United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K10-K/A
(Amendment No. 1)
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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the fiscal year ended December 31, 2022
OR
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| ☐ | 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)
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| 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, Greensboro, NC 27408
(Address of principal executive offices)
(336) 292-3010
(Registrant’s telephone number, including area code)
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| Securities registered pursuant to Section 12(b) of the Act: |
| Tanger Factory Outlet Centers, Inc.: |
| Title of each class | Trading Symbol (s) | Name of exchange on which registered |
| Common Shares, $.01 par value | SKT | 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.
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| Tanger Factory Outlet Centers, Inc. | Yes | ☒ | No | ☐ |
| Tanger Properties Limited Partnership | Yes | ☒ | No | ☐ |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
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| Tanger Factory Outlet Centers, Inc. | Yes | ☐ | No | ☒ |
| Tanger Properties Limited Partnership | Yes | ☐ | No | ☒ |
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.
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| Tanger Factory Outlet Centers, Inc. | Yes | ☒ | No | ☐ |
| Tanger Properties Limited Partnership | Yes | ☒ | No | ☐ |
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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| Tanger Factory Outlet Centers, Inc. | Yes | ☒ | No | ☐ |
| Tanger Properties Limited Partnership | Yes | ☒ | No | ☐ |
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.
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| Tanger Factory Outlet Centers, Inc. |
| Large Accelerated Filer | ☒ | | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☐ | | Smaller Reporting Company | ☐ |
| | | Emerging Growth Company | ☐ |
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| Tanger Properties Limited Partnership |
| Large Accelerated Filer | ☐ | | Accelerated Filer | ☐ |
| Non-accelerated Filer | ☒ | | Smaller Reporting Company | ☐ |
| | | Emerging Growth Company | ☐ |
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.
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| Tanger Factory Outlet Centers, Inc. | ☐ |
| Tanger Properties Limited Partnership | ☐ |
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of
the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report.
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| Tanger Factory Outlet Centers, Inc. | ☒ |
| Tanger Properties Limited Partnership | ☒ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
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| Tanger Factory Outlet Centers, Inc. | Yes | ☐ | No | ☒ |
| Tanger Properties Limited Partnership | Yes | ☐ | No | ☒ |
The aggregate market value of voting shares held by non-affiliates of Tanger Factory Outlet Centers, Inc. was approximately $1,451,887,553 based on the closing price on the New York Stock Exchange for such shares on June 30, 2022.
The number of Common Shares of Tanger Factory Outlet Centers, Inc. outstanding as of February 10, 2023 was 104,497,920.
Auditor Firm PCAOB ID 34 Auditor Name: Deloitte & Touche LLP Auditor Location: Charlotte, North Carolina
Documents Incorporated By Reference
Portions of Tanger Factory Outlet Center, Inc.'s definitive proxy statement to be filed with respect to the 2023 Annual Meeting of Shareholders are incorporated by reference in Part III.
PART I
EXPLANATORY NOTE
This report combinesAmendment No. 1 (the "Amendment") to the annual reportsAnnual Report on Form 10-K for the year ended December 31, 2022 (the "Original Annual Report") of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. UnlessPartnership amends the context indicatesOriginal Annual Report solely for the purpose of revising the Lease Expirations tables contained in Item 2, Properties. With the exception of this revision, the information contained in Item 2, Properties is the same.
As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with the Amendment, the Company’s Chief Executive Officer and Chief Financial Officer have reissued applicable portions of their certifications required under Section 302 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”). This Amendment does not include certifications under Section 906 of Sarbanes-Oxley because no financial statements are being filed with this Amendment.
With the exception of the foregoing, no other information in the Original Annual Report has been supplemented, updated or amended. This Amendment is not intended to amend or otherwise update other information in the term "Company", refersOriginal Annual Report. Among other things, forward-looking statements made in the Original Annual Report have not been revised 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” referreflect events, results or developments that have occurred or facts that have become known to the Company orafter the Company and the Operating Partnership together, as the text requires.
Tanger Factory Outlet Centers, Inc. and subsidiaries is onedate of the largest ownersOriginal Annual Report, and operators of outlet centerssuch forward-looking statements should be read in their historical context. Accordingly, this Amendment should be read in conjunction with the United StatesOriginal Annual Report and Canada. The Company is a fully-integrated, self-administeredwith the Company’s other filings made with the Securities and self-managed real estate investment trust ("REIT"Exchange Commission (“SEC”), which, through its controlling interest in subsequent to the Operating Partnership, focuses on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and allfiling 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.
In November 2021, Tanger Factory Outlet Centers, Inc. (the “Company”) was admitted as General Partner of Tanger Properties Limited Partnership (the “Operating Partnership”). Prior to this administrative change, the Company owned 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 controlled the Operating Partnership as its sole general partner and Tanger LP Trust held a limited partnership interest. Following this change to the ownership structure, the Company has replaced Tanger GP Trust as the sole general partner of the Operating Partnership and Tanger LP Trust retained its limited partnership interest.
The Company, including its wholly-owned subsidiary, Tanger LP Trust, owns the majority of the units of partnership interest issued by the Operating Partnership. As of December 31, 2022, the Company and its wholly owned subsidiaries owned 104,497,920 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,737,982 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.
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.
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, including through its wholly-owned subsidiary, 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; and
•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.
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 on developing, acquiring, owning, operating and managing outlet shopping centers. As of December 31, 2022, our consolidated portfolio consisted of 29 outlet centers, with a total gross leasable area of approximately 11.4 million square feet, which were 97% occupied and contained over 2,200 stores representing approximately 600 store brands, as well as one center under construction. We also had partial ownership interests in 6 unconsolidated outlet centers totaling approximately 2.1 million square feet, including 2 outlet centers in Canada. Our portfolio also includes one managed center totaling approximately 500,000 square feet. Each of our outlet centers, except one joint venture property, features the Tanger brand name.
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, including its wholly-owned subsidiary, Tanger LP Trust, owns the majority of the units of partnership interest issued by the Operating Partnership. The Company controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest.
As of December 31, 2022, the Company and its wholly-owned subsidiaries owned 104,497,920 units of the Operating Partnership and the Non-Company LPs collectively owned 4,737,982 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. Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K 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.
Recent Developments
New Development
In May 2022, we broke ground on our 37th center in Nashville, Tennessee. The center, which will be approximately 290,000 square feet, is expected to open in the third quarter of 2023 at an estimated total cost of $142.0 million to $150.0 million with a projected stabilized yield of 7.0% to 7.5%. Through December 31, 2022, we had incurred costs of $36.0 million associated with this development.
Property Management
In August 2022, we announced a strategic partnership with Clarion Partners at Palm Beach Outlets in West Palm Beach, Florida. We assumed marketing, leasing and property management responsibilities at the 457,000 square foot property, which has been rebranded as Tanger Outlets Palm Beach.
Financing Transactions
Unsecured Term Loan
In October 2022, we amended and restated our unsecured term loan. The outstanding balance was increased from $300.0 million to $325.0 million and the maturity was extended from April 2024 to January 2027 plus a one-year extension option. The interest rate changed from LIBOR + 1.25% to Adjusted Secured Overnight Financing Rate (SOFR) + 1.20% based on our current credit rating at closing. The amendment also incorporates a sustainability metric, reducing the applicable grid-based interest rate spread by one basis point annually, subject to meeting certain thresholds.
Unsecured Lines of Credit
In October 2022, we amended our unsecured lines of credit to change the interest rate index from LIBOR to Adjusted SOFR. All other terms remained unchanged.
Southaven, MS mortgage
In October 2022, the Southaven, Mississippi joint venture amended and restated its secured term loan, increasing the outstanding balance to $51.7 million from $40.1 million, extending the maturity from April 2023 to October 2026 plus a one-year extension option, with an interest rate of Adjusted SOFR plus 2.00%.
Unconsolidated Real Estate Joint Ventures Financing Transactions
Columbus, Ohio
In September 2022, the joint venture completed the refinance of its existing $71.0 million LIBOR + 1.85% which had a maturity date of November 2022. The refinanced mortgage remained $71.0 million but became a non-recourse loan with a maturity date in October 2032 and a fixed interest rate of 6.25%.
Property Sales
In December 2022, we sold our Blowing Rock, North Carolina center for $13.0 million, which resulted in a gain on sale of assets of $3.2 million.
Organizational Changes
In November 2022, Michael Bilerman became the Company’s Executive Vice President, Chief Financial Officer and Chief Investment Officer.
The Outlet Concept
Outlet centers generally consist of stores operated by brands and retailers that sell primarily 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, specialty stores and their own full price channels. Outlet centers offer advantages to brands and retailers as they are often able to charge customers lower prices for branded and designer products by eliminating the third party retailer or through operating efficiencies. Stores and 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 and their inventory positions while continuing to maintain control of their distribution channels. Outlet centers also enable brands and retailers to establish a direct relationship with their customers and maintain brand integrity through control of product placement and pricing.
Our Outlet Centers
Each of our outlet centers, except one joint venture property, features the Tanger brand name. Additionally, we leverage the Tanger brand and platform to manage a center in Palm Beach, Florida owned by an institutional investor. We believe that our tenants and consumers recognize the Tanger brand as one that provides outlet shopping centers where consumers can trust the brand, value and experience.
As one of the original participants in this industry and through key additions to our executive, leasing, operating and center teams, we have established long-standing relationships with many of our tenants that we believe are critical in operating, managing, developing, and acquiring successful outlet and retail centers.
Our consolidated outlet centers are typically located in a variety of geographical areas, including high frequency tourist destinations and suburbs of vibrant and fast-growing markets. Additionally, our centers are often situated in close proximity to interstate highways that provide accessibility and visibility to potential customers.
We have a diverse tenant base throughout our consolidated portfolio, comprised of approximately 600 designers, brands, specialty retailers and select multi-brand retailers such as Nike, Coach, Gap Outlet, Ralph Lauren, Michael Kors, Kate Spade, American Eagle, Under Armour, Banana Republic, Ann Taylor, Columbia, The North Face, Adidas, Levis, H&M, Old Navy, Bath and Body Works, Vineyard Vines, J Crew, Tory Burch, Hollister, Lululemon, Allbirds, Summersalt, Ulta, Hey Dude, Huk, Crocs, Restoration Hardware, Pottery Barn, West Elm, Williams-Sonoma, and many more.
No single tenant, including all of its store concepts, accounted for 10% or more of our combined base and percentage rental revenues during 2022, 2021 or 2020. As of December 31, 2022, no single tenant accounted for more than 7% of our leasable square feet or 6% of our combined base and percentage rental revenues.
A portion of our rental revenues are dependent on variable revenue sources. For the year ended December 31, 2022, the components of rental revenues are as follows (in thousands):
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| | 2022 |
Rental revenues - fixed | | $ | 319,219 | |
Rental revenues - variable (1)
| | 102,200 | |
Rental revenues | | $ | 421,419 | |
(1)Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes, which are paid on a pro rata basis.
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 Executive Chair, 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 predecessor 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.
In April 2020, Stephen Yalof, a successful and proven retail real estate executive, joined the Company as President and Chief Operating Officer, as part of an executive succession plan for the role of CEO. Effective January 1, 2021, Steven B. Tanger, the Company's CEO, transitioned to the position of Executive Chair of the Company's Board of Directors, effective through January 1, 2024, and Mr. Yalof assumed the role of CEO of the Company.
Business Strategy
Our Company has been built on a firm foundation of strong and enduring business relationships coupled with disciplined business practices. We partner with many of the world's best known and most respected brands and retailers. By fostering and maintaining strong relationships with these successful, high volume companies, we have been able to solidify our position as a leader in the outlet industry for over thirty years. 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 brands and retailers. Our seasoned team of professionals with diverse sets of expertise utilize the knowledge and experience that we have gained to give us a competitive advantage in the outlet business.
Growth Strategy
Our goal is to build shareholder value through a comprehensive, disciplined plan for sustained, long-term growth. We focus our efforts on increasing net operating income at our existing outlet centers, renovating and optimizing selected outlet centers and pursuing disciplined external growth in our current markets and potential new markets through selective ground-up development or the acquisition of retail real estate. Future retail real estate assets may be wholly-owned by us, owned through joint ventures or partnership arrangements, or through management agreements.
Increasing net operating income at existing outlet centers
Our leasing team focuses on optimizing the use of our real estate to attract and engage best in class brands and retailers with a focus on maximizing consumer demand and rent. The majority of our 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 many leases at higher base rents per square-foot and replace underperforming tenants with new or existing brands in our portfolio. Given the current retail environment, we may choose to execute leases with new tenants or renew certain tenants to enhance our tenant mix or maintain a high portfolio occupancy rate. In addition, we are focused on generating non-store revenues (other revenues), through marketing partnerships, media and ROI driven sustainability initiatives and actively managing property operating expenses and marketing expenses as a means of growing net operating income.
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 expertise in the outlet industry, extensive development expertise and strong retail relationships give us a distinct competitive advantage.
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 twelve to eighteen from groundbreaking to grand opening of the outlet center.
Expanding and renovating existing outlet centers
Keeping our centers vibrant and growing is a key part of our formula for success. In order to maintain our reputation as the premiere 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 retail real estate
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 retail 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 teams have the ability to implement a re-merchandising strategy when needed to increase occupancy rates, optimize rents and maximize value. We believe that our brand operating platform and operational expertise and overall retail industry experience will also allow us to add long-term value and viability to these assets.
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, media and other non-store 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 retailers. Tanger customers shop and save on their favorite branded merchandise including men's, women's and children's ready-to-wear, digitally native brands, lifestyle apparel, footwear, jewelry and accessories, tableware, housewares, luggage and home goods. In addition, we are focused on adding non-traditional uses to our tenant mix, including experiential and food and beverage tenants. 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 comprehensive marketing plans are designed to drive sales and traffic in partnership with our retail partners. We leverage data to enable a return on investment-oriented performance marketing approach for efficient customer acquisition. Investments to transform our digital channels allow us to engage existing customers with timely and personalized communications. Our loyalty strategies are two pronged – earning increased wallet share with vested customers and optimizing an incremental ancillary revenue stream. Our efforts to engage broad audiences through seasonal events and our digital channels enable our ability to monetize our customer audience for media and sponsorship opportunities with retail partners and nationally trusted brands.
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 an appropriate mix of fixed and variable rate debt and interest rate hedging strategies, (4) maintain access to liquidity by using our lines of credit in a conservative manner and (5) preserve internally generated sources of capital by 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, including without limitation, cash on hand, retained free cash flow and debt and equity issuances.
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 statement on Form S-3 that allows us to register unspecified amounts of different classes of securities. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, cash and cash equivalents, our short-term investments, 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 2023.
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.
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 senior note due September 2026.
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 maintaining appropriate leverage levels.
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. We believe that the majority of our customers visit outlet centers because they are intent on shopping brands at discounted prices. Traditional full-and off-price retailers and e-commerce retailers are often unable to provide such a variety and depth of selection and sizes at attractive prices.
Because our revenues are ultimately linked to our tenants' success, we are affected by the same competitive factors, such as consumer spending habits, as our tenants.
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 brands and 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 New York, New York.
As of December 31, 2022, we maintain offices and employ on-site management at 32 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.
Our Core Values
Our Core Values are to consider community first, seek the success of others, act fairly and with integrity and make it happen.
Consider Community First - Our diverse communities are the heartbeat of our business. Our decision-making must reflect the varied perspectives that contribute to making our Company a welcoming environment for all. We work to embrace these differences which strengthen Our Tanger. Our philanthropic and sustainable commitments exist to better all the communities we serve.
Seek the Success of Others - We are all in this together, and we believe true success can only be achieved when it is experienced by our shoppers, retailers, and team members alike. We strive to create a culture of inclusion, where we can all be better – together.
Act Fairly and with Integrity - Our bond is strongest when we act with integrity and fairness in everything we do. Tanger’s commitment to ethics lives throughout every level, interaction, and function of the organization, and is what we are known for.
Make it Happen - This is the Tanger state of mind, and it is deeply rooted in our heritage. We are empowered to take smart risks, innovate and to use our voices to advocate for our ideas and for others within our communities.
Human Capital Resources
As of December 31, 2022, we had 341 full-time employees, located at our corporate headquarters in North Carolina and 32 business offices. At that date, we also employed 262 part-time employees at various locations. In 2022, 57% of our full-time workforce has been with us for five years or longer.
Our company has a Diversity, Equity, and Inclusion Council with representation from across the Company. The Diversity, Equity and Inclusion Council is deeply committed to creating and sustaining an organizational culture reflective of the collective mixture of unique experiences, perspectives, and viewpoints of our people, partners, and communities that contribute to making Tanger an environment where everyone is welcomed, respected, heard, supported, and able to thrive. Embracing a diverse, equitable, and inclusive workplace is part of our Core Values, strengthening Our Tanger, supporting our efforts to better the communities we serve, and allowing us to be transformative in delivering compelling customer experiences.
One of our DEI Strategic Priorities is to Nurture a Diverse Tanger Community, including but not limited to driving equal access, opportunity, and advancement for customers, partners, stakeholders, board of directors, and all current and future team members, growing the diverse representation of our shoppers and communities within our workforce. As of December 31, 2022, team members who identify as females made up 82% of field employees, 24% of our executive leadership team, and 77% of our total 603-person workforce. Racial minorities made up 26% of our total workforce in 2022. The Company's Board gender composition consisted of 22% members who identify as female and 22% of members with racial diversity.
We focus on developing strategies that enhance an environment where high performance, training and expression of our core competencies are rewarded and publicly recognized. We provide numerous training programs which include topics related to, among other things, operational training, leadership development, customer service and technology training. We recognize that motivation and rewards are different for individuals at various times in their careers, and a balanced blend of monetary and non-monetary rewards can generate valuable business results. We provide employee benefits on par or above industry standards. In addition, we support employees with 40 hours per year of paid volunteer time off to encourage volunteering for worthwhile activities in their local communities. Part-time employees are included in our 401(k) plans, which offer immediate vesting and dollar-for-dollar matches for employee contributions up to 3%, and $0.50 for every dollar contributed on the next 2% deferred. Part-time employees also participate in paid time off (PTO) after five years of service and are eligible to participate in our accident and critical Illness voluntary benefits.
Environment, Social and Governance ("ESG") Programs
We work to create long-term value for our shareholders, retail partners and employee team members while we support strong communities and work towards protecting the future of our planet. We integrate ESG into our business practices and seek to address the issues most important to our stakeholders. Our Core Values of Consider Community First, Seek the Success of Others, Act Fairly and with Integrity and Make it Happen form the foundation of our approach as we set goals to create positive social and economic impact while reducing our environmental footprint.
Reporting frameworks
Our goal is to utilize best practices in every aspect of our business, including our disclosures and ESG reporting. We have utilized the standards of the Global Reporting Initiative (GRI) since 2016 and began integrating certain disclosures from the Sustainability Accounting Standards Board (SASB, now the Value Reporting Foundation) in 2019. In 2021 and 2022, we disclosed to Global Real Estate Sustainability Benchmark (GRESB) and CDP (formerly, the Carbon Disclosure Project). We are also currently assessing our climate-related governance and strategy to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) and we became a signatory to the United Nations Global Compact (UNGC) in 2022.
ESG governance
Our ESG Executive Committee leads the governance of ESG matters at our Company and is chaired by our General Counsel. Consisting of executives from various functional areas of our Company, including, without limitation, Operations, Finance and People and Culture, the Executive Committee advises on the Company's approach to ESG. The Executive Committee monitors progress toward achievement of goals and communicates priority ESG issues to senior leadership. Our full Board of Directors provides oversight for the ESG function, and, as appropriate, certain matters are considered by a specific committee of the Board of Directors.
Priority ESG issues
Our ESG materiality process drives strategy on environmental, social, economic and governance topics. We begin by identifying opportunities and risks, and leverage external frameworks and engage stakeholders, executives and our Board members to help identify key ESG issues. These key issues are translated into operational priorities and processes across our Company. As a result of a robust materiality assessment conducted by a third party in 2021, we have identified the following priority material issues that are of greatest relevance to the Company and our stakeholders: Diversity, Equity and Inclusion; Energy Use and Efficiency; Community Involvement; Climate Change and Tenants' Environmental and Social Footprint.
For the avoidance of doubt, while certain matters discussed in our ESG Report, ESG Policies and other ESG-related disclosures may be significant, any significance should not be read as necessarily rising to the level of materiality as that concept is used for the purposes of our compliance and reporting pursuant to the U.S. federal securities laws and regulations. The concept of materiality used in our ESG disclosures, including as it is used above, is based on other definitions of materiality, some of which may require that we use a level of estimation and assumption that may make the resulting disclosures inherently uncertain. This is the case even where we use the word “material” or “materiality” in our ESG disclosures. Therefore, issues that we identify as “material” from an ESG perspective are not necessarily material to the Company under the U.S. federal securities laws and regulations. The contents of our ESG Report, ESG Policies and other ESG-related disclosures are not incorporated by reference into this Form 10-K, and do not form a part of this Form 10-K.
Government Regulations
We are subject to regulation by various federal, state, provincial and local agencies. These agencies include the Environmental Protection Agency, Occupational Safety and Health Administration and Department of Labor and Equal Employment Opportunity Commission. We believe we comply, in all material respects, with existing applicable statutes and regulations affecting environmental issues and our employment, workplace health and workplace safety practices, and compliance with such statutes and regulations has no material effect on our capital expenditures, earnings or competitive position.
ITEM 1A RISK FACTORS
Important risk factors that could materially affect our business, financial condition or results of operations in future periods are described below. These factors are not intended to be an all-encompassing list of risks and uncertainties and are not the only risks and uncertainties we face. Additional risks not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.
Risks Related to Real Estate Investments
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, interest rates, 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.
We may be unable to develop new outlet centers or expand existing outlet centers successfully.
We intend to continue to develop new outlet centers and expand existing outlet centers as opportunities arise and are in the process of developing a new outlet center in Nashville, Tennessee. 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.
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.
Properties have been in the past and may be in the future 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 or if there are other indicators of impairment and record impairment losses if the undiscounted cash flows estimated to be generated by those assets are less than their carrying amounts. 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 estimated fair 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.
In the current and recent years, we have recorded impairment charges related to both our long-lived assets and our investments in consolidated joint ventures. In addition, based upon current market conditions, one of our outlet centers has an estimated fair value significantly less than its recorded carrying value of approximately $113.0 million. However, based on our current plan with respect to that outlet center, we believe that its carrying amount is recoverable and therefore no impairment charge was recorded. Accordingly, we will continue to monitor circumstances and events in future periods that could affect inputs such as the expected holding period, operating cash flow forecasts and capitalization rates, utilized to determine whether an impairment charge is necessary. As these inputs are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or impairment may be realized in the future.
Dispositions may not achieve anticipated results.
From time to time, we have strategically disposed of assets, and may dispose of additional assets in the future, 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. 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.
Possible terrorist activity, other acts or threats of violence, public health crises 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. Similarly, public health crises may negatively impact consumer spending. Such a resulting decrease in retail demand could make it difficult for us to renew or re-lease our properties and may adversely impact our results of operations to the extent our revenues are dependent on variable revenue sources.
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
The current COVID-19 pandemic has negatively affected and may continue to negatively affect our business, financial condition, liquidity and results of operations and those of our tenants. Other pandemics or public health crises may have similar adverse impacts.
The COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent the spread of or remediate outbreaks of COVID-19 have had an adverse effect on our business and the businesses of our tenants.
Our financial results for 2020 were materially adversely impacted by COVID-19. During 2021 and 2022, our business and financial results improved, and metrics such as average overall occupancy rates, traffic to our centers, sales reported by our tenants, and collections of rental revenues returned to near, at, or in some cases above, pre-pandemic levels. Nevertheless, the extent to which the COVID-19 pandemic continues to impact our financial condition, results of operations and cash flows will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the direct and indirect economic effects of the pandemic and on consumers, among others.
The COVID-19 pandemic, or a future pandemic or other public health crisis, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
•Reduced economic activity that could result in a prolonged recession and may consequently negatively impact consumer discretionary spending, which could impact our tenants' ability to fund their business operations and meet their obligations to us as well as reduce variable rents;
•Difficulty accessing debt and equity capital on attractive terms, or at all;
•Any inability to comply with financial covenants of our credit facility and other debt agreements which could result in a default and potentially an acceleration of indebtedness;
•Any impairment in value of our tangible or intangible assets;
•A general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties or dispose of properties at a net gain, as applicable.
•A deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' operations;
•Requiring employees to work remotely and/or the potential negative impact on the health of our personnel could result in a deterioration in our ability to ensure business continuity.
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 retail tenants and their bankruptcy, early termination or closing could adversely affect us.
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, the current macroeconomic environment, legislative changes that increase the cost of their operations, supply chain issues 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 all or 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 or reduction of rent for stores that remain operating. For example, in 2019 and 2020, our revenues were adversely affected by higher than historical averages of bankruptcy filings and other tenant closures during those periods. In addition, certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration if we fail to maintain certain occupancy levels or retain specified named tenants, or if the tenant does not achieve certain specified sales targets. Our occupancy at our consolidated centers has increased from 95% at the end of 2021 to 97% at the end of 2022. If our occupancy declines, certain outlet centers may fall below the minimum co-tenancy thresholds and could trigger many tenants ability to pay reduced rents, which in turn may negatively impact our results of operations.
Re-leasing this space may take longer than our historical experience. In addition, we may be unable to replace the space at equal or greater rent, and/or we may incur significant tenant allowances to induce tenants to enter into leases. As such, the 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.
We face risks associated with climate change.
To the extent climate change causes changes in weather patterns, our properties in certain markets could experience, among other impacts, increases in storm intensity, rising sea levels and other natural disasters. Approximately, 47% of the square footage of our consolidated portfolio are in a coastal areas, which are at risk to be impacted by storms intensity and 16% of the square footage of our consolidated portfolio are in areas that are at risk to be impacted by rising sea levels. Over time, these conditions could result in volatile or decreased demand for retail space at certain of our properties or, in extreme cases, our inability to operate the properties at all. Climate change may also have indirect effects on our business by increasing the cost of (or making unavailable) insurance on favorable terms, or at all, increasing the cost of energy at our properties or requiring us to spend funds to repair and protect our properties against such risks. Moreover, compliance with new laws or regulations related to climate change, including compliance with “green” building codes, may require us to make improvements to our existing properties or increase taxes and fees assessed on us or our properties.
The increasing focus on environmental, sustainability and social initiatives could increase our costs, harm our reputation and adversely impact our financial results.
There has been increasing public focus by investors, environmental activists, the media and governmental and nongovernmental organizations on a variety of environmental, social and other sustainability matters. We may make commitments relating to sustainability matters that affect us, including the design and implementation of specific risk mitigation strategic initiatives relating to sustainability. If we are not effective in addressing environmental, social and other sustainability matters affecting our business, or setting and meeting relevant sustainability goals, our reputation may suffer. In addition, we may experience increased costs in order to execute upon our sustainability goals and measure achievement of those goals, which could have an adverse impact on our business and financial condition.
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 have changed and may continue to evolve.
Certain retailers have experienced, and may continue to experience for the foreseeable future considerable decreases in customer traffic in their retail stores, increased competition, and other forms of pressure on their business models. As pressure on such retailers increases, their ability to maintain their stores, meet their obligations both to us and to their external lenders and suppliers, withstand takeover attempts by investors or rivals or avoid bankruptcy and/or liquidation may be impaired, adversely impacting our results of operations to the extent our revenues are dependent on variable revenue sources, and resulting in closures of their stores or their seeking a lease modification with us. Any lease renewal or modification could be unfavorable to us as the lessor and could decrease rents or expense recovery charges.
Our Canadian investments may subject us to different or greater risk from those associated with our domestic operations.
As of December 31, 2022, through a co-ownership arrangement with a Canadian REIT, we have an ownership interest in two 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 rate between the U.S. 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.
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.
We may from time to time be subject to litigation that could negatively impact our financial condition, cash flows, results of operations and the trading price of our Common Shares.
We may from time to time be a defendant in lawsuits and regulatory proceedings relating to our business. Such litigation and proceedings may result in defense costs, settlements, fines or judgments against us, some of which may not be covered by insurance. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such litigation or proceedings. An unfavorable outcome may result in our having to pay significant fines, judgments or settlements, which, if uninsured, or if exceeding insurance coverage, could adversely impact our financial condition, cash flows, results of operations and the trading price of our Common Shares. Additionally, certain proceedings or the resolution of certain proceedings may affect the availability or cost of some of our insurance coverage and expose us to increased risks that would be uninsured. See Note 21 to the consolidated financial statements, updated by our subsequent filings with the SEC, for a discussion of pending litigation, if any.
Risks Related to our Indebtedness and Financial Markets
We are subject to the risks associated with debt financing.
We are subject to 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 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. 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 funding is not typically required contractually or otherwise.
Our interest rate hedging arrangements may not effectively limit our interest rate risk exposure.
We manage our exposure to interest rate risk by periodically entering into interest rate hedging agreements to effectively fix a portion of our variable rate debt. Our use of interest rate hedging arrangements to manage risk associated with interest rate volatility may expose us to additional risks, including that a counterparty to a hedging arrangement may fail to honor its obligations. We enter into swaps that are exempt from the requirements of central clearing and/or trading on a designated contract market or swap execution facility pursuant to the applicable regulations and rules, and thus there may be more counterparty risk relative to others who do not utilize such exemption. Developing an effective interest rate risk strategy is complex and no strategy can completely insulate us from risks associated with interest rate fluctuations. There can be no assurance that our hedging activities will have the desired beneficial impact on our results of operations or financial condition. We might be subject to additional costs, such as transaction fees or breakage costs, if we terminate these arrangements.
The market price of our common shares or other securities may fluctuate significantly in response to many factors.
Factors that could cause our securities to fluctuate significantly include but are not limited to; actual or anticipated variations in our operating results; cash flows or liquidity; changes in our earnings estimates or those of analysts; changes in our dividend policy; impairment charges affecting the carrying value of one or more of our outlet centers; changes in the general retail environment and macroeconomic conditions; industry trends, such as consolidation; shareholder activism and bankruptcy or brand-wide restructurings of retailers. In addition, a large proportion of our common shares has been and may continue to be traded by short sellers which may put pressure on the supply and demand for our common shares.
We could face adverse consequences as a result of the actions of activist shareholders.
In recent years, proxy contests and other forms of shareholder activism have been directed against numerous public companies. Shareholders may engage in proxy solicitations, advance shareholder proposals, or otherwise attempt to effect changes in or acquire control over us. Campaigns by shareholders to effect changes at publicly traded companies are sometimes led by investors seeking to increase short-term shareholder value through actions such as financial restructuring, increased debt, special dividends, share repurchases, or sales of assets or the entire company. Shareholder activists may also seek to involve themselves in the governance, strategic direction and operations of the company. If a shareholder, by itself or in conjunction with other shareholders or as part of a group, engages in activist activities with respect to us, our business could be adversely affected because responding to proxy contests and other actions by activist shareholders can be costly and time-consuming, potentially disrupting operations and diverting the attention of our Board of Directors, senior management and employees from the execution of business strategies. In addition, perceived uncertainties as to our future direction might result in the loss of potential business opportunities and harm our ability to attract new tenants, customers and investors. If individuals are elected to our Board of Directors with a specific agenda, it might adversely affect our ability to effectively and timely implement our strategies and initiatives and to retain and attract experienced executives and employees. Finally, we might experience a significant increase in legal fees and administrative and associated costs incurred in connection with responding to a proxy contest or related action. These actions could also negatively affect our share price.
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 (the "Internal Revenue Code"). 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 dividends paid to shareholders in computing taxable income and would be subject to U.S. federal income tax on our taxable income at the regular corporate rate. Also, we could be disqualified from treatment as a REIT for the four taxable years following the year during which qualification was lost. Accordingly, the Company's failure to qualify for taxation as a REIT would result in a significant reduction in cash available for distribution to our shareholders, and thus may adversely affect 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.
Federal or state legislative or other actions could adversely affect our shareholders.
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.
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 or our third-party providers' business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information.
Our information technology systems have been and may in the future be attacked or breached by individuals or organizations intending to obtain sensitive data regarding our business, customers, employees, tenants or other third parties with whom we do business or disrupt our business operations and information technology systems. While we maintain some of our own critical information technology systems, we also depend on third-party providers for important information technology software, products and services relating to several key business functions, such as payroll, electronic communications and certain accounting and finance functions, among others. Many of these providers have likewise experienced and expect to continue to experience cyberattacks and other security incidents.
A security compromise of our or our critical providers' information technology systems or business operations could occur through cyber-attacks or cyber-intrusions over the Internet, malware, ransomware, computer viruses, attachments to e-mails, persons inside our organization, or persons with access to systems inside our organization, due to malicious conduct, human error, negligence, and social engineering, as well as due to bugs, coding misconfigurations or other software vulnerabilities. Like many companies, we have experienced intrusions and threats to data and information technology systems, and the risk of a future 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 of 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, for example, due to ransomware, 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. Certain of these systems have been attacked, and any attack on such systems that results 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 of remediation and compliance (particularly in light of increased regulation of corporate data privacy and cybersecurity practices) and expose us to material legal claims and liability by private litigants (including class actions) and regulatory agencies. If the unauthorized release or loss of customer, employee or other confidential or sensitive data were to occur, our operations and financial results and our share price could also be adversely affected.
Our measures to prevent, detect and mitigate cyber threats, including password protection, firewalls, backup servers, threat monitoring and periodic penetration testing, may not be successful in preventing a data breach or limiting the effects of a breach or disruptive cyberattack. Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their systems, which in turn may impact our business and operations. We expect the frequency and intensity of cyberattacks to escalate in the future, particularly as threat actors become more sophisticated, for example, by deploying tools and techniques that are specifically designed to circumvent controls, to evade detection, and even to remove or obfuscate forensic evidence, all of which impedes our ability to detect, identify, investigate and remediate against cyberattacks.Continued remote and hybrid working arrangements also present additional cybersecurity risks given the prevalence of social engineering and vulnerabilities that are inherent in many non-corporate and home networks.In addition, laws, regulations, regulatory frameworks and industry standards related to cybersecurity and data privacy issues are developing rapidly, which may pose complex compliance challenges, lead to increased costs and potentially subject us to liability for violations. While we carry insurance related to cybersecurity events, our policies may not cover all of the costs and liabilities that could be incurred as the result of cyberattack or other security incident.
ITEM 1B.UNRESOLVED STAFF COMMENTS
There are no unresolved staff comments from the SEC for either the Company or the Operating Partnership.
ITEM 2.PROPERTIES
As of December 31, 2022, our consolidated portfolio consisted of 29 outlet centers totaling 11.4 million square feet located in 18 states and one center under construction. We own interests in six other outlet centers totaling approximately 2.1 million square feet through unconsolidated joint ventures, including two outlet centers in Canada. Our portfolio also includes one managed center totaling approximately 500,000 square feet. Each of our outlet centers, except one joint venture property, features the Tanger brand name. Our consolidated outlet centers range in size from 181,687 to 739,148 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, 2022. No property comprises more than 10% of our consolidated revenues for the year ended December 31, 2022. 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 December 31, 2022, of the 29 outlet centers in our consolidated portfolio, we own the land underlying 23 and have ground leases on six. 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 at our option |
| Myrtle Beach Hwy 17, SC | | 40.0 | | 2027 | | 2096 |
| Atlantic City, NJ | | 21.3 | | 2100 | | 2101 |
| Sevierville, TN | | 43.6 | | 2086 | | 2086 |
| Riverhead, NY | | 47.0 | | 2024 | | 2039 |
| Mashantucket, CT (Foxwoods) | | 8.1 | | 2039 | | 2089 |
| Rehoboth Beach, DE | | 2.7 | | 2044 | | 2064 |
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. 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 operating expenses resulting from inflation.
The following table summarizes certain information with respect to our consolidated outlet centers as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| State | | Number of
Outlet Centers | | Square
Feet | | %
of Square Feet |
| South Carolina | | 5 | | | 1,605,812 | | | 14 |
| New York | | 2 | | | 1,468,429 | | | 13 |
| Georgia | | 3 | | | 1,121,579 | | | 10 |
| Pennsylvania | | 3 | | | 999,442 | | | 9 |
| Texas | | 2 | | | 823,557 | | | 7 |
| Michigan | | 2 | | | 671,571 | | | 6 |
| Alabama | | 1 | | | 554,736 | | | 5 |
| Delaware | | 1 | | | 550,921 | | | 5 |
| New Jersey | | 1 | | | 487,718 | | | 4 |
| Tennessee | | 1 | | | 449,968 | | | 4 |
| Arizona | | 1 | | | 410,753 | | | 3 |
| Florida | | 1 | | | 351,691 | | | 3 |
| Missouri | | 1 | | | 329,861 | | | 3 |
| Mississippi | | 1 | | | 324,801 | | | 3 |
| Louisiana | | 1 | | | 321,066 | | | 3 |
| North Carolina | | 1 | | | 319,762 | | | 3 |
| Connecticut | | 1 | | | 311,229 | | | 3 |
| New Hampshire | | 1 | | | 250,558 | | | 2 |
| Total | | 29 | | | 11,353,454 | | | 100 |
The following table summarizes certain information with respect to our existing outlet centers in which we have an ownership interest as of December 31, 2022. Except as noted, all properties are fee owned:
| | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Legal Ownership % | | Square Feet | | % Occupied | |
| Consolidated Outlet Centers | | | | | | | |
| Deer Park, New York | | 100 | | | 739,148 | | | 100 | | |
Riverhead, New York (1) | | 100 | | | 729,281 | | | 93 | | |
| Foley, Alabama | | 100 | | | 554,736 | | | 94 | | |
Rehoboth Beach, Delaware (1) | | 100 | | | 550,921 | | | 96 | | |
Atlantic City, New Jersey (1) (3) | | 100 | | | 487,718 | | | 90 | | |
| San Marcos, Texas | | 100 | | | 471,816 | | | 96 | | |
Sevierville, Tennessee (1) | | 100 | | | 449,968 | | | 100 | | |
| Savannah, Georgia | | 100 | | | 429,089 | | | 100 | | |
| Myrtle Beach Hwy 501, South Carolina | | 100 | | | 426,523 | | | 98 | | |
| Glendale, Arizona (Westgate) | | 100 | | | 410,753 | | | 100 | | |
Myrtle Beach Hwy 17, South Carolina (1) | | 100 | | | 404,710 | | | 100 | | |
| Charleston, South Carolina | | 100 | | | 386,328 | | | 100 | | |
| Lancaster, Pennsylvania | | 100 | | | 375,883 | | | 100 | | |
| Pittsburgh, Pennsylvania | | 100 | | | 373,863 | | | 96 | | |
| Commerce, Georgia | | 100 | | | 371,408 | | | 99 | | |
| Grand Rapids, Michigan | | 100 | | | 357,133 | | | 91 | | |
| Fort Worth, Texas | | 100 | | | 351,741 | | | 99 | | |
| Daytona Beach, Florida | | 100 | | | 351,691 | | | 100 | | |
| Branson, Missouri | | 100 | | | 329,861 | | | 100 | | |
Southaven, Mississippi (2) (3) | | 50 | | | 324,801 | | | 100 | | |
| Locust Grove, Georgia | | 100 | | | 321,082 | | | 99 | | |
| Gonzales, Louisiana | | 100 | | | 321,066 | | | 100 | | |
| Mebane, North Carolina | | 100 | | | 319,762 | | | 100 | | |
| Howell, Michigan | | 100 | | | 314,438 | | | 84 | | |
Mashantucket, Connecticut (Foxwoods) (1) | | 100 | | | 311,229 | | | 86 | | |
| Tilton, New Hampshire | | 100 | | | 250,558 | | | 94 | | |
| Hershey, Pennsylvania | | 100 | | | 249,696 | | | 100 | | |
| Hilton Head II, South Carolina | | 100 | | | 206,564 | | | 99 | | |
| Hilton Head I, South Carolina | | 100 | | | 181,687 | | | 99 | | |
| Total | | | | 11,353,454 | | | 97 | |
|
(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)Property encumbered by mortgage. See Notes 7 and 8 to the consolidated financial statements for further details of our debt obligations.
| | | | | | | | | | | | | | | | | | | | | | | |
| Location | | Legal Ownership % | | Square
Feet | | %
Occupied | |
| Unconsolidated joint venture properties | | | | | | | |
Charlotte, North Carolina (1) | | 50 | | | 398,698 | | | 98 | | |
| Ottawa, Ontario | | 50 | | | 357,209 | | | 96 | | |
Columbus, Ohio (1) | | 50 | | | 355,245 | | | 100 | | |
Texas City, Texas (Galveston/Houston) (1) | | 50 | | | 352,705 | | | 96 | | |
National Harbor, Maryland (1) | | 50 | | | 341,156 | | | 100 | | |
| Cookstown, Ontario | | 50 | | | 307,883 | | | 98 | | |
| Total | | | | 2,112,896 | | | 98 | | |
(1)Property encumbered by mortgage. See Note 5 to the consolidated financial statements for further details of our joint ventures' debt obligations.
| | | | | | | | | | | | | | | | | | | | |
| Location | | | | Square Feet | | |
| Managed Properties | | | | | | |
| Palm Beach, Florida | | | | 457,326 | | | |
| | | | | | |
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 outlet centers:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 (2) | | 2019 | | 2018 |
| Occupancy | | 97 | % | | 95 | % | | 92 | % | | 97 | % | | 97 | % |
| Average annual base rent per square foot | | $ | 25.25 | | | $ | 23.79 | | | $ | 21.10 | | | $ | 25.35 | | | $ | 25.51 | |
(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 divided by the weighted average square feet of the consolidated portfolio. Average annual base rent excludes common area maintenance and reimbursements.
(2)The decline in the average annual base rent per square foot in 2020 compared to previous years reflects the decline in occupancy from 97% in 2019 to 92% in 2020 and rent modifications primarily due to a number of tenants filing bankruptcy during 2020.
Lease Expirations
The following table sets forth, as of December 31, 2022, scheduled lease expirations for our consolidated outlet centers, assuming none of the tenants exercise renewal options:
| | Year | 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 Annualized Base Rent Represented by Expiring Leases | 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 Annualized Base Rent Represented by Expiring Leases |
| 2023 | 2023 | | 316 | | | 1,606 | | | 24.75 | | | 39,739 | | | 17 | | 2023 | | 316 | | | 1,606 | | | 27.03 | | | 43,418 | | | 17 | |
| 2024 | 2024 | | 352 | | | 1,672 | | | 27.47 | | | 45,926 | | | 20 | | 2024 | | 354 | | | 1,676 | | | 29.14 | | | 48,838 | | | 19 | |
| 2025 | 2025 | | 317 | | | 1,580 | | | 25.89 | | | 40,899 | | | 18 | | 2025 | | 317 | | | 1,580 | | | 27.84 | | | 43,985 | | | 17 | |
| 2026 | 2026 | | 221 | | | 1,089 | | | 26.62 | | | 28,987 | | | 12 | | 2026 | | 222 | | | 1,089 | | | 29.66 | | | 32,301 | | | 13 | |
| 2027 | 2027 | | 200 | | | 1,011 | | | 28.72 | | | 29,045 | | | 12 | | 2027 | | 201 | | | 1,016 | | | 30.71 | | | 31,197 | | | 12 | |
| 2028 | 2028 | | 121 | | | 792 | | | 21.75 | | | 17,216 | | | 7 | | 2028 | | 121 | | | 792 | | | 26.31 | | | 20,840 | | | 8 | |
| 2029 | 2029 | | 84 | | | 346 | | | 26.22 | | | 9,062 | | | 4 | | 2029 | | 84 | | | 346 | | | 31.93 | | | 11,048 | | | 4 | |
| 2030 | 2030 | | 48 | | | 303 | | | 29.44 | | | 8,933 | | | 4 | | 2030 | | 50 | | | 313 | | | 31.47 | | | 9,851 | | | 4 | |
| 2031 | 2031 | | 27 | | | 140 | | | 23.43 | | | 3,270 | | | 1 | | 2031 | | 27 | | | 140 | | | 25.56 | | | 3,578 | | | 1 | |
| 2032 | 2032 | | 47 | | | 287 | | | 29.70 | | | 8,517 | | | 4 | | 2032 | | 48 | | | 372 | | | 26.30 | | | 9,785 | | | 4 | |
| 2033 and after | 2033 and after | | 8 | | | 40 | | | 35.87 | | | 1,444 | | | 1 | | 2033 and after | | 8 | | | 40 | | | 36.75 | | | 1,470 | | | 1 | |
| | | 1,741 | | | 8,866 | | | $ | 26.28 | | | $ | 233,038 | | | 100 | | | | 1,748 | | | 8,970 | | | $ | 28.57 | | | $ | 256,311 | | | 100 | |
(1)Excludes leases that have been entered into but which tenant has not yet taken possession, vacant suites, leases that have turned over but not open, temporary leases and month-to-month leases totaling in the aggregate approximately 2.52.4 million square feet of our consolidated outlet centers.
(2)Annualized base rent is defined as the minimum monthly payments due as of the end of the reporting period annualized, excluding periodic contractual fixed increases. Includes rents which are based on a percentage of sales in lieu of fixed contractual rents.
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 or renewals of existing leases will increase from current levels, if at all.
Expiring leases
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 (1) | | Square Feet
(in 000's) | | % of Total Outlet Center Square Feet (2) | | Square Feet
(in 000's) | | % of
Expiring Square Feet |
| 2022 | | 1,968 | | | 17 | | | 1,559 | | | 79 | |
| 2021 | | 1,728 | | | 15 | | | 1,359 | | | 79 | |
| 2020 | | 1,526 | | | 13 | | | 1,096 | | | 72 | |
| 2019 | | 1,320 | | | 11 | | | 1,020 | | | 81 | |
| 2018 | | 1,742 | | | 13 | | | 1,418 | | | 81 | |
(1)Excludes data for properties sold in each respective year.
(2)Represents the percentage of total square footage at the beginning of each year that is scheduled to expire during the respective year.
Leasing activity
In 2021, we revised our rent spread presentation from a commenced basis to executed basis and we are presenting it for comparable space. Comparable space excludes leases for space that was vacant for more than 12 months (non-comparable space). We believe that this presentation provides additional information and improves comparability to other retail REITs. Prior period results have been revised to conform with the current period presentation.
The following table sets forth leasing activity for each of the calendar years for comparable space for executed leases for consolidated outlet centers.(1)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Renewals of Existing Leases | | Stores Re-leased to New Tenants |
| | | | | Initial Rent (2) | | | | | Initial Rent (2) |
| | | | | ($ per sq. ft.) | | | | | ($ per sq. ft.) |
| Year | | Square Feet
(in 000's) | | | | New | |
Rent Spread %(3) | | Square Feet
(in 000's) | | | | New | |
Rent Spread %(3) |
| 2022 | | 1,693 | | | | | $ | 30.72 | | | 9 | | | 122 | | | | | $ | 43.47 | | | 28 | |
| 2021 | | 978 | | | | | $ | 31.08 | | | — | | | 192 | | | | | $ | 29.27 | | | (4) | |
| 2020 | | 1,077 | | | | | $ | 22.90 | | | (8) | | | 91 | | | | | $ | 30.02 | | | (5) | |
| 2019 | | 967 | | | | | $ | 25.36 | | | (7) | | | 385 | | | | | $ | 28.34 | | | (21) | |
| 2018 | | 1,381 | | | | | $ | 30.57 | | | (1) | | | 299 | | | | | $ | 36.92 | | | 17 | |
(1)For consolidated properties owned as of the period-end date. Represents leases for new stores or renewals that were executed during the respective calendar year and excludes license agreements, seasonal tenants and month-to-month leases.
(2)Represents average initial cash rent (base rent and common area maintenance (“CAM”)).
(3)Represents change in initial and expiring cash rent (base rent and CAM). See above for a description of the change in calculation from prior periods.
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 |
| 2022 | | 8.6 | |
| 2021 | | 8.1 |
| 2020 | | N/A (1) |
| 2019 | | 10.0 | |
| 2018 | | 9.9 | |
(1)As a result of the COVID-19 pandemic, retailers stores were closed for much of the second quarter of 2020 due to mandates by order of local and state authorities. Given the fewer than twelve months of sales reported by our tenants for 2020, an average tenant occupancy cost is not provided for this period.
As of December 31, 2022, our occupancy cost ratio increased to 8.6%. The increase from 2021 relates to higher operating costs.
Tenants
The following table sets forth certain information for our consolidated outlet centers with respect to our 25 largest tenants based on total annualized base rent as of December 31, 2022 (1) :
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Tenant | Brands | # of
Stores | | Gross Leasable Area (GLA) | | % of
Total GLA | | % of Total Annualized Base Rent (2) |
| The Gap, Inc. | Gap, Banana Republic, Old Navy | 81 | | | 867,805 | | | 7.0 | % | | 5.3 | % |
| SPARC Group | Aéropostale, Brooks Brothers, Eddie Bauer, Forever 21, Lucky Brands, Nautica | 88 | | | 530,635 | | | 4.3 | % | | 4.0 | % |
| Premium Apparel, LLC; The Talbots, Inc. | LOFT, Ann Taylor, Lane Bryant, Talbots | 76 | | | 406,570 | | | 3.3 | % | | 3.9 | % |
| Under Armour, Inc. | Under Armour, Under Armour Kids | 28 | | | 246,787 | | | 2.0 | % | | 3.0 | % |
| PVH Corp. | Tommy Hilfiger, Calvin Klein | 38 | | | 286,103 | | | 2.3 | % | | 3.0 | % |
| Tapestry, Inc. | Coach, Kate Spade, Stuart Weitzman | 48 | | | 226,912 | | | 1.8 | % | | 3.0 | % |
| American Eagle Outfitters, Inc. | American Eagle Outfitters, Aerie | 42 | | | 283,306 | | | 2.3 | % | | 2.8 | % |
| Nike, Inc. | Nike, Converse, Hurley | 30 | | | 362,948 | | | 2.9 | % | | 2.4 | % |
| Columbia Sportswear Company | Columbia Sportswear | 22 | | | 176,697 | | | 1.4 | % | | 2.3 | % |
| Capri Holdings Limited | Michael Kors, Michael Kors Men’s | 27 | | | 137,486 | | | 1.1 | % | | 2.0 | % |
| Carter’s, Inc. | Carter's, OshKosh B'gosh | 39 | | | 173,705 | | | 1.4 | % | | 2.0 | % |
| Signet Jewelers Limited | Kay Jewelers, Zales, Jared Vault | 49 | | | 108,873 | | | 0.9 | % | | 1.9 | % |
| Skechers USA, Inc. | Skechers | 28 | | | 154,913 | | | 1.2 | % | | 1.8 | % |
| Hanesbrands Inc. | Hanesbrands, Maidenform, Champion | 33 | | | 162,479 | | | 1.3 | % | | 1.8 | % |
| Rack Room Shoes, Inc. | Rack Room Shoes | 25 | | | 187,848 | | | 1.5 | % | | 1.8 | % |
| Ralph Lauren Corporation | Polo Ralph Lauren, Polo Children, Polo Ralph Lauren Big & Tall | 30 | | | 338,181 | | | 2.7 | % | | 1.7 | % |
| V. F. Corporation | The North Face, Vans, Timberland, Dickies, Work Authority | 27 | | | 143,207 | | | 1.2 | % | | 1.7 | % |
| Luxottica Group S.p.A. | Sunglass Hut, Oakley, Lenscrafters | 53 | | | 79,829 | | | 0.6 | % | | 1.6 | % |
| Express Inc. | Express Factory | 24 | | | 168,000 | | | 1.4 | % | | 1.6 | % |
| H & M Hennes & Mauritz LP. | H&M | 18 | | | 385,321 | | | 3.1 | % | | 1.6 | % |
| Adidas AG | Adidas | 19 | | | 141,430 | | | 1.1 | % | | 1.6 | % |
| Chico’s, FAS Inc. | Chicos, White House/Black Market, Soma Intimates | 34 | | | 98,901 | | | 0.8 | % | | 1.5 | % |
| Levi Strauss & Co. | Levi's | 27 | | | 111,510 | | | 0.9 | % | | 1.5 | % |
| Caleres Inc. | Famous Footwear | 25 | | | 148,489 | | | 1.2 | % | | 1.4 | % |
| Rue 21, LLC | Rue 21 | 19 | | | 114,559 | | | 0.9 | % | | 1.3 | % |
| Total of Top 25 tenants | | 930 | | | 6,042,494 | | | 48.6 | % | | 56.5 | % |
(1)Excludes leases that have been entered into but for which the tenant has not yet taken possession, temporary leases and month-to-month leases. Includes all retail concepts of each tenant group for consolidated outlet centers; tenant groups are determined based on leasing relationships.
(2)Annualized base rent is defined as the minimum monthly payments due as of the end of the reporting period annualized, excluding periodic contractual fixed increases. Includes rents that are based on a percentage of sales in lieu of fixed contractual rents.
Significant Property
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, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Deer Park | | Square Feet | | 2022 | | 2021 | | 2020 |
| Outlet Center Occupancy | | 739,148 | | | 100 | % | | 95 | % | | 89 | % |
| | | | | | | | |
Average base rental rates per weighted average square foot (1) | | | | $ | 35.33 | | $ | 31.99 | | $ | 19.25 |
(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 divided by the weighted average square feet of the Deer Park Outlet Center.
The increase in the average annual base rent per square foot in 2022 compared to 2021 reflects the increase in occupancy from 95% in 2021 to 100% in 2022 and temporary rent modifications primarily due to a number of tenants filing for bankruptcy during 2020.
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 of up to 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 2022 amounted to $5.6 million. Real estate taxes for 2023 are estimated to be approximately $5.7 million.
The following table sets forth, as of December 31, 2022, scheduled lease expirations for the Deer Park outlet center assuming that none of the tenants exercise renewal options:
| | Year | 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 | 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 |
| 2023 | 2023 | | 16 | | | 99 | | | 27.36 | | | 2,709 | | | 15 | | 2023 | | 16 | | | 99 | | | 31.09 | | | 3,078 | | | 15 | |
| 2024 | 2024 | | 23 | | | 175 | | | 37.17 | | | 6,504 | | | 37 | | 2024 | | 24 | | | 177 | | | 38.72 | | | 6,854 | | | 33 | |
| 2025 | 2025 | | 5 | | | 24 | | | 33.46 | | | 803 | | | 5 | | 2025 | | 5 | | | 24 | | | 33.46 | | | 803 | | | 4 | |
| 2026 | 2026 | | 5 | | | 19 | | | 25.58 | | | 486 | | | 3 | | 2026 | | 5 | | | 19 | | | 45.37 | | | 862 | | | 4 | |
| 2027 | 2027 | | 4 | | | 15 | | | 46.60 | | | 699 | | | 4 | | 2027 | | 4 | | | 15 | | | 46.60 | | | 699 | | | 4 | |
| 2028 | 2028 | | 11 | | | 108 | | | 40.16 | | | 4,337 | | | 25 | | 2028 | | 11 | | | 108 | | | 42.57 | | | 4,598 | | | 22 | |
| 2029 | 2029 | | 7 | | | 21 | | | 33.24 | | | 698 | | | 4 | | 2029 | | 7 | | | 21 | | | 42.24 | | | 887 | | | 4 | |
| 2030 | 2030 | | 3 | | | 21 | | | 45.86 | | | 963 | | | 5 | | 2030 | | 4 | | | 28 | | | 44.21 | | | 1,238 | | | 6 | |
| 2031 | 2031 | | 2 | | | 5 | | | 37.60 | | | 188 | | | 1 | | 2031 | | 2 | | | 5 | | | 37.60 | | | 188 | | | 1 | |
| 2032 | 2032 | | 2 | | | 10 | | | 20.20 | | | 202 | | | 1 | | 2032 | | 3 | | | 95 | | | 15.47 | | | 1,470 | | | 7 | |
| 2033 and after | 2033 and after | | — | | | — | | | — | | | — | | | — | | 2033 and after | | — | | | — | | | — | | | — | | | — | |
| Total | Total | | 78 | | | 497 | | | $ | 35.39 | | | $ | 17,589 | | | 100 | % | Total | | 81 | | | 591 | | | $ | 34.99 | | | $ | 20,677 | | | 100 | % |
|
(1)Excludes leases that have been entered into but for which the tenant has not taken possession, vacant suites, leases that have turned over but not open, temporary leases and month-to-month leases totaling in the aggregate approximately 242,000148,000 square feet.
(2)Annualized base rent is defined as the minimum monthly payments due as of the end of the reporting period annualized, excluding periodic contractual fixed increases. Includes rents that are based on a percentage of sales in lieu of fixed contractual rents.
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.
Information about the 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 | | 74 | | Executive Chair of the Board |
Stephen J. Yalof | | 60 | | Director, President and Chief Executive Officer |
Michael J. Bilerman | | 47 | | Executive Vice President - Chief Financial Officer and Chief Investment Officer |
Chad D. Perry | | 50 | | Executive Vice President - General Counsel and Secretary |
Leslie A. Swanson | | 52 | | Executive Vice President - Chief Operating Officer |
Justin C. Stein | | 43 | | Executive Vice President - Leasing |
Andrew R. Wingrove | | 40 | | Executive Vice President - Chief Commercial Officer |
The following is a biographical summary of the experience of our executive officers:
Steven B. Tanger. Mr. Tanger has served as Executive Chair of the Board since January 1, 2021 and Director of the Company since May 13, 1993. Mr. Tanger previously served as Chief Executive Officer from May 2017 to December 2020; 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. Mr. Tanger is a former Trustee of the International Council of Shopping Centers (ICSC); a former Director of The Fresh Market, a member of the Real Estate Roundtable and a Director and Member of the Executive Committee of the National Association of Real Estate Investment Trusts (Nareit). 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.
Stephen J. Yalof. Mr. Yalof has served as a director of the Company since July 20, 2020, and as President and Chief Executive Officer since January 2021. Mr. Yalof joined the Company in April 2020 as President and Chief Operating Officer, bringing with him over 25 years of experience in the commercial real estate industry, with a primary focus on the retail space. He oversees the operations of the executive and senior leadership teams, emphasizing evolving the customer shopping experience. Prior to joining the Company, Mr. Yalof served as the Chief Executive Officer of Simon Premium Outlets of the Simon Property Group, Inc., a commercial real estate company and mall operator, from September 2014 to April 2020, where he drove forward the expansion and development of their real estate portfolio. He previously served as Senior Vice President of Real Estate for Ralph Lauren Corporation and Senior Director of Real Estate for The Gap, Inc. Mr. Yalof serves as a Trustee of the International Council of Shopping Centers (ICSC), as well as on the advisory boards of HeadCount and the Center for Real Estate & Urban Analysis (CREUA) at George Washington University, his alma mater, where he earned a B.S. in Business Administration. Mr. Yalof provides insight into the Company's operations and strategy as well as extensive experience in the real estate and retail industries.
Michael J. Bilerman. Mr. Bilerman is the Company’s Executive Vice President - Chief Financial Officer and Chief Investment Officer. Mr. Bilerman joined the Company in November 2022 as Executive Vice President - Chief Financial Officer and Chief Investment Officer, bringing nearly 25 years of real estate capital markets, industry and leadership experience. Prior to joining the Company, Mr. Bilerman served as a Managing Director at Citigroup Inc., a global financial services company, from 2008 to 2022, leading the firm’s global real estate investment research franchise and the US Real Estate & Lodging team, which had coverage of over 250 publicly traded companies globally across all real estate and infrastructure sectors. Over his career, Mr. Bilerman has received significant industry, team and individual recognitions including being named to Institutional Investor’s All America Research Team for 15 years straight prior to joining the Company and receiving Nareit’s Industry Achievement Award in 2020, awarded annually to one industry professional whose acumen and integrity have helped heighten awareness of REITs and publicly traded real estate. Mr. Bilerman served in various other leadership capacities at Citigroup, Inc. since 2004, and previously was employed by Goldman Sachs from 1998 to 2004 in Investment Banking and then in Equity Research. Mr. Bilerman is responsible for the Company's financial reporting, accounting, tax, capital markets, investor relations, financial planning and analysis and information systems functions. He is a graduate of McGill University with a double major in finance and strategic management.
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.
Leslie A. Swanson. Ms. Swanson was named Executive Vice President – Chief Operating Officer in December 2021. She joined the Company in October 2020 as Executive Vice President of Operations, bringing over 25 years of experience in shopping center operations, management and marketing and a reputation as a proven team leader, revenue generator, and thought leader. Previously, she served as Executive Vice President of Property Management for Simon Premium Outlets, a business of the commercial real estate company, Simon Property Group, Inc., from 2016 to 2020 where she oversaw 8 straight years of NOI growth and added 12 new and 15 expanded centers to that portfolio over the same period. Ms. Swanson has direct oversight of the Company’s Operations, Marketing Partnerships, and Specialty Leasing disciplines and is responsible for creating new revenue levers that complement Tanger’s core business, strengthening revenue generation and operating capacities at all levels throughout Tanger. She is a graduate of Illinois State University, where she earned her Bachelor of Arts and Science degree in Public Relations and Organizational Communication Psychology.
Justin C. Stein. Mr. Stein joined the Company in October 2021 as Executive Vice President - Leasing. Prior to joining the Company, he served as Senior Vice President of Leasing at Simon Property Group, Inc., a commercial real estate company, for 10 years. A consistent top producer and key member of their leadership team, Justin’s innovative approach to deal making and relationship-driven mentality has made him one of the most respected and productive persons in the industry. He also has more than eight years of experience in the retail brokerage industry as a Managing Director of Retail for Newmark, CBRE and Cushman & Wakefield, all of which are commercial real estate companies. Justin’s major responsibilities include managing the leasing strategies for Tanger’s operating properties, as well as expansions and new developments. He also oversees the leasing personnel and the merchandising and occupancy for Tanger properties. Justin is a graduate of Bryant University where he earned a B.S. in Computer Information Systems. He also earned a Master’s of Science, Information Systems from Stevens Institute of Technology.
Andrew R. Wingrove. Mr. Wingrove joined the Company as Executive Vice President - Chief Commercial Officer in December 2021, bringing over 15 years of experience across consumer brands. Focused on Tanger’s transformation from a real estate company to a customer experience company, he is responsible for modernizing the customer experience and cultivating a more digitally native community to further enhance the Company’s competitive advantage. In his role, Mr. Wingrove oversees commercial and digital strategy, loyalty, performance marketing, customer experience and brand. He is a customer-centric, commercially-oriented marketer who most recently was at CLEAR, an identity verification technology company and served as Senior Vice President for Travel and the GM Aviation from October 2020 to August 2021, was Chief Experience Officer at Bonobos, an apparel company, from September 2018 to September 2019, was a Managing Director at Delta Air Lines from August 2016 to August 2018, and prior served as a senior merchant at Macy’s. At Delta, Mr. Wingrove led the development of its product segmentation strategy and oversaw the Global Distribution and Customer Experience Development functions for the airline. He is a graduate of Emory University, where he earned a Bachelor of Arts degree in Economics.
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. Our common shares are listed on the New York Stock Exchange with the ticker symbol "SKT".
Holders
As of February 1, 2023, there were approximately 346 common shareholders of record.
Share Repurchases
In May 2021, the Company’s Board of Directors authorized the repurchase of up to $80.0 million of the Company’s outstanding shares through May 31, 2023. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. The Company did not repurchase any shares subsequent to the authorization of the repurchase plan. The remaining amount authorized to be repurchased under the program as of December 31, 2022 was approximately $80.0 million.
The following table summarizes our common share repurchases for the fiscal quarter ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
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, 2022 to October 31, 2022 | | — | | | $ | — | | | — | | | $ | 80.0 | |
November 1, 2022 to November 30, 2022 | | — | | | — | | | — | | | 80.0 | |
December 1, 2022 to December 31, 2022 | | — | | | — | | | — | | | 80.0 | |
Total | | — | | | $ | — | | | — | | | $ | 80.0 | |
For certain restricted common shares that vested during the three months ended December 31, 2022, we withheld shares with value equivalent up to the employees' obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. The total number of shares withheld upon vesting was 10,054 for the three months ended December 31, 2022.
Dividends
The Company operates in a manner intended to enable it to qualify as a REIT under the Internal Revenue 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. During 2021 and 2022, the Company paid dividends aggregating $0.7150 and $0.8025 per share, respectively. On January 19, 2023, the Board declared a quarterly dividend of $0.22 per share paid on February 15, 2023. The Board continues to evaluate the potential for future dividend distributions on a quarterly basis. We were in compliance with REIT taxable income distribution requirements for the 2022 tax year.
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 SEC, 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 an index of U.S. equity REITs and an index of U.S. retail REITs, both prepared by S&P Global Market Intelligence.
Equity REITs are defined as those that derive more than 75% of their income from equity investments in real estate assets. The Dow Jones U.S. Real Estate Retail index is designed to track the performance of real estate investment trusts (REIT) and other companies that invest directly or indirectly in real estate through development, management, or ownership, including property agencies.
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, 2022, is not necessarily indicative of future results.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period Ended | | |
| Index | 12/31/2017 | | 12/31/2018 | | 12/31/2019 | | 12/31/2020 | | 12/31/2021 | | 12/31/2022 |
| Tanger Factory Outlet Centers, Inc. | 100.00 | | | 81.01 | | | 63.73 | | | 46.34 | | | 93.42 | | | 91.27 | |
| Dow Jones Equity All REIT Index | 100.00 | | | 95.90 | | | 123.46 | | | 117.54 | | | 165.97 | | | 124.47 | |
Dow Jones U.S. Real Estate Retail Index | 100.00 | | | 90.15 | | | 95.37 | | | 60.83 | | | 95.34 | | | 82.19 | |
| S&P 500 Index | 100.00 | | | 95.62 | | | 125.72 | | | 148.85 | | | 191.58 | | | 156.88 | |
Tanger Properties Limited Partnership Market Information
There is no established public trading market for the Operating Partnership's common units. As of December 31, 2022, the Company and its wholly-owned subsidiary, Tanger LP Trust, owned 104,497,920 units of the Operating Partnership and the Non-Company LPs owned 4,737,982 units. We made distributions per common unit during 2022 as follows:
| | | | | | | | | | |
| | 2022 | | |
First Quarter | | $ | 0.1825 | | | |
Second Quarter | | 0.2000 | | | |
Third Quarter | | 0.2000 | | | |
Fourth Quarter | | 0.2200 | | | |
Distributions per unit | | $ | 0.8025 | | | |
ITEM 6.RESERVED
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 “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding: the expected impact of the novel coronavirus (“COVID-19”) pandemic, supply chain and labor issues and rising interest rates on our business, financial results and financial condition; our ability to raise additional capital, including via future issuances of equity and debt, and the use of proceeds from such issuances; our results of operations and financial condition; capital expenditure and working capital needs and the funding thereof; the repurchase of the Company's common shares, including the potential use of a 10b5-1 plan to facilitate repurchases; future dividend payments; the possibility of future asset impairments; potential developments, expansions, renovations, acquisitions or dispositions of outlet centers, including our Nashville development; compliance with debt covenants; renewal and re-lease of leased space; the outlook for the retail environment, potential bankruptcies, and other store closings; consumer shopping trends and preferences; the outcome of legal proceedings arising in the normal course of business; and real estate joint ventures. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements.
Other important factors which may cause actual results to differ materially from current expectations include, but are not limited to: our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers, including due to changes in the national, regional and local economic climate, inflation and rising interest rates; the relative illiquidity of real property investments; impairment charges affecting our properties; our dispositions of assets may not achieve anticipated results; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; environmental regulations affecting our business; risk associated with a possible terrorist activity or other acts or threats of violence, public health crises and threats to public safety; risks associated with supply chain disruptions and labor shortages; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; risks related to changes in consumer spending habits; investor and regulatory focus on environmental, sustainability and social initiatives; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risk associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; uncertainty relating to the phasing out of LIBOR; risk associated with our interest rate hedging arrangements; risk associated to uncertainty related to determination of LIBOR; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism; as well as the other risks described in “Item 1A-Risk Factors” in Part I of this Annual Report on Form 10-K..
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.
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.
This Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to provide a reader of our financial statements with a narrative from the perspective of our management regarding our financial condition and results of operations, liquidity and certain other factors that may affect our future results. Our MD&A is presented in the following sections:
•General Overview
•Leasing Activity
•Results of Operations
•Liquidity and Capital Resources of the Company
•Liquidity and Capital Resources of the Operating Partnership
•Critical Accounting Estimates
•Recent Accounting Pronouncements
•Non-GAAP Supplemental Measures
•Economic Conditions and Outlook
General Overview
As of December 31, 2022, we had 29 consolidated outlet centers in 18 states totaling 11.4 million square feet, one managed center and one center under construction. We also had 6 unconsolidated outlet centers totaling 2.1 million square feet, including 2 outlet centers in Canada. The table below details our acquisitions, new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that impacted our results of operations and liquidity from January 1, 2020 to December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Consolidated Outlet Centers | | Unconsolidated Joint Venture Outlet Centers | | Managed Centers |
| Outlet Center | | Quarter Acquired/Open/Disposed/Demolished | | Square Feet (in thousands) | | Number of
Outlet Centers | | Square Feet (in thousands) | | Number of
Outlet Centers | | Square Feet (in thousands) | | Number of
Outlet Centers |
| As of December 31, 2019 | | | | 12,048 | | | 32 | | | 2,212 | | | 7 | | | — | | | — | |
| Dispositions: | | | | | | | | | | | | | | |
| Terrell, Texas | | Third Quarter | | (178) | | | (1) | | | — | | | — | | | — | | | — | |
| Other | | | | 3 | | | — | | | — | | | — | | | — | | | — | |
| As of December 31, 2020 | | | | 11,873 | | | 31 | | | 2,212 | | | 7 | | | — | | | — | |
| Dispositions: | | | | | | | | | | | | | | |
| Jeffersonville, Ohio | | First Quarter | | (412) | | | (1) | | | — | | | — | | | — | | | — | |
| Saint Sauveur, Quebec | | First Quarter | | — | | | — | | | (99) | | | (1) | | | — | | | — | |
| Other | | | | (8) | | | — | | | — | | | — | | | — | | | — | |
| As of December 31, 2021 | | | | 11,453 | | | 30 | | | 2,113 | | | 6 | | | — | | | — | |
| Dispositions: | | | | | | | | | | | | | | |
| Blowing Rock, North Carolina | | Fourth Quarter | | (104) | | | (1) | | | — | | | — | | | — | | | — | |
| Additions: | | | | | | | | | | | | | | |
| Palm Beach, Florida | | Third Quarter | | — | | | — | | | — | | | — | | | 457 | | | 1 | |
| Other | | | | 4 | | | — | | | — | | | — | | | | | |
| As of December 31, 2022 | | | | 11,353 | | | 29 | | | 2,113 | | | 6 | | | 457 | | | 1 | |
Leasing Activity
The following table provides information for our consolidated outlet centers related to leases for new stores that opened or renewals that were executed during the years ended December 31, 2022 and 2021, respectively:
| | | | | | | | | | | | | | | | | | | | |
Comparable Space for Executed Leases (1) (2) (3) |
| Leasing Transactions | Square Feet (in 000s) | New Initial Rent (psf) (4) | Rent Spread % (5) | Tenant Allowance (psf) (6) | Average Initial Term
(in years) |
| Total space | | | | | | |
| 2022 | 350 | 1,815 | | $ | 31.58 | | 10.1 | % | $ | 2.22 | | 3.67 | |
| 2021 | 266 | 1,170 | | $ | 30.78 | | (0.6) | % | $ | 7.75 | | 3.43 | |
| | | | | | | | | | | | | | | | | | | | |
Comparable and Non-Comparable Space for Executed Leases (1) (2) (3) |
| Leasing Transactions | Square Feet (in 000s) | New Initial Rent (psf) (4) | | Tenant Allowance (psf) (6) | Average Initial Term
(in years) |
| Total space | | | | | | |
| 2022 | 404 | | 2,021 | | $ | 32.08 | | | $ | 6.87 | | 4.10 | |
| 2021 | 317 | 1,363 | | $ | 30.46 | | | $ | 21.91 | | 3.85 | |
(1)For consolidated properties owned as of the period-end date. Represents leases for new stores or renewals that were executed during the respective calendar years and excludes license agreements, seasonal tenants and month-to-month leases.
(2)Comparable space excludes leases for space that was vacant for more than 12 months (non-comparable space).
(3)Leasing activity for commenced leases, or leases for new stores that opened or renewals that began during the respective trailing twelve months ended December 31, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Leasing activity for commenced leases |
| Leasing Transactions | Square Feet
(in 000s) | New Initial Rent (psf) (4) | Rent Spread % (5) | Tenant Allowance (psf) (6) | Average
Initial Term
(in years) |
Comparable Space(2) | | | | | |
| Total space | | | | | | |
| 2022 | 295 | 1,449 | | $ | 31.35 | | 11.7 | % | $ | 5.76 | | 3.76 | |
| 2021 | 280 | 1,378 | | $ | 26.76 | | (2.4) | % | $ | 4.22 | | 3.35 | |
Comparable and Non-comparable Space(2) | | | | |
| Total space | | | | | | |
| 2022 | 344 | 1,644 | | $ | 31.96 | | | $ | 13.64 | | 4.18 | |
| 2021 | 328 | 1,541 | | $ | 26.84 | | | $ | 6.02 | | 3.63 | |
(4)Represents average initial cash rent (base rent and common area maintenance (“CAM”)).
(5)Represents change in average initial and expiring cash rent (base rent and CAM).
(6)Tenant allowance includes other landlord costs.
COVID-19 Pandemic
Due to the COVID-19 pandemic, a number of our tenants requested rent deferrals, rent abatements or other types of rent relief during this pandemic in 2020. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. Through December 31, 2022, the Company had collected 99% of the 2020 deferred rents.
The extent of future tenant requests for rent relief and the impact on our results of operations and cash flows is uncertain and cannot be predicted at this time. If store closures were to occur again in our domestic markets, this could have a material adverse impact on our financial position and results of operations.
Results of Operations
2022 Compared to 2021
Net income
Net income increased $76.3 million in the 2022 period to a net income of $85.8 million as compared to net income of $9.5 million for the 2021 period. The increase in net income is primarily due to the following:
•increase in average portfolio occupancy rate from 93% to 95%,
•gain on sale of assets in the 2022 period of $3.2 million from the sale in December 2022 of our Blowing Rock, North Carolina outlet center,
•decrease in interest expense from the full year impact of the refinance of $400 million of unsecured debt during the third quarter of 2021 at a rate of 2.75%, along with the full year impact of debt reductions during 2021 using the proceeds from equity issuances during the first half of 2021.
•the prior year included a loss on the early extinguishment of debt of $47.9 million, and a $7.0 million impairment charge recognized on the outlet center in Mashantucket, Connecticut.
In the tables below, information set forth for properties disposed includes the Jeffersonville outlet center sold in January 2021 and the Blowing Rock outlet center sold in December 2022.
Rental Revenues
Rental revenues increased $13.7 million in the 2022 period compared to the 2021 period. The following table sets forth the changes in various components of rental revenues (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Rental revenues from existing properties | | $ | 419,139 | | | $ | 404,987 | | | $ | 14,152 | |
| | | | | | |
| Rental revenues from properties disposed | | 2,144 | | | 2,449 | | | (305) | |
| Straight-line rent adjustments | | (1,689) | | | (1,973) | | | 284 | |
| Lease termination fees | | 2,871 | | | 2,225 | | | 646 | |
| Amortization of above and below market rent adjustments, net | | (1,046) | | | 78 | | | (1,124) | |
| | | $ | 421,419 | | | $ | 407,766 | | | $ | 13,653 | |
Rental revenues increased primarily due to growth in occupancy and rental rates in 2022. Our average occupancy increased from 93% to 95% from 2021 to 2022. Additionally, rental revenues were also impacted by the net reversal of revenue reserves in the 2022 period of approximately $4.1 million, compared to $1.2 million of net reserves recorded in 2021.
Additionally, the 2022 period included the acceleration of amortization of an above market lease intangible for one tenant of approximately $1.0 million.
Management, Leasing and Other Services
Management, leasing and other services increased $746,000 in the 2022 period compared to the 2021 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Management and marketing | | $ | 2,531 | | | $ | 2,347 | | | $ | 184 | |
| Leasing and other fees | | 194 | | | 228 | | | (34) | |
| Expense reimbursements from unconsolidated joint ventures and managed properties | | 4,432 | | | 3,836 | | | 596 | |
| Total Fees | | $ | 7,157 | | | $ | 6,411 | | | $ | 746 | |
Management, leasing and other service revenue increased in the 2022 period due to the addition of property management and leasing responsibilities for a center in Palm Beach, Florida.
Other Revenues
Other revenues increased $1.7 million in the 2022 period as compared to the 2021 period. The following table sets forth the changes in other revenues (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Other revenues from existing properties | | $ | 13,861 | | | $ | 12,215 | | | $ | 1,646 | |
| | | | | | |
| | | | | | |
| Other revenues from property disposed | | 176 | | | 133 | | | 43 | |
| | | $ | 14,037 | | | $ | 12,348 | | | $ | 1,689 | |
Other revenues from existing properties increased in the 2022 period due an increase in other revenue streams, such as paid media, sponsorships and onsite signage, on a local and national level.
Property Operating Expenses
Property operating expenses increased $3.2 million in the 2022 period compared to the 2021 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Property operating expenses from existing properties | | $ | 136,636 | | | $ | 134,758 | | | $ | 1,878 | |
| | | | | | |
| | | | | | |
| Property operating expenses from property disposed | | 962 | | | (170) | | | 1,132 | |
| Expenses related to unconsolidated joint ventures and managed properties | | 4,432 | | | 3,836 | | | 596 | |
| Other property operating expense | | 1,906 | | | 2,312 | | | (406) | |
| | | $ | 143,936 | | | $ | 140,736 | | | $ | 3,200 | |
Property operating expenses at existing properties increased in the 2022 period compared to the 2021 period primarily due to an increase in property insurance and property taxes.
Property operating expenses from properties disposed for the 2021 period includes $1.7 million in net proceeds received from the successful appeal of property taxes for certain tax years prior to disposition.
General and Administrative Expenses
General and administrative expenses increased $5.7 million in the 2022 period compared to the 2021 period. The 2022 period includes higher compensation costs due to the addition of certain executives and other key employees during the second half of 2021 and during 2022 to drive operational and growth initiatives, which led to increased costs in 2022. In addition, 2022 includes executive severance costs, totaling $2.4 million. The 2021 period includes compensation cost related to employees that accepted a voluntary retirement plan with an effective retirement date of March 31, 2021, as well as other executive severance costs incurred during 2021, totaling $3.6 million. Finally, travel costs have increased compared to 2021 with the decrease in restrictions from COVID-19 and other corporate employee benefit costs have increased as well.
Impairment Charges
During the fourth quarter of 2021, we determined that the estimated future undiscounted cash flows of our Foxwoods outlet center in Mashantucket, Connecticut did not exceed the property's carrying value due to a continuing decline in operating results. Therefore, we recorded $7.0 million of non-cash impairment charges in our consolidated statement of operations for 2021, which equaled the excess of the property's carrying value over its estimated fair value. There were no impairment charges in 2022.
Depreciation and Amortization
Depreciation and amortization expense increased $1.9 million in the 2022 period compared to the 2021 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 2021 period to the 2022 period (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Depreciation and amortization expenses from existing properties | | $ | 111,017 | | | $ | 109,077 | | | $ | 1,940 | |
| | | | | | |
| | | | | | |
| Depreciation and amortization from property disposed | | 887 | | | 931 | | | (44) | |
| | | $ | 111,904 | | | $ | 110,008 | | | $ | 1,896 | |
During 2022, we adjusted the useful lives of our solar assets from twenty years to ten years, resulting in an incremental $4.4 million of depreciation expense. Excluding this change, our depreciation would have decreased
due primarily to tenant improvements becoming fully depreciated and a decrease in our redevelopment activity.
Interest Expense
Interest expense decreased $5.9 million in the 2022 period compared to the 2021 period primarily because during August and September 2021, we completed a public offering of $400.0 million of 2.750% 10 year senior notes and completed the early redemption of $100.0 million of 3.875% senior notes due in 2023 and $250.0 million of 3.75% senior notes due in 2024, redeemed $150.0 million of senior notes in April 2021 and repaid $50.0 million of our term loan, reducing our average interest rate. In addition, proceeds from our 2021 equity offerings were used to reduce debt in 2021, also contributing to a reduction of interest expense in 2022.
Loss on Early Extinguishment of Debt
For the year ended December 31, 2021, we recorded make-whole premiums of $44.9 million and the write-off of approximately $3.0 million of debt discount and debt origination costs due to the early redemption of our notes originally due 2023 and 2024.
Gain on Sale of Assets
In December 2022, we sold a non-core outlet center in Blowing Rock, North Carolina for net proceeds of $12.4 million, which resulted in a gain on sale of assets of $3.2 million. We did not have a gain or loss on the sale of our Jeffersonville, Ohio asset in 2021.
Other Income (Expense)
Other income (expense) increased approximately $7.6 million in the 2022 period compared to the 2021 period, primarily due to a $2.4 million gain on sale of a non-real estate asset and higher investment income on our cash and cash equivalents from opportunities available in the current rising interest rate environment. Also, in March 2021, the RioCan joint venture closed on the sale of its outlet center in Saint-Sauveur, for net proceeds of approximately $9.4 million. Our share of the proceeds was approximately $4.7 million. As a result of this transaction, we recorded a foreign currency loss of approximately $3.6 million in other income (expense), which had been previously recorded in other comprehensive income.
Equity in Earnings (Losses) of Unconsolidated Joint Ventures
Equity in earnings (losses) of unconsolidated joint ventures decreased approximately $310,000 in the 2022 period compared to the 2021 period. In the table below, information set forth for property disposed includes the Saint-Sauveur, Quebec outlet center in our Canadian joint venture, which was sold in March 2021.
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Increase/(Decrease) |
| Equity in earnings from existing properties | | $ | 8,594 | | | $ | 8,714 | | | $ | (120) | |
| | | | | | |
| Equity in earnings (losses) from property disposed | | — | | | 190 | | | (190) | |
| | | $ | 8,594 | | | $ | 8,904 | | | $ | (310) | |
Equity in earnings (losses) of unconsolidated joint ventures from existing properties decreased primarily due to the increase in variable interest rates in 2022 that negatively impacted two of our joint ventures that had variable rate mortgages. In addition, the variable interest mortgage for our Columbus, Ohio joint venture was refinanced in September 2022 and now has a fixed interest rate of 6.25% compared to LIBOR + 1.85%.
2021 Compared to 2020
For a discussion of our results of operations for the year ended December 31, 2020, including a year-to-year comparison between 2021 and 2020, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report Form 10-K for the year ended December 31, 2021.
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 status as 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 February 2024 that allows the Company to register various unspecified classes of equity securities and the Operating Partnership to register various unspecified classes of debt securities. We expect to file a new joint shelf registration statement on Form S-3 prior to the expiration of the current registration statement. 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, 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, investment and growth strategy and additional expenses we expect to incur. 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.
We operate in a manner intended to enable us to qualify as a REIT under the Internal Revenue Code, or the Code. For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income. 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.
For tax reporting purposes, we distributed approximately $83.1 million during 2022. 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.
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.
Under our at-the-market stock offering (“ATM Offering”) program, which commenced in February 2021, we may offer and sell our common shares, $0.01 par value per share (“Common Shares”), having an aggregate gross sales price of up to $250.0 million (the “Shares”). We may sell the Shares in amounts and at times to be determined by us but we have no obligation to sell any of the Shares. Actual sales, if any, will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of the Common Shares, capital needs and determinations by us of the appropriate sources of its funding. We currently intend to use the net proceeds from any sale of shares pursuant to the ATM Offering for working capital and general corporate purposes. As of December 31, 2022, we had approximately $60.1 million remaining available for sale under our ATM Offering program.
The following table sets forth information regarding settlements under our ATM Offering program:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Number of common shares settled during the period | | — | | | 10,009,263 | | | — | |
| Average price per share | | $ | — | | | $ | 18.97 | | | $ | — | |
| Aggregate gross proceeds (in thousands) | | $ | — | | | $ | 189,868 | | | $ | — | |
| Aggregate net proceeds after commissions and fees (in thousands) | | $ | — | | | $ | 186,969 | | | $ | — | |
In May 2021, the Company’s Board of Directors authorized the repurchase of up to $80.0 million of the Company’s outstanding shares through May 31, 2023. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. The Company did not repurchase any shares during the years ended December 31, 2022, 2021 and 2020. The remaining amount authorized to be repurchased under the program as of December 31, 2022 was approximately $80.0 million.
In January 2023, the Company's Board of Directors declared a $0.22 cash dividend per common share payable on February 15, 2023 to each shareholder of record on January 31, 2023, and a $0.22 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
Liquidity and Capital Resources of the Operating Partnership
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.
Summary of Our Major Sources and Uses of Cash and Cash Equivalents
General Overview
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 an appropriate mix of fixed and variable rate debt and interest rate hedging strategies, (4) maintain access to liquidity by using our lines of credit in a conservative manner and (5) preserve internally generated sources of capital by 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, including without limitation, cash on hand, retained free cash flow and debt and equity issuances.
Capital Expenditures
The following table details our capital expenditures for consolidated outlet centers for the years ended December 31, 2022 and 2021, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | Change |
| Capital expenditures analysis: | | | | | | |
New outlet center developments and expansions (1) | | $ | 39,967 | | | $ | 2,441 | | | $ | 37,526 | |
| Renovations | | 369 | | | 761 | | | (392) | |
Second generation tenant allowances (2) | | 9,336 | | | 3,020 | | | 6,316 | |
Other capital expenditures (3) | | 39,137 | | | 30,917 | | | 8,220 | |
| | 88,809 | | | 37,139 | | | 51,670 | |
| Conversion from accrual to cash basis | | (11,499) | | | 8,047 | | | (19,546) | |
| Additions to rental property-cash basis | | $ | 77,310 | | | $ | 45,186 | | | $ | 32,124 | |
(1)New outlet center developments and expansions in the 2022 period primarily due to development costs at our site in Nashville, TN. The 2021 period included a land acquisition at our Westgate outlet center.
(2)In the 2022 and 2021 periods, second generation tenant allowances are presented net of $1.5 million and $3.3 million tenant allowance reversals respectively, which were the result of a lease modifications.
(3)The increase in other capital expenditures in 2022 was primarily related to our ongoing solar initiatives. Other capital expenditures includes capital expenditures related to recurring and value-enhancing capital activities.
We expect total capital expenditures for 2023 to be approximately $210 million as compared to capital expenditures of $77.3 million in 2022 driven primarily by approximately $110 million of anticipated development costs to complete our site in Nashville, Tennessee. We expect to maintain sufficient liquidity to fund these capital expenditures.
Potential Future Developments, Acquisitions and Dispositions
As of the date of this filing, we are not in the pre-development period for any potential new developments. We may use joint venture arrangements to develop potential sites. We expect to maintain sufficient liquidity to fund existing capital expenditures, including completion of our Nashville, Tennessee asset.
In the case of projects to be wholly-owned by us, we expect to fund these projects with cash on hand, borrowings under our unsecured lines of credit and cash flows 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.
We intend to continue to grow our portfolio by developing, expanding or acquiring additional retail real estate assets. Future retail real estate assets may be wholly-owned by us, owned through joint ventures or partnership arrangements, or through management agreements. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations ("FFO"). See the section "Non-GAAP Supplemental Earnings Measures" - "Funds From Operations" below for further discussion of FFO. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.
Unconsolidated Real Estate Joint Ventures
From time to time, we form joint venture arrangements to develop or acquire outlet centers. As of December 31, 2022, we have partial ownership interests in six unconsolidated outlet centers totaling approximately 2.1 million square feet, including two outlet centers in Canada. See Note 5 to the Consolidated Financial Statements for details of our individual joint ventures, including, but not limited to, carrying values of our investments, fees we receive for services provided to the joint ventures, recent development and financing transactions and condensed combined summary financial information.
We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not typically required contractually or otherwise. We separately report investments in joint ventures for which accumulated distributions have exceeded investments in, and our share of net income or loss of, the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. We believe our joint ventures will be able to fund their operating and capital needs during 2023 based on their sources of working capital, specifically cash flow from operations, access to contributions from partners, and ability to refinance all or portion of their debt obligations, including the ability to exercise upcoming extensions of near term maturities.
Our joint ventures are typically encumbered by a mortgage on the joint venture property. We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. A default by a joint venture under its debt obligations may expose us to liability under the guaranty. For construction and mortgage loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 15.5% 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.
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.
Future Debt Obligations
As described further in Note 8 of the notes to the consolidated financial statements, as of December 31, 2022, scheduled maturities and principal amortization of our existing debt for 2023, 2024, 2025, 2026 and 2027 are $4.8 million, $5.1 million, $1.5 million, $407.4 million and $625.0 million, respectively. As of December 31, 2022, scheduled maturities after 2027 aggregate to $400.0 million.
Future Interest Payments
We are obligated to make periodic interest payments at fixed and variable rates, depending on the terms of the applicable debt agreements. Based on applicable interest rates, forward curve estimates, and scheduled debt maturities as of December 31, 2022, these interest obligations total approximately $253.4 million and range from approximately $18.4 million to $53.2 million on an annual basis over the next five years.
Operating Lease Obligations
As described further in Note 20 of the notes to the consolidated financial statements, as of December 31, 2022, we had a total of $238.3 million of minimum operating lease obligations. These minimum lease payments range from approximately $5.7 million to $5.9 million on an annual basis over the next five years.
Other Contractual Obligations
Other contractual obligations totaled $7.4 million as of December 31, 2022. These obligations range from approximately $1.3 million to $1.5 million on an annual basis over the next five years.
Cash Flows
The following table sets forth our changes in cash flows from 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | Change |
| Net cash provided by operating activities | | $ | 213,950 | | | $ | 217,697 | | | $ | (3,747) | |
| Net cash used in investing activities | | (98,817) | | | (22,739) | | | (76,078) | |
| Net cash used in financing activities | | (64,163) | | | (118,379) | | | 54,216 | |
| Effect of foreign currency rate changes on cash and equivalents | | (111) | | | (177) | | | 66 | |
| Net increase in cash and cash equivalents | | $ | 50,859 | | | $ | 76,402 | | | $ | (25,543) | |
Operating Activities
The decrease in net cash provided by operating activities was primarily due to changes in working capital, offset by an increase in rental revenues primarily due to an increase in occupancy rates and increase in rental rates,
Investing Activities
The primary cause for the increase in net cash used in investing activities was due to the purchase of land at our new center in Nashville, Tennessee, paired with construction costs related to increased additions to rental properties during 2022 and increase in short-term investments. The 2021 period included net proceeds of approximately $8.1 million received from the sale of our Jeffersonville outlet center, while the 2022 period included lower distributions in excess of cumulative earnings from unconsolidated joint ventures and net proceeds of approximately $12.4 million related to the sale of the property in Blowing Rock, North Carolina.
Financing Activities
The primary cause for the decrease in net cash used in financing activities was the increase in the term loan borrowing capacity and the Southaven mortgage increased capacity, in addition to the early redemption in 2021 of $250.0 million of our 3.875% senior notes due December 2023 and $250.0 million of our 3.75% senior notes due 2024, including make whole premiums of $44.9 million. In addition, in March 2021 and June 2021, we paid down a total of $50.0 million of borrowings under our unsecured term loan with cash on hand. This was offset by higher dividend payments in 2022 compared to 2021.
Financing Arrangements
See Notes 7 and 8 to the Consolidated Financial Statements, for details of our current outstanding debt, financing transactions that have occurred over the past three years and debt maturities. As of December 31, 2022, unsecured borrowings represented 95% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered. As of December 31, 2022, 5% of our outstanding debt, excluding variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore was subject to market fluctuations.
We intend to retain the ability to raise additional capital, including public debt or equity, to pursue attractive investment opportunities that may arise and to otherwise act in a manner that we believe to be in the best interests of our shareholders and unitholders. The Company and Operating Partnership are well-known seasoned issuers with a joint shelf registration statement on Form S-3, expiring in February 2024, that allows us to register unspecified amounts of different classes of securities. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, property management opportunities, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, existing lines of credit, ongoing relationships with certain financial institutions and our ability to sell debt or issue equity subject to market conditions, we believe that we have access to the necessary financing to fund the planned capital expenditures for at least the next twelve months.
We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are typically made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing unsecured lines of credit or invested in short-term money market or other suitable instruments.
As of December 31, 2022, our total liquidity was approximately $784.6 million, including $264.6 million of cash and cash equivalents and short-term investments on our balance sheet and the full undrawn capacity under our $520 million unsecured lines of credit.
We believe our current balance sheet position is financially sound; however, due to the economic uncertainty caused by the current macroeconomic environment, including rising interest rates and inflation, and the inherent uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our senior notes due September 2026.
Equity Offerings under the ATM Offering Program
In February 2021, the Company established the ATM Offering program whereby it may offer and sell the Company's common shares having an aggregate gross sales price of up to $250.0 million. During 2021, under this program, the Company sold 10.0 million shares at a weighted average price of $18.97 per share, generating net proceeds of $187.1 million and leaving a remaining authorization of $60.1 million. The proceeds were contributed to the Operating Partnership and then used primarily to reduce indebtedness as described in the sections immediately below. During 2022, the Company did not sell any shares under the ATM Offering program.
Redemption of the 2023 and 2024 Senior Notes and public offering of aggregate $400.0 Million Unsecured Senior Notes due 2031
In April 2021, we completed a partial redemption of $150.0 million aggregate principal amount of our $250.0 million 3.875% senior notes due December 2023, for $163.0 million in cash, which includes a make-whole premium of $13.0 million and the write-off of approximately $1.0 million of debt discount and debt origination costs. The make-whole premium and the write-off of debt discount and debt origination costs was recorded as a loss on early extinguishment of debt within the consolidated statements of operations. Subsequent to this redemption, $100.0 million aggregate principal amount of the notes remained outstanding, until the redemption in August 2021, described below.
In August 2021, we completed a public offering of $400.0 million in senior notes due 2031. The notes were priced at 98.552% of the principal amount to yield 2.917% to maturity. The notes pay interest semi-annually at a rate of 2.750% per annum and mature on September 1, 2031. The aggregate net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $390.7 million. We used the net proceeds from the sale of the notes to redeem all remaining 3.875% senior notes due 2023, $100.0 million in aggregate principal amount outstanding, and all 3.750% senior notes due 2024, $250.0 million in aggregate principal outstanding. The redemptions occurred in September 2021 and included a make-whole premium of $31.9 million and the write-off of approximately $1.9 million of debt discount and debt origination costs. The make-whole premium and the write-off of debt discount and debt origination costs was recorded as a loss on early extinguishment of debt within the consolidated statements of operations. The remaining proceeds were used for general corporate purposes.
Unsecured term loan
In March 2021 and June 2021, we paid down a total of $50.0 million of borrowings under our $350.0 million unsecured term loan with cash on hand, reducing the balance outstanding to $300.0 million as of December 31, 2021. In October 2022, we amended and restated our unsecured term loan. The outstanding balance was increased from $300.0 million to $325.0 million and the maturity was extended to January 2027 plus a one-year extension option. The interest rate changed from LIBOR + 1.25% to Adjusted SOFR + 1.20% based on our current credit rating. The amendment also incorporates a sustainability metric, reducing the applicable grid-based interest rate spread by one basis point annually, subject to meeting certain thresholds. The outstanding balance as of December 31, 2022 was $325.0 million.
Unsecured Lines of Credit Amendments and Extension
In October 2022 we amended the debt agreements for our unsecured lines of credit to change the interest rate index from LIBOR to Adjusted SOFR. All other terms remained unchanged.
Other Financing Activity
In October 2021, the joint venture that owns the Southaven, Mississippi outlet center exercised its option to extend the maturity of the Southaven, Mississippi mortgage to April 2023 and paid down the principal balance by $11.3 million to $40.1 million. The outlet center is consolidated for financial reporting purposes and we funded the entire $11.3 million. Additionally, in October 2022, the Southaven, Mississippi joint venture amended and restated its secured mortgage, increasing the outstanding balance to $51.7 million from $40.1 million, extending maturity to October 2026 plus a one year extension option, from April 2023, with an interest rate of Adjusted SOFR plus 200 basis points.
During 2021, we completed the principal payments of certain mortgage notes secured by the Atlantic City property with stated interest rates that ranged from 5.14% to 6.27% and which were scheduled to mature in 2021. The effective interest rate for the remaining notes remains 5.05% as established upon acquisition. The stated rates for the remaining secured notes ranged from 6.44% to 7.65% with maturity dates between December 2024 and December 2026.
The Operating Partnership’s debt agreements require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% on a cumulative basis.
Debt Covenants
We have historically been, and at December 31, 2022 are, in compliance with all of our debt covenants. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions. Failure to comply with these covenants would result in a default which, if we were unable to cure or obtain a waiver from the lenders, could accelerate the repayment obligations. Further, in the event of default, the Company may be restricted from paying dividends to its shareholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on us. As a result, we have considered our short-term (one year or less from the date of filing these financial statements) liquidity needs and the adequacy of our estimated cash flows from operating activities and other financing sources to meet these needs. These other sources include but are not limited to: existing cash, ongoing relationships with certain financial institutions, our ability to sell debt or issue equity subject to market conditions and proceeds from the potential sale of non-core assets. We believe that we have access to the necessary financing to fund our short-term liquidity needs.
As of December 31, 2022, we were in compliance with all financial and non-financial covenants related to our debt obligations.
| | | | | | | | |
Senior unsecured notes financial covenants | Required | Actual |
Total consolidated debt to adjusted total assets | <60% | 40 | % |
Total secured debt to adjusted total assets | <40% | 2 | % |
Total unencumbered assets to unsecured debt | >150% | 240 | % |
Consolidated Income Available for Debt Service to Annual Debt Service Charge | > 1.5 x | 5.7 | x |
| | | | | | | | |
Lines of credit and term loan | Required | Actual |
Total Liabilities to Total Adjusted Asset Value | <60% | 40 | % |
Secured Indebtedness to Adjusted Unencumbered Asset Value | < 35% | 5 | % |
EBITDA to Fixed Charges | > 1.5 x | 4.6 | |
Total Unsecured Indebtedness to Adjusted Unencumbered Asset Value | <60% | 35 | % |
Unencumbered Interest Coverage Ratio | > 1.5 x | 5.6 | |
Debt of unconsolidated joint ventures
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, 2022 (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 | | $ | 100.0 | | | July 2028 | | 4.27 | % | | — | % | | $ | — | |
| Columbus | | 71.0 | | | October 2032 | | 6.25 | % | | — | % | | — | |
| Galveston/Houston | | 64.5 | | | July 2023 | | LIBOR + 1.85% | | 15.5 | % | | 10.0 | |
| National Harbor | | 95.0 | | | January 2030 | | 4.63 | % | | — | % | | — | |
| Debt origination costs | | (1.5) | | | | | | | | | |
| | $ | 329.0 | | | | | | | | | $ | 10.0 | |
In September 2022, the joint venture that owns the Columbus, Ohio outlet center completed the refinance of its existing $71.0 million mortgage, which had an interest rate of LIBOR + 1.85% and a maturity date of November 2022. The refinanced mortgage remained $71.0 million but became a non-recourse loan with a maturity date in October 2032 and a fixed interest rate of 6.25%.
Critical Accounting Estimates
The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Management believes the Company’s critical accounting estimates are those related to impairment of long-lived assets, impairment of investments, revenue recognition and collectibility of operating lease receivables. Management considers these estimates critical because they are both important to the portrayal of the Company’s financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company’s senior management has reviewed these critical accounting estimates and related disclosures with the Audit Committee of the Company’s Board of Directors.
Evaluation of 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. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, capitalization and discount rates, and estimated holding periods for the applicable assets. Impairment analyses are based on our current plans, intended holding periods and available market information at the time the analyses are prepared. If our estimates of the projected future cash flows change based on uncertain market conditions or holding periods, our evaluation of impairment losses may be different and such differences could be material to our consolidated financial statements. We have not materially changed the assumptions used in the analysis during the year ended December 31, 2022, and no impairments were identified.
One of our outlet centers has an estimated fair value significantly less than its recorded carrying value of approximately $113.0 million. However, based on our current plan with respect to that outlet center, we believe that its carrying amount is recoverable and therefore no impairment charge was recorded. Accordingly, we will continue to monitor circumstances and events in future periods that could affect inputs such as the expected holding period, operating cash flow forecasts and capitalization rates, utilized to determine whether an impairment charge is necessary. As these inputs are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or impairment may be realized in the future. If in the future we reduce our estimate of cash flow projections, we may need to impair some of these assets. We have not materially changed the assumptions used in the analysis during the year ended December 31, 2022, and we have not taken any impairments of our assets during 2022.
Evaluation of Impairment of investments
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. These above factors are considered in the estimation process and are subject to significant management judgment, difficult to predict and contingent on future events that may alter our assumptions and the values estimated by us in our impairment analysis may not be realized.
Revenue recognition and collectibility of operating lease receivables
We, as a lessor, retain substantially all of the risks and benefits of ownership of our outlet centers and account for our leases as operating leases. We accrue fixed lease income on a straight-line basis over the terms of the leases, when we believe substantially all lease income, including the related straight-line rent receivable, is probable of collection. Our assessment of collectability requires the exercise of considerable judgment and incorporates available operational performance measures such as sales and the aging of billed amounts as well as other publicly available information with respect to our tenant’s financial condition, liquidity and capital resources, including declines in such conditions due to, or amplified by, the COVID-19 pandemic. When a tenant seeks to reorganize its operations through bankruptcy proceedings, we assess the collectability of receivable balances including, among other things, the timing of a tenant’s bankruptcy filing and our expectations of the assumption by the tenant in bankruptcy proceeding of leases at the Company’s properties on substantially similar terms. In the event that we determine accrued receivables are not probable of collection, lease income will be recorded on a cash basis, with the corresponding tenant receivable and straight-line rent receivable charged as a direct write-off against lease income in the period of the change in our collectability determination.
Our financial results for 2020 were materially adversely impacted by COVID-19. During the year ended December 31, 2020, as a direct result of the pandemic, bankruptcies and restructurings, the Company's earnings were negatively impacted by approximately $47.3 million due to (1) write-offs related to bankruptcies and other uncollectible accounts due to financial weakness, (2) one-time concessions in exchange for landlord-favorable amendments to lease structure, (3) reserves for a portion of deferred and under negotiation billings that we expect to become uncollectible in future periods and (4) and write-offs of straight-line rents associated with the bankruptcies and uncollectible accounts. During 2022, we had reversals of revenue reserves of approximately $4.1 million, compared to $1.2 million of net reserves recorded in 2021.
During 2021 and 2022, our business and financial results improved, and metrics such as average occupancy rates, traffic to our centers, sales reported by our tenants, and collections of rental revenues returned to near, at, or in some cases above, pre-pandemic levels. The extent of future tenant requests for rent relief and the impact on our results of operations and cash flows is uncertain and cannot be predicted at this time. If store closures were to occur again in our domestic markets, this could have a material adverse impact on our financial position and results of operations.
Recent 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. In December 2018, Nareit issued “Nareit Funds From Operations White Paper - 2018 Restatement” which clarifies, where necessary, existing guidance and consolidates alerts and policy bulletins into a single document for ease of use. Nareit defines FFO as net income (loss) available to the Company’s common shareholders computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis.
FFO is intended to exclude historical cost depreciation of real estate as required by GAAP which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization of real estate assets, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income (loss).
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 Core FFO, which is described in the section below. We believe it is useful for investors to have enhanced transparency into how we evaluate our performance and that of our management. In addition, FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. We believe that FFO payout ratio, which represents regular distributions to common shareholders and unit holders of the Operating Partnership expressed as a percentage of FFO, is useful to investors because it facilitates the comparison of dividend coverage between REITs. Nareit has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance.
FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
•FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
•FFO does not reflect changes in, or cash requirements for, our working capital needs;
•Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements; 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.
Core Funds From Operations
We present Core FFO (formerly referred to as AFFO) as a supplemental measure of our performance. We define Core FFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized in the table below, if applicable. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Core FFO you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Core FFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
We present Core FFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we believe it is useful for investors to have enhanced transparency into how we evaluate management’s performance and the effectiveness of our business strategies. We use Core FFO 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 Core FFO when determining incentive compensation.
Core FFO has limitations as an analytical tool. Some of these limitations are:
•Core FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
•Core 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 Core FFO does not reflect any cash requirements for such replacements;
•Core FFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and
•Other companies in our industry may calculate Core FFO differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Core FFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Core FFO only as a supplemental measure.
Below is a reconciliation of net income to FFO and Core FFO available to common shareholders (in thousands, except per share amounts): | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | |
| Net income | | $ | 85,831 | | | $ | 9,558 | | | |
| Adjusted for: | | | | | | |
| Depreciation and amortization of real estate assets - consolidated | | 109,513 | | | 107,698 | | | |
| Depreciation and amortization of real estate assets - unconsolidated joint ventures | | 11,018 | | | 11,618 | | | |
Impairment charges - consolidated (1) | | — | | | 6,989 | | | |
| | | | | | |
Loss on sale of joint venture property, including foreign currency effect (2) | | — | | | 3,704 | | | |
| Gain on sale of assets | | (3,156) | | | — | | | |
| | | | | | |
| FFO | | 203,206 | | | 139,567 | | | |
| | | | | | |
| Allocation of earnings to participating securities | | (1,683) | | | (1,453) | | | |
FFO available to common shareholders (3) | | $ | 201,523 | | | $ | 138,114 | | | |
| As further adjusted for: | | | | | | |
Compensation related to voluntary retirement plan and other executive officer severance and retirement (4) | | 2,447 | | | 3,579 | | | |
| | | | | | |
| | | | | | |
| Casualty gain | | — | | | (969) | | | |
Gain on sale of non-real estate asset (6) | | (2,418) | | | | | |
| | | | | | |
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| | | | | | |
| | | | | | |
Loss on early extinguishment of debt (5) | | 222 | | | 47,860 | | | |
| Impact of above adjustments to the allocation of earnings to participating securities | | (2) | | | (224) | | | |
| | | | | | |
Core FFO available to common shareholders (3) | | $ | 201,772 | | | $ | 188,360 | | | |
FFO available to common shareholders per share - diluted (3) | | $ | 1.83 | | | $ | 1.29 | | | |
Core FFO available to common shareholders per share - diluted (3) | | $ | 1.83 | | | $ | 1.76 | | | |
| Weighted Average Shares: | | | | | | |
| Basic weighted average common shares | | 103,687 | | | 100,418 | | | |
| Effect of notional units | | 1,240 | | | 809 | | | |
| Effect of outstanding options and restricted common shares | | 709 | | | 752 | | | |
| Diluted weighted average common shares (for earnings per share computations) | | 105,636 | | | 101,979 | | | |
| | | | | | |
| Exchangeable operating partnership units | | 4,759 | | | 4,790 | | | |
Diluted weighted average common shares (for FFO and Core FFO per share computations) (3) | | 110,395 | | | 106,769 | | | |
(1)The 2021 amount includes $563,000 of impairment loss attributable to the right-of-use asset associated with the ground lease at the Mashantucket (Foxwoods), Connecticut outlet center.
(2)Includes a $3.6 million charge related to the foreign currency effect of the sale of the Saint-Sauveur, Quebec property by the RioCan joint venture in March 2021.
(3)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.
(4)The 2021 amount includes compensation cost related to a voluntary retirement plan offer which required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021. The 2021 and 2022 amounts include executive officer severance costs incurred during those years.
(5)In April 2021, the Company completed a partial redemption of $150.0 million aggregate principal amount of its $250.0 million 3.875% senior notes due December 2023 for $163.0 million in cash. In September 2021, the Company completed a redemption of the remaining senior notes due 2023, $100.0 million in aggregate principal amount outstanding, and all of its 3.750% senior notes due 2024, $250.0 million in aggregate principal outstanding, for $381.9 million in cash. The loss on extinguishment of debt for 2021 includes make-whole premiums of $44.9 million for both of these redemptions. In October 2022, the Company refinanced its Term Loan to add $25.0 million of borrowing capacity and extend the maturity to January 2027 plus a one-year extension option as well as change the interest rate from LIBOR + 1.25% to Adjusted SOFR + 1.20%.
(6)Represents gain on sale of the corporate aircraft.
Portfolio Net Operating Income and Same Center NOI
We present portfolio net operating income (“Portfolio NOI”) and same center net operating income (“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, impairment charges, loss on early extinguishment of debt, and gains or losses on the sale of assets 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 (loss), FFO or Core FFO. Because Same Center NOI excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Portfolio NOI and Same Center NOI, and accordingly, our Portfolio NOI and Same Center NOI may not be comparable to other REITs.
Portfolio NOI and Same Center NOI should not be considered alternatives to net income (loss) or as an indicator of our financial performance since they do not reflect the entire operations of our portfolio, nor do they reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. Because of these limitations, Portfolio NOI and Same Center NOI should not be viewed in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Portfolio NOI and Same Center NOI only as supplemental measures.
Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Net income | | $ | 85,831 | | | $ | 9,558 | |
| Adjusted to exclude: | | | | |
| Equity in earnings of unconsolidated joint ventures | | (8,594) | | | (8,904) | |
| Interest expense | | 46,967 | | | 52,866 | |
| Gain on sale of assets | | (3,156) | | | — | |
| | | | |
Loss on early extinguishment of debt (1) | | 222 | | | 47,860 | |
| Other (income) expense | | (6,029) | | | 1,595 | |
| Impairment charges | | — | | | 6,989 | |
| Depreciation and amortization | | 111,904 | | | 110,008 | |
| Other non-property expenses | | 312 | | | 165 | |
| | | | |
| | | | |
| | | | |
| Corporate general and administrative expenses | | 71,657 | | | 66,023 | |
Non-cash adjustments (2) | | 3,132 | | | 2,316 | |
| Lease termination fees | | (2,870) | | | (2,225) | |
| Portfolio NOI - Consolidated | | 299,376 | | | 286,251 | |
| Non-same center NOI - Consolidated | | (1,296) | | | (2,794) | |
Same Center NOI - Consolidated (3) | | $ | 298,080 | | | $ | 283,457 | |
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(1)In April 2021, the Company completed a partial redemption of $150.0 million aggregate principal amount of its $250.0 million 3.875% senior notes due December 2023 for $163.0 million in cash. In September 2021, the Company completed a redemption of the remaining senior notes due 2023, $100.0 million in aggregate principal amount outstanding, and all of its 3.750% senior notes due 2024, $250.0 million in aggregate principal outstanding, for $381.9 million in cash. The loss on extinguishment of debt for 2021 includes make-whole premiums of $44.9 million for both of these redemptions. In October 2022, the Company refinanced its Term Loan to add $25.0 million of borrowing capacity and extend the maturity to January 2027 plus a one-year extension option as well as change the interest rate from LIBOR + 1.25% to Adjusted SOFR + 1.20%.
(2)Non-cash items include straight-line rent, above and below market rent amortization, straight-line rent expense on land leases and gains or losses on outparcel sales, as applicable.
(3)Sold outlet centers excluded from Same Center NOI Cash Basis: | | | | | |
Outlet centers sold: |
Jeffersonville | January 2021 |
Blowing Rock | December 2022 |
Adjusted EBITDA, EBITDAre and Adjusted EBITDAre
We present Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) as adjusted for items described below (“Adjusted EBITDA”), EBITDA for Real Estate (“EBITDAre”) and Adjusted EBITDAre, all non-GAAP measures, as supplemental measures of our operating performance. Each of these measures is defined as follows:
We define Adjusted EBITDA as net income (loss) computed in accordance with GAAP before net interest expense, income taxes (if applicable), depreciation and amortization, gains and losses on sale of operating properties, joint venture properties, outparcels and other assets, impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate, compensation related to voluntary retirement plan and other executive officer severance, casualty gains and losses, gains and losses on early extinguishment of debt, net and other items that we do not consider indicative of the Company's ongoing operating performance.
We determine EBITDAre based on the definition set forth by Nareit, which is defined as net income (loss) computed in accordance with GAAP before net interest expense, income taxes (if applicable), depreciation and amortization, gains and losses on sale of operating properties, gains and losses on change of control and impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate and after adjustments to reflect our share of the EBITDAre of unconsolidated joint ventures.
Adjusted EBITDAre is defined as EBITDAre excluding gains and losses on early extinguishment of debt, net, casualty gains and losses, compensation related to voluntary retirement plan and other executive officer severance, casualty gains and losses, gains and losses on sale of outparcels, and other items that that we do not consider indicative of the Company's ongoing operating performance.
We present Adjusted EBITDA, EBITDAre and Adjusted EBITDAre as we believe they are useful for investors, creditors and rating agencies as they provide additional performance measures that are independent of a Company’s existing capital structure to facilitate the evaluation and comparison of the Company’s operating performance to other REITs and provide a more consistent metric for comparing the operating performance of the Company’s real estate between periods.
Adjusted EBITDA, EBITDAre and Adjusted EBITDAre have significant limitations as analytical tools, including:
•They do not reflect our interest expense;
•They do not reflect gains or losses on sales of operating properties or impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate;
•Adjusted EBITDA and Adjusted EBITDAre do not reflect gains and losses on extinguishment of debt and other items that may affect operations; and
•Other companies in our industry may calculate these measures differently than we do, limiting its usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre 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 Adjusted EBITDA, EBITDAre and Adjusted EBITDAre only as supplemental measures.
Below is a reconciliation of Net Income to Adjusted EBITDA (in thousands):
| | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| Net income | | $ | 85,831 | | | $ | 9,558 | | | |
| Adjusted to exclude: | | | | | | |
Interest expense, net (6) | | 43,372 | | | 52,426 | | | |
Income tax expense (7) | | 138 | | | 153 | | | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | |
Impairment charges - consolidated (1) | | — | | | 6,989 | | | |
| | | | | | |
Loss on sale of joint venture property, including foreign currency effect (2) | | — | | | 3,704 | | | |
| Gain on sale of assets | | (3,156) | | | — | | | |
Compensation related to voluntary retirement plan and other executive severance (3) | | 2,447 | | | 3,579 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Gain on sale of non-real estate asset (5) | | (2,418) | | | — | | | |
| Casualty gain | | — | | | (969) | | | |
| | | | | | |
Loss on early extinguishment of debt (4) | | 222 | | | 47,860 | | | |
| Adjusted EBITDA | | $ | 238,340 | | | $ | 233,308 | | | |
Below is a reconciliation of Net Income to EBITDAre and Adjusted EBITDAre (in thousands):
| | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| Net income | | $ | 85,831 | | | $ | 9,558 | | | |
| Adjusted to exclude: | | | | | | |
Interest expense, net (6) | | 43,372 | | | 52,426 | | | |
Income tax expense (7) | | 138 | | | 153 | | | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | |
Impairment charges - consolidated (1) | | — | | | 6,989 | | | |
| | | | | | |
Loss on sale of joint venture property, including foreign currency effect (2) | | — | | | 3,704 | | | |
| Gain on sale of assets | | (3,156) | | | — | | | |
| Pro-rata share of interest expense - unconsolidated joint ventures | | 7,087 | | | 5,858 | | | |
| Pro-rata share of depreciation and amortization - unconsolidated joint ventures | | 11,018 | | | 11,618 | | | |
| EBITDAre | | $ | 256,194 | | | $ | 200,314 | | | |
Compensation related to voluntary retirement plan and other executive severance (3) | | 2,447 | | | 3,579 | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Casualty gain | | — | | | (969) | | | |
Gain on sale of non-real estate asset (5) | | (2,418) | | | — | | | |
| | | | | | |
Loss on early extinguishment of debt (4) | | 222 | | | 47,860 | | | |
| Adjusted EBITDAre | | $ | 256,445 | | | $ | 250,784 | | | |
(1)The 2021 amount includes $563,000 of impairment loss attributable to the right-of-use asset associated with the ground lease at the Mashantucket (Foxwoods), Connecticut outlet center.
(2)Includes a $3.6 million charge related to the foreign currency effect of the sale of the Saint-Sauveur, Quebec property by the RioCan joint venture in March 2021.
(3)The 2021 amount includes compensation costs related to a voluntary retirement plan offer which required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021. The 2021 and 2022 amounts include executive officer severance costs incurred during those years
(4)In October 2022, the Company refinanced its Term Loan to add $25.0 million of borrowing capacity and extended the maturity to January 2027 plus a one-year extension option as well as changed the interest rate from LIBOR + 1.25% to Adjusted SOFR + 1.20%. In April 2021, the Company completed a partial redemption of $150.0 million aggregate principal amount of its $250.0 million 3.875% senior notes due December 2023 for $163.0 million in cash. In September 2021, the Company completed a redemption of the remaining senior notes due 2023, $100.0 million in aggregate principal amount outstanding, and all of its 3.750% senior notes due 2024, $250.0 million in aggregate principal outstanding, for $381.9 million in cash. The loss on extinguishment of debt for 2021 includes make-whole premiums of $44.9 million for both of these redemptions.
(5)Represents gain on sale of the corporate aircraft.
(6)Includes interest expense less interest income, which is included in other income on our statement of operations. In 2022, we revised our presentation of interest expense to show this net of interest income. Prior period results have been revised to conform with the current period presentation.
(7)In 2022, income tax expense was added back in a separate line to arrive at EBITDA and EBITDAre. Prior period results have been revised to conform with the current period presentation.
Economic Conditions and Outlook
We are closely monitoring the impact of supply chain and labor issues, inflationary pressures, rising interest rates and the overall macroeconomic environment on all aspects of our business and geographies, including how it will impact our tenants and business partners.
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 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 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, health concerns, 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.
In addition, certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration if we fail to maintain certain occupancy levels or retain specified named tenants, or if the tenant does not achieve certain specified sales targets. If our occupancy declines, certain outlet centers may fall below the minimum co-tenancy thresholds and could trigger many tenants' contractual ability to pay reduced rents, which in turn may negatively impact our results of operations. Our occupancy at our consolidated centers improved from 95% at the end of 2021 to 97% at the end of 2022.
Our outlet centers typically include well-known, national, branded companies. By maintaining a broad base of well-known tenants and a geographically diverse portfolio of properties located across the United States, we believe we reduce our operating and leasing risks. During the year ended December 31, 2022, no one tenant (including affiliates) accounted for more than 7% of our square feet or 6% of our rental revenues.
Due to the relatively short-term nature of our tenants’ leases, a significant portion of the leases in our portfolio come up for renewal each year. During 2023, approximately 1.7 million square feet, or 14% to the total portfolio including our share of unconsolidated joint ventures, will come up for renewal. For the total portfolio, including the Company’s pro rata share of unconsolidated joint ventures, as of January 31, 2023, we had lease renewals executed or in process for 41.0% of the space scheduled to expire during 2023 compared to 29.8% of the space scheduled to expire during 2022 that was executed or in process as of January 31, 2022. As of January 31, 2023, we had lease renewals executed or in process for approximately 79.2% of the space that came up for renewal in 2022.
The current challenging retail environment has impacted our business as our operations are subject to the operating results and operating decisions of our retail tenants. We continue to be encouraged by the stability of our sales trends which remain elevated above pre-pandemic levels. However, many retailers across the country are currently facing, or expect to face, potential impact of logistics and staffing issues, although there has been improvement in these areas in 2022. While we believe many of these retailers are proactively navigating this situation, the ultimate impact of inflation, labor and supply chain issues and overall macroeconomic environment is unknown.
We believe retail real estate will continue to be a profitable and fundamental distribution channel for many brands and retailers. While we continue to attract and retain additional tenants, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms or in a timely manner, the loss in rent and our Same Center NOI could be negatively impacted in future periods. Occupancy at our consolidated centers was 96.9% and 95.1% as of December 31, 2022 and 2021, 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.
Interest Rate Risk
We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We currently have interest rate swap agreements to fix the interest rates on outstanding debt with notional amounts totaling $300.0 million. See Note 9 to the Consolidated Financial Statements for additional details related to our outstanding derivatives.
As of December 31, 2022, 5% of our outstanding consolidated debt, excluding the amount of variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore was subject to market fluctuations. A change in the SOFR index of 100 basis points would result in an increase or decrease of approximately $767,000 in interest expense on an annual basis.
The interest rate spreads associated with our unsecured lines of credit and our unsecured term loan are based on the higher of our two investment grade credit ratings. As of December 31, 2022, there were no outstanding balances under our unsecured lines of credit. An increase in our credit rating would provide a decrease in interest expense. If downgrades to our credit ratings occur, interest expense could increase depending upon the level of downgrade.
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 was as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 |
| Fair value of debt | | $ | 1,268,362 | | | $ | 1,445,337 | |
| Recorded value of debt | | $ | 1,428,494 | | | $ | 1,397,076 | |
A 100 basis point increase from prevailing interest rates at December 31, 2022 and December 31, 2021 would result in a decrease in fair value of total consolidated debt of approximately $44.3 million and $66.0 million, respectively. Refer to Note 10 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.
Foreign Currency Risk
We are also exposed to foreign currency risk on investments in outlet centers that are located in Canada. Our currency exposure is concentrated in the Canadian Dollar. To mitigate some of the risk related to changes in foreign currency, cash flows received from our Canadian joint ventures are either reinvested to fund ongoing Canadian development activities, if applicable, or converted to US dollars and utilized to repay amounts outstanding under our unsecured lines of credit, if any. Accordingly, cash held in Canadian Dollars at any point in time is insignificant. We generally do not hedge currency translation exposures.
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
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Tanger Factory Outlet Centers, Inc.
(a)Evaluation of disclosure control procedures.
The President and Chief Executive Officer, Stephen J. Yalof (Principal Executive Officer), and Executive Vice President, Chief Financial Officer and Chief Investment Officer, Michael J. Bilerman (Principal Financial Officer), evaluated the effectiveness of the Company's disclosure controls and procedures and concluded that, as of December 31, 2022, 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 the 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 Principal Executive Officer and Principal 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 Principal Executive Officer and Principal 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, 2022 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, 2022.
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, 2022 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 the Company's 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, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Tanger Properties Limited Partnership
(a)Evaluation of disclosure control procedures.
The President and Chief Executive Officer, Stephen J. Yalof (Principal Executive Officer), and Executive Vice President, Chief Financial Officer and Chief Investment Officer, Michael J. Bilerman (Principal Financial Officer) of Tanger Factory Outlet Centers, Inc., the sole general partner of the Operating Partnership, evaluated the effectiveness of the Operating Partnership's disclosure controls and procedures as defined in Rule 13a-15(e) and 15d-15(e) and concluded that, as of December 31, 2022, the Operating Partnership's disclosure controls and procedures were effective.
(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 Principal Executive Officer and Principal Financial Officer of the Operating Partnership's general partner, or persons performing similar functions, and effected by the general partner'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. Management, with the participation of the Principal Executive Officer and Principal Financial Officer of the general partner, 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 the board of directors of Tanger Factory Outlet Centers, Inc., as the Operating Partnership's sole general partner; 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.
Management has evaluated the effectiveness of the Operating Partnership's internal control over financial reporting as of December 31, 2022 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, management has concluded that the Operating Partnership's internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2022.
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, 2022 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 the Operating Partnership's 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, 2022 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 2022 was reported.
ITEM 9C.DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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 2023 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 “Information About The Executive Officers of Tanger Factory Outlet Centers, Inc.”
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 2023 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 additional 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 2023 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 2023 Annual Meeting of Shareholders.
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 2023 Annual Meeting of Shareholders.
The table below provides information as of December 31, 2022 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 | | (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)) | |
| Equity compensation plans approved by security holders | | 2,528,207 | | (1) | $ | 17.65 | | | 1,514,000 | | (2) |
| Equity compensation plans not approved by security holders | | 1,000,000 | | (3) | 7.15 | | | — | | |
| Total | | 3,528,207 | | | $ | 11.53 | | | 1,514,000 | | |
(1)Includes (a) 716,800 common shares issuable upon the exercise of outstanding options (293,300 of which are vested and exercisable), (b) 758,814 restricted common shares that may be issued under the 2020 Performance Share Plan (the "2020 PSP") upon the satisfaction of certain conditions, (c) 559,763 restricted common shares that may be issued under the 2021 Performance Share Plan (the "2021 PSP") upon the satisfaction of certain conditions and (d) 492,829 restricted common shares that may be issued under the 2022 Performance Share Plan (the "2022 PSP") upon the satisfaction of certain conditions. Because there is no exercise price associated with the 2020, 2021 and 2022 PSP 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.
(3)Includes 1,000,000 common shares issuable upon the exercise of outstanding options (750,000 of which are vested and exercisable) that were issued to our Chief Executive Officer, Stephen J. Yalof, as an inducement to his entering into employment with the Company and were granted outside of the Company’s shareholder approved equity plan pursuant to New York Stock Exchange rules. The options to purchase common shares have an exercise price of $7.15. One-fourth of the options vested on December 31, 2020, followed by another one-fourth which vested on each of December 31, 2021 and December 31, 2022, and the remaining options will vest on December 31, 2023, subject to Mr. Yalof’s continued employment through the vesting date. Vested options will become exercisable on and after the date the fair market value of the Common Shares underlying the options is at least equal to 110% of the exercise price of the options.
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 2023 Annual Meeting of Shareholders.
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 2023 Annual Meeting of Shareholders.
PART IV
ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) (1) and (2) DocumentsThe following documents are filed as a part of this report:Amendment:
(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.
3.Exhibits
| | | | | | | | |
| Exhibit No. | | Description |
3.1 |
| | 3.1A | | |
3.1B | | |
3.1C | | |
3.1D | | |
3.1E | | |
3.1F | | |
3.1G | | |
3.1H | | |
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 | | |
| | | | | | | | |
4.1H | | |
4.1I | | |
4.1J | | |
4.1K | | |
4.2 | | |
10.1 * | | |
10.1A * | | |
10.1B* | | |
10.2 * | | |
10.3 | | 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.) |
10.3A | | 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.) |
10.3B | | |
10.3C | | |
10.3D | | |
10.3E | | |
10.4 | | |
10.5 | | 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.) |
10.6 | | 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.) |
| | | | | | | | |
10.10* | | |
10.11* | | |
10.12* | | |
10.13*
| | |
10.14*
| | |
10.15*
| | |
10.16 | | |
10.17 | | Fourth Amended and Restated Credit Agreement, dated as of July 13, 2021, 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, BofA Securities, Inc., Wells Fargo Securities, LLC, Truist Bank and U.S. Bank National Association, as Joint Bookrunners and Joint Lead Arrangers, Wells Fargo Bank, National Association, U.S. Bank National Association and Truist Securities, Inc. as Syndication Agents, Regions Bank and TD Bank, N.A. as Managing Agents and BofA Securities, Inc. as Sustainability Agent (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated July 14, 2021) |
10.18 | | |
10.19 | | |
10.20* | | |
10.21* | | |
10.22* | | |
10.23* | | |
| | | | | | | | |
10.24* | | |
10.25 | | |
10.26* | | |
10.27* | | |
10.28* | | |
10.29* | | |
10.30* | | |
21.1 | | |
21.2 | | |
23.1 | | |
23.2 | | |
| 31.1 | | |
| 31.2 | | |
| 31.3 | | |
| 31.4 | | |
32.1 | | |
32.2 | | |
32.3 | | |
32.4 | | |
| 101.INS** | | Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document. |
| 101.SCH** | | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL** | | Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
| 101.LAB** | | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE** | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 101.DEF** | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 104** | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Management contract or compensatory plan or arrangement.
** Submitted herewith.
ITEM 16.FORM 10-K SUMMARY
None.
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/ StephenMichael J. YalofBilerman | |
| Stephen J. Yalof | |
| President and Chief Executive Officer | |
February 27, 2023
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 | | Executive Chair of the Board | | February 27, 2023 |
| | | | |
/s/ Stephen J. Yalof | | | | February 27, 2023 |
Stephen J. Yalof | | Director, President, Chief Executive Officer
(Principal Executive Officer) | | |
| | | | |
/s/ Michael J. Bilerman | | | | |
Michael J. Bilerman | | Executive Vice President, Chief Financial Officer, and Chief Investment Officer (Principal Financial Officer)and Secretary | | February 27, 2023 |
| | | | |
/s/ Thomas J. Guerrieri Jr. | | | | |
Thomas J. Guerrieri Jr. | | Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer) | | February 27, 2023 |
| | | | |
/s/ David B. Henry | | | | |
David B. Henry | | Lead Director | | February 27, 2023 |
| | | | |
/s/ Jeffrey B. Citrin | | | | |
Jeffrey B. Citrin | | Director | | February 27, 2023 |
| | | | |
/s/ Sandeep L. Mathrani | | | | |
Sandeep L. Mathrani | | Director | | February 27, 2023 |
| | | | |
/s/ Thomas J. Reddin | | | | |
Thomas J. Reddin | | Director | | February 27, 2023 |
| | | | |
/s/ Bridget M. Ryan-Berman | | | | |
Bridget M. Ryan-Berman | | Director | | February 27, 2023 |
| | | | |
/s/ Susan E. Skerritt | | | | |
Susan E. Skerritt | | Director | | February 27, 2023 |
| | | | |
/s/ Luis A. Ubiñas | | | | |
Luis A. Ubiñas | | Director | | February 27, 2023 |
| | | | |
76June 29, 2023
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 FACTORY OUTLET CENTERS, INC., its sole general partner | |
| | |
| By: | /s/ StephenMichael J. YalofBilerman | |
| Stephen J. Yalof | |
| President and Chief Executive Officer | |
February 27, 2023
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Tanger Factory Outlet Centers, Inc. in its capacity as General Partner of Tanger Properties Limited Partnership and in the capacities and on the dates indicated:
| | | | | | | | | | | | | | |
Signature
| | Title | | Date |
/s/ Steven B. Tanger | | | | |
Steven B. Tanger | | Executive Chair of the Board | | February 27, 2023 |
| | | | |
/s/ Stephen J. Yalof | | | | |
Stephen J. Yalof | | Director, President, and Chief Executive Officer
(Principal Executive Officer) | | February 27, 2023 |
| | | | |
/s/ Michael J. Bilerman | | | | |
Michael J. Bilerman | | Executive Vice President, Chief Financial Officer, and Chief Investment Officer (Principal Financial Officer)and Secretary | | February 27, 2023 |
| | | | |
/s/ Thomas J. Guerrieri Jr. | | | | |
Thomas J. Guerrieri Jr. | | Senior Vice President, Chief Accounting Officer
(Principal Accounting Officer) | | February 27, 2023 |
| | | | |
/s/ David B. Henry | | | | |
David B. Henry | | Lead Director | | February 27, 2023 |
| | | | |
/s/ Jeffrey B. Citrin | | | | |
Jeffrey B. Citrin | | Director | | February 27, 2023 |
| | | | |
/s/ Sandeep L. Mathrani | | | | |
Sandeep L. Mathrani | | Director | | February 27, 2023 |
| | | | |
/s/ Thomas J. Reddin | | | | |
Thomas J. Reddin | | Director | | February 27, 2023 |
| | | | |
/s/ Bridget M. Ryan-Berman | | | | |
Bridget M. Ryan-Berman | | Director | | February 27, 2023 |
| | | | |
/s/ Susan E. Skerritt | | | | |
Susan E. Skerritt | | Director | | February 27, 2023 |
| | | | |
/s/ Luis A. Ubiñas | | | | |
Luis A. Ubiñas | | Director | | February 27, 2023 |
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, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), shareholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.June 29, 2023
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, 2022, 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 27, 2023, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Rental property assets, net – Refer to Note 2 to the financial statements
Critical Audit Matter Description
Rental property held and used by the Company is reviewed for impairment in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable. In such event, the Company compares the estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount, and if less than such carrying amount, recognizes an impairment loss in an amount by which the carrying amount exceeds its fair value. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, capitalization, and discount rates, and estimated holding periods for the applicable assets. Total rental property, net as of December 31, 2022, was approximately $1.6 billion.
Given the Company’s cash flow estimates used both for determining recoverability and estimating fair value to determine impairment require management to make significant estimates and assumptions related to current and projected trends in rental, occupancy, capitalization and discount rates, and estimated holding periods, performing audit procedures to evaluate the reasonableness of management’s undiscounted and discounted future cash flows analysis required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the undiscounted future cash flows analysis and the assessment of expected remaining holding period included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of the recoverability of rental property assets, including the significant assumptions over net operating income, capitalization rates, and estimated holding periods.
•We evaluated the undiscounted future cash flows analysis, including estimates of net operating income, capitalization rates, and estimated holding periods for certain rental property assets with impairment indicators by performing the following, where applicable:
◦We evaluated management’s cash flow projections by comparing to the Company’s historical results and considered the impact of leasing activity.
◦We evaluated capitalization rates by comparing to external market sources.
◦We evaluated management’s estimated holding period by comparing to historical holding periods for assets sold in recent years, reviewing board minutes, and conducting inquiries of management, leasing personnel and others outside of the accounting department.
◦We tested the mathematical accuracy of the undiscounted future cash flows analysis.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Company's auditor since 2016.
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, 2022, 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, 2022, 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, 2022, of the Company and our report dated February 27, 2023, 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 27, 2023
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, 2022 and 2021, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 27, 2023, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Rental property assets, net – Refer to Note 2 to the financial statements
Critical Audit Matter Description
Rental property held and used by the Operating Partnership is reviewed for impairment in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable. In such event, the Operating Partnership compares the estimated future undiscounted cash flows associated with the asset to the asset’s carrying amount, and if less than such carrying amount, recognizes an impairment loss in an amount by which the carrying amount exceeds its fair value. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, capitalization, and discount rates, and estimated holding periods for the applicable assets. Total rental property, net as of December 31, 2022, was approximately $1.6 billion.
Given the Operating Partnership’s cash flow estimates used both for determining recoverability and estimating fair value to determine impairment require management to make significant estimates and assumptions related to current and projected trends in rental, occupancy, capitalization and discount rates, and estimated holding periods, performing audit procedures to evaluate the reasonableness of management’s undiscounted and discounted future cash flows analysis required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the undiscounted future cash flows analysis and the assessment of expected remaining holding period included the following, among others:
•We tested the effectiveness of controls over management’s evaluation of the recoverability of rental property assets, including the significant assumptions over net operating income, capitalization rates, and estimated holding periods.
•We evaluated the undiscounted future cash flows analysis, including estimates of net operating income, capitalization rates, and estimated holding periods for certain rental property assets with impairment indicators by performing the following, where applicable:
◦We evaluated management’s cash flow projections by comparing to the Operating Partnership’s historical results and considered the impact of leasing activity.
◦We evaluated capitalization rates by comparing to external market sources.
◦We evaluated management’s estimated holding period by comparing to historical holding periods for assets sold in recent years, reviewing board minutes, and conducting inquiries of management, leasing personnel, and others outside of the accounting department.
◦We tested the mathematical accuracy of the undiscounted future cash flows analysis.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
February 27, 2023
We have served as the Operating Partnership's auditor since 2016.
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, 2022, 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, 2022, 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, 2022, of the Operating Partnership and our report dated February 27, 2023, 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 27, 2023
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2022 | | 2021 |
| Assets | | | | |
| Rental property: | | | | |
| Land | | $ | 275,079 | | | $ | 268,269 | |
| Buildings, improvements and fixtures | | 2,553,452 | | | 2,532,489 | |
| Construction in progress | | 27,340 | | | — | |
| | | 2,855,871 | | | 2,800,758 | |
| Accumulated depreciation | | (1,224,962) | | | (1,145,388) | |
| Total rental property, net | | 1,630,909 | | | 1,655,370 | |
| Cash and cash equivalents | | 212,124 | | | 161,255 | |
| Short-term investments | | 52,450 | | | — | |
| | | | |
| Investments in unconsolidated joint ventures | | 73,809 | | | 82,647 | |
| Deferred lease costs and other intangibles, net | | 58,574 | | | 73,720 | |
| Operating lease right-of-use assets | | 78,636 | | | 79,807 | |
| Prepaids and other assets | | 111,163 | | | 104,585 | |
| Total assets | | $ | 2,217,665 | | | $ | 2,157,384 | |
| Liabilities and Equity | | | | |
| Liabilities | | | | |
| Debt: | | | | |
| Senior, unsecured notes, net | | $ | 1,037,998 | | | $ | 1,036,181 | |
| Unsecured term loans, net | | 321,525 | | | 298,421 | |
| Mortgages payable, net | | 68,971 | | | 62,474 | |
| Unsecured lines of credit | | — | | | — | |
| Total debt | | 1,428,494 | | | 1,397,076 | |
| Accounts payable and accrued expenses | | 104,741 | | | 92,995 | |
| Operating lease liabilities | | 87,528 | | | 88,874 | |
| Other liabilities | | 82,968 | | | 78,650 | |
| Total liabilities | | 1,703,731 | | | 1,657,595 | |
| Commitments and contingencies (Note 21) | | | | |
| Equity | | | | |
| Tanger Factory Outlet Centers, Inc.: | | | | |
| Common shares, $0.01 par value, 300,000,000 shares authorized, 104,497,920 and 104,084,734 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively | | 1,045 | | | 1,041 | |
| Paid in capital | | 987,192 | | | 978,054 | |
| Accumulated distributions in excess of net income | | (485,557) | | | (483,409) | |
| Accumulated other comprehensive loss | | (11,037) | | | (17,761) | |
| Equity attributable to Tanger Factory Outlet Centers, Inc. | | 491,643 | | | 477,925 | |
| Equity attributable to noncontrolling interests: | | | | |
| Noncontrolling interests in Operating Partnership | | 22,291 | | | 21,864 | |
| Noncontrolling interests in other consolidated partnerships | | — | | | — | |
| Total equity | | 513,934 | | | 499,789 | |
| Total liabilities and equity | | $ | 2,217,665 | | | $ | 2,157,384 | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | |
| | | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Revenues: | | | | | | |
| Rental revenues | | $ | 421,419 | | | $ | 407,766 | | | $ | 377,932 | |
| Management, leasing and other services | | 7,157 | | | 6,411 | | | 4,936 | |
| Other revenues | | 14,037 | | | 12,348 | | | 7,123 | |
| Total revenues | | 442,613 | | | 426,525 | | | 389,991 | |
| Expenses: | | | | | | |
| Property operating | | 143,936 | | | 140,736 | | | 137,135 | |
| General and administrative | | 71,532 | | | 65,817 | | | 47,733 | |
| | | | | | |
| | | | | | |
| Impairment charges | | — | | | 6,989 | | | 67,226 | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | 117,143 | |
| Total expenses | | 327,372 | | | 323,550 | | | 369,237 | |
| | | | | | |
| Other income (expense): | | | | | | |
| Interest expense | | (46,967) | | | (52,866) | | | (63,142) | |
| Loss on early extinguishment of debt | | (222) | | | (47,860) | | | — | |
| Gain on sale of assets | | 3,156 | | | — | | | 2,324 | |
| | | | | | |
| Other income (expense) | | 6,029 | | | (1,595) | | | 925 | |
| Total other income (expense) | | (38,004) | | | (102,321) | | | (59,893) | |
| Income (loss) before equity in earnings of unconsolidated joint ventures | | 77,237 | | | 654 | | | (39,139) | |
| Equity in earnings of unconsolidated joint ventures | | 8,594 | | | 8,904 | | | 1,126 | |
| Net income (loss) | | 85,831 | | | 9,558 | | | (38,013) | |
| Noncontrolling interests in Operating Partnership | | (3,768) | | | (440) | | | 1,925 | |
| Noncontrolling interests in other consolidated partnerships | | — | | | — | | | (190) | |
| Net income (loss) attributable to Tanger Factory Outlet Centers, Inc. | | $ | 82,063 | | | $ | 9,118 | | | $ | (36,278) | |
| | | | | | |
| Basic earnings per common share: | | | | | | |
| Net income (loss) | | $ | 0.78 | | | $ | 0.08 | | | $ | (0.40) | |
| | | | | | |
| Diluted earnings per common share: | | | | | | |
| Net income (loss) | | $ | 0.77 | | | $ | 0.08 | | | $ | (0.40) | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Net income (loss) | | $ | 85,831 | | | $ | 9,558 | | | $ | (38,013) | |
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustments | | (5,070) | | | 3,883 | | | 1,783 | |
| Change in fair value of cash flow hedges | | 12,093 | | | 5,383 | | | (2,934) | |
| Other comprehensive income (loss) | | 7,023 | | | 9,266 | | | (1,151) | |
| Comprehensive income (loss) | | 92,854 | | | 18,824 | | | (39,164) | |
| Comprehensive (income) loss attributable to noncontrolling interests | | (4,067) | | | (882) | | | 1,796 | |
| Comprehensive income (loss) attributable to Tanger Factory Outlet Centers, Inc. | | $ | 88,787 | | | $ | 17,942 | | | $ | (37,368) | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2019 | | $ | 929 | | $ | 775,035 | | $ | (317,263) | | $ | (25,495) | | $ | 433,206 | | $ | 22,903 | | $ | — | | $ | 456,109 | |
| Net income (loss) | | — | | — | | (36,278) | | — | | (36,278) | | (1,925) | | 190 | | (38,013) | |
| Other comprehensive income | | — | | — | | — | | (1,090) | | (1,090) | | (61) | | — | | (1,151) | |
| Compensation under Incentive Award Plan | | — | | 12,926 | | — | | — | | 12,926 | | — | | — | | 12,926 | |
| Grant of 611,350 restricted common share awards, net of forfeitures | | 6 | | (6) | | — | | — | | — | | — | | — | | — | |
| Issuance of 6,258 deferred shares | | — | | — | | — | | — | | — | | — | | — | | — | |
Withholding of 56,597 common shares for employee income taxes | | — | | (736) | | — | | — | | (736) | | — | | — | | (736) | |
| Contributions from noncontrolling interests | | — | | — | | — | | — | | — | | — | | 72 | | 72 | |
| Adjustment for noncontrolling interests in Operating Partnership | | — | | (75) | | — | | — | | (75) | | 75 | | — | | — | |
| | | | | | | | | |
| Exchange of 116,530 Operating Partnership units for 116,530 common shares | | 1 | | (1) | | — | | — | | — | | — | | — | | — | |
| Common dividends ($0.7125 per share) | | — | | — | | (66,563) | | — | | (66,563) | | — | | — | | (66,563) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | — | | (3,499) | | (262) | | (3,761) | |
Balance, December 31, 2020 | | $ | 936 | | $ | 787,143 | | $ | (420,104) | | $ | (26,585) | | $ | 341,390 | | $ | 17,493 | | $ | — | | $ | 358,883 | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2020 | | $ | 936 | | $ | 787,143 | | $ | (420,104) | | $ | (26,585) | | $ | 341,390 | | $ | 17,493 | | $ | — | | $ | 358,883 | |
| Net income | | — | | — | | 9,118 | | — | | 9,118 | | 440 | | — | | 9,558 | |
| Other comprehensive loss | | — | | — | | — | | 8,824 | | 8,824 | | 442 | | — | | 9,266 | |
| Compensation under Incentive Award Plan | | — | | 12,845 | | — | | — | | 12,845 | | — | | — | | 12,845 | |
| Issuance of 42,100 common shares upon exercise of options | | — | | 266 | | — | | — | | 266 | | — | | — | | 266 | |
| Grant of 569,779 restricted common share awards, net of forfeitures | | 6 | | (6) | | — | | — | | — | | — | | — | | — | |
| Issuance of 10,009,263 common shares | | 100 | | 186,869 | | — | | — | | 186,969 | | — | | — | | 186,969 | |
| | | | | | | | | |
| Withholding of 139,293 common shares for employee income taxes | | (1) | | (2,146) | | — | | — | | (2,147) | | — | | — | | (2,147) | |
| | | | | | | | | |
| Adjustment for noncontrolling interests in Operating Partnership | | — | | (6,917) | | — | | — | | (6,917) | | 6,917 | | — | | — | |
| Exchange of 33,084 Operating Partnership units for 33,084 common shares | | — | | — | | — | | — | | — | | — | | — | | — | |
Common dividends ($0.7150 per share) | | — | | — | | (72,423) | | — | | (72,423) | | — | | — | | (72,423) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | — | | (3,428) | | — | | (3,428) | |
Balance, December 31, 2021 | | $ | 1,041 | | $ | 978,054 | | $ | (483,409) | | $ | (17,761) | | $ | 477,925 | | $ | 21,864 | | $ | — | | $ | 499,789 | |
The accompanying notes are an integral part of these consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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, 2021 | | $ | 1,041 | | $ | 978,054 | | $ | (483,409) | | $ | (17,761) | | $ | 477,925 | | $ | 21,864 | | $ | — | | $ | 499,789 | |
| Net income | | — | | — | | 82,063 | | — | | 82,063 | | 3,768 | | — | | 85,831 | |
| Other comprehensive income | | — | | — | | — | | 6,724 | | 6,724 | | 299 | | — | | 7,023 | |
| Compensation under Incentive Award Plan | | — | | 13,160 | | — | | — | | 13,160 | | — | | — | | 13,160 | |
| Issuance of 15,500 common shares upon exercise of options | | — | | 88 | | — | | — | | 88 | | — | | — | | 88 | |
| Grant of 613,933 restricted common share awards, net of forfeitures | | 6 | | (6) | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Withholding of 239,824 common shares for employee income taxes | | (2) | | (3,922) | | — | | — | | (3,924) | | — | | — | | (3,924) | |
| | | | | | | | | |
| Adjustment for noncontrolling interests in Operating Partnership | | — | | (182) | | — | | — | | (182) | | 182 | | — | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Exchange of 23,577 Operating Partnership units for 23,577 common shares | | — | | — | | — | | — | | — | | — | | — | | — | |
Common dividends ($0.8025 per share) | | — | | — | | (84,211) | | — | | (84,211) | | — | | — | | (84,211) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | — | | (3,822) | | — | | (3,822) | |
Balance, December 31, 2022 | | $ | 1,045 | | $ | 987,192 | | $ | (485,557) | | $ | (11,037) | | $ | 491,643 | | $ | 22,291 | | $ | — | | $ | 513,934 | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Operating Activities | | | | | | |
| Net income (loss) | | $ | 85,831 | | | $ | 9,558 | | | $ | (38,013) | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | 117,143 | |
| Impairment charges | | — | | | 6,989 | | | 67,226 | |
| Amortization of deferred financing costs | | 3,126 | | | 4,018 | | | 3,583 | |
| | | | | | |
| | | | | | |
| Gain on sale of assets | | (3,156) | | | — | | | (2,324) | |
| | | | | | |
| Loss on early extinguishment of debt | | 222 | | | 47,860 | | | — | |
| Equity in earnings of unconsolidated joint ventures | | (8,594) | | | (8,904) | | | (1,126) | |
| Equity-based compensation expense | | 12,969 | | | 12,752 | | | 12,517 | |
| Amortization of debt (premiums) and discounts, net | | 509 | | | 442 | | | 482 | |
| Amortization (accretion) of market rent rate adjustments, net | | 1,417 | | | 293 | | | 2,721 | |
| Straight-line rent adjustments | | 1,689 | | | 1,973 | | | 3,372 | |
| Distributions of cumulative earnings from unconsolidated joint ventures | | 8,711 | | | 9,249 | | | 3,490 | |
| Other non-cash | | (2,418) | | | 3,638 | | | — | |
| Changes in other asset and liabilities: | | | | | | |
| Other assets | | 276 | | | 5,140 | | | (5,366) | |
| Accounts payable and accrued expenses | | 1,474 | | | 14,702 | | | 1,042 | |
| Net cash provided by operating activities | | 213,960 | | | 217,718 | | | 164,747 | |
| Investing Activities | | | | | | |
| Additions to rental property | | (77,310) | | | (45,187) | | | (28,566) | |
| Additions to investments in unconsolidated joint ventures | | (313) | | | (7,000) | | | (10,601) | |
| Net proceeds from sale of assets | | 12,400 | | | 8,129 | | | 7,626 | |
| | | | | | |
| Proceeds on sale of non-real estate assets | | 14,610 | | | — | | | — | |
| Additions to short-term investments | | (52,450) | | | — | | | — | |
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 12,037 | | | 19,574 | | | 9,071 | |
| Additions to non-real estate assets | | (7,442) | | | (3,173) | | | (1,872) | |
| Additions to deferred lease costs | | (2,570) | | | (5,115) | | | (3,061) | |
| Payments for other investing activities | | (7,288) | | | — | | | — | |
| Proceeds from other investing activities | | 9,509 | | | 10,033 | | | 8,632 | |
Net cash used in investing activities | | (98,817) | | | (22,739) | | | (18,771) | |
| Financing Activities | | | | | | |
| Cash dividends paid | | (84,211) | | | (72,423) | | | (66,563) | |
| Distributions to noncontrolling interests in Operating Partnership | | (3,822) | | | (3,428) | | | (3,499) | |
| Proceeds from revolving credit facility | | — | | | — | | | 641,630 | |
| Repayments of revolving credit facility | | — | | | — | | | (641,630) | |
| Proceeds from notes, mortgages and loans | | 36,556 | | | 394,208 | | | — | |
| Repayments of notes, mortgages and loans | | (4,440) | | | (567,050) | | | (3,566) | |
| Payment of make-whole premium related to early extinguishment of debt | | — | | | (44,872) | | | — | |
| | | | | | |
| | | | | | |
| Employee income taxes paid related to shares withheld upon vesting of equity awards | | (3,924) | | | (2,147) | | | (736) | |
| | | | | | |
| | | | | | |
| Additions to deferred financing costs | | (3,262) | | | (8,754) | | | (1,891) | |
| Proceeds from exercise of options | | 88 | | | 266 | | | — | |
| | | | | | |
| Proceeds from common share offering | | — | | | 186,969 | | | — | |
| Proceeds from other financing activities | | — | | | — | | | 72 | |
| Payment for other financing activities | | (1,148) | | | (1,148) | | | (1,410) | |
| Net cash used in financing activities | | (64,163) | | | (118,379) | | | (77,593) | |
| Effect of foreign currency rate changes on cash and cash equivalents | | (111) | | | (177) | | | (223) | |
| Net increase/(decrease) in cash, cash equivalents and restricted cash | | 50,869 | | | 76,423 | | | 68,160 | |
| Cash and cash equivalents, beginning of year | | 161,255 | | | 84,832 | | | 16,672 | |
| Cash and cash equivalents, end of year | | $ | 212,124 | | | $ | 161,255 | | | $ | 84,832 | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except for unit data)
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2022 | | 2021 |
| Assets | | | | |
| Rental property: | | | | |
| Land | | $ | 275,079 | | | $ | 268,269 | |
| Buildings, improvements and fixtures | | 2,553,452 | | | 2,532,489 | |
| Construction in progress | | 27,340 | | | — | |
| | | 2,855,871 | | | 2,800,758 | |
| Accumulated depreciation | | (1,224,962) | | | (1,145,388) | |
| Total rental property, net | | 1,630,909 | | | 1,655,370 | |
| Cash and cash equivalents | | 212,011 | | | 161,152 | |
| Short-term investments | | 52,450 | | | — | |
| Investments in unconsolidated joint ventures | | 73,809 | | | 82,647 | |
| Deferred lease costs and other intangibles, net | | 58,574 | | | 73,720 | |
| Operating lease right-of-use assets | | 78,636 | | | 79,807 | |
| Prepaids and other assets | | 110,622 | | | 104,362 | |
| Total assets | | $ | 2,217,011 | | | $ | 2,157,058 | |
| Liabilities and Equity | | | | |
| Liabilities | | | | |
| Debt: | | | | |
| Senior, unsecured notes, net | | $ | 1,037,998 | | | $ | 1,036,181 | |
| Unsecured term loans, net | | 321,525 | | | 298,421 | |
| Mortgages payable, net | | 68,971 | | | 62,474 | |
| Unsecured lines of credit | | — | | | — | |
| Total debt | | 1,428,494 | | | 1,397,076 | |
| Accounts payable and accrued expenses | | 104,087 | | | 92,669 | |
| Operating lease liabilities | | 87,528 | | | 88,874 | |
| Other liabilities | | 82,968 | | | 78,650 | |
| Total liabilities | | 1,703,077 | | | 1,657,269 | |
| Commitments and contingencies (Note 21) | | | | |
| Equity | | | | |
| Partners' Equity: | | | | |
| General partner, 1,100,000 and 1,100,000 units outstanding at December 31, 2022 and December 31, 2021, respectively | | 4,516 | | | 4,539 | |
| Limited partners, 4,737,982 and 4,761,559 Class A common units, and 103,397,920 and 102,984,734 Class B common units outstanding at December 31, 2022 and December 31, 2021, respectively | | 521,168 | | | 514,023 | |
| Accumulated other comprehensive loss | | (11,750) | | | (18,773) | |
| Total partners' equity | | 513,934 | | | 499,789 | |
| Noncontrolling interests in consolidated partnerships | | — | | | — | |
| Total equity | | 513,934 | | | 499,789 | |
| Total liabilities and equity | | $ | 2,217,011 | | | $ | 2,157,058 | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per unit data)
| | | | | | | | | | | | | | | | | | | | |
| | | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Revenues: | | | | | | |
| Rental revenues | | $ | 421,419 | | | $ | 407,766 | | | $ | 377,932 | |
| Management, leasing and other services | | 7,157 | | | 6,411 | | | 4,936 | |
| Other revenues | | 14,037 | | | 12,348 | | | 7,123 | |
| Total revenues | | 442,613 | | | 426,525 | | | 389,991 | |
| Expenses: | | | | | | |
| Property operating | | 143,936 | | | 140,736 | | | 137,135 | |
| General and administrative | | 71,532 | | | 65,817 | | | 47,733 | |
| | | | | | |
| | | | | | |
| Impairment charges | | — | | | 6,989 | | | 67,226 | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | 117,143 | |
| Total expenses | | 327,372 | | | 323,550 | | | 369,237 | |
| Other income (expense): | | | | | | |
| Interest expense | | (46,967) | | | (52,866) | | | (63,142) | |
| Loss on early extinguishment of debt | | (222) | | | (47,860) | | | — | |
| Gain on sale of assets | | 3,156 | | | — | | | 2,324 | |
| | | | | | |
| Other income (expense) | | 6,029 | | | (1,595) | | | 925 | |
| Total other income (expense) | | (38,004) | | | (102,321) | | | (59,893) | |
| Income (loss) before equity in earnings of unconsolidated joint ventures | | 77,237 | | | 654 | | | (39,139) | |
| Equity in earnings of unconsolidated joint ventures | | 8,594 | | | 8,904 | | | 1,126 | |
| Net income (loss) | | 85,831 | | | 9,558 | | | (38,013) | |
| Noncontrolling interests in consolidated partnerships | | — | | | — | | | (190) | |
| Net income (loss) available to partners | | 85,831 | | | 9,558 | | | (38,203) | |
| Net income (loss) available to limited partners | | 84,971 | | | 9,458 | | | (37,815) | |
| Net income (loss) available to general partner | | $ | 860 | | | $ | 100 | | | $ | (388) | |
| | | | | | |
| Basic earnings per common unit: | | | | | | |
| Net income (loss) | | $ | 0.78 | | | $ | 0.08 | | | $ | (0.40) | |
| | | | | | |
| Diluted earnings per common unit: | | | | | | |
| Net income (loss) | | $ | 0.77 | | | $ | 0.08 | | | $ | (0.40) | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Net income (loss) | | $ | 85,831 | | | $ | 9,558 | | | $ | (38,013) | |
| Other comprehensive income (loss): | | | | | | |
| Foreign currency translation adjustments | | (5,070) | | | 3,883 | | | 1,783 | |
| Change in fair value of cash flow hedges | | 12,093 | | | 5,383 | | | (2,934) | |
| Other comprehensive income (loss) | | 7,023 | | | 9,266 | | | (1,151) | |
| Comprehensive income (loss) | | 92,854 | | | 18,824 | | | (39,164) | |
| Comprehensive (income) attributable to noncontrolling interests in consolidated partnerships | | — | | | — | | | (190) | |
| Comprehensive income (loss) attributable to the Operating Partnership | | $ | 92,854 | | | $ | 18,824 | | | $ | (39,354) | |
The accompanying notes are an integral part of these consolidated financial statements.
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, 2019 | | $ | 4,435 | | $ | 478,562 | | $ | (26,888) | | $ | 456,109 | | $ | — | | $ | 456,109 | |
| Net income (loss) | | (388) | | (37,815) | | — | | (38,203) | | 190 | | (38,013) | |
| Other comprehensive loss | | — | | — | | (1,151) | | (1,151) | | — | | (1,151) | |
| Compensation under Incentive Award Plan | | — | | 12,926 | | — | | 12,926 | | — | | 12,926 | |
| Grant of 611,350 restricted common share awards by the Company | | — | | — | | — | | — | | — | | — | |
| | | | | | | |
| Withholding of 56,597 common units for employee income taxes | | — | | (736) | | — | | (736) | | — | | (736) | |
| Contributions from noncontrolling interests | | — | | — | | — | | — | | 72 | | 72 | |
| | | | | | | |
| | | | | | | |
| Common distributions ($0.7125 per common unit) | | (713) | | (69,349) | | — | | (70,062) | | — | | (70,062) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | (262) | | (262) | |
| Balance, December 31, 2020 | | $ | 3,334 | | $ | 383,588 | | $ | (28,039) | | $ | 358,883 | | $ | — | | $ | 358,883 | |
| Net income | | 100 | | 9,458 | | — | | 9,558 | | — | | 9,558 | |
| Other comprehensive income | | — | | — | | 9,266 | | 9,266 | | — | | 9,266 | |
| Compensation under Incentive Award Plan | | — | | 12,845 | | — | | 12,845 | | — | | 12,845 | |
| Issuance of 42,100 common units upon exercise of options | | — | | 266 | | — | | 266 | | — | | 266 | |
| Grant of 569,779 restricted common share awards by the Company | | — | | — | | — | | — | | — | | — | |
| | | | | | | |
| Issuance of 10,009,263 common units | | 1,874 | | 185,095 | | — | | 186,969 | | — | | 186,969 | |
| Withholding of 139,293 common units for employee income taxes | | — | | (2,147) | | — | | (2,147) | | — | | (2,147) | |
| Contributions from noncontrolling interests | | — | | — | | — | | — | | — | | — | |
| | | | | | | |
| | | | | | | |
Common distributions ($0.7150 per common unit) | | (769) | | (75,082) | | — | | (75,851) | | — | | (75,851) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | — | | — | |
| Balance, December 31, 2021 | | $ | 4,539 | | $ | 514,023 | | $ | (18,773) | | $ | 499,789 | | $ | — | | $ | 499,789 | |
| Net income | | 860 | | 84,971 | | — | | 85,831 | | — | | 85,831 | |
| Other comprehensive income | | — | | — | | 7,023 | | 7,023 | | — | | 7,023 | |
| Compensation under Incentive Award Plan | | — | | 13,160 | | — | | 13,160 | | — | | 13,160 | |
| Grant of 613,933 restricted common share awards by the Company | | — | | — | | — | | — | | — | | — | |
| Issuance of 15,500 common units upon exercise of options | | — | | 88 | | — | | 88 | | — | | 88 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Withholding of 239,824 common units for employee income taxes | | — | | (3,924) | | — | | (3,924) | | — | | (3,924) | |
| Contributions from noncontrolling interests | | — | | — | | — | | — | | — | | — | |
| | | | | | | |
| | | | | | | |
Common distributions ($0.8025 per common unit) | | (883) | | (87,150) | | — | | (88,033) | | — | | (88,033) | |
| Distributions to noncontrolling interests | | — | | — | | — | | — | | — | | — | |
| Balance, December 31, 2022 | | $ | 4,516 | | $ | 521,168 | | $ | (11,750) | | $ | 513,934 | | $ | — | | $ | 513,934 | |
The accompanying notes are an integral part of these consolidated financial statements.
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| | | | | | | | | | | | | | | | | | | | |
| | | For the years ended December 31, |
| | | 2022 | | 2021 | | 2020 |
| Operating activities | | | | | | |
| Net income (loss) | | $ | 85,831 | | | $ | 9,558 | | | $ | (38,013) | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
| Depreciation and amortization | | 111,904 | | | 110,008 | | | 117,143 | |
| Impairment charges | | — | | | 6,989 | | | 67,226 | |
| Amortization of deferred financing costs | | 3,126 | | | 4,018 | | | 3,583 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Gain on sale of assets | | (3,156) | | | — | | | (2,324) | |
| | | | | | |
| Loss on early extinguishment of debt | | 222 | | | 47,860 | | | — | |
| Equity in earnings of unconsolidated joint ventures | | (8,594) | | | (8,904) | | | (1,126) | |
| Equity-based compensation expense | | 12,969 | | | 12,752 | | | 12,517 | |
| Amortization of debt (premiums) and discounts, net | | 509 | | | 442 | | | 482 | |
| Amortization (accretion) of market rent rate adjustments, net | | 1,417 | | | 293 | | | 2,721 | |
| Straight-line rent adjustments | | 1,689 | | | 1,973 | | | 3,372 | |
| Distributions of cumulative earnings from unconsolidated joint ventures | | 8,711 | | | 9,249 | | | 3,490 | |
| Other non-cash | | (2,418) | | | 3,638 | | | — | |
| Changes in other assets and liabilities: | | | | | | |
| Other assets | | 594 | | | 4,881 | | | (5,128) | |
| Accounts payable and accrued expenses | | 1,146 | | | 14,940 | | | 875 | |
| Net cash provided by operating activities | | 213,950 | | | 217,697 | | | 164,818 | |
| Investing activities | | | | | | |
| Additions to rental property | | (77,310) | | | (45,187) | | | (28,566) | |
| | | | | | |
| Additions to investments in unconsolidated joint ventures | | (313) | | | (7,000) | | | (10,601) | |
| Net proceeds on sale of assets | | 12,400 | | | 8,129 | | | 7,626 | |
| | | | | | |
| Proceeds on sale of non-real estate assets | | 14,610 | | | — | | | — | |
| Additions to short-term investments | | (52,450) | | | — | | | — | |
| Distributions in excess of cumulative earnings from unconsolidated joint ventures | | 12,037 | | | 19,574 | | | 9,071 | |
| Additions to non-real estate assets | | (7,442) | | | (3,173) | | | (1,872) | |
| Additions to deferred lease costs | | (2,570) | | | (5,115) | | | (3,061) | |
| Payments for other investing activities | | (7,288) | | | — | | | — | |
| Proceeds from other investing activities | | 9,509 | | | 10,033 | | | 8,632 | |
Net cash used in investing activities | | (98,817) | | | (22,739) | | | (18,771) | |
| Financing activities | | | | | | |
| Cash distributions paid | | (88,033) | | | (75,851) | | | (70,062) | |
| Proceeds from revolving credit facility | | — | | | — | | | 641,630 | |
| Repayments of revolving credit facility | | — | | | — | | | (641,630) | |
| Proceeds from notes, mortgages and loans | | 36,556 | | | 394,208 | | | — | |
| Repayments of notes, mortgages and loans | | (4,440) | | | (567,050) | | | (3,566) | |
| Payment of make-whole premium related to early extinguishment of debt | | — | | | (44,872) | | | — | |
| | | | | | |
| | | | | | |
| Employee income taxes paid related to shares withheld upon vesting of equity awards | | (3,924) | | | (2,147) | | | (736) | |
| | | | | | |
| | | | | | |
| Additions to deferred financing costs | | (3,262) | | | (8,754) | | | (1,891) | |
| Proceeds from exercise of options | | 88 | | | 266 | | | — | |
| | | | | | |
| Proceeds from the Company’s common share offering | | — | | | 186,969 | | | — | |
| Proceeds from other financing activities | | — | | | — | | | 72 | |
| Payment for other financing activities | | (1,148) | | | (1,148) | | | (1,410) | |
| Net cash used in financing activities | | (64,163) | | | (118,379) | | | (77,593) | |
| Effect of foreign currency rate changes on cash and cash equivalents | | (111) | | | (177) | | | (223) | |
| Net increase in cash, cash equivalents and restricted cash | | 50,859 | | | 76,402 | | | 68,231 | |
| Cash and cash equivalents, beginning of year | | 161,152 | | | 84,750 | | | 16,519 | |
| Cash and cash equivalents, end of year | | $ | 212,011 | | | $ | 161,152 | | | $ | 84,750 | |
The accompanying notes are an integral part of these consolidated financial statements.
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 Tanger Properties Limited Partnership and subsidiaries, which we refer to as the Operating Partnership, focuses on developing, acquiring, owning, operating and managing outlet shopping centers. As of December 31, 2022, we owned and operated 29 consolidated outlet centers, with a total gross leasable area of approximately 11.4 million square feet and one center under construction. 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 2,200 stores, representing approximately 600 store brands. We also had partial ownership interests in 6 unconsolidated outlet centers totaling approximately 2.1 million square feet, including 2 outlet centers in Canada. The portfolio also includes one managed center. Each of our outlet centers, except one joint venture property, features the Tanger brand name.
Our outlet centers and other assets are held by, and all of our operations are conducted by 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.
In November 2021, Tanger Factory Outlet Centers, Inc. (the “Company”) was admitted as General Partner of Tanger Properties Limited Partnership (the “Operating Partnership”). Prior to this administrative change, the Company owned 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 controlled the Operating Partnership as its sole general partner and Tanger LP Trust held a limited partnership interest. Following this change to the ownership structure, the Company has replaced Tanger GP Trust as the sole general partner of the Operating Partnership and Tanger LP Trust retains its limited partnership interest.
The Company, including its wholly-owned subsidiary, Tanger LP Trust, owns the majority of the units of partnership interest issued by the Operating Partnership. As of December 31, 2022, the Company and its wholly-owned subsidiaries owned 104,497,920 units of the Operating Partnership and other limited partners (the "Non-Company LPs") collectively owned 4,737,982 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 control such properties. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities ("VIE"). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity's economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our determination of the primary beneficiary considers 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, 2022, we did not have a joint venture that was a VIE.
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. 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 and intend to provide further financial support to these joint ventures. The carrying amount of our investments in the Charlotte, Galveston/Houston and National Harbor joint ventures are less than zero because of financing or operating distributions that were greater than net income, as net income includes non-cash charges for depreciation and amortization.
Noncontrolling interests - In the Company's consolidated financial statements, the “Noncontrolling interests in the Operating Partnership” reflects the Non-Company LP's percentage ownership of the Operating Partnership's units. "Noncontrolling interests in other consolidated partnerships" consist of outside equity interests in partnerships or joint ventures not wholly-owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties. Noncontrolling interests are initially recorded in the consolidated balance sheets at fair value based upon purchase price allocations. Income or losses are 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 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 Properties - 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.
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, 2022, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Payroll and related costs capitalized | | $ | 2,924 | | | $ | 1,526 | | | $ | 1,159 | |
| Interest costs capitalized | | $ | 862 | | | $ | — | | | $ | 107 | |
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. In accordance with its policy, the Company reviews the estimated useful lives its fixed assets on an ongoing basis. This review indicated that the actual lives of the Company's solar assets were shorter than the estimated useful lives used for depreciation purposes in the Company's financial statements. As a result, the Company changed its useful lives of its solar assets to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of these assets that previously averaged 20 years were decreased to an average of ten years. The effect of this change in estimate was to increase depreciation expense by $4.4 million, decrease net income by $4.4 million, and decrease basic and diluted earnings per share by $0.04.
Depreciation expense related to rental property included in net income for each of the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Depreciation expense related to rental property | | $ | 97,916 | | | $ | 96,990 | | | $ | 101,665 | |
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 are 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.
Cash and Cash Equivalents - 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.
Short-term Investments - Investments with an original maturity of greater than three months and less than one year from the date of purchase are considered short-term investments and are stated at fair value. Interest on our short-term investments is recognized as interest income in our Consolidated Statement of Operations.
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 internal leasing costs for the years ended December 31, 2022, 2021 and 2020 were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Deferred lease costs capitalized- payroll and related costs | | $ | 1,338 | | | $ | 1,233 | | | $ | 1,343 | |
| Total deferred lease costs capitalized | | $ | 2,570 | | | $ | 5,115 | | | $ | 3,061 | |
Due to the adoption of Accounting Standards Codification Topic 842 "Leases" ("ASC 842") on January 1, 2019, only direct internal leasing costs are capitalized and indirect internal leasing costs previously capitalized are now expensed. 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. The cash flow estimates used both for determining recoverability and estimating fair value are inherently judgmental and reflect current and projected trends in rental, occupancy, capitalization, and discount rates, and estimated holding periods for the applicable assets. The estimated fair value is based primarily on the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates and terminal capitalization rates utilized in this approach are derived from property-specific information, market transactions and other financial and industry data.
During the first quarter of 2020, fourth quarter of 2020 and fourth quarter of 2021, we recorded $45.7 million, $19.2 million and $7.0 million in impairment charges, respectively, related to our Foxwoods outlet center in our consolidated statement of operations which equaled the excess of the carrying value over its estimated fair value.
During the fourth quarter of 2020 we recorded $2.4 million related to our Jeffersonville outlet center in our consolidated statement of operations which equaled the excess of the carrying value over its estimated fair value. See Note 10 for additional information on the fair market value calculations.
See Note 5 for discussion of our share of the impairment charges recognized in our unconsolidated joint ventures at the Saint Sauveur, Quebec outlet center in 2020.
If our expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. For example, the Foxwoods outlet center, which is part of a casino property, continues to face leasing challenges that could lead to further declines in occupancy, rental revenues and cash flows in the future. Such challenges, or a change in our expected holding period, could result in additional impairment charges recognized for the Foxwoods property. In addition, one of our outlet centers has an estimated fair value significantly less than its recorded carrying value of approximately $113.0 million. We continue to monitor facts and circumstances and events in future periods that could affect inputs such as the expected holding period, operating cash flow forecasts and capitalization rates, utilized to determine whether an impairment charge is necessary. We can provide no assurance that material impairment charges with respect to our properties will not occur in future periods.
Rental Properties 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.
Impairment of Investments - On a periodic basis or if circumstances exist, 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 an other than temporary 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, 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 of real estate where we have consideration to which we are entitled in exchange for transferring the real estate, the related assets and liabilities are removed from the balance sheet and the resultant gain or loss is recorded in the period the transaction closes. Any post sale involvement is accounted for as separate performance obligations and when the separate performance obligations are satisfied, the sales price allocated to each is recognized.
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 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.
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 2018 - 2021 remain open to examination by the major tax jurisdictions to which we are subject.
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 it is not probable that 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, 2022, 2021 and 2020 were taxable as follows:
| | | | | | | | | | | | | | | | | | | | |
| Common dividends per share: | | 2022 | | 2021 | | 2020 |
| Ordinary income | | $ | 0.8025 | | | $ | — | | | $ | 0.7125 | |
| Capital gain | | — | | | — | | | — | |
| Return of capital | | — | | | 0.7150 | | | — | |
| | $ | 0.8025 | | | $ | 0.7150 | | | $ | 0.7125 | |
The following reconciles net income (loss) available to the Company's shareholders to taxable income (loss) available to common shareholders for the years ended December 31, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Net income (loss) available to the Company's shareholders | | $ | 82,063 | | | $ | 9,118 | | | $ | (36,278) | |
| Book/tax difference on: | | | | | | |
| Depreciation and amortization | | 3,688 | | | 21,750 | | | 71,896 | |
| Sale of assets and interests in unconsolidated entities | | 5,328 | | | (92,998) | | | (6,021) | |
| Equity in earnings from unconsolidated joint ventures | | 12,511 | | | (4,461) | | | 9,642 | |
| Share-based payment compensation | | 11,822 | | | 6,797 | | | 7,859 | |
| | | | | | |
| Other differences | | 1,851 | | | 8,914 | | | 13,536 | |
| Taxable income (loss) available to common shareholders | | $ | 117,263 | | | $ | (50,880) | | | $ | 60,634 | |
Revenue Recognition - As a lessor, substantially all of our revenues are earned from arrangements that are within the scope of ASC 842. We utilized the practical expedient in ASU 2018-11 to account for lease and non-lease components as a single component which resulted in all of our revenues associated with leases being recorded as rental revenues in the consolidated statements of operations. Base rentals are recognized on a straight-line basis over the term of the lease. Tenant expense reimbursements are recognized in the period the applicable expenses are incurred. As a result of combining all components of a lease, all fixed contractual payments, including consideration received from certain executory costs, are now recognized on a straight-line basis. Straight-line rent adjustments are recorded as a receivable in other assets on the consolidated balance sheets. Common area maintenance expense reimbursements are based on the tenant's proportionate share of the allocable operating expenses for the property.
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. The majority of our 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. 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.
We account for rental deferrals using the receivables model as described within the Financial Accounting Standards Board (“FASB”) question and answer document (the “Lease Modification Q&A”). Under the receivables model, we will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue until such deferral is paid. We account for rental abatements as negative variable adjustments to rental revenue as described within the Lease Modification Q&A.
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.
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. Our share of fees received from consolidated joint ventures are eliminated in consolidation. Expense reimbursements from unconsolidated joint ventures are recognized in the period the applicable expenses are incurred.
Operating Lease Receivable - Our accounts receivable from tenants, which is recorded in prepaids and other assets on the consolidated balance sheet, has decreased from approximately $9.9 million at December 31, 2021 to approximately $8.6 million at December 31, 2022, primarily due to collections of deferred April and May 2020 rents over the twelve month period. Straight-line rent adjustments recorded as a receivable in prepaid and other assets on the consolidated balance sheets were approximately $51.1 million and $53.3 million as of December 31, 2022 and December 31, 2021, respectively.
Individual leases are assessed for collectability and upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are written off as an adjustment to rental revenue. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further we assess whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends including discussions with tenants for potential lease amendments. Our estimate of the collectability of accrued rents and accounts receivable is based on the best information available to us at the time of preparing the financial statements.
The COVID-19 pandemic, tenant bankruptcies and other significant uncertainties with the economy required significant judgment to be used when estimating the collection of rents through December 31, 2020. See Note 3 for amounts we recorded as a reduction of revenues for uncollectible accounts for the year ended December 31, 2020.
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 revenues or gross leasable area during 2022, 2021 or 2020. See Note 3 for disclosures regarding credit risk due to the COVID-19 pandemic.
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, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | 2020 |
| Costs relating to construction included in accounts payable and accrued expenses | | $ | 20,084 | | | $ | 11,663 | | | $ | 22,814 | |
Interest paid, net of interest capitalized was as follows for the years ended December 31, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Interest paid, net of interest capitalized | | $ | 40,839 | | | $ | 45,114 | | | $ | 58,021 | |
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 issued accounting standards
On March 12, 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which refines the scope of Topic 848 and clarifies some of its guidance. Specifically, certain provisions in Topic 848, if elected by an entity, apply to derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. Amendments to the expedients and exceptions in Topic 848 capture the incremental consequences of the scope clarification and tailor the existing guidance to derivative instruments affected by the discounting transition. The amendments are effective immediately for all entities. An entity may elect to apply the amendments on a full retrospective basis. In October 2022 we elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. This was done as we modified all of our current interest rate derivative contracts, changing the indexes from LIBOR to Adjusted SOFR. We have and will continue to elect to apply practical expedients related to contract modifications, changes in critical terms, and updates to the designated hedged risk(s) as qualifying changes are made to applicable debt and derivative instruments. Application of these expedients preserves the presentation of derivatives contracts consistent with past presentation. We continue to evaluate the impact of the guidance and may apply other applicable elections as additional changes in the market and with respect to our debt and derivative instruments occur.
3. COVID-19 Pandemic
The current novel COVID-19 pandemic (“COVID-19”) has had, and will continue to have, repercussions across local, national and global economies and financial markets. Our financial results for 2020 were materially adversely impacted by COVID-19 as described below. During 2021 and 2022, our business and financial results improved, and metrics such as average overall occupancy rates, traffic to our centers, sales reported by our tenants, and collections of rental revenues returned to near, at, or in some cases above, pre-pandemic levels. Nevertheless, the full extent of the adverse impact on, among other things, our results of operations, liquidity (including our ability to access capital markets), the possibility of future impairments of long-lived assets or our investments in unconsolidated joint ventures, our compliance with debt covenants, our ability to collect rent under our existing leases, our ability to renew and re-lease our leased space, the outlook for the retail environment, bankruptcies and potential further bankruptcies or other store closings and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows have been and may continue to be in the future materially affected.
During 2020, although our outlet centers remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, substantially all of the stores in our portfolio were closed as a result of mandates by order of local and state authorities. By June 15, 2020, in store shopping for non-essential retail was allowed in every market in which our centers are located.
Due to the COVID-19 pandemic, a number of our tenants requested rent deferrals, rent abatements or other types of rent relief during this pandemic. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. Through December 31, 2022, the Company had collected 99% of the 2020 deferred rents.
During the year ended December 31, 2020, as a direct result of the pandemic, bankruptcies and restructurings, the Company's earnings were negatively impacted by approximately $47.3 million due to (1) write-offs related to bankruptcies and other uncollectible accounts due to financial weakness, (2) one-time concessions in exchange for landlord-favorable amendments to lease structure, (3) reserves for a portion of deferred and under negotiation billings that we expect to become uncollectible in future periods, (4) and write-offs of straight-line rents associated with the bankruptcies and uncollectible accounts.
Included in the negative impact discussed above, for the year ended December 31, 2020, we recorded a $5.3 million reserve for a portion of deferred and under negotiation billings that were expected to become uncollectible in future periods and recognized a write-off of revenue of approximately $7.2 million of straight-line rents associated with the tenant bankruptcies and uncollectible accounts. However, as of December 31, 2021, contractual fixed rents billed during 2020 that were deferred as a direct result of the COVID-19 pandemic and remain outstanding totaled $82,000. Through December 31, 2022, the Company had collected 99% of the 2020 deferred rents due to be repaid during the years ended December 31, 2021 and December 31, 2022. As a result we reversed $2.7 million in reserves related to deferred rents in 2021. During 2022, results included the reversal of revenue reserves of approximately $4.1 million compared to approximately $1.2 million of net reserves recorded in 2021.The extent of future tenant requests for rent relief and the impact on our results of operations and cash flows is uncertain and cannot be predicted at this time. If store closures were to occur again in our domestic markets, this could have a material adverse impact on our financial position and results of operations.
In March 2020, to increase liquidity, preserve financial flexibility and help meet our obligations for a sustained period of time, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of December 31, 2020.
During 2020, we took steps to reduce cash outflows, including the reduction or deferral of certain operating costs, temporary base salary reductions for our named executive officers and other employees, and the reduction of certain general and administrative expenses. In addition, we also temporarily deferred our Nashville pre-development-stage project and certain other planned capital expenditures. We paid the dividend that was declared in January 2020 as scheduled on May 15, 2020, but in May 2020 the Company’s Board of Directors temporarily suspended dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. During 2021, we resumed pre-development activities on the Nashville project and other planned capital expenditures. We also reinstated the dividend in January 2021 and paid dividends on a quarterly basis for the year ended December 31, 2021. We continued to pay dividends on a quarterly basis for the year ended December 31, 2022, including a combined 20% increase in our quarterly dividend during 2022.
4. Disposition of Properties
The following table sets forth the properties sold for the years ended 2022, 2021 and 2020 (in thousands).
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Properties | | Locations | | Date Sold | | Square Feet | | Net Sales Proceeds | | Gain on Sale |
2022 Dispositions: (1) | | | | | | | | | | |
| Blowing Rock | | Blowing Rock, North Carolina | | December 2022 | | 104 | | | $ | 12,400 | | | $ | 3,156 | |
| | | | | | | | | | |
2021 Dispositions: (1) | | | | | | | | | | |
| Jeffersonville | | Jeffersonville, Ohio | | January 2021 | | 412 | | | $ | 8,100 | | | $ | — | |
| | | | | | | | | | |
2020 Dispositions: (1) | | | | | | | | | | |
| Terrell | | Terrell, Texas | | August 2020 | | 178 | | | $ | 7,626 | | | $ | 2,324 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | 694 | | | $ | 28,126 | | | $ | 5,480 | |
(1)The rental properties sold did not meet the criteria to be reported as discontinued operations.
5. Investments in Unconsolidated Real Estate Joint Ventures
The equity method of accounting is used to account for each of the individual joint ventures. We have an ownership interest in the following unconsolidated real estate joint ventures:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2022 |
| Joint Venture | | Outlet Center Location | | Ownership % | | Square Feet
(in 000's) | | Carrying Value of Investment (in millions) | | Total Joint Venture Debt, Net (in millions) (1) |
| Investments included in investments in unconsolidated joint ventures: | | | | |
| RioCan Canada | | Various | | 50.0 | % | | 665 | | | 73.8 | | | — | |
| | | | | | | | | | |
| | | | | | $ | 73.8 | | | |
| Investments included in other liabilities: | | | | | | |
Charlotte (2) | | Charlotte, NC | | 50.0 | % | | 399 | | | $ | (18.8) | | | $ | 99.7 | |
National Harbor (2) | | National Harbor, MD | | 50.0 | % | | 341 | | | (12.8) | | | 94.6 | |
Galveston/Houston (2) | | Texas City, TX | | 50.0 | % | | 353 | | | (15.5) | | | 64.5 | |
| Columbus | | Columbus, OH | | 50.0 | % | | 355 | | | (2.4) | | | 70.3 | |
| | | | | | $ | (49.5) | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As of December 31, 2021 |
| Joint Venture | | Outlet Center Location | | Ownership % | | Square Feet
(in 000's) | | Carrying Value of Investment (in millions) | | Total Joint Venture Debt, Net (in millions) (1) |
| Investments included in investments in unconsolidated joint ventures: | | | | |
| Columbus | | Columbus, OH | | 50.0 | % | | 355 | | | $ | 0.2 | | | $ | 70.9 | |
| RioCan Canada | | Various | | 50.0 | % | | 665 | | | 82.4 | | | — | |
| | | | | | $ | 82.6 | | | |
| Investments included in other liabilities: | | | | | | |
Charlotte (2) | | Charlotte, NC | | 50.0 | % | | 399 | | | $ | (16.2) | | | $ | 99.6 | |
National Harbor (2) | | National Harbor, MD | | 50.0 | % | | 341 | | | (11.2) | | | 94.5 | |
Galveston/Houston (2) | | Texas City, TX | | 50.0 | % | | 353 | | | (14.0) | | | 64.4 | |
| | | | | | $ | (41.4) | | | |
(1)Net of debt origination costs of $1.5 million and $1.0 million as of December 31, 2022 and 2021, respectively.
(2)We separately report investments in joint ventures for which accumulated distributions have exceeded investments in and our share of net income or loss of the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. The negative carrying value is due to the distributions of proceeds from mortgage loans and quarterly distributions of excess cash flow exceeding the original contributions from the partners and equity in earnings of the joint ventures.
Fees we received for various services provided to our unconsolidated joint ventures were recognized in management, leasing and other services as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Fees: | | | | | | |
| Management and marketing | | $ | 2,207 | | | $ | 2,347 | | | $ | 1,859 | |
| Leasing and other fees | | 194 | | | 228 | | | 60 | |
| Expense reimbursements from unconsolidated joint ventures | | 4,432 | | | 3,836 | | | 3,017 | |
| Total Fees | | $ | 6,833 | | | $ | 6,411 | | | $ | 4,936 | |
Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the “Condensed Combined Balance Sheets - Unconsolidated Joint Ventures” shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $3.2 million and $3.4 million as of December 31, 2022 and 2021, respectively) are amortized over the various useful lives of the related assets.
Charlotte
In July 2014, we opened an approximately 398,000 square foot outlet center in Charlotte, North Carolina that was developed through, and is owned by, a joint venture formed in May 2013. In June 2018, the Charlotte joint venture closed on a $100.0 million mortgage loan with a fixed interest rate of approximately 4.3% and a maturity date of July 2028. The proceeds from the loan were used to pay off the existing $90.0 million mortgage loan with an interest rate of LIBOR + 1.45%, which had an original maturity date of November 2018. The joint venture distributed the incremental net loan proceeds of $9.3 million equally to the partners.Our partner provides property management, marketing and leasing services to the joint venture.
Columbus
In June 2016, we opened an approximately 355,000 square foot outlet center in Columbus, Ohio. The development was initially fully funded with equity contributed to the joint venture by Tanger and its partner. In November 2016, the joint venture closed on an interest-only mortgage loan of $85.0 million at an interest rate of LIBOR + 1.65%. The loan initially matured in November 2019, with two one-year extension options. The joint venture received net loan proceeds of $84.2 million and distributed them equally to the partners. In October 2019, the joint venture exercised its first option to extend the mortgage loan for one year to November 2020 under the same terms. In December 2020, the Columbus joint venture amended the mortgage loan to extend the maturity to November 2022, which required a reduction in principal balance from $85.0 million to $71.0 million. The amendment also changed the interest rate from LIBOR + 1.65% to LIBOR + 1.85%. In addition, the mortgage loan guarantee by us was increased from $6.4 million to $11.9 million. In September 2022, we refinanced this mortgage. The new $71.0 million non-recourse loan has a maturity date of October 2032 and a fixed interest rate of 6.25%. We are providing property management, marketing and leasing services to the joint venture.
Galveston/Houston
In October 2012, we opened an approximately 353,000 square foot outlet center in Texas City, Texas that was developed through, and is owned by, a joint venture formed in June 2011. In July 2017, the joint venture amended and restated the initial construction loan, which had an outstanding balance of $65.0 million, to increase the amount available to borrow from $70.0 million to $80.0 million and extended the maturity date until July 2020 with two one-year options. The amended and restated loan also changed the interest rate from LIBOR + 1.50% to LIBOR + 1.65%. At the closing of the amendment, the joint venture distributed the net proceeds of approximately $14.5 million equally between the partners.In June 2020, in response to the COVID-19 impact on the property, the Galveston/Houston joint venture amended its mortgage loan. The loan modification amended the first one-year extension option to provide for two six-month options (the “First Extension” and “Second Extension”, respectively). Under the loan modification, the loan would have matured in July 2022. In February 2021, the Galveston/Houston joint venture amended its mortgage loan to extend the maturity to July 2023, which required a reduction in principal balance from $80.0 million to $64.5 million. The amendment also changed the interest rate from LIBOR + 1.65% to LIBOR + 1.85%. Each partner made a capital contribution of $7.0 million to fund the reduction in principal balance. We are providing property management, marketing and leasing services to the outlet center.
National Harbor
In November 2013, we opened an approximately 341,000 square foot outlet center at National Harbor in the Washington, D.C. Metro area that was developed through, and is owned by, a joint venture formed in May 2011. In December 2018, the National Harbor joint venture closed on a $95.0 million mortgage loan with a fixed interest rate of approximately 4.6% and a maturity date of January 2030. The proceeds from the loan were used to pay off the $87.0 million construction loan with an interest rate of LIBOR + 1.65%, which had an original maturity date of November 2019. The joint venture distributed the incremental net loan proceeds of $7.4 million equally to the partners.
RioCan Canada
We have a 50/50 co-ownership agreement with RioCan Real Estate Investment Trust to operate and manage outlet centers in Canada. We provide leasing and marketing services for the outlet centers and RioCan provides development and property management services.
In October 2014, the co-owners opened Tanger Outlets Ottawa, the first ground up development of a Tanger Outlet Center in Canada. In 2016, the co-owners commenced construction on a 39,000 square foot expansion, which opened during the second quarter of 2017 to bring the total square feet of the outlet center to approximately 357,000. In November 2020, the RioCan joint venture closed on the sale of an outparcel located at Tanger Outlets Ottawa for net proceeds of approximately $5.5 million and a gain of approximately $2.0 million. Our share of the net proceeds was $2.8 million, and our share of the gain was approximately $1.0 million.
In addition, the RioCan Canada co-owners own Tanger Outlets Cookstown, which is approximately 308,000 square feet.
In March 2021, the RioCan joint venture closed on the sale of its 116,000 square foot outlet center in Saint-Sauveur, for net proceeds of approximately $9.4 million. Our share of the proceeds was approximately $4.7 million. As a result of this transaction, we recorded a loss on the sale of $3.7 million. This includes a $3.6 million charge related to the foreign currency effect of the sale recorded in other income (expense), which had been previously recorded in other comprehensive income.
In May 2020, the joint venture’s mortgage loan for the outlet center in Saint-Sauveur matured and the joint venture repaid the approximately $8.3 million owed in full.
During 2020, the RioCan joint venture recognized an impairment charge related to its Saint-Sauveur property. The impairment charge was primarily driven by, among other things, new competition in the market and changes in market capitalization rates and the COVID-19 pandemic in 2020.
The table below summarizes the impairment charges taken during 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | | Impairment Charge (1) |
| | Outlet Center | | Total | | Our Share |
| 2020 | | Saint-Sauveur | | $ | 6,181 | | | $ | 3,091 | |
| | | | | | |
| | | | | | |
(1)The fair value was determined using an income approach considering the prevailing market income capitalization rates for similar assets.
Condensed combined summary financial information of joint ventures accounted for using the equity method as of December 31, 2022 and 2021 and for the years ended December 31, 2022, 2021 and 2020 is as follows (in thousands):
| | | | | | | | | | | | | | |
| Condensed Combined Balance Sheets - Unconsolidated Joint Ventures | | 2022 | | 2021 |
| Assets | | | | |
| Land | | $ | 81,716 | | | $ | 83,568 | |
| Buildings, improvements and fixtures | | 458,190 | | | 467,918 | |
| Construction in progress | | 681 | | | 744 | |
| | 540,587 | | | 552,230 | |
| Accumulated depreciation | | (182,731) | | | (166,096) | |
| Total rental property, net | | 357,856 | | | 386,134 | |
| Cash and cash equivalents | | 17,372 | | | 19,030 | |
| Deferred lease costs, net | | 2,895 | | | 3,517 | |
| Prepaids and other assets | | 10,612 | | | 13,109 | |
| Total assets | | $ | 388,735 | | | $ | 421,790 | |
| Liabilities and Owners' Equity | | | | |
| Mortgages payable, net | | $ | 329,009 | | | $ | 329,460 | |
| Accounts payable and other liabilities | | 15,374 | | | 15,231 | |
| Total liabilities | | 344,383 | | | 344,691 | |
| Owners' equity | | 44,352 | | | 77,099 | |
| Total liabilities and owners' equity | | $ | 388,735 | | | $ | 421,790 | |
| | | | | | | | | | | | | | | | | | | | |
| Condensed Combined Statements of Operations- Unconsolidated Joint Ventures: | | Year Ended December 31, |
| | 2022 | | 2021 | | 2020 |
| Revenues | | $ | 87,709 | | | $ | 88,120 | | | $ | 76,866 | |
| Expenses: | | | | | | |
| Property operating | | 34,297 | | | 35,111 | | | 33,053 | |
| General and administrative | | 257 | | | 278 | | | 395 | |
| Impairment charges | | — | | | — | | | 6,181 | |
| | | | | | |
| | | | | | |
| Depreciation and amortization | | 21,749 | | | 22,947 | | | 23,544 | |
| Total expenses | | 56,303 | | | 58,336 | | | 63,173 | |
| | | | | | |
| Other income (expense): | | | | | | |
| Interest expense | | (14,174) | | | (11,715) | | | (13,091) | |
| Gain on sale of assets | | — | | | 503 | | | 1,983 | |
| Other non-operating income | | 230 | | | 160 | | | 170 | |
| Total other income (expense) | | $ | (13,944) | | | $ | (11,052) | | | $ | (10,938) | |
| Net income | | $ | 17,462 | | | $ | 18,732 | | | $ | 2,755 | |
| The Company and Operating Partnership's share of: | | | | | | |
| Net income | | $ | 8,594 | | | $ | 8,904 | | | $ | 1,126 | |
| Depreciation, amortization and asset impairments (real estate related) | | $ | 11,018 | | | $ | 11,618 | | | $ | 15,115 | |
6. Deferred Charges
Deferred lease costs and other intangibles, net as of December 31, 2022 and 2021 consist of the following (in thousands):
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Deferred lease costs | | $ | 89,103 | | | $ | 90,240 | |
| Intangible assets: | | | | |
| Above market leases | | 36,085 | | | 38,942 | |
| Lease in place value | | 52,280 | | | 53,584 | |
| Tenant relationships | | 32,912 | | | 33,759 | |
| Other intangibles | | 40,651 | | | 40,806 | |
| | 251,031 | | | 257,331 | |
| Accumulated amortization | | (192,457) | | | (183,611) | |
| Deferred lease costs and other intangibles, net | | $ | 58,574 | | | $ | 73,720 | |
Below market lease intangibles, net of accumulated amortization, included in other liabilities on the consolidated balance sheets as of December 31, 2022 and 2021 were $13.3 million and $14.9 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, 2022, 2021 and 2020 was $11.6 million, $10.7 million and $12.4 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, 2022, 2021 and 2020 was $(1.0) million, $0.1 million and $(2.4) 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) | | Lease Cost Intangibles (2) |
| 2023 | | $ | 54 | | | $ | 3,050 | |
| 2024 | | (16) | | | 2,865 | |
| 2025 | | (424) | | | 2,303 | |
| 2026 | | (745) | | | 1,727 | |
| 2027 | | (771) | | | 1,562 | |
| Total | | $ | (1,902) | | | $ | 11,507 | |
(1)These net amounts are recorded as a reduction (increase) of base rentals.
(2)These amounts are recorded as an increase in depreciation and amortization.
7. 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, 2022 and 2021 (in thousands):
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Unsecured lines of credit | | $ | — | | | $ | — | |
| Unsecured term loan | | $ | 325,000 | | | $ | 300,000 | |
8. Debt of the Operating Partnership
The debt of the Operating Partnership as of December 31, 2022 and 2021 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| | | | | | | 2022 | | 2021 |
| | Stated Interest Rate(s) | Maturity Date | | Principal | | Book Value(1) | | Principal | | Book Value(1) |
| Senior, unsecured notes: | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Senior notes | | 3.125 | % | | | September 2026 | | $ | 350,000 | | | $ | 347,894 | | | $ | 350,000 | | | $ | 347,329 | |
| Senior notes | | 3.875 | % | | | July 2027 | | 300,000 | | | 298,142 | | | 300,000 | | | 297,742 | |
| Senior notes | | 2.750 | % | | | September 2031 | | 400,000 | | | 391,962 | | | 400,000 | | | 391,110 | |
| | | | | | | | | | | | | |
| Mortgages payable: | | | | | | | | | | | | | |
Atlantic City (2) (3) | | 6.44 | % | - | 7.65% | December 2024- December 2026 | | 17,109 | | | 17,625 | | | 21,550 | | | 22,387 | |
| Southaven | | Adj SOFR | + | 2.00% | October 2026 | | 51,700 | | | 51,346 | | | 40,144 | | | 40,087 | |
| Unsecured term loan | | Adj SOFR | + | 1.20% | January 2027 | | 325,000 | | | 321,525 | | | 300,000 | | | 298,421 | |
| Unsecured lines of credit | | Adj SOFR | + | 1.20% | July 2025 | | — | | | — | | | — | | | — | |
| | | | | | | | $ | 1,443,809 | | | $ | 1,428,494 | | | $ | 1,411,694 | | | $ | 1,397,076 | |
(1)Includes premiums and net of debt discount and unamortized debt origination costs. Excludes $3.5 million and $4.8 million of unamortized debt origination costs related to unsecured lines of credit as of December 31, 2022 and 2021, respectively, recorded in prepaids and other assets in the Consolidated Balance Sheet. Unamortized debt origination costs were $12.8 million and $12.9 million as of December 31, 2022 and 2021, respectively. Amortization of deferred debt origination costs included in interest expense for the years ended December 31, 2022, 2021 and 2020 was $3.1 million, $4.0 million and $3.6 million, respectively.
(2)The effective interest rate assigned during the purchase price allocation to the Atlantic City mortgages assumed during the acquisition in 2011 was 5.05%.
(3)Principal and interest due monthly with remaining principal due at maturity.
Certain of our properties, which had a net book value of approximately $143.2 million at December 31, 2022, serve as collateral for mortgages payable. As of December 31, 2022, we maintained unsecured lines of credit that provided for borrowings of up to $520.0 million. The unsecured lines of credit as of December 31, 2022 included a $20.0 million liquidity line and a $500.0 million syndicated line. As of December 31, 2022, the syndicated line may be increased up to $1.2 billion through an accordion feature in certain circumstances.
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, 2022, we believe we were in compliance with all of our debt covenants.
2022 Transactions
Memphis Consolidated Joint Venture
In October 2022, the Southaven, Mississippi joint venture amended and restated its secured term loan, increasing the outstanding balance to $51.7 million from $40.1 million, extending maturity from April 2023 to October 2026 plus a one year extension option, with an interest rate of Adjusted SOFR plus 200 basis points.
Unsecured Term Loan
In October 2022, we amended and restated our unsecured term loan. The outstanding balance was increased from $300.0 million to $325.0 million and the maturity was extended to January 2027 plus a one-year extension option. The interest rate changed from LIBOR + 1.25% to Adjusted SOFR + 1.20% based on our current credit rating. The amendment also incorporates a sustainability metric, reducing the applicable grid-based interest rate spread by one basis point annually, subject to meeting certain thresholds.
Amendment of Unsecured Line of Credit
In October 2022, we amended our unsecured lines of credit to change the interest rate index from LIBOR to Adjusted SOFR. All other terms remained unchanged.
2021 Transactions
Unsecured term loan
In March 2021 and June 2021, we paid down a total of $50.0 million of borrowings under our $350.0 million unsecured term loan with cash on hand, reducing the outstanding balance to $300.0 million as of December 31, 2021.
Redemption of the 2023 and 2024 Senior Notes and public offering of aggregate $400.0 Million Unsecured Senior Notes due 2031
In April 2021, we completed a partial redemption of $150.0 million aggregate principal amount of our $250.0 million 3.875% senior notes due December 2023, for $163.0 million in cash, which includes a make-whole premium of $13.0 million and the write-off of approximately $1.0 million of debt discount and debt origination costs. The make-whole premium and the write-off of debt discount and debt origination costs was recorded as a loss on early extinguishment of debt within the consolidated statements of operations. Subsequent to this redemption, $100.0 million aggregate principal amount of the Notes remained outstanding, until the redemption in August 2021, described below.
In August 2021, we completed a public offering of $400.0 million in senior notes due 2031. The notes were priced at 98.552% of the principal amount to yield 2.917% to maturity. The notes pay interest semi-annually at a rate of 2.750% per annum and mature on September 1, 2031. The aggregate net proceeds from the offering, after deducting the underwriting discount and offering expenses, were approximately $390.7 million. We used the net proceeds from the sale of the notes to redeem all remaining 3.875% senior notes due 2023, $100.0 million in aggregate principal amount outstanding, and all 3.750% senior notes due 2024, $250.0 million in aggregate principal outstanding. The redemptions occurred in September 2021 and included a make-whole premium of $31.9 million and the write-off of approximately $1.9 million of debt discount and debt origination costs. The make-whole premium and the write-off of debt discount and origination costs was recorded as a loss on early extinguishment of debt within the consolidated statements of operations. The remaining proceeds were used for general corporate purposes.
Unsecured Lines of Credit Extension
In July 2021, we amended our unsecured lines of credit and extended the maturity date from October 2021 to July 2025, which may be extended by an additional year by exercising two six-month extension options. The amendment eliminated the LIBOR floor, which was previously 0.25%, and entitles us to a one basis point annual reduction in the interest rate if we meet certain sustainability thresholds. Other pricing terms remained the same. The lines provide for borrowings of up to $520.0 million, including a $20.0 million liquidity line and a $500.0 million syndicated line. A 0.25% facility fee is due annually on the entire committed amount of each facility. In certain circumstances, total line capacity may be increased to $1.2 billion through an accordion feature in the syndicated line.
Atlantic City Mortgage
During 2021, we completed the principal payments of certain mortgage notes secured by the Atlantic City property with stated interest rates that ranged from 5.14% to 6.27% and which were scheduled to mature in 2021. The effective interest rate for the remaining notes remains 5.05% as established upon acquisition. The stated rates for the remaining secured notes ranged from 6.44% to 7.65% with maturity dates between December 2024 and December 2026.
Southaven Mortgage
In October 2021, the joint venture that owns the Southaven, Mississippi outlet center exercised its option to extend the maturity of the Southaven, Mississippi mortgage to April 2023 and paid down the principal balance by $11.3 million to $40.1 million. The interest rate remains LIBOR + 1.80%. The outlet center is consolidated for financial reporting purposes and we funded the entire $11.3 million.
Debt Maturities
Maturities and principal amortization of our consolidated existing debt as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):
| | | | | | | | |
| Calendar Year | | Amount |
| 2023 | | $ | 4,773 | |
| 2024 | | 5,130 | |
| 2025 | | 1,501 | |
| 2026 | | 407,405 | |
| 2027 | | 625,000 | |
| Thereafter | | 400,000 | |
| Subtotal | | 1,443,809 | |
| Net discount and debt origination costs | | (15,315) | |
| Total | | $ | 1,428,494 | |
We have considered our short-term (one year or less from the date of filing these financial statements) liquidity needs and the adequacy of our estimated cash flows from operating activities and other financing sources to meet these needs. These other sources include but are not limited to: existing cash, ongoing relationships with certain financial institutions, our ability to sell debt or issue equity subject to market conditions and proceeds from the potential sale of non-core assets. We believe that we have access to the necessary financing to fund our short-term liquidity needs.
9. 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, 2022 and 2021 (notional amounts and fair values in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | Fair Value |
| Effective Date | | Maturity Date | | Notional Amount | | | Bank Pay Rate | | Company Average Fixed Pay Rate | | 2022 | | 2021 |
Assets (Liabilities) (1): | | | | | | | | | | | | | |
| July 1, 2019 | | February 1, 2024 | | 25,000 | | | | Daily Adjusted SOFR | | 1.68 | % | | $ | 853 | | | $ | (459) | |
| January 1, 2021 | | February 1, 2024 | | 150,000 | | | | Daily Adjusted SOFR | | 0.53 | % | | 6,966 | | | 828 | |
| January 1, 2021 | | February 1, 2024 | | 100,000 | | | | Daily Adjusted SOFR | | 0.15 | % | | 5,043 | | | 1,331 | |
| March 1, 2021 | | February 1, 2024 | | 25,000 | | | | Daily Adjusted SOFR | | 0.18 | % | | 1,256 | | | 326 | |
| Total | | | | $ | 300,000 | | | | | | | | $ | 14,118 | | | $ | 2,026 | |
(1)Asset balances are recorded in prepaids and other assets on the consolidated balance sheets and liabilities are recorded in other liabilities on the consolidated balance sheets.
The derivative financial instruments are comprised of interest rate swaps, which are designated and qualify as cash flow hedges, each with a separate counterparty. We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as hedges.
Changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements for the years ended December 31, 2022, 2021 and 2020, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | |
| | |
| | 2022 | | 2021 | | 2020 |
| Interest Rate Swaps (Effective Portion): | | | | | | |
| Amount of gain (loss) recognized in other comprehensive income (loss) | | $ | 12,092 | | | $ | 5,383 | | | $ | (2,934) | |
10. Fair Value Measurements
Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
| | | | | | | | |
Tier | | Description |
Level 1 | | Observable inputs such as quoted prices in active markets |
Level 2 | | Inputs other than quoted prices in active markets that are either directly or indirectly observable |
Level 3 | | Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions |
Fair Value Measurements on a Recurring Basis
The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| | | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | Significant Unobservable Inputs |
| | Total | | | |
| Fair value as of December 31, 2022: | | | | | | | | |
| Asset: | | | | | | | | |
| Short-term government securities (cash and cash equivalents) | | $ | 174,495 | | | $ | 174,495 | | | $ | — | | | $ | — | |
| Bank certificate of deposit (short-term investments) | | 52,450 | | | 52,450 | | | — | | | — | |
| Interest rate swaps (prepaids and other assets) | | 14,118 | | | — | | | 14,118 | | | — | |
| Total assets | | $ | 241,063 | | | $ | 226,945 | | | $ | 14,118 | | | $ | — | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swaps (other liabilities) | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Total liabilities | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | 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, 2021: | | | | | | | | |
| Assets: | | | | | | | | |
| Short-term government securities (cash and cash equivalents) | | $ | 158,197 | | | $ | 158,197 | | | $ | — | | | $ | — | |
| Interest rate swaps (prepaids and other assets) | | 2,485 | | | — | | | 2,485 | | | — | |
| Total assets | | $ | 160,682 | | | $ | 158,197 | | | $ | 2,485 | | | $ | — | |
| | | | | | | | |
| Liabilities: | | | | | | | | |
| Interest rate swaps (other liabilities) | | $ | 459 | | | $ | — | | | $ | 459 | | | $ | — | |
| Total liabilities | | $ | 459 | | | $ | — | | | $ | 459 | | | $ | — | |
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.
Fair Value Measurements on a Nonrecurring Basis
The following table sets forth our assets that are measured at fair value on a nonrecurring basis within the fair value hierarchy (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Level 1 | | Level 2 | | Level 3 |
| | | | Quoted Prices in Active Markets for Identical Assets or Liabilities | | Significant Observable Inputs | | Significant Unobservable Inputs |
| | Total | | | |
| Fair value as of December 31, 2022: | | | | | | | | |
| Asset: | | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Long-lived assets | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
| Fair value as of December 31, 2021: | | | | | | | | |
| Asset: | | | | | | | | |
| Long-lived assets | | $ | 29,460 | | | $ | — | | | $ | — | | | $ | 29,460 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| Fair value as of December 31, 2020: | | | | | | | | |
| Asset: | | | | | | | | |
| Long-lived assets | | $ | 46,950 | | | $ | — | | | $ | — | | | $ | 46,950 | |
Jeffersonville Impairments
During the fourth quarter of 2020, due to the pending sale in January 2021 of the outlet center we recorded an impairment charge of $2.4 million in our consolidated statement of operations which equaled the excess of the carrying value of our Jeffersonville outlet center over its estimated fair value. The estimated fair value was based on the market approach.
Foxwoods Impairments
During the first quarter 2020, we recorded a $45.7 million impairment charge in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate.
During the fourth quarter of 2020, in anticipation of further store closings and declining operating results, we recorded an additional impairment charge of $19.2 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach. During the fourth quarter of 2021, due to a decrease in the estimated hold period and declining operating results, we recorded an additional impairment charge of $7.0 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach.
Discount rates and terminal capitalization rates utilized in the approach above were derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant unobservable inputs in determining the fair value. These inputs are classified under Level 3 in the fair value hierarchy above. Our assumptions during our asset impairment reviews during 2022 remained consistent. Should the significant assumptions utilized above to determine fair value continue to deteriorate, additional impairments in the future could be possible.
The table below summarizes the terminal capitalization rate and discount rate used:
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| Terminal capitalization rate | | 8.3 | % | | 7.8 | % |
| Discount rate | | 9.3 | % | | 8.5 | % |
Other Fair Value Disclosures
The estimated fair value and recorded value of our debt as of December 31, 2022 and 2021 were as follows (in thousands):
| | | | | | | | | | | | | | |
| | 2022 | | 2021 |
| Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities | | $ | — | | | $ | — | |
| Level 2 Significant Observable Inputs | | 876,542 | | | 1,079,234 | |
| Level 3 Significant Unobservable Inputs | | 391,820 | | | 366,103 | |
| Total fair value of debt | | $ | 1,268,362 | | | $ | 1,445,337 | |
| | | | |
| Recorded value of debt | | $ | 1,428,494 | | | $ | 1,397,076 | |
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 SOFR 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.
11. Shareholders' Equity of the Company
As discussed in Note 12, 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, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Exchange of Class A limited partnership units | | 23,577 | | | 33,084 | | | 116,530 | |
At-the-Market Offering
Under our at-the-market stock offering program (“ATM Offering”), which commenced February 2021, we may offer and sell our common shares, $0.01 par value per share (“Common Shares”), having an aggregate gross sales price of up to $250.0 million (the “Shares”). We may sell the Shares in amounts and at times to be determined by us but we have no obligation to sell any of the Shares. Actual sales, if any, will depend on a variety of factors to be determined by us from time to time, including, among other things, market conditions, the trading price of the Common Shares, capital needs and determinations by us of the appropriate sources of its funding. We currently intend to use the net proceeds from the sale of shares pursuant to the ATM Offering for working capital and general corporate purposes. The Company did not sell any Shares under the ATM Offering in the year ended December 31, 2022. As of December 31, 2022, we had approximately $60.1 million remaining available for sale under the ATM Offering program.
The following table sets forth information regarding settlements under our ATM offering program:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Number of common shares settled during the period | | — | | | 10,009,263 | | | — | |
| Average price per share | | $ | — | | | $ | 18.97 | | | $ | — | |
| Aggregate gross proceeds (in thousands) | | $ | — | | | $ | 189,868 | | | $ | — | |
| Aggregate net proceeds after commissions and fees (in thousands) | | $ | — | | | $ | 186,969 | | | $ | — | |
Share Repurchase Program
In May 2021, the Company’s Board of Directors authorized the repurchase of up to $80.0 million of the Company’s outstanding shares through May 31, 2023. This authorization replaced a previous repurchase authorization for approximately $80.0 million that expired in May 2021. In June 2020, we amended our debt agreements primarily to improve future covenant flexibility and such amendments included a prohibition on share repurchases for twelve months starting July 1, 2020 (the “Repurchase Covenant”). The Company temporarily suspended share repurchases for the twelve months starting July 1, 2020 and ending on June 30, 2021 in light of the Repurchase Covenant. On July 1, 2021, the Repurchase Covenant expired. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. The Company did not repurchase any shares for the years ended December 31, 2022, 2021 and 2020. The remaining amount authorized to be repurchased under the program as of December 31, 2022 was approximately $80.0 million.
12. 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 corresponding Class B common limited partnership units held by Tanger LP Trust.
The following table sets forth the changes in outstanding partnership units for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Limited Partnership Units |
| | General partnership units | | Class A | | Class B | | Total |
| Balance December 31, 2019 | | 1,000,000 | | | 4,911,173 | | | 91,892,260 | | | 96,803,433 | |
| Units withheld for employee income taxes | | — | | | — | | | (56,597) | | | (56,597) | |
| Exchange of Class A limited partnership units | | — | | | (116,530) | | | 116,530 | | | — | |
| Grant of restricted common share awards by the Company, net of forfeitures | | — | | | — | | | 611,350 | | | 611,350 | |
| Issuance of deferred units | | — | | | — | | | 6,258 | | | 6,258 | |
| | | | | | | | |
| | | | | | | | |
| Balance December 31, 2020 | | 1,000,000 | | | 4,794,643 | | | 92,569,801 | | | 97,364,444 | |
| Units withheld for employee income taxes | | — | | | — | | | (139,293) | | | (139,293) | |
| Exchange of Class A limited partnership units | | — | | | (33,084) | | | 33,084 | | | — | |
| Grant of restricted common share awards by the Company, net of forfeitures | | — | | | — | | | 569,779 | | | 569,779 | |
| | | | | | | | |
| Issuance of units | | 100,000 | | | — | | | 9,909,263 | | | 9,909,263 | |
| Options exercised | | — | | | — | | | 42,100 | | | 42,100 | |
| Balance December 31, 2021 | | 1,100,000 | | | 4,761,559 | | | 102,984,734 | | | 107,746,293 | |
| Units withheld for employee income taxes | | — | | | — | | | (239,824) | | | (239,824) | |
| Exchange of Class A limited partnership units | | — | | | (23,577) | | | 23,577 | | | — | |
| Grant of restricted common share awards by the Company, net of forfeitures | | — | | | — | | | 613,933 | | | 613,933 | |
| Issuance of units | | — | | | — | | | — | | | — | |
| Options exercised | | — | | | — | | | 15,500 | | | 15,500 | |
| | | | | | | | |
| Balance December 31, 2022 | | 1,100,000 | | | 4,737,982 | | | 103,397,920 | | | 108,135,902 | |
13. 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 2022 and 2021, adjustments to 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 under the ATM offering program and 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 12, for the years ended December 31, 2022 and 2021, Non-Company LPs exchanged 23,577 and 33,084 Class A common limited partnership units of the Operating Partnership, respectively, for an equal number of common shares of the Company. The Company repurchased no common shares in 2020 and 2021.
The changes in the Company's ownership interests in the subsidiaries impacted consolidated equity during the periods shown as follows (in thousands):
| | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | |
| Net income attributable to Tanger Factory Outlet Centers, Inc. | | $ | 82,063 | | | $ | 9,118 | | | |
| Increase (decrease) in Tanger Factory Outlet Centers, Inc. paid-in-capital adjustments to noncontrolling interests | | (182) | | | (6,917) | | | |
| Changes from net income attributable to Tanger Factory Outlet Centers, Inc. and transfers from noncontrolling interest | | $ | 81,881 | | | $ | 2,201 | | | |
14. 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, 2022, 2021 and 2020 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Numerator | | | | | | |
| Net income (loss) attributable to Tanger Factory Outlet Centers, Inc. | | $ | 82,063 | | | $ | 9,118 | | | $ | (36,278) | |
| Less allocation of earnings to participating securities | | (869) | | | (804) | | | (692) | |
| Net income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc. | | $ | 81,194 | | | $ | 8,314 | | | $ | (36,970) | |
| Denominator | | | | | | |
| Basic weighted average common shares | | 103,687 | | | 100,418 | | | 92,618 | |
| Effect of notional units | | 1,240 | | | 809 | | | — | |
| Effect of outstanding options | | 709 | | | 752 | | | — | |
| Diluted weighted average common shares | | 105,636 | | | 101,979 | | | 92,618 | |
| Basic earnings per common share: | | | | | | |
| Net income (loss) | | $ | 0.78 | | | $ | 0.08 | | | $ | (0.40) | |
| Diluted earnings per common share: | | | | | | |
| Net income (loss) | | $ | 0.77 | | | $ | 0.08 | | | $ | (0.40) | |
We determine diluted earnings per share based on the weighted average number of common shares outstanding combined with the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common shares at the earliest date possible.
Notional units granted under our equity compensation plan are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method and the common shares would be issuable if the end of the reporting period were the end of the contingency period. For the years ended December 31, 2021 and 2020, approximately 506,000 and 1.7 million 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. There were no units excluded from the computation for the year ended December 31, 2022.
With respect to outstanding options, the effect of dilutive common shares is determined using the treasury stock method whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common shares at the average market price during the period. For the years ended December 31, 2022, 2021 and 2020, approximately513,000, 332,000 and 1.8 million 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.
15. 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, 2022, 2021 and 2020 (in thousands, except per unit amounts):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Numerator | | | | | | |
| Net income (loss) attributable to partners of the Operating Partnership | | $ | 85,831 | | | $ | 9,558 | | | $ | (38,203) | |
| Allocation of earnings to participating securities | | (869) | | | (804) | | | (692) | |
| Net income (loss) available to common unitholders of the Operating Partnership | | $ | 84,962 | | | $ | 8,754 | | | $ | (38,895) | |
| Denominator | | | | | | |
| Basic weighted average common units | | 108,446 | | | 105,208 | | | 97,521 | |
| Effect of notional units | | 1,240 | | | 809 | | | — | |
| Effect of outstanding options | | 709 | | | 752 | | | — | |
| Diluted weighted average common units | | 110,395 | | | 106,769 | | | 97,521 | |
| Basic earnings per common unit: | | | | | | |
| Net income (loss) | | $ | 0.78 | | | $ | 0.08 | | | $ | (0.40) | |
| Diluted earnings per common unit: | | | | | | |
| Net income (loss) | | $ | 0.77 | | | $ | 0.08 | | | $ | (0.40) | |
We determine diluted earnings per unit based on the weighted average number of common units outstanding combined with the incremental weighted average units that would have been outstanding assuming all potentially dilutive securities were converted into common units at the earliest date possible.
Notional units granted under our equity compensation plan are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method and the common units would be issuable if the end of the reporting period were the end of the contingency period. For the years ended December 31, 2021 and 2020, approximately 506,000 and 1.7 million 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. There were no units excluded from the computation for the year ended December 31, 2022.
With respect to outstanding options, the effect of dilutive common units is determined using the treasury stock method, whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common units at the average market price during the period. The market price of a common unit is considered to be equivalent to the market price of a Company common share. For the years ended December 31, 2022, 2021 and 2020, approximately 513,000, 332,000 and 1.8 million 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.
16. 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 subsidiary, the Tanger LP Trust. 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.
As of December 31, 2022, we may issue up to 18.7 million common shares under the Plan. Shares remaining available for future issuance totaled approximately 1,514,000 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, 2022, 2021 and 2020, respectively, as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Restricted common shares | | $ | 7,654 | | | $ | 7,980 | | | $ | 7,614 | |
| Notional unit performance awards | | 4,987 | | | 4,406 | | | 4,574 | |
| Options | | 328 | | | 366 | | | 329 | |
| Total equity-based compensation | | $ | 12,969 | | | $ | 12,752 | | | $ | 12,517 | |
Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | | 2022 | | 2021 | | 2020 |
| Equity-based compensation expense capitalized | | $ | 191 | | | $ | 94 | | | $ | 409 | |
As of December 31, 2022, there was $17.8 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 2.3 years.
Restricted Common Share and Restricted Share Unit Awards
During 2022, 2021 and 2020, the Company granted approximately 513,000, 485,000 and 788,000 restricted common shares and restricted share units, respectively, to the Company's non-employee directors and the Company's senior executive officers. The 2020 grants include approximately 389,000 restricted common shares that were issued to our Chief Executive Officer, Stephen J. Yalof, as an inducement to his entering into employment with the Company and were granted outside of the Company’s shareholder approved equity plan pursuant to New York Stock Exchange rules. The non-employee directors' restricted common shares generally vest ratably over a three year period and the senior executive officers' restricted common shares generally vest ratably over periods ranging from three to five years. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted common shares and restricted share units. For all of the restricted common share and restricted share unit awards described above, the grant date fair value of the awards were determined based upon the closing market price of the Company's common shares on the day prior to the grant date.
The following table summarizes information related to unvested restricted common shares and restricted share units outstanding for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | |
| Unvested Restricted Common Shares and Restricted Share Units | | Number of shares and units | | Weighted average grant date fair value |
| Outstanding at December 31, 2019 | | 681,525 | | | $ | 23.92 | |
Granted (1) | | 787,873 | | | 23.92 | |
| Vested | | (330,014) | | | 25.43 | |
| Forfeited | | (18,996) | | | 19.79 | |
| Outstanding at December 31, 2020 | | 1,120,388 | | | $ | 13.91 | |
Granted (2) | | 485,105 | | | 15.40 | |
| Vested | | (575,688) | | | 15.90 | |
| Forfeited | | — | | | — | |
| Outstanding at December 31, 2021 | | 1,029,805 | | | $ | 13.51 | |
Granted (3) | | 512,957 | | | 17.32 | |
| Vested | | (545,788) | | | 14.01 | |
| Forfeited | | (26,591) | | | 15.87 | |
| Outstanding at December 31, 2022 | | 970,383 | | | $ | 15.18 | |
(1)Includes 121,527 restricted share units.
(2)Includes 68,494 restricted share units.
(3)Includes 36,102 restricted share units.
The table above excludes restricted common shares earned under the 2018 and 2019 Performance Share Plan. In connection with the 2018 Performance Share Plan, we issued approximately 76,000 restricted common shares in February 2021, with approximately 49,000 vesting during 2021 and the remaining 27,000 vesting in February 2022, In connection with the 2019 Performance Share Plan, we issued approximately 97,000 restricted common shares in February 2022, with approximately 59,000 vesting during 2022 and the remaining 38,000 to vest in February 2023. All performance share plan vesting is 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 2022, 2021 and 2020 was $10.6 million, $9.4 million and $4.2 million, respectively. During 2022, 2021 and 2020, we withheld shares with value equivalent to the employees' 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 approximately 240,000, 139,000 and 57,000 for 2022, 2021 and 2020, 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 $3.7 million, $2.1 million and $0.7 million for 2022, 2021 and 2020, respectively, which are reflected as a financing activity within the consolidated statements of cash flows.
Notional Unit Performance Awards
Performance Share 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. Performance Share Plan (the “PSP"), formerly titled the "Outperformance Plan". The PSP 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. For all recipients, any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or (c) due to death or disability).
The following table sets forth PSP performance targets and other relevant information about each plan:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2022 PSP(1) | | 2021 PSP(1) | | 2020 PSP(1) | | 2019 PSP(1) | | | | |
| Performance targets | | | | | | | | | | | | | | | | | | | | | | |
| Absolute portion of award: | | | | | | | | | | | | | | | | | | | | | | |
| Percent of total award | | 33% | | 33% | | 33% | | 33% | | | | |
| Absolute total shareholder return range | | 26 | % | - | 41% | | 26 | % | - | 41% | | 37 | % | - | 52% | | 19 | % | - | 30% | | | | | | |
| Percentage of units to be earned | | 20% | - | 100% | | 20 | % | - | 100% | | 20 | % | - | 100% | | 20 | % | - | 100% | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Relative portion of award: | | | | | | | | | | | | | | | | | | | | | | |
| Percent of total award | | 67% | | 67% | | 67% | | 67% | | | | |
| Percentile rank of peer group range | | 30 | th | - | 80th | | 30 | th | - | 80th | | 30 | th | - | 80th | | 30 | th | - | 80th | | | | | | |
| Percentage of units to be earned | | 20 | % | - | 100% | | 20 | % | - | 100% | | 20 | % | - | 100% | | 20 | % | - | 100% | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Maximum number of restricted common shares that may be earned | | 555,349 | | | 688,824 | | | 902,167 | | | 531,827 | | | | | |
| February grant date fair value per share | | $ | 11.68 | | | $ | 9.65 | | | $ | 7.30 | | | $ | 12.09 | | | | | |
April 2020 grant date fair value per share (2) | | N/A | | N/A | | $ | 3.11 | | | N/A | | | | |
August 2021 grant date fair value per share (3) | | N/A | | $ | 12.44 | | | N/A | | N/A | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
(1)The number of restricted common shares received under the 2022, 2021, 2020 and 2019 PSP will be determined on a pro-rata basis by linear interpolation between total shareholder return thresholds, both for absolute total shareholder return and for relative total shareholder return amongst the Company's peer group. The peer group is based on companies included in the FTSE Nareit Retail Index.
(2)In April 2020, Mr. Yalof was awarded 205,480 notional units under the 2020 PSP. These awards have the same terms as the awards our executive officers received in February 2020.
(3)In August of 2021, additional awards under the 2021 PSP were granted to recently hired senior executive officers whereby a maximum of approximately 26,000 restricted common shares may be earned.
The fair values of the PSP awards granted during the years ended December 31, 2022, 2021 and 2020 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
| | | | | | | | | | | | | | | | | | | | |
| | PSP | | PSP | | PSP |
| | 2022 | | 2021 | | 2020 |
Risk free interest rate (1) | | 1.70 | % | | 0.20 | % | | 1.40 | % |
Expected dividend yield (2) | | 5.7 | % | | 6.5 | % | | 8.4 | % |
Expected volatility (3) | | 65 | % | | 61 | % | | 29 | % |
(1)Represents the interest rate as of the grant date on U.S. 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.
The following table sets forth PSP activity for the years ended December 31, 2022, 2021 and 2020:
| | | | | | | | | | | | | | |
Unvested PSP Awards | | Number of units | | Weighted average grant date fair value |
| Outstanding as of December 31, 2019 | | 1,123,904 | | | $ | 13.36 | |
| Awarded | | 902,167 | | | 6.35 | |
| | | | |
| Earned | | — | | | — | |
| Forfeited | | (316,297) | | | 16.01 | |
| Outstanding as of December 31, 2020 | | 1,709,774 | | | $ | 9.17 | |
| Awarded | | 688,824 | | | 9.76 | |
| | | | |
Earned (1) | | (76,478) | | | 12.42 | |
| Forfeited | | (475,854) | | | 11.03 | |
| Outstanding as of December 31, 2021 | | 1,826,266 | | | $ | 8.82 | |
| Awarded | | 556,794 | | | 11.68 | |
Earned (1) | | (96,592) | | | 12.42 | |
| Forfeited | | (475,061) | | | 11.44 | |
| Outstanding as of December 31, 2022 | | 1,811,407 | | | $ | 8.84 | |
(1)Represents the units under the 2018 and 2019 PSP that are no longer outstanding and have been settled in restricted common shares.
Option Awards
Options outstanding at December 31, 2022 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 |
| $ | 5.73 | | | 203,500 | | | $ | 5.73 | | | 7.69 | | 65,800 | | | $ | 5.73 | |
| $ | 7.15 | | | 1,000,000 | | | $ | 7.15 | | | 7.37 | | 750,000 | | | $ | 7.15 | |
| $ | 19.37 | | | 250,000 | | | $ | 19.37 | | | 9.91 | | — | | | $ | — | |
| $ | 21.94 | | | 177,500 | | | $ | 21.94 | | | 5.13 | | 141,700 | | | $ | 21.94 | |
| | | | | | | | | | |
| $ | 32.02�� | | | 85,800 | | | $ | 32.02 | | | 1.00 | | 85,800 | | | $ | 32.02 | |
| | 1,716,800 | | | $ | 11.53 | | | 6.79 | | 1,043,300 | | | $ | 11.11 | |
A summary of option activity under the Plan for the years ended December 31, 2022, 2021 and 2020 (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, 2019 | | 523,300 | | | $ | 25.57 | | | | | |
| Granted | | 1,334,500 | | | 6.79 | | | | | |
| Exercised | | — | | | — | | | | | |
| Forfeited | | (52,100) | | | 25.80 | | | | | |
| Outstanding as of December 31, 2020 | | 1,805,700 | | | $ | 11.69 | | | 8.30 | | $ | — | |
| Granted | | — | | | — | | | | | |
| Exercised | | (42,100) | | | 6.31 | | | | | |
| Forfeited | | (168,000) | | | 22.84 | | | | | |
| Outstanding as of December 31, 2021 | | 1,595,600 | | | $ | 10.68 | | | 7.64 | | $ | — | |
| Granted | | 250,000 | | | 19.37 | | | | | |
| Exercised | | (15,500) | | | 5.73 | | | | | |
| Forfeited | | (113,300) | | | 17.66 | | | | | |
| Outstanding as of December 31, 2022 | | 1,716,800 | | | $ | 11.53 | | | 6.79 | | $ | 13,275 | |
| | | | | | | | |
| Vested and Expected to Vest as of | | | | | | | | |
| December 31, 2022 | | 1,700,270 | | | $ | 11.59 | | | 6.78 | | $ | 13,077 | |
| | | | | | | | |
| Exercisable as of December 31, 2022 | | 1,043,300 | | | $ | 11.11 | | | 6.56 | | $ | 8,896 | |
In November 2022, Michael Bilerman became the Executive Vice President, Chief Financial Officer and Chief Investment Officer of the Company. Mr. Bilerman was granted 250,000 options that have an exercise price of $19.37 per share, which equaled the closing market price of a common share of the Company on the day prior to the grant date. The options expire 10 years from the date of grant and 50% of the options become exercisable on November 29, 2024, 25% of the award on November 29, 2025 and 25% of the award on November 29, 2026, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $6.13 and included the following weighted-average assumptions: expected dividend yield 5.10%; expected life of 6.8 years; expected volatility of 48%; a risk-free rate of 3.96%; and forfeiture rate of 0.0%.
In September 2020, the Company granted 334,500 options to non-executive employees of the Company. The exercise price of the options granted was $5.73 per share which equaled the closing market price of the Company's common shares on the day prior to the grant date. The options expire 10 years from the date of grant and 20% of the options become exercisable in each of the first 5 years commencing one year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $1.03 and included the following weighted-average assumptions: expected dividend yield 4.93%; expected life of 6.5 years; expected volatility of 34.39%; a risk-free rate of 0.48%; and forfeiture rate of 7.2% dependent upon the employee's position within the Company.
In April 2020, Stephen Yalof became the President and Chief Operating Officer of the Company. Mr. Yalof was granted 1.0 million options that have an exercise price of $7.15 per share, which equaled the closing market price of a common share of the Company on the day prior to the grant date. As an inducement to his entering into employment with the Company, the options were granted outside of the Company’s shareholder approved equity plan pursuant to New York Stock Exchange rules. The options expire 10 years from the date of grant and 25% of the options became exercisable on December 31, 2020 with the remaining options vesting ratably on each December 31st through 2023, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $0.42 and included the following weighted-average assumptions: expected dividend yield 9.86%; expected life of 7.9 years; expected volatility of 30%; a risk-free rate of 0.60%; and forfeiture rate of 0.0%.
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, 2022, 2021 and 2020, we contributed approximately $968,000, $867,000 and $878,000, respectively, to the 401(k) Retirement Savings Plan.
17. Accumulated Other Comprehensive Loss of the Company
The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss) | | Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive (Income) Loss |
| | Foreign currency | | Cash flow hedges | | Total | | Foreign currency | | Cash flow hedges | | Total |
| Balance December 31, 2019 | | $ | (25,094) | | | $ | (401) | | | $ | (25,495) | | | $ | (1,369) | | | $ | (24) | | | $ | (1,393) | |
| Other comprehensive income (loss) before reclassifications | | 1,695 | | | (6,749) | | | (5,054) | | | 88 | | | (359) | | | (271) | |
| Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges | | — | | | 3,964 | | | 3,964 | | | — | | | 210 | | | 210 | |
| Balance December 31, 2020 | | (23,399) | | | (3,186) | | | (26,585) | | | (1,281) | | | (173) | | | (1,454) | |
| Other comprehensive income (loss) before reclassifications | | 223 | | | 3,776 | | | 3,999 | | | 30 | | | 179 | | | 209 | |
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | 3,463 | | | 1,362 | | | 4,825 | | | 167 | | | 66 | | | 233 | |
| Balance December 31, 2021 | | (19,713) | | | 1,952 | | | (17,761) | | | (1,084) | | | 72 | | | (1,012) | |
| Other comprehensive income (loss) before reclassifications | | (4,803) | | | 14,997 | | | 10,194 | | | (267) | | | 725 | | | 458 | |
| Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges | | — | | | (3,470) | | | (3,470) | | | — | | | (159) | | | (159) | |
| Balance December 31, 2022 | | $ | (24,516) | | | $ | 13,479 | | | $ | (11,037) | | | $ | (1,351) | | | $ | 638 | | | $ | (713) | |
We expect within the next twelve months to reclassify into earnings as a decrease to interest expense approximately $12.2 million of the amounts recorded within accumulated other comprehensive income (loss) related to the interest rate swap agreements in effect and as of December 31, 2022.
18. Accumulated Other Comprehensive Loss of the Operating Partnership
The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the years ended December 31, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Foreign currency | | Cash flow hedges | | Accumulated other comprehensive income (loss) |
| Balance December 31, 2019 | | $ | (26,463) | | | $ | (425) | | | $ | (26,888) | |
| Other comprehensive income (loss) before reclassifications | | 1,783 | | | (7,108) | | | (5,325) | |
| Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges | | — | | | 4,174 | | | 4,174 | |
| Balance December 31, 2020 | | (24,680) | | | (3,359) | | | (28,039) | |
| Other comprehensive income (loss) before reclassifications | | 253 | | | 3,955 | | | 4,208 | |
| Reclassification out of accumulated other comprehensive income (loss) into interest expense | | 3,630 | | | 1,428 | | | 5,058 | |
| Balance December 31, 2021 | | (20,797) | | | 2,024 | | | (18,773) | |
| Other comprehensive income (loss) before reclassifications | | (5,070) | | | 15,722 | | | 10,652 | |
| Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges | | — | | | (3,629) | | | (3,629) | |
| Balance December 31, 2022 | | $ | (25,867) | | | $ | 14,117 | | | $ | (11,750) | |
We expect within the next twelve months to reclassify into earnings as a decrease to interest expense approximately $12.2 million of the amounts recorded within accumulated other comprehensive income (loss) related to the interest rate swap agreements in effect and as of December 31, 2022.
19. Supplementary Income Statement Information
The following amounts are included in property operating expenses for the years ended December 31, 2022, 2021 and 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Advertising and promotion | | $ | 19,848 | | | $ | 20,632 | | | $ | 20,435 | |
| Common area maintenance | | 61,106 | | | 62,175 | | | 56,226 | |
| Real estate taxes | | 31,713 | | | 29,592 | | | 32,762 | |
| Other operating expenses | | 31,269 | | | 28,337 | | | 27,712 | |
| | $ | 143,936 | | | $ | 140,736 | | | $ | 137,135 | |
20. Lease Agreements
Lessor
As a lessor, substantially all of our revenues are earned from arrangements that are within the scope of ASC 842. We account for lease and non-lease components as a single component which resulted in all of our revenues associated with leases being recorded as rental revenues in the consolidated statements of operations. For the years ended December 31, 2022, 2021 and 2020 we recorded a straight-line rent adjustment of $1.7 million, $1.9 million and $4.4 million, respectively, as an increase to rental revenues in our consolidated statements of operations to record revenues from executory costs on a straight-line basis. In addition, direct internal leasing costs are capitalized; however, indirect internal leasing costs are expensed. We only capitalize the portion of these types of costs incurred that are a direct result of an executed lease.
As of December 31, 2022, we were the lessor to over 2,200 stores in our 29 consolidated outlet centers, under operating leases with initial terms that expire from 2023 to 2039, with certain agreements containing extension options. We also have certain agreements which require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.
For the years ended December 31, 2022, 2021 and 2020, the components of rental revenues are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Rental revenues - fixed | | $ | 319,219 | | | $ | 298,095 | | | $ | 289,676 | |
Rental revenues - variable (1) | | 102,200 | | | 109,671 | | | 88,256 | |
| Rental revenues | | $ | 421,419 | | | $ | 407,766 | | | $ | 377,932 | |
(1)Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.
Future minimum lease receipts under non-cancelable operating leases as of December 31, 2022, excluding the effect of straight-line rent and variable rentals, are as follows (in thousands) :
| | | | | | | | |
| 2023 | | $ | 238,442 | |
| 2024 | | 196,263 | |
| 2025 | | 152,185 | |
| 2026 | | 117,491 | |
| 2027 | | 87,086 | |
| Thereafter | | 199,689 | |
| | $ | 991,156 | |
Lessee
As of December 31, 2022 and 2021 we have operating lease right-of-use assets $78.6 million and $79.8 million and operating lease liabilities of $87.5 million, and $88.9 million respectively. In 2020, we recorded impairment charges of $64.8 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $4.0 million of the impairment charge was allocated to the right-of-use asset. In 2021, we recorded an impairment charge of $7.0 million in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value of which $563,000 of the impairment charge was allocated to the right-of-use asset.
Our non-cancelable operating leases, with terms in excess of one year, have terms, including certain extension options, that expire from 2028 to 2101. Certain extension options, which are reasonably certain at inception, are used in the calculation of our operating lease right-of-use assets based on the economic life of the asset. Leases with an initial term of 12 months or less (short-term leases) are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The majority of our operating lease expense is related to ground leases at the following outlet centers: Myrtle Beach Hwy 17, Atlantic City, Sevierville, Riverhead, Foxwoods and Rehoboth Beach and the lease of our corporate office in Greensboro, North Carolina.
For the years ended December 31, 2022, 2021 and 2020, the components of lease costs are as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | |
| | | | 2022 | | 2021 | | 2020 |
| Operating lease costs | | | | $ | 5,495 | | | $ | 5,511 | | | $ | 5,531 | |
| Short-term lease costs | | | | 1,330 | | | 1,465 | | | 2,511 | |
Variable lease costs (1) | | | | 948 | | | 276 | | | 295 | |
| Total lease costs | | | | $ | 7,773 | | | $ | 7,252 | | | $ | 8,337 | |
(1)Our variable lease costs relate to our ground leases where increases in payments are based on center financial performance.
The discount rate applied to measure each operating lease right-of-use asset and operating lease liability is based on our incremental borrowing rate (“IBR”). We consider the general economic environment and our credit rating and factor in various financing and asset specific adjustments to ensure the IBR is appropriate based on the intended use of the underlying lease. The lease term and discount rates are as follows:
| | | | | | | | |
| | 2022 |
Weighted - average remaining lease term (years) | | 48.29 |
Weighted - average discount rate | | 5.0 | % |
Cash flow information related to leases for the years ended December 31, 2022, 2021 and 2020 was as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 | | December 31, 2021 | | December 31, 2020 |
| Operating cash outflows related to operating leases | | $ | 5,669 | | | $ | 5,613 | | | $ | 5,568 | |
Maturities of lease liabilities as of December 31, 2022 for the next five years and thereafter are as follows (in thousands):
| | | | | | | | |
| 2023 | | $ | 5,709 | |
| 2024 | | 5,765 | |
| 2025 | | 5,816 | |
| 2026 | | 5,854 | |
| 2027 | | 5,893 | |
| | |
| Thereafter | | 209,270 | |
| Total lease payments | | $ | 238,307 | |
| Less imputed interest | | 150,779 | |
| Present value of lease liabilities | | $ | 87,528 | |
21. Commitments and Contingencies
Litigation
We are 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.
Lease Agreements
In addition, certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration if we fail to maintain certain occupancy levels or retain specified named tenants, or if the tenant does not achieve certain specified sales targets. Our occupancy at our consolidated centers has increased from 95% at the end of 2021 to 97% at the end of 2022. If our occupancy declines, certain outlet centers may fall below the minimum co-tenancy thresholds and could trigger many tenants ability to pay reduced rents, which in turn may negatively impact our results of operations.
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. We are also party to an executive severance plan with certain other executives that provide for severance payments under certain circumstances.
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 mortgage loans, we may include a guaranty of completion as well as a principal guaranty ranging from 0% to 15.5% 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, 2022, the maximum amount of joint venture debt guaranteed by the Company is $10.0 million.
22. Subsequent Events
Dividends
In January 2023, the Company's Board of Directors declared a $0.22 quarterly cash dividend per common share payable on February 15, 2023 to each shareholder of record on January 31, 2023, and a $0.22 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.
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| 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, 2022 (in thousands) |
| | | | | | | | | | | | | | | | | | |
| Description | | | | Initial cost to Company | | Costs Capitalized Subsequent to Acquisition (Improvements) (1) | | Gross Amount Carried at Close of Period December 31, 2022 (2) | | | | |
| Outlet Center Name | | Location | | Encumbrances (3) | | Land | Buildings,
Improvements & Fixtures | | Land | Buildings,
Improvements & Fixtures | | Land | Buildings,
Improvements & Fixtures | Total | | Accumulated Depreciation (1)(4) | | Date of
Construction or Acquisition |
| Atlantic City | | Atlantic City, NJ | | $ | 17,625 | | | $ | — | | $ | 125,988 | | | $ | — | | $ | 14,990 | | | $ | — | | $ | 140,978 | | $ | 140,978 | | | $ | 51,140 | | | 2011 (5) |
| Branson | | Branson, MO | | — | | | 4,407 | | 25,040 | | | 396 | | 27,608 | | | 4,803 | | 52,648 | | 57,451 | | | 37,653 | | | 1994 |
| Charleston | | Charleston, SC | | — | | | 10,353 | | 48,877 | | | — | | 19,826 | | | 10,353 | | 68,703 | | 79,056 | | | 39,592 | | | 2006 |
| Commerce | | Commerce, GA | | — | | | 1,262 | | 14,046 | | | 707 | | 38,974 | | | 1,969 | | 53,020 | | 54,989 | | | 39,383 | | | 1995 |
| Daytona Beach | | Daytona Beach, FL | | — | | | 9,913 | | 80,410 | | | — | | 7,772 | | | 9,913 | | 88,182 | | 98,095 | | | 28,215 | | | 2016 |
| Deer Park | | Deer Park, NY | | — | | | 82,413 | | 173,044 | | | — | | 20,239 | | | 82,413 | | 193,283 | | 275,696 | | | 68,962 | | | 2013 (5) |
| Foley | | Foley, AL | | — | | | 4,400 | | 82,410 | | | 693 | | 39,678 | | | 5,093 | | 122,088 | | 127,181 | | | 70,290 | | | 2003 (5) |
| Fort Worth | | Fort Worth, TX | | — | | | 11,157 | | 87,025 | | | — | | 4,350 | | | 11,157 | | 91,375 | | 102,532 | | | 24,269 | | | 2017 |
Foxwoods (6) | | Mashantucket, CT | | — | | | — | | 130,941 | | | — | | (96,628) | | | — | | 34,313 | | 34,313 | | | 1,930 | | | 2015 |
| Gonzales | | Gonzales, LA | | — | | | 679 | | 15,895 | | | — | | 34,880 | | | 679 | | 50,775 | | 51,454 | | | 39,141 | | | 1992 |
| Grand Rapids | | Grand Rapids, MI | | — | | | 8,180 | | 75,420 | | | — | | 4,112 | | | 8,180 | | 79,532 | | 87,712 | | | 29,588 | | | 2015 |
| Hershey | | Hershey, PA | | — | | | 3,673 | | 48,186 | | | — | | 10,510 | | | 3,673�� | | 58,696 | | 62,369 | | | 23,051 | | | 2011(5) |
| Hilton Head I | | Bluffton, SC | | — | | | 4,753 | | — | | | — | | 34,039 | | | 4,753 | | 34,039 | | 38,792 | | | 19,479 | | | 2011 |
| Hilton Head II | | Bluffton, SC | | — | | | 5,128 | | 20,668 | | | — | | 18,046 | | | 5,128 | | 38,714 | | 43,842 | | | 22,733 | | | 2003 (5) |
| Howell | | Howell, MI | | — | | | 2,250 | | 35,250 | | | — | | 17,267 | | | 2,250 | | 52,517 | | 54,767 | | | 32,174 | | | 2002 (5) |
| Lancaster | | Lancaster, PA | | — | | | 3,691 | | 19,907 | | | 6,656 | | 65,692 | | | 10,347 | | 85,599 | | 95,946 | | | 40,907 | | | 1994 (5) |
| Locust Grove | | Locust Grove, GA | | — | | | 2,558 | | 11,801 | | | 57 | | 34,514 | | | 2,615 | | 46,315 | | 48,930 | | | 32,218 | | | 1994 |
| Mebane | | Mebane, NC | | — | | | 8,821 | | 53,362 | | | — | | 8,321 | | | 8,821 | | 61,683 | | 70,504 | | | 35,404 | | | 2010 |
| Myrtle Beach Hwy 17 | | Myrtle Beach, SC | | — | | | — | | 80,733 | | | — | | 31,630 | | | — | | 112,363 | | 112,363 | | | 49,475 | | | 2009 (5) |
| Myrtle Beach Hwy 501 | | Myrtle Beach, SC | | — | | | 8,781 | | 56,798 | | | — | | 43,749 | | | 8,781 | | 100,547 | | 109,328 | | | 57,736 | | | 2003 (5) |
| Nashville | | Nashville, TN | | — | | | 8,772 | | 26,826 | | | — | | — | | | 8,772 | | 26,826 | | 35,598 | | | — | | | 2023 (7) |
| | | | | | | | | | | | | | | | | | |
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| 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, 2022 (in thousands) |
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | |
| Description | | | | Initial cost to Company | | Costs Capitalized Subsequent to Acquisition (Improvements) (1) | | Gross Amount Carried at Close of Period December 31, 2022(2) | | | | |
| Outlet Center Name | | Location | | Encumbrances (3) | | Land | Buildings,
Improvements & Fixtures | | Land | Buildings,
Improvements & Fixtures | | Land | Buildings,
Improvements & Fixtures | Total | | Accumulated Depreciation (1)(4) | | Date of
Construction or Acquisition |
| Pittsburgh | | Pittsburgh, PA | | — | | | 5,528 | | 91,288 | | | 3 | | 17,308 | | | 5,531 | | 108,596 | | 114,127 | | | 72,789 | | | 2008 |
| Rehoboth Beach | | Rehoboth Beach, DE | | — | | | 20,600 | | 74,209 | | | 1,876 | | 64,200 | | | 22,476 | | 138,409 | | 160,885 | | | 69,300 | | | 2003 (5) |
| Riverhead | | Riverhead, NY | | — | | | — | | 36,374 | | | 6,152 | | 140,377 | | | 6,152 | | 176,751 | | 182,903 | | | 119,406 | | | 1993 |
| San Marcos | | San Marcos, TX | | — | | | 1,801 | | 9,440 | | | 2,301 | | 62,783 | | | 4,102 | | 72,223 | | 76,325 | | | 50,313 | | | 1993 |
| Savannah | | Pooler, GA | | — | | | 8,432 | | 167,780 | | | — | | 7,019 | | | 8,432 | | 174,799 | | 183,231 | | | 40,923 | | | 2016 (5) |
| Sevierville | | Sevierville, TN | | — | | | — | | 18,495 | | | — | | 55,042 | | | — | | 73,537 | | 73,537 | | | 48,323 | | | 1997 (5) |
| Southaven | | Southaven, MS | | 51,347 | | | 14,959 | | 50,511 | | | — | | (2,792) | | | 14,959 | | 47,719 | | 62,678 | | | 24,389 | | | 2015 |
| Tilton | | Tilton, NH | | — | | | 1,800 | | 24,838 | | | 29 | | 16,739 | | | 1,829 | | 41,577 | | 43,406 | | | 23,197 | | | 2003 (5) |
| Westgate | | Glendale, AZ | | — | | | 19,037 | | 140,337 | | | 2,555 | | 13,113 | | | 21,592 | | 153,450 | | 175,042 | | | 31,969 | | | 2016 (5) |
| Other | | Various | | — | | | 306 | | 1,495 | | | — | | 40 | | | 306 | | 1,535 | | 1,841 | | | 1,013 | | | Various |
| | | | $ | 68,972 | | | $ | 253,654 | | $ | 1,827,394 | | | $ | 21,425 | | $ | 753,398 | | | $ | 275,079 | | $ | 2,580,792 | | $ | 2,855,871 | | | $ | 1,224,962 | | | |
(1)Includes impairment charges that reduce the asset value.
(2)Aggregate cost for federal income tax purposes is approximately $2.9 billion.
(3)Including premiums and net of debt origination costs.
(4)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.
(5)Represents year acquired.
(6)Amounts net of $6.4 million impairment charges taken during 2021 consisting of a write-off of approximately $8.6 million of building and improvement cost and $2.2 million of accumulated depreciation. Amounts net of $60.1 million impairment charges taken during 2020 consisting of a write-off of approximately $89.8 million of building and improvement cost and $29.7 million of accumulated depreciation.
(7)Construction at Nashville began in 2022, with an expected completion in 2023.
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, 2022
(in thousands)
The changes in total real estate for the years ended December 31, 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Balance, beginning of year | | $ | 2,800,758 | | | $ | 2,793,372 | | | $ | 2,896,894 | |
| Improvements | | 92,828 | | | 37,218 | | | 29,516 | |
| Impairment charges | | — | | | (8,574) | | | (91,603) | |
| Dispositions and other | | (37,715) | | | (21,258) | | | (41,435) | |
| Balance, end of year | | $ | 2,855,871 | | | $ | 2,800,758 | | | $ | 2,793,372 | |
The changes in accumulated depreciation for the years ended December 31, 2022, 2021 and 2020 are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2022 | | 2021 | | 2020 |
| Balance, beginning of year | | $ | 1,145,388 | | | $ | 1,054,993 | | | $ | 1,009,951 | |
| Depreciation for the period | | 97,916 | | | 96,990 | | | 101,665 | |
| Impairment charges | | — | | | (2,160) | | | (30,208) | |
| Dispositions and other | | (18,342) | | | (4,435) | | | (26,415) | |
| Balance, end of year | | $ | 1,224,962 | | | $ | 1,145,388 | | | $ | 1,054,993 | |
