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Section 1: 10-K (10-K)

Document


United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _________ to _________

Commission file number 1-11986 (Tanger Factory Outlet Centers, Inc.)
Commission file number 333-3526-01 (Tanger Properties Limited Partnership)

TANGER FACTORY OUTLET CENTERS, INC.
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of Registrant as specified in its charter)
North Carolina (Tanger Factory Outlet Centers, Inc.)
56-1815473
North Carolina (Tanger Properties Limited Partnership)
56-1822494
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
3200 Northline Avenue, Suite 360
(336) 292-3010
Greensboro, NC 27408
(Registrant's telephone number)
(Address of principal executive offices)
 
 
 
Securities registered pursuant to Section 12(b) of the Act:
Tanger Factory Outlet Centers, Inc.:
Title of each class
Name of exchange on which registered
Common Shares, $.01 par value
New York Stock Exchange
 
 
Tanger Properties Limited Partnership:
None
 
Securities registered pursuant to Section 12(g) of the Act:
Tanger Factory Outlet Centers, Inc.: None
Tanger Properties Limited Partnership: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x No o 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Tanger Factory Outlet Centers, Inc.
Yes o   No x
Tanger Properties Limited Partnership
Yes o   No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Tanger Factory Outlet Centers, Inc.
Yes x   No o
Tanger Properties Limited Partnership
Yes x   No o


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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Tanger Factory Outlet Centers, Inc.
Yes x No o
Tanger Properties Limited Partnership
Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer", “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
Large accelerated filer x 
 
Accelerated filer o 
Non-accelerated filer o 
 
Smaller reporting company o 
(Do not check if a smaller reporting company)
 
Emerging growth company o
Tanger Properties Limited Partnership
Large accelerated filer o 
 
Accelerated filer o 
Non-accelerated filer x
 
Smaller reporting company o 
(Do not check if a smaller reporting company)
 
Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
o
Tanger Properties Limited Partnership
o

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act).
Tanger Factory Outlet Centers, Inc.
Yes o   No x
Tanger Properties Limited Partnership
Yes o   No x

The aggregate market value of voting shares held by non-affiliates of Tanger Factory Outlet Centers, Inc. was approximately $2,428,175,157 based on the closing price on the New York Stock Exchange for such shares on June 30, 2017.

The number of Common Shares of Tanger Factory Outlet Centers, Inc. outstanding as of February 14, 2018 was 94,537,757.

Documents Incorporated By Reference

Portions of Tanger Factory Outlet Center, Inc.'s definitive proxy statement to be filed with respect to the 2018 Annual Meeting of Shareholders are incorporated by reference in Part III.

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PART I

EXPLANATORY NOTE

This report combines the annual reports on Form 10-K for the year ended December 31, 2017 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term "Company", refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term "Operating Partnership" refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. The Company is a fully-integrated, self-administered and self-managed real estate investment trust, ("REIT"), which, through its controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and all of the operations are conducted by, the Operating Partnership. Accordingly, the descriptions of the business, employees and properties of the Company are also descriptions of the business, employees and properties of the Operating Partnership. As the Operating Partnership is the issuer of our registered debt securities, we are required to present a separate set of financial statements for this entity.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of December 31, 2017, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,560,536 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,995,433 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

Management operates the Company and the Operating Partnership as one enterprise. The management of the Company consists of the same members as the management of the Operating Partnership. These individuals are officers of the Company and employees of the Operating Partnership. The individuals that comprise the Company's Board of Directors are also the same individuals that make up Tanger GP Trust's Board of Trustees.

We believe combining the annual reports on Form 10-K of the Company and the Operating Partnership into this single report results in the following benefits:

•
enhancing investors' understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•
eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

•
creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.


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There are only a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important, however to understand these differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company.

As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company's income statement is its equity in the earnings of 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. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report.

The Operating Partnership holds all of the outlet centers and other assets, including the ownership interests in consolidated and unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, its incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests, shareholder's equity and partners' capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partnership interests in the Operating Partnership held by the Non-Company LPs are accounted for as partners' capital in the Operating Partnership's financial statements and as noncontrolling interests in the Company's financial statements.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections for each of the Company and the Operating Partnership:

•
Consolidated financial statements;

•
The following notes to the consolidated financial statements:

•
Debt of the Company and the Operating Partnership;

•
Shareholders' Equity and Partners' Equity;

•
Earnings Per Share and Earnings Per Unit;

•
Accumulated Other Comprehensive Income of the Company and the Operating Partnership;

•
Liquidity and Capital Resources in the Management's Discussion and Analysis of Financial Condition and Results of Operations.

This report also includes separate Item 9A. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

The separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.

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The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.

ITEM 1.
BUSINESS

The Company and the Operating Partnership

Tanger Factory Outlet Centers, Inc. and subsidiaries, which we refer to as the Company, 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 REIT, which focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of December 31, 2017, our consolidated portfolio consisted of 36 outlet centers, with a total gross leasable area of approximately 12.9 million square feet, which were 97% occupied and contained over 2,600 stores representing approximately 400 store brands. We also had partial ownership interests in 8 unconsolidated outlet centers totaling approximately 2.4 million square feet, including 4 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, which we refer to as the Operating Partnership. The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest.

As of December 31, 2017, the Company, through its ownership of the Tanger GP Trust and Tanger LP Trust, owned 94,560,536 units of the Operating Partnership and the Non-Company LPs collectively owned 4,995,433 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

Ownership of the Company's common shares is restricted to preserve the Company's status as a REIT for federal income tax purposes. Subject to certain exceptions, a person may not actually or constructively own more than 4% of our common shares. We also operate in a manner intended to enable us to preserve our status as a REIT, including, among other things, making distributions with respect to our then outstanding common shares and preferred shares, if applicable, equal to at least 90% of our taxable income each year.

The Company is a North Carolina corporation that was incorporated in March 1993 and the Operating Partnership is a North Carolina partnership that was formed in May 1993. Our executive offices are currently located at 3200 Northline Avenue, Suite 360, Greensboro, North Carolina, 27408 and our telephone number is (336) 292-3010. Our website can be accessed at www.tangeroutlet.com. A copy of our 10-Ks, 10-Qs, 8-Ks and any amendments thereto can be obtained, free of charge, on our website as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (the "SEC"). The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the SEC.


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Recent Developments

New Development of Consolidated Outlet Centers

Fort Worth

In October 2017, we opened a 352,000 square foot wholly-owned outlet 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.

Lancaster Expansion

In September 2017, we opened a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.

Acquisition of Partner's Interests

Foxwoods

In October 2017, 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 us. 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.  In November 2017, we repaid the $70.3 million floating rate mortgage loan secured by the property with borrowings under our unsecured floating rate lines of credit.

Dispositions of Consolidated Outlet Centers

Westbrook

In May 2017, we sold our Westbrook, Connecticut outlet center for approximately $40.0 million, which resulted in a gain of $6.9 million. The net proceeds were used to repurchase our common shares. See Share Repurchase Program, below.

Financing Transactions

$300.0 Million Unsecured Senior Notes due 2027

In July 2017, we completed an underwritten public offering of $300.0 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 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. In addition, we wrote off approximately $1.5 million of unamortized debt discount and debt origination costs related to the 2020 Notes.

Increased Borrowing Capacity and Extension of Unsecured Lines of Credit

In January 2018, we closed on amendments to our unsecured lines of credit, which increased the borrowing capacity from $520.0 million to $600.0 million and extended the maturity date from October 2019 to October 2021, with a one-year extension option. We also reduced the interest rate spread over LIBOR from 0.90% to 0.875%, and increased the incremental borrowing availability through an accordion feature on the syndicated line from $1.0 billion to $1.2 billion. Loan origination costs associated with the amendments totaled approximately $2.3 million.


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Southaven Loan

In February 2018, the consolidated joint venture that owns the Tanger outlet center in Southaven, Mississippi amended and restated the $60.0 million mortgage loan secured by the property. The amended and restated loan reduced the principal balance to $51.4 million, increased the interest rate from LIBOR + 1.75% to LIBOR + 1.80% and extended the maturity to April 2021, with a two-year extension option.

Share Repurchase Program

In May 2017, we announced that our Board of Directors authorized the repurchase of up to $125.0 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 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. During 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. The remaining amount authorized to be repurchased under the program as of December 31, 2017 was approximately $75.7 million.

The Outlet Concept

Outlet centers generally consist of stores operated by manufacturers and brand name retailers that sell primarily first quality, branded products, some of which are made specifically for the outlet distribution channel, to consumers at significant discounts from regular retail prices charged by department stores and specialty stores. Outlet centers offer advantages to manufacturers and brand name retailers as they are often able to charge customers lower prices for brand name and designer products by eliminating the third party retailer. Outlet centers also typically have lower operating costs than other retailing formats, enhancing their profit potential. Outlet centers enable retailers to optimize the size of production runs while continuing to maintain control of their distribution channels. Outlet centers also enable manufacturers and brand name retailers to establish a direct relationship with their customers.

We believe that outlet centers present an attractive opportunity for capital investment as many retailers view the outlet concept as a profitable distribution channel. However, due to present economic conditions, the availability of multiple retail channels, and the potential for increased competition from other outlet center developers, new developments or expansions may not provide an initial return on investment as high as has been historically achieved.

Our Outlet Centers

Each of our outlet centers, except one joint venture property, carries the Tanger brand name. We believe that our tenants and consumers recognize the Tanger brand as one that provides outlet shopping centers where consumers can trust the brand, quality and price of the merchandise they purchase directly from the manufacturers and brand name retailers.

As one of the original participants in this industry, we have established long-standing relationships with many of our tenants that we believe is critical in developing and operating successful outlet centers.

Our consolidated outlet centers range in size from 82,161 to 740,159 square feet and are typically located at least 10 miles from major department stores and manufacturer-owned, full-price retail stores. Historically, manufacturers prefer these locations so that they do not compete directly with their major customers and their own stores. Many of our outlet centers are located near tourist destinations to attract tourists who consider shopping to be a recreational activity. Additionally, our centers are often situated in close proximity to interstate highways that provide accessibility and visibility to potential customers.


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We have a diverse tenant base throughout our consolidated portfolio, comprised of approximately 400 different well-known, upscale, national designer or brand name concepts, such as Ann Taylor, American Eagle Outfitters, Banana Republic Factory Store, Barneys New York, Brooks Brothers, Calvin Klein, Coach, Gap Outlet, Giorgio Armani, Hugo Boss Factory Store, J. Crew, Kate Spade New York, Lululemon Athletica, Michael Kors, Nike Factory Store, North Face, Polo Ralph Lauren Factory Store, Saks Fifth Avenue Off 5th,  Tommy Hilfiger, Under Armour, Victoria’s  Secret, Vineyard Vines and others.

No single tenant, including all of its store concepts, accounted for 10% or more of our combined base and percentage rental revenues during 2017, 2016 or 2015. As of December 31, 2017, no single tenant accounted for more than 8% of our leasable square feet or 7% of our combined base and percentage rental revenues. Because many of our tenants are large, multinational manufacturers or retailers, losses with respect to rent collections or lease defaults historically have been immaterial.

Only small portions of our revenues are dependent on contingent revenue sources. Revenues from fixed rents and operating expense reimbursements accounted for approximately 91% of our total revenues in 2017. Revenues from contingent sources, such as percentage rents, vending income and miscellaneous income, accounted for approximately 9% of our total revenues in 2017.

Business History

Stanley K. Tanger, the Company's founder, entered the outlet center business in 1981. Prior to founding our company, Stanley K. Tanger and his son, Steven B. Tanger, our Chief Executive Officer, built and managed a successful family owned apparel manufacturing business, Tanger/Creighton, Inc., which included the operation of five outlet stores. Based on their knowledge of the apparel and retail industries, as well as their experience operating Tanger/Creighton, Inc.'s outlet stores, they recognized that there would be a demand for outlet centers where a number of manufacturers could operate in a single location and attract a large number of shoppers.

Steven B. Tanger joined the Company in 1986, and by June 1993, the Tangers had developed 17 outlet centers totaling approximately 1.5 million square feet. In June 1993, we completed our initial public offering, making Tanger Factory Outlet Centers, Inc. the first publicly traded outlet center company. Since our initial public offering, we have grown our portfolio through the strategic development, expansion and acquisition of outlet centers and are now one of the largest owner operators of outlet centers in the United States and Canada.

Business Strategy

Our company has been built on a firm foundation of strong and enduring business relationships coupled with conservative business practices. We partner with many of the world's best known and most respected retailers and manufacturers. By fostering and maintaining strong tenant relationships with these successful, high volume companies, we have been able to solidify our position as a leader in the outlet industry for well over a quarter century. The confidence and trust that we have developed with our retail partners from the very beginning has allowed us to forge the impressive retail alliances that we enjoy today with our brand name retailers and manufacturers.

We have had a solid track record of success in the outlet industry for the past 37 years. In 1993, Tanger led the way by becoming the industry's first outlet center company to be publicly traded. Our seasoned team of real estate professionals utilize the knowledge and experience that we have gained to give us a competitive advantage in the outlet business.

As of December 31, 2017, our consolidated outlet centers were 97% occupied with average tenant sales of $380 per square foot. Our portfolio of properties has had an average occupancy rate of 95% or greater on December 31st of each year since 1981. We believe our ability to achieve this level of performance is a testament to our long-standing tenant relationships, industry experience and our expertise in the development, leasing and operation of outlet centers.


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Growth Strategy

Our goal is to build shareholder value through a comprehensive, conservative plan for sustained, long-term growth. We focus our efforts on increasing rents in our existing outlet centers, renovating and expanding selected outlet centers and reaching new markets through ground-up developments or acquisitions of existing outlet centers. We expect new development to continue to be important to the growth of our portfolio in the long-term. Future outlet centers may be wholly-owned by us or developed through joint venture arrangements.

Increasing rents at existing outlet centers

Our leasing team focuses on the marketing of available space to maintain our standard for high occupancy levels. Leases are negotiated to provide for inflation-based contractual rent increases or periodic fixed contractual rent increases and percentage rents. We have historically been able to renew most leases at higher base rents per square-foot and attract new tenants to replace underperforming tenants.

Developing new outlet centers

We believe that there continue to be opportunities to introduce the Tanger brand in untapped or under-served markets across the United States and Canada in the long-term. We believe our 37 years of outlet industry experience, extensive development expertise and strong retail relationships give us a distinct competitive advantage.

In order to identify new markets across North America, we follow a general set of guidelines when evaluating opportunities for the development of new outlet centers. This typically includes seeking locations within markets that have at least 1 million people residing within a 30 to 40 mile radius with an average household income of at least $65,000 per year, frontage on a major interstate or roadway that has excellent visibility and a traffic count of at least 55,000 cars per day. Leading tourist, vacation and resort markets that receive at least 5 million visitors annually are also closely evaluated. Although our current goal is to target sites that are large enough to support outlet centers with approximately 60 to 90 stores totaling at least 250,000 to 350,000 square feet, we maintain the flexibility to vary our minimum requirements based on the unique characteristics of a site, tenant demand and our prospects for future growth and success.

In order to help ensure the viability of proceeding with a project, we gauge the interest of our retail partners first. We typically prefer to have signed leases or leases out for negotiation with tenants for at least 60% of the space in each outlet center prior to acquiring the site and beginning construction; however, we may choose to proceed with construction with less than 60% of the space pre-leased under certain circumstances. Construction of a new outlet center has typically taken us nine to twelve months from groundbreaking to grand opening of the outlet center.

Expanding and renovating existing outlet centers

Keeping our outlet shopping centers vibrant and growing is a key part of our formula for success. In order to maintain our reputation as the premiere outlet shopping destination in the markets that we serve, we have an ongoing program of renovations and expansions taking place at our outlet centers. Construction for expansion and renovation to existing properties typically takes less time, usually between six to nine months depending on the scope of the project.

Acquiring Outlet Centers

As a means of creating a presence in key markets and to create shareholder value, we may selectively choose to acquire individual properties or portfolios of properties that meet our strategic investment criteria. We believe that our extensive experience in the outlet center business, access to capital markets, familiarity with real estate markets and our management experience will allow us to evaluate and execute our acquisition strategy successfully over time. Through our tenant relationships, our leasing professionals have the ability to implement a re-merchandising strategy when needed to increase occupancy rates and value. We believe that our managerial skills, marketing expertise and overall outlet industry experience will also allow us to add long-term value and viability to these outlet centers.


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Operating Strategy

Increasing cash flow to enhance the value of our properties and operations remains a primary business objective. Through targeted marketing and operational efficiencies, we strive to improve sales and profitability of our tenants and our outlet centers as a whole. Achieving higher base and percentage rents and generating additional income from temporary leasing, vending and other sources also remains an important focus and goal.

Leasing

Our long-standing retailer relationships and our focus on identifying emerging retailers allow us the ability to provide our shoppers with a collection of the world's most popular outlet stores. Tanger customers shop and save on their favorite brand name merchandise including men's, women's and children's ready-to-wear, lifestyle apparel, footwear, jewelry and accessories, tableware, housewares, luggage and home goods. In order for our outlet centers to perform at a high level, our leasing professionals continually monitor and evaluate tenant mix, store size, store location and sales performance. They also work to assist our tenants through re-sizing and re-location of retail space within each of our outlet centers for maximum sales of each retail unit across our portfolio.

Marketing
 
Our marketing plans deliver compelling, well-crafted messages and enticing promotions and events to targeted audiences for tangible, meaningful and measurable results. Our plans are based on a basic measure of success - increase sales and traffic for our retail partners and we will create successful outlet centers. Utilizing a strategic mix of print, radio, television, direct mail, our consumer website, Internet advertising, social networks, mobile applications and public relations, we consistently reinforce the Tanger brand. Our marketing efforts are also designed to build loyalty with current Tanger shoppers and create awareness with potential customers. The majority of consumer-marketing expenses incurred by us are reimbursable by our tenants.

Capital Strategy

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 lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of our non-core 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.

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. We are a well-known seasoned issuer with a shelf registration that allows us to register unspecified amounts of different classes of securities on Form S-3. 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 issue debt or equity subject to market conditions, we believe that we have access to the necessary financing to fund our planned capital expenditures during 2018.
 
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 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 lines of credit or invested in short-term money market or other suitable instruments adhering to our investment policies.


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We believe our current balance sheet position is financially sound; however, due to the 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 maturity, which is our unsecured term loan, occurs in 2021. As a result, our current primary focus is to continually strengthen our capital and liquidity position by controlling and reducing construction and overhead costs, generating positive cash flows from operations to cover our distributions and reducing outstanding debt.

Competition

We carefully consider the degree of existing and planned competition in a proposed area before deciding to develop, acquire or expand a new outlet center. Our outlet centers compete for customers primarily with outlet centers built and operated by different developers, traditional shopping malls, full-and off-price retailers and e-commerce retailers. However, we believe that the majority of our customers visit outlet centers because they are intent on buying name-brand products at discounted prices. Traditional full-and off-price retailers and e-commerce retailers are often unable to provide such a variety of and depth of name-brand products at attractive prices.

Tenants of outlet centers are generally adverse to direct competition with major retailers and their own specialty stores. For this reason, our outlet centers generally compete only to a limited extent with traditional malls in or near metropolitan areas.

We compete with institutional pension funds, private equity investors, other REITs, individual owners of outlet centers, specialty stores and others who are engaged in the acquisition, development or ownership of outlet centers and stores. In addition, the number of entities competing to acquire or develop outlet centers has increased and may continue to increase in the future, which could increase demand for these outlet centers and the prices we must pay to acquire or develop them. Nevertheless, we believe the high barriers to entry in the outlet industry, including the need for extensive marketing programs to drive traffic to the centers and relationships with premier manufacturers and brand name retailers, will continue to limit the number of new outlet centers developed each year.

Financial Information

We have one reportable operating segment. For financial information regarding our segment, see our consolidated financial statements.

Corporate and Regional Headquarters

We rent space in an office building in Greensboro, North Carolina where our corporate headquarters is located as well as a regional office in Miami, Florida.

As of February 1, 2018, we maintain offices and employ on-site managers at 38 consolidated and unconsolidated outlet centers. The managers closely monitor the operation, marketing and local relationships at each of their outlet centers.

Insurance

We believe that as a whole our properties are covered by adequate comprehensive liability, fire, flood, earthquake and extended loss insurance provided by reputable companies with commercially reasonable and customary deductibles and limits. Northline Indemnity, LLC, ("Northline"), a wholly-owned captive insurance subsidiary of the Operating Partnership, is responsible for losses up to certain levels for property damage (including wind damage from hurricanes) prior to third-party insurance coverage. Specified types and amounts of insurance are required to be carried by each tenant under their lease. There are however, types of losses, like those resulting from wars or nuclear radiation, which may either be uninsurable or not economically insurable in some or all of our locations. An uninsured loss could result in a loss to us of both our capital investment and anticipated profits from the affected property.


11



Employees

As of February 1, 2018, we had 287 full-time employees, located at our corporate headquarters in North Carolina, our regional office in Miami and 40 business offices. At that date, we also employed 353 part-time employees at various locations.

ITEM 1A.RISK FACTORS

Risks Related to Real Estate Investments

We may be unable to develop new outlet centers or expand existing outlet centers successfully.

We continue to develop new outlet centers and expand existing outlet centers as opportunities arise. However, there are significant risks associated with our development activities in addition to those generally associated with the ownership and operation of established retail properties. While we have policies in place designed to limit the risks associated with development, these policies do not mitigate all development risks associated with a project. These risks include the following:

•
significant expenditure of money and time on projects that may be delayed or never be completed;

•
higher than projected construction costs;

•
shortage of construction materials and supplies;

•
failure to obtain zoning, occupancy or other governmental approvals or to the extent required, tenant approvals; and

•
late completion because of construction delays, delays in the receipt of zoning, occupancy and other approvals or other factors outside of our control.

Any or all of these factors may impede our development strategy and adversely affect our overall business.

The economic performance and the market value of our outlet centers are dependent on risks associated with real property investments.

Real property investments are subject to varying degrees of risk. The economic performance and values of real estate may be affected by many factors, including changes in the national, regional and local economic climate, inflation, changes in government policies and regulations, unemployment rates, consumer confidence, consumer shopping preferences, local conditions such as an oversupply of space or a reduction in demand for real estate in the area, the attractiveness of the properties to tenants, competition from other available space, our ability to provide adequate maintenance and insurance and increased operating costs.

Real property investments are relatively illiquid.

Our outlet centers represent a substantial portion of our total consolidated assets. These assets are relatively illiquid. As a result, our ability to sell one or more of our outlet centers in response to any changes in economic or other conditions is limited. If we want to sell an outlet center, there can be no assurance that we will be able to dispose of it in the desired time period or that the sales price will exceed the cost of our investment.


12



Properties may be subject to impairment charges which can adversely affect our financial results.

We periodically evaluate long-lived assets to determine if there has been any impairment in their carrying values and record impairment losses if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts or if there are other indicators of impairment.  If it is determined that an impairment has occurred, we would be required to record an impairment charge equal to the excess of the asset's carrying value over its estimated fair value, which could have a material adverse effect on our financial results in the accounting period in which the adjustment is made.  Our estimates of undiscounted cash flows expected to be generated by each property are based on a number of assumptions that are subject to economic and market uncertainties including, but not limited to, estimated hold period, terminal capitalization rates, demand for space, competition for tenants, changes in market rental rates and costs to operate each property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated in our impairment analysis may not be achieved.

Also, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss is measured as the excess of the carrying amount of the investment over the value of the investment. Our estimates of value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, estimated hold period, terminal capitalization rates, demand for space, competition for tenants, discount and capitalization rates, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized.

Dispositions may not achieve anticipated results.

From time to time, we may strategically dispose of assets with the goal of improving the overall performance of our core portfolio. However, we may not achieve the results we originally anticipated at the time of disposition. If we are not successful at achieving the anticipated results, there is a potential for a significant adverse impact on our returns and our overall profitability.

We face competition for the acquisition and development of outlet centers, and we may not be able to complete acquisitions or developments that we have identified.

We intend to grow our business in part through acquisitions and new developments. We compete with institutional pension funds, private equity investors, other REITs, small owners of outlet centers, specialty stores and others who are engaged in the acquisition, development or ownership of outlet centers and stores. These competitors may succeed in acquiring or developing outlet centers themselves. Also, our potential acquisition targets may find our competitors to be more attractive acquirers because they may have greater marketing and financial resources, may be willing to pay more, or may have a more compatible operating philosophy. In addition, the number of entities competing to acquire or develop outlet centers has increased and may continue to increase in the future, which could increase demand for these outlet centers and the prices we must pay to acquire or develop them. If we pay higher prices for outlet centers, our profitability may be reduced. Also, once we have identified potential acquisitions, such acquisitions are subject to the successful completion of due diligence, the negotiation of definitive agreements and the satisfaction of customary closing conditions. We cannot assure you that we will be able to reach acceptable terms with the sellers or that these conditions will be satisfied.

We may be subject to environmental regulation.

Under various federal, state and local laws, ordinances and regulations, we may be considered an owner or operator of real property and may be responsible for paying for the disposal or treatment of hazardous or toxic substances released on or in our property or disposed of by us, as well as certain other potential costs which could relate to hazardous or toxic substances (including governmental fines and injuries to persons and property). This liability may be imposed whether or not we knew about, or were responsible for, the presence of hazardous or toxic substances.


13



Possible terrorist activity or other acts or threats of violence and threats to public safety could adversely affect our financial condition and results of operations.

Terrorist attacks and threats of terrorist attacks, whether in the United States, Canada or elsewhere, or other acts or threats of violence may result in declining economic activity, which could harm the demand for goods and services offered by our tenants and the value of our properties and might adversely affect the value of an investment in our securities. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties.

Terrorist activities or violence also could directly affect the value of our properties through damage, destruction or loss. In addition, these acts and threats might erode business and consumer confidence and spending, and might result in increased volatility in national and international financial markets and economies. Any one of these events might decrease demand for real estate, decrease or delay the occupancy of our properties, impair the ability of tenants to meet their obligations under their existing leases, limit our access to capital, increase our cost of raising capital and/or give rise to third party claims.

Risks Related to our Business

Our earnings and therefore our profitability are dependent on rental income from real property.

Substantially all of our income is derived from rental income from real property. Our income and funds for distribution would be adversely affected if rental rates at our centers decrease, if a significant number of our tenants were unable to meet their obligations to us or if we were unable to lease a significant amount of space in our outlet centers on economically favorable lease terms. In addition, the terms of outlet store tenant leases traditionally have been significantly shorter than in other retail segments. There can be no assurance that any tenant whose lease expires in the future will renew such lease or that we will be able to re-lease space on economically favorable terms.

We are substantially dependent on the results of operations of our retailers.

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 operations 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, legislative changes that increase the cost of their operations or otherwise, such tenants may be unable to pay their existing rents as such rents would represent a higher percentage of their sales. Any resulting leasing delays, failures to make payments or tenant bankruptcies could result in the termination of such tenants' leases.

A number of companies in the retail industry, including some of our tenants, have declared bankruptcy or have voluntarily closed certain of their stores in recent years. The bankruptcy of a major tenant or number of tenants may result in the closing of certain affected stores, and we may not be able to re-lease the resulting vacant space for some time or for equal or greater rent. Such bankruptcy, or the voluntary closings of a significant amount of stores, could have a material adverse effect on our results of operations and could result in a lower level of funds for distribution.

Certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours and thereby constrain us from taking actions concerning these properties which otherwise would be in our best interests and our shareholders' interests.

We own partial interests in outlet centers with various joint venture partners. The approval or consent of the other members of these joint ventures is required before we may sell, finance, expand or make other significant changes in the operations of these properties. We also may not have control over certain major decisions, including approval of the annual operating budgets, selection or termination of the property management company, leasing and the timing and amount of distributions, which could result in decisions that do not fully reflect our interests. To the extent such approvals or consents are required, we may experience difficulty in, or may be prevented from, implementing our plans and strategies with respect to expansion, development, property management, on-going operations, financing (for example, decisions as to whether to refinance or obtain financing, when and whether to pay down principal of any loan and whether and how to cure any defaults under loan documents) or other similar transactions with respect to such properties.


14



An uninsured loss or a loss that exceeds our insurance policies on our outlet centers or the insurance policies of our tenants could subject us to lost capital and revenue on those outlet centers.

Some of the risks to which our outlet centers are subject, including risks of terrorist attacks, war, earthquakes, hurricanes and other natural disasters, are not insurable or may not be insurable in the future. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the insurance policies noted above or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in and anticipated revenue from one or more of our outlet centers, which could adversely affect our results of operations and financial condition, as well as our ability to make distributions to our shareholders.

Under the terms and conditions of our leases, tenants generally are required to indemnify and hold us harmless from liabilities resulting from injury to persons and contamination of air, water, land or property, on or off the premises, due to activities conducted in the leased space, except for claims arising from negligence or intentional misconduct by us or our agents. Additionally, tenants generally are required, at the tenant's expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies issued by companies acceptable to us. These policies include liability coverage for bodily injury and property damage arising out of the ownership, use, occupancy or maintenance of the leased space. All of these policies may involve substantial deductibles and certain exclusions. Therefore, an uninsured loss or loss that exceeds the insurance policies of our tenants could also subject us to lost capital and revenue.

Consumer spending habits may change.

Shoppers may choose to spend a greater percentage of their disposable income to purchase goods through e-commerce or other retail channels, which could reduce the number of trips to our outlet centers and the average amount spent per visit. Such a change in consumer spending habits could adversely affect the results of operations of our retail tenants and adversely impact our percentage rents and ability to renew and release space at favorable rental rates.

Our Canadian investments may subject us to different or greater risk from those associated with our domestic operations.

As of December 31, 2017, through a co-ownership arrangement with a Canadian REIT, we have an ownership interest in four properties in Canada.  Our operating results and the value of our Canadian operations may be impacted by any unhedged movements in the Canadian dollar. Canadian ownership activities carry risks that are different from those we face with our domestic properties. These risks include:

•
adverse effects of changes in the exchange rates between the US and Canadian dollar;

•
changes in Canadian political and economic environments, regionally, nationally, and locally;

•
challenges of complying with a wide variety of foreign laws;

•
changes in applicable laws and regulations in the United States that affect foreign operations;

•
property management services being provided directly by our 50/50 ​co-owner, not by us; and

•
obstacles to the repatriation of earnings and cash.

Any or all of these factors may adversely impact our operations and financial results, as well as our overall business.


15



Our success significantly depends on our key personnel and our ability to attract and retain key personnel.
Our success depends upon the personal efforts and abilities of our senior management team and other key personnel. Although we believe we have a strong management team with relevant industry expertise, the extended loss of the services of key personnel could have a material adverse effect on the securities markets' view of our prospects and materially harm our business. Also, our success and the achievement of our goals are dependent upon our ability to attract and retain qualified employees.

Risks Related to our Indebtedness and Financial Markets

We are subject to the risks associated with debt financing.

We are subject to the risks associated with debt financing, including the risk that the cash provided by our operating activities will be insufficient to meet required payments of principal and interest. Disruptions in the capital and credit markets may adversely affect our operations, including the ability to fund the planned capital expenditures and potential new developments or acquisitions. Further, there is the risk that we will not be able to repay or refinance existing indebtedness or that the terms of any refinancing will not be as favorable as the terms of existing indebtedness. If we are unable to access capital markets to refinance our indebtedness on acceptable terms, we might be forced to dispose of properties on disadvantageous terms, which might result in losses.

The Operating Partnership guarantees debt or otherwise provides support for a number of joint venture properties.

Joint venture debt is the liability of the joint venture and is typically secured by a mortgage on the joint venture property, which is non-recourse to us. A default by a joint venture under its debt obligations may expose us to liability under a guaranty. 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 fundings are not typically required contractually or otherwise.

Risks Related to Federal Income Tax Laws

The Company's failure to qualify as a REIT could subject our earnings to corporate level taxation.

We believe that we have operated and intend to operate in a manner that permits the Company to qualify as a REIT under the Internal Revenue Code of 1986, as amended. However, we cannot assure you that the Company has qualified or will remain qualified as a REIT. If in any taxable year the Company were to fail to qualify as a REIT and certain statutory relief provisions were not applicable, the Company would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject to U.S. federal income tax (including any applicable alternative minimum tax for tax years prior to 2018) on our taxable income at the regular corporate rate. The Company's failure to qualify for taxation as a REIT would have a material adverse effect on the market price and marketability of our securities.

The Company is required by law to make distributions to our shareholders.

To obtain the favorable tax treatment associated with the Company's qualification as a REIT, generally, the Company is required to distribute to its shareholders at least 90% of its net taxable income (excluding capital gains) each year. The Company depends upon distributions or other payments from the Operating Partnership to make distributions to the Company's common shareholders. The Company is allowed to satisfy the REIT income distribution requirement by distributing up to 80% of the dividends on its common shares in the form of additional common shares in lieu of paying dividends entirely in cash. Although we reserve the right to utilize this procedure in the future, we currently have no intent to do so.





16



Recent changes in law significantly changed the U.S. federal income taxation of U.S. businesses, including us.
Recently enacted U.S. tax legislation (the “2017 Tax Legislation”) has significantly changed the U.S. federal income taxation of U.S. businesses and their owners, including REITs and their shareholders.  Changes made by the 2017 Tax Legislation that could affect us and our shareholders from a U.S. federal income tax perspective include:
•
temporarily reducing individual U.S. federal income tax rates on ordinary income;
•
permanently eliminating the progressive corporate tax rate structure, which previously imposed a maximum corporate tax rate of 35%, and replacing it with a flat corporate tax rate of 21%;
•
permitting a deduction for certain pass-through business income, including dividends received by our shareholders from us that are not designated by us as capital gain dividends or qualified dividend income, which will allow individuals, trusts, and estates to deduct up to 20% of such amounts for taxable years beginning after December 31, 2017 and before January 1, 2026;
•
reducing the highest rate of withholding with respect to our distributions to non-U.S. stockholders that are treated as attributable to gains from the sale or exchange of U.S. real property interests from 35% to 21%;
•
generally limiting the deduction for net business interest expense in excess of 30% of a business’s “adjusted taxable income,” except for taxpayers (including certain REITs) that engage in certain real estate businesses and elect out of this rule (provided that such electing taxpayers must use an alternative depreciation system with longer depreciation periods); and
•
eliminating the corporate alternative minimum tax.

Many of these changes are effective immediately, without any transition periods or grandfathering for existing transactions.  The legislation could be subject to potential amendments and technical corrections, as well as interpretations and implementing regulations by the U.S. Treasury Department, IRS and courts, any of which could change the impact of the legislation.  In addition, it is unclear how these U.S. federal income tax changes will affect state and local taxation, which often uses federal taxable income as a starting point for computing state and local tax liabilities.  While some of the changes made by this tax legislation may adversely affect us in one or more reporting periods and prospectively, other changes may be beneficial on a going forward basis.  We continue to work with our tax advisors and auditors to determine the full impact that the recent tax legislation as a whole will have on us.

Further federal or state legislative or other actions could adversely affect our shareholders.

Other future changes to tax laws may adversely affect the taxation of the REIT, its subsidiaries or its shareholders. These changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets.

These potential changes could generally result in REITs having fewer tax advantages, and may lead REITs to determine that it would be more advantageous to elect to be taxed, for federal income tax purposes, as a corporation.

Additionally, not all states automatically conform to changes in the Internal Revenue Code. This could increase the complexity of our compliance costs, and may subject us to additional tax and audit risk.















17



Risks Related to our Organizational Structure

The Company depends on distributions from the Operating Partnership to meet its financial obligations, including dividends.

The Company's operations are conducted by the Operating Partnership, and the Company's only significant asset is its interest in the Operating Partnership. As a result, the Company depends upon distributions or other payments from the Operating Partnership in order to meet its financial obligations, including its obligations under any guarantees or to pay dividends or liquidation payments to its common shareholders. As a result, these obligations are effectively subordinated to existing and future liabilities of the Operating Partnership. 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. Although the Operating Partnership presently is in compliance with these covenants, there is no assurance that the Operating Partnership will continue to be in compliance and that it will be able to make distributions to the Company.

Risks Related to Cyber Security

Cyber-attacks or acts of cyber-terrorism could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information.

Our business operations and information technology systems may be attacked by individuals or organizations intending to disrupt our business operations and information technology systems, whether through cyber attacks or cyber-intrusions over the Internet, malware, computer viruses, attachments to e-mails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication attempted attacks and intrusions from around the world have increased. We use information technology systems to manage our outlet centers and other business processes. Disruption of those systems could adversely impact our ability to operate our business to provide timely service to our customers and maintain our relationships with our tenants. Accordingly, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected. In addition, we use our information technology systems to protect confidential or sensitive customer, employee and Company information developed and maintained in the normal course of our business. Any attack on such systems that would result in the unauthorized release or loss of customer, employee or other confidential or sensitive data could have a material adverse effect on our business reputation, increase our costs and expose us to additional material legal claims and liability. As a result, if such an attack or act of terrorism were to occur, our operations and financial results and our share price could be adversely affected.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

There are no unresolved staff comments from the Commission for either the Company or the Operating Partnership.


18



ITEM 2.
PROPERTIES

As of February 1, 2018, our consolidated portfolio consisted of 36 outlet centers totaling 12.9 million square feet located in 22 states. We own interests in eight other outlet centers totaling approximately 2.4 million square feet through unconsolidated joint ventures, including four outlet centers in Canada. Our consolidated outlet centers range in size from 82,161 to 740,159 square feet. The outlet centers are generally located near tourist destinations or along major interstate highways to provide visibility and accessibility to potential customers.

We believe that the outlet centers are well diversified geographically and by tenant and that we are not dependent upon any single property or tenant. The outlet center in Deer Park, New York is the only property that comprises 10% or more of our consolidated total assets as of December 31, 2017. No property comprises more than 10% of our consolidated revenues for the year ended December 31, 2017. See "Properties - Significant Property" for further details.

We have an ongoing strategy of acquiring outlet centers, developing new outlet centers and expanding existing outlet centers. See “Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” for a discussion of the cost of such programs and the sources of financing thereof.

As of February 1, 2018, of the 36 outlet centers in our consolidated portfolio, we own the land underlying 29 and have ground leases on seven. The following table sets forth information about the land leases on which all or a portion of the outlet centers are located:
Outlet Center
 
Acres
 
Expiration
 
Expiration including renewal terms
Myrtle Beach Hwy 17, SC
 
40.0

 
2027
 
2096
Atlantic City, NJ
 
21.3

 
2101
 
2101
Ocean City, MD
 
18.5

 
2084
 
2084
Sevierville, TN
 
43.6

 
2086
 
2086
Riverhead, NY
 
47.0

 
2019
 
2039
Mashantucket, CT (Foxwoods)
 
8.1

 
2040
 
2090
Rehoboth Beach, DE
 
2.7

 
2044
 
(1) 
(1)
Lease may be renewed at our option for additional terms of twenty years each.

Generally, our leases with our outlet center tenants typically have an initial term that ranges from 5 to 10 years and provide for the payment of fixed monthly rent in advance. There are often contractual base rent increases during the initial term of the lease. In addition, the rental payments are customarily subject to upward adjustments based upon tenant sales volume. Most leases provide for payment by the tenant of real estate taxes, insurance, common area maintenance, advertising and promotion expenses incurred by the applicable outlet center. As a result, the majority of our operating expenses for the outlet centers are borne by the tenants.


19



The following table summarizes certain information with respect to our consolidated outlet centers as of February 1, 2018:
State
 
Number of
Outlet Centers
 
Square
Feet
 
%
of Square Feet
South Carolina
 
5

 
1,599,024

 
12
New York
 
2

 
1,469,865

 
11
Georgia
 
3

 
1,121,579

 
9
Texas
 
3

 
1,001,357

 
8
Pennsylvania
 
3

 
997,741

 
8
Michigan
 
2

 
671,539

 
5
Delaware
 
1

 
557,404

 
4
Alabama
 
1

 
556,677

 
4
North Carolina
 
3

 
505,056

 
4
New Jersey
 
1

 
489,706

 
4
Tennessee
 
1

 
448,355

 
3
Ohio
 
1

 
411,793

 
3
Arizona
 
1

 
410,783

 
3
Florida
 
1

 
351,704

 
3
Missouri
 
1

 
329,861

 
3
Louisiana
 
1

 
321,066

 
3
Mississippi
 
1

 
320,348

 
3
Utah
 
1

 
319,661

 
2
Connecticut
 
1

 
311,614

 
2
Iowa
 
1

 
276,331

 
2
New Hampshire
 
1

 
250,107

 
2
Maryland
 
1

 
199,425

 
2
Total
 
36

 
12,920,996

 
100


20



The following table summarizes certain information with respect to our existing outlet centers in which we have an ownership interest as of February 1, 2018. Except as noted, all properties are fee owned:
Location
 
Legal Ownership %
 
Square Feet
 
% Occupied
 
Consolidated Outlet Centers
 
 
 
 
 
 
 
Deer Park, New York
 
100

 
740,159

 
95
 
Riverhead, New York (1)
 
100

 
729,706

 
97
 
Rehoboth Beach, Delaware (1)
 
100

 
557,404

 
98
 
Foley, Alabama
 
100

 
556,677

 
99
 
Atlantic City, New Jersey (1) (4)
 
100

 
489,706

 
88
 
San Marcos, Texas
 
100

 
471,816

 
98
 
Sevierville, Tennessee (1)
 
100

 
448,355

 
100
 
Savannah, Georgia
 
100

 
429,089

 
96
 
Myrtle Beach Hwy 501, South Carolina
 
100

 
425,334

 
93
 
Jeffersonville, Ohio
 
100

 
411,793

 
93
 
Glendale, Arizona (Westgate)
 
100

 
410,783

 
98
 
Myrtle Beach Hwy 17, South Carolina (1)
 
100

 
403,339

 
99
 
Charleston, South Carolina
 
100

 
382,117

 
99
 
Lancaster, Pennsylvania
 
100

 
377,283

 
95
 
Pittsburgh, Pennsylvania
 
100

 
372,958

 
98
 
Commerce, Georgia
 
100

 
371,408

 
100
 
Grand Rapids, Michigan
 
100

 
357,080

 
96
 
Fort Worth, Texas
 
100

 
351,741

 
94
 
Daytona Beach, Florida
 
100

 
351,704

 
98
 
Branson, Missouri
 
100

 
329,861

 
99
 
Locust Grove, Georgia
 
100

 
321,082

 
97
 
Gonzales, Louisiana
 
100

 
321,066

 
97
 
Southaven, Mississippi (2) (4)
 
50

 
320,348

 
95
 
Park City, Utah
 
100

 
319,661

 
96
 
Mebane, North Carolina
 
100

 
318,886

 
99
 
Howell, Michigan
 
100

 
314,459

 
97
 
Mashantucket, Connecticut (Foxwoods) (1)
 
100

 
311,614

 
94
 
Williamsburg, Iowa
 
100

 
276,331

 
96
 
Tilton, New Hampshire
 
100

 
250,107

 
94
 
Hershey, Pennsylvania
 
100

 
247,500

 
96
 
Hilton Head II, South Carolina
 
100

 
206,564

 
94
 
Ocean City, Maryland (1)
 
100

 
199,425

 
98
 
Hilton Head I, South Carolina
 
100

 
181,670

 
99
 
Terrell, Texas
 
100

 
177,800

 
96
 
Blowing Rock, North Carolina
 
100

 
104,009

 
98
 
Nags Head, North Carolina
 
100

 
82,161

 
87
 
Total
 
 
 
12,920,996

 
96
(3) 
(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'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 Fort Worth center which opened during the fourth quarter of 2017 and has not yet stabilized.
(4)
Property encumbered by mortgage. See notes 8 and 9 to the consolidated financial statements for further details of our debt obligations.



21



Location
 
Legal Ownership %
 
Square Feet
 
% Occupied
 
Unconsolidated joint venture properties
 
 
 
 
 
 
 
Charlotte, North Carolina (1)
 
50

 
397,857

 
99
 
Columbus, Ohio (1)
 
50

 
355,245

 
95
 
Ottawa, Ontario
 
50

 
354,978

 
94
 
Texas City, Texas (Galveston/Houston) (1)
 
50

 
352,705

 
98
 
National Harbor, Maryland (1)
 
50

 
341,156

 
98
 
Cookstown, Ontario
 
50

 
307,779

 
98
 
Bromont, Quebec
 
50

 
161,307

 
72
 
Saint-Sauveur, Quebec (1)
 
50

 
99,405

 
96
 
Total
 
 
 
2,370,432

 
95
 
(1)
Property encumbered by mortgage. See Note 6, to the consolidated financial statements for further details of our debt obligations.

Lease Expirations

The following table sets forth, as of February 1, 2018, scheduled lease expirations for our consolidated outlet centers, assuming none of the tenants exercise renewal options:
Year
 
No. of Leases Expiring
 
Approx. Square Feet (in 000's)(1) 
 
Average Annualized Base Rent per sq. ft
 
Annualized Base Rent
   (in 000's)(2)
 
% of Gross Annualized Base Rent Represented by Expiring Leases
2018
 
179

 
758

 
$
25.41

 
$
19,263

 
7
2019
 
273

 
1,154

 
24.87

 
28,700

 
10
2020
 
311

 
1,613

 
22.00

 
35,489

 
12
2021
 
285

 
1,473

 
23.13

 
34,072

 
12
2022
 
271

 
1,226

 
25.38

 
31,119

 
11
2023
 
200

 
1,103

 
23.04

 
25,417

 
9
2024
 
144

 
645

 
33.16

 
21,389

 
7
2025
 
278

 
1,259

 
27.55

 
34,682

 
12
2026
 
237

 
1,002

 
26.87

 
26,923

 
9
2027
 
143

 
708

 
24.94

 
17,661

 
6
2028 and after
 
77

 
674

 
19.96

 
13,451

 
5
 
 
2,398

 
11,615

 
$
24.81

 
$
288,166

 
100
(1)
Excludes leases that have been entered into but which tenant has not yet taken possession, vacant suites, space under construction, temporary leases and month-to-month leases totaling in the aggregate approximately 1.3 million square feet.
(2)
Annualized base rent is defined as the minimum monthly payments due as of February 1, 2018 annualized, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.


22



Based on current market rental rates, we believe we will achieve overall positive increases in our average rental income for leases expiring in 2018. However, changes in rental income associated with individual signed leases on comparable spaces may be positive or negative, and we can provide no assurance that the rents on new leases will continue to increase from current levels, if at all.

Base Rents and Occupancy Rates

The following table sets forth our year end occupancy and average annual base rent per square foot during each of the last five calendar years for our consolidated properties:

 
 
2017
 
2016
 
2015
 
2014
 
2013
Occupancy
 
97
%
 
98
%
 
97
%
 
98
%
 
99
%
Average annual base rent per square foot (1)
 
$
25.81

 
$
26.10

 
$
25.19

 
$
23.78

 
$
22.98

(1)
Average annual base rent per square foot is calculated based on base rental revenues recognized during the year on a straight-line basis including non-cash adjustments to base rent required by United States Generally Accepted Accounting Principles ("GAAP") and the effects of inducements and rent concessions.

The following table sets forth information regarding the expiring leases for our consolidated outlet centers during each of the last five calendar years:

 
 
Total Expiring
 
Renewed by Existing
Tenants
Year
 
Square Feet
(in 000's)
 
% of
Total Outlet Center Square Feet (1)
 
Square Feet
(in 000's)
 
% of
Expiring Square Feet
2017(2)
 
1,549

 
12
 
1,296

 
84
2016(3)
 
1,440

 
12
 
1,223

 
85
2015(4)
 
1,532

 
13
 
1,282

 
84
2014(5)
 
1,613

 
14
 
1,241

 
77
2013
 
1,950

 
18
 
1,574

 
81
(1)
Represents the percentage of total square footage at the beginning of each year that is scheduled to expire during the respective year.
(2)
Excludes Westbrook outlet center, which was sold in 2017.
(3)
Excludes Fort Myers outlet center, which was sold in 2016.
(4)
Excludes the outlet centers in Kittery I & II, Tuscola, West Branch, and Barstow, which were sold during 2015.
(5)
Excludes the Lincoln City outlet center, which was sold in 2014.


23



The following table sets forth the weighted average base rental rate increases per square foot on a straight-line basis (includes periodic, contractual fixed rent increases) for our consolidated outlet centers upon re-leasing stores that were turned over or renewed during each of the last five calendar years:
 
 
Renewals of Existing Leases
 
Stores Re-leased to New Tenants (1)
 
 
 
 
Average Annualized Base Rent
 
 
 
Average Annualized Base Rent
 
 
 
 
($ per sq. ft.)
 
 
 
($ per sq. ft.)
Year
 
Square Feet
(in 000's)
 
Expiring
 
New
 
%
Increase
 
Square Feet
(in 000's)
 
Expiring
 
New
 
% Increase
2017(2)(3)
 
1,261

 
$
28.21

 
$
30.65

 
9
 
413

 
$
30.46

 
$
33.24

 
9
2016 (2)(4)
 
1,187

 
27.44

 
32.26

 
18
 
384

 
32.15

 
42.84

 
33
2015(5)
 
1,282

 
21.77

 
26.06

 
20
 
444

 
24.33

 
31.48

 
29
2014(6)
 
1,241

 
19.97

 
23.38

 
17
 
470

 
24.20

 
32.93

 
36
2013
 
1,574

 
20.09

 
23.96

 
19
 
510

 
22.19

 
30.57

 
38
(1)
The square footage released to new tenants for 2017, 2016, 2015, 2014, and 2013 contains 107,000, 93,000 149,000, 207,000, and 224,000, respectively, that was released to new tenants upon expiration of an existing lease during the respective year.
(2)
Includes both minimum base rent and common area maintenance rents.
(3)
Excludes Westbrook outlet center, which was sold in 2017.
(4)
Excludes Fort Myers outlet center, which was sold in 2016 and includes the Westgate and Savannah outlet centers, which are both now consolidated due to the acquisition of the other joint venture partners' interests during 2016 .
(5)
Excludes the outlet centers in Kittery I & II, Tuscola, West Branch, and Barstow, which were sold during 2015.
(6)
Excludes the Lincoln City outlet center, which was sold in 2014.

Occupancy Costs

We believe that our ratio of average tenant occupancy cost (which includes base rent, common area maintenance, real estate taxes, insurance, advertising and promotions) to average sales per square foot is low relative to other forms of retail distribution. The following table sets forth for tenants that report sales, for each of the last five calendar years, tenant occupancy costs per square foot as a percentage of reported tenant sales per square foot for our consolidated outlet centers:

Year
 
Occupancy Costs as a
% of Tenant Sales
2017
 
10.0

2016
 
9.9

2015
 
9.3

2014
 
8.9

2013
 
8.6



24



Tenants
The following table sets forth certain information for our consolidated outlet centers with respect to our ten largest tenants and their store concepts as of February 1, 2018:
Tenant
 
Number of Stores
 
Square Feet
 
% of Total Square Feet
The Gap, Inc.:
 
 
 
 
 
 
Old Navy
 
30

 
437,584

 
3.4
GAP
 
34

 
315,134

 
2.4
Banana Republic
 
33

 
269,930

 
2.1
 
 
97

 
1,022,648

 
7.9
Ascena Retail Group, Inc.:
 
 
 
 
 
 
Dress Barn
 
28

 
225,298

 
1.7
Loft
 
31

 
204,535

 
1.6
Ann Taylor
 
24

 
154,291

 
1.2
Lane Bryant
 
24

 
121,663

 
0.9
Justice
 
26

 
112,752

 
0.9
Maurice's
 
12

 
58,561

 
0.5
 
 
145

 
877,100

 
6.8
Nike, Inc.:
 
 
 
 
 
 
Nike
 
30

 
422,279

 
3.3
Converse
 
13

 
43,772

 
0.3
Hurley
 
1

 
2,133

 
*
 
 
44

 
468,184

 
3.6
PVH Corp.:
 
 
 
 
 
 
Tommy Hilfiger
 
31

 
233,074

 
1.8
Van Heusen
 
24

 
97,599

 
0.8
Calvin Klein, Inc.
 
12

 
79,435

 
0.6
 
 
67

 
410,108

 
3.2
H&M Group:
 
 
 
 
 
 
H&M
 
19

 
407,342

 
3.2
 
 
19

 
407,342

 
3.2
 
 
 
 
 
 
 
Ralph Lauren Corporation:
 
 
 
 
 
 
Polo Ralph Lauren
 
31

 
340,768

 
2.6
Polo Children
 
4

 
20,607

 
0.2
Polo Ralph Lauren Big & Tall
 
2

 
9,230

 
0.1
Lauren Ralph Lauren
 
1

 
6,250

 
*
 
 
38

 
376,855

 
2.9
V. F. Corporation:
 
 
 
 
 
 
VF Outlet
 
10

 
183,639

 
1.4
Nautica
 
10

 
49,078

 
0.4
The North Face
 
7

 
51,445

 
0.4
Timberland
 
8

 
41,426

 
0.3
Vans
 
9

 
37,702

 
0.3
 
 
44

 
363,290

 
2.8
 
 
 
 
 
 
 
G-III Apparel Group, Ltd.:
 
 
 
 
 
 
Bass
 
29

 
165,562

 
1.3
Wilson's Leather
 
31

 
116,148

 
0.9
DKNY Donna Karan New York
 
2

 
7,000

 
0.1
 
 
62

 
288,710

 
2.3
 
 
 
 
 
 
 
Carter's Inc.:
 
 
 
 
 
 
OshKosh B'Gosh
 
30

 
123,943

 
0.9
Carter's
 
32

 
143,563

 
1.1
 
 
62

 
267,506

 
2.0
Under Armour, Inc.:
 
 
 
 
 
 
Under Armour
 
30

 
247,374

 
1.9
Under Armour Kids
 
3

 
10,022

 
0.1
 
 
33

 
257,396

 
2.0
 
 
 
 
 
 
 
Total of all tenants listed in table
 
611


4,739,139


36.7
* Less than 0.1%.

25



Significant Properties

The Deer Park, New York outlet center is the only property that comprises 10% or more of our consolidated total assets. No property comprises more than 10% of our consolidated revenues.

Tenants at the Deer Park outlet center principally conduct retail sales operations. The following table shows occupancy and certain base rental information related to this property as of December 31, 2017, 2016, and 2015:
Deer Park
 
Square Feet
 
2017
 
2016
 
2015
Outlet Center Occupancy
 
749,074

 
95
%
 
97
%
 
95
%
 
 
 
 
 
 
 
 
 
Average base rental rates per weighted average square foot (1)
 
 
 
$
31.64

 
$
30.24

 
$
30.34

(1)
Average annual base rent per square foot is calculated based on base rental revenues recognized during the year on a straight-line basis including non-cash adjustments to base rent required by GAAP and the effects of inducements and rent concessions.

Depreciation on the outlet centers is computed on the straight-line basis over the estimated useful lives of the assets. We generally use estimated lives ranging from 33 years for buildings, 15 years for land improvements and 7 years for equipment. Expenditures for ordinary repairs and maintenance are charged to operations as incurred while significant renovations and improvements, including tenant finishing allowances, which improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life. Real estate taxes assessed on this outlet center during 2017 amounted to $4.6 million. Real estate taxes for 2018 are estimated to be approximately $4.9 million.

The following table sets forth, as of February 1, 2018, scheduled lease expirations for the Deer Park outlet center assuming that none of the tenants exercise renewal options:
Year
 
No. of
Leases
Expiring (1)
 
Square Feet
(in 000's) (1)
 
Annualized
Base Rent
per Square Foot
 
Annualized
Base Rent
    (in 000's) (2)
 
% of Gross
Annualized
Base Rent
Represented
by Expiring
Leases
2018
 
19

 
103

 
$
32.78

 
$
3,376

 
16

2019
 
18

 
68

 
45.97

 
3,126

 
15

2020
 
6

 
21

 
45.86

 
963

 
4

2021
 
10

 
54

 
49.04

 
2,648

 
12

2022
 
3

 
11

 
32.00

 
352

 
2

2023
 
6

 
80

 
20.20

 
1,616

 
7

2024
 
8

 
75

 
31.31

 
2,348

 
11

2025
 
6

 
26

 
22.00

 
572

 
3

2026
 
6

 
17

 
25.41

 
432

 
2

2027
 
6

 
19

 
37.21

 
707

 
3

2028 and thereafter
 
8

 
204

 
26.57

 
5,421

 
25

Total
 
96

 
678

 
$
31.80

 
$
21,561

 
100
%
(1)
Excludes leases that have been entered into but which tenant has not taken possession, vacant suites, temporary leases and month-to-month leases totaling in the aggregate approximately 62,000 square feet.
(2)
Annualized base rent is defined as the minimum monthly payments due as of February 1, 2018, excluding periodic contractual fixed increases and rents calculated based on a percentage of tenants' sales. The annualized base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants.


26



ITEM 3.
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 4.
MINE SAFETY DISCLOSURES

Not applicable.

Executive Officers of Tanger Factory Outlet Centers, Inc.

The following table sets forth certain information concerning the Company's executive officers. The Operating Partnership does not have executive officers:
NAME
 
AGE
 
POSITION
Steven B. Tanger
 
69
 
Director, Chief Executive Officer
Thomas E. McDonough
 
59
 
Executive Vice President - President and Chief Operating Officer
Chad D. Perry
 
46
 
Executive Vice President - General Counsel and Secretary
James F. Williams
 
53
 
Senior Vice President - Chief Financial Officer
Lisa J. Morrison
 
58
 
Senior Vice President - Leasing
Carrie A. Warren
 
55
 
Senior Vice President - Chief Marketing Officer
Virginia R. Summerell
 
59
 
Senior Vice President of Finance - Treasurer and Assistant Secretary
Charles A. Worsham
 
46
 
Senior Vice President - Construction and Development
Thomas J. Guerrieri Jr.
 
45
 
Vice President - Chief Accounting Officer and Controller

The following is a biographical summary of the experience of our executive officers:

Steven B. Tanger. Mr. Tanger is a director of the Company and has served as Chief Executive Officer since January 2009. Previously, Mr. Tanger served as President and Chief Executive Officer from January 2009 to May 2017, President and Chief Operating Officer from January 1995 to December 2008, and Executive Vice President from 1986 to December 1994. He has been with Tanger related companies for most of his professional career, having served as Executive Vice President of Tanger/Creighton for 10 years. Mr. Tanger is a graduate of the University of North Carolina at Chapel Hill and the Stanford University School of Business Executive Program. Mr. Tanger provides an insider’s perspective in Board discussions about the business and strategic direction of the Company and has experience in all aspects of the Company’s business.

Thomas E. McDonough. Mr. McDonough was named President and Chief Operating Officer in May 2017. He joined the Company in August 2010 as Executive Vice President of Operations and was named Executive Vice President and Chief Operating Officer in August 2011. Previously, he was the Co-Founder and Principal of MHF Real Estate Group, a real estate asset management firm, from September 2009 to August 2010. He served as Chief Investment Officer and was a member of the Investment Committee at Equity One, Inc. from July 2007 to April 2009. From April 2006 to July 2007, Mr. McDonough was a partner at Kahl & Goveia, and from February 1997 to April 2006, he was employed by Regency Centers Corp., and its predecessor, Pacific Retail Trust, as the national director of acquisitions and dispositions. Previously, from July 1984 to January 1997, Mr. McDonough served in various capacities, including partner and principal, with Trammell Crow Company. Mr. McDonough has supervisory responsibility over the senior officers that oversee the Company's operations, construction and development, leasing and marketing functions. Mr. McDonough is a graduate of Stanford University and holds an MBA degree from Harvard Business School.


27



Chad D. Perry. Mr. Perry joined the Company in December 2011 as Executive Vice President - General Counsel and was named Secretary in May 2012. He was Executive Vice President and Deputy General Counsel of LPL Financial Corporation from May 2006 to December 2011. Previously, he was Senior Corporate Counsel of EMC Corporation. Mr. Perry began his legal career with international law firm Ropes & Gray LLP. His responsibilities include corporate governance, compliance, and other legal matters, as well as management of outside counsel relationships and the Company's in house legal department. Mr. Perry is a graduate of Princeton University, and earned a J.D. from Columbia University, where he was a Harlan Fiske Stone Scholar. He is a member of both the Massachusetts and California bar associations.

James F. Williams. Mr. Williams was named Senior Vice President - Chief Financial Officer in May 2016. He joined the Company in September 1993, served as Controller from January 1995 to March 2015 and Chief Accounting Officer from March 2013 to May 2016. He was also named Assistant Vice President in January 1997, Vice President in April 2004, and Senior Vice President in February 2006. Prior to joining the Company, Mr. Williams was the Financial Reporting Manager of Guilford Mills, Inc. from April 1991 to September 1993 and was employed by Arthur Andersen from 1987 to 1991. He is responsible for the Company's financial reporting processes, as well as supervisory responsibility over the senior officers that oversee the Company's accounting, finance, investor relations and information systems functions. Mr. Williams is a graduate of the University of North Carolina at Chapel Hill and is a certified public accountant.

Lisa J. Morrison. Ms. Morrison was named Senior Vice President - Leasing in August 2004. Previously, she held the positions of Vice President - Leasing from May 2001 to August 2004, Assistant Vice President of Leasing from August 2000 to May 2001 and Director of Leasing from April 1999 until August 2000. Prior to joining the Company, Ms. Morrison was employed by the Taubman Company and Trizec Properties, Inc. where she served as a leasing agent. Previously, she was a director of leasing for Nelson Ross Properties. Her major responsibilities include managing the leasing strategies for our operating properties, as well as expansions and new developments. She also oversees the leasing personnel and the merchandising and occupancy for Tanger properties. Ms. Morrison is a graduate of the University of Detroit and holds an MA degree from Michigan State University.
 
Virginia R. Summerell. Ms. Summerell was named Senior Vice President of Finance - Treasurer and Assistant Secretary of the Company in May 2011. Since joining the Company in August 1992, she has held various positions including Vice President, Treasurer, Assistant Secretary and Director of Finance. Her major responsibilities include oversight of corporate and project finance transactions, developing and maintaining banking relationships, management of treasury systems and the supervision of the Company's credit department. Prior to joining the Company, she served as a Vice President and in other capacities at Bank of America and its predecessors in Real Estate and Corporate Lending for nine years. Ms. Summerell is a graduate of Davidson College and holds an MBA from Wake Forest University Babcock School of Business.

Carrie A. Warren. Ms. Warren was named Senior Vice President - Chief Marketing Officer in January 2012. Previously, she held the positions of Senior Vice President - Marketing from May 2000 to January 2012, Vice President - Marketing from September 1996 to May 2000 and Assistant Vice President - Marketing from December 1995 to September 1996. Prior to joining Tanger, Ms. Warren was with Prime Retail, L.P. for 4 years where she served as Regional Marketing Director responsible for coordinating and directing marketing for five outlet centers in the southeast region. Previously, Ms. Warren was Marketing Manager for North Hills, Inc. for five years and also served in the same role for the Edward J. DeBartolo Corp. for two years. Her major responsibilities include managing the Company's marketing department and developing and overseeing implementation of all corporate and field marketing programs. Ms. Warren is a graduate of East Carolina University.

Charles A. Worsham. Mr. Worsham was named Senior Vice President - Construction and Development in May 2014 and previously held the position of Vice President - Development since April 2011. Prior to joining the Company, Mr. Worsham was employed by DDR Corp. for 8 years where he served as Vice President of Development from 2006 to 2010 and Development Director from 2003 to 2006 with a focus on executing the redevelopment and expansion program. From 1999 to 2003, Mr. Worsham served as Real Estate and Development Manager for Intown Suites, Inc. where he managed the development of hotel properties in various geographic regions. His major responsibilities include implementing the Company's real estate development program and oversight of construction personnel. Mr. Worsham is a graduate of Tennessee Technological University and holds an MBA degree in Real Estate from Georgia State University.


28



Thomas J. Guerrieri Jr. Mr. Guerrieri was named Vice President, Chief Accounting Officer and Controller in May 2017. Previously, he served as Vice President and Controller from January 2016 to May 2017, Vice President, Financial Reporting from January 2008 to January 2016, Assistant Vice President, Financial Reporting from August 2005 to January 2008, and Director of Financial reporting from since joining the Company in August 2000 to August 2005. Mr. Guerrieri began his career with PricewaterhouseCoopers LLP where he was employed from August 1995 to August 2000. His major responsibilities include oversight and supervision of the Company's accounting and financial reporting functions. Mr. Guerrieri is a graduate of the Kenan-Flagler Business School at the University of North Carolina at Chapel Hill and holds a master's degree in accounting and a bachelor's degree in business administration. Mr. Guerrieri is also a certified public accountant.

PART II

ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Tanger Factory Outlet Centers, Inc. Market Information

The common shares commenced trading on the New York Stock Exchange on May 28, 1993. The following table sets forth the high and low sales prices of the common shares as reported on the New York Stock Exchange Composite Tape, during the periods indicated:

2017
 
High
 
Low
 
Common Dividends Paid
 
First Quarter
 
$
37.34

 
$
30.98

 
$
0.3250

 
Second Quarter
 
33.68

 
24.71

 
0.3425

 
Third Quarter
 
27.88

 
23.06

 
0.3425

 
Fourth Quarter
 
26.73

 
21.81

 
0.3425

 
Year 2017
 
$
37.34

 
$
21.81

 
$
1.3525

 
 
 
 
 
 
 
 
 
2016
 
High
 
Low
 
Common Dividends Paid
 
First Quarter
 
$
36.51

 
$
29.46

 
$
0.2850

 
Second Quarter
 
40.22

 
33.71

 
0.3250

 
Third Quarter
 
42.20

 
38.01

 
0.3250

 
Fourth Quarter
 
38.77

 
32.71

 
0.3250

 
Year 2016
 
$
42.20

 
$
29.46

 
$
1.2600

 

Holders

As of February 1, 2018, there were approximately 413 common shareholders of record.

Share Repurchases

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.



29



The following table summarizes our common share repurchases for the fiscal quarter ended December 31, 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)
October 1, 2017 to October 31, 2017
 
—

 
$
—

 
—

 
$
75.7

November 1, 2017 to November 30, 2017
 
—

 
—

 
—

 
75.7

December 1, 2017 to December 31, 2017
 
—

 
—

 
—

 
75.7

Total
 
—

 
$
—

 
—

 
$
75.7


Dividends

The Company operates in a manner intended to enable it to qualify as a REIT under the Internal Revenue Code, or the Code. A REIT is required to distribute at least 90% of its taxable income to its shareholders each year. We intend to continue to qualify as a REIT and to distribute substantially all of our taxable income to our shareholders through the payment of regular quarterly dividends. Certain of our debt agreements limit the payment of dividends such that dividends shall not exceed funds from operations ("FFO"), as defined in the agreements, for the prior fiscal year on an annual basis or 95% of FFO on a cumulative basis.

Securities Authorized for Issuance under Equity Compensation Plans

The information required by this Item is set forth in Part III Item 12 of this document.

Performance Graph

The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act, except to the extent that the Company specifically incorporates it by reference into such filing.

The following share price performance chart compares our performance to the index of US equity REITs and US retail REITs, both prepared by SNL Financial.

Equity REITs are defined as those that derive more than 75% of their income from equity investments in real estate assets. The SNL equity index includes all publicly traded retail REITs (including malls, shopping centers and other retail REITs) listed on the New York Stock Exchange, NYSE MKT (formerly known as the American Stock Exchange), NASDAQ National Market System or the OTC Market Group.

All share price performance assumes an initial investment of $100 at the beginning of the period and assumes the reinvestment of dividends. Share price performance, presented for the five years ended December 31, 2017, is not necessarily indicative of future results.

30



392303161_chart-867f1d481eaa5a07ac8.jpg
 
 
 
Period Ended
Index
12/31/2012

 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
Tanger Factory Outlet Centers, Inc.
100.00

 
95.99

 
113.83

 
104.55

 
118.51

 
92.08

SNL US REIT Equity
100.00

 
103.72

 
132.24

 
135.89

 
147.96

 
159.94

SNL US REIT Retail
100.00

 
103.15

 
131.84

 
137.26

 
138.66

 
131.76


Tanger Properties Limited Partnership Market Information

There is no established public trading market for the Operating Partnership's common units. As of December 31, 2017, the Company's wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust, owned 94,560,536 units of the Operating Partnership and the Non-Company LPs owned 4,995,433 units. We made distributions per common unit during 2017 and 2016 as follows:
 
 
2017
 
2016
First Quarter
 
$
0.3250

 
$
0.285

Second Quarter
 
0.3425

 
0.325

Third Quarter
 
0.3425

 
0.325

Fourth Quarter
 
0.3425

 
0.325

Distributions per unit
 
$
1.3525

 
$
1.260




31



ITEM 6.
SELECTED FINANCIAL DATA (TANGER FACTORY OUTLET CENTERS, INC.)

The following data should be read in conjunction with our consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K:
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(in thousands, except per share and outlet center data)
OPERATING DATA
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
488,234

 
$
465,834

 
$
439,369

 
$
418,558

 
$
384,819

Operating income
 
160,723

 
151,277

 
144,461

 
131,863

 
127,705

Net income(1)(2)(3)(4)(5)
 
71,876

 
204,329

 
222,168

 
78,152

 
113,321

Net income available to common shareholders(1)(2)(3)(4)(5)
 
66,793

 
191,818

 
208,792

 
72,139

 
106,431

SHARE DATA
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Net income available to common
shareholders(1)(2)(3)(4)(5)
 
$
0.71

 
$
2.02

 
$
2.20

 
$
0.77

 
$
1.14

Weighted average common shares
 
94,506

 
95,102

 
94,698

 
93,769

 
93,311

Diluted:
 
 
 
 
 
 
 
 
 
 
Net income available to common
shareholders(1)(2)(3)(4)(5)
 
$
0.71

 
$
2.01

 
$
2.20

 
$
0.77

 
$
1.13

Weighted average common shares
 
94,522

 
95,345

 
94,759

 
93,839

 
94,247

Common dividends (6)
 
$
1.3525

 
$
1.2600

 
$
1.3050

 
$
0.9450

 
$
0.8850

BALANCE SHEET DATA
 
 
 
 
 
 
 
 
 
 
Real estate assets, before depreciation
 
$
3,088,470

 
$
2,965,907

 
$
2,513,217

 
$
2,263,603

 
$
2,249,819

Total assets
 
2,540,105

 
2,526,214

 
2,314,825

 
2,085,534

 
1,995,638

Debt
 
1,763,651

 
1,687,866

 
1,551,924

 
1,431,068

 
1,317,231

Total equity
 
612,302

 
705,441

 
606,032

 
523,886

 
557,595

CASH FLOW DATA
 
 
 
 
 
 
 
 
 
 
Cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
253,159

 
$
239,316

 
$
220,755

 
$
188,771

 
$
187,486

Investing activities
 
(117,545
)
 
(45,501
)
 
(221,827
)
 
(188,588
)
 
(174,226
)
Financing activities
 
(141,679
)
 
(203,467
)
 
6,854

 
1,977

 
(7,072
)
OTHER DATA
 
 
 
 
 
 
 
 
 
 
Square feet open:
 
 
 
 
 
 
 
 
 
 
Consolidated
 
12,930

 
12,710

 
11,746

 
11,346

 
11,537

Partially-owned (unconsolidated)
 
2,370

 
2,348

 
2,747

 
2,606

 
1,719

Number of outlet centers:
 
 
 
 
 
 
 
 
 
 
Consolidated
 
36

 
36

 
34

 
36

 
37

Partially-owned (unconsolidated)
 
8

 
8

 
9

 
9

 
7

(1)
For the year ended December 31, 2017, net income includes a $6.9 million gain on the sale of our outlet center in Westbrook, Connecticut, a $35.6 million loss on early extinguishment of debt related to the early redemption of senior notes due 2020 and a $9.0 million impairment charge, associated with our RioCan Canada unconsolidated joint ventures.
(2)
For the year ended December 31, 2016, net income includes gains of approximately $95.5 million related to the acquisitions of our other venture partners' equity interests in the Westgate and Savannah joint ventures, and $6.3 million in gains on the sale of our Fort Myers, Florida outlet center and the sale of an outparcel at our Hwy 501 outlet center in Myrtle Beach, South Carolina.
(3)
For the year ended December 31, 2015, net income includes gains of approximately $120.4 million from the sale of our equity interest in the Wisconsin Dells joint venture and the sale of our Kittery I & II, Tuscola, West Branch and Barstow outlet centers.
(4)
For the year ended December 31, 2014, net income includes a $7.5 million gain on the sale of our Lincoln City outlet center and a $13.1 million loss on early extinguishment of debt related to the early redemption of senior notes due November 2015.
(5)
For the year ended December 31, 2013, net income includes a $26.0 million gain on our previously held interest in Deer Park upon the acquisition of an additional one-third interest in August 2013.
(6)
For the year ended December 31, 2015, common dividends include a special dividend paid on January 15, 2016 to holders of record as of December 31, 2015.

32



ITEM 6.
SELECTED FINANCIAL DATA (TANGER PROPERTIES LIMITED PARTNERSHIP)

The following data should be read in conjunction with our consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Form 10-K:
 
 
2017
 
2016
 
2015
 
2014
 
2013
 
 
(in thousands, except per unit and outlet center data)
OPERATING DATA
 
 
 
 
 
 
 
 
 
 
Total revenues
 
$
488,234

 
$
465,834

 
$
439,369

 
$
418,558

 
$
384,819

Operating income
 
160,723

 
151,277

 
144,461

 
131,863

 
127,705

Net income(1)(2)(3)(4)(5)
 
71,876

 
204,329

 
222,168

 
78,152

 
113,321

Net income available to common unitholders(1)(2)(3)(4)(5)
 
70,402

 
202,103

 
220,118

 
76,175

 
112,071

UNIT DATA
 
 
 
 
 
 
 
 
 
 
Basic:
 
 
 
 
 
 
 
 
 
 
Net income available to common unitholders(1)(2)(3)(4)(5)
 
$
0.71

 
$
2.02

 
$
2.21

 
$
0.77

 
$
1.14

Weighted average common units
 
99,533

 
100,155

 
99,777

 
98,883

 
98,193

Diluted:
 
 
 
 
 
 
 
 
 
 
Net income available to common unitholders(1)(2)(3)(4)(5)
 
$
0.71

 
$
2.01

 
$
2.20

 
$
0.77

 
$
1.13

Weighted average common units
 
99,549

 
100,398

 
99,838

 
98,953

 
99,129

Common distributions (6)
 
$
1.3525

 
$
1.2600

 
$
1.3050

 
$
0.9450

 
$
0.8850

BALANCE SHEET DATA
 
 
 
 
 
 
 
 
 
 
Real estate assets, before depreciation
 
$
3,088,470

 
$
2,965,907

 
$
2,513,217

 
$
2,263,603

 
$
2,249,819

Total assets
 
2,539,434

 
2,525,687

 
2,314,154

 
2,083,959

 
1,995,132

Debt
 
1,763,651

 
1,687,866

 
1,551,924

 
1,431,068

 
1,317,231

Total equity
 
612,302

 
705,441

 
606,032

 
523,886

 
557,595

CASH FLOW DATA
 
 
 
 
 
 
 
 
 
 
Cash flows provided by (used in):
 
 
 
 
 
 
 
 
 
 
Operating activities
 
$
253,131

 
$
239,299

 
$
221,818

 
$
187,959

 
$
187,269

Investing activities
 
(117,545
)
 
(45,501
)
 
(221,827
)
 
(188,588
)
 
(174,226
)
Financing activities
 
(141,679
)
 
(203,467
)
 
6,854

 
1,977

 
(7,072
)
OTHER DATA
 
 
 
 
 
 
 
 
 
 
Consolidated
 
12,930

 
12,710

 
11,746

 
11,346

 
11,537

Partially-owned (unconsolidated)
 
2,370

 
2,348

 
2,747

 
2,606

 
1,719

Number of outlet centers:
 
 
 
 
 
 
 
 
 
 
Consolidated
 
36

 
36

 
34

 
36

 
37

Partially-owned (unconsolidated)
 
8

 
8

 
9

 
9

 
7

(1)
For the year ended December 31, 2017, net income includes a $6.9 million gain on the sale of our outlet center in Westbrook, Connecticut, a $35.6 million loss on early extinguishment of debt related to the early redemption of senior notes due 2020 and a $9.0 million impairment charge, associated with our RioCan Canada unconsolidated joint ventures.
(2)
For the year ended December 31, 2016, net income includes gains of approximately $95.5 million related to the acquisitions of our other venture partners' equity interests in the Westgate and Savannah joint ventures, and $6.3 million in gains on the sale of our Fort Myers, Florida outlet center and the sale of an outparcel at our Hwy 501 outlet center in Myrtle Beach, South Carolina.
(3)
For the year ended December 31, 2015, net income includes gains of approximately $120.4 million from the sale of our equity interest in the Wisconsin Dells joint venture and the sale of our Kittery I & II, Tuscola, West Branch and Barstow outlet centers.
(4)
For the year ended December 31, 2014, net income includes a $7.5 million gain on the sale of our Lincoln City outlet center and a $13.1 million loss on early extinguishment of debt related to the early redemption of senior notes due November 2015.
(5)
For the year ended December 31, 2013, net income includes a $26.0 million gain on our previously held interest in Deer Park upon the acquisition of an additional one-third interest in August 2013.
(6)
For the year ended December 31, 2015, common dividends include a special dividend paid on January 15, 2016 to holders of record as of December 31, 2015.


33



ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Statements

Certain statements made in Item 1 - Business and 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, or the Exchange Act. We intend 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 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: future issuances of equity and debt and the expected use of proceeds from such issuances; potential sales or purchases of outlet centers; anticipated results of operations, liquidity and working capital; outlet center developments, expansions and renovations; 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 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 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 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 that consumer, travel, shopping and spending habits may change; 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; 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.

We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. For a further discussion of the risks relating to our business, see “Item 1A-Risk Factors” in Part I of this Annual Report on Form 10-K.

The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations.


34



General Overview

As of December 31, 2017, we had 36 consolidated outlet centers in 22 states totaling 12.9 million square feet. We also had 8 unconsolidated outlet centers totaling 2.4 million square feet, including 4 outlet centers in Canada. The table below details our acquisitions, new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2015 to December 31, 2017:
 
 
 
 
Consolidated Outlet Centers
 
Unconsolidated Joint Venture Outlet Centers
Outlet Center
 
Quarter Acquired/Open/Disposed/Demolished
 
Square Feet (in thousands)
 
Number Centers
 
 Square Feet (in thousands)
 
Number of
Outlet Centers
As of January 1, 2015
 
 
 
11,346

 
36

 
2,606

 
9

New Developments:
 
 
 
 
 
 
 
 
 
 
Foxwoods
 
Second Quarter
 
312

 
1

 
—

 
—

Savannah
 
Second Quarter
 
—

 
—

 
377

 
1

Grand Rapids
 
Third Quarter
 
352

 
1

 
—

 
—

Southaven
 
Fourth Quarter
 
320

 
1

 
—

 
—

Expansions:
 
 
 
 
 
 
 
 
 
 
Westgate
 
First Quarter
 
—

 
—

 
28

 
—

San Marcos
 
Fourth Quarter
 
24

 
—

 
—

 
—

Dispositions:
 
 
 
 
 
 
 
 
 
 
Wisconsin Dells
 
First Quarter
 
—

 
—

 
(265
)
 
(1
)
Kittery I
 
Third Quarter
 
(52
)
 
(1
)
 
—

 
—

Kittery II
 
Third Quarter
 
(25
)
 
(1
)
 
—

 
—

Tuscola
 
Third Quarter
 
(250
)
 
(1
)
 
—

 
—

West Branch
 
Third Quarter
 
(113
)
 
(1
)
 
—

 
—

Barstow
 
Fourth Quarter
 
(171
)
 
(1
)
 
—

 
—

Other
 
 
 
3

 
—

 
1

 
—

As of December 31, 2015
 
 
 
11,746

 
34

 
2,747

 
9

New Developments:
 
 
 
 
 
 
 
 
 
 
Columbus
 
Second Quarter
 
—

 
—

 
355

 
1

Daytona Beach
 
Fourth Quarter
 
349

 
1

 
—

 
—

Acquisition:
 
 
 
 
 
 
 
 
 
 
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
 
First and Third Quarter
 
(25
)
 
—

 
—

 
—

Other
 
 
 
12

 
—

 
(1
)
 
—

As of December 31, 2016
 
 
 
12,710

 
36

 
2,348

 
8

New Developments:
 
 
 
 
 
 
 
 
 
 
Fort Worth
 
Fourth Quarter
 
352

 
1

 
—

 
—

Expansion:
 
 
 
 
 
 
 
 
 
 
Ottawa
 
Second Quarter
 
—

 
—

 
39

 
—

Lancaster
 
Third Quarter
 
148

 
—

 
—

 
—

Dispositions:
 
 
 
 
 
 
 
 
 
 
Westbrook
 
Second Quarter
 
(290
)
 
(1
)
 
—

 
—

Other
 
 
 
10

 
—

 
(17
)
 
—

As of December 31, 2017
 
 
 
12,930

 
36

 
2,370

 
8


35



Leasing Activity
The following table provides information for our consolidated outlet centers regarding space re-leased or renewed during the years ended December 31, 2017 and 2016, respectively:
 
 
2017 (1)
 
 
# of Leases
 
Square Feet (in 000's)
 
Average
Annual
Straight-line Base Rent (psf)
 
Average
Tenant
Allowance (psf)
 
Average Initial Term (in years)
 
Net Average
Annual
Straight-line Base Rent (psf) (3)
Re-tenant
 
79

 
413

 
$
33.24

 
$
70.51

 
5.79

 
$
21.06

Renewal
 
273

 
1,261

 
30.65

 
0.25

 
4.40

 
30.59

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016 (1)
 
 
# of Leases
 
Square Feet (in 000's)
 
Average
Annual
Straight-line Base Rent (psf)
 
Average
Tenant
Allowance (psf)
 
Average Initial Term (in years)
 
Net Average
Annual
Straight-line Base Rent (psf) (3)
Re-tenant
 
124

 
384

 
$
42.84

 
$
34.69

 
8.75

 
$
38.88

Renewal
 
259

 
1,187

 
32.26

 
0.46

 
4.56

 
32.16

(1)
Represents change in rent (base rent and common area maintenance) for leases for new stores that opened or renewals that started during the respective trailing twelve month periods, excluding temporary tenants and month to month leases. Includes consolidated outlet centers owned as of current period end date. Excludes unconsolidated outlet centers.
(2)
Net average 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 landlord costs.

36



Results of Operations

2017 Compared to 2016

Net Income
Net income decreased $132.5 million in 2017 compared to 2016. The majority of this decrease was due to a loss on the early extinguishment of debt of $35.6 million in the 2017 period and 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 developments and expansions represent our Fort Worth and Daytona Beach outlet centers, which opened in October 2017 and November 2016, respectively and our Lancaster expansion, which opened in September 2017. Acquisitions include our Westgate and Savannah outlet centers, which were previously held in unconsolidated joint ventures prior to our acquisitions of our venture partners' interest in each venture in June 2016 and August 2016, respectively. Properties disposed include our Westbrook and Fort Myers outlet centers sold in May 2017 and January 2016, respectively.

Base Rentals
Base rentals increased $15.6 million, or 5%, 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
 
Increase/
(Decrease)
Base rentals from existing properties
 
$
279,170


$
278,732

 
$
438

Base rentals from new developments and expansions
 
16,174

 
8,326

 
7,848

Base rentals from acquisitions
 
20,154

 
8,920

 
11,234

Base rentals from properties disposed
 
1,596

 
4,621

 
(3,025
)
Straight-line rent adjustments
 
5,632

 
7,002

 
(1,370
)
Termination fees
 
3,633

 
3,599

 
34

Amortization of above and below market rent adjustments, net
 
(2,374
)
 
(2,847
)
 
473

 
 
$
323,985

 
$
308,353

 
$
15,632


Percentage Rentals
Percentage rentals decreased $1.4 million, or 12%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of percentage rentals (in thousands):
 
 
2017
 
2016
 
Increase/
(Decrease)
Percentage rentals from existing properties
 
$
8,547

 
$
10,303

 
$
(1,756
)
Percentage rentals from new developments and expansions
 
198

 
22

 
176

Percentage rentals from acquisitions
 
1,043

 
759

 
284

Percentage rentals from properties disposed
 
65

 
137

 
(72
)
 
 
$
9,853

 
$
11,221

 
$
(1,368
)

Percentage rentals represents revenues based on a percentage of tenants' sales volume above their contractual breakpoints. The decrease in percentage rentals is primarily due to a decrease in average sales per square foot for certain tenants for the rolling twelve months ended December 31, 2017, compared to the rolling twelve months ended December 31, 2016 and due to annual increases in contractual breakpoints in certain leases.


37



Expense Reimbursements
Expense reimbursements increased $9.0 million, or 7%, 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
 
Increase/
(Decrease)
Expense reimbursements from existing properties
 
$
122,323

 
$
123,032

 
$
(709
)
Expense reimbursements from new developments and expansions
 
8,502

 
3,675

 
4,827

Expense reimbursements from acquisitions
 
11,240

 
4,877

 
6,363

Expense reimbursements from properties disposed
 
752

 
2,234

 
(1,482
)
 
 
$
142,817

 
$
133,818

 
$
8,999


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 $1.4 million, or 36%, 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
 
$
2,310

 
$
2,744

 
$
(434
)
Development and leasing
 
124

 
651

 
(527
)
Loan guarantee
 
18

 
452

 
(434
)
 
 
$
2,452

 
$
3,847

 
$
(1,395
)

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 prior to our acquisition of our venture partners' equity interests in the Westgate and Savannah outlet centers during 2016. In connection with such acquisitions, we 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 $532,000, or 6%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of other income (in thousands):
 
 
2017
 
2016
 
Increase/
(Decrease)
Other income from existing properties
 
$
7,796

 
$
7,826

 
$
(30
)
Other income from new developments and expansions
 
463

 
237

 
226

Other income from acquisitions
 
812

 
399

 
413

Other income from properties disposed
 
56

 
133

 
(77
)
 
 
$
9,127

 
$
8,595

 
$
532



38



Property Operating Expenses
Property operating expenses increased $3.2 million, or 2%, in the 2017 period compared to the 2016 period. 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
 
$
136,564

 
$
140,146

 
$
(3,582
)
Property operating expenses from new developments and expansions
 
8,698

 
4,425

 
4,273

Property operating expenses from acquisitions
 
9,090

 
4,295

 
4,795

Property operating expenses from properties disposed
 
883

 
3,151

 
(2,268
)
 
 
$
155,235

 
$
152,017

 
$
3,218


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 in the 2017 period decreased $2.7 million, or 6% compared to the 2016 period, primarily due to lower amounts of incentive compensation earned in the 2017 period compared to the 2016 period and due to the 2016 period including compensation related to an executive officer termination and the death of a director totaling approximately $1.2 million.

Abandoned Pre-Development Costs
During the 2017 period, we decided to terminate a purchase option for a pre-development stage project near Detroit, Michigan, and as a result, recorded a $528,000 charge, representing the cumulative related pre-development costs.

Depreciation and Amortization
Depreciation and amortization expense increased $12.4 million, or 11%, in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of depreciation and amortization (in thousands):

 
 
2017
 
2016
 
Increase/
(Decrease)
Depreciation and amortization expenses from existing properties
 
$
104,309

 
$
105,550

 
$
(1,241
)
Depreciation and amortization expenses from new developments and expansions
 
7,300

 
2,407

 
4,893

Depreciation and amortization expenses from acquisitions
 
15,448

 
5,999

 
9,449

Depreciation and amortization from properties disposed
 
687

 
1,401

 
(714
)
 
 
$
127,744

 
$
115,357

 
$
12,387


Depreciation and amortization decreased at our existing properties primarily due to due to tenant improvements and lease related intangibles recorded as part of the acquisition price of acquired properties, which are amortized over shorter lives, becoming fully depreciated during the reporting periods.

Interest Expense and Loss on Early Extinguishment of Debt
Interest expense increased $4.2 million, or 7%, in the 2017 period compared 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 and (3) the additional debt incurred related to the 2016 acquisitions of Westgate and Savannah.




39



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 the write off of approximately $1.5 million of unamortized debt discount and debt origination costs related to the 2020 Notes.

Gain on Sale of Assets and Interests in Unconsolidated Entities
In May 2017, we sold our Westbrook outlet center for approximately $40.0 million, which resulted in a gain of $6.9 million. In September 2016, we sold an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 501 for approximately $2.9 million and recognized a gain of approximately $1.4 million. Also, in the first quarter of 2016, we sold our Fort Myers outlet center for approximately $25.8 million, which resulted in a gain of $4.9 million.

Gain on Previously Held Interest in Acquired Joint Venture
On June 30, 2016, we completed the purchase 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 million. The purchase was funded with borrowings 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 by us 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 our joint venture 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 of Unconsolidated Joint Ventures
Equity in earnings of unconsolidated joint ventures decreased approximately $8.9 million or 82% in the 2017 period compared to the 2016 period. The following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures (in thousands):
 
 
2017
 
2016
 
Increase/
(Decrease)
Equity in earnings from existing properties
 
$
505

 
$
6,361

 
$
(5,856
)
Equity in earnings from new developments
 
1,432

 
868

 
$
564

Equity in earnings from properties previously held in unconsolidated joint ventures
 
—

 
3,643

 
(3,643
)
 
 
$
1,937

 
$
10,872

 
$
(8,935
)

Equity in earnings 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 is due to the incremental earnings from the Columbus outlet center, which opened in June 2016. The decrease in equity in earnings from properties previously held in unconsolidated joint ventures in 2016 is related to the Westgate and Savannah joint ventures. We acquired our venture partners' interest 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.

40



2016 Compared to 2015

Net Income
Net income decreased $17.8 million in 2016 compared to 2015. In 2016, we recorded a $95.5 million gain on the acquisitions of our venture partners' equity interests in the Westgate and Savannah joint ventures, a $4.9 million gain on the sale of our outlet center in Fort Myers, Florida and $1.4 million gain on the sale of an outparcel at our Hwy 501 outlet center in Myrtle Beach, South Carolina. In 2015, we recorded gains totaling $120.4 million related to the sale of our equity interest in the Wisconsin Dells joint venture, and the sales of our Kittery I & II, Tuscola, West Branch and Barstow outlet centers. In addition, net income in 2016 was impacted by:
•
an increase in operating income due to the opening of one new outlet center, the acquisitions of our partners' interest in two joint ventures, and the full year impact of the addition of three new consolidated centers in 2015; offset by
•
a decrease in operating income due to the properties disposed of in early 2016 and 2015; and
•
an increase in interest expense due to higher average borrowing levels and an increase in interest rates.

In the tables below, information set forth for new developments includes our Foxwoods, Grand Rapids, Southaven and Daytona Beach outlet centers, which opened in May 2015, July 2015, November 2015 and November 2016, respectively. Acquisitions include our Westgate and Savannah centers, which were previously held in unconsolidated joint ventures prior to our acquisitions of our venture partners' interest in each venture in June 2016 and August 2016, respectively. Properties disposed includes the Kittery I & II, Tuscola, and West Branch outlet centers sold in September 2015, the Barstow outlet center sold in October 2015 and the Fort Myers outlet center sold in January 2016.

Base Rentals
Base rentals increased $18.7 million, or 6%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of base rentals (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Base rentals from existing properties
 
$
265,207

 
$
262,522

 
$
2,685

Base rentals from new developments
 
26,406

 
10,618

 
15,788

Base rentals from acquisitions
 
8,920

 
—

 
8,920

Base rentals from properties disposed
 
66

 
7,631

 
(7,565
)
Straight-line rent adjustments
 
7,002

 
6,347

 
655

Termination fees
 
3,599

 
4,576

 
(977
)
Amortization of above and below market rent adjustments, net
 
(2,847
)
 
(2,006
)
 
(841
)
 
 
$
308,353

 
$
289,688

 
$
18,665


Base rental income generated from existing properties in our portfolio increased due to increases in rental rates on lease renewals, incremental rents from re-tenanting vacant spaces and multiple tenant rental step-ups.

Fees received from the early termination of leases, which are generally based on the lease term remaining at the time of termination, decreased as a result of fewer store closures throughout the portfolio in the 2016 period compared to the 2015 period.













41



Percentage Rentals
Percentage rentals increased $1.1 million, or 10%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of percentage rentals (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Percentage rentals from existing properties
 
$
9,428

 
$
8,972

 
$
456

Percentage rentals from new developments
 
844

 
45

 
799

Percentage rentals from acquisitions
 
759

 
—

 
759

Percentage rentals from properties disposed
 
190

 
1,140

 
(950
)
 
 
$
11,221

 
$
10,157

 
$
1,064


Percentage rentals represents revenues based on a percentage of tenants' sales volume above their contractual break points. The increase in percentage rentals from existing properties is due to higher sales volume for certain existing tenants and also due to certain new tenants added to the existing properties whose sales exceeded their contractual break point.

Expense Reimbursements
Expense reimbursements increased $7.4 million, or 6%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of expense reimbursements (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Expense reimbursements from existing properties
 
$
118,870

 
$
117,290

 
$
1,580

Expense reimbursements from new developments
 
9,931

 
4,005

 
5,926

Expense reimbursements from acquisitions
 
4,877

 
—

 
4,877

Expense reimbursements from properties disposed
 
140

 
5,173

 
(5,033
)
 
 
$
133,818

 
$
126,468

 
$
7,350


Expense reimbursements represent the contractual recovery from tenants of certain common area maintenance, insurance, property tax, promotional, advertising and management expenses. For certain tenants, we receive a fixed payment for CAM with annual escalations. While certain expense reimbursements generally fluctuate consistently with the related expenses, our expense recoveries for CAM as a percentage of expenses were higher in 2016 compared to 2015 due to leases with fixed-CAM escalations. When not reimbursed by the fixed-CAM component, CAM expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses for the property. See "Property Operating Expenses" below for a discussion of the increase in operating expenses from our existing properties.

Most, but not all, leases contain provisions requiring tenants to reimburse a share of our operating expenses as additional rent. However, substantially all of the leases for our new Foxwoods outlet center, which opened in May 2015, require tenants to pay a single minimum contractual gross rent and, in certain cases, percentage rent; thus, all minimum rents received for the Foxwoods outlet center are recorded as base rent and none are recorded to expense reimbursements.

Management, Leasing and Other Services
Management, leasing and other services decreased $1.6 million, or 29%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Management and marketing
 
$
2,744

 
$
2,853

 
$
(109
)
Development and leasing
 
651

 
1,827

 
(1,176
)
Loan guarantee
 
452

 
746

 
(294
)
 
 
$
3,847

 
$
5,426

 
$
(1,579
)

42



The decrease in management, leasing and other services is primarily due to the 2016 consolidation of both our Westgate and Savannah outlet centers due to the acquisitions of our venture partners' equity interests. This decrease was partially offset by development and leasing fees earned in 2016 from services provided to the Columbus joint venture which opened in June 2016.

Other Income
Other income increased $965,000, or 13%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of other income (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Other income from existing properties
 
$
7,510

 
$
6,874

 
$
636

Other income from new developments
 
700

 
457

 
243

Other income from acquisitions
 
366

 
—

 
366

Other income from properties disposed
 
19

 
299

 
(280
)
 
 
$
8,595

 
$
7,630

 
$
965


Property Operating Expenses
Property operating expenses increased $5.5 million, or 4%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Property operating expenses from existing properties
 
$
131,928

 
$
131,252

 
$
676

Property operating expenses from new developments
 
15,761

 
8,610

 
7,151

Property operating expenses from acquisitions
 
4,279

 
—

 
4,279

Property operating expenses from properties disposed
 
49

 
6,641

 
(6,592
)
 
 
$
152,017

 
$
146,503

 
$
5,514


General and Administrative Expenses
General and administrative expenses in the 2016 period increased $2.2 million, or 5% compared to the 2015 period. The 2015 period included the reversal of $731,000 of share-based compensation expense related to the October 2015 announcement that the Company’s then Chief Financial Officer would retire in May 2016. In addition, the 2016 period included increased legal, consulting and other professional fees compared to the 2015 period. In addition, the 2016 period included compensation related to executive officer and director terminations of approximately $1.2 million.

Depreciation and Amortization
Depreciation and amortization increased $11.4 million, or 11%, in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of depreciation and amortization (in thousands):

 
 
2016
 
2015
 
Increase/
(Decrease)
Depreciation and amortization expenses from existing properties
 
$
93,903

 
$
94,762

 
$
(859
)
Depreciation and amortization expenses from new developments
 
15,455

 
5,902

 
9,553

Depreciation and amortization expenses from acquisitions
 
5,999

 
—

 
5,999

Depreciation and amortization from properties disposed
 
—

 
3,272

 
(3,272
)
 
 
$
115,357

 
$
103,936

 
$
11,421



43



Depreciation and amortization costs decreased at existing properties as certain construction and development related assets, as well as lease related intangibles recorded as part of the acquisition price of acquired properties, which are amortized over shorter lives, became fully depreciated during 2016. This decrease was partially offset by additional depreciation and amortization recorded as a result of a change in the estimated useful life of assets at various centers where demolition of existing buildings occurred in conjunction with renovations and expansions.

Interest Expense
Interest expense increased $6.5 million, or 12%, in the 2016 period compared to the 2015 period, due to (1) the conversion of $525.0 million of debt with floating interest rates to higher fixed interest rates, (2) the 30-day LIBOR, which impacts the interest rate we pay on our remaining floating rate debt, increasing relative to its level in the 2015 period, and (3) the additional debt incurred related to the Westgate and Savannah acquisitions.

Gain on Sale of Assets and Interests in Unconsolidated Entities
The gain on sale of assets and interest in unconsolidated entities decreased approximately $114.1 million, or 95%, in the 2016 period compared to the 2015 period. In September 2016, we sold an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 501 for net proceeds of approximately $2.9 million and recognized a gain of approximately $1.4 million. Also, in the first quarter of 2016, we sold our Fort Myers outlet center for approximately $25.8 million, which resulted in a gain of $4.9 million. In February 2015, we recorded a gain of approximately $13.7 million from the sale of our equity interest in the joint venture that owned the Wisconsin Dells outlet center. In September 2015, we sold our Kittery I & II, Tuscola, and West Branch outlet centers for approximately $43.3 million, which resulted in a gain of $20.2 million and in October 2015, we sold our Barstow outlet center for approximately $105.8 million, which resulted in a gain of $86.5 million.

Gain on Previously Held Interest in Acquired Joint Venture
In June 2016, we completed the purchase 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 million. The purchase was funded with borrowings 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. 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 our joint venture 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 of Unconsolidated Joint Ventures
Equity in earnings of unconsolidated joint ventures decreased approximately $612,000 or 5% in the 2016 period compared to the 2015 period. The following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures (in thousands):
 
 
2016
 
2015
 
Increase/
(Decrease)
Equity in earnings from existing properties
 
$
6,361

 
$
8,550

 
$
(2,189
)
Equity in earnings from new developments
 
868

 
—

 
868

Equity in earnings from properties acquired or disposed
 
3,643

 
2,934

 
709

 
 
$
10,872

 
$
11,484

 
$
(612
)


44



Equity in earnings from existing properties for the 2016 period includes a $2.9 million asset impairment loss representing our share of the impairment loss recorded by the joint venture that owns the Bromont outlet center in Canada. The increase in equity in earnings of unconsolidated joint ventures from new developments is due to the incremental earnings from the Columbus outlet center, which opened in June 2016. The equity in earnings from properties acquired or disposed in 2016 includes the impact of our acquisitions of the respective venture partners’ interests in Westgate and Savannah joint ventures in June 2016 and August 2016, respectively. Equity in earnings from properties acquired or disposed in the 2015 period includes the impact of the sale of our interest in the Wisconsin Dells joint venture in February 2015.

Liquidity and Capital Resources of the Company

In this “Liquidity and Capital Resources of the Company” section, the term, the Company, refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership.
 
The Company'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's principal funding requirement is the payment of dividends on its common shares. The Company'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'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's partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership's partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.
 
We are a well-known seasoned issuer with a shelf registration which expires in June 2018 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, develop new or existing properties, make acquisitions of properties or portfolios of properties and invest in existing or newly created joint ventures, or for general corporate purposes.

The liquidity of the Company is dependent on the Operating Partnership'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's debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company's guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company's only material asset is its investment in the Operating Partnership.
 
The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured credit facilities, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its 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'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's ability to pay its distributions to the Company, which will in turn, adversely affect the Company's ability to pay cash dividends to its shareholders.


45



For the Company to maintain its qualification as a real estate investment trust, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income. 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's own shares. Based on our 2017 estimated taxable income to shareholders, we were required to distribute approximately $76.3 million to our shareholders in order to maintain our REIT status as described above. We distributed approximately $130.2 million during 2017.

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's working capital needs, as well as potential developments of new or 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's unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled "Liquidity and Capital Resources of the Operating 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 our Board of Directors authorized the repurchase of up to $125.0 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 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. During 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. The remaining amount authorized to be repurchased under the program as of December 31, 2017 was approximately $75.7 million.

Liquidity and Capital Resources of the Operating Partnership

General Overview

In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we”, “our” and “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, capital expenditures and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover such non-recurring capital expenditures and acquisitions, we finance such activities from borrowings under our unsecured lines of credit or from the proceeds from the Operating Partnership's debt offerings and the Company'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 lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of our non-core 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.

46




Statements of Cash Flows

The following table sets forth our changes in cash flows from 2017 and 2016 (in thousands):
 
 
2017
 
2016
 
Change
Net cash provided by operating activities
 
$
253,131

 
$
239,299

 
$
13,832

Net cash used in investing activities
 
(117,545
)
 
(45,501
)
 
(72,044
)
Net cash used in financing activities
 
(141,679
)
 
(203,467
)
 
61,788

Effect of foreign currency rate changes on cash and equivalents
 
(56
)
 
316

 
(372
)
Net decrease in cash and cash equivalents
 
$
(6,149
)
 
$
(9,353
)
 
$
3,204


Operating Activities

The increase in net cash provided by operating activities from 2016 to 2017 is primarily associated with the following:

•
incremental operating income in 2017 as a result of the full year impact of the acquisition of our venture partners' interest in our Westgate and Savannah outlet centers, previously held in unconsolidated joint ventures, in June 2016 and August 2016, respectively, and
•
incremental operating income from the opening of our two new wholly-owned outlet centers in Daytona Beach and Fort Worth, which opened in November 2016 and October 2017, respectively.

Investing Activities

The increase in net cash used in investing activities from 2016 to 2017 is primarily associated with the following:

•
the use of restricted cash in 2016, which represented a portion of the proceeds received from certain assets sales in 2015, to pay a portion 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, and
•
partially offsetting the increase, cash used in 2016 to acquire our venture partners' interest in our Westgate joint venture and Savannah joint venture.

Financing Activities

The decrease in net cash used in financing activities from 2016 to 2017 is primarily associated with the following:

•
lower outstanding borrowing amounts in 2017 to fund the Company's development needs, net of asset sales proceeds, due to a significant portion of the 2016 development needs being funded with the $121.3 million held in restricted cash during that period,
•
a special dividend of approximately $21.0 million that was paid during 2016, and
•
offsetting the decrease, $49.4 million used to repurchase Operating Partnership units in 2017.

The following table sets forth our changes in cash flows from 2016 and 2015 (in thousands):
 
 
2016
 
2015
 
Change
Net cash provided by operating activities
 
$
239,299

 
$
221,818

 
$
17,481

Net cash used in investing activities
 
(45,501
)
 
(221,827
)
 
176,326

Net cash provided by (used in) financing activities
 
(203,467
)
 
6,854

 
(210,321
)
Effect of foreign currency rate changes on cash and equivalents
 
316

 
(1,099
)
 
1,415

Net increase (decrease) in cash and cash equivalents
 
$
(9,353
)
 
$
5,746

 
$
(15,099
)




47



Operating Activities

In 2016, our cash provided by operating activities was positively impacted by a number of factors, including an increase in operating income as a result of the net growth in leasable square feet in our portfolio of outlet centers and an increase in distributions from our unconsolidated joint ventures.

Investing Activities

The decrease in net cash used in investing activities from 2015 to 2016 is primarily associated with the following:

•
We used restricted cash of $121.3 million in 2016, which was received in 2015, to repay a portion 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 the Deer Park outlet center.
•
Cash provided from asset sales decreased in 2016 compared to 2015, as proceeds from the sales of our Fort Myers outlet center and an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 501 were lower than the proceeds from the sale of our equity interest in the Wisconsin Dells outlet center in 2015.
•
Cash used for additions to rental property decreased in 2016 due to less new outlet center construction activity in 2016 as compared to 2015. The 2015 period included additions for our Foxwoods, Grand Rapids, and Southaven outlet centers, all of which opened during 2015, while the 2016 period primarily included construction at our Daytona Beach outlet center.
•
Distributions in excess of earnings increased in the 2016 period due the Columbus joint venture closing on an interest-only mortgage loan of $85.0 million. The joint venture received net loan proceeds of $84.2 million and distributed them equally to the partners. Our share of the distribution was $42.1 million.
•
Partially offsetting the above items were the acquisitions of our venture partners' interest in our Westgate joint venture and Savannah joint venture and fewer contributions in the 2016 period to our unconsolidated joint ventures as a result of less development activity in the 2016 period compared to the 2015 period.

Financing Activities

The increase in net cash used in financing activities from 2015 to 2016 is primarily associated with the following:

•
Increase in cash distributions paid due to a special dividend that was paid in January 2016 and an increase in quarterly dividends paid to common shareholders in 2016.
•
Increase in cash used for debt repayments, which included the repayments of the Deer Park $150.0 million floating rate mortgage loan, the $10.0 million unsecured note payable, the $7.5 million unsecured term note, the Westgate $62.0 million floating rate mortgage and our Savannah $98.0 million floating rate mortgage.
•
Cash used for the payment of a deferred financing obligation to a former partner at Deer Park, which increased our legal ownership to 100%.
•
Partially offsetting the above items was an increase in borrowings including the public offering of an aggregate $350 million of 3.125% unsecured senior notes due September 2026, netting proceeds of approximately $344.5 million and an additional $75.0 million in proceeds received from an amendment to our unsecured term loan to increase the size of the loan from $250.0 million to $325.0 million. In 2015, new borrowings for notes, mortgages, loans totaled $90.8 million and was primarily related to construction draws related to the Southaven and Foxwoods mortgages. In 2015, we also repaid the mortgages at our Hershey and Ocean City outlet centers, which totaled $46.6 million.

Current Development Activities

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 are involved in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or FFO. See the section “Funds From Operations” in the Management's Discussion and Analysis section for further discussion of FFO.



48



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 acquisition or disposition 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 liquidity, net income or funds from operations.

New Development of Consolidated Outlet Centers

Fort Worth

In October 2017, we opened a 352,000 square foot wholly-owned outlet 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.

Lancaster Expansion

In September 2017, we opened a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.

Acquisition of Properties

Foxwoods

In November 2017, the Company 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.

Disposition of Properties

Westbrook

In May 2017, we sold our Westbrook, Connecticut outlet center for approximately $40.0 million, which resulted in a gain of $6.9 million. The net proceeds were used to repurchase our common shares. See Share Repurchase Program, below.

New Development in Unconsolidated Real Estate Joint Ventures

From time to time, we form joint venture arrangements to develop outlet centers. See "Off-Balance Sheet Arrangements" for a discussion of unconsolidated joint venture development activities.

Other Potential Future Developments

As of the date of this filing, we are in the initial study period for potential new developments. We may also use joint venture arrangements to develop other potential sites. There can be no assurance, however, that these potential future developments will ultimately be developed.

In the case of projects to be wholly-owned by us, we expect to fund these projects with borrowings under our unsecured lines of credit and cash flow from operations, 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.


49



Financing Arrangements

As of December 31, 2017, unsecured borrowings represented 95% of our outstanding debt and 93% of the gross book value of our real estate portfolio was unencumbered. As of December 31, 2017, 15% 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.

2018 Transactions

Increased Borrowing Capacity and Extension of Unsecured Lines of Credit

In January  2018, we closed on amendments to our unsecured lines of credit, which increased the borrowing capacity from $520.0 million to $600.0 million and extended the maturity date from October 2019 to October 2021, with a one-year extension option. We also reduced the interest rate spread over LIBOR from 0.90% to 0.875%, increased the incremental borrowing availability through an accordion feature on the syndicated line from $1.0 billion to $1.2 billion. Loan origination costs associated with the amendments totaled approximately $2.3 million. The amended facility retains the $20.0 million liquidity line and includes a $580.0 million syndicated line. As of December 31, 2017, we had $305.9 million available under our unsecured lines of credit after considering outstanding letters of credit of $6.0 million.

Southaven Loan

In February 2018, the consolidated joint venture that owns the Tanger outlet center in Southaven, Mississippi amended and restated the $60.0 million mortgage loan secured by the property. The amended and restated loan reduced the principal balance to $51.4 million, increased the interest rate from LIBOR + 1.75% to LIBOR + 1.80% and extended the maturity to April 2021, with a two-year extension option.

2017 Transactions

Interest Rate Swaps

In December 2017, we entered into three separate interest rate swap agreements, effective August 14, 2018 that fix the base LIBOR rate at an average of 2.20% on notional amounts totaling 150.0 million through January 1, 2021.

$300.0 Million Unsecured Senior Notes due 2027

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 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. In addition, we wrote off approximately $1.5 million of unamortized debt discount and debt origination costs related to the 2020 Notes.

Foxwoods Repayment

In October 2017, 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.  In November 2017, we repaid the $70.3 million floating rate mortgage loan secured by the property with borrowings under its unsecured floating rate lines of credit.


50



Capital Expenditures
The following table details our capital expenditures for the years ended December 31, 2017 and 2016, respectively (in thousands):
 
 
2017
 
2016
 
Change
Capital expenditures analysis:
 
 
 
 
 
 
New outlet center developments and expansions
 
$
110,783

 
$
112,831

 
$
(2,048
)
Major outlet center renovations
 
20,227

 
17,079

 
3,148

Second generation tenant allowances
 
21,926

 
11,307

 
10,619

Other capital expenditures
 
22,448

 
21,528

 
920

 
 
175,384

 
162,745

 
12,639

Conversion from accrual to cash basis
 
(9,153
)
 
2,315

 
(11,468
)
Additions to rental property-cash basis
 
$
166,231

 
$
165,060

 
$
1,171

•
New center development and expansion expenditures in the 2017 period, which include first generation tenant allowances, relate to construction expenditures for our new Fort Worth and Daytona Beach outlet centers and the expansion of our Lancaster outlet center. The 2016 period included new center development and expansion expenditures for our Daytona Beach, Fort Worth, Lancaster, and Southaven outlet centers.
•
Major center renovations in the 2017 period included construction activities at our Riverhead, Rehoboth Beach, and Myrtle Beach Hwy 17 outlet centers. The 2016 period renovation expenditures included our Riverhead, Rehoboth Beach and Howell outlet centers.
•
Second generation tenant allowances increased due to the re-merchandising efforts to bring high volume tenants to 5 outlet centers during 2017.
Contractual Obligations and Commercial Commitments

The following table details our contractual obligations over the next five years and thereafter as of December 31, 2017 (in thousands):
Contractual Obligations
 
2018
 
2019
 
2020
 
2021
 
2022
 
Thereafter
 
Total
Debt (1)
 
$
63,184

 
$
211,469

 
$
3,566

 
$
330,793

 
$
4,436

 
$
1,167,114

 
$
1,780,562

Interest payments (2)
 
57,899

 
56,902

 
51,775

 
45,753

 
42,982

 
122,186

 
377,497

Operating leases
 
7,523

 
7,385

 
7,187

 
7,119

 
7,190

 
307,521

 
343,925

 
 
$
128,606


$
275,756


$
62,528


$
383,665


$
54,608


$
1,596,821


$
2,501,984

(1)
These amounts represent total future cash payments related to debt obligations outstanding as of December 31, 2017.
(2)
These amounts represent future interest payments related to our debt obligations based on the fixed and variable interest rates specified in the associated debt agreements, including the effects of our interest rate swaps. All of our variable rate debt agreements are based on the one month LIBOR rate, thus for purposes of calculating future interest amounts on variable interest rate debt, the one month LIBOR rate as of December 31, 2017 was used.


51



In addition to the contractual payment obligations shown in the table above, we have commitments of $2.2 million remaining as of December 31, 2017 related to contracts to complete construction, development activity at outlet centers, and other capital expenditures throughout our consolidated portfolio. These amounts would be primarily funded by amounts available under our unsecured lines of credit but could also be funded by other sources of capital, such as collateralized construction loans or public debt and equity offerings. In addition, we have commitments to pay approximately $7.2 million in tenant allowances for leases that are executed but where the tenant improvements have not been constructed. Payments are only made upon the tenant opening its store, completing its interior construction and submitting the necessary documentation required per its lease. Contractual commitments to complete construction and development activity related to our unconsolidated joint ventures amounted to approximately $136,000 at December 31, 2017, of which our portion was approximately $68,000. In addition, commitments related to tenant allowances at our unconsolidated joint ventures totaled approximately $1.0 million at December 31, 2017, of which our portion was approximately $500,000. Contractual commitments represent only those costs subject to contracts which are legal binding agreements as of December 31, 2017 and do not necessary represent the total cost to complete the projects.

Our debt agreements contain 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% on a cumulative basis. We have historically been and currently are in compliance with all of our debt covenants. We expect to remain in compliance with all our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt.

We believe our most restrictive financial 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%
 
51
%
Total secured debt to adjusted total assets
 
< 40%
 
3
%
Total unencumbered assets to unsecured debt
 
> 150%
 
187
%

We operate in a manner intended to enable us to qualify as a REIT under the Internal Revenue Code, or the Code. A REIT that distributes at least 90% of its taxable income to its shareholders each year and that meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. Based on our 2017 estimated taxable income to shareholders, we were required to distribute approximately $76.3 million to our shareholders in order to maintain our REIT status as described above. We distributed approximately $130.2 million. If in any taxable year the Company were to fail to qualify as a REIT and certain statutory relief provisions were not applicable, we would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject to U.S. federal income tax (including any applicable alternative minimum tax for tax years prior to 2018) on our taxable income at the regular corporate rate.


52



Off-Balance Sheet Arrangements

The following table details certain information as of December 31, 2017 about various unconsolidated real estate joint ventures in which we have an ownership interest:

Joint Venture
 
Outlet Center Location
 
Ownership %
 
Square Feet
(in 000's)
 
Carrying Value of Investment (in millions)
Columbus
 
Columbus, OH
 
50.0
%
 
355

 
$
1.1

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
2.5

RioCan Canada
 
Various
 
50.0
%
 
923

 
115.8

Investments included in investments in unconsolidated joint ventures
 
 
 
 
 
$
119.4

 
 
 
 
 
 
 
 
 
Charlotte(1)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(4.1
)
Galveston/Houston (1)
 
Texas City, TX
 
50.0
%
 
353

 
(13.0
)
Investments included in other liabilities
 
 
 
 
 
$
(17.1
)
(1)
The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners and increases or decreases from the equity in earnings of the joint venture.

Our joint ventures are generally subject to buy-sell provisions which are customary for 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 do not consider this arrangement to be a mandatory redeemable obligation.

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 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.

Charlotte

In July 2014, we opened an approximately 398,000 square foot outlet center in Charlotte, North Carolina that was developed through, and is owned by, a joint venture formed in May 2013. The joint venture has an outstanding interest-only mortgage loan for $90.0 million at an interest rate of LIBOR + 1.45%. The loan initially matures in November 2018, with the option to extend the maturity for one additional year. Our partner is providing property management, marketing and leasing services to the joint venture.

Columbus

In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. The development was initially fully funded with equity contributed to the joint venture by Tanger and its partner. In November 2016, the joint venture closed on an interest-only mortgage loan of $85.0 million at an interest rate of LIBOR + 1.65%. The loan initially matures in November 2019, with two one-year extension options. The joint venture received net loan proceeds of $84.2 million and distributed them equally to the partners. We are providing property management, marketing and leasing services to the joint venture.


53



Galveston/Houston

In October 2012, we opened an approximately 353,000 square foot outlet center in Texas City, Texas that was developed through, and is owned by, a joint venture formed in June 2011. In July 2017, the joint venture amended and restated the initial construction loan to increase the amount available to borrow from $70.0 million to $80.0 million and extended the maturity date until July 2020 with two one-year options. The amended and restated loan also changed the interest rate from LIBOR + 1.50% to LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed approximately $14.5 million equally between the partners. We are providing property management, marketing and leasing services to the outlet center.

National Harbor

In November 2013, we opened an approximately 341,000 square foot outlet center at National Harbor in the Washington, D.C. Metro area that was developed through, and is owned by, a joint venture formed in May 2011. The joint venture has an outstanding interest-only construction loan of $87.0 million with a maturity date of November 2019. The loan carries an interest rate of LIBOR + 1.65%. We are providing property management, marketing and leasing services to the joint venture.

RioCan Canada

We have a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to develop and acquire outlet centers in Canada. Under the agreement, any outlet centers developed or acquired will be branded as Tanger Outlet Centers. Prior to July 2017, we provided leasing and marketing services for the outlet centers and RioCan provided development and property management services.Subsequent to July 2017, we have agreed to provide marketing services for the outlet centers and RioCan has agreed to provide development, leasing and property management services.

In October 2014, the co-owners opened Tanger Outlets Ottawa, the first ground up development of a Tanger Outlet Center in Canada. In March 2016, the co-owners opened an approximately 28,000 square foot expansion related to an anchor tenant bringing the total square feet of the outlet center to approximately 316,000 square feet. In 2016, the co-owners commenced construction on a 39,000 square foot expansion, which opened during the second quarter of 2017.

In November 2014, the co-owners opened an approximately 149,000 square foot expansion to the existing Cookstown Outlet Mall, bringing the total square feet of the outlet center to approximately 308,000 square feet.

Other properties owned by the RioCan Canada co-owners include Les Factoreries Saint-Sauveur and Bromont Outlet Mall. Les Factoreries Saint-Sauveur is approximately 116,000 square feet and the Bromont Outlet Mall is approximately 161,000 square feet.

Rental property held and used by our joint ventures are 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 than such carrying amount, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.

During 2016, the joint venture determined for its Bromont, Quebec outlet center that the estimated future undiscounted cash flows of that property did not exceed the property's carrying value based on the reduction in the property's net operating income. Therefore, the joint venture recorded a $5.8 million non-cash impairment charge in its statement of operations, which equaled the excess of the property's carrying value over its fair value. The fair value was determined using the income approach whereby the joint venture considered the prevailing market income capitalization rates and stabilized net operating income projections. Our share of this impairment charge, $2.9 million, was recorded in equity in earnings of unconsolidated joint ventures in our consolidated statement of operations.


54



During 2017, the joint venture determined for its Bromont and Saint Sauveur, Quebec outlet centers that the estimated future undiscounted cash flows of those properties did not exceed the property's carrying value based on the joint venture's expectations of the future performance of the centers. Therefore, the joint venture recorded an $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.

The following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as of December 31, 2017 (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
 
80.0

 
July 2020
 
LIBOR + 1.65%
 
12.5
%
 
10.0

National Harbor(1)
 
87.0

 
November 2019
 
LIBOR + 1.65%
 
10.0
%
 
8.7

RioCan Canada
 
10.7

 
May 2020
 
5.75%
 
29.9
%
 
3.2

Debt premium and debt origination costs
 
(1.4
)
 
 
 
 
 
 
 
 
 
 
$
351.3

 
 
 
 
 
 
 
$
32.8

(1)
100% completion guaranty; 10% principal guaranty.

Fees we received for various services provided to our unconsolidated joint ventures during 2017, 2016 and 2015, which we believe approximate current market rates, were recognized as follows (in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Fees:
 
 
 
 
 
 
Management and marketing
 
$
2,310

 
$
2,744

 
$
2,853

Development and leasing
 
124

 
651

 
1,827

Loan guarantee
 
18

 
452

 
746

Total Fees
 
$
2,452

 
$
3,847

 
$
5,426


55



Critical Accounting Estimates

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Principles of Consolidation

The consolidated financial statements of the Company include its accounts and its consolidated subsidiaries, as well as the Operating Partnership and its consolidated subsidiaries. The consolidated financial statements of the Operating Partnership include its accounts and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant.

We consolidate properties that are wholly-owned or properties where we own less than 100% but we control. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities ("VIE"). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our determination of the primary beneficiary considers various factors including the form of our ownership interest, our representation in an entity's governance, the size of our investment, our ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process to replace us as manager and or liquidate the venture, if applicable. If we do not evaluate these joint ventures correctly under the amended guidance, we could significantly overstate or understate our financial condition and results of operations.

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 venture's net income or loss, cash contributions, distributions and other adjustments required under the equity method of accounting.

Acquisition of Real Estate

We allocate the purchase price of acquisitions based on the fair value of land, building, tenant improvements, debt and deferred lease costs and other intangibles, such as the value of leases with above or below market rents, origination costs associated with the in-place leases, and the value of in-place leases and tenant relationships, if any. We depreciate the amount allocated to building, deferred lease costs and other intangible assets over their estimated useful lives, which generally range from 3 to 33 years. The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease. The values of below market leases that are considered to have renewal periods with below market rents are amortized over the remaining term of the associated lease plus the renewal periods when the renewal is deemed probable to occur. The value associated with in-place leases is amortized over the remaining lease term and tenant relationships is amortized over the expected term, which includes an estimated probability of the lease renewal. If a tenant terminates its lease prior to the contractual termination date of the lease and no rental payments are being made on the lease, any unamortized balance of the related deferred lease costs is written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information.

If we do not allocate appropriately to the separate components of rental property, deferred lease costs and other intangibles or if we do not estimate correctly the total value of the property or the useful lives of the assets, our computation of depreciation and amortization expense may be significantly understated or overstated.


56



Cost Capitalization

We capitalize costs incurred for the construction and development of properties, including interest, real estate taxes and salaries and related costs associated with employees directly involved. Capitalization of costs commences at the time the development of the property becomes probable and ceases when the property is substantially completed and ready for its intended use. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction. The amount of salaries and related costs capitalized for the construction and development of properties is based on our estimate of the amount of costs directly related to the construction or development of these assets. Interest costs are capitalized during periods of active construction for qualified expenditures based upon interest rates in place during the construction period until construction is substantially complete. This includes interest incurred on funds invested in or advanced to unconsolidated joint ventures with qualifying development activities.

Deferred charges includes deferred lease costs and other intangible assets consisting of fees and costs incurred to originate operating leases and are amortized over the expected lease term. Deferred lease costs capitalized includes amounts paid to third-party brokers and salaries and related costs of employees directly involved in originating leases. The amount of salaries and related costs capitalized is based on our estimate of the time and amount of costs directly related to originating leases.

If we incorrectly estimate the amount of costs to capitalize, we could significantly overstate or understate our financial condition and results of operations.

Impairment of Long-Lived Assets and Investments in Unconsolidated Entities

Rental property held and used by us 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, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less than such carrying amount, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value. If we do not recognize impairments at appropriate times and in appropriate amounts, our consolidated balance sheet may overstate the value of our long-lived assets. Fair value is determined using an income approach whereby we consider the prevailing market income capitalization rates and stabilized net operating income projections. We recognized no impairment losses for our consolidated properties during the years ended December 31, 2017, 2016, and 2015, respectively. See Note 6 to the consolidated financial statements, for discussion of the impairment of our unconsolidated joint venture at our Bromont and Saint Sauveur, Quebec outlet centers during 2017 and our Bromont, Quebec outlet center in 2016.

On a periodic basis, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. Our estimates of value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, estimated hold period, terminal capitalization rates, demand for space, competition for tenants, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized.












57



Revenue Recognition

Base rentals are recognized on a straight-line basis over the term of the lease. As a provision of a tenant lease, if we make a cash payment to the tenant for purposes other than funding the construction of landlord assets, we defer the amount of such payments as a lease incentive. We amortize lease incentives as a reduction of base rental revenue over the term of the lease. Substantially all leases contain provisions which provide additional rents based on each tenants' sales volume (“percentage rentals”) and reimbursement of the tenants' share of advertising and promotion, common area maintenance, insurance and real estate tax expenses. Percentage rentals are recognized when specified targets that trigger the contingent rent are met. Expense reimbursements are recognized in the period the applicable expenses are incurred. Payments received from the early termination of leases are recognized as revenue from the time payment is receivable until the tenant vacates the space.

New Accounting Pronouncements

See Note 2 to the consolidated financial statements for information on recently adopted accounting standards and new accounting pronouncements issued.

NON-GAAP SUPPLEMENTAL MEASURES

Funds From Operations

Funds From Operations ("FFO") is a widely used measure of the operating performance for real estate companies that supplements net income (loss) determined in accordance with GAAP. We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts ("NAREIT"), of which we are a member. FFO represents net income (loss) (computed in accordance with GAAP) before extraordinary items and gains (losses) on sale or disposal of depreciable operating properties, plus depreciation and amortization of real estate assets, impairment losses on depreciable real estate of consolidated real estate and after adjustments for unconsolidated partnerships and joint ventures, including depreciation and amortization, and impairment losses 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.

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"), 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. 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;

58




•
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.

Adjusted Funds From Operations

We present AFFO, as a supplemental measure of our performance. We define AFFO 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. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating AFFO 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 AFFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We present AFFO 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 AFFO when certain material, unplanned transactions occur as a factor in evaluating management's performance and to evaluate the effectiveness of our business strategies, and may use AFFO when determining incentive compensation.

AFFO has limitations as an analytical tool. Some of these limitations are:

•
AFFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

•
AFFO 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 AFFO does not reflect any cash requirements for such replacements;

•
AFFO 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 AFFO differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, AFFO 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 AFFO only as a supplemental measure.


59



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): (1) 
 
 
2017
 
2016
 
2015
Net income
 
$
71,876

 
$
204,329

 
$
222,168

Adjusted for:
 
 
 
 
 
 
Depreciation and amortization of real estate assets - consolidated
 
125,621

 
113,645

 
102,515

Depreciation and amortization of real estate assets - unconsolidated joint ventures
 
13,857

 
18,910

 
20,053

Impairment charges - unconsolidated joint ventures
 
9,021

 
2,919

 
—

Gain on sale of assets and interests in unconsolidated entities
 
(6,943
)
 
(4,887
)
 
(120,447
)
Gain on previously held interests in acquired joint ventures
 
—

 
(95,516
)
 
—

FFO
 
213,432

 
239,400

 
224,289

FFO attributable to noncontrolling interests in other consolidated partnerships
 
(265
)
 
(348
)
 
268

Allocation of earnings to participating securities
 
(1,943
)
 
(2,192
)
 
(2,408
)
FFO available to common shareholders  (1)
 
$
211,224

 
$
236,860

 
$
222,149

As further adjusted for:
 
 
 
 
 
 
Compensation related to director and executive officer terminations  (2)
 
—

 
1,180

 
(731
)
Acquisition costs
 
—

 
487

 
—

Demolition costs
 
—

 
441

 
—

Gain on sale of outparcel
 
—

 
(1,418
)
 
—

Abandoned pre-development costs
 
528

 
—

 
—

Recoveries from litigation settlement
 
(1,844
)
 
—

 
—

Make-whole premium due to early extinguishment of debt (3)

 
34,143

 
—

 
—

Write-off of debt discount and debt origination costs due to early extinguishment of debt (3)
 
1,483

 
882

 
—

Impact of above adjustments to the allocation of earnings to participating securities
 
(238
)
 
(15
)
 
8

AFFO available to common shareholders (1)
 
$
245,296

 
$
238,417

 
$
221,426

FFO available to common shareholders per share - diluted (1)
 
$
2.12

 
$
2.36

 
$
2.23

AFFO available to common shareholders per share - diluted (1)
 
$
2.46

 
$
2.37

 
$
2.22

Weighted Average Shares:
 
 
 
 
 
 
Basic weighted average common shares
 
94,506

 
95,102

 
94,698

Effect of notional units
 
—

 
175

 
—

Effect of outstanding options and restricted common shares
 
16

 
68

 
61

Diluted weighted average common shares (for earnings per share computations)
 
94,522

 
95,345

 
94,759

Exchangeable operating partnership units
 
5,027

 
5,053

 
5,079

Diluted weighted average common shares (for FFO and AFFO per share computations) (1)
 
99,549

 
100,398

 
99,838

(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's common shares, subject to certain limitations to preserve the Company's REIT status.
(2)
For the year ended December 31, 2016, 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. For the year ended December 31, 2015, represents the reversal of certain share-based compensation awards previously recognized on awards not expected to vest due to the announcement that the Company’s then Chief Financial Officer would retire in May 2016.
(3)
For the year end December 31, 2017, charges related to the redemption of our $300.0 million 6.125% senior notes due 2020. For the year ended December 31, 2016, charges relate to 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.






60



Portfolio Net Operating Income and Same Center NOI

We present portfolio net operating income ("Portfolio NOI") and Same Center 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 and gains or losses on the sale of outparcels 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. 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 to 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.



61



Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
 
 
2017
 
2016
Net income
 
$
71,876

 
$
204,329

Adjusted to exclude:
 
 
 
 
Equity in earnings of unconsolidated joint ventures
 
(1,937
)
 
(10,872
)
Interest expense
 
64,825

 
60,669

Gain on sale of assets
 
(6,943
)
 
(6,305
)
Gain on previously held interests in acquired joint ventures
 
—

 
(95,516
)
Loss on early extinguishment of debt
 
35,626

 
—

Other non-operating income
 
(2,724
)
 
(1,028
)
Depreciation and amortization
 
127,744

 
115,357

Other non-property expenses
 
1,232

 
382

Abandoned pre-development costs
 
528

 
—

Acquisition costs
 
—

 
487

Demolition Costs
 
—

 
441

Corporate general and administrative expenses
 
43,767

 
46,138

Non-cash adjustments (1)
 
(2,721
)
 
(3,613
)
Termination rents
 
(3,633
)
 
(3,599
)
Portfolio NOI
 
327,640

 
306,870

Non-same center NOI (2)
 
(42,450
)
 
(23,072
)
Same Center NOI
 
$
285,190

 
$
283,798

(1)
Non-cash items include straight-line rent, net above and below market rent amortization and gains or losses on outparcel sales, as applicable.
(2)
Excluded from Same Center NOI:
Outlet centers opened:
 
Outlet centers sold:
 
Outlet centers acquired:
 
Outlet center expansions:
Daytona Beach
November 2016
 
Fort Myers
January 2016
 
Glendale (Westgate)
June 2016
 
Lancaster
September 2017
Fort Worth
October 2017
 
Westbrook
May 2017
 
Savannah
August 2016
 
 
 

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' gross sales (above predetermined levels, which we believe often are lower than traditional retail industry standards) 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.

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' 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, legislative changes that increase the cost of their operations or otherwise, such tenants may be unable to pay their existing rents as such rents would represent a higher percentage of their sales.


62



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. While 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 is typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its natural expiration or as a result of filing for protection under bankruptcy laws, or may request modifications to their existing lease terms. During 2017, 13 tenants in our consolidated portfolio filed for bankruptcy protection, as compared to two tenants in 2016.  A number of retailers also engaged in brand wide restructurings during 2017 that resulted in store closings.  In selected circumstances in 2017, we strategically agreed to short term lease modifications to manage occupancy.  Partially as a result of these 2017 events, we currently expect our Same Center Net Operating Income for 2018 to be in the range of flat to down 1% compared to 2017.  Although we believe the number of bankruptcy filings, store closings and lease modifications in 2018 will be less than the levels experienced in 2017, we can give no assurance that the number of filings and store closings will actually be less.  If the level of bankruptcy filings, store closings and lease modifications during 2018 are at similar or greater amounts as those experienced in 2017, our results of operations and Same Center Net Operating Income could be further negatively impacted.

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. At January 1, 2017, we had approximately 1.5 million square feet, or 12% of our consolidated portfolio at that time coming up for renewal during 2017, excluding the Westbrook outlet center, which was sold in the second quarter of 2017, and 1.7 million square feet, or 13%, of our current consolidated portfolio will come up for renewal in 2018. During 2017, we renewed 84%of the square feet that came up for renewal. In addition, we completed renewals and re-tenanted space totaling 1.7 million square feet at a blended 9% 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.

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 and Canada, we reduce our operating and leasing risks. No one tenant (including affiliates) accounts for more than 8% of our square feet or 7% of our combined base and percentage rental revenues. Accordingly, although we can give no assurance, we do not expect any material adverse impact on our results of operations and financial condition as a result of leases to be renewed or stores to be released. As of December 31, 2017 and 2016, occupancy at our consolidated outlet centers was 97% and 98%, respectively.


ITEM 7A.
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 are exposed to foreign currency risk on investments in outlet centers that are located in Canada. Our currency exposure is concentrated in the Canadian Dollar. Cash flows received from our Canadian joint ventures are either reinvested to fund ongoing Canadian development activity, if applicable, or converted to US dollars and utilized to repay amounts outstanding under our unsecured lines of credit. We believe this strategy mitigates some of the risk of our initial investment and our exposure to changes in foreign currencies. We generally do not hedge currency translation exposures.
 

63



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.

•
In December 2017, we entered into three separate forward starting interest rate swap agreements, effective August 14, 2018 that fix the base LIBOR rate at an average of 2.20% on notional amounts totaling $150.0 million through January 1, 2021,
•
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 and
•
in October 2013, we entered into interest rate swap agreements that fix the base LIBOR rate at an average of 1.30% on notional amounts totaling $150.0 million 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 December 31, 2017, the fair value of these contracts is a net asset balance of $5.3 million. The fair value of interest rate swaps is determined using the market standard methodology of netting the discounted future fixed cash receipts and the discounted expected variable cash payments. The variable cash payments of interest rate swaps are based on the expectation of future interest rates (forward curves) derived from observed market interest rate curves. In addition, credit valuation adjustments are considered in the fair values to account for potential nonperformance risk, but were concluded to not be significant inputs to the calculation for the periods presented.

As of December 31, 2017, 15% 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 $2.7 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):

 
 
December 31, 2017

 
December 31, 2016

Fair value of debt
 
$
1,775,540

 
$
1,704,644

Recorded value of debt
 
$
1,763,651

 
$
1,687,866


A 100 basis point increase from prevailing interest rates at December 31, 2017 and December 31, 2016 would result in a decrease in fair value of total debt of approximately $77.9 million and $69.1 million, respectively. Refer to Note 12 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.

ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item is set forth on the pages indicated in Item 15(a) below.

ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

The information required by this Item 9 was previously reported in the Company’s and the Operating Partnership’s Current Report on Form 8-K and Form 8-K/A amending such Form 8-K that was filed with the Securities and Exchange Commission on September 11, 2015 and March 2, 2016, respectively.



64



ITEM 9A.
CONTROLS AND PROCEDURES

Tanger Factory Outlet Centers, Inc.

(a)
Evaluation of disclosure control procedures.

The Chief Executive Officer, Steven B. Tanger (Principal Executive Officer), and Chief Financial Officer, James F. Williams (Principal Financial Officer), evaluated the effectiveness of the Company's disclosure controls and procedures on December 31, 2017 and concluded that, as of that date, the Company's disclosure controls and procedures were effective to ensure that the information the Company is required to disclose in its filings with the SEC under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)
Management's report on internal control over financial reporting.

Internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, the Company's Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, and effected by the Company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining policies and procedures designed to maintain the adequacy of the Company's internal control over financial reporting, including those policies and procedures that:

(1)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

The Company's management has evaluated the effectiveness of the Company's internal control over financial reporting as of December 31, 2017 based on the criteria established in a report entitled Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our assessment and those criteria, the Company's management has concluded that the Company's internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2017.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

The effectiveness of the Company's internal control over financial reporting as of December 31, 2017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.

(c)
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

65



Tanger Properties Limited Partnership

(a)
Evaluation of disclosure control procedures.

The Chief Executive Officer, Steven B. Tanger (Principal Executive Officer), and Vice President and Treasurer, James F. Williams (Principal Financial Officer) of Tanger GP Trust, sole general partner of the Operating Partnership, evaluated the effectiveness of the registrant's disclosure controls and procedures on December 31, 2017 and concluded that, as of that date, the registrant's disclosure controls and procedures were effective to ensure that the information the registrant is required to disclose in its filings with the Commission under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and to ensure that information required to be disclosed by the registrant in the reports that it files or submits under the Exchange Act is accumulated and communicated to the registrant's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)
Management's report on internal control over financial reporting.

Internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, is a process designed by, or under the supervision of, the Operating Partnership's Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, and effected by the Operating Partnership's board of trustees, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The Operating Partnership's management, with the participation of the Operating Partnership's Principal Executive Officer and Principal Financial Officer, is responsible for establishing and maintaining policies and procedures designed to maintain the adequacy of the Operating Partnership's internal control over financial reporting, including those policies and procedures that:

(1)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Operating Partnership;

(2)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Operating Partnership are being made only in accordance with authorizations of management and trustees of the Operating Partnership; and

(3)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Operating Partnership's assets that could have a material effect on the financial statements.

The Operating Partnership's management has evaluated the effectiveness of the Operating Partnership's internal control over financial reporting as of December 31, 2017 based on the criteria established in a report entitled Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on our assessment and those criteria, the Operating Partnership's management has concluded that the Operating Partnership's internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2017.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. 

The effectiveness of the Operating Partnership's internal control over financial reporting as of December 31, 2017 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.




66



(c)
There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.
OTHER INFORMATION

All information required to be disclosed in a report on Form 8-K during the fourth quarter of 2017 was reported.

PART III

Certain information required by Part III is omitted from this Report in that the Company will file a definitive proxy statement pursuant to Regulation 14A, or the Proxy Statement, not later than 120 days after the end of the fiscal year covered by this Report, and certain information included therein is incorporated herein by reference. Only those sections of the Proxy Statement which specifically address the items set forth herein are incorporated by reference.

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information concerning the Company's directors required by this Item is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.

The information concerning the Company's executive officers required by this Item is incorporated herein by reference to the section at the end of Part I, entitled “Executive Officers of Tanger Factory Outlet Centers, Inc.”

The information regarding compliance with Section 16 of the Exchange Act is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.

The information concerning our Company Code of Ethics required by this Item, which is posted on our website at www.tangeroutlet.com, is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders. The information found on, or otherwise accessible through, our website is not incorporated into, and does not form a part of, this annual report on Form 10-K or any other report or document we file with or furnish to the SEC.

The information concerning our corporate governance required by this Item is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.

ITEM 11.
EXECUTIVE COMPENSATION

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.



67




ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS.

The information concerning the security ownership of certain beneficial owners and management required by this Item is incorporated by reference herein to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.

The table below provides information as of December 31, 2017 with respect to compensation plans under which our equity securities are authorized for issuance. For each common share issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly-owned subsidiaries. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "common shares" is meant to also include corresponding units of the Operating Partnership.    
Plan Category
 
(a)
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (1)
 
(b)
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights
 
(c)
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (2)
Equity compensation plans approved by security holders
 
834,611

 
$
30.42

 
1,896,301

Equity compensation plans not approved by security holders
 
—

 
—

 
—

Total
 
834,611

 
$
30.42

 
1,896,301

(1)
Includes (a) 231,200 common shares issuable upon the exercise of outstanding options (152,000 of which are vested and exercisable), (b) 311,111 restricted common shares that may be issued under the 2016 Outperformance Plan (the "2016 OPP") upon the satisfaction of certain conditions, and (c) 292,300 restricted common shares that may be issued under the 2017 Outperformance Plan (the "2017 OPP") upon the satisfaction of certain conditions. Because there is no exercise price associated with the 2016 and 2017 OPP awards, such restricted common shares are not included in the weighted average exercise price calculation.
(2)
Represents common shares available for issuance under the Amended and Restated Incentive Award Plan. Under the Amended and Restated Incentive Award Plan, the Company may award restricted common shares, restricted share units, performance awards, dividend equivalents, deferred shares, deferred share units, share payments profit interests, and share appreciation rights.

ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.


68



ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated herein by reference to the Company's Proxy Statement to be filed with respect to the Company's 2018 Annual Meeting of Shareholders.

PART IV

ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1) and (2) Documents filed as a part of this report:

(a) (1) Financial Statements
 
 
 
 
 
 
 
 

(a) (2) Financial Statement Schedules
 

All other schedules have been omitted because of the absence of conditions under which they are required or because the required information is given in the above-listed financial statements or notes thereto.


69



3.
Exhibits
Exhibit No.
 
Description
3.1
 
 
 
 
3.1A
 
 
 
 
3.1B
 
 
 
 
3.1C
 
 
 
 
3.1D
 
 
 
 
3.1E
 
 
 
 
3.1F
 
 
 
 
3.1G
 
 
 
 
3.1 H
 
 
 
 
3.2
 
 
 
 
3.3
 
 
 
 
4.1
 
Senior Indenture dated as of March 1, 1996. (Incorporated by reference to the exhibits to the Company's Current Report on Form 8-K dated March 6, 1996.)
 
 
 
 
 
 
4.1A
 
 
 
 
4.1B
 
 
 
 
4.1C
 
 
 
 
4.1D
 

70



 
 
 
4.1E
 
 
 
 
4.1F
 
 
 
 
4.1G
 

 
 
 
10.1 *
 
 
 
 
10.2 *
 
 
 
 
10.3 *
 

 
 
 
10.4 *
 
 
 
 
10.5 *
 
 
 
 
10.6 *
 
 
 
 
10.7 *
 
 
 
 
10.8 *
 
 
 
 
10.9 *
 
 
 
 
10.10 *
 
 
 
 
10.11 *
 
 
 
 
10.12
 
Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley K. Tanger. (Incorporated by reference to the exhibits to the Company's Registration Statement on Form S-11 filed May 27, 1993, as amended.)
 
 
 
10.12A
 
Amendment to Registration Rights Agreement among the Company, the Tanger Family Limited Partnership and Stanley K. Tanger. (Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K for the year ended December 31, 1995.)
 
 
 

71



10.12B
 
 
 
 
10.12C
 
 
 
 
10.12D
 
 
 
 
10.12E
 
 
 
 
10.13
 
 
 
 
10.14
 
Agreement Pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Incorporated by reference to the exhibits to the Company's Registration Statement on Form S-11 filed May 27, 1993, as amended.)
 
 
 
10.15
 
Assignment and Assumption Agreement among Stanley K. Tanger, Stanley K. Tanger & Company, the Tanger Family Limited Partnership, the Operating Partnership and the Company. (Incorporated by reference to the exhibits to the Company's Registration Statement on Form S-11 filed May 27, 1993, as amended.)
 
 
 
10.16
 
 
 
 
10.17
 
 
 
 
10.18 *
 
10.19 *
 
 
 
 
10.19A *
 
 
 
 
10.20 *
 
 
 
 
10.21 *
 
 
 
 
10.22 *
 
 
 
 
10.23 *
 

72



 
 
 
10.24*
 
 
 
 
10.25*
 
 
 
 
10.26*
 
 
 
 
10.27 *
 
 
 
 
10.28
 

 
 
 
10.29
 
Modification Agreement, dated October 24, 2013 to the Amended and Restated Credit Agreement, dated as of November 10, 2011, among Tanger Properties Limited Partnership, as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and The Other Lenders Party Hereto, Bank of America Merrill Lynch, Well Fargo Securities, LLC, and US Bank National Association, as Joint Bookrunners and Joint Lead Arrangers, Well Fargo Bank, National Association, as Syndication Agent, US Bank National Association, as Syndication Agent, Suntrust Bank, as Documentation Agent and Branch Banking and Trust Company, as Documentation Agent. (Incorporated by reference to the exhibits to the Company's and the Operating Partnership's Annual Report on Form 10-K for the year ended December 31, 2013.)
 
 
 
10.30
 
Second Amended and Restated Credit Agreement, dated as of October 29, 2015 among Tanger Properties Limited Partnership, as the Borrower, Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and The Other Lenders Party Thereto, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Well Fargo Securities, LLC, and US Bank National Association, as Joint Bookrunners and Joint Lead Arrangers, Well Fargo Bank, National Association, as Syndication Agent, US Bank National Association, as Syndication Agent, Suntrust Bank, as Documentation Agent, Branch Banking and Trust Company, as Documentation Agent, PNC Bank, National Association as Document Agent, and Regions Bank as Managing Agent (Incorporated by reference to the exhibits to the Company's Annual Report on Form 10-K dated February 23, 2016).
 
 
 
10.31
 
 
 
 
10.32
 
 
 
 

73



10.33
 
 
 
 
10.34
 
Third Amended and Restated Credit Agreement, dated as of January  9, 2018, by and among Tanger Properties Limited Partnership, as the Borrower, Bank of America, N.A., as Administrative Agent and L/C Issuer, and the Other Lenders Party Thereto, Merrill Lynch, Pierce, Fenner  & Smith Incorporated, Wells Fargo Securities, LLC, and US Bank National Association, as Joint Bookrunners and Joint Lead Arrangers, Wells Fargo Bank, National Association, as Syndication Agent, US Bank National Association, as Syndication Agent, Suntrust Bank, as Documentation Agent, Branch Banking and Trust Company, as Documentation Agent, PNC Bank, National Association, as Document Agent, and Regions Bank as Managing Agent. (Incorporated by reference to the exhibits to the Company's and Operating Partnership's Current Report on Form 8-K dated January 9, 2018.)
 
 
 
10.35
 
 
 
 
10.36
 
 
 
 
12.1
 
 
 
 
12.2
 
 
 
 
21.1
 
 
 
 
21.2
 
 
 
 
23.1
 
 
 
 
23.2
 
 
 
 
23.3
 
 
 
 
23.4
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
31.3
 
 
 
 
31.4
 
 
 
 
32.1
 
 
 
 
32.2
 
 
 
 
32.3
 
 
 
 

74



32.4
 
 
 
 
101.1
 
The following Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership financial information for the year ended December 31, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Other Comprehensive Income (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements.

* Management contract or compensatory plan or arrangement.

75




ITEM 16.
FORM 10-K SUMMARY

N/A

76



SIGNATURES of Tanger Factory Outlet Centers, Inc.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
TANGER FACTORY OUTLET CENTERS, INC.
 
 
 
 
By:
/s/ Steven B. Tanger
 
 
Steven B. Tanger
 
 
Chief Executive Officer
 

February 22, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

Signature 
 
Title
 
Date
/s/ Thomas J. Reddin
 
 
 
 
Thomas J. Reddin
 
Non-Executive Chairman of the Board of Directors
 
February 22, 2018
 
 
 
 
 
/s/ Steven B. Tanger
 
 
 
 
Steven B. Tanger
 
Director, Chief Executive Officer (Principal Executive Officer)
 
February 22, 2018
 
 
 
 
 
/s/ James F. Williams
 
 
 
 
James F. Williams
 
Senior Vice President and Chief Financial Officer (Principal Financial Officer)
 
February 22, 2018
 
 
 
 
 
/s/ Thomas J. Guerrieri Jr.
 
 
 
 
Thomas J. Guerrieri Jr.
 
Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer)
 
February 22, 2018
 
 
 
 
 
/s/ William G. Benton
 
 
 
 
William G. Benton
 
Director
 
February 22, 2018
 
 
 
 
 
/s/ Jeffrey B. Citrin
 
 
 
 
Jeffrey B. Citrin
 
Director
 
February 22, 2018
 
 
 
 
 
/s/ David B. Henry
 
 
 
 
David B. Henry
 
Director
 
February 22, 2018
 
 
 
 
 
/s/ Thomas E. Robinson
 
 
 
 
Thomas E. Robinson
 
Director
 
February 22, 2018
 
 
 
 
 
/s/ Bridget M. Ryan-Berman
 
 
 
 
Bridget M. Ryan-Berman
 
Director
 
February 22, 2018
 
 
 
 
 
/s/ Allan L. Schuman
 
 
 
 
Allan L. Schuman
 
Director
 
February 22, 2018





77




SIGNATURES of Tanger Properties Limited Partnership

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
TANGER PROPERTIES LIMITED PARTNERSHIP
 
 
 
 
By:
Tanger GP Trust, its sole general partner
 
 
 
 
By:
/s/ Steven B. Tanger
 
 
Steven B. Tanger
 
 
Chief Executive Officer
 

February 22, 2018

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
Signature 
 
Title
 
Date
/s/ Steven B. Tanger
 
 
 
 
Steven B. Tanger
 
Chairman of the Board of Trustees, Chief Executive Officer (Principal Executive Officer)
 
February 22, 2018
 
 
 
 
 
/s/ James F. Williams
 
 
 
 
James F. Williams
 
Vice President and Treasurer (Principal Financial Officer)
 
February 22, 2018
 
 
 
 
 
/s/ Thomas J. Guerrieri Jr.
 
 
 
 
Thomas J. Guerrieri Jr.
 
Vice President and Assistant Treasurer (Principal Accounting Officer)
 
February 22, 2018
 
 
 
 
 
/s/ William G. Benton
 
 
 
 
William G. Benton
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ Jeffrey B. Citrin
 
 
 
 
Jeffrey B. Citrin
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ David B. Henry
 
 
 
 
David B. Henry
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ Thomas J. Reddin
 
 
 
 
Thomas J. Reddin
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ Thomas E. Robinson
 
 
 
 
Thomas E. Robinson
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ Bridget M. Ryan-Berman
 
 
 
 
Bridget M. Ryan-Berman
 
Trustee
 
February 22, 2018
 
 
 
 
 
/s/ Allan L. Schuman
 
 
 
 
Allan L. Schuman
 
Trustee
 
February 22, 2018

78



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tanger Factory Outlet Centers, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tanger Factory Outlet Centers, Inc. and subsidiaries (the "Company") as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows, for each of the two years in the period ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 22, 2018

We have served as the Company's auditor since 2016.


F-1



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tanger Factory Outlet Centers, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tanger Factory Outlet Centers, Inc. and subsidiaries (the “Company”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Company and our report dated February 22, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 22, 2018


F-2




Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of Tanger Factory Outlet Centers, Inc.:

In our opinion, the consolidated statements of operations, of comprehensive income, of shareholders’ equity and of cash flows for the year ended December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of Tanger Factory Outlets, Inc. and its subsidiaries for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2015 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP
Charlotte, NC
February 23, 2016



F-3



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tanger Properties Limited Partnership
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tanger Properties Limited Partnership and subsidiaries (the "Operating Partnership") as of December 31, 2017 and 2016, the related consolidated statements of operations, comprehensive income, equity, and cash flows, for each of the two years in the period ended December 31, 2017, and the related notes and the schedule listed in the Index at Item 15(a)(2) (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Operating Partnership as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Operating Partnership's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2018, expressed an unqualified opinion on the Operating Partnership's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Operating Partnership's management. Our responsibility is to express an opinion on the Operating Partnership's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 22, 2018


We have served as the Operating Partnership's auditor since 2016.


F-4



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tanger Properties Limited Partnership
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tanger Properties Limited Partnership and subsidiaries (the “Operating Partnership”) as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Operating Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2017, of the Operating Partnership and our report dated February 22, 2018, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Operating Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Operating Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Operating Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 22, 2018



F-5




Report of Independent Registered Public Accounting Firm

To the Partner of Tanger Properties Limited Partnership:

In our opinion, the consolidated statements of operations, of comprehensive income, of shareholders’ equity and of cash flows for the year ended December 31, 2015 present fairly, in all material respects, the results of operations and cash flows of Tanger Properties Limited Partnership and its subsidiaries for the year ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2015 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the inancial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP
Charlotte, NC
February 23, 2016


F-6























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F-7




TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
 
 
December 31,
 
 
2017
 
2016
Assets
 
 

 
 

Rental property:
 
 
 
 
Land
 
$
279,978

 
$
272,153

Buildings, improvements and fixtures
 
2,793,638

 
2,647,477

Construction in progress
 
14,854

 
46,277

 
 
3,088,470

 
2,965,907

Accumulated depreciation
 
(901,967
)
 
(814,583
)
Total rental property, net
 
2,186,503

 
2,151,324

Cash and cash equivalents
 
6,101

 
12,222

Investments in unconsolidated joint ventures
 
119,436

 
128,104

Deferred lease costs and other intangibles, net
 
132,061

 
151,579

Prepaids and other assets
 
96,004

 
82,985

Total assets
 
$
2,540,105

 
$
2,526,214

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Debt:
 
 
 
 
Senior, unsecured notes, net
 
$
1,134,755

 
$
1,135,309

Unsecured term loans, net
 
322,975

 
322,410

Mortgages payable, net
 
99,761

 
172,145

Unsecured lines of credit, net
 
206,160

 
58,002

Total debt
 
1,763,651

 
1,687,866

Accounts payable and accrued expenses
 
90,416

 
78,143

Other liabilities
 
73,736

 
54,764

Total liabilities
 
1,927,803

 
1,820,773

Commitments and contingencies (Note 23)
 

 

Equity
 
 
 
 
Tanger Factory Outlet Centers, Inc.:
 
 
 
 
Common shares, $.01 par value, 300,000,000 shares authorized, 94,560,536 and 96,095,891 shares issued and outstanding at December 31, 2017 and 2016, respectively
 
946

 
961

Paid in capital
 
784,782

 
820,251

Accumulated distributions in excess of net income
 
(184,865
)
 
(122,701
)
Accumulated other comprehensive loss
 
(19,285
)
 
(28,295
)
Equity attributable to Tanger Factory Outlet Centers, Inc.
 
581,578

 
670,216

Equity attributable to noncontrolling interests:
 
 
 
 
Noncontrolling interests in Operating Partnership
 
30,724

 
35,066

Noncontrolling interests in other consolidated partnerships
 
—

 
159

Total equity
 
612,302

 
705,441

Total liabilities and equity
 
$
2,540,105

 
$
2,526,214


The accompanying notes are an integral part of these consolidated financial statements.

F-8



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Revenues:
 
 

 
 

 
 

Base rentals
 
$
323,985

 
$
308,353

 
$
289,688

Percentage rentals
 
9,853

 
11,221

 
10,157

Expense reimbursements
 
142,817

 
133,818

 
126,468

Management, leasing and other services
 
2,452

 
3,847

 
5,426

Other income
 
9,127

 
8,595

 
7,630

Total revenues
 
488,234

 
465,834

 
439,369

 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

Property operating
 
155,235

 
152,017

 
146,503

General and administrative
 
44,004

 
46,696

 
44,469

Acquisition costs
 
—

 
487

 
—

Abandoned pre-development costs
 
528

 
—

 
—

Depreciation and amortization
 
127,744

 
115,357

 
103,936

Total expenses
 
327,511

 
314,557

 
294,908

Operating income
 
160,723

 
151,277

 
144,461

Other income (expense):
 
 
 
 
 
 
Interest expense
 
(64,825
)
 
(60,669
)
 
(54,188
)
Loss on early extinguishment of debt
 
(35,626
)
 
—

 
—

Gain on sale of assets and interests in unconsolidated entities
 
6,943

 
6,305

 
120,447

Gain on previously held interest in acquired joint ventures
 
—

 
95,516

 
—

Other non-operating income (expense)
 
2,724

 
1,028

 
(36
)
Income before equity in earnings of unconsolidated joint ventures
 
69,939

 
193,457

 
210,684

Equity in earnings of unconsolidated joint ventures
 
1,937

 
10,872

 
11,484

Net income
 
71,876

 
204,329

 
222,168

Noncontrolling interests in Operating Partnership
 
(3,609
)
 
(10,287
)
 
(11,331
)
Noncontrolling interests in other consolidated partnerships
 
(265
)
 
(298
)
 
363

Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
68,002

 
$
193,744

 
$
211,200

 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.02

 
$
2.20

 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.01

 
$
2.20


The accompanying notes are an integral part of these consolidated financial statements.

F-9




TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Net income
 
$
71,876

 
$
204,329

 
$
222,168

Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation adjustments
 
8,138

 
4,259

 
(23,200
)
Change in fair value of cash flow hedges
 
1,351

 
4,609

 
(711
)
Other comprehensive income (loss)
 
9,489

 
8,868

 
(23,911
)
Comprehensive income
 
81,365

 
213,197

 
198,257

Comprehensive income attributable to noncontrolling interests
 
(4,353
)
 
(11,033
)
 
(9,749
)
Comprehensive income attributable to Tanger Factory Outlet Centers, Inc.
 
$
77,012

 
$
202,164

 
$
188,508


The accompanying notes are an integral part of these consolidated financial statements.


F-10



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Noncontrolling interest in Operating Partnership
Noncontrolling interests in other consolidated partnerships
Total
 equity
Balance, December 31, 2014
 
$
955

$
791,566

$
(281,679
)
$
(14,023
)
$
496,819

$
26,417

$
650

$
523,886

Net income
 
—

—

211,200

—

211,200

11,331

(363
)
222,168

Other comprehensive loss
 
—

—

—

(22,692
)
(22,692
)
(1,219
)
—

(23,911
)
Compensation under Incentive Award Plan
 
—

15,550

—

—

15,550

—

—

15,550

Issuance of 28,400 common shares upon exercise of options
 
—

788

—

—

788

—

—

788

Grant of 348,844 restricted common shares, net of forfeitures
 
4

(4
)
—

—

—

—

—

—

Withholding of 31,863 common shares for employee income taxes
 
—

(1,125
)
—

—

(1,125
)
—

—

(1,125
)
Contributions from noncontrolling interests
 
—

—

—

—

—

—

461

461

Adjustment for noncontrolling interests in Operating Partnership
 
—

(402
)
—

—

(402
)
402

—

—

Adjustment for noncontrolling interests in other consolidated partnerships
 
—

6

—

—

6

—

(6
)
—

Exchange of 25,663 Operating Partnership units for 25,663 common shares
 
—

—

—

—

—

—

—

—

Common dividends ($1.305 per share)
 
—

—

(125,007
)
—

(125,007
)
—

—

(125,007
)
Distributions to noncontrolling interests
 
—

—

—

—

—

(6,622
)
(156
)
(6,778
)
Balance, December 31, 2015
 
$
959

$
806,379

$
(195,486
)
$
(36,715
)
$
575,137

$
30,309

$
586

$
606,032


The accompanying notes are an integral part of these consolidated financial statements.


F-11



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Noncontrolling interest in Operating Partnership
Noncontrolling interests in other consolidated partnerships
Total
 equity
Balance,
December 31, 2015
 
$
959

$
806,379

$
(195,486
)
$
(36,715
)
$
575,137

$
30,309

$
586

$
606,032

Net income
 
—

—

193,744

—

193,744

10,287

298

204,329

Other comprehensive income
 
—

—

—

8,420

8,420

448

—

8,868

Compensation under Incentive Award Plan
 
—

16,304

—

—

16,304

—

—

16,304

Issuance of 59,700 common shares upon exercise of options
 
—

1,749

—

—

1,749

—

—

1,749

Grant of 173,124 restricted common shares, net of forfeitures
 
2

(2
)
—

—

—

—

—

—

Issuance of 24,040 deferred shares
 
—

—

—

—

—

—

—

—

Withholding of
66,760 common shares for employee income taxes
 
—

(2,177
)
—

—

(2,177
)
—

—

(2,177
)
Contributions from noncontrolling interests
 
—

—

—

—

—

—

35

35

Adjustment for noncontrolling interests in Operating Partnership
 
—

(389
)
—

—

(389
)
389

—

—

Adjustment for noncontrolling interests in other consolidated partnerships
 
—

4

—

—

4

—

(4
)
—

Acquisition of noncontrolling interest in other consolidated partnership
 
—

(1,617
)
—

—

(1,617
)
—

(325
)
(1,942
)
Exchange of 24,962 Operating Partnership units for 24,962 common shares
 
—

—

—

—

—

—

—

—

Common dividends ($1.260 per share)
 
—

—

(120,959
)
—

(120,959
)
—

—

(120,959
)
Distributions to noncontrolling interests
 
—

—

—

—

—

(6,367
)
(431
)
(6,798
)
Balance,
December 31, 2016
 
$
961

$
820,251

$
(122,701
)
$
(28,295
)
$
670,216

$
35,066

$
159

$
705,441


The accompanying notes are an integral part of these consolidated financial statements.


F-12



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands, except share and per share data)
 
 
Common shares
Paid in capital
Accumulated distributions in excess of earnings
Accumulated other comprehensive income (loss)
Total shareholders' equity
Noncontrolling interest in Operating Partnership
Noncontrolling interests in other consolidated partnerships
Total
equity
Balance, December 31, 2016
 
$
961

$
820,251

$
(122,701
)
$
(28,295
)
$
670,216

$
35,066

$
159

$
705,441

Net income
 
—

—

68,002

—

68,002

3,609

265

71,876

Other comprehensive income
 
—

—

—

9,010

9,010

479

—

9,489

Compensation under Incentive Award Plan
 
—

14,629

—

—

14,629

—

—

14,629

Issuance of 1,800 common shares upon exercise of options
 
—

54

—

—

54

—

—

54

Grant of 411,968 restricted common share awards, net of forfeitures
 
4

(4
)
—

—

—

—

—

—

Repurchase of 1,911,585 common shares, including transaction costs
 
(18
)
(49,343
)
—

—

(49,361
)
—

—

(49,361
)
Withholding of
69,886 common shares for employee income taxes
 
(1
)
(2,435
)
—

—

(2,436
)
—

—

(2,436
)
Contributions from noncontrolling interests
 
—

—

—

—

—

—

13

13

Adjustment for noncontrolling interests in Operating Partnership
 
—

1,630

—

—

1,630

(1,630
)
—

—

Acquisition of noncontrolling interest in other consolidated partnership
 
—

—

—

—

—

—

(159
)
(159
)
Exchange of 32,348 Operating Partnership units for 32,348 common shares
 
—

—

—

—

—

—

—

—

Common dividends ($1.3525 per share)
 
—

—

(130,166
)
—

(130,166
)
—

—

(130,166
)
Distributions to noncontrolling interests
 
—

—

—

—

—

(6,800
)
(278
)
(7,078
)
Balance,
December 31, 2017
 
$
946

$
784,782

$
(184,865
)
$
(19,285
)
$
581,578

$
30,724

$
—

$
612,302


The accompanying notes are an integral part of these consolidated financial statements.


F-13



TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Operating Activities
 
 

 
 

 
 

Net income
 
$
71,876

 
$
204,329

 
$
222,168

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 

 
 
Depreciation and amortization
 
127,744

 
115,357

 
103,936

Amortization of deferred financing costs
 
3,263

 
3,237

 
2,730

Gain on sale of assets and interests in unconsolidated entities
 
(6,943
)
 
(6,305
)
 
(120,447
)
Gain on previously held interest in acquired joint ventures
 
—

 
(95,516
)
 
—

Loss on early extinguishment of debt
 
35,626

 
—

 
—

Equity in earnings of unconsolidated joint ventures
 
(1,937
)
 
(10,872
)
 
(11,484
)
Equity-based compensation expense
 
13,585

 
15,319

 
14,712

Amortization of debt (premiums) and discounts, net
 
462

 
1,290

 
256

Net amortization of market rent rate adjustments
 
2,829

 
3,302

 
2,461

Straight-line rent adjustments
 
(5,632
)
 
(7,002
)
 
(6,347
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
10,697

 
13,662

 
12,137

Changes in other asset and liabilities:
 
 
 
 
 
 
Other assets
 
365

 
(544
)
 
(798
)
Accounts payable and accrued expenses
 
1,224

 
3,059

 
1,431

Net cash provided by operating activities
 
253,159

 
239,316

 
220,755

Investing Activities
 
 

 
 

 
 

Additions to rental property
 
(166,231
)
 
(165,060
)
 
(238,706
)
Acquisitions of interest in unconsolidated joint ventures, net of cash acquired
 
—

 
(45,219
)
 
—

Additions to investments in unconsolidated joint ventures
 
(5,892
)
 
(32,968
)
 
(45,286
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
39,213

 
28,706

 
164,587

Change in restricted cash
 
—

 
121,306

 
(121,306
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
25,084

 
60,267

 
26,875

Additions to non-real estate assets
 
(8,909
)
 
(6,503
)
 
(837
)
Additions to deferred lease costs
 
(6,584
)
 
(7,013
)
 
(7,803
)
Other investing activities
 
5,774

 
983

 
649

Net cash used in investing activities 
 
(117,545
)
 
(45,501
)
 
(221,827
)
Financing Activities
 
 
 
 
 
 
Cash dividends paid
 
(130,166
)
 
(141,088
)
 
(104,877
)
Distributions to noncontrolling interests in Operating Partnership
 
(6,800
)
 
(7,428
)
 
(5,561
)
Proceeds from revolving credit facility
 
719,521

 
845,650

 
537,000

Repayments of revolving credit facility
 
(572,421
)
 
(974,950
)
 
(457,700
)
Proceeds from notes, mortgages and loans
 
299,460

 
437,420

 
90,839

Repayments of notes, mortgages and loans
 
(373,258
)
 
(330,329
)
 
(49,783
)
Payment of make-whole premium related to early extinguishment of debt
 
(34,143
)
 
—

 
—

Repayment of deferred financing obligation
 
—

 
(28,388
)
 
—

Repurchase of common shares, including transaction costs

 
(49,361
)
 
—

 
—

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,436
)
 
(2,177
)
 
(1,126
)
Additions to deferred financing costs
 
(2,850
)
 
(5,496
)
 
(2,829
)
Proceeds from exercise of options
 
54

 
1,749

 
788

Proceeds from other financing activities
 
12,054

 
3,897

 
259

Payment for other financing activities
 
(1,333
)
 
(2,327
)
 
(156
)
Net cash provided by (used in) financing activities
 
(141,679
)
 
(203,467
)
 
6,854

Effect of foreign currency rate changes on cash and cash equivalents
 
(56
)
 
316

 
(1,099
)
Net increase (decrease) in cash and cash equivalents
 
(6,121
)
 
(9,336
)
 
4,683

Cash and cash equivalents, beginning of year
 
12,222

 
21,558

 
16,875

Cash and cash equivalents, end of year
 
$
6,101

 
$
12,222

 
$
21,558


The accompanying notes are an integral part of these consolidated financial statements.

F-14




TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for unit data)

 
 
December 31,
 
 
2017
 
2016
Assets
 
 

 
 

Rental property:
 
 
 
 
Land
 
$
279,978

 
$
272,153

Buildings, improvements and fixtures
 
2,793,638

 
2,647,477

Construction in progress
 
14,854

 
46,277

 
 
3,088,470

 
2,965,907

Accumulated depreciation
 
(901,967
)
 
(814,583
)
Total rental property, net
 
2,186,503

 
2,151,324

Cash and cash equivalents
 
6,050

 
12,199

Investments in unconsolidated joint ventures
 
119,436

 
128,104

Deferred lease costs and other intangibles, net
 
132,061

 
151,579

Prepaids and other assets
 
95,384

 
82,481

Total assets
 
$
2,539,434

 
$
2,525,687

Liabilities and Equity
 
 
 
 
Liabilities
 
 
 
 
Debt:
 
 
 
 
Senior, unsecured notes, net
 
$
1,134,755

 
$
1,135,309

Unsecured term loans, net
 
322,975

 
322,410

Mortgages payable, net
 
99,761

 
172,145

Unsecured lines of credit, net
 
206,160

 
58,002

Total debt
 
1,763,651

 
1,687,866

Accounts payable and accrued expenses
 
89,745

 
77,616

Other liabilities
 
73,736

 
54,764

Total liabilities
 
1,927,132

 
1,820,246

Commitments and contingencies (Note 23)
 

 

Equity
 
 
 
 
Partners' Equity:
 
 
 
 
General partner, 1,000,000 units outstanding at December 31, 2017 and 2016
 
5,844

 
6,485

Limited partners, 4,995,433 and 5,027,781 Class A units and 93,560,536 and 95,095,891 Class B units outstanding at December 31, 2017 and 2016, respectively
 
626,803

 
728,631

Accumulated other comprehensive loss
 
(20,345
)
 
(29,834
)
Total partners' equity
 
612,302

 
705,282

Noncontrolling interests in consolidated partnerships
 
—

 
159

Total equity
 
612,302

 
705,441

Total liabilities and equity
 
$
2,539,434

 
$
2,525,687


The accompanying notes are an integral part of these consolidated financial statements.

F-15



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Revenues:
 
 

 
 

 
 

Base rentals
 
$
323,985

 
$
308,353

 
$
289,688

Percentage rentals
 
9,853

 
11,221

 
10,157

Expense reimbursements
 
142,817

 
133,818

 
126,468

Management, leasing and other services
 
2,452

 
3,847

 
5,426

Other income
 
9,127

 
8,595

 
7,630

Total revenues
 
488,234

 
465,834

 
439,369

 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

Property operating
 
155,235

 
152,017

 
146,503

General and administrative
 
44,004

 
46,696

 
44,469

Acquisition costs
 
—

 
487

 
—

Abandoned pre-development costs
 
528

 
—

 
—

Depreciation and amortization
 
127,744

 
115,357

 
103,936

Total expenses
 
327,511

 
314,557

 
294,908

Operating income
 
160,723

 
151,277

 
144,461

Other income (expense):
 
 
 
 
 
 
Interest expense
 
(64,825
)
 
(60,669
)
 
(54,188
)
Loss on early extinguishment of debt
 
(35,626
)
 
—

 
—

Gain on sale of assets and interests in unconsolidated entities
 
6,943

 
6,305

 
120,447

Gain on previously held interest in acquired joint ventures
 
—

 
95,516

 
—

Other non-operating income (expense)
 
2,724

 
1,028

 
(36
)
Income before equity in earnings of unconsolidated joint ventures
 
69,939

 
193,457

 
210,684

Equity in earnings of unconsolidated joint ventures
 
1,937

 
10,872

 
11,484

Net income
 
71,876

 
204,329

 
222,168

Noncontrolling interests in consolidated partnerships
 
(265
)
 
(298
)
 
363

Net income available to partners
 
71,611

 
204,031

 
222,531

Net income available to limited partners
 
70,900

 
202,012

 
220,328

Net income available to general partner
 
$
711

 
$
2,019

 
$
2,203

 
 
 
 
 
 
 
Basic earnings per common unit:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.02

 
$
2.21

 
 
 
 
 
 
 
Diluted earnings per common unit:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.01

 
$
2.20


The accompanying notes are an integral part of these consolidated financial statements.

F-16



TANGER PROPERITES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)

 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Net income
 
$
71,876

 
$
204,329

 
$
222,168

Other comprehensive income (loss):
 
 
 
 
 
 
Foreign currency translation adjustments
 
8,138

 
4,259

 
(23,200
)
Change in fair value of cash flow hedges
 
1,351

 
4,609

 
(711
)
Other comprehensive income (loss)
 
9,489

 
8,868

 
(23,911
)
Comprehensive income
 
81,365

 
213,197

 
198,257

Comprehensive (income) loss attributable to noncontrolling interests in consolidated partnerships
 
(265
)
 
(298
)
 
363

Comprehensive income attributable to the Operating Partnership
 
$
81,100

 
$
212,899

 
$
198,620


The accompanying notes are an integral part of these consolidated financial statements.




F-17



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands, except unit and per unit data)
 
 
General partner
Limited partners
Accumulated other comprehensive income (loss)
Total partners' equity
Noncontrolling interests in consolidated partnerships
Total equity
Balance, December 31, 2014
 
$
4,828

$
533,199

$
(14,791
)
$
523,236

$
650

$
523,886

Net income
 
2,203

220,328

—

222,531

(363
)
222,168

Other comprehensive loss
 
—

—

(23,911
)
(23,911
)
—

(23,911
)
Compensation under Incentive Award Plan
 
—

15,550

—

15,550

—

15,550

Issuance of 28,400 common units upon exercise of options
 
—

788

—

788

—

788

Issuance of 348,844 restricted common units, net of forfeitures
 
—

—

—

—

—

—

Withholding of 31,863 common units for employee income taxes
 
—

(1,125
)
—

(1,125
)
—

(1,125
)
Contributions from noncontrolling interests
 
—

—

—

—

461

461

Adjustment for noncontrolling interests in other consolidated partnerships
 
—

6

—

6

(6
)
—

Common distributions ($1.305 per common unit)
 
(1,305
)
(130,324
)
—

(131,629
)
—

(131,629
)
Distributions to noncontrolling interests
 
—

—

—

—

(156
)
(156
)
Balance, December 31, 2015
 
$
5,726

$
638,422

$
(38,702
)
$
605,446

$
586

$
606,032

Net income
 
2,019

202,012

—

204,031

298

204,329

Other comprehensive income
 
—

—

8,868

8,868

—

8,868

Compensation under Incentive Award Plan
 
—

16,304

—

16,304

—

16,304

Issuance of 59,700 common units upon exercise of options
 
—

1,749

—

1,749

—

1,749

Grant of 173,124 restricted common share awards by the Company, net of forfeitures
 
—

—

—

—

—

—

Issuance of 24,040 deferred units
 
—

—

—

—

—

—

Withholding of 66,760 common units for employee income taxes
 
—

(2,177
)
—

(2,177
)
—

(2,177
)
Contributions from noncontrolling interests
 
—

—

—

—

35

35

Adjustment for noncontrolling interests in other consolidated partnerships
 
—

4

—

4

(4
)
—

Acquisition of noncontrolling interest in other consolidated partnership
 
—

(1,617
)
—

(1,617
)
(325
)
(1,942
)
Common distributions ($1.260 per common unit)
 
(1,260
)
(126,066
)
—

(127,326
)
—

(127,326
)
Distributions to noncontrolling interests
 
—

—

—

—

(431
)
(431
)
Balance, December 31, 2016
 
$
6,485

$
728,631

$
(29,834
)
$
705,282

$
159

$
705,441

Net income
 
711

70,900

—

71,611

265

71,876

Other comprehensive income
 
—

—

9,489

9,489

—

9,489

Compensation under Incentive Award Plan
 
—

14,629

—

14,629

—

14,629

Issuance of 1,800 common units upon exercise of options
 
—

54

—

54

—

54

Grant of 411,968 restricted common share awards by the Company
 
—

—

—

—

—

—

Repurchase of 1,911,585 units, including transaction costs
 
—

(49,361
)
—

(49,361
)
—

(49,361
)
Withholding of 69,886 common units for employee income taxes
 
—

(2,436
)
—

(2,436
)
—

(2,436
)
Contributions from noncontrolling interests
 
—

—

—

—

13

13

Acquisition of noncontrolling interest in other consolidated partnership
 
—

—

—

—

(159
)
(159
)
Common distributions ($1.3525 per common unit)
 
(1,352
)
(135,614
)
—

(136,966
)
—

(136,966
)
Distributions to noncontrolling interests
 
—

—

—

—

(278
)
(278
)
Balance, December 31, 2017
 
$
5,844

$
626,803

$
(20,345
)
$
612,302

$
—

$
612,302

The accompanying notes are an integral part of these consolidated financial statements.

F-18



TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 
 
For the years ended December 31,
 
 
2017
 
2016
 
2015
Operating activities
 
 

 
 

 
 

Net income
 
$
71,876

 
$
204,329

 
$
222,168

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
127,744

 
115,357

 
103,936

Amortization of deferred financing costs
 
3,263

 
3,237

 
2,730

Loss on early extinguishment of debt
 
35,626

 
—

 
—

Gain on sale of assets and interests in unconsolidated entities
 
(6,943
)
 
(6,305
)
 
(120,447
)
Gain on previously held interest in acquired joint ventures
 
—

 
(95,516
)
 
—

Equity in earnings of unconsolidated joint ventures
 
(1,937
)
 
(10,872
)
 
(11,484
)
Equity-based compensation expense
 
13,585

 
15,319

 
14,712

Amortization of debt (premiums) and discounts, net
 
462

 
1,290

 
256

Net amortization of market rent rate adjustments
 
2,829

 
3,302

 
2,461

Straight-line rent adjustments
 
(5,632
)
 
(7,002
)
 
(6,347
)
Distributions of cumulative earnings from unconsolidated joint ventures
 
10,697

 
13,662

 
12,137

Changes in other assets and liabilities:
 
 

 
 

 
 

Other assets
 
481

 
(705
)
 
(639
)
Accounts payable and accrued expenses
 
1,080

 
3,203

 
2,335

Net cash provided by operating activities
 
253,131

 
239,299

 
221,818

Investing activities
 
 

 
 

 
 

Additions to rental property
 
(166,231
)
 
(165,060
)
 
(238,706
)
Acquisitions of interest in unconsolidated joint ventures, net of cash acquired
 
—

 
(45,219
)
 
—

Additions to investments in unconsolidated joint ventures
 
(5,892
)
 
(32,968
)
 
(45,286
)
Net proceeds on sale of assets and interests in unconsolidated entities
 
39,213

 
28,706

 
164,587

Change in restricted cash
 
—

 
121,306

 
(121,306
)
Distributions in excess of cumulative earnings from unconsolidated joint ventures
 
25,084

 
60,267

 
26,875

Additions to non-real estate assets
 
(8,909
)
 
(6,503
)
 
(837
)
Additions to deferred lease costs
 
(6,584
)
 
(7,013
)
 
(7,803
)
Other investing activities
 
5,774

 
983

 
649

Net cash used in investing activities 
 
(117,545
)
 
(45,501
)
 
(221,827
)
Financing activities
 
 
 
 
 
 
Cash distributions paid
 
(136,966
)
 
(148,516
)
 
(110,438
)
Proceeds from revolving credit facility
 
719,521

 
845,650

 
537,000

Repayments of revolving credit facility
 
(572,421
)
 
(974,950
)
 
(457,700
)
Proceeds from notes, mortgages and loans
 
299,460

 
437,420

 
90,839

Repayments of notes, mortgages and loans
 
(373,258
)
 
(330,329
)
 
(49,783
)
Payment of make-whole premium related to early extinguishment of debt
 
(34,143
)
 
—

 
—

Repayment of deferred financing obligation
 
—

 
(28,388
)
 
—

Repurchase of common shares, including transaction costs
 
(49,361
)
 
—

 
—

Employee income taxes paid related to shares withheld upon vesting of equity awards
 
(2,436
)
 
(2,177
)
 
(1,126
)
Additions to deferred financing costs
 
(2,850
)
 
(5,496
)
 
(2,829
)
Proceeds from exercise of options
 
54

 
1,749

 
788

Proceeds from other financing activities
 
12,054

 
3,897

 
259

Payment for other financing activities
 
(1,333
)
 
(2,327
)
 
(156
)
Net cash provided by (used in) financing activities
 
(141,679
)
 
(203,467
)
 
6,854

Effect of foreign currency rate changes on cash and cash equivalents
 
(56
)
 
316

 
(1,099
)
Net increase (decrease) in cash and cash equivalents
 
(6,149
)
 
(9,353
)

5,746

Cash and cash equivalents, beginning of year
 
12,199

 
21,552

 
15,806

Cash and cash equivalents, end of year
 
$
6,050

 
$
12,199

 
$
21,552


The accompanying notes are an integral part of these consolidated financial statements.

F-19



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
TANGER FACTORY OUTLET CENTERS, INC. AND
TANGER PROPERTIES LIMITED PARTNERSHIP

1.
Organization of the Company

Tanger Factory Outlet Centers, Inc. and subsidiaries, which we refer to as the Company, is one of the largest owners and operators of outlet centers in the United States and Canada. We are a fully-integrated, self-administered and self-managed real estate investment trust ("REIT") which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of December 31, 2017, we owned and operated 36 consolidated outlet centers, with a total gross leasable area of approximately 12.9 million square feet. All references to gross leasable area, square feet, occupancy, stores and store brands contained in the notes to the consolidated financial statements are unaudited. These outlet centers were 97% occupied and contained over 2,600 stores, representing approximately 400 store brands. We also had partial ownership interests in 8 unconsolidated outlet centers totaling approximately 2.4 million square feet, including 4 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, which we refer to as the Operating Partnership. Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating Partnership. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term “Operating Partnership” refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of December 31, 2017, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 94,560,536 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,995,433 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company's common shares, subject to certain limitations to preserve the Company's status as a REIT. 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

Principles of Consolidation - The consolidated financial statements of the Company include its accounts and its consolidated subsidiaries, as well as the Operating Partnership and its consolidated subsidiaries. The consolidated financial statements of the Operating Partnership include its accounts and its consolidated subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant.

We consolidate properties that are wholly-owned or properties where we own less than 100% but we control. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities ("VIE"). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our determination of the primary beneficiary considers various factors including the form of our ownership interest, our representation in an entity's governance, the size of our investment, our ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process to replace us as manager and or liquidate the venture, if applicable. As of December 31, 2017, we did not have a joint venture that was a VIE.

F-20




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 venture's net income or loss, cash contributions, distributions and other adjustments required under the equity method of accounting.

For certain of these investments, we record our equity in the venture'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. In the event a basis difference is created between our underlying interest in the venture’s net assets and our initial investment, we amortize such amount over the estimated life of the venture as a component of equity in earnings of unconsolidated joint ventures.

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 and Galveston/Houston 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 Company's consolidated financial statements, the “Noncontrolling interests in Operating Partnership” reflects the Non-Company LP's percentage ownership of the Operating Partnership's units. "Noncontrolling interests in other consolidated partnerships" consist of outside equity interests in partnerships or joint ventures not wholly-owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties. Noncontrolling interests are initially recorded in the consolidated balance sheets at fair value based upon purchase price allocations. Income is allocated to the noncontrolling interests based on the allocation provisions within the partnership or joint venture agreements.

Use of Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used in the calculations of impairment losses, costs capitalized to originate operating leases, costs incurred for the construction and development of properties, and the values of deferred lease costs and other intangibles related to the acquisition of properties. Actual results could differ from those estimates.

Operating Segments - We focus exclusively on developing, acquiring, owning, operating, and managing outlet shopping centers. We aggregate the financial information of all outlet centers into one reportable operating segment because the outlet centers all have similar economic characteristics and provide similar products and services to similar types and classes of customers.

Rental Property - Rental properties are recorded at cost less accumulated depreciation. Buildings, improvements and fixtures consist primarily of permanent buildings and improvements made to land such as infrastructure and costs incurred in providing rental space to tenants.

The pre-construction stage of project development involves certain costs to secure land control and zoning and complete other initial tasks essential to the development of the project. These costs are transferred from other assets to construction in progress when the pre-construction tasks are completed. Costs of unsuccessful pre-construction efforts are expensed when the project is no longer probable and, if significant, are recorded as abandoned pre-development costs in the consolidated statement of operations.


F-21



We also capitalize other costs incurred for the construction and development of properties, including interest, real estate taxes and payroll and related costs associated with employees directly involved. Capitalization of costs commences at the time the development of the property becomes probable and ceases when the property is substantially completed and ready for its intended use. We consider a construction project as substantially completed and ready for its intended use upon the completion of tenant improvements. We cease capitalization on the portion that is substantially completed and occupied or held available for occupancy, and capitalize only those costs associated with the portion under construction. The amount of payroll and related costs capitalized for the construction and development of properties is based on our estimate of the amount of costs directly related to the construction or development of these assets.

Interest costs are capitalized during periods of active construction for qualified expenditures based upon interest rates in place during the construction period until construction is substantially complete. This includes interest incurred on funds invested in or advanced to unconsolidated joint ventures for qualifying development activities until placed in service.

Payroll and related costs and interest costs capitalized for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
 
 
2017
 
2016
 
2015
Payroll and related costs capitalized
 
$
2,345

 
$
2,095

 
$
2,989

Interest costs capitalized
 
$
2,289

 
$
2,259

 
$
3,448


Depreciation is computed on the straight-line basis over the estimated useful lives of the assets. We generally use estimated lives of 33 years for buildings and improvements, 15 years for land improvements and 7 years for equipment. Tenant finishing allowances are amortized over the life of the associated lease. Capitalized interest costs are amortized over lives which are consistent with the constructed assets. Expenditures for ordinary maintenance and repairs are charged to operations as incurred while significant renovations and improvements which improve and/or extend the useful life of the asset are capitalized and depreciated over their estimated useful life.

Depreciation expense related to rental property included in net income for each of the years ended December 31, 2017, 2016 and 2015 was as follows (in thousands):
 
 
2017
 
2016
 
2015
Depreciation expense related to rental property
 
$
107,845

 
$
96,813

 
$
85,872


In accordance with accounting guidance for business combinations, we allocate the purchase price of acquisitions based on the fair value of land, building, tenant improvements, debt and deferred lease costs and other intangibles, such as the value of leases with above or below market rents, origination costs associated with the in-place leases, the value of in-place leases and tenant relationships, if any. We depreciate the amount allocated to building, deferred lease costs and other intangible assets over their estimated useful lives, which range up to 33 years. The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease. The values of below market leases that are considered to have renewal periods with below market rents are amortized over the remaining term of the associated lease plus the renewal periods when the renewal is deemed probable to occur. The value associated with in-place leases is amortized over the remaining lease term and tenant relationships is amortized over the expected term, which includes an estimated probability of the lease renewal. If a tenant terminates its lease prior to the contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related intangibles is written off. The tenant improvements and origination costs are amortized as an expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date). We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. These cash flow projections may be derived from various observable and unobservable inputs and assumptions. Also, we may utilize third-party valuation specialists. As a part of acquisition accounting, the amount by which the fair value of our previously held equity method investment exceeds the carrying book value is recorded as a gain on previously held interest in acquired joint venture. Direct costs to acquire existing outlet centers are expensed as incurred.


F-22



Cash, Cash Equivalents and Restricted Cash - All highly liquid investments with an original maturity of three months or less at the date of purchase are considered to be cash equivalents. Cash balances at a limited number of banks may periodically exceed insurable amounts. We believe that we mitigate our risk by investing in or through major financial institutions. At December 31, 2017 and 2016, we had cash equivalent investments in highly liquid money market accounts at major financial institutions of $3.0 million and $672,000, respectively.

The restricted cash represents the cash proceeds from property sales that are being held by a qualified intermediary in anticipation of such amounts subsequently being invested in a tax efficient manner under Section 1031 of the Internal Revenue Code of 1986, as amended.

Deferred Charges - Deferred charges include deferred lease costs and other intangible assets consisting of fees and costs incurred to originate operating leases and are amortized over the expected lease term. Deferred lease costs capitalized, including amounts paid to third-party brokers and payroll and related costs of employees directly involved in originating leases for the years ended December 31, 2017, 2016 and 2015 were as follows (in thousands):
 
 
2017
 
2016
 
2015
Deferred lease costs capitalized
 
$
6,584

 
$
7,013

 
$
7,803


Of the amounts capitalized during 2017, 2016 and 2015 the following were related to payroll and related costs (in thousands):
 
 
2017
 
2016
 
2015
Deferred lease costs capitalized- payroll and related costs
 
$
6,098

 
$
6,210

 
$
6,236


The amount of payroll and related costs capitalized is based on our estimate of the time and amount of costs directly related to originating leases. Deferred lease costs and other intangible assets also include the value of leases and origination costs deemed to have been acquired in real estate acquisitions.

Deferred financing costs - Deferred financing costs include fees and costs incurred to obtain long-term financing and are amortized over the terms of the respective loans. Unamortized deferred financing costs are charged to expense when debt is retired before the maturity date.

Captive Insurance - We have a wholly-owned captive insurance company that is responsible for losses up to certain deductible levels per occurrence for property damage (including wind damage from hurricanes) prior to third-party insurance coverage. Insurance losses are reflected in property operating expenses and include estimates of costs incurred, both reported and unreported.
 
Impairment of Long-Lived Assets - Rental property held and used by us 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, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less than such carrying amount, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value. Fair value is determined using an income approach whereby we consider the prevailing market income capitalization rates and stabilized net operating income projections. We recognized no impairment losses for our consolidated properties during the years ended December 31, 2017, 2016, and 2015, respectively. See Note 6 for discussion of the impairment of our unconsolidated joint ventures at the Bromont, Quebec and Saint Sauveur, Quebec outlet centers.

Rental Property Held For Sale - Rental properties designated as held for sale are stated at the lower of their carrying value or their fair value less costs to sell. We classify rental property as held for sale when our Board of Directors approves the sale of the assets and it meets the requirements of current accounting guidance. Subsequent to this classification, no further depreciation is recorded on the assets.


F-23



Impairment of Investments - On a periodic basis, we assess whether there are any indicators that the value of our investments in unconsolidated joint ventures may be impaired. An investment is impaired only if management's estimate of the value of the investment is less than the carrying value of the investments, and such decline in value is deemed to be other than temporary. To the extent impairment has occurred, the loss shall be measured as the excess of the carrying amount of the investment over the value of the investment. Our estimates of value for each joint venture investment are based on a number of assumptions that are subject to economic and market uncertainties including, among others, estimated hold period, terminal capitalization rates, demand for space, competition for tenants, discount and capitalization rates, changes in market rental rates and operating costs of the property. As these factors are difficult to predict and are subject to future events that may alter our assumptions, the values estimated by us in our impairment analysis may not be realized.

Sales of Real Estate - For sales transactions meeting the requirements for full profit recognition, the related assets and liabilities are removed from the balance sheet and the resulting gain or loss is recorded in the period the transaction closes. For sales transactions with continuing involvement after the sale, if the continuing involvement with the property is limited by the terms of the sales contract, profit is recognized at the time of sale and is reduced by the maximum exposure to loss related to the nature of the continuing involvement. Sales to entities in which we have or receive an interest are accounted for using partial sale accounting.

For transactions that do not meet the criteria for a sale, we evaluate the nature of the continuing involvement, including put and call provisions, if present, and account for the transaction as a financing arrangement, profit-sharing arrangement, leasing arrangement or other alternate method of accounting, rather than as a sale, based on the nature and extent of the continuing involvement. Some transactions may have numerous forms of continuing involvement. In those cases, we determine which method is most appropriate based on the substance of the transaction.

Discontinued Operations - Properties that are sold or classified as held for sale are classified as discontinued operations provided that the disposal represents a strategic shift that has (or will have) a major effect on our operations and financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity).

Derivatives - We selectively enter into interest rate protection agreements to mitigate the impact of changes in interest rates on our variable rate borrowings. The notional amounts of such agreements are used to measure the interest to be paid or received and do not represent the amount of exposure to loss. None of these agreements are used for speculative or trading purposes.

We recognize all derivatives as either assets or liabilities in the consolidated balance sheets and measure those instruments at their fair value. We also measure the effectiveness, as defined by the relevant accounting guidance, of all derivatives. We formally document our derivative transactions, including identifying the hedge instruments and hedged items, as well as our risk management objectives and strategies for entering into the hedge transaction. At inception and on a quarterly basis thereafter, we assess the effectiveness of derivatives used to hedge transactions. If a cash flow hedge is deemed effective, we record the change in fair value in other comprehensive income (loss). If after assessment it is determined that a portion of the derivative is ineffective, then that portion of the derivative's change in fair value will be immediately recognized in earnings.

Income Taxes - We operate in a manner intended to enable the Company to qualify as a REIT under the Internal Revenue Code. A REIT which distributes at least 90% of its taxable income to its shareholders each year and which meets certain other conditions is not taxed on that portion of its taxable income which is distributed to its shareholders. We intend to continue to qualify as a REIT and to distribute substantially all of the Company's taxable income to its shareholders. Accordingly, no provision has been made in the Company's consolidated financial statements for Federal income taxes. As a partnership, the allocated share of income or loss for the year with respect to the Operating Partnership is included in the income tax returns for the partners; accordingly, no provision has been made for Federal income taxes in the Operating Partnership's consolidated financial statements. In addition, we continue to evaluate uncertain tax positions. The tax years 2014 - 2017 remain open to examination by the major tax jurisdictions to which we are subject.


F-24



With regard to the Company's unconsolidated Canadian joint ventures, deferred tax assets result principally from depreciation deducted under United States Generally Accepted Accounting Principles ("GAAP") that exceed capital cost allowances claimed under Canadian tax rules. A valuation allowance is provided if we believe all or some portion of the deferred tax asset may not be realized. We have determined that a full valuation allowance is required as we believe none of the deferred tax assets will be realized.

For income tax purposes, distributions paid to the Company's common shareholders consist of ordinary income, capital gains, return of capital or a combination thereof. Dividends per share for the years ended December 31, 2017, 2016 and 2015 were taxable as follows:
Common dividends per share:
 
2017
 
2016
 
2015
Ordinary income
 
$
1.1660

 
$
1.2459

 
$
1.2846

Capital gain
 
—

 
0.0141

 
0.0204

Return of capital
 
0.1865

 
—

 
—

 
 
$
1.3525

 
$
1.2600

 
$
1.3050


The following reconciles net income available to the Company's shareholders to taxable income available to common shareholders for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Net income available to the Company's shareholders
 
$
68,002

 
$
193,744

 
$
211,200

Book/tax difference on:
 
 
 
 
 
 
Depreciation and amortization
 
10,685

 
1,666

 
12,446

Sale of assets and interests in unconsolidated entities
 
(8,718
)
 
(8,688
)
 
(110,248
)
Equity in earnings from unconsolidated joint ventures
 
15,662

 
4,305

 
6,772

Share-based payment compensation
 
221

 
4,596

 
4,751

Gain on previously held interest in acquired joint venture
 
—

 
(91,467
)
 
—

Other differences
 
(1,089
)
 
6,294

 
(2,831
)
Taxable income available to common shareholders
 
$
84,763

 
$
110,450

 
$
122,090


Revenue Recognition - Base rentals are recognized on a straight-line basis over the term of the lease. Straight-line rent adjustments recorded as a receivable in other assets on the consolidated balance sheets were approximately $51.9 million and $46.8 million as of December 31, 2017 and 2016, respectively. As a provision of a tenant lease, if we make a cash payment to the tenant for purposes other than funding the construction of landlord assets, we defer the amount of such payments as a lease incentive. We amortize lease incentives as a reduction of base rental revenue over the term of the lease. Substantially all leases contain provisions which provide additional rents based on tenants' sales volume (“percentage rentals”) and reimbursement of the tenants' share of advertising and promotion, common area maintenance, insurance and real estate tax expenses. Percentage rentals are recognized when specified targets that trigger the contingent rent are met. Expense reimbursements are recognized in the period the applicable expenses are incurred. For certain tenants, we receive a fixed payment for common area maintenance ("CAM") which is recognized as revenue when earned. When not reimbursed by the fixed-CAM component, CAM expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses for the property. Payments received from the early termination of leases are recognized as revenue from the time the payment is receivable until the tenant vacates the space. The values of the above and below market leases are amortized and recorded as either an increase (in the case of below market leases) or a decrease (in the case of above market leases) to rental income over the remaining term of the associated lease. If a tenant terminates its lease prior to the original contractual termination of the lease and no rental payments are being made on the lease, any unamortized balance of the related above or below market lease value will be written off.


F-25



We receive development, leasing, loan guarantee, management and marketing fees from third parties and unconsolidated affiliates for services provided to properties held in joint ventures. Development and leasing fees received from unconsolidated affiliates are recognized as revenue when earned to the extent of the third party partners' ownership interest. Development and leasing fees earned to the extent of our ownership interest are recorded as a reduction to our investment in the unconsolidated affiliate. Loan guarantee fees are recognized over the term of the guarantee. Management fees and marketing fees are recognized as revenue when earned. Fees recognized from these activities are shown as management, leasing and other services in our consolidated statements of operations. Fees received from consolidated joint ventures are eliminated in consolidation.

Concentration of Credit Risk - We perform ongoing credit evaluations of our tenants. Although the tenants operate principally in the retail industry, the properties are geographically diverse. No single tenant accounted for 10% or more of combined base and percentage rental income or gross leasable area during 2017, 2016 or 2015.

Supplemental Cash Flow Information - We purchase capital equipment and incur costs relating to construction of new facilities, including tenant finishing allowances. Expenditures included in accounts payable and accrued expenses were as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Costs relating to construction included in accounts payable and accrued expenses
 
$
32,060

 
$
22,908

 
$
28,665


See Note 3, for additional non-cash information associated with our acquisitions of rental property.

A non-cash financing activity that occurred during the 2015 period related to a special dividend of $21.2 million that was declared in December 2015 and paid in January 2016.

Interest paid, net of interest capitalized was as follows for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Interest paid, net of interest capitalized
 
$
56,730

 
$
50,270

 
$
49,542


Accounting for Equity-Based Compensation - 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 and Restated as of April 4, 2014) (the "Plan"), which covers our independent directors, officers and our employees. We may issue non-qualified options and other equity-based awards under the Plan. We account for our equity-based compensation plan under the fair value provisions of the relevant accounting guidance and we estimate expected forfeitures in determining compensation cost.

Foreign Currency Translation - We have entered into a co-ownership agreement with RioCan Real Estate Investment Trust to develop and acquire outlet centers in Canada for which the functional currency is the local currency. The assets and liabilities related to our investments in Canada are translated from their functional currency into U.S. Dollars at the rate of exchange in effect on the balance sheet date. Income statement accounts are translated using the average exchange rate for the period. Our share of unrealized gains and losses resulting from the translation of these financial statements are reflected in equity as a component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Recently adopted accounting standards - In January 2017, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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.




F-26



In August 2016, the FASB issued ASU 2016-15, the Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the Emerging Issues Task Force), which finalizes Proposed ASU No. EITF-15F 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 statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. 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 ASU is effective for fiscal years beginning after December 15, 2017 and for interim periods within those fiscal years, with early 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 FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities. The 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 do not expect the adoption to have a material impact on our consolidated financial statements.

In February 2017, the FASB issued ASU 2017-05, "Other Income - Gains and Losses from 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 consistent with the accounting for a sale of a business pursuant to ASU 2017-01. This update is effective for interim and annual periods beginning after December 15, 2017 using a full retrospective or modified retrospective method and is required to be adopted in conjunction with ASU 2014-09, "Revenue from Contracts with Customers" discussed below. We adopted ASU 2017-05 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 strategy 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, will result in the recognition of a full gain or loss as if we sold 100% of the nonfinancial asset and we will also measure our retained interest at fair value.

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 adopted 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.




F-27



In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and issued subsequent amendments to the initial guidance in September 2017 within ASU 2017-13 (collectively, Topic 842). Topic 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. Topic 842 will be effective beginning in the first quarter of 2019. Early adoption of Topic 842 as of its issuance is permitted. We will adopt Topic 842 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 Topic 606, 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, as amended, (collectively, Topic 606). Topic 606 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. Topic 606 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.

We adopted Topic 606 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. For the years ended December 31, 2017 and December 31, 2016, these revenues were approximately 3% of consolidated revenue, for both periods. As a result, the adoption of Topic 606 or related amendments and modifications by the FASB will not have a material impact on the amount of revenue we recognize in our consolidated financial statements and we will not have a cumulative catch-up upon the adoption of this standard.

3.    Acquisition of Rental Property

2017 Acquisition

Foxwoods

In November 2017, 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. See Note 5 for further details with regards to the Foxwoods property.

2016 Acquisitions

Savannah

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. At the time of acquisition, the property was subject to a $96.9 million construction loan, with an interest rate of LIBOR + 1.65%, that would have matured in May 2017. In September 2016, we repaid the mortgage loan with borrowings under our unsecured lines of credit.


F-28



The former joint venture is now wholly-owned by us and was consolidated in our financial results as of the acquisition date.  Prior to this transaction, we owned a 50% legal interest in the joint venture since its formation and accounted for it under the equity method of accounting. However, due to preferred equity contributions we made to the joint venture, and the returns earned on those contributions, our estimated economic interest in the book value of the assets was approximately 98%. Therefore, substantially all of the earnings of the joint venture were previously recognized by us as equity in earnings of unconsolidated joint ventures. 
 
There was no contingent consideration associated with this acquisition. The joint venture incurred approximately $260,000 in third-party acquisition related costs for the acquisition of the venture partner's interest that were expensed as incurred. 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 joint venture.

Non-cash investing activities related to the purchase of our partners' interest in the Savannah joint venture, include the assumption of debt totaling $96.9 million. In addition, rental property and lease related intangible assets and liabilities increased by a net of $46.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased $250,000 and accounts payable and accrued expenses increased $2.1 million from the assumption of current assets and liabilities.

Westgate

In June 2016, we completed the purchase of our partners' interest in the Westgate joint venture, which owned the outlet center in Glendale, Arizona, for a total cash price of approximately $40.9 million. 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 former joint venture is now wholly-owned by us and was consolidated in our financial results as of June 30, 2016.

The total cash price included $39.0 million to acquire the 40% ownership interest held by the equity partner in the joint venture. We also purchased the remaining 2% noncontrolling ownership interests in the Westgate outlet center held in a consolidated partnership for a purchase price of $1.9 million. The acquisition of the noncontrolling ownership interest was recorded as an equity transaction and, as a result, the carrying balances of the noncontrolling interest were eliminated and the remaining difference between the purchase price and carrying balance was recorded as a reduction in additional-paid-in-capital. We funded the total purchase price with borrowings under our unsecured lines of credit. At the time of the acquisition, the property was subject to a $62.0 million mortgage loan, with an interest rate of LIBOR + 1.75% and a maturity in June 2017. In August 2016, we repaid the mortgage loan in full with proceeds from the public offering of $250.0 million in senior notes due 2026.

There was no contingent consideration associated with this acquisition. We incurred approximately $127,000 in third-party acquisition related costs for the acquisition of our partners' interest in the Westgate joint venture that were expensed as incurred. 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.

Non-cash investing activities related to the purchase of our partners' interest in the Westgate joint venture, include the assumption of debt totaling $62.0 million. In addition, rental property and lease related intangible assets and liabilities increased by a net of $49.3 million related to the fair value of our previously held interest in excess of our carrying amount; prepaids and other assets increased $227,000 and accounts payable and accrued expenses increased $5.0 million from the assumption of current assets and liabilities.

The following table illustrates the fair value of the aggregate consideration transferred to acquire the equity interests of the Savannah and Westgate properties at the acquisition date for the year ended 2016 (in thousands):
Cash transferred for equity interests
$
54,000

Fair value of our previously held interests
145,581

Fair value of net assets
$
199,581



F-29



The following table illustrates the aggregate fair value of the amounts of the identifiable assets acquired and liabilities assumed and recognized at the acquisition date for the Savannah and Westgate properties acquired during the year ended 2016:
 
 
Fair Value
 (in thousands)
 
Weighted-Average Amortization Period (in years)
Cash
 
$
8,781

 
 
Land
 
27,593

 
 
Buildings, improvements and fixtures
 
308,117

 
 
Deferred lease costs and other intangibles
 
 
 
 
Above market lease value
 
15,882

 
7.2
Lease in place value
 
13,972

 
5.9
Lease and legal costs
 
10,264

 
6.4
Total deferred lease costs and other intangibles
 
40,118

 
 
Prepaids and other assets
 
477

 
 
Debt
 
(158,994
)
 
 
Accounts payable and accrued expenses
 
(7,183
)
 
 
Other liabilities (below market lease value)
 
(19,328
)
 
12.0
Total fair value of net assets
 
$
199,581

 
 

The fair values were determined based on an income approach, using a rental growth rate of 3.0%, a discount rate between 7.50% and 8.25%, and a terminal capitalization rate between 5.75% and 7.0%. The estimated fair values were determined to have primarily relied upon Level 3 inputs, as defined in Note 12.

The Company has finalized the valuations and completed the purchase price allocations. During the measurement period, we adjusted the Westgate purchase price allocation based upon information that was received subsequent to the acquisition date that related to conditions that existed as of that date. This adjustment increased above market lease value by $1.6 million, and decreased buildings, improvements and fixtures by $5.6 million, below market lease value by $4.8 million, lease in place value by $628,000 and land by $150,000.


F-30




4. Disposition of Properties

The following table sets forth the properties sold for the years ended 2017, 2016 and 2015 (in thousands):
Properties
 
Locations
 
Date Sold
 
Square Feet
 
Net Sales Proceeds
 
Gain on Sale
 
 
 
 
 
 
 
 
 
 
 
2017 Dispositions:(1)
 
 
 
 
 
 
 
 
 
 
Westbrook
 
Westbrook, CT
 
May 2017
 
290

 
$
39,213

 
$
6,943

 
 
 
 
 
 
 
 
 
 
 
2016 Dispositions:(1)
 
 
 
 
 
 
 
 
 
 
Fort Myers
 
Fort Myers, FL
 
January 2016
 
199

 
$
25,785

 
$
4,887

Land outparcel
 
Myrtle Beach, SC
 
September 2016
 
—

 
$
2,921

 
1,418

 
 
 
 
 
 
 
 
 
 
$
6,305

 
 
 
 
 
 
 
 
 
 
 
2015 Dispositions:(1)(2)
 
 
 
 
 
 
 
 
 
 
Barstow
 
Barstow, CA
 
October 2015
 
171

 
$
105,793

 
$
86,506

Kittery I and II, Tuscola, and West Branch
 
Kittery, ME, Tuscola, IL, and West Branch, MI
 
September 2015
 
439

 
$
43,304

 
20,215

 
 
 
 
 
 
 
 
 
 
$
106,721

(1)
The rental properties did not meet the criteria set forth in the guidance for reporting discontinued operations (See Note 2), thus their results of operations have remained in continuing operations.
(2)
We received combined net proceeds of $149.1 million of which $121.3 million was recorded in restricted cash as of December 31, 2015. The restricted cash represented the cash proceeds from property sales that were being held by a qualified intermediary for such amounts subsequently being invested in the 2016 period in a tax efficient manner under Section 1031 of the Internal Revenue Code of 1986, as amended.

5. Development of Consolidated Rental Properties

2017 Developments

Fort Worth

In October 2017, we opened a 352,000 square foot wholly-owned outlet 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.

Lancaster Expansion

In September 2017, we opened a 123,000 square foot expansion of our outlet center in Lancaster, Pennsylvania.

2016 Developments

Daytona Beach

In November 2016, we opened an approximately 352,000 square foot, wholly-owned, outlet center in Daytona Beach, Florida.


F-31



2015 Developments

Foxwoods

In May 2015, we opened an approximately 312,000 square foot outlet center at the Foxwoods Resort Casino in Mashantucket, Connecticut. Prior to the settlement of the litigation with our former joint venture partner related to the Foxwoods property as described further in Note 3 above, we owned a controlling interest in the joint venture which was consolidated for financial reporting purposes.

Grand Rapids

In July 2015, we opened an approximately 352,000 square foot wholly-owned outlet center near Grand Rapids, Michigan.

Southaven

In November 2015, we opened an approximately 320,000 square foot outlet center in Southaven, Mississippi. We own a controlling interest in the joint venture which is consolidated for financial reporting purposes.

As of December 31, 2017, based upon the liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value, our economic interest would represent substantially all of the economic benefit of the property. Our economic interest may fluctuate based on a number of factors, including mortgage financing, partnership capital contributions and distributions, and proceeds from asset sales.


F-32



6. Investments in Unconsolidated Real Estate Joint Ventures

The equity method of accounting is used to account for each of the individual joint ventures. We have an ownership interest in the following unconsolidated real estate joint ventures:
As of December 31, 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

 
$
1.1

 
$
84.4

National Harbor
 
National Harbor, MD
 
50.0
%
 
341

 
2.5

 
86.4

RioCan Canada
 
Various
 
50.0
%
 
923

 
115.8

 
11.1

Investments included in investments in unconsolidated joint ventures
 
 
 
 
 
$
119.4

 


 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(4.1
)
 
$
89.8

Galveston/Houston(2)
 
Texas City, TX
 
50.0
%
 
353

 
(13.0
)
 
79.4

Investments included in other liabilities
 
 
 
 
 
$
(17.1
)
 



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 investments in unconsolidated joint ventures
 
 
 
 
 
$
128.1

 


 
 
 
 
 
 
 
 
 
 
 
Charlotte(2)
 
Charlotte, NC
 
50.0
%
 
398

 
$
(2.5
)
 
$
89.7

Galveston/Houston(2)
 
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 $1.4 million and $1.6 million as of December 31, 2017 and December 31, 2016, respectively.
(2)
The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners.

Fees we received for various services provided to our unconsolidated joint ventures were recognized in management, leasing and other services as follows (in thousands):
 
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Fees:
 
 
 
 
 
 
Management and marketing
 
$
2,310

 
$
2,744

 
$
2,853

Development and leasing
 
124

 
651

 
1,827

Loan guarantee
 
18

 
452

 
746

Total Fees
 
$
2,452

 
$
3,847

 
$
5,426



F-33



Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the “Condensed Combined Balance Sheets - Unconsolidated Joint Ventures” shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $4.2 million and $3.7 million as of December 31, 2017 and 2016, respectively) are amortized over the various useful lives of the related assets.

Charlotte

In July 2014, we opened an approximately 398,000 square foot outlet center in Charlotte, North Carolina that was developed through, and is owned by, a joint venture formed in May 2013. The joint venture has an outstanding interest-only mortgage loan for $90.0 million at an interest rate of LIBOR + 1.45%. The loan initially matures in November 2018, with the option to extend the maturity for one additional year. Our partner is providing property management, marketing and leasing services to the joint venture.

Columbus

In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. The development was initially fully funded with equity contributed to the joint venture by Tanger and its partner. In November 2016, the joint venture closed on an interest-only mortgage loan of $85.0 million at an interest rate of LIBOR + 1.65%. The loan initially matures in November 2019, with two one-year extension options. The joint venture received net loan proceeds of $84.2 million and distributed them equally to the partners. We are providing property management, marketing and leasing services to the joint venture.
Galveston/Houston

In October 2012, we opened an approximately 353,000 square foot outlet center in Texas City, Texas that was developed through, and is owned by, a joint venture formed in June 2011. In July 2017, the joint venture amended and restated the initial construction loan to increase the amount available to borrow from $70.0 million to $80.0 million and extended the maturity date until July 2020 with two one-year options. The amended and restated loan also changed the interest rate from LIBOR + 1.50% to LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed approximately $14.5 million equally between the partners. We are providing property management, marketing and leasing services to the outlet center.

National Harbor

In November 2013, we opened an approximately 341,000 square foot outlet center at National Harbor in the Washington, D.C. Metro area that was developed through, and is owned by, a joint venture formed in May 2011. The joint venture has an outstanding interest-only construction loan of $87.0 million with a maturity date of November 2019. The loan carries an interest rate of LIBOR + 1.65%. We are providing property management, marketing and leasing services to the joint venture.

RioCan Canada

We have a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to develop and acquire outlet centers in Canada. Under the agreement, any outlet centers developed or acquired will be branded as Tanger Outlet Centers. Prior to July 2017, we provided leasing and marketing services for the outlet centers and RioCan provided development and property management services.Subsequent to July 2017, we have agreed to provide marketing services for the outlet centers and RioCan has agreed to provide development, leasing and property management services.

In October 2014, the co-owners opened Tanger Outlets Ottawa, the first ground up development of a Tanger Outlet Center in Canada. In March 2016, the co-owners opened an approximately 28,000 square foot expansion related to an anchor tenant bringing the total square feet of the outlet center to approximately 316,000 square feet. In 2016, the co-owners commenced construction on a 39,000 square foot expansion, which opened during the second quarter of 2017.


F-34



In November 2014, the co-owners opened an approximately 149,000 square foot expansion to the existing Cookstown Outlet Mall, bringing the total square feet of the outlet center to approximately 308,000 square feet.

Other properties owned by the RioCan Canada co-owners include Les Factoreries Saint-Sauveur and Bromont Outlet Mall. Les Factoreries Saint-Sauveur is approximately 116,000 square feet and the Bromont Outlet Mall is approximately 161,000 square feet.

Rental property held and used by our joint ventures are 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 than such carrying amount, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.

During 2016, the joint venture determined for its Bromont, Quebec outlet center that the estimated future undiscounted cash flows of that property did not exceed the property's carrying value based on the reduction in the property's net operating income. Therefore, the joint venture recorded a $5.8 million non-cash impairment charge in its statement of operations, which equaled the excess of the property's carrying value over its fair value. The fair value was determined using the income approach whereby the joint venture considered the prevailing market income capitalization rates and stabilized net operating income projections. Our share of this impairment charge, $2.9 million, was recorded in equity in earnings of unconsolidated joint ventures in our consolidated statement of operations.

During 2017, the joint venture determined for its Bromont and Saint Sauveur, Quebec outlet centers that the estimated future undiscounted cash flows of those properties did not exceed the property's carrying value based on the joint venture's expectations of the future performance of the centers. Therefore, the joint venture recorded an $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.

Savannah

In May 2016, the joint venture expanded the outlet center in Savannah by approximately 42,000 square feet, bringing the outlet center's total gross leasable area to approximately 429,000 square feet.

As described in Note 3, we acquired our partners' interest in the Savannah joint venture in August 2016 and have consolidated the property for financial reporting purposes since the acquisition date.

Westgate/Glendale

As described in Note 3, we acquired our partners' interest in the Westgate joint venture in June 2016 and have consolidated the property for financial reporting purposes since the acquisition date.
Wisconsin Dells

In February 2015, we sold our equity interest in the joint venture that owned the outlet center located in Wisconsin Dells, Wisconsin for approximately $15.6 million, representing our share of the sales price totaling $27.7 million less our share of the outstanding debt, which totaled $12.1 million. As a result of this transaction, we recorded a gain of approximately $13.7 million in the first quarter of 2015, which represented the difference between the carrying value of our equity method investment and the net proceeds received.


F-35



Condensed combined summary financial information of joint ventures accounted for using the equity method as of December 31, 2017 and 2016 is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint Ventures
 
2017
 
2016
Assets
 
 
 
 
Land
 
$
95,686

 
$
88,015

Buildings, improvements and fixtures
 
505,618

 
503,548

Construction in progress, including land under development
 
3,005

 
13,037

 
 
604,309

 
604,600

Accumulated depreciation
 
(93,837
)
 
(67,431
)
Total rental property, net
 
510,472

 
537,169

Cash and cash equivalents
 
25,061

 
27,271

Deferred lease costs, net
 
10,985

 
13,612

Prepaids and other assets
 
15,073

 
12,567

Total assets
 
$
561,591

 
$
590,619

Liabilities and Owners' Equity
 
 
 
 
Mortgages payable, net
 
$
351,259

 
$
335,971

Accounts payable and other liabilities
 
14,680

 
20,011

Total liabilities
 
365,939

 
355,982

Owners' equity
 
195,652

 
234,637

Total liabilities and owners' equity
 
$
561,591

 
$
590,619


Condensed Combined Statements of Operations- Unconsolidated Joint Ventures:
 
Year Ended December 31,
 
 
2017
 
2016
 
2015
Revenues
 
$
96,776

 
$
106,766

 
$
106,042

Expenses:
 
 
 
 
 
 
Property operating
 
36,507

 
39,576

 
40,639

General and administrative
 
350

 
349

 
571

Asset impairment
 
18,042

 
5,838

 
—

Depreciation and amortization
 
28,162

 
32,930

 
34,516

Total expenses
 
83,061

 
78,693

 
75,726

Operating income
 
13,715

 
28,073

 
30,316

Interest expense
 
(10,365
)
 
(8,946
)
 
(8,674
)
Other non-operating income
 
71

 
6

 
19

Net income
 
$
3,421

 
$
19,133


$
21,661

The Company and Operating Partnership's share of:
 
 
 
 
 
 
Net income
 
$
1,937

 
$
10,872

 
$
11,484

Depreciation, amortization and asset impairments (real estate related)
 
$
22,878

 
$
21,829

 
$
20,052



F-36



7.    Deferred Charges

Deferred lease costs and other intangibles, net as of December 31, 2017 and 2016 consist of the following (in thousands):
 
 
2017
 
2016
Deferred lease costs
 
$
81,888

 
$
76,733

Intangible assets:
 
 
 
 
Above market leases
 
54,763

 
57,077

Lease in place value
 
71,801

 
77,858

Tenant relationships
 
49,184

 
52,925

Other intangibles
 
49,730

 
52,346

 
 
307,366

 
316,939

Accumulated amortization
 
(175,305
)
 
(165,360
)
Deferred lease costs and other intangibles, net
 
$
132,061

 
$
151,579


Below market lease intangibles, net of accumulated amortization, included in other liabilities on the consolidated balance sheets as of December 31, 2017 and 2016 were $24.5 million and $27.6 million, respectively.

Amortization of deferred lease costs and other intangibles, excluding above and below market leases, included in depreciation and amortization for the years ended December 31, 2017, 2016 and 2015 was $17.8 million, $16.8 million and $16.7 million, respectively.

Amortization of above and below market lease intangibles recorded as an increase or (decrease) in base rentals for the years ended December 31, 2017, 2016 and 2015 was $(2.4) million, $(2.8) million and $(2.0) million, respectively.
 
Estimated aggregate amortization of net above and below market leases and other intangibles for each of the five succeeding years is as follows (in thousands):
Year
 
Above/below market leases, net (1)
 
Deferred lease costs and other intangibles (2)
2018
 
$
2,387

 
$
9,173

2019
 
911

 
7,018

2020
 
447

 
5,945

2021
 
284

 
5,156

2022
 
267

 
4,767

Total
 
$
4,296

 
$
32,059

(1)
These amounts are recorded as a reduction of base rentals.
(2)
These amounts are recorded as an increase in depreciation and amortization.



F-37



8.    Debt of the Company

All of the Company's debt is held by the Operating Partnership and its consolidated subsidiaries.

The Company guarantees the Operating Partnership's obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $520.0 million. The Company also guarantees the Operating Partnership's unsecured term loan.

The Operating Partnership had the following amounts outstanding on the debt guaranteed by the Company as of December 31, 2017 and 2016 (in thousands):
 
 
2017
 
2016
Unsecured lines of credit
 
$
208,100

 
$
61,000

Unsecured term loan
 
$
325,000

 
$
325,000



F-38



9.    Debt of the Operating Partnership

The debt of the Operating Partnership as of December 31, 2017 and 2016 consisted of the following (in thousands):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
 
Stated Interest Rate(s)
 
Maturity Date
 
Principal
 
Book Value(1)
 
Principal
 
Book Value(1)
Senior, unsecured notes:
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Senior notes
 
6.125
%
 
June 2020
 
$
—

 
$
—

 
$
300,000

 
$
298,226

Senior notes
 
3.875
%
 
December 2023
 
250,000

 
246,036

 
250,000

 
245,425

Senior notes
 
3.750
%
 
December 2024
 
250,000

 
247,410

 
250,000

 
247,058

Senior notes
 
3.125
%
 
September 2026
 
350,000

 
345,128

 
350,000

 
344,600

Senior notes
 
3.875
%
 
July 2027
 
300,000

 
296,182

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Mortgages payable:
 
 
 
 
 
 
 
 
 
 
 
 
Atlantic City (2) (3)
 
5.14%-7.65%

 
November 2021- December 2026
 
37,462

 
39,879

 
40,471

 
43,286

     Foxwoods
 
LIBOR + 1.55%

 
December 2017
 
—

 
—

 
70,250

 
69,902

     Southaven
 
LIBOR + 1.75%

 
April 2018
 
60,000

 
59,881

 
59,277

 
58,957

Unsecured term loan
 
LIBOR + 0.95%

 
April 2021
 
325,000

 
322,975

 
325,000

 
322,410

Unsecured lines of credit
 
LIBOR + 0.90%

 
October 2019
 
208,100

 
206,160

 
61,000

 
58,002

 
 
 
 
 
 
$
1,780,562

 
$
1,763,651

 
$
1,705,998

 
$
1,687,866

(1)
Includes premiums and net of debt discount and unamortized debt origination costs. Unamortized debt origination costs were $12.7 million and $14.0 million for the years ended December 31, 2017 and 2016, respectively. Amortization of deferred debt origination costs included in interest expense for the years ended December 31, 2017, 2016 and 2015 was $3.3 million, $3.2 million and $2.7 million, respectively.
(2)
The effective interest rate assigned during the purchase price allocation to this assumed mortgage 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 $193.1 million at December 31, 2017, serve as collateral for mortgages payable. We maintain unsecured lines of credit that, as of December 31, 2017, provided for borrowings of up to $520.0 million, including a separate $20.0 million liquidity line and a $500.0 million syndicated line. The syndicated line may be increased up to $1.0 billion through an accordion feature in certain circumstances. As of December 31, 2017, letters of credit totaling approximately $6.0 million were issued under the lines of credit.

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 December 31, 2017, we were in compliance with all of our debt covenants.

In January 2018, we amended the lines of credit to, among other things, increase the borrowing capacity, reduce the interest rate spread over LIBOR and extend the maturity date. See Note 24.


F-39



2017 Transactions

$300.0 Million Unsecured Senior Notes due 2027

In July 2017, we completed an underwritten public offering of $300.0 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 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. In addition, we wrote off approximately $1.5 million of unamortized debt discount and debt origination costs related to the 2020 Notes.

Foxwoods Debt Repayment

In November 2017, we repaid the $70.3 million floating rate mortgage loan secured by the Foxwoods property with borrowings under its unsecured floating rate lines of credit.

2016 Transactions

Deer Park Debt Repayment

In January 2016, we repaid our $150.0 million floating rate mortgage loan, which had an original maturity date in August 2018 and was related to our Deer Park outlet center.

Unsecured Term Note Repayment

In February 2016, we repaid our $7.5 million unsecured term note, which had an original maturity date in August 2017. In June 2016, our $10.0 million unsecured note payable became due and was repaid in June 2016.

Unsecured Term Loan

In April 2016, we amended our unsecured term loan to increase the size of the loan from $250.0 million to $325.0 million, extend the maturity date from February 2019 to April 2021, reduce the interest rate spread over LIBOR from 1.05% to 0.95%, and increase the incremental loan availability through an accordion feature from $150.0 million to $175.0 million.

Aggregate $350.0 Million Unsecured Senior Notes due 2026 and Westgate Debt Repayment

In August 2016, we completed a public offering of $250.0 million in senior notes due 2026 in an underwritten public offering. The notes were priced at 99.605% of the principal amount to yield 3.171% to maturity. In October 2016, we sold an additional $100.0 million of our senior notes due 2026. The notes priced at 98.962% of the principal amount to yield 3.248% to maturity. The notes pay interest semi-annually at a rate of 3.125% per annum and mature on September 1, 2026. The aggregate net proceeds from the offerings, after deducting the underwriting discount and offering expenses, were approximately $344.5 million. We used the net proceeds from the sale of the notes to repay a $62.0 million floating rate mortgage loan related to the outlet center in Glendale (Westgate), Arizona, repay borrowings under our unsecured lines of credit, and for general corporate purposes.

Savannah Debt Repayment

At the time of acquisition, the Savannah outlet center was subject to a $96.9 million mortgage loan, with an interest rate of LIBOR + 1.65% and maturity date in May 2017. In September 2016, we repaid the mortgage loan with borrowings under our unsecured lines of credit.


F-40



2015 Transactions

Southaven Mortgage

In April 2015, the consolidated joint venture closed on an interest only mortgage loan with the ability to borrow up to $60.0 million at an interest rate of LIBOR +1.75%. The loan initially matures on April 29, 2018, with one two-year extension option.

Hershey Mortgage

In May 2015, we repaid the mortgages associated with our Hershey outlet center, which were assumed as part of the acquisition of the property in 2011. The maturity date of the mortgages was August 1, 2015 and it had a principal balance at the date of extinguishment of $29.0 million.

Ocean City Mortgage

In July 2015, we repaid the mortgage associated with our Ocean City outlet center, which was assumed as part of the acquisition of the property in 2011. The maturity date of the mortgage was January 6, 2016 and had a principal balance at the date of extinguishment of $17.6 million.

Extension of Unsecured Lines of Credit

In October 2015, we closed on amendments to our unsecured lines of credit, extending the maturity and reducing our interest rate. The maturity date of these facilities was extended from October 2017 to October 2019 with the ability to further extend the maturity date for an additional year at our option. The interest rate was reduced from LIBOR + 1.00% to LIBOR + 0.90% based on our current credit rating and the maximum borrowings to which the syndicated line could be increased through an accordion feature in certain circumstances was increased from $750.0 million to $1.0 billion. Loan origination costs associated with the amendments totaled approximately $2.0 million.

Debt Maturities

Maturities of the existing long-term debt as of December 31, 2017 for the next five years and thereafter are as follows (in thousands):
Calendar Year
 
Amount

2018
 
$
63,184

2019
 
211,469

2020
 
3,566

2021
 
330,793

2022
 
4,436

Thereafter
 
1,167,114

Subtotal
 
1,780,562

Net discount and debt origination costs
 
(16,911
)
Total
 
$
1,763,651



F-41



10. Deferred Financing Obligation

In September 2015, the noncontrolling interest in our outlet center in Deer Park, New York exercised its right to require us to acquire their ownership interest in the property for $28.4 million. We closed on the transaction in January 2016 and repaid the deferred financing obligation, which was recorded in the other liabilities section of our consolidated balance sheet as of December 31, 2015.

11.    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 as of December 31, 2017 and 2016 (notional amounts and fair values in thousands):
 
 
 
 
 
 
 
 
 
 
Fair Value
Effective Date
 
Maturity Date
 
Notional Amount
 
Bank Pay Rate
 
Company Average Fixed Pay Rate
 
2017
 
2016
Assets (Liabilities)(1):
 
 
 
 
 
 
 
 
 
 
 
 
November 14, 2013
 
August 14, 2018
 
$
150,000

 
1 month LIBOR
 
1.30
%
 
$
326

 
$
(344
)
April 13, 2016
 
January 1, 2021
 
175,000

 
1 month LIBOR
 
1.03
%
 
5,207

 
4,337

August 14, 2018(2)
 
January 1, 2021
 
150,000

 
1 month LIBOR
 
2.20
%
 
(188
)
 
—

Total
 
 
 
$
475,000

 
 
 
 
 
$
5,345

 
$
3,993

(1)
Net asset balances are recorded in prepaids and other assets on the consolidated balance sheets and net liabilities are recorded in other liabilities on the consolidated balance sheets.
(2)
In December 2017, we entered into three separate forward starting interest rate swap agreements, effective August 14, 2018.

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 changes 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 year ended December 31, 2017, the ineffective portion was not significant.

The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements for the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):
 
 
 
 
 
 
 
 
2017
 
2016
 
2015
Interest Rate Swaps (Effective Portion):
 
 
 
 
 
 
Amount of gain (loss) recognized in OCI on derivative
 
$
1,351

 
$
4,609

 
$
(711
)


F-42



12.    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

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 December 31, 2017:
 
 
 
 
 
 
 
 
Asset:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
5,533

 
$
—

 
$
5,533

 
$
—

Total assets
 
$
5,533

 
$
—

 
$
5,533

 
$
—

 
 
 
 
 
 
 
 
 
Liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps (other liabilities)
 
$
188

 
$
—

 
$
188

 
$
—

Total liabilities
 
$
188

 
$
—

 
$
188

 
$
—

 
 
 
 
 
 
 
 
 



 
 
 
 
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:
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Interest rate swaps (prepaids and other assets)
 
$
3,993

 
$
—

 
$
3,993

 
$
—

Total assets
 
$
3,993

 
$
—

 
$
3,993

 
$
—


Fair values of interest rate swaps are approximated 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.

F-43



The estimated fair value and recorded value of our debt as of December 31, 2017 and 2016 were as follows (in thousands):
 
 
2017
 
2016
Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities
 
$
—

 
$
—

Level 2 Significant Observable Inputs
 
1,139,064

 
1,137,976

Level 3 Significant Unobservable Inputs
 
636,476

 
566,668

Total fair value of debt
 
$
1,775,540

 
$
1,704,644

 
 
 
 
 
Recorded value of debt
 
$
1,763,651

 
$
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.

13.    Shareholders' Equity of the Company

As discussed in Note 14, each Class A common limited partnership unit is exchangeable for one common share of the Company. The following table sets forth the number of Class A common limited partnership units exchanged for an equal number of common shares for the years ended December 31, 2017, 2016 and 2015:
 
 
2017
 
2016
 
2015
Exchange of Class A limited partnership units
 
32,348

 
24,962

 
25,663


Share Repurchase Program

In May 2017, the Company announced that our Board of Directors authorized the repurchase of up to $125.0 million of its 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 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. During 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. The remaining amount authorized to be repurchased under the program as of December 31, 2017 was approximately $75.7 million.

14.    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 issuance of restricted share awards or the exchange of Class A common limited partnership units, the Operating Partnership issues a corresponding Class B common limited partnership unit to Tanger LP Trust, a wholly-owned subsidiary of the Company. Likewise, when the Company repurchases its outstanding common shares, the Operating Partnership repurchases a corresponding Class B common limited partnership unit held by Tanger LP Trust.


F-44



The following table sets forth the changes in outstanding partnership units for the years ended December 31, 2017, 2016 and 2015:
 
 
 
 
Limited Partnership Units
 
 
General partnership units
 
Class A
 
Class B
 
Total
Balance December 31, 2014
 
1,000,000

 
5,078,406

 
94,509,781

 
99,588,187

Units withheld for employee income taxes
 
—

 
—

 
(31,863
)
 
(31,863
)
Exchange of Class A limited partnership units
 
—

 
(25,663
)
 
25,663

 
—

Grant of restricted common share awards by the Company, net of forfeitures
 
—

 
—

 
348,844

 
348,844

Units issued upon exercise of options
 
—

 
—

 
28,400

 
28,400

Balance December 31, 2015
 
1,000,000

 
5,052,743

 
94,880,825

 
99,933,568

Units withheld for employee income taxes
 
—

 
—

 
(66,760
)
 
(66,760
)
Exchange of Class A limited partnership units
 
—

 
(24,962
)
 
24,962

 
—

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
 
—

 
—

 
59,700

 
59,700

Balance December 31, 2016
 
1,000,000

 
5,027,781

 
95,095,891

 
100,123,672

Units withheld for employee income taxes
 
—

 
—

 
(69,886
)
 
(69,886
)
Exchange of Class A limited partnership units
 
—

 
(32,348
)
 
32,348

 
—

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

Balance December 31, 2017
 
1,000,000

 
4,995,433

 
93,560,536

 
98,555,969



F-45



15.    Noncontrolling Interests

Noncontrolling interests in the Operating Partnership relate to the interests in the Operating Partnership owned by Non-Company LPs as discussed in Note 2. The noncontrolling interests in other consolidated partnerships consist of outside equity interests in partnerships not wholly-owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties.

In 2017 and 2016, adjustments of the noncontrolling interest in the Operating Partnership were made as a result of the changes in the Company's ownership of the Operating Partnership from additional units received in connection with the Company's issuance of common shares upon the exercise of options and grants of share-based compensation awards, additional units received upon the exchange of Class A common limited partnership units of the Operating Partnership into an equal number of common shares of the Company, and units repurchased by the Operating Partnership as a result of the Company's repurchase of its outstanding common shares. As discussed in Note 13, for the years ended December 31, 2017 and 2016, Non-Company LPs exchanged 32,348 and 24,962 Class A common limited partnership units of the Operating Partnership, respectively, for an equal number of common shares of the Company. In addition, during 2017, the Company repurchased approximately 1.9 million common shares on the open market and the Operating Partnership repurchased an equal number of units held by the Company.

The changes in the Company's ownership interests in the subsidiaries impacted consolidated equity during the periods shown as follows (in thousands):
 
 
2017
 
2016
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
68,002

 
$
193,744

Increase (decrease) in Tanger Factory Outlet Centers, Inc. paid-in-capital adjustments to noncontrolling interests
 
1,630

 
(389
)
Changes from net income attributable to Tanger Factory Outlet Centers, Inc. and transfers from noncontrolling interest
 
$
69,632

 
$
193,355





F-46



16.    Earnings Per Share of the Company

The following table sets forth a reconciliation of the numerators and denominators in computing earnings per share for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per share amounts):
 
 
2017
 
2016
 
2015
Numerator
 
 
 
 
 
 
Net income attributable to Tanger Factory Outlet Centers, Inc.
 
$
68,002

 
$
193,744

 
$
211,200

Less allocation of earnings to participating securities
 
(1,209
)
 
(1,926
)
 
(2,408
)
Net income available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
$
66,793

 
$
191,818

 
$
208,792

Denominator
 
 
 
 
 
 
Basic weighted average common shares
 
94,506

 
95,102

 
94,698

Effect of notional units
 
—

 
175

 
—

Effect of outstanding options and certain restricted common shares
 
16

 
68

 
61

Diluted weighted average common shares
 
94,522

 
95,345

 
94,759

Basic earnings per common share:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.02

 
$
2.20

Diluted earnings per common share:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.01

 
$
2.20


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.

The notional units 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 years ended December 31, 2017, 2016, and 2015, 603,411, 501,446 and 859,450 units were excluded from the computation, respectively, because these units would not have been issuable if the end of the reporting period were the end of the contingency period or because they were anti-dilutive.

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 years ended December 31, 2017, 2016 and 2015, 169,000, 141,300 and 227,400 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's unvested restricted common share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of these unvested restricted common share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted common share awards based on dividends declared and the unvested restricted common shares' participation rights in undistributed earnings. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per share computation if the effect is dilutive, using the treasury stock method.


F-47



17.    Earnings Per Unit of the Operating Partnership

The following table sets forth a reconciliation of the numerators and denominators in computing earnings per unit for the years ended December 31, 2017, 2016 and 2015 (in thousands, except per unit amounts):
 
 
2017
 
2016
 
2015
Numerator
 
 
 
 
 
 
Net income attributable to partners of the Operating Partnership
 
$
71,611

 
$
204,031

 
$
222,531

Allocation of earnings to participating securities
 
(1,209
)
 
(1,928
)
 
(2,413
)
Net income available to common unitholders of the Operating Partnership
 
$
70,402

 
$
202,103

 
$
220,118

Denominator
 
 
 
 
 
 
Basic weighted average common units
 
99,533

 
100,155

 
99,777

Effect of notional units
 
—

 
175

 
—

Effect of outstanding options and certain restricted common units
 
16

 
68

 
61

Diluted weighted average common units
 
99,549

 
100,398

 
99,838

Basic earnings per common unit:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.02

 
$
2.21

Diluted earnings per common unit:
 
 
 
 
 
 
Net income
 
$
0.71

 
$
2.01

 
$
2.20


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.

The notional units 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 shares would be issuable if the end of the reporting period were the end of the contingency period. For the years ended December 31, 2017, 2016, 2015, 603,411, 501,446 and 859,450 units were excluded from the computation, respectively, because these units would not have been issuable if the end of the reporting period were the end of the contingency period or because they were anti-dilutive. The notional units are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method.

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 years ended December 31, 2017, 2016 and 2015, 169,000, 141,300 and 227,400 options were excluded from the computation, respectively.

Certain of the Company's unvested restricted common share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the corresponding unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units' participation rights in undistributed earnings. Unvested restricted common units that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per unit computation if the effect is dilutive, using the treasury stock method.


F-48



18.    Equity-Based Compensation

When a common share is issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company's wholly-owned subsidiaries. Therefore, when the Company grants an equity based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term "we" refers to the Company and the Operating Partnership together and the term "shares" is meant to also include corresponding units of the Operating Partnership.

We may issue up to 15.4 million common shares under the Plan. Through December 31, 2017, we had granted 7,534,560 options, net of options forfeited; 5,365,728 restricted common share awards, net of restricted common shares forfeited or withheld for employees' tax obligations; and notional units which may result in the issuance of a maximum of 603,411 common shares. Shares remaining available for future issuance totaled 1,896,301 common shares. The amount and terms of the awards granted under the Plan were determined by the Board of Directors (or the Compensation Committee of the Board of Directors).

We recorded equity-based compensation expense in general and administrative expenses in the consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015, respectively, as follows (in thousands):
 
 
2017
 
2016
 
2015
Restricted common shares
 
$
9,395

 
$
10,976

 
$
11,220

Notional unit performance awards
 
3,913

 
3,967

 
3,030

Options
 
277

 
376

 
462

Total equity-based compensation
 
$
13,585

 
$
15,319

 
$
14,712


Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
 
 
2017
 
2016
 
2015
Equity-based compensation expense capitalized
 
$
1,044

 
$
985

 
$
837


As of December 31, 2017, there was $23.2 million of total unrecognized compensation cost related to unvested common equity-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Restricted Common Share Awards

During 2017, 2016 and 2015, the Company granted 253,431, 286,524 and 357,844 restricted common shares, respectively, to the independent directors and the senior executive officers. The independent directors' restricted common shares vest ratably over a three year period and the senior executive officers' restricted common shares vest ratably over periods ranging from three to five years. For the restricted shares issued to our chief executive officer during 2017, 2016 and 2015, the restricted share agreements require him to hold the shares for a minimum of three years following each applicable vesting date thereof. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares. For all of the restricted common share awards described above, the grant date fair value of the award was determined based upon the closing market price of the Company's common shares on the day prior to the grant date and the associated compensation expense is being recognized in accordance with the vesting schedule of each grant.

F-49




The following table summarizes information related to unvested restricted common shares outstanding for the years ended December 31, 2017, 2016, and 2015:
Unvested Restricted Common Shares
 
Number of shares
 
Weighted average grant date fair value
Outstanding at December 31, 2014
 
1,099,450

 
$
29.01

Granted
 
357,844

 
36.69

Vested
 
(371,299
)
 
28.12

Forfeited
 
—

 
—

Outstanding at December 31, 2015

 
1,085,995

 
$
31.84

Granted
 
286,524

 
29.64

Vested
 
(388,851
)
 
31.30

Forfeited
 
(104,400
)
 
34.13

Outstanding at December 31, 2016
 
879,268

 
$
31.09

Granted
 
253,431

 
33.07

Vested
 
(368,043
)
 
29.87

Forfeited
 
(14,750
)
 
34.39

Outstanding at December 31, 2017
 
749,906

 
$
32.30


The table above excludes restricted common shares earned under the 2014 Outperformance Plan. In connection with the 2014 Outperformance Plan, we issued 184,455 restricted common shares in January 2017, with 94,663 vesting immediately and the remaining 89,792 vesting in January one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).

The total value of restricted common shares vested during the years ended 2017, 2016 and 2015 was $12.4 million, $12.7 million and $13.1 million, respectively. During 2017, 2016 and 2015, we withheld shares with value equivalent to the employees' minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld were 69,886, 66,760 and 31,863 for 2017, 2016 and 2015, respectively, and were based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees' tax obligation to taxing authorities were $2.4 million, $2.2 million and $1.1 million for 2017, 2016 and 2015, respectively, which is reflected as a financing activity within the consolidated statements of cash flows.

Notional Unit Performance Awards

Outperformance Plan

Each year, the Compensation Committee of Tanger Factory Outlet Centers, Inc. approves the terms and the number of awards to be granted under the Tanger Factory Outlet Centers, Inc. Outperformance Plan (the “OPP"). The OPP is a long-term incentive compensation plan. Recipients may 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 the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability.


F-50



The following table sets forth OPP performance targets and other relevant information about each plan:
 
 
2017 OPP
 
2016 OPP
 
2015 OPP(1) 
 
2014 OPP(2)
 
2013 OPP (3)
Performance targets (4)
 
 
 
 
 
 
 
 
 
 
Absolute portion of award:
 
 
 
 
 
 
 
 
 
 
Percent of total award
 
50%
 
50%
 
60%
 
70%
 
70%
Absolute share price appreciation range
 
18% - 35%
 
18% - 35%
 
25% - 35%
 
25% - 35%
 
25% - 35%
Percentage of units to be earned
 
20%-100%
 
20%-100%
 
33%-100%
 
33%-100%
 
33%-100%
 
 
 
 
 
 
 
 
 
 
 
Relative portion of award:
 
 
 
 
 
 
 
 
 
 
Percent of total award
 
50%
 
50%
 
40%
 
30%
 
30%
Percentile rank of peer group range(5)
 
40th - 70th
 
40th - 70th
 
50th - 70th
 
50th - 70th
 
50th - 70th
Percentage of units to be earned
 
20%-100%
 
20%-100%
 
33%-100%
 
33%-100%
 
33%-100%
 
 
 
 
 
 
 
 
 
 
 
Maximum number of restricted common shares that may be earned
 
296,400

 
321,900

 
306,600

 
329,700

 
315,150

Grant date fair value per share
 
$
16.60

 
$
15.10

 
$
15.85

 
$
14.71

 
$
13.99

(1)
On December 31, 2017, the measurement period for the 2015 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2015 OPP performance awards were automatically forfeited.
(2)
On December 31, 2016, the measurement period for the 2014 OPP expired. Based on the Company’s absolute 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 89,792 vesting in January one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability). 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.
(3)
On December 31, 2015, the measurement period for the 2013 OPP expired and neither of the Company’s absolute nor relative total shareholder returns were sufficient for employees to earn, and therefore become eligible to vest in, any restricted shares under the plan. Accordingly, all 2013 OPP performance awards were automatically forfeited.
(4)
The performance shares for the OPP will convert on a pro-rata basis by linear interpolation between share price appreciation thresholds, both for absolute total shareholder return and for relative total shareholder return. 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.
(5)
The peer group is based on companies included in the SNL Equity REIT index.

The fair values of the OPP awards granted during the years ended December 31, 2017, 2016, and 2015 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
 
 
2017
 
2016
 
2015
Risk free interest rate (1)
 
1.52
%
 
1.05
%
 
0.86
%
Expected dividend yield (2)
 
3.4
%
 
3.1
%
 
2.7
%
Expected volatility (3)
 
19
%
 
21
%
 
20
%
(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.


F-51



The following table sets forth OPP activity for the years ended December 31, 2017, 2016, and 2015:
Unvested OPP Awards 
 
Number of units
 
Weighted average grant date fair value
Outstanding as of December 31, 2014
 
644,850

 
$
14.36

Awarded
 
306,600

 
15.85

Forfeited
 
(407,150
)
 
14.28

Outstanding as of December 31, 2015
 
544,300

 
$
15.26

Awarded
 
321,900

 
15.10

Forfeited
 
(107,024
)
 
14.77

Outstanding as of December 31, 2016
 
759,176

 
$
15.36

Awarded
 
296,400

 
16.60

Earned (1)
 
(184,455
)
 
14.71

Forfeited
 
(267,710
)
 
15.84

Outstanding as of December 31, 2017
 
603,411

 
$
15.83

(1)
Represents the units under the 2014 OPP that are no longer outstanding and have been settled in restricted common shares.

Option Awards

Options outstanding at December 31, 2017 had the following weighted average exercise prices and weighted average remaining contractual lives:
 
 
Options Outstanding
 
Options Exercisable
Exercise prices
 
Options
 
Weighted average exercise price
 
Weighted remaining contractual life in years
 
Options
 
Weighted average exercise price
$
26.06

 
62,200

 
$
26.06

 
3.15
 
62,200

 
$
26.06

32.02

 
169,000

 
32.02

 
6.00
 
89,800

 
32.02

 
 
231,200

 
$
30.42

 
5.24
 
152,000

 
$
29.58



F-52



A summary of option activity under the Plan for the years ended December 31, 2017, 2016, and 2015 (aggregate intrinsic value amount in thousands):
Options
 
Shares
 
Weighted-average exercise price
 
Weighted-average remaining contractual life in years
 
Aggregate intrinsic value
Outstanding as of December 31, 2014
 
370,500

 
$
30.20

 
 
 
 
Granted
 
—

 
—

 
 
 
 
Exercised
 
(28,400
)
 
27.76

 
 
 
 
Forfeited
 
(23,700
)
 
31.58

 
 
 
 
Outstanding as of December 31, 2015
 
318,400

 
$
30.32

 
7.19
 
$
924

Granted
 
—

 
—

 
 
 
 
Exercised
 
(59,700
)
 
29.31

 
 
 
 
Forfeited
 
(16,500
)
 
31.86

 
 
 
 
Outstanding as of December 31, 2016
 
242,200

 
$
30.46

 
6.26
 
$
1,287

Granted
 
—

 
—

 
 
 
 
Exercised
 
(1,800
)
 
29.70

 
 
 
 
Forfeited
 
(9,200
)
 
31.83

 
 
 
 
Outstanding as of December 31, 2017
 
231,200

 
$
30.42

 
5.24
 
$
28

 
 
 
 
 
 
 
 
 
Vested and Expected to Vest as of
 
 
 
 
 
 
 
 
December 31, 2017
 
227,569

 
$
30.39

 
5.22
 
$
28

 
 
 
 
 
 
 
 
 
Exercisable as of December 31, 2017
 
152,000

 
$
29.58

 
4.84
 
$
28


The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $8,000, $469,000 and $200,000, respectively.

401(k) Retirement Savings Plan

We have a 401(k) Retirement Savings Plan covering substantially all employees who meet certain age and employment criteria. An employee may invest pretax earnings in the 401(k) plan up to the maximum legal limits (as defined by Federal regulations). This plan allows participants to defer a portion of their compensation and to receive matching contributions for a portion of the deferred amounts. During the years ended December 31, 2017, 2016 and 2015, we contributed approximately $862,000, $828,000 and $742,000, respectively, to the 401(k) Retirement Savings Plan.


F-53



19. Accumulated Other Comprehensive Loss of the Company

The following table presents changes in the balances of each component of accumulated comprehensive income for the years ended December 31, 2017, 2016, and 2015 (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, 2014
 
$
(14,113
)
 
$
90

 
$
(14,023
)
 
$
(773
)
 
$
5

 
$
(768
)
Other comprehensive loss before reclassifications
 
(22,017
)
 
(2,279
)
 
(24,296
)
 
(1,183
)
 
(122
)
 
(1,305
)
Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
1,604

 
1,604

 
—

 
86

 
86

Balance December 31, 2015
 
(36,130
)
 
(585
)
 
(36,715
)
 
(1,956
)
 
(31
)
 
(1,987
)
Other comprehensive income before reclassifications
 
4,043

 
2,539

 
6,582

 
216

 
135

 
351

Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
1,838

 
1,838

 
—

 
97

 
97

Balance December 31, 2016
 
(32,087
)
 
3,792

 
(28,295
)
 
(1,740
)
 
201

 
(1,539
)
Other comprehensive income before reclassifications
 
7,727

 
1,020

 
8,747

 
411

 
55

 
466

Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
263

 
263

 
—

 
13

 
13

Balance December 31, 2017
 
$
(24,360
)
 
$
5,075

 
$
(19,285
)
 
$
(1,329
)
 
$
269

 
$
(1,060
)

We expect within the next twelve months to reclassify into earnings as a decrease to interest expense approximately $1.2 million of the amounts recorded within accumulated other comprehensive income related to the interest rate swap agreements in effect and as of December 31, 2017.


F-54



20. Accumulated Other Comprehensive Loss of the Operating Partnership

The following table presents changes in the balances of each component of accumulated comprehensive income for the years ended December 31, 2017, 2016, and 2015 (in thousands):
 
 
Foreign currency
 
Cash flow hedges
 
Accumulated other comprehensive income (loss)
Balance December 31, 2014
 
$
(14,886
)
 
$
95

 
$
(14,791
)
Other comprehensive loss before reclassifications
 
(23,200
)
 
(2,401
)
 
(25,601
)
Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
1,690

 
1,690

Balance December 31, 2015
 
(38,086
)
 
(616
)
 
(38,702
)
Other comprehensive income before reclassifications
 
4,259

 
2,674

 
6,933

Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
1,935

 
1,935

Balance December 31, 2016
 
(33,827
)
 
3,993

 
(29,834
)
Other comprehensive income before reclassifications
 
8,138

 
1,075

 
9,213

Reclassification out of accumulated other comprehensive income into interest expense
 
—

 
276

 
276

Balance December 31, 2017
 
$
(25,689
)
 
$
5,344

 
$
(20,345
)

We expect within the next twelve months to reclassify into earnings as a decrease to interest expense approximately $1.2 million of the amounts recorded within accumulated other comprehensive income related to the interest rate swap agreements in effect and as of December 31, 2017.

21.    Supplementary Income Statement Information

The following amounts are included in property operating expenses for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
 
2017
 
2016
 
2015
Advertising and promotion
 
$
29,046

 
$
29,108

 
$
29,144

Common area maintenance
 
71,195

 
70,616

 
68,886

Real estate taxes
 
30,695

 
28,542

 
26,168

Other operating expenses
 
24,299

 
23,751

 
22,305

 
 
$
155,235

 
$
152,017

 
$
146,503


22.    Lease Agreements

As of December 31, 2017, we were the lessor to over 2,600 stores in our 36 consolidated outlet centers, under operating leases with initial terms that expire from 2018 to 2033. Future minimum lease receipts under non-cancelable operating leases as of December 31, 2017, excluding the effect of straight-line rent and percentage rentals, are as follows (in thousands):
2018
 
$
280,644

2019
 
253,637

2020
 
231,031

2021
 
199,028

2022
 
171,083

Thereafter
 
448,227

 
 
$
1,583,650


F-55




23.    Commitments and Contingencies

Commitments and Contingencies of Consolidated Properties

Leases and capital expenditure commitments

Our non-cancelable operating leases, with initial terms in excess of one year, have terms that expire from 2018 to 2101. Annual rental payments for these leases totaled approximately $7.1 million, $7.0 million and $6.4 million, for the years ended December 31, 2017, 2016 and 2015, respectively. The majority of our rental payments are related to ground leases at the following outlet centers: Myrtle Beach Hwy 17, Atlantic City, Ocean City, Sevierville, Riverhead , Foxwoods and Rehoboth Beach.

Minimum lease payments for the next five years and thereafter are as follows (in thousands):
 
 
Operating Leases
2018
 
$
7,523

2019
 
7,385

2020
 
7,187

2021
 
7,119

2022
 
7,190

Thereafter
 
307,521

Total minimum payment
 
$
343,925


Commitments to complete construction of our ongoing capital projects and other capital expenditure requirements amounted to approximately $9.4 million at December 31, 2017.

Litigation

We are also subject to legal proceedings and claims, which arise from time to time in the ordinary course of our business and have not been finally adjudicated. In our opinion, the ultimate resolution of these matters is not expected to have a material effect on our consolidated financial statements. We record a liability in our consolidated financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. We review these estimates each accounting period as additional information is known and adjust the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, we estimate and disclose the possible loss or range of loss to the extent necessary to make the consolidated financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in our consolidated financial statements.

Employment Agreements

We are party to employment agreements with certain executives that provide for compensation and certain other benefits. The agreements also provide for severance payments under certain circumstances.

Commitments and Contingencies of Unconsolidated Properties

Capital expenditure commitments

Contractual commitments for ongoing capital projects and other capital expenditure requirements related to our unconsolidated joint ventures amounted to approximately $1.1 million at December 31, 2017, of which our portion was approximately $548,000. Contractual commitments represent only those costs subject to contracts which are legal binding agreements as of December 31, 2017 and do not necessary represent the total cost to complete the projects.


F-56



Debt

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 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. As of December 31, 2017, the maximum amount of joint venture debt guaranteed by the Company is $32.8 million.

24.    Subsequent Events

In January 2018, the Company's Board of Directors declared a $0.3425 cash dividend per common share payable on February 15, 2018 to each shareholder of record on January 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.

Increased Borrowing Capacity and Extension of Unsecured Lines of Credit

In January 2018, we closed on amendments to our unsecured lines of credit, which increased the borrowing capacity from $520.0 million to $600.0 million and extended the maturity date from October 2019 to October 2021, with a one-year extension option. We also reduced the interest rate spread over LIBOR from 0.90% to 0.875%, increased the incremental borrowing availability through an accordion feature on the syndicated line from $1.0 billion to $1.2 billion. Loan origination costs associated with the amendments totaled approximately $2.3 million.

Notional Unit Performance Awards

In February 2018, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2018 Outperformance Plan (the “2018 OPP"). The 2018 OPP is a long-term incentive compensation plan. Recipients may earn units which may convert, into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) over a three-year measurement period. Any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).

Southaven Loan

In February 2018, the consolidated joint venture that owns the Tanger outlet center in Southaven, Mississippi amended and restated the $60.0 million mortgage loan secured by the property. The amended and restated loan reduced the principal balance to $51.4 million, increased the interest rate from LIBOR + 1.75% to LIBOR + 1.80% and extended the maturity to April 2021, with a two-year extension option.


F-57



25.    Quarterly Financial Data of the Company (Unaudited)

The following table sets forth the Company's summarized quarterly financial information for the years ended December 31, 2017 and 2016 (unaudited and in thousands, except per common share data)(1). This information is not required for the Operating Partnership:
 
 
Year Ended December 31, 2017 (1)
 
 
First Quarter
 
Second Quarter(2)
 
Third Quarter(3)
 
Fourth
 Quarter
Total revenues
 
$
121,368

 
$
119,614

 
$
120,765

 
$
126,487

Operating income
 
37,648

 
38,093

 
41,383

 
43,599

Net income (loss)
 
23,514

 
30,947

 
(16,034
)
 
33,449

Income (loss) attributable to Tanger Factory Outlet Centers, Inc.
 
22,336

 
29,390

 
(15,219
)
 
31,495

Income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
22,041

 
29,084

 
(15,525
)
 
31,193

 
 
 
 
 
 
 
 
 
Basic earnings per common share:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.23

 
$
0.31

 
$
(0.17
)
 
$
0.33

 
 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
 
Net income (loss)
 
$
0.23

 
$
0.31

 
$
(0.17
)
 
$
0.33

(1)
Quarterly amounts may not add to annual amounts due to the effect of rounding on a quarterly basis.
(2)
In the second quarter of 2017, net income includes a $6.9 million gain on the sale of our outlet center in Westbrook, Connecticut.
(3)
In the third quarter of 2017, net income includes a $35.6 million loss on early extinguishment of debt related to the early redemption of senior notes due 2020 and a $9.0 million impairment charge, associated with our RioCan Canada unconsolidated joint ventures.


F-58



 
 
Year Ended December 31, 2016 (1)
 
 
First Quarter(2)
 
Second Quarter(3)
 
Third Quarter(4)
 
Fourth
 Quarter
Total revenues
 
$
110,805

 
$
111,333

 
$
119,137

 
$
124,559

Operating income
 
34,799

 
38,340

 
39,875

 
38,263

Net income
 
28,617

 
77,302

 
72,774

 
25,636

Income attributable to Tanger Factory Outlet Centers, Inc.
 
27,150

 
73,417

 
69,104

 
24,073

Income available to common shareholders of Tanger Factory Outlet Centers, Inc.
 
26,856

 
72,692

 
68,477

 
23,793

 
 
 
 
 
 
 
 
 
Basic earnings per common share :
 
 
 
 
 
 
 
 
Net income
 
$
0.28

 
$
0.76

 
$
0.72

 
$
0.25

 
 
 
 
 
 
 
 
 
Diluted earnings per common share:
 
 
 
 
 
 
 
 
Net income
 
$
0.28

 
$
0.76

 
$
0.72

 
$
0.25

(1)
Quarterly amounts may not add to annual amounts due to the effect of rounding on a quarterly basis.
(2)
In the first quarter of 2016, net income includes a gain of $4.9 million on the sale of our outlet center in Fort Myers, Florida.
(3)
In the second quarter of 2016, net income includes a gain of $49.3 million on the acquisition of our other venture partners' equity interests in the Westgate joint venture.
(4)
In the third quarter of 2016, net income includes a gain of $46.3 million on the acquisition of our other venture partners' equity interests in the Savannah joint venture and a $1.4 million gain on the sale of an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 501.





F-59


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2017 (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
 
 
Initial cost to Company
 
Costs Capitalized
Subsequent to Acquisition
(Improvements)
 
Gross Amount Carried at Close of Period
December 31, 2017 (1)
 
 
 
 
 
 
Outlet Center Name
 
Location
 
Encum-brances (2)
 
Land
Buildings,
Improve-ments & Fixtures
 
Land
Buildings,
Improve-ments & Fixtures
 
Land
Buildings,
Improve-ments & Fixtures
Total
 
Accumulated
Depreciation
 
Date of
Construction or Acquisition
 
Life Used to
Compute
Depreciation
in Income
Statement
Atlantic City
 
Atlantic City, NJ
 
$
39,879

 
$
—

$
125,988

 
$
—

$
5,006

 
$
—

$
130,994

$
130,994

 
$
28,612

 
2011 (4)
 
(3) 
Blowing Rock
 
Blowing Rock, NC
 
—

 
1,963

9,424

 
—

8,652

 
1,963

18,076

20,039

 
10,028

 
1997 (4)
 
(3) 
Branson
 
Branson, MO
 
—

 
4,407

25,040

 
396

23,057

 
4,803

48,097

52,900

 
30,082

 
1994
 
(3) 
Charleston
 
Charleston, SC
 
—

 
10,353

48,877

 
—

14,816

 
10,353

63,693

74,046

 
28,547

 
2006
 
(3) 
Commerce
 
Commerce, GA
 
—

 
1,262

14,046

 
707

34,928

 
1,969

48,974

50,943

 
31,710

 
1995
 
(3) 
Daytona Beach
 
Daytona Beach, FL
 
—

 
9,913

81,183

 
—

—

 
9,913

81,183

91,096

 
5,315

 
2016
 
(3) 
Deer Park
 
Deer Park, NY
 
—

 
82,413

173,044

 
—

12,194

 
82,413

185,238

267,651

 
32,435

 
2013 (4)
 
(3) 
Foley
 
Foley, AL
 
—

 
4,400

82,410

 
693

41,927

 
5,093

124,337

129,430

 
54,558

 
2003 (4)
 
(3) 
Fort Worth
 
Fort Worth, TX
 
—

 
11,157

83,827

 
—

—

 
11,157

83,827

94,984

 
601

 
2017
 
(3) 
Foxwoods
 
Mashantucket, CT
 
—

 
—

130,561

 
—

1,262

 
—

131,823

131,823

 
14,665

 
2015
 
(3) 
Gonzales
 
Gonzales, LA
 
—

 
679

15,895

 
—

34,684

 
679

50,579

51,258

 
31,867

 
1992
 
(3) 
Grand Rapids
 
Grand Rapids, MI
 
—

 
8,180

75,420

 
—

566

 
8,180

75,986

84,166

 
10,177

 
2015
 
(3) 
Hershey
 
Hershey, PA
 
—

 
3,673

48,186

 
—

3,905

 
3,673

52,091

55,764

 
12,597

 
2011(4)
 
(3) 
Hilton Head I
 
Bluffton, SC
 
—

 
4,753

—

 
—

33,346

 
4,753

33,346

38,099

 
12,605

 
2011
 
(3) 
Hilton Head II
 
Bluffton, SC
 
—

 
5,128

20,668

 
—

12,137

 
5,128

32,805

37,933

 
15,458

 
2003 (4)
 
(3) 
Howell
 
Howell, MI
 
—

 
2,250

35,250

 
—

14,288

 
2,250

49,538

51,788

 
23,380

 
2002 (4)
 
(3) 
Jeffersonville
 
Jeffersonville, OH
 
—

 
2,752

111,276

 
—

11,683

 
2,752

122,959

125,711

 
26,729

 
2011 (4)
 
(3) 
Lancaster
 
Lancaster, PA
 
—

 
3,691

19,907

 
6,656

55,935

 
10,347

75,842

86,189

 
26,569

 
1994 (4)
 
(3) 
Locust Grove
 
Locust Grove, GA
 
—

 
2,558

11,801

 
—

28,687

 
2,558

40,488

43,046

 
25,694

 
1994
 
(3) 
Mebane
 
Mebane, NC
 
—

 
8,821

53,362

 
—

3,024

 
8,821

56,386

65,207

 
23,015

 
2010
 
(3) 
Myrtle Beach Hwy 17
 
Myrtle Beach, SC
 
—

 
—

80,733

 
—

24,911

 
—

105,644

105,644

 
29,791

 
2009 (4)
 
(3) 
Myrtle Beach Hwy 501
 
Myrtle Beach, SC
 
—

 
8,781

56,798

 
—

38,156

 
8,781

94,954

103,735

 
41,492

 
2003 (4)
 
(3) 
Nags Head
 
Nags Head, NC
 
—

 
1,853

6,679

 
—

6,298

 
1,853

12,977

14,830

 
8,301

 
1997 (4)
 
(3) 
Ocean City
 
Ocean City, MD
 
—

 
—

16,334

 
—

12,946

 
—

29,280

29,280

 
7,013

 
2011 (4)
 
(3) 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2017 (in thousands)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Description
 
 
 
Initial cost to Company
 
Costs Capitalized
Subsequent to Acquisition
(Improvements)
 
Gross Amount Carried at Close of Period
December 31, 2017(1)
 
 
 
 
 
 
Outlet Center Name
 
Location
 
Encum-brances (2)

 
Land
Buildings,
Improve-ments & Fixtures
 
Land
Buildings,
Improve-ments & Fixtures
 
Land
Buildings,
Improve-ments & Fixtures
Total
 
Accumulated
Depreciation
 
Date of
Construction or Acquisition
 
Life Used to
Compute
Depreciation
in Income
Statement
Park City
 
Park City, UT
 
—

 
6,900

33,597

 
343

27,524

 
7,243

61,121

68,364

 
25,774

 
2003 (4)
 
(3) 
Pittsburgh
 
Pittsburgh, PA
 
—

 
5,528

91,288

 
3

13,602

 
5,531

104,890

110,421

 
49,281

 
2008
 
(3) 
Rehoboth Beach
 
Rehoboth Beach, DE
 
—

 
20,600

74,209

 
1,875

53,335

 
22,475

127,544

150,019

 
47,162

 
2003 (4)
 
(3) 
Riverhead
 
Riverhead, NY
 
—

 
—

36,374

 
6,152

127,942

 
6,152

164,316

170,468

 
89,714

 
1993
 
(3) 
San Marcos
 
San Marcos, TX
 
—

 
1,801

9,440

 
2,301

58,326

 
4,102

67,766

71,868

 
41,424

 
1993
 
(3) 
Savannah
 
Pooler, GA
 
—

 
8,556

167,780

 
—

2,780

 
8,556

170,560

179,116

 
8,397

 
2016 (4)
 
(3) 
Sevierville
 
Sevierville, TN
 
—

 
—

18,495

 
—

48,944

 
—

67,439

67,439

 
37,488

 
1997 (4)
 
(3) 
Southaven
 
Southaven, MS
 
59,881

 
14,959

62,042

 
—

3,194

 
14,959

65,236

80,195

 
8,629

 
2015
 
(3) 
Terrell
 
Terrell, TX
 
—

 
523

13,432

 
—

9,712

 
523

23,144

23,667

 
18,173

 
1994
 
(3) 
Tilton
 
Tilton, NH
 
—

 
1,800

24,838

 
29

13,780

 
1,829

38,618

40,447

 
17,025

 
2003 (4)
 
(3) 
Westgate
 
Glendale, AZ
 
—

 
19,037

140,337

 
—

2,329

 
19,037

142,666

161,703

 
7,013

 
2016 (4)
 
(3) 
Williamsburg
 
Williamsburg, IA
 
—

 
706

6,781

 
716

17,798

 
1,422

24,579

26,001

 
20,510

 
1991
 
(3) 
Other
 
Various
 
—

 
710

1,496

 
—

—

 
710

1,496

2,206

 
136

 
Various
 
(3) 
 
 
 
 
$
99,760

 
$
260,107

$
2,006,818

 
$
19,871

$
801,674

 
$
279,978

$
2,808,492

$
3,088,470

 
$
901,967

 
 
 
 
(1)
Aggregate cost for federal income tax purposes is approximately $3.1 billion.
(2)
Including premiums and net of debt origination costs.
(3)
We generally use estimated lives of 33 years for buildings and 15 years for land improvements. Tenant finishing allowances are depreciated over the initial lease term. Building, improvements & fixtures includes amounts included in construction in progress on the consolidated balance sheet.
(4)
Represents year acquired.



TANGER FACTORY OUTLET CENTERS, INC. and SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP and SUBSIDIARIES
SCHEDULE III - (Continued)
REAL ESTATE AND ACCUMULATED DEPRECIATION
For the Year Ended December 31, 2017
(in thousands)

The changes in total real estate for the years ended December 31, 2017, 2016 and 2015 are as follows:

 
 
2017
 
2016
 
2015
Balance, beginning of year
 
$
2,965,907

 
$
2,513,217

 
$
2,263,603

Acquisitions
 
—

 
335,710

 
—

Improvements
 
175,868

 
163,187

 
245,391

Dispositions and reclassifications to and from rental property held for sale
 
(53,305
)
 
(46,207
)
 
4,223

Balance, end of year
 
$
3,088,470

 
$
2,965,907

 
$
2,513,217


The changes in accumulated depreciation for the years ended December 31, 2017, 2016 and 2015 are as follows:

 
 
2017
 
2016
 
2015
Balance, beginning of year
 
$
814,583

 
$
748,341

 
$
662,236

Depreciation for the period
 
107,845

 
96,813

 
85,872

Dispositions and reclassifications to and from rental property held for sale
 
(20,461
)
 
(30,571
)
 
233

Balance, end of year
 
$
901,967

 
$
814,583

 
$
748,341



(Back To Top)

Section 2: EX-12.1 (EXHIBIT 12.1)

Exhibit
Exhibit 12.1

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(in thousands, except ratios)
 
Year ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
Earnings:
 
 
 
 
 
 
 
 
 
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests (1)(2)(3)(4)(5)
$
69,939

 
$
193,457

 
$
210,684

 
$
69,099

 
$
102,281

Add:
 
 
 
 
 
 
 
 
 
Distributed income of unconsolidated joint ventures
10,697

 
13,662

 
12,137

 
9,586

 
5,853

Amortization of capitalized interest
762

 
675

 
635

 
517

 
513

Interest expense
64,825

 
60,669

 
54,188

 
57,931

 
51,616

Portion of rent expense - interest factor
2,335

 
2,299

 
2,261

 
2,119

 
2,078

Total earnings
148,558


270,762

 
279,905

 
139,252

 
162,341

 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
Interest expense
64,825

 
60,669

 
54,188

 
57,931

 
51,616

Capitalized interest and capitalized amortization of debt issue costs
2,416

 
2,382

 
3,791

 
5,318

 
1,628

Portion of rent expense - interest factor
2,335

 
2,299

 
2,261

 
2,119

 
2,078

Total fixed charges
$
69,576


$
65,350

 
$
60,240

 
$
65,368

 
$
55,322

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges
2.1


4.1

 
4.6

 
2.1

 
2.9

 
 
 
 
 
 
 
 
 
 
(1)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2017, includes a $6.9 million gain on the sale of our outlet center in Westbrook, Connecticut and a $35.6 million loss on early extinguishment of debt related to the early redemption of senior notes due 2020.
(2)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2016, includes a gain on previously held interest in acquired joint ventures of $93.5 million associated with the acquisition of our Savannah and Westgate joint ventures, a $4.9 million gain on the sale of our outlet center in Fort Myers, Florida located near Sanibel Island, and a $1.4 million gain on the sale an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 501.
(3)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2015, includes a gain of approximately $120.4 million on the sale of our equity interest in the Wisconsin Dells joint venture and on the sale of our Kittery I & II, Tuscola, West Branch and Barstow outlet centers.
(4)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2014 includes a $7.5 million gain on the sale of our Lincoln City outlet center and a $13.1 million loss on early extinguishment of debt related to the early redemption of senior notes due November 2015.
(5)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2013, includes a $26.0 million gain on a previously held interest in an acquired joint venture.


(Back To Top)

Section 3: EX-12.2 (EXHIBIT 12.2)

Exhibit
Exhibit 12.2

TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
Ratio of Earnings to Fixed Charges
(in thousands, except ratios)

 
Year ended December 31,
 
2017
 
2016
 
2015
 
2014
 
2013
Earnings:
 
 
 
 
 
 
 
 
 
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests (1)(2)(3)(4)(5)
$
69,939

 
$
193,457

 
$
210,684

 
$
69,099

 
$
102,281

Add:
 
 
 
 
 
 
 
 
 
Distributed income of unconsolidated joint ventures
10,697

 
13,662

 
12,137

 
9,586

 
5,853

Amortization of capitalized interest
762

 
675

 
635

 
517

 
513

Interest expense
64,825

 
60,669

 
54,188

 
57,931

 
51,616

Portion of rent expense - interest factor
2,335

 
2,299

 
2,261

 
2,119

 
2,078

Total earnings
148,558

 
270,762

 
279,905

 
139,252

 
162,341

 
 
 
 
 
 
 
 
 
 
Fixed charges:
 
 
 
 
 
 
 
 
 
Interest expense
64,825

 
60,669

 
54,188

 
57,931

 
51,616

Capitalized interest and capitalized amortization of debt issue costs
2,416

 
2,382

 
3,791

 
5,318

 
1,628

Portion of rent expense - interest factor
2,335

 
2,299

 
2,261

 
2,119

 
2,078

Total fixed charges
$
69,576

 
$
65,350

 
$
60,240

 
$
65,368

 
$
55,322

 
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges
2.1

 
4.1

 
4.6

 
2.1

 
2.9

 
 
 
 
 
 
 
 
 
 
(1)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2017, includes a $6.9 million gain on the sale of our outlet center in Westbrook, Connecticut and a $35.6 million loss on early extinguishment of debt related to the early redemption of senior notes due 2020.
(2)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2016, includes a gain on previously held interest in acquired joint ventures of $93.5 million associated with the acquisition of our Savannah and Westgate joint ventures, a $4.9 million gain on the sale of our outlet center in Fort Myers, Florida located near Sanibel Island, and $1.4 million gain on the sale an outparcel at our outlet center in Myrtle Beach, South Carolina located on Highway 5016.
(3)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2015, includes a gain of approximately $120.4 million on the sale of our equity interest in the Wisconsin Dells joint venture and on the sale of our Kittery I & II, Tuscola, West Branch and Barstow outlet centers.
(4)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2014 includes a $7.5 million gain on the sale of our Lincoln City outlet center and a $13.1 million loss on early extinguishment of debt related to the early redemption of senior notes due November 2015.
(5)
Income before equity in earnings of unconsolidated joint ventures and noncontrolling interests for the period ended December 31, 2013, includes a $26.0 million gain on a previously held interest in an acquired joint venture.



(Back To Top)

Section 4: EX-21.1 (EXHIBIT 21.1)

Exhibit


EXHIBIT 21.1
Tanger Factory Outlet Centers, Inc.

List of Subsidiaries

Tanger Properties Limited Partnership
Tanger GP Trust
Tanger LP Trust
Tanger Development Corporation
TWMB Associates, LLC
Tanger Deer Park, LLC
Tanger COROC, LLC
Tanger COROC II, LLC
COROC Holdings, LLC
COROC/Riviera L.L.C.
COROC/Hilton Head I L.L.C.
COROC/Hilton Head II L.L.C.
COROC/Lincoln City L.L.C.
COROC/Myrtle Beach L.L.C.
COROC/Park City L.L.C.
COROC/Rehoboth I L.L.C.
COROC/Rehoboth II L.L.C.
COROC/Rehoboth III L.L.C.
COROC/Lakes Region L.L.C.
COROC/Tilton II L.L.C.
COROC/Tuscola L.L.C.
COROC/Westbrook I L.L.C.
COROC/Westbrook II L.L.C.
COROC/Clinton CHR, LLC
COROC/Clinton WR, LLC
Tanger Devco, LLC
Tanger WD, LLC
Northline Indemnity, LLC
Tanger Phoenix, LLC
Tanger Scottsdale, LLC
Tanger Houston, LLC
Pembroke Acquisition Company, LLC
Tanger Hershey GP, LLC
Tanger Hershey I, LLC
Tanger Hershey II, LLC
Tanger Hershey Limited Partnership
FSH Associates LP
San Marc I, LLC
Tanger San Marc, LLC
Tanger DC, LLC
Tanger National Harbor, LLC
Galveston Outlets, LLC
Tanger Master Trust
Tanger Canada 1, LLC
1633272 Alberta ULC
Tanger AC-I, LLC
Tanger AC-II, LLC
Tanger AC-III, LLC
Atlantic City Associates, LLC
Atlantic City Associates Number Two Investors, LLC
Atlantic City Associates Number Two (S-1), LLC
Atlantic City Associates Number Three, LLC
Tanger OCF, LLC




OCF Holdings, LLC
Ocean City Factory Outlets, Inc.
Ocean City Factory Outlets I, LC
Ocean City Factory Outlets Acceptance Company, LLC
Tanger Charlotte, LLC
Tanger Columbus, LLC
Tanger Canada 2, LLC
Tanger Canada 3, LLC
Tanger Foxwoods, LLC
Outlets at Westgate, LLC
Columbus Outlets, LLC
Charlotte Outlets, LLC
Fashion Outlets at Foxwoods, LLC
Stone Square Center Inc.
Les Factoreries Saint-Sauveur (2003), Inc.
Holden Acquisition Company, LLC
Cornwallis Acquisition Company, LLC
Tanger Canada 4, LLC
Tanger Outlets Deer Park, LLC
Tanger Manager, LLC
Tanger Deer Park Mezz, LLC
Tanger Deer Park TIC, LLC
Tanger Finance Holdings, Inc.
Tanger Finance, LLC
Tanger Grand Rapids, LLC
Tanger Outlets of Savannah, LLC
Green Valley Acquisition, LLC
Outlet Mall of Savannah, LLC
Tanger Canada 5, LLC
Mid-South Outlet Holdings, LLC
Mid-South Outlet Shops, LLC
Desoto Mid-South Tourism Project, LLC
Hobbs Solar, LLC
Tanger Daytona, LLC
Tanger Jeffersonville, LLC
Tanger Fort Worth, LLC
Tanger Terrell, LLC
Tanger Branson, LLC
Tanger Management, LLC
Tanger Omaha, LLC
Tanger Services, Inc.
Tanger Detroit, LLC
BDG Arches, LLC



(Back To Top)

Section 5: EX-21.2 (EXHIBIT 21.2)

Exhibit


Exhibit 21.2
Tanger Properties Limited Partnership

List of Subsidiaries

Tanger Development Corporation
TWMB Associates, LLC
Tanger Deer Park, LLC
Tanger COROC, LLC
Tanger COROC II, LLC
COROC Holdings, LLC
COROC/Riviera L.L.C.
COROC/Hilton Head I L.L.C.
COROC/Hilton Head II L.L.C.
COROC/Lincoln City L.L.C.
COROC/Myrtle Beach L.L.C.
COROC/Park City L.L.C.
COROC/Rehoboth I L.L.C.
COROC/Rehoboth II L.L.C.
COROC/Rehoboth III L.L.C.
COROC/Lakes Region L.L.C.
COROC/Tilton II L.L.C.
COROC/Tuscola L.L.C.
COROC/Westbrook I L.L.C.
COROC/Westbrook II L.L.C.
COROC/Clinton CHR, LLC
COROC/Clinton WR, LLC
Tanger Devco, LLC
Tanger WD, LLC
Northline Indemnity, LLC
Tanger Phoenix, LLC
Tanger Scottsdale, LLC
Tanger Houston, LLC
Pembroke Acquisition Company, LLC
Tanger Hershey GP, LLC
Tanger Hershey I, LLC
Tanger Hershey II, LLC
Tanger Hershey Limited Partnership
FSH Associates LP
San Marc I, LLC
Tanger San Marc, LLC
Tanger DC, LLC
Tanger National Harbor, LLC
Galveston Outlets, LLC
Tanger Master Trust
Tanger Canada 1, LLC
1633272 Alberta ULC
Tanger AC-I, LLC
Tanger AC-II, LLC
Tanger AC-III, LLC
Atlantic City Associates, LLC
Atlantic City Associates Number Two Investors, LLC
Atlantic City Associates Number Two (S-1), LLC
Atlantic City Associates Number Three, LLC
Tanger OCF, LLC
OCF Holdings, LLC
Ocean City Factory Outlets, Inc.
Ocean City Factory Outlets I, LC
Ocean City Factory Outlets Acceptance Company, LLC




Tanger Charlotte, LLC
Tanger Columbus, LLC
Tanger Canada 2, LLC
Tanger Canada 3, LLC
Tanger Foxwoods, LLC
Outlets at Westgate, LLC
Columbus Outlets, LLC
Charlotte Outlets, LLC
Fashion Outlets at Foxwoods, LLC
Stone Square Center Inc.
Les Factoreries Saint-Sauveur (2003), Inc.
Holden Acquisition Company, LLC
Cornwallis Acquisition Company, LLC
Tanger Canada 4, LLC
Tanger Outlets Deer Park, LLC
Tanger Manager, LLC
Tanger Deer Park Mezz, LLC
Tanger Deer Park TIC, LLC
Tanger Finance Holdings, Inc.
Tanger Finance, LLC
Tanger Grand Rapids, LLC
Tanger Outlets of Savannah, LLC
Green Valley Acquisition, LLC
Outlet Mall of Savannah, LLC
Tanger Canada 5, LLC
Mid-South Outlet Holdings, LLC
Mid-South Outlet Shops, LLC
Desoto Mid-South Tourism Project, LLC
Hobbs Solar, LLC
Tanger Daytona, LLC
Tanger Jeffersonville, LLC
Tanger Fort Worth, LLC
Tanger Terrell, LLC
Tanger Branson, LLC
Tanger Management, LLC
Tanger Omaha, LLC
Tanger Services, Inc.
Tanger Detroit, LLC
BDG Arches, LLC




(Back To Top)

Section 6: EX-23.1 (EXHIBIT 23.1)

Exhibit


EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statements Nos. 333-197713, 333-126924, and 333-91863 on Form S-8 and No. 333-204649 on Form S-3 of our report dated February 22, 2018, relating to the consolidated financial statements and financial statement schedule of Tanger Factory Outlet Centers, Inc. and subsidiaries, and the effectiveness of Tanger Factory Outlet Centers, Inc. and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Tanger Factory Outlet Centers, Inc. and subsidiaries for the year ended December 31, 2017.


/s/ Deloitte & Touche LLP

Charlotte, North Carolina
February 22, 2018



(Back To Top)

Section 7: EX-23.2 (EXHIBIT 23.2)

Exhibit


EXHIBIT 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-204649-01 on Form S-3 of our report dated February 22, 2018, relating to the consolidated financial statements and financial statement schedule of Tanger Properties Limited Partnership and subsidiaries, and the effectiveness of Tanger Properties Limited Partnership and subsidiaries’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Tanger Properties Limited Partnership and subsidiaries for the year ended December 31, 2017.


/s/ Deloitte & Touche LLP

Charlotte, North Carolina
February 22, 2018



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Section 8: EX-23.3 (EXHIBIT 23.3)

Exhibit


EXHIBIT 23.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-197713, 333-126924, and 333-91863) and Form S-3 (No. 333-204649) of Tanger Factory Outlet Centers, Inc. of our report dated February 23, 2016, relating to the financial statements and financial statement schedule, which appears in this Form 10-K.


/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina
February 22, 2018





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Section 9: EX-23.4 (EXHIBIT 23.4)

Exhibit


EXHIBIT 23.4

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in the Registration Statement on Form S-3 (No. 333-204649-01) of Tanger Properties Limited Partnership of our report dated February 23, 2016, relating to the financial statements and financial statement schedule, which appears in this Form 10-K.


/s/ PricewaterhouseCoopers LLP

Charlotte, North Carolina
February 22, 2018




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Section 10: EX-31.1 (EXHIBIT 31.1)

Exhibit


Exhibit 31.1

I, Steven B. Tanger, certify that:
 
1.
I have reviewed this annual report on Form 10-K of Tanger Factory Outlet Centers, Inc. for the year ended December 31, 2017;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: February 22, 2018    

/s/ Steven B. Tanger
Steven B. Tanger
Chief Executive Officer
Tanger Factory Outlet Centers, Inc.



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Section 11: EX-31.2 (EXHIBIT 31.2)

Exhibit


Exhibit 31.2

I, James F. Williams, certify that:
 
1.
I have reviewed this annual report on Form 10-K of Tanger Factory Outlet Centers, Inc. for the year ended December 31, 2017;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.


Date: February 22, 2018

/s/ James F. Williams     
James F. Williams
Senior Vice-President and Chief Financial Officer
Tanger Factory Outlet Centers, Inc.



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Section 12: EX-31.3 (EXHIBIT 31.3)

Exhibit


Exhibit 31.3

I, Steven B. Tanger, certify that:
 
1
I have reviewed this annual report on Form 10-K of Tanger Properties Limited Partnership for the year ended December 31, 2017;
 
 
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
 
5
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:
February 22, 2018
 
/s/ Steven B. Tanger
 
Steven B. Tanger
Chief Executive Officer
Tanger GP Trust, sole general partner of the Operating Partnership



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Section 13: EX-31.4 (EXHIBIT 31.4)

Exhibit


Exhibit 31.4

I, James F. Williams, certify that:

 
1
I have reviewed this annual report on Form 10-K of Tanger Properties Limited Partnership for the year ended December 31, 2017;
 
 
2
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
 
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
 
 
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
 
 
(c)
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
 
 
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
 
5
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
 
 
 
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
 
 
 
 
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
 
Date:
February 22, 2018
 
/s/ James F. Williams     
 
James F. Williams
Vice-President and Treasurer
Tanger GP Trust, sole general partner of the Operating Partnership
(Principal Financial Officer)



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Section 14: EX-32.1 (EXHIBIT 32.1)

Exhibit


Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger Factory Outlet Centers, Inc. (the “Company”) hereby certifies, to such officer's knowledge, that:

(i)    the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:
February 22, 2018
/s/ Steven B. Tanger
 
 
Steven B. Tanger
Chief Executive Officer
Tanger Factory Outlet Centers, Inc.



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Section 15: EX-32.2 (EXHIBIT 32.2)

Exhibit


Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger Factory Outlet Centers, Inc. (the “Company”) hereby certifies, to such officer's knowledge, that:

(i)    the accompanying Annual Report on Form 10-K of the Company for the year ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


Date:
February 22, 2018
/s/ James F. Williams
 
 
James F. Williams
Senior Vice President and Chief Financial Officer Tanger Factory Outlet Centers, Inc.



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Section 16: EX-32.3 (EXHIBIT 32.3)

Exhibit


Exhibit 32.3

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger Properties Limited Partnership (the “Operating Partnership”) hereby certifies, to such officer's knowledge, that:

(i)
the accompanying Annual Report on Form 10-K of the Operating Partnership for the year ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.


Date:
February 22, 2018
/s/ Steven B. Tanger
 
Steven B. Tanger
 
Chief Executive Officer
 
Tanger GP Trust, sole general partner of the Operating Partnership



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Section 17: EX-32.4 (EXHIBIT 32.4)

Exhibit


Exhibit 32.4

Certification of Principal Financial Officer

Pursuant to 18 U.S.C. § 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Tanger Properties Limited Partnership (the “Operating Partnership”) hereby certifies, to such officer's knowledge, that:

(i)
the accompanying Annual Report on Form 10-K of the Operating Partnership for the year ended December 31, 2017 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Operating Partnership.

Date:
February 22, 2018
/s/ James F. Williams
 
 
James F. Williams
 
 
Vice President and Treasurer
Tanger GP Trust, sole general partner of the Operating Partnership
(Principal Financial Officer)




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