Q2 2021 Tanger Factory Outlet Centers Inc Earnings Call
Good morning. This is Cyndi Holt senior Vice President of Finance and Investor Relations and I would like to welcome you to the Tanger factory outlet centers second quarter 2021 conference call yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation.
This information is available on our Investor Relations website investors Dot Tanger outlet dotcom.
Please note that during this conference call. Some of management's comments will be forward looking statements that are subject to numerous risks and uncertainties and actual results could differ materially from those projected we direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. During the call. We will also discuss non-GAAP.
GAAP financial measures as defined by SEC regulation G, including funds from operations or <unk> core episodes and same center net operating income and adjusted EBITDA.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release.
And in our supplemental information.
This call is being recorded for rebroadcast for a period of time and the future as such it is important to note that management's comments include time sensitive information and they may only be accurate as of today's day August 4.2021 and.
At this time, all participants are in listen only mode.
And it's prepared comments the call will be opened for your questions.
We request that everyone ask only 1 question and 1 follow up to allow as many of you as possible to ask questions. If time permit we are happy for you to re queue for additional questions.
On the call today will be Steven Tanger Executive Chair, Steven You're all Chief Executive Officer, and Jim Williams, Executive Vice President and Chief Financial Officer, I will now turn the call over to Steven Tanger. Please go ahead Steve.
Good morning, and thank.
Thank you for joining us for our second quarter 2021 and earnings call.
These results demonstrate the successful execution of our strategic initiatives and.
Progress and continuing to evolve tanger to drive improved profitability and shareholder value.
We have seen traffic and sales return to pre pandemic levels as our open air centers offer and excellent value proposition for both retailers and shoppers.
I would also like to welcome Sean Day, both Rami 2 tankers board of directors on Dave is currently the CEO. We work and previously was CEO of Brookfield properties retail group and other G. G P.
We are privileged to benefit from his experience and wisdom and look forward to his ongoing counsel and guidance.
I will now turn the call over to Steve Yalof to provide details on our second quarter performance and to discuss our strategic priorities.
Thank you Steve.
Our second quarter results demonstrate continued progress and the leasing operating and marketing of our open air retail centers.
Tenant sales and domestic traffic are now outpacing pre pandemic levels, we've achieved a 130 basis points sequential increase in occupancy and a meaningful rebound and same center NOI.
We are curating, a compelling mix of brands and uses and creating a sense of place for experiential outings and connecting with shoppers and more personalized ways and monetizing the non store elements of our centers.
Same center NOI and the second quarter was up 88% compared to the second quarter of 2020 and represents 93% of the same period and 2019.
For the second quarter traffic to our domestic centers was above the same period of 2019.
The sustained rebound and traffic levels clearly reflects the attraction of our open air shopping centers their dominant market location and.
And the value proposition that we offered to both our retailer partners and shoppers.
Tenant sales and followed a similar trajectory.
Average tenant sales productivity grew to $424 per square foot for the trailing 12 months of 7.3% from $395 per square foot for the comparable 2019 period.
On a same center basis average tenant sales increased 5.5%.
Categories that are performing particularly well include athleisure youth oriented brands jewelry accessories beauty and home.
Consolidated portfolio occupancy at quarter end was 93%.
130 basis point increase from the ended the first quarter, we have recaptured 80000 square feet of space due to bankruptcies and retailer restructurings through the end of the second quarter and shortly after we recaptured and additional 55000 square feet, which was expected and represents.
And early terminations from legacy outlet brands, where we collected lease termination fees.
When we were unable to achieve desired rents our strategic approach to leasing included shortening turned to enable us to reprice repopulate, our real estate sooner and preserving variable rent upside by reducing breakpoints and increasing variable rent pay rates.
From deals that were completed during the height of Covid uncertainty ultimately produced total rents that exceeded the prior contractual fixed rents.
And these cases, our rent spreads don't fully capture variable rent contributions and <unk>.
Fred's measure the change in base rent and common area charges only leave.
Leasing activity continues to accelerate with over 300, and new leases and renewals totaling 1.6 million square feet of leasing that commenced during the last 12 months.
And as it be ended the quarter renewals executed or in process represented 54% of the space scheduled to expire during the year.
This pace and reflects our strategy to hold on some of our renewal leasing activity, while the market continues to rebound and rental rates improve.
This is proven and sound as our sales and traffic continue to build.
We continue to gain ground on our lease spreads which represents sequential improvement from those reported as of the end of the first quarter.
Permanent leasing activity is continuing to build and we continue to pursue pop up leases and the near term strategy.
These transactions contributed to occupancy higher cash flow helped maintain the variety and vibrancy of our centers and maybe.
Bite us and opportunity to increase the value of our real estate as market conditions continue to improve.
The core tenancy of our portfolio remains apparel and footwear. However, we are continuing to realize the tremendous appeal our centers offer to new categories and uses <unk>.
The addition of new food concepts, such as sit down restaurants iconic cookie and cupcake brands local micro breweries and upscale gourmet grocers and.
Added to our place, making experiential activation and entertaining uses which have helped to achieve our goal of driving shopper visits.
Frequency.
And all time and ultimately bigger baskets.
Welcome and these new uses to Tanger has provided the opportunity for our retailer partners to introduce their brands and concepts to a whole new shopper base.
Additionally, as part of our ESG strategy. This year, we launched our small business initiative aimed at supporting up and coming retailers and our local communities through this program, you've discovered compelling new retailers and brands, which have enhanced our tenant mix and provide us access to new shoppers.
We're focused on growing our non store revenue streams, which are delivering promising results.
These initiatives include creating on site paid sponsorship and media opportunities where brands can promote their business on center, but outside the 4 walls of their store.
This includes marketing opportunities on bright walls digital directories, and common area of activation and.
In addition to providing more on center branding these programs and Activations create fun ways to engage our shoppers during their visits.
This revenue is captured and the other revenues line, which year to date is up 88% from last year and 26% over 2019 as.
As we continue to monetize our real estate and create additional revenue streams, we've stood up a peripheral land team to take advantage of our existing portfolio about parcels and ancillary land, we presently have peripheral land inventory and over 2 thirds of our centers and will opportunistically acquire additional parcels.
And leasing demand for these property types increase as an example, we have recently acquired and adjacent parcel to our Glendale, Arizona shopping center to expand our footprint at that center and provide more F&B and entertainment uses as well as additional pay for event parking.
We continue to enhance and expand our digital initiatives as we execute our strategy to meet our customer where they are.
To further develop seamless customer experiences that connect our digital and physical space, we're expanding our online pre shop capabilities, where customers can search and see products that are available in store and our centers through our virtual shopper program customers can shop remotely and either pick up in store.
Merchandize shipped directly to them.
We also continue to grow our Tanger flash pop up sells and <unk> sales through our website, app and social channels, which we host with participating retailers as we innovate and discover ways to reach customers.
Through all of our digital channels, we are providing more personalized and relevant content and this quarter. We have introduced our tanger fashion director, who shops are brands and retailers and curates looks and posted them on our social media channels.
This initiative is aimed at our loyal Tanger insiders and Tanger club members, who shop, our centers with greater frequency and is designed to reach new and emerging shoppers to the brand.
By providing more enriched and visual content for the center. Our goal is to drive higher frequency and shopper visits and more engagement with our virtual shopper. These.
And these digital touch points and complement our on center experience and help to attract new customers, particularly in younger demographics and.
Summary, we continue to execute our strategic plan and focus on our core business, we are delivering new leasing and actively pursuing new uses new brands and new categories with the goal of increasing center occupancy.
We continue to grow and build our new revenue streams, such as paid media sponsorship and peripheral land and.
And we are innovating new ways to reach our customer to drive centered visits we.
We are seeing our traffic leasing and business development results improving rapidly and we are positioned to use this momentum to increase the value of our real estate.
<unk> cash flow and deliver long term growth.
I would now like to turn the call over to Jim Williams to take you through our financial results balance sheet and outlook for the remainder of 2021.
Thank you Steve.
We delivered strong second quarter results show and continued positive momentum.
And second quarter core <unk> available.
Available to common shareholders was <unk> 43 per share compared to 10 cents per share and the second quarter of 2020.
Core <unk> for the second quarter of 2021 includes 2 cents per share dilution from the shares issued to date and excludes a charge of $14 million or <unk> 13 per share for the early extinguishment of debt since we redeemed $150 million of our 2023 box.
Same center NOI for the consolidated portfolio increased 87, 6% for the quarter and as the prior year reflects reductions in rental revenue due to the pandemic along with higher variable rents driven by better than expected tenant sales performance. This year.
And as we discussed last quarter, we have maintained high rent collections, we have collected and approximately 98% of contractual fixed rents billed and the first half of 2021but.
And we have also continued to collect rents billed for prior periods, including amounts related to 2020 that we allowed our tenants to defer to 2021.
Through July 30 of 2021 we have collected 98% of the 2020 deferred rents due to be repaid and the first half of 2020.1.
During the second quarter, we Opportunistically raised capital using our ATM program to further reduce debt and strengthen our balance sheet.
We issued $3.1 million common shares that generated $58 million and net proceeds at a weighted average price of $18.95 per share.
Year to day, we sold 10 million shares and raised $187 million of equity at an average price of $18.97 per share.
As previously announced on April 30, we completed the partial early redemption of $150 million aggregate principal amount of our 3.8 and 7.5% senior notes due December 2023 core $163 million and cash.
This reduction in debt improves our leverage ratios and enhances our balance sheet flexibility.
Subsequent to the redemption $100 million remains outstanding we.
Also pay down our unsecured term loans by an additional $25 million and June bringing the outstanding balance to $300 million.
Additionally, in July we amended and extended our unsecured lines of credit pushing.
Pushing the maturity date until July 20, and 26, including extension options and providing borrowing capacity of $520 million with an accordion feature to increase capacity to $1.2 billion.
Facility includes a sustainability metrics high and potential interest rate savings to LEED and energy Star certifications.
And this further demonstrates our commitment and accountability regarding environmental initiatives.
We have no significant debt maturities until December 2020.3.
We have always prioritized, maintaining a strong financial position.
We will continue our disciplined and prudent approach to capital allocation. Our board will continue to evaluate dividend distributions alongside earnings growth and our priority uses of capital include investing in our portfolio to grow and O y reducing leverage to pre COVID-19 levels overtime.
Ending debt maturities and evaluating selective growth opportunities.
Our guidance assumes current macro conditions continue through the remainder of the year and that there are no further government mandated and retail shutdowns.
For the full year of 2021 we expect core F F O b and a range of $1.52, and $1.59 per share up from our prior expectations of $1.47, and $2.57.
This guidance reflects continued sequential improvement and of our business offset by the additional dilution of approximately 2 cents per share related to the common share sold in the second quarter, which is in addition to the 4 cents and dilution from the first quarter issuance is included in our prior guidance on.
And it's also reflects year over year comparisons, which get more difficult and the back half of 2021 due to higher occupancy and lower operating expenses last year as well as lease termination fees and reserve reversals that we recognized and the second half of 2020.
Our guidance includes the 135000 square feet of space, we have recaptured today through the end of July along with potential for an additional 65000 square feet and related to bankruptcies and brand wide restructurings and the remainder of the year for additional details on our key assumptions. Please see our release issued last night.
And I don't like that and put it up for questions. Operator can we take our first question.
Yeah.
And I don't know I'll begin the question and answer session to ask a question you May Press Star then 1 on you touched on and killing if you're using a speakerphone. Please pick up your handset before pressing the keys and fat.
Anytime you question has been addressed and you would like to try a question. Please press Star then 2 at this time, we will pause momentarily to assemble our roster.
Yeah.
Yeah.
Okay.
Our first question comes from Katy Mcconnell with Citi. Please go ahead.
Hey, Thanks, good morning, everyone.
So what percentage went up significantly this quarter and relative to history, how should we think about and annualized run rate going forward and can you talk about how your check Shang percentage ran engineering day rates and deal today.
Good morning, Katy and thanks for the question.
With regard to percentage rent.
All we can say is percentage rent definitely is a reflection on our sales performance.
And as our sales performance continues to <unk>.
Proof I'm sure, we'll see a material.
And impact to our percentage rent on a going forward basis with regard to deal structure.
And if you look back a year ago and <unk>.
Consider the height of uncertainty around Covid.
And we structured deals.
Particularly renewal deals.
That being fairly heavily on a variable rent. These were shorter term deals, but those variable rent deals included lower breakpoint higher pay rates.
And where.
Where we exchange with our retailer partners, some downside protection and <unk>.
So deals that gave us more upside if the market inflected and sales returned.
And as our sales numbers would indicate the sales across our portfolio came back.
And our stronger and.
I guess, we all had anticipated and a year ago.
And we find ourselves on that.
Enviable position debt pretty big.
And as far as variable rents on insurance.
Got it okay. Thanks, and then you lowered your capex guidance fairly simple.
Definitely this quarter. So can you provide some more background on what drove that change and how capex could trend next year.
Hi, Katy this is Jim.
The reduction in Capex really sort of reflects our strategy.
And how we are approaching the leasing environment right now certainly aware and as Steve said, we're very pleased to see the rebound and our traffic and sales and.
And we're trying to be very strategic on how we negotiate and enter these big leases.
Some of the leasing activity.
And there's been pushed to 2020.2 and.
That's not true that's reflected reflective on the reduction on Capex spend.
So would you expect next year and love us being more similar to your original guidance for this year.
Yes, yes, yes, I think this is purely kind of a timing thing and again from a strategic plan and we're trying to to.
To negotiate.
Negotiating leases at the right Tommy I think next year, you'll see it probably normalize to something similar to what we guided to originally this year.
Okay. That's helpful. Thank you.
Our next question comes from Todd Thomas with Keybanc. Please go ahead.
Hey, good morning, and this is Ravi the idea on the line for Todd Thomas I, just wanted to ask here how much occupancy is temporary or a short term in nature and can you talk about success and converting these short term leases into permanent ones.
Good morning, Robby, so and we've talked about and.
In past quarters, but we're up to about 9.5% and short term right now and.
And again, let's just go back and.
And I talk about the fact that short term leasing or temp leasing or pop up leasing as we like to call. It was really a strategy for us and going back to a year ago were times, where most uncertain.
And our folks weren't traveling and our retailer partners weren't traveling we empowered our general managers and really.
Essentially deputize 36, new members of our leasing team to go out and and help us.
Still space and shopping centers that was vacancy that was created by.
Brand wide restructuring and other and other bankruptcies.
And they did they did a pretty fantastic job.
Number of things occurred as a result.
And we were able to first of all turn lights on and number of vacant rooms, and get them to cash flow and.
And with our strategy of increasing the value of our real estate and driving our cash flow and delivering long term growth. This went a long way.
We bought new tenants and the shopping centers, but different customers.
And some of those some of those uses it turned out to be great draw uses for our properties and ones that we're in discussions with right now to turn into longer term deals.
So all in all I find that.
And shopper and general.
Probably doesn't know the difference between a short term lease and a full.
Full term lease, but they certainly know the difference between a.
Our closed stores and open store and when the strategy of keeping lifetime stores open and we've created the opportunity for ourselves to increase our near term occupancy, but also testing new concepts and our shopping centers and Super Bowl results.
Perfect.
1 more here from me.
Retailers reporting any changes to sales and traffic or any operating conditions related to the delta variant and the rise in some cases, just wondering if you're seeing or hearing anything from them since day on the ground.
We have not heard any of that yet.
Perfect. Thanks, so much thanks.
Thanks, Rob.
The next question comes from from New York and now with Evercore. Please go ahead.
Hi, good morning, everyone.
Steve So you talked about how sales is up and and traffic yourself, maybe maybe give us a breakdown and maybe centers here as.
Regions, where you're maybe seeing a better return and traffic and sales and and others and I know you've talked about the initiatives you've kind of rents on the centers just trying to.
See if there's any kind of differences you're seeing from Senator center or Regent Street and is here.
Well from here I would say the debt.
And is that our core shopping centers are located in geographies that are drive time drive to resort.
And and and top 50, Msas and that's really the sweet spot of our portfolio and those seem to be the markets that I've shown on the greatest amount of improvement on the.
<unk> side of that we've got a couple of shopping centers that are dependent on.
Other things to drive traffic, whether it's international tourism or casino gambling or if the hotel business or entertainment uses and as you can probably imagine.
Although those are coming back and they're not coming back at the same day and the other centers on.
Got it and then and I guess my second question here I mean, your occupancy was up quite a lot on the second quarter.
But you know.
And you still have pressure on rents right and especially on the new lease and on the new rent side. So I'm just trying to understand how do you think about sort of spreads. How do you think how do you think that metric will trend, let's say over the next 12 months and do you guys think about balancing occupancy and rents over the next.
I don't know a few quarters here.
Well, we spent a lot of time thinking about rent and rent spreads and obviously prioritizing leasing hours our centers.
And if you take a look at some of the legacy vacancy caused by some of those.
Brands and they had gone out in recent years stores that have been.
Stores that closed at the.
And with high rent pay Mark.
That we're now replacing with different uses to the portfolio.
And in effort to be a little bit less debt.
Dependent on the apparel and footwear, we're pivoting to new users and we've talked about some of those users.
And the opening remarks.
And do deals like a Dick's sporting goods purple mattresses.
And then touch on meat and fish and these are brands that are iconic.
Great draws to our shopping center.
And both the direct to consumer space.
And with grocery uses and some of our shopping centers, which are in fact, and we're seeing great results from a traffic draw point of view, but also with the frequency of customer.
Historically folks would come to an outlet center, maybe once and they're on their trip to a particular resort community, but with the grocery store and this particular center, we're seeing far more frequency of visit by that same customer.
So these uses are working they are enhancing and they are replacing old legacy space.
And might be doing so at a lower base rent.
But we're being strategic and the variable rent component of these deals and in many instances the sum of those 2 parts.
Higher than the old base rents that we were collecting although those numbers are reflected in orange line.
That's it from me. Thanks, so much thank you Sir.
And next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, Good morning, I, just first I had a quick follow up on the recent leases that were more of a line on the percent rents over the life of those leases does that kind of sales threshold change or is it consistent over the life of that lease.
Look on came and I'm sure you know all leases are written differently, but.
Rents and have a base rent component and a percentage rent component to it.
The base rent growth.
Whether it and a CPI or a fixed annual increase so does that natural breakpoint commensurately with the growth and base, but the growth of the base rent.
Okay got it.
And then I was wondering on the recapture estimate of 200000 square feet for the year. I know you guys gave that estimate back with 4 Q earnings. So just wondering if you could give some commentary on how that's playing out versus initial expectations and.
Terms of the timing exact stores that are impacted or.
Or anything like that.
We mentioned that we've got another 55000 square feet back.
Earlier this quarter are from.
And 1 of the legacy brands and was expected and we knew it was coming back.
That was really the bulk of our known.
Space coming back at the beginning of the quarter.
<unk>.
We made we share 200000 square feet on guidance.
But.
And that remainder and definitely some some buffer.
Got it okay.
And then maybe just a last 1 I'm wondering if you could give any updated commentary. If there is some on the Nashville development I guess, given the strength and retail that we've seen this year just wondering if theres been progress there and not quite yet.
Yes, we announced when we get to 60% leased will put a shovel on the ground, we anticipate we'll probably get there.
And beginning of next year.
But we think it's a great market.
And there's definitely some interest from our retailer partners and we'll certainly keep you updated as our progress.
Whose hard on that development.
Okay, great. Thanks.
Yeah.
Our next question comes from Craig Schmidt with Tom comes from non coffee squirrel.
Thank you.
And my question.
Surrounds the chart outlet center ranking I'm wondering if the.
Within the fifth and sixth here.
I know that you periodically called the portfolio, but looking at the occupancy.
Still hasn't really worked its way up and just the the difference between square footage.
Were sent to total and portfolio NOI percentage totals and just wondering if these are assets that maybe you might want to consider disposing of.
Okay. Thanks for the question.
First of all.
Our centers are still cash flow.
But.
And we were we're not currently marketing any of our centers.
Okay. So all the centers are in that list day.
And that's what you're saying.
Net cash most of them.
Yeah.
I'm sorry.
I think what you said is all of those centers are cash flowing I'm just in front of me and I'm sorry.
And I was just confirming that all 30 of these centers and that list, they're positive cash flow.
Yes.
Okay. Thanks, a lot.
And then a reminder, if you have a question. Please press Star then 1 the.
The next question comes from Mike and I Love It.
J P. Morgan. Please go ahead.
Yeah, Hi.
Looking at what you've done year to day for <unk> and the full year guidance. It implies an average quarterly <unk> is about 36 cents to get to the midpoint of the range can you walk through what the major moving parts are from.
The 43 Q2 print down to that 36, it looks like there may have been a couple of cents.
1 time.
Property tax benefit, but just if you could bridge that gap that would be helpful.
Sure Mike Good morning, and this is Jim.
So you you did identify 1 of the major major things there the refund on property taxes. It was around 2 cents a share.
Also another penny a share per quarter, and we expect from the evolution of the ATM shares we issued and second quarter that's on.
On top of the <unk> dilution that we had.
Built into the guidance last time.
I think the remaining things and really that's driving that is now you've got the effect of the 55000 square feet and it came back in July that Steve just mentioned and that potential 65000 additional feed that may come back.
For the end of the year and then the.
The final component is we do have a higher operating expenses and the second half.
As we go through the advance like back to school and the holiday seasons measure your main components.
Got it okay.
And that was it thank you.
This concludes our question and answer session I would like to turn the conference back over to Steve Tanger for any closing remarks.
Yeah.
Good morning, I wanted to thank.
Each of our colleagues on the Tanger team for their tireless efforts to produce these excellent results.
Have a wonderful summer and on.
And I hope to see you soon goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.