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, 2014
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)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x   No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x   No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer: and “smaller reporting company” (as defined in Rule 12b-2 of the Securities and Exchange Act of 1934).
Tanger Factory Outlet Centers, Inc.
 
 
 
 
x Large accelerated filer
 
o Accelerated filer
 
o Non-accelerated filer
 
o Smaller reporting company
Tanger Properties Limited Partnership
 
 
 
 
o Large accelerated filer
 
o Accelerated filer
 
x Non-accelerated filer
 
o Smaller reporting company





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

As of April 30, 2014, there were 95,845,714 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 March 31, 2014 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 March 31, 2014, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,845,714 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,123,512 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.

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:

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.


3



There are only a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important, however to understand these differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company. As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company's income statement is its equity in the earnings of the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report. The Operating Partnership holds all of the outlet centers and other assets, including the ownership interests in consolidated and unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, its incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests, shareholder's equity and partners' 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 partners' 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 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 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.

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.

4



TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2014 and December 31, 2013
Consolidated Statements of Operations - for the three months ended March 31, 2014 and 2013
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2014 and 2013
Consolidated Statements of Shareholders' Equity - for the three months ended March 31, 2014 and the year ended December 31, 2013
Consolidated Statements of Cash Flows - for the three months ended March 31, 2014 and 2013
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2014 and December 31, 2013
Consolidated Statements of Operations - for the three months ended March 31, 2014 and 2013
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2014 and 2013
Consolidated Statements of Equity - for the three months ended March 31, 2014 and the year ended December 31, 2013
Consolidated Statements of Cash Flows - for the three months ended March 31, 2014 and 2013
 
 
Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 4. Mine Safety Disclosure
 
 
Item 6. Exhibits
 
 
Signatures

5



PART I. - FINANCIAL INFORMATION

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

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data, unaudited)
 
 
March 31, 2014
 
December 31,
2013
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
230,415

 
$
230,415

Buildings, improvements and fixtures
 
2,013,520

 
2,009,971

Construction in progress
 
20,848

 
9,433

 
 
2,264,783

 
2,249,819

Accumulated depreciation
 
(671,807
)
 
(654,631
)
Total rental property, net
 
1,592,976

 
1,595,188

Cash and cash equivalents
 
16,906

 
15,241

Investments in unconsolidated joint ventures
 
171,040

 
140,214

Deferred lease costs and other intangibles, net
 
157,627

 
163,581

Deferred debt origination costs, net
 
10,276

 
10,818

Prepaids and other assets
 
81,068

 
81,414

Total assets
 
$
2,029,893

 
$
2,006,456

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $5,593 and $5,752, respectively)
 
$
794,407

 
$
794,248

Unsecured term loans (net of discount of $359 and $396, respectively)
 
267,141

 
267,104

Mortgages payable (including premiums of $3,611 and $3,799, respectively)
 
249,418

 
250,497

Unsecured lines of credit
 
46,900

 
16,200

Total debt
 
1,357,866

 
1,328,049

Construction trade payables
 
13,471

 
9,776

Accounts payable and accrued expenses
 
46,401

 
49,686

Deferred financing obligation
 
28,388

 
28,388

Other liabilities
 
31,942

 
32,962

Total liabilities
 
1,478,068

 
1,448,861

Commitments and contingencies
 

 

Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 95,845,714 and 94,505,685 shares issued and outstanding at March 31, 2014 and December 31, 2013, respectively
 
958

 
945

Paid in capital
 
793,059

 
788,984

Accumulated distributions in excess of net income 
 
(272,085
)
 
(265,242
)
Accumulated other comprehensive income
 
(5,515
)
 
(2,428
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
516,417

 
522,259

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
27,606

 
28,432

Noncontrolling interests in other consolidated partnerships
 
7,802

 
6,904

Total equity
 
551,825

 
557,595

Total liabilities and equity
 
$
2,029,893

 
$
2,006,456


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

6



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

 
 
Three months ended March 31,
 
 
2014
 
2013
Revenues
 
 
 
 
Base rentals
 
$
66,976

 
$
59,244

Percentage rentals
 
2,083

 
2,017

Expense reimbursements
 
31,542

 
25,306

Other income
 
2,241

 
2,122

Total revenues
 
102,842

 
88,689

Expenses
 
 
 


Property operating
 
36,027

 
28,135

General and administrative
 
10,722

 
9,572

Acquisition costs
 
7

 
179

Abandoned pre-development costs
 
1,596

 

Depreciation and amortization
 
26,063

 
22,288

Total expenses
 
74,415

 
60,174

Operating income
 
28,427

 
28,515

Interest expense
 
(14,920
)
 
(12,876
)
Income before equity in earnings of unconsolidated joint ventures
 
13,507

 
15,639

Equity in earnings of unconsolidated joint ventures
 
1,933

 
590

Net income
 
15,440

 
16,229

Noncontrolling interests in Operating Partnership
 
(803
)
 
(789
)
Noncontrolling interests in other consolidated partnerships
 
(21
)
 
(1
)
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
14,616

 
$
15,439

 
 
 
 
 
Basic earnings per common share
 
 
 
 
Net income
 
$
0.15

 
$
0.16

Diluted earnings per common share
 
 
 
 
Net income
 
$
0.15

 
$
0.16

 
 
 
 
 
Dividends paid per common share
 
$
0.225

 
$
0.210

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

7



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended
 
 
March 31,
 
 
2014
 
2013
Net income
 
$
15,440

 
$
16,229

Other comprehensive income (loss)
 
 
 
 
Reclassification adjustments for amounts recognized in net income
 
(96
)
 
(90
)
Foreign currency translation adjustments
 
(2,840
)
 
68

Change in fair value of cash flow hedges
 
(320
)
 

Other comprehensive loss
 
(3,256
)
 
(22
)
Comprehensive income
 
12,184

 
16,207

Comprehensive income attributable to noncontrolling interests
 
(655
)
 
(789
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
11,529

 
$
15,418

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 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

Net income
 


107,557


107,557

5,643

121

113,321

Other comprehensive loss
 



(3,628
)
(3,628
)
(200
)

(3,828
)
Compensation under Incentive Award Plan
 

11,743



11,743



11,743

Issuance of 44,500 common shares upon exercise of options
 

635



635



635

Issuance of 450,676 Operating Partnership limited partner units
 





13,981


13,981

Grant of 332,373 restricted shares, net of forfeitures
 
3

(3
)






Adjustment for noncontrolling interests in Operating Partnership
 

11,130



11,130

(11,130
)


Adjustment for noncontrolling interests in other consolidated partnerships
 

(576
)


(576
)

576


Acquisition of noncontrolling interests in other consolidated partnerships
 






(525
)
(525
)
Exchange of 67,428 Operating Partnership units for 67,428 common shares
 
1

(1
)






Common dividends ($0.885 per share)
 


(87,211
)

(87,211
)


(87,211
)
Distributions to noncontrolling interests
 





(4,294
)
(102
)
(4,396
)
Balance, December 31, 2013
 
$
945

$
788,984

$
(265,242
)
$
(2,428
)
$
522,259

$
28,432

$
6,904

$
557,595

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 











 
 








 
 









9



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' 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, 2013
 
$
945

$
788,984

$
(265,242
)
$
(2,428
)
$
522,259

$
28,432

$
6,904

$
557,595

Net income
 


14,616


14,616

803

21

15,440

Other comprehensive loss
 



(3,087
)
(3,087
)
(169
)

(3,256
)
Compensation under Incentive Award Plan
 

3,525



3,525



3,525

Issuance of 15,800 common shares upon exercise of options
 

261



261



261

Issuance of 1,302,729 restricted common shares, net of forfeitures
 
13

(13
)






Adjustment for noncontrolling interests in Operating Partnership
 

302



302

(302
)


Adjustment for noncontrolling interests in other consolidated partnerships
 






903

903

Common dividends ($.225 per share)
 


(21,459
)

(21,459
)


(21,459
)
Distributions to noncontrolling interests in Operating Partnership
 





(1,158
)
(26
)
(1,184
)
Balance,
March 31, 2014
 
$
958

$
793,059

$
(272,085
)
$
(5,515
)
$
516,417

$
27,606

$
7,802

$
551,825


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




10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended
 
 
March 31,
 
 
2014
 
2013
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
15,440

 
$
16,229

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
26,063

 
22,288

Amortization of deferred financing costs
 
553

 
603

Abandoned pre-development costs
 
1,596

 

Equity in earnings of unconsolidated joint ventures
 
(1,933
)
 
(590
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
1,363

 
293

Share-based compensation expense
 
3,366

 
2,460

Amortization of debt (premiums) and discounts, net
 
(89
)
 
(259
)
Net amortization (accretion) of market rent rate adjustments
 
669

 
(27
)
Straight-line rent adjustments
 
(1,838
)
 
(1,088
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
587

 
(1,313
)
Accounts payable and accrued expenses
 
(3,275
)
 
(3,281
)
Net cash provided by operating activities
 
42,502

 
35,315

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(13,269
)
 
(8,495
)
Additions to investments in unconsolidated joint ventures
 
(33,679
)
 
(9,751
)
Additions to non-real estate assets
 
(705
)
 

Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
1,320

 
1,221

Additions to deferred lease costs
 
(1,874
)
 
(648
)
Net cash used in investing activities
 
(48,207
)
 
(17,673
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(21,459
)
 
(19,731
)
Distributions to noncontrolling interests in Operating Partnership
 
(1,158
)
 
(1,000
)
Proceeds from debt issuances
 
133,100

 
80,246

Repayments of debt
 
(103,291
)
 
(84,313
)
Acquisition of noncontrolling interests in other consolidated partnerships
 

 
(525
)
Distributions to noncontrolling interests in other consolidated partnerships
 
(26
)
 

Additions to deferred financing costs
 
(43
)
 
(56
)
Proceeds from exercise of options
 
261

 
117

Net cash provided by (used in) financing activities
 
7,384

 
(25,262
)
Effect of foreign currency rate changes on cash and cash equivalents
 
(14
)
 
(24
)
Net increase (decrease) in cash and cash equivalents
 
1,665

 
(7,644
)
Cash and cash equivalents, beginning of period
 
15,241

 
10,335

Cash and cash equivalents, end of period
 
$
16,906

 
$
2,691

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

11



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
 
 
March 31, 2014
 
December 31,
2013
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
230,415

 
$
230,415

Buildings, improvements and fixtures
 
2,013,520

 
2,009,971

Construction in progress
 
20,848

 
9,433

 
 
2,264,783

 
2,249,819

Accumulated depreciation
 
(671,807
)
 
(654,631
)
Total rental property, net
 
1,592,976

 
1,595,188

Cash and cash equivalents
 
16,847

 
14,984

Investments in unconsolidated joint ventures
 
171,040

 
140,214

Deferred lease costs and other intangibles, net
 
157,627

 
163,581

Deferred debt origination costs, net
 
10,276

 
10,818

Prepaids and other assets
 
80,566

 
81,165

Total assets
 
$
2,029,332

 
$
2,005,950

LIABILITIES AND EQUITY
 

 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $5,593 and $5,752, respectively)
 
$
794,407

 
$
794,248

Unsecured term loans (net of discount of $359 and $396, respectively)
 
267,141

 
267,104

Mortgages payable (including premiums of $3,611 and $3,799, respectively)
 
249,418

 
250,497

Unsecured lines of credit
 
46,900

 
16,200

Total debt
 
1,357,866

 
1,328,049

Construction trade payables
 
13,471

 
9,776

Accounts payable and accrued expenses
 
45,840

 
49,180

Deferred financing obligation
 
28,388

 
28,388

Other liabilities
 
31,942

 
32,962

Total liabilities
 
1,477,507

 
1,448,355

Commitments and contingencies
 

 

Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner, 1,000,000 units outstanding at March 31, 2014 and December 31, 2013
 
4,919

 
4,988

Limited partners, 5,123,512 and 5,145,012 Class A units and 94,845,714 and 93,505,685 Class B units outstanding at March 31,2014 and December 31, 2013, respectively
 
545,081

 
548,424

Accumulated other comprehensive income
 
(5,977
)
 
(2,721
)
Total partners' equity
 
544,023

 
550,691

Noncontrolling interests in consolidated partnerships
 
7,802

 
6,904

Total equity
 
551,825

 
557,595

Total liabilities and equity
 
$
2,029,332

 
$
2,005,950

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

12



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended March 31,
 
 
2014
 
2013
Revenues
 
 
 
 
Base rentals
 
$
66,976

 
$
59,244

Percentage rentals
 
2,083

 
2,017

Expense reimbursements
 
31,542

 
25,306

Other income
 
2,241

 
2,122

Total revenues
 
102,842

 
88,689

Expenses
 


 


Property operating
 
36,027

 
28,135

General and administrative
 
10,722

 
9,572

Acquisition costs
 
7

 
179

Abandoned pre-development costs
 
1,596

 

Depreciation and amortization
 
26,063

 
22,288

Total expenses
 
74,415

 
60,174

Operating income
 
28,427

 
28,515

Interest expense
 
(14,920
)
 
(12,876
)
Income before equity in earnings of unconsolidated joint ventures
 
13,507

 
15,639

Equity in earnings of unconsolidated joint ventures
 
1,933

 
590

Net income
 
15,440

 
16,229

Noncontrolling interests in consolidated partnerships
 
(21
)
 
(1
)
Net income available to partners
 
15,419

 
16,228

Net income available to limited partners
 
15,263

 
16,062

Net income available to general partner
 
$
156

 
$
166

 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
Net income
 
$
0.15

 
$
0.16

Diluted earnings per common unit:
 
 
 
 
Net income
 
$
0.15

 
$
0.16

 
 
 
 
 
Distribution paid per common unit
 
$
0.225

 
$
0.210

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

13



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

 
 
Three months ended
 
 
March 31,
 
 
2014
 
2013
Net income
 
$
15,440

 
$
16,229

Other comprehensive income (loss)
 
 
 
 
Reclassification adjustments for amounts recognized in net income
 
(96
)
 
(90
)
Foreign currency translation adjustments
 
(2,840
)
 
68

Changes in fair value of cash flow hedges
 
(320
)
 

Other comprehensive loss
 
(3,256
)
 
(22
)
Comprehensive income
 
12,184

 
16,207

Comprehensive (income) loss attributable to noncontrolling interests in consolidated partnerships
 
(21
)
 
1

Comprehensive income attributable to the Operating Partnership
 
$
12,163

 
$
16,208

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


14



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, 2012
 
$
4,720

$
501,214

$
1,107

$
507,041

$
6,834

$
513,875

Net income
 
1,153

112,047


113,200

121

113,321

Other comprehensive loss
 


(3,828
)
(3,828
)

(3,828
)
Compensation under Incentive Award Plan
 

11,743


11,743


11,743

Issuance of 44,500 common units upon exercise of options
 

635


635


635

Issuance of 450,676 limited partner units
 

13,981


13,981


13,981

Grant of 332,373 restricted units, net of forfeitures
 






Adjustments for noncontrolling interests in consolidated partnerships
 

(576
)

(576
)
576


Acquisition of noncontrolling interests in consolidated partnerships
 




(525
)
(525
)
Common distributions ($.885 per common unit)
 
(885
)
(90,620
)

(91,505
)

(91,505
)
Distributions to noncontrolling interests in consolidated partnerships
 




(102
)
(102
)
Balance, December 31, 2013
 
4,988

548,424

(2,721
)
550,691

6,904

557,595

Net income
 
156

15,263


15,419

21

15,440

Other comprehensive loss
 


(3,256
)
(3,256
)

(3,256
)
Compensation under Incentive Award Plan
 

3,525


3,525


3,525

Issuance of 15,800 common units upon exercise of options
 

261


261


261

Issuance of 1,302,729 restricted common units, net of forfeitures
 






Adjustment for noncontrolling interests in other consolidated partnerships
 




903

903

Common distributions ($.225 per common unit)
 
(225
)
(22,392
)

(22,617
)
(26
)
(22,643
)
Balance, March 31, 2014
 
$
4,919

$
545,081

$
(5,977
)
$
544,023

$
7,802

$
551,825

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



15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended
 
 
March 31,
 
 
2014
 
2013
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
15,440

 
$
16,229

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 


Depreciation and amortization
 
26,063

 
22,288

Amortization of deferred financing costs
 
553

 
603

Abandoned pre-development costs
 
1,596

 

Equity in earnings of unconsolidated joint ventures
 
(1,933
)
 
(590
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
1,363

 
293

Equity-based compensation expense
 
3,366

 
2,460

Amortization of debt (premiums) and discounts, net
 
(89
)
 
(259
)
Net amortization (accretion) of market rent rate adjustments
 
669

 
(27
)
Straight-line rent adjustments
 
(1,838
)
 
(1,088
)
Changes in other assets and liabilities:
 
 
 
 
Other assets
 
840

 
(1,226
)
Accounts payable and accrued expenses
 
(3,330
)
 
(3,407
)
Net cash provided by operating activities
 
42,700

 
35,276

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(13,269
)
 
(8,495
)
Additions to investments in unconsolidated joint ventures
 
(33,679
)
 
(9,751
)
Additions to non-real estate assets
 
(705
)
 

Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
1,320

 
1,221

Additions to deferred lease costs
 
(1,874
)
 
(648
)
Net cash used in investing activities
 
(48,207
)
 
(17,673
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(22,617
)
 
(20,731
)
Proceeds from debt issuances
 
133,100

 
80,246

Repayments of debt
 
(103,291
)
 
(84,313
)
Acquisition of noncontrolling interests in other consolidated partnerships
 

 
(525
)
Distributions to noncontrolling interests in consolidated partnerships
 
(26
)
 

Additions to deferred financing costs
 
(43
)
 
(56
)
Proceeds from exercise of options
 
261

 
117

Net cash provided by (used in) financing activities
 
7,384

 
(25,262
)
Effect of foreign currency on cash and cash equivalents
 
(14
)
 
(24
)
Net increase (decrease) in cash and cash equivalents
 
1,863

 
(7,683
)
Cash and cash equivalents, beginning of period
 
14,984

 
10,295

Cash and cash equivalents, end of period
 
$
16,847

 
$
2,612

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

16



TANGER FACTORY OUTLET CENTERS INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND 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 March 31, 2014, 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 7 outlet centers totaling approximately 1.7 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 March 31, 2014, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,845,714 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,123,512 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, 2013. The December 31, 2013 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.



17



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 and Savannah joint ventures are Variable Interest Entities ("VIE") and all of our other joint ventures are not a VIE. Westgate and Savannah are each 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 and Savannah are VIEs, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate the balance sheets 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 agreements of Westgate and Savannah provide that the activities that most significantly impact the economic performance of the ventures 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. Our equity method investment in Westgate was approximately $15.8 million and in Savannah was approximately $20.8 million as of March 31, 2014 . 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 and Savannah.

"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 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 their respective ownership interest.

 
3. Acquisition of Rental Property

In October 2003, we and two other owners each having a 33.3% ownership interest, established a joint venture to develop and own a shopping center in Deer Park, New York ("Deer Park"). In August 2013, 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 Deer Park representing the remaining amount necessary to repay the previous mortgage and mezzanine loans.

Subsequent to the debt extinguishment, we acquired an additional one-third interest in the Deer Park property from one of the other owners, 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 Class A 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. The fair value of the net assets acquired totaled $83.8 million, consisting of $319.4 million in rental property and lease related intangibles, $2.3 million in other identifiable assets and liabilities, and $237.9 million in debt. 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 propertys significant activities and therefore, consolidate the propertys assets and liabilities as of August 30, 2013.


18



Following the acquisition, we and the remaining owner restructured certain aspects of our ownership of the property, whereby we receive substantially all of the economics generated by the property and have substantial control over the property's financial activities. Under the new structure, we serve as property manager and control the management, leasing, marketing and other operations of the property. In addition, we and the remaining 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 remaining owner'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 consolidated balance sheet.

4. New Developments of Consolidated Outlet Centers

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 purposes. To date, we have contributed approximately $16.6 million to the project for construction and development activities. The approximately 314,000 square foot project will be suspended above ground to join the casino floors of the two major hotels located within the resort, which attract millions of visitors each year. We currently expect the property to open in the second quarter of 2015.

5. Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of March 31, 2014 and December 31, 2013 aggregated $171.0 million and $140.2 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 March 31, 2014 and December 31, 2013, we were members of the following unconsolidated real estate joint ventures:
As of March 31, 2014
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
 
Carrying Value of Investment
 (in millions)
 
Total Joint Venture Debt
 (in millions)
Charlotte
 
Charlotte, NC
 
50.0
%
 

 
$
20.7

 
$

Galveston/Houston
 
Texas City, TX
 
50.0
%
 
352,705

 
7.2

 
65.0

National Harbor
 
Washington D.C. Metro Area
 
50.0
%
 
338,786

 
17.3

 
60.9

RioCan Canada
 
Various
 
50.0
%
 
432,448

 
86.7

 
17.1

Savannah (1)
 
Savannah, GA
 
50.0
%
 

 
20.8

 

Westgate
 
Glendale, AZ
 
58.0
%
 
331,739

 
15.8

 
43.6

Wisconsin Dells
 
Wisconsin Dells, WI
 
50.0
%
 
265,086

 
2.4

 
24.3

Other
 
 
 


 

 
0.1

 

 
 
 
 
 
 
 
 
$
171.0

 
$
210.9

(1)
Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture's cash flow to be greater than indicated in the Tanger Share column, which in this case, states our legal interest in this venture. Our economic interest may fluctuate based on a number of factors,including mortgage financing, partnership capital contributions and distributions, and proceeds from gains or losses of asset sales.


19



As of December 31, 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
%
 

 
$
11.6

 
$

Galveston/Houston
 
Texas City, TX
 
50.0
%
 
352,705

 
7.4

 
65.0

National Harbor
 
Washington D.C. Metro Area
 
50.0
%
 
336,286

 
16.7

 
52.4

RioCan Canada
 
Various
 
50.0
%
 
432,836

 
85.7

 
17.9

Westgate
 
Glendale, AZ
 
58.0
%
 
331,739

 
16.1

 
43.1

Wisconsin Dells
 
Wisconsin Dells, WI
 
50.0
%
 
265,086

 
2.5

 
24.3

Other
 
 
 
 
 

 
0.2

 

 
 
 
 
 
 
 
 
$
140.2

 
$
202.7


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.

Fees we received for various services provided to our unconsolidated joint ventures were recognized as follows (in thousands):
 
 
Three months ended
 
 
March 31,
 
 
2014
 
2013
Fee:
 
 
 
 
Development and leasing
 
$
8

 
$
69

Loan guarantee
 
40

 
40

Management
 
409

 
496

Marketing
 
109

 
110

Total Fees
 
$
566

 
$
715


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 $2.3 million and $1.6 million as of March 31, 2014 and December 31, 2013) 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 March 31, 2014, we and our partner had each contributed approximately $20.3 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.


20



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 an 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 and 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. As of March 31, 2014, we and our co-owner had each contributed $17.2 million in cash to fund development activities on these two projects.

Savannah, Georgia

In January 2014, we announced our plans to develop Tanger Outlets Savannah through a joint venture arrangement. The center will include approximately 385,000 square feet. The site is located on I-95, just north of I-16 in Pooler, Georgia, adjacent to the City of Savannah, and near the Savannah International Airport. As of March 31, 2014, our equity contributions totaled $20.9 million and our partner's equity contribution totaled $7.4 million. Contributions we make in excess of $7.4 million will earn a preferred rate of return equal to 8% from the date the contributions are made until the outlet center’s grand opening date, and then 10% annually thereafter.



21



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,
2014
 
December 31,
2013
Assets
 
 

 
 

Land
 
$
65,242

 
$
66,020

Buildings, improvements and fixtures
 
325,115

 
327,972

Construction in progress, including land
 
147,099

 
86,880

 
 
537,456

 
480,872

Accumulated depreciation
 
(33,487
)
 
(29,523
)
Total rental property, net
 
503,969

 
451,349

Cash and cash equivalents
 
22,678

 
22,704

Deferred lease costs, net
 
21,839

 
19,281

Deferred debt origination costs, net
 
1,834

 
1,737

Prepaids and other assets
 
9,898

 
9,107

Total assets
 
$
560,218

 
$
504,178

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
210,932

 
$
202,688

Construction trade payables
 
20,295

 
19,370

Accounts payable and other liabilities
 
10,221

 
8,540

Total liabilities
 
241,448

 
230,598

Owners' equity
 
318,770

 
273,580

Total liabilities and owners' equity
 
$
560,218

 
$
504,178


 
 
Three months ended
Condensed Combined Statements of Operations
 
March 31,
 - Unconsolidated Joint Ventures
 
2014
 
2013
Revenues
 
$
16,755

 
$
21,395

Expenses
 
 
 
 
Property operating
 
6,646

 
8,803

General and administrative
 
129

 
485

Acquisition costs
 

 
421

Depreciation and amortization
 
4,974

 
7,384

Total expenses
 
11,749

 
17,093

Operating income
 
5,006

 
4,302

Interest expense
 
(1,226
)
 
(4,052
)
Net income
 
$
3,780

 
$
250

 
 
 
 
 
The Company and Operating Partnership's share of:
Net income
 
$
1,933

 
$
590

Depreciation and impairment charge (real estate related)
 
$
2,605

 
$
3,173




22



6. Debt of 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 $520.0 million. As of March 31, 2014 and December 31, 2013, the Operating Partnership had amounts outstanding on these lines totaling $46.9 million and $16.2 million and, respectively.

The Company also guarantees the Operating Partnership's unsecured term loan as well as its obligation with respect to the mortgage assumed in connection with the acquisition of the outlet center in Ocean City, Maryland in July 2011. As of March 31, 2014, the amounts outstanding on the term loan and mortgage were $250.0 million and $18.3 million, respectively.

7. Debt of the Operating Partnership

The debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
 
March 31, 2014
 
December 31, 2013
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Premium
 (Discount)
 
Principal
 
Premium
 (Discount)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 

Senior notes
 
6.15
%
 
November 2015
 
$
250,000

 
$
(184
)
 
$
250,000

 
$
(211
)
Senior notes
 
6.125
%
 
June 2020
 
300,000

 
(1,421
)
 
300,000

 
(1,469
)
Senior notes
 
3.875
%
 
December 2023
 
250,000

 
(3,988
)
 
250,000

 
(4,072
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable:
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City (1)
 
5.14%-7.65%

 
November 2021- December 2026
 
47,914

 
3,992

 
48,535

 
4,091

Deer Park
 
LIBOR + 1.50%

 
August 2018
 
150,000

 
(1,398
)
 
150,000

 
(1,478
)
Hershey (1)
 
5.17%-8.00%

 
August 2015
 
29,793

 
847

 
29,970

 
993

Ocean City (1)
 
5.24
%
 
January 2016
 
18,100

 
170

 
18,193

 
193

Note payable (1)
 
1.50
%
 
June 2016
 
10,000

 
(359
)
 
10,000

 
(396
)
Unsecured term loan (2)
 
LIBOR + 1.60%

 
February 2019
 
250,000

 

 
250,000

 

Unsecured term note
 
LIBOR + 1.30%

 
August 2017
 
7,500

 

 
7,500

 

Unsecured lines of credit
 
LIBOR + 1.00%

 
November 2015
 
46,900

 

 
16,200

 

 
 
 
 
 
 
$
1,360,207

 
$
(2,341
)
 
$
1,330,398

 
$
(2,349
)
(1)
The effective interest rates assigned during the purchase price allocation to these assumed mortgages and note payable during acquisitions in 2011 were as follows: Atlantic City 5.05%, Ocean City 4.68%, Hershey 3.40% and note payable 3.15%.
(2)
This unsecured term loan is pre-payable without penalty beginning in February of 2015.

Certain of our properties, which had a net book value of approximately $545.0 million at March 31, 2014 and $566.7 million at December 31, 2013, serve as collateral for mortgages payable. We maintain unsecured lines of credit that provide for borrowings of up to $520.0 million. The unsecured lines of credit include a $20.0 million liquidity line and a $500.0 million syndicated line. The syndicated line may be increased to $750.0 million through an accordion feature in certain circumstances.

We provide guaranties 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 guaranties include terms for release based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests.

23




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, 2014, we were in compliance with all of our debt covenants.

Debt Maturities

Maturities of the existing long-term debt as of March 31, 2014 are as follows (in thousands):
Calendar Year
 
Amount

2014
 
$
2,712

2015
 
282,343

2016
 
30,283

2017
 
57,408

2018
 
153,183

Thereafter
 
834,278

Subtotal
 
1,360,207

Net premiums
 
(2,341
)
Total
 
$
1,357,866

  
8. 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 as of March 31, 2014 and December 31, 2013 (in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value
Effective Date
 
Maturity Date
 
Notional Amount
 
Bank Pay Rate
 
Company Fixed Pay Rate
 
March 31, 2014
 
December 31, 2013
Assets:
 
 
 
 
 
 
 
 
 
 
 
 
November 14, 2013
 
August 14, 2018
 
$
50,000

 
1 month LIBOR
 
1.3075
%
 
$
336

 
$
455

November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.2970
%
 
367

 
440

November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.3025
%
 
359

 
487

Total
 
 
 
$
150,000

 
 
 
 
 
$
1,062

 
$
1,382


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 income (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 any, is recognized directly in earnings.


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The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements for the three months ended March 31, 2014 and 2013, respectively (in thousands):
 
 
 
 
Location of Gain (Loss)
 
Amount of Gain (Loss)
 
 
Amount of Gain (Loss)
 
Reclassification from
 
Reclassified from
 
 
Recognized in OCI on
 
Accumulated OCI into
 
Accumulated OCI into
 
 
Derivative
 
Income
 
Income
 
 
(Effective Portion)
 
(Effective Portion)
 
(Effective Portion)
 
 
March 31,
 
 
 
March 31,
 
 
2014
 
2013
 
 
 
2014
 
2013
Interest Rate Swaps
 
$
(320
)
 
$

 
 
 
$

 
$

Treasury Rate Lock
 

 

 
Interest Expense
 
96

 
90


In 2005, we settled two US treasury rate lock agreements associated with a 10 year senior, unsecured bond offering and received approximately $3.2 million. The unamortized balance of the settled agreements as of March 31, 2014 and December 31, 2013 was approximately $645,000 and $741,000, respectively. As of March 31, 2014, we expect approximately $400,000 of deferred gains on derivative instruments in accumulated other comprehensive income to be reclassified into earnings during the next twelve months.


9. 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

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, 2014:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
1,062

 
$

 
$
1,062

 
$

Total assets
 
$
1,062

 
$

 
$
1,062

 
$


 
 
 
 
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, 2013:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
1,382

 
$

 
$
1,382

 
$

Total assets
 
$
1,382

 
$

 
$
1,382

 
$


The estimated fair value of our debt, consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit, at March 31, 2014 and December 31, 2013, was $1.4 billion and $1.4 billion, respectively, and its recorded value was $1.4 billion and $1.3 billion, respectively. Fair values were determined based on level 2 inputs using discounted cash flow analysis with an interest rate or credit spread similar to that of current market borrowing arrangements.


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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.


10. Shareholders' Equity of the Company

Throughout the first three months of 2014, Non-Company LPs exchanged a total of 21,500 Class A common limited partnership units of the Operating Partnership for an equal number of common shares of the Company. After the above described exchanges, the Non-Company LPs owned 5,123,512 Class A common limited partnership units. Each Class A common limited partnership unit is exchangeable for one common share of the Company.


11. 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 issuance of restricted share awards or the exchange of Class A common limited partnership units, the Operating Partnership issues a corresponding Class B common limited partnership unit to Tanger LP trust, a wholly owned subsidiary of the Company.

The following table sets forth the changes in outstanding partnership units for the three months ended March 31, 2014 and for the year ended December 31, 2013:
 
 
 
 
Limited Partnership Units
 
 
General Partnership Units
 
Class A
 
Class B
 
Total
Balance December 31, 2012
 
1,000,000

 
4,761,864

 
93,061,384

 
97,823,248

Exchange of Class A limited partnership units
 

 
(67,428
)
 
67,428

 

Grant of restricted units
 

 

 
332,373

 
332,373

Units issued upon exercise of options
 

 

 
44,500

 
44,500

Units issued as consideration for business acquisition (see Note 3)
 

 
450,576

 

 
450,576

Balance December 31, 2013
 
1,000,000

 
5,145,012