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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, 1997

Business Overview: Tanger is a fully-integrated, self-administered, and self-managed Real Estate Investment Trust (REIT) focused exclusively on developing, acquiring, owning, and operating factory outlet centers. As of December 31, 1997, the Company owned and operated 30 centers across 23 states with approximately 4.6 million square feet of gross leasable area (GLA). The portfolio was approximately 98% leased, housing over 1,210 stores representing more than 250 brand-name companies.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 13% to $85.3 million, driven by an 11% increase in weighted average GLA due to acquisitions and expansions. Base rentals increased $6.2 million.
• Acquisitions: The Company acquired three centers in resort areas (Sevierville, TN; Blowing Rock, NC; Nags Head, NC) totaling 302,554 square feet for approximately $37.5 million.
• Expansions: Completed or initiated expansions at five existing centers totaling 538,979 square feet. The Riverhead, NY center expansion was a significant contributor to portfolio growth.
• Debt Structure: Long-term debt increased by $51.1 million. The Company issued $75 million of 7.875% senior unsecured notes in October 1997 to repay existing lines of credit, reducing variable rate exposure.
• Equity Capital: Completed a public offering of 1.08 million common shares in September/October 1997, raising net proceeds of approximately $29.2 million.
• Expense Increases: Interest expense rose $2.8 million due to higher average borrowings. Property operating expenses increased $2.7 million, primarily due to higher common area maintenance costs and expansion-related expenses.

Guidance, Outlook, and Risks

• Capital Strategy: Management intends to maintain a low distribution payout ratio (67% in 1997) to retain capital for development and acquisitions. The Company has shelf registration for up to $100 million in additional equity and $100 million in debt.
• Liquidity: As of December 31, 1997, the Company had $120 million available under revolving lines of credit. In February 1998, this capacity was increased to $145 million.
• Future Development: Plans include pre-leasing for new centers in Concord, NC, and Romulus, MI, and further expansions of four existing centers. Management notes no assurance that these projects will be completed as scheduled or be accretive to FFO.
• Risks and Contingencies:
  • Tenant Concentration: No single tenant accounted for more than 10% of revenues. However, Phillips-Van Heusen Corp. announced store closures, and County Seat Stores, Inc. is in bankruptcy; management believes these will not have a material adverse effect.
  • Lease Expirations: Approximately 306,000 sq. ft. of space is up for renewal in 1998 and 695,000 sq. ft. in 1999. There is no assurance that leases will be renewed on favorable terms.
  • Year 2000 Compliance: Management believes computer systems are compliant or will be with normal upgrades at insignificant cost.

Investor Verification Checklist

• Verify the occupancy rates and rental rates for the newly acquired centers (Sevierville, Blowing Rock, Nags Head) and the Riverhead expansion to ensure they meet accretion targets.
• Monitor the impact of the Phillips-Van Heusen store closures and County Seat bankruptcy on future rent collections and vacancy rates.
• Confirm the execution of planned 1998 developments in Concord, NC, and Romulus, MI, and their associated capital requirements.
• Review the Company's ability to maintain its REIT status while managing the 67% payout ratio and funding significant capital expenditures.
• Assess the refinancing risk associated with the $75 million senior notes maturing in 2004 and the variable rate lines of credit.