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 September 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 October 31, 2011, there were 86,693,656 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 September 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 September 30, 2011, the Company, through its ownership of the GP Trust and LP Trust, owned 21,673,414 units of the Operating Partnership and the Family Limited Partners collectively owned 2,872,973 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 consolidated and 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 September 30, 2011 and December 31, 2010
Consolidated Statements of Operations - for the three and nine months ended September 30, 2011 and 2010
Consolidated Statements of Equity - for the nine months ended September 30, 2011 and 2010
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2011 and 2010
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2011 and December 31, 2010
Consolidated Statements of Operations - for the three and nine months ended September 30, 2011 and 2010
Consolidated Statements of Equity - for the nine months ended September 30, 2011 and 2010
Consolidated Statements of Cash Flows - for the nine months ended September 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)
 
 
September 30,
 2011
 
December 31,
2010
ASSETS:
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
141,577

Buildings, improvements and fixtures
 
1,747,149

 
1,411,404

Construction in progress
 
1,800

 
23,233

 
 
1,896,951

 
1,576,214

Accumulated depreciation
 
(494,518
)
 
(453,145
)
Rental property, net
 
1,402,433

 
1,123,069

Cash and cash equivalents
 
3,694

 
5,758

Rental property held for sale
 

 
723

Investments in unconsolidated joint ventures, net
 
9,447

 
6,386

Deferred lease costs and other intangibles, net
 
120,933

 
33,953

Deferred debt origination costs, net
 
6,327

 
7,593

Prepaids and other assets
 
50,856

 
39,452

Total assets
 
$
1,593,690

 
$
1,216,934

LIABILITIES AND EQUITY:
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $2,302 and $2,594, respectively)
 
$
547,698

 
$
554,616

Senior, unsecured bridge loan
 
150,000

 

Mortgages payable (including premiums of $7,666 and $0, respectively)
 
112,235

 

Unsecured lines of credit
 
172,300

 
160,000

Total debt
 
982,233

 
714,616

Construction trade payables
 
19,331

 
31,831

Accounts payable and accrued expenses
 
44,127

 
31,594

Other liabilities
 
16,249

 
16,998

Total liabilities
 
1,061,940

 
795,039

Commitments and contingencies
 


 


Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 86,693,656 and 80,996,068 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
 
867

 
810

Paid in capital
 
718,318

 
604,359

Accumulated distributions in excess of net income 
 
(257,930
)
 
(240,024
)
Accumulated other comprehensive income
 
1,516

 
1,784

Equity attributable to Tanger Factory Outlet Centers, Inc.
 
462,771

 
366,929

Equity attributable to noncontrolling interests:
 
 
 
 
Noncontrolling interests in Operating Partnership
 
61,344

 
54,966

Noncontrolling interests in other consolidated partnerships
 
7,635

 

Total equity
 
531,750

 
421,895

Total liabilities and equity
 
$
1,593,690

 
$
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
September 30,
 
Nine months ended
September 30,
 
2011
 
2010
 
2011
 
2010
Revenues
 
 
 
 
 

 
 
Base rentals
$
55,018

 
$
44,857

 
$
149,630

 
$
132,322

Percentage rentals
2,684

 
1,910

 
5,212

 
4,263

Expense reimbursements
22,973

 
20,139

 
64,794

 
58,087

Other income
2,568

 
2,567

 
6,447

 
6,138

Total revenues
83,243

 
69,473

 
226,083

 
200,810

Expenses
 
 
 
 


 
 

Property operating
25,181

 
22,567

 
73,054

 
66,674

General and administrative
7,943

 
6,403

 
21,895

 
17,832

Acquisition costs
978

 

 
2,519

 

Abandoned development costs

 

 
158

 
365

Impairment charges

 

 

 
735

Depreciation and amortization
22,964

 
16,805

 
58,787

 
60,388

Total expenses
57,066

 
45,775

 
156,413

 
145,994

Operating income
26,177

 
23,698

 
69,670

 
54,816

Interest expense
(11,958
)
 
(8,767
)
 
(32,996
)
 
(24,666
)
Loss on early extinguishment of debt

 

 

 
(563
)
Loss on termination of derivatives

 

 

 
(6,142
)
Income before equity in losses of unconsolidated joint ventures and discontinued operations
14,219

 
14,931

 
36,674

 
23,445

Equity in losses of unconsolidated joint ventures
(27
)
 
(75
)
 
(823
)
 
(194
)
Income from continuing operations
14,192

 
14,856

 
35,851

 
23,251

Discontinued operations

 
(103
)
 

 
(103
)
Net income
14,192

 
14,753

 
35,851

 
23,148

Noncontrolling interests in Operating Partnership
(1,730
)
 
(1,754
)
 
(4,569
)
 
(2,488
)
Noncontrolling interests in other consolidated partnerships
2

 

 
2

 

Net income attributable to Tanger Factory Outlet Centers, Inc.
$
12,464

 
$
12,999

 
$
31,284

 
$
20,660

 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 

 
 

Income from continuing operations
$
0.14

 
$
0.14

 
$
0.38

 
$
0.20

Net income
$
0.14

 
$
0.14

 
$
0.38

 
$
0.20

Diluted earnings per common share:
 
 
 
 
 
 
 
Income from continuing operations
$
0.14

 
$
0.14

 
$
0.37

 
$
0.20

Net income
$
0.14

 
$
0.14

 
$
0.37

 
$
0.20

 
 
 
 
 
 
 
 
Dividends paid per common share
$
0.2000

 
$
0.1938

 
$
0.5938

 
$
0.5788

The accompanying notes are an integral part of these consolidated financial statements.

8



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share data, unaudited)

 
 
Preferred shares
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Total
 equity
Balance, December 31, 2009
 
$
75,000

$
806

$
595,671

$
(202,997
)
$
(5,809
)
$
462,671

$
58,392

$
521,063

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 



20,660


20,660

2,488

23,148

Other comprehensive income
 




7,637

7,637

1,156

8,793

Total comprehensive income
 



20,660

7,637

28,297

3,644

31,941

Compensation under Incentive Award Plan
 


4,224



4,224


4,224

Issuance of 106,700 common shares upon exercise of options
 


893



893


893

Grant of 312,720 restricted shares, net of forfeitures
 

4

(4
)





Adjustment for noncontrolling interests in Operating Partnership
 


(376
)


(376
)
376


Preferred dividends ($1.41 per share)
 



(4,219
)

(4,219
)

(4,219
)
Common dividends ($.5788 per share)
 



(46,831
)

(46,831
)

(46,831
)
Distributions to noncontrolling interests in Operating Partnership
 






(7,022
)
(7,022
)
Balance, September 30, 2010
 
$
75,000

$
810

$
600,408

$
(233,387
)
$
1,828

$
444,659

$
55,390

$
500,049

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


9



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share data, unaudited)

 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Noncontrolling interests in other consolidated partnerships
Total
 equity
Balance,
December 31, 2010
 
$
810

$
604,359

$
(240,024
)
$
1,784

$
366,929

$
54,966

$

$
421,895

Comprehensive income:
 
 
 
 
 
 
 
 
 
Net income
 


31,284


31,284

4,569

(2
)
35,851

Other comprehensive loss
 



(268
)
(268
)
(39
)

(307
)
Total comprehensive income
 


31,284

(268
)
31,016

4,530

(2
)
35,544

Issuance of 4.6 million common shares, net of issuance costs of $0.5 million
 
46

117,493



117,539



117,539

Compensation under Incentive Award Plan
 

5,458



5,458



5,458

Issuance of 7,500 common shares upon exercise of options
 
1

71



72



72

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

(3
)






Adjustment for noncontrolling interests in Operating Partnership
 

(9,051
)


(9,051
)
9,051



Adjustment for noncontrolling interests in other consolidated partnerships
 

(2
)
2




7,637

7,637

Exchange of 160,332 Operating Partnership units for 641,328 common shares
 
6

(6
)






Issuance of 136,360 common shares upon exchange of exchangeable notes
 
1

(1
)






Common dividends ($.5938 per share)
 


(49,192
)

(49,192
)


(49,192
)
Distributions to noncontrolling interests in Operating Partnership
 





(7,203
)

(7,203
)
Balance,
September 30, 2011
 
$
867

$
718,318

$
(257,930
)
$
1,516

$
462,771

$
61,344

$
7,635

$
531,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Nine Months Ended
September 30,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
35,851

 
$
23,148

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
58,787

 
60,475

Impairment charges (including discontinued operations)
 

 
846

Loss on termination of derivatives
 

 
6,142

Gain on sale of outparcels of land
 

 
(161
)
Amortization of deferred financing costs
 
1,540

 
916

Loss on early extinguishment of debt
 

 
563

Equity in losses of unconsolidated joint ventures
 
823

 
194

Share-based compensation expense
 
5,458

 
4,224

Amortization of debt (premiums) and discounts, net
 
(54
)
 
(197
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
315

 
568

Net accretion of market rent rate adjustments
 
(278
)
 
(576
)
Straight-line rent adjustments
 
(3,041
)
 
(2,171
)
Changes in other assets and liabilities:
 


 


Other assets
 
(6,377
)
 
(4,461
)
Accounts payable and accrued expenses
 
11,786

 
7,688

Net cash provided by operating activities
 
104,810

 
97,198

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(44,911
)
 
(55,588
)
Acquisition of rental property
 
(262,488
)
 

Additions to investments in unconsolidated joint ventures
 
(5,424
)


Termination payments related to derivatives
 

 
(6,142
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
585

 
682

Increases in escrow deposits
 
(1,500
)
 

Net proceeds from the sale of real estate
 
723

 
2,025

Additions to deferred lease costs
 
(9,570
)
 
(3,066
)
Net cash used in investing activities
 
(322,585
)
 
(62,089
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(49,192
)
 
(51,050
)
Distributions to noncontrolling interests in Operating Partnership
 
(7,203
)
 
(7,022
)
Proceeds from issuance of common shares
 
117,539

 

Proceeds from debt issuances
 
485,350

 
567,530

Repayments of debt
 
(330,566
)
 
(543,300
)
Additions to deferred financing costs
 
(289
)
 
(2,592
)
Proceeds from exercise of options
 
72

 
893

Net cash provided by (used in) financing activities
 
215,711

 
(35,541
)
Net decrease in cash and cash equivalents
 
(2,064
)
 
(432
)
Cash and cash equivalents, beginning of period
 
5,758

 
3,267

Cash and cash equivalents, end of period
 
$
3,694

 
$
2,835

The accompanying notes are an integral part of these consolidated financial statements.

11



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)

 
 
September 30,
 2011
 
December 31,
2010
ASSETS:
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
141,577

Buildings, improvements and fixtures
 
1,747,149

 
1,411,404

Construction in progress
 
1,800

 
23,233

 
 
1,896,951

 
1,576,214

Accumulated depreciation
 
(494,518
)
 
(453,145
)
Rental property, net
 
1,402,433

 
1,123,069

Cash and cash equivalents
 
3,626

 
5,671

Rental property held for sale
 

 
723

Investments in unconsolidated joint ventures, net
 
9,447

 
6,386

Deferred lease costs and other intangibles, net
 
120,933

 
33,953

Deferred debt origination costs, net
 
6,327

 
7,593

Prepaids and other assets
 
50,568

 
39,081

Total assets
 
$
1,593,334

 
$
1,216,476

LIABILITIES AND EQUITY:
 
 
 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $2,302 and $2,594, respectively)
 
$
547,698

 
$
554,616

Senior, unsecured bridge loan
 
150,000

 

Mortgages payable (including premiums of $7,666 and $0, respectively)
 
112,235

 

Unsecured lines of credit
 
172,300

 
160,000

Total debt
 
982,233

 
714,616

Construction trade payables
 
19,331

 
31,831

Accounts payable and accrued expenses
 
43,771

 
31,136

Other liabilities
 
16,249

 
16,998

Total liabilities
 
1,061,584

 
794,581

Commitments and contingencies
 
 
 
 
Equity attributable to:
 
 
 
 
Partners' Equity
 
 
 
 
General partner
 
5,016

 
5,221

Limited partners
 
517,658

 
414,926

Accumulated other comprehensive income
 
1,441

 
1,748

Total partners' equity
 
524,115

 
421,895

Noncontrolling interests in consolidated partnerships
 
7,635

 

Total equity
 
531,750

 
421,895

Total liabilities and equity
 
$
1,593,334

 
$
1,216,476

The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)

 
Three months ended,
September 30,
 
Nine months ended
September 30,
 
2011
 
2010
 
2011
 
2010
Revenues
 
 
 
 
 

 
 
Base rentals
$
55,018

 
$
44,857

 
$
149,630

 
$
132,322

Percentage rentals
2,684

 
1,910

 
5,212

 
4,263

Expense reimbursements
22,973

 
20,139

 
64,794

 
58,087

Other income
2,568

 
2,567

 
6,447

 
6,138

Total revenues
83,243

 
69,473

 
226,083

 
200,810

Expenses
 
 
 
 


 
 
Property operating
25,181

 
22,567

 
73,054

 
66,674

General and administrative
7,943

 
6,403

 
21,895

 
17,832

Acquisition costs
978

 

 
2,519

 

Abandoned development costs

 

 
158

 
365

Impairment charges

 

 

 
735

Depreciation and amortization
22,964

 
16,805

 
58,787

 
60,388

Total expenses
57,066

 
45,775

 
156,413

 
145,994

Operating income
26,177

 
23,698

 
69,670

 
54,816

Interest expense
(11,958
)
 
(8,767
)
 
(32,996
)
 
(24,666
)
Loss on early extinguishment of debt

 

 

 
(563
)
Loss on termination of derivatives

 

 

 
(6,142
)
Income before equity in losses of unconsolidated joint ventures and discontinued operations
14,219

 
14,931

 
36,674

 
23,445

Equity in losses of unconsolidated joint ventures
(27
)
 
(75
)
 
(823
)
 
(194
)
Income from continuing operations
14,192

 
14,856

 
35,851

 
23,251

Discontinued operations

 
(103
)
 

 
(103
)
Net income
14,192

 
14,753

 
35,851

 
23,148

Noncontrolling interests in consolidated partnerships
2

 

 
2

 

Net income available to partners
14,194

 
14,753

 
35,853

 
23,148

Net income available to limited partners
14,048

 
14,616

 
35,485

 
22,954

Net income available to general partner
$
146

 
$
137

 
$
368

 
$
194

 
 
 
 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
 
 
 

Income from continuing operations
$
0.58

 
$
0.57

 
$
1.50

 
$
0.80

Net income
$
0.58

 
$
0.57

 
$
1.50

 
$
0.80

Diluted earnings per common unit:
 
 
 
 
 
 
 

Income from continuing operations
$
0.57

 
$
0.57

 
$
1.49

 
$
0.80

Net income
$
0.57

 
$
0.57

 
$
1.49

 
$
0.80

 
 
 
 
 
 
 
 
Distribution paid per common unit
$
0.800

 
$
0.775

 
$
2.375

 
$
2.315

The accompanying notes are an integral part of these consolidated financial statements.

12



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per unit data, unaudited)


 
 
General partner
Limited partners
Accumulated other comprehensive income (loss)
Total equity
Balance, December 31, 2009
 
$
5,633

$
522,425

$
(6,995
)
$
521,063

Comprehensive income:
 
 
 
 
 
Net income
 
194

22,954


23,148

Other comprehensive income
 


8,793

8,793

Total comprehensive income
 
194

22,954

8,793

31,941

Compensation under Incentive Award Plan
 

4,224


4,224

Issuance of 26,675 common units upon exercise of options
 

893


893

Preferred distributions ($1.41 per units)
 

(4,219
)

(4,219
)
Common distributions ($2.315 per unit)
 
(543
)
(53,310
)

(53,853
)
Balance, September 30, 2010
 
$
5,284

$
492,967

$
1,798

$
500,049

 
 
 
 
 
 

 
 
General partner
Limited partners
Accumulated other comprehensive income
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total
 equity
Balance, December 31, 2010
 
$
5,221

$
414,926

$
1,748

$
421,895

$

$
421,895

Comprehensive income:
 
 
 
 
 
 
 
Net income
 
368

35,485


35,853

(2
)
35,851

Other comprehensive loss
 


(307
)
(307
)

(307
)
Total comprehensive income
 
368

35,485

(307
)
35,546

(2
)
35,544

Compensation under Incentive Award Plan
 

5,458


5,458


5,458

Issuance of 1,875 common units upon exercise of options
 

72


72


72

Issuance of 1.2 million common units, net of issuance costs of $0.5 million
 

117,539


117,539


117,539

Common distributions ($2.375 per unit)
 
(573
)
(55,822
)

(56,395
)

(56,395
)
Adjustment for noncontrolling interests in consolidated partnerships
 




7,637

7,637

Balance, September 30, 2011
 
5,016

517,658

1,441

524,115

7,635

531,750

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Nine Months Ended
September 30,
 
 
2011
 
2010
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
35,851

 
$
23,148

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization (including discontinued operations)
 
58,787

 
60,475

Impairment charge (including discontinued operations)
 

 
846

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
 
1,540

 
916

Equity in losses of unconsolidated joint ventures
 
823

 
194

Equity-based compensation expense
 
5,458

 
4,224

Amortization of debt (premiums) and discounts, net
 
(54
)
 
(197
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
315

 
568

Net accretion of market rent rate adjustments
 
(278
)
 
(576
)
Straight-line rent adjustments
 
(3,041
)
 
(2,171
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(6,460
)
 
(4,501
)
Accounts payable and accrued expenses
 
11,888

 
7,725

Net cash provided by operating activities
 
104,829

 
97,195

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(44,911
)
 
(55,588
)
Acquisition of rental property
 
(262,488
)
 

Additions to investments in unconsolidated joint ventures
 
(5,424
)
 

Termination payments related to derivatives
 

 
(6,142
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
585

 
682

Increase in escrow deposits
 
(1,500
)
 

Net proceeds from the sale of real estate
 
723

 
2,025

Additions to deferred lease costs
 
(9,570
)
 
(3,066
)
Net cash used in investing activities
 
(322,585
)
 
(62,089
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(56,395
)
 
(58,072
)
Contributions from partners
 
117,539

 

Proceeds from debt issuances
 
485,350

 
567,530

Repayments of debt
 
(330,566
)
 
(543,300
)
Additions to deferred financing costs
 
(289
)
 
(2,592
)
Proceeds from exercise of options
 
72

 
893

Net cash provided by (used in) financing activities
 
215,711

 
(35,541
)
Net decrease in cash and cash equivalents
 
(2,045
)
 
(435
)
Cash and cash equivalents, beginning of period
 
5,671

 
3,214

Cash and cash equivalents, end of period
 
$
3,626

 
$
2,779

The accompanying notes are an integral part of these consolidated financial statements.

13



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 September 30, 2011, we consolidated 36 outlet centers, with a total gross leasable area of approximately 10.7 million square feet. We also operated and had partial ownership interests in 2 unconsolidated 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. 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.

14



Certain amounts in the consolidated balances sheet as of December 31, 2010 have been reclassified to conform with the presentations made as of September 30, 2011 related to deferred lease costs and other intangibles, net; deferred debt origination costs, net; and prepaids and other assets. These reclassifications had no impact on previously reported total assets.
Certain amounts in the consolidated statements of operations for the three and nine months ended September 30, 2010 have been reclassified from operating expenses to abandoned development costs to conform with the presentations made for the three and nine months ended September 30, 2011. These reclassifications had no impact on previously reported total expenses, income from continuing operations or net income.
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 September 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 $5.5 million at September 30, 2011. Commitments for construction represent only those costs contractually required to be paid by us.
Interest costs capitalized during the three months ended September 30, 2011 and 2010 amounted to $64,000 and $583,000, respectively, and for the nine months ended September 30, 2011 and 2010 amounted to $302,000 and $1.1 million, respectively.

4. Acquisitions of Rental Property
Jeffersonville, Ohio

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, Inc., for a cash price of $134.0 million.  The acquisition was funded by amounts available under our senior, unsecured bridge loan. 

Atlantic City, New Jersey and Ocean City, Maryland

On July 15, 2011, we closed on our admission as a member into three existing entities that results in our acquiring substantially all of the economic interests from Cordish AC-1 Associates, LLC, Cordish AC-2 Associates, LLC and OCF Holdings LLC in Phase I & II of Atlantic City Outlets The Walk (Atlantic City, New Jersey) and Ocean City Factory Outlets (Ocean City, Maryland) for an acquisition price of $183.5 million, consisting of $110.0 million in cash and the assumption of $73.5 million in indebtedness. The acquisition was funded by amounts available under our unsecured lines of credit.

On November 1, 2011, we closed on our admission as a member into Atlantic City Associates Number Three LLC that resulted in our acquiring substantially all of the economic interests in Phase III of Atlantic City Outlets The Walk. The acquisition price of Atlantic City Phase III, subject to a final earnout calculation, is estimated to be $15.9 million, consisting of $5.9 million in cash and the assumption of $10.0 million in indebtedness.

Atlantic City Outlets The Walk is comprised of approximately 491,000 square feet, built in a series of three phases, and is located across from The Boardwalk at the intersections of Atlantic, Baltic, Michigan and Arkansas Avenues. There are approximately 100 outlet stores, many of whom are current tenants at other Tanger Outlet Centers across the United States.

15




Ocean City Factory Outlets is comprised of approximately 200,000 square feet with approximately 40 outlet stores.

Hershey, Pennsylvania

On September 30, 2011, we purchased substantially all of the economic interests in The Outlets at Hershey, a 248,000 square foot outlet center, for an acquisition price of $49.8 million, consisting of approximately $18.4 million in cash and the assumption of $31.4 million of indebtedness. Concurrent with the transaction, we made a $6.2 million loan to the noncontrolling interest holder collateralized by their ownership interest in the property.

The aggregate purchase price of the properties acquired during the nine months ended September 30, 2011 has been allocated as follows:
 
 
Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Land
 
$
6,425

 
 
Buildings, improvements and fixtures
 
287,933

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above/below market lease value, net
 
4,897

 
7.0

Below market ground lease value
 
29,092

 
86.3

Lease in place value
 
23,340

 
3.8

Tenant relationships
 
27,876

 
9.9

Lease and legal costs
 
3,207

 
2.8

Total deferred lease costs and other intangibles, net
 
88,412

 
 
Mortgage fair value adjustments
 
(7,770
)
 
 
Net assets acquired
 
375,000

 
 
Less: noncontrolling interests
 
(7,635
)
 
 
Consideration transferred
 
367,365

 
 

There was no contingent consideration associated with these acquisitions.  We incurred approximately $2.5 million in third-party acquisition costs which were expensed as incurred.  The aggregate revenues and net loss from the properties from the acquisition dates through September 30, 2011, were $7.9 million, and $0.2 million, respectively.

Although we do not anticipate any changes in the fair value measurements of the acquisitions, the measurements may be subject to change within 12 months of the business combination date if new facts or circumstances are brought to our attention that were previously unknown but existed as of the business combination date.




16



The results of operations of the following acquired properties are included in the consolidated statements of operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information for the three and nine months ended September 30, 2011 is presented as if the acquisitions had been consummated as of January 1, 2010, the beginning of the previous reporting period:

 
 
(Pro forma)
 
(Pro forma)
 
 
Three months ended
September 30,
 
Nine months ended
September 30,
 
 
2011
 
2010
 
2011
 
2010
Total Revenue
 
84,822

 
79,569

 
247,178

 
231,021

Income from continuing operations
 
13,757

 
14,321

 
32,651

 
21,806

 
 
 
 
 
 
 
 
 

5. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of September 30, 2011 and December 31, 2010 aggregated $9.4 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 September 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

 
$
4.2

 
$
24.3

Galveston/Houston
 
Texas City, Texas
 
50.0
%
 

 
$
4.0

 
$

RioCan Canada
 
Various
 
50.0
%
 

 
$
1.3

 
$

(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 earned from services provided to Wisconsin Dells and Deer Park for the three and nine months ended September 30, 2011 and 2010, respectively (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Fee:
 
 
 
 
 

 
 

Management and leasing
$
716

 
$
464

 
$
1,689

 
$
1,399

Marketing
37

 
39

 
125

 
119

Total Fees
$
753

 
$
503

 
$
1,814

 
$
1,518


17



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, Long Island, New York
On May 17, 2011, construction mortgage and mezzanine loans to the joint ventures matured. The joint venture did not qualify for the one-year extension options under the loans and therefore began accruing interest expense at a weighted average default interest rate of 9.2% on the outstanding loan balances based on current interest rates. In September 2011, the joint venture partners signed non-binding term sheets with the administrative agent bank of the lender group for a three-year extension on the senior and mezzanine loans from the original maturity date. Upon the signing of the term sheets, the default rate interest was waived and interest at the new stated rates of LIBOR plus 3.50% and LIBOR plus 5.0%, respectively, were recorded from the original maturity date. The joint venture expects to close on the renewal loans during the fourth quarter of 2011. Upon closing, the joint venture will be required to make a $20.0 million paydown on the senior loan, of which one-third or approximately $6.67 million will be funded by the Operating Partnership. As of September 30, 2011, the outstanding principal balances of the senior and mezzanine loans were $252.0 million and $15.0 million, respectively.
In June 2008, the joint venture entered into an interest-only mortgage loan agreement for a warehouse adjacent to the property with an interest rate of LIBOR plus 1.85% and an initial maturity of May 17, 2011. The joint venture did not qualify for the one-year extension option under this loan. As of September 30, 2011, the outstanding principal balance under the warehouse mortgage was $2.3 million.

Galveston/Houston, Texas

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. On July 27, 2011, the joint venture acquired the land underlying the site for approximately $5.6 million. Ground breaking ceremonies were held August 30, 2011. As of September 30, 2011, we have contributed $4.0 million in cash to the joint venture to fund development activities.

National Harbor, Washington, D.C.

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 in the Washington, D.C. area. When completed, the 350,000 square foot Tanger Outlets at National Harbor will feature 80 brand name and designer outlet stores.


18



RioCan Canada

In January 2011, we announced that we entered into a letter of intent with RioCan Real Estate Investment Trust to form an exclusive joint venture for the acquisition, development and leasing of sites across Canada that are suitable for development or redevelopment as outlet shopping centers similar in concept and design to those within our existing U.S. portfolio. Subsequently, in July 2011, we finalized and executed the co-ownership documentation related to the joint venture. Through September 30, 2011, we have contributed approximately $1.4 million to fund pre-development and due diligence costs for various sites. Any projects developed will be co-owned on a 50/50 basis and will be branded as Tanger Outlet Centers. We have agreed to provide leasing and marketing services to the venture and RioCan will provide development and property management services.

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 of September 30, 2011, our net investment in Deer Park is a liability of approximately $82,000 and Deer Park was in default related to the joint venture's loans. Subsequently, negotiations with the administrative agent bank of the lender group have resulted in the signing of non-binding term sheets for a refinance of two of the loans with an associated capital call of $20.0 million expected upon closing.
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, Galveston/Houston, National Harbor and RioCan/Canada are not VIEs. 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.

19



Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures
 
As of
September 30,
2011
 
As of
December 31,
2010
Assets
 
 

 
 

Investment properties at cost, net
 
$
289,318

 
$
283,902

Cash and cash equivalents
 
16,141

 
13,838

Deferred lease costs, net
 
2,840

 
2,563

Deferred debt origination costs, net
 
724

 
1,427

Prepaids and other assets
 
9,969

 
6,291

Total assets
 
$
318,992

 
$
308,021

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
293,534

 
$
294,034

Construction trade payables
 
4,958

 
341

Accounts payable and other liabilities
 
5,378

 
4,810

Total liabilities
 
303,870

 
299,185

Owners' equity
 
15,122

 
8,836

Total liabilities and owners' equity
 
$
318,992

 
$
308,021

 
Three Months Ended
 
Nine Months Ended
Summary Statements of Operations -
September 30,
 
September 30,
Unconsolidated Joint Ventures
2011
 
2010
 
2011
 
2010
Revenues
$
9,488

 
$
9,632

 
$
28,802

 
$
28,167

Expenses
 
 
 
 
 

 
 

Property operating
4,718

 
4,575

 
13,292

 
12,985

General and administrative
58

 
107

 
114

 
466

Depreciation and amortization
3,534

 
3,567

 
10,772

 
10,610

Total expenses
8,310

 
8,249

 
24,178

 
24,061

Operating income
1,178

 
1,383

 
4,624

 
4,106

Interest expense
1,381

 
1,771

 
7,310

 
5,162

Net loss
$
(203
)
 
$
(388
)
 
$
(2,686
)
 
$
(1,056
)
 
 
 
 
 
 
 
 
The Company and Operating Partnership's share of:
 
 

 
 

Net loss
$
(27
)
 
$
(75
)
 
$
(823
)
 
$
(194
)
Depreciation (real estate related)
$
1,280

 
$
1,289

 
$
3,922

 
$
3,834



20



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 nine months ended September 30, 2011 and 2010 respectively, is as follows (in thousands):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Total revenues
$

 
$
34

 
$

 
$
386

Total expenses

 
137

 

 
489

Discontinued operations
$

 
$
(103
)
 
$

 
$
(103
)

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 September 30, 2011 and December 31, 2010, the Operating Partnership had $172.3 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 and the mortgage assumed in connection with the acquisition of the outlet center in Ocean City, Maryland in July 2011.

21



8. Debt of the Operating Partnership
As of September 30, 2011 and December 31, 2010, the debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
September 30, 2011
 
December 31, 2010
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Premium (Discount)
 
Principal
 
Premium (Discount)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 

Senior notes
 
6.15
%
 
November 2015
 
$
250,000

 
(441
)
 
$
250,000

 
$
(510
)
Senior notes
 
6.125
%
 
June 2020
 
300,000

 
(1,861
)
 
300,000

 
(1,981
)
Senior exchangeable notes
 
3.75
%
 
August 2011
 

 

 
7,210

 
(103
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable:
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City
 
5.14%-7.65%

 
November 2021-November 2026
 
54,217

 
4,991

 

 

Ocean City
 
5.24
%
 
December 2015
 
18,947

 
393

 

 

Hershey
 
5.17%-8.00%

 
July 2015
 
31,405

 
2,282

 

 

Senior, unsecured bridge loan (1)
 
LIBOR + 1.60%

 
December 2011
 
150,000

 

 

 

Unsecured lines of credit (2)
 
LIBOR + 1.90%

 
November 2013
 
172,300

 

 
160,000

 

 
 
 
 
 
 
$
976,869

 
$
5,364

 
$
717,210

 
$
(2,594
)
(1)
Our senior, unsecured bridge loan bears interest at a rate of LIBOR + 1.60% and has a maturity date of December 26, 2011. At our discretion we may extend the maturity to June 22, 2012 by exercising each of the two remaining ninety-day extension options.

(2)
Our unsecured lines of credit as of September 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.
2011 Transactions
On July 18, 2011, the Operating Partnership issued a notice that it would redeem all outstanding senior exchangeable notes on August 18, 2011, the five year anniversary of the issuance of the notes. In response to this notice, all of the remaining noteholders exercised their exchange rights. In total during 2011, bonds in the amount of $7.2 million were exchanged and 136,360 Company common shares were issued to note holders in addition to the principal repayments.
In association with the acquisitions during the third quarter of 2011 described in Note 4, the Operating Partnership assumed mortgage debt in the amount of $112.6 million, including total fair value premiums of $7.7 million.

22



Debt Maturities
Maturities of the existing long-term debt as of September 30, 2011 are as follows (in thousands):
Year
Amount

2011
$
150,623

2012
2,563

2013
176,933

2014
3,599

2015
282,339

Thereafter
360,812

Subtotal
976,869

Net premiums
5,364

Total
$
982,233


  
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.

Common Share Offering

On July 6, 2011, the Company completed a public offering of 4.6 million common shares at a price of $25.662 per share. The net proceeds to the Company from the offering, after deducting estimated offering expenses, were approximately $117.5 million. Net proceeds from the offering were contributed to the Operating Partnership in exchange for 13,000 general partnership common units and 1,137,000 limited partnership common units. The Operating Partnership used the net proceeds from the offering to repay borrowings under its unsecured lines of credit and for general operating purposes.

Redemption of Senior Exchangeable Notes
As discussed in Note 8, 136,360 Company common shares were issued in connection with the exchange of senior exchangeable notes during 2011.
Exchange of Operating Partnership Units for Company Common Shares
On August 17, 2011, 160,332 Operating Partnership units were exchanged by a Family Limited Partner for 641,328 Company common shares. These shares were registered by a registration statement that became effective on August 12, 2011.

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

 
 

General partner
 
250,000

 
237,000

Limited partners
 
24,296,387

 
23,045,322

Total common units
 
24,546,387

 
23,282,322


11. Noncontrolling Interests
Noncontrolling interests relate to the interests in the Operating Partnership owned by Family Limited Partners, as discussed in Note 1, and interests in consolidated partnerships not wholly-owned by the Company or the Operating Partnership. Family Limited Partners are holders of Operating Partnership units that may be exchanged for Company common shares in a ratio of one unit for four Company common shares. The noncontrolling interests in other consolidated partnerships consist of outside equity interests in partnerships that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties.

12. Other Comprehensive Income of the Company
Total comprehensive income for the three and nine months months ended September 30, 2011 and 2010 is as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 
 
2011
 
2010
 
2011
 
2010
 
Net income
 
$
14,192

 
$
14,753

 
35,851

 
$
23,148

 
Other comprehensive income:
 
 
 
 
 
 
 
 
 
Reclassification adjustment for amortization of gain on 2005 settlement of US treasury rate lock included in net income
 
(83
)
 
(78
)
 
(246
)
 
(232
)
 
Change in foreign currency translation adjustment
 
(107
)
 

 
(107
)
 

 
Reclassification adjustment for settlement of interest rate swap agreements
 

 

 

 
6,142

 
Change in fair value of cash flow hedges
 

 

 

 
2,905