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, 2015

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Joint Ventures

Our investments in unconsolidated joint ventures as of December 31, 2015 and 2014 aggregated $201.1 million and $208.0 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, 2015 and 2014, we were members of the following unconsolidated real estate joint ventures:



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 (in millions)
Columbus	Columbus, OH	50.0	%	—	$	21.1		$	—
National Harbor	National Harbor, MD	50.0	%	339	6.1			87.0
RioCan Canada	Various	50.0	%	870	117.2			11.3
Savannah ⁽¹⁾	Savannah, GA	50.0	%	377	44.4			89.5
Westgate	Glendale, AZ	58.0	%	411	12.3			62.0
					$	201.1		$	249.8

Charlotte⁽²⁾	Charlotte, NC	50.0	%	398	$	(1.1	)	$	90.0
Galveston/Houston ⁽²⁾	Texas City, TX	50.0	%	353	(1.5		)	65.0
					$	(2.6	)	$	155.0



As of December 31, 2014
Joint Venture	Outlet 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 indicated in the Tanger Ownership column, which states our legal interest in this venture. As of December 31, 2015, 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.


(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):



	Year Ended December 31,
	2015		2014		2013
Fees:
Development and leasing	$	1,827	$	725	$	595
Loan guarantee	746		463		161
Management and marketing	2,853		2,403		2,324
Total Fees	$	5,426	$	3,591	$	3,080

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 December 31, 2015 and 2014, respectively) are amortized over the various useful lives of the related assets.

Charlotte

In July 2014, we opened an approximately 398,000 square foot outlet center in Charlotte, North Carolina that was developed through, and is owned by, a joint venture formed in May 2013. The outlet center is located eight miles southwest of uptown Charlotte at the interchange of I-485 and Steele Creek Road (North Carolina Highway 160). Construction of the outlet center, which commenced during the third quarter of 2013, was initially funded with equal equity contributions by the partners. In November 2014, the joint venture closed on an interest only mortgage loan for $90.0 million at an interest rate of LIBOR + 1.45%. The loan initially matures in November 2018, with the option to extend the maturity for one additional year. The joint venture received net loan proceeds of $89.4 million and distributed them equally to the partners. The loan balance as of December 31, 2015 was approximately $90.0 million. Our partner is providing property management, marketing and leasing services to the joint venture. During construction, we provided development services to the joint venture and joint leasing services with our partner.

Columbus

During the second quarter of 2015, the joint venture purchased land for approximately $8.9 million and began construction on a 350,000 square foot outlet center in Columbus, Ohio. We and our partner currently expect to complete construction in time to open the center during the second quarter of 2016. The construction of the center is currently being funded with equity contributions from the partners. As of December 31, 2015, we and our partner had each contributed $20.6 million to fund development activities. Our partner is providing development services to the joint venture and we, along with our partner, are providing joint leasing services. Once the center opens, we will provide property management, marketing and leasing services to the joint venture.

Galveston/Houston

In October 2012, we opened an approximately 353,000 square foot outlet center in Texas City, Texas that was developed through, and is owned by, a joint venture formed in June 2011. 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 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 net proceeds equally to the partners. We used our share of the proceeds to reduce amounts outstanding under our unsecured lines of credit. We are providing property management, marketing and leasing services to the outlet center.

National Harbor

In November 2013, we opened an approximately 339,000 square foot outlet center at National Harbor in the Washington, D.C. Metro area that was developed through, and is owned by, a joint venture formed in May 2011. In November 2014, the joint venture amended the initial construction loan to increase the amount available to borrow from $62.0 million to $87.0 million and extended the maturity date until November 2019. The loan carries an interest rate of LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed approximately $19.0 million equally between the partners. The loan balance as of December 31, 2015 was approximately $87.0 million. We are providing property management, marketing and leasing services to the joint venture.

RioCan Canada

We have a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to develop and acquire outlet centers in Canada. Under the agreement, any outlet centers developed or acquired will be branded as Tanger Outlet Centers. We have agreed to provide leasing and marketing services for the outlet centers and RioCan has agreed to provide development and property management services.

In October 2014, the co-owners opened 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, the outlet center currently contains approximately 284,000 square feet, with additional square footage totaling approximately 28,000 square feet related to an anchor tenant expected to be completed and opened in early 2016.

In November 2014, the co-owners opened an approximately 149,000 square foot expansion to the existing Cookstown Outlet Mall, bringing the total square feet of the outlet center to approximately 309,000 square feet.

Other properties owned by the RioCan Canada co-owners include Les Factoreries Saint-Sauveur and Bromont Outlet Mall. Les Factoreries Saint-Sauveur, is located northwest of Montreal adjacent to Highway 15 in the town of Saint-Sauveur, Quebec and is approximately 116,000 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 and is approximately 161,000 square feet.

Savannah

In April 2015, we opened an approximately 377,000 square foot outlet center in Savannah, Georgia. As of December 31, 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 joint venture's 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 December 31, 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 December 31, 2015, the balance on the loan was $89.5 million. The additional $11.4 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

In November 2012, we opened our Westgate outlet center, located in Glendale, Arizona, which was developed through, and currently owned by, a joint venture that was formed in May 2012.

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 upon completion increased the total square feet of the outlet center to approximately 411,000 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 as of December 31, 2015. 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. We are providing property management, construction supervision, marketing and leasing services to the joint venture.

Wisconsin Dells

In February 2015, we sold our equity interest in the joint venture that owned the outlet center located in Wisconsin Dells, Wisconsin 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 joint ventures accounted for using the equity method as of December 31, 2015 and 2014 is as follows (in thousands):



Condensed Combined Balance Sheets - Unconsolidated Joint Ventures	2015			2014
Assets
Land	$	103,046		$	102,601
Buildings, improvements and fixtures	615,662			542,501
Construction in progress, including land under development	62,308			104,780
	781,016			749,882
Accumulated depreciation	(60,629		)	(48,233		)
Total rental property, net	720,387			701,649
Cash and cash equivalents	28,723			46,917
Deferred lease costs, net	18,399			21,234
Deferred debt origination costs, net	3,909			5,995
Prepaids and other assets	14,455			12,766
Total assets	$	785,873		$	788,561
Liabilities and Owners' Equity
Mortgages payable	$	404,844		$	358,219
Accounts payable and other liabilities	31,805			70,795
Total liabilities	436,649			429,014
Owners' equity	349,224			359,547
Total liabilities and owners' equity	$	785,873		$	788,561



Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:	Year Ended December 31,
	2015			2014			2013
Revenues ⁽¹⁾	$	106,042		$	78,625		$	85,682
Expenses:
Property operating	40,639			30,986			31,610
General and administrative	571			621			977
Acquisition costs	—			—			477
Abandoned development costs	—			472			153
Depreciation and amortization	34,516			23,426			26,912
Total expenses	75,726			55,505			60,129
Operating income	30,316			23,120			25,553
Gain on early extinguishment of debt ⁽²⁾	—			—			13,820
Interest expense	(8,674		)	(5,459		)	(11,602		)
Other nonoperating income	19			—			$	—
Net income	$	21,661		$	17,661		$	27,771
The Company and Operating Partnership's share of:
Net income	$	11,484		$	9,053		$	11,040
Depreciation and asset impairments (real estate related) ⁽²⁾	20,052			12,212			12,419


(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)	Represents a gain on early extinguishment of debt that was recorded as part of the refinancing of the debt at Deer Park in August 2013 (See Note 3).