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Section 1: 10-Q (10-Q)

Document


United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2016
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________

Commission file number 1-11986 (Tanger Factory Outlet Centers, Inc.)
Commission file number 333-3526-01 (Tanger Properties Limited Partnership)

TANGER FACTORY OUTLET CENTERS, INC.
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina (Tanger Factory Outlet Centers, Inc.)
56-1815473
North Carolina (Tanger Properties Limited Partnership)
56-1822494
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
3200 Northline Avenue, Suite 360, Greensboro, NC 27408
(Address of principal executive offices)
 
 
(336) 292-3010
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes  x   No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x   No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer: and “smaller reporting company” (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934).
Tanger Factory Outlet Centers, Inc.
 
 
 
 
x Large accelerated filer
 
o Accelerated filer
 
o Non-accelerated filer
 
o Smaller reporting company
Tanger Properties Limited Partnership
 
 
 
 
o Large accelerated filer
 
o Accelerated filer
 
x Non-accelerated filer
 
o Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).
Tanger Factory Outlet Centers, Inc.
Yes o   No x
Tanger Properties Limited Partnership
Yes o   No x

As of October 25, 2016, there were 96,069,262 common shares of Tanger Factory Outlet Centers, Inc. outstanding, $.01 par value.




EXPLANATORY NOTE
This report combines the unaudited quarterly reports on Form 10-Q for the quarter ended September 30, 2016 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating Partnership" refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. The Company is a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which, through its controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and all of the operations are conducted by, the Operating Partnership and its subsidiaries. Accordingly, the descriptions of the business, employees and properties of the Company are also descriptions of the business, employees and properties of the Operating Partnership. As the Operating Partnership is the issuer of our registered debt securities, we are required to present a separate set of financial statements for this entity.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of September 30, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 96,069,262 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,052,743 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

Management operates the Company and the Operating Partnership as one enterprise. The management of the Company consists of the same members as the management of the Operating Partnership. These individuals are officers of the Company and employees of the Operating Partnership. The individuals that comprise the Company's Board of Directors are also the same individuals that make up Tanger GP Trust's Board of Trustees.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:

enhancing investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.


2



There are only a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important, however to understand these differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company.

As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company's income statement is its equity in the earnings of the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report.

The Operating Partnership holds all of the outlet centers and other assets, including the ownership interests in consolidated and unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, its incurrence of indebtedness or through the issuance of partnership units.

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

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

Consolidated financial statements;

The following notes to the consolidated financial statements:

Debt of the Company and the Operating Partnership;

Shareholders' Equity, if applicable, and Partners' Equity;

Earnings Per Share and Earnings Per Unit;

Accumulated Other Comprehensive Income of the Company and the Operating Partnership;

Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial Condition and Results of Operations.

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

The separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.


3



The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

4



TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three and nine months ended September 30, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2016 and 2015
Consolidated Statements of Shareholders' Equity - for the nine months ended September 30, 2016 and 2015
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2016 and 2015
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three and nine months ended September 30, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2016 and 2015
Consolidated Statements of Equity - for the nine months ended September 30, 2016 and 2015
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2016 and 2015
 
 
Condensed Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 4. Mine Safety Disclosure
 
 
Item 6. Exhibits
 
 
Signatures

5



PART I. - FINANCIAL INFORMATION

Item 1 - Financial Statements of Tanger Factory Outlet Centers, Inc.

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
 
 
September 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Rental property
 
 

 
 

Land
 
$
262,240

 
$
240,267

Buildings, improvements and fixtures
 
2,553,564

 
2,249,417

Construction in progress
 
92,937

 
23,533

 
 
2,908,741

 
2,513,217

Accumulated depreciation
 
(792,272
)
 
(748,341
)
Total rental property, net
 
2,116,469

 
1,764,876

Cash and cash equivalents
 
25,902

 
21,558

Restricted cash
 
2,936

 
121,306

Investments in unconsolidated joint ventures
 
170,855

 
201,083

Deferred lease costs and other intangibles, net
 
156,496

 
127,089

Prepaids and other assets
 
88,261

 
78,913

Total assets
 
$
2,560,919

 
$
2,314,825

Liabilities and Equity
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes, net
 
$
1,037,073

 
$
789,285

Unsecured term loans, net
 
322,195

 
265,832

Mortgages payable, net
 
172,647

 
310,587

Unsecured lines of credit, net
 
192,731

 
186,220

Total debt
 
1,724,646

 
1,551,924

Accounts payable and accrued expenses
 
78,542

 
97,396

Deferred financing obligation
 

 
28,388

Other liabilities
 
52,079

 
31,085

Total liabilities
 
1,855,267

 
1,708,793

Commitments and contingencies
 

 

Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 96,069,262 and 95,880,825 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively
 
961

 
959

Paid in capital
 
816,464

 
806,379

Accumulated distributions in excess of net income 
 
(115,565
)
 
(195,486
)
Accumulated other comprehensive loss
 
(31,618
)
 
(36,715
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
670,242

 
575,137

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
35,250

 
30,309

Noncontrolling interests in other consolidated partnerships
 
160

 
586

Total equity
 
705,652

 
606,032

Total liabilities and equity
 
$
2,560,919

 
$
2,314,825


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

6



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

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
79,569

 
$
75,841

 
$
227,195

 
$
215,799

Percentage rentals
 
2,995

 
2,625

 
7,471

 
6,896

Expense reimbursements
 
33,125

 
30,542

 
97,121

 
93,815

Management, leasing and other services
 
806

 
1,253

 
3,259

 
4,263

Other income
 
2,642

 
2,645

 
6,229

 
5,795

Total revenues
 
119,137

 
112,906

 
341,275

 
326,568

Expenses
 
 
 


 
 
 
 

Property operating
 
37,442

 
36,231

 
110,328

 
108,921

General and administrative
 
12,128

 
11,514

 
35,368

 
34,431

Acquisition costs
 
487

 

 
487

 

Depreciation and amortization
 
29,205

 
28,785

 
82,078

 
77,046

Total expenses
 
79,262

 
76,530

 
228,261

 
220,398

Operating income
 
39,875

 
36,376


113,014


106,170

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(15,516
)
 
(13,933
)
 
(44,200
)
 
(40,110
)
Gain on sale of assets and interests in unconsolidated joint ventures
 
1,418

 
20,215

 
6,305

 
33,941

Gain on previously held interests in acquired joint ventures
 
46,258

 

 
95,516

 

Other nonoperating income (expense)
 
24

 
89

 
378

 
(98
)
Income before equity in earnings of unconsolidated joint ventures
 
72,059

 
42,747

 
171,013

 
99,903

Equity in earnings of unconsolidated joint ventures
 
715

 
3,713

 
7,680

 
8,302

Net income
 
72,774

 
46,460


178,693


108,205

Noncontrolling interests in Operating Partnership
 
(3,668
)
 
(2,364
)
 
(9,009
)
 
(5,532
)
Noncontrolling interests in other consolidated partnerships
 
(2
)
 
(21
)
 
(13
)
 
395

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
69,104

 
$
44,075


$
169,671


$
103,068

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
 
 
 
 
 
 
 
Net income
 
$
0.72

 
$
0.46

 
$
1.77

 
$
1.08

Diluted earnings per common share
 
 
 
 
 
 
 
 
Net income
 
$
0.72

 
$
0.46

 
$
1.76

 
$
1.08

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.325

 
$
0.285

 
$
0.935

 
$
0.810

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

7



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
72,774

 
$
46,460

 
$
178,693

 
$
108,205

Other comprehensive income (loss)
 
 
 
 
 
 
 

Foreign currency translation adjustments
 
(1,731
)
 
(10,932
)
 
6,970

 
(18,945
)
Change in fair value of cash flow hedges
 
2,228

 
(1,156
)
 
(1,601
)
 
(2,045
)
Other comprehensive income (loss)
 
497

 
(12,088
)
 
5,369

 
(20,990
)
Comprehensive income
 
73,271

 
34,372

 
184,062

 
87,215

Comprehensive income attributable to noncontrolling interests
 
(3,695
)
 
(1,770
)
 
(9,294
)
 
(4,067
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
69,576

 
$
32,602

 
$
174,768

 
$
83,148

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


8



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data, unaudited)


 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance,
December 31, 2014
 
$
955

$
791,566

$
(281,679
)
$
(14,023
)
$
496,819

$
26,417

$
650

$
523,886

Net income
 


103,068


103,068

5,532

(395
)
108,205

Other comprehensive loss
 



(19,920
)
(19,920
)
(1,070
)

(20,990
)
Compensation under Incentive Award Plan
 

12,180



12,180



12,180

Issuance of 16,400 common shares upon exercise of options
 

448



448



448

Grant of 348,844 restricted common share awards
 
3

(3
)






Withholding of 31,532 common shares for employee income taxes
 

(1,115
)


(1,115
)


(1,115
)
Contributions from noncontrolling interests
 






461

461

Adjustment for noncontrolling interests in Operating Partnership
 

(442
)


(442
)
442



Adjustment for noncontrolling interests in other consolidated partnerships
 

4



4


(4
)

Common dividends ($0.810 per share)
 


(77,569
)

(77,569
)


(77,569
)
Distributions to noncontrolling interests
 





(4,114
)
(116
)
(4,230
)
Balance,
September 30, 2015
 
$
958

$
802,638

$
(256,180
)
$
(33,943
)
$
513,473

$
27,207

$
596

$
541,276

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











 
 








 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9



 
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data, unaudited)
 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance, December 31, 2015
 
$
959

$
806,379

$
(195,486
)
$
(36,715
)
$
575,137

$
30,309

$
586

$
606,032

Net income
 


169,671


169,671

9,009

13

178,693

Other comprehensive income
 



5,097

5,097

272


5,369

Compensation under Incentive Award Plan
 

12,556



12,556



12,556

Issuance of 57,700 common shares upon exercise of options
 

1,693



1,693



1,693

Grant of 173,124 restricted common share awards, net of forfeitures
 
2

(2
)






Issuance of 24,040 deferred shares
 








Withholding of
66,427 common shares for employee income taxes
 

(2,164
)


(2,164
)


(2,164
)
Contributions from noncontrolling interests
 






35

35

Adjustment for noncontrolling interests in Operating Partnership
 

(385
)


(385
)
385



Adjustment for noncontrolling interests in other consolidated partnerships
 

4



4


(4
)

Acquisition of noncontrolling interest in other consolidated partnership
 

(1,617
)


(1,617
)

(325
)
(1,942
)
Common dividends ($.935 per share)
 


(89,750
)

(89,750
)


(89,750
)
Distributions to noncontrolling interests
 





(4,725
)
(145
)
(4,870
)
Balance,
September 30, 2016
 
$
961

$
816,464

$
(115,565
)
$
(31,618
)
$
670,242

$
35,250

$
160

$
705,652


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




10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Nine months ended September 30,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
178,693

 
$
108,205

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
82,078

 
77,046

Amortization of deferred financing costs
 
2,350

 
1,896

Gain on sale of assets and interests in unconsolidated entities
 
(6,305
)
 
(33,941
)
Gain on previously held interests in acquired joint ventures
 
(95,516
)
 

Equity in earnings of unconsolidated joint ventures
 
(7,680
)
 
(8,302
)
Share-based compensation expense
 
11,815

 
11,560

Amortization of debt (premiums) and discounts, net
 
1,160

 
65

Amortization (accretion) of market rent rate adjustments, net
 
2,087

 
2,124

Straight-line rent adjustments
 
(5,092
)
 
(4,742
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
10,571

 
8,803

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
1,093

 
2,197

Accounts payable and accrued expenses
 
2,512

 
10,117

Net cash provided by operating activities
 
177,766

 
175,028

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(112,213
)
 
(181,127
)
Acquisitions of interests in unconsolidated joint ventures, net of cash acquired
 
(45,219
)
 

Acquisition of noncontrolling interest in other consolidated partnership
 
(1,942
)
 

Additions to investments in unconsolidated joint ventures
 
(27,851
)
 
(31,517
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
28,706

 
58,799

Change in restricted cash
 
118,370

 
(42,904
)
Proceeds from insurance reimbursements
 
721

 
253

Additions to non-real estate assets
 
(8,982
)
 
(691
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
14,193

 
19,325

Additions to deferred lease costs
 
(5,273
)
 
(5,592
)
Net cash used in investing activities
 
(39,490
)
 
(183,454
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(109,879
)
 
(77,569
)
Distributions to noncontrolling interests in Operating Partnership
 
(5,786
)
 
(4,114
)
Proceeds from revolving credit facility
 
733,450

 
409,400

Repayments of revolving credit facility
 
(727,750
)
 
(324,600
)
Proceeds from notes, mortgages and loans
 
338,270

 
60,263

Repayments of notes, mortgages and loans
 
(329,603
)
 
(49,098
)
Repayment of deferred financing obligation
 
(28,388
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,164
)
 
(1,115
)
Distributions to noncontrolling interests in other consolidated partnerships
 
(99
)
 
(116
)
Additions to deferred financing costs
 
(4,243
)
 
(758
)
Proceeds from exercise of options
 
1,693

 
448

Contributions from noncontrolling interests in other consolidated partnerships
 
35

 
259

Net cash provided by (used in) financing activities
 
(134,464
)
 
13,000

Effect of foreign currency rate changes on cash and cash equivalents
 
532

 
(788
)
Net increase in cash and cash equivalents
 
4,344

 
3,786

Cash and cash equivalents, beginning of period
 
21,558

 
16,875

Cash and cash equivalents, end of period
 
$
25,902

 
$
20,661

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

11



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data, unaudited)
 
 
September 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Rental property
 
 

 
 

Land
 
$
262,240

 
$
240,267

Buildings, improvements and fixtures
 
2,553,564

 
2,249,417

Construction in progress
 
92,937

 
23,533

 
 
2,908,741

 
2,513,217

Accumulated depreciation
 
(792,272
)
 
(748,341
)
Total rental property, net
 
2,116,469

 
1,764,876

Cash and cash equivalents
 
25,853

 
21,552

Restricted cash
 
2,936

 
121,306

Investments in unconsolidated joint ventures
 
170,855

 
201,083

Deferred lease costs and other intangibles, net
 
156,496

 
127,089

Prepaids and other assets
 
87,909

 
78,248

Total assets
 
$
2,560,518

 
$
2,314,154

Liabilities and Equity
 

 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes, net
 
$
1,037,073

 
$
789,285

Unsecured term loans, net
 
322,195

 
265,832

Mortgages payable, net
 
172,647

 
310,587

Unsecured lines of credit, net
 
192,731

 
186,220

Total debt
 
1,724,646

 
1,551,924

Accounts payable and accrued expenses
 
78,141

 
96,725

Deferred financing obligation
 

 
28,388

Other liabilities
 
52,079

 
31,085

Total liabilities
 
1,854,866

 
1,708,122

Commitments and contingencies
 

 

Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner, 1,000,000 units outstanding at September 30, 2016 and December 31, 2015
 
6,559

 
5,726

Limited partners, 5,052,743 Class A common units, and 95,069,262 and 94,880,825 Class B common units outstanding at September 30, 2016 and December 31, 2015, respectively
 
732,266

 
638,422

Accumulated other comprehensive loss
 
(33,333
)
 
(38,702
)
Total partners' equity
 
705,492

 
605,446

Noncontrolling interests in consolidated partnerships
 
160

 
586

Total equity
 
705,652

 
606,032

Total liabilities and equity
 
$
2,560,518

 
$
2,314,154

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

12



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
79,569

 
$
75,841

 
$
227,195

 
$
215,799

Percentage rentals
 
2,995

 
2,625

 
7,471

 
6,896

Expense reimbursements
 
33,125

 
30,542

 
97,121

 
93,815

Management, leasing and other services
 
806

 
1,253

 
3,259

 
4,263

Other income
 
2,642

 
2,645

 
6,229

 
5,795

Total revenues
 
119,137

 
112,906


341,275


326,568

Expenses
 


 


 


 
 
Property operating
 
37,442

 
36,231

 
110,328

 
108,921

General and administrative
 
12,128

 
11,514

 
35,368

 
34,431

Acquisition costs
 
487

 

 
487

 

Depreciation and amortization
 
29,205

 
28,785

 
82,078

 
77,046

Total expenses
 
79,262

 
76,530


228,261


220,398

Operating income
 
39,875

 
36,376


113,014


106,170

Other income (expense)
 
 
 
 
 
 
 
 
Interest expense
 
(15,516
)
 
(13,933
)
 
(44,200
)
 
(40,110
)
Gain on sale of assets and interests in unconsolidated joint ventures
 
1,418

 
20,215

 
6,305

 
33,941

Gain on previously held interests in acquired joint ventures
 
46,258

 

 
95,516

 

Other nonoperating income (expense)
 
24

 
89

 
378

 
(98
)
Income before equity in earnings of unconsolidated joint ventures
 
72,059

 
42,747


171,013


99,903

Equity in earnings of unconsolidated joint ventures
 
715

 
3,713

 
7,680

 
8,302

Net income
 
72,774

 
46,460


178,693


108,205

Noncontrolling interests in consolidated partnerships
 
(2
)
 
(21
)
 
(13
)
 
395

Net income available to partners
 
72,772

 
46,439


178,680


108,600

Net income available to limited partners
 
72,052

 
45,979

 
176,912

 
107,525

Net income available to general partner
 
$
720

 
$
460


$
1,768


$
1,075

 
 
 
 
 
 
 
 
 
Basic earnings per common unit
 
 
 
 
 
 
 
 

Net income
 
$
0.72

 
$
0.46

 
$
1.77

 
$
1.08

Diluted earnings per common unit
 
 
 
 
 
 
 
 
Net income
 
$
0.72

 
$
0.46

 
$
1.76

 
$
1.08

 
 
 
 
 
 
 
 
 
Distribution declared per common unit
 
$
0.325

 
$
0.285

 
$
0.935

 
$
0.810

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

13



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
72,774

 
$
46,460

 
$
178,693

 
$
108,205

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
(1,731
)
 
(10,932
)
 
6,970

 
(18,945
)
Changes in fair value of cash flow hedges
 
2,228

 
(1,156
)
 
(1,601
)
 
(2,045
)
Other comprehensive income (loss)
 
497

 
(12,088
)
 
5,369

 
(20,990
)
Comprehensive income
 
73,271

 
34,372

 
184,062

 
87,215

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
(2
)
 
(21
)
 
(13
)
 
395

Comprehensive income attributable to the Operating Partnership
 
$
73,269

 
$
34,351

 
$
184,049

 
$
87,610

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


14



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)
 
 
General partner
Limited partners
Accumulated other comprehensive loss
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2014
 
$
4,828

$
533,199

$
(14,791
)
$
523,236

$
650

$
523,886

Net income
 
1,075

107,525


108,600

(395
)
108,205

Other comprehensive loss
 


(20,990
)
(20,990
)

(20,990
)
Compensation under Incentive Award Plan
 

12,180


12,180


12,180

Issuance of 16,400 common units upon exercise of options
 

448


448


448

Grant of 348,844 restricted common share awards by the Company
 






Withholding of 31,532 common units for employee income taxes
 

(1,115
)

(1,115
)

(1,115
)
Contributions from noncontrolling interests
 




461

461

Adjustments for noncontrolling interests in consolidated partnerships
 

4


4

(4
)

Common distributions ($.810 per common unit)
 
(810
)
(80,873
)

(81,683
)

(81,683
)
Distributions to noncontrolling interests
 




(116
)
(116
)
Balance, September 30, 2015
 
$
5,093

$
571,368

$
(35,781
)
$
540,680

$
596

$
541,276

 
 
 
 
 
 
 
 
 
 
General partner
Limited partners
Accumulated other comprehensive loss
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2015
 
$
5,726

$
638,422

$
(38,702
)
$
605,446

$
586

$
606,032

Net income
 
1,768

176,912


178,680

13

178,693

Other comprehensive income
 


5,369

5,369


5,369

Compensation under Incentive Award Plan
 

12,556


12,556


12,556

Issuance of 57,700 common units upon exercise of options
 

1,693


1,693


1,693

Grant of 173,124 restricted common share awards by the Company, net of forfeitures
 






Issuance of 24,040 deferred units
 






Withholding of 66,427 common units for employee income taxes
 

(2,164
)

(2,164
)

(2,164
)
Contributions from noncontrolling interests
 




35

35

Adjustment for noncontrolling interests in consolidated partnerships
 

4


4

(4
)

Acquisition of noncontrolling interest in other consolidated partnership
 

(1,617
)

(1,617
)
(325
)
(1,942
)
Common distributions ($.935 per common unit)
 
(935
)
(93,540
)

(94,475
)

(94,475
)
Distributions to noncontrolling interests
 




(145
)
(145
)
Balance, September 30, 2016
 
$
6,559

$
732,266

$
(33,333
)
$
705,492

$
160

$
705,652

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

15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Nine months ended September 30,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
178,693

 
$
108,205

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
82,078

 
77,046

Amortization of deferred financing costs
 
2,350

 
1,896

Gain on sale of assets and interests in unconsolidated entities
 
(6,305
)
 
(33,941
)
Gain on previously held interests in acquired joint ventures
 
(95,516
)
 

Equity in earnings of unconsolidated joint ventures
 
(7,680
)
 
(8,302
)
Equity-based compensation expense
 
11,815

 
11,560

Amortization of debt (premiums) and discounts, net
 
1,160

 
65

Amortization (accretion) of market rent rate adjustments, net
 
2,087

 
2,124

Straight-line rent adjustments
 
(5,092
)
 
(4,742
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
10,571

 
8,803

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
780

 
2,397

Accounts payable and accrued expenses
 
2,782

 
10,965

Net cash provided by operating activities
 
177,723

 
176,076

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(112,213
)
 
(181,127
)
Acquisitions of interests in unconsolidated joint ventures, net of cash acquired
 
(45,219
)
 

Acquisition of noncontrolling interest in other consolidated partnership
 
(1,942
)
 

Additions to investments in unconsolidated joint ventures
 
(27,851
)
 
(31,517
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
28,706

 
58,799

Change in restricted cash
 
118,370

 
(42,904
)
Proceeds from insurance reimbursements
 
721

 
253

Additions to non-real estate assets
 
(8,982
)
 
(691
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
14,193

 
19,325

Additions to deferred lease costs
 
(5,273
)
 
(5,592
)
Net cash used in investing activities
 
(39,490
)
 
(183,454
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(115,665
)
 
(81,683
)
Proceeds from revolving credit facility
 
733,450

 
409,400

Repayments of revolving credit facility
 
(727,750
)
 
(324,600
)
Proceeds from notes, mortgages and loans
 
338,270

 
60,263

Repayments of notes, mortgages and loans
 
(329,603
)
 
(49,098
)
Repayment of deferred financing obligation
 
(28,388
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,164
)
 
(1,115
)
Distributions to noncontrolling interests in consolidated partnerships
 
(99
)
 
(116
)
Additions to deferred financing costs
 
(4,243
)
 
(758
)
Proceeds from exercise of options
 
1,693

 
448

Contributions from noncontrolling interests in other consolidated partnerships
 
35

 
259

Net cash provided by (used in) financing activities
 
(134,464
)
 
13,000

Effect of foreign currency on cash and cash equivalents
 
532

 
(788
)
Net increase in cash and cash equivalents
 
4,301

 
4,834

Cash and cash equivalents, beginning of period
 
21,552

 
15,806

Cash and cash equivalents, end of period
 
$
25,853

 
$
20,640

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

16



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

1. Business
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. We are a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of September 30, 2016, we owned and operated 35 consolidated outlet centers, with a total gross leasable area of approximately 12.4 million square feet. We also had partial ownership interests in 8 unconsolidated outlet centers totaling approximately 2.3 million square feet, including 4 outlet centers in Canada.

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

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of September 30, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 96,069,262 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,052,743 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's REIT status. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

2. Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared pursuant to accounting principles generally accepted in the United States of America and should be read in conjunction with the consolidated financial statements and notes thereto of the Company's and the Operating Partnership's combined Annual Report on Form 10-K for the year ended December 31, 2015. The December 31, 2015 balance sheet data in this Form 10-Q was derived from audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SEC's rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant.


17



We consolidate properties that are wholly owned or properties where we own less than 100% but we control. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities ("VIE"). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our determination of the primary beneficiary considers all relationships between us and the VIE, including management agreements and other contractual arrangements.

Investments in real estate joint ventures that we do not control but may exercise significant influence are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for our equity in the joint venture's net income or loss, cash contributions, distributions and other adjustments required under the equity method of accounting.

For certain of these investments, we record our equity in the venture's net income or loss under the hypothetical liquidation at book value (“HLBV”) method of accounting due to the structures and the preferences we receive on the distributions from our joint ventures pursuant to the respective joint venture agreements for those joint ventures. Under this method, we recognize income and loss in each period based on the change in liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value. Therefore, income or loss may be allocated disproportionately as compared to the ownership percentages due to specified preferred return rate thresholds and may be more or less than actual cash distributions received and more or less than what we may receive in the event of an actual liquidation. In the event a basis difference is created between our underlying interest in the venture's net assets and our initial investment, we amortize such amount over the estimated life of the venture as a component of equity in earnings of unconsolidated joint ventures.

We separately report investments in joint ventures for which accumulated distributions have exceeded investments in and our share of net income or loss of the joint ventures within other liabilities in the consolidated balance sheets. The carrying amount of our investments in the Charlotte and Galveston/Houston joint ventures are less than zero because of financing or operating distributions that were greater than net income, as net income includes non-cash charges for depreciation and amortization.

We had previously concluded that our Savannah joint venture, which owned the Outlet center in Pooler, Georgia, was considered a VIE and we were not the primary beneficiary. On August 12, 2016, the joint venture acquired our venture partner's interest. The Savannah joint venture is now wholly-owned by us and is consolidated in our financial results as of the acquisition date.

On June 30, 2016, we completed the purchase of our partners' interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona using special purpose entities owned by qualified intermediaries to facilitate a potential Section 1031 reverse exchange under the Internal Revenue Code. We have determined that the Westgate joint venture is a variable interest entity of which we are the primary beneficiary and is consolidated in our financial results as of the acquisition date. At September 30, 2016, total assets of this venture were $176.0 million and total liabilities were $14.9 million. The primary classification of the assets on the consolidated balance sheets are total rental property, net, $158.5 million; cash, $3.9 million and other assets, $13.6 million (including deferred lease costs and other intangibles) and the primary classification of the liabilities include accounts payable and accrued expenses, $906,000 and other liabilities, $14.0 million (including below market lease value).

We have concluded that our Southaven joint venture is considered a VIE because our voting rights are disproportionate to our economic interests and substantially all of each venture's activities either involve us or are conducted on our behalf. The management agreement and other contractual arrangements for the Southaven joint venture give us, but not necessarily our joint venture partner, significant participating rights over activities that most significantly impact the economic performance of the ventures, thus we have concluded that we are the primary beneficiary and have consolidated the venture's balance sheet and results of operations. At September 30, 2016, total assets of this venture were $85.5 million and total liabilities were $60.8 million. The primary classification of the assets on the consolidated balance sheets are total rental property, net, $79.7 million; cash, $3.5 million and other assets, $2.3 million (including deferred lease costs and other intangibles) and the primary classification of the liabilities include accounts payable and accrued expenses, $1.7 million and mortgages payable net of debt origination costs, $58.2 million. These assets include only those assets that can be used to settle obligations of the VIE. The liabilities include third party liabilities and exclude intercompany balances that are eliminated in consolidation.

18




"Noncontrolling interests in the Operating Partnership" reflects the Non-Company LP's percentage ownership of the Operating Partnership's units. "Noncontrolling interests in other consolidated partnerships" consist of outside equity interests in partnerships or joint ventures not wholly owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties. Noncontrolling interests are initially recorded in the consolidated balance sheets at fair value based upon purchase price allocations. Income is allocated to the noncontrolling interests based on the allocation provisions within the partnership or joint venture agreements.

As a result of the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update (ASU) No. 2015-03 Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, our deferred debt origination costs and related accumulated amortization previously recorded in the line item “deferred debt origination costs, net” have been reclassified from assets to the respective debt line items within the liabilities section in the consolidated balance sheet as of December 31, 2015. The reclassification decreased previously reported total assets and total liabilities by $11.9 million.

In February 2015, FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. During the first quarter of 2016, we adopted ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis" and this adoption did not have a material impact on our financial position, results of operations or cash flows.

3. Acquisition of Rental Property
Savannah

On August 12, 2016, the Savannah joint venture, which owned the Outlet center in Pooler, Georgia distributed all outparcels along with $15.0 million in cash consideration to the other partner in exchange for the partner's ownership interest. We contributed the $15.0 million in cash consideration to the joint venture, which we funded with borrowings under our unsecured lines of credit. At the time of acquisition, the property was subject to a $96.9 million construction loan, with an interest rate of LIBOR + 1.65% that would have matured in May 2017. In September 2016, we repaid the mortgage loan with borrowings under our unsecured lines of credit.

The joint venture is now wholly-owned by us and is consolidated in our financial results as of the acquisition date.  Prior to this transaction, we owned a 50% legal interest in the joint venture since its formation and accounted for it under the equity method of accounting. However, due to preferred equity contributions we made to the joint venture, and the returns earned on those contributions, our estimated economic interest in the book value of the assets was approximately 98%.Therefore, substantially all of the earnings of the joint venture were previously recognized by us as equity in earnings of unconsolidated joint ventures. 
 
There was no contingent consideration associated with this acquisition. The joint venture incurred approximately $260,000 in third-party acquisition related costs for the acquisition of the venture partner's interest that were expensed as incurred. As a result of acquiring the remaining interest in the Savannah joint venture, we recorded a gain of $46.3 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the joint venture.

Non-cash investing activities related to the purchase of our partners' interest in the Savannah joint venture, include the assumption of debt totaling $96.9 million. In addition, rental property and lease related intangible assets and liabilities increased by a net of $46.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased $250,000 and accounts payable and accrued expenses increased $2.1 million from the assumption of current assets and liabilities.





19




Westgate

On June 30, 2016, we completed the purchase of our partners' interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona, for a total cash price of approximately $40.9 million. Prior to the transaction, we owned a 58% interest in the Westgate joint venture since its formation in 2012 and accounted for it under the equity method of accounting. The joint venture is now wholly-owned and is consolidated in our financial results as of June 30, 2016.

The total cash price included $39.0 million to acquire the 40% ownership interest held by the equity partner in the joint venture. We also purchased the remaining 2% noncontrolling ownership interests in the Westgate outlet center held in a consolidated partnership for a purchase price of $1.9 million. The acquisition of the noncontrolling ownership interest was recorded as an equity transaction and, as a result, the carrying balances of the noncontrolling interest were eliminated and the remaining difference between the purchase price and carrying balance was recorded as a reduction in additional-paid-in-capital. We funded the total purchase price with borrowings under our unsecured lines of credit. At the time of the acquisition, the property was subject to a $62.0 million mortgage loan, with an interest rate of LIBOR + 1.75% and a maturity in June 2017. In August 2016, we repaid the mortgage loan in full with proceeds from the public offering of $250.0 million in senior notes due 2026.

There was no contingent consideration associated with this acquisition. We incurred approximately $127,000 in third-party acquisition related costs for the acquisition of our partners' interest in the Westgate joint venture that were expensed as incurred. As a result of acquiring the remaining interest in the Westgate joint venture, we recorded a gain of $49.3 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the joint venture.

Non-cash investing activities related to the purchase of our partners' interest in the Westgate joint venture, include the assumption of debt totaling $62.0 million. In addition, rental property and lease related intangible assets and liabilities increased by a net of $49.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased 227,000 and accounts payable and accrued expenses increased $5.0 million from the assumption of current assets and liabilities.

The following table illustrates the fair value of the aggregate consideration transferred to acquire the equity interests of the Savannah and Westgate properties at the acquisition date for the nine months ended September 30, 2016 (in thousands):
Cash transferred for equity interests
$
54,000

Fair value of our previously held interests
145,581

Fair value of net assets
$
199,581



20



The following table illustrates the aggregate fair value of the amounts of the identifiable assets acquired and liabilities assumed and recognized at the acquisition date for the Savannah and Westgate properties acquired during the nine months ended September 30, 2016:

 
 
Fair Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Cash
 
$
8,781

 
 
Land
 
27,593

 
 
Buildings, improvements and fixtures
 
308,117

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above market lease value
 
15,882

 
7.2
Lease in place value
 
13,972

 
5.9
Lease and legal costs
 
10,264

 
6.4
Total deferred lease costs and other intangibles
 
40,118

 
 
Prepaids and other assets
 
477

 
 
Debt
 
(158,994
)
 
 
Accounts payable and accrued expenses
 
(7,183
)
 
 
Other liabilities (Below market lease value)
 
(19,328
)
 
12.0
Total fair value of net assets
 
$
199,581

 
 

The fair values were determined based on an income approach, using a rental growth rate of 3.0%, a discount rate between 7.50% and 8.25%, and a terminal cap rate between 5.75% and 7.0%. The estimated fair values were determined to have primarily relied upon Level 3 inputs, as defined in Note 11.

The fair values are based upon our best available information at the time of the preparation of our financial statements. However, the business acquisition accounting for the Savannah and Westgate outlet centers are not complete and accordingly, such estimates of the value of acquired assets and liabilities are provisional until the valuation is finalized. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation by the end of 2016.

During the third quarter of 2016, we adjusted the Westgate purchase price allocation based upon information that was received subsequent to the acquisition date that related to conditions that existed as of that date. This adjustment increased above market lease value by $1.6 million, and decreased buildings, improvements and fixtures by $5.6 million, below market lease value by $4.8 million, lease in place value by $628,000 and land by $150,000.


21



4. Disposition of Properties

Fort Myers

In January 2016, we sold our outlet center in Fort Myers, Florida located near Sanibel Island for net proceeds of approximately $25.8 million. The proceeds from the sale of this unencumbered asset were used to pay down balances outstanding under our unsecured lines of credit.

Myrtle Beach Hwy 501

In September 2016, we sold an outparcel at our outlet center in Myrtle Beach, South Carolina located near Highway 501 for net proceeds of approximately $2.9 million. The net proceeds are recorded as restricted cash as of September 30, 2016 because they are being held by a qualified intermediary under Section 1031 of the Internal Revenue Code of 1986, as amended.

The following table sets forth certain summarized information regarding the properties sold during the nine months ended September 30, 2016:
Properties
 
Locations
 
Date Sold
 
Square Feet
(in 000's)
 
Net Sales Price
(in 000's)
 
Gain on Sale(in 000's)
Operating Properties:
 
 
 
 
 
 
 
 
 
 
Sanibel Center
 
Fort Myers, Florida
 
January 2016
 
199

 
$
25,785

 
$
4,887

Nonoperating properties:
 
 
 
 
 
 
 
 
Outparcel
 
Myrtle Beach, South Carolina
 
September 2016
 

 
$
2,921

 
$
1,418

Total
 
 
 
 
 
199

 
$
28,706

 
$
6,305


The rental property sold did not meet the criteria for reporting discontinued operations, thus its results of operations have remained in continuing operations.



22



5. Developments of Consolidated Outlet Centers

The table below sets forth our consolidated outlet centers under development as of September 30, 2016:
Project
Approximate square feet
(in 000's)
Costs Incurred to Date
(in millions)
Borrowed to date
(in millions)
Projected Opening
New development
 
 
 
 
Daytona Beach
352

$
67.4

$

November 2016
Fort Worth
352

13.9


Holiday 2017
 
 
 
 
 
Expansion
 
 
 
 
Lancaster
123

10.2


Q3 2017
 
 
 
 
 
Total
827

$
91.5

$

 

Daytona Beach

In November 2015, we purchased land for approximately $9.9 million and commenced construction on the development of a wholly-owned outlet center in Daytona Beach, Florida.

Fort Worth

In September 2016, we purchased land in the greater Fort Worth, Texas area for approximately $11.2 million and began construction immediately on the development of a wholly-owned outlet center. The outlet center will be located within the 279-acre Champions Circle mixed-use development adjacent to Texas Motor Speedway.

Lancaster Expansion
In July 2016, we commenced construction on a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.


23




6. Investments in Unconsolidated Real Estate Joint Ventures
The equity method of accounting is used to account for each of the individual joint ventures. We have an ownership interest in the following unconsolidated real estate joint ventures:

As of September 30, 2016
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt, Net
(in millions)(1)
Columbus
 
Columbus, OH
 
50.0
%
 
355

 
$
44.3

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
4.7

 
86.0

RioCan Canada
 
Various
 
50.0
%
 
901

 
121.9

 
11.5

 
 
 
 
 
 
 
 
$
170.9

 
$
97.5

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(2.2
)
 
$
89.7

Galveston/Houston (3)
 
Texas City, TX
 
50.0
%
 
353

 
(3.3
)
 
64.8

 
 
 
 
 
 
 
 
$
(5.5
)
 
$
154.5


As of December 31, 2015
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt, Net
(in millions)
(1)
Columbus
 
Columbus, OH
 
50.0
%
 

 
$
21.1

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
6.1

 
85.8

RioCan Canada
 
Various
 
50.0
%
 
870

 
117.2

 
11.3

Savannah (2)
 
Savannah, GA
 
50.0
%
 
377

 
44.4

 
87.6

Westgate
 
Glendale, AZ
 
58.0
%
 
411

 
12.3

 
61.9

 
 
 
 
 
 
 
 
$
201.1

 
$
246.6

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(1.1
)
 
$
89.6

Galveston/Houston(3)
 
Texas City, TX
 
50.0
%
 
353

 
(1.5
)
 
64.7

 
 
 
 
 
 
 
 
$
(2.6
)
 
$
154.3


(1)
Net of debt origination costs and including premiums of $912,000 and $3.3 million as of September 30, 2016 and December 31, 2015, respectively.
(2)
Based on capital contribution and distribution provisions in the joint venture agreement, our economic interest in the venture's cash flow was greater than indicated in the Ownership column, which states our legal interest in this venture. As of December 31, 2015, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value, our estimated economic interest in the venture was approximately 98%. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from gains or losses of asset sales.
(3)
The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.


24



Fees we received for various services provided to our unconsolidated joint ventures were recognized in management, leasing and other services as follows (in thousands):
 
 
Three months ended

Nine months ended