The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED 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"(“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, 2017,March 31, 2020, we owned and operated 3532 consolidated outlet centers, with a total gross leasable area of approximately 12.612.0 million square feet. We also had partial ownership interests in 87 unconsolidated outlet centers totaling approximately 2.42.2 million square feet, including 43 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"“Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, "Operating Partnership"“Operating Partnership”, refers to Tanger Properties Limited Partnership and subsidiaries. The terms "we"“we”, "our"“our” and "us"“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 two2 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, 2017,March 31, 2020, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,528,18893,076,701 units of the Operating Partnership and other limited partners (the "Non-Company LPs"“Non-Company LPs”) collectively owned 5,027,7814,911,173 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one1 of the Company'sCompany’s common shares, subject to certain limitations to preserve the Company'sCompany’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'sCompany’s and the Operating Partnership'sPartnership’s combined Annual Report on Form 10-K for the year ended December 31, 2016.2019. The December 31, 20162019 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'sSEC’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.
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 ownedwholly-owned and properties where we own less than 100% but we control.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"(“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'sentity’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'sventure’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'sventure’s net income or loss under the hypothetical liquidation at book value (“HLBV”) 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, Columbus, Galveston/Houston, and Galveston/HoustonNational 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"Partnership” reflects the Non-Company LP'sLP’s percentage ownership of the Operating Partnership'sPartnership’s units. "Noncontrolling“Noncontrolling interests in other consolidated partnerships"partnerships” consist of outside equity interests in partnerships or joint ventures not wholly ownedwholly-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.
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 of 2020, we determined that the estimated future undiscounted cash flows of our Foxwoods outlet center, Mashantucket, Connecticut did not exceed the property's carrying value due to a decline in forecasted operating results. Therefore, we recorded a $45.7 million non-cash impairment charge in our consolidated statement of operations which equaled the excess of the property's carrying value over its estimated fair value.
If the effects of the COVID-19 pandemic cause economic and market conditions to continue to deteriorate or if our expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. We can provide no assurance that material impairment charges with respect to our investment properties will not occur during the remaining quarters in 2020 or future periods.
3. COVID-19 Pandemic
The current novel coronavirus (“COVID-19”) pandemic has had, and likely 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 renew and re-lease our leased space, the outlook for the retail environment, potential 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 could be materially affected.
While our outlet centers have remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, substantially all of the stores in our portfolio were closed as a result of mandates by order of local and state authorities. It remains unclear when mandates will be lifted completely or eased in additional locations.
A number of our tenants have 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. The extent of tenant requests and actions and the impact to our results of operations and cash flows is uncertain and cannot be predicted at this time.
Also in March 2020, to increase liquidity, preserve financial flexibility and help ensure that we are able to meet our obligations for a sustained period of time until there is more clarity regarding the impact of the pandemic, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. We have also taken steps to reduce future cash outflows, including the reduction or deferral of certain operating and general and administrative expenses, as well as the deferral of the Nashville project and certain other planned capital expenditures. We intend to pay the dividend that was declared in January as scheduled on May 15, 2020. Going forward, given the current uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors will temporarily suspend dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.
4. Disposition of PropertyProperties
Disposition of Properties
During the three months ended March 31, 2019, we closed on the sale of 4 non-core outlet centers for total gross proceeds of $130.5 million.
The following table sets forth certain summarized information regarding the propertyproperties and land outparcels sold during the ninethree months ended September 30, 2017:March 31, 2019:
|
| | | | | | | | | | | | | | | |
| Property | | Location | | Date Sold | | Square Feet (in 000’s) | | Net Sales Proceeds (in 000’s) | | Gain on Sale (in 000’s) |
| Nags Head, Ocean City, Park City, and Williamsburg | | Nags Head, NC, Ocean City, MD, Park City, UT, and Williamsburg, IA | | March 2019 | | 878 |
| | $ | 128,248 |
| | $ | 43,422 |
|
|
| | | | | | | | | | | | | | | |
| Property | | Location | | Date Sold | | Square Feet (in 000's) | | Net Sales Proceeds (in 000's) | | Gain on Sale(in 000's) |
| Westbrook | | Westbrook, CT | | May 2017 | | 290 |
| | $ | 39,212 |
| | $ | 6,943 |
|
The rental propertyproperties sold did not meet the criteria for reportingto be reported as discontinued operations, thus its results of operations have remained in continuing operations.
4. Developments of Consolidated Outlet Centers
The table below sets forth our consolidated outlet centers under development as of September 30, 2017:
|
| | | | | | | | | |
| Project | | Approximate square feet
(in 000's) | | Costs Incurred to Date
(in millions) | | Projected Opening |
| New development: | | | | | | |
| Fort Worth | | 352 |
| | $ | 74.7 |
| | October 2017 |
Lancaster Expansion
In September 2017, we opened a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.
Fort Worth
In October 2017, we opened a 352,000 square foot wholly-owned outlet center center in the greater Fort Worth, Texas area. The outlet center is located within the 279-acre Champions Circle mixed-use development adjacent to Texas Motor Speedway.
Interest Costs Capitalized
Interest costs capitalized for development activities, including development in our unconsolidated joint ventures, was $798,000 and $2.0 million for the three and nine months ended September 30, 2017, respectively, and $574,000 and $1.7 million for the three and nine months ended September 30, 2016, respectively.
5. 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 March 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: | | | | |
| RioCan Canada | | Various | | 50.0 | % | | 765 |
| | $ | 86.5 |
| | $ | 8.3 |
|
| | | | | | | $ | 86.5 |
| |
|
|
| Investments included in other liabilities: | | | | |
Columbus(2) | | Columbus, OH | | 50.0 | % | | 355 |
| | $ | (4.0 | ) | | $ | 85.0 |
|
Charlotte(2) | | Charlotte, NC | | 50.0 | % | | 399 |
| | (13.5 | ) | | 99.5 |
|
National Harbor(2) | | National Harbor, MD | | 50.0 | % | | 341 |
| | (7.3 | ) | | 94.5 |
|
Galveston/Houston (2) | | Texas City, TX | | 50.0 | % | | 353 |
| | (19.8 | ) | | 79.9 |
|
| | | | | | | $ | (44.6 | ) | |
|
|
|
| | | | | | | | | | | | | | | | |
| As of September 30, 2017 |
| Joint Venture | | Outlet Center Location | | Ownership % | | Square Feet (in 000's) | | Carrying Value of Investment (in millions) | | Total Joint Venture Debt, Net (in millions)(1) |
| Columbus | | Columbus, OH | | 50.0 | % | | 355 |
| | $ | 6.8 |
| | $ | 84.4 |
|
| National Harbor | | National Harbor, MD | | 50.0 | % | | 341 |
| | 2.4 |
| | 86.4 |
|
| RioCan Canada | | Various | | 50.0 | % | | 924 |
| | 116.6 |
| | 11.4 |
|
| Investments included in total assets | | | | | | $ | 125.8 |
| |
|
|
| | | | | | | | | | | |
Charlotte(3) | | Charlotte, NC | | 50.0 | % | | 398 |
| | $ | (3.6 | ) | | $ | 89.8 |
|
Galveston/Houston (2)(3) | | Texas City, TX | | 50.0 | % | | 353 |
| | (12.5 | ) | | 79.4 |
|
Investments included in other liabilities
| | | | | | $ | (16.1 | ) | |
|
|
|
| | | | | | | | | | | | | | | | |
| 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, 2016 |
| 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) |
| Columbus | | Columbus, OH | | 50.0 | % | | 355 |
| | $ | 6.7 |
| | $ | 84.2 |
|
| National Harbor | | National Harbor, MD | | 50.0 | % | | 341 |
| | 4.1 |
| | 86.1 |
|
| RioCan Canada | | Various | | 50.0 | % | | 901 |
| | 117.3 |
| | 11.1 |
|
| Investments included in total assets | | | | | | $ | 128.1 |
| |
|
|
| | | | | | | | | | | |
Charlotte(3) | | Charlotte, NC | | 50.0 | % | | 398 |
| | $ | (2.5 | ) | | $ | 89.7 |
|
Galveston/Houston (2)(3) | | Texas City, TX | | 50.0 | % | | 353 |
| | (3.8 | ) | | 64.9 |
|
| Investments included in other liabilities | | | | | | $ | (6.3 | ) | |
|
|
| |
| (1) | Net of debt origination costs and including premiums of $1.6$1.1 million and $1.6 million as of September 30, 2017for both periods ended March 31, 2020 and December 31, 2016, respectively.2019. |
| |
| (2) | In July 2017, the joint venture amended and restated the initial construction loan 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 an interest rate of LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed approximately $14.5 million equally between the partners. |
| |
(3) | The negative carrying value is due to distributions exceeding contributions and increases or decreases from our equity in earnings of the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.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 |
| |
| March 31, |
| |
| 2020 |
| 2019 |
| Fee: | | |
| | |
|
| Management and marketing | | $ | 541 |
| | $ | 566 |
|
| Leasing and other fees | | 20 |
| | 31 |
|
| Expense reimbursements from unconsolidated joint ventures | | 882 |
| | 745 |
|
| Total Fees | | $ | 1,443 |
| | $ | 1,342 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended |
| Nine months ended |
| | | September 30, |
| September 30, |
| | | 2017 | | 2016 |
| 2017 |
| 2016 |
| Fee: | | | | | | |
| | |
|
| Management and marketing | | $ | 564 |
| | $ | 656 |
| | 1,676 |
| | 2,199 |
|
| Development and leasing | | 20 |
| | 65 |
| | $ | 87 |
| | $ | 611 |
|
| Loan guarantee | | 4 |
| | 85 |
| | 13 |
| | 449 |
|
| Total Fees | | $ | 588 |
| | $ | 806 |
| | $ | 1,776 |
| | $ | 3,259 |
|
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“Summary Balance Sheets - Unconsolidated Joint Ventures"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 $3.7$3.8 million foras of both the period ended September 30, 2017March 31, 2020 and the period ended December 31, 2016)2019) are amortized over the various useful lives of the related assets.
RioCan Canada
Rental property held and used by our RioCan joint venture is reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, the estimated future undiscounted cash flows associated with the asset is compared to the asset's carrying amount, and if less, we recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.
During the third quarter 2017, the joint venture determined for its Bromont and Saint Sauveur, Quebec outlet centers that the estimated future undiscounted cash flows of that property did not exceed the property's carrying value based on our expectations of the future performance of the centers. Therefore, the joint venture recorded a $18.0 million non-cash impairment charge in its statement of operations, which equaled the excess of the properties carrying value over its fair value. The fair value was determined using a market approach considering the prevailing market income capitalization rates for similar assets. Our share of this impairment charge, $9.0 million, was recorded in equity in earnings of unconsolidated joint ventures in our consolidated statement of operations.
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 | | March 31, 2020 | | December 31, 2019 |
| Assets | | |
| | |
|
| Land | | $ | 87,015 |
| | $ | 90,859 |
|
| Buildings, improvements and fixtures | | 463,656 |
| | 477,061 |
|
| Construction in progress | | 4,286 |
| | 4,779 |
|
| | | 554,957 |
| | 572,699 |
|
| Accumulated depreciation | | (133,948 | ) | | (132,860 | ) |
| Total rental property, net | | 421,009 |
| | 439,839 |
|
| Cash and cash equivalents | | 12,653 |
| | 19,750 |
|
| Deferred lease costs and other intangibles, net | | 6,331 |
| | 6,772 |
|
| Prepaids and other assets | | 15,947 |
| | 17,789 |
|
| Total assets | | $ | 455,940 |
| | $ | 484,150 |
|
| Liabilities and Owners’ Equity | | |
| | |
|
| Mortgages payable, net | | $ | 367,171 |
| | $ | 368,032 |
|
| Accounts payable and other liabilities | | 13,252 |
| | 17,173 |
|
| Total liabilities | | 380,423 |
| | 385,205 |
|
| Owners’ equity | | 75,517 |
| | 98,945 |
|
| Total liabilities and owners’ equity | | $ | 455,940 |
| | $ | 484,150 |
|
|
| | | | | | | | |
| Condensed Combined Balance Sheets - Unconsolidated Joint Ventures | | September 30, 2017 | | December 31, 2016 |
| Assets | | |
| | |
|
| Land | | $ | 95,998 |
| | $ | 88,015 |
|
| Buildings, improvements and fixtures | | 514,865 |
| | 503,548 |
|
| Construction in progress, including land under development | | 2,849 |
| | 13,037 |
|
| | | 613,712 |
| | 604,600 |
|
| Accumulated depreciation | | (88,163 | ) | | (67,431 | ) |
| Total rental property, net | | 525,549 |
| | 537,169 |
|
| Cash and cash equivalents | | 23,769 |
| | 27,271 |
|
| Deferred lease costs and other intangibles, net | | 11,436 |
| | 13,612 |
|
| Prepaids and other assets | | 16,262 |
| | 12,567 |
|
| Total assets | | $ | 577,016 |
| | $ | 590,619 |
|
| Liabilities and Owners' Equity | | |
| | |
|
| Mortgages payable, net | | $ | 351,322 |
| | $ | 335,971 |
|
| Accounts payable and other liabilities | | 13,463 |
| | 20,011 |
|
| Total liabilities | | 364,785 |
| | 355,982 |
|
| Owners' equity | | 212,231 |
| | 234,637 |
|
| Total liabilities and owners' equity | | $ | 577,016 |
| | $ | 590,619 |
|
|
| | | | | | | | |
| | | Three months ended |
| Condensed Combined Statements of Operations | | March 31, |
| - Unconsolidated Joint Ventures | | 2020 | | 2019 |
| Revenues | | $ | 22,036 |
| | $ | 23,463 |
|
| Expenses: | | |
| | |
| Property operating | | 9,129 |
| | 9,790 |
|
| General and administrative | | 139 |
| | 90 |
|
| Depreciation and amortization | | 5,906 |
| | 6,110 |
|
| Total expenses | | 15,174 |
| | 15,990 |
|
| Other income (expense): | |
|
| |
|
|
| Interest expense | | (3,735 | ) | | (4,134 | ) |
| Other income | | 56 |
| | 66 |
|
| Total other income (expense) | | $ | (3,679 | ) | | $ | (4,068 | ) |
| Net income | | $ | 3,183 |
| | $ | 3,405 |
|
| The Company and Operating Partnership’s share of: | | |
| | |
|
| Net income | | $ | 1,527 |
| | $ | 1,629 |
|
| Depreciation and amortization (real estate related) | | $ | 3,018 |
| | $ | 3,130 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| Condensed Combined Statements of Operations | | September 30, | | September 30, |
| - Unconsolidated Joint Ventures | | 2017 | | 2016 | | 2017 | | 2016 |
| Revenues | | $ | 25,241 |
| | $ | 25,654 |
| | $ | 72,588 |
| | $ | 82,693 |
|
| Expenses: | | | | | | |
| | |
| Property operating | | 8,987 |
| | 9,103 |
| | 27,242 |
| | 30,499 |
|
| General and administrative | | 72 |
| | 95 |
| | 289 |
| | 390 |
|
| Asset impairment | | 18,042 |
| | 5,838 |
| | 18,042 |
| | 5,838 |
|
| Depreciation and amortization | | 6,998 |
| | 8,001 |
| | 21,453 |
| | 26,208 |
|
| Total expenses | | 34,099 |
| | 23,037 |
| | 67,026 |
| | 62,935 |
|
| Operating income (loss) | | (8,858 | ) | | 2,617 |
| | 5,562 |
| | 19,758 |
|
| Interest expense | | (2,776 | ) | | (1,925 | ) | | (7,497 | ) | | (7,161 | ) |
| Other non-operating income | | 20 |
| | 2 |
| | 23 |
| | 5 |
|
| Net income (loss) | | $ | (11,614 | ) | | $ | 694 |
| | $ | (1,912 | ) | | $ | 12,602 |
|
| | | | | | | | | |
| The Company and Operating Partnership's share of: | | |
| | |
|
| Net income (loss) | | $ | (5,893 | ) | | $ | 715 |
| | $ | (1,201 | ) | | $ | 7,680 |
|
| Depreciation and amortization expense (real estate related) | | $ | 3,583 |
| | $ | 4,325 |
| | $ | 10,971 |
| | $ | 15,472 |
|
6. Debt Guaranteed by the Company
All of the Company'sCompany’s debt is held by the Operating Partnership and its consolidated subsidiaries.
The Company guarantees the Operating Partnership'sPartnership’s obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $520.0$600.0 million. The Company also guarantees the Operating Partnership'sPartnership’s unsecured term loan.
The Operating Partnership had the following principal amounts outstanding on the debt guaranteed by the Company (in thousands):
|
| | | | | | | | |
| | | As of |
| | | March 31, 2020 | | December 31, 2019 |
| Unsecured lines of credit | | $ | 599,830 |
| | $ | — |
|
| Unsecured term loan | | $ | 350,000 |
| | $ | 350,000 |
|
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Unsecured lines of credit | | $ | 148,200 |
| | $ | 61,000 |
|
| Unsecured term loan | | $ | 325,000 |
| | $ | 325,000 |
|
7. Debt of the Operating Partnership
The debt of the Operating Partnership consisted of the following (in thousands):
| | | | | | | As of | | As of | | | | As of | | As of |
| | | | | September 30, 2017 | | December 31, 2016 | | | | March 31, 2020 | | December 31, 2019 |
| | | Stated Interest Rate(s) | | Maturity Date | | Principal | | Book Value(1) | | Principal | | Book Value(1) | | Stated Interest Rate(s) | | Maturity Date | | Principal | | Book Value(1) | | Principal | | Book Value(1) |
| Senior, unsecured notes: | Senior, unsecured notes: | | |
| | | | | | | Senior, unsecured notes: | | |
| | | | | | |
| Senior notes | | 6.125 | % | | June 2020 | | $ | — |
| | $ | — |
| | $ | 300,000 |
| | $ | 298,226 |
| | 3.875 | % | | December 2023 | | $ | 250,000 |
| | $ | 247,471 |
| | $ | 250,000 |
| | $ | 247,308 |
|
| Senior notes | | 3.875 | % | | December 2023 | | 250,000 |
| | 245,882 |
| | 250,000 |
| | 245,425 |
| | 3.750 | % | | December 2024 | | 250,000 |
| | 248,218 |
| | 250,000 |
| | 248,127 |
|
| Senior notes | | 3.750 | % | | December 2024 | | 250,000 |
| | 247,321 |
| | 250,000 |
| | 247,058 |
| | 3.125 | % | | September 2026 | | 350,000 |
| | 346,354 |
| | 350,000 |
| | 346,215 |
|
| Senior notes | | 3.125 | % | | September 2026 | | 350,000 |
| | 344,993 |
| | 350,000 |
| | 344,600 |
| | 3.875 | % | | July 2027 | | 300,000 |
| | 297,050 |
| | 300,000 |
| | 296,953 |
|
| Senior notes | | 3.875 | % | | July 2027 | | 300,000 |
| | 295,985 |
| | — |
| | — |
| |
| | | | | | | | | | | | | | | | | | | | | |
| Mortgages payable: | | | | | | | | | | | | | | | | | | | | |
Atlantic City (2) | | 5.14%-7.65% |
| | November 2021- December 2026 | | 38,230 |
| | 40,747 |
| | 40,471 |
| | 43,286 |
| |
| Foxwoods | | LIBOR + 1.55% |
| | December 2017 | | 70,250 |
| | 70,174 |
| | 70,250 |
| | 69,902 |
| |
Atlantic City (2)(3) | | | 5.14 | % | - | 7.65% | | November 2021- December 2026 | | 30,037 |
| | 31,559 |
| | 30,909 |
| | 32,531 |
|
| Southaven | | LIBOR + 1.75% |
| | April 2018 | | 60,000 |
| | 59,855 |
| | 59,277 |
| | 58,957 |
| | LIBOR |
| + | 1.80% | | April 2021 | | 51,400 |
| | 51,297 |
| | 51,400 |
| | 51,272 |
|
| Unsecured term loan | | LIBOR + 0.95% |
| | April 2021 | | 325,000 |
| | 323,011 |
| | 325,000 |
| | 322,410 |
| | LIBOR |
| + | 1.00% | | April 2024 | | 350,000 |
| | 347,531 |
| | 350,000 |
| | 347,367 |
|
| Unsecured lines of credit | | LIBOR + 0.90% |
| | October 2019 | | 148,200 |
| | 146,013 |
| | 61,000 |
| | 58,002 |
| | LIBOR |
| + | 1.00% | | October 2021 | | 599,830 |
| | 598,074 |
| | — |
| | — |
|
| | | | | | | $ | 1,791,680 |
| | $ | 1,773,981 |
| | $ | 1,705,998 |
| | $ | 1,687,866 |
| | | | | | | $ | 2,181,267 |
| | $ | 2,167,554 |
| | $ | 1,582,309 |
| | $ | 1,569,773 |
|
| |
| (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. |
Certain of our properties, which had a net book value of approximately $314.5$171.7 million at September 30, 2017,March 31, 2020, serve as collateral for mortgages payable. We maintain unsecured lines of credit that provide for borrowings of up to $520.0$600.0 million. The unsecured lines of credit include a $20.0 million liquidity line and a $500.0$580.0 million syndicated line. The syndicated line may be increased up to $1.0$1.2 billion through an accordion feature in certain circumstances. As of September 30, 2017,March 31, 2020, letters of credit totaling approximately $5.5 million$170,000 were issued under the lines of credit.
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, 2017,March 31, 2020, the maximum amount of unconsolidated joint venture debt guaranteed by the Company was $32.8$19.2 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, 2017,March 31, 2020, we believe we were in compliance with all of our debt covenants.
$300.0 Million Unsecured Senior Notes due 2027Lines of Credit
As of December 31, 2019, there were 0 outstanding balances under our unsecured lines of credit. In July 2017,March 2020, in response to the COVID-19 pandemic, we completed an underwritten public offering of $300.0drew down approximately $599.8 million of 3.875% senior notes due 2027 (the "2027 Notes"). The 2027 Notes priced at 99.579% of the principal amount to yield 3.926% to maturity. The 2027 Notes pay interest semi-annually at a rate of 3.875% per annum and mature on July 15, 2027. The estimated net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $295.9 million. In August 2017, we used the net proceeds from the sale of the 2027 Notes, together with borrowings under our unsecured lines of credit to redeem allincrease liquidity and preserve financial flexibility to help ensure that the Company is able to meet its obligations for a sustained period of time until there is more clarity regarding the impact of the pandemic.
Interest rates
In February 2020, due to a change in our 6.125% senior notes due 2020 (the "2020 Notes") (approximately $300.0credit rating, our interest rate spread over LIBOR on our $600.0 million in aggregate principal amount outstanding). The 2020 Notes were redeemed at par plus a “make-whole” premiumunsecured line of approximately $34.1 million.credit facility increased from 0.875% to 1.0% and our annual facility fee increased from 0.15% to 0.20%. In addition, we wrote off approximately $1.5our interest rate spread over LIBOR on our $350.0 million of unamortized debt discount and debt origination costs relatedunsecured term loan increased from 0.90% to the 2020 Notes.1.0%.
Debt Maturities
Maturities of the existing long-term debt as of September 30, 2017March 31, 2020 for the next five years and thereafter are as follows (in thousands):
|
| | | | |
| Calendar Year | | Amount |
|
| For the remainder of 2020 | | $ | 2,694 |
|
| 2021 | | 657,023 |
|
| 2022 | | 4,436 |
|
| 2023 | | 254,768 |
|
| 2024 | | 605,140 |
|
| Thereafter | | 657,206 |
|
| Subtotal | | 2,181,267 |
|
| Net discount and debt origination costs | | (13,713 | ) |
| Total | | $ | 2,167,554 |
|
|
| | | | |
| Calendar Year | | Amount |
|
| 2017 | | $ | 71,017 |
|
| 2018 | | 63,183 |
|
| 2019 | | 151,569 |
|
| 2020 | | 3,566 |
|
| 2021 | | 330,793 |
|
| Thereafter | | 1,171,552 |
|
| Subtotal | | 1,791,680 |
|
| Net discount and debt origination costs | | (17,699 | ) |
| Total | | $ | 1,773,981 |
|
Given the financial implications of COVID-19 and potential defaults on our debt covenants associated with our line of credit and term loan, 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.
8. 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 | | March 31, 2020 | | December 31, 2019 |
Assets (Liabilities)(1): | | | | | | | | | | | | | |
| Interest rate swaps: | | | | | | | | | | | | | |
| April 13, 2016 | | January 1, 2021 | | 175,000 |
| | 1 | month LIBOR | | 1.03 | % | | $ | (890 | ) | | $ | 1,018 |
|
| March 1, 2018 | | January 31, 2021 | | 40,000 |
| | 1 | month LIBOR | | 2.47 | % | | (708 | ) | | (376 | ) |
| August 14, 2018 | | January 1, 2021 | | 150,000 |
| | 1 | month LIBOR | | 2.20 | % | | (2,103 | ) | | (896 | ) |
| July 1, 2019 | | February 1, 2024 | | 25,000 |
| | 1 | month LIBOR | | 1.75 | % | | (1,301 | ) | | (170 | ) |
| January 1, 2021 | | February 1, 2024 | | 150,000 |
| | 1 | month LIBOR | | 0.60 | % | | (1,098 | ) | | — |
|
| Total | | | | $ | 540,000 |
| | | | | | | $ | (6,100 | ) | | $ | (424 | ) |
| |
| (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. |
|
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Fair Value |
| Effective Date | | Maturity Date | | Notional Amount | | Bank Pay Rate | | Company Fixed Pay Rate | | September 30, 2017 | | December 31, 2016 |
| Assets (Liabilities): | | | | | | | | | | | | |
| November 14, 2013 | | August 14, 2018 | | $ | 50,000 |
| | 1 month LIBOR | | 1.3075 | % | | $ | 52 |
| | $ | (119 | ) |
| November 14, 2013 | | August 14, 2018 | | 50,000 |
| | 1 month LIBOR | | 1.2970 | % | | 56 |
| | (110 | ) |
| November 14, 2013 | | August 14, 2018 | | 50,000 |
| | 1 month LIBOR | | 1.3025 | % | | 54 |
| | (115 | ) |
| April 13, 2016 | | January 1, 2021 | | 50,000 |
| | 1 month LIBOR | | 1.0390 | % | | 1,147 |
| | 1,227 |
|
| April 13, 2016 | | January 1, 2021 | | 50,000 |
| | 1 month LIBOR | | 1.0395 | % | | 1,146 |
| | 1,226 |
|
| April 13, 2016 | | January 1, 2021 | | 50,000 |
| | 1 month LIBOR | | 1.0400 | % | | 1,145 |
| | 1,222 |
|
| April 13, 2016 | | January 1, 2021 | | 25,000 |
| | 1 month LIBOR | | 0.9915 | % | | 611 |
| | 662 |
|
| Total | | | | $ | 325,000 |
| | | | | | $ | 4,211 |
| | $ | 3,993 |
|
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.
The effective portion of changesChanges in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivative, if significant, is recognized directly in earnings. For the three and nine months ended September 30, 2017 and 2016, the ineffective portion was not significant.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
|
| | | | | | | | |
| | | Three months ended March 31, |
| | | 2020 | | 2019 |
| Interest Rate Swaps: | | | | |
| Amount of gain (loss) recognized in other comprehensive income (loss) on derivative | | $ | (5,676 | ) | | $ | (1,952 | ) |
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Interest Rate Swaps (Effective Portion): | |
| |
| | | | |
| Amount of gain (loss) recognized in OCI on derivative | | $ | 39 |
| | $ | 2,228 |
| | $ | 217 |
| | $ | (1,601 | ) |
9. 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, 2017: | | | | | | | | |
| Asset: | | | | | | | | |
| Interest rate swaps (prepaids and other assets) | | $ | 4,211 |
| | $ | — |
| | $ | 4,211 |
| | $ | — |
|
| Total assets | | $ | 4,211 |
| | $ | — |
| | $ | 4,211 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | | | 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: | | | | | | | | |
| Assets: | | | | | | | | |
Short-term government securities (cash and cash equivalents) | | $ | 597,140 |
| | $ | 597,140 |
| | $ | — |
| | $ | — |
|
| Total assets | | $ | 597,140 |
| | $ | 597,140 |
| | $ | — |
| | $ | — |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swaps (other liabilities) | | $ | 6,100 |
| | $ | — |
| | $ | 6,100 |
| | $ | — |
|
| Total liabilities | | $ | 6,100 |
| | $ | — |
| | $ | 6,100 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | | | 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, 2019: | | | | | | | | |
| Asset: | | | | | | | | |
| Interest rate swaps (prepaids and other assets) | | $ | 1,018 |
| | $ | — |
| | $ | 1,018 |
| | $ | — |
|
| Total assets | | $ | 1,018 |
| | $ | — |
| | $ | 1,018 |
| | $ | — |
|
| | | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swaps (other liabilities) | | $ | 1,442 |
| | $ | — |
| | $ | 1,442 |
| | $ | — |
|
| Total liabilities | | $ | 1,442 |
| | $ | — |
| | $ | 1,442 |
| | $ | — |
|
|
| | | | | | | | | | | | | | | | |
| | | | | 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, 2016: | | | | | | | | |
| Asset: | | | | | | | | |
| Interest rate swaps (prepaids and other assets) | | $ | 3,993 |
| | $ | — |
| | $ | 3,993 |
| | $ | — |
|
| Total assets | | $ | 3,993 |
| | $ | — |
| | $ | 3,993 |
| | $ | — |
|
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 approximatedestimated 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. 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):
|
| | | | | | | | |
| | | March 31, 2020 | | December 31, 2019 |
| Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities | | $ | — |
| | $ | — |
|
| Level 2 Significant Observable Inputs | | 1,148,011 |
| | 1,169,481 |
|
| Level 3 Significant Unobservable Inputs | | 1,033,159 |
| | 434,333 |
|
| Total fair value of debt | | $ | 2,181,170 |
| | $ | 1,603,814 |
|
| | | | | |
| Recorded value of debt | | $ | 2,167,554 |
| | $ | 1,569,773 |
|
|
| | | | | | | | |
| | | September 30, 2017 | | December 31, 2016 |
| Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities | | $ | — |
| | $ | — |
|
| Level 2 Significant Observable Inputs | | 1,153,778 |
| | 1,137,976 |
|
| Level 3 Significant Unobservable Inputs | | 647,877 |
| | 566,668 |
|
| Total fair value of debt | | $ | 1,801,655 |
| | $ | 1,704,644 |
|
| | | | | |
| Recorded value of debt | | $ | 1,773,981 |
| | $ | 1,687,866 |
|
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.
10. Shareholders’ Equity of the Company
Dividend Declaration
In January 2020, the Company's Board of Directors declared a $0.355 cash dividend per common which was paid during the first quarter of 2020 to each shareholder of record on January 31, 2020, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
Also in January 2020, the Company's Board of Directors declared a $0.3575 cash dividend per common share payable on May 15, 2020 to each shareholder of record on April 30, 2020, and the Trustees of Tanger GP Trust declared a $0.3575 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders. A liability in the amount of approximately $35.1 million was recorded in accounts payable and accrued expenses in the consolidated balance sheet as of March 31, 2020.
In January 2019, the Company's Board of Directors declared a $0.35 cash dividend per common which was paid during the first quarter of 2019, to each shareholder of record on January 31, 2019, and the Trustees of Tanger GP Trust declared a $0.35 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
In February 2019, the Company's Board of Directors declared a $$0.355 cash dividend per common share payable on May 15, 2019 to each shareholder of record on April 30, 2019, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders. A liability in the amount of approximately $35.2 million was recorded in accounts payable and accrued expenses in the consolidated balance sheet as of March 31, 2019.
Share Repurchase Program
In May 2017, we announced that ourFebruary 2019, the Company’s Board of Directors authorized the repurchase of up to $125.0an additional $44.3 million of our outstanding common shares as market conditions warrant over a period commencing onfor an aggregate authorization of $169.3 million until May 19, 2017 and expiring on May 18, 2019.2021. 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. Between May 19, 2017 and August 25, 2017 we repurchased approximately 1.9 million commonWe did not repurchase any shares onfor the open market at an average price of $25.80, totaling approximately $49.3 million, exclusive of commissions and related fees.periods ended March 31, 2020. The remaining amount authorized to be repurchased under the program as of September 30, 2017March 31, 2020 was approximately $75.7$80.0 million. Due to near and potential long term impacts from COVID-19, the Company intends to temporarily suspend share repurchases in order to preserve our liquidity position.
11. Partners'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,Trust, a wholly-owned subsidiary of the Company. Likewise, when the Company repurchases its outstanding common shares, the Operating Partnership repurchases an equivalent number ofa corresponding Class B common limited partnership unitsunit held by Tanger LP Trust.
The following table sets forth the changes in outstanding partnership units for the ninethree months ended September 30, 2017March 31, 2020 and September 30, 2016:March 31, 2019:
|
| | | | | | | | | | | | |
| | | | | Limited Partnership Units |
| | | General Partnership Units | | Class A | | Class B | | Total |
| Balance December 31, 2018 | | 1,000,000 |
| | 4,960,684 |
| | 92,941,783 |
| | 97,902,467 |
|
| Grant of restricted common share awards by the Company, net of forfeitures | | — |
| | — |
| | 242,167 |
| | 242,167 |
|
| Units withheld for employee income taxes | | — |
| | — |
| | (81,284 | ) | | (81,284 | ) |
| Balance March 31, 2019 | | 1,000,000 |
| | 4,960,684 |
| | 93,102,666 |
| | 98,063,350 |
|
| | | | | | | | | |
| 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 | | — |
| | — |
| | 241,038 |
| | 241,038 |
|
| Units withheld for employee income taxes | | — |
| | — |
| | (56,597 | ) | | (56,597 | ) |
| Balance March 31, 2020 | | 1,000,000 |
| | 4,911,173 |
| | 92,076,701 |
| | 96,987,874 |
|
|
| | | | | | | | | | | | |
| | | | | Limited Partnership Units |
| | | General Partnership Units | | Class A | | Class B | | Total |
| Balance December 31, 2015 | | 1,000,000 |
| | 5,052,743 |
| | 94,880,825 |
| | 99,933,568 |
|
| Grant of restricted common share awards by the Company, net of forfeitures | | — |
| | — |
| | 173,124 |
| | 173,124 |
|
| Issuance of deferred units | | — |
| | — |
| | 24,040 |
| | 24,040 |
|
| Units issued upon exercise of options | | — |
| | — |
| | 57,700 |
| | 57,700 |
|
| Units withheld for employee income taxes | | — |
| | — |
| | (66,427 | ) | | (66,427 | ) |
| Balance September 30, 2016 | | 1,000,000 |
| | 5,052,743 |
| | 95,069,262 |
| | 100,122,005 |
|
| | | | | | | | | |
| Balance December 31, 2016 | | 1,000,000 |
| | 5,027,781 |
| | 95,095,891 |
| | 100,123,672 |
|
| Grant of restricted common share awards by the Company, net of forfeitures | | — |
| | — |
| | 411,968 |
| | 411,968 |
|
| Repurchase of units | | — |
| | — |
| | (1,911,585 | ) | | (1,911,585 | ) |
| Units issued upon exercise of options | | — |
| | — |
| | 1,800 |
| | 1,800 |
|
| Units withheld for employee income taxes | | — |
| | — |
| | (69,886 | ) | | (69,886 | ) |
| Balance September 30, 2017 | | 1,000,000 |
| | 5,027,781 |
| | 93,528,188 |
| | 98,555,969 |
|
12. Earnings Per Share of the Company
The following table sets forth a reconciliation of the numerators and denominators in computing the Company'sCompany’s earnings per share (in thousands, except per share amounts):
|
| | | | | | | | |
| | | Three months ended March 31, |
| | | 2020 | | 2019 |
| Numerator: | | | | |
| Net income (loss) attributable to Tanger Factory Outlet Centers, Inc. | | $ | (26,882 | ) | | $ | 62,331 |
|
| Less allocation of earnings to participating securities | | (516 | ) | | (611 | ) |
| Net income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc. | | $ | (27,398 | ) | | $ | 61,720 |
|
| Denominator: | | | | |
| Basic weighted average common shares | | 92,500 |
| | 93,303 |
|
| Diluted weighted average common shares | | 92,500 |
| | 93,303 |
|
| Basic earnings per common share: | | | | |
| Net income (loss) | | $ | (0.30 | ) | | $ | 0.66 |
|
| Diluted earnings per common share: | | | | |
| Net income (loss) | | $ | (0.30 | ) | | $ | 0.66 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Numerator: | | | | | | | | |
| Net income (loss) attributable to Tanger Factory Outlet Centers, Inc. | | $ | (15,219 | ) | | $ | 69,104 |
| | $ | 36,507 |
| | $ | 169,671 |
|
| Less allocation of earnings to participating securities | | (306 | ) | | (627 | ) | | (907 | ) | | (1,649 | ) |
| Net income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc. | | $ | (15,525 | ) | | $ | 68,477 |
| | $ | 35,600 |
| | $ | 168,022 |
|
| Denominator: | | | | | | | | |
| Basic weighted average common shares | | 93,923 |
| | 95,156 |
| | 94,781 |
| | 95,075 |
|
| Effect of notional units | | — |
| | 426 |
| | — |
| | 393 |
|
| Effect of outstanding options and certain restricted common shares | | — |
| | 90 |
| | 23 |
| | 69 |
|
| Diluted weighted average common shares | | 93,923 |
| | 95,672 |
| | 94,804 |
| | 95,537 |
|
| Basic earnings per common share: | | | | | | | | |
| Net income (loss) | | $ | (0.17 | ) | | $ | 0.72 |
| | $ | 0.38 |
| | $ | 1.77 |
|
| Diluted earnings per common share: | | | | | | | | |
| Net income (loss) | | $ | (0.17 | ) | | $ | 0.72 |
| | $ | 0.38 |
| | $ | 1.76 |
|
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 securities which had a dilutive effect on earnings per common share for the three months ended March 31, 2020 and 2019.
The notionalNotional 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 the both the three and nine months ended September 30, 2017, 858,116March 31, 2020 and 2019, approximately 1.5 million and 1.2 million notional units were excluded from the computation, respectively, and for the three and nine months ended September 30, 2016, 531,746 and 564,849 notional units were excluded from the computation, respectively, 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.
The
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 the three months ended September 30, 2017,235,700 options were excluded from the computation March 31, 2020,and for the nine months ended September 30, 2017, 173,500 options were excluded from the computation. For the three months ended September 30, 2016, there were no options excluded from the computation. For the nine months ended September 30, 2016, 145,3002019, approximately 521,000 and 528,000 options were excluded from the computation, respectively, 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.
Certain of the Company'sCompany’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'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.
13. 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 March 31, |
| | | 2020 | | 2019 |
| Numerator: | | |
| | |
|
| Net income (loss) attributable to partners of the Operating Partnership | | $ | (28,309 | ) | | $ | 65,646 |
|
| Less allocation of earnings to participating securities | | (516 | ) | | (611 | ) |
| Net income (loss) available to common unitholders of the Operating Partnership | | $ | (28,825 | ) | | $ | 65,035 |
|
| Denominator: | | | | |
| Basic weighted average common units | | 97,411 |
| | 98,264 |
|
| Diluted weighted average common units | | 97,411 |
| | 98,264 |
|
| Basic earnings per common unit: | | | | |
| Net income (loss) | | $ | (0.30 | ) | | $ | 0.66 |
|
| Diluted earnings per common unit: | | | | |
| Net income (loss) | | $ | (0.30 | ) | | $ | 0.66 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended September 30, | | Nine months ended September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Numerator: | | |
| | | | |
| | |
|
| Net income (loss) attributable to partners of the Operating Partnership | | $ | (16,034 | ) | | $ | 72,772 |
| | $ | 38,427 |
| | $ | 178,680 |
|
| Less allocation of earnings to participating securities | | (306 | ) | | (629 | ) | | (907 | ) | | (1,651 | ) |
| Net income (loss) available to common unitholders of the Operating Partnership | | $ | (16,340 | ) | | $ | 72,143 |
| | $ | 37,520 |
| | $ | 177,029 |
|
| Denominator: | | | | | | | | |
| Basic weighted average common units | | 98,951 |
| | 100,209 |
| | 99,809 |
| | 100,127 |
|
| Effect of notional units | | — |
| | 426 |
| | — |
| | 393 |
|
| Effect of outstanding options and certain restricted common units | | — |
| | 90 |
| | 23 |
| | 69 |
|
| Diluted weighted average common units | | 98,951 |
| | 100,725 |
| | 99,832 |
| | 100,589 |
|
| Basic earnings per common unit: | | | | | | | | |
| Net income (loss) | | $ | (0.17 | ) | | $ | 0.72 |
| | $ | 0.38 |
| | $ | 1.77 |
|
| Diluted earnings per common unit: | | | | | | | | |
| Net income (loss) | | $ | (0.17 | ) | | $ | 0.72 |
| | $ | 0.38 |
| | $ | 1.76 |
|
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 securities which had a dilutive effect on earnings per common unit for the three and three months ended March 31, 2020 and 2019.
The notionalNotional 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 sharesunits 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, 2017, 858,116March 31, 2020 and 2019 approximately 1.5 million and 1.2 million notional units were excluded from the computation and for the three and nine months ended September 30, 2016, 531,746 and 546,849 notional units were excluded from the computation, respectively, 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 the three months ended September 30, 2017, 235,700March 31, 2020, approximately 521,000 options were excluded from the computation, and for the nine months ended September 30, 2017, 173,500 options were excluded from the computation. For the three months ended September 30, 2016, there were no options excluded from the computation. For the nine months ended September 30, 2016, 145,300March 31, 2019, approximately 528,000 options were excluded from the computation as they were anti-dilutive.
Certain of the Company'sCompany’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'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.
14. 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 (Amended(as amended and Restated as ofrestated on April 4, 2014), as amended (the "Plan"“Plan”), which covers our independentnon-employee directors, officers, employees and consultants. For eachPer 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 ownedCompany’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"“we” refers to the Company and the Operating Partnership together and the term "shares"“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 |
| | | March 31, |
| | | 2020 | | 2019 |
| Restricted common shares | | $ | 2,227 |
| | $ | 2,513 |
|
| Notional unit performance awards | | 1,520 |
| | 1,262 |
|
| Options | | 41 |
| | 43 |
|
| Total equity-based compensation | | $ | 3,788 |
| | $ | 3,818 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Restricted common shares | | $ | 2,302 |
| | $ | 3,020 |
| | $ | 7,039 |
| | $ | 8,527 |
|
| Notional unit performance awards | | 939 |
| | 1,057 |
| | 2,870 |
| | 2,967 |
|
| Options | | 77 |
| | 83 |
| | 205 |
| | 321 |
|
| Total equity-based compensation | | $ | 3,318 |
| | $ | 4,160 |
| | $ | 10,114 |
| | $ | 11,815 |
|
Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
|
| | | | | | | | |
| | | Three months ended |
| | | March 31, |
| | | 2020 | | 2019 |
| Equity-based compensation expense capitalized | | $ | 101 |
| | $ | 92 |
|
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Equity-based compensation expense capitalized | | $ | 267 |
| | $ | 244 |
| | $ | 777 |
| | $ | 741 |
|
Restricted Common Share and Restricted Share Unit Awards
During February 2017,2020, the Company granted 253,431approximately 399,000 restricted common shares and restricted share units to the Company's independentCompany’s non-employee directors and the Company'sCompany’s senior executive officers. The grant date fair value of the awards ranged from $30.16$12.03 to $34.47$13.75 per share. The independent directors' restricted common shares vest ratably over a three year period on January 4th of each year for non-employee directors and theon February 15th of each year for senior executive officers' restricted shares vest ratably over a three or five year period.officers. For the restricted shares units issued to our chief executive officer,Chief Executive Officer, the restricted share agreement requiresaward agreements require him to hold the shares or units issued to him for a minimum of three years following each vesting date.or the share issuance date, as applicable. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.
For certain shares that vest during the period, we withhold shares with value equivalent up to the employees' minimumemployees’ 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 was 69,886 for the nine months ended September 30, 2017. No shares were withheldapproximately 57,000 and 81,000 for the three months ended September 30, 2017. The total number of shares withheld upon vesting was 6,045 March 31, 2020and 66,427 for the three and nine months ended September 30, 2016,2019, 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'employees’ tax obligation to taxing authorities was $2.4 million for the nine months ended September 30, 2017were $736,000 and was $244,000 and $2.2$1.8 million for the three and nine months ended September 30, 2016,March 31, 2020 and 2019, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.
20172020 Outperformance Plan
InDuring February 2017,2020, the Compensation Committee of Tanger Factory Outlet Centers, Inc.the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 20172020 Outperformance Plan (the “2017 OPP"“2020 OPP”), covering the Company's senior executive officers whereby a maximum of approximately 697,000 restricted common shares may be earned if certain share price appreciation goals are achieved over a three year measurement period. The 2020 OPP is a long-term incentive compensation plan. Recipients receive notionalmay earn units which may convert subject to the achievement of the goals described below, 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 issuance,the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting datesdate (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or, with respect to our Chief Executive Officer, retirement or (c) due to death or disability).
The following table sets forth 20172020 OPP performance targets and other relevant information about the 20172020 OPP:
| | Performance targets (1) | | | | | | |
| Absolute portion of award: | | | | | | |
| Percent of total award | | 50% | | 33.3% |
| Absolute share price appreciation range | | 18% - 35% | |
| Absolute total shareholder return range | | | 36.8 | % | - | 52.1% |
| Percentage of units to be earned | | 20%-100% | | 20 | % | - | 100% |
| | | | | | | |
| Relative portion of award: | | | | | | |
| Percent of total award | | 50% | | 66.7% |
Percentile rank of peer group range(2) | | 40th - 70th | | 30 | th | - | 80th |
| Percentage of units to be earned | | 20%-100% | | 20 | % | - | 100% |
| | | | | | | |
| Maximum number of restricted common shares that may be earned | | 296,400 |
| | 696,687 | |
| Grant date fair value per share | | $ | 16.60 |
| | $ | 7.30 | |
| |
| (1) | The number of restricted common shares received under the 20172020 OPP will be determined on a pro-rata basis by linear interpolation between share price appreciationtotal shareholder return thresholds, both for absolute share price appreciationtotal shareholder return and for relative share price appreciationtotal shareholder return amongst the Company'sCompany’s peer group. The share price for the purposes of calculation of share price appreciation will be adjusted on a penny-for-penny basis with respect to any dividend payments made during the measurement period. |
| |
| (2) | The peer group is based on companies included in the SNL Equity REIT index.FTSE NAREIT Retail Index. |
The fair values of the 20172020 OPP awards granted during the ninethree months ended September 30, 2017March 31, 2020 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
|
| | | |
Risk free interest rate (1) | | 1.521.4 | % |
Expected dividend yield (2) | | 3.48.4 | % |
Expected volatility (3) | | 1929 | % |
| |
| (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. |
On December 31, 2016, the measurement period for the 2014 Outperformance Plan ('the 2014 OPP") expired. Based on the Company’s absolute share price appreciation (or total shareholder return) over the three year measurement period, we issued 184,455 restricted common shares in January 2017, with 94,663 vesting immediately and the remaining to vest in January one year thereafter, contingent upon continued employment with the Company through the vesting date. Our relative total shareholder return for the 2014 OPP did not meet the minimum share price appreciation and no shares were earned under this component of the 2014 OPP.
15. Accumulated Other Comprehensive Income (Loss) of the Company
The following table presents changes in the balances of each component of accumulated comprehensive loss for the three months ended March 31, 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 December 31, 2019 | | $ | (25,094 | ) | | $ | (401 | ) | | $ | (25,495 | ) | | $ | (1,369 | ) | | $ | (24 | ) | | $ | (1,393 | ) |
| Other comprehensive loss before reclassifications | | (7,343 | ) | | (5,388 | ) | | (12,731 | ) | | (390 | ) | | (286 | ) | | (676 | ) |
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | — |
| | (2 | ) | | (2 | ) | | — |
| | — |
| | — |
|
| Balance March 31, 2020 | | $ | (32,437 | ) | | $ | (5,791 | ) | | $ | (38,228 | ) | | $ | (1,759 | ) | | $ | (310 | ) | | $ | (2,069 | ) |
The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the three and nine months ended September 30, 2017March 31, 2019 (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 December 31, 2018 | | $ | (32,610 | ) | | $ | 5,459 |
| | $ | (27,151 | ) | | $ | (1,770 | ) | | $ | 290 |
| | $ | (1,480 | ) |
| Other comprehensive income (loss) before reclassifications | | 1,851 |
| | (1,166 | ) | | 685 |
| | 98 |
| | (62 | ) | | 36 |
|
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | — |
| | (687 | ) | | (687 | ) | | — |
| | (37 | ) | | (37 | ) |
| Balance March 31, 2019 | | $ | (30,759 | ) | | $ | 3,606 |
| | $ | (27,153 | ) | | $ | (1,672 | ) | | $ | 191 |
| | $ | (1,481 | ) |
We expect within the next twelve months to reclassify into earnings as an increase to interest expense approximately $3.2 million of the amounts recorded within accumulated other comprehensive loss related to the interest rate swap agreements in effect as of March 31, 2020.
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | |
|
| | | 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, 2017 | | $ | (28,209 | ) | | $ | 3,962 |
| | $ | (24,247 | ) | | $ | (1,534 | ) | | $ | 209 |
| | $ | (1,325 | ) |
| Other comprehensive income before reclassifications | | 4,497 |
| | 89 |
| | 4,586 |
| | 240 |
| | 5 |
| | 245 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | (52 | ) | | (52 | ) | | — |
| | (3 | ) | | (3 | ) |
| Balance September 30, 2017 | | $ | (23,712 | ) | | $ | 3,999 |
| | $ | (19,713 | ) | | $ | (1,294 | ) | | $ | 211 |
| | $ | (1,083 | ) |
| | | | | | | | | | | | | |
| | | |
| | | 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, 2016 | | $ | (32,087 | ) | | $ | 3,792 |
| | $ | (28,295 | ) | | $ | (1,740 | ) | | $ | 201 |
| | $ | (1,539 | ) |
| Other comprehensive income (loss) before reclassifications | | 8,375 |
| | (154 | ) | | 8,221 |
| | 446 |
| | (9 | ) | | 437 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 361 |
| | 361 |
| | — |
| | 19 |
| | 19 |
|
| Balance September 30, 2017 | | $ | (23,712 | ) | | $ | 3,999 |
| | $ | (19,713 | ) | | $ | (1,294 | ) | | $ | 211 |
| | $ | (1,083 | ) |
16. Accumulated Other Comprehensive Income (Loss) of the Operating Partnership
The following table presents changes in the balances of each component of accumulated comprehensive loss for the three and nine months ended September 30, 2016March 31, 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, 2016 | | $ | (27,869 | ) | | $ | (4,221 | ) | | $ | (32,090 | ) | | $ | (1,516 | ) | | $ | (224 | ) | | $ | (1,740 | ) |
| Other comprehensive income (loss) before reclassifications | | (1,644 | ) | | 1,596 |
| | (48 | ) | | (87 | ) | | 84 |
| | (3 | ) |
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 520 |
| | 520 |
| | — |
| | 28 |
| | 28 |
|
| Balance September 30, 2016 | | $ | (29,513 | ) | | $ | (2,105 | ) | | $ | (31,618 | ) | | $ | (1,603 | ) | | $ | (112 | ) | | $ | (1,715 | ) |
| | | | | | | | | | | | | |
| | | |
| | | 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, 2015 | | $ | (36,130 | ) | | $ | (585 | ) | | $ | (36,715 | ) | | $ | (1,956 | ) | | $ | (31 | ) | | $ | (1,987 | ) |
| Other comprehensive income (loss) before reclassifications | | 6,617 |
| | (2,885 | ) | | 3,732 |
| | 353 |
| | (154 | ) | | 199 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 1,365 |
| | 1,365 |
| | — |
| | 73 |
| | 73 |
|
| Balance September 30, 2016 | | $ | (29,513 | ) | | $ | (2,105 | ) | | $ | (31,618 | ) | | $ | (1,603 | ) | | $ | (112 | ) | | $ | (1,715 | ) |
|
| | | | | | | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance December 31, 2019 | | $ | (26,463 | ) | | $ | (425 | ) | | $ | (26,888 | ) |
| Other comprehensive loss before reclassifications | | (7,733 | ) | | (5,674 | ) | | (13,407 | ) |
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | — |
| | (2 | ) | | (2 | ) |
| Balance March 31, 2020 | | $ | (34,196 | ) | | $ | (6,101 | ) | | $ | (40,297 | ) |
We expect within the next twelve months to reclassify into earnings as a decrease to interest expense approximately $444,000 of the amounts recorded within accumulated other comprehensive income related to the interest rate swap agreements in effect and as of September 30, 2017.
16. Accumulated Other Comprehensive Income (Loss) of the Operating Partnership
The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the three and nine months ended September 30, 2017March 31, 2019 (in thousands):
|
| | | | | | | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance December 31, 2018 | | $ | (34,380 | ) | | $ | 5,749 |
| | $ | (28,631 | ) |
| Other comprehensive income (loss) before reclassifications | | 1,949 |
| | (1,228 | ) | | 721 |
|
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | — |
| | (724 | ) | | (724 | ) |
| Balance March 31, 2019 | | $ | (32,431 | ) | | $ | 3,797 |
| | $ | (28,634 | ) |
|
| | | | | | | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance June 30, 2017 | | $ | (29,743 | ) | | $ | 4,171 |
| | $ | (25,572 | ) |
| Other comprehensive income before reclassifications | | 4,737 |
| | 94 |
| | 4,831 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | (55 | ) | | (55 | ) |
| Balance September 30, 2017 | | $ | (25,006 | ) | | $ | 4,210 |
| | $ | (20,796 | ) |
| | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance December 31, 2016 | | $ | (33,827 | ) | | $ | 3,993 |
| | $ | (29,834 | ) |
| Other comprehensive income (loss) before reclassifications | | 8,821 |
| | (163 | ) | | 8,658 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 380 |
| | 380 |
|
| Balance September 30, 2017 | | $ | (25,006 | ) | | $ | 4,210 |
| | $ | (20,796 | ) |
The following table presents changes in the balances of each component of accumulated comprehensive loss for the three and nine months ended September 30, 2016 (in thousands):
|
| | | | | | | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance June 30, 2016 | | $ | (29,385 | ) | | $ | (4,445 | ) | | $ | (33,830 | ) |
| Other comprehensive income (loss) before reclassifications | | (1,731 | ) | | 1,680 |
| | (51 | ) |
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 548 |
| | 548 |
|
| Balance September 30, 2016 | | $ | (31,116 | ) | | $ | (2,217 | ) | | $ | (33,333 | ) |
| | | | | | | |
| | | Foreign Currency | | Cash flow hedges | | Accumulated Other Comprehensive Income (Loss) |
| Balance December 31, 2015 | | $ | (38,086 | ) | | $ | (616 | ) | | $ | (38,702 | ) |
| Other comprehensive income (loss) before reclassifications | | 6,970 |
| | (3,039 | ) | | 3,931 |
|
| Reclassification out of accumulated other comprehensive income into interest expense | | — |
| | 1,438 |
| | 1,438 |
|
| Balance September 30, 2016 | | $ | (31,116 | ) | | $ | (2,217 | ) | | $ | (33,333 | ) |
We expect within the next twelve months to reclassify into earnings as a decreasean increase to interest expense approximately $444,000$3.2 million of the amounts recorded within accumulated other comprehensive incomeloss related to the interest rate swap agreements in effect and as of September 30, 2017.March 31, 2020.
17. Non-Cash ActivitiesLease Agreements
As of March 31, 2020, we were the lessor to over 2,300 stores in our 32 consolidated outlet centers, under operating leases with initial terms that expire from 2020 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.
For the three months ended March 31, 2020, the components of rental revenues are as follows (in thousands):
|
| | | | | | | | |
| | | Three months ended |
| | | March 31, |
| | | 2020 | | 2019 |
| Rental revenues - fixed | | $ | 86,933 |
| | $ | 93,459 |
|
Rental revenues - variable (1) | | 21,625 |
| | 26,495 |
|
| Rental revenues | | $ | 108,558 |
| | $ | 119,954 |
|
| |
| (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. |
18. 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 |
| | | March 31, 2020 | | March 31, 2019 |
| Costs relating to construction included in accounts payable and accrued expenses | | $ | 18,168 |
| | $ | 12,791 |
|
Dividends payable were as follows (in thousands):
|
| | | | | | | | |
| | | September 30, 2017 | | September 30, 2016 |
| Costs relating to construction included in accounts payable and accrued expenses | | $ | 27,090 |
| | $ | 20,340 |
|
|
| | | | | | | | |
| | | As of | | As of |
| | | March 31, 2020 | | March 31, 2019 |
| Dividends payable | | $ | 35,108 |
| | $ | 35,199 |
|
Interest paid, net of interest capitalized was as follows (in thousands):
|
| | | | | | | | |
| | | Three months ended March 31, |
| | | 2020 | | 2019 |
| Interest paid | | $ | 14,811 |
| | $ | 16,022 |
|
19. New Accounting Pronouncements
Recently issued accounting standards
In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A has no material impact on the Company’s consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to the Company is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
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. We have not adopted any of the optional expedients or exceptions through March 31, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.
Recently adopted accounting standards
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 is intended to improve the effectiveness of disclosures required by entities regarding recurring and nonrecurring fair value measurements. ASU 2018-13 is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements.
In June 2016, the FASB issued ASU 2016-15,No. 2016-13 to amend the Statementaccounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of Cash Flows (Topic 230): Classificationexpected credit losses as an allowance, which the FASB believes will result in more timely recognition of Certain Cash Receipts and Cash Payments (a consensus ofsuch losses. In November 2018, the Emerging Issues Task Force), which finalizes ProposedFASB released ASU No. EITF-15F2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of the same name, and addresses stakeholders’ concerns regarding diversity in practice in how certain cash receipts and cash payments are presented and classified in the statementSubtopic 326-20 “Financial Instruments - Credit Losses.” Instead, impairment of cash flowsreceivables arising from operating leases should be accounted for under Topic 230, Statement of Cash Flows, and other Topics.Subtopic 842-30 “Leases - Lessor.” ASU 2016-15 clarifies guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to (i) debt prepayment or debt extinguishment costs, (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (iii) contingent consideration payments made after a business combination, (iv) proceeds from the settlement of insurance claims, (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (vi) distributions received from equity method investees, (vii) beneficial interests in securitization transactions, and (viii) separately identifiable cash flows and application of the predominance principle. This ASU2016-13 is effective for fiscal years beginning after December 15, 2017 and for2019, including interim periods within those fiscal years, with earlyyears. The adoption permitted. The ASU should be adopted using a retrospective transition approach. We early adopted ASU 2016-15 during the third quarter of 2017, with retrospective application to our consolidated statements of cash flows. For distributions received from equity method investees, we have chosen the cumulative-earnings approach, which is also our current policy for these distributions. ASU 2016-15 requires debt prepayment or debt extinguishment costs to be classified as cash outflows for financing activities. As such, the make-whole premium related to the 2020 notes has been classified as a financing activity. The retrospective application of ASU 2016-15 had no impact on any of the prior periods presented.
Recently issued accounting standards to be adopted
In August 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. Thethis new guidance will make more financial and nonfinancial hedging strategies eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess effectiveness. It is intended to more closely align hedge accounting with companies’ risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The amendments can be adopted immediately in any interim or annual period (including the current period). The mandatory effective date for calendar year-end public companies is January 1, 2019. We are currently evaluating the impact of adopting the new guidance, but we dodid not expect the adoption to have a material impact on our consolidated financial statements.
20. Subsequent Events
In May 2017,April 2020, Stephen Yalof became the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718): ScopePresident and Chief Operating Officer of Modification Accounting. ASU 2017-09 amends the scopeCompany, the Operating Partnership and the General Partner.
As part of modification accounting for share-based payment arrangements, and provides guidancehis employment, Mr. Yalof was granted 1.0 million options that have an exercise price of $7.15 per share, which equaled the closing market price of the Company's common shares on the types of changesday prior to the terms or conditionsgrant date. The options expire 10 years from the date of share-based payment awardsgrant and 25% of the options become exercisable on December 31, 2020 with the remaining options vesting ratably on each December 31st through 2023, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which an entity would be required to apply modification accounting under ASC 718. ASU 2017-07 is effective for annual reporting periods, including interim periods within those annual reporting periods, beginning after December 15, 2017. Early adoption is permitted, including adoptionresulted in any interim period. We are currently evaluatinga weighted average grant date fair value per share of $0.42 and included the impactfollowing weighted-average assumptions: expected dividend yield 9.86%; expected life of adopting the new guidance, but we do not expect the adoption to have7.9 years; expected volatility of 30.44%; a material impact on our consolidated financial statements.risk-free rate of 0.60%; and forfeiture rate 0.0%.
In February 2017,addition, Mr. Yalof was granted 389,308 restricted common shares with a grant date fair value of $7.15 per share. The restricted common shares vest ratably over a three year period, with one-third of the FASB issued ASU 2017-05, "Other Income - Gains and Losses fromrestricted common shares vesting on each anniversary of the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets." ASU 2017-05 clarifies the definition of an in-substance nonfinancial asset and changes the accounting for partial sales of nonfinancial assets to be more consistentgrant date, beginning on April 10, 2021, contingent upon continued employment with the accountingCompany through the applicable vesting date (subject to acceleration upon certain terminations of employment).
Mr. Yalof was also awarded 205,480 notional units under the 2020 OPP, with a grant date fair value per share of $3.11. These awards have the same terms as the awards our executive officers received in February 2020. See Note 14 for a salethe terms of a business pursuantthis award.
Also in April 2020, the Company amended Steven Tanger’s, the Company’s current Chief Executive Officer, employment agreement to, ASU 2017-01. This update is effectiveamong other items, extend it for interimthree years through January 1, 2024. Per the terms of each executive’s employment contract, Mr. Yalof will become the President and annual periods beginning after December 15, 2017 using a full retrospective or modified retrospective methodChief Executive Officer of the Company, the Operating Partnership and is required to be adopted in conjunction with ASU 2014-09, "Revenue from Contracts with Customers" discussed below. We will adopt ASU 2017-05the General Partner effective January 1, 2018, along with our adoption of ASU 2014-09, using the modified retrospective approach. We do not actively sell operating properties as part of our core business strategy2021 and accordingly, the sale of properties does not generally constitute a significant part of our revenue and cash flows. Subsequent to adoption, we believe most of our future contributions of nonfinancial assets to our joint ventures where we cease to have a controlling financial interest, if any,Mr. Tanger will result in the recognition of a full gain or loss as if we sold 100%become Executive Chair of the nonfinancial asset and we will also measure our retained interest at fair value.Company.
In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (Topic 805). ASU 2017-01 clarifies the definition of a business and provides further guidance for evaluating whether a transaction will be accounted for as an acquisition of an asset or a business. ASU 2017-01 is effective for interim and annual periods beginning after December 15, 2017, and early adoption is permitted. The update should be applied prospectively. We early adopted this standard on January 1, 2017. We believe most of our future acquisitions of operating properties will qualify as asset acquisitions and certain transaction costs associated with these acquisitions will be capitalized.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. This ASU requires that a statement of cash flows explain the change during the period in cash, cash equivalents, and amounts generally described as restricted cash. Amounts generally described as restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The update should be applied retrospectively to each period presented. The pronouncement is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted. We plan to adopt this pronouncement for our fiscal year beginning January 1, 2018, and the pronouncement will result in changes to our consolidated statements of cash flows such that restricted cash amounts will be included in the beginning-of-period and end-of-period cash and cash equivalents totals.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected versus incurred credit losses for financial assets held. This ASU will be applied on a prospective basis for fiscal years and interim periods beginning after December 15, 2019, with early adoption permitted for fiscal years beginning and interim periods beginning after December 15, 2018. We are currently evaluating the impact of adopting the new guidance, but we do not expect the adoption to have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases. ASU 2016-02, codified in ASC 842, amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective beginning in the first quarter of 2019. Early adoption of ASU 2016-02 as of its issuance is permitted. We will adopt ASU 2016-02 effective January 1, 2019. The new leases standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. Based on a preliminary assessment, we expect our significant operating lease commitments, primarily ground leases, will be required to be recognized as operating lease liabilities and right-of-use assets upon adoption, resulting in an increase in the assets and liabilities on our consolidated balance sheets. Upon adoption, we anticipate separating lease components from nonlease components, which will be evaluated under ASU 2014-09, as described below. We are continuing our evaluation, which may identify additional impacts this standard will have on our consolidated financial statements and related disclosures.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 applies to all contracts with customers, except those that are within the scope of other topics in the FASB's Accounting Standards Codification, including real estate lease contracts, which the majority of our revenue is derived. The guidance also provides a model for the measurement and recognition of gains and losses on the sale of certain nonfinancial assets, such as property, including real estate. We are required to adopt the new pronouncement in the first quarter of fiscal 2018 using one of two retrospective application methods. In March 2016, April 2016, and May 2016, the FASB issued the following amendments to clarify the implementation guidance: ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, and ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients.
We will adopt ASU 2014-09 effective January 1, 2018 using the modified retrospective approach. Our revenues that will be impacted by this standard primarily include revenue from management, marketing, development, and leasing fees for services performed related to various joint ventures that we manage and other ancillary income earned at our properties. While the total revenue recognized over time would not differ under the new guidance, the recognition pattern may be different under the new guidance. Through the nine months ended September 30, 2017 and for the year ended December 31, 2016, these revenues were approximately 3% of consolidated revenue, for both periods. As a result, we currently do not expect the adoption of ASU 2014-09 or related amendments and modifications by the FASB to have a material impact on the amount of revenue we recognize in our consolidated financial statements but we do expect to have additional disclosure and reclassification of amounts with in our revenue section of the consolidated income statement as required by the adoption of ASU 2014-09. In addition, we currently expect our cumulative catch-up upon the adoption of this standard, if any, will not be material.
19. Subsequent Events
In October 2017, the Company's Board of Directors declared a $0.3425 cash dividend per common share payable on November 15, 2017 to each shareholder of record on October 31, 2017, and the Trustees of Tanger GP Trust declared a $0.3425 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
Subsequent to quarter end, we successfully settled litigation with the estate of our former partner in the Foxwoods, Connecticut joint venture. In return for mutual releases and no cash consideration, the estate tendered its partnership interest to the Company. Prior to this settlement, we had a 100% economic interest in the consolidated joint venture as a result of our preferred equity interest and the capital and distribution provisions in the joint venture agreement. On November 3, 2017, Tanger repaid the $70.3 million floating rate mortgage loan secured by the property with borrowings under its unsecured floating rate lines of credit.
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three and nine months ended September 30, 2017March 31, 2020 with the three and nine months endedSeptember 30, 2016.March 31, 2019. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term "Company"“Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating Partnership"“Operating Partnership” refers to Tanger Properties Limited Partnership and subsidiaries. The terms "we"“we”, "our"“our” and "us"“us” refer to the Company or the Company and the Operating Partnership together, as the text requires.
Cautionary Statements
Certain statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.amended, or the Exchange Act. We intend for such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and have included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding our:regarding: the expected impact of the novel coronavirus (“COVID-19”) pandemic on our business, financial results and financial condition; our ability to raise additional capital, including via future issuances of equity and debt, and the expected use of proceeds from such issuances; our results of operations and financial condition; capital expenditure and working capital needs and the funding thereof; the repurchase of the Company's common shares, including the potential salesuse of a 10b5-1 plan to facilitate repurchases; future dividend payments; the possibility of future asset impairments; potential developments, expansions, renovations, acquisitions or purchasesdispositions of outlet centers; anticipated results of operations, liquidity and working capital; new outlet center developments, market and industry trends and consumer behavior;compliance with debt covenants; renewal and re-lease of leased space; expansionsthe outlook for the retail environment, potential bankruptcies, and renovations;other store closings; the outcome of legal proceedings arising in the normal course of business; and real estate joint ventures. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. Important
Currently, one of the most significant factors, however, is the potential adverse effect of the COVID-19 pandemic, on the financial condition, results of operations, cash flows, compliance with debt covenants and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts the Company and its tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.
Other important factors which may cause actual results to differ materially from current expectations include, but are not limited to: our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers; the relative illiquidity of real property investments; impairment charges affecting our properties; our dispositions of assets may not achieve anticipated results; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; environmental regulations affecting our business; risk associated with a possible terrorist activity or other acts or threats of violence, public health crises and threats to public safety; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; the risk thatrisks related to changes in consumer travel, shopping and spending habits may change;habits; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risk associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; uncertainty relating to the potential phasing out of LIBOR; risk associated with our interest rate hedging arrangements; risk associated to uncertainty related to determination of LIBOR; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism and other important factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - "Risk Factors"“Risk Factors” in the Company'sCompany’s and the Operating Partnership'sPartnership’s Annual Report on Form 10-K for the year ended December 31, 2016.2019, as updated in Part II, Item 1A- “Risk Factors” in this Quarterly Report on Form 10-Q.
General Overview
As of September 30, 2017,March 31, 2020, we had 3532 consolidated outlet centers in 2219 states totaling 12.612.0 million square feet. We also had 87 unconsolidated outlet centers in 6 states or provinces totaling 2.42.2 million square feet.
The table below details our new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 20162019 to September 30, 2017March 31, 2020 (square feet in thousands):
|
| | | | | | | | | | | | | | |
| | | | | Consolidated Outlet Centers | | Unconsolidated Joint Venture Outlet Centers |
| Outlet Center | | Quarter Acquired/Opened/Disposed | | Square Feet | | Outlet Centers | | Square Feet | |
Outlet Centers |
| As of January 1, 2016 | | | | 11,746 |
| | 34 |
| | 2,747 |
| | 9 |
|
| New Developments: | | | | | | | | | | |
| Columbus | | Second Quarter | | — |
| | — |
| | 355 |
| | 1 |
|
| Daytona Beach | | Fourth Quarter | | 349 |
| | 1 |
| | — |
| | — |
|
| Acquisitions: | | | | | | | | | | |
| Westgate | | Second Quarter | | 408 |
| | 1 |
| | (408 | ) | | (1 | ) |
| Savannah | | Third Quarter | | 419 |
| | 1 |
| | (419 | ) | | (1 | ) |
| Expansions: | | | | | | | | | | |
| Ottawa | | First Quarter | | — |
| | — |
| | 32 |
| | — |
|
| Savannah | | Second Quarter | | — |
| | — |
| | 42 |
| | — |
|
| Dispositions: | | | | | | | | | | |
| Fort Myers | | First Quarter | | (199 | ) | | (1 | ) | | — |
| | — |
|
| Demolition: | | | | | | | | | | |
| Lancaster | | Various | | (25 | ) | | — |
| | — |
| | — |
|
| Other | | | | 12 |
| | — |
| | (1 | ) | | — |
|
| As of December 31, 2016 | | | | 12,710 |
| | 36 |
| | 2,348 |
| | 8 |
|
| Expansion: | | | | | | | | | | |
| Ottawa | | Second Quarter | | — |
| | — |
| | 39 |
| | — |
|
| Lancaster | | Third Quarter | | 148 |
| | — |
| | — |
| | — |
|
| Dispositions: | | | | | | | | | | |
| Westbrook | | Second Quarter | | (290 | ) | | (1 | ) | | — |
| | — |
|
| Other | | | | 7 |
| | — |
| | (16 | ) | | — |
|
| As of September 30, 2017 | | | | 12,575 |
| | 35 |
| | 2,371 |
| | 8 |
|
|
| | | | | | | | | | | | | | |
| | | | | Consolidated Outlet Centers | | Unconsolidated Joint Venture Outlet Centers |
| Outlet Center | | Quarter Opened/Disposed | | Square Feet | | Number of Outlet Centers | | Square Feet | | Number of Outlet Centers |
| As of January 1, 2019 | | | | 12,923 |
| | 36 |
| | 2,371 |
| | 8 |
|
| Dispositions: | | | | | | | | | | |
| Nags Head | | First Quarter | | (82 | ) | | (1 | ) | | — |
| | — |
|
| Ocean City | | First Quarter | | (200 | ) | | (1 | ) | | — |
| | — |
|
| Park City | | First Quarter | | (320 | ) | | (1 | ) | | — |
| | — |
|
| Williamsburg | | First Quarter | | (276 | ) | | (1 | ) | | — |
| | — |
|
| Bromont | | Second Quarter | | — |
| | — |
| | (161 | ) | | (1 | ) |
| Other | | | | 3 |
| | — |
| | 2 |
| | — |
|
| As of December 31, 2019 | | | | 12,048 |
| | 32 |
| | 2,212 |
| | 7 |
|
| Other | | | | (4 | ) | | — |
| | — |
| | — |
|
| As of March 31, 2020 | | | | 12,044 |
| | 32 |
| | 2,212 |
| | 7 |
|
Our Westgate and Savannah outlet centers were previously held in unconsolidated joint ventures prior to acquiring our partners' interest in each venture in June 2016 and August 2016, respectively.
The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2017.March 31, 2020. Except as noted, all properties are fee owned.
| | | Consolidated Outlet Centers | | Legal | | Square | | % | | Legal | | Square | | % |
| Location | | Ownership % | | Feet | | Occupied | | Ownership % | | Feet | | Occupied |
| Deer Park, New York | | 100 | | 749,074 |
| | 95 | | | 100 | | 739,110 |
| | 98 | |
Riverhead, New York (1) | | 100 | | 729,706 |
| | 98 | | | 100 | | 729,778 |
| | 92 | |
Rehoboth Beach, Delaware (1) | | 100 | | 557,404 |
| | 99 | | | 100 | | 557,353 |
| | 95 | |
| Foley, Alabama | | 100 | | 556,677 |
| | 99 | | | 100 | | 554,587 |
| | 88 | |
Atlantic City, New Jersey (1) (4)(3) | | 99 | | 489,706 |
| | 87 | | | 100 | | 489,718 |
| | 79 | |
| San Marcos, Texas | | 100 | | 471,816 |
| | 97 | | | 100 | | 471,816 |
| | 95 | |
Sevierville, Tennessee (1) | | 100 | | 448,355 |
| | 100 | | | 100 | | 447,815 |
| | 99 | |
| Savannah, Georgia | | 100 | | 429,089 |
| | 97 | | | 100 | | 429,089 |
| | 96 | |
| Myrtle Beach Hwy 501, South Carolina | | 100 | | 425,334 |
| | 94 | | | 100 | | 426,523 |
| | 96 | |
| Jeffersonville, Ohio | | 100 | | 411,849 |
| | 95 | | | 100 | | 411,904 |
| | 84 | |
| Glendale, Arizona (Westgate) | | 100 | | 407,673 |
| | 97 | | | 100 | | 410,751 |
| | 97 | |
Myrtle Beach Hwy 17, South Carolina (1) | | 100 | | 403,339 |
| | 100 | | | 100 | | 403,425 |
| | 99 | |
| Charleston, South Carolina | | 100 | | 382,117 |
| | 97 | | | 100 | | 379,328 |
| | 100 | |
| Lancaster, Pennsylvania | | 100 | | 377,299 |
| | 93 | | | 100 | | 375,857 |
| | 91 | |
| Pittsburgh, Pennsylvania | | 100 | | 372,958 |
| | 100 | | | 100 | | 373,863 |
| | 95 | |
| Commerce, Georgia | | 100 | | 371,408 |
| | 97 | | | 100 | | 371,408 |
| | 96 | |
| Grand Rapids, Michigan | | 100 | | 357,080 |
| | 97 | | | 100 | | 357,119 |
| | 90 | |
| Fort Worth, Texas | | | 100 | | 351,741 |
| | 99 | |
| Daytona Beach, Florida | | 100 | | 351,704 |
| | 97 | | | 100 | | 351,721 |
| | 98 | |
| Branson, Missouri | | 100 | | 329,861 |
| | 100 | | | 100 | | 329,861 |
| | 99 | |
Southaven, Mississippi (2) (3) | | | 50 | | 324,717 |
| | 99 | |
| Locust Grove, Georgia | | 100 | | 321,070 |
| | 97 | | | 100 | | 321,082 |
| | 95 | |
| Gonzales, Louisiana | | 100 | | 321,066 |
| | 99 | | | 100 | | 321,066 |
| | 96 | |
Southaven, Mississippi (2) (4) | | 50 | | 320,341 |
| | 97 | | |
| Park City, Utah | | 100 | | 319,661 |
| | 97 | | |
| Mebane, North Carolina | | 100 | | 318,910 |
| | 100 | | | 100 | | 318,886 |
| | 100 | |
| Howell, Michigan | | 100 | | 314,459 |
| | 98 | | | 100 | | 314,438 |
| | 88 | |
Mashantucket, Connecticut (Foxwoods) (1) (2) (4) | | 67 | | 311,614 |
| | 94 | | |
| Williamsburg, Iowa | | 100 | | 276,331 |
| | 97 | | |
Mashantucket, Connecticut (Foxwoods) (1) | | | 100 | | 311,507 |
| | 93 | |
| Tilton, New Hampshire | | 100 | | 250,107 |
| | 93 | | | 100 | | 250,107 |
| | 93 | |
| Hershey, Pennsylvania | | 100 | | 247,500 |
| | 100 | | | 100 | | 249,696 |
| | 99 | |
| Hilton Head II, South Carolina | | 100 | | 206,564 |
| | 96 | | | 100 | | 206,564 |
| | 98 | |
Ocean City, Maryland (1) | | 100 | | 198,800 |
| | 98 | | |
| Hilton Head I, South Carolina | | 100 | | 181,670 |
| | 99 | | | 100 | | 181,670 |
| | 97 | |
| Terrell, Texas | | 100 | | 177,800 |
| | 96 | | | 100 | | 177,800 |
| | 87 | |
| Blowing Rock, North Carolina | | 100 | | 104,009 |
| | 98 | | | 100 | | 104,009 |
| | 85 | |
| Nags Head, North Carolina | | 100 | | 82,161 |
| | 100 | | |
| Totals | | | | 12,574,512 |
| | 97 | (3) | | | | 12,044,309 |
| | 94 | |
| |
| (1) | These properties or a portion thereof are subject to a ground lease. |
| |
| (2) | Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture'sventure’s cash flow to be greater than our legal ownership percentage. We currently receive substantially all the economic interest of the property. |
| |
| (3) | Excludes the occupancy rate at our Daytona Beach outlet center which opened during the fourth quarter of 2016 and has not yet stabilized. |
| |
(4) | Property encumbered by mortgage. See notesNotes 6 and 7 to the consolidated financial statements for further details of our debt obligations. |
| | | Unconsolidated joint venture properties | | Legal | | Square | | % | | | Legal | | Square | | % | |
| Location | | Ownership % | | Feet | | Occupied | | | Ownership % | | Feet | | Occupied | |
Charlotte, North Carolina (1) | | 50 | | 397,844 |
| | 99 | | | 50 | | 398,676 |
| | 97 | |
| Ottawa, Ontario | | 50 | | 355,497 |
| | 93 | | | 50 | | 357,218 |
| | 96 | |
Columbus, Ohio (1) | | 50 | | 355,220 |
| | 96 | | | 50 | | 355,245 |
| | 97 | |
Texas City, Texas (Galveston/Houston) (1) | | 50 | | 352,705 |
| | 99 | | | 50 | | 352,705 |
| | 92 | |
National Harbor, Maryland (1) | | 50 | | 341,156 |
| | 98 | | | 50 | | 341,156 |
| | 96 | |
| Cookstown, Ontario | | 50 | | 307,779 |
| | 98 | | | 50 | | 307,895 |
| | 100 | |
| Bromont, Quebec | | 50 | | 161,307 |
| | 72 | | |
Saint-Sauveur, Quebec (1) | | 50 | | 99,405 |
| | 96 | | | 50 | | 99,405 |
| | 92 | |
| Total | | | | 2,370,913 |
| | 95 | (2) | | | | 2,212,300 |
| | 96 | |
| |
| (1) | Property encumbered by mortgage. See noteNote 5 to the consolidated financial statements for further details of ourthe joint venture debt obligations. |
Leasing Activity
The tables below show changes in rent (base rent and common area maintenance (“CAM”)) for leases for new stores that opened or renewals that started during the respective trailing twelve month periods ended March 31, 2020 and 2019:
|
| | | | | | | | | | | | | | | |
| | Trailing twelve months ended March 31, 2020(1),(2) |
| | # of Leases | Square Feet (in 000’s) | Average Annual Straight-line Rent (psf) | Average Tenant Allowance (psf) | Average Initial Term (in years) | Net Average Annual Straight-line Rent (psf) (3) |
| Re-tenant | 118 |
| 504 |
| $ | 36.13 |
| $ | 47.70 |
| 7.75 |
| $ | 29.98 |
|
| Renewal | 178 |
| 839 |
| $ | 28.20 |
| $ | 0.90 |
| 3.90 |
| $ | 27.97 |
|
| | | | | | | |
| | Trailing twelve months ended March 31, 2019(1),(2) |
| | # of Leases | Square Feet (in 000’s) | Average Annual Straight-line Rent (psf) | Average Tenant Allowance (psf) | Average Initial Term (in years) | Net Average Annual Straight-line Rent (psf) (3) |
| Re-tenant | 81 |
| 388 |
| $ | 33.32 |
| $ | 45.13 |
| 7.83 |
| $ | 27.56 |
|
| Renewal | 280 |
| 1,404 |
| $ | 34.37 |
| $ | 0.49 |
| 3.82 |
| $ | 34.24 |
|
| |
| (1) | Excludes license agreements, seasonal tenants, and month-to-month leases. |
| |
| (2) | Excludes the occupancy rate at our Columbus outlet center which opened during the second quarter of 2016 and has not yet stabilized. |
Leasing Activity
The following table provides information for our consolidated outlet centers regarding space re-leased or renewed:
|
| | | | | | | | | | | | | | | |
| | Trailing twelve months ended September 30, 2017(1) |
| | # of Leases | Square Feet (in 000's) | Average Annual Straight-line Rent (psf)(2) | Average Tenant Allowance (psf) | Average Initial Term (in years) | Net Average Annual Straight-line Rent (psf) (3) |
| Re-tenant | 87 |
| 380 |
| $ | 34.76 |
| $ | 55.47 |
| 8.94 |
| $ | 28.56 |
|
| Renewal | 253 |
| 1,126 |
| $ | 32.56 |
| $ | 0.24 |
| 4.50 |
| $ | 32.51 |
|
| | | | | | | |
| | Trailing twelve months ended September 30, 2016(1) |
| | # of Leases | Square Feet (in 000's) | Average Annual Straight-line Rent (psf)(2) | Average Tenant Allowance (psf) | Average Initial Term (in years) | Net Average Annual Straight-line Rent (psf) (3) |
| Re-tenant | 103 |
| 401 |
| $ | 41.47 |
| $ | 57.04 |
| 8.54 |
| $ | 34.79 |
|
| Renewal | 290 |
| 1,337 |
| $ | 32.22 |
| $ | 0.41 |
| 4.71 |
| $ | 32.13 |
|
| |
(1) | Includes information for consolidated portfolio outlet centers owned as of period end date. |
| |
(2) | Includes both minimum base rentsold in March 2019 (Nags Head, Ocean City, Park City, and common area maintenance rents.Williamsburg Outlets Centers). |
| |
| (3) | Net average annual straight-line base rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line base rent per year amount. The average annual straight-line base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. The average tenant allowance disclosed in the table above includes other landlord costs. |
COVID-19 Pandemic
The current COVID-19 pandemic has had, and likely 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 our results of operations, liquidity (including our ability to access capital markets), 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 could be materially affected.
Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates have, with respect to some portion of our tenants, (i) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business, (ii) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses, and/or (iii) impacted supply chains from local, national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants’ operations, all of which have adversely affected, and are likely to continue to adversely affect, their ability to maintain profitability and make rental payments to us under their leases. Tenants may also, as a result of such public health crisis, orders or mandates and the resulting economic downturn, request rent deferrals, rent abatement or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends. Specifically, as a result of COVID-19 and various governmental orders currently in place, a number of our tenants have either closed their business or are operating with limited operations and/or have submitted requests for rent relief or failed to pay rent. Certain other of our tenants have declared bankruptcy. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a clear contractual right to cease paying rent due to government mandated closures and we intend to enforce our rights under the lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions and the impact on our results of operations and cash flows is uncertain and cannot be predicted.
While our outlet centers have remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, operations at all 39 Tanger Outlet Centers were restricted by order of local and state authorities. At the lowest point, open stores represented 6% of the consolidated portfolio in terms of gross leasable area, or 2% in terms of annualized base rent. As of May 11, 2020, these percentages had improved to 16% and 12%, respectively, as mandates had eased or been lifted in 20, or 63%, of the locations where we operate. These totals include some stores that are open only for curb-side pickup or where maximum store occupancy is restricted by governmental mandates. It remains unclear when mandates will be lifted completely or eased in additional locations.
A number of our tenants have 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. As expected due to the deferment offer, April rent receipts represented approximately 12% of the amount billed. Due to the potential impact of COVID-19, our revenues may be significantly lower in the quarter ended June 30, 2020 than the comparable period in 2019. The extent of tenant requests and actions and the impact to our results of operations and cash flows is uncertain and cannot be predicted at this time. While our preference is to work with its tenant partners to reach a financial resolution that positions both parties for long-term growth, it reserves all rights under its lease agreements and will pursue legal remedies to collect rent as appropriate. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables was not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent could have a significant impact in future periods.
Also in March 2020, to increase liquidity, preserve financial flexibility and help ensure that we are able to meet our obligations for a sustained period of time until there is more clarity regarding the impact of the pandemic, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. We have also taken steps to reduce future cash outflows, including the reduction or deferral of certain operating and general and administrative expenses, as well as the deferral of the Nashville project and certain other planned capital expenditures. We intend to pay the dividend that was declared in January as scheduled on May 15, 2020. Going forward, given the current uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors will temporarily suspend dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis.
While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, we are unable to predict the ultimate impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows due to numerous uncertainties. The impact of the COVID-19 pandemic on our rental revenue for the second quarter of 2020 and thereafter cannot, however, be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we are actively managing our response in collaboration with tenants, government officials and business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on us, see Part II, Item 1A titled “Risk Factors.”
RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2017March 31, 2020 to the three months ended September 30, 2016March 31, 2019
NET INCOME (LOSS)
Net income (loss) decreased $88.8$94.0 million in the 20172020 period to anet loss of $16.0$28.1 million as compared to net income of $72.8$65.8 million for the 20162019 period. The majority of this decrease wasin income is primarily due to a lossto:
the $43.4 million gain recorded on the early extinguishmentsale of debtthe four outlet centers in March 2019;
the loss of $35.6revenues from the four outlet centers sold in March 2019; and
the $45.7 million impairment charge recognized in the 2017 period and a $46.3 million gainMarch 2020 on the acquisition of our partners' equity interestscenter in the Savannah joint venture in the 2016 period. This decrease was partially offset by improved operating income.Mashantucket, Connecticut.
In the tables below, information set forth for new development represents our Daytona Beach outlet center, which opened in November 2016. Acquisitions include our Westgate and Savannah outlet centers, which were previously held in unconsolidated joint ventures prior to acquiring our partners' interest in each venture in June 2016 and August 2016, respectively. Propertiesproperties disposed include our Westbrook and Fort Myersincludes the four outlet centers sold in May 2017 and January 2016, respectively.late March 2019.
BASE RENTALSRENTAL REVENUES
Base rentals increased $780,000, or 1%,Rental revenues decreased $11.4 million in the 20172020 period compared to the 20162019 period. The following table sets forth the changes in various components of base rentalsrental revenues (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Base rentals from existing properties | | $ | 73,217 |
| | $ | 73,523 |
| | $ | (306 | ) |
| Base rentals from new development | | 1,978 |
| | — |
| | 1,978 |
|
| Base rentals from acquisitions | | 5,294 |
| �� | 4,131 |
| | 1,163 |
|
| Base rentals from property disposed | | — |
| | 1,134 |
| | (1,134 | ) |
| Termination fees | | 162 |
| | 1,450 |
| | (1,288 | ) |
| Amortization of above and below market rent adjustments, net | | (302 | ) | | (669 | ) | | 367 |
|
| | | $ | 80,349 |
| | $ | 79,569 |
| | $ | 780 |
|
|
| | | | | | | | | | | | |
| | | 2020 | | 2019 | | Increase/(Decrease) |
| Rental revenues from existing properties | | $ | 106,778 |
| | $ | 110,822 |
| | $ | (4,044 | ) |
| Rental revenues from properties disposed | | 12 |
| | 6,402 |
| | (6,390 | ) |
| Straight-line rent adjustments | | 1,873 |
| | 1,970 |
| | (97 | ) |
| Lease termination fees | | 164 |
| | 1,130 |
| | (966 | ) |
| Amortization of above and below market rent adjustments, net | | (269 | ) | | (370 | ) | | 101 |
|
| | | $ | 108,558 |
| | $ | 119,954 |
| | $ | (11,396 | ) |
Base rentalsRental revenues from existing properties decreased primarily due primarily to lower average occupancy, rent modifications for certain tenants, in large part as a slight decrease in averageresult of a number of bankruptcy filings, and other tenant closures during 2019 and 2020. We recaptured approximately 332,000 square feet within our consolidated portfolio occupancy.
PERCENTAGE RENTALS
Percentage rentals increased $143,000, or 5%, induring the 2017 periodthree months ended March 31, 2020 from the early termination of leases related to bankruptcies and brand-wide restructurings by retailers, compared to 82,000 square feet for the 2016 period. Percentage rentals represents revenues based onthree months ended March 31, 2019. In addition, variable revenue which is derived from tenant sales were negatively impacted due to mandatory closures of several centers for the second half of March 2020 as a percentageresult of tenants' sales volume above predetermined levels (contractual breakpoints") (in thousands):the COVID-19 pandemic.
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Percentage rentals from existing properties | | $ | 2,738 |
| | $ | 2,698 |
| | $ | 40 |
|
| Percentage rentals from new development | | 99 |
| | — |
| | 99 |
|
| Percentage rentals from acquisitions | | 301 |
| | 285 |
| | 16 |
|
| Percentage rentals from property disposed | | — |
| | 12 |
| | (12 | ) |
| | | $ | 3,138 |
| | $ | 2,995 |
| | $ | 143 |
|
EXPENSE REIMBURSEMENTS
Expense reimbursements increased $1.1 million, or 3%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of expense reimbursementsother revenues (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Expense reimbursements from existing properties | | $ | 30,504 |
| | $ | 30,538 |
| | $ | (34 | ) |
| Expense reimbursements from new development | | 825 |
| | 49 |
| | 776 |
|
| Expense reimbursements from acquisitions | | 2,851 |
| | 1,952 |
| | 899 |
|
| Expense reimbursements from property disposed | | — |
| | 586 |
| | (586 | ) |
| | | $ | 34,180 |
| | $ | 33,125 |
| | $ | 1,055 |
|
|
| | | | | | | | | | | | |
| | | 2020 | | 2019 | | Increase/(Decrease) |
| Other revenues from existing properties | | $ | 1,632 |
| | $ | 1,805 |
| | $ | (173 | ) |
| Other revenues from property disposed | | — |
| | 54 |
| | (54 | ) |
| | | $ | 1,632 |
| | $ | 1,859 |
| | $ | (227 | ) |
Expense reimbursements represent the contractual recovery from tenants of certain common area maintenance ("CAM"), insurance, property tax, promotional, advertising and management expenses. Certain expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses for the property. and thus generally fluctuate consistently with the related expenses. Other expense reimbursements, such as promotional, advertising and certain CAM payments, represent contractual fixed rents and may escalate each year. See "Property Operating Expenses" below for a discussion of the decrease in operating expenses from our existing properties.
MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services decreased $218,000, or 27%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Management and marketing | | $ | 564 |
| | $ | 656 |
| | $ | (92 | ) |
| Development and leasing | | 20 |
| | 65 |
| | (45 | ) |
| Loan guarantee | | 4 |
| | 85 |
| | (81 | ) |
| | | $ | 588 |
| | $ | 806 |
| | $ | (218 | ) |
The decrease in management, leasing and other services is primarily due to having one fewer outlet center in our unconsolidated joint ventures in the 2017 period compared to the 2016 period. During August 2016, we acquired our venture partners' equity interests in the Savannah outlet center and received no fees subsequent to the acquisition date.
OTHER INCOME
Other income decreased $132,000, or 5% in the 2017 period as compared to the 2016 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Other income from existing properties | | $ | 2,283 |
| | $ | 2,434 |
| | $ | (151 | ) |
| Other income from new developments | | 34 |
| | 62 |
| | (28 | ) |
| Other income from acquisitions | | 193 |
| | 146 |
| | 47 |
|
| | | $ | 2,510 |
| | $ | 2,642 |
| | $ | (132 | ) |
PROPERTY OPERATING EXPENSES
The following table sets forth the changes in various components of property operating expenses (in thousands): |
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Property operating expenses from existing properties | | $ | 34,315 |
| | $ | 34,932 |
| | $ | (617 | ) |
| Property operating expenses from new development | | 846 |
| | 55 |
| | 791 |
|
| Property operating expenses from acquisitions | | 2,410 |
| | 1,673 |
| | 737 |
|
| Property operating expenses from property disposed | | — |
| | 782 |
| | (782 | ) |
| | | $ | 37,571 |
| | $ | 37,442 |
| | $ | 129 |
|
The decrease in property operating expenses from existing properties was due to lower spending in the 2017 period for certain CAM and marketing expenses.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.2 million, or 10% in the 2017 period compared to the 2016 period, due primarily due to the 2016 period including executive severance.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs increased $1.8 million, or 6%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 2017 period to the 2016 period (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Depreciation and amortization from existing properties | | $ | 25,912 |
| | $ | 26,514 |
| | $ | (602 | ) |
| Depreciation and amortization from new development | | 1,236 |
| | — |
| | 1,236 |
|
| Depreciation and amortization from acquisitions | | 3,828 |
| | 2,340 |
| | 1,488 |
|
| Depreciation and amortization from properties disposed | | — |
| | 351 |
| | (351 | ) |
| | | $ | 30,976 |
| | $ | 29,205 |
| | $ | 1,771 |
|
INTEREST EXPENSE AND LOSS ON EARLY EXTINGUISHMENT OF DEBT
In July 2017, we completed an underwritten public offering of $300.0 million of 3.875% senior notes due 2027 (the "2027 Notes"). In August 2017, we used the net proceeds from the sale of the 2027 Notes, together with borrowings under our unsecured lines of credit, to redeem all of our 6.125% senior notes due 2020 (the "2020 Notes") (approximately $300.0 million in aggregate principal amount outstanding). The 2020 Notes were redeemed at par plus a make-whole premium of approximately $34.1 million. The loss on early extinguishment of debt includes the make-whole premium and approximately $1.5 million of costs written off related to a debt discount and the remaining net book value of deferred 2020 Notes origination costs.
Interest expense increased $1.0 million, or 6%, in the 2017 period compared to the 2016 period, due primarily to the completed public offerings in August 2016 and October 2016, of an aggregate $350.0 million of 3.125% notes, the net proceeds of which were used to repay amounts outstanding under our unsecured lines of credit that had an approximate interest rate of 1.20%. Interest expense also increased due to the 30-day LIBOR interest rate, which impacts the interest rate associated with our floating rate debt, increasing in the 2017 period compared with the 2016 period and due to incremental interest paid during the redemption notice period when both the 2020 Notes and the 2027 Notes were outstanding. The overall increase was partially offset by a decrease in interest expense related to the July 2017 bond refinancing, which effectively lowered the interest rate from 6.125% to 3.875% on $300.0 million of senior notes.
GAIN ON PREVIOUSLY HELD INTEREST IN ACQUIRED JOINT VENTURE
In August 2016, the Savannah joint venture, which owned the outlet center in Pooler, Georgia distributed all outparcels along with $15.0 million in cash consideration to the other partner in exchange for the partner's ownership interest. We contributed the $15.0 million in cash consideration to the joint venture, which we funded with borrowings under our unsecured lines of credit. The joint venture is now wholly-owned by us and has been consolidated in our financial results since the acquisition date. As a result of acquiring the remaining interest in the Savannah joint venture, we recorded a gain of $46.3 million, which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the Savannah joint venture, as a result of the significant appreciation in the property's value since the completion of its original development and opening in April 2015.
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings (losses) of unconsolidated joint ventures decreased approximately $6.6 million or 924% in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of equity in earnings (losses) of unconsolidated joint ventures (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Equity in earnings (losses) from existing properties | | $ | (5,893 | ) | | $ | (3 | ) | | $ | (5,890 | ) |
| Equity in earnings from properties previously held in unconsolidated joint ventures | | — |
| | 718 |
| | (718 | ) |
| | | $ | (5,893 | ) | | $ | 715 |
| | $ | (6,608 | ) |
Equity in earnings (losses) from existing properties includes our share of impairment charges totaling $9.0 million in the 2017 period related to the Bromont and Saint-Sauveur outlet centers in Canada, and totaling $2.9 million in the 2016 period related to the Bromont outlet center. The decrease in equity in earnings from properties previously held in unconsolidated joint ventures in 2016 is related to the Savannah joint venture. We acquired our venture partner's interest in the joint venture in August 2016 and have consolidated the results of operations of the center since the acquisition date.
Comparison of the nine months ended September 30, 2017 to the nine months ended September 30, 2016
NET INCOME
Net income decreased $140.3 million in the 2017 period to $38.4 million as compared to $178.7 million for the 2016 period. The majority of this decrease was due to a loss on the early extinguishment of debt of $35.6 million in the 2017 period, a $95.5 million gain on the acquisition of our partners' equity interests in the Westgate and Savannah joint ventures in the 2016 period.
In the tables below, information set forth for new development represents our Daytona Beach outlet center, which opened in November 2016. Acquisitions include our Westgate and Savannah outlet centers, which were previously held in unconsolidated joint ventures prior to acquiring our partners' interest in each venture in June 2016 and August 2016, respectively. Properties disposed include our Westbrook outlet center and Fort Myers outlet center sold in May 2017 and January 2016, respectively.
BASE RENTALS
Base rentals increased $14.3 million, or 6%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of base rentals (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Base rentals from existing properties | | $ | 216,954 |
| | $ | 217,861 |
| | $ | (907 | ) |
| Base rentals from new development | | 5,836 |
| | — |
| | 5,836 |
|
| Base rentals from acquisitions | | 16,042 |
| | 4,131 |
| | 11,911 |
|
| Base rentals from properties disposed | | 1,605 |
| | 3,457 |
| | (1,852 | ) |
| Termination fees | | 2,796 |
| | 3,492 |
| | (696 | ) |
| Amortization of above and below market rent adjustments, net | | (1,766 | ) | | (1,746 | ) | | (20 | ) |
| | | $ | 241,467 |
| | $ | 227,195 |
| | $ | 14,272 |
|
Base rentalsrevenues from existing properties decreased primarily due to a slight decrease in average portfolio occupancy.
PERCENTAGE RENTALS
Percentage rentals decreased $673,000, or 9%, inmandatory closures of several centers for the 2017 period compared to the 2016 period. Percentage rentals represents revenues based on a percentagesecond half of tenants' sales volume above predetermined levels ("contractual breakpoints") (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Increase/(Decrease) |
| Percentage rentals from existing properties | | $ | 5,998 |
| | $ | 7,129 |
| | $ | (1,131 | ) |
| Percentage rentals from new development | | 106 |
| | — |
| | 106 |
|
| Percentage rentals from acquisitions | | 629 |
| | 285 |
| | 344 |
|
| Percentage rentals from properties disposed | | 65 |
| | 57 |
| | 8 |
|
| | | $ | 6,798 |
| | $ | 7,471 |
| | $ | (673 | ) |
Decrease in percentage rentals is primarilyMarch 2020 due to a decrease in average sales per square foot for certain tenants for the rolling twelve months ended September 30, 2017, compared to the rolling twelve months ended September 30, 2016 and due to annual increases in contractual breakpoints in certain leases.COVID-19 pandemic.
EXPENSE REIMBURSEMENTS
Expense reimbursements increased $7.7 million, or 8%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of expense reimbursements (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Expense reimbursements from existing properties | | $ | 93,141 |
| | $ | 93,296 |
| | $ | (155 | ) |
| Expense reimbursements from new development | | 2,856 |
| | 156 |
| | 2,700 |
|
| Expense reimbursements from acquisitions | | 8,052 |
| | 1,952 |
| | 6,100 |
|
| Expense reimbursements from properties disposed | | 752 |
| | 1,717 |
| | (965 | ) |
| | | $ | 104,801 |
| | $ | 97,121 |
| | $ | 7,680 |
|
Expense reimbursements represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses. Certain expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses for the property, and thus generally fluctuate consistently with the related expenses. Other expense reimbursements, such as promotional, advertising and certain CAM payments, represent contractual fixed rents and may escalate each year. See "Property Operating Expenses" below for a discussion of the decrease in operating expenses from our existing properties.
MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services decreased $1.5 million, or 46%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Management and marketing | | $ | 1,676 |
| | $ | 2,199 |
| | $ | (523 | ) |
| Development and leasing | | 87 |
| | 611 |
| | (524 | ) |
| Loan guarantee | | 13 |
| | 449 |
| | (436 | ) |
| | | $ | 1,776 |
| | $ | 3,259 |
| | $ | (1,483 | ) |
The decrease in management, leasing and other services is primarily due to having two fewer outlet centers in our unconsolidated joint ventures in the 2017 period compared to the 2016 period. During 2016, we acquired our venture partners' equity interests in the Westgate and Savannah outlet centers and received no fees subsequent to the acquisition dates. Offsetting the impact of the acquisitions was the addition of one new center in an unconsolidated joint venture, the Columbus outlet center, which opened in June 2016.
OTHER INCOME
Other income increased 676,000, or 11% in the 2017 period as compared to the 2016 period. The following table sets forth the changes in various components of other income (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Other income from existing properties | | $ | 6,043 |
| | $ | 6,004 |
| | $ | 39 |
|
| Other income from new development | | 148 |
| | — |
| | 148 |
|
| Other income from acquisitions | | 613 |
| | 162 |
| | 451 |
|
| Other income from properties disposed | | 101 |
| | 63 |
| | 38 |
|
| | | $ | 6,905 |
| | $ | 6,229 |
| | $ | 676 |
|
PROPERTY OPERATING EXPENSES
Property operating expenses increased $4.7decreased $3.8 million or 4% in the 20172020 period as compared to the 20162019 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Property operating expenses from existing properties | | $ | 104,135 |
| | $ | 106,147 |
| | $ | (2,012 | ) |
| Property operating expenses from new development | | 3,139 |
| | 163 |
| | 2,976 |
|
| Property operating expenses from acquisitions | | 6,801 |
| | 1,689 |
| | 5,112 |
|
| Property operating expenses from properties disposed | | 999 |
| | 2,329 |
| | (1,330 | ) |
| | | $ | 115,074 |
| | $ | 110,328 |
| | $ | 4,746 |
|
|
| | | | | | | | | | | | |
| | | 2020 | | 2019 | | Increase/(Decrease) |
| Property operating expenses from existing properties | | $ | 37,293 |
| | $ | 38,480 |
| | $ | (1,187 | ) |
| Property operating expenses from property disposed | | — |
| | 2,592 |
| | (2,592 | ) |
| Expenses related to unconsolidated joint ventures | | 882 |
| | 745 |
| | 137 |
|
| Other property operating expense | | 452 |
|
| 560 |
| | (108 | ) |
| | | $ | 38,627 |
| | $ | 42,377 |
| | $ | (3,750 | ) |
The decrease in propertyProperty operating expenses fromincurred at existing properties wasduring the 2020 period decreased primarily due to lower spending in the 2017 period for certain CAM and marketing expenses.snow removal costs.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.5 million, or 4%,increased $439,000 in the 20172020 period compared to the 20162019 period due primarily due to the 2016 period including executive severance.higher professional fees partially offset by lower employee related costs.
ABANDONED PRE-DEVELOPMENT COSTSIMPAIRMENT CHARGE
During the 2017 period,first quarter of 2020, we decideddetermined that the estimated future undiscounted cash flows of our Foxwoods outlet center in Mashantucket, Connecticut did not exceed the property's carrying value due to terminate a purchase option for a pre-development stage project near Detroit, Michigan and as a result,decline in operating results. Therefore, we recorded a $528,000$45.7 million non-cash impairment charge representingin our consolidated statement of operations which equaled the cumulative related pre-development costs.excess of the property's carrying value over its estimated fair value.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs increased $13.1decreased $2.3 million or 16%, in the 20172020 period compared to the 20162019 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 20172019 period to the 20162020 period (in thousands):
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Depreciation and amortization expenses from existing properties | | $ | 79,537 |
| | $ | 78,690 |
| | $ | 847 |
|
| Depreciation and amortization expenses from new development | | 3,524 |
| | — |
| | 3,524 |
|
| Depreciation and amortization expenses from acquisitions | | 11,437 |
| | 2,340 |
| | 9,097 |
|
| Depreciation and amortization from properties disposed | | 677 |
| | 1,048 |
| | (371 | ) |
| | | $ | 95,175 |
| | $ | 82,078 |
| | $ | 13,097 |
|
|
| | | | | | | | | | | | |
| | | 2020 | | 2019 | | Increase/(Decrease) |
| Depreciation and amortization expenses from existing properties | | $ | 29,417 |
| | $ | 30,504 |
| | $ | (1,087 | ) |
| Depreciation and amortization from property disposed | | — |
| | 1,256 |
| | (1,256 | ) |
| | | $ | 29,417 |
| | $ | 31,760 |
| | $ | (2,343 | ) |
Depreciation and amortization increaseddecreased at our existing properties primarily due to the accelerated amortizationlower basis in our Jeffersonville property due to the impairment recorded in the fourth quarter of lease related intangibles upon store closures and demolition activities at one of our centers.2019.
INTEREST EXPENSE AND LOSS ON EARLY EXTINGUISHMENT OF DEBT
In July 2017, we completed an underwritten public offeringInterest expense decreased $1.1 million in the 2020 period compared to the 2019 period primarily from the use of $300.0 million of 3.875% senior notes due 2027 (the "2027 Notes"). In August 2017, we used the net proceeds from the sale of the 2027 Notes, together with borrowings underfour properties in March 2019, as well as other general operating cash flows to reduce amounts outstanding on our unsecured lines of credit throughout 2019. During the 2020 period, we had minimal borrowings outstanding on our unsecured lines of credit until March 2020 when in response to redeem allthe COVID-19 pandemic, we borrowed approximately $599.8 million under our lines of our 6.125% senior notes due 2020 (the "2020 Notes") (approximately $300.0 million in aggregate principal amount outstanding). The 2020 Notes were redeemed at par plus a make-whole premium of approximately $34.1 million. The loss on early extinguishment of debt includes the make-whole premiumcredit to increase liquidity and approximately $1.5 million of costs written offpreserve financial flexibility. Interest expense related to a debt discount andthese borrowings partially offset the remaining net book value of deferred 2020 Notes origination costs.
Interestdecrease in interest expense increased $5.3 million, or 12%, in the 2017 period comparedfrom having no amounts outstanding on our lines prior to the 2016 period, primarily due to (1) the impact of converting throughout 2016 $525.0 million of debt with floating interest rates to higher fixed interest rates, (2) the 30-day LIBOR, which impacts the interest rate associated with our floating rate debt, increasing relative to its level in the 2016 period, (3) and the additional debt incurred related to the 2016 acquisitions of Westgate and Savannah.COVID-19 pandemic.
GAIN ON SALE OF ASSETS
In May 2017,March 2019, we sold our Westbrookfour outlet centercenters for net proceeds of approximately $40.0$128.2 million, which resulted in a gain on sale of $6.9 million.
GAIN ON PREVIOUSLY HELD INTEREST IN ACQUIRED JOINT VENTURE
On June 30, 2016, we completed the purchaseassets of our venture partner's interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona, for a total cash price of approximately $40.9$43.4 million. The purchase was funded with borrowingsproceeds from the sale of these unencumbered assets were used to pay down balances outstanding under our unsecured lines of credit. Prior to the transaction, we owned a 58% interest in the Westgate joint venture since its formation in 2012 and accounted for it under the equity method of accounting. The joint venture is now wholly-owned and is consolidated in our financial results as of June 30, 2016. As a result of acquiring the remaining interest in the Westgate joint venture, we recorded a gain of $49.3 million, which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the joint venture, as a result of the significant appreciation in the property's value since the completion of its original development and opening.
In August 2016, the Savannah joint venture, which owned the outlet center in Pooler, Georgia distributed all outparcels along with $15.0 million in cash consideration to the other partner in exchange for the partner's ownership interest. We contributed the $15.0 million in cash consideration to the joint venture, which we funded with borrowings under our unsecured lines of credit. The joint venture is now wholly-owned by us and has been consolidated in our financial results since the acquisition date. As a result of acquiring the remaining interest in the Savannah joint venture, we recorded a gain of $46.3 million, which represented the difference between the carrying book value and the fair value of our previously held equity method investment in the Savannah joint venture, as a result of the significant appreciation in the property's value since the completion of its original development and opening in April 2015.
EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings (losses) of unconsolidated joint ventures decreased approximately $8.9 million or 116%$102,000 in the 20172020 period compared to the 20162019 period. The followingIn the table setsbelow, information set forth for properties disposed includes the changesRioCan joint venture’s Bromont outlet center, which was sold in various components of equity in earnings (losses) of unconsolidated joint ventures (in thousands):May 2019.
|
| | | | | | | | | | | | |
| | | 2017 | | 2016 | | Change |
| Equity in earnings (losses) from existing properties | | $ | (2,293 | ) | | $ | 3,671 |
| | $ | (5,964 | ) |
| Equity in earnings from new development | | 1,092 |
| | 366 |
| | 726 |
|
| Equity in earnings from properties previously held in unconsolidated joint ventures | | — |
| | 3,643 |
| | (3,643 | ) |
| | | $ | (1,201 | ) | | $ | 7,680 |
| | $ | (8,881 | ) |
|
| | | | | | | | | | | | |
| | | 2020 | | 2019 | | Increase/(Decrease) |
| Equity in earnings from existing properties | | $ | 1,527 |
| | $ | 1,627 |
| | $ | (100 | ) |
| Equity in earnings from property disposed | | — |
| | 2 |
| | (2 | ) |
| | | $ | 1,527 |
| | $ | 1,629 |
| | $ | (102 | ) |
Equity in earnings (losses) from existing properties includes our share of impairment charges totaling $9.0 million in the 2017 period related to the Bromont and Saint-Sauveur outlet centers in Canada, and totaling $2.9 million in the 2016 period related to the Bromont outlet center. . The increase in equity in earnings of unconsolidated joint ventures from new development isdecreased primarily due to the incremental earnings from the Columbus outlet center, which opened in June 2016. Thea decrease in equityaverage occupancy between the 2020 and 2019 periods partially offset by a decrease in earnings (losses) from properties previously held in unconsolidated joint ventures in 2016 isinterest expense related to the WestgateGalveston/Houston and Savannah joint ventures. We acquired our venture partners'Columbus outlet centers which have variable rate financing related to them. The average variable interest rate related to the two mortgages decreased approximately 1.1% in each of these joint ventures in June 2016 and August 2016, respectively, and have consolidated the results of operations of these centers since the respective acquisition date.comparable periods.
LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY
In this "Liquidity“Liquidity and Capital Resources of the Company"Company” section, the term "the Company"“the Company” refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership.
The Company'sCompany’s business is operated primarily through the Operating Partnership. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. The Company'sCompany’s principal funding requirement is the payment of dividends on its common shares. The Company'sCompany’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership.
Through its ownership of the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership'sPartnership’s day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership'sPartnership’s partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership'sPartnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.
The Company isWe are a well-known seasoned issuer with a shelf registration that expires in June 2018March 2021 that allows the Company to register unspecified various classes of equity securities and the Operating Partnership to register unspecified, various classes of debt securities. As circumstances warrant, the Company may issue equity from time to time on an opportunistic basis, dependent upon market conditions and available pricing. The Operating Partnership may use the proceeds to repay debt, including borrowings under its lines of credit, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, to invest in existing or newly created joint ventures or for general corporate purposes.
The liquidity of the Company is dependent on the Operating Partnership'sPartnership’s ability to make sufficient distributions to the Company. The Operating Partnership is a party to loan agreements with various bank lenders that require the Operating Partnership to comply with various financial and other covenants before it may make distributions to the Company. The Company also guarantees some of the Operating Partnership'sPartnership’s debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company'sCompany’s guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company'sCompany’s only material asset is its investment in the Operating Partnership.
The Company believes the Operating Partnership'sPartnership’s sources of working capital, specifically its cash flow from operations and borrowings available under its unsecured lines of credit,cash on hand, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its minimum dividend payments to its shareholders.shareholders and to finance its continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, there can be no assurance that the Operating Partnership'sPartnership’s sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the Company. The unavailability of capital could adversely affect the Operating Partnership'sPartnership’s ability to pay its distributions to the Company which will, in turn, adversely affect the Company'sCompany’s ability to pay cash dividends to its shareholders. Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors.”
For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income (excluding capital gains). While historically the Company has satisfied this distribution requirement by making cash distributions to its shareholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the Company'sCompany’s own shares.
As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can. The Company may need to continue to raise capital in the equity markets to fund the Operating Partnership'sPartnership’s working capital needs, as well as potential new developments, expansions and renovations of existing properties, acquisitions, or investments in existing or newly created joint ventures.
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. The Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. However, all debt is held directly or indirectly at the Operating Partnership level, and the Company has guaranteed some of the Operating Partnership'sPartnership’s unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled "Liquidity“Liquidity and Capital Resources of the Operating Partnership"Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.
In May 2017, we announced that ourFebruary 2019, the Company’s Board of Directors authorized the repurchase of up to $125.0an additional $44.3 million of our outstanding common shares as market conditions warrant over a period commencing onfor an aggregate authorization of $169.3 million until May 19, 2017 and expiring on May 18, 2019.2021. 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. Between May 19, 2017We did not repurchase any shares for the periods ended March 31, 2020 and August 25, 2017 we repurchased approximately 1.9 million common shares on the open market at an average price of $25.80, totaling approximately $49.3 million exclusive of commissions and related fees.March 31, 2019. The remaining amount authorized to be repurchased under the program as of September 30, 2017March 31, 2020 was approximately $75.7$80.0 million. For more information, see “Item 2. Unregistered Sales of Equity Securities and Use of Proceeds” in Part II of this Quarterly Report on Form 10-Q.
In October 2017,January 2020, the Company's Board of Directors declared a $0.3425$0.355 cash dividend per common share payable on November 15, 2017February 14, 2020 to each shareholder of record on OctoberJanuary 31, 2017,2020, and the Trustees of Tanger GP Trust declared a $0.3425$0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
Additionally in January 2020, the Company's Board of Directors declared a quarterly dividend of $0.3575 cash dividend per common share payable on May 15, 2020 to holders of record on April 30, 2020, and the Trustees of Tanger GP Trust declared $0.3575 a cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
As discussed above, given the current uncertainty related to the COVID-19 near and potential long term impact, the Company will temporarily suspend dividend distributions and share repurchases in order to preserve our liquidity position. The Board will continue to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.
LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP
General Overview
In this "Liquidity“Liquidity and Capital Resources of the Operating Partnership"Partnership” section, the terms "we"“we”, "our"“our” and "us"“us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the text requires.
Property rental income represents our primary source to pay property operating expenses, debt service, distributions and capital expenditures needed to maintain our properties.and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover oursuch non-recurring capital needs, including new developments, expansions of existing outlet centers,expenditures and acquisitions, and investments in unconsolidated joint ventures, we finance such activities from borrowings under our unsecured lines of credit, to the extent available, or from the proceeds from the Operating Partnership'sPartnership’s debt offerings and the Company'sCompany’s equity offerings.
We believe we achieve a strong and flexible financial position by attempting to: (1) maintain a conservative leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our unsecured lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of underperforming assets and maintaining a conservative distribution payout ratio. We manage our capital structure to reflect a long term investment approach and utilize multiple sources of capital to meet our requirements.
Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in Part II, Item 1A titled “Risk Factors.” In late March, 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. As expected due to the deferment offer, April rent receipts represented approximately12% of the amount billed. Due to the potential impact of COVID-19, our revenues may be significantly lower in the quarter ended June 30, 2020 than the comparable period in 2019. The extent of tenant requests and actions and the impact to the Company’s results of operations and cash flows is uncertain and cannot be predicted at this time. While our preference is to work with its tenant partners to reach a financial resolution that positions both parties for long-term growth, it reserves all rights under its lease agreements and will pursue legal remedies to collect rent as appropriate. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables was not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent in could have a significant impact in future periods.
Cash Flows
The following table sets forth our changes in cash flows (in thousands):
| | | | | Nine months ended September 30, | | | | Three months ended March 31, | | |
| | | 2017 | | 2016 | | Change | | 2020 | | 2019 | | Change |
| Net cash provided by operating activities | | $ | 181,530 |
| | $ | 177,723 |
| | $ | 3,807 |
| | $ | 27,340 |
| | $ | 33,214 |
| | $ | (5,874 | ) |
| Net cash used in investing activities | | (89,052 | ) | | (39,490 | ) | | (49,562 | ) | |
| Net cash used in financing activities | | (95,954 | ) | | (134,464 | ) | | 38,510 |
| |
| Net cash provided by (used in) investing activities | | | (6,377 | ) | | 127,273 |
| | (133,650 | ) |
| Net cash provided by (used) in financing activities | | | 562,901 |
| | (167,898 | ) | | 730,799 |
|
| Effect of foreign currency rate changes on cash and equivalents | | (54 | ) | | 532 |
| | (586 | ) | | (24 | ) | | (10 | ) | | (14 | ) |
| Net increase (decrease) in cash and cash equivalents | | $ | (3,530 | ) | | $ | 4,301 |
| | $ | (7,831 | ) | | $ | 583,840 |
| | $ | (7,421 | ) | | $ | 591,261 |
|
Operating Activities
The increasedecrease in net cash provided by operating activities in the 2017 period compared to the 20162019 period was primarily due to incremental operating income as a resultthe sale of the acquisition of our venture partners' interest in our Westgate and Savannahfour outlet centers previously held in unconsolidated joint ventures,March 2019 in June 2016addition to lower average occupancy and August 2016, respectively, and the opening of our newest wholly owned outlet center in Daytona Beach, FL, which opened in November 2016.rent modifications for certain tenants.
Investing Activities
The primary cause for the decrease in net cash provided by investing activities was due to the net proceeds of approximately $128.2 million from the sale of the four outlet centers in the 2019 period.
Financing Activities
The primary cause for the increase in net cash used in investingprovided by financing activities was due to the change$599.8 million draw down under our unsecured lines of credit in restricted cash of $118.4 million.response to the COVID-19 pandemic. In addition, in the 2016 period,prior year we used restricted cash, which represented a portion of the proceeds received from certain assets sales in 2015,the sale of our Nags Head, Ocean City, Park City and Williamsburg outlet centers to pay a portiondown our unsecured lines of our $150.0 million floating rate mortgage loan, which had an original maturity date in August 2018, and our $28.4 million deferred financing obligation, both of which related to our Deer Park outlet center. Partially offsetting the increase in cash used in the 2017 period compared to the 2016 period was the cash used to acquire our venture partners' interest in our Westgate joint venture and Savannah joint venture in the 2016 period.credit.
Financing Activities
The primary cause for the decrease in net cash used in financing activities is due to the incremental borrowings required to fund the Company's development needs, net of asset sales proceeds, in the 2017 period compared to the 2016 period. A significant portion of the 2016 development needs was funded with the $118.4 million held in restricted cash during that period. In addition, cash used was higher in the 2016 period compared to the 2017 period due to a special dividend of approximately $21.0 million that was paid during 2016.
Capital Expenditures
The following table details our capital expenditures (in thousands):
| | | | | Nine months ended September 30, | | | | Three months ended March 31, | | |
| | | 2017 | | 2016 | | Change | | 2020 | | 2019 | | Change |
| Capital expenditures analysis: | | | | | | | | | | | | |
| New center developments | | $ | 87,376 |
| | $ | 74,441 |
| | $ | 12,935 |
| |
| Major center renovations | | 13,813 |
| | 13,908 |
| | (95 | ) | |
| New outlet center developments and expansions | | | $ | 843 |
| | $ | 939 |
| | $ | (96 | ) |
| Major outlet center renovations | | | 2,170 |
| | 197 |
| | 1,973 |
|
| Second generation tenant allowances | | 15,815 |
| | 6,963 |
| | 8,852 |
| | 908 |
| | 2,974 |
| | (2,066 | ) |
| Other capital expenditures | | 19,791 |
| | 8,576 |
| | 11,215 |
| | 2,976 |
| | 2,907 |
| | 69 |
|
| | | 136,795 |
| | 103,888 |
| | 32,907 |
| | 6,897 |
| | 7,017 |
| | (120 | ) |
| Conversion from accrual to cash basis | | (4,183 | ) | | 8,325 |
| | (12,508 | ) | | 3,654 |
| | 2,889 |
| | 765 |
|
| Additions to rental property-cash basis | | $ | 132,612 |
| | $ | 112,213 |
| | $ | 20,399 |
| | $ | 10,551 |
| | $ | 9,906 |
| | $ | 645 |
|
New center development expenditures, which include first generation tenant allowances, relate to construction expenditures for our Fort Worth, Daytona Beach, Lancaster and Tilton outlet centers in the 2017 period. The 2016 period included new center development expenditures for our Daytona Beach, Fort Worth, Southaven, and San Marcos outlet centers.
Major center renovations in both the 2017 and 2016 periods included construction activities at our Riverhead and our Rehoboth Beach outlet centers. The 2016 period also included renovations at our Howell outlet center while the 2017 period also included renovations at our Myrtle Beach 17 outlet center. We expect to spend approximately $7.7 million for the remainder of 2017 to complete our current renovation projects.
The increase in other capital expenditures in the 2017 period is primarily due to the installation of solar panels at several of our outlet centers and tenant interior build outs.
Current Developments
We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. In the section below, we describe the new developments that are either currently planned, underway or recently completed. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations ("FFO"). See the section "Non-GAAP Supplemental Earnings Measures" - "Funds From Operations" below for further discussion of FFO.
In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.
New Development of Consolidated Outlet Centers
The following table summarizes our projects under development as of September 30, 2017:
|
| | | | | | | | | | | | | | | | | |
| Project | | Approximate square feet (in 000's) | | Projected Total Net Cost per Square Foot
(in dollars) | | Projected Total Net Cost
(in millions) | | Costs Incurred to Date
(in millions) | | Projected Opening |
| New development: | | | | | | | | | | |
| Fort Worth | | 352 |
| | $ | 256 |
| | $ | 90.2 |
| | $ | 74.7 |
| | October 2017 |
Lancaster Expansion
In September 2017, we opened a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.
Fort Worth
In October 2017, we opened a 352,000 square foot wholly-owned outlet center center in the greater Fort Worth, Texas area. The outlet center is located within the 279-acre Champions Circle mixed-use development adjacent to Texas Motor Speedway.
Other Potential Future Developments, Acquisitions and Dispositions
As of the date of this filing, weWe are in the initial study period for potential new developments.developments, including a potential site in Nashville, Tennessee. We may also use joint venture arrangements to develop other potential sites. ThereGiven the uncertainties of the COVID-19 Pandemic, we have temporarily deferred the Nashville project and certain other planned capital expenditures. Accordingly, there can be no assurance however, that these potential future projects will ultimately be developed.
In the case of projects to be wholly-owned by us, we expect to fund these projects from amounts available under our unsecured lines of credit, but may also fund them with capital from additional public debt and equity offerings. For projects to be developed through joint venture arrangements, we may use collateralized construction loans to fund a portion of the project, with our share of the equity requirements funded from sources described above. See “Off-Balance Sheet Arrangements” for a discussion of unconsolidated joint venture development activities.
We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations (“FFO”). See the section “Non-GAAP Supplemental Earnings Measures - Funds From Operations” below for further discussion of FFO. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.
Financing Arrangements
As of September 30, 2017,December 31, 2019, there was no balance outstanding under our unsecured lines of credit. During the second half of March 2020 in response to the COVID-19 pandemic, we drew down approximately $599.8 million under our unsecured lines of credit, which has a maximum borrowing capacity of $600.0 million, and plan to hold as cash to increase liquidity, preserve financial flexibility and assist the Company and Operating Partnership in meeting their obligations for a sustained period of time until there is more clarity regarding the impact of the COVID-19 pandemic. Based on the Operating Partnership's current debt ratings, the interest rate for borrowings under our unsecured lines of credit is LIBOR plus 1.00%.
As of March 31, 2020, unsecured borrowings represented 91%96% of our outstanding debt and 89%92% of the gross book value of our real estate portfolio was unencumbered. We maintain unsecured lines of credit that provide for borrowings of up to $520.0 million. The unsecured lines of credit include a $20.0 million liquidity line and a $500.0 million syndicated line. Our unsecured lines of credit bear interest at a rate of LIBOR + 0.90% and the syndicated line may be increased up to $1.0 billion through an accordion feature in certain circumstances. The unsecured lines of credit have an expiration date of October 24, 2019 with an option for a one year extension. The Company guarantees the Operating Partnership'sPartnership’s obligations under these lines. As of September 30, 2017, we had $366.3 million available under our unsecured lines of credit after taking into account outstanding letters of credit of $5.5 million.
In July 2017, we completed an underwritten public offering of $300.0 million of our 3.875% senior notes due 2027 (the "2027 Notes"). The 2027 Notes priced at 99.579% of the principal amount to yield 3.926% to maturity. The 2027 Notes pay interest semi-annually at a rate of 3.875% per annum and mature on July 15, 2027. The estimated net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $295.9 million. In August 2017, we used the net proceeds from the sale of the 2027 Notes, together with borrowings under our unsecured lines of credit, to redeem all of our 6.125% senior notes due 2020 (the "2020 Notes") (approximately $300.0 million in aggregate principal amount outstanding). The 2020 Notes were redeemed at par plus a “make-whole” premium of approximately $34.1 million.
Subsequent to quarter end, we successfully settled litigation with the estate of our former partner in the Foxwoods, Connecticut joint venture. In return for mutual releases and no cash consideration, the estate tendered its partnership interest to the Company. Prior to this settlement, we had a 100% economic interest in the consolidated joint venture as a result of our preferred equity interest and the capital and distribution provisions in the joint venture agreement. On November 3, 2017, Tanger repaid the $70.3 million floating rate mortgage loan secured by the property with borrowings under its unsecured floating rate lines of credit.
We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in the best interests of our shareholders and unitholders. The Company is a well-known seasoned issuer with a joint shelf registration on Form S-3 with the Operating Partnership, expiring in June 2018,March 2021, that allows us to register unspecified amounts of different classes of securities on Form S-3.securities. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, existing lines of credit, ongoing relationships with certain financial institutions and our ability to sell debt or issue equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures throughfor at least the end of 2018.next twelve months.
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are typically made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing unsecured lines of credit or invested in short-term money market or other suitable instruments.
While we did not incur significant disruptions during the three months ended March 31, 2020 from the COVID-19 pandemic, we are unable to predict at the present time the ultimate impact that the COVID-19 pandemic will have on our financial condition, results of operations and cash flows for the second quarter of 2020 and thereafter due to numerous uncertainties. At the end of April 2020, we had $594.0 million of cash on our balance sheet. Based on pre-COVID-19 estimated monthly cash expenditures of approximately $25 million per month, we expect to have sufficient liquidity to meet our obligations, even under our most conservative rent collection scenario of not receiving any rent, for approximately two years (this scenario excludes common share dividends and debt maturities during that period and assumes we remain in compliance with all debt covenants). For further discussion of COVID-19, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.
We believe our current balance sheet position is financially sound; however, due to the economic uncertainty caused by the COVID-19 pandemic and the inherent uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our unsecured lines of credit. The unsecured lines of credit expire in October 2021, with a one-year extension option whereby we may extend the maturity whichto 2022.
The interest rate spreads associated with our unsecured lines of credit and our unsecured term loan are based on the higher of our two investment grade credit ratings. Changes to our credit ratings could cause our interest rate spread to adjust accordingly. In February 2020, due to a change in our credit rating, our interest rate spread over LIBOR on our $600.0 million unsecured line of credit facilities, occurs in 2020 assuming the extension option is exercised.facility increased from 0.875% to 1.0% and our annual facility fee increased from 0.15% to 0.20%. In addition, our interest rate spread over LIBOR on our $350.0 million unsecured term loan increased from 0.90% to 1.0%.
The Operating Partnership'sPartnership’s debt agreements 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% on a cumulative basis.
We have historically been and currently are in compliance with all of our debt covenants. We expect to remain inThe financial impact of the COVID-19 pandemic could negatively impact our future compliance with allfinancial covenants of our existingcredit facilities, term loan and other debt covenants; however, should circumstances arise thatagreements and result in a default and potentially an acceleration of indebtedness. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic. Failure to comply with these covenants would cause usresult in a default which, if we were unable to becure or obtain a waiver from the lenders, could accelerate the repayment obligations. Further, in the event of default, the various lenders wouldCompany may be restricted from paying dividends to its shareholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on us. As a result, 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 acceleratesell debt or issue equity subject to market conditions and proceeds from the maturity onpotential sale of non-core assets. We believe that we have access to the necessary financing to fund our outstanding debt.short-term liquidity needs.
WeAs of March 31, 2020, we believe our most restrictive covenants are contained in our senior, unsecured notes. Key financial covenants and their covenant levels, which are calculated based on contractual terms, include the following:
|
| | | |
| Senior unsecured notes financial covenants | Required | Actual |
|
| Total consolidated debt to adjusted total assets | <60% | 5255 | % |
| Total secured debt to adjusted total assets | <40% | 52 | % |
| Total unencumbered assets to unsecured debt | >150% | 184175 | % |
Depending on the future economic impact of COVID-19, other convents related to credit facilities, term loans, and other debt obligations could become one of our most restrictive covenants.
OFF-BALANCE SHEET ARRANGEMENTS
TheCONTRACTUAL OBLIGATIONS
There were no material changes in our commitments during the three months ended March 31, 2020 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, other than the following table details certain informationupdates to our contractual obligations for debt and interest payments over the next five years and thereafter as of September 30, 2017 about various unconsolidated real estate joint ventures in which we have an ownership interest:March 31, 2020 (in thousands):
|
| | | | | | | | | | | | |
| Joint Venture | | Outlet Center Location | | Ownership % | | Square Feet (in 000's) | | Carrying Value of Investment (in millions) |
| Columbus | | Columbus, OH | | 50.0 | % | | 355 |
| | $ | 6.8 |
|
| National Harbor | | National Harbor, MD | | 50.0 | % | | 341 |
| | 2.4 |
|
| RioCan Canada | | Various | | 50.0 | % | | 924 |
| | 116.6 |
|
| Investments included in total assets | | | | | | $ | 125.8 |
|
| | | | | | | | | |
Charlotte(1) | | Charlotte, NC | | 50.0 | % | | 398 |
| | $ | (3.6 | ) |
Galveston/Houston(1) | | Texas City, TX | | 50.0 | % | | 353 |
| | (12.5 | ) |
| Investments included in other liabilities | | | | | | $ | (16.1 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Contractual Obligations | | Remainder of 2020 | | 2021 | | 2022 | | 2023 | | 2024 | | Thereafter | | Total |
Debt (1) | | $ | 2,694 |
| | $ | 657,023 |
| | $ | 4,436 |
| | $ | 254,768 |
| | $ | 605,140 |
| | $ | 657,206 |
| | $ | 2,181,267 |
|
Interest payments (2) | | $ | 50,588 |
| | $ | 63,205 |
| | $ | 52,022 |
| | $ | 50,883 |
| | $ | 34,838 |
| | $ | 48,516 |
| | $ | 300,052 |
|
| |
| (1) | The negative carrying value is dueThese amounts represent total future cash payments related to debt obligations outstanding as of March 31, 2020. |
| |
| (2) | These amounts represent future interest payments related to our debt obligations based on the distributionsfixed and variable interest rates specified in the associated debt agreements, including the effects of proceeds from mortgage loans and quarterly distributionsour interest rate swaps. All of excess cash flow exceedingour variable rate debt agreements are based on the original contributions fromone month LIBOR rate, thus for purposes of calculating future interest amounts on variable interest rate debt, the partners.one month LIBOR rate as of March 31, 2020 was used. |
OFF-BALANCE SHEET ARRANGEMENTS
We have partial ownership interests in seven unconsolidated outlet centers totaling approximately 2.2 million square feet, including three outlet centers in Canada. See Note 5 to the consolidated financial statements for details of our individual joint ventures, including, but not limited to, carrying values of our investments, fees we receive for services provided to the joint ventures, recent development and financing transactions and condensed combined summary financial information.
We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not typically required contractually or otherwise. 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. We believe our joint ventures will be able to fund their operating and capital needs for the next twelve months based on their sources of working capital, specifically cash flow from operations, access to contributions from partners, and ability to refinance debt obligations, including the ability to exercise upcoming extensions of near term maturities.
Our joint ventures are generally subject to buy-sell provisions which are customary fortypically encumbered by a mortgage on the joint venture agreements in the real estate industry. Either partner may initiate these provisions (subject to any applicable lock up period), which could result in either the sale of our interest or the use of available cash or additional borrowings to acquire the other party's interest. Under these provisions, one partner sets a price for the property, then the other partner has the option to either (1) purchase their partner's interest based on that price or (2) sell its interest to the other partner based on that price. Since the partner other than the partner who triggers the provision has the option to be the buyer or seller, we don't consider this arrangement to be a mandatory redeemable obligation.
property. 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. A default by a joint venture under its debt obligations may expose us to liability under the guaranty. For construction and termmortgage 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 based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. Our joint ventures may contain make whole provisions in the event that demands are made on any existing guarantees.
Debt of unconsolidated joint ventures
The following table details information regarding the outstanding debt of the unconsolidated joint ventures and principal guarantees of such debt provided by us as of September 30, 2017March 31, 2020 (dollars in millions):
|
| | | | | | | | | | | | | | | |
| Joint Venture | | Total Joint
Venture Debt | | Maturity Date | | Interest Rate | | Percent Guaranteed by the Operating Partnership | | Maximum Guaranteed Amount by the Company |
| Charlotte | | $ | 90.0 |
| | November 2018 | | LIBOR + 1.45% | | 5.0 | % | | $ | 4.5 |
|
| Columbus | | 85.0 |
| | November 2019 | | LIBOR + 1.65% | | 7.5 | % | | 6.4 |
|
Galveston/Houston(1) | | 80.0 |
| | July 2020 | | LIBOR + 1.65% | | 12.5 | % | | 10.0 |
|
National Harbor(2) | | 87.0 |
| | November 2019 | | LIBOR + 1.65% | | 10.0 | % | | 8.7 |
|
RioCan Canada(3) | | 11.4 |
| | May 2020 | | 5.75% | | 28.1 | % | | 3.2 |
|
| Debt origination costs | | (2.0 | ) | | | | | | | | |
| | | $ | 351.4 |
| | | | | | | | $ | 32.8 |
|
| |
(1) | In July, the joint venture amended and restated the initial construction loan 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 an interest rate of LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed approximately $14.5 million equally between the partners. |
| |
(2) | 100% completion guaranty; 10% principal guaranty. |
| |
(3) | The joint venture debt amount includes premium of approximately $405,000. |
Fees from unconsolidated joint ventures
Fees we received for various services provided to our unconsolidated joint ventures were recognized in other income as follows (in thousands):
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Fee: | | | | | | |
| | |
|
| Management and marketing | | $ | 564 |
| | $ | 656 |
| | 1,676 |
| | 2,199 |
|
| Development and leasing | | 20 |
| | 65 |
| | $ | 87 |
| | $ | 611 |
|
| Loan Guarantee | | 4 |
| | 85 |
| | 13 |
| | 449 |
|
| Total Fees | | $ | 588 |
| | $ | 806 |
| | $ | 1,776 |
| | $ | 3,259 |
|
|
| | | | | | | | | | | | | | | | |
| Joint Venture | | Total Joint
Venture Debt | | Maturity Date | | Interest Rate | | Percent Guaranteed by the Operating Partnership | | Maximum Guaranteed Amount by the Company |
| Charlotte | | $ | 100.0 |
| | July 2028 | | 4.27% |
| | — | % | | $ | — |
|
| Columbus | | 85.0 |
| | November 2020 | | LIBOR + 1.65% |
| | 7.5 | % | | 6.4 |
|
| Galveston/Houston | | 80.0 |
| | July 2020 | | LIBOR + 1.65% |
| | 12.5 | % | | 10.0 |
|
| National Harbor | | 95.0 |
| | January 2030 | | 4.63 | % | | — | % | | — |
|
| RioCan Canada | | 8.3 |
| | May 2020 | | 5.75 | % | | 33.7 | % | | 2.8 |
|
| Debt premium and debt origination costs | | (1.1 | ) | | | | | | | | |
| | | $ | 367.2 |
| | | | | | | | $ | 19.2 |
|
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Refer to our 20162019 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies which include principles of consolidation, acquisition of real estate, cost capitalization, impairment of long-lived assets and revenue recognition. ThereOther than noted below, there have been no material changes to these policies in 2017.2020.
If the effects of the COVID-19 pandemic cause economic and market conditions to continue to deteriorate or if our expected holding period for assets change, subsequent tests for impairment could result in additional impairment charges in the future. We can provide no assurance that material impairment charges with respect to our investment properties will not occur during the remaining quarters in 2020 or future periods.
When assessing the collectability of future lease payments, one of the key factors we have considered during 2020 has been COVID-19. We generally assess collectability based on an analysis of creditworthiness, economic trends, and other facts and circumstances related to the applicable tenants. If the collection of substantially all of the future lease payments is less than probable, we will write-off the receivable balances associated with the lease and cease to recognize lease income, including straight-line rent, unless cash is received. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables were not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent could have a significant impact in future periods.
In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows us, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. We have elected to apply such relief and will avail itself of the election to avoid performing a lease by lease analysis. The Lease Modification Q&A did not have a material impact on our consolidated financial statements as of and for the three months ended March 31, 2020, however, its future impact to us is dependent upon the extent of lease concessions granted to tenants as a result of the COVID-19 pandemic in future periods and the elections made by us at the time of entering into such concessions.
NON-GAAP SUPPLEMENTAL MEASURES
Beginning with the three months ended March 31, 2020, we have elected to supplement our disclosure with three additional non-GAAP measures, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre (each as defined below), that are commonly provided in the REIT industry. See “Adjusted EBITDA, EBITDAre and Adjusted EBITDAre” below for more information. We also now refer to Adjusted Funds from Operations (“AFFO”) as Core Funds From Operations (“Core FFO”), but there has been no change to the definition of this measure.
Funds From Operations
Funds From Operations ("FFO"(“FFO”) is a widely used measure of the operating performance for real estate companies that supplements net income (loss) determined in accordance with GAAP.generally accepted accounting principles in the United States (“GAAP”). We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts ("NAREIT"(“NAREIT”), of which we are a member. In December 2018, NAREIT issued “NAREIT Funds From Operations White Paper - 2018 Restatement” which clarifies, where necessary, existing guidance and consolidates alerts and policy bulletins into a single document for ease of use. NAREIT defines FFO representsas net income income/(loss) (computedavailable to the Company’s common shareholders computed in accordance with GAAP) before extraordinary items and gains (losses) on sale or disposal of depreciable operating properties, plusGAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment losses onwrite-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate of consolidated real estateheld by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures including depreciation and amortization, and impairment lossescalculated to reflect FFO on investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures.same basis.
FFO is intended to exclude historical cost depreciation of real estate as required by GAAP which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization of real estate assets, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income.
We present FFO because we consider it an important supplemental measure of our operating performance. In addition, a portion of cash bonus compensation to certain members of management is based on our FFO or Adjusted Funds From Operations ("AFFO"),Core FFO, which is described in the section below. We believe it is useful for investors to have enhanced transparency into how we evaluate our performance and that of our management. In addition, FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. We believe that FFO payout ratio, which represents regular distributions to common shareholders and unit holders of the Operating Partnership expressed as a percentage of FFO, is useful to investors because it facilitates the comparison of dividend coverage between REITs. NAREIT has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance.
FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
FFO does not reflect changes in, or cash requirements for, our working capital needs;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements;
FFO, which includes discontinued operations, may not be indicative of our ongoing operations; and
Other companies in our industry may calculate FFO differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, FFO should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or our dividend paying capacity. We compensate for these limitations by relying primarily on our GAAP results and using FFO only as a supplemental measure.
AdjustedCore Funds From Operations
WeIf applicable, we present AFFOCore FFO (formerly referred to as AFFO) as a supplemental measure of our performance. We define AFFOCore FFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized in the table below.below, if applicable. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating AFFOCore FFO you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of AFFOCore FFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
We present AFFOCore FFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we believe it is useful for investors to have enhanced transparency into how we evaluate management’s performance and the effectiveness of our business strategies. We use AFFOCore FFO when certain material, unplanned transactions occur as a factor in evaluating management'smanagement’s performance and to evaluate the effectiveness of our business strategies, and may use AFFOCore FFO when determining incentive compensation.
AFFOCore FFO has limitations as an analytical tool. Some of these limitations are:
AFFOCore FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
AFFOCore FFO does not reflect changes in, or cash requirements for, our working capital needs;
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and AFFOCore FFO does not reflect any cash requirements for such replacements;
AFFOCore FFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
Other companies in our industry may calculate AFFOCore FFO differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, AFFOCore FFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using AFFOCore FFO only as a supplemental measure.
Below is a reconciliation of net income to FFO available to common shareholders and AFFO available to common shareholders (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | | |
| | | Three months ended | | Nine months ended |
| | | September 30, | | September 30, |
| | | 2017 | | 2016 | | 2017 | | 2016 |
| Net income (loss) | | $ | (16,034 | ) | | $ | 72,774 |
| | $ | 38,427 |
| | $ | 178,693 |
|
| Adjusted for: | | | | | | | | |
| Depreciation and amortization of real estate assets - consolidated | | 30,396 |
| | 28,850 |
| | 93,634 |
| | 80,992 |
|
| Depreciation and amortization of real estate assets - unconsolidated joint ventures | | 3,583 |
| | 4,325 |
| | 10,971 |
| | 15,472 |
|
| Impairment charges - unconsolidated joint ventures | | 9,021 |
| | 2,919 |
| | 9,021 |
| | 2,919 |
|
| Gain on sale of assets | | — |
| | — |
| | (6,943 | ) | | (4,887 | ) |
| Gain on previously held interests in acquired joint ventures | | — |
| | (46,258 | ) | | — |
| | (95,516 | ) |
| FFO | | 26,966 |
| | 62,610 |
| | 145,110 |
| | 177,673 |
|
| FFO attributable to noncontrolling interests in other consolidated partnerships | | — |
| | (3 | ) | | — |
| | (62 | ) |
| Allocation of earnings to participating securities | | (306 | ) | | (539 | ) | | (1,346 | ) | | (1,675 | ) |
FFO available to common shareholders (1) | | $ | 26,660 |
| | $ | 62,068 |
| | $ | 143,764 |
| | $ | 175,936 |
|
| As further adjusted for: | | | | | | | | |
Compensation related to director and executive officer terminations(2) | | — |
| | 887 |
| | — |
| | 1,180 |
|
| Acquisition costs | | — |
| | 487 |
| | — |
| | 487 |
|
| Demolition costs | | — |
| | 259 |
| | — |
| | 441 |
|
| Gain on sale of outparcel | | — |
| | (1,418 | ) | | — |
| | (1,418 | ) |
| Abandoned pre-development costs | | (99 | ) | | — |
| | 528 |
| | — |
|
Make-whole premium due to early extinguishment of debt (3) | | 34,143 |
| | — |
| | 34,143 |
| | — |
|
Write-off of debt discount and debt origination costs due to early extinguishment of debt (3) | | 1,483 |
| | — |
| | 1,483 |
| | 882 |
|
| Impact of above adjustments to the allocation of earnings to participating securities | | (249 | ) | | (2 | ) | | (254 | ) | | (15 | ) |
AFFO available to common shareholders (1) | | $ | 61,938 |
| | $ | 62,281 |
| | $ | 179,664 |
| | $ | 177,493 |
|
FFO available to common shareholders per share - diluted (1) | | $ | 0.27 |
| | $ | 0.62 |
| | $ | 1.44 |
| | $ | 1.75 |
|
AFFO available to common shareholders per share - diluted (1) | | $ | 0.63 |
| | $ | 0.62 |
| | $ | 1.80 |
| | $ | 1.76 |
|
| | | | | | | | | |
| Weighted Average Shares: | | | | | | | | |
| Basic weighted average common shares | | 93,923 |
| | 95,156 |
| | 94,781 |
| | 95,075 |
|
| Effect of notional units | | — |
| | 426 |
| | — |
| | 393 |
|
| Effect of outstanding options and restricted common shares | | — |
| | 90 |
| | 23 |
| | 68 |
|
| Diluted weighted average common shares (for earnings per share computations) | | 93,923 |
| | 95,672 |
| | 94,804 |
| | 95,536 |
|
| Exchangeable operating partnership units | | 5,028 |
| | 5,053 |
| | 5,028 |
| | 5,053 |
|
Diluted weighted average common shares (for FFO and AFFO per share computations) (1) | | 98,951 |
| | 100,725 |
| | 99,832 |
| | 100,589 |
|
|
| | | | | | | | |
| | | Three months ended |
| | | March 31, |
| | | 2020 | | 2019 |
| Net income (loss) | | $ | (28,119 | ) | | $ | 65,841 |
|
| Adjusted for: | | | | |
| Depreciation and amortization of real estate assets - consolidated | | 28,801 |
| | 31,148 |
|
| Depreciation and amortization of real estate assets - unconsolidated joint ventures | | 3,018 |
| | 3,130 |
|
| Impairment charge - consolidated | | 45,675 |
| | — |
|
| Gain on sale of assets | | — |
| | (43,422 | ) |
| FFO | | 49,375 |
| | 56,697 |
|
| FFO attributable to noncontrolling interests in other consolidated partnerships | | (190 | ) | | (195 | ) |
| Allocation of earnings to participating securities | | (516 | ) | | (611 | ) |
FFO available to common shareholders (1) | | $ | 48,669 |
| | $ | 55,891 |
|
FFO available to common shareholders per share - diluted (1) | | $ | 0.50 |
| | $ | 0.57 |
|
| | | | | |
| Weighted Average Shares: | | | | |
| Basic weighted average common shares | | 92,500 |
| | 93,303 |
|
| Diluted weighted average common shares (for earnings per share computations) | | 92,500 |
| | 93,303 |
|
| Exchangeable operating partnership units | | 4,911 |
| | 4,961 |
|
Diluted weighted average common shares (for FFO per share computations) (1) | | 97,411 |
| | 98,264 |
|
| |
| (1) | Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company. Each Class A common limited partnership unit is exchangeable for one of the Company'sCompany’s common shares, subject to certain limitations to preserve the Company'sCompany’s REIT status. |
| |
(2) | Represents cash severance and accelerated vesting of restricted shares associated with the departure of an officer in August 2016 and the accelerated vesting of restricted shares due to the death of a director in February 2016. |
| |
(3) | Due to charges related to the redemption of our $300.0 million 6.125% senior notes due 2020 and the January 28, 2016 early repayment of the $150.0 million mortgage secured by the Deer Park property, which was scheduled to mature August 30, 2018. |
Portfolio Net Operating Income and Same Center NOI
We present portfolio net operating income ("(“Portfolio NOI"NOI”) and same center net operating income ("(“Same Center NOI"NOI”) as supplemental measures of our operating performance. Portfolio NOI represents our property level net operating income which is defined as total operating revenues less property operating expenses and excludes termination fees and non-cash adjustments including straight-line rent, net above and below market rent amortization, impairment charges and gains or losses on the sale of outparcelsassets recognized during the periods presented. We define Same Center NOI as Portfolio NOI for the properties that were operational for the entire portion of both comparable reporting periods and which were not acquired, or subject to a material expansion or non-recurring event, such as a natural disaster, during the comparable reporting periods.
We believe Portfolio NOI and Same Center NOI are non-GAAP metrics used by industry analysts, investors and management to measure the operating performance of our properties because they provide performance measures directly related to the revenues and expenses involved in owning and operating real estate assets and provide a perspective not immediately apparent from net income, FFO or AFFO.Core FFO. Because Same Center NOI excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Portfolio NOI and Same Center NOI, and accordingly, our Portfolio NOI and Same Center NOI may not be comparable to other REITs.
Portfolio NOI and Same Center NOI should not be considered alternatives to net income (loss) or as an indicator of our financial performance since they do not reflect the entire operations of our portfolio, nor do they reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. Because of these limitations, Portfolio NOI and Same Center NOI should not be viewed in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Portfolio NOI and Same Center NOI only as supplemental measures.
Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
| | | | | Three months ended | | Nine months ended | | Three months ended |
| | | September 30, | | September 30, | | March 31, |
| | | 2017 | | 2016 | | 2017 | | 2016 | | 2020 | | 2019 |
| Net income (loss) | | $ | (16,034 | ) | | $ | 72,774 |
| | $ | 38,427 |
| | $ | 178,693 |
| | $ | (28,119 | ) | | $ | 65,841 |
|
| Adjusted to exclude: | | | | | | | | | | | | |
| Equity in (earnings) losses of unconsolidated joint ventures | | 5,893 |
| | (715 | ) | | 1,201 |
| | (7,680 | ) | |
| Equity in earnings of unconsolidated joint ventures | | | (1,527 | ) | | (1,629 | ) |
| Interest expense | | 16,489 |
| | 15,516 |
| | 49,496 |
| | 44,200 |
| | 15,196 |
| | 16,307 |
|
| Gain on sale of assets | | — |
| | (1,418 | ) | | (6,943 | ) | | (6,305 | ) | | — |
| | (43,422 | ) |
| Gain on previously held interests in acquired joint ventures | | — |
| | (46,258 | ) | | — |
| | (95,516 | ) | |
| Loss on early extinguishment of debt | | 35,626 |
| | — |
| | 35,626 |
| | — |
| |
| Other non-operating (income) expense | | (591 | ) | | (24 | ) | | (683 | ) | | (378 | ) | |
| Other non-operating income | | | (220 | ) | | (224 | ) |
| Impairment charge | | | 45,675 |
| | — |
|
| Depreciation and amortization | | 30,976 |
| | 29,205 |
| | 95,175 |
| | 82,078 |
| | 29,417 |
| | 31,760 |
|
| Other non-property (income) expenses | | 372 |
| | (47 | ) | | 993 |
| | (437 | ) | |
| Abandoned pre-development costs | | (99 | ) | | — |
| | 528 |
| | — |
| |
| Acquisition costs | | — |
| | 487 |
| | — |
| | 487 |
| |
| Demolition Costs | | — |
| | 259 |
| | — |
| | 441 |
| |
| Other non-property expense | | | 139 |
| | 150 |
|
| Corporate general and administrative expenses | | 11,020 |
| | 12,076 |
| | 33,499 |
| | 34,989 |
| | 12,579 |
| | 12,132 |
|
Non-cash adjustments(1) | | (1,020 | ) | | (967 | ) | | (2,580 | ) | | (2,938 | ) | | (1,502 | ) | | (1,472 | ) |
| Termination rents | | (162 | ) | | (1,450 | ) | | (2,796 | ) | | (3,491 | ) | |
| Lease termination fees | | | (164 | ) | | (1,130 | ) |
| Portfolio NOI | | 82,470 |
| | 79,438 |
| | 241,943 |
| | 224,143 |
| | 71,474 |
| | 78,313 |
|
Non-same center NOI(2) | | (9,813 | ) | | (7,320 | ) | | (29,643 | ) | | (13,514 | ) | | — |
| | (4,081 | ) |
| Same Center NOI | | $ | 72,657 |
| | $ | 72,118 |
| | $ | 212,300 |
| | $ | 210,629 |
| | $ | 71,474 |
| | $ | 74,232 |
|
ECONOMIC CONDITIONS AND OUTLOOK
The majority of our leases contain provisions designed to mitigate the impact of inflation. Such provisions include clauses for the escalation of base rent and clauses enabling us to receive percentage rentals based on tenants'tenants’ gross sales (above predetermined levels) which generally increase as prices rise. A component of most leases includes a pro-rata share or escalating fixed contributions by the tenant for property operating expenses, including common area maintenance, real estate taxes, insurance and advertising and promotion, thereby reducing exposure to increases in costs and operating expenses resulting from inflation.
The current challenging retail environment could impact our business in the short-term as our operations are subject to the results of operations of our retail tenants. A portion of our rental revenues are derived from percentage rents that directly depend on the sales volume of certain tenants. Accordingly, declines in these tenants' results of operationstenants’ sales would reduce the income produced by our properties. If the sales or profitability of our retail tenants decline sufficiently, whether due to a change in consumer preferences, health concerns, legislative changes that increase the cost of their operations or otherwise, such tenants maybemay be unable to pay their existing rents as such rents would represent a higher percentage of their sales. WhileAs a result of the COVID-19 pandemic, we believe outlet stores will continue to be a profitable and fundamental distribution channel for many brand name manufacturers, some retail formats are more successful than others. As typicalhave seen reductions in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its natural expiration orrental revenues as a result of filing for protection under bankruptcy laws, or may request modifications to their existing lease terms.
Due to the relatively short-term nature of our tenants' leases, a significant portion of the leases in our portfolio come up for renewal each year. As of January 1, 2017, excluding the Westbrook outlet center, which was solddeclines in the second quartersales volumes of 2017, we had approximately 1.5 million square feet, or 12% of our consolidated portfolio at that time, coming up for renewal during 2017. As of September 30, 2017, we had renewed approximately 78% of this space. In addition, for the rolling twelve months ended September 30, 2017, we completed renewals and re-tenanted space totaling 1.5 million square feet at a blended 11.8% increase in average base rental rates compared to the expiring rates. While we continue to attract and retain additional tenants, there can be no assurance that we can achieve similar base rental rates. In addition, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms, the loss in rent could have a material adverse effect on our results of operations.
certain tenants.
Our outlet centers typically include well-known, national, brand name companies. By maintaining a broad base of well-known tenants and a geographically diverse portfolio of properties located across the United States, we believe we reduce our operating and leasing risks. No one tenant (including affiliates) accounts for more than 8% of our square feet or 7%6% of our combinedrental revenues.
Due to the relatively short-term nature of our tenants’ leases, a significant portion of the leases in our portfolio come up for renewal each year. As of January 1, 2020, we had approximately 1.7 million square feet, or 14% of our consolidated portfolio at that time coming up for renewal during 2020. As of March 31, 2020, we had renewed approximately 52% of this space. In addition, for the rolling twelve months ended March 31, 2020, we completed renewals and re-tenanted space totaling 1.3 million square feet at a blended 1.5% decrease in average base rental rates compared to the expiring rates.
We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and percentage rental revenues. Accordingly, although we can give no assurance, we do not expect any material adversegeographies, including how it will impact our tenants and business partners. For a complete discussion of the impact the pandemic is having on our resultscurrent operations, the steps we have taken to increase liquidity and preserve financial flexibility to meet our obligations for a sustained period of time until there is more clarity about the impact of the pandemic and the uncertainties around our future operations and financial condition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.
The current challenging retail environment has impacted our business as our operations are subject to the operating results and operating decisions of our retail tenants. As is typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its contractual expiration or as a result of leasesfiling for protection under bankruptcy laws, or may request modifications to their existing lease terms. We have recaptured approximately 332,000 square feet within our consolidated portfolio during the three months ended March 31, 2020 related to bankruptcies and brand-wide restructurings by retailers, compared to 82,000 square feet for the three months ended March 31, 2019. We expect other store closings or rent modifications to impact our operating results in 2020. In addition, J. Crew Group, which has 26 stores comprising approximately 140,000 of square feet in our consolidated portfolio, has recently filed for bankruptcy and, at the time of this filing, the impact this may have on our revenues is unknown. Due to these store closures, as well as additional potential closures, tenant bankruptcies and rent adjustments that may result from the impact of the COVID-19 pandemic, we currently expect our Same Center NOI for 2020 compared to 2019 to be renewed oradversely impacted.
We believe outlet stores will continue to be re-leased.a profitable and fundamental distribution channel for many brand name manufacturers. While we continue to attract and retain additional tenants, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms or in a timely manner, the loss in rent and our Same Center NOI could be further negatively impacted in 2020 and 2021. Occupancy at our consolidated centers was 97%94.3% and 95.4% as of September 30, 2017March 31, 2020 and 2016.2019, respectively. As a result of COVID-19, occupancy could be negatively impacted in 2020 and 2021.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market Risk
We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes.
Interest Rate Risk
We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We currently have interest rate swap agreements to fix the interest rates on outstanding debt with notional amounts totaling $540.0 million. See Note 8 to the consolidated financial statements for additional details related to our outstanding derivatives.
As of March 31, 2020, 28% of our outstanding consolidated debt, excluding the amount of variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore was subject to market fluctuations. A change in the LIBOR index of 100 basis points would result in an increase or decrease of approximately $6.1 million in interest expense on an annual basis. The information presented herein is merely an estimate and has limited predictive value. As a result, the ultimate effect upon our operating results of interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates.
The estimated fair value 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):
|
| | | | | | | | |
| | | March 31, 2020 | | December 31, 2019 |
| Fair value of debt | | $ | 2,181,170 |
| | $ | 1,603,814 |
|
| Recorded value of debt | | $ | 2,167,554 |
| | $ | 1,569,773 |
|
A 100 basis point increase from prevailing interest rates at March 31, 2020 and December 31, 2019 would result in a decrease in fair value of total consolidated debt of approximately $58.6 million and $62.9 million, respectively. Refer to Note 9 to the consolidated financial statements for a description of our methodology in calculating the estimated fair value of debt. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on the disposition of the financial instruments. In addition, the COVID-19 pandemic may impact markets, rates, behavior and other estimates used in the above scenarios.
Foreign Currency Risk
We are also exposed to foreign currency risk on investments in outlet centers that are located in Canada. Our currency exposure is concentrated in the Canadian Dollar. To mitigate some of the risk related to changes in foreign currency, cash flows received from our Canadian joint ventures are either reinvested to fund ongoing Canadian development activities, if applicable, or converted to US dollars and utilized to repay amounts outstanding under our unsecured lines of credit. We generally do not hedge currency translation exposures.
In April 2016, we entered into four separate interest rate swap agreements, effective April 13, 2016 that fix the base LIBOR rate at an average of 1.03% on notional amounts totaling $175.0 million through January 1, 2021. In addition, in October 2013, we entered into interest rate swap agreements with notional amounts totaling $150.0 million to reduce our floating rate debt exposure. The interest rate swap agreements fix the base LIBOR rate at an average of 1.30% and mature in August 2018. The fair value of the interest rate swap agreements represents the estimated receipts or payments that would be made to terminate the agreement. As of September 30, 2017, the fair value of these contracts is an asset of $4.2 million. The fair value is based on dealer quotes, considering current interest rates, remaining term to maturity and our credit standing.
As of September 30, 2017, 16% of our outstanding debt, excluding variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore were subject to market fluctuations. An increase in the LIBOR index of 100 basis points would result in an increase of approximately $2.8 million in interest expense on an annual basis. The information presented herein is merely an estimate and has limited predictive value. As a result, the ultimate effect upon our operating results of interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates.
The estimated fair value 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, 2017 |
| | December 31, 2016 |
|
| Fair value of debt | | $ | 1,801,655 |
| | $ | 1,704,644 |
|
| Recorded value of debt | | $ | 1,773,981 |
| | $ | 1,687,866 |
|
A 100 basis point increase from prevailing interest rates at September 30, 2017 and December 31, 2016 would result in a decrease in fair value of total debt of approximately $80.9 million and $69.1 million, respectively. Refer to Note 9 to the consolidated financial statements for a description of our methodology in calculating the estimated fair value of debt. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on the disposition of the financial instruments.
Item 4. Controls and Procedures
Tanger Factory Outlet Centers, Inc. Controls and Procedures
The Company'sCompany’s management carried out an evaluation, with the participation of the Company'sCompany’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company'sCompany’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017.March 31, 2020. Based on this evaluation, the Company'sCompany’s Chief Executive Officer and Chief Financial Officer have concluded that the Company'sCompany’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2020. There were no changes to the Company'sCompany’s internal controlscontrol over financial reporting during the quarter ended September 30, 2017,March 31, 2020, that materially affected, or are reasonably likely to materially affect, the Company'sCompany’s internal control over financial reporting.We have not experienced any material impact to our internal control over financial reporting to date as a result of most of our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.
Tanger Properties Limited Partnership Controls and Procedures
The management of the Operating Partnership'sPartnership’s general partner carried out an evaluation, with the participation of the Chief Executive Officer and the Vice-President and Treasurer (Principal Financial and Accounting Officer) of the Operating Partnership'sPartnership’s general partner, of the effectiveness of the Operating Partnership'sPartnership’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2017.March 31, 2020. Based on this evaluation, the Chief Executive Officer of the Operating Partnership'sPartnership’s general partner, and the Vice-President and Treasurer of the Operating Partnership'sPartnership’s general partner, have concluded that the Operating Partnership'sPartnership’s disclosure controls and procedures were effective as of September 30, 2017.March 31, 2020. There were no changes to the Operating Partnership'sPartnership’s internal controlscontrol over financial reporting during the quarter ended September 30, 2017,March 31, 2020, that materially affected, or are reasonably likely to materially affect, the Operating Partnership'sPartnership’s internal control over financial reporting. We have not experienced any material impact to our internal control over financial reporting to date as a result of most of our employees working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact to their design and operating effectiveness.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company and the Operating Partnership are, from time to time, engaged in a variety of legal proceedings arising in the normal course of business. Although the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of such proceedings will not have a material adverse effect on our results of operations or financial condition.
Item 1A. Risk Factors
There have been no material changes fromThe following information updates the risk factors disclosed in the "Risk Factors"“Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016.2019. Except for the additional risk factor provided below, there have been no material changes in the Company's risk factors from those disclosed in the 2019 Form 10-K.
The current COVID-19 Pandemic has negatively affected and will likely continue to negatively affect our business, financial condition, liquidity and results of operations and those of our tenants.
The current COVID-19 pandemic has had, and likely 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 our results of operations, liquidity (including our ability to access capital markets), 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 could be materially affected.
Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates have, with respect to some portion of our tenants, (i) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business, and/or (ii) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses. Tenants may also, as a result of such public health crisis, orders or mandates and any resulting economic downturn, request rent deferrals, rent abatement or early termination of their leases as well as may be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends. Specifically, as a result of COVID-19 and various governmental orders currently in place, a number of our tenants have either closed their business or are operating with limited operations and/or have submitted requests for rent relief or failed to pay rent. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. In late March, 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. As we have historically collected the majority of our rent in advance, estimated uncollectible rents and impacts on straight–line rent receivables was not material for the quarter ended March 31, 2020. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent could have a significant impact in future periods. We believe our tenants do not have a clear contractual right to cease paying rent due to government mandated closures and we intend to enforce our rights under the lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions and the impact to the Company’s results of operations and cash flows is uncertain and cannot be predicted.
The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
the reduced economic activity that could result in a prolonged recession and may consequently negatively impact consumer discretionary spending;
difficulty accessing debt and equity capital on attractive terms, or at all, deteriorations in our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;
the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our liquidity;
any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions;
a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties;
a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants;
a significant increase in the number of tenants that file for Chapter 11 bankruptcy;
adverse impacts from requiring most employees to work remotely, such as reductions in productivity and heightened cybersecurity risks; and
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) Issuer Purchases of Equity Securities
On May 19, 2017, we announced that our Board of Directors authorized the repurchase of up to $125 million of our outstanding common shares as market conditions warrant over a period commencing on May 19, 2017 and expiring on May 18, 2019. Repurchases may be made through open market, privately-negotiated, structured or derivative transactions (including accelerated stock 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 following table summarizes our common share repurchases for the fiscal quarter ended September 30, 2017:
|
| | | | | | | | | | | | | | |
| Period | | Total number of shares purchased | | Average price paid per share | | Total number of shares purchased as part of publicly announced plans or programs | | Approximate dollar value of shares that may yet be purchased under the plans or programs (in millions) |
| July 1, 2017 to July 31, 2017 | | — |
| | $ | — |
| | — |
| | $ | 85.7 |
|
| August 1, 2017 to August 31, 2017 | | 413,604 |
| | 24.18 |
| | 413,604 |
| | 75.7 |
|
| September 1, 2017 to September 30, 2017 | | — |
| | — |
| | — |
| | 75.7 |
|
| Total | | 413,604 |
| | $ | 24.18 |
| | 413,604 |
| | $ | 75.7 |
|
Item 4.Mine Safety Disclosures
Not applicable
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| Exhibit Number | | Exhibit Descriptions |
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4.110.1 |
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12.1*10.2 |
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12.2*10.3 |
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31.1*10.4 |
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| 10.5* |
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| 31.1* |
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| 31.2* |
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| 31.3* |
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| 31.4* |
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| 32.1** |
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| 32.2** |
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| 32.3** |
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| 32.4** |
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101*101.INS* |
| | The following financial statements from Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership's dual Quarterly Report on Form 10-Q forInline XBRL Instance Document - the quarter ended September 30, 2017, formattedInstance Document does not appear in XBRL: (i) Consolidated Balance Sheets (unaudited), (ii) Consolidated Statements of Operations (unaudited), (iii) Consolidated Statements of Other Comprehensive Income (unaudited), (iv) Consolidated Statements of Equity (unaudited), (v) Consolidated Statements of Cash Flows (unaudited), and (vi) Notes to Consolidated Financial Statements (unaudited).the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
| | | |
| 101.SCH* |
| | Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL* |
| | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.LAB* |
| | Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE* |
| | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 101.DEF* |
| | Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 104* |
| | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| | | |
| | | * Filed herewith. |
| | | ** Furnished herewith. |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: November 8, 2017May 11, 2020
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| TANGER FACTORY OUTLET CENTERS, INC. |
| By: | /s/ James F. Williams |
| | James F. Williams |
| | SeniorExecutive Vice President and Chief Financial Officer |
| |
| TANGER PROPERTIES LIMITED PARTNERSHIP |
| By: TANGER GP TRUST, its sole general partner |
| By: | /s/ James F. Williams |
| | James F. Williams |
| | Vice President and Treasurer (Principal Financial and Accounting Officer) |