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Tanger Factory Outlet Centers, Inc. (NYSE:SKT)

Q2 2012 Earnings Call

August 1, 2012 10:00 am ET

Executives

Frank Marchisello – Executive Vice President and Chief Financial Officer

Cindy Holt – Vice President-Finance and Investor Relations

Steven Tanger – President and Chief Executive Officer

Analysts

Michael Bilerman – Citi

Jeff Spector – Merrill Lynch

Rich Moore – RBC Capital Markets

Michael Mueller – JPMorgan

Andrew Johns – Green Street Advisors

Carol Kemple – Hilliard Lyons

Jordan Sadler – KeyBanc Capital Markets

Cindy Holt

Good morning. I am Cindy Holt, Vice President, Finance and Investor Relations, and I would like to welcome you to the Tanger Factory Outlet Centers' Second Quarter 2012 Conference Call.

Yesterday we issued our earnings release as well as our supplemental information package and our investor presentation. This information is available on our website under the Investor Relations tab.

Please note that during this call some of management's comments will be forward-looking statements regarding the Company's property operations, leasing, tenant sales trends, development, acquisition, expansion and disposition activities as well as our 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. 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 ability to lease, develop and 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.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the comparable GAAP financial measures are included in our earnings release and in our supplemental information. 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 1, 2012.

At this time, all participants are in listen-only mode. Following management's comments, the call will be opened for your questions. We ask that you limit your questions to two, so that we will have the opportunity to address all callers'. We will address additional questions as time permits, so you may reenter the queue after your initial two questions.

On the call today will be Steven Tanger, President and Chief Executive Officer; and Frank Marchisello, Executive Vice President and Chief Financial Officer. I will now turn the call over to Steven Tanger. Please go ahead, Steve.

Steven Tanger

Thank you, Cindy, and good morning, everyone. Our ability to successfully increase rental rates resulted in strong same-center net operating income growth of 7% in the second quarter of 2012. This marks the 30th consecutive quarter of positive same center NOI growth dating back to when we first began reporting this metric in 2005.

Comparable traffic for the six months ended June 30, 2012, was up over 4%, marking the fifth consecutive year of positive traffic comps. Tenant comparable sales for the rolling 12 months ended June 30, 2012, increased 3.9% to $375 per square foot. Continued positive comparable tenant sales have allowed us to achieve a blended increase in rents of 23.7% in the first half of 2012. Our low cost of occupancy, which was 8.4% at the end of 2011, and increasing tenant sales should allow us to capture significant embedded value in our portfolio over time, while maintaining a very profitable distribution channel for our tenants.

Any of you who want to learn more about the progress we are making on the two Tanger Outlet Centers currently under construction, our domestic development pipeline, and our Canadian expansion plans through the co-ownership agreement with RioCan Real Estate Investment Trust, later in the call I will address these topics along with a summary of our operating performance and our current expectations for the balance of the year.

But, first let me turn the call over to Frank, who will take you through our financial results for the six months ended June 30, 2012. Please go ahead, Frank.

Frank Marchisello

Thank you, Steve, and good morning, everyone. Total funds from operations or FFO for the quarter ended June 30, 2012 increased 30.4% to $38.6 million compared to $29.6 million last year. Adjusted FFO per share increased 18.2% to $0.39 per share from $0.33 per share for the second quarter of last year, and met Street's consensus expectations. This year-over-year increase in AFFO per share is a direct result of our ability to continue to drive rental rates and same center NOI growth, as well as the accretive impact of the acquisitions made during 2011.

On a consolidated basis our total market capitalization at June 30, 2012 was approximately $4.2 billion, up from $3.4 billion last year. Our debt to total market capitalization was approximately 25% at June 30, 2012 compared to 26.2% last year. We also maintained a very strong interest coverage ratio of 4.08 times for the quarter.

As of June 30, 2012, approximately 63% of our debt was at fixed rates. Our balance sheet strategy continues to be conservative targeting minimal use of secured financing and a manageable schedule of debt maturities. The dividend continues to be well covered. Our 2012 FAD payout ratio is expected to be less than 60%, generating significant incremental cash flow over our dividend, which will be used to help fund our new developments, or to reduce amounts outstanding on our lines of credit. We have started to maintain a conservative approach to every aspect of our business, and we believe will continue to build value for all of our stakeholders over time.

I'll now turn it back over to Steve.

Steven Tanger

Thanks Frank. I'm pleased to report that the positive leasing momentum from the first quarter continued through the first-half of the year, with this quarter’s leasing spread surpassing our first-quarter results. Through midyear, we have produced significantly increased rent spreads on the renewal and re-leasing of space throughout our consolidated portfolio.

As of June 30, we have executed 334 leases totaling 1,508,000 square feet with a blended average increase in rental rates of 23.7%. We have executed renewals and renewals in process for 1,361,000 square feet, or about 74.9% of the space coming up for renewal in 2012, yielding an increase in average base rental rates on the executed renewals of 14.7% on top of the 14.9% increase in average base rental rates reported during the first six months of 2011.

In addition, during the first half of 2012, we retenanted approximately 319,000 square feet with an increase in average base rental rates of 54.5%, up from 51.5% for the first half of 2011. Excellent leasing spreads like these together with contractually embedded rental increases have again resulted in outstanding same center net operating income growth through the first half of 2012.

Same center net operating growth during the second quarter was 7% compared to 3.8% in the second quarter of last year. For the first half of 2012, same center net operating income growth was 6.9%, on top of the 4.9% increase we reported for the first half of 2011.

Overall occupancy for our consolidated stabilized portfolio was high for both periods, up 20 basis points year-over-year to 98%. Increasing tenant comparable sales continued in 2012 with a 3.9% gain for the 12 months ended June 30, 2012, compared to the 12 months ended June 30, 2011. Tenant comparable sales for the quarter ended June 30 increased 2.5%.

There is high demand for space in Tanger Centers and virtually no excess supply. Tanger’s low cost of occupancy and our tenant’s increasing sales have allowed us the opportunity to continue to drive up rents, while maintaining a very profitable distribution channel for our tenant partners. Consequently we anticipate that demand for space and favorable rents will continue as our properties continue to perform well.

Our development pipeline is robust in both the United States and Canada. We expect to deliver the newest Tanger Outlet Center to tenants and shoppers on October 19, 2012, in Texas City, Texas. Located in the Houston market, the project is being developed through a joint-venture and will offer over 85 brand name outlets and designer stores in the first phase of approximately 350,000 square feet.

There is ample room for expansion of this center for a total build out of approximately 470,000 square feet, and interest for the project is strong with tenant commitments for approximately 97% of the space. We currently expect the center will be fully leased at opening. The tenant line-up for Phase I will include American Eagle, Banana Republic, Brooks Brothers, Coach, Columbia, Gap, J.Crew, Kenneth Cole, Levi's, Michael Kors, Nike, Nine West, Puma, Skechers, Under Armour and many, many more.

The site is just 30 miles south of Houston, and 20 miles north of Galveston along the highly traveled interstate 45. The center should benefit from the resident population of Houston, the fourth largest city in the United States and from tourists visiting Galveston beaches and resorts, which attract over 5 million visitors each year.

Close on the heels of this exciting new development in Texas, the grand opening of Tanger Outlet’s Westgate is scheduled for November 15, 2012, in Glendale, Arizona just in time for the holiday shopping season. The site is located just off I-10 on the loop 101 in Glendale Avenue, adjacent to Westgate City Center, Jobing.com Arena, University of

Phoenix Stadium, and The Renaissance and Convention Center.

We are developing the project through a joint venture. Our tenants have expressed interest in this 330,000 square feet project as evidenced by strong pre-leasing. We signed leases and commitments for approximately 76% of the space. Currently we expect the center will be more than 90% leased at opening. The tenant line-up will feature some 80 brand names, designer outlets and outlet stores including American Eagle, Banana Republic, Brooks Brothers, Charlotte Russe, Chicos, Coach, (inaudible), the Gap, Guess, H&M, J. Crew, Levi’s, Michael Kors, Nike, Talbot’s, Under Armour, White House Black Market and many, many more.

Beyond these projects under construction, we have a robust development and predevelopment pipeline. Just a few weeks ago on June 18, 2012, we announced the newest site in our pipeline, an exciting opportunity to develop a Tanger Outlet Center at Foxwoods Resort and Casino in Mashantucket, Connecticut, on the Mashantucket Pequot Indian Reservation. Foxwoods attracts approximately 16 million visitors annually, and boasts more gaming square footage than any other casino in the country.

We plan to develop an upscale outlet center of approximately 312,000 square feet designed to connect the casino floors of the resorts to casinos, the MGM Grand and the Grand Pequot. Initial reaction to this site has been outstanding. If leasing momentum continues at this pace, we plan to be in a position to start construction before the end of the year.

Preleasing and predevelopment work continues for the previously named pipeline sites in

Scottsdale, Arizona, and National Harbor in the Washington DC market. We expect to have final entitlements for National Harbor by the end of the year, and pending continued leasing momentum we plan to be in a position to break ground at the end of 2012. In addition to these named sites, we have a shadow pipeline including several markets that are either underserved or not served at all by the outlet industry, where we intend to develop properties.

And outside the United States, progress continues towards the establishment of a platform for a US style outlet shopping in Canada. Through our co-ownership agreement with RioCan Real Estate Investment Trust we planted the Tanger Outlets flag in the Toronto market late last year by acquiring and rebranding Cookstown Outlet mall located approximately 30 miles North of the city, in a town called Innisfil, Ontario.

We and RioCan have identified a predevelopment site in Kanata, Ontario in the Ottawa market. We plan to expand Tanger Outlets Cookstown from 150,000 square feet to approximately 320,000 square feet. And in April, we and RioCan announced an agreement to create a strategic alliance with the Orlando Corporation to develop outlet opportunities on land within Orlando’s Heartland Town Centre. Heartland is located in the Western Greater Toronto area in the town of Mississauga.

Predevelopment and preleasing activities for these sites are underway. In addition to these named sites, the co-owners have identified several other markets in Canada that we believe are prime locations for a potential Tanger Outlet Center. We remain optimistic about the growth prospects for our Company and for our industry as shoppers continue to seek branded value and the tenant community continues to indicate the desire to expand their outlet divisions into new markets in the United States and Canada.

With respect to earnings guidance for the balance of 2012; based on the positive trends in the first half of the year, and our current view of the market conditions, we raised the low end of our previous guidance by $0.02 and currently believe that our estimated diluted net income per share for 2012 will be between $0.58 and $062 per share, and our FFO for 2012 will be between $1.59 and $1.63 per share. We have over 2,500 leases with good credit, brand name tenants who have historically provided a continuous and predictable cash flow in good times and in challenging times.

No single tenant accounts for more than 7.9% of our gross leasable area or 6.5% of our base in percentage rents. In addition, approximately 91% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements. We plan to continue to thoughtfully use our resources and to maintain a conservative financial position. We expect our solid balance sheet, with no significant debt maturities until 2015 and 92% of our consolidated GLA unencumbered by mortgage will provide the platform to execute our growth strategy in 2012 and beyond.

I would now like to open the call for questions. Operator. Operator, we are prepared to take questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of Quinton Falelli from Citi. Your line is now open.

Michael Bilerman – Citi

Actually it is Michael Bilerman speaking (inaudible) as well. Good morning Steve. Just a question in terms of the development in this robust development pipeline that you have, can you outline a little bit sort of total cost of each of the projects just so that we get a better understanding, obviously the balance sheet is in great shape to be able to fund development, but obviously the pipeline is growing with increasing numbers of commitments, and so we just want to get better sense where things stand?

Steven Tanger

Well, most of the projects as you know Michael are joint ventures. So our capital commitment is significantly less than you might have imagined. I’m happy to give you the individual amounts, which I don’t think we have announced before, but our site in Arizona, the approximate investment will be about $80 million and we have about 58% of that partnership. The investment in Houston would be about $66 million, and we own half of that project.

The Foxwoods development, which probably will start much later in the year or early next year is 300,000 square feet. So that will probably be in the area of $70 million to $80 million once that is concluded. National Harbor…

Michael Bilerman – Citi

And on Foxwoods, you will own how much of that development?

Steven Tanger

We haven’t disclosed that yet, but we will own significantly more than 50%.

Michael Bilerman – Citi

Okay.

Steven Tanger

National Harbor will be about 350,000 square feet again that will probably be depending upon final cost somewhere between 75 million and 85 million. We own 50% of that. The Cookstown expansion, which we own 50% probably will be next year a development not that large. It is only 164,000 square feet expansion, and in Ottawa, again that probably will be next year. We own 50% of that, and that is maybe 350,000 – 300 to 350 depending upon the site plan, the final site plan.

So as you can see, it is a very manageable commitment. Keep in mind that with our

FAD payout ratio we throw off $60 million to $70 million a year in positive cash flow. So these developments are pretty well self funded.

Michael Bilerman – Citi

With the Cookstown expansion that is going to cost – that is about 200 bucks a foot on that 164,000, and should we use the same for Ottawa, and what will be in Heartland.

Steven Tanger

Again in Canada there maybe some additional costs. So, I think we probably just for modeling purposes if you are going to do it, I would use $250 a foot. But we have not concluded – that is just an estimate.

Michael Bilerman – Citi

Right, and then the Heartland site is going to be how large?

Steven Tanger

Right now it is scheduled for 312,000 square feet.

Michael Bilerman – Citi

And ultimately there you will only own basically 25% because Orlando is going to take 50 and then you will split the other 50 with RioCan?

Steven Tanger

I think it is an equal one third, one third, one third. We can verify that for you, but right now that is what is planned.

Michael Bilerman – Citi

So we are looking at something that once you layer in the potential Scottsdale site, something probably on the order of magnitude, and I don’t know if the Scottsdale is a joint-venture as well, or that is wholly owned?

Steven Tanger

It is wholly owned.

Michael Bilerman – Citi

So, something on the magnitude of probably $350 million of total capital before any debt for all of the projects, is that round about?

Steven Tanger

You are talking just out half of it, our portion?

Michael Bilerman – Citi

You are right, your portion.

Steven Tanger

And that is spread out over at least two years.

Frank Marchisello

And Michael, obviously it will be probably a level of financing within the JVs. So, our pure out of pocket capital will be quite a bit less than that.

Michael Bilerman – Citi

And where, just given the balance sheet today, 30% debt to growth asset value, 5.5 times debt to EBITDA, where do you sort of feel comfortable just again thinking about the equity funding either coming from your free cash flow, or new common equity, where should we take the balance sheet to as you fund these developments.

Frank Marchisello

Actually between project level financing reduce the amount of capital that we are required to put into the JVs. We don’t believe that our leverage is going to change materially from where it is now, because a lot of it will be self funded from internal cash.

Steven Tanger

Or that we will need to do any additional equity.

Frank Marchisello

Yes, we don’t see the need for that given the current timeline.

Unidentified Analyst

Hi guys. This is [Manny] here with Michael. Thanks for all that. Just a quick, I am wondering if you can give a quick comment on what we heard from Coach on their earnings call where traffic into their factory stores slowed in their quarter, have you seen similar trends elsewhere or do you think it is a tenant specific thing, or market specific thing?

Steven Tanger

Well, I think as you know, Coach is one of the top performing brands in not only our portfolio, but in the outlet industry, and in the regular retail industry in terms of sales. On their call, they pinpointed a change in their couponing strategy as a major driver of this issue. You know, all in-store coupons were eliminated for most of the quarter, Coach is to our understanding and based on our reports from local centers Coach has now reinstated the use of coupons as an outlet store marketing strategy.

They announced plans to open 20 new outlet stores in 2013, which demonstrates their confidence in the outlet distribution channel. Comp traffic was up in our portfolio for the first half of 2012 by more than 4%, and which marks the fifth consecutive first half of the year January to June comp increases. So we have had comp increases for five straight years in traffic. Great merchants, test different strategies, and this test I don’t think got the results that Coach wanted. So they immediately and were very nimble and pivoted back to their successful formula.

The short answer is I think it is a Coach issue. I think they have addressed it and solved it, not an industry issue.

Unidentified Analyst

And then on the…

Steven Tanger

Just a second please, I think we have had like 10 questions from you folks. We are happy to continue the conversation offline, but there are other people that in fairness we would like to have them ask questions.

Unidentified Analyst

Thanks.

Operator

Your next question comes from the line of Jeff Spector from Merrill Lynch. Your line is now open.

Jeff Spector – Merrill Lynch

Okay. Thank you. Good morning. I guess a follow up Steve on Coach, do you – so you do feel that the coupon excuse is reasonable, I mean I just didn’t think I guess that coupons really drove traffic into the outlets into specifically Coach, I mean, could it be another issue, maybe it was just a merchandise issue, but do you believe that?

Steven Tanger

I think you would have to ask Coach. We respect – they are outstanding merchants. In their conference call they identified the coupon as an issue for traffic in their stores. It did not say traffic into the outlet centers, but they spoke specifically about their stores. And anecdotally, our mall managers tell us that once they reinstated the policy that traffic has picked up and they are lines at the register again. So I have no reason to doubt what Coach said in their conference call.

Jeff Spector – Merrill Lynch

Okay, thanks. That is helpful. And then I just had a question on occupancy costs to sales, I think you said you are currently at 8.4%. I think historically I mean way back you were at 7%, I guess when you are entering leasing negotiations now do you have a certain target in mind, do you think you will continue to march closer to 9% plus over time, or is this kind of – is 8.5% let us say a reasonable number to be at in this – in the outlet category?

Steven Tanger

Well, keep in mind we have been doing this for 30 years. So we have a lot of legacy leases, and our sales have increased every year, so the cost of occupancy – actually we fight to maintain it because we have such high renewal rates, and our sales have been successful and going up.

Right now, new leases are targeted in the range of 10% to 12%, new leases in development properties are targeted between 10% to 12%. The actual numbers for the growth in our comp – in our occupancy cost, we have gone from 7.5% to 8.4% in the last five or six years. So that is a significant move of about 15% increase in cost of occupancy. Driven by the success of the sales of our tenants in our properties, and even though we have been able to increase slightly the cost of occupancy, there still is a very profitable distribution channel for our tenants.

The low cost of occupancy for us as our management team allows us to capture over time tremendous embedded value in the portfolio, and we are very comfortable that we can continue to do that. And I think that is evidenced by outstanding leasing spreads, which you can do the research, but from the reports we read, are best in class and have been for quite some time. So we are hopeful if sales continue that we will be able to capture that embedded value for our stakeholders at the same time provide a very profitable distribution channel for our tenants.

Jeff Spector – Merrill Lynch

Great, thanks. And then if I could just confirm on Canada, last question, at this time I don’t think you provided any of the leasing stats there, am I correct on that, did you discuss that?

Steven Tanger

We don’t provide leasing stats on any project until it is under construction and ready to open. We have a partner in Canada and we don’t do that in the incremental stages.

Jeff Spector – Merrill Lynch

Thank you.

Operator

(Operator instructions) Your next question comes from Rich Moore from RBC Capital Markets. Your line is now open.

Rich Moore – RBC Capital Markets

Hi, good morning guys. Steve, you had said a few years ago that you thought we could build a 100 factory outlet centers in the US over the next 10 years, what do you think of that number now, I mean how would you assess the need for more centers going forward in the US in particular?

Steven Tanger

I think that number will prove to be pretty close to being accurate. There will be probably at least if you believe what the trade publication says in 2012 this year, probably 4 to 5 centers opening, next year maybe 2 to 3 in the entire industry opening. I have said before it is very easy to announce a project, it is really difficult to get one built. The major developers, the public company major developers were well financed, and have got long-standing tenant relationships, should be able to deliver.

But I still think that the net built out over the next probably – it is probably what I said two years ago, probably the next eight years still show probably close to 100 new centers.

Rich Moore – RBC Capital Markets

Okay. All right, good. Thank you and then you had often said that you were looking at 17 or 18 markets around the country, is that number still what you are thinking, or is that expanding at all or have you thrown out some of those?

Steven Tanger

Well, the 17, 18 markets I announced 2 to 3 years ago some of our friendly competitors have identified the same markets and have started construction in a couple of them already. So we are pursuing – we do have a shadow pipeline and we probably will announce very, very shortly at least one if not two or three additional new sites.

Rich Moore – RBC Capital Markets

Okay, good, and thank you. And last question guys, the preferred market, the preferred equity market has been kind of hot lately, lot of people accessing preferreds, any interest from you guys in looking at that market as a source of financing?

Steven Tanger

Fortunately Rich, over the past 30 years we've been on a very disciplined track to have a – to create a balance sheet that’s a fortress. Right now we really have no need for additional financing. As you know, we have no significant maturities until 2015. We really have no need for anything. We don't need any debt, we don't need any equity, we are self-financing the construction. We only have 25% debt to equity with significant coverages. It's a really nice place to be right now.

Rich Moore – RBC Capital Markets

Okay, Steve. Perfect, thank you.

Operator

Your next question comes from the line of Michael Mueller from J.P. Morgan. Your line is now open.

Michael Mueller – JPMorgan

Yes, hi. A couple of questions, one, kind of going back to the development pipeline that you laid out Steve, just want to double check something, so if we are thinking about 13 openings, it sounds like you could have Foxwoods, you could have DC at National Harbor. When you mentioned Cookstown and Ottawa being next year were you talking about a start at some point next year or are you envisioning actually coming online.

Steven Tanger

No, I think a start next year.

Michael Mueller – JPMorgan

Okay, and the same probably goes for Toronto where it falls into that bucket at least.

Steven Tanger

That's correct. That's our plan.

Michael Mueller – JPMorgan

Okay, great. And then I guess when you're thinking about what's in predevelopment and then the shadow pipeline of the stuff that you maybe announcing soon, are you seeing any erosion in the returns that you’re expecting?

Steven Tanger

Actually no. Based on our experience in Houston and Westgate we think that we can continue to generate returns in the 10% to 11% range, which is what we've done in the past. We have a proven track record as a skilled outlet developer and long-lasting relationships with our tenants, and then we think that that provides a competitive advantage over new entrants to the space, and we feel that this advantage continues to make these returns achievable.

Michael Mueller – JPMorgan

Okay. Okay, great, thank you.

Operator

Your next question comes from the line of Andrew Johns from Green Street Advisors. Your line is now open.

Andrew Johns – Green Street Advisors

Thank you. Steve, if you take a step back from Coach and maybe look at the tenant base as a whole, has there been a change or a compression in the margins that your retailers are able to achieve and does this have a corresponding change in the [OCR] that you are able to achieve on new deals.

Steven Tanger

Well, that's a complicated question. We still are targeting 10% to 11% as I mentioned before on new deals, and on average we are achieving that. The tenant community is large. As I mentioned we have 2500 different leases. It's probably over 400 different tenants. There are new tenants coming in virtually every month into the outlet space, and they each have a different strategy, but this distribution channel continues to be one of if not the most profitable distribution channels for our tenant partners, and that allows us to get fair rent for our stakeholders, and also cost of occupancy that provides significant profits and cash flow for our tenants. As long as it's a win-win for both parties we think it will continue.

Andrew Johns – Green Street Advisors

Maybe over the last year though and I don't know if you get this granularity from your tenants, but if you look at a Gap or a J. Crew or any of the major anchor tenants to the center what's happened to their margins in the outlet space over the last year?

Steven Tanger

I think you would have to call them. We don't get that granularity from our tenants but feel free to call our tenants and I think they will do, they'll provide whatever information they feel appropriate to you. I'd rather have you do that.

Andrew Johns – Green Street Advisors

Thank you.

Operator: (Operator instructions) Your next and final question comes from Carol Kemple from Hilliard Lyons. Your line is now open.

Carol Kemple – Hilliard Lyons

Good morning. Last week you all announced the renovation project at Louisiana, where you're going to add about 50,000 square feet, do you have – what kind of capacity do you have in your portfolio to actually add additional square feet to existing centers?

Steven Tanger

Hi Carol. The Gonzales Louisiana Center is extraordinarily successful. The expansion we announced will include some fabulous tenants like American Eagle, Ann Taylor, LOFT, Brooks Brothers, J. Crew, Talbots, Under Armour and several others. Our properties are virtually built out. We just completed a small expansion in Locust Grove that opened in May of this year. We are in the process of permitting another small expansion in Park City, Utah in the next 12 months. Both our new development projects in Houston and in Westgate have room to expand, but by and large our portfolio properties is fully built out.

Carol Kemple – Hilliard Lyons

Okay, and then Frank G&A in the quarter was about 8.7 million. Is that a good run rate going forward?

Frank Marchisello

We currently think G&A will run close to about 8.5 million per quarter going forward.

Carol Kemple – Hilliard Lyons

Okay, great. Thank you.

Operator

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

Jordan Sadler – KeyBanc Capital Markets

Hi, just a little bit more color on the traffic trends would be helpful. This is actually Jordan Sadler here with Todd. You said it's up 4% year-over-year in the first half, could you maybe give us a little bit more color on what it did in the quarter versus the first quarter year-over-year, was it slowing at all or accelerating at all?

Steven Tanger

I think it's accelerating and you know, that as I mentioned Jordan in the opening remarks that is the fifth consecutive year of increasing comps in the first six months. So clearly there is dramatic increase in traffic coming to the Tanger centers.

Jordan Sadler – KeyBanc Capital Markets

That's helpful. And then on the returns, helpful commentary on the development in terms of expected spend as well as the yield, curious, would you expect the same types of yields in Canada as you do in the US, same 10% to 11%?

Steven Tanger

I think the target in Canada will be a little bit less of a return because of the additional costs of development entitlements up there. Our target I think in Canada probably will be between 9% and 10%, but the scarcity of retail and the value of the properties once they're up and built will add significant value for our stakeholders.

Jordan Sadler – KeyBanc Capital Markets

That's helpful. And I'm just digging in a little bit deeper, last question on the spend, I'm calculating you know, call it a you know, 300 round numbers million-dollar number in terms of the joint venture projects that are currently teed up and you identified in terms of you know, maybe your share of spending, rough numbers. You have about $60 million to $70 million of free cash flow per year, what sort of the preferred method for financing development, I know you have a strong balance sheet?

Steven Tanger

Well, there is several. First of all please don't lose sight of the fact that in your number includes Westgate and Houston, which are opening in the next three months and significantly most of our investment has already been made. So that's already been financed and so if you take those two out you're not talking about a lot of capital required.

Some of the developments because they are joint venture we will finance with property specific financing, which obviously will require significantly less equity but if you net out the two projects Houston and Phoenix, and then you spread it over 2013 and 2014 and you take our free cash flow we don't have a lot of financing needs.

Jordan Sadler – KeyBanc Capital Markets

Now that makes sense. That's helpful. I appreciate the color.

Operator

Your next question comes from the line of Quinton Falelli from Citi. Your line is now open.

Michael Bilerman – Citi

Yes, can you hear me okay?

Steven Tanger

Sure Michael.

Michael Bilerman – Citi

Great. Just following up to something here about acquisition activity obviously you had a bunch last year, and thinking about how that sort of plays into expansions as well. I guess is there opportunities both in the US but also maybe mimicking what you are doing in Toronto with Cookstown in terms of buying existing outlets, granted there is not a [ton outlets] already in Canada, but there is probably knowing from experience there are a handful. So, you know, is that a strategy as you think about pursuing growth that will add to it?

Steven Tanger

Well, Michael as you have heard me say before we have four legs on our growth store one of which is acquisition, one is Canadian development, US development and internal growth. Being from Canada as you are you know that there are several outlet centers there, and you can assume that we are thinking about acquisitions in Canada similar to the Cookstown acquisition in the United States. There are only a handful of quality assets that are currently held by private operators.

So the pool of potential acquisitions is very limited. We have not included any acquisitions in our guidance but we monitor the pool of these assets very closely. We are not interested in acquiring less than A assets or assets that we feel within a very short period of time we can make A assets. Should one of these private owners decide to monetize their existing outlet property, you know, I think it would be logical for them to talk to us. We can close rapidly not subject to financing. So if any of those developers are listening please give us a call, but other than that we will be opportunistic on the acquisition front and can certainly afford it.

Michael Bilerman – Citi

And then in terms of Heartland with Simon proceeding under construction, how has that impacted at all sort of your discussions with tenants and at what stage is that project at in terms of trying to build…

Steven Tanger

Well Heartland, and again since you are from the Toronto area, Heartland is probably the largest and most successful shopping center, power center in Canada and certainly in Toronto. It is 8 miles from the Simon site and probably 10 miles or so from our Halton Hills previous site. The tenant community, a lot of them already have stores in Heartland. As I understand that Simon is currently under construction in Halton Hills. We are very optimistic about the Heartland project, and again it will be either a 13 or 14 project. It's not going to happen instantly.

Michael Bilerman – Citi

Okay, and then is there anything from –

Steven Tanger

Michael I got to ask again, Michael please, we are happy to – we have other people asking questions. Please limit this to your last question.

Michael Bilerman – Citi

I thought that was the last question in the queue. Okay.

Steven Tanger

We are happy to talk to you off-line and as much time as you like.

Michael Bilerman – Citi

Sure, no problem.

Operator

There are no further questions at this time. I'd turn –

Michael Bilerman – Citi

There is no questions.

Steven Tanger

So Michael ask your question.

Michael Bilerman – Citi

Am I still open?

Steven Tanger

Sure.

Michael Bilerman – Citi

Perfect. As you are saying in terms of the experience in Cookstown, just thinking about buying existing centers what is – what you have been able to do obviously you have the expansion going on in terms of the yield of that asset and just in terms of bringing the Tanger name, how should we think about that opportunity in buying existing center and sort of bringing your operating knowledge and the brand-name to a center.

Steven Tanger

Well, we have a very skilled partner in Canada RioCan Real Estate Investment Trust. That's our partner. We have – we are in the process of Tangerizing the Cookstown asset. We had grand reopening where we renovated the interior of the asset. Our plans for doubling the size will include a major renovation of both the existing center and the expansion. So it will look more like a Tanger Outlet Center in the states. It's really too early to provide any additional yield, but the marketing is kicking in, the traffic is up, sales are up. So again over time I believe we will add significant value by Tangerizing that asset.

Michael Bilerman – Citi

And how do we compare if you are looking on page 14 of your unconsolidated joint ventures, your share of the NOI Is 0.8 which I assume is $1.6 million gross. That seems really light relative to $16 million of investment. So I guess – and that's just the quarter. So it still seems really light relative to – we can follow up offline?

Steven Tanger

I think that would probably be best because we are having trouble understanding your question, and want to be sure we give you an accurate answer.

Michael Bilerman – Citi

Sure. Okay, thank you.

Operator

And there are no further questions in the queue. And I will turn the call back over to the presenters.

Steven Tanger

Thank you all for participating today and for your interest in our company. Tanger is the only public REIT with a pure outlet portfolio. We have a conservatively structured balance sheet, high brand recognition, and a tenured management team with a disciplined

development approach.

Our strong portfolio of geographically diversified operating properties provide significant returns for our shareholders and our pipeline of growth opportunities is robust. Frank and I are always available to answer any other questions you may have. Thank you again and have a great day.

Operator

This concludes today’s conference call. You may now disconnect.

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