Steven Tanger joined Tanger Factory Outlet Centers (NYSE:SKT), founded by his father in 1981, as the company's fourth employee. The company had grown to 13 outlet centers by 1992, and the following year became the first outlet center developer to be listed on the NYSE as a publicly traded REIT, under ticker symbol SKT. Tanger has been president and CEO since 2009, and the company's portfolio, growing steadily, now includes over 40 outlet centers across the U.S. and in Canada.

Real estate investment trusts are a pass-through vehicle, Tanger explains. The dividends are taxed, but the REIT itself is not. He also discusses why joint ventures are a fact of life in the real estate business, and why they sometimes make financial -- and practical -- sense, even when Tanger doesn't need the land owner's equity.

Steve Tanger: I wanted just to go back, because I don't think I properly responded to your question with regard to REITs. The Real Estate Investment Trust Act was part of a larger legislation 50 years ago, to provide regular people -- not institutions or banks -- the opportunity to co-invest with large real estate families, large real estate business, but with instant liquidity.

It is a publicly traded company. We are not allowed to retain a significant amount of capital. We must pay out 90% of our taxable income. Now, as any type of enterprise, there are certain types of investments that reduce the amount of our taxes, and we pay out 90% of the taxable income.

We are a pass-through vehicle. The dividends are taxed, but the company -- the REIT -- is not taxed at the corporate level, so it flows through to the investors.

Tom Gardner: The investors should own that, probably, in a tax-sheltered account. I don't want to put you on the spot to give financial advice, but are those dividends from a REIT taxed at capital gains, or at income?

Tanger: You're asking me ... it's way above my pay grade! But my guess is, with the new tax law, they'll be taxed at regular income. The total return is what Tanger shareholders look for. We pay about a 2.5% dividend but we've averaged, as you've said, anywhere from an 18% to 20% total return, which is superb, over a very long period of time.

Now we certainly can't promise that in the future, but as the company's largest single non-financial institution shareholder, that's my goal, is to be able to repeat that.

Gardner: How many locations do you think you can have in the U.S.? Do you state that number publicly, or do you have a mentality on that, and what do you think about Canada and international opportunities?

Tanger: We're on record as saying that we can develop one to two new centers a year, at least in the next five years, and probably one center a year in Canada, so hopefully we'll be able to develop two to three.

Our target return for new ground of development is still cash-on-cash, day one, a 9%-11% return, which is superb. We just placed 10-year money yesterday on the public markets at 3 7/8, so that's a significant spread, over long-term money.

Gardner: Why ever do a joint venture mall? I know you've got ... maybe 10 50/50 joint ventures?

Tanger: Joint ventures are a fact of life in the real estate business. As we get closer in to the metropolitan market, the land owners are much more sophisticated, and they would prefer to convert their equity in their land into long-term equity in a partnership, so they defer their taxes, if you will.

Some of them believe in the concept -- hopefully, all of our partners believe in the concept -- and it's proven to be a good investment for them.

Then, after a holding period of whatever they decide, each of our joint ventures has an exit scenario. We purchased, on Aug. 30, our partner's interest in our Deer Park, Long Island shopping center, and then refinanced it.

The purchase price was $325 million. We put $150 million mortgage on the asset, used the balance from our line of credit, and the mortgage of $150 million was at 150 basis points over LIBOR -- 30-day LIBOR.

We locked that a month ago, for five years. It cost us 130 basis points to lock, so we have now converted the floating rate to fixed rate at 2.8% mortgage, for five years on Deer Park, so the cash flow is significant.

But joint ventures are a fact of life. Do we need their equity? No. But in some instances, it's helpful.

Gardner: When you're moving closer to a metropolitan area, that land owner is asking for that.

Tanger: Well, in National Harbor, it's a $1 billion development, created and executed by the Peterson family -- Milton Peterson and his sons -- a great visionary. On a parcel within that development, we're partners with the Peterson family on the outlet center only, but they were very helpful in getting the appropriate permits, and as the local partner making things happen that an outside company would find more challenging to do.

It's a win/win for both.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.