SKT

Business Context and Reporting Period

Company: Tanger Factory Outlet Centers, Inc.
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 1999
Business Overview: The Company owns and operates factory outlet centers. As of September 30, 1999, the portfolio consisted of 30 centers in 22 states totaling 4,946,000 square feet of Gross Leasable Area (GLA), with an occupancy rate of 95%.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 7.3% for the nine months ended September 30, 1999, compared to the prior year. Base rentals increased 5% ($2.4 million) driven by acquisitions in 1998 and new expansions, partially offset by the loss of the Stroud, Oklahoma center.
• Net Income Decline: Net income decreased slightly by 1.8% ($175,000) for the nine-month period. This was primarily due to a $249,000 extraordinary loss on the early extinguishment of debt and increased interest and depreciation expenses.
• Insurance Proceeds: A tornado destroyed the Stroud, Oklahoma center in May 1999. The Company recognized a $1.3 million gain on disposal and received $7.9 million in insurance proceeds for replacement costs, which were used to reduce revolving credit lines.
• Other Income: Increased significantly by $1.6 million year-over-year due to $687,000 in gains from land sales and $523,000 in business interruption insurance proceeds.
• Debt Refinancing: The Company refinanced a $47.3 million loan with John Hancock Mutual Life Insurance, increasing the principal to $66.5 million, lowering the interest rate from 8.92% to 7.875%, and extending the maturity to 2009.

Guidance, Outlook, and Risks

• Development Pipeline: Expansions totaling 139,000 square feet were opened in the first nine months. An additional 154,000 square feet is under construction with openings expected by year-end. The Company signed an agreement to acquire 27 acres in Fort Lauderdale, Florida, for a new development project.
• Liquidity: The Company maintains $100 million in revolving lines of credit, with $34.5 million available as of September 30, 1999. Management believes existing cash flows and credit facilities are sufficient to fund planned capital expenditures.
• Dividends: On October 7, 1999, the Board declared a quarterly dividend of $0.605 per common share, payable November 15, 1999.
• Year 2000 (Y2K) Compliance: The Company has upgraded critical systems and expects total compliance costs to be less than $400,000. Management believes there is no material risk of operational failure due to Y2K issues, though risks remain regarding third-party vendors and tenants.
• Market Risks: The Company is exposed to interest rate fluctuations. A 1% increase in interest rates would decrease the fair value of long-term debt by approximately $5.2 million. The Company terminated its only interest rate swap in June 1999.

Investor Verification Checklist

• Stroud Center Recovery: Verify the timeline for the reconstruction of the Stroud, Oklahoma center and the final settlement of business interruption insurance claims.
• Debt Structure: Confirm the impact of the new $66.5 million John Hancock loan on future interest expense and debt service coverage ratios.
• Capital Expenditures: Monitor the $5.4 million in committed construction costs and the progress of the Fort Lauderdale acquisition and development.
• Related Party Transactions: Review the $2.4 million note receivable from Chairman Stanley K. Tanger for an e-commerce venture and its repayment status.
• Lease Renewals: Assess the risk associated with the 633,000 square feet of space scheduled for renewal in 2000 and the Company's ability to maintain occupancy and rental rates.