What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-03 · 172 added, 129 removed, 640 unchanged (32% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three and six months ended June 30, 2021 with the three and six months ended June 30, 2020.

The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three and nine months ended September 30, 2021 with the three and nine months ended September 30, 2020.

The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc.

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General Overview

As of June 30, 2021, we had 30 consolidated outlet centers in 18 states totaling 11.5 million square feet.

We also had 6 unconsolidated outlet centers in 5 states or provinces totaling 2.1 million square feet.

The table below details our new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2020 to June 30, 2021 (square feet in thousands):

As of September 30, 2021, we had 30 consolidated outlet centers in 18 states totaling 11.5 million square feet.

We also had 6 unconsolidated outlet centers totaling 2.1 million square feet, including 2 outlet centers in Canada.

Consolidated Outlet Centers Unconsolidated Joint Venture Outlet Centers

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As of January 1, 2020 12,048 32 2,212 7

Dispositions:

Terrell Third Quarter (178) (1) — —

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As of December 31, 2020 11,873 31 2,212 7

Dispositions:

Jeffersonville First Quarter (412) (1) — —

Saint-Saveur First Quarter — — (99) (1)

As of June 30, 2021

Other (8) — — —

As of September 30, 2021

11,453 30 2,113 6

The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of June 30, 2021.

The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2021.

Except as noted, all properties are fee owned.

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Leasing Activity

The tables below show changes in rent (base rent and common area maintenance (“CAM”)) for leases for new stores that opened or renewals that started during the respective trailing twelve month periods ended June 30, 2021 and 2020:

Trailing twelve months ended June 30, 2021 (1),(2), (3)

Trailing twelve months ended September 30, 2021 (1) (2) (3)

# of Leases Square Feet

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Renewal 245 1,248 $ 26.45 $ 1.60 3.22 $ 25.95

Trailing twelve months ended June 30, 2020 (1),(2)

Trailing twelve months ended September 30, 2020 (1) (2)

# of Leases Square Feet

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As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021.

As of June 30, 2021, contractual fixed rents billed during 2020 that were deferred as a direct result of the COVID-19 pandemic and remain outstanding totaled $1.4 million.

Through July 30, 2021, the Company had collected 94% of 2020 rents deferred until 2021 and had collected 98% of the 2020 deferred rents due to be repaid through the second quarter of 2021.

As of September 30, 2021, contractual fixed rents billed during 2020 that were deferred as a direct result of the COVID-19 pandemic and remain outstanding totaled $670,000.

Through October 29, 2021, the Company had collected 96% of 2020 rents deferred until 2021 and had collected 98% of the 2020 deferred rents due to be repaid during the nine months ended September 30, 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.

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RESULTS OF OPERATIONS

Comparison of the three months ended June 30, 2021 to the three months ended June 30, 2020

Comparison of the three months ended September 30, 2021 to the three months ended September 30, 2020

NET INCOME (LOSS)

Net income in the 2021 period increased $26.5 million to $2.6 million as compared to a $23.9 million loss for the 2020 period.

The increase in net income is primarily due to the following:

• the prior year period was heavily impacted by the COVID-19 pandemic and had significant revenue reductions,

• increased variable revenue derived from tenant sales due to the mandatory closure of the vast majority of stores in our outlet centers by local and state authorities for a portion of the 2020 period, and

• the 2020 period included our share of an impairment charge totaling $3.1 million in equity in earnings that related to the Saint-Sauveur, Quebec outlet center in our Canadian joint venture.

Partially offsetting the impact of the items above were the following items:

• the current period included a loss on the early extinguishment of debt of $14.0 million, and

Net income in the 2021 period decreased $24.8 million to a net loss of $11.1 million as compared to net income of $13.7 million for the 2020 period.

The decrease in net income is primarily due to the following:

• the current period includes a loss on the early extinguishment of debt of $33.8 million,

• the 2020 period includes a $2.3 million gain recorded on the sale of our Terrell outlet center, and

• the sale of two operating properties since the first quarter of last year, as discussed below.

Partially offsetting the impact of the items above were the following items:

• the prior year period was impacted by the COVID-19 pandemic and had significant revenue reductions, and

• variable revenue derived from tenant sales was significantly higher in the current period as the COVID-19 pandemic impacted traffic to our centers in the 2020 period and our centers operated under reduced hours.

In the tables below, information set forth for properties disposed includes the Terrell outlet center sold in August 2020 and the Jeffersonville outlet center sold in January 2021.

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$ 107,265 $ 100,251 $ 7,014

The prior year period includes the impact of a $33.9 million COVID-19 pandemic-related revenue reduction.

In addition, variable revenues, which are derived from tenant sales, are also driving the increase over the prior year as the vast majority of stores in our outlet centers were under mandated closure by local and state authorities for a portion of the 2020 period.

Rental revenues from existing properties in the prior year period includes the impact of a $6.6 million COVID-19 pandemic-related revenue reduction.

In addition, variable revenues, which are derived from tenant sales, are higher in the current period as a result of the COVID-19 pandemic impacting traffic to our centers in the 2020 period and partially due to the centers operating under reduced hours in the 2020 period.

The 2020 period includes an increase in termination fees from certain of the early lease terminations as a result of space recaptured due to bankruptcies and brand-wide restructurings in the 2020 period.

During 2020, we recognized a write-off of revenue of approximately $2.4 million of straight-line rents associated with tenant bankruptcies and uncollectible accounts.

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Other revenues from existing properties increased in the 2021 period due to the prior year impact of the COVID-19 pandemic.

The 2020 period included large reductions in variable vending and other revenue sources due to the mandatory closure of the vast majority of stores for a portion of the 2020 period as discussed above.

The 2020 period included reductions in variable vending and other revenue sources as a result of the COVID-19 pandemic impacting traffic to our centers and partially due to the centers operating under reduced hours.

PROPERTY OPERATING EXPENSES

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$ 37,186 $ 35,206 $ 1,980

Property operating expenses at existing properties increased in the 2021 period compared to the 2020 period primarily due to the lower costs needed to operate and advertise the centers while stores were closed under government mandates in response to the COVID-19 pandemic in 2020 as well as operating the centers under reduced hours when the stores reopened.

The 2021 period for properties disposed includes $1.7 million in net proceeds received from the successful appeal of property taxes for tax years prior to disposition.

Property operating expenses at existing properties increased in the 2021 period compared to the 2020 period primarily due to the lower costs needed to operate the centers under reduced hours in 2020.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $3.6 million in the 2021 period compared to the 2020 period.

The 2021 period includes higher compensation costs due to the addition of certain executives and other key employees added to drive certain of the our operational and growth initiatives and increases in other professional and legal fees, some of which are related to collection of rents from periods during the COVID-19 mandated shut downs.

The 2020 period included temporary reductions in compensation costs of our executive officers and other employees and virtually all travel and entertainment expenses were eliminated during the period.

The 2021 period includes higher compensation costs due to the addition of certain executives and other key employees added to drive certain operational and growth initiatives and increases in other professional and legal fees, some of which are related to collection of rents from periods during the COVID-19 mandated shut downs.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization costs decreased $914,000 in the 2021 period compared to the 2020 period.

Depreciation and amortization costs decreased $3.0 million in the 2021 period compared to the 2020 period.

The following table sets forth the changes in various components of depreciation and amortization costs from the 2020 period to the 2021 period (in thousands):

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$ 26,944 $ 29,903 $ (2,959)

Depreciation and amortization decreased at our existing properties primarily due to the lower basis in our Foxwoods property due to impairments recorded in the first and fourth quarters of 2020.

Depreciation and amortization decreased at our existing properties due to the lower basis in our Foxwoods property due to impairments recorded in the first and fourth quarters of 2020 and due to tenant improvements and lease related intangibles, which are amortized over shorter lives becoming fully depreciated during the reporting periods.

INTEREST EXPENSE

Interest expense decreased $2.4 million in the 2021 period compared to the 2020 period for the following reasons:

• In April 2021, we completed the partial early redemption of $150.0 million of our 3.875% senior notes due December 2023 (the “Notes).

• During the first six months of 2021, we paid down $50.0 million of borrowings under our unsecured term loan.

• Interest rate swap agreements in place during the 2021 period compared to the 2020 period had lower average interest rates.

• The 2020 period included interest expense related to borrowing approximately $599.8 million under our unsecured lines of credit to increase liquidity and preserve financial flexibility as a result of the COVID-19 pandemic.

In June 2020, we repaid $200.0 million of these borrowings.

• In August 2021, we completed a public offering of $400.0 million in senior notes due 2031 in an underwritten public offering.

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.

• During the first nine months of 2021, we completed the early redemption 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.

• During the first nine months of 2021, we paid down $50.0 million of borrowings under our unsecured term loan.

• Interest rate swap agreements in place during the 2021 period had lower average interest rates compared to the 2020 period.

• The 2020 period included interest expense related to borrowing in March 2020 approximately $599.8 million under our unsecured lines of credit to increase liquidity and preserve financial flexibility as a result of the COVID-19 pandemic.

In June 2020, we repaid $200.0 million of these borrowings, and by August 2020, we had repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.

During the 2021 period, we had no borrowings under our unsecured lines of credit.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

As part of completing the partial redemption of the Notes, we paid a make-whole premium of $13.0 million and expensed approximately $1.0 million of unamortized debt origination costs and debt discount related to the Notes.

For the three months ended September 30, 2021, we recorded a make-whole premium of $31.9 million and the write off of approximately $1.9 million of debt discount and debt origination costs due to the early redemption of our remaining 2023 notes and all of our 2024 notes.

GAIN ON SALE OF ASSETS

In August 2020, we sold a non-core outlet center in Terrell, Texas for net proceeds of $7.6 million, which resulted in a gain on sale of assets of $2.3 million.

The proceeds from the sale of this unencumbered asset were used to pay down balances outstanding under our unsecured lines of credit.

EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES

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2021 2020 Increase/(Decrease)

Equity in earnings from existing properties $ 2,728 $ 156 $ 2,572

Equity in earnings (losses) from existing properties $ 2,261 $ (12) $ 2,273

Equity in losses from property disposed — (30) 30

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Equity in earnings of unconsolidated joint ventures from existing properties increased due to the impact of COVID-19 on revenues in the previous year.

Equity in earnings from the property disposed includes our share of an impairment charge totaling $3.1 million in the 2020 period related to the Saint-Sauveur, Quebec outlet center in our Canadian joint venture.

Comparison of the six months ended June 30, 2021 to the six months ended June 30, 2020

Comparison of the nine months ended September 30, 2021 to the nine months ended September 30, 2020

NET INCOME (LOSS)

Net income increased $58.9 million in the 2021 period to net income of $6.9 million as compared to net loss of $52.0 million for the 2020 period.

The increase in net income is primarily due to the following:

Net loss decreased $34.2 million in the 2021 period to net loss of $4.1 million as compared to net loss of $38.3 million for the 2020 period.

Significant items impacting the comparability for the two period include the following:

• the prior year period was heavily impacted by the COVID-19 pandemic and had significant revenue reductions,

• the 2020 period included a $45.7 million impairment charge recognized in March 2020 on the outlet center in Mashantucket, Connecticut, and

• the 2020 period included our share of an impairment charge totaling $3.1 million in equity in earnings that related to the Saint-Sauveur, Quebec outlet center in our Canadian joint venture,

Partially offsetting the impact of the items above were the following items:

• we recognized in the current period a loss on the early extinguishment of debt of $14.0 million,

• we recorded in the current period a foreign currency loss of approximately $3.6 million in other income (expense), which had been previously recorded in other comprehensive income associated with the sale of our RioCan joint venture outlet center in Saint-Sauveur.

• we recorded $2.4 million of 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 and other executive severance.

• we recognized in the 2020 period a $2.3 million gain on the sale of our Terrell outlet center,

• we sold two operating properties since the first quarter of last year, as discussed below,

• the current period includes a loss on the early extinguishment of debt of $47.9 million related to the redemption of all of our 2023 and 2024 bonds,

• we recorded in the current period $2.4 million of 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 and other executive severance,

• The current period includes higher variable revenues, which derived from tenant sales, and other revenues as a result of COVID-19 pandemic on the 2020 period, which included mandated store closures by local and state authorities during the second quarter, continued lower traffic levels to our centers in the third quarter as well as due to our centers operating under reduced hours.

In the tables below, information set forth for properties disposed includes the Terrell outlet center sold in August 2020 and the Jeffersonville outlet center sold in January 2021.

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$ 301,556 $ 271,082 $ 30,474

The prior year period included the impact of the $33.9 million COVID-19 pandemic-related revenue reduction.

In addition, variable revenues which is derived from tenant sales is also driving the increase over prior year due to the mandated store closures by local and state authorities for a portion of the 2020 period discussed above.

Rental revenues from existing properties in the prior year period included the impact of a $40.5 million COVID-19 pandemic-related revenue reduction.

In addition, variable revenues, which are derived from tenant sales, are higher in the current period as a result of COVID-19 pandemic on the 2020 period, which included mandated store closures by local and state authorities during the second quarter, continued lower traffic levels to our centers in the third quarter and partially due to the centers operating under reduced hours.

In addition in the prior year, we recognized a write-off of revenue of approximately $6.1 million of straight-line rents associated with the tenant bankruptcies and uncollectible accounts.

MANAGEMENT, LEASING AND OTHER SERVICES

Management, leasing and other services increased $563,000 in the 2021 period compared to the 2020 period.

Management, leasing and other services increased $1.0 million in the 2021 period compared to the 2020 period.

The following table sets forth the changes in various components of management, leasing and other services (in thousands):

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Other revenues from existing properties increased in the 2021 period due to the prior year impact of the COVID-19 pandemic.

The 2020 period included large reductions in variable vending and other revenue sources due to the mandatory store closures by local and state authorities for a portion of the 2020 period discussed above, as well as the COVID-19 pandemic impacting traffic to our centers and the centers operating under reduced hours.

PROPERTY OPERATING EXPENSES

Property operating expenses decreased $224,000 in the 2021 period as compared to the 2020 period.

Property operating expenses increased $1.8 million in the 2021 period as compared to the 2020 period.

The following table sets forth the changes in various components of property operating expenses (in thousands):

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$ 103,747 $ 101,991 $ 1,756

Property operating expenses at existing properties increased in the 2021 period compared to the 2020 period, primarily due to the lower costs needed to operate and advertise the centers while stores were closed under government mandates in response to the COVID-19 pandemic in 2020, as well as operating the centers under reduced hours when the stores reopened.

The 2021 period for properties disposed includes $1.7 million in net proceeds received from the successful appeal of property taxes for tax years prior to disposition.

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General and administrative expenses increased $12.0 million in the 2021 period compared to the 2020 period.

The 2021 period included $2.4 million of compensation cost related to employees that accepted a voluntary retirement plan with an effective retirement date of March 31, 2021 and other executive severance.

Additionally, the 2021 period included incremental compensation related to executives hired during 2020, including our current President and Chief Executive Officer, hired in April 2020, and our Executive Vice President of Operations, hired in October 2020.

The 2021 period includes $2.4 million of compensation cost related to employees that accepted a voluntary retirement plan with an effective retirement date of March 31, 2021 and other executive severance.

Additionally, the 2021 period includes incremental compensation related to executives hired during 2020, including our current President and Chief Executive Officer, hired in April 2020, and our Executive Vice President of Operations, hired in October 2020.

The 2021 period also had increases in other professional and legal fees, some of which are related to collection of rents from periods during the COVID-19 mandated shut downs.

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$ 82,826 $ 87,966 $ (5,140)

Depreciation and amortization decreased at our existing properties primarily due to the lower basis in our Foxwoods property due to impairments recorded in the first and fourth quarters of 2020.

Depreciation and amortization decreased at our existing properties primarily due to the lower basis in our Foxwoods property due to impairments recorded in the first and fourth quarters of 2020 and due to tenant improvements and lease related intangibles, which are amortized over shorter lives, becoming fully depreciated during the reporting periods.

INTEREST EXPENSE

Interest expense decreased $6.8 million in the 2021 period compared to the 2020 period for the following reasons:

• In April 2021, we completed the partial early redemption of $150.0 million of our 3.875% senior notes due December 2023.

• During the first six months of 2021, we paid down $50.0 million of borrowings under our unsecured term loan.

• Interest rate swap agreements in place during the 2021 period compared to the 2020 period had lower average interest rates.

In June 2020, we repaid $200.0 million of these borrowings.

• In August 2021, we completed a public offering of $400.0 million in senior notes due 2031 in an underwritten public offering.

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.

• During the first nine months of 2021, we completed the early redemption 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.

• Interest rate swap agreements in place during the 2021 period had lower average interest rates compared to the 2020 period.

During the 2021 period, we had no borrowings under our unsecured lines of credit.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

For the nine months ended September 30, 2021, we recorded make-whole premiums of $44.9 million and the write offs of approximately $2.9 million of debt discount and debt origination costs due to the early redemption of our notes originally due in 2023 and 2024.

GAIN ON SALE OF ASSETS

In August 2020, we sold a non-core outlet center in Terrell, Texas for net proceeds $7.6 million, which resulted in a gain on sale of assets of $2.3 million.

The proceeds from the sale of this unencumbered asset were used to pay down balances outstanding under our unsecured lines of credit.

OTHER INCOME (EXPENSE)

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Equity in earnings from existing properties $ 6,758 $ 1,521 $ 5,237

Equity in earnings (losses) from property disposed 190 (2,981) 3,171

Equity in losses from property disposed — (3,011) 3,011

$ 6,758 $ (1,490) $ 8,248

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The following table sets forth information regarding settlements under our ATM offering program:

Three months ended June 30, Six months ended June 30,

Three months ended September 30, Nine months ended September 30,

2021 2020 2021 2020

Number of common shares settled during the period 331,682 — 10,009,263 —

2,810,503 — 9,677,581 —

Average price per share $ 18.85 $ — $ 18.97 $ —

$ 18.85 $ — $ 18.97 $ —

Aggregate gross proceeds (in thousands) $ 6,253 $ — $ 189,868 $ —

Aggregate net proceeds after selling commissions and fees (in thousands) $ 6,092 $ — $ 186,969 $ —

$ 52,221 $ — $ 180,876 $ —

(1) In July 2021, we had an additional 331,682 shares settle at an average price per share of $18.85 with aggregate net proceeds after commissions and fees of $6.2 million.

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 million that expired in May 2021.

The Company temporarily suspended share repurchases for the twelve months starting July 1, 2020 and ending on June 30, 2021 in light of a repurchase covenant.

On July 1, 2021, a covenant in the Company’s debt agreements (the “repurchase covenant”) prohibiting share repurchases expired.

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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 periods ended June 30, 2021 and 2020.

The remaining amount authorized to be repurchased under the program as of June 30, 2021 was approximately $80.0 million.

The Company temporarily suspended share repurchases for at least the twelve months starting July 1, 2020 and ending on June 30, 2021 in light of the repurchase covenant.

The Company did not repurchase any shares for both the three and nine months ended September 30, 2021 and 2020.

The remaining amount authorized to be repurchased under the program as of September 30, 2021 was approximately $80.0 million.

In July 2021, the Company's Board of Directors declared a $0.1775 cash dividend per common share payable on August 13, 2021 to each shareholder of record on July 30, 2021, and the Trustees of Tanger GP Trust declared a $0.1775 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

In September 2021, the Company's Board of Directors declared a quarterly cash dividend of $0.1825 per common share payable on November 15, 2021 to each shareholder of record on October 29, 2021, and the Trustees of Tanger GP Trust declared a $0.1825 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

As a result of the declaration, a liability in the amount of approximately $19.9 million was recorded in accounts payable and accrued expenses in the consolidated balance sheet as of September 30, 2021.

LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP

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The following table sets forth our changes in cash flows (in thousands):

Six months ended June 30,

Nine months ended September 30,

2021 2020 Change

Net cash provided by operating activities $ 143,729 $ 92,033 $ 51,696

Net cash provided by (used in) investing activities 4,009 (16,821) 20,830

Net cash provided by (used in) financing activities (72,761) 324,714 (397,475)

Net cash used in investing activities (1,928) (12,287) 10,359

Net cash used in financing activities (83,607) (76,345) (7,262)

Effect of foreign currency rate changes on cash and equivalents (131) (208) 77

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The increase in net cash provided by operating activities was primarily due to the collection of rent deferred from April and May of 2020 during the beginning of the COVID-19 pandemic.

These rents were payable during the first quarter of 2021.

In addition, our cash collections normalized in the second quarter of 2021 when compared to the second quarter of 2020, since the second quarter of 2020 had uncollected and deferred contractual rents as a result of COVID-19.

These rents were payable during 2021, the majority of which was due in the first quarter of 2021.

In addition, our cash collections normalized during 2021, whereas the second and third quarters of 2020 had uncollected and deferred contractual rents as a result of COVID-19.

Investing Activities

The increase in net cash provided by investing activities was due to the net proceeds of approximately $8.1 million from the sale of our Jeffersonville outlet center in the 2021 period and increased distributions in excess of cumulative earnings from unconsolidated joint ventures.

These increases were partially offset by the $7.0 million contribution made to the Galveston/Houston joint venture to reduce the principal balance of the mortgage loan.

In addition, we had lower additions to rental properties in the 2021 period.

The decrease in net cash used in investing activities was primarily due to increased distributions in excess of cumulative earnings from unconsolidated joint ventures.

Financing Activities

The primary cause for the decrease in net cash provided by financing activities was our draw down of substantially all of the available capacity under our $600.0 million unsecured lines of credit in March 2020, due to the COVID-19 pandemic.

Also impacting the decrease, in April 2021, we completed a partial redemption of $150.0 million aggregate principal amount of our $250.0 million 3.875% senior notes due December 2023, for $163.0 million in cash, which included a make-whole premium of $13.0 million.

Net cash used in financing activities increased during the first nine months of 2021 as we completed the early redemption 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.

These decreases were partially offset by the proceeds from our common share offering of $180.9 million in 2021 under our ATM offering program and, in addition, lower dividend payments in 2021 compared to 2020.

The increase in net cash used in financing activities was partially offset by proceeds received during 2021 from our August 2021 public offering of $400.0 million in senior notes due 2031 and sales of commons shares under our ATM program generating net proceeds of approximately $187.0 million and also due to lower dividend payments in 2021 compared to 2020.

Capital Expenditures

The following table details our capital expenditures (in thousands):

Six months ended June 30,

Nine months ended September 30,

2021 2020 Change

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New outlet center developments and expansions (1)

$ 2,626 $ 1,967 $ 659

Major outlet center renovations (2)

227 5,217 (4,990)

Second generation tenant allowances (3)

(5) 8,549 (8,554)

Other capital expenditures (4)

11,137 7,437 3,700

13,985 23,170 (9,185)

Conversion from accrual to cash basis 9,700 (98) 9,798

Additions to rental property-cash basis $ 23,685 $ 23,072 $ 613

• Major outlet center renovations in the 2020 period included costs related to bringing two magnet tenants to our Lancaster outlet center.

(1) New outlet center developments and expansions in the 2021 period included a land acquisition at our Westgate outlet center.

(2) Major outlet center renovations in the 2020 period included included costs related to bringing two magnet tenants to our Lancaster outlet center.

(3) In the 2021 period, second generation tenant allowances are presented net of $3.3 million tenant allowance reversals, which were the result of a lease modification.

(4) The increase in other capital expenditures in 2021 was primarily due to our decision in 2020 to defer all capital projects except essential and life-safety projects, due to the impact on cash flows caused by the COVID-19 pandemic.

Potential Future Developments, Acquisitions and Dispositions

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We may also use joint venture arrangement to develop other potential sites.

While temporarily deferred during the pandemic crisis, we have recently restarted our marketing efforts for the planned Nashville development, and as restrictions are lifted potential tenants are making site visits.

However, there can be no assurance that these potential future projects will ultimately be developed.

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Financing Arrangements

As of June 30, 2021, unsecured borrowings represented 95% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered.

As of September 30, 2021, unsecured borrowings represented 95% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered.

The Company guarantees the Operating Partnership’s obligations under our lines of credit.

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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 scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the timing or effectiveness of any vaccines or treatments, and the direct and indirect economic effects of the pandemic and containment measures, among others.

As of June 30, 2021, the Company’s total liquidity was approximately $707.6 million, including cash and cash equivalents on the Company’s balance sheet and the full undrawn capacity under its $600 million unsecured lines of credit.

As of September 30, 2021, the Company’s total liquidity was approximately $663.1 million, including cash and cash equivalents on the Company’s balance sheet and the full undrawn capacity under its $520 million unsecured lines of credit.

We expect to have sufficient liquidity to meet our obligations for at least the next 12 months.

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We believe our current balance sheet position is financially sound;

however, due to the economic uncertainty caused by the COVID-19 pandemic and the inherent uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our unsecured senior notes due December 2023.

In April 2021, Moody’s lowered the company’s credit rating to Baa3, stable.

As the Company no longer has a split rating between the rating agencies the pricing over LIBOR for the lines of credit, term loan and facility fee increased to 1.20%, 1.25% and .25%, respectively, effective May 1, 2021.

Also, 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.

Subsequent to the redemption, $100.0 million aggregate principal amount of the Notes remains outstanding.

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 June 30, 2021.

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.

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 remaining proceeds were used for general corporate purposes.

Unsecured term loan

Unsecured Lines of Credit Amendments and Extension

In June 2020, we amended the debt agreements for our lines of credit and bank term loan, primarily to improve future covenant flexibility.

The amendments, among other things, allowed us to access the existing surge leverage provision, which provides for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months starting July 1, 2020 and ended on June 30, 2021, during which time share repurchases were prohibited.

The amendments, among other things, allowed us to access the existing surge leverage provision, which provides for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months from July 1, 2020 to June 30, 2021, during which time share repurchases were prohibited.

Additionally, the leverage covenants are determined based on the calculation period which is modified to be based on the immediately preceding three calendar month period annualized for the calculation date occurring on December 31, 2020;

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In certain circumstances, total line capacity may be increased to $1.2 billion through an accordion feature in the syndicated line.

We have historically been, and at June 30, 2021 are, in compliance with all of our debt covenants.

Other Financing Activity

In April 2021, Moody’s lowered the company’s credit rating to Baa3, stable.

As the Company no longer has a split rating between the rating agencies, the pricing over LIBOR for the lines of credit, term loan and facility fee increased to 1.20%, 1.25% and .25%, respectively, effective May 1, 2021.

In October 2021, the joint venture that owns the Southaven, MS outlet center exercised its option to extend the maturity of the Southaven, MS mortgage to April 2023 and paid down the principal balance by $11.3 million to $40.1 million.

The interest rate remains LIBOR + 1.80%.

The outlet center is consolidated for financial reporting purposes and we funded the entire $11.3 million.

Debt Covenants

We have historically been, and at September 30, 2021 are, in compliance with all of our debt covenants.

The ongoing financial impact of the COVID-19 pandemic could potentially negatively impact our future compliance with financial covenants of our credit facilities, term loan and other debt agreements and result in a default and potentially an acceleration of indebtedness.

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We believe that we have access to the necessary financing to fund our short-term liquidity needs.

As of June 30, 2021, we believe our most restrictive covenants are contained in our senior, unsecured notes.

As of September 30, 2021, we believe our most restrictive covenants are contained in our senior, unsecured notes.

Key financial covenants and their covenant levels, which are calculated based on contractual terms, include the following:

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Total unencumbered assets to unsecured debt >150% 229 %

In addition, key financial covenants for our lines of credit and term loan, include the following as of June 30, 2021:

In addition, key financial covenants for our lines of credit and term loan, include the following as of September 30, 2021:

Required Actual

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Unencumbered Interest Coverage Ratio >1.5 4.7

(1) In June 2020, we amended the debt agreements for our lines of credit and bank term loan which, among other things, allowed us to access the existing surge leverage provision, which provided for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months starting July 1, 2020.

For the calculation period beginning July 1, 2021, the maximum thresholds for total leverage and unsecured leverage returned to 60%.

Depending on the future economic impact of COVID-19, other covenants related to credit facilities, term loans, and other debt obligations could become one of our most restrictive covenants.

CONTRACTUAL OBLIGATIONS

There were no material changes in our commitments during the six months ended June 30, 2021 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, other than the following updates to our contractual obligations for debt and interest payments over the next five years and thereafter as of June 30, 2021 (in thousands):

There were no material changes in our commitments during the nine months ended September 30, 2021 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, other than the following updates to our contractual obligations for debt and interest payments over the next five years and thereafter as of September 30, 2021 (in thousands):

Contractual Obligations Remainder of 2021 2022 2023 2024 2025 Thereafter Total

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$ 10,545 $ 41,586 $ 41,255 $ 37,320 $ 34,741 $ 87,868 $ 253,315

(1) These amounts represent total future cash payments related to debt obligations outstanding as of June 30, 2021.

(1) These amounts represent total future cash payments related to debt obligations outstanding as of September 30, 2021.

(2) These amounts represent future interest payments related to our debt obligations based on the fixed and variable interest rates specified in the associated debt agreements, including the effects of our interest rate swaps.

All of our variable rate debt agreements are based on the one month LIBOR rate, thus for purposes of calculating future interest amounts on variable interest rate debt, the one month LIBOR rate as of June 30, 2021 was used.

OFF-BALANCE SHEET ARRANGEMENTS

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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 June 30, 2021 (dollars in millions):

The following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as of September 30, 2021 (dollars in millions):

Joint Venture Total Joint

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$ 329.4 $ 21.9

(1) In February 2021, the Galveston/Houston joint venture amended the mortgage loan to extend the maturity to July 2023, which required a reduction in principal balance from $80.0 million to $64.5 million.

(1) 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%.

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2020 of the Company and the Operating Partnership for a discussion of our critical accounting policies, which include principles of consolidation, rental property, impairment of long-lived assets, impairment of investments, revenue recognition and collectibility of operating lease receivables.

There were no material changes to these policies in the quarter ended June 30, 2021.

There were no material changes to these policies in the quarter ended September 30, 2021.

If the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate beyond our current expectations or if our expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future.

For example, the Foxwoods property is part of a casino property and continues to face leasing challenges which could lead to further declines in occupancy, rental revenues and cash flows in the future.

Such challenges, or a change in our expected holding period, could result in additional impairment charges recognized for the Foxwoods property.

We can provide no assurance that material impairment charges with respect to our properties will not occur during the remainder of 2021 or future periods.

NON-GAAP SUPPLEMENTAL MEASURES

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Below is a reconciliation of net income to FFO and Core FFO available to common shareholders (in thousands, except per share amounts):

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2021 2020 2021 2020

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Impairment charge - unconsolidated joint ventures — — — 3,091

Gain on sale of assets — (2,324) — (2,324)

FFO 18,204 43,074 89,494 102,724

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Compensation related to voluntary retirement plan and other executive severance (3)

294 — 2,712 —

Loss on early extinguishment of debt (4)

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Basic weighted average common shares 103,269 92,649 99,446 92,596

Effect of notional units 818 — 685 —

Effect of outstanding options and restricted common shares 771 — 728 —

Diluted weighted average common shares (for earnings per share computations) 103,269 92,649 99,446 92,596

Effect of notional units 583 — 518 —

Effect of outstanding options 753 — 736 —

Exchangeable operating partnership units 4,795 4,911 4,795 4,911

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109,400 97,560 105,495 97,507

(1) The six months ended June 30, 2021 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.

(1) The nine months ended September 30, 2021 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.

(2) 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.

(3) Represents compensation cost related to a voluntary retirement plan offer that required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021 and other executive severance costs.

(4) 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.

The loss on extinguishment of debt includes a make-whole premium of $13.0 million.

(3) For the nine months ended September 30, 2021, includes compensation costs related to a voluntary retirement plan offer that required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021, as well as other executive severance costs incurred during the three and nine months ended September 30, 2021.

(4) 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 (the “2023 Notes”) for $163.0 million in cash.

In September 2021, we completed a redemption of the remaining 2023 Notes, $100.0 million in aggregate principal amount outstanding, and all of our 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 includes make-whole premiums of $44.9 million, of which $31.9 million occurred during the third quarter of 2021.

Portfolio Net Operating Income and Same Center NOI

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Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2021 2020 2021 2020

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Interest expense 13,282 15,647 40,982 47,786

Gain on sale of assets — (2,324) — (2,324)

Loss on early extinguishment of debt (1)

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Same Center NOI $ 73,752 $ 66,148 $ 208,216 $ 173,885

(1) 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.

The loss on extinguishment of debt includes a make-whole premium of $13.0 million.

(1) 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 (the “2023 Notes”) for $163.0 million in cash.

The loss on extinguishment of debt includes make-whole premiums of $44.9 million, of which $31.9 million occurred during the third quarter of 2021.

(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.

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Below is a reconciliation of Net Income to Adjusted EBITDA (in thousands):

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2021 2020 2021 2020

6 unchanged sentences

Loss on sale of joint venture property, including foreign currency effect (1)

Gain on sale of assets — (2,324) — (2,324)

Compensation related to voluntary retirement plan and other executive severance (2)

294 — 2,712 —

Loss on early extinguishment of debt (3)

2 unchanged sentences

Below is a reconciliation of Net Income to EBITDAre and Adjusted EBITDAre (in thousands):

Three months ended Six months ended

June 30, June 30,

Three months ended Nine months ended

September 30, September 30,

2021 2020 2021 2020

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Loss on sale of joint venture property, including foreign currency effect (1)

Gain on sale of assets — (2,324) — (2,324)

Pro-rata share of interest expense - unconsolidated joint ventures 1,457 1,512 4,384 4,995

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Compensation related to executive officer retirement (2)

294 — 2,712 —

Loss on early extinguishment of debt (3)

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(1) 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.

(2) Represents compensation cost related to a voluntary retirement plan offer that required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021 and other executive severance costs.

(3) 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.

The loss on extinguishment of debt includes a make-whole premium of $13.0 million.

(2) For the nine months ended September 30, 2021, includes compensation costs related to a voluntary retirement plan offer that required eligible participants to give notice of acceptance by December 1, 2020 for an effective retirement date of March 31, 2021.

For 2021, also includes other executive severance costs incurred during the three and nine months ended September 30, 2021.

(3) 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 Notes for $163.0 million in cash.

The loss on extinguishment of debt includes make-whole premiums of $44.9 million, of which $31.9 million occurred during the third quarter of 2021.

ECONOMIC CONDITIONS AND OUTLOOK

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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.

As a result of the COVID-19 pandemic, we have seen reductions in rental revenues as a result of declines in the sales volumes of certain tenants.

As a result of the COVID-19 pandemic, we saw reductions in rental revenues during 2020 as a result of declines in the sales volumes of certain tenants.

However, during the first nine months of 2021, traffic and sales on average for our portfolio have returned to near or above pre-pandemic levels, resulting in significant increases in rental revenues compared to the prior year.

Our outlet centers typically include well-known, national, brand name companies.

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As of January 1, 2021, we had approximately 1.7 million square feet, or 15% of our consolidated portfolio at that time coming up for renewal during 2021.

As of June 30, 2021, we had renewed approximately 49% of this space.

In addition, for the rolling twelve months ended June 30, 2021, we completed renewals and re-tenanted space totaling 1.6 million square feet at a blended 2.4% decrease in average base rental rates compared to the expiring rates.

As of September 30, 2021, we had renewed approximately 54% of this space.

In addition, for the rolling twelve months ended September 30, 2021, we completed renewals and re-tenanted space totaling 1.6 million square feet at a blended 0.6% decrease in average base rental rates compared to the expiring rates.

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 are encouraged by the recent improvement in traffic and sales trends, which in many cases are exceeding 2019 levels, and the fact that collections of monthly rents have normalized.

However, we continue to anticipate pressure from current vacancies, potential additional store closures and potential rent modifications.

However, many retailers across the country are currently facing, or expect to face, potential logistics and staffing issues.

While we believe many of these retailers are proactively navigating this situation, the ultimate impact of labor and supply chain issues is unknown.

We may continue to experience pressure from current vacancies, potential additional store closures and potential rent modifications.

As is typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its contractual expiration or as a result of filing for protection under bankruptcy laws, or may request modifications to their existing lease terms.

We have recaptured approximately 80,000 square feet within our consolidated portfolio during the six months ended June 30, 2021 related to bankruptcies and brand-wide restructurings by retailers, compared to 380,000 square feet for the six months ended June 30, 2020, and recaptured another approximately 55,000 square feet in July 2021.

We have recaptured approximately 135,000 square feet within our consolidated portfolio during the nine months ended September 30, 2021 related to bankruptcies and brand-wide restructurings by retailers, compared to 586,000 square feet for the nine months ended September 30, 2020.

We believe outlet stores will continue to be a profitable and fundamental distribution channel for many brand name manufacturers.

While we continue to attract and retain additional tenants, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms or in a timely manner, the loss in rent and our Same Center NOI could be further negatively impacted in 2021.

Occupancy at our consolidated centers was 93.0% and 93.8% as of June 30, 2021 and 2020, respectively.

Occupancy at our consolidated centers was 94.3% and 92.9% as of September 30, 2021 and 2020, respectively.

As a result of COVID-19 and current economic conditions, occupancy could be negatively impacted in the remainder of 2021 and future periods.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis