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TANGER INC. - Quarter Report: 2020 September (Form 10-Q)


United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________

Commission file number: 1-11986 (Tanger Factory Outlet Centers, Inc.)
Commission file number: 333-3526-01 (Tanger Properties Limited Partnership)

TANGER FACTORY OUTLET CENTERS, INC.
TANGER PROPERTIES LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
North Carolina(Tanger Factory Outlet Centers, Inc.)56-1815473
North Carolina(Tanger Properties Limited Partnership)56-1822494
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
3200 Northline Avenue, Suite 360, Greensboro, NC 27408
(Address of principal executive offices) (Zip Code)
(336) 292-3010
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Tanger Factory Outlet Centers, Inc.:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares,
$0.01 par value
SKTNew York Stock Exchange
Tanger Properties Limited Partnership:
None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Tanger Factory Outlet Centers, Inc.YesNo
Tanger Properties Limited PartnershipYesNo

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Tanger Factory Outlet Centers, Inc.YesNo
Tanger Properties Limited PartnershipYesNo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
Large Accelerated FilerAccelerated Filer
Non-accelerated Filer Smaller Reporting Company
Emerging Growth Company
Tanger Properties Limited Partnership
Large Accelerated FilerAccelerated Filer
Non-accelerated FilerSmaller Reporting Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Tanger Factory Outlet Centers, Inc.
Tanger Properties Limited Partnership

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Tanger Factory Outlet Centers, Inc.YesNo
Tanger Properties Limited PartnershipYesNo


As of November 2, 2020, there were 93,453,271 common shares of Tanger Factory Outlet Centers, Inc. outstanding, $.01 par value.



EXPLANATORY NOTE
This report combines the unaudited quarterly reports on Form 10-Q for the quarter ended September 30, 2020 of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term “Operating Partnership” refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. The Company is a fully-integrated, self-administered and self-managed real estate investment trust (“REIT”) which, through its controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. The outlet centers and other assets are held by, and all of the operations are conducted by, the Operating Partnership and its subsidiaries. Accordingly, the descriptions of the business, employees and properties of the Company are also descriptions of the business, employees and properties of the Operating Partnership. As the Operating Partnership is the issuer of our registered debt securities, we are required to present a separate set of financial statements for this entity.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust controls the Operating Partnership as its sole general partner. Tanger LP Trust holds a limited partnership interest. As of September 30, 2020, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 93,453,271 units of the Operating Partnership and other limited partners (the “Non-Company LPs”) collectively owned 4,911,173 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s status as a REIT. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

Management operates the Company and the Operating Partnership as one enterprise. The management of the Company consists of the same members as the management of the Operating Partnership. These individuals are officers of the Company and employees of the Operating Partnership. The individuals that comprise the Company’s Board of Directors are also the same individuals that make up Tanger GP Trust’s Board of Trustees.

We believe combining the quarterly reports on Form 10-Q of the Company and the Operating Partnership into this single report results in the following benefits:

enhancing investors’ understanding of the Company and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

eliminating duplicative disclosure and providing a more streamlined and readable presentation since a substantial portion of the disclosure applies to both the Company and the Operating Partnership; and

creating time and cost efficiencies through the preparation of one combined report instead of two separate reports.

There are only a few differences between the Company and the Operating Partnership, which are reflected in the disclosure in this report. We believe it is important, however, to understand these differences between the Company and the Operating Partnership in the context of how the Company and the Operating Partnership operate as an interrelated consolidated company.

As stated above, the Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership through its wholly-owned subsidiaries, the Tanger GP Trust and Tanger LP Trust. As a result, the Company does not conduct business itself, other than issuing public equity from time to time and incurring expenses required to operate as a public company. However, all operating expenses incurred by the Company are reimbursed by the Operating Partnership, thus the only material item on the Company’s income statement is its equity in the earnings of the Operating Partnership. Therefore, the assets and liabilities and the revenues and expenses of the Company and the Operating Partnership are the same on their respective financial statements, except for immaterial differences related to cash, other assets and accrued liabilities that arise from public company expenses paid by the Company. The Company itself does not hold any indebtedness but does guarantee certain debt of the Operating Partnership, as disclosed in this report.
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The Operating Partnership holds all of the outlet centers and other assets, including the ownership interests in consolidated and unconsolidated joint ventures. The Operating Partnership conducts the operations of the business and is structured as a partnership with no publicly traded equity. Except for net proceeds from public equity issuances by the Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates the capital required through its operations, its incurrence of indebtedness or through the issuance of partnership units.

Noncontrolling interests, shareholders’ equity and partners’ capital are the main areas of difference between the consolidated financial statements of the Company and those of the Operating Partnership. The limited partnership interests in the Operating Partnership held by the Non-Company LPs are accounted for as partners’ capital in the Operating Partnership’s financial statements and as noncontrolling interests in the Company’s financial statements.

To help investors understand the significant differences between the Company and the Operating Partnership, this report presents the following separate sections, as applicable, for each of the Company and the Operating Partnership:

Consolidated financial statements;

The following notes to the consolidated financial statements:

Debt of the Company and the Operating Partnership;

Shareholders’ Equity, if applicable, and Partners’ Equity;

Earnings Per Share and Earnings Per Unit;

Accumulated Other Comprehensive Income of the Company and the Operating Partnership;

Liquidity and Capital Resources in the Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This report also includes separate Item 4. Controls and Procedures sections and separate Exhibit 31 and 32 certifications for each of the Company and the Operating Partnership in order to establish that the Chief Executive Officer and the Chief Financial Officer of each entity have made the requisite certifications and that the Company and Operating Partnership are compliant with Rule 13a-15 or Rule 15d-15 of the Securities Exchange Act of 1934 and 18 U.S.C. §1350.

The separate sections in this report for the Company and the Operating Partnership specifically refer to the Company and the Operating Partnership. In the sections that combine disclosure of the Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company. Although the Operating Partnership is generally the entity that enters into contracts and joint ventures and holds assets and debt, reference to the Company is appropriate because the business is one enterprise and the Company operates the business through the Operating Partnership.

The Company currently consolidates the Operating Partnership because it has (1) the power to direct the activities of the Operating Partnership that most significantly impact the Operating Partnership’s economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of the Operating Partnership that could be potentially significant. The separate discussions of the Company and the Operating Partnership in this report should be read in conjunction with each other to understand the results of the Company on a consolidated basis and how management operates the Company.
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TANGER FACTORY OUTLET CENTERS, INC. AND TANGER PROPERTIES LIMITED PARTNERSHIP
Index
 Page Number
Part I. Financial Information
Item 1. 
FINANCIAL STATEMENTS OF TANGER FACTORY OUTLET CENTERS, INC. (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2020 and December 31, 2019
Consolidated Statements of Operations - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Shareholders’ Equity - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2020 and 2019
FINANCIAL STATEMENTS OF TANGER PROPERTIES LIMITED PARTNERSHIP (Unaudited)
 
Consolidated Balance Sheets - as of September 30, 2020 and December 31, 2019
Consolidated Statements of Operations - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Comprehensive Income - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Equity - for the three and nine months ended September 30, 2020 and 2019
Consolidated Statements of Cash Flows - for the nine months ended September 30, 2020 and 2019
Condensed Notes to Consolidated Financial Statements of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Item 4. Controls and Procedures (Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership)
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 6. Exhibits
Signatures
4


PART I. - FINANCIAL INFORMATION

Item 1 - Financial Statements of Tanger Factory Outlet Centers, Inc.

TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data, unaudited)
September 30, 2020December 31, 2019
Assets  
Rental property:  
Land$266,014 $266,537 
Buildings, improvements and fixtures2,545,111 2,630,357 
 2,811,125 2,896,894 
Accumulated depreciation(1,034,670)(1,009,951)
Total rental property, net1,776,455 1,886,943 
Cash and cash equivalents19,793 16,672 
Investments in unconsolidated joint ventures92,537 94,691 
Deferred lease costs and other intangibles, net88,183 96,712 
Operating lease right-of-use assets83,210 86,575 
Prepaids and other assets125,297 103,618 
Total assets$2,185,475 $2,285,211 
Liabilities and Equity  
Liabilities  
Debt:  
Senior, unsecured notes, net$1,140,080 $1,138,603 
Unsecured term loan, net347,213 347,367 
Mortgages payable, net80,924 83,803 
Unsecured lines of credit, net— — 
Total debt1,568,217 1,569,773 
Accounts payable and accrued expenses85,712 79,562 
Operating lease liabilities90,566 91,237 
Other liabilities91,495 88,530 
Total liabilities1,835,990 1,829,102 
Commitments and contingencies
Equity  
Tanger Factory Outlet Centers, Inc.:  
Common shares, $0.01 par value, 300,000,000 shares authorized, 93,453,271 and 92,892,260 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
935 929 
Paid in capital783,815 775,035 
Accumulated distributions in excess of net income (420,367)(317,263)
Accumulated other comprehensive loss(32,347)(25,495)
Equity attributable to Tanger Factory Outlet Centers, Inc.332,036 433,206 
Equity attributable to noncontrolling interests:
Noncontrolling interests in Operating Partnership17,449 22,903 
Noncontrolling interests in other consolidated partnerships— — 
Total equity349,485 456,109 
Total liabilities and equity$2,185,475 $2,285,211 

The accompanying notes are an integral part of these consolidated financial statements.
5


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share data, unaudited)
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Revenues:  
Rental revenues$100,251 $115,050 $271,082 $347,389 
Management, leasing and other services1,194 1,356 3,362 3,943 
Other revenues1,768 2,588 4,392 6,524 
Total revenues103,213 118,994 278,836 357,856 
Expenses: 
Property operating35,206 39,149 101,991 118,252 
General and administrative11,181 12,292 35,331 40,910 
Impairment charge— — 45,675 — 
Depreciation and amortization29,903 30,103 87,966 93,009 
Total expenses76,290 81,544 270,963 252,171 
Other income (expense):
Interest expense(15,647)(15,197)(47,786)(46,638)
Gain on sale of assets2,324 — 2,324 43,422 
Other income (expense)161 227 789 (2,966)
Total other income (expense)(13,162)(14,970)(44,673)(6,182)
Income (loss) before equity in earnings of unconsolidated joint ventures13,761 22,480 (36,800)99,503 
Equity in earnings (losses) of unconsolidated joint ventures(42)2,329 (1,490)5,604 
Net income (loss)13,719 24,809 (38,290)105,107 
Noncontrolling interests in Operating Partnership(690)(1,263)1,939 (5,308)
Noncontrolling interests in other consolidated partnerships— — (190)(195)
Net income (loss) attributable to Tanger Factory Outlet Centers, Inc.$13,029 $23,546 $(36,541)$99,604 
Basic earnings per common share:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
Diluted earnings per common share:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
The accompanying notes are an integral part of these consolidated financial statements.
6


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Other comprehensive income (loss):
Foreign currency translation adjustments1,870 (1,051)(2,506)6,341 
Change in fair value of cash flow hedges1,463 (1,011)(4,711)(6,576)
Other comprehensive income (loss)3,333 (2,062)(7,217)(235)
Comprehensive income (loss)17,052 22,747 (45,507)104,872 
Comprehensive (income) loss attributable to noncontrolling interests(857)(1,158)2,114 (5,489)
Comprehensive income (loss) attributable to Tanger Factory Outlet Centers, Inc.$16,195 $21,589 $(43,393)$99,383 
The accompanying notes are an integral part of these consolidated financial statements.

7


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share data, unaudited)
Common sharesPaid in capitalAccumulated distributions in excess of earningsAccumulated other comprehensive lossEquity attributable to Tanger Factory Outlet Centers, Inc.Noncontrolling interests in Operating PartnershipNoncontrolling
interests in
other consolidated partnerships
Total
equity
Balance,
June 30, 2019
$935 $778,026 $(262,764)$(25,415)$490,782 $26,026 $— $516,808 
Net income— — 23,546 — 23,546 1,263 — 24,809 
Other comprehensive loss— — — (1,957)(1,957)(105)— (2,062)
Compensation under Incentive Award Plan— 3,669 — — 3,669 — — 3,669 
Repurchase of 650,929 common shares, including transaction costs
(6)(9,994)— — (10,000)— — (10,000)
Contributions from noncontrolling interests— — — — — — 11 11 
Adjustment for noncontrolling interests in Operating Partnership— 167 — — 167 (167)— — 
Common dividends
($0.355 per share)
— — (33,263)— (33,263)— — (33,263)
Distributions to noncontrolling interests— — — — — (1,761)(11)(1,772)
Balance, September 30, 2019$929 $771,868 $(272,481)$(27,372)$472,944 $25,256 $— $498,200 
Common sharesPaid in capitalAccumulated distributions in excess of earningsAccumulated other comprehensive lossEquity attributable to Tanger Factory Outlet Centers, Inc.Noncontrolling interests in Operating PartnershipNoncontrolling
interests in
other consolidated partnerships
Total
equity
Balance,
December 31, 2018
$939 $778,845 $(272,454)$(27,151)$480,179 $25,356 $— $505,535 
Net income— — 99,604 — 99,604 5,308 195 105,107 
Other comprehensive loss— — — (221)(221)(14)— (235)
Compensation under Incentive Award Plan— 14,657 — — 14,657 — — 14,657 
Grant of 242,167 restricted common share awards, net of forfeitures
(3)— — — — — — 
Repurchase of 1,209,328 common shares, including transaction costs
(12)(19,988)— — (20,000)— — (20,000)
Withholding of 81,284 common shares for employee income taxes
(1)(1,780)— — (1,781)— — (1,781)
Contributions from noncontrolling interests— — — — — — 47 47 
Adjustment for noncontrolling interests in Operating Partnership— 137 — — 137 (137)— — 
Common dividends
($1.060 per share)
— — (99,631)— (99,631)— — (99,631)
Distributions to noncontrolling interests— — — — — (5,257)(242)(5,499)
Balance, September 30, 2019$929 $771,868 $(272,481)$(27,372)$472,944 $25,256 $— $498,200 




The accompanying notes are an integral part of these consolidated financial statements.

8


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands, except share and per share data, unaudited)
Common sharesPaid in capitalAccumulated distributions in excess of earningsAccumulated other comprehensive lossEquity attributable to Tanger Factory Outlet Centers, Inc.Noncontrolling interests in Operating PartnershipNoncontrolling
interests in
other consolidated partnerships
Total
equity
Balance,
June 30, 2020
$935 $781,485 $(433,396)$(35,513)$313,511 $16,472 $— $329,983 
Net income— — 13,029 — 13,029 690 — 13,719 
Other comprehensive income— — — 3,166 3,166 167 — 3,333 
Compensation under Incentive Award Plan— 2,450 — — 2,450 — — 2,450 
Forfeitures of 18,996 restricted common share awards
— — — — — — — — 
Adjustment for noncontrolling interests in Operating Partnership— (120)— — (120)120 — — 
Balance,
September 30, 2020
$935 $783,815 $(420,367)$(32,347)$332,036 $17,449 $— $349,485 
Common sharesPaid in capitalAccumulated distributions in excess of earningsAccumulated other comprehensive lossEquity attributable to Tanger Factory Outlet Centers, Inc.Noncontrolling interests in Operating PartnershipNoncontrolling
interests in
other consolidated partnerships
Total
equity
Balance,
December 31, 2019
$929 $775,035 $(317,263)$(25,495)$433,206 $22,903 $— $456,109 
Net income (loss)— — (36,541)— (36,541)(1,939)190 (38,290)
Other comprehensive loss— — — (6,852)(6,852)(365)— (7,217)
Compensation under Incentive Award Plan— 9,871 — — 9,871 — — 9,871 
Grant of 611,350 restricted common share awards, net of forfeitures
(6)— — — — — — 
Issuance of 6,258 deferred shares
— — — — — — — — 
Withholding of 56,597 common shares for employee income taxes
— (736)— — (736)— — (736)
Contributions from noncontrolling interests — — — — — — 72 72 
Adjustment for noncontrolling interests in Operating Partnership— (349)— — (349)349 — — 
Common dividends
($0.7125 per share)
— — (66,563)— (66,563)— — (66,563)
Distributions to noncontrolling interests— — — — — (3,499)(262)(3,761)
Balance,
September 30, 2020
$935 $783,815 $(420,367)$(32,347)$332,036 $17,449 $— $349,485 

The accompanying notes are an integral part of these consolidated financial statements.
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TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine months ended September 30,
 20202019
OPERATING ACTIVITIES  
Net income (loss)$(38,290)$105,107 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization87,966 93,009 
Impairment charge45,675 — 
Amortization of deferred financing costs2,586 2,246 
Gain on sale of assets (2,324)(43,422)
Equity in (earnings) losses of unconsolidated joint ventures1,490 (5,604)
Equity-based compensation expense9,566 14,371 
Amortization of debt (premiums) and discounts, net359 333 
Amortization (accretion) of market rent rate adjustments, net2,560 1,067 
Straight-line rent adjustments including write offs due to tenant bankruptcies and uncollectible accounts2,418 (6,938)
Distributions of cumulative earnings from unconsolidated joint ventures2,309 5,305 
Uncollectible rental revenue allowance
26,573 965 
Other non-cash— 3,638 
Changes in other assets and liabilities:
Other assets(49,822)(1,303)
Accounts payable and accrued expenses895 (9,805)
Net cash provided by operating activities91,961 158,969 
INVESTING ACTIVITIES
Additions to rental property(23,072)(35,208)
Additions to investments in unconsolidated joint ventures(5,601)(2,074)
Net proceeds from sale of assets 7,626 128,505 
Additions to non-real estate assets(1,541)(819)
Distributions in excess of cumulative earnings from unconsolidated joint ventures4,717 14,541 
Additions to deferred lease costs(2,755)(5,207)
Other investing activities8,339 8,205 
Net cash provided by (used in) investing activities(12,287)107,943 
FINANCING ACTIVITIES
Cash dividends paid(66,563)(99,631)
Distributions to noncontrolling interests in Operating Partnership(3,499)(5,257)
Proceeds from revolving credit facility641,630 275,400 
Repayments of revolving credit facility(641,630)(416,400)
Repayments of notes, mortgages and loans(2,656)(2,509)
Repurchase of common shares, including transaction costs— (20,000)
Employee income taxes paid related to shares withheld upon vesting of equity awards(736)(1,781)
Additions to deferred financing costs(1,841)(65)
Proceeds from other financing activities72 47 
Payment for other financing activities(1,122)(1,103)
Net cash used in financing activities(76,345)(271,299)
Effect of foreign currency rate changes on cash and cash equivalents(208)(32)
Net increase (decrease) in cash and cash equivalents3,121 (4,419)
Cash and cash equivalents, beginning of period16,672 9,083 
Cash and cash equivalents, end of period$19,793 $4,664 
The accompanying notes are an integral part of these consolidated financial statements.
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Item 1 - Financial Statements of Tanger Properties Limited Partnership

11


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except unit data, unaudited)
September 30, 2020December 31, 2019
Assets  
Rental property:  
Land$266,014 $266,537 
Buildings, improvements and fixtures2,545,111 2,630,357 
2,811,125 2,896,894 
Accumulated depreciation(1,034,670)(1,009,951)
Total rental property, net1,776,455 1,886,943 
Cash and cash equivalents19,712 16,519 
Investments in unconsolidated joint ventures92,537 94,691 
Deferred lease costs and other intangibles, net88,183 96,712 
Operating lease right-of-use assets83,210 86,575 
Prepaids and other assets125,130 103,374 
Total assets$2,185,227 $2,284,814 
Liabilities and Equity
Liabilities
Debt:
Senior, unsecured notes, net$1,140,080 $1,138,603 
Unsecured term loan, net347,213 347,367 
Mortgages payable, net80,924 83,803 
Unsecured lines of credit, net— — 
Total debt1,568,217 1,569,773 
Accounts payable and accrued expenses85,464 79,165 
Operating lease liabilities90,566 91,237 
Other liabilities91,495 88,530 
Total liabilities1,835,742 1,828,705 
Commitments and contingencies
Equity
Partners’ Equity:
General partner, 1,000,000 units outstanding at September 30, 2020 and December 31, 2019
3,331 4,435 
Limited partners, 4,911,173 and 4,911,173 Class A common units, and 92,453,271 and 91,892,260 Class B common units outstanding at September 30, 2020 and December 31, 2019, respectively
380,259 478,562 
Accumulated other comprehensive loss(34,105)(26,888)
Total partners’ equity349,485 456,109 
Noncontrolling interests in consolidated partnerships— — 
Total equity349,485 456,109 
Total liabilities and equity$2,185,227 $2,284,814 
The accompanying notes are an integral part of these consolidated financial statements.
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TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per unit data, unaudited)
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Revenues:  
Rental revenues$100,251 $115,050 $271,082 $347,389 
Management, leasing and other services1,194 1,356 3,362 3,943 
Other revenues1,768 2,588 4,392 6,524 
Total revenues103,213 118,994 278,836 357,856 
Expenses:
Property operating35,206 39,149 101,991 118,252 
General and administrative11,181 12,292 35,331 40,910 
Impairment charge— — 45,675 — 
Depreciation and amortization29,903 30,103 87,966 93,009 
Total expenses76,290 81,544 270,963 252,171 
Other income (expense):
Interest expense(15,647)(15,197)(47,786)(46,638)
Gain on sale of assets2,324 — 2,324 43,422 
Other income (expense) 161 227 789 (2,966)
Total other income (expense)(13,162)(14,970)(44,673)(6,182)
Income (loss) before equity in earnings of unconsolidated joint ventures13,761 22,480 (36,800)99,503 
Equity in earnings (losses) of unconsolidated joint ventures(42)2,329 (1,490)5,604 
Net income (loss)13,719 24,809 (38,290)105,107 
Noncontrolling interests in consolidated partnerships— — (190)(195)
Net income (loss) available to partners13,719 24,809 (38,480)104,912 
Net income (loss) available to limited partners13,580 24,556 (38,089)103,850 
Net income (loss) available to general partner$139 $253 $(391)$1,062 
Basic earnings per common unit: 
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
Diluted earnings per common unit:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
The accompanying notes are an integral part of these consolidated financial statements.
13


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, unaudited)
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Other comprehensive income (loss):
Foreign currency translation adjustments1,870 (1,051)(2,506)6,341 
Changes in fair value of cash flow hedges1,463 (1,011)(4,711)(6,576)
Other comprehensive income (loss)3,333 (2,062)(7,217)(235)
Comprehensive income (loss)17,052 22,747 (45,507)104,872 
Comprehensive (income) loss attributable to noncontrolling interests in consolidated partnerships— — (190)(195)
Comprehensive income (loss) attributable to the Operating Partnership$17,052 $22,747 $(45,697)$104,677 
The accompanying notes are an integral part of these consolidated financial statements.

14


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)
General partnerLimited partnersAccumulated other comprehensive lossTotal partners’ equityNoncontrolling interests in consolidated partnershipsTotal equity
Balance, June 30, 2019$5,018 $538,594 $(26,804)$516,808 $— $516,808 
Net income253 24,556 — 24,809 — 24,809 
Other comprehensive loss— — (2,062)(2,062)— (2,062)
Compensation under Incentive Award Plan— 3,669 — 3,669 — 3,669 
Repurchase of 650,929 units, including transaction costs
— (10,000)— (10,000)— (10,000)
Reclassification of general and limited partner interest— — — — — — 
Contributions from noncontrolling interests — — — — 11 11 
Common distributions ($0.355 per common unit)
(355)(34,669)— (35,024)— (35,024)
Distributions to noncontrolling interests— — — — (11)(11)
Balance, September 30, 2019$4,916 $522,150 $(28,866)$498,200 $— $498,200 
General partnerLimited partnersAccumulated other comprehensive lossTotal partners’ equityNoncontrolling interests in consolidated partnershipsTotal equity
Balance, December 31, 2018$4,914 $529,252 $(28,631)$505,535 $— $505,535 
Net income1,062 103,850 — 104,912 195 105,107 
Other comprehensive loss— — (235)(235)— (235)
Compensation under Incentive Award Plan— 14,657 — 14,657 — 14,657 
Grant of 242,167 restricted common share awards by the Company
— — — — — — 
Repurchase of 1,209,328 units, including transaction costs
— (20,000)— (20,000)— (20,000)
Withholding of 81,284 common units for employee income taxes
— (1,781)— (1,781)— (1,781)
Contributions from noncontrolling interests — — — — 47 47 
Common distributions ($1.060 per common unit)
(1,060)(103,828)— (104,888)— (104,888)
Distributions to noncontrolling interests— — — — (242)(242)
Balance, September 30, 2019$4,916 $522,150 $(28,866)$498,200 $— $498,200 

15


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except unit and per unit data, unaudited)

General partnerLimited partnersAccumulated other comprehensive lossTotal partners’ equityNoncontrolling interests in consolidated partnershipsTotal equity
Balance, June 30, 2020$3,192 $364,229 $(37,438)$329,983 $— $329,983 
Net income139 13,580 — 13,719 — 13,719 
Other comprehensive income— — 3,333 3,333 — 3,333 
Compensation under Incentive Award Plan— 2,450 — 2,450 — 2,450 
Forfeitures of 18,996 restricted common share awards
— — — — — — 
Common distributions — — — — — — 
Balance, September 30, 2020$3,331 $380,259 $(34,105)$349,485 $— $349,485 
General partnerLimited partnersAccumulated other comprehensive lossTotal partners’ equityNoncontrolling interests in consolidated partnershipsTotal equity
Balance, December 31, 2019$4,435 $478,562 $(26,888)$456,109 $— $456,109 
Net income (loss)$(391)$(38,089)$— $(38,480)$190 $(38,290)
Other comprehensive loss$— $— $(7,217)$(7,217)$— $(7,217)
Compensation under Incentive Award Plan$— $9,871 $— $9,871 $— $9,871 
Grant of 611,350 restricted common share awards by the Company
$— $— $— $— $— $— 
Issuance of 6,258 deferred units
$— $— $— $— $— $— 
Withholding of 56,597 common units for employee income taxes
$— $(736)$— $(736)$— $(736)
Contributions from noncontrolling interests $— $— $— $— $72 $72 
Common distributions ($0.7125
 per common unit)
$(713)$(69,349)$— $(70,062)$— $(70,062)
Distributions to noncontrolling interests$— $— $— $— $(262)$(262)
Balance, September 30, 2020$3,331 $380,259 $(34,105)$349,485 $— $349,485 

The accompanying notes are an integral part of these consolidated financial statements.
16


TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
Nine months ended September 30,
 20202019
OPERATING ACTIVITIES  
Net income (loss)$(38,290)$105,107 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization87,966 93,009 
Impairment charge45,675 — 
Amortization of deferred financing costs2,586 2,246 
Gain on sale of assets (2,324)(43,422)
Equity in (earnings) losses of unconsolidated joint ventures1,490 (5,604)
Equity-based compensation expense9,566 14,371 
Amortization of debt (premiums) and discounts, net359 333 
Amortization (accretion) of market rent rate adjustments, net2,560 1,067 
Straight-line rent adjustments including write offs due to tenant bankruptcies and uncollectible accounts2,418 (6,938)
Distributions of cumulative earnings from unconsolidated joint ventures2,309 5,305 
Uncollectible rental revenue allowance
26,573 965 
Other non-cash— 3,638 
Changes in other assets and liabilities:
Other assets(49,899)(1,318)
Accounts payable and accrued expenses1,044 (9,788)
Net cash provided by operating activities92,033 158,971 
INVESTING ACTIVITIES
Additions to rental property(23,072)(35,208)
Additions to investments in unconsolidated joint ventures(5,601)(2,074)
Net proceeds from sale of assets 7,626 128,505 
Additions to non-real estate assets(1,541)(819)
Distributions in excess of cumulative earnings from unconsolidated joint ventures4,717 14,541 
Additions to deferred lease costs(2,755)(5,207)
Other investing activities8,339 8,205 
Net cash provided by (used in) investing activities(12,287)107,943 
FINANCING ACTIVITIES
Cash distributions paid(70,062)(104,888)
Proceeds from revolving credit facility641,630 275,400 
Repayments of revolving credit facility(641,630)(416,400)
Repayments of notes, mortgages and loans(2,656)(2,509)
Repurchase of units, including transaction costs— (20,000)
Employee income taxes paid related to shares withheld upon vesting of equity awards(736)(1,781)
Additions to deferred financing costs(1,841)(65)
Proceeds from other financing activities72 47 
Payment for other financing activities(1,122)(1,103)
Net cash used in financing activities(76,345)(271,299)
Effect of foreign currency on cash and cash equivalents(208)(32)
Net increase (decrease) in cash and cash equivalents3,193 (4,417)
Cash and cash equivalents, beginning of period16,519 8,991 
Cash and cash equivalents, end of period$19,712 $4,574 
The accompanying notes are an integral part of these consolidated financial statements.
17


TANGER FACTORY OUTLET CENTERS, INC. AND SUBSIDIARIES
TANGER PROPERTIES LIMITED PARTNERSHIP AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business
Tanger Factory Outlet Centers, Inc. and subsidiaries is one of the largest owners and operators of outlet centers in the United States and Canada. We are a fully-integrated, self-administered and self-managed real estate investment trust (“REIT”) which, through our controlling interest in the Operating Partnership, focuses exclusively on developing, acquiring, owning, operating and managing outlet shopping centers. As of September 30, 2020, we owned and operated 31 consolidated outlet centers, with a total gross leasable area of approximately 11.9 million square feet. We also had partial ownership interests in 7 unconsolidated outlet centers totaling approximately 2.2 million square feet, including 3 outlet centers in Canada.

Our outlet centers and other assets are held by, and all of our operations are conducted by, Tanger Properties Limited Partnership and subsidiaries. Accordingly, the descriptions of our business, employees and properties are also descriptions of the business, employees and properties of the Operating Partnership. Unless the context indicates otherwise, the term “Company” refers to Tanger Factory Outlet Centers, Inc. and subsidiaries and the term, “Operating Partnership”, refers to Tanger Properties Limited Partnership and subsidiaries. The terms “we”, “our” and “us” refer to the Company or the Company and the Operating Partnership together, as the text requires.

The Company owns the majority of the units of partnership interest issued by the Operating Partnership through its two wholly-owned subsidiaries, Tanger GP Trust and Tanger LP Trust. Tanger GP Trust is the sole general partner of the Operating Partnership. Tanger LP Trust holds a limited partnership interest. As of September 30, 2020, the Company, through its ownership of Tanger GP Trust and Tanger LP Trust, owned 93,453,271 units of the Operating Partnership and other limited partners (the “Non-Company LPs”) collectively owned 4,911,173 Class A common limited partnership units. Each Class A common limited partnership unit held by the Non-Company LPs is exchangeable for one of the Company’s common shares, subject to certain limitations to preserve the Company’s REIT status. Class B common limited partnership units, which are held by Tanger LP Trust, are not exchangeable for common shares of the Company.

2. Summary of Significant Accounting Policies
Basis of Presentation

The unaudited consolidated financial statements included herein have been prepared pursuant to accounting principles generally accepted in the United States of America and should be read in conjunction with the consolidated financial statements and notes thereto of the Company’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2019. The December 31, 2019 balance sheet data in this Form 10-Q was derived from audited financial statements. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate to make the information presented not misleading. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the financial statements for the interim periods have been made. The results of interim periods are not necessarily indicative of the results for a full year.

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.

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We consolidate properties that are wholly-owned and properties where we own less than 100% but control such properties. Control is determined using an evaluation based on accounting standards related to the consolidation of voting interest entities and variable interest entities (“VIE”). For joint ventures that are determined to be a VIE, we consolidate the entity where we are deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our determination of the primary beneficiary considers all relationships between us and the VIE, including management agreements and other contractual arrangements.

Investments in real estate joint ventures that we do not control but may exercise significant influence on are accounted for using the equity method of accounting. These investments are recorded initially at cost and subsequently adjusted for our equity in the joint venture’s net income or loss, cash contributions, distributions and other adjustments required under the equity method of accounting.

For certain investments in real estate joint ventures, we record our equity in the venture’s net income or loss under the hypothetical liquidation at book value method of accounting due to the structures and the preferences we receive on the distributions from our joint ventures pursuant to the respective joint venture agreements for those joint ventures. Under this method, we recognize income and loss in each period based on the change in liquidation proceeds we would receive from a hypothetical liquidation of our investment based on depreciated book value. Therefore, income or loss may be allocated disproportionately as compared to the ownership percentages due to specified preferred return rate thresholds and may be more or less than actual cash distributions received and more or less than what we may receive in the event of an actual liquidation.

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 to provide further financial support to these joint ventures. The carrying amount of our investments in the Charlotte, Columbus, Galveston/Houston, and National Harbor joint ventures are less than zero because of financing or operating distributions that were greater than net income, as net income includes non-cash charges for depreciation and amortization.

“Noncontrolling interests in the Operating Partnership” reflects the Non-Company LP’s percentage ownership of the Operating Partnership’s units. “Noncontrolling interests in other consolidated partnerships” consist of outside equity interests in partnerships or joint ventures not wholly-owned by the Company or the Operating Partnership that are consolidated with the financial results of the Company and Operating Partnership because the Operating Partnership exercises control over the entities that own the properties. Noncontrolling interests are initially recorded in the consolidated balance sheets at fair value based upon purchase price allocations. Income is allocated to the noncontrolling interests based on the allocation provisions within the partnership or joint venture agreements.

Accounts Receivable

Historically, our accounts receivable from tenants has not been material; however, given the impacts from the coronavirus (“COVID-19”) pandemic discussed below, our net accounts receivable balance, which is recorded in other assets on the consolidated balance sheet, has increased from approximately $4.8 million at December 31, 2019 to approximately $32.3 million at September 30, 2020. Straight-line rent adjustments recorded as a receivable in other assets on the consolidated balance sheets were approximately $57.6 million and $61.6 million as of September 30, 2020 and December 31, 2019, respectively. Individual leases are assessed for collectability and upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are reduced as an adjustment to rental revenue. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further we assess whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends including discussions with tenants for potential lease amendments. Our estimate of the collectability of accrued rents and accounts receivable is based on the best information available to us at the time of preparing the financial statements.

The duration of the COVID 19 pandemic, recent tenant bankruptcies and other significant uncertainties with the economy required significant judgment to be used when estimating the collection of rents through September 30, 2020. See Note 3 for amounts we recorded as a reduction of revenues for uncollectible accounts.
19


Impairment of Long-Lived Assets

Rental property held and used by us is reviewed for impairment in the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable. In such an event, we compare the estimated future undiscounted cash flows associated with the asset to the asset's carrying amount, and if less, recognize an impairment loss in an amount by which the carrying amount exceeds its fair value.

During the first quarter of 2020, we determined that the estimated future undiscounted cash flows of our Foxwoods outlet center, Mashantucket, Connecticut did not exceed the property's carrying value due to a decline in forecasted operating results. Therefore, we recorded a $45.7 million non-cash impairment charge in our consolidated statement of operations which equaled the excess of the property's carrying value over its estimated fair value. See Note 5 for discussion of the impairment of the Saint-Sauveur, Quebec outlet center in our Canadian unconsolidated joint venture during the quarter ended June 30, 2020.

If the effects of the COVID-19 pandemic cause economic and market conditions to deteriorate beyond our current expectations or if our expected holding periods for assets change, subsequent tests for impairment could result in additional impairment charges in the future. For example, the Foxwoods property is part of a casino property and continues to face leasing challenges which could lead to further declines in occupancy, rental revenues and cash flows in the future. Such challenges could result in additional impairments. We can provide no assurance that material impairment charges with respect to our properties will not occur during the fourth quarter of 2020 or future periods.

3. COVID-19 Pandemic

The current novel COVID-19 pandemic has had, and will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on, among other things, our results of operations, liquidity (including our ability to access capital markets), the possibility of future impairments of long-lived assets or our investments in unconsolidated joint ventures, our compliance with debt covenants, our ability to collect rent under our existing leases, our ability to renew and re-lease our leased space, the outlook for the retail environment, bankruptcies and potential further bankruptcies or other store closings and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows have been and may continue to be in the future materially affected.

Although our outlet centers remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, substantially all of the stores in our portfolio were closed as a result of mandates by order of local and state authorities. By June 15, 2020, in store shopping for non-essential retail was allowed in every market in which our centers are located. Our outlet centers may experience additional short-term store closures as retailers implement additional safety protocols at specific locations impacted by increased exposure to COVID-19.

While our outlet centers have not closed throughout the pandemic, we have been operating under reduced hours since late April when the first stores began to reopen. Prior to the pandemic, our outlet centers operated an average of 12 hours per day. Upon reopening, our centers were open on an average of 8 hours per day.

A number of our tenants have requested rent deferrals, rent abatements or other types of rent relief during this pandemic. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021.

20


The following table sets forth information regarding the status of rents billed during the third and second quarters as of September 30, 2020 (In thousands):
As of September 30, 2020
Third QuarterSecond Quarter
Collection Status: (1)
Rents Billed% of RentsRents Billed % of Rents
Rents collected$82,006 86 %$40,995 42 %
Rents expected to be collected(2)
5,379 5,012 
Rents deferred (3)
618 25,327 26 
Under negotiation1,589 2,739 
One-time rent concessions in exchange for amendments to lease structure1,544 13,176 13 
Bankruptcy related, primarily pre-petition rents2,258 8,719 
At risk due to tenant financial weakness1,407 1,540 
Total rents billed$94,801 100 %$97,508 100 %
(1)Excludes variable revenue which is derived from tenant sales and lease termination fees.
(2)In October 2020, we collected and additional $2.3 million of the third quarter rents and $968,000 of the second quarter rents.
(3)Includes rents deferred with substantially all payments due in 2021, for which the majority is due in January/February of 2021.

During the three months ended September 30, 2020, we wrote off 5% of third quarter rents billed, related to tenant bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. During the nine months ended September 30, 2020, we wrote off approximately 15% of second and third quarter rents, related to bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. In addition, for the three and nine months ended September 30, 2020, we recorded a $2.2 million and $11.8 million reserve, respectively, for a portion of deferred and under negotiation billings that are expected to become uncollectible in future periods. Further, for the three and nine months ended September 30, 2020 we recognized a write-off of revenue of approximately $2.4 million and $6.1 million of straight-line rents, respectively, associated with the tenant bankruptcies and uncollectible accounts. We are closely monitoring changes in the collectability assessment of our tenant receivables as a result of certain tenants suffering adverse financial consequences due to COVID-19 and should our estimates change, there could be material modifications to our revenues in future periods.

Given the economic environment as a result of COVID-19, a select number of our tenants underwent liquidity hardships and filed for Chapter 11 bankruptcy protection in the second and third quarters of 2020. Although some of these tenants intend to exit the Chapter 11 bankruptcy process and resume operations, the outcomes of such proceedings are unknown and we are currently exploring leasing alternatives for stores we expect to close. Recent Chapter 11 bankruptcy filings include, but not limited to, J. Crew Group, Inc. (filed in May 2020) and Brooks Brothers, Lucky Brand Jeans, New York and Company and Ascena Retail Group, Inc. (all filed in July, 2020). Approximately 89% of the amounts included in the table above under the caption (“Bankruptcy related, primarily pre-petition rents”) that were written off during the second and third quarter as uncollectible rents as of September 30, 2020 were related to these tenants.

In March 2020, to increase liquidity, preserve financial flexibility and help meet our obligations for a sustained period of time, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.

We also took steps to reduce cash outflows, including the reduction or deferral of certain operating costs, temporary base salary reductions for our named executive officers and other employees, and the reduction of certain other general and administrative expenses. During the second and third quarters, these reductions reduced cash outflows by approximately $15.4 million, including $1.9 million of general and administrative and $13.5 million of property operating expenses. In July 2020, we restored the above mentioned salary reductions.
21



We also deferred our Nashville pre-development-stage project and certain other planned capital expenditures. We paid the dividend that was declared in January 2020 as scheduled on May 15, 2020. Given the uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors temporarily suspended dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board continues to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.


4. Disposition of Properties

Disposition of Properties

During the three and nine months ended September 30, 2020, we closed on the sale of a non-core outlet center in Terrell, Texas for gross proceeds of $8.0 million. During the nine months ended September 30, 2019, we closed on the sale of four non-core outlet centers for total gross proceeds of $130.5 million.

The following table sets forth certain summarized information regarding properties and land outparcels sold during the nine months ended September 30, 2020 and September 30, 2019:
PropertyLocationDate SoldSquare Feet
(in 000’s)
Net Sales Proceeds
(in 000’s)
Gain on Sale (in 000’s)
2020 Dispositions:
TerrellTerrell, TexasAugust 2020178 $7,626 $2,324 
2019 Dispositions:
Nags Head, Ocean City, Park City, and Williamsburg
Nags Head, NC, Ocean City, MD, Park City, UT, and Williamsburg, IA
March 2019878 $128,248 $43,422 

The rental properties sold did not meet the criteria to be reported as discontinued operations.

5. Investments in Unconsolidated Real Estate Joint Ventures
The equity method of accounting is used to account for each of the individual joint ventures. We have an ownership interest in the following unconsolidated real estate joint ventures:
As of September 30, 2020
Joint VentureOutlet Center LocationOwnership %Square Feet
(in 000’s)
Carrying Value of Investment (in millions)
Total Joint Venture Debt, Net
(in millions)(1)
Investments included in investments in unconsolidated joint ventures:
RioCan CanadaVarious50.0 %765 $92.5 $— 
$92.5 
Investments included in other liabilities:
Columbus(2)
Columbus, OH50.0 %355 $(3.6)$85.0 
Charlotte(2)
Charlotte, NC50.0 %399 (13.1)99.6 
National Harbor(2)
National Harbor, MD50.0 %341 (8.7)94.5 
Galveston/Houston (2)
Texas City, TX50.0 %353 (19.8)79.9 
$(45.2)

22


As of December 31, 2019
Joint VentureOutlet Center LocationOwnership %Square Feet
(in 000’s)
Carrying Value of Investment (in millions)
Total Joint Venture Debt, Net
(in millions)(1)
Investments included in investments in unconsolidated joint ventures:
RioCan CanadaVarious50.0 %764 $94.7 $9.2 
$94.7 
Investments included in other liabilities:
Columbus(2)
Columbus, OH50.0 %355 $(3.5)$85.0 
Charlotte(2)
Charlotte, NC50.0 %399 (13.0)99.5 
National Harbor(2)
National Harbor, MD50.0 %341 (5.9)94.4 
Galveston/Houston (2)
Texas City, TX50.0 %353 (19.7)79.9 
$(42.1)

(1)Net of debt origination costs of $1.1 million as of September 30, 2020 and net of debt origination cost and including premiums of $1.1 million as of December 31, 2019.
(2)The negative carrying value is due to distributions exceeding contributions and increases or decreases from our equity in earnings of the joint venture.

Fees we received for various services provided to our unconsolidated joint ventures were recognized in management, leasing and other services as follows (in thousands):
Three months endedNine months ended
September 30,September 30,
 2020201920202019
Fee:  
Management and marketing$471 $567 $1,156 $1,696 
Leasing and other fees15 32 50 71 
Expense reimbursements from unconsolidated joint ventures708 757 2,156 2,176 
Total Fees$1,194 $1,356 $3,362 $3,943 

Our investments in real estate joint ventures are reduced by the percentage of the profits earned for leasing and development services associated with our ownership interest in each joint venture. Our carrying value of investments in unconsolidated joint ventures differs from our share of the assets reported in the “Summary Balance Sheets - Unconsolidated Joint Ventures” shown below due to adjustments to the book basis, including intercompany profits on sales of services that are capitalized by the unconsolidated joint ventures. The differences in basis (totaling $3.6 million and $3.8 million as of September 30, 2020 and December 31, 2019, respectively) are amortized over the various useful lives of the related assets.

Galveston/Houston

In June 2020, in response to the COVID-19 impact on the property, the Galveston/Houston joint venture amended its mortgage loan. The loan modification amended the first one-year extension option to provide for two six-month options (the “First Extension” and “Second Extension”, respectively). Under the loan modification, the joint venture is prohibited from making partner distributions during the term of the First Extension.  If the joint venture exercises all available options, the loan would mature in July 2022.  The joint venture exercised its First Extension option to extend the mortgage loan for six months to January 2021.

RioCan Canada

In May 2020, the joint venture’s mortgage loan for the outlet center in Saint-Sauveur matured and the joint venture repaid the approximately $8.3 million owed in full.
23


During June 2020, the Rio-Can joint venture recognized an impairment charge related to its Saint-Sauveur property in Quebec. The impairment charge was primarily driven by deterioration of net operating income caused by market competition and the COVID-19 pandemic.

The table below summarizes the impairment charge taken during the second quarter of 2020 (in thousands):
Impairment Charge(1)
Outlet CenterTotalOur Share
2020Saint-Sauveur$6,181 $3,091 
(1)The fair value was determined using an income approach considering the prevailing market income capitalization rates for similar assets.


Condensed combined summary financial information of unconsolidated joint ventures accounted for using the equity method is as follows (in thousands):
Condensed Combined Balance Sheets - Unconsolidated Joint VenturesSeptember 30, 2020December 31, 2019
Assets  
Land$88,312 $90,859 
Buildings, improvements and fixtures461,593 477,061 
Construction in progress4,801 4,779 
554,706 572,699 
Accumulated depreciation(138,622)(132,860)
Total rental property, net416,084 439,839 
Cash and cash equivalents16,515 19,750 
Deferred lease costs and other intangibles, net5,134 6,772 
Prepaids and other assets24,355 17,789 
Total assets$462,088 $484,150 
Liabilities and Owners’ Equity  
Mortgages payable, net $358,940 $368,032 
Accounts payable and other liabilities15,911 17,173 
Total liabilities374,851 385,205 
Owners’ equity87,237 98,945 
Total liabilities and owners’ equity$462,088 $484,150 

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 Three months endedNine months ended
Condensed Combined Statements of Operations September 30,September 30,
 - Unconsolidated Joint Ventures2020201920202019
Revenues $16,959 $23,050 $55,470 $70,088 
Expenses: 
Property operating8,035 8,380 24,023 27,780 
General and administrative82 19 344 171 
Asset impairment— — 6,181 — 
Depreciation and amortization5,877 6,051 17,686 18,478 
Total expenses13,994 14,450 48,234 46,429 
Other income (expense):
Interest expense(3,024)(4,059)(9,991)(12,331)
Other income104 179 165 305 
Total other income (expense)(2,920)(3,880)$(9,826)$(12,026)
Net income (loss)$45 $4,720 $(2,590)$11,633 
The Company and Operating Partnership’s share of:  
Net income (loss)$(42)$2,329 $(1,490)$5,604 
Depreciation and amortization (real estate related)$3,003 $3,058 $9,038 $9,453 


6. Debt Guaranteed by the Company

All of the Company’s debt is held by the Operating Partnership and its consolidated subsidiaries.

The Company guarantees the Operating Partnership’s obligations with respect to its unsecured lines of credit which have a total borrowing capacity of $600.0 million. The Company also guarantees the Operating Partnership’s unsecured term loan.

The Operating Partnership had the following principal amounts outstanding on the debt guaranteed by the Company (in thousands):
As of
September 30, 2020December 31, 2019
Unsecured lines of credit$— $— 
Unsecured term loan$350,000 $350,000 

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7. Debt of the Operating Partnership

The debt of the Operating Partnership consisted of the following (in thousands):
As ofAs of
September 30, 2020December 31, 2019
Stated Interest Rate(s)Maturity DatePrincipal
Book Value(1)
Principal
Book Value(1)
Senior, unsecured notes: 
Senior notes3.875 %December 2023$250,000 $247,801 $250,000 $247,308 
Senior notes3.750 %December 2024250,000 248,401 250,000 248,127 
Senior notes3.125 %September 2026350,000 346,630 350,000 346,215 
Senior notes3.875 %July 2027300,000 297,248 300,000 296,953 
Mortgages payable:
Atlantic City (2)(3)
5.14 %-7.65%November 2021- December 202628,253 29,578 30,909 32,531 
     SouthavenLIBOR+1.80%April 202151,400 51,346 51,400 51,272 
Unsecured term loan
LIBOR(4)
+1.00%April 2024350,000 347,213 350,000 347,367 
Unsecured lines of credit
LIBOR(4)
+1.00%
October 2021 (5)
— — — — 
 $1,579,653 $1,568,217 $1,582,309 $1,569,773 
(1)Including premiums and net of debt discount and debt origination costs.
(2)The effective interest rate assigned during the purchase price allocation to the Atlantic City mortgages assumed during the acquisition in 2011 was 5.05%.
(3)Principal and interest due monthly with remaining principal due at maturity.
(4)Beginning in June 2020, if LIBOR is less than 0.25% per annum, the rate will be deemed to be 0.25% for the portions of the lines of credit and bank term loan that are not fixed with an interest rate swap.
(5)Unsecured lines of credit have a one-year extension option to extend maturity to October 2022.

Certain of our properties, which had a net book value of approximately $165.5 million at September 30, 2020, serve as collateral for mortgages payable. We maintain unsecured lines of credit that provide for borrowings of up to $600.0 million. The unsecured lines of credit include a $20.0 million liquidity line and a $580.0 million syndicated line. The syndicated line may be increased up to $1.2 billion through an accordion feature in certain circumstances.

We provide guarantees to lenders for our joint ventures which include standard non-recourse carve out indemnifications for losses arising from items such as but not limited to fraud, physical waste, payment of taxes, environmental indemnities, misapplication of insurance proceeds or security deposits and failure to maintain required insurance. For construction and term loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal.  The principal guarantees include terms for release or reduction based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. As of September 30, 2020, the maximum amount of unconsolidated joint venture debt guaranteed by the Company was $16.4 million.

The unsecured lines of credit and senior unsecured notes include covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% of funds from operations on a cumulative basis. As of September 30, 2020, we believe we were in compliance with all of our debt covenants.

Lines of credit and Term Loan Covenant Modifications
In June 2020, we amended the debt agreements for our lines of credit and bank term loan, primarily to improve future covenant flexibility. The amendments, among other things, allow us to access the existing surge leverage provision, which provides for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months starting July 1, 2020, during which time share repurchases are prohibited. Additionally, the leverage covenants are determined based on the calculation period which is modified to be based on the immediately preceding three calendar month period annualized for the calculation date occurring on
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December 31, 2020; the immediately preceding six calendar month period annualized for the calculation date occurring on March 31, 2021; the immediately preceding nine calendar month period annualized for the calculation date occurring on June 30, 2021; and for all other calculation dates occurring during the term on the agreement, the immediately preceding twelve calendar month period. Some definitional modifications related to the calculation of certain covenants are permanent, including the netting of cash balances in excess of $30.0 million (or debt maturing in the next 24 months, if less) as well as using adjusted EBITDA, which adds back general and administrative expenses not attributable to the subsidiaries or properties and deducts a management fee of 3% of rental revenues in liability and asset calculations for certain covenants. The amendments revised the interest rate to provide a LIBOR floor of 0.25% for the portions of the lines of credit and bank term loan that are not fixed with an interest rate swap. Although the amended covenants provide additional flexibility and we expect to remain in compliance with such covenants, the potential impacts from COVID-19 are highly uncertain and therefore could impact covenant compliance in the future.

Unsecured Lines of Credit
In March 2020, in response to the COVID-19 pandemic, we drew down approximately $599.8 million under our unsecured lines of credit to increase liquidity and preserve financial flexibility to help ensure that we are able to meet our obligations for a sustained period. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.

Interest Rate Spread over LIBOR
In February 2020, due to a change in our credit rating, our interest rate spread over LIBOR on our $600.0 million unsecured line of credit facility increased from 0.875% to 1.0% and our annual facility fee increased from 0.15% to 0.20%. In addition, our interest rate spread over LIBOR on our $350.0 million unsecured term loan increased from 0.90% to 1.0%.

Debt Maturities

Maturities of the existing long-term debt as of September 30, 2020 for the next five years and thereafter are as follows (in thousands):
Calendar YearAmount
For the remainder of 2020$910 
202157,193 
20224,436 
2023254,768 
2024605,140 
Thereafter657,206 
Subtotal1,579,653 
Net discount and debt origination costs(11,436)
Total$1,568,217 
Given the financial implications of COVID-19, 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.
 
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8. Derivative Financial Instruments

The following table summarizes the terms and fair values of our derivative financial instruments, as well as their classifications within the consolidated balance sheets (notional amounts and fair values in thousands):
Fair Value
Effective DateMaturity DateNotional AmountBank Pay RateCompany Fixed Pay RateSeptember 30, 2020December 31, 2019
Assets (Liabilities)(1):
Interest rate swaps:
April 13, 2016January 1, 2021175,000 1 month LIBOR1.03 %$(411)$1,018 
March 1, 2018 January 31, 202140,000 1 month LIBOR2.47 %(311)(376)
August 14, 2018January 1, 2021150,000 1 month LIBOR2.20 %(817)(896)
July 1, 2019 February 1, 202425,000 1 month LIBOR1.75 %(1,314)(170)
January 1, 2021February 1, 2024150,000 1 month LIBOR0.60 %(2,043)— 
January 1, 2021February 1, 2024$100,000 1 month LIBOR0.22 %$(238)— 
Total$640,000 $(5,134)$(424)
(1)Asset balances are recorded in prepaids and other assets on the consolidated balance sheets and liabilities are recorded in other liabilities on the consolidated balance sheets. 

The derivative financial instruments are comprised of interest rate swaps, which are designated and qualify as cash flow hedges, each with a separate counterparty. We do not use derivatives for trading or speculative purposes and currently do not have any derivatives that are not designated as hedges.

Changes in the fair value of derivatives designated and qualifying as cash flow hedges is recorded in accumulated other comprehensive loss and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.

The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements (in thousands):
Three months ended September 30,Nine months ended September 30,
2020201920202019
Interest Rate Swaps:
Amount of loss recognized in other comprehensive income (loss) on derivative
$1,463 $(1,011)$(4,711)$(6,576)

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9. Fair Value Measurements

Fair value guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
TierDescription
Level 1Observable inputs such as quoted prices in active markets
Level 2Inputs other than quoted prices in active markets that are either directly or indirectly observable
Level 3Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

Fair Value Measurements on a Recurring Basis

The following table sets forth our assets and liabilities that are measured at fair value within the fair value hierarchy (in thousands):
Level 1Level 2Level 3
Quoted Prices in Active Markets for Identical Assets or LiabilitiesSignificant Observable InputsSignificant Unobservable Inputs
Total
Fair value as of September 30, 2020:
Assets:
Short-term government securities (cash and cash equivalents)
$20,626 $20,626 $— $— 
Total assets$20,626 $20,626 $— $— 
Liabilities:
Interest rate swaps (other liabilities)$5,134 $— $5,134 $— 
Total liabilities$5,134 $— $5,134 $— 
Level 1Level 2Level 3
Quoted Prices in Active Markets for Identical Assets or LiabilitiesSignificant Observable InputsSignificant Unobservable Inputs
Total
Fair value as of December 31, 2019:
Asset:
Interest rate swaps (prepaids and other assets)$1,018 $— $1,018 $— 
Total assets$1,018 $— $1,018 $— 
Liabilities:
Interest rate swaps (other liabilities)$1,442 $— $1,442 $— 
Total liabilities$1,442 $— $1,442 $— 

Short-term government securities

Short-term government securities are highly liquid investments, which are classified as Level 1 in the fair value hierarchy because they are valued using quoted market prices in an active market.


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Interest rate swaps

Fair values of interest rate swaps are estimated using Level 2 inputs based on current market data received from financial sources that trade such instruments and are based on prevailing market data and derived from third party proprietary models based on well recognized financial principles including counterparty risks, credit spreads and interest rate projections, as well as reasonable estimates about relevant future market conditions.

Fair Value Measurements on a Nonrecurring Basis

The following table sets forth our assets that are measured at fair value on a nonrecurring basis within the fair value hierarchy (in thousands):
Level 1Level 2Level 3
Quoted Prices in Active Markets for Identical Assets or LiabilitiesSignificant Observable InputsSignificant Unobservable Inputs
Total
Fair value as of March 31,2020:
Asset:
Long-lived assets$60,000 $— $— $60,000 

During the first quarter 2020, we recorded a $45.7 million impairment charge in our consolidated statement of operations which equaled the excess of the carrying value of our Foxwoods outlet center over its estimated fair value. The estimated fair value was based on the income approach. The income approach involves discounting the estimated income stream and reversion (presumed sale) value of a property over an estimated holding period to a present value at a risk-adjusted rate. Discount rates and terminal capitalization rates utilized in this approach were derived from property-specific information, market transactions and other financial and industry data. The terminal capitalization rate and discount rate are significant unobservable inputs in determining the fair value. The terminal capitalization rate used in the calculation was 7.8% and the discount rate used was 8.5%. These inputs are classified under Level 3 in the fair value hierarchy above. Should the significant assumptions utilized above to determine fair value continue to deteriorate, additional impairments in the future could be possible. 

Other Fair Value Disclosures

The estimated fair value within the fair value hierarchy 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, 2020December 31, 2019
Level 1 Quoted Prices in Active Markets for Identical Assets or Liabilities$— $— 
Level 2 Significant Observable Inputs1,133,864 1,169,481 
Level 3 Significant Unobservable Inputs431,285 434,333 
Total fair value of debt$1,565,149 $1,603,814 
Recorded value of debt$1,568,217 $1,569,773 

Our senior unsecured notes are publicly-traded which provides quoted market rates. However, due to the limited trading volume of these notes, we have classified these instruments as Level 2 in the hierarchy. Our other debt is classified as Level 3 given the unobservable inputs utilized in the valuation. Our unsecured term loan, unsecured lines of credit and variable interest rate mortgages are all LIBOR based instruments. When selecting the discount rates for purposes of estimating the fair value of these instruments, we evaluated the original credit spreads and do not believe that the use of them differs materially from current credit spreads for similar instruments and therefore the recorded values of these debt instruments is considered their fair value.
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The carrying values of cash and cash equivalents, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.

10. Shareholders’ Equity of the Company

Dividend Declaration

In January 2020, the Company's Board of Directors declared a $0.355 cash dividend per common which was paid during the first quarter of 2020 to each shareholder of record on January 31, 2020, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

Also in January 2020, the Company's Board of Directors declared a $0.3575 cash dividend per common share payable on May 15, 2020 to each shareholder of record on April 30, 2020, and the Trustees of Tanger GP Trust declared a $0.3575 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

In January 2019, the Company's Board of Directors declared a $0.35 cash dividend per common which was paid during the first quarter of 2019, to each shareholder of record on January 31, 2019, and the Trustees of Tanger GP Trust declared a $0.35 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

In February 2019, the Company's Board of Directors declared a $0.355 cash dividend per common share payable on May 15, 2019 to each shareholder of record on April 30, 2019, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders. A liability in the amount of approximately $35.2 million was recorded in accounts payable and accrued expenses in the consolidated balance sheet as of March 31, 2019.

Share Repurchase Program

In February 2019, the Company’s Board of Directors authorized the repurchase of an additional $44.3 million of our outstanding common shares for an aggregate authorization of $169.3 million until May 2021. 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 periods ended September 30, 2020. The remaining amount authorized to be repurchased under the program as of September 30, 2020 was approximately $80.0 million. The Company has temporarily suspended share repurchases for at least the twelve months starting July 1, 2020 as the June 2020 amendments to our debt agreements for our lines of credit and bank term loan prohibit share repurchases during such time and in order to preserve our liquidity position.

Shares repurchased were follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Total number of shares purchased— 650,929 — 1,209,328 
Average price paid per share$— $15.34 $— $16.52 
Total price paid exclusive of commissions and related fees (in thousands)$— $9,987 $— $19,976 

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11. Partners’ Equity of the Operating Partnership

All units of partnership interest issued by the Operating Partnership have equal rights with respect to earnings, dividends and net assets. When the Company issues common shares upon the exercise of options, the grant of restricted common share awards, or the exchange of Class A common limited partnership units, the Operating Partnership issues a corresponding Class B common limited partnership unit to Tanger LP Trust, a wholly-owned subsidiary of the Company. Likewise, when the Company repurchases its outstanding common shares, the Operating Partnership repurchases a corresponding Class B common limited partnership unit held by Tanger LP Trust.

The following table sets forth the changes in outstanding partnership units for the three and nine months ended September 30, 2020 and September 30, 2019:
Limited Partnership Units
General Partnership UnitsClass AClass BTotal
Balance June 30, 20191,000,000 4,960,684 92,544,267 97,504,951 
Repurchase of units— — (650,929)(650,929)
Balance September 30, 20191,000,000 4,960,684 91,893,338 96,854,022 
Balance December 31, 20181,000,000 4,960,684 92,941,783 97,902,467 
Grant of restricted common share awards by the Company, net of forfeitures— — 242,167 242,167 
Repurchase of units— — (1,209,328)(1,209,328)
Units withheld for employee income taxes— — (81,284)(81,284)
Balance September 30, 20191,000,000 4,960,684 91,893,338 96,854,022 
Balance June 30, 20201,000,000 4,911,173 92,472,267 97,383,440 
Forfeitures of restricted common share awards— — (18,996)(18,996)
Balance September 30, 20201,000,000 4,911,173 92,453,271 97,364,444 
Balance December 31, 20191,000,000 4,911,173 91,892,260 96,803,433 
Grant of restricted common share awards by the Company, net of forfeitures— — 611,350 611,350 
Issuance of deferred units— — 6,258 6,258 
Units withheld for employee income taxes— — (56,597)(56,597)
Balance September 30, 20201,000,000 4,911,173 92,453,271 97,364,444 


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12. Earnings Per Share of the Company

The following table sets forth a reconciliation of the numerators and denominators in computing the Company’s earnings per share (in thousands, except per share amounts):
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Numerator:
Net income (loss) attributable to Tanger Factory Outlet Centers, Inc.$13,029 $23,546 $(36,541)$99,604 
Less allocation of earnings to participating securities(146)(305)(692)(1,030)
Net income (loss) available to common shareholders of Tanger Factory Outlet Centers, Inc.$12,883 $23,241 $(37,233)$98,574 
Denominator:
Basic weighted average common shares92,649 92,514 92,596 92,999 
Diluted weighted average common shares92,649 92,514 92,596 92,999 
Basic earnings per common share:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
Diluted earnings per common share:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 

We determine diluted earnings per share based on the weighted average number of common shares outstanding combined with the incremental weighted average shares that would have been outstanding assuming all potentially dilutive securities were converted into common shares at the earliest date possible.

Notional units granted under our equity compensation plan are considered contingently issuable common shares and are included in earnings per share if the effect is dilutive using the treasury stock method and the common shares would be issuable if the end of the reporting period were the end of the contingency period. For both the three and nine months ended September 30, 2020, 1.7 million notional units were excluded from the computation and for both the three and nine months ended September 30, 2019, approximately 1.1 million notional units were excluded from the computation because these notional units either would not have been issuable if the end of the reporting period were the end of the contingency period or as they were anti-dilutive.

With respect to outstanding options, the effect of dilutive common shares is determined using the treasury stock method, whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common shares at the average market price during the period. For both the three and nine months ended September 30, 2020, 1.8 million options were excluded from the computation, as they were anti-dilutive. For both the three and nine months ended September 30, 2019 approximately 524,000 options were excluded from the computation, as they were anti-dilutive.

The assumed exchange of the partnership units held by the Non-Company LPs as of the beginning of the year, which would result in the elimination of earnings allocated to the noncontrolling interest in the Operating Partnership, would have no impact on earnings per share since the allocation of earnings to a common limited partnership unit, as if exchanged, is equivalent to earnings allocated to a common share.

Certain of the Company’s unvested restricted common share awards contain non-forfeitable rights to dividends or dividend equivalents. The impact of these unvested restricted common share awards on earnings per share has been calculated using the two-class method whereby earnings are allocated to the unvested restricted common share awards based on dividends declared and the unvested restricted common shares’ participation rights in undistributed earnings. Unvested restricted common shares that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per share computation if the effect is dilutive, using the treasury stock method.

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13. Earnings Per Unit of the Operating Partnership

The following table sets forth a reconciliation of the numerators and denominators in computing earnings per unit (in thousands, except per unit amounts):
Three months ended September 30,Nine months ended September 30,
 2020201920202019
Numerator:   
Net income (loss) attributable to partners of the Operating Partnership$13,719 $24,809 $(38,480)$104,912 
Less allocation of earnings to participating securities(147)(305)(692)(1,030)
Net income (loss) available to common unitholders of the Operating Partnership$13,572 $24,504 $(39,172)$103,882 
Denominator:
Basic weighted average common units97,560 97,474 97,507 97,959 
Diluted weighted average common units97,560 97,474 97,507 97,959 
Basic earnings per common unit:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 
Diluted earnings per common unit:
Net income (loss)$0.14 $0.25 $(0.40)$1.06 

We determine diluted earnings per unit based on the weighted average number of common units outstanding combined with the incremental weighted average units that would have been outstanding assuming all potentially dilutive securities were converted into common units at the earliest date possible. There were no securities which had a dilutive effect on earnings per common unit for the three and nine months ended September 30, 2020 and 2019.
Notional units granted under our equity compensation plan are considered contingently issuable common units and are included in earnings per unit if the effect is dilutive using the treasury stock method and the common units would be issuable if the end of the reporting period were the end of the contingency period. For both the three and nine months ended September 30, 2020 1.7 million notional units were excluded from the computation and for both the three and nine months ended September 30, 2019 approximately 1.1 million notional units were excluded from the computation because these notional units either would not have been issuable if the end of the reporting period were the end of the contingency period or as they were anti-dilutive.

With respect to outstanding options, the effect of dilutive common units is determined using the treasury stock method, whereby outstanding options are assumed exercised at the beginning of the reporting period and the exercise proceeds from such options and the average measured but unrecognized compensation cost during the period are assumed to be used to repurchase our common units at the average market price during the period. The market price of a common unit is considered to be equivalent to the market price of a Company common share. For both the three and nine months ended September 30, 2020, 1.8 million options were excluded from the computation. For both the three and nine months ended September 30, 2019, approximately 524,000 options were excluded from the computation as they were anti-dilutive.

Certain of the Company’s unvested restricted common share awards contain non-forfeitable rights to distributions or distribution equivalents. The impact of the corresponding unvested restricted unit awards on earnings per unit has been calculated using the two-class method whereby earnings are allocated to the unvested restricted unit awards based on distributions declared and the unvested restricted units’ participation rights in undistributed earnings. Unvested restricted common units that do not contain non-forfeitable rights to dividends or dividend equivalents are included in the diluted earnings per unit computation if the effect is dilutive, using the treasury stock method.

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14. Equity-Based Compensation of the Company

We have a shareholder approved equity-based compensation plan, the Incentive Award Plan of Tanger Factory Outlet Centers, Inc. and Tanger Properties Limited Partnership (as amended and restated on April 4, 2014), as amended (the “Plan”), which covers our non-employee directors, officers, employees and consultants. Per the Operating Partnership agreement, when a common share is issued by the Company, the Operating Partnership issues one corresponding unit of partnership interest to the Company’s wholly-owned subsidiaries. Therefore, when the Company grants an equity-based award, the Operating Partnership treats each award as having been granted by the Operating Partnership. In the discussion below, the term “we” refers to the Company and the Operating Partnership together and the term “shares” is meant to also include corresponding units of the Operating Partnership.

We recorded equity-based compensation expense in general and administrative expenses in our consolidated statements of operations as follows (in thousands):
Three months endedNine months ended
September 30,September 30,
 2020201920202019
Restricted common shares (1)
$1,610 $2,084 $5,731 $9,224 
Notional unit performance awards (1)
624 1,446 3,606 5,021 
Options113 45 229 126 
Total equity-based compensation$2,347 $3,575 $9,566 $14,371 

(1) The nine months ended September 30, 2019 includes the accelerated recognition of compensation cost related to the planned retirement of an executive officer.

Equity-based compensation expense capitalized as a part of rental property and deferred lease costs were as follows (in thousands):
Three months endedNine months ended
September 30,September 30,
 2020201920202019
Equity-based compensation expense capitalized$103 $94 $305 $286 

Option Awards

In September 2020, the Company granted 334,500 options to non-executive employees of the Company. The exercise price of the options granted during the third quarter was $5.73 per share which equaled the closing market price of the Company's common shares on the day prior to the grant date. The options expire 10 years years from the date of grant and 20% of the options become exercisable in each of the first 5 years years commencing one year year from the date of grant. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $1.03 and included the following weighted-average assumptions: expected dividend yield 4.93%; expected life of 6.5 years; expected volatility of  34.39%; a risk-free rate of 0.48%; and forfeiture rate of 7.2% dependent upon the employee's position within the Company.

In April 2020, Stephen Yalof became the President and Chief Operating Officer of the Company. As part of his employment, Mr. Yalof was granted 1.0 million options that have an exercise price of $7.15 per share, which equaled the closing market price of a common share of the Company on the day prior to the grant date. The options expire 10 years from the date of grant and 25% of the options become exercisable on December 31, 2020 with the remaining options vesting ratably on each December 31st through 2023, in each case, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment). The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model, which resulted in a weighted average grant date fair value per share of $0.42 and included the following weighted-average assumptions: expected dividend yield 9.86%; expected life of 7.9 years; expected volatility of 30%; a risk-free rate of 0.60%; and forfeiture rate 0.0%.


35



Restricted Common Share and Restricted Share Unit Awards

During February 2020, the Company granted approximately 399,000 restricted common shares and restricted share units to the Company’s non-employee directors and the Company’s senior executive officers. The grant date fair value of the awards ranged from $12.03 to $13.75 per share. The restricted common shares vest ratably over a three year period on January 4th of each year for non-employee directors and on February 15th of each year for senior executive officers. For the restricted shares units issued to our Chief Executive Officer, the award agreements require him to hold shares or units issued to him for a minimum of three years following vesting or the share issuance date, as applicable. Compensation expense related to the amortization of the deferred compensation is being recognized in accordance with the vesting schedule of the restricted shares.

Also in April 2020, Mr. Yalof was granted 389,308 restricted common shares with a grant date fair value of $7.15 per share. The restricted common shares vest ratably over a three year period, with one-third of the restricted common shares vesting on each anniversary of the grant date, beginning on April 10, 2021, contingent upon continued employment with the Company through the applicable vesting date (subject to acceleration upon certain terminations of employment).

For certain shares that vest during the period, we withhold shares with value equivalent up to the employees’ maximum statutory obligation for the applicable income and other employment taxes, and remit cash to the appropriate taxing authorities. The total number of shares withheld upon vesting were approximately 57,000 and 81,000 for the nine months ended September 30, 2020 and 2019, respectively. The total number of shares withheld was based on the value of the restricted common shares on the vesting date as determined by our closing share price on the day prior to the vesting date. Total amounts paid for the employees’ tax obligation to taxing authorities were $736,000 and $1.8 million for the nine months ended September 30, 2020 and 2019, respectively. These amounts are reflected as financing activities within the consolidated statements of cash flows.

2020 Outperformance Plan

During February 2020, the Compensation Committee of the Company approved the general terms of the Tanger Factory Outlet Centers, Inc. 2020 Outperformance Plan (the “2020 OPP”) covering the Company's senior executive officers whereby a maximum of approximately 697,000 restricted common shares may be earned if certain share price appreciation goals are achieved over a three year measurement period. The 2020 OPP is a long-term incentive compensation plan. Recipients may earn units which may convert into restricted common shares of the Company based on the Company’s absolute share price appreciation (or absolute total shareholder return) and its share price appreciation relative to its peer group (or relative total shareholder return) over a three-year measurement period. Any shares earned at the end of the three-year measurement period are subject to a time-based vesting schedule, with 50% of the shares vesting immediately following the measurement period, and the remaining 50% vesting one year thereafter, contingent upon continued employment with the Company through the vesting date (unless terminated prior thereto (a) by the Company without cause, (b) by participant for good reason or, with respect to our Chief Executive Officer, retirement or (c) due to death or disability).

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The following table sets forth 2020 OPP performance targets and other relevant information about the 2020 OPP:
Performance targets (1)
Absolute portion of award:
Percent of total award33.3%
Absolute total shareholder return range36.8 %-52.1%
Percentage of units to be earned20 %-100%
Relative portion of award:
Percent of total award66.7%
Percentile rank of peer group range(2)
30 th-80th
Percentage of units to be earned20 %-100%
Maximum number of restricted common shares that may be earned (3)
902,167 
February grant date fair value per share $7.30 
April grant date fair value per share (3)
$3.11 
(1)The number of restricted common shares received under the 2020 OPP will be determined on a pro-rata basis by linear interpolation between total shareholder return thresholds, both for absolute total shareholder return and for relative total shareholder return amongst the Company’s peer group.
(2)The peer group is based on companies included in the FTSE NAREIT Retail Index.
(3)In April 2020, Mr. Yalof was awarded 205,480 notional units under the 2020 OPP. These awards have the same terms as the awards our executive officers received in February 2020.




The fair values of the 2020 OPP awards granted during the nine months ended September 30, 2020 were determined at the grant dates using a Monte Carlo simulation pricing model and the following assumptions:
Risk free interest rate (1)
1.4 %
Expected dividend yield (2)
8.4 %
Expected volatility (3)
29 %
(1)Represents the interest rate as of the grant date on US treasury bonds having the same life as the estimated life of the restricted unit grants.
(2)The dividend yield is calculated utilizing the dividends paid for the previous five-year period.
(3)Based on a mix of historical and implied volatility for our common shares and the common shares of our peer index companies over the measurement period.

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15. Accumulated Other Comprehensive Income (Loss) of the Company

The following table presents changes in the balances of each component of accumulated comprehensive loss for the three and nine months ended September 30, 2020 (in thousands):
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign CurrencyCash flow hedgesTotalForeign CurrencyCash flow hedgesTotal
Balance June 30, 2020$(29,249)$(6,264)$(35,513)$(1,590)$(335)$(1,925)
Other comprehensive income (loss) before reclassifications1,776 (42)1,734 94 (3)91 
Reclassification out of accumulated other comprehensive income/loss into interest expense— 1,432 1,432 — 76 76 
Balance September 30, 2020$(27,473)$(4,874)$(32,347)$(1,496)$(262)$(1,758)
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign CurrencyCash flow hedgesTotalForeign CurrencyCash flow hedgesTotal
Balance December 31, 2019$(25,094)$(401)$(25,495)$(1,369)$(24)$(1,393)
Other comprehensive loss before reclassifications(2,379)(6,995)(9,374)(127)(372)(499)
Reclassification out of accumulated other comprehensive income/loss into interest expense— 2,522 2,522 — 134 134 
Balance September 30, 2020$(27,473)$(4,874)$(32,347)$(1,496)$(262)$(1,758)

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The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the three and nine months ended September 30, 2019 (in thousands):
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign CurrencyCash flow hedgesTotalForeign CurrencyCash flow hedgesTotal
Balance June 30, 2019$(25,591)$176 $(25,415)$(1,397)$$(1,389)
Other comprehensive loss before reclassifications(998)(447)(1,445)(53)(25)(78)
Reclassification out of accumulated other comprehensive income/loss into other income (expense) for interest expense for cash flow hedges— (512)(512)— (27)(27)
Balance September 30, 2019$(26,589)$(783)$(27,372)$(1,450)$(44)$(1,494)
Tanger Factory Outlet Centers, Inc. Accumulated Other Comprehensive Income (Loss)Noncontrolling Interest in Operating Partnership Accumulated Other Comprehensive Income (Loss)
Foreign CurrencyCash flow hedgesTotalForeign CurrencyCash flow hedgesTotal
Balance December 31, 2018$(32,610)$5,459 $(27,151)$(1,770)$290 $(1,480)
Other comprehensive income (loss) before reclassifications2,567 (4,296)(1,729)136 (230)(94)
Reclassification out of accumulated other comprehensive income/loss for foreign currency and interest expense for cash flow hedges3,454 (1,946)1,508 184 (104)80 
Balance September 30, 2019$(26,589)$(783)$(27,372)$(1,450)$(44)$(1,494)

We expect within the next twelve months to reclassify into earnings as an increase to interest expense approximately $2.3 million of the amounts recorded within accumulated other comprehensive loss related to the interest rate swap agreements in effect as of September 30, 2020.

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16. Accumulated Other Comprehensive Income (Loss) of the Operating Partnership

The following table presents changes in the balances of each component of accumulated comprehensive loss for the three and nine months ended September 30, 2020 (in thousands):
Foreign CurrencyCash flow hedgesAccumulated Other Comprehensive Income (Loss)
Balance June 30, 2020$(30,839)$(6,599)$(37,438)
Other comprehensive income (loss) before reclassifications1,870 (45)1,825 
Reclassification out of accumulated other comprehensive income (loss) into interest expense for cash flow hedges— 1,508 1,508 
Balance September 30, 2020$(28,969)$(5,136)$(34,105)
Foreign CurrencyCash flow hedgesAccumulated Other Comprehensive Income (Loss)
Balance December 31, 2019$(26,463)$(425)$(26,888)
Other comprehensive loss before reclassifications(2,506)(7,367)(9,873)
Reclassification out of accumulated other comprehensive income (loss) into interest expense— 2,656 2,656 
Balance September 30, 2020$(28,969)$(5,136)$(34,105)

The following table presents changes in the balances of each component of accumulated comprehensive income (loss) for the three and nine months ended September 30, 2019 (in thousands):
Foreign CurrencyCash flow hedgesAccumulated Other Comprehensive Income (Loss)
Balance June 30, 2019$(26,988)$184 $(26,804)
Other comprehensive loss before reclassifications(1,051)(472)(1,523)
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for interest expense for cash flow hedges— (539)(539)
Balance September 30, 2019$(28,039)$(827)$(28,866)
Foreign CurrencyCash flow hedgesAccumulated Other Comprehensive Income (Loss)
Balance December 31, 2018$(34,380)$5,749 $(28,631)
Other comprehensive income (loss) before reclassifications2,703 (4,526)(1,823)
Reclassification out of accumulated other comprehensive income (loss) into other income (expense) for foreign currency and interest expense for cash flow hedges3,638 (2,050)1,588 
Balance September 30, 2019$(28,039)$(827)$(28,866)

We expect within the next twelve months to reclassify into earnings as an increase to interest expense approximately $2.3 million of the amounts recorded within accumulated other comprehensive loss related to the interest rate swap agreements in effect as of September 30, 2020.
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17.    Lease Agreements

As of September 30, 2020, we were the lessor to over 2,200 stores in our 31 consolidated outlet centers, under operating leases with initial terms that expire from 2020 to 2035, with certain agreements containing extension options. We also have certain agreements that require tenants to pay their portion of reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

The components of rental revenues are as follows (in thousands):
Three months endedNine months ended
September 30,September 30,
2020201920202019
Rental revenues - fixed$78,312 $89,055 $213,760 $272,482 
Rental revenues - variable (1)
21,939 25,995 57,322 74,907 
Rental revenues$100,251 $115,050 $271,082 $347,389 
(1)Primarily includes rents based on a percentage of tenant sales volume and reimbursable expenses such as common area expenses, utilities, insurance and real estate taxes.

18. Supplemental Cash Flow Information

We purchase capital equipment and incur costs relating to construction of facilities, including tenant finishing allowances. Expenditures included in accounts payable and accrued expenses were as follows (in thousands):
As ofAs of
 September 30, 2020September 30, 2019
Costs relating to construction included in accounts payable and accrued expenses$21,416 $18,417 

Interest paid, net of interest capitalized was as follows (in thousands):
Nine months ended September 30,
20202019
Interest paid$44,990 $44,231 


19. New Accounting Pronouncements

Recently issued accounting standards

On March 12, 2020, the FASB issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference LIBOR or other reference rates expected to be discontinued because of reference rate reform. This ASU is effective as of March 12, 2020 through December 31, 2022. We have not adopted any of the optional expedients or exceptions through September 30, 2020, but will continue to evaluate the possible adoption of any such expedients or exceptions during the effective period as circumstances evolve.

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Recently adopted accounting standards

In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing accounting lease guidance under ASC 842, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead make an accounting policy election to account for COVID-19 related lease concessions as either a lease modification or a negative variable adjustment to rental revenue. The Lease Modification Q&A allows the Company to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession or another reasonable disaggregated level. We have evaluated and elected to apply the Lease Modification Q&A to eligible lease concessions. We applied modification accounting to individual leases that are in bankruptcy and those that did not qualify for the concession. As a result, for leases not treated as a lease modification we have made the following policy elections by the type of concession agreed to with the respective tenant.

Rent Deferrals

We will account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, we will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during the deferral period.

Rent Abatements

We will account for rental abatements as negative variable adjustments to rental revenue as described within the Lease Modification Q&A. We will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide.

See Notes 2 and 3, for additional details on the impact of the Lease Modification Q&A on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 is intended to improve the effectiveness of disclosures required by entities regarding recurring and nonrecurring fair value measurements. ASU 2018-13 is effective for reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13 to amend the accounting for credit losses for certain financial instruments. Under the new guidance, an entity recognizes its estimate of expected credit losses as an allowance, which the FASB believes will result in more timely recognition of such losses. In November 2018, the FASB released ASU No. 2018-19 “Codification Improvements to Topic 326, Financial Instruments - Credit Losses.” This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20 “Financial Instruments - Credit Losses.” Instead, impairment of receivables arising from operating leases should be accounted for under Subtopic 842-30 “Leases - Lessor.” ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

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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, 2020 with the three and nine months ended September 30, 2019. 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, 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 "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. Such forward-looking statements include, but are not limited to, statements regarding: the expected impact of the novel coronavirus (“COVID-19”) pandemic 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; compliance with debt covenants; renewal and re-lease of leased space; the outlook for the retail environment, potential bankruptcies, and other store closings; 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.

Currently, one of the most significant factors, however, is the adverse effect of the COVID-19 pandemic on the financial condition, results of operations, cash flows, compliance with debt covenants and performance of the Company and its tenants, the real estate market and the global economy and financial markets. The extent to which COVID-19 impacts us and our tenants 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. Moreover, you should interpret many of the risks identified in this report, as well as the risks set forth below, as being heightened as a result of the ongoing and numerous adverse impacts of COVID-19.

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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; 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; 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; risks associated with our Canadian investments; risks associated with attracting and retaining key personnel; risks associated with debt financing; risk associated with our guarantees of debt for, or other support we may provide to, joint venture properties; the effectiveness of our interest rate hedging arrangements; uncertainty relating to the potential phasing out of LIBOR; risk associated with our interest rate hedging arrangements; risk associated to uncertainty related to determination of LIBOR; our potential failure to qualify as a REIT; our legal obligation to make distributions to our shareholders; legislative or regulatory actions that could adversely affect our shareholders; our dependence on distributions from the Operating Partnership to meet our financial obligations, including dividends; the risk of a cyber-attack or an act of cyber-terrorism 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, 2019, as updated in Part II, Item 1A- “Risk Factors” in this Quarterly Report on Form 10-Q.

General Overview

As of September 30, 2020, we had 31 consolidated outlet centers in 19 states totaling 11.9 million square feet. We also had 7 unconsolidated outlet centers in 6 states or provinces totaling 2.2 million square feet.

The table below details our new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity from January 1, 2019 to September 30, 2020 (square feet in thousands):
Consolidated Outlet CentersUnconsolidated Joint Venture Outlet Centers
Outlet CenterQuarter Opened/DisposedSquare FeetNumber of Outlet CentersSquare FeetNumber of Outlet Centers
As of January 1, 201912,923 36 2,371 
Dispositions:
Nags HeadFirst Quarter(82)(1)— — 
Ocean CityFirst Quarter(200)(1)— — 
Park CityFirst Quarter(320)(1)— — 
WilliamsburgFirst Quarter(276)(1)— — 
BromontSecond Quarter— — (161)(1)
Other— — 
As of December 31, 201912,048 32 2,212 
Dispositions:
TerrellThird Quarter(178)(1)— — 
Other— — — 
As of September 30, 2020
11,873 31 2,212 

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The following table summarizes certain information for our existing outlet centers in which we have an ownership interest as of September 30, 2020. Except as noted, all properties are fee owned.
Consolidated Outlet CentersLegalSquare%
LocationOwnership %FeetOccupied
Deer Park, New York100 739,110 93 
Riverhead, New York (1)
100 729,278 92 
Rehoboth Beach, Delaware (1)
100 557,353 93 
Foley, Alabama100 554,587 89 
Atlantic City, New Jersey (1) (3)
100 489,718 79 
San Marcos, Texas100 471,816 93 
Sevierville, Tennessee (1)
100 447,810 99 
Savannah, Georgia 100 429,089 99 
Myrtle Beach Hwy 501, South Carolina100 426,523 98 
Jeffersonville, Ohio100 411,896 80 
Glendale, Arizona (Westgate)100 410,751 92 
Myrtle Beach Hwy 17, South Carolina (1)
100 403,425 99 
Charleston, South Carolina100 386,328 93 
Lancaster, Pennsylvania100 375,857 97 
Pittsburgh, Pennsylvania100 373,863 92 
Commerce, Georgia100 371,408 94 
Grand Rapids, Michigan100 357,119 89 
Fort Worth, Texas100 351,741 99 
Daytona Beach, Florida100 351,721 97 
Branson, Missouri100 329,861 100 
Southaven, Mississippi (2) (3)
50 324,717 97 
Locust Grove, Georgia100 321,082 98 
Gonzales, Louisiana100 321,066 97 
Mebane, North Carolina100 318,886 97 
Howell, Michigan100 314,438 80 
Mashantucket, Connecticut (Foxwoods) (1)
100 311,487 88 
Tilton, New Hampshire100 250,107 87 
Hershey, Pennsylvania100 249,696 100 
Hilton Head II, South Carolina100 206,564 89 
Hilton Head I, South Carolina100 181,67093 
Blowing Rock, North Carolina100 104,009 89 
Totals11,872,976 93 
(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 6 and 7 to the consolidated financial statements for further details of our debt obligations.
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Unconsolidated joint venture propertiesLegalSquare%
LocationOwnership %FeetOccupied
Charlotte, North Carolina (1)
50 398,676 98 
Ottawa, Ontario50 357,218 96 
Columbus, Ohio (1)
50 355,245 97 
Texas City, Texas (Galveston/Houston) (1)
50 352,705 91 
National Harbor, Maryland (1)
50 341,156 99 
Cookstown, Ontario 50 307,895 92 
Saint-Sauveur, Quebec (1)
50 99,405 87 
Total2,212,300 95 
(1)Property encumbered by mortgage. See Note 5 to the consolidated financial statements for further details of the joint venture debt obligations.

Leasing Activity

The tables below show changes in rent (base rent and common area maintenance (“CAM”)) for leases for new stores that opened or renewals that started during the respective trailing twelve month periods ended September 30, 2020 and 2019:
Trailing twelve months ended September 30, 2020(1),(2), (3)
# of LeasesSquare Feet
(in 000’s)
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
(in years)
Net Average
Annual
Straight-line Rent (psf) (4)
Re-tenant83 387 $32.85 $63.66 7.17 $23.97 
Renewal177 889 $27.32 $0.90 3.85 $27.09 
Trailing twelve months ended September 30, 2019(1),(2)
# of LeasesSquare Feet
(in 000’s)
Average
Annual
Straight-line Rent (psf)
Average
Tenant
Allowance (psf)
Average Initial Term
(in years)
Net Average
Annual
Straight-line Rent (psf) (4)
Re-tenant106 520 $34.02 $42.35 8.41 $28.98 
Renewal239 1,147 $34.02 $0.55 3.81 $33.88 
(1)Excludes license agreements, seasonal tenants, and month-to-month leases.
(2)Excludes outlet centers sold in March 2019 (Nags Head, Ocean City, Park City, and Williamsburg Outlets Centers).
(3)Excludes the Terrell outlet center sold in August 2020.
(4)Net average annual straight-line base rent is calculated by dividing the average tenant allowance costs per square foot by the average initial term and subtracting this calculated number from the average straight-line base rent per year amount. The average annual straight-line base rent disclosed in the table above includes all concessions, abatements and reimbursements of rent to tenants. The average tenant allowance disclosed in the table above includes other landlord costs.

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COVID-19 Pandemic

The current COVID-19 pandemic has had, and will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on our results of operations, liquidity (including our ability to access capital markets), the possibility of future impairments of long-lived assets or our investments in unconsolidated joint ventures, our compliance with debt covenants, our ability to collect rent under our existing leases, our ability to renew and re-lease our leased space, the outlook for the retail environment, bankruptcies and potential further bankruptcies or other store closings and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows have been and may continue to be in the future materially affected.

Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates, with respect to virtually all of our tenants, has (i) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business, (ii) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses, and/or (iii) impacted supply chains from local, national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants’ operations, all of which have adversely affected, and are likely to continue to adversely affect, their ability to maintain profitability and make rental payments to us under their leases. Tenants have also, as a result of such public health crisis, orders or mandates and the resulting economic downturn, requested rent deferrals, rent abatement or early termination of their leases and may be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends. Specifically, as a result of COVID-19 and various governmental orders currently in place, a number of our tenants either closed their business or operated with limited operations and/or have submitted requests for rent relief or failed to pay rent. Certain other of our tenants have declared bankruptcy as discussed below. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. We believe our tenants do not have a clear contractual right to cease paying rent due to government mandated closures. We have instituted legal proceedings against a limited number of tenants related to collection of delinquent rental payments, and we intend to continue to enforce our rights under our lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of future tenant requests and actions and the impact on our results of operations and cash flows is uncertain and cannot be predicted at this time. Some states are experiencing a resurgence of the COVID-19 pandemic, which has resulted in mandatory closures in certain markets. None of our outlet centers are in these markets. However, if store closures were to occur again in our markets this could have a material adverse impact on our financial position and results.

Although our outlet centers remained open, retailers began closing their stores in our outlet centers in mid-March and by April 6, 2020, substantially all of the stores in our portfolio were closed as a result of mandates by order of local and state authorities. Reopened stores as a percentage of total leased stores improved over time as mandates were lifted, from 1% on April 6, 2020 to 56% on June 3, 2020 to 72% on June 14, 2020. By June 15, 2020, in-store shopping for non-essential retail was allowed in every market in which our centers are located. As of September 30, 2020, 99% of total occupied stores in our consolidated portfolio had reopened, representing 98% of leased square footage and 98% of annualized base rent. Our outlet centers may experience additional short-term store closures as retailers implement additional safety protocols at specific locations impacted by increased exposure to COVID-19.

While our outlet centers have not closed throughout the pandemic, we have been operating under reduced hours since late April when the first stores began to reopen. Prior to the pandemic, our outlet centers operated an average of 12 hours per day. Upon reopening, our centers were open an average of 8 hours per day. Effective November 6, 2020, center hours will expand to an average of 10 hours per day to accommodate the holiday shopping season.

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A number of our tenants have requested rent deferrals, rent abatements or other types of rent relief during this pandemic. As a response, in late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021.

The following table sets forth information regarding the status of rents billed during the third and second quarters (in thousands):
As of October 31, 2020
Third QuarterSecond Quarter
Collection Status: (1)
Rents Billed% of RentsRents Billed % of Rents
Rents collected$84,329 89 %$41,963 43 %
Rents expected to be collected3,056 4,044 %
Rents deferred (2)
618 25,327 26 %
Under negotiation1,589 2,739 %
One-time rent concessions in exchange for amendments to lease structure1,544 13,176 13 %
Bankruptcy related, primarily pre-petition rents2,258 8,719 %
At risk due to tenant financial weakness1,407 1,540 %
Total rents billed$94,801 100 %$97,508 100 %
(1)Excludes variable revenue which is derived from tenant sales and lease termination fees.
(2)Includes rents deferred with substantially all payments due in 2021, for which the majority is due in January/February of 2021

Our rent collection rates improved significantly in the third quarter to 89% of rents billed as compared to 43% during the second quarter of 2020. In addition, during the three months ended September 30, 2020, we wrote off 5% of third quarter rents related to tenant bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure, as compared to 25% of second quarter rents billed for these same categories.

During the nine months ended September 30, 2020, we wrote off approximately 15% of second and third quarter rents related to bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. In addition, for the three and nine months ended September 30, 2020, we recorded a $2.2 million and $11.8 million reserve, respectively, for a portion of deferred and under negotiation billings that we expect to become uncollectible in future periods. Further, for the three and nine months ended September 30, 2020, we recognized a write-off of revenue of approximately $2.4 million and $6.1 million of straight-line rents, respectively, associated with the tenant bankruptcies and uncollectible accounts. We are closely monitoring changes in the collectability assessment of our tenant receivables as a result of certain tenants suffering adverse financial consequences due to COVID-19 and should our estimates change, there could be material modifications to our revenues in future periods.

Given the economic environment as a result of COVID-19, a select number of our tenants underwent liquidity hardships and filed for Chapter 11 bankruptcy protection in the second and third quarters of 2020. Although some of these tenants intend to exit the Chapter 11 bankruptcy process and resume operations, the outcomes of such proceedings are unknown and we are currently exploring leasing alternatives for stores we expect to close. Recent Chapter 11 bankruptcy filings include, but not limited to, J. Crew Group, Inc. (filed in May 2020) and Brooks Brothers, Lucky Brand Jeans, New York and Company and Ascena Retail Group, Inc. (all filed in July 2020). .Approximately 89% of the amounts included in the table above under the caption (“Bankruptcy related, primarily pre-petition rents”) that were written off during the second and third quarter as uncollectible rents as of September 30, 2020 were related to these tenants.





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Due to the potential impact of COVID-19 and related bankruptcies and brand-wide restructurings, our revenues may be significantly lower in the fourth quarter of 2020 than the comparable period in 2019. The extent of the impact to our results of operations and cash flows is uncertain and cannot be predicted at this time. While our preference is to work with our tenant partners to reach a financial resolution that maintains occupancy and positions both parties for long-term growth, certain tenants may close a number of their stores or seek significant rent reductions. We reserve all rights under our lease agreements and have pursued, and will continue to pursue, legal remedies to collect rent as appropriate. However, the impact of the COVID–19 pandemic on our tenants' ability to pay rent has had and could have a significant impact in future periods.

In March 2020, to increase liquidity, preserve financial flexibility and help meet our obligations for a sustained period of time, we drew down substantially all of the available capacity under our $600.0 million unsecured lines of credit. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.

We also took steps to reduce cash outflows, including the reduction or deferral of certain operating and general and administrative expenses, which included temporary base salary reductions for our named executive officers and other employees. During the second and third quarters, these reductions reduced cash outflows by approximately $15.4 million, including $1.9 million of general and administrative and $13.5 million of property operating expenses In July 2020, we restored the above mentioned salary reductions.

We also deferred our Nashville pre-development-stage project and certain other planned capital expenditures. We paid the dividend that was declared in January 2020 as scheduled on May 15, 2020. Given the uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors temporarily suspended dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board continues to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.

The extent to which the COVID-19 pandemic continues to impact our future 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. Accordingly, the impact of the COVID-19 pandemic on our rental revenue for the fourth quarter of 2020 and thereafter cannot be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we are continuing to manage our response in collaboration with tenants, government officials and business partners and assess potential impacts to our financial position and operating results, as well as potential adverse developments in our business. For further information regarding the impact of COVID-19 on us, see Part II, Item 1A titled “Risk Factors.”
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RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2020 to the three months ended September 30, 2019

NET INCOME
Net income in the 2020 period decreased $11.1 million to $13.7 million as compared to $24.8 million for the 2019 period. The decrease in net income is due to the following:
significant revenue reductions caused by the COVID-19 pandemic discussed above, and
a decrease in equity in earnings (losses) of unconsolidated joint ventures from the impact of COVID-19.
The decrease in net income was partially offset by the following:
the $2.3 million gain recorded on the sale of our Terrell outlet center, and
decreased operating costs in the 2020 period due to lower operating and advertising costs as a result of COVID-19.

In the tables below, information set forth for property disposed includes the Terrell outlet center sold in August 2020.

RENTAL REVENUES
Rental revenues decreased $14.8 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of rental revenues (in thousands):
 20202019Increase/(Decrease)
Rental revenues from existing properties$97,613 $112,147 $(14,534)
Rental revenues from property disposed113 945 (832)
Straight-line rent adjustments(1,741)2,052 (3,793)
Lease termination fees6,323 127 6,196 
Amortization of above and below market rent adjustments, net(2,057)(221)(1,836)
 $100,251 $115,050 $(14,799)

Rental revenues decreased due to the impact of the $6.6 million COVID-19 pandemic-related revenue reduction discussed above as well as the decline in overall portfolio occupancy rate to 92.9% as of the end of the current period compared to 95.9% as of the end of the prior year period. The decline in occupancy was impacted by space recaptured totaling approximately 586,000 square feet within our consolidated portfolio during the nine months ended September 30, 2020 from the early termination of leases related to bankruptcies and brand-wide restructurings by retailers, compared to 195,000 square feet for the nine months ended September 30, 2019.

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

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services decreased $162,000 in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
 20202019Increase/(Decrease)
Management and marketing$471 $567 $(96)
Leasing and other fees15 32 (17)
Expense reimbursements from unconsolidated joint ventures708 757 (49)
$1,194 $1,356 $(162)

Management, leasing and other service revenue decreased in the 2020 period due to reduced management fee income from unconsolidated joint ventures which are earned on a cash basis. The COVID-19 pandemic resulted in lower tenant payments during the 2020 period which resulted in lower management fees.


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OTHER REVENUES
Other revenues decreased $820,000 in the 2020 period as compared to the 2019 period. The following table sets forth the changes in various components of other revenues (in thousands):
 20202019Increase/(Decrease)
Other revenues from existing properties$1,760 $2,572 $(812)
Other revenues from properties disposed16 (8)
 $1,768 $2,588 $(820)

Other revenues from existing properties decreased primarily from reductions in variable vending and other revenue sources as a direct result of the COVID-19 pandemic impacting traffic to our centers and partially due to the centers operating under reduced hours.

PROPERTY OPERATING EXPENSES
Property operating expenses decreased $3.9 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
 20202019Increase/(Decrease)
Property operating expenses from existing properties$33,393 $37,609 $(4,216)
Properties operating expenses from property disposed183 467 (284)
Expenses related to unconsolidated joint ventures708 757 (49)
Other property operating expenses922 316 606 
 $35,206 $39,149 $(3,943)

The decrease in property operating expenses at existing properties primarily reflects the lower costs needed to operate the centers an average of 8 hours a day compared to an average of 12 hours a day that they were in operation in 2019. We expect these expenses to increase during the three months ended December 31, 2020 as compared to the three months ended September 30, 2020 as we intend to extend the hours of centers to an average of 10 hours a day.

GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $1.1 million in the 2020 period compared to the 2019 period, primarily as a result lower travel related expenses as a result of COVID-19 and lower compensation costs. These reductions were partially offset by higher expenses related to legal and professional fees.

DEPRECIATION AND AMORTIZATION

Depreciation and amortization costs decreased $200,000 in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 2019 period to the 2020 period (in thousands):
 20202019Increase/(Decrease)
Depreciation and amortization from existing properties$29,845 $29,951 $(106)
Depreciation and amortization from property disposed58 152 (94)
 $29,903 $30,103 $(200)

INTEREST EXPENSE
Interest expense increased $450,000 in the 2020 period compared to the 2019 period as a result higher loan cost amortization from the cost of amending our debt covenants during the second quarter of 2020 and an increase in our debt facility fee expenses effective in February 2020.

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GAIN ON SALE OF ASSETS
In August 2020, we sold a non-core outlet center in Terrell, Texas for net proceeds $7.6 million, which resulted in a gain on sale of assets of $2.3 million. The proceeds from the sale of this unencumbered asset were used to pay down balances outstanding under our unsecured lines of credit.

EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings (losses) of unconsolidated joint ventures decreased approximately $2.4 million in the 2020 period compared to the 2019 period. The decrease was due to the impact of COVID-19 on revenues.

Comparison of the nine months ended September 30, 2020 to the nine months ended September 30, 2019

NET INCOME (LOSS)
Net income decreased $143.4 million in the 2020 period to a net loss of $38.3 million as compared to net income of $105.1 million for the 2019 period. The decrease in income is primarily due to:
significant revenue reductions caused by the COVID-19 pandemic discussed above,
the $43.4 million gain recorded on the sale of four outlet centers in March 2019,
the loss of revenues from the four outlet centers sold in March 2019,
the $45.7 million impairment charge recognized in March 2020 on the outlet center in Mashantucket, Connecticut, and
a decrease in equity in earnings (losses), which includes our share of an impairment charge totaling $3.1 million in the 2020 period related to the Saint-Sauveur, Quebec outlet center in our Canadian joint venture.
The decrease in net income was partially offset by the following:
the $2.3 million gain recorded on the sale of our Terrell outlet center.
decreased operating costs in the 2020 period due to lower operating and advertising costs as a result of COVID-19 government mandated store closures,
a $4.4 million charge in the 2019 period related to the accelerated recognition of compensation cost as a result of a transition agreement with the Company’s former President and Chief Operating Officer in connection with his retirement (the “COO Transition Agreement”), and
a $3.6 million foreign currency loss recorded in the 2019 period upon the sale of the Bromont property by the RioCan Canada joint venture.

In the tables below, information set forth for properties disposed includes the four outlet centers sold in March 2019 and the Terrell outlet center sold in August 2020.

RENTAL REVENUES
Rental revenues decreased $76.3 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of rental revenues (in thousands):
 20202019Increase/(Decrease)
Rental revenues from existing properties$266,391 $330,437 $(64,046)
Rental revenues from properties disposed1,390 9,259 (7,869)
Straight-line rent adjustments(2,417)6,938 (9,355)
Lease termination fees8,000 1,526 6,474 
Amortization of above and below market rent adjustments, net(2,282)(771)(1,511)
 $271,082 $347,389 $(76,307)

Rental revenues from existing properties decreased largely due to the impact of the $40.5 million COVID-19 pandemic-related revenue reduction in the nine months ended September 30, 2020 as discussed above as well as the decline in overall portfolio occupancy rate to 92.9% as of the end of the current period compared to 95.9% as of the end of the prior year period. The decline in occupancy was impacted by space recaptured totaling approximately 586,000 square feet within our consolidated portfolio during the nine months ended September 30, 2020 from the early termination of leases related to bankruptcies and brand-wide restructurings by retailers, compared to 195,000 square feet for the nine months ended September 30, 2019.



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Further, we recognized a write-off to revenue of approximately $6.1 million of straight-line rents associated with the tenant bankruptcies and uncollectible accounts. In addition, variable revenue which is derived from tenant sales was negatively impacted by mandatory closures of several centers for the first half of 2020 as a result of the COVID-19 pandemic.

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services decreased $581,000 in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands):
 20202019Increase/(Decrease)
Management and marketing$1,156 $1,696 $(540)
Leasing and other fees50 71 (21)
Expense reimbursements from unconsolidated joint ventures2,156 2,176 (20)
Total Fees$3,362 $3,943 $(581)

Management, leasing and other service revenue decreased in the 2020 period due to reduced management fee income from unconsolidated joint ventures which are earned on a cash basis. The COVID-19 pandemic resulted in materially lower tenant payments during the 2020 period which resulted in lower management fees.

OTHER REVENUES
Other revenues decreased $2.1 million in the 2020 period as compared to the 2019 period. The following table sets forth the changes in other revenues (in thousands):
 20202019Increase/(Decrease)
Other revenues from existing properties$4,370 $6,424 $(2,054)
Other revenues from property disposed22 100 (78)
 $4,392 $6,524 $(2,132)

Other revenues from existing properties decreased primarily due to reductions in variable vending and other revenue sources due to the mandatory closure of a vast majority of stores in our outlet centers by local and state authorities for a portion of the 2020 period, as well as the COVID-19 pandemic impacting traffic to our centers and also partially due to the centers operating under reduced hours.

PROPERTY OPERATING EXPENSES
Property operating expenses decreased $16.3 million in the 2020 period as compared to the 2019 period. The following table sets forth the changes in various components of property operating expenses (in thousands):
 20202019Increase/(Decrease)
Property operating expenses from existing properties$97,066 $110,558 $(13,492)
Property operating expenses from property disposed1,012 3,969 (2,957)
Expenses related to unconsolidated joint ventures2,156 2,176 (20)
Other property operating expense1,757 1,549 208 
 $101,991 $118,252 $(16,261)

The decrease in property operating expenses at existing properties primarily reflects the lower costs needed to operate and advertise the centers while stores were closed under government mandates in response to the COVID-19 pandemic and as a result of our stores operating under reduced operating hours subsequent to such stores reopening.




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GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased $5.6 million in the 2020 period compared to the 2019 period primarily as a result of a $4.4 million charge in the 2019 period related to the COO Transition Agreement. In addition as a result of COVID-19, the compensation costs of our executive officers and other employees were temporarily reduced during the 2020 period through salary and wage reductions and government assistance programs and virtually all travel and entertainment expenses were eliminated. These reductions were partially offset by higher expenses related to legal and professional fees.

IMPAIRMENT CHARGE
During the first quarter of 2020, we determined that the estimated future undiscounted cash flows of our Foxwoods outlet center in Mashantucket, Connecticut did not exceed the property's carrying value due to a decline in operating results. Therefore, we recorded a $45.7 million non-cash impairment charge in our consolidated statement of operations for the 2020 period which equaled the excess of the property's carrying value over its estimated fair value.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs decreased $5.0 million in the 2020 period compared to the 2019 period. The following table sets forth the changes in various components of depreciation and amortization costs from the 2019 period to the 2020 period (in thousands):
 20202019Increase/(Decrease)
Depreciation and amortization expenses from existing properties$87,605 $91,295 $(3,690)
Depreciation and amortization from property disposed361 1,714 (1,353)
 $87,966 $93,009 $(5,043)

Depreciation and amortization decreased at our existing properties primarily due to the lower basis of our Foxwoods and Jeffersonville properties as a result of impairments recorded at March 31, 2020 and December 31, 2019, respectively.

INTEREST EXPENSE
Interest expense increased $1.1 million in the 2020 period compared to the 2019 period as a result of our borrowing approximately $599.8 million under our lines of credit at the onset of the COVID-19 pandemic in March 2020 to increase liquidity and preserve financial flexibility. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.

GAIN ON SALE OF ASSETS
In August 2020, we sold a non-core outlet center in Terrell, Texas for net proceeds of $7.6 million, which resulted in a gain on sale of assets of $2.3 million. The proceeds from the sale of this unencumbered asset were used to pay down balances outstanding under our unsecured lines of credit.

In March 2019, we sold four outlet centers for net proceeds of approximately $128.2 million, which resulted in a gain on sale of assets of $43.4 million. The proceeds from the sale of these unencumbered assets were used to pay down balances outstanding under our unsecured lines of credit.

OTHER INCOME (EXPENSE)
In May 2019, the RioCan joint venture closed on the sale of its outlet center in Bromont for net proceeds of approximately $6.4 million. Our share of the proceeds was approximately $3.2 million. As a result of this transaction, we recorded a foreign currency loss of approximately $3.6 million in other income (expense), which had been previously recorded in other comprehensive income.

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EQUITY IN EARNINGS (LOSSES) OF UNCONSOLIDATED JOINT VENTURES
Equity in earnings (losses) of unconsolidated joint ventures decreased approximately $7.1 million in the 2020 period compared to the 2019 period. In the table below, information set forth for properties disposed includes the Bromont outlet center in our Canadian joint venture, which was sold in May 2019.
 20202019Increase/(Decrease)
Equity in earnings (losses) from existing properties$(1,490)$5,596 $(7,086)
Equity in earnings from property disposed— (8)
 $(1,490)$5,604 $(7,094)

Equity in earnings (losses) from existing properties includes our share of an impairment charge totaling $3.1 million in the 2020 period related to the Saint-Sauveur, Quebec outlet center in our Canadian joint venture. The impairment charge was primarily driven by deterioration of net operating income caused by market competition and the COVID-19 pandemic. Equity in earnings (losses) of unconsolidated joint ventures from existing properties also decreased due to the impact of COVID-19 on revenues.

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 ownership of the sole general partner of the Operating Partnership, the Company has the full, exclusive and complete responsibility for the Operating Partnership’s day-to-day management and control. The Company causes the Operating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in the Operating Partnership’s partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by the Operating Partnership’s partnership agreement to contribute the proceeds from its equity issuances to the Operating Partnership in exchange for partnership units of the Operating Partnership.

We are a well-known seasoned issuer with a shelf registration that expires in March 2021 that allows the Company to register unspecified various classes of equity securities and the Operating Partnership to register unspecified, various classes of debt securities. 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.




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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. 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 and other risks detailed in Part II, Item 1A titled “Risk Factors.”

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). 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.

In February 2019, the Company’s Board of Directors authorized the repurchase of an additional $44.3 million of our outstanding common shares for an aggregate authorization of $169.3 million until May 2021. 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 any 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. However, the Company has temporarily suspended share repurchases for at least the twelve months starting July 1, 2020 as the June 2020 amendments to our debt agreements for our lines of credit and bank term loan prohibit share repurchases during such time and in order to preserve our liquidity position.

Shares repurchased were as follows:
Three months ended September 30,Nine months ended September 30,
2020201920202019
Total number of shares purchased— 650,929 — 1,209,328 
Average price paid per share$— $15.34 $— $16.52 
Total price paid exclusive of commissions and related fees (in thousands)$— $9,987 $— $19,976 

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The remaining amount authorized to be repurchased under the program as of September 30, 2020 was approximately $80.0 million.

In January 2020, the Company's Board of Directors declared a $0.355 cash dividend per common share payable on February 14, 2020 to each shareholder of record on January 31, 2020, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

Additionally in January 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.3575 per common share payable on May 15, 2020 to holders of record on April 30, 2020, and the Trustees of Tanger GP Trust declared a cash distribution of $0.3575 per Operating Partnership unit to the Operating Partnership's unitholders.

In June 2020, we amended our debt agreements for our lines of credit and bank term loan. These amendments prohibit repurchases of our common shares during the twelve months starting July 1, 2020.

Given the uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors temporarily suspended dividend distributions to conserve approximately $35.0 million in cash per quarter and preserve our balance sheet strength and flexibility. The Board continues to evaluate the potential for future dividend distributions on a quarterly basis. We expect to remain in compliance with REIT taxable income distribution requirements for the 2020 tax year.

LIQUIDITY AND CAPITAL RESOURCES OF THE OPERATING PARTNERSHIP

General Overview

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.

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.

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 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 and other risks detailed in Part II, Item 1A titled “Risk Factors.”

In March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents interest free, payable in equal installments due in January and February of 2021. For details of our expected collection of rents billed in the second and third quarters and in October, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.

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Cash Flows

The following table sets forth our changes in cash flows (in thousands):
Nine months ended September 30,
 20202019Change
Net cash provided by operating activities$92,033 $158,971 $(66,938)
Net cash provided by (used in) investing activities(12,287)107,943 (120,230)
Net cash used in financing activities(76,345)(271,299)194,954 
Effect of foreign currency rate changes on cash and equivalents(208)(32)(176)
Net increase (decrease) in cash and cash equivalents$3,193 $(4,417)$7,610 

Operating Activities

The decrease in net cash provided by operating activities was primarily due to reduced revenues, as well as uncollected and deferred contractual rents as a result of COVID-19. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”. In addition, the decrease was also due to the sale of the four outlet centers in the 2019 period, lower average portfolio occupancy during 2020 compared to 2019 and rent modifications for certain tenants.

Investing Activities

The primary cause for the decrease in net cash provided by investing activities was due to the net proceeds of approximately $128.2 million from the sale of the four outlet centers in the 2019 period, partially offset by the net proceeds from the sale of our Terrell, Texas outlet center. In addition, during the 2020 period we had lower distributions in excess of cumulative earnings from unconsolidated joint ventures due to the COVID-19 pandemic.

Financing Activities

The primary cause for the decrease in net cash used in financing activities was due to paying down our unsecured lines of credit in the prior year using proceeds from the sale of our Nags Head, Ocean City, Park City and Williamsburg outlet centers. The prior year also included repurchases of common shares of $20.0 million as compared to no repurchases for the 2020 period. In addition, the prior year had higher dividend payments. Given the uncertainty related to the pandemic’s near and potential long-term impact, the Company’s Board of Directors temporarily suspended dividend distributions after paying the initial first and second quarter dividends.

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Capital Expenditures

The following table details our capital expenditures (in thousands):
Nine months ended September 30,
 20202019Change
Capital expenditures analysis:
New outlet center developments and expansions$1,967 $6,913 $(4,946)
Major outlet center renovations5,217 919 4,298 
Second generation tenant allowances8,549 15,171 (6,622)
Other capital expenditures7,437 15,135 (7,698)
23,170 38,138 (14,968)
Conversion from accrual to cash basis(98)(2,930)2,832 
Additions to rental property-cash basis$23,072 $35,208 $(12,136)
New developments and expansions decreased due to a suspension of major development projects because of the uncertainty caused by the COVID-19 pandemic. The 2019 period included expenditures related to finalizing the expansion in our Lancaster, PA outlet center and other first generation tenant allowances throughout the portfolio.

Major outlet center renovations in the 2020 period includes costs related to bringing two magnate tenants to our Lancaster outlet center.

Other capital expenditures decreased in the 2020 period as we decided to defer all capital projects except essential and life-safety projects due to the expected impact on cash flows caused by the COVID-19 pandemic.

Potential Future Developments, Acquisitions and Dispositions

We are in the initial study period for potential new developments, including a potential site in Nashville, Tennessee. We may also use joint venture arrangements to develop other potential sites. Given the uncertainties of the COVID-19 Pandemic, we have temporarily deferred the Nashville project. Accordingly, 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. 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. See “Off-Balance Sheet Arrangements” for a discussion of unconsolidated joint venture development activities.

We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. However, you should note that any developments or expansions that we, or a joint venture that we have an ownership interest in, have planned or anticipated may not be started or completed as scheduled, or may not result in accretive net income or funds from operations (“FFO”). See the section “Non-GAAP Supplemental Earnings Measures - Funds From Operations” below for further discussion of FFO. In addition, we regularly evaluate acquisition or disposition proposals and engage from time to time in negotiations for acquisitions or dispositions of properties. We may also enter into letters of intent for the purchase or sale of properties. Any prospective acquisition or disposition that is being evaluated or which is subject to a letter of intent may not be consummated, or if consummated, may not result in an increase in earnings or liquidity.

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Financing Arrangements

In March 2020, in response to the COVID-19 pandemic, we drew down approximately $599.8 million under our unsecured lines of credit to increase liquidity and preserve financial flexibility to help ensure that we were able to meet our obligations for a sustained period. Beginning in June 2020 through August 2020, we repaid the entire $599.8 million outstanding balance bringing the outstanding balance to zero as of September 30, 2020.
As of September 30, 2020, 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.

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 March 2021, that allows us to register unspecified amounts of different classes of securities. To generate capital to reinvest into other attractive investment opportunities, we may also consider the use of additional operational and developmental joint ventures, the sale or lease of outparcels on our existing properties and the sale of certain properties that do not meet our long-term investment criteria. Based on cash provided by operations, 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.

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 October 31, 2020, our total liquidity was approximately $640 million, including cash and cash equivalents on our balance sheet and unused capacity under our lines of credit. Based on estimated monthly cash expenditures of approximately $22.5 million (excluding dividends and debt maturities) for the remainder of 2020, we expect to have sufficient liquidity to meet our obligations for at least the next 12 months. For further discussion of COVID-19, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.

We believe our current balance sheet position is financially sound; however, due to the economic uncertainty caused by the COVID-19 pandemic and the inherent uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our unsecured lines of credit to the extent there are amounts outstanding. The unsecured lines of credit expire in October 2021, with a one-year extension option whereby we may extend the maturity to October 2022.
The interest rate spreads associated with our unsecured lines of credit and our unsecured term loan are based on the higher of our two investment grade credit ratings.  Changes to our credit ratings could cause our interest rate spread to adjust accordingly. In February 2020, due to a change in our credit rating, our interest rate spread over LIBOR on our $600.0 million unsecured line of credit facility increased from 0.875% to 1.0% and our annual facility fee increased from 0.15% to 0.20%. In addition, our interest rate spread over LIBOR on our $350.0 million unsecured term loan increased from 0.90% to 1.0%.

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
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funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% on a cumulative basis.

In June 2020, we amended the debt agreements for our lines of credit and bank term loan, primarily to improve future covenant flexibility. The amendments, among other things, allow us to access the existing surge leverage provision, which provides for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months starting July 1, 2020, during which time share repurchases are prohibited. Additionally, the leverage covenants are determined based on the calculation period which is modified to be based on the immediately preceding three calendar month period annualized for the calculation date occurring on December 31, 2020; the immediately preceding six calendar month period annualized for the calculation date occurring on March 31, 2021; the immediately preceding nine calendar month period annualized for the calculation date occurring on June 30, 2021; and for all other calculation dates occurring during the term on the agreement, the immediately preceding twelve calendar month period. Some definitional modifications related to the calculation of certain covenants are permanent, including the netting of cash balances in excess of $30.0 million (or debt maturing in the next 24 months, if less) as well as using adjusted EBITDA, which adds back general and administrative expenses not attributable to the subsidiaries or properties and deducts a management fee of 3% of rental revenues in liability and asset calculations for certain covenants. The amendments revised the interest rate to provide a LIBOR floor of 0.25% for the portions of the lines of credit and bank term loan that are not fixed with an interest rate swap. Although the amended covenants provide additional flexibility and we expect to remain in compliance with such covenants, the potential impacts from COVID-19 are highly uncertain and therefore could impact covenant compliance in the future.

We have historically been and currently are in compliance with all of our debt covenants. While the amendments discussed above will provide additional covenant flexibility, the financial impact of the COVID-19 pandemic could potentially negatively impact our future compliance with financial covenants of our credit facilities, term loan and other debt agreements and result in a default and potentially an acceleration of indebtedness. Our continued compliance with these covenants depends on many factors and could be impacted by current or future economic conditions associated with the COVID-19 pandemic. 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, 2020, 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:
Senior unsecured notes financial covenantsRequiredActual
Total consolidated debt to adjusted total assets<60%47 %
Total secured debt to adjusted total assets<40%%
Total unencumbered assets to unsecured debt>150%203 %

In addition key financial covenants for our line of credit and term loan, include the following:
 RequiredActual
Total Liabilities to Total Adjusted Asset Value
<65% (1)
45 %
Secured Indebtedness to Adjusted Unencumbered Asset Value<35%%
EBITDA to Fixed Charges>1.53.4 
Total Unsecured Indebtedness to Adjusted Unencumbered Asset Value
<65% (1)
41 %
Unencumbered Interest Coverage Ratio>1.53.9 
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(1)In June 2020, we amended the debt agreements for our lines of credit and bank term loan which, among other things, allow us to access the existing surge leverage provision, which provides for an increase to the maximum thresholds to 65% from 60% for total leverage and unsecured leverage, for twelve months starting July 1, 2020.

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

CONTRACTUAL OBLIGATIONS

There were no material changes in our commitments during the nine months ended September 30, 2020 under contractual obligations from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019, other than the following updates to our contractual obligations for debt and interest payments over the next five years and thereafter as of September 30, 2020 (in thousands):
Contractual ObligationsRemainder of 20202021202220232024ThereafterTotal
Debt (1)
$910 $57,193 $4,436 $254,768 $605,140 $657,206 $1,579,653 
Interest payments (2)
$16,444 $50,297 $48,237 $47,098 $33,576 $48,517 $244,169 

(1)These amounts represent total future cash payments related to debt obligations outstanding as of September 30, 2020.
(2)These amounts represent future interest payments related to our debt obligations based on the fixed and variable interest rates specified in the associated debt agreements, including the effects of our interest rate swaps. All of our variable rate debt agreements are based on the one month LIBOR rate or a LIBOR floor of 0.25%, thus for purposes of calculating future interest amounts on variable interest rate debt, the one month LIBOR rate as of September 30, 2020 was used.


OFF-BALANCE SHEET ARRANGEMENTS

We have partial ownership interests in seven unconsolidated outlet centers totaling approximately 2.2 million square feet, including three outlet centers in Canada. See Note 5 to the consolidated financial statements for details of our individual joint ventures, including, but not limited to, carrying values of our investments, fees we receive for services provided to the joint ventures, recent development and financing transactions and condensed combined summary financial information.

We may elect to fund cash needs of a joint venture through equity contributions (generally on a basis proportionate to our ownership interests), advances or partner loans, although such funding is not typically required contractually or otherwise. We separately report investments in joint ventures for which accumulated distributions have exceeded investments in, and our share of net income or loss of, the joint ventures within other liabilities in the consolidated balance sheets because we are committed and intend to provide further financial support to these joint ventures. We believe our joint ventures will be able to fund their operating and capital needs 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 construction and mortgage loans, we may include a guaranty of completion as well as a principal guaranty ranging from 5% to 100% of principal.  The principal guarantees include terms for release based upon satisfactory completion of construction and performance targets including occupancy thresholds and minimum debt service coverage tests. Our joint ventures may contain make whole provisions in the event that demands are made on any existing guarantees.
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Debt of unconsolidated joint ventures

The following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as of September 30, 2020 (dollars in millions):
Joint VentureTotal Joint
Venture Debt
Maturity DateInterest RatePercent Guaranteed by the Operating PartnershipMaximum Guaranteed Amount by the Company
Charlotte$100.0 July 20284.27%— %$— 
Columbus(1)
85.0 November 2020LIBOR + 1.65%7.5 %6.4 
Galveston/Houston (2)
80.0 January 2021LIBOR + 1.65%12.5 %10.0 
National Harbor95.0 January 20304.63 %— %— 
Debt origination costs (1.1)
$358.9 $16.4 
(1)We intend to extend the loan using our one-year extension option to November 2021, which may require reductions in principal or additional guarantees to comply with extension requirements.
(2)In June 2020, in response to the COVID 19 impact on the property, the Galveston/Houston joint venture amended its mortgage loan. The loan modification amended the first one-year extension option to provide for two six-month options (the “First Extension” and “Second Extension”, respectively). Under the loan modification, the joint venture is prohibited from making partner distributions during the term of the First Extension.  If the joint venture exercises all available options, the loan would mature in July 2022.  The joint venture exercised its First Extension option to extend the mortgage loan for six months to January 2021. The Second Extension may require reductions in principal or additional guarantees to comply with the extension requirements.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Refer to our 2019 Annual Report on Form 10-K of the Company and the Operating Partnership for a discussion of our critical accounting policies which include principles of consolidation, acquisition of real estate, cost capitalization, impairment of long-lived assets and revenue recognition. Other than noted below, there have been no material changes to these policies in 2020.

If the effects of the COVID-19 pandemic cause economic and market conditions to continue to deteriorate or if our expected holding period for assets change, subsequent tests for impairment could result in additional impairment charges in the future. We can provide no assurance that material impairment charges with respect to our investment properties will not occur during the remaining quarters in 2020 or future periods.

Historically, our accounts receivable from tenants has not been material; however, given the impacts from COVID-19 discussed below, our net accounts receivable balance, which is recorded in other assets on the consolidated balance sheet, has increased from approximately $4.8 million at December 31, 2019 to approximately $32.3 million at September 30, 2020. Straight-line rent adjustments recorded as a receivable in other assets on the consolidated balance sheets were approximately $57.6 million and $61.6 million as of September 30, 2020 and December 31, 2019, respectively. Individual leases are assessed for collectability and upon the determination that the collection of rents is not probable, accrued rent and accounts receivable are reduced as an adjustment to rental revenue. Revenue from leases where collection is deemed to be less than probable is recorded on a cash basis until collectability is determined to be probable. Further we assess whether operating lease receivables, at a portfolio level, are appropriately valued based upon an analysis of balances outstanding, historical bad debt levels and current economic trends including discussions with tenants for potential lease amendments. Our estimate of the collectability of accrued rents and accounts receivable is based on the best information available to us at the time of preparing the financial statements.






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The duration of the COVID 19 pandemic, recent tenant bankruptcies and other significant uncertainties with the economy required significant judgment to be used when estimating the collection of rents through September 30, 2020. During the three months ended September 30, 2020, we wrote off 5% of third quarter rents billed, related to tenant bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. During the nine months ended September 30, 2020, we wrote off approximately 15% of second and third quarter rents, related to bankruptcies, other uncollectible accounts due to financial weakness and one-time concessions in exchange for landlord-favorable amendments to lease structure. In addition, for the three and nine months ended September 30, 2020, we recorded a $2.2 million and $11.8 million reserve, respectively, for a portion of deferred and under negotiation billings that are expected to become uncollectible in future periods. Further, for the three and nine months ended September 30, 2020 we recognized a write-off of revenue of approximately $2.4 million and $6.1 million of straight-line rents, respectively, associated with the tenant bankruptcies and uncollectible accounts.

After considering current write-offs and reserves for rents we do not expect to collect, the accounts receivables associated with deferred rental payments and unresolved leases of $18.5 million represent the greatest uncertainty with regards to our estimation of collectability. As a result of this uncertainty, there is a risk that a significant reduction in revenues could be recorded in the future if our assessment of collectability changes in subsequent periods.

In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, we would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. The Lease Modification Q&A allows the Company to determine accounting policy elections at a disaggregated level, and the elections should be applied consistently by either the type of concession, underlying asset class or another reasonable disaggregated level. We have evaluated and elected to apply the Lease Modification Q&A. As a result, we have made the following policy elections based on the type of concession agreed to with the respective tenant.

Rent Deferrals

We account for rental deferrals using the receivables model as described within the Lease Modification Q&A. Under the receivables model, we will continue to recognize lease revenue in a manner that is unchanged from the original lease agreement and continue to recognize lease receivables and rental revenue during the deferral period.

Rent Abatements

We account for rental abatements using the negative variable income model as described within the Lease Modification Q&A. Under the negative variable income model, we will recognize negative variable rent for the current period reduction of rental revenue associated with any lease concessions we provide.



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NON-GAAP SUPPLEMENTAL MEASURES

Beginning with the three months ended March 31, 2020, we have elected to supplement our disclosure with three additional non-GAAP measures, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre (each as defined below), that are commonly provided in the REIT industry. See “Adjusted EBITDA, EBITDAre and Adjusted EBITDAre” below for more information. We also now refer to Adjusted Funds from Operations (“AFFO”) as Core Funds From Operations (“Core FFO”), but there has been no change to the definition of this measure.

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 generally accepted accounting principles in the United States (“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.

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Because of these limitations, FFO should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or our dividend paying capacity. We compensate for these limitations by relying primarily on our GAAP results and using FFO only as a supplemental measure.

Core Funds From Operations

We present Core FFO (formerly referred to as AFFO) as a supplemental measure of our performance. We define Core FFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized in the table below, if applicable. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Core FFO you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Core FFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.

We present Core FFO because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we believe it is useful for investors to have enhanced transparency into how we evaluate management’s performance and the effectiveness of our business strategies. We use Core FFO when certain material, unplanned transactions occur as a factor in evaluating management’s performance and to evaluate the effectiveness of our business strategies, and may use Core FFO when determining incentive compensation.

Core FFO has limitations as an analytical tool. Some of these limitations are:

Core FFO does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;

Core FFO does not reflect changes in, or cash requirements for, our working capital needs;

Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Core FFO does not reflect any cash requirements for such replacements;

Core FFO does not reflect the impact of certain cash charges resulting from matters we consider not to be indicative of our ongoing operations; and

Other companies in our industry may calculate Core FFO differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Core FFO should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Core FFO only as a supplemental measure.



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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 endedNine months ended
 September 30,September 30,
 2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Adjusted for:
Depreciation and amortization of real estate assets - consolidated28,676 29,451 85,534 91,149 
Depreciation and amortization of real estate assets - unconsolidated joint ventures3,003 3,058 9,038 9,453 
Impairment charge - consolidated — — 45,675 — 
Foreign currency loss from sale of joint venture property— — — 3,641 
Impairment charge - unconsolidated joint ventures— — 3,091 — 
Gain on sale of assets (2,324)— (2,324)(43,422)
FFO43,074 57,318 102,724 165,928 
FFO attributable to noncontrolling interests in other consolidated partnerships— — (190)(195)
Allocation of earnings to participating securities(461)(481)(1,153)(1,502)
FFO available to common shareholders (1)
$42,613 $56,837 $101,381 $164,231 
As further adjusted for:
Compensation related to executive officer retirement (2)
— — — 4,371 
Impact of above adjustment to the allocation of earnings to participating securities — — — (35)
Core FFO available to common shareholders (1)
$42,613 $56,837 $101,381 $168,567 
FFO available to common shareholders per share - diluted (1)
$0.44 $0.58 $1.04 $1.68 
Core FFO available to common shareholders per share - diluted (1)
$0.44 $0.58 $1.04 $1.72 
 
Weighted Average Shares:
Basic weighted average common shares92,649 92,514 92,596 92,999 
Diluted weighted average common shares (for earnings per share computations)92,649 92,514 92,596 92,999 
Exchangeable operating partnership units 4,911 4,960 4,911 4,960 
Diluted weighted average common shares (for FFO per share computations) (1)
97,560 97,474 97,507 97,959 
(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)Represents the accelerated recognition of compensation cost entitled to be received by the Company’s former President and Chief Operating Officer per the terms of a transition agreement executed in connection with his retirement.

Portfolio Net Operating Income and Same Center NOI

We present portfolio net operating income (“Portfolio NOI”) and same center net operating income (“Same Center NOI”) as supplemental measures of our operating performance. Portfolio NOI represents our property level net operating income which is defined as total operating revenues less property operating expenses and excludes termination fees and non-cash adjustments including straight-line rent, net above and below market rent amortization, impairment charges 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.

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We believe Portfolio NOI and Same Center NOI are non-GAAP metrics used by industry analysts, investors and management to measure the operating performance of our properties because they provide performance measures directly related to the revenues and expenses involved in owning and operating real estate assets and provide a perspective not immediately apparent from net income (loss), FFO or Core FFO. Because Same Center NOI excludes properties developed, redeveloped, acquired and sold; as well as non-cash adjustments, gains or losses on the sale of outparcels and termination rents; it highlights operating trends such as occupancy levels, rental rates and operating costs on properties that were operational for both comparable periods. Other REITs may use different methodologies for calculating Portfolio NOI and Same Center NOI, and accordingly, our Portfolio NOI and Same Center NOI may not be comparable to other REITs.

Portfolio NOI and Same Center NOI should not be considered alternatives to net income (loss) or as an indicator of our financial performance since they do not reflect the entire operations of our portfolio, nor do they reflect the impact of general and administrative expenses, acquisition-related expenses, interest expense, depreciation and amortization costs, other non-property income and losses, the level of capital expenditures and leasing costs necessary to maintain the operating performance of our properties, or trends in development and construction activities which are significant economic costs and activities that could materially impact our results from operations. Because of these limitations, Portfolio NOI and Same Center NOI should not be viewed in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Portfolio NOI and Same Center NOI only as supplemental measures.

Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
Three months endedNine months ended
September 30,September 30,
2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Adjusted to exclude:
Equity in (earnings) losses of unconsolidated joint ventures42 (2,329)1,490 (5,604)
Interest expense15,647 15,197 47,786 46,638 
Gain on sale of assets(2,324)— (2,324)(43,422)
Other (income) expense(161)(227)(789)2,966 
Impairment charge— — 45,675 — 
Depreciation and amortization29,903 30,103 87,966 93,009 
Other non-property expense704 160 1,162 491 
Corporate general and administrative expenses11,463 12,265 35,759 41,032 
Non-cash adjustments(1)
3,913 (1,729)5,032 (5,829)
Lease termination fees(6,323)(127)(8,000)(1,526)
Portfolio NOI66,583 78,122 175,467 232,862 
Non-same center NOI(2)
65 (576)(398)(5,610)
Same Center NOI $66,648 $77,546 $175,069 $227,252 
(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)Excluded from Same Center NOI:
Outlet centers sold:
Nags Head, Ocean City, Park City, and WilliamsburgMarch 2019
TerrellAugust 2020

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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 interest expense, income taxes, depreciation and amortization, gains and losses on sale of operating properties, joint venture properties and other assets, gains and losses on change of control, 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 executive officer retirement, gains and losses on 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 interest expense, income taxes, 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 extinguishment of debt, net, compensation related to executive officer retirement and other items that that we do not consider indicative of the Company's ongoing operating performance.
We present Adjusted EBITDA, EBITDAre and Adjusted EBITDAre as we believe they are useful for investors, creditors and rating agencies as they provide additional performance measures that are independent of a Company’s existing capital structure to facilitate the evaluation and comparison of the Company’s operating performance to other REITs and provide a more consistent metric for comparing the operating performance of the Company’s real estate between periods.
Adjusted EBITDA, EBITDAre and Adjusted EBITDAre have significant limitations as analytical tools, including:
They do not reflect our interest expense;

They do not reflect gains or losses on sales of operating properties or impairment write-downs of depreciated property and of investment in unconsolidated joint ventures caused by a decrease in value of depreciated property in the affiliate;

Adjusted EBITDA and Adjusted EBITDAre do not reflect gains and losses on extinguishment of debt and other items that may affect operations; and

Other companies in our industry may calculate these measures differently than we do, limiting its usefulness as a comparative measure.

Because of these limitations, Adjusted EBITDA, EBITDAre and Adjusted EBITDAre should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP. We compensate for these limitations by relying primarily on our GAAP results and using Adjusted EBITDA, EBITDAre and Adjusted EBITDAre only as supplemental measures.
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Below is a reconciliation of Net Income to Adjusted EBITDA (in thousands):
Three months endedNine months ended
September 30,September 30,
2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Adjusted to exclude:
Interest expense15,647 15,197 47,786 46,638 
Depreciation and amortization29,903 30,103 87,966 93,009 
Impairment charge - consolidated— — 45,675 — 
Impairment charge - unconsolidated joint ventures— — 3,091 — 
Loss on sale of joint venture property, including foreign currency effect— — — 3,641 
Gain on sale of assets(2,324)— (2,324)(43,422)
Compensation related to executive officer retirement— — — 4,371 
Adjusted EBITDA$56,945 $70,109 $143,904 $209,344 

Below is a reconciliation of Net Income to EBITDAre and Adjusted EBITDAre (in thousands):
Three months endedNine months ended
September 30,September 30,
2020201920202019
Net income (loss)$13,719 $24,809 $(38,290)$105,107 
Adjusted to exclude:
Interest expense15,647 15,197 47,786 46,638 
Depreciation and amortization29,903 30,103 87,966 93,009 
Impairment charge - consolidated— — 45,675 — 
Impairment charge - unconsolidated joint ventures— — 3,091 — 
Loss on sale of joint venture property, including foreign currency effect— — — 3,641 
Gain on sale of assets(2,324)— (2,324)(43,422)
Pro-rata share of interest expense - unconsolidated joint ventures1,512 2,029 4,995 6,165 
Pro-rata share of depreciation and amortization - unconsolidated joint ventures3,003 3,057 9,038 9,400 
EBITDAre$61,460 $75,195 $157,937 $220,538 
Compensation related to executive officer retirement— — — 4,371 
Adjusted EBITDAre$61,460 $75,195 $157,937 $224,909 




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ECONOMIC CONDITIONS AND OUTLOOK

We are closely monitoring the impact of the COVID-19 pandemic on all aspects of our business and geographies, including how it will impact our tenants and business partners. For a complete discussion of the impact the pandemic is having on our current operations, the steps we have taken to increase liquidity and preserve financial flexibility and the uncertainties around our future operations and financial condition, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-COVID-19 Pandemic”.
The majority of our leases contain provisions designed to mitigate the impact of inflation. Such provisions include clauses for the escalation of base rent and clauses enabling us to receive percentage rentals based on tenants’ gross sales (above predetermined levels) which generally increase as prices rise. A component of most leases includes a pro-rata share or escalating fixed contributions by the tenant for property operating expenses, including common area maintenance, real estate taxes, insurance and advertising and promotion, thereby reducing exposure to increases in costs and operating expenses resulting from inflation.
A portion of our rental revenues are derived from rents that directly depend on the sales volume of certain tenants. Accordingly, declines in these tenants’ sales would reduce the income produced by our properties. If the sales or profitability of our retail tenants decline sufficiently, whether due to a change in consumer preferences, health concerns, legislative changes that increase the cost of their operations or otherwise, such tenants may be unable to pay their existing rents as such rents would represent a higher percentage of their sales. As a result of the COVID-19 pandemic, we have seen reductions in rental revenues as a result of declines in the sales volumes of certain tenants.
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. No one tenant (including affiliates) accounts for more than 8% of our square feet or 7% 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. As of January 1, 2020, we had approximately 1.6 million square feet, or 14% of our consolidated portfolio at that time coming up for renewal during 2020. As of September 30, 2020, we had renewed approximately 60% of this space. In addition, for the rolling twelve months ended September 30, 2020, we completed renewals and re-tenanted space totaling 1.3 million square feet at a blended 6.3% decrease in average base rental rates compared to the expiring rates.

The current challenging retail environment has impacted our business as our operations are subject to the operating results and operating decisions of our retail tenants. As is typical in the retail industry, certain tenants have closed, or will close, certain stores by terminating their lease prior to its contractual expiration or as a result of filing for protection under bankruptcy laws, or may request modifications to their existing lease terms. We have recaptured approximately 586,000 square feet within our consolidated portfolio during the nine months ended September 30, 2020 related to bankruptcies and brand-wide restructurings by retailers, compared to 195,000 square feet for the nine months ended September 30, 2019. We expect other store closings or rent modifications to impact our operating results in the fourth quarter of 2020.

In addition, the current environment has negatively impacted certain retailers, in particular some who were already pressured prior to the pandemic. Year to date, 14 retailers on our tenant roster have declared bankruptcy or announced a brand-wide restructuring. Recent Chapter 11 bankruptcy filings include, but not limited to, J. Crew Group, Inc. (filed in May 2020) and Brooks Brothers, Lucky Brand Jeans, New York and Company and Ascena Retail Group, Inc. (all filed in July, 2020). Also, earlier this year, G-III Apparel announced a brand-wide restructuring, including its intention to close all of its Wilsons and Bass stores. While a number of tenant bankruptcies and brand-wide restructurings remain fluid, at this time, we expect approximately 80 stores comprising 400,000 square feet to close between the fourth quarter of 2020 and the second quarter of 2021. We also expect there will be an impact on rental rates as some of these tenant leases are renewed at reduced spreads, or in select cases mid-lease modifications are implemented. As many of these are still in process, we don’t yet know what the ultimate impact of store closures, timing, lease adjustments or potential early termination fees will be.


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Due to store closures, tenant bankruptcies and rent adjustments that may result from the impact of the COVID-19 pandemic, our Same Center NOI for 2020 compared to 2019 has been and may continue to be adversely impacted.
We believe outlet stores will continue to be a profitable and fundamental distribution channel for many brand name manufacturers. While we continue to attract and retain additional tenants, if we were unable to successfully renew or re-lease a significant amount of this space on favorable economic terms or in a timely manner, the loss in rent and our Same Center NOI could be further negatively impacted in 2020 and 2021. Occupancy at our consolidated centers was 92.9% and 95.9% as of September 30, 2020 and 2019, respectively. As a result of COVID-19, occupancy could be negatively impacted in the remainder of 2020 and 2021.

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. 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.

Interest Rate Risk

We may periodically enter into certain interest rate protection and interest rate swap agreements to effectively convert existing floating rate debt to a fixed rate basis. We do not enter into derivatives or other financial instruments for trading or speculative purposes. We currently have interest rate swap agreements to fix the interest rates on outstanding debt with notional amounts totaling $390.0 million. In addition, we have forward starting interest rate swaps totaling $250.0 million that begin in January 2021. See Note 8 to the consolidated financial statements for additional details related to our outstanding derivatives.

As of September 30, 2020, 1% 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 LIBOR index of 100 basis points would result in an increase or decrease of approximately $114,000 in interest expense on an annual basis. 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, 2020December 31, 2019
Fair value of debt$1,565,149 $1,603,814 
Recorded value of debt$1,568,217 $1,569,773 

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A 100 basis point increase from prevailing interest rates at September 30, 2020 and December 31, 2019 would result in a decrease in fair value of total consolidated debt of approximately $53.7 million and $62.9 million, respectively. Refer to Note 9 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. In addition, the COVID-19 pandemic may impact markets, rates, behavior and other estimates used in the above scenarios.

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. We generally do not hedge currency translation exposures.

Item 4. Controls and Procedures

Tanger Factory Outlet Centers, Inc. Controls and Procedures

The Company’s management carried out an evaluation, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer of the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2020. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2020. There were no changes to the Company’s internal control over financial reporting during the quarter ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Tanger Properties Limited Partnership Controls and Procedures

The management of the Operating Partnership’s general partner carried out an evaluation, with the participation of the Chief Executive Officer and the Vice-President and Treasurer (Principal Financial Officer) of the Operating Partnership’s general partner, of the effectiveness of the Operating Partnership’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2020. Based on this evaluation, the Chief Executive Officer of the Operating Partnership’s general partner, and the Vice-President and Treasurer of the Operating Partnership’s general partner, have concluded that the Operating Partnership’s disclosure controls and procedures were effective as of September 30, 2020. There were no changes to the Operating Partnership’s internal control over financial reporting during the quarter ended September 30, 2020, that materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company and the Operating Partnership are, from time to time, engaged in a variety of legal proceedings arising in the normal course of business. Although the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of such proceedings will not have a material adverse effect on our results of operations or financial condition.

Item 1A. Risk Factors

The following information updates the risk factors disclosed in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2019. Except for the additional risk factors provided below, there have been no material changes in the Company's risk factors from those disclosed in the 2019 Form 10-K.

The current COVID-19 pandemic has negatively affected and will likely continue to negatively affect our business, financial condition, liquidity and results of operations and those of our tenants.

The current COVID-19 pandemic has had, and likely will continue to have, repercussions across local, national and global economies and financial markets. COVID-19 has impacted all states where our tenants operate their businesses or where our properties are located and measures taken to prevent or remediate COVID-19, including “shelter-in place” or “stay-at-home” orders or other quarantine mandates issued by local, state or federal authorities, have had an adverse effect on our business and the businesses of our tenants. The full extent of the adverse impact on our results of operations, liquidity (including our ability to access capital markets), and our ability to develop, acquire, dispose or lease properties for our portfolio, is unknown and will depend on future developments, which are highly uncertain and cannot be predicted. Our results of operations, liquidity and cash flows may continue to be materially affected.

Many of our tenants operate in industries that depend on in-person interactions with their customers to be profitable and to fund their obligations under lease agreements with us. Measures taken to prevent or remediate COVID-19, including “shelter-in-place” or “stay-at-home” orders or other quarantine mandates, with respect to some portion of our tenants, (i) prevented our tenants from being able to open their stores and conduct business or limited the hours in which they may conduct business, and/or (ii) decreased or prevented our tenants’ customers’ willingness or ability to frequent their businesses, and/or (iii) impacted supply chains from local, national and international suppliers or otherwise delayed the delivery of inventory or other materials necessary for our tenants’ operations, all of which have adversely affected, and are likely to continue to adversely affect, their ability to maintain profitability and make rental payments to us under their leases. Tenants have also, as a result of such public health crisis, orders or mandates and any resulting economic downturn, requested rent deferrals, rent abatement or early termination of their leases and may continue to do so. In addition, tenants have and may continue to be forced to temporarily or permanently close or declare bankruptcy which could reduce our cash flows and negatively affect our ability to pay dividends. Specifically, as a result of COVID-19 and various governmental orders currently in place, a significant number of our tenants either closed their business or operated with limited operations and/or have submitted requests for rent relief or failed to pay rent. In addition, state, local or industry-initiated efforts, such as tenant rent freezes or suspension of a landlord’s ability to enforce evictions, may also affect our ability to collect rent or enforce remedies for the failure to pay rent. In late March 2020, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May 2020 rents interest free, payable in equal installments due in January and February of 2021.

We are closely monitoring changes in the collectability assessment of our tenant receivables as a result of certain tenants suffering adverse financial consequences due to COVID-19 and should our estimates change, there could be material modifications to our revenues in future periods. We believe our tenants do not have a clear contractual right to cease paying rent due to government mandated closures and we intend to enforce our rights under the lease agreements. However, COVID-19 and the related governmental orders present fairly novel situations for which the ultimate legal outcome cannot be assured and it is possible future governmental action could impact our rights under the lease agreements. The extent of tenant requests and actions and the impact to the Company’s results of operations and cash flows is uncertain and cannot be predicted.

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The extent to which the COVID-19 pandemic continues to impact our financial condition, results of operations and cash flows will depend on future developments which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the timing or effectiveness of any vaccines or treatments, and the direct and indirect economic effects of the pandemic and containment measures, among others. The impact of the COVID-19 pandemic on our rental revenue for the fourth quarter of 2020 and thereafter cannot be determined at present. The situation surrounding the COVID-19 pandemic remains fluid, and we are continuing to manage our response in collaboration with tenants, government officials and business partners and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business.

The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:

the reduced economic activity that could result in a prolonged recession and may consequently negatively impact consumer discretionary spending;
difficulty accessing debt and equity capital on attractive terms, or at all, deteriorations in our credit ratings, a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our tenants' ability to fund their business operations and meet their obligations to us;
the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our liquidity;
any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions;
a general decline in business activity and demand for real estate transactions could adversely affect our ability or desire to grow our portfolio of properties;
a deterioration in our or our tenants' ability to operate in affected areas or delays in the supply of products or services to us or our tenants from vendors that are needed for our or our tenants' efficient operations could adversely affect our operations and those of our tenants;
a significant increase in the number of tenants that file for Chapter 11 bankruptcy;
adverse impacts from requiring most employees to work remotely, such as reductions in productivity and heightened cybersecurity risks; and
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption.

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Cyber-attacks or acts of cyber-terrorism could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information.
Our information technology systems have been and may in the future be attacked or breached by individuals or organizations intending to obtain sensitive data regarding our business, customers, employees, tenants or other third parties with whom we do business or disrupt our business operations and information technology systems. A security compromise of our information technology systems or business operations could occur through cyber attacks or cyber-intrusions over the Internet, malware, ransomware, computer viruses, attachments to e-mails, persons inside our organization, or persons with access to systems inside our organization. Like many companies, we have experienced intrusions and threats to data and information technology systems, and the risk of a future security breach or disruption, particularly through cyber attacks or cyber-intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. We use information technology systems to manage our outlet centers and other business processes. Disruption of those systems could adversely impact our ability to operate our business to provide timely service to our customers and maintain our relationships with our tenants. Accordingly, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected. In addition, we use our information technology systems to protect confidential or sensitive customer, employee and Company information developed and maintained in the normal course of our business. Certain of these systems have been attacked, and any attack on such systems that results in the unauthorized release or loss of customer, employee or other confidential or sensitive data could have a material adverse effect on our business reputation, increase our costs and expose us to material legal claims and liability. If the unauthorized release or loss of customer, employee or other confidential or sensitive data were to occur, our operations and financial results and our share price could be adversely affected.
While we maintain some of our own critical information technology systems, we also depend on third parties to provide important information technology services relating to several key business functions, such as payroll, electronic communications and certain accounting and finance functions. Our measures to prevent, detect and mitigate these threats, including password protection, firewalls, backup servers, threat monitoring and periodic penetration testing, may not be successful in preventing a data breach or limiting the effects of a breach. Furthermore, the security measures employed by third-party service providers may prove to be ineffective at preventing breaches of their systems.

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Item 6. Exhibits
Exhibit NumberExhibit Descriptions
31.1*
31.2*
31.3*
31.4*
32.1**
32.2**
32.3**
32.4**
101.INS*Inline XBRL Instance Document - the Instance Document does not appear in the interactive data file because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
104*Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Filed herewith.
** Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
DATE: November 9, 2020
TANGER FACTORY OUTLET CENTERS, INC.
By:/s/ James F. Williams
 James F. Williams
 Executive Vice President and Chief Financial Officer
 
TANGER PROPERTIES LIMITED PARTNERSHIP
By: TANGER GP TRUST, its sole general partner
By:/s/ James F. Williams
 James F. Williams
 Vice President and Treasurer (Principal Financial Officer)



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