United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2011
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, Greensboro, NC 27408
(Address of principal executive offices)
 
 
(336) 292-3010
(Registrant's telephone number)
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
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 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” (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934).
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
As of April 28, 2011, there were 81,311,041 shares of Tanger Factory Outlet Centers, Inc. common stock outstanding, $.01 par value.

 

EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2011 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 March 31, 2011, the Company, through its ownership of the GP Trust and LP Trust, owned 20,328,985 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.
The Tanger family has informed the Company of their intention to dissolve the Tanger Family Limited Partnership in connection with the settling of the estate of our founder, Stanley Tanger. Upon dissolution of the Tanger Family Limited Partnership, the units of the Operating Partnership currently owned by the Tanger Family Limited Partnership would be distributed to the individual beneficial owners of the Tanger Family Limited Partnership, who are primarily the descendants of Stanley Tanger (including Steven Tanger, our Chief Executive Officer), their spouses or former spouses or their children and/or trusts for their benefit. Each such holder would then become a limited partner of the Operating Partnership, and each such partner would have the ability to exchange their Operating Partnership units for the Company's common shares in the ratio described above, and will continue to have rights which may require the Company to register the shares with the United States Securities and Exchange Commission (the "SEC") for sale under the Securities Act of 1933, as amended.  The Company anticipates that some of the individuals will request that some or all of their Operating Partnership units be exchanged for the Company's common shares and to request the Company to register such shares for sale.  At this time, our Chief Executive Officer has not indicated any present intention to exchange the Operating Partnership Units that he will receive upon the dissolution of the Tanger Family Limited Partnership.
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.

3

 

We believe combining the quarterly reports on Form 10-Q 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.
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;
Shareholders' Equity of the Company and Partners' Equity of the Operating Partnership;
Share-based compensation of the Company and equity-based compensation of the Operating Partnership;
Other Comprehensive Income of the Company and Other Comprehensive Income of the Operating Partnership;
Earnings Per Share and Earnings Per Unit and

4

 

Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial condition and Results of Operations.
This report also includes separate Item 4. 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.

5

 

TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2011 and December 31, 2010
7
 
Consolidated Statements of Operations - for the three months ended March 31, 2011 and 2010
8
 
Consolidated Statements of Cash Flows - for the three months ended March 31, 2011 and 2010
9
 
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2011 and December 31, 2010
10
 
Consolidated Statements of Operations - for the three months ended March 31, 2011 and 2010
11
 
Consolidated Statements of Cash Flows - for the three months ended March 31, 2011 and 2010
12
 
 
 
Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc and Tanger Properties Limited Partnership
13
 
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
29
 
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
43
 
 
 
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
43
 
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
44
 
 
 
Item 1A. Risk Factors
44
 
 
 
Item 5. Other Information
44
 
 
 
Item 6. Exhibits
45
 
 
 
Signatures
46
 
 

6

 

PART I. - FINANCIAL INFORMATION
Item 1 - Financial Statements of Tanger Factory Outlet Centers, Inc.
 
 

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)
 
 
March 31, 2011
 
December 31,
2010
ASSETS:
 
 
 
 
 
 
Rental property
 
 
 
 
 
 
Land
 
$
141,577
 
 
$
141,577
 
Buildings, improvements and fixtures
 
1,441,260
 
 
1,411,404
 
Construction in progress
 
2,590
 
 
23,233
 
 
 
1,585,427
 
 
1,576,214
 
Accumulated depreciation
 
(462,942
)
 
(453,145
)
Rental property, net
 
1,122,485
 
 
1,123,069
 
Cash and cash equivalents
 
731
 
 
5,758
 
Rental property held for sale
 
 
 
723
 
Investments in unconsolidated joint ventures
 
5,861
 
 
6,386
 
Deferred lease costs and other intangibles, net
 
28,090
 
 
29,317
 
Deferred debt origination costs, net
 
7,165
 
 
7,593
 
Prepaids and other assets
 
53,912
 
 
44,088
 
Total assets
 
$
1,218,244
 
 
$
1,216,934
 
LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 
 
 
 
 
Debt
 
 
 
 
 
 
Senior, unsecured notes (net of discount of $2,490 and $2,594 respectively)
 
$
554,670
 
 
$
554,616
 
Unsecured lines of credit
 
166,300
 
 
160,000
 
Total debt
 
720,970
 
 
714,616
 
Construction trade payables
 
30,984
 
 
31,831
 
Accounts payable and accrued expenses
 
33,503
 
 
31,594
 
Other liabilities
 
16,409
 
 
16,998
 
Total liabilities
 
801,866
 
 
795,039
 
Commitments and contingencies
 
 
 
 
 
 
Equity
 
 
 
 
 
 
Tanger Factory Outlet Centers, Inc.
 
 
 
 
 
 
Common shares, $.01 par value, 150,000,000 shares authorized, 81,315,938 and 80,996,068 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
 
813
 
 
810
 
Paid in capital
 
606,121
 
 
604,359
 
Distributions in excess of net income 
 
(246,372
)
 
(240,024
)
Accumulated other comprehensive income
 
1,754
 
 
1,784
 
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
362,316
 
 
366,929
 
Equity attributable to noncontrolling interest in Operating Partnership
 
54,062
 
 
54,966
 
Total equity
 
416,378
 
 
421,895
 
Total liabilities and equity
 
$
1,218,244
 
 
$
1,216,934
 
 
The accompanying notes are an integral part of these consolidated financial statements.

7

 

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
 
 
Three months ended
March 31,
 
 
2011
 
2010
Revenues
 
 
 
 
 
Base rentals
 
$
46,219
 
 
$
43,497
 
Percentage rentals
 
1,391
 
 
1,305
 
Expense reimbursements
 
21,205
 
 
19,519
 
Other income
 
1,924
 
 
1,721
 
Total revenues
 
70,739
 
 
66,042
 
Expenses
 
 
 
 
 
 
Property operating
 
24,108
 
 
22,349
 
General and administrative
 
6,767
 
 
5,466
 
Acquisition costs
 
567
 
 
 
Abandoned development costs
 
158
 
 
 
Impairment charges
 
 
 
735
 
Depreciation and amortization
 
17,965
 
 
26,474
 
Total expenses
 
49,565
 
 
55,024
 
Operating income
 
21,174
 
 
11,018
 
Interest expense
 
10,325
 
 
7,948
 
Income before equity in losses of unconsolidated joint ventures and discontinued operations
 
10,849
 
 
3,070
 
Equity in losses of unconsolidated joint ventures
 
(32
)
 
(68
)
Income from continuing operations
 
10,817
 
 
3,002
 
Discontinued operations
 
 
 
1
 
Net income
 
10,817
 
 
3,003
 
Noncontrolling interest
 
(1,419
)
 
(210
)
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
9,398
 
 
$
2,793
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
Income from continuing operations
 
$
0.11
 
 
$
0.02
 
Net income
 
$
0.11
 
 
$
0.02
 
Diluted earnings per common share:
 
 
 
 
Income from continuing operations
 
$
0.11
 
 
$
0.02
 
Net income
 
$
0.11
 
 
$
0.02
 
 
 
 
 
 
Dividends paid per common share
 
$
0.1938
 
 
$
0.1913
 
The accompanying notes are an integral part of these consolidated financial statements.

8

 

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
 
 
Net income
 
$
10,817
 
 
$
3,003
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
17,965
 
 
26,527
 
Impairment charges (including discontinued operations)
 
 
 
735
 
Gain on sale of outparcels of land
 
 
 
(161
)
Amortization of deferred financing costs
 
466
 
 
342
 
Equity in losses of unconsolidated joint ventures
 
32
 
 
68
 
Share-based compensation expense
 
1,798
 
 
1,227
 
Amortization of debt (premiums) and discount, net
 
24
 
 
(214
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
62
 
 
301
 
Net accretion of market rent rate adjustment
 
(155
)
 
(165
)
Straight-line base rent adjustment
 
(794
)
 
(734
)
Changes in other assets and liabilities:
 
 
 
 
 
Other assets
 
(495
)
 
1,250
 
Accounts payable and accrued expenses
 
1,319
 
 
(3,451
)
Net cash provided by operating activities
 
31,039
 
 
28,728
 
INVESTING ACTIVITIES
 
 
 
 
 
Additions to rental property
 
(15,251
)
 
(10,235
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
238
 
 
349
 
Increases in escrow deposits
 
(8,350
)
 
 
Net proceeds from the sale of real estate
 
724
 
 
602
 
Additions to deferred lease costs
 
(1,531
)
 
(881
)
Net cash used in investing activities
 
(24,170
)
 
(10,165
)
FINANCING ACTIVITIES
 
 
 
 
 
Cash dividends paid
 
(15,746
)
 
(16,872
)
Distributions to noncontrolling interest in Operating Partnership
 
(2,351
)
 
(2,320
)
Proceeds from debt issuances
 
67,950
 
 
103,100
 
Repayments of debt
 
(61,700
)
 
(103,200
)
Additions to deferred financing costs
 
(49
)
 
(14
)
Proceeds from exercise of options
 
 
 
673
 
Net cash used in financing activities
 
(11,896
)
 
(18,633
)
Net decrease in cash and cash equivalents
 
(5,027
)
 
(70
)
Cash and cash equivalents, beginning of period
 
5,758
 
 
3,267
 
Cash and cash equivalents, end of period
 
$
731
 
 
$
3,197
 
The accompanying notes are an integral part of these consolidated financial statements.

9

 

Item 1 - Financial Statements of Tanger Properties Limited Partnership
 
 

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
March 31,
2011
 
December 31,
2010
ASSETS:
 
 
 
 
 
 
Rental property
 
 
 
 
 
 
Land
 
$
141,577
 
 
$
141,577
 
Buildings, improvements and fixtures
 
1,441,260
 
 
1,411,404
 
Construction in progress
 
2,590
 
 
23,233
 
 
 
1,585,427
 
 
1,576,214
 
Accumulated depreciation
 
(462,942
)
 
(453,145
)
Rental property, net
 
1,122,485
 
 
1,123,069
 
Cash and cash equivalents
 
699
 
 
5,671
 
Rental property held for sale
 
 
 
723
 
Investments in unconsolidated joint ventures
 
5,861
 
 
6,386
 
Deferred lease costs and other intangibles, net
 
28,090
 
 
29,317
 
Deferred debt origination costs, net
 
7,165
 
 
7,593
 
Prepaids and other assets
 
53,471
 
 
43,717
 
Total assets
 
$
1,217,771
 
 
$
1,216,476
 
LIABILITIES AND PARTNERS' EQUITY
 
 
 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $2,490 and $2,594, respectively)
 
$
554,670
 
 
$
554,616
 
Unsecured lines of credit
 
166,300
 
 
160,000
 
Total debt
 
720,970
 
 
714,616
 
Construction trade payables
 
30,984
 
 
31,831
 
Accounts payable and accrued expenses
 
33,030
 
 
31,136
 
Other liabilities
 
16,409
 
 
16,998
 
Total liabilities
 
801,393
 
 
794,581
 
Commitments and contingencies
 
 
 
 
 
Partners' Equity
 
 
 
 
 
General partner
 
5,151
 
 
5,221
 
Limited partners
 
409,514
 
 
414,926
 
Accumulated other comprehensive income
 
1,713
 
 
1,748
 
Total partners' equity
 
416,378
 
 
421,895
 
Total liabilities and partners' equity
 
$
1,217,771
 
 
$
1,216,476
 
The accompanying notes are an integral part of these consolidated financial statements.

10

 

TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data)
(Unaudited)
 
 
Three months ended
March 31,
 
 
2011
 
2010
Revenues
 
 
 
 
 
Base rentals
 
$
46,219
 
 
$
43,497
 
Percentage rentals
 
1,391
 
 
1,305
 
Expense reimbursements
 
21,205
 
 
19,519
 
Other income
 
1,924
 
 
1,721
 
Total revenues
 
70,739
 
 
66,042
 
Expenses
 
 
 
 
 
Property operating
 
24,108
 
 
22,349
 
General and administrative
 
6,767
 
 
5,466
 
Acquisition costs
 
567
 
 
 
Abandoned development costs
 
158
 
 
 
Impairment charges
 
 
 
735
 
Depreciation and amortization
 
17,965
 
 
26,474
 
Total expenses
 
49,565
 
 
55,024
 
Operating income
 
21,174
 
 
11,018
 
Interest expense
 
10,325
 
 
7,948
 
Income before equity in losses of unconsolidated joint ventures and discontinued operations
 
10,849
 
 
3,070
 
Equity in losses of unconsolidated joint ventures
 
(32
)
 
(68
)
Income from continuing operations
 
10,817
 
 
3,002
 
Discontinued operations
 
 
 
1
 
Net income
 
10,817
 
 
3,003
 
Net income available to limited partners
 
10,706
 
 
2,987
 
Net income available to general partner
 
$
111
 
 
$
16
 
Basic earnings per common unit:
 
 
 
 
 
 
Income from continuing operations
 
$
0.46
 
 
$
0.06
 
Net income
 
$
0.46
 
 
$
0.06
 
Diluted earnings per common unit:
 
 
 
 
 
 
Income from continuing operations
 
$
0.46
 
 
$
0.06
 
Net income
 
$
0.46
 
 
$
0.06
 
 
 
 
 
 
Distribution paid per common unit
 
$
0.775
 
 
$
0.765
 
The accompanying notes are an integral part of these consolidated financial statements.

11

 

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
 
 
 
Net income
 
$
10,817
 
 
$
3,003
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
17,965
 
 
26,527
 
Impairment charge (including discontinued operations)
 
 
 
735
 
Gain on sale of outparcels of land
 
 
 
(161
)
Amortization of deferred financing costs
 
466
 
 
342
 
Equity in losses of unconsolidated joint ventures
 
32
 
 
68
 
Equity-based compensation expense
 
1,798
 
 
1,227
 
Amortization of debt premiums and discount, net
 
24
 
 
(214
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
62
 
 
301
 
Net accretion of market rent rate adjustment
 
(155
)
 
(165
)
Straight-line base rent adjustment
 
(794
)
 
(734
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(425
)
 
1,104
 
Accounts payable and accrued expenses
 
1,304
 
 
(3,419
)
Net cash provided by operating activities
 
31,094
 
 
28,614
 
INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(15,251
)
 
(10,235
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
238
 
 
349
 
Increase in escrow deposits
 
(8,350
)
 
 
Net proceeds from the sale of real estate
 
724
 
 
602
 
Additions to deferred lease costs
 
(1,531
)
 
(881
)
Net cash used in investing activities
 
(24,170
)
 
(10,165
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(18,097
)
 
(19,192
)
Proceeds from debt issuances
 
67,950
 
 
103,100
 
Repayments of debt
 
(61,700
)
 
(103,200
)
Additions to deferred financing costs
 
(49
)
 
(14
)
Proceeds from exercise of options
 
 
 
673
 
Net cash used in financing activities
 
(11,896
)
 
(18,633
)
Net decrease in cash and cash equivalents
 
(4,972
)
 
(184
)
Cash and cash equivalents, beginning of period
 
5,671
 
 
3,214
 
Cash and cash equivalents, end of period
 
$
699
 
 
$
3,030
 
The accompanying notes are an integral part of these consolidated financial statements.

12

 

TANGER FACTORY OUTLET CENTERS INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIAIRES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 

1. Business
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 real estate investment trust, or REIT, which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of March 31, 2011, we owned and operated 32 outlet centers, with a total gross leasable area of approximately 9.4 million square feet. We also operated and had partial ownership interests in two outlet centers totaling approximately 948,000 square feet.
Our outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership and subsidiaries. Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating 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.
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.
 
 

2. Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared pursuant to accounting principles generally accepted in the United States of America and should be read in conjunction with the consolidated financial statements and notes thereto of the Company's and the Operating Partnership's separate Annual Reports on Form 10-K for the year ended December 31, 2010. The December 31, 2010 balance sheet data in this Form 10-Q was derived from audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SEC's rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading.
Investments in real estate joint ventures that we do not control are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required under the equity method of accounting. These investments are evaluated for impairment when necessary. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities. For joint ventures that are determined to be variable interest entities, the primary beneficiary consolidates the entity.
Certain amounts in the consolidated balances sheet as of December 31, 2010 have been reclassified to conform with the presentations made as of March 31, 2011 related to deferred lease and intangible costs, net and deferred debt origination costs, net. These reclassifications had no impact on previously reported total assets.
 

13

 

3. Development of Rental Properties
Redevelopment at Existing Outlet Centers
During the first quarter of 2011, we completed the redevelopment of our Hilton Head I, SC center and celebrated a grand re-opening on March 31, 2011. As of April 27, 2011, the 177,000 square foot center had leases signed or out for signature on 94% of the leasable square feet. In addition, the property features four pad sites, three of which are currently leased. The total incremental cost for the redeveloped center, including development and leasing costs, are expected to be approximately $43.0 million.
Commitments to complete construction of our redevelopment and other capital expenditure requirements amounted to approximately $5.0 million at March 31, 2011. Commitments for construction represent only those costs contractually required to be paid by us.
Interest costs capitalized during the three months ended March 31, 2011 and 2010 amounted to $230,000 and $200,000, respectively.
Impairment Charges
Rental property held and used by us is reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.
Land Outparcel Sales
Gains on sale of outparcels are included in other income in the consolidated statements of operations. Cost is allocated to the outparcels based on the relative market value method. Below is a summary of outparcel sales that we completed during the three months ended March 31, 2011 and 2010, respectively. (in thousands, except number of outparcels):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Number of outparcels
 
 
 
3
 
Net proceeds
 
$
 
 
$
602
 
Gains on sales included in other income
 
$
 
 
$
161
 
 

14

 

4. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of March 31, 2011 and December 31, 2010 aggregated $5.9 million and $6.4 million, respectively. We have evaluated the accounting treatment for each of the joint ventures and have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for the individual joint ventures. At March 31, 2011, we were members of the following unconsolidated real estate joint ventures:
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt (in millions)
Deer Park (1)
 
Deer Park, Long Island, New York
 
33.3
%
 
683,033
 
 
$
1.3
 
 
$
269.3
 
Wisconsin Dells
 
Wisconsin Dells, Wisconsin
 
50.0
%
 
265,061
 
 
$
4.5
 
 
$
24.8
 
(1) Includes a 29,253 square foot warehouse adjacent to the shopping center with a mortgage note of approximately $2.3 million.
These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required by the equity method of accounting as discussed below.
The following management, leasing and marketing fees were recognized from services provided to Wisconsin Dells and Deer Park (in thousands):
 
 
 
Three Months Ended
March 31,
 
 
 
2011
 
2010
Fee:
 
 
 
 
 
 
 
Management and leasing
 
 
$
505
 
 
$
464
 
Marketing
 
 
44
 
 
41
 
Total Fees
 
 
$
549
 
 
$
505
 
Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the "Summary Balance Sheets – Unconsolidated Joint Ventures" shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. Our investments in real estate joint ventures are reduced by 50% of the profits earned for leasing services provided to Wisconsin Dells and by 33.3% of the profits earned for leasing services provided to Deer Park. The differences in basis are amortized over the various useful lives of the related assets.
On a periodic basis, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized. As of March 31, 2011, we do not believe that any of our equity investments were impaired.

15

 

In accordance with amended guidance related to the consolidation of variable interest entities which became effective January 1, 2010, we performed an analysis of all of our real estate joint ventures to determine whether they would qualify as variable interest entities ("VIE"), and whether the joint venture should be consolidated or accounted for as an equity method investment in an unconsolidated joint venture. As a result of our qualitative assessment, we concluded that Deer Park is a VIE and Wisconsin Dells is not a VIE. Deer Park is considered a VIE because it does not meet the criteria of the members having a sufficient equity investment at risk.
 
After making the determination that Deer Park was a VIE, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate Deer Park's balance sheets and results of operations. This assessment was based upon whether we had the following:
 
a.    The power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance
 
b.    The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity
 
Based on the provisions of the operating and management agreements of Deer Park, we determined that no one member alone has the power to direct the significant activities that affect the economic performance of Deer Park.
 
We have determined that all three partners share power in the decisions that most significantly impact Deer Park, as well as the financial rights and obligations, and therefore we are not required to consolidate Deer Park. Our equity method investment in Deer Park as of March 31, 2011 was approximately $1.3 million. We are unable to estimate our maximum exposure to loss at this time because our guarantees are limited and based on the future operating performance of Deer Park. Our maximum exposure consists of the following components: our investment, our completion guarantee which is currently estimated to be up to $15.0 million and our other operating performance guarantees.
Condensed combined summary financial information of joint ventures accounted for using the equity method is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures
 
As of
March 31,
2011
 
As of
December 31,
2010
Assets
 
 
 
 
 
 
Investment properties at cost, net
 
$
285,332
 
 
$
283,902
 
Cash and cash equivalents
 
14,697
 
 
13,838
 
Deferred lease costs, net
 
3,011
 
 
2,562
 
Deferred debt origination costs, net
 
1,172
 
 
1,428
 
Prepaids and other assets
 
7,349
 
 
6,291
 
Total assets
 
$
311,561
 
 
$
308,021
 
Liabilities and Owners' Equity
 
 
 
 
 
 
Mortgages payable
 
$
294,034
 
 
$
294,034
 
Construction trade payables
 
4,710
 
 
341
 
Accounts payable and other liabilities
 
4,281
 
 
4,810
 
Total liabilities
 
303,025
 
 
299,185
 
Owners' equity
 
8,536
 
 
8,836
 
Total liabilities and owners' equity
 
$
311,561
 
 
$
308,021
 

16

 

 
 
Three Months Ended
Summary Statements of Operations -
 
March 31,
Unconsolidated Joint Ventures
 
2011
 
2010
Revenues
 
$
9,562
 
 
$
9,274
 
Expenses
 
 
 
 
 
 
Property operating
 
4,101
 
 
4,210
 
General and administrative
 
187
 
 
287
 
Depreciation and amortization
 
3,611
 
 
3,497
 
Total expenses
 
7,899
 
 
7,994
 
Operating income
 
1,663
 
 
1,280
 
Interest expense
 
1,803
 
 
1,674
 
Net loss
 
$
(140
)
 
$
(394
)
 
 
 
 
 
The Company and Operating Partnership's share of:
 
 
 
 
 
 
Net loss
 
$
(32
)
 
$
(68
)
Depreciation (real estate related)
 
1,306
 
 
1,265
 
 
5. Discontinued Operations
In May 2010, the Company's Board of Directors approved the plan for our management to sell our Commerce I, Georgia center. The majority of the center was sold in July 2010 for net proceeds of approximately $1.4 million. The remaining portion of the center, classified as held for sale in the consolidated balance sheet as of December 31, 2010, was sold in January 2011 for net proceeds of approximately $724,000. During the third quarter of 2010, we recorded an impairment of approximately $111,000 to lower the basis on the remaining portion of the center to its approximate fair value which was based on the actual sales contracts related to the remaining portion of the center.
Summary of results of operations for the property whose results of operations are considered discontinued operations for the three months ended March 31, 2011 and 2010, respectively (in thousands):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Revenues:
 
 
 
 
 
 
Base rentals
 
$
 
 
$
150
 
Expense reimbursements
 
 
 
17
 
Other income
 
 
 
10
 
Total revenues
 
 
 
177
 
Expenses:
 
 
 
 
 
 
Property operating
 
 
 
123
 
Depreciation and amortization
 
 
 
53
 
Total expenses
 
 
 
176
 
Discontinued operations
 
$
 
 
$
1
 
 
6. Debt of the Company
All of the Company's debt is held directly by the Operating Partnership.
The Company guarantees the Operating Partnership's obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $400.0 million. As of March 31, 2011 and December 31, 2010, the Operating Partnership had $166.3 million and $160.0 million, respectively, outstanding in total on these lines.
In addition, the Company also guarantees the Operating Partnership's obligations with respect to its $7.2 million of outstanding senior exchangeable notes due in 2026. August 18, 2011 is the first date that the noteholders can require us to repurchase the notes without occurrence of specified events. However, because the Company's common share price exceeded the "Exchange Trigger Price", as defined in the supplemental indenture relating to the senior exchangeable notes, holders of the the notes may presently exercise their exchange rights.
7. Debt of the Operating Partnership
As of March 31, 2011 and December 31, 2010, the debt of the Operating Partnership consisted of the following (in thousands):
 
 
March 31, 2011
 
December 31,
2010
Senior, unsecured notes:
 
 
 
 
 
 
6.15% Senior notes, maturing November 2015, net of discount of $486 and $510, respectively
 
$
249,514
 
 
$
249,490
 
3.75% Senior exchangeable notes, maturing August 2026, net of discount of $62 and $103, respectively
 
7,098
 
 
7,107
 
6.125% Senior notes, maturing in June 2020, net of discount of $1,942 and $1,981, respectively
 
298,058
 
 
298,019
 
Unsecured lines of credit with a weighted average interest rates of 2.14% and 2.16%, respectively (1)
 
166,300
 
 
160,000
 
 
 
$
720,970
 
 
$
714,616
 
(1)
Our unsecured lines of credit as of March 31, 2011 bear interest at a rate of LIBOR + 1.90% and expire in November 2013. These lines require a facility fee payment of .40% annually based on the total amount of the commitment. The credit spread and facility fee can vary depending on our investment grade rating.
Debt Maturities
Maturities of the existing long-term debt as of March 31, 2011 are as follows (in thousands):
Year
Amount
 
2011 (1)
$
7,160
 
2012
 
2013
166,300
 
2014
 
2015
250,000
 
Thereafter
300,000
 
Subtotal
723,460
 
Discounts
(2,490
)
Total
$
720,970
 
(1) Includes expiration of $7.2 million of senior exchangeable notes shown in 2011 because that is the first date that the noteholders can require us to repurchase the notes without the occurrence of specified events.
 
8. Shareholders' Equity of the Company
The Company's Board of Directors declared a 2 for 1 split of the Company's common shares on January 13, 2011, effective in the form of a share dividend, payable on January 24, 2011. The Company retained the current par value of $.01 per share on all common shares. All references to the number of shares outstanding, per share amounts and share options data of the Company's common shares have been restated to reflect the effect of the split for all periods presented. Shareholders' equity as of December 31, 2010 reflects the split by reclassifying from additional paid in capital to common shares an amount equal to the par value of the additional shares arising from the split. While the number of Operating Partnership units did not change as a result of the split, each Operating Partnership unit owned by the Tanger Family Limited Partnership is now exchangeable for four of the Company's common shares. Prior to the 2011 split, the exchange ratio was one unit for two common shares.
Changes in Equity
The following table provides a reconciliation of the beginning and ending carrying amounts of total equity, equity attributable to common shareholders and equity attributable to noncontrolling interests:
 
 
 
 
 
 
Noncontrolling
 
 
 
 
Distributions
Accumulated other
Total
interest in
 
 
Common
Paid in
in excess
comprehensive
shareholders'
Operating
Total
 
shares
capital
of earnings
income
equity
Partnership
equity
December 31, 2010
$
810
 
$
604,359
 
$
(240,024
)
$
1,784
 
$
366,929
 
$
54,966
 
$
421,895
 
Comprehensive income:
 
 
 
 
 
 
 
Net income
 
 
9,398
 
 
9,398
 
1,419
 
10,817
 
Other comprehensive income
 
 
 
(30
)
(30
)
(5
)
(35
)
Total comprehensive income
 
 
9,398
 
(30
)
9,368
 
1,414
 
10,782
 
Compensation under Incentive Award Plan
 
1,798
 
 
 
1,798
 
 
1,798
 
Grant of 319,000 restricted shares
3
 
(3
)
 
 
 
 
 
Adjustment for noncontrolling interest in Operating Partnership
 
(33
)
 
 
(33
)
33
 
 
Common dividends ($.19375 per share)
 
 
(15,746
)
 
(15,746
)
 
(15,746
)
Distributions to noncontrolling interest in Operating Partnership
 
 
 
 
 
(2,351
)
(2,351
)
March 31, 2011
$
813
 
$
606,121
 
$
(246,372
)
$
1,754
 
$
362,316
 
$
54,062
 
$
416,378
 
 
 
 
 
 
 
 
 
 
9. Partners' Equity of the Operating Partnership
When the Company issues common shares upon exercise of options or issues restricted share awards, the Operating Partnership issues one corresponding unit to the Company for every four common shares issued. At March 31, 2011 and December 31, 2010, the ownership interests of the Operating Partnership consisted of the following:
 
 
March 31,
2011
 
December 31,
2010
Common units:
 
 
 
 
 
 
General partner
 
237,000
 
 
237,000
 
Limited partners
 
23,125,290
 
 
23,045,322
 
Total common units
 
23,362,290
 
 
23,282,322
 
 
10. Other Comprehensive Income of the Company
Total comprehensive income for the three months ended March 31, 2011 and 2010 is as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
 
2011
 
2010
 
Net income
 
$
10,817
 
 
$
3,003
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of gain on 2005 settlement of US treasury rate lock included in net income
 
(81
)
 
(76
)
 
Change in fair value of cash flow hedges
 
 
 
852
 
 
Change in fair value of our portion of our unconsolidated joint ventures' cash flow hedges
 
46
 
 
(39
)
 
Other comprehensive income (loss)
 
(35
)
 
737
 
 
Total comprehensive income
 
10,782
 
 
3,740
 
 
Comprehensive income attributable to the noncontrolling interest
 
(1,414
)
 
(307
)
 
Total comprehensive income attributable to the Company
 
$
9,368
 
 
$
3,433
 
 
 
 

11. Other Comprehensive Income of the Operating Partnership
Total comprehensive income for the three months ended March 31, 2011 and 2010 is as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
 
2011
 
2010
 
Net income
 
$
10,817
 
 
$
3,003
 
 
Other comprehensive income:
 
 
 
 
 
 
 
Reclassification adjustment for amortization of gain on 2005 settlement of US treasury rate lock included in net income
 
(81
)
 
(76
)
 
Change in fair value of cash flow hedges
 
 
 
852
 
 
Change in fair value of our portion of our unconsolidated joint ventures' cash flow hedges
 
46
 
 
(39
)
 
Other comprehensive income (loss)
 
(35
)
 
737
 
 
Total comprehensive income
 
$
10,782
 
 
$
3,740
 
 
 
 

12. Share-Based Compensation of the Company
We have a shareholder approved share-based compensation plan, the Amended and Restated Incentive Award Plan of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership (the "Plan"), which covers our independent directors, officers and our employees. During the first quarter of 2011, the Company's Board of Directors approved grants of 319,000 restricted common shares to the Company's independent directors and the Company's senior executive officers. The grant date fair value of the awards ranged from $25.245 to $26.85 per share and was determined based upon the closing market price of our common shares on the day prior to the grant date in accordance with the terms of the Plan. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted shares vest ratably over a five year period. Compensation expense related to the amortization of the deferred compensation amount is being recognized in accordance with the vesting schedule of the restricted shares.
In February 2011, the Company's Board of Directors approved the grant of 191,500 stock options to non-executive employees of the Company. The exercise price of the options granted during the first quarter of 2011 is $26.06 which equaled the market price of the Company's common shares as of the close on the day prior to the grant date. The options expire ten years from the date of grant and 20% of the options become exercisable in each of the first five years commencing one year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for the 2011 grant: expected dividend yield 3.0%; expected life of 7 years; expected volatility of 32.8%; a risk-free rate of 2.9%; and forfeiture rates of 3.0% to 20.0% dependent upon the employee's position within the Company.
We recorded share-based compensation expense in our statements of operations as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Restricted shares
 
$
1,266
 
 
$
959
 
Notional unit performance awards
 
507
 
 
268
 
Options
 
25
 
 
 
Total share-based compensation
 
$
1,798
 
 
$
1,227
 
 

17

 

Options outstanding at March 31, 2011 had the following weighted average exercise prices and weighted average remaining contractual lives:
 
 
 
Options Outstanding
 
 
 
Options Exercisable
Exercise prices
 
Options
 
Weighted average exercise price
 
Weighted remaining contractual life in years
 
Options
 
Weighted average exercise price
$9.6900
 
10,000
 
 
$
9.69
 
 
3.07
 
 
10,000
 
 
$
9.69
 
$9.7075
 
98,200
 
 
9.71
 
 
3.08
 
 
98,200
 
 
9.71
 
$11.8125
 
12,000
 
 
11.81
 
 
3.59
 
 
12,000
 
 
11.81
 
$26.0600
 
191,500
 
 
$
26.06
 
 
9.91
 
 
 
 
 
 
 
311,700
 
 
$
19.83
 
 
7.29
 
 
120,200
 
 
$
9.92
 
A summary of option activity under our Amended and Restated Incentive Award Plan as of March 31, 2011 and changes during the year then ended is presented below (aggregate intrinsic value amount in thousands):
Options
 
Shares
 
Weighted-average exercise price
 
Weighted-average remaining contractual life in years
 
Aggregate intrinsic value
Outstanding as of December 31, 2010
 
120,200
 
 
$
9.92
 
 
 
 
 
Granted
 
191,500
 
 
26.06
 
 
 
 
 
Exercised
 
 
 
 
 
 
 
 
Forfeited
 
 
 
 
 
 
 
 
Outstanding as of March 31, 2011
 
311,700
 
 
$
19.83
 
 
7.29
 
 
$
1,920
 
 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
March 31, 2011
 
269,028
 
 
$
18.85
 
 
6.88
 
 
$
1,920
 
 
 
 
 
 
 
 
 
 
Exercisable as of March 31, 2011
 
120,200
 
 
$
9.92
 
 
3.13
 
 
$
1,920
 
The total intrinsic value of options exercised during the three months ended March 31, 2011 was $0 as no options were exercised during the period.
 
The following table summarizes information related to unvested restricted shares outstanding as of March 31, 2011:
Unvested Restricted Shares
 
Number of shares
 
Weighted average grant date fair value
Unvested at December 31, 2010
 
717,760
 
 
$
17.95
 
Granted
 
319,000
 
 
25.42
 
Vested
 
(207,600
)
 
17.87
 
Forfeited
 
 
 
 
Unvested at March 31, 2011
 
829,160
 
 
$
20.85
 
 

18

 

The total value of restricted shares vested during the three months ended March 31, 2011 was $5.4 million.
As of March 31, 2011, there was $25.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expect to be recognized over a weighted-average period of 3.8 years.
 

13. Equity-Based Compensation of the Operating Partnership
As discussed in Note 12, the Operating Partnership and the Company have a joint plan whereby equity based and performance based awards may be granted to directors, officers and employees. When shares are issued by the Company, the Operating Partnership issues corresponding units to the Company based on the current exchange ratio as provided by the Operating Partnership agreement. Based on the current exchange ratio, each unit in the Operating Partnership is equivalent to four common shares of the Company. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership.
 
The tables below set forth the unit based compensation expense and other related information as recognized in the Operating Partnership's consolidated financial statements.
We recorded equity-based compensation expense in our statements of operations as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Restricted units
 
$
1,266
 
 
$
959
 
Notional unit performance awards
 
507
 
 
268
 
Options
 
25
 
 
 
Total equity-based compensation
 
$
1,798
 
 
$
1,227
 
 
Options outstanding at March 31, 2011 had the following weighted average exercise prices and weighted average remaining contractual lives:
 
 
Options Outstanding
 
 
 
Options Exercisable
Range of exercise prices
 
Options
 
Weighted average exercise price
 
Weighted remaining contractual life in years
 
Options
 
Weighted average exercise price
$38.76
 
2,500
 
 
$
38.76
 
 
3.07
 
2,500
 
 
$
38.76
 
$38.83
 
24,550
 
 
38.83
 
 
3.08
 
24,550
 
 
38.83
 
$47.25
 
3,000
 
 
47.25
 
 
3.59
 
3,000
 
 
47.25
 
$104.24
 
47,875
 
 
104.24
 
 
9.91
 
 
 
 
 
 
77,925
 
 
$
79.34
 
 
7.29
 
30,050
 
 
$
19.83
 
 

19

 

A summary of option activity under our Amended and Restated Incentive Award Plan as of March 31, 2011 and changes during the year then ended is presented below (aggregate intrinsic value amount in thousands):
 
Options
 
Units
 
Weighted-average exercise price
 
Weighted-average remaining contractual life in years
 
Aggregate intrinsic value
Outstanding as of December 31, 2010
 
30,050
 
 
$
39.66
 
 
 
 
 
Granted
 
47,875
 
 
104.24
 
 
 
 
 
Exercised
 
 
 
 
 
 
 
 
Forfeited
 
 
 
 
 
 
 
 
Outstanding as of March 31, 2011
 
77,925
 
 
$
79.34
 
 
7.29
 
 
$
1,920
 
 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
March 31, 2011
 
67,257
 
 
$
75.39
 
 
6.88
 
 
$
1,920
 
 
 
 
 
 
 
 
 
 
Exercisable as of March 31, 2011
 
30,050
 
 
$
39.66
 
 
3.13
 
 
$
1,920
 
The total intrinsic value of options exercised during the three months ended March 31, 2011 was $0 as no options were exercised during the period.
 
The following table summarizes information related to unvested restricted units outstanding as of March 31, 2011:
Unvested Restricted Units
 
Number of units
 
Weighted average grant date fair value
Unvested at December 31, 2010
 
179,440
 
 
$
71.81
 
Granted
 
79,750
 
 
101.68
 
Vested
 
(51,900
)
 
71.47
 
Forfeited
 
 
 
 
Unvested at March 31, 2011
 
207,290
 
 
$
83.38
 
The total value of restricted units vested during the three months ended March 31, 2011 was $5.4 million.
As of March 31, 2011, there was $25.3 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expect to be recognized over a weighted-average period of 3.8 years.
 
 
14. Earnings Per Share of the Company
The following table sets forth a reconciliation of the numerators and denominators in computing the Company's earnings per share (in thousands, except per share amounts):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Numerator
 
 
 
 
 
 
Income from continuing operations attributable to the Company
 
$
9,398
 
 
$
2,792
 
Less applicable preferred share dividends
 
 
 
(1,406
)
Less allocation of earnings to participating securities
 
(192
)
 
(169
)
Income from continuing operations available to common shareholders of the Company
 
9,206
 
 
1,217
 
Discontinued operations attributable to the Company
 
 
 
1
 
Net income available to common shareholders of the Company
 
$
9,206
 
 
$
1,218
 
Denominator
 
 
 
 
 
 
Basic weighted average common shares
 
80,353
 
 
80,060
 
Effect of senior exchangeable notes
 
125
 
 
66
 
Effect of outstanding options
 
74
 
 
110
 
Diluted weighted average common shares
 
80,552
 
 
80,236
 
Basic earnings per common share:
 
 
 
 
 
 
Income from continuing operations
 
$
0.11
 
 
$
0.02
 
Discontinued operations
 
 
 
 
Net income
 
$
0.11
 
 
$
0.02
 
Diluted earnings per common share:
 
 
 
 
 
 
Income from continuing operations
 
$
0.11
 
 
$
0.02
 
Discontinued operations
 
 
 
 
Net income
 
$
0.11
 
 
$
0.02
 
The senior, exchangeable notes are included in the diluted earnings per share computation, if the effect is dilutive, using the treasury stock method.  In applying the treasury stock method, the effect will be dilutive if the average market price of our common shares for at least 20 trading days in the 30 consecutive trading days at the end of each quarter is higher than the exchange price of $17.85 per share.
The computation of diluted earnings per share excludes options to purchase common shares when the exercise price is greater than the average market price of the common shares for the period.  For the three months ended March 31, 2011, 191,500 options were excluded from the computation. No options were excluded from the computation for the three months ended March 31, 2010.  The assumed exchange of the partnership units held by the noncontrolling interest limited partner as of the beginning of the year, which would result in the elimination of earnings allocated to the noncontrolling interest in the Operating Partnership, would have no impact on earnings per share since the allocation of earnings to a partnership unit, as if exchanged, is equivalent to earnings allocated to a common share.
The Company's unvested restricted share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.

20

 

The notional units are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method. The notional units were issued in January 2010 and all have been excluded from the computation of diluted earnings per share for the three months ended March 31, 2011 and 2010, respectively, as none of the contingent conditions were satisfied as of the end of the reporting period.
 
15. Earnings Per Unit of the Operating Partnership
The following table sets forth a reconciliation of the numerators and denominators in computing the Operating Partnership's earnings per unit (in thousands, except per unit amounts):
 
 
Three Months Ended
March 31,
 
 
2011
 
2010
Numerator
 
 
 
 
 
 
Income from continuing operations
 
$
10,817
 
 
$
3,002
 
Less applicable preferred unit distributions
 
 
 
(1,406
)
Less allocation of earnings to participating securities
 
(192
)
 
(169
)
Income from continuing operations available to common unitholders of the Operating Partnership
 
10,625
 
 
1,427
 
Discontinued operations
 
 
 
1
 
Net income available to common unitholders of the Operating Partnership
 
$
10,625
 
 
$
1,428
 
Denominator
 
 
 
 
 
 
Basic weighted average common units
 
23,121
 
 
23,048
 
Effect of senior exchangeable notes
 
31
 
 
17
 
Effect of outstanding options
 
19
 
 
27
 
Diluted weighted average common units
 
23,171
 
 
23,092
 
Basic earnings per common unit:
 
 
 
 
 
 
Income from continuing operations
 
$
0.46
 
 
$
0.06
 
Discontinued operations
 
 
 
 
Net income
 
$
0.46
 
 
$
0.06
 
Diluted earnings per common unit:
 
 
 
 
 
 
Income from continuing operations
 
$
0.46
 
 
$
0.06
 
Discontinued operations
 
 
 
 
Net income
 
$
0.46
 
 
$
0.06
 
When the Company issues common shares upon exercise of options or issues restricted share awards, the Operating Partnership issues one corresponding unit to the Company for every four common shares issued. The senior, exchangeable notes are included in the diluted earnings per unit computation, if the effect is dilutive, using the treasury stock method.  In applying the treasury stock method, the effect will be dilutive if the average market price of the Company's common shares for at least 20 trading days in the 30 consecutive trading days at the end of each quarter is higher than the exchange price of $17.85 per common share.
The computation of diluted earnings per unit excludes options to purchase common units when the exercise price is greater than the average market price of the common units for the period.  The market price of a common unit is considered to be equivalent to four times the market price of a Company common share. For the three months ended March 31, 2011, 47,875 options were excluded from the computation. No options were excluded from the computation for the three months ended March 31, 2010.  

21

 

The Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units' participation rights in undistributed earnings.
The notional units are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method. The notional units were issued in January 2010 and all have been excluded from the computation of diluted earnings per unit for the three months ended March 31, 2011 and 2010, respectively, as none of the contingent conditions were satisfied as of the end of the reporting period.
 
16.    Fair Value Measurements
 
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
 
Tier
 
Description
Level 1
 
Defined as observable inputs such as quoted prices in active markets
 
 
 
Level 2
 
Defined as inputs other than quoted prices in active markets that are either directly or indirectly observable
 
 
 
Level 3
 
Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
The estimated fair value of our debt, consisting of senior unsecured notes, senior exchangeable notes and unsecured lines of credit, at March 31, 2011 and December 31, 2010, respectively, was $771.1 million and $770.1 million, respectively, and its recorded value was $721.0 million and $714.6 million, respectively. Fair values were determined, based on level 2 inputs, using discounted cash flow analysis with an interest rate or credit spread similar to that of current market borrowing arrangements.
 
 

17. Related Party Transactions
Tanger Family Limited Partnership is a related party which holds a limited partnership interest in and is the noncontrolling interest of the Operating Partnership. The only material related party transaction with the Tanger Family Limited Partnership is the payment of quarterly distributions of earnings which were $2.4 million and $2.3 million for the three months ended March 31, 2011 and 2010 respectively.
During the third quarter of 2010, Stanley K. Tanger, our founder, transferred his general partnership interest in the Tanger Family Limited Partnership, to the Stanley K. Tanger Marital Trust. As discussed in Note 1 and Note 12, the Tanger Family Limited Partnership is the noncontrolling interest in the Company's consolidated financial statements. The sole trustee of the Stanley K. Tanger Marital Trust, and thus effectively the general partner of Tanger Family Limited Partnership, is John H. Vernon. Mr. Vernon is a partner at the law firm of Vernon, Vernon, Wooten, Brown, Andrews & Garrett, or the Vernon Law Firm, which has served as the principal outside counsel of the Company and Operating Partnership since their inception in 1993. Based on Mr. Vernon's position as trustee of the Stanley K. Tanger Marital Trust, the general partner of the Tanger Family Limited Partnership, he is now considered a related party. However, Mr. Vernon has neither ownership rights nor economic interests in either the Tanger Family Limited Partnership or the Stanley K. Tanger Marital Trust.

22

 

Fees paid to the Vernon Law Firm were approximately $417,000 and $457,000 for the three months ended March 31, 2011 and 2010. In addition, as of March 31, 2011 and December 31, 2010, there were $290,000 and $0, respectively, outstanding in accounts payable and accrued expenses for amounts owed the Vernon Law Firm.
18. Non-Cash Activities
We purchase capital equipment and incur costs relating to construction of facilities, including tenant finishing allowances. Expenditures included in construction trade payables as of March 31, 2011 and 2010 amounted to $31.0 million and $22.4 million, respectively.
 
 

19. Subsequent Events
On April 28, 2011, the Federal Trade Commission (“FTC”) issued a release announcing that Simon Property Group, Inc. (“Simon”) has filed an application for approval of the divestiture of its outlet center located in Jeffersonville, Ohio to the Operating Partnership and that it is accepting public comments on the application until May 30, 2011. Simon has requested a decision on the application by the FTC by June 24, 2011. The Operating Partnership has signed an agreement to purchase the Jeffersonville outlet center from Simon. The closing of the transaction is subject to FTC approval as well as other customary conditions.
 
On May 6, 2011, the Operating Partnership entered into agreements with OCF Holdings LLC, Cordish AC-1 Associates LLC, Cordish AC-2 Associates LLC and Atlantic City Associates Number Three Manager LLC (the "Agreements") to acquire substantially all of the economic interests in two outlet centers representing approximately 694,000 square feet for a combined purchase price of approximately $125.0 million in cash and the assumption of indebtedness of approximately $75.0 million. The debt being assumed consists of three mortgages with various lenders that bear interest at fixed rates ranging from 5.14% to 7.65% per annum and have maturity dates ranging from 2016 to 2026. The centers are located in Atlantic City, New Jersey and Ocean City Maryland. The Operating Partnership paid a cash deposit of approximately $11.8 million on May 9, 2011 to secured its obligations under the Agreements, which will be credited against the purchase price for these interests at closing. The closing for both properties, which is subject to approval by the current mortgage holders, is expected to take place during the third quarter of 2011.
 
 
 

23

 

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three months ended March 31, 2011 with the three months ended March 31, 2010. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. 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.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend for 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" in the Company's and the Operating Partnership's Annual Reports on Form 10-K for the year ended December 31, 2010. There have been no material changes to the risk factors listed there through March 31, 2011.
General Overview
At March 31, 2011, our consolidated portfolio included 32 wholly owned outlet centers in 21 states totaling 9.4 million square feet compared to 31 wholly owned outlet centers in 21 states totaling 9.1 million square feet at March 31, 2010. The changes in the number of outlet centers, square feet and number of states are due to the following events:
 
 
No. of
Centers
 
Square Feet
(000's
 
States
As of March 31, 2010
 
31
 
 
9,057
 
 
21
 
New development:
 
 
 
 
 
 
Mebane, North Carolina
 
1
 
 
319
 
 
 
Center redevelopment:
 
 
 
 
 
 
 
 
 
Hilton Head I, South Carolina
 
1
 
 
177
 
 
 
Center disposition:
 
 
 
 
 
 
 
 
 
Commerce I, Georgia
 
(1
)
 
(186
)
 
 
Other
 
 
 
1
 
 
 
As of March 31, 2011
 
32
 
 
9,368
 
 
21
 

24

 

The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of March 31, 2011. Except as noted, all properties are fee owned.
Location
 
Square
 
%
Wholly Owned Properties
 
Feet
 
Occupied
Riverhead, New York (1)
 
729,475
 
 
98
 
Rehoboth Beach, Delaware (1)
 
568,900
 
 
99
 
Foley, Alabama
 
557,288
 
 
98
 
San Marcos, Texas
 
441,929
 
 
95
 
Myrtle Beach Hwy 501, South Carolina
 
426,417
 
 
92
 
Sevierville, Tennessee (1)
 
419,038
 
 
100
 
Myrtle Beach Hwy 17, South Carolina (1)
 
403,161
 
 
96
 
Washington, Pennsylvania
 
372,972
 
 
99
 
Commerce II, Georgia
 
370,512
 
 
99
 
Charleston, South Carolina
 
352,315
 
 
92
 
Howell, Michigan
 
324,632
 
 
99
 
Mebane, North Carolina
 
318,910
 
 
99
 
Branson, Missouri
 
302,922
 
 
98
 
Park City, Utah
 
298,379
 
 
100
 
Locust Grove, Georgia
 
293,868
 
 
99
 
Westbrook, Connecticut
 
291,051
 
 
92
 
Gonzales, Louisiana
 
282,403
 
 
95
 
Williamsburg, Iowa
 
277,230
 
 
96
 
Lincoln City, Oregon
 
270,212
 
 
99
 
Lancaster, Pennsylvania
 
255,152
 
 
98
 
Tuscola, Illinois
 
250,439
 
 
86
 
Tilton, New Hampshire
 
245,698
 
 
99
 
Hilton Head II, South Carolina
 
206,586
 
 
98
 
Fort Myers, Florida
 
198,950
 
 
90
 
Terrell, Texas
 
177,800
 
 
94
 
Hilton Head I, South Carolina
 
177,199
 
 
82
 
Barstow, California
 
171,300
 
 
100
 
West Branch, Michigan
 
112,120
 
 
98
 
Blowing Rock, North Carolina
 
104,185
 
 
100
 
Nags Head, North Carolina
 
82,178
 
 
95
 
Kittery I, Maine
 
59,694
 
 
89
 
Kittery II, Maine
 
24,619
 
 
100
 
Totals
 
9,367,534
 
 
97 (2)
 
 
 
 
 
 
Unconsolidated Joint Ventures
 
 
 
 
 
 
Deer Park, New York (3)
 
683,033
 
 
85
 
Wisconsin Dells, Wisconsin
 
265,061
 
 
98
 
(1)
These properties or a portion thereof are subject to a ground lease.
(2)
Excludes the Hilton Head I, SC property which opened on March 31, 2011 and is not yet stabilized.
(3)
Includes a 29,253 square foot warehouse adjacent to the shopping center.

25

 

RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2011 to the three months ended March 31, 2010
BASE RENTALS
Base rentals increased $2.7 million, or 6%, in the 2011 period compared to the 2010 period. The following table sets forth the changes in various components of base rentals from the 2011 and 2010 periods (in thousands):
 
 
2011
 
2010
 
Change
Existing property base rentals
 
$
44,291
 
 
$
42,444
 
 
$
1,847
 
Incremental base rentals from new developments
 
1,607
 
 
259
 
 
1,348
 
Termination fees
 
166
 
 
621
 
 
(455
)
Amortization of net above and below market rent adjustments
 
155
 
 
173
 
 
(18
)
 
 
$
46,219
 
 
$
43,497
 
 
$
2,722
 
 
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 spaces.
During the fourth quarter of 2010, we opened a 319,000 square foot outlet center in Mebane, North Carolina.
Termination fees decreased due to the 2010 period containing several tenants that terminated their leases prior to the contractual obligation.
At March 31, 2011, the net liability representing the amount of unrecognized combined above and below market lease values totaled approximately $1.3 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 $86,000, or 7%, from the 2010 period to the 2011 period. The increase in percentage rentals is directly related to the strength of our tenants' sales. Reported tenant comparable sales for our wholly owned properties for the rolling twelve months ended March 31, 2011 increased 5.9% to $359 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.
EXPENSE REIMBURSEMENTS
Expense reimbursements increased $1.7 million, or 9%, in the 2011 period compared to the 2010 period. The following table sets forth the changes in various components of expense reimbursements from the 2011 and 2010 periods (in thousands):
 
 
2011
 
2010
 
Change
Existing property expense reimbursements
 
$
20,240
 
 
$
19,052
 
 
$
1,188
 
Incremental expense reimbursements from new developments
 
870
 
 
132
 
 
738
 
Termination fees allocated to expense reimbursements
 
95
 
 
335
 
 
(240
)
 
 
$
21,205
 
 
$
19,519
 
 
$
1,686
 

26

 

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 increased $203,000, or 12%, in the 2011 period compared to the 2010 period. The following table sets forth the changes in various components of other income from the 2011 and 2010 periods (in thousands):
 
 
2011
 
2010
 
Change
Existing property other income
 
$
1,807
 
 
$
1,547
 
 
$
260
 
Incremental other income from new developments
 
117
 
 
13
 
 
104
 
Gain on sale of land outparcel
 
 
 
161