SKT

Business Context and Reporting Period

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

Filing Type: Form 10-K (Annual Report)

Period Ended: December 31, 1998

Tanger is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused on developing, acquiring, owning, and operating factory outlet centers. As of December 31, 1998, the Company owned and operated 31 centers across 23 states with approximately 5.1 million square feet of gross leasable area (GLA). The portfolio was approximately 97% leased, housing over 1,180 stores representing more than 250 brand-name companies.

Key Financial Metrics

Material Changes vs. Prior Period

• Portfolio Expansion: Added 569,086 square feet in 1998 through acquisitions (Dalton, GA and Sanibel, FL) and expansions. Total GLA increased from 4.46 million to 5.01 million square feet.
• Revenue Growth: Total revenues increased 14.7% to $97.8 million, driven by an 18% increase in weighted average GLA. However, base rentals per weighted average GLA decreased slightly ($13.88 vs. $14.04) due to lower occupancy rates and the impact of new acquisitions with lower average rental rates.
• Net Income Decline: Net income decreased 7.8% to $11.8 million. This was primarily due to a $2.7 million asset write-down charge for discontinued development projects (Concord, NC and Romulus, MI) and increased interest expense ($22.0 million vs. $16.8 million) resulting from higher borrowings to fund acquisitions.
• Debt Structure: Long-term debt increased by $73.4 million. The Company terminated a $50 million secured line of credit and increased unsecured lines of credit by $25 million. Approximately 76% of outstanding debt was unsecured.

Guidance, Outlook, and Risks

• Refinancing: In March 1999, the Company refinanced $47.4 million in notes, reducing the interest rate from 8.92% to 7.875%, increasing the loan amount to $66.5 million, and extending maturity to 2009. This is expected to save approximately $300,000 in interest costs over the next twelve months.
• Development Outlook: Approximately 191,380 square feet of expansion space is scheduled to open in the second half of 1999. The Company is in pre-leasing stages for a new center in Bourne, MA, and expansions at three existing centers.
• Market Conditions: Management noted a decline in real estate debt and equity markets, which may limit access to capital on favorable terms in the short term. However, they believe this is temporary and maintain sufficient liquidity via $20.3 million in available credit lines and shelf registration for up to $100 million in equity and $100 million in debt.
• Lease Expirations: Approximately 29% of the lease portfolio is scheduled to expire in the next two years (1999-2000). Management anticipates strong renewals but notes that failure to re-lease space on favorable terms could materially impact results.
• Year 2000 Compliance: The Company is actively addressing Y2K issues for IT and non-IT systems. Total compliance costs are expected to be less than $400,000, which is not considered material.

Investor Verification Checklist

• Verify the impact of the $2.7 million asset write-down on the 1998 bottom line and confirm the status of the discontinued Concord and Romulus projects.
• Monitor the execution of the March 1999 refinancing and the resulting interest savings.
• Track the occupancy rates and rental rates for the 29% of the portfolio expiring in 1999 and 2000.
• Assess the Company's ability to access capital markets given the noted decline in real estate debt and equity markets.
• Review the progress of the 191,380 square feet of expansion space scheduled for completion in late 1999.