Tanger Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Investments in Unconsolidated Real Estate Joint Ventures

Investments in Unconsolidated Real Estate Joint Ventures

9 Months Ended

Sep. 30, 2015

Investments In Unconsolidated Real Estate Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Joint Ventures

The equity method of accounting is used to account for each of the individual joint ventures. We have an ownership interest in the following unconsolidated real estate joint ventures:



As of September 30, 2015
Joint Venture	Outlet Center Location	Ownership %		Square Feet (in 000's)	Carrying Value of Investment (in millions)			Total Joint Venture Debt (in millions)
Columbus	Columbus, OH	50.0	%	—	$	10.2		$	—
National Harbor	National Harbor, MD	50.0	%	339	8.6			83.7
RioCan Canada	Various	50.0	%	870	120.0			11.9
Savannah ⁽¹⁾	Savannah, GA	50.0	%	377	46.7			85.1
Westgate	Glendale, AZ	58.0	%	414	12.5			62.0
					$	198.0		$	242.7

Charlotte⁽²⁾	Charlotte, NC	50.0	%	398	$	(0.9	)	$	90.0
Galveston/Houston ⁽²⁾	Texas City, TX	50.0	%	353	(0.5		)	65.0
					$	(1.4	)	$	155.0



As of December 31, 2014
Joint Venture	Center Location	Ownership %		Square Feet (in 000's)	Carrying Value of Investment (in millions)			Total Joint Venture Debt (in millions)
Galveston/Houston	Texas City, TX	50.0	%	353	$	1.3		$	65.0
National Harbor	National Harbor, MD	50.0	%	339	9.5			83.7
RioCan Canada	Various	50.0	%	870	132.5			15.7
Savannah ⁽¹⁾	Savannah, GA	50.0	%	—	46.5			25.5
Westgate	Glendale, AZ	58.0	%	381	14.3			54.0
Wisconsin Dells	Wisconsin Dells, WI	50.0	%	265	2.4			24.3
Other				—	1.5			—
					$	208.0		$	268.2

Charlotte⁽²⁾	Charlotte, NC	50.0	%	398	$	(2.2	)	$	90.0
					$	(2.2	)	$	90.0

(1)

Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture's cash flow to be greater than the ownership percentage indicated above, which in this case, states our legal interest in this venture. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.


(2)	The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.

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



	Three months ended				Nine months ended
	September 30,				September 30,
	2015		2014		2015		2014
Fee:
Development and leasing	$	325	$	624	$	1,632	$	702
Loan guarantee	182		23		564		209
Management and marketing	746		578		2,067		1,637
Total Fees	$	1,253	$	1,225	$	4,263	$	2,548

Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the "Summary Balance Sheets - Unconsolidated Joint Ventures" shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $3.9 million and $4.4 million as of September 30, 2015 and December 31, 2014, respectively) are amortized over the various useful lives of the related assets.

Columbus, Ohio

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

Savannah, Georgia

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

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

Westgate, Glendale, Arizona

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

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

Wisconsin Dells, Wisconsin

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

Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):



Condensed Combined Balance Sheets - Unconsolidated Joint Ventures	September 30, 2015			December 31, 2014
Assets
Land	$	104,518		$	102,601
Buildings, improvements and fixtures	617,732			542,501
Construction in progress, including land	33,850			104,780
	756,100			749,882
Accumulated depreciation	(53,098		)	(48,233		)
Total rental property, net	703,002			701,649
Cash and cash equivalents	29,745			46,917
Deferred lease costs, net	19,305			21,234
Deferred debt origination costs, net	4,403			5,995
Prepaids and other assets	14,367			12,766
Total assets	$	770,822		$	788,561
Liabilities and Owners' Equity
Mortgages payable	$	397,715		$	358,219
Accounts payable and other liabilities	29,621			70,795
Total liabilities	427,336			429,014
Owners' equity	343,486			359,547
Total liabilities and owners' equity	$	770,822		$	788,561



	Three months ended						Nine months ended
Condensed Combined Statements of Operations	September 30,						September 30,
- Unconsolidated Joint Ventures	2015			2014			2015			2014
Revenues	$	27,495		$	19,969		$	77,648		$	52,803
Expenses
Property operating	9,601			7,292			29,912			20,562
General and administrative	92			198			400			354
Abandoned development costs	—			472			—			472
Depreciation and amortization	9,003			5,831			25,381			15,369
Total expenses	18,696			13,793			55,693			36,757
Operating income	8,799			6,176			21,955			16,046
Interest expense	(2,324		)	(1,316		)	(6,304		)	(3,925		)
Other nonoperating income (expense)	4			—			17			—
Net income	$	6,479		$	4,860		$	15,668		$	12,121

The Company and Operating Partnership's share of:
Net income	$	3,713		$	2,479		$	8,302		$	6,200
Depreciation expense (real estate related)	$	5,411		$	3,040		$	14,525		$	8,048