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Item 2. Management’s Discussion and Analysis

2023-04-28 compared with 2022-11-04 · 138 added, 304 removed, 457 unchanged (49% 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 nine months ended September 30, 2022 with the three and nine months ended September 30, 2021.

The discussion of our results of operations reported in the unaudited, consolidated statements of operations compares the three months ended March 31, 2023 with the three months ended March 31, 2022.

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

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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 COVID-19 pandemic, rising inflation, supply chain and labor issues, and rising interest rates on our business, financial results and financial condition;

the expected impact of rising inflation, supply chain and labor issues, the COVID-19 pandemic 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;

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Other important factors which may cause actual results to differ materially from current expectations include, but are not limited to:

risks related to the economic performance and market value of our outlet centers, including changes in the national, regional and local economic climate, inflation and rising interest rates;

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;

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risk associated with a possible terrorist activity or other acts or threats of violence, public health crises and threats to public safety;

risks related to the COVID-19 pandemic;

risks associated with supply chain disruptions and labor shortages;

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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 climate change;

investor and regulatory focus on environmental, sustainability and social initiatives;

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;

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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;

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our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends;

the risk of a cyber-attack or an act of cyber-terrorism and other important factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2021.

the risk of a cyber-attack or an act of cyber-terrorism;

and other important factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - “Risk Factors” in the Company’s and the Operating Partnership’s Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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General Overview

As of September 30, 2022, we had 30 consolidated outlet centers in 18 states totaling 11.5 million square feet.

As of March 31, 2023, 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 new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2021 to September 30, 2022 (square feet in thousands):

Consolidated Outlet Centers Unconsolidated Joint Venture Outlet Centers

Outlet Center Quarter Opened/Disposed Square Feet Number of Outlet Centers Square Feet Number of Outlet Centers

Consolidated Outlet Centers Unconsolidated Joint Venture Outlet Centers Managed Centers

Outlet Center Quarter Opened/Disposed Square Feet Number of Outlet Centers Square Feet Number of Outlet Centers Square Feet Number of Outlet Centers

As of January 1, 2022 11,453 30 2,113 6 — —

Palm Beach, Florida Third Quarter 457 1

Dispositions:

Jeffersonville First Quarter (412) (1) — —

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

Blowing Rock, North Carolina Fourth Quarter (104) (1)

Other 4 — — — — —

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Other (1) — — — — —

As of September 30, 2022

As of March 31, 2023

11,352 29 2,113 6 457 1

The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2022.

The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of March 31, 2023.

Except as noted, all properties are fee owned.

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Hilton Head I, South Carolina 100 181,687 100.0

Blowing Rock, North Carolina 100 104,009 96.0

Totals 11,351,648 96.4

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Leasing Activity

In the fourth quarter of 2021, we revised our rent spread presentation from a commenced basis to an executed basis and we are presenting it for comparable and non-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 provides information for our consolidated outlet centers related to leases for new stores that opened or renewals that were executed during the respective trailing twelve month periods ended September 30, 2022 and 2021:

Comparable Space for Executed Leases (1) (2)

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RESULTS OF OPERATIONS

Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021

NET INCOME (LOSS)

Net income increased $35.4 million in the 2022 period to $24.3 million as compared to a net loss of $11.1 million for the 2021 period.

Comparison of the three months ended March 31, 2023 to the three months ended March 31, 2022

Net income increased $3.4 million in the 2023 period to $24.9 million as compared to net income of $21.5 million for the 2022 period.

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

• the current period had a higher average portfolio occupancy rate, and

• the prior year period included a loss on the early extinguishment of debt of $33.8 million.

• a higher average portfolio occupancy rate in the current period,

• lower common area maintenance snow removal costs in the current period as a result of a mild 2023 winter comparatively, and

• higher investment income from investments of cash available at significantly higher rates.

partially offset by

• the current period did not contain lease termination fees and the prior year period included significant termination rents from several tenants, and

• higher general and administrative costs as a result of hiring certain executives and other key employees after March 2022 and additional expenses to drive operational and growth initiatives.

In the tables below, information set forth for properties disposed includes the Blowing Rock outlet center sold in December 2022.

RENTAL REVENUES

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Rental revenues from existing properties $ 104,245 $ 102,918 $ 1,327

Rental revenues from properties disposed (125) 515 (640)

Straight-line rent adjustments (673) (1,337) 664

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$ 103,582 $ 104,609 $ (1,027)

Rental revenues decreased primarily because the 2021 period included lease termination fees from a single tenant that vacated multiple locations throughout the portfolio.

Lease termination fees decreased primarily because the 2022 period included isolated terminations of certain leases with multiple years of remaining term.

No such significant terminations occurred in the 2023 period.

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$ 1,914 $ 1,527 $ 387

Management fee income increased due to our addition of property management responsibilities during the 2022 period for a center in West Palm Beach, Florida.

Management fee income increased due to our addition of property management responsibilities during the third quarter of 2022 for a center in West Palm Beach, Florida.

OTHER REVENUES

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Other revenues from existing properties $ 3,447 $ 2,709 $ 738

Other revenues from properties disposed — 23 (23)

$ 3,447 $ 2,732 $ 715

Other revenues from existing properties increased in the 2023 period due to an increase in other revenue streams, such as paid media, sponsorships and onsite signage, on a local and national level.

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Property operating expenses from existing properties $ 31,467 $ 34,867 $ (3,400)

Property operating expenses from sold properties — 274 (274)

Expenses related to unconsolidated joint ventures 1,076 957 119

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$ 33,148 $ 36,758 $ (3,610)

Property operating expenses from existing properties decreased in the 2022 period primarily due to the timing of certain advertising and promotional costs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $2.6 million in the 2022 period compared to the 2021 period.

The increase was primarily from the hiring of certain executives and other key employees during the second half of 2021 to drive operational and growth initiatives.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization costs decreased $1.5 million in the 2022 period compared to the 2021 period, primarily due to a slow down in the development and acquisition pipeline in recent years due to COVID-19 and certain assets becoming fully depreciated.

INTEREST EXPENSE

Interest expense decreased $1.6 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 2.750% of senior notes and completed the early redemption of $100.0 million of 3.875% senior notes due in 2023 (“2023 notes”) and $250.0 million of 3.75% senior notes due in 2024 (“2024 notes”), reducing our average interest rate.

LOSS ON EARLY EXTINGUISHMENT OF DEBT

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.

OTHER INCOME (EXPENSE)

Other income (expense) increased approximately $1.1 million in the 2022 period, primarily due to higher investment income from opportunities available in the current rising interest rate environment.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES

Equity in earnings of unconsolidated joint ventures decreased approximately $206,000 in the 2022 period compared to the 2021 period.

The decrease is primarily due to the increase in variable interest rates in 2022 that has negatively impacted two of our joint ventures that have variable rate mortgages.

The Columbus variable interest rate mortgage was refinanced in September 2022 and now has a fixed interest rate of 6.25%.

Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021

Net income increased $70.8 million in the 2022 period to $66.6 million as compared to a net loss of $4.1 million for the 2021 period.

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

• the current period had a higher average portfolio occupancy rate

• the 2021 period included a loss on the early extinguishment of debt of $47.9 million related to the redemption of all of our 2023 and 2024 notes,

• the 2021 period included 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,

• the current period includes a gain of $2.4 million related to the sale of a non-real estate asset,

• the 2022 period included $2.4 million of executive severance costs and the 2021 period included $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, and

• we sold one operating property in the first quarter of 2021, as discussed below.

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

RENTAL REVENUES

Rental revenues increased $10.0 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 $ 310,151 $ 299,823 $ 10,328

Rental revenues from properties disposed (12) 519 (531)

Straight-line rent adjustments (1,190) (1,137) (53)

Lease termination fees 2,859 2,224 635

Amortization of above and below market rent adjustments, net (221) 127 (348)

$ 311,587 $ 301,556 $ 10,031

Rental revenues increased primarily due to an increase in occupancy rate for the consolidated portfolio to 96.4% as of September 30, 2022 compared to 94.3% as of September 30, 2021.

Additionally, rental revenues were also impacted by the reversal of revenue reserves in the 2022 period of approximately $3.7 million, compared to $2.8 million in the same period of the prior year.

MANAGEMENT, LEASING AND OTHER SERVICES

Management, leasing and other services increased $488,000 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 $ 1,749 $ 1,575 $ 174

Leasing and other fees 96 231 (135)

Expense reimbursements from unconsolidated joint ventures 3,015 2,566 449

Total Fees $ 4,860 $ 4,372 $ 488

Management fee income increased due to our addition of property management responsibilities during the 2022 period for a center in West Palm Beach, Florida.

Leasing fee income decreased due to the 2021 period containing more renewal and re-tenant opportunities at our unconsolidated joint ventures.

OTHER REVENUES

Other revenues increased $1.2 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 $ 9,705 $ 8,486 $ 1,219

Other revenues from property disposed — 18 (18)

$ 9,705 $ 8,504 $ 1,201

Other revenues from existing properties increased in the 2022 period due to an increase in other revenue streams, such as paid media, sponsorships and on-site signage, on a local and national level.

PROPERTY OPERATING EXPENSES

Property operating expenses increased $1.8 million in the 2022 period as 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 $ 100,884 $ 100,759 $ 125

Property operating expenses from property disposed — (1,163) 1,163

Expenses related to unconsolidated joint ventures 3,015 2,566 449

Other property operating expense 1,632 1,585 47

$ 105,531 $ 103,747 $ 1,784

Property operating expenses from existing properties increased in the 2022 period compared to the 2021 period, primarily due to higher property insurance costs.

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

The 2022 period included no such refunds.

Property operating expenses from existing properties decreased in the 2023 period primarily due to the timing of certain advertising and promotional costs and the mild winter in the 2023 period compared to the 2022 period, resulting in lower snow removal costs.

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased $2.0 million in the 2023 period compared to the 2022 period.

The increase is primarily driven by the hiring of certain executives and other key employees throughout 2021 to drive operational and growth initiatives.

The 2022 period included $2.4 million of executive severance costs and 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.

In addition, 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.

The increase was primarily from the hiring of certain key employees after March 2022 and additional expenses to drive operational and growth initiatives.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization costs decreased $4.9 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):

Depreciation and amortization costs decreased $350,000 in the 2023 period compared to the 2022 period.

2023 2022 Increase/(Decrease)

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$ 25,893 $ 26,243 $ (350)

Depreciation and amortization costs decreased primarily due to a slow down in the development and acquisition pipeline and certain assets becoming fully depreciated.

INTEREST EXPENSE

Interest expense decreased $6.1 million in the 2022 period compared to the 2021 period for the following reasons:

• During August and September 2021, we completed a public offering of $400.0 million 2.750% of senior notes and completed the early redemption of $250.0 million of the 2023 notes and $250.0 million of the 2024 notes, reducing our average interest rate.

• During different times in 2021, we paid down approximately $50.0 million of borrowings under our unsecured term loan.

The 2022 period reflects the full impact of those paydowns.

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 2023 and 2024 notes.

Interest expense increased $709,000 in the 2023 period compared to the 2022 period due to the combination of higher interest rates and higher amounts of variable rate debt.

During the fourth quarter of 2022 we refinanced the variable rate mortgage in our Memphis consolidated joint venture, increasing the outstanding balance to $51.7 million from $40.1 million.

In addition, also during the fourth quarter of 2022, we amended and restated our unsecured term loan and increased the outstanding balance from $300.0 million to $325.0 million.

OTHER INCOME (EXPENSE)

Other income (expense) increased approximately $6.8 million in the 2022 period compared to the 2021 period.

The increase was primarily due to a $2.4 million gain on sale of a non-real estate asset, higher investment income in the 2022 period and the inclusion in the 2021 period of a $3.6 million foreign currency loss from the sale by the RioCan joint venture of its outlet center in Saint-Sauveur, Quebec in which we had a 50% ownership interest.

Other income (expense) increased approximately $2.6 million in the 2023 period, primarily due to higher investment income from short-term investments of cash at higher interest rates than were available in the 2022 period.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES

Equity in earnings of unconsolidated joint ventures increased approximately $37,000 in the 2022 period compared to the 2021 period.

In the table below, information set forth for properties 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 $ 6,795 $ 6,568 $ 227

Equity in earnings from property disposed — 190 (190)

$ 6,795 $ 6,758 $ 37

Equity in earnings of unconsolidated joint ventures decreased approximately $578,000 in the 2023 period compared to the 2022 period.

The decrease is primarily due to the increase in interest rates in 2022 that has negatively impacted two of our joint ventures that have or had variable interest rate mortgages.

The Columbus variable interest rate mortgage was refinanced in September 2022 and now has a fixed interest rate of 6.25%.

LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY

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We are a well-known seasoned issuer (as defined in the Securities Act) with a shelf registration that expires in February 2024 that allows the Company to register unspecified, various classes of equity securities and the Operating Partnership to register unspecified, various 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.

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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 cash on hand, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make any minimum dividend payments to its shareholders and to finance its continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months.

The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations, cash on hand and, if necessary from time to time, 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 for at least the next twelve months.

However, there can be no assurance that the Operating Partnership's sources of capital will continue to be available at all or in amounts sufficient to meet its needs, including its ability to make distribution payments to the Company.

The unavailability of capital could adversely affect the Operating Partnership's ability to pay its distributions to the Company, which will in turn, adversely affect the Company's ability to pay cash dividends to its shareholders.

Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, macroeconomic conditions, including rising interest rates and inflation, and other risks detailed in “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021.

For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income (excluding capital gains).

Risks are detailed in “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022.

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.

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Because the Company consolidates the Operating Partnership, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole.

In February 2021, we established an at-the-market share offering program (“ATM Offering”) under our shelf registration statement on Form S-3.

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”).

Under our at-the-market share 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.

The Operating Partnership currently intends to use the net proceeds from the sale of shares pursuant to the ATM Offering for working capital and general corporate purposes.

As of September 30, 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:

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

2022 2021 2022 2021

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

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

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

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

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 March 31, 2023, we had approximately $60.1 million remaining available for sale under the ATM Offering program.

There were no sales of our shares during the first quarters of 2023 or 2022.

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.

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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 both the three and nine months ended September 30, 2022 and 2021.

The remaining amount authorized to be repurchased under the program as of September 30, 2022 was approximately $80.0 million.

In July 2022, the Company's Board of Directors declared a $0.20 cash dividend per common share payable on August 15, 2022 to each shareholder of record on July 29, 2022, and in its capacity as General Partner of the Operating Partnership, a $0.20 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

In October 2022, the Company's Board of Directors declared a $0.22 cash dividend per common share payable on November 15, 2022 to each shareholder of record on October 29, 2022, and in its capacity as General Partner of the Operating Partnership a $0.22 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

The Company did not repurchase any shares for the three months ended March 31, 2023 or 2022.

The remaining amount authorized to be repurchased under the program as of March 31, 2023 was approximately $80 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 in its capacity as General Partner of the Operating Partnership, a $0.22 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

In April 2023, the Company's Board of Directors declared a $0.245 cash dividend per common share payable on May 15, 2023 to each shareholder of record on April 28, 2023, and in its capacity as General Partner of the Operating Partnership a $0.245 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP

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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, to the extent available, or from the proceeds from the Operating Partnership’s debt offerings and the Company’s equity offerings.

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 cash on hand, borrowings under our unsecured lines of credit, to the extent available, 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 prudent leverage position relative to our portfolio when pursuing new development, expansion and acquisition opportunities, (2) extend and sequence debt maturities, (3) manage our interest rate risk through a proper mix of fixed and variable rate debt, (4) maintain access to liquidity by using our unsecured lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of underperforming assets and maintaining a conservative distribution payout ratio.

We manage our capital structure to reflect a long term investment approach and utilize multiple sources of capital to meet our requirements.

Our ability to access capital on favorable terms as well as to use cash from operations to continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted, could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, macroeconomic conditions, including rising interest rates and inflation, and other risks detailed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021.

(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 cash flow from operations and debt and equity issuances.

Our ability to access capital on favorable terms could be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic, macroeconomic conditions, including rising interest rates and inflation, and other risks detailed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022.

Capital Expenditures

The following table details our capital expenditures for consolidated outlet centers for the nine months ended September 30, 2022 and 2021 (in thousands):

Nine months ended September 30,

The following table details our capital expenditures for consolidated outlet centers for the three months ended March 31, 2023 and 2022 (in thousands):

Three months ended March 31,

2023 2022 Change

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Second generation tenant allowances 2,030 1,252 778

4,938 (5) 4,943

Other capital expenditures (2)

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(1) The increase in new outlet center developments and expansions is primarily due to development costs at our site in Nashville, TN and other projects.

(2) 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.

(3) The increase in other capital expenditures in 2022 was primarily related to our ongoing solar initiatives.

(2) Other capital expenditures in 2023 increased over the 2022 period due to a higher number of major capital expenditure projects within our existing portfolio.

New Development of Consolidated Outlet Centers

During the second quarter of 2022, we purchased land in the Nashville, Tennessee area for approximately $8.8 million and began construction on the development of our wholly-owned outlet center.

The center, which will be approximately 290,000 square feet, is expected to be completed in the fall of 2023.

In May 2022, we broke ground on our 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 cost of $142.0 million to $150.0 million with a projected stabilized yield of 7.0% to 7.5%.

Through March 31, 2023, we had incurred costs of $62.8 million associated with this development.

Potential Future Developments, Acquisitions and Dispositions

As of the date of the filing of this report, we are in the pre-development period for other potential new developments.

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

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

In the case of projects to be wholly-owned by us, we would expect to fund these projects from amounts available under our unsecured lines of credit, but may also fund them with capital from additional public debt and equity offerings.

As of the date of this filing, we are not in the pre-development period for any other 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 outlet centers.

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").

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From time to time, we form joint venture arrangements to develop outlet centers.

As of September 30, 2022 we have partial ownership interests in six unconsolidated outlet centers totaling approximately 2.1 million square feet, including two outlet centers in Canada.

As of March 31, 2023 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 4 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.

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Contractual Obligations

There were no material changes in our commitments during the nine months ended September 30, 2022 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021, other than the following updates to our contractual obligations for future debt and interest payments over the next five years and thereafter as of September 30, 2022.

There were no material changes in our contractual commitments during the three months ended March 31, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, other than the following updates to our contractual obligations for future debt and interest payments over the next five years and thereafter as of March 31, 2023.

Future Debt Obligations

As described further in Note 7 of the notes to the consolidated financial statements, as of September 30, 2022, scheduled maturities of our existing long-term debt for the remainder of 2022, 2023, 2024, 2025 and 2026 are $1.1 million, $44.9 million, $305.1 million, $1.5 million and $355.7 million, respectively.

As of September 30, 2022, scheduled maturities after 2026 aggregate to $700.0 million.

As described further in Note 6 of the notes to the consolidated financial statements, as of March 31, 2023, scheduled maturities of our existing long-term debt for the remainder 2023 and for 2024, 2025, 2026 and 2027 are $3.6 million, $5.1 million, $1.5 million, $407.4 million and $625.0 million, respectively.

As of March 31, 2023, 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 and scheduled debt maturities as of September 30, 2022, these interest obligations total approximately $40.4 million over the next twelve months.

The following table sets forth our changes in cash flows from September 30, 2022 and 2021 (in thousands):

Nine months ended September 30,

Based on applicable interest rates and scheduled debt maturities as of March 31, 2023, these interest obligations total approximately $46.5 million over the next twelve months.

The following table sets forth our changes in cash flows from March 31, 2023 and 2022 (in thousands):

Three months ended March 31,

2023 2022 Change

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Effect of foreign currency rate changes on cash and equivalents 7 (8) 15

Net increase (decrease) in cash and cash equivalents $ 19,398 $ 58,063 $ (38,665)

Net decrease in cash and cash equivalents $ (9,382) $ (8,574) $ (808)

Operating Activities

In 2022, our net cash provided by operating activities decreased year over year primarily due to changes in working capital.

The decrease was partially offset by an increase in rental revenues primarily due an increase in occupancy rates, variable rental revenues and reversals of revenue reserves.

In the first quarter of 2023, our net cash provided by operating activities increased year over year primarily due to changes in working capital and lower property operating expenses.

Investing Activities

The increase in net cash used in investing activities was primarily due to the purchase of land at our new center in Nashville, Tennessee, paired with increased additions to rental properties in the 2022 period.

The 2021 period included net proceeds of approximately $8.1 million received in 2021 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 lower other investing activities.

In addition, we made a $7.0 million contribution to the Galveston/Houston joint venture in 2021 to reduce the principal balance of the mortgage loan.

No property sales or contributions to joint ventures occurred in 2022.

The above changes were all partially offset by net proceeds on the sale of non-real estate assets of $14.6 million that occurred in 2022.

The decrease in net cash used in investing activities was primarily due to increased capital expenditures related to new development at existing centers and the investment in our Nashville location, offset by proceeds from short-term investments.

Financing Activities

Net cash used in financing activities decreased during the first nine months of 2022 primarily due to 2021 activity that included an early redemption of $250.0 million aggregate principal amount of our 3.875% senior notes due December 2023 and $250 million of our 3.75% senior notes due 2024, which included 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 $400.00 million in 2021 under our ATM offering program.

Additionally, for the nine months ended September 30, 2022, there was an increase in dividends paid.

Net cash used in financing activities increased during the first quarter of 2023 primarily due to an increase in dividends paid and a higher amount of net share settlements related to vesting of equity awards.

Financing Arrangements

As of September 30, 2022, unsecured borrowings represented 96% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered.

As of March 31, 2023, 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.

As of September 30, 2022, we maintained unsecured lines of credit that provided for borrowings of up to $520.0 million.

The unsecured lines of credit as of September 30, 2022 included a $20.0 million liquidity line and a $500.0 million syndicated line.

As of March 31, 2023, we maintained unsecured lines of credit that provided for borrowings of up to $520.0 million.

The unsecured lines of credit as of March 31, 2023 included a $20.0 million liquidity line and a $500.0 million syndicated line.

The syndicated line may be increased up to $1.2 billion through an accordion feature in certain circumstances.

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, 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.

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 various, 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.

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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.

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 September 30, 2022, the Company’s total liquidity was approximately $700.7 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.

As of March 31, 2023, the Company’s total liquidity was approximately $755.8 million, including cash and cash equivalents on the Company’s balance sheet, short-term investments and the full undrawn capacity under its $520.0 million unsecured lines of credit.

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

Memphis Consolidated Joint Venture

Additionally, in October 2022, the Southaven, MS joint venture amended and restated its secured term loan, 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.

Operating Partnership 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.

We believe our current balance sheet position is financially sound;

however, due to the economic uncertainty caused by the COVID-19 pandemic, 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 $350.0 million of 3.125% senior notes due in September 2026.

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.

There were no shares sold under the ATM program for the three and nine months ended September 30, 2022.

In February 2021, we established the ATM Offering program whereby we may offer and sell the Company's common shares having an aggregate gross sales price of up to $250.0 million.

During 2022 and the first quarter of 2023, we did not sell any shares under the ATM Offering program and $60.1 million remains available for sale under the ATM Offering program.

Debt Covenants

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.

We have historically been, and at September 30, 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, including those associated with the COVID-19 pandemic.

We have historically been, and at March 31, 2023 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.

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

As of September 30, 2022, 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:

As of March 31, 2023, we were in compliance with all financial and non-financial covenants related to our debt obligations.

Senior unsecured notes financial covenants Required Actual

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Total unencumbered assets to unsecured debt > 150% 239 %

Consolidated Income Available for Debt Service to Annual Debt Service Charge > 1.5 x 5.7

In addition, key financial covenants for our lines of credit and term loan, include the following as of September 30, 2022:

Required Actual

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% 39 %

Secured Indebtedness to Adjusted Unencumbered Asset Value < 35% 5 %

EBITDA to Fixed Charges > 1.5 x 4.5

EBITDA to Fixed Charges > 1.5 x 4.5 x

Total Unsecured Indebtedness to Adjusted Unencumbered Asset Value < 60% 35 %

Unencumbered Interest Coverage Ratio > 1.5 x 5.7

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

Unencumbered Interest Coverage Ratio > 1.5 x 5.6 x

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 September 30, 2022 (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 March 31, 2023 (dollars in millions):

Joint Venture Total Joint

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$ 328.9 $ 10.0

In September 2022, the Columbus joint venture completed the refinance of its mortgage.

The new $71.0 million non-recourse loan has a maturity date of 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.

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.

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.

Our Annual Report on Form 10-K for the year ended December 31, 2022 contains a discussion of our critical accounting estimates in the Management's Discussion and Analysis of Financial Condition and Results of Operations section.

There have been no material changes to these estimates during the three and nine months ended September 30, 2022, other than discussed below.

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.

There have been no material changes to these estimates during the three months ended March 31, 2023.

Recent Accounting Pronouncements

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We compensate for these limitations by relying primarily on our GAAP results and using FFO only as a supplemental measure.

If applicable, we present Core Funds From Operations (“Core FFO”) as a supplemental measure of our performance.

We present Core Funds From Operations (“Core FFO”) 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.

These further adjustments are itemized in the table below.

You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis.

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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 Nine months ended

September 30, September 30,

2022 2021 2022 2021

Net income (loss) $ 24,345 $ (11,071) $ 66,626 $ (4,133)

Three months ended

Net income $ 24,860 $ 21,462

Adjusted for:

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Depreciation and amortization of real estate assets - unconsolidated joint ventures 2,670 2,754

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

FFO 52,702 49,877

FFO attributable to noncontrolling interests in other consolidated partnerships (248) —

Allocation of earnings to participating securities (424) (434)

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As further adjusted for:

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

— 294 2,447 2,712

Gain on sale of non-real estate asset (4)

— — (2,418) —

Loss on early extinguishment of debt (5)

— 33,821 — 47,860

Compensation-related adjustments (2)

Impact of above adjustment to the allocation of earnings to participating securities 6 —

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Diluted weighted average common shares (for earnings per share computations) 105,522 105,058

Effect of notional units — 583 — 518

Effect of outstanding options — 753 — 736

Exchangeable operating partnership units 4,738 4,762

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110,260 109,820

(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.

(1) Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company.

Each Class A common limited partnership unit is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s REIT status.

(3) For the 2022 period, represents executive severance costs.

For the 2021 period, 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 and other executive severance costs.

(4) Represents gain on sale of the corporate aircraft.

(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 2023 Notes, $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 includes make-whole premiums of $44.9 million, of which $31.9 million occurred during the third quarter of 2021.

In the same period, we also recorded write-offs of approximately $2.9 million of debt discount and debt origination costs due to the early redemption of our 2023 and 2024 notes, of which $1.9 million occurred in the third quarter of 2021.

(2) Represents reversal of previously expensed compensation related to a voluntary executive departure.

Portfolio Net Operating Income and Same Center Net Operating Income

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

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

Net income (loss) $ 24,345 $ (11,071) $ 66,626 $ (4,133)

Three months ended

Net income $ 24,860 $ 21,462

Adjusted to exclude:

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Interest expense 12,343 11,634

Loss on early extinguishment of debt (1)

— 33,821 — 47,860

Other (income) expense (2,800) (183)

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Non-cash adjustments (1)

348 (244) 1,711 1,326

Lease termination fees (6) (2,596)

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Non-same center NOI - Consolidated

(58) (106) 25 (1,751)

Same Center NOI - Consolidated (2)

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$ 83,572 $ 77,780

(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.

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.

(1) 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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Outlet centers sold:

Jeffersonville January 2021 Consolidated

Saint-Sauveur, Quebec March 2021 Unconsolidated JV

Blowing Rock December 2022 Consolidated

Adjusted EBITDA, EBITDAre and Adjusted EBITDAre

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Each of these measures is defined as follows:

We define Adjusted EBITDA as net income (loss) available to the Company’s common shareholders 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, gain on sale of non-real estate asset, 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 define Adjusted EBITDA as net income (loss) available to the Company’s common shareholders 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, certain compensation-related adjustments, gain on sale of non-real estate asset, 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) available to the Company’s common shareholders 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.

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

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

Net income (loss) $ 24,345 $ (11,071) $ 66,626 $ (4,133)

Three months ended

Net income $ 24,860 $ 21,462

Adjusted to exclude:

Interest expense, net (1)

10,297 13,178 33,260 40,654

Income tax expense (benefit) (200) 23

Depreciation and amortization 25,893 26,243

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

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

— 294 2,447 2,712

Gain on sale of non-real estate asset (3)

— — (2,418) —

Loss on early extinguishment of debt (4)

— 33,821 — 47,860

Compensation-related adjustments (2)

Adjusted EBITDA $ 59,526 $ 59,261

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

Three months ended Nine months ended

September 30, September 30,

2022 2021 2022 2021

Net income (loss) $ 24,345 $ (11,071) $ 66,626 $ (4,133)

Three months ended

Net income $ 24,860 $ 21,462

Adjusted to exclude:

Interest expense, net (1)

10,297 13,178 33,260 40,654

Income tax expense (benefit) (200) 23

Depreciation and amortization 25,893 26,243

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

Pro-rata share of interest expense - unconsolidated joint ventures 2,200 1,458

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EBITDAre $ 65,202 $ 63,473

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

— 294 2,447 2,712

Gain on sale of non-real estate asset (3)

— — (2,418) —

Loss on early extinguishment of debt (4)

— 33,821 — 47,860

Compensation-related adjustments (2)

Adjusted EBITDAre $ 64,396 $ 63,473

(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) For the 2022 period, represents executive severance costs.

(3) Represents gain on sale of the corporate aircraft.

(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 make-whole premiums of $44.9 million, of which $31.9 million occurred during the third quarter of 2021.

(5) Interest expense, net includes interest expense less interest income, which is included in other income on our statement of operations.

(1) 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.

(2) Represents the reversal of previously expensed compensation related to an executive departure.

ECONOMIC CONDITIONS AND OUTLOOK

We are closely monitoring the impact of the COVID-19 pandemic, along with rising inflation, supply chain and labor issues, and rising interest rates 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.

We are closely monitoring the impact of the overall macroeconomic environment on all aspects of our business and geographies, including how it will impact our tenants and business partners, along with continuing to monitor retail challenges such as supply chain and labor issues, inflationary pressures and rising interest rates.

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

A portion of our rental revenues are derived from rents that directly depend on the sales volume of certain tenants.

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

By maintaining a broad base of well-known tenants and a geographically diverse portfolio of properties located across the United States, we believe we reduce our operating and leasing risks.

As of September 30, 2022 no one tenant (including affiliates) accounts for more than 8% 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 2.1 million square feet, or 17% of 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 September 30, 2022, we had lease renewals executed or in process for 75.6% of the space scheduled to expire during 2022 compared to 67.6% of the space scheduled to expire during 2021 that was executed or in process as of September 30, 2021.

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 rising inflation, logistics and staffing issues.

While we believe many of these retailers are proactively navigating this situation, the ultimate impact of inflation, 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 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, our Same Center NOI could be negatively impacted.

As a result of COVID-19, inflation, rising interest rates, and other current or future economic conditions, occupancy could be negatively impacted.

Occupancy for our total portfolio, including our share of unconsolidated joint ventures, was 96.5% and 94.4% as of September 30, 2022 and 2021, respectively.

For the total portfolio, including the Company’s pro rata share of unconsolidated joint ventures, as of March 31, 2023, we had lease renewals executed or in process for 57.5% of the space scheduled to expire during 2023 compared to 49.0% of the space scheduled to expire during 2022 that was executed or in process as of March 31, 2022.

The majority of our leases contain provisions designed to mitigate the impact of inflation.

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

By maintaining a broad base of well-known tenants and a geographically diverse portfolio of properties located across the United States, we believe we reduce our operating and leasing risks.

As of March 31, 2023 no one tenant (including affiliates) accounted for more than 8% of our square feet or 6% of our rental revenues.

We believe retail real estate will continue to be a profitable and fundamental distribution channel for many brands and retailers.

Occupancy for our total portfolio, including our share of unconsolidated joint ventures, was 96.5% and 94.3% as of March 31, 2023 and 2022, respectively.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis