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, 2018

Equity Method Investments and 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 December 31, 2018
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⁾
Investments included in investments in unconsolidated joint ventures:
RioCan Canada	Various	50.0	%	924	$	96.0		$	9.3
					$	96.0
Investments included in other liabilities:
Columbus ⁽²⁾	Columbus, OH	50.0	%	355	$	(1.6	)	$	84.7
Charlotte⁽²⁾	Charlotte, NC	50.0	%	398	(10.8		)	99.5
National Harbor ⁽²⁾	National Harbor, MD	50.0	%	341	(5.1		)	94.5
Galveston/Houston⁽²⁾	Texas City, TX	50.0	%	353	(15.0		)	79.6
					$	(32.5	)



As of December 31, 2017
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⁾
Investments included in investments in unconsolidated joint ventures:
Columbus	Columbus, OH	50.0	%	355	$	1.1		$	84.4
National Harbor	National Harbor, MD	50.0	%	341	2.5			86.4
RioCan Canada	Various	50.0	%	923	115.8			11.1
					$	119.4
Investments included in other liabilities:
Charlotte⁽²⁾	Charlotte, NC	50.0	%	398	$	(4.1	)	$	89.8
Galveston/Houston⁽²⁾	Texas City, TX	50.0	%	353	(13.0		)	79.4
					$	(17.1	)


(1)	Net of debt origination costs and including premiums of $1.4 million and $1.4 million as of December 31, 2018 and December 31, 2017, respectively.

(2)

We separately report investments in joint ventures for which accumulated distributions have exceeded investments in and our share of net income or loss of the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. 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 and equity in earnings of the joint ventures.

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,
	2018		2017		2016
Fees:
Management and marketing	$	2,334	$	2,310	$	2,744
Leasing and other fees	162		142		1,103
Total Fees	$	2,496	$	2,452	$	3,847

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 $4.1 million and $4.2 million as of December 31, 2018 and 2017, 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. In June 2018, the Charlotte joint venture closed on a $100.0 million mortgage loan with a fixed interest rate of approximately 4.3% and a maturity date of July 2028. The proceeds from the loan were used to pay off the existing $90.0 million mortgage loan with an interest rate of LIBOR + 1.45%, which had an original maturity date of November 2018. The joint venture distributed the incremental net loan proceeds of $9.3 million equally to the partners. Our partner is providing property management, marketing and leasing services to the joint venture.

Columbus

In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. The development was initially fully funded with equity contributed to the joint venture by Tanger and its partner. 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.

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. In July 2017, the joint venture amended and restated the initial construction loan, which had an outstanding balance of $65.0 million, to increase the amount available to borrow from $70.0 million to $80.0 million and extended the maturity date until July 2020 with two one-year options. The amended and restated loan also changed the interest rate from LIBOR + 1.50% to LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed the net proceeds of approximately $14.5 million equally between the partners. 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 December 2018, the National Harbor joint venture closed on a $95.0 million mortgage loan with a fixed interest rate of approximately 4.6% and a maturity date of January 2030. The proceeds from the loan were used to pay off the $87.0 million construction loan with an interest rate of LIBOR + 1.65%, which had an original maturity date of November 2019. The joint venture distributed the incremental net loan proceeds of $7.4 million equally to the partners.

RioCan Canada

We have a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to operate and manage outlet centers in Canada. We provide leasing and marketing services for the outlet centers and RioCan provides 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 39,000 square foot expansion, which opened during the second quarter of 2017.

Other properties owned by the RioCan Canada co-owners include Cookstown, Les Factoreries Saint-Sauveur and Bromont Outlet Mall. Cookstown Outlet Mall is approximately 308,000 square feet, 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 are 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 2018, 2017 and 2016, the Rio-Can joint venture recognized impairment charges related to its Bromont and Saint Sauveur properties. The impairment charges were primarily driven by, among other things, new competition in the market and changes in market capitalization rates.

The table below summarizes the impairment charges taken during 2018, 2017 and 2016 (in thousands):



		Impairment Charge⁽¹⁾
	Outlet Center	Total		Our Share
2018	Bromont and Saint Sauveur	$	14,359	$	7,180
2017	Bromont and Saint Sauveur	18,042		9,021
2016	Bromont	5,838		2,919


(1)	The fair value was determined using an income approach considering the prevailing market income capitalization rates for similar assets.

Condensed combined summary financial information of joint ventures accounted for using the equity method as of December 31, 2018 and 2017 and for the years ended December 31, 2018, 2017 and 2016 is as follows (in thousands):



Condensed Combined Balance Sheets - Unconsolidated Joint Ventures	2018			2017
Assets
Land	$	91,443		$	95,686
Buildings, improvements and fixtures	469,834			505,618
Construction in progress	2,841			3,005
	564,118			604,309
Accumulated depreciation	(113,713		)	(93,837		)
Total rental property, net	450,405			510,472
Cash and cash equivalents	16,216			25,061
Deferred lease costs, net	8,437			10,985
Prepaids and other assets	25,648			15,073
Total assets	$	500,706		$	561,591
Liabilities and Owners' Equity
Mortgages payable, net	$	367,865		$	351,259
Accounts payable and other liabilities	13,414			14,680
Total liabilities	381,279			365,939
Owners' equity	119,427			195,652
Total liabilities and owners' equity	$	500,706		$	561,591



Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:	Year Ended December 31,
	2018			2017			2016
Revenues	$	94,509		$	96,776		$	106,766
Expenses:
Property operating	37,121			36,507			39,576
General and administrative	266			350			349
Impairment charges	14,359			18,042			5,838
Depreciation and amortization	26,262			28,162			32,930
Total expenses	78,008			83,061			78,693
Other income (expense):
Interest expense	(14,518		)	(10,365		)	(8,946		)
Other non-operating income	234			71			6
Total other income (expense)	$	(14,284	)	$	(10,294	)	$	(8,940	)
Net income	$	2,217		$	3,421		$	19,133
The Company and Operating Partnership's share of:
Net income	$	924		$	1,937		$	10,872
Depreciation, amortization and asset impairments (real estate related)	$	20,494		$	22,878		$	21,829