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 June 30, 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 x   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 August 2, 2011, there were 85,916,070 common shares of Tanger Factory Outlet Centers, Inc. outstanding, $.01 par value.



EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 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. Prior to June 1, 2011, The Tanger family, through its ownership of the Tanger Family Limited Partnership held the remaining units as a limited partner. On June 1, 2011, the Tanger Family Limited Partnership was dissolved, and the units of the Operating Partnership owned by the Tanger Family Limited Partnership were distributed to the individual beneficial owners of the Tanger Family Limited Partnership. Each such individual beneficial owner is now an individual limited partner of the Operating Partnership (collectively the "Family Limited Partners").
As of June 30, 2011, the Company, through its ownership of the GP Trust and LP Trust, owned 20,329,018 units of the Operating Partnership and the Family Limited Partners collectively owned 3,033,305 units. Each unit held by the Family Limited Partners 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 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.

3



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 Family Limited Partners 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
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.

4



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 June 30, 2011 and December 31, 2010
Consolidated Statements of Operations - for the three and six months ended June 30, 2011 and 2010
Consolidated Statements of Cash Flows - for the six months ended June 30, 2011 and 2010
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of June 30, 2011 and December 31, 2010
Consolidated Statements of Operations - for the three and six months ended June 30, 2011 and 2010
Consolidated Statements of Cash Flows - for the six months ended June 30, 2011 and 2010
 
 
Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc and Tanger Properties Limited Partnership
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 6. Exhibits
 
 
Signatures


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)
 
 
June 30,
 2011
 
December 31,
2010
ASSETS:
 
 

 
 

Rental property
 
 

 
 

Land
 
$
144,329

 
$
141,577

Buildings, improvements and fixtures
 
1,560,920

 
1,411,404

Construction in progress
 
3,367

 
23,233

 
 
1,708,616

 
1,576,214

Accumulated depreciation
 
(477,687
)
 
(453,145
)
Rental property, net
 
1,230,929

 
1,123,069

Cash and cash equivalents
 
18,438

 
5,758

Rental property held for sale
 

 
723

Investments in unconsolidated joint ventures
 
4,592

 
6,386

Deferred lease costs and other intangibles, net
 
51,573

 
29,317

Deferred debt origination costs, net
 
6,783

 
7,593

Prepaids and other assets
 
55,274

 
44,088

Total assets
 
$
1,367,589

 
$
1,216,934

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $2,386 and $2,594 respectively)
 
$
554,644

 
$
554,616

Senior, unsecured bridge loan
 
150,000

 

Unsecured lines of credit
 
182,000

 
160,000

Total debt
 
886,644

 
714,616

Construction trade payables
 
27,333

 
31,831

Accounts payable and accrued expenses
 
27,129

 
31,594

Other liabilities
 
16,170

 
16,998

Total liabilities
 
957,276

 
795,039

Commitments and contingencies
 


 


Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 81,316,070 and 80,996,068 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
 
813

 
810

Paid in capital
 
607,756

 
604,359

Accumluated distributions in excess of net income 
 
(253,213
)
 
(240,024
)
Accumulated other comprehensive income
 
1,683

 
1,784

Equity attributable to Tanger Factory Outlet Centers, Inc.
 
357,039

 
366,929

Equity attributable to noncontrolling interests in Operating Partnership
 
53,274

 
54,966

Total equity
 
410,313

 
421,895

Total liabilities and equity
 
$
1,367,589

 
$
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 month ended
June 30,
 
Six months ended
June 30,
 
2011
 
2010
 
2011
 
2010
Revenues
 
 
 
 
 

 
 
Base rentals
$
48,393

 
$
43,968

 
$
94,612

 
$
87,465

Percentage rentals
1,137

 
1,048

 
2,528

 
2,353

Expense reimbursements
20,616

 
18,429

 
41,821

 
37,948

Other income
1,955

 
1,850

 
3,879

 
3,571

Total revenues
72,101

 
65,295

 
142,840

 
131,337

Expenses
 
 
 
 


 
 

Property operating
23,765

 
21,758

 
47,873

 
44,107

General and administrative
7,185

 
5,963

 
13,952

 
11,429

Acquisition costs
974

 

 
1,541

 

Abandoned development costs

 
365

 
158

 
365

Impairment charges

 

 

 
735

Depreciation and amortization
17,858

 
17,109

 
35,823

 
43,583

Total expenses
49,782

 
45,195

 
99,347

 
100,219

Operating income
22,319

 
20,100

 
43,493

 
31,118

Interest expense
(10,713
)
 
(7,951
)
 
(21,038
)
 
(15,899
)
Loss on early extinguishment of debt

 
(563
)
 

 
(563
)
Loss on termination of derivatives

 
(6,142
)
 

 
(6,142
)
Income before equity in losses of unconsolidated joint ventures and discontinued operations
11,606

 
5,444

 
22,455

 
8,514

Equity in losses of unconsolidated joint ventures
(764
)
 
(51
)
 
(796
)
 
(119
)
Income from continuing operations
10,842

 
5,393

 
21,659

 
8,395

Discontinued operations

 
(1
)
 

 

Net income
10,842

 
5,392

 
21,659

 
8,395

Noncontrolling interests
(1,420
)
 
(524
)
 
(2,839
)
 
(734
)
Net income attributable to Tanger Factory Outlet Centers, Inc.
$
9,422

 
$
4,868

 
$
18,820

 
$
7,661

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 

 
 

Income from continuing operations
$
0.11

 
$
0.04

 
$
0.23

 
$
0.06

Net income
$
0.11

 
$
0.04

 
$
0.23

 
$
0.06

Diluted earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.11

 
$
0.04

 
$
0.23

 
$
0.06

Net income
$
0.11

 
$
0.04

 
$
0.23

 
$
0.06

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.2000

 
$
0.1938

 
$
0.3938

 
$
0.3850

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)
 
 
Six Months Ended
June 30,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
21,659

 
$
8,395

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
35,823

 
43,670

Impairment charges (including discontinued operations)
 

 
735

Loss on termination of derivatives
 

 
6,142

Gain on sale of outparcels of land
 

 
(161
)
Amortization of deferred financing costs
 
948

 
657

Loss on early extinguishment of debt
 

 
563

Equity in losses of unconsolidated joint ventures
 
796

 
119

Share-based compensation expense
 
3,618

 
2,682

Amortization of debt (premiums) and discount, net
 
45

 
(219
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
156

 
414

Net accretion of market rent rate adjustment
 
(357
)
 
(381
)
Straight-line base rent adjustment
 
(2,033
)
 
(1,402
)
Changes in other assets and liabilities:
 


 


Other assets
 
4,295

 
2,250

Accounts payable and accrued expenses
 
(5,081
)
 
(9,423
)
Net cash provided by operating activities
 
59,869

 
54,041

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(30,031
)
 
(26,692
)
Acquisition of rental property
 
(134,000
)
 

Termination payments related to derivatives
 

 
(6,142
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
444

 
536

Increases in escrow deposits
 
(13,089
)
 

Net proceeds from the sale of real estate
 
724

 
602

Additions to deferred lease costs
 
(6,166
)
 
(1,969
)
Net cash used in investing activities
 
(182,118
)
 
(33,665
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(32,009
)
 
(33,962
)
Distributions to noncontrolling interest in Operating Partnership
 
(4,776
)
 
(4,671
)
Proceeds from debt issuances
 
306,850

 
485,230

Repayments of debt
 
(135,030
)
 
(465,000
)
Additions to deferred financing costs
 
(149
)
 
(2,486
)
Proceeds from exercise of options
 
43

 
699

Net cash provided by (used in) financing activities
 
134,929

 
(20,190
)
Net increase in cash and cash equivalents
 
12,680

 
186

Cash and cash equivalents, beginning of period
 
5,758

 
3,267

Cash and cash equivalents, end of period
 
$
18,438

 
$
3,453

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)

 
 
June 30, 2011
 
December 31,
2010
ASSETS:
 
 

 
 

Rental property
 
 

 
 

Land
 
$
144,329

 
$
141,577

Buildings, improvements and fixtures
 
1,560,920

 
1,411,404

Construction in progress
 
3,367

 
23,233

 
 
1,708,616

 
1,576,214

Accumulated depreciation
 
(477,687
)
 
(453,145
)
Rental property, net
 
1,230,929

 
1,123,069

Cash and cash equivalents
 
18,366

 
5,671

Rental property held for sale
 

 
723

Investments in unconsolidated joint ventures
 
4,592

 
6,386

Deferred lease costs and other intangibles, net
 
51,573

 
29,317

Deferred debt origination costs, net
 
6,783

 
7,593

Prepaids and other assets
 
54,942

 
43,717

Total assets
 
$
1,367,185

 
$
1,216,476

LIABILITIES AND PARTNERS' EQUITY
 
 
 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $2,386 and $2,594, respectively)
 
$
554,644

 
$
554,616

Senior, unsecured bridge loan
 
150,000

 

Unsecured lines of credit
 
182,000

 
160,000

Total debt
 
886,644

 
714,616

Construction trade payables
 
27,333

 
31,831

Accounts payable and accrued expenses
 
26,725

 
31,136

Other liabilities
 
16,170

 
16,998

Total liabilities
 
956,872

 
794,581

Commitments and contingencies
 


 


Partners' Equity
 


 
 
General partner
 
5,070

 
5,221

Limited partners
 
403,612

 
414,926

Accumulated other comprehensive income
 
1,631

 
1,748

Total partners' equity
 
410,313

 
421,895

Total liabilities and partners' equity
 
$
1,367,185

 
$
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,
June 30,
 
Six months ended
June 30,
 
2011
 
2010
 
2011
 
2010
Revenues
 
 
 
 
 

 
 
Base rentals
$
48,393

 
$
43,968

 
$
94,612

 
$
87,465

Percentage rentals
1,137

 
1,048

 
2,528

 
2,353

Expense reimbursements
20,616

 
18,429

 
41,821

 
37,948

Other income
1,955

 
1,850

 
3,879

 
3,571

Total revenues
72,101

 
65,295

 
142,840

 
131,337

Expenses
 
 
 
 


 
 
Property operating
23,765

 
21,758

 
47,873

 
44,107

General and administrative
7,185

 
5,963

 
13,952

 
11,429

Acquisition costs
974

 

 
1,541

 

Abandoned development costs

 
365

 
158

 
365

Impairment charges

 

 

 
735

Depreciation and amortization
17,858

 
17,109

 
35,823

 
43,583

Total expenses
49,782

 
45,195

 
99,347

 
100,219

Operating income
22,319

 
20,100

 
43,493

 
31,118

Interest expense
(10,713
)
 
(7,951
)
 
(21,038
)
 
(15,899
)
Loss on early extinguishment of debt

 
(563
)
 

 
(563
)
Loss on termination of derivatives

 
(6,142
)
 

 
(6,142
)
Income before equity in losses of unconsolidated joint ventures and discontinued operations
11,606

 
5,444

 
22,455

 
8,514

Equity in losses of unconsolidated joint ventures
(764
)
 
(51
)
 
(796
)
 
(119
)
Income from continuing operations
10,842

 
5,393

 
21,659

 
8,395

Discontinued operations

 
(1
)
 

 

Net income
10,842

 
5,392

 
21,659

 
8,395

Net income available to limited partners
10,731

 
5,351

 
21,437

 
8,338

Net income available to general partner
$
111

 
$
41

 
$
222

 
$
57

 
 
 
 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
 
 
 

Income from continuing operations
$
0.46

 
$
0.17

 
$
0.92

 
$
0.23

Net income
$
0.46

 
$
0.17

 
$
0.92

 
$
0.23

Diluted earnings per common unit:
 
 
 
 
 
 
 

Income from continuing operations
$
0.46

 
$
0.17

 
$
0.91

 
$
0.23

Net income
$
0.46

 
$
0.17

 
$
0.91

 
$
0.23

 
 
 
 
 
 
 
 
Distribution paid per common unit
$
0.800

 
$
0.775

 
$
1.575

 
$
1.540

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)
 
 
Six Months Ended
June 30,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
21,659

 
$
8,395

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
35,823

 
43,670

Impairment charge (including discontinued operations)
 

 
735

Loss on termination of derivatives
 

 
6,142

Loss on early extinguishment of debt
 

 
563

Gain on sale of outparcels of land
 

 
(161
)
Amortization of deferred financing costs
 
948

 
657

Equity in losses of unconsolidated joint ventures
 
796

 
119

Equity-based compensation expense
 
3,618

 
2,682

Amortization of debt premiums and discount, net
 
45

 
(219
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
156

 
414

Net accretion of market rent rate adjustment
 
(357
)
 
(381
)
Straight-line base rent adjustment
 
(2,033
)
 
(1,402
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
4,256

 
2,319

Accounts payable and accrued expenses
 
(5,027
)
 
(9,445
)
Net cash provided by operating activities
 
59,884

 
54,088

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(30,031
)
 
(26,692
)
Acquisition of rental property
 
(134,000
)
 

Termination payments related to derivatives
 

 
(6,142
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
444

 
536

Increase in escrow deposits
 
(13,089
)
 

Net proceeds from the sale of real estate
 
724

 
602

Additions to deferred lease costs
 
(6,166
)
 
(1,969
)
Net cash used in investing activities
 
(182,118
)
 
(33,665
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(36,785
)
 
(38,633
)
Proceeds from debt issuances
 
306,850

 
485,230

Repayments of debt
 
(135,030
)
 
(465,000
)
Additions to deferred financing costs
 
(149
)
 
(2,486
)
Proceeds from exercise of options
 
43

 
699

Net cash provided by (used in) financing activities
 
134,929

 
(20,190
)
Net increase in cash and cash equivalents
 
12,695

 
233

Cash and cash equivalents, beginning of period
 
5,671

 
3,214

Cash and cash equivalents, end of period
 
$
18,366

 
$
3,447

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 June 30, 2011, we owned and operated 33 outlet centers, with a total gross leasable area of approximately 9.8 million square feet. We also operated and had partial ownership interests in 2 outlet centers totaling approximately 949,000 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. Through May 31, 2011, the Tanger family, through its ownership of the Tanger Family Limited Partnership held the remaining units as a limited partner. On June 1, 2011, the Tanger Family Limited Partnership was dissolved, and the units of the Operating Partnership owned by the Tanger Family Limited Partnership were distributed to the individual beneficial owners of the Tanger Family Limited Partnership. Each such individual beneficial owner is now an individual limited partner of the Operating Partnership (collectively the "Family Limited Partners").

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.

13



Certain amounts in the consolidated balances sheet as of December 31, 2010 have been reclassified to conform with the presentations made as of June 30, 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.
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 June 30, 2011, the 177,000 square foot center was 96% occupied. In addition, the property features four pad sites, three of which are currently leased.
Commitments to complete construction of our redevelopment and other capital expenditure requirements amounted to approximately $4.1 million at June 30, 2011. Commitments for construction represent only those costs contractually required to be paid by us.
Interest costs capitalized during the three months ended June 30, 2011 and 2010 amounted to $8,000 and $313,000, respectively, and for the six months ended June 30, 2011 and 2010 amounted to $238,000 and $513,000, respectively.

4. Acquisition of Rental Property
On June 28, 2011, we purchased Prime Outlets at Jeffersonville, Ohio, a 410,000 square foot outlet center, from Ohio Factory Stores Partnership, a subsidiary of Simon Property Group, for a cash price of $134.0 million.  The acquisition was funded by amounts available under our senior, unsecured bridge loan. 

The following table summarizes the allocation of the purchase price to the identifiable assets acquired and liabilities assumed as of June 28, 2011, the date of acquisition and the weighted average amortization period by major intangible asset class:
 
 
Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Land
 
$
2,752

 
 
Buildings, improvements and fixtures
 
109,843

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above/below market lease value, net
 
1,958

 
7.2

Lease in place value
 
8,224

 
3.7

Tenant relationships
 
10,029

 
7.8

Lease and legal costs
 
1,194

 
4.9

Total deferred lease costs and other intangibles
 
21,405

 
 
Net assets acquired
 
$
134,000

 
 

There was no contingent consideration associated with this acquisition.  We incurred approximately $563,000 in third-party acquisition related costs for the Jeffersonville acquisition which were expensed as incurred.  The revenues and earnings from Jeffersonville from the acquisition date through to June 30, 2011, as well as the pro forma operating results for periods prior to the acquisition date, are not provided because the acquisition was not material to our results of operations.


14



5. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of June 30, 2011 and December 31, 2010 aggregated $4.6 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 June 30, 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

 
$
0.1

 
$
269.3

Wisconsin Dells
 
Wisconsin Dells, Wisconsin
 
50.0
%
 
265,061

 
$
4.3

 
$
24.3

Other
 
 
 
 
 

 
$
0.2

 
$

(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 for the three and six months ended June 30, 2011 and 2010, respectively (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2011
 
2010
 
2011
 
2010
Fee:
 
 
 
 
 

 
 

Management and leasing
$
469

 
$
471

 
$
973

 
$
935

Marketing
44

 
39

 
88

 
80

Total Fees
$
513

 
$
510

 
$
1,061

 
$
1,015

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.
Deer Park
On May 17, 2011, construction mortgage and mezzanine loans to the joint ventures in the aggregate principal amount of $269.3 million matured. As the joint venture did not qualify for the one-year extension options under the loans, Deer Park was given notices of default on behalf of the various lenders, who have also demanded default interest which is being accrued at a weighted average default interest rate of 9.2% on the outstanding loan balances based on current interest rates. Deer Park is currently in negotiations with the administrative agent bank of the lender group to negotiate new financing terms for the property.

15



We and our two joint venture partners have each, jointly and severally, guaranteed the payment of interest (but not principal) on the loans. The operations from Deer Park, together with cash on hand in the joint venture, have been sufficient in the past to pay interest on the loans, although the historical operations would not have generated sufficient cash flow to pay fully the monthly interest at the additional default interest rate subsequent to maturity or if the then applicable floating interest rates on the loans were significantly higher. We and our joint venture partners have each, jointly and severally, guaranteed completion of the construction of Deer Park.
We currently estimate that there is approximately $11.0 million of additional construction and tenant improvements required at Deer Park. The cash and cash equivalents balance at Deer Park as of June 30, 2011 was $11.6 million. The total amount of interest accrued at Deer Park as of June 30, 2011 was $4.2 million.
If the joint venture is unable to successfully extend or refinance the loans, each joint venture partner may be required to make a material capital contribution to pay for the remaining construction costs and/or shortfalls in interest payments to the extent that the joint venture is unable to pay them.

Galveston/Houston

On June 30, 2011, we announced the formation of a 50/50 joint venture agreement with Simon Property Group, Inc. for the development, construction, leasing and management of a Tanger Outlet Center south of Houston in Texas City, Texas. When completed, the center will feature over 90 brand name and designer outlet stores in the first phase which will contain approximately 350,000 square feet, with room for expansion for a total build out of approximately 470,000 square feet.

National Harbor

On May 23, 2011, we announced the formation of a 50/50 joint venture agreement with The Peterson Companies for the development, management, construction, leasing and management of Tanger Outlets at National Harbor. When completed, the 350,000 square foot Tanger Outlets at National Harbor will feature 80 brand name and designer outlet stores.

Investment and Variable Interest Entity Evaluations
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 previously discussed in this note, Deer Park was given notices of default related to the joint venture's loans. Deer Park is currently in negotiations with the administrative agent bank of the lender group to negotiate new financing terms for the property. As of June 30, 2011, we do not believe that our $108,000 equity investment is impaired because we believe that ultimately a resolution will be reached between the lender group and Deer Park.

16



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 June 30, 2011 was approximately $108,000. 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 $11.0 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
June 30,
2011
 
As of
December 31,
2010
Assets
 
 

 
 

Investment properties at cost, net
 
$
284,076

 
$
283,902

Cash and cash equivalents
 
15,682

 
13,838

Deferred lease costs, net
 
2,877

 
2,563

Deferred debt origination costs, net
 
970

 
1,427

Prepaids and other assets
 
8,555

 
6,291

Total assets
 
$
312,160

 
$
308,021

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
293,534

 
$
294,034

Construction trade payables
 
6,034

 
341

Accounts payable and other liabilities
 
6,937

 
4,810

Total liabilities
 
306,505

 
299,185

Owners' equity
 
5,655

 
8,836

Total liabilities and owners' equity
 
$
312,160

 
$
308,021


17



 
Three Months Ended
 
Six Months Ended
Summary Statements of Operations -
June 30,
 
June 30,
Unconsolidated Joint Ventures
2011
 
2010
 
2011
 
2010
Revenues
$
9,752

 
$
9,261

 
$
19,314

 
$
18,535

Expenses
 
 
 
 
 

 
 

Property operating
4,473

 
4,200

 
8,574

 
8,410

General and administrative
(131
)
 
72

 
56

 
359

Depreciation and amortization
3,627

 
3,546

 
7,238

 
7,043

Total expenses
7,969

 
7,818

 
15,868

 
15,812

Operating income
1,783

 
1,443

 
3,446

 
2,723

Interest expense
4,126

 
1,717

 
5,929

 
3,391

Net loss
$
(2,343
)
 
$
(274
)
 
$
(2,483
)
 
$
(668
)
 
 
 
 
 
 
 
 
The Company and Operating Partnership's share of:
 
 
 
 
 

 
 

Net loss
$
(764
)
 
$
(51
)
 
$
(796
)
 
$
(119
)
Depreciation (real estate related)
$
1,336

 
$
1,280

 
$
2,642

 
$
2,545


6. 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 and six months ended June 30, 2011 and 2010, respectively (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2011
 
2010
 
2011
 
2010
Total revenues
$

 
$
175

 
$

 
$
352

Total expenses

 
176

 

 
352

Discontinued operations
$

 
$
(1
)
 
$

 
$


7. 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 June 30, 2011 and December 31, 2010, the Operating Partnership had $182.0 million and $160.0 million, respectively, outstanding in total on these lines.
The Company also guarantees the Operating Partnership's obligation with respect to the $150.0 million senior, unsecured bridge loan which closed on June 27, 2011.

18



In addition, the Company also guarantees the Operating Partnership's obligations with respect to its $7.0 million of outstanding senior exchangeable notes due in 2026. The Operating Partnership exercised its option to redeem all of the senior exchangeable notes outstanding by issuing a redemption notice on July 18, 2011 for all outstanding notes on August 18, 2011, the five year anniversary of the issuance of the notes. Noteholders have until August 16, 2011 to exercise their exchange rights and may exchange their notes for cash in an amount equal to the lesser of the exchange value and the aggregate principal amount of the notes to be exchanged, and, at our option, Company common shares, cash or a combination thereof for any excess.
8. Debt of the Operating Partnership
As of June 30, 2011 and December 31, 2010, the debt of the Operating Partnership consisted of the following (in thousands):
 
 
June 30, 2011
 
December 31,
2010
Senior, unsecured notes:
 
 

 
 

6.15% Senior notes, maturing November 2015, net of discount of $464 and $510, respectively
 
$
249,536

 
$
249,490

3.75% Senior exchangeable notes, maturing August 2026, net of discount of $20 and $103, respectively
 
7,010

 
7,107

6.125% Senior notes, maturing June 2020, net of discount of $1,902 and $1,981, respectively
 
298,098

 
298,019

Senior, unsecured bridge loan, 1.79% (1)
 
150,000

 

Unsecured lines of credit with a weighted average interest rates of 2.14% and 2.16%, respectively (2)
 
182,000

 
160,000

 
 
$
886,644

 
$
714,616

(1)    Our senior, unsecured bridge loan bears interest at a rate of LIBOR + 1.60% and has an initial maturity date of September 26, 2011. At our discretion we may extend the maturity to June 22, 2012 by exercising each of the three ninety-day extension options.

(2)    Our unsecured lines of credit as of June 30, 2011 bear interest at a rate of LIBOR + 1.90% and expire in November 2013. These lines require a facility fee payment of 0.40% 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 June 30, 2011 are as follows (in thousands):
Year
Amount

2011 (1)
$
157,030

2012

2013
182,000

2014

2015
250,000

Thereafter
300,000

Subtotal
889,030

Discounts
(2,386
)
Total
$
886,644

(1) On July 18, 2011, we issued a redemption notice for the remaining 7.0 million outstanding 3.75%
senior exchangeable notes. These notes, with an original maturity of August 2026, will be redeemable on August 18, 2011. Holders of the notes will have until August 16, 2011 to exercise their exchange rights.
  


19



9. 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 $0.01 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 Family Limited Partners 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


18,820


18,820

2,839

21,659

Other comprehensive income (loss)



(101
)
(101
)
(16
)
(117
)
Total comprehensive income


18,820

(101
)
18,719

2,823

21,542

Compensation under Incentive Award Plan

3,618



3,618


3,618

Grant of 312,400 restricted shares, net of forfeitures
3

(3
)





Issuance of 4,500 common shares upon exercise of options

43



43


43

Issuance of 2,232 common shares upon exchange of senior, exchangeable notes







Adjustment for noncontrolling interests in Operating Partnership

(261
)


(261
)
261


Common dividends ($.3938 per share)


(32,009
)

(32,009
)

(32,009
)
Distributions to noncontrolling interests in Operating Partnership





(4,776
)
(4,776
)
June 30, 2011
$
813

$
607,756

$
(253,213
)
$
1,683

$
357,039

$
53,274

$
410,313



20



10. 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 June 30, 2011 and December 31, 2010, the ownership interests of the Operating Partnership consisted of the following:
 
 
June 30,
2011
 
December 31,
2010
Common units:
 
 

 
 

General partner
 
237,000

 
237,000

Limited partners
 
23,125,323

 
23,045,322

Total common units
 
23,362,323

 
23,282,322


11. Other Comprehensive Income of the Company
Total comprehensive income for the three and six months months ended June 30, 2011 and 2010 is as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
Net income
 
$
10,842

 
$
5,392

 
21,659

 
$
8,395

 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Reclassification adjustment for amortization of gain on 2005 settlement of US treasury rate lock included in net income
 
(82
)
 
(78
)
 
(163
)
 
(154
)
 
Reclassification adjustment for settlement of interest rate swap agreements
 

 
6,142

 

 
6,142

 
Change in fair value of cash flow hedges
 

 
2,053

 

 
2,905

 
Change in fair value of our portion of our unconsolidated joint ventures' cash flow hedges
 

 
3

 
46

 
(36
)
 
Other comprehensive income (loss)
 
(82
)
 
8,120

 
(117
)
 
8,857

 
Total comprehensive income
 
10,760

 
13,512

 
21,542

 
17,252

 
Comprehensive income attributable to the noncontrolling interests
 
(1,409
)
 
(1,591
)
 
(2,823
)
 
(1,898
)
 
Total comprehensive income attributable to the Company
 
$
9,351

 
$
11,921

 
18,719

 
$
15,354

 


21



12. Other Comprehensive Income of the Operating Partnership
Total comprehensive income for the three and six months ended June 30, 2011 and 2010 is as follows (in thousands):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
Net income
 
$
10,842

 
$
5,392

 
$
21,659

 
$
8,395

 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Reclassification adjustment for amortization of gain on 2005 settlement of US treasury rate lock included in net income
 
(82
)
 
(78
)
 
(163
)
 
(154
)
 
Reclassification adjustment for settlement of interest rate swap agreements
 

 
6,142

 

 
6,142

 
Change in fair value of cash flow hedges
 

 
2,053

 

 
2,905

 
Change in fair value of our portion of our unconsolidated joint ventures' cash flow hedges
 

 
3

 
46

 
(36
)
 
Other comprehensive income (loss)
 
(82
)
 
8,120

 
(117
)
 
8,857

 
Total comprehensive income
 
$
10,760

 
$
13,512

 
$
21,542

 
$
17,252

 

13. 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 six months of 2011, the Company's Board of Directors approved grants of 324,000 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.

22



We recorded share-based compensation expense in our statements of operations for the three and six months ended June 30, 2011 and 2010 as follows (in thousands):
 
 
Three Months Ended
 June 30,
 
Six Months Ended
 June 30,
 
 
2011
 
2010
 
2011
 
2010
Restricted shares
 
$
1,266

 
$
1,006

 
$
2,533

 
$
1,965

Notional unit performance awards
 
507

 
450

 
1,013

 
717

Options
 
47

 

 
72

 

Total share-based compensation
 
$
1,820

 
$
1,456

 
$
3,618

 
$
2,682


Options outstanding at June 30, 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-average remaining contractual life in years
 
Options
 
Weighted-average exercise price
$9.6900
 
10,000

 
$
9.69

 
2.83

 
10,000

 
$
9.69

$9.7075
 
93,700

 
9.71

 
2.83

 
93,700

 
9.71

$11.8125
 
12,000

 
11.81

 
3.34

 
12,000

 
11.81

$26.0600
 
185,000

 
26.06

 
9.66

 

 

 
 
300,700

 
$
19.85

 
7.05

 
115,700

 
$
9.92


A summary of option activity under our Amended and Restated Incentive Award Plan as of June 30, 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
 
(4,500
)
 
9.71

 
 
 
 
Forfeited
 
(6,500
)
 
26.06

 
 
 
 
Outstanding as of June 30, 2011
 
300,700

 
$
19.85

 
7.05

 
$
1,945

 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
June 30, 2011
 
259,905

 
$
18.88

 
6.64

 
$
1,934

 
 
 
 
 
 
 
 
 
Exercisable as of June 30, 2011
 
115,700

 
$
9.92

 
2.88

 
$
1,897

The total intrinsic value of options exercised during the three months and six months ended June 30, 2011 was $78,000.


23



The following table summarizes information related to unvested restricted shares outstanding as of June 30, 2011:
Unvested Restricted Shares
 
Number of shares
 
Weighted-average grant date fair value
Unvested at December 31, 2010
 
717,760

 
$
17.95

Granted
 
324,000

 
25.44

Vested
 
(207,600
)
 
17.87

Forfeited
 
(11,600
)
 
17.78

Unvested at June 30, 2011
 
822,560

 
$
20.92

The total value of restricted shares vested during the six months ended June 30, 2011 was $5.5 million.
As of June 30, 2011, there was $23.4 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 3.6 years.
14. Equity-Based Compensation of the Operating Partnership
As discussed in Note 13, 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
June 30,
 
Six Months Ended
June 30,
 
 
2011
 
2010
 
2011
 
2010
Restricted units
 
$
1,266

 
$
1,006

 
$
2,533

 
$
1,965

Notional unit performance awards
 
507

 
450

 
1,013

 
717

Options
 
47

 

 
72

 

Total equity-based compensation
 
$
1,820

 
$
1,456

 
$
3,618

 
$
2,682



24



Options outstanding at June 30, 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-average remaining contractual life in years
 
Options
 
Weighted-average exercise price
$38.76
 
2,500

 
$
38.76

 
2.83
 
2,500

 
$
38.76

$38.83
 
23,425

 
38.83

 
2.83
 
23,425

 
38.83

$47.25
 
3,000

 
47.25

 
3.34
 
3,000

 
47.25

$104.24
 
46,250

 
104.24

 
9.66
 

 

 
 
75,175

 
$
79.41

 
7.05
 
28,925

 
$
19.85


A summary of option activity under our Amended and Restated Incentive Award Plan as of June 30, 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
 
(1,125
)
 
38.83

 
 
 
 
Forfeited
 
(1,625
)
 
104.24

 
 
 
 
Outstanding as of June 30, 2011
 
75,175

 
$
79.41

 
7.05

 
$
1,945

 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
June 30, 2011
 
64,976

 
$
75.51

 
6.64

 
$
1,934

 
 
 
 
 
 
 
 
 
Exercisable as of June 30, 2011
 
28,925

 
$
39.7

 
2.88

 
$
1,897

The total intrinsic value of options exercised during the three and six months ended June 30, 2011 was $78,000.

The following table summarizes information related to unvested restricted units outstanding as of June 30, 2011:
Unvested Restricted Units
 
Number of units
 
Weighted-average grant date fair value
Unvested at December 31, 2010
 
179,440

 
$
71.81

Granted
 
81,000

 
101.74

Vested
 
(51,900
)
 
71.47

Forfeited
 
(5,800
)
 
35.57

Unvested at June 30, 2011
 
202,740

 
$
83.69

The total value of restricted units vested during the six months ended June 30, 2011 was $5.5 million.

25



As of June 30, 2011, there was $23.4 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 3.6 years.

15. 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 for the three and six months ended June 30, 2011 and 2010, respectively (in thousands, except per share amounts):
 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
Numerator
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to the Company
 
$
9,422

 
$
4,869

 
$
18,820

 
$
7,661

 
Less applicable preferred share dividends
 

 
(1,407
)
 

 
(2,813
)
 
Less allocation of earnings to participating securities
 
(165
)
 
(143
)
 
(357
)
 
(312
)
 
Income from continuing operations available to common shareholders of the Company
 
9,257

 
3,319

 
18,463

 
4,536

 
Discontinued operations attributable to the Company
 

 
(1
)
 

 

 
Net income available to common shareholders of the Company
 
$
9,257

 
$
3,318

 
$
18,463

 
$
4,536

 
Denominator