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, 2013

Investments In Unconsolidated Real Estate Joint Ventures [Abstract]

Investments in Unconsolidated Real Estate Joint Ventures

Our investments in unconsolidated joint ventures as of September 30, 2013 and December 31, 2012 aggregated $136.9 million and $126.6 million, respectively. We have concluded based on the current facts and circumstances that the equity method of accounting should be used to account for each of the individual joint ventures below. At September 30, 2013 and December 31, 2012, we were members of the following unconsolidated real estate joint ventures:



As of September 30, 2013
Joint Venture	Center Location	Ownership %		Square Feet	Carrying Value of Investment (in millions)		Total Joint Venture Debt (in millions)
Charlotte	Charlotte, NC	50.0	%	—	$	5.9	$	—
Galveston/Houston	Texas City, TX	50.0	%	347,930	7.7		65.0
National Harbor	Washington D.C. Metro Area	50.0	%	—	17.5		28.1
RioCan Canada	Various	50.0	%	434,162	86.7		18.8
Westgate	Glendale, AZ	58.0	%	331,739	16.4		43.0
Wisconsin Dells	Wisconsin Dells, WI	50.0	%	265,086	2.5		24.3
Other				—	0.2		—
					$	136.9	$	179.2



As of December 31, 2012
Joint Venture	Center Location	Ownership %		Square Feet	Carrying Value of Investment (in millions)		Total Joint Venture Debt (in millions)
Deer Park	Deer Park, Long Island, NY	33.3	%	741,981	$	3.0	$	246.9
Deer Park Warehouse	Deer Park, Long Island, NY	33.3	%	29,253	—		1.9
Galveston/Houston	Texas City, TX	50.0	%	352,705	36.7		—
National Harbor	Washington D.C. Metro Area	50.0	%	—	2.6		—
RioCan Canada	Various	50.0	%	434,562	62.2		20.1
Westgate	Glendale, AZ	58.0	%	332,234	19.1		32.0
Wisconsin Dells	Wisconsin Dells, WI	50.0	%	265,086	2.8		24.3
Other				—	0.2		—
					$	126.6	$	325.2

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 described below.

The following management, development, leasing and marketing fees were recognized from services provided to our unconsolidated joint ventures (in thousands):



	Three months ended					Nine months ended
	September 30,					September 30,
	2013			2012		2013		2012
Fee:
Development	$	(6	)	$	8	$	57	$	8
Loan Guarantee	40			16		121		16
Management and leasing	761			554		2,391		1,507
Marketing	93			61		301		161
Total Fees	$	888		$	639	$	2,870	$	1,692

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 are amortized over the various useful lives of the related assets.

Charlotte, North Carolina

In May 2013, we formed a 50/50 joint venture for the development of an outlet center in the Charlotte, NC market. Subsequently, during the third quarter of 2013, the joint venture began construction on the outlet center which will be located eight miles southwest of uptown Charlotte at the interchange of I-485 and Steele Creek Road (NC Highway 160), the two major thoroughfares for the city. The approximately 400,000 square foot project will feature approximately 90 brand name and designer stores and is expected to open during the third quarter of 2014.

As of September 30, 2013, we and our partner had each contributed approximately $5.9 million in cash to the joint venture to fund development activities. We are providing development services to the project; and with our partner, are jointly providing leasing services. Our partner will provide property management and marketing services to the center once open.

Deer Park, Long Island, New York

As described in Note 3, we acquired an additional one-third ownership interest in Deer Park and have consolidated the property for financial reporting purposes since the acquisition date.

Deer Park Warehouse, Long Island, New York

In March 2013, in connection with a loan forbearance agreement signed in 2012 with the lender to the joint venture, the warehouse property was sold for approximately $1.2 million. The proceeds were used to satisfy the terms of the forbearance agreement. There was no impact to the net income of the joint venture as a result of this sale and the retirement of the associated mortgage debt.

Galveston/Houston, Texas

Tanger Outlets Texas City, which opened on October 19, 2012, was initially fully funded with equal equity contributions to the joint venture by us and our 50/50 joint venture partner. In July 2013, the joint venture closed on a mortgage loan with the ability to borrow up to $70.0 million with a rate of LIBOR + 1.50% and a maturity date of July 1, 2017, and 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 proceeds equally to the partners.

National Harbor, Washington, D.C. Metro Area

In May 2011, we announced the formation of a joint venture for the development of a Tanger Outlet Center at National Harbor in the Washington, D.C. Metro area. The planned Tanger Outlet Center is expected to open in time for the 2013 holiday shopping season with approximately 80 brand name and designer outlet stores in a center containing approximately 340,000 square feet. In November 2012, the joint venture broke ground and began development. Both parties have made equity contributions of $17.2 million to fund certain development costs. In May 2013, the joint venture closed on a construction loan with the ability to borrow up to $62.0 million and which carries an interest rate of LIBOR + 1.65%. As of September 30, 2013 the balance on the loan was $28.1 million. We provide property management, leasing and marketing services to the joint venture; and with our partner, are jointly providing site development and construction supervision services.

RioCan Canada

We have entered into a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust ("RioCan Joint Venture") to develop and acquire outlet centers in Canada. Any projects developed or acquired will be branded as Tanger Outlet Centers. We have agreed to provide leasing and marketing services to the venture and RioCan will provide development and property management services.

In March of 2013 the RioCan Joint Venture acquired the land adjacent to the existing Cookstown Outlet Mall for $13.9 million. The land is being used for the joint venture's expansion of the Cookstown Outlet Mall which began in May 2013. The expansion, which is expected to open in the fourth quarter of 2014, will add approximately 153,000 square feet to the center and will add approximately 35 new brand name and designer outlet stores to the center.

Also, during the second quarter of 2013, the joint venture purchased land for $28.7 million and broke ground on 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, this center will contain approximately 303,000 square feet and will feature approximately 80 brand name and designer outlet stores. The center is currently expected to open in the fourth quarter of 2014.

Additionally, the RioCan Joint Venture partners have decided not to proceed with the proposed development at Mississauga’s Heartland Town Centre, west of Toronto, at the current time.

We evaluate our real estate joint ventures in accordance with the Consolidation guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC"). As a result of our qualitative assessment, we concluded that our Westgate joint venture is a Variable Interest Entity ("VIE") and all of our other joint ventures are not a VIE. Westgate is considered a VIE because the voting rights are disproportionate to the economic interests. Investments in real estate joint ventures in which we have a non-controlling ownership interest are accounted for using the equity method of accounting.

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


a.	The power to direct the activities of the VIE 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 VIE or the right to receive benefits from the entity that could potentially be significant to the VIE

The operating, development, leasing, and management agreement of Westgate provides that the activities that most significantly impact the economic performance of the venture require unanimous consent. Accordingly, we determined that we do not have the power to direct the significant activities that affect the economic performance of the ventures and therefore, have applied the equity method of accounting for Westgate. Our equity method investment in Westgate as of September 30, 2013 was approximately $16.4 million. 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 Westgate.

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



Summary Balance Sheets - Unconsolidated Joint Ventures	September 30, 2013			December 31, 2012
Assets
Land	$	49,184		$	96,455
Buildings, improvements and fixtures	256,652			493,424
Construction in progress, including land	138,615			16,338
	444,451			606,217
Accumulated depreciation	(25,561		)	(62,547		)
Total rental property, net	418,890			543,670
Assets held for sale ⁽¹⁾	—			1,828
Cash and cash equivalents	13,727			21,879
Deferred lease costs, net	20,012			24,411
Deferred debt origination costs, net	1,970			5,213
Prepaids and other assets	8,167			25,350
Total assets	$	462,766		$	622,351
Liabilities and Owners' Equity
Mortgages payable	$	179,212		$	325,192
Construction trade payables	13,950			21,734
Accounts payable and other liabilities	6,253			31,944
Total liabilities	199,415			378,870
Owners' equity	263,351			243,481
Total liabilities and owners' equity	$	462,766		$	622,351

(1) Assets related to our Deer Park Warehouse joint venture that were sold in March 2013.



	Three months ended						Nine months ended
Summary Statements of Operations	September 30,						September 30,
- Unconsolidated Joint Ventures	2013			2012			2013			2012
Revenues (a)	$	29,013		$	11,985		$	70,961		$	35,249
Expenses
Property operating	7,808			5,521			25,440			15,495
General and administrative	629			365			962			765
Acquisition costs	19			—			474			704
Abandoned development costs	19			—			153			1,390
Impairment Charge	—			—			—			420
Depreciation and amortization	6,232			4,283			21,200			13,191
Total expenses	14,707			10,169			48,229			31,965
Operating income	14,306			1,816			22,732			3,284
Gain on early extinguishment of debt	13,820			—			13,820			—
Interest expense	(2,840		)	(3,540		)	(10,406		)	(10,967		)
Net income (loss)	$	25,286		$	(1,724	)	$	26,146		$	(7,683	)

The Company and Operating Partnership's share of:
Net income (loss)	$	9,014		$	(555	)	$	10,107		$	(2,874	)
Depreciation and impairment charge (real estate related)	$	2,861		$	1,641		$	9,465		$	5,249

a) Note that revenues for the three and nine months ended September 30, 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.

- Definition

The entire disclosure for equity method investments and joint ventures. Equity method investments are investments that give the investor the ability to exercise significant influence over the operating and financial policies of an investee. Joint ventures are entities owned and operated by a small group of businesses as a separate and specific business or project for the mutual benefit of the members of the group.

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