Q4 2022 Tanger Factory Outlet Centers Inc Earnings Call
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Speaker 2: Good morning. This is Ashley Curtis, and I would like to welcome you to the Tanger Factory Outlet Center's fourth 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.
Speaker 2: investors.tangeroutlets.com. Please note that during the conference call, some of management's comments will be forward-looking statements that are subject to numerous risks and uncertainties, and actual results can differ materially from those projected. We direct you to our following with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.
Speaker 2: During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including Funds from Operations or FFO, Core FFO, Stains Center Net Operating Income, Adjusted EBITDA RE and Net Debt.
Speaker 2: Reconciliation of these non-GAT measures to the most directly comparable GAT financial measures are included in our earnings release and in our supplemental information.
Speaker 2: 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, February 22nd, 2023.
Speaker 2: At this time, all participants are in listen-only mode. Using management's prepared comments, the call will be opened for your questions.
Speaker 2: We request that everyone ask only one question and one follow-up to allow as many of you as possible to ask questions.
Speaker 2: If time permits, we are happy for you to reach you for additional questions.
Speaker 2: On the call today will be Stephen Tanger, our Executive Chair, Stephen Yaloff, President and Chief Executive Officer, and Michael Billerman, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A. I will now turn the call over to Stephen Tanger. Please go ahead, Steve. Stephen Tanger, Chief Executive Officer,
Speaker 3: Good morning and thank you for joining us for our fourth quarter and full year 2022 earnings call.
Speaker 3: The team delivered tremendous results.
Speaker 3: executing on all of our objectives, and positioning Tengor for continued growth.
Speaker 3: 2023 is a milestone year for Tanger and marks our 30th year as a public company traded on the New York Stock Exchange.
Speaker 3: I am very proud of what we have accomplished and even more excited about our future.
Speaker 3: I have the utmost confidence in the management team and the strategic direction of the company.
Speaker 3: I will now turn the call over to Steve Yall.
Speaker 4: Thanks Steve and good morning.
Speaker 4: I'm pleased to announce another quarter of solid results which reflects our strategy of providing curated, engaging, and value-filled experiences for our shoppers.
Speaker 4: offering a productive sales model as well as a clearance channel for our retailers, elevating and diversifying our tenancy, and delivering a platform which delivers both reliable earnings and attractive growth opportunities.
Speaker 4: We are pleased to introduce our guidance for 2023, which anticipates continued growth, taking into effect the leasing execution from last year and continued momentum.
Speaker 4: even in the face of broader macroeconomic uncertainty.
Speaker 4: And we look forward to the grand opening of our newest development in Nashville, Tennessee, expected in September .
Speaker 4: In 2022, we delivered a 5.5% increase in same-center NOI, which was supported by robust leasing, strong occupancy gains, and attractive rent spreads.
Speaker 4: For the year, we executed 447 leases representing 2.1 million square feet, a 50 percent increase from the 1.4 million square feet executed last year.
Speaker 4: For the trailing 12 months,
Speaker 4: We realized a 10.1% blended rent spread on these leases.
Speaker 4: This includes a 28% recenditing and an 8.6% renewal spread representing seven consecutive quarters of improvement for TANR.
Speaker 4: The strong performance is the result of our ability to exercise pricing power and convert variable rent to fixed rent and is a clear demonstration of the importance that retailers place on the outlet retail distribution channel and our open air shopping centers.
Speaker 4: Our occupancy increased by 170 basis points year over year, ending the year at 97%.
Speaker 4: But even at this high level, we have a meaningful growth opportunity as we continue to realize attractive rent spreads on both renewal and retended space and convert temporary space to long-term occupancy.
Speaker 4: Our temporary occupancy serves as an important and effective role in our overall strategy in both maintaining revenue generating occupied space.
Speaker 4: while introducing new tenants to the Tanger platform.
Speaker 4: With approximately 10% of our GLA currently occupied by short-term, pop-up, or other temporary tenancy, we have the ability to drive additional rent growth over time as a portion of these convert.
Speaker 4: of our GLA currently occupied by short-term, pop-up or other temporary tendency, we have the ability to drive additional rent growth over time as a portion of these convert to longer-term Meet Us. We will always ye to di po on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on this be on the other will be we Commander She
Speaker 4: Beyond the numbers, the quality of our leasing activity is something I'd like to highlight.
Speaker 4: We have prioritized elevating and diversifying our brands. And since embarking on this objective two years ago, we have made tremendous progress adding new food and beverage, entertainment, home furnishing, and digitally native brands to our portfolio.
Speaker 4: With the goal of curating the best open air environments with elevated brands, improved amenities, and best in class food and beverage.
Speaker 4: We are creating a more engaging experience for our shoppers who ultimately stay longer and spend more dollars at our centers.
Speaker 4: We are pleased with the quality of our tenants and the importance of the Outland Channel to their operations.
Speaker 4: while we maintain a watch list, it is minimal.
Speaker 4: We proactively manage this list and work with tenants to mitigate our risk.
Speaker 4: Traffic for 2022 approached last year's levels as we anniversary strong comps for 2021
Speaker 4: Traffic was down 50 basis points for the full year and 200 basis points for the fourth quarter, which reflects the historic winter storm that impacted much of the country in December .
Speaker 4: However, we are encouraged by current trends as we have seen an uptick in traffic post-Christmas and into the new year.
Speaker 4: Total gross sales reported by tenants in our centers remain steady to last year's levels as we faced a more promotional environment compared to last year, where we saw the benefits of a tight inventory for retailers and stimulus spending by shoppers.
Speaker 4: Our sales per square foot was roughly flat on a sequential basis at $445 per square foot.
Speaker 4: However, down slightly compared to the prior 12-month period impacted by the change in the mix of retailers included in the comparable pool as well as retailer expansions that occurred during the year.
Speaker 4: We are encouraged by our outlook as we start to see the benefit of our new leasing activity in the coming quarters.
Speaker 4: Our ability to help drive sales productivity is imparted attributable to our enhanced performance marketing, which we continue to refine and achieve measurable results.
Speaker 4: Our ability to help drive sales productivity is important to our enhanced performance marketing which we continue to refine and achieve measurable results with increasingly relevant and compelling content.
Speaker 4: We continue to derive incremental value from our centers through our marketing partnerships, media platform, and sustainability efforts.
Speaker 4: Other revenues for 2022 grew 14 percent as local, regional, and national brands sought to gain visibility with tankershoppers.
Speaker 4: We continue to build our media infrastructure and have proven its value to clients evidenced by repeat campaigns from several national brands.
Speaker 4: We believe this is a unique revenue stream to Tanger, given the scale and quality of our audience with additional runway in the years ahead.
Speaker 4: Through our sustainability initiatives, we seek to have a positive impact on the planet while driving positive returns on our investments.
Speaker 4: In August , we announced our goal to be carbon neutral by 2050 and have already achieved several milestones.
Speaker 4: These include our investment in renewable energy recently doubling our solar infrastructure.
Speaker 4: and adding electric vehicle charging stations across our centers.
Speaker 4: We have also attained LEED Gold certification at an additional 4 centers.
Speaker 4: Now over 50% of our GLA is lead certified.
Speaker 4: We continue to progress on our Nashville development, which is now over 80% least committed.
Speaker 4: Construction is well underway and on track for grand opening in September of this year.
Speaker 4: Our anticipated stabilized yield of 7 to 7.5% remains unchanged.
Speaker 4: This center will add 290,000 square feet of GLA.
Speaker 4: Teneded with elevated national brands, best in class, food and beverage, and entertainment concept.
Speaker 4: Tanger Outlet's Nashville will feature an updated design and layout which enables the sense of place for our shoppers, retailers, and community activations.
Speaker 4: We are encouraged by the success that we have achieved in Palm Beach, where we have rebranded the existing outlet center, Tanger Outlets Palm Beach.
Speaker 4: To date, we have realized strong tenet demand and executed robust leasing volume.
Speaker 4: We're looking forward to welcoming investors to this center during the upcoming City CEO conference in March.
Speaker 4: Looking ahead, we're a well positioned for growth.
Speaker 4: Our occupancy cost ratio is increased by 50 basis points over the past year, and it just 8.6% for 2022. We believe we still have significant runway to realize additional rent increases.
Speaker 4: while providing tremendous value for our retailers and tenants.
Speaker 4: We have a model that generates strong free cash flow and a solid balance sheet which provides us with the liquidity and flexibility to invest in our growth.
Speaker 4: We continue to return capital to shareholders through our well-covered and growing dividend.
Speaker 4: We are driving organic growth, unlocking additional value at our centers through redevelopments, and activating other revenue opportunities while selectively pursuing external growth.
Speaker 4: Over the past two years we have assembled an immensely talented and experienced senior management team.
Speaker 4: These teams' capabilities are evident in our 2022 results, and I'm excited about the value we will continue to create in the quarters and years ahead.
Speaker 4: I'm pleased to now be turning this call over to our newest senior team member, Michael Billerman, Tanger's CFO and Chief Investment Officer.
Speaker 4: I want to thank our entire team, our shoppers, retailers, and all of our stakeholders for their continued support.
Speaker 4: I now like to turn the call over to Michael.
Speaker 5: Thank you, Steve. I'm extremely excited to be part of this team and help drive value for all of our stakeholders.
Speaker 5: Today, I'm going to quickly walk through our financial results, our balance sheet position, and the guidance that we're introducing for 2023.
Speaker 5: Tanger delivered solid results for the fourth quarter and full year 2022, meeting the high end of our upwardly revised annual guidance range.
Speaker 5: Core FFO per share increased 4.4% to 47% for the fourth quarter and was up 4% for the year to $1.83.
Speaker 5: Same center NY for the total portfolio, increased 5.1% for the quarter, and was up 5.5% for the year driven by the growth and occupancy.
Speaker 5: positive rent spreads, and similar to other retail peers, some benefit from reserve reversals.
Speaker 5: The reserve reversals were included in our original guidance and largely were recorded earlier in 2022. And just as a reminder, our SANE Center and OI is presented on a cash basis and also excludes these termination fees.
Speaker 5: As part of our active asset management strategy in the fourth quarter, we did sell a non-core outlet center located in blowing Roth North Carolina for $13 million or approximately a 9 to 10 percent cap rate.
Speaker 5: of note, this was our least productive center in our portfolio.
Speaker 5: We enter 2023 with a balance sheet with the liquidity and the flexibility to pursue our growth objectives.
Speaker 5: As of year end, our cash and cash equivalents and our short-term investments totaled $273 million with full availability on our 520 million unsecured line subcredit.
Speaker 5: In addition, our net debt to adjusted EBITDA RE improved to 5.1 times in 2022, down from 5.5 times in 2021, one of the lowest in the retail sector, which provides additional capacity to drive our growth while staying below our target leverage level.
Speaker 5: The weighted average rate on our debt at your end was 3.4%, with 93% of our debt at 6 rates, and a weighted average turned to maturity of 5.6 years.
Speaker 5: Now, in terms of thinking about our anticipated cash moves during the year,
Speaker 5: Our biggest cash expense will be funding the rest of our development in Nashville, which is set to deliver in mid-September.
Speaker 5: As of year in 2022, we had deployed nearly $36 million into the project with an additional 110 million remaining to fund at the midpoint.
Speaker 5: For recurring catbacks across our portfolio, we have earmarked $50 to $60 million this year, including our second-generation 10-the-low-its and capital improvements.
Speaker 5: This aggregate level is anticipated to be higher in 2023 than in 2022 as we return to a more traditional pre-COVID level and embark on certain strategic center renovations.
Speaker 5: Our dividend is well covered with a low-payout ratio providing the company with additional free cash flow after dividends.
Speaker 5: As previously announced, our Board of Directors approved two dividend increases during 2022, resulting in a combined 20% increase in the annual dividend to its current annualized level of 88 cents per share.
Speaker 5: This annualized dividend equates to a current yield of nearly 5% based on the recent stock price of approximately $18.
Speaker 5: And now turning to our guidance.
Speaker 5: We are introducing FFO guidance for 2023 and expect core FFO to be in the range of $1.80 to $1.88 per share.
Speaker 5: Underpinning this guidance, the same center and a wide growth of 2 to 4%. As I mentioned before, this range assumes no reserve reversals compared to a net $4.5 million volume.
Speaker 5: which represents approximately 150 basis points of same center group.
Speaker 5: In addition, we are assuming a more normalized level of that debt reserves in our numbers.
Speaker 5: We expect GNA to be in the range of 73 to 76 million as we've invested in a strong team and infrastructure.
Speaker 5: And new this year, we are also introducing guidance for interest expense and interest in other income.
Speaker 5: We are in the unique position of temporarily benefiting from rising interest rates with a cash balance that is currently larger than our variable rate debt exposure.
Speaker 5: For additional details on our key assumptions, please see our release issued last night. And now I'd like to open up the call for questions. Operator, can we please take our first question?
Speaker 6: Certainly, as a reminder, that star 1 to be placed into question Q.
Speaker 6: Our first question is coming from Todd Thomas from Keybank Capital Market, your line is now live.
Speaker 7: Hi, thanks. Good morning. Steven, Michael, you know, I wanted to ask a little bit about investments and external growth for Tanger as operating trends have stabilized. You know, the balance sheets and good shape with low leverage of cash, full availability.
Speaker 4: as we look forward. Good morning, Todd. Thanks for the question. So the way we're looking at external growth, take a look at not only the Nashville development that we'll be delivering in September , but also take a look at the Palm Beach property that we just added to our portfolio.
Speaker 4: as an incentivized management deal. And there's a number of similar structured deals that we're looking at externally. You know, we're an operating company. We're set up for best in class leasing, marketing, and property operations. And we plan on flexing those muscles over the next, over the coming years and quarters.
Speaker 4: We're extremely confident in the team that we've built over here and are in conversations with a number of different property types currently Primarily in the outlet or adjacent outlet space that gives us the opportunity to leverage a lot of the business that we've done with big box Food and beverage and entertainment uses
Speaker 4: and expand those uses to other properties across the country. You know, just as we were very quiet on Palm Beach and Nashville until we were ready to discuss it, we're going to remain so, but looking forward to giving you an update on that progress in the coming quarters.
Speaker 7: Okay, and with regard to Nashville, you know, now that it's set to open in September , what's the timing look like to get to that 7 to 7.5% stabilized yield? Can you talk about what the initial yield might look like in September when it opens?
Speaker 7: online, you know, over the course of, you know, months and quarters.
Speaker 8: Sure Todd, this is Doug.
Speaker 8: I'll start with your last question. It's all coming online at the same time and capitalized interest will stop Upon the opening the center of this ball
Speaker 8: with regards to the stabilized yield.
Speaker 8: We see that happening probably two to three years in. It's going to, the first year is going to be below that range. And...
Speaker 8: as we strategically hold back certain spaces within the center and and fill them with shorter term tenants. But we're expecting that stabilized yield is there in your two to your three.
Speaker 7: Any sort of sense on what the initial yield might look like early on, just so we get a sense for the model, you know how that might trend late in 23 and the 24.
Speaker 8: Sure, it won't be very far below the yield that we've guided to, but I'd say somewhere in the 6th.
Speaker 7: Okay, that's helpful. And if I could just sneak one last one in on the bounce sheet, Michael, the 300 million of swaps where so first fixed at about 50 basis points, they're not set to expire until February of next year, but any thought there or any...
Speaker 7: potential strategies that we should be considering during 2023 as it propane to those swaps.
Speaker 5: Thanks for that Todd. As we think about where our balance sheet is today, we're obviously extraordinarily pleased with where it stands, with the amount of cash we have on our balance sheet, the below average leverage, and no significant maturity until 2026.
Speaker 5: outside of a JV loan that comes to this year. And so the swaps is really the only thing that's currently on the docket as you've talked about. It's not until next January until when those burn off. And obviously they can burn off and just go to floating at that point.
Speaker 5: But there's a lot of other strategies that we're going to look at overall in our balance sheet as we progress through the year and into 2024.
Speaker 9: Okay, all right, thank you.
Speaker 6: Thank you. That's a quick next question. Today is coming from Craig Mellman from City. Your line is now live.
Speaker 5: Good morning. Just want to circle back to the same store guy and Michael, you kind of point out the 150 basis point drag from the reserve reversal. But can you kind of give us what the assumption is?
Speaker 5: for bad debt this year and maybe how that compares to 22 if you were to normalize for kind of prior period collections and just trying to get an apple samples the 3% versus the 5.5 couple that you that haven't in 2022.
Speaker 4: Sure, and thanks for the question, Craig. I think we can get back from it.
Speaker 8: We introduced guidance of 2 to 4 percent of same-store N-O-Y growth, which as we talked about was on a cash basis and exclusively termination fees.
Speaker 5: We had $4.5 million of reserves last year. That this year in 2023, we don't have that. So that, if we just take that in isolation, is 150 basis points, the same store group.
Speaker 7: Separate from that is what we would be assuming for bad debt.
Speaker 5: Now, we'll go back to 2022. There was a positive benefit from that debt.
Speaker 5: I think you would probably agree, given the macroeconomic environment, we probably should not be assuming that we have positive recoveries in this environment. So our guidance, when we adjust for the reserves in a 3.5 to 5.5, there's a lot of different assumptions that go into that.
Speaker 8: One of which is obviously the bad debt and we're trying to be prudent in how we're looking at that Against all the other variables that's embedded in coming up with the same store in terms of our occupancy where our Spreads are the percentage rents are recovery
Speaker 8: the timing of our leasing the rule the burden that we have from twenty twenty two uh... steve talked about the attempt to permit conversions a lot of things that go into it of which bad debt is one and we're assuming a relatively prudent level uh... we're very cognizant that we do not have
Speaker 8: large exposure to some of the distressed retailers that have announced store closings and potential bankruptcies And Steve talked about our watch list being very low at this point
Speaker 8: stressed retailers that have announced store closings and potential bankruptcies and Steve talked about our watch list being very low at this point. Does that sort of help?
Speaker 4: Put it some color for it. It does, but I guess what I'm trying to get at is, right, maybe these are two of the bigger components in isolation. And I get your point that there's a dimension of the parts, but as we think about, you know, the fact that occupancy is up.
Speaker 5: year over year. So you get the benefit of a better reembellishments and you know the incremental
Speaker 5: revenue there, going from 10 to perm, there's obviously a positive tail. I'm just trying to see all these two, right, and everything else is side, because that's where the growth is. But these are sort of assumptions that...
Speaker 5: are placeholders to some extent rather than kind of bottom up.
Speaker 5: So I was trying to get at, you know, if you were at 5.5%
Speaker 5: You adjust to the 150 year doubt 4.5% to the three. What's the net year-rear change for bad debt? Is that 4.5% now 5.25% or 5% like what D cell is baked in year-by-year?
Speaker 10: because of you know the
Speaker 10: just a bad bet. And then maybe some of these other things, again, you're being conservative, you may get more attempt to perm done.
Speaker 10: other areas that could move it higher, as soon as it would be somewhat conservative of initial guidance, but just from a baseline kind of where are we on a year-rear diesel.
Speaker 8: You're saying conservative, we would say prudent. You know, this is a 3.5 to 5.5, St. Store range has different variabilities at the low and high end. We feel 4.5% core growth. Again, the reserve reversals was just money we got back from prior reserves going back to COVID days.
Speaker 8: So that's why we're really looking at this 3.5 to 5.5. And we feel very good about the momentum we have in driving that above average growth relative to the retail sector. The bad debt crag just given the size of our tendency and where we on our watch list.
Speaker 8: It's just a more normalized level in bed in our guidance. It's not something that is NASA that's going to change our numbers one way or the other. It's one element in the overall pie where I would say all the things that we're doing, you look at our occupancy growth, you look at where our rent spreads are.
Speaker 10: That is really what's driving our top line overall. So I should just assume it's not a significant drag road to the 4.5%
Speaker 9: Yes?
Speaker 10: Okay. And then separately, Michael, maybe sticking with you, just kind of curious, you've been in the seat for about three months. Just your initial impressions going into the job. Some of what you're seeing, some of the challenges you think you have ahead, just any...
Speaker 8: I think commentary would be helpful. So thanks for that. It's day 83. I am extraordinarily excited being here. And what I find really unique is relative to my prior life.
Speaker 8: where I focused on 90 different companies being able to take all of my time on one. You know, I certainly had an appreciation for where this company had been and where it was going. But I've gotten a much deeper appreciation for our business or people.
Speaker 8: our platform and the significant growth opportunities that are in front of us. I think the biggest surprise for me has been able to get out and see a lot of our assets.
Speaker 8: So over the past three months, I've actually been able to go out and visit with our teams across the country. And that, to me, the quality, the location, the retail or interest in the assets really has been the differentiator. And I'm so excited to be able to get out in the road with...
Speaker 8: you and other analysts as well as the investors and really show what we have because all of the results.
Speaker 8: are driven out of those local assets and the perception I think is.
Speaker 8: different than the reality.
Speaker 11: personality. Thank you.
Speaker 6: Thank you next question. Today is coming from Flores fans. I come from Compass Point. The line is now live.
Speaker 12: Thanks, guys. So let me start with my first question. If we can touch on the 10th occupancy of 10%, you talk about this as being one of your growth drivers. So let's start with the 10th occupancy.
Speaker 12: Maybe if you can, you know, I was always under the impression that temp occupancy should probably be closer to 5% or in that range. What do you have baked into your numbers for 23 in terms of, you know, the temp to permanent conversion? Could you also remind us again on?
Speaker 12: what kind of impact you would get from those tenants that convert from the intent to occupancy in terms of NLI impact.
Speaker 4: Sure, Flores, and thanks for the question. So, we've said for at least the last six to eight quarters as we've built this field-driven company that's far less centralized and gone to a decentralized structure, giving each of our general managers the opportunity to really run the business that is their shopping center of
Speaker 4: place in order to fill a lot of that space.
Speaker 4: We learned a number of things. First of all, we learned that our customer that was shopping in our outlet focused shopping environments were looking for far more experience, amenity, food, beverage, and entertainment when they came in visiting our shopping centers.
Speaker 4: A lot of which has been sourced both nationally but also locally. A lot of that local sourcing has been developed by a lot of people out in the field that are doing that work.
Speaker 4: We actually have a team in place now that focuses solely on taking short-term tenants or tenants that we brought in on a temporary basis to fill space and keep lights on and keep the space cash flowing. It's solely focused on converting the best of breed.
Speaker 4: It's a long-term deal and that has been very productive for us. Not only in the locations where they've originated their business.
Speaker 4: but also taking them across our portfolio, we're relevant. We've seen that with a lot of food and beverage, but also with specialty retail as well. And it's been a great source of camp to permanent occupancy for growth for us.
Speaker 4: You know, in that same time period we talked about 10 policing being closer to, we said about 10%, at one point we said closer to 12%. So is that 10 policing number continues to go down? It's being replaced with permanent. And some of the 170 basis points of occupancy growth that we've seen year over year.
Speaker 4: of a 30-day termination should the adjacent tenant choose to expand into that space or a new tenant want to come and fill that space and we're seeing great growth and upside when we replace a temtenant with a permanent tenant. We've said in some instances two, three and four times the rent that the temtenant is paying.
Speaker 4: So we see upside in that as well. I know one need only look at the rent spread growth that we've experienced, look at the occupancy growth that we've experienced, and more importantly look at the growth in NOI, and a lot of that is coming from some of the powerful leasing that we've done, and a lot of that conversion of temporary stuff into permanent stuff.
Speaker 12: Thanks. Just to clarify, is your attempt to perm conversion? Are they included in your lease spreads or I thought they were separate?
Speaker 4: They are separate. My reference to the lease breads just shows the pricing power we have in our real estate.
Speaker 12: So my second question I'll try to stick to two is that
Speaker 12: In terms of your sales numbers, obviously, they were, you know, ten of sales were down marginally flat, sequentially, but down year over year.
Speaker 12: In a, obviously, in a inflationary environment, how should people think about that and maybe also touch on because I would have thought that including more food and beverage in your leasing and in your tendency should...
Speaker 12: potentially increase your average sales numbers. What that a of that, I'm not sure what the impact of that is. And then also talk maybe about what the average dwell time is that a shopper has at your center and how that's trapped over the.
Speaker 12: over the last year and maybe because you would assume that adding more food and beverage and other non-apparel element to your centers should actually increase the amount of time people spend at your at your properties
Speaker 4: Okay, lots of impact there, farce. Let's um...
Speaker 4: I don't even know what it's, I don't even know what it's to start.
Speaker 4: Let's just talk about the prudent marriage and the growth in dwell time because I think that that's important. Just remember, you know, in the sales per square foot number, some of that new missing that we've done is non-com, so it's not going to be appearing in that dollars per square foot number yet.
Speaker 4: I think the most important concept, particularly what we saw in 2022, we should focus on this, is that we are in the outlet space.
Speaker 4: And a lot of the retailers, the larger retailers in our platform, have said publicly that they're using the outlet space as a clearance channel and keeping a lot of their full price distribution and wholesale distribution channels a little bit cleaner, meaning that they're clearing a lot of that excess inventory for our channel.
Speaker 4: And so as we see a lot of that activity, what will ultimately happen is that an item which last year in 2021, where we saw a very non-promotional environment, particularly in the fourth quarter, where you might have sold...
Speaker 4: two items for a hundred dollars, we're finding across our platform that you can now get that same, you can now get three items for that same hundred dollars, or buy two and get the third free as a common promotion spent to get. It gives the retail or an opportunity to clear through a lot of excess inventory, but we're not going to see a tremendous amount of sales growth.
Speaker 4: although they're able to execute to what their objective is, and that's get rid of excess inventory. And you know, look, I would just point to the fact that a lot of those larger retailers all have a number of stores within our portfolio, and we've done tremendous amount of...
Speaker 4: renewal activity over the past year and also into this year and our renewal spreads point to the fact that those retailers that might not have seen huge gains from a dollars per square foot point of view but they're also willing to pay more rent to be in our shopping centers.
Speaker 4: and they're not giving up space in our shopping centers either, meaning that they see the value that outlet and the outlet channel provides and therefore are willing to pace lightly more for that.
Speaker 4: So I think there's, there'll be some work growth coming from that organically as we go forward. I know you have a number of other questions in there, Flores. Can you just remind me if I missed any?
Speaker 12: Yeah, no, I mean, I think you
Speaker 12: You've hit upon the key one. Maybe if I can just get you to give some comments. One of the things which I find very intriguing about the Outlet space is the expansion in the U.S. of luxury tenants.
Speaker 12: which have significantly higher sales, significantly higher sales also in the outlooks. And as they expand more full price stores in the country, which is what they're doing in the AMALs, they're also, they can't burn stuff anymore for excess inventory.
Speaker 12: So they are opening from what we hear from others, more stores in outlets. And have you seen any of that? I know that you might not have all of the outlets suitable for that, but presumably you have a couple of them.
Speaker 12: Can you talk a little bit about that trend and what that could mean also for average tenet sales and average Dimaio traffic in your in your centers
Speaker 4: Yeah, I think I'll have a positive effect on all. Obviously we're in that game too. We're in touch with all of those retailers. We understand they're open to buy. We know where they want to open stores. And as is common practice with us over here, until Elise is executed. And in many cases, until the sign is put up on the door in front of the store.
Speaker 4: We have a tendency to keep a lot of the names of tenants with whom we're doing business quiet. But that is a recent trend, one that we are very actively participating in.
Speaker 12: access that's it for me
Speaker 6: Thanks, Lars. The next question is coming from Krashmit for Bank of America, your line of life.
Speaker 2: Hi, good morning. This is Lizzy Dwightkin on For Craig. I wanted to ask a couple more questions about progress on Nashville. Was I guess the plant opening in September seems about 16 to 17 months until after this broke ground?
Speaker 13: back in May. Is this in line with your expectations and the typical time frame you anticipated? Were there any delays there?
Speaker 13: just in, you know, on the expected timeline there. Thanks.
Speaker 4: Thanks for the question, let me know. There were no delays. In fact, we did a great job of buying steel. We did a great job of buying a lot of the long lead items that are right now still caught up in manufacturing for other developments. And we very fortunately have a lot of those products on site.
Speaker 4: One of the, you know, having built the number shopping centers in my history, a typical start to opening is about a year, 12 months to 14 months. This has taken a bit longer because, as you're probably aware, Nashville is built on solid rock and rock remediation takes quite a bit of time. That was a big part of the...
Speaker 4: need time to get into site prepared before we're actually ready to pour the foundations and start directing steel until wall, which if you visited the site you would see is taking place right now as we speak.
Speaker 13: Okay, thanks. And with about $110 million remaining to fund, how should we expect the cadence of that spend? And then separately, I guess, you know, you've mentioned the updated design and layout if you could provide more details on maybe how this...
Speaker 13: you might be changing your thinking around the design of your developments now. What kind of makes Nashville more unique and different? So first of all, a lot of our most recent outlet developments, and I would say most recent outlet developments in the outlet space.
Speaker 4: from less pure play outlet to adding things like food and beverage and experiential retail and entertainment retail. We also find that the customer and the shoppers and the outlet centers are looking to stay longer and they're looking for more amenities. And as we provide them with a more better and better space.
Speaker 4: What we created in Nashville is the shopping on the outside, the parking on the inside, all surrounded by a central park essentially. That park will be an activated community space. One where our retailers will use, if it's an athletic fitness brand, to hold yoga or fitness.
Speaker 4: Our restaurants will activate so that they can have entertainment and experiential activations on that side as well. So we think that's kind of unique creating that big gathering space in the new shopping center.
Speaker 8: With regard to the timing on the spend, I'm going to hand that over to Michael Michael Pintake through those numbers. Thanks Steve. So Lizzy, we spent $36 million to date and we have $110 million left to spend.
Speaker 8: You should think about that radically over the course of the year as we move into September and that sort of how you think about our cash balance during the year, we'll draw that down as we go.
Speaker 13: Okay, got it. That's helpful, thanks. And if I could, I just wanted to ask about the non-core outlet center that was sold for $13 million. What sort of indications were you seeing from the buyer's pull this past quarter?
Speaker 13: What's the thinking around dispositions in 2023? Just quickly the buyer pool for that particular shopping center was a local buyer.
Speaker 4: It was a non-core asset, it was a small asset in our portfolio. So it really wasn't a center that we had talked about marketing that center, but it was one where local buyers came forward in order to acquire it. With regard to the other shopping centers in our portfolio.
Speaker 4: Obviously, from the right price, we're willing to discuss, but as you've seen our occupancy grow materially across our portfolio, all of our shopping centers continue to trend positively, cash flow positively, so we have no current.
Speaker 4: plans to sell any of those shopping centers. Great, thanks. That's all from me.
Speaker 6: Thank you next question is coming from Vince to Bone from Green Street, your line is now live.
Speaker 14: Hi, good morning. Could you share some color on the steps you've taken to keep the same store expense growth under 1% in 22 despite inflation and just kind of any color as well on expense reimbursements which are also on the lower growth side just in what are these?
Speaker 14: expense, reimbursements or fixers, variable, just some commentary on there would be helpful.
Speaker 4: You know, our chief auditing officers on the phone was at least once and I'm going to kind of hand this off to her and ask her to give you a quick answer on that.
Speaker 15: You know, one of the things that we've been able to do over the last several years is convert our contracts to fixed contracts. So we've been very successful with that. We've also been able to identify revenue streams within our operating expenses that we've been able to maximize and build over the last two and a half years with this new.
Speaker 14: Senior man is your man. So maybe just like on the the campy so if they are fixed.
Speaker 14: reimbursement, I thought those were generally in the 3 to 4% range, right? So I thought for the full year 22, that revenue was under 1% growth. So just is there, is it, you know, the maybe lower taxes is the direct flow through? Or do you use how to understand maybe why the fixed versus variable cam component?
Speaker 8: Maybe if you follow my questions. Sure, Vince, this Doug, another component that impacts those numbers that you're looking at there was there was an agreement that we did last year involving our trash pickup that took some costs out of the property operating expense but also took.
Speaker 16: geography thing that impacted both the expense and recovery science.
Speaker 14: Got it. Thank you. And then one more for me just on the CapEx side. It looks like the guidance for CapEx is a little higher. You know, in 23 and it was in 22 and kind of the typical pre-COVID years. So this is very unique about 23. It's just getting a lot of stores open or you know maybe how should we think about.
Speaker 14: CapEx on the next three or five years. Is this a level we should underwrite annually or is kind of the more historical level of appropriate and 23 little unique.
Speaker 8: So Vince, as we think about that total CAPEX number, right, there's two components to it. It's our second generation, 10 and allowances. And the second part being some strategic center renovations that we have targeted for this year. I think if you go back to last year, you heard us talk about...
Speaker 8: You know, having pushed some of those, we feel confident in going forward with some of those projects this year and returning to a more normalized level of renovation cap-backs.
Speaker 8: having pushed some of those, but we feel confident in going forward with some of those projects this year and returning to a more normalized level of renovation cap-backs in our portfolio.
Speaker 11: All right, let's help them. Thank you.
Speaker 6: The next question is coming from Mike Muller from JP Morgan, your line is now live.
Speaker 17: Yeah, hi. I guess first where does the overall mix of leases to the tenants like home food and beverage with greater career area focus? Where does that stand today compared to a few years ago?
Speaker 4: As far as percentage look, our reliance on a parallel and footwear continues to drop as we go after different uses. Obviously, home has been a great driver for us in a number of our shopping centers where we built these.
Speaker 4: essentially built these home clusters like Riverhead and San Margos. And we'll continue to do so. You know, entertainment uses were continuing to build our entertainment resource in places like Foxwoods, Savannah and Atlantic City where those markets definitely gain the benefit of putting those uses there.
Speaker 4: So we're going to be strategic where we place those uses. We're going to make sure that there's void in the marketplace, but there's also demand, so we'll execute accordingly. But again, the overarching strategy is to limit our reliance on certain categories that you know, or...
Speaker 17: Quite high in our portfolio. Got it. And Michael, you got it. Does 5 to 7 million of interest in other income?
Speaker 17: I guess what was that number in 22 and assuming it's part of other revenues? Why just call out that part of other revenues?
Speaker 8: So thanks Mike and actually if you look at our P&L it's a line other income and then in brackets expense that embeds the interest income. If you look at 2022 in that $6 million of what we determine interest in other income flash expense.
Speaker 8: was the two and a half, $2.4 million dollar gain on the sale of our aircraft. So you would back that out from that number and you get down to $3.6. In totality, we're giving you guidance of $5 to $7 million. The vast majority of that income is interest income.
Speaker 8: We talked about our current cash and cash equivalent short term investments today is $273 million.
Speaker 8: That cash balance is going to come down over the course of the year as we spend money in Nashville and as we embark on our attended allowances and our strategic center renovations. And so then we look out okay what interesting come should we use and you know we don't feel like we're smarter than the market.
Speaker 8: So we look at the forward curve and take some assumptions around the timing of our cash, the yield that we're getting, and all that goes into a range of $5 to $7 million for interest and other income, which again will be tied to that line item in our P&L. And I should just at that, we feel that the numbers we've given you...
Speaker 8: in terms of our same stroke growth or interest in other income, the GNA, the interest expense. If you total all those up, you should be able to attain our range.
Speaker 8: our seams to work growth, our interest in other income, the GNA, the interest expense. If you total all those up, you should be able to attain our range. Got it? Okay. Thank you.
Speaker 6: Thank you. Next question today is coming from Greg McGillis from Slocia Bankerwriters Now Live.
Speaker 17: Good morning. Just touching on occupancy and perhaps, 10 times again, depending on how you interpret the question. But what are your expectations for the cadence and trend of occupancy in 2023???
Speaker 4: We're not guiding to occupancy but I will tell you where our expectation based on the least momentum.
Speaker 4: Some of the executed but not yet open stores and a lot of deals in the pipeline We're very optimistic about our occupancy growth going into the next year
Speaker 18: So, you can be depending on yourámuk.
Speaker 8: Sorry, go ahead. Rebecca, you're going to add the totality. We don't want to isolate just one item because what we're trying to do here is grow our N.Y.
Speaker 8: Sorry, go ahead. Rebecca, you're going to add the totality. We don't want to isolate just one item because what we're trying to do here is grow our NLI, drive our rents.
Speaker 8: Obviously, move our permanent occupancy and gain the benefit and diversify our tenant base and leverage our balance sheet.
Speaker 16: Greg, one more thing to highlight. As you know, historically, the first quarter often has a little bit of a dip as there's some holiday tenants that leave and a lot of leases that carry January 31st expiration. I don't think we expect anything out of the norm this year, but don't be alarmed if there's a small pullback in the first quarter.
Speaker 17: Okay, yeah, I was asking more to understand if they're going to be able to larger pull back to the level of 10 tenants. You guys have done a nice job of getting back to pre-pandemic occupants. They still appreciate the clarity there. And then just with the expected increase in CAPEX, how are you thinking about recastralized expectation?
Speaker 8: So we don't give FAD guidance, but we give you enough of the components to try to estimate that. And so we feel going about where our underlying cash flows are and the investments that we're making. We feel very strong coming into 2023. You can see where our FAD payout risk.
Speaker 19: Okay, appreciate that. Thank you.
Speaker 6: Thank you. We reached out to our question and answer session. I'd like to turn the forback over Mr. Tanger for any further closing comments.
Speaker 3: Thank you for joining us today.
Speaker 3: We are looking forward to seeing many of you at several up-calling investor conferences, including hosting investor meetings tomorrow at the 26th annual Wells Fargo Real Estate Securities Conference in New York.
Speaker 3: and then hosting a presentation, Investor meetings, and a tour of our Palm Beach Tanger outlets at the City Global Property CEO conference in early March in Florida.
Speaker 3: If you'd like to join us at any of these events or visit any of our other centers, please give Michael Billerman a call.
Speaker 3: Goodbye and have a great day.
Speaker 6: Thank you. That does conclude today's telecompressor webcast. You may just connect your line out this time and have a wonderful day. We thank you for your participation today.