TANGER INC. 10-Q

Item 3. Quantitative and Qualitative Disclosures about Market Risk Market Risk We are exposed to various market risks, including changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates. 64 Interest Rate Risk We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes. As of September 30, 2023 we have interest rate swap agreements to fix the interest rates on outstanding debt with notional amounts made up of $300.0 million current swaps expiring February 1, 2024 and $150.0 million forward starting swaps with an effective date of February 1, 2024 and varying expirations between February 1, 2026 and January 1, 2027. In October 2023, we entered into an additional $50 million of forward-starting interest rate swaps with an effective date of February 1, 2024 and an average adjusted SOFR rate of 4.61%. In November 2023, we entered into an additional $50 million of forward-starting interest rate swaps with an effective date of February 1, 2024 and an average adjusted SOFR rate of 4.45%.The maturity of these swaps is from August 2026 to January 2027. See Note 7 to the consolidated financial statements for additional details related to our outstanding derivatives. As of September 30, 2023, 5% of our outstanding consolidated debt, excluding the amount of variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore was subject to market fluctuations. A change in the SOFR index of 100 basis points would result in an increase or decrease of approximately $767,000 in interest expense on an annual basis. The interest rate spreads associated with our unsecured lines of credit and our unsecured term loan are based on our three investment grade credit ratings. As of September 30, 2023, there were no outstanding balances under our unsecured lines of credit. An increase in our credit rating would provide a decrease in interest expense. If downgrades to our credit ratings occur, interest expense could increase depending upon the level of downgrade. The information presented herein is merely an estimate and has limited predictive value. As a result, the ultimate effect upon our operating results of interest rate fluctuations will depend on the interest rate exposures that arise during the period, our hedging strategies at that time and future changes in the level of interest rates. The estimated fair value and recorded value of our debt consisting of senior unsecured notes, unsecured term loans, secured mortgages and unsecured lines of credit were as follows (in thousands): September 30, 2023 December 31, 2022 Fair value of debt $ 1,257,283 $ 1,268,362 Recorded value of debt $ 1,426,832 $ 1,428,494 A 100 basis point increase from prevailing interest rates at September 30, 2023 and December 31, 2022 would result in a decrease in fair value of total consolidated debt of approximately $37.0 million and $44.3 million, respectively. Refer to Note 8 to the consolidated financial statements for a description of our methodology in calculating the estimated fair value of debt. Considerable judgment is necessary to develop estimated fair values of financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts we could realize on the disposition of the financial instruments. Foreign Currency Risk We are also exposed to foreign currency risk on investments in outlet centers that are located in Canada. Our currency exposure is concentrated in the Canadian Dollar. To mitigate some of the risk related to changes in foreign currency, cash flows received from our Canadian joint ventures are either reinvested to fund ongoing Canadian development activities, if applicable, or converted to US dollars and utilized to repay amounts outstanding under our unsecured lines of credit, if any. Accordingly, cash held in Canadian Dollars at any point in time is insignificant. We generally do not hedge currency translation exposures. 65