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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2010

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 No. 1-11986 (Tanger Factory Outlet Centers, Inc.)

Commission File No. 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, North Carolina 27408  
  (Address of principal executive offices) (Zip code)  
     
  (336) 292-3010  
  (Registrant's telephone number, including area code)  

  

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Tanger Factory Outlet Centers, Inc. Yes x No o

Tanger Properties Limited Partnership Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Tanger Factory Outlet Centers, Inc. Yes x No o

Tanger Properties Limited Partnership Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

    


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Tanger Factory Outlet Centers, Inc.:

                       
  Large accelerated filer x     Accelerated filer o     Non-accelerated filer o     Smaller reporting company o  
              (Do not check if a smaller reporting company)  

Tanger Properties Limited Partnership:

                       
  Large accelerated filer o     Accelerated filer o     Non-accelerated filer x     Smaller reporting company o  
              (Do not check if a smaller reporting company)  

Indicated by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Tanger Factory Outlet Centers, Inc.

Yes o No x

Tanger Properties Limited Partnership

Yes o No x

     
  As of August 2, 2010, there were 40,475,662 shares of Tanger Factory Outlet Centers, Inc. common stock, $.01 par value, outstanding.  


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EXPLANATORY NOTE

This report combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2010 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, or REIT, which, through its controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and all of the operations are conducted by, the Operating Partnership and its subsidiaries. Accordingly, the descriptions of the business, employees and properties of the Company are also descriptions of the business, employees and properties of the Operating Partnership.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest in the Operating Partnership. The Tanger family, through its ownership of the Tanger Family Limited Partnership, holds the remaining units of partnership interest in the Operating Partnership as a limited partner. Stanley K. Tanger, a member of the Company's Board of Directors, is the sole general partner of the Tanger Family Limited Partnership.

As of June 30, 2010, the Company, through its ownership of the GP Trust and LP Trust, owned 20,235,431 units of the Operating Partnership and the Tanger Family Limited Partnership owned 3,033,305 units. Each Tanger Family Limited Partnership unit is exchangeable for two of the Company's common shares, subject to certain limitations to preserve the Company's REIT status. Prior to the Company's two for one share split on December 28, 2004, 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 because a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and
  • creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important to understand the differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company. As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company's income statement is its equity in the earnings of the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the REIT. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report. The Operating Partnership holds substantially all the assets of the Company and holds the ownership interests in the Company's unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating


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Partnership generates the capital required by the Company's business through the Operating Partnership's operations, by the Operating Partnership's incurrence of indebtedness or through the issuance of partnership units of the Operating Partnership or its subsidiaries.

Noncontrolling interests, shareholder's equity and partners' capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partnership interests in the Operating Partnership held by the Tanger Family Limited Partnership are accounted for as partners' capital in the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

           
 
  • consolidated financial statements;
  • the following notes to the consolidated financial statements:
 
       
  • Debt;
  • Shareholders' Equity of the Company and Partners' Equity of the Operating Partnership;
  • Other Comprehensive Income of the Company and Other Comprehensive Income of the Operating Partnership;
  • Earnings Per Share and Earnings Per Unit and
 
 
  • Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial condition and Results of Operations.
 

This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

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, not including its consolidated subsidiaries, 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.


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TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP

Index

                 
              Page
Number
 
        Part I. Financial Information        
  Item 1.              
        FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC
(Unaudited)
       
        Consolidated Balance Sheets - as of June 30, 2010 and December 31, 2009     6  
        Consolidated Statements of Operations - for the three and six months ended June 30, 2010 and 2009     7  
        Consolidated Statements of Cash Flows - for the six months ended June 30, 2010 and 2009     8  
                 
        FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP
(Unaudited)
       
        Consolidated Balance Sheets - as of June 30, 2010 and December 31, 2009     9  
        Consolidated Statements of Operations - for the three and six months ended June 30, 2010 and 2009     10  
        Consolidated Statements of Cash Flows - for the six months ended June 30, 2010 and 2009     11  
                 
        Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc and Tanger Properties Limited Partnership     12  
                 
  Item 2.     Management's Discussion and Analysis of Financial Condition and Results of Operations     26  
                 
  Item 3.     Quantitative and Qualitative Disclosures about Market Risk     40  
                 
  Item 4.     Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)     41  
                 
        Part II. Other Information        
                 
  Item 1.     Legal Proceedings     41  
                 
  Item 1A.     Risk Factors     41  
                 
  Item 6.     Exhibits     41  
                 
  Signatures           42  


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PART I. - FINANCIAL INFORMATION
Item 1 - Financial Statements of Tanger Factory Outlet Centers, Inc.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
(Unaudited)

                 
        June 30,     December 31,  
        2010     2009  
  ASSETS:              
  Rental property              
  Land   $ 141,575   $ 143,933  
  Buildings, improvements and fixtures     1,343,155     1,352,568  
  Construction in progress     39,883     11,369  
        1,524,613     1,507,870  
  Accumulated depreciation     (425,168 )   (412,530 )
  Rental property, net     1,099,445     1,095,340  
  Cash and cash equivalents     3,453     3,267  
  Rental property held for sale     1,921     ---  
  Investments in unconsolidated joint ventures     7,570     9,054  
  Deferred charges, net     35,124     38,867  
  Other assets     31,627     32,333  
  Total assets   $ 1,179,140   $ 1,178,861  
  LIABILITIES AND EQUITY              
  Liabilities              
  Debt              
  Senior, unsecured notes (net of discount of $2,795 and $858 respectively)   $ 554,415   $ 256,352  
  Mortgage payable (including a debt discount of $0 and $241, respectively)     ---     35,559  
  Unsecured term loan     ---     235,000  
  Unsecured lines of credit     50,800     57,700  
        605,215     584,611  
  Construction trade payables     30,829     14,194  
  Accounts payable and accrued expenses     22,747     31,916  
  Other liabilities     17,286     27,077  
  Total liabilities     676,077     657,798  
  Commitments and contingencies              
  Equity              
  Tanger Factory Outlet Centers, Inc.              
  Preferred shares, 7.5% Class C, liquidation preference $25 per share, 8,000,000 shares authorized, 3,000,000 shares issued and outstanding at June 30, 2010 and December 31, 2009     75,000     75,000  
  Common shares, $.01 par value, 150,000,000 shares authorized, 40,470,862 and 40,277,124 shares issued and outstanding at June 30, 2010 and December 31, 2009, respectively     405     403  
  Paid in capital     599,270     596,074  
  Distributions in excess of net income      (229,298 )   (202,997 )
  Accumulated other comprehensive income (loss)     1,884     (5,809 )
  Equity attributable to Tanger Factory Outlet Centers, Inc.     447,261     462,671  
  Equity attributable to noncontrolling interest in Operating Partnership     55,802     58,392  
  Total equity     503,063     521,063  
  Total liabilities and equity   $ 1,179,140   $ 1,178,861  
                 

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


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

                             
        Three months ended
June 30,
    Six months ended
June 30,
 
        2010     2009     2010     2009  
  Revenues                          
  Base rentals   $ 43,968   $ 43,218   $ 87,465   $ 85,894  
  Percentage rentals     1,048     940     2,353     2,248  
  Expense reimbursements     18,429     18,321     37,948     37,491  
  Other income     1,850     1,921     3,571     3,618  
  Total revenues     65,295     64,400     131,337     129,251  
                             
  Expenses                          
  Property operating     22,123     20,660     44,472     42,270  
  General and administrative     5,963     5,817     11,429     11,752  
  Impairment charge     ---     ---     735     ---  
  Depreciation and amortization     17,109     19,422     43,583     39,588  
  Total expenses     45,195     45,899     100,219     93,610  
  Operating income     20,100     18,501     31,118     35,641  
  Interest expense     (7,951 )   (9,564 )   (15,899 )   (20,774 )
  Gain (loss) on early extinguishment of debt     (563 )   10,467     (563 )   10,467  
  Gain on fair value measurement of previously held interest in acquired joint venture     ---     ---     ---     31,497  
  Loss on termination of interest rate swaps     (6,142 )   ---     (6,142 )   ---  
  Income before equity in losses of unconsolidated joint ventures and discontinued operations     5,444     19,404     8,514     56,831  
  Equity in losses of unconsolidated joint ventures     (51 )   (517 )   (119 )   (1,414 )
  Income from continuing operations     5,393     18,887     8,395     55,417  
  Discontinued operations     (1 )   (5,300 )   ---     (5,362 )
  Net income     5,392     13,587     8,395     50,055  
  Noncontrolling interest     (524 )   (1,833 )   (734 )   (7,531 )
  Net income attributable to Tanger Factory Outlet Centers, Inc.   $ 4,868   $ 11,754   $ 7,661   $ 42,524  
                             
  Basic earnings per common share:                          
  Income from continuing operations   $ .08   $ .43   $ .11   $ 1.33  
  Net income   $ .08   $ .30   $ .11   $ 1.19  
                             
  Diluted earnings per common share:                          
  Income from continuing operations   $ .08   $ .43   $ .11   $ 1.33  
  Net income   $ .08   $ .30   $ .11   $ 1.19  
                             
  Dividends paid per common share   $ .3875   $ .3825   $ .7700   $ .7625  
                             

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


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TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                 
        Six Months Ended
June 30,
 
        2010     2009  
           
  OPERATING ACTIVITIES              
  Net income   $ 8,395   $ 50,055  
  Adjustments to reconcile net income to net cash provided by operating activities:              
  Depreciation and amortization (including discontinued operations)     43,670     40,049  
  Impairment charge     735     5,200  
  Loss on termination of interest rate swap agreements     6,142     ---  
  Gain on sale of outparcels of land     (161 )   ---  
  Amortization of deferred financing costs     657     822  
  (Gain) loss on early extinguishment of debt     563     (10,467 )
  Gain on fair value measurement of previous interest held in acquired joint venture     ---     (31,497 )
  Equity in losses of unconsolidated joint ventures     119     1,414  
  Compensation expense related share-based compensation     2,682     2,889  
  Amortization of debt (premiums) and discount, net     (219 )   994  
  Distributions of cumulative earnings from unconsolidated joint ventures     414     360  
  Net accretion of market rent rate adjustment     (381 )   (43 )
  Straight-line base rent adjustment     (1,402 )   (1,534 )
  Increase (decrease) due to changes in:              
  Other assets     2,250     1,348  
  Accounts payable and accrued expenses     (9,423 )   (1,795 )
  Net cash provided by operating activities     54,041     57,795  
  INVESTING ACTIVITIES              
  Additions to rental property     (26,692 )   (20,962 )
  Acquisition of remaining interests in unconsolidated joint venture, net of cash acquired     ---     (31,086 )
  Termination payments related to interest rate swap agreements     (6,142 )   ---  
  Distributions in excess of cumulative earnings from unconsolidated joint ventures     536     ---  
  Net proceeds from the sale of real estate     602     ---  
  Additions to deferred lease costs     (1,969 )   (2,369 )
  Net cash used in investing activities     (33,665 )   (54,417 )
  FINANCING ACTIVITIES              
  Cash dividends paid     (33,962 )   (27,047 )
  Distributions to noncontrolling interest in Operating Partnership     (4,671 )   (4,623 )
  Proceeds from debt issuances     485,230     109,200  
  Repayments of debt     (465,000 )   (82,450 )
  Proceeds from tax incremental financing     ---     944  
  Additions to deferred financing costs     (2,486 )   ---  
  Proceeds from exercise of options     699     771  
  Net cash used in financing activities     (20,190 )   (3,205 )
  Net increase in cash and cash equivalents     186     173  
  Cash and cash equivalents, beginning of period     3,267     4,977  
  Cash and cash equivalents, end of period   $ 3,453   $ 5,150  
                 

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


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Item 1 - Financial Statements of Tanger Properties Limited Partnership

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

                             
              June 30,
2010
    December 31,
2009
 
  ASSETS:                          
  Rental property                          
  Land         $ 141,575         $ 143,933  
  Buildings, improvements and fixtures           1,343,155           1,352,568  
  Construction in progress           39,883           11,369  
              1,524,613           1,507,870  
  Accumulated depreciation           (425,168 )         (412,530 )
  Rental property, net           1,099,445           1,095,340  
  Cash and cash equivalents           3,447           3,214  
  Rental property held for sale           1,921           ---  
  Investments in unconsolidated joint ventures           7,570           9,054  
  Deferred charges, net           35,124           38,867  
  Other assets           31,250           32,025  
  Total assets         $ 1,178,757         $ 1,178,500  
  LIABILITIES AND PARTNERS' EQUITY        
  Liabilities                          
  Debt                          
  Senior, unsecured notes (net of discount of $2,795 and $858, respectively)         $ 554,415         $ 256,352  
  Mortgage payable (including a debt discount of $0 and $241, respectively)           ---           35,559  
  Unsecured term loan           ---           235,000  
  Unsecured lines of credit           50,800           57,700  
              605,215           584,611  
  Construction trade payables           30,829           14,194  
  Accounts payable and accrued expenses           22,364           31,555  
  Other liabilities           17,286           27,077  
  Total liabilities           675,694           657,437  
                             
  Commitments and contingencies                          
                             
  Partners' Equity                          
  General partner           5,328           5,633  
  Limited partners           495,873           522,425  
  Accumulated other comprehensive income (loss)           1,862           (6,995 )
  Total partners' equity           503,063           521,063  
  Total liabilities and partners' equity         $ 1,178,757         $ 1,178,500  
                             

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


9


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

                                                                             
                 
        Three months ended     Six months ended  
        June 30,     June 30,  
        2010           2009     2010           2009  
  Revenues    

 

 

                                                                   
  Base rentals   $ 43,968                     $ 43,218               $ 87,465                     $ 85,894  
  Percentage rentals     1,048                       940                 2,353                       2,248  
  Expense reimbursements     18,429                       18,321                 37,948                       37,491  
  Other income     1,850                       1,921                 3,571                       3,618  
        65,295                       64,400                 131,337                       129,251  
                                                                             
  Expenses                                                                          
  Property operating     22,123                       20,660                 44,472                       42,270  
  General and administrative     5,963                       5,817                 11,429                       11,752  
  Impairment charge     ---                       ---                 735                       ---  
  Depreciation and amortization     17,109                       19,422                 43,583                       39,588  
  Total expenses     45,195                       45,899                 100,219                       93,610  
  Operating income     20,100                       18,501                 31,118                       35,641  
  Interest expense     (7,951 )                     (9,564 )               (15,899 )                     (20,774 )
  Gain (loss) on early extinguishment of debt     (563 )                     10,467                 (563 )                     10,467  
  Gain on fair value measurement of previously held interest in acquired joint venture                                                                          
  ---                       ---                 ---                       31,497  
  Loss on termination of interest rate swaps     (6,142 )                     ---                 (6,142 )                     ---  
  Income before equity in losses of unconsolidated joint ventures and discontinued operations                                                                          
  5,444                       19,404                 8,514                       56,831  
  Equity in losses of unconsolidated joint ventures     (51 )                     (517 )               (119 )                     (1,414 )
  Income from continuing operations     5,393                       18,887                 8,395                       55,417  
  Discontinued operations     (1 )                     (5,300 )               ---                       (5,362 )
  Net income     5,392                       13,587                 8,395                       50,055  
  Net income available to limited partners     5,351                       13,496                 8,338                       49,682  
  Net income available to general partner   $ 41                     $ 91               $ 57                     $ 373  
                                                                             
  Basic earnings per common unit:                                                                          
  Income from continuing operations   $ .17                     $ .85               $ .23                     $ 2.67  
  Net income   $ .17                     $ .59               $ .23                     $ 2.40  
                                                                             
  Diluted earnings per common unit:                                                                          
  Income from continuing operations   $ .17                     $ .85               $ .23                     $ 2.67  
  Net income   $ .17                     $ .59               $ .23                     $ 2.40  
                                                                             
  Distribution paid per common unit   $ .775                     $ .765               $ 1.540                     $ 1.525  

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


10


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

                       
        Six Months Ended
June 30,
 
        2010           2009  
                       
  OPERATING ACTIVITIES                    
  Net income   $ 8,395         $ 50,055  
  Adjustments to reconcile net income to net cash provided by operating activities:                    
  Depreciation and amortization (including discontinued operations)     43,670           40,049  
  Impairment charge     735           5,200  
  Loss on termination of interest rate swap agreements     6,142           ---  
  Gain on sale of outparcels of land     (161 )         ---  
  Amortization of deferred financing costs     657           822  
  (Gain) loss on early extinguishment of debt     563           (10,467 )
  Gain on fair value measurement of previous interest held in acquired joint venture     ---           (31,497 )
  Equity in losses of unconsolidated joint ventures     119           1,414  
  Equity-based compensation expense     2,682           2,889  
  Amortization of debt premiums and discount, net     (219 )         994  
  Distributions of cumulative earnings from unconsolidated joint ventures     414           360  
  Net accretion of market rent rate adjustment     (381 )         (43 )
  Straight-line base rent adjustment     (1,402 )         (1,534 )
  Increase (decrease) due to changes in:                    
  Other assets     2,319           1,913  
  Accounts payable and accrued expenses     (9,445 )         (2,373 )
  Net cash provided by operating activities     54,088           57,782  
  INVESTING ACTIVITIES                    
  Additions to rental property     (26,692 )         (20,962 )
  Acquisition of remaining interests in unconsolidated joint venture, net of cash acquired     ---           (31,086 )
  Termination payments related to interest rate swap agreements     (6,142 )         ---  
  Distributions in excess of cumulative earnings from unconsolidated joint ventures     536           ---  
  Net proceeds from the sale of real estate     602           ---  
  Additions to deferred lease costs     (1,969 )         (2,369 )
     Net cash used in investing activities     (33,665 )         (54,417 )
  FINANCING ACTIVITIES                    
  Cash distributions paid     (38,633 )         (31,670 )
  Proceeds from debt issuances     485,230           109,200  
  Repayments of debt     (465,000 )         (82,450 )
  Proceeds from tax incremental financing     ---           944  
  Additions to deferred financing costs     (2,486 )         ---  
  Proceeds from exercise of options     699           771  
  Net cash used in financing activities     (20,190 )         (3,205 )
  Net increase in cash and cash equivalents     233           160  
  Cash and cash equivalents, beginning of period     3,214           4,952  
  Cash and cash equivalents, end of period   $ 3,447         $ 5,112  
                       

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


11


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

1. Business

Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States. We are a fully-integrated, self-administered and self-managed real estate investment trust, or REIT, which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of June 30, 2010, we owned and operated 31 outlet centers, with a total gross leasable area of approximately 9.1 million square feet. We also operated and had partial ownership interests in two outlet centers totaling approximately 948,000 square feet.

Our outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership and subsidiaries. Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating Partnership. Unless the context indicates otherwise, the term, Company, refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, Operating Partnership, refers to Tanger Properties Limited Partnership and subsidiaries. The terms "we", "our" and "us" refer to the Company or the Company and the Operating Partnership together, as the text requires.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, the Tanger GP Trust and the Tanger LP Trust. The Tanger GP Trust controls the Operating Partnership as its sole general partner. The Tanger LP Trust holds a limited partnership interest in the Operating Partnership. The Tanger family, through its ownership of the Tanger Family Limited Partnership holds the remaining units of partnership interest in the Operating Partnership as a limited partner. Stanley K. Tanger, a member of the Company's Board of Directors, is the sole general partner of the Tanger Family Limited Partnership.

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 Annual Reports on Form 10-K for the year ended December 31, 2009. The December 31, 2009 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 Securities and Exchange Commission's, or the SEC, 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 joint ventures and variable interest entities. For joint ventures that are defined as variable interest entities, the primary beneficiary consolidates the entity.


12


3. Development of Rental Properties

New Development

During the second quarter of 2010, construction continued on our development site in Mebane, North Carolina. Currently, we have signed leases or leases out for signature for approximately 91% of the total square feet. We currently expect the center to open on November 5th, in time for the 2010 holiday season.

Redevelopment at Existing Outlet Centers

During the second quarter of 2010, we completed the demolition of our Hilton Head I center in Bluffton, South Carolina. The redevelopment of the outlet center is currently underway and we have leases signed or out for signature on 54% of the leasable square feet. When completed, the new 176,000 square foot center, with an additional four outparcel pads, will be the first LEED certified green shopping center in Beaufort County. Our $50.0 million redevelopment is projected to open during the second half of 2011. As a result of the demolition and redevelopment plan, a total of $9.2 million in depreciation and amortization was recognized in the first quarter of 2010 to completely depreciate the existing center. The demolition was completed during the second quarter of 2010, at which time the fully depreciated assets were written-off.

Commitments to complete construction of our new developments, redevelopments and other capital expenditure requirements amounted to approximately $30.0 million at June 30, 2010. Commitments for construction represent only those costs contractually required to be paid by us.

Interest costs capitalized during the three months ended June 30, 2010 and 2009 amounted to $313,000 and $48,000, respectively, and for the six months ended June 30, 2010 and 2009 amounted to $513,000 and $84,000, respectively.

Impairment Charges

Rental property held and used by us is reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.

Seymour, Indiana 2010

In 2005 we sold our outlet center located in Seymour, Indiana, but retained various outparcels of land at the development site, some of which we sold in recent years. In February 2010, our Board of Directors approved the sale of the remaining parcels of land. As a result of this Board approval and an approved plan to actively market the land, we accounted for the land as "held for sale" and recorded a non-cash impairment charge of approximately $735,000 in our consolidated statement of operations which equaled the excess of the carrying amount of the land over its fair value. We determined the fair value using a market approach considering offers that we have obtained for all the various parcels less estimated closing costs. See Note 17, Fair Value Measurements, for further discussion.

Commerce I, Georgia 2009

During the second quarter 2009, we determined for our Commerce I, Georgia outlet center that the estimated future undiscounted cash flows of that property did not exceed the property's carrying value based on deteriorating amounts of net operating income and the expectation that the occupancy rate of the property would significantly decrease in future periods. Therefore, we recorded a $5.2 million non-cash impairment charge in our consolidated statement of operations within discontinued operations (Note 5) which equaled the excess of the property's carrying value over its fair value. We determined the fair value using a market approach whereby we considered the prevailing market income capitalization rates and sales data for transactions involving similar assets.

Land Outparcel Sales

Gains on sale of outparcels are included in other income in the consolidated statements of operations. Cost is allocated to the outparcels based on the relative market value method.

In March 2010, we closed on the sale of an outparcel of land at our property in Lincoln City, Oregon. The net proceeds from the sale were approximately $403,000 and a gain on sale of outparcel of approximately $161,000 was recognized. We also sold two of the remaining outparcels in Seymour Indiana for net proceeds of approximately $199,000. As these parcels were recorded at their fair value earlier in the quarter, no gain or loss on sale was recorded. The only remaining land as of June 30, 2010 is currently recorded at its estimated fair value which is approximately $200,000.


13


4. Investments in Unconsolidated Real Estate Joint Ventures

Our investments in unconsolidated joint ventures as of June 30, 2010 and December 31, 2009 aggregated $7.6 million and $9.1 million, respectively. We have evaluated the accounting treatment for each of the joint ventures and have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for the individual joint ventures. At June 30, 2010, we were members of the following unconsolidated real estate joint ventures:

                                         
  Joint Venture     Center Location     Opening Date     Ownership %     Square Feet     Carrying Value of Investment
(in millions)
    Total Joint Venture Debt
(in millions)
 
  Deer Park     Deer Park, Long Island, New York     2008     33.3%     683,033     $2.5     $269.3  
                                         
  Wisconsin Dells     Wisconsin Dells, Wisconsin     2006     50%     265,061     $5.1     $24.8  
                                         

These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required by the equity method of accounting as discussed below.

The following management, leasing and marketing fees were recognized from services provided to Wisconsin Dells and Deer Park (in thousands):

                                   
              Three Months Ended
June 30,
    Six Months Ended
June 30,
 
              2010     2009     2010     2009  
  Fee:                                
  Management and leasing   $ 471   $ 494   $ 935   $ 965  
  Marketing     39     40     80     79  
  Total Fees         $ 510   $ 534   $ 1,015   $ 1,044  
                                   

Our investments in real estate joint ventures are reduced by 50% of the profits earned for leasing services provided to Wisconsin Dells and by 33.3% of the profits earned for leasing services provided to Deer Park. 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.

On a periodic basis, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized. As of June 30, 2010, we do not believe that any of our equity investments were impaired.

In accordance with amended guidance related to the consolidation of variable interest entities which became effective January 1, 2010, we performed an analysis of all of our real estate joint ventures to determine whether they would qualify as variable interest entities, or VIE, and whether the joint venture should be consolidated or accounted for as an equity method investment in an unconsolidated joint venture. As a result of our qualitative assessment, we concluded that Deer Park is a VIE and Wisconsin Dells is not a VIE. Deer Park is considered a VIE because it does not meet the criteria of the members having a sufficient equity investment at risk.


14


After making the determination that Deer Park was a VIE, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate Deer Park's balance sheets and results of operations. This assessment was based upon whether we had the following:

a. The power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance

b. The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity

Based on the provisions of the operating and management agreements of Deer Park, we determined that no one member alone has the power to direct the significant activities that affect the economic performance of Deer Park. While we are the Deer Park property manager, we must operate the property within the approved budget or risk being removed by the other two members as the property manager.

We have determined that all three partners share power in the decisions that most significantly impact Deer Park, as well as the financial rights and obligations, and therefore we are not required to consolidate Deer Park. Our equity method investment in Deer Park as of June 30, 2010 was approximately $2.5 million. We are unable to estimate our maximum exposure to loss at this time. Upon completion of the final phase of the project, the debt is expected to be approximately $284.0 million, of which our proportionate share would be approximately $94.7 million. A calculation of the maximum loss would involve variables such as the loan balance amount and any proceeds from the sale of the property.

Condensed combined summary financial information of joint ventures accounted for using the equity method is as follows (in thousands):

                 
  Summary Balance Sheets
- Unconsolidated Joint Ventures
    As of
June 30,
2010
    As of
December 31,
2009
 
  Assets              
  Investment properties at cost, net   $ 289,587   $ 294,857  
  Cash and cash equivalents     9,020     8,070  
  Deferred charges, net     4,799     5,450  
  Other assets     6,697     5,610  
  Total assets   $ 310,103   $ 313,987  
  Liabilities and Owners' Equity              
  Mortgages payable   $ 294,034   $ 292,468  
  Construction trade payables     878     3,647  
  Accounts payable and other liabilities     3,991     3,826  
  Total liabilities     298,903     299,941  
  Owners' equity     11,200     14,046  
  Total liabilities and owners' equity   $ 310,103   $ 313,987  
                 


15


                             
  Summary Statements of Operations—     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
  Unconsolidated Joint Ventures     2010     2009     2010     2009  
                             
  Revenues   $ 9,261   $ 8,431   $ 18,535   $ 16,955  
                             
  Expenses                          
  Property operating     4,200     3,611     8,410     7,858  
  General and administrative     72     117     359     306  
  Depreciation and amortization     3,546     3,358     7,043     6,532  
  Total expenses     7,818     7,086     15,812     14,696  
  Operating income     1,443     1,345     2,723     2,259  
  Interest expense     1,717     3,079     3,391     6,810  
  Net loss   $ (274 ) $ (1,734 ) $ (668 ) $ (4,551 )
                             
  Tanger's share of:                          
  Net loss   $ (51 ) $ (517 ) $ (119 ) $ (1,414 )
  Depreciation (real estate related)     1,280     1,223     2,545     2,389  
                             

5. Rental Property Held for Sale

In May 2010, our Board of Directors approved the sale of our Commerce I, Georgia center. As of June 30, 2010, this property qualified as a rental property held for sale under applicable accounting guidance. In June 2009, we recorded an impairment charge for this property of $5.2 million which equaled the excess of the property's carrying value over its estimated fair value at that time.

Summary of results of operations for the property whose results of operations are considered discontinued operations for the three and six months ended June 30, 2010 and 2009, respectively (in thousands):

                             
        Three Months Ended
June 30,
    Six Months Ended
June 30,
 
        2010     2009     2010     2009  
  Revenues:                          
  Base rentals   $ 138   $ 206   $ 289   $ 458  
  Expense reimbursements     27     53     45     102  
  Other income     10     7     18     14  
  Total revenues     175     266     352     574  
                             
  Expenses:                          
  Property operating     138     133     261     272  
  General and administrative     4     3     4     3  
  Depreciation and amortization     34     230     87     461  
  Impairment charge     ---     5,200     ---     5,200  
  Total expenses     176     5,566     352     5,936  
  Discontinued operations   $ (1 ) $ (5,300 ) $ ---   $ (5,362 )
                             


16


6. Debt of the Company

In this Note 6, the “Company” refers only to Tanger Factory Outlet Centers, Inc. and not to any of its subsidiaries.

The Company itself does not hold any indebtedness. All debt is held directly by the Operating Partnership.

The Company guarantees the Operating Partnership's obligations with respect to its five unsecured lines of credit which have a total borrowing capacity of $325.0 million. As of June 30, 2010, the Operating Partnership had approximately $50.8 million outstanding in total on these lines. The Company also guarantees the Operating Partnership's obligations with respect to its $7.2 million of outstanding senior exchangeable notes due in 2026. However, August 18, 2011 is the first date that the noteholders can require us to repurchase the notes without the occurrence of specified events.

7. Debt of the Operating Partnership

As of June 30, 2010 and December 31, 2009, the debt of the Operating Partnership consisted of the following (in thousands):

                 
        June 30,
2010
    December 31,
2009
 
  Senior, unsecured notes:              
  6.15% Senior notes, maturing November 2015, net of discount of $555 and $598, respectively   $ 249,445   $ 249,402  
  3.75% Senior exchangeable notes, maturing August 2026, net of discount of $183 and $260, respectively     7,027     6,950  
  6.125% Senior notes, maturing in May 2020, net of discount of $2,057 and $0, respectively     297,943     ---  
  Unsecured term loan facility:              
  LIBOR + 1.60% unsecured term loan facility (1)     ---     235,000  
  Unsecured lines of credit with a weighted average interest rates of 1.01% and 0.98%, respectively (2)     50,800     57,700  
  Mortgage note:              
  LIBOR + 1.40 maturing April 2010, including net premium of $0 and $241, respectively (3)     ---     35,559  
      $ 605,215   $ 584,611  
                 

(1) The effective rate on this facility due to interest rate swap agreements was 5.25%.

(2) For our lines of credit being utilized at June 30, 2010 and depending on our investment grade rating, the interest rates can vary from either prime or from LIBOR +.45% to LIBOR + 1.55% and expire in June 2011 or later. At June 30, 2010, our interest rates on outstanding balances were LIBOR + .60%.

(3) Because this mortgage debt was assumed as part of an acquisition, the debt was recorded at its fair value and carried an effective interest rate of 5.34%.

Transactions in 2010

In June 2010, we closed on $300.0 million of senior unsecured notes. The ten year notes were issued by the Operating Partnership and were priced at 99.31% of par value to yield 6.219% to maturity. The notes will pay interest semi-annually at a rate of 6.125% per annum and mature on June 1, 2020.

The net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $295.5 million. We used the net proceeds from the sale of the notes to (i) repay our $235.0 million unsecured term loan due in June 2011, (ii) pay approximately $6.1 million to terminate two interest rate swap agreements associated with the term loan and (iii) repay borrowings under our unsecured lines of credit and for general working capital purposes.

No prepayment or early termination penalty was paid as a result of the repayment of the term loan; however, unamortized loan origination costs of approximately $563,000 were written-off during the second quarter of 2010.


17


Debt Maturities

Maturities of the existing long-term debt as of June 30, 2010 are as follows (in thousands):

           
  Year     Amount  
  2010   $ ---  
  2011 (1)     58,010  
  2012     ---  
  2013     ---  
  2014     ---  
  Thereafter     550,000  
  Subtotal     608,010  
  Discount     (2,795 )
  Total   $ 605,215  
           

(1) Includes expiration of $7.2 million of senior exchangeable notes shown in 2011 because that is the first date that the noteholders can require us to repurchase the notes without the occurrence of specified events.

8. Shareholders' Equity of the Company

In May 2009, the senior exchangeable notes of the Operating Partnership in the principal amount of $142.3 million were exchanged for Company common shares, representing approximately 95.2% of the total senior exchangeable notes outstanding prior to the exchange offer.  In the aggregate, the exchange offer resulted in the issuance of approximately 4.9 million Company common shares and the payment of approximately $1.2 million in cash for accrued and unpaid interest and in lieu of fractional shares.  Following settlement of the exchange offer, senior exchangeable notes in the principal amount of approximately $7.2 million remained outstanding.  In connection with the exchange offering, we recognized in income from continuing operations and net income a gain on early extinguishment of debt in the amount of $10.5 million.  A portion of the debt discount recorded upon adoption of new accounting guidance for convertible debt amounting to approximately $7.0 million was written-off as part of the transaction.

9. Partners' Equity of the Operating Partnership

When the Company issues common shares pursuant to a public offering or upon exercise of options or issuance of restricted share awards, the Operating Partnership issues a corresponding unit to the Company on a two shares for one unit basis. At June 30, 2010 and December 31, 2009, the ownership interests of the Operating Partnership consisted of the following:

                 
        June 30,
2010
    December 31,
2009