Annual report pursuant to Section 13 and 15(d)

Investments in Unconsolidated Real Estate Joint Ventures

v3.6.0.2
Investments in Unconsolidated Real Estate Joint Ventures
12 Months Ended
Dec. 31, 2016
Equity Method Investments and Joint Ventures [Abstract]  
Investments in Unconsolidated Real Estate Joint Ventures
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 December 31, 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

 
$
6.7

 
$
84.2

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
4.1

 
86.1

RioCan Canada
 
Various
 
50.0
%
 
901

 
117.3

 
11.1

 
 
 
 
 
 
 
 
$
128.1

 
$
181.4

 
 
 
 
 
 
 
 
 
 
 
Charlotte(3)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(2.5
)
 
$
89.7

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

 
(3.8
)
 
64.9

 
 
 
 
 
 
 
 
$
(6.3
)
 
$
154.6



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 $1.6 million and $3.3 million as of December 31, 2016 and December 31, 2015, respectively.
(2)
Based on capital contribution and distribution provisions in the joint venture agreement, our economic interest in the venture's cash flow was greater than indicated in the Ownership column, which states our legal interest in this venture. As of December 31, 2015, based upon the liquidation proceeds we would have received 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.



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,
 
 
2016
 
2015
 
2014
Fees:
 
 
 
 
 
 
Development and leasing
 
$
651

 
$
1,827

 
$
725

Loan guarantee
 
452

 
746

 
463

Management and marketing
 
2,744

 
2,853

 
2,403

Total Fees
 
$
3,847

 
$
5,426

 
$
3,591



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 “Condensed Combined 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 $3.7 million and $3.9 million as of December 31, 2016 and 2015, 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. 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. 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

In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. As of December 31, 2016, we and our partner had each contributed $47.5 million to fund development activities. In November 2016, the joint venture closed on an interest-only mortgage loan of $85.0 million at an interest rate of LIBOR + 1.65%. The loan initially matures in November 2019, with two one-year extension options. The joint venture received net loan proceeds of $84.2 million and distributed them equally to the partners. 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.

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 341,000 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, 2016 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. In March 2016, the co-owners opened an approximately 28,000 square foot expansion related to an anchor tenant bringing the total square feet of the outlet center to approximately 316,000 square feet. In 2016, the co-owners commenced construction on a 40,000 square foot expansion, which is expected to open during the second quarter of 2017.

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 308,000 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 approximately 116,000 square feet and the Bromont Outlet Mall is approximately 161,000 square feet.

Rental property held and used by our joint ventures are reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, the estimated future undiscounted cash flows associated with the asset is compared to the asset's carrying amount, and if less than such carrying amount, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.

During 2016, the joint venture determined for its Bromont, Quebec outlet center that the estimated future undiscounted cash flows of that property did not exceed the property's carrying value based on the reduction in the property's net operating income. Therefore, the joint venture recorded a $5.8 million non-cash impairment charge in its statement of operations, which equaled the excess of the property's carrying value over its fair value. The fair value was determined using the income approach whereby the joint venture considered the prevailing market income capitalization rates and stabilized net operating income projections. Our share of this impairment charge, $2.9 million, was recorded in equity in earnings of unconsolidated joint ventures in our consolidated statement of operations.

Savannah

In May 2016, the joint venture expanded the 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.

As described in Note 3, we acquired our partners' interest in the Savannah joint venture in August 2016 and have consolidated the property for financial reporting purposes since the acquisition date.

Westgate/Glendale

As described in Note 3, we acquired our partners' interest in the Westgate joint venture in June 2016 and have consolidated the property for financial reporting purposes since the acquisition date.

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 represented 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, 2016 and 2015 is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint Ventures
 
2016
 
2015
Assets
 
 
 
 
Land
 
$
88,015

 
$
103,046

Buildings, improvements and fixtures
 
503,548

 
615,662

Construction in progress, including land under development
 
13,037

 
62,308

 
 
604,600

 
781,016

Accumulated depreciation
 
(67,431
)
 
(60,629
)
Total rental property, net
 
537,169

 
720,387

Cash and cash equivalents
 
27,271

 
28,723

Deferred lease costs, net
 
13,612

 
18,399

Prepaids and other assets
 
12,567

 
14,455

Total assets
 
$
590,619

 
$
781,964

Liabilities and Owners' Equity
 
 
 
 
Mortgages payable, net
 
$
335,971

 
$
400,935

Accounts payable and other liabilities
 
20,011

 
31,805

Total liabilities
 
355,982

 
432,740

Owners' equity
 
234,637

 
349,224

Total liabilities and owners' equity
 
$
590,619

 
$
781,964



Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:
 
Year Ended December 31,
 
 
2016
 
2015
 
2014
Revenues
 
$
106,766

 
$
106,042

 
$
78,625

Expenses:
 
 
 
 
 
 
Property operating
 
39,576

 
40,639

 
30,986

General and administrative
 
349

 
571

 
621

Asset impairment
 
5,838

 

 

Abandoned development costs
 

 

 
472

Depreciation and amortization
 
32,930

 
34,516

 
23,426

Total expenses
 
78,693

 
75,726

 
55,505

Operating income
 
28,073

 
30,316

 
23,120

Interest expense
 
(8,946
)
 
(8,674
)
 
(5,459
)
Other non-operating income
 
6

 
19

 

Net income
 
$
19,133

 
$
21,661


$
17,661

The Company and Operating Partnership's share of:
 
 
 
 
 
 
Net income
 
$
10,872

 
$
11,484

 
$
9,053

Depreciation and asset impairments (real estate related)
 
$
21,829

 
$
20,052

 
$
12,212