August 11, 2005
United States Securities and Exchange Commission
Division of Corporation Finance
Washington, D.C. 20549
RE: Tanger Properties Limited Partnership
Comment Letter dated March 22, 2005
Ladies and Gentlemen:
We have reviewed your comments and would like to offer the following responses
which have been numbered to correspond to the numbered comments in your letter.
1. Staff Comment: Note 17. Subsequent Events, page F-24 Please supplementally
advise us how you considered SFAS 144 in evaluating the property in
Seymour, Indiana for impairment, and in the subsequent accounting for the
disposal of the property in the first quarter. In your response,
specifically address the following:
- What did you consider to be the long-lived asset (asset group) in your
evaluation for impairment in accordance with paragraph 7 of SFAS 144?
- How does the asset (asset group) that was sold in the first quarter of
2005 qualify as a component of an entity in accordance with paragraph
41 of SFAS 144 such that the loss on sale should be reflected in
discontinued operations?
- Was the property that was sold in the first quarter of 2005 under
contract at December 31, 2004 at the subsequent sale price?
Company Response:
Long-lived asset group
----------------------
Since our inception, we have always considered and accounted for each
individual property, whether acquired or developed, as a single asset
group. We believe this treatment is appropriate since the value of a
shopping center and the associated outparcels and excess land are
economically linked.
Historically, we have sold individual outparcels without selling the
related shopping center. Any related gains or losses from these
transactions have been included in the shopping center's results of
operations in our internal financial statements. In addition, historical
sales of our shopping centers have always included the property as a whole,
including any outparcels or excess land. Paragraph 4 of SFAS 144 defines
the scope of this pronouncement as the asset or asset group that
"represents the lowest level for which identifiable cash flows are largely
independent of the cash flows of other groups of assets or liabilities. For
a long-lived asset or assets to be disposed of by sale or otherwise, that
group...represents assets to be disposed of together as a group in a single
transaction....". Since our historical sales of shopping centers have
always included any associated outparcels or excess land as a single
transaction, we have always run our undiscounted cash flow model to include
both the expected undiscounted cash flows of the shopping center plus the
expected sale price of the property as a whole, including any associated
outparcels or excess land.
The land on which the Seymour shopping center was located, as well as the
excess land and the outparcels, were all purchased as a single asset in
1994. Tanger subsequently developed the Seymour outlet center later that
same year. Accordingly, the land and the developed shopping center were
accounted for as a single asset group for purposes of SFAS 144. SFAS 144,
par. 33. addresses the subsequent sale of a property as follows: "...If the
asset (asset group) is tested for recoverability (on a held-and-used basis)
as of the balance sheet date, the estimates of future cash flows used in
that test shall consider the likelihood of possible outcomes that existed
at the balance sheet date, including the assessment of the likelihood of
the future sale of the asset. That assessment made as of the balance sheet
date shall not be revised for a decision to sell the asset after the
balance sheet date. An impairment loss, if any, to be recognized shall be
measured as the amount by which the carrying amount of the asset (asset
group) exceeds its fair value at the balance sheet date..."
Component of Entity and Discontinued Operations
-----------------------------------------------
In light of your question, we have revisited the best method of reporting
the subsequent sale of the outlet center. Since we have only sold a portion
of the designated asset group, we have concluded that the sold portion does
not represent a component, and thus we will show the loss on sale as a
component of income from continuing operations. We will continue to
evaluate the criteria of paragraph 30 of SFAS 144 to determine the ongoing
classification of the remaining undeveloped land and outparcels.
Contract Status
---------------
The property was not under contract at December 31, 2004. In February 2005,
we were informed that a potential buyer for the property in Seymour,
Indiana had offered $2.1 million for the shopping center. This offer price
was for the shopping center only, and did not include the outparcels and
excess land.
The Seymour asset group was not classified as held for sale at December 31,
2004. Paragraph 30 of SFAS 144 has six criteria that must all be met for a
long-lived asset to be considered held for sale. At least two of these
criteria had not been met at December 31, 2004.
First, management does not have the authority to sell real estate without
the consent of the Company's Board of Directors. The Board had not approved
a plan as of December 31, 2004.
Secondly, the sale of the asset was not probable (as defined in SFAS 5).
Based on the Company's history related to selling centers, several times in
the past potential buyers have stated that they wish to purchase a property
from us and then by the end of their due diligence period they decline to
continue on and complete the purchase process. As of December 31, 2004, the
due diligence period for the sale of the asset group in question had not
even begun because the property was not under contract.
FAS 144 Considerations
----------------------
At December 31, 2004, we prepared an analysis of the undiscounted cash
flows of this property in accordance with FAS 144 based on facts and
circumstances known by us as of that date. The cash flows from operations
were based on the latest year's results, adjusted for both positive and
negative changes in circumstances. The expected sale prices of the
outparcels and excess land were based on information provided by an outside
broker. The broker utilized recent comparable land sales in Seymour,
Indiana, which were considered reasonable, although the price was
considerably less than the comparable sales of two outparcels at this
location, aggregating approximately 2.2 acres.
In estimating the cash proceeds from the expected sale of the shopping
center, we considered the listing price, adjusted for negotiations and
selling costs. The selling price used was actually less than the selling
price per square foot for comparable shopping centers with comparable
occupancy rates sold both by Tanger and other real estate developers.
Although not by a significant amount, the results of our model showed an
amount of future undiscounted cash flows in excess of the carrying amount,
thus no impairment was recognized at year end.
In light of your comments, we enhanced the impairment analysis to consider
3 possible scenarios and weighted the probability of each scenario equally.
The scenarios included the sale of the center within one year, within five
years, and operating the property for 23 years. The results of our enhanced
models continued to show undiscounted cash flows in excess of the carrying
amount.
2. Staff Comment: In addition, please clarify how you calculated the loss on
sale of the property. Specifically, tell us the carrying amount of the
property sold and the carrying amount of the excess land and outparcels
retained.
Company Response:
The calculation of the loss on sale of the property was calculated as
shown below:
Loss calculation on Seymour sale:
Sales price $2,100,000
Closing expenses (141,475)
---------
Net proceeds from sale $ 1,958,525
Carrying value:
Cost value of land 475,847
Cost basis - property 11,849,363
Less: accumulated depreciation (5,845,486)
-----------
Net book value 6,479,724
Deferred lease costs, net 118,290
Other assets 50,735
------
Total carrying value 6,648,749
---------
Loss on sale $(4,690,224)
============
In determining the carrying amount of the land for the portion of the
asset group deemed to have been sold, we compared our total costs for
land and site work improvements for the entire asset group and divided
such amount by the total number of acres for the entire asset group to
arrive at a cost per acre. The resulting cost per acre was then
multiplied by the number of acres to remain after the sales
transaction to arrive at a cost value for the remaining outparcels and
excess land. The difference was the amount determined to be the cost
value of the land for the portion of the asset group sold.
An allocation of $475,847 was made for the land sold on which the
center was situated. The carrying amount of the excess land and
outparcels retained and the related site improvements was as follows:
Excess land and outparcels $1,114,261
Site Work and Related Improvements 674,104
-------
Total Value Retained $1,788,365
==========
The excess land and outparcels are being listed by our broker for
approximately $4,800,000, which we believe approximates fair market
value and is well in excess of the carrying amount stated above. We do
not foresee any more losses to be recognized for this asset group.
We would like to thank the staff for their time and courtesy in
addressing these comments.
Sincerely,
Frank C. Marchisello, Jr.
-------------------------
Frank C. Marchisello, Jr.
Executive Vice-President and Chief Financial Officer