Q3 2021 Tanger Factory Outlet Centers Inc Earnings Call
Good morning. This is Cyndi Holt senior Vice President of Finance and Investor Relations and I'd like to welcome you to the Tanger factory outlet centers third 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 outlets dotcom. Please.
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.
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 financial measures as defined by SEC regulation G, including funds from operations or F. F O Corey I thought though.
<unk> Center net operating income adjusted EBITDA and net debt.
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 in the future as such it is important to note that management's comments include time sensitive information that may only be accurate as of today.
Date November 2nd 2021 at this time all participants are in listen only mode. Following managements prepared comments the call will be opened for your questions. We request that everyone ask only one question and one follow up to allow as many of you as possible to ask questions. If time permits were happy for you to requeue for.
No questions on the call today will be Steven Tanger, Our executive Chair, David and you're all off Chief Executive Officer, and Jim Williams, Executive Vice President and Chief Financial Officer, I'll now turn the call over to Steven Tanger. Please go ahead Steve.
Good morning, and thank.
Thank you for joining us for our third quarter 2021 earnings call.
We had a great quarter.
As a result of improvements in occupancy rent spreads and sales.
These all contributed to earnings which exceeded our expectations.
Increase in our guidance for the remainder of the year.
Our proactive capital market success has also positioned us well with low leverage ample liquidity and exciting potential growth opportunities.
I am proud of the tireless efforts of the entire Tanger team, who are successfully delivering our strategic objectives.
I will now turn the call over to Steve Yalof to provide additional details.
Thank you Steve.
We delivered strong performance in the third quarter.
Continued momentum we are demonstrating across our portfolio supports our decision to increase our guidance for the year.
The successful execution of our strategic plan as evidenced across all of our key metrics, including occupancy rent spreads tenant sales and our focus on driving non rental revenues all of which continue to contribute to core <unk> growth.
Our portfolio occupancy has returned to pre pandemic levels, despite having recaptured over 1 billion square feet due to bankruptcies and brand wide restructurings since the beginning of 2020.
This includes 55000 square feet recaptured in the third quarter as anticipated.
As of September 30th occupancy was 94, 3%.
Hundred and 40 basis points year over year, and up 130 basis points since the end of the second quarter.
With regard to rent spreads we continue to see positive momentum for leases that commenced in the 12 months ended September 30th.
Blended average rates improved by 240 basis points on a cash basis compared to the 12 months ended June 30th.
Spreads have improved each quarter this year and we believe that the continued improvement we're seeing in traffic and sales will help sustain this trend.
We also benefited from significant percentage rental growth this quarter, which was more than two and a half times the comparable 2019 period.
During the height of the pandemic, we renegotiated select leases with an aim to trade value for value in some cases trading base rent for a larger variable rent component.
In many cases, reducing breakpoints and increasing variable rent pay rates are now producing total rents exceed the prior contractual fixed rates.
Our rent spreads don't capture percentage rent contributions as spreads measure the change in base rent and common area charges only.
But the strong variable rent component has contributed to our core <unk> growth.
Additionally, as we continue to negotiate renewals on these leases were focused on converting some of the variable upside into base rents, which provides longer term certainty.
In light of the improving trends, we are being strategic in our renewal and permanent leasing activity.
Renewals executed or in process, representing 68% of the space scheduled to expire during the year compared to 72% at this time last year.
Shorter term leases remain an effective approach to fill space and attract new tenants.
Preserving longer term upside in the ability to push rates on permanent leases as the environment is becoming more favorable.
Traffic for the quarter was approximately 99% of the same period in 2019, we.
We saw a slight downturn in August in part due to concerns over the Delta variant and the timing of Labor day.
September traffic return to pre pandemic levels.
Tenant sales accelerated in the quarter, reaching an all time high of $448 per square foot for the consolidated portfolio for.
For the 12 months ended September 30th representing an increase of more than 13% over the comparable 2019 period.
The key objective underlying our leasing strategy is to maximize NOI, while shorter term leasing will continue to be a strategy. Our goal is to convert this space to permanent deals over time as conditions improve retaining the current tenant with higher rent are repopulating the space.
We also continue to focus on growing our non apparel and footwear tenant base and have added multiple new brands and categories to our portfolio this quarter Keith.
Key categories include furniture, and home goods and wellness and beauty.
We are also focused on growing our food offerings, adding numerous sit down quick serve and grab and go concepts across our portfolio and we are growing the presence of entertainment stores kiosks and amenities aimed at driving shopper visits frequency dwell time and ultimately larger spend.
These new users are presenting built on center and in our out parcel in peripheral real estate.
We're seeing traction with non rental revenues. This is an area with growth opportunity as it is still in the early stages as a focus for tanger.
Marketing partnerships in the form of sponsored.
Great events, Activations and advertising provide an opportunity for retailers to interact and communicate with the tens of millions of customers that shop, our centers annually.
Our Labor Day Block Party Activations for example were sponsored by international brands, such as Unilever, Tesla and Heineken and we are planning similar events in the fourth quarter around holiday themes and tree lighting.
Events like these not only improved traffic and dwell time, but also generate revenue.
This revenue is captured in the other revenues line, which for the third quarter has double the contribution from 2020 and increased 38% over 2019.
This has proven to be a profitable initiative with plenty of additional opportunity and we plan to grow this program across our portfolio.
Our digital channels, including our website app and social channels complement our on center experience and help to attract new customers, particularly in young demographics.
Activations and shopper amenities, such as virtual shopper and our web hosted flash sales continue to engage and draw a younger consumer while providing an omnichannel experience for our core shopper base, an important Tanger club members.
Our Tanger fashion director is leading these programs and we'll continue to do so for us through the holiday season.
As we look ahead to holiday shopping we're encouraged.
Partnership with our retailers, we're starting early holidays began a tanger on November one and we are underway running campaigns programs and events to encourage early shopping.
Many retailers across the country are facing potential logistics and staffing issues, but are proactively navigating this situation.
Although the impact of labor and supply chain is unknown, we are optimistic with regard to our ability to deliver an exciting and fulfilling holiday experience to our customers and guests.
Summary, we continue to execute on our strategic plan.
Focus on our core business and create value by unlocking new revenue opportunities across our portfolio.
We're enthusiastic with our positive leasing momentum and are encouraged by the new brands and categories, we are adding to our centers.
We're innovating in reaching our shoppers, where they wanna be offering additional ways to engage and interact with new products and to shop, we continue to see traffic sales leasing and business development results improve.
We're on a clear path to sustained same center NOI growth and along with our new long term growth initiatives and operational efficiencies. We believe we have a compelling opportunity to create value over time.
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 third quarter results showing continued positive momentum.
Third quarter core <unk>.
Available to common shareholders was 47 cents per share compared to 44 cents per share in the third quarter of 2020.
Core <unk> for the third quarter of 2021 excludes a charge of $34 million or 31 cents per share for the early extinguishment of debt related to the redemption of our 'twenty 'twenty, three and 'twenty 'twenty four box.
Same center NOI for the consolidated portfolio increased 11, 5% for the quarter to $73 $8 million driven by better than expected rebound in variable rents and other revenues.
We remain on track with rent collections and through October 29 had collected approximately 98% of 2020 deferred grants due by the end of the third quarter.
Our strategy, we employed during the pandemic of deferring rent has proven to be effective.
With regard to our ATM program, we did not sell any additional equity during the third quarter.
Year to date, we have sold 10 million shares generating proceeds of approximately $187 million and $60 million remains available under our current authorization.
As previously announced in July we amended our unsecured lines of credit and extended the maturity date of July 2026, including extension options.
And have a borrowing capacity of $520 million with an accordion feature to increase borrowing capacity to one 2 billion.
Additionally in August we completed a public offering of $400 million of senior notes at a rate of 275% the lowest coupon in tanker history.
We used the proceeds from the sale to redeem the $100 million that was outstanding on our 3.8, 75% notes due in 2023 and the $250 million that was outstanding on our 3.75% notes due in 2024.
We also incurred a $31 $9 million make whole premium in September related to these redemptions.
As of quarter end, we had no significant debt maturities until April 2024.
Our leverage position has continued to improve in conjunction with our capital markets activity and earnings growth.
September 30th.
Net debt to adjusted EBITDA improved to five three times for the trailing 12 months compared to 7.2 times for the comparable 12 month period of the prior year.
We have always prioritized, maintaining a strong financial position and a disciplined and prudent approach to capital allocation.
Our board will continue to evaluate dividend distributions alongside earnings growth and taxable income distribution requirements.
Our priority uses of capital are investing in our portfolio to grow in Hawaii, and evaluating selected external growth opportunities.
Turning to guidance for the remainder of the year, we are increasing our core <unk> to a range of $1 67 to $1.71 per share from the prior range of $1 52, and $1 59, an increase of 9% at the midpoint.
This guidance reflects continued sequential improvement in our business.
Particularly higher variable rents achieved in the third quarter.
Our guidance also includes up to 15000 square feet related to the potential additional bankruptcies and brand wide restructurings that could occur for the remainder of the year.
For additional details on our key assumptions. Please see our release issued last night and.
Now I'd like to open it up for questions. Operator can we take our first question.
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Our first question today is from Katie Mcconnell of Citi. Please proceed with your question.
Great. Thanks, good morning.
So now that we've seen a significant increase in percentage rent contribution can you just discuss your outlook to better understand how much of that could be very tight on a go forward basis based on how youre structuring the deal.
Yeah.
Good morning, Katy and thanks for the question well first of all yes.
Our variable rent numbers have been great and as we mentioned, particularly with regard to that.
A year ago, when we were restructuring our deals.
Where we traded some of our base for variable.
Obviously itself.
<unk> continued to grow across the portfolio those have been great trade for us and you know, although we're prudent in our guidance with regard to the.
Next quarter. We also believe that we're optimistic about sales growth and we think that theres still some upside in those numbers. So we're optimistic about fourth quarter sales and we're certainly optimistic going into next year.
Okay, Great and then Anthony kind of category.
Increasing exposure to outside of apparel and shoes can you talk about how much those categories, that's contributing to the new leasing progress you've seen today.
I think the furniture and home category has been a big one for US. We recently executed two deals with Mitchell gold who've taken two very big footprints in our portfolio one in Riverhead and one in San Marcos, We just signed a lease with crate and barrel also in Riverhead.
The furniture and home category seems to be.
It's a great growth vehicle for us and great for our portfolio.
And then other businesses, our food and beverage business, we've seen our shopper base increase during the week and that's always been a big.
Burdens some of the food retailers in our centers, where a lot of the customers have historically shopped, primarily on weekends and now we see that weekday traffic is supporting better food business.
The food the food operators are responding in there in their business seems to be improving as well so that's going to be a big.
Opportunity for us going forward the customers appreciate the amenity of food and it keeps our customers coming back more frequently staying longer on site when they do shop with us and obviously both of those result in.
Bigger spend tomorrow from our our shoppers.
Okay, great. Thanks.
The next question is from Todd Thomas of Keybanc Capital markets. Please proceed with your question.
Hi, Thanks, good morning.
First I was wondering if you could Jim maybe speak to the fourth quarter implied guidance core <unk> year to date to $1 32, but leaves about 37 cents to get to the midpoint of the revised guidance, which is a 10 cent stepped down from the third quarter can you just provide a little bit of detail maybe run through some of the.
The the items that you're anticipating will change heading into the fourth quarter.
Sure Todd good morning.
The primary drivers of that is.
Lower expectations for overage rent and term fees, including our share of the Jv's Steve.
As Steve mentioned I think we're optimistic that the retailers will be able to navigate the noise out there with the retail chain.
With the.
The product and labor shortage issues out there, but we're.
We're trying to be prudent here in terms of establishing guidance.
Other factors are higher operating expenses due to some seasonality that Julien <unk> in fourth quarter, plus the fact that we're gonna be increasingly hours of operating hours by one hour through a lot of the centers throughout the portfolio.
All of the season.
One of the final component is a lower straight line rents with respect to the fourth quarter third quarter did have a benefit of about a penny.
We restored GAAP rents for some tenants that moved from cash basis back to accrual.
Okay got it and yeah actually following up on that so that's helpful. On the straight line piece, but where there any additional without rent collections from previously reserved amounts included in our minimum rents are in the bad debt line.
That that we should.
Consider stripping out of the run rate.
No. There wasn't there was nothing significant in the third quarter that was one time.
Okay. If I could just get one more and then you know as you as you look ahead at the the leasing environment do you expect the lower recapture activity to persist into 'twenty, two well well 'twenty to be a more muted year for unexpected vacates either through the <unk>.
From CS or restructurings.
Yes, that's what we're expecting.
Yes.
Okay, Alright, great. Thank you.
Thanks Todd.
Yeah.
The next question is from Samir Khanal of Evercore ISI. Please proceed with your question.
Yes, good morning, everyone, Hey, Steve I guess, maybe just provide a little bit more color on the pipeline I guess, the leasing pipeline looks like.
You're up more than 100 basis points. This quarter, so just trying to figure out.
How to think about occupancy over the next sort of you know.
For Q here.
Into next year.
But our leasing team has never been busier.
There is great momentum I think the momentum really started at the beginning of the year, but continues to build.
And it's really with some of our best retailers that are either looking to expand existing stores because of their success.
So across our portfolio also talked about the home category, which is something that we're leaning in extremely heavily into a lot of the markets, where our shopping centers are positioned have a great housing components surrounding and therefore, a great customers for these for home products, and particularly home product that value.
So stores like restoration hardware.
Crate and barrel Mitchell gold are.
Looking at our portfolio to grow their concepts.
Those are those are always great traffic generators, and that's really what it's all about is making sure that we've got a great mix well merchandised. So our customers will come back more frequently and stay longer when they come and join us.
Thanks for that and I guess my next question is on the other revenues line item, which has certainly been up nicely here.
I guess, just maybe take a step back talk about what that opportunity set looks like over the next 12 months as we think about growth.
Maybe talk about how many properties you've touched so far and how much more you can do on that end.
But when we when we pivoted put our general managers in charge of our shopping centers in running their businesses. If they were the Ceos of those centers, we intend to them across the portfolio to go out and build that business.
And we've got a great strong in house corporate backbone in order to establish.
<unk> lines marketing strategies and approaches to executing to this business, but a lot of the transactions really being done on the front lines.
We get about 150 million people a year come through our shopping centers.
Based on those numbers, there's a lot of there's a lot of eyeballs.
And we've discovered.
Lots of locations places for us to do onsite center marketing things like digital directories.
That led sign boards.
Partnerships with certain retailers that allow them to takeover hardware isn't a shopping center or parking fields. Just in advance of any particular promotional activity and by setting up a team to go strategically for that business, we've seen great success and now going into the holiday.
We're doing well.
Lot of our tree lighting.
Lot of our Christmas celebration, a lot of that business is sponsored by local businesses. So once again kudos to our general manager team, who was out there not only working on some some leasing initiatives in our shopping centers, but also growing.
Marketing partnership and we think it's a great business for US. It's one that is sustainable and one that will continue to grow and at least the near future and into 'twenty two as well.
Thank you.
The next question is from Caitlin Burrows of Goldman Sachs. Please proceed with your question.
Hi, Good morning, everyone, maybe starting with the Nashville project I think you guys previously announced that when we got to 60% leased you would begin construction and anticipate it getting in the beginning of 2022. So I'm wondering what the latest is there and if you think you are on track to start the development and early 'twenty two.
Yes, we're on track to start the development.
Okay great.
And then beyond debt repayment and in the absence of additional development wondering what opportunities are out there for redeployment of excess cash are there attractive and accretive acquisition opportunities and I think in the past you've also talked about an out parcel opportunity. Just wondering if you think you'll move forward on with either acquisition.
Theyre out parcel development.
Well, starting with acquisitions, yes, there continues to be some great acquisition opportunities for us out there that we're reviewing and obviously when there are deals to be discussed.
Well, we'll raise him on the call, but you raised peripheral Atlanta, and that's a big part of the business going forward for US. There are we can say about two thirds of our properties have on monetized peripheral land and as our shopping centers are the center of the energy in the geographies that they serve that out parcel.
It's just raised any value.
We recently set up a peripheral land team.
With a professional just running that business for us because we see tremendous upside.
Not only next year and the year.
The years beyond it will take a while for that to start positively cash flowing.
Lot of that land is currently raw. So once you have a deal that's either going to be a build to suit, which will deploy capital obviously at appropriate return, but also even a ground lease where a retailer has to build their own facility. It takes a little bit of time for that to cash flow, but one recent transaction that we just made we bought seven acres adjacent to our property.
Westgate.
Got great plans for that and then as you are aware our Westgate Center sits.
About less than a half a mile from the Arizona Cardinals football Football Stadium, and there is great opportunity not only for weekend parking revenue on that site, but also additional standup businesses and we're looking into that right now.
More to talk about hopefully next quarter.
Got it Okay, and then maybe just a quick follow up on that so it sounds like the range of opportunity that's available for the land.
You just bought since I don't know if you'd be telling them, but otherwise can range from ground lease to build to suit or regulator out parcel development and parking all of those can be nexgen.
Yes.
Okay. Thank you.
Thanks, Kevin.
The next question is from Craig Schmidt of Bank of America. Please proceed with your question.
Thank you.
I wondered if you could give me examples of.
Some of the entertainment concepts that you're adding to your men apparel growth categories.
Well, we've got two leases out right now that I, just unfortunately, I don't want to share the name of the retailer until we execute beliefs for number of reasons, but.
There are some of the let's just say some of the larger.
And I can I can share with you some of the types of uses.
Things from golf to dark statutes.
Places that are great gathering places for individuals. These are things that we are working on adding not only in line in some instances, but mostly on some of our peripheral land.
And there are great traffic generators and they also can also extend the stay of the shopper out of those.
Those buildings stay open well past our closing hours. So we can keep a customer onsite far longer.
Great. That's helpful and then I just.
Wondering.
A lot of people are talking about a potential stronger sell through.
Given the lack of inventory for the more traditional store outlets.
Could that be a problem for the outlet stores.
In the coming seasons cause those sessions are stronger and what are the outlet store is doing to make sure that they don't run into a supply problem after a holiday.
Well, we've really temperature checked and spent the last few weeks speaking to a lot of our retailers visiting stores.
We are all very pleasantly.
Surprised with how well staffed and stopped a lot of the stores, particularly in our portfolio are I think a lot of the retailers, particularly the major ones in the outlet business. This is a real business and they've thought about these issues months and months and had planned accordingly.
They bought for these stores and they bought for the channel the value channel as we've mentioned many times. We believe is probably the most profitable channel for a lot of the retailers and because of that.
They nurture that business to make sure that there could it be appropriately stocked going into holiday season.
Thank you.
Thanks, Craig.
The next question is from Mike Mueller of J P. Morgan. Please proceed with your question.
Yeah, Hi, I was wondering on the rent spreads you mentioned percentage rents not in there.
I understand that but if you were thinking about the the out of the ordinary short term shorter term heavier percentage rent deals that restructuring cobot.
If you would adjust the spreads for that how different would the numbers have been compared to the reported numbers.
Hi, Mike.
We havent, we havent done it that way.
Just.
For a few reasons one is just the variability of that number.
It could really be going going forward.
What we could tell you is that if you look at the overage rents on a per square foot basis.
Around closer to say, two and a half bucks a foot, which is significantly up from where we were in 2020 and in 2019.
Got it.
Okay.
That yeah that was it I appreciate it thank you.
Thanks, Mike.
The next question is from Floris Van <unk> of Compass. Please proceed with your question.
Yes.
Good morning, guys.
Steve I a question.
The occupancy levels are very robust.
For where we are in the cycle.
Part of that is as you mentioned the shorter term leases.
Can you maybe walk us what percentage of your portfolio.
Is on shortly you have I think 19% of your space comes due next year, which is at least 5% higher than what you typically would average.
What percentage is is Tim right now and then maybe walk us through the.
The levers, obviously converting that to perm.
First of all presumably increase your your base rent, but also your recovery ratios because typically the short term are tend to be gross whereas the other ones tend to be more net.
So when you talk about the impact that you see potentially on your euro.
Your operating margins and on your on your NOI.
Going for next year and beyond.
Well I think youre heading completely in the right direction first of all as far as our short term rents arent sure sorry short term tenants are concerned.
Maybe just above 10%.
But again when we.
Last year, when we got 1 million square feedback and then.
150000 square feet back this year, we immediately leveraged our general managers to go out and be leasing agents and so now 36, new leasing agent on the team and out doing a lot of that short term leasing to make sure that our spaces.
Phil bites are on vibrant occupy and most importantly cash flowing.
And you know from a shopping experience obviously, a vibrant shopping center makes people want to stay longer and I've said before but I guess.
Say it again in this context that a lot of our a lot of the shoppers don't necessarily know the difference between a short term lease to full term lease, but they definitely know the difference between a closed store in an open store and for us.
We like to have as much opened five of real estate as possible. There's a lot of that short term.
We've been pretty successful over the last quarter or two and converting it into full term leases and I've got some great. Examples of those Mitchell gold inventory birch of Hugo boss some of our better tenants that popped up in some of our shopping centers and based on the successes that they've had we've converted them to to long term leases and <unk>.
Obviously, a significantly better market at significantly better margins.
Maybe the other thing I I I I.
I noticed your leasing costs. Your tis were down significantly from last year I think it was 27 versus $63 64. Previously is that is that a sustainable trends in your view.
No I don't think so I just think it was they were down because obviously there were some shorter term leases and obviously shorter term leases less ta with shorter term leases.
I think as the leasing cadence begins to pick back up the terms get longer.
Deals get.
Higher rents more favorable.
The old terms for us obviously, I think the Ta will come with that.
Okay.
Can I ask one more question, maybe I noticed theres still couple of couple of assets out there with.
Very low occupancy in particular, how and Foxwoods in Atlantic City as well.
Are you beginning to become more ruthless when you look at your your assets and also where you allocate capital in what should be what can we imagine is in store for those for those assets.
Well look we're going to be strategic with those assets, obviously foxwoods.
Fortunately story with Foxwoods, which is our only enclosed shopping center in the portfolio.
That that particular set of really suffered from the <unk>.
Hotel business, the international Tourism business, and obviously gaming business and entertainment business, all being down over the last year. So that's going to that's going to take some time to bring that back we are working on a local leasing initiative to help build the occupancy is up but we think it's a beautiful shopping center and when the casino.
Those are back in full swing that center seems to do pretty well. So we are going to continue to invest in leasing efforts in that particular center.
How old is a center in a market that.
Once again, it's the third of the energy in the market that it services and to become the regional Mark the regional mall in that geography.
And we've got some strategies associated with that one as well you talked about Atlantic City and the question was asked earlier about some of the entertaining uses we have a whole zone plan for entertainment in Atlantic City that we're working on executing two right now, which we think lines up with.
The Atlantic City customers looking for Atlantic City, Foxwoods are probably two of our centers that rely a little bit more heavily on international tourism, the most and with the international tourism coming back next week.
We think that there'll probably be a path to both of those centers as well.
Thanks, Steve that's it for me Thanks Lars.
The next question is from Katie Mcconnell of Citi. Please proceed with your question.
Hey, good morning, it's Michael Bilerman here with Katy.
Steve If we can just go back to the percentage rent overage rent discussion.
And if we just stick with third quarter results, how much of that $8 6 million was percentage rent only deals versus just your typical overage rent, which historically was never a big part of Tanger, but obviously given the sales growth. This year, maybe some of those kickers kicked in.
And thats, what to delve a little bit deeper just understanding some of the dynamics that are going on.
With that.
Well look I.
I will share the dynamics and I'll, let Jim give you a little bit more of the detail on the numbers, but just broad strokes dynamics.
Last year, we made the comment that we were.
We're really favoring occupancy.
When tenants were going bankrupt and we felt the strategy was to save the occupancy of some of these bankrupt tenants so that when they got sold.
Obviously tenant in possession of space.
We can we can certainly renegotiate deals going forward, but once they close it's hard to get them reopened and a lot of those instances, we traded base rent for a variable rent component and without getting into the particular tenant names essentially what we traded was downside base rent.
In exchange for upside, especially if the sales came back and as we are reporting our sales are at an all time high so some of those exchanges involved lowering the breakpoints, obviously, but raising the payout rates.
So with that raised payout rates in many instances, we saw our rents exceed what the retailer would have paid as they just left the deal alone.
So it turned out to be a pretty good trade for us as far as sales and traffic are concerned we see that trend continuing to build.
We were optimistic about our outlook as far as sales are concerned we're doing a lot of things differently on center, an off center to drive traffic our traffic numbers are up.
Going after a much younger consumer and by going after that younger consumer. So we're seeing that shopping pattern come back to our shopping centers. So I think there is a strong story to tell with regard to our value channel.
And drawing new customers.
Keeping our.
Our loyal customers more engaged and driving sales and traffic on center.
And in the future.
And then how.
I guess.
Jim talked before about fourth quarter being more conservative on percentage rent.
Case, where sales are going to continue to grow in fourth quarter. Typically is your best quarter in sales given the holiday season.
And if some of those retailers convert percentage rent deals or renegotiate with you I would assume it's not going down right I would assume youre going to convert that percentage rent to a higher.
Our existing base rent.
And so I'm trying to understand why there would be a decline going back I think it was pods question.
<unk> decline if anything your percentage rent should go up in the fourth quarter and if you're converting those percentage rents in your base rental rate should go up or stay relatively flat.
Youre absolutely right I think we were prudent in our guidance there was a lot of noise in the market with regard to logistics and product.
I said over the last few weeks, we've been around the horn with our top guys are top retailers.
On the phone with them, making sure that they will have plenty of product in the store.
Early temperature checks that we were taking the retailers felt pretty confident that they would have product, but again, we guide and prudently but were still optimistic with regard to sales performance, particularly in fourth quarter and beyond.
I guess can you break out maybe the occupancy cost you broke out that I think you said eight 4% how much of that how has that shifted between percentage in base and do you have any concern at all of converting these percentage rent deals or the breakpoints, where.
It's been a great deal for Tanger and I definitely agree with you. The strategy has paid off but are those expected payments on sales now too high for the retailers relative to their profitability of that store.
Yes.
I think no.
I think that first of all an eight 4% were probably the cheapest bricks and mortar channel out there for any retail business Street.
Malls.
Whatever bricks and mortar business here and so I personally think there's probably still some upside in that occupancy cost I also think what's happening right. Now is we're converting some of these shorter term leases into longer term deals. We're converting some of that overage rent into base rent and thats the strategy for us and if there is a little bit of inflection that we're in the we're in.
The base rent collected business, that's where we get that's where we get our value in the certainty of base rent.
And that's the business growing our cash flow and.
Getting as much certainty into these numbers as possible. So we've we've had a lot of success converting short term leases into long term leases, we're having a lot of.
Our success getting a lot of that overage rent built into permanent rent going forward and we'll continue on that front, we'll continue with that strategy.
It may be helpful. As you roll into <unk> in 2022, given the shifts in some of these numbers.
You know, obviously at $8 6 million almost 90.
A share in the third quarter, just to sort of give the street a little bit more clarity on the relationship between that.
Maybe thinking about guiding to a total NOI number or does something to give a little bit more differentiation. So that the street doesn't get too far ahead on percentage rents that start to understand the dynamics and maybe breaking down some of the portfolio would be helpful. As you think going forward.
As you have all this momentum.
Thank you, we'll take that under advisory I think Thats, a great call out.
Okay, Alright, thanks, guys.
There are no additional questions at this time I'd like to turn the call back to Steve Tanger for closing remarks.
I just want to take an opportunity to.
Thank you everybody for your interest in our company.
On behalf of the entire Tanger team, we wish each of you a very happy and healthy holiday season Goodbye.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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