TANGER INC. 10-Q

Item 2. 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, 2023 with the three and nine months ended September 30, 2022. The results of operations discussion is combined for Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership because the results are virtually the same for both entities. The following discussion should be read in conjunction with the unaudited consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the unaudited, consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term “Operating Partnership” refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires. Cautionary Statements Certain statements made in this Management's Discussion and Analysis of Financial Condition and Results of Operations below are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Reform Act of 1995 and included this statement for purposes of complying with these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe our future plans, strategies, beliefs and expectations, are generally identifiable by use of the words “anticipate,” “believe,” “can,” “continue,” “could,” “designed,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would,” or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding: the expected impact of rising inflation, supply chain and labor issues and rising interest rates on our business, financial results and financial condition; our ability to raise additional capital, including via future issuances of equity and debt, and the use of proceeds from such issuances; our results of operations and financial condition; capital expenditure and working capital needs and the funding thereof; the repurchase of the Company's common shares, including the potential use of a 10b5-1 plan to facilitate repurchases; future dividend payments; the possibility of future asset impairments; potential developments, expansions, renovations, acquisitions or dispositions of outlet centers; anticipated impacts from our newly-opened Nashville outlet center; compliance with debt covenants; renewal and re-lease of leased space; the outlook for the retail environment, potential bankruptcies, and other store closings; consumer shopping trends and preferences; the outcome of legal proceedings arising in the normal course of business; and real estate joint ventures. You should not rely on forward-looking statements since they involve known and unknown risks, uncertainties and other important factors which are, in some cases, beyond our control and which could materially affect our actual results, performance or achievements. 39 Other important factors which may cause actual results to differ materially from current expectations include, but are not limited to: our inability to develop new outlet centers or expand existing outlet centers successfully; risks related to the economic performance and market value of our outlet centers, including due to changes in the national, regional and local economic climate, inflation and rising interest rates; the relative illiquidity of real property investments; impairment charges affecting our properties; our dispositions of assets may not achieve anticipated results; competition for the acquisition and development of outlet centers, and our inability to complete outlet centers we have identified; environmental regulations affecting our business; risk associated with a possible terrorist activity or other acts or threats of violence, public health crises and threats to public safety; risks associated with supply chain disruptions and labor shortages; our dependence on rental income from real property; our dependence on the results of operations of our retailers; the fact certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration; the fact that certain of our properties are subject to ownership interests held by third parties, whose interests may conflict with ours; risks related to uninsured losses; risks related to changes in consumer spending habits; investor and regulatory focus on environmental, sustainability and social initiatives; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risk associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; risk associated with our interest rate hedging arrangements; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism; and other important factors which may cause actual results to differ materially from current expectations include, but are not limited to, those set forth under Item 1A - “Risk Factors” 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. Our MD&A is presented in the following sections: • General Overview • Leasing Activity • Results of Operations • Liquidity and Capital Resources of the Company • Liquidity and Capital Resources of the Operating Partnership • Critical Accounting Estimates • Recent Accounting Pronouncements • Non-GAAP Supplemental Measures • Economic Conditions and Outlook 40 General Overview As of September 30, 2023, we had 29 consolidated outlet centers in 18 states totaling 11.3 million square feet, two managed centers and one center under construction, which subsequently opened in October 2023. 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, 2022 to September 30, 2023 (square feet in thousands): 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 — — Additions: Palm Beach, Florida Third Quarter 457 1 Dispositions: Blowing Rock, North Carolina Fourth Quarter (104) (1) Other 4 — — — — — As of December 31, 2022 11,353 29 2,113 6 457 1 Additions: Palm Beach, Florida Third Quarter 300 1 Other (4) — — — — — As of September 30, 2023 11,349 29 2,113 6 757 2 41 The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2023. Except as noted, all properties are fee owned. Consolidated Outlet Centers Legal Square % Location Ownership % Feet Occupied Deer Park, New York 100 739,148 100.0 Riverhead, New York (1) 100 729,280 96.3 Foley, Alabama 100 554,736 97.0 Rehoboth Beach, Delaware (1) 100 547,939 98.1 Atlantic City, New Jersey (1) (3) 100 484,748 90.5 San Marcos, Texas 100 471,816 99.8 Sevierville, Tennessee (1) 100 449,968 100.0 Savannah, Georgia 100 429,089 100.0 Myrtle Beach Hwy 501, South Carolina 100 426,523 99.4 Glendale, Arizona (Westgate) 100 410,753 99.0 Myrtle Beach Hwy 17, South Carolina (1) 100 404,710 100.0 Charleston, South Carolina 100 386,328 99.3 Lancaster, Pennsylvania 100 376,203 100.0 Pittsburgh, Pennsylvania 100 373,863 99.1 Commerce, Georgia 100 371,408 100.0 Grand Rapids, Michigan 100 357,133 98.8 Fort Worth, Texas 100 351,834 100.0 Daytona Beach, Florida 100 351,691 100.0 Branson, Missouri 100 329,861 100.0 Southaven, Mississippi (2) (3) 50 324,801 95.3 Locust Grove, Georgia 100 321,082 99.2 Gonzales, Louisiana 100 321,066 99.1 Mebane, North Carolina 100 319,762 100.0 Howell, Michigan 100 314,438 84.6 Mashantucket, Connecticut (Foxwoods) (1) 100 311,229 87.8 Tilton, New Hampshire 100 250,558 95.6 Hershey, Pennsylvania 100 249,696 100.0 Hilton Head II, South Carolina 100 207,422 100.0 Hilton Head I, South Carolina 100 181,687 100.0 Totals 11,348,772 97.9 (1) These properties or a portion thereof are subject to a ground lease. (2) Based on capital contribution and distribution provisions in the joint venture agreement, we expect our economic interest in the venture’s cash flow to be greater than our legal ownership percentage. We currently receive substantially all the economic interest of the property. (3) Property encumbered by mortgage. See Notes 5 and 6 to the consolidated financial statements for further details of our debt obligations. 42 Unconsolidated joint venture properties Legal Square % Location Ownership % Feet Occupied Charlotte, North Carolina (1) 50 398,726 99.1 Ottawa, Ontario 50 357,213 96.7 Columbus, Ohio (1) 50 355,245 100.0 Texas City, Texas (Galveston/Houston) (1) 50 352,705 99.0 National Harbor, Maryland (1) 50 341,156 99.4 Cookstown, Ontario 50 307,883 95.6 Total 2,112,928 98.4 (1) Property encumbered by mortgage. See Note 4 to the consolidated financial statements for further details of the joint venture debt obligations. Leasing Activity The following table provides information for our consolidated outlet centers related to leases for new stores that opened or renewals that were executed during the respective trailing twelve month periods ended September 30, 2023 and 2022: Comparable Space for Executed Leases (1) (2) Leasing Transactions Square Feet (in 000’s) New Initial Rent (psf) (3) Rent Spread % (4) Tenant Allowance (psf) (5) Average Initial Term (in years) Total space 2023 390 1,762 $ 38.32 15.2 % $ 4.03 3.37 2022 329 1,732 $ 30.24 5.6 % $ 2.90 3.59 Comparable and Non-Comparable Space for Executed Leases (1) (2) Leasing Transactions Square Feet (in 000’s) New Initial Rent (psf) (3) Tenant Allowance (psf) (5) Average Initial Term (in years) Total space 2023 458 2,012 $ 38.25 $ 8.21 3.72 2022 379 1,923 $ 30.82 $ 10.29 4.04 (1) For consolidated properties owned as of the period-end date. Represents leases for new stores or renewals that were executed during the respective trailing 12-month periods and excludes license agreements, seasonal tenants, month-to-month leases and new developments. (2) Comparable space excludes leases for space that was vacant for more than 12 months (non-comparable space). (3) Represents average initial cash rent (base rent and common area maintenance (“CAM”)). (4) Represents change in average initial and expiring cash rent (base rent and CAM). (5) Includes other landlord costs. 43 RESULTS OF OPERATIONS Comparison of the three months ended September 30, 2023 to the three months ended September 30, 2022 NET INCOME Net income increased $4.5 million in the 2023 period to $28.9 million as compared to net income of $24.3 million for the 2022 period. Significant items impacting the comparability of the two periods include the following: • a higher average portfolio occupancy rate in the current period, • positive leasing spreads upon renewal and re-tenanting since the previous period, and • higher interest income partially offset by • higher general and administrative expenses In the tables below, information set forth for properties disposed includes the Blowing Rock outlet center sold in December 2022. RENTAL REVENUES Rental revenues increased $5.3 million in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of rental revenues (in thousands): 2023 2022 Increase/(Decrease) Rental revenues from existing properties $ 111,015 $ 105,018 $ 5,997 Rental revenues from properties disposed — 571 (571) Straight-line rent adjustments (408) (155) (253) Lease termination fees 392 228 164 Amortization of above and below market rent adjustments, net (164) (93) (71) $ 110,835 $ 105,569 $ 5,266 Rental revenues at existing properties was positively impacted by higher occupancy between the peri ods, 97.9% c ompared to 96.4% and positive leasing spreads upon renewal and re-tenanting since the previous period. These increases were partially offset by lower variable revenues, which are derived from tenant sales. MANAGEMENT, LEASING AND OTHER SERVICES Management, leasing and other services increased $241,000 in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands): 2023 2022 Increase/(Decrease) Management and marketing $ 777 $ 661 $ 116 Leasing and other fees 164 61 103 Expense reimbursements from unconsolidated joint ventures 1,197 1,175 22 $ 2,138 $ 1,897 $ 241 Management and leasing 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. 44 OTHER REVENUES Other revenues increased $393,000 in the 2023 period as compared to the 2022 period. The following table sets forth the changes in various components of other revenues (in thousands): 2023 2022 Increase/(Decrease) Other revenues from existing properties $ 4,373 $ 3,932 $ 441 Other revenues from properties disposed — 48 (48) $ 4,373 $ 3,980 $ 393 Other revenues from existing properties increased in the 2023 period due to an increase in other revenue streams, such as EV charging, paid media, sponsorships and onsite signage, on a local and national level. PROPERTY OPERATING EXPENSES Property operating expenses increased $682,000 in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of property operating expenses (in thousands): 2023 2022 Increase/(Decrease) Property operating expenses from existing properties $ 35,342 $ 34,407 $ 935 Property operating expenses from sold properties — 213 (213) Expenses related to unconsolidated joint ventures 1,197 1,174 23 Other property operating expenses 219 282 (63) $ 36,758 $ 36,076 $ 682 Property operating expenses from existing properties increased in the 2023 period primarily due to timing of advertising costs compared to the prior period, higher common area maintenance expenses in the 2023 period compared to the 2022 period and higher property tax costs at certain centers. GENERAL AND ADMINISTRATIVE EXPENSES General and administrative expenses increased $1.6 million in the 2023 period compared to the 2022 period. The increase in expenses is primarily from the hiring of key employees since the 2022 period to drive operational and growth initiatives. In addition we experienced higher health care benefit costs and executive placement fees during the 2023 period. OTHER INCOME (EXPENSE) Other income (expense) increased approximately $504,000 in the 2023 period. The 2023 period had 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 unconsoli dated joint ventures increased approximately $334,000 in the 2023 period compared to the 2022 period. The increase is primarily related to one joint venture that experienced an increase in leasing revenue. Comparison of the nine months ended September 30, 2023 to the nine months ended September 30, 2022 NET INCOME Net income increased $12.4 million in the 2023 period to $79.0 million as compared to net income of $66.6 million for the 2022 period. Significant items impacting the comparability of the two periods include the following: • a higher average portfolio occupancy rate in the current period, • positive leasing spreads upon renewal and re-tenanting since the previous period • higher management, leasing and other services income from the addition of management responsibilities for a center during the third quarter of 2022, • lower common area maintenance snow removal costs in the current period as a result of a comparatively mild 2023 winter, and 45 • higher investment income from investments of cash available at significantly higher rates. partially offset by • higher general and administrative expenses, and • the current period did not contain lease termination fees and the prior year period included significant termination rents from several tenants. In the tables below, information set forth for properties disposed includes the Blowing Rock outlet center sold in December 2022. RENTAL REVENUES Rental revenues increased $7.4 million in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of rental revenues (in thousands): 2023 2022 Increase/(Decrease) Rental revenues from existing properties $ 320,281 $ 308,577 $ 11,704 Rental revenues from properties disposed — 1,562 (1,562) Straight-line rent adjustments (1,409) (1,190) (219) Lease termination fees 400 2,859 (2,459) Amortization of above and below market rent adjustments, net (267) (221) (46) $ 319,005 $ 311,587 $ 7,418 Rental revenues at existing properties were positively impacted by higher occupancy between the perio ds, 97.9% compared to 96.4% and positive leasing spreads upon renewal and re-tenanting since the previous period. These increases were partially offset by lower variable revenues, which are derived from tenant sales. Lease termination fees decreased primarily because the 2022 period included isolated terminations of certain leases with multiple years of remaining term. MANAGEMENT, LEASING AND OTHER SERVICES Management, leasing and other services increased $1.3 million in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands): 2023 2022 Increase/(Decrease) Management and marketing $ 2,351 $ 1,749 $ 602 Leasing and other fees 441 96 345 Expense reimbursements from unconsolidated joint ventures 3,382 3,015 367 $ 6,174 $ 4,860 $ 1,314 Management and leasing 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 Other revenues increased $2.0 million in the 2023 period as compared to the 2022 period. The following table sets forth the changes in various components of other revenues (in thousands): 2023 2022 Increase/(Decrease) Other revenues from existing properties $ 11,751 $ 9,611 $ 2,140 Other revenues from properties disposed — 94 (94) $ 11,751 $ 9,705 $ 2,046 46 Other revenues from existing properties increased in the 2023 period due to an increase in other revenue streams, such as EV charging, paid media, sponsorships and onsite signage, on a local and national level. PROPERTY OPERATING EXPENSES Property operating expenses decreased $1.9 million in the 2023 period compared to the 2022 period. The following table sets forth the changes in various components of property operating expenses (in thousands): 2023 2022 Increase/(Decrease) Property operating expenses from existing properties $ 99,011 $ 100,321 $ (1,310) Property operating expenses from sold properties — 694 (694) Expenses related to unconsolidated joint ventures 3,382 3,015 367 Other property operating expenses 1,225 1,501 (276) $ 103,618 $ 105,531 $ (1,913) Property operating expenses from existing properties decreased in the 2023 period primarily due to 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 $2.5 million in the 2023 period compared to the 2022 period. The 2023 period included an $806,000 reversal of previously expensed compensation related to a voluntary executive departure and the 2022 period included $2.4 million of compensation costs related to executive severance. Excluding the impact of executive departures, expenses increased from the hiring of key employees since the 2022 period to drive operational and growth initiatives. DEPRECIATION AND AMORTIZATION Depreciation and amortization costs decreased $1.3 million in the 2023 period compared to the 2022 period. 2023 2022 Increase/(Decrease) Depreciation and amortization expenses from existing properties $ 76,656 $ 77,228 $ (572) Depreciation and amortization from property disposed — 680 (680) $ 76,656 $ 77,908 $ (1,252) INTEREST EXPENSE Interest expense increased $1.1 million 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. These factors were partially offset by higher capitalized interest on our Nashville, TN development project. OTHER INCOME (EXPENSE) Other income (expense) increased approximately $2.9 million in the 2023 period, primarily due to higher investment income from short-term investments of cash at higher interest rates partially offset by a $2.4 million gain on sale of a non-real estate asset in the 2022 period. 47 EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES Equity in earnings of unconsolidated joint ventures decreased approximately $765,000 in the 2023 period compared to the 2022 period. The decrease is primarily due to the increase in interest rates during the second half of 2022 and continuing into 2023 that has negatively impacted two of our joint ventures. The Columbus joint venture variable interest rate mortgage was refinanced in September 2022 and now has a fixed interest rate of 6.25%. The Galveston/Houston joint venture was floating rate during the majority of both periods. Interest rates rose approximately 4% during the comparable periods. The Galveston mortgage was refinanced during June 2023 and is now SOFR +3.00%. In conjunction with the refinance, the joint venture entered into a $29.0 million interest rate swap that fixes Daily SOFR at 4.44% until December 2025. LIQUIDITY AND CAPITAL RESOURCES OF THE COMPANY In this “Liquidity and Capital Resources of the Company” section, the term “the Company” refers only to Tanger Factory Outlet Centers, Inc. on an unconsolidated basis, excluding the Operating Partnership. The Company’s business is operated primarily through the Operating Partnership. The Company issues public equity from time to time, but does not otherwise generate any capital itself or conduct any business itself, other than incurring certain expenses in operating as a public company, which are fully reimbursed by the Operating Partnership. The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of the Operating Partnership. The Company’s principal funding requirement is the payment of dividends on its common shares. The Company’s principal source of funding for its dividend payments is distributions it receives from the Operating Partnership. Through its status as the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership’s partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership. We are a well-known seasoned issuer (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. The Operating Partnership may use the proceeds to repay debt, including borrowings under its lines of credit, to develop new or existing properties, to make acquisitions of properties or portfolios of properties, to invest in existing or newly created joint ventures or for general corporate purposes. The liquidity of the Company is dependent on the Operating Partnership’s ability to make sufficient distributions to the Company. The Operating Partnership is a party to loan agreements with various bank lenders that require the Operating Partnership to comply with various financial and other covenants before it may make distributions to the Company. The Company also guarantees some of the Operating Partnership’s debt. If the Operating Partnership fails to fulfill its debt requirements, which trigger the Company’s guarantee obligations, then the Company may be required to fulfill its cash payment commitments under such guarantees. However, the Company’s only material asset is its investment in the Operating Partnership. The Company believes the Operating Partnership's sources of working capital, specifically its cash flow from operations, 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. Risks are detailed in “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2022. 48 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. As a result of this distribution requirement, the Operating Partnership cannot rely on retained earnings to fund its on-going operations to the same extent that other companies whose parent companies are not real estate investment trusts can. The Company may need to continue to raise capital in the equity markets to fund the Operating Partnership’s working capital needs, as well as potential new developments, expansions and renovations of existing properties, acquisitions, or investments in existing or newly created joint ventures. The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant. The Company does not have significant assets other than its investment in the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. However, all debt is held directly or indirectly at the Operating Partnership level, and the Company has guaranteed some of the Operating Partnership’s unsecured debt as discussed below. Because the Company consolidates the Operating Partnership, the section entitled “Liquidity and Capital Resources of the Operating Partnership” should be read in conjunction with this section to understand the liquidity and capital resources of the Company on a consolidated basis and how the Company is operated as a whole. Under our at-the-market 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. 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 September 30, 2023, we had approximately $57.4 million remaining available for sale under the ATM Offering program. We recorded $2.7 million of proceeds from shares issued during the first nine months of 2023 and none for the full year 2022. The following table sets forth information regarding settlements under our ATM Offering program: Three months ended September 30, Nine months ended September 30, 2023 2022 2023 2022 Number of common shares settled during the period 106,615 — 106,615 — Average price per share $ 24.89 $ — $ 24.89 $ — Aggregate gross proceeds (in thousands) $ 2,654 $ — $ 2,654 $ — Aggregate net proceeds after commissions and fees (in thousands) $ 2,621 $ — $ 2,621 $ — 49 Share Repurchase Program In May 2023, the Company’s Board of Directors authorized the repurchase of up to $100.0 million of the Company’s outstanding shares through May 31, 2025. This authorization replaced a previous repurchase authorization for approximately $80 million that was set to expire in May 2023. Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. The Company did not repurchase any shares for the three months ended September 30, 2023 or 2022. The remaining amount authorized to be repurchased under the program as of September 30, 2023 was approximately $100 million. Dividends 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. In July 2023, the Company’s Board of Directo rs declared a $0.245 cash dividend per common share payable on August 15, 2023 to each shareholder on record on July 31, 2023, and in its capacity as General Partner of the Operating Partnership a $0.245 cash distribution per Operating P artnership unit to the Operating Partnership’s unitholders. In October 2023, the Company’s Board of Directors declared a $0.26 cash dividend per common share payable on November 15, 2023 to each shareholder on record on October 31, 2023, and in its capacity as General Partner of the Operating Partnership a $0.26 cash distribution per Operating Partnership unit to the Operating Partnership’s unitholders. LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP In this “Liquidity and Capital Resources of the Operating Partnership” section, the terms “we”, “our” and “us” refer to the Operating Partnership or the Operating Partnership and the Company together, as the text requires. Summary of Our Major Sources and Uses of Cash and Cash Equivalents General Overview Property rental income represents our primary source to pay property operating expenses, debt service, capital expenditures and distributions, excluding non-recurring capital expenditures and acquisitions. To the extent that our cash flow from operating activities is insufficient to cover such non-recurring capital expenditures and acquisitions, we finance such activities from 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 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. 50 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, geopolitical conflict 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, 2023 and 2022 (in thousands): Nine months ended September 30, 2023 2022 Change Capital expenditures analysis: New outlet center developments and expansions (1) $ 95,054 $ 24,146 $ 70,908 Renovations 3,945 — 3,945 Second generation tenant allowances 7,606 4,938 2,668 Other capital expenditures (2) 23,531 18,494 5,037 130,136 47,578 82,558 Conversion from accrual to cash basis (10,066) (1,830) (8,236) Additions to rental property-cash basis $ 120,070 $ 45,748 $ 74,322 (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) 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 In October 2023, we opened our Nashville, Tennessee center of approximately 291,000 square feet with 96.5% occupancy. Potential Future Developments, Acquisitions and Dispositions 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. 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 and retail real estate assets. Future real estate assets may be wholly-owned by us, owned through joint ventures or partnership arrangements, or through management agreements. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations ("FFO"). See the section "Non-GAAP Supplemental Earnings Measures" - "Funds From Operations" below for further discussion of FFO. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated. 51 Unconsolidated Real Estate Joint Ventures From time to time, we form joint venture arrangements to develop outlet centers. As of September 30, 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. We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not typically required contractually or otherwise. We separately report investments in joint ventures for which accumulated distributions have exceeded investments in, and our share of net income or loss of, the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. We believe our joint ventures will be able to fund their operating and capital needs for the next twelve months based on their sources of working capital, specifically cash flow from operations, access to contributions from partners, and ability to refinance debt obligations, including the ability to exercise upcoming extensions of near term maturities. Our joint ventures are typically encumbered by a mortgage on the joint venture property. We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. A default by a joint venture under its debt obligations may expose us to liability under the guaranty. For secured term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 0% to 17% of principal. Our joint ventures may contain make whole provisions in the event that demands are made on any existing guarantees. Our joint ventures are generally subject to buy-sell provisions which are customary for joint venture agreements in the real estate industry. Either partner may initiate these provisions (subject to any applicable lock up period), which could result in either the sale of our interest or the use of available cash or additional borrowings to acquire the other party's interest. Under these provisions, one partner sets a price for the property, then the other partner has the option to either (1) purchase their partner's interest based on that price or (2) sell its interest to the other partner based on that price. Since the partner other than the partner who triggers the provision has the option to be the buyer or seller, we do not consider this arrangement to be a mandatory redeemable obligation. Contractual Obligations There were no material changes in our contractual commitments during the nine months ended September 30, 2023 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023, 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, 2023. Future Debt Obligations As described further in Note 6 of the notes to the consolidated financial statements, as of September 30, 2023, scheduled maturities of our existing long-term debt for the remainder 2023 and for 2024, 2025, 2026 and 2027 are $1.2 million, $5.1 million, $1.5 million, $407.4 million and $625.0 million, respectively. As of September 30, 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, 2023, these interest obligations total approximately $51.5 million over the next twelve months. 52 The effective interest rate includes interest rate swap agreements that currently fix the base Adjusted SOFR rate at a weighted average of 0.5% on notional amounts aggregating $300 million. Additional details on the Company’s interest rate strategy are as follows: Effective Date Maturity Date Notional Amount Bank Pay Rate Company Fixed Pay Rate Interest rate swaps: Current February 1, 2024 $300,000 Adjusted SOFR 0.5 % Forward-starting: February 1, 2024 February 1, 2026 $60,000 Adjusted SOFR 3.4 % February 1, 2024 August 1, 2026 $65,000 Adjusted SOFR 3.8 % February 1, 2024 January 1, 2027 $75,000 Adjusted SOFR 4.3 % $200,000 Adjusted SOFR 3.9 % Cash Flows The following table sets forth our changes in cash flows from September 30, 2023 and 2022 (in thousands): Nine months ended September 30, 2023 2022 Change Net cash provided by operating activities $ 151,870 $ 122,686 $ 29,184 Net cash used in investing activities (87,139) (31,371) (55,768) Net cash used in financing activities (88,324) (71,824) (16,500) Effect of foreign currency rate changes on cash and equivalents (315) (93) (222) Net increase (decrease) in cash and cash equivalents $ (23,908) $ 19,398 $ (43,306) Operating Activities In the first nine months 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 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 increased during the first nine months of 2023 primarily due to an increase in dividends paid and a higher amount of net share settlements related to vesting of equity awards, offset by proceeds from our common share offering under our ATM program. Financing Arrangements As of September 30, 2023, unsecured borrowings represented 95% of our outstanding debt and 93% 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 and our term loan. As of September 30, 2023, 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, 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. 53 In May 2023, Fitch Ratings assigned a first-time ‘BBB’ long-term issuer default rating to the Company and the Operating Partnership, along with a Stable rating outlook. Fitch also assigned a ‘BBB’ rating to Operating Partnership’s senior unsecured debt, which includes our lines of credit, a term loan and senior notes. As a result, the applicable pricing margin on each of our unsecured lines of credit and our term loan was reduced by 25 basis points (including a 5 basis point reduction in the facility fee on the unsecured lines of credit). Credit Ratings: Agency Rating Outlook Latest Action Fitch BBB Stable May 25, 2023 Moody’s Investors Services Baa3 Stable April 14, 2021 Standard & Poor’s Ratings Services BBB- Stable February 19, 2021 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 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. We anticipate that adequate cash will be available to fund our operating and administrative expenses, regular debt service obligations, and the payment of dividends in accordance with REIT requirements in both the short and long-term. Although we receive most of our rental payments on a monthly basis, distributions to shareholders and unitholders are typically made quarterly and interest payments on the senior, unsecured notes are made semi-annually. Amounts accumulated for such payments will be used in the interim to reduce the outstanding borrowings under our existing unsecured lines of credit or invested in short-term money market or other suitable instruments. As of September 30, 2023, the Company’s total liquidity was approximately $721.6 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. We believe our current balance sheet position is financially sound; however, due to the economic uncertainty caused by the current macroeconomic environment, including rising interest rates and inflation, geopolitical conflict 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, 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 we did not sell any shares under the ATM Offering program and for the first nine months of 2023, we settled Common Shares for an aggregate sales price of $2.7 million under the ATM Offering program and $57.4 million remains available for sale under the ATM Offering program. 54 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, 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. Further, in the event of default, the Company may be restricted from paying dividends to its shareholders in excess of dividends required to maintain its REIT qualification. Accordingly, an event of default could have a material and adverse impact on us. As a result, we have considered our short-term (one year or less from the date of filing these financial statements) liquidity needs and the adequacy of our estimated cash flows from operating activities and other financing sources to meet these needs. These other sources include but are not limited to: existing cash, ongoing relationships with certain financial institutions, our ability to sell debt or issue equity subject to market conditions and proceeds from the potential sale of non-core assets. We believe that we have access to the necessary financing to fund our short-term liquidity needs. As of September 30, 2023, we were in compliance with all financial and non-financial covenants related to our debt obligations. Senior unsecured notes financial covenants Required Actual Total Consolidated Debt to Adjusted Total Assets < 60% 40 % Total Secured Debt to Adjusted Total Assets < 40% 2 % Total Unencumbered Assets to Unsecured Debt > 150% 244 % 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% 37 % Secured Indebtedness to Total Adjusted Asset Value < 35% 5 % EBITDA to Fixed Charges > 1.5 x 4.4 x Total Unsecured Indebtedness to Adjusted Unencumbered Asset Value < 60% 33 % Unencumbered Interest Coverage Ratio > 1.5 x 5.8 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, 2023 (dollars in millions): Joint Venture Total Joint Venture Debt Maturity Date Interest Rate Percent Guaranteed by the Operating Partnership Maximum Guaranteed Amount by the Company Charlotte $ 99.9 July 2028 4.27% — % $ — Columbus 71.0 October 2032 6.25% — % — Galveston/Houston 58.0 June 2026 SOFR + 3.00% 17.2 % 10.0 National Harbor 94.0 January 2030 4.63 % — % — Debt origination costs (2.2) $ 320.7 $ 10.0 55 Galveston/Houston In June 2023, the Galveston/Houston joint venture completed the refinance of its mortgage. The new $58.0 million loan has a maturity date of June 2026 and an interest rate of Daily SOFR + 3.00%. In conjunction with this refinance, the joint venture entered into a $29.0 million interest rate swap that fixes Daily SOFR at 4.44% until December 2025. The Company’s share of the outstanding debt is $29.0 million. Critical Accounting Estimates The preparation of financial statements and related disclosures in conformity with U.S. generally accepted accounting principles (“GAAP”) and the Company’s discussion and analysis of its financial condition and operating results require the Company’s management to make judgments, assumptions and estimates that affect the amounts reported. 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 nine months ended September 30, 2023. Recent Accounting Pronouncements See Note 18 to the consolidated financial statements for information on recently adopted accounting standards and new accounting pronouncements issued. 56 NON-GAAP SUPPLEMENTAL MEASURES Funds From Operations Funds From Operations (“FFO”) is a widely used measure of the operating performance for real estate companies that supplements net income (loss) determined in accordance with GAAP. We determine FFO based on the definition set forth by the National Association of Real Estate Investment Trusts (“NAREIT”), of which we are a member. In December 2018, NAREIT issued “NAREIT Funds From Operations White Paper - 2018 Restatement” which clarifies, where necessary, existing guidance and consolidates alerts and policy bulletins into a single document for ease of use. NAREIT defines FFO as net income (loss) available to the Company’s common shareholders computed in accordance with GAAP, excluding (i) depreciation and amortization related to real estate, (ii) gains or losses from sales of certain real estate assets, (iii) gains and losses from change in control, (iv) impairment write-downs of certain real estate assets and investments in entities when the impairment is directly attributable to decreases in the value of depreciable real estate held by the entity and (v) after adjustments for unconsolidated partnerships and joint ventures calculated to reflect FFO on the same basis. FFO is intended to exclude historical cost depreciation of real estate as required by GAAP which assumes that the value of real estate assets diminishes ratably over time. Historically, however, real estate values have risen or fallen with market conditions. Because FFO excludes depreciation and amortization of real estate assets, gains and losses from property dispositions and extraordinary items, it provides a performance measure that, when compared year over year, reflects the impact to operations from trends in occupancy rates, rental rates, operating costs, development activities and interest costs, providing perspective not immediately apparent from net income (loss). We present FFO because we consider it an important supplemental measure of our operating performance. In addition, a portion of cash bonus compensation to certain members of management is based on our FFO or Core FFO, which is described in the section below. We believe it is useful for investors to have enhanced transparency into how we evaluate our performance and that of our management. In addition, FFO is frequently used by securities analysts, investors and other interested parties in the evaluation of REITs, many of which present FFO when reporting their results. FFO is also widely used by us and others in our industry to evaluate and price potential acquisition candidates. We believe that FFO payout ratio, which represents regular distributions to common shareholders and unit holders of the Operating Partnership expressed as a percentage of FFO, is useful to investors because it facilitates the comparison of dividend coverage between REITs. NAREIT has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance. FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are: • FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; • FFO does not reflect changes in, or cash requirements for, our working capital needs; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and FFO does not reflect any cash requirements for such replacements; and • Other companies in our industry may calculate FFO differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, FFO should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or our dividend paying capacity. We compensate for these limitations by relying primarily on our GAAP results and using FFO only as a supplemental measure. 57 Core FFO 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. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Core FFO you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Core FFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We present Core FFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we believe it is useful for investors to have enhanced transparency into how we evaluate management’s performance and the effectiveness of our business strategies. We use Core FFO when certain material, unplanned transactions occur as a factor in evaluating management’s performance and to evaluate the effectiveness of our business strategies, and may use Core FFO when determining incentive compensation. Core FFO has limitations as an analytical tool. Some of these limitations are: • Core FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments; • Core FFO does not reflect changes in, or cash requirements for, our working capital needs; • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Core FFO does not reflect any cash requirements for such replacements; • Core FFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and • Other companies in our industry may calculate Core FFO differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Core FFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Core FFO only as a supplemental measure. 58 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, 2023 2022 2023 2022 Net income $ 28,877 $ 24,345 $ 79,037 $ 66,626 Adjusted for: Depreciation and amortization of real estate assets - consolidated 24,953 24,853 75,077 76,129 Depreciation and amortization of real estate assets - unconsolidated joint ventures 2,608 2,871 7,893 8,416 FFO 56,438 52,069 162,007 151,171 FFO attributable to noncontrolling interests in other consolidated partnerships — — (248) — Allocation of earnings to participating securities (651) (412) (1,560) (1,270) FFO available to common shareholders (1) $ 55,787 $ 51,657 $ 160,199 $ 149,901 As further adjusted for: Compensation-related adjustments (2) — — (806) 2,447 Gain on sale of non-real estate asset (3) — — — (2,418) Impact of above adjustment to the allocation of earnings to participating securities — — 6 — Core FFO available to common shareholders (1) $ 55,787 $ 51,657 $ 159,399 $ 149,930 FFO available to common shareholders per share - diluted (1) $ 0.50 $ 0.47 $ 1.45 $ 1.37 Core FFO available to common shareholders per share - diluted (1) $ 0.50 $ 0.47 $ 1.44 $ 1.37 Weighted Average Shares: Basic weighted average common shares 104,461 103,749 104,308 103,655 Effect of notional units 1,026 527 898 473 Effect of outstanding options and restricted common shares 832 661 783 701 Diluted weighted average common shares (for earnings per share computations) 106,319 104,937 105,989 104,829 Exchangeable operating partnership units 4,738 4,762 4,738 4,762 Diluted weighted average common shares (for FFO per share computations) (1) 111,057 109,699 110,727 109,591 (1) Assumes the Class A common limited partnership units of the Operating Partnership held by the noncontrolling interests are exchanged for common shares of the Company. Each Class A common limited partnership unit is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s REIT status. (2) For the 2023 period, represents the reversal of previously expensed compensation related to a voluntary executive departure. For the 2022 period, represents executive severance costs. (3) Represents gain on sale of the corporate aircraft. 59 Portfolio Net Operating Income and Same Center Net Operating Income We present portfolio net operating income (“Portfolio NOI”) and same center net operating income (“Same Center NOI”) as supplemental measures of our operating performance. Portfolio NOI represents our property level net operating income which is defined as total operating revenues less property operating expenses and excludes termination fees and non-cash adjustments including straight-line rent, net above and below market rent amortization, impairment charges loss on early extinguishment of debt and gains or losses on the sale of assets recognized during the periods presented. We define Same Center NOI as Portfolio NOI for the properties that were operational for the entire portion of both comparable reporting periods and which were not acquired, or subject to a material expansion or non-recurring event, such as a natural disaster, during the comparable reporting periods. We present Portfolio NOI and Same Center NOI on a consolidated basis. We believe Portfolio NOI and Same Center NOI are non-GAAP metrics used by industry analysts, investors and management to measure the operating performance of our properties because they provide performance measures directly related to the revenues and expenses involved in owning and operating real estate assets and provide a perspective not immediately apparent from net income (loss), FFO or Core FFO. Because Same Center NOI excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Portfolio NOI and Same Center NOI, and accordingly, our Portfolio NOI and Same Center NOI may not be comparable to other REITs. Portfolio NOI and Same Center NOI should not be considered alternatives to net income (loss) or as an indicator of our financial performance since they do not reflect the entire operations of our portfolio, nor do they reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. Because of these limitations, Portfolio NOI and Same Center NOI should not be viewed in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Portfolio NOI and Same Center NOI only as supplemental measures. 60 Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands): Three months ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net income $ 28,877 $ 24,345 $ 79,037 $ 66,626 Adjusted to exclude: Equity in earnings of unconsolidated joint ventures (2,389) (2,055) (6,030) (6,795) Interest expense 11,688 11,660 35,997 34,870 Other (income) expense (1,899) (1,395) (7,023) (4,154) Depreciation and amortization 25,374 25,445 76,656 77,908 Other non-property (income) expense (306) (279) (1,327) (45) Corporate general and administrative expenses 18,950 17,495 54,674 52,309 Non-cash adjustments (1) 670 348 1,971 1,711 Lease termination fees (392) (228) (400) (2,859) Portfolio NOI - Consolidated 80,573 75,336 233,555 219,571 Non-same center NOI - Consolidated (90) (479) (50) (950) Same Center NOI - Consolidated (2) $ 80,483 $ 74,857 $ 233,505 $ 218,621 (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. (2) Sold outlet centers excluded from Same Center NOI: Outlet centers sold: Blowing Rock December 2022 Consolidated 61 Adjusted EBITDA, EBITDAre and Adjusted EBITDAre We present Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) as adjusted for items described below (“Adjusted EBITDA”), EBITDA for Real Estate (“EBITDAre”) and Adjusted EBITDAre, all non-GAAP measures, as supplemental measures of our operating performance. Each of these measures is defined as follows: We define Adjusted EBITDA as net income (loss) 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. Adjusted EBITDAre is defined as EBITDAre excluding gains and losses on early extinguishment of debt, net, casualty gains and losses, compensation related to voluntary retirement plan and other executive officer severance, gain on sale of non-real estate asset, gains and losses on sale of outparcels, and other items that that we do not consider indicative of the Company's ongoing operating performance. We present Adjusted EBITDA, EBITDAre and Adjusted EBITDAre as we believe they are useful for investors, creditors and rating agencies as they provide additional performance measures that are independent of a Company’s existing capital structure to facilitate the evaluation and comparison of the Company’s operating performance to other REITs and provide a more consistent metric for comparing the operating performance of the Company’s real estate between periods. Adjusted EBITDA, EBITDAre and Adjusted EBITDAre have significant limitations as analytical tools, including: • They do not reflect our net interest expense; • They do not reflect gains or losses on sales of operating properties or impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate; • Adjusted EBITDA and Adjusted EBITDAre do not reflect gains and losses on extinguishment of debt and other items that may affect operations; and • Other companies in our industry may calculate these measures differently than we do, limiting its usefulness as a comparative measure. Because of these limitations, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, EBITDAre and Adjusted EBITDAre only as supplemental measures. 62 Below is a reconciliation of Net Income to Adjusted EBITDA (in thousands): Three months ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net income $ 28,877 $ 24,345 $ 79,037 $ 66,626 Adjusted to exclude: Interest expense, net (1) 9,283 10,297 28,584 33,260 Income tax expense (benefit) 4 34 (32) 186 Depreciation and amortization 25,374 25,445 76,656 77,908 Compensation-related adjustments (2) — — (806) 2,447 Gain on sale of non-real estate asset (3) — — — (2,418) Adjusted EBITDA $ 63,538 $ 60,121 $ 183,439 $ 178,009 Below is a reconciliation of Net Income to EBITDAre and Adjusted EBITDAre (in thousands): Three months ended Nine Months Ended September 30, September 30, 2023 2022 2023 2022 Net income $ 28,877 $ 24,345 $ 79,037 $ 66,626 Adjusted to exclude: Interest expense, net (1) 9,283 10,297 28,584 33,260 Income tax expense (benefit) 4 34 (32) 186 Depreciation and amortization 25,374 25,445 76,656 77,908 Pro-rata share of interest expense, net - unconsolidated joint ventures (1) 2,224 1,804 6,550 4,838 Pro-rata share of depreciation and amortization - unconsolidated joint ventures 2,608 2,871 7,893 8,416 EBITDAre $ 68,370 $ 64,796 $ 198,688 $ 191,234 Compensation-related adjustments (2) — 2,447 (806) 2,447 Gain on sale of non-real estate asset (3) — — — (2,418) Adjusted EBITDAre $ 68,370 $ 64,796 $ 197,882 $ 191,263 (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) For the 2023 period, represents the reversal of previously expensed compensation related to a voluntary executive departure. For the 2022 period, represents executive severance costs. (3) Represents gain on sale of the corporate aircraft. 63 ECONOMIC CONDITIONS AND OUTLOOK 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. Accordingly, declines in these tenants’ sales would reduce the income produced by our properties. If the sales or profitability of our retail tenants decline sufficiently, whether due to a change in consumer preferences, health concerns, legislative changes that increase the cost of their operations or otherwise, such tenants may be unable to pay their existing rents as such rents would represent a higher percentage of their sales. In addition, certain of our lease agreements include co-tenancy and/or sales-based provisions that may allow a tenant to pay reduced rent and/or terminate a lease prior to its natural expiration if we fail to maintain certain occupancy levels or retain specified named tenants, or if the tenant does not achieve certain specified sales targets. If our occupancy declines, certain outlet centers may fall below the minimum co-tenancy thresholds and could trigger many tenants' contractual ability to pay reduced rents, which in turn may negatively impact our results of operations. Due to the relatively short-term nature of our tenants’ leases, a significant portion of the leases in our portfolio come up for renewal each year. During 2023, approximately 1.9 million square feet, or 16% 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, 2023, we had lease renewals executed or in process for 88.0% of the space scheduled to expire during 2023 compared to 75.6% of the space scheduled to expire during 2022 that was executed or in process as of September 30, 2022. 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. 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, 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. While we continue to attract and retain additional tenants, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms or in a timely manner, the loss in rent and our Same Center NOI could be negatively impacted in future periods. Occupancy for our total portfolio, including our share of unconsolidated joint ventures, was 98% and 96.5% as of September 30, 2023 and 2022, respectively. Management and Board of Directors As previously disclosed, the term of Steven B. Tanger as Executive Chair of the Board ends January 1, 2024. Following such date, Mr. Tanger will serve as Non-Executive Chair of the Company’s Board of Directors.