Q1 2021 Tanger Factory Outlet Centers Inc Earnings Call
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Good morning. This is Sidney Ho Senior Vice President of Finance and Investor Relations and I would like to welcome you to the Tanger factory outlet centers first quarter 2021 conference call yesterday evening, we issued our earnings release as well as our sub.
Momentum information package and Investor presentation. This information is available on our Investor Relations website, Investor <unk> Dot Tanger outlet Dot com.
And everyone and only one question and one follow up to allow as many of you as possible to ask questions. If time permits we're happy for you to <unk> for additional questions on the call today will be Steven Tanger Executive Chair, Steven Yalof, Chief Executive Officer, and Jim Williams, Executive Vice President and Chief Financial Officer.
I will now turn the call over to Steven tanker. Please go ahead and state.
Good morning, and.
Thank you for joining us for our first quarter 2021 or any skull.
We are encouraged by a brighter macro outlook over the past 90 days.
As vaccination, rolo continues and and and improving retail environment as evidenced by the consumer confidence index and late April reaching its highest level since the onset of depend on like the.
The improvement we are starting to see and some of our operating metrics reflects the excellent value proposition that hour open air centers provide for both retailers and shoppers.
We are confident.
That by continuing to make progress executing on our strategy will position and the company to return to sustain growth overtime.
I would now like to turn the call over to Steve yellow to provide details on our first quarter performance and to discuss our strategic priorities.
Thank you see.
Oh, Please you share the traffic toy domestic open air centers, and the first quote and the aliens and trying to 2019 levels and exceeded 2019 levels and April.
Continue to make progress and our core priorities and business leasing operating and marketing our outlet centers.
We're focused on rebuilding our occupancy driving leafing and generating our merchandise next to maximize shopper frequency and dwell time and to bring new customers to care centers.
Consolidated portfolio occupancy was $91 seven per cent at the end of the quarter up only 20 basis points from the end of 2020.
This reflects the anticipated 61000 square feet of space recaptured during the quarter related and bankruptcies and brandwein restructurings.
Blended average rental rates decreased two 8% straight-line basis, and eight 5% on a cash basis for all renewals and we tended leases and commenced during the trailing 12 months and his March 31, 2021. However.
Consolidated JV properties stores have been closed under government mandate through mid February and are again closed under mandate.
Trailing 12 months 280 leases commenced totaling over $1 4 million square feet.
Renewals executed or in process as of March 31 represented 52% of the space scheduled to expire during the year compared to 63% at the same time last year.
Slower than usual pace reflects our decision to strategically delayed some of our renewal leasing activity as the overall economic and retail environments improve.
We continue to expand relationships with our traditional tenants and we are seeing a measured pace of new leasing activity.
And with particular interest coming from the higher and brands developing new business with local and regional brands is one of our leasing priorities. This initiative provides compelling opportunities to add new and interesting concepts to our centers and.
And with it more variety for our shoppers.
And proven approach that has historically benefited our centers.
Joining tanger, one year ago, our top priority has been evolving our operational discipline by empowering our field leadership team to drive local leasing business development and operational efficiencies.
At the center level. These.
These efforts have proven effective on a reflected and are better than plan short term leasing paid media and operating expense contributions.
Revenues derived from non rental transactions such as paid media and sponsorships also provide a significant contribution to the other revenue line and the first quarter of 2021, driving a 14% increase year over year.
We have decentralized shopping center operations with each centers management team now participating and revenue generation and empowered with decision, making a 30 regarding operating expenses and <unk>.
Same time, we're centralizing certain procurement activities to benefit from the scale of our organization.
One thing that COVID-19 environment reinforced and the importance of meeting the customer where they are and creating a more personalized experience or marketing and digital transformation teams and continued to expand our virtual shopper offering.
Curbside pick up with fluid interactive capabilities, and livestream shopping and offer digital pre shopping on the Tanger App and web site.
Our digital initiatives are aimed at creating a highly personalized relationship.
Users and further building our loyalty base are providing more relevant offers and content to our individual shoppers.
Are operating strategy evolves, our commitment to environmental social and governance efforts remains unchanged and 2021, we have launched a comprehensive materiality assessment conducted by a third party to ensure that we are addressing the ESG issues, most important to our stakeholders and and these issues are integrate.
And into our core values.
Our board and executive leadership team are engaged on ESG issues impacting the organization, and where and investing time and resources to grow our diversity equity and inclusion program. We believe that education is essential to embedding and.
Throughout our culture, and our launching unconscious bias training for our senior leadership team, which will be rolled out throughout the organization.
General and and administrative expense of $2.4 million or two cents per share for compensation costs related to a voluntary retirement plan and other executive severance costs.
Thanks Center NOI for the consolidated portfolio decreased 8% for the quarter.
This reflects the rent modifications and store closings from recent bankruptcies and brandwein restructurings, partially offset by the reversal of approximately $1.6 million and reserves related to wrench previously deferred or under negotiation.
Elections of contractual fixed rents build and the first quarter of 2021, where approximately 95%.
We also continue to collect rent sales for prior periods, including amounts related to 2020 that we allowed our tenants to refer to 2021 and.
As of March 31, 2021 remaining rental revenue reserves for 2020 rents deferred or under negotiation totaled two $6 million.
And is implementing our ATM program and March we opportunistically raise capital to reduce debt and strengthen our balance sheet.
During the first quarter, we issued six 9 million common shares that generated 128, 7 million and net proceeds and a weighted average price of $19.02 per share.
We used the price stage to reduce $25 million of borrowings under our $350 million unsecured term long on March 11th 2021 and.
And on April 30 completed the partial early redemption of $150 million aggregate principal amount of our 387, 5% Senior notes do December 2023, four $163 million and cash.
Subsequent to the redemption $100 million and remains outstanding we have no significant debt maturities until December 2023.
As previously disclosed we expect to taking charge and the second quarter of 2021.
Currently estimated to be approximately $14 $1 million or 40 cents per share, including and approximately $13 million may called premium to be paid for the early redemption of the notes and one $1 million and non advertise debt discount and loan costs and.
Charge low impact our second quarter net income and <unk>, but we will have no impact on court.
We expect the 2021 net dilutive impact per share to be approximately 12 and for net income.
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This reduction and that improves our leverage ratio and enhances our balance sheet flexibility.
We have always prioritise, maintaining a strong financial position and.
We will continue our disciplined and prudent approach to capital allocation.
In addition to dividend distributions sufficient to maintain re status priority uses of capital include investing and our portfolio to grow NOI, reducing leverage to pre COVID-19 levels over time, and evaluating selected growth opportunities over the longer term.
Our outlook for 2021 remains unchanged.
And we are encouraged by the pace of our progress we continue to anticipate pressure from current vacancies additional potential store closures and rent modifications.
As mentioned on our fourth quarter earnings call, we expect store closures store and 2021 related to bankruptcies and brandwein restructurings. The total approximately 200000 square feet during 2021.
Including the 61000 square feet, we recaptured during the first quarter.
Most of the recapture should occur during the first half of the year.
Additionally.
Our guidance assumes there are no further domestic government mandated shutdowns and assumes lease termination fees decreased by $9 million per $10 million or nonsense. The 10 cents per share from the elevated level, we recognized and 2020.
Based on our current outlook, we continue to expect core SFO per share for 2021 to be between $1 and 47 and $1.57.
We are maintaining this guidance and despite the four cents dilutive impact previously discussed.
For additional details on our key assumptions. Please see our release issued last night.
Now I'd like to open it up for questions. Operator can we take our first question.
And we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speaker phone please pick up your handset before pressing the keys if at any time and your question has been addressed and you would like to withdraw your question. Please press star than two.
Once again, please ask one question and one follow up and then you may rejoined the queue.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Greg Mcguinness with Scotiabank. Please go ahead.
Good morning.
Steve from not mistaken drop and occupancy this quarter was the smallest Q1 dropped from Q4 and at least the last 20 years could you talk about some of the factors that led to maintaining and occupancy and whether this means that you may moving finally turned the corner and can start to see occupancy recovery true.
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Or maybe after absorbing a bit more space next quarter.
Book, Greg as I said.
And our last quarter meeting.
Leasing activity started to pick up and the fourth quarter of last year, and we're seeing that momentum continue now.
Represented by a number of new deals that we've done and the portfolio. Some exciting new stores are actually would be opening up this quarter that we're excited about bloomingdale's, and riverhead, tucket meat and fish and Hilton head.
But additionally, we think a lot of our national headaches.
And.
We're doing deals again, we've got a couple of portfolio wide deals that we do with the number retailer's that are <unk>.
Expanding into our portfolio and we just took a look recently on our April occupancy actually back up to 20, Dick's that we went backwards and the first quarter.
Okay, Great and then with the rebounds in with traffic are you starting to see a similarly recovery and kind of sales as well.
Although we're not reporting are intended sales right now we know anecdotally that the retailers of reporting.
Better than anticipated embedded and planned results but.
But obviously with the increase and foot traffic.
Anticipating the sales will rebound as well what we're looking at right now we've got some variable and deals and we're seeing increases on those line items that are reflective of better than anticipated sales.
And so I just a final follow up here and when do you think you might start recording that attending sales number again.
And we will have we'll discuss that after this call, but hopefully shortly.
Okay, great. Thank you so much thanks, Greg.
Okay.
The next question comes from Katie and Mcconnell with city. Please.
Please go ahead.
Okay and for.
Can you pull out from our palm the proposal and we'll keep with Allen and.
And you walk around and someone will foster from our office from angles.
Thank you for being a team.
Hi, Katie this is this is Jim.
As we said of the the equity issuances under the ATM added dilutive impact about four cents a share.
But we also had and the quarter a reversal of the deferred rent reserves that we had carried for 2020 ramps and that was about one $6 million. So that's helping offset that.
Just based on our current outlook right now and the positive trends, we're seeing and not only from the foot traffic and and and the sales from what we're hearing anecdotally just book, but also from the results were seeing.
From decentralizing, empowering and our genomes to help dropped local leasing and drive over rip of the revenues. So that based on our outlook I think we wanted to leave our guidance.
The same where it is and we will revisit that as we move through the year.
And.
Okay.
And how much of a priority.
And allowing Rob range from here or the cash normal range and.
And much appetite 12 with a small <unk>.
Okay.
We are so pleased that we put at ATM program and when we did at the right time and was able to have a great execution and.
And and issuing the shares and using those proceeds to bring breakdown our leverage and thank you.
Debt EBITDA had climbed into the low seven and this.
This debt pay down basically and proves that might have a turn and I think we should be around in the mid fixes on a pro forma basis.
Ideally I think we'd like to get down to six.
And of course, there's two ways to do that.
One is to grow EBITDA and that's what we're laser focused on as are you.
From all the comments, you've heard Steve make and his prepared remarks, and this from the positive trends and the things that we're doing from ramping up leasing and and and all that the positive results and grow and EBITDA certainly as part of that equation, but it's also got to have this total and the total cat with the ATM.
So, while there's not and intimate need to issue the pricing and slice up to have that and we can be opportunistic with market conditions permit.
Hi, thank thank you.
The next question comes from Caitlin boroughs with Goldman Sachs. Please go ahead.
Hi, Good morning, and you guys mentioned that year, and making an effort to increase the other income and I think from things like sponsorship. So can you get some details and kind of on this plan, where it today and where do you think it could be and the air morning.
Sure and good morning.
With regard to other income.
I mentioned on prior quarters, we've added a executive vice President and Who's handling our property operations right now and one of our key focuses particularly in the field was to empower a field teams to help us through short term leasing.
Marketing partnerships as well as on on.
On shopping center expense management, and obviously with the onset of COVID-19 and the inability for a lot of people to travel having a field based team out generating revenue was a great strategy for us that came and a great time with all of that said.
Historically, we have over 150 million people a year visit our shopping centers, we think through monetizing.
Sponsorship opportunity.
Things like EV parking.
And some of the.
Bright walls and.
Digital boards that we have on our shopping center, we're able to provide these revenue sources that we hadn't explored and the past and so far and they are they're very improved for us from short term leasing point of view, our church and leasing numbers are up over historic levels, but again, we were opportunistic where.
And we found out where we found the opportunity to take otherwise dark stores that we recaptures through bankruptcy or brand wide restructuring and was able to go out and to the marketplace and fill with some pretty interesting and iconic retailer's that were in that particular market, who never had the opportunity to have space.
And our shopping centers before and what we're hoping will come from some of these new relationships is future long term leases.
The short term and witches, we're providing variety for our customer we're keeping our shopping centers vibrant and do some of the food and beverage initiatives that are new to some of these centers, where extending dwell time at each of our shopping centers. So we think it's a great strategy, one that we plan to improve on and the big kicker.
Is the fact that with these short term leases once the market continues to stabilize and our traffic is increasing a R. 2019 levels are sales continue to improve we can replace some of the short term leases with some of our longer term.
Tenants and far improved brands.
And just crash sign on that so I can leaking is that included in other income or and director revenue.
Okay.
The rental revenue.
Okay, Okay and then.
And the operating expense side and they are down by the average of 2019 and I know you just mentioned that.
Managing accented and to focus have Gary and.
And so I was wondering if you could go through two and expect to what extent you attack the savings could continue on and.
And whether lower occupancy may or may not impact here NOI Martin symmetric debt.
Yeah can you make okay.
Okay and Jim.
I think.
Keep in mind, we're still are operating under reduced hours.
It was at 80% reduced I think we just know increase that to 90.
So.
First quarter and might be a little bit.
And run right, maybe a little bit higher going forward, but I think we're we're certainly encouraged by the teams that we're putting in place and the strategies that we have and empowered our gm's really manage and mitigate those those expenses.
We're we're going to not give a lot of guidance.
We're going to restrict it is right now and <unk> and in terms of the other metrics that go into that will give you a little more color as we move through the year.
Okay. Thanks.
The next question comes from Todd Thomas with Keybanc capital markets. Please.
Please go ahead.
Hi, Good morning. This is Rodney baby on the line for Todd promise hope everyone's doing well.
Saw the updated G&A range can you. Please break that down into the various investments are being made and your platform and how much and these expenses are recurring Bruce one time would.
Would be able to see them go back from historical levels or is this the new G&A range to model going forward.
Good morning, Ravi So just from a topline G&A.
A lot of that expenses investing and people.
So some of the investments that we've made I mentioned earlier and the executive Vice President enjoying us to manage property operations, we made and.
And we've added to our team.
Somebody to handle our our development on a going forward basis is also going to be focused on monetizing our peripheral land we've added to our team and.
And SVP P&A, who is also going to help us on future merger acquisition business that we're working on and so we're bringing we're building and season team over here and we're investing and that team.
Another line item is R.
We're investing and our digital transformation, where we're creating and digital experience for our customer for our shoppers that creates a little bit more of a personalized experience. So as we market to our 1.5 billion Tanger, Vips and or 11 million Tanger insiders.
We do so and a very targeted.
Matter and we think that that's something that we're going to continue to invest in and.
And that's a business that will ultimately return.
In future years.
And Rodney this this gentleman and we just just the point and I think.
We have pointed this out and the release I'm sure you saw it but just to make sure. It's clear for everyone on the call that and our guidance range from 59% $62 million is $2.4 million of compensation costs debt.
And was related to a voluntary retirement plan and would not be recurring.
Okay. Thank you and just can you please provide and update on the Nashville project, How's How's prelease and trending and are we still forecasted to break ground later this year.
Yeah book the natural project is.
Turn into marketing back on and a lot of our retailer partners are able to travel again, we've got a number of site visits planned and the next coming weeks and months.
And we control the land, we're optimistic but again, we're not going to break ground until we hit that 60% leasing threshold.
And that's our goal.
Thank you appreciate the color.
The next question comes from Flores, and Dicom with Compass points.
Please go ahead.
Good morning, guys. Thanks for taking my question.
Had a question. So first question I guess is the regarding the leasing spreads encouraging that the negative spreads are getting smaller I suppose but.
Can you comment on when you think.
That that lease spreads will will basically be.
<unk> flatline or when will they turned positive and your view can you give give some guidance around that are some color and that.
Well I'll give color, but I'm not going to give guidance Flores, but with regard to color. Yeah. We're look we're encouraged.
That we're moving and the right direction, we're narrowing the spreads.
We still have a lot of work to do we got unprecedented levels of <unk>.
Base back last year due to the accelerated bankruptcies from COVID-19, a lotta brand blood restructuring and again, our strategy has been to replace a lot of that space with short term leases, while we ride the market out if we take a look or traffic has increased over a 2019.
Levels, we think our sales are coming back with the same energy will be able to replace a lot of the space and higher rents because we're strategically waiting for that market to improve.
And then as I think about some of the potential upside here as well.
Can you remind us again, what the typical impact is two NOI converting.
Tempt tenants to to permanent tendencies.
Yeah.
Well.
Typical long term deals.
Fixed rent deals with triple net.
And a percentage Reds checker.
Yeah.
There are longer term there are more secure.
And once again, we're seeing a lot of that long term lease activity take place right now and.
Hopefully, we will announce some more real exciting deals and the next quarter, but are leasing pipeline is extremely strong and our retailers or.
Love our outlet venues they loved the outlet format, and we anticipate replacing a lot of the short term leasing with long term leasing and the foreseeable future.
Just again that and my perspective is more on the on the mall side and.
Typically converting a.
Attempt 10, and two two permanent and going from a gross rent to to a net or.
More of a net type structure, you could see and impact and you're gonna uptick and NOI of 25% to 35% on that space is that the kind of thing that we could be expecting on your 8%.
Per cent 10 tendencies.
Well again, we're not providing guidance on Reds.
Well, what I can say is that.
With the increase and traffic levels and with the sales improvement we feel pretty good that are that are rents will will follow.
Thanks and.
Except for me thanks.
Thanks lists.
Okay.
The next question comes from Mike Mueller with J P. Morgan. Please go ahead.
Yeah, Hi, just just a quick one on the we talked about eight per cent of I think square footage or tight to shorter term tenants. How does that eight per cent number compare when you think of it on on and a P. R basis is that portion that's shorter term and nature is that smaller and.
And the eight per cent.
Hey, Mike. This is my this is Jim.
And.
If I if I.
And your question I just showed how how does a AVR from the temp tennis compared to a normal.
[laughter], well and saying I think it was eight percentage eight per cent of square footage was on shorter term leases.
So if you if you think about that in terms of a b R that you're looking at on the P and L. E is are there is the short term component you.
You know significantly different than eight per cent of revenues.
If if you follow me.
Yeah.
Eight eight per cent and chairs.
And Kelly for cash.
And last name B R and and eight per cent.
Yes.
Okay is it is it a lot less or is it kind of and that seems ZIP code just a little bit less.
And last.
Okay.
Okay. So that was it thank you.
Sure it from laces will pay.
Pay lower range, but just remember there's also a lower capital investment for us and it gives us a chance to cash flow and property and they're all over the board and some of them and really have a variable rate components or if they dropped sales and and successful and they can drive the revenues as well.
Yeah, No no and got that and then I'll make sense I just wasn't sure if we're looking at the.
The income statement maybe.
And two per cent it it's two or three per cent of the revenue is a really tight at that shorter term software and.
Optically when here, 8%, it's it's a much bigger number and the square footage basis, but okay. That's helpful. Thank you.
The next question comes from <unk> come out with Evercore. Please go ahead.
Yes, Steve you you mentioned a couple of times that you're looking at sort of selected growth opportunities, maybe expand on that a little bit and.
I'm, just trying to see where it is for the potential upside can come to your portfolio as we think about the long term here.
Good morning smear and.
Well, we're not going to make a practice and talking about things that were looking at until we're under contract and we announced.
But we definitely think there is great opportunity I've mentioned on previous calls that 1% of the nation's retail is outlet and we think there are certainly opportunity to expand on that.
So.
We with.
The addition of each working who's our SVP of development.
A large part of his job is going to be to help us build our pipeline. There's a number of things that we're currently looking at and working on and I'm hopeful that we can make those announcements and the near future.
Okay. Thanks, so much.
This concludes our question and answer session I would like to turn the conference back over to Steve Tanger for any closing remarks.
Thank you everyone for joining us. This morning, we look forward to seeing you virtually and NAREIT and June but more importantly, being able to greet you in person as soon as possible. So be so we're all available to answer any additional questions and thank you for your into.
Goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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