Q1 2022 Tanger Factory Outlet Centers Inc Earnings Call
Good morning. This is Doug Macdonald senior Vice President of Finance and capital markets and I would like to welcome you all to the Tanger factory outlet centers first quarter 2022 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 that tanger outlets Dot com.
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 <unk> core.
Same center net operating income.
Adjusted EBITDA and net debt.
Filiation that 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's date may 6th 2022 at.
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 permit we are happy for you to re queue for additional questions.
On the call today will be Steve Tanger, Our executive Chair, Stephen Yalof, Chief Executive Officer, and Jim Williams, Executive Vice President and Chief Financial Officer, I will now turn the call over to Steve Tanger. Please go ahead Steve.
Good morning, and thank you for joining us for our first quarter 2022 earnings call.
The results reflect.
Our company's ongoing positive momentum.
As evidenced by our strong operating performance, including sustained high occupancy raised guidance for the year and a recent dividend increase.
I wanted to thank our team for their unwavering commitment to executing on our strategy to increase cash flow and to grow the value of our real estate.
I will now turn the call over to Steve Yalof to provide additional details.
Thanks, Steve our first quarter results reflect our strong operating fundamentals positive leasing momentum occupancy improvement and a return to positive leasing spreads are translating into earnings growth. This strength, along with the constructive outlook that our board of directors to approve a nine six.
Percent increase in the annual dividend.
Our first quarter operating and financial metrics were ahead of our expectations and with our leasing results to date supporting our positive outlook, we are raising our full year's earnings guidance.
In particular traffic in the first quarter was up about 1% compared to the prior year first quarter, which I'll remind you is when we saw traffic rebound and approach pre pandemic levels.
Traffic was lighter in March on a year over year comparable basis due to the timing of Easter and our related Tanger style marketing program.
Yeah April traffic has returned even as consumer stays higher gas prices and an inflationary environment.
Tenant sales remained strong at $464 per square foot for the trailing 12 month period, and almost 20% increase from the pre pandemic comparable period in 2019.
We ended the first quarter with 94, 3% total portfolio occupancy up 230 basis points from the year ago period.
Leasing spreads turned positive with blended average rental rates up one 3% for all comparable renewed and re tenant leases executed during the 12 months ended March 31 2022.
This is a significant milestone and one which underscores the importance of our shopping destinations to our retailers and tenants.
Taken together these metrics help generate robust growth.
Same center NOI was up nine 9% compared to the prior year driven by growth in occupancy variable rents and other revenues in 2022.
Current quarter benefited from a reversal of revenue reserves as we collected previously doubtful or dispute address.
As we've been discussing over the past several quarters. We are laser focused on three strategic priorities all aimed at sustaining growth over time.
We continue to make meaningful progress on accelerating leasing.
<unk> marketing and reshaping operations, which are evident in our results and we are laying the foundation for growth in the quarters and years to come.
Our goal is to accelerated leasing or simple increase occupancy grow rents over time, and elevate and diversify and attract new brands.
We continue to achieve this with our best in class centers and a best in class leasing team all supported by enhanced analytics that allow us to make the right decision to optimize the merchandising of our properties what's.
What is increasingly clear is that the retailers are committed to our open air shopping destinations as part of their growth strategies.
Evidenced by our leasing momentum and tenants' desire to expand their footprint within Tanger centers.
We've also welcomed a number of new brands to the portfolio such as Wohlford.
St John Alta and Regatta, and new Afton B businesses junction 35 to our flagship Severeville destination, and Brooklyn lobster at Tanger outlets Foxwoods.
Our focus on non apparel and footwear tenants also continues as we signed leases with new F&B.
Furniture, and home and digitally native brands.
These new additions deliver high quality shopper visits by attracting a higher income shopper and a younger demographic.
Over the trailing 12 month period ended March 31, we executed 1.8 million square feet of leases across 375 transactions, representing a 39% increase in space and a 42% increase in transactions from the comparable prior period.
Driven in large part by the strong renewal activity approximately 45% of this GLA was executed in the first quarter of this year.
Growing customer traffic, coupled with increased sales productivity a tanger centers has led to the absorption of vacancy as evidenced by our 230 basis point pick up in occupancy over the last 12 months.
This dynamic is translating into our ability to execute far more landlord favorable lease terms and enabling us to convert variable rent to fixed rent, while commanding greater overage rent pay rates and tighter breakpoints.
We also saw the lengthening of the average initial lease term by six months on renewal and four years on re tenanted comparable leases executed in the trailing 12 months ended March 31, 2022 versus the prior year period.
Our leasing momentum fuels, our optimism and our continued ability to achieve our leasing objectives.
Furthermore, we feel confident in our tenant base with a watch list that is meaningfully smaller than it has been for many years and only 1% of our portfolio is on a cash basis down from 3% at year's end.
Our core strategy of commercializing marketing revolves around our ongoing digital transformation we.
We are focused on performing marketing that is targeted.
Ruble and drives higher conversions.
Shifted some of our marketing spend from broader brand awareness to targeted programs designed to achieve specific goals, including drawing cars into our parking lots and growing the average spend per shopper.
Our retailers are the direct recipients of these targeted initiatives and as they continue to derive value their partnership and participation continues to grow.
US, resulting in higher shopper spends and bigger basket sizes.
We have also improved our Tanger club paid membership program by enhancing the value proposition exclusive offerings and shopper perks aimed at growing our active membership.
Year to date, new enrollments were up 20% compared to the prior year and we continue to see this group as the most productive of our customers.
We are focused on reshaping operations by maximizing operational efficiency and growing ancillary revenues through marketing partnerships and media.
<unk> centre Activations in partnerships with National brands, such as Coca Cola and the National Football League are growing across our entire portfolio as these brands seek to leverage the traffic and customers, we drive to Tanger shopping destinations.
These other revenues increased by almost 50% in the first quarter from the prior year and there is additional opportunity in these non rental revenues in the quarters and years to come.
We are continuing to invest and execute on our sustainability initiatives that provide a return to our shareholders and our communities.
Let's include doubling our renewable energy footprint with solar infrastructure that will also produce expense savings over time.
Growing our EV charging station program by adding 200, new units across 17 centers delivering free charging options to our shoppers.
And bringing our very popular eco friendly rooftop be initiative to more tanger centers.
Finally, we are encouraged by our tenants' desire to expand their footprint with Tanger and for new tenants to begin and grow their relationship with us.
We are pleased with the progress of our Nashville project and continue to be on track to break ground later this quarter with Grand openings scheduled for fall 2023.
Our peripheral land team is aggressively pursuing opportunities to monetize and develop our out parcel portfolio, we are unlocking new opportunities to enhance our offering and exciting shopper amenities and generate new revenue streams, all creating long term portfolio value.
Summary, we are encouraged by our continued progress in our ability to execute on our strategic priorities the value proposition of our open air centers is being validated by shoppers.
Tennant's and the communities we serve.
I would now like to turn the call over to Jim Williams to take you through our financial results balance sheet and increased guidance for 2022.
Thank you Steve.
I am pleased to report that we delivered solid results for the first quarter 2022 with core <unk> of 45 cents per share up 12, 5% compared to the last year period.
Our outperformance was due to better than expected leasing performance in other revenues as well as the reserve reversals.
Including our share of unconsolidated joint ventures, we recognized approximately $3 $1 million and the reversal of certain revenue reserves compared to approximately one $7 million in the first quarter of the prior year.
These factors helped drive a year over year increase in same center NOI for the total portfolio of nine 9% for the quarter to $78 $2 million.
Also contributing to the outperformance was the recognition of approximately $2 $6 million in termination fees, including our share of unconsolidated joint ventures in the current quarter compared to $8 million in the prior year.
Due to the well timed capital markets activity executed over the past year, our balance sheet is well positioned we have no significant debt maturities until April 2024, and as of March 31st our net debt to adjusted EBITDA improved.
Improved to five four times for the trailing 12 months compared to $6 eight times a year ago.
As of quarter end, our weighted average interest rate was three 1%.
93% of our outstanding debt was fixed.
We have always prioritized, maintaining a strong financial position and a disciplined and prudent approach to capital allocation.
Our dividend was well covered with an F. A D payout ratio of 38% for the first quarter.
Last month, the board of directors approved a nine 6% increase in the dividend on an annualized basis.
We are increasing our guidance for 2022, and now expect core <unk> to be in the range of $1 71, and $1 79 per share.
This is three cents higher than our original guidance approximately half driven by better than anticipated first quarter results and half due to stronger than expected leasing performance year to date.
We expect same center NOI growth at a range of two 5% to four 5% up 100 basis points.
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.
Thank you, we'll now be conducting a question and answer session if you'd like to be placed in the question queue. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our first question today is coming from Todd Thomas from Keybanc. Your line is now live.
Hi, Thanks, good morning.
First question I was just wanted to ask about the sequential decrease in occupancy it sounds like leasing activity is strong.
I'm curious you know.
Some of that occupancy loss was.
The result of Hampton seasonal tenants vacating after the holidays, if you could sort of quantify or speak to that and then if you could.
Also address whether or not you would expect to see occupancy climb higher from here.
Or could there continue to you know.
Be a little bit of occupancy losses second quarter from either tempur seasonal tenants or otherwise that are still potentially.
Potentially moving out.
Good morning.
Thanks for the question with regard to the sequential decrease in occupancy some of that was seasonal but other big was friction at all.
Currently we're performing a lot of what we call shuffled.
Around our portfolio. If you read the release recently, we opened up an expanded under armour story Hilton in order to expand some of these stores other stores has to close and make room for the expansion of existing tenants or make room for new tenants that same.
That same strategy is playing out in places like Lancaster with Victoria's secret.
Atlantic City with a large retailer that we're putting in there that will hopefully be able to share. The name, but next quarter are you going to be robust with alter so theres a number of things that play with regard to what's causing some of that sequential decrease where we're actually pretty excited about the 230 basis point increase.
Year over year, we've got a very robust pipeline. We don't talk about deals that are on executed, but we've got a very very robust pipeline of new retailers to the two to tanger as well as expanding some of our best performing retailers in the portfolio.
And also adding across the rest of our portfolio some of our best brands that haven't gone into some of our shopping centers, yet so we're pretty optimistic about our leasing activity going into the next quarter.
Okay and can you provide an update.
The holidays here as to where the portfolio stands in terms of occupancy that's related to.
Temporary and seasonal tenants today and then.
I know you've been working to convert a lot of temp tenants to permanent.
I wanted to.
Ask for an update there and.
Also maybe Jim I was just curious if you could let us know if that leasing when you do convert temp tenants to permanent is that leasing included in the trailing 12 month leasing stats that are disclosed.
So here I'll take I guess I'll take the front half of that.
The big focus of ours is converting our our temp tenants.
Permanent tenancy, but I understand when we when we take a when we take a permanent tenant and they occupy a temp space.
Theres still occupancy.
Available in that shopping center, we're going to take that temp tenant and we're going to move that Tim tenant into another available space in our portfolio.
So there's always going to be movement with our 10 tenants we think.
Leasing is a great strategy, but obviously, we're far more focused on long term leasing because the payback of the long term leasing is.
Better than the short term tenants I'll, let Jim give you a little bit more color on how we look at it from a fashion point of view, but so it's hard to answer your question on the spreads temporary tenants are not in the spreads are spreads compare a permanent tenant to the most recent four prior permanent tenants.
Okay.
And how much of the occupancy today is related to the 10 tenants.
A little bit over 10%.
Okay alright, thank you.
Thanks Todd.
Thank you next question is coming from Michael Bilerman from Citi. Your line is not a lot.
Thank you for that.
So Stephen maybe just going on in occupancy for a moment, it's obviously been unimpressive increase off of the lows. When you look at the portfolio. There's about five assets that you now or are in the high 70 sort of low eighty's type of occupancy.
When you look at those five assets.
<unk> is 200 basis points of your.
If your vacancy right so that if you're at $94 three and you take out of Atlantic City, and Foxwoods meet two athletes.
Grand Rapids, and Alan you mentioned Tilton.
Youre talking about almost half of that vacancy.
It you'd be at 96 and a half so maybe you can dive in a little bit on the strategy for those assets and where you think occupancy can go because it feels as though there's probably not as much occupancy upside maybe another 50 to 100 basis points for the other assets and then all of those other initiatives, which I do want to spend some time on.
We will continue to drive NOI growth, but maybe you can talk a little bit about the specific assets and how much.
Effort, you can do to narrow that gap on those or maybe you want to.
Tell them and Thats, the way youre going to get rid of the vacancy.
Yes.
Well good morning, Michael and thanks for the question So first of all.
The good news is all of the assets that you called out are still cash flowing positive. So that's important.
Two of the assets the Fox was asset in Atlantic City asset, we had said in prior quarters, we're probably hit the hardest through the pandemic.
Those markets relying on tourism.
On hotel stays entertainment and gaming and what we're seeing right now those categories are coming back.
So very strong because that's yeah, that's why I was there.
Kidney markets had been so strong over time through the pandemic I guess I'm surprised that you haven't been able to make a further progress in that they can pay for those two assets.
And then again a lot of that opportunity at least once we identify attendants, who is going to take a space.
That gestation period.
Permanent leaves can take anywhere between nine and 12 months. So youll see a lot of the fruits of labor of these markets coming back, but I mentioned in Atlantic City. When Todd asked the question about some of the frictional vacancy that we see.
Although we don't comment on leases that are executed yet we've got a very large tenant that we anticipate executing in the next few months in Atlantic City that will fill a big chunk of space.
That we've been for.
Lack of a better expression holding for that particular tenant, but I think this tenant coming to dislocation definitely underscores the fact that Atlantic city as the market is coming back in sales and traffic are coming back there as well.
Oxford has had been historically, a little bit slower to come back.
They just recently announced their partnership with Great Wolf Lodge, so that will become under if that would be under construction shortly and their lineup for summer.
There are some are events in their summer entertainment calendar is far more robust than it's been in years and years past, which just underscores. The fact that foxwoods themselves are investing a lot of money and traffic generation and obviously will ultimately benefits.
We have done one or two recent deals and foxwoods.
But we will and we will continue to lean very heavily into them as far as the other two centers the Michigan centers that you mentioned.
Both of those centers rely a little bit more on people getting in their current travelling to those shopping centers and we see that dynamic changing particularly over the summer where a lot of our customers are shifting from.
Maybe they were sitting home and buying products now, they're hitting the road a little bit more and we anticipate a lot of more tourist traffic to our centers and I think how and Grand Rapids will definitely be great recipient of that.
Is there a way to think about.
The occupancy target towards the end of the year or so effectively if you think about it today, Steven you're sitting on about 700000 square feet of vacancy across the portfolio. Those five assets I. Just mentioned are now a little over 300000 and 400000 in the rest of the portfolio where should net absorption be by the end of the year right how much of that.
300000 of vacancy at these assets are you going to be able to chew into because I would think that that has the most meaningful impact on that bottom line occupancy number and then all of those other initiatives that you're focused on in terms of maximizing.
And reshaping the operations getting all those new leasing screens commercializing the marketing are going to add on top of that occupancy gains that youre going to get.
Our primary objectives, we're focused on cash flow.
And for Us.
The vacancy in some of our better performing assets will return far better than some of the vacancy in some of our lower performing assets.
That said we.
We're going to focus on in some particular centers, where we've got 100% occupancy we've got underperforming retailers, we're gonna be just as aggressive going after more productive retailers and higher rent payers and some of that space and creating some of that frictional vacancy when we when we pull out and underperformed and replaced them with a much better performer.
Or are larger.
Expanding retailer.
As far as these other assets again I mentioned, we've got a pipeline of.
Executed leases that are signed but have not yet taken delivery of possession were always looking at least 18 and 24 months out so as leases are rolling we're thinking about replacing those tenants and thats across the entire portfolio.
And with regard to leases out for signature.
That pipeline is extremely robust right now and as I mentioned being fed by a lot of the retailers that have had success in our portfolio for years and years going into some of the markets that they hadn't yet.
I'm joined us.
So for us.
Cash flow generation far more important than occupancy although occupancies.
Great flashing light, we're very excited to say, we're up 230 basis points, but again, we're focused on the most productive tenants the best leases and the highest cash flow and Thats, where our leasing team is focusing their energy.
Yes makes a lot of sense, thanks for that Steve.
Michael.
Thank you next question today is coming from sports fans that come from Compass point. Your line is now live.
Hey, good morning, guys.
Just following up on the leasing I mean I obviously.
So that your shares are valued like like you have no growth than what you're showing here is you've got growth both in occupancy and for the first time in probably over five years.
Positive leasing spreads.
And I.
Just maybe if you can talk through Stephen the.
You talked a little bit about your improved or longer lease terms, obviously rents are going higher.
But maybe you can talk about some of the other soft elements of your of your leasing are you negotiating higher fixed bumps are you actively trying to do that and maybe also talk.
Talk about.
Youre, the occupancy costs and how much how much ability because of the occupancy cost as you know.
Call. It eight 3% appears pretty low how much ability do you think.
You have as the overall occupancy increases how much more ability will you have to to push rents higher.
So good morning for us and thank you. Thanks, so much for the question I think the the.
The most material change to leasing right now over the last two years.
Is that where we.
We were very focused two years ago on maintaining occupancy.
Reducing base rents.
Facing base rents with higher percentage rents.
In order to give some downside protection to some retailers during the height of the pandemic.
What we're seeing now evidenced by our lease spreads increasing as well as our lease terms increasing is that we're going back to fundamental.
And dealmaking.
10 year terms.
A higher base rents, we're now pushing for and getting better percentage rents going forward.
Retailers have gotten used to stepping up to a higher percentage rents over the last couple of years.
We're doing a very effective job of taking a lot of that variable rent.
That was a huge driver of our growth over the last few quarters.
And sweeping that into the base rent numbers.
So that we are protecting a lot of the rent that we've achieved over the past quarters and I think especially.
Especially now in this current market environment, that's a really good leasing strategy for us.
I know you asked a number of other questions. If you want to re ask a couple of those I'm trying to pick them off in order here.
No no I I one of the other things in terms of other soft softer elements in terms of.
Getting higher fixed bumps and your lease terms et cetera, how is that progressing and do you have like a target in your mind in terms of what where you would like the portfolio to go.
As far as as far as the fixed bumps look I think I think the milestone here is that we're actually going back to the old or to how we have traditionally.
<unk> leases.
So fixed cam with our bumps.
<unk>.
Retail is paying their pro rata share of the real estate taxes, and other passengers and marketing fees and I think the marketing fees and I think if you're talking about the sort of the softer softer numbers I think marketing fees are becoming more and more important to our retailers as they see the progress that we've made from a marketing point of view.
We've gone from more static marketing to performance based marketing, we're using technology in order to influence more cars into the parking lots. There's a number of initiatives that we've stood up over the last.
Say two quarters that have really enhanced our ability to drive traffic to our centers, but also give us great data and information about the tenants.
How about the shoppers that are coming into our parking lots.
And through that data, we're able to better communicate with them.
We're able to convert them into Tanger club membership, which for US is a great source of revenue.
And also get them to come back and shop with us for more frequently so I think that that that marketing spend.
Retailers rely very heavily on the outlet developer to drive traffic.
A lot of our big retailer partners their advertising spend is to drive customers into their full price venues. So <unk>.
Unique in our channel that we do a lot of that advertising on the retailers behalf to drive customers into the shopping centers and we've got a real successful.
Strategy that we're executing to in order to in order to do that.
If I have one more question, maybe you talk a little bit about your lease pipeline do you have like a number in terms of your signed not opened four or your what the dollar amount of revenues that you expect to come online over the next 12 months or maybe 24 months.
Hi, <unk> this is Jim.
The spread.
<unk> spread versus occupied spread right now is around 40 basis points.
Okay. Thanks, guys.
Thank you. Your next question today is coming from Caitlin Burrows from Goldman Sachs. Your line is not lives.
Hi, Good morning, maybe just following up a little on that.
Second we are having with Boris on the pricing so with leasing spreads haven't turned positive. It sounds like you guys are more confident which is great on the pricing side going forward I'm wondering given that they quoted number its trailing 12 month could you give more color on maybe the real time are the outlets do you expect rents and leasing spreads.
They stay in that kind of flattish range or even increase.
Hi, Caitlin this is Jim.
Yes.
Certainly.
We're certainly pleased with the momentum that we're seeing and the performance that we've seen year to date.
So that certainly played into the.
Southern comfortable raising our guidance, we don't want to give color and we don't give we're not going to guide to the spreads.
We can just say we are very pleased with with the <unk>.
We've seen year to date and our outlook for the rest of the year.
Okay.
And then also that trailing 12 month leasing spread.
The space that was vacant for less than 12 months. So I was wondering if you could comment on what it would be at the longer vacant spaces were included.
More complete portfolio.
Again, that's not us.
That's not a number we're going to provide I think we think that the.
More.
The better comparison.
To be a true comparable to the spaces.
The way, we are doing on a comparable basis.
And then I think that's pretty consistent with how our peers do it as well.
Okay.
Maybe just one then on external growth I think well I know in recent quarters, you guys had talked about possibly being attractive acquisition opportunity.
If you could give an update on what youre seeing on the crime.
If any have kind of come in faster.
So you got three were just anything you're seeing on the transaction side.
We're still.
Very very heavily working on a number of different opportunities for us from an acquisition point of view.
We've got the 36 properties that we manage six of them are JV is we think the JV structure is a great. One for us it's been very successful for us whether it's with our partnerships in Canada, our partnerships with Simon or other partners that we have across the portfolio and that's a strategy that we're pursuing right now we're hopeful in may.
And the next quarter or two to talk about one specific JV that we've been we've been working on but unfortunately until we have that one fully completed we're not going to we're not going to be able to share it.
Sure.
Okay. Thank you.
Thank you next question is coming from Emily <unk> from Green Street. Your line is that right.
Yes.
Good morning.
Hi, Thank you for taking my call just a quick one would you say that the low end of your same store NOI guidance still assumes roughly flat Tennessee.
Has your outlook I'm, sorry, I'm sorry.
The error had changed.
Hi, This is Jim.
When we gave our year end guidance, we said that the bottom of the range really.
Takes into consideration a modest decline in sales.
The upper end of our range.
The increase in sales I think what we've seen so far this year through the first quarter as sales are pretty much where we had planned them to be so.
Still.
The parameters that we put into our guidance.
Okay. Thank you and maybe one follow up you reported strong leasing activity and there seems to be.
Yeah on the tenant side.
What are you hearing from recently and is there any sort of change in tone or are they concerned at all about the hangar inflation the hiring.
Interest rate environment, and the potential drop in consumer spending.
You're about a potential recession.
Okay.
Well.
First of all I guess, what we're hearing from our retail and what we're seeing as far as sales performance is concerned.
There has been a big shift.
From casual product of fashion product and a lot of our fashion brands in our portfolio have really been the over achievers in the last quarter.
And so we've and we're seeing now with the ability for a lot of our other retailers to pivot.
And I guess, you probably read the same things, we read and maybe with our retailers regularly we know that there are a lot of retailers are now thinking about that pivot from more casual to more dressed for.
Dress for work product and that is a great driver of traffic tourist shopping centers and also a great driver of sales there with regard to any recessionary pressure.
It may be ahead of us again.
From a company point of view.
Anticipating some financial.
Headwinds that would occur this year.
We did a number of things.
Our balance sheet last year in order to recast our credit lines.
Recast our debt stack.
At all time low coupon.
So we think we're in pretty good shape from a balance sheet point of view.
And also from a leasing strategic point of view moving a lot of that variable rent that we saw last year into base rent was up.
Great move for us because it guarantees a lot more rent for us going into a possible recessionary time.
I think that a lot of the retailers in our stack are extremely professional there are some of the best International Global and National brands.
And they've dealt with these sites they've been around for quite some time they've dealt with these cycles. Many times in the past and we're very confident that our retailers will be able to weather and perform well through that.
Through these times.
I think the last point is where value priced and.
And when people want to go shopping your dollar goes a lot further in a value priced environment, especially when youre looking for your best brands and the.
The best and the best logos.
Great. Thank you.
Thank you next question today is coming from Mike Mueller from Jpmorgan. Your line is now live.
Yeah, Hi.
Yes in terms of the 10% temp temp tenants given the strong sales and traffic trends that you've been seeing is it getting any easier to convert those tenants to longer term leases.
Well.
Tests had it come in a bunch of different shapes and sizes I mean, I'll give you a great example, because we just signed a temp tenant.
Digitally native brand called summer Salt that just took a lease with us in Myrtle Beach. This will be some results there.
This will be their first store, let alone their first outlet store and they are popping up in our Myrtle Beach, we call it pop up a short term.
Short term tenants.
So we see that as a strategy to get a brand new brand in front of our customers give this brand and opportunity to generate new customers and we think there'll be has limited wise. It is Tory burch was converting their pop up stores at a long term permanent pieces, we think we'll see some growth from those.
From this retailer overtime.
Then there is our short term leases, which to us all.
Our tenants, where we control the real estate and I think that's really critical because in an environment, where there is still occupied occupancy opportunities in some of our shopping centers to have a short term tenant where we're able to control.
Whether we can terminate those leases on a 30 day notice 99% of these leases have that clause at the landlord favorable clause.
That will be the lowest rent payers, perhaps but gives us the most optionality and the most flexibility to do what we need to do with our real estate. So whether that tenant is sitting next to an under armour is they didnt know Hilton, which we need to let that short term tenant.
So we can expand the under armour store will.
We will do our best to take that short term tenants and replace them someplace else in our portfolio are someplace else in that shopping center, where there is another where there's another vacancy so that although we're replacing a lot of that temp tenancy with either an expanding existing or some new tenancy.
So long as there is.
They can see in our shopping centers, we're going to want to move that short term tenant into the next vacant space.
They may not get that space that was vacated by our wilsons or a bass or address part over the last two years and they may be moving to a different part of that shopping center, but once again, it's economical for them to do they don't want to be in the shopping center, it's low cost space and we're going to we're just going to continue to pop them up throughout our portfolio as is.
That opportunity provides itself.
Got it and then I think you made a comment about Nashville, breaking ground this quarter and then opening in the fall.
Remind me is that is that a normal timeframe from break ground to open or is it a little drawn out just because of the macro environment.
It's actually drawn out because the entire property is built on rock.
So.
You typically groundbreakings shoveling dirt, we're going to be.
We're gonna be Jack hammering rock so unfortunately.
<unk>.
Preparing the Mega pad for develop it it's going to take far longer than our standard development I felt a lot of shopping centers over the over the years. They are usually in the 12 to 14 months period. This was it 16 months has to do with the condition of the property.
As we break ground.
That's interesting okay that was it thank you.
Thank you I just a reminder that star one to be placed in the question queue. Our next question is coming from Greg Mcginniss from Scotiabank. Your line is now live.
Hey, good morning, everyone.
Jim I, just wanted to touch on guidance increase.
Mentioned about one and a half cents of it raised was driven by prior period rent collections and lease termination fees because around five <unk> in Q1 can you help us understand what's baked into the balance of the year.
Yes.
Yes, Hi, Greg.
Yes, I mean, just to give you a little color.
We had a handful of tenants.
Small group of tenants that were on a cash basis, our sales kind of disputing ramps back to the Covid days, we were able to settle those and collect those ramps in the first quarter and reverse those reserves.
Most of that was actually baked into our guidance, particularly if you think about how we get to the top of the range.
Looking forward, we really have about we got about one one other tenants that we will.
Burt from cash basis to accrual basis in the second quarter.
And that'll have about a penny and a half or two pennies a share impact in the second quarter. The majority of that is really restoring straight line rents.
And looking at after that I mean, we will have less than a percent of our portfolio thats on a cash basis. So I think that really kind of get through most of the significant reserves from prior year rents and we don't see much of that going forward for the balance of the year.
Okay. Thank you.
And then maybe.
Just a couple of follow ups on Nashville.
How do you plan on funding that development can you talk about maybe investment yields that you're targeting and then how you're controlling for increasing construction costs and supply chain headwinds, especially given me.
Extended build out time.
Well ill.
I'll give you I'll take the back half of the question Jim can talk about how we're funding the development.
But.
Youre right.
By chain and if that original construction cost is definitely had some movement. The good news is national being such a hot market. Our rents have also grown so we're very confident.
<unk>.
Sure.
That sort of range, we provided in quarters past with regard to yield is still intact as far as funding Jimmy was yes sure Greg.
$153 million of cash on the books, we have undrawn credit facility of around $20 million.
And also if you look at are we know where our payout ratio is.
38% for first quarter, but I think looking ahead.
Despite a payout ratio.
He made the low fifty's first.
First generating about $60 million to $70 million of excess cash flow. So we can really we can really fond nashville, particularly sensitive Scott.
Six to eight months development timeline with our internally generated cash.
Okay.
Great well Lincoln.
Thank you. Your next question today is coming from Craig Schmidt from Bank of America. Your line is now live.
Thank you.
Thinking again about Nashville.
Or would you characterize the tenancy at national versus your other Tanger centers.
What is the mix of local versus national tenants and have you hit that 60% hurdle yet.
So I would say that we're trying to.
I would say that the Nashville, Tennessee, and Unfortunately, we're not sharing our tenant names right now.
I'll talk about a little bit but.
And with regards to the hurdle, let me, let me start with that.
Sure.
We were at our threshold that we've committed to so we are in fact ready to break ground on the shop on that shopping center.
With regard to tenancy.
Local food and beverage is going to be very exciting and very needed in that shopping center. So I think that that's where a lot of that local tenancy is going to come from and as far as will it looked like another one of our shopping centers I think it will be a lot of them.
The better performing tenants in our stack.
Our tenants have already joined us in the shopping center.
And I'll give a little bit more color in the in the quarters to come with regard to who that full tenant base is going to be.
As far as the look at the center it will look a lot different than most.
Most of the shopping centers that we have in our portfolio, where we are going away from what was formerly a racetrack design.
To more of a village design.
We think we'll be much better and much more welcoming to the community and allow us to be a gathering place for a lot of the local population that seems to be building quite rapidly in that market.
And we will be turning to reflect your current thinking on non fashion tenancy.
I'm sorry.
You broke up a little bit because they reflect.
Right.
Youre currently.
And putting down.
The fashion tenancy mix of your portfolio I'm. Just wondering are you going to bake that into your opening at Nashville, Yes.
Yes.
Okay, Great and then one.
One other question I mean, you're very active in terms of rewards.
Building up with customers, what do you do on acquiring new customers.
Tanger outlets.
We have a couple of great.
We have a couple of great strategies for acquiring new customers.
Sure I'll share a recent one with you because I think it's a great example of what we do best every.
So every year around Easter time, we host Tanger style.
Tanger style is basically the retailers offering an additional 25% off.
To each one of the customers that shop in the shopping center.
If they participate in the Tanger style program and Thats, usually two weeks before Easter and it concludes two weeks following the Easter holiday.
This year, we did things a little bit differently, we offer 15% to all of our shoppers we offer the additional 10% or 25% off to Tanger club members.
And the goal was not only to build up our Tanger club base, which we think is a very important.
Set of customers they shop more frequently spend more money each time, they come and visit with us, but it gave us an opportunity to acquire a new customer and get some data on a new customer and we think that that's the most important part of our Tam.
Tanger club on a going forward basis is the personalization of how we communicate to these new customers and the value proposition that they get for being part of this Tanger club.
Tanger Club group.
Better value.
Exclusive offerings, such as early shopping hours and in some instances.
Upfront parking, but all of the things that these.
These customers are looking for when they shop with us in exchange for our getting more data. So we can communicate to them in a more meaningful way.
Great. Thank you.
Thank you we reached end of our question and answer session I would like to turn the floor back over to Mr. Tanger for any further or closing comments.
I wanted to take this opportunity to thank each of you for your interest in our company and your time this morning.
We are very proud of our positive results.
And continued momentum.
We look forward to providing you ongoing updates on our various initiatives in the next coming months.
Our team is always available for follow up discussions and we will be speaking with many of you at the upcoming NAREIT conference take care and booster.
Goodbye.
Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.