production runs
while continuing to maintain control of their distribution channels. In
addition, factory outlet centers benefit manufacturers by permitting them to
sell out-of-season, overstocked or discontinued merchandise without alienating
department stores or hampering the manufacturer's brand name, as is often the
case when merchandise is distributed via discount chains.
We believe that factory outlet centers continue to present attractive
opportunities for capital investment, particularly with respect to strategic
re-merchandising plans and expansions of existing centers. We believe that under
present conditions such development or expansion costs, coupled with current
market lease rates, permit attractive investment returns. We further believe,
based upon our contacts with present and prospective tenants, that many
companies, including prospective new entrants into the factory outlet business,
desire to open a number of new factory outlet stores in the next several years,
particularly where there are successful factory outlet centers in which such
companies do not have a significant presence or where there are few factory
outlet centers.
Our Factory Outlet Centers
Each of our factory outlet centers carries the Tanger brand name. We believe
that national manufacturers and consumers recognize the Tanger brand as one that
provides factory outlet shopping centers where consumers can trust the brand,
quality and price of the merchandise they purchase directly from the
manufacturers.
As one of the original participants in this industry, we have developed
long-standing relationships with many national and regional manufacturers.
Because of our established relationships with many manufacturers, we believe we
are well positioned to capitalize on industry growth.
4
Our factory outlet centers range in size from 11,000 to 729,238 square feet of
GLA and are typically located at least 10 miles from major department stores and
manufacturer-owned, full-price retail stores. Manufacturers prefer these
locations so that they do not compete directly with their major customers and
their own stores. Many of our factory outlet centers are located near tourist
destinations to attract tourists who consider shopping to be a recreational
activity. Our centers are typically situated in close proximity to interstate
highways that provide accessibility and visibility to potential customers.
As of February 1, 2004, we had a diverse tenant base comprised of over 400
different well-known, upscale, national designer or brand name concepts, such as
Liz Claiborne, GAP, Polo Ralph Lauren, Reebok, Tommy Hilfiger, Nautica, Coach
Leatherware and Brooks Brothers. Most of the factory outlet stores are directly
operated by the respective manufacturer.
No single tenant (including affiliates) accounted for 10% or more of combined
base and percentage rental revenues during 2003, 2002 and 2001. As of February
1, 2004, our largest tenant, including all of its store concepts, accounted for
approximately 6.1% of our GLA. Because our typical tenant is a large, national
manufacturer, we have not experienced any material problems with respect to rent
collections or lease defaults.
Revenues from fixed rents and operating expense reimbursements accounted for
approximately 90% of our total revenues in 2003. Revenues from contingent
sources, such as percentage rents, vending income and miscellaneous income,
accounted for approximately 10% of 2003 revenues. As a result, only small
portions of our revenues are dependent on contingent revenue sources.
Business History
Stanley K. Tanger, the Company's founder, Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. Prior to founding the
Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's
President and Chief Operating Officer, built and managed a successful family
owned apparel manufacturing business, Tanger/Creighton Inc.
("Tanger/Creighton"), which business included the operation of five factory
outlet stores. Based on their knowledge of the apparel and retail industries, as
well as their experience operating Tanger/Creighton's factory outlet stores,
they recognized that there would be a demand for factory outlet centers where a
number of manufacturers could operate in a single location and attract a large
number of shoppers.
In 1981, Stanley K. Tanger began developing successful factory outlet centers.
Steven B. Tanger joined the company in 1986 and by June 1993, the Tangers had
developed 17 centers with a total GLA of approximately 1.5 million square feet.
In June 1993, we completed our initial public offering, making Tanger Factory
Outlet Centers, Inc. the first publicly traded outlet center company. Since our
initial public offering, we have grown our portfolio through strategic
development and acquisitions.
Since entering the factory outlet business 23 years ago, we have become one of
the largest owner operators of factory outlet centers in the country. As of
December 31, 2003, we owned interests in 36 shopping centers, with a total GLA
of approximately 8.9 million square feet, which were 96% occupied. In addition
as of December 31, 2003, we managed for a fee four shopping centers, with a
total GLA of approximately 434,000 square feet, bringing the total number of
centers we operated to 40 with a total GLA of approximately 9.3 million square
feet containing over 2,000 stores and representing over 400 store brands.
Business and Operating Strategy
Our strategy is to increase revenues through new development, selective
acquisitions and expansions of factory outlet centers while minimizing our
operating expenses by designing low maintenance properties and achieving
economies of scale. We continue to focus on strengthening our tenant base in our
centers by replacing low volume tenants with high volume premier brand name
manufacturers, such as Liz Claiborne, Reebok, Tommy Hilfiger, Polo Ralph Lauren,
GAP, Nautica, Coach Leatherware, Brooks Brothers, Zales and Nike.
We typically seek opportunities to develop or acquire new centers in locations
that have at least 5 million people residing within an hour's drive, an average
household income within a 50-mile radius of at least $35,000 per year and access
to frontage on a major or interstate highway with a traffic count of at least
45,000 cars per day. We also seek to enhance our customer base by developing
centers near or at established tourist destinations. Our current goal is to
target sites that are large enough to support centers with approximately 75
stores totaling at least 300,000 square feet of GLA.
5
We generally prelease at least 50% of the space in each center prior to
acquiring the site and beginning construction. Construction of a new factory
outlet center has normally taken us four to six months from groundbreaking to
the opening of the first tenant store. Construction of expansions to existing
properties typically takes less time, usually between three to four months.
Capital Strategy
We achieve a strong and flexible financial position by: (1) managing our
leverage position relative to our portfolio when pursuing new development and
expansion opportunities, (2) extending and sequencing debt maturities, (3)
managing our interest rate risk through a proper mix of fixed and variable rate
debt, (4) maintaining our liquidity by having available lines of credit and (5)
preserving internally generated sources of capital by strategically divesting
our underperforming assets, maintaining a conservative distribution payout ratio
and reinvesting a significant portion of our cash flow into our portfolio.
We have successfully increased our distributions each of our first ten years. At
the same time, we continue to have a low distribution payout ratio, defined as
annual distributions as a percent of Funds From Operations ("FFO"), which for
the year ended December 31, 2003, was 71%. As a result, we retained
approximately $14.5 million of our 2003 FFO. A low distribution payout ratio
allows us to retain capital to maintain the quality of our portfolio, as well as
to develop, acquire and expand properties and reduce outstanding debt. For a
discussion of FFO, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Funds From Operations".
Together with the Company, we intend to retain the ability to raise additional
capital, including public debt or equity, to pursue attractive investment
opportunities that may arise and to otherwise act in a manner that we believe to
be in our unitholders' best interests. Prior to the 2002 and 2003 common share
offerings of the Company, we had established a shelf registration to allow us to
issue up to $400 million in either all debt or all equity of the Company or any
combination thereof. In September 2002, the Company completed a public offering
of 1,000,000 common shares at a price of $29.25 per share, receiving net
proceeds of approximately $28.0 million, which were contributed to the Operating
Partnership in exchange for 1,000,000 limited partnership units. We used the net
proceeds, together with other available funds, to acquire one outlet center in
Howell, Michigan, to reduce the outstanding balance on our lines of credit and
for general corporate purposes. In December 2003, the Company completed a public
offering of 2,300,000 common shares at a price of $40.50 per share, receiving
net proceeds of approximately $88.0 million, which were contributed to the
Operating Partnership in exchange for 2,300,000 limited partnership units.. The
net proceeds were used together with other available funds to finance our
portion of the equity required to acquire the Charter Oak portfolio of outlet
shopping centers and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full their
over-allotment option to purchase an additional 345,000 of the Company's common
shares at the offering price of $40.50 per share. We received net proceeds of
approximately $13.2 million from the exercise of the over-allotment, which was
also contributed to the Operating Partnership in exchange for 345,000 limited
partnership units. To generate capital to reinvest into other attractive
investment opportunities, we may also consider the use of additional operational
and developmental joint ventures, selling certain properties that do not meet
our long-term investment criteria as well as outparcels on existing properties.
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $100 million at December 31, 2003, an increase of $15 million
in capacity from December 31, 2002. During 2003, we extended the maturity of all
lines of credit to June 30, 2005. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
our ability to sell debt or equity subject to market conditions, we believe that
we have access to the necessary financing to fund the planned capital
expenditures during 2004.
Competition
We carefully consider the degree of existing and planned competition in a
proposed area before deciding to develop, acquire or expand a new center. Our
centers compete for customers primarily with factory outlet centers built and
operated by different developers, traditional shopping malls and full- and
off-price retailers. However, we believe that the majority of our customers
visit factory outlet centers because they are intent on buying name-brand
products at discounted prices. Traditional full- and off-price retailers are
often unable to provide such a variety of name-brand products at attractive
prices.
6
Tenants of factory outlet centers typically avoid direct competition with major
retailers and their own specialty stores, and, therefore, generally insist that
the outlet centers be located not less than 10 miles from the nearest major
department store or the tenants' own specialty stores. For this reason, our
centers compete only to a very limited extent with traditional malls in or near
metropolitan areas.
We compete favorably with two large national developers of factory outlet
centers and numerous small developers. During the last several years, the
factory outlet industry has been consolidating with smaller, less capitalized
operators struggling to compete with, or being acquired by, larger, national
factory outlet operators. Since 1997 the number of factory outlet centers in the
United States has decreased while the average size factory outlet center has
increased. During this period of consolidation, the high barriers to entry in
the factory outlet industry, including the need for extensive relationships with
premier brand name manufacturers, has minimized the number of new factory outlet
centers. Since January 2000 only 11 new factory outlet centers have opened. This
consolidation trend and the high barriers to entry, along with our national
presence, access to capital and extensive tenant relationships, have allowed us
to grow our business and improve our market position.
Corporate and Regional Headquarters
We rent space in an office building in Greensboro, North Carolina in which our
corporate headquarters are located. In addition, we rent a regional office in
New York City, New York under a lease agreement and sublease agreement,
respectively, to better service our principal fashion-related tenants, many of
whom are based in and around that area.
We maintain offices and employ on-site managers at 32 centers. The managers
closely monitor the operation, marketing and local relationships at each of
their centers.
Insurance
We believe that as a whole our properties are covered by adequate comprehensive
liability, fire, flood and extended loss insurance provided by reputable
companies with commercially reasonable and customary deductibles and limits.
Specified types and amounts of insurance are required to be carried by each
tenant under their lease agreement with us. There are however, types of losses,
like those resulting from wars or earthquakes, which may either be uninsurable
or not economically insurable in some or all of our locations. An uninsured loss
could result in a loss to us of both our capital investment and anticipated
profits from the affected property.
Employees
As of February 1, 2004, we had 207 full-time employees, located at our corporate
headquarters in North Carolina, our regional office in New York and our 32
business offices. At that date, we also employed 226 part-time employees at
various locations.
Item 2. Properties
As of February 1, 2004, our portfolio consisted of 40 centers totaling 9.3
million square feet of GLA located in 23 states. We owned interests in 36
centers with a total GLA of approximately 8.9 million square feet and managed
for a fee four centers with a total GLA of approximately 434,000 square feet.
Our centers range in size from 11,000 to 729,238 square feet of GLA. These
centers are typically strip shopping centers that enable customers to view all
of the shops from the parking lot, minimizing the time needed to shop. The
centers are generally located near tourist destinations or along major
interstate highways to provide visibility and accessibility to potential
customers.
We believe that the centers are well diversified geographically and by tenant
and that we are not dependent upon any single property or tenant. Our Riverhead,
New York center is the only property that represented more than 10% of our 2003
annual consolidated gross revenues. No center represented more than 10% of our
consolidated total assets as of December 31, 2003. See "Business and Properties
- - Significant Property.
We have an ongoing strategy of acquiring centers, developing new centers and
expanding existing centers. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources"
for a discussion of the cost of such programs and the sources of financing
thereof.
7
Certain of our centers serve as collateral for mortgage notes payable. Of the 36
centers that we have ownership interests in, we own the land underlying 31 and
have ground leases on five. The land on which the Pigeon Forge and Sevierville
centers are located are subject to long-term ground leases expiring in 2086 and
2046, respectively. The land parcel on which the original Riverhead Center is
located, approximately 47 acres, is also subject to a ground lease with an
initial term expiring in 2004, with renewal at our option for up to seven
additional terms of five years each. Terms on the Riverhead Center ground lease
are renewed automatically unless we give notice otherwise. The land parcel on
which the Riverhead Center expansion is located, containing approximately 43
acres, is owned by us. The land parcel on which the Myrtle Beach center is
located, is also subject to a ground lease with an initial term expiring in
2026, with renewal at TWMB's option for up to seven additional terms of ten
years each. The land parcel on which part of the Rehoboth Beach center is
located, is also subject to a ground lease with an initial term expiring in
2044, with renewal at our option for additional terms of twenty years each.
The term of our typical tenant lease averages approximately five years.
Generally, leases provide for the payment of fixed monthly rent in advance.
There are often contractual base rent increases during the initial term of the
lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of real estate taxes, insurance, common area maintenance, advertising
and promotion expenses incurred by the applicable center. As a result,
substantially all operating expenses for the centers are borne by the tenants.
The table set forth below summarizes certain information with respect to our
existing centers, excluding centers we manage but in which we have no ownership
interests, as of February 1, 2004.
Location of Centers (as of February 1, 2004)
Number of GLA %
State Centers (sq. ft.) of GLA
- -------------------------------- ------------- -------------- ---------------
South Carolina (1)(2) 3 1,144,899 13
Georgia 4 949,190 11
New York 1 729,238 8
Texas 2 619,976 7
Alabama (2) 2 615,250 7
Delaware (2) 1 568,787 6
Tennessee 2 513,581 6
Michigan 2 437,651 5
Utah (2) 1 300,602 3
Connecticut (2) 1 291,051 3
New Hampshire (2) 3 289,711 3
Missouri 1 277,883 3
Iowa 1 277,230 3
Oregon (2) 1 270,280 3
Illinois (2) 1 258,114 3
Pennsylvania 1 255,152 3
Louisiana 1 245,199 3
Florida 1 198,789 2
North Carolina 2 187,702 2
Indiana 1 141,051 2
Minnesota 1 134,480 2
California 1 105,950 1
Maine 2 84,313 1
- -------------------------------- ------------- -------------- ---------------
Total 36 8,896,079 100
================================ ============= ============== ===============
(1) Includes one center in Myrtle Beach, SC of which we own a 50% interest
through a joint venture arrangement.
(2) Includes centers from the Charter Oak portfolio acquired on December 19,
2003 of which we own a one-third interest through a joint venture
arrangement.
8
The table set forth below summarizes certain information with respect to our
existing centers, excluding centers we manage but in which we have no ownership
interests, as of February 1, 2004. Except as noted, all properties are fee
owned.
Mortgage
Debt
Outstanding
GLA % (000's) as of
Location (sq. ft.) Occupied December 31, 2003
- -------------------------------------------- ----------- ----- ----------- ---------------------
Riverhead, NY (1) 729,238 99 $ ---
Rehoboth, DE (1) (3) 568,787 99 42,427
Foley, AL (3) 535,675 98 34,695
San Marcos, TX 442,486 99 37,299
Myrtle Beach 501, SC (3) 427,472 96 24,634
Sevierville, TN (1) 419,023 100 ---
Hilton Head, SC (3) 393,094 89 19,900
Commerce II, GA 342,556 94 29,500
Howell, MI 325,231 100 ---
Myrtle Beach 17, SC (1) (2) 324,333 100 ---
Park City, UT (3) 300,602 96 13,556
Westbrook, CT (3) 291,051 91 16,108
Branson, MO 277,883 100 24,000
Williamsburg, IA 277,230 96 19,064
Lincoln City, OR (3) 270,280 92 11,202
Tuscola, IL (3) 258,114 78 21,739
Lancaster, PA 255,152 98 14,179
Locust Grove, GA 247,454 99 ---
Gonzales, LA 245,199 95 ---
Tilton, NH (3) 227,966 96 13,997
Fort Meyers, FL 198,789 93 ---
Commerce I, GA 185,750 69 7,812
Terrell, TX 177,490 96 ---
Dalton, GA 173,430 76 10,923
Seymour, IN 141,051 77 ---
North Branch, MN 134,480 100 ---
West Branch, MI 112,420 98 6,934
Barstow, CA 105,950 87 ---
Blowing Rock, NC 105,448 99 9,517
Pigeon Forge, TN (1) 94,558 88 ---
Nags Head, NC 82,254 100 6,458
Boaz, AL 79,575 97 ---
Kittery I, ME 59,694 100 6,216
LL Bean, North Conway, NH 50,745 100 ---
Kittery II, ME 24,619 100 ---
Clover, North Conway, NH 11,000 100 ---
- ------------------------------------------- ------------ ----- -------- ---------------------
8,896,079 95 $ 370,160
=========================================== ============ ===== ======== =====================
(1) These properties or a portion thereof are subject to a ground lease.
(2) Represents property that is currently held through an unconsolidated joint
venture in which we own a 50% interest. The joint venture had $29.5 million
of construction loan debt as of December 31, 2003.
(3) Represents properties that are currently held through a consolidated joint
venture in which we own a one-third interest.
9
Lease Expirations
The following table sets forth, as of February 1, 2004, scheduled lease
expirations, assuming none of the tenants exercise renewal options for our
existing centers, excluding centers we manage but in which we have no ownership
interests. Most leases are renewable for five year terms at the tenant's option.
% of Gross
Annualized
Average Base Rent
No. of Approx. Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring(1) (sq. ft.)(1) per sq. ft. (000's)(2) Leases
- ------------------------ ----------------- ----------------- ------------- --------------- --------------
2004 337 1,341,000 (3) $ 12.97 $17,403 14
2005 368 1,800,000 13.38 24,086 20
2006 339 1,302,000 17.14 22,304 19
2007 296 1,322,000 15.94 21,085 18
2008 264 1,149,000 17.01 19,542 16
2009 110 480,000 15.37 7,373 6
2010 28 138,000 13.53 1,864 2
2011 14 119,000 12.67 1,507 1
2012 25 206,000 11.65 2,405 2
2013 17 86,000 19.30 1,667 1
2014 & thereafter 18 80,000 12.30 977 1
- ------------------------ ----------- ----------------------- ---------- -------------- ------------------
Total 1,816 8,023,000 $ 14.98 $ 120,213 100
======================== =========== ======================= ========== ============== ==================
(1) Excludes leases that have been entered into but which tenant has not yet
taken possession, vacant suites, space under construction, temporary leases
and month-to-month leases totaling in the aggregate approximately 873,000
square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
(3) As of February 1, 2004, approximately 449,000 square feet of the 1,790,000
square feet scheduled to expire in 2004 had already renewed.
Rental and Occupancy Rates
The following table sets forth information regarding the expiring leases during
each of the last five calendar years for our existing centers, excluding centers
we manage but in which we have no ownership interests.
Renewed by Existing Re-leased to
Total Expiring Tenants New Tenants
----------------------------------- ---------------------------- ----------------------------
% of % of % of
GLA Total Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- ---------------- --------------- ---------------- ------------- ----------- ------------ ------------
2003 1,070,000 12 854,000 80 49,000 5
2002 935,000 16 819,000 88 56,000 6
2001 684,000 13 560,000 82 55,000 8
2000 690,000 13 520,000 75 68,000 10
1999 715,000 14 606,000 85 23,000 3
10
The following table sets forth the average base rental rate increases per square
foot upon re-leasing stores that were turned over or renewed during each of the
last five calendar years for our existing centers, excluding centers we manage
but in which we have no ownership interests.
Renewals of Existing Leases Stores Re-leased to New Tenants (1)
---------------------------------------------------- ------------------------------------------------------
Average Annualized Base Rents Average Annualized Base Rents
($ per sq. ft.) ($ per sq. ft.)
-------------------------------------- ----------------------------------------
GLA % GLA %
Year (sq. ft.) Expiring New Increase (sq. ft.) Expiring New Change
- --------- ---------- ----------- --------- ---------- ---------- ----------- --------- ----------
2003 854,000 $13.29 $13.32 -- 272,000 $16.47 $17.13 4
2002 819,000 $14.86 $15.02 1 229,000 $15.14 $15.74 4
2001 560,000 14.08 14.89 6 269,000 14.90 16.43 10
2000 520,000 13.66 14.18 4 303,000 14.68 15.64 7
1999 606,000 14.36 14.36 -- 241,000 15.51 16.57 7
- ---------------------
(1) The square footage released to new tenants for2003, 2002, 2001, 2000 and
1999 contains 49,000, 56,000, 55,000, 68,000 and 23,000 square feet,
respectively, that was released to new tenants upon expiration of an
existing lease during the current year.
Occupancy Costs
We believe that our ratio of average tenant occupancy cost (which includes base
rent, common area maintenance, real estate taxes, insurance, advertising and
promotions) to average sales per square foot is low relative to other forms of
retail distribution. The following table sets forth, for each of the last five
years, tenant occupancy costs per square foot as a percentage of reported tenant
sales per square foot for our existing centers, excluding centers we manage but
in which we have no ownership interests.
Occupancy Costs as a
Year % of Tenant Sales
------------------------------ --------------------------
2003 7.4
2002 7.2
2001 7.1
2000 7.4
1999 7.8
11
Tenants
The following table sets forth certain information with respect to our ten
largest tenants and their store concepts as of February 1, 2004 for our existing
centers, excluding centers we manage but in which we have no ownership
interests.
Number GLA % of Total
Tenant of Stores (sq. ft.) GLA
- --------------------------------------------- ------------- ------------- ---------------------
The Gap, Inc.:
GAP 25 227,554 2.6
Old Navy 16 231,801 2.6
Banana Republic 10 80,853 0.9
Baby Gap 1 3,885 ---
Gap Kids 1 3,142 ---
-------- ---------------- -----------------------
53 547,235 6.1
Phillips-Van Heusen Corporation:
Bass Shoe 31 206,273 2.3
Van Heusen 30 128,847 1.4
Geoffrey Beene Co. Store 19 72,984 0.8
Izod 16 40,480 0.5
-------- ---------------- -----------------------
96 448,584 5.0
Liz Claiborne:
Liz Claiborne 34 320,778 3.6
Elizabeth 7 24,284 0.3
DKNY Jeans 3 8,820 0.1
Special Brands By Liz Claiborne 3 7,850 0.1
Dana Buchman 3 6,975 0.1
Claiborne Mens 2 4,897 0.1
-------- ---------------- -----------------------
52 373,604 4.3
VF Factory Outlet:
VF Factory Outlet, Inc 7 184,122 2.1
Nautica Factory Store 25 106,441 1.2
Nautica Jeans Co. Outlet 1 4,500 0.1
-------- ---------------- -----------------------
33 295,063 3.4
Reebok International, Ltd.:
Reebok 28 239,102 2.7
Rockport 4 11,900 0.1
Greg Norman 1 3,000 ---
-------- ---------------- -----------------------
33 254,002 2.8
Dress Barn Inc. 32 226,729 2.5
Polo Ralph Lauren:
Polo Ralph Lauren 19 160,604 1.8
Polo Jeans 4 15,000 0.2
-------- ---------------- -----------------------
23 175,604 2.0
Brown Group Retail, Inc:
Factory Brand Shoe 24 140,124 1.6
Naturalizer 11 28,784 0.3
-------- ---------------- -----------------------
35 168,908 1.9
Sara Lee Corporation:
L'eggs, Hanes, Bali 34 152,238 1.7
Socks Galore 7 9,290 0.1
-------- ---------------- -----------------------
41 161,528 1.8
Nike 11 160,078 1.8
-------- ---------------- -----------------------
- --------------------------------------------- -------- ---------------- -----------------------
Total of all tenants listed in table 409 2,811,335 31.6
============================================= ======== ================ =======================
12
Significant Property
The center in Riverhead, New York is our only center that comprises more than
10% of our consolidated total gross revenues for the year ended December 31,
2003. No center represents more than 10% of our consolidated total assets as of
December 31, 2003. The Riverhead center represented 21% of our consolidated
gross revenue for the year ended December 31, 2003. The Riverhead center was
originally constructed in 1994 and now totals 729,238 square feet.
Tenants at the Riverhead center principally conduct retail sales operations. The
occupancy rate as of the end of 2003, 2002 and 2001 was 100%, 100% and 99%.
Average annualized base rental rates during 2003, 2002 and 2001 were $20.90,
$19.71 and $18.68 per weighted average GLA, respectively.
Depreciation on the Riverhead center is recognized on a straight-line basis over
33.33 years, resulting in a depreciation rate of 3% per year. At December 31,
2003, the net federal tax basis of this center was approximately $76.6 million.
Real estate taxes assessed on this center during 2003 amounted to $3.6 million.
Real estate taxes for 2004 are estimated to be approximately $3.9 million.
The following table sets forth, as of February 1, 2004, scheduled lease
expirations at the Riverhead center assuming that none of the tenants exercise
renewal options:
% of Gross
Annualized
Base Rent
No. of Annualized Annualized Represented
Leases GLA Base Rent Base Rent by Expiring
Year Expiring (1) (sq. ft.)(1) per sq. ft. (000) (2) Leases
- --------------------------- ----------------- ----------------- ------------------ ---------------- ----------------
2004 17 74,000 $ 19.58 $ 1,450 10
2005 16 80,000 22.09 1,765 13
2006 12 44,000 23.49 1,043 7
2007 52 192,000 23.23 4,450 31
2008 30 118,000 22.93 2,702 19
2009 16 96,000 15.03 1,441 10
2010 --- --- --- --- ---
2011 2 31,000 12.69 394 3
2012 2 20,000 6.00 117 1
2013 3 35,000 19.02 673 5
2014 and thereafter 2 9,000 15.35 146 1
- ---------------------------- --------- --------------------- ------------------ --------------- --------------------
Total 152 699,000 $ 20.29 $ 14,181 100
============================ ========= ===================== ================== =============== ====================
(1) Excludes leases that have been entered into but which tenant has not taken
possession, vacant suites, temporary leases and month-to-month leases
totaling in the aggregate approximately 30,000 square feet.
(2) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases and rents calculated based on a percentage of
tenants' sales.
Item 3. Legal Proceedings
We are subject to legal proceedings and claims that have arisen in the ordinary
course of our business and have not been finally adjudicated. In our opinion,
the ultimate resolution of these matters will have no material effect on our
results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders, through
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2003.
13
EXECUTIVE OFFICERS OF THE COMPANY
The Operating Partnership does not have any officers. The following table
sets forth certain information concerning the executive officers of the Company
which controls the Operating Partnership through its ownership of the general
partner, Tanger GP Trust:
NAME AGE POSITION
- -------------------------- --- -----------------------------------------------
Stanley K. Tanger......... 80 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger.......... 55 Director, President and Chief Operating Officer
Rochelle G. Simpson ...... 64 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr..... 66 Executive Vice President - Leasing,
Site Selection, Operations and Marketing
Frank C. Marchisello, Jr.. 45 Executive Vice President -
Chief Financial Officer
Joseph H. Nehmen.......... 55 Senior Vice President - Operations
Carrie A. Warren.......... 41 Senior Vice President - Marketing
Virginia R. Summerell..... 45 Treasurer and Assistant Secretary
Kevin M. Dillon........... 45 Vice President - Construction and Development
Lisa J. Morrison.......... 44 Vice President - Leasing
The following is a biographical summary of the experience of the executive
officers of the Company:
Stanley K. Tanger. Mr. Tanger is the founder, Chief Executive Officer and
Chairman of the Board of Directors of the Company. He also served as President
from inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
Steven B. Tanger. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
Rochelle G. Simpson. Ms. Simpson was named Executive Vice President -
Administration and Finance in January 1999. She previously held the position of
Senior Vice President - Administration and Finance since October 1995. She is
also the Secretary of the Company and previously served as Treasurer from May
1993 through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President - Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.
Willard A. Chafin, Jr. Mr. Chafin was named Executive Vice President -
Leasing, Site Selection, Operations and Marketing of the Company in January
1999. Mr. Chafin previously held the position of Senior Vice President -
Leasing, Site Selection, Operations and Marketing since October 1995. He joined
the Company in April 1990, and since has held various executive positions where
his major responsibilities included supervising the Marketing, Leasing and
Property Management Departments, and leading the Asset Management Team. Prior to
joining the Company, Mr. Chafin was the Director of Store Development for the
Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr.
Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales
promotion, inventory control and merchandising.
14
Frank C. Marchisello, Jr. Mr. Marchisello was named Executive Vice
President and Chief Financial Officer in April 2003. Previously he held the
position of Senior Vice President and Chief Financial Officer since January
1999. He was named Vice President and Chief Financial Officer in November 1994.
Previously, he served as Chief Accounting Officer since joining the Company in
January 1993 and Assistant Treasurer since February 1994. He was employed by
Gilliam, Coble & Moser, certified public accountants, from 1981 to 1992, the
last six years of which he was a partner of the firm in charge of various real
estate clients. Mr. Marchisello is a graduate of the University of North
Carolina at Chapel Hill and is a certified public accountant.
Joseph H. Nehmen. Mr. Nehmen was named Senior Vice President of Operations
in January 1999. He joined the Company in September 1995 and was named Vice
President of Operations in October 1995. Mr. Nehmen has over 20 years experience
in private business. Prior to joining Tanger, Mr. Nehmen was owner of Merchants
Wholesaler, a privately held distribution company in St. Louis, Missouri. He is
a graduate of Washington University. Mr. Nehmen is the son-in-law of Stanley K.
Tanger and brother-in-law of Steven B. Tanger.
Carrie A. Warren. Ms. Warren was named Senior Vice President - Marketing in
May 2000. Previously, she held the position of Vice President - Marketing since
September 1996 and Assistant Vice President - Marketing since joining the
Company in December 1995. Prior to joining Tanger, Ms. Warren was with Prime
Retail, L.P. for 4 years where she served as Regional Marketing Director
responsible for coordinating and directing marketing for five outlet centers in
the southeast region. Prior to joining Prime Retail, L.P., Ms. Warren was
Marketing Manager for North Hills, Inc. for five years and also served in the
same role for the Edward J. DeBartolo Corp. for two years. Ms. Warren is a
graduate of East Carolina University.
Virginia R. Summerell. Ms. Summerell was named Treasurer of the Company in
May 1995 and Assistant Secretary in November 1994. Previously, she held the
position of Director of Finance since joining the Company in August 1992, after
nine years with NationsBank. Her major responsibilities include maintaining
banking relationships, oversight of all project and corporate finance
transactions and development of treasury management systems. Ms. Summerell is a
graduate of Davidson College and holds an MBA from the Babcock School at Wake
Forest University.
Kevin M. Dillon. Mr. Dillon was named Vice President - Construction and
Development in May 2002. Previously, he held the positions of Vice President -
Construction from October 1997 to May 2002, Director of Construction from
September 1996 to October 1997 and Construction Manager from November 1993, the
month he joined the Company, to September 1996. Prior to joining the Company,
Mr. Dillon was employed by New Market Development Company for six years where he
served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was
the Development Director of Western Development Company where he spent 6 years.
Lisa J. Morrison. Ms. Morrison was named Vice President - Leasing in May
2001. Previously, she held the position of Assistant Vice President of Leasing
from August 2000 to May 2001 and Director of Leasing from April 1999 until
August 2000. Prior to joining the Company, Ms. Morrison was employed by the
Taubman Company and Trizec Properties, Inc. where she served as a leasing agent.
Her major responsibilities include managing the leasing strategies for our
operating properties, as well as expansions and new development. She also
oversees the leasing personnel and the merchandising and occupancy for Tanger
properties.
15
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters
There is no established public trading market for our Units. As of December 31,
2003, the Company's wholly-owned subsidiaries owned 12,960,643 Units and TFLP
owned 3,033,305 Units as a limited partner.
We made distributions per partnership unit during 2003 and 2002 as follows:
2003 2002
----------------------------------- -------------- --------------------
First Quarter $ .6125 $ .6100
Second Quarter .6150 .6125
Third Quarter .6150 .6125
Fourth Quarter .6150 .6125
----------------------------------- ---------------- ------------------
$ 2.4575 $ 2.4475
----------------------------------- ---------------- ------------------
Certain of our debt agreements limit the payment of distributions such that
distributions shall not exceed FFO, as defined in the agreements, for the prior
fiscal year on an annual basis or 95% of FFO on a cumulative basis. Based on
continuing favorable operations and available funds from operations, we intend
to continue to pay regular quarterly distributions.
16
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
- ------------------------------------------ ------------- ------------- -------------- ------------- ----------------
(In thousands, except per unit and center data)
OPERATING DATA
Total revenues $ 121,972 $ 110,809 $ 105,497 $ 102,999 $ 99,954
Operating income 43,052 38,762 37,090 37,001 39,492
Income from continuing operations 16,444 10,694 6,618 9,436 14,908
Net income 16,399 14,280 9,154 5,268 20,866
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
UNIT DATA
Basic:
Income from continuing operations $ 1.20 $ .79 $ .44 $ .70 $ 1.19
Net income $ 1.19 $ 1.11 $ .67 $ .32 $ 1.74
Weighted average units 13,085 11,356 10,959 10,928 10,894
Diluted:
Income from continuing operations $ 1.18 $ .77 $ .44 $ .69 $ 1.19
Net income $ 1.17 $ 1.08 $ .67 $ .31 $ 1.74
Weighted average units 13,300 11,539 10,979 10,953 10,904
Distributions paid $ 2.46 $ 2.45 $ 2.44 $ 2.43 $ 2.42
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 1,078,533 $ 622,399 $ 599,266 $ 584,928 $ 566,216
Total assets 986,815 477,380 476,079 487,273 489,851
Debt 540,319 345,005 358,195 346,843 329,647
Total partners' equity 206,600 114,265 97,877 117,974 141,054
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 44,818 $ 39,175 $ 44,616 $ 38,420 $ 43,169
Investing activities $ (325,293) $ (26,363) $ (23,269) $ (25,815) $ (45,959)
Financing activities $ 289,271 $ (12,247) $ (21,476) $ (12,474) $ (3,043)
Funds from operations (1) $ 47,039 $ 41,695 $ 37,430 $ 38,203 $ 41,328
Gross Leasable Area Open:
Wholly-owned 5,299 5,469 5,332 5,179 5,149
Partially-owned (consolidated) 3,273 --- --- --- ---
Partially-owned (unconsolidated) 324 260 --- --- ---
Managed 434 457 105 105 105
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total GLA open at end of period 9,330 6,186 5,437 5,284 5,254
Number of centers:
Wholly-owned 26 28 29 29 31
Partially-owned (consolidated) 9 --- --- --- ---
Partially-owned (unconsolidated) 1 1 --- --- ---
Managed 4 5 3 3 3
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total outlet centers in operation 40 34 32 32 34
- -----------------------
(1) Funds from Operations ("FFO") is defined as net income (loss), computed in
accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale or disposal of depreciable
operating properties, plus depreciation and amortization uniquely
significant to real estate and after adjustments for unconsolidated
partnerships and joint ventures. For a complete discussion of FFO, see Item
7 "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Funds from Operations".
17
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements appearing elsewhere in this report. Historical results and
percentage relationships set forth in the consolidated statements of operations,
including trends which might appear, are not necessarily indicative of future
operations. Unless the context indicates otherwise, the term "Operating
Partnership" refers to Tanger Properties Limited Partnership and subsidiaries
and the term "Company" refers to Tanger Factory Outlet Centers, Inc. and
subsidiaries. The terms "we", "our" and "us" refer to the Operating Partnership
or the Operating Partnership and the Company together, as the text requires.
The discussion of our results of operations reported in the consolidated
statements of operations compares the years ended December 31, 2003 and 2002, as
well as December 31, 2002 and 2001. Certain comparisons between the periods are
made on a percentage basis as well as on a weighted average gross leasable area
("GLA") basis, a technique which adjusts for certain increases or decreases in
the number of centers and corresponding square feet related to the development,
acquisition, expansion or disposition of rental properties. The computation of
weighted average GLA, however, does not adjust for fluctuations in occupancy
that may occur subsequent to the original opening date.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Reform Act of 1995 and included
this statement for purposes of complying with these safe harbor provisions.
Forward-looking statements, which are based on certain assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words `believe', `expect', `intend', `anticipate', `estimate', `project',
or similar expressions. You should not rely on forward-looking statements since
they involve known and unknown risks, uncertainties and other factors which are,
in some cases, beyond our control and which could materially affect our actual
results, performance or achievements. Factors which may cause actual results to
differ materially from current expectations include, but are not limited to, the
following:
o national and local general economic and market conditions;
o demographic changes;
o our ability to sustain, manage or forecast our growth and operating
results;
o existing government regulations and changes in, or the failure to comply
with, government regulations;
o adverse publicity;
o liability and other claims asserted against us;
o competition;
o the risk that we may not be able to finance our planned development
activities;
o risks related to the retail real estate industry in which we compete,
including the potential adverse impact of external factors such as
inflation, tenant demand for space, consumer confidence, unemployment rates
and consumer tastes and preferences;
o risks associated with our development activities, such as the potential for
cost overruns, delays and lack of predictability with respect to the
financial returns associated with these development activities;
o risks associated with real estate ownership, such as the potential adverse
impact of changes in the local economic climate on the revenues and the
value of our properties;
18
o risks that a significant number of tenants may become unable to meet their
lease obligations or that we may be unable to renew or re-lease a
significant amount of available space on economically favorable terms;
o changes in business strategy or development plans;
o business disruptions;
o the ability to attract and retain qualified personnel;
o the ability to realize planned costs savings in acquisitions; and
o retention of earnings.
General Overview
In December 2003 we completed the acquisition of the Charter Oak Partners'
portfolio of nine factory outlet centers totaling approximately 3.3 million
square feet. We and an affiliate of Blackstone Real Estate Advisors
("Blackstone") acquired the portfolio through a joint venture in the form of a
limited liability company, COROC Holdings, LLC ("COROC"). We own one-third and
Blackstone owns two-thirds of the joint venture. We provide operating,
management, leasing and marketing services to the properties for a fee.
The purchase price for this transaction was $491.0 million, including the
assumption of approximately $186.4 million of cross-collateralized debt which
has a stated, fixed interest rate of 6.59% and matures in July 2008. We recorded
the debt at its fair value of $198.3 million, with an effective interest rate of
4.97%. Accordingly, a debt premium of $11.9 million was recorded and is being
amortized over the life of the debt. We financed the majority of our equity in
the joint venture with proceeds from the Company's issuance of 2.3 million
common shares at $40.50 per share which were contributed to the Operating
Partnership in exchange for 2.3 million limited partnership units and we expect
that the transaction will be accretive to our operating results in 2004. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2003, we had ownership interests in or management
responsibilities for 40 centers in 23 states totaling 9.3 million square feet of
operating GLA compared to 34 centers in 21 states totaling 6.2 million square
feet of operating GLA as of December 31, 2002. The increase is due to the
following events:
No.
of GLA
Centers (000's) States
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
As of December 31, 2002 34 6,186 21
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 64 ---
Acquisitions/Expansions:
Sevierville, Tennessee (wholly-owned) --- 64 ---
Charter Oak portfolio (consolidated joint venture):
Rehoboth, Delaware 1 569 1
Foley, Alabama 1 536 ---
Myrtle Beach Hwy 501, South Carolina 1 427 ---
Hilton Head, South Carolina 1 393 ---
Park City, Utah 1 301 1
Westbrook, Connecticut 1 291 1
Lincoln City, Oregon 1 270 1
Tuscola, Illinois 1 258 1
Tilton, New Hampshire 1 228 ---
Dispositions:
Martinsburg, West Virginia (wholly-owned) (1) (49) (1)
Casa Grande, Arizona (wholly-owned) (1) (185) (1)
Bourne, Massachusetts (managed) (1) (23) (1)
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
As of December 31, 2003 40 9,330 23
- --------------------------------------------------------------------- ------ ------------ ------------ -----------
19
Results of Operations
A summary of the operating results for the years ended December 31, 2003, 2002
and 2001 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
The results of operations for 2003, 2002 and 2001 related to properties sold
since December 31, 2001 are excluded from the table below in accordance with
SFAS 144 "Accounting for the Impairment or Disposal of Long Lived Assets," ("FAS
144"). FAS 144 requires that results of operations and gain/(loss) on sales of
real estate that have separable, identifiable cash flows for properties sold
subsequent to December 31, 2001 be reflected in the Consolidated Statements of
Operations as discontinued operations for all periods presented.
2003 2002 2001
- --------------------------------------------------------- -------------- -------------- ---------------
GLA open at end of period (000's)
Wholly owned 5,299 5,469 5,332
Partially owned consolidated (1) 3,273 --- ---
Partially owned unconsolidated (2) 324 260 ---
Managed 434 457 105
- --------------------------------------------------------- -------------- -------------- ---------------
Total GLA at end of period (000's) 9,330 6,186 5,437
Weighted average GLA (000's) (1) (3) 5,393 5,011 4,877
Occupancy percentage at end of period (4) 96% 98% 96%
Per square foot data
Revenues
Base rentals $ 15.02 $ 14.79 $ 14.62
Percentage rentals .59 .71 .56
Expense reimbursements 6.34 5.96 5.89
Other income .66 .65 .56
- --------------------------------------------------------- -------------- -------------- ---------------
Total revenues 22.61 22.11 21.63
- --------------------------------------------------------- -------------- -------------- ---------------
Expenses
Property operating 7.46 6.96 6.73
General and administrative 1.78 1.84 1.68
Depreciation and amortization 5.40 5.58 5.61
- --------------------------------------------------------- -------------- -------------- ---------------
Total expenses 14.64 14.38 14.02
- --------------------------------------------------------- -------------- -------------- ---------------
Operating income 7.97 7.73 7.61
Interest expense 4.91 5.68 6.25
- --------------------------------------------------------- -------------- -------------- ---------------
Income before equity in earnings of unconsolidated
joint ventures and discontinued operations $ 3.06 $ 2.05 $ 1.36
- --------------------------------------------------------- -------------- -------------- ---------------
(1) Includes nine centers totaling 3,273,041 square feet of which we own a
one-third interest through a joint venture arrangement but consolidate for
financial reporting purposes under FIN 46.
(2) Includes one center totaling 324,333 square feet of which we own a 50%
interest through a joint venture arrangement.
(3) Represents GLA of wholly-owned and partially owned consolidated operating
properties weighted by months of operation. GLA is not adjusted for
fluctuations in occupancy that may occur subsequent to the original opening
date. Excludes GLA of properties for which their results are included in
discontinued operations.
(4) Represents occupancy only at centers in which we have an ownership
interest.
20
2003 Compared to 2002
Base rentals increased $6.9 million, or 9%, in the 2003 period when compared to
the same period in 2002. The increase is primarily due to the full year effect
of the acquisition of our Howell, Michigan center in September 2002 along with
our acquisition of additional GLA in January 2003 at our Sevierville, Tennessee
center and subsequent expansion at that center in the summer of 2003. Also, in
December 2003, through a joint venture of which we own a one-third interest, we
completed the acquisition of nine properties in the Charter Oak portfolio which
are consolidated for financial reporting purposes. Base rent per weighted
average GLA increased by $.23 per square foot from $14.79 per square foot in the
2002 period to $15.02 per square foot in the 2003 period. The increase was
attributable to the average initial base rent for new stores opened during 2003,
$18.83, being 11.7% higher than the average base rent of $16.86 for stores
closed during 2003. The overall portfolio occupancy at December 31, 2003
decreased 2% from 98% to 96% due to the acquired properties having a lower
occupancy rate, 94%, than our portfolio, 97%, just prior to the acquisition. One
center experienced a negative occupancy trend of at least 10% from December 31,
2002 to December 31, 2003.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), decreased $362,000
or 10%, and on a weighted average GLA basis, decreased $.12 per square foot in
2003 compared to 2002 from $.71 per square foot to $.59 per square foot.
Reported same-space sales per square foot for the twelve months ended December
31, 2003 were $301 per square foot, a 2.3% increase over the prior year ended
December 31, 2002. Same-space sales is defined as the weighted average sales per
square foot reported in space open for the full duration of each comparison
period. Our ability to attract high volume tenants to many of our outlet centers
continues to improve the average sales per square foot throughout our portfolio.
However, many tenants' breakpoints are adjusted along with their base rent upon
renewal, resulting in a reduction in percentage rentals, but an increase in base
rentals.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
decreased to 85% in 2003 from 86% in 2002 primarily as a result of higher real
estate taxes due to revaluations, increases in property insurance premiums and
increases in other non-reimbursable expenses.
Other income increased $300,000, or 9%, in 2003 compared to 2002 primarily due
to increases in vending and other miscellaneous income and an increase in fees
from managed properties.
Property operating expenses increased by $5.4 million, or 15%, in the 2003
period as compared to the 2002 period and, on a weighted average GLA basis,
increased $.50 per square foot from $6.96 to $7.46. The increase is the result
of the additional operating costs of the Howell, Michigan center that we
acquired in late September 2002 and the acquisition and expansion in our
Sevierville, Tennessee center during 2003 as well as portfolio wide increases in
advertising, common area maintenance and property taxes.
General and administrative expenses increased $337,000, or 4%, in the 2003
period as compared to the 2002 period. The increase is primarily due to normal
increases in salaries and payroll taxes offset by a decrease in bad debt expense
as compared to the prior year. Also, as a percentage of total revenues, general
and administrative expenses were 8% in both the 2003 and 2002 periods and, on a
weighted average GLA basis, decreased $.06 per square foot from $1.84 per square
foot in the 2002 period to $1.78 per square foot in the 2003 period.
Interest expense decreased $2.0 million during 2003 as compared to 2002 due
primarily to lower average interest rates during 2003 and a decrease in the
overall debt level due to the use of the proceeds from the exercise of 890,540
share and unit options during the year to reduce outstanding debt. Also, during
2003, we purchased, at a 2% premium, $2.6 million of our outstanding 7.875%
senior, unsecured public notes that mature in October 2004. The purchases were
funded by amounts available under our unsecured lines of credit. These purchases
bring the total amount of these notes purchased in the last three years to $27.5
million. The replacement of the 2004 bonds with funding through lines of credit
provided us with a significant interest expense reduction as the lines of credit
had a lower interest rate.
21
Depreciation and amortization per weighted average GLA decreased from $5.58 per
square foot in the 2002 period to $5.40 per square foot in the 2003 period due
to a lower mix of tenant finishing allowances included in buildings and
improvements which are depreciated over shorter lives (i.e. over lives generally
ranging from 3 to 10 years as opposed to other construction costs which are
depreciated over lives ranging from 15 to 33 years).
Equity in earnings from unconsolidated joint ventures increased $427,000 in the
2003 period compared to the 2002 period due to the TWMB Associates, LLC ("TWMB")
outlet center in Myrtle Beach, South Carolina being open for a full year in 2003
compared to six months in 2002, as the center opened in June 2002 and an
expansion of 64,000 square feet that occurred in 2003.
The decrease in discontinued operations is due to the gains on sales of our Ft.
Lauderdale, Florida and Bourne, Massachusetts centers and the leased outparcels
of land in Seymour, Indiana and Casa Grande, Arizona, all of which were sold in
the 2002 period. In 2003, only the Martinsburg, West Virginia and Casa Grande,
Arizona centers were sold and included in discontinued operations.
2002 Compared to 2001
Base rentals increased $2.8 million, or 4%, in the 2002 period when compared to
the same period in 2001. The increase is primarily due to the full nine months
effect of an expansion at our San Marcos, TX center which we completed during
the fourth quarter of 2001 and the acquisition of our Howell, Michigan center in
September 2002. Base rent per weighted average GLA increased by $.17 per square
foot from $14.62 per square foot in the 2001 period compared to $14.79 per
square foot in the 2002 period. The increase is the result of the addition of
the San Marcos expansion to the portfolio which had a higher average base rent
per square foot compared to the portfolio average and an increase of 2% in
average base rent per square foot on approximately 1.0 million square feet
renewed or re-tenanted during 2002. While the overall portfolio occupancy at
December 31, 2002 increased 2% from 96% to 98% compared with the prior year end,
two centers experienced negative occupancy trends which were offset by positive
occupancy gains in other centers.
Percentage rentals increased $834,000 or 31%, and on a weighted average GLA
basis, increased $.15 per square foot in 2002 compared to 2001. Reported
same-space sales per square foot for the twelve months ended December 31, 2002
were $294 per square foot, a 1.4% increase over the prior year ended December
31, 2001. Same-space sales is defined as the weighted average sales per square
foot reported in space open for the full duration of each comparison period. Our
ability to attract high volume tenants to many of our outlet centers continues
to improve the average sales per square foot throughout our portfolio. Reported
tenant sales for 2002 for all Tanger Outlet Centers reached a record level of
$1.5 billion.
Expense reimbursements, which represent the contractual recovery from tenants of
certain common area maintenance, insurance, property tax, promotional,
advertising and management expenses generally fluctuates consistently with the
reimbursable property operating expenses to which it relates. Expense
reimbursements, expressed as a percentage of property operating expenses,
decreased to 86% in 2002 from 88% in 2001 primarily as a result of higher real
estate taxes due to revaluations, increases in property insurance premiums and
increases in other non-reimbursable expenses.
Other income increased $526,000, or 19%, in 2002 compared to 2001 primarily due
to gains on sales of outparcels of land in 2002 included in other income,
increases in vending and other miscellaneous income and the recognition of
management, leasing and development fee revenue from our TWMB Associates, LLC
("TWMB") joint venture.
Property operating expenses increased by $2.0 million, or 6%, in the 2002 period
as compared to the 2001 period and, on a weighted average GLA basis, increased
$.23 per square foot from $6.73 to $6.96. The increase is the result of
increased costs in marketing, common area maintenance, real estate taxes,
property insurance, and other non-reimbursable expenses.
General and administrative expenses increased $1.0 million, or 12%, in the 2002
period as compared to the 2001 period. The increase is primarily due to
increases in performance based bonus accruals, travel, legal and other
professional fees. Also, as a percentage of total revenues, general and
administrative expenses were 8% in both the 2002 and 2001 periods and, on a
weighted average GLA basis increased $.16 per square foot from $1.68 per square
foot in the 2001 period to $1.84 per square foot in the 2002 period.
22
Interest expense decreased $2.0 million during 2002 as compared to 2001 due
primarily to lower average interest rates during 2002 and a decrease in the
overall debt level due to the use of a portion of the proceeds received from the
Company's equity offering during the year to reduce outstanding debt. Also,
beginning in the fourth quarter of 2001 and continuing through 2002, we
purchased, primarily at par, approximately $24.9 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. The
replacement of the 2004 bonds with funding through lines of credit provided us
with a significant interest expense reduction as the lines of credit had a lower
interest rate.
Depreciation and amortization per weighted average GLA decreased slightly from
$5.61 per square foot in the 2001 period to $5.58 per square foot in the 2002
period due to a lower mix of tenant finishing allowances included in buildings
and improvements which are depreciated over shorter lives (i.e. over lives
generally ranging from 3 to 10 years as opposed to other construction costs
which are depreciated over lives ranging from 15 to 33 years).
Equity in earnings from unconsolidated joint ventures increased $392,000 in the
2002 period compared to the 2001 period due to the opening of the Myrtle Beach,
South Carolina outlet center by TWMB in June of 2002.
The increase in discontinued operations is due to the gains on sales of our Ft.
Lauderdale, Florida and Bourne, Massachusetts centers and the leased outparcels
of land in Seymour, Indiana and Casa Grande, Arizona, all of which were sold in
the 2002 period.
Liquidity and Capital Resources
Net cash provided by operating activities was $44.8, $39.2 and $44.6 million for
the years ended December 31, 2003, 2002 and 2001, respectively. The increase in
cash provided from operating activities from 2002 to 2003 is primarily due to
the increase in income after adjustments for non-cash items and changes in
accounts payable and accrued expenses and other assets as well as a decrease of
$2.0 million in interest expense. The increase in other assets is due primarily
to the cash paid for the ground lease at the Rehoboth Beach, Delaware center
acquired in December 2003. The decrease from 2001 to 2002 is due to changes in
accounts payable and accrued expenses and other assets. Net cash used in
investing activities amounted to $325.3, $26.4 and $23.3 million during 2003,
2002 and 2001, respectively, and reflects the acquisitions, expansions and
dispositions of real estate during each year. Cash provided by (used in)
financing activities of $289.3, ($12.2) and ($21.5) million in 2003, 2002 and
2001, respectively, has fluctuated consistently with the capital needed to fund
the current development and acquisition activity and reflects increases in
distributions paid during 2003, 2002 and 2001. Also, the increase in cash
provided by financing activities in 2003 compared to 2002 is due primarily to
the contribution by Blackstone related to COROC and the increase in net proceeds
from the issuance by the Company of common shares in 2003 compared to 2002,
which were contributed to the Operating Partnership in exchange for limited
partnership units. In 2003, 2,300,000 common shares were issue by the Company
versus 1,000,000 common shares in 2002. Also, approximately 763,000 more share
and unit options were exercised in 2003 versus 2002.
Acquisitions and Dispositions
In January 2003, we acquired a 29,000 square foot, 100% leased expansion located
contiguous to our existing factory outlet center in Sevierville, Tennessee at a
purchase price of $4.7 million. Construction of an additional 35,000 square foot
expansion of the center was completed during the third quarter and opened 100%
occupied. The cost of the expansion was approximately $4 million. The
Sevierville center now totals approximately 419,000 square feet.
In May 2003, we completed the sale of our 49,000 square foot property located in
Martinsburg, West Virginia. Net proceeds received from the sale of this property
were approximately $2.1 million. As a result of the sale, we recognized a loss
on sale of real estate of approximately $735,000, which is included in
discontinued operations.
In October 2003, we completed the sale of our 185,000 square foot property
located in Casa Grande, Arizona. Net proceeds received from the sale of this
property were approximately $6.6 million. As a result of the sale, we recognized
a gain on sale of real estate of approximately $588,000.
We have an option to purchase land and have begun the early development and
leasing of a site located near Pittsburgh, Pennsylvania. We currently expect the
center to be approximately 420,000 square feet upon total build out with the
initial phase scheduled to open in the fourth quarter of 2005.
23
Joint Ventures
COROC HOLDINGS, LLC
On December 19, 2003, COROC, a joint venture in which we have a one-third
ownership interest and consolidate for financial reporting purposes under the
provisions of Financial Accountings Standards Board Interpretation No. 46 ("FIN
46"), purchased the 3.3 million square foot Charter Oak portfolio of outlet
center properties for $491.0 million, including the assumption of $186.4 million
of cross-collateralized debt which has a stated, fixed interest rate of 6.59%
and matures in July 2008. We recorded the debt at its fair value of $198.3
million, with an effective interest rate of 4.97%. Accordingly, a debt premium
of $11.9 million was recorded and is being amortized over the life of the debt.
We financed the majority of our share of the equity required for the transaction
through proceeds from the Company's issuance of 2.3 million common shares on
December 10, 2003, generating approximately $88.0 million in net proceeds. These
proceeds were contributed to us by the Company in exchange for 2.3 million
limited partnership units. The results of the Charter Oak portfolio have been
included in the consolidated financial statements since December 19, 2003. The
acquisition of the Charter Oak portfolio solidifies our position in the outlet
industry. In addition, the centers acquired provide an excellent geographic fit,
a diversified tenant portfolio and are in line with our strategy of creating an
increased presence in high-end resort locations.
We will have joint control with Blackstone over major decisions. If Blackstone
does not receive an annual minimum cash return of 6% on their invested capital
during any of the first three years and 7% in any year thereafter, Blackstone
shall gain the right to become the sole managing member of the joint venture
with complete authority to act for the joint venture, including the ability to
dispose of one or more of the joint venture properties to a third party. Based
on current available cash flows from the properties, we do not believe there is
a significant risk of default under this provision.
We will provide operating, management, leasing and marketing services to the
properties and will earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We may also earn an additional annual
incentive fee of up to approximately $800,000 if certain annual increases in the
net operating income are met on an annual basis. These fees are payable prior
to, and are not subordinate to, any member distributions that may be required.
Blackstone shall have the right to terminate the management agreement for the
joint venture if it does not receive its minimum cash return as described above.
After an initial 42-month lock-up period, either party can enter into an
agreement for the sale of the Charter Oak portfolio, subject to a right of first
offer of the other party to acquire the entire portfolio.
During the operation of the joint venture, Blackstone will receive a preferred
cash distribution of 10% on their invested capital. We will then receive a
preferred cash distribution of 10% on our invested capital. Any remaining cash
flows from ongoing operations will be distributed one-third to Blackstone and
two-thirds to us.
Upon exit or the sale of the properties, to the extent that cash is available,
Blackstone will first receive a distribution equal to their invested capital and
any unpaid preferred cash distribution, if any. We will then receive an unpaid
preferred cash distribution, if any. Blackstone will then receive an additional
2% annual preferred cash distribution. We will then receive a distribution equal
to our invested capital and an additional 2% annual preferred cash distribution.
Finally, any remaining proceeds will be distributed one-third to Blackstone and
two-thirds to us.
TWMB ASSOCIATES, LLC
In September 2001, we established the TWMB Associates, LLC ("TWMB"), a joint
venture in which we have a 50% ownership interest with Rosen-Warren Myrtle Beach
LLC ("Rosen-Warren") as our venture partner, to construct and operate a Tanger
Outlet center in Myrtle Beach, South Carolina. The Company and Rosen-Warren each
contributed $4.3 million in cash for a total initial equity in TWMB of $8.6
million. In June 2002 the first phase opened 100% leased at a cost of
approximately $35.4 million with approximately 260,000 square feet and 60 brand
name outlet tenants.
During 2003, we completed our 64,000 square foot second phase. The second phase
cost approximately $6.0 million. The Company and Rosen-Warren each contributed
approximately $1.1 million each toward the second phase which contains 22
additional brand name outlet tenants.
24
In addition, TWMB is currently underway with a 79,000 square foot third phase
expansion of the Myrtle Beach center with an estimated cost of $9.7 million.
TWMB expects to complete the expansion with stores commencing operations during
the summer of 2004. The Company and Rosen-Warren each made capital contributions
during the fourth quarter of 2003 of $1.7 million for the third phase. Upon
completion of this third phase in 2004, TWMB's Myrtle Beach center will total
403,000 square feet. At December 31, 2003, commitments for construction of the
third phase expansion amounted to $9.6 million. Commitments for construction
represent only those costs contractually required to be paid by TWMB.
In conjunction with the construction of the center, TWMB closed on a
construction loan in the amount of $36.2 million with Bank of America, NA
(Agent) and SouthTrust Bank due in September 2005. As of December 31, 2003 the
construction loan had a balance of $29.5 million. In August of 2002, TWMB
entered into an interest rate swap agreement with Bank of America, NA effective
through August 2004 with a notional amount of $19 million. Under this agreement,
TWMB receives a floating interest rate based on the 30 day LIBOR index and pays
a fixed interest rate of 2.49%. This swap effectively changes the payment of
interest on $19 million of variable rate debt to fixed rate debt for the
contract period at a rate of 4.49%. All debt incurred by this unconsolidated
joint venture is collateralized by its property as well as joint and several
guarantees by Rosen-Warren and the Company.
Either partner in TWMB has the right to initiate the sale or purchase of the
other party's interest at certain times. If such action is initiated, one member
would determine the fair market value purchase price of the venture and the
other would determine whether they would take the role of seller or purchaser.
The members' roles in this transaction would be determined by the tossing of a
coin, commonly known as a Russian roulette provision. If either Rosen-Warren or
we enact this provision and depending on our role in the transaction as either
seller or purchaser, we could potentially incur a cash outflow for the purchase
of Rosen-Warren's interest. However, we do not expect this event to occur in the
near future based on the positive results and expectations of developing and
operating an outlet center in the Myrtle Beach area.
DEER PARK ENTERPRISE, LLC
During the third quarter of 2003, we established a wholly owned subsidiary,
Tanger Deer Park, LLC ("Tanger Deer Park"). In September 2003, Tanger Deer Park
entered into a joint venture agreement with two other members to create Deer
Park Enterprise, LLC ("Deer Park"). All members in the joint venture have an
equal ownership interest of 33.33%. Deer Park was formed for the purpose of, but
not limited to, developing a site located in Deer Park, New York with
approximately 790,000 square feet planned at total buildout. We expect the site
will contain both outlet and big box retail tenants.
Each of the three members made an equity contribution of $1.6 million. In
conjunction with the real estate purchase, Deer Park closed on a loan in the
amount of $19 million with Fleet Bank due in October 2005 and a purchase money
mortgage note with the seller in the amount of $7 million. Deer Park's Fleet
loan incurs interest at a floating interest rate equal to LIBOR plus 2.00% and
is collateralized by the property as well as joint and several guarantees by all
three parties. The purchase money mortgage note bears no interest. However,
interest has been imputed for financial statement purposes at a rate which
approximates fair value.
In October 2003, Deer Park entered into a sale-leaseback transaction for the
above mentioned real estate located in Deer Park, New York. The agreement
consists of the sale of the property to Deer Park for $29 million which is being
leased back to the seller under a 24 month operating lease agreement. Under the
provisions of FASB Statement No. 67 "Accounting for Costs and Initial Rental
Operations of Real Estate Projects", current rents received from this project,
net of applicable expenses, are treated as incidental revenues and will be
recognized as a reduction in the basis of the assets, as opposed to rental
revenues over the life of the lease, until such time that the current project is
demolished and the intended assets are constructed.
25
Any developments or expansions that we, or a joint venture that we are involved
in, have planned or anticipated may not be started or completed as scheduled, or
may not result in accretive net income or funds from operations. In addition, we
regularly evaluate acquisition or disposition proposals and engage from time to
time in negotiations for acquisitions or dispositions of properties. We may also
enter into letters of intent for the purchase or sale of properties. Any
prospective acquisition or disposition that is being evaluated or which is
subject to a letter of intent may not be consummated, or if consummated, may not
result in an increase in net income or funds from operations.
Preferred Share Redemption
On June 20, 2003, the Company redeemed all of its outstanding Series A
Cumulative Convertible Redeemable Preferred Shares (the "Preferred Shares") held
by the Preferred Stock Depositary in the form of Depositary Shares, each
representing 1/10th of a Preferred Share. Since preferred units held by the
Company's majority owned subsidiary, Tanger LP Trust, are to be redeemed by the
Operating Partnership to the extent any Preferred Shares of the Company are
redeemed, proceeds required to redeem the Company's preferred shares were funded
by the Operating Partnership in exchange for the preferred units held by the
Company. Likewise, preferred units are automatically converted into limited
partnership units to the extent of any conversion of the Company's preferred
shares into common shares. The redemption price was $250 per Preferred Share
($25 per Depositary Share), plus accrued and unpaid dividends, if any, to, but
not including, the redemption date. In total, 787,008 of the Depositary Shares
were converted into 709,078 common shares and the Company redeemed the remaining
14,889 Depositary Shares for $25 per share, plus accrued and unpaid dividends.
Likewise, 787,008 preferred units were converted into 709,078 limited
partnership units and the Operating Partnership redeemed the remaining 14,889
preferred units. The Operating Partnership funded the redemption, totaling
approximately $372,000, from cash flows from operations.
Financing Arrangements
During 2003, we purchased, at a 2% premium, $2.6 million of our outstanding
7.875% senior, unsecured public notes that mature in October 2004. The purchases
were funded by amounts available under our unsecured lines of credit. These
purchases bring the total amount of these notes purchased in the last three
years to $27.5 million. We currently have authority from our Board of Trustees
to purchase an additional $22.4 million of our outstanding 7.875% senior,
unsecured public notes and may, from time to time, do so at management's
discretion.
At December 31, 2003, approximately 31% of our outstanding long-term debt
represented unsecured borrowings and approximately 33% of the gross book value
of our real estate portfolio was unencumbered. The average interest rate,
including loan cost amortization, on average debt outstanding for the years
ended December 31, 2003 and 2002 was 7.6% and 8.1%, respectively.
Together with the Company, we intend to retain the ability to raise additional
capital, including public debt or equity, to pursue attractive investment
opportunities that may arise and to otherwise act in a manner that we believe to
be in our unitholders' best interests. Prior to the 2002 and 2003 common share
offerings of the Company, we had established a shelf registration to allow us to
issue up to $400 million in either all debt or all equity of the Company or any
combination thereof. In September 2002, the Company completed a public offering
of 1,000,000 common shares at a price of $29.25 per share, receiving net
proceeds of approximately $28.0 million, which were contributed to the Operating
Partnership in exchange for 1,000,000 limited partnership units. We used the net
proceeds, together with other available funds, to acquire one outlet center in
Howell, Michigan, to reduce the outstanding balance on our lines of credit and
for general corporate purposes. In December 2003, the Company completed a public
offering of 2,300,000 common shares at a price of $40.50 per share, receiving
net proceeds of approximately $88.0 million, which were contributed to the
Operating Partnership in exchange for 2,300,000 limited partnership units.. The
net proceeds were used together with other available funds to finance our
portion of the equity required to acquire the Charter Oak portfolio of outlet
shopping centers and for general corporate purposes. In addition in January
2004, the underwriters of the December 2003 offering exercised in full their
over-allotment option to purchase an additional 345,000 of the Company's common
shares at the offering price of $40.50 per share. We received net proceeds of
approximately $13.2 million from the exercise of the over-allotment, which was
also contributed to the Operating Partnership in exchange for limited
partnership units. To generate capital to reinvest into other attractive
investment opportunities, we may also consider the use of additional operational
and developmental joint ventures, selling certain properties that do not meet
our long-term investment criteria as well as outparcels on existing properties.
26
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $100 million at December 31, 2003, an increase of $15 million
in capacity from December 31, 2002. During 2003, we extended the maturity of all
lines of credit to June 30, 2005. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
our ability to sell debt or equity subject to market conditions, we believe that
we have access to the necessary financing to fund the planned capital
expenditures during 2004.
We anticipate that adequate cash will be available to fund our operating and
administrative expenses, regular debt service obligations, and the payment of
distributions in order for the Company to maintain its status with Real Estate
Investment Trust ("REIT") requirements in both the short and long term. Although
we receive most of our rental payments on a monthly basis, distri