Quarterly report pursuant to Section 13 or 15(d)

Investments in Unconsolidated Joint Ventures (Notes)

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Investments in Unconsolidated Joint Ventures (Notes)
 6 Months Ended
Jun. 30, 2011
Investments In Unconsolidated Real Estate Joint Ventures [Abstract]  
Equity Method Investments Disclosure [Text Block]
Investments in Unconsolidated Real Estate Joint Ventures
Our investments in unconsolidated joint ventures as of June 30, 2011 and December 31, 2010 aggregated $4.6 million and $6.4 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 June 30, 2011, we were members of the following unconsolidated real estate joint ventures:
Joint Venture
 
Center Location
 
Ownership %
 
Square Feet
 
Carrying Value of Investment (in millions)
 
Total Joint Venture Debt (in millions)
Deer Park (1)
 
Deer Park, Long Island, New York
 
33.3
%
 
683,033

 
$
0.1

 
$
269.3

Wisconsin Dells
 
Wisconsin Dells, Wisconsin
 
50.0
%
 
265,061

 
$
4.3

 
$
24.3

Other
 
 
 
 
 
—

 
$
0.2

 
$
—

(1) Includes a 29,253 square foot warehouse adjacent to the shopping center with a mortgage note of approximately $2.3 million.
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 discussed below.
The following management, leasing and marketing fees were recognized from services provided to Wisconsin Dells and Deer Park for the three and six months ended June 30, 2011 and 2010, respectively (in thousands):
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2011
 
2010
 
2011
 
2010
Fee:
 
 
 
 
 

 
 

Management and leasing
$
469

 
$
471

 
$
973

 
$
935

Marketing
44

 
39

 
88

 
80

Total Fees
$
513

 
$
510

 
$
1,061

 
$
1,015


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. Our investments in real estate joint ventures are reduced by 50% of the profits earned for leasing services provided to Wisconsin Dells and by 33.3% of the profits earned for leasing services provided to Deer Park. The differences in basis are amortized over the various useful lives of the related assets.
Deer Park
On May 17, 2011, construction mortgage and mezzanine loans to the joint ventures in the aggregate principal amount of $269.3 million matured. As the joint venture did not qualify for the one-year extension options under the loans, Deer Park was given notices of default on behalf of the various lenders, who have also demanded default interest which is being accrued at a weighted average default interest rate of 9.2% on the outstanding loan balances based on current interest rates. Deer Park is currently in negotiations with the administrative agent bank of the lender group to negotiate new financing terms for the property.
We and our two joint venture partners have each, jointly and severally, guaranteed the payment of interest (but not principal) on the loans. The operations from Deer Park, together with cash on hand in the joint venture, have been sufficient in the past to pay interest on the loans, although the historical operations would not have generated sufficient cash flow to pay fully the monthly interest at the additional default interest rate subsequent to maturity or if the then applicable floating interest rates on the loans were significantly higher. We and our joint venture partners have each, jointly and severally, guaranteed completion of the construction of Deer Park.
We currently estimate that there is approximately $11.0 million of additional construction and tenant improvements required at Deer Park. The cash and cash equivalents balance at Deer Park as of June 30, 2011 was $11.6 million. The total amount of interest accrued at Deer Park as of June 30, 2011 was $4.2 million.
If the joint venture is unable to successfully extend or refinance the loans, each joint venture partner may be required to make a material capital contribution to pay for the remaining construction costs and/or shortfalls in interest payments to the extent that the joint venture is unable to pay them.

Galveston/Houston

On June 30, 2011, we announced the formation of a 50/50 joint venture agreement with Simon Property Group, Inc. for the development, construction, leasing and management of a Tanger Outlet Center south of Houston in Texas City, Texas. When completed, the center will feature over 90 brand name and designer outlet stores in the first phase which will contain approximately 350,000 square feet, with room for expansion for a total build out of approximately 470,000 square feet.

National Harbor

On May 23, 2011, we announced the formation of a 50/50 joint venture agreement with The Peterson Companies for the development, management, construction, leasing and management of Tanger Outlets at National Harbor. When completed, the 350,000 square foot Tanger Outlets at National Harbor will feature 80 brand name and designer outlet stores.

Investment and Variable Interest Entity Evaluations
On a periodic basis, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the fair value of the investment. Our estimates of fair value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, demand for space, competition for tenants, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized.
As previously discussed in this note, Deer Park was given notices of default related to the joint venture's loans. Deer Park is currently in negotiations with the administrative agent bank of the lender group to negotiate new financing terms for the property. As of June 30, 2011, we do not believe that our $108,000 equity investment is impaired because we believe that ultimately a resolution will be reached between the lender group and Deer Park.
In accordance with amended guidance related to the consolidation of variable interest entities which became effective January 1, 2010, we performed an analysis of all of our real estate joint ventures to determine whether they would qualify as variable interest entities ("VIE"), and whether the joint venture should be consolidated or accounted for as an equity method investment in an unconsolidated joint venture. As a result of our qualitative assessment, we concluded that Deer Park is a VIE and Wisconsin Dells is not a VIE. Deer Park is considered a VIE because it does not meet the criteria of the members having a sufficient equity investment at risk.

After making the determination that Deer Park was a VIE, we performed an assessment to determine if we would be considered the primary beneficiary and thus be required to consolidate Deer Park's balance sheets and results of operations. This assessment was based upon whether we had the following:

a.    The power to direct the activities of the variable interest entity that most significantly impact the entity's economic performance

b.    The obligation to absorb losses of the entity that could potentially be significant to the variable interest entity or the right to receive benefits from the entity that could potentially be significant to the variable interest entity

Based on the provisions of the operating and management agreements of Deer Park, we determined that no one member alone has the power to direct the significant activities that affect the economic performance of Deer Park.

We have determined that all three partners share power in the decisions that most significantly impact Deer Park, as well as the financial rights and obligations, and therefore we are not required to consolidate Deer Park. Our equity method investment in Deer Park as of June 30, 2011 was approximately $108,000. We are unable to estimate our maximum exposure to loss at this time because our guarantees are limited and based on the future operating performance of Deer Park. Our maximum exposure consists of the following components: our investment, our completion guarantee which is currently estimated to be up to $11.0 million and our other operating performance guarantees.
Condensed combined summary financial information of joint ventures accounted for using the equity method is as follows (in thousands):
Summary Balance Sheets
- Unconsolidated Joint Ventures
 
As of
June 30,
2011
 
As of
December 31,
2010
Assets
 
 

 
 

Investment properties at cost, net
 
$
284,076

 
$
283,902

Cash and cash equivalents
 
15,682

 
13,838

Deferred lease costs, net
 
2,877

 
2,563

Deferred debt origination costs, net
 
970

 
1,427

Prepaids and other assets
 
8,555

 
6,291

Total assets
 
$
312,160

 
$
308,021

Liabilities and Owners' Equity
 
 

 
 

Mortgages payable
 
$
293,534

 
$
294,034

Construction trade payables
 
6,034

 
341

Accounts payable and other liabilities
 
6,937

 
4,810

Total liabilities
 
306,505

 
299,185

Owners' equity
 
5,655

 
8,836

Total liabilities and owners' equity
 
$
312,160

 
$
308,021


 
Three Months Ended
 
Six Months Ended
Summary Statements of Operations -
June 30,
 
June 30,
Unconsolidated Joint Ventures
2011
 
2010
 
2011
 
2010
Revenues
$
9,752

 
$
9,261

 
$
19,314

 
$
18,535

Expenses
 
 
 
 
 

 
 

Property operating
4,473

 
4,200

 
8,574

 
8,410

General and administrative
(131
)
 
72

 
56

 
359

Depreciation and amortization
3,627

 
3,546

 
7,238

 
7,043

Total expenses
7,969

 
7,818

 
15,868

 
15,812

Operating income
1,783

 
1,443

 
3,446

 
2,723

Interest expense
4,126

 
1,717

 
5,929

 
3,391

Net loss
$
(2,343
)
 
$
(274
)
 
$
(2,483
)
 
$
(668
)
 
 
 
 
 
 
 
 
The Company and Operating Partnership's share of:
 
 
 
 
 

 
 

Net loss
$
(764
)
 
$
(51
)
 
$
(796
)
 
$
(119
)
Depreciation (real estate related)
$
1,336

 
$
1,280

 
$
2,642

 
$
2,545