United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2012
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 April 30, 2012, there were 92,628,588 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 March 31, 2012 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, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. 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").

As of March 31, 2012, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 23,156,847 units of the Operating Partnership and the Family Limited Partners collectively owned 1,540,440 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, 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 required to be contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, its 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;
Share-Based Compensation of the Company and Equity-Based Compensation 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.
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.

4



TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2012 and December 31, 2011
Consolidated Statements of Operations - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Equity - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Cash Flows - for the three months ended March 31, 2012 and 2011
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2012 and December 31, 2011
Consolidated Statements of Operations - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Equity - for the three months ended March 31, 2012 and 2011
Consolidated Statements of Cash Flows - for the three months ended March 31, 2012 and 2011
 
 
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


5



PART I. - FINANCIAL INFORMATION

Item 1 - Financial Statements of Tanger Factory Outlet Centers, Inc.

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data, unaudited)
 
 
March 31,
2012
 
December 31,
2011
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
148,002

Buildings, improvements and fixtures
 
1,773,055

 
1,764,494

Construction in progress
 
4,545

 
3,549

 
 
1,925,602

 
1,916,045

Accumulated depreciation
 
(530,150
)
 
(512,485
)
Total rental property, net
 
1,395,452

 
1,403,560

Cash and cash equivalents
 
10,787

 
7,894

Investments in unconsolidated joint ventures, net
 
48,483

 
28,481

Deferred lease costs and other intangibles, net
 
115,157

 
120,636

Deferred debt origination costs, net
 
10,775

 
8,861

Prepaids and other assets
 
54,304

 
52,383

Total assets
 
$
1,634,958

 
$
1,621,815

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $2,171 and $2,237, respectively)
 
$
547,829

 
$
547,763

Unsecured term loans (net of discount of $656 and $692, respectively)
 
259,344

 
9,308

Mortgages payable (including premiums of $7,169 and $7,434, respectively)
 
110,483

 
111,379

Unsecured lines of credit
 
121,073

 
357,092

Total debt
 
1,038,729

 
1,025,542

Construction trade payables
 
15,698

 
13,656

Accounts payable and accrued expenses
 
43,165

 
37,757

Other liabilities
 
16,399

 
16,428

Total liabilities
 
1,113,991

 
1,093,383

Commitments and contingencies
 


 


Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 92,627,388 and 86,727,656 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
 
926

 
867

Paid in capital
 
751,633

 
720,073

Accumulated distributions in excess of net income 
 
(271,941
)
 
(261,913
)
Accumulated other comprehensive income
 
1,449

 
1,535

Equity attributable to Tanger Factory Outlet Centers, Inc.
 
482,067

 
460,562

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
32,068

 
61,027

Noncontrolling interests in other consolidated partnerships
 
6,832

 
6,843

Total equity
 
520,967

 
528,432

Total liabilities and equity
 
$
1,634,958

 
$
1,621,815

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

6



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

 
 
Three months ended
March 31,
 
 
2012
 
2011
Revenues
 
 
 
 
Base rentals
 
$
57,219

 
$
46,219

Percentage rentals
 
1,744

 
1,391

Expense reimbursements
 
23,476

 
21,205

Other income
 
1,804

 
1,924

Total revenues
 
84,243

 
70,739

Expenses
 
 
 


Property operating
 
26,088

 
24,108

General and administrative
 
10,020

 
6,767

Acquisition costs
 

 
567

Abandoned development costs
 

 
158

Depreciation and amortization
 
25,515

 
17,965

Total expenses
 
61,623

 
49,565

Operating income
 
22,620

 
21,174

Interest expense
 
12,334

 
10,325

Income before equity in losses of unconsolidated joint ventures
 
10,286

 
10,849

Equity in losses of unconsolidated joint ventures
 
(1,452
)
 
(32
)
Net income
 
8,834

 
10,817

Noncontrolling interests in Operating Partnership
 
(713
)
 
(1,419
)
Noncontrolling interests in other consolidated partnerships
 
7

 

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
8,128

 
$
9,398

 
 
 
 
 
Basic earnings per common share:
 
 
 
 
Net income
 
$
0.09

 
$
0.11

Diluted earnings per common share:
 
 
 
 
Net income
 
$
0.09

 
$
0.11

 
 
 
 
 
Dividends paid per common share
 
$
0.2000

 
$
0.1938

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

7



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended
March 31,
 
 
2012
 
2011
Net income
 
$
8,834

 
$
10,817

Other comprehensive loss:
 

 

Reclassification adjustment for amortization of gain on settlement of US treasury rate lock included in net income
 
(86
)
 
(81
)
Foreign currency translation adjustments
 
(6
)
 

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

 
46

Other comprehensive loss
 
(92
)
 
(35
)
Comprehensive income
 
8,742

 
10,782

Comprehensive income attributable to noncontrolling interests
 
(700
)
 
(1,414
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
8,042

 
$
9,368


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 share and 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, 2011
 
$
867

$
720,073

$
(261,913
)
$
1,535

$
460,562

$
61,027

$
6,843

$
528,432

Net income
 


8,128


8,128

713

(7
)
8,834

Other comprehensive loss
 



(86
)
(86
)
(6
)

(92
)
Compensation under Incentive Award Plan
 

3,391



3,391



3,391

Issuance of 3,600 common shares upon exercise of options
 

46



46



46

Grant of 566,000 restricted shares, net of forfeitures
 
6

(6
)






Adjustment for noncontrolling interests in Operating Partnership
 

28,178



28,178

(28,178
)


Adjustment for noncontrolling interests in other consolidated partnerships
 

4



4


(4
)

Exchange of 1,332,533 Operating Partnership units for 5,330,132 common shares
 
53

(53
)






Common dividends ($.20 per share)
 


(18,156
)

(18,156
)


(18,156
)
Distributions to noncontrolling interests in Operating Partnership
 





(1,488
)

(1,488
)
Balance,
March 31, 2012
 
$
926

$
751,633

$
(271,941
)
$
1,449

$
482,067

$
32,068

$
6,832

$
520,967

 
 
 
 
 
 
 
 
 
 

9



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share and 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
Total
 equity
Balance, December 31, 2010
 
$
810

$
604,359

$
(240,024
)
$
1,784

$
366,929

$
54,966

$
421,895

Net income
 


9,398


9,398

1,419

10,817

Other comprehensive loss
 



(30
)
(30
)
(5
)
(35
)
Compensation under Incentive Award Plan
 

1,798



1,798


1,798

Grant of 319,000 restricted shares, net of forfeitures
 
3

(3
)





Adjustment for noncontrolling interests in Operating Partnership
 

(33
)


(33
)
33


Common dividends ($.19375 per share)
 


(15,746
)

(15,746
)

(15,746
)
Distributions to noncontrolling interests in Operating Partnership
 





(2,351
)
(2,351
)
Balance, March 31, 2011
 
$
813

$
606,121

$
(246,372
)
$
1,754

$
362,316

$
54,062

$
416,378

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


10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
8,834

 
$
10,817

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
25,515

 
17,965

Amortization of deferred financing costs
 
561

 
466

Equity in losses of unconsolidated joint ventures
 
1,452

 
32

Share-based compensation expense
 
3,391

 
1,798

Amortization of debt (premiums) and discounts, net
 
(248
)
 
24

Distributions of cumulative earnings from unconsolidated joint ventures
 
237

 
62

Net accretion of market rent rate adjustments
 
(234
)
 
(155
)
Straight-line rent adjustments
 
(997
)
 
(794
)
Changes in other assets and liabilities:
 


 
 
Other assets
 
(1,287
)
 
(495
)
Accounts payable and accrued expenses
 
5,373

 
1,319

Net cash provided by operating activities
 
42,597

 
31,039

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(8,335
)
 
(15,251
)
Additions to investments in unconsolidated joint ventures
 
(21,371
)


Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
63

 
238

Increases in escrow deposits
 

 
(8,350
)
Net proceeds from sale of real estate
 

 
724

Additions to deferred lease costs
 
(1,329
)
 
(1,531
)
Net cash used in investing activities
 
(30,972
)
 
(24,170
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(18,156
)
 
(15,746
)
Distributions to noncontrolling interests in Operating Partnership
 
(1,488
)
 
(2,351
)
Proceeds from debt issuances
 
341,781

 
67,950

Repayments of debt
 
(328,432
)
 
(61,700
)
Additions to deferred financing costs
 
(2,483
)
 
(49
)
Proceeds from exercise of options
 
46

 

Net cash used in financing activities
 
(8,732
)
 
(11,896
)
Net increase (decrease) in cash and cash equivalents
 
2,893

 
(5,027
)
Cash and cash equivalents, beginning of period
 
7,894

 
5,758

Cash and cash equivalents, end of period
 
$
10,787

 
$
731

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)
 
 
March 31,
2012
 
December 31,
2011
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
148,002

Buildings, improvements and fixtures
 
1,773,055

 
1,764,494

Construction in progress
 
4,545

 
3,549

 
 
1,925,602

 
1,916,045

Accumulated depreciation
 
(530,150
)
 
(512,485
)
Total rental property, net
 
1,395,452

 
1,403,560

Cash and cash equivalents
 
10,715

 
7,866

Investments in unconsolidated joint ventures, net
 
48,483

 
28,481

Deferred lease costs and other intangibles, net
 
115,157

 
120,636

Deferred debt origination costs, net
 
10,775

 
8,861

Prepaids and other assets
 
53,765

 
52,059

Total assets
 
$
1,634,347

 
$
1,621,463

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $2,171 and $2,237, respectively)
 
$
547,829

 
$
547,763

Unsecured term loans (net of discount of $656 and $692, respectively)
 
259,344

 
9,308

Mortgages payable (including premiums of $7,169 and $7,434, respectively)
 
110,483

 
111,379

Unsecured lines of credit
 
121,073

 
357,092

Total debt
 
1,038,729

 
1,025,542

Construction trade payables
 
15,698

 
13,656

Accounts payable and accrued expenses
 
42,554

 
37,405

Other liabilities
 
16,399

 
16,428

Total liabilities
 
1,113,380

 
1,093,031

Commitments and contingencies
 
 
 
 
Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner
 
4,863

 
4,972

Limited partners
 
507,901

 
515,154

Accumulated other comprehensive income
 
1,371

 
1,463

Total partners' equity
 
514,135

 
521,589

Noncontrolling interests in consolidated partnerships
 
6,832

 
6,843

Total equity
 
520,967

 
528,432

Total liabilities and equity
 
$
1,634,347

 
$
1,621,463

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

12



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended,
March 31,
 
 
2012
 
2011
Revenues
 
 
 
 
Base rentals
 
$
57,219

 
$
46,219

Percentage rentals
 
1,744

 
1,391

Expense reimbursements
 
23,476

 
21,205

Other income
 
1,804

 
1,924

Total revenues
 
84,243

 
70,739

Expenses
 


 


Property operating
 
26,088

 
24,108

General and administrative
 
10,020

 
6,767

Acquisition costs
 

 
567

Abandoned development costs
 

 
158

Depreciation and amortization
 
25,515

 
17,965

Total expenses
 
61,623

 
49,565

Operating income
 
22,620

 
21,174

Interest expense
 
12,334

 
10,325

Income before equity in losses of unconsolidated joint ventures
 
10,286

 
10,849

Equity in losses of unconsolidated joint ventures
 
(1,452
)
 
(32
)
Net income
 
8,834

 
10,817

Noncontrolling interests in consolidated partnerships
 
7

 

Net income available to partners
 
8,841

 
10,817

Net income available to limited partners
 
8,750

 
10,706

Net income available to general partner
 
$
91

 
$
111

 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.36

 
$
0.46

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.35

 
$
0.46

 
 
 
 
 
Distribution paid per common unit
 
$
0.8000

 
$
0.7750

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

13



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

 
 
Three months ended
March 31,
 
 
2012
 
2011
Net income
 
$
8,834

 
$
10,817

Other comprehensive loss
 

 

Reclassification adjustment for amortization of gain on settlement of US treasury rate lock included in net income
 
(86
)
 
(81
)
Foreign currency translation adjustments
 
(6
)
 

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

 
46

Other comprehensive loss
 
(92
)
 
(35
)
Comprehensive income
 
8,742

 
10,782

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
7

 

Comprehensive income attributable to the Operating Partnership
 
$
8,749

 
$
10,782


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


14



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

 
 
General partner
Limited partners
Accumulated other comprehensive income
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2011
 
$
4,972

$
515,154

$
1,463

$
521,589

$
6,843

$
528,432

Net income
 
91

8,750


8,841

(7
)
8,834

Other comprehensive loss
 


(92
)
(92
)

(92
)
Compensation under Incentive Award Plan
 

3,391


3,391


3,391

Issuance of 900 common units upon exercise of options
 

46


46


46

Adjustments for noncontrolling interests in consolidated partnerships
 

4


4

(4
)

Common distributions ($.80 per unit)
 
(200
)
(19,444
)

(19,644
)

(19,644
)
Balance, March 31, 2012
 
$
4,863

$
507,901

$
1,371

$
514,135

$
6,832

$
520,967

 
 
 
 
 
 
 
 

 
 
General partner
Limited partners
Accumulated other comprehensive income
Total equity
Balance, December 31, 2010
 
$
5,221

$
414,926

$
1,748

$
421,895

Net income
 
111

10,706


10,817

Other comprehensive loss
 


(35
)
(35
)
Compensation under Incentive Award Plan
 

1,798


1,798

Common distributions ($.775 per unit)
 
(181
)
(17,916
)

(18,097
)
Balance, March 31, 2011
 
5,151

409,514

1,713

416,378

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


15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
8,834

 
$
10,817

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
25,515

 
17,965

Amortization of deferred financing costs
 
561

 
466

Equity in losses of unconsolidated joint ventures
 
1,452

 
32

Equity-based compensation expense
 
3,391

 
1,798

Amortization of debt (premiums) and discounts, net
 
(248
)
 
24

Distributions of cumulative earnings from unconsolidated joint ventures
 
237

 
62

Net accretion of market rent rate adjustments
 
(234
)
 
(155
)
Straight-line rent adjustments
 
(997
)
 
(794
)
Changes in other assets and liabilities:
 


 


Other assets
 
(1,072
)
 
(425
)
Accounts payable and accrued expenses
 
5,114

 
1,304

Net cash provided by operating activities
 
42,553

 
31,094

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(8,335
)
 
(15,251
)
Additions to investments in unconsolidated joint ventures
 
(21,371
)
 

Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
63

 
238

Increase in escrow deposits
 

 
(8,350
)
Net proceeds from the sale of real estate
 

 
724

Additions to deferred lease costs
 
(1,329
)
 
(1,531
)
Net cash used in investing activities
 
(30,972
)
 
(24,170
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(19,644
)
 
(18,097
)
Proceeds from debt issuances
 
341,781

 
67,950

Repayments of debt
 
(328,432
)
 
(61,700
)
Additions to deferred financing costs
 
(2,483
)
 
(49
)
Proceeds from exercise of options
 
46

 

Net cash used in financing activities
 
(8,732
)
 
(11,896
)
Net increase (decrease) in cash and cash equivalents
 
2,849

 
(4,972
)
Cash and cash equivalents, beginning of period
 
7,866

 
5,671

Cash and cash equivalents, end of period
 
$
10,715

 
$
699

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

16



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 ("REIT") which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of March 31, 2012, we owned and operated 36 outlet centers, with a total gross leasable area of approximately 10.7 million square feet. We also had partial ownership interests in 3 outlet centers totaling approximately 1.2 million square feet, including one outlet center in Ontario, Canada.
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, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. In addition, the Family Limited Partners own the remaining Operating Partnership units.

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 combined Annual Report on Form 10-K for the year ended December 31, 2011. The December 31, 2011 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.

17



3. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of March 31, 2012 and December 31, 2011 aggregated $48.5 million and $28.5 million, respectively. We have evaluated the accounting treatment for each of the joint ventures and have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for the individual joint ventures. At March 31, 2012, 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)
Wisconsin Dells
 
Wisconsin Dells, Wisconsin
 
50.0
%
 
265,086

 
$
4.0

 
$
24.3

Deer Park
 
Deer Park, Long Island NY
 
33.3
%
 
741,976

 
4.7

 
246.9

Deer Park Warehouse
 
Deer Park, Long Island NY
 
33.3
%
 
29,253

 

 
2.3

Galveston/Houston
 
Texas City, Texas
 
50.0
%
 

 
13.9

 

RioCan Canada
 
Various
 
50.0
%
 
157,382

 
24.8

 

National Harbor
 
Washington D.C. Metro Area
 
50.0
%
 

 
0.9

 

Other
 
 
 
50.0
%
 

 
0.2

 

Total
 
 
 
 
 
 
 
$
48.5

 
$
273.5

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.
Management, leasing and marketing fees earned from services provided to our unconsolidated joint ventures were recognized as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Fee:
 
 
 
 
Management and leasing
 
$
479

 
$
505

Marketing
 
53

 
44

Total Fees
 
$
532

 
$
549

Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. 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. The differences in basis are amortized over the various useful lives of the related assets.
Deer Park Warehouse, Long Island, New York
In June 2008, we, along with our partners in Deer Park, entered into a joint venture to purchase a warehouse adjacent to the Deer Park project described above for a total purchase price of $3.3 million. The interest-only mortgage loan for the warehouse matured on May 17, 2011 and the joint venture did not qualify for the one-year extension option. As a result, the joint venture has accrued interest at a default rate of 8.25% from May 17, 2011 to March 31, 2012, and is currently in negotiations with the lender. As of March 31, 2012, the outstanding principal balance under the warehouse mortgage was $2.3 million. In December 2011, the joint venture recorded an impairment charge of approximately $900,000 to lower the basis of the warehouse to its estimated fair market value.

18



Galveston/Houston, Texas

In June 2011, we announced the formation of a joint venture with Simon Property Group, Inc. for the development of a Tanger Outlet Center south of Houston in Texas City, TX. We expect the center to be completed in October 2012 and to feature over 90 brand name and designer outlet stores in the first phase of approximately 350,000 square feet, with room for expansion for a total build out of approximately 470,000 square feet. In July 2011, the joint venture acquired the land underlying the site for approximately $5.6 million. As of March 31, 2012, we have contributed $13.7 million in cash to the joint venture to fund development activities. We will provide property management and marketing services to the center and with our partner, will jointly provide development and leasing services.

RioCan Canada

On December 9, 2011, the RioCan Canadian Joint Venture purchased the Cookstown Outlet Mall. The existing outlet center was acquired for $47.4 million, plus an additional $13.8 million for excess land upon the seller meeting certain conditions, for an aggregate purchase price of $61.2 million. RioCan will provide development and property management services to this existing outlet center and we will provide leasing and marketing services. In connection with the purchase, the joint venture assumed the in place financing of $29.6 million which carried an interest rate of 5.10% and had an original maturity date of June 21, 2014. In March, 2012, the joint venture negotiated the early payment of the financing. We contributed an additional $15.1 million to the joint venture to fund the payment.

During the quarter, the joint venture terminated an option contract to develop a center in Halton Hills, Ontario and accordingly pre-development costs of approximately $954,000 were written-off.

National Harbor, Washington, D.C. Metro Area

In May 2011, we announced the formation of a joint venture with The Peterson Companies for the development of a Tanger Outlets at National Harbor in the Washington, D.C. Metro area. The resulting Tanger Outlet Center is expected to contain approximately 80 outlet designer and name brand stores in a center measuring up to 350,000 square feet. The project is currently in the pre-development phase and in December 2011, both parties each made initial equity contributions of $850,000 to fund certain pre-development costs. We will provide property management, leasing and marketing services to the joint venture. We and The Peterson Companies will jointly provide site development and construction supervision services to the joint venture.






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
March 31,
2012
 
As of
December 31,
2011
Assets
 
 

 
 

Investment properties at cost, net
 
$
357,357

 
$
344,098

Cash and cash equivalents
 
9,621

 
7,582

Deferred lease costs, net
 
14,294

 
14,815

Deferred debt origination costs, net
 
6,626

 
7,566

Prepaids and other assets
 
15,663

 
11,687

Total assets
 
$
403,561

 
$
385,748

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
273,534

 
$
303,230

Construction trade payables
 
7,719

 
2,669

Accounts payable and other liabilities
 
24,788

 
27,246

Total liabilities
 
306,041

 
333,145

Owners' equity
 
97,520

 
52,603

Total liabilities and owners' equity
 
$
403,561

 
$
385,748


 
 
Three Months Ended
 
 
March 31,
Summary Statements of Operations - Unconsolidated Joint Ventures
 
2012
 
2011
Revenues
 
$
11,658

 
$
9,562

Expenses
 
 
 
 
Property operating
 
4,891

 
4,101

General and administrative
 
163

 
187

Acquisition costs
 
704

 

Abandoned development costs
 
954

 

Depreciation and amortization
 
4,608

 
3,611

Total expenses
 
11,320

 
7,899

Operating income
 
338

 
1,663

Interest expense
 
3,829

 
1,803

Net loss
 
$
(3,491
)
 
$
(140
)
 
 
 
 
 
The Company and Operating Partnership's share of:
Net loss
 
$
(1,452
)
 
$
(32
)
Depreciation (real estate related)
 
$
1,815

 
$
1,306



20



4. 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 $520.0 million. As of March 31, 2012 and December 31, 2011, the Operating Partnership had $121.1 million and $357.1 million, respectively, outstanding in total on these lines.
The Company also guarantees the Operating Partnership's unsecured term loan in the amount of $250.0 million as well as its obligation with respect to the mortgage assumed in connection with the acquisition of the outlet center in Ocean City, Maryland in July 2011.
5. Debt of the Operating Partnership
As of March 31, 2012 and December 31, 2011, the debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
March 31, 2012
 
December 31, 2011
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Premium
 (Discount)
 
Principal
 
Premium
 (Discount)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 

Senior notes
 
6.15
%
 
November 2015
 
$
250,000

 
(392
)
 
$
250,000

 
$
(417
)
Senior notes
 
6.125
%
 
June 2020
 
300,000

 
(1,779
)
 
300,000

 
(1,820
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (1):
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City
 
5.14%-7.65%

 
November 2021- December 2026
 
53,431

 
4,796

 
53,826

 
4,894

Ocean City
 
5.24
%
 
January 2016
 
18,785

 
353

 
18,867

 
375

Hershey
 
5.17%-8.00%

 
August 2015
 
31,098

 
2,020

 
31,252

 
2,165

Note payable (1)
 
1.50
%
 
June 2016
 
10,000

 
(656
)
 
10,000

 
(692
)
Unsecured term loan (2)
 
LIBOR + 1.80%

 
February 2019
 
250,000

 

 

 

Unsecured lines of credit (3)
 
LIBOR + 1.25%

 
November 2015
 
121,073

 

 
357,092

 

 
 
 
 
 
 
$
1,034,387

 
$
4,342

 
$
1,021,037

 
$
4,505

(1)
The effective interest rates assigned during the purchase price allocation to these assumed mortgages and note payable during acquisitions in 2011 were as follows: Atlantic City 5.05%, Ocean City 4.68%, Hershey 3.40% and note payable 3.15%.

(2)
Our unsecured term loan as of March 31, 2012 bears interest at a rate of LIBOR + 1.80%, is interest only and expires on February 23, 2019. Our term loan is pre-payable without penalty beginning in February of 2015.

(3)
Our unsecured lines of credit as of March 31, 2012 bear interest at a rate of LIBOR + 1.25% and expire on November 10, 2015. We have the option to extend the lines for an additional one year to November 10, 2016. These lines require a facility fee payment of 0.25% annually based on the total amount of the commitment. The credit spread and facility fee can vary depending on our investment grade rating.
2012 Transactions
On February 24, 2012, the Operating Partnership closed on a seven-year $250.0 million unsecured term loan. The term loan is interest only, matures in the first quarter of 2019 and is pre-payable without penalty beginning in February of 2015. Based on our current credit ratings, the new loan has an initial interest rate of LIBOR + 1.80%. We used the net proceeds of the term loan to reduce the outstanding balances on our unsecured lines of credit.


21



Debt Maturities
Maturities of the existing long-term debt as of March 31, 2012 are as follows (in thousands):
Year
 
Amount

2012
 
$
1,931

2013
 
4,633

2014
 
3,599

2015
 
403,412

2016
 
30,279

Thereafter
 
590,533

Subtotal
 
1,034,387

Net premiums
 
4,342

Total
 
$
1,038,729

  
6. Shareholders' Equity of the Company

Throughout the first quarter of 2012, various Family Limited Partners exchanged a total of 1,332,533 Operating Partnership units for 5,330,132 Company common shares. After the above described exchanges, the Family Limited Partners owned 1,540,440 Operating Partnership units.

7. Partners' Equity of the Operating Partnership
When the Company issues common shares upon exercise of options or issues restricted share awards, the Operating Partnership issues one corresponding unit to the Company for every four common shares issued. At March 31, 2012 and December 31, 2011, the ownership interests of the Operating Partnership consisted of the following:
 
 
March 31,
2012
 
December 31,
2011
Common units:
 
 

 
 

General partner
 
250,000

 
250,000

Limited partners
 
24,447,287

 
24,304,887

Total common units
 
24,697,287

 
24,554,887


8. 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 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.


22



As discussed in Note 6, during the quarter ended March 31, 2012, various Family Limited Partners exchanged a total of 1,332,533 Operating Partnership units for 5,330,132 Company common shares. Therefore, the Company recorded an increase to additional paid-in capital of $28.2 million during the quarter related to these exchanges. The changes in the Company's ownership interests in the subsidiaries impacted consolidated equity during the quarter as follows:
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
8,128

 
$
9,398

Increase (decrease) in Tanger Factory Outlet Centers, Inc. paid-in-capital adjustments to noncontrolling interests (1) 
 
28,178

 
(33
)
Changes from net income attributable to Tanger Factory Outlet Centers, Inc. and transfers from noncontrolling interest
 
$
36,306

 
$
9,365

(1)
In 2012 and 2011, adjustments of the noncontrolling interest were made as a result of changes in the Company's ownership of the Operating Partnership in connection with the Company's issuance of common shares upon exercise of options, share-based compensation and the issuance of common shares upon exchange of Operating Partnership units by Family Limited Partners.

9. 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 three months of 2012, the Company's Board of Directors approved grants of 571,000 restricted common shares to the Company's independent directors and the Company's senior executive officers. The weighted average fair value of the awards granted was $27.90 per share. The independent directors' restricted common shares vest ratably over a three year period and the majority of 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.
Included in the 571,000 restricted common shares above were 225,000 restricted common shares granted to Steven B. Tanger, our President and Chief Executive Officer, under the terms of his amended and restated Employment Agreement (the "Employment Agreement") signed on February 28, 2012. Under the terms of the Employment Agreement, the Company granted Mr. Tanger the following: 45,000 fully-vested common shares; 90,000 restricted common shares that vest ratably over five years based on Mr. Tanger's continued employment with the Company and 90,000 restricted common shares that vest ratably over five years based on Mr. Tanger's continued employment with the Company and the Company achieving certain minimum total returns to shareholders.
We recorded share-based compensation expense in general and administrative expenses in our consolidated statements of operations for the three months ended March 31, 2012 and 2011 as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Restricted shares (1)
 
$
2,850

 
$
1,266

Notional unit performance awards
 
489

 
507

Options
 
52

 
25

Total share-based compensation
 
$
3,391

 
$
1,798

(1) Includes approximately $1.3 million of compensation expense related to 45,000 shares that vested immediately upon grant related to the Employment Agreement described above.


23



The following table summarizes information related to unvested restricted shares outstanding as of March 31, 2012:
Unvested Restricted Shares
 
Number of shares
 
Weighted-average grant date fair value
Unvested at December 31, 2011
 
791,337

 
$
20.93

Granted
 
571,000

 
27.90

Vested
 
(273,800
)
 
21.44

Forfeited
 
(5,000
)
 
29.50

Unvested at March 31, 2012
 
1,083,537

 
$
24.43


The total value of restricted shares vested during the three months ended March 31, 2012 and March 31, 2011 was $8.2 million and $5.4 million, respectively.
As of March 31, 2012, there was $31.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.8 years.
10. Equity-Based Compensation of the Operating Partnership
As discussed in Note 9, 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 equity based compensation expense and other related information as recognized in the Operating Partnership's consolidated financial statements.
We recorded equity-based compensation expense in general and administrative expenses in our consolidated statements of operations for the three months ended March 31, 2012 and 2011 as follows (in thousands):
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Restricted units (1)
 
$
2,850

 
$
1,266

Notional unit performance awards
 
489

 
507

Options
 
52

 
25

Total equity-based compensation
 
$
3,391

 
$
1,798

(1) Includes approximately $1.3 million of compensation expense related to 11,250 units issued related to a restricted share grant that vested immediately pursuant to the Employment Agreement as described in footnote 9.

The following table summarizes information related to unvested restricted units outstanding as of March 31, 2012:
Unvested Restricted Units
 
Number of units
 
Weighted-average grant date fair value
Unvested at December 31, 2011
 
197,834

 
$
83.70

Granted
 
142,750

 
111.60

Vested
 
(68,450
)
 
85.75

Forfeited
 
(1,250
)
 
118.00

Unvested at March 31, 2012
 
270,884

 
$
93.73



24



The total value of restricted units vested during the three months ended March 31, 2012 and March 31, 2011 was $8.2 million and $5.4 million, respectively.
As of March 31, 2012, there was $31.8 million of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.8 years.
11. 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 months ended March 31, 2012 and 2011, respectively (in thousands, except per share amounts):
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Numerator
 
 
 
 
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
8,128

 
$
9,398

Less allocation of earnings to participating securities
 
(158
)
 
(192
)
Net income available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
$
7,970

 
$
9,206

Denominator
 
 
 
 
Basic weighted average common shares
 
89,671

 
80,353

Effect of notional units
 
1,096

 

Effect of senior exchangeable notes
 

 
125

Effect of outstanding options
 
65

 
74

Diluted weighted average common shares
 
90,832

 
80,552

Basic earnings per common share:
 
 
 
 
Net income
 
$
0.09

 
$
0.11

Diluted earnings per common share:
 
 
 
 
Net income
 
$
0.09

 
$
0.11

The notional units are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method.
Outstanding senior, exchangeable notes were included in the diluted earnings per share computation, if the effect was dilutive, using the treasury stock method.  In applying the treasury stock method, the effect was dilutive if the average market price of our common shares for at least 20 trading days in the 30 consecutive trading days at the end of each quarter were higher than the exchange price, which prior to redemption was $17.83 per share. There were no outstanding senior, exchangeable notes as of March 31, 2012.
The computation of diluted earnings per share excludes options to purchase common shares when the exercise price is greater than the average market price of the common shares for the period.  For the three months ended March 31, 2012 and 2011, respectively, 174,600 and 191,500 options were excluded from the computation. The assumed exchange of the partnership units held by the Family Limited Partners as of the beginning of the year, which would result in the elimination of earnings allocated to the noncontrolling interest in the Operating Partnership, would have no impact on earnings per share since the allocation of earnings to a partnership unit, as if exchanged, is equivalent to earnings allocated to a common share.
Certain of the Company's unvested restricted share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of the unvested restricted share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted share awards based on dividends declared and the unvested restricted shares' participation rights in undistributed earnings.


25



12. Earnings Per Unit of the Operating Partnership
The following table sets forth a reconciliation of the numerators and denominators in computing the Operating Partnership's earnings per unit for the three months ended March 31, 2012 and 2011, respectively (in thousands, except per unit amounts):
 
 
Three Months Ended
March 31,
 
 
2012
 
2011
Numerator
 
 

 
 
Net income attributable to partners of the Operating Partnership
 
$
8,841

 
$
10,817

Less allocation of earnings to participating securities
 
(158
)
 
(192
)
Net income available to common unitholders of the Operating Partnership
 
$
8,683

 
$
10,625

Denominator
 
 
 
 
Basic weighted average common units
 
24,382

 
23,121

Effect of notional units
 
274

 

Effect of senior exchangeable notes
 

 
31

Effect of outstanding options
 
16

 
19

Diluted weighted average common units
 
24,672

 
23,171

Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.36

 
$
0.46

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.35

 
$
0.46

The notional units are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method.
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. Outstanding senior, exchangeable notes were included in the diluted earnings per unit computation, if the effect was dilutive, using the treasury stock method.  In applying the treasury stock method, the effect was dilutive if the average market price of the Company's common shares for at least 20 trading days in the 30 consecutive trading days at the end of each quarter were higher than the exchange price, which prior to redemption was $17.83 per common share. There were no outstanding senior, exchangeable notes as of March 31, 2012.
The computation of diluted earnings per unit excludes units that would be issued upon the exercise of options to purchase the Company's common shares when the exercise price is greater than the average market price of the Company's common shares for the period. For the three months ended March 31, 2012 and 2011, respectively, 43,650 and 47,875 units which would be issued upon the exercise of outstanding options were excluded from the computation.
Certain of the Company's unvested restricted share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units' participation rights in undistributed earnings.


26



13.    Fair Value Measurements

Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:

Tier
 
Description
Level 1
 
Defined as observable inputs such as quoted prices in active markets
 
 
 
Level 2
 
Defined as inputs other than quoted prices in active markets that are either directly or indirectly observable
 
 
 
Level 3
 
Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

We had no assets or liabilities measured at fair value on either a recurring or non-recurring basis as of March 31, 2012 or December 31, 2011, respectively.

The estimated fair value of our debt, consisting of senior unsecured notes, unsecured terms loans, secured mortgages and unsecured lines of credit, at March 31, 2012 and December 31, 2011, was $1.1 billion and $1.1 billion, respectively, and its recorded value was $1.0 billion and $1.0 billion, respectively. Fair values were determined, based on level 2 inputs, using discounted cash flow analysis with an interest rate or credit spread similar to that of current market borrowing arrangements.

14. Non-Cash Activities
We purchase capital equipment and incur costs relating to construction of facilities, including tenant finishing allowances. Expenditures included in construction trade payables as of March 31, 2012 and 2011 amounted to $15.7 million and $31.0 million, respectively.
15. Subsequent Events
Westgate, Glendale, Arizona

On May 4, 2012, we closed on the formation of a joint venture for the development of a Tanger Outlet Center in Glendale, Arizona. Construction of the center began in February, 2012. Situated on 38-acres, the outlet center will be located on Loop 101 and Glendale Avenue in Western Phoenix. This site is adjacent to Westgate City Center, Jobing.com Arena, University of Phoenix Stadium, Cabela's and The Renaissance Glendale Hotel and Spa.  We currently expect this center to be completed in time for a November 2012 grand opening and will have approximately 85 brand name outlet stores in the first phase which will contain approximately 330,000 square feet. We will provide property management, construction supervision, leasing and marketing services to the joint venture.

RioCan Canada

On April 11, 2012, Tanger and RioCan Real Estate Investment Trust announced they have entered into an agreement with the Orlando Corporation to create a strategic alliance to develop a designer outlet center on land within the Heartland Town Centre. Located in the western Greater Toronto Area, Heartland Town Centre is Canada's largest power center with access to Highway 401.  The parties intend to add a newly designed ground up outlet center of approximately 312,000 square feet to the approximately 2 million square feet of retail space currently at Heartland Town Centre.





27



Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three months ended March 31, 2012 with the three months ended March 31, 2011. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term, "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, "Operating Partnership", refers to Tanger Properties Limited Partnership and subsidiaries. The terms "we", "our" and "us" refer to the Company or the Company and the Operating Partnership together, as the text requires.
Cautionary Statements
Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - "Risk Factors" in the Company's and the Operating Partnership's Annual Reports on Form 10-K for the year ended December 31, 2011. There have been no material changes to the risk factors listed there through March 31, 2012.
General Overview

At March 31, 2012 , we had 36 consolidated outlet centers in 24 states totaling 10.7 million square feet. The table below details our development and acquisition activities that significantly impacted our results of operations and liquidity from April 1, 2011 to March 31, 2012.
Center
 
Date Acquired/Open
 
Purchase Price
 (in millions)
 
Square Feet
 (in thousands)
 
Centers
 
States
As of March 31, 2011
 
 
 
 
 
9,368

 
32

 
21

Acquisitions:
 
 
 
 
 
 
 
 
 
 
Jeffersonville, OH
 
June 28, 2011
 
$
134.0

 
410

 
1

 
1

Atlantic City, NJ and Ocean City, MD (1)
 
July 15, 2011
 
$
200.3

 
689

 
2

 
2

Hershey, PA (2)
 
September 30, 2011
 
$
49.8

 
247

 
1

 

Other
 
 
 
 
 
12

 

 

As of March 31, 2012
 
 
 
 
 
10,726

 
36

 
24


(1) Substantially all of the economic interests in Phase I & II of Atlantic City Outlets The Walk and Ocean City were purchased on July 15, 2011, and substantially all of the economic interest in Phase III if Atlantic City Outlets The Walk was purchased on November 1, 2011.

(2) Excludes a $6.2 million loan to the noncontrolling interest holder collateralized by their ownership interest in the property.


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The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of March 31, 2012. Except as noted, all properties are fee owned.
Location
 
Square
 
%
Consolidated Properties
 
Feet
 
Occupied
Riverhead, New York (1)
 
729,736

 
98

Rehoboth Beach, Delaware (1)
 
568,975

 
100

Foley, Alabama
 
557,228

 
98

Atlantic City, New Jersey (1)
 
489,762

 
98

San Marcos, Texas
 
441,929

 
99

Myrtle Beach Hwy 501, South Carolina
 
425,247

 
97

Sevierville, Tennessee (1)
 
419,038

 
99

Jeffersonville, Ohio
 
409,820

 
95

Myrtle Beach Hwy 17, South Carolina (1)
 
402,791

 
99

Washington, Pennsylvania
 
372,972

 
98

Commerce II, Georgia
 
370,512

 
98

Charleston, South Carolina
 
365,107

 
97

Howell, Michigan
 
324,632

 
97

Mebane, North Carolina
 
318,910

 
100

Branson, Missouri
 
302,922

 
98

Park City, Utah
 
298,379

 
99

Locust Grove, Georgia
 
298,268

 
98

Westbrook, Connecticut
 
289,950

 
98

Gonzales, Louisiana
 
282,403

 
99

Williamsburg, Iowa
 
277,230

 
98

Lincoln City, Oregon
 
270,212

 
95

Lancaster, Pennsylvania
 
254,002

 
100

Tuscola, Illinois
 
250,439

 
90

Hershey, Pennsylvania
 
247,448

 
97

Tilton, New Hampshire
 
245,698

 
99

Hilton Head II, South Carolina
 
206,529

 
100

Ocean City, Maryland (1)
 
199,243

 
91

Fort Myers, Florida
 
198,877

 
92

Terrell, Texas
 
177,800

 
94

Hilton Head I, South Carolina
 
177,199

 
100

Barstow, California
 
171,300

 
100

West Branch, Michigan
 
112,570

 
96

Blowing Rock, North Carolina
 
104,154

 
98

Nags Head, North Carolina
 
82,178

 
100

Kittery I, Maine
 
57,667

 
100

Kittery II, Maine
 
24,619

 
100

Totals
 
10,725,746

 
97

Unconsolidated Joint Ventures
 
 

 
 

Deer Park, New York (2)
 
771,229

 
91

Wisconsin Dells, Wisconsin
 
265,086

 
98

Cookstown, Ontario
 
157,382

 
91

(1)
These properties or a portion thereof are subject to a ground lease.
(2)
Includes a 29,253 square foot warehouse adjacent to the shopping center.


29



Leasing Activity
The following table provides information for our consolidated outlet centers regarding space released or renewed during the three months ended March 31, 2012 and 2011, respectively:
 
2012
 
# of Leases
Square Feet
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
 (in years)
Net Average
Annual
Straight-line Rent (psf) (1)
Re-tenant
60

220,000

$
32.53

$
38.86

9.18

$
28.30

Renewal
188

921,000

$
21.97

$

4.58

$
21.97

 
 
 
 
 
 
 
 
2011
 
# of Leases
Square Feet
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
 (in years)
Net Average
Annual
Straight-line Rent (psf) (1)
Re-tenant
96

336,000

$
28.26

$
38.51

8.55