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, 2019

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, 2019
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	%	764	$	94.7		$	9.2
					$	94.7
Investments included in other liabilities:
Columbus ⁽²⁾	Columbus, OH	50.0	%	355	$	(3.5	)	$	85.0
Charlotte ⁽²⁾	Charlotte, NC	50.0	%	399	(13.0		)	99.5
National Harbor ⁽²⁾	National Harbor, MD	50.0	%	341	(5.9		)	94.4
Galveston/Houston ⁽²⁾	Texas City, TX	50.0	%	353	(19.7		)	79.9
					$	(42.1	)



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	)


(1)	Net of debt origination costs and including premiums of $1.1 million and $1.4 million as of December 31, 2019 and 2018, 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,
	2019		2018		2017
Fees:
Management and marketing	$	2,308	$	2,334	$	2,310
Leasing and other fees	126		162		142
Expense reimbursements from unconsolidated joint ventures	2,985		2,499		1,212
Total Fees	$	5,419	$	4,995	$	3,664

Expense reimbursements from unconsolidated joint ventures were previously included in expense reimbursements in our Form 10-K for the year ended December 31, 2018. As these revenues are not related to leases, the 2018 amounts have been reclassified to management, leasing and other services on the consolidated statements of operations to conform to the current year presentation. See Note 21 for discussion of adoption of ASC 842.

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 $3.8 million and $4.1 million as of December 31, 2019 and 2018, 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 matured 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. In October 2019, the joint venture exercised its first option to extend the mortgage loan for one year to November 2020 under the same terms. 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 2016, the co-owners commenced construction on a 39,000 square foot expansion, which opened during the second quarter of 2017 to bring the total square feet of the outlet center to approximately 357,000.

Other properties owned by the RioCan Canada co-owners include Cookstown Outlet Mall and Les Factoreries Saint-Sauveur. Cookstown Outlet Mall is approximately 308,000 square feet and Les Factoreries Saint-Sauveur is approximately 116,000 square feet.

In May 2019, the RioCan joint venture closed on the sale of its 161,000 square foot outlet center in Bromont, for net proceeds of approximately $6.4 million. Our share of the proceeds was approximately $3.2 million. As a result of this transaction, we recorded a foreign currency loss of approximately $3.6 million in other income (expense), which had been previously recorded in other comprehensive income.

During 2018 and 2017, 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 and 2017 (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


(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, 2019 and 2018 and for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):



Condensed Combined Balance Sheets - Unconsolidated Joint Ventures	2019			2018
Assets
Land	$	90,859		$	91,443
Buildings, improvements and fixtures	477,061			469,834
Construction in progress	4,779			2,841
	572,699			564,118
Accumulated depreciation	(132,860		)	(113,713		)
Total rental property, net	439,839			450,405
Cash and cash equivalents	19,750			16,216
Deferred lease costs, net	6,772			8,437
Prepaids and other assets	17,789			25,648
Total assets	$	484,150		$	500,706
Liabilities and Owners' Equity
Mortgages payable, net	$	368,032		$	367,865
Accounts payable and other liabilities	17,173			13,414
Total liabilities	385,205			381,279
Owners' equity	98,945			119,427
Total liabilities and owners' equity	$	484,150		$	500,706



Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:	Year Ended December 31,
	2019			2018			2017
Revenues	$	93,508		$	94,509		$	96,776
Expenses:
Property operating	36,812			37,121			36,507
General and administrative	271			266			350
Impairment charges	—			14,359			18,042
Depreciation and amortization	24,454			26,262			28,162
Total expenses	61,537			78,008			83,061
Other income (expense):
Interest expense	(16,234		)	(14,518		)	(10,365		)
Other non-operating income	507			234			71
Total other income (expense)	$	(15,727	)	$	(14,284	)	$	(10,294	)
Net income	$	16,244		$	2,217		$	3,421
The Company and Operating Partnership's share of:
Net income	$	7,839		$	924		$	1,937
Depreciation, amortization and asset impairments (real estate related)	$	12,512		$	20,494		$	22,878