Tanger (SKT) Risk Analysis

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which amends the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity's own equity. Among other things, ASU 2020-06 eliminates requirements to separately account for liability and equity components of such convertible debt instruments and eliminates the ability to use the "treasury stock" method for calculating diluted earnings per share for convertible instruments whose principal amount may be settled using shares. Instead, ASU 2020-06 requires the (i) entire amount of the security to be presented as a liability on the balance sheet and (ii) application of the "if-converted" method for calculating diluted earnings per share. We adopted ASU 2020-06 as of January 1, 2022, and as such we expect the Exchangeable Notes will be reflected as a liability on our balance sheets, with the initial carrying amount equal to the principal amount of the Exchangeable Notes, net of issuance costs. The issuance costs will be treated as a debt discount for accounting purposes, which will be amortized into interest expense over the term of the Exchangeable Notes. As a result of this amortization, the interest expense that we expect to recognize for the Exchangeable Notes for accounting purposes will be greater than the cash interest payments we will pay on the Exchangeable Notes, which will result in lower reported income. In addition, we expect to apply the "if-converted" method for calculating diluted earnings per share. Under the "if-converted" method, diluted earnings per share will generally be calculated assuming that all the Exchangeable Notes were exchanged solely into common shares at the beginning of the reporting period, unless the result would be anti-dilutive, which could adversely affect our diluted earnings per share. Because the principal amount of the Exchangeable Notes upon exchange is required to be paid in cash, and only the excess is permitted to be settled in shares, the application of the "if-converted" method to the Exchangeable Notes offered hereby will produce a similar result as the "treasury stock" method prior to the adoption of ASU 2020-06. The effect of the "treasury stock" method is that the shares issuable upon exchange of such Exchangeable Notes are not included in the calculation of diluted earnings per share except to the extent that the exchange value of such notes exceeds their principal amount. As a result, our earnings per share could be lower than it would be if the Operating Partnership had not issued the Exchangeable Notes, even at times when the Exchangeable Notes are not exchangeable. The requirement that the principal amount of the Exchangeable Notes upon exchange must be paid in cash could adversely affect our liquidity. We have not reached a final determination regarding the accounting treatment for the Exchangeable Notes, and the description above is preliminary. Accordingly, we may account for the Exchangeable Notes in a manner that is significantly different than described above. We cannot be sure whether other changes may be made to the current accounting standards related to the Exchangeable Notes, or otherwise, that could impact our accounting for the Exchangeable Notes and could have a material effect on the Operating Partnership's or our reported financial results.

Certain provisions in the indenture governing the Exchangeable Notes may make it more difficult or expensive for a third party to acquire us. For example, the indenture governing the Exchangeable Notes will generally require the Operating Partnership to repurchase the Exchangeable Notes for cash upon the occurrence of a fundamental change and, in certain circumstances, to increase the exchange rate for a holder that exchanges its notes in connection with a make-whole fundamental change. A takeover of our company may trigger the requirement that we repurchase the Exchangeable Notes and/or increase the exchange rate, which could make it more costly for a potential acquirer to engage in such takeover. Such additional costs may have the effect of delaying or preventing a takeover of our company that would otherwise be beneficial to investors.

In connection with the Exchangeable Notes, we entered into the Capped Call Transactions with certain financial institutions as counterparties. The Capped Call Transactions are expected generally to reduce the potential dilution to our common shares upon any conversion of the Exchangeable Notes and/or offset any cash payments the Operating Partnership is required to make in excess of the principal amount of such converted Exchangeable Notes, as the case may be, in the event that the market price per share of the common shares, as measured under the terms of the Capped Call Transactions, is greater than the strike price of the Capped Call Transactions, with such reduction and/or offset subject to a cap. From time to time, the counterparties or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common shares and/or purchasing or selling our common shares or other securities of ours in secondary market transactions prior to the maturity of the Exchangeable Notes. This activity could also cause or prevent an increase or a decrease in the market price of our common shares.

Holders of the Exchangeable Notes will have the right, subject to certain conditions and limited exceptions, to require the Operating Partnership to repurchase all or a portion of their Exchangeable Notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Exchangeable Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon exchange of the Exchangeable Notes, the Operating Partnership will be required to make cash payments in an amount at least equal to the principal amount of such Exchangeable Notes (or, if less, the exchange value thereof). However, the Operating Partnership may not have enough available cash or be able to obtain financing at the time it is required to make repurchases of Exchangeable Notes surrendered therefor or pay cash with respect to Exchangeable Notes being exchanged (or at the time we are required to pay such amounts due under the guarantee). In addition, the Operating Partnership's ability to repurchase the Exchangeable Notes or to pay cash upon exchange of the Exchangeable Notes, and its ability to pay such amounts due under the guarantee of the Exchangeable Notes by the Company, may be limited by law, by regulatory authority or by agreements governing our indebtedness. The failure to repurchase notes at a time when the repurchase is required by the indenture or to pay any cash payable on future exchanges of the Exchangeable Notes as required by the indenture would constitute a default under the indenture. A default under the indenture governing the Exchangeable Notes or the fundamental change itself could also lead to a default under agreements governing our other or future indebtedness, which may result in that other indebtedness becoming immediately payable in full. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, the Company or the Operating Partnership may not have sufficient funds to repay such indebtedness and repurchase the Exchangeable Notes and/or make cash payments upon exchanges thereof.