United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 30, 2013
OR
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| 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)
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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.) |
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3200 Northline Avenue, Suite 360, Greensboro, NC 27408 |
(Address of principal executive offices) |
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(336) 292-3010 |
(Registrant's telephone number) |
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.
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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).
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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).
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Tanger Factory Outlet Centers, Inc. | | | | |
x Large accelerated filer | | o Accelerated filer | | o Non-accelerated filer | | o Smaller reporting company |
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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).
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Tanger Factory Outlet Centers, Inc. | Yes o No x |
Tanger Properties Limited Partnership | Yes o No x |
As of October 31, 2013, there were 94,478,785 common shares of Tanger Factory Outlet Centers, Inc. outstanding, $.01 par value.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2013 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. 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.
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, 2013, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,478,785 units of the Operating Partnership and other limited partners collectively owned 5,145,012 units. Each unit held by the other limited partners is exchangeable for one common share of the Company, subject to certain limitations to preserve the Company's REIT status.
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 the 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:
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• | 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; |
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• | 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 |
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• | creating time and cost efficiencies through the preparation of one combined report instead of two separate reports. |
There are a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important to understand the 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, 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 substantially all the assets of the Company and holds the ownership interests in the Company's 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 required to be 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 partners' equity 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 limited partners other than Tanger LP Trust are accounted for as partners' equity 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 for each of the Company and the Operating Partnership:
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• | Consolidated financial statements; |
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• | The following notes to the consolidated financial statements: |
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• | Debt of the Company and the Operating Partnership; |
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• | Shareholders' Equity and Partners' Equity; |
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• | Earnings Per Share and Earnings Per Unit; |
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• | Accumulated Other Comprehensive Income of the Company and the Operating Partnership |
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• | 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.
In order to highlight the differences between the Company and the Operating Partnership, 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.
As the 100% owner of Tanger GP Trust, the general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. 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.
TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
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| Page Number |
Part I. Financial Information |
Item 1. | |
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited) | |
Consolidated Balance Sheets - as of September 30, 2013 and December 31, 2012 | |
Consolidated Statements of Operations - for the three and nine months ended September 30, 2013 and 2012 | |
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2013 and 2012 | |
Consolidated Statements of Equity - for the nine months ended September 30, 2013 and the year ended December 31, 2012 | |
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2013 and 2012 | |
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FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited) | |
Consolidated Balance Sheets - as of September 30, 2013 and December 31, 2012 | |
Consolidated Statements of Operations - for the three and nine months ended September 30, 2013 and 2012 | |
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2013 and 2012 | |
Consolidated Statements of Equity - for the nine months ended September 30, 2013 and the year ended December 31, 2012 | |
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2013 and 2012 | |
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Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership | |
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations | |
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Item 3. Quantitative and Qualitative Disclosures about Market Risk | |
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Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership) | |
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Part II. Other Information |
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Item 1. Legal Proceedings | |
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Item 1A. Risk Factors | |
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Item 4. Mine Safety Disclosure | |
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Item 6. Exhibits | |
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Signatures | |
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 and per share data, unaudited) |
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| | September 30, 2013 | | December 31, 2012 |
ASSETS | | |
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Rental property | | |
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Land | | $ | 230,417 |
| | $ | 148,002 |
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Buildings, improvements and fixtures | | 2,004,882 |
| | 1,796,042 |
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Construction in progress | | 4,375 |
| | 3,308 |
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| | 2,239,674 |
| | 1,947,352 |
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Accumulated depreciation | | (636,035 | ) | | (582,859 | ) |
Total rental property, net | | 1,603,639 |
| | 1,364,493 |
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Cash and cash equivalents | | 10,482 |
| | 10,335 |
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Investments in unconsolidated joint ventures | | 136,922 |
| | 126,632 |
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Deferred lease costs and other intangibles, net | | 171,702 |
| | 107,415 |
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Deferred debt origination costs, net | | 7,275 |
| | 9,083 |
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Prepaids and other assets | | 71,943 |
| | 60,842 |
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Total assets | | $ | 2,001,963 |
| | $ | 1,678,800 |
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LIABILITIES AND EQUITY | | | | |
Liabilities | | |
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Debt | | |
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Senior, unsecured notes (net of discount of $1,753 and $1,967, respectively) | | $ | 548,247 |
| | $ | 548,033 |
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Unsecured term loans (net of discount of $435 and $547, respectively) | | 267,065 |
| | 259,453 |
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Mortgages payable (including premiums of $3,963 and $6,362, respectively) | | 251,533 |
| | 107,745 |
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Unsecured lines of credit | | 259,000 |
| | 178,306 |
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Total debt | | 1,325,845 |
| | 1,093,537 |
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Construction trade payables | | 5,272 |
| | 7,084 |
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Accounts payable and accrued expenses | | 48,400 |
| | 41,149 |
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Deferred financing obligation | | 28,388 |
| | — |
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Other liabilities | | 33,101 |
| | 23,155 |
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Total liabilities | | 1,441,006 |
| | 1,164,925 |
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Commitments and contingencies | |
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Equity | | |
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Tanger Factory Outlet Centers, Inc. | | |
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Common shares, $.01 par value, 300,000,000 shares authorized, 94,478,785 and 94,061,384 shares issued and outstanding at September 30, 2013 and December 31, 2012, respectively | | 945 |
| | 941 |
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Paid in capital | | 785,515 |
| | 766,056 |
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Accumulated distributions in excess of net income | | (262,173 | ) | | (285,588 | ) |
Accumulated other comprehensive income | | 1,179 |
| | 1,200 |
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Equity attributable to Tanger Factory Outlet Centers, Inc. | | 525,466 |
| | 482,609 |
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Equity attributable to noncontrolling interests | | | | |
Noncontrolling interests in Operating Partnership | | 28,615 |
| | 24,432 |
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Noncontrolling interests in other consolidated partnerships | | 6,876 |
| | 6,834 |
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Total equity | | 560,957 |
| | 513,875 |
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Total liabilities and equity | | $ | 2,001,963 |
| | $ | 1,678,800 |
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The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data, unaudited)
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| | Three months ended September 30, | | Nine months ended September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Revenues | | | | | | |
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Base rentals | | $ | 64,301 |
| | $ | 59,662 |
| | $ | 184,591 |
| | $ | 175,464 |
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Percentage rentals | | 3,084 |
| | 3,180 |
| | 6,956 |
| | 6,542 |
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Expense reimbursements | | 27,414 |
| | 24,908 |
| | 78,544 |
| | 73,777 |
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Other income | | 3,104 |
| | 2,733 |
| | 7,516 |
| | 6,278 |
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Total revenues | | 97,903 |
| | 90,483 |
| | 277,607 |
| | 262,061 |
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Expenses | | | |
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Property operating | | 29,863 |
| | 27,614 |
| | 86,819 |
| | 81,679 |
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General and administrative | | 9,754 |
| | 9,018 |
| | 29,240 |
| | 27,737 |
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Acquisition costs | | 532 |
| | — |
| | 963 |
| | — |
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Depreciation and amortization | | 24,223 |
| | 24,809 |
| | 68,683 |
| | 75,247 |
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Total expenses | | 64,372 |
| | 61,441 |
| | 185,705 |
| | 184,663 |
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Operating income | | 33,531 |
| | 29,042 |
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| 91,902 |
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| 77,398 |
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Interest expense | | (12,367 | ) | | (12,317 | ) | | (37,826 | ) | | (37,062 | ) |
Gain on previously held interest in acquired joint venture | | 26,002 |
| | — |
| | 26,002 |
| | — |
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Income before equity in earnings (losses) of unconsolidated joint ventures | | 47,166 |
| | 16,725 |
| | 80,078 |
| | 40,336 |
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Equity in earnings (losses) of unconsolidated joint ventures | | 9,014 |
| | (555 | ) | | 10,107 |
| | (2,874 | ) |
Net income | | 56,180 |
| | 16,170 |
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| 90,185 |
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| 37,462 |
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Noncontrolling interests in Operating Partnership | | (2,787 | ) | | (836 | ) | | (4,435 | ) | | (2,315 | ) |
Noncontrolling interests in other consolidated partnerships | | (99 | ) | | (7 | ) | | (129 | ) | | 25 |
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Net income attributable to Tanger Factory Outlet Centers, Inc. | | $ | 53,294 |
| | $ | 15,327 |
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| $ | 85,621 |
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| $ | 35,172 |
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Basic earnings per common share | | | | | | |
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Net income | | $ | 0.56 |
| | $ | 0.16 |
| | $ | 0.91 |
| | $ | 0.38 |
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Diluted earnings per common share | | | | | | | | |
Net income | | $ | 0.56 |
| | $ | 0.16 |
| | $ | 0.90 |
| | $ | 0.37 |
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Dividends paid per common share | | $ | 0.225 |
| | $ | 0.210 |
| | $ | 0.660 |
| | $ | 0.620 |
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The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
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| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Net income | | $ | 56,180 |
| | $ | 16,170 |
| | $ | 90,185 |
| | $ | 37,462 |
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Other comprehensive income (loss) | | | | | | | |
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Reclassification adjustments for amounts recognized in net income | | (94 | ) | | (88 | ) | | (147 | ) | | (261 | ) |
Foreign currency translation adjustments | | (79 | ) | | (73 | ) | | 124 |
| | (39 | ) |
Other comprehensive income (loss) | | (173 | ) | | (161 | ) | | (23 | ) | | (300 | ) |
Comprehensive income | | 56,007 |
| | 16,009 |
| | 90,162 |
| | 37,162 |
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Comprehensive income attributable to noncontrolling interests | | (2,877 | ) | | (835 | ) | | (4,562 | ) | | (2,273 | ) |
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc. | | $ | 53,130 |
| | $ | 15,174 |
| | $ | 85,600 |
| | $ | 34,889 |
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The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except share and per share data, unaudited)
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| | Common shares | Paid in capital | Accumulated distributions in excess of earnings | Accumulated other comprehensive income | Total Tanger Factory Outlet Centers, Inc. equity | Noncontrolling interests in Operating Partnership | Noncontrolling interests in other consolidated partnerships | Total equity |
Balance, December 31, 2011 | | $ | 867 |
| $ | 720,073 |
| $ | (261,913 | ) | $ | 1,535 |
| $ | 460,562 |
| $ | 61,027 |
| $ | 6,843 |
| $ | 528,432 |
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Net income | | — |
| — |
| 53,228 |
| — |
| 53,228 |
| 3,267 |
| (19 | ) | 56,476 |
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Other comprehensive loss | | — |
| — |
| — |
| (335 | ) | (335 | ) | (21 | ) | — |
| (356 | ) |
Compensation under Incentive Award Plan | | — |
| 10,676 |
| — |
| — |
| 10,676 |
| — |
| — |
| 10,676 |
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Issuance of 37,700 common shares upon exercise of options | | — |
| 481 |
| — |
| — |
| 481 |
| — |
| — |
| 481 |
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Grant of 566,000 restricted shares, net of forfeitures | | 6 |
| (6 | ) | — |
| — |
| — |
| — |
| — |
| — |
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Adjustment for noncontrolling interests in Operating Partnership | | — |
| 34,910 |
| — |
| — |
| 34,910 |
| (34,910 | ) | — |
| — |
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Adjustment for noncontrolling interests in other consolidated partnerships | | — |
| (10 | ) | — |
| — |
| (10 | ) | — |
| 10 |
| — |
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Exchange of 6,730,028 Operating Partnership units for 6,730,028 common shares | | 68 |
| (68 | ) | — |
| — |
| — |
| — |
| — |
| — |
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Common dividends ($0.83 per share) | | — |
| — |
| (76,903 | ) | — |
| (76,903 | ) | — |
| — |
| (76,903 | ) |
Distributions to noncontrolling interest in Operating Partnership | | — |
| — |
| — |
| — |
| — |
| (4,931 | ) | — |
| (4,931 | ) |
Balance, December 31, 2012 | | $ | 941 |
| $ | 766,056 |
| $ | (285,588 | ) | $ | 1,200 |
| $ | 482,609 |
| $ | 24,432 |
| $ | 6,834 |
| $ | 513,875 |
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TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In thousands, except share and per share data, unaudited) (Continued) |
| | Common shares | Paid in capital | Accumulated distributions in excess of earnings | Accumulated other comprehensive income | Total Tanger Factory Outlet Centers, Inc. equity | Noncontrolling interests in Operating Partnership | Noncontrolling interests in other consolidated partnerships | Total equity |
Balance, December 31, 2012 | | $ | 941 |
| $ | 766,056 |
| $ | (285,588 | ) | $ | 1,200 |
| $ | 482,609 |
| $ | 24,432 |
| $ | 6,834 |
| $ | 513,875 |
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Net income | | — |
| — |
| 85,621 |
| — |
| 85,621 |
| 4,435 |
| 129 |
| 90,185 |
|
Other comprehensive loss | | — |
| — |
| — |
| (21 | ) | (21 | ) | (2 | ) | — |
| (23 | ) |
Compensation under Incentive Award Plan | | — |
| 8,614 |
| — |
| — |
| 8,614 |
| — |
| — |
| 8,614 |
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Issuance of 17,600 common shares upon exercise of options | | — |
| 332 |
| — |
| — |
| 332 |
| — |
| — |
| 332 |
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Issuance of 450,576 Operating Partnership limited partner units | | — |
| — |
| — |
| — |
| — |
| 13,981 |
| — |
| 13,981 |
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Grant of 337,373 restricted shares, net of forfeitures | | 3 |
| (3 | ) | — |
| — |
| — |
| — |
| — |
| — |
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Adjustment for noncontrolling interests in Operating Partnership | | — |
| 11,095 |
| — |
| — |
| 11,095 |
| (11,095 | ) | — |
| — |
|
Adjustment for noncontrolling interests in other consolidated partnerships | | — |
| (578 | ) | — |
| — |
| (578 | ) | — |
| 578 |
| — |
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Acquisition of noncontrolling interests in other consolidated partnerships | | — |
| — |
| — |
| — |
| — |
| — |
| (525 | ) | (525 | ) |
Exchange of 67,428 Operating Partnership units for 67,428 common shares | | 1 |
| (1 | ) | — |
| — |
| — |
| — |
| — |
| — |
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Common dividends ($.66 per share) | | — |
| — |
| (62,206 | ) | — |
| (62,206 | ) | — |
| — |
| (62,206 | ) |
Distributions to noncontrolling interests in Operating Partnership | | — |
| — |
| — |
| — |
| — |
| (3,136 | ) | (140 | ) | (3,276 | ) |
Balance, September 30, 2013 | | $ | 945 |
| $ | 785,515 |
| $ | (262,173 | ) | $ | 1,179 |
| $ | 525,466 |
| $ | 28,615 |
| $ | 6,876 |
| $ | 560,957 |
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The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
|
| | | | | | | | |
| | Nine months ended |
| | September 30, |
| | 2013 | | 2012 |
OPERATING ACTIVITIES | | | | |
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Net income | | $ | 90,185 |
| | $ | 37,462 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | |
Depreciation and amortization | | 68,683 |
| | 75,247 |
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Amortization of deferred financing costs | | 1,795 |
| | 1,722 |
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Gain on previously held interest in acquired joint venture | | (26,002 | ) | | — |
|
Equity in (earnings) losses of unconsolidated joint ventures | | (10,107 | ) | | 2,874 |
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Distributions of cumulative earnings from unconsolidated joint ventures | | 4,415 |
| | 740 |
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Share-based compensation expense | | 8,363 |
| | 8,231 |
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Amortization of debt (premiums) and discounts, net | | (767 | ) | | (753 | ) |
Net amortization (accretion) of market rent rate adjustments | | 389 |
| | (489 | ) |
Straight-line rent adjustments | | (4,068 | ) | | (2,866 | ) |
Changes in other assets and liabilities: | | | | |
Other assets | | 236 |
| | (1,336 | ) |
Accounts payable and accrued expenses | | 3,947 |
| | 8,331 |
|
Net cash provided by operating activities | | 137,069 |
| | 129,163 |
|
INVESTING ACTIVITIES | | | | |
Additions to rental property | | (40,578 | ) | | (31,157 | ) |
Acquisition of interest in unconsolidated joint venture, net of cash acquired | | (11,271 | ) | | — |
|
Additions to investments in and notes receivable from unconsolidated joint ventures | | (140,373 | ) | | (57,810 | ) |
Additions to non-real estate assets | | (7,768 | ) | | — |
|
Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 45,891 |
| | 336 |
|
Additions to deferred lease costs | | (3,381 | ) | | (3,430 | ) |
Net cash used in investing activities | | (157,480 | ) | | (92,061 | ) |
FINANCING ACTIVITIES | | | | |
Cash dividends paid | | (62,206 | ) | | (57,202 | ) |
Distributions to noncontrolling interests in Operating Partnership | | (3,136 | ) | | (3,900 | ) |
Proceeds from debt issuances | | 500,003 |
| | 491,477 |
|
Repayments of debt | | (413,806 | ) | | (463,705 | ) |
Acquisition of noncontrolling interests in other consolidated partnerships | | (525 | ) | | — |
|
Distributions to noncontrolling interests in other consolidated partnerships | | (67 | ) | | — |
|
Additions to deferred financing costs | | (37 | ) | | (2,527 | ) |
Proceeds from exercise of options | | 332 |
| | 372 |
|
Net cash provided by (used in) financing activities | | 20,558 |
| | (35,485 | ) |
Net increase in cash and cash equivalents | | 147 |
| | 1,617 |
|
Cash and cash equivalents, beginning of period | | 10,335 |
| | 7,894 |
|
Cash and cash equivalents, end of period | | $ | 10,482 |
| | $ | 9,511 |
|
The accompanying notes are an integral part of these consolidated financial statements.
Item 1 - Financial Statements of Tanger Properties Limited Partnership
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
|
| | | | | | | | |
| | September 30, 2013 | | December 31, 2012 |
ASSETS | | |
| | |
|
Rental property | | |
| | |
|
Land | | $ | 230,417 |
| | $ | 148,002 |
|
Buildings, improvements and fixtures | | 2,004,882 |
| | 1,796,042 |
|
Construction in progress | | 4,375 |
| | 3,308 |
|
| | 2,239,674 |
| | 1,947,352 |
|
Accumulated depreciation | | (636,035 | ) | | (582,859 | ) |
Total rental property, net | | 1,603,639 |
| | 1,364,493 |
|
Cash and cash equivalents | | 10,458 |
| | 10,295 |
|
Investments in unconsolidated joint ventures | | 136,922 |
| | 126,632 |
|
Deferred lease costs and other intangibles, net | | 171,702 |
| | 107,415 |
|
Deferred debt origination costs, net | | 7,275 |
| | 9,083 |
|
Prepaids and other assets | | 71,531 |
| | 60,408 |
|
Total assets | | $ | 2,001,527 |
| | $ | 1,678,326 |
|
LIABILITIES AND EQUITY | |
| | |
Liabilities | | | | |
Debt | | | | |
Senior, unsecured notes (net of discount of $1,753 and $1,967, respectively) | | $ | 548,247 |
| | $ | 548,033 |
|
Unsecured term loans (net of discount of $435 and $547, respectively) | | 267,065 |
| | 259,453 |
|
Mortgages payable (including premiums of $3,963 and $6,362, respectively) | | 251,533 |
| | 107,745 |
|
Unsecured lines of credit | | 259,000 |
| | 178,306 |
|
Total debt | | 1,325,845 |
| | 1,093,537 |
|
Construction trade payables | | 5,272 |
| | 7,084 |
|
Accounts payable and accrued expenses | | 47,964 |
| | 40,675 |
|
Deferred financing obligation | | 28,388 |
| | — |
|
Other liabilities | | 33,101 |
| | 23,155 |
|
Total liabilities | | 1,440,570 |
| | 1,164,451 |
|
Commitments and contingencies | |
|
| |
|
|
Equity | | | | |
Partners' Equity | | | | |
General partner | | 4,978 |
| | 4,720 |
|
Limited partners | | 548,019 |
| | 501,214 |
|
Accumulated other comprehensive income | | 1,084 |
| | 1,107 |
|
Total partners' equity | | 554,081 |
| | 507,041 |
|
Noncontrolling interests in consolidated partnerships | | 6,876 |
| | 6,834 |
|
Total equity | | 560,957 |
| | 513,875 |
|
Total liabilities and equity | | $ | 2,001,527 |
| | $ | 1,678,326 |
|
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERITES 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, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Revenues | | | | | | |
| | |
Base rentals | | $ | 64,301 |
| | $ | 59,662 |
| | $ | 184,591 |
| | $ | 175,464 |
|
Percentage rentals | | 3,084 |
| | 3,180 |
| | 6,956 |
| | 6,542 |
|
Expense reimbursements | | 27,414 |
| | 24,908 |
| | 78,544 |
| | 73,777 |
|
Other income | | 3,104 |
| | 2,733 |
| | 7,516 |
| | 6,278 |
|
Total revenues | | 97,903 |
| | 90,483 |
|
| 277,607 |
|
| 262,061 |
|
Expenses | |
|
| |
|
| |
|
| | |
Property operating | | 29,863 |
| | 27,614 |
| | 86,819 |
| | 81,679 |
|
General and administrative | | 9,754 |
| | 9,018 |
| | 29,240 |
| | 27,737 |
|
Acquisition costs | | 532 |
| | — |
| | 963 |
| | — |
|
Depreciation and amortization | | 24,223 |
| | 24,809 |
| | 68,683 |
| | 75,247 |
|
Total expenses | | 64,372 |
| | 61,441 |
|
| 185,705 |
|
| 184,663 |
|
Operating income | | 33,531 |
| | 29,042 |
|
| 91,902 |
|
| 77,398 |
|
Interest expense | | (12,367 | ) | | (12,317 | ) | | (37,826 | ) | | (37,062 | ) |
Gain on previously held interest in acquired joint venture | | 26,002 |
| | — |
| | 26,002 |
| | — |
|
Income before equity in earnings (losses) of unconsolidated joint ventures | | 47,166 |
| | 16,725 |
|
| 80,078 |
|
| 40,336 |
|
Equity in earnings (losses) of unconsolidated joint ventures | | 9,014 |
| | (555 | ) | | 10,107 |
| | (2,874 | ) |
Net income | | 56,180 |
| | 16,170 |
|
| 90,185 |
|
| 37,462 |
|
Noncontrolling interests in consolidated partnerships | | (99 | ) | | (7 | ) | | (129 | ) | | 25 |
|
Net income available to partners | | 56,081 |
| | 16,163 |
|
| 90,056 |
|
| 37,487 |
|
Net income available to limited partners | | 55,510 |
| | 15,998 |
| | 89,138 |
| | 37,103 |
|
Net income available to general partner | | $ | 571 |
| | $ | 165 |
|
| $ | 918 |
|
| $ | 384 |
|
| | | | | | | | |
Basic earnings per common unit: | | | | | | | | |
|
Net income | | $ | 0.56 |
| | $ | 0.16 |
| | $ | 0.91 |
| | $ | 0.38 |
|
Diluted earnings per common unit: | | | | | | | | |
|
Net income | | $ | 0.56 |
| | $ | 0.16 |
| | $ | 0.90 |
| | $ | 0.37 |
|
| | | | | | | | |
Distribution paid per common unit | | $ | 0.225 |
| | $ | 0.210 |
| | $ | 0.660 |
| | $ | 0.620 |
|
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Net income | | $ | 56,180 |
| | $ | 16,170 |
| | $ | 90,185 |
| | $ | 37,462 |
|
Other comprehensive income (loss) | | | | | | | | |
Reclassification adjustments for amounts recognized in net income | | (94 | ) | | (88 | ) | | (147 | ) | | (261 | ) |
Foreign currency translation adjustments | | (79 | ) | | (73 | ) | | 124 |
| | (39 | ) |
Other comprehensive income (loss) | | (173 | ) | | (161 | ) | | (23 | ) | | (300 | ) |
Comprehensive income | | 56,007 |
| | 16,009 |
| | 90,162 |
| | 37,162 |
|
Comprehensive income attributable to noncontrolling interests in consolidated partnerships | | (99 | ) | | (7 | ) | | (129 | ) | | 25 |
|
Comprehensive income attributable to the Operating Partnership | | $ | 55,908 |
| | $ | 16,002 |
| | $ | 90,033 |
| | $ | 37,187 |
|
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)
|
| | | | | | | | | | | | | | | | | | | |
| | General partner | Limited partners | Accumulated other comprehensive income | Total partners' equity | Noncontrolling interests in consolidated partnerships | Total equity |
Balance, December 31, 2011 | | $ | 4,972 |
| $ | 515,154 |
| $ | 1,463 |
| $ | 521,589 |
| $ | 6,843 |
| $ | 528,432 |
|
Net income | | 578 |
| 55,917 |
| — |
| 56,495 |
| (19 | ) | 56,476 |
|
Other comprehensive loss | | — |
| — |
| (356 | ) | (356 | ) | — |
| (356 | ) |
Compensation under Incentive Award Plan | | — |
| 10,676 |
| — |
| 10,676 |
| — |
| 10,676 |
|
Issuance of 37,700 common units upon exercise of options | | — |
| 481 |
| — |
| 481 |
| — |
| 481 |
|
Grant of 566,000 restricted units, net of forfeitures | | — |
| — |
| — |
| — |
| — |
| — |
|
Adjustments for noncontrolling interests in consolidated partnerships | | — |
| (10 | ) | — |
| (10 | ) | 10 |
| — |
|
Common distributions ($.83 per common unit) | | (830 | ) | (81,004 | ) | — |
| (81,834 | ) | — |
| (81,834 | ) |
Balance, December 31, 2012 | | 4,720 |
| 501,214 |
| 1,107 |
| 507,041 |
| 6,834 |
| 513,875 |
|
Net income | | 918 |
| 89,138 |
| — |
| 90,056 |
| 129 |
| 90,185 |
|
Other comprehensive income | | — |
| — |
| (23 | ) | (23 | ) | — |
| (23 | ) |
Compensation under Incentive Award Plan | | — |
| 8,614 |
| — |
| 8,614 |
| — |
| 8,614 |
|
Issuance of 17,600 common units upon exercise of options | | — |
| 332 |
| — |
| 332 |
| — |
| 332 |
|
Issuance of 450,576 limited partner units | | — |
| 13,981 |
| — |
| 13,981 |
| — |
| 13,981 |
|
Grant of 337,373 restricted units, net of forfeitures | | — |
| — |
| — |
| — |
| — |
| — |
|
Adjustment for noncontrolling interests in other consolidated partnerships | | — |
| (578 | ) | — |
| (578 | ) | 578 |
| — |
|
Acquisition of noncontrolling interests in other consolidated partnerships | | — |
| — |
| — |
| — |
| (525 | ) | (525 | ) |
Common distributions ($.66 per common unit) | | (660 | ) | (64,682 | ) | — |
| (65,342 | ) | (140 | ) | (65,482 | ) |
Balance, September 30, 2013 | | $ | 4,978 |
| $ | 548,019 |
| $ | 1,084 |
| $ | 554,081 |
| $ | 6,876 |
| $ | 560,957 |
|
| | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
|
| | | | | | | | |
| | Nine months ended |
| | September 30, |
| | 2013 | | 2012 |
OPERATING ACTIVITIES | | |
| | |
|
Net income | | $ | 90,185 |
| | $ | 37,462 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
|
|
Depreciation and amortization | | 68,683 |
| | 75,247 |
|
Amortization of deferred financing costs | | 1,795 |
| | 1,722 |
|
Gain on previously held interest in acquired joint venture | | (26,002 | ) | | — |
|
Equity in (earnings) losses of unconsolidated joint ventures | | (10,107 | ) | | 2,874 |
|
Distributions of cumulative earnings from unconsolidated joint ventures | | 4,415 |
| | 740 |
|
Equity-based compensation expense | | 8,363 |
| | 8,231 |
|
Amortization of debt (premiums) and discounts, net | | (767 | ) | | (753 | ) |
Net amortization (accretion) of market rent rate adjustments | | 389 |
| | (489 | ) |
Straight-line rent adjustments | | (4,068 | ) | | (2,866 | ) |
Changes in other assets and liabilities: | | | | |
Other assets | | 214 |
| | (1,274 | ) |
Accounts payable and accrued expenses | | 3,985 |
| | 8,290 |
|
Net cash provided by operating activities | | 137,085 |
| | 129,184 |
|
INVESTING ACTIVITIES | | | | |
Additions to rental property | | (40,578 | ) | | (31,157 | ) |
Acquisition of interest in unconsolidated joint venture, net of cash acquired | | (11,271 | ) | | — |
|
Additions to investments in and notes receivable from unconsolidated joint ventures | | (140,373 | ) | | (57,810 | ) |
Additions to non-real estate assets | | (7,768 | ) | | — |
|
Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 45,891 |
| | 336 |
|
Additions to deferred lease costs | | (3,381 | ) | | (3,430 | ) |
Net cash used in investing activities | | (157,480 | ) | | (92,061 | ) |
FINANCING ACTIVITIES | | | | |
Cash distributions paid | | (65,342 | ) | | (61,102 | ) |
Proceeds from debt issuances | | 500,003 |
| | 491,477 |
|
Repayments of debt | | (413,806 | ) | | (463,705 | ) |
Acquisition of noncontrolling interests in consolidated partnerships | | (525 | ) | | — |
|
Distributions to noncontrolling interests in consolidated partnerships | | (67 | ) | | — |
|
Additions to deferred financing costs | | (37 | ) | | (2,527 | ) |
Proceeds from exercise of options | | 332 |
| | 372 |
|
Net cash provided by (used in) financing activities | | 20,558 |
| | (35,485 | ) |
Net increase in cash and cash equivalents | | 163 |
| | 1,638 |
|
Cash and cash equivalents, beginning of period | | 10,295 |
| | 7,866 |
|
Cash and cash equivalents, end of period | | $ | 10,458 |
| | $ | 9,504 |
|
The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIAIRES
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. 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, 2013, we owned and operated 37 outlet centers, with a total gross leasable area of approximately 11.5 million square feet. We also had partial ownership interests in 6 outlet centers totaling approximately 1.4 million square feet, including 3 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, 2013, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,478,785 units of the Operating Partnership and other limited partners collectively owned 5,145,012 units.
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, 2012. The December 31, 2012 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.
Investments in real estate joint ventures that we do not control are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required under the equity method of accounting. These investments are evaluated for impairment when necessary. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities. For joint ventures that are determined to be variable interest entities, we consolidate the entity where we are deemed to be the primary beneficiary.
Noncontrolling interests in the Operating Partnership relate to the interests owned by limited partners other than Tanger LP Trust. In August 2013, the Operating Partnership's operating agreement was amended to, among other things, effect a four-for-one split by issuing to its existing holders four units of partnership interest for every one unit outstanding. After the effect of the split, each unit of partnership interest held by limited partners not wholly owned by the Company may be exchanged for one common share of the Company. Prior to the split, each unit held by the limited partners not wholly owned by the Company was exchangeable for four common shares of the Company. All references to the number of units outstanding and per unit amounts reflect the effect of the split for all periods presented.
The noncontrolling interests in other consolidated partnerships consist of outside equity interests in partnerships 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.
Certain amounts related to reimbursements of payroll related expenses from unconsolidated joint ventures in the statement of operations for the three and nine months ended September 30, 2012 have been reclassified to the caption “expense reimbursements” from the caption “other income” to conform to the presentation of the consolidated statement of operations presented for the three months and nine months ended September 30, 2013.
In addition, we have corrected the classification of certain amounts related to above and below market lease contracts in the consolidated balance sheet of the Company and Operating Partnership as of December 31, 2012. The amounts were previously reported net within the deferred lease costs and other intangibles, net line item. Below market lease values, net of accumulated amortization, in the amount of $6.4 million have been reclassified into the other liabilities line item in the consolidated balance sheet as of December 31, 2012. These revisions were not considered material to the previously issued financial statements.
3. Acquisition of Rental Property
In August 2013, Deer Park completed a refinancing of its existing debt and then immediately restructured the ownership whereby we acquired an additional ownership interest in the property from one of the partners which gave us a controlling interest. With the acquisition of this additional interest, we have consolidated the property for financial reporting purposes since the acquisition date, and remeasured our previously held interest that was accounted for as an equity method investment.
Prior to the acquisition, Deer Park successfully negotiated new financing of the debt obligations for the previous mortgage and mezzanine loans totaling approximately $238.5 million, with a $150.0 million mortgage loan. The new five year mortgage loan bears interest at a 150 basis point spread over LIBOR. The previous mortgage and mezzanine loans were in default, and as part of the refinancing, all default interest associated with the loans was waived. Utilizing funding from our existing unsecured lines of credit, we loaned approximately $89.5 million at a rate of LIBOR plus 3.25% and due on August 30, 2020 to the Deer Park joint venture representing the remaining amount necessary to repay the previous mortgage and mezzanine loans. As a result of the refinancing, Deer Park recorded a gain on early extinguishment of debt of approximately $13.8 million. Our share of this gain and the income from the settlement of a lawsuit with a third party was approximately $7.8 million and has been included in equity in earnings (losses) of unconsolidated joint ventures in the consolidated statement of operations for the three and nine months ended September 30, 2013.
Subsequent to the debt extinguishment, we acquired an additional one-third interest in the Deer Park property from one of the partners, bringing our total ownership to a two-thirds interest, for total consideration of approximately $27.9 million, including $13.9 million in cash and 450,576 in common limited partnership units of Tanger Properties Limited Partnership, which are exchangeable for an equivalent number of the Company's common shares. This transaction was accounted for as a business combination resulting in the assets acquired and liabilities assumed being recorded at fair value as a result of the step acquisition. Prior to the acquisition, the joint venture was considered a variable interest entity and was accounted for under the equity method of accounting since we did not have the ability to direct the significant activities that affect the economic performance of the venture as a one-third owner. Upon acquiring an additional one-third interest, we determined, based on the acquisition agreement and other transaction documents which amended our rights with respect to the property and our obligations with respect to the additional one-third interest, that we control the property assets and direct the property’s significant activities and therefore, consolidate the property’s assets and liabilities.
The following table illustrates the fair value of the total consideration transferred and the amounts of the identifiable assets acquired and liabilities assumed at the acquisition date (in thousands):
|
| | | |
Cash transferred | $ | 13,939 |
|
Common limited partnership units issued | 13,981 |
|
Fair value of total consideration transferred to acquire one-third interest | 27,920 |
|
Fair value of our previously held one-third interest | 27,920 |
|
Fair value of one-third interest owned by the remaining partner | 27,920 |
|
Fair value of net assets acquired | $ | 83,760 |
|
The aggregate purchase price of the property has been allocated as follows:
|
| | | | | | |
| | Fair Value (in thousands) | | Weighted-Average Amortization Period (in years) |
Land | | $ | 82,413 |
| | |
Buildings, improvements and fixtures | | 172,694 |
| | |
Deferred lease costs and other intangibles | | | | |
Above market lease value | | 18,807 |
| | 11.9 |
Below market lease value | | (12,658 | ) | | 18.5 |
Lease in place value | | 28,846 |
| | 7.6 |
Tenant relationships | | 27,594 |
| | 19.0 |
Lease and legal costs | | 1,724 |
| | 8.9 |
Total deferred lease costs and other intangibles, net | | 64,313 |
| | |
Other identifiable assets and liabilities assumed, net | | 2,265 |
| | |
Debt | | (237,925 | ) | | |
Total fair value of net assets acquired | | $ | 83,760 |
| | |
There was no contingent consideration associated with this acquisition. We incurred approximately $772,000 in third-party acquisition costs which were expensed as incurred. As a part of the acquisition accounting, we recorded a gain of $26.0 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in Deer Park.
Although we do not anticipate any changes in the fair value measurements of the acquisitions, the measurements may be subject to change within 12 months of the business combination date if new facts or circumstances are brought to our attention that were previously unknown but existed as of the business combination date.
Following the acquisition, we and the remaining one-third owner of the Deer Park property restructured certain aspects of our ownership of the property, whereby we receive substantially all of the economics generated by the property and would have substantial control over the property's financial activities. We and the remaining one-third owner of the Deer Park property entered into a triple net lease agreement with a different wholly-owned subsidiary of ours which operates the property as lessee. Under the new structure, we will serve as property manager and control the management, leasing, marketing and other operations of the property. We and the remaining one-third property owner will receive, in proportion to our respective ownership interests, fixed annual lease payments of approximately $2.5 million, plus an amount necessary to pay the interest expense on debt related to the property. In addition, we and the remaining property owner have entered into an agreement whereby they may require us to acquire their ownership interest in the property on the second anniversary of the acquisition date for a price of $28.4 million, and we have the option to acquire their ownership interest on the fourth anniversary of the acquisition date at the same price. Due to the other partner's ability to require us to purchase their interest, we have recorded an obligation to redeem their interest at the redemption price as a deferred financing obligation in the other liabilities section of the balance sheet.
The results of operations from the property are included in the consolidated statements of operations beginning on the acquisition date. The aggregate revenues and net loss from the property from the acquisition date through September 30, 2013, were $3.2 million and $337,000, respectively. The following unaudited condensed pro forma financial information for the three and nine months ended September 30, 2013 is presented as if the acquisition had been consummated as of January 1, 2012, the beginning of the previous reporting period (in thousands, except per share data):
|
| | | | | | | | | | | | | | | | |
| | (Pro forma) | | (Pro forma) |
| | Three months ended | | Nine months ended |
| | September 30, | | September 30, |
| | 2013 |
| 2012 | | 2013 |
| 2012 |
Total Revenue | | $ | 104,326 |
| | $ | 98,905 |
| | $ | 300,931 |
| | $ | 286,452 |
|
Income from continuing operations | | 29,417 |
| | 15,041 |
| | 61,700 |
| | 60,333 |
|
Net income attributable to Tanger Factory Outlet Centers, Inc. | | 27,861 |
| | 14,257 |
| | 58,466 |
| | 58,102 |
|
Basic earnings per common share | | 0.30 |
| | 0.15 |
| | 0.62 |
| | 0.63 |
|
Diluted earnings per common share | | 0.29 |
| | 0.15 |
| | 0.61 |
| | 0.62 |
|
4. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of September 30, 2013 and December 31, 2012 aggregated $136.9 million and $126.6 million, respectively. We have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for each of the individual joint ventures below. At September 30, 2013 and December 31, 2012, we were members of the following unconsolidated real estate joint ventures:
|
| | | | | | | | | | | | | | | | |
As of September 30, 2013 |
Joint Venture | | Center Location | | Ownership % | | Square Feet | | Carrying Value of Investment (in millions) | | Total Joint Venture Debt (in millions) |
Charlotte | | Charlotte, NC | | 50.0 | % | | — |
| | $ | 5.9 |
| | $ | — |
|
Galveston/Houston | | Texas City, TX | | 50.0 | % | | 347,930 |
| | 7.7 |
| | 65.0 |
|
National Harbor | | Washington D.C. Metro Area | | 50.0 | % | | — |
| | 17.5 |
| | 28.1 |
|
RioCan Canada | | Various | | 50.0 | % | | 434,162 |
| | 86.7 |
| | 18.8 |
|
Westgate | | Glendale, AZ | | 58.0 | % | | 331,739 |
| | 16.4 |
| | 43.0 |
|
Wisconsin Dells | | Wisconsin Dells, WI | | 50.0 | % | | 265,086 |
| | 2.5 |
| | 24.3 |
|
Other | | | |
|
| | — |
| | 0.2 |
| | — |
|
| | | | | | | | $ | 136.9 |
| | $ | 179.2 |
|
|
| | | | | | | | | | | | | | | | |
As of December 31, 2012 |
Joint Venture | | Center Location | | Ownership % | | Square Feet | | Carrying Value of Investment (in millions) | | Total Joint Venture Debt
(in millions) |
Deer Park | | Deer Park,
Long Island, NY | | 33.3 | % | | 741,981 |
| | $ | 3.0 |
| | $ | 246.9 |
|
Deer Park Warehouse | | Deer Park,
Long Island, NY | | 33.3 | % | | 29,253 |
| | — |
| | 1.9 |
|
Galveston/Houston | | Texas City, TX | | 50.0 | % | | 352,705 |
| | 36.7 |
| | — |
|
National Harbor | | Washington D.C. Metro Area | | 50.0 | % | | — |
| | 2.6 |
| | — |
|
RioCan Canada | | Various | | 50.0 | % | | 434,562 |
| | 62.2 |
| | 20.1 |
|
Westgate | | Glendale, AZ | | 58.0 | % | | 332,234 |
| | 19.1 |
| | 32.0 |
|
Wisconsin Dells | | Wisconsin Dells, WI | | 50.0 | % | | 265,086 |
| | 2.8 |
| | 24.3 |
|
Other | | | | | | — |
| | 0.2 |
| | — |
|
| | | | | | | | $ | 126.6 |
| | $ | 325.2 |
|
These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required by the equity method of accounting as described below.
The following management, development, leasing and marketing fees were recognized from services provided to our unconsolidated joint ventures (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Three months ended |
| Nine months ended |
| | September 30, |
| September 30, |
| | 2013 |
| 2012 |
| 2013 |
| 2012 |
Fee: | | | | | | |
| | |
|
Development | | $ | (6 | ) | | $ | 8 |
| | $ | 57 |
| | $ | 8 |
|
Loan Guarantee | | 40 |
| | 16 |
| | 121 |
| | 16 |
|
Management and leasing | | 761 |
| | 554 |
| | 2,391 |
| | 1,507 |
|
Marketing | | 93 |
| | 61 |
| | 301 |
| | 161 |
|
Total Fees | | $ | 888 |
| | $ | 639 |
| | $ | 2,870 |
| | $ | 1,692 |
|
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 are amortized over the various useful lives of the related assets.
Charlotte, North Carolina
In May 2013, we formed a 50/50 joint venture for the development of an outlet center in the Charlotte, NC market. Subsequently, during the third quarter of 2013, the joint venture began construction on the outlet center which will be located eight miles southwest of uptown Charlotte at the interchange of I-485 and Steele Creek Road (NC Highway 160), the two major thoroughfares for the city. The approximately 400,000 square foot project will feature approximately 90 brand name and designer stores and is expected to open during the third quarter of 2014.
As of September 30, 2013, we and our partner had each contributed approximately $5.9 million in cash to the joint venture to fund development activities. We are providing development services to the project; and with our partner, are jointly providing leasing services. Our partner will provide property management and marketing services to the center once open.
Deer Park, Long Island, New York
As described in Note 3, we acquired an additional one-third ownership interest in Deer Park and have consolidated the property for financial reporting purposes since the acquisition date.
Deer Park Warehouse, Long Island, New York
In March 2013, in connection with a loan forbearance agreement signed in 2012 with the lender to the joint venture, the warehouse property was sold for approximately $1.2 million. The proceeds were used to satisfy the terms of the forbearance agreement. There was no impact to the net income of the joint venture as a result of this sale and the retirement of the associated mortgage debt.
Galveston/Houston, Texas
Tanger Outlets Texas City, which opened on October 19, 2012, was initially fully funded with equal equity contributions to the joint venture by us and our 50/50 joint venture partner. In July 2013, the joint venture closed on a mortgage loan with the ability to borrow up to $70.0 million with a rate of LIBOR + 1.50% and a maturity date of July 1, 2017, and with the option to extend the maturity for one additional year. The joint venture received total loan proceeds of $65.0 million and distributed the proceeds equally to the partners.
National Harbor, Washington, D.C. Metro Area
In May 2011, we announced the formation of a joint venture for the development of a Tanger Outlet Center at National Harbor in the Washington, D.C. Metro area. The planned Tanger Outlet Center is expected to open in time for the 2013 holiday shopping season with approximately 80 brand name and designer outlet stores in a center containing approximately 340,000 square feet. In November 2012, the joint venture broke ground and began development. Both parties have made equity contributions of $17.2 million to fund certain development costs. In May 2013, the joint venture closed on a construction loan with the ability to borrow up to $62.0 million and which carries an interest rate of LIBOR + 1.65%. As of September 30, 2013 the balance on the loan was $28.1 million. We provide property management, leasing and marketing services to the joint venture; and with our partner, are jointly providing site development and construction supervision services.
RioCan Canada
We have entered into a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust ("RioCan Joint Venture") to develop and acquire outlet centers in Canada. Any projects developed or acquired will be branded as Tanger Outlet Centers. We have agreed to provide leasing and marketing services to the venture and RioCan will provide development and property management services.
In March of 2013 the RioCan Joint Venture acquired the land adjacent to the existing Cookstown Outlet Mall for $13.9 million. The land is being used for the joint venture's expansion of the Cookstown Outlet Mall which began in May 2013. The expansion, which is expected to open in the fourth quarter of 2014, will add approximately 153,000 square feet to the center and will add approximately 35 new brand name and designer outlet stores to the center.
Also, during the second quarter of 2013, the joint venture purchased land for $28.7 million and broke ground on Tanger Outlets Ottawa, the first ground up development of a Tanger Outlet Center in Canada. Located in suburban Kanata off the TransCanada Highway (Highway 417) at Palladium Drive, this center will contain approximately 303,000 square feet and will feature approximately 80 brand name and designer outlet stores. The center is currently expected to open in the fourth quarter of 2014.
Additionally, the RioCan Joint Venture partners have decided not to proceed with the proposed development at Mississauga’s Heartland Town Centre, west of Toronto, at the current time.
We evaluate our real estate joint ventures in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC"). As a result of our qualitative assessment, we concluded that our Westgate joint venture is a Variable Interest Entity ("VIE") and all of our other joint ventures are not a VIE. Westgate is considered a VIE because the voting rights are disproportionate to the economic interests. Investments in real estate joint ventures in which we have a non-controlling ownership interest are accounted for using the equity method of accounting.
After making the determination that Westgate was a VIE, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate its balance sheet and results of operations. This assessment was based upon whether we had the following:
| |
a. | The power to direct the activities of the VIE that most significantly impact the entity's economic performance |
| |
b. | 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 |
The operating, development, leasing, and management agreement of Westgate provides that the activities that most significantly impact the economic performance of the venture require unanimous consent. Accordingly, we determined that we do not have the power to direct the significant activities that affect the economic performance of the ventures and therefore, have applied the equity method of accounting for Westgate. Our equity method investment in Westgate as of September 30, 2013 was approximately $16.4 million. We are unable to estimate our maximum exposure to loss at this time because our guarantees are limited and based on the future operating performance of Westgate.
Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
|
| | | | | | | | |
Summary Balance Sheets - Unconsolidated Joint Ventures | | September 30, 2013 | | December 31, 2012 |
Assets | | |
| | |
|
Land | | $ | 49,184 |
| | $ | 96,455 |
|
Buildings, improvements and fixtures | | 256,652 |
| | 493,424 |
|
Construction in progress, including land | | 138,615 |
| | 16,338 |
|
| | 444,451 |
| | 606,217 |
|
Accumulated depreciation | | (25,561 | ) | | (62,547 | ) |
Total rental property, net | | 418,890 |
| | 543,670 |
|
Assets held for sale (1) | | — |
| | 1,828 |
|
Cash and cash equivalents | | 13,727 |
| | 21,879 |
|
Deferred lease costs, net | | 20,012 |
| | 24,411 |
|
Deferred debt origination costs, net | | 1,970 |
| | 5,213 |
|
Prepaids and other assets | | 8,167 |
| | 25,350 |
|
Total assets | | $ | 462,766 |
| | $ | 622,351 |
|
Liabilities and Owners' Equity | | |
| | |
|
Mortgages payable | | $ | 179,212 |
| | $ | 325,192 |
|
Construction trade payables | | 13,950 |
| | 21,734 |
|
Accounts payable and other liabilities | | 6,253 |
| | 31,944 |
|
Total liabilities | | 199,415 |
| | 378,870 |
|
Owners' equity | | 263,351 |
| | 243,481 |
|
Total liabilities and owners' equity | | $ | 462,766 |
| | $ | 622,351 |
|
(1) Assets related to our Deer Park Warehouse joint venture that were sold in March 2013.
|
| | | | | | | | | | | | | | | | |
| | Three months ended | | Nine months ended |
Summary Statements of Operations | | September 30, | | September 30, |
- Unconsolidated Joint Ventures | | 2013 | | 2012 | | 2013 | | 2012 |
Revenues (a) | | $ | 29,013 |
| | $ | 11,985 |
| | $ | 70,961 |
| | $ | 35,249 |
|
Expenses | | | | | | |
| | |
Property operating | | 7,808 |
| | 5,521 |
| | 25,440 |
| | 15,495 |
|
General and administrative | | 629 |
| | 365 |
| | 962 |
| | 765 |
|
Acquisition costs | | 19 |
| | — |
| | 474 |
| | 704 |
|
Abandoned development costs | | 19 |
| | — |
| | 153 |
| | 1,390 |
|
Impairment Charge | | — |
| | — |
| | — |
| | 420 |
|
Depreciation and amortization | | 6,232 |
| | 4,283 |
| | 21,200 |
| | 13,191 |
|
Total expenses | | 14,707 |
| | 10,169 |
| | 48,229 |
| | 31,965 |
|
Operating income | | 14,306 |
| | 1,816 |
| | 22,732 |
| | 3,284 |
|
Gain on early extinguishment of debt | | 13,820 |
| | — |
| | 13,820 |
| | — |
|
Interest expense | | (2,840 | ) | | (3,540 | ) | | (10,406 | ) | | (10,967 | ) |
Net income (loss) | | $ | 25,286 |
| | $ | (1,724 | ) | | $ | 26,146 |
| | $ | (7,683 | ) |
| | | | | | | | |
The Company and Operating Partnership's share of: | | |
| | |
|
Net income (loss) | | $ | 9,014 |
| | $ | (555 | ) | | $ | 10,107 |
| | $ | (2,874 | ) |
Depreciation and impairment charge (real estate related) | | $ | 2,861 |
| | $ | 1,641 |
| | $ | 9,465 |
| | $ | 5,249 |
|
a) Note that revenues for the three and nine months ended September 30, 2013 include approximately $9.5 million of other income from the settlement of a lawsuit at Deer Park prior to our acquisition of an additional one-third interest in and the consolidation of the property.
5. New Developments
Foxwoods, Connecticut
In September 2013, we broke ground at Foxwoods Resort Casino in Mashantucket, Connecticut on Tanger Outlets at Foxwoods. We own a two-thirds controlling interest in the joint venture, which will be consolidated for financial reporting purpose