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, 2013
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, 2013, there were 94,415,137 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, 2013 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. As a result, each such individual beneficial owner became an individual limited partner of the Operating Partnership (collectively the "Family Limited Partners").

As of March 31, 2013, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 23,603,784 units of the Operating Partnership and the Family Limited Partners collectively owned 1,186,921 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 December 28, 2004 and January 24, 2011, 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 a 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 of the Company and the Operating Partnership;
Shareholders' Equity and Partners' Equity;
Share-Based Compensation of the Company and Equity-Based Compensation of the Operating Partnership;
Earnings Per Share and Earnings Per Unit;
Accumulated Other Comprehensive Income of the Company and the Operating Partnership
Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial Condition and Results of Operations.

4



This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.
In order to highlight the differences between the Company and the Operating Partnership, the separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.

As the 100% owner of Tanger GP Trust, the general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

5



TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2013 and December 31, 2012
Consolidated Statements of Operations - for the three months ended March 31, 2013 and 2012
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2013 and 2012
Consolidated Statements of Equity - for the three months ended March 31, 2013 and the year ended December 31, 2012
Consolidated Statements of Cash Flows - for the three months ended March 31, 2013 and 2012
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2013 and December 31, 2012
Consolidated Statements of Operations - for the three months ended March 31, 2013 and 2012
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2013 and 2012
Consolidated Statements of Equity - for the three months ended March 31, 2013 and the year ended December 31, 2012
Consolidated Statements of Cash Flows - for the three months ended March 31, 2013 and 2012
 
 
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 4. Mine Safety Disclosure
 
 
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)
 
 
March 31,
2013
 
December 31,
2012
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
148,002

Buildings, improvements and fixtures
 
1,802,160

 
1,796,042

Construction in progress
 
6,336

 
3,308

 
 
1,956,498

 
1,947,352

Accumulated depreciation
 
(600,713
)
 
(582,859
)
Total rental property, net
 
1,355,785

 
1,364,493

Cash and cash equivalents
 
2,691

 
10,335

Investments in unconsolidated joint ventures
 
133,982

 
126,632

Deferred lease costs and other intangibles, net
 
97,328

 
101,040

Deferred debt origination costs, net
 
8,534

 
9,083

Prepaids and other assets
 
63,353

 
60,842

Total assets
 
$
1,661,673

 
$
1,672,425

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $1,897 and $1,967, respectively)
 
$
548,103

 
$
548,033

Unsecured term loans (net of discount of $509 and $547, respectively)
 
259,491

 
259,453

Mortgages payable (including premiums of $6,085 and $6,362, respectively)
 
105,346

 
107,745

Unsecured lines of credit
 
174,917

 
178,306

Total debt
 
1,087,857

 
1,093,537

Construction trade payables
 
7,744

 
7,084

Accounts payable and accrued expenses
 
37,957

 
41,149

Other liabilities
 
16,676

 
16,780

Total liabilities
 
1,150,234

 
1,158,550

Commitments and contingencies
 


 


Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 94,415,137 and 94,061,384 shares issued and outstanding at March 31, 2013 and December 31, 2012, respectively
 
944

 
941

Paid in capital
 
768,702

 
766,056

Accumulated distributions in excess of net income 
 
(289,880
)
 
(285,588
)
Accumulated other comprehensive income
 
1,179

 
1,200

Equity attributable to Tanger Factory Outlet Centers, Inc.
 
480,945

 
482,609

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
24,184

 
24,432

Noncontrolling interests in other consolidated partnerships
 
6,310

 
6,834

Total equity
 
511,439

 
513,875

Total liabilities and equity
 
$
1,661,673

 
$
1,672,425


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

7



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

 
 
Three months ended March 31,
 
 
2013
 
2012
Revenues
 
 
 
 
Base rentals
 
$
59,244

 
$
57,219

Percentage rentals
 
2,017

 
1,744

Expense reimbursements
 
25,306

 
23,673

Other income
 
2,122

 
1,607

Total revenues
 
88,689

 
84,243

Expenses
 
 
 


Property operating
 
28,135

 
26,088

General and administrative
 
9,572

 
10,020

Acquisition costs
 
179

 

Depreciation and amortization
 
22,288

 
25,515

Total expenses
 
60,174

 
61,623

Operating income
 
28,515

 
22,620

Interest expense
 
12,876

 
12,334

Income before equity in earnings (losses) of unconsolidated joint ventures
 
15,639

 
10,286

Equity in earnings (losses) of unconsolidated joint ventures
 
590

 
(1,452
)
Net income
 
16,229

 
8,834

Noncontrolling interests in Operating Partnership
 
(789
)
 
(713
)
Noncontrolling interests in other consolidated partnerships
 
(1
)
 
7

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
15,439

 
$
8,128

 
 
 
 
 
Basic earnings per common share
 
 
 
 
Net income
 
$
0.16

 
$
0.09

Diluted earnings per common share
 
 
 
 
Net income
 
$
0.16

 
$
0.09

 
 
 
 
 
Dividends paid per common share
 
$
0.21

 
$
0.20

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

8



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2013
 
2012
Net income
 
$
16,229

 
$
8,834

Other comprehensive loss
 
 
 
 
Reclassification adjustment for amortization of gain on settlement of US treasury rate lock included in net income
 
(90
)
 
(86
)
Foreign currency translation adjustments
 
68

 
(6
)
Other comprehensive loss
 
(22
)
 
(92
)
Comprehensive income
 
16,207

 
8,742

Comprehensive income attributable to noncontrolling interests
 
(789
)
 
(700
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
15,418

 
$
8,042

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


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
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
 


53,228


53,228

3,267

(19
)
56,476

Other comprehensive loss
 



(335
)
(335
)
(21
)

(356
)
Compensation under Incentive Award Plan
 

10,676



10,676



10,676

Issuance of 37,700 common shares upon exercise of options
 

481



481



481

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

(6
)






Adjustment for noncontrolling interests in Operating Partnership
 

34,910



34,910

(34,910
)


Adjustment for noncontrolling interests in other consolidated partnerships
 

(10
)


(10
)

10


Exchange of 1,682,507 Operating Partnership units for 6,730,028 common shares
 
68

(68
)






Common dividends ($0.8300 per share)
 


(76,903
)

(76,903
)


(76,903
)
Distributions to noncontrolling interest in Operating Partnership
 





(4,931
)

(4,931
)
Balance, December 31, 2012
 
$
941

$
766,056

$
(285,588
)
$
1,200

$
482,609

$
24,432

$
6,834

$
513,875

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 











 
 








 
 








 
 
 
 
 
 
 
 
 
 
 
 










10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share and per share data, unaudited)
(Continued)
 
 
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, 2012
 
$
941

$
766,056

$
(285,588
)
$
1,200

$
482,609

$
24,432

$
6,834

$
513,875

Net income
 


15,439


15,439

789

1

16,229

Other comprehensive loss
 



(21
)
(21
)
(1
)

(22
)
Compensation under Incentive Award Plan
 

2,496



2,496



2,496

Issuance of 7,200 common shares upon exercise of options
 

117



117



117

Grant of 337,373 restricted shares, net of forfeitures
 
3

(3
)






Adjustment for noncontrolling interests in Operating Partnership
 

36



36

(36
)


Acquisition of noncontrolling interests in other consolidated partnerships
 






(525
)
(525
)
Exchange of 3,545 Operating Partnership units for 14,180 common shares
 








Common dividends ($.21 per share)
 


(19,731
)

(19,731
)


(19,731
)
Distributions to noncontrolling interests in Operating Partnership
 





(1,000
)

(1,000
)
Balance,
March 31, 2013
 
$
944

$
768,702

$
(289,880
)
$
1,179

$
480,945

$
24,184

$
6,310

$
511,439


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




11



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2013
 
2012
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
16,229

 
$
8,834

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
22,288

 
25,515

Amortization of deferred financing costs
 
603

 
561

Equity in (earnings) losses of unconsolidated joint ventures
 
(590
)
 
1,452

Distributions of cumulative earnings from unconsolidated joint ventures
 
293

 
237

Share-based compensation expense
 
2,460

 
3,391

Amortization of debt (premiums) and discounts, net
 
(259
)
 
(248
)
Net accretion of market rent rate adjustments
 
(27
)
 
(234
)
Straight-line rent adjustments
 
(1,088
)
 
(997
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(1,313
)
 
(1,287
)
Accounts payable and accrued expenses
 
(3,305
)
 
5,373

Net cash provided by operating activities
 
35,291

 
42,597

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(8,495
)
 
(8,335
)
Additions to investments in unconsolidated joint ventures
 
(9,751
)
 
(21,371
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
1,221

 
63

Additions to deferred lease costs
 
(648
)
 
(1,329
)
Net cash used in investing activities
 
(17,673
)
 
(30,972
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(19,731
)
 
(18,156
)
Distributions to noncontrolling interests in Operating Partnership
 
(1,000
)
 
(1,488
)
Proceeds from debt issuances
 
80,246

 
341,781

Repayments of debt
 
(84,313
)
 
(328,432
)
Acquisition of noncontrolling interests in other consolidated partnerships
 
(525
)
 

Additions to deferred financing costs
 
(56
)
 
(2,483
)
Proceeds from exercise of options
 
117

 
46

Net cash used in financing activities
 
(25,262
)
 
(8,732
)
Net increase (decrease) in cash and cash equivalents
 
(7,644
)
 
2,893

Cash and cash equivalents, beginning of period
 
10,335

 
7,894

Cash and cash equivalents, end of period
 
$
2,691

 
$
10,787

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

12



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
 
March 31,
2013
 
December 31,
2012
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
148,002

 
$
148,002

Buildings, improvements and fixtures
 
1,802,160

 
1,796,042

Construction in progress
 
6,336

 
3,308

 
 
1,956,498

 
1,947,352

Accumulated depreciation
 
(600,713
)
 
(582,859
)
Total rental property, net
 
1,355,785

 
1,364,493

Cash and cash equivalents
 
2,612

 
10,295

Investments in unconsolidated joint ventures
 
133,982

 
126,632

Deferred lease costs and other intangibles, net
 
97,328

 
101,040

Deferred debt origination costs, net
 
8,534

 
9,083

Prepaids and other assets
 
62,832

 
60,408

Total assets
 
$
1,661,073

 
$
1,671,951

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $1,897 and $1,967, respectively)
 
$
548,103

 
$
548,033

Unsecured term loans (net of discount of $509 and $547, respectively)
 
259,491

 
259,453

Mortgages payable (including premiums of $6,085 and $6,362, respectively)
 
105,346

 
107,745

Unsecured lines of credit
 
174,917

 
178,306

Total debt
 
1,087,857

 
1,093,537

Construction trade payables
 
7,744

 
7,084

Accounts payable and accrued expenses
 
37,357

 
40,675

Other liabilities
 
16,676

 
16,780

Total liabilities
 
1,149,634

 
1,158,076

Commitments and contingencies
 


 


Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner
 
4,676

 
4,720

Limited partners
 
499,368

 
501,214

Accumulated other comprehensive income
 
1,085

 
1,107

Total partners' equity
 
505,129

 
507,041

Noncontrolling interests in consolidated partnerships
 
6,310

 
6,834

Total equity
 
511,439

 
513,875

Total liabilities and equity
 
$
1,661,073

 
$
1,671,951

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

13



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended March 31,
 
 
2013
 
2012
Revenues
 
 
 
 
Base rentals
 
$
59,244

 
$
57,219

Percentage rentals
 
2,017

 
1,744

Expense reimbursements
 
25,306

 
23,673

Other income
 
2,122

 
1,607

Total revenues
 
88,689

 
84,243

Expenses
 


 


Property operating
 
28,135

 
26,088

General and administrative
 
9,572

 
10,020

Acquisition costs
 
179

 

Depreciation and amortization
 
22,288

 
25,515

Total expenses
 
60,174

 
61,623

Operating income
 
28,515

 
22,620

Interest expense
 
12,876

 
12,334

Income before equity in earnings (losses) of unconsolidated joint ventures
 
15,639

 
10,286

Equity in earnings (losses) of unconsolidated joint ventures
 
590

 
(1,452
)
Net income
 
16,229

 
8,834

Noncontrolling interests in consolidated partnerships
 
(1
)
 
7

Net income available to partners
 
16,228

 
8,841

Net income available to limited partners
 
16,062

 
8,750

Net income available to general partner
 
$
166

 
$
91

 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.66

 
$
0.36

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.65

 
$
0.35

 
 
 
 
 
Distribution paid per common unit
 
$
0.84

 
$
0.80

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

14



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

 
 
Three months ended March 31,
 
 
2013
 
2012
Net income
 
$
16,229

 
$
8,834

Other comprehensive loss
 
 
 
 
Reclassification adjustment for amortization of gain on settlement of US treasury rate lock included in net income
 
(90
)
 
(86
)
Foreign currency translation adjustments
 
68

 
(6
)
Other comprehensive loss
 
(22
)
 
(92
)
Comprehensive income
 
16,207

 
8,742

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
1

 
7

Comprehensive income attributable to the Operating Partnership
 
$
16,208

 
$
8,749

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


15



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
 
578

55,917


56,495

(19
)
56,476

Other comprehensive loss
 


(356
)
(356
)

(356
)
Compensation under Incentive Award Plan
 

10,676


10,676


10,676

Issuance of 9,425 common units upon exercise of options
 

481


481


481

Grant of 141,500 restricted units, net of forfeitures
 






Adjustments for noncontrolling interests in consolidated partnerships
 

(10
)

(10
)
10


Common distributions ($3.32 per common unit)
 
(830
)
(81,004
)

(81,834
)

(81,834
)
Balance, December 31, 2012
 
4,720

501,214

1,107

507,041

6,834

513,875

Net income
 
166

16,062


16,228

1

16,229

Other comprehensive loss
 


(22
)
(22
)

(22
)
Compensation under Incentive Award Plan
 

2,496


2,496


2,496

Issuance of 1,800 common units upon exercise of options
 

117


117


117

Grant of 84,343 restricted units, net of forfeitures
 






Acquisition of noncontrolling interests in other consolidated partnerships
 




(525
)
(525
)
Common distributions ($.84 per common unit)
 
(210
)
(20,521
)

(20,731
)

(20,731
)
Balance, March 31, 2013
 
$
4,676

$
499,368

$
1,085

$
505,129

$
6,310

$
511,439

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



16



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2013
 
2012
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
16,229

 
$
8,834

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 


Depreciation and amortization
 
22,288

 
25,515

Amortization of deferred financing costs
 
603

 
561

Equity in (earnings) losses of unconsolidated joint ventures
 
(590
)
 
1,452

Distributions of cumulative earnings from unconsolidated joint ventures
 
293

 
237

Equity-based compensation expense
 
2,460

 
3,391

Amortization of debt (premiums) and discounts, net
 
(259
)
 
(248
)
Net accretion of market rent rate adjustments
 
(27
)
 
(234
)
Straight-line rent adjustments
 
(1,088
)
 
(997
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(1,226
)
 
(1,072
)
Accounts payable and accrued expenses
 
(3,431
)
 
5,114

Net cash provided by operating activities
 
35,252

 
42,553

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(8,495
)
 
(8,335
)
Additions to investments in unconsolidated joint ventures
 
(9,751
)
 
(21,371
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
1,221

 
63

Additions to deferred lease costs
 
(648
)
 
(1,329
)
Net cash used in investing activities
 
(17,673
)
 
(30,972
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(20,731
)
 
(19,644
)
Proceeds from debt issuances
 
80,246

 
341,781

Repayments of debt
 
(84,313
)
 
(328,432
)
Acquisition of noncontrolling interests in other consolidated partnerships
 
(525
)
 

Additions to deferred financing costs
 
(56
)
 
(2,483
)
Proceeds from exercise of options
 
117

 
46

Net cash used in financing activities
 
(25,262
)
 
(8,732
)
Net increase (decrease) in cash and cash equivalents
 
(7,683
)
 
2,849

Cash and cash equivalents, beginning of period
 
10,295

 
7,866

Cash and cash equivalents, end of period
 
$
2,612

 
$
10,715

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

17



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, 2013, we owned and operated 36 outlet centers, with a total gross leasable area of approximately 10.8 million square feet. We also had partial ownership interests in 7 outlet centers totaling approximately 2.1 million square feet, including 3 outlet centers in 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. 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, 2012. The December 31, 2012 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.

Noncontrolling interests relate to the interests in the Operating Partnership owned by Family Limited Partners 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 the Company's 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 not wholly owned by the Company or the Operating Partnership 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.

Certain amounts related to reimbursements of payroll related expenses from unconsolidated joint ventures in the statement of operations for the three months ended March 31, 2012 have been reclassified to the caption “expense reimbursements” from the caption “other income” to conform to the presentation of the consolidated statement of operations presented for the three months ended March 31, 2013.  




18



3. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of March 31, 2013 and December 31, 2012 aggregated $134.0 million and $126.6 million, respectively. We have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for each of the individual joint ventures below. At March 31, 2013 and December 31, 2012, we were members of the following unconsolidated real estate joint ventures:
As of March 31, 2013
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
 
Carrying Value of Investment
 (in millions)
 
Total Joint Venture Debt
 (in millions)
Deer Park
 
Deer Park, Long Island NY
 
33.3
%
 
741,981

 
$
2.4

 
$
246.9

Galveston/Houston
 
Texas City, Texas
 
50.0
%
 
352,705

 
39.8

 

National Harbor
 
Washington D.C. Metro Area
 
50.0
%
 

 
2.6

 

RioCan Canada
 
Various
 
50.0
%
 
434,562

 
66.8

 
19.5

Westgate
 
Glendale, Arizona
 
58.0
%
 
332,234

 
19.6

 
38.6

Wisconsin Dells
 
Wisconsin Dells, Wisconsin
 
50.0
%
 
265,086

 
2.6

 
24.3

Other
 
 
 


 

 
0.2

 

 
 
 
 
 
 
 
 
$
134.0

 
$
329.3

As of December 31, 2012
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt
(in millions)
Deer Park
 
Deer Park,
Long Island NY
 
33.3
%
 
741,981

 
$
3.0

 
$
246.9

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

 

 
1.9

Galveston/Houston
 
Texas City, TX
 
50.0
%
 
352,705

 
36.7

 

National Harbor
 
Washington D.C. Metro Area
 
50.0
%
 

 
2.6

 

RioCan Canada
 
Various
 
50.0
%
 
434,562

 
62.2

 
20.1

Westgate
 
Glendale, AZ
 
58.0
%
 
332,234

 
19.1

 
32.0

Wisconsin Dells
 
Wisconsin Dells, WI
 
50.0
%
 
265,086

 
2.8

 
24.3

Other
 
 
 
 
 

 
0.2

 

 
 
 
 
 
 
 
 
$
126.6

 
$
325.2

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 described below.


19



The following management, development, leasing and marketing fees were recognized from services provided to our unconsolidated joint ventures (in thousands):
 
 
Three months ended March 31,
 
 
2013
 
2012
Fee:
 
 
 
 
Development
 
$
71

 
$

Loan Guarantee
 
40

 

Management and leasing
 
844

 
479

Marketing
 
110

 
53

Total Fees
 
$
1,065

 
$
532

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, Long Island, New York

In December 2011, the joint venture refinanced its mortgage and mezzanine loans, totaling $246.9 million. The non-default interest rates for the mortgage and mezzanine loans are LIBOR + 3.50% and LIBOR + 5.00%, respectively and both loans mature on May 17, 2014. The loans require certain financial covenants, such as debt service coverage and loan to value ratios, to be met at various measurement dates. Based on the administrative agent bank's calculation of Deer Park's debt service coverage ratio utilizing financial information as of December 31, 2012, the joint venture was not in compliance with the coverage ratio. As a result, on March 22, 2013, the lender group placed Deer Park in default. The lenders have advised the joint venture that a principal payment of approximately $14.2 million would satisfy the debt service coverage test. Such principal payment would require additional capital contributions to Deer Park by its partners. Deer Park does not agree with the lender's principal payment computation and believes the principal payment required could be substantially less. As a result, no capital contributions have been authorized by the managing member of Deer Park. The managing member continues to work with the administrative agent bank of the lender group to negotiate a resolution. The lenders have also notified Deer Park that the default interest rates will continue to accrue until the default is cured. The default interest rates for the mortgage and mezzanine loans are PRIME + 7.5% and LIBOR + 9%, respectively.

The Company and its two joint venture partners have each, jointly and severally, guaranteed the payment of interest (but not principal) on the loans. The operations from Deer Park, together with cash on hand in the joint venture, have been sufficient in the past to pay interest on the loans, although the historical operations would not have generated sufficient cash flow to pay fully the monthly interest at the additional default interest rate.

In addition, the managing member delivered to us a revocable notice of termination of our property management agreement with Deer Park that purports to be effective September 1, 2013. We believe the decision to terminate was improper and we continue to manage the property. We are in discussions with our partners on these management issues as well as the matters with the lenders described above. There can be no assurance that we will be able to resolve these matters on favorable terms.

Deer Park Warehouse, Long Island, New York
In March 2013, in connection with the Loan Forbearance Agreement signed in 2012 with the lender to the joint venture, the warehouse property was sold for approximately $1.2 million. The proceeds were used to satisfy the terms of the forbearance agreement. There was no impact to the net income of the joint venture as a result of this sale and the retirement of the associated mortgage debt.

20



National Harbor, Washington, D.C. Metro Area

In May 2011, we announced the formation of a joint venture for the development of a Tanger Outlet Center at National Harbor in the Washington, D.C. Metro area. The planned Tanger Outlet Center is expected to contain approximately 80 brand name and designer outlet stores in a center measuring up to 340,000 square feet. In November 2012, the joint venture broke ground and began site development. Both parties have made initial equity contributions of $2.6 million to fund certain pre-development costs. In February 2013, the joint venture executed a term sheet for a three year construction loan with the ability to borrow up to $61.0 million, which carries an interest rate of LIBOR + 1.65%. We will provide property management, leasing and marketing services to the joint venture; and with our partner, will jointly provide site development and construction supervision services.

RioCan Canada

In March of 2013 the RioCan Joint Venture acquired the land adjacent to the existing Cookstown Outlet Mall for $13.9 million. The land purchase will be used as the site for the joint venture's expansion of the Cookstown Outlet Mall which we expect to begin during the second quarter of 2013.

We evaluate our real estate joint ventures in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC"). As a result of our qualitative assessment, we concluded that our Westgate and Deer Park joint ventures are Variable Interest Entities ("VIEs") and all of our other joint ventures are not VIEs. Westgate is considered a VIE because the voting rights are disproportionate to the economic interests. Deer Park is considered a VIE because it does not meet the criteria of the members having a sufficient equity investment at risk. Investments in real estate joint ventures in which we have a non-controlling ownership interest are accounted for using the equity method of accounting.

After making the determination that Westgate and Deer Park were VIEs, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate their 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 VIE 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 VIE or the right to receive benefits from the entity that could potentially be significant to the VIE

The operating, development, leasing, and management agreements of Westgate and Deer Park provide that the activities that most significantly impact the economic performance of the ventures require either unanimous consent or, for certain activities related to Deer Park, majority consent. Accordingly, we determined that we do not have the power to direct the significant activities that affect the economic performance of the ventures and therefore, have applied the equity method of accounting for both Westgate and Deer Park. Our equity method investments in Westgate and Deer Park as of March 31, 2013 were approximately $19.6 million and $2.4 million, respectively. We are unable to estimate our maximum exposure to loss at this time because our guarantees are limited and based on the future operating performance of Westgate and Deer Park.









21



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
 
March 31,
2013
 
December 31,
2012
Assets
 
 

 
 

Land
 
$
95,748

 
$
96,455

Buildings, improvements and fixtures
 
495,958

 
493,424

Construction in progress, including land
 
21,974

 
16,338

 
 
613,680

 
606,217

Accumulated depreciation
 
(68,667
)
 
(62,547
)
Total rental property, net
 
545,013

 
543,670

Assets held for sale (1)
 

 
1,828

Cash and cash equivalents
 
20,531

 
21,879

Deferred lease costs, net
 
23,080

 
24,411

Deferred debt origination costs, net
 
4,399

 
5,213

Prepaids and other assets
 
24,900

 
25,350

Total assets
 
$
617,923

 
$
622,351

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
329,262

 
$
325,192

Construction trade payables
 
14,232

 
21,734

Accounts payable and other liabilities
 
16,726

 
31,944

Total liabilities
 
360,220

 
378,870

Owners' equity
 
257,703

 
243,481

Total liabilities and owners' equity
 
$
617,923

 
$
622,351

(1) Assets related to our Deer Park Warehouse joint venture that were sold in March 2013.
 
 
Three months ended
Summary Statements of Operations
 
March 31,
 - Unconsolidated Joint Ventures
 
2013
 
2012
Revenues
 
$
21,395

 
$
11,658

Expenses
 
 
 


Property operating
 
8,803

 
4,891

General and administrative
 
485

 
163

Acquisition costs
 
421

 
704

Abandoned development costs
 

 
954

Depreciation and amortization
 
7,384

 
4,608

Total expenses
 
17,093

 
11,320

Operating income
 
4,302

 
338

Interest expense
 
4,052

 
3,829

Net income (loss)
 
$
250

 
$
(3,491
)
 
 
 
 
 
The Company and Operating Partnership's share of:
Net income (loss)
 
$
590

 
$
(1,452
)
Depreciation and impairment charge (real estate related)
 
$
3,173

 
$
1,815



22



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, 2013 and December 31, 2012, the Operating Partnership had amounts outstanding on these lines totaling $174.9 million and $178.3 million, respectively.
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
The debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
 
March 31, 2013
 
December 31, 2012
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Premium
 (Discount)
 
Principal
 
Premium
 (Discount)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 

Senior notes
 
6.15
%
 
November 2015
 
$
250,000

 
$
(291
)
 
$
250,000

 
$
(317
)
Senior notes
 
6.125
%
 
June 2020
 
300,000

 
(1,606
)
 
300,000

 
(1,650
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable (1):
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City
 
5.14%-7.65%

 
November 2021- December 2026
 
50,346

 
4,385

 
52,212

 
4,495

Ocean City
 
5.24
%
 
January 2016
 
18,451

 
263

 
18,540

 
285

Hershey
 
5.17%-8.00%

 
August 2015
 
30,464

 
1,437

 
30,631

 
1,581

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

 
(509
)
 
10,000

 
(546
)
Unsecured term loan (2)
 
LIBOR + 1.80%

 
February 2019
 
250,000

 

 
250,000

 

Unsecured lines of credit (3)
 
LIBOR + 1.25%

 
November 2015
 
174,917

 

 
178,306

 

 
 
 
 
 
 
$
1,084,178

 
$
3,679

 
$
1,089,689

 
$
3,848

(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 is pre-payable without penalty beginning in February of 2015.

(3)
Our unsecured lines of credit as of March 31, 2013 bear interest at a rate of LIBOR + 1.25% and expire on November 10, 2015. We have the option to extend the lines for one additional 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.
The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. As of March 31, 2013 we were in compliance with all of our debt covenants.


23



Debt Maturities
Maturities of the existing long-term debt as of March 31, 2013 are as follows (in thousands):
Calendar Year
 
Amount

2013
 
$
2,564

2014
 
3,603

2015
 
457,260

2016
 
30,283

2017
 
3,008

Thereafter
 
587,460

Subtotal
 
1,084,178

Net premiums
 
3,679

Total
 
$
1,087,857

  
6. Shareholders' Equity of the Company

Throughout the first three months of 2013, Family Limited Partners exchanged a total of 3,545 Operating Partnership units for 14,180 common shares of the Company. After the above described exchanges, the Family Limited Partners owned 1,186,921 Operating Partnership units which were exchangeable for 4,747,684 common shares of the Company.

7. Partners' Equity of the Operating Partnership
The ownership interests of the Operating Partnership as of March 31, 2013 and December 31, 2012, consisted of the following:
 
 
March 31,
2013
 
December 31,
2012
Common units:
 
 

 
 

General partner
 
250,000

 
250,000

Limited partners
 
24,540,705

 
24,455,812

Total common units
 
24,790,705

 
24,705,812


When the Company issues common shares upon exercise of options or issues restricted share awards, the Operating Partnership issues one corresponding unit of partnership interest to the Company for every four common shares issued.

8. 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 2013, the Company's Board of Directors approved grants of 349,373 restricted common shares to the Company's independent directors and the Company's senior executive officers. The grant date fair value of the awards was $36.05 per share. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted shares vest ratably over a five year period. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.
In February 2013, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2013 Outperformance Plan (the “2013 OPP"). The 2013 OPP provides for the grant of performance shares under the Amended and Restated Incentive Award Plan of Tanger Factory Outlet Centers, Inc. Under the 2013 OPP, the Company granted an aggregate of 315,150 performance shares to award recipients, which may convert, subject to the achievement of certain goals, into a maximum of 315,150 restricted common shares of the Company based on the Company’s absolute share price appreciation and its share price appreciation relative to its peer group, over the three-year measurement period from January 1, 2013 through December 31, 2015.


24



The 2013 OPP is a long-term incentive compensation plan pursuant to which award recipients may earn up to an aggregate of 315,150 restricted common shares of the Company based on the Company’s share price appreciation (or total shareholder return) over three years beginning on January 1, 2013. The maximum number of shares will be earned under this plan if the Company both (a) achieves 35% or higher share price appreciation, inclusive of all dividends paid, over the three-year measurement period and (b) is in the 70th or greater percentile of its peer group for total shareholder return over the three-year measurement period. The maximum value of the awards, if the Company achieves or exceeds the 35% share price appreciation and is in the 70th or greater percentile of its peer group for total shareholder return over the three-year measurement period, will equal approximately $13.25 million.

Any shares earned on December 31, 2015 are also subject to a time based vesting schedule. 50% of the shares will vest on January 4, 2016 and the remaining 50% will vest on January 3, 2017, contingent upon continued employment with the Company through the vesting dates.

With respect to 70% of the performance shares (or 220,605 shares), 33.33% of this portion of the award (or 73,535 shares) will be earned if the Company’s aggregate share price appreciation, inclusive of all dividends paid during this period, equals 25% over the three-year measurement period, 66.67% of the award (or 147,070 shares) will be earned if the Company’s aggregate share price appreciation, inclusive of all dividends paid during this period equals 30%, and 100.00% of this portion of the award (or 220,605 shares) will be earned if the Company’s aggregate share price appreciation, inclusive of all dividends paid during this period, equals 35% or higher.

With respect to 30% of the performance shares (or 94,545 shares), 33.33% of this portion of the award (or 31,515 shares) will be earned if the Company's share price appreciation inclusive of all dividends paid is in the 50th percentile of its peer group over the three-year measurement period, 66.67% of this portion of the award (or 63,030 shares) will be earned if the Company's share price appreciation inclusive of all dividends paid is in the 60th percentile of its peer group during this period, and 100.00% of this portion of the award (or 94,545 shares) will be earned if the Company's share price appreciation inclusive of all dividends paid is in the 70th percentile of its peer group or greater during this period. The peer group will be based on the SNL Equity REIT index.

The performance shares will convert on a pro-rata basis by linear interpolation between share price appreciation thresholds, both for absolute share price appreciation and for relative share price appreciation amongst the Company's peer group. The share price targets will be reduced on a dollar-for-dollar basis with respect to any dividend payments made during the measurement period. The compensation expense is amortized using the graded vesting attribution method over the requisite service period. The fair value of the awards are calculated using a Monte Carlo simulation pricing model.
We recorded share-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
 
 
Three months ended March 31,
 
 
2013
 
2012
Restricted common shares (1)
 
$
1,889

 
$
2,850

Notional unit performance awards
 
528

 
489

Options
 
43

 
52

Total share-based compensation
 
$
2,460

 
$
3,391

(1) For the three months ended March 31, 2012, includes approximately $1.3 million of compensation expense related to 45,000 common shares that vested immediately upon grant under the terms of the amended and restated Employment Agreement (the "Employment Agreement") for Steven B. Tanger, our President and Chief Executive Officer.


The following table summarizes information related to unvested restricted common shares outstanding as of March 31, 2013:

25



Unvested Restricted Common Shares
 
Number of shares
 
Weighted-average grant date fair value
Unvested at December 31, 2012
 
1,047,993

 
$
24.39

Granted
 
349,373

 
31.01

Vested
 
(289,400
)
 
22.35

Forfeited
 
(12,000
)
 
25.61

Unvested at March 31, 2013
 
1,095,966

 
$
27.03


The total value of restricted common shares vested during the three months ended March 31, 2013 and March 31, 2012 was $9.6 million and $7.9 million, respectively.
As of March 31, 2013, there was $36.8 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 3.5 years.
9. Equity-Based Compensation of the Operating Partnership
As discussed in Note 8, 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 common 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.

We recorded equity-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
 
 
Three months ended March 31,
Restricted units
 
2013
 
2012
Restricted units (1)
 
$
1,924

 
$
2,850

Notional unit performance awards
 
506

 
489

Options
 
52

 
52

Total equity-based compensation
 
$
2,482

 
$
3,391

(1) For the three months ended March 31, 2012, includes approximately $1.3 million of compensation expense related to 11,250 units issued related to a restricted share grant that vested immediately upon grant under the terms of the Employment Agreement for Steven B. Tanger, our President and Chief Executive Officer.

The following table summarizes information related to unvested restricted units outstanding as of March 31, 2013:
Unvested Restricted Units
 
Number of units
 
Weighted-average grant date fair value
Unvested at December 31, 2012
 
261,998

 
$
97.56

Granted
 
87,343

 
124.04

Vested
 
(72,350
)
 
89.40

Forfeited
 
(3,000
)
 
102.44

Unvested at March 31, 2013
 
273,991

 
$
108.12


The total value of restricted units vested during the three months ended March 31, 2013 and March 31, 2012, was $9.6 million and $7.9 million, respectively.

26



As of March 31, 2013, there was $36.8 million of total unrecognized compensation cost related to unvested equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 3.5 years.
10. Earnings Per Share of the Company
The following table sets forth a reconciliation of the numerators and denominators in computing the Company's earnings per share (in thousands, except per share amounts):
 
 
Three months ended March 31,
 
 
2013
 
2012
Numerator
 
 
 
 
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
15,439

 
$
8,128

Less allocation of earnings to participating securities
 
(194
)
 
(158
)
Net income available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
$
15,245

 
$
7,970

Denominator
 
 
 
 
Basic weighted average common shares
 
93,132

 
89,671

Effect of notional units
 
805

 
1,096

Effect of outstanding options and restricted common shares
 
106

 
65

Diluted weighted average common shares
 
94,043

 
90,832

Basic earnings per common share:
 
 
 
 
Net income
 
$
0.16

 
$
0.09

Diluted earnings per common share:
 
 
 
 
Net income
 
$
0.16

 
$
0.09

The notional units are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method.
The 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, 2013, no options were excluded from the computation. For the three months ended March 31, 2012, 174,600 options were excluded from the computation. The assumed exchange of the partnership units held by the noncontrolling interest 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 common share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of these unvested restricted common share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted common share awards based on dividends declared and the unvested restricted common shares' participation rights in undistributed earnings. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents, are included in the diluted earnings per share compilation if the effect is dilutive, using the treasury stock method.

27



11. Earnings Per Unit of the Operating Partnership
The following table sets forth a reconciliation of the numerators and denominators in computing the Operating Partnership's earnings per unit (in thousands, except per unit amounts):
 
 
Three months ended March 31,
 
 
2013
 
2012
Numerator
 
 

 
 
Net income attributable to partners of the Operating Partnership
 
$
16,228

 
$
8,841

Less allocation of earnings to participating securities
 
(194
)
 
(158
)
Net income available to common unitholders of the Operating Partnership
 
$
16,034

 
$
8,683

Denominator
 
 
 
 
Basic weighted average common units
 
24,472

 
24,382

Effect of notional units
 
201

 
274

Effect of outstanding options and restricted common units
 
27

 
16

Diluted weighted average common units
 
24,700

 
24,672

Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.66

 
$
0.36

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.65

 
$
0.35

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.
The computation of diluted earnings per unit excludes options to purchase common units when the exercise price is greater than the average market price of the common units for the period. The market price of a common unit is considered to be equivalent to four times the market price of a Company common share. For the three months ended March 31, 2013, no units were excluded from the computation. For the three months ended March 31, 2012, 43,650 options were excluded from the computation. No options were excluded from the computation for the three months ended March 31, 2013.
Certain of the Company's unvested restricted common share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of these 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. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents, are included in the diluted earnings per share compilation if the effect is dilutive, using the treasury stock method.


28



12. Accumulated Other Comprehensive Income of the Company

The following table summarizes the changes in accumulated balances of other comprehensive income for the three months ended March 31, 2013 (in thousands):

 
 
Gain on cash flow hedges (1)
 
Foreign currency items
 
Total
Balance, December 31, 2012
 
$
1,205

 
$
(5
)
 
$
1,200

Other comprehensive income before reclassifications
 

 
65

 
65

Amounts reclassified from accumulated other comprehensive income 
 
(86
)
 

 
(86
)
Net increase (decrease) in other comprehensive income
 
(86
)
 
65

 
(21
)
Balance, March 31, 2013
 
$
1,119

 
$
60

 
$
1,179

(1)
Represents remaining amount of gain recorded to other comprehensive income in 2005 as a result of the settlement of a US Treasury index rate lock agreement. This agreement was unwound in the fourth quarter of 2005. The gain was recorded in other comprehensive income and is being amortized into earnings through interest expense using the effective interest method over a 10 year period that coincides with the interest payments associated with the 6.15% senior unsecured notes due in 2015.


13. Accumulated Other Comprehensive Income of the Operating Partnership

The following table summarizes the changes in accumulated balances of other comprehensive income for the three months ended March 31, 2013 (in thousands):

 
 
Gain on cash flow hedges (1)
 
Foreign currency items
 
Total
Balance, December 31, 2012
 
$
1,112

 
$
(5
)
 
$
1,107

Other comprehensive income before reclassifications
 

 
68

 
68

Amounts reclassified from accumulated other comprehensive income
 
(90
)
 

 
(90
)
Net increase (decrease) in other comprehensive income
 
(90
)
 
68

 
(22
)
Balance, March 31, 2013
 
$
1,022

 
$
63

 
$
1,085

(1)
Represents remaining amount of gain recorded to other comprehensive income in 2005 as a result of the settlement of a US Treasury index rate lock agreement. This agreement was unwound in the fourth quarter of 2005. The gain was recorded in other comprehensive income and is being amortized into earnings through interest expense using the effective interest method over a 10 year period that coincides with the interest payments associated with the 6.15% senior unsecured notes due in 2015.


29



14. 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, 2013 or December 31, 2012.

The estimated fair value of our debt, consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit, at March 31, 2013</