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 March 31, 2000
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.)
3200 Northline Avenue, Suite 360, Greensboro, North Carolina 27408
(Address of principal executive offices)
(Zip code)
(336) 292-3010
(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
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
Index
Part I. Financial Information
Page Number
Item 1. Financial Statements (Unaudited)
Statements of Operations
For the three months ended March 31, 2000 and 1999 3
Balance Sheets
As of March 31, 2000 and December 31, 1999 4
Statements of Cash Flows
For the three months ended March 31, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II. Other Information
Item 1. Legal proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
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<TABLE>
<CAPTION>
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
Three Months Ended
March 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
REVENUES
<S> <C> <C>
Base rentals $17,458 $17,071
Percentage rentals 453 408
Expense reimbursements 6,963 6,358
Other income 943 326
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 25,817 24,163
- ---------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 7,439 6,889
General and administrative 1,761 1,674
Interest 6,662 5,969
Depreciation and amortization 6,438 6,179
- ---------------------------------------------------------------------------------------------------------------------
Total expenses 22,300 20,711
- ---------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 3,517 3,452
Extraordinary item - Loss on early extinguishment of debt --- (345)
- ---------------------------------------------------------------------------------------------------------------------
Net income 3,517 3,107
Less applicable preferred unit distributions (466) (479)
- ---------------------------------------------------------------------------------------------------------------------
Net income available to common unitholders 3,051 2,628
Income allocated to limited partners (3,009) (730)
- ---------------------------------------------------------------------------------------------------------------------
Income allocated to general partner $42 $1,898
=====================================================================================================================
Basic earnings per common unit:
Income before extraordinary item $.28 $.27
Extraordinary item --- (.03)
- ---------------------------------------------------------------------------------------------------------------------
Net income $.28 $.24
=====================================================================================================================
Diluted earnings per common unit:
Income before extraordinary item $.28 $.27
Extraordinary item --- (.03)
- ---------------------------------------------------------------------------------------------------------------------
Net income $.28 $.24
=====================================================================================================================
Distributions paid per common unit $.61 $.60
=====================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
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<TABLE>
<CAPTION>
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(In thousands)
March 31, December 31,
2000 1999
- ----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Rental Property
<S> <C> <C>
Land $63,045 $63,045
Buildings, improvements and fixtures 507,709 484,277
Developments under construction 975 18,894
- ----------------------------------------------------------------------------------------------------------------------------
571,729 566,216
Accumulated depreciation (110,479) (104,511)
- ----------------------------------------------------------------------------------------------------------------------------
Rental property, net 461,250 461,705
Cash and cash equivalents 200 501
Deferred charges, net 8,526 8,176
Other assets 15,346 19,469
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $485,322 $489,851
============================================================================================================================
LIABILITIES AND PARTNERS' EQUITY
Liabilites
Long-term debt
Senior, unsecured notes $150,000 $150,000
Mortgages payable 90,349 90,652
Credit facilities 89,268 88,995
- ----------------------------------------------------------------------------------------------------------------------------
329,617 329,647
Construction trade payables 6,372 6,287
Accounts payable and accrued expenses 11,827 12,863
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 347,816 348,797
- ----------------------------------------------------------------------------------------------------------------------------
Commitments
Partners' equity
General partner 1,878 1,927
Limited partners 135,628 139,127
- ----------------------------------------------------------------------------------------------------------------------------
Total partners' equity 137,506 141,054
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and partners' equity $485,322 $489,851
============================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended
March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $3,517 $3,107
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 6,438 6,179
Amortization of deferred financing costs 288 274
Loss on early extinguishment of debt --- 345
Straight-line base rent adjustment 9 (150)
Increase (decrease) due to changes in:
Other assets 407 1,870
Accounts payable and accrued expenses (1,036) (200)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activites 9,623 11,425
- -----------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to rental properties (5,417) (11,237)
Additions to deferred lease costs (609) (549)
Insurance proceeds from casualty losses 4,046 ---
Advances to officer (411) ---
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,391) (11,786)
- -----------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repurchase of partnership units --- (667)
Cash distributions paid (7,065) (7,036)
Proceeds from notes payable --- 66,500
Repayments on notes payable (303) (47,544)
Proceeds from credit facilities 31,578 26,110
Repayments on credit facilities (31,305) (42,350)
Additions to deferred financing costs (438) (786)
- -----------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (7,533) (5,773)
- -----------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (301) (6,134)
Cash and cash equivalents, beginning of period 501 6,334
- -----------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $200 $200
=============================================================================================================================
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 March 31, 2000
and 1999 amounted to $6,372 and $6,468, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
March 31, 2000
(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, 1999. 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. Development of Rental Properties
During the first quarter of 2000, the Operating Partnership added 43,200
square feet to the portfolio in Commerce, GA and Sevierville, Tennessee. In
addition, the Operating Partnership has approximately 83,200 square feet of
expansion space under construction in four centers.
Commitments to complete construction of the expansions to the existing
properties and other capital expenditure requirements amounted to
approximately $1.3 million at March 31, 2000. Commitments for construction
represent only those costs contractually required to be paid by the
Operating Partnership.
Interest costs capitalized during the three months ended March 31, 2000 and
1999 amounted to $238,000 and $346,000, respectively.
3. Other Assets
Other assets include a receivable totaling $3.2 million from Stanley K.
Tanger, the Chairman of the Board and Chief Executive Officer of the
general partner. Mr. Tanger and the Operating Partnership have entered into
demand note agreements whereby he may borrow up to $3.5 million through
various advances from the Operating Partnership for an investment in a
separate E-commerce business venture. The notes bear interest at a rate of
8% per annum and are collateralized by Mr. Tanger's limited partnership
interest in Tanger Investments Limited Partnership. Mr. Tanger intends to
fully repay the loans.
4. Long-Term Debt
In January 2000, the Operating Partnership entered into a $20.0 million two
year unsecured term loan with interest payable at LIBOR plus 2.25%. The
proceeds were used to reduce amounts outstanding under the existing lines
of credit. Also in January 2000, the Operating Partnership entered into
interest rate swap agreements on notional amounts totaling $20.0 million at
a cost of $162,000. The agreements mature in January 2002. The swap
agreements have the effect of fixing the interest rate on the new $20.0
million loan at 8.75%.
6
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At March 31, 2000, the Operating Partnership had revolving lines of credit
with an unsecured borrowing capacity of $100 million, of which $30.7
million was available for additional borrowings.
5. Earnings 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, Earnings Per Share (in thousands,
except per unit amounts):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
- -----------------------------------------------------------------------------------------------------------
Numerator:
<S> <C> <C>
Income before extraordinary item $3,517 $3,452
Less applicable preferred unit distributions (466) (479)
- -----------------------------------------------------------------------------------------------------------
Income available to common unitholders -
numerator for basic and diluted earnings per unit 3,051 2,973
- -----------------------------------------------------------------------------------------------------------
Denominator:
Basic weighted average common units 10,910 10,918
Effect of outstanding unit options 6 ---
- -----------------------------------------------------------------------------------------------------------
Diluted weighted average common units 10,916 10,918
- -----------------------------------------------------------------------------------------------------------
Basic earnings per unit before extraordinary item $.28 $.27
===========================================================================================================
Diluted earnings per unit before extaordinary item $.28 $.27
===========================================================================================================
</TABLE>
The computation of diluted earnings per unit excludes options to purchase
common units when the exercise price is greater than the average market
price of the common units for the period. The market price of the common
units is considered to be equivalent to the market price of the common
shares of Tanger Factory Outlet Centers, Inc., sole owner of the Operating
Partnership's general partner. Options excluded for the three months ended
March 31, 2000 and 1999 totaled 1,230,440 and 1,262,109, respectively. The
assumed conversion of preferred units to common units as of the beginning
of the year would have been anti-dilutive.
At March 31, 2000 and December 31, 1999, the ownership interests of the
Operating Partnership consisted of the following:
<TABLE>
<CAPTION>
2000 1999
---------------------------------------------------------- ------------- --------------
<S> <C> <C>
Preferred units 85,270 85,270
---------------------------------------------------------- ------------- --------------
Common units:
General partner 150,000 150,000
Limited partners 10,760,140 10,760,140
---------------------------------------------------------- ------------- --------------
Total 10,910,140 10,910,140
=======================================================================================
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion should be read in conjunction with the financial
statements appearing elsewhere in this report. 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 months ended March 31, 2000 with
the three months ended March 31, 1999. Certain comparisons between the periods
are made on a percentage basis as well as on a weighted average gross leasable
area ("GLA") basis, a
7
<PAGE>
technique which adjusts for certain increases or decreases in the number of
centers and corresponding square feet related to the development, acquisition,
expansion or disposition of rental properties. The computation of weighted
average GLA, however, does not adjust for fluctuations in occupancy which may
occur subsequent to the original opening date.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Operating Partnership intends
such forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995 and included this statement for purposes of complying with these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe our future plans, strategies and expectations, are
generally identifiable by use of the words "believe", "expect", "intend",
"anticipate", "estimate", "project", or similar expressions. You should not rely
on forward-looking statements since they involve known and unknown risks,
uncertainties and other factors which are, in some cases, beyond our control and
which could materially affect our actual results, performance or achievements.
Factors which may cause actual results to differ materially from current
expectations include, but are not limited to, the following:
- - general economic and local real estate conditions could change (for example,
our tenant's business may change if the economy changes, which might effect
(1) the amount of rent they pay us or their ability to pay rent to us, (2)
their demand for new space, or (3) our ability to renew or re-lease a
significant amount of available space on favorable terms;
- - the laws and regulations that apply to us could change (for instance, a
change in the tax laws that apply to REITs could result in unfavorable tax
treatment for us);
- - availability and cost of capital (for instance, financing opportunities may
not be available to us, or may not be available to us on favorable terms);
- - our operating costs may increase or our costs to construct or acquire new
properties or expand our existing properties may increase or exceed our
original expectations.
General Overview
At March 31, 2000, the Operating Partnership owned 31 centers in 22 states
totaling 5.2 million square feet compared to 31 centers in 23 states totaling
5.1 million square feet at March 31, 1999. Since March 31, 1999, the Operating
Partnership has acquired one center and expanded four centers, increasing GLA by
approximately 327,000 square feet. However, on May 3, 1999, a tornado destroyed
the center in Stroud, Oklahoma, reducing GLA by 198,000 square feet.
During the quarter, the Operating Partnership added 43,200 square feet to the
portfolio in Commerce, GA and Sevierville, Tennessee from previous expansions
that began in 1999. In addition, the Operating Partnership has approximately
83,200 square feet of expansion space under construction in four centers which
are scheduled to open in the next six months.
8
<PAGE>
A summary of the operating results for the three months ended March 31, 2000 and
1999 is presented in the following table, expressed in amounts calculated on a
weighted average GLA basis.
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GLA open at end of period (000's) 5,191 5,062
Weighted average GLA (000's) (1) 5,168 5,039
Outlet centers in operation 31 31
New centers acquired --- ---
Centers disposed of or sold --- ---
Centers expanded --- 1
States operated in at end of period 22 23
Occupancy percentage at end of period 95 94
Per square foot
Revenues
Base rentals $3.38 $3.39
Percentage rentals .09 .08
Expense reimbursements 1.35 1.26
Other income .18 .06
- ----------------------------------------------------------------------------------------------------
Total revenues 5.00 4.79
- ----------------------------------------------------------------------------------------------------
Expenses
Property operating 1.44 1.37
General and administrative .34 .33
Interest 1.29 1.18
Depreciation and amortization 1.25 1.23
- ----------------------------------------------------------------------------------------------------
Total expenses 4.32 4.11
- ----------------------------------------------------------------------------------------------------
Income before extraordinary item $.68 $.68
====================================================================================================
(1) GLA weighted by months of operations. GLA is not adjusted for fluctuations in occupancy
which may occur subsequent to the original opening date.
</TABLE>
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2000 to the three months ended
March 31, 1999
Base rentals increased $387,000, or 2%, in the 2000 period when compared to the
same period in 1999. The increase is primarily due to the effect of the
expansions and the acquisition completed since March 31, 1999, as mentioned in
the Overview above, offset by the loss of rent from the center in Stroud,
Oklahoma. Base rent per weighted average GLA decreased slightly by $.01 per
square foot from $3.38 per square foot in the first three months of 2000
compared to $3.39 per square foot in the first three months of 1999.
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $45,000,
and on a weighted average GLA basis, increased $.01 per square foot in 2000
compared to 1999. For the three months ended March 31, 2000, reported same-store
sales, defined as the weighted average sales per square foot reported by tenants
for stores open since January 1, 1999, increased by 4% when compared to the
first three months of 1999. Reported same-space sales for the rolling twelve
months ended March 31, 2000, defined as the weighted average sales per square
foot reported in space open for the full duration of each comparison period,
increased to $270, or 6%, reflecting the continued success of the Operating
Partnership's strategy to re-merchandise selected centers by replacing low
volume tenants with high volume tenants.
9
<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,
increased from 92% in 1999 to 94% in 2000 primarily as a result decreases in
certain non-reimbursable expenses.
Other income increased $617,000 in 2000 compared to 1999 primarily due to the
recognition of $493,00 in business interruption insurance proceeds relating to
the Stroud center.
Property operating expenses increased by $550,000, or 8%, in the 2000 period as
compared to the 1999 period and, on a weighted average GLA basis, increased $.07
per square foot from $1.37 to $1.44. The increases are the result of certain
increases in real estate tax assessments and higher common area maintenance
expenses.
General and administrative expenses increased $87,000, or 5%, in the 2000 period
as compared to the 1999 period. However, as a percentage of total revenues,
general and administrative expenses were approximately 7% of total revenues in
both the 2000 and 1999 periods and, on a weighted average GLA basis, increased
$.01 per square foot from $.33 in 1999 to $.34 in 2000 reflecting the absorption
of the acquisition and expansions in 1999 without corresponding increases in
general and administrative expenses.
Interest expense increased $693,000 during 2000 as compared to 1999 due to the
incremental financing needed to fund the 1999 expansions and the November 1999
acquisition and due to higher interest rates on the Operating Partnership's
variable rate debt and on its new $20.0 million term loan established in January
2000. Depreciation and amortization per weighted average GLA increased slightly
from $1.23 per square foot in the 1999 period to $1.25 per square foot in the
2000 period.
The extraordinary loss recognized in the 1999 period represents the write-off of
unamortized deferred financing costs related to debt that was extinguished
during the period prior to its scheduled maturity.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operating activities was $9.6 million and $11.4 million for
the three months ended March 31, 2000 and 1999, respectively. The decrease in
cash provided by operating activities is due primarily to a decrease in payables
and an increase in receivables during 2000 when compared to 1999. Net cash used
in investing activities was $2.4 and $11.8 million during 2000 and 1999,
respectively. Cash used was lower in 2000 primarily due to the decrease in cash
paid for expansion activities and due to $4.0 million received in insurance
proceeds relating to the Stroud, Oklahoma center. Net cash used in financing
activities amounted to $7.5 million and $5.8 million during the first three
months of 2000 and 1999.
During the quarter, the Operating Partnership added 43,200 square feet to the
portfolio in Commerce, GA and Sevierville, Tennessee. In addition, the Operating
Partnership has approximately 83,200 square feet of expansion space under
construction in four centers which are scheduled to open in the next six months.
Commitments to complete construction of the expansions to the existing
properties and other capital expenditure requirements amounted to approximately
$1.3 million at March 31, 2000. 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 2000 and beyond.
Currently, the Operating Partnership is in the preleasing stage of a second
phase of the Fort Lauderdale development that will include 130,000 square feet
of GLA to be developed on the 12-acre parcel adjacent to the existing Bass Pro
Outdoor World store. If the Operating Partnership decides to develop this
project, it anticipates stores in this phase to begin opening in early 2001.
Based on tenant demand, the Operating Partnership also has an option to purchase
the retail portion of a site at the Bourne Bridge Rotary in Cape Cod, MA where
it plans to develop a new 300,000 square foot outlet center.
10
<PAGE>
The entire site will contain more than 950,000 square feet of mixed-use
entertainment, retail, office and residential community built in the style of a
Cape Cod Village. The local and state planning authorities are currently
reviewing the project and the Operating Partnership anticipates final approvals
by early 2001.
These anticipated or planned developments or expansions may not be started or
completed as scheduled, or may not result in accretive funds from operations. In
addition, the Operating Partnership regularly evaluates acquisition or
disposition proposals, engages from time to time in negotiations for
acquisitions or dispositions and may from time to time enter into letters of
intent for the purchase or sale of properties. Any prospective acquisition or
disposition that is being evaluated or which is subject to a letter of intent
also may not be consummated, or if consummated, may not result in accretive
funds from operations.
Other assets include a receivable totaling $3.2 million from Stanley K. Tanger,
the Chairman of the Board and Chief Executive Officer of the general partner.
Mr. Tanger and the Operating Partnership have entered into demand note
agreements whereby he may borrow up to $3.5 million through various advances
from the Operating Partnership for an investment in a separate E-commerce
business venture. The notes bear interest at a rate of 8% per annum and are
collateralized by Mr. Tanger's limited partnership interest in Tanger
Investments Limited Partnership. Mr. Tanger intends to fully repay the loans.
The Operating Partnership maintains revolving lines of credit which provide for
unsecured borrowings up to $100 million, of which $30.7 million was available
for additional borrowings at March 31, 2000. As a general matter, the Operating
Partnership anticipates utilizing its lines of credit as an interim source of
funds to acquire, develop and expand factory outlet centers and repaying the
credit lines with longer-term debt or equity when management determines that
market conditions are favorable. Under joint shelf registration, the Operating
Partnership and Tanger Factory Outlet Centers, Inc., the sole owner of the
Operating Partnership's general partner, could issue up to $100 million in
additional debt securities and $100 million in additional equity securities.
With the decline in the real estate debt and equity markets, the Operating
Partnership may not, in the short term, be able to access these markets on
favorable terms. Management believes the decline is temporary and may utilize
these funds as the markets improve to continue its external growth. In the
interim, the Operating Partnership may consider the use of operational and
developmental joint ventures and other related strategies to generate additional
capital. The Operating Partnership may also consider selling certain properties
that do not meet the Operating Partnership's long-term investment criteria as
well as outparcels on existing properties to generate capital to reinvest into
other attractive opportunities. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
funds available under the shelf registration, management believes that the
Operating Partnership has access to the necessary financing to fund the planned
capital expenditures during 2000.
In January 2000, the Operating Partnership entered into a $20.0 million two year
unsecured term loan with interest payable at LIBOR plus 2.25%. The proceeds were
used to reduce amounts outstanding under the existing lines of credit. Also in
January 2000, the Operating Partnership entered into interest rate swap
agreements on notional amounts totaling $20.0 million at a cost of $162,000. The
agreements mature in January 2002. The swap agreements have the effect of fixing
the interest rate on the new $20.0 million loan at 8.75%.
At March 31, 2000, approximately 73% of the outstanding long-term debt
represented unsecured borrowings and approximately 80% of the Operating
Partnership's real estate portfolio was unencumbered. The weighted average
interest rate on debt outstanding on March 31, 2000 was 8.2%.
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 to
unitholders are made quarterly and interest payments on the senior, unsecured
notes are made semi-annually. Amounts accumulated for such payments will be used
in the interim to reduce the outstanding borrowings under the existing lines of
credit or invested in short-term money market or other suitable instruments.
Certain of the Operating Partnership's debt agreements limit the payment
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<PAGE>
of distributions such that distributions will not exceed funds from operations
("FFO"), as defined in the agreements, for the prior fiscal year on an annual
basis or 95% of FFO on a cumulative basis from the date of the agreement.
On April 13, 2000, the Board of Trustees of the general partner declared a
$.6075 cash distribution per common unit payable on May 15, 2000 to each
unitholder of record on April 28, 2000. The Board of Trustees of the general
partner also declared a cash distribution of $.5474 per preferred unit payable
on May 15, 2000 to each preferred unitholder of record on April 28, 2000.
Market Risk
The Operating Partnership is exposed to various market risks, including changes
in interest rates. Market risk is the potential loss arising from adverse
changes in market rates and prices, such as interest rates. The Operating
Partnership does not enter into derivatives or other financial instruments for
trading or speculative purposes.
The Operating Partnership negotiates long-term fixed rate debt instruments and
enters into interest rate swap agreements to manage its exposure to interest
rate changes. The swaps involve the exchange of fixed and variable interest rate
payments based on a contractual principal amount and time period. Payments or
receipts on the agreements are recorded as adjustments to interest expense. At
March 31, 2000, the Operating Partnership had interest rate swap agreements
effective through January 2002 with a notional amount of $20 million. Under this
agreement, the Operating Partnership receives a floating interest rate based on
the 30 day LIBOR index and pays a fixed interest rate of 6.5%. These swaps
effectively change the Operating Partnership's payment of interest on $20
million of variable rate debt to fixed rate debt for the contract period at a
rate of 8.75%.
The fair value of the interest rate swap agreements represent the estimated
receipts or payments that would be made to terminate the agreements. At March
31, 2000, the Operating Partnership would have received $136,000 to terminate
the agreements. A 1% decrease in the 30 day LIBOR index would decrease this
amount received by approximately $324,000. The fair value is based on dealer
quotes, considering current interest rates.
The fair market value of long-term fixed interest rate debt is subject to market
risk. Generally, the fair market value of fixed interest rate debt will increase
as interest rates fall and decrease as interest rates rise. The estimated fair
value of the Operating Partnership's total long-term debt at March 31, 2000 was
$323.8 million and the recorded value was $329.6 million. A 1% increase from
prevailing interest rates at March 31, 2000 would result in a decrease in fair
value of total long-term debt by approximately $4.7 million. Fair values were
determined from quoted market prices, where available, using current interest
rates considering credit ratings and the remaining terms to maturity.
New Accounting Pronouncements
During 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires entities to recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at their fair value. In June 1999, the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133-an amendment
of the FASB Statement No. 133" that revises SFAS No. 133 to become effective in
the first quarter of 2001. Management of the Operating Partnership anticipates
that, due to its limited use of derivative instruments, the adoption of SFAS No.
133 will not have a significant effect on the Operating Partnership's results of
operations or its financial position.
12
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Funds from Operations
Management believes that for a clear understanding of the historical operating
results of the Operating Partnership, FFO should be considered along 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 depreciable operating
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.
In October 1999, the National Association of Real Estate Investment Trusts
("NAREIT") issued interpretive guidance regarding the calculation of FFO.
NAREIT's leadership determined that FFO should include both recurring and
non-recurring operating results, except those results defined as extraordinary
items under generally accepted accounting principles and gains and losses from
sales of depreciable operating property. All REITS are encouraged to implement
the recommendations of this guidance effective for fiscal periods beginning in
2000 for all periods presented in financial statements or tables. The Operating
Partnership's adoption of the new NAREIT clarification as of January 1, 2000 had
no impact on amounts previously reported as funds from operations.
Below is a calculation of funds from operations for the three months ended March
31, 2000 and 1999 as well as actual cash flow and other data for those
respective periods (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
- -------------------------------------------------------------------------------------------------------
Funds from Operations:
<S> <C> <C>
Net income $3,517 $3,107
Adjusted for:
Extraordinary item - loss on early extinguishment of debt --- 345
Depreciation and amortization uniquely significant to real estate 6,378 6,121
- -------------------------------------------------------------------------------------------------------
Funds from operations $9,895 $9,573
=======================================================================================================
Cash flows provided by (used in):
Operating activites $9,623 $11,425
Investing activities $(2,391) $(11,786)
Financing activities $(7,533) $(5,773)
Weighted average units outstanding (1) 11,684 11,713
=======================================================================================================
(1) Assumes the preferred units and unit options are converted to common units.
</TABLE>
13
<PAGE>
Economic Conditions and Outlook
The majority 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 and
advertising and promotion, thereby reducing exposure to increases in costs and
operating expenses resulting from inflation.
While factory outlet stores continue to be a profitable and fundamental
distribution channel for brand name manufacturers, some retail formats are more
successful than others. As typical in the retail industry, certain tenants have
closed, or will close, certain stores by terminating their lease prior to its
natural expiration or as a result of filing for protection under bankruptcy
laws.
As part of its strategy of aggressively managing its assets, the Operating
Partnership is strengthening the tenant base in several of its centers by adding
strong new anchor tenants, such as Polo, Nike, GAP and Nautica. To accomplish
this goal, stores may remain vacant for a longer period of time in order to
recapture enough space to meet the size requirement of these upscale, high
volume tenants. Consequently, the Operating Partnership anticipates that its
average occupancy level will remain strong, but may be more in line with the
industry average.
Approximately 26% of the Operating Partnership's lease portfolio is scheduled to
expire during the next two years. Approximately 712,000 square feet of space is
up for renewal during 2000 and approximately 629,000 square feet will come up
for renewal in 2001. If the Operating Partnership were unable to successfully
renew or release a significant amount of this space on favorable economic terms,
the loss in rent could have a material adverse effect on its results of
operations.
Existing tenants' sales have remained stable and renewals by existing tenants
have remained strong. Approximately 283,000, or 40%, of the square feet
scheduled to expire in 2000 have already been renewed by the existing tenants.
In addition, the Operating Partnership continues 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 creditworthy 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 7% 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.
Year 2000 Compliance
The Operating Partnership did not experience any systems or other Year 2000
("Y2K") problems during the first quarter of 2000. In 1999, the Operating
Partnership spent approximately $220,000 to upgrade or replace equipment or
systems specifically to bring them in compliance with Y2K. The Operating
Partnership is not aware of any other significant costs to be incurred to
address future Y2K problems.
There are a number of Y2K related items that may affect the Operating
Partnership's results of operations. For example, the Operating Partnership's
spending patterns or cost relationships may have been affected by large Y2K
remediation expenditures or the postponement of certain expenses. The Operating
Partnership's revenue patterns may have been affected by unusual tenant
behavior, such as delayed openings or delayed payments of rents until after Y2K.
In addition, some companies may have postponed Information Technology projects
or other capital spending in preparing for Y2K which could impact the Operating
Partnership's liquidity requirements. The Operating Partnership has not
experienced any of these situations and does not believe that any exist which
might materially
14
<PAGE>
impact the Operating Partnership's results of operations or liquidity.
The Operating Partnership has third-party relationships with approximately 280
tenants and over 8,000 suppliers and contractors. Many of these third party
tenants are publicly-traded corporations and subject to disclosure requirements.
The principal risks to the Operating Partnership in its relationships with third
parties are the failure of third-party systems used to conduct business such as
tenants being unable to stock stores with merchandise, use cash registers and
pay invoices; banks being unable to process receipts and disbursements; vendors
being unable to supply needed materials and services to the centers; and
processing of outsourced employee payroll.
The Operating Partnership's assessment of major third parties' Y2K readiness
included sending surveys to tenants and key suppliers of outsourced services
including stock transfer, debt servicing, banking collection and disbursement,
payroll and benefits. The majority of the Operating Partnership's vendors are
small suppliers that the Operating Partnership believes can manually execute
their business and are readily replaceable. Management also believes there is no
material risk of being unable to procure necessary supplies and services from
third parties who have not already indicated that they are currently Y2K
compliant. The Operating Partnership received responses to approximately 73% of
the surveys sent to tenants, banks and key suppliers. Of the companies who
responded, 99% indicated they were presently, or would be by the year 2000, Y2K
compliant. The Operating Partnership is not aware of any significant third
parties who are not currently Y2K compliant. However, there can be no assurance
that all third parties are currently Y2K compliant and that all will be able to
continue to conduct transactions with the Operating Partnership successfully.
There also can be no assurance that Y2K problems of third parties or of the
Operating Partnership's own systems which did not surface in the first three
months of 2000 will not be a problem sometime in the near future.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Operating Partnership nor its general partner is presently involved
in any material litigation nor, to their knowledge, is any material litigation
threatened against the Operating Partnership or its general partner or its
properties, other than routine litigation arising in the ordinary course of
business and which is expected to be covered by the liability insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
None
15
<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 GP Trust, its general partner
By: /s/ FRANK C. MARCHISELLO, JR.
-------------------------------
Frank C. Marchisello, Jr.
Treasurer
DATE: May 11, 2000
16
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the financial
statements as of and for the year ended March 31, 2000 included herein and is
qualified in its entirety by reference to such statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-END> Mar-31-2000
<CASH> 200
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 571,729
<DEPRECIATION> 110,479
<TOTAL-ASSETS> 485,322
<CURRENT-LIABILITIES> 0
<BONDS> 329,617
0
0
<COMMON> 0
<OTHER-SE> 137,506
<TOTAL-LIABILITY-AND-EQUITY> 485,322
<SALES> 0
<TOTAL-REVENUES> 25,817
<CGS> 0
<TOTAL-COSTS> 7,439
<OTHER-EXPENSES> 6,438 <F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,662
<INCOME-PRETAX> 3,517
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,517
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
<FN>
<F1> Depreciation and amortization
</FN>
</TABLE>
