United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2010
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________
 
Commission file number 1-11986 (Tanger Factory Outlet Centers, Inc.)
Commission file number 333-3526-01 (Tanger Properties Limited Partnership)
 
TANGER FACTORY OUTLET CENTERS, INC.
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina (Tanger Factory Outlet Centers, Inc.)
56-1815473
North Carolina (Tanger Properties Limited Partnership)
56-1822494
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
3200 Northline Avenue, Suite 360
(336) 292-3010
Greensboro, NC 27408
(Registrant's telephone number)
(Address of principal executive offices)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Tanger Factory Outlet Centers, Inc.:
Title of each class
Name of exchange on which registered
Common Shares, $.01 par value
New York Stock Exchange
 
 
Tanger Properties Limited Partnership:
None
 
Securities registered pursuant to Section 12(g) of the Act:
Tanger Factory Outlet Centers, Inc.: None
Tanger Properties Limited Partnership: None
 
Indicate by check mark if the registrant is well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes o   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Tanger Factory Outlet Centers, Inc.
Yes o   No x
Tanger Properties Limited Partnership
Yes o   No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x   No o

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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes o   No o
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Tanger Factory Outlet Centers, Inc.
x Large accelerated filer
 
o Accelerated filer
 
o Non-accelerated filer
 
o Smaller reporting company
 
Tanger Properties Limited Partnership
o Large accelerated filer
 
o Accelerated filer
 
x Non-accelerated filer
 
o Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).
Tanger Factory Outlet Centers, Inc.
Yes o   No x
Tanger Properties Limited Partnership
Yes o   No x
 
The aggregate market value of voting shares held by non-affiliates of Tanger Factory Outlet Centers, Inc. was approximately $1,657,749,000 based on the closing price on the New York Stock Exchange for such shares on June 30, 2010.
 
The number of Common Shares of Tanger Factory Outlet Centers, Inc. outstanding as of January 31, 2011 was 81,255,562.
 
Documents Incorporated By Reference
Part III incorporates certain information by reference from the Registrant's definitive proxy statement to be filed with respect to the Annual Meeting of Shareholders to be held May 13, 2011.

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PART I
 
EXPLANATORY NOTE
 
This report combines the annual reports on Form 10-K for the year ended December 31, 2010 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term, Company, refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, Operating Partnership, refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.
 
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States. The Company is a fully-integrated, self-administered and self-managed real estate investment trust, ("REIT"), which, through its controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and all of the operations are conducted by, the Operating Partnership and its subsidiaries. Accordingly, the descriptions of the business, employees and properties of the Company are also descriptions of the business, employees and properties of the Operating Partnership.
 
The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest. The Tanger family, through its ownership of the Tanger Family Limited Partnership, holds the remaining units as a limited partner.
 
As of December 31, 2010, the Company, through its ownership of the Tanger GP Trust and Tanger LP Trust, owned 20,249,017 units of the Operating Partnership and the Tanger Family Limited Partnership owned 3,033,305 units. Each Tanger Family Limited Partnership unit is exchangeable for four of the Company's common shares, subject to certain limitations to preserve the Company's REIT status. Prior to the Company's 2 for 1 splits of its common shares on January 24, 2011 and December 28, 2004, respectively, the exchange ratio was one for one.
 
Management operates the Company and the Operating Partnership as one enterprise. The management of the Company consists of the same members as the management of the Operating Partnership. These individuals are officers of the Company and employees of the Operating Partnership. The individuals that comprise the Company's Board of Directors are also the same individuals that make up the Tanger GP Trust's Board of Trustees.
 
We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report results in the following benefits:
 
•    
enhancing investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
 
•    
eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
 
•    
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.
 

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There are few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company. As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company's income statement is its equity in the earnings of the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report. The Operating Partnership holds substantially all the assets of the Company and holds the ownership interests in the Company's unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, by the Operating Partnership's incurrence of indebtedness or through the issuance of partnership units.
 
Noncontrolling interests, shareholder's equity and partners' capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partnership interests in the Operating Partnership held by the Tanger Family Limited Partnership are accounted for as partners' capital in the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements.
 
To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:
 
Consolidated financial statements;
 
The following notes to the consolidated financial statements:
 
•    
Debt of the Company and the Operating Partnership;
 
•    
Shareholders' Equity of the Company and Partners' Equity of the Operating Partnership;
 
•    
Earnings Per Share and Earnings Per Unit;
 
•    
Share-based and Equity-based Compensation;
 
•    
Other Comprehensive Income of the Company and Other Comprehensive Income of the Operating Partnership; and
 
•    
Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial Condition and Results of Operations.
 

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This report also includes separate Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
 
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.
 
As the 100% owner of Tanger GP Trust, the general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
 

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Item 1.    
Business
 
The Company and the Operating Partnership
 
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States. We are a fully-integrated, self-administered and self-managed REIT, which focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of December 31, 2010, we owned and operated 31 outlet centers, with a total gross leasable area of approximately 9.2 million square feet. These outlet centers were 98% occupied and contained over 2,000 stores, representing approximately 360 store brands. We also operated and had partial ownership interests in two outlet centers totaling approximately 948,000 square feet.
 
The outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership and subsidiaries. The Company owns the majority of the units of partnership interest issued by the Operating Partnership, through its two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest. The Tanger family, through its ownership of the Tanger Family Limited Partnership, holds the remaining units as a limited partner. Stanley K. Tanger, founder of the Company, was the sole general partner of the Tanger Family Limited Partnership from its inception until August 2010. For further discussion, see Note 24 to the Consolidated Financial Statements filed under Item 15 to this Form 10-K.
 
As of December 31, 2010, the Company, through its ownership of the Tanger GP and Tanger LP Trusts, owned 20,249,017 units of the Operating Partnership and the Tanger Family Limited Partnership owned the remaining 3,033,305 units. Each Tanger Family Limited Partnership unit is exchangeable for four of the Company's common shares, subject to certain limitations to preserve the Company's REIT status.
 
Ownership of the Company's common shares is restricted to preserve the Company's status as a REIT for federal income tax purposes. Subject to certain exceptions, a person may not actually or constructively own more than 4% of our common shares. We also operate in a manner intended to enable us to preserve our status as a REIT, including, among other things, making distributions with respect to our outstanding common shares equal to at least 90% of our taxable income each year.
 
The Company is a North Carolina corporation and the Operating Partnership is a North Carolina partnership, which were formed in 1993. Our executive offices are currently located at 3200 Northline Avenue, Suite 360, Greensboro, North Carolina, 27408 and our telephone number is (336) 292-3010. Our website can be accessed at www.tangeroutlet.com. A copy of our 10-Ks, 10-Qs, 8-Ks and any amendments thereto can be obtained, free of charge, on our website as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (the "SEC").The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the SEC.
 

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Recent Developments
 
Development Update
 
New Development: Mebane, North Carolina
 
In November 2010, we opened our newest Tanger outlet center in Mebane, North Carolina 100% occupied.  The new center contains approximately 319,000 square foot and approximately 80 outlet tenants. The total cost for the center was approximately $64.9 million and was funded by operating cash flows and amounts available under our unsecured lines of credit.
 
Redevelopment: Hilton Head, South Carolina
 
During 2010, we began execution of a redevelopment plan for our Hilton Head I, South Carolina center. The plan included a complete demolition of the existing 162,000 square foot center originally acquired in 2003. The center, which is scheduled to re-open the first weekend of April 2011, will contain approximately 176,000 square feet as well as four outparcel pads. The total incremental cost for the redeveloped center is expected to be approximately $43.0 million and will be funded by operating cash flows and amounts available under our unsecured lines of credit.
 
Potential Future Developments
 
As of the date of this filing, we are in the initial study period for three potential new development sites located in League City (Houston), Texas; Scottsdale, Arizona and West Phoenix, Arizona. There can be no assurance that these sites will ultimately be developed. We expect that these projects, if realized, would be primarily funded by amounts available under our unsecured lines of credit but could also be funded by other sources of capital, such as collateralized construction loans or public debt and equity offerings. We may also consider the use of additional operational or developmental joint ventures.
 
Joint Venture Activities
 
RioCan Canadian Joint Venture
 
In January 2011, we announced that we entered into a letter of intent with RioCan Real Estate Investment Trust to form an exclusive joint venture for the acquisition, development and leasing of sites across Canada that are suitable for development or redevelopment as outlet shopping centers similar in concept and design to those within our existing U.S. portfolio. Any projects developed will be co-owned on a 50/50 basis and will be branded as Tanger Outlet Centers. We have agreed to provide leasing and marketing services to the venture and RioCan will provide development and property management services. It is the intention of the joint venture to develop as many as 10 to 15 outlet centers in larger urban markets and tourist areas across Canada, over a five to seven year period. The typical size of a Tanger Outlet Center is approximately 350,000 square feet dependent on the individual market and tenant demand. Assuming these parameters are suitable and materialize in Canada, the overall investment of the joint venture is anticipated to be as high as $1 billion, on a fully built out basis,. There can be no assurance that the joint venture will be consummated, or even if the joint venture is consummated that the current plans of the joint venture will be realized.
 
Financing Transactions
 
$300.0 Million Unsecured Bond Issuance
 
In June 2010, the Operating Partnership completed a public offering of $300.0 million of 6.125% senior notes due 2020 (the "2020 Notes"). The 2020 Notes pay interest semi-annually and were priced at 99.310% of the principal amount to yield 6.219% to maturity.

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Net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $295.5 million. We used the net proceeds from the sale of the 2020 Notes to (i) repay our $235 million unsecured term loan due in June 2011, (ii) pay approximately $6.1 million to terminate two interest rate swap agreements associated with the term loan, (iii) repay borrowings under our unsecured lines of credit and (iv) for general working capital purposes.
 
$400.0 Million In New Unsecured Lines of Credit
 
In November 2010, the Operating Partnership entered into a $385.0 million syndicated unsecured revolving line of credit (the "Syndicated Line"). In addition to the Syndicated Line, the Operating Partnership simultaneously entered into a $15.0 million cash management line of credit with Bank of America, N.A. (the "Cash Management Line"), providing total revolving line capacity of $400.0 million. The Cash Management Line's terms are substantially the same as the Syndicated Line, including maturity date.
 
The Syndicated Line replaces our previous $325.0 million in bilateral lines of credit that were scheduled to mature between June and August 2011. The Syndicated Line, together with the Cash Management Line, represents an increase in line capacity of more than 20%. Through an accordion feature, the maximum borrowing capacity on the Syndicated Line may be increased to up to $500.0 million under certain circumstances. The maturity date of the new lines is November 29, 2013, and we have an option to extend the lines for one year. As of the date of this filing, based on the Operating Partnership's long-term debt rating, the lines bear interest at a spread over LIBOR of 1.90% and require the payment of an annual facility fee of 0.40% on the total committed amount.
 
$75.0 Million Preferred Share Redemption
 
In December 2010, the Company completed the redemption of all of its outstanding 7.5% Class C Cumulative Preferred Shares. The initial redemption price was $25.00 per share, plus all accrued and unpaid dividends up to and including the redemption date, for a total redemption price of $25.198 per share. Total cash paid to redeem the shares, plus accrued dividends, was $75.6 million.
 
Management Changes
 
In October 2010, Stanley K. Tanger, founder of the Company and member of the Board of Directors, passed away. Mr. Tanger ceded the role of Chairman, President and Chief Executive Officer in 2009, but remained a Director of the Company until his passing. His legacy lives on and is carried forward by everyone at Tanger Outlet Centers.
 
In August 2010, Thomas E. McDonough joined our management team as Executive Vice-President of Operations. Mr. McDonough brings nearly 30 years of REIT management, leasing, acquisition and development experience to the Company.
 
In September 2010, Thomas R. Reddin was added as a member of the Company's Board of Directors and the Operating Partnership's Board of Trustees. Mr. Reddin brings over 30 years of consumer marketing and e-commerce experience to the Board.
 
In January 2011, Kevin M. Dillon, Senior Vice President - Construction and Development, announced his resignation effective in April 2011. Mr. Dillon served in different construction and development related capacities for over 17 years with the Company.
 

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The Outlet Concept
 
Outlets are manufacturer-operated retail stores that sell primarily first quality, branded products at significant discounts from regular retail prices charged by department stores and specialty stores. Outlet centers offer numerous advantages to both consumers and manufacturers. Manufacturers selling in outlet stores are often able to charge customers lower prices for brand name and designer products by eliminating the third party retailer. Outlet centers also typically have lower operating costs than other retailing formats, which enhance the manufacturer's profit potential. Outlet centers enable manufacturers to optimize the size of production runs while continuing to maintain control of their distribution channels. In addition, outlet centers benefit manufacturers by permitting them to sell out-of-season, overstocked or discontinued merchandise without alienating department stores or hampering the manufacturer's brand name, as is often the case when merchandise is distributed via discount chains.
 
We believe that outlet centers will continue to present attractive opportunities for capital investment in the long-term. We further believe, based upon our contacts with present and prospective tenants that many companies will continue to utilize the outlet concept as a profitable distribution vehicle. However, due to present economic conditions and the potential for increased competition from other developers announcing plans to develop outlet centers, new developments or expansions may not provide as high of an initial return on investment as has been historically achieved.
 
Our Outlet Centers
 
Each of our outlet centers carries the Tanger brand name. We believe that national manufacturers and consumers recognize the Tanger brand as one that provides outlet shopping centers where consumers can trust the brand, quality and price of the merchandise they purchase directly from the manufacturers.
 
As one of the original participants in this industry, we have developed long-standing relationships with many national and regional manufacturers. Because of our established relationships, we believe we are well positioned for the long-term.
 
Our outlet centers range in size from 24,619 to 729,475 square feet and are typically located at least 10 miles from major department stores and manufacturer-owned, full-price retail stores. Manufacturers prefer these locations so that they do not compete directly with their major customers and their own stores. Many of our outlet centers are located near tourist destinations to attract tourists who consider shopping to be a recreational activity. Additionally, our centers are often situated in close proximity to interstate highways that provide accessibility and visibility to potential customers.
 
As of February 1, 2011, we had a diverse tenant base comprised of approximately 360 different well-known, upscale, national designer or brand name concepts, such as Polo Ralph Lauren, Saks Fifth Avenue - Off Fifth, Calvin Klein, Ann Taylor, GAP, Banana Republic, Old Navy, Juicy, Kate Spade, Lucky Brand Jeans, Reebok, Tommy Hilfiger, Abercrombie & Fitch, Eddie Bauer, Coach Leatherware, Brooks Brothers, BCBG, Michael Kors, Nike and others. Most of the outlet stores are directly operated by the respective manufacturer.
 
No single tenant (including affiliates) accounted for 10% or more of our combined base and percentage rental revenues during 2010, 2009 or 2008. As of December 31 2010, no single tenant, including all of its store concepts, accounted for more than 8.4% of our leasable square feet or 6.6% of our combined base and percentage rental revenues. Because our typical tenant is a large, national manufacturer, we generally do not experience any material losses with respect to rent collections or lease defaults.
 
Only small portions of our revenues are dependent on contingent revenue sources. Revenues from fixed rents and operating expense reimbursements accounted for approximately 90% of our total revenues in 2010. Revenues from contingent sources, such as percentage rents, vending income and miscellaneous income, accounted for approximately 10% of our total revenues in 2010.
 

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Business History
 
Stanley K. Tanger, the Company's founder, entered the outlet center business in 1981. Prior to founding our company, Stanley K. Tanger and his son, Steven B. Tanger, our President and Chief Executive Officer, built and managed a successful family owned apparel manufacturing business, Tanger/Creighton, Inc., which included the operation of five outlet stores. Based on their knowledge of the apparel and retail industries, as well as their experience operating Tanger/Creighton, Inc.'s outlet stores, they recognized that there would be a demand for outlet centers where a number of manufacturers could operate in a single location and attract a large number of shoppers.
 
Steven B. Tanger joined the Company in 1986, and by June 1993, the Tangers had developed 17 centers totaling approximately 1.5 million square feet. In June 1993, we completed our initial public offering, making Tanger Factory Outlet Centers, Inc. the first publicly traded outlet center company. Since our initial public offering, we have grown our portfolio through the strategic development, expansion and acquisition of outlet centers and are now one of the largest owner operators of outlet centers in the country.
 
Business Strategy
 
Our company has been built on a firm foundation of strong and enduring business relationships coupled with conservative business practices. We partner with many of the world's best known and most respected retailers and manufacturers. By fostering and maintaining strong tenant relationships with these successful, high volume companies, we have been able to solidify our position as a leader in the outlet industry for well over a quarter century. The confidence and trust that we have developed with our retail partners from the very beginning has allowed us to forge the impressive retail alliances that we enjoy today with approximately 360 brand name manufacturers.
 
Nothing takes the place of experience. We have had a solid track record of success in the outlet industry for the past 30 years. In 1993, Tanger led the way by becoming the industry's first outlet center company to be publicly traded. Our seasoned team of real estate professionals utilize the knowledge and experience that we have gained to give us a competitive advantage and a history of accomplishments in the manufacturers' outlet business.
 
We are proud to report that as of December 31, 2010, our wholly- owned outlet centers were 98% occupied with average tenant sales of $354 per square foot. Our portfolio of properties has had an average occupancy rate of 95% or greater on December 31st of each year since 1981. We believe our ability to achieve this level of performance is a testament to our long-standing tenant relationships, industry experience and our expertise in the development and operation of manufacturers' outlet centers.
 
Growth Strategy
 
Growth does not happen by chance. Our goal is to build shareholder value through a comprehensive, conservative plan for sustained, long-term growth. We focus our efforts on increasing rents in our existing centers, renovating and expanding our mature centers and reaching new markets through ground-up developments or acquisitions of new outlet centers.
 
Increasing Rents at Existing Centers
 
Our leasing team implements an ongoing strategy designed to positively impact our bottom line. This is accomplished through the aggressive marketing of available space to maintain our standard for high occupancy levels. Leases are negotiated to provide for inflation-based contractual rent increases or periodic fixed contractual rent increases and percentage rents. Due to the overall high performance of our shopping centers, we have historically been able to renew leases at higher base rents per square-foot and attract stronger, more popular brands to replace underperforming tenants.
 

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Developing New Centers
 
We believe that there continue to be opportunities to introduce the Tanger brand in untapped or under-served markets across the United States and Canada in the long-term. As we search across North America looking for new markets, we do our homework and determine site viability on a timely and cost-effective basis. Our 30 years of outlet industry experience, extensive development expertise and strong retail relationships give us a distinct competitive advantage. We expect development to continue to be important to the growth of our portfolio in the long-term.
 
We follow a general set of guidelines when evaluating opportunities for the development of new centers. This typically includes seeking locations within markets that have at least 1 million people residing within a 30 to 40 mile radius with an average household income of at least $65,000 per year, frontage on a major interstate or roadway that has excellent visibility and a traffic count of at least 55,000 cars per day. Leading tourist, vacation and resort markets that receive at least 5 million visitors annually are also closely evaluated. Although our current goal is to target sites that are large enough to support centers with approximately 90 stores totaling at least 350,000 square feet, we maintain the flexibility to vary our minimum requirements based on the unique characteristics of a site, tenant demand and our prospects for future growth and success.
 
In order to help ensure the viability of proceeding with a project, we gauge the interest of our retail partners first. Historically, we required that at least 50% of the space in each center is pre-leased prior to acquiring the site and beginning construction. This pre-leasing policy is consistent with our conservative financing perspective and the discipline we impose upon ourselves. Construction of a new outlet center has typically taken us nine to twelve months from groundbreaking to the opening of the first tenant stores.
 
Keeping our shopping centers vibrant and growing is a key part of our formula for success. In order to maintain our reputation as the premiere outlet shopping destination in the markets that we serve, we have an ongoing program of renovations and expansions taking place at our outlet centers. Construction for expansion and renovation to existing properties typically takes less time, usually between six to nine months depending on the scope of the project.
 
Acquiring Centers
 
As a means of creating a presence in key markets and to create shareholder value, we may selectively choose to acquire individual properties or portfolios of properties that meet our strategic investment criteria. We believe that our extensive experience in the outlet center business, access to capital markets, familiarity with real estate markets and our management experience will allow us to evaluate and execute our acquisition strategy successfully over time. Through our tenant relationships, our leasing professionals have the ability to implement a remerchandising strategy when needed to increase occupancy rates and value. We believe that our managerial skills, marketing expertise and overall outlet industry experience will also allow us to add long-term value and viability to these centers.
 
Operating Strategy
 
Increasing cash flow to enhance the value of our properties and operations remains a primary business objective. Through targeted marketing and operational efficiencies, we strive to improve sales and profitability of our tenants and our outlet centers as a whole. Achieving higher base and percentage rents and generating additional income from temporary leasing, vending and other sources also remains an important focus and goal.
 

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Leasing
 
The long-standing retailer relationships that we enjoy allow us the ability to provide our shoppers with a collection of the world's most popular outlet stores. Tanger customers shop and save on their favorite brand name merchandise including men's, women's and children's ready-to-wear, lifestyle apparel, footwear, jewelry & accessories, tableware, housewares, luggage and domestic goods. In order for our centers to perform at a high level, our leasing professionals continually monitor and evaluate tenant mix, store size, store location and sales performance. They also work to assist our tenants through re-sizing and re-location of retail space within each of our centers for maximum sales of each retail unit across our portfolio.
 
Marketing
 
Our marketing plans deliver compelling, well-crafted messages and enticing promotions and events to targeted audiences for tangible, meaningful and measurable results. Our plans are based on a basic measure of success - increase sales and traffic for our retail partners and we will create successful centers. Utilizing a strategic mix of print, radio, television, direct mail, website, internet advertising, social networks, smart phone applications and public relations, we consistently reinforce the message that “Tanger is the place to shop for the best brands and the biggest outlet savings - direct from the manufacturer”. Our marketing efforts are also designed to build loyalty with current Tanger shoppers and create awareness with potential customers. The majority of consumer-marketing expenses incurred by us are reimbursable by our tenants.
 
Capital Strategy
 
We believe we achieve a strong and flexible financial position by attempting to: (1) maintain a conservative leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence our debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of our underperforming assets and maintaining a conservative distribution payout ratio.
 
We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in the best interests of our shareholders and unit holders. The Company is a well-known seasoned issuer with a shelf registration that allows us to register unspecified amounts of different classes of securities on Form S-3. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, existing lines of credit, ongoing negotiations with certain financial institutions and our ability to sell debt or issue equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures during 2011.
 
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing lines of credit or invested in short-term money market or other suitable instruments adhering to our investment policies.
 

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We believe our current balance sheet position is financially sound; however, due to the uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and 2013 when our next significant debt maturities occur. As a result, our current primary focus is to strengthen our capital and liquidity position by controlling and reducing construction and overhead costs, generating positive cash flows from operations to cover our distributions and reducing outstanding debt.
 
Competition
 
We carefully consider the degree of existing and planned competition in a proposed area before deciding to develop, acquire or expand a new center. Our centers compete for customers primarily with outlet centers built and operated by different developers, traditional shopping malls and full- and off-price retailers. However, we believe that the majority of our customers visit outlet centers because they are intent on buying name-brand products at discounted prices. Traditional full- and off-price retailers are often unable to provide such a variety of name-brand products at attractive prices.
 
Tenants of outlet centers typically avoid direct competition with major retailers and their own specialty stores, and, therefore, generally insist that the outlet centers be located not less than 10 miles from the nearest major department store or the tenants' own specialty stores. For this reason, our centers compete only to a very limited extent with traditional malls in or near metropolitan areas.
 
We compete directly with one large national owner of outlet centers and numerous small owners, however, there is the potential for increased competition from other developers who have announced plans to enter the outlet industry. We believe the high barriers to entry in the outlet industry, including the need for extensive relationships with premier brand name manufacturers, have minimized the number of new outlet centers.
 
Corporate and Regional Headquarters
 
We rent space in an office building in Greensboro, North Carolina in which our corporate headquarters is located. In addition, we rent a regional office in New York City, New York under a lease agreement and sublease agreement to better service our principal fashion-related tenants, many of whom are based in and around that area.
 
We maintain offices and employ on-site managers at 32 centers. The managers closely monitor the operation, marketing and local relationships at each of their centers.
 
Insurance
 
We believe that as a whole our properties are covered by adequate comprehensive liability, fire, flood, earthquake and extended loss insurance provided by reputable companies with commercially reasonable and customary deductibles and limits. Northline Indemnity, LLC, ("Northline"), a wholly-owned captive insurance subsidiary of the Operating Partnership, is responsible for losses up to certain levels for property damage (including wind damage from hurricanes) prior to third-party insurance coverage. Specified types and amounts of insurance are required to be carried by each tenant under their lease agreement with us. There are however, types of losses, like those resulting from wars or nuclear radiation, which may either be uninsurable or not economically insurable in some or all of our locations. An uninsured loss could result in a loss to us of both our capital investment and anticipated profits from the affected property.
 
Employees
 
As of February 1, 2011, we had 197 full-time employees, located at our corporate headquarters in North Carolina, our regional office in New York and 32 business offices. At that date, we also employed 235 part-time employees at various locations.
 

13

 

Item 1A.    
Risk Factors
 
Risks Related to Real Estate Investments
 
We may be unable to develop new outlet centers or expand existing outlet centers successfully.
 
We continue to develop new outlet centers and expand outlet centers as opportunities arise. However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of established retail properties. While we have policies in place designed to limit the risks associated with development, these policies do not mitigate all development risks associated with a project. These risks include the following:
 
•    
significant expenditure of money and time on projects that may be delayed or never be completed;
 
•    
higher than projected construction costs;
 
•    
shortage of construction materials and supplies;
 
•    
failure to obtain zoning, occupancy or other governmental approvals or to the extent required, tenant approvals; and
 
•    
late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control.
 
Any or all of these factors may impede our development strategy and adversely affect our overall business.
 
The economic performance and the market value of our outlet centers are dependent on risks associated with real property investments.
 
Real property investments are subject to varying degrees of risk. The economic performance and values of real estate may be affected by many factors, including changes in the national, regional and local economic climate, inflation, unemployment rates, consumer confidence, local conditions such as an oversupply of space or a reduction in demand for real estate in the area, the attractiveness of the properties to tenants, competition from other available space, our ability to provide adequate maintenance and insurance and increased operating costs.
 
Real property investments are relatively illiquid.
 
Our outlet centers represent a substantial portion of our total consolidated assets. These assets are relatively illiquid. As a result, our ability to sell one or more of our outlet centers in response to any changes in economic or other conditions is limited. If we want to sell an outlet center, there can be no assurance that we will be able to dispose of it in the desired time period or that the sales price will exceed the cost of our investment.
 

14

 

Properties may be subject to impairment charges which can adversely affect our financial results.
 
We periodically evaluate long-lived assets to determine if there has been any impairment in their carrying values and record impairment losses if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts or if there are other indicators of impairment.  If it is determined that an impairment has occurred, we would be required to record an impairment charge equal to the excess of the asset's carrying value over its estimated fair value, which could have a material adverse effect on our financial results in the accounting period in which the adjustment is made.   Our estimates of undiscounted cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, but not limited to, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated in our impairment analysis may not be achieved.
 
We face competition for the acquisition and development of outlet centers, and we may not be able to complete acquisitions or developments that we have identified.
 
We intend to grow our business through acquisitions and developments. We compete with institutional pension funds, private equity investors, other REITs, small owners of outlet centers, specialty stores and others who are engaged in the acquisition, development or ownership of outlet centers and stores. These competitors may succeed in acquiring or developing outlet centers themselves. Also, our potential acquisition targets may find our competitors to be more attractive acquirers because they may have greater marketing and financial resources, may be willing to pay more, or may have a more compatible operating philosophy. In addition, the number of entities competing to acquire or develop outlet centers may increase in the future, which would increase demand for these outlet centers and the prices we must pay to acquire or develop them. If we pay higher prices for outlet centers, our profitability may be reduced. Also, once we have identified potential acquisitions, such acquisitions are subject to the successful completion of due diligence, the negotiation of definitive agreements and the satisfaction of customary closing conditions. We cannot assure you that we will be able to reach acceptable terms with the sellers or that these conditions will be satisfied.
 
We may be subject to environmental regulation.
 
Under various federal, state and local laws, ordinances and regulations, we may be considered an owner or operator of real property and may be responsible for paying for the disposal or treatment of hazardous or toxic substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). This liability may be imposed whether or not we knew about, or were responsible for, the presence of hazardous or toxic substances.
 
Risks Related to our Business
 
Our earnings and therefore our profitability are entirely dependent on rental income from real property.
 
Substantially all of our income is derived from rental income from real property. Our income and funds for distribution would be adversely affected if a significant number of our tenants were unable to meet their obligations to us or if we were unable to lease a significant amount of space in our centers on economically favorable lease terms. In addition, the terms of outlet store tenant leases traditionally have been significantly shorter than in other retail segments. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that we will be able to re-lease space on economically favorable terms.

15

 

We are substantially dependent on the results of operations of our retailers.
 
Our operations are subject to the results of operations of our retail tenants. A portion of our rental revenues are derived from percentage rents that directly depend on the sales volume of certain tenants. Accordingly, declines in these tenants' results of operations would reduce the income produced by our properties. If the sales of our retail tenants decline sufficiently, such tenants may be unable to pay their existing rents as such rents would represent a higher percentage of their sales. Any resulting leasing delays, failures to make payments or tenant bankruptcies could result in the termination of such tenants' leases.
 
A number of companies in the retail industry, including some of our tenants, have declared bankruptcy or have voluntarily closed certain of their stores in recent years. The bankruptcy of a major tenant or number of tenants may result in the closing of certain affected stores, and we may not be able to re-lease the resulting vacant space for some time or for equal or greater rent. Such bankruptcy could have a material adverse effect on our results of operations and could result in a lower level of funds for distribution.
 
Certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours and thereby constrain us from taking actions concerning these properties which otherwise would be in our best interests and our shareholders interests.
 
We own partial interests in and manage two outlet centers. We perform the property management and leasing services for these properties and receive fees for these services.
 
As property manager of the joint ventures that own the properties, we have certain fiduciary responsibilities to the other members in those joint ventures. The approval or consent of the other members is required before we may sell, finance, expand or make other significant changes in the operations of such properties. We also may not have control over certain major decisions, including leasing and the timing and amount of distributions, which could result in decisions by the managing member that do not fully reflect our interests. To the extent such approvals or consents are required, we may experience difficulty in, or may be prevented from, implementing our plans with respect to expansion, development, financing or other similar transactions with respect to such properties.
 
An uninsured loss or a loss that exceeds our insurance policies on our outlet centers or the insurance policies of our tenants could subject us to lost capital and revenue on those centers.
 
Some of the risks to which our outlet centers are subject, including risks of war and earthquakes, hurricanes and other natural disasters, are not insurable or may not be insurable in the future. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the insurance policies noted above or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in and anticipated revenue from one or more of our outlet centers, which could adversely affect our results of operations and financial condition, as well as our ability to make distributions to our shareholders.
 
Under the terms and conditions of our leases, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons and contamination of air, water, land or property, on or off the premises, due to activities conducted in the leased space, except for claims arising from negligence or intentional misconduct by us or our agents. Additionally, tenants generally are required, at the tenant's expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies issued by companies acceptable to us. These policies include liability coverage for bodily injury and property damage arising out of the ownership, use, occupancy or maintenance of the leased space. All of these policies may involve substantial deductibles and certain exclusions. Therefore, an uninsured loss or loss that exceeds the insurance policies of our tenants could also subject us to lost capital and revenue.
 

16

 

Historically high fuel prices may impact consumer travel and spending habits.
 
Most shoppers use private automobile transportation to travel to our outlet centers and many of our centers are not easily accessible by public transportation. Increasing fuel costs may reduce the number of trips to our centers thus reducing the amount spent at our centers. Many of our outlet center locations near tourist destinations may experience an even more acute reduction of shoppers if there were a reduction of people opting to drive to vacation destinations. Such reductions in traffic could adversely impact our percentage rents and ability to renew and release space at current rental rates.
 
Increasing fuel costs may also reduce disposable income and decrease demand for retail products. Such a decrease could adversely affect the results of operations of our retail tenants and adversely impact our percentage rents and ability to renew and release space at current rental rates.
 
Risks Related to our Indebtedness and Financial Markets
 
We are subject to the risks associated with debt financing.
 
We are subject to the risks associated with debt financing, including the risk that the cash provided by our operating activities will be insufficient to meet required payments of principal and interest. Disruptions in the capital and credit markets may adversely affect our operations, including the ability to fund the planned capital expenditures and potential new developments or acquisitions. Further, there is the risk that we will not be able to repay or refinance existing indebtedness or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we are unable to access capital markets to refinance our indebtedness on acceptable terms, we might be forced to dispose of properties on disadvantageous terms, which might result in losses.
 
Risks Related to Federal Income Tax Laws
 
The Company's failure to qualify as a REIT could subject our earnings to corporate level taxation.
 
We believe that we have operated and intend to operate in a manner that permits the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended. However, we cannot assure you that the Company has qualified or will remain qualified as a REIT. If in any taxable year the Company were to fail to qualify as a REIT and certain statutory relief provisions were not applicable, the Company would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject to U.S. federal income tax (including any applicable alternative minimum tax) on our taxable income at regular corporate rates. The Company's failure to qualify for taxation as a REIT would have an adverse effect on the market price and marketability of our securities.
 
The Company is required by law to make distributions to our shareholders.
 
To obtain the favorable tax treatment associated with the Company's qualification as a REIT, generally, the Company is required to distribute to its shareholders at least 90.0% of its net taxable income (excluding capital gains) each year. The Company depends upon distributions or other payments from the Operating Partnership to make distributions to the Company's common shareholders. A recent IRS revenue procedure allows the Company to satisfy the REIT income distribution requirement by distributing up to 90% of the dividends on its common shares in the form of additional common shares in lieu of paying dividends entirely in cash. Although we reserve the right to utilize this procedure in the future, we currently have no intent to do so. In the event that the Company pays a portion of a dividend in shares, taxable U.S. shareholders would be required to pay income tax on the entire amount of the dividend, including the portion paid in shares, in which case such shareholders might have to pay the income tax using cash from other sources. If a U.S. shareholder sells the shares it receives as a dividend in order to pay this income tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on the market price of our shares at the time of the sale.

17

 

 
Risks Related to our Organizational Structure
 
The Company depends on distributions from the Operating Partnership to meet its financial obligations, including dividends.
 
The Company's operations are conducted by the Operating Partnership, and the Company's only significant asset is its interest in the Operating Partnership. As a result, the Company depends upon distributions or other payments from the Operating Partnership in order to meet its financial obligations, including its obligations under any guarantees or to pay dividends or liquidation payments to its common shareholders. As a result, these obligations are effectively subordinated to existing and future liabilities of the Operating Partnership. The Operating Partnership is a party to loan agreements with various bank lenders that require the Operating Partnership to comply with various financial and other covenants before it may make distributions to the Company. Although the Operating Partnership presently is in compliance with these covenants, there is no assurance that the Operating Partnership will continue to be in compliance and that it will be able to make distributions to the Company.
 
Item 1B.    
Unresolved Staff Comments
 
There are no unresolved staff comments from the Commission for either the Company or the Operating Partnership.
 
Item 2.    
Properties
 
As of February 1, 2011, our wholly-owned portfolio consisted of 31 outlet centers totaling 9.2 million square feet located in 21 states. We operate and own interests in two other centers totaling approximately 948,000 square feet through unconsolidated joint ventures. Our centers range in size from 24,619 to 729,475 square feet. The centers are generally located near tourist destinations or along major interstate highways to provide visibility and accessibility to potential customers.
 
We believe that the centers are well diversified geographically and by tenant and that we are not dependent upon any single property or tenant. Our Riverhead, New York center is the only property that represented more than 10% of our consolidated total revenues for the year ended December 31, 2010. No property represented more than 10% of our consolidated total assets as of December 31, 2010. See “Properties - Significant Property” for further details.
 
We have an ongoing strategy of acquiring centers, developing new centers and expanding existing centers. See “Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources” for a discussion of the cost of such programs and the sources of financing thereof.
 
Of the 31 outlet centers in our wholly-owned portfolio, we own the land underlying 27 and have ground leases on four. The following table sets forth information about the land leases on which all or a portion of the four centers are located:
 
Outlet Center
 
Acres
 
Expiration
 
Expiration including renewal terms
Myrtle Beach Hwy 17, SC
 
40.0
 
 
2027
 
2096
Sevierville, TN
 
41.6
 
 
2046
 
2046
Riverhead, NY
 
47.0
 
 
2014
 
2039
Rehoboth Beach, DE
 
2.7
 
 
2044
 
(1) 
 
(1)    
Lease may be renewed at our option for additional terms of twenty years each.

18

 

 
The initial term of our typical tenant lease averages approximately five years. Generally, leases provide for the payment of fixed monthly rent in advance. There are often contractual base rent increases during the initial term of the lease. In addition, the rental payments are customarily subject to upward adjustments based upon tenant sales volume. Most leases provide for payment by the tenant of real estate taxes, insurance, common area maintenance, advertising and promotion expenses incurred by the applicable center. As a result, the majority of our operating expenses for the centers are borne by the tenants.
 
The following table summarizes certain information with respect to our wholly-owned outlet centers as of February 1, 2011.
 
State
 
Number of
Centers
 
Square
Feet
 
%
of Square Feet
South Carolina
 
4
 
 
1,388,479
 
 
15
New York
 
1
 
 
729,475
 
 
8
Georgia
 
2
 
 
664,380
 
 
7
Pennsylvania
 
2
 
 
628,124
 
 
7
Texas
 
2
 
 
619,729
 
 
7
Delaware
 
1
 
 
568,900
 
 
6
Alabama
 
1
 
 
557,299
 
 
6
North Carolina
 
3
 
 
505,273
 
 
5
Michigan
 
2
 
 
436,751
 
 
5
Tennessee
 
1
 
 
419,038
 
 
5
Missouri
 
1
 
 
302,922
 
 
3
Utah
 
1
 
 
298,379
 
 
3
Connecticut
 
1
 
 
291,051
 
 
3
Louisiana
 
1
 
 
282,403
 
 
3
Iowa
 
1
 
 
277,230
 
 
3
Oregon
 
1
 
 
270,212
 
 
3
Illinois
 
1
 
 
250,439
 
 
3
New Hampshire
 
1
 
 
245,698
 
 
3
Florida
 
1
 
 
198,950
 
 
2
California
 
1
 
 
171,300
 
 
2
Maine
 
2
 
 
84,313
 
 
1
Total
 
31
 
 
9,190,345
 
 
100
 

19

 

The following table summarizes certain information with respect to our existing outlet centers in which we have an ownership interest as of February 1, 2011. Except as noted, all properties are fee owned.
Location
 
Square
Feet
 
%
Occupied
Wholly-Owned Outlet Centers
 
 
 
 
Riverhead, New York (1)
 
729,475
 
 
99
 
Rehoboth, Delaware (1)
 
568,900
 
 
98
 
Foley, Alabama
 
557,299
 
 
95
 
San Marcos, Texas
 
441,929
 
 
97
 
Myrtle Beach Hwy 501, South Carolina
 
426,417
 
 
91
 
Sevierville, Tennessee (1)
 
419,038
 
 
100
 
Myrtle Beach Hwy 17, South Carolina (1)
 
403,161
 
 
98
 
Washington, Pennsylvania
 
372,972
 
 
99
 
Commerce II, Georgia
 
370,512
 
 
100
 
Charleston, South Carolina
 
352,315
 
 
97
 
Howell, Michigan
 
324,631
 
 
97
 
Mebane, North Carolina
 
318,910
 
 
98
 
Branson, Missouri
 
302,922
 
 
100
 
Park City, Utah
 
298,379
 
 
100
 
Locust Grove, Georgia
 
293,868
 
 
99
 
Westbrook, Connecticut
 
291,051
 
 
96
 
Gonzales, Louisiana
 
282,403
 
 
100
 
Williamsburg, Iowa
 
277,230
 
 
93
 
Lincoln City, Oregon
 
270,212
 
 
99
 
Lancaster, Pennsylvania
 
255,152
 
 
94
 
Tuscola, Illinois
 
250,439
 
 
85
 
Tilton, New Hampshire
 
245,698
 
 
100
 
Hilton Head, South Carolina
 
206,586
 
 
98
 
Fort Myers, Florida
 
198,950
 
 
92
 
Terrell, Texas
 
177,800
 
 
94
 
Barstow, California
 
171,300
 
 
100
 
West Branch, Michigan
 
112,120
 
 
98
 
Blowing Rock, North Carolina
 
104,185
 
 
94
 
Nags Head, North Carolina
 
82,178
 
 
95
 
Kittery I, Maine
 
59,694
 
 
89
 
Kittery II, Maine
 
24,619
 
 
100
 
 
 
9,190,345
 
 
97
 
Unconsolidated Joint Ventures
 
 
 
 
Wisconsin Dells, Wisconsin (50% owned)
 
265,061
 
 
98
 
Deer Park, New York (33.3% owned) (2)
 
683,033
 
 
85
 
 
(1)    
These properties or a portion thereof are subject to a ground lease.
(2)    
Includes a 29,253 square foot warehouse adjacent to the property utilized to support the operations of the retail tenants.
 

20

 

Lease Expirations
 
The following table sets forth, as of February 1, 2011, scheduled lease expirations for our wholly-owned outlet centers, assuming none of the tenants exercise renewal options.
Year
 
No. of Leases Expiring
 
Approx. (1)  Square Feet
 
Average Annualized Base Rent per sq. ft
 
Annualized Base Rent (2)
 
% of Gross Annualized Base Rent Represented by Expiring Leases
2011
 
228
 
 
907,000
 
 
$
18.29
 
 
$
16,588,000
 
 
10
 
2012
 
309
 
 
1,375,000
 
 
17.76
 
 
24,426,000
 
 
15
 
2013
 
365
 
 
1,604,000
 
 
19.45
 
 
31,199,000
 
 
19
 
2014
 
217
 
 
975,000
 
 
18.96
 
 
18,485,000
 
 
12
 
2015
 
232
 
 
1,038,000
 
 
20.26
 
 
21,032,000
 
 
13
 
2016
 
133
 
 
699,000
 
 
18.10
 
 
12,651,000
 
 
8
 
2017
 
77
 
 
346,000
 
 
21.45
 
 
7,421,000
 
 
5
 
2018
 
70
 
 
305,000
 
 
27.19
 
 
8,293,000
 
 
5
 
2019
 
54
 
 
240,000
 
 
24.93
 
 
5,983,000
 
 
4
 
2020
 
101
 
 
529,000
 
 
19.35
 
 
10,234,000
 
 
6
 
2021 & thereafter
 
44
 
 
271,000
 
 
18.25
 
 
4,945,000
 
 
3
 
 
 
1,830
 
 
8,289,000
 
 
$
19.45
 
 
$
161,257,000
 
 
100
 
 
(1)    
Excludes leases that have been entered into but which tenant has not yet taken possession, vacant suites, space under construction, temporary leases and month-to-month leases totaling in the aggregate approximately 901,000 square feet.
(2)    
Annualized base rent is defined as the minimum monthly payments due as of February 1, 2011 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales.
 
Rental and Occupancy Rates
 
The following table sets forth information regarding the expiring leases for our wholly-owned outlet centers during each of the last five calendar years.
 
 
 
Total Expiring
 
Renewed by Existing
Tenants
Year
 
Square Feet
 
% of
Total Center Square Feet
 
Square Feet
 
% of
Expiring Square Feet
2010
 
1,460,000
 
 
16
 
 
1,217,000
 
 
83
2009
 
1,502,000
 
 
16
 
 
1,218,000
 
 
81
2008
 
1,350,000
 
 
16
 
 
1,103,000
 
 
82
2007
 
1,572,000
 
 
19
 
 
1,246,000
 
 
79
2006
 
1,760,000
 
 
21
 
 
1,466,000
 
 
83
 

21

 

The following table sets forth the weighted average base rental rate increases per square foot on a straight-line basis (includes periodic, contractual fixed rent increases) for our wholly-owned outlet centers upon re-leasing stores that were turned over or renewed during each of the last five calendar years.
 
 
Renewals of Existing Leases
 
Stores Re-leased to New Tenants (1)
 
 
 
 
Average Annualized Base Rents
 
 
 
Average Annualized Base Rents
 
 
 
 
($ per sq. ft.)
 
 
 
($ per sq. ft.)
Year
 
Square Feet
 
Expiring
 
New
 
%
Increase
 
Square Feet
 
Expiring
 
New
 
% Increase
2010
 
1,217,000
 
 
$
18.00
 
 
$
19.65
 
 
9
 
 
432,000
 
 
$
19.21
 
 
$
24.18
 
 
26
 
2009
 
1,218,000
 
 
$
16.80
 
 
$
18.43
 
 
10
 
 
305,000
 
 
$
18.83
 
 
$
24.66
 
 
31
 
2008
 
1,103,000
 
 
$
17.29
 
 
$
20.31
 
 
17
 
 
492,000
 
 
$
18.03
 
 
$
25.97
 
 
44
 
2007
 
1,246,000
 
 
$
15.94
 
 
$
18.15
 
 
14
 
 
610,000
 
 
$
16.75
 
 
$
23.41
 
 
40
 
2006
 
1,446,000
 
 
$
15.65
 
 
$
17.43
 
 
11
 
 
465,000
 
 
$
16.19
 
 
$
19.90
 
 
23
 
 
(1)    
The square footage released to new tenants for 2010, 2009, 2008, 2007 and 2006 contains 91,000, 73,000, 139,000, 164,000 and 129,000 square feet, respectively, that was released to new tenants upon expiration of an existing lease during the current year.
 
Occupancy Costs
 
We believe that our ratio of average tenant occupancy cost (which includes base rent, common area maintenance, real estate taxes, insurance, advertising and promotions) to average sales per square foot is low relative to other forms of retail distribution. The following table sets forth for tenants that report sales, for each of the last five years, tenant occupancy costs per square foot as a percentage of reported tenant sales per square foot for our wholly-owned centers.
 
Year
 
Occupancy Costs as a
% of Tenant Sales
2010
 
8.3
 
2009
 
8.5
 
2008
 
8.2
 
2007
 
7.7
 
2006
 
7.4
 
 

22

 

Tenants
 
The following table sets forth certain information for our wholly-owned centers with respect to our ten largest tenants and their store concepts as of February 1, 2011.
Tenant
 
Number
of Stores
 
Square Feet
 
% of Total
Square Feet
The Gap, Inc.:
 
 
 
 
 
 
Old Navy
 
21
 
 
316,512
 
 
3.5
 
GAP
 
26
 
 
250,127
 
 
2.7
 
Banana Republic
 
21
 
 
174,542
 
 
1.9
 
Gap Kids
 
5
 
 
29,735
 
 
0.3
 
 
 
73
 
 
770,916
 
 
8.4
 
Phillips-Van Heusen Corporation:
 
 
 
 
 
 
Bass Shoe
 
29
 
 
188,727
 
 
2.1
 
Tommy Hilfiger
 
24
 
 
159,748
 
 
1.7
 
Van Heusen
 
28
 
 
113,357
 
 
1.2
 
Calvin Klein, Inc.
 
12
 
 
70,124
 
 
0.8
 
Izod
 
19
 
 
51,843
 
 
0.6
 
     Tommy Kids
 
3
 
 
8,500
 
 
0.1
 
 
 
115
 
 
592,299
 
 
6.5
 
Dress Barn, Inc.:
 
 
 
 
 
 
Dress Barn
 
23
 
 
188,003
 
 
2.0
 
Justice
 
20
 
 
87,969
 
 
1.0
 
Maurice's
 
7
 
 
28,456
 
 
0.3
 
Dress Barn Woman
 
3
 
 
18,572
 
 
0.2
 
Dress Barn Petite
 
2
 
 
9,570
 
 
0.1
 
 
 
55
 
 
332,570
 
 
3.6
 
Nike:
 
 
 
 
 
 
Nike
 
22
 
 
307,679
 
 
3.4
 
Cole-Haan
 
4
 
 
11,838
 
 
0.1
 
Converse
 
3
 
 
9,000
 
 
0.1
 
     Hurley
 
1
 
 
2,500
 
 
*
 
 
 
30
 
 
331,017
 
 
3.6
 
VF Outlet Inc.:
 
 
 
 
 
 
VF Outlet
 
8
 
 
199,541
 
 
2.2
 
Nautica Factory Stores
 
17
 
 
82,616
 
 
0.9
 
Vans
 
4
 
 
12,000
 
 
0.1
 
Nautica Kids
 
1
 
 
2,500
 
 
*
 
 
 
30
 
 
296,657
 
 
3.2
 
Adidas:
 
 
 
 
 
 
Reebok
 
22
 
 
203,298
 
 
2.2
 
Adidas
 
8
 
 
74,030
 
 
0.8
 
Rockport
 
4
 
 
12,046
 
 
0.1
 
 
 
34
 
 
289,374
 
 
3.1
 
Ann Taylor:
 
 
 
 
 
 
Loft
 
21
 
 
161,782
 
 
1.8
 
Ann Taylor
 
13
 
 
91,172
 
 
1.0
 
 
 
34
 
 
252,954
 
 
2.8
 
Carter's:
 
 
 
 
 
 
OshKosh B'Gosh
 
26
 
 
128,273
 
 
1.4
 
Carter's
 
26
 
 
118,343
 
 
1.3
 
 
 
52
 
 
246,616
 
 
2.7
 
Polo Ralph Lauren:
 
 
 
 
 
 
Polo Ralph Lauren
 
24
 
 
226,874
 
 
2.5
 
Polo Jeans Outlet
 
1
 
 
5,000
 
 
0.1
 
Polo Ralph Lauren Children
 
1
 
 
3,000
 
 
*
 
 
 
26
 
 
234,874
 
 
2.6
 
Hanesbrands Direct, LLC:
 
 
 
 
 
 
L'eggs Hanes Bali
 
23
 
 
118,278
 
 
1.3
 
Hanesbrands
 
8
 
 
69,423
 
 
0.8
 
Champion
 
5
 
 
22,652
 
 
0.2
 
     Socks Galore
 
3
 
 
4,360
 
 
*
 
 
 
39
 
 
214,713
 
 
2.3
 
 
 
 
 
 
 
 
Total of all tenants listed in table
 
488
 
 
3,561,990
 
 
38.8
 
 
* Less than 0.1%.

23

 

 
Significant Property
 
The Riverhead, New York center is the only property that comprises more than 10% of our consolidated gross revenues. No property comprises more than 10% of our consolidated total assets. The Riverhead center, originally constructed in 1994, represented 12% of our consolidated total revenues for the year ended December 31, 2010. The Riverhead center is 729,475 square feet.
 
Tenants at the Riverhead outlet center principally conduct retail sales operations. The following table shows occupancy and certain base rental information related to this property as of December 31, 2010 , 2009 and 2008:
Center Occupancy
 
2010
 
2009
 
2008
Riverhead, NY
 
100
%
 
99
%
 
98
%
 
 
 
 
 
 
 
Average base rental rates per weighted average square foot
 
2010
 
2009
 
2008
Riverhead, NY
 
$
27.89
 
 
$
26.21
 
 
$
25.36
 
 
Depreciation on the outlet centers is computed on the straight-line basis over the estimated useful lives of the assets. We generally use estimated lives ranging from 25 to 33 years for buildings, 15 years for land improvements and seven years for equipment. Expenditures for ordinary maintenance and repairs are charged to operations as incurred while significant renovations and improvements, including tenant finishing allowances, which improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life. At December 31, 2010, the net federal tax basis of the Riverhead center was approximately $67.1 million. Real estate taxes assessed on this center during 2010 amounted to $3.9 million. Real estate taxes for 2011 are estimated to be approximately $4.0 million.
 
The following table sets forth, as of December 31, 2010, combined, scheduled lease expirations at the Riverhead outlet center assuming that none of the tenants exercise renewal options:
Year
 
No. of
Leases
Expiring (1)
 
Square Feet (1)
 
Annualized
Base Rent
per Square Foot
 
Annualized
Base Rent (2)
 
% of Gross
Annualized
Base Rent
Represented
by Expiring
Leases
2011
 
10
 
 
42,000
 
 
$
30.62
 
 
$
1,286,000
 
 
7
 
2012
 
37
 
 
167,000
 
 
25.25
 
 
4,216,000
 
 
21
 
2013
 
23
 
 
123,000
 
 
27.07
 
 
3,329,000
 
 
17
 
2014
 
22
 
 
110,000
 
 
23.80
 
 
2,618,000
 
 
13
 
2015
 
16
 
 
84,000
 
 
25.85
 
 
2,171,000
 
 
11
 
2016
 
8
 
 
23,000
 
 
37.09
 
 
853,000
 
 
4
 
2017
 
8
 
 
33,000
 
 
38.03
 
 
1,255,000
 
 
6
 
2018
 
7
 
 
31,000
 
 
32.19
 
 
998,000
 
 
5
 
2019
 
5
 
 
21,000
 
 
35.43
 
 
744,000
 
 
4
 
2020
 
10
 
 
56,000
 
 
26.68
 
 
1,494,000
 
 
8
 
2021 and thereafter
 
5
 
 
25,000
 
 
32.44
 
 
811,000
 
 
4
 
Total
 
151
 
 
715,000
 
 
$
27.66
 
 
$
19,775,000
 
 
100
 
(1)    
Excludes leases that have been entered into but which tenant has not taken possession, vacant suites, temporary leases and month-to-month leases totaling in the aggregate approximately 14,000 square feet.
(2)    
Annualized base rent is defined as the minimum monthly payments due as of December 31, 2010, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales.

24

 

 
Item 3.    
Legal Proceedings
 
We are subject to legal proceedings and claims that have arisen in the ordinary course of our business and have not been finally adjudicated. In our opinion, the ultimate resolution of these matters are not expected to have a material effect on our results of operations or financial condition.
 
Item 4.    
[Removed and Reserved]
 
EXECUTIVE OFFICERS OF TANGER FACTORY OUTLET CENTERS, INC.
 
The following table sets forth certain information concerning the Company's executive officers. The Operating Partnership does not have executive officers:
 
NAME
 
AGE
 
POSITION
Steven B. Tanger
 
62
 
 
Director, President and Chief Executive Officer
Frank C. Marchisello, Jr.
 
52
 
 
Executive Vice President - Chief Financial Officer and Secretary
Thomas E. McDonough
 
53
 
 
Executive Vice President - Operations
Carrie A. Geldner
 
48
 
 
Senior Vice President - Marketing
Kevin M. Dillon (1)
 
52
 
 
Senior Vice President - Construction and Development
Lisa J. Morrison
 
51
 
 
Senior Vice President - Leasing
James F. Williams
 
46
 
 
Senior Vice President - Controller
Virginia R. Summerell
 
52
 
 
Vice President - Treasurer and Assistant Secretary
(1) In January 2011 Kevin M. Dillon announced his resignation from the Company effective in April 2011.
 
The following is a biographical summary of the experience of our executive officers:
 
Steven B. Tanger. Mr. Tanger is a director of the Company and was named President and Chief Executive Officer effective January 1, 2009. Mr. Tanger served as President and Chief Operating Officer from January 1, 1995 to December 2008. Previously, Mr. Tanger served as Executive Vice President from 1986 to December 1994. He has been with Tanger related companies for most of his professional career, having served as Executive Vice President of Tanger/Creighton for 10 years. Mr. Tanger is a graduate of the University of North Carolina at Chapel Hill and the Stanford University School of Business Executive Program.
 
Frank C. Marchisello, Jr. Mr. Marchisello was named Executive Vice President and Chief Financial Officer in April 2003 and was additionally named Secretary in May 2005. Previously he was named Senior Vice President and Chief Financial Officer in January 1999 after being named Vice President and Chief Financial Officer in November 1994. He served as Chief Accounting Officer from January 1993 to November 1994. He was employed by Gilliam, Coble & Moser, certified public accountants, from 1981 to 1992, the last six years of which he was a partner of the firm in charge of various real estate clients. Mr. Marchisello is responsible for the Company's financial reporting processes, as well as supervisory responsibility over the senior officers that oversee the Company's accounting, finance, corporate communications and information systems functions. Mr. Marchisello is a graduate of the University of North Carolina at Chapel Hill and is a certified public accountant.
 

25

 

Thomas E. McDonough. Mr. McDonough was named Executive Vice President of Operations in August 2010. Previously, he was the Co-Founder and Principal of MHF Real Estate Group, a real estate asset management firm, from September 2009 to August 2010. He served as Chief Investment Officer and was a member of the Investment Committee at Equity One, Inc. from July 2007 to April 2009. From April 2006 to July 2007, Mr. McDonough was a partner at Kahl & Goveia, and from February 1997 to April 2006, he was employed by Regency Centers Corp., and its predecessor, Pacific Retail Trust, as the national director of acquisitions and dispositions. Previously, from July 1984 to January 1997, Mr. McDonough served in various capacities, including partner and principal, with Trammell Crow Company. Mr. McDonough has supervisory responsibility over the senior officers that oversee the Company's operations, construction and development, leasing and marketing functions. Mr. McDonough is a graduate of Stanford University and holds an MBA degree from Harvard Business School.
 
Carrie A. Geldner. Ms. Geldner was named Senior Vice President - Marketing in May 2000. Previously, she held the position of Vice President - Marketing from September 1996 to May 2000 and Assistant Vice President - Marketing from December 1995 to September 1996. Prior to joining Tanger, Ms. Geldner was with Prime Retail, L.P. for 4 years where she served as Regional Marketing Director responsible for coordinating and directing marketing for five outlet centers in the southeast region. Previously, Ms. Geldner was Marketing Manager for North Hills, Inc. for five years and also served in the same role for the Edward J. DeBartolo Corp. for two years. Her major responsibilities include managing the Company's marketing department and developing and overseeing implementation of all corporate and field marketing programs. Ms. Geldner is a graduate of East Carolina University.
 
Kevin M. Dillon. Mr. Dillon was named Senior Vice President - Construction and Development in August 2004. Previously, he held the positions of Vice President - Construction and Development from May 2002 to August 2004, Vice President - Construction from October 1997 to May 2002, Director of Construction from September 1996 to October 1997 and Construction Manager from November 1993, the month he joined the Company, to September 1996. Prior to joining the Company, Mr. Dillon was employed by New Market Development Company for six years where he served as Senior Project Manager. Prior to joining New Market, Mr. Dillon was the Development Director of Western Development Company where he spent 6 years. His major responsibilities include oversite of site selection and predevelopment as well as management of all aspects of the Company's construction projects including new developments, renovations and expansions. Mr. Dillon attended Northern Michigan University and George Washington University. In January 2011, Mr. Dillon announced his resignation from the Company effective in April 2011.
 
Lisa J. Morrison. Ms. Morrison was named Senior Vice President - Leasing in August 2004. Previously, she held the positions of Vice President - Leasing from May 2001 to August 2004, Assistant Vice President of Leasing from August 2000 to May 2001 and Director of Leasing from April 1999 until August 2000. Prior to joining the Company, Ms. Morrison was employed by the Taubman Company and Trizec Properties, Inc. where she served as a leasing agent. Previously, she was a marketing coordinator for Mutual Service Corporation. Her major responsibilities include managing the leasing strategies for our operating properties, as well as expansions and new developments. She also oversees the leasing personnel and the merchandising and occupancy for Tanger properties. Ms. Morrison is a graduate of Michigan State University and holds an MA degree, also from Michigan State University.
 
James F. Williams. Mr. Williams was named Senior Vice President and Controller in February 2006. Mr. Williams joined the Company in September 1993, was named Controller in January 1995 and was also named Assistant Vice President in January 1997 and Vice President in April 2004. Prior to joining the Company, Mr. Williams was the Financial Reporting Manager of Guilford Mills, Inc. from April 1991 to September 1993 and was employed by Arthur Andersen from 1987 to 1991. His major responsibilities include oversight and supervision of the Company's accounting and financial reporting functions. Mr. Williams is a graduate of the University of North Carolina at Chapel Hill and is a certified public accountant.
 

26

 

Virginia R. Summerell. Ms. Summerell was named Vice President, Treasurer and Assistant Secretary of the Company in May 2005. Since joining the Company in August 1992, she has held various positions including Treasurer, Assistant Secretary and Director of Finance. Her major responsibilities include developing and maintaining banking relationships, oversight of all project and corporate finance transactions, management of treasury systems and the supervision of the Company's credit department. Prior to joining the Company, she served as a Vice President and in other capacities at Bank of America and its predecessors in Real Estate and Corporate Lending for nine years. Ms. Summerell is a graduate of Davidson College and holds an MBA from Wake Forest University.
 
PART II
 
Item 5.    
Market For Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
 
Tanger Factory Outlet Centers, Inc. Market Information
 
The common shares commenced trading on the New York Stock Exchange on May 28, 1993. The following table sets forth the high and low sales prices of the common shares as reported on the New York Stock Exchange Composite Tape, during the periods indicated. Note that share prices and per share dividend amounts have been restated to reflect a two-for-one split of the Company's common shares in January 2011.
 
2010
 
High
 
Low
 
Common Dividends Paid
First Quarter
 
$
22.64
 
 
$
18.40
 
 
$
0.19125
 
Second Quarter
 
22.31
 
 
18.90
 
 
0.19375
 
Third Quarter
 
24.53
 
 
20.23
 
 
0.19375
 
Fourth Quarter
 
26.00
 
 
23.19
 
 
0.19375
 
Year 2010
 
$
26.00
 
 
$
18.40
 
 
$
0.77250
 
 
 
 
 
 
 
 
2009
 
High
 
Low
 
Common Dividends Paid
First Quarter
 
$
19.13
 
 
$
12.39
 
 
$
0.19000
 
Second Quarter
 
18.00
 
 
14.23
 
 
0.19125
 
Third Quarter
 
20.89
 
 
14.49
 
 
0.19125
 
Fourth Quarter
 
20.73
 
 
17.52
 
 
0.19125
 
Year 2009
 
$
20.89
 
 
$
12.39
 
 
$
0.76375
 
 
Holders
 
As of February 1, 2011, there were approximately 512 common shareholders of record.
 
Dividends
 
The Company operates in a manner intended to enable it to qualify as a REIT under the Internal Revenue Code, or the Code. A REIT is required to distribute at least 90% of its taxable income to its shareholders each year. We intend to continue to qualify as a REIT and to distribute substantially all of our taxable income to our shareholders through the payment of regular quarterly dividends. Certain of our debt agreements limit the payment of dividends such that dividends shall not exceed funds from operations (" FFO"), as defined in the agreements, for the prior fiscal year on an annual basis or 95% of FFO on a cumulative basis.

27

 

 
Securities Authorized for Issuance under Equity Compensation Plans
 
The information required by this Item is set forth in Part III Item 12 of this document.
 
Performance Graph
 
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.
 
The following share price performance chart compares our performance to the index of equity REITs prepared by the National Association of Real Estate Investment Trusts ("NAREIT"), and the SNL Shopping Center REIT index prepared by SNL Financial. Equity REITs are defined as those that derive more than 75% of their income from equity investments in real estate assets. The NAREIT equity index includes all tax qualified real estate investment trusts listed on the New York Stock Exchange, American Stock Exchange or the NASDAQ National Market System.
 
All share price performance assumes an initial investment of $100 at the beginning of the period and assumes the reinvestment of dividends. Share price performance, presented for the five years ended December 31, 2010, is not necessarily indicative of future results.
 
 

28

 

 
 
 
Period Ended
Index
12/31/2005
 
 
12/31/2006
 
12/31/2007
 
12/31/2008
 
12/31/2009
 
12/31/2010
Tanger Factory Outlet Centers, Inc.
100.00
 
 
141.52
 
 
141.65
 
 
147.27
 
 
159.45
 
 
216.92
 
NAREIT All Equity REIT Index
100.00
 
 
135.06
 
 
113.87
 
 
70.91
 
 
90.76
 
 
116.12
 
SNL REIT Retail Shopping Ctr Index
100.00
 
 
134.61
 
 
110.82
 
 
66.72
 
 
65.86
 
 
85.53
 
 
Tanger Properties Limited Partnership Market Information
There is no established public trading market for the Operating Partnership's common units. As of December 31, 2010, the Company's wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust, owned 20,249,017 common units and the Tanger Family Limited Partnership owned 3,033,305 common units as a limited partner. We made distributions per common unit during 2010 and 2009 as follows:
 
2010
2009
 
First Quarter
$
0.765
 
$
0.760
 
 
Second Quarter
0.775
 
0.765
 
 
Third Quarter
0.775
 
0.765
 
 
Fourth Quarter
0.775
 
0.765
 
 
 
$
3.090
 
$
3.055
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

29

 

Item 6.    
Selected Financial Data (Tanger Factory Outlet Centers, Inc.)
 
The following data should be read in conjunction with our consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K. Note that per share amounts for all periods presented have been restated to reflect a two-for-one split of the Company's common shares in January 2011.
 
 
2010
 
2009
 
2008
 
2007
 
2006
 
 
(in thousands, except per share and center data)
OPERATING DATA
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
276,303
 
 
$
270,595
 
 
$
243,793
 
 
$
226,792
 
 
$
209,053
 
Operating income
 
79,631
 
 
69,940
 
 
78,764
 
 
71,135
 
 
68,484
 
Income from continuing operations
 
38,342
 
 
72,709
 
 
29,581
 
 
30,008
 
 
28,043
 
Net income (1) (2) (3)
 
38,244
 
 
67,495
 
 
29,718
 
 
30,556
 
 
42,699
 
SHARE DATA
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.32
 
 
$
0.78
 
 
$
0.31
 
 
$
0.32
 
 
$
0.30
 
Net income available to common shareholders
 
$
0.32
 
 
$
0.72
 
 
$
0.31
 
 
$
0.33
 
 
$
0.50
 
Weighted average common shares
 
80,187
 
 
71,832
 
 
62,169
 
 
61,642
 
 
61,198
 
Diluted:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
0.32
 
 
$
0.78
 
 
$
0.31
 
 
$
0.31
 
 
$
0.30
 
Net income available to common shareholders
 
$
0.32
 
 
$
0.72
 
 
$
0.31
 
 
$
0.32
 
 
$
0.49
 
Weighted average common shares
 
80,390
 
 
72,024
 
 
62,442
 
 
63,026
 
 
61,912
 
Common dividends paid
 
$
0.77250
 
 
$
0.76375
 
 
$
0.75000
 
 
$
0.71000
 
 
$
0.67125
 
BALANCE SHEET DATA
 
 
 
 
 
 
 
 
 
 
Real estate assets, before depreciation
 
$
1,576,214
 
 
$
1,507,870
 
 
$
1,399,755
 
 
$
1,287,241
 
 
$
1,216,859
 
Total assets
 
1,216,934
 
 
1,178,861
 
 
1,121,925
 
 
1,060,148
 
 
1,040,561
 
Debt
 
714,616
 
 
584,611
 
 
786,863
 
 
695,002
 
 
664,518
 
Total shareholders' equity
 
421,895
 
 
521,063
 
 
265,903
 
 
294,148
 
 
327,445
 
OTHER DATA
 
 
 
 
 
 
 
 
 
 
Cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
118,500
 
 
$
127,297
 
 
$
96,970
 
 
$
98,588
 
 
$
88,390
 
Investing activities
 
$
(86,853
)
 
$
(76,228
)
 
$
(133,483
)
 
$
(84,803
)
 
$
(63,336
)
Financing activities
 
$
(29,156
)
 
$
(52,779
)
 
$
39,078
 
 
$
(19,826
)
 
$
(19,531
)
 
 
 
 
 
 
 
 
 
 
 
Gross Leasable Area Open:
 
 
 
 
 
 
 
 
 
 
Wholly-owned
 
9,190
 
 
9,216
 
 
8,820
 
 
8,398
 
 
8,388
 
Partially-owned (unconsolidated)
 
948
 
 
950
 
 
1,352
 
 
667
 
 
667
 
Managed
 
 
 
 
 
 
 
 
 
293
 
 
 
 
 
 
 
 
 
 
 
 
Number of outlet centers:
 
 
 
 
 
 
 
 
 
 
Wholly-owned
 
31
 
 
31
 
 
30
 
 
29
 
 
30
 
Partially-owned (unconsolidated)
 
2
 
 
2
 
 
3
 
 
2
 
 
2
 
Managed
 
 
 
 
 
 
 
 
 
3
 
(1) The year ended December 31, 2010 includes a loss on termination of derivatives of $6.1 million.
 
(2) The year ended December 31, 2009 includes a $10.5 million gain on early extinguishment of debt from an exchange offer of common shares for convertible debt; a $31.5 million gain on acquisition of previously held unconsolidated joint venture interest and a $5.2 million impairment charge related to a property held and used in the year the charge was taken.
 
(3) The year ended December 31, 2008 includes a loss on termination of derivatives of $8.9 million.

30

 

Item 6.    
Selected Financial Data (Tanger Properties Limited Partnership)
 
The following data should be read in conjunction with our consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K.
 
 
2010
 
2009
 
2008
 
2007
 
2006
 
 
(in thousands, except per unit and center data)
OPERATING DATA
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
276,303
 
 
$
270,595
 
 
$
243,793
 
 
$
226,792
 
 
$
209,053
 
Operating income
 
79,631
 
 
69,940
 
 
78,764
 
 
71,135
 
 
68,484
 
Income from continuing operations
 
38,342
 
 
72,709
 
 
29,581
 
 
30,008
 
 
28,043
 
Net income
 
38,244
 
 
67,495
 
 
29,718
 
 
30,556
 
 
42,699
 
UNIT DATA
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.30
 
 
$
3.16
 
 
$
1.25
 
 
$
1.29
 
 
$
1.21
 
Net income available to common unitholders
 
$
1.29
 
 
$
2.91
 
 
$
1.26
 
 
$
1.32
 
 
$
2.01
 
Weighted average common units
 
23,080
 
 
20,991
 
 
18,575
 
 
18,444
 
 
18,333
 
Diluted:
 
 
 
 
 
 
 
 
 
 
Income from continuing operations
 
$
1.29
 
 
$
3.15
 
 
$
1.25
 
 
$
1.27
 
 
$
1.20
 
Net income available to common unitholders
 
$
1.29
 
 
$
2.91
 
 
$
1.25
 
 
$
1.29
 
 
$
1.99
 
Weighted average common units
 
23,131
 
 
21,039
 
 
18,644
 
 
18,790
 
 
18,511
 
Common distributions paid
 
$
3.09
 
 
$
3.06
 
 
$
3.00
 
 
$
2.84
 
 
$
2.69
 
BALANCE SHEET DATA
 
 
 
 
 
 
 
 
 
 
Real estate assets, before depreciation
 
$
1,576,214
 
 
$
1,507,870
 
 
$
1,399,755
 
 
$
1,287,241
 
 
$
1,216,859
 
Total assets
 
1,216,476
 
 
1,178,500
 
 
1,121,639
 
 
1,059,846
 
 
1,040,319
 
Debt
 
714,616
 
 
584,611
 
 
786,863
 
 
695,002
 
 
664,518
 
Total partners' equity
 
421,895
 
 
521,063
 
 
265,903
 
 
294,148
 
 
327,445
 
OTHER DATA
 
 
 
 
 
 
 
 
 
 
Cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
118,466
 
 
$
127,269
 
 
$
96,964
 
 
$
98,609
 
 
$
88,354
 
Investing activities
 
$
(86,853
)
 
$
(76,228
)
 
$
(133,483
)
 
$
(84,803
)
 
$
(63,336
)
Financing activities
 
$
(29,156
)
 
$
(52,779
)
 
$
39,078
 
 
$
(19,826
)
 
$
(19,531
)
 
 
 
 
 
 
 
 
 
 
 
Gross Leasable Area Open:
 
 
 
 
 
 
 
 
 
 
Wholly-owned
 
9,190
 
 
9,216
 
 
8,820
 
 
8,398
 
 
8,388
 
Partially-owned (unconsolidated)
 
948
 
 
950
 
 
1,352
 
 
667
 
 
667
 
Managed
 
 
 
 
 
 
 
 
 
293
 
 
 
 
 
 
 
 
 
 
 
 
Number of outlet centers:
 
 
 
 
 
 
 
 
 
 
Wholly-owned
 
31
 
 
31
 
 
30
 
 
29
 
 
30
 
Partially-owned (unconsolidated)
 
2
 
 
2
 
 
3
 
 
2
 
 
2
 
Managed
 
 
 
 
 
 
 
 
 
3
 
(1) The year ended December 31, 2010 includes a loss on termination of derivatives of $6.1 million.
(2) The year ended December 31, 2009 includes a $10.5 million gain on early extinguishment of debt from an exchange offer of common shares for convertible debt; a $31.5 million gain on acquisition of previously held unconsolidated joint venture interest and a $5.2 million impairment charge related to a property held and used in the year the charge was taken.
(3) The year ended December 31, 2008 includes a loss on termination of derivatives of $8.9 million.

31

 

Item 7.    
Management's Discussion and Analysis of Financial Condition and Results of Operations
 
Cautionary Statements
 
Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words 'believe', 'expect', 'intend', 'anticipate', 'estimate', 'project', or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - Risk Factors.
 
The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations.
 
General Overview
 
At December 31, 2010 and 2009, we had 31 wholly-owned centers in 21 states totaling 9.2 million square feet. The table below sets forth the changes in the number of centers, square feet and states:
 
 
 
Number of Centers
 
Square feet
(000's)
 
States
As of December 31, 2009
 
31
 
 
9,216
 
 
21
 
New development:
 
 
 
 
 
 
Mebane, North Carolina
 
1
 
 
319
 
 
 
Disposition:
 
 
 
 
 
 
Commerce I, Georgia
 
(1
)
 
(186
)
 
 
Redevelopment:
 
 
 
 
 
 
Hilton Head I, South Carolina
 
 
 
(162
)
 
 
Other
 
 
 
3
 
 
 
As of December 31, 2010
 
31
 
 
9,190
 
 
21
 
 

32

 

Results of Operations
 
2010 Compared to 2009
 
BASE RENTALS
Base rentals increased $4.9 million, or 3%, in the 2010 period compared to the 2009 period. The following table sets forth the changes in various components of base rents from 2009 to 2010 (in thousands):
 
 
2010
 
2009
 
Increase/
(Decrease)
Existing property base rentals
 
$
175,165
 
 
$
170,313
 
 
$
4,852
 
Effect of Commerce II, GA center expansion and Mebane, NC new development
 
1,753
 
 
259
 
 
1,494
 
Base rentals from Hilton Head I, SC center curently under redevelopment
 
400
 
 
1,829
 
 
(1,429
)
Termination fees
 
907
 
 
1,096
 
 
(189
)
Amortization of net above and below market rent adjustments
 
751
 
 
549
 
 
202
 
 
 
$
178,976
 
 
$
174,046
 
 
$
4,930
 
 
Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant space.  
 
In November 2010, we opened our new outlet center in Mebane, North Carolina and during the second quarter of 2009 opened an additional expansion phase at our Commerce II, Georgia outlet center.
 
During the second quarter of 2010, we completed the demolition of approximately 162,000 square feet at our center in Hilton Head, South Carolina. The redevelopment of this site began during the second quarter of 2010 with the opening of a new 176,000 square foot outlet center expected in the second quarter of 2011.
 
Also, included in base rentals is the amortization from the value of the above and below market leases recorded as a result of our property acquisitions as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease.  At December 31, 2010, the net liability representing the amount of unrecognized combined above and below market lease values totaled approximately $1.5 million. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively.
 
PERCENTAGE RENTALS
Percentage rentals, which represent revenues based on a percentage of tenants' sales volume above predetermined levels (the "breakpoint"), increased $1.1 million, or 16% from the 2009 period to the 2010 period. The increase in percentage rentals are directly related to the strength of our tenants' sales. Reported tenant comparable sales for our wholly owned properties for the year ended December 31, 2010 increased 6.6% to $354 per square foot. Reported tenant comparable sales is defined as the weighted average sales per square foot reported in space open for the full duration of each comparison period.
 

33

 

EXPENSE REIMBURSEMENTS
Expense reimbursements increased $2.1 million, or 3%, in the 2010 period compared to the 2009 period. The following table sets forth the changes in various components of expense reimbursements from 2009 to 2010 (in thousands):
 
 
2010
 
2009
 
Increase/
(Decrease)
Existing property expense reimbursements
 
$
78,916
 
 
$
77,076
 
 
$
1,840
 
Incremental expense reimbursements from Commerce II, GA center expansion and Mebane, NC new development
 
1,146
 
 
82
 
 
1,064
 
Expense reimbursements from Hilton Head I, SC center currently under redevelopment
 
115
 
 
918
 
 
(803
)
Termination fees allocated to expense reimbursements
 
450
 
 
424
 
 
26
 
 
 
$
80,627
 
 
$
78,500
 
 
$
2,127
 
 
Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses, generally fluctuate consistently with the reimbursable property operating expenses to which they relate.
 
OTHER INCOME
Other income decreased $2.5 million, or 22%, in the 2010 period as compared to the 2009 period due primarily to the $3.3 million gain on the sale of a land outparcel at our Washington, PA center in August 2009. This decrease was partially offset by the incremental other income generated from the opening of the center in Mebane, NC in November 2010 and an increase in Tanger Club memberships and other vending categories.
 
PROPERTY OPERATING EXPENSES
Property operating expenses increased $5.2 million, or 6%, in the 2010 period compared to the 2009 period. The following table sets forth the changes in various components of property operating expenses from 2009 to 2010 thousands):
 
 
2010
 
2009
 
Increase/
(Decrease)
Existing property operating expenses
 
$
90,023
 
 
$
85,880
 
 
$
4,143
 
Incremental operating expenses from Mebane, NC new development
 
1,796
 
 
 
 
1,796
 
Operating and demolition expenses from Hilton Head I, SC center currently under redevelopment
 
1,161
 
 
1,458
 
 
(297
)
Abandoned due diligence costs
 
365
 
 
797
 
 
(432
)
 
 
$
93,345
 
 
$
88,135
 
 
$
5,210
 
 
The increase in existing property operating expenses is primarily due to increases in snow removal in 2010 due to extreme winter weather in December in the eastern portion of the United States and normal annual increases associated with operating mall offices throughout our portfolio.
 

34

 

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $8.0 million, or 25%, in the 2010 period as compared to the 2009 period. Effective September 1, 2009, Stanley K. Tanger, founder of the Company, retired as an employee of the Company. His severance, totaling $10.3 million, consisted of a cash payment of $3.4 million and $6.9 million of share-based compensation from the accelerated vesting of restricted common shares. Excluding this severance, general and administrative expenses increased $2.3 million primarily as a result of additional share-based compensation expense related to the 2010 notional unit plan and increases in other professional and legal fees.
 
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization decreased $1.9 million, or 2%, in the 2010 period compared to the 2009 period. The majority of the decrease is due to lower levels of intangible lease cost amortization from acquired outlet centers in 2003, 2005 and 2009. These decreases were partially offset by additional depreciation and amortization of approximately $9.0 million and $6.3 million recognized during the 2010 and 2009 periods, respectively, related to the demolition and redevelopment plan at our Hilton Head I, SC center.
 
IMPAIRMENT CHARGE
In 2005 we sold our outlet center located in Seymour, Indiana, but retained various outparcels of land at the development site, some of which we had sold in recent years. In February 2010, our Board of Directors approved the sale of the remaining parcels of land in Seymour, IN. As a result of this Board approval and an approved plan to actively market the land for sale, we accounted for the land as "held for sale" and recorded a non-cash impairment charge of approximately $735,000 in our consolidated statements of operations which equaled the excess of the carrying amount of the land over its fair value at that time. We determined the estimated fair value using a market approach considering offers that we had obtained for all the various parcels less estimated closing costs.
 
INTEREST EXPENSE
Interest expense decreased $3.6 million, or 9%, in the 2010 period compared to the 2009 period. This decrease was due to the significant reduction in the average amount of debt outstanding through an exchange offering in May 2009 and a common share offering in August 2009. These two equity transactions in essence retired approximately $259.1 million of outstanding debt.
 
GAIN (LOSS) ON EARLY EXTINGUISHMENT OF DEBT
The 2010 period includes the write-off of approximately $563,000 of unamortized loan origination costs. These assets were written-off due to the repayment of the $235.0 million term loan facility in the 2010 period with a portion of the proceeds from the 2020 Notes. In May 2009, senior exchangeable notes of the Operating Partnership in the principal amount of $142.3 million and a carrying amount of $135.3 million were exchanged for common shares of the Company, representing approximately 95.2% of the total senior exchangeable notes outstanding prior to the exchange offer. In the aggregate, the exchange offer resulted in the issuance of approximately 9.7 million common shares and the payment of approximately $1.2 million in cash for accrued and unpaid interest and in lieu of fractional shares. Following settlement of the exchange offer, senior exchangeable notes in the principal amount of approximately $7.2 million remained outstanding. In connection with the exchange offering, we recognized in income from continuing operations and net income a gain on early extinguishment of debt in the amount of $10.5 million.
 

35

 

LOSS ON TERMINATION OF DERIVATIVES
During the second quarter of 2010, we terminated two interest rate swap agreements with a total notional amount of $235.0 million. These agreements were originally entered into in 2008 for the purpose of fixing the LIBOR based interest rate on the $235.0 million term loan facility originally completed in June 2008. We paid approximately $6.1 million to terminate the two interest rate swap agreements. The agreements were terminated because the underlying debt for the derivative transaction was repaid with a portion of the proceeds from the 2020 Notes.
 
Prior to when they were terminated, the swaps were designated as cash flow hedges. Unrealized gains and losses related to the effective portion of the swaps were recognized in other comprehensive income. Because the swaps were highly effective, the amount included in accumulated other comprehensive income when the swaps were terminated was equal to the amount recorded as a liability on the balance sheet. The contemporaneous termination of the swaps and the related debt caused the amounts in accumulated other comprehensive income to be reclassified to earnings. Additionally, a payment of $6.1 million, which was considered to be an investing activity in the statement of cash flows, was made to relieve the obligation that was recorded as a liability.
 
GAIN ON FAIR VALUE MEASUREMENT OF PREVIOUSLY HELD INTEREST IN ACQUIRED JOINT VENTURE
On January 5, 2009, we purchased the remaining 50% interest in the Myrtle Beach Hwy 17 joint venture for a cash price of $32.0 million and the assumption of the existing mortgage loan of $35.8 million.  The acquisition was funded by amounts available under our unsecured lines of credit.   We had owned a 50% interest in the Myrtle Beach Hwy 17 joint venture since its formation in 2001 and accounted for it under the equity method.  The joint venture is now 100% owned by us and has been consolidated since January 2009.  The acquisition was accounted for under the new guidance for acquisitions which was effective January 1, 2009.  Under this guidance, we recorded a gain of $31.5 million which represented the difference between the fair market value of our previously owned interest and its cost basis.
 
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings (losses) of unconsolidated joint ventures increased by $1.0 million, or 69%, in the 2010 period compared to the 2009 period. The improvement is due to the natural expiration of $170.0 million of interest rate swaps at the Deer Park joint venture in June 2009. The expiration of these swaps enabled the joint venture to incur interest at a variable rate based on a LIBOR index that is currently at historically low levels. The increase was offset slightly by higher interest rate levels at our Wisconsin Dells joint venture which refinanced its $24.8 million mortgage loan in December 2009. The new mortgage included a credit spread over the LIBOR rate of 3.00% compared to a credit spread of 1.30% in the expiring mortgage.
 
DISCONTINUED OPERATIONS
In May 2010, the Company's Board of Directors approved a plan for our management to sell our Commerce I, Georgia center. The facts and circumstances of the plan met the accounting requirements to classify the results of operations of the center as discontinued operations. The majority of the center was sold in July 2010. The remaining portion of the center was sold during the first quarter of 2011. During the third quarter of 2010, we recorded an impairment of approximately $111,000 to lower the basis of the remaining portion of the center to its approximate fair value based on the actual sales contracts related to the center. In the 2009 period, we recorded an impairment charge for the Commerce I, GA property of $5.2 million which equaled the excess of the property's carrying value over its estimated fair value at that time.
 

36

 

2009 Compared to 2008
 
BASE RENTALS
Base rentals increased $16.3 million, or 10%, in the 2009 period compared to the 2008 period. The following table sets forth the changes in various components of base rents from 2008 to 2009 (in thousands):
 
 
2009
 
2008
 
Increase/
(Decrease)
Existing property base rentals
 
$
156,532
 
 
$
153,118
 
 
$
3,414
 
Incremental base rent from acquisition of Myrtle Beach Hwy 17, SC joint venture interest
 
9,279
 
 
 
 
9,279
 
Incremental base rent from Commerce II, GA center expansion and Washington, PA new development
 
7,134
 
 
2,788
 
 
4,346
 
Termination fees
 
1,031
 
 
1,519
 
 
(488
)
Amortization of net above and below market rent adjustments
 
70
 
 
356
 
 
(286
)
 
 
$
174,046
 
 
$
157,781
 
 
$
16,265
 
 
In August 2008 we opened our new outlet center in Washington, Pennsylvania and during the second quarter of 2009 opened an additional expansion phase at our outlet center in Commerce, Georgia. In January 2009 we completed the acquisition of the remaining 50% interest in the joint venture that held the Myrtle Beach Hwy 17, South Carolina center.  The Myrtle Beach Hwy 17 outlet center is now wholly-owned and has been consolidated in our 2009 period results.  
 
Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant space.  
 
The above increases were partially offset by a reduction at existing centers in the recognition of termination fees in the 2009 period compared to the 2008 period. The 2009 period included approximately $1.0 million of termination fees compared to $1.5 million in the 2008 period due to fewer tenants terminating leases early.  Payments received from the early termination of leases are recognized as revenue from the time the payment is receivable until the tenant vacates the space.
 
Also, included in base rentals is the amortization from the value of the above and below market leases recorded as a result of our property acquisitions as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease.  The net amortization of above and below market leases, excluding the newly acquired Myrtle Beach Hwy 17 property, for the 2009 period was an increase to base rentals of approximately $70,000. This represents a decrease of approximately $286,000, or 80%, over the 2008 period amount of approximately $356,000. The decrease is due to the aging acquired leases that exist in our portfolio.
 
At December 31, 2009, the net liability representing the amount of unrecognized combined above and below market lease values totaled approximately $2.4 million. If a tenant vacates its space prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value will be written off and could materially impact our net income positively or negatively.
 

37

 

PERCENTAGE RENTALS
Percentage rentals, which represent revenues based on a percentage of tenants' sales volume above predetermined levels (the "breakpoint"), decreased $257,000, or 4% from the 2008 period to the 2009 period. The following table sets forth the changes in percentage rentals from 2008 to 2009 (in thousands):
 
 
2009
 
2008
 
Increase/
(Decrease)
Existing property percentage rentals
 
$
6,334
 
 
$
7,046
 
 
$
(712
)
Incremental percentage rentals from acquisition of Myrtle Beach Hwy 17, SC joint venture interest
 
389
 
 
 
 
389
 
Incremental percentage rentals from Washington, PA new development
 
78
 
 
12