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Filed pursuant to Rule 424(b)(2)
Reg. No. 333-03526
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED SEPTEMBER 12, 1997)
1,000,000 SHARES
TANGER FACTORY OUTLET CENTERS, INC.
COMMON SHARES
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Tanger Factory Outlet Centers, Inc. (the "Company") is a fully-integrated,
self-administered and self-managed real estate investment trust ("REIT") that
focuses exclusively on developing, acquiring, owning and operating factory
outlet centers (the "Centers") and provides all development, leasing and
management services for its Centers. As of September 1, 1997, the Company owned
and operated 28 Centers with a total gross leasable area ("GLA") of
approximately 4.1 million square feet. These Centers were approximately 97%
leased, contained over 970 stores and represented over 240 brand name companies
as of such date.
The 1,000,000 common shares of the Company, par value $0.01 per share (the
"Common Shares"), offered hereby (the "Offering") are being sold by the Company.
After giving effect to the Offering, management of the Company will beneficially
own approximately 27% of the outstanding Common Shares (on a fully diluted
basis, but without giving effect to the exercise of any outstanding share or
partnership unit options). The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "SKT." The last reported sale price of
the Common Shares on the NYSE on September 18, 1997 was $29 1/16 per share. See
"Price Range of Common Shares and Distributions."
The Common Shares are subject to certain restrictions on ownership designed
to preserve the Company's status as a REIT for federal income tax purposes. See
"Description of Common Shares--Restrictions on Ownership and Transfer" in the
accompanying Prospectus.
SEE "RISK FACTORS" ON PAGE 4 IN THE ACCOMPANYING PROSPECTUS FOR CERTAIN
FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON SHARES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR
THE ACCOMPANYING PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $29.0625 $1.525 $27.5375
Total(3).................................. $29,062,500 $1,525,000 $27,537,500
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted to the several Underwriters an option for 30 days to
purchase up to an additional 150,000 Common Shares, solely to cover
over-allotments, if any. If all of such shares are purchased, the total
Price to Public, Underwriting Discount and Proceeds to Company will be
$33,421,875, $1,753,750 and $31,668,125, respectively. See "Underwriting."
--------------------------
The Common Shares are offered by the several Underwriters, subject to prior
sale, when, as and if issued to and accepted by the Underwriters, subject to
approval of certain legal matters by counsel for the Underwriters and to certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and reject orders in whole or in part. It is expected that
delivery of the Common Shares will be made in New York, New York, on or about
September 24, 1997.
--------------------------
MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
STIFEL, NICOLAUS & COMPANY
INCORPORATED
--------------------------
The date of this Prospectus Supplement is September 18, 1997.
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[LOGO]
[MAP]
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Shares.
Such transactions may include stabilizing, the purchase of Common Shares to
cover syndicate short positions and the imposition of penalty bids. For a
description of these activities, see "Underwriting."
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PROSPECTUS SUPPLEMENT SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED
INFORMATION AND FINANCIAL INFORMATION APPEARING ELSEWHERE IN, OR INCORPORATED BY
REFERENCE IN, THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. UNLESS
OTHERWISE INDICATED, THE INFORMATION CONTAINED IN THIS PROSPECTUS SUPPLEMENT
ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION HAS NOT BEEN EXERCISED.
CERTAIN STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," AND WORDS
OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE
THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY
RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS.
THE COMPANY
The Company is a fully-integrated, self-administered and self-managed REIT
that focuses exclusively on developing, acquiring, owning and operating factory
outlet centers and provides all development, leasing and management services for
its Centers. The Company believes that it is one of the largest owners and
operators of factory outlet centers in the United States. Based on a recent
Value Retail News survey of outlet tenants, the Company owns Centers in five of
the top 18 outlet markets, ranked by sales per square foot, in the United
States. As of September 1, 1997, the Company owned and operated 28 Centers with
a total GLA of approximately 4.1 million square feet. These Centers were
approximately 97% leased, contained over 970 stores and represented over 240
brand name companies as of such date.
Stanley K. Tanger, the Company's Chairman and Chief Operating Officer,
entered the factory outlet center business in 1981. Since the Company completed
its initial public offering ("IPO") in June 1993, the Company has developed nine
Centers and acquired two Centers and, together with expansions of existing
Centers, added approximately 2.6 million square feet of GLA to its portfolio.
The Company's strategy is to increase revenues and cash flows through new
developments, selective acquisitions and expansions of existing factory outlet
centers while minimizing its operating expenses by designing low maintenance
properties and achieving economies of scale. The Company will seek to maintain
high occupancy rates and increasing rental revenues with a tenant base of
nationally recognized, name-brand tenants.
The Centers are presently held by, and all of the Company's operations are
conducted by, the Company's majority-owned subsidiary, Tanger Properties Limited
Partnership (the "Operating Partnership"). Although the Company and the
Operating Partnership are separate entities, for ease of reference, the term
"Company" as used herein shall refer to the business and properties of the
Company and the Operating Partnership, unless the context indicates otherwise.
The Company is the sole managing general partner of the Operating Partnership
and the Tanger Family Limited Partnership ("TFLP") is the sole limited partner.
After giving effect to the Offering, management of the Company will beneficially
own approximately 27% of the outstanding Common Shares (on a fully diluted basis
after giving effect to the exchange or conversion of outstanding partnership
units in the Operating Partnership held by TFLP and the Company's Series A
Cumulative Convertible Redeemable Preferred Shares (the "Series A Preferred
Shares") but without giving effect to the exercise of any outstanding share or
partnership unit options).
Ownership of the Company's capital stock is restricted to preserve the
Company's status as a REIT for federal income tax purposes. Subject to certain
exceptions, a person may not actually or constructively own more than 4% of the
Company's Common Shares (including Common Shares which may be issued as a result
of the conversion of Series A Preferred Shares) or more than 29,400 Series A
Preferred Shares (or a lesser number in certain cases). The Company also
operates in a manner intended to enable it to preserve its status as a REIT,
including, among other things, making distributions with respect to its
outstanding capital stock equal to at least 95% of its taxable income each year.
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OWNERSHIP STRUCTURE OF THE COMPANY AND THE OPERATING PARTNERSHIP
(AS OF SEPTEMBER 1, 1997, AFTER GIVING EFFECT TO THE OFFERING)
[LOGO]
DISTRIBUTION INCREASE
On April 10, 1997, the Company's Board of Directors approved an increase of
5.8% in the Company's regular quarterly distribution from $.52 to $.55 per
share, or from $2.08 to $2.20 per share on an annualized basis. The second
regular quarterly distribution at this increased rate of $.55 per share was paid
on August 15, 1997 to the shareholders of record on July 25, 1997. The Board of
Directors established this increased rate of distribution after considering,
among other things, its projected future funds from operations ("FFO") and the
minimum annual distribution requirements under tax laws relating to REITs.
The Company currently intends to continue paying regular quarterly
distributions on its Common Shares and to distribute amounts sufficient to
maintain its status as a REIT. Distributions are reviewed quarterly by the Board
of Directors and future distributions will depend upon factors deemed relevant
by the Board of Directors, including the Company's actual FFO, financial
condition, capital requirements, the annual distribution requirements under the
REIT provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
and other factors. Although the Company intends to continue paying regular
quarterly distributions on the Common Shares, no assurance can be given as to
the amounts that may be distributed in the future. See "Price Range of Common
Shares and Distributions."
THE OFFERING
<TABLE>
<S> <C>
Shares Offered............... 1,000,000 Common Shares.
Shares to be Outstanding
After the Offering......... 7,763,535 Common Shares (1).
Use of Proceeds.............. The net proceeds to the Company from the Offering will be
used to acquire, expand and develop factory outlet centers
and for general corporate purposes.
New York Stock Exchange
Symbol..................... "SKT"
</TABLE>
- ------------------------
(1) Information as of September 1, 1997 after giving effect to the Offering. On
a fully diluted basis after giving effect to the conversion or exchange of
outstanding partnership units in the Operating Partnership held by TFLP and
the Series A Preferred Shares, but without giving effect to the exercise of
any outstanding share or partnership unit options, there will be 11,615,299
shares outstanding after the Offering.
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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING, WITHOUT LIMITATION,
STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS," AND WORDS
OF SIMILAR IMPORT, CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS
INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE
THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY
RESULTS, TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR
ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH
FACTORS INCLUDE, AMONG OTHERS, THE FOLLOWING: NATIONAL AND LOCAL GENERAL
ECONOMIC AND MARKET CONDITIONS; DEMOGRAPHIC CHANGES; THE ABILITY OF THE COMPANY
TO SUSTAIN, MANAGE OR FORECAST ITS GROWTH; EXISTING GOVERNMENT REGULATIONS AND
CHANGES IN, OR THE FAILURE TO COMPLY WITH, GOVERNMENT REGULATIONS; ADVERSE
PUBLICITY; LIABILITY AND OTHER CLAIMS ASSERTED AGAINST THE COMPANY; COMPETITION;
THE RISK THAT THE COMPANY MAY NOT BE ABLE TO FINANCE ITS PLANNED DEVELOPMENT
ACTIVITIES; RISKS RELATED TO THE RETAIL INDUSTRY IN WHICH THE COMPANY'S OUTLET
CENTERS COMPETE, INCLUDING THE POTENTIAL ADVERSE IMPACT OF EXTERNAL FACTORS SUCH
AS INFLATION, TENANT DEMAND FOR SPACE, CONSUMER CONFIDENCE, UNEMPLOYMENT RATES
AND CONSUMER TASTES AND PREFERENCES; RISKS ASSOCIATED WITH THE COMPANY'S
DEVELOPMENT ACTIVITIES, SUCH AS THE POTENTIAL FOR COST OVERRUNS, DELAYS AND LACK
OF PREDICTABILITY WITH RESPECT TO THE FINANCIAL RETURNS ASSOCIATED WITH THESE
DEVELOPMENT ACTIVITIES; RISKS ASSOCIATED WITH REAL ESTATE OWNERSHIP, SUCH AS THE
POTENTIAL ADVERSE IMPACT OF CHANGES IN THE LOCAL ECONOMIC CLIMATE ON THE
REVENUES AND THE VALUE OF THE COMPANY'S PROPERTIES; RISKS THAT A SIGNIFICANT
NUMBER OF TENANTS MAY BECOME UNABLE TO MEET THEIR LEASE OBLIGATIONS OR THAT THE
COMPANY MAY BE UNABLE TO RENEW OR RE-LEASE A SIGNIFICANT AMOUNT OF AVAILABLE
SPACE ON ECONOMICALLY FAVORABLE TERMS; FLUCTUATIONS AND DIFFICULTY IN
FORECASTING OPERATING RESULTS; CHANGES IN BUSINESS STRATEGY OR DEVELOPMENT
PLANS; BUSINESS DISRUPTIONS; THE ABILITY TO ATTRACT AND RETAIN QUALIFIED
PERSONNEL; THE ABILITY TO REALIZE PLANNED COSTS SAVINGS IN ITS ACQUISITIONS;
RETENTION OF EARNINGS; AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. CERTAIN OF THESE FACTORS ARE
DISCUSSED IN MORE DETAIL ELSEWHERE IN, OR INCORPORATED BY REFERENCE IN, THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, INCLUDING, WITHOUT
LIMITATION, UNDER THE CAPTIONS "THE COMPANY," "SELECTED CONSOLIDATED FINANCIAL
DATA," AND "BUSINESS AND PROPERTIES" IN THIS PROSPECTUS SUPPLEMENT AND UNDER THE
CAPTION "RISK FACTORS" IN THE ACCOMPANYING PROSPECTUS. GIVEN THESE
UNCERTAINTIES, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON SUCH FORWARD-LOOKING STATEMENTS. THE COMPANY DISCLAIMS ANY OBLIGATION TO
UPDATE ANY SUCH FACTORS OR TO PUBLICLY ANNOUNCE THE RESULT OF ANY REVISIONS TO
ANY OF THE FORWARD-LOOKING STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS TO REFLECT FUTURE
EVENTS OR DEVELOPMENTS.
THE COMPANY
The Company is a fully-integrated, self-administered and self-managed REIT
that focuses exclusively on developing, acquiring, owning and operating factory
outlet centers and provides all development, leasing and management services for
its Centers. According to Value Retail News, an industry publication, the
Company is one of the largest owners and operators of factory outlet centers in
the United States. Based on a recent Value Retail News survey of outlet tenants,
the Company owns Centers in five of the top 18 outlet markets, ranked by sales
per square foot, in the United States. As of September 1, 1997, the Company
owned and operated 28 Centers with a total GLA of approximately 4.1 million
square feet. These Centers were approximately 97% leased, contained over 970
stores and represented over 240 brand name companies as of such date.
The Centers are presently held by, and all of the Company's operations are
conducted by, the Operating Partnership. The Company is the sole managing
general partner of the Operating Partnership and TFLP is the sole limited
partner. After giving effect to the Offering, management of the Company will
beneficially own approximately 27% of the outstanding Common Shares (on a fully
diluted basis after giving effect to the exchange or conversion of outstanding
partnership units in the Operating Partnership held by TFLP and the Series A
Preferred Shares but without giving effect to the exercise of any outstanding
share or partnership unit options).
S-5
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Ownership of the Company's capital stock is restricted to preserve the
Company's status as a REIT for federal income tax purposes. Subject to certain
exceptions, a person may not actually or constructively own more than 4% of the
Company's Common Shares (including Common Shares which may be issued as a result
of the conversion of Series A Preferred Shares) or more than 29,400 Series A
Preferred Shares (or a lesser number in certain cases). The Company also
operates in a manner intended to enable it to preserve its status as a REIT,
including, among other things, making distributions with respect to its
outstanding capital stock equal to at least 95% of its taxable income each year.
The Company's executive offices are located at 1400 West Northwood Street,
Greensboro, North Carolina, 27408 and its telephone number is (910) 274-1666.
The Company is a North Carolina corporation that was formed in March 1993.
THE FACTORY OUTLET CONCEPT
Factory outlets are manufacturer-operated retail stores that sell primarily
first quality, branded products at significant discounts from regular retail
prices charged by department stores and specialty stores. Factory outlet centers
offer numerous advantages to both consumers and manufacturers. Manufacturers
selling in factory outlet stores are often able to charge customers lower prices
for brand name and designer products because they can eliminate the third party
retailer and because factory outlet stores typically have lower operating costs
than other retailing formats. Factory outlet centers enable manufacturers to
optimize the size of production runs while continuing to maintain control of
their distribution channels. In addition, factory outlet centers benefit
manufacturers by permitting them to sell out-of-season, overstocked or
discontinued merchandise without alienating department stores or hampering the
manufacturer's brand name, as is often the case when merchandise is distributed
via discount chains.
The Company's Centers range in size from 8,000 to 528,015 square feet of
GLA, with an average GLA of approximately 147,000 square feet, and are typically
located at least 15 to 20 miles from downtown areas, where major department
stores and manufacturer-owned full price retail stores are usually located.
Manufacturers prefer these locations so that they do not compete directly with
their major customers and their own stores. Many of the Company's Centers are
located near tourist destinations to attract tourists who consider shopping to
be a recreational activity and are typically situated in close proximity to
interstate highways to provide accessibility and visibility to potential
customers.
Management believes that factory outlet centers continue to present
attractive opportunities for capital investment by the Company, particularly
with respect to strategic expansions of existing Centers. Because of the
moderate land and construction costs relative to other retailing formats,
factory outlet centers can often be developed or expanded relatively
inexpensively. Management believes that under present conditions such
development or expansion costs, coupled with current market lease rates, permit
attractive investment returns. Management further believes, based upon its
contacts with present and prospective tenants, that many tenants, including
prospective tenants new to the factory outlet business, desire to open a number
of new factory outlet stores in the next several years, particularly where there
are successful factory outlet centers in which such tenants do not have a
significant presence or where there are few factory outlet centers. Thus, the
Company believes that its commitment to developing, acquiring and expanding
factory outlet centers is justified by the potential financial returns on such
centers.
THE COMPANY'S FACTORY OUTLET CENTERS
The Company's Centers are designed to attract national brand name tenants.
As one of the original participants in this industry, the Company has developed
long-standing relationships with many national and regional manufacturers.
Because of its established relationships with many manufacturers, the Company
believes it is well positioned to capitalize on industry growth.
The Company has a diverse tenant base comprised of over 240 different
well-known, upscale, national designer or other brand name companies, such as
Liz Claiborne, Reebok International, Ltd., Tommy
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Hilfiger, Polo Ralph Lauren and Off 5th--SAKS Fifth Avenue Outlet Store. A
majority of the factory outlet stores leased by the Company are directly
operated by the respective manufacturer. Unlike some other outlet center
developers, the Company has for the most part excluded off-price retailers
(retailers that sell merchandise from a number of sources, often second quality,
limited stock or non-name brand items) from its Centers. The Company believes
that this policy helps it attract and maintain a high quality tenant base.
The Company believes that the Centers are well diversified geographically
and by tenant and that it is not dependent upon any single property or tenant.
The only Center that represented more than 10% of the Company's consolidated
total assets or consolidated gross revenues as of and for the year ended
December 31, 1996 is the property in Riverhead, New York. See "Business and
Properties--Significant Property." No other Center represented more than 10% of
the Company's consolidated total assets or consolidated gross revenues as of and
for the year ended December 31, 1996.
In addition, no single tenant (including affiliates) accounted for 10% or
more of combined base and percentage rental revenues during 1996. During 1995
and 1994, one tenant (including affiliates) accounted for approximately 10% and
11%, respectively, of combined base and percentage rental revenues. Because the
typical tenant of the Company is a large, national manufacturer, the Company has
not experienced any material problems with respect to rent collections or lease
defaults.
BUSINESS HISTORY
Stanley K. Tanger, the Company's Chairman and Chief Executive Officer,
entered the factory outlet center business in 1981. Prior to founding the
Company, Stanley K. Tanger and his son, Steven B. Tanger, the Company's
President and Chief Operating Officer, built and managed a successful family
owned apparel manufacturing business, Tanger/Creighton Inc.
("Tanger/Creighton"), whose business included the operation of five factory
outlet stores. Based on their knowledge of the apparel and retail industries, as
well as their experience operating Tanger/Creighton's factory outlet stores, the
Tangers recognized that there would be a demand for factory outlet centers where
a number of manufacturers could operate in a single location and attract a large
number of shoppers. Since a single manufacturer was generally not in a position
to build a factory outlet center tenanted by other manufacturers and retailers,
the Tangers and the Company found a natural market for their experience.
From 1981 to June of 1993, the Tangers developed 17 Centers with a total GLA
of approximately 1.5 million square feet. In June of 1993, the Company completed
its IPO, making Tanger Factory Outlet Centers, Inc. the first publicly traded
outlet center company. Since its IPO, the Company has developed nine Centers and
acquired two Centers and, together with expansions of existing Centers, added
approximately 2.6 million square feet of GLA to its portfolio, bringing its
portfolio of properties as of September 1, 1997 to 28 Centers totalling
approximately 4.1 million square feet of GLA.
BUSINESS AND OPERATING STRATEGY
The Company intends to increase its cash flow and the value of its portfolio
over the long-term by continuing to own, manage, develop, acquire and expand
factory outlet centers. The Company's strategy is to increase revenues through
new developments, selective acquisitions and expansions of its existing Centers
while minimizing its operating expenses by designing low maintenance properties
and achieving economies of scale. In connection with the ownership and
management of its properties, the Company places an emphasis on regular
maintenance and intends to make periodic renovations as necessary. In addition,
the Company will seek to maintain high occupancy rates and increasing rental
revenues with a tenant base of nationally recognized brand name tenants.
The Company typically seeks locations for its new centers that have at least
3.5 million people residing within an hour's drive, an average household income
within a 50 mile radius of at least $35,000 to $40,000 per year and access to a
highway with a traffic count of at least 35,000 cars per day. The Company will
vary
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its minimum conditions based on the particular characteristics of a site,
especially if the site is located near or at a tourist destination. The
Company's current goal is to target sites that are large enough to construct
centers with approximately 75 stores totalling at least 300,000 square feet of
GLA. Generally, the Company will build such centers in phases, with the first
phase containing at least 150,000 to 200,000 square feet of GLA. Future phases
have historically been less expensive than the first phase because the Company
generally finishes most of the site work and consummates land acquisition in the
first phase.
The Company preleases a large part of the space in each center prior to
acquiring the site and beginning construction. Historically, the Company has not
begun construction until it has obtained a significant amount of signed leases.
Typically, construction of a new factory outlet center has taken the Company
four to six months from groundbreaking to the opening of the first tenant store.
Construction of expansions to existing properties typically takes less time,
usually between three to four months.
CAPITAL STRATEGY
The Company's capital strategy is to maintain a strong and flexible
financial position by: (1) maintaining a low level of leverage, (ii) extending
and sequencing debt maturity dates, (iii) managing its floating rate exposure,
(iv) maintaining its liquidity and (v) reinvesting a significant portion of its
cash flow by maintaining a low distribution payout ratio (defined as annual
distributions as a percent of FFO for such year).
The Company's distribution payout ratio for the year ended December 31, 1996
was 69%, which the Company believes to be one of the lowest payout ratios in the
REIT industry. As a result, the Company retained approximately $10 million of
its 1996 FFO (generally defined as net income (loss), computed in accordance
with generally accepted accounting principles, before extraordinary item and
gains (losses) on sale of properties, plus depreciation and amortization
uniquely significant to real estate). The distribution payout ratio policy
allows the Company to retain capital to maintain the quality of its portfolio,
as well as to develop, acquire and expand properties.
The Company and the Operating Partnership filed a shelf registration
statement in November 1995 with the Securities and Exchange Commission (the
"Commission") to issue from time to time $100 million in equity securities and
$100 million in debt securities. During March 1996, the Company issued, through
the Operating Partnership, $75 million of senior, unsecured notes, maturing
March 11, 2001, with a coupon rate of 8.75%. The proceeds of such debt offering
were used to extinguish the Company's floating rate, secured lines of credit
existing prior to January 1996. In April 1996, the Company and the Operating
Partnership filed a new registration statement with the Commission to
reestablish the issuance capacity under the shelf registration at $200 million.
The Commission declared the registration statement effective on June 6, 1996.
The Company plans to use a portion of its equity issuance capacity under this
shelf registration for the Offering.
The Company currently has a $50 million secured line of credit with interest
payable at LIBOR plus 1.5% and other unsecured lines of credit totalling $50
million with interest rates ranging from the prime rate less .25% to the prime
rate or from LIBOR plus 1.75% to LIBOR plus 1.80%. Amounts available under these
lines of credit, based on debt outstanding at June 30, 1997, totalled $34.7
million. When considered with the Company's existing interest rate protection
agreement covering $10 million of variable rate debt, the Company's exposure to
interest rate risk on variable rate borrowings outstanding at June 30, 1997 was
limited to $55.3 million.
The Company's ratio of EBITDA (defined as earnings before interest expense,
income taxes, depreciation and amortization) to Annual Service Charge (defined
as the amount which is expensed or capitalized for interest on debt, excluding
amortization of deferred finance charges) for the year ended December 31, 1996
was 3.3 times. The Company's ratio of debt to total market capitalization
(defined as the value of the Company's outstanding Common Shares on a fully
diluted basis after giving effect to the conversion or exchange of outstanding
partnership units in the Operating Partnership held by TFLP and
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the Series A Preferred Shares, plus total consolidated debt) at June 30, 1997 on
a pro forma basis after giving effect to the Offering was approximately 38.9%
(assuming a value for the Common Shares of the Company at September 18, 1997 of
$29 1/16 per share).
THE OPERATING PARTNERSHIP
The Centers and other assets of the Company are held by, and all of the
Company's operations are conducted by, the Operating Partnership. As of
September 1, 1997, the ownership interests in the Operating Partnership
consisted of 6,763,535 general partnership units and 90,839 preferred
partnership units (which are convertible into approximately 818,459 general
partnership units) held by the Company and 3,033,305 limited partnership units
held by TFLP. Each limited partnership unit is exchangeable, subject to certain
limitations to preserve the Company's status as a REIT, into a Common Share.
Each preferred partnership unit entitles the Company to receive
distributions from the Operating Partnership, in an amount equal to the
distribution payable with respect to a share of Series A Preferred Shares, prior
to the payment by the Operating Partnership of distributions with respect to the
general partnership units. Preferred partnership units will be automatically
converted by holders into general partnership units to the extent that the
Series A Preferred Shares are converted into Common Shares and will be redeemed
by the Operating Partnership to the extent that the Series A Preferred Shares
are redeemed by the Company. See "Description of Preferred Shares" in the
accompanying Prospectus.
COMPETITION
The Company's Centers compete for customers primarily with other factory
outlet centers, traditional shopping malls and full- and off-price retailers.
The Company carefully considers the degree of existing and planned competition
in a proposed area before deciding to develop, acquire or expand a new center.
The Company's Centers compete, to a limited extent, with various full-and
off-price retailers in the highly fragmented retailing industry. However,
management believes that the majority of the Company's customers visit factory
outlet centers because they are intent on buying name-brand products at
discounted prices. Traditional full- and off-price retailers are often unable to
provide such a variety of name-brand products at attractive prices.
Tenants of factory outlet centers typically avoid direct competition with
major retailers and their own specialty stores, and therefore generally insist
that the outlet centers be located not less than 15 to 20 miles from the nearest
major department store or their own stores. For this reason, the Company's
Centers compete only to a limited extent with traditional shopping malls in or
near metropolitan areas.
Management believes that the Company competes with as many as four large
national developers of factory outlet centers and numerous small developers.
Competition with other factory outlet centers for new tenants is generally based
on location, quality and mix of the center's existing tenants, degree and
quality of the support services (including marketing) provided by the property
manager and rental and other charges. The Company believes that its Centers have
an attractive tenant mix, as a result of the Company's decision to lease the
majority of its space to manufacturer operated stores rather than to off-price
retailers, and also as a result of the strong brand identity of the Company's
major tenants.
CORPORATE AND REGIONAL HEADQUARTERS
The Company owns a small office building in Greensboro, North Carolina in
which its corporate headquarters is located. In addition, the Company rents a
regional office in New York City under a lease agreement and sublease agreement,
respectively, to better service its principal fashion-related tenants, many of
whom are based in and around New York City.
The Company maintains on-site managers and offices at 22 Centers to closely
monitor the development of those Centers from construction through opening and
operation and to provide effective and
S-9
<PAGE>
efficient management and marketing services. In addition, the Company maintains
an off-site business office in Portland, Maine to service its Centers in the New
England area.
INSURANCE
Management believes that the Centers are covered by adequate fire, flood and
property insurance provided by reputable companies and with commercially
reasonable deductibles and limits.
EMPLOYEES
As of September 1, 1997, the Company had 100 full-time employees, located at
the Company's corporate headquarters in North Carolina, its regional office in
New York City and its 24 business offices.
S-10
<PAGE>
RECENT DEVELOPMENTS
DISTRIBUTION INCREASE
On April 10, 1997, the Company's Board of Directors approved an increase of
5.8% in the Company's regular quarterly distribution from $.52 to $.55 per
share, or from $2.08 to $2.20 per share on an annualized basis. The second
quarterly distribution at this increased rate of $.55 per share was paid on
August 15, 1997 to the shareholders of record on July 25, 1997. The Board of
Directors established this increased rate of distribution after considering,
among other things, its projected future FFO and the minimum annual distribution
requirements under tax laws relating to REITs.
PROPERTY DEVELOPMENT, EXPANSION AND ACQUISITION
On February 28, 1997, the Company completed the purchase of Five Oaks
Factory Stores located in Sevierville, Tennessee, containing approximately
123,000 square feet of GLA, for an aggregate purchase price of $18.0 million.
Following the purchase, the Company began construction of a 50,400 square foot
expansion to the Five Oaks Factory Stores Center, which is expected to begin
opening by late fall of 1997. In addition, construction is substantially
complete on a 241,800 square foot initial phase of an expansion to the Company's
Center in Riverhead, New York, of which 100% of this additional GLA is leased or
committed to be leased. This expansion is anchored by Off 5th-SAKS Fifth Avenue
Outlet Store, which opened on May 17, 1997. A further expansion of 59,700 square
feet of GLA to the Riverhead Center is currently under construction and is
scheduled to be completed by December 1997, at which time the Riverhead Center
will total over 587,000 square feet of GLA.
Other developments currently underway include expansions in Lancaster, PA
(26,000 square feet), Commerce, GA (60,900 square feet), and San Marcos, TX
(23,000 square feet), all of which are expected to be completed by late fall of
1997.
The Company also is in the process of developing plans for additional
expansions in 1997 and beyond and for completion of new centers in 1998 and
beyond and will consider other acquisitions that are suitable for its portfolio.
For example, the Company is in the preleasing stages for future factory outlet
centers at two potential sites located in Concord, NC (Charlotte) and Romulus,
MI (Detroit). These two centers combined have the potential to add over 1.1
million square feet of GLA to the Company's portfolio. In addition, the Company
has signed a purchase and sale agreement, subject to the satisfactory completion
of its due diligence, for the acquisition of two tourist destination outlet
centers containing approximately 180,000 square feet of GLA for an aggregate
purchase price of $19.5 million, with closing scheduled to occur by the end of
October 1997. The Company is also in the process of finalizing the leasing of
another 46,000 square foot expansion to the Riverhead Center and an additional
33,400 square foot expansion in Commerce, GA. However, there can be no assurance
that any of these anticipated or planned developments, expansions or
acquisitions will be started or completed as scheduled or consummated, as the
case may be, or that any other acquisitions will be made or that any
development, expansion or acquisition will result in an advantageous return on
investment for the Company.
SECOND QUARTER 1997 EARNINGS
On July 28, 1997 the Company reported its operating results for the second
quarter of 1997. See "Selected Consolidated Financial Data." FFO, assuming full
conversion of the minority interest in the Operating Partnership, for the six
months ended June 30, 1997 rose 7% to $16.6 million, compared to $15.5 million
in the same period of 1996.
The Company also reported the following increases during the six months
ended June 30, 1997 compared to the six months ended June 30, 1996: base rental
income increased 9.3% to $27.0 million from $24.7 million; total revenues
increased 9.4% to $39.7 million from $36.3 million; and net operating income
increased 9.9% to $24.5 million from $22.3 million.
Tenant sales in the Centers during the first six months of 1997 and 1996,
reported for stores opened during both periods, increased approximately 5%.
Total tenant sales for all Centers increased approximately 12% for the first six
months of 1997 to $348 million compared to $312 million for the same period of
1996.
S-11
<PAGE>
USE OF PROCEEDS
The Company estimates the net proceeds of the Offering to be approximately
$27.0 million (or $31.2 million if the Underwriters' over-allotment option is
exercised in full) after deducting estimated expenses and underwriting discount.
The Company anticipates using the net proceeds to acquire, expand and develop
factory outlet centers and for general corporate purposes. Pending such use, the
Company may temporarily repay borrowings under the Company's revolving lines of
credit. On September 1, 1997, the interest rate on these lines of credit
averaged 7.3% per annum. These lines of credit are scheduled to mature between
January 15, 1999 and June 30, 1999.
PRICE RANGE OF COMMON SHARES AND DISTRIBUTIONS
The Common Shares have been traded on the NYSE under the symbol "SKT" since
May 28, 1993. On September 18, 1997, the last reported sale price of the Common
Shares on the NYSE was $29 1/16 per share. The following table sets forth the
high and low closing sale prices for the Common Shares for the fiscal periods
indicated as reported by the NYSE Composite Tape and the distributions paid by
the Company on the Common Shares during each such period.
<TABLE>
<CAPTION>
PERIOD HIGH LOW DISTRIBUTIONS
- -------------------------------------------------------------------------------- --------- --------- ---------------
<S> <C> <C> <C>
1995
First Quarter................................................................. $ 27.25 $ 22.75 $ .46
Second Quarter................................................................ 26.75 22.75 .50
Third Quarter................................................................. 27.75 24.50 .50
Fourth Quarter................................................................ 26.00 22.63 .50
1996
First Quarter................................................................. 26.00 23.38 .50
Second Quarter................................................................ 25.38 22.63 .52
Third Quarter................................................................. 24.88 22.88 .52
Fourth Quarter................................................................ 27.38 23.50 .52
1997
First Quarter................................................................. 27.50 24.00 .52
Second Quarter................................................................ 27.25 23.00 .55
Third Quarter (through September 18, 1997).................................... 29.88 26.88 .55
</TABLE>
- ------------------------
The Company, for itself and in its capacity as general partner of the
Operating Partnership, currently intends to cause the Operating Partnership to
make regular quarterly distributions to holders of general and preferred
partnership units, and to continue paying regular quarterly distributions to
holders of Common Shares in amounts sufficient to maintain its status as a REIT.
Since the IPO, the Company has reduced its distribution payout ratio from 84% in
1994 to 69% in 1996, based on the current definition of FFO. The Company's goal
is to continually reduce its distribution payout ratio each year in an effort to
use internally generated funds for the expansions of existing successful
Centers, the development of new factory outlet centers, potential strategic
acquisitions, or the repayment of outstanding borrowings. The Company currently
anticipates that future distribution increases per share, if any, would be less
than future increases in FFO, if any, on a percentage basis; however, although
it has no current plans to do so, the Company may amend or alter its policy in
this regard at any time.
Certain of the Company's debt agreements or instruments limit the payment of
distributions such that distributions shall not exceed FFO on an annual basis or
95% of FFO on a cumulative basis from the respective dates of such agreements or
instruments. In addition, the Company's Series A Preferred Shares limit the
payments of distributions on the Common Shares to the extent of any arrearages.
See "Description of Debt Securities--Certain Covenants--Restrictions on
Dividends and Other Distributions" and "Description of Preferred
Shares--Dividends" in the accompanying Prospectus.
S-12
<PAGE>
Distributions are reviewed quarterly by the Board of Directors and future
distributions will be at the discretion of the Board of Directors of the Company
and will depend upon factors deemed relevant by the
Board of Directors, including the Company's actual FFO, financial condition,
capital requirements, the annual distribution requirements under the REIT
provisions of the Code and other factors. Although the Company intends to
continue to pay regular quarterly distributions on its Common Shares, no
assurance can be given as to the amounts to be distributed in the future.
The Company anticipates that FFO will exceed net income primarily due to
depreciation and amortization expenses to be recognized by the Company.
Distributions by the Company on the Common Shares to the extent of its current
and accumulated earnings and profits for Federal income tax purposes will be
taxable to shareholders as ordinary dividend income and will not be eligible for
the dividends-received deduction generally available to corporations.
Distributions in excess of earnings and profits generally will be treated as a
non-taxable reduction of the shareholder's basis in the Common Shares (i.e. a
return of capital) to the extent thereof, and thereafter as taxable gain.
Accordingly, such distributions will have the effect of deferring taxation until
the sale of such Common Shares. In order to maintain its qualification as a
REIT, the Company must make annual distributions to its common and preferred
shareholders of at least 95% of its taxable income (which does not include
capital gains). Under certain circumstances (which the Company does not expect
to occur), the Company could be required to make distributions in excess of cash
available for distribution in order to meet such distribution requirements.
Of the distributions made during 1996, 22% represented a return of capital
to shareholders for tax purposes. The Company currently anticipates that
approximately 20% of the distributions expected to be made in 1997 will
represent a return of capital for tax purposes. There can be no assurance,
however, that the estimate for 1997 will not vary from actual results for 1997,
which will depend, in 1997 and future years, among other things, upon the
Company's actual taxable income and amounts distributed.
As of September 1, 1997, the Company's transfer agent reported 477 holders
of record of the Common Shares. The transfer agent and registrar of the Common
Shares is Boston EquiServe Limited Partnership.
S-13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997, and as adjusted to give effect to the sale on such date by the Company
of the Common Shares offered in the Offering and the anticipated use of proceeds
from the Offering as described under "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------
<S> <C> <C>
UNAUDITED
<CAPTION>
HISTORICAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Debt:
Mortgages payable...................................................................... $ 74,640 $ 74,640
Secured revolving line of credit....................................................... 35,100 35,100
Unsecured revolving lines of credit.................................................... 30,150 30,150
8 3/4% Notes due 2001.................................................................. 75,000 75,000
Minority interest in Operating Partnership............................................... 24,556 24,556
Shareholders' equity:
Preferred shares, $. 01 par value, 1,000,000 shares authorized, 90,839 shares issued
and outstanding...................................................................... 1 1
Common shares, $.01 par value, 50,000,000 shares authorized, 6,742,885 shares issued
and outstanding, and 7,742,885 shares as adjusted, respectively, issued and
outstanding (1)...................................................................... 67 77
Paid in capital........................................................................ 121,500 148,528
Distributions in excess of net income.................................................. (13,213) (13,213)
---------- -----------
Total shareholders' equity........................................................... 108,355 135,393
---------- -----------
Total capitalization............................................................... $ 347,801 $ 374,839
---------- -----------
---------- -----------
</TABLE>
- ------------------------
(1) Does not include 3,033,305 Common Shares reserved for issuance upon exchange
of issued and outstanding partnership units, 881,590 Common Shares issuable
upon exchange of general partnership units issuable upon the exercise of
outstanding options, and 27,000 Common Shares issuable upon the exercise of
outstanding options.
S-14
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial and other operating data
of the Company on a historical basis. The information should be read in
conjunction with all of the financial statements and notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" incorporated herein by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and Quarterly Report on Form 10-Q
for the six months ended June 30, 1997.
The historical data as of and for the years ended December 31, 1996, 1995,
1994, 1993 and 1992 have been derived from historical financial statements
audited by Coopers & Lybrand LLP, independent auditors. The historical data for
the six months ended June 30, 1997 and June 30, 1996 have been derived from the
unaudited historical financial statements of the Company. In the opinion of
management, this historical data includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information set
forth. However, operating results for the six months ended June 30, 1997 are not
necessarily indicative of results that may be expected for the year ended
December 31, 1997.
The selected financial data includes the financial and operating information
of the Company for periods subsequent to June 1993, the date of the IPO, and
combined financial and operating information of Tanger Properties, the
predecessor business, for periods prior to June 1993.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------------ ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
----------- ----------- --------- --------- ---------- --------- ---------
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF CENTERS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Total revenues........................... $ 39,681 $ 36,312 $ 75,500 $ 68,604 $ 45,988 $ 29,204 $ 17,931
Income before minority interest and
extraordinary item..................... 7,822 7,501 16,177 15,352 15,147 8,555 1,991
Income before extraordinary item(1)...... 5,672 5,483 11,752 11,218 11,168 4,574 --
Net income (1)(4)........................ 5,672 4,922 11,191 11,218 11,168 1,898 --
SHARE DATA (2)
Income before extraordinary item (3)..... $ 0.71 $ 0.67 $ 1.46 $ 1.36 $ 1.32 $ .90
Net income (3)(4)........................ $ 0.71 $ 0.58 $ 1.37 $ 1.36 $ 1.32 $ .35
Common distributions paid................ $ 1.07 $ 1.02 $ 2.06 $ 1.96 $ 1.80 $ .535
Weighted average number of common shares
outstanding............................ 6,725 6,313 6,402 6,095 5,177 4,858
BALANCE SHEET DATA
Real estate assets, before
depreciation........................... $ 403,781 $ 337,817 $ 358,361 $ 325,881 $ 292,406 $ 137,666 $ 85,460
Total assets............................. 370,401 317,962 332,138 315,130 294,802 182,396 88,192
Long-term debt........................... 214,890 165,743 178,004 156,749 121,323 20,316 90,188
Shareholders' equity (deficit)........... 108,355 112,137 110,657 114,813 118,177 120,067 (9,419)
OTHER DATA
EBITDA (5)............................... $ 24,505 $ 22,276 $ 46,474 $ 41,058 $ 26,089 $ 17,519 $ 10,926
Funds from operations (6)................ $ 16,633 $ 15,540 $ 32,313 $ 29,597 $ 23,189 $ 12,008 $ 4,471
Cash flows from:
Operating activities................... $ 16,539 $ 19,412 $ 38,051 $ 32,423 $ 21,304 $ 11,571 $ 4,263
Investing activities................... $ (42,025) $ (16,748) $ (36,401) $ (44,788) $ (143,683) $ (49,277) $ (29,374)
Financing activities................... $ 25,504 $ (5,018) ($ 4,176) $ 13,802 $ 80,661 $ 81,324 $ 25,528
Gross leasable area open................. 3,993 3,652 3,739 3,507 3,115 1,980 1,284
Number of Centers........................ 28 27 27 27 25 19 15
</TABLE>
S-15
<PAGE>
(1) All earnings prior to the IPO on June 4, 1993 have been allocated to
minority interest. Subsequent to the IPO, earnings have been allocated to
the Company and the minority interest based on their respective weighted
average ownership interests in the Operating Partnership during the year.
(2) Not applicable in 1992 since the IPO took place in June 1993.
(3) Income in the per share computations are net of applicable preferred
dividends of $908 and $1,283 for the six months ended June 30, 1997 and 1996
and $2,399, $2,903, $4,351 and $191 for the years ended December 31, 1996,
1995, 1994 and 1993.
(4) Pro forma net income and net income per common share, which reflect
adjustments to historical information to present income information as if
the IPO had taken place on January 1, 1992, were $6,551 and $1.31 per share
during 1993 and $3,467 and $.71 per share during 1992.
(5) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization. EBITDA is presented because it is a widely
accepted financial indicator used by certain investors and analysts to
analyze and compare companies on the basis of operating performance. EBITDA
is not intended to represent cash flows for the period, nor has it been
presented as an alternative to operating income as an indicator of operating
performance, and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.
(6) FFO for all years presented have been restated in accordance with the
current definition provided by the National Association of Real Estate
Investment Trusts. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Funds from Operations," which is
incorporated herein by reference, from the Company's Annual Report on Form
10-K for the year ended December 31, 1996.
S-16
<PAGE>
BUSINESS AND PROPERTIES
As of September 1, 1997, the Company's portfolio consisted of 28 Centers
located in 22 states. The Company's Centers range in size from 8,000 to 528,015
square feet of GLA. The Centers are typically strip shopping centers which
enable customers to view all of the shops from the parking lot, and therefore
minimizing the time needed to shop. The Centers are generally located near
tourist destinations or along major interstate highways in order to increase
visibility and accessibility to potential customers.
The Company believes that the Centers are well diversified geographically
and by tenant and that it is not dependent upon any single property or tenant.
The only Center that represented more than 10% of the Company's consolidated
total assets or consolidated gross revenues as of and for the year ended
December 31, 1996 is the property in Riverhead, New York. See "Business and
Properties--Significant Property." No other Center represented more than 10% of
the Company's consolidated total assets or consolidated gross revenues as of and
for the year ended December 31, 1996.
LOCATION OF CENTERS (AS OF SEPTEMBER 1, 1997)
<TABLE>
<CAPTION>
NUMBER OF GLA %
STATE CENTERS (SQ. FT.) OF GLA
- -------------------------------------------------------------------------------- --------------- ---------- -----------
<S> <C> <C> <C>
Georgia......................................................................... 3 619,124 15%
New York........................................................................ 1 528,015 13
Texas........................................................................... 2 396,650 9
Iowa............................................................................ 1 275,706 7
Missouri........................................................................ 1 255,073 6
Louisiana....................................................................... 1 245,325 6
Tennessee....................................................................... 2 217,434 5
Pennsylvania.................................................................... 1 203,952 5
Oklahoma........................................................................ 1 197,878 5
Arizona......................................................................... 1 186,018 4
Indiana......................................................................... 1 141,051 4
Minnesota....................................................................... 1 134,480 3
Michigan........................................................................ 1 112,120 3
California...................................................................... 1 108,950 3
Oregon.......................................................................... 1 97,749 2
Kansas.......................................................................... 1 88,200 2
Maine........................................................................... 2 84,897 2
Alabama......................................................................... 1 80,730 2
New Hampshire................................................................... 2 61,915 2
West Virginia................................................................... 1 49,252 1
Massachusetts................................................................... 1 23,417 1
Vermont......................................................................... 1 8,000 --
--
---------- ---
Total..................................................................... 28 4,115,936 100%
--
--
---------- ---
---------- ---
</TABLE>
S-17
<PAGE>
The table set forth below summarizes certain information with respect to the
Company's existing centers as of September 1, 1997.
PROPERTY PORTFOLIO
<TABLE>
<CAPTION>
SECURED
DEBT FEE OR
GLA % OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FT.) LEASED (000'S) (4) LEASE
- --------------- --------------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
JUN. 1986 KITTERY I, ME 56,312 100% $ 6,012 Fee
Aug. 1993 Expansion 3,882
MAR. 1987 CLOVER, NORTH CONWAY, NH 11,000 100 -- Fee
NOV. 1987 MARTINSBURG, WV 42,346 93 -- Fee
Sep. 1994 Expansion 6,906
APR. 1988 LL BEAN, NORTH CONWAY, NH 50,915 100 -- Fee
JUL. 1988 PIGEON FORGE, TN 94,480 100 -- Ground
Jul. 1994 Expansion 270 Lease
(2086)
AUG. 1988 BOAZ, AL 78,550 100 3,510 Fee
May 1993 Expansion 2,180
OCT. 1988 MANCHESTER, VT 8,000 100 -- Fee
JUN. 1989 KITTERY II, ME 23,119 100 -- Fee
Nov. 1993 Expansion 1,584
JUL. 1989 COMMERCE, GA 100,100 100 10,270 Fee
Mar. 1990 Expansion 58,650
May 1992 Expansion 4,500
May 1993 Expansion 12,500
Sep. 1994 Expansion 10,000
OCT. 1989 BOURNE, MA 23,417 100 -- Fee
FEB. 1991 WEST BRANCH, MI 75,120 100 6,885 Fee
Oct. 1992 Expansion 25,000
May 1994 Expansion 12,000
MAY 1991 WILLIAMSBURG, IA 121,444(1) 97 17,067 Fee
Nov. 1991 Expansion 50,675
Nov. 1992 Expansion 34,000
Dec. 1993 Expansion 43,400
Apr. 1996 Expansion 26,187
FEB. 1992 CASA GRANDE, AZ 94,223 94 -- Fee
Dec. 1992 Expansion 91,795
AUG. 1992 STROUD, OK 96,378 92 8,776 Fee
Nov. 1992 Expansion 37,500
Aug. 1993 Expansion 64,000
DEC. 1992 NORTH BRANCH, MN 106,280 98 -- Fee
Aug. 1993 Expansion 28,200
</TABLE>
S-18
<PAGE>
<TABLE>
<CAPTION>
SECURED
DEBT FEE OR
GLA % OUTSTANDING GROUND
DATE OPENED LOCATION (SQ. FT.) LEASED (000'S) (4) LEASE
- --------------- --------------------------------------------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FEB. 1993 GONZALES, LA 105,985 100% $ 10,530 Fee
Aug. 1993 Expansion 109,450
Feb. 1996 Expansion 29,890
MAY 1993 SAN MARCOS, TX 98,820(2) 99 10,280 Fee
Oct. 1993 Expansion 40,200
Nov. 1994 Expansion 17,500
April 1995 Expansion 32,750
July 1996 Expansion 29,945
DEC. 1993 LAWRENCE, KS 88,200 84 -- Fee
DEC. 1993 MCMINNVILLE, OR 97,749 74 -- Fee
AUG. 1994 RIVERHEAD, NY 286,195 98 -- Ground
Aug. 1997 Expansion 241,820 Lease
(2004)(3)
AUG. 1994 TERRELL, TX 126,185 98 -- Fee
Oct. 1995 Expansion 51,250
SEP. 1994 SEYMOUR, IN 141,051 98 8,243 Fee
OCT. 1994(5) LANCASTER, PA 191,152 100 15,883 Fee
Nov. 1995 Expansion 12,800
NOV. 1994 BRANSON, MO 230,073 99 12,284 Fee
Jun. 1996 Expansion 25,000
NOV. 1994 LOCUST GROVE, GA 168,700 99 -- Fee
Dec. 1995 Expansion 45,964
Aug. 1996 Expansion 34,190
JAN. 1995 BARSTOW, CA 108,950 92 -- Fee
DEC. 1995 COMMERCE II, GA 148,520 100 -- Fee
Aug. 1996 Expansion 36,000
FEB. 1997 (5) SEVIERVILLE, TN 122,684 100 -- Ground
Lease
(2046)
---------- --- -----------
Total 4,115,936 97% $ 109,740
---------- --- -----------
---------- --- -----------
</TABLE>
- ------------------------
(1) GLA excludes 21,781 square foot land lease on outparcel occupied by Pizza
Hut.
(2) GLA excludes 17,400 square foot land lease on outparcel occupied by Wendy's.
(3) The original Riverhead Center is subject to a ground lease which may be
renewed at the option of the Company for up to seven additional terms of
five years each. The land on which the Riverhead Center expansion is located
is owned by the Company.
(4) As of June 30, 1997. The weighted average interest rate for debt outstanding
at June 30, 1997 was 8.4% and the weighted average maturity date was
December 2000.
(5) Represents date acquired by the Company.
S-19
<PAGE>
Management has an ongoing program for acquiring Centers, developing new
Centers and expanding existing Centers. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources" incorporated herein by reference from the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 for a discussion of the cost of
such programs and the sources of financing thereof.
Certain of the Company's Centers serve as collateral for mortgage notes
payable and the secured revolving line of credit. Of the 28 Centers, the Company
owns 25 and has ground leases on three. The land on which the Pigeon Forge and
the Sevierville Centers are located are subject to long-term ground leases
expiring in 2086 and 2046, respectively. The land on which the original
Riverhead Center is located is also subject to a ground lease with an initial
term expiring in 2004, with renewal at the option of the Company for up to seven
additional terms of five years each. The land on which the Riverhead Center
expansion is located is owned by the Company.
The term of the Company's typical tenant lease ranges from five to ten
years. Generally, leases provide for the payment of fixed monthly rent in
advance. There are often contractual base rent increases during the initial term
of the lease. In addition, the rental payments are customarily subject to upward
adjustments based upon tenant sales volume. Most leases provide for payment by
the tenant of a portion of the real estate taxes, insurance, common area
maintenance, advertising and promotion expenses incurred by the applicable
Center. As a result, substantially all operating expenses for the Centers are
borne by the tenants.
LEASE EXPIRATIONS
The following table sets forth, as of September 1, 1997, scheduled lease
expirations, assuming none of the tenants exercise renewal options. Most leases
are renewable for five year terms at the tenant's option.
<TABLE>
<CAPTION>
% OF GROSS
ANNUALIZED
APPROX. AVERAGE BASE RENT
NO. OF GLA ANNUALIZED ANNUALIZED REPRESENTED
LEASES (SQ. BASE RENT BASE RENT BY EXPIRING
YEAR EXPIRING(2) FT.)(2) PER SQ. FT. (000'S) (1) LEASES
- --------------------------------------------------- --------------- ---------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
1997............................................... 39 126,000 $ 13.20 $ 1,663 3%
1998............................................... 102 403,000 14.10 5,684 12
1999............................................... 167 624,000 14.59 9,105 17
2000............................................... 152 528,000 14.61 7,716 14
2001............................................... 144 526,000 13.71 7,214 13
2002............................................... 172 674,000 14.45 9,740 19
2003............................................... 61 289,000 13.64 3,942 7
2004............................................... 64 382,000 13.09 5,002 9
2005............................................... 13 86,000 12.62 1,085 2
2006............................................... 3 56,000 10.59 593 1
2007 and thereafter................................ 23 209,000 8.93 1,867 3
--- ---------- ----------- ----------- ---
Total.............................................. 940 3,903,000 $ 13.74 $ 53,611 100%
--- ---------- ----------- ----------- ---
--- ---------- ----------- ----------- ---
</TABLE>
- ------------------------
(1) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases.
(2) Excludes leases that have been entered into but which tenant has not yet
taken possession and excludes month-to-month leases.
S-20
<PAGE>
RENTAL AND OCCUPANCY RATES
The following table sets forth information regarding the expiring leases
during each of the last four calendar years.
<TABLE>
<CAPTION>
RENEWED BY EXISTING RE-LEASED TO
TOTAL EXPIRING TENANTS NEW TENANTS
-------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
% OF TOTAL
GLA CENTER GLA % OF EXPIRING GLA
YEAR (SQ. FT.) GLA (SQ. FT.) GLA (SQ. FT.) % OF EXPIRING GLA
- ---------------------------------------- --------- --------------- --------- ----------------- --------- -----------------
1996.................................... 149,689 4% 134,639 90% 15,050 10%
1995.................................... 93,650 3 91,250 97 2,400 3
1994.................................... 115,697 3 105,697 91 10,000 9
1993.................................... 129,069 4 123,569 96 5,500 4
</TABLE>
The following table sets forth the average base rental rate increases per
square foot upon re-leasing stores that were turned over or renewed during each
of the last four calendar years.
<TABLE>
<CAPTION>
STORES RE-LEASED TO NEW
RENEWALS OF EXISTING LEASES TENANTS(1)
------------------------------------------------ ---------------------------------
AVERAGE ANNUALIZED BASE RENTS AVERAGE ANNUALIZED
BASE RENTS
($ PER SQ. FT.) ($ PER SQ. FT.)
GLA ------------------------------------- GLA (SQ. ----------------------
YEAR (SQ. FT.) EXPIRING NEW % INCREASE FT.) EXPIRING NEW
- ----------------------------------------- --------- ----------- --------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1996..................................... 134,639 $ 12.44 $ 14.02 13% 78,268 $ 14.40 $ 14.99
1995..................................... 91,250 11.54 13.03 13 59,445 13.64 14.80
1994..................................... 105,697 14.26 16.56 16 71,350 12.54 14.30
1993..................................... 123,569 12.83 13.94 9 29,000 10.81 14.86
<CAPTION>
YEAR % INCREASE
- ----------------------------------------- -------------
<S> <C>
1996..................................... 4%
1995..................................... 9
1994..................................... 14
1993..................................... 38
</TABLE>
- ------------------------
(1) The square footage re-leased to new tenants for 1996, 1995, 1994 and 1993
contain 15,050, 2,400, 10,000 and 5,500 square feet, respectively, that was
re-leased to new tenants upon expiration of an existing lease. The remaining
space was retenanted prior to any lease expiration.
The following table shows certain information on rents and occupancy rates
for the Centers during each of the last five calendar years.
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED AGGREGATE
BASE RENT GLA OPEN PERCENTAGE
% PER AT END OF NUMBER OF RENTS
YEAR LEASED SQ. FT. (1) EACH YEAR CENTERS (000'S)
- -------------------------------------------------------- ----------- ----------- ---------- --------------- -----------
<S> <C> <C> <C> <C> <C>
1996.................................................... 99% $ 13.89 3,739,000 27 $ 2,017
1995.................................................... 99 13.92 3,507,000 27 2,068
1994.................................................... 99 13.43 3,115,000 25 1,658
1993.................................................... 98 13.03 1,980,000 19 1,323
1992.................................................... 99 12.77 1,284,000 15 1,167
</TABLE>
- ------------------------
(1) Represents total base rental revenue divided by weighted average GLA of the
portfolio, which amount does not take into consideration fluctuations in
occupancy throughout the year.
S-21
<PAGE>
OCCUPANCY COSTS
The Company believes that its ratio of average tenant occupancy costs (which
includes base rent, common area maintenance, real estate taxes, insurance,
advertising and promotions) to average sales per square foot is low relative to
other forms of retail distribution. The following table sets forth, for each of
the last five years, tenant occupancy costs per square foot as a percentage of
reported tenant sales per square foot.
<TABLE>
<CAPTION>
OCCUPANCY COSTS AS A % OF
YEAR TENANT SALES
- ---------------------------------------------------------------------------- -------------------------
<S> <C>
1996........................................................................ 8.7%
1995........................................................................ 8.5
1994........................................................................ 7.4
1993........................................................................ 6.5
1992........................................................................ 6.5
</TABLE>
TENANTS
The following table sets forth certain information with respect to the
Company's ten largest tenants and their store concepts as of September 1, 1997.
<TABLE>
<CAPTION>
NUMBER GLA % OF TOTAL
TENANT OF STORES (SQ. FT.) GLA
- ------------------------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
Phillips-Van Heusen Corporation (1):
Bass Shoes................................................................... 15 105,017 2.6%
Bass Apparel................................................................. 2 9,300 0.2
Bass Company Store........................................................... 1 6,500 0.2
Van Heusen................................................................... 17 74,476 1.7
Geoffrey Beene Co. Store..................................................... 15 60,760 1.5
Izod......................................................................... 15 35,057 0.9
Gant......................................................................... 9 25,100 0.6
--- ---------- ---
74 316,210 7.7
Liz Claiborne:
Liz Claiborne................................................................ 24 272,881 6.6
Elizabeth.................................................................... 5 20,700 0.5
--- ---------- ---
29 293,581 7.1
Reebok International, Ltd...................................................... 19 147,500 3.6
Sara Lee Corporation:
L'eggs, Hanes, Bali.......................................................... 20 93,950 2.2
Champion..................................................................... 2 6,500 0.2
Sara Lee Bakery.............................................................. 3 7,800 0.2
Coach........................................................................ 5 11,750 0.3
Socks Galore................................................................. 6 8,618 0.2
--- ---------- ---
36 128,618 3.1
</TABLE>
S-22
<PAGE>
<TABLE>
<CAPTION>
NUMBER GLA % OF TOTAL
TENANT OF STORES (SQ. FT.) GLA
- ------------------------------------------------------------------------------- ------------- ---------- -------------
<S> <C> <C> <C>
County Seat Stores, Inc. (2):
County Seat.................................................................. 6 49,000 1.2%
Levi's by County Seat........................................................ 5 57,700 1.4
--- ---------- ---
11 106,700 2.6
American Commercial, Inc.:
Mikasa Factory Store......................................................... 12 91,000 2.2
Brown Group Retail, Inc.:
Famous Footwear.............................................................. 4 21,000 0.5
Naturalizer.................................................................. 7 17,200 0.4
Brown Shoe................................................................... 2 10,500 0.3
Factory Brand Shoes.......................................................... 7 35,200 0.8
Air Step/Buster Brown........................................................ 1 3,000 0.1
--- ---------- ---
21 86,900 2.1
Oshkosh B'Gosh, Inc.:
Oshkosh...................................................................... 15 76,790 1.8
Genuine Kids................................................................. 1 3,000 0.1
--- ---------- ---
16 79,790 1.9
VF Factory Outlet, Inc......................................................... 3 78,697 1.9
Nine West Group, Inc.:
Nine West.................................................................... 15 36,760 0.2
Banister..................................................................... 2 8,800 0.4
Capezio...................................................................... 5 14,970 0.9
--- ---------- ---
22 60,530 1.5
--- ---------- ---
Total of all tenants listed in table......................................... 243 1,389,526 33.7%
--- ---------- ---
--- ---------- ---
</TABLE>
- ------------------------
(1) Phillips-Van Heusen Corporation ("PVH") has announced the closing of a
significant portion of its underperforming stores. Generally, the Company's
leases with PVH are long-term and do not permit the tenant to close the store
during the lease term. However, the Company has granted PVH's request to close
six additional stores by December 31, 1997. Management believes that the rents
derived from stores that are scheduled for closing, or might be considered for
closing in the future, by PVH would not have a material effect on the Company's
results of operations or financial condition.
(2) County Seat Stores, Inc. ("County Seat") is currently in bankruptcy
proceedings. The Company has entered into discussions with County Seat with
respect to temporary modifications of certain of their leases. Management
believes that this bankruptcy will not have a material effect on the Company's
results of operations or financial condition.
SIGNIFICANT PROPERTY
The original Riverhead Center was constructed during 1994 and tenants began
to occupy space mid-year. At December 31, 1996, 100% of the available GLA at
this Center was occupied by tenants. The average annualized base rental rate of
this Center during 1996, 1995 and 1994 was approximately $17.73, $17.63 and
$18.18 per weighted average GLA. The tenants at this Center principally conduct
retail sales
S-23
<PAGE>
operations. During 1997, the Company substantially completed construction of a
241,800 square foot expansion to this Center, which is anchored by Off 5th-SAKS
Fifth Avenue Outlet Store. A further expansion of 59,700 square feet of GLA is
currently under construction and is scheduled to be completed by December 1997,
at which time the Riverhead Center, totalling over 587,000 square feet of GLA,
is expected to be 100% occupied. In addition, the Company is also in the process
of finalizing the leasing of another 46,000 square foot expansion to the
Riverhead Center. See "Recent Developments--Property Development, Expansion and
Acquisition." No one tenant occupies more than 10% of this Center's available
GLA.
Depreciation on the Riverhead Center is recognized on a straight-line basis
over 33.33 years, resulting in a depreciation rate of 3% per year. At December
31, 1996, the net federal tax basis of this Center was approximately
$37,509,000. Real estate taxes assessed on this Center during 1996 amounted to
$749,000.
The following table sets forth, as of September 1, 1997, scheduled lease
expirations at the Riverhead Center, assuming that none of the tenants exercise
renewal options:
<TABLE>
<CAPTION>
% OF GROSS
ANNUALIZED BASE
NO. OF ANNUALIZED ANNUALIZED RENT
LEASES GLA BASE RENT BASE RENT REPRESENTED BY
YEAR EXPIRING (SQ. FT.) PER SQ. FT. (000'S) (1) EXPIRING LEASES
- ---------------------------------------------------- ----------- --------- ----------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
1998................................................ 1 10,000 $ 16.00 $ 160 2%
1999................................................ 23 85,860 18.84 1,620 18
2000................................................ 5 17,235 19.53 332 4
2001................................................ 9 37,150 20.38 757 9
2002................................................ 45 161,114 20.40 3,287 38
2003................................................ 4 16,800 19.58 329 4
2004................................................ 20 86,150 19.23 1,657 19
2005................................................ -- -- -- -- --
2006................................................ -- -- -- -- --
2007................................................ 3 57,000 9.23 526 6
--- --------- ----------- ----------- ---
Total............................................... 110 471,309 $ 18.39 $ 8,668 100%
--- --------- ----------- ----------- ---
--- --------- ----------- ----------- ---
</TABLE>
- ------------------------
(1) Base rent is defined as the minimum payments due, excluding periodic
contractual fixed increases.
S-24
<PAGE>
MANAGEMENT
The following table sets forth certain information concerning the executive
officers of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------------------------- ----- ----------------------------------------------------
<S> <C> <C>
Stanley K. Tanger................................... 74 Chairman of the Board of Directors and Chief
Executive Officer
Steven B. Tanger.................................... 48 Director, President and Chief Operating Officer
Rochelle G. Simpson................................. 58 Secretary and Senior Vice President - Administration
and Finance
Willard A. Chafin, Jr............................... 59 Senior Vice President--Leasing, Site Selection,
Operations and Marketing
Frank C. Marchisello, Jr............................ 39 Vice President--Chief Financial Officer
Joseph H. Nehmen.................................... 48 Vice President--Operations
Virginia R. Summerell............................... 38 Treasurer and Assistant Secretary
C. Randy Warren, Jr................................. 33 Vice President--Leasing
Richard T. Parker................................... 48 Vice President--Development
Carrie A. Johnson................................... 34 Vice President--Marketing
</TABLE>
The following is a biographical summary of the experience of the executive
officers of the Company:
STANLEY K. TANGER. Mr. Tanger is the Chief Executive Officer and Chairman of
the Board of Directors of the Company. He also served as President from
inception of the Company to December 1994. Mr. Tanger opened one of the
country's first outlet shopping centers in Burlington, North Carolina in 1981.
Before entering the factory outlet center business, Mr. Tanger was President and
Chief Executive Officer of his family's apparel manufacturing business,
Tanger/Creighton, Inc., for 30 years.
STEVEN B. TANGER. Mr. Tanger is a director of the Company and was named
President and Chief Operating Officer effective January 1, 1995. Previously, Mr.
Tanger served as Executive Vice President since joining the Company in 1986. He
has been with Tanger-related companies for most of his professional career,
having served as Executive Vice President of Tanger/Creighton for 10 years. He
is responsible for all phases of project development, including site selection,
land acquisition and development, leasing, marketing and overall management of
existing outlet centers. Mr. Tanger is a graduate of the University of North
Carolina at Chapel Hill and the Stanford University School of Business Executive
Program. Mr. Tanger is the son of Stanley K. Tanger.
ROCHELLE G. SIMPSON. Ms. Simpson was named Senior Vice
President--Administration and Finance of the Company in October 1995. She is
also the Secretary of the Company and previously served as Treasurer from May
1993 through May 1995. She entered the factory outlet center business in January
1981, in general management and as chief accountant for Stanley K. Tanger and
later became Vice President--Administration and Finance of the Predecessor
Company. Ms. Simpson oversees the accounting and finance departments and has
overall management responsibility for the Company's headquarters.
WILLARD A. CHAFIN, JR. Mr. Chafin was named Senior Vice President--Leasing,
Site Selection, Operations and Marketing of the Company in October 1995. He
joined the Company in April 1990, and since has held various executive positions
where his major responsibilities included supervising the Marketing, Leasing and
Property Management Departments, and leading the Asset Management Team. Prior to
joining the Company, Mr. Chafin was the Director of Store Development for the
Sara Lee Corporation, where he spent 21 years. Before joining Sara Lee, Mr.
Chafin was employed by Sears Roebuck & Co. for nine years in advertising/sales
promotion, inventory control and merchandising.
FRANK C. MARCHISELLO, JR. Mr. Marchisello was named Vice President and Chief
Financial Officer of the Company in November 1994. Previously, he served as
Chief Accounting Officer since joining the Company
S-25
<PAGE>
in January 1993 and Assistant Treasurer since February 1994. He was employed by
Gilliam, Coble & Moser, certified public accountants, from 1981 to 1992, the
last six years of which he was a partner of the firm in charge of various real
estate clients. While at Gilliam, Coble & Moser, Mr. Marchisello worked directly
with the Tangers since 1982. Mr. Marchisello is a graduate of the University of
North Carolina at Chapel Hill and is a certified public accountant.
JOSEPH H. NEHMEN. Mr. Nehmen joined the Company in September 1995 and was
elected Vice President of Operations in October 1995. Mr. Nehmen has over 20
years experience in private business. Prior to joining Tanger, Mr. Nehmen was
owner of Merchants Wholesaler, a privately held distribution company in St.
Louis, Missouri. He is a graduate of Washington University. Mr. Nehmen is the
son-in-law of Stanley K. Tanger.
VIRGINIA R. SUMMERELL. Ms. Summerell was named Treasurer of the Company in
May 1995 and Assistant Secretary in November 1994. Previously, she held the
position of Director of Finance since joining the Company in August 1992, after
nine years of service with NationsBank. Her major responsibilities include cash
management and oversight of all project and corporate finance transactions. Ms.
Summerell is a graduate of Davidson College and holds an MBA from the Babcock
School at Wake Forest University.
C. RANDY WARREN, JR. Mr. Warren is the Vice President--Leasing of the
Company and joined the Company in November 1995. He was previously director of
anchor leasing at Prime Retail, Inc., where he managed anchor tenant relations
and negotiation on a national basis. Prior to that, he worked as a leasing
executive for the company. Before entering the outlet industry, he was founder
of Preston Partners, a development consulting firm in Baltimore, MD. Mr. Warren
is a graduate of Towson State University and holds an MBA from Loyola College.
RICHARD T. PARKER. Mr. Parker is the Vice President--Development and joined
the Company in April 1996. Prior to joining Tanger, Mr. Parker was with The
Mills Corp for nine years where he served as Vice President of Land Development
responsible for organizing and planning the development, merchandising and sale
of peripheral land surrounding 2 million-plus square foot super regional mall
projects. Prior to joining The Mills Corp, Mr. Parker was employed by Marriott
International for 6 years where he served as Director of Franchise Development.
Mr. Parker is a graduate of Golden Gate University and a veteran of the United
States Air Force.
CARRIE A. JOHNSON. Ms. Johnson was named Vice President--Marketing in
September 1996. Previously, she held the position of Assistant Vice
President--Marketing since joining the Company in December 1995. Prior to
joining Tanger, Ms. Johnson was with Prime Retail, Inc. for 4 years where she
served as Regional Marketing Director responsible for coordinating and directing
marketing for five outlet centers in the southeast region. Prior to joining
Prime Retail, Inc., Ms. Johnson was Marketing Manager for North Hills, Inc. for
five years and also served in the same role for the Edward J. DeBartolo Corp.
for two years. Ms. Johnson is a graduate of East Carolina University.
S-26
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TO HOLDERS OF COMMON SHARES
The following summary of certain federal income tax considerations to
holders of Common Shares is based on current law, is for general information
only, and is not tax advice. The tax treatment of a holder of Common Shares will
vary depending upon his particular situation, and this discussion does not
purport to deal with all aspects of taxation that may be relevant to particular
shareholders in light of their personal investment or tax circumstances, or to
certain types of shareholders (including insurance companies, financial
institutions or broker-dealers, tax-exempt organizations, foreign corporations,
and persons who are not citizens or residents of the United States, except to
the extent discussed under the heading "Taxation of Tax-Exempt Shareholders" and
"Taxation of Non-U.S. Shareholders") subject to special treatment under the
Federal income tax laws.
This discussion does not address any aspects of federal income taxation to
the Company relating to its election to be taxed as a real estate investment
trust. A summary of certain federal income tax considerations to the Company is
provided in the Prospectus.
The discussion set forth below assumes that the Company qualifies as a REIT
under the Code. If in any taxable year the Company were to fail to qualify as a
REIT, the Company would not be allowed a deduction for distributions paid to
shareholders in computing taxable income and would be subject to federal income
tax on its taxable income at regular corporate rates. As a result, the funds
available for distribution to the Company's shareholders would be reduced. See
"Certain Federal Income Tax Considerations--Failure to Qualify" in the
Prospectus.
EACH INVESTOR SHOULD REFER TO THE PROSPECTUS FOR A SUMMARY OF THE FEDERAL
INCOME TAX CONSIDERATIONS TO THE COMPANY OF ITS REIT ELECTION. EACH INVESTOR IS
ADVISED TO CONSULT WITH HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO
HIM OF THE ACQUISITION, OWNERSHIP AND SALE OF COMMON SHARES, INCLUDING THE
FEDERAL, STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF SUCH ACQUISITION,
OWNERSHIP AND SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF TAXABLE U.S. SHAREHOLDERS GENERALLY
As used herein, the term "U.S. Shareholder" means a holder of Common Shares
who (for United States Federal income tax purposes) (i) is a citizen or resident
of the United States, (ii) is a corporation, partnership, or other entity
created or organized in or under the laws of the United States or of any
political subdivision thereof, or (iii) is an estate the income of which is
subject to the United States Federal income taxation regardless of its source,
or (iv) is a trust whose administration is subject to the primary supervision of
a United States court and which has one or more United States persons who have
the authority to control all substantial decisions of the trust.
As long as the Company qualifies as a REIT, distributions made by the
Company out of its current or accumulated earnings and profits (and not
designated as capital gain dividends) will constitute dividends taxable to its
taxable U.S. Shareholders as ordinary income. Such dividends will not be
eligible for the dividends-received deduction in the case of U.S. Shareholders
that are corporations. Distributions made by the Company that are properly
designated by the Company as capital gain dividends will be taxable to taxable
U.S. Shareholders as gains from the sale or exchange of a capital asset held for
more than one year (to the extent that they do not exceed the Company's actual
net capital gain for the taxable year) without regard to the period of which a
U.S. Shareholder has held his shares. It is not clear whether such amounts will
be taxable at the rates applicable to mid-term capital gains (applicable to
gains from the sale of capital assets held for more than one year but less than
or equal to eighteen months) or whether long-term capital gain rates (applicable
to gains from the sale of capital assets held for more than eighteen months)
will apply. This uncertainty may be clarified by future legislation or
regulations. U.S. Shareholders that are
S-27
<PAGE>
corporations may, however, be required to treat up to 20% of certain capital
gain dividends as ordinary income.
To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in his shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of U.S.
Shareholder's adjusted basis in his shares taxable as capital gains (provided
that the shares have been held as a capital asset.) Distributions declared by
the Company in October, November, or December of any year and payable to a
shareholder of record on a specified date in any such month shall be treated as
both paid by the Company and received by the shareholder on December 31 of such
year, provided that the distribution is actually paid by the Company on or
before January 31 of the following calendar year. Shareholders may not include
in their own income tax returns any net operating losses or capital losses of
the Company.
Dividends made by the Company and gain arising from the sale or exchange by
a U.S. Shareholder of Common Shares will not be treated as passive activity
income, and, as a result, U.S. Shareholders generally will not be able to apply
any "passive losses" against such income or gain. Distributions made by the
Company (to the extent they do not constitute a return of capital) generally
will be treated as investment income for purposes of computing the investment
income limitation. Gain arising from the sale or other disposition of Common
Shares, however, will not be treated as investment income unless the U.S.
Shareholder elects to reduce the amount of such U.S. Shareholder's total capital
gain eligible for capital gains rates by the amount of such gain with respect to
the shares.
Upon any sale or other disposition of Common Shares, a U.S. Shareholder will
recognize gain or loss for Federal income tax purposes in an amount equal to the
difference between (i) the amount of cash and the fair market value of any
property received on such sale or other disposition, and (ii) the holder's
adjusted basis in the shares for tax purposes. Such gain or loss will be capital
gain or loss if the shares have been held by the U.S. Shareholders as a capital
asset and in the case of a U.S. Shareholder who is an individual will be
mid-term or long-term gain or loss if such shares have been held for more than
one year or eighteen months, respectively. In general, any loss recognized by a
U.S. Shareholder upon the sale or other disposition of shares of the Company
that have been held for six months or less (after applying certain holding
period rules) will be treated as a long-term capital loss, to the extent of
distributions received by such U.S. Shareholder from the Company which were
required to be treated as long-term capital gains.
BACKUP WITHHOLDING
Information concerning the amount of distributions paid during each calendar
year, and the amount of tax withheld, if any, will be reported to the Company's
U.S. Shareholders and the IRS (unless an exemption from such reporting applies,
as in the case of a corporate holder). Under the backup withholding rules, a
shareholder may be subject to backup withholding at the rate of 31% with respect
to distributions paid unless such holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact, or
(b) provides a taxpayer identification number, certifies as to no loss of
exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. A U.S. Shareholder that does not
provide the Company with his correct taxpayer identification number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
to any shareholders who fail to certify their non-foreign status to the Company.
See "-Taxation of Non-U.S. Shareholders."
S-28
<PAGE>
TAXATION OF TAX-EXEMPT SHAREHOLDERS
Generally, a tax-exempt investor that is exempt from tax on its investment
income, such as an individual retirement account (IRA) or a 401(k) plan, that
holds the Common Shares as an investment will not be subject to tax on
distributions paid by the Company. However, if such tax-exempt investor is
treated as having purchased its Common Shares with borrowed funds, some or all
of its distributions will be subject to tax. In addition, after 1993, under some
circumstances certain pension plans (including 401(k) plans but not including
IRAs and government pension plans) that own more than 10% (by value) of the
Company's outstanding shares, including preferred shares, could be subject to
tax on a portion of their distributions even if their shares are held for
investment and is not treated as acquired with borrowed funds. The ownership
limit provisions (see the discussion in the Prospectus under the heading
"Description of Common Shares-Restrictions on Ownership"), however, should
prevent this result in most cases.
TAXATION OF NON-U.S. SHAREHOLDERS
The rules governing United States Federal income taxation of the ownership
and disposition of Common Shares by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Shareholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States Federal income tax and does not address state, local or
foreign tax consequences that may be relevant to a Non-U.S. Shareholder in light
of its particular circumstances. In addition, this discussion is based on
current law, which is subject to change, and assumes that the Company qualifies
for taxation as a REIT. Prospective Non-U.S. Shareholders should consult with
their own tax advisors to determine the impact of Federal, state, local and
foreign income tax laws with regard to an investment in Common Shares, including
any reporting requirements.
DISTRIBUTIONS. Distributions by the Company to a Non-U.S. Shareholder that
are neither attributable to gain from sales or exchanges by the Company of
United States real property interests nor designated by the Company as capital
gains dividends will be treated as distributions of ordinary income to the
extent that they are made out of current or accumulated earnings and profits of
the Company. Such distributions ordinarily will be subject to withholding of
United States Federal income tax on a gross basis (that is, without allowance of
deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the distributions are treated as
effectively connected with the conduct by the Non-U.S. Shareholder of a United
States trade or business. Distributions that are effectively connected with such
a trade or business will be subject to tax on a net basis (that is, after
allowance of deductions) at graduated rates, in the same manner as U.S.
Shareholders are taxed with respect to such distributions and are generally not
subject to withholding. Any such distributions received by a Non-U.S.
Shareholder that is a corporation may also be subject to an additional branch
profits tax at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Pursuant to current Treasury regulations, distributions paid to an address
in a country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury regulations, not currently in effect, however, a Non-U.S.
Shareholder who wished to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to distributions
do not apply to distributions from a REIT, such as the Company. Certain
certification and disclosure requirements must be satisfied to be exempt from
withholding under the effectively connected income exemption discussed above.
Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of such shareholder's Common Shares, but
rather will reduce the adjusted basis of such shares. To the extent that
S-29
<PAGE>
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to gain from the sale or exchange of his Common
Shares, the tax treatment of which is described below. For withholding purposes,
the Company is required to treat all distributions as if made out of current or
accumulated earnings and profits. However, amounts thus withheld are generally
refundable if it is subsequently determined that such distribution was, in fact,
in excess of current or accumulated earnings and profits of the Company.
Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United Sates real property interest) generally will
not be subject to United States Federal income taxation, unless (i) investment
in the shares is effectively connected with the Non-U.S. Shareholder's United
States trade or business, in which case the Non-U.S. Shareholder will be subject
to the same treatment as U.S. Shareholders with respect to such gain (except
that a Non-U.S. Shareholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.
Distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real property interests will
cause the Non-U.S. Shareholder to be treated as recognizing such gain as income
effectively connected with a United States trade or business. Non-U.S.
Shareholders would thus generally be taxed at the same rates applicable to U.S.
Shareholders (subject to special alternative minimum tax in the case of
nonresident alien individuals). The Company is required to withhold 35% of any
such distribution. That amount is creditable against the Non-U.S. Shareholder's
United States Federal income tax liability. Also, such gain may be subject to a
30% branch profits tax in the hands of a Non-U.S. Shareholder that is a
corporation, as discussed above.
SALE OF COMMON SHARES. Gain recognized by a Non-U.S. Shareholder upon the
sale or exchange of Common Shares generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of the Foreign Investment in Real Property Tax Act
("FIRPTA"). Such shares will not constitute a "United States real property
interest" so long as the Company is a "domestically controlled REIT." A
"domestically controlled REIT" is a REIT in which at all times during a
specified test period less than 50% in value of its shares are held directly or
indirectly by Non-U.S. Shareholders. Notwithstanding the foregoing, gain from
the sale or exchange of shares not otherwise subject to FIRPTA will be taxable
to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident alien
individual who is present in the United States for 183 days or more during the
taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.
If the Company is not or ceases to be a "domestically-controlled REIT,"
whether gain arising from the sale or exchange by a Non-U.S. Shareholder of
Common Shares would be subject to United States taxation under FIRPTA, as a sale
of a "United States real property interest" will depend on whether the shares
are "regularly traded" (as defined by applicable Treasury Regulations), on an
established securities market (e.g., the New York Stock Exchange) and on the
size of the selling Non-U.S. Shareholder's interest in the Company. If gain on
the sale or exchange of shares were subject to taxation under FIRPTA, the
Non-U.S. Shareholder would be subject to regular United States income tax with
respect to such gain in the same manner as a U.S. Shareholder (subject to any
applicable alternative minimum tax, a special alternative minimum tax in the
case of nonresident alien individuals and the possible application of the 30%
branch profits tax in the case of foreign corporations), and the purchaser of
the Common Shares would be required to withhold and remit to the IRS 10% of the
purchase price.
BACKUP WITHHOLDING TAX AND INFORMATION REPORTING. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain
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<PAGE>
information under the United States information reporting requirements) and
information reporting will generally not apply to distributions paid to Non-U.S.
Shareholders outside the United States that are treated as (i) distributions
subject to the 30% (or lower treaty rate) withholding tax discussed above, (ii)
capital gains distributions or (iii) distributions attributable to gain from the
sale or exchange by the Company of United States real property interests. As a
general matter, backup withholding and information reporting will not apply to a
payment of the proceeds of a sale of Common Shares by or through a foreign
office of a foreign broker. Information reporting (but not backup withholding)
will apply, however, to payment of the proceeds of a sale of Common Shares by a
foreign office of a broker that (a) is a United States person, (b) derives 50%
or more of its gross income for certain periods from the conduct of a trade or
business in the United States or (c) is a "controlled foreign corporation"
(generally a foreign corporation controlled by United States shareholders) for
United States tax purposes, unless the broker has documentary evidence in its
records that the holder is a Non-U.S. Shareholder and certain other conditions
are met, or the shareholder otherwise establishes an exemption. Payment to or
through a United States office of a broker of the proceeds of a sale of Common
Shares is subject to both backup withholding and information reporting unless
the shareholder certifies under penalties of perjury that the shareholder is a
Non-U.S. Shareholder, or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rule by filing the appropriate claim for refund with the IRS.
The backup withholding and information reporting rules are under review by
the United States Treasury, and their applications to the Common Shares could be
changed prospectively by future Treasury regulations. On April 15, 1996 the IRS
issued proposed Treasury Regulations concerning the withholding of tax and
reporting for certain amounts paid to non-resident individuals and foreign
corporations. The proposed regulations would, among other changes, eliminate the
presumption under current regulations with respect to distributions paid to
addresses outside the United States. The proposed Treasury Regulations, if
adopted in their current form, would be effective for payments made after
December 31, 1997. IRS officials, however, have stated that such Treasury
Regulations, when finalized, will be effective for payments made after December
31, 1998. Prospective purchasers of Common Shares should consult their tax
advisors concerning the potential adoption of such Treasury Regulations.
OTHER TAX CONSEQUENCES
The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the Federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.
S-31
<PAGE>
UNDERWRITING
Subject to the terms and conditions contained in the terms agreement and the
related underwriting agreement (collectively, the "Underwriting Agreement"), the
Company has agreed to sell to each of the Underwriters, and each Underwriter has
severally agreed to purchase from the Company, the respective number of Common
Shares set forth below opposite their names. The Underwriting Agreement provides
that the obligations of the Underwriters are subject to certain conditions
precedent, and that the Underwriters are committed to purchase all of the Common
Shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated........................................................... 333,334
Prudential Securities Incorporated............................................... 333,333
Stifel, Nicolaus & Company, Incorporated......................................... 333,333
----------
Total.................................................................. 1,000,000
----------
----------
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Common Shares to the public at the public offering price set forth on
the cover of this Prospectus Supplement, and to certain dealers at such price
less a concession not in excess of $.90 per share. The Underwriters may allow,
and such dealers may reallow, a discount not in excess of $.10 per share on
sales to certain other dealers. After the initial public offering, the public
offering price, concession and discount may be changed.
The Company has granted the Underwriters an option exercisable for 30 days
after the date of this Prospectus Supplement to purchase up to 150,000
additional Common Shares to cover over-allotments, if any. If the Underwriters
exercise this option to purchase additional Common Shares, each of the
Underwriters will have a firm commitment, subject to certain conditions, to
purchase approximately the same percentage thereof which the number of Common
Shares to be purchased by it referred to in the foregoing table bears to the
total number of Common Shares initially offered hereby, at a price equal to the
initial public offering price less the underwriting discount set forth on the
cover page of this Prospectus Supplement.
In the Underwriting Agreement, the Company has agreed to indemnify the
Underwriters against certain civil liabilities, including liabilities under the
Securities Act of 1933, as amended.
Subject to certain exceptions, the Company has agreed not to offer, sell,
contract to sell or otherwise dispose of any Common Shares, or any security
convertible into or exchangeable for Common Shares, for a period of 90 days
after the date of this Prospectus Supplement without prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated.
Until the distribution of the Common Shares is completed, rules of the
Commission may limit the ability of the Underwriters to bid for and purchase the
Common Shares. As an exemption to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Common Shares.
Such transactions consist of bids or purchases for the purpose of pegging,
fixing or maintaining the price of the Common Shares.
If the Underwriters create a short position in the Common Shares in
connection with the Offering, I.E., if they sell more Common Shares than are
referred to on the cover page of the Prospectus Supplement, the Underwriters may
reduce that short position by purchasing Common Shares in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Common
Shares in the open market to reduce the
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<PAGE>
Underwriters' short position or to stabilize the price of the Common Shares,
they may reclaim the amount of the selling concession from the Underwriters who
sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
S-33
<PAGE>
PROSPECTUS
$200,000,000
TANGER FACTORY OUTLET CENTERS, INC.
PREFERRED SHARES, DEPOSITARY SHARES, COMMON SHARES AND COMMON SHARE WARRANTS
TANGER PROPERTIES LIMITED PARTNERSHIP
DEBT SECURITIES
Tanger Factory Outlet Centers, Inc. ("Tanger" or the "Company") may from
time to time offer in one or more series and/or classes (i) its preferred
shares, par value $.01 per share (the "Preferred Shares"), (ii) Preferred Shares
represented by depositary shares (the "Depositary Shares"), (iii) its common
shares, par value $.01 per share (the "Common Shares"), or (iv) warrants to
purchase Common Shares (the "Common Share Warrants"), with an aggregate public
offering price of up to $100,000,000 on terms determined at the time of
offering. Tanger Properties Limited Partnership (the "Operating Partnership")
may from time to time offer in one or more series its unsecured debt securities,
which may either be senior (the "Senior Debt Securities") or subordinated (the
"Subordinated Debt Securities", and the Senior Debt Securities and the
Subordinated Debt Securities are herein referred to collectively as the "Debt
Securities"), with an aggregate public offering price of up to $100,000,000 on
terms to be determined at the time of offering. The Debt Securities, Preferred
Shares, Depositary Shares, Common Shares and Common Shares Warrants
(collectively, the "Offered Securities") may be offered, separately or together,
in separate series, in amounts, at prices and on terms to be set forth in a
supplement to this Prospectus (a "Prospectus Supplement"). If any Debt
Securities issued by the Operating Partnership are rated below investment grade
at the time of issuance, then the payment of principal thereof and premium, if
any, and interest thereon will be unconditionally guaranteed (each, a
"Guarantee") by the Company (in such capacity as guarantor of the Debt
Securities, the "Guarantor") to the extent and on the terms described herein and
in the accompanying Prospectus Supplement. Debt securities rated investment
grade may also be accompanied by a Guarantee to the extent and on the terms
described herein and in the accompanying Prospectus Supplement.
The specific terms of the Offered Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable: (i) in the case of Debt
Securities, the specific title, rank, aggregate principal amount, currency, form
(which may be registered or bearer, or certificated or book-entry), authorized
denominations, maturity, rate (or manner of calculation thereof) and time of
payment of interest, terms for redemption at the option of the Operating
Partnership or repayment at the option of the holder, terms for sinking fund
payments, applicability and terms of any Guarantee, and any initial public
offering price; (ii) in the case of Preferred Shares, the specific title and
stated value, any dividend, liquidation, redemption, conversion, exchange,
voting and other rights, and any initial public offering price; (iii) in the
case of Depositary Shares, the fractional share of Preferred Shares represented
by each such Depositary Share; (iv) in the case of Common Shares, any initial
public offering price; and (v) in the case of Common Share Warrants, the
duration, offering price, exercise price and detachability. In addition, such
specific terms may include limitations on direct or beneficial ownership and
restrictions on transfer, in each case as may be appropriate to preserve the
status of the Company as a real estate investment trust ("REIT") for federal
income tax purposes.
The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a securities exchange of, the Offered Securities
covered by such Prospectus Supplement.
SEE "RISK FACTORS" AT PAGE 4 OF THIS PROSPECTUS FOR A DESCRIPTION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PURCHASERS OF THE OFFERED SECURITIES.
The Offered Securities may be offered directly, through agents or to or
through underwriters or dealers. If any agents or underwriters are involved in
the sale of any of the Offered Securities, their names, and any applicable
purchase price, fee, commission or discount arrangement between or among them,
will be set forth, or will be calculable from the information set forth, in the
applicable Prospectus Supplement. See "Plan of Distribution." No Offered
Securities may be sold without delivery of the applicable Prospectus Supplement
describing the method and terms of the offering of such Offered Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 12, 1997
<PAGE>
AVAILABLE INFORMATION
The Company and the Operating Partnership are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, files, or will file, as the case may be,
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). The Registration Statement, the exhibits and
schedules forming a part thereof and the reports, proxy statements and other
information filed by the Company and the Operating Partnership with the
Commission in accordance with the Exchange Act can be inspected and copied at
the Commission's Public Reference Section, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Common Shares and
Depositary Shares representing the Company's Series A Cumulative Convertible
Redeemable Preferred Shares are listed on the New York Stock Exchange and
similar information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange, Inc., 20 Broad Street, New York, New
York 10005.
The Company and the Operating Partnership have filed with the Commission a
registration statement (the "Registration Statement") (of which this Prospectus
is a part) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Offered Securities and the Guarantees. This Prospectus does
not contain all of the information set forth in the Registration Statement,
certain portions of which have been omitted as permitted by the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and in
each instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference and the exhibits and schedules
thereto. For further information regarding the Company, the Operating
Partnership, the Offered Securities and the Guarantees, reference is hereby made
to the Registration Statement and such exhibits and schedules which may be
obtained from the Commission at its principal office in Washington, D.C. upon
payment of the fees prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The documents listed below have been filed by the Company or the Operating
Partnership, as applicable, under the Exchange Act with the Commission and are
incorporated herein by reference:
a. Annual Report of the Company on Form 10-K for the fiscal year ended
December 31, 1996;
b. Annual Report of the Operating Partnership on Form 10-K for the
fiscal year ended December 31, 1996;
c. Current Report of the Company on Form 8-K dated April 28, 1997;
d. Quarterly Reports of the Company on Form 10-Q for the three months
ended March 31, 1997 and the six months ended June 30, 1997; and
e. Quarterly Reports of the Operating Partnership on Form 10-Q for the
three months ended March 31, 1997 and the six months ended June 30,
1997.
All documents filed by the Company or the Operating Partnership pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date
of this Prospectus and prior to the termination of the offering of the Offered
Securities shall be deemed to be incorporated by reference in this Prospectus
and any applicable Prospectus Supplement and to be a part hereof and thereof
from the date of filing of such documents.
Any statement contained herein, in any applicable Prospectus Supplement or
in a document incorporated or deemed to be incorporated by reference herein and
therein shall be deemed to be modified or
2
<PAGE>
superseded for purposes of this Prospectus and such Prospectus Supplement to the
extent that a statement contained in such Prospectus Supplement or any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein and therein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus or such Prospectus
Supplement.
Copies of all documents which are incorporated by reference herein and in
any applicable Prospectus Supplement (not including the exhibits to such
information, unless such exhibits are specifically incorporated by reference in
such information) will be provided without charge to each person, including any
beneficial owner, to whom this Prospectus and such Prospectus Supplement are
delivered, upon written or oral request. Requests should be directed to the
Secretary of the Company, 1400 West Northwood Street, Greensboro, North Carolina
27408 (telephone number: (910) 274-1666).
3
<PAGE>
THE COMPANY AND THE OPERATING PARTNERSHIP
The Company is a fully-integrated, self-administered and self-managed real
estate investment trust ("REIT") that focuses exclusively on developing,
acquiring, owning and operating factory outlet centers (the "Centers"). The
Company provides all development, leasing and management services for its
Centers. According to Value Retail News, an industry publication, the Company is
one of the largest owners and operators of factory outlet centers in the United
States. As of September 1, 1997, the Company owned and operated 28 Centers with
a total gross leasable area ("GLA") of approximately 4.1 million square feet.
These Centers were 97% leased, contained approximately 970 stores and
represented over 240 brand name companies as of such date.
The Centers and other assets of the Company's business are held by, and all
of the Company's operations are conducted by, the Company's majority owned
partnership, Tanger Properties Limited Partnership, a limited partnership (the
"Operating Partnership"). Accordingly, the description of the business and
properties of the Company are also a description of the business and properties
of the Operating Partnership. As a result, the Company is dependent upon the
receipt of distributions or other payments from the Operating Partnership in
order to meet its financial obligations, including its obligations under any
Guarantees. The Company is the sole managing general partner of the Operating
Partnership and the Tanger Family Limited Partnership ("TFLP") is the sole
limited partner. As of September 1, 1997, the ownership interests in the
Operating Partnership consisted of 6,763,535 general partnership units held by
the Company, 90,839 preferred partnership units (which are convertible into
approximately 818,459 general partnership units) held by the Company and
3,033,305 limited partnership units held by TFLP.
Each preferred partnership unit entitles the Company to receive
distributions from the Operating Partnership, in an amount equal to the
distribution payable with respect to one Series A Preferred Share, prior to the
payment by the Operating Partnership of distributions with respect to the
partnership units. Preferred partnership units will be automatically convertible
into general partnership units to the extent that the Series A Preferred Shares
are converted by holders into Common Shares and will be redeemed by the
Operating Partnership to the extent that the Series A Preferred Shares are
redeemed by the Company. See "Description of Preferred Shares" herein. The
limited partnership units held by TFLP are exchangeable, subject to certain
limitations to preserve the Company's status as a REIT, into Common Shares.
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to distribute at least 95% of its taxable
income each year. Dividends on preferred shares are included as distributions
for this purpose. Historically, the Company's distributions have exceeded, and
the Company expects that its distributions will continue to exceed, taxable
income in each year. As a result, and because a portion of the distributions may
constitute a return of capital, the consolidated net worth of the Company may
decline. However, the Company does not believe that consolidated net worth is a
meaningful reflection of net real estate values.
The Company and the Operating Partnership are organized under the laws of
the state of North Carolina and maintain their principal executive offices at
1400 West Northwood Street, Greensboro, North Carolina 27408.
RISK FACTORS
Prospective investors should carefully consider, among other factors, the
matters referred to below before purchasing Offered Securities:
RISKS RELATED TO THE MANUFACTURERS' OUTLET CENTER INDUSTRY
COMPETITION FROM OTHER MANUFACTURERS' OUTLET CENTERS. Numerous developers
and real estate companies are engaged in the development or ownership of
manufacturers' outlet centers and other commercial
4
<PAGE>
properties and compete with the Company in seeking tenants for outlet centers.
This results in competition for the acquisition of prime properties and for
tenants who will lease space in the Company's existing and subsequently acquired
outlet centers.
THE RELATIVELY SHORT HISTORY OF MANUFACTURERS' OUTLET CENTERS MAY NOT BE
INDICATIVE OF FUTURE PERIODS. Although the manufacturers' outlet center industry
has grown over the last several years, the industry represents a relatively new
segment of the retailing industry and, therefore, the long-term performance of
these centers may not be comparable to, and cash flows may not be as predictable
as, traditional retail malls.
GENERAL REAL ESTATE INVESTMENT RISKS
ECONOMIC PERFORMANCE AND VALUE OF CENTERS DEPENDENT ON MANY FACTORS. Real
property investments are subject to varying degrees of risk. The economic
performance and values of real estate may be affected by many factors, including
changes in the national, regional and local economic climate, local conditions
such as an oversupply of space or a reduction in demand for real estate in the
area, the attractiveness of the properties to tenants, competition from other
available space, the ability of the owner to provide adequate maintenance and
insurance and increased operating costs.
RISKS OF DEVELOPMENT ACTIVITIES. The Company intends to actively pursue
manufacturers' outlet center development projects, including the expansion of
existing Centers. Such projects generally require expenditure of capital on
projects that may not be completed as well as various forms of government and
other approvals, the receipt of which cannot be assured.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY. Since substantially all of
the Company's income is derived from rental income from real property, the
Company's income and funds for distribution would be adversely affected if a
significant number of the Company's tenants were unable to meet their
obligations to the Company or if the Company was unable to lease a significant
amount of space in its Centers on economically favorable lease terms. In
addition, the terms of manufacturers' outlet store tenant leases traditionally
have been significantly shorter than in traditional segments of retailing. There
can be no assurance that any tenant whose lease expires in the future will renew
such lease or that the Company will be able to re-lease space on economically
favorable terms.
RISK OF RETAILING OPERATIONS. The Company's operations are necessarily
subject to the changes in operations of its retail tenants. A portion of the
Company's rental revenues are derived from percentage rents that directly depend
on the sales of its tenants. In addition, in recent years, a number of retailers
have experienced financial difficulties. The bankruptcy of a major tenant or
number of tenants may have a material adverse effect on the Company's results of
operations.
ENVIRONMENTAL RISKS. Under various federal, state and local laws,
ordinances and regulations, each of the Company and the Operating Partnership
may be considered an owner or operator of real property or may have arranged for
the disposal or treatment of hazardous or toxic substances and, therefore, may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property or disposed of by it, as well as
certain other potential costs which could relate to hazardous or toxic
substances (including governmental fines and injuries to persons and property).
Such liability may be imposed whether or not the Company or the Operating
Partnership knew of, or was responsible for, the presence of such hazardous or
toxic substances.
DISTRIBUTIONS TO SHAREHOLDERS
To obtain the favorable tax treatment associated with REITs, the Company
generally will be required each year to distribute to its common and preferred
shareholders at least 95% of its net taxable income. The ability of the Company
to make such distributions is dependent upon the receipt of distributions or
other payments from the Operating Partnership.
5
<PAGE>
FAILURE TO QUALIFY AS A REIT
The Company and the Operating Partnership believe that they have operated
and intend to operate in a manner so as to permit the Company to qualify as a
REIT under the Internal Revenue Code of 1986, as amended (the "Code"). However,
no assurance can be given that the Company has qualified or will remain
qualified as a REIT. If in any taxable year the Company were to fail to qualify
as a REIT, the Company would not be allowed a deduction for distributions to
shareholders in computing taxable income and would be subject to Federal income
tax (including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Such a failure to qualify for taxation as a REIT is
likely to have an adverse effect on the market value and marketability of the
Offered Securities. See "Certain Federal Income Tax Considerations-Failure to
Qualify."
ABILITY OF THE COMPANY TO PAY ON GUARANTEE
All operations of the Company are conducted by the Operating Partnership,
and the only asset of the Company is its interest in the Operating Partnership.
As a result, the Company is dependent upon the receipt of distributions or other
payments from the Operating Partnership in order to meet its financial
obligations, including its obligations under any Guarantees. Any Guarantee will
be effectively subordinated to existing and future liabilities of the Operating
Partnership. At June 30, 1997, the Operating Partnership had $214,890,000 of
indebtedness outstanding, of which $109,740,000 was secured debt. The Operating
Partnership is a party to a loan agreement with various bank lenders which
requires the Operating Partnership to comply with various financial and other
covenants before it may make distributions to the Company. Although the
Operating Partnership presently is in compliance with such covenants, there is
no assurance that it will continue to be in compliance and that it will be able
to continue to make distributions to the Company.
USE OF PROCEEDS
Unless otherwise described in the applicable Prospectus Supplement, the
Operating Partnership intends to use the net proceeds from the sale of the Debt
Securities for general purposes, which may include the development or the
acquisition of additional portfolio properties as suitable opportunities arise,
the expansion and improvement of certain Centers in the Operating Partnership's
portfolio, and the repayment of certain secured indebtedness outstanding at such
time. Unless otherwise described in the applicable Prospectus Supplement, any
proceeds from the sale of Common Shares, Common Share Warrants, Preferred Shares
or Depositary Shares received by the Company will be invested in the Operating
Partnership, which will use the proceeds as described above.
6
<PAGE>
DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
being offered, the extent, if any, to which such general provisions may apply to
the Offered Securities and any modifications of or additions to the general
terms of the Debt Securities applicable in the case of the Debt Securities will
be described in the Prospectus Supplement relating to such Debt Securities.
The Senior Debt Securities will be issued under an Indenture, dated as of
March 1, 1996 (as amended or supplemented from time to time, the "Senior
Indenture"), between the Operating Partnership, the Company and State Street
Bank and Trust Company, as Trustee (the "Senior Debt Trustee") and the
Subordinated Debt Securities are to be issued under an Indenture to be dated as
of a date on or prior to the first issuance of Subordinated Debt Securities, as
supplemented from time to time (the "Subordinated Indenture," and the Senior
Indenture and the Subordinated Indenture are referred to herein collectively as
the "Indentures" and individually as an "Indenture"), between the Operating
Partnership, the Company and State Street Bank and Trust Company, as Trustee
(the "Subordinated Debt Trustee"). The term "Trustee" as used herein shall refer
to either the Senior Debt Trustee or the Subordinated Debt Trustee, as
appropriate, for Senior Debt Securities or Subordinated Debt Securities. The
form of the Senior Indenture and the form of the Subordinated Indenture are
filed as exhibits to the Registration Statement of which this Prospectus is a
part and are available for inspection at the corporate trust office of the
Trustees at 2 International Place, Fourth Floor, Boston, Massachusetts 02110 or
as described above under "Available Information." The Indentures are subject to,
and governed by, the Trust Indenture Act of 1939, as amended (the "TIA"). The
statements made hereunder relating to the Indentures and the Debt Securities to
be issued thereunder are summaries of certain provisions thereof and do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all provisions of the Indentures and such Debt Securities.
Capitalized terms used but not defined herein shall have the meanings ascribed
to them in the applicable Indenture.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Operating
Partnership. The indebtedness represented by the Senior Debt Securities will
rank equally with all other unsecured and unsubordinated indebtedness of the
Operating Partnership. The indebtedness represented by the Subordinated Debt
Securities will be subordinated in right of payment to the prior payment in full
of all Senior Indebtedness of the Operating Partnership (including the Senior
Debt Securities) as described under "Subordination" below. At June 30, 1997, the
total outstanding Senior Indebtedness of the Operating Partnership was
$75,000,000 and the total outstanding debt of the Operating Partnership was
$214,890,000 of which $109,740,000 was secured debt. The Indentures provide that
the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time in
or pursuant to authority granted by a resolution of the General Partner of the
Operating Partnership or as established in one or more indentures supplemental
to the Indenture. All Debt Securities of one series need not be issued at the
same time and may vary as to interest rate or formula, maturity and other
provisions and, unless otherwise provided, a series may be reopened, without the
consent of the Holders of the Debt Securities of such series, for issuances of
additional Debt Securities of such series.
If any Debt Securities are rated below investment grade by any nationally
recognized statistical rating organization at the time of issuance, such Debt
Securities will be unconditionally guaranteed by the Guarantor as to payment of
principal, premium, if any, and interest in respect thereof.
The Indentures provide that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities. Any Trustee under
the Indentures may resign or be removed with respect to one or more series of
Debt Securities, and a successor Trustee may be appointed to act with
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respect to such series. In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
shall be a Trustee of a trust under the Indenture separate and apart from the
trust administered by any other Trustee, and, except as otherwise indicated
herein, any action described herein to be taken by the Trustee may be taken by
each such Trustee with respect to, and only with respect to, the one or more
series of Debt Securities for which it is Trustee under the applicable
Indenture.
Reference is made to the Prospectus Supplement relating to the series of
Debt Securities being offered for the specific terms thereof and of the
Guarantees, if any, endorsed on such Debt Securities, including:
(1) the title of such Debt Securities, whether such Debt Securities
will be Senior Debt Securities or Subordinated Debt Securities;
(2) the aggregate principal amount of such Debt Securities and any
limit on such aggregate principal amount;
(3) the percentage of the principal amount at which such Debt
Securities will be issued and, if other than 100% of the principal amount
thereof, the portion of the principal amount thereof payable upon
acceleration of the maturity thereof;
(4) the date or dates, or the method for determining such date or
dates, on which the principal of (and premium, if any, on) such Debt
Securities will be payable;
(5) the rate or rates (which may be fixed or variable), or the method
by which such rate or rates shall be determined, at which such Debt
Securities will bear interest, if any;
(6) the date or dates, or the method for determining such date or
dates, from which any interest will accrue, the Interest Payment Dates on
which any such interest will be payable, the Regular Record Dates for such
Interest Payment Dates, or the method by which such Regular Record Dates
shall be determined, the Person to whom such interest shall be payable, and
the basis upon which interest shall be calculated if other than that of a
360-day year of twelve 30-day months;
(7) the place or places where the principal of (and premium, if any)
and interest, if any, on such Debt Securities will be payable, such Debt
Securities may be surrendered for registration of transfer or exchange and
notices or demands to or upon the Operating Partnership or the Company, as
applicable, in respect of such Debt Securities, any applicable Guarantees
and the applicable Indenture may be served;
(8) the date or dates on which, the period or periods within which, the
price or prices at which and the terms and conditions upon which such Debt
Securities may be redeemed, as a whole or in part, at the option of the
Operating Partnership, if the Operating Partnership is to have such an
option;
(9) the obligation, if any, of the Operating Partnership to redeem,
repay or purchase such Debt Securities pursuant to any sinking fund or
analogous provision or at the option of a Holder thereof or any obligation
of the Operating Partnership to offer to redeem, repay or purchase such Debt
Securities, and the date or dates on which, the period or periods within
which, the price or prices at which and the terms and conditions upon which
such Debt Securities will be redeemed, repaid or purchased, as a whole or in
part, pursuant to such obligation;
(10) if other than U.S. dollars, the currency or currencies in which
such Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) whether the amount of payments of principal of (and premium, if
any) or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which
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index, formula or method may, but need not be, based on one or more
currencies, currency units or composite currencies) and the manner in which
such amounts shall be determined;
(12) any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to the Events of Default or covenants set
forth in the applicable Indenture;
(13) whether such Debt Securities will be issued in certificated and/or
book-entry form and, if in book-entry form, the identity of the depositary
and the terms of the depositary arrangement;
(14) whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof if other than $5,000 and terms and conditions relating thereto;
(15) with respect to any series of Debt Securities rated below
investment grade at the time of issuance (the "Guaranteed Securities"), the
applicability and specific terms of the related Guarantees;
(16) if the defeasance and covenant defeasance provisions of the
applicable Indenture are to be inapplicable, or any modifications to such
provisions;
(17) whether and under what circumstances the Operating Partnership will
pay Additional Amounts as contemplated in the applicable Indenture on such
Debt Securities in respect of any tax, assessment or governmental charge
and, if so, whether the Operating Partnership will have the option to redeem
such Debt Securities in lieu of making such payment;
(18) if other than the Trustee, the identity of each security registrar
and/or paying agent; and
(19) any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture.
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Any material, special U.S. federal
income tax, accounting and other considerations applicable to Original Issue
Discount Securities will be described in the applicable Prospectus Supplement.
Except as described in "Merger, Consolidation or Sale" or as may be set
forth in the applicable Prospectus Supplement, the Indentures do not contain any
provisions that would limit the ability of the Operating Partnership or the
Company to incur indebtedness or that would afford holders of Debt Securities
protection in the event of (i) a highly leveraged or similar transaction
involving the Operating Partnership, the management of the Operating Partnership
or the Company, or any affiliate of any such party, (ii) a change of control, or
(iii) a reorganization, restructuring, merger or similar transaction involving
the Operating Partnership or the Company that may adversely affect the Holders
of the Debt Securities. However, the organizational documents of the Company
contain certain restrictions on ownership and transfers of the common shares and
preferred shares that are designed to preserve the Company's status as a REIT
and may act to prevent or hinder a change of control. See "Description of Common
Shares" and "Description of Preferred Shares." In addition, subject to the
limitations set forth under "Merger, Consolidation or Sale," the Operating
Partnership or the Company may, in the future, enter into certain transactions,
such as the sale of all or substantially all of its assets or the merger or
consolidation of the Operating Partnership or the Company, that would increase
the amount of the Operating Partnership's indebtedness or substantially reduce
or eliminate the Operating Partnership's assets, which may have an adverse
effect on the Operating Partnership's ability to service its indebtedness,
including the Debt Securities.
Reference is made to the applicable Prospectus Supplement for information
with respect to any deletions from, modifications of or additions to the Events
of Default or covenants of the Company and the Operating Partnership that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection. Reference is made to "-- Certain
Covenants" below
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and to the description of any additional covenants with respect to a series of
Debt Securities in the applicable Prospectus Supplement. Except as otherwise
described in the applicable Prospectus Supplement, compliance with such
covenants generally may not be waived with respect to a series of Debt
Securities by the Board of Directors of the Company as sole general partner of
the Operating Partnership or by the Trustee unless the Holders of at least a
majority in principal amount of all outstanding Debt Securities of such series
consent to such waiver, except to the extent that the defeasance and covenant
defeasance provisions of the Indenture described under "-- Discharge, Defeasance
and Covenant Defeasance" below apply to such series of Debt Securities. See "--
Modification of the Indenture."
DENOMINATIONS, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities of any series which are registered securities, other than registered
securities issued in book-entry form (which may be in any denomination) will be
issuable in denominations of $1,000 and integral multiples thereof, and the Debt
Securities which are bearer securities, other than bearer securities issued in
global form (which may be of any denomination), shall be issuable in
denominations of $5,000.
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and premium, if any) and interest on any series of Debt Securities
will be payable at the corporate trust office of the applicable Trustee provided
that, at the option of the Operating Partnership, payment of interest may be
made by check mailed to the address of the person entitled thereto as it appears
in the Security Register or by wire transfer of funds to such person at an
account maintained within the United States.
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable Regular Record
Date and may either be paid to the person in whose name such Debt Security is
registered at the close of business on a special record date (the "Special
Record Date") for the payment of such Defaulted Interest to be fixed by the
applicable Trustee, notice whereof shall be given to the Holder of such Debt
Security not less than 10 days prior to such Special Record Date, or may be paid
at any time in any other lawful manner, all as more completely described in the
Indenture.
Subject to certain limitations imposed upon Debt Securities issued in
book-entry form, the Debt Securities of any series will be exchangeable for
other Debt Securities of the same series and rank and of a like aggregate
principal amount and tenor of different authorized denominations upon surrender
of such Debt Securities at the corporate trust office of the applicable Trustee
referred to above. In addition, subject to certain limitations imposed upon Debt
Securities issued in book-entry form, the Debt Securities of any series may be
surrendered for registration of transfer thereof at the corporate trust office
of the applicable Trustee. Every Debt Security surrendered for registration of
transfer or exchange shall be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Operating Partnership may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Operating Partnership with respect to any series of Debt
Securities, the Operating Partnership may at any time rescind the designation of
any such transfer agent or approve a change in the location through which any
such transfer agent acts, except that the Operating Partnership will be required
to maintain a transfer agent in each Place of Payment for such series. The
Operating Partnership may at any time designate additional transfer agents with
respect to any series of Debt Securities.
Neither the Operating Partnership nor the applicable Trustee shall be
required to (i) issue, register the transfer of or exchange any Debt Securities
if such Debt Security may be among those selected for redemption during a period
beginning at the opening of business 15 days before selection of the Debt
Securities to be redeemed and ending at the close of business on the day of such
selection; (ii) register the
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transfer of or exchange any registered security, or portion thereof, called for
redemption, except the unredeemed portion of any registered security being
redeemed in part; or (iii) issue, register the transfer of or exchange any Debt
Security which has been surrendered for repayment at the option of the Holder,
except the portion, if any, of such Debt Security not to be so repaid.
MERGER, CONSOLIDATION OR SALE
Each Indenture provides that the Operating Partnership or the Company may
consolidate with, or sell, lease or convey all or substantially all of its
assets to, or merge with or into, any other entity provided that (a) either the
Operating Partnership or the Company, as the case may be, shall be the
continuing entity, or the successor entity (if other than the Operating
Partnership or the Company, as the case may be) formed by or resulting from any
such consolidation or merger or which shall have received the transfer of such
assets shall expressly assume payment of the principal of (and premium, if any)
and interest on all of the Debt Securities issued under such Indenture, in the
case of any successor to the Operating Partnership, or any applicable Guarantee,
in the case of any successor to the Company and the due and punctual performance
and observance of all of the covenants and conditions contained in such
Indenture and, as applicable, such Debt Securities or Guarantees; (b)
immediately after giving effect to such transaction no Event of Default, and no
event which, after notice or the lapse of time, or both, would become such an
Event of Default, under such Indenture shall have occurred and be continuing;
and (c) an officer's certificate and legal opinion covering such conditions
shall be delivered to the applicable Trustee.
CERTAIN COVENANTS
LIMITATIONS ON INCURRENCE OF INDEBTEDNESS. The Operating Partnership will
not, and will not permit any Subsidiary to, incur any Indebtedness (as defined
below), other than Permitted Indebtedness (as defined below), if, immediately
after giving effect to the incurrence of such additional Indebtedness, the
aggregate principal amount of all outstanding Indebtedness of the Operating
Partnership and its Subsidiaries on a consolidated basis determined in
accordance with U.S. generally accepted accounting principles ("GAAP") is
greater than 60% of the sum of (i) the Total Assets (as defined below) as of the
end of the calendar quarter covered in the Operating Partnership's Annual Report
on Form 10-K or Quarterly Report on Form 10-Q, as the case may be, most recently
filed with the Commission (or, if such filing is not permitted under the
Exchange Act, with the Trustee) prior to the incurrence of such additional
Indebtedness and (ii) any increase in the Total Assets since the end of such
quarter including, without limitation, any increase in Total Assets resulting
from the incurrence of such additional Indebtedness (such increase together with
the Total Assets being referred to as the "Adjusted Total Assets").
In addition to the other limitations on the incurrence of Indebtedness, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Indebtedness if, for the period consisting of the four consecutive fiscal
quarters most recently ended prior to the date on which such additional
Indebtedness is to be incurred, the ratio of Consolidated Income Available for
Debt Service (as defined below) to the Annual Service Charge (as defined below)
shall have been less than 2.0 to 1, on a pro forma basis after giving effect to
the incurrence of such Indebtedness and to the application of the proceeds
therefrom, and calculated on the assumption that (i) such Indebtedness and any
other Indebtedness incurred by the Operating Partnership or its Subsidiaries
since the first day of such four-quarter period and the application of the
proceeds therefrom, including to refinance other Indebtedness, had occurred at
the beginning of such period, (ii) the repayment or retirement of any other
Indebtedness by the Operating Partnership or its Subsidiaries since the first
day of such four-quarter period had been incurred, repaid or retired at the
beginning of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such period), (iii) any
income earned as a result of any increase in Adjusted Total Assets since the end
of such four-quarter period had been earned, on an annualized basis, during such
period, and (iv) in the case of an acquisition or disposition by the Operating
Partnership or any Subsidiary or any asset or
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group of assets since the first day of such four-quarter period, including,
without limitation, by merger, stock purchase or sale, or asset purchase or
sale, such acquisition or disposition or any related repayment of Indebtedness
had incurred as of the first day of such period with the appropriate adjustments
with respect to such acquisition or disposition being included in such pro forma
calculation.
In addition to the other limitations on the incurrence of Indebtedness, the
Operating Partnership will not, and will not permit any Subsidiary to, incur any
Secured Indebtedness (as defined below), whether owned at the date of the
Indenture or thereafter acquired, if, immediately after giving effect to the
incurrence of such additional Secured Indebtedness, the aggregate principal
amount of all outstanding Secured Indebtedness of the Operating Partnership and
its Subsidiaries on a consolidated basis is greater than 40% of the Adjusted
Total Assets.
For purposes of this covenant, Indebtedness is deemed to be "incurred" by
the Operating Partnership or its Subsidiaries on a consolidated basis whenever
the Operating Partnership and its Subsidiaries on a consolidated basis shall
create, assume, guarantee or otherwise become liable in respect thereof.
RESTRICTIONS ON DIVIDENDS AND OTHER DISTRIBUTIONS. The Operating
Partnership will not make any distribution, by reduction of capital or otherwise
(other than distributions payable in securities evidencing interests in the
Operating Partnership's capital for the purpose of acquiring interests in real
property or otherwise) unless, immediately after giving pro forma effect to such
distribution, (a) no default under the Indenture or event of default under any
mortgage, indenture or instrument under which there may be issued, or by which
there may be secured or evidenced, any Indebtedness of the Operating
Partnership, the Company or any Subsidiary shall have occurred or be continuing
and (b) the aggregate sum of all distributions made after the date of the
Indenture shall not exceed the sum of (i) 95% of the aggregate cumulative Funds
From Operations (as defined below) of the Operating Partnership accrued on a
cumulative basis from the date of the Indenture until the end of the last fiscal
quarter prior to the contemplated payment, and (ii) the aggregate Net Cash
Proceeds (as defined below) received by the Operating Partnership after the date
of the Indenture from the issuance and sale of Capital Stock (as defined below)
of the Operating Partnership or the Company to the extent such proceeds are
contributed to the Operating Partnership; provided, however, that the foregoing
limitation shall not apply to any distribution or other action which is
necessary to maintain the Company's status as a REIT under the Code, if the
aggregate principal amount of all outstanding Indebtedness of the Company and
the Operating Partnership on a consolidated basis at such time is less than 60%
of Adjusted Total Assets.
Notwithstanding the foregoing, the Operating Partnership will not be
prohibited from making the payment of any distribution within 30 days of the
declaration thereof if at such date of declaration such payment would have
complied with the provisions of the immediately preceding paragraph.
EXISTENCE. Except as permitted under "Merger, Consolidation or Sale," each
of the Company and the Operating Partnership will be required to do or cause to
be done all things necessary to preserve and keep in full force and effect its
existence, rights and franchises; PROVIDED, HOWEVER, that neither the Company
nor the Operating Partnership shall be required to preserve any right or
franchise if it determines that the preservation thereof is no longer desirable
in the conduct of its business and that the loss thereof is not disadvantageous
in any material respect to the Holders of the Debt Securities.
MAINTENANCE OF CENTERS. Each of the Company and the Operating Partnership
will be required to cause all of its properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in good
condition, repair and working order and supplied with all necessary equipment
and will cause to be made all necessary repairs, renewals, replacements,
betterments and improvements thereof, all as in the judgment of the Company and
the Operating Partnership may be necessary so that the business carried on in
connection therewith may be properly and advantageously conducted at all times;
PROVIDED, HOWEVER, that the Operating Partnership, the Company and its
Subsidiaries
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shall not be prevented from selling or otherwise disposing for value their
respective properties except as otherwise provided in "Merger, Consolidation or
Sale."
INSURANCE. The Company and the Operating Partnership will be required to,
and will be required to cause each of its respective Subsidiaries to, keep all
of its insurable properties insured against loss or damage at least equal to
their then full insurable value with insurers of recognized responsibility and
having a rating of at least A:VIII in Best's Key Rating Guide.
PAYMENT OF TAXES AND OTHER CLAIMS. Each of the Company and the Operating
Partnership will be required to pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges levied or imposed upon it or any Subsidiary or upon the
income, profits or property of it or any Subsidiary, and (ii) all lawful claims
for labor, materials and supplies which, if unpaid, might by law become a lien
upon the property of it or any Subsidiary; provided, however, that neither the
Company nor the Operating Partnership shall be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
PROVISION OF FINANCIAL INFORMATION. The Holders of Debt Securities will be
provided with copies of the annual reports and quarterly reports of the
Operating Partnership and the Company. Whether or not the Operating Partnership
or the Company is subject to Section 13 or 15(d) of the Exchange Act and for so
long as any Debt Securities are outstanding, the Company and the Operating
Partnership will, to the extent permitted under the Exchange Act, be required to
file with the Commission the annual reports, quarterly reports and other
documents which the Company and the Operating Partnership would have been
required to file with the Commission pursuant to such Section 13 or 15(d) (the
"Financial Statements") if the Company and the Operating Partnership were so
subject, such documents to be filed with the Commission on or prior to the
respective dates (the "Required Filing Dates") by which the Company and the
Operating Partnership would have been required so to file such documents if the
Company and the Operating Partnership were so subject. The Company and the
Operating Partnership will also in any event (x) within 15 days of each Required
Filing Date (i) transmit by mail to all Holders of Debt Securities, as their
names and addresses appear in the Security Register, without cost to such
Holders copies of the annual reports and quarterly reports which the Company and
the Operating Partnership would have been required to file with the Commission
pursuant to Sections 13 or 15(d) of the Exchange Act if the Company and the
Operating Partnership were subject to such Sections and (ii) file with the
applicable Trustee, copies of the annual reports, quarterly reports and other
documents which the Company and the Operating Partnership would have been
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act if the Company and the Operating Partnership were subject to such
Sections and (y) if filing such documents by the Company and the Operating
Partnership with the Commission is not permitted under the Exchange Act,
promptly upon written request and payment of the reasonable cost of duplication
and delivery, supply copies of such documents to any prospective Holder.
As used herein,
"ANNUAL SERVICE CHARGE" as of any date means the amount which is expensed or
capitalized in the immediately preceding four fiscal quarter period for interest
on Indebtedness, excluding amounts relating to the amortization of deferred
financing costs.
"CAPITAL STOCK" of any Person means any and all shares, interests, rights to
purchase warrants, options, participations, rights in or other equivalents
(however designated) of such Person's capital stock or other equity
participations, including partnership interests, whether general or limited, in
such Person, including any preferred stock, and any rights (other than debt
securities convertible into capital stock), warrants or options exchangeable for
or convertible into such capital stock, whether now outstanding or hereafter
issued.
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"CONSOLIDATED INCOME AVAILABLE FOR DEBT SERVICE" for any period means
Consolidated Net Income of the Operating Partnership and its Subsidiaries (i)
plus amounts which have been deducted for (a) interest on Indebtedness of the
Operating Partnership and its Subsidiaries, (b) provision for taxes of the
Operating Partnership and its Subsidiaries based on income, (c) amortization of
debt discount, (d) depreciation and amortization, (e) the effect of any noncash
charge resulting from a change in accounting principles in determining
Consolidated Net Income for such period, (f) amortization of deferred charges,
and (g) provisions for or realized losses on properties and (ii) less amounts
which have been included for gains on properties.
"CONSOLIDATED NET INCOME" for any period means the amount of consolidated
net income (or loss) of the Operating Partnership and its Subsidiaries for such
period determined on a consolidated basis in accordance with generally accepted
accounting principles.
"FUNDS FROM OPERATIONS" for any period means the Consolidated Net Income of
the Operating Partnership and its Subsidiaries for such period without giving
effect to depreciation and amortization uniquely significant to real estate,
gains or losses from extraordinary items, gains or losses on sales of real
estate, gains or losses with respect to the disposition of investments in
marketable securities and any provision/benefit for income taxes for such
period, plus the allocable portion, based on the Operating Partnership's
ownership interest, of funds from operations of unconsolidated joint ventures,
all determined on a consistent basis.
"INDEBTEDNESS" means any indebtedness, whether or not contingent, in respect
of (i) borrowed money evidenced by bonds, notes, debentures or similar
instruments, (ii) indebtedness secured by any mortgage, pledge, lien, charge,
encumbrance or any security interest existing on property, (iii) the
reimbursement obligations, contingent or otherwise, in connection with any
letters of credit actually issued or amounts representing the balance deferred
and unpaid of the purchase price of any property except any such balance that
constitutes an accrued expense or trade payable or (iv) any lease of property as
lessee which would be reflected on a consolidated balance sheet as a capitalized
lease in accordance with GAAP, in the case of items of indebtedness under (i)
through (iii) above to the extent that any such items (other than letters of
credit) would appear as a liability on a consolidated balance sheet in
accordance with GAAP, and also includes, to the extent not otherwise included,
any obligation to be liable for, or to pay, as obligor, guarantor or otherwise
(other than for purposes of collection in the ordinary course of business),
indebtedness of another person.
"NET CASH PROCEEDS" means the proceeds of any issuance or sale of Capital
Stock or options, warrants or rights to purchase Capital Stock, in the form of
cash or cash equivalents, including payments in respect of deferred payment
obligations when received in the form of, or stock or other assets when disposed
for, cash or cash equivalents (except to the extent that such obligations are
financed or sold with recourse to the Operating Partnership or any Subsidiary),
net of attorney's fees, accountant's fees and brokerage, consultation,
underwriting and other fees and expenses actually incurred in connection with
such issuance or sale and net of taxes paid or payable as a result thereof.
"PERMITTED INDEBTEDNESS" means Indebtedness of the Operating Partnership,
the Company or any Subsidiary owing to any Subsidiary, the Company or the
Operating Partnership pursuant to an intercompany note, provided that such
Indebtedness is expressly subordinated in right of payment to the Securities;
PROVIDED FURTHER that any disposition, pledge or transfer of such Indebtedness
to a Person (other than the Operating Partnership or another Subsidiary) shall
be deemed to be an incurrence of such Indebtedness by the Operating Partnership,
the Company or a Subsidiary, as the case may be, and not Permitted Indebtedness
as defined herein.
"SECURED INDEBTEDNESS" means any Indebtedness secured by any mortgage,
pledge, lien, charge, encumbrance or security interest of any kind upon any
property of the Operating Partnership or any Subsidiary.
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"SUBSIDIARY" means any entity of which at the time of determination the
Operating Partnership or one or more other Subsidiaries owns or controls,
directly or indirectly, more than 50% of the shares of Voting Stock.
"TOTAL ASSETS" as of any date means the sum of (i) Undepreciated Real Estate
Assets and (ii) all other assets of the Operating Partnership and its
Subsidiaries on a consolidated basis determined in accordance with generally
accepted accounting principles (but excluding intangibles and accounts
receivables).
"UNDEPRECIATED REAL ESTATE ASSETS" as of any date means the cost (original
cost plus capital improvements) of real estate assets of the Operating
Partnership and its Subsidiaries on such date, before depreciation and
amortization, determined on a consolidated basis in accordance with generally
accepted accounting principles.
"VOTING STOCK" means stock having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees (or persons performing similar functions), provided that stock that
carries only the right to vote conditionally on the happening of an event shall
not be considered Voting Stock.
ADDITIONAL COVENANTS
Any additional or different covenants of the Company and the Operating
Partnership with respect to any series of Debt Securities will be set forth in
the Prospectus Supplement relating thereto.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Under each Indenture, "Event of Default" with respect to any series of Debt
Securities issuable thereunder means any one of the following events: (a)
default for 30 days in the payment of any installment of interest on any Debt
Security of such series; (b) default in the payment of the principal of (or
premium, if any, on) any Debt Security of such series at its Maturity; (c)
default in making any sinking fund payment as required for any Debt Security of
such series; (d) default in the performance of any other covenant or warranty
contained in the applicable Indenture (other than a covenant added to the
applicable Indenture solely for the benefit of a series of Debt Securities
issued thereunder other than such series), continued for 60 days after written
notice as provided in the applicable Indenture; (e) default in the payment of an
aggregate principal amount exceeding $5,000,000 of any evidence of recourse
indebtedness of the Operating Partnership or the Company or any mortgage,
indenture or other instrument under which such indebtedness is issued or by
which such indebtedness is secured, such default having occurred after the
expiration of any applicable grace period and having resulted in the
acceleration of the maturity of such indebtedness, but only if such indebtedness
is not discharged or such acceleration is not rescinded or annulled; (f) failure
of the Operating Partnership or the Company to pay, bond or otherwise discharge
any uninsured judgment or court order in excess of $5,000,000 which is not
stayed on appeal or contested in good faith, (g) certain events of bankruptcy,
insolvency or reorganization, or court appointment of a receiver, liquidator or
trustee of the Company, the Operating Partnership or any Significant Subsidiary
or either of its property; and (h) any other Event of Default provided with
respect to a particular series of Debt Securities. The term "Significant
Subsidiary" means each significant subsidiary (as defined in Regulation S-X
promulgated under the Securities Act) of the Operating Partnership.
If an Event of Default with respect to Debt Securities of any series at the
time Outstanding (other than one referred to under clause (g) above, which shall
result in an automatic acceleration) occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% in
principal amount of the Outstanding Debt Securities of such series may declare
the principal amount (or, if the Debt Securities of that series are Original
Issue Discount Securities or Indexed Securities, such portion of the principal
amount as may be specified in the terms thereof) of all of the Debt Securities
of that series to be due and payable immediately by written notice thereof to
the Operating Partnership and the Company (if the Debt Securities are guaranteed
by the Company) (and to the applicable Trustee if given by the
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Holders). However, at any time after such acceleration with respect to Debt
Securities of such series (or of all Debt Securities then Outstanding under the
applicable Indenture, as the case may be) has been made, but before a judgment
or decree for payment of the money due has been obtained by the applicable
Trustee, the Holders of not less than a majority in principal amount of
Outstanding Debt Securities of such series (or of all Debt Securities then
Outstanding under such Indenture, as the case may be) may rescind and annul such
acceleration and its consequences if (a) the Operating Partnership or the
Company (if the Debt Securities are guaranteed by the Company) shall have
deposited with the applicable Trustee all required payments of the principal of
(and premium, if any) and interest on the Debt Securities of such series (or of
all Debt Securities then outstanding under such Indenture, as the case may be),
plus certain fees, expenses, disbursements and advances of the applicable
Trustee and (b) all Events of Default, other than the non-payment of accelerated
principal of (and premium, if any) and interest on the Debt Securities of such
series (or of all Debt Securities then Outstanding under such Indenture, as the
case may be) have been cured or waived as provided in such Indenture. The
Indentures also provide that the Holders of not less than a majority in
principal amount of the Outstanding Debt Securities of any series (or of all
Debt Securities then Outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its consequences,
except a default (x) in the payment of the principal of (or premium, if any) or
interest on any Debt Security of such series or (y) in respect of a covenant or
provision contained in such Indenture that cannot be modified or amended without
the consent of the Holder of each Outstanding Debt Security affected thereby.
The applicable Trustee is required to give notice to the Holders of Debt
Securities within 90 days of a default under the applicable Indenture unless
such default has been cured or waived; provided, however, that the Trustee may
withhold notice to the Holders of any series of Debt Securities of any default
with respect to such series (except a default in the payment of the principal of
(or premium, if any) or interest on any Debt Security of such series or in the
payment of any sinking fund installment in respect of any Debt Security of such
series) if a Responsible Officer of the applicable Trustee consider such
withholding to be in the interest of such Holders.
The Indentures provide that no Holders of Debt Securities of any series may
institute any proceedings, judicial or otherwise, with respect to the applicable
Indenture or for any remedy thereunder, except in the case of failure of the
applicable Trustee, for 60 days, to act after it has received a written request
to institute proceedings in respect of an Event of Default from the Holders of
not less than 25% in principal amount of the Outstanding Debt Securities of such
series, as well as an offer of indemnity reasonably satisfactory to it. This
provision will not prevent, however, any Holder of Debt Securities from
instituting suit for the enforcement of payment of the principal of (and
premium, if any) and interest on such Debt Securities at the respective due
dates thereof or for the enforcement of any exchange right in respect of such
Securities.
Subject to provisions in each Indenture relating to the duties of the
applicable Trustee, in case an Event of Default with respect to Debt Securities
of a particular series shall occur and be continuing, the applicable Trustee is
under no obligation to exercise any of its rights or powers under such Indenture
at the request or direction of any Holders of that series, unless such Holders
shall have offered to the applicable Trustee reasonable security or indemnity
against the costs, expenses and liabilities which might be incurred by it in
complying with such request or direction. Subject to such provisions for the
indemnification of the applicable Trustee, the Holders of not less than a
majority in principal amount of the Outstanding Debt Securities of such series
shall have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the applicable Trustee, or of exercising
any trust or power conferred upon such Trustee. However, the applicable Trustee
may refuse to follow any direction which is in conflict with any law or the
applicable Indenture, which may involve such Trustee in personal liability or
which may be unduly prejudicial to the Holders of Debt Securities of such series
not joining therein.
Within 120 days after the close of each fiscal year, the Operating
Partnership and, if applicable, the Guarantor must deliver to each Trustee a
certificate, signed by one of several specified officers, stating
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whether or not such officer has knowledge of any default under the applicable
Indenture and, if so, specifying each such default and the nature and status
thereof.
MODIFICATION OF THE INDENTURE
Modifications and amendments of the Indentures may be made only with the
consent of the Holders of not less than a majority in principal amount of all
Outstanding Debt Securities which are affected by such modification or
amendment; provided, however, that no such modification or amendment may,
without the consent of the Holder of each such Debt Security affected thereby,
(a) change the Stated Maturity of the principal of, or any installment of
interest (or premium, if any) on, any such Debt Security; (b) reduce the
principal amount of, or the rate (or manner of calculation of the rate) or
amount of interest on, or any premium payable on redemption of, any such Debt
Security, or reduce the amount of principal of an Original Issue Discount
Security that would be due and payable upon acceleration of the maturity thereof
or would be provable in bankruptcy; (c) change the Place of Payment, or the coin
or currency, for payment of principal of, or premium, if any, or interest on,
any such Debt Security; (d) impair the right to institute suit for the
enforcement of any payment right with respect to any such Debt Security; (e)
change any redemption or repayment provisions applicable to any such Debt
Security; (f) reduce the above-stated percentage of Outstanding Debt Securities
of any series necessary to modify or amend the applicable Indenture, to waive
compliance with certain provisions thereof or certain defaults and consequences
thereunder or to reduce the quorum or voting requirements set forth in such
Indenture; (g) modify or affect in any manner adverse to the Holders the terms
and conditions of the obligations of the Guarantor under the related Guarantees
in respect of the payment of principal (and premium, if any) and interest on any
Guaranteed Securities; (h) make any change that adversely affects any right to
exchange any such Debt Security; (i) in the case of Subordinated Debt
Securities, modify any of the subordination provisions in a manner adverse to
the Holders thereof; or (j) modify any of the foregoing provisions or any of the
provisions relating to the waiver of certain past defaults or certain covenants,
except to increase the required percentage to effect such action or to provide
that certain other provisions may not be modified or waived without the consent
of the Holder of such Debt Security.
The Holders of not less than a majority in principal amount of a series of
Outstanding Debt Securities have the right to waive compliance by the Operating
Partnership and, if applicable, the Guarantor with certain covenants relating to
such series of Debt Securities in the applicable Indenture.
Modifications and amendments of the Indentures may be made by the Operating
Partnership, the Company and the applicable Trustee without the consent of any
Holder of Debt Securities for any of the following purposes: (i) to evidence the
succession of another Person to the Operating Partnership as obligor under the
Debt Securities issuable under the applicable Indenture or the Company as
guarantor under the applicable Guarantees; (ii) to add to the covenants of the
Operating Partnership or the Company for the benefit of the Holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Operating Partnership or the Company; (iii) to add Events of Default for the
benefit of the Holders of all or any series of Debt Securities issuable under
such Indenture; (iv) to add or change certain provisions of the applicable
Indenture relating to certain Debt Securities in bearer form, or to permit or
facilitate the issuance of Debt Securities in uncertificated form, PROVIDED that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series issuable under such Indenture in any material respect;
(v) to amend or supplement any provisions of the applicable Indenture, PROVIDED
that no such amendment or supplement shall materially adversely affect the
interests of the Holders of any Debt Securities then Outstanding under such
Indenture; (vi) to secure the Debt Securities; (vii) to establish the form or
terms of Debt Securities of any series; (viii) to provide for the acceptance of
appointment by a successor Trustee or facilitate the administration of the
trusts under the applicable Indenture by more than one Trustee; (ix) to cure any
ambiguity, defect or inconsistency in the applicable Indenture, PROVIDED that
such action shall not adversely affect the interests of Holders of Debt
Securities of any series issuable under such Indenture in any material respect;
(x) to supplement any of the provisions of
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the applicable Indenture to the extent necessary to permit or facilitate
defeasance and discharge of any series of such Debt Securities, PROVIDED that
such action shall not adversely affect the interests of the Holders of the Debt
Securities of any series issuable under such Indenture in any material respect;
or (xi) to effect the assumption by the Guarantor or a subsidiary thereof to the
Debt Securities then Outstanding under the applicable Indenture.
The Indentures provide that in determining whether the Holders of the
requisite principal amount of Outstanding Debt Securities of a series have given
any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (i) the principal amount of an Original Issue Discount Security that
shall be deemed to be outstanding shall be the amount of the principal thereof
that would be due and payable as of the date of such determination upon
declaration of acceleration of the maturity thereof, (ii) the principal amount
of a Debt Security denominated in a foreign currency that shall be deemed
outstanding shall be the U.S. dollar equivalent, determined on the issue date
for such Debt Security, of the principal amount (or, in the case of an Original
Issue Discount Security, the U.S. dollar equivalent on the issue date of such
Debt Security of the amount determined as provided in (i) above), (iii) the
principal amount of an Indexed Security that shall be deemed outstanding shall
be the face amount of such Indexed Security at original issuance, unless
otherwise provided with respect to such Indexed Security pursuant to the
applicable Indenture, and (iv) Debt Securities owned by the Operating
Partnership, the Company or any other obligor upon the Debt Securities or any
Affiliate of the Operating Partnership, the Company or of such other obligor
shall be disregarded.
The Indentures contain provisions for convening meetings of the Holders of
Debt Securities of a series. A meeting may be called at any time by the
applicable Trustee, and also, upon request, by the Operating Partnership, the
Company (in respect of a series of Guaranteed Securities) or the Holders of at
least 10% in principal amount of the Outstanding Debt Securities of such series,
in any such case upon notice given as provided in the applicable Indenture.
Except for any consent that must be given by the Holder of each Debt Security
affected by certain modifications and amendments of the Indenture, any
resolution presented at a meeting or adjourned meeting duly reconvened at which
a quorum is present may be adopted by the affirmative vote of the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series;
PROVIDED, FURTHER, that, except as referred to above, any resolution with
respect to any request, demand, authorization, direction, notice, consent,
waiver or other action that may be made, given or taken by the Holders of a
specified percentage, other than a majority, in principal amount of the
Outstanding Debt Securities of a series may be adopted at a meeting or adjourned
meeting duly reconvened at which a quorum is present by the affirmative vote of
the Holders of such specified percentage in principal amount of the Outstanding
Debt Securities of that series. Any resolution passed or decision taken at any
meeting of Holders of Debt Securities of any series duly held in accordance with
the applicable Indenture will be binding on all Holders of Debt Securities of
that series. The quorum at any meeting called to adopt a resolution, and at any
reconvened meeting, will be Persons holding or representing a majority in
principal amount of the Outstanding Debt Securities of a series; PROVIDED,
HOWEVER, that if any action is to be taken at such meeting with respect to a
consent or waiver which may be given by the Holders of not less than a specified
percentage in principal amount of the Outstanding Debt Securities of a series,
the Persons holding or representing such specified percentage in principal
amount of the Outstanding Debt Securities of such series will constitute a
quorum.
SUBORDINATION
Upon any distribution of assets of the Operating Partnership upon any
dissolution, winding up, liquidation or reorganization, the payment of the
principal of (and premium, if any) and interest on Subordinated Debt Securities
is to be subordinated to the extent provided in the Subordinated Indenture in
right of payment to the prior payment in full of all Senior Indebtedness, but
the obligation of the Operating Partnership to make payment of the principal
(and premium, if any) and interest on the
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Subordinated Debt Securities will not otherwise be affected. In addition, no
payment on account of principal (or premium, if any), or interest, may be made
on the Subordinated Debt Securities at any time unless full payment of all
amounts due in respect of the Senior Indebtedness has been made or duly provided
for in money or money's worth. In the event that, notwithstanding the foregoing,
any such payment by the Operating Partnership is received by the Trustee or the
Holders of any of the Subordinated Debt Securities before all Senior
Indebtedness is paid in full, such payment or distribution shall be paid over to
the holders of such Senior Indebtedness or any representative on their behalf
for application to the payment of all such Senior Indebtedness remaining unpaid
until all such Senior Indebtedness has been paid in full, after giving effect to
any concurrent payment or distribution to the holders of such Senior
Indebtedness. Subject to the payment in full of all Senior Indebtedness upon
such payment or distribution of the Operating Partnership, the Holders of the
Subordinated Debt Securities will be subrogated to the rights of the holders of
the Senior Indebtedness to the extent of payments made to the holders of such
Senior Indebtedness out of the distributive share of the Subordinated Debt
Securities. By reason of such subordination, in the event of a distribution of
assets upon insolvency, certain general creditors of the Operating Partnership
may recover more, ratably, than Holders of the Subordinated Debt Securities.
Senior Indebtedness is defined in the Subordinated Indenture as the
principal of (and premium, if any) and unpaid interest on (i) indebtedness of
the Operating Partnership (including indebtedness of others guaranteed by the
Operating Partnership), whether outstanding on the date of the Subordinated
Indenture or thereafter created, incurred, assumed or guaranteed, for money
borrowed (other than the Subordinated Debt Securities issued under the
Subordinated Indenture), unless in the instrument creating or evidencing the
same or pursuant to which the same is outstanding it is provided that such
indebtedness is not senior or prior in right of payment to the Subordinated Debt
Securities and (ii) renewals, extensions, modifications and refundings of any
such indebtedness.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Operating Partnership may discharge certain obligations to Holders of
any series of Debt Securities that have not already been delivered to the
applicable Trustee for cancellation and that either have become due and payable
or will become due and payable within one year (or scheduled for redemption
within one year) by irrevocably depositing with such Trustee, in trust, funds in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient to
pay the entire indebtedness on such Debt Securities in respect of principal (and
premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be.
The Indentures provide that, unless the provisions of Section 402 are made
inapplicable to the Debt Securities of or within any series pursuant to Section
301 of the Indenture, the Operating Partnership may elect either (a) to defease
and discharge itself and, if applicable, to discharge the Guarantor from any and
all obligations with respect to Debt Securities (except for the obligation to
pay Additional Amounts, if any, upon the occurrence of certain events of tax,
assessment or governmental charges with respect to payments on such Debt
Securities and the obligations to register the transfer or exchange of such Debt
Securities, to replace temporary or mutilated, destroyed, lost or stolen Debt
Securities, to maintain an office or agency in respect of such Debt Securities
and to hold moneys for payment in trust) ("defeasance") or (b) to release itself
and, if applicable, the Guarantor from certain obligations of the applicable
Indenture (including the restrictions described under "Certain Covenants") and
if provided pursuant to Section 301 or Section 901 of the Indenture, their
obligations with respect to any other covenant, and any omission to comply with
such obligations shall not constitute a default or an Event or Default with
respect to such Debt Securities of any series ("covenant defeasance"), in either
case upon the irrevocable deposit by the Operating Partnership or the Company
(if the Debt Securities are Guaranteed Securities) with the Trustee, in trust,
of an amount, in such currency or currencies, currency unit or units or
composite currency or currencies in which such Debt Securities are payable at
Stated Maturity, or Government Obligations (as defined below),
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or both, applicable to such Debt Securities which through the scheduled payment
of principal and interest in accordance with their terms will provide money in
an amount sufficient to pay the principal of (and premium, if any) and interest
on such Debt Securities, and any mandatory sinking fund or analogous payments
thereon, on the scheduled due dates therefor.
Such a trust may only be established if, among other things, the Operating
Partnership or, if applicable, the Guarantor has delivered to the applicable
Trustee an Opinion of Counsel (as specified in the applicable Indenture) to the
effect that the Holders of such Debt Securities will not recognize income, gain
or loss for U.S. federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to U.S. federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such defeasance or covenant defeasance had not occurred, and such Opinion of
Counsel, in the case of defeasance, must refer to and be based upon a ruling of
the Internal Revenue Service or a change in applicable United States federal
income tax law occurring after the date of the applicable Indenture.
"GOVERNMENT OBLIGATIONS" means securities which are (i) direct obligations
of the United States of America or the government which issued the foreign
currency in which the Debt Securities of a particular series are payable, for
the payment of which its full faith and credit is pledged or (ii) obligations of
a Person controlled or supervised by and acting as an agency or instrumentality
of the United States of America or such government which issued the foreign
currency in which the Debt Securities of such series are payable, the payment of
which is unconditionally guaranteed as a full faith and credit obligation by the
United States of America or such other government, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank or trust company as custodian with
respect to any such Government Obligation or a specific payment of interest on
or principal of any such Government Obligation held by such custodian for the
account of the holder of a depository receipt, PROVIDED that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt.
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Operating Partnership or, if applicable, the Guarantor has deposited funds
and/or Government Obligations to effect defeasance or covenant defeasance with
respect to Debt Securities of any series, (a) the Holder of a Debt Security of
such series is entitled to, and does, elect pursuant to the applicable Indenture
or the terms of such Debt Security to receive payment in a currency, currency
unit or composite currency other than that in which such deposit has been made
in respect of such Debt Security, or (b) a Conversion Event (as defined below)
occurs in respect of the currency, currency unit or composite currency in which
such deposit has been made, the indebtedness represented by such Debt Security
shall be deemed to have been, and will be, fully discharged and satisfied
through the payment of the principal of (and premium, if any) and interest on
such Debt Security as they become due out of the proceeds yielded by converting
the amount so deposited in respect of such Debt Security into the currency,
currency unit or composite currency in which such Debt Security becomes payable
as a result of such election or such Conversion Event based on the applicable
market exchange rate. "Conversion Event" means the cessation of use of (i) a
currency, currency unit or composite currency both by the government of the
country which issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international banking
community, (ii) the ECU, both within the European Monetary System and for the
settlement of transactions by public institutions of or within the European
Community or (iii) any currency unit or composite currency other than the ECU
for the purposes for which it was established. Unless otherwise provided in the
applicable Prospectus Supplement, after the deposit of funds and/or Government
Obligations referred to above, all payments of principal of (and premium, if
any) and interest on any Debt Security that is payable in a foreign currency
that ceases to be used by its government of issuance shall be made in U.S.
dollars.
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In the event the Operating Partnership effects covenant defeasance with
respect to any Debt Securities and such Debt Securities are declared due and
payable because of the occurrence of certain Events of Default other than the
Event of Default described in clause (d) under "Events of Default, Notice and
Waiver" with respect to sections no longer applicable to such Debt Securities or
described in clause (h) under "Events of Default, Notice and Waiver" with
respect to any other covenant as to which there has been covenant defeasance,
the amount in such currency, currency unit or composite currency in which such
Debt Securities are payable, and Government Obligations on deposit with the
Trustee, will be sufficient to pay amounts due on such Debt Securities at the
time of their Stated Maturity but may not be sufficient to pay amounts due on
such Debt Securities at the time of the acceleration resulting from such Event
of Default. However, the Operating Partnership and, if applicable, the Guarantor
would remain liable to make payment of such amounts due at the time of
acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION OR EXCHANGE RIGHTS
The Debt Securities will not be convertible into or exchangeable for any
capital stock of the Company or equity interest in the Operating Partnership.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in
book-entry form consisting of one or more global securities (the "Global
Securities") that will be deposited with, or on behalf of, a depositary (the
"Depositary") identified in the applicable Prospectus Supplement relating to
such series. Global Securities may be issued in either registered or bearer form
and in either temporary or permanent form. The specific terms of the depositary
arrangement with respect to a series of Debt Securities will be described in the
applicable Prospectus Supplement relating to such series.
GUARANTEES OF DEBT SECURITIES
If the Operating Partnership issues any Debt Securities that are rated below
investment grade by any nationally recognized statistical rating organization at
the time of issuance, the Company, as Guarantor, will unconditionally and
irrevocably guarantee, on a senior or subordinated basis, the due and punctual
payment of principal of, and premium, if any, and interest on, such Debt
Securities, and the due and punctual payment of any sinking fund payments
thereon, when and as the same shall become due and payable, whether at stated
maturity, upon redemption or otherwise. The applicability and any additional
terms of any Guarantee relating to a series of Debt Securities will be set forth
in the applicable Prospectus Supplement. Guarantees will be unsecured
obligations of the Guarantor. Any right of payment of the Holders of Senior Debt
Securities under the related Guarantee will be prior to the right of payment of
the Holders of Subordinated Debt Securities under the related Guarantee, upon
the terms set forth in the applicable Prospectus Supplement. The Guarantees may
be subordinated to other indebtedness and obligations of the Guarantor to the
extent set forth in the applicable Prospectus Supplement.
If a Guarantee is applicable to Debt Securities, reference is made to the
applicable Indenture and the applicable Prospectus Supplement for a description
of the specific terms of such Guarantee, including any additional covenants of
the Guarantor, the outstanding principal amount of indebtedness and other
obligations, if any that will rank senior to such Guarantee and, where
applicable, subordination provisions of such Guarantee.
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DESCRIPTION OF COMMON SHARES
GENERAL
The Company has authority to issue 100,000,000 capital shares as follows:
50,000,000 Common Shares, $0.01 par value per share; 25,000,000 Excess Shares,
$0.01 par value per share; 1,000,000 Preferred Shares with a par value of $0.01
per share (the "Class A Preferred Shares"); 8,000,000 Class B Preferred Shares
with a par value of $0.01 per share (the "Class B Preferred Shares"); 8,000,000
Class C Preferred Shares with a par value of $0.01 per share (the "Class C
Preferred Shares"); and 8,000,000 Class D Preferred Shares with a par value of
$0.01 per share (the "Class D Preferred Shares"). At September 1, 1997, the
Company had outstanding 6,763,535 Common Shares, 90,839 Class A Preferred Shares
and no Excess Shares.
The following description of the Common Shares sets forth certain general
terms and provisions of the Common Shares to which any Prospectus Supplement may
relate, including a Prospectus Supplement providing that Common Shares will be
issuable upon conversion of Preferred Shares of the Company or upon the exercise
of the Common Share Warrants issued by the Company. The statements below
describing the Common Shares are in all respects subject to and qualified in
their entirety by reference to the applicable provisions of the Company's
Amended and Restated Articles of Incorporation and Bylaws.
Each outstanding Common Share will entitle the holder to one vote on all
matters presented to shareholders for a vote. Holders of the Common Shares will
not have, or be subject to, any preemptive or similar rights.
Except for the election of a director to fill a vacancy on the Board of
Directors and the election of directors by holders of one or more class or
series of preferred shares, directors will be elected by the holders of Common
Shares at each annual meeting of shareholders by a plurality of the votes cast.
Holders of Common Shares will not have cumulative voting rights for the election
of directors. Consequently, at each annual meeting of shareholders, the holders
of a plurality of the Common Shares cast for the election of directors at that
meeting will be able to elect all of the directors, other than any directors to
be elected by the holders of one or more series of preferred shares. A director
may be removed by a majority of votes cast. If a director is elected by a voting
group of shareholders, only the shareholders of that voting group may
participate in a vote to remove him.
The Common Shares will, when issued, be fully paid and non-assessable.
Dividends and other distributions may be paid to the holders of Common Shares if
and when declared by the Board of Directors of the Company out of funds legally
available therefor.
Under North Carolina law, shareholders are generally not liable for the
Company's debts or obligations. Payment and declaration of dividends on the
Common Shares and purchases of the Company's own shares are subject to certain
limitations under North Carolina law and will be subject to certain restrictions
if the Company fails to pay dividends on one or more series of preferred shares.
See "Description of Preferred Shares." If the Company is liquidated, subject to
the rights of any holders of preferred shares to receive preferential
distributions, each outstanding Common Share will be entitled to participate
equally in the assets available for distribution to Shareholders after payment
of, or adequate provision for, all known debts and liabilities of the Company.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
For the Company to qualify as a REIT under the Code, not more than 50% in
value of its outstanding capital stock may be owned, actually or constructively,
by five or fewer individuals (as defined in the Code) during the last half of a
taxable year and the capital stock must be beneficially owned by 100 or more
persons during at least 335 days of a taxable year of 12 months (or during a
proportionate part of a shorter taxable year). In addition, rent from Related
Party Tenants (defined in the Code to mean, generally, tenants in which the REIT
or an owner of 10% or more of the REIT owns, actually or constructively, 10%
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or more of such tenant) is not qualifying income for purposes of the gross
income tests under the Code. See "Certain Federal Income Tax
Considerations-Taxation of the Company as a REIT --- Requirements for
Qualification" and "--Income Tests."
Subject to certain exceptions specified in the Amended and Restated Articles
of Incorporation of the Company, no shareholder (other than Stanley K. Tanger,
Steven B. Tanger, members of their families, affiliated entities and their
transferees) may own, or be deemed to own by virtue of the constructive
ownership provisions of the Code, more than 4% of the outstanding Common Shares
(the "Ownership Limit"). The Amended and Restated Articles of Incorporation
provide that Stanley K. Tanger, Steven B. Tanger, members of their families,
affiliated entities and their transferees may acquire additional Common Shares,
but may not acquire additional shares, such that the five largest beneficial
owners of Common Shares, taking into account the Ownership Limit, could hold
more than 49% of the outstanding Common Shares (the "Existing Holder Limit").
Presently, that Existing Holder Limit is 33% of the outstanding Common Shares.
The constructive ownership rules are complex and may cause Common Shares owned
actually or constructively by a group of related individuals and/or entities to
be constructively owned by one individual or entity. As a result, the
acquisition of less than 4% of the outstanding Common Shares (or the acquisition
of an interest in an entity which owns Common Shares) by an individual or entity
could cause that individual or entity (or another individual or entity) to
constructively own in excess of 4% of the outstanding Common Shares, and thus
subject such Common Shares to the Ownership Limit.
If the Board of Directors shall at any time determine in good faith that a
person intends to acquire or own, has attempted to acquire or own or may acquire
or own Common Shares of the Company in violation of the Ownership Limit, the
Board of Directors shall take such action as it deems advisable to refuse to
give effect or to prevent such ownership or acquisition, including, but not
limited to, causing the Company to redeem Common Shares, refusing to give effect
to such ownership or acquisition on the books of the Company or instituting
proceedings to enjoin such ownership or acquisition.
The Board of Directors may waive the Ownership Limit with respect to a
particular shareholder if evidence satisfactory to the Board of Directors and
the Company's tax counsel is presented that such ownership will not then or in
the future jeopardize the Company's status as a REIT. As a condition of such
waiver, the Board of Directors may require opinions of counsel satisfactory to
it and/or an undertaking from the applicant with respect to preserving the REIT
status of the Company. If Common Shares in excess of the Ownership Limit or the
Existing Holder Limit, as applicable, or shares which would cause the REIT to be
beneficially owned by fewer than 100 persons, are issued or transferred to any
person, such issuance or transfer shall be null and void, and the intended
transferee will acquire no rights to the shares.
The Ownership Limit and the Existing Holder Limit will be automatically
removed if the Board of Directors of the Company determines that it is no longer
in the best interest of the Company to attempt to qualify, or to continue to
qualify, as a REIT. Except as otherwise described above, any change in the
Ownership Limit or the Existing Holder Limit would require an amendment to the
Amended and Restated Articles of Incorporation. Amendments to the Amended and
Restated Articles of Incorporation require the affirmative vote of holders
owning a majority of the outstanding Common Shares. In addition to preserving
the Company's status as a REIT, the Ownership Limit may have the effect of
precluding an acquisition of control of the REIT without the approval of the
Board of Directors.
All certificates representing Common Shares will bear a legend referring to
the restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
Common Shares must file an affidavit with the Company containing information
regarding their ownership of Common Shares, as set forth in the applicable
income tax regulations promulgated under the Code (the "Treasury Regulations").
Under current Treasury Regulations, the percentage will be set between one-half
of 1% and 5%, depending on the number of record holders of Common Shares. In
addition, each shareholder shall upon demand be required to disclose to the
Company in writing such information with respect to the direct,
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indirect and constructive ownership of shares as the Board of Directors deems
necessary to comply with the provisions of the Code applicable to a REIT or to
comply with the requirements of any taxing authority or governmental agency.
The Registrar and Transfer Agent for the Common Shares is Boston EquiServe
Limited Partnership.
DESCRIPTION OF COMMON SHARE WARRANTS
The Company may issue Common Share Warrants for the purchase of Common
Shares. Common Share Warrants may be issued independently or together with any
other Offered Securities offered pursuant to any Prospectus Supplement and may
be attached to or separate from such Offered Securities. Each series of Common
Share Warrants will be issued under a separate warrant agreement (each, a
"Warrant Agreement") to be entered into between the Company and a warrant agent
specified in the applicable Prospectus Supplement (the "Warrant Agent"). The
Warrant Agent will act solely as an agent of the Company in connection with the
Common Share Warrants and will not assume any obligation or relationship of
agency or trust for or with any holders or beneficial owners of Common Share
Warrants.
The applicable Prospectus Supplement will describe the specific terms of the
Common Share Warrants offered thereby, including, where applicable, the
following: (1) the title of such Common Share Warrants; (2) the aggregate number
of such Common Share Warrants; (3) the price or prices at which such Common
Share Warrants will be issued; (4) the designation, number and terms of the
Common Shares purchasable upon exercise of such Common Share Warrants; (5) the
designation and terms of the other Offered Securities with which such Common
Share Warrants are issued and the number of such Common Share Warrants issued
with each such Offered Security; (6) the date, if any, on and after which such
Common Share Warrants and the related Common Shares will be separately
transferable; (7) the price at which each Common Share purchasable upon exercise
of such Common Share Warrants may be purchased; (8) the date on which the right
to exercise such Common Share Warrants shall commence and the date on which such
right shall expire; (9) the minimum or maximum number of such Common Share
Warrants which may be exercised at any one time; (10) information with respect
to book-entry procedures, if any; (11) a discussion of certain material federal
income tax considerations; and (12) any other material terms of such Common
Share Warrants, including terms, procedures and limitations relating to the
exchange and exercise of such Common Share Warrants.
DESCRIPTION OF PREFERRED SHARES
The Company is authorized to issue 1,000,000 Class A Preferred Shares,
8,000,000 Class B Preferred Shares, 8,000,000 Class C Preferred Shares and
8,000,000 Class D Preferred Shares. Three Hundred Thousand (300,000) Class A
Preferred Shares have been issued as Series A Cumulative Convertible Redeemable
Preferred Shares (the "Series A Preferred Shares") in the form of 3,000,000
depositary shares (the "Series A Depositary Shares"). As of September 1, 1997,
90,839 Series A Preferred Shares remain outstanding in the form of 908,390
Series A Depositary Shares.
The Series A Preferred Shares are convertible at the option of the holders
into common shares at a conversion price of $27.75 per common share, subject to
adjustment upon the occurrence of certain events. Dividends on the Series A
Preferred Shares are cumulative and payable quarterly in an amount per Series A
Depositary Share equal to the greater of (i) $1.575 per annum or (ii) the
quarterly dividends on the common shares, or portion thereof, into which a
Series A Depositary Share is convertible. On and after December 15, 1998, the
Series A Preferred Shares may be redeemed at the option of the Company, in whole
or in part, at a redemption price of $250.00 per share, plus accrued and unpaid
dividends, if any. Holders of Series A Preferred Shares do not have voting
rights except (i) whenever dividends on the Series A Preferred Shares are in
arrears for six or more consecutive quarterly periods, the holders of Series A
Preferred Shares are entitled to vote for the election of two additional
directors; (ii) so long as shares of Series A Preferred Shares remain
outstanding, the Company must obtain the consent of the
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holders of Series A Preferred Shares prior to (a) authorizing, creating or
issuing capital stock ranking senior to the Series A Preferred Shares with
respect to dividend or liquidation rights, or (b) amending, altering or
repealing provisions of the Company's Articles of Incorporation, so as to
materially and adversely affect the holders of the Series A Preferred Shares; or
(iii) as otherwise from time to time required by law. In the event of any
liquidation of the Company, the holders of Series A Preferred Shares are
entitled to a liquidation preference of $250.00 per share, plus accrued and
unpaid dividends, if any. The Series A Preferred Shares have no preemptive
rights and are not entitled to the benefit of any sinking fund. Ownership of
more that 9.8% of the Series A Preferred Shares (or a lesser amount in certain
cases) or more than 4% of the common shares is restricted in order to preserve
the Company's status as a REIT for federal income tax purposes. Conversion of
the Series A Preferred Shares into common shares is also restricted to the
extent that ownership of the common shares would exceed the REIT ownership
limitation as describe above. See "Description of Common Shares--Restrictions on
Ownership and Transfer."
The following description of the preferred shares sets forth certain general
terms and provisions of the Preferred Shares to which any Prospectus Supplement
may relate. The statements below describing the Preferred Shares are in all
respects subject to and qualified in their entirety by reference to the
applicable provisions of the Company's Amended and Restated Articles of
Incorporation (including the applicable Articles of Restatement and Bylaws).
GENERAL
Subject to limitations prescribed by North Carolina law and the Company's
Amended and Restated Articles of Incorporation, the Board of Directors shall
determine, in whole or in part, the preferences, limitations and relative rights
of any class or series of Preferred Shares, including such provisions as may be
desired concerning voting, redemption, dividends, dissolution or the
distribution of assets, conversion, and such other subjects or matters as may be
determined by the Board of Directors.
Reference is made to the Prospectus Supplement relating to the Preferred
Shares offered thereby for the specific terms thereof, including:
(1) The title and stated value of such Preferred Shares;
(2) The number of such Preferred Shares offered, the liquidation
preference per share and the offering price of such Preferred Shares;
(3) The dividend rate(s), period(s) and/or payment date(s) or method(s)
of calculation thereof applicable to such Preferred Shares;
(4) Whether dividends shall be cumulative or non-cumulative and, if
cumulative, the date from which dividends on such Preferred Shares shall
accumulate;
(5) The procedures for any auction and remarketing, if any, for such
Preferred Shares;
(6) The provisions for a sinking fund, if any, for such Preferred
Shares;
(7) The provisions for redemption, if applicable, of such Preferred
Shares;
(8) Any listing of such Preferred Shares on any securities exchange;
(9) The terms and conditions, if applicable, upon which such Preferred
Shares will be convertible into Common Shares of the Company, including the
conversion price (or manner of calculation thereof) and conversion period;
(10) Whether interests in such Preferred Shares will be represented by
Depositary Shares;
(11) In addition to those limitations described below, any other
limitations on direct or beneficial ownership and restrictions on transfer
of such Preferred Shares, in each case as may be appropriate to preserve the
status of the Company as a REIT;
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(12) A discussion of certain material federal income tax considerations
applicable to such Preferred Shares;
(13) The relative ranking and preferences of such Preferred Shares as to
dividend rights and rights upon liquidation, dissolution or winding up of
the affairs of the Company; and
(14) Any other specific terms, preferences, rights, limitations or
restrictions of such Preferred Shares.
RANK
Unless otherwise specified in the applicable Prospectus Supplement, the
Preferred Shares will, with respect to dividend rights and rights upon
liquidation, dissolution or winding up of the Company, as applicable, rank (i)
senior to all classes or series of common shares and excess shares of the
Company and to all equity securities of the Company the terms of which so
provide; (ii) on a parity with all equity securities of the Company other than
those referred to in clauses (i) and (iii); and (iii) junior to all equity
securities of the Company which the terms of such Preferred Shares so provide.
As used in the Amended and Restated Articles of Incorporation attached to the
Company's Articles of Restatement dated December 9, 1993, and further amended by
the Articles of Amendment dated May 29, 1996 (the "Amended and Restated Articles
of Incorporation") for these purposes, the term "equity securities" does not
include convertible debt securities.
DIVIDENDS
Holders of the Preferred Shares of each class or series shall be entitled to
receive cash dividends, when, as and if declared by the Board of Directors of
the Company, out of funds legally available for the payment of cash dividends at
such rates and on such dates as will be set forth in the applicable Prospectus
Supplement. Each such dividend shall be payable to holders of record as they
appear on the share transfer books of the Company on such record dates as shall
be fixed by the Board of Directors of the Company.
Dividends on any class or series of the Preferred Shares may be cumulative
or non-cumulative, as provided in the applicable Prospectus Supplement.
Dividends, if cumulative, will accumulate from and after the date set forth in
the applicable Prospectus Supplement. If the Board of Directors of the Company
fails to declare a dividend payable on a dividend payment date on any class or
series of the Preferred Shares for which dividends are noncumulative, then the
holders of such class or series of the Preferred Shares will have no right to
receive a dividend in respect of the dividend period ending on such dividend
payment date, and the Company will have no obligation to pay the dividend
accrued for such period, whether or not dividends on such class or series are
declared payable on any future dividend payment date.
If any Preferred Shares of any class or series are outstanding, no full
dividends shall be declared or paid or set apart for payment on the preferred
shares of the Company of any other class or series ranking, as to dividends, on
a parity with or junior to the Preferred Shares of such class or series for any
period unless (i) if such class or series of Preferred Shares has a cumulative
dividend, full cumulative dividends have been or contemporaneously are declared
and paid or declared and a sum sufficient for the payment thereof irrevocably
set apart for such payment on the Preferred Shares of such class or series for
all past dividend periods and the then current dividend period or (ii) if such
class or series of Preferred Shares does not have a cumulative dividend, full
dividends for the then current dividend period have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for such payment on the Preferred Shares of such class or
series. When dividends are not paid in full (or a sum sufficient for such full
payment is not so irrevocably set apart) upon the Preferred Shares of any class
or series and the shares of any other class or series of preferred shares
ranking on a parity as to dividends with the Preferred Shares of such class or
series, all dividends declared upon Preferred Shares of such class or series and
any other class or series of preferred shares ranking on a parity as to
dividends with such Preferred Shares shall be declared pro rata so that the
amount of dividends
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declared per share on the Preferred Shares of such class or series and such
other class or series of preferred shares shall in all cases bear to each other
the same ratio that accrued and unpaid dividends per share on the Preferred
Shares of such class or series (which shall not include any accumulation in
respect of unpaid dividends for prior dividend periods if such Preferred Shares
do not have a cumulative dividend) and such other class or series of preferred
shares bear to each other. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on Preferred
Shares of such class or series which may be in arrears.
Except as provided in the immediately preceding paragraph, unless (i) if
such class or series of Preferred Shares has a cumulative dividend, full
cumulative dividends on the Preferred Shares of any class or series have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof irrevocably set apart for payment for all past dividend periods
and the then current dividend period and (ii) if such class or series of
Preferred Shares does not have a cumulative dividend, full dividends on the
Preferred Shares of any class or series have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for the then current dividend period, no
dividends (other than in common shares or other equity securities of the Company
ranking junior to the Preferred Shares of such class or series as to dividends
and upon liquidation, dissolution or winding up of the Company) shall be
declared or paid or set aside for payment or other distribution or shall be
declared or made upon the common shares, excess shares or any other equity
securities of the Company ranking junior to or on a parity with the Preferred
Shares of such class or series as to dividends or upon liquidation, dissolution
or winding up of the Company, nor shall any common shares, excess shares or any
other equity securities of the Company ranking junior to or on a parity with the
Preferred Shares of such class or series as to dividends or upon liquidation,
dissolution or winding up of the Company be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund for the redemption of any such shares) by the Company (except by
conversion into or exchange for other equity securities of the Company ranking
junior to the Preferred Shares of such class or series as to dividends and upon
liquidation, dissolution or winding up of the Company).
Any dividend payment made on a class or series of Preferred Shares shall
first be credited against the earliest accrued but unpaid dividend due with
respect to shares of such class or series which remains payable.
REDEMPTION
If so provided in the applicable Prospectus Supplement, the Preferred Shares
will be subject to mandatory redemption or redemption at the option of the
Company, as a whole or in part, in each case upon the terms, at the times and at
the redemption prices set forth in such Prospectus Supplement.
The Prospectus Supplement relating to a class or series of Preferred Shares
that is subject to mandatory redemption will specify the number of such
Preferred Shares that shall be redeemed by the Company in each year commencing
after a date to be specified, at a redemption price per share to be specified,
together with an amount equal to all accrued and unpaid dividends thereon (which
shall not, if such Preferred Shares do not have a cumulative dividend, include
any accumulation in respect of unpaid dividends for prior dividend periods) to
the date of redemption. The redemption price may be payable in cash or other
property, as specified in the applicable Prospectus Supplement. If the
redemption price for Preferred Shares of any class or series is payable only
from the net proceeds of the issuance of equity securities of the Company, the
terms of such Preferred Shares may provide that, if no such equity securities
shall have been issued or to the extent the net proceeds from any issuance are
insufficient to pay in full the aggregate redemption price then due, such
Preferred Shares shall automatically and mandatorily be converted into the
equity securities of the Company pursuant to conversion provisions specified in
the applicable Prospectus Supplement.
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Notwithstanding the foregoing, unless (i) if such class or series of
Preferred Shares has a cumulative dividend, full cumulative dividends on any
class or series of Preferred Shares shall have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof
irrevocably set apart for payment for all past dividend periods and the then
current dividend period and (ii) if such class or series of Preferred Shares
does not have a cumulative dividend, full dividends on the Preferred Shares of
any class or series have been or contemporaneously are declared and paid or
declared and a sum sufficient for the payment thereof set apart for payment for
the then current dividend period, no shares of any class or series of Preferred
Shares shall be redeemed unless all outstanding Preferred Shares of such class
or series are simultaneously redeemed; PROVIDED, HOWEVER, that the foregoing
shall not prevent the purchase or acquisition of shares of Preferred Shares of
such class or series pursuant to a purchase or exchange offer made on the same
terms to holders of all outstanding Preferred Shares of such class or series,
and, unless (i) if such class or series of Preferred Shares has a cumulative
dividend, full cumulative dividends on all outstanding shares of any class or
series of Preferred Shares have been or contemporaneously are declared and paid
or declared and a sum sufficient for the payment thereof irrevocably set apart
for payment for all past dividend periods and the then current dividend period
and (ii) if such class or series of Preferred Shares does not have a cumulative
dividend, full dividends on the Preferred Shares of any class or series have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof irrevocably set apart for payment for the then current
dividend period, the Company shall not purchase or otherwise acquire directly or
indirectly any Preferred Shares of such class or series (except by conversion
into or exchange for equity securities of the Company ranking junior to the
Preferred Shares of such class or series as to dividends and upon liquidation,
dissolution or winding up of the Company).
If fewer than all of the outstanding Preferred Shares of any class or series
are to be redeemed, the number of shares to be redeemed will be determined by
the Company and such shares may be redeemed pro rata from the holders of record
of such shares in proportion to the number of such shares held by such holders
(with adjustments to avoid redemption of fractional shares) or by lot in a
manner determined by the Company that will not result in the automatic
redemption of Preferred Shares or the automatic conversion of Preferred Shares
into Excess Preferred Shares which are transferred to a trust for the benefit of
a charitable beneficiary (See "-- Restrictions on Ownership and Transfer"
below).
Notice of redemption will be mailed at least 30 days but not more than 60
days before the redemption date to each holder of record of a Preferred Share of
any class or series to be redeemed at the address shown on the share transfer
books of the Company. Each notice shall state: (i) the redemption date; (ii) the
number of shares and class or series of the Preferred Shares to be redeemed;
(iii) the redemption price; (iv) the place or places where certificates for such
Preferred Shares are to be surrendered for payment of the redemption price; (v)
that dividends on the shares to be redeemed will cease to accrue on such
redemption date; and (vi) the date upon which the holder's conversion or
exchange rights, if any, as to such shares shall terminate. If fewer than all
the Preferred Shares of any class or series are to be redeemed, the notice
mailed to each such holder thereof shall also specify the number of Preferred
Shares to be redeemed from each such holder. If notice of redemption of any
Preferred Shares has been given and if the funds necessary for such redemption
have been irrevocably set apart by the Company in trust for the benefit of the
holders of any Preferred Shares so called for redemption, then from and after
the redemption date dividends will cease to accrue on such Preferred Shares,
such Preferred Shares shall no longer be deemed outstanding and all rights of
the holders of such shares will terminate, except the right to receive the
redemption price.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Company, then, before any distribution or payment shall be
made to the holders of any common shares, excess shares or any other class or
series of equity securities of the Company ranking junior to the
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Preferred Shares in the distribution of assets upon any liquidation, dissolution
or winding up of the Company, the holders of each class or series of Preferred
Shares shall be entitled to receive out of assets of the Company legally
available for distribution to shareholders liquidating distributions in the
amount of the liquidation preference per share (set forth in the applicable
Prospectus Supplement), plus an amount equal to all dividends accrued and unpaid
thereon (which shall not include any accumulation in respect of unpaid dividends
for prior dividend periods if such Preferred Shares do not have a cumulative
dividend). After payment of the full amount of the liquidating distributions to
which they are entitled, the holders of Preferred Shares will have no right or
claim to any of the remaining assets of the Company. In the event that, upon any
such voluntary or involuntary liquidation, dissolution or winding up, the
available assets of the Company are insufficient to pay the amount of the
liquidating distributions on all outstanding Preferred Shares and the
corresponding amounts payable on all shares of other classes or series of equity
securities of the Company ranking on a parity with the Preferred Shares in the
distribution of assets upon liquidation, dissolution or winding up of the
Company, then the holders of the Preferred Shares and all other such classes or
series of equity securities shall share ratably in any such distribution of
assets in proportion to the full liquidating distributions to which they would
otherwise be respectively entitled.
For such purposes, the consolidation or merger of the Company with or into
any other corporation, or the sale, lease or conveyance of all or substantially
all of the property or business of the Company, shall not be deemed to
constitute a liquidation, dissolution or winding up of the Company.
VOTING RIGHTS
Holders of the Preferred Shares will not have any voting rights, except as
set forth below or as otherwise from time to time required by law or as
indicated in the applicable Prospectus Supplement.
Unless provided otherwise for any class or series of Preferred Shares, so
long as any Preferred Shares remain outstanding, whenever dividends on any
Preferred Shares shall be in arrears for six or more quarterly periods,
regardless of whether such quarterly periods are consecutive, the holders of
such Preferred Shares (voting separately as a class with all other class or
series of cumulative preferred shares upon which like voting rights have been
conferred and are exercisable) will be entitled to vote for the election of two
additional directors of the Company at a special meeting called by an officer of
the Company at the request of a holder of such class or series of Preferred
Shares or, if such special meeting is not called by an officer of the Company
within 30 days, at a special meeting called by a holder of such class or series
of Preferred Shares designated by the holders of record of at least 10% of any
class or series of Preferred Shares so in arrears (unless such request is
received less than 90 days before the date fixed for the next annual or special
meeting of the shareholders) or at the next annual meeting of shareholders, and
at each subsequent meeting until (i) if such class or series of Preferred Shares
has a cumulative dividend, all dividends accumulated on such Preferred Shares
for the past dividend periods and the then current dividend period shall have
been fully paid or declared and irrevocably set apart for payment or (ii) if
such class or series of Preferred Shares does not have a cumulative dividend,
four consecutive quarterly dividends are paid or declared and irrevocably set
apart for payment. In such case, the entire Board of Directors of the Company
will be increased by two directors.
Unless provided otherwise for any class or series of Preferred Shares, so
long as any Preferred Shares remain outstanding, the Company shall not, without
the affirmative vote or consent of the holders of at least 66 2/3% of the shares
of each class or series of Preferred Shares outstanding at the time, given in
person or by proxy, either in writing or at a meeting (such class or series
voting separately as a class), (i) authorize or create, or increase the
authorized or issued amount of, any class or series of equity securities ranking
senior to such class or series of Preferred Shares with respect to payment of
dividends or the distribution of assets upon liquidation, dissolution or winding
up of the Company or reclassify any authorized securities of the Company into
any such equity securities, or create, authorize or issue any obligation or
security convertible into or evidencing the right to purchase any such equity
securities; or
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(ii) amend, alter or repeal the provisions of the Company's Amended and Restated
Articles of Incorporation or the Articles of Restatement for such class or
series of Preferred Shares, whether by merger, consolidation or otherwise, so as
to materially and adversely affect any right, preference, privilege or voting
power of such class or series of Preferred Shares or the holders thereof;
PROVIDED, HOWEVER, that any increase in the amount of the authorized preferred
shares or the creation or issuance of any other class or series of preferred
shares, or any increase in the amount of authorized shares of such class or
series or any other class or series of Preferred Shares, in each case ranking on
a parity with or junior to the Preferred Shares of such class or series with
respect to payment of dividends and the distribution of assets upon liquidation,
dissolution or winding up of the Company, shall not be deemed to materially and
adversely affect such rights, preferences, privileges or voting powers.
The foregoing voting provisions will not apply if, at or prior to the time
when the act with respect to which such vote would otherwise be required shall
be effected, all outstanding shares of such class or series of Preferred Shares
shall have been redeemed or called for redemption and sufficient funds shall
have been irrevocably deposited in trust to effect such redemption.
Under the North Carolina Business Corporation Act (the "Act"), the holders
of outstanding Series A Preferred Shares are entitled to vote as a separate
voting group (if shareholder voting is otherwise required by the Act and even
though the Amended and Restated Articles of Incorporation provide that such
shares are nonvoting shares) on a proposed amendment to the Company's Amended
and Restated Articles of Incorporation if the amendment would affect the Series
A Preferred Shares in ways specified in the Act, including an increase or
decrease in the authorized Series A Preferred Shares, a change in the
designation, rights, preferences or limitations of all or part of the Series A
Preferred Shares or the creation of a new class of shares having rights or
preferences with respect to the payment of dividends or the distribution of
assets upon liquidation, dissolution or winding up of the Company that are
prior, superior or substantially equal to the Series A Preferred Shares.
CONVERSION RIGHTS
The terms and conditions, if any, upon which shares of any class or series
of Preferred Shares are convertible into Common Shares will be set forth in the
applicable Prospectus Supplement relating thereto. Such terms will include the
number of Common Shares into which the Preferred Shares are convertible, the
conversion price (or manner of calculation thereof), the conversion period,
provisions as to whether conversion will be at the option of the holders of the
Preferred Shares or the Company, the events requiring an adjustment of the
conversion price and provisions affecting conversion in the event of the
redemption of such Preferred Shares.
RESTRICTIONS ON OWNERSHIP AND TRANSFER
As discussed above under "Description of Common Shares-Restrictions on
Ownership and Transfer," for the Company to qualify as a REIT under the Code,
not more than 50% in value of its outstanding capital stock may be owned,
actually or constructively, by five or fewer individuals (as defined in the Code
to include certain entities) during the last half of a taxable year, and the
capital stock must be beneficially owned by 100 or more persons during at least
335 days of a taxable year of 12 months (or during a proportionate part of a
shorter taxable year). In addition, rent from Related Party Tenants (as defined
above) is not qualifying income for purposes of the gross income tests under the
Code. See "Certain Federal Income Tax Considerations--Taxation of the Company as
a REIT-Requirements for Qualification" and "--Income Tests." Therefore, with
regards to the Company's Articles of Restatement as heretofore or hereafter
amended each class or series of Preferred Shares will contain certain provisions
restricting the ownership and transfer of the Preferred Shares (collectively,
the "Preferred Share Ownership Limit"). Except as otherwise described in the
applicable Prospectus Supplement relating thereto, the provisions of the
Company's Articles as heretofore or hereafter amended relating to the Preferred
Share Ownership Limit for any class or series of Preferred Shares (other than
the Series A Preferred Shares, with
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respect to which the Preferred Share Ownership Limit differs slightly from that
described below) will provide as follows:
The Preferred Share Ownership Limit provision will provide that, subject to
certain exceptions contained in such Articles of Restatement, no holder of
Preferred Shares may own, or be deemed to own by virtue of the constructive
ownership provisions of the Code, Preferred Shares in excess of the lesser of
(i) 9.8% of the Preferred Shares issued in the offering, (ii) if such Preferred
Shares are convertible into Common Shares, an amount of Preferred Shares which,
if so converted at a time when all outstanding convertible shares were converted
into Common Shares, would cause any Person to own, actually or constructively,
Common Shares in violation of the Ownership Limit or the Existing Holder Limit,
(iii) an amount of Preferred Shares which would cause five or fewer individuals
to own, actually or constructively, more then 49% in value of the Company's
outstanding capital stock (in the aggregate), or (iv) an amount of Preferred
Shares which would cause any Person (other than Stanley K. Tanger, Steven B.
Tanger and certain members of their families and affiliates) to own, actually or
constructively, more than 9.8% in value of the Company's outstanding capital
stock (in the aggregate). The constructive ownership rules are complex and may
cause Preferred Shares owned actually or constructively by a group of related
individuals and/or entities to be deemed to be actually or constructively owned
by one individual or entity. As a result, the acquisition of Preferred Shares
(or the acquisition of an interest in any entity which owns Preferred Shares or
Common Shares) by an individual or entity could cause that individual or entity
(or another individual or entity) to own constructively Preferred Shares in
excess of the Preferred Share Ownership Limit.
To the extent that any person purports to convert Preferred Shares into
Common Shares in violation of either the Ownership Limit or the Preferred Share
Ownership Limit, and to the extent that any person would own or purport to
acquire Preferred Shares in excess of the Preferred Share Ownership Limit, then,
depending upon the circumstances, as set forth below, (i) such conversion of
Preferred Shares or the purported acquisition of such excess Preferred Shares
would be void, (ii) such Preferred Shares would be automatically converted to
Excess Preferred Shares which have limited economic rights, or (iii) such
Preferred Shares would be automatically redeemed by the Company.
Generally, an automatic redemption will occur to prevent a violation of the
Preferred Share Ownership Limit that would not have occurred but for a
conversion of Preferred Shares, or a redemption or open market purchase of
Preferred Shares by the Company (each, a "Company Induced Event"). In the case
of such an automatic redemption, the redemption price of each Preferred Shares
redeemed will be (x) if a purported acquisition of Preferred Shares in which
full value was paid for such Preferred Shares caused the redemption, the price
per share paid for the Preferred Shares or (y) if the transaction that resulted
in the redemption was not an acquisition of Preferred Shares in which the full
value was paid for such Preferred Shares (e.g. a Company Induced Event relating
to shares held by others), a price per share equal to the market price of the
shares on the date of the purported transfer that resulted in the redemption.
Any dividend or other distribution paid to a holder of redeemed Preferred Shares
(prior to the discovery by the Company that such shares have been automatically
redeemed by the Company as described above) will be required to be repaid to the
Company upon demand.
A transfer of Preferred Shares or other event that, if effective, would
result in a violation of the Preferred Share Ownership Limit (other than a
violation which would not have occurred but for a Company Induced Event) will be
null and void. In addition, the Company's Articles as heretofore or hereafter
amended will provide that Preferred Shares that would otherwise be actually or
constructively owned by a person (a "Prohibited Transferee") in excess of the
Preferred Share Ownership Limit as a result of such transfer or other event will
be automatically exchanged for Excess Preferred Shares, a separate class of
Preferred Shares that will automatically be transferred to a trust for the
benefit of a charitable beneficiary, effective as of the close of business on
the business day prior to the purported acquisition by the Prohibited
Transferee. While such shares are held in trust, the trustee will have all
voting rights with respect to the shares, and all dividends or distributions
paid on such shares will be paid to the
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trustee of the trust for the benefit of the charitable beneficiary (any dividend
or distribution paid on capital shares prior to the discovery by the Company
that such shares have been automatically transferred to the trust must, upon
demand, be paid over to the trustee for the benefit of the charitable
beneficiary). Within 20 days of receiving notice from the Company of the
transfer of shares to the trust, the trustee of the trust will be required to
sell the shares held in the trust to a person who may own such shares without
violating the ownership restrictions (a "Permitted Holder"). Upon such sale, the
Excess Preferred Shares will be automatically converted into Preferred Shares,
and the price paid for the shares by the Permitted Holder will be distributed to
the Prohibited Transferee to the extent of the lesser of (i) the price paid by
the Prohibited Transferee for the shares or, in the case of a transfer of shares
to a trust resulting from an event other than an actual acquisition of shares by
a Prohibited Transferee, the fair market value, on the date of transfer to the
trust, of the shares so transferred or (ii) the fair market value of the shares
on the date of transfer by the trustee. Any proceeds in excess of this amount
will be paid to the charitable beneficiary. In addition, the Company would have
the right, during the time period prior to the sale of the Excess Preferred
Shares by the trustee, to purchase all or any portion of such shares from the
trustee at a price equal to the lesser of (i) the price paid by the Prohibited
Transferee for the shares or, in the case of a transfer of shares to a trust
resulting from an event other than an actual acquisition of shares by a
Prohibited Transferee, the fair market value, on the date of transfer to the
trust, of the shares so transferred or (ii) the fair market value of the shares
on the date the Company exercise its option to purchase the shares.
In addition, if the Board of Directors shall at any time determine in good
faith that any person intends to own or acquire, has purported to own or acquire
or may own or acquire actual or constructive ownership of any Preferred Shares
in violation of the Preferred Share Ownership Limit, the Board of Directors is
authorized to take such action as it deems advisable to refuse to give effect to
or to prevent such ownership or acquisition, including, but not limited to, (i)
causing the Company to redeem such shares at the market price thereof determined
on the earlier of the date of such redemption and the date of such purported
ownership or acquisition, and upon such other terms and conditions (including
limited notice or no notice, except as otherwise required by law) as may be
specified by the Board of Directors in its sole discretion, (ii) refusing to
give effect to such ownership or acquisition on the books of the Company or
(iii) instituting proceedings to enjoin such ownership or acquisition.
The Board of Directors will be entitled to waive the Preferred Share
Ownership Limit with respect to a particular shareholder if evidence
satisfactory to the Board of Directors and the Company's tax counsel is
presented that such ownership will not then or in the future jeopardize the
Company's status as a REIT. As a condition of such waiver, the Board of
Directors may require opinions of counsel satisfactory to it and/or an
understanding from the applicant with respect to preserving the REIT status of
the Company.
All certificates representing Preferred Shares will bear a legend referring
to the restrictions described above.
All persons who own a specified percentage (or more) of the outstanding
capital shares of the Company must file an affidavit with the Company containing
information regarding their ownership of shares as set forth in the Treasury
Regulations. Under current Treasury Regulations, the percentage is set between
one-half of one percent and five percent, depending on the number of record
holders of capital shares. In addition, each shareholder shall upon demand be
required to disclose to the Company in writing such information with respect to
the direct, indirect, and constructive ownership of capital shares of the
Company as the Board of Directors deems necessary to comply with the provisions
of the Code applicable to a REIT or to comply with the requirements of any
taxing authority or governmental agency.
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DESCRIPTION OF DEPOSITARY SHARES
GENERAL
The Company may issue receipts ("Depositary Receipts") for Depositary
Shares, each of which will represent a fractional interest of a share of a
particular class or series of Preferred Shares, as specified in the applicable
Prospectus Supplement. Preferred Shares of each class or series represented by
Depositary Shares will be deposited under a separate Deposit Agreement (each, a
"Deposit Agreement") among the Company, the depositary named therein (the
"Preferred Share Depositary") and the holders from time to time of the
Depositary Receipts. Subject to the terms of the Deposit Agreement, each owner
of a Depositary Receipt will be entitled, in proportion to the fractional
interest of a share of a particular class or series of Preferred Shares
represented by the Depositary Shares evidenced by such Depositary Receipt, to
all the rights and preferences of the Preferred Shares represented by such
Depositary Shares (including dividend, voting, conversion, redemption and
liquidation rights).
The Depositary Shares will be evidenced by Depositary Receipts issued
pursuant to the applicable Deposit Agreement. Immediately following the issuance
and delivery of the Preferred Shares by the Company to the Preferred Share
Depositary, the Company will cause the Preferred Share Depositary to issue, on
behalf of the Company, the Depositary Receipts. Copies of the applicable form of
Deposit Agreement and Depositary Receipt may be obtained from the Company upon
request, and the following summary is qualified in its entirety by reference
thereto.
DIVIDENDS AND OTHER DISTRIBUTIONS
The Preferred Share Depositary will distribute all cash dividends or other
cash distributions received in respect of the Preferred Shares to the record
holders of Depositary Receipts evidencing the related Depositary Shares in
proportion to the number of such Depositary Receipts owned by such holders,
subject to certain obligations of holders to file proofs, certificates and other
information and to pay certain charges and expenses to the Preferred Share
Depositary.
In the event of a distribution other than in cash, the Preferred Share
Depositary will distribute property received by it to the record holders of
Depositary Receipts entitled thereto, subject to certain obligations of holders
to file proofs, certificates and other information and to pay certain charges
and expenses to the Preferred Share Depositary, unless the Preferred Share
Depositary determines that it is not feasible to make such distribution, in
which case the Preferred Share Depositary may, with the approval of the Company
sell such property and distribute the net proceeds from such sale to such
holders.
WITHDRAWAL
Upon surrender of the Depositary Receipts at the corporate trust office of
the Preferred Share Depositary (unless the related Depositary Shares have
previously been called for redemption or converted), the holders thereof will be
entitled to delivery at such office, to or upon such holder's order, of the
number of whole or fractional Preferred Shares and any money or other property
represented by the Depositary Shares evidenced by such Depositary Receipts.
Holders of Depositary Receipts will be entitled to receive whole or fractional
shares of the related Preferred Shares on the basis of the proportion of
Preferred Shares represented by each Depositary Share as specified in the
applicable Prospectus Supplement, but holders of such Preferred Shares will not
thereafter be entitled to receive Depositary Shares therefor. If the Depositary
Receipts delivered by the holder evidence a number of Depositary Shares in
excess of the number of Depositary Shares representing the number of Preferred
Shares to be withdrawn, the Preferred Share Depositary will deliver to such
holder at the same time a new Depositary Receipt evidencing such excess number
of Depositary Shares.
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REDEMPTION
Whenever the Company redeems Preferred Shares held by the Preferred Share
Depositary, the Preferred Share Depositary will redeem as of the same redemption
date the number of Depositary Shares representing the Preferred Shares so
redeemed, provided the Company shall have paid in full to the Preferred Share
Depositary the redemption price of the Preferred Shares to be redeemed plus an
amount equal to any accrued and unpaid dividends thereon to the date fixed for
redemption. The redemption price per Depositary Share will be equal to the
related fractional interest of the redemption price and any other amounts per
share payable with respect to the Preferred Shares. If fewer than all the
Depositary Shares are to be redeemed, the Depositary Shares to be redeemed will
be selected pro rata (as nearly as may be practicable without creating
fractional Depositary Shares) or by any other equitable method determined by the
Company that will not result in the automatic redemption of the Preferred Shares
or the automatic conversion of Preferred Shares into Excess Preferred Shares
which are transferred to a charitable trust (see "Description of Preferred
Shares -- Restrictions on Ownership and Transfer.")
After the date fixed for redemption, the Depositary Shares so called for
redemption will no longer be deemed to be outstanding and all rights of the
holders of the Depositary Receipts evidencing the Depositary Shares so called
for redemption will cease, except the right to receive any moneys payable upon
such redemption and any money or other property to which the holders of such
Depositary Receipts are entitled upon such redemption upon surrender thereof to
the Preferred Share Depositary.
VOTING
Upon receipt of notice of any meeting at which the holders of the Preferred
Shares are entitled to vote, the Preferred Share Depositary will mail the
information contained in such notice of meeting to the record holders of the
Depositary Receipts evidencing the Depositary Shares which represent such
Preferred Shares. Each record holder of Depositary Receipts evidencing
Depositary Shares on the record date (which will be the same date as the record
date for the Preferred Shares) will be entitled to instruct the Preferred Share
Depositary as to the exercise of the voting rights pertaining to the amount of
Preferred Shares represented by such holder's Depositary Shares. The Preferred
Share Depositary will vote the amount of Preferred Shares represented by such
Depositary Shares in accordance with such instructions, and the Company will
agree to take all reasonable action which may be deemed necessary by the
Preferred Share Depositary in order to enable the Preferred Share Depositary to
do so. The Preferred Share Depositary will abstain from voting the amount of
Preferred Shares represented by such Depositary Shares to the extent that it
does not receive specific instructions from the holders of Depositary Receipts
evidencing such Depositary Shares. The Preferred Share Depositary shall not be
responsible for any failure to carry out any instruction to vote, or for the
manner or effect of any such vote made, as long as any such action or non-action
is in good faith and does not result from negligence or willful misconduct of
the Preferred Share Depositary.
LIQUIDATION PREFERENCE
In the event of the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, the holders of each Depositary Share will be
entitled to the fractional interest of the liquidation preference accorded each
Preferred Share represented by the Depositary Share evidenced by the Depositary
Receipt, as set forth in the applicable Prospectus Supplement.
CONVERSION
The Depositary Shares, as such, are not convertible or exchangeable into
Common Shares or any other securities or property of the Company, except in
connection with certain conversions in connection with the preservation of the
Company's status as a REIT. See "Description of Preferred Shares -- Restrictions
on Ownership." Nevertheless, if the Preferred Shares represented by such
Depositary Shares
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are specified in the applicable Prospectus Supplement to be convertible into
Common Shares or other Preferred Shares, the Depositary Receipts evidencing such
Depositary Shares may be surrendered by holders thereof to the Preferred Share
Depositary with written instructions to the Preferred Share Depositary to
instruct the Company to cause conversion of such Preferred Shares into whole
Common Shares or other Preferred Shares (including Excess Preferred Shares) of
the Company, and the Company has agreed that upon receipt of such instructions
and any amounts payable in respect thereof, it will cause the conversion thereof
utilizing the same procedures as those provided for delivery of Preferred Shares
to effect such conversion. If the Depositary Shares evidenced by a Depositary
Receipt are to be converted in part only, a new Depositary Receipt or Receipts
will be issued for any Depositary Shares not to be converted. No fractional
Common Shares will be issued upon conversion, and if such conversion will result
in a fractional share being issued, an amount will be paid in cash by the
Company equal to the value of the fractional interest based upon the closing
price of the Common Shares on the last business day prior to the conversion.
AMENDMENT AND TERMINATION OF THE DEPOSIT AGREEMENT
The Depositary Receipt evidencing the Depositary Shares which represent the
Preferred Shares and any provision of the Deposit Agreement may at any time be
amended by agreement between the Company and the Preferred Share Depositary.
However, any amendment that materially and adversely alters the rights of the
holders of Depositary Receipts or that would be materially and adversely
inconsistent with the rights granted to the holders of the related Preferred
Shares will not be effective unless such amendment has been approved by the
existing holders of at least two-thirds of the Depositary Shares evidenced by
the Depositary Receipts then outstanding. No amendment shall impair the right,
subject to certain exceptions in the Depositary Agreement, of any holder of
Depositary Receipts to surrender any Depositary Receipt with instructions to
deliver to the holder the related Preferred Shares and all money and other
property, if any, represented thereby, except in order to comply with law. Every
holder of an outstanding Depositary Receipt at the time any such amendment
becomes effective shall be deemed, by continuing to hold such Receipt, to
consent and agree to such amendment and to be bound by the Depositary Receipt or
Deposit Agreement, as the case may be, as amended thereby.
The Deposit Agreement may be terminated by the Company upon not less than 30
days' prior written notice to the Preferred Share Depositary if (i) such
termination is necessary to preserve the Company's status as a REIT or (ii) a
majority of each series of Preferred Shares affected by such termination
consents to such termination, whereupon the Preferred Share Depositary shall
deliver or make available to each holder of Depositary Receipts, upon surrender
of the Depositary Receipts held by such holder, such number of whole or
fractional Preferred Shares as are represented by the Depositary Shares
evidenced by such Depositary Receipts, together with any other property held by
the Preferred Share Depositary with respect to such Depositary Receipt. The
Company has agreed that if the Deposit Agreement is terminated to preserve the
Company's status as a REIT, then the Company will use its best efforts to list
the Preferred Shares issued upon surrender of the related Depositary Shares on a
national securities exchange. In addition, the Deposit Agreement will
automatically terminate if (i) all outstanding Depositary Shares shall have been
redeemed, (ii) there shall have been a final distribution in respect of the
related Preferred Shares in connection with any liquidation, dissolution or
winding up of the Company and such distribution shall have been distributed to
the holders of Depositary Receipts evidencing such Depositary Shares
representing the Preferred Shares or (iii) all outstanding Preferred Shares
shall have been converted into Common Shares or other Preferred Shares of the
Company.
CHARGES OF PREFERRED SHARE DEPOSITARY
The Company will pay all transfer and other taxes and governmental charges
arising solely from the existence of the Deposit Agreement. In addition, the
Company will pay the fees and expenses of the
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Preferred Share Depositary in connection with the performance of its duties
under the Deposit Agreement. However, holders of Depositary Receipts will pay
certain other transfer and other taxes and governmental charges, as well as the
fees and expenses of the Preferred Share Depositary for any duties requested by
such holder to be performed which are outside of those expressly provided for in
the Deposit Agreement.
RESIGNATION AND REMOVAL OF DEPOSITARY
The Preferred Share Depositary may resign at any time by delivering to the
Company notice of its election to do so, and the Company may at any time remove
the Preferred Share Depositary, any such resignation or removal to take effect
upon the appointment of a successor Preferred Share Depositary. A successor
Preferred Share Depositary must be appointed within 60 days after delivery of
the notice of resignation or removal and must be a bank or trust company having
its principal office in the United States and having a combined capital and
surplus of at least $50,000,000.
MISCELLANEOUS
The Preferred Share Depositary will forward to holders of Depositary
Receipts any reports and communications from the Company which are received by
the Preferred Share Depositary with respect to the related Preferred Shares.
Neither the Preferred Share Depositary nor the Company will be liable if it
is prevented from or delayed in, by law or any circumstances beyond its control,
performing its obligations under the Deposit Agreement. The obligations of the
Company and the Preferred Share Depositary under the Deposit Agreement will be
limited to performing their duties thereunder in good faith and without
negligence (in the case of any action or inaction in the voting of Preferred
Shares represented by the Depositary Shares), gross negligence or willful
misconduct, and the Company and the Preferred Share Depositary will not be
obligated to prosecute or defend any legal proceeding in respect of any
Depositary Receipts, Depositary Shares or any Preferred Shares represented
thereby unless satisfactory indemnity is furnished. The Company and the
Preferred Share Depositary may rely on written advice of counsel or accountants,
or information provided by persons presenting Preferred Shares represented
thereby for deposit, holders of Depositary Receipts or other persons believed in
good faith to be competent to give such information, and on documents believed
in good faith to be genuine and signed by a proper party.
In the event the Preferred Share Depositary shall receive conflicting
claims, requests or instructions from any holders of Depositary Receipts, on the
one hand, and the Company, on the other hand, the Preferred Share Depositary
shall be entitled to act on such claims, requests or instructions received from
the Company.
RATIOS OF EARNINGS TO FIXED CHARGES
The ratios of earnings to fixed charges plus preferred dividend requirements
for the Company and the Operating Partnership for the six months ended June 30,
1997 was 1.59 and for the years ended December 31, 1996, 1995, 1994, 1993 and
1992 was 1.71, 1.80, 2.08, 2.19 and 1.22, respectively. The ratios of earnings
to fixed charges excluding preferred dividend requirements for the Company and
the Operating Partnership for the six months ended June 30, 1997 was 1.75 and
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992 was 1.99, 2.23,
4.19, 2.27 and 1.22, respectively.
For purposes of these computations, earnings consist of income (loss) before
gain on sale of land, minority interest and extraordinary items plus fixed
charges (excluding capitalized interest and preferred dividends). Fixed charges
consist of interest costs (whether expensed or capitalized) and amortization of
debt issue costs (whether expensed or capitalized), while preferred dividend
requirements consist of distributions on outstanding preferred shares.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary of certain federal income tax considerations to the
Company is based on current law, is for general purposes only, and is not tax
advice. The summary addresses the material federal income tax considerations
relating to the Company's REIT status, as well as material federal income tax
considerations relating to the Operating Partnership. The tax treatment of a
holder of any of the Offered Securities will vary depending upon the terms of
the specific securities acquired by such holder, as well as his particular
situation, and this discussion does not attempt to address any aspects of
federal income taxation relating to holders of Offered Securities. Certain
federal income tax considerations relevant to holders of the Offered Securities
will be provided in the applicable Prospectus Supplement relating thereto.
EACH INVESTOR IS ADVISED TO CONSULT THE APPLICABLE PROSPECTUS SUPPLEMENT, AS
WELL AS HIS OWN TAX ADVISOR, REGARDING THE TAX CONSEQUENCES TO HIM OF THE
PURCHASE, OWNERSHIP AND SALE OF THE OFFERED SECURITIES, INCLUDING THE FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP AND
SALE AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
TAXATION OF THE COMPANY AS A REIT
GENERAL. Commencing with its taxable year ending December 31, 1993, the
Company has elected to be taxed as a real estate investment trust under Sections
856 through 860 of the Code. The Company believes that, commencing with its
taxable year ending December 31, 1993, it has been organized and is operating in
such a manner as to qualify for taxation as a REIT under the Code, and the
Company intends to continue to operate in such a manner, but no assurance can be
given that it has operated or will operate in a manner so as to qualify or
remain qualified.
These sections of the Code are highly technical and complex. The following
sets forth the material aspects of the sections that govern the federal income
tax treatment of a REIT and its shareholders. This summary is qualified in its
entirety by the applicable Code provisions, rules and regulations promulgated
thereunder, and administrative and judicial interpretations thereof.
As a condition to the closing of each offering of Offered Securities, except
as otherwise specified in the applicable Prospectus Supplement, tax counsel to
the Company will render an opinion to the underwriters of such offering to the
effect that, commencing with the Company's taxable year ending December 31,
1993, the Company has been organized in conformity with the requirements for
qualification and taxation as a REIT, and its proposed method of operation will
enable it to meet the requirements for qualification and taxation as a REIT
under the Code. In rendering its opinion, tax counsel to the Company will rely
upon qualified North Carolina counsel as to certain matters of North Carolina
law. It must be emphasized that this opinion will be based on various
assumptions and will be conditioned upon certain representations to be made by
the Company as to factual matters and that such tax counsel to the Company
undertakes no obligation hereby to update any such opinion subsequent to its
date. In addition, this opinion will be based upon certain factual
representations of the Company including those set forth in this Prospectus and
will assume that the actions described in this Prospectus are completed in a
timely fashion. Moreover, such qualification and taxation as a REIT depends upon
the Company's ability to meet, through actual annual operating results,
distribution levels and diversity of stock ownership, the various qualification
tests imposed under the Code discussed below, the results of which have not been
and will not be reviewed by such tax counsel to the Company. Accordingly, no
assurance can be given that the actual results of the Company's operation of any
particular taxable year have satisfied or will satisfy such requirements. See
"-Failure to Qualify."
If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is currently
distributed to shareholders. This treatment substantially
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eliminates the "double taxation" (at the corporate and shareholder levels) that
generally results from investment in a corporation. However, the Company will be
subject to federal income tax as follows: First, the Company will be taxed at
regular corporate rates on any undistributed REIT taxable income, including
undistributed net capital gains. Second, under certain circumstances, the
Company may be subject to the "alternative minimum tax" on its items of tax
preference. Third, if the Company has (i) net income from the sale or other
disposition of "foreclosure property" which is held primarily for sale to
customers in the ordinary course of business or (ii) other nonqualifying income
from foreclosure property, it will be subject to tax at the highest corporate
rate on such income. Fourth, if the Company has net income from prohibited
transactions (which are, in general, certain sales or other dispositions of
property held primarily for sale to customers in the ordinary course of business
other than foreclosure property), such income will be subject to a 100% tax.
Fifth, if the Company should fail to satisfy the 75% gross income test or the
95% gross income test (as discussed below), but has nonetheless maintained its
qualification as a REIT because certain other requirements have been met, it
will be subject to a 100% tax on an amount equal to (a) the gross income
attributable to the greater of the amount by which the Company fails the 75% or
95% test, multiplied by (b) a fraction intended to reflect the Company's
profitability. Sixth, if the Company should fail to distribute during each
calendar year at least the sum of (i) 85% of its REIT ordinary income for such
year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4% excise tax on the excess of such required distribution over the amounts
actually distributed. Seventh, with respect to an asset (a "Built-in Gain
Asset") acquired by the Company from a corporation which is or has been a C
corporation (i.e., generally a corporation subject to full corporate-level tax)
in a transaction in which the basis of the Built-in Gain Asset in the hands of
the Company is determined by reference to the basis of the asset in the hands of
the C corporation, if the Company recognizes gain on the disposition of such
asset during the 10 year period (the "Recognition Period") beginning on the date
on which such asset was acquired by the Company, then, to the extent of the
Built-in Gain (i.e., the excess of (a) the fair market value of such asset over
(b) the Company's adjusted basis in such asset, determined as of the beginning
of the Recognition Period), such gain will be subject to tax at the highest
regular corporate rate pursuant to IRS regulations that have not yet been
promulgated. The results described above with respect to the recognition of
Built-in Gain assume that the Company will make an election pursuant to IRS
Notice 88-19.
REQUIREMENTS FOR QUALIFICATION. The Code defines a REIT as a corporation,
trust or association (1) which is managed by one or more trustees or directors;
(2) the beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest; (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code; (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code; (5) the beneficial ownership of which is held by 100 or
more persons; (6) during the last half of each taxable year not more than 50% in
value of the outstanding stock of which are owned, directly or constructively,
by five or fewer individuals (as defined in the Code to include certain
entities); and (7) which meets certain other tests, described below, regarding
the nature of its income and assets. The Code provides that conditions (1) to
(4), inclusive, must be met during the entire taxable year and that condition
(5) must be met during at least 335 days of a taxable year of 12 months, or
during a proportionate part of a taxable year of less than 12 months. Conditions
(5) and (6) will not apply until after the first taxable year for which an
election is made to be taxed as a REIT.
The Company has satisfied conditions (5) and (6). In addition, the Company's
Amended and Restated Articles of Incorporation provide for restrictions
regarding the transfer of shares, which restrictions are intended to assist the
Company in continuing to satisfy the share ownership requirements described in
(5) and (6) above. Such transfer restrictions are described generally in
"Description of Common Shares-Restrictions on Ownership" and "Description of
Preferred Shares-Restrictions on Ownership." There can be no assurance, however,
that such transfer restrictions will in all cases prevent a violation of the
share ownership provisions described in (5) and (6) above.
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In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the character of the
assets and gross income of the partnership shall retain the same character in
the hands of the REIT for purposes of Section 856 of the Code, including
satisfying the gross income tests and the asset tests. Thus, the Company's
proportionate share of the assets, liabilities and items of income of the
Operating Partnership will be treated as assets, liabilities and items of income
of the Company for purposes of applying the requirements described herein. A
summary of the rules governing the federal income taxation of partnerships and
their partners is provided below in "Tax Aspects of the Operating Partnership."
INCOME TESTS. In order to maintain qualification as a REIT, the Company
annually must satisfy three gross income requirements. First, at least 75% of
the Company's gross income (excluding gross income from prohibited transactions)
for each taxable year must be derived directly or indirectly from investments
relating to real property or mortgages on real property (including "rents from
real property" and, in certain circumstances, interest) or from certain types of
temporary investments. Second, at least 95% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from such real property investments, dividends, interest and gain
from the sale or disposition of stock or securities (or from any combination of
the foregoing). Third, short-term gain from the sale or other disposition of
stock or securities, gain from prohibited transactions and gain on the sale or
other disposition of real property held for less than four years (apart from
involuntary conversions and sales of foreclosure property) must represent less
than 30% of the Company's gross income (including gross income from prohibited
transactions) for each taxable year. This 30% gross income test has been
repealed for tax years beginning on or after January 1, 1998. See "--Recently
Enacted Legislation."
Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met. First, the amount of rent must not be based in whole
or in part on the income or profits of any person. However, an amount received
or accrued generally will not be excluded from the term "rents from real
property" solely by reason of being based on a fixed percentage or percentages
of receipts or sales. Second, the Code provides that rents received from a
tenant will not qualify as "rents from real property" in satisfying the gross
income tests if the REIT, or an owner of 10% or more of the REIT, directly or
constructively owns 10% or more of such tenant (a "Related Party Tenant").
Third, if rent attributable to personal property, leased in connection with a
lease of real property, is greater than 15% of the total rent received under the
lease, then the portion of rent attributable to such personal property will not
qualify as "rents from real property." Finally, for rents received to qualify as
"rents from real property," the REIT generally must not operate or manage the
property or furnish or render services to the tenants of such property, other
than through an independent contractor from whom the REIT derives no revenue,
provided, however, the Company may directly perform certain services that are
"usually or customarily rendered" in connection with the rental of space for
occupancy only and are not otherwise considered "rendered to the occupant" of
the property. The Company has not and will not (i) charge rent for any property
that is based in whole or in part on the income or profits of any person (except
by reason of being based on a percentage of receipts or sales, as described
above), (ii) rent any property to a Related Party Tenant, (iii) derive rental
income attributable to personal property (other than personal property leased in
connection with the lease of real property, the amount of which is less that 15%
of the total rent received under the lease), or (iv) perform services considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue. See "--Recently
Enacted Legislation" for modifications to certain of the rules described in this
paragraph.
The term "interest" generally does not include any amount received or
accrued (directly or indirectly) if the determination of such amount depends in
whole or in part on the income or profits of any person. However, an amount
received or accrued generally will not be excluded from the term "interest"
solely by reason of being based on a fixed percentage or percentages of receipts
or sales.
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If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions will be generally available if the Company's failure to meet such
tests was due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its return, and any
incorrect information on the schedule was not due to fraud with intent to evade
tax. It is not possible, however, to state whether in all circumstances the
Company would be entitled to the benefit of these relief provisions. As
discussed above under "--General," even if these relief provisions apply, a tax
would be imposed with respect to the excess net income.
ASSET TESTS. The Company, at the close of each quarter of its taxable year,
must also satisfy three tests relating to the nature of its assets. First, at
least 75% of the value of the Company's total assets must be represented by real
estate assets (including (i) its allocable share of real estate assets held by
partnerships in which the Company owns an interest and (ii) stock or debt
instruments held for not more than one year purchased with the proceeds of a
stock offering or long-term (at least five years) debt offering of the Company),
cash, cash items and government securities. Second, not more than 25% of the
Company's total assets may be represented by securities other than those in the
75% asset class. Third, of the investments included in the 25% asset class, the
value of any one issuer's securities owned by the Company may not exceed 5% of
the value of the Company's total assets and the Company may not own more than
10% of any one issuer's outstanding voting securities.
ANNUAL DISTRIBUTION REQUIREMENTS. The Company, in order to qualify as a
REIT, is required to distribute dividends (other than capital gain dividends) to
its shareholders in an amount at least equal to (A) the sum of (i) 95% of the
Company's "REIT taxable income" (computed without regard to the dividends paid
deduction and the Company's net capital gain) and (ii) 95% of the net income
(after tax), if any, from foreclosure property, minus (B) the sum of certain
items of noncash income. In addition, if the Company disposes of any Built-In
Gain Asset during its Recognition Period, the Company will be required, pursuant
to IRS regulations which have not yet been promulgated, to distribute at least
95% of the Built-in Gain (after tax), if any, recognized on the disposition of
such asset. Such distributions must be paid in the taxable year to which they
relate, or in the following taxable year if declared before the Company timely
files its tax return for such year and if paid on or before the first regular
dividend payment after such declaration. To the extent that the Company does not
distribute all of its net capital gain or distributes at least 95%, but less
than 100%, of its "REIT taxable income," while satisfying the 95% distribution
test referenced above, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates on the undistributed amount. The Company
intends to make timely distributions sufficient to satisfy these annual
distribution requirements.
It is possible that the Company, from time to time, may not have sufficient
cash or other liquid assets to meet the distribution requirements described
above due to timing differences between (i) the actual receipt of income and
actual payment of deductible expenses and (ii) the inclusion of such income and
deduction of such expenses in arriving at taxable income of the Company. In the
event that such timing differences occur, in order to meet the distribution
requirements, the Company may find it necessary to arrange for short-term, or
possibly long-term, borrowings or to pay dividends in the form of taxable stock
dividends.
Under certain circumstances, the Company may be able to rectify a failure to
meet the distribution requirement for a year by paying "deficiency dividends" to
shareholders in a later year, which may be included in the Company's deduction
for dividends paid for the earlier year. Thus, the Company may be able to avoid
being taxed on amounts distributed as deficiency dividends; however, the Company
will be required to pay interest based upon the amount of any deduction taken
for deficiency dividends.
Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year,
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and (iii) any undistributed taxable income from prior periods, the Company would
be subject to a 4% excise tax on the excess of such required distribution over
the amounts actually distributed.
FAILURE TO QUALIFY
If the Company fails to qualify for taxation as a REIT in any taxable year,
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Such a failure to qualify for taxation as a REIT is
likely to have an adverse effect on the market value and marketability of the
Offered Securities. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would reduce the cash available for distribution by the Company to its
shareholders. In addition, if the Company fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income to the extent
of current and accumulated earnings and profits, and, subject to certain
limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company will also be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.
RECENTLY ENACTED LEGISLATION
On August 5, 1997, President Clinton signed into law the Taxpayer Relief Act
of 1997 (H.R. 2014), which will have the effect of modifying certain
REIT-related Code provisions for tax years of the Company beginning on or after
January 1, 1998. The following list sets forth the significant changes contained
in this legislation: (i) the rule disqualifying a REIT for any year in which it
fails to comply with certain regulations requiring the REIT to monitor its stock
ownership is replaced with an intermediate financial penalty; (ii) the rule
disqualifying a REIT that it is "closely held" (I.E., during the last half of
each taxable year, 50% or more in value of a REIT's outstanding stock is owned
by five or fewer individuals) does not apply if during such year the REIT
complied with certain regulations which require the REIT to monitor its stock
ownership, and the REIT did not know or have reason to know that it was closely
held; (iii) a REIT is permitted to render a DE MINIMIS amount of impermissible
services to tenants in connection with the management of property and still
treat amounts received with respect to such property (other than certain amounts
relating to such services) as qualified rent; (iv) the rules regarding
attribution to partnerships for purposes of defining qualified rent and
independent contractors are modified so that attribution occurs only when a
partner owns a 25% or greater interest in the partnership; (v) the 30% gross
income test is repealed; (vi) any corporation wholly-owned by a REIT is
permitted to be treated as a qualified REIT subsidiary regardless of whether
such subsidiary has always been owned by the REIT; (vii) the class of excess
noncash items for purposes of the REIT distribution requirements is expanded;
(viii) property that is involuntarily converted is excluded from the prohibited
transaction rules; (ix) the rules relating to shared appreciation mortgages are
modified; (x) income from all hedges that reduce the interest rate risk of REIT
liabilities, including rate swap or cap agreements, options, futures and forward
rate contracts, is included in qualifying income for purposes of the 95% gross
income test; (xi) a REIT is able to elect to retain and pay income tax on its
net long-terms capital gain, and if such election is made, the REIT's
shareholders include in income their proportionate share of the undistributed
long-term capital gain and are deemed to have paid their proportionate share of
tax paid by the REIT; (xii) the rules relating to the grace period for
foreclosure property are modified; and (xiii) certain other Code provisions
relating to REITS are amended.
TAX ASPECTS OF THE OPERATING PARTNERSHIP
GENERAL. Substantially all of the Company's investments are held through
the Operating Partnership. In general, partnerships are "pass-through" entities
which are not subject to federal income tax. Rather,
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partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company includes in its income its proportionate share of the
foregoing Operating Partnership items for purposes of the various REIT income
tests and in the computation of its REIT taxable income. Moreover, for purposes
of the REIT asset tests, the Company includes its proportionate share of assets
held by the Operating Partnership.
ENTITY CLASSIFICATION. The Company's interest in the Operating Partnership
involves special tax considerations, including the possibility of a challenge by
the IRS of the status of the Operating Partnership as a partnership (as opposed
to an association taxable as a corporation) for federal income tax purposes. If
the Operating Partnership was treated as an association, it would be taxable as
a corporation and therefore be subject to an entity level tax on its income. In
such a situation, the character of the Company's assets and items of gross
income would change and preclude the Company from qualifying as a REIT. See
"Federal Income Tax Consequences--Taxation of the Company--Failure to Qualify"
above for a discussion of the effect of the Company's failure to meet such tests
for a taxable year. The IRS recently finalized and published Treasury
Regulations (the "Final Regulations") which provide that a domestic business
entity not otherwise classified as a corporation and which has at least two
members (an "Eligible Entity") may elect to be taxed as a partnership for
federal income tax purposes. The Final Regulations apply for tax periods
beginning on or after January 1, 1997 (the "Effective Date"). Unless it elects
otherwise, an Eligible Entity in existence prior to the Effective Date will have
the same classification for federal income tax purposes that it claimed under
the entity classification Treasury Regulations in effect prior to the Effective
Date. Such an entity's claimed classification will be respected for all prior
periods so long as the entity had a reasonable basis for its claimed
classification and certain other requirements have been satisfied. The Operating
Partnership met the requirements for classification as a partnership under prior
law for all periods prior to the Effective Date and, therefore, under the Final
Regulations, will be taxed as a partnership for periods beginning on or after
the Effective Date.
TAX ALLOCATIONS WITH RESPECT TO THE CENTERS. Pursuant to Section 704(c) of
the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Centers) that is contributed to a partnership
in exchange for an interest in the Partnership, must be allocated in a manner
such that the contributing partner is charged with, or benefits from,
respectively, the unrealized gain or unrealized loss associated with the
property at the time of the contribution. The amount of such unrealized gain or
unrealized loss is generally equal to the difference between the fair market
value of contributed property at the time of contribution, and the adjusted tax
basis of such property at the time of contribution (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership was formed by way of contributions of
appreciated property. Consequently, the Partnership Agreement requires such
allocations to be made in a manner consistent with Section 704(c) of the Code.
In general, the Tanger Family Partnership will be allocated lower amounts of
depreciation deductions for tax purposes than such deductions would be if
determined on a pro rata basis. In addition, in the event of the disposition of
any of the contributed assets which have a Book-Tax Difference, all income
attributable to such Book-Tax Difference will generally be allocated to the
Tanger Family Partnership, and the Company will generally be allocated only its
share of capital gains attributable to appreciation, if any, occurring after the
contribution of such assets to the Operating Partnership. This will tend to
eliminate the Book-Tax Difference over the life of the Operating Partnership.
However, the special allocation rules of Section 704(c) do not always entirely
eliminate the Book-Tax Difference on an annual basis or with respect to a
specific taxable transaction such as a sale. Thus, the carryover basis of the
contributed assets in the hands of the Operating Partnership will cause the
Company to be allocated lower depreciation and other deductions, and possibly
amounts of taxable income in the event of a sale of such contributed assets in
excess of the economic or book income allocated to it as a result of such sale.
This may cause the Company
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to recognize taxable income in excess of cash proceeds, which might adversely
affect the Company's ability to comply with the REIT distribution requirements.
See "--Annual Distribution Requirements."
Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" under current law, or the
election of certain methods which would permit any distortions caused by a
Book-Tax Difference to be entirely rectified on an annual basis or with respect
to a specific taxable transaction such as a sale. The Operating Partnership and
the Company have determined to use the "traditional method" for accounting for
Book-Tax Differences with respect to the Centers initially contributed to the
Partnership. As a result of such determination, distributions to shareholders
will be comprised of a greater portion of taxable income rather than a return of
capital. The Operating Partnership and the Company have not determined which of
the alternative methods of accounting for Book-Tax Differences will be elected
with respect to Centers contributed to the Partnership in the future.
With respect to the Centers initially contributed to the Operating
Partnership by the Company, as well as any property purchased by the Operating
Partnership subsequent to the admission of the Company to the Operating
Partnership, such property will initially have a tax basis equal to its fair
market value and Section 704(c) of the Code will not apply.
BASIS IN OPERATING PARTNERSHIP INTEREST. The Company's adjusted tax basis
in its interest in the Operating Partnership generally (i) will be equal to the
amount of cash and the basis of any other property contributed to the Operating
Partnership by the Company, (ii) will be increased by (a) its allocable share of
the Operating Partnership's income and (b) its allocable share of indebtedness
of the Operating Partnership and (iii) will be reduced, but not below zero, by
the Company's allocable share of (a) losses suffered by the Operating
Partnership, (b) the amount of cash distributed to the Company and (c) by
constructive distributions resulting from a reduction in the Company's share of
indebtedness of the Operating Partnership.
If the allocation of the Company's distributive share of the Operating
Partnership's loss exceeds the adjusted tax basis of the Company's partnership
interest in the Operating Partnership, the recognition of such excess loss will
be deferred until such time and to the extent that the Company has an adjusted
tax basis in its partnership interest. To the extent that the Operating
Partnership's distributions, or any decrease in the Company's share of the
indebtedness of the Operating Partnership (such decreases being considered a
cash distribution to the partners), exceed the Company's adjusted tax basis,
such excess distributions (including such constructive distributions) constitute
taxable income to the Company. Such taxable income will normally be
characterized as a capital gain, and if the Company's interest in the Operating
Partnership has been held for longer than the long-term capital gain holding
period (currently one year for corporations), the distributions and constructive
distributions will constitute long-term capital gains. Under current law,
capital gains and ordinary income of corporations are generally taxed at the
same marginal rates.
SALE OF THE CENTERS. The Company's share of any gain realized by the
Operating Partnership on the sale of any property held by the Operating
Partnership as inventory or other property held primarily for sale to customers
in the ordinary course of the Operating Partnership's trade or business will be
treated as income from a prohibited transaction that is subject to a 100%
penalty tax. See "--Income Tests." Such prohibited transaction income may also
have an adverse effect upon the Company's ability to satisfy the income tests
for qualification as a REIT. See "General." Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of the Operating Partnership's trade or business is a question of fact that
depends on all the facts and circumstances with respect to the particular
transaction. The Operating Partnership intends to hold the Centers for
investment with a view to long-term appreciation, to engage in the business of
acquiring, developing, owning, and operating the Centers (and other shopping
centers) and to make such occasional sales of the Centers, including peripheral
land, as are consistent with the Operating Partnership's investment objectives.
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OTHER TAX CONSEQUENCES
The Company may be subject to state or local taxation in various state or
local jurisdictions, including those in which it transacts business. The state
and local tax treatment of the Company may not conform to the federal income tax
consequences discussed above. Consequently, prospective shareholders should
consult their own tax advisors regarding the effect of state and local tax laws
on an investment in the Company.
PLAN OF DISTRIBUTION
The Company and the Operating Partnership may sell the Offered Securities to
one or more underwriters for public offering and sale by them or may sell the
Offered Securities to investors directly or through agents. Any such underwriter
or agent involved in the offer and sale of the Offered Securities will be named
in the applicable Prospectus Supplement.
Underwriters may offer and sell the Offered Securities at a fixed price or
prices, which may be changed, at prices related to the prevailing market prices
at the time of sale or at negotiated prices. The Company and the Operating
Partnership may, from time to time, authorize underwriters acting as the
Company's agents to offer and sell the Offered Securities upon the terms and
conditions as are set forth in the applicable Prospectus Supplement. In
connection with the sale of Offered Securities, underwriters may be deemed to
have received compensation from the Company or the Operating Partnership in the
form of underwriting discounts or commissions and may also receive commissions
from purchasers of Offered Securities for whom they may act as agent.
Underwriters may sell Offered Securities to or through dealers, and such dealers
may receive compensation in the form of discounts, concessions or commissions
from the underwriters and/or commissions from the purchasers for whom they may
act as agent.
Any underwriting compensation paid by the Company or the Operating
Partnership to underwriters or agents in connection with the offering of Offered
Securities, and any discounts, concessions or commissions allowed by
underwriters to participating dealers, are set forth in the applicable
Prospectus Supplement. Underwriters, dealers and agents participating in the
distribution of the Offered Securities may be deemed to be underwriters, and any
discounts and commissions received by them and any profit realized by them on
resale of the Offered Securities may be deemed to be underwriting discounts and
commissions, under the Securities Act of 1933, as amended (the "Securities
Act"). Underwriters, dealers and agents may be entitled, under agreements
entered into with the Company and the Operating Partnership, to indemnification
against and contribution toward certain civil liabilities, including liabilities
under the Securities Act.
If so indicated in the applicable Prospectus Supplement, the Company and the
Operating Partnership will authorize dealers acting as their agents to solicit
offers by certain institutions to purchase Offered Securities from them at the
public offering price set forth in such Prospectus Supplement pursuant to
Delayed Delivery Contracts (the "Contracts") providing for payment and delivery
on the date or dates stated in such Prospectus Supplement. Each Contract will be
for an amount not less than, and the aggregate principal amount of Offered
Securities sold pursuant to Contracts shall be not less nor more than, the
respective amounts stated in the applicable Prospectus Supplement. Institutions
with whom Contracts, when authorized, may be made include commercial and savings
banks, insurance companies, pension funds, investment companies, educational and
charitable institutions, and other institutions, but will in all cases be
subject to the approval of the Company or the Operating Partnership, as the case
may be. Contracts will not be subject to any conditions except (i) the purchase
by an institution of the Offered Securities covered by its Contracts shall not
at the time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (ii) if the Offered
Securities are being sold to underwriters, the Company or the Operating
Partnership, shall have sold to such underwriters the total principal amount of
the Offered Securities less the principal amount thereof covered by Contracts.
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Certain of the underwriters and their affiliates may be customers of, engage
in transactions with and perform services for the Company and the Operating
Partnership in the ordinary course of business.
EXPERTS
The consolidated financial statements and related financial statement
schedules included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 and incorporated by reference herein have been
incorporated herein in reliance on the report of Coopers & Lybrand, L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing. In addition, the financial statements and related
financial statement schedules included in the Operating Partnership's Annual
Report on Form 10-K for the year ended December 31, 1996 and incorporated by
reference herein have been incorporated herein in reliance on the report of
Coopers & Lybrand, L.L.P., independent accountants, given on the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Offered Securities will be passed upon for the Company
and the Operating Partnership by Latham & Watkins, New York, New York and
Vernon, Vernon, Wooten, Brown, Andrews & Garrett, P.A., Burlington, NC. Certain
legal matters will be passed on for any underwriters, dealers or agents by Brown
& Wood LLP, New York, New York.
In addition, the description of federal income tax consequences contained in
this Prospectus entitled "Certain Federal Income Tax Considerations" is based
upon the opinion of Latham & Watkins.
Latham & Watkins and Brown & Wood LLP will rely as to matters of North
Carolina law on the opinions of Vernon, Vernon, Wooten, Brown, Andrews &
Garrett, P.A., Burlington, North Carolina.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN
THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS
PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH THE PERSON MAKING SUCH OFFER
OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................. S-3
The Company............................................................... S-5
Recent Developments....................................................... S-11
Use of Proceeds........................................................... S-12
Price Range of Common Shares and
Distributions........................................................... S-12
Capitalization............................................................ S-14
Selected Consolidated Financial Data...................................... S-15
Business and Properties................................................... S-17
Management................................................................ S-25
Certain Federal Income Tax Considerations to Holders of Common Shares..... S-27
Underwriting.............................................................. S-32
PROSPECTUS
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
The Company and the Operating Partnership................................. 4
Risk Factors.............................................................. 4
Use of Proceeds........................................................... 6
Description of Debt Securities............................................ 7
Description of Common Shares.............................................. 22
Description of Common Share Warrants...................................... 24
Description of Preferred Shares........................................... 24
Description of Depositary Shares.......................................... 33
Ratios of Earnings to Fixed Charges....................................... 36
Certain Federal Income Tax Considerations................................. 37
Plan of Distribution...................................................... 44
Experts................................................................... 45
Legal Matters............................................................. 45
</TABLE>
1,000,000 SHARES
[LOGO]
COMMON SHARES
----------------
PROSPECTUS SUPPLEMENT
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MERRILL LYNCH & CO.
PRUDENTIAL SECURITIES INCORPORATED
STIFEL, NICOLAUS & COMPANY INCORPORATED
SEPTEMBER 18, 1997
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