United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 30, 2015
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________

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

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

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

As of October 30, 2015, there were 95,847,393 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, 2015 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating Partnership" refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

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

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, 2015, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,843,493 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,078,406 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

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

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

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

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

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


2



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

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

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

Noncontrolling interests, shareholder's equity and 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.


3



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 September 30, 2015 and December 31, 2014
Consolidated Statements of Operations - for the three and nine months ended September 30, 2015 and 2014
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2015 and 2014
Consolidated Statements of Shareholders' Equity - for the nine months ended September 30, 2015 and 2014
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2015 and 2014
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2015 and December 31, 2014
Consolidated Statements of Operations - for the three and nine months ended September 30, 2015 and 2014
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2015 and 2014
Consolidated Statements of Equity - for the nine months ended September 30, 2015 and 2014
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2015 and 2014
 
 
Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures about Market Risk
 
 
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
 
Part II. Other Information
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 4. Mine Safety Disclosure
 
 
Item 6. Exhibits
 
 
Signatures

5



PART I. - FINANCIAL INFORMATION

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

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
 
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
225,306

 
$
217,994

Buildings, improvements and fixtures
 
2,173,499

 
1,947,083

Construction in progress
 
63,445

 
98,526

 
 
2,462,250

 
2,263,603

Accumulated depreciation
 
(727,921
)
 
(662,236
)
Total rental property, net
 
1,734,329

 
1,601,367

Cash and cash equivalents
 
20,661

 
16,875

Restricted cash
 
42,904

 

Rental property held for sale
 
19,286

 
46,005

Investments in unconsolidated joint ventures
 
197,964

 
208,050

Deferred lease costs and other intangibles, net
 
130,390

 
140,883

Deferred debt origination costs, net
 
10,688

 
12,126

Prepaids and other assets
 
74,577

 
72,354

Total assets
 
$
2,230,799

 
$
2,097,660

LIABILITIES AND EQUITY
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes (net of discount of $5,919 and $6,426, respectively)
 
$
794,080

 
$
793,574

Unsecured term loans (net of discount of $122 and $241, respectively)
 
267,378

 
267,259

Mortgages payable (including premiums of $2,469 and $3,031, respectively)
 
281,966

 
271,361

Unsecured lines of credit
 
195,800

 
111,000

Total debt
 
1,539,224

 
1,443,194

Accounts payable and accrued expenses
 
90,506

 
69,558

Deferred financing obligation
 
28,388

 
28,388

Other liabilities
 
31,405

 
32,634

Total liabilities
 
1,689,523

 
1,573,774

Commitments and contingencies
 

 

Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 95,843,493 and 95,509,781 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively
 
958

 
955

Paid in capital
 
802,638

 
791,566

Accumulated distributions in excess of net income 
 
(256,180
)
 
(281,679
)
Accumulated other comprehensive loss
 
(33,943
)
 
(14,023
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
513,473

 
496,819

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
27,207

 
26,417

Noncontrolling interests in other consolidated partnerships
 
596

 
650

Total equity
 
541,276

 
523,886

Total liabilities and equity
 
$
2,230,799

 
$
2,097,660

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

6



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

 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
75,841

 
$
69,612

 
$
215,799

 
$
204,748

Percentage rentals
 
2,625

 
2,634

 
6,896

 
6,632

Expense reimbursements
 
30,542

 
29,463

 
93,815

 
90,457

Management, leasing and other services
 
1,253

 
1,225

 
4,263

 
2,548

Other income
 
2,645

 
2,255

 
5,795

 
5,799

Total revenues
 
112,906

 
105,189

 
326,568

 
310,184

Expenses
 
 
 


 
 
 
 

Property operating
 
36,231

 
32,798

 
108,921

 
102,454

General and administrative
 
11,514

 
11,334

 
34,431

 
32,817

Acquisition costs
 

 

 

 
7

Abandoned pre-development costs
 

 

 

 
1,596

Depreciation and amortization
 
28,785

 
25,774

 
77,046

 
77,034

Total expenses
 
76,530

 
69,906

 
220,398

 
213,908

Operating income
 
36,376

 
35,283


106,170


96,276

Other income/(expense)
 
 
 
 
 
 
 
 
Interest expense
 
(13,933
)
 
(13,902
)
 
(40,110
)
 
(43,404
)
Gain on sale of assets and interests in unconsolidated entities
 
20,215

 

 
33,941

 

Other nonoperating income (expense)
 
89

 
437

 
(98
)
 
560

Income before equity in earnings of unconsolidated joint ventures
 
42,747

 
21,818

 
99,903

 
53,432

Equity in earnings of unconsolidated joint ventures
 
3,713

 
2,479

 
8,302

 
6,200

Net income
 
46,460

 
24,297


108,205


59,632

Noncontrolling interests in Operating Partnership
 
(2,364
)
 
(1,252
)
 
(5,532
)
 
(3,083
)
Noncontrolling interests in other consolidated partnerships
 
(21
)
 
(42
)
 
395

 
(80
)
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
44,075

 
$
23,003


$
103,068


$
56,469

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
 
 
 
 
 

 
 

Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59

Diluted earnings per common share
 
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59

 
 
 
 
 
 
 
 
 
Dividends paid per common share
 
$
0.285

 
$
0.240

 
$
0.810

 
$
0.705

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
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
46,460

 
$
24,297

 
$
108,205

 
$
59,632

Other comprehensive income (loss)
 
 
 
 
 
 
 

Reclassification adjustments for amounts recognized in net income
 

 
(99
)
 

 
(293
)
Foreign currency translation adjustments
 
(10,932
)
 
(5,194
)
 
(18,945
)
 
(4,546
)
Change in fair value of cash flow hedges
 
(1,156
)
 
952

 
(2,045
)
 
(386
)
Other comprehensive income (loss)
 
(12,088
)
 
(4,341
)
 
(20,990
)
 
(5,225
)
Comprehensive income
 
34,372

 
19,956

 
87,215

 
54,407

Comprehensive income attributable to noncontrolling interests
 
(1,770
)
 
(1,070
)
 
(4,067
)
 
(2,892
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
32,602

 
$
18,886

 
$
83,148

 
$
51,515

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


8



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


 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance,
December 31, 2013
 
$
945

$
788,984

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

$
28,432

$
6,904

$
557,595

Net income
 


56,469


56,469

3,083

80

59,632

Other comprehensive loss
 



(4,954
)
(4,954
)
(271
)

(5,225
)
Compensation under Incentive Award Plan
 

11,458



11,458



11,458

Issuance of 46,700 common shares upon exercise of options
 

895



895



895

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

(13
)






Adjustment for noncontrolling interests in Operating Partnership
 

37



37

(37
)


Adjustment for noncontrolling interests in other consolidated partnerships
 

3



3


1,001

1,004

Exchange of 43,331 Operating Partnership units for 43,331 common shares
 
1

(1
)






Common dividends ($0.705 per share)
 


(67,445
)

(67,445
)


(67,445
)
Distributions to noncontrolling interests
 





(3,612
)
(88
)
(3,700
)
Balance, September 30, 2014
 
$
959

$
801,363

$
(276,218
)
$
(7,382
)
$
518,722

$
27,595

$
7,897

$
554,214

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











 
 








 
 
 
 
 
 
 
 
 
 
 
 

9



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share and per share data, unaudited)
 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive loss
Total Tanger Factory Outlet Centers, Inc. equity
Noncontrolling interests in Operating Partnership
Noncontrolling
interests in
other consolidated partnerships
Total
 equity
Balance, December 31, 2014
 
$
955

$
791,566

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

$
26,417

$
650

$
523,886

Net income
 


103,068


103,068

5,532

(395
)
108,205

Other comprehensive loss
 



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

(20,990
)
Compensation under Incentive Award Plan
 

12,180



12,180



12,180

Issuance of 16,400 common shares upon exercise of options
 

448



448



448

Issuance of 348,844 restricted common shares, net of forfeitures
 
3

(3
)






Withholding of 31,532 common shares for employee income taxes
 

(1,115
)


(1,115
)


(1,115
)
Contributions from noncontrolling interests
 






461

461

Adjustment for noncontrolling interests in Operating Partnership
 

(442
)


(442
)
442



Adjustment for noncontrolling interests in other consolidated partnerships
 

4



4


(4
)

Common dividends ($.810 per share)
 


(77,569
)

(77,569
)


(77,569
)
Distributions to noncontrolling interests
 





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

$
802,638

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

$
27,207

$
596

$
541,276


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




10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

 
 
Nine months ended
 
 
September 30,
 
 
2015
 
2014
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
108,205

 
$
59,632

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
77,046

 
77,034

Amortization of deferred financing costs
 
1,896

 
1,654

Abandoned pre-development costs
 

 
1,596

Casualty gain
 

 
(329
)
Gain on sale of assets and interests in unconsolidated entities
 
(33,941
)
 

Equity in earnings of unconsolidated joint ventures
 
(8,302
)
 
(6,200
)
Share-based compensation expense
 
11,560

 
10,933

Amortization of debt (premiums) and discounts, net
 
65

 
(273
)
Amortization (accretion) of market rent rate adjustments, net
 
2,124

 
2,250

Straight-line rent adjustments
 
(4,742
)
 
(5,027
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
8,803

 
4,166

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
2,197

 
(1,784
)
Accounts payable and accrued expenses
 
10,117

 
4,854

Net cash provided by operating activities
 
175,028

 
148,506

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(181,127
)
 
(90,254
)
Additions to investments in unconsolidated joint ventures
 
(31,517
)
 
(114,476
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
58,799

 

Change in restricted cash
 
(42,904
)
 

Proceeds from insurance reimbursements
 
253

 
1,784

Additions to non-real estate assets
 
(691
)
 
(933
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
19,325

 
5,374

Additions to deferred lease costs
 
(5,592
)
 
(4,109
)
Net cash used in investing activities
 
(183,454
)
 
(202,614
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(77,569
)
 
(67,445
)
Distributions to noncontrolling interests in Operating Partnership
 
(4,114
)
 
(3,612
)
Proceeds from debt issuances
 
469,663

 
410,300

Repayments of debt
 
(373,698
)
 
(289,381
)
Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(1,115
)
 

Distributions to noncontrolling interests in other consolidated partnerships
 
(116
)
 
(88
)
Additions to deferred financing costs
 
(758
)
 
(778
)
Proceeds from exercise of options
 
448

 
895

Contributions from noncontrolling interests
 
259

 

Net cash provided by financing activities
 
13,000

 
49,891

Effect of foreign currency rate changes on cash and cash equivalents
 
(788
)
 
(200
)
Net increase (decrease) in cash and cash equivalents
 
3,786

 
(4,417
)
Cash and cash equivalents, beginning of period
 
16,875

 
15,241

Cash and cash equivalents, end of period
 
$
20,661

 
$
10,824

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

11



Item 1 - Financial Statements of Tanger Properties Limited Partnership

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data, unaudited)
 
 
September 30, 2015
 
December 31, 2014
ASSETS
 
 

 
 

Rental property
 
 

 
 

Land
 
$
225,306

 
$
217,994

Buildings, improvements and fixtures
 
2,173,499

 
1,947,083

Construction in progress
 
63,445

 
98,526

 
 
2,462,250

 
2,263,603

Accumulated depreciation
 
(727,921
)
 
(662,236
)
Total rental property, net
 
1,734,329

 
1,601,367

Cash and cash equivalents
 
20,640

 
15,806

Restricted cash
 
42,904

 

Rental property held for sale
 
19,286

 
46,005

Investments in unconsolidated joint ventures
 
197,964

 
208,050

Deferred lease costs and other intangibles, net
 
130,390

 
140,883

Deferred debt origination costs, net
 
10,688

 
12,126

Prepaids and other assets
 
73,871

 
71,848

Total assets
 
$
2,230,072

 
$
2,096,085

LIABILITIES AND EQUITY
 

 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes (net of discount of $5,919 and $6,426, respectively)
 
$
794,080

 
$
793,574

Unsecured term loans (net of discount of $122 and $241, respectively)
 
267,378

 
267,259

Mortgages payable (including premiums of $2,469 and $3,031, respectively)
 
281,966

 
271,361

Unsecured lines of credit
 
195,800

 
111,000

Total debt
 
1,539,224

 
1,443,194

Accounts payable and accrued expenses
 
89,779

 
67,983

Deferred financing obligation
 
28,388

 
28,388

Other liabilities
 
31,405

 
32,634

Total liabilities
 
1,688,796

 
1,572,199

Commitments and contingencies
 

 

Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner, 1,000,000 units outstanding at September 30, 2015 and December 31, 2014
 
5,093

 
4,828

Limited partners, 5,078,406 and 5,078,406 Class A units and 94,843,493 and 94,509,781 Class B units outstanding at September 30, 2015 and December 31, 2014, respectively
 
571,368

 
533,199

Accumulated other comprehensive loss
 
(35,781
)
 
(14,791
)
Total partners' equity
 
540,680

 
523,236

Noncontrolling interests in consolidated partnerships
 
596

 
650

Total equity
 
541,276

 
523,886

Total liabilities and equity
 
$
2,230,072

 
$
2,096,085

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

12



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
75,841

 
$
69,612

 
$
215,799

 
$
204,748

Percentage rentals
 
2,625

 
2,634

 
6,896

 
6,632

Expense reimbursements
 
30,542

 
29,463

 
93,815

 
90,457

Management, leasing and other services
 
1,253

 
1,225

 
4,263

 
2,548

Other income
 
2,645

 
2,255

 
5,795

 
5,799

Total revenues
 
112,906

 
105,189


326,568


310,184

Expenses
 


 


 


 
 
Property operating
 
36,231

 
32,798

 
108,921

 
102,454

General and administrative
 
11,514

 
11,334

 
34,431

 
32,817

Acquisition costs
 

 

 

 
7

Abandoned pre-development costs
 

 

 

 
1,596

Depreciation and amortization
 
28,785

 
25,774

 
77,046

 
77,034

Total expenses
 
76,530

 
69,906


220,398


213,908

Operating income
 
36,376

 
35,283


106,170


96,276

Other income/(expense)
 
 
 
 
 
 
 
 
Interest expense
 
(13,933
)
 
(13,902
)
 
(40,110
)
 
(43,404
)
Gain on sale of assets and interests in unconsolidated entities
 
20,215

 

 
33,941

 

Other nonoperating income (expense)
 
89

 
437

 
(98
)
 
560

Income before equity in earnings of unconsolidated joint ventures
 
42,747

 
21,818


99,903


53,432

Equity in earnings of unconsolidated joint ventures
 
3,713

 
2,479

 
8,302

 
6,200

Net income
 
46,460

 
24,297


108,205


59,632

Noncontrolling interests in consolidated partnerships
 
(21
)
 
(42
)
 
395

 
(80
)
Net income available to partners
 
46,439

 
24,255


108,600


59,552

Net income available to limited partners
 
45,979

 
24,012

 
107,525

 
58,952

Net income available to general partner
 
$
460

 
$
243


$
1,075


$
600

 
 
 
 
 
 
 
 
 
Basic earnings per common unit
 
 
 
 
 
 
 
 

Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59

Diluted earnings per common unit
 
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59

 
 
 
 
 
 
 
 
 
Distribution paid per common unit
 
$
0.285

 
$
0.240

 
$
0.810

 
$
0.705

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

13



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

 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Net income
 
$
46,460

 
$
24,297

 
$
108,205

 
$
59,632

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Reclassification adjustments for amounts recognized in net income
 

 
(99
)
 

 
(293
)
Foreign currency translation adjustments
 
(10,932
)
 
(5,194
)
 
(18,945
)
 
(4,546
)
Changes in fair value of cash flow hedges
 
(1,156
)
 
952

 
(2,045
)
 
(386
)
Other comprehensive income (loss)
 
(12,088
)
 
(4,341
)
 
(20,990
)
 
(5,225
)
Comprehensive income
 
34,372

 
19,956

 
87,215

 
54,407

Comprehensive (income) loss attributable to noncontrolling interests in consolidated partnerships
 
(21
)
 
(42
)
 
395

 
(80
)
Comprehensive income attributable to the Operating Partnership
 
$
34,351

 
$
19,914

 
$
87,610

 
$
54,327

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


14



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)

 
 
General partner
Limited partners
Accumulated other comprehensive loss
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2013
 
$
4,988

$
548,424

$
(2,721
)
$
550,691

$
6,904

$
557,595

Net income
 
600

58,952


59,552

80

59,632

Other comprehensive loss
 


(5,225
)
(5,225
)

(5,225
)
Compensation under Incentive Award Plan
 

11,458


11,458


11,458

Issuance of 46,700 common units upon exercise of options
 

895


895


895

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






Adjustments for noncontrolling interests in consolidated partnerships
 

3


3

1,001

1,004

Common distributions ($.705 per common unit)
 
(705
)
(70,352
)

(71,057
)

(71,057
)
Distributions to noncontrolling interests
 




(88
)
(88
)
Balance, September 30, 2014
 
$
4,883

$
549,380

$
(7,946
)
$
546,317

$
7,897

$
554,214

 
 
 
 
 
 
 
 
 
 
General partner
Limited partners
Accumulated other comprehensive loss
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2014
 
$
4,828

$
533,199

$
(14,791
)
$
523,236

$
650

$
523,886

Net income
 
1,075

107,525


108,600

(395
)
108,205

Other comprehensive loss
 


(20,990
)
(20,990
)

(20,990
)
Compensation under Incentive Award Plan
 

12,180


12,180


12,180

Issuance of 16,400 common units upon exercise of options
 

448


448


448

Issuance of 348,844 restricted common units, net of forfeitures
 






Withholding of 31,532 common units for employee income taxes
 

(1,115
)

(1,115
)

(1,115
)
Contributions from noncontrolling interests
 




461

461

Adjustment for noncontrolling interests in consolidated partnerships
 

4


4

(4
)

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

(81,683
)

(81,683
)
Distributions to noncontrolling interests
 




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

$
571,368

$
(35,781
)
$
540,680

$
596

$
541,276

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

15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Nine months ended
 
 
September 30,
 
 
2015
 
2014
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
108,205

 
$
59,632

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


Depreciation and amortization
 
77,046

 
77,034

Amortization of deferred financing costs
 
1,896

 
1,654

Abandoned pre-development costs
 

 
1,596

Casualty gain
 

 
(329
)
Gain on sale of assets and interests in unconsolidated entities
 
(33,941
)
 

Equity in earnings of unconsolidated joint ventures
 
(8,302
)
 
(6,200
)
Equity-based compensation expense
 
11,560

 
10,933

Amortization of debt (premiums) and discounts, net
 
65

 
(273
)
Amortization (accretion) of market rent rate adjustments, net
 
2,124

 
2,250

Straight-line rent adjustments
 
(4,742
)
 
(5,027
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
8,803

 
4,166

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
2,397

 
(1,439
)
Accounts payable and accrued expenses
 
10,965

 
4,758

Net cash provided by operating activities
 
176,076

 
148,755

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(181,127
)
 
(90,254
)
Additions to investments in unconsolidated joint ventures
 
(31,517
)
 
(114,476
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
58,799

 

Change in restricted cash
 
(42,904
)
 

Proceeds from insurance reimbursements
 
253

 
1,784

Additions to non-real estate assets
 
(691
)
 
(933
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
19,325

 
5,374

Additions to deferred lease costs
 
(5,592
)
 
(4,109
)
Net cash used in investing activities
 
(183,454
)
 
(202,614
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(81,683
)
 
(71,057
)
Proceeds from debt issuances
 
469,663

 
410,300

Repayments of debt
 
(373,698
)
 
(289,381
)
Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(1,115
)
 

Distributions to noncontrolling interests in consolidated partnerships
 
(116
)
 
(88
)
Additions to deferred financing costs
 
(758
)
 
(778
)
Proceeds from exercise of options
 
448

 
895

Contributions from noncontrolling interests
 
259

 

Net cash provided by financing activities
 
13,000

 
49,891

Effect of foreign currency on cash and cash equivalents
 
(788
)
 
(200
)
Net increase (decrease) in cash and cash equivalents
 
4,834

 
(4,168
)
Cash and cash equivalents, beginning of period
 
15,806

 
14,984

Cash and cash equivalents, end of period
 
$
20,640

 
$
10,816

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

16



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

1. Business
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. We are a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of September 30, 2015, we owned and operated 34 outlet centers, with a total gross leasable area of approximately 11.6 million square feet. We also had partial ownership interests in 9 outlet centers totaling approximately 2.8 million square feet, including 4 outlet centers in Canada.

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

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of September 30, 2015, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,843,493 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,078,406 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, 2014. The December 31, 2014 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.

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


17



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

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

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

We have concluded that our Savannah and Southaven joint ventures are each considered a VIE because our voting rights are disproportionate to our economic interests and substantially all of each venture's activities either involve or are conducted on our behalf. Also, due to certain reconsideration events, we concluded during the quarter ended June 30, 2105 that our Westgate joint venture, previously considered a VIE since inception, was no longer considered a VIE.

The operating, development, leasing, and management agreements of Savannah provide that the activities that most significantly impact the economic performance of the venture require unanimous consent. Accordingly, we determined that we are not the primary beneficiary since we do not have the power to direct the significant activities that affect the economic performance of the venture, and have applied the equity method of accounting. The carrying amount of our investment in Savannah is reflected in investments in unconsolidated joint ventures on our consolidated balance sheets and was $46.7 million as of September 30, 2015. 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 Savannah.

The management agreement and other contractual arrangements for Southaven give us, but not necessarily our joint venture partner, significant participating rights over activities that most significantly impact the economic performance of the ventures, thus we have concluded that we are the primary beneficiary and have consolidated the venture's balance sheet and results of operations. At September 30, 2015, total assets of this venture, which is currently under construction, were $57.1 million and total liabilities were $30.2 million. The primary classification of the assets on the consolidated balance sheets are total rental property, net of $53.2 million; cash of $1.3 million and other assets of $2.6 million (including deferred lease costs and other intangibles and deferred debt origination costs) and the primary classification of the liabilities include accounts payable and accrued expenses of $15.0 million and mortgages payable of $15.2 million. These assets include only those assets that can be used to settle obligations of the VIE. The liabilities include third party liabilities and exclude intercompany balances that are eliminated in consolidation.

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


18



In the consolidated statement of operations, we have reclassified $1.2 million and $2.5 million related to management, leasing and other services for the three and nine months ended September 30, 2014, respectively, to the caption "management, leasing and other services" from the caption "other income" to conform to the presentation of the consolidated statement of operations for the three and nine months ended September 30, 2015. In addition, we have reclassified certain amounts related to other non-operating income and expenses for the three and nine months ended September 30, 2014 to the caption "other income/(expense)" from the caption "other income" to conform to the presentation of the consolidated statement of operations for the three and nine months ended September 30, 2015.

We have revised the previously reported amounts in the consolidated statement of cash flows to reclassify approximately $2.2 million related to tax increment financing for the nine months ended September 30, 2014 to the caption "additions to rental property" from the caption "proceeds from tax increment financing" to conform to the presentation of the consolidated statement of cash flows for the nine months ended September 30, 2015. We have concluded the previously reported financial statements were not materially misstated as a result of this revision.

3. Disposition of Properties and Properties Held for Sale

In the third quarter of 2015, we sold our Kittery, Tuscola, and West Branch outlet centers for a gain of $20.2 million. We received net proceeds of $43.3 million of which $42.9 million is recorded in restricted cash as of September 30, 2015. The restricted cash represents the cash proceeds from property sales that are being held by a qualified intermediary in anticipation of such amounts subsequently being invested in a tax efficient manner
under Section 1031 of the Internal Revenue Code of 1986, as amended.

During the third quarter of 2015, we also entered into a contractual agreement to sell our Barstow outlet center, the sale of which closed in October 2015. The Barstow outlet center has been classified as rental property held for sale as of September 30, 2015 on the consolidated balance sheets.

The following table sets forth certain summarized information regarding the properties sold during the quarter and the property held for sale as of September 30, 2015:
Properties
 
Locations
 
Date Sold
 
Square Feet
(in 000's)
 
Net Sales Price
(in 000's)
 
Gain on Sale(in 000's)
Sold:
 
 
 
 
 
 
 
 
 
 
Kittery I and II, Tuscola, and West Branch
 
Kittery, ME, Tuscola, IL, and West Branch, MI
 
September 2015
 
439

 
$
43,304

 
$
20,215

 
 
 
 
 
 
 
 
 
 
 
Held For Sale:
 
 
 
 
 
 
 
 
 
 
Barstow
 
Barstow, CA
 
October 2015
 
171

 
$
105,705

 
$
86,419


The rental properties sold and held for sale did not meet the criteria set forth in the newly-adopted guidance for reporting discontinued operations, thus their results of operations have remained in continuing operations.

The carrying values of the assets held for sale at September 30, 2015 and December 31, 2014 were comprised of the following (in thousands):
 
 
September 30, 2015
 
December 31, 2014
Rental property, net
 
$
17,980

 
$
43,532

Deferred lease costs and other intangibles, net
 
181

 
757

Prepaids and other assets
 
1,125

 
1,716

Rental property held for sale
 
$
19,286

 
$
46,005




19



4. Developments of Consolidated Outlet Centers

Foxwoods

In May 2015, we opened a 312,000 square feet outlet center at the Foxwoods Resort Casino in Mashantucket, Connecticut. We own a controlling interest in the joint venture which is consolidated for financial reporting purposes. Construction began on the outlet center in September 2013. As of September 30, 2015, our partner’s equity contributions totaled approximately $1.0 million and our equity contributions totaled approximately $56.2 million. Contributions we make in excess of $40.0 million earn a preferred rate of return of 15% from the date of contribution. In addition, each partner earns a rate of return of 10% on their initial capital contributions from the date of contribution. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned contributions and all unpaid returns earned on those contributions prior to any distributions being made to our partner. 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 our legal ownership percentage of 67%. As of September 30, 2015, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based at depreciated book value, our economic interest would represent substantially all of the economic benefit of the property. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.

Grand Rapids

In July 2015, we opened a 351,000 square foot wholly-owned outlet center near Grand Rapids, Michigan. We commenced construction on the development in July 2014. The outlet center is located 11 miles south of downtown Grand Rapids at the southwest quadrant of US-131 and 84th Street in Byron Township, Michigan, with visibility from both roads.

Development continues for the following consolidated outlet center as of September 30, 2015:
Project
Approximate square feet
(in 000's)
Costs Incurred to Date
(in millions)
Borrowed to date
(in millions)
Projected Opening
Southaven, Mississippi (Memphis)
320

47.5

15.2

Nov 2015

Southaven

In January 2015, we purchased land for approximately $14.8 million and commenced construction on the development of an approximately 320,000 square foot outlet center in Southaven, Mississippi. Tanger Outlets Southaven will be located less than five miles south of Memphis, Tennessee. The outlet center is being developed through a joint venture in which we own a controlling interest and is consolidated for financial reporting purposes. As of September 30, 2015, our partner’s equity contributions totaled approximately $461,000 and our equity contributions totaled approximately $26.5 million. From the date our equity contributions are made, we earn a preferred rate of return of 10% for senior contributions and 14% for junior contributions. As of September 30, 2015, the balance of our senior contributions was $17.7 million and our junior contributions was $8.3 million. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned contributions and all unpaid returns earned on those contributions prior to any distributions being made to our partner.

In April 2015, the consolidated joint venture closed on a mortgage loan with the ability to borrow up to $60.0 million at an interest rate of LIBOR +1.75%. The loan initially matures on April 29, 2018, with one two-year extension option.


20



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

As of September 30, 2015
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt
(in millions)
Columbus
 
Columbus, OH
 
50.0
%
 

 
$
10.2

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
8.6

 
83.7

RioCan Canada
 
Various
 
50.0
%
 
870

 
120.0

 
11.9

Savannah (1)
 
Savannah, GA
 
50.0
%
 
377

 
46.7

 
85.1

Westgate
 
Glendale, AZ
 
58.0
%
 
414

 
12.5

 
62.0

 
 
 
 
 
 
 
 
$
198.0

 
$
242.7

 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(0.9
)
 
$
90.0

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

 
(0.5
)
 
65.0

 
 
 
 
 
 
 
 
$
(1.4
)
 
$
155.0


As of December 31, 2014
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment
(in millions)
 
Total Joint Venture Debt
(in millions)
Galveston/Houston
 
Texas City, TX
 
50.0
%
 
353

 
$
1.3

 
$
65.0

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
9.5

 
83.7

RioCan Canada
 
Various
 
50.0
%
 
870

 
132.5

 
15.7

Savannah (1)
 
Savannah, GA
 
50.0
%
 

 
46.5

 
25.5

Westgate
 
Glendale, AZ
 
58.0
%
 
381

 
14.3

 
54.0

Wisconsin Dells
 
Wisconsin Dells, WI
 
50.0
%
 
265

 
2.4

 
24.3

Other
 
 
 
 
 

 
1.5

 

 
 
 
 
 
 
 
 
$
208.0

 
$
268.2

 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(2.2
)
 
$
90.0

 
 
 
 
 
 
 
 
$
(2.2
)
 
$
90.0

(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 the ownership percentage indicated above, 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 asset sales.
(2)
The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.



21



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

Nine months ended
 
 
September 30,

September 30,
 
 
2015
 
2014

2015

2014
Fee:
 
 
 
 
 
 

 
 

Development and leasing
 
$
325

 
$
624

 
$
1,632

 
$
702

Loan guarantee
 
182

 
23

 
564

 
209

Management and marketing
 
746

 
578

 
2,067

 
1,637

Total Fees
 
$
1,253

 
$
1,225

 
$
4,263

 
$
2,548


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 $3.9 million and $4.4 million as of September 30, 2015 and December 31, 2014, respectively) are amortized over the various useful lives of the related assets.

Columbus, Ohio

During the second quarter of 2015, the joint venture purchased land for approximately $8.9 million and began construction on Tanger Outlets Columbus. We and our partner currently expect to complete construction in time to open the center during the second quarter of 2016. As of September 30, 2015 our equity contributions have totaled $9.8 million and our partner's equity contributions have totaled $9.8 million. Our partner is providing development services to the joint venture and we, along with our partner, are providing joint leasing services. Once the center opens, we will provide property management, marketing and leasing services to the joint venture.

Savannah, Georgia

In January 2014, we announced a joint venture arrangement to develop Tanger Outlets Savannah. The center, which opened in April 2015, includes approximately 377,000 square feet. As of September 30, 2015, our equity contributions totaled $45.8 million and our partner’s equity contributions totaled $8.3 million. Contributions we made in excess of our partners' equity contributions are considered preferred equity and earned a preferred rate of return equal to 8% from the date the contributions were made until the outlet center’s grand opening in April 2015, and will earn 10% annually thereafter. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned preferred equity contributions and all unpaid returns earned on those contributions prior to any distributions being made to our equity partner. As of September 30, 2015, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based at depreciated book value, our estimated economic interest in the venture was approximately 98%. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.

In May 2014, the joint venture closed on a construction loan with the ability to borrow up to $97.7 million at an interest rate of LIBOR + 1.65%. In September 2015, the loan maximum borrowing amount was increased to $100.9 million. The construction loan has a maturity date of May 21, 2017, with two, one -year extension options. As of September 30, 2015, the balance on the loan was $85.1 million. The additional $15.8 million is available for construction of the approximately 42,000 square foot expansion that is currently in process. We are providing development, management and marketing services to the joint venture; and with our partner, are jointly providing leasing services to the outlet center.



22



Westgate, Glendale, Arizona

During the first quarter of 2015, the joint venture completed the remaining 28,000 square feet of a 78,000 square foot expansion of the existing property which brought the size of the outlet center to approximately 414,000 square feet. Construction commenced on the expansion during the second quarter of 2014 and was funded with borrowings under the amended Westgate mortgage loan. The joint venture's amended and restated construction loan is fully funded with a balance of $62.0 million. The loan initially matured in June 2015, and during the second quarter of 2015 the joint venture exercised the two year option to extend the maturity date of the loan to June 2017.

Tanger Outlets Westgate opened in November 2012 and was developed through, and is currently owned by, a joint venture that was formed in May 2012. We are providing property management, construction supervision, marketing and leasing services to the joint venture.
Wisconsin Dells, Wisconsin

In February 2015, we sold our equity interest in the joint venture that owned the Wisconsin Dells outlet center for approximately $15.6 million, representing our share of the sales price totaling $27.7 million less our share of the outstanding debt, which totaled $12.1 million. As a result of this transaction, we recorded a gain of approximately $13.7 million in the first quarter of 2015, which represents the difference between the carrying value of our equity method investment and the net proceeds received.

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
 
September 30, 2015
 
December 31, 2014
Assets
 
 

 
 

Land
 
$
104,518

 
$
102,601

Buildings, improvements and fixtures
 
617,732

 
542,501

Construction in progress, including land
 
33,850

 
104,780

 
 
756,100

 
749,882

Accumulated depreciation
 
(53,098
)
 
(48,233
)
Total rental property, net
 
703,002

 
701,649

Cash and cash equivalents
 
29,745

 
46,917

Deferred lease costs, net
 
19,305

 
21,234

Deferred debt origination costs, net
 
4,403

 
5,995

Prepaids and other assets
 
14,367

 
12,766

Total assets
 
$
770,822

 
$
788,561

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
397,715

 
$
358,219

Accounts payable and other liabilities
 
29,621

 
70,795

Total liabilities
 
427,336

 
429,014

Owners' equity
 
343,486

 
359,547

Total liabilities and owners' equity
 
$
770,822

 
$
788,561



23



 
 
Three months ended
 
Nine months ended
Condensed Combined Statements of Operations
 
September 30,
 
September 30,
 - Unconsolidated Joint Ventures
 
2015
 
2014
 
2015
 
2014
Revenues
 
$
27,495

 
$
19,969

 
$
77,648

 
$
52,803

Expenses
 
 
 
 
 
 

 
 
Property operating
 
9,601

 
7,292

 
29,912

 
20,562

General and administrative
 
92

 
198

 
400

 
354

Abandoned development costs
 

 
472

 

 
472

Depreciation and amortization
 
9,003

 
5,831

 
25,381

 
15,369

Total expenses
 
18,696

 
13,793

 
55,693

 
36,757

Operating income
 
8,799

 
6,176

 
21,955

 
16,046

Interest expense
 
(2,324
)
 
(1,316
)
 
(6,304
)
 
(3,925
)
Other nonoperating income (expense)
 
4

 

 
17

 

Net income
 
$
6,479

 
$
4,860

 
$
15,668

 
$
12,121

 
 
 
 
 
 
 
 
 
The Company and Operating Partnership's share of:
 
 

 
 

Net income
 
$
3,713

 
$
2,479

 
$
8,302

 
$
6,200

Depreciation expense (real estate related)
 
$
5,411

 
$
3,040

 
$
14,525

 
$
8,048


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. The Company also guarantees the Operating Partnership's unsecured term loan. In addition, as of December 31, 2014, the Company guaranteed the Operating Partnership's obligation with respect to the mortgage assumed in connection with the acquisition of the outlet center in Ocean City, Maryland in July 2011. The Ocean City mortgage was subsequently repaid in July 2015.

The Operating Partnership had the following amounts outstanding on the debt guaranteed by the Company (in thousands):
 
 
September 30, 2015
 
December 31, 2014
Unsecured lines of credit
 
$
195,800

 
$
111,000

Unsecured term loan
 
$
250,000

 
$
250,000

Ocean City mortgage
 
$

 
$
17,827




24



7. Debt of the Operating Partnership

The debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
 
September 30, 2015
 
December 31, 2014
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Premium
 (Discount)
 
Principal
 
Premium
 (Discount)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
 
6.125
%
 
June 2020

 
$
300,000

 
$
(1,123
)
 
$
300,000

 
$
(1,276
)
Senior notes
 
3.875
%
 
December 2023

 
250,000

 
(3,468
)
 
250,000

 
(3,732
)
Senior notes
 
3.750
%
 
December 2024

 
250,000

 
(1,328
)
 
250,000

 
(1,418
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable:
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City (1)
 
5.14%-7.65%

 
November 2021- December 2026

 
43,998

 
3,393

 
45,997

 
3,694

Deer Park
 
LIBOR + 1.50%

 
August 2018

 
150,000

 
(924
)
 
150,000

 
(1,161
)
     Foxwoods
 
LIBOR + 1.65%

 
December 2017

 
70,250

 

 
25,235

 

Hershey (1)
 
5.17%-8.00%

 

 

 

 
29,271

 
399

Ocean City (1)
 
5.24
%
 

 

 

 
17,827

 
99

     Southaven
 
LIBOR + 1.75%

 
April 2018

 
15,248

 

 

 

Note payable (1)
 
1.50
%
 
June 2016

 
10,000

 
(122
)
 
10,000

 
(241
)
Unsecured term loan
 
LIBOR + 1.05%

 
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%

 
October 2017

 
195,800

 

 
111,000

 

 
 
 
 
 
 
$
1,542,796

 
$
(3,572
)
 
$
1,446,830

 
$
(3,636
)
(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%, Hershey 3.40%, Ocean City 4.68%, and note payable 3.15%.

Certain of our properties, which had a net book value of approximately $604.1 million at September 30, 2015 and $602.7 million at December 31, 2014, 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 guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. For construction and term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal.  The principal guarantees include terms for release or reduction based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. With regard to the Southaven mortgage discussed below which is held within a consolidated VIE, we have provided to the lenders a guaranty of completion as well as a principle guaranty of 50% of the principle which may be reduced to 10% of principle based upon satisfactory completion of certain construction and performance targets. The maximum amount of the guaranty, once the mortgage is fully funded, will be approximately $30.0 million.

The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. As of September 30, 2015, we were in compliance with all of our debt covenants.


25



Ocean City Mortgage

In July 2015, we repaid the mortgage associated with our Ocean City, Maryland outlet center, which was assumed as part of the acquisition of the property in 2011. The maturity date of the mortgage was January 6, 2016 and had a principal balance at the date of extinguishment of $17.6 million. We also wrote off the remaining unamortized premium associated with the mortgage totaling approximately $51,000.

Hershey Mortgage

During the second quarter of 2015, we repaid the mortgages associated with our Hershey, Pennsylvania property, which were assumed as part of the acquisition of the property in 2011. The maturity date of the mortgages was August 1, 2015 and had a principal balance at the date of extinguishment of $29.0 million. We also wrote off the remaining unamortized premiums associated with the mortgages totaling approximately $201,000.

Southaven Mortgage

In April 2015, the consolidated joint venture closed on a mortgage loan with the ability to borrow up to $60.0 million at an interest rate of LIBOR +1.75%. The loan initially matures on April 29, 2018, with one two-year extension option.

Debt Maturities

Maturities of the existing long-term debt as of September 30, 2015 are as follows (in thousands):
Calendar Year
 
Amount

2015
 
$
686

2016
 
12,842

2017
 
276,558

2018
 
168,432

2019
 
253,369

Thereafter
 
830,909

Subtotal
 
1,542,796

Net discount
 
(3,572
)
Total
 
$
1,539,224

  
8. Deferred Financing Obligation

On September 30, 2015, the noncontrolling interest in our outlet center in Deer Park, New York exercised its right to require us to acquire their ownership interest in the property for $28.4 million. Closing on the transaction is scheduled to occur on January 5, 2016. The obligation to acquire its interest is recorded as a deferred financing obligation in the other liabilities section of the consolidated balance sheet.


26




9. 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 (in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value
Effective Date
 
Maturity Date
 
Notional Amount
 
Bank Pay Rate
 
Company Fixed Pay Rate
 
September 30, 2015
 
December 31, 2014
Assets (Liabilities):
 
 
 
 
 
 
 
 
 
 
 
 
November 14, 2013
 
August 14, 2018
 
$
50,000

 
1 month LIBOR
 
1.3075
%
 
$
(657
)
 
$
26

November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.2970
%
 
(643
)
 
40

November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.3025
%
 
(650
)
 
29

Total
 
 
 
$
150,000

 
 
 
 
 
$
(1,950
)
 
$
95


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. For the three and nine months ended September 30, 2015, the ineffective portion was not significant.

The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
 
 
Location of Reclassification from Accumulated OCI Into Income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
 
2015
 
2014
 
2015
 
2014
Interest Rate Swaps (Effective Portion):
 
 
 

 

 
 
 
 
Amount of gain (loss) recognized in OCI on derivative
 
 
 
$
(1,156
)
 
$
952

 
$
(2,046
)
 
$
(386
)
 
 
 
 
 
 
 
 
 
 
 
Treasury Rate Lock (Effective Portion):
 
 
 

 

 
 
 
 
Amount of gain reclassified from accumulated OCI into income
 
Interest Expense
 
$

 
$
99

 
$

 
$
293


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. We fully amortized the remaining balance in December 2014 in connection with the early redemption of the associated 10 year senior, unsecured notes.


27



10. 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 September 30, 2015:
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps (other liabilities)
 
$
(1,950
)
 
$

 
$
(1,950
)
 
$

Total liabilities
 
$
(1,950
)
 
$

 
$
(1,950
)
 
$


 
 
 
 
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, 2014:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
95

 
$

 
$
95

 
$

Total assets
 
$
95

 
$

 
$
95

 
$


The estimated fair value and recorded value of our debt consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit were as follows (in thousands):
 
 
September 30, 2015
 
December 31, 2014
Fair value of debt
 
$
1,608,042

 
$
1,493,519

Recorded value of debt
 
1,539,224

 
1,443,194


With the exception of the unsecured term loan and unsecured lines of credit, that have variable rates and considered at market value, fair values of the senior notes and mortgage loans are determined using discounted cash flow analysis with an interest rate or credit spread similar to that of current market borrowing arrangements. Because the Company's senior unsecured notes are publicly traded with limited trading volume, these instruments are classified as Level 2 in the hierarchy. In contrast, mortgage loans are classified as Level 3 given the unobservable inputs utilized in the valuation. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on the disposition of the financial instruments.


28



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.

11. Shareholders' Equity of the Company

During the nine months ended September 30, 2014, Non-Company LPs exchanged a total of 43,331 Class A common limited partnership units of the Operating Partnership for an equal number of common shares of the Company. No Class A common limited partnership units of the Operating Partnership were exchanged during the nine months ended September 30, 2015. As of September 30, 2015, the Non-Company LPs owned 5,078,406 Class A common limited partnership units. Each Class A common limited partnership unit is exchangeable for one common share of the Company.


12. 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 nine months ended September 30, 2015 and September 30, 2014.
 
 
 
 
Limited Partnership Units
 
 
General Partnership Units
 
Class A
 
Class B
 
Total
Balance December 31, 2013
 
1,000,000

 
5,145,012

 
93,505,685

 
98,650,697

Exchange of Class A limited partnership units
 

 
(43,331
)
 
43,331

 

Issuance of restricted units
 

 

 
1,302,729

 
1,302,729

Units issued upon exercise of options
 

 

 
46,700

 
46,700

Balance September 30, 2014
 
1,000,000

 
5,101,681

 
94,898,445

 
100,000,126

 
 
 
 
 
 
 
 
 
Balance December 31, 2014
 
1,000,000

 
5,078,406

 
94,509,781

 
99,588,187

Issuance of restricted units
 

 

 
348,844

 
348,844

Units issued upon exercise of options
 

 

 
16,400

 
16,400

Units withheld for employee income taxes
 

 

 
(31,532
)
 
(31,532
)
Balance September 30, 2015
 
1,000,000

 
5,078,406

 
94,843,493

 
99,921,899



29



13. Earnings Per Share of the Company

The following table sets forth a reconciliation of the numerators and denominators in computing the Company's earnings per share (in thousands, except per share amounts):
 
 
Three months ended September 30,
 
Nine months ended September 30,
 
 
2015
 
2014
 
2015
 
2014
Numerator
 
 
 
 
 
 
 
 
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
44,075

 
$
23,003

 
$
103,068

 
$
56,469

Less allocation of earnings to participating securities
 
(494
)
 
(481
)
 
(1,210
)
 
(1,391
)
Net income available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
$
43,581

 
$
22,522

 
$
101,858

 
$
55,078

Denominator
 
 
 
 
 
 
 
 
Basic weighted average common shares
 
94,746

 
93,834

 
94,675

 
93,741

Effect of notional units
 

 

 

 

Effect of outstanding options and certain restricted common shares
 
53

 
67

 
62

 
70

Diluted weighted average common shares
 
94,799

 
93,901

 
94,737

 
93,811

Basic earnings per common share:
 
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59

Diluted earnings per common share:
 
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

 
$
1.08

 
$
0.59


The notional units are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method. Notional units granted in 2010 were converted into 933,769 restricted common shares in January 2014. The restricted common shares vested on December 31, 2014 and were considered participating securities through the vesting date.

The computation of diluted earnings per share excludes options to purchase common shares when the exercise price is greater than the average market price of the common shares for the period. For the three and nine months ended September 30, 2015, 250,400 and 250,500 options were excluded from the computation, respectively. For the both the three and nine months ended September 30, 2014, 273,500 options were excluded from the computation. The assumed exchange of the partnership units held by the Non-Company LPs as of the beginning of the year, which would result in the elimination of earnings allocated to the noncontrolling interest in the Operating Partnership, would have no impact on earnings per share since the allocation of earnings to a common limited partnership unit, as if exchanged, is equivalent to earnings allocated to a common share.

Certain of the Company's unvested restricted common share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of these unvested restricted common share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted common share awards based on dividends declared and the unvested restricted common shares' participation rights in undistributed earnings. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per share computation if the effect is dilutive, using the treasury stock method.


30



14. Earnings Per Unit of the Operating Partnership

The following table sets forth a reconciliation of the numerators and denominators in computing earnings per unit (in thousands, except per unit amounts):
 
 
Three months ended September 30,
Nine months ended September 30,
 
 
2015
 
2014
2015
 
2014
Numerator
 
 

 
 
 

 
 

Net income attributable to partners of the Operating Partnership
 
$
46,439

 
$
24,255

$
108,600

 
$
59,552

Less allocation of earnings to participating securities
 
(495
)
 
(482
)
(1,211
)
 
(1,392
)
Net income available to common unitholders of the Operating Partnership
 
$
45,944

 
$
23,773

$
107,389

 
$
58,160

Denominator
 
 
 
 
 
 
 
Basic weighted average common units
 
99,824

 
98,936

99,753

 
98,860

Effect of notional units
 

 


 

Effect of outstanding options and certain restricted common units
 
53

 
67

62

 
70

Diluted weighted average common units
 
99,877

 
99,003

99,815

 
98,930

Basic earnings per common unit:
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

$
1.08

 
$
0.59

Diluted earnings per common unit:
 
 
 
 
 
 
 
Net income
 
$
0.46

 
$
0.24

$
1.08

 
$
0.59


The notional units are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method. Notional units granted in 2010 were converted into 933,769 restricted common units in January 2014. The restricted common units vested on December 31, 2014 and were considered participating securities through the vesting date.
 
The computation of diluted earnings per unit excludes options to purchase common units when the exercise price is greater than the average market price of the common units for the period. The market price of a common unit is considered to be equivalent to the market price of a Company common share. For the three and nine months ended September 30, 2015, 250,400 and 250,500 options were excluded from the computation, respectively. For the both the three and nine months ended September 30, 2014, 273,500 options were excluded from the computation.

Certain of the Company's unvested restricted common share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the corresponding unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units' participation rights in undistributed earnings. Unvested restricted common units that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per unit computation if the effect is dilutive, using the treasury stock method.

15. Equity Based Compensation of the Company

We have a shareholder approved equity-based compensation plan, the Incentive Award Plan of Tanger Factory Outlet Centers and Tanger Properties Limited Partnership (Amended and Restated as of April 4, 2014) (the "Plan"), which covers our independent directors, officers, employees and consultants. For each common share issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly owned subsidiaries. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "shares" is meant to also include corresponding units of the Operating Partnership.


31



During February 2015, the Company issued 357,844 restricted common shares to the Company's independent directors and the Company's senior executive officers. The grant date fair value of the awards ranged from $32.77 to $38.55 per share. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted shares vest ratably over a five year period. For the restricted shares issued to our chief executive officer, the restricted share agreement requires him to hold the shares for a minimum of three years following each vesting date. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.

In February 2015, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2015 Outperformance Plan (the “2015 OPP"). The 2015 OPP is a long-term performance based incentive compensation plan pursuant to which award recipients may earn up to an aggregate of 306,600 restricted common shares based on the Company’s absolute share price appreciation (or total shareholder return) and its share price appreciation relative to its peer group, over a three year measurement period from January 1, 2015 through December 31, 2017.

We recorded share-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Restricted common shares
 
$
2,865

 
$
2,540

 
$
8,362

 
$
7,406

Notional unit performance awards
 
1,012

 
1,125

 
2,853

 
3,184

Options
 
117

 
116

 
345

 
343

Total share-based compensation
 
$
3,994

 
$
3,781

 
$
11,560

 
$
10,933


Share-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Share-based compensation expense capitalized
 
$
217

 
$
184

 
$
620

 
$
525


We withheld shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld was 954 and 31,532 for the three and nine months ended September 30, 2015, respectively, and was based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. No shares were withheld for the three and nine months ended September 30, 2014. Total amounts paid for the employees' tax obligation to taxing authorities was $1.1 million for the nine months ended September 30, 2015 and is reflected as a financing activity within the consolidated statements of cash flows.


32



16. Accumulated Other Comprehensive Income of the Company

The following table presents changes in the balances of each component of accumulated comprehensive income for the three and nine months ended September 30, 2015 (in thousands):
 
 

 
 
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
 
 
Foreign Currency
 
Cash flow hedges
 
Total
 
Foreign Currency
 
Cash flow hedges
 
Total
Balance June 30, 2015
 
$
(21,716
)
 
$
(754
)
 
$
(22,470
)
 
$
(1,183
)
 
$
(40
)
 
$
(1,223
)
Unrealized gain on foreign currency translation adjustments
 
(10,376
)
 

 
(10,376
)
 
(556
)
 

 
(556
)
Change in fair value of cash flow hedges
 

 
(1,097
)
 
(1,097
)
 

 
(59
)
 
(59
)
Balance September 30, 2015
 
$
(32,092
)
 
$
(1,851
)
 
$
(33,943
)
 
$
(1,739
)
 
$
(99
)
 
$
(1,838
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
 
 
Foreign Currency
 
Cash flow hedges
 
Total
 
Foreign Currency
 
Cash flow hedges
 
Total
Balance December 31, 2014
 
$
(14,113
)
 
$
90

 
$
(14,023
)
 
$
(773
)
 
$
5

 
$
(768
)
Unrealized loss on foreign currency translation adjustments
 
(17,979
)
 

 
(17,979
)
 
(966
)
 

 
(966
)
Change in fair value of cash flow hedges
 

 
(1,941
)
 
(1,941
)
 

 
(104
)
 
(104
)
Balance September 30, 2015
 
$
(32,092
)
 
$
(1,851
)
 
$
(33,943
)
 
$
(1,739
)
 
$
(99
)
 
$
(1,838
)


33



The following table presents changes in the balances of each component of accumulated comprehensive income for the three and nine months ended September 30, 2014 (in thousands):
 
 

 
 
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
 
 
Foreign Currency
 
Cash flow hedges
 
Total
 
Foreign Currency
 
Cash flow hedges
 
Total
Balance June 30, 2014
 
$
(3,974
)
 
$
709

 
$
(3,265
)
 
$
(222
)
 
$
(118
)
 
$
(340
)
Amortization of cash flow hedges
 

 
(94
)
 
(94
)
 

 
(5
)
 
(5
)
Unrealized gain on foreign currency translation adjustments
 
(4,926
)
 

 
(4,926
)
 
(268
)
 

 
(268
)
Change in fair value of cash flow hedges
 

 
903

 
903

 

 
49

 
49

Balance September 30, 2014
 
$
(8,900
)
 
$
1,518

 
$
(7,382
)
 
$
(490
)
 
$
(74
)
 
$
(564
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)
 
Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
 
 
Foreign Currency
 
Cash flow hedges
 
Total
 
Foreign Currency
 
Cash flow hedges
 
Total
Balance December 31, 2013
 
$
(4,590
)
 
$
2,162

 
$
(2,428
)
 
$
(254
)
 
$
(39
)
 
$
(293
)
Amortization of cash flow hedges
 

 
(278
)
 
(278
)
 

 
(15
)
 
(15
)
Unrealized gain on foreign currency translation adjustments
 
(4,310
)
 

 
(4,310
)
 
(236
)
 

 
(236
)
Change in fair value of cash flow hedges
 

 
(366
)
 
(366
)
 

 
(20
)
 
(20
)
Balance September 30, 2014
 
$
(8,900
)
 
$
1,518

 
$
(7,382
)
 
$
(490
)
 
$
(74
)
 
$
(564
)

The following represents amounts reclassified out of accumulated other comprehensive income and into earnings (in thousands):
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in Statement of Operations
 
 
Three months ended
 
Nine months ended
 
 
 
 
September 30,
 
September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Amortization of cash flow hedges
 
$

 
$
(94
)
 
$

 
$
(278
)
 
Interest expense


34



17. Accumulated Other Comprehensive Income of the Operating Partnership

The following table presents changes in the balances of each component of accumulated comprehensive income for the three and nine months ended September 30, 2015 (in thousands):
 
 
Foreign Currency
 
Cash flow hedges
 
Accumulated Other Comprehensive Income (Loss)
Balance June 30, 2015
 
$
(22,899
)
 
$
(794
)
 
$
(23,693
)
Unrealized gain on foreign currency translation adjustments
 
(10,932
)
 

 
(10,932
)
Change in fair value of cash flow hedges
 

 
(1,156
)
 
(1,156
)
Balance September 30, 2015
 
$
(33,831
)
 
$
(1,950
)
 
$
(35,781
)
 
 
 
 
 
 
 
 
 
Foreign Currency
 
Cash flow hedges
 
Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2014
 
$
(14,886
)
 
$
95

 
$
(14,791
)
Unrealized loss on foreign currency translation adjustments
 
(18,945
)
 

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

 
(2,045
)
 
(2,045
)
Balance September 30, 2015
 
$
(33,831
)
 
$
(1,950
)
 
$
(35,781
)

The following table presents changes in the balances of each component of accumulated comprehensive income for the three and nine months ended September 30, 2014 (in thousands):
 
 
Foreign Currency
 
Cash flow hedges
 
Accumulated Other Comprehensive Income (Loss)
Balance June 30, 2014
 
$
(4,196
)
 
$
591

 
$
(3,605
)
Amortization of cash flow hedges
 

 
(99
)
 
(99
)
Unrealized gain on foreign currency translation adjustments
 
(5,194
)
 

 
(5,194
)
Change in fair value of cash flow hedges
 

 
952

 
952

Balance September 30, 2014
 
$
(9,390
)
 
$
1,444

 
$
(7,946
)
 
 
 
 
 
 
 
 
 
Foreign Currency
 
Cash flow hedges
 
Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2013
 
$
(4,844
)
 
$
2,123

 
$
(2,721
)
Amortization of cash flow hedges
 

 
(293
)
 
(293
)
Unrealized gain on foreign currency translation adjustments
 
(4,546
)
 

 
(4,546
)
Change in fair value of cash flow hedges
 

 
(386
)
 
(386
)
Balance September 30, 2014
 
$
(9,390
)
 
$
1,444

 
$
(7,946
)


35



The following represents amounts reclassified out of accumulated other comprehensive income and into earnings:
Details about Accumulated Other Comprehensive Income Components
 
Amount Reclassified from Accumulated Other Comprehensive Income (Loss)
 
Affected Line Item in Statement of Operations
 
 
Three months ended
 
Nine months ended
 
 
 
 
September 30,
 
September 30,
 
 
 
 
2015
 
2014
 
2015
 
2014
 
 
Amortization of cash flow hedges
 
$

 
$
(99
)
 
$

 
$
(293
)
 
Interest expense

18. Non-Cash Activities

We purchase capital equipment and incur costs relating to construction of facilities, including tenant finishing allowances. Expenditures included in accounts payable and accrued expenses were as follows (in thousands):
 
 
September 30, 2015
 
September 30, 2014
Costs relating to construction included in accounts payable and accrued expenses
 
$
33,622

 
$
23,216


Additionally, for the nine months ended September 30, 2015 additions to rental property excludes $202,000 in equity contributions made by our noncontrolling interest partner for pre-development costs at our Southaven outlet center which is currently under development. For the nine months ended September 30, 2014, additions to rental property excludes $1.0 million in equity contributions made by our noncontrolling interest partner related to pre-development costs at our Foxwoods outlet center, which opened in May 2015.


19. New Accounting Standards

In April 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs to be presented in the balance sheet as a direct deduction from the associated debt liability. The guidance in the new standard is limited to the presentation of debt issuance costs. The standard does not affect the recognition and measurement of debt issuance costs. Early adoption is permitted for financial statements that have not been previously issued. The new guidance will be applied on a retrospective basis. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. We do not expect the adoption of ASU 2015-03 to have a material impact on our consolidated financial statements.

In February 2015, FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, eliminates the presumption that a general partner should consolidate a limited partnership and affects the consolidation analysis reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. ASU 2015-02 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15 Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which requires management to evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued. ASU 2014-15 is effective for the annual period ended December 31, 2016 and for annual periods and interim periods thereafter with early adoption permitted. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.


36



In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (the "Final Standard"). Under the Final Standard, only disposals representing a strategic shift in operations (e.g., a disposal of a major geographic area, a major line of business or a major equity method investment) will be presented as discontinued operations. Under current GAAP, companies that sell a single investment property are generally required to report the sale as a discontinued operation, which requires the companies to reclassify earnings from continuing operations for all periods presented. The Final Standard is effective in the first quarter of 2015 for public entities with calendar year ends. The FASB will permit early adoption of the Final Standard, beginning in the first quarter of 2014, but only for disposals or classifications as held for sale that have not been reported in financial statements previously issued or available for issuance. We early adopted the standard in the first quarter of 2014. See Note 3 Disposition of Properties and Properties Held for Sale for further information.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. We are required to adopt the new pronouncement in the first quarter of fiscal 2018 using one of two retrospective application methods. We are currently evaluating the new guidance to determine the impact it may have on our consolidated financial statements.

20. Subsequent Events

In October 2015, we closed on amendments to our unsecured lines of credit, extending the maturity, and reducing our interest rate. The maturity date of these facilities was extended from October 2017 to October 2019 with the ability to further extend the maturity date for an additional year at our option. The interest rate was reduced from LIBOR + 1.00% to LIBOR + 0.90% based on our current credit rating and the maximum borrowings to which the syndicated line could be increased through an accordion feature in certain circumstances was increased from $750.0 million to $1.0 billion. Loan origination costs associated with the amendments totaled approximately $2.0 million.

37




Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three and nine months ended September 30, 2015 with the three and nine months ended September 30, 2014. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. 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.

Cautionary Statements

Certain statements made below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding our: future issuances of equity and debt and the expected use of proceeds from such issuances; potential sales or purchases of outlet centers; anticipated results of operations, liquidity and working capital; new outlet center developments and expansions; and real estate joint ventures. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Important factors which may cause actual results to differ materially from current expectations include, but are not limited to, our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers; the relative illiquidity of real property investments; impairment charges affecting our properties; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; environmental regulations affecting our business; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; the risk that consumer, travel, shopping and spending habits may change; risks associated with our Canadian expansion; risks associated with debt financing; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism; and those factors set forth under Item 1A - "Risk Factors" in the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2014.


38



General Overview

At September 30, 2015, we had 34 consolidated outlet centers in 21 states totaling 11.6 million square feet. We also had 9 unconsolidated outlet centers in 7 states or provinces totaling 2.8 million square feet. The table below details our new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2014 to September 30, 2015:
 
 
 
 
Consolidated Outlet Centers
 
Unconsolidated Joint Venture Outlet Centers
Outlet Center
 
Quarter Acquired/Open/Disposed/Demolished
 
Square Feet
(in thousands)
 
Number of Outlet Centers
 
Square Feet
(in thousands)
 
Number of
Outlet Centers
As of January 1, 2014
 
 
 
11,537

 
37

 
1,719

 
7

New Developments:
 
 
 
 
 
 
 
 
 
 
Charlotte
 
Third Quarter
 

 

 
398

 
1

Ottawa
 
Fourth Quarter
 

 

 
288

 
1

Expansion:
 
 
 
 
 
 
 
 
 
 
     Charleston
 
Second Quarter
 
17

 

 

 

Cookstown
 
Fourth Quarter
 

 

 
149

 

Branson
 
Fourth Quarter
 
27

 

 

 

Westgate
 
Fourth Quarter
 

 

 
50

 

Park City
 
Fourth Quarter
 
21

 

 

 

Sevierville
 
Fourth Quarter
 
10

 

 

 

Disposition:
 
 
 
 
 
 
 
 
 
 
Lincoln City
 
Fourth Quarter
 
(270
)
 
(1
)
 

 

Other
 
 
 
4

 

 
2

 

As of December 31, 2014
 
 
 
11,346

 
36

 
2,606

 
9

New Developments:
 
 
 
 
 
 
 
 
 
 
Foxwoods
 
Second Quarter
 
312

 
1

 

 

Savannah
 
Second Quarter
 

 

 
377

 
1

Grand Rapids
 
Third Quarter
 
350

 
1

 

 

Expansion:
 
 
 
 
 
 
 
 
 
 
Westgate
 
First Quarter
 

 

 
28

 

Disposition:
 
 
 
 
 
 
 
 
 
 
Wisconsin Dells
 
First Quarter
 

 

 
(265
)
 
(1
)
Kittery I
 
Third Quarter
 
(52
)
 
(1
)
 

 

Kittery II
 
Third Quarter
 
(25
)
 
(1
)
 

 

Tuscola
 
Third Quarter
 
(250
)
 
(1
)
 

 

West Branch
 
Third Quarter
 
(113
)
 
(1
)
 

 

Other
 
 
 

 

 
4

 

As of September 30, 2015
 
 
 
11,568


34

 
2,750

 
9




39



The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2015. Except as noted, all properties are fee owned.
Consolidated Outlet Centers
 
Square
 
%
Location
 
Feet
 
Occupied
Deer Park, New York
 
749,074

 
95
 
Riverhead, New York (1)
 
729,734

 
98
 
Rehoboth Beach, Delaware (1)
 
565,707

 
100
 
Foley, Alabama
 
557,014

 
93
 
Atlantic City, New Jersey (1)
 
489,706

 
94
 
Sevierville, Tennessee (1)
 
448,335

 
100
 
San Marcos, Texas
 
441,821

 
98
 
Myrtle Beach Hwy 501, South Carolina
 
425,247

 
97
 
Jeffersonville, Ohio
 
411,776

 
99
 
Myrtle Beach Hwy 17, South Carolina (1)
 
402,791

 
99
 
Charleston, South Carolina
 
382,117

 
99
 
Pittsburgh, Pennsylvania
 
372,958

 
100
 
Commerce II, Georgia
 
371,408

 
97
 
Grand Rapids, Michigan
 
350,671

 
93
 
Branson, Missouri
 
329,861

 
100
 
Locust Grove, Georgia
 
321,070

 
100
 
Howell, Michigan
 
319,889

 
94
 
Park City, Utah
 
319,661

 
99
 
Mebane, North Carolina
 
318,910

 
95
 
Gonzales, Louisiana
 
318,666

 
100
 
Mashantucket, Connecticut (Foxwoods)
 
311,640

 
94
 
Westbrook, Connecticut
 
289,898

 
93
 
Williamsburg, Iowa
 
276,331

 
99
 
Lancaster, Pennsylvania
 
254,002

 
99
 
Hershey, Pennsylvania
 
247,500

 
98
 
Tilton, New Hampshire
 
245,698

 
98
 
Hilton Head II, South Carolina
 
206,544

 
95
 
Fort Myers, Florida
 
198,877

 
90
 
Ocean City, Maryland (1)
 
198,840

 
99
 
Terrell, Texas
 
177,800

 
97
 
Hilton Head I, South Carolina
 
177,199

 
97
 
Barstow, California
 
171,300

 
100
 
Blowing Rock, North Carolina
 
104,052

 
100
 
Nags Head, North Carolina
 
82,161

 
100
 
Totals
 
11,568,258

 
97
(2), (3) 
(1)
These properties or a portion thereof are subject to a ground lease.
(2)
Excludes the occupancy rate at our Foxwoods center and Grand Rapids center which opened during the second and third quarters of 2015, respectively, and have not yet stabilized.
(3)
Excludes the occupancy rate at our Barstow outlet center which was sold on October 5, 2015.


40



Unconsolidated joint venture properties
 
Square
 
%
Location
 
Feet
 
Occupied
Glendale, Arizona (Westgate) (58% owned)
 
413,527

 
100
Charlotte, North Carolina (50% owned)
 
397,837

 
99
Savannah, Georgia (50% owned)
 
377,286

 
99
Texas City, Texas (50% owned)
 
352,705

 
99
Washington D.C. (50% owned)
 
338,786

 
99
Cookstown, Ontario (50% owned)
 
308,803

 
100
Ottawa, Ontario (50% owned) (1)
 
284,218

 
97
Bromont, Quebec (50% owned)
 
161,449

 
74
Saint-Sauveur, Quebec (50% owned)
 
115,717

 
97
Total
 
2,750,328

 
97
(1)
Excludes square feet to be completed and turned over to a magnet tenant at a later date.

Leasing Activity

The following table provides information for our consolidated outlet centers regarding space re-leased or renewed:
 
Nine months ended September 30, 2015 (1)
 
# of Leases
Square Feet
(in 000's)
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
 (in years)
Net Average
Annual
Straight-line Rent (psf) (2)
Re-tenant
115

430

$
31.64

$
27.56

9.27

$
28.67

Renewal
242

1,131

$
26.54

$
0.13

5.33

$
26.52

 
 
 
 
 
 
 
 
Nine months ended September 30, 2014 (3)
 
# of Leases
Square Feet
(in 000's)
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
 (in years)
Net Average
Annual
Straight-line Rent (psf) (2)
Re-tenant
131

460

$
32.84

$
40.20

8.91

$
28.33

Renewal
233

1,097

$
23.18

$
0.24

4.65

$
23.13

(1)
Excludes Kittery, Tuscola, and West Branch outlet centers, which were sold in September 2015 and Barstow outlet center, which was sold in October 2015.
(2)
Net average straight-line rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line rent per year amount. The average annual straight-line rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. The average tenant allowance disclosed in the table above includes landlord costs.
(3)
Excludes Lincoln City outlet center, which was sold in December 2014.

41



RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2015 to the three months ended September 30, 2014

NET INCOME
Net income increased $22.2 million in the 2015 period to $46.5 million as compared to $24.3 million for the 2014 period. The majority of this increase was due to the $20.2 million gain on the sale of our Kittery, Tuscola, and West Branch outlet centers, which were sold in September 2015. In addition, property operating revenues and property operating expenses have increased in the 2015 period due to the incremental income from four small expansions of our consolidated properties completed since January, 2014, the opening of two new consolidated centers in May and June of 2015, as well as from overall growth in the operating income of our existing properties. These increases were partially offset by an increase in property operating expenses due to the four small expansions and two new developments of our consolidated properties since January 2014, and lower operating income due to the sale of our Lincoln City outlet center in December 2014. Equity in earnings of unconsolidated joint ventures also increased in the 2015 period due to three new properties and two significant expansions completed within our unconsolidated joint ventures June of 2014, partially offset by lower earnings as a result of the sale of our equity interest in the Wisconsin Dells joint venture.

In the tables below, information set forth for new developments includes new centers in Grand Rapids and Foxwoods. Properties disposed includes the Lincoln City center that was sold in December of 2014. Properties disposed on September 30, 2015 have been included in existing properties for the comparable periods presented.

BASE RENTALS
Base rentals increased $6.2 million, or 9%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of base rentals (in thousands):
 
 
2015
 
2014
 
Change
Base rentals from existing properties
 
$
70,638

 
$
68,905

 
$
1,733

Base rentals from new developments
 
4,329

 

 
4,329

Base rentals from property disposed
 

 
1,209

 
(1,209
)
Termination fees
 
1,585

 
122

 
1,463

Amortization of above and below market rent adjustments, net
 
(711
)
 
(624
)
 
(87
)
 
 
$
75,841

 
$
69,612

 
$
6,229


Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces. and incremental income from the expansion of our Sevierville, Branson and Park City outlet centers. Base rental from new developments represent incremental base rental income from our Grand Rapids outlet center, which opened in July 2015, and our Foxwoods outlet center, which opened in May 2015.

Termination fees, which are generally based on the lease term remaining at the time of termination, increased in the 2015 period compared to the 2014 period as a result of certain brand-wide store closures throughout our portfolio. The 2014 period did not have any significant tenant closures.

At September 30, 2015, the combined net value representing the amount of unamortized above market lease assets and below market lease liability values, recorded as a part of the purchase price of acquired properties, was a net above market lease asset which totaled approximately $6.1 million. If a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value would be written off and could materially impact our net income positively or negatively.


42



EXPENSE REIMBURSEMENTS
Expense reimbursements increased $1.1 million, or 4%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of expense reimbursements (in thousands):
 
 
2015
 
2014
 
Change
Expense reimbursements from existing properties
 
$
29,669

 
$
28,762

 
$
907

Expense reimbursements from new development
 
873

 

 
873

Expense reimbursements from property disposed
 

 
701

 
(701
)
 
 
$
30,542

 
$
29,463

 
$
1,079


Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses, generally fluctuate consistently with the reimbursable property operating expenses to which they relate. See "Property Operating Expenses" below for a discussion of the increase in operating expenses from our existing properties.

While most leases contain provisions requiring tenants to pay a share of our operating expenses as additional rent, the leases for our new Foxwoods outlet center require tenants to pay a single minimum contractual gross rent and, in certain cases, percentage rent. All minimum rents received are recorded as base rent and none are recorded to expense reimbursements. Expense reimbursements for new developments above represent revenue received from our new center in Grand Rapids.

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services increased $28,000, or 2%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
 
 
2015
 
2014
 
Change
Development and leasing
 
$
325

 
$
624

 
$
(299
)
Loan guarantee
 
182

 
23

 
159

Management and marketing
 
746

 
578

 
168

 
 
$
1,253

 
$
1,225

 
$
28


PROPERTY OPERATING EXPENSES
Property operating expenses increased $3.4 million, or 10%, in the 2015 period as compared to the 2014 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
 
 
2015
 
2014
 
Change
Property operating expenses from existing properties
 
$
33,397

 
$
32,011

 
$
1,386

Property operating expenses from new developments
 
2,834

 

 
2,834

Property operating expenses from property disposed
 

 
787

 
(787
)
 
 
$
36,231

 
$
32,798

 
$
3,433


Property operating expenses from existing properties increased primarily due an increase in non-reimbursable operating expenses and mall office operating expenses.

GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $180,000, or 2%, in the 2015 period compared to the 2014 period. This increase was a result of the 2015 period including higher payroll related expenses compared to the 2014 period due to annual wage increases and the addition of new employees since October 1, 2014.


43



DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased $3.0 million, or 12%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of depreciation and amortization from the 2015 and 2014 periods (in thousands):
 
 
2015
 
2014
 
Change
Depreciation and amortization from existing properties
 
$
26,559

 
$
25,357

 
$
1,202

Depreciation and amortization from new developments
 
2,226

 

 
2,226

Depreciation and amortization from property disposed
 

 
417

 
(417
)
 
 
$
28,785

 
$
25,774

 
$
3,011


In the third quarter of 2015, we reclassified four outlet centers from held for sale to held and used and record an adjustment of approximately $1.6 million representing the depreciation and amortization expense that would have been recognized had the properties been continuously classified as held and used.

GAIN ON SALE OF ASSETS AND INTEREST IN UNCONSOLIDATED ENTITIES
In the third quarter of 2015, we sold our Kittery, Tuscola, and West Branch, outlet centers for approximately $43.3 million, which resulted in a gain of $20.2 million.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings of unconsolidated joint ventures increased approximately $1.2 million or 50% in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures (in thousands):
 
 
2015
 
2014
 
Change
Equity in earnings from existing properties
 
$
2,033

 
$
1,354

 
$
679

Equity in earnings from new developments
 
1,680

 
744

 
$
936

Equity in earnings from property disposed
 

 
381

 
(381
)
 
 
$
3,713

 
$
2,479

 
$
1,234


The increase in equity in earnings of unconsolidated joint ventures from existing properties is due to the expansions of the Westgate and Cookstown outlet centers completed during the fourth quarter of 2014. The increase in equity in earnings of unconsolidated joint ventures from new developments is due to the incremental earnings from the Charlotte outlet center, which opened during the third quarter of 2014; the Ottawa outlet center, which opened during the fourth quarter of 2014; and the Savannah outlet center, which opened in April 2015.


Comparison of the nine months ended September 30, 2015 to the nine months ended September 30, 2014

NET INCOME
Net income increased $48.6 million in the 2015 period to $108.2 million as compared to $59.6 million for the 2014 period. The majority of this increase was due to the sale of our equity interest in the Wisconsin Dells joint venture in February 2015, and the sale of our Kittery, Tuscola, and West Branch outlet centers in September 2015, which resulted in a gain of approximately $33.9 million in the aggregate. In addition, property operating revenues and property operating expenses have increased in the 2015 period due to the incremental income from four small expansions of our consolidated properties completed since January 2014, the opening of two new consolidated centers in May and June of 2015, as well as from overall growth in the operating income of our existing properties. These increases were partially offset by an increase in property operating expenses due to the four small expansions and two new developments of our consolidated properties since January 2014, and lower operating income due to the sale of our Lincoln City outlet center in December 2014. Equity in earnings of unconsolidated joint ventures also increased in the 2015 period due to three new properties and two significant expansions completed within our unconsolidated joint ventures since January 2014, partially offset by lower earnings as a result of the sale of our equity interest in the Wisconsin Dells joint venture. Also contributing to the increase in net income was lower interest expense incurred in the 2015 period compared to the 2014 period as a result of debt refinancings completed in 2014.


44



In the tables below, information set forth for new developments includes new centers in Grand Rapids and Foxwoods. Properties disposed includes the Lincoln City center that was sold in December of 2014. Properties disposed on September 30, 2015 have been included in existing properties for the comparable periods presented.

BASE RENTALS
Base rentals increased $11.1 million, or 5%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of base rentals (in thousands):
 
 
2015
 
2014
 
Change
Base rentals from existing properties
 
$
207,515

 
$
202,288

 
$
5,227

Base rentals from new developments
 
5,646

 

 
5,646

Base rentals from property disposed
 

 
3,573

 
(3,573
)
Termination fees
 
4,421

 
796

 
3,625

Amortization of above and below market rent adjustments, net
 
(1,783
)
 
(1,909
)
 
126

 
 
$
215,799

 
$
204,748

 
$
11,051


Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals and incremental rents from re-tenanting vacant spaces, and incremental income from the expansion of our Sevierville, Branson and Park City outlet centers. Base rental from new developments represent as well as incremental base rental income from our Grand Rapids outlet center, which opened in July 2015, and our Foxwoods outlet center, which opened in May 2015.

Termination fees, which are generally based on the lease term remaining at the time of termination, increased in the 2015 period compared to the 2014 period as a result of certain brand-wide store closures throughout our portfolio. The 2014 period did not have any significant tenant closures.

At September 30, 2015, the combined net value representing the amount of unamortized above market lease assets and below market lease liability values, recorded as a part of the purchase price of acquired properties, was a net above market lease asset which totaled approximately $6.1 million. If a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value would be written off and could materially impact our net income positively or negatively.

EXPENSE REIMBURSEMENTS
Expense reimbursements increased $3.4 million, or 4%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of expense reimbursements (in thousands):
 
 
2015
 
2014
 
Change
Expense reimbursements from existing properties
 
$
91,852

 
$
88,664

 
$
3,188

Expense reimbursements from new developments
 
1,963

 

 
1,963

Expense reimbursements from property disposed
 

 
1,793

 
(1,793
)
 
 
$
93,815

 
$
90,457

 
$
3,358


45




Expense reimbursements, which represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses, generally fluctuate consistently with the reimbursable property operating expenses to which they relate. See "Property Operating Expenses" below for a discussion of the increase in operating expenses from our existing properties.

While most leases contain provisions requiring tenants to pay a share of our operating expenses as additional rent, the leases for our new Foxwoods development require tenants to pay a single minimum contractual gross rent and, in certain cases, percentage rent. All minimum rents received are recorded as base rent and none are recorded to expense reimbursements. Expense reimbursements for new developments above represent revenue received from our new development in Grand Rapids.

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services increased $1.7 million, or 67%, in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
 
 
2015
 
2014
 
Increase/
(Decrease)
Development and leasing
 
$
1,632

 
$
702

 
$
930

Loan guarantee
 
564

 
209

 
355

Management and marketing
 
2,067

 
1,637

 
430

 
 
$
4,263

 
$
2,548

 
$
1,715


The increase in fees recognized was primarily due to services we provided to the Savannah outlet center which opened in April 2015.

PROPERTY OPERATING EXPENSES
Property operating expenses increased $6.5 million, or 6%, in the 2015 period as compared to the 2014 period.The following table sets forth the changes in various components of property operating expenses (in thousands):
 
 
2015
 
2014
 
Change
Property operating expenses from existing properties
 
$
103,981

 
$
100,419

 
$
3,562

Property operating expenses from new developments
 
4,940

 

 
4,940

Property operating expenses from property disposed
 

 
2,035

 
(2,035
)
 
 
$
108,921

 
$
102,454

 
$
6,467


Property operating expenses from existing properties increased due to higher snow removal costs and increased mall office operating costs. Property operating expenses at new developments represents property operating expense from our Foxwoods and Grand Rapids outlet centers.

GENERAL AND ADMINISTRATIVE
General and administrative expenses increased $1.6 million, or 5%, in the 2015 period compared to the 2014 period. This increase was a result of the 2015 period including higher payroll related expenses compared to the 2014 period due to annual wage increases, the addition of new employees since October 1, 2014 and higher share-based compensation expense.

ABANDONED PRE-DEVELOPMENT COSTS
During the 2014 period, we abandoned two pre-development projects and as a result, we recorded a $1.6 million charge in the first quarter of 2014, representing the cumulative related costs.

DEPRECIATION AND AMORTIZATION
The following table sets forth the changes in various components of depreciation and amortization (in thousands):

46



 
 
2015
 
2014
 
Change
Depreciation and amortization expenses from existing properties
 
$
74,182

 
$
75,800

 
$
(1,618
)
Depreciation and amortization expenses from new developments
 
2,864

 

 
2,864

Depreciation and amortization from property disposed
 

 
1,234

 
(1,234
)
 
 
$
77,046

 
$
77,034

 
$
12


The decrease in depreciation and amortization from existing properties was due to construction and development related assets, as well as lease related intangibles recorded as part of the acquisition price of acquired properties, which are amortized over shorter lives, and which became fully depreciated during the reporting periods.

INTEREST EXPENSE
Interest expense decreased $3.3 million, or 8%, in the 2015 period compared to the 2014 period, due to the issuance of $250 million senior notes in November 2014 which bear an interest rate of 3.75%. The net proceeds were used to redeem our $250 million, 6.15% senior notes due November 2015.

GAIN ON SALE OF ASSETS AND INTEREST IN UNCONSOLIDATED ENTITIES
In the third quarter of 2015, we sold our Kittery, Tuscola, and West Branch outlet centers for approximately $43.3 million, which resulted in a gain of $20.2 million.

In February 2015, we sold our equity interest in the joint venture that owned the Wisconsin Dells outlet center for approximately $15.6 million, representing our share of the sales price totaling $27.7 million less our share of the outstanding debt, which totaled $12.1 million. As a result of this transaction, we recorded a gain of approximately $13.7 million in the first quarter of 2015, which represents the difference between the carrying value of our equity method investment and the net proceeds received.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings of unconsolidated joint ventures increased approximately $2.1 million or 34% in the 2015 period compared to the 2014 period. The following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures (in thousands):
 
 
2015
 
2014
 
Change
Equity in earnings from existing properties
 
$
4,698

 
$
4,426

 
$
272

Equity in earnings from new developments
 
3,446

 
744

 
$
2,702

Equity in earnings from property disposed
 
158

 
1,030

 
(872
)
 
 
$
8,302

 
$
6,200

 
$
2,102


The increase in equity in earnings of unconsolidated joint ventures from new developments is due to the incremental earnings from the Charlotte outlet center, which opened during the third quarter of 2014; the Ottawa outlet center, which opened during the fourth quarter of 2014; and the Savannah outlet center, which opened in April 2015.


LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY

In this "Liquidity and Capital Resources of the Company" section, the term, "the Company," refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership.

The Company's business is operated primarily through the Operating Partnership. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. The Company's principal funding requirement is the payment of dividends on its common shares. The Company's principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.


47



Through its ownership of the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership's day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership's partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership's partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.

The Company is a well-known seasoned issuer with a shelf registration that expires in June 2018 that allows the Company to register unspecified various classes of equity securities and the Operating Partnership to register unspecified, various classes of debt securities. As circumstances warrant, the Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. The Operating Partnership may use the proceeds to repay debt, including borrowings under its lines of credit, develop new or existing properties, to make acquisitions of properties or portfolios of properties, to invest in existing or newly created joint ventures or for general corporate purposes.

The liquidity of the Company is dependent on the Operating Partnership's ability to make sufficient distributions to the Company. The Company also guarantees some of the Operating Partnership's debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company's guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company's only material asset is its investment in the Operating Partnership.


48



The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured lines of credit, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its shareholders. However, there can be no assurance that the Operating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the Company. The unavailability of capital could adversely affect the Operating Partnership's ability to pay its distributions to the Company which will, in turn, adversely affect the Company's ability to pay cash dividends to its shareholders.

For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income. While historically the Company has satisfied this distribution requirement by making cash distributions to its shareholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the Company's own shares.

As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can. The Company may need to continue to raise capital in the equity markets to fund the Operating Partnership's working capital needs, as well as potential new developments, expansions and renovations of existing properties, acquisitions, or investments in existing or newly created joint ventures.

As the sole owner of the general partner with control of the Operating Partnership, the Company consolidates the Operating Partnership for financial reporting purposes. The Company does not have significant assets other than its investment in 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. However, all debt is held directly or indirectly at the Operating Partnership level, and the Company has guaranteed some of the Operating Partnership's unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled "Liquidity and Capital Resources of the Operating Partnership" should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.

On October 8, 2015, the Company's Board of Directors declared a $.285 cash dividend per common share payable on November 13, 2015 to each shareholder of record on October 30, 2015, and caused a $.285 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP

General Overview

In this "Liquidity and Capital Resources of the Operating Partnership" section, the terms "we", "our" and "us" refer to the Operating Partnership or the Operating Partnership and the Company together, as the text requires.

Property rental income represents our primary source to pay property operating expenses, debt service, capital expenditures and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover such non-recurring capital expenditures and acquisitions, we finance such activities from borrowings under our unsecured lines of credit or from the proceeds from the Operating Partnership's debt offerings and the Company's equity offerings.

We believe we achieve a strong and flexible financial position by attempting to: (1) maintain a conservative leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our unsecured lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of underperforming assets and maintaining a conservative distribution payout ratio. We manage our capital structure to reflect a long term investment approach and utilize multiple sources of capital to meet our requirements.


49



The following table sets forth our changes in cash flows (in thousands):
 
 
Nine months ended September 30,
 
 
 
 
2015
 
2014
 
Change
Net cash provided by operating activities
 
$
176,076

 
$
148,755

 
$
27,321

Net cash used in investing activities
 
(183,454
)
 
(202,614
)
 
19,160

Net cash provided by financing activities
 
13,000

 
49,891

 
(36,891
)
Effect of foreign currency rate changes on cash and equivalents
 
(788
)
 
(200
)
 
(588
)
Net increase (decrease) in cash and cash equivalents
 
$
4,834

 
$
(4,168
)
 
$
9,002


Operating Activities

In 2015, our cash provided from operating activities was positively impacted by a number of factors, including an increase in operating income throughout the consolidated portfolio from increases in base rental rates, operating income from our Foxwoods and Grand Rapids outlet centers which opened in May 2015 and July 2015, respectively, four small expansions of our consolidated properties completed during 2014, and an increase in distributions received from unconsolidated joint ventures from the new centers and expansions completed in 2014.

Investing Activities

The decrease in net cash used in investing activities is primarily due to the proceeds received from the sale of our equity interest in the joint venture that owned the Wisconsin Dells outlet center and incremental distributions received from unconsolidated joint ventures from the new centers and expansions completed in 2014.

Financing Activities

The decrease in cash provided by financing activities was primarily due to higher debt repayments, which included the repayment of the mortgage at our Hershey and Ocean City outlet centers, and an increase in the quarterly dividends paid to our common shareholders. These increases were partially offset by the higher debt requirements needed to fund the investments at both the consolidated and unconsolidated joint venture levels discussed in the investing activities section above.

Capital Expenditures

The following table details our capital expenditures (in thousands):
 
 
Nine months ended September 30,
 
 
 
 
2015
 
2014
 
Change
Capital expenditures analysis:
 
 
 
 
 
 
New center developments
 
$
174,551

 
$
65,572

 
$
108,979

Major center renovations
 
1,513

 
14,657

 
(13,144
)
Second generation tenant allowances
 
6,512

 
8,824

 
(2,312
)
Other capital expenditures
 
9,140

 
14,641

 
(5,501
)
 
 
191,716

 
103,694

 
88,022

Conversion from accrual to cash basis
 
(10,589
)
 
(13,440
)
 
2,851

Additions to rental property-cash basis
 
$
181,127

 
$
90,254

 
$
90,873

New center development expenditures, which include first generation tenant allowances, relate to construction expenditures for our Grand Rapids, Southaven, and Foxwoods outlet centers in the 2015 period. The 2014 period included new center development expenditures for our Grand Rapids and Foxwoods outlet centers and expansions at our Charleston, Branson, and Park City outlet centers.
Major center renovations in both the 2015 and 2014 periods included construction activities at our Riverhead and our Rehoboth Beach outlet centers.

50



Current Developments

We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. In the section below, we describe the new developments that are either currently planned, underway or recently completed. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations ("FFO"). See the section "Supplemental Earnings Measures" - "Funds From Operations" below for further discussion of FFO.

In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.

New Development of Consolidated Outlet Centers

The following table summarizes our development projects as of September 30, 2015:
Project
Approximate square feet
(in 000's)
Projected Total Net Cost per Square Foot
(in dollars)
Projected Total Net Cost
(in millions)
Costs Incurred to Date
(in millions)
Projected Opening
Southaven, Mississippi (Memphis)
320

213

68.2

47.5

Nov 2015

Southaven

In January 2015, we purchased land for approximately $14.8 million and commenced construction on the development of an approximately 320,000 square foot outlet center in Southaven, Mississippi. Tanger Outlets Southaven will be located less than five miles south of Memphis, Tennessee. We currently expect the outlet center to be completed in time for a holiday 2015 opening. As of September 30, 2015, our partner’s equity contributions totaled approximately $461,000 and our equity contributions totaled approximately $26.5 million. From the date our equity contributions are made, we earn a preferred rate of return of 10% for senior contributions and 14% for junior contributions. As of June 30, 2015, the balance of our senior contributions was $17.7 million and our junior contributions was $8.3 million. Our contributions have been funded with borrowings under our lines of credit and cash flow from operations. The outlet center is being developed through a joint venture in which we own a controlling interest and is consolidated for financial reporting purposes. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned contributions and all unpaid returns earned on those contributions prior to any distributions being made to our equity partner.

In April 2015, the consolidated joint venture closed on a mortgage loan with the ability to borrow up to $60.0 million at an interest rate of LIBOR +1.75%. The loan initially matures on April 29, 2018, with one two-year extension option.

Recently Completed Outlet Centers

Grand Rapids

In July 2015, we opened a 351,000 square foot wholly-owned outlet center near Grand Rapids. We commenced construction on the development of the center in July 2014. The outlet center is located 11 miles south of downtown Grand Rapids at the southwest quadrant of US-131 and 84th Street in Byron Township, Michigan, with visibility from both roads.

Foxwoods

In May 2015, we opened a 312,000 square feet outlet center at the Foxwoods Resort Casino in Mashantucket, Connecticut. We own a controlling interest in the joint venture which is consolidated for financial reporting purposes. Construction began on the outlet center in September 2013. As of September 30, 2015, our partner’s equity contributions totaled approximately $1.0 million and our equity contributions totaled approximately $56.2 million. Contributions we make in excess of $40.0 million earn a preferred rate of return of 15% from the date of contribution.

51



In addition, each partner earns a rate of return of 10% on its initial capital contributions from the date of contribution. Our contributions have been funded with borrowings under our lines of credit and cash flow from operations. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned contributions and all unpaid returns earned on those contributions prior to any distributions being made to our equity partner. 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 our legal ownership percentage of 67%. As of September 30, 2015, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based at depreciated book value, our economic interest would represent substantially all of the economic benefit of the property. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.
 
In addition, the joint venture has a mortgage loan with the ability to borrow up to $70.3 million at an interest rate of LIBOR + 1.65%. The loan initially matures in December 2017, with two one-year extension options. The balance of this loan as of September 30, 2015 was $70.3 million.

New Development in Unconsolidated Real Estate Joint Ventures

We have formed joint venture arrangements to develop outlet centers that are currently in various stages of development in several markets. Also, see "Off-Balance Sheet Arrangements" for a discussion of unconsolidated joint venture development activities. The following table summarizes our development projects as of September 30, 2015:
Project
Ownership %
Approximate square feet
(in 000's)
Projected Total Net Cost per Square Foot
(in dollars)
Projected Total Net Cost
(in millions)
Costs Incurred to Date
(in millions)
Projected Opening
Columbus, Ohio
50
%
355

$
267

$
94.9

$
19.7

2Q16

Columbus

During the second quarter of 2015, the joint venture purchased land for approximately $8.9 million and began construction on Tanger Outlets Columbus. We and our partner currently expect to complete construction in time to open the center during the second quarter of 2016. As of September 30, 2015 our equity contributions have totaled $9.8 million and our partner's equity contributions have totaled $9.8 million. Our partner is providing development services to the joint venture and we, along with our partner, are providing joint leasing services. Once the center opens, we will provide property management, marketing and leasing services to the joint venture.

Other Potential Future Developments and Dispositions of Rental Property

As of the date of this filing, we are in the initial study period for potential new developments. We may also use joint venture arrangements to develop other potential sites. There can be no assurance, however, that these potential future projects will ultimately be developed.

In the case of projects to be wholly-owned by us, we expect to fund these projects from amounts available under our unsecured lines of credit, but may also fund them with capital from additional public debt and equity offerings. For projects to be developed through joint venture arrangements, we may use collateralized construction loans to fund a portion of the project, with our share of the equity requirements funded from sources described above.

On September 30, 2015, the noncontrolling interest in our Deer Park outlet center exercised its right to require us to acquire their ownership interest in the property for $28.4 million. Closing on the transaction is scheduled on January 5, 2016. The obligation to acquire its interest is recorded as a deferred financing obligation in the other liabilities section of the consolidated balance sheet.


52



From time to time, we may sell one or more outlet centers that do not meet our long-term investment criteria. In February 2015, we sold our equity interest in the joint venture that owned the Wisconsin Dells outlet center for approximately $15.6 million, representing our share of the sales price totaling $27.7 million less our share of the outstanding debt, which totaled $12.1 million. As a result of this transaction, we recorded a gain of approximately $13.7 million in the first quarter of 2015, which represents the difference between the carrying value of our equity method investment and the net proceeds received.

In the third quarter of 2015, we sold our Kittery, Tuscola, and West Branch outlet centers for approximately $43.3 million, which resulted in a gain of $20.2 million. We received net proceeds of $43.3 million of which $42.9 million is recorded in restricted cash as of September 30, 2015. In addition in October 2015, we sold our Barstow outlet center for net proceeds of approximately $105.7 million, which resulted in a gain of approximately $86.4 million.

The cash proceeds from these property sales, but not the cash proceeds from the sale of our ownership interest in the Wisconsin Dells joint venture, are being held by a qualified intermediary in anticipation of such amounts subsequently being invested in a tax efficient manner under Section 1031 of the Internal Revenue Code of 1986, as amended. Currently, we estimate the total combined tax gains related to the sale of these five assets and the sale of our ownership interest in the Wisconsin Dells joint venture earlier in 2015 to be approximately $90 million to $100 million.  We expect we may be able to defer approximately 80% - 90% of the estimated gains.  However, the actual amount of gain deferred, if any, is dependent on a number of factors, some of which we do not control. Any proceeds not deferred are expected to be used for the payment of a special dividend, if required, with the balance used to pay down our outstanding debt balances.

Financing Arrangements

As of September 30, 2015, unsecured borrowings represented 82% of our outstanding debt and 75% of the gross book value of our real estate portfolio was unencumbered. 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 Company guarantees the Operating Partnership's obligations under these lines. As of September 30, 2015, we had $324.2 million available under our unsecured lines of credit.

In October 2015, we closed on amendments to our unsecured lines of credit, extending the maturity, and reducing our interest rate. The maturity of these facilities was extended from October 2017 to October 2019 with the ability to further extend the maturity for an additional year at our option. The interest rate was reduced from LIBOR + 1.00% to LIBOR + 0.90% based on our current credit rating and the maximum borrowings to which the syndicated line could be increased through an accordion feature in certain circumstances was increased from $750.0 million to $1.0 billion. Loan origination costs associated with the amendments totaled approximately $2.0 million.

We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in the best interests of our shareholders and unitholders. The Company is a well-known seasoned issuer with a joint shelf registration with the Operating Partnership, expiring in June 2018, that allows us to register unspecified amounts of different classes of securities on Form S-3. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, existing lines of credit, ongoing relationships with certain financial institutions and our ability to sell debt or issue equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures through the end of 2016.

We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing unsecured lines of credit or invested in short-term money market or other suitable instruments.

We believe our current balance sheet position is financially sound; however, due to the uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and 2017 when our next significant debt maturities occur.
 

53



The Operating Partnership's debt agreements 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% on a cumulative basis. We have historically been and currently are in compliance with all of our debt covenants. We expect to remain in compliance with all of our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt.

We believe our most restrictive covenants are contained in our senior, unsecured notes. Key financial covenants and their covenant levels include the following:
Senior unsecured notes financial covenants
Required
Actual

Total consolidated debt to adjusted total assets
<60%
50
%
Total secured debt to adjusted total assets
<40%
9
%
Total unencumbered assets to unsecured debt
>150%
175
%


OFF-BALANCE SHEET ARRANGEMENTS

The following table details certain information as of September 30, 2015 about various unconsolidated real estate joint ventures in which we have an ownership interest:
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
Columbus
 
Columbus, OH
 
50.0
%
 

 
$
10.2

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
8.6

RioCan Canada
 
Various
 
50.0
%
 
870

 
120.0

Savannah (1)
 
Savannah, GA
 
50.0
%
 
377

 
46.7

Westgate
 
Glendale, AZ
 
58.0
%
 
414

 
12.5

 
 
 
 
 
 
 
 
$
198.0

 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(0.9
)
Galveston/Houston (2)
 
Texas City, TX
 
50.0
%
 
353

 
(0.5
)
 
 
 
 
 
 
 
 
$
(1.4
)
(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 the ownership percentage indicated above, 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 asset sales.
(2)
The negative carrying value is due to the distributions of proceeds from mortgage loans, and quarterly distributions of excess cash flow exceeding the original contributions from the partners.

Our joint ventures are generally subject to buy-sell provisions which are customary for joint venture agreements in the real estate industry. Either partner may initiate these provisions (subject to any applicable lock up period), which could result in either the sale of our interest or the use of available cash or additional borrowings to acquire the other party's interest. Under these provisions, one partner sets a price for the property, then the other partner has the option to either (1) purchase their partner's interest based on that price or (2) sell its interest to the other partner based on that price. Since the partner other than the partner who triggers the provision has the option to be the buyer or seller, we don't consider this arrangement to be a mandatory redeemable obligation.


54



We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. For construction and term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal.  The principal guarantees include terms for release based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. Our joint ventures may contain make whole provisions in the event that demands are made on any existing guarantees.

Columbus

During the second quarter of 2015, the joint venture purchased land for approximately $8.9 million and began construction on Tanger Outlets Columbus. We and our partner currently expect to complete construction in time to open the center during the second quarter of 2016. As of September 30, 2015 our equity contributions have totaled $9.8 million and our partner's equity contributions have totaled $9.8 million. Our partner is providing development services to the joint venture and we, along with our partner, are providing joint leasing services. Once the center opens, we will provide property management, marketing and leasing services to the joint venture.


Savannah

In January 2014, we announced a joint venture arrangement to develop Tanger Outlets Savannah. The center, which opened in April 2015, includes approximately 377,000 square feet. As of September 30, 2015, our equity contributions totaled $45.8 million and our partner’s equity contributions totaled $8.3 million. Contributions we made in excess of our partners' equity contributions are considered preferred equity and earned a preferred rate of return equal to 8% from the date the contributions were made until the outlet center’s grand opening in April 2015, and will earn 10% annually thereafter. Under the terms of the operating agreement, upon liquidation, we would receive all of our unreturned preferred equity contributions and all unpaid returns earned on those contributions prior to any distributions being made to our equity partner. As of September 30, 2015, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based at depreciated book value, our estimated economic interest in the venture was approximately 98%. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.
 
In May 2014, the joint venture closed on a construction loan with the ability to borrow up to $97.7 million at an interest rate of LIBOR + 1.65%. In September 2015, the loan maximum borrowing amount was increased to $100.9 million. The construction loan has a maturity date of May 21, 2017, with two, one -year extension options. As of September 30, 2015, the balance on the loan was $85.1 million. The additional $15.8 million is available for construction of the approximately 42,000 square foot expansion that is currently in process. We are providing development, management and marketing services to the joint venture; and with our partner, are jointly providing leasing services to the outlet center.

Westgate

During the first quarter of 2015, the joint venture completed the remaining 28,000 square feet of a 78,000 square foot expansion of the existing property which brought the size of the outlet center to approximately 414,000 square feet. Construction commenced on the expansion during the second quarter of 2014 and was funded with borrowings under the amended Westgate mortgage loan. The joint venture's amended and restated construction loan is fully funded with a balance of $62.0 million. The loan initially matured in June 2015, and during the second quarter of 2015 the joint venture exercised the two year option to extend the maturity date of the loan to June 2017.

Tanger Outlets Westgate opened in November 2012 and was developed through, and is currently owned by, a joint venture that was formed in May 2012. We are providing property management, construction supervision, marketing and leasing services to the joint venture.


55



Wisconsin Dells

In February 2015, we sold our equity interest in the joint venture that owned the Wisconsin Dells outlet center for approximately $15.6 million, representing our share of the sales price totaling $27.7 million less our share of the outstanding debt, which totaled $12.1 million. As a result of this transaction, we recorded a gain of approximately $13.7 million in the first quarter of 2015, which represents the difference between the carrying value of our equity method investment and the net proceeds received.

Debt of unconsolidated joint ventures

The following table details information regarding the outstanding debt of the unconsolidated joint ventures and principal guarantees of such debt provided by us as of September 30, 2015 (in millions):
Joint Venture
 
Total Joint
Venture Debt
(in millions)
 
Maturity Date
 
Interest Rate
 
Percent Guaranteed by the Company
 
Maximum Guaranteed Amount by the Company
(in millions)
Charlotte
 
$
90.0

 
November 2018
 
LIBOR + 1.45%
 
5.0
%
 
$
4.5

Galveston/Houston
 
65.0

 
July 2017
 
LIBOR + 1.50%
 
5.0
%
 
3.3

National Harbor(1)
 
83.7

 
November 2019
 
LIBOR + 1.65%
 
10.0
%
 
8.4

RioCan Canada
 
11.9

 
May 2020
 
5.75
%
 
20.2
%
 
2.4

Savannah (2)
 
85.1

 
May 2017
 
LIBOR + 1.65%
 
17.6
%
 
15.0

Westgate
 
62.0

 
June 2017
 
LIBOR + 1.75%
 
%
 

 
 
$
397.7

 
 
 
 
 
 
 
$
33.6

(1)
100% completion guaranty; 10% principal guaranty.
(2)
100% completion guaranty; $15.0 million principal guaranty.

Fees from unconsolidated joint ventures

Fees we received for various services provided to our unconsolidated joint ventures were recognized in other income as follows (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Fee:
 
 
 
 
 
 

 
 

Development and leasing
 
$
325

 
$
624

 
$
1,632

 
$
702

Loan Guarantee
 
182

 
23

 
564

 
209

Management and marketing
 
746

 
578

 
2,067

 
1,637

Total Fees
 
$
1,253

 
$
1,225

 
$
4,263

 
$
2,548


CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to our 2014 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies which include principles of consolidation, acquisition of real estate, cost capitalization, impairment of long-lived assets and revenue recognition. There have been no material changes to these policies in 2015.



56



SUPPLEMENTAL EARNINGS MEASURES

Funds From Operations

Funds From Operations ("FFO") represents income before extraordinary items and gains (losses) on sale or disposal of depreciable operating properties, plus depreciation and amortization of real estate assets, impairment losses on depreciable real estate of consolidated real estate and after adjustments for unconsolidated partnerships and joint ventures, including depreciation and amortization, and impairment losses on investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures.

FFO is intended to exclude historical cost depreciation of real estate as required by United States Generally Accepted Accounting Principles ("GAAP") which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization of real estate assets, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.

We present FFO because we consider it an important supplemental measure of our operating performance and believe it is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is widely used by us and others in our industry to evaluate and price potential acquisition candidates. The National Association of Real Estate Investment Trusts, Inc., of which we are a member, has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance. In addition, a percentage of bonus compensation to certain members of management is based on our FFO performance.

FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

FFO does not reflect changes in, or cash requirements for, our working capital needs;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements;

FFO, which includes discontinued operations, may not be indicative of our ongoing operations; and

Other companies in our industry may calculate FFO differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, FFO should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or our dividend paying capacity. We compensate for these limitations by relying primarily on our GAAP results and using FFO only supplementally.


57



Below is a reconciliation of net income to FFO (in thousands, except per share and per unit amounts):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
FUNDS FROM OPERATIONS
 
 
 
 
 
 

 
 

Net income
 
$
46,460

 
$
24,297

 
$
108,205

 
$
59,632

Adjusted for:
 
 
 
 
 
 

 
 

Depreciation and amortization of real estate assets - consolidated
 
28,428

 
25,425

 
75,984

 
75,909

Depreciation and amortization of real estate assets - unconsolidated joint ventures
 
5,411

 
3,040

 
14,525

 
8,048

Gain on sale of assets and interests in unconsolidated entities
 
(20,215
)
 

 
(33,941
)
 

Funds from operations (FFO)
 
60,084

 
52,762

 
164,773

 
143,589

FFO attributable to noncontrolling interests in other consolidated partnerships
 
(45
)
 
(62
)
 
325

 
(139
)
Allocation of FFO to participating securities (1)
 
(640
)
 
(1,045
)
 
(1,783
)
 
(2,858
)
Funds from operations available to common shareholders and noncontrolling interests in Operating Partnership
 
$
59,399

 
$
51,655

 
$
163,315

 
$
140,592

Tanger Factory Outlet Centers, Inc.:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (2) (3)
 
99,877

 
99,003

 
99,815

 
98,930

Dilutive funds from operations per share
 
$
0.59

 
$
0.52

 
$
1.64

 
$
1.42

Tanger Properties Limited Partnership:
 
 
 
 
 
 
 
 
Weighted average Operating Partnership units outstanding (2)
 
99,877

 
99,003

 
99,815

 
98,930

Dilutive funds from operations per unit
 
$
0.59

 
$
0.52

 
$
1.64

 
$
1.42

(1)
Notional units granted in 2010 were converted into 933,769 restricted common shares in January 2014 which vested on December 31, 2014. The restricted common shares were considered participating securities through the vesting date.
(2)
Includes the dilutive effect of options, restricted common shares not considered participating securities, and notional units.
(3)
Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company. Each Class A common limited partnership unit is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's REIT status.


58



Adjusted Funds From Operations

We present Adjusted Funds From Operations ("AFFO") as a supplemental measure of our performance. We define AFFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating AFFO, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of AFFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We present AFFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use AFFO, or some form of AFFO, when certain material, unplanned transactions occur, as a factor in evaluating management's performance when determining incentive compensation and to evaluate the effectiveness of our business strategies.

AFFO has limitations as an analytical tool. Some of these limitations are:

AFFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

AFFO does not reflect changes in, or cash requirements for, our working capital needs;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and AFFO does not reflect any cash requirements for such replacements;

AFFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

Other companies in our industry may calculate AFFO differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, AFFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using AFFO only supplementally.


59



Below is a reconciliation of FFO to AFFO (in thousands, except per share and per unit amounts):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
ADJUSTED FUNDS FROM OPERATIONS
 
 
 
 
 
 

 
 

Funds from operations
 
$
60,084

 
$
52,762

 
$
164,773

 
$
143,589

Adjusted for non-core items:
 
 
 
 
 
 
 
 

Abandoned pre-development costs
 

 

 

 
1,596

Acquisition costs
 

 

 

 
7

Casualty gain
 

 
(329
)
 

 
(329
)
AFFO adjustments from unconsolidated
joint ventures
 

 
237

 

 
237

Adjusted funds from operations (AFFO)
 
60,084

 
52,670

 
164,773

 
145,100

AFFO attributable to noncontrolling interests in other consolidated partnerships
 
(45
)
 
(62
)
 
325

 
(139
)
Allocation of AFFO to participating securities (1)
 
(640
)
 
(1,043
)
 
(1,783
)
 
(2,889
)
Adjusted funds from operations available to common shareholders and noncontrolling interests in Operating Partnership
 
$
59,399

 
$
51,565

 
$
163,315

 
$
142,072

Tanger Factory Outlet Centers, Inc.:
 
 
 
 
 
 
 
 
Weighted average common shares outstanding (2) (3)
 
99,877

 
99,003

 
99,815

 
98,930

Dilutive adjusted funds from operations per share
 
$
0.59

 
$
0.52

 
$
1.64

 
$
1.44

Tanger Properties Limited Partnership:
 
 
 
 
 
 
 
 
Weighted average Operating Partnership units outstanding (2)
 
99,877

 
99,003

 
99,815

 
98,930

Dilutive adjusted funds from operations per unit
 
$
0.59

 
$
0.52

 
$
1.64

 
$
1.44

(1)
Notional units granted in 2010 were converted into 933,769 restricted common shares in January 2014 which vested on December 31, 2014. The restricted common shares were considered participating securities through the vesting date.
(2)
Includes the dilutive effect of options, restricted common shares not considered participating securities, and notional units.
(3)
Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interest are exchanged for common shares of the Company.



60



Same Center Net Operating Income - Cash Basis

We present Same Center Net Operating Income - Cash Basis (“Same Center NOI - Cash Basis”) as a supplemental measure of our performance. We define Same Center NOI - Cash Basis as total operating revenues less property operating expenses for the properties that were operational for the entire portion of both comparable reporting periods and which were not acquired, renovated or subject to a material non-recurring event, such as a natural disaster, during the comparable reporting periods. Same Center NOI - Cash Basis also excludes termination fees and non-cash adjustments including straight-line rent, net above and below market rent amortization and gains or losses on the sale of outparcels recognized during the periods presented.

Same Center NOI - Cash Basis is used by industry analysts, investors and management to measure operating performance of our properties because it provides a performance measure directly related to the revenues and expenses involved in owning and operating real estate assets and provides a perspective not immediately apparent from net income or FFO. Because Same Center NOI - Cash Basis excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Same Center Net Operating Income, and accordingly, our Same Center NOI - Cash Basis may not be comparable to other REITs.
     
Same Center NOI - Cash Basis should not be viewed as an alternative measure of our financial performance since it does not reflect the operations of our entire portfolio, nor does it reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, and the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations.

Below is a reconciliation of income before equity in earnings of unconsolidated joint ventures to Same Center NOI - Cash Basis (in thousands):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
 
September 30,
 
 
2015
 
2014
 
2015
 
2014
Same Center Net Operating Income - Cash Basis
 
 
 
 
 
 
 
 
Income before equity in earnings of unconsolidated joint ventures
 
$
42,747

 
$
21,818

 
$
99,903

 
$
53,432

Interest expense
 
13,933

 
13,902

 
40,110

 
43,404

Gain on sale of assets and interests in unconsolidated entities
 
(20,215
)
 

 
(33,941
)
 

Other nonoperating income (expense)
 
(89
)
 
(437
)
 
98

 
(560
)
Operating income
 
36,376


35,283


106,170


96,276

Adjusted to exclude:
 
 
 
 
 
 
 
 
Depreciation and amortization
 
28,785

 
25,774

 
77,046

 
77,034

Other non-property income and losses
 
(190
)
 
(1,030
)
 
(1,489
)
 
(1,687
)
Acquisition costs
 

 

 

 
7

Abandoned pre-development costs
 

 

 

 
1,596

General and administrative expenses
 
11,514

 
11,334

 
34,431

 
32,817

Non-cash adjustments and termination rents (1)
 
(2,356
)
 
(907
)
 
(6,663
)
 
(3,718
)
Non-same center NOI (2)
 
(5,830
)
 
(4,356
)
 
(11,896
)
 
(12,194
)
Same Center Net Operating Income - Cash Basis
 
$
68,299

 
$
66,098

 
$
197,599

 
$
190,131

(1)
Non-cash items include straight-line rent, net above and below market rent amortization and gains or losses on outparcel sales.
(2)
Excluded from Same Center NOI - Cash Basis: Foxwoods outlet center, which opened in May of 2015; Grand Rapids outlet center, which opened in July of 2015; Lincoln City outlet center, which was sold in December 2014; Kittery, Tuscola and West Branch outlet centers, which were sold in September 2015; and Barstow outlet center, which was sold in October 2015




61



ECONOMIC CONDITIONS AND OUTLOOK

The majority of our leases contain provisions designed to mitigate the impact of inflation. Such provisions include clauses for the escalation of base rent and clauses enabling us to receive percentage rentals based on tenants' gross sales (above predetermined levels) which generally increase as prices rise. Most of the leases require the tenant to pay their share of property operating expenses, including common area maintenance, real estate taxes, insurance and advertising and promotion, thereby reducing exposure to increases in costs and operating expenses resulting from inflation.

While we believe outlet stores will continue to be a profitable and fundamental distribution channel for many brand name manufacturers, some retail formats are more successful than others. As typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its natural expiration or as a result of filing for protection under bankruptcy laws.

Due to the relatively short-term nature of our tenants' leases, a significant portion of the leases in our portfolio come up for renewal each year. As of January 1, 2015, we had approximately 1.5 million square feet, or 13% of our consolidated portfolio at that time, coming up for renewal during 2015. During the first nine months of 2015, we renewed approximately 1,131,000 square feet of this space at a 22% increase in the average base rental rate compared to the expiring rate. We also re-tenanted approximately 430,000 square feet at a 31% increase in the average base rental rate. In addition, we continue to attract and retain additional tenants. However, there can be no assurance that we can achieve similar increases in base rental rates. In addition, if we were unable to successfully renew or release a significant amount of this space on favorable economic terms, the loss in rent could have a material adverse effect on our results of operations.

Our outlet centers typically include well-known, national, brand name companies. By maintaining a broad base of well-known tenants and a geographically diverse portfolio of properties located across the United States, we believe we reduce our operating and leasing risks. No one tenant (including affiliates) accounts for more than 8% of our square feet or 6% of our combined base and percentage rental revenues. Accordingly, we do not expect any material adverse impact on our results of operations and financial condition as a result of leases to be renewed or stores to be released. Occupancy at our consolidated centers was 97% and 98% as of September 30, 2015 and 2014, respectively.

Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk

We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We are also exposed to foreign currency risk on investments in outlet centers that are located in Canada. Our currency exposure is concentrated in the Canadian Dollar. We typically reinvest net cash flow from our Canadian joint ventures to fund future Canadian development activity. We believe this strategy mitigates some of the risk of our initial investment and our exposure to changes in foreign currencies. We generally do not hedge currency translation exposures.

In October 2013, we entered into interest rate swap agreements with notional amounts totaling $150.0 million to reduce our floating rate debt exposure. The interest rate swap agreements fix the base LIBOR rate at an average of 1.30% and mature in August 2018. The fair value of the interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreement. As of September 30, 2015, the fair value of these contracts is a liability of $1,950,000. The fair value is based on dealer quotes, considering current interest rates, remaining term to maturity and our credit standing.


62



As of September 30, 2015, approximately 35% of our outstanding debt had variable rates, excluding variable rate debt with interest rate protection agreements in place, and therefore were subject to market fluctuations. An increase in the LIBOR rate of 100 basis points would result in an increase of approximately $5.4 million in interest expense on an annual basis. The information presented herein is merely an estimate and has limited predictive value.  As a result, the ultimate effect upon our operating results of interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates.

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

 
 
September 30, 2015

 
December 31, 2014

Fair value of debt
 
$
1,608,042

 
$
1,493,519

Recorded value of debt
 
$
1,539,224

 
$
1,443,194


A 100 basis point increase from prevailing interest rates at September 30, 2015 and December 31, 2014 would result in a decrease in fair value of total debt of approximately $54.3 million and $58.3 million, respectively. With the exception of the unsecured term loan and unsecured lines of credit, that have variable rates and considered at market value, fair values of the senior notes and mortgage loans are determined using discounted cash flow analysis with an interest rate or credit spread similar to that of current market borrowing arrangements. Because the Company's senior unsecured notes are publicly traded with limited trading volume, these instruments are classified as Level 2 in the hierarchy. In contrast, mortgage loans are classified as Level 3 given the unobservable inputs utilized in the valuation. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on the disposition of the financial instruments.

63



Item 4. Controls and Procedures

Tanger Factory Outlet Centers, Inc. Controls and Procedures

The Company's management carried out an evaluation, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2015. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer, have concluded the Company's disclosure controls and procedures were effective as of September 30, 2015. There were no changes to the Company's internal controls over financial reporting during the quarter ended September 30, 2015, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

Tanger Properties Limited Partnership Controls and Procedures

The management of the Operating Partnership's general partner carried out an evaluation, with the participation of the Chief Executive Officer and the Vice-President and Treasurer (Principal Financial Officer) of the Operating Partnership's general partner, of the effectiveness of the Operating Partnership's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2015. Based on this evaluation, the Chief Executive Officer of the Operating Partnership's general partner, and the Vice-President and Treasurer of the Operating Partnership's general partner, have concluded the Operating Partnership's disclosure controls and procedures were effective as of September 30, 2015. There were no changes to the Operating Partnership's internal controls over financial reporting during the quarter ended September 30, 2015, that materially affected, or are reasonably likely to materially affect, the Operating Partnership's internal control over financial reporting.


64



PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and the Operating Partnership are, from time to time, engaged in a variety of legal proceedings arising in the normal course of business. Although the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of such proceedings will not have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended December 31, 2014.

Item 4.Mine Safety Disclosures

Not applicable



65



Item 6. Exhibits
Exhibit Number
 
Exhibit Descriptions
 
 
 
12.1*

 
Company's Ratio of Earnings to Fixed Charges.
 
 
 
12.2*

 
Operating Partnership's Ratio of Earnings to Fixed Charges.
 
 
 
31.1*

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
31.2*

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
31.3*

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
31.4*

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
32.1**

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
32.2**

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
32.3**

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
32.4**

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
101

 
The following financial statements from Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership's dual Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Other Comprehensive Income (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited).
 
 
 
 
 
 
 
 
* Filed herewith.
 
 
** Furnished herewith.


66



SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: November 3, 2015
TANGER FACTORY OUTLET CENTERS, INC.
By:
/s/ Frank C. Marchisello, Jr.
 
Frank C. Marchisello, Jr.
 
Executive Vice President and Chief Financial Officer
 
TANGER PROPERTIES LIMITED PARTNERSHIP
By: TANGER GP TRUST, its sole general partner
By:
/s/ Frank C. Marchisello, Jr.
 
Frank C. Marchisello, Jr.
 
Vice President and Treasurer (principle financial officer)




67



Exhibit Index
 
Exhibit Number
 
Exhibit Descriptions
 
 
 
12.1*

 
Company's Ratio of Earnings to Fixed Charges.
 
 
 
12.2*

 
Operating Partnership's Ratio of Earnings to Fixed Charges.
 
 
 
31.1*

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
31.2*

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
31.3*

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
31.4*

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
32.1**

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
32.2**

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Factory Outlet Centers, Inc.
 
 
 
32.3**

 
Principal Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
32.4**

 
Principal Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes - Oxley Act of 2002 for Tanger Properties Limited Partnership.
 
 
 
101

 
The following financial statements from Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership's dual Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Other Comprehensive income (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited).
 
 
 
 
 
* Filed herewith.
 
 
** Furnished herewith.

68