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 June 30, 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 July 26, 2016, there were 96,053,707 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 June 30, 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 June 30, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,052,907 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, if applicable, and Partners' Equity;

Earnings Per Share and Earnings Per Unit;

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

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

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

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


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 June 30, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three and six months ended June 30, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three and six months ended June 30, 2016 and 2015
Consolidated Statements of Shareholders' Equity - for the six months ended June 30, 2016 and 2015
Consolidated Statements of Cash Flows - for the six months ended June 30, 2016 and 2015
 
 
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of June 30, 2016 and December 31, 2015
Consolidated Statements of Operations - for the three and six months ended June 30, 2016 and 2015
Consolidated Statements of Comprehensive Income - for the three and six months ended June 30, 2016 and 2015
Consolidated Statements of Equity - for the six months ended June 30, 2016 and 2015
Consolidated Statements of Cash Flows - for the six months ended June 30, 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)
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Rental property
 
 

 
 

Land
 
$
254,809

 
$
240,267

Buildings, improvements and fixtures
 
2,377,765

 
2,249,417

Construction in progress
 
61,038

 
23,533

 
 
2,693,612

 
2,513,217

Accumulated depreciation
 
(769,777
)
 
(748,341
)
Total rental property, net
 
1,923,835

 
1,764,876

Cash and cash equivalents
 
27,107

 
21,558

Restricted cash
 

 
121,306

Investments in unconsolidated joint ventures
 
210,486

 
201,083

Deferred lease costs and other intangibles, net
 
133,578

 
127,089

Prepaids and other assets
 
84,346

 
78,913

Total assets
 
$
2,379,352

 
$
2,314,825

Liabilities and Equity
 
 
 
 
Liabilities
 
 

 
 

Debt
 
 

 
 

Senior, unsecured notes, net
 
$
789,991

 
$
789,285

Unsecured term loans, net
 
321,980

 
265,832

Mortgages payable, net
 
235,215

 
310,587

Unsecured lines of credit, net
 
255,661

 
186,220

Total debt
 
1,602,847

 
1,551,924

Accounts payable and accrued expenses
 
62,658

 
97,396

Deferred financing obligation
 

 
28,388

Other liabilities
 
53,433

 
31,085

Total liabilities
 
1,718,938

 
1,708,793

Commitments and contingencies
 

 

Equity
 
 

 
 

Tanger Factory Outlet Centers, Inc.
 
 

 
 

Common shares, $.01 par value, 300,000,000 shares authorized, 96,052,907 and 95,880,825 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively
 
960

 
959

Paid in capital
 
811,853

 
806,379

Accumulated distributions in excess of net income 
 
(153,465
)
 
(195,486
)
Accumulated other comprehensive loss
 
(32,090
)
 
(36,715
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
627,258

 
575,137

Equity attributable to noncontrolling interests
 
 
 
 
Noncontrolling interests in Operating Partnership
 
32,996

 
30,309

Noncontrolling interests in other consolidated partnerships
 
160

 
586

Total equity
 
660,414

 
606,032

Total liabilities and equity
 
$
2,379,352

 
$
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 June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
75,003

 
$
72,329

 
$
147,626

 
$
139,958

Percentage rentals
 
2,326

 
2,042

 
4,476

 
4,271

Expense reimbursements
 
30,754

 
29,909

 
63,996

 
63,273

Management, leasing and other services
 
1,332

 
1,727

 
2,453

 
3,010

Other income
 
1,918

 
1,729

 
3,587

 
3,150

Total revenues
 
111,333

 
107,736

 
222,138

 
213,662

Expenses
 
 
 


 
 
 
 

Property operating
 
35,012

 
34,958

 
72,886

 
72,690

General and administrative
 
11,675

 
11,612

 
23,240

 
22,917

Depreciation and amortization
 
26,306

 
24,272

 
52,873

 
48,261

Total expenses
 
72,993

 
70,842

 
148,999

 
143,868

Operating income
 
38,340

 
36,894


73,139


69,794

Other income/(expense)
 
 
 
 
 
 
 
 
Interest expense
 
(13,800
)
 
(13,088
)
 
(28,684
)
 
(26,177
)
Gain on sale of assets and interests in unconsolidated joint ventures
 

 

 
4,887

 
13,726

Gain on previously held interest in acquired joint venture
 
49,258

 

 
49,258

 

Other nonoperating income
 
38

 
(493
)
 
354

 
(187
)
Income before equity in earnings of unconsolidated joint ventures
 
73,836

 
23,313

 
98,954

 
57,156

Equity in earnings of unconsolidated joint ventures
 
3,466

 
2,046

 
6,965

 
4,589

Net income
 
77,302

 
25,359


105,919


61,745

Noncontrolling interests in Operating Partnership
 
(3,897
)
 
(1,313
)
 
(5,341
)
 
(3,168
)
Noncontrolling interests in other consolidated partnerships
 
12

 
435

 
(11
)
 
416

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
73,417

 
$
24,481


$
100,567


$
58,993

 
 
 
 
 
 
 
 
 
Basic earnings per common share
 
 
 
 
 
 

 
 

Net income
 
$
0.76

 
$
0.26

 
$
1.05

 
$
0.62

Diluted earnings per common share
 
 
 
 
 
 
 
 
Net income
 
$
0.76

 
$
0.26

 
$
1.04

 
$
0.62

 
 
 
 
 
 
 
 
 
Dividends declared per common share
 
$
0.325

 
$
0.285

 
$
0.610

 
$
0.525

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 June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
77,302

 
$
25,359

 
$
105,919

 
$
61,745

Other comprehensive income (loss)
 
 
 
 
 
 
 

Foreign currency translation adjustments
 
47

 
3,063

 
8,701

 
(8,013
)
Change in fair value of cash flow hedges
 
(2,443
)
 
398

 
(3,829
)
 
(889
)
Other comprehensive income (loss)
 
(2,396
)
 
3,461

 
4,872

 
(8,902
)
Comprehensive income
 
74,906

 
28,820

 
110,791

 
52,843

Comprehensive income attributable to noncontrolling interests
 
(3,765
)
 
(1,054
)
 
(5,599
)
 
(2,297
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
71,141

 
$
27,766

 
$
105,192

 
$
50,546

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
 


58,993


58,993

3,168

(416
)
61,745

Other comprehensive loss
 



(8,447
)
(8,447
)
(455
)

(8,902
)
Compensation under Incentive Award Plan
 

7,969



7,969



7,969

Issuance of 14,000 common shares upon exercise of options
 

384



384



384

Grant of 348,844 restricted common share awards
 
3

(3
)






Withholding of 30,578 common shares for employee income taxes
 

(1,084
)


(1,084
)


(1,084
)
Contributions from noncontrolling interests
 






456

456

Adjustment for noncontrolling interests in Operating Partnership
 

(248
)


(248
)
248



Adjustment for noncontrolling interests in other consolidated partnerships
 

3



3


(3
)

Common dividends ($0.525 per share)
 


(50,262
)

(50,262
)


(50,262
)
Distributions to noncontrolling interests
 





(2,666
)
(90
)
(2,756
)
Balance, June 30, 2015
 
$
958

$
798,587

$
(272,948
)
$
(22,470
)
$
504,127

$
26,712

$
597

$
531,436

 
 
 
 
 
 
 
 
 
 
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
 


100,567


100,567

5,341

11

105,919

Other comprehensive income
 



4,625

4,625

247


4,872

Compensation under Incentive Award Plan
 

8,152



8,152



8,152

Issuance of 35,300 common shares upon exercise of options
 

1,041



1,041



1,041

Grant of 173,124 restricted common share awards, net of forfeitures
 
2

(2
)






Issuance of 24,040 deferred shares
 








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


(1,921
)


(1,921
)
Contributions from noncontrolling interests
 






35

35

Adjustment for noncontrolling interests in Operating Partnership
 

(182
)


(182
)
182



Adjustment for noncontrolling interests in other consolidated partnerships
 

2



2


(2
)

Acquisition of noncontrolling interest in other consolidated partnership
 

(1,617
)


(1,617
)

(325
)
(1,942
)
Common dividends ($.61 per share)
 


(58,546
)

(58,546
)


(58,546
)
Distributions to noncontrolling interests
 





(3,083
)
(145
)
(3,228
)
Balance,
June 30, 2016
 
$
960

$
811,853

$
(153,465
)
$
(32,090
)
$
627,258

$
32,996

$
160

$
660,414


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)
 
 
Six months ended
 
 
June 30,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 
 
 

Net income
 
$
105,919

 
$
61,745

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
52,873

 
48,261

Amortization of deferred financing costs
 
1,505

 
1,202

Gain on sale of assets and interests in unconsolidated entities
 
(4,887
)
 
(13,726
)
Gain on previously held interest in acquired joint venture
 
(49,258
)
 

Equity in earnings of unconsolidated joint ventures
 
(6,965
)
 
(4,589
)
Share-based compensation expense
 
7,655

 
7,566

Amortization of debt (premiums) and discounts, net
 
1,075

 
(74
)
Amortization (accretion) of market rent rate adjustments, net
 
1,303

 
1,299

Straight-line rent adjustments
 
(3,321
)
 
(2,818
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
7,468

 
5,535

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(1,011
)
 
1,146

Accounts payable and accrued expenses
 
(7,335
)
 
(4,847
)
Net cash provided by operating activities
 
105,021

 
100,700

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(68,582
)
 
(111,231
)
Acquisition of interest in unconsolidated joint venture, net of cash acquired
 
(34,187
)
 

Acquisition of noncontrolling interest in other consolidated partnership
 
(1,942
)
 

Additions to investments in unconsolidated joint ventures
 
(19,363
)
 
(26,938
)
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
 
266

 
187

Additions to non-real estate assets
 
(2,379
)
 
(457
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
7,874

 
9,448

Additions to deferred lease costs
 
(2,919
)
 
(3,989
)
Net cash provided by (used in) investing activities
 
25,859

 
(117,485
)
FINANCING ACTIVITIES
 
 
 
 
Cash dividends paid
 
(78,675
)
 
(50,262
)
Distributions to noncontrolling interests in Operating Partnership
 
(4,144
)
 
(2,666
)
Proceeds from debt issuances
 
597,715

 
302,257

Repayments of debt
 
(609,551
)
 
(230,887
)
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
 
(99
)
 
(90
)
Additions to deferred financing costs
 
(1,883
)
 
(721
)
Proceeds from exercise of options
 
1,041

 
384

Contributions from noncontrolling interests in other consolidated partnerships
 
35

 
259

Net cash provided by (used in) financing activities
 
(125,870
)
 
17,190

Effect of foreign currency rate changes on cash and cash equivalents
 
539

 
(331
)
Net increase in cash and cash equivalents
 
5,549

 
74

Cash and cash equivalents, beginning of period
 
21,558

 
16,875

Cash and cash equivalents, end of period
 
$
27,107

 
$
16,949

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)
 
 
June 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Rental property
 
 

 
 

Land
 
$
254,809

 
$
240,267

Buildings, improvements and fixtures
 
2,377,765

 
2,249,417

Construction in progress
 
61,038

 
23,533

 
 
2,693,612

 
2,513,217

Accumulated depreciation
 
(769,777
)
 
(748,341
)
Total rental property, net
 
1,923,835

 
1,764,876

Cash and cash equivalents
 
27,088

 
21,552

Restricted cash
 

 
121,306

Investments in unconsolidated joint ventures
 
210,486

 
201,083

Deferred lease costs and other intangibles, net
 
133,578

 
127,089

Prepaids and other assets
 
84,181

 
78,248

Total assets
 
$
2,379,168

 
$
2,314,154

Liabilities and Equity
 

 
 
Liabilities
 
 
 
 
Debt
 
 
 
 
Senior, unsecured notes, net
 
$
789,991

 
$
789,285

Unsecured term loans, net
 
321,980

 
265,832

Mortgages payable, net
 
235,215

 
310,587

Unsecured lines of credit, net
 
255,661

 
186,220

Total debt
 
1,602,847

 
1,551,924

Accounts payable and accrued expenses
 
62,474

 
96,725

Deferred financing obligation
 

 
28,388

Other liabilities
 
53,433

 
31,085

Total liabilities
 
1,718,754

 
1,708,122

Commitments and contingencies
 

 

Equity
 
 
 
 
Partners' Equity
 
 
 
 
General partner, 1,000,000 units outstanding at June 30, 2016 and December 31, 2015
 
6,164

 
5,726

Limited partners, 5,052,743 Class A common units, and 95,052,907 and 94,880,825 Class B common units outstanding at June 30, 2016 and December 31, 2015, respectively
 
687,920

 
638,422

Accumulated other comprehensive loss
 
(33,830
)
 
(38,702
)
Total partners' equity
 
660,254

 
605,446

Noncontrolling interests in consolidated partnerships
 
160

 
586

Total equity
 
660,414

 
606,032

Total liabilities and equity
 
$
2,379,168

 
$
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 June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Revenues
 
 
 
 
 
 

 
 
Base rentals
 
$
75,003

 
$
72,329

 
$
147,626

 
$
139,958

Percentage rentals
 
2,326

 
2,042

 
4,476

 
4,271

Expense reimbursements
 
30,754

 
29,909

 
63,996

 
63,273

Management, leasing and other services
 
1,332

 
1,727

 
2,453

 
3,010

Other income
 
1,918

 
1,729

 
3,587

 
3,150

Total revenues
 
111,333

 
107,736


222,138


213,662

Expenses
 


 


 


 
 
Property operating
 
35,012

 
34,958

 
72,886

 
72,690

General and administrative
 
11,675

 
11,612

 
23,240

 
22,917

Depreciation and amortization
 
26,306

 
24,272

 
52,873

 
48,261

Total expenses
 
72,993

 
70,842


148,999


143,868

Operating income
 
38,340

 
36,894


73,139


69,794

Other income/(expense)
 
 
 
 
 
 
 
 
Interest expense
 
(13,800
)
 
(13,088
)
 
(28,684
)
 
(26,177
)
Gain on sale of assets and interests in unconsolidated joint ventures
 

 

 
4,887

 
13,726

Gain on previously held interest in acquired joint venture
 
49,258

 

 
49,258

 

Other nonoperating income
 
38

 
(493
)
 
354

 
(187
)
Income before equity in earnings of unconsolidated joint ventures
 
73,836

 
23,313


98,954


57,156

Equity in earnings of unconsolidated joint ventures
 
3,466

 
2,046

 
6,965

 
4,589

Net income
 
77,302

 
25,359


105,919


61,745

Noncontrolling interests in consolidated partnerships
 
12

 
435

 
(11
)
 
416

Net income available to partners
 
77,314

 
25,794


105,908


62,161

Net income available to limited partners
 
76,549

 
25,539

 
104,860

 
61,546

Net income available to general partner
 
$
765

 
$
255


$
1,048


$
615

 
 
 
 
 
 
 
 
 
Basic earnings per common unit
 
 
 
 
 
 
 
 

Net income
 
$
0.76

 
$
0.26

 
$
1.05

 
$
0.62

Diluted earnings per common unit
 
 
 
 
 
 
 
 
Net income
 
$
0.76

 
$
0.26

 
$
1.05

 
$
0.62

 
 
 
 
 
 
 
 
 
Distribution declared per common unit
 
$
0.325

 
$
0.285

 
$
0.610

 
$
0.525

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 June 30,
 
Six months ended June 30,
 
 
2016
 
2015
 
2016
 
2015
Net income
 
$
77,302

 
$
25,359

 
$
105,919

 
$
61,745

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
47

 
3,063

 
8,701

 
(8,013
)
Changes in fair value of cash flow hedges
 
(2,443
)
 
398

 
(3,829
)
 
(889
)
Other comprehensive income (loss)
 
(2,396
)
 
3,461

 
4,872

 
(8,902
)
Comprehensive income
 
74,906

 
28,820

 
110,791

 
52,843

Comprehensive income attributable to noncontrolling interests in consolidated partnerships
 
12

 
435

 
(11
)
 
416

Comprehensive income attributable to the Operating Partnership
 
$
74,918

 
$
29,255

 
$
110,780

 
$
53,259

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
 
615

61,546


62,161

(416
)
61,745

Other comprehensive loss
 


(8,902
)
(8,902
)

(8,902
)
Compensation under Incentive Award Plan
 

7,969


7,969


7,969

Issuance of 14,000 common units upon exercise of options
 

384


384


384

Grant of 348,844 restricted common share awards by the Company
 






Withholding of 30,578 common units for employee income taxes
 

(1,084
)

(1,084
)

(1,084
)
Contributions from noncontrolling interests
 




456

456

Adjustments for noncontrolling interests in consolidated partnerships
 

3


3

(3
)

Common distributions ($.525 per common unit)
 
(525
)
(52,403
)

(52,928
)

(52,928
)
Distributions to noncontrolling interests
 




(90
)
(90
)
Balance, June 30, 2015
 
$
4,918

$
549,614

$
(23,693
)
$
530,839

$
597

$
531,436

 
 
 
 
 
 
 
 
 
 
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
 
1,048

104,860


105,908

11

105,919

Other comprehensive income
 


4,872

4,872


4,872

Compensation under Incentive Award Plan
 

8,152


8,152


8,152

Issuance of 35,300 common units upon exercise of options
 

1,041


1,041


1,041

Grant of 173,124 restricted common share awards by the Company, net of forfeitures
 






Issuance of 24,040 deferred units
 






Withholding of 60,382 common units for employee income taxes
 

(1,921
)

(1,921
)

(1,921
)
Contributions from noncontrolling interests
 




35

35

Adjustment for noncontrolling interests in consolidated partnerships
 

2


2

(2
)

Acquisition of noncontrolling interest in other consolidated partnership
 

(1,617
)

(1,617
)
(325
)
(1,942
)
Common distributions ($.61 per common unit)
 
(610
)
(61,019
)

(61,629
)

(61,629
)
Distributions to noncontrolling interests
 




(145
)
(145
)
Balance, June 30, 2016
 
$
6,164

$
687,920

$
(33,830
)
$
660,254

$
160

$
660,414

 
 
 
 
 
 
 
 
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)
 
 
Six months ended June 30,
 
 
2016
 
2015
OPERATING ACTIVITIES
 
 

 
 

Net income
 
$
105,919

 
$
61,745

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
52,873

 
48,261

Amortization of deferred financing costs
 
1,505

 
1,202

Gain on sale of assets and interests in unconsolidated entities
 
(4,887
)
 
(13,726
)
Gain on previously held interest in acquired joint venture
 
(49,258
)
 

Equity in earnings of unconsolidated joint ventures
 
(6,965
)
 
(4,589
)
Equity-based compensation expense
 
7,655

 
7,566

Amortization of debt (premiums) and discounts, net
 
1,075

 
(74
)
Amortization (accretion) of market rent rate adjustments, net
 
1,303

 
1,299

Straight-line rent adjustments
 
(3,321
)
 
(2,818
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
7,468

 
5,535

Changes in other assets and liabilities:
 
 
 
 
Other assets
 
(1,511
)
 
1,182

Accounts payable and accrued expenses
 
(6,848
)
 
(3,857
)
Net cash provided by operating activities
 
105,008

 
101,726

INVESTING ACTIVITIES
 
 
 
 
Additions to rental property
 
(68,582
)
 
(111,231
)
Acquisition of interest in unconsolidated joint venture, net of cash acquired
 
(34,187
)
 

Acquisition of noncontrolling interest in other consolidated partnership
 
(1,942
)
 

Additions to investments in unconsolidated joint ventures
 
(19,363
)
 
(26,938
)
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
 
266

 
187

Additions to non-real estate assets
 
(2,379
)
 
(457
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
7,874

 
9,448

Additions to deferred lease costs
 
(2,919
)
 
(3,989
)
Net cash provided by (used in) investing activities
 
25,859

 
(117,485
)
FINANCING ACTIVITIES
 
 
 
 
Cash distributions paid
 
(82,819
)
 
(52,928
)
Proceeds from debt issuances
 
597,715

 
302,257

Repayments of debt
 
(609,551
)
 
(230,887
)
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
 
(99
)
 
(90
)
Additions to deferred financing costs
 
(1,883
)
 
(721
)
Proceeds from exercise of options
 
1,041

 
384

Contributions from noncontrolling interests in other consolidated partnerships
 
35

 
259

Net cash provided by (used in) financing activities
 
(125,870
)
 
17,190

Effect of foreign currency on cash and cash equivalents
 
539

 
(331
)
Net increase in cash and cash equivalents
 
5,536

 
1,100

Cash and cash equivalents, beginning of period
 
21,552

 
15,806

Cash and cash equivalents, end of period
 
$
27,088

 
$
16,906

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 June 30, 2016, we owned and operated 34 consolidated outlet centers, with a total gross leasable area of approximately 11.9 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 June 30, 2016, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 95,052,907 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 $42.4 million as of June 30, 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 June 30, 2016, total assets of this venture were $85.6 million and total liabilities were $60.6 million. The primary classification of the assets on the consolidated balance sheets are total rental property, net, $80.7 million; cash, $2.8 million and other assets, $2.1 million (including deferred lease costs and other intangibles) and the primary classification of the liabilities include accounts payable and accrued expenses, $2.6 million and mortgages payable net of debt origination costs, $58.0 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 Financial Accounting Standards Board ("FASB") 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. Acquisition of Rental Property
On June 30, 2016, we completed the purchase of our partners' interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona, for a total cash price of approximately $40.9 million. Prior to the transaction, we owned a 58% interest in the Westgate joint venture since its formation in 2012 and accounted for it under the equity method of accounting. The joint venture is now wholly-owned and is consolidated in our financial results as of June 30, 2016.

The total cash price included $39.0 million to acquire the 40% ownership interest held by the equity partner in the joint venture. We also purchased the remaining 2% noncontrolling ownership interests in the Westgate outlet center held in a consolidated partnership for a purchase price of $1.9 million. The acquisition of the noncontrolling ownership interest was recorded as an equity transaction and, as a result, the carrying balances of the noncontrolling interest were eliminated and the remaining difference between the purchase price and carrying balance was recorded as a reduction in additional-paid-in-capital. We funded the total purchase price with borrowings under our unsecured lines of credit. The property is subject to an existing $62.0 million mortgage loan, with an interest rate of LIBOR + 1.75% and matures in June 2017.

The following table illustrates the fair value of the total consideration transferred to acquire the equity interest at the acquisition date (in thousands):
Cash transferred for equity interest
$
39,000

Fair value of our previously held interest
58,500

Fair value of net assets
$
97,500



19



The following table illustrates the fair value of the amounts of the identifiable assets acquired and liabilities assumed recognized at the acquisition date:

 
 
Fair Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Cash
 
$
4,813

 
 
Land
 
19,187

 
 
Buildings, improvements and fixtures
 
145,900

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above market lease value
 
2,689

 
6.8
Lease in place value
 
7,878

 
5.3
Lease and legal costs
 
2,839

 
5.1
Total deferred lease costs and other intangibles
 
13,406

 
 
Prepaids and other assets
 
227

 
 
Debt
 
(62,000
)
 
 
Accounts payable and accrued expenses
 
(5,040
)
 
 
Other liabilities (Below market lease value)
 
(18,993
)
 
11.4
Total fair value of net assets
 
$
97,500

 
 

There was no contingent consideration associated with this acquisition. We incurred approximately $75,000 in third-party acquisition related costs for the acquisition of our partners' interest in the Westgate joint venture that were expensed as incurred. As a result of acquiring the remaining interest in the Westgate joint venture, we recorded a gain of $49.3 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the Westgate joint venture.

Non-cash investing activities related to the purchase of our partners' interest in the Westgate joint venture, include the assumption of debt totaling $62.0 million. In addition, rental property and lease related above and below market intangible assets and liabilities increased $49.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased $227,000 and accounts payable and accrued expense increased $5.0 million from the assumption of current assets and liabilities.

The fair value was determined based on an income approach, using a rental growth rate of 3.0%, a discount rate of 8.75%, and a terminal cap rate of 7.25%. The estimate of fair value was determined to have primarily relied upon Level 3 inputs, as defined in Note 11. The fair value is based upon our best available information at the time of the preparation of our financial statements. However, the business acquisition accounting for this property is not complete and accordingly, such estimates of the value of acquired assets and liabilities are provisional until the valuation is finalized. Therefore, the provisional measurements of fair value reflected are subject to change and such changes could be significant. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practical, but no later than one year from the acquisition date.

4. 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 six months ended June 30, 2016:

20



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.


5. Developments of Consolidated Outlet Centers

The table below sets forth our consolidated outlet centers under development as of June 30, 2016:
Project
Approximate square feet
(in 000's)
Costs Incurred to Date
(in millions)
Borrowed to date
(in millions)
Projected Opening
Daytona Beach
352

$
49.8


November 2016

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.



21



6. 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 June 30, 2016
Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt, Net
(in millions)(1)
Columbus
 
Columbus, OH
 
50.0
%
 
355

 
$
36.4

 
$

National Harbor
 
National Harbor, MD
 
50.0
%
 
339

 
4.9

 
86.0

RioCan Canada
 
Various
 
50.0
%
 
902

 
126.8

 
11.8

Savannah (2)
 
Savannah, GA
 
50.0
%
 
419

 
42.4

 
95.7

 
 
 
 
 
 
 
 
$
210.5

 
$
193.5

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(1.6
)
 
$
89.6

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

 
(2.9
)
 
64.8

 
 
 
 
 
 
 
 
$
(4.5
)
 
$
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 Debt, Net
(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 $2.3 million and $3.3 million as of June 30, 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 June 30, 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.


22



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

Six months ended
 
 
June 30,

June 30,
 
 
2016
 
2015

2016

2015
Fee:
 
 
 
 
 
 

 
 

Development and leasing
 
$
353

 
$
727

 
$
545

 
$
1,307

Loan guarantee
 
182

 
187

 
364

 
383

Management and marketing
 
797

 
813

 
1,544

 
1,320

Total Fees
 
$
1,332

 
$
1,727

 
$
2,453

 
$
3,010


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 $4.4 million and $3.9 million as of June 30, 2016 and December 31, 2015, respectively) are amortized over the various useful lives of the related assets.

Westgate

As described in Note 3, we acquired our partners' interest in the Westgate joint venture and have consolidated the property for financial reporting purposes since the acquisition date.

Columbus

In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. As of June 30, 2016, we and our partner had each contributed $35.8 million to fund development activities. The projected total net cost of the development is estimated to be approximately $94.9 million.We are providing property management, marketing and leasing services to the joint venture. During construction, our partner provided development services to the joint venture and we, along with our partner, provided joint leasing services.

Savannah

In May 2016, we expanded our outlet center in Savannah by approximately 42,000 square feet, bringing the outlet center's total gross leasable area to approximately 419,000 square feet.


23



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
 
June 30, 2016
 
December 31, 2015
Assets
 
 

 
 

Land
 
$
104,123

 
$
103,046

Buildings, improvements and fixtures
 
638,116

 
615,662

Construction in progress, including land
 
8,436

 
62,308

 
 
750,675

 
781,016

Accumulated depreciation
 
(64,556
)
 
(60,629
)
Total rental property, net
 
686,119

 
720,387

Cash and cash equivalents
 
24,247

 
28,723

Deferred lease costs, net
 
18,887

 
18,399

Prepaids and other assets
 
16,287

 
14,455

Total assets
 
$
745,540

 
$
781,964

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable, net
 
$
347,890

 
$
400,935

Accounts payable and other liabilities
 
28,601

 
31,805

Total liabilities
 
376,491

 
432,740

Owners' equity
 
369,049

 
349,22