Tanger Inc (SKT) 2011 Q2 法說會逐字稿

Good morning. I am Cindy Holt, Assistant Vice President, Finance and Investor Relations, andI would like to welcome you to the Tanger Factory Outlet Centers' second quarter 2011 conference call.

Please note during this conference call, some of Management's comments will be forward-looking statements, including statements regarding the Company's property operations, leasing, tenant sales trends, development, acquisition, expansion and disposition activities, as well as their comments regarding the Company's funds from operations, funds available for distribution, and dividends.

These forward-looking statements are subject to numerous risks and uncertainties, and actual results could differ materially from those projected due to factors including, but not limited to, changes in economic and real estate conditions, the availability and cost of capital, the Company's ongoing ability to lease, develop, acquire properties, as well as potential tenant bankruptcies and competition. We direct you to the Company's filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that Management's comments include time-sensitive information that may be accurate only as of today's date, August 3, 2011.

At this time, all participants are in a listen-only mode. Following Management's prepared remarks, the call will be open to your questions.

On the call today will be Steven Tanger, President and Chief Executive Officer, and Jim Williams, Senior Vice President and Controller.

I will now turn the call over to Steven Tanger. Please go ahead, Steve.

Thank you, Cindy. And good morning, everyone.

Our ability to successfully increase rental rates and occupancy resulted in strong same-center net operating income growth of 3.8%in the second quarter of 2011. This marks the 26th consecutive quarter of positive same-center NOI growth, dating back to when we first began tracking this metric in 2005. Our tenant comparable sales for the rolling 12 months ended June 30, 2011, increased 4.6%to $361 per square foot compared to 4.6%increase last year,while sales for the second quarter increased 6.8%, compared to an increase of 4.8% for the second quarter of 2010. Continued positive comparable tenant sales allowed us to achieve a blended straight-line increase in rent of 25.5% in the first half of 2011.

Notable events which have taken place since our last quarterly call include an upgrade of the outlook for our investment grade rating to positive from stable by Standard and Poor's, the expansion of our portfolio by more than 1 million square feet, and our geographic reach into three new states with the acquisition of properties in Jeffersonville, Ohio, Atlantic City, New Jersey and Ocean City, Maryland,the completion of an attractively-priced $150 million unsecured bridge loan with Wells Fargo to allow us maximum flexibility in financing our growth,the completion of a well-executed and cost effective offering of 4.6 million common shares providing the Company with net proceeds of $117.3 million dollars, the announcement of an exclusive joint venture with the Peterson Companies to develop Tanger outlets at National Harbor in the metropolitan Washington D.C. market, the formation of unprecedented joint venture arrangement with Simon Property Group for the development of a Tanger Outlet Center south of Houston near Galveston, Texas, and the completion and execution of the co-ownership documentation for our 50/50 joint venture with RioCan Real Estate Investments Trusts to establish an outlet platform until Canada under the Tanger Outlet Centers brand.

Later in the call, we will discuss these exciting transactions further, along with a summary of our operating performance and our current expectations for the balance of 2011. But first, let me turn the call over to Jim Williams, our Senior Vice President and Controller, who is standing in for Frank Marchisello, our Executive Vice President and Chief Financial Officer, who could not be on the call this morning due to a scheduling conflict.

Thank you, Steve. And good morning, everyone.

Total adjusted funds from operations, or FFO, for the quarter ended June 30, 2011, increased 2.7%to $30.6 million compared to $29.8 million last year. Adjusted FFO per share increased 3.1%to $0.33 per share from $0.32 for the second quarter of last year. On a consolidated basis, our total market capitalization on June 30, 2011 was approximately $3.4 billion, and our debt to total market capitalization was approximately 26.2%We also maintained a strong interest coverage ratio of 3.75 times for the quarter.

As of June 30, 2011, approximately 62.6%of our debt was at fixed rate. Our balance sheet strategy has always been conservative, targeting minimal use of secured financing and a manageable schedule of debt maturities.

Since our last conference call, we have completed two successful financing transactions. On June 27, 2011, we closed on a 90 day, $150 million unsecured bridge loan with Wells Fargo that currently bears interest at LIBOR plus 160. Other terms and conditions of the loan are substantially the same as our current unsecured lines of credit. We also had the option to extend the maturity to June, 2012 by exercising each of the loan's three 90-day extension options. This attractively priced capital will afford maximum flexibility in financing our growth initiatives.

The other capital transaction we recently completed was a 4.6 million common share offering which priced at $25.66 per share, a 2.5%discount to the pre-announcement closing price on June 27th of $26.32 per share. The transaction was completed on July 6, with net proceeds to the Company of $117.3 million, net of offering costs.

Our shares have traded well since the transaction closed, a feat accomplished by only a couple of reissuers among recently bought deals. This equity offering has strengthened our balance sheet as we move into the third quarter. On a pro forma basis, as if the common offering had closed on June 30, our debt to total market capitalization ratio would have been 22.7%and 72% of our debt would have been at fixed rate.

And a final note regarding financial activities, on July 18, 2011, we issued a redemption notice for the remaining $7 million outstanding on our 3.75%senior exchangeable notes. These notes will be redeemable on August 18, 2011.

Our FFO payout ratio for the first half of 2011 was approximately 62% and our FAD payout ratio was 73%. At these levels, our dividend continues to be well-covered. We will generate incremental cash flow over our dividend, which we plan on using to help fund our future growth.

I will now turn the call back over to Steve.

Thank you, Jim.

I am pleased to report that the positive leasing momentum for 2011 has continued, with this quarter's leasing spreads surpassing our first quarter results. At mid-year, we produced significant increased rent spreads on the renewal and re-leasing of space throughout our portfolio. As of the end of June, we executed 373 leases totalling 1.66 million square feet with a blended average increase in base rental rates of 25.5%. This execution more than doubles the blended average rental spread of 12.4%. in the first half of 2010.

We have executed renewals and renewals in process for 1.282 million square feet, or about 75.1%of the space coming up for renewal in 2011. This yields an increase in average base rental rates on the executed renewals of 14.9%,up from 8.7%increase in average base rental rates on lease renewals executed during the first half of 2010.

In addition, during the first half of the year, we re-tenanted approximately 469,000 square feet with an increase in average base rental rates of 51.5% -- again, more than doubling our average re-tenanting spread for the first half of 2010, which was 22.4%. Our average cost of occupancy for 2011 was 8.3%of average tenant sales, which has provided us with the opportunity to continue to raise rental rates on the renewal and re-leasing of space throughout our portfolio of outlet centers.

Same-center NOI growth during the quarter was 3.8%compared to 3.4%in the second quarter of last year. Our same-center NOI growth resulted from continued increases in rental rates as well as higher average occupancy rates in the first half of 2011 compared to the first half of 2010. Our overall occupancy rate for our wholly-owned stabilized properties continues to climb and was at 97.8%at the end of the second quarter of 2011 compared to 96.9%last year. Reported tenant comparable sales within our wholly-owned portfolio increased 4.6%for the rolling 12 months ended June 2011, to $361 per square feet. Sales for the second quarter increased 6.8%compared to a 4.8%increase in the second quarter of 2010.

In recent weeks, we have expanded both the size of our portfolio and our geographic footprint through the acquisition of three existing outlet centers.

First, we acquired Prime Outlets Jeffersonville, Ohio, from the Simon Property Group for $134 million in cash on June 28, 2011. The transaction added approximately 410,000 square feet to our portfolio and is Tanger's first property in the state of Ohio. Located in the tri-city area of Cincinnati, Columbus and Dayton, and situated on two major highways, the property benefits from a residential population of 4.4 million people within a 60 mile radius. The property was 99% occupied as of June 30, 2011, and features upscale tenants of over 90 brands including Anne Taylor, Banana Republic, Brooks Brothers, Coach, Crew, Gap, Kate Spade, Nike, Old Navy, Polo Ralph Lauren, Pottery Barn, Tommy Hilfiger, Under Armour and many more. A family-fun weekend celebration is scheduled for August 11 through the 14, just in time for the center's inclusion in Tanger's back to school marketing and sales campaign. The property has been rebranded as a Tanger Outlet Center.

On July 15, 2011, we announced the closing on Tanger's admission as a member of three existing entities, substantially all of the economic interests in Atlantic City outlets The Walk, Phases I and II, and Ocean City Factory Stores. We are currently under contract to purchase substantially all of the economic interests in Atlantic City III, which we expect to close by the end of 2011. The combined purchase price for these assets, including Phase III of Atlantic City is estimated to be $199.3 million including $125.8 million in cash and the assumption of $73.5 million in mortgage debt.

Including the acquisition of Phase III in Atlantic City, this transaction will expand our portfolio by approximately 691,000 square feet and extends our reach geographically into the states of New Jersey and Maryland. Located in Atlantic city, New Jersey, across from the Boardwalk, Atlantic City Outlets, The Walk approximately 491,000 square feet, benefits from 34 million visitors to the market each year. At closing, Phases I and II are 99% leased and the recently constructed Phase III was 80 percent leased with a lease out for signature for one of the three remaining unoccupied spaces.

The property, which is in the process of being rebranded Tanger Outlets The Walk, includes a high-quality tenant line-up of more than 100 brands including Adidas, Aeropostale, Banana Republic, Brooks Brothers, Calvin Klein, Carters, Coach, Donna Karan New York, Gap, J. Crew, Jones New York, Kenneth Cole, Lane Bryant, Nike, Polo Ralph Lauren, Reebok, St. John's, Tommy Hilfiger and Under Armour just to make a few. This streetscape center spread out across three city blocks also provides shoppers with a wide variety of restaurants to choose from including Ruby Tuesday, Applebee's, Cabo Crepe Cafe, The Melting Pot, Longhorn Steakhouse and Ruth Chris Steakhouse.

Ocean City Factory Outlets totals approximately 200 [sic] square feet and is located along route 50 in Ocean City, Maryland a popular vacation destination for residents of Washington DC and Baltimore. At closing, the property was 93% occupied and includes approximately 40 brands such as Aeropostale, Calvin Klein, Carters, The Children's Place, Dress Barn, Gap, Izod, Joseph A. Bank, Justice, Lids, Oshkosh B'gosh, Route 21, Tommy Hilfiger and many more. Its close proximity to Tanger's outlet centers in Rehoboth Beach, Delaware, located about 30 miles away, is expected to afford many branding and marketing synergies to the Ocean City property.

Following these acquisitions, Tanger's balance sheet will remain conservatively structured as 94% of our portfolio in terms of both number of properties and leaseable area will remain unencumbered by mortgages. In addition, we are actively negotiating the potential acquisition of additional existing outlet centers in the United States.

I know that you will understand that with the nature of these negotiations and the need for a high level of confidentiality, we are unable to give you more detail today on these properties. We hope to be in a position to make a definitive announcement in the near future regarding the satisfactory completion of our due diligence work for one or more of these potential acquisitions. Based on our current analysis, we anticipate that each of these transitions, much like those we have recently acquired, should they close, will be accretive in the first year of our ownership.

Supplementing these opportunistic acquisition initiatives, our development pipeline is quite robust despite the current competitive landscape. At a time when the outlet channel is the darling of the retail space, development announcements have climbed dramatically, causing some to become concerned about over-development. Linda Humphers, editor in chief of Value Retail News, which is the trade publication of the outlet industry, addresses this concern in her August, 2011. According to the article, outlet center grand openings have been limited to single-digits each year since 1997. Also, every outlet center opened since 2001 is still open and operating as an outlet center today.

This data supports the thesis that outlet industry expansion has occurred in a disciplined manner for more than a decade. The fact is that only a small percentage of outlet developments announced are ever actually completed,and most of those are completed by a small group of top outlet developers. To help illustrate this point, we look back a decade to May, 2001, issue of VRN, which listed 16 potential outlet developments. Of those 16 announced sites, 12 were to be developed by companies other than Tanger and Simon of those 12, only one has been completed to date for a mere 8% of the announced sites.

We repeated this exercise for the five-year-ago period including the May, 2006 issue of VRN and found, again, excluding top outlet developers, only one of the nine developments announced has been completed to date. And for last year, based on the May, 2010 VRN issue, excluding top outlet developers, only one of the 31 properties announced have been developed to date. Unlike outlet newcomers, Tanger has a 30-year proven track record of successful outlet development. So tenants know that we cannot only deliver what we plan to build, but, also, operate and market the center successfully after it opens.

And for our most recently announced development project, we will partner with the Simon Property Group. This 50/50 joint venture will develop a Tanger Outlet Center 30 miles south of Houston, and 20 miles north of Galveston, in Texas City, Texas. The site is located on the highly traveled Interstate 45 with a daily traffic count of approximately 100,000 cars. The beaches and resort hotels in Galveston host over 5 million tourists each year. Pre-leasing has been strong, spurring the joint venture to plan its ground-breaking ceremony for August 30, 2011, with a grand opening expected about 12 months later. Initial plans are for a 350,000 outlet center featuring about 90 brand name and designer outlet stores. The 55-acre site provides ample space for future expansion for a total build-out of approximately 470,000 square feet.

During the quarter, we also announced a 50/50 joint venture with the Peterson Companies to develop Tanger Outlets at National Harbor in the Washington, DC metropolitan area which welcomes about 33 million tourists annually. The site for the 350,000 square foot center is a 40-acre parcel offering easy access to Interstate 495, Interstate 95, Interstate 295 and the Woodrow Wilson Bridge. Located at National Harbor, DC's premier waterfront resort destination, the complex features fine dining, office and residential components as well as world-class hotels, including the Gaylord National Resort and Convention Center. Developed by the Peterson Companies, National Harbor comprises 350 acres of prime real estate along the scenic Potomac River in Prince Georges County, Maryland.

Pre-leasing activities are also continuing on our projects in the West Phoenix and Scottsdale, Arizona markets. These markets have received enthusiastic support from our tenant base. And each one has an excellent market potential for an outlet center.

In addition to these named markets, we are continuing the process of building our shadow pipeline of potential new developments in several markets across the country where we intend to develop outlet shopping centers.

Outside the United States, we have made progress toward the launch of an outlet platform in Canada, as all of the documentation for our 50/50 joint venture with RioCan Real Estate Investment Trust has now been finalized and fully executed. This joint venture plans to develop and lease 10 to 12 Tanger Outlet Centers across Canada in the next five to seven years with the goal of offering tenants the scale of a robust Canadian platform rather than one single development site. We believe Canada is under-retailed relative to the United States market and that the true outlet center format is unrepresented, making Canada an excellent target for Tanger expansion.

In March, the joint venture named its first development site, located in the Greater Toronto Area in Halton Hills. The site has high visibility on Highway 401 at the James Snow Parkway interchange is and is currently entitled for development of a 225,000 square foot outlet center. We are hopeful that by September, 2011, the municipal authorities will upsize our zoning to accommodate our planned 260,000 square foot center, followed by construction of a second phase sufficiently sized to produce total center build out in the 350,000 to the 400,000 square foot range. Pending pre-leasing, it is our objective to break ground in Halton Hills in 2012.

Tenant interest has been strong, not only for the Halton Hills site but for other major metropolitan markets in Canada. Tony Grassi, senior marketing director of the joint venture, is hard at work developing the shadow pipeline of potential development sites. When Tanger achieves the minimum pre-leasing Phase I threshold of at least 50% on any of these domestic and Canadian projects, we will break ground and proceed with construction. Grand opening activities should take place about a year after the start of construction. We remain excited about the growth prospects of our company and our industry,as shoppers remain value-conscious and the tenant community continues the desire to expand into new marketsUnited States and Canada.

Due to the positive trends of the first half of 2011, we are increasing our earnings guidance. Based upon our current view of market conditions and taking into consideration our recent common share offering, the closing of the unsecured bridge loan and the accretive impact of the acquisitions of the Jeffersonville, Ohio, Atlantic City, New Jersey, and Ocean City, Maryland properties,we have raised our internal forecast by $0.03 per share.

However, this increase has been partially offset by approximately $0.02 per share to reflect the assumption that the default interest rate on the Deer Park joint venture loan continues through the end of 2011. As a result, we believe our estimated diluted net income per share for 2011 will be between $0.46 and $0.50 per share and our FFO for 2011 will be between $1.38 and $1.42 per share.

Our guidance includes a projected increase in same-center net operating income of between 3% and 4%, up from our initial guidance of 2% to 3%. This guidance also assumes tenant sales will remain stable and year occupancy is budgeted at approximately 97%.

Our 2011 earnings estimate do not include any additional rent termination fees, the impact of any potential future refinancing transactions, the sale of any out parcels of land or the sale of acquisition of any additional properties.

We have over 2,000 leases with good-credit tenants that are brand name and designers who provide a continuous and predictable cash flow in good times and in challenging times. We plan to continue to thoughtfully use our resources and to maintain a conservative financial position. Our solid balance sheet with 94% of our portfolio unencumbered by mortgages, ample liquidity, and a manageable schedule of debt maturities, puts us in a very strong position for 2011 and many years to come.

We are pleased to be able to deliver robust operating results for the first half of 2011. The entire Tanger team is working extremely hard to achieve the extraordinary results the industry and our shareholders have come to expect. We will continue to reinvest in our assets to upgrade their appearance and tenant mix.

I would now like to open the call to your questions. Operator?

(Operator Instructions). And your first question comes from the line of Christine McElroy from UBS. Your line is open.

I just wanted to follow up on the default interest in Deer Park and what's in your guidance. Youmentioned in the press release in the and on the call $0.02 but you had a $0.01 in Q2. Do you mean a total of $0.02 in 2011, or is it an incremental $0.02 in the back half of the year?

It's an incremental $0.02 in the back half of the year.

Are you actually paying the default interest or accruing it? And what are the road blocks to resolving the loan issue?

The default interest is accruing, and we are in active discussions with the bank group to extend the mortgages and refinance the property.

And you expect that to go on for another six months or so?

We don't know how long it's going to go on. We are in active discussions with the bank, and that hopefully will lead to a resolution.

Okay. Then just following up on National Harbor and Houston, can you provide some additional metrics for your share of development costs, projected returns, and pre-leasing percentages to date?

In Houston and in Deer Park, they are 50/50 partnerships, and we split the pre-development expenses on a 50/50 basis. On the metrics for the returns, we are not in a position right now to discuss those returns, and may in the future, once we have more leasing, but right now, we are not prepared to discuss them.

Okay. And then just on the 50/50, I'm sorry if I missed it. But what are the total development costs for each project for Phase I?

I don't think we have announced that yet.

Okay. And then, I understand you can't give any details on, you know, sort of acquisition opportunities that you might be working on, but can you give us a sense in aggregate how much you would anticipate in investing in acquisitions over the next 12 months or so?

Again, I don't want to speculate on that. When we have an announcement that the due diligence has been completed and we are prepared to move forward with the closing, we would be happy to provide that.

Okay. And then just lastly a modeling question -- regarding Hilton Head 1, you went from 82% to 96% occupancy in the quarter. Can you give a sense for the timing of the occupancy commencement throughout the quarter? I am just trying to get a sense for whether the impact was fully in the Q2 results or whether we should see some residual impact in Q3.

Jim, do you want to take that?

I think we are at 94% occupancy for the quarter or 96. So we have some tenant interests. We think we will probably be able to move that a little bit but I think most of that was online as of the end of the quarter.

Okay. So would you say it was sort of gradual throughout the quarter or most of the leasing -- or was most of the commencement toward the end of the quarter?

I think you can assume it was gradual through the quarter. This is a new development that we just opened.

Yes.

It's doing quite well .

All right. Thank you.

Your next question comes from Craig Schmidt from Bank of America, Merrill Lynch. Your line is open.

Thank you. It sounds from your comments will be the next development to be open will be Galveston. Do you have a sense of when National Harbor might break ground?

First of all, Craig, thank you for the upgrade this morning. We really appreciate it, andthe entire Tanger team is very much appreciative of your confidence in us.

The National Harbor development is in early pre-leasing, and I don't want to give a date yet for the closing, but the tenant interest is strong right now. We are in the process of showing our tenants the sites and going about the development.

And I guess one of the things we have been hearing is that the lease in Galveston has been very strong now that you have a joint venture and there is clarity on the center that would be built in that area. Is that true?

It is true, and we continue to have strong tenant interest from the very best tenants in our industry. We intend to break ground this month and would love to have you come to our groundbreaking ceremonies the end of the month.

Galveston -- sounds nice.

One other question, Deer Park occupancy increased 85% to 88% this last quarter. That sounds like a lot of pickup with 20,000. I wonder if you could characterize some of the occupancy pick-up there and what you are planning to get to your overall average of around 98%.

We have been successful in attracting terrific tenants such as J. Crew, Brooks Brothers, New York and Company to Deer Park. Deer Park is starting to get some traction with sales increasing and traffic increasing, and the tenants are taking notice.

Okay. Thank you.

Your next question comes to the line of Rich Moore from RBC Capital Markets, your line is open.

Hello, good morning. guys.

Steve, we heard from Simon they are thinking of expanding at least four of their outlet centers and adding some space. And I am curious. Are you thinking in those terms as well? Are there any centers where you might want to add some space?

We continuously add space to our successful centers as we have done for over 30 years. Most of the existing portfolio is essentially built out. We have a small expansion, very small expansion planned in Locust Grove, Georgia and a couple of other small ones but there is no significant expansion opportunities in the existing portfolio.

Okay. Good. Thank you.

And then, you know, given how soft the economy appears at this point and how uncertain everything seems, what are tenants saying to you in general? I mean, are you sensing that they are getting nervous at all or, say, more nervous than they were three or four months ago?

I think to get a true read, you would have to speak the tenants and read what they published in their conference calls and their -- and their published documents. Anecdotally, as we visit with Chairmen and CEOs of our tenant partners, they report to us that the outlet channel of distribution for our company remains robust and either the most profitable or one of the most profitable business unitsin their corporation. They tell us -- again, this is just in conversation -- that they continue to view the outlets as a growth channel of distribution and intend to open additional stores.

Okay. All right. Good. Got you. Thank you.

And then the equity offering that you guys completed, what did you do with the proceeds of that?

It was $117 million. We paid down our lines of credit and then used a portion of it to buy the Jeffersonville property and the Atlantic City and Ocean City property in addition to the line of credit.

Okay. So do you have any specific thoughts on how you might retire the bridge loan over time?

Fortunately, we just received an upgrade on our outlook from Standard & Poor's. I may recall we are one of, if not the only, REIT to receive an upgrade in their rating from both agencies, Moody's and Standard & Poor's, the last two years. We have worked hard to go up the rating curve which affords us lots of long and short-term financing options. And at some point, we will consider those options.

Thank you. You're certainly doing better than the US government at this point. Thanks very much.

Thank you.

Your next question comes from the line of Carol Kemple from Hilliard Lyons. Your line is open.

Good morning. Earlier in the call, you all mentioned that you expect occupancy to be 97% at year end. Is that just with the combination of the new acquisitions coming online, or are there some expected moveouts?

First of all, Carol, congratulations of being named the REIT analyst of the year by Wall Street Journal. That's quite a compliment to you.

Thank you.

We are, as always, being cautious. That 97% year end includes the acquisitions. We are Tangerizing those properties now. And our goal is to be at least 97% occupied by year end.

Okay. Then do you all have any thoughts on what your acquisition costs will be in the third quarter just from the acquisitions you have done so far? Will be about second quarter level or...?

Jim, do you want to take that?

Carol, I think unless the acquisitions close, all those costs won't be incurred. We are not prepared to estimate what that is or give those to you at this time. We will be happy to share that with you if the acquisitions move forward.

Okay. Will there be -- is there any cost associated with the two that closed on July 15?

Yes. Yes, there were. I don't have that information with me at this time.

Okay. Thank you.

Your next question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line is open.

Hi. Good morning. I am on with Jordan Sadler as well.

Steve, I appreciate the sensitivity with regard to the deals and potential acquisitions but I wanted to follow up on one of Christy's questions.

You had previously disclosed that $489 million was under contract and so you have closed on $333 million, you know, leaving just over $150 million. Should we assume that's consistent today or has that pipeline continued to grow?

You can assume whatever you wish. We are not prepared to comment further on the pipeline or potential acquisitions. As you know it's a competitive market, and thank you for understanding that.

Okay.

And then, just thinking about development going forward, and given some of the recent announcements and partnerships with Simon and RioCan and the Peterson Companies, should we assume you will be looking to do development with partners going forward for the most part? Is there a market for, you know, Tanger to develop high-quality centers independently? Or is the competition such that you need to partner up and, in a way, eliminate a bit of the competition?

We opened a 100%-owned new development, ground-up in Mebane, North Carolina within the last year and a new development, 100% owned, ground-up in Hilton Head, South Carolina within the last year. We have maximum flexibility and both financial and corporate strategic assessment of our risk to do either 100 percent or in a partnership.

For various reasons, we do partnerships. The Peterson Group was successful in developing this fabulous development in Washington, DC, and they wanted to partner with us, and we were delighted to do that. In the Houston market, we are delighted to partner with the Simon Group and move that forward.

But I would not draw conclusions as to whether or not we are going to -- we have a bias toward 100% ownership or partnership. We have to be opportunistic based upon the site.

Okay. And then just last time, I was just wondering if you had looked at the Fashion Outlets in Niagara Falls and whether or not that's a center that you would want to own.

We had looked at it several years ago. The Talisman Group, I think has done a terrific job in re-tenanting it. To my knowledge, it was not widely marketed. So I think the answer is, we did not look at it, and I don't know. I haven't seen the financials, the fully audited financials. I don't know if the buyer will publish them but I don't know enough about it to tell you if we would have been interested.

Okay. Great. Thank you.

Your next question comes from the line of Quentin Velleley from Citi. Your line is open.

Hey good morning. Just in terms of Deer Park. If you look at the debt yield it's quite low. I am curious, if you got to a situation where you had to inject additional equity into the mortgage, what's your partner's ability to do that? And, also, I guess, what's your desire to inject additional equity into that asset?

In the report this morning, you mentioned the number of $100 million being necessary, which is not even in the same zip code as to what we are discussing with the banks. The partners are highly sophisticated real estate professionals, and we are, as I mentioned, in active discussions with the bank about extending and refinancing the property, and we hope to have that concluded certainly before year end if not before. And when it is, we will be delighted to publish the terms of the extension to refinancing.

Okay. Thank you.

Your next question comes from the line of Jay Habermann from Goldman Sachs. Your line is open.

Hey, Steve, good morning.

Just following up on Deer Park a little bit -- can you talk about the additional leasing process that you see and I know part of it was that upscale or luxury wing. Can you talk about any change in merchandising going forward that might increase occupancy?

We have increased occupancy, as was stated earlier. I think right now, we are about 87%, 88% occupied. And it has been ramping up over the past year.

And as I mentioned earlier, traffic is up, sales are up, the property is gaining traction, and, you know, we are cautiously optimistic that it will continue. The tenant mix is a blend of luxury and upper middle, which seems to fit with the demographics of the area.

And I guess, you know, just following up on the last question, from Quentin, would you look to increase your equity stake in that property if given the opportunity?

We are long-term owners of factory outlet centers. If an increase or equity contribution is needed, we would, based on the terms, we would contribute our share as a one-third partner.

Okay. Just maybe last question on Canada. Can you talk about some of the other markets or opportunities that you are seeing at this point in addition to Toronto?

We have announced a site in the Ottawa market, and we are looking in the major markets in Canada actively for development sites.

Okay. Thank you.

Your next question comes from the line of Michael Mueller from JP Morgan. Your line is open.

Hi, Steve. Couple questions.

It sounds like breaking ground on the Texas project this summer, Halton Hills, if things go well, you could break ground the beginning of next year. Do you think we could have more than one opening in 2012, or you need to get into 2013 before you start to see more than one per year?

Right now, we are comfortable with the opening in Houston next year.

Okay.

And I am not comfortable with an expected opening date in Halton Hills until all of the permits are in place and we actually break ground.

Okay. Separately, of the $199 million of costs attributable to the acquisitions that closed in July, how much of that is allocated toward Phase III that will close, it sounds like, in the fourth quarter?

We really haven't broken that out yet. It's much less than Phase I and Phase II.

Okay. And then last question -- for the term loan that's outstanding, I mean, how should we think about refinancing that, taking that out? I mean, is the preference to interest rates low, let at a time ride for a few quarters or get something done by year end? What's the thought process there?

We have not provided guidance on that. Your guess is as good as mine as to what interest rates will be in the next six to 12 months. As I mentioned earlier in the call, fortunately, we now have the credit rating that affords us lots of flexibility and various long and short-term financing options to take that out.

Okay. So it sounds like leaning toward debt to take it out?

Again, that's your assumption. We have not made a decision and when we do, we would be happy to let you know.

Okay. Thank you.

Your next question comes from the line of Ben Yang from Keefe, Bruyette, and Woods. Your line is open.

Yes. Hi, thanks. Steve going back to the question of acquisitions in the pipeline and what you previously disclosed it sounds like you do have about $156 million and two additional centers in due diligence, and youindicated the properties are about 80 percent leveraged in the filing.

Are the problems with these centers more related to past operations, maybe owners in over their heads? Are there issues with the locations, or maybe even the new competition? Because I am just trying to understand what gives you the confidence you can turn these centers around or maybe the problems that created this type of leverage are perhaps insurmountable.

We don't buy somebody else's problems. We are not -- we are not buying properties that are poorly tenanted and poorly leased. That's a separate business that other people do, not us. We, when we announce the future acquisitions, which hopefully we will in the next quarter or two, I think that you will understand the strategic location and how we can add value to these acquisitions.

Is that leverage number more of a function of what's happened in the broader economy? I am just trying to understand, because I am assuming they weren't financed with that type of leverage and I am trying to understand what happened, I guess, with those centers you are about to buy.

When we announce the acquisitions, I am happy to discuss with you specifics. But right now, we are talking hypothetical, and that's not useful.

Okay. Great. Thank you.

Your next question comes from the line of Cedrik Lachance from Green Street Advisors. Your line is open.

Thank you. Just getting back to Canada for a little bit -- it sounds like the JV agreement has been signed. Would you be able to share some of the terms in terms of the fees? Will there be an exchange of cash between you and RioCan? Or is there an agreement where you just provide services on front and they do on the other, and there are no actual cash fees being paid to each of the partners?

We are not in the position right now to discuss the actual terms of the agreement. We are very pleased after six or seven months of being able to fully execute the agreement, which is complex, and we think that that sets us apart from other US REITs and their Canadian partners -- or at least publicly the competition has not announced they have fully executed agreements but we are not going to discuss today the terms of those agreements.

Okay. And going back to your acquisitions in general, I am not interested in speaking about specifics on the properties you might be acquiring in the near-term, but when you look at the pool of potential outlets out there in the United States that could be of interest to Tanger and that are not owned currently by your largest competitor, how deep is that pool?

It's a pretty shallow pool.

So when you look at what may or may not be acquired over the near term, if you go past that, it would not be appropriate for us to assume that there are properties to be acquired?

Our guidance, we do not include any potential acquisitions and have not in the past.

Okay. Thank you.

Your next question comes from the line of Nathan Isbee from Stifel Nicolaus. Your line is open.

Good morning. I'm just looking at the recent acquisitions, the lease expirations, the vacancy and the occupancy costs all around together -- can you talk about the near-term opportunities to drive it and why and how you might expect to increase the yield over the first year or so?

I can't get that granular right now because it's based on a lot of things, Nathan, as you might imagine. But we are in the process of installing Tanger's marketing, our operations, and our leasing term is now getting their arms around the properties. And we will either fill vacancies or merchandise over the next year or two. But these properties were not bought as a bond equivalent to put in a drawer and see what happens and take them out in five years. We will aggressively manage these properties and our expectation is, with any acquisition we do, that we can add value to the property under our ownership and under our name.

Thanks. Looking back at your most recent round of developments, Wisconsin Dells Deer Park -- can you comment on what those projects are yielding or at the very least how you are doing relative to your pro forma?

Deer Park is not doing what we had proformaed originally, but over time, we expect it will get there.

How far below is it?

I am not going to discuss that right now. But the other properties that we have delivered, one south of Pittsburgh in South Strabane, Pennsylvania, Wisconsin Dells, Mebane, North Carolina, and Hilton head and Charleston South Carolina are doing well. Occupancy continues to trend up, sales continue to trend up. And we are satisfied with our performance relative to our initial performance.

Okay. Thank you.

Your next question comes from the line of David Leibowitz from Horizon. Your line is open.

Good morning. The new project in Ohio, where is that going to be serviced from?

The markets that we -- I don't know the definition of "serviced" but the customers we anticipate as that property has been in existence for many years, the customers come from the Cincinnati, Dayton, Columbus, Columbus markets and still should continue to come from those markets. We will aggressively market the property to continue to drive customers from those markets.

The property has an existing management staff which we have retained. We had had waves of Tanger people go out there and install the Tanger branding right up to and including signage. So we are servicing it as any other Tanger Outlet Center coast to coast.

Secondly, are there any Tanger properties right now that you are considering off-loading, without being specific as to venue or anything else of that nature?

We have no properties on the market for sale.

And looking at the portfolio as it currently exists, how much additional capacity can you build or bolt on to existing real estate that's not being utilized to buildings?

As I mentioned earlier in the call, we have very little remaining excess land to expand our existing portfolio. We have one small expansion planned in Locust Grove, Georgia. But really, there is no -- we do not have any significant expansions planned with the existing fleet of outlet centers.

And lastly, looking out to the leases upcoming through the next 12, 16, 18 months through the end of 2012, how much room do you see in terms of raising your base rentals on these properties, whether to existing retailers or to new customers?

We are very pleased in the first six months to have had what we believe is amongst or the highest leasing increase spreads in the retail REIT industry. We hope that will continue although it's not in our guidance. It's based on so many different factors it's hard for us to give any look forward guidance on that.

Okay.

We are very pleased that for, I don't know, I think it's 26 or so consecutive quarters, we have had comp NOI same-center comp NOI growth. That's an impressive track record, particularly for the period of time from 2005 to 2011 when everybody knows what happens in the interim.

And I did forget one other thing I had on my list -- how many of your tenants right now are having enough revenue that you are earning some overages?

We don't break it out by individual tenants. In the financials that we publish, you can see the percentage rent line. We endeavor, when leases come up for renewal, to capture the percentage rent in fixed base rent and raise the break point. Over time, we have been successful in doing that. So in reality, what we try to do is to convert variable rent to fixed rent.

Thank you very much.

And there are no further questions in queue. I turn the call over to the presenters for closing remarks.

Thank you, operator. And thank everybody for participating today and for your interest in our company.

Tanger is the only public real estate investment trust with a pure outlet center portfolio. We have a conservatively structured balance sheet, high brand recognition, and a tenured management term. Tanger has always had, and will continue to maintain, a disciplined investment approach. We currently have a strong portfolio of 37 dynamic operating properties across 25 states in the United States, totalling 11.4 million square feet, providing significant returns for our shareholders.

Our pipeline of growth opportunities is enviable. For 30 years, we have successfully grown our company on a consistent basis and are proud of our long-term track record of increasing value for our stakeholders. Jim, Frank Marchisello, and I are always available to answer any questions.

Thank you again. Have a great day. Thank outlets. Think Tanger. Bye.

And this concludes today's conference call. You may now disconnect.