SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
December 8, 2003
Date of Report (Date of earliest event reported)
TANGER FACTORY OUTLET CENTERS, INC.
(Exact name of registrant as specified in its charter)
North Carolina
(State or other jurisdiction of incorporation or organization)
1-11986 56-1815473
(Commission File No.) (I.R.S. Employer Identification No.)
3200 Northline Avenue, Greensboro, NC 27408
(Address of principal executive offices, including zip code)
(336) 292-3010
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
1
TANGER FACTORY OUTLET CENTERS, INC.
CURRENT REPORT
ON
FORM 8-K
Item 5. Other Events
Tanger Factory Outlet Centers, Inc., (the "Company"), has formed a joint
venture, COROC Holdings, L.L.C. ("COROC") with an affiliate of Blackstone Real
Estate Advisors ("Blackstone") to acquire a portfolio of nine factory outlet
centers with approximately 3.3 million square feet managed and leased by Charter
Oak Partners (the "Charter Oak Properties") and owned by the Public Employees
Retirement System of Ohio for which Rothschild Realty, Inc. is the investment
advisor. Closing on the transaction is expected to take place in December 2003.
The Charter Oak Properties are being acquired by COROC for a purchase price of
$491.0 million, including the assumption of $187.1 million of debt. We will be
required to fund one-third of the net acquisition costs plus closing costs and
certain other escrows and reserves, collectively estimated to be $107.9 million.
Blackstone will be required to contribute the remaining $215.8 million. We
expect to issue 2.3 million common shares with net proceeds of approximately
$91.8 million and borrow an additional $16.1 million under our existing lines of
credit to fund our investment. There can be no assurance that closing on the
transaction will actually occur or that we will be able to issue the common
shares to fund our transaction.
The Company's management has considered the existing tenant base, which is the
primary revenue source, occupancy rate, the competitive nature of the market and
comparative rental rates. Furthermore, current and anticipated maintenance and
repair costs, real estate taxes and capital improvement requirements were
evaluated. Management is not aware of any material factors that would cause the
reported financial information in the accompanying Statement of Revenues and
Certain Operating Expenses to be misleading or not necessarily indicative of the
Charter Oak Properties' future operating results.
2
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
The financial statements, unaudited pro forma financial information
and exhibits filed herewith are as set forth below
(a) Financial Statements Page
(1) The Charter Oak Properties of The Separate Account of the
Public Employees Retirement System of Ohio for which
Rothschild Realty, Inc. is the Investment Advisor
Independent Auditors' Report 4
Statements of Revenues and Certain
Operating Expenses for the Year Ended
December 31, 2002 and nine months ended
September 30, 2003 (unaudited) 5
Notes to Statements of Revenues and Certain
Operating Expenses 6
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Consolidating Statements of Operations
for the nine months ended September 30, 2003 and 11
for the year ended December 31, 2002 12
(2) Unaudited Pro Forma Consolidating Balance Sheets
as of September 30, 2003 13
(3) Notes to Unaudited Pro Forma Consolidating
Financial Statements 14
(4) Unaudited Pro Forma Funds from Operations 15
c) Exhibits
2.1 Purchase and Sale Agreement between COROC Holdings, L.L.C.
and various entities dated October 3, 2003 *
10.1 COROC Holdings L.L.C. Limited Liability Company Agreement
dated October 3, 2003 *
10.2 Form of Shopping Center Management Agreement between owners
of COROC Holdings, LLC and Tanger Properties Limited
Partnership *
23.1 Consent of Deloitte & Touche LLP *
* Filed herewith
3
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Tanger Factory Outlet Centers, Inc:
We have audited the accompanying combined statement of revenues and certain
operating expenses of The Charter Oak Properties of The Separate Account of the
Public Employees Retirement System of Ohio for which Rothschild Realty, Inc. is
the Investment Advisor (collectively the "Charter Oak Properties") for the year
ended December 31, 2002. This financial statement is the responsibility of the
Investment Advisor. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the statement of
revenues and certain operating expenses is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statement. An audit also includes assessing the
accounting principles used and the significant estimates made by management, as
well as evaluating the overall presentation of the financial statement. We
believe that our audit provides a reasonable basis for our opinion.
The accompanying combined statement of revenues and certain operating expenses
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the current report on Form
8-K of Tanger Factory Outlet Centers, Inc.) as described in Note 1 to the
financial statement and is not intended to be a complete presentation of the
Charter Oak Properties' revenues and expenses.
In our opinion, such combined financial statement presents fairly, in all
material respects, the revenues and certain operating expenses of the Charter
Oak Properties for the year ended December 31, 2002 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
McLean, Virginia
December 5, 2003
4
The Charter Oak Properties of The Separate Account of the
Public Employees Retirement System of Ohio for which
Rothschild Realty, Inc. is the Investment Advisor
STATEMENTS OF REVENUES AND CERTAIN OPERATING EXPENSES
(In thousands)
Nine Months Year
Ended Ended
September 30, December 31,
2003 2002
(unaudited)
Revenues
Base rentals $37,203 $49,718
Percentage rentals 1,085 1,838
Expense reimbursements 13,551 18,709
Other income 187 514
-------------------------------------------------------- ----------------- ----------------
Total revenues 52,026 70,779
-------------------------------------------------------- ----------------- ----------------
Certain operating expenses
Property operating 13,611 18,727
General and administrative 487 822
-------------------------------------------------------- ----------------- ----------------
Total certain operating expenses 14,098 19,549
-------------------------------------------------------- ----------------- ----------------
Revenues in excess of certain operating expenses $37,928 $51,230
-------------------------------------------------------- ----------------- ----------------
The accompanying notes are an integral part of these financial statements.
5
NOTES TO COMBINED STATEMENTS OF REVENUES AND
CERTAIN OPERATING EXPENSES
(In thousands)
1. Organization and basis of presentation
The Combined Statement of Revenues and Certain Operating Expenses relates to the
operations of The Charter Oak Properties of the Separate Account of The Public
Employees Retirement System of Ohio for which Rothschild Realty, Inc. is the
Investment Advisor (collectively, the "Charter Oak Properties"), a portfolio of
nine factory outlet centers located across the United States with approximately
3.3 million square feet. The Charter Oak Properties are managed and leased by
Charter Oak Partners and are under common ownership. The Charter Oak Properties
are being acquired by COROC Holdings, Inc. ("COROC"), a joint venture formed by
Tanger Properties Limited Partnership, a partnership whose majority ownership is
held by Tanger Factory Outlet Centers, Inc. (the "Company"), and an affiliate of
Blackstone Real Estate Advisors.
The accompanying Combined Statement of Revenues and Certain Operating Expenses
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission Regulation S-X, Rule 3-14. This statement is
not representative of the actual operations for the period presented, as certain
expenses, which may not be comparable to the expenses expected to be incurred by
COROC in the future operation of the Charter Oak Properties, have been excluded
as discussed below.
Certain Operating Expenses include advertising and promotional expenses, common
area maintenance, real estate taxes, and certain other operating expenses
related to the operations of the Charter Oak Properties. In accordance with the
regulations of the Securities and Exchange Commission, mortgage interest,
depreciation and amortization and certain other costs have been excluded from
certain operating expenses, as they are dependent upon a particular owner,
purchase price or other financial arrangement. Certain other costs excluded
include (in thousands):
Nine Months Ended Year Ended
September 30, 2003 December 31,
(unaudited) 2002
---------------------------------- ------------------------- -----------------
Management fees $2,043 $2,606
Legal expenses --- 1,312
---------------------------------- ------------------------- -----------------
$2,043 $3,918
================================== ========================= =================
6
2. Leases
The Charter Oak Properties are leased to tenants under operating leases with
expiration dates extending to the year 2014. Future minimum rentals (assuming
lease renewal options, where applicable, are not exercised) under noncancellable
operating leases, exclusive of additional rents from reimbursement of operating
expenses are approximately as follows (in thousands):
Year Ending December 31,
2003 $44,393
2004 37,135
2005 26,241
2006 15,331
2007 7,100
Thereafter 7,319
-------------------
-------------------
$137,519
===================
3. Revenue recognition
Base rentals are recognized on a straight-line basis over the lease term.
Certain lease agreements contain provisions for rents which are calculated on a
percentage of sales and recorded on an accrual basis. These rents are accrued
monthly once the required thresholds per the lease agreement are exceeded.
Virtually all lease agreements contain provisions for additional rents
representing reimbursements of real estate taxes, insurance, advertising and
common area maintenance costs. Expense reimbursements are recognized in the
period the applicable expenses are incurred.
4. Use of estimates
The preparation of the Combined Statement of Revenues and Certain Operating
Expenses in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of revenues and expenses during the period
reported. Actual results may differ from those estimates.
7
5. Risks and Uncertainties
The Charter Oak Properties' results of operations are significantly dependent on
the overall health of the retail industry. The Charter Oak Properties' tenants
are comprised almost exclusively of merchants in the retail industry. The retail
industry is subject to external factors such as inflation, consumer confidence,
unemployment rates and consumer tastes and preferences. A decline in the retail
industry could reduce merchant sales, which could adversely affect the operating
results of the Charter Oak Properties. A number of merchants occupy space in the
Charter Oak Properties; however, no single merchant accounts for more than 10%
of the Charter Oak Properties' base rents and no one tenant occupies more than
10% of the Charter Oak Properties' total gross leasable area for either the year
ended December 31, 2002 and the nine months ended September 30, 2003
(unaudited).
6. Commitments and Contingencies
The Charter Oak Properties are not presently involved in any material litigation
nor, to management's knowledge, is any material litigation threatened against
the Charter Oak Properties, other than routine legal matters arising in the
ordinary course of business. Management believes the costs, if any, incurred by
the Charter Oak Properties related to this litigation will not materially affect
the operating results of the Charter Oak Properties.
7. Interim Unaudited Financial Information
The financial statement for the nine months ended September 30, 2003 is
unaudited, however, in the opinion of management, all adjustments (consisting
solely of normal, recurring adjustments) necessary for the fair presentation of
the financial statement for the interim period have been included. The results
of the interim period are not necessarily indicative of the results to be
obtained for a full fiscal year.
8
TANGER FACTORY OUTLET CENTERS, INC.
PRO FORMA CONSOLIDATING FINANCIAL STATEMENTS
The accompanying unaudited Pro Forma Consolidating Financial Statements have
been derived from the historical statements of the Company and give effect to
the proposed acquisition of the Charter Oak Properties, which is expected to
close in December 2003. The unaudited Pro Forma Consolidating Statements of
Operations for the nine months ended September 30, 2003 and the year ended
December 31, 2002 assume the acquisition had occurred as of January 1, 2002. The
unaudited Pro forma Consolidating Balance Sheet assumes the acquisition had
occurred on September 30, 2003.
The Charter Oak Properties are being acquired by COROC for a purchase price of
$491.0 million, including the assumption of $187.1 million of debt. We will be
required to fund one-third of the net acquisition costs plus closing costs and
certain other escrows and reserves, collectively estimated to be $107.9 million.
Blackstone will be required to contribute the remaining $215.8 million. The Pro
Forma Consolidating Financial Statements reflect our assumption that we will
issue 2.3 million common shares with net proceeds of approximately $91.8 million
and borrow an additional $16.1 million under our existing lines of credit to
fund our investment. There can be no assurance that closing on the transaction
will actually occur or that we will be able to issue the common shares to fund
our transaction.
The accompanying unaudited Pro Forma Consolidating Financial Statements reflect
a preliminary allocation of the purchase price under Statement of Financial
Accounting Standards No. 141, "Business Combinations" ("FAS 141"). This
allocation is subject to final adjustment following the acquisition. Included in
the allocation is $76.8 million allocated to lease related intangible assets.
The ultimate allocation and estimated useful lives could change upon final
valuation of these lease related intangibles. The Company expects to finalize
the valuation following the consummation of the transaction. Changes in the
allocation of the purchase price and/or estimated useful lives from those used
in the Pro Forma Consolidating Financial Statements would result in an increase
or decrease in pro forma net income and related pro forma earnings per share.
Further, the Pro Forma Consolidating Financial Statements reflect the
consolidation of the Charter Oak Properties as if it is a Variable Interest
Entity and we are the Primary Beneficiary under FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" ("FIN 46"). Currently, there are
proposed amendments to FIN 46 that may ultimately lead us to conclude that we
should account for our investment in COROC under the equity method of accounting
in accordance with Accounting Principles Board Opinion No. 18, "The Equity
Method of Accounting for Investments in Common Stock".
Certain amounts in the historical financial statements of the Company for the
year ended December 31, 2002 have been reclassified to reflect the requirements
of Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("FAS 144"). FAS 144 requires that
results of operations and gains and losses from the sale of properties to be
reclassified as discontinued operations for all periods presented.
The unaudited Pro Forma Consolidating Financial Statements have been prepared by
the Company's management. These pro forma statements may not be indicative of
the results that would have actually occurred if the acquisition had been in
effect on the dates indicated, nor do they purport to represent the results of
9
operations for future periods. The unaudited Pro Forma Consolidating Financial
Statements should be read in conjunction with the unaudited Combined Statement
of Revenues and Certain Operating Expenses of the Charter Oak Properties for the
nine months ended September 30, 2003 (contained herein), the audited Combined
Statement of Revenues and Certain Operating Expenses of the Charter Oak
Properties for the year ended December 31, 2002 (contained herein), the
Company's unaudited financial statements and notes thereto as of September 30,
2003 and for the nine months then ended (which are contained in the Company's
Form 10-Q for the period ended September 30, 2003), and the Company's audited
financial statements and notes thereto as of December 31, 2002 and for the year
then ended (which are contained in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002).
10
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 2003
(Unaudited)
(In thousands, except per share data)
The Charter Pro forma Pro forma
Company Oak Adjustments Consolidated
-----------------------------------------------------------------------------------------------------------------------
(a) (b)
REVENUES
Base rentals $ 59,498 $ 37,203 $ (998) (c) $ 95,703
Percentage rentals 1,743 1,085 2,828
Expense reimbursements 25,305 13,551 38,856
Other income 2,547 187 2,734
-----------------------------------------------------------------------------------------------------------------------
Total revenues 89,093 52,026 (998) 140,121
-----------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 30,135 13,611 43,746
General and administrative 7,375 487 874 (d) 8,736
Interest 19,707 - 7,482 (e) 27,189
Depreciation and amortization 21,463 - 16,746 (f) 38,209
-----------------------------------------------------------------------------------------------------------------------
Total expenses 78,680 14,098 25,102 117,880
-----------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint
ventures, minority interest and discontinued operations 10,413 37,928 (26,100) 22,241
Equity in earnings of unconsolidated joint ventures 639 639
Minority interests:
Consolidated joint venture - (19,424)(g) (19,424)
Operating partnership (2,415) 1,881 (g) (534)
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 8,637 $ 37,928 $ (43,643) $ 2,922
-----------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Income from continuing operations $ .80 $ .18
Weighted average shares 9,729 2,300 (h) 12,029
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Income from continuing operations $ .79 $ .17
Weighted average shares 9,958 2,300 (h) 12,258
-----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
11
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATING STATEMENTS OF OPERATIONS
Year Ended December 31, 2002
(Unaudited)
(In thousands, except per share data)
The Charter Pro forma Pro forma
Company Oak Adjustments Consolidated
-----------------------------------------------------------------------------------------------------------------------
(i) (b)
REVENUES
Base rentals $ 75,560 $ 49,718 $ (1,330)(c) $ 123,948
Percentage rentals 3,558 1,838 5,396
Expense reimbursements 30,477 18,709 49,186
Other income 3,303 514 3,817
-----------------------------------------------------------------------------------------------------------------------
Total revenues 112,898 70,779 $ (1,330) 182,347
-----------------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 35,898 18,727 54,625
General and administrative 9,227 822 1,165 (d) 11,214
Interest 28,460 - 10,228 (e) 38,688
Depreciation and amortization 28,551 - 22,328 (f) 50,879
-----------------------------------------------------------------------------------------------------------------------
Total expenses 102,136 19,549 33,721 155,406
-----------------------------------------------------------------------------------------------------------------------
Income before equity in earnings of unconsolidated joint
ventures, minority interest and discontinued operations 10,762 51,230 (35,051) 26,941
Equity in earnings of unconsolidated joint ventures 392 392
Minority interests:
Consolidated joint venture - (25,898)(g) (25,898)
Operating partnership (2,438) 2,513 (g) 75
-----------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 8,716 $ 51,230 $ (58,436) $ 1,510
-----------------------------------------------------------------------------------------------------------------------
Basic earnings per common share:
Income from continuing operations $ .83 $ (.02)
Weighted average shares 8,322 2,300 (h) 10,622
-----------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Income from continuing operations $ .81 $ (.02)
Weighted average shares 8,514 2,300 (h) 10,814
-----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
12
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATING BALANCE SHEET
As of September 30, 2003
(Unaudited)
(In thousands)
The Charter Pro forma
Company Oak Consolidated
---------------------------------------------------------------------------------------------------------------------
ASSETS (a)
Rental Property
Land $ 50,474 $ 70,100 (j) $ 120,574
Buildings, improvements and fixtures 583,269 367,792 (j) 951,061
---------------------------------------------------------------------------------------------------------------------
633,743 437,892 1,071,635
Accumulated depreciation (191,628) (191,628)
---------------------------------------------------------------------------------------------------------------------
Rental property, net 442,115 437,892 880,007
Cash and cash equivalents 209 209
Deferred charges, net 9,398 76,817 (j) 86,215
Other assets 13,666 8,636 (k) 22,302
---------------------------------------------------------------------------------------------------------------------
Total assets $ 465,388 $ 523,345 $ 988,733
---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Debt
Senior, unsecured notes $ 147,509 $ 147,509
Mortgages payable 172,552 199,617 (l) 372,169
Lines of credit 7,272 16,093 (m) 23,365
---------------------------------------------------------------------------------------------------------------------
327,333 215,710 543,043
Construction trade payables 7,188 7,188
Accounts payable and accrued expenses 13,949 13,949
---------------------------------------------------------------------------------------------------------------------
Total liabilities 348,470 215,710 564,180
---------------------------------------------------------------------------------------------------------------------
Commitments
Minority interests:
Consolidated joint venture 215,819 (n) 215,819
Operating partnership 26,202 26,202
---------------------------------------------------------------------------------------------------------------------
Total minority interest 26,202 215,819 242,021
---------------------------------------------------------------------------------------------------------------------
Shareholders' equity
Common Stock 105 23 (h) 128
Paid in capital 171,747 91,793 (h) 263,540
Distributions in excess of net income (81,063) (81,063)
Accumulated other comprehensive loss (73) (73)
---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 90,716 91,816 182,532
---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 465,388 $ 523,345 $ 988,733
---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these unaudited pro forma
consolidating financial statements.
13
Notes to Pro Forma Consolidating Financial Statements
a) As reported in the unaudited consolidated financial statements of
Tanger Factory Outlet Centers, Inc. as of or for the nine months ended
September 30, 2003.
b) Derived from the Combined Statements of Revenues and Certain Operating
Expenses of the Charter Oak Properties (contained herein).
c) To reflect amortization of the portion of the purchase price assigned
to above and below market leases in accordance with FAS 141.
d) To reflect estimated incremental personnel and overhead costs to be
incurred as a result of the acquisition.
e) To reflect interest expense from (1) the assumption of debt with a face
value of $187.1 million ($199.6 million fair value, 4.97% imputed
interest rate) and (2) additional borrowings under existing lines of
credit of $16.1 million at LIBOR plus 160 basis points (assumed to be
2.7%). A 1% increase or decrease in the LIBOR rate would equal
$161,000.
f) To reflect depreciation and amortization based on an acquisition price
of $491.0 million (including debt assumption of $187.1 million and cash
paid to seller of $303.9), plus closing costs of $11.2 million and a
market value debt premium of $12.5 million. Estimated lives used are 35
years for buildings, 4 to 24 years for site improvements, 10 years for
lease in-place value, and remaining leases terms for tenant
improvements and other lease related intangibles.
g) To reflect minority interest in net income.
h) To reflect the planned issuance of 2.3 million common shares in
December 2003 with net proceeds of $91.8 million as part of the funding
of the acquisition of the Charter Oak properties.
i) Derived from the audited consolidated financial statements of Tanger
Factory Outlet Centers, Inc. for the year ended December 31, 2002, as
reclassified from that previously reported to reflect the requirements
of FAS 144.
j) To reflect total acquisition costs of $514.7 million, including
purchase price of $491.0 million (including debt assumption of $187.1
million and cash paid to seller of $303.9 million) plus estimated
closing costs of $11.2 million and market value of debt premium of
$12.5 million. In accordance with FAS 141, a portion of the acquisition
costs have been allocated to deferred charges to reflect the fair value
of in-place leases and other related intangibles.
k) To reflect initial escrows for insurance and real estate taxes and
other working capital reserves expected to be funded at the closing of
the acquisition.
l) To reflect the assumption of debt with a face value of $187.1 million
and fair value of $199.6 million. m) Represents additional borrowings
under existing lines of credit to be used along with the proceeds from
the expected common share offering to fund the acquisition.
n) To reflect the minority interest in the consolidated joint venture
which will own the Charter Oak Properties.
14
FUNDS FROM OPERATIONS
Funds from operations, or "FFO," represents net income before extraordinary
items and gains (losses) on sale or disposal of depreciable operating
properties, plus depreciation and amortization uniquely significant to real
estate and after adjustments for unconsolidated partnerships and joint ventures.
FFO is intended to exclude GAAP historical cost depreciation of real estate,
which assumes that the value of real estate assets diminish ratably over time.
Historically, however, real estate values have risen or fallen with market
conditions. Because FFO excludes depreciation and amortization unique to real
estate, gains and losses from property dispositions and extraordinary items, it
provides a performance measure that, when compared year over year, reflects the
impact to operations from trends in occupancy rates, rental rates, operating
costs, development activities and interest costs, providing perspective not
immediately apparent from net income.
We present FFO because we consider it an important supplemental measure of our
operating performance and believe it is frequently used by securities analysts,
investors and other interested parties in the evaluation of real estate
investment trusts, or "REITs", many of which present FFO when reporting their
results. FFO is widely used by us and others in our industry to evaluate and
price potential acquisition candidates. The National Association of Real Estate
Investment Trusts, Inc., of which we are a member, has encouraged its member
companies to report their FFO as a supplemental, industry-wide standard measure
of REIT operating performance. In addition, our employment agreements with
certain members of management base bonus compensation on our FFO performance.
FFO has significant limitations as an analytical tool, and you should not
consider it in isolation, or as a substitute for analysis of our results as
reported under GAAP. Some of these limitations are:
o FFO does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
o FFO does not reflect changes in, or cash requirements for, our working
capital needs;
o Although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and FFO does not reflect any cash requirements for such
replacements;
o FFO may reflect the impact of earnings or charges resulting from matters
which may not to be indicative of our ongoing operations; and
o Other companies in our industry may calculate FFO differently than we do,
limiting its usefulness as a comparative measure.
Because of these limitations, FFO should not be considered as a measure of
discretionary cash available to us to invest in the growth of our business or
our dividend paying capacity. We compensate for these limitations by relying
primarily on our GAAP results and using FFO only supplementally.
15
The following tables represent a reconciliation of the unaudited pro forma FFO
to unaudited pro forma net income for the nine months ended September 30, 2003
and the year ended December 31, 2002 after giving effect to the acquisition of
the Charter Oak Properties (in thousands, except per share data):
The Charter Pro forma Pro forma
Reconciliation of Funds from Operations to Net Income: Company Oak Adjustments Consolidated
-------------------------------------------------------------------------------------------------------------------------
For the nine months ended September 30, 2003
Funds from Operations:
Income from continuing operations $ 8,637 $ 37,928 $ (43,643) $ 2,922
Discontinued operations (619) - (32) (651)
Minority interest in operating partnership 2,415 (1,881) 534
Minority interest, depreciation and amortization
attributable to discontinued operations (107) 32 (75)
Depreciation and amortization uniquely significant to real estate
- consolidated 21,252 16,746 37,998
Depreciation and amortization uniquely significant to real estate
- unconsolidated joint ventures 808 808
Loss/(gain) on sale of real estate 735 735
-------------------------------------------------------------------------------------------------------------------------
Funds from operations $ 33,121 $ 37,928 $ (28,778) $ 42,271
-------------------------------------------------------------------------------------------------------------------------
Weighted average shares 13,424 2,300 15,724
-------------------------------------------------------------------------------------------------------------------------
Funds from operations per share - diluted $ 2.47 $ 2.69
-------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2002
Funds from Operations:
Income from continuing operations $ 8,716 $ 51,230 $ (58,436) $ 1,510
Discontinued operations 2,291 140 2,431
Minority interest in operating partnership 2,438 (2,513) (75)
Minority interest, depreciation and amortization
attributable to discontinued operations 1,273 (140) 1,133
Depreciation and amortization uniquely significant to real estate
- consolidated 28,257 22,328 50,585
Depreciation and amortization uniquely significant to real estate
- unconsolidated joint ventures 422 422
Loss/(gain) on sale of real estate (1,702) (1,702)
-------------------------------------------------------------------------------------------------------------------------
Funds from operations $ 41,695 $ 51,230 $ (38,621) $ 54,304
-------------------------------------------------------------------------------------------------------------------------
Weighted average shares 12,271 2,300 14,571
-------------------------------------------------------------------------------------------------------------------------
Funds from operations per share - diluted $ 3.40 $ 3.73
-------------------------------------------------------------------------------------------------------------------------
16
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused the report to be signed its behalf by the
undersigned thereunto duly authorized.
TANGER FACTORY OUTLET CENTERS, INC.
By: /s/ Frank C. Marchisello, Jr.
Frank C. Marchisello, Jr.
Executive Vice President, Chief Financial Officer
Date: December 8, 2003
17