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, 2002

Business Overview: Tanger is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused exclusively on developing, acquiring, owning, operating, and managing factory outlet centers. As of December 31, 2002, the Company held ownership interests in or management responsibilities for 34 centers across 21 states, totaling approximately 6.2 million square feet of gross leasable area (GLA). The portfolio was approximately 98% occupied.

Key Financial Metrics

Liquidity: The Company maintained unsecured revolving lines of credit totaling $85 million, with $20.5 million outstanding as of December 31, 2002. Cash and cash equivalents totaled $1.1 million.

Material Changes vs. Prior Period

• Portfolio Expansion: GLA increased from 5.4 million to 6.2 million square feet. Key activity included the acquisition of the Kensington Valley Factory Shops in Howell, Michigan (325,000 sq. ft.) and the development of a 50% joint venture property in Myrtle Beach, South Carolina (260,000 sq. ft.).
• Dispositions: The Company sold non-core properties in Fort Lauderdale, Florida, and Bourne, Massachusetts, generating approximately $19.9 million in net proceeds. These sales resulted in a $1.7 million gain recorded in discontinued operations.
• Revenue Growth: Total revenues increased 4.5% to $113.2 million. Base rentals increased 3.4%, and percentage rentals increased 30% due to higher tenant sales volumes.
• Profitability: Net income increased 54.8% to $11.0 million, driven by higher operating income, gains on property sales, and reduced interest expense.
• Debt Reduction: Total debt decreased by $13.2 million. The Company purchased $10.4 million of its 7.875% senior notes at par and utilized equity proceeds to reduce lines of credit.

Guidance, Outlook, and Risks

Management Commentary: Management reported strong tenant relationships and a record level of reported tenant sales ($1.5 billion) for 2002. The Company maintained a low distribution payout ratio of 72% of FFO, retaining approximately $12.3 million for reinvestment.

Outlook: The Company anticipates adequate cash availability to fund operations, debt service, and dividends. Approximately 19% of the portfolio (1.07 million sq. ft.) is scheduled for lease renewal in 2003. Management expects to continue paying regular quarterly dividends.

Risks and Contingencies:

• Lease Renewals: Failure to renew or re-lease significant space on favorable terms could materially adversely affect results.
• Market Conditions: Risks include general economic conditions, consumer confidence, and competition from other retail formats.
• Joint Venture Obligations: The Company is a 50% owner of the TWMB joint venture and provides joint and several guarantees for its $36.2 million construction loan.
• REIT Status: The Company must distribute at least 90% of taxable income to maintain REIT status; failure to do so would result in corporate taxation.

Investor Verification Checklist

• FFO vs. Net Income: Verify the reconciliation of Net Income ($11.0M) to Funds From Operations ($41.7M), noting the significant impact of depreciation and amortization ($28.8M).
• Debt Maturities: Review the concentration of debt maturities, with $73.3 million due in 2004, including the expiration of all lines of credit in June 2004.
• Joint Venture Exposure: Confirm the financial health of the TWMB joint venture (Myrtle Beach) and the status of the $25.5 million construction loan balance.
• Lease Expirations: Assess the risk associated with the 1.07 million square feet of GLA coming up for renewal in 2003.
• Discontinued Operations: Review the $2.4 million income from discontinued operations to understand the one-time nature of the gains from property sales.