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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ________________
Commission File Numbers:
33-99736-01
333-3526-01
333-39365-01
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its Charter)
NORTH CAROLINA 56-1822494
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1400 West Northwood Street, Greensboro, North Carolina 27408
(Address of principal executive offices)
(Zip code)
(336) 274-1666
(Registrant's telephone number, including area code)
----------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No___
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<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
Index
Part I. Financial Information
Page Number
Item 1. Financial Statements (Unaudited)
Statements of Operations
For the three and six months ended June 30, 1998 and 1997 3
Balance Sheets
As of June 30, 1998 and December 31, 1997 4
Statements of Cash Flows
For the three and six months ended June 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information
Item 1. Legal proceedings 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES
Base rentals $ 16,469 $ 13,710 $ 32,124 $ 26,958
Percentage rentals 381 305 875 703
Expense reimbursements 7,125 6,202 13,485 11,599
Other income 375 239 672 421
-------- -------- -------- --------
Total revenues 24,350 20,456 47,156 39,681
-------- -------- -------- --------
EXPENSES
Property operating 7,397 6,523 14,049 12,148
General and administrative 1,640 1,504 3,339 3,028
Interest 5,433 3,957 10,225 7,779
Depreciation and amortization 5,545 4,615 10,679 8,904
-------- -------- -------- --------
Total expenses 20,015 16,599 38,292 31,859
-------- -------- -------- --------
Income before gain on sale of real estate
and extraordinary item 4,335 3,857 8,864 7,822
Gain on sale of real estate -- -- 994 --
-------- -------- -------- --------
Income before and extraordinary item 4,335 3,857 9,858 7,822
Extraordinary item - Loss on early extinguishment
of debt -- -- (460) --
-------- -------- -------- --------
Net income 4,335 3,857 9,398 7,822
Income allocated to the limited partner (1,070) (1,043) (2,350) (2,150)
-------- -------- -------- --------
Income allocated to the general partner $ 3,265 $ 2,814 $ 7,048 $ 5,672
======== ======== ======== ========
Basic earnings per unit
Income before extraordinary item $ .35 $ .34 $ .82 $ .71
Extraordinary item -- -- (.05) --
-------- -------- -------- --------
Net income $ .35 $ .34 $ .77 .71
======== ======== ======== ========
Diluted earnings per unit:
Income before extraordinary item $ .35 $ .34 $ .80 $ .70
Extraordinary item -- -- (.04) --
-------- -------- -------- --------
Net income $ .35 $ .34 $ .76 $ .70
======== ======== ======== ========
Distributions paid per unit $ .60 $ .55 $ 1.15 $ 1.07
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(In thousands)
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Rental property
Land $ 49,036 $ 48,059
Buildings, improvements and fixtures 427,960 379,842
Developments under construction 3,457 26,807
--------- ---------
480,453 454,708
Accumulated depreciation (73,887) (64,177)
--------- ---------
Rental property, net 406,566 390,531
Cash and cash equivalents 2,872 3,607
Deferred charges, net 8,707 8,651
Other assets 14,109 12,789
--------- ---------
Total assets $ 432,254 $ 415,578
========= =========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Long-term debt
Senior, unsecured notes $ 150,000 $ 150,000
Mortgages payable 73,434 74,050
Lines of credit 33,400 5,000
--------- ---------
256,834 229,050
Construction trade payables 6,924 12,913
Accounts payable and accrued expenses 11,112 13,090
--------- ---------
Total liabilities 274,870 255,053
--------- ---------
Commitments
Partners' equity
General partner 134,600 136,649
Limited partner 22,784 23,876
Total partners' equity 157,384 160,525
--------- ---------
Total liabilities and partners' equity $ 432,254 $ 415,578
========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1998 1997
-------- --------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 9,398 $ 7,822
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 10,679 8,904
Amortization of deferred financing costs 542 504
Loss on early extinguishment of debt 460 --
Gain on sale of real of estate (994) --
Straight-line base rent adjustment (470) (207)
Compensation under Unit Option Plan 168 169
Increase (decrease) due to changes in:
Other assets (1,160) (485)
Accounts payable and accrued expenses (1,978) (150)
-------- --------
Net cash provided by operating activities 16,645 16,557
-------- --------
INVESTING ACTIVITIES
Acquisition of rental properties (17,000) (18,000)
Additions to rental properties (16,298) (23,010)
Additions to deferred lease costs (1,313) (1,015)
Net proceeds from sale of real estate 2,411 --
-------- --------
Net cash used in investing activities (32,200) (42,025)
-------- --------
FINANCING ACTIVITIES
Cash distributions paid to partners (13,461) (11,336)
Proceeds from notes payable -- --
Repayments on notes payable (616) (564)
Proceeds from revolving lines of credit 56,190 61,875
Repayments on revolving lines of credit (27,790) (24,425)
Additions to deferred financing costs (257) (46)
Proceeds from exercise of unit options 754 --
-------- --------
Net cash provided by financing activities 14,820 25,504
-------- --------
Net increase (decrease) in cash and cash equivalents (735) 36
Cash and cash equivalents, beginning of period 3,607 2,567
-------- --------
Cash and cash equivalents, end of period $ 2,872 $ 2,603
======== ========
</TABLE>
Supplemental schedule of non-cash investing activities:
The Operating Partnership purchases capital equipment and incurs costs
relating to construction of new facilities, including tenant finishing
allowances. Expenditures included in construction trade payables as of June 30,
1998 and 1997 amounted to $6,924 and $13,226, respectively.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(In thousands, except per unit and square feet data)
(Unaudited)
1. Interim Financial Statements
The unaudited Financial Statements of Tanger Properties Limited
Partnership, a North Carolina limited partnership (the "Operating
Partnership"), have been prepared pursuant to generally accepted accounting
principles and should be read in conjunction with the Financial Statements
and Notes thereto of the Operating Partnership's Annual Report on Form
10-K, for the year ended December 31, 1997. Certain information and note
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission's
("SEC") rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading.
The accompanying Financial Statements reflect, in the opinion of
management, all adjustments necessary for a fair presentation of the
interim financial statements. All such adjustments are of a normal and
recurring nature.
2. Acquisitions, Dispositions and Development of Rental Properties
On March 31, 1998, the Operating Partnership completed the acquisition of
Dalton Factory Stores, a factory outlet center in Dalton, GA containing
approximately 173,000 square feet, for an aggregate purchase price of
$17,000. The acquisition was accounted for using the purchase method
whereby the purchase price was allocated to assets acquired based on their
fair values. The results of operations of the acquired property have been
included in the results of operations since the acquisition date.
On March 31, 1998, the Operating Partnership also completed the sale of its
8,000 square foot, single tenant property in Manchester, VT for $1,850 and
the sale of two outparcels at other centers for sales prices aggregating
$690. As a result of these dispositions, the Operating Partnership
recognized a gain on sale of real estate of $994 for the six months ended
June 30, 1998.
During the first six months, the Operating Partnership placed in service
the related assets of the expansions which were significantly underway at
December 31, 1997 totaling approximately 297,000 square feet. As a result,
the balance sheet caption Developments under Construction decreased from
$26,807 as of December 31, 1997 to $3,457 at June 30, 1998. In addition,
the Operating Partnership has begun construction on additional expansions
to the properties in Branson, MO (25,000 square feet) and Sevierville, TN
(96,000 square feet). Commitments to complete construction of the
expansions to the existing properties and other capital expenditure
requirements amounted to approximately $800 at June 30, 1998. Commitments
for construction represent only those costs contractually required to be
paid by the Operating Partnership.
Interest costs capitalized during the three months ended June 30,1998 and
1997 amounted to $63 and $651, respectively, and during the six months
ended June 30, 1998 and 1997 amounted to $399 and $1,052, respectively.
6
<PAGE>
3. Long-Term Debt
During the first six months, the Operating Partnership amended certain of
its unsecured lines of credit to increase the maximum borrowing capacity by
an aggregate amount of $25,000. In addition, the Operating Partnership
terminated its $50,000 secured line of credit and expensed the related
unamortized deferred financing costs, recognizing an extraordinary loss of
$460 in the accompanying statements of operations.
At June 30, 1998, the Operating Partnership had revolving lines of credit
with an unsecured borrowing capacity of $100,000, of which $66,600 was
available for additional borrowings.
4. Income Per Unit
The following table sets forth a reconciliation of the numerators and
denominators in computing earnings per unit in accordance with Statement of
Financial Accounting Standards No. 128, which the Operating Partnership
adopted in its financial statements for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Basic earnings per unit
Income before extraordinary item $ 4,335 $ 3,857 $ 9,858 $ 7,822
Less: Preferred Unit distributions (484) (496) (952) (908)
-------- -------- -------- --------
Income available to the general and limited partners $ 3,851 $ 3,361 $ 8,906 $ 6,914
Weighted average partnership Units 10,917 9,776 10,904 9,758
-------- -------- -------- --------
Basic earnings per unit $ .35 $ .34 $ .82 $ .71
======== ======== ======== ========
Diluted earnings per unit
Income before extraordinary item $ 4,335 $ 3,857 $ 9,858 $ 7,822
Less: Preferred Unit distributions (484) (496) (952) (908)
-------- -------- -------- --------
Income available to the general and limited partners $ 3,851 $ 3,361 $ 8,906 $ 6,914
-------- -------- -------- --------
Units:
Weighted average partnership Units 10,917 9,776 10,904 9,758
Effect of outstanding Unit options 189 72 183 67
-------- -------- -------- --------
Weighted average partnership Units plus
assumed conversions 11,106 9,848 11,087 9,825
-------- -------- -------- --------
Diluted earnings per unit $ .35 $ .34 $ .80 $ .70
======== ======== ======== ========
</TABLE>
For the three and six months ended June 30, 1997, 120 options to purchase
partnership Units were excluded from the computation of diluted earnings
per unit because the exercise price was greater than the average market
price, assumed to be equivalent to the price of the Common Shares of the
general partner. No options to purchase partnership units were excluded
from the computation of diluted earnings per unit for the three and six
months ended June 30, 1998. The assumed conversion of the Preferred Units
as of the beginning of the year would have been anti-dilutive.
7
<PAGE>
At June 30, 1998 and December 31, 1997, the ownership interests of the
Operating Partnership consisted of the following:
June 30, December 31,
1998 1997
---------- ----------
Preferred Units, held by the general partner 89,310 90,689
========== ==========
Partnership Units:
General partner 7,897,878 7,853,936
Limited partner 3,033,305 3,033,305
---------- ----------
Total 10,931,183 10,887,241
========== ==========
5. Subsequent Events
On July 31, 1998, the Operating Partnership completed the acquisition of
Sanibel Factory Stores, a factory outlet center on the Gulf coast of
Florida between Fort Myers and Sanibel Island containing approximately
186,000 square feet, for a purchase price of $27.650. The acquisition will
be accounted for using the purchase method whereby the purchase price is
allocated to assets acquired based on their fair values. The acquisition
was financed primarily with additional borrowings under available lines of
credit.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
CAUTIONARY STATEMENTS
Certain statements contained in the discussion below, including, without
limitation, statements containing the words "believes," "anticipates,"
"expects," and words of similar import, constitute "forward-looking statements"
within the meaning of the Private Securities Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Operating Partnership, or industry results, to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the following:
the effects of future events on the Operating Partnership's financial
performance; the risk that the Operating Partnership may not be able to finance
its planned development, acquisition and expansion activities; risks related to
the retail industry in which the Operating Partnership's outlet centers compete,
including the potential adverse impact of external factors such as inflation,
tenant demand for space, consumer confidence, unemployment rates and consumer
tastes and preferences; risks associated with the Operating Partnership's
development, acquisition and expansion activities, such as the potential for
cost overruns, delays and lack of predictability with respect to the financial
returns associated with these development activities; the risk of potential
increase in market interest rates from current rates; risks associated with real
estate ownership, such as the potential adverse impact of changes in the local
economic climate on the revenues and the value of the Operating Partnership's
properties; and the risks that a significant number of tenants may become unable
to meet their lease obligations or that the Operating Partnership may be unable
to renew or re-lease a significant amount of available space on economically
favorable terms. Given these uncertainties, current and prospective investors
are cautioned not to place undue reliance on such forward-looking statements.
The Operating Partnership disclaims any obligation to update any such factors or
to publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.
8
<PAGE>
OVERVIEW
The discussion and analysis of the financial condition and results of operations
should be read in conjunction with the Financial Statements and Notes thereto.
Historical results and percentage relationships set forth in the Statements of
Operations, including trends which might appear, are not necessarily indicative
of future operations.
The discussion of the Operating Partnership's results of operations reported in
the Statements of Operations compares the three and six months ended June 30,
1998 with the three and six months ended June 30, 1997. Certain comparisons
between the periods are also made on a percentage basis as well as on a weighted
average gross leasable area ("GLA") basis, a technique which adjusts for certain
increases or decreases in the number of centers and corresponding square feet
related to the development, acquisition, expansion or disposition of rental
properties. The computation of weighted average GLA, however, does not adjust
for fluctuations in occupancy since GLA is not reduced when original occupied
space subsequently becomes vacant.
The Operating Partnership continues to grow principally through acquisitions and
expansions of existing factory outlet centers. On March 31, 1998, the Operating
Partnership completed the acquisition of Dalton Factory Stores, a factory outlet
center in Dalton, GA, containing approximately 173,000 square feet, for an
aggregate purchase price of $17 million. On March 31, 1998, the Operating
Partnership also completed the sale of its 8,000 square foot, single tenant
property in Manchester, VT for $1.85 million.
During the first six months, the Operating Partnership placed in service the
related assets of the expansions which were significantly underway at December
31, 1997 totaling approximately 297,000 square feet. As a result, the balance
sheet caption Developments under Construction decreased from $26.8 million as of
December 31, 1997 to $3.5 million at June 30, 1998. In addition, the Operating
Partnership has begun construction on additional expansions to the properties in
Branson, MO (25,000 square feet) and Sevierville, TN (96,000 square feet).
9
<PAGE>
A summary of the operating results for three and six months ended June 30, 1998
and 1997, calculated on a weighted average GLA basis, is presented in the
following table.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
GLA at end of period (000's) 4,734 3,993 4,734 3,993
Weighted Average GLA(a) (000's) 4,729 3,917 4,615 3,850
Outlet centers in operation 30 28 30 28
New centers opened -- -- -- --
New centers acquired -- -- 1 1
Centers sold -- -- 1 --
Centers expanded -- 1 -- 1
States operated in at end of period 22 22 22 22
Per square foot
Revenues
Base rentals $ 3.48 $ 3.50 $ 6.96 $ 7.00
Percentage rentals .08 .08 .19 .18
Expense reimbursements 1.51 1.58 2.92 3.01
Other income .08 .06 .15 .11
--------- --------- --------- ---------
Total revenue 5.15 5.22 10.22 10.30
--------- --------- --------- ---------
Expenses
Property operating 1.56 1.67 3.04 3.16
General and administrative .35 .38 .72 .79
Interest 1.15 1.01 2.22 2.02
Depreciation and amortization 1.17 1.18 2.31 2.31
--------- --------- --------- ---------
Total expenses 4.23 4.24 8.29 8.28
--------- --------- --------- ---------
Income before gain on sale of real estate
and extraordinary item $ 0.92 $ 0.98 $ 1.93 $ 2.02
========= ========= ========= =========
</TABLE>
(a) GLA weighted by months of operations. GLA is not adjusted for fluctuations
in occupancy as it is not reduced when original occupied space subsequently
becomes vacant.
RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 1998 to the three months ended
June 30, 1997
Base rentals increased $2.8 million, or 20%, in the 1998 period when compared to
the same period in 1997 primarily as a result of a 21% increase in weighted
average GLA. The increase in weighted average GLA is due to the acquisitions in
October 1997 (180,000 square feet) and March 1998 (173,000 square feet), as well
as expansions completed in the fourth quarter of 1997 and first quarter 1998.
The decrease in base rentals per weighted average GLA of $.02 in the three
months ended June 30, 1998 compared to the same period in 1997 reflects the
impact of these acquisitions, which collectively have a lower average base
rental rate per square
10
<PAGE>
foot. Base rentals per weighted average GLA, excluding these acquisitions,
during the 1998 period remained level with the 1997 period at $3.50 per square
foot.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $76,000,
or 25%, due primarily to the expansions completed in 1997. On a weighted average
GLA basis, percentage rentals were level with the prior year.
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,
increased slightly from 95% in the 1997 period to 96% in the 1998 period.
Property operating expenses increased by $874,000, or 13%, in the 1998 period as
compared to the 1997 period but, on a weighted average GLA basis, decreased $.11
per square foot to $1.56 from $1.67. The decrease was primarily due to a
decrease in expenses for advertising and promotion and common area maintenance
incurred during the 1998 period compared to the 1997 period.
General and administrative expenses increased $136,000, or 9%, in the 1998
quarter as compared to the 1997 quarter. As a percentage of revenues, general
and administrative expenses decreased in the 1998 period compared to the 1997
period from 7.4% to 6.7%, and on a weighted average GLA basis, decreased $.03
per square foot to $.35 in 1998.
Interest expense increased $1.5 million during the 1998 period as compared to
the 1997 period due to higher average borrowings outstanding during the period
and due to less interest capitalized during the 1998 period as a result of a
decrease in ongoing construction activity relative to the 1997 period. Average
borrowings have increased principally to finance the acquisitions and expansions
to existing centers (see "Overview" above). Depreciation and amortization per
weighted average GLA decreased slightly from $1.18 per square foot in the 1997
period to $1.17 per square foot in the 1998 period.
Comparison of the six months ended June 30, 1998 to the six months ended June
30, 1997
Base rentals increased $5.2 million, or 19%, in the 1998 period when compared to
the same period in 1997 primarily as a result of a 20% increase in weighted
average GLA. The increase in weighted average GLA is due to the acquisitions in
February 1997 (approximately 123,000 square feet), October 1997 (180,000 square
feet) and March 1998 (173,000 square feet), as well as expansions completed in
the fourth quarter of 1997 and first quarter 1998. The decrease in base rentals
per weighted average GLA of $.04 in the first six months of 1998 compared to the
same period in 1997 reflects the impact of these acquisitions, which
collectively have a lower average base rental rate per square foot. Base rentals
per weighted average GLA, excluding these acquisitions, during the 1998 period
remained level with the 1997 period at $7.00 per square foot.
Percentage rentals increased $172,000, or 24%, due to the acquisitions and
expansions completed in 1997. On a weighted average GLA basis, percentage
rentals increased slightly from $.18 to $.19 per square foot. For the six months
ended June 30, 1998, reported same-store sales, defined as the weighted average
sales per square foot reported by tenants for stores open since January 1,1997,
were level with that of the previous year. Total tenant sales for all centers
increased approximately 21% for the first six months in 1998 to $422 million
compared to $348 million for the same period in 1997.
11
<PAGE>
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 level at 96% in each of the 1998 and 1997 periods.
Property operating expenses increased by $1.9 million, or 16%, in the 1998
period as compared to the 1997 period but, on a weighted average GLA basis,
decreased $.12 per square foot to $3.04 from $3.16. The decrease is primarily
due to improved operating efficiencies and lower other non-reimbursable
operating costs per square foot.
General and administrative expenses increased $311,000, or 10%, in the 1998
quarter as compared to the 1997 quarter. As a percentage of revenues, general
and administrative expenses decreased from approximately 7.6% of revenues in the
1997 period to 7.1% in the 1998 period and, on a weighted average GLA basis,
decreased $.07 per square foot to $.72 in 1998.
Interest expense increased $2.4 million during the 1998 period as compared to
the 1997 period due to higher average borrowings outstanding during the period
and due to less interest capitalized during the 1998 period as a result of a
decrease in ongoing construction activity relative to the 1997 period. Average
borrowings have increased principally to finance the acquisitions and expansions
to existing centers (see "Overview" above). Depreciation and amortization per
weighted average GLA remained level in the 1998 period when compared with the
1997 period at $2.31 per square foot.
The gain on sale of real estate for the six months ended June 30, 1998
represents the sale of an 8,000 square foot, single tenant property in
Manchester, VT for $1.85 million and the sale of two outparcels at other centers
for sales prices aggregating $690,000.
The extraordinary loss for the six months ended June 30, 1998 represents a
write-off of the unamortized deferred financing costs due to the termination of
a $50 million secured line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was approximately $16.6 million in
each of the six month periods ended June 30, 1998 and 1997, respectively. Net
cash used in investing activities amounted to $32.2 and $42.0 million during the
first six months of 1998 and 1997, respectively, reflecting lower levels of
construction activity in the 1998 period compared to the 1997 period. The net
decrease in the 1998 period is also attributable to the proceeds received from
the sale of one factory outlet center and two outparcels located at other
existing centers. Net cash from financing activities amounted to $14.8 and $25.5
million during the first six months of 1998 and 1997, respectively, and has
decreased consistently with the capital needs of the current acquisition and
expansion activity. The net decrease of $10.7 million in the 1998 period
compared with the 1997 period also reflects additional distributions paid as a
result of additional partnership Units outstanding and a $.08 per unit increase
in the quarterly distributions to unitholders.
During the first six months, the Operating Partnership placed in service the
related assets of the expansions which were significantly underway at December
31, 1997 totaling approximately 297,000 square feet. As a result, the balance
sheet caption Developments under Construction decreased from $26.8 million as of
December 31, 1997 to $3.5 million at June 30, 1998. In addition, the Operating
Partnership has begun construction on additional expansions to the properties in
Branson, MO (25,000 square feet) and Sevierville, TN (96,000 square feet).
Commitments to complete construction of the expansions to the existing
properties
12
<PAGE>
and other capital expenditure requirements amounted to approximately $800,000 at
June 30, 1998. Commitments for construction represent only those costs
contractually required to be paid by the Operating Partnership.
The Operating Partnership also is in the process of developing plans for
additional expansions and new centers for completion in 1999 and beyond and will
consider other acquisitions that are suitable for its portfolio. The Operating
Partnership is continuing the preleasing of two planned sites located in
Concord, North Carolina (Charlotte) and Romulus, Michigan (Detroit). However,
there can be no assurance that any of these anticipated or planned developments
or expansions will be started or completed as scheduled, or that any development
or expansion will result in accretive funds from operations. In addition, the
Operating Partnership regularly evaluates acquisition proposals, engages from
time to time in negotiations for acquisitions and may from time to time enter
into letters of intent for the purchase of properties. No assurance can be given
that any of the prospective acquisitions that are being evaluated or which are
subject to a letter of intent will be consummated, or if consummated, will
result in accretive funds from operations.
Management intends to continually have access to the capital resources necessary
to expand and develop its business and, accordingly, may seek to obtain
additional funds through equity offerings or debt financing. The Operating
Partnership, together with the general partner, have an active shelf
registration with the SEC providing for the issuance of up to $100 million in
additional equity securities and $100 million in additional debt securities. In
addition, the Operating Partnership maintains revolving lines of credit which
provide for unsecured borrowings of up to $100 million, of which $66.6 million
was available for additional borrowings as of June 30, 1998. Subsequent to June
30, 1998, the Operating Partnership used a portion of these available borrowings
to finance the acquisition of Sanibel Factory Stores, which was acquired for a
purchase price of $27.65 million. Based on existing credit facilities, ongoing
negotiations with certain financial institutions and funds available under the
shelf registration, management believes that the Operating Partnership has
access to the necessary financing to fund the planned remaining capital
expenditures during 1998.
Management is continuing its strategy of unencumbering the Operating
Partnership's real estate assets to improve its access to capital with more
favorable interest rates. During the first six months of 1998, the Operating
Partnership terminated a $50 million secured line of credit and increased the
unsecured lines of credit by $25 million. At June 30, 1998, approximately 71% of
the outstanding long-term debt represented unsecured borrowings and
approximately 78% of the Operating Partnership's real estate portfolio was
unencumbered. The weighted average interest rate on debt outstanding on June 30,
1998 was 8.4%.
The Operating Partnership anticipates that adequate cash will be available to
fund its operating and administrative expenses, regular debt service
obligations, and the payment of distributions in accordance with REIT
requirements in both the short and long term. Although the Operating Partnership
receives most of its rental payments on a monthly basis, distributions are made
quarterly. Amounts accumulated for distribution will be used to reduce the
outstanding borrowings under the existing lines of credit or invested in
short-term money market or other suitable instruments. Certain of the Operating
Partnership's debt agreements or instruments limit the payment of distributions
such that distributions will not exceed funds from operations ("FFO"), as
defined in the agreements, on an annual basis or 95% of FFO on a cumulative
basis from the date of the agreement.
On July 9, 1998, the Board of Directors of the general partner declared a $.60
cash distribution per partnership Unit payable on August 14, 1998 to each
unitholder of record on July 30, 1998. The Board of Directors of the general
partner also declared a cash distribution of $.5406 per preferred partnership
Unit payable on August 14, 1998 to each preferred unitholder of record on July
30, 1998.
13
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
131, " Disclosures about Segments of an Enterprise and Related Information."
SFAS No. 131 requires public business enterprises to adopt its provisions for
fiscal years beginning after December 15, 1997, and to report certain
information about operating segments in complete sets of financial statements of
the enterprise issued to unitholders. Segment disclosures will also be required
in interim financial statements beginning in the second year of application. The
Operating Partnership is evaluating the provisions of SFAS No. 131, and has
determined the impact, if any, will not be significant to the financial
statements.
In May 1998, the Emerging Issues Task Force of the FASB reached a consensus on
Issue 98-9, "Accounting for Contingent Rent in Interim Financial Periods". The
consensus states that a lessor should defer recognition of contingent rental
income until specified targets that trigger the contingent rent are met. Since
the Operating Partnership is currently, and has historically followed this
practice when recognizing percentage rental income, the adoption of this
consensus is expected to have no impact on the Operating Partnership's current
accounting practices.
On June 15, 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities (FAS
133). FAS 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999. FAS 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. The Operating
Partnership anticipates that, due to its limited use of derivative instruments,
the adoption of FAS 133 will not have a significant effect on the Operating
Partnership's results of operations or its financial position.
FUNDS FROM OPERATIONS
Management believes that to facilitate a clear understanding of the historical
operating results of the Operating Partnership, FFO should be considered in
conjunction with net income as presented in the unaudited financial statements
included elsewhere in this report. FFO is presented because it is a widely
accepted financial indicator used by certain investors and analysts to analyze
and compare one equity real estate investment trust ("REIT") with another on the
basis of operating performance. FFO is generally defined as net income (loss),
computed in accordance with generally accepted accounting principles, before
extraordinary items and gains (losses) on sale of properties, plus depreciation
and amortization uniquely significant to real estate. The Operating Partnership
cautions that the calculation of FFO may vary from entity to entity and as such
the presentation of FFO by the Operating Partnership may not be comparable to
other similarly titled measures of other reporting companies. FFO does not
represent net income or cash flow from operations as defined by generally
accepted accounting principles and should not be considered an alternative to
net income as an indication of operating performance or to cash from operations
as a measure of liquidity. FFO is not necessarily indicative of cash flows
available to fund distributions to unitholders and other cash needs.
14
<PAGE>
Below is a computation of FFO for the three and six months ended June 30, 1998
and 1997 as well as actual cash flow and other data for applicable reporting
periods:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
Income before gain on sale or real estate
and extraordinary item $ 4,335 $ 3,857 $ 8,864 $ 7,822
Adjusted for depreciation and amortization uniquely
significant to real estate 5,503 4,574 10,589 8,811
-------- -------- -------- --------
Funds from operations $ 9,838 $ 8,431 $ 19,453 $ 16,633
======== ======== ======== ========
Diluted weighted average units outstanding(1) 11,912 10,666 11,897 10,662
======== ======== ======== ========
Cash flows provided by (used in):
Operating activities $ 16,645 $ 16,557
Investing activities ($32,200) ($42,025)
Financing activities $ 14,820 $ 25,504
</TABLE>
(1) Assumes the preferred units and the Unit options are converted to general
partnership Units.
ECONOMIC CONDITIONS AND OUTLOOK
Substantially all of the Operating Partnership's leases contain provisions
designed to mitigate the impact of inflation. Such provisions include clauses
for the escalation of base rent and clauses enabling the Operating Partnership
to receive percentage rentals based on tenants' gross sales (above predetermined
levels, which the Operating Partnership believes often are lower than
traditional retail industry standards) which generally increase as prices rise.
Most of the leases require the tenant to pay their share of property operating
expenses, including common area maintenance, real estate taxes, insurance,
advertising and promotion, thereby reducing exposure to increases in costs and
operating expenses resulting from inflation.
Approximately 168,000 square feet of space is up for renewal during the
remaining part of 1998 and approximately 733,000 square feet will come up for
renewal in 1999. In addition, as typical in the retail industry, certain tenants
have closed, or will close, certain stores by terminating their lease prior to
its natural expiration or as a result of filing for protection under bankruptcy
laws. There can be no assurance that any tenant whose lease expires will renew
such lease or that renewals or terminated leases will be released on
economically favorable terms. Also, certain tenants have requested, or may
request, and management may grant, from time to time, a reduction in rent to
remain in operation.
The Operating Partnership's portfolio is currently 97% leased. Existing tenants'
sales have remained stable and renewals by existing tenants have remained
strong. In addition, the Operating Partnership has continued to attract and
retain additional tenants. The Operating Partnership's factory outlet centers
typically include well known, national, brand name companies. By maintaining a
broad base of credit tenants and a geographically diverse portfolio of
properties located across the United States, the Operating Partnership reduces
its operating and leasing risks. No one tenant (including affiliates) accounts
for more than 10% of the Operating Partnership's combined base and percentage
rental revenues. Accordingly, management currently does not expect any material
adverse impact on the Operating Partnership's results of operation and financial
condition as a result of leases to be renewed or stores to be released.
15
<PAGE>
The Operating Partnership has evaluated its computer systems and applications
for potential software failures as a result of recognizing the year 2000 and
beyond. Most of the systems are compliant with the year 2000, or will be with
normal upgrades currently available to the Operating Partnership. Therefore, the
Operating Partnership believes the costs to bring the remaining systems and
applications in compliance will be insignificant. While the Operating
Partnership believes its planning efforts are adequate to address its Year 2000
concerns, there can be no guarantee that the systems of other companies on which
the Operating Partnership's systems and operations rely will be converted on a
timely basis and will not have a material effect on the Operating Partnership's
results of operations or financial condition.
CONTINGENCIES
There are no recorded amounts resulting from environmental liabilities as there
are no known material loss contingencies with respect thereto. Future claims for
environmental liabilities are not measurable given the uncertainties surrounding
whether there exists a basis for any such claims to be asserted and, if so,
whether any claims will, in fact, be asserted. Furthermore, no condition is
known to exist that would give rise to a material environmental liability for
site restoration, post-closure and monitoring commitments, or other costs that
may be incurred upon the sale or disposal of a property. Management has no plans
to abandon any of the properties and is unaware of any other material loss
contingencies.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Operating Partnership is presently involved in any
material litigation nor, to their knowledge, is any material litigation
threatened against the Company or the Operating Partnership or its properties,
other than routine litigation arising in the ordinary course of business and
which is expected to be covered by the liability insurance.
Item 6. Exhibits and Reports on Form 8-K
None
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TANGER PROPERTIES LIMITED PARTNERSHIP
By: Tanger Factory Outlet Centers, Inc.,
its general partner
By: /s/ FRANK C. MARCHISELLO, JR.
----------------------------------------
Frank C. Marchisello, Jr.
Vice President, Chief Financial Officer
DATED: August 10, 1998
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements as of and for the six months ended June 30, 1998 included
herein and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,872
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 480,453
<DEPRECIATION> 73,887
<TOTAL-ASSETS> 432,254
<CURRENT-LIABILITIES> 0
<BONDS> 256,834
0
0
<COMMON> 0
<OTHER-SE> 157,384
<TOTAL-LIABILITY-AND-EQUITY> 432,254
<SALES> 0
<TOTAL-REVENUES> 47,156
<CGS> 0
<TOTAL-COSTS> 14,049
<OTHER-EXPENSES> 10,679 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,225
<INCOME-PRETAX> 9,858
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,858
<DISCONTINUED> 0
<EXTRAORDINARY> (460)
<CHANGES> 0
<NET-INCOME> 9,398
<EPS-PRIMARY> .77
<EPS-DILUTED> .76
<FN>
<F1>
Depreciation and amortization
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Restated F.D.S. for Tanger Properties Limited Partnership
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,603
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 403,781
<DEPRECIATION> 55,233
<TOTAL-ASSETS> 370,251
<CURRENT-LIABILITIES> 0
<BONDS> 214,890
0
0
<COMMON> 0
<OTHER-SE> 132,911
<TOTAL-LIABILITY-AND-EQUITY> 370,251
<SALES> 0
<TOTAL-REVENUES> 39,681
<CGS> 0
<TOTAL-COSTS> 12,148
<OTHER-EXPENSES> 8,904 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,779
<INCOME-PRETAX> 7,822
<INCOME-TAX> 0
<INCOME-CONTINUING> 7,822
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,822
<EPS-PRIMARY> .71
<EPS-DILUTED> .70
<FN>
<F1>
Depreciation and amortization
</FN>
</TABLE>
