Q1 2023 Tanger Factory Outlet Centers Inc Earnings Call
Good morning. This is Ashley Curtis and I would like to welcome you to the Tanger factory outlet centers first quarter 2023 conference call yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation.
Information is available on our Investor Relations website investors Dot Tanger outlet Dot com.
Please note that during this conference call.
Comments will be forward looking statements that are subject to numerous risks and uncertainties and actual results could differ materially from those projected we direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.
During the call. We will also discuss non-GAAP financial measures as defined by S. E C regulation G, including funds from operations or F. F. O CT F F. L funds available for distribution or F. A D C.
<unk> Center net operating income adjusted EBITDA, Ari and net debt.
Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information.
This call is being recorded for rebroadcast for a period of time in the future as such it is important to note that management's comments include time sensitive information that may only be accurate as of today's date April 28th 2023. At this time all participants are in listen only mode. Following management's prepared comments there.
Call will be opened for your questions. We request that everyone ask only one question and one follow up to allow as many of you as possible to ask questions. If time permits we are happy for you to re queue for additional questions.
On the call today will be Steven Tanger, our executive Chair, Stephen Yalof, President and Chief Executive Officer, and Michael Bilerman, 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 Steven Tanger. Please go ahead Steve.
Good morning.
Thank you for joining us for our first quarter 2023 earnings call.
We had a very strong start to the year as we outperformed our expectations.
Next month, we will be celebrating 30 years as a publicly traded company.
To Mark that milestone, we will be ringing the closing bell on the New York stock Exchange on May 10.
It has been an incredible journey, where tanger stock has delivered an above market total shareholder return.
Looking forward.
We remain confident in our optimistic outlook as the team continues to execute on its growth strategy.
I'll now turn the call over to Steve Yalof.
Thanks, Steve and good morning, I'm pleased to report another quarter of growth as we have delivered positive results ahead of our expectations.
Same center NOI grew by seven 4% driven by robust leasing activity and expense management due in part to a mild winter.
We continue to execute to our key strategic initiative of leveraging our platform to deliver reliable earnings and attractive growth opportunities.
Leasing activity remains strong we ended the quarter with occupancy of 96, 5%, a 220 basis point improvement over the prior year. This reflects our leasing teams commitment to locking in higher fixed rent and expense recoveries extending lease terms, elevating and diversifying our tenancy and maintaining.
High occupancy.
We delivered improved rent spreads for the eighth consecutive quarter with our blended average rental rates, increasing 13, 8% for the trailing 12 months ending March 31 2023.
This represents a sequential improvement of 370 basis points of rent spread growth and up over 10 times from the one 3% spread we reported in the first quarter of 2022.
Retail lending spreads grew 36, 1% and renewal rent spreads grew 11, 8%.
Our ability to drive solid increases in renewal rents as the clearest demonstration of our retailers commitment to the outlet channel and our ability to capture rent upside.
This is further demonstrated by our higher occupancy cost, which as of the end of the quarter was eight 8% up 20 basis points sequentially.
As of the end of the first quarter renewals executed or in process represented fish.
Of leases expiring this year approximately 10 percentage points ahead of last year and at double digit rent spreads.
Sales and traffic continued to gain positive momentum traffic for the quarter was up 60 basis points compared to the prior year's first quarter.
Total gross sales grew in the first quarter of 2023 from the prior year quarter. Our average tenant sales for the trailing 12 months also improved sequentially from the end of the fourth quarter to $447 per square foot for the period ended March 31 2023.
This sequential improvement is driven mainly by stabilizing trends in our core retailers.
Productivity gains derived from our new partners that are outperforming brands for stores that have exited our portfolio.
Our results also reflect the continued improvement to our marketing programs, which focus on media spend with clear measurable results designed to drive traffic and sales we're focused on digital media, which provides a more targeted reach with greater efficiency.
Added digital assets to all of our centers, including digital directories tenant signage and easily identified QR technology directing customers to our Tanger digital channels and our virtual shopper services platform.
Our enhanced platform provide shoppers with amenities and same day access to everyday and limited time promotional offers from our retailers plus the ability to earn personalized retailer funded incentives as they continue to shop with us.
As shoppers turned to our digital services, we can increasingly personalize their experience.
We continue to leverage our media platform, which provides a unique revenue opportunities hanger, given the scale and quality of our audience in the first quarter. We enjoyed great success on Super Bowl weekend at our Glendale, Arizona shopping center, securing campaigns from national brands, such as Nike and under armour as well as the NFL, which hosted a game day.
Tailgate party on our site.
Beyond adding more F&B and experiential retailers, we also continue to improve and update shopper amenities.
And our investing in sustainable onsite initiatives across our portfolio.
These investments accomplished multiple objectives. In addition to improving the shoppers onsite experience, we continue to drive operational efficiencies revenue generation and environmental benefits a.
A few examples include our state of the art security enhancements growing electric security vehicle fleet and increased solar and electric vehicle charging capacity.
Finally, we continue to make leasing and construction progress on our Nashville development, where we are over 90% leased committed and anticipate our grand opening this fall.
I'm proud of our team and the strong results they continue to deliver and remain optimistic in our outlook earlier. This month, our board approved an 11, 4% increase in our dividend, reflecting this continued confidence.
Tanger open air shopping centers offer engaging in value field experiences for our shoppers.
In a highly effective sales channel for our retail partners, we have a high quality and diversified roster of tenants.
Creasing rents with more headroom for growth and a platform with additional opportunities to grow NOI.
I want to thank the entire team our shoppers retailers and all of our stakeholders for their continued support.
I'll now turn the call over to Michael.
Thank you Steve today, I'm going to provide some color on our financial results our balance sheet position and provide an update on our increased 2023 guidance.
Our first quarter results came in ahead of our expectations with core SSO or 46 cents per share compared to 45 cents in the prior year period.
Same center NOI for the total portfolio increased 7.4% for the quarter, which as a reminder, we present on a cash basis without lease termination fees.
Our growth was driven by gains in occupancy from the robust leasing activity strong rent spreads, which have led to higher base rents and higher expense reimbursements.
And operating expense savings in part from a milder winter.
In addition, we achieved this growth even as we comp the majority of the reserve reversals recognized in 2022, which as a reminder totaled four and a half million dollars last year.
Our operating results reflect our strategy of structuring leases to grow total rental revenues and higher Cam contributions, while also converting percentage rents to fixed rents.
We maintain a conservatively leveraged well ladder balance sheet with the liquidity and flexibility to pursue our growth objectives. We have no significant debt maturities into 2026, and we have been proactively addressing the February 2024 expiration of our current interest rate swap.
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At the end of the first quarter, our cash and cash equivalents and short term investments totaled.
$242 million or over $2 a share.
With full availability on our 520 million unsecured lines of credit.
In addition, our net debt to adjusted EBITDA Ari was 5.2 times for the 12 months ended March 31st one of the lowest in the retail sector, providing additional capacity to drive our growth while staying below our target leverage levels, we will remain prudent in our approach.
<unk> to external growth.
The weighted average rate on our debt at quarter end was 3.5% with 93% of our debt at fixed rates and a weighted average term to maturity of 5.4 years.
As previously discussed we do have $300 million of interest rate swaps that will be maturing in February 2024.
We have been selectively addressing niche and to date have executed attractive forward starting agreements on a $100 million of these explorations, we have locked in adjusted Sofer at a rate of 3.3%.
With an effective fixed interest rate of 4.5%, including our credit spreads had extending duration for an additional 2.2 years, taking us into the spring of 'twenty 'twenty six.
We are pleased with this execution and thank our banking relationships and we'll continue to look at various opportunities for the remaining explorations in the coming quarters.
In terms of just thinking about our anticipated cash moves during the rest of the year.
Our biggest cash expense remains the funding of the rest of our development in Nashville.
Through the end of the first quarter, we have deployed approximately $63 million with an additional $83 million remaining to fund at the midpoint we.
We also continue to anticipate deploying between 50 and $60 million for recurring capex across our portfolio, which includes second generation tenant allowances and capital improvements with approximately $8 million of that spend that occurred in the first quarter.
Our recently increased dividend remains well covered with a continued low payout ratio, providing the company with additional free cash flow after dividends to drive our growth.
And now turning to our increased 2023 guidance, we are increasing our expectations for core S. F O by two cents a share to a range of $1 82 to $1 90.
This is underpinned by a 75 basis point increase in our same center NOI growth to a new range of 2.75% to 4.75%. This.
This increase incorporates our first quarter outperformance, including lower than anticipated operating expenses and is consistent with our strong operating performance.
For additional details on our key assumptions. Please see our release issued last night, we are looking forward to ringing the closing bell on may 10th for a 30 year anniversary as well as seeing many of our investors and analysts that upcoming property tours and meetings and conferences, which we outlined in our earnings release last night.
I'd now like to open up the call for questions. Operator can we please take our first question.
Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star.
Keith.
Our first question is coming from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning.
I just want to touch on the press release that you recently put out regarding new tenants.
Check in.
Game, Busters, and along that entertainment and food and beverage leasing I'm just curious if you're starting to see any increase in visits or stay time.
Because of those types of tenants you're bringing in.
Good morning.
The simple answer is yes, I mean, when you have sit down food and beverage.
And we've been adding that to the last I would say 18 months, it's been a great practice for us.
Finding that a lot of our shopping centers, which are now sort of the centers of the community that they serve.
Those communities are really looking for places to come to spend time.
And.
The change to add more sit down or entertainment or experiential definitely served its purpose of drawing people towards shopping centers, they're shopping more frequently.
They're staying longer when they're there.
Great. Thanks, and then looking at some of the other.
Using information you gave us like now that's double digit leasing spreads our blended spreads.
How whats the pace of leasing look like today versus.
Six months ago, sometimes it's just hard to kind of read between the lines on the trailing 12 months disclosure. So I'm just curious if you could give us a little more clarity on kind of the pace of leasing today and types of rents that those tenants are signing right now.
Yes sure.
But what it doesn't say on the pages leasing activity in Nashville leasing activity in the shopping center that were.
Managing and.
Entered into a strategic partnership with clarity on in Palm Beach, There has been a tremendous amount of leasing activity on both of those properties, but overall across our portfolio you hit the nail on the head when you talked about some of the new retailers that were seeing in our press release that we recently issued.
There's a lot of due to platform and new Tanger retailers that are coming to join us and they're not just doing one store with us they're doing several.
Justin <unk>, our executive Vice President leasing sure maybe I'll share a couple of names of the tenants that are doing business with us right now yeah, Greg So.
We've said, we're we're diversifying our portfolio in a big way and some of the brands that we have these two recently, especially on the home furnishing size a restoration hardware design within reach Casper, crate and barrel and Victor and as Steve said.
We're doing multiple deals with these tenants throughout our portfolio. So the leasing activity is definitely robust and we look forward to continuing our progress with these guys.
And so I, just just to clarify on that on that leasing front, where I think some of them.
Speaking with investors and listen to some of the retailer management teams talk about store opening you know it seems like Navy. There is just a greater a hunger for opening stores.
Last year and year before I'm, just curious if youre seeing any sort of.
Moderation in that demand and through Q1 and year to date.
Unfortunately, not in our channel what we're finding is a lot of our retailers really optimizing.
Outlet as a go to destination for them.
Clearing excess inventory, but to get in front of a new customer.
So there hasnt been much slowdown in leasing velocity over the past couple of quarters.
Great. Thank you.
Thank you. Our next question is coming from Todd Thomas with Keybanc. Please proceed with your question.
Okay.
Hi, Thanks, good morning.
First question, Michael you emphasize that leasing efforts have have aimed to capture higher base rents, but also expense reimbursement revenue and expense recovery income what was higher while expenses were down dramatically in the quarter. So your expense reimbursement rate was up in the.
And then the 90% range this quarter, which is where it had been historically, but it was in the mid to high seventies, I think a little bit more recently should we expect to see that stay in the 90% range going forward throughout the balance of the year and ahead.
Good morning, Todd.
So you are right. Our leasing strategy is really focused on driving base as well as expense reimbursements in the first quarter.
<unk> from the leasing strategy, but also the operating expenses, which were lower this quarter and so we were able to get the fixed Cam butter. We've managed our expenses this quarter and there was also a little bit of timing related to some of our advertising spend in the first quarter and so it will come.
Down from a recovery perspective, but be much higher than we were last year is in the leasing strategy overall.
Okay. So so for the tenants that are on fixed cam, which which I suspect is the.
The bulk of the portfolio.
Will there be sort of a reconciliation at the end of the year at all based on on those actual results I guess, how does that work exactly in your portfolio and will there be an adjustment in future periods.
To the recoveries from tenants based on this quarter's operating expenses and and what was the impact versus your budget related to the warmer weather on the operating expense side.
So I'll take the second and then I'll pass it to Steve to talk a little bit about the lease strategy.
The milder winter, we probably had a one $5 million to $2 million relative to our savings overall and within that there was a little bit of timing as well for the rest of the year.
And just on fixed Cam fixed cam as just that pro rata Cam is a that's an old model and a lot of this is attributed to the fixed cam side easier for the retailers and certainly a lot easier for us and you know you're you're hoping you are accurate in your.
Your numbers when you when you put out your Tam dollar amounts, giving them each year.
In some years.
May lose a penny.
Okay got it so so nothing sort of variable in there related to the fixed cam component okay.
And then just just last question I guess.
Along those lines with the you know your leasing strategy.
Capturing more expense recovery income converting percentage rents to fixed rents does that change how we should.
Think about base rent growth for here I guess base rent growth was was up two 5% in the same store.
But occupancy was up 220 basis points, you have rent escalators, you've talked about the positive leasing spreads.
Eight straight quarters of improvements there I guess, what's what's holding back base rent growth from from accelerating and are you expecting base rent growth to accelerate.
No.
Our base rent number that we report is base rent and Cam we'd feel a lot of other buckets. When we do a deal our triple nets include real estate taxes. The marketing fund, we talk a lot about marketing funded a lot of our retailers paying for that market in front of me that's a big part of how we drive shoppers to our shopping centers.
I speak frequently about the fact the retailers.
Don't necessarily use their own marketing capital to drive customers with outlet shopping center and rely very heavily on us to do so that's why our marketing team is robust as robust as it is and that's why that's an important component, but it's not seen.
Reflected in those base rent numbers.
Okay alright, thank you.
Thank you. Our next question is coming from Samir Khanal with Evercore ISI. Please proceed with your question.
Good morning, everyone, Hey, Steve when I look at occupancy growth.
Very strong year over year close to 97%.
Can you remind us how much of that is sort of a temp occupancy right now and that's sort of how are you thinking about that pool of tenants.
The ability to do the conversion to perm, given a sort of the macro environment and a potential slow down here.
So looking at a 97% occupancy you still have 3%.
Unoccupied space in our portfolio so to us that's that's important metric. That's one that we're looking to fill and grow we've done a pretty good job of growing our occupancy by 220 basis points over the course of the last year.
Our temp is probably somewhere in that 10% range, probably twice as high as historic averages pre COVID-19, but again you know back in those days, we werent as decentralized as we are as a team today. So as a decentralized operating team would rely really heavily on our general managers of each of our shopping centers.
To do localized leasing.
And that's an important component part of our centers.
We bring in the best of the best in the communities that we serve whether it's food beverage entertainment experiential where retailers that drive a customer so we look to that.
The 10th tendency is.
Fill space and keep the lights on but also to provide a much needed variety to our shopping centers. We've also our leasing team. We built a team that now just focuses on a lot of those short term temp tenants.
Yeah.
We'll take the best of the best of those retailers and see who could go from shopping centers shopping centers. So we can start growing that business not only converting them from temp to long term, but increasing the number of stores that they have in our portfolio and that's an important part of our business too. So we're focused on all aspects of that.
But the one component part that's most important to you.
I remember is that our temp leases, we control that real estate.
Suitably more rent than we said in the past somewhere between two to four times the rent from a temp to perm.
We can notify that tenant we get that space back in short order. So it doesn't hold up any other long term leasing activity, which is really our core business.
Thanks for that and then I guess my second question is around the leasing environment and maybe external growth opportunities that exist you've talked about strong demand.
I guess, how are you thinking about external growth you've got Nashville.
You had a pretty stable balance sheet here, so maybe any color would be helpful.
Yeah.
Yeah, well, you'll look art.
We built this.
Pretty impressive operating model.
And operating business based on the results that you've seen leasing operational and marketing and a lot of the a lot of one off owner.
Owners.
Asset managers and large competitors have contacted us and we're in discussions with a number of them, whether it's a JV partnership or acquisition opportunities that we can add tremendous value to those shopping centers. If you take a look at the Palm Beach example.
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Since we've been leasing Palm Beach, we've done over 25000 square feet of transactions.
And we've also taken some money out of the expense P&L just manage the properties far more efficiently.
Think those that narrative is playing out a lot of our discussions and our our.
Our acquisitions team has been considering a number of opportunities obviously, we're not going to talk about anything until it's a done deal, but we're very active in that space.
Thank you.
Thank you. Our next question is coming from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, everyone. Good morning, maybe on lease maturities the earnings release.
And then you mentioned earlier, how you have renewals executed or in process for 57% of the space set to expire this year, which is 10 percentage points ahead of last year, but it is still a little below 2018 and 19. So I'm just wondering what's driving the year over year pickup in pace for 2023, but limiting it from getting to kind of historical levels.
And there is a large amount of maturities in 2024. So I'm wondering if you can kind of get to those early or not.
Well first of all good morning, I have to say that we see.
Renewals.
And we see this.
24% that you referenced in 2024, we see that as opportunity.
Eight quarters of continued increase in our own spreads we think we've got pricing power, we've got the opportunity to drive additional rent and so we get this space back.
Some of the negotiations were taking a little bit longer today than they might have taken in 2019, because we're holding out for rents and the results speak for themselves. We're getting we're getting we're getting our price.
Okay, and then just back to the press release from earlier this week that talked about shake shack, and Dave and Busters out parcels could you talk about how those locations were selected for our personal activity and then to what extent you've gone through the portfolio to see how big the out parcel opportunity could be.
Well without without giving an actual number on how big the out parcel opportunity could be we think it's pretty robust.
It's as if we've got.
This.
Portfolio of land and over 50.
50% of our properties.
That will give us an opportunity to monetize over time, you also made the acquisition.
75 acres in Glendale, adjacent to our Arizona shopping center, which.
I talked about earlier, we hosted the Nfl's Tailgate Party on Super Bowl game day that right now is under renovation to add all the relevant infrastructure has had a number of a number of pads on that space. So we find that the retailers are seeing our shopping centers and sort of discern.
The energy in the communities that we serve and they want to they want to have access to our shoppers. So the flip side of that particularly with the shake shack, Yeah. Our shopping center will really enjoy the benefit of the customer that shake shack draws. So it is a great symbiotic relationship between us and our retailers and we've got a team there.
That is just focused on driving peripheral land growth and monetizing the external piece of our portfolio.
Uh huh.
Thank you. Our next question is coming from Lizzie Deutsche <unk> with Bank of America. Please proceed with your question.
Hi, good morning.
Hoping if you could provide just at that my color on the cadence.
Eight of $16 million.
On Capex guide threat throughout the balance of beer.
If you now already realizing $8 million in the first quarter.
And what what will the remainder of it earmarked primarily come from whether that be second gen tenant allowance or capital improvement.
And what do you anticipate that in a more normal pace of Capex going forward.
Okay.
Lucy this is Doug.
I would say that.
More of that 50 to 60 is going to come from.
Our renovations and maintenance capex than the leasing side.
As you know, we primarily only offer tenant allowance on the re tenant ing piece and we've been heavier recently on renewals and with our occupancy levels, where they are at we expect that renewals will drive the bulk of the leasing.
In.
The renovations.
There is a.
A few specific projects at certain centers.
<unk> of that.
And move around a little bit, but I'd say, it's going to be fairly well distributed throughout the rest of the year.
Yeah.
Okay, great. Thanks, and I was hoping you guys could give an update on route 21, which I know Justin.
Really sort of communicated a couple quarters ago about.
I'm being optimistic about their turnaround.
Are there any new thoughts on and then potentially restructuring and.
Is there anything assumed in the guide for 2023 regarding them.
Yes.
As we all as we all know they recently hired a restructuring firm to assist with seeking a deferral only and what I'll, what I'll say about our relationship with through 'twenty. One is that it's strong they're current on all of our rents we feel that we're well positioned to address the situation as needed and they operate at a very healthy occupancy in our portfolio.
So we believe that this is an isolated situation specifically to this tenant.
In lithium we maintain appropriate levels.
Our bad debt within our guidance to account for any tenant.
Issues.
Got it thank you and if I could ask one more I'm just wondering.
During the.
The conversations or your general managers have had with temp tenant lately on converting to Perm.
Are there any new signs of reluctance on their own they longer or convert to perm or if there's anything new to it.
None of it there.
I don't think that there is.
Anything to call out I, just think that there's been there's been some some good success. What's interesting is we've added a number of direct to consumer brands that are new to our platform and new new to outlet.
Outlets are slightly different animals.
Not selling full price retail you're selling your off price goods, it's clearance channel.
Lot of these retailers.
It will take them a couple of quarters to find their footing, we have a team in place as part of our marketing team that actually helps retailers understand our channel better understand the geographies, where they're operating stores understands the consumer profile and how that consumer shops.
So we are in.
Rely very heavily on the retailer and their branding to bring customers into their store, but we as a team are quite supportive of our retailer partners as we like to call them because many of these leases have a percentage rent component and their success is our shared success.
Okay. Thanks for the time.
Thank you. Our next question is coming from the line of Floris Van <unk> with Compass point. Please proceed with your question.
Yeah.
Thanks, Good morning.
Obviously encouraging set of results here.
A couple I guess.
Couple of questions number one if you can touch on your your other revenue and.
Obviously that grew on your in your same store pool, a little bit, but you know what what the.
Prospects for that look like I know that that's been a big push of of.
Of your Steve maybe if you can give a little bit more color into that and where that could go over time.
There and then and then come back with the with my follow up.
Sure and good morning.
We talked earlier in the prepared remarks about a lot of the new digital initiatives that we're adding to our shopping centers and I think that's an important component part you'll look we could you can add cards and you can add kiosks and you can charge. All this additional rent, but you know at the end of the day, we want to make sure that the shopping experiences.
Uh huh.
One that the.
Shopper is actually enjoy and we're trying to be real selective with regard to how we pursue that additional revenue stream. We've had a lot of success I would say the last three or four quarters with national brands and for US National brands are there there are a lot easier to do business with because they look at our 36 shopping centers.
Portfolio and they want to take over in each of those centers. So one deal to do 36 shopping centers of exposure are always great deals for us to make and far less clutter.
So we continue to pursue these nationals.
Kept only by our desire to keep our shopping centers are little less cluttered with external noise.
And then I guess my follow up.
Obviously sales or are you know.
I guess up marginally sequentially, but theyre down year over year, the tenant sales, but if I look at your portfolio you've got a number of assets that are 100% leased I mean deer Park <unk>, obviously to your premier assets, but also commerce Branson Gonzales South Haven.
Youre Hilton head I mean, how can you grow your sales and bring in higher.
Maybe walk us through how you how you plan to grow sales at the portfolio when when a number of your assets already essentially 100% leased and and how are you going to.
How are you going to grow NOI in those assets as well.
Oh.
As far as after after the mantra of leasing leasing leasing is the module marketing marketing marketing.
We've got a great machine over here.
And.
The way, we market to our shopping centers performance based marketing, we actually know what's working what's not working we accelerate the things that are working and we take our foot off the gas pedal and things that are not working what's in what's important for us from a traffic driving point of view is knowing our customers doing a better job of communicating with that customer.
So whether it's new technology digital initiatives interaction with.
Interaction with them.
On our digital web or our app or other digital initiatives that.
We have we're learning as much from the customers the customers learning from us.
Sorry have you.
We've talked about this in the past as well and I've asked questions on this on previous calls, but we haven't heard any any updates in terms of bringing higher productivity you luxury tenant.
Tennant's two.
To your outlets I know Simon has been doing that two outlets.
And I guess, it's just starting but.
Can you give us any more.
Updates on your discussions and progress on that on that front end.
How many of your assets you think are suitable for that kind of tenants.
What do you think a lot of that has to do with the retailers choice.
Take a look at our asset base and we want to fill the shopping centers with the retailers that we think are going to be the most successful in our geographies.
And although we have a handful of geographies that I think that we can continue to push the tendency we are pushing that tenancy.
We also know that Nashville, which will open.
In the next couple of months.
We haven't announced a lot of the retailers there. So I think it'll be pretty surprised when you see the roster of tenants that are coming to join us in Nashville.
Oh, a push for us we leaned a little bit more heavily into the digital initiatives right now because a lot of those are household names in the communities that we serve and again, where our community driven organization. That's looking to bring the best possible brands to serve the communities, where our shopping centers reside and we wanted to give our retailers the best chance for success in those.
<unk> as well so as important as luxury is as a component part.
And the handful of shopping centers that we have that luxury retailers in them will continue to lease around that but we're going to be extremely laser focused on make sure making sure that we merchandise our shopping centers for the consumers that are shopping in those shopping centers. So they can have the best shopping experience when they are there and the retail.
As can be as successful as they can be.
Thanks, Steve.
Thank you. The next question is coming from Craig Mailman with Citigroup. Please proceed with your question.
Hey, good morning, I got just from align with me also.
I'm just kind of curious if theres been some talk on the out parcels on this call. Just as you guys are getting done with national you have a little bit more capacity, a little bit more capital kind of how should we think about spending on this initiative on an annual basis going forward and your thoughts on kind of returns here and also sore.
Of the funds.
Well, let's start with the returns we just had a deal committee a couple of weeks ago and.
Returns on the out parcel leasing are pretty astronomical we're in at a very low basis, we've owned real estate for quite some time.
The capital improvement dollars Thats required in order to bring that space up to a reasonable condition.
Is relatively nominal and if you take a look at the rents that we're getting we're looking at high teens and low 20% returns on some of those investments.
Okay, and then how should we think about kind of.
Dollar volume here you guys identified candidates and then also navy a mix or our targeted mix or how you guys think it could play out from a kind of ground lease opportunity, where you're not in the stroke, putting out capital too.
Opportunities, where you're kind of funding most of the construction.
Yes.
The only.
Yes sort of concrete point that I can give you is that we're not sellers.
Our research and when you do an out parcel deal.
Whether it's we provide the capital in order to build it.
Or we just ground lease the land and allow the.
The customer to do the construction, we basically are focused on return and that whole deal is really a return oriented deal and we consider the credit worthiness of the retailer that we're doing business with so there's a number of our parcel deals we've done Dave and Busters, we talked about a lot shake shack.
We talked about a lot where we've made.
Deals that are.
Good deals for our customers, but also really good deals for us.
Thanks, It's Nick here with Craig Michael just on the balance sheet, you've dealt with I guess, a third of the interest rate swaps at or.
Or expiring thus far how are you thinking about execution on the remainder or kind of running with a bit more floating rate debt.
Hi, good morning, Nick So we've.
We've effectively fixed $100 million of anticipated floating rate debt exposure for an additional two two years, which would take us to the spring of 2026 and as you are.
Pointed out we have $200 million of effective floating rate debt that will come next February and we're going to continue to look at opportunities over the next several quarters to potentially fix more of that debt.
Or we can leave some of it floating and let that go to floating rate and I think if you just step back from it for a second and we talked about our current cash capacity of $242 million and we have anticipated spend between Nashville, and the capital of about $130 million. So we sort of end the year before we even take into account.
The significant free cash flow generation after we pay our dividends.
Cash almost equivalent to our current floating rate debt.
And so as we think about as we move into 2020 for having some level and I think if you look at your Hunter comp sheet. The average REIT out there have about 20% floating rate debt and so we're mindful of our balance sheet strategy of having some floating but also providing reliable earnings.
And fixing additional amount as we go forward.
Thank you very much.
Thank you as a reminder, if he would like to ask a question at this time. Please press star one on your telephone keypad. Our next question is coming from the line of Mike Mueller with Jpmorgan. Please proceed with your question.
Yes, hi.
Just a couple of quick tweaks on a couple of prior questions. First is there any meaningful capex that goes into temp tenants or is it just that happens once you convert them to permanent and then the second question is on the development is there anything in the works, where we could possibly see here about another start in the next year or two.
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Unfortunately, nothing to talk about right now we don't want to talk about.
Things that we're working on until their inkjet ready to go.
And then with regard to 10 tenants Theres really no capital involved in the tech tenant deal there short term leases with mutual rights of termination of 30 days.
Got it okay. Thank you.
Thank you. Our next question is coming from Samir Khanal with Evercore ISI. Please proceed with your question.
Hey, Michael I guess a question for you.
What's been sort of the biggest misconception here you say.
What's been misunderstood.
By the analyst or Investor community, but tanger outlets in general now that you have sort of.
That time to look under the Hood, just trying to get.
Here from you on that.
What are you seeing that's the biggest misconception here.
I mentioned it quickly.
Last quarter.
Where I talked about perception versus reality of our assets, where they are how they perform and how much the retailer community.
I'll use us and how much the consumers value loss and I felt that there was a little bit of a disconnect on the investment community side in terms of that quality of our asset base and the growth opportunities that we have in front of us and I feel like.
We're getting more out there as we tour investors and analysts through our assets as people spend the time really understanding how strong the platform is from a leasing marketing and operations perspective, and I think a better appreciation now for our balance sheet.
Which you know at five times debt to EBITDA, which also was a little bit elevated because we spent money on Nashville without the commensurate EBITDA yet.
But having that cash capacity on the balance sheet to us is a really distinguishing factor relative to another company that would have to go out and raise new capital to execute their external growth.
And that external growth, we don't want to be a buy and hold company, we want to be a buy and add value and that really takes into account. The operating platform that we have and that to me at the end is really what's differentiated is how operationally intensive.
This company is and our asset base with very small suites, and a significant amount of velocity.
And so overall we're excited.
To continue to show to the street, our team our assets and our platform.
Thank you Michael.
Yeah.
Thank you we have reached the end of our question and answer session. So I'd like to turn the floor back over to Mr. Tanger for any additional closing remarks.
Thank you very much everybody for participating today.
Sameer I might want to add to what Michael Bilerman said I believe the biggest misperception is that we are open air.
Shopping centers.
Our platform is not enclosed malls.
And we may be considered.
By the analyst community and the wrong neighborhood.
We should be.
Listen in compare to the other open Air shopping Center group.
So we will see you in the rest of the analyst community.
Various different events that we have planned in the next couple of months.
Look forward to showing you our properties.
Exactly how and why we believe that they are open air centers.
Wish you a great day and good luck goodbye.
Ladies and gentlemen, this does conclude our teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day.
Okay.
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