Item 1. Financial Statements
Item 1 - Financial Statements of Tanger Properties Limited Partnership
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data, unaudited)
September 30, 2021 December 31, 2020
Assets
Rental property:
Land $ 268,243 $ 265,968
Buildings, improvements and fixtures 2,520,492 2,527,404
2,788,735 2,793,372
Accumulated depreciation ( 1,125,883 ) ( 1,054,993 )
Total rental property, net 1,662,852 1,738,379
Cash and cash equivalents 142,813 84,750
Investments in unconsolidated joint ventures 85,421 94,579
Deferred lease costs and other intangibles, net 76,980 84,960
Operating lease right-of-use assets 80,658 81,499
Prepaids and other assets 100,054 104,800
Total assets $ 2,148,778 $ 2,188,967
Liabilities and Equity
Liabilities
Debt:
Senior, unsecured notes, net $ 1,035,670 $ 1,140,576
Unsecured term loan, net 298,288 347,370
Mortgages payable, net 76,807 79,940
Unsecured lines of credit — —
Total debt 1,410,765 1,567,886
Accounts payable and accrued expenses 89,670 87,689
Operating lease liabilities 89,364 90,105
Other liabilities 78,819 84,404
Total liabilities 1,668,618 1,830,084
Commitments and contingencies
Equity
Partners’ Equity:
General partner, 1,100,000 units outstanding at September 30, 2021 and 1,000,000 at December 31, 2020, respectively
4,401 3,334
Limited partners, 4,794,643 and 4,794,643 Class A common units, and 102,884,234 and 92,569,801 Class B common units outstanding at September 30, 2021 and December 31, 2020, respectively
497,593 383,588
Accumulated other comprehensive loss ( 21,834 ) ( 28,039 )
Total partners’ equity 480,160 358,883
Noncontrolling interests in consolidated partnerships — —
Total equity 480,160 358,883
Total liabilities and equity $ 2,148,778 $ 2,188,967
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Revenues:
Rental revenues $ 107,265 $ 100,251 $ 301,556 $ 271,082
Management, leasing and other services 1,641 1,194 4,372 3,362
Other revenues 3,559 1,768 8,504 4,392
Total revenues 112,465 103,213 314,432 278,836
Expenses:
Property operating 37,186 35,206 103,747 101,991
General and administrative 14,817 11,181 47,310 35,331
Impairment charge — — — 45,675
Depreciation and amortization 26,944 29,903 82,826 87,966
Total expenses 78,947 76,290 233,883 270,963
Other income (expense):
Interest expense ( 13,282 ) ( 15,647 ) ( 40,982 ) ( 47,786 )
Loss on early extinguishment of debt ( 33,821 ) — ( 47,860 ) —
Gain on sale of assets — 2,324 — 2,324
Other income (expense) 253 161 ( 2,598 ) 789
Total other income (expense) ( 46,850 ) ( 13,162 ) ( 91,440 ) ( 44,673 )
Income (loss) before equity in earnings (losses) of unconsolidated joint ventures ( 13,332 ) 13,761 ( 10,891 ) ( 36,800 )
Equity in earnings (losses) of unconsolidated joint ventures 2,261 ( 42 ) 6,758 ( 1,490 )
Net income (loss) ( 11,071 ) 13,719 ( 4,133 ) ( 38,290 )
Noncontrolling interests in consolidated partnerships — — — ( 190 )
Net income (loss) available to partners ( 11,071 ) 13,719 ( 4,133 ) ( 38,480 )
Net income (loss) available to limited partners ( 10,959 ) 13,580 ( 4,095 ) ( 38,089 )
Net income (loss) available to general partner $ ( 112 ) $ 139 $ ( 38 ) $ ( 391 )
Basic earnings per common unit:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
Diluted earnings per common unit:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Net income (loss) $ ( 11,071 ) $ 13,719 $ ( 4,133 ) $ ( 38,290 )
Other comprehensive income (loss):
Foreign currency translation adjustments ( 2,142 ) 1,870 3,862 ( 2,506 )
Changes in fair value of cash flow hedges 108 1,463 2,343 ( 4,711 )
Other comprehensive income (loss) ( 2,034 ) 3,333 6,205 ( 7,217 )
Comprehensive income (loss) ( 13,105 ) 17,052 2,072 ( 45,507 )
Comprehensive (income) loss attributable to noncontrolling interests in consolidated partnerships — — — ( 190 )
Comprehensive income (loss) attributable to the Operating Partnership $ ( 13,105 ) $ 17,052 $ 2,072 $ ( 45,697 )
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)
General partner Limited partners Accumulated other comprehensive loss Total partners’ equity Noncontrolling interests in consolidated partnerships Total equity
Balance, June 30, 2020 $ 3,192 $ 364,229 $ ( 37,438 ) $ 329,983 $ — $ 329,983
Net income 139 13,580 — 13,719 — 13,719
Other comprehensive income — — 3,333 3,333 — 3,333
Compensation under Incentive Award Plan — 2,450 — 2,450 — 2,450
Forfeitures of 18,996 restricted common share awards by the Company
— — — — — —
Balance, September 30, 2020 $ 3,331 $ 380,259 $ ( 34,105 ) $ 349,485 $ — $ 349,485
General partner Limited partners Accumulated other comprehensive loss Total partners’ equity Noncontrolling interests in consolidated partnerships Total equity
Balance, December 31, 2019 $ 4,435 $ 478,562 $ ( 26,888 ) $ 456,109 $ — $ 456,109
Net income (loss) ( 391 ) ( 38,089 ) — ( 38,480 ) 190 ( 38,290 )
Other comprehensive loss — — ( 7,217 ) ( 7,217 ) — ( 7,217 )
Compensation under Incentive Award Plan — 9,871 — 9,871 — 9,871
Grant of 611,350 restricted common share awards by the Company
— — — — — —
Issuance of 6,258 deferred units
— — — — — —
Withholding of 56,597 common units for employee income taxes
— ( 736 ) — ( 736 ) — ( 736 )
Contributions from noncontrolling interests — — — — 72 72
Common distributions ($ 0.7125 per common unit)
( 713 ) ( 69,349 ) — ( 70,062 ) — ( 70,062 )
Distributions to noncontrolling interests — — — — ( 262 ) ( 262 )
Balance, September 30, 2020 $ 3,331 $ 380,259 $ ( 34,105 ) $ 349,485 $ — $ 349,485
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)
General partner Limited partners Accumulated other comprehensive loss Total partners’ equity Noncontrolling interests in consolidated partnerships Total equity
Balance, June 30, 2021 $ 4,909 $ 538,376 $ ( 19,800 ) $ 523,485 $ — $ 523,485
Net loss ( 112 ) ( 10,959 ) — ( 11,071 ) — ( 11,071 )
Other comprehensive loss — — ( 2,034 ) ( 2,034 ) — ( 2,034 )
Compensation under Incentive Award Plan — 3,012 — 3,012 — 3,012
Issuance of 17,240 common units upon exercise of options
— 99 — 99 — 99
Issuance of 331,682 common units
— 6,093 — 6,093 — 6,093
Withholding of 8,756 common units for employee income taxes
— ( 150 ) — ( 150 ) — ( 150 )
Grant of 23,488 restricted common share awards by the Company
— — — — — —
Common distributions ($ 0.3600 per unit) (1)
( 396 ) ( 38,878 ) — ( 39,274 ) — ( 39,274 )
Balance, September 30, 2021 $ 4,401 $ 497,593 $ ( 21,834 ) $ 480,160 $ — $ 480,160
General partner Limited partners Accumulated other comprehensive loss Total partners’ equity Noncontrolling interests in consolidated partnerships Total equity
Balance, December 31, 2020 $ 3,334 $ 383,588 $ ( 28,039 ) $ 358,883 $ — $ 358,883
Net loss ( 38 ) ( 4,095 ) — ( 4,133 ) — ( 4,133 )
Other comprehensive income — — 6,205 6,205 — 6,205
Compensation under Incentive Award Plan — 9,686 — 9,686 — 9,686
Issuance of 32,740 common units upon exercise of options
— 188 — 188 — 188
Issuance of 10,009,263 common units
1,874 185,095 — 186,969 — 186,969
Withholding of 120,733 common units for employee income taxes
— ( 1,787 ) — ( 1,787 ) — ( 1,787 )
Grant of 493,163 restricted common share awards by the Company
— — — — — —
Common distributions ($ 0.7150
per unit) (2)
( 769 ) ( 75,082 ) — ( 75,851 ) — ( 75,851 )
Balance, September 30, 2021 $ 4,401 $ 497,593 $ ( 21,834 ) $ 480,160 $ — $ 480,160
(1) Includes a $ 0.1775 cash distribution per common unit declared and paid during the third quarter of 2021 and a cash distribution declared in September 2021 payable in November 2021 of $ 0.1825 per common unit.
(2) Includes a $ 0.5325 cash distribution per common unit declared and paid during the first nine months of 2021 and a cash distribution declared in September 2021 payable in November 2021 of $ 0.1825 per common unit.
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine months ended September 30,
2021 2020
OPERATING ACTIVITIES
Net loss $ ( 4,133 ) $ ( 38,290 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 82,826 87,966
Impairment charge — 45,675
Amortization of deferred financing costs 3,170 2,586
Gain on sale of assets — ( 2,324 )
Loss on early extinguishment of debt 47,860 —
Equity in (earnings) losses of unconsolidated joint ventures ( 6,758 ) 1,490
Equity-based compensation expense 9,602 9,566
Amortization of debt (premiums) and discounts, net 333 359
Amortization (accretion) of market rent rate adjustments, net 151 2,560
Straight-line rent adjustments 1,137 2,418
Distributions of cumulative earnings from unconsolidated joint ventures 7,068 2,309
Other non-cash 3,638 —
Changes in other assets and liabilities:
Other assets 5,506 ( 23,326 )
Accounts payable and accrued expenses ( 6,671 ) 1,044
Net cash provided by operating activities 143,729 92,033
INVESTING ACTIVITIES
Additions to rental property ( 23,685 ) ( 23,072 )
Additions to investments in unconsolidated joint ventures ( 7,000 ) ( 5,601 )
Net proceeds from sale of assets 8,129 7,626
Additions to non-real estate assets ( 1,664 ) ( 1,541 )
Distributions in excess of cumulative earnings from unconsolidated joint ventures 16,023 4,717
Additions to deferred lease costs ( 5,333 ) ( 2,755 )
Other investing activities 11,602 8,339
Net cash used in investing activities ( 1,928 ) ( 12,287 )
FINANCING ACTIVITIES
Cash distributions paid ( 55,938 ) ( 70,062 )
Proceeds from revolving credit facility — 641,630
Repayments of revolving credit facility — ( 641,630 )
Proceeds from notes, mortgages and loans 394,208 —
Repayments of notes, mortgages and loans ( 552,811 ) ( 2,656 )
Payment of make-whole premium related to early extinguishment of debt ( 44,872 ) —
Employee income taxes paid related to shares withheld upon vesting of equity awards ( 1,787 ) ( 736 )
Additions to deferred financing costs ( 8,703 ) ( 1,841 )
Proceeds from exercise of options 188 —
Proceeds from the Company’s common share offering 186,969 —
Proceeds from other financing activities — 72
Payment for other financing activities ( 861 ) ( 1,122 )
Net cash used in financing activities ( 83,607 ) ( 76,345 )
Effect of foreign currency on cash and cash equivalents ( 131 ) ( 208 )
Net increase in cash and cash equivalents 58,063 3,193
Cash and cash equivalents, beginning of period 84,750 16,519
Cash and cash equivalents, end of period $ 142,813 $ 19,712
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Business
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. We are a fully-integrated, self-administered and self-managed real estate investment trust (“REIT”) which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of September 30, 2021, we owned and operated 30 consolidated outlet centers, with a total gross leasable area of approximately 11.5 million square feet. We also had partial ownership interests in 6 unconsolidated outlet centers totaling approximately 2.1 million square feet, including 2 outlet centers in Canada.
Our outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership and subsidiaries. Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating Partnership. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, “Operating Partnership”, refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.
The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust is the sole general partner of the Operating Partnership. Tanger LP Trust holds a limited partnership interest. As of September 30, 2021, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 103,984,234 units of the Operating Partnership and other limited partners (the “Non-Company LPs”) collectively owned 4,794,643 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s REIT status. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.
2. Summary of Significant Accounting Policies
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared pursuant to accounting principles generally accepted in the United States of America and should be read in conjunction with the consolidated financial statements and notes thereto of the Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2020. The December 31, 2020 balance sheet data in this Form 10-Q was derived from audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.
In accordance with the Financial Accounting Standards Board’s (FASB) Accounting Standards Codification (ASC) 205, Presentation of Financial Statements, certain prior year balances in the accompanying consolidated statements of cash flows have been reclassified in order to conform to the current period presentation. Specifically, for the nine months ended September 30, 2020, the uncollectible rental revenue allowance of $ 26.6 million has been presented as a component of “other assets” rather than the previous presentation where it was included as a single line item, “Uncollectible rental revenue allowance” within “net cash provided by operating activities.” There has been no change to “net cash provided by operating activities” for the nine months ended September 30, 2020 as a result of this reclassification.
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The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant.
We consolidate properties that are wholly-owned and properties where we own less than 100% but control such properties. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities (“VIE”). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) 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. Our determination of the primary beneficiary considers all relationships between us and the VIE, including management agreements and other contractual arrangements.
Investments in real estate joint ventures that we do not control but may exercise significant influence on are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for our equity in the joint venture’s net income or loss, cash contributions, distributions and other adjustments required under the equity method of accounting.
For certain investments in real estate joint ventures, we record our equity in the venture’s net income or loss under the hypothetical liquidation at book value method of accounting due to the structures and the preferences we receive on the distributions from our joint ventures pursuant to the respective joint venture agreements for those joint ventures. Under this method, we recognize income and loss in each period based on the change in liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value. Therefore, income or loss may be allocated disproportionately as compared to the ownership percentages due to specified preferred return rate thresholds and may be more or less than actual cash distributions received and more or less than what we may receive in the event of an actual liquidation.
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 to provide further financial support to these joint ventures. The carrying amount of our investments in the Charlotte, Galveston/Houston, and National Harbor joint ventures are less than zero because of financing or operating distributions that were greater than net income, as net income includes non-cash charges for depreciation and amortization.
“Noncontrolling interests in the Operating Partnership” reflects the Non-Company LP’s percentage ownership of the Operating Partnership’s units. “Noncontrolling interests in other consolidated partnerships” consist of outside equity interests in partnerships or joint ventures not wholly-owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties. Noncontrolling interests are initially recorded in the consolidated balance sheets at fair value based upon purchase price allocations. Income is allocated to the noncontrolling interests based on the allocation provisions within the partnership or joint venture agreements.
COVID-19 pandemic
The current novel COVID-19 pandemic (“COVID-19”) has had, and will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on, among other things, our results of operations, liquidity (including our ability to access capital markets), the possibility of future impairments of long-lived assets or our investments in unconsolidated joint ventures, our compliance with debt covenants, our ability to collect rent under our existing leases, our ability to renew and re-lease our leased space, the outlook for the retail environment, bankruptcies and potential further bankruptcies or other store closings and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows have been and may continue to be in the future materially affected.
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Accounts Receivable
Due to the COVID-19 pandemic, a number of our tenants requested rent deferrals, rent abatements or other types of rent relief during this pandemic. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100 % of April and May rents interest free, payable in equal installments due in January and February of 2021.
Historically, our accounts receivable from tenants has not been material; however, given the impacts from the COVID-19 pandemic discussed above, our net accounts receivable balance, which is recorded in prepaids and other assets on the consolidated balance sheet, had increased to approximately $ 18.8 million at December 31, 2020, but decreased to approximately $ 6.5 million at September 30, 2021, primarily due to collections of deferred April and May 2020 rents during the first nine months of 2021. Straight-line rent adjustments recorded as a receivable in prepaids and other assets on the consolidated balance sheets was approximately $ 54.1 million as of September 30, 2021.
During the three months ended September 30, 2020, we wrote off $ 5.2 million of third quarter rents billed, related to tenant bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. During the nine months ended September 30, 2020, we wrote off approximately $ 28.6 million of second and third quarter rents, related to bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. In addition, for the three and nine months ended September 30, 2020, we recorded a $ 2.2 million and $ 11.8 million reserve, respectively, for a portion of deferred and under negotiation billings that were expected to become uncollectible in future periods. Further, for the three and nine months ended September 30, 2020 we recognized a write-off of revenue of approximately $ 2.4 million and $ 6.1 million of straight-line rents, respectively, associated with the tenant bankruptcies and uncollectible accounts.
Individual leases are assessed for collectability and upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are written-off as an adjustment to rental revenue. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further we assess whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends including discussions with tenants for potential lease amendments. Our estimate of the collectability of accrued rents and accounts receivable is based on the best information available to us at the time of preparing the financial statements.
Impairment of Long-Lived Assets
Rental property held and used by us is reviewed for impairment in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.
During the first quarter and fourth quarter of 2020, we recorded $ 45.7 million and $ 19.2 million in impairment charges, respectively, related to our Foxwoods outlet center in our consolidated statement of operations which equaled the excess of the carrying value over its estimated fair value.
If the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate beyond our current expectations or if our expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. For example, the Foxwoods property is part of a casino property and continues to face leasing challenges which could lead to further declines in occupancy, rental revenues and cash flows in the future. Such challenges, or a change in our expected holding period, could result in additional impairment charges recognized for the Foxwoods property. We can provide no assurance that material impairment charges with respect to our properties will not occur during the remainder of 2021 or future periods.
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3. Disposition of Properties
Disposition of Properties
The following table sets forth certain summarized information regarding properties sold during the nine months ended September 30, 2021 and September 30, 2020:
Property (1)
Location Date Sold Square Feet
(in 000’s) Net Sales Proceeds
(in 000’s) Gain on Sale
(in 000’s)
2021 Disposition:
Jeffersonville Jeffersonville, Ohio January 2021 412 $ 8,100 $ —
2020 Disposition:
Terrell Terrell, Texas August 2020 178 $ 7,626 $ 2,324
(1) The rental properties sold did not meet the criteria to be reported as discontinued operations.
4. 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 September 30, 2021
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 $ 70.9
RioCan Canada Various 50.0 % 665 84.3 —
$ 85.4
Investments included in other liabilities:
Charlotte (2)
Charlotte, NC 50.0 % 399 $ ( 16.8 ) $ 99.6
National Harbor (2)
National Harbor, MD 50.0 % 341 ( 10.1 ) 94.5
Galveston/Houston (2)
Texas City, TX 50.0 % 353 ( 13.7 ) 64.4
$ ( 40.6 )
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As of December 31, 2020
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 $ 2.0 $ 70.8
RioCan Canada Various 50.0 % 765 92.6 —
$ 94.6
Investments included in other liabilities:
Charlotte (2)
Charlotte, NC 50.0 % 399 $ ( 12.8 ) $ 99.6
National Harbor (2)
National Harbor, MD 50.0 % 341 ( 8.4 ) 94.5
Galveston/Houston (2)
Texas City, TX 50.0 % 353 ( 19.5 ) 80.0
$ ( 40.7 )
(1) Net of debt origination costs of $ 1.1 million as of September 30, 2021 and $ 1.1 million as of December 31, 2020.
(2) The negative carrying value is due to distributions exceeding contributions and increases or decreases from our equity in earnings of the joint venture.
Fees we received for various services provided to our unconsolidated joint ventures were recognized in management, leasing and other services as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
Fee:
Management and marketing $ 530 $ 471 $ 1,575 $ 1,156
Leasing and other fees 72 15 231 50
Expense reimbursements from unconsolidated joint ventures 1,039 708 2,566 2,156
Total Fees $ 1,641 $ 1,194 $ 4,372 $ 3,362
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 (totaling $ 3.4 million and $ 3.6 million as of September 30, 2021 and December 31, 2020, respectively) are amortized over the various useful lives of the related assets.
Galveston/Houston
In February 2021, the Galveston/Houston joint venture amended its mortgage loan to extend the maturity to July 2023, which required a reduction in principal balance from $ 80.0 million to $ 64.5 million. The amendment also changed the interest rate from LIBOR + 1.65 % to LIBOR + 1.85 %. We are providing property management, marketing and leasing services to the outlet center.
RioCan Canada
In March 2021, the RioCan joint venture closed on the sale of its outlet center in Saint-Sauveur, for net proceeds of approximately $ 9.4 million. Our share of the proceeds was approximately $ 4.7 million. As a result of this transaction, we recorded a loss on the sale of $ 3.7 million. This includes a $ 3.6 million charge related to the foreign currency effect of the sale recorded in other income (expense), which had been previously recorded in other comprehensive income.
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During June 2020, the Rio-Can joint venture recognized an impairment charge related to its Saint-Sauveur property in Quebec. The impairment charge was primarily driven by deterioration of net operating income caused by market competition and the COVID-19 pandemic.
The table below summarizes the impairment charge taken during the second quarter of 2020 (in thousands):
Impairment Charge (1)
Outlet Center Total Our Share
2020 Saint-Sauveur $ 6,181 $ 3,091
(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 unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint Ventures September 30, 2021 December 31, 2020
Assets
Land $ 83,114 $ 86,861
Buildings, improvements and fixtures 466,670 471,798
Construction in progress 847 2,976
550,631 561,635
Accumulated depreciation ( 160,900 ) ( 145,810 )
Total rental property, net 389,731 415,825
Cash and cash equivalents 15,760 21,471
Deferred lease costs and other intangibles, net 3,785 4,849
Prepaids and other assets 15,850 20,478
Total assets $ 425,126 $ 462,623
Liabilities and Owners’ Equity
Mortgages payable, net $ 329,381 $ 344,856
Accounts payable and other liabilities 13,459 17,427
Total liabilities 342,840 362,283
Owners’ equity 82,286 100,340
Total liabilities and owners’ equity $ 425,126 $ 462,623
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Three months ended Nine months ended
Condensed Combined Statements of Operations September 30, September 30,
- Unconsolidated Joint Ventures 2021 2020 2021 2020
Revenues $ 22,071 $ 16,959 $ 65,664 $ 55,470
Expenses:
Property operating 8,735 8,035 25,597 24,023
General and administrative 87 82 173 344
Asset impairment — — — 6,181
Depreciation and amortization 5,749 5,877 17,413 17,686
Total expenses 14,571 13,994 43,183 48,234
Other income (expense):
Interest expense ( 2,913 ) ( 3,024 ) ( 8,769 ) ( 9,991 )
Gain on sale of assets — — 503 —
Other income 2 104 157 165
Total other expense ( 2,911 ) ( 2,920 ) ( 8,109 ) ( 9,826 )
Net income (loss) $ 4,589 $ 45 $ 14,372 $ ( 2,590 )
The Company and Operating Partnership’s share of:
Net income (loss) $ 2,261 $ ( 42 ) $ 6,758 $ ( 1,490 )
Depreciation and amortization (real estate related) $ 2,908 $ 3,003 $ 8,817 $ 9,038
5. Debt Guaranteed by the Company
All of the Company’s debt is held by the Operating Partnership and its consolidated subsidiaries.
The Company guarantees the Operating Partnership’s obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $ 520.0 million as of September 30, 2021. The Company also guarantees the Operating Partnership’s unsecured term loan.
The Operating Partnership had the following principal amounts outstanding on the debt guaranteed by the Company (in thousands):
As of
September 30, 2021 December 31, 2020
Unsecured lines of credit $ — $ —
Unsecured term loan $ 300,000 $ 350,000
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6. Debt of the Operating Partnership
The debt of the Operating Partnership consisted of the following (in thousands):
As of As of
September 30, 2021 December 31, 2020
Stated Interest Rate(s) Maturity Date Principal Book Value (1)
Principal Book Value (1)
Senior, unsecured notes:
Senior notes 3.875 % December 2023 $ — $ — $ 250,000 $ 247,967
Senior notes 3.750 % December 2024 — — 250,000 248,493
Senior notes 3.125 % September 2026 350,000 347,189 350,000 346,770
Senior notes 3.875 % July 2027 300,000 297,642 300,000 297,346
Senior notes 2.750 % September 2031 400,000 390,839 — —
Mortgages payable:
Atlantic City (2)(3)(4)
5.14 % - 7.65 % November 2021- December 2026 24,531 25,463 27,343 28,569
Southaven (5)
LIBOR + 1.80 % October 2021 51,400 51,344 51,400 51,371
Unsecured term loan LIBOR + 1.25 % April 2024 300,000 298,288 350,000 347,370
Unsecured lines of credit LIBOR + 1.20 % July 2025 — — — —
$ 1,425,931 $ 1,410,765 $ 1,578,743 $ 1,567,886
(1) Including premiums and net of debt discount and debt origination costs.
(2) The effective interest rate assigned during the purchase price allocation to the Atlantic City mortgages assumed during the acquisition in 2011 was 5.05 %.
(3) Principal and interest due monthly with remaining principal due at maturity.
(4) In October 2021, we repaid a $ 2.1 million mortgage note secured by the Atlantic City property, which was scheduled to mature in December 2021. The effective interest rate for the remaining notes remains 5.05 % as established upon acquisition. The stated rates for the remaining secured notes ranged from 5.14 % to 7.65 % with maturity dates between November 2021 and December 2026.
(5) In October 2021, the joint venture that owns the Southaven, MS outlet center exercised its option to extend the maturity of the Southaven, MS mortgage to April 2023 and paid down the principal balance by $ 11.3 million to $ 40.1 million. The interest rate remains LIBOR + 1.80 %. The outlet center is consolidated for financial reporting purposes and we funded the entire $ 11.3 million.
Certain of our properties, which had a net book value of approximately $ 155.2 million at September 30, 2021, serve as collateral for mortgages payable. As of September 30, 2021, we maintained unsecured lines of credit that provided for borrowings of up to $ 520.0 million. The unsecured lines of credit as of September 30, 2021 included a $ 20.0 million liquidity line and a $ 500.0 million syndicated line. As of September 30, 2021 and following the July 2021 amendments discussed below, the syndicated line may be increased up to $ 1.2 billion through an accordion feature in certain circumstances.
We provide guarantees to lenders for our joint ventures, which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. For construction and term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5 % to 100 % of principal. The principal guarantees include terms for release or reduction based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. As of September 30, 2021, the maximum amount of unconsolidated joint venture debt guaranteed by the Company was $ 21.9 million.
The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95 % of funds from operations on a cumulative basis. As of September 30, 2021, we believe we were in compliance with all of our debt covenants.
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Unsecured term loan
In March 2021 and June 2021, we paid down a total of $ 50.0 million of borrowings under our $ 350.0 million unsecured term loan with cash on hand, reducing the outstanding balance to $ 300.0 million as of September 30, 2021.
Unsecured Lines of Credit Extension
In July 2021, we amended our unsecured lines of credit and extended the maturity date from October 2021 to July 2025, which may be extended by an additional year by exercising two six-month extension options. The amendment eliminated the LIBOR floor, which was previously 0.25 %, and entitles us to a one basis point annual reduction in the interest rate if we meet certain sustainability thresholds. Other pricing terms remained the same. The lines provide for borrowings of up to $ 520.0 million, including a $ 20.0 million liquidity line and a $ 500.0 million syndicated line. A 0.25 % facility fee is due annually on the entire committed amount of each facility. In certain circumstances, total line capacity may be increased to $ 1.2 billion through an accordion feature in the syndicated line.
Redemption of the 2023 and 2024 Senior Notes and public offering of aggregate $400.0 Million Unsecured Senior Notes due 2031
In April 2021, we completed a partial redemption of $ 150.0 million aggregate principal amount of our $ 250.0 million 3.875 % senior notes due December 2023, for $ 163.0 million in cash, which included a make-whole premium of $ 13.0 million and the write off of approximately $ 1.0 million of debt discount and debt origination costs. The make-whole premium and the write off of debt discount and debt origination costs was recorded as a loss on early extinguishment of debt within the consolidated statements of operations. Subsequent to this redemption, $ 100.0 million aggregate principal amount of the Notes remained outstanding, until the redemption in August 2021, described below.
In August 2021, we completed a public offering of $ 400.0 million in senior notes due 2031. The notes were priced at 98.552 % of the principal amount to yield 2.917 % to maturity. The notes pay interest semi-annually at a rate of 2.750 % per annum and mature on September 1, 2031. The aggregate net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $ 390.7 million. We used the net proceeds from the sale of the notes to redeem all remaining 3.875 % senior notes due 2023, $ 100.0 million in aggregate principal amount outstanding, and all 3.750 % senior notes due 2024, $ 250.0 million in aggregate principal outstanding. The redemptions occurred in September 2021 and included a make-whole premium of $ 31.9 million and the write off of approximately $ 1.9 million of debt discount and debt origination costs. The remaining proceeds were used for general corporate purposes.
Debt Maturities
Maturities of the existing long-term debt as of September 30, 2021 for the next five years and thereafter are as follows (in thousands):
Calendar Year Amount
For the remainder of 2021 $ 54,381
2022 4,436
2023 4,768
2024 305,140
2025 1,501
Thereafter 1,055,705
Subtotal 1,425,931
Net discount and debt origination costs ( 15,166 )
Total $ 1,410,765
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Given the financial implications of the COVID-19 pandemic, we have considered our short-term (one year or less from the date of filing these financial statements) liquidity needs and the adequacy of our estimated cash flows from operating activities and other financing sources to meet these needs. These other sources include but are not limited to: existing cash, ongoing relationships with certain financial institutions, our ability to sell debt or issue equity subject to market conditions and proceeds from the potential sale of non-core assets. We believe that we have access to the necessary financing to fund our short-term liquidity needs.
7. Derivative Financial Instruments
The following table summarizes the terms and fair values of our derivative financial instruments, as well as their classifications within the consolidated balance sheets (notional amounts and fair values in thousands):
Fair Value
Effective Date Maturity Date Notional Amount Bank Pay Rate Company Fixed Pay Rate September 30, 2021 December 31, 2020
Assets (Liabilities) (1) :
Interest rate swaps:
April 13, 2016 January 1, 2021 175,000 1 month LIBOR 1.03 % $ — $ ( 17 )
March 1, 2018 January 31, 2021 40,000 1 month LIBOR 2.47 % — ( 75 )
August 14, 2018 January 1, 2021 150,000 1 month LIBOR 2.20 % — ( 34 )
July 1, 2019 February 1, 2024 25,000 1 month LIBOR 1.75 % ( 785 ) ( 1,192 )
January 1, 2021 February 1, 2024 150,000 1 month LIBOR 0.60 % ( 718 ) ( 1,901 )
January 1, 2021 February 1, 2024 100,000 1 month LIBOR 0.22 % 396 ( 139 )
March 1, 2021 February 1, 2024 25,000 1 month LIBOR 0.24 % 92 —
Total $ ( 1,015 ) $ ( 3,358 )
(1) Asset balances are recorded in prepaids and other assets on the consolidated balance sheets and liabilities are recorded in other liabilities on the consolidated balance sheets.
The derivative financial instruments are comprised of interest rate swaps, which are designated and qualify as cash flow hedges, each with a separate counterparty. We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as hedges.
Changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Interest Rate Swaps:
Amount of gain (loss) recognized in other comprehensive income (loss) $ 108 $ 1,463 $ 2,343 $ ( 4,711 )
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8. Fair Value Measurements
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Tier Description
Level 1 Observable inputs such as quoted prices in active markets
Level 2 Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3 Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions
Fair Value Measurements on a Recurring Basis
The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of September 30, 2021:
Assets:
Short-term government securities ( cash and cash equivalents)
$ 139,089 $ 139,089 $ — $ —
Interest rate swaps (prepaids and other assets) 488 — 488 —
Total assets $ 139,577 $ 139,089 $ 488 $ —
Liabilities:
Interest rate swaps (other liabilities) $ 1,503 $ — $ 1,503 $ —
Total liabilities $ 1,503 $ — $ 1,503 $ —
Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of December 31, 2020:
Asset:
Short-term government securities ( cash and cash equivalents)
$ 87,081 $ 87,081 $ — $ —
Total assets $ 87,081 $ 87,081 $ — $ —
Liabilities:
Interest rate swaps (other liabilities) $ 3,358 $ — $ 3,358 $ —
Total liabilities $ 3,358 $ — $ 3,358 $ —
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Short-term government securities
Short-term government securities are highly liquid investments, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices in an active market.
Interest rate swaps
Fair values of interest rate swaps are estimated using Level 2 inputs based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well recognized financial principles including counterparty risks, credit spreads and interest rate projections, as well as reasonable estimates about relevant future market conditions.
Fair Value Measurements on a Nonrecurring Basis
The following table sets forth our assets that are measured at fair value on a nonrecurring basis within the fair value hierarchy (in thousands):
Level 1 Level 2 Level 3
Quoted Prices in Active Markets for Identical Assets or Liabilities Significant Observable Inputs Significant Unobservable Inputs
Total
Fair value as of March 31, 2020:
Asset:
Long-lived assets $ 60,000 $ — $ — $ 60,000
During the first quarter 2020, we recorded a $ 45.7 million impairment charge in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. In the fourth quarter of 2020, we recorded an additional impairment of $ 19.2 million. The estimated fair value was based on the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates and terminal capitalization rates utilized in this approach were derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant unobservable inputs in determining the fair value. The terminal capitalization rate used in the calculation was 7.8 % and the discount rate used was 8.5 %. These inputs are classified under Level 3 in the fair value hierarchy above. Should the significant assumptions utilized above to determine fair value continue to deteriorate, additional impairments in the future could be possible.
Other Fair Value Disclosures
The estimated fair value within the fair value hierarchy and recorded value of our debt consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit were as follows (in thousands):
September 30, 2021 December 31, 2020
Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities $ — $ —
Level 2 Significant Observable Inputs 1,082,058 1,207,531
Level 3 Significant Unobservable Inputs 378,588 432,272
Total fair value of debt $ 1,460,646 $ 1,639,803
Recorded value of debt $ 1,410,765 $ 1,567,886
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Our senior unsecured notes are publicly-traded which provides quoted market rates. However, due to the limited trading volume of these notes, we have classified these instruments as Level 2 in the hierarchy. Our other debt is classified as Level 3 given the unobservable inputs utilized in the valuation. Our unsecured term loan, unsecured lines of credit and variable interest rate mortgages are all LIBOR based instruments. When selecting the discount rates for purposes of estimating the fair value of these instruments, we evaluated the original credit spreads and do not believe that the use of them differs materially from current credit spreads for similar instruments and therefore the recorded values of these debt instruments is considered their fair value.
The carrying values of cash and cash equivalents, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.
9. Shareholders’ Equity of the Company
Dividend Declaration
In September 2021, the Company's Board of Directors declared a quarterly cash dividend of $ 0.1825 per common share payable on November 15, 2021 to each shareholder of record on October 29, 2021, and the Trustees of Tanger GP Trust declared a $ 0.1825 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders. As a result of the declaration, a liability in the amount of approximately $ 19.9 million was recorded in accounts payable and accrued expenses in the consolidated balance sheet as of September 30, 2021.
At-the-Market Offering
Under our at-the-market share offering program (“ATM Offering”), which commenced February 2021, we may offer and sell our common shares, $ 0.01 par value per share (“Common Shares”), having an aggregate gross sales price of up to $ 250.0 million (the “Shares”). We may sell the Shares in amounts and at times to be determined by us but we have no obligation to sell any of the Shares. Actual sales, if any, will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of the Common Shares, capital needs and determinations by us of the appropriate sources of funding. We currently intend to use the net proceeds from the sale of shares pursuant to the ATM Offering for working capital and general corporate purposes.
The following table sets forth information regarding settlements under our ATM offering program:
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Number of common shares settled during the period 331,682 — 10,009,263 —
Average price per share $ 18.85 $ — $ 18.97 $ —
Aggregate gross proceeds (in thousands) $ 6,253 $ — $ 189,868 $ —
Aggregate net proceeds after commissions and fees (in thousands) $ 6,092 $ — $ 186,969 $ —
Share Repurchase Program
In May 2021, the Company’s Board of Directors authorized the repurchase of up to $ 80.0 million of the Company’s outstanding shares through May 31, 2023. This authorization replaced a previous repurchase authorization for approximately $ 80.0 million that expired in May 2021. The Company temporarily suspended share repurchases for the twelve months starting July 1, 2020 and ending on June 30, 2021 in light of a repurchase covenant. On July 1, 2021, a covenant in the Company’s debt agreements (the “repurchase covenant”) prohibiting share repurchases expired. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. The Company did not repurchase any shares for both the three and nine months ended September 30, 2021 and 2020. The remaining amount authorized to be repurchased under the program as of September 30, 2021 was approximately $ 80.0 million.
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10. Partners’ Equity of the Operating Partnership
All units of partnership interest issued by the Operating Partnership have equal rights with respect to earnings, dividends and net assets. When the Company issues common shares upon the exercise of options, the grant of restricted common share awards, or the exchange of Class A common limited partnership units, the Operating Partnership issues a corresponding Class B common limited partnership unit to Tanger LP Trust, a wholly-owned subsidiary of the Company. Likewise, when the Company repurchases its outstanding common shares, the Operating Partnership repurchases a corresponding Class B common limited partnership unit held by Tanger LP Trust.
The following table sets forth the changes in outstanding partnership units for the three and nine months ended September 30, 2021 and September 30, 2020:
Limited Partnership Units
General Partnership Units Class A Class B Total
Balance June 30, 2020 1,000,000 4,911,173 92,472,267 97,383,440
Forfeitures of restricted common share awards — — ( 18,996 ) ( 18,996 )
Balance September 30, 2020 1,000,000 4,911,173 92,453,271 97,364,444
Balance December 31, 2019 1,000,000 4,911,173 91,892,260 96,803,433
Grant of restricted common share awards by the Company, net of forfeitures — — 611,350 611,350
Issuance of deferred units — — 6,258 6,258
Units withheld for employee income taxes — — ( 56,597 ) ( 56,597 )
Balance September 30, 2020 1,000,000 4,911,173 92,453,271 97,364,444
Balance June 30, 2021 1,100,000 4,794,643 102,520,580 107,315,223
Options exercised — — 17,240 17,240
Issuance of units — — 331,682 331,682
Grant of restricted common share awards by the Company, net of forfeitures — — 23,488 23,488
Units withheld for employee income taxes — — ( 8,756 ) ( 8,756 )
Balance September 30, 2021 1,100,000 4,794,643 102,884,234 107,678,877
Balance December 31, 2020 1,000,000 4,794,643 92,569,801 97,364,444
Options exercised — — 32,740 32,740
Issuance of units 100,000 — 9,909,263 9,909,263
Grant of restricted common share awards by the Company, net of forfeitures — — 493,163 493,163
Units withheld for employee income taxes — — ( 120,733 ) ( 120,733 )
Balance September 30, 2021 1,100,000 4,794,643 102,884,234 107,678,877
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11. Earnings Per Share of the Company
The following table sets forth a reconciliation of the numerators and denominators in computing the Company’s earnings per share (in thousands, except per share amounts):
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Numerator:
Net income (loss) attributable to Tanger Factory Outlet Centers, Inc. $ ( 10,579 ) $ 13,029 $ ( 3,968 ) $ ( 36,541 )
Less allocation of earnings to participating securities ( 401 ) ( 146 ) ( 804 ) ( 692 )
Net income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc. $ ( 10,980 ) $ 12,883 $ ( 4,772 ) $ ( 37,233 )
Denominator:
Basic weighted average common shares 103,269 92,649 99,446 92,569
Diluted weighted average common shares 103,269 92,649 99,446 92,569
Basic earnings per common share:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
Diluted earnings per common share:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
We determine diluted earnings per share based on the weighted average number of common shares outstanding combined with the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common shares at the earliest date possible. There were no material securities which had a dilutive effect on earnings per common share for each of the three and nine months ended September 30, 2021 and September 30, 2020.
Notional units granted under our equity compensation plan are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method and the common shares would be issuable if the end of the reporting period were the end of the contingency period. For both the three and nine months ended September 30, 2021, approximately 1.8 million notional units were excluded from the computation and for both the three and nine months ended September 30, 2020, approximately 1.7 million notional units were excluded from the computation because these notional units either would not have been issuable if the end of the reporting period were the end of the contingency period or as they were anti-dilutive.
With respect to outstanding options, the effect of dilutive common shares is determined using the treasury stock method, whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common shares at the average market price during the period. For both the three and nine months ended September 30, 2021, approximately 1.6 million options were excluded from the computation, as they were anti-dilutive. For both the three and nine months ended September 30, 2020, approximately 1.8 million options were excluded from the computation, as they were anti-dilutive.
The assumed exchange of the partnership units held by the Non-Company LPs as of the beginning of the year, which would result in the elimination of earnings allocated to the noncontrolling interest in the Operating Partnership, would have no impact on earnings per share since the allocation of earnings to a common limited partnership unit, as if exchanged, is equivalent to earnings allocated to a common share.
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Certain of the Company’s unvested restricted common share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of these unvested restricted common share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted common share awards based on dividends declared and the unvested restricted common shares’ participation rights in undistributed earnings. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per share computation if the effect is dilutive, using the treasury stock method.
12. Earnings Per Unit of the Operating Partnership
The following table sets forth a reconciliation of the numerators and denominators in computing earnings per unit (in thousands, except per unit amounts):
Three months ended September 30, Nine months ended September 30,
2021 2020 2021 2020
Numerator:
Net income (loss) attributable to partners of the Operating Partnership $ ( 11,071 ) $ 13,719 $ ( 4,133 ) $ ( 38,480 )
Less allocation of earnings to participating securities ( 401 ) ( 147 ) ( 804 ) ( 692 )
Net income (loss) available to common unitholders of the Operating Partnership $ ( 11,472 ) $ 13,572 $ ( 4,937 ) $ ( 39,172 )
Denominator:
Basic weighted average common units 108,063 97,560 104,241 97,507
Diluted weighted average common units 108,063 97,560 104,241 97,507
Basic earnings per common unit:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
Diluted earnings per common unit:
Net income (loss) $ ( 0.11 ) $ 0.14 $ ( 0.05 ) $ ( 0.40 )
We determine diluted earnings per unit based on the weighted average number of common units outstanding combined with the incremental weighted average units that would have been outstanding assuming all potentially dilutive securities were converted into common units at the earliest date possible. There were no material securities that had a dilutive effect on earnings per common unit for each of the three and nine months ended September 30, 2021 and September 30, 2020.
Notional units granted under our equity compensation plan are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method and the common units would be issuable if the end of the reporting period were the end of the contingency period. For both the three and nine months ended September 30, 2021 approximately 1.8 million notional units were excluded from the computation and for both the three and nine months ended September 30, 2020 approximately 1.7 million notional units were excluded from the computation because these notional units either would not have been issuable if the end of the reporting period were the end of the contingency period or as they were anti-dilutive.
With respect to outstanding options, the effect of dilutive common units is determined using the treasury stock method, whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common units at the average market price during the period. The market price of a common unit is considered to be equivalent to the market price of a Company common share. For both the three and nine months ended September 30, 2021, approximately 1.6 million options were excluded from the computation. For both the three and nine months ended September 30, 2020, approximately 1.8 million options were excluded from the computation as they were anti-dilutive.
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Certain of the Company’s unvested restricted common share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the corresponding unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units’ participation rights in undistributed earnings. Unvested restricted common units that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per unit computation if the effect is dilutive, using the treasury stock method.
13. Equity-Based Compensation of the Company
We have a shareholder approved equity-based compensation plan, the Incentive Award Plan of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership (as amended and restated on April 4, 2014), as amended (the “Plan”), which covers our non-employee directors, officers, employees and consultants. Per the Operating Partnership agreement, when a common share is issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company’s wholly-owned subsidiaries. Therefore, when the Company grants an equity-based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term “we” refers to the Company and the Operating Partnership together and the term “shares” is meant to also include corresponding units of the Operating Partnership.
We recorded equity-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
Restricted common shares (1)
$ 1,937 $ 1,610 $ 6,050 $ 5,731
Notional unit performance awards (1)
962 624 3,257 3,606
Options 95 113 296 229
Total equity-based compensation $ 2,994 $ 2,347 $ 9,603 $ 9,566
(1) The nine months ended September 30, 2021 includes the accelerated recognition of compensation cost.
Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
Equity-based compensation expense capitalized $ 18 $ 103 $ 84 $ 305
Restricted Common Share and Restricted Share Unit Awards
During February 2021, the Company granted approximately 385,000 restricted common shares and restricted share units to the Company’s non-employee directors and the Company’s senior executive officers. The grant date fair value of the awards was $ 14.60 per share. The restricted common shares vest ratably over a three year period on January 4th of each year for non-employee directors and on February 15th of each year for senior executive officers. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.
Also in August 2021, the Company granted approximately 23,000 restricted common shares and restricted share units to the recently hired senior executive officers. The grant date fair value of the awards was $ 17.09 per share. The restricted common shares vest ratably over a three year period on February 15th of each year for the recently hired senior executive officers.
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For certain shares that vest during the period, we withhold shares with value equivalent up to the employees’ maximum statutory obligation for the applicable income and other employment taxes, and remit cash to the appropriate taxing authorities. The total number of shares withheld upon vesting were approximately 121,000 and 57,000 for the nine months ended September 30, 2021 and 2020, respectively. The total number of shares withheld was based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees’ tax obligation to taxing authorities were $ 1.8 million and $ 736,000 for the nine months ended September 30, 2021 and 2020, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.
2021 Performance Share Plan
During February 2021, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2021 Performance Share Plan (the “2021 PSP”) covering the Company's senior executive officers whereby a maximum of approximately 642,000 restricted common shares may be earned if certain share price appreciation goals are achieved over a three year measurement period. In August of 2021, additional awards under the 2021 PSP were granted to recently hired senior executive officers whereby a maximum of approximately 26,000 restricted common shares may be earned.
The 2021 PSP is a long-term incentive compensation plan. Recipients may earn units which may convert into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) over a three-year measurement period. Any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50 % of the shares vesting immediately following the measurement period, and the remaining 50 % vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or, (c) due to death or disability).
The following table sets forth 2021 PSP performance targets and other relevant information about the 2021 PSP:
Performance targets (1)
Absolute portion of award:
Percent of total award 33.3 %
Absolute total shareholder return range 26.0 % - 40.5 %
Percentage of units to be earned 20 % - 100 %
Relative portion of award:
Percent of total award 66.7 %
Percentile rank of peer group range (2)
30 th - 80 th
Percentage of units to be earned 20 % - 100 %
Maximum number of restricted common shares that may be earned 668,824
February grant date fair value per share $ 9.65
August grant date fair value per share $ 12.44
(1) The number of restricted common shares received under the 2021 PSP will be determined on a pro-rata basis by linear interpolation between total shareholder return thresholds, both for absolute total shareholder return and for relative total shareholder return amongst the Company’s peer group.
(2) The peer group is based on companies included in the FTSE NAREIT Retail Index
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The fair values of the 2021 PSP awards granted during the nine months ended September 30, 2021 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
Risk free interest rate (1)
0.2 %
Expected dividend yield (2)
6.5 %
Expected volatility (3)
61 %
(1) Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the restricted unit grants.
(2) The dividend yield is calculated utilizing the dividends paid for the previous five-year period.
(3) Based on a mix of historical and implied volatility for our common shares and the common shares of our peer index companies over the measurement period.
2018 Outperformance Plan
On February 15, 2021, the measurement period for the 2018 Outperformance Plan ('the 2018 OPP") expired. Based on the Company’s relative total shareholder return over the three year measurement period, we issued 76,478 restricted common shares in February 2021, with 43,127 vesting immediately and the remaining 33,351 vesting in February one year thereafter, contingent upon continued employment with the Company through the vesting date. Our absolute share price appreciation (or total shareholder return) for the 2018 OPP did not meet the minimum share price appreciation and no shares were earned under this component of the 2018 OPP.
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14. Accumulated Other Comprehensive Income (Loss) of the Company
The following table presents changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021 (in thousands):
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign Currency Cash flow hedges Total Foreign Currency Cash flow hedges Total
Balance June 30, 2021 $ ( 17,685 ) $ ( 1,058 ) $ ( 18,743 ) $ ( 991 ) $ ( 66 ) $ ( 1,057 )
Other comprehensive loss before reclassifications ( 2,047 ) ( 222 ) ( 2,269 ) ( 95 ) ( 11 ) ( 106 )
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 326 326 — 15 15
Balance September 30, 2021 $ ( 19,732 ) $ ( 954 ) $ ( 20,686 ) $ ( 1,086 ) $ ( 62 ) $ ( 1,148 )
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign Currency Cash flow hedges Total Foreign Currency Cash flow hedges Total
Balance December 31, 2020 $ ( 23,399 ) $ ( 3,186 ) $ ( 26,585 ) $ ( 1,281 ) $ ( 173 ) $ ( 1,454 )
Other comprehensive income before reclassifications 204 1,200 1,404 28 60 88
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges 3,463 1,032 4,495 167 51 218
Balance September 30, 2021 $ ( 19,732 ) $ ( 954 ) $ ( 20,686 ) $ ( 1,086 ) $ ( 62 ) $ ( 1,148 )
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The following table presents changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2020 (in thousands):
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign Currency Cash flow hedges Total Foreign Currency Cash flow hedges Total
Balance June 30, 2020 $ ( 29,249 ) $ ( 6,264 ) $ ( 35,513 ) $ ( 1,590 ) $ ( 335 ) $ ( 1,925 )
Other comprehensive income (loss) before reclassifications 1,776 ( 42 ) 1,734 94 ( 3 ) 91
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 1,432 1,432 — 76 76
Balance September 30, 2020 $ ( 27,473 ) $ ( 4,874 ) $ ( 32,347 ) $ ( 1,496 ) $ ( 262 ) $ ( 1,758 )
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss) Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign Currency Cash flow hedges Total Foreign Currency Cash flow hedges Total
Balance December 31, 2019 $ ( 25,094 ) $ ( 401 ) $ ( 25,495 ) $ ( 1,369 ) $ ( 24 ) $ ( 1,393 )
Other comprehensive loss before reclassifications ( 2,379 ) ( 6,995 ) ( 9,374 ) ( 127 ) ( 372 ) ( 499 )
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 2,522 2,522 — 134 134
Balance September 30, 2020
$ ( 27,473 ) $ ( 4,874 ) $ ( 32,347 ) $ ( 1,496 ) $ ( 262 ) $ ( 1,758 )
We expect within the next twelve months to reclassify into earnings as an increase to interest expense approximately $ 1.2 million of the amounts recorded within accumulated other comprehensive loss related to the interest rate swap agreements in effect as of September 30, 2021.
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15. Accumulated Other Comprehensive Income (Loss) of the Operating Partnership
The following table presents changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021 (in thousands):
Foreign Currency Cash flow hedges Accumulated Other Comprehensive Income (Loss)
Balance June 30, 2021 $ ( 18,676 ) $ ( 1,124 ) $ ( 19,800 )
Other comprehensive loss before reclassifications ( 2,142 ) ( 233 ) ( 2,375 )
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 341 341
Balance September 30, 2021 $ ( 20,818 ) $ ( 1,016 ) $ ( 21,834 )
Foreign Currency Cash flow hedges Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2020 $ ( 24,680 ) $ ( 3,359 ) $ ( 28,039 )
Other comprehensive income before reclassifications 232 1,260 1,492
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges 3,630 1,083 4,713
Balance September 30, 2021 $ ( 20,818 ) $ ( 1,016 ) $ ( 21,834 )
The following table presents changes in the balances of each component of accumulated other comprehensive loss for the three and nine months ended September 30, 2020 (in thousands):
Foreign Currency Cash flow hedges Accumulated Other Comprehensive Income (Loss)
Balance June 30, 2020 $ ( 30,839 ) $ ( 6,599 ) $ ( 37,438 )
Other comprehensive income (loss) before reclassifications 1,870 ( 45 ) 1,825
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 1,508 1,508
Balance September 30, 2020 $ ( 28,969 ) $ ( 5,136 ) $ ( 34,105 )
Foreign Currency Cash flow hedges Accumulated Other Comprehensive Income (Loss)
Balance December 31, 2019 $ ( 26,463 ) $ ( 425 ) $ ( 26,888 )
Other comprehensive loss before reclassifications ( 2,506 ) ( 7,367 ) ( 9,873 )
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges — 2,656 2,656
Balance September 30, 2020 $ ( 28,969 ) $ ( 5,136 ) $ ( 34,105 )
We expect within the next twelve months to reclassify into earnings as an increase to interest expense approximately $ 1.2 million of the amounts recorded within accumulated other comprehensive loss related to the interest rate swap agreements in effect as of September 30, 2021.
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16. Lease Agreements
As of September 30, 2021, we were the lessor to over 2,100 stores in our 30 consolidated outlet centers, under operating leases with initial terms that expire from 2021 to 2035, with certain agreements containing extension options. We also have certain agreements that require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.
The components of rental revenues are as follows (in thousands):
Three months ended Nine months ended
September 30, September 30,
2021 2020 2021 2020
Rental revenues - fixed $ 76,295 $ 78,312 $ 223,062 $ 213,760
Rental revenues - variable (1)
30,970 21,939 78,494 57,322
Rental revenues $ 107,265 $ 100,251 $ 301,556 $ 271,082
(1) Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.
17. Supplemental Cash Flow Information
We purchase capital equipment and incur costs relating to construction of facilities, including tenant finishing allowances. Expenditures included in accounts payable and accrued expenses were as follows (in thousands):
As of As of
September 30, 2021 September 30, 2020
Costs relating to construction included in accounts payable and accrued expenses $ 10,018 $ 21,416
Dividends payable were as follows (in thousands):
As of As of
September 30, 2021 September 30, 2020
Dividends payable $ 19,913 $ —
Interest paid, net of interest capitalized was as follows (in thousands):
Nine months ended September 30,
2021 2020
Interest paid $ 42,806 $ 44,990
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18. New Accounting Pronouncements
Recently issued accounting standards
On March 12, 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments are effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis. We have not adopted any of the optional expedients or exceptions through September 30, 2021, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
19. Subsequent Events
Atlantic City Mortgage
In October 2021, we repaid a $ 2.1 million mortgage note secured by the Atlantic City property, which was scheduled to mature in December 2021. The effective interest rate for the remaining notes remains 5.05 % as established upon acquisition. The stated rates for the remaining secured notes ranged from 5.14 % to 7.65 % with maturity dates between November 2021 and December 2026.
Southaven Mortgage
In October 2021, the joint venture that owns the Southaven, MS outlet center exercised its option to extend the maturity of the Southaven, MS mortgage to April 2023 and paid down the principal balance by $ 11.3 million to $ 40.1 million. The interest rate remains LIBOR + 1.80 %. The outlet center is consolidated for financial reporting purposes and we funded the entire $ 11.3 million.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.