Annual report pursuant to Section 13 and 15(d)

Acquisition of Rental Property

v2.4.0.8
Acquisition of Rental Property
 12 Months Ended
Dec. 31, 2013
Acquisition of Rental Property [Abstract]  
Acquisition of Rental Property
Acquisition of Rental Property

2013 Acquisitions

In August 2013, Deer Park completed a refinancing of its existing debt and then immediately restructured the ownership whereby we acquired an additional ownership interest in the property from one of the partners which gave us a controlling interest. With the acquisition of this additional interest, we have consolidated the property for financial reporting purposes since the acquisition date, and remeasured our previously held interest that was accounted for as an equity method investment.

Prior to the acquisition, Deer Park successfully negotiated new financing of the debt obligations for the previous mortgage and mezzanine loans totaling approximately $238.5 million, with a $150.0 million mortgage loan. The new five year mortgage loan bears interest at a 150 basis point spread over LIBOR. The previous mortgage and mezzanine loans were in default, and as part of the refinancing, all default interest associated with the loans was waived. Utilizing funding from our existing unsecured lines of credit, we loaned approximately $89.5 million at a rate of LIBOR plus 3.25% and due on August 30, 2020 to the Deer Park joint venture representing the remaining amount necessary to repay the previous mortgage and mezzanine loans. As a result of the refinancing, Deer Park recorded a gain on early extinguishment of debt of approximately $13.8 million. Our share of this gain along with our share of the income from the settlement of a lawsuit by Deer Park with a third party totalled approximately $7.8 million, which has been included in equity in earnings (losses) of unconsolidated joint ventures in the consolidated statement of operations for the year ended December 31, 2013.

Subsequent to the debt extinguishment, we acquired an additional one-third interest in the Deer Park property from one of the owners, bringing our total ownership to a two-thirds interest, for total consideration of approximately $27.9 million, including $13.9 million in cash and 450,576 in Class A common limited partnership units of Tanger Properties Limited Partnership, which are exchangeable for an equivalent number of the Company's common shares. This transaction was accounted for as a business combination resulting in the assets acquired and liabilities assumed being recorded at fair value as a result of the step acquisition. Prior to the acquisition, the joint venture was considered a variable interest entity and was accounted for under the equity method of accounting since we did not have the ability to direct the significant activities that affect the economic performance of the venture as a one-third owner. Upon acquiring an additional one-third interest, we determined, based on the acquisition agreement and other transaction documents which amended our rights with respect to the property and our obligations with respect to the additional one-third interest, that we control the property assets and direct the property’s significant activities and therefore, consolidate the property’s assets and liabilities.
 
The following table illustrates the fair value of the total consideration transferred and the amounts of the identifiable assets acquired and liabilities assumed at the acquisition date (in thousands):

Cash transferred
$
13,939

Common limited partnership units issued
13,981

Fair value of total consideration transferred to acquire one-third interest
27,920

Fair value of our previously held one-third interest
27,920

Fair value of noncontrolling interest
27,920

Fair value of net assets acquired
$
83,760






The aggregate purchase price of the property has been allocated as follows:

 
 
Fair Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Land
 
$
82,413

 
 
Buildings, improvements and fixtures
 
172,694

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above market lease value
 
18,807

 
11.9
Below market lease value
 
(12,658
)
 
18.5
Lease in place value
 
28,846

 
7.6
Tenant relationships
 
27,594

 
19.0
Lease and legal costs
 
1,724

 
8.9
Total deferred lease costs and other intangibles, net
 
64,313

 
 
Other identifiable assets acquired and liabilities assumed, net
 
2,265

 
 
Debt
 
(237,925
)
 
 
Total fair value of net assets acquired
 
$
83,760

 
 


There was no contingent consideration associated with this acquisition. We incurred approximately $1.0 million in third-party acquisition costs which were expensed as incurred. As a part of the acquisition accounting, we recorded a gain of $26.0 million which represented the difference between the carrying book value and the fair value of our previously held equity method investment in Deer Park.

Although we do not anticipate any changes in the fair value measurements of the acquisitions, the measurements may be subject to change within 12 months of the business combination date if new facts or circumstances are brought to our attention that were previously unknown but existed as of the business combination date.

Following the acquisition, we and the noncontrolling interest restructured certain aspects of our ownership of the property, whereby we receive substantially all of the economics generated by the property and would have substantial control over the property's financial activities. We and the noncontrolling interest entered into a triple net lease agreement with a different wholly-owned subsidiary of ours which operates the property as lessee. Under the new structure, we will serve as property manager and control the management, leasing, marketing and other operations of the property. We and the noncontrolling interest will receive, in proportion to our respective ownership interests, fixed annual lease payments of approximately $2.5 million, plus an amount necessary to pay the interest expense on debt related to the property. In addition, we and the noncontrolling interest have entered into an agreement whereby they may require us to acquire their ownership interest in the property on the second anniversary of the acquisition date for a price of $28.4 million, and we have the option to acquire their ownership interest on the fourth anniversary of the acquisition date at the same price. Due to the noncontrolling interest's ability to require us to purchase their interest, we have recorded an obligation to redeem their interest at the redemption price as a deferred financing obligation in the other liabilities section of the consolidated balance sheet.

The results of operations from the property are included in the consolidated statements of operations beginning on the acquisition date. The aggregate revenues and net loss from the property from the acquisition date through December 31, 2013, were $11.1 million and $3.5 million, respectively. The following unaudited condensed pro forma financial information for the years ended December 31, 2013 and 2012 is presented as if the acquisition had been consummated as of January 1, 2012, the beginning of the previous reporting period (in thousands, except per share data):
 
 
(unaudited)
 
 
(Pro forma)
 
 
Year ended
 
 
December 31,
 
 
2013
 
2012
Total Revenue
 
$
408,333

 
$
381,388

Income from continuing operations
 
85,836

 
78,347

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
80,621

 
73,219

Basic earnings per common share
 
0.86

 
0.80

Diluted earnings per common share
 
0.86

 
0.79



Supplemental pro forma earnings for 2013 were adjusted to exclude $1.0 million of third-party acquisition costs incurred in 2013 and $26.0 million of nonrecurring gain related to the fair value adjustment. Supplemental pro forma earnings for 2012 were adjusted to include those items.

2011 Acquisitions

Jeffersonville, Ohio

In June 2011, we purchased Prime Outlets at Jeffersonville, a 410,000 square foot outlet center, for $134.0 million in cash.  The cash purchase price was funded with proceeds from a $150.0 million senior, unsecured bridge loan.

Atlantic City, New Jersey and Ocean City, Maryland

During 2011, we closed on our admission as a member into four existing entities that resulted in our acquiring substantially all of the economic interests of Atlantic City Outlets The Walk (Atlantic City, New Jersey) and Ocean City Factory Outlets (Ocean City, Maryland). The combined purchase price was approximately $200.3 million, consisting of $116.8 million in cash and the assumption of $83.5 million in indebtedness.

Atlantic City Outlets The Walk is comprised of approximately 490,000 square feet and Ocean City Factory Outlets is comprised of approximately 199,000 square feet. The cash portion of the purchase price for Atlantic City Outlets The Walk and Ocean City Outlets was funded by amounts available under our unsecured lines of credit.

Hershey, Pennsylvania

In September 2011, we purchased substantially all of the economic interests in The Outlets at Hershey, a 247,000 square foot outlet center, for total consideration of $56.0 million, consisting of $24.6 million in cash and the assumption of $31.4 million of indebtedness. The cash consideration included a $6.2 million loan, which is included in other assets in the consolidated balance sheets, to the noncontrolling interest holder collateralized by their ownership interest in the property. The cash consideration for The Outlets at Hershey was funded by amounts available under our unsecured lines of credit.

The aggregate fair value purchase price of the properties acquired during the year ended December 31, 2011 has been allocated as follows:
 
 
Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Land
 
$
6,425

 
 
Buildings, improvements and fixtures
 
298,147

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above/below market lease value, net
 
5,166

 
7.1
Below market ground lease value
 
31,993

 
87.6
Lease in place value
 
24,232

 
4.0
Tenant relationships
 
28,628

 
10.2
Lease and legal costs
 
3,444

 
3.2
Total deferred lease costs and other intangibles, net
 
93,463

 
 
Mortgage fair value adjustments
 
(7,081
)
 
 
Net assets acquired
 
390,954

 
 
Less: contingent consideration
 
(3,023
)
 
 
Less: noncontrolling interests
 
(6,845
)
 
 
Consideration transferred
 
$
381,086

 
 


We incurred approximately $2.7 million in third-party acquisition costs which were expensed as incurred.  The aggregate revenues and net loss from the properties from the acquisition dates through December 31, 2011, were $18.5 million, and $1.5 million, respectively.

The results of operations of the acquired properties are included in the consolidated statements of operations beginning on their respective acquisition dates. The following unaudited condensed pro forma financial information for the year ended December 31, 2011 is presented as if the acquisitions had been consummated as of January 1, 2011, the beginning of the reporting period (in thousands):
 
 
(Unaudited)
 
 
(Pro forma)
 
 
Year ended December 31,
 
 
2011
Total Revenue
 
$
336,838

Income from continuing operations
 
47,687

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
41,045

Basic earnings per common share
 
0.49

Diluted earnings per common share
 
0.49