FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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
1
<PAGE>
TANGER PROPERTIES LIMITED PARTNERSHIP
Index
Part I. Financial Information
Page Number
Item 1. Financial Statements (Unaudited)
Statements of Operations
For the three and nine months ended September 30, 2000 and 1999 3
Balance Sheets
As of September 30, 2000 and December 31, 1999 4
Statements of Cash Flows
For the nine months ended September 30, 2000 and 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 1. Legal proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 17
2
<PAGE>
<TABLE>
<CAPTION>
TANGER PROPERTIES LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
REVENUES
<S> <C> <C> <C> <C>
Base rentals $ 17,492 $ 17,151 $ 52,912 $ 51,314
Percentage rentals 898 888 1,902 1,774
Expense reimbursements 7,791 7,107 22,138 20,316
Other income 1,165 1,759 3,501 2,803
----------------------------------------------------------------------------------------------------------------------
Total revenues 27,346 26,905 80,453 76,207
----------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 8,751 7,993 24,458 22,221
General and administrative 1,862 1,880 5,489 5,409
Interest 6,852 5,957 20,451 17,968
Depreciation and amortization 6,537 6,200 19,512 18,525
----------------------------------------------------------------------------------------------------------------------
Total expenses 24,002 22,030 69,910 64,123
----------------------------------------------------------------------------------------------------------------------
Income before gain or loss on sale of real estate
and extraordinary item 3,344 4,875 10,543 12,084
Gain (loss) on sale of real estate --- 1,313 (5,935) 1,313
----------------------------------------------------------------------------------------------------------------------
Income before extraordinary item 3,344 6,188 4,608 13,397
Extraordinary item - Loss on early extinguishment of debt --- --- --- (345)
----------------------------------------------------------------------------------------------------------------------
Net income 3,344 6,188 4,608 13,052
Less applicable preferred unit distributions (449) (481) (1,382) (1,441)
----------------------------------------------------------------------------------------------------------------------
Income available to common unitholders 2,895 5,707 3,226 11,611
Income allocated to limited partners (2,855) (1,591) (3,181) (3,234)
----------------------------------------------------------------------------------------------------------------------
Income allocated to general partner $ 40 $ 4,116 $ 45 $ 8,377
======================================================================================================================
Basic earnings per common unit:
Income before extraordinary item $ .26 $ .52 $ .30 $ 1.10
Extraordinary item --- --- --- (.03)
----------------------------------------------------------------------------------------------------------------------
Net income $ .26 $ .52 $ .30 $ 1.07
======================================================================================================================
Diluted earnings per common unit:
Income before extraordinary item $ .26 $ .52 $ .29 $ 1.10
Extraordinary item --- --- --- (.03)
----------------------------------------------------------------------------------------------------------------------
Net income $ .26 $ .52 $ .29 $ 1.07
======================================================================================================================
Distributions paid per common unit $ .61 $ .61 $ 1.82 $ 1.81
======================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
TANGER PROPERTIES LIMITED PARTNERSHIP
BALANCE SHEETS
(In thousands)
September 30, December 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------
(unaudited)
ASSETS
Rental Property
<S> <C> <C>
Land $ 60,303 $ 63,045
Buildings, improvements and fixtures 498,830 484,277
Developments under construction 21,778 18,894
-----------------------------------------------------------------------------------------------------------------
580,911 566,216
Accumulated depreciation (117,367) (104,511)
-----------------------------------------------------------------------------------------------------------------
Rental property, net 463,544 461,705
Cash and cash equivalents 200 501
Deferred charges, net 8,872 8,176
Other assets 15,422 19,469
-----------------------------------------------------------------------------------------------------------------
Total assets $ 488,038 $ 489,851
=================================================================================================================
LIABILITIES AND PARTNERS' EQUITY
Liabilites
Long-term debt
Senior, unsecured notes $ 150,000 $ 150,000
Mortgages payable 135,759 90,652
Unsecured term note 20,000 ---
Unsecured lines of credit 31,289 88,995
-----------------------------------------------------------------------------------------------------------------
337,048 329,647
Construction trade payables 13,110 6,287
Accounts payable and accrued expenses 13,472 12,863
-----------------------------------------------------------------------------------------------------------------
Total liabilities 363,630 348,797
-----------------------------------------------------------------------------------------------------------------
Commitments
Partners' equity
General partner 1,699 1,927
Limited partners 122,709 139,127
-----------------------------------------------------------------------------------------------------------------
Total partners' equity 124,408 141,054
-----------------------------------------------------------------------------------------------------------------
Total liabilities and partners' equity $ 488,038 $ 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)
Nine Months Ended
September 30,
2000 1999
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
(Unaudited)
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 4,608 $ 13,052
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 19,512 18,525
Amortization of deferred financing costs 928 758
Loss on early extinguishment of debt --- 345
Loss (gain) on disposal or sale of real estate 5,935 (1,313)
Gain on sale of outparcels of land (908) (687)
Straight-line base rent adjustment 170 (211)
Increase (decrease) due to changes in:
Other assets (614) (95)
Accounts payable and accrued expenses 609 3,427
-------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activites 30,240 33,801
-------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to rental properties (25,896) (26,613)
Additions to deferred lease costs (1,894) (1,709)
Net proceeds from sale of real estate 8,598 1,987
Insurance proceeds from casualty losses 4,046 7,853
Advances to officer, net of repayments (358) (2,436)
-------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (15,504) (20,918)
-------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repurchase of partnership units --- (958)
Cash distributions paid (21,254) (21,164)
Proceeds from mortgages payable 46,160 66,500
Repayments on mortgages payable (1,053) (48,192)
Proceeds from revolving lines of credit 93,924 74,448
Repayments on revolving lines of credit (131,630) (88,650)
Additions to deferred financing costs (1,184) (1,015)
Proceeds from exercise of unit options --- 12
-------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (15,037) (19,019)
-------------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (301) (6,136)
Cash and cash equivalents, beginning of period 501 6,334
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 200 $ 198
=========================================================================================================================
Supplemental schedule of non-cash investing activities:
The Operating Parntership purchases capital equipment and incurs costs relating to construction of new
facilities, including tenant finishing allowances. Expenditures included in construction trade payables as of
September 30, 2000 and 1999 amounted to $13,110 and $6,692, respectively.
The accompanying notes are an integral part of these financial statements.
</TABLE>
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
September 30, 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 and Disposition of Rental Properties
During the first nine months of 2000, the Operating Partnership added 70,100
square feet to the portfolio in Commerce, GA, Sevierville, TN and San Marcos,
TX. In addition, the Operating Partnership has approximately 244,300 square feet
of expansion space under construction in four centers located in Riverhead, NY,
Lancaster, PA, Sevierville, TN and San Marcos, TX.
In June 2000, the Operating Partnership sold its centers in Lawrence, KS and
McMinnville, OR. Net proceeds received from the sale totaled $7.1 million. As a
result of the sale, the Operating Partnership recognized a loss on sale of real
estate of $5.9 million. The combined net operating income of these two centers
represented approximately 1% of the total portfolio's operating income. During
the third quarter, the Operating Partnership also sold two land outparcels at
its San Marcos center for net proceeds of $752,000 and has included in other
income a gain on sale of $482,000. During the first nine months of 2000, the
Operating Partnership in total has sold four land outparcels for net proceeds of
$1.5 million and has included in other income a gain on sale of $908,000.
Commitments to complete construction of the expansions to the existing
properties and other capital expenditure requirements amounted to approximately
$5.7 million at September 30, 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 September 30, 2000 and
1999 amounted to $328,000 and $293,000, respectively, and for the nine months
ended September 30, 2000 and 1999 amounted to $687,000 and $903,000,
respectively.
3. Other Assets
In May 2000, the demand notes receivable totaling $3.4 million from Stanley K.
Tanger, Chairman of the Board and Chief Executive Officer of the general
partner, were converted into two separate term notes of which $2.5 million is
due from Mr. Tanger and $845,000 is due from Steven B. Tanger, President of the
general partner. The notes amortize evenly over five years with principal and
interest at a rate of 8% per annum due quarterly. The balances of these notes at
September 30, 2000 were $2.4 million and $810,000, respectively.
6
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4. Long-Term Debt
On September 8, 2000, the Operating Partnership refinanced its five year $9.2
million secured loan with New York Life Insurance Company at a fixed interest
rate of 9.125%.
On August 29, 2000, the Operating Partnership entered into a ten year secured
term loan with Woodmen of the World Life Insurance Society for $16.7 million
with interest payable at a fixed rate of 8.86%. The proceeds were used to reduce
amounts outstanding under the existing lines of credit.
On July 28, 2000, the Operating Partnership entered into a five year secured
term loan with Wells Fargo Bank for $29.5 million with interest payable at LIBOR
plus 1.75%. The proceeds were used to reduce amounts outstanding under the
existing lines of credit.
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 September 30, 2000, the Operating Partnership had revolving lines of credit
with an unsecured borrowing capacity of $100 million, of which $68.7 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 Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Numerator:
<S> <C> <C> <C> <C>
Income before extraordinary item $ 3,344 $ 6,188 $ 4,608 $ 13,397
Less applicable preferred unit distributions (449) (481) (1,382) (1,441)
-----------------------------------------------------------------------------------------------------------------------------------
Income available to common unitholders -
numerator for basic and diluted earnings per unit $ 2,895 $ 5,707 $ 3,226 $ 11,956
-----------------------------------------------------------------------------------------------------------------------------------
Denominator:
Basic weighted average common units 10,938 10,883 10,919 10,895
Effect of outstanding unit options 49 68 25 21
-----------------------------------------------------------------------------------------------------------------------------------
Diluted weighted average common units 10,987 10,951 10,944 10,916
-----------------------------------------------------------------------------------------------------------------------------------
Basic earnings per unit before extraordinary item $ .26 $ .52 $ .30 $ 1.10
===================================================================================================================================
Diluted earnings per unit before extaordinary item $ .26 $ .52 $ .29 $ 1.10
-----------------------------------------------------------------------------------------------------------------------------------
</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., the sole owner of the Operating Partnership's general
partner. Options excluded totaled 631,000 and 341,000 for the three months ended
September 30, 2000 and 1999, respectively, and 1,226,000 and 652,000 for the
nine months ended September 30, 2000 and 1999, respectively. The assumed
conversion of preferred units to common units as of the beginning of the year
would have been anti-dilutive.
7
<PAGE>
At September 30, 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 80,600 85,270
---------------------------------------------------------- ------------- --------------
Common units:
General partner 150,000 150,000
Limited partners 10,802,216 10,760,140
---------------------------------------------------------- ------------- --------------
Total 10,952,216 10,910,140
---------------------------------------------------------- ------------- --------------
</TABLE>
6. Subsequent Events
On November 9, 2000, the Operating Partnership terminated its contract to
purchase twelve acres of land in Dania Beach/Ft. Lauderdale, Florida from Bass
Pro Outdoor World, L.P. ("Bass Pro"). Conditions that were required to have been
satisfied prior to consummation of the Operating Partnership's purchase of the
property, including the ability to obtain a building permit and the satisfaction
by the seller of various title and other matters, had not been satisfied by the
scheduled closing date of November 3, 2000. In accordance with, and as a result
of the termination of the purchase contract, Bass Pro has thirty business days
in which to exercise an option to reacquire the existing Outdoor World building
owned by the Operating Partnership at the site. The Operating Partnership is in
the process of determining the final cost associated with the termination of the
contract, which will be written off in the fourth quarter, or should Bass Pro
exercise its option to repurchase, at the time of close.
8
<PAGE>
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 that
might appear, are not necessarily indicative of future operations.
The discussion of our results of operations reported in the statements of
operations compares the three and nine months ended September 30, 2000 with the
three and nine months ended September 30, 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 technique which adjusts for certain increases or
decreases in the number of centers and corresponding square feet related to the
development, acquisition, expansion or disposition of rental properties. The
computation of weighted average GLA, however, does not adjust for fluctuations
in occupancy that may occur subsequent to the original opening date.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. We intend for 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 September 30, 2000, we owned 29 centers in 20 states totaling 5.0 million
square feet of GLA compared to 30 centers in 22 states totaling 4.9 million
square feet of GLA at September 30, 1999. Since September 30, 1999, we have
acquired one center and expanded four existing centers, increasing GLA by a net
of approximately 244,000 square feet. In addition, we sold two centers totaling
186,000 square feet in June 2000.
9
<PAGE>
During the first nine months of 2000, we added 70,100 square feet to the
portfolio in Commerce, GA, San Marcos, TX and Sevierville, TN. In addition, we
have approximately 244,300 square feet of expansion space under construction in
four centers located in Lancaster, PA, Riverhead, NY, San Marcos, TX and
Sevierville, TN. In June 2000, we sold our centers in Lawrence, KS and
McMinnville, OR. Net proceeds received from the sale totaled $7.1 million. As a
result of the two sales, we recognized a loss on sale of real estate of $5.9
million. The combined net operating income of these two centers represented
approximately 1% of the total portfolio's operating income. During the first
nine months of 2000, we also sold four land outparcels for net proceeds of $1.5
million and have included in other income a gain on sale of $908,000.
A summary of the operating results for the three and nine months ended September
30, 2000 and 1999 is presented in the following table, expressed in amounts
calculated on a weighted average GLA basis.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
GLA open at end of period (000's) 5,004 4,946 5,004 4,946
Weighted average GLA (000's) (1) 5,010 4,939 5,117 4,976
Outlet centers in operation 29 30 29 30
New centers acquired --- --- --- ---
Centers sold --- 1 2 1
Centers expanded --- 2 --- 4
States operated in at end of period 20 22 20 22
Occupancy percentage at end of period 95 95 95 95
Per square foot
Revenues
Base rentals $ 3.49 $ 3.47 $ 10.34 $ 10.31
Percentage rentals .18 .18 .37 .36
Expense reimbursements 1.56 1.44 4.33 4.08
Other income .23 .36 .68 .56
----------------------------------------------------------------------------------------------------------------------
Total revenues 5.46 5.45 15.72 15.31
----------------------------------------------------------------------------------------------------------------------
Expenses
Property operating 1.75 1.62 4.78 4.47
General and administrative .37 .38 1.07 1.09
Interest 1.37 1.21 4.00 3.61
Depreciation and amortization 1.30 1.26 3.81 3.72
----------------------------------------------------------------------------------------------------------------------
Total expenses 4.79 4.47 13.66 12.89
----------------------------------------------------------------------------------------------------------------------
Income before gain or loss on sale of real estate
and extraordinary item $ .67 $ .98 $ 2.06 $ 2.42
======================================================================================================================
(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 September 30, 2000 to the three months
ended September 30, 1999
Base rentals increased $341,000, 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 during the fourth quarter of 1999 and the first nine months of 2000,
as mentioned in the General Overview above, offset by the loss of rent from the
sales of the centers in Lawrence, Kansas and McMinnville, Oregon. Base rent per
weighted average GLA increased by $.02 per square foot from $3.47 per square
foot in the three months ended September 30, 1999 to $3.49 per square foot in
the three months ended September 30, 2000. The increase is mainly attributable
to the expansions.
10
<PAGE>
Percentage rentals, which represent revenues based on a percentage of tenants'
sales volume above predetermined levels (the "breakpoint"), increased $10,000,
and on a weighted average GLA basis, remained flat in comparison to 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,
remained constant at 89% in 2000 compared to the same period in 1999.
Other income decreased $594,000 due to the recognition of $318,000 in 1999 from
the Stroud insurance reimbursement and higher gain on sale from outparcel sales
in 1999 of $687,000 versus $482,000 in 2000. We received approximately $1.9
million in business interruption insurance proceeds when our outlet center in
Stroud, Oklahoma was destroyed by a tornado in May 1999. The proceeds were
amortized into income over a fourteen month period from May 1999 to June 2000.
Property operating expenses increased by $758,000, or 9%, in the 2000 period as
compared to the 1999 period and, on a weighted average GLA basis, increased $.13
per square foot from $1.62 to $1.75. The increases are the result of certain
increases in real estate tax assessments and higher common area maintenance
expenses.
General and administrative expenses decreased slightly by $18,000, or 1%, in the
2000 period as compared to the 1999 period and, as a percentage of total
revenues, were approximately 7% of total revenues in both the 2000 and 1999
periods.
Interest expense increased $895,000 during the 2000 period as compared to the
1999 period due to the incremental financing needed to fund the expansions
described in the General Overview section above and higher interest rates on our
variable rate and new fixed rate debt obtained during the quarter. Depreciation
and amortization per weighted average GLA increased from $1.26 per square foot
in the 1999 period to $1.30 per square foot in the 2000 period due to a higher
mix of tenant finishing allowances included in buildings and improvements which
are depreciated over shorter lives than other construction costs.
Comparison of the nine months ended September 30, 2000 to the nine months ended
September 30, 1999
Base rentals increased $1.6 million, or 3%, 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 September 30, 1999, as mentioned
in the General Overview above, offset by the loss of rent from the sales of the
centers in Lawrence, KS and McMinnville, OR. Base rent per weighted average GLA
increased by $.03 per square foot from $10.31 per square foot in the nine months
ended September 30, 1999 to $10.34 per square foot in the nine months ended
September 30, 2000. The increase is the result of the expansions and acquisition
since September 30, 1999.
Percentage rentals increased $128,000, and on a weighted average GLA basis,
increased $.01 per square foot in 2000 compared to 1999. For the first nine
months of 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 1% when compared to the first nine months of 1999. Reported
same-space sales for the rolling twelve months ended September 30, 2000, defined
as the weighted average sales per square foot reported in space open for the
full duration of each comparison period, increased 7% to $278, reflecting the
continued success of the our strategy to re-merchandise selected centers by
replacing low volume tenants with high volume tenants.
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,
decreased from 91% in 1999 to 90% in 2000 primarily as a result of higher
operating costs and other non-reimbursable expenses during the 2000 period
compared to the 1999 period.
Other income increased $698,000 in 2000 compared to 1999 primarily due to the
increased gains on sale of land outparcels totaling $221,000 in the 2000 period
compared to the 1999 period. Also, business interruption insurance proceeds
relating to the Stroud center totaling $1.0 million were recognized in 2000
compared to $524,000 in 1999.
Property operating expenses increased by $2.2 million, or 10%, in the 2000
period as compared to the 1999 period and, on a weighted average GLA basis,
increased $.31 per square foot from $4.47 to $4.78. The increases are the result
of certain increases in real estate tax assessments and higher common area
maintenance expenses.
General and administrative expenses increased $80,000, or 1%, in the 2000 period
as compared to the 1999 period and, as a percentage of total revenues, general
and administrative expenses were approximately 7% of total revenues in both the
2000 and 1999 periods.
Interest expense increased $2.5 million during the 2000 period as compared to
the 1999 period due to the incremental financing needed to fund the expansions
since September 1999 and the November 1999 acquisition in Fort Lauderdale, FL
and higher interest rates on our variable rate debt. Depreciation and
amortization per weighted average GLA increased 2% from $3.72 per square foot in
the 1999 period to $3.81 per square foot in the 2000 period due to a higher mix
of tenant finishing allowances included in buildings and improvements which are
depreciated over shorter lives than other construction costs.
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 $30.2 million and $33.8 million
for the nine months ended September 30, 2000 and 1999, respectively. The
decrease in cash provided by operating activities is due primarily to a decrease
in accounts payable and accrued expenses. Net cash used in investing activities
was $15.5 million and $20.9 million during 2000 and 1999, respectively. Net cash
used in investing was lower in 2000 primarily due to the increase in cash
received from the sale of real estate, a decrease in insurance proceeds received
from casualty losses and a decrease in advances to officers. Net cash used in
financing activities decreased to $15.0 million during the first nine months of
2000 from $19.0 million in 1999 due to the reduction of amounts outstanding
under the lines of credit from the proceeds from insurance and property sales.
During the first nine months of 2000, we added 70,100 square feet to our
portfolio in Commerce, GA, San Marcos, TX and Sevierville, TN. In addition, we
have approximately 244,300 square feet of expansion space under construction in
four centers located in Lancaster, PA, Riverhead, NY, San Marcos, TX and
Sevierville, TN. Commitments to complete construction of the expansions to the
existing properties and other capital expenditure requirements amounted to
approximately $5.7 million at September 30, 2000. Commitments for construction
represent only those costs contractually required to be paid by us.
12
<PAGE>
We have an option to purchase the retail portion of a site at the Bourne Bridge
Rotary in Cape Cod, MA. Based on tenant demand, we plan to develop a new 250,000
square foot outlet center. The entire site will contain more than 750,000 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 they anticipate final approvals by next
year. Due to the extensive amount of site work and road construction, stores are
not expected to be open until mid 2003.
On November 9, 2000, the Operating Partnership terminated its contract to
purchase twelve acres of land in Dania Beach/Ft. Lauderdale, Florida from Bass
Pro Outdoor World, L.P. ("Bass Pro"). Conditions that were required to have been
satisfied prior to consummation of the Operating Partnership's purchase of the
property, including the ability to obtain a building permit and the satisfaction
by the seller of various title and other matters, had not been satisfied by the
scheduled closing date of November 3, 2000. In accordance with, and as a result
of the termination of the purchase contract, Bass Pro has thirty business days
in which to exercise an option to reacquire the existing Outdoor World building
owned by the Operating Partnership at the site. The Operating Partnership is in
the process of determining the final cost associated with the termination of the
contract, which will be written off in the fourth quarter, or should Bass Pro
exercise its option to repurchase, at the time of close.
The developments or expansions that we have planned or anticipated may not be
started or completed as scheduled, or may not result in accretive funds from
operations. In addition, we regularly evaluate acquisition or disposition
proposals and engage from time to time in negotiations for acquisitions or
dispositions of properties. We may also enter into letters of intent for the
purchase or sale of properties. Any prospective acquisition or disposition that
is being evaluated or which is subject to a letter of intent may not be
consummated, or if consummated, may not result in accretive funds from
operations.
During the first nine months of the year, to complete our development pipeline
and to put us in a position to handle the debt maturities that will be occurring
over the next twelve months, we have taken the following steps:
<TABLE>
<CAPTION>
Interest
Lender Loan Amount Status Rate
<S> <C> <C> <C> <C>
Fleet National Bank/Bank of America 2 yr unsecured $20.0 million Closed 01/00 8.75% fixed
Wells Fargo Bank 5 yr secured $29.5 million Closed 07/00 Libor+1.75%
Woodmen of the World Life Ins. Society 10 yr secured $16.7 million Closed 08/00 8.86% fixed
New York Life Insurance Company 5 yr secured (renewal) $ 9.2 million Closed 09/00 9.125% fixed
</TABLE>
We have extended the maturities for our four lines of credit with Bank of
America, Bank One, Fleet National Bank and SouthTrust Bank until at least June
30, 2002. This additional long-term financing, the proceeds from the property
sales, and internally generated cash flow will be used to fund profitable
expansions to many of our successful, high volume centers over the next twelve
months.
The financing transactions and the approximate 150 basis point increase in LIBOR
rates over the last twelve months have effectively increased the average
interest rate (including amortization of loan costs) on our outstanding debt
from 8.2% in 1999 to an estimated 8.7% in 2000. Because of the long-term nature
of the leases with tenants, we cannot immediately pass through the higher
interest expense caused by this increase in market rates, which has begun to
have an impact on earnings. At September 30, 2000, our total outstanding debt
was $337.0 million, approximately 60% of the outstanding long-term debt
represented unsecured borrowings and approximately 70% of our real estate
portfolio was unencumbered.
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<PAGE>
We maintain revolving lines of credit with Bank of America, Bank One, Fleet
National Bank and SouthTrust Bank that provide for unsecured borrowings up to
$100 million, of which $68.7 million was available for additional borrowings at
September 30, 2000. As a general matter, we plan to utilize our lines of credit
as an interim source of funds to acquire, develop and expand factory outlet
centers and to repay the credit lines with longer-term debt or equity when we
determine that market conditions are favorable. Under joint shelf registration,
Tanger Factory Outlet Centers, Inc, the sole owner of the Operating
Partnership's general partner, and the Operating Partnership could issue up to
$100 million in additional equity securities and $100 million in additional debt
securities. With the decline in the real estate debt and equity markets, we may
not, in the short term, be able to access these markets on favorable terms. We
believe the decline is temporary and we may utilize these funds as the markets
improve to continue our external growth. In the interim, we may consider other
strategies to generate additional capital to reinvest in attractive
opportunities. These strategies may include the use of operational and
developmental joint ventures, selling certain properties that do not meet our
long-term investment criteria, selling land outparcels at existing properties as
well as other related strategies. Based on cash provided by operations, existing
credit facilities, ongoing negotiations with certain financial institutions and
funds available under the shelf registration, we believe that we have access to
the necessary financing to fund the planned capital expenditures during 2001.
We anticipate that adequate cash will be available to fund our operating and
administrative expenses, regular debt service obligations, and the payment of
dividends in accordance with REIT requirements in both the short and long term.
Although we receive most of our rental payments on a monthly basis,
distributions to shareholders 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 our debt agreements limit the payment of
dividends such that dividends 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.
In May 2000, the demand notes receivable totaling $3.4 million from Stanley K.
Tanger, the Company's Chairman of the Board and Chief Executive Officer of the
general partner, were converted into two separate term notes of which $2.5
million is due from Mr. Tanger and $845,000 is due from Steven B. Tanger,
President and Chief Operating Officer of the general partner. The notes amortize
evenly over five years with principal and interest at a rate of 8% per annum due
quarterly. The balances of these notes at September 30, 2000 were $2.4 million
and $810,000, respectively.
On October 12, 2000, the Board of Directors of the general partner declared a
$.6075 cash dividend per common unit payable on November 15, 2000 to each
unitholder of record on October 31, 2000. The Board of Directors of the general
partner also declared a cash dividend of $.5474 per preferred unit payable on
November 15, 2000 to each unitholder of record on October 31, 2000.
Market Risk
We are 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. We do not enter into derivatives or other
financial instruments for trading or speculative purposes.
We negotiate long-term fixed rate debt instruments and enter into interest rate
swap agreements to manage our 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 September 30,
2000, we had interest rate swap agreements effective through January 2002 with a
notional amount of $20 million. Under this agreement, we receive a floating
interest rate based on the 30 day LIBOR index and pay a fixed interest rate of
6.5%. These swaps effectively change our payment of interest on $20 million of
variable rate debt for the contract period to a fixed rate of 8.75%.
14
<PAGE>
The fair value of the interest rate swap agreements represents the estimated
receipts or payments that would be made to terminate the agreements. At
September 30, 2000, we would have received $12,000 to terminate the agreements.
A 1% decrease in the 30-day LIBOR index would decrease this amount received by
approximately $238,000. 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 our total long-term debt at September 30, 2000 was $332.0 million and
the recorded value was $337.0 million. A 1% increase from prevailing interest
rates at September 30, 2000 would result in a decrease in fair value of total
long-term debt by approximately $5.2 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. We anticipate that, due to our limited use of
derivative instruments, the adoption of SFAS No. 133 will not have a significant
effect on our results of operations or our financial position.
Funds from Operations
We believe 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. We caution
that the calculation of FFO may vary from entity to entity and as such our
presentation of FFO 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. We adopted the
new NAREIT clarification as of January 1, 2000 which had no impact on amounts
previously reported as funds from operations.
15
<PAGE>
Below is a calculation of FFO for the three and nine months ended September 30,
2000 and 1999 as well as actual cash flow and other data for those respective
periods (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------------------
Funds from Operations:
<S> <C> <C> <C> <C>
Net income $ 3,344 $ 6,188 $ 4,608 $ 13,052
Adjusted for:
Extraordinary item - loss on early extinguishment of debt --- --- --- 345
Depreciation and amortization uniquely significant to real estate 6,470 6,149 19,323 18,363
(Gain) loss on sale of real estate --- (1,313) 5,935 (1,313)
-----------------------------------------------------------------------------------------------------------------------------------
Funds from operations (1) $ 9,814 $ 11,024 $ 29,866 $ 30,447
===================================================================================================================================
Weighted average units outstanding (2) 11,727 11,746 11,703 11,711
===================================================================================================================================
Cash flows provided by (used in):
Operating activities $ 30,240 $ 33,801
Investing activities (15,504) (20,918)
Financing activities (15,037) (19,019)
__________________
(1) Includes gain on sales of outparcels of land of $482 and $687 for the three months ended, and $908 and 687 for the
nine months ended September 30, 2000 and 1999.
(2) Assumes the preferred units and unit options are converted to common units.
</TABLE>
Economic Conditions and Outlook
The majority of our leases contain provisions designed to mitigate the impact of
inflation. Such provisions include clauses for the escalation of base rent and
clauses enabling us to receive percentage rentals based on tenants' gross sales
(above predetermined levels, which we believe often are lower than traditional
retail industry standards) that 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 our strategy of aggressively managing our assets, we are
strengthening the tenant base in several of our centers by adding strong new
anchor tenants, such as Polo, Nike, GAP, Tommy Hilfiger 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. As of September 30, 2000, our centers were 95% occupied.
As of September 30, 2000, we have renewed approximately 498,000 square feet, or
71% of the square feet scheduled to expire in 2000. The existing tenants have
renewed at an average base rental rate approximately 5% higher than the expiring
rate. An additional 27,400 feet, or 4%, is currently in renewal negotiation or
will be negotiated during the fourth quarter with existing tenants. We are in
the process of releasing approximately 175,000 square feet of space that was not
renewed this year by the existing tenants. In addition, approximately 12% of our
lease portfolio is scheduled to expire during 2001. Consistent with our
long-term strategy of remerchandising centers, we will continue to hold space
off the market until an appropriate tenant is identified. While we believe this
strategy will add value to our centers in the long-term, it may reduce our
average occupancy rate by one to two percent over the next twelve to eighteen
months. If we are 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 our results of operations.
16
<PAGE>
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 the 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
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: November 13, 2000
17
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