Tanger Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Investments in Unconsolidated Real Estate Joint Ventures

Investments in Unconsolidated Real Estate Joint Ventures

12 Months Ended

Dec. 31, 2013

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Joint Ventures

Our investments in unconsolidated joint ventures as of December 31, 2013 and 2012 aggregated $140.2 million and $126.6 million respectively. We have evaluated the accounting treatment for each of the joint ventures and have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for the individual joint ventures. At December 31, 2013 and 2012, we were members of the following unconsolidated real estate joint ventures:



As of December 31, 2013
Joint Venture	Center Location	Ownership %	Square Feet	Carrying Value of Investment (in millions)		Total Joint Venture Debt (in millions)
Charlotte	Charlotte, NC	50.0	—	$	11.6	$	—
Galveston/Houston	Texas City, TX	50.0	352,705	7.4		65.0
National Harbor	Washington D.C. Metro Area	50.0	336,286	16.7		52.4
RioCan Canada	Various	50.0	432,836	85.7		17.9
Westgate	Glendale, AZ	58.0	331,739	16.1		43.1
Wisconsin Dells	Wisconsin Dells, WI	50.0	265,086	2.5		24.3
Other			—	0.2		—
				$	140.2	$	202.7



As of December 31, 2012
Joint Venture	Center Location	Ownership %	Square Feet	Carrying Value of Investment (in millions)		Total Joint Venture Debt (in millions)
Deer Park	Deer Park, Long Island NY	33.3	741,981	$	3.0	$	246.9
Deer Park Warehouse	Deer Park, Long Island NY	33.3	29,253	—		1.9
Galveston/Houston	Texas City, TX	50.0	352,705	36.7		—
National Harbor	Washington D.C. Metro Area	50.0	—	2.6		—
RioCan Canada	Various	50.0	434,562	62.2		20.1
Westgate	Glendale, AZ	58.0	332,234	19.1		32.0
Wisconsin Dells	Wisconsin Dells, WI	50.0	265,086	2.8		24.3
Other			—	0.2		—
				$	126.6	$	325.2

These investments are recorded initially at cost and subsequently adjusted for our equity in the venture's net income (loss), cash contributions, distributions and other adjustments required by the equity method of accounting as described below.

Fees we received for various services provided to our unconsolidated joint ventures were recognized as follows (in thousands):



	Year Ended December 31,
	2013		2012		2011
Fees:
Development and leasing	$	595	$	193	$	5
Loan guarantee	161		80		—
Management	1,831		1,301		1,048
Marketing	493		433		163
Total Fees	$	3,080	$	2,007	$	1,216

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 $1.6 million and $2.0 million as of December 31, 2013 and 2012, respectively) are amortized over the various useful lives of the related assets.

Charlotte, North Carolina

In May 2013, we formed a joint venture for the development of an outlet center in the Charlotte, NC market. Subsequently, during the third quarter of 2013, the joint venture began construction on the outlet center which will be located eight miles southwest of uptown Charlotte at the interchange of I-485 and Steele Creek Road (NC Highway 160), two major thoroughfares for the city. The approximately 400,000 square foot project will feature approximately 90 brand name and designer stores and is expected to open during the third quarter of 2014.

As of December 31, 2013, we and our partner had each contributed approximately $11.5 million in cash to the joint venture to fund development activities. We are providing development services to the project; and with our partner, are jointly providing leasing services. Our partner will provide property management and marketing services to the center once open.

Deer Park, Long Island, New York

As described in Note 3, we acquired an additional one-third ownership interest in Deer Park and have consolidated the property for financial reporting purposes since the acquisition date. Prior to August 30, 2013, this was an unconsolidated joint venture.

Deer Park Warehouse, Long Island, New York

In March 2013, in connection with a loan forbearance agreement signed in 2012 with the lender to the joint venture, the warehouse property was sold for approximately $1.2 million. The proceeds were used to satisfy the terms of the forbearance agreement. There was no impact to the net income of the joint venture as a result of this sale and the retirement of the associated mortgage debt.

Galveston/Houston, Texas

In June 2011, we announced the formation of a joint venture for the development of a Tanger Outlet Center south of Houston in Texas City, Texas. Tanger Outlets Texas City, which opened October 19, 2012, contains approximately 353,000 square feet, with room for expansion for a total build out of approximately 470,000 square feet. The development was initially fully funded with equity contributed to the joint venture by Tanger and its partner. In July 2013, the joint venture closed on a $70.0 million mortgage loan with a rate of LIBOR + 1.50% and a maturity date of July 1, 2017, with the option to extend the maturity for one additional year. The joint venture received total loan proceeds of $65.0 million and distributed the proceeds equally to the partners. We used our share of the proceeds to reduce amounts outstanding under our unsecured lines of credit. We provide property management and marketing services to the center; and with our partner, are jointly providing development and leasing services.

National Harbor, Washington, D.C. Metro Area

In May 2011, we announced the formation of a joint venture for the development of a Tanger Outlet Center at National Harbor in the Washington, D.C. Metro area. In November 2012, the joint venture broke ground and began development and both parties made equity contributions of $17.2 million to fund initial development costs. In May 2013, the joint venture closed on a construction loan with the ability to borrow up to $62.0 million and which carries an interest rate of LIBOR + 1.65%. As of December 31, 2013 the balance on the loan was $52.4 million. The approximately 336,000 square feet center opened in November 2013. We provide property management, leasing and marketing services to the joint venture; and with our partner, jointly provided site development and construction supervision services.

RioCan Canada

We have entered into a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to develop and acquire outlet centers in Canada. Any projects developed or acquired will be branded as Tanger Outlet Centers. We provide leasing and marketing services and RioCan provides development and property management services.

In December 2011, the co-owners purchased the Cookstown Outlet Mall. The existing outlet center was acquired for $47.4 million, plus an additional $13.8 million for excess land upon the seller meeting certain conditions, for an aggregate purchase price of $61.2 million. In connection with the purchase, the co-owners assumed the in-place financing of $29.6 million. In March 2012, the co-owners retired the outstanding loan and we contributed an additional $15.1 million to fund our portion of the payment. In March of 2013 the co-owners acquired the land adjacent to the existing Cookstown Outlet Mall for $13.9 million. The land is being used for the expansion of the Cookstown Outlet Mall which began in May 2013. The expansion, which is expected to open in the fourth quarter of 2014 and will add approximately 153,000 square feet to the center.

During the first quarter of 2012, the co-owners terminated an option contract to develop a center in Halton Hills, Ontario and accordingly wrote-off pre-development costs of approximately $1.4 million.

In November 2012, the co-owners acquired two existing outlet centers in the Montreal, Quebec market for an aggregate purchase price of approximately $94.8 million. The purchase price includes the assumption of mortgages totaling $18.7 million at Les Factoreries Saint-Sauveur, which carry a weighted average interest rate of 5.7% and mature in 2015 and 2020. There is no in-place financing associated with the Bromont Outlet Mall acquisition.

Les Factoreries Saint-Sauveur, is located northwest of Montreal adjacent to Highway 15 in the town of Saint-Sauveur, Quebec. The property was built in 1980, and expanded in 2006, and is approximately 116,000 square feet with the potential to expand to approximately 131,000 square feet.

The Bromont Outlet Mall, is located east of Montreal near the eastern townships adjacent to Highway 10 in the town of Bromont, Quebec. The property was built in 2004 and expanded through 2011, and is approximately 162,000 square feet with the potential to expand to approximately 251,000 square feet.

Also, during the second quarter of 2013, the co-owners purchased land for $28.7 million and broke ground on Tanger Outlets Ottawa, the first ground up development of a Tanger Outlet Center in Canada. Located in suburban Kanata off the TransCanada Highway (Highway 417) at Palladium Drive, this center will contain approximately 303,000 square feet and will feature approximately 80 brand name and designer outlet stores. The center is currently expected to open in the fourth quarter of 2014.

Westgate, Glendale, Arizona

On May 4, 2012, we formed a joint venture for the development of a Tanger Outlet Center in Glendale, Arizona. On June 27, 2012, the joint venture closed on a construction loan with the ability to borrow up to $48.3 million, which carries an interest rate of LIBOR + 1.75%. As of December 31, 2013, the joint venture's balance on the loan was $43.1 million. The approximately 332,000 square feet center opened on November 15, 2012. We provide property management, construction supervision, leasing and marketing services to the joint venture.

Wisconsin Dells, Wisconsin

In March 2005, we established the Wisconsin Dells joint venture to construct and operate a Tanger Outlet Center in Wisconsin Dells, Wisconsin. In December 2012, the joint venture closed on the refinance of its $24.3 million mortgage loan. The refinanced interest-only, non-recourse mortgage loan has a 10 year term and carries an interest rate of LIBOR + 2.25%. We are providing property management, leasing and marketing services to the joint venture.

Condensed combined summary financial information of joint ventures accounted for using the equity method as of December 31, 2013 and 2012 is as follows (in thousands):



Condensed Combined Balance Sheets - Unconsolidated Joint Ventures	2013			2012
Assets
Land	$	66,020		$	110,665
Buildings, improvements and fixtures	327,972			493,424
Construction in progress, including land	86,880			2,128
	480,872			606,217
Accumulated depreciation	(29,523		)	(62,547		)
Total rental property, net	451,349			543,670
Assets held for sale ⁽¹⁾	—			1,828
Cash and cash equivalents	22,704			21,879
Deferred lease costs, net	19,281			24,411
Deferred debt origination costs, net	1,737			5,213
Prepaids and other assets	9,107			25,350
Total assets	$	504,178		$	622,351
Liabilities and Owners' Equity
Mortgages payable	$	202,688		$	325,192
Construction trade payables	19,370			21,734
Accounts payable and other liabilities	8,540			31,944
Total liabilities	230,598			378,870
Owners' equity	273,580			243,481
Total liabilities and owners' equity	$	504,178		$	622,351

(1) Assets related to our Deer Park Warehouse joint venture that were sold in March 2013.



Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:	Year Ended December 31,
	2013			2012			2011
Revenues ⁽¹⁾	$	85,682		$	54,936		$	38,847
Expenses:
Property operating	31,610			24,678			18,034
General and administrative	977			970			250
Acquisition costs	477			1,437			—
Abandoned development costs	153			1,447			—
Impairment charge ⁽²⁾	—			420			900
Depreciation and amortization	26,912			19,914			14,242
	60,129			48,866			33,426
Operating income	25,553			6,070			5,421
Gain on early extinguishment of debt	13,820			—			—
Interest expense	(11,602		)	(14,760		)	(10,456		)
Net income (loss)	$	27,771		$	(8,690	)	$	(5,035	)
The Company and Operating Partnership's share of:
Net income (loss)	$	11,040		$	(3,295	)	$	(1,565	)
Depreciation and asset impairments (real estate related) ⁽²⁾	12,419			8,245			5,475


(1)	Note that revenues for the year ended December 31, 2013 include approximately $9.5 million of other income from the settlement of a lawsuit at Deer Park prior to our acquisition of an additional one-third interest in and the consolidation of the property.

(2)

The years ended December 31, 2012 and 2011, respectively, includes impairment charges recorded at the Deer Park Warehouse joint venture entity, of which our share is one-third based on our 33.3% ownership percentage. There has been no significant amount of income or expense associated with the activities of this entity in any of the years presented. The assets related to the venture were sold in March 2013.

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

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