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, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number 1-11986
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of Registrant as specified in its charter)
North Carolina 56-1815473
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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:
Title of each class Name of exchange on which registered
Common Shares, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- ------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
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
- -
The aggregate market value of voting shares held by non-affiliates of the
Registrant was approximately $568,705,090 based on the closing price on the New
York Stock Exchange for such stock on February 18, 2005.
The number of Common Shares of the Registrant outstanding as of February 1, 2005
was 27,443,016.
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's
definitive proxy statement to be filed with respect to the Annual Meeting of
Shareholders to be held May 13, 2005.
1
PART I
Item 1. Business
The Company
Tanger Factory Outlet Centers, Inc. and subsidiaries, a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT"),
focuses exclusively on developing, acquiring, owning, operating and managing
factory outlet shopping centers. Since entering the factory outlet center
business 24 years ago, we have become one of the largest owners and operators of
factory outlet centers in the United States. As of December 31, 2004, we owned
interests in 33 centers, with a total gross leasable area, or ("GLA"), of
approximately 8.7 million square feet, which were 97% occupied. In addition as
of December 31, 2004, we managed for a fee three centers, with a total GLA of
approximately 105,000 square feet, bringing the total number of centers we
operated to 36 with a total GLA of approximately 8.8 million square feet
containing over 1,900 stores and representing over 400 store brands.
Our factory outlet centers and other assets are held by, and all of our
operations are conducted by, Tanger Properties Limited Partnership and
subsidiaries. Accordingly, the descriptions of our business, employees and
properties are also descriptions of the business, employees and properties of
the Operating Partnership. Unless the context indicates otherwise, the term
"Company" refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the
term "Operating Partnership" refers to Tanger Properties Limited Partnership and
subsidiaries. The terms "we", "our" and "us" refer to the Company or the Company
and the Operating Partnership together, as the text requires.
We own the majority of the units of partnership interest issued by the Operating
Partnership (the "Units") through our 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.
As of December 31, 2004, our wholly-owned subsidiaries owned 13,721,508 Units
and TFLP owned the remaining 3,033,305 Units. TFLP's Units are exchangeable,
subject to certain limitations to preserve our status as a REIT, on a
two-for-one basis for our common shares. See "Business-The Operating
Partnership". As of February 18, 2005, our 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 our common shares is restricted to preserve our 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 our common shares. We also
operate in a manner intended to enable us to preserve our status as a REIT,
including, among other things, making distributions with respect to our
outstanding common shares equal to at least 90% of our taxable income each year.
We are a North Carolina corporation that was formed in March 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
Our Board of Directors declared a 2 for 1 split of the Company's common shares
on November 29, 2004, effected in the form of a share dividend, payable on
December 28, 2004. All references to the number of shares outstanding, per share
amounts and share option data of our common shares have been restated to reflect
the effect of the split for all periods presented.
The most significant event of 2004 was the integration of the Charter Oak
Partners' portfolio of nine factory outlet centers totaling approximately 3.3
million square feet which was acquired in December 2003. 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 funded the majority of our equity in the
joint venture with proceeds from the issuance of 4.6 million common shares in
December 2003 at $20.25 per share. The successful equity financing allows us to
maintain a strong balance sheet and our current financial flexibility.
Our 50% ownership, unconsolidated joint venture, TWMB Associates, LLC ("TWMB"),
completed a 78,000 square foot expansion at its center located in Myrtle Beach,
South Carolina. Stores located in the expansion include Banana Republic, GAP,
Calvin Klein, Anne Taylor, Puma, Guess and Jones, NY and others.
We also were successful in divesting of three non-core assets, including our two
small properties, located in North Conway, New Hampshire and a property in
Dalton, Georgia. We also sold five land parcels located throughout four outlet
centers during the year. Net proceeds from these transactions totaled $20.4
million.
We continue our pre-development and leasing of four previously announced sites
located in Pittsburgh, Pennsylvania; Deer Park, New York; Charleston, South
Carolina; and Wisconsin Dells, Wisconsin, with expected deliveries during 2006
and 2007.
At December 31, 2004, we had ownership interests in or management
responsibilities for 36 centers in 23 states totaling 8.8 million square feet of
operating GLA compared to 40 centers in 23 states totaling 9.3 million square
feet of operating GLA as of December 31, 2003. The decrease is due to the
following events:
No.of GLA
Centers (000's) States
- ------------------------------------------------------------- --------- --------
As of December 31, 2003 40 9,330 23
- ------------------------------------------------------------- --------- --------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 78 ---
Dispositions:
North Conway, New Hampshire (wholly-owned) (2) (62) ---
Dalton, Georgia (wholly-owned) (1) (173) ---
Vero Beach, Florida (managed) (1) (329) ---
- ------------------------------------------------------------- ---------- -------
As of December 31, 2004 36 8,844 23
- ------------------------------------------------------------- ---------- -------
3
During 2004, we continued to utilize multiple sources of capital. We completed
the following liquidity transactions during the year:
o In December 2003, we completed a public offering of 4.6 million common
shares at a price of $20.25 per share, receiving net proceeds of
approximately $88.0 million. 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 690,000 common shares at the offering price of
$20.25 per share. We received net proceeds of approximately $13.2 million
from the exercise of the over-allotment.
o In September 2004, we obtained the release of two properties which had been
securing $53.5 million in mortgage loans with Wells Fargo Bank, thus
creating an unsecured note with Wells Fargo Bank for the same face amount.
o Also in September 2004, we obtained the release of the Dalton, Georgia
property mentioned above which served as collateral in a
cross-collateralized mortgage with John Hancock Life Insurance Company
("John Hancock") along with several other properties. Upon its disposition,
the Dalton property was released as collateral and replaced with a $6.4
million standby letter of credit issued by Bank of America. The letter of
credit includes an issuance fee of 1.25% annually. The required amount of
the letter of credit decreases ratably over the remaining term of the John
Hancock mortgage which matures in April 2009. Throughout the term of the
letter of credit, its required amount serves as a reduction in the amount
available under our unsecured $50 million line of credit with Bank of
America.
o In October 2004, we retired $47.5 million, 7.875% unsecured notes which
matured on October 24, 2004 with proceeds from our property and land parcel
sales and amounts available under our unsecured lines of credit.
o During 2004, we obtained an additional $25 million unsecured line of credit
from Citicorp North America, Inc., a subsidiary of Citigroup; bringing the
total committed unsecured lines of credit to $125 million. In addition, we
completed the extension of the maturity dates on all of our lines of credit
with Bank of America, Wachovia Corporation, Wells Fargo Bank and Citigroup
until June of 2007.
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 in markets 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.
4
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.
Our factory outlet centers range in size from 24,619 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, 2005, 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 2004, 2003 and 2002. As of February
1, 2005, our largest tenant, including all of its store concepts, accounted for
approximately 6.7% of our GLA. Because our typical tenant is a large, national
manufacturer, we have not experienced any significant problems with respect to
rent collections or lease defaults.
Revenues from fixed rents and operating expense reimbursements accounted for
approximately 89% of our total revenues in 2004. Revenues from contingent
sources, such as percentage rents, vending income and miscellaneous income,
accounted for approximately 11% of 2004 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 our
company, Stanley K. Tanger and his son, Steven B. Tanger, our 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 24 years ago, we have become one of
the largest owner operators of factory outlet centers in the country. As of
December 31, 2004, we owned interests in 33 shopping centers, with a total GLA
of approximately 8.7 million square feet, which were 97% occupied. In addition
as of December 31, 2004, we managed for a fee three shopping centers, with a
total GLA of approximately 105,000 square feet, bringing the total number of
centers we operated to 36 with a total GLA of approximately 8.8 million square
feet containing over 1,900 stores and representing over 400 store brands.
5
Business, Growth and Operating Strategy
BUSINESS STRATEGY
We maintain strong tenant relationships with high volume manufacturers and
retailers that have a selective presence in the outlet industry, such as GAP,
Tommy Hilfiger, Polo Ralph Lauren, Nautica, Coach Leatherware, Brooks Brothers
and Nike. These relationships help solidify our position in the manufacturer
outlet business.
As of December 31, 2004, our portfolio of properties was 97% occupied with
average tenant sales of $310 per square foot. Our properties have had an
occupancy rate on December 31st of 95% or greater for the last 24 years. The
ability to achieve such a goal is a testament to the relationships and quality
of our centers.
We are a very experienced company within the outlet industry with over 24 years
of experience in the sector and over 10 years as a public company. We have a
seasoned team of real estate professionals averaging over 21 years in the outlet
industry. We believe our competitive advantage in the manufacturers' outlet
business is a result of our experience in the business, long-standing
relationships with tenants and expertise in the development and operation of
manufacturers' outlet centers.
GROWTH STRATEGY
We seek growth through increasing rents in our existing centers; developing new
centers and expanding existing centers; and acquiring centers.
Increasing Rents at Existing Centers
Our leasing strategy includes aggressively marketing available space and
maintaining a high level of occupancy; providing for inflation-based contractual
rent increases or periodic fixed contractual rent increases in substantially all
leases; renewing leases at higher base rents per square-foot; re-tenanting space
occupied by under performing tenants and continuing to sign leases that provide
for percentage rents.
Developing New Centers and Expanding Existing Centers
We believe that there continues to be significant opportunities to develop
manufacturers' outlet centers across the United States of America. We intend to
undertake such development selectively, and believe that we will have a
competitive advantage in doing so as a result of our development expertise,
tenant relationships and access to capital. We expect that the development of
new centers and the expansion of existing centers will continue to be a
substantial part of our growth strategy. We believe that our development
experience and strong tenant relationships enable us to determine site viability
on a timely and cost-effective basis. However, there can be no assurance that
any development or expansion projects will be commenced or completed as
scheduled.
We typically seek opportunities to develop or acquire new centers in locations
that have at least 1 million people residing within an hour's drive, an average
household income within a 30-mile radius of at least $50,000 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 with at least 5 million
annual visitors. 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.
We generally pre-lease 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 nine to twelve months from groundbreaking to
the opening of the first tenant store. Construction of expansions to existing
properties typically takes less time, usually between six to nine months.
Acquiring Centers
We may selectively acquire individual properties or portfolios of properties
that meet our strategic investment criteria as suitable opportunities arise. We
believe that our extensive experience in the outlet center business, access to
capital markets, familiarity with real estate markets and management experience
will allow us to evaluate and execute our acquisition strategy successfully.
Furthermore, we believe that we will be able to enhance the operation of
acquired properties as a result of our strong tenant relationships as has been
the result in 2004 with the Charter Oak property portfolio. However, there can
be no assurance that any acquisitions will be consummated or, if consummated,
will result in a positive return on investment to us.
6
OPERATING STRATEGY
Our primary business objective is to enhance the value of our properties and
operations by increasing cash flow. We plan to achieve this objective through
continuing efforts to improve tenant sales and profitability, and to enhance the
opportunity for higher base and percentage rents.
Leasing
We pursue an active leasing strategy through long-standing relationships with a
broad range of tenants including manufacturers of men's, women's and children's
ready-to-wear, lifestyle apparel, footwear, accessories, tableware, housewares,
linens and domestic goods. Key tenants are placed in strategic locations to draw
customers into each center and to encourage shopping at more than one store. We
continually monitor tenant mix, store size, store location and sales
performance, and work with tenants to improve each center through re-sizing,
re-location and joint promotion.
Marketing
We develop branded property-specific marketing plans annually to deliver the
message of superior outlet brand name assortment, selection and savings. We
closely examine our plans each year to ensure we are hitting the right markets
and shoppers with the right message to drive traffic to our centers nationwide.
Our plans include strategic advertising, enticing promotions, incentives and
events to targeted audiences for meaningful and measurable results. Customer
satisfaction and retention are always a high priority. The majority of
consumer-marketing expenses incurred by the Company are reimbursable by tenants.
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 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 shareholders' best
interests. Prior to the 2002, 2003 and 2004 common share offerings, we had
established a shelf registration to allow us to issue up to $400 million in
either all debt or all equity or any combination thereof. In September 2002, we
completed a public offering of 2.0 million common shares at a price of $14.625
per share, receiving net proceeds of approximately $28.0 million. 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, we completed a public
offering of 4.6 million common shares at a price of $20.25 per share, receiving
net proceeds of approximately $88.0 million. 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 690,000 common shares at the offering price of $20.25 per share.
We received net proceeds of approximately $13.2 million from the exercise of the
over-allotment. 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 selling outparcels on existing
properties.
We maintain unsecured, revolving lines of credit that provide for unsecured
borrowings up to $125 million at December 31, 2004, an increase of $25 million
in capacity from December 31, 2003. During 2004, we extended the maturity of all
lines of credit to June 30, 2007. 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 2005.
7
The Operating Partnership
Our centers and other assets are held by, and all of our operations are
conducted by, the Operating Partnership. As of December 31, 2004, our
wholly-owned subsidiaries owned 13,721,508 Units and TFLP owned the remaining
3,033,305 Units. The Operating Partnership and TFLP's Units are exchangeable,
subject to certain limitations to preserve our status as a REIT, on a
two-for-one basis for our common shares.
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.
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 owners of factory outlet centers
and numerous small owners. 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, have minimized the number of new factory outlet
centers. 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 31 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, 2005, we had 188 full-time employees, located at our corporate
headquarters in North Carolina, our regional office in New York and our 31
business offices. At that date, we also employed 219 part-time employees at
various locations.
8
Item 2. Properties
As of February 1, 2005, our portfolio consisted of 36 centers totaling 8.8
million square feet of GLA located in 23 states. We owned interests in 33
centers with a total GLA of approximately 8.7 million square feet and managed
for a fee three centers with a total GLA of approximately 105,000 square feet.
Our centers range in size from 24,619 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 and Rehoboth Beach, Delaware centers are the only properties that
represented more than 10% of our 2004 annual consolidated gross revenues
(Riverhead) or more than 10% of our consolidated total assests (Rehoboth Beach)
as of December 31, 2004. See "Business and Properties - Significant Properties".
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.
Certain of our centers serve as collateral for mortgage notes payable. Of the 33
centers that we have ownership interests in, we own the land underlying 28 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 that was automatically renewed for an additional five years in
2004, with renewal at our option for up to six more 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 2.7 acre 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.
9
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, 2005.
Location of Centers (as of February 1, 2005)
Number of GLA %
State Centers (sq. ft.) of GLA
- -------------------------- ------------- -------------- ---------------
South Carolina (1)(2) 3 1,222,474 14
Georgia 3 775,760 9
New York 1 729,238 8
Texas 2 619,976 7
Alabama (2) 2 615,126 7
Delaware (2) 1 568,873 7
Tennessee 2 513,732 6
Michigan 2 437,051 5
Utah (2) 1 300,602 3
Connecticut (2) 1 291,051 3
Missouri 1 277,883 3
Iowa 1 277,230 3
Oregon (2) 1 270,280 3
Illinois (2) 1 256,514 3
Pennsylvania 1 255,152 3
Louisiana 1 245,199 3
New Hampshire (2) 1 227,998 3
Florida 1 198,924 2
North Carolina 2 187,510 2
Indiana 1 141,051 2
Minnesota 1 134,480 2
California 1 108,950 1
Maine 2 84,313 1
- -------------------------- ------------- -------------- ---------------
Total 33 8,739,367 100
========================== ============= ============== ===============
(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.
10
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, 2005. Except as noted, all properties are fee
owned.
GLA %
Location (sq. ft.) Occupied
- -------------------------------------------- ----------- ----- -----------
Riverhead, NY (1) 729,238 98
Rehoboth, DE (1) (3) 568,873 99
Foley, AL (3) 535,551 96
San Marcos, TX 442,486 99
Myrtle Beach 501, SC (3) 427,388 91
Sevierville, TN (1) 419,038 99
Myrtle Beach 17, SC (1) (2) 401,992 99
Hilton Head, SC (3) 393,094 90
Commerce II, GA 342,556 98
Howell, MI 324,631 98
Park City, UT (3) 300,602 94
Westbrook, CT (3) 291,051 91
Branson, MO 277,883 100
Williamsburg, IA 277,230 99
Lincoln City, OR (3) 270,280 95
Tuscola, IL (3) 256,514 78
Lancaster, PA 255,152 98
Locust Grove, GA 247,454 98
Gonzales, LA 245,199 98
Tilton, NH (3) 227,998 97
Fort Meyers, FL 198,924 93
Commerce I, GA 185,750 79
Terrell, TX 177,490 97
Seymour, IN 141,051 82
North Branch, MN 134,480 100
West Branch, MI 112,420 98
Barstow, CA 108,950 100
Blowing Rock, NC 105,332 100
Pigeon Forge, TN (1) 94,694 96
Nags Head, NC 82,178 100
Boaz, AL 79,575 95
Kittery I, ME 59,694 100
Kittery II, ME 24,619 100
- ------------------------------------------- ------------ ----- --------
8,739,367 96
=========================================== ============ ===== ========
(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 $35.1 million
of construction loan debt as of December 31, 2004.
(3) Represents properties that are currently held through a consolidated joint
venture in which we own a one-third interest.
11
The table set forth below summarizes certain information related to GLA and debt
with respect to our existing centers in which we consolidate for financial
reporting purposes as of December 31, 2004.
Mortgage
Debt (000's)
as of
GLA December Interest Maturity
Location (sq. ft.) 31, 2004 Rate Date
-------------------------------------- ------------ ---------- -----------
Lancaster, PA 255,152 $13,807 9.770% 4/10/2005
Commerce I, GA 185,750 7,291 9.125% 9/10/2005
Williamsburg, IA 277,230
San Marcos I, TX 221,049
West Branch, MI 112,420
Kittery I, ME 59,694
-------------------------------------- ------------ ---------- -----------
670,393 60,408 7.875% 4/01/2009
San Marcos II, TX 221,437 18,433 7.980% 4/01/2009
Blowing Rock, NC 105,332 9,366 8.860% 9/01/2010
Nags Head, NC 82,178 6,356 8.860% 9/01/2010
Rehoboth Beach, DE 568,873
Foley, AL 535,675
Myrtle Beach Hwy 501, SC 427,388
Hilton Head, SC 393,094
Park City, UT 300,602
Westbrook, CT 291,051
Lincoln City, OR 270,280
Tuscola, IL 256,514
Tilton, NH 227,998
-------------------------------------- ------------ ---------- -----------
3,271,475 183,335 6.590% 7/10/2008
Debt premium 9,346
-------------------------------------- ------------ ---------- -----------
Totals 4,791,717 $308,342
====================================== ============ ========== ===========
12
Lease Expirations
The following table sets forth, as of February 1, 2005, 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 Represented
Leases GLA Base Rent Annualized by Expiring
Year Expiring(1) (sq. ft.) (1) per sq. ft. Base Rent(2) Leases
- ------------------------ -------------- ----------------- ------------- ---------------- --------------
2005 268 1,119,000 (3) $ 14.17 $15,858,000 13
2006 402 1,665,000 15.22 25,348,000 21
2007 358 1,539,000 15.16 23,333,000 19
2008 275 1,212,000 16.26 19,713,000 16
2009 271 1,177,000 15.24 17,938,000 15
2010 129 540,000 16.97 9,161,000 8
2011 34 248,000 14.03 3,479,000 3
2012 27 217,000 12.50 2,712,000 2
2013 16 82,000 18.66 1,530,000 1
2014 13 57,000 15.77 899,000 1
2015 & thereafter 19 94,000 13.57 1,276,000 1
- --------------------------------------- ------------------ ---------- ------------------- ---------------
Total 1,812 7,950,000 $ 15.25 $ 121,247,000 100
======================== ============== ================== ========== =================== ===============
(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 789,000
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, 2005, approximately 689,000 square feet of the 1,891,000
square feet scheduled to expire in 2005 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
Total Center GLA Expiring GLA Expiring
Year (sq. ft.) GLA (sq. ft.) GLA (sq. ft.) GLA
- ------------- ------------- -------------- ------------- ----------- ------------ ------------
2004 1,790,000 20 1,571,000 88 94,000 5
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
13
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 Increase
- --------- ------------ ----------- -------- ---------- ---------- ----------- --------- -----------
2004 1,571,000 $13.63 $14.40 6 427,000 $16.43 $17.27 5
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
(1) The square footage released to new tenants for 2004, 2003, 2002, 2001 and
2000 contains 94,000, 49,000, 56,000, 55,000 and 68,000 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
------------------------------ --------------------------
2004 7.3
2003 7.4
2002 7.2
2001 7.1
2000 7.4
14
Tenants
The following table sets forth certain information with respect to our ten
largest tenants and their store concepts as of February 1, 2005 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 26 233,890 2.7
Old Navy 16 231,801 2.7
Banana Republic 14 112,092 1.3
Baby Gap 1 3,885 ---
Gap Kids 1 3,142 ---
-------- ---------------- -----------------------
58 584,810 6.7
Phillips-Van Heusen Corporation:
Bass Shoe 29 191,873 2.2
Van Heusen 28 121,247 1.4
Geoffrey Beene Co. Store 16 61,140 0.7
Calvin Klein, Inc. 8 44,692 0.5
Izod 14 36,180 0.4
-------- ---------------- -----------------------
95 455,132 5.2
Liz Claiborne:
Liz Claiborne 28 316,014 3.6
Liz Claiborne Women 7 24,284 0.3
Dana Buchman 3 6,975 0.1
Ellen Tracy 2 6,656 0.1
DKNY Jeans 3 5,820 0.1
Special Brands By Liz Claiborne 1 3,780 ---
Claiborne Mens 1 3,100 ---
-------- ---------------- -----------------------
45 366,629 4.2
VF Factory Outlet:
VF Factory Outlet, Inc 7 184,122 2.1
Nautica Factory Stores 22 97,686 1.1
Vans 4 9,415 0.1
Nautica Kids 2 5,841 0.1
-------- ---------------- -----------------------
35 297,064 3.4
Reebok International, Ltd.:
Reebok 26 224,852 2.6
Rockport 4 11,900 0.1
Greg Norman 1 3,000 ---
-------- ---------------- -----------------------
31 239,752 2.7
Dress Barn Inc. 30 220,119 2.5
Retail Brand Alliance, Inc.:
Casual Corner 16 119,197 1.4
Brooks Brothers 11 66,840 0.8
Petite Sophisticate 4 11,488 0.1
Casual Corner Woman 4 10,500 0.1
Adrienne Vitadini 2 9,494 0.1
-------- ---------------- -----------------------
37 217,519 2.5
Polo Ralph Lauren:
Polo Ralph Lauren 21 183,569 2.1
Polo Jeans Outlet 3 11,500 0.1
-------- ---------------- -----------------------
24 195,069 2.2
Jones Retail Corporation:
Jones NY 17 58,511 0.7
Nine West 21 53,477 0.6
Easy Spirit 14 39,896 0.5
Kasper 11 28,238 0.3
Anne Klein 2 4,855 0.1
-------- ---------------- -----------------------
65 184,977 2.2
Brown Group Retail, Inc:
Factory Brand Shoe 23 133,824 1.5
Naturalizer 15 39,856 0.5
-------- ---------------- -----------------------
38 173,680 2.0
- ------------------------------------------------------- -------- ---------------- -----------------------
Total of all tenants listed in table 458 2,934,751 33.6
======================================================= ======== ================ =======================
15
Significant Properties
The centers in Riverhead, New York and Rehoboth Beach, Delaware are our only
centers that comprise more than 10% of our consolidated total gross revenues for
the year ended December 31, 2004 (Riverhead) or more than 10% of our
consolidated total assests as of December 31, 2004 (Rehoboth Beach). The
Riverhead center represented 13% of our consolidated gross revenue for the year
ended December 31, 2004. The Riverhead center was originally constructed in 1994
and now totals 729,238 square feet. The Rehoboth Beach center represents 12% of
our consolidated total assests as of December 31, 2004. The Rehoboth Beach
center was acquired in December 2003 as a part of the COROC portfolio and totals
568,873 square feet.
Tenants at the Riverhead center principally conduct retail sales operations. The
occupancy rate as of the end of 2004, 2003 and 2002 was 99%, 100% and 100%,
respectively. Average annualized base rental rates during 2004, 2003 and 2002
were $21.39, $20.90 and $19.71 per weighted average GLA, respectively.
Tenants at the Rehoboth Beach center also principally conduct retail sales
operations. The occupancy rate as of the end of 2004 was 99%. Average annualized
base rental rates during 2004 were $19.56 per weighted average GLA.
Depreciation on the centers is recognized on a straight-line basis over 33.33
years, resulting in depreciation rate of 3% per year. At December 31, 2004, the
net federal tax basis of the Riverhead and Rehoboth Beach centers was
approximately $76.1 and $109.1 million, respectively. Real estate taxes assessed
on Riverhead during 2004 amounted to $3.8 million. Real estate taxes for 2005
are estimated to be approximately $3.9 million. Real estate taxes assessed on
Rehoboth Beach during 2004 amounted to approximately $185,000. Real estate taxes
for 2005 are estimated to be approximately $195,000.
The following table sets forth, as of February 1, 2005, scheduled lease
expirations at the Riverhead and Rehoboth Beach centers combined assuming that
none of the tenants exercise renewal options:
% of Gross
Annualized
Base Rent
No. of Annualized Represented
Leases GLA Base Rent Annualized by Expiring
Year Expiring (1) (sq. ft.) (1) per sq. ft. Base Rent (2) Leases
- ------------------------ ----------------- ----------------- ------------------ ---------------- ---------------
2005 32 131,000 $ 17.23 $ 2,257,000 9
2006 38 141,000 19.72 2,780,000 11
2007 65 245,000 21.36 5,233,000 21
2008 53 246,000 19.62 4,826,000 20
2009 40 193,000 18.75 3,619,000 15
2010 29 143,000 19.96 2,854,000 12
2011 6 48,000 17.33 832,000 3
2012 6 38,000 12.32 468,000 2
2013 4 39,000 19.69 768,000 3
2014 5 20,000 20.35 407,000 2
2015 and thereafter 4 21,000 19.29 405,000 2
- ------------------------ --------- --------------------- ------------------ --------------- --------------------
Total 282 1,265,000 $ 19.33 $ 24,449,000 100
======================== ========= ===================== ================== =============== ====================
(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 34,000 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.
16
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, 2004.
17
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning our executive
officers:
NAME AGE POSITION
- ------------------------------- --- ----------------------------------------------------
Stanley K. Tanger.............. 81 Founder, Chairman of the Board of Directors and
Chief Executive Officer
Steven B. Tanger............... 56 Director, President and Chief Operating Officer
Frank C. Marchisello, Jr....... 46 Executive Vice President - Chief Financial Officer
Rochelle G. Simpson ........... 65 Secretary and Executive Vice President -
Administration and Finance
Willard A. Chafin, Jr.......... 67 Executive Vice President - Leasing, Site Selection,
Operations and Marketing
Joseph H. Nehmen............... 56 Senior Vice President - Operations
Carrie A. Warren............... 42 Senior Vice President - Marketing
Kevin M. Dillon................ 46 Senior Vice President - Construction and Development
Lisa J. Morrison............... 45 Senior Vice President - Leasing
Virginia R. Summerell.......... 46 Treasurer and Assistant Secretary
James F. Williams.............. 40 Vice President - Controller
The following is a biographical summary of the experience of our executive
officers:
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.
Frank C. Marchisello, Jr. Mr. Marchisello was named Executive Vice
President and Chief Financial Officer in April 2003. Previously he was named
Senior Vice President and Chief Financial Officer in January 1999 after being
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.
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.
18
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.
Joseph H. Nehmen. Mr. Nehmen was named Senior Vice President - 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.
Kevin M. Dillon. Mr. Dillon was named Senior Vice President - Construction
and Development in August 2004. Previously, he held the positions of Vice
President - Construction and Development from May 2002 to August 2004, 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 Senior Vice President - Leasing in
August 2004. Previously, she held the positions of Vice President - Leasing from
May 2001 to August 2004, 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.
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.
James F. Williams. Mr. Williams was named Vice President and Controller in
April 2004. Mr. Williams joined the Company in September 20, 1993, was promoted
to Controller in January 1995 and was named Assistant Vice President in January
1997. Prior to joining the Company Mr. Williams was the Financial Reporting
Manager of Guilford Mills, Inc. from April 1991 to September 1993 and was
employed by Arthur Andersen for 5 years from 1987 to 1991. Mr. Williams
graduated from the University of North Carolina at Chapel Hill in December 1986
and is a certified public accountant.
19
PART II
Item 5. Market For Registrant's Common Equity and Related Shareholder Matters
(a) The common shares commenced trading on the New York Stock Exchange on May
28, 1993. The following table sets forth the high and low sales prices of
the common shares as reported on the New York Stock Exchange Composite
Tape, during the periods indicated. Note that per share amounts have been
restated to reflect a two-for-one split of our common shares in December
2004.
Common
2004 High Low Dividends Paid
------------------------ -------------- --------------- ------------------
First Quarter $ 22.415 $ 20.350 $ .30750
Second Quarter 23.390 17.675 .31250
Third Quarter 22.670 19.155 .31250
Fourth Quarter 26.485 22.385 .31250
------------------------ ---------------- ---------------- ---------------
Year 2004 $ 26.485 $ 17.675 $ 1.24500
------------------------ ---------------- ---------------- ---------------
Common
2003 High Low Dividends Paid
------------------------ -------------- --------------- ------------------
First Quarter $ 15.575 $ 14.400 $ .30625
Second Quarter 16.815 15.295 .30750
Third Quarter 18.410 16.470 .30750
Fourth Quarter 21.500 18.145 .30750
------------------------ ---------------- ---------------- ---------------
Year 2003 $ 21.500 $ 14.400 $ 1.22875
------------------------ ---------------- ---------------- ---------------
As of February 1, 2005, there were approximately 696 shareholders of
record. Certain of our debt agreements limit the payment of dividends such
that dividends shall not exceed funds from operations ("FFO"), as defined
in the agreements, for the prior fiscal year on an annual basis or 95% of
FFO on a cumulative basis. Based on continuing favorable operations and
available FFO, we intend to continue to pay regular quarterly dividends.
(b) Not applicable.
(c) During 1998, our Board of Directors authorized the repurchase of up to $6
million of our common shares. The timing and amount of the repurchases is
at the discretion of management. We have not made any repurchases since
1999 and the amount authorized for future repurchases remaining at December
31, 2004 totaled $4.8 million.
20
Item 6. Selected Financial Data
2004 2003 2002 2001 2000
- ------------------------------------------ ------------- ------------- -------------- ------------ ----------------
(In thousands, except per share and center data)
OPERATING DATA
Total revenues $ 194,553 $ 118,059 $ 106,488 $ 101,093 $ 98,570
Operating income 70,528 41,309 36,645 34,817 34,613
Income from continuing operations 7,608 11,532 6,827 3,651 5,602
Net income 7,046 12,849 11,007 7,112 4,312
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
SHARE DATA
Basic:
Income from continuing operations $ .28 $ .53 $ .30 $ .12 $ .24
Net income $ .26 $ .60 $ .55 $ .34 $ .16
Weighted average common shares 27,044 20,103 16,645 15,851 15,789
Diluted:
Income from continuing operations $ .28 $ .52 $ .30 $ .12 $ .24
Net income $ .26 $ .59 $ .54 $ .34 $ .15
Weighted average common shares 27,261 20,566 17,029 15,895 15,843
Common dividends paid $ 1.25 $ 1.23 $ 1.22 $ 1.22 $ 1.21
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
BALANCE SHEET DATA
Real estate assets, before depreciation $ 1,077,393 $1,078,553 $ 622,399 $ 599,266 $ 584,928
Total assets 936,378 987,437 477,675 476,272 487,408
Debt 488,007 540,319 345,005 358,195 346,843
Shareholders' equity 161,133 167,418 90,635 76,371 90,877
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
OTHER DATA
Cash flows provided by (used in):
Operating activities $ 84,816 $ 46,561 $ 39,687 $ 44,626 $ 38,420
Investing activities $ 2,607 $ (327,068) $ (26,883) $ (23,269) $ (25,815)
Financing activities $ (93,156) $ 289,271 $ (12,247) $ (21,476) $ (12,474)
Gross Leasable Area Open:
Wholly-owned 5,066 5,299 5,469 5,332 5,179
Partially-owned (consolidated) 3,271 3,273 --- --- ---
Partially-owned (unconsolidated) 402 324 260 --- ---
Managed 105 434 457 105 105
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total GLA open at end of period 8,844 9,330 6,186 5,437 5,284
Number of centers:
Wholly-owned 23 26 28 29 29
Partially-owned (consolidated) 9 9 --- --- ---
Partially-owned (unconsolidated) 1 1 1 --- ---
Managed 3 4 5 3 3
- ------------------------------------------ -------------- --------------- ------------- ------------ --------------
Total outlet centers in operation 36 40 34 32 32
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 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. COROC is consolidated for financial reporting purposes under the provisions
of FASB Interpretation No. 46 (Revised 2003): "Consolidation of Variable
Interest Entities: An Interpretation of ARB No. 51 ("FIN 46R").
21
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 "Company" refers to
Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating
Partnership" refers to Tanger Properties Limited Partnership and subsidiaries.
The terms "we", "our" and "us" refer to the Company or the Company and the
Operating Partnership 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, 2004 and 2003, as
well as December 31, 2003 and 2002. 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; our ability to sustain, manage or forecast our
growth; existing government regulations and changes in, or the failure
to comply with, government regulations;
o adverse publicity; 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;
22
o risks that we incur a material, uninsurable loss of our capital
investment and anticipated profits from one of our properties, such as
those resulting from wars, earthquakes or hurricanes;
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 fluctuations and difficulty in forecasting operating results; 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. COROC is
consolidated for financial reporting purposes under the provisions of FASB
Interpretation No. 46 (Revised 2003): "Consolidation of Variable Interest
Entities: An Interpretation of ARB No. 51 ("FIN 46R").
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 using the effective interest method over the life of the debt. We
financed the majority of our equity in the joint venture with proceeds from the
issuance of 4.6 million common shares in December 2003 at $20.25 per share. The
successful equity financing allows us to maintain a strong balance sheet and our
current financial flexibility.
At December 31, 2004, we had ownership interests in or management
responsibilities for 36 centers in 23 states totaling 8.8 million square feet of
operating GLA compared to 40 centers in 23 states totaling 9.3 million square
feet of operating GLA as of December 31, 2003. The decrease is due to the
following events:
No. of GLA
Centers (000's) States
- ------------------------------------------------- --------- ---------- ---------
As of December 31, 2003 40 9,330 23
- ------------------------------------------------- --------- ---------- ---------
New development expansion:
Myrtle Beach Hwy 17, South Carolina -
(unconsolidated joint venture) --- 78 ---
Dispositions:
North Conway, New Hampshire (wholly-owned) (2) (62) ---
Dalton, Georgia (wholly-owned) (1) (173) ---
Vero Beach, Florida (managed) (1) (329) ---
- ------------------------------------------------- --------- ---------- ---------
As of December 31, 2004 36 8,844 23
- ------------------------------------------------- --------- ---------- ---------
23
Results of Operations
A summary of the operating results for the years ended December 31, 2004, 2003
and 2002 is presented in the following table, expressed in amounts calculated on
a weighted average GLA basis.
2004 2003 2002
- --------------------------------------------------------- -------------- -------------- ---------------
GLA open at end of period (000's)
Wholly owned 5,066 5,299 5,469
Partially owned consolidated (1) 3,271 3,273 ---
Partially owned unconsolidated (2) 402 324 260
Managed 105 434 457
- --------------------------------------------------------- -------------- -------------- ---------------
Total GLA at end of period (000's) 8,844 9,330 6,186
Weighted average GLA (000's) (1) (3) 8,338 5,158 4,776
Occupancy percentage at end of period (4) 97% 96% 98%
Per square foot data for wholly owned and partially owned (consolidated) properties
Revenues
Base rentals $ 15.58 $ 15.18 $14.89
Percentage rentals .64 .62 .74
Expense reimbursements 6.30 6.41 6.00
Other income .81 .68 .67
- --------------------------------------------------------- -------------- -------------- ---------------
Total revenues 23.33 22.89 22.30
- --------------------------------------------------------- -------------- -------------- ---------------
Expenses
Property operating 7.17 7.56 7.03
General and administrative 1.54 1.85 1.93
Depreciation and amortization 6.17 5.47 5.66
- --------------------------------------------------------- -------------- -------------- ---------------
Total expenses 14.88 14.88 14.62
- --------------------------------------------------------- -------------- -------------- ---------------
Operating income 8.45 8.01 7.68
Interest expense 4.21 5.14 5.96
- --------------------------------------------------------- -------------- -------------- ---------------
Income before equity in earnings of unconsolidated
joint ventures, minority interests and discontinued
operations $ 4.24 $ 2.87 $ 1.72
- --------------------------------------------------------- -------------- -------------- ---------------
(1) Includes nine centers totaling 3,271,475 square feet of which we own a
one-third interest through a joint venture arrangement but consolidate for
financial reporting purposes under FIN 46R.
(2) Includes one center totaling 401,992 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.
24
2004 Compared to 2003
Base rentals increased $51.6 million, or 66%, in the 2004 period when compared
to the same period in 2003. The increase is primarily due to the December 2003
acquisition of the COROC portfolio of nine outlet center properties. Base rent
per weighted average GLA increased by $.40 per square foot from $15.18 per
square foot in the 2003 period to $15.58 per square foot in the 2004 period. The
increase is primarily the result of the COROC portfolio acquisition which had a
higher average base rent per square foot compared to the pre-acquisition
portfolio average. In addition, the overall portfolio occupancy at December 31,
2004 increased 1% from 96% to 97% compared to December 31, 2003. Also, base rent
is impacted by the amortization of above/below market rate lease values
associated with the required purchase price allocation associated with the
acquisition of the COROC portfolio. The values of the above and below market
leases are amortized and recorded as either an increase (in the case of below
market leases) or a decrease (in the case of above market leases) to rental
income over the remaining term of the associated lease. For the 2004 period we
recorded $1.1 million of rental income for net amortization of market leases
compared to $37,000 for the 2003 period of 13 days that we owned the COROC
portfolio. If a tenant vacates its space prior to the contractual termination of
the lease and no rental payments are being made on the lease, any unamortized
balance of the related above/below market lease value will be written off and
could materially impact our net income positively or negatively.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $2.2
million or 68%, and on a weighted average GLA basis, increased $.02 per square
foot in 2004 compared to 2003 from $.62 per square foot to $.64 per square foot.
Reported same-space sales per square foot for the twelve months ended December
31, 2004 were $310 per square foot, a 3.2% increase over the prior year ended
December 31, 2003. 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.
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, were
88% and 85% in the 2004 and 2003 periods, respectively. The increase in this
percentage is due to higher reimbursement rates at the COROC portfolio.
Other income increased $3.2 million, or 92%, in 2004 compared to 2003 primarily
due to an increase in gains on sales of outparcels of land of $1.5 million in
2004. Also, there were increases in vending and other miscellaneous income and
an increase in fees from managed properties.
Property operating expenses increased by $20.8 million, or 53%, in the 2004
period as compared to the 2003 period however, on a weighted average GLA basis,
these expenses decreased $.39 per square foot from $7.56 to $7.17. The dollar
increase is the result of the additional operating costs of the COROC portfolio
in the 2004 period. The decrease on a weighted average GLA basis is due to
expenses at the COROC portfolio per square foot being lower than the
pre-acquisition portfolio average.
General and administrative expenses increased $3.3 million, or 34%, in the 2004
period as compared to the 2003 period. The increase is primarily due to the
additional employees hired as a result of the acquisition of the COROC
portfolio. However, as a percentage of total revenues, general and
administrative expenses decreased from 8% in the 2003 period to 7% in the 2004
period and, on a weighted average GLA basis, decreased from $1.85 per square
foot in the 2003 period to $1.54 per square foot in the 2004 period.
Interest expense increased $8.6 million, or 33%, during the 2004 period as
compared to the 2003 period due primarily to the assumption of $186.4 million of
cross-collateralized debt in the fourth quarter of 2003 related to the
acquisition of the COROC portfolio. The increase was offset by the retirement of
$47.5 million of bonds, which matured in October 2004 at an interest rate of
7.875%, with proceeds from our property and land parcel sales and amounts
available under our unsecured lines of credit.
25
Depreciation and amortization per weighted average GLA increased from $5.47 per
square foot in the 2003 period to $6.17 per square foot in the 2004 period. In
the acquisition of the COROC portfolio in December 2003, accounted for under
SFAS 141 "Business Combinations" ("FAS 141"), significant amounts were allocated
to deferred lease costs and other intangible assets which are amortized over
shorter lives than building costs.
Equity in earnings from unconsolidated joint ventures increased $223,000 in the
2004 period compared to the 2003 period due to the expansions during the summers
of 2003 and 2004 at TWMB Associates, LLC ("TWMB") outlet center in Myrtle Beach,
South Carolina of approximately 64,000 and 78,000 square feet respectively. The
total square footage of the center is now approximately 402,000 square feet.
Discontinued operations resulted in a loss of approximately $562,000 due mainly
to the loss on sale of the Dalton, Georgia property in the 2004 period of
approximately $3.5 million. This loss was partially offset by the gain on sale
of the Clover and LL Bean, New Hampshire properties of approximately $2.1
million in the 2004 period. Also, included in the 2003 period is the sale of the
Martinsburg, West Virginia center and the Casa Grande, Arizona center which
resulted in a net gain of approximately $147,000.
2003 Compared to 2002
Base rentals increased $7.2 million, or 10%, 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 $.29 per square foot from $14.89 per square foot in the
2002 period to $15.18 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 $347,000
or 10%, and on a weighted average GLA basis, decreased $.12 per square foot in
2003 compared to 2002 from $.74 per square foot to $.62 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
remained constant at 85% in 2003 and 2002.
Other income increased $297,000, 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 16%, in the 2003
period as compared to the 2002 period and, on a weighted average GLA basis,
increased $.53 per square foot from $7.03 to $7.56. 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.
26
General and administrative expenses increased $340,000, 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% and 9% respectively in the 2003 and 2002
periods and, on a weighted average GLA basis, decreased $.08 per square foot
from $1.93 per square foot in the 2002 period to $1.85 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 1,781,080
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.
Depreciation and amortization per weighted average GLA decreased from $5.66 per
square foot in the 2002 period to $5.47 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's outlet center in
Myrtle Beach, South Carolina being open for a full year in 2003 compared to six
months in 2002, and an expansion of 64,000 square feet that occurred in May of
2003.
Discontinued operations resulted in a gain of approximately $1.3 million due
mainly to a number of centers with positive operating income included in
discontinued operations for the period. The 2002 period included gains of $1.7
million from the sales of our centers in Fort Lauderdale, Florida and Bourne,
Massachusetts and $561,000 in gains from the sales of leased land outparcels
which had identifiable cash flows associated with them and were therefore
accounted for under the provisions of SFAS 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144").
Liquidity and Capital Resources
Net cash provided by operating activities was $84.8, $46.6 and $39.7 million for
the years ended December 31, 2004, 2003 and 2002, respectively. The increase in
cash provided from operating activities from 2003 to 2004 is primarily due to
the incremental income from the COROC acquisition in December 2003. The increase
from 2002 to 2003 is 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.
Net cash provided by (used in) investing activities amounted to $2.6, ($327.1)
and ($26.9) million during 2004, 2003 and 2002, respectively, and reflects the
acquisitions, expansions and dispositions of real estate during each year.
Net cash provided by (used in) financing activities of ($93.2) $289.3 and
($12.2) million in 2004, 2003 and 2002, respectively, has fluctuated
consistently with the capital needed to fund the current development and
acquisition activity and reflects increases in dividends paid during 2004, 2003
and 2002. In addition, 2004 reflects $22.6 million of distributions to our
partner in the COROC joint venture which was created in December 2003. Also, the
increase in cash provided by financing activities in 2003 is due primarily to
the contribution by Blackstone related to the COROC acquisition and the net
proceeds from the issuance of common shares. In 2003, 4.6 million common shares
were issue versus 2.0 million common shares in 2002. Also, approximately 1.5
million more share and unit options were exercised in 2003 versus 2002.
27
Dispositions and Current Developments
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.
DISPOSITIONS
In June and September 2004, we completed the sale of properties located in North
Conway, New Hampshire and Dalton, Georgia, respectively. Net proceeds received
from the sale of these properties were approximately $17.5 million. We recorded
a loss on sale of real estate of approximately $1.5 million, which is included
in discontinued operations for the year ended December 31, 2004.
Throughout 2004, we sold five outparcels of land at various properties in our
portfolio. These sales totaled $2.9 million in net proceeds. Gains of $1.5
million were recorded in other income for the year ended December 31, 2004.
In May and October 2003, we completed the sale of properties located in
Martinsburg, West Virginia and Casa Grande, Arizona, respectively. Net proceeds
received from the sales of these properties were approximately $8.7 million. We
recorded a loss on sale of real estate of approximately $147,000 in discontinued
operations for the year ended December 31, 2003.
In June and November 2002, we completed the sale of two of our non-core
properties located in Ft. Lauderdale, Florida and Bourne, Massachusetts,
respectively. Net proceeds received from the sales of these properties were
approximately $19.9 million. We recorded a gain on sale of real estate of
approximately $1.7 million in discontinued operations for the year ended
December 31, 2002.
Throughout 2002, we sold five outparcels of land, two of which had related land
leases with identifiable cash flows, at various properties in our portfolio.
These sales totaled $1.5 million in net proceeds. Gains of $167,000 were
recorded in other income for the three land outparcels sold and gains of
$561,000 were recorded in discontinued operations for the two outparcels with
identifiable cash flows as accounted for under FAS 144 for the year ended
December 31, 2004.
CURRENT DEVELOPMENTS
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 2007.
We have an option to purchase land and have begun the early development and
leasing of a site located near Charleston, South Carolina. We currently expect
the center to be approximately 350,000 square feet upon total build out with the
initial phase scheduled to open in 2006.
We have begun the early development and leasing of a site located near Wisconsin
Dells, Wisconsin. We currently expect the center to be approximately 250,000
square feet upon total build out with the initial phase scheduled to open in
2006.
28
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 FIN 46R, 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. The premium was $9.4 million at December 31, 2004. We
funded the majority of our share of the equity required for the transaction
through the issuance of 4.6 million common shares on December 10, 2003,
generating approximately $88.0 million in net proceeds. The results of the
Charter Oak portfolio have been included in the consolidated financial
statements since December 19, 2003. We believe the Charter Oak acquisition
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 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 provide operating, management, leasing and marketing services to the
properties and earn an annual management and leasing fee equal to $1.00 per
square foot of gross leasable area. We 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 has 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 receives a preferred cash
distribution of 10% on their invested capital. We then receive a preferred cash
distribution of 10% on our invested capital. Any remaining cash flows from
ongoing operations are 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. We will then receive any unpaid
preferred cash distribution. 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 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 toward the second phase which contains 22 additional
brand name outlet tenants.
29
During 2004, we completed a 78,000 square foot third phase. The third phase cost
approximately $9.7 million. The Company and Rosen-Warren each made capital
contributions during the fourth quarter of 2003 of $1.7 million for the third
phase. TWMB's Myrtle Beach center now totals 402,000 square feet.
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 Wachovia Corporation due in September 2005. As of December 31, 2004
the construction loan had a balance of $35.1 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 received a floating interest rate based on the 30 day LIBOR index and paid
a fixed interest rate of 2.49%. This swap effectively changed 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%. The construction loan incurred by this
unconsolidated joint venture is collateralized by its property as well as joint
and several guarantees by Rosen-Warren and the Company.
TWMB has a commitment letter from Bank of America for permanent financing with
the center serving as collateral. The loan is expected to be $36.8 million with
a variable interest rate of LIBOR plus 1.40%. The term is for five years with
interest payments only and may be extended for an additional two years. There
are no guarantees associated with the loan. We expect to close on the permanent
financing during the first half of 2005.
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 partner enacts
this provision and depending on our role in the transaction as eit