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MarketScreener Homepage  >  Equities  >  Nyse  >  Tanger Factory Outlet Centers, Inc.    SKT

TANGER FACTORY OUTLET CENTERS, INC.

(SKT)
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TANGER FACTORY OUTLET CENTERS : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

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11/04/2019 | 04:27pm EST
The discussion of our results of operations reported in the unaudited,
consolidated statements of operations compares the three and nine months ended
September 30, 2019 with the three and nine months ended September 30, 2018. 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 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. We intend for 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 have
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 shares; potential
developments, expansions, renovations, acquisitions or dispositions of outlet
centers; compliance with debt covenants; renewal and re-lease of leased space;
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 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 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; the risk that consumer, travel, shopping and
spending habits may change; 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; 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, including the recent
changes in the U.S. federal income taxation of U.S. businesses; 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 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, 2018.


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General Overview


As of September 30, 2019, we had 32 consolidated outlet centers in 19 states
totaling 12.0 million square feet. We also had 7 unconsolidated outlet centers
in 6 states or provinces totaling 2.2 million square feet. During March 2019, we
closed on the sale of four non-core consolidated outlet centers for total gross
proceeds of $130.5 million, and total net proceeds of approximately $128.2
million. The four properties were located in Nags Head, North Carolina; Ocean
City, Maryland; Park City, Utah; and Williamsburg, Iowa and represented 6.8% of
the Company's consolidated portfolio square footage. In May 2019, the RioCan
joint venture closed on the sale of its outlet center in Bromont, Quebec for net
proceeds of approximately $6.4 million. Our share of the proceeds was
approximately $3.2 million.

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, 2018 to September 30, 2019
(square feet in thousands):
                                                                                       Unconsolidated Joint Venture
                                                  Consolidated Outlet Centers                 Outlet Centers
                                                                       Number of                            Number of
                               Quarter                                  Outlet                                Outlet
     Outlet Center         Opened/Disposed       Square Feet            Centers        Square Feet           Centers
As of January 1, 2018                                 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 September 30, 2019                              12,048               32             2,212                  7




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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, 2019. Except as noted, all properties are fee owned.

      Consolidated Outlet Centers             Legal        Square         
%
Location                                   Ownership %      Feet       Occupied
Deer Park, New York                                100      739,109        98
Riverhead, New York (1)                            100      729,778        97
Rehoboth Beach, Delaware (1)                       100      557,353        

98

Foley, Alabama                                     100      554,583        

90

Atlantic City, New Jersey (1) (3)                  100      489,706        

80

San Marcos, Texas                                  100      471,816        

94

Sevierville, Tennessee (1)                         100      447,815        

99

Savannah, Georgia                                  100      429,089        

96

Myrtle Beach Hwy 501, South Carolina               100      426,523        98
Jeffersonville, Ohio                               100      411,867        92
Glendale, Arizona (Westgate)                       100      410,726        99
Myrtle Beach Hwy 17, South Carolina (1)            100      403,425       100
Charleston, South Carolina                         100      382,180        99
Lancaster, Pennsylvania                            100      376,997        88
Pittsburgh, Pennsylvania                           100      373,863        97
Commerce, Georgia                                  100      371,408        97
Grand Rapids, Michigan                             100      357,103        96
Fort Worth, Texas                                  100      351,741        99
Daytona Beach, Florida                             100      351,721        99
Branson, Missouri                                  100      329,861       100
Southaven, Mississippi (2) (3)                      50      324,716        98
Locust Grove, Georgia                              100      321,082        97
Gonzales, Louisiana                                100      321,066        95
Mebane, North Carolina                             100      318,886       100
Howell, Michigan                                   100      314,438        93
Mashantucket, Connecticut (Foxwoods) (1)           100      311,508        95
Tilton, New Hampshire                              100      250,107        97
Hershey, Pennsylvania                              100      249,696       100
Hilton Head II, South Carolina                     100      206,564        

92

Hilton Head I, South Carolina                      100      181,670       

100

Terrell, Texas                                     100      177,800        

97

Blowing Rock, North Carolina                       100      104,009        88
Totals                                                   12,048,206        96

(1) These properties or a portion thereof are subject to a ground lease.


(2)    Based on capital contribution and distribution provisions in the joint
       venture agreement, we expect our economic interest in the venture's cash
       flow to be greater than our legal ownership percentage. We currently
       receive substantially all the economic interest of the property.

(3) Property encumbered by mortgage. See Notes 5 and 6 to the consolidated

       financial statements for further details of our debt obligations.




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Unconsolidated joint venture properties Legal Square % Location

                                    Ownership %      Feet      

Occupied

Charlotte, North Carolina (1)                        50     398,677          99
Ottawa, Ontario                                      50     357,213          97
Columbus, Ohio (1)                                   50     355,245          97
Texas City, Texas (Galveston/Houston) (1)            50     352,705         

96

National Harbor, Maryland (1)                        50     341,156          97
Cookstown, Ontario                                   50     307,779          98
Saint-Sauveur, Quebec (1)                            50      99,405          96
Total                                                     2,212,180          97

(1) Property encumbered by mortgage. See Note 4 to the consolidated financial

statements for further details of the joint venture debt obligations.




Leasing Activity

The 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, 2019 and 2018:
                                   Trailing twelve months ended September 30, 2019(1),(2)
                                             Average                                            Net Average
                                              Annual             Average         Average          Annual
                           Square Feet  Straight-line Rent       Tenant        Initial Term Straight-line Rent
             # of Leases   (in 000's)         (psf)          Allowance (psf)    (in years)       (psf) (3)
 Re-tenant          106           520   $          34.02   $           42.35         8.41   $           28.98
  Renewal           239         1,147   $          34.02   $            0.55         3.81   $           33.88

                                     Trailing twelve months ended September 30, 2018(1)
                                             Average                                            Net Average
                                              Annual             Average         Average          Annual
                           Square Feet  Straight-line Rent       Tenant        Initial Term Straight-line Rent
             # of Leases   (in 000's)         (psf)          Allowance (psf)    (in years)       (psf) (3)
 Re-tenant           99           478   $          32.92   $           63.74         7.86   $           24.81
  Renewal           265         1,343   $          29.79   $            0.26         3.79   $           29.72

(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)    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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RESULTS OF OPERATIONS Comparison of the three months ended September 30, 2019 to the three months ended September 30, 2018


NET INCOME (LOSS)
Net income in the 2019 period increased $47.8 to $24.8 million as compared to a
net loss of $23.0 million for the 2018 period. The increase in net income is
primarily due to the the inclusion in the 2018 period of a $49.7
million impairment charge related to our Jeffersonville outlet center.  The
increase in net income was partially offset by lower net income due to the sale
of four outlet centers in March 2019.

In the tables below, information set forth for properties disposed includes the
Nags Head, Ocean City, Park City and Williamsburg outlet centers sold in late
March 2019.

RENTAL REVENUES
Rental revenues decreased $5.2 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 $ 113,013$ 113,049

     $               (36 )
Rental revenues from properties disposed                  79          6,322                  (6,243 )
Straight-line rent adjustments                         2,052          1,451                     601
Lease termination fees                                   127             70                      57
Amortization of above and below market rent
adjustments, net                                        (221 )         (615 )                   394
                                                  $  115,050$  120,277     $            (5,227 )



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 three months ended
September 30, 2019, we recorded $1.6 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.

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services increased $117,000 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                            $     567$     571     $              (4 )
Leasing and other fees                                     32            12                    20
Expense reimbursements from unconsolidated joint
ventures                                                  757           656                   101
                                                    $   1,356$   1,239     $             117














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PROPERTY OPERATING EXPENSES
Property operating expenses decreased $504,000 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                                        $   38,074$   36,420     $            1,654
Properties operating expenses from properties
disposed                                                  (4 )        1,863                 (1,867 )
Expenses related to unconsolidated joint
ventures                                                 757            656                    101
Other property operating expenses                        322            714                   (392 )
                                                  $   39,149$   39,653     $             (504 )


Property operating expenses incurred at existing properties during the 2019 period increased due primarily to higher property taxes at certain centers and higher portfolio-wide property insurance costs.


GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $1.5 million in the 2019 period
compared to the 2018 period, primarily as a result of $1.3 million in costs
incurred 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 CHARGE
During the third quarter 2018, we determined that the estimated future
undiscounted cash flows of our Jeffersonville outlet center did not exceed the
property's carrying value due to a decline in operating results at the center
likely resulting from increased competition from the Company's center in
Columbus, OH and slower than expected improvement from remerchandising
activities. Therefore, we recorded a $49.7 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.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs decreased $2.7 million in the 2019 period
compared to the 2018 period. The following table sets forth the changes in
various components of depreciation and amortization costs from the 2018 period
to the 2019 period (in thousands):
                                                      2019           2018   

Increase/(Decrease)

Depreciation and amortization from existing
properties                                        $   30,103$   31,480     $            (1,377 )
Depreciation and amortization from properties
disposed                                                   -          1,370                  (1,370 )
                                                  $   30,103$   32,850     $            (2,747 )



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.

INTEREST EXPENSE
Interest expense decreased $1.2 million in the 2019 period compared to the 2018
period primarily from the use of the net proceeds from the sale of four
properties in March 2019 to reduce amounts outstanding on our unsecured lines of
credit. In addition, we utilized some of our operating cash flows to pay down
the lines of credit.










                                       46
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EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES Equity in earnings of unconsolidated joint ventures increased approximately $496,000 in the 2019 period compared to the 2018 period. In the table below, information set forth for properties disposed includes the RioCan joint venture's Bromont outlet center, which was sold in May 2019.

                                                2019       2018      

Increase/(Decrease)

Equity in earnings from existing properties $ 2,329$ 1,756 $

573

Equity in earnings from property disposed           -         77                  (77 )
                                              $ 2,329$ 1,833    $             496



Equity in earnings from existing properties increased due to lease termination
fees received in the 2019 period and due to rental revenues in the 2019 period
including consideration received from certain executory costs, recognized on a
straight line basis, as discussed above.

Comparison of the nine months ended September 30, 2019 to the nine months ended September 30, 2018


NET INCOME
Net income increased $80.2 million in the 2019 period to $105.1 million as
compared to $24.9 million for the 2018 period. The increase in net income is
partially due to:
•      the $43.4 million gain recorded on the sale of the four outlet centers in

March 2019, and the

• inclusion in the 2018 period of a $49.7 million impairment charge related

to 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 March 2019 discussed above,

• a $4.4 million charge in the 2019 period related to the accelerated

recognition of compensation cost as a result of a transition agreement

       (the "COO Transition Agreement") with the Company's President and Chief
       Operating Officer in connection with his planned retirement, 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 late March 2019.


RENTAL REVENUES
Rental revenues decreased $10.1 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 $ 333,195$ 334,052

     $              (857 )
Rental revenues from properties disposed               6,501         19,159                 (12,658 )
Straight-line rent adjustments                         6,938          4,744                   2,194
Lease termination fees                                 1,526          1,134                     392
Amortization of above and below market rent
adjustments, net                                        (771 )       (1,639 )                   868
                                                  $  347,389$  357,450     $           (10,061 )



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.


                                       47
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As a result of combining all components of a lease due to the adoption of the
lease accounting standard ASC 842, all fixed contractual payments, including
consideration received from certain executory costs, are now recognized on a
straight line basis. For the nine months ended September 30, 2019, we recorded
$4.9 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 by $1.1
million related to certain bankrupt tenants.

MANAGEMENT, LEASING AND OTHER SERVICES
Management, leasing and other services increased $363,000 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                             $   1,696$   1,704     $              (8 )
Leasing and other fees                                      71           122                   (51 )
Expense reimbursements from unconsolidated joint
ventures                                                 2,176         1,754                   422
Total Fees                                           $   3,943$   3,580     $             363


PROPERTY OPERATING EXPENSES Property operating expenses decreased $1.6 million in the 2019 period as 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 $ 111,937$ 110,105 $

             1,832

Property operating expenses from property disposed 2,594 5,945

                  (3,351 )
Expenses related to unconsolidated joint ventures           2,176          1,754                     422
Other property operating expense                            1,545          2,013                    (468 )
                                                       $  118,252$  119,817     $            (1,565 )


Property operating expenses incurred at existing properties during the 2019 period increased due primarily to higher property taxes at certain centers and higher portfolio-wide property insurance costs.


GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased $8.0 million in the 2019 period
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 $3.5 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 CHARGE
During the third quarter 2018, we determined that the estimated future
undiscounted cash flows of our Jeffersonville outlet center did not exceed the
property's carrying value due to a decline in operating results at the center
likely resulting from increased competition from the Company's center in
Columbus, OH and slower than expected improvement from remerchandising
activities. Therefore, we recorded a $49.7 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.


                                       48
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization costs decreased $5.7 million in the 2019 period
compared to the 2018 period. The following table sets forth the changes in
various components of depreciation and amortization costs from the 2019 period
to the 2018 period (in thousands):
                                                      2019           2018   

Increase/(Decrease)

Depreciation and amortization expenses from
existing properties                               $   91,753$   94,606     $            (2,853 )
Depreciation and amortization from property
disposed                                               1,256          4,061                  (2,805 )
                                                  $   93,009$   98,667     $            (5,658 )



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.

INTEREST EXPENSE
Interest expense decreased $1.7 million in the 2019 period compared to the 2018
period primarily from the use of the net proceeds from the sale of four
properties in March 2019 to reduce amounts outstanding on our unsecured lines of
credit. In addition, we utilized some of our operating cash flows to pay down
the 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. In August 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%. In addition, the average 30-day LIBOR interest rate for our unsecured
lines of credit was higher in the 2019 period.

GAIN ON SALE OF ASSETS
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.

EQUITY IN EARNINGS OF UNCONSOLIDATED JOINT VENTURES Equity in earnings of unconsolidated joint ventures decreased approximately $629,000 in the 2019 period compared to the 2018 period. In the table below, information set forth for properties disposed includes the RioCan joint venture's Bromont outlet center, which was sold in May 2019.


                                                2019       2018       

Increase/(Decrease)

Equity in earnings from existing properties $ 5,596$ 6,120 $

       (524 )
Equity in earnings from property disposed           8        113                  (105 )
                                              $ 5,604$ 6,233    $             (629 )



The decrease in equity in earnings of unconsolidated joint ventures from
existing properties was primarily due to the conversion of the mortgages at both
our Charlotte and National Harbor joint ventures from variable to fixed due to
debt refinancings in 2018. 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%. In addition, the 2019 period had higher LIBOR interest rate levels on
variable rate mortgages at our Columbus and Galveston unconsolidated joint
ventures.


                                       49
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These decreases were partially offset due to lease termination fees received in
the 2019 period and due to rental revenues in the 2019 period including
consideration received from certain executory costs, recognized on a straight
line basis, as discussed above.

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.

The Company believes the Operating Partnership's sources of working capital,
specifically its cash flow from operations and borrowings available under its
unsecured lines of credit, 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 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.

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.




                                       50
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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 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 were as follows:

                                            Three months ended September
                                                        30,                 

Nine months ended September 30,

                                                2019             2018              2019              2018
Total number of shares purchased                 650,929              -             1,209,328      919,249
Average price paid per share               $       15.34     $        -     $           16.52     $  21.74
Total price paid exclusive of
commissions and related fees (in
thousands)                                 $       9,987     $        -     $          19,976     $ 19,980



The remaining amount authorized to be repurchased under the program as of
September 30, 2019 was approximately $80.0 million. For more information, see
"Item 2. Unregistered Sales of Equity Securities and Use of Proceeds" in Part II
of this Quarterly Report on Form 10-Q.

In October 2019, the Company's Board of Directors declared a $0.355 cash dividend per common share payable on November 15, 2019 to each shareholder of record on October 31, 2019, and the Trustees of Tanger GP Trust declared a $0.355 cash distribution per Operating Partnership unit to the Operating Partnership's unitholders.

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 or from the proceeds from the
Operating Partnership's debt offerings and the Company's equity offerings.

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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.

The following table sets forth our changes in cash flows (in thousands):

                                                  Nine months ended 

September 30,

                                                     2019                 2018            Change
Net cash provided by operating activities     $       158,971$       179,968$ (20,997 )
Net cash provided by (used in) investing
activities                                            107,943               (36,815 )     144,758
Net cash used in financing activities                (271,299 )            (144,782 )    (126,517 )
Effect of foreign currency rate changes on
cash and equivalents                                      (32 )                 (60 )          28
Net decrease in cash and cash equivalents     $        (4,417 )$        (1,689 )$  (2,728 )



Operating Activities

The decrease in net cash provided by operating activities in the 2019 period was
due to the sale of the four outlet centers in March 2019 as well as changes in
working capital.

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.

Capital Expenditures

The following table details our capital expenditures (in thousands):

                                                    Nine months ended 

September 30,

                                                       2019                 2018             Change
Capital expenditures analysis:
New outlet center developments and expansions   $         6,913       $         6,398     $      515
Major outlet center renovations                             919                 1,973         (1,054 )
Second generation tenant allowances                      15,171                11,588          3,583
Other capital expenditures                               15,135                15,929           (794 )
                                                         38,138                35,888          2,250
Conversion from accrual to cash basis                    (2,930 )              17,461        (20,391 )
Additions to rental property-cash basis         $        35,208$        53,349$  (18,141 )







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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 in Nashville, Tennessee. We may
also use joint venture arrangements to develop other potential sites. There can
be no assurance, however, that these potential future projects will ultimately
be developed.

In the case of projects to be wholly-owned by us, we 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.

Financing Arrangements


As of September 30, 2019, unsecured borrowings represented 95% of our
outstanding debt and 92% of the gross book value of our real estate portfolio
was unencumbered. The Company guarantees the Operating Partnership's obligations
under our lines of credit. As of September 30, 2019, we had $595.7 million
available under our unsecured lines of credit after taking into account
outstanding letters of credit of $170,000.

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 on Form S-3 with the Operating Partnership, 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 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 unsecured lines of
credit. The unsecured lines of credit expire in 2021, with a one-year extension
option that may extend the maturity to 2022. At September 30, 2019, amounts
outstanding under our unsecured lines of credit, which provide for borrowings up
to $600.0 million, totaled $4.1 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.


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The Operating Partnership's debt agreements require the maintenance of certain
ratios, including debt service coverage and leverage, and limit the payment of
dividends such that dividends and distributions will not exceed funds from
operations, as defined in the agreements, for the prior fiscal year on an annual
basis or 95% on a cumulative basis. We have historically been and currently are
in compliance with all of our debt covenants. We expect to remain in compliance
with all of 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 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%    199 %




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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 4 to the consolidated financial statements for details of
our individual joint ventures, including, but not limited to, carrying values of
our investments, fees we receive for services provided to the joint ventures,
recent development and financing transactions and condensed combined summary
financial information.

We may elect to fund cash needs of a joint venture through equity contributions
(generally on a basis proportionate to our ownership interests), advances or
partner loans, although such funding is not typically required contractually or
otherwise. We separately report investments in joint ventures for which
accumulated distributions have exceeded investments in, and our share of net
income or loss of, the joint ventures within other liabilities in the
consolidated balance sheets because we are committed and intend to provide
further financial support to these joint ventures. We believe our joint ventures
will be able to fund their operating and capital needs for the next twelve
months based on their sources of working capital, specifically cash flow from
operations, access to contributions from partners, and ability to refinance debt
obligations, including the ability to exercise upcoming extensions of near term
maturities.

Our joint ventures are typically encumbered by a mortgage on the joint venture
property. We provide guarantees to lenders for our joint ventures which include
standard non-recourse carve out indemnifications for losses arising from items
such as but not limited to fraud, physical waste, payment of taxes,
environmental indemnities, misapplication of insurance proceeds or security
deposits and failure to maintain required insurance. A default by a joint
venture under its debt obligations may expose us to liability under the
guaranty. For 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


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.

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, 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 2019    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                       (1.2 )
                    $      367.9$       19.4


(1)    In October 2019, the joint venture exercised its option to extend the
       mortgage loan for one year to November 2020 under the same terms. The
       mortgage loan has one remaining one-year extension option.



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CRITICAL ACCOUNTING POLICIES AND ESTIMATES


Refer to our 2018 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. There have been no
material changes to these policies in 2019, other than the adoption of
the Accounting Standards Codification Topic 842, Leases, described in
Note 17 -Leases to the unaudited consolidated financial statements in Part I,
Item I of this Quarterly Report on Form 10-Q.


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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 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 generally accepted accounting
principles in the United States ("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. We believe that FFO payout ratio, which represents
regular distributions to common shareholders and unit holders of the Operating
Partnership expressed as a percentage of FFO, is useful to investors because it
facilitates the comparison of dividend coverage between REITs. NAREIT has
encouraged its member companies to report their FFO as a supplemental,
industry-wide standard measure of REIT operating performance.

FFO has significant limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

• FFO does not reflect our cash expenditures, or future requirements, for

       capital expenditures or contractual commitments;


• FFO does not reflect changes in, or cash requirements for, our working

       capital needs;


• Although depreciation and amortization are non-cash charges, the assets

       being depreciated and amortized will often have to be replaced in the
       future, and FFO does not reflect any cash requirements for such
       replacements; and


• Other companies in our industry may calculate FFO differently than we do,

limiting its usefulness as a comparative measure.




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

                                       57
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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.




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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):
                                                     Three months ended          Nine months ended
                                                       September 30,               September 30,
                                                     2019         2018          2019          2018
Net income (loss)                                 $ 24,809$ (23,031 )$ 105,107$  24,944
Adjusted for:
Depreciation and amortization of real estate
assets - consolidated                               29,451        32,237        91,149        96,841
Depreciation and amortization of real estate
assets - unconsolidated joint ventures               3,058         3,466         9,453        10,020
Impairment charge - consolidated                         -        49,739             -        49,739
Foreign currency loss from sale of joint
venture property                                         -             -         3,641             -
Gain on sale of assets                                   -             -       (43,422 )           -
FFO                                                 57,318        62,411       165,928       181,544
FFO attributable to noncontrolling interests in
other consolidated partnerships                          -             -          (195 )         278
Allocation of earnings to participating
securities                                            (481 )        (560 )      (1,502 )      (1,571 )
FFO available to common shareholders  (1)         $ 56,837$  61,851$ 164,231$ 180,251
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 )           -

AFFO available to common shareholders (1) $ 56,837$ 61,851

  $ 168,567$ 180,251
FFO available to common shareholders per share
- diluted (1)                                     $   0.58$    0.63$    1.68$    1.83
AFFO available to common shareholders per share
- diluted (1)                                     $   0.58$    0.63

$ 1.72$ 1.83


Weighted Average Shares:
Basic weighted average common shares                92,514        93,109        92,999        93,349
Diluted weighted average common shares (for
earnings per share computations)                    92,514        93,109        92,999        93,349
Exchangeable operating partnership units             4,960         4,995         4,960         4,995
Diluted weighted average common shares (for FFO
and AFFO per share computations) (1)                97,474        98,104    

97,959 98,344

(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 President and Chief Operating Officer per the

terms of a transition agreement executed in connection with his planned

       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.


                                       59
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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, 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.

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

                                                   Three months ended          Nine months ended
                                                     September 30,               September 30,
                                                   2019         2018          2019          2018
Net income (loss)                               $ 24,809$ (23,031 )$ 105,107$  24,944
Adjusted to exclude:
Equity in earnings of unconsolidated joint
ventures                                          (2,329 )      (1,833 )      (5,604 )      (6,233 )
Interest expense                                  15,197        16,367        46,638        48,348
Gain on sale of assets                                 -             -       (43,422 )           -
Other non-operating (income) expense                (227 )        (261 )       2,966          (661 )
Impairment charge                                      -        49,739             -        49,739
Depreciation and amortization                     30,103        32,850        93,009        98,667
Other non-property expense                           160           457           491           832

Corporate general and administrative expenses 12,265 10,521

  41,032        32,223
Non-cash adjustments(1)                           (1,729 )        (702 )      (5,829 )      (2,707 )
Lease termination fees                              (127 )         (70 )      (1,526 )      (1,134 )
Portfolio NOI                                     78,122        84,037       232,862       244,018
Non-same center NOI(2)                               (82 )      (4,579 )      (4,190 )     (13,505 )
Same Center NOI                                 $ 78,040$  79,458$ 228,672$ 230,513


(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 Williamsburg March 2019








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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 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 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, 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 in March 2019. As of September 30, 2019, we had renewed
approximately 71% of this space. In addition, for the rolling twelve months
ended September 30, 2019, we completed renewals and re-tenanted space totaling
1.7 million square feet at a blended 2.5% increase 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
natural expiration or as a result of filing for protection under bankruptcy
laws, or may request modifications to their existing lease terms. As of
September 30, 2019, we recaptured approximately 195,000 square feet within the
consolidated portfolio related to bankruptcies and brand-wide restructurings by
retailers during the year, compared to 123,000 square feet by this time last
year. Largely due to the number of bankruptcy filings, store closings and rent
adjustments in 2018 and 2019, we currently expect our Same Center NOI for 2019
to decline compared to 2018.
We expect other store closings will impact our operating results. For example,
Dressbarn plans to close all of their stores at the beginning of 2020. In our
consolidated portfolio, this comprises 22 stores with approximately 177,000
square feet. Kitchen Collection has also announced plans to close all of their
retail stores. We currently have 30 stores in our consolidated portfolio
representing 93,000 square feet. Forever 21 and Destination Maternity filed for
bankruptcy court protection in October. The current potential store closure
lists for stores in our consolidated portfolio include two Forever 21 Stores,
and five Destination Maternity locations. Together, these seven stores represent
33,000 square feet. We do not know exactly how many stores will close and when,
and if there will be any early termination fees or any rent adjustments at
stores that remain open.
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 95.9% and 96.4% as of September 30,
2019 and 2018, respectively.



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