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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 March 31, 2018
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 a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer", “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
Large accelerated filer x 
 
Accelerated filer o 
Non-accelerated filer o 
 
Smaller reporting company o 
(Do not check if a smaller reporting company)
 
Emerging growth company o
Tanger Properties Limited Partnership
Large accelerated filer o 
 
Accelerated filer o 
Non-accelerated filer x
 
Smaller reporting company o 
(Do not check if a smaller reporting company)
 
Emerging growth company o



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
o
Tanger Properties Limited Partnership
o
 
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 May 1, 2018, there were 94,382,583 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 March 31, 2018 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 March 31, 2018, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,382,583 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,995,433 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.

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.

2




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.

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.

3



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 March 31, 2018 and December 31, 2017
Consolidated Statements of Operations - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Shareholders' Equity - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Cash Flows - for the three months ended March 31, 2018 and 2017
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2018 and December 31, 2017
Consolidated Statements of Operations - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Equity - for the three months ended March 31, 2018 and 2017
Consolidated Statements of Cash Flows - for the three months ended March 31, 2018 and 2017
 
 
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 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 4. Mine Safety Disclosure
 
 
Item 6. Exhibits
 
 
Signatures

4



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)
 
 
March 31, 2018
 
December 31, 2017
Assets
 
 

 
 

Rental property:
 
 

 
 

Land
 
$
279,978

 
$
279,978

Buildings, improvements and fixtures
 
2,810,980

 
2,793,638

Construction in progress
 
615

 
14,854

 
 
3,091,573

 
3,088,470

Accumulated depreciation
 
(929,608
)
 
(901,967
)
Total rental property, net
 
2,161,965

 
2,186,503

Cash and cash equivalents
 
3,427

 
6,101

Investments in unconsolidated joint ventures
 
114,304

 
119,436

Deferred lease costs and other intangibles, net
 
127,493

 
132,061

Prepaids and other assets
 
98,669

 
96,004

Total assets
 
$
2,505,858

 
$
2,540,105

Liabilities and Equity
 
 
 
 
Liabilities
 
 

 
 

Debt:
 
 

 
 

Senior, unsecured notes, net
 
$
1,135,230

 
$
1,134,755

Unsecured term loan, net
 
323,082

 
322,975

Mortgages payable, net
 
90,109

 
99,761

Unsecured lines of credit, net
 
223,634

 
206,160

Total debt
 
1,772,055

 
1,763,651

Accounts payable and accrued expenses
 
66,405

 
90,416

Other liabilities
 
73,907

 
73,736

Total liabilities
 
1,912,367

 
1,927,803

Commitments and contingencies
 


 


Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.:
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 94,382,583 and 94,560,536 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
 
944

 
946

Paid in capital
 
776,753

 
784,782

Accumulated distributions in excess of net income 
 
(194,416
)
 
(184,865
)
Accumulated other comprehensive loss
 
(19,623
)
 
(19,285
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
563,658

 
581,578

Equity attributable to noncontrolling interests:
 
 
 
 
Noncontrolling interests in Operating Partnership
 
29,833

 
30,724

Noncontrolling interests in other consolidated partnerships
 

 

Total equity
 
593,491

 
612,302

Total liabilities and equity
 
$
2,505,858

 
$
2,540,105


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

5



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data, unaudited)
 
 
Three months ended March 31,
 
 
2018
 
2017
Revenues:
 
 
 
 
Base rentals
 
$
81,533

 
$
80,330

Percentage rentals
 
1,429

 
1,855

Expense reimbursements
 
38,280

 
36,598

Management, leasing and other services
 
613

 
579

Other income
 
1,680

 
2,006

Total revenues
 
123,535

 
121,368

Expenses:
 
 
 


Property operating
 
42,218

 
40,387

General and administrative
 
11,112

 
11,412

Abandoned pre-development costs
 

 
627

Depreciation and amortization
 
33,123

 
31,294

Total expenses
 
86,453

 
83,720

Operating income
 
37,082

 
37,648

Other income (expense):
 
 
 
 
Interest expense
 
(15,800
)
 
(16,487
)
Other non-operating income (expense)
 
209

 
35

Income before equity in earnings of unconsolidated joint ventures
 
21,491

 
21,196

Equity in earnings of unconsolidated joint ventures
 
2,194

 
2,318

Net income
 
23,685

 
23,514

Noncontrolling interests in Operating Partnership
 
(1,217
)
 
(1,178
)
Noncontrolling interests in other consolidated partnerships
 
370

 

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
22,838

 
$
22,336

 
 
 
 
 
Basic earnings per common share:
 
 
 
 
Net income
 
$
0.24

 
$
0.23

Diluted earnings per common share:
 
 
 
 
Net income
 
$
0.24

 
$
0.23

 
 
 
 
 
Dividends declared per common share
 
$
0.3425

 
$
0.3250

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

6



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2018
 
2017
Net income
 
$
23,685

 
$
23,514

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
 
(3,095
)
 
1,010

Change in fair value of cash flow hedges
 
2,739

 
722

Other comprehensive income (loss)
 
(356
)
 
1,732

Comprehensive income
 
23,329

 
25,246

Comprehensive income attributable to noncontrolling interests
 
(829
)
 
(1,247
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
22,500

 
$
23,999

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


7



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
Equity attributable to Tanger Factory Outlet Centers, Inc.
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance,
December 31, 2016
 
$
961

$
820,251

$
(122,701
)
$
(28,295
)
$
670,216

$
35,066

$
159

$
705,441

Net income
 


22,336


22,336

1,178


23,514

Other comprehensive income
 



1,663

1,663

69


1,732

Compensation under Incentive Award Plan
 

3,537



3,537



3,537

Issuance of 1,800 common shares upon exercise of options
 

54



54



54

Grant of 428,312 restricted common share awards, net of forfeitures
 
4

(4
)






Withholding of 69,886 common shares for employee income taxes
 

(2,435
)


(2,435
)


(2,435
)
Adjustment for noncontrolling interests in Operating Partnership
 

106



106

(106
)


Common dividends ($.325 per share)
 


(32,206
)

(32,206
)


(32,206
)
Distributions to noncontrolling interests
 





(1,634
)

(1,634
)
Balance,
March 31, 2017
 
$
965

$
821,509

$
(132,571
)
$
(26,632
)
$
663,271

$
34,573

$
159

$
698,003

 
 
 
 
 
 
 
 
 
 
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
Equity attributable to Tanger Factory Outlet Centers, Inc.
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance, December 31, 2017
 
$
946

$
784,782

$
(184,865
)
$
(19,285
)
$
581,578

$
30,724

$

$
612,302

Net income
 


22,838


22,838

1,217

(370
)
23,685

Other comprehensive loss
 



(338
)
(338
)
(18
)

(356
)
Compensation under Incentive Award Plan
 

3,656



3,656



3,656

Grant of 355,184 restricted common share awards, net of forfeitures
 
3

(3
)






Repurchase of 443,700 common shares, including transaction costs

 
(4
)
(9,994
)


(9,998
)


(9,998
)
Withholding of
89,437 common shares for employee income taxes
 
(1
)
(2,067
)


(2,068
)


(2,068
)
Contributions from noncontrolling interests
 






445

445

Adjustment for noncontrolling interests in Operating Partnership
 

379



379

(379
)


Common dividends
($.3425 per share)
 


(32,389
)

(32,389
)


(32,389
)
Distributions to noncontrolling interests
 





(1,711
)
(75
)
(1,786
)
Balance,
March 31, 2018
 
$
944

$
776,753

$
(194,416
)
$
(19,623
)
$
563,658

$
29,833

$

$
593,491


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




9



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2018
 
2017
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
23,685

 
$
23,514

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
33,123

 
31,294

Amortization of deferred financing costs
 
783

 
878

Equity in earnings of unconsolidated joint ventures
 
(2,194
)
 
(2,318
)
Equity-based compensation expense
 
3,392

 
3,292

Amortization of debt (premiums) and discounts, net
 
101

 
125

Amortization (accretion) of market rent rate adjustments, net
 
562

 
722

Straight-line rent adjustments
 
(1,948
)
 
(1,705
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
2,198

 
2,473

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
1,714

 
(909
)
Accounts payable and accrued expenses
 
(11,412
)
 
(761
)
Net cash provided by operating activities
 
50,004

 
56,605

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(19,714
)
 
(35,527
)
Additions to investments in unconsolidated joint ventures
 
(514
)
 
(1,371
)
Additions to non-real estate assets
 
(303
)
 
(6,949
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
4,494

 
3,313

Additions to deferred lease costs
 
(1,014
)
 
(1,430
)
Other investing activities
 
2,969

 
2,833

Net cash used in investing activities
 
(14,082
)
 
(39,131
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(32,389
)
 
(32,206
)
Distributions to noncontrolling interests in Operating Partnership
 
(1,711
)
 
(1,634
)
Proceeds from revolving credit facility
 
149,200

 
128,855

Repayments of revolving credit facility
 
(129,700
)
 
(117,500
)
Repayments of notes, mortgages and loans
 
(9,379
)
 
(736
)
Repurchase of common shares, including transaction costs
 
(9,998
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,068
)
 
(2,435
)
Additions to deferred financing costs
 
(2,606
)
 
(50
)
Proceeds from exercise of options
 

 
54

Proceeds from other financing activities
 
445

 
3,283

Payment for other financing activities
 
(362
)
 
(104
)
Net cash used in financing activities
 
(38,568
)
 
(22,473
)
Effect of foreign currency rate changes on cash and cash equivalents
 
(28
)
 
2

Net decrease in cash and cash equivalents
 
(2,674
)
 
(4,997
)
Cash and cash equivalents, beginning of period
 
6,101

 
12,222

Cash and cash equivalents, end of period
 
$
3,427

 
$
7,225

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

10



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data, unaudited)
 
 
March 31, 2018
 
December 31, 2017
Assets
 
 

 
 

Rental property:
 
 

 
 

Land
 
$
279,978

 
$
279,978

Buildings, improvements and fixtures
 
2,810,980

 
2,793,638

Construction in progress
 
615

 
14,854

 
 
3,091,573

 
3,088,470

Accumulated depreciation
 
(929,608
)
 
(901,967
)
Total rental property, net
 
2,161,965

 
2,186,503

Cash and cash equivalents
 
3,338

 
6,050

Investments in unconsolidated joint ventures
 
114,304

 
119,436

Deferred lease costs and other intangibles, net
 
127,493

 
132,061

Prepaids and other assets
 
97,860

 
95,384

Total assets
 
$
2,504,960

 
$
2,539,434

Liabilities and Equity
 

 
 
Liabilities
 
 
 
 
Debt:
 
 
 
 
Senior, unsecured notes, net
 
$
1,135,230

 
$
1,134,755

Unsecured term loan, net
 
323,082

 
322,975

Mortgages payable, net
 
90,109

 
99,761

Unsecured lines of credit, net
 
223,634

 
206,160

Total debt
 
1,772,055

 
1,763,651

Accounts payable and accrued expenses
 
65,507

 
89,745

Other liabilities
 
73,907

 
73,736

Total liabilities
 
1,911,469

 
1,927,132

Commitments and contingencies
 


 


Equity
 
 
 
 
Partners' Equity:
 
 
 
 
General partner, 1,000,000 units outstanding at March 31, 2018 and December 31, 2017
 
5,743

 
5,844

Limited partners, 4,995,433 and 4,995,433 Class A common units, and 93,382,583 and 93,560,536 Class B common units outstanding at March 31, 2018 and December 31, 2017, respectively
 
608,449

 
626,803

Accumulated other comprehensive loss
 
(20,701
)
 
(20,345
)
Total partners' equity
 
593,491

 
612,302

Noncontrolling interests in consolidated partnerships
 

 

Total equity
 
593,491

 
612,302

Total liabilities and equity
 
$
2,504,960

 
$
2,539,434

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

11



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended March 31,
 
 
2018
 
2017
Revenues:
 
 
 
 
Base rentals
 
$
81,533

 
$
80,330

Percentage rentals
 
1,429

 
1,855

Expense reimbursements
 
38,280

 
36,598

Management, leasing and other services
 
613

 
579

Other income
 
1,680

 
2,006

Total revenues
 
123,535

 
121,368

Expenses:
 
 
 
 
Property operating
 
42,218

 
40,387

General and administrative
 
11,112

 
11,412

Abandoned pre-development costs
 

 
627

Depreciation and amortization
 
33,123

 
31,294

Total expenses
 
86,453

 
83,720

Operating income
 
37,082

 
37,648

Other income (expense):
 
 
 
 
Interest expense
 
(15,800
)
 
(16,487
)
Other non-operating income (expense)
 
209

 
35

Income before equity in earnings of unconsolidated joint ventures
 
21,491

 
21,196

Equity in earnings of unconsolidated joint ventures
 
2,194

 
2,318

Net income
 
23,685

 
23,514

Noncontrolling interests in consolidated partnerships
 
370

 

Net income available to partners
 
24,055

 
23,514

Net income available to limited partners
 
23,814

 
23,281

Net income available to general partner
 
$
241

 
$
233

 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.24

 
$
0.23

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.24

 
$
0.23

 
 
 
 
 
Distribution declared per common unit
 
$
0.3425

 
$
0.3250

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

12



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

 
 
Three months ended March 31,
 
 
2018
 
2017
Net income
 
$
23,685

 
$
23,514

Other comprehensive income (loss):
 
 
 
 
Foreign currency translation adjustments
 
(3,095
)
 
1,010

Changes in fair value of cash flow hedges
 
2,739

 
722

Other comprehensive income (loss)
 
(356
)
 
1,732

Comprehensive income
 
23,329

 
25,246

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
370

 

Comprehensive income attributable to the Operating Partnership
 
$
23,699

 
$
25,246

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


13



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, 2016
 
$
6,485

$
728,631

$
(29,834
)
$
705,282

$
159

$
705,441

Net income
 
233

23,281


23,514


23,514

Other comprehensive income
 


1,732

1,732


1,732

Compensation under Incentive Award Plan
 

3,537


3,537


3,537

Issuance of 1,800 common units upon exercise of options
 

54


54


54

Grant of 428,312 restricted common share awards by the Company, net of forfeitures
 






Withholding of 69,886 common units for employee income taxes
 

(2,435
)

(2,435
)

(2,435
)
Common distributions ($.325 per common unit)
 
(325
)
(33,515
)

(33,840
)

(33,840
)
Distributions to noncontrolling interests
 






Balance, March 31, 2017
 
$
6,393

$
719,553

$
(28,102
)
$
697,844

$
159

$
698,003

 
 
 
 
 
 
 
 
 
 
General partner
Limited partners
Accumulated other comprehensive loss
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2017
 
$
5,844

$
626,803

$
(20,345
)
$
612,302

$

$
612,302

Net income
 
241

23,814


24,055

(370
)
23,685

Other comprehensive loss
 


(356
)
(356
)

(356
)
Compensation under Incentive Award Plan
 

3,656


3,656


3,656

Grant of 355,184 restricted common share awards by the Company
 






Repurchase of 443,700 units, including transaction costs
 

(9,998
)

(9,998
)

(9,998
)
Withholding of 89,437 common units for employee income taxes
 

(2,068
)

(2,068
)

(2,068
)
Contributions from noncontrolling interests
 




445

445

Common distributions ($.3425
 per common unit)
 
(342
)
(33,758
)

(34,100
)

(34,100
)
Distributions to noncontrolling interests
 




(75
)
(75
)
Balance, March 31, 2018
 
$
5,743

$
608,449

$
(20,701
)
$
593,491

$

$
593,491

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

14



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2018
 
2017
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
23,685

 
$
23,514

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
33,123

 
31,294

Amortization of deferred financing costs
 
783

 
878

Equity in earnings of unconsolidated joint ventures
 
(2,194
)
 
(2,318
)
Equity-based compensation expense
 
3,392

 
3,292

Amortization of debt (premiums) and discounts, net
 
101

 
125

Amortization (accretion) of market rent rate adjustments, net
 
562

 
722

Straight-line rent adjustments
 
(1,948
)
 
(1,705
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
2,198

 
2,473

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
1,903

 
(869
)
Accounts payable and accrued expenses
 
(11,639
)
 
(843
)
Net cash provided by operating activities
 
49,966

 
56,563

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(19,714
)
 
(35,527
)
Additions to investments in unconsolidated joint ventures
 
(514
)
 
(1,371
)
Additions to non-real estate assets
 
(303
)
 
(6,949
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
4,494

 
3,313

Additions to deferred lease costs
 
(1,014
)
 
(1,430
)
Other investing activities
 
2,969

 
2,833

Net cash used in investing activities
 
(14,082
)
 
(39,131
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(34,100
)
 
(33,840
)
Proceeds from revolving credit facility
 
149,200

 
128,855

Repayments of revolving credit facility
 
(129,700
)
 
(117,500
)
Repayments of notes, mortgages and loans
 
(9,379
)
 
(736
)
Repurchase of units, including transaction costs
 
(9,998
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,068
)
 
(2,435
)
Additions to deferred financing costs
 
(2,606
)
 
(50
)
Proceeds from exercise of options
 

 
54

Proceeds from other financing activities
 
445

 
3,283

Payment for other financing activities
 
(362
)
 
(104
)
Net cash used in financing activities
 
(38,568
)
 
(22,473
)
Effect of foreign currency on cash and cash equivalents
 
(28
)
 
2

Net decrease in cash and cash equivalents
 
(2,712
)
 
(5,039
)
Cash and cash equivalents, beginning of period
 
6,050

 
12,199

Cash and cash equivalents, end of period
 
$
3,338

 
$
7,160

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

15



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 March 31, 2018, we owned and operated 36 consolidated outlet centers, with a total gross leasable area of approximately 12.9 million square feet. We also had partial ownership interests in 8 unconsolidated outlet centers totaling approximately 2.4 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 is the sole general partner of the Operating Partnership. Tanger LP Trust holds a limited partnership interest. As of March 31, 2018, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,382,583 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,995,433 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, 2017. The December 31, 2017 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.


16



We consolidate properties that are wholly-owned and 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 investments in real estate joint ventures, 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.

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 because we are committed to provide further financial support to these joint ventures. 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.

"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.



17



3. 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 March 31, 2018
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

 
$
0.1

 
$
84.5

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
2.0

 
86.5

RioCan Canada
 
Various
 
50.0
%
 
923

 
112.2

 
10.6

Investments included in investments in unconsolidated joint ventures
 
 
 
 
 
$
114.3

 


 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(4.3
)
 
$
89.9

Galveston/Houston (2)
 
Texas City, TX
 
50.0
%
 
353

 
(14.7
)
 
79.5

Investments included in other liabilities
 
 
 
 
 
$
(19.0
)
 



As of December 31, 2017
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

 
$
1.1

 
$
84.4

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
2.5

 
86.4

RioCan Canada
 
Various
 
50.0
%
 
923

 
115.8

 
11.1

Investments included in investments in unconsolidated joint ventures
 
 
 
 
 
$
119.4

 


 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(4.1
)
 
$
89.8

Galveston/Houston (2)
 
Texas City, TX
 
50.0
%
 
353

 
(13.0
)
 
79.4

Investments included in other liabilities
 
 
 
 
 
$
(17.1
)
 


(1)
Net of debt origination costs and including premiums of $1.3 million and $1.4 million as of March 31, 2018 and December 31, 2017, respectively.
(2)
The negative carrying value is due to distributions exceeding contributions and increases or decreases from the equity in earnings of the joint venture.

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

 
 
March 31,

 
 
2018
 
2017

Fee:
 
 
 
 
 
Management and marketing
 
$
567

 
$
542

 
Leasing and other fees
 
46

 
37

 
Total Fees
 
$
613

 
$
579

 


18



Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the "Summary Balance Sheets - Unconsolidated Joint Ventures" shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $4.1 million and $4.2 million as of March 31, 2018 and December 31, 2017, respectively) are amortized over the various useful lives of the related assets.

Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint Ventures
 
March 31, 2018
 
December 31, 2017
Assets
 
 

 
 

Land
 
$
94,138

 
$
95,686

Buildings, improvements and fixtures
 
500,209

 
505,618

Construction in progress, including land under development
 
3,094

 
3,005

 
 
597,441

 
604,309

Accumulated depreciation
 
(98,614
)
 
(93,837
)
Total rental property, net
 
498,827

 
510,472

Cash and cash equivalents
 
19,848

 
25,061

Deferred lease costs and other intangibles, net
 
10,405

 
10,985

Prepaids and other assets
 
14,614

 
15,073

Total assets
 
$
543,694

 
$
561,591

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable, net
 
$
351,016

 
$
351,259

Accounts payable and other liabilities
 
11,289

 
14,680

Total liabilities
 
362,305

 
365,939

Owners' equity
 
181,389

 
195,652

Total liabilities and owners' equity
 
$
543,694

 
$
561,591



 
 
Three months ended
Condensed Combined Statements of Operations
 
March 31,
 - Unconsolidated Joint Ventures
 
2018
 
2017
Revenues
 
$
23,997

 
$
24,062

Expenses:
 
 
 
 
Property operating
 
9,928

 
9,378

General and administrative
 
198

 
120

Depreciation and amortization
 
6,363

 
7,513

Total expenses
 
16,489

 
17,011

Operating income
 
7,508

 
7,051

Interest expense
 
(3,077
)
 
(2,260
)
Other non-operating income
 
52

 
2

Net income
 
$
4,483

 
$
4,793

 
 
 
 
 
The Company and Operating Partnership's share of:
Net income
 
$
2,194

 
$
2,318

Depreciation and amortization expense (real estate related)
 
$
3,229

 
$
3,838



19



4. Debt Guaranteed by the Company

All of the Company's debt is held by the Operating Partnership and its consolidated subsidiaries.

The Company guarantees the Operating Partnership's obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $600.0 million. The Company also guarantees the Operating Partnership's unsecured term loan.

The Operating Partnership had the following principal amounts outstanding on the debt guaranteed by the Company (in thousands):
 
 
As of
 
 
March 31, 2018
 
December 31, 2017
Unsecured lines of credit
 
$
227,600

 
$
208,100

Unsecured term loan
 
$
325,000

 
$
325,000


5. Debt of the Operating Partnership

The debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
 
March 31, 2018
 
December 31, 2017
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Book Value(1)
 
Principal
 
Book Value(1)
Senior, unsecured notes:
 
 
 
 

 
 
 
 
 
 
Senior notes
 
3.875
%
 
December 2023
 
$
250,000

 
$
246,192

 
$
250,000

 
$
246,036

Senior notes
 
3.750
%
 
December 2024
 
250,000

 
247,498

 
250,000

 
247,410

Senior notes
 
3.125
%
 
September 2026
 
350,000

 
345,263

 
350,000

 
345,128

Senior notes
 
3.875
%
 
July 2027
 
300,000

 
296,277

 
300,000

 
296,182

 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable:
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City (2)(3)
 
5.14%-7.65%

 
November 2021- December 2026
 
36,682

 
39,001

 
37,462

 
39,879

     Southaven
 
LIBOR + 1.80%

 
April 2021
 
51,400

 
51,108

 
60,000

 
59,881

Unsecured term loan
 
LIBOR + 0.95%

 
April 2021
 
325,000

 
323,082

 
325,000

 
322,975

Unsecured lines of credit
 
LIBOR + 0.875%

 
October 2021
 
227,600

 
223,634

 
208,100

 
206,160

 
 
 
 
 
 
$
1,790,682

 
$
1,772,055

 
$
1,780,562

 
$
1,763,651

(1)
Including premiums and net of debt discount and debt origination costs.
(2)
The effective interest rate assigned during the purchase price allocation to the Atlantic City mortgages assumed during the acquisition in 2011 was 5.05%.
(3)
Principal and interest due monthly with remaining principal due at maturity.

Certain of our properties, which had a net book value of approximately $189.3 million at March 31, 2018, serve as collateral for mortgages payable. We maintain unsecured lines of credit that provide for borrowings of up to $600.0 million. The unsecured lines of credit include a $20.0 million liquidity line and a $580.0 million syndicated line. The syndicated line may be increased up to $1.2 billion through an accordion feature in certain circumstances. As of March 31, 2018, letters of credit totaling approximately $6.0 million were issued under the lines of credit.


20



We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. For construction and term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal.  The principal guarantees include terms for release or reduction based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. As of March 31, 2018, the maximum amount of unconsolidated joint venture debt guaranteed by the Company was $32.7 million.

The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. As of March 31, 2018, we were in compliance with all of our debt covenants.

Increased Borrowing Capacity and Extension of Unsecured Lines of Credit

In January 2018, we closed on amendments to our unsecured lines of credit, which increased the borrowing capacity from $520.0 million to $600.0 million and extended the maturity date from October 2019 to October 2021, with a one-year extension option. We also reduced the interest rate spread over LIBOR from 0.90% to 0.875%, and increased the incremental borrowing availability through an accordion feature on the syndicated line from $1.0 billion to $1.2 billion. Loan origination costs associated with the amendments totaled approximately $2.3 million.

Southaven Mortgage

In February 2018, the consolidated joint venture that owns the Tanger outlet center in Southaven, Mississippi amended and restated the $60.0 million mortgage loan secured by the property that was scheduled to mature in April 2018. The amended and restated loan reduced the principal balance to $51.4 million, increased the interest rate from LIBOR + 1.75% to LIBOR + 1.80% and extended the maturity to April 2021, with a two-year extension option. In March 2018, the consolidated joint venture entered into an interest rate swap, effective March 1, 2018, that fixed the base LIBOR rate at 2.47% on a notional amount of $40.0 million through January 31, 2021.

Debt Maturities

Maturities of the existing long-term debt as of March 31, 2018 for the next five years and thereafter are as follows (in thousands):
Calendar Year
 
Amount

2018
 
$
2,404

2019
 
3,369

2020
 
3,566

2021
 
609,793

2022
 
4,436

Thereafter
 
1,167,114

Subtotal
 
1,790,682

Net discount and debt origination costs
 
(18,627
)
Total
 
$
1,772,055

  

21



6. Derivative Financial Instruments

The following table summarizes the terms and fair values of our derivative financial instruments, as well as their classifications within the consolidated balance sheets (notional amounts and fair values in thousands):

 
 
 
 
 
 
 
 
 
 
Fair Value
Effective Date
 
Maturity Date
 
Notional Amount
 
Bank Pay Rate
 
Company Fixed Pay Rate
 
March 31, 2018
 
December 31, 2017
Assets (Liabilities)(1):
 
 
 
 
 
 
 
 
 
 
 
 
November 14, 2013
 
August 14, 2018
 
$
150,000

 
1 month LIBOR
 
1.30
%
 
$
369

 
$
326

April 13, 2016
 
January 1, 2021
 
175,000

 
1 month LIBOR
 
1.03
%
 
6,636

 
5,207

March 1, 2018
 
January 31, 2021
 
40,000

 
1 month LIBOR
 
2.47
%
 
(32
)
 

August 14, 2018
 
January 1, 2021
 
150,000

 
1 month LIBOR
 
2.20
%
 
1,111

 
(188
)
Total
 
 
 
$
515,000

 
 
 
 
 
$
8,084

 
$
5,345

(1)
Asset balances are recorded in prepaids and other assets on the consolidated balance sheets and liabilities are recorded in other liabilities on the consolidated balance sheets.


The derivative financial instruments are comprised of interest rate swaps, which are designated and qualify as cash flow hedges, each with a separate counterparty. We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as hedges.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, if significant, is recognized directly in earnings. For the three months ended March 31, 2018 and 2017, the ineffective portion was not significant.

The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
 
 
Three months ended March 31,
 
 
2018
 
2017
Interest Rate Swaps (Effective Portion):
 

 

Amount of gain recognized in OCI on derivative
 
$
2,739

 
$
722


7. Fair Value Measurements

Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Tier
 
Description
Level 1
 
Observable inputs such as quoted prices in active markets
Level 2
 
Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3
 
Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions


22



The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
 
 
Total
 
 
 
Fair value as of March 31, 2018:
 
 
 
 
 
 
 
 
Asset:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
8,116

 
$

 
$
8,116

 
$

Total assets
 
$
8,116

 
$

 
$
8,116

 
$

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps (other liabilities)
 
$
32

 
$

 
$
32

 
$

Total liabilities
 
$
32

 
$

 
$
32

 
$


 
 
 
 
Level 1
 
Level 2
 
Level 3
 
 
 
 
Quoted Prices in Active Markets for Identical Assets or Liabilities
 
Significant Observable Inputs
 
Significant Unobservable Inputs
 
 
Total
 
 
 
Fair value as of December 31, 2017:
 
 
 
 
 
 
 
 
Asset:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
5,533

 
$

 
$
5,533

 
$

Total assets
 
$
5,533

 
$

 
$
5,533

 
$

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps (other liabilities)
 
$
188

 
$

 
$
188

 
$

Total liabilities
 
$
188

 
$

 
$
188

 
$


Fair values of interest rate swaps are approximated using Level 2 inputs based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well recognized financial principles including counterparty risks, credit spreads and interest rate projections, as well as reasonable estimates about relevant future market conditions.

The estimated fair value within the fair value hierarchy and recorded value of our debt consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit were as follows (in thousands):

 
 
March 31, 2018
 
December 31, 2017
Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities
 
$

 
$

Level 2 Significant Observable Inputs
 
1,096,355

 
1,139,064

Level 3 Significant Unobservable Inputs
 
644,249

 
636,476

Total fair value of debt
 
$
1,740,604

 
$
1,775,540

 
 
 
 
 
Recorded value of debt
 
$
1,772,055

 
$
1,763,651



23



Our senior unsecured notes are publicly-traded which provides quoted market rates. However, due to the limited trading volume of these notes, we have classified these instruments as Level 2 in the hierarchy. Our other debt is classified as Level 3 given the unobservable inputs utilized in the valuation. Our unsecured term loan, unsecured lines of credit and variable interest rate mortgages are all LIBOR based instruments. When selecting the discount rates for purposes of estimating the fair value of these instruments, we evaluated the original credit spreads and do not believe that the use of them differs materially from current credit spreads for similar instruments and therefore the recorded values of these debt instruments is considered their fair value.

The carrying values of cash and cash equivalents, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.

8. Share Repurchase Program

In May 2017, we announced that our Board of Directors authorized the repurchase of up to $125.0 million of our outstanding common shares as market conditions warrant over a period commencing on May 19, 2017 and expiring on May 18, 2019.  Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18.  The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. During the first quarter of 2018, we repurchased approximately 443,700 common shares on the open market at an average price of $22.52, totaling approximately $10.0 million, exclusive of commissions and related fees. The remaining amount authorized to be repurchased under the program as of March 31, 2018 was approximately $65.7 million.

9. Partners' Equity of the Operating Partnership

All units of partnership interest issued by the Operating Partnership have equal rights with respect to earnings, dividends and net assets. When the Company issues common shares upon the exercise of options, the grant of restricted common share awards, or the exchange of Class A common limited partnership units, the Operating Partnership issues a corresponding number of Class B common limited partnership units to Tanger LP Trust, a wholly-owned subsidiary of the Company. Likewise, when the Company repurchases its outstanding common shares, the Operating Partnership repurchases a corresponding number or Class B common limited partnership units held by Tanger LP Trust.

The following table sets forth the changes in outstanding partnership units for the three months ended March 31, 2018 and March 31, 2017:
 
 
 
 
Limited Partnership Units