TANGER INC. Cautionary Statements
Certain statements made in Item 1 - Business and 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 our: ability to raise additional capital, including via future issuances of equity and debt, and the use of proceeds from such issuances; results of operations and financial condition; capital expenditure and working capital needs and the funding thereof; repurchase of the Company's common shares, including the potential use of a 10b5-1 plan to facilitate repurchases; 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; outlook for the retail environment, potential bankruptcies, and other store closings; 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. 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 theOperating 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. We qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements in this Annual Report on Form 10-K are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. For a further discussion of the risks relating to our business, see "Item 1A-Risk Factors" in Part I of this Annual Report on Form 10-K. 34
-------------------------------------------------------------------------------- The following discussion should be read in conjunction with the consolidated financial statements appearing elsewhere in this report. Historical results and percentage relationships set forth in the consolidated statements of operations, including trends which might appear, are not necessarily indicative of future operations. General Overview As ofDecember 31, 2019 , we had 32 consolidated outlet centers in 19 states totaling 12.0 million square feet. We also had 7 unconsolidated outlet centers totaling 2.2 million square feet, including 3 outlet centers inCanada . The table below details our acquisitions, new developments, expansions and dispositions of consolidated and unconsolidated outlet centers that significantly impacted our results of operations and liquidity fromJanuary 1, 2017 toDecember 31, 2019 : Unconsolidated Joint Venture Outlet Consolidated Outlet Centers Centers Quarter Square Feet (in Number of Square Feet (in Number of
Outlet Center Acquired/Open/Disposed/Demolished thousands) Outlet Centers thousands)
Outlet Centers
As of January 1, 2017 12,710 36 2,348 8
New Developments:
Fort Worth Fourth Quarter 352 1 - -
Expansion:
Ottawa Second Quarter - - 39 -
Lancaster Third Quarter 148 - - -
Dispositions:
Westbrook Second Quarter (290 ) (1 ) - -
Other 10 - (17 ) -
As of December 31, 2017 12,930 36 2,370 8
Other (7 ) - 1 -
As of December 31, 2018 12,923 36 2,371 8
Dispositions:
Nags Head First Quarter (82 ) (1 ) - -
Ocean City First Quarter (200 ) (1 ) - -
Park City First Quarter (320 ) (1 ) - -
Williamsburg First Quarter (276 ) (1 ) - -
Bromont Second Quarter - - (161 ) (1 )
Other 3 - 2 -
As of December 31, 2019 12,048 32 2,212 7
35
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Leasing Activity
The following table provides information for our consolidated outlet centers related to leases for new stores that opened or renewals that commenced during the years endedDecember 31, 2019 and 2018, respectively: 2019(1),(2) Average Average Net Average Annual Average Initial Annual Square Feet Straight-line Rent Tenant Term (in Straight-line Rent # of Leases (in 000's) (psf) Allowance (psf) years) (psf) (3) Re-tenant 113 460 $ 38.93 $ 43.48 7.89 $ 33.42 Renewal 224 1,064 31.91 0.59 3.54 31.74 2018(1) Average Average Net Average Annual Average Initial Annual Square Feet Straight-line Rent Tenant Term (in Straight-line Rent # of Leases (in 000's) (psf) Allowance (psf) years) (psf) (3) Re-tenant 92 431 $ 32.40 $ 50.19 7.81 $ 25.97 Renewal 281 1,398 31.65 0.22 3.66 31.59
(1) Rent includes both minimum base rents and common area maintenance ("CAM")
rents. Excludes license agreements, temporary tenants, and month-to-month
leases.
(2) Excludes outlet centers sold in March 2019 (Nags Head, Ocean City , Park
City , and Williamsburg Outlet Centers ).
(3) Net average annual straight-line base rent is calculated by dividing theaverage tenant allowance costs per square foot by the average initial term
and subtracting this calculated number from the average straight-line rent
per year amount. The average annual straight-line 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.
36
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Results of Operations 2019 Compared to 2018 Net Income Net income increased$47.2 million in 2019 compared to 2018. The increase in net income is partially due to: • the$43.4 million gain recorded on the sale of the four outlet centers in
• inclusion in the 2018 period a
our Jeffersonville outlet center.
The increase was partially offset by a decrease in net income due to:
• the sale of the four outlet centers in
• an additional impairment charge in the 2019 period related to our
Jeffersonville outlet center of $37.6 million .
• a
recognition of compensation cost as a result of a transition agreement
(the "COO Transition Agreement") with the Company's former President and
Chief Operating Officer in connection with his retirement, and
• a
sale of the
In the tables below, information set forth for properties disposed includes the four outlet centers sold in lateMarch 2019 . See "General Overview" in previous section for a list of properties sold during 2019. Rental Revenues Rental revenues decreased$16.8 million in the 2019 period compared to the 2018 period. The following table sets forth the changes in various components of rental revenues (in thousands): 2019 2018
Increase/(Decrease)
Rental revenues from existing properties
$ (759 )
Rental revenues from properties disposed 6,321 25,647 (19,326 )
Straight-line rent adjustments 7,721 5,843 1,878
Lease termination fees 1,615 1,246 369
Amortization of above and below market rent
adjustments, net (1,044 ) (2,121 ) 1,077
$ 463,946 $ 480,707 $ (16,761 )
Rental revenues from existing properties decreased primarily due to lower
average occupancy and rent modifications for certain tenants, in large part as a
result of a number of bankruptcy filings and other tenant closures during 2018
and 2019. The decreases were offset partially by higher percentage rental
revenues and temporary tenant revenues.
As a result of combining all components of a lease due to the adoption of
Accounting Standards Codification Topic 842 "Leases" ("ASC 842"), all fixed
contractual payments, including consideration received from certain executory
costs, are now recognized on a straight-line basis. For the year ended December
31, 2019 , we recorded $6.4 million in rental revenues in our consolidated
statements of operations to record executory costs on a straight-line basis.
These incremental straight-line rents were partially offset by the adjustment of
straight-line rents related to certain bankrupt tenants.
Other Revenues
The following table sets forth the changes in various components of other income
(in thousands):
2019 2018 Increase/(Decrease)
Other revenues from existing properties
249
Other revenues from property disposed 64 309 (245 )
$ 8,983 $ 8,979 $ 4
37
-------------------------------------------------------------------------------- Management, Leasing and Other Services Management, leasing and other services increased$424,000 in the 2019 period compared to the 2018 period. The following table sets forth the changes in various components of management, leasing and other services (in thousands): 2019 2018 Increase/(Decrease) Management and marketing$ 2,308 $ 2,334 $ (26 ) Leasing and other fees 126 162 (36 ) Expense reimbursements from unconsolidated joint ventures 2,985 2,499 486 Total Fees$ 5,419 $ 4,995 $ 424 Property Operating Expenses Property operating expenses decreased$2.7 million in the 2019 period compared to the 2018 period. The following table sets forth the changes in various components of property operating expenses (in thousands): 2019
2018 Increase/(Decrease)
Property operating expenses from existing properties
2,405
Property operating expenses from property disposed 2,580 8,140
(5,560 )
Expenses related to unconsolidated joint ventures 2,985 2,499 486
Other property operating expense 2,579 2,633 (54 )
$ 157,734 $ 160,457 $ (2,723 )
Property operating expenses incurred at existing properties during the 2019 period increased primarily due to higher property taxes at certain centers and higher portfolio-wide property insurance costs.
General and Administrative Expenses General and administrative expenses in the 2019 period increased$9.6 million compared to the 2018 period, primarily as a result of the$4.4 million charge related to the COO Transition Agreement. In addition, general and administrative expenses increased by approximately$4.9 million due to the adoption of the lease accounting standard ASC 842 in 2019 which requires indirect internal leasing and legal costs to be expensed as incurred. In the 2018 period, a portion of these indirect costs were capitalized. Impairment Charges During 2018, we determined that the estimated future undiscounted cash flows of our Jeffersonville outlet center did not exceed the property's carrying value. This shortfall was due to an expected decline in operating results caused by anticipated store closures from bankruptcy filings and brand-wide restructurings and a shift in the local competitive environment. Accordingly we recorded a$49.7 million impairment charge in our consolidated statement of operations which equaled the excess of the carrying value of our Jeffersonville outlet center over its estimated fair value. During 2019, in anticipation of further store closings and declining operating results, we recorded an additional impairment charge of$37.6 million in our consolidated statement of operations which equaled the excess of the carrying value of our Jeffersonville outlet center over its estimated fair value. 38 -------------------------------------------------------------------------------- Depreciation and Amortization Depreciation and amortization expense decreased$8.4 million in the 2019 period compared to the 2018 period. The following table sets forth the changes in various components of depreciation and amortization (in thousands): 2019 2018
Increase/(Decrease)
Depreciation and amortization expenses from existing properties$ 122,058 $ 126,295 $ (4,237 ) Depreciation and amortization from property disposed 1,256 5,427 (4,171 )$ 123,314 $ 131,722 $ (8,408 ) Depreciation and amortization decreased at our existing properties primarily due to the lower basis in our Jeffersonville property due to the impairment recorded in the third quarter of 2018 and due to lease related intangibles recorded as part of the acquisition price of acquired properties, which are amortized over shorter lives, becoming fully depreciated during the reporting periods. Interest Expense Interest expense decreased$3.1 million in the 2019 period compared to the 2018 period primarily from the use of the net proceeds from the sale of four properties inMarch 2019 , as well as other general operating cash flows to reduce amounts outstanding on our unsecured lines of credit in the 2019 period. The decrease was partially offset by higher interest rates related to$150.0 million of interest rate swap agreements. InAugust 2018 , certain 30-day LIBOR interest rate swaps with a rate of 1.3% expired and were replaced with new interest rate swaps with a rate of 2.2%.
Gain on Sale of Assets and Interests in Unconsolidated Entities
In
Equity in Earnings ofUnconsolidated Joint Ventures Equity in earnings of unconsolidated joint ventures increased approximately$6.9 million in the 2019 period compared to the 2018 period. In the table below, information set forth for properties disposed includes theRioCan joint venture'sBromont outlet center, which was sold inMay 2019 . The following table sets forth the changes in various components of equity in earnings of unconsolidated joint ventures (in thousands): 2019 2018
Increase/(Decrease)
Equity in earnings from existing properties
5,160
Equity in earnings from property disposed 8 (1,747 ) 1,755
$ 7,839 $ 924 $ 6,915
The increase in equity in earnings from existing properties is primarily due to
including our share of impairment charges totaling $5.3 million related to the
Saint-Sauveur outlet center in Canada during the 2018 period. The increase is
partially offset in 2019 due to the full year effect of higher interest rates
from debt refinancings in 2018 which converted the mortgages at both our
Charlotte and National Harbor joint ventures from variable to fixed interest
rates. In June 2018 , the Charlotte joint venture closed on a $100.0 million
mortgage loan with a fixed interest rate of approximately 4.3% and a maturity
date of July 2028 . This loan replaced the $90.0 million mortgage loan with an
interest rate of LIBOR + 1.45%. In December 2018 , the National Harbor joint
venture closed on a $95.0 million mortgage loan with a fixed interest rate of
approximately 4.6% and a maturity date of January 2030 . This loan replaced the
$87.0 million construction loan with an interest rate of LIBOR + 1.65%.
2018 Compared to 2017
For a discussion of our results of operations for the year endedDecember 31, 2017 , including a year-to-year comparison between 2018 and 2017, refer to Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report Form 10-K for the year endedDecember 31, 2018 . 39
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Liquidity and Capital Resources of the Company
In this "Liquidity and Capital Resources of the Company" section, the term, the
"Company", refers only to
The Company's business is operated primarily through theOperating 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 theOperating Partnership . The Company does not hold any indebtedness, and its only material asset is its ownership of partnership interests of theOperating 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 theOperating Partnership . Through its ownership of the sole general partner of theOperating Partnership , the Company has the full, exclusive and complete responsibility for theOperating Partnership's day-to-day management and control. The Company causes theOperating Partnership to distribute all, or such portion as the Company may in its discretion determine, of its available cash in the manner provided in theOperating Partnership's partnership agreement. The Company receives proceeds from equity issuances from time to time, but is required by theOperating Partnership's partnership agreement to contribute the proceeds from its equity issuances to theOperating Partnership in exchange for partnership units of theOperating Partnership . We are a well-known seasoned issuer with a shelf registration which expires inMarch 2021 that allows the Company to register various unspecified classes of equity securities and theOperating Partnership to register various unspecified 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, develop new or existing properties, make acquisitions of properties or portfolios of properties, invest in existing or newly created joint ventures, or for general corporate purposes. The liquidity of the Company is dependent on theOperating 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 theOperating Partnership to comply with various financial and other covenants before it may make distributions to the Company. The Company also guarantees some of theOperating Partnership's debt. If theOperating 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 theOperating Partnership . The Company believes theOperating Partnership's sources of working capital, specifically its cash flow from operations, and borrowings available under its unsecured credit facilities, are adequate for it to make its distribution payments to the Company and, in turn, for the Company to make its dividend payments to its shareholders and to finance its continued operations, growth strategy and additional expenses we expect to incur for at least the next twelve months. However, there can be no assurance that theOperating 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 theOperating 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. We operate in a manner intended to enable us to qualify as a REIT under the Internal Revenue Code, or the Code. For the Company to maintain its qualification as a REIT, it must pay dividends to its shareholders aggregating annually at least 90% of its taxable income. While historically the Company has satisfied this distribution requirement by making cash distributions to its shareholders, it may choose to satisfy this requirement by making distributions of cash or other property, including, in limited circumstances, the Company's own shares. Based on our 2019 estimated taxable income, we were required to distribute approximately$105.3 million to our shareholders in order to maintain our REIT status as described above. For tax reporting purposes, we distributed approximately$131.5 million during 2019. If in any taxable year the Company were to fail to qualify as a REIT and certain statutory relief provisions were not applicable, we would not be allowed a deduction for distributions to shareholders in computing taxable income and would be subject toU.S. federal income tax (including any applicable alternative minimum tax for tax years prior to 2018) on our taxable income at the regular corporate rate. 40 -------------------------------------------------------------------------------- As a result of this distribution requirement, theOperating 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 theOperating Partnership's working capital needs, as well as potential developments of new or existing properties, acquisitions or investments in existing or newly created joint ventures. The Company currently consolidates theOperating Partnership because it has (1) the power to direct the activities of theOperating Partnership that most significantly impact theOperating Partnership's economic performance and (2) the obligation to absorb losses and the right to receive the residual returns of theOperating Partnership that could be potentially significant. The Company does not have significant assets other than its investment in theOperating Partnership . Therefore, the assets and liabilities and the revenues and expenses of the Company and theOperating 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 theOperating Partnership level, and the Company has guaranteed some of theOperating Partnership's unsecured debt as discussed below. Because the Company consolidates theOperating Partnership , the section entitled "Liquidity and Capital Resources of theOperating 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. InMay 2017 , we announced that our Board of Directors authorized the repurchase of up to$125 million of our outstanding common shares as market conditions warrant over a period commencing onMay 19, 2017 and expiring onMay 18, 2019 . InFebruary 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$169.3 million untilMay 2021 . Repurchases may be made from time to time through open market, privately-negotiated, structured or derivative transactions (including accelerated share repurchase transactions), or other methods of acquiring shares. The Company intends to structure open market purchases to occur within pricing and volume requirements of Rule 10b-18. The Company may, from time to time, enter into Rule 10b5-1 plans to facilitate the repurchase of its shares under this authorization. Shares repurchased during the years endedDecember 31, 2019 , 2018 and 2017 were as follows: Year Ended December 31, 2019 2018 2017 Total number of shares purchased 1,209,328 919,249 1,911,585 Average price paid per share$ 16.52 $ 21.74 $ 25.80 Total price paid exclusive of commissions and related fees (in thousands)$ 19,976 $ 19,980 $ 49,324
The remaining amount authorized to be repurchased under the program as of
In
Additionally inJanuary 2020 , the Company's Board of Directors declared a quarterly dividend of$0.3575 cash dividend per common share payable onMay 15, 2020 to holders of record onApril 30, 2020 , and the Trustees ofTanger GP Trust declared$0.3575 cash distribution perOperating Partnership unit to theOperating Partnership's unitholders. 41 --------------------------------------------------------------------------------
Liquidity and Capital Resources of the
General Overview
In this "Liquidity and Capital Resources of the
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 or from the proceeds from theOperating 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 lines of credit in a conservative manner and (5) preserve internally generated sources of capital by strategically divesting of our non-core 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.
Statements of Cash Flows
The following table sets forth our changes in cash flows from 2019 and 2018 (in thousands):
2019 2018 Change
Net cash provided by operating activities
$ (37,886 ) Net cash provided by (used in) investing activities 99,289 (40,023 ) 139,312 Net cash used in financing activities (312,133 ) (215,203 ) (96,930 ) Effect of foreign currency rate changes on cash and equivalents (19 ) (110 ) 91
Net increase in cash and cash equivalents
$ 4,587 Operating Activities The primary cause for the decrease in net cash provided by operating activities in the 2019 period was due to the sale of the four outlet centers inMarch 2019 as well changes in working capital and a slight decline in year over year operating results for our remaining centers.
Investing Activities
The primary cause for the increase 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. In addition, the 2019 period had lower levels of development activity than the 2018 period.
Financing Activities
The primary cause for the increase in net cash used in financing activities was
due to the use of the proceeds from the sale of the four outlet centers to pay
down our unsecured lines of credit.
42
--------------------------------------------------------------------------------Development Activities
Development in
From time to time, we form joint venture arrangements to develop outlet centers. See "Off-Balance Sheet Arrangements" for a discussion of unconsolidated joint venture development activities.
Potential Future Developments, Acquisitions and Dispositions
As of the date of this filing, we are in the initial study period for potential new developments, including a potential site inNashville, Tennessee . We may also use joint venture arrangements to develop other potential sites or acquire existing centers. There can be no assurance, however, that these potential future projects will ultimately be developed or that additional centers will be acquired. In the case of projects to be wholly-owned by us, we expect to fund these projects with borrowings under our unsecured lines of credit and cash flow from operations, but may also fund them with capital from additional public debt and equity offerings. For projects to be developed through joint venture arrangements, we may use collateralized construction loans to fund a portion of the project, with our share of the equity requirements funded from sources described above. We intend to continue to grow our portfolio by developing, expanding or acquiring additional outlet centers. 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.
Financing Arrangements
See Notes 8 and 9 to the Consolidated Financial Statements, for details of our current outstanding debt, financing transactions that have occurred over the past three years and debt maturities. As ofDecember 31, 2019 , unsecured borrowings represented 95% of our outstanding debt and 92% of the gross book value of our real estate portfolio was unencumbered. As ofDecember 31, 2019 , 1% of our outstanding debt, excluding variable rate debt with interest rate protection agreements in place, had variable interest rates and therefore was subject to market fluctuations. We maintain unsecured lines of credit that, as ofDecember 31, 2019 , provided for borrowings of up to$600.0 million , including a separate$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. As ofDecember 31, 2019 , we had no borrowings and letters of credit totaling$170,000 outstanding under the 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 is a well-known seasoned issuer with a joint shelf registration statement on Form S-3 with theOperating Partnership , expiring inMarch 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. 43 -------------------------------------------------------------------------------- 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 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. We believe our current balance sheet position is financially sound; however, due to the uncertainty and unpredictability of the capital and credit markets, we can give no assurance that affordable access to capital will exist between now and when our next significant debt matures, which is our senior unsecured notes with a principal amount outstanding of$250.0 million and a maturity in December of 2023. Our unsecured lines of credit expire in 2021, with a one-year extension option that may extend the maturity to 2022. AtDecember 31, 2019 , there was no balance outstanding on our unsecured lines of credit, which provide for borrowings up to$600.0 million . 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.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%. As ofDecember 31, 2019 , there we no outstanding balances under our unsecured lines of credit. In addition, our interest rate spread over LIBOR on our$350.0 million unsecured term loan increased from 0.90% to 1.0%. Our debt agreements contain covenants that require the maintenance of certain ratios, including debt service coverage and leverage, and limit the payment of dividends such that dividends and distributions will not exceed funds from operations, as defined in the agreements, for the prior fiscal year on an annual basis or 95% on a cumulative basis. We have historically been and currently are in compliance with all of our debt covenants. We expect to remain in compliance with all our existing debt covenants; however, should circumstances arise that would cause us to be in default, the various lenders would have the ability to accelerate the maturity on our outstanding debt. We believe our most restrictive financial covenants are contained in our senior, unsecured notes. Key financial covenants and their covenant levels, which are calculated based on contractual terms, include the following: Senior unsecured notes financial covenants Required Actual Total consolidated debt to adjusted total assets < 60% 48 % Total secured debt to adjusted total assets < 40% 3 %
Total unencumbered assets to unsecured debt > 150% 198 %
Capital Expenditures
The following table details our capital expenditures for the years ended
2019 2018 Change
Capital expenditures analysis: New outlet center developments and expansions$ 8,865 $ 8,863 $
2
Renovations 2,930 4,690 (1,760 )
Second generation tenant allowances 18,189 15,729 2,460
Other capital expenditures 20,133 19,075 1,058
50,117 48,357 1,760
Conversion from accrual to cash basis (2,232 ) 15,896
(18,128 )
Additions to rental property-cash basis
44
--------------------------------------------------------------------------------Contractual Obligations and Commercial Commitments
The following table details our contractual obligations over the next five years
and thereafter as of
Contractual Obligations 2020 2021 2022 2023 2024 Thereafter Total Debt (1)$ 3,566 $ 57,193 $ 4,436 $ 254,768 $ 605,140 $ 657,206 $ 1,582,309 Interest payments (2) 55,291 53,511 51,672 50,533 34,721 48,517 294,245 Operating leases 5,568 5,613 5,669 5,709 5,765 226,876 255,200 Other contractual obligations 1,431 1,239 1,158 1,148 1,148 4,527 10,651$ 65,856 $ 117,556 $ 62,935 $ 312,158 $ 646,774 $ 937,126 $ 2,142,405 (1) These amounts represent total future cash payments related to debt obligations outstanding as ofDecember 31, 2019 . (2) These amounts represent future interest payments related to our debt obligations based on the fixed and variable interest rates specified in
the associated debt agreements, including the effects of our interest rate
swaps. All of our variable rate debt agreements are based on the one month
LIBOR rate, thus for purposes of calculating future interest amounts on
variable interest rate debt, the one month LIBOR rate as of December 31,
2019 was used.
In addition to the contractual payment obligations shown in the table above, we
have commitments of $1.8 million remaining as of December 31, 2019 related to
contracts to complete construction, development activity at outlet centers, and
other capital expenditures throughout our consolidated portfolio. These amounts
would be primarily funded by amounts available under our unsecured lines of
credit but could also be funded by other sources of capital, such as
collateralized construction loans or public debt and equity offerings. In
addition, we have commitments to pay approximately $15.9 million in tenant
allowances for leases that are executed but where the tenant improvements have
not been constructed. Payments are only made upon the tenant opening its store,
completing its interior construction and submitting the necessary documentation
required per its lease. There were no significant contractual commitments to
complete construction and development activity related to our unconsolidated
joint ventures as of December 31, 2019 . In addition, commitments related to
tenant allowances at our unconsolidated joint ventures totaled approximately
$1.0 million at December 31, 2019 , of which our portion was approximately
$481,000 . Contractual commitments represent only those costs subject to
contracts which are legally binding agreements as of December 31, 2019 and do
not necessarily represent the total cost to complete the projects.
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We have partial ownership interests in seven unconsolidated outlet centers totaling approximately 2.2 million square feet, including 3 outlet centers inCanada . See Note 6 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 during 2020 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.
RioCan Canada
InMay 2019 , theRioCan joint venture closed on the sale of its outlet center inBromont , 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$3.6 million in other income (expense), which had been previously recorded in other comprehensive income (loss).
Debt of unconsolidated joint ventures
The following table details information regarding the outstanding debt of the unconsolidated joint ventures and guarantees of such debt provided by us as ofDecember 31, 2019 (dollars in millions): Percent Maximum Guaranteed by Guaranteed Total Joint the Operating Amount by the Joint Venture Venture Debt Maturity Date Interest Rate Partnership Company Charlotte$ 100.0 July 2028 4.27 % - % $ - Columbus (1) 85.0 November 2020 LIBOR + 1.65% 7.5 % 6.4 Galveston/Houston 80.0 July 2020 LIBOR + 1.65% 12.5 % 10.0 National Harbor 95.0 January 2030 4.63 % - % - RioCan Canada 9.1 May 2020 5.75 % 33.0 % 3.0 Debt premium and debt origination costs (1.1 )$ 368.0 $ 19.4 (1) In October 2019, the joint venture exercised its option to extend the mortgage loan for one year toNovember 2020 under the same terms. The mortgage loan has one remaining one-year extension option. 46
-------------------------------------------------------------------------------- Our joint ventures are generally subject to buy-sell provisions which are customary for joint venture agreements in the real estate industry. Either partner may initiate these provisions (subject to any applicable lock up period), which could result in either the sale of our interest or the use of available cash or additional borrowings to acquire the other party's interest. Under these provisions, one partner sets a price for the property, then the other partner has the option to either (1) purchase their partner's interest based on that price or (2) sell its interest to the other partner based on that price. Since the partner other than the partner who triggers the provision has the option to be the buyer or seller, we do not consider this arrangement to be a mandatory redeemable obligation.
Impairments
Rental property held and used by our joint ventures are reviewed for impairment in the event that facts and circumstances indicate the carrying amount of an asset may not be recoverable. In such an event, the estimated future undiscounted cash flows associated with the asset is compared to the asset's carrying amount, and if less than such carrying amount, the joint venture recognizes an impairment loss in an amount by which the carrying amount exceeds its fair value. During 2018 and 2017 the Rio-Can joint venture recognized impairment charges related to its properties located inBromont, Quebec andSaint Sauveur, Quebec . The impairment charges were primarily driven by, among other things, new competition in the market and changes in market capitalization rates. While the joint venture believes theSaint Sauveur property is recorded at fair value, there can be no assurance that additional impairment charges will not be recognized. The table below summarizes the impairment charges taken during 2018 and 2017 (in thousands): Impairment Charges(1) Outlet Center Total Our Share 2018 Bromont and Saint Sauveur$ 14,359 $ 7,180 2017 Bromont and Saint Sauveur 18,042 9,021
(1) The fair value was determined using an income approach considering the
prevailing market income capitalization rates for similar assets.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity withU.S. generally accepted accounting principles ("GAAP") and the Company's discussion and analysis of its financial condition and operating results require the Company's management to make judgments, assumptions and estimates that affect the amounts reported. Note 2, Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements in Part II, Item 8 of this Form 10-K describes the significant accounting policies and methods used in the preparation of the Company's consolidated financial statements. Management bases its estimates on historical experience and on various other assumptions it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material. Management believes the Company's critical accounting policies and estimates are those related to principles of consolidation, rental property, impairment of long-lived assets, impairment of investments and revenue recognition. Management considers these policies critical because they are both important to the portrayal of the Company's financial condition and operating results, and they require management to make judgments and estimates about inherently uncertain matters. The Company's senior management has reviewed these critical accounting policies and related disclosures with the Audit Committee of the Company's Board of Directors. 47 --------------------------------------------------------------------------------
Impairments
Based upon current market conditions, one of our outlet centers has an estimated fair value significantly less than its recorded carrying value of approximately$100.0 million . However, based on our current plan with respect to that outlet center, we believe that its carrying amount is recoverable and therefore no impairment charge was recorded. Accordingly, we will continue to monitor circumstances and events in future periods that could affect inputs such as the expected holding period, operating cash flow forecasts and capitalization rates, utilized to determine whether an impairment charge is necessary. As these inputs are difficult to predict and are subject to future events that may alter our assumptions, the future cash flows estimated by management in its impairment analysis may not be achieved, and actual losses or impairment may be realized in the future. The total projected undiscounted cash flows did not significantly exceed the carrying value and therefore we can provide no assurance that material impairment charges with respect to our outlet centers will not occur in 2020 or future periods.
New Accounting Pronouncements
See Note 2 and Note 21 to the consolidated financial statements for information on recently adopted accounting standards and new accounting pronouncements issued.
New Auditing Standard
OnJune 1, 2017 , thePublic Company Accounting Oversight Board issued Auditing Standard 3101, The Auditor's Report on an Audit of Financial Statements When the Auditor Expresses an Unqualified Opinion ("AS 3101"). As a result of AS 3101, the most significant change to the auditor's report on the financial statements is a new requirement to describe critical audit matters arising from the audit of the current period's financial statements in the auditor's report. The requirements related to critical audit matters in AS 3101 were effective for audits of fiscal years ending on or afterJune 30, 2019 , for large accelerated filers; and for fiscal years ending on or afterDecember 15, 2020 , for all other companies to which the requirements apply. Therefore, critical audit matters are included in the Report of Independent Registered Public Accounting Firm forTanger Factory Outlet Centers, Inc.'s consolidated financial statements as of and for the year endedDecember 31, 2019 , and will be included in the Report of Independent Registered Public Accounting Firm forTanger Properties Limited Partnership's consolidated financial statements as of and for the year endedDecember 31, 2020 . 48
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NON-GAAP SUPPLEMENTAL MEASURES
Funds From Operations
FFO is a widely used measure of the operating performance for real estate companies that supplements net income (loss) determined in accordance with GAAP. We determine FFO based on the definition set forth by the NationalAssociation of Real Estate Investment Trusts ("NAREIT"), of which we are a member. InDecember 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. 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 Adjusted Funds From Operations ("AFFO"), 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. NAREIT has encouraged its member companies to report their FFO as a supplemental, industry-wide standard measure of REIT operating performance.
FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:
• FFO does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
• FFO does not reflect changes in, or cash requirements for, our working
capital needs;
• Although depreciation and amortization are non-cash charges, the assets
being depreciated and amortized will often have to be replaced in the
future, and FFO does not reflect any cash requirements for such
replacements; and
• Other companies in our industry may calculate FFO differently than we do,
limiting its usefulness as a comparative measure.
Because of these limitations, FFO should not be considered as a measure of
discretionary cash available to us to invest in the growth of our business or
our dividend paying capacity. We compensate for these limitations by relying
primarily on our GAAP results and using FFO only as a supplemental measure.
49
--------------------------------------------------------------------------------Adjusted Funds From Operations
We present AFFO as a supplemental measure of our performance. We define AFFO as FFO further adjusted to eliminate the impact of certain items that we do not consider indicative of our ongoing operating performance. These further adjustments are itemized in the table below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating AFFO 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 AFFO should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. We present AFFO 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 AFFO 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 AFFO when determining incentive compensation.
AFFO has limitations as an analytical tool. Some of these limitations are:
• AFFO does not reflect our cash expenditures, or future requirements, for
capital expenditures or contractual commitments;
• AFFO 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 AFFO does not reflect any cash requirements for such
replacements;
• AFFO 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 AFFO differently than we do,
limiting its usefulness as a comparative measure.
Because of these limitations, AFFO 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 AFFO only as a supplemental measure.
50
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Below is a reconciliation of net income to FFO available to common shareholders
and AFFO available to common shareholders (in thousands, except per share
amounts): (1)
2019 2018 2017
Net income $ 92,728 $ 45,563 $ 71,876
Adjusted for:
Depreciation and amortization of real estate assets -
consolidated 120,856 129,281 125,621 Depreciation and amortization of real estate assets - unconsolidated joint ventures
12,512 13,314 13,857
Impairment charges - consolidated 37,610 49,739
Impairment charges - unconsolidated joint ventures - 7,180 9,021 Foreign currency loss from sale of joint venture property 3,641 - -
Gain on sale of assets and interests in unconsolidated entities
(43,422 ) - (6,943 )
FFO 223,925 245,077 213,432 FFO attributable to noncontrolling interests in other consolidated partnerships
(195 ) 421 (265 )
Allocation of earnings to participating securities (1,991 ) (2,151 ) (1,943 )
FFO available to common shareholders (1) $ 221,739 $ 243,347 $ 211,224
As further adjusted for:
Compensation related to executive officer retirement
(2) 4,371 - -
Abandoned pre-development costs - - 528
Recoveries from litigation settlement - - (1,844 ) Make-whole premium due to early extinguishment of debt (3)
- - 34,143 Write-off of debt discount and debt origination costs due to early extinguishment of debt (3)
- - 1,483
Impact of above adjustments to the allocation of
earnings to participating securities (35 ) - (238 )
AFFO available to common shareholders (1) $ 226,075 $ 243,347 $ 245,296
FFO available to common shareholders per share -
diluted (1) $ 2.27 $ 2.48 $ 2.12
AFFO available to common shareholders per share -
diluted (1) $ 2.31 $ 2.48 $ 2.46
Weighted Average Shares:
Basic weighted average common shares 92,808 93,309 94,506 Effect of outstanding options and restricted common shares
- 1 16
Diluted weighted average common shares (for earnings per share computations)
92,808 93,310 94,522
Exchangeable operating partnership units 4,958 4,993 5,027 Diluted weighted average common shares (for FFO and AFFO per share computations) (1)
97,766 98,303 99,549
(1) Assumes the Class A common limited partnership units of the Operating
Partnership held by the noncontrolling interests are exchanged for common
shares of the Company. Each Class A common limited partnership unit is
exchangeable for one of the Company's common shares, subject to certain
limitations to preserve the Company's REIT status.
(2) For the year ended December 31, 2019 , represents the acceleratedrecognition 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.
(3) For the year end
our $300.0 million 6.125% senior notes due 2020.
51
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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.
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, FFO or AFFO.
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.
52
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Below is a reconciliation of net income to Portfolio NOI and Same Center NOI for the consolidated portfolio (in thousands):
2019 2018
Net income $ 92,728 $ 45,563
Adjusted to exclude: Equity in earnings of unconsolidated joint ventures (7,839 ) (924 ) Interest expense 61,672 64,821 Gain on sale of assets (43,422 ) - Other non-operating (income) expense 2,761 (864 ) Impairment charges 37,610 49,739 Depreciation and amortization 123,314 131,722 Other non-property expenses 1,049 1,001 Corporate general and administrative expenses 53,881 43,291 Non-cash adjustments (1) (6,237 ) (3,191 ) Lease termination fees (1,615 ) (1,246 ) Portfolio NOI 313,902 329,912 Non-same center NOI (2) (4,024 ) (17,900 ) Same Center NOI$ 309,878 $ 312,012 (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,
Economic Conditions and Outlook
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 percentage 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, 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. 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 acrossthe 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 ofJanuary 1, 2019 , we had approximately 1.3 million square feet, or 11% of our consolidated portfolio at that time coming up for renewal during 2019, excluding the outlet centers sold inMarch 2019 . As ofDecember 31, 2019 , we had renewed approximately 77% of this space. In addition, for the twelve months endedDecember 31, 2019 , we completed renewals and re-tenanted space totaling 1.5 million square feet at a blended 2.7% increase in average base rental rates compared to the expiring rates. During 2020, approximately 1.7 square feet, or 14%, of our current consolidated portfolio will come up for renewal. 53
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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 natural expiration or as a result of filing for protection under bankruptcy laws, or may request modifications to their existing lease terms. During the year endedDecember 31, 2019 , we recaptured approximately 198,000 square feet within the consolidated portfolio related to bankruptcies and brand-wide restructurings by retailers, compared to 126,000 square feet during the year endedDecember 31, 2018 . We expect other store closings to impact our operating results in 2020. We have already recaptured 303,000 square feet inJanuary 2020 related to all of theDressbarn and Kitchen Collection stores and certain Forever 21 and Destination Maternity stores. If not released, this would represent a reduction of approximately 350 basis points of Same Center NOI. We also estimate that there may be 322,000 to 372,000 square feet of potential additional store closings that are unknown or unresolved at this time. Largely due to the number of recent and/or anticipated bankruptcy filings, store closings and rent adjustments, we currently expect our Same Center NOI for 2020 to decline compared to 2019. 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. Occupancy at our consolidated centers was 97.0% and 96.8% as ofDecember 31, 2019 and 2018, respectively.
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