United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2016
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________

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

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

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

As of May 2, 2016, there were 96,127,107 common shares of Tanger Factory Outlet Centers, Inc. outstanding, $.01 par value.




EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended March 31, 2016 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating Partnership" refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

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

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of March 31, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 96,126,507 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,052,743 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

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

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

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

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

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


2



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

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

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

Noncontrolling interests, shareholder's equity and 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, as applicable, for each of the Company and the Operating Partnership:

Consolidated financial statements;

The following notes to the consolidated financial statements:

Debt of the Company and the Operating Partnership;

Shareholders' Equity and Partners' Equity;

Earnings Per Share and Earnings Per Unit;

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

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

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

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


3



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

4



TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 
Page Number
Part I. Financial Information
Item 1.
 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Shareholders' Equity - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Cash Flows - for the for the three months ended March 31, 2016 and 2015
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of March 31, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Equity - for the three months ended March 31, 2016 and 2015
Consolidated Statements of Cash Flows - for the for the three months ended March 31, 2016 and 2015
 
 
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)
 
 
March 31, 2016
 
December 31, 2015
Assets
 
 

 
 

Rental property
 
 

 
 

Land
 
$
235,622

 
$
240,267

Buildings, improvements and fixtures
 
2,219,955

 
2,249,417

Construction in progress
 
42,287

 
23,533

 
 
2,497,864

 
2,513,217

Accumulated depreciation
 
(749,325
)
 
(748,341
)
Total rental property, net
 
1,748,539

 
1,764,876

Cash and cash equivalents
 
18,877

 
21,558

Restricted cash
 

 
121,306

Investments in unconsolidated joint ventures
 
218,732

 
201,083

Deferred lease costs and other intangibles, net
 
123,404

 
127,089

Prepaids and other assets
 
81,054

 
78,913

Total assets
 
$
2,190,606

 
$
2,314,825

Liabilities and Equity
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes, net
 
$
789,635

 
$
789,285

Unsecured term loans, net
 
258,540

 
265,832

Mortgages payable, net
 
167,603

 
310,587

Unsecured lines of credit, net
 
259,890

 
186,220

Total debt
 
1,475,668

 
1,551,924

Accounts payable and accrued expenses
 
67,608

 
97,396

Deferred financing obligation
 

 
28,388

Other liabilities
 
31,758

 
31,085

Total liabilities
 
1,575,034

 
1,708,793

Commitments and contingencies
 

 

Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 96,126,507 and 95,880,825 shares issued and outstanding at March 31, 2016 and December 31, 2015, respectively
 
961

 
959

Paid in capital
 
808,779

 
806,379

Accumulated distributions in excess of net income 
 
(195,654
)
 
(195,486
)
Accumulated other comprehensive loss
 
(29,814
)
 
(36,715
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
584,272

 
575,137

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
30,711

 
30,309

Noncontrolling interests in other consolidated partnerships
 
589

 
586

Total equity
 
615,572

 
606,032

Total liabilities and equity
 
$
2,190,606

 
$
2,314,825

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

6



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

 
 
Three months ended March 31,
 
 
 
2016
 
2015
 
Revenues
 
 
 
 
 
Base rentals
 
$
72,623

 
$
67,629

 
Percentage rentals
 
2,150

 
2,229

 
Expense reimbursements
 
33,242

 
33,364

 
Management, leasing and other services
 
1,121

 
1,283

 
Other income
 
1,669

 
1,421

 
Total revenues
 
110,805

 
105,926

 
Expenses
 
 
 


 
Property operating
 
37,874

 
37,732

 
General and administrative
 
11,565

 
11,305

 
Depreciation and amortization
 
26,567

 
23,989

 
Total expenses
 
76,006

 
73,026

 
Operating income
 
34,799

 
32,900


Other income/(expense)
 
 
 
 
 
Interest expense
 
(14,884
)
 
(13,089
)
 
Gain on sale of assets and interests in unconsolidated joint ventures
 
4,887

 
13,726

 
Other nonoperating income
 
316

 
306

 
Income before equity in earnings of unconsolidated joint ventures
 
25,118

 
33,843

 
Equity in earnings of unconsolidated joint ventures
 
3,499

 
2,543

 
Net income
 
28,617

 
36,386


Noncontrolling interests in Operating Partnership
 
(1,444
)
 
(1,855
)
 
Noncontrolling interests in other consolidated partnerships
 
(23
)
 
(19
)
 
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
27,150

 
$
34,512


 
 
 
 
 
 
Basic earnings per common share
 
 
 
 
 
Net income
 
$
0.28

 
$
0.36

 
Diluted earnings per common share
 
 
 
 
 
Net income
 
$
0.28

 
$
0.36

 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.285

 
$
0.240

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

7



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2016
 
2015
Net income
 
$
28,617

 
$
36,386

Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustments
 
8,654

 
(11,076
)
Change in fair value of cash flow hedges
 
(1,386
)
 
(1,287
)
Other comprehensive income (loss)
 
7,268

 
(12,363
)
Comprehensive income
 
35,885

 
24,023

Comprehensive income attributable to noncontrolling interests
 
(1,834
)
 
(1,243
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
34,051

 
$
22,780

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


8



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


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

$
791,566

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

$
26,417

$
650

$
523,886

Net income
 


34,512


34,512

1,855

19

36,386

Other comprehensive loss
 



(11,732
)
(11,732
)
(631
)

(12,363
)
Compensation under Incentive Award Plan
 

3,801



3,801



3,801

Issuance of 8,300 common shares upon exercise of options
 

233



233



233

Issuance of 348,844 restricted common shares
 
3

(3
)






Withholding of 30,578 common shares for employee income taxes
 

(1,084
)


(1,084
)


(1,084
)
Adjustment for noncontrolling interests in Operating Partnership
 

(59
)


(59
)
59



Adjustment for noncontrolling interests in other consolidated partnerships
 

198



198


(1
)
197

Common dividends ($0.240 per share)
 


(22,957
)

(22,957
)


(22,957
)
Distributions to noncontrolling interests
 





(1,219
)
(29
)
(1,248
)
Balance, March 31, 2015
 
$
958

$
794,652

$
(270,124
)
$
(25,755
)
$
499,731

$
26,481

$
639

$
526,851

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











 
 








 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

9



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

$
806,379

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

$
30,309

$
586

$
606,032

Net income
 


27,150


27,150

1,444

23

28,617

Other comprehensive income
 



6,901

6,901

367


7,268

Compensation under Incentive Award Plan
 

4,230



4,230



4,230

Issuance of 4,500 common shares upon exercise of options
 

123



123



123

Issuance of 277,524 restricted common shares
 
3

(3
)






Issuance of 24,040 deferred shares
 








Withholding of 60,382 common shares for employee income taxes
 
(1
)
(1,920
)


(1,921
)


(1,921
)
Adjustment for noncontrolling interests in Operating Partnership
 

(31
)


(31
)
31



Adjustment for noncontrolling interests in other consolidated partnerships
 

1



1


(1
)

Common dividends ($.285 per share)
 


(27,318
)

(27,318
)


(27,318
)
Distributions to noncontrolling interests
 





(1,440
)
(19
)
(1,459
)
Balance,
March 31, 2016
 
$
961

$
808,779

$
(195,654
)
$
(29,814
)
$
584,272

$
30,711

$
589

$
615,572


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




10



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

 
 
Three months ended
 
 
March 31,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
28,617

 
$
36,386

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
26,567

 
23,989

Amortization of deferred financing costs
 
744

 
599

Gain on sale of assets and interests in unconsolidated entities
 
(4,887
)
 
(13,726
)
Equity in earnings of unconsolidated joint ventures
 
(3,499
)
 
(2,543
)
Share-based compensation expense
 
4,001

 
3,613

Amortization of debt (premiums) and discounts, net
 
959

 
14

Amortization (accretion) of market rent rate adjustments, net
 
664

 
916

Straight-line rent adjustments
 
(1,607
)
 
(1,269
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
2,709

 
2,719

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
732

 
1,885

Accounts payable and accrued expenses
 
(969
)
 
1,806

Net cash provided by operating activities
 
54,031

 
54,389

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(34,896
)
 
(51,044
)
Additions to investments in unconsolidated joint ventures
 
(12,161
)
 
(16,419
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
25,785

 
15,495

Change in restricted cash
 
121,306

 

Proceeds from insurance reimbursements
 
72

 
103

Additions to non-real estate assets
 
(2,144
)
 
(208
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
4,394

 
4,837

Additions to deferred lease costs
 
(1,520
)
 
(2,338
)
Net cash provided by (used in) investing activities
 
100,836

 
(49,574
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(47,447
)
 
(22,957
)
Distributions to noncontrolling interests in Operating Partnership
 
(2,501
)
 
(1,219
)
Proceeds from debt issuances
 
327,342

 
118,341

Repayments of debt
 
(405,246
)
 
(99,742
)
Repayment of deferred financing obligation
 
(28,388
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(1,921
)
 
(1,084
)
Distributions to noncontrolling interests in other consolidated partnerships
 
(19
)
 
(29
)
Additions to deferred financing costs
 
(82
)
 
(191
)
Proceeds from exercise of options
 
123

 
233

Net cash used in financing activities
 
(158,139
)
 
(6,648
)
Effect of foreign currency rate changes on cash and cash equivalents
 
591

 
(381
)
Net decrease in cash and cash equivalents
 
(2,681
)
 
(2,214
)
Cash and cash equivalents, beginning of period
 
21,558

 
16,875

Cash and cash equivalents, end of period
 
$
18,877

 
$
14,661

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

11



Item 1 - Financial Statements of Tanger Properties Limited Partnership

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

 
 

Rental property
 
 

 
 

Land
 
$
235,622

 
$
240,267

Buildings, improvements and fixtures
 
2,219,955

 
2,249,417

Construction in progress
 
42,287

 
23,533

 
 
2,497,864

 
2,513,217

Accumulated depreciation
 
(749,325
)
 
(748,341
)
Total rental property, net
 
1,748,539

 
1,764,876

Cash and cash equivalents
 
18,830

 
21,552

Restricted cash
 

 
121,306

Investments in unconsolidated joint ventures
 
218,732

 
201,083

Deferred lease costs and other intangibles, net
 
123,404

 
127,089

Prepaids and other assets
 
80,820

 
78,248

Total assets
 
$
2,190,325

 
$
2,314,154

Liabilities and Equity
 

 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes, net
 
$
789,635

 
$
789,285

Unsecured term loans, net
 
258,540

 
265,832

Mortgages payable, net
 
167,603

 
310,587

Unsecured lines of credit, net
 
259,890

 
186,220

Total debt
 
1,475,668

 
1,551,924

Accounts payable and accrued expenses
 
67,327

 
96,725

Deferred financing obligation
 

 
28,388

Other liabilities
 
31,758

 
31,085

Total liabilities
 
1,574,753

 
1,708,122

Commitments and contingencies
 

 

Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner, 1,000,000 units outstanding at March 31, 2016 and December 31, 2015
 
5,724

 
5,726

Limited partners, 5,052,743 Class A common units, and 95,126,507 and 94,880,825 Class B common units outstanding at March 31, 2016 and December 31, 2015, respectively
 
640,693

 
638,422

Accumulated other comprehensive loss
 
(31,434
)
 
(38,702
)
Total partners' equity
 
614,983

 
605,446

Noncontrolling interests in consolidated partnerships
 
589

 
586

Total equity
 
615,572

 
606,032

Total liabilities and equity
 
$
2,190,325

 
$
2,314,154

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

12



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
 
 
Three months ended March 31,
 
 
2016
 
2015
Revenues
 
 
 
 
Base rentals
 
$
72,623

 
$
67,629

Percentage rentals
 
2,150

 
2,229

Expense reimbursements
 
33,242

 
33,364

Management, leasing and other services
 
1,121

 
1,283

Other income
 
1,669

 
1,421

Total revenues
 
110,805

 
105,926

Expenses
 


 


Property operating
 
37,874

 
37,732

General and administrative
 
11,565

 
11,305

Depreciation and amortization
 
26,567

 
23,989

Total expenses
 
76,006

 
73,026

Operating income
 
34,799

 
32,900

Other income/(expense)
 
 
 
 
Interest expense
 
(14,884
)
 
(13,089
)
Gain on sale of assets and interests in unconsolidated joint ventures
 
4,887

 
13,726

Other nonoperating income
 
316

 
306

Income before equity in earnings of unconsolidated joint ventures
 
25,118

 
33,843

Equity in earnings of unconsolidated joint ventures
 
3,499

 
2,543

Net income
 
28,617

 
36,386

Noncontrolling interests in consolidated partnerships
 
(23
)
 
(19
)
Net income available to partners
 
28,594

 
36,367

Net income available to limited partners
 
28,311

 
36,007

Net income available to general partner
 
$
283

 
$
360

 
 
 
 
 
Basic earnings per common unit
 
 
 
 
Net income
 
$
0.28

 
$
0.36

Diluted earnings per common unit
 
 
 
 
Net income
 
$
0.28

 
$
0.36

 
 
 
 
 
Distribution declared per common unit
 
$
0.285

 
$
0.240

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 March 31,
 
 
2016
 
2015
Net income
 
$
28,617

 
$
36,386

Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustments
 
8,654

 
(11,076
)
Changes in fair value of cash flow hedges
 
(1,386
)
 
(1,287
)
Other comprehensive income (loss)
 
7,268

 
(12,363
)
Comprehensive income
 
35,885

 
24,023

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
(23
)
 
(19
)
Comprehensive income attributable to the Operating Partnership
 
$
35,862

 
$
24,004

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


14



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

$
533,199

$
(14,791
)
$
523,236

$
650

$
523,886

Net income
 
360

36,007


36,367

19

36,386

Other comprehensive loss
 


(12,363
)
(12,363
)

(12,363
)
Compensation under Incentive Award Plan
 

3,801


3,801


3,801

Issuance of 8,300 common units upon exercise of options
 

233


233


233

Issuance of 348,844 restricted common units
 






Withholding of 30,578 common units for employee income taxes
 

(1,084
)

(1,084
)

(1,084
)
Adjustments for noncontrolling interests in consolidated partnerships
 

198


198

(1
)
197

Common distributions ($.240 per common unit)
 
(240
)
(23,936
)

(24,176
)

(24,176
)
Distributions to noncontrolling interests
 




(29
)
(29
)
Balance, March 31, 2015
 
$
4,948

$
548,418

$
(27,154
)
$
526,212

$
639

$
526,851

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

$
638,422

$
(38,702
)
$
605,446

$
586

$
606,032

Net income
 
283

28,311


28,594

23

28,617

Other comprehensive income
 


7,268

7,268


7,268

Compensation under Incentive Award Plan
 

4,230


4,230


4,230

Issuance of 4,500 common units upon exercise of options
 

123


123


123

Issuance of 277,524 restricted common units
 






Issuance of 24,040 deferred units
 






Withholding of 60,382 common units for employee income taxes
 

(1,921
)

(1,921
)

(1,921
)
Adjustment for noncontrolling interests in consolidated partnerships
 

1


1

(1
)

Common distributions ($.285 per common unit)
 
(285
)
(28,473
)

(28,758
)

(28,758
)
Distributions to noncontrolling interests
 




(19
)
(19
)
Balance, March 31, 2016
 
$
5,724

$
640,693

$
(31,434
)
$
614,983

$
589

$
615,572

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

15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
 
 
Three months ended March 31,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
28,617

 
$
36,386

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


Depreciation and amortization
 
26,567

 
23,989

Amortization of deferred financing costs
 
744

 
599

Gain on sale of assets and interests in unconsolidated entities
 
(4,887
)
 
(13,726
)
Equity in earnings of unconsolidated joint ventures
 
(3,499
)
 
(2,543
)
Equity-based compensation expense
 
4,001

 
3,613

Amortization of debt (premiums) and discounts, net
 
959

 
14

Amortization (accretion) of market rent rate adjustments, net
 
664

 
916

Straight-line rent adjustments
 
(1,607
)
 
(1,269
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
2,709

 
2,719

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
301

 
1,828

Accounts payable and accrued expenses
 
(579
)
 
2,854

Net cash provided by operating activities
 
53,990

 
55,380

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(34,896
)
 
(51,044
)
Additions to investments in unconsolidated joint ventures
 
(12,161
)
 
(16,419
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
25,785

 
15,495

Change in restricted cash
 
121,306

 

Proceeds from insurance reimbursements
 
72

 
103

Additions to non-real estate assets
 
(2,144
)
 
(208
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
4,394

 
4,837

Additions to deferred lease costs
 
(1,520
)
 
(2,338
)
Net cash provided by (used in) investing activities
 
100,836

 
(49,574
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(49,948
)
 
(24,176
)
Proceeds from debt issuances
 
327,342

 
118,341

Repayments of debt
 
(405,246
)
 
(99,742
)
Repayment of deferred financing obligation
 
(28,388
)
 

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(1,921
)
 
(1,084
)
Distributions to noncontrolling interests in consolidated partnerships
 
(19
)
 
(29
)
Additions to deferred financing costs
 
(82
)
 
(191
)
Proceeds from exercise of options
 
123

 
233

Net cash used in financing activities
 
(158,139
)
 
(6,648
)
Effect of foreign currency on cash and cash equivalents
 
591

 
(381
)
Net decrease in cash and cash equivalents
 
(2,722
)
 
(1,223
)
Cash and cash equivalents, beginning of period
 
21,552

 
15,806

Cash and cash equivalents, end of period
 
$
18,830

 
$
14,583

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 March 31, 2016, we owned and operated 33 consolidated outlet centers, with a total gross leasable area of approximately 11.5 million square feet. We also had partial ownership interests in 9 unconsolidated 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 March 31, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 96,126,507 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 5,052,743 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's REIT status. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

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

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


17



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

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

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

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

We 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 us or are conducted on our behalf.

The operating, development, leasing, and management agreements of the Savannah joint venture 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 $43.8 million as of March 31, 2016. 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 the Southaven joint venture give us, but not necessarily our joint venture partner, significant participating rights over activities that most significantly impact the economic performance of the ventures, thus we have concluded that we are the primary beneficiary and have consolidated the venture's balance sheet and results of operations. At March 31, 2016, total assets of this venture were $82.8 million and total liabilities were $57.1 million. The primary classification of the assets on the consolidated balance sheets are total rental property, net of $79.2 million; cash of $1.5 million and other assets of $2.1 million (including deferred lease costs and other intangibles) and the primary classification of the liabilities include accounts payable and accrued expenses of $4.7 million and mortgages payable net of debt origination costs of $51.5 million. These assets include only those assets that can be used to settle obligations of the VIE. The liabilities include third party liabilities and exclude intercompany balances that are eliminated in consolidation.


18



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

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

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

3. Disposition of Properties and Properties Held for Sale

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

The following table sets forth certain summarized information regarding the properties sold during the quarter ended March 31, 2016:
Properties
 
Locations
 
Date Sold
 
Square Feet
(in 000's)
 
Net Sales Price
(in 000's)
 
Gain on Sale(in 000's)
Sold:
 
 
 
 
 
 
 
 
 
 
Sanibel Center
 
Fort Myers, Florida
 
January 2016
 
199

 
$
25,785

 
$
4,887


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


4. Developments of Consolidated Outlet Centers

The table below sets forth our consolidated outlet centers under development as of March 31, 2016:
Project
Approximate square feet
(in 000's)
Costs Incurred to Date
(in millions)
Borrowed to date
(in millions)
Projected Opening
Daytona Beach
352

$
33.4


Holiday 2016


19



Daytona Beach

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

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 March 31, 2016
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Net Debt
(in millions)(1)
Columbus
 
Columbus, OH
 
50.0
%
 

 
$
30.7

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
5.5

 
85.9

RioCan Canada
 
Various
 
50.0
%
 
902

 
126.4

 
11.9

Savannah (2)
 
Savannah, GA
 
50.0
%
 
377

 
43.8

 
93.5

Westgate
 
Glendale, AZ
 
58.0
%
 
411

 
12.3

 
61.9

 
 
 
 
 
 
 
 
$
218.7

 
$
253.2

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(1.4
)
 
$
89.6

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

 
(2.1
)
 
64.8

 
 
 
 
 
 
 
 
$
(3.5
)
 
$
154.4


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

 
$
21.1

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
6.1

 
85.8

RioCan Canada
 
Various
 
50.0
%
 
870

 
117.2

 
11.3

Savannah (2)
 
Savannah, GA
 
50.0
%
 
377

 
44.4

 
87.6

Westgate
 
Glendale, AZ
 
58.0
%
 
411

 
12.3

 
61.9

 
 
 
 
 
 
 
 
$
201.1

 
$
246.6

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(1.1
)
 
$
89.6

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

 
(1.5
)
 
64.7

 
 
 
 
 
 
 
 
$
(2.6
)
 
$
154.3


(1)
Net of debt origination costs and including premiums of $2.8 million and $3.3 million as of March 31, 2016 and December 31, 2015, respectively.
(2)
Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture's cash flow to be greater than indicated in the Ownership column, which states our legal interest in this venture. As of March 31 2016, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value, our estimated economic interest in the venture was approximately 98%. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from gains or losses of asset sales.
(3)
The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.


20





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

 
 
March 31,

 
 
2016
 
2015

Fee:
 
 
 
 
 
Development and leasing
 
$
192

 
$
581

 
Loan guarantee
 
182

 
196

 
Management and marketing
 
747

 
506

 
Total Fees
 
$
1,121

 
$
1,283

 

Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the "Summary Balance Sheets - Unconsolidated Joint Ventures" shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $4.1 million and $3.9 million as of March 31, 2016 and December 31, 2015, 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 March 31, 2016, we and our partner had each contributed $30.0 million to fund development activities. 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.




21



Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint Ventures
 
March 31, 2016
 
December 31, 2015
Assets
 
 

 
 

Land
 
$
107,403

 
$
103,046

Buildings, improvements and fixtures
 
632,456

 
615,662

Construction in progress, including land
 
83,701

 
62,308

 
 
823,560

 
781,016

Accumulated depreciation
 
(69,754
)
 
(60,629
)
Total rental property, net
 
753,806

 
720,387

Cash and cash equivalents
 
27,671

 
28,723

Deferred lease costs, net
 
18,605

 
18,399

Prepaids and other assets
 
17,217

 
14,455

Total assets
 
$
817,299

 
$
781,964

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable, net
 
$
407,640

 
$
400,935

Accounts payable and other liabilities
 
27,604

 
31,805

Total liabilities
 
435,244

 
432,740

Owners' equity
 
382,055

 
349,224

Total liabilities and owners' equity
 
$
817,299

 
$
781,964


 
 
Three months ended
 
Condensed Combined Statements of Operations
 
March 31,
 
 - Unconsolidated Joint Ventures
 
2016
 
2015
 
Revenues
 
$
27,698

 
$
23,965

 
Expenses
 
 
 
 
 
Property operating
 
10,318

 
9,144

 
General and administrative
 
117

 
218

 
Depreciation and amortization
 
8,799

 
7,822

 
Total expenses
 
19,234

 
17,184

 
Operating income
 
8,464

 
6,781

 
Interest expense
 
(2,554
)
 
(1,770
)
 
Other nonoperating income
 
1

 
8

 
Net income
 
$
5,911

 
$
5,019

 
 
 
 
 
 
 
The Company and Operating Partnership's share of:
 
Net income
 
$
3,499

 
$
2,543

 
Depreciation expense (real estate related)
 
$
5,339

 
$
4,076

 

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.


22



The Operating Partnership had the following principal amounts outstanding on the debt guaranteed by the Company (in thousands):
 
 
March 31, 2016
 
December 31, 2015
Unsecured lines of credit
 
$
263,700

 
$
190,300

Unsecured term loan
 
$
250,000

 
$
250,000



7. Debt of the Operating Partnership

The debt of the Operating Partnership consisted of the following (in thousands):
 
 
 
 
 
 
As of
 
As of
 
 
 
 
 
 
March 31, 2016
 
December 31, 2015
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Book Value(1)
 
Principal
 
Book Value(1)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
 
6.125
%
 
June 2020

 
$
300,000

 
$
297,860

 
$
300,000

 
$
297,739

Senior notes
 
3.875
%
 
December 2023

 
250,000

 
244,977

 
250,000

 
244,829

Senior notes
 
3.750
%
 
December 2024

 
250,000

 
246,798

 
250,000

 
246,717

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

 
November 2021- December 2026

 
42,617

 
45,728

 
43,312

 
46,605

Deer Park
 
LIBOR + 1.50%

 

 

 

 
150,000

 
149,145

     Foxwoods
 
LIBOR + 1.65%

 
December 2017

 
70,250

 
69,651

 
70,250

 
69,564

     Southaven
 
LIBOR + 1.75%

 
April 2018

 
52,717

 
52,224

 
45,824

 
45,273

Unsecured note payable (2)
 
1.50
%
 
June 2016

 
10,000

 
9,959

 
10,000

 
9,919

Unsecured term loan
 
LIBOR + 1.05%

 
February 2019

 
250,000

 
248,581

 
250,000

 
248,443

Unsecured term note
 
LIBOR + 1.30%

 

 

 

 
7,500

 
7,470

Unsecured lines of credit
 
LIBOR + .90%

 
October 2019

 
263,700

 
259,890

 
190,300

 
186,220

 
 
 
 
 
 
$
1,489,284

 
$
1,475,668

 
$
1,567,186

 
$
1,551,924

(1)
Including premiums and net of debt discount and net debt origination costs.
(2)
The effective interest rates assigned during the purchase price allocation to the assumed mortgage and note payable during acquisitions in 2011 were as follows: Atlantic City 5.05% and unsecured note payable 3.15%.

Certain of our properties, which had a net book value of approximately $337.0 million at March 31, 2016 and $622.8 million at December 31, 2015, 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 $1.0 billion 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.

The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. As of March 31, 2016, we were in compliance with all of our debt covenants.

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Deer Park Debt Repayment

In January 2016, we repaid our $150.0 million floating rate mortgage loan, which had an original maturity date in August 2018 and related to our 749,000 square foot Deer Park outlet center.

Unsecured Term Note Repayment

In February 2016, we repaid our $7.5 million unsecured term note, which had an original maturity date in August 2017.

Debt Maturities

Maturities of the existing long-term debt as of March 31, 2016 for the next five years and thereafter are as follows (in thousands):
Calendar Year
 
Amount

2016
 
$
12,148

2017
 
73,258

2018
 
55,900

2019
 
517,069

2020
 
303,566

Thereafter
 
527,343

Subtotal
 
1,489,284

Net discount and debt origination costs
 
(13,616
)
Total
 
$
1,475,668

  
8. Deferred Financing Obligation

In September 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. We closed on the transaction in January 2016 and repaid the deferred financing obligation, which was recorded in the other liabilities section of our consolidated balance sheet as of December 31, 2015.


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9. Derivative Financial Instruments

The following table summarizes the terms and fair values of our derivative financial instruments, recorded in other liabilities within the consolidated balance sheets, (in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value
Effective Date
 
Maturity Date
 
Notional Amount
 
Bank Pay Rate
 
Company Fixed Pay Rate
 
March 31, 2016
 
December 31, 2015
Liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
November 14, 2013
 
August 14, 2018
 
$
50,000

 
1 month LIBOR
 
1.3075
%
 
$
(673
)
 
$
(212
)
November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.2970
%
 
(661
)
 
(198
)
November 14, 2013
 
August 14, 2018
 
50,000

 
1 month LIBOR
 
1.3025
%
 
(668
)
 
(206
)
Total
 
 
 
$
150,000

 
 
 
 
 
$
(2,002
)
 
$
(616
)

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

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, if any, is recognized directly in earnings. For the three months ended March 31, 2016, the ineffective portion was not significant.

The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
 
 
 
 
 
 
 
 
 
 
Three months ended March 31,
 
 
 
2016
 
2015
 
Interest Rate Swaps (Effective Portion):
 

 

 
Change in fair value of cash flow hedges
 
$
(1,386
)
 
$
(1,287
)
 


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


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The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
 
 
 
 
Level 1