SKT

Business Context and Reporting Period

Company: Tanger Factory Outlet Centers, Inc. (Tanger)

Filing Type: Form 10-K (Annual Report)

Reporting Period: Fiscal year ended December 31, 2004

Tanger is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating factory outlet shopping centers. As of December 31, 2004, the Company owned interests in 33 centers and managed three additional centers, totaling 36 centers with approximately 8.8 million square feet of Gross Leasable Area (GLA) across 23 states. The portfolio was 97% occupied at year-end.

Key Financial Metrics

Liquidity: The Company maintained unsecured revolving lines of credit totaling $125 million, with $92.5 million available as of December 31, 2004. Cash and cash equivalents totaled $4.1 million.

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 65% to $194.6 million, primarily driven by the full-year impact of the December 2003 acquisition of the Charter Oak Partners' portfolio (9 centers, 3.3 million sq. ft.) via the COROC joint venture.
• Net Income Decline: Despite revenue growth, Net Income decreased 45% to $7.0 million. This was due to increased interest expense ($35.1 million vs. $26.5 million) from the assumed debt in the COROC acquisition and a $3.5 million loss on the sale of the Dalton, Georgia property recorded in discontinued operations.
• Portfolio Adjustments: The Company disposed of non-core assets, including properties in North Conway, NH, and Dalton, GA, generating $20.4 million in net proceeds. Total GLA decreased slightly from 9.3 million to 8.8 million square feet due to these dispositions.
• Debt Reduction: Total debt decreased by $52.3 million, aided by the retirement of $47.5 million in unsecured notes and proceeds from property sales.

Guidance, Outlook, and Risks

Outlook and Strategy: Management expects to fund planned capital expenditures in 2005 through cash from operations, existing credit facilities, and potential debt or equity issuances. The Company continues to pursue growth through increasing rents, developing new centers (Pittsburgh, Charleston, Wisconsin Dells), and expanding existing properties. Occupancy costs remain low relative to tenant sales (7.3% in 2004).

Risks and Contingencies:

• Lease Expirations: Approximately 22% of the portfolio (1.9 million sq. ft.) is scheduled for renewal in 2005. Failure to renew on favorable terms could materially impact results.
• Joint Venture Risks: The COROC joint venture includes a provision where the partner (Blackstone) could gain sole management control if minimum cash returns are not met, though management does not currently view this as a significant risk.
• Market Conditions: Sales at East Coast and Gulf Coast centers were adversely affected by hurricanes in September 2004, though structural damage was minimal and insurance is expected to cover losses.
• REIT Compliance: The Company must distribute at least 90% of taxable income to maintain REIT status. In 2004, distributions of $33.8 million significantly exceeded the required $9.0 million.

Investor Verification Checklist

• Discontinued Operations Impact: Verify the net loss of $0.6 million from discontinued operations, specifically the $3.5 million loss on the Dalton, GA sale, to understand the divergence between operating income and net income.
• Joint Venture Consolidation: Confirm the financial impact of consolidating the COROC joint venture (1/3 ownership) under FIN 46R, which significantly increased reported assets and debt.
• Debt Maturities: Review the $275.2 million in debt maturing in 2008 (primarily the COROC acquisition debt) and the Company's refinancing strategy.
• Lease Renewal Rates: Monitor the renewal rate for the 1.9 million sq. ft. expiring in 2005, as 36% had already been renewed as of February 1, 2005.
• Share Split: Note that all per-share data has been restated to reflect a 2-for-1 stock split effected in December 2004.