Q3 2023 Tanger Factory Outlet Centers Inc Earnings Call
Good morning. This is Ashley Curtis assistant Vice President of Investor Relations and I would like to welcome you to the Tanger factory outlet centers third quarter 2023 conference call yesterday afternoon, we issued our earnings release as well as our supplemental information package.
An investor presentation. This information is available on our Investor Relations website investors without Tanger dotcom.
Please note that during this conference call. Some of management's comments will be forward looking statements that are subject to numerous risks and uncertainties and actual results could differ materially from those projected.
We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.
During the call. We will also discuss non-GAAP financial measures as defined by S. E T regulation G, including funds from operations or <unk> or <unk>.
Funds available for distribution or a D same center net operating income adjusted EBITDA, Ari and net debt reconcile.
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.
But it is important to note that management's comments include time sensitive information that may only be accurate as of today's date November 7th 2023 at this time all participants are in listen only mode.
Following managements prepared comments the call will be opened for your question.
What's that everyone ask only one question and one follow up to allow as many of you as possible to ask a question.
As time permits were 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'll now turn the call over to Steven Tanger. Please go ahead Steve.
Good morning, and thank you for joining us for our third quarter earnings call.
As we previously announced I will be transitioning from my current role as executive chair of the board to Nonexecutive Chair of the board at the end of this year.
And Bridget Ryan Berman will remain as the company's lead independent director.
In conjunction with my transition.
This earnings call will be my last one is an active participant.
Since tankers I P O approximately 30 years ago.
I have probably participated in 122 quarterly earnings calls, which marks one of the longest consecutive streets in the REIT industry.
My father, and I started this business in 1981.
With a hunch that consumers wanted to buy directly from the worlds most successful brand name companies.
Now more than 42 years later.
We have over 700 retail brands represented in our portfolio.
Proximately 3000 stores.
Throughout economic cycles, we have proven the resilience of the outlet distribution channel.
In good times people like Oregon and.
And in tough times people need a bargain.
A couple of weeks ago I was honored to participate in the ribbon cutting celebrating the opening of our 37 Tanger Center in Nashville, Tennessee.
To see our latest vision come to life was not only an incredible but also very emotional.
It has been a privilege to be a part of such a remarkable company and to work with such a smart and devoted team and board of directors.
I wanted to thank the leadership and all of the Tanger employees for your continued dedication.
I could not be more proud of where we are today and confident in the long term strategy.
The team and in the outlook the future is very bright.
I will now turn the call over to our CEO, Steve you all.
Thank you and good morning.
I'd first like to thank Steve Tanger for his leadership throughout our history and for trusting us to carry his vision toward them.
I'm pleased to announce that we delivered solid earnings growth in the third quarter as we continue to see strong leasing and operational execution.
We anticipate positive momentum will continue which is contributing to an increase in our full year earnings guidance.
Additionally, our board of directors recently authorized a 6% dividend increase.
We continue to drive total rents, while elevating and diversifying our tenant mix.
In the third quarter, we delivered a seven 6% increase in same center NOI and occupancy was at 98% at the end of the quarter up 80 basis points sequentially and 150 basis points year over year, we have recovered nearly 600 basis points of occupancy over the past three years.
Yes.
We have also achieved strong rental rate growth with positive rent spreads of 13% on renewals and more than 30% and re tenanted space over the past 12 months.
Leasing activity continues to be strong as we executed over 560 leasing transactions comprising more than two 3 million square feet of space, including the lease up of Tanger Nashville.
This represents nearly 20% of our portfolio GLA.
A 30% increase in transaction volume from the prior year period.
These leases include a mix of new to portfolio brands renewals and expansions with core brands, we continue to convert temporary stores to permanent deals while utilizing our temp leasing strategy to fill space and introduce new tenants to the portfolio.
Looking ahead to next year, 21% of our GLA and the a b or will come up for renewal.
This presents an opportunity to continue to drive total rent growth and further curate our tenant mix with seven consecutive quarters of positive rent spreads we remain confident in our ability to grow total rents. We saw a 10 basis point increase in our occupancy cost ratio since last quarter, which.
The opportunity for additional rent upside.
Traffic and tenant sales per square foot were down slightly compared to the prior year, while discretionary categories, where more challenge the athletic and athleisure categories saw continued gains.
Leasing activity remained strong with new retailers and categories entering our channel as we continue to diversify our tenant mix by including the health and beauty category restaurants home stores and more experiential brands.
Tanger outlets Nashville are 37 center Grand opened last month to massive crowds and robust sales.
This unique 290000 square foot open air property exemplifies the evolution of Tanger and its the first outlet center in the United States to break ground and delivered the market since 2019.
Tanger Nashville opened 96, 5% leased with a dynamic and diverse mix of local and national brands, including sought after lifestyle brands and global designers as well as popular national and local restaurants and food options.
We continue to execute on our strategic plan of driving same center growth monetizing and realizing embedded opportunities throughout our peripheral land and asset intensification initiatives and pursuing selective external growth through new development and acquisitions.
We recognize there is broad macroeconomic uncertainty we remain encouraged by our positive momentum and confident in our platform and the value we offer to shoppers and brands alike. We.
We generate strong free cash flow have ample liquidity and we will continue to adhere to our core principle of maintaining a conservative balance sheet as we use our platform to realize additional growth.
We have built a best in class team focused on executing this strategy and I would like to thank them.
And our retailer partners shoppers and stakeholders for continuing to grow with US I would now like to turn the call over to Michael.
Thank you Steve.
Today, I'm going to discuss our financial results, which came in ahead of our budget, our strong balance sheet position, our external growth initiatives and I'm going to end with our increased 2023 guidance.
Third quarter results came in ahead of expectations with core <unk> 50, a share compared to 47, a share and third quarter of last year.
Same center NOI increased seven 6% for the quarter driven by gains in occupancy and our strong rent spreads, which have led to both higher base rents and higher expense recoveries in the quarter benefited from the recognition of some out of period rent collections, which totaled approximately one cent of F O.
Our balance sheet remains in a position of strength.
At the end of the third quarter, we had $1 $6 billion of pro rata debt.
$207 million of cash and cash equivalents and short term investments, 94% of our debt is at fixed rates and we have no significant debt maturities until late in 2026.
We also have full availability on our 520 million dollar unsecured lines of credit.
Our net debt to adjusted EBITDA was five two times for the 12 months ended September 30th one of the lowest in the retail and REIT sector.
This below average leverage combined with our significant cash position provides the capacity to fund and pursue our growth initiatives, our quarterly cash dividend remains well covered with a continued low payout ratio.
In terms of our interest rate hedges, we continue to proactively address the February 24 exploration of the interest rate swaps on $300 million of our debt that is fixed adjusted sofer at 50 basis points as of November six 2023, we have entered into $250 million of Nu.
New forward, starting swaps that will commence once the current swaps expire on February 1st of next year. These swaps have varying maturities through January 27, So we're effectively fixing this debt for another two and a half years on average and these new swaps fixed the adjusted Sofa at a weighted average base rate of four.
4% compared to the current 0.5% with the impact of the higher interest rates being recorded upon exploration and the start of the new forward swaps next February.
In terms of external growth, we successfully opened Nashville during the quarter, which does have a few income statement and balance sheet factors through the end of the third quarter, we have incurred costs of $119 million against our narrowed cost range of $144 million to $146 million, which leaves $26 million.
And at the midpoint predominantly in the fourth quarter, we continue to estimate a seven 5% to 8% stabilized yield and effective with the opening on October 26th we ceased capitalizing interest on the project.
With our low leverage balance sheet and strong liquidity position along with the continued free cash flow after dividends, we have significant optionality to pursue additional growth opportunities.
We have prioritized maintaining financial flexibility, which includes an undrawn line of credit and an ATM.
In the third quarter, we Opportunistically issued a small amount of equity approximately $2 $7 million at 24, 89, a share for accretive deployment.
Now turning to our increased 2023 guidance, which reflects better than anticipated performance in the third quarter, including approximately a penny which will not repeat.
And our improved outlook for the remainder of the year.
We are increasing our expectations for core <unk> by three and a half cents at the midpoint to a new range of $1 90 to $1 94.
We're also increasing and narrowing our same center NOI growth expectations to a range of $4, 75% to five 5% up from 3.5% to 5% currently or an 87 five basis point increase at the midpoint.
We're also reducing the anticipated recurring capex in 2023 to a range of $40 million to $50 million down from $45 million to $55 million due to the timing of certain projects and continued high tenant renewal rate.
For additional details on our key assumptions. Please see our release issued last night.
And we are greatly looking forward to seeing many of you at upcoming conferences, including NAREIT next week in L. A as well as many upcoming sell side events in property tours and it has been our absolute pleasure to have welcomed so many of our financial stakeholders to our assets this year, including stops in Palm Beach Fort Worth Deer Park Riverhead.
Charleston, Myrtle Beach National Harbor, St Marcos and upcoming visit scheduled in Phoenix, and our newest center in Nashville next March we couldn't be more proud as an organization to show off our people our assets and our strategies and action and we loved that you've been able to experience our assets as a guest.
And as a shopper seeing why our guest and retailer brand partners highly value the tanger platform and with that I'd now like to open up the call for questions.
Thank you as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our first question comes from the line of Florida banking with Compass point. Please proceed with your question.
Hey, good morning, guys Michael.
So you you issue a little bit of stock during the quarter are at around 24. You know 89 is that is that where you think you're at and they are all of the shares are.
Hum.
Good morning, Floris you know, we don't comment on.
Our view of NAV.
Certainly the analysts out there have their own views of NAV, we took the opportunity to issue just over 100000 shares.
For accretive deployment, and where we're going to have a 30 year history of maintaining a strong balance sheet and we wanted to be prudent and disciplined in all of our capital stack.
Maybe if I can follow up with what one question in terms of your growth obviously, Oh your occupancies at 98% you guys have been it's really impressive how you've leased the space you're getting you know solid lease spreads on our on our renewals maybe if you can comment on.
On it's hard to grow occupancy from here.
Maybe you get a little bit more but talk about how you know in your view why tanger, how can tanger exceed its cruising speed of call it 3%.
Same store NOI growth going forward what are the key drivers in your view how much of upside is there on the the current curve.
Space relative to you know where that could go going forward.
Good morning, Floris and Steve Thanks for asking the question first of all Fortunately for US is space turns every year. So we've got a pretty big churn pipeline.
Which we disclosed and we see great upside in our ability to redo, which we've done in the past couple of years at about a 95% rate.
And if you take a look at our rent spreads you will see that basically in the renewable pipeline. It's the existing tenants in our shopping centers voting to stay and stay at much higher rents than they're currently paying.
Also there is some fallout and we've had great success re tenant in that space at over 30%. So we continue to see great upside and look there are fortunately for us with over half of our portfolio of 99% occupied at this point theres, great opportunity for us to asset manage our fleet.
Right sized stores that maybe oversized and therefore drive additional rents on be it from the adjacency.
Or repurpose tenants that arent necessarily holding their own from a sales.
Our sales point of view.
And replacing them with new tenants, we've done a great job, adding new tenants to the portfolio look no further that Nashville, 25% of that shopping center is tenanted by first the Tanger retailers. We continue to put first attempts hangar retailers in our entire portfolio.
Great and maybe if you could comment on the the temp to perm opportunity in the portfolio as well.
Yeah.
We currently like I said, our occupancies are growing pretty pretty high.
We're at about as we've been saying around 10 ish percent on our tab as far as I'm concerned as far as Theres, one square foot of available space in our portfolio will put a temp tenant in that space because the cash flows and it keeps the lights on and I've said this before I'll say it again.
Our customers don't know the difference between the short term tenant in a permanent tenant, but everybody knows the difference between a closed store in an open store as far as I'm concerned.
You see that as a great opportunity for us to keep space warm, we break control of those spaces because for the most part we've got a 30 day rate of termination. So it will never hold up the ability for us to make a higher as flowing deal a longer term deal or a deal that definitely is accretive to the entire shopping center itself.
Thanks, Dave.
Thank you. Our next question comes from the line of Lizzy Duncan with Bank of America. Please proceed with your question.
Hi, good morning.
I just wanted to go back to the opening comment fine I'm.
Observing a decline in traffic and sales.
Okay could you could we talk about.
Are all drivers.
And average tenant payoffs.
If there were any specific trends to note here across certain categories or region.
That would be great.
Sure well first of all it.
It's sort of not forget where an outlet center platform.
And by definition, an outlet center platform, we don't control.
The sale price of our retailers and our retailers and if you want to talk about trend the trend right now as retailers are becoming far more promotional.
The promotional environment that doesn't mean, they are selling less product, you're just selling it unless it less expensive price point cars.
Sales performance on a per square foot basis, although down from the 2021 highs are still up over the 2019 levels.
Out of that has to do with the performance of the athletic brand categories. The athleisure brand categories and to come back or are a lot of apparel stores as well, but as we continue to diversify our portfolio and uses like home or health and beauty and larger format stores that might have an effect on the overall sale.
<unk> per square foot of the business.
But remember our strategy is in sales per square foot. Our strategy is the growth of our NOI and if you take a look at how we performed from an SS NOI growth point of view.
Roofing and the numbers I said Flores.
Renewal rates were getting 95% of our retailers are renewing so if they're renewing and electing to pay over 10% more for that renewal space, they're basically saying that the utility of the store comes in their ability to operate.
Clear excess inventory, perhaps keep there are other channels that bricks and mortar distribution clean and use the outlet for exactly what it's used for sure.
Sure a value priced product brand private branded product to their customers.
And clear access into our time.
Okay. Thanks.
And I just wanted to ask about how.
How bad that trended this quarter.
Pretty minimal, but just wanted to see any changes in thinking around.
The current watch list.
Specifically with exposure to the V F.
Express.
Well look our watch list is as tight as it's been in years.
As far as the brands that you've called out we've done recent business with both of those brands.
Touch with those brands on a regular basis you just shared express express just opened a 5000 square foot store with us in Nashville did great right out of the box.
The brands continue to perform in our experience when brands have had trouble and they wanted we reorganized the restructure.
The last stores they restructure of the ones in the outlets because typically those are the ones that are the most profitable for them.
Thank you. Our next question comes from the line of Samir Khanal with Evercore ISI. Please proceed with your question.
Hi, Good morning, everyone, Hey, Steve you.
You mentioned on in your opening remarks about pursuing it and I think it was selective new opportunities. When you talked about external growth can you expand on that a little bit maybe talk about.
You know obviously national is off to a good start I guess, how does the next set of opportunities look like for you at this point.
Yeah.
What we like.
Both of our peer group, we're out in the marketplace looking for opportunities for our platform to expand we consider ourselves an open air shopping center company that has great discipline in leasing marketing and operating shopping centers I think the operating piece is really important because.
We are asset managers and if we can find a shopping center that the going in rate meets our hurdles and we think there is upside in the market for us to grow that property and drive drive additional revenue and shareholder value, we're going to take advantage of those opportunities.
Okay, and then and then I guess I guess Michael.
Just on the on the Capex side I know the guide went down a little bit here, but you have sort of a big ramp up in next quarter, maybe expand on that what's driving that in the fourth quarter assumption. Thanks.
Sure Samir.
When we talk to begin the year about our overall capex, which this year was going to be higher than last year, we've been building back to our historical levels and within that Capex range Theres two components. The first component is our tenant allowances, which is evidenced by our high renewal rate, we're not having as much tia.
As because the tenants are renewing with us pretty much no capex and the other part of it is.
The capital that we're putting into our renovations.
Those are a little bit more chunky and so from a timing perspective, our fourth quarter implies call. It at the midpoint about $20 million and we will see how that timing goes in the fourth quarter, but we reduced the overall amount based on the higher renewal rate and the timing of those.
Next completing.
I'm, sorry would you expect the Capex levels. The next near term to go down or at this point sort of.
Stay at similar levels that we're seeing in 'twenty three.
We expect that this total aggregate capex will continue to remain at these sort of levels as we got back to where we were pre COVID-19. The big factor going into next year is what do we think our renewal rates.
As Steve talked about how you look at our 2 million square feet of leasing 95% of it was renewals. If we have a lower renewal rate than we will be able to get higher spreads, but the capex will be a little bit higher in our numbers. So when we talk in February I will be sure to outline all of those components.
Okay. Thank you guys.
Thanks Amir.
Thank you. Our next question comes from the line of Craig Mailman with Citi. Please proceed with your question.
Hey, good morning.
Michael you kind of pointed out the penny.
Out of period.
Take out the run rate.
But you've also kind of had better expense recoveries as we think about 'twenty for the run rate at the end of the year next year kind of how should we think about whether there is seasonality in that and that recovery.
<unk> as we kind of model and what do you think is a good yeah. I understand you have these guys, but where do you think is a good kind of annualized average for recoveries given what you guys have done on the leasing side or something.
Sure. Thanks, Craig for the question as we think about operating expenses and recoveries I think the biggest point is our recoveries are generally fixed right. So the recoveries are going to see relatively flattish hopefully increasing as we're renewing our space, but the operating expenses in our business are highly variable and so.
The recovery rate is going to jump around quarter to quarter be higher likely in the first half of the year and lower in the back half of the year. As you saw this quarter, we were in the low eighties, which we would expect to be probably high <unk> low <unk> in the fourth quarter, because that's the highest quarter of our operating expenses. It's the highest level of traffic. There is the most people coming to.
Our centers, we got to make sure that everything is clean and secure.
As that happens and obviously, we're spending a lot of our marketing dollars driving net sales and traffic during the important holiday season, as we think about as we go into next year on average.
We probably have a pay a recovery rate in the eighties.
And it's going to fluctuate and we'll be sure as we provide guidance next year to give a little bit more color on some of that seasonality as we move through the year.
Okay. That's helpful and then.
No. They havent spend on Nashville is mostly done you guys have ample balance sheet liquidity.
Should we expect you guys had talked about kind of splitting that box and taken some retail space back, but more F&B and centers is there any of that in 'twenty four and we should be thinking about any NOI coming offline as a disruption happens or are these still kind of more out year plans at this point.
So a lot of those initiatives are really leveraging our peripheral land. So we don't have to take anything offline to be able to do that it's the reverse is actually creating something from nothing.
Right, we have land that doesn't have a basis and as we underwrite those opportunities when looked at on an IRR basis relative to our cost of capital and we have a number of transactions that are going to go through those peripheral land deals take longer to ultimately happen is retailers generally.
Building a structure relative.
Relative to just re leasing the space, but that opportunity provides us a multiyear opportunity to continue to intensify the centers and bring additional uses and retailers too.
The centers.
Okay, and then just one last one and this goes back to Steve.
Commentary acquisitions kind of where are you guys. Most focused now or are you guys kind of go through bank portfolios to try to buy you know some nonperforming loans again in that way or are you waiting for.
Just the stress on the equity side kind of where are you guys mining for opportunities at this point in.
You know what really is the hurdle rate for you guys to kind of deploy outside of open air outlets in traditional open air strips.
Hello.
Craig a lot a lot in that question and I'd love to give you an answer but you probably know that.
That we're looking at all of the above it's just we see an opportunity for us as an organization to go on offense, we've done a great job of leasing.
The Nashville assets are great.
A great example of a center that we took out of the ground and delivered 96, 5% leased one or two stores left to go.
Retailers want to be in our shopping centers, there's been great feedback from the retail partners and the retailer community on the job that we do as both an operator.
And Oh, Elisa and leasing.
Company, they want to be part of the mix.
We think we can add great value, so where are you going to look for a retail opportunities for us open air.
Give us the opportunity to be the principal.
Shopping center in a geography.
And give us an opportunity to have upside so that we can go after that tenant mix that we've now.
Have expanded through our portfolio, we have expanded the muscle of going after entertainment uses we've expanded the muscle of going after a food and beverage and that's where we think we can add tremendous value as we find properties that we believe to be accretive.
I can't sort of tell you, where it's going to come from.
Because certainly we're looking at all different opportunities right now.
Great. Thank you.
Thank you. Our next question comes from the line of Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Thanks, Good morning, So two questions on Nashville, I guess.
First can you talk about the NOI yield at open and provide some color around the trajectory towards the stabilized yield expectation of 7.5% to 8% and then also can you share any early read I know, it's just been.
A couple of weeks here since the open but any early read on the open and sales and whether theres any piece of the NOI early on that's tied to sales.
Sure Todd its Doug.
Alright.
While we've maintained the stabilized yield of seven five to eight.
We still believe that the first year yields can be in the six is probably around the mid sixes theirs.
A few different components the sales momentum does build over time, we expect variable rent.
We'll continue to grow in years, two and three there is also going to be a heavier opex.
Opex spend in year one.
Marketing piece is important need to make sure that people understand that theres, a new center in the market. We we want to make sure everyone's first impression is great when they come to the center.
Things like.
The janitorial landscaping security all of those pieces, we expect could be a little bit heavier in year, one as we start to figure out the best way to operate the center and.
Manage those efficiencies going forward.
Okay.
Turning Todd I wanted to make a couple comments and fussy sponsored the chief operating officer, Yeah. The good news about Nashville, we had a phenomenal grand opening weekend.
Very strong traffic and remarkable sales.
It was done by all the retailers had Nashville throughout the week after Grand opening into this past weekend.
And at that moment headwind did not have a lull at all in top performing retailers, who are seeing their best in.
In their class when it comes to their sales volumes in Nashville, We're excited to see the future. We have a strong holiday schedule. We will continue to have new and improvement of traffic in shopping at the center.
So we're excited to offer that to the national community.
Okay are there any updates at all.
Even over the last several months around where.
Sales productivity might sort of shake out or or settle out and have you had those conversations with tenants around you know any updated budgets or re forecasts around what they might be anticipating and where that might shake out within the portfolio.
Oh for the portfolio or for Nashville.
For for Nashville.
We talk to retailers every day, our head of leasing Jetson sign has met with them personally one on wine again, we're hearing about remarkable sales volumes happening and well continue to work with them on what their ongoing outlook is from a volume perspective in Nashville.
Those are the title I had was one thought.
As we terminated that shopping center.
There is the retailers that are in that shopping center have average sales performance. Some of the highest average sales performance per square foot in our center.
Five six $700 per square foot range. So we're pretty optimistic that these stores are outperforming their plan and their sales performance is some of the highest in our other portfolio we're optimistic about.
What those sales performed with the sales performance of natural.
Okay. That's helpful. And then just my last question I guess circling back to just the tenant sales environment more broadly and just thinking about the portfolio overall not just Nashville.
You continue to raise rents and drive.
Expense recoveries higher too.
And you mentioned the portfolio's occupancy cost ratio increased just slightly so it's still nine 1%, which is healthy but at what point do tenant sales.
Come into greater focus we've seen I think a couple of quarters now where sales have moderated a little bit.
And where should we be thinking about.
The OCR is being sort of a pressure point as it pertains to leasing discussions that youre having.
Well I think there is plenty of our portfolio that has not yet been touched as you look at that OCR growth.
Got some turn coming up next year, we think that there's opportunity to continue to press rents. There you said that the yeah theres been sales moderating for the last couple of quarters, yet our rent spreads are and our activity continues to grow.
It goes back to <unk> question the utility.
In outlet store is slightly different than the utility of another store in the bricks and mortar ecosystem where.
Off price is something that retailers.
Value, it's an important part of their distribution channel.
As they look at this store as adding great utility to what it is that they are that they are doing from a clearance point of view I just think it's important to keep in mind as you.
You look at the renewals again, 95% of our retailers are renewing historically higher than what we've ever renewed in the past and they are doing so at plus 10 in the case of the trailing 12, 13% increase so the retailers are voting, they're saying that the store is important to us we want to stay here we wanted to continue on.
Positive cash flow and although.
The topline sales week gets all that lines at the end of the day the utility of the store is and its ability to turnover goods.
Okay. Thank you.
Thank you. Our next question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning, everyone.
Just a quick message for Steve Tanger, you were the first CEO ever asked a question too on an earnings call and I've appreciated your presence on.
On the call to Emerson.
Hopefully you're stepping back from these just means more time to actually enjoy yourself instead of dealing with a sell side analyst. So thanks, Barry Thank you very much.
Thank you for your thank you for your comment.
George.
Having with you and.
We appreciate how well prepared you always came to the meeting.
I wish you a lot of success.
Thanks, alright onto some some questions on the quarter here.
The cash base rents increased four 7% from last quarter, there's 80 basis points of occupancy increase could you just outline the other drivers.
Of that quarter over quarter increase and how much of that was a conversion of tenants to permanent occupancy.
Thanks, Greg.
If you think about that year over year growth.
All of the growth in occupancy has been permanent or temporary occupancies remained relatively flattish at around 10 percentage points and so with 150 basis points year over year growth in permanent occupancy combined with the rent spread activity of 14, 5%.
On average on over 20% of our portfolio. When you combine those two pieces together and you can look at our percentage rents, which a lot of that is also being swept up until that base minimum in totality, that's what's driving our revenue growth.
And so it's we're very.
Go ahead sorry.
Yes, Michael this is the quarter over quarter, so from last quarter, you're up 5%.
Right. So part of that is sequentially. We had an 80 basis point increase in our occupancy. We also continue to have rent spreads and as we've talked about in the release, we had a small amount of out of period rent collections sequentially, where we picked up a few hundred thousand dollars up in that line item.
Okay, maybe something we can dig into a bit later.
On the same store NOI guidance I think it implies a pretty dramatic slowdown into Q4 I'm. Just curious if that's just tougher comps or or what the expectation is there for the slow down.
Sure Yes.
We've talked about are our.
Our expenses are variable and so you do have a little bit of a year over year impact on a quarterly basis on an annual basis, we feel very pleased that we've been able to move the midpoint of our same center range from 3%. When we started the year at two to four up to over 5%.
And so the business.
Annual basis, performing there's always going to be some volatility quarter to quarter, but.
But that's really the impact overall and I would point out that our <unk> is still growing on a year over year basis.
Uh-huh.
Okay.
On the the sign on occupied spread that everyone loves talking about these days could you just could you give that that amount and also what it represents from a base rent standpoint.
Sure. So signed not open is really used by the big box landlords why because it takes so long for those boxes to be replaced and so they're always going to have this large signed not open pipeline. Our portfolio is a small tenant portfolio, we averaged 2 million square feet of space over 500 transactions the <unk>.
Besides as 4000 square feet are signed not open pipeline is part our 10th strategy, where we're collecting rent in a vacant space before we turn it over to a permanent tenants and that's the way, we're sort of using a week with 95% of our deals being renewals, there's no downtime and Theres no capex.
The sensors paying is higher rents to stay in the centers that they're already producing so I think we've talked before 25 50 basis points of signed not open.
And that's this is not a material amount, where we're seeing that NOI growth on a consistent basis, rather than waiting for the signed not open to come.
Right Fair point, thank you.
Final question. So you talked about temp tenants being around that 10% number or stable around that 10% number but curious how much temp tenancy has been converted to permanent tenancy and maybe over the last quarter or the last year. Just so we have some.
The idea of how to think about yeah. The increase in rent that's associated with converting those tenants and how frequently is happening.
Well.
First of all is happening with great frequency.
The 10 tenants.
The cheapest.
Real estate deal you can maintenance type deal because you have the lease spreads we have the ability to control the space and we have the ability to move you on 30 days notice. So what will happen in a shopping center that has some occupancy I havent 10 tenants sitting next to another retailer that either wants to expand or it's a great space somebody wants to go into.
Gonna make that new deals.
Our increased that Red three times, maybe four times and then also having to 10 tenant I've got another space, where you would you like to move to the right a couple of storefronts.
And continue your occupancy so at the end of the day I'm building my occupancy by adding permanent but I'm also maintaining that level, because I'm, taking that temp retail I'm not throwing them out of the shopping center, it's putting them out less desirable space, but allowing them to stay there.
Alright, Thanks, Steve Thanks, Michael.
Thanks, Craig.
Thank you. Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, everyone. I was wondering if you could talk about the new tenants at Nashville, or even broadly.
Who they are and to what extent they may be interested in opening from additional centers and for those that are new to the outlet concept over all.
That's something that's like a little bit more difficult than take longer time to establish or is there a way that they can just as well as somebody who is more established time.
Uh huh.
Sure. So let's start with Alta now all does not brand new to the they're doing that they're new to us and our brand new to the outlet business, they're starting to grow that business.
A large retailer a large format store and one that will.
We'll take our who's now discovered that there is a great customer base.
The outlet shopper that they wanted to get their product in front of.
Others is let's go to Hollywood boutique, which is a local retailer from 12 south.
Who.
Is that Nashville retailer that decided to put their first outlet store in the shopping center because they like to complement the tenants that they get to sit alongside us.
Others are in the food and beverage category, we've got Princess Hot Chicken, which is a Nashville staple that's chose to cut that has chosen to come with us in our shopping center because they see dislocation is one that will have great traffic on the weekends, but also great weekday traffic by virtue of its positioning on this three 800 acre <unk>.
Mega parcel that we that.
That we share with Tiger Woods pop stroke and Nashville.
Soccer club, so theres a number of great draws to that particular area that had been part of our pitch as we start to go out and diversify and look for different retailers, particularly in this shopping center.
Got it Okay, and then I'm sorry, just following up on one of the modeling question from earlier, maybe asked another way Michael So the base trends in the quarter you guys said there.
That number of $76 $5 9 million and.
The sequential increase is just larger than expected over $3 million.
It seems like it's more than just occupancy.
Actually you mentioned part of it might be converting the <unk>.
Percent rent tenants to minimum baseline, but just wondering if there was anything else one time in that and if not then yes. That's just the latest.
Yeah, I mean, that's that's effectively all the levers that we're pulling up into our base minimum rents. The out of period is not a significant amount of that year over year, it's part of it but not something of significance that would have grown that number larger than that it has all of the initiatives that we've been putting forth of growing your occupancy.
<unk> <unk>.
Increasing our rent spreads converting our percentage rents to fix where we'd prefer to have fixed rent and variable rents and all of that's translating into that base rent line.
Okay got it that's helpful. Thanks.
Thanks Kayla.
Thank you. Our next question comes from the line of Mike Mueller with Jpmorgan. Please proceed with your question.
Yeah, Hi, so going back to cash on hand, it looks like it's going to be in the high one hundreds.
After the rest of the Nashville spend and so is there any other near term use of proceeds other than potential acquisitions and normal capex spend in on that acquisition point is there a near term pipeline of opportunities that you're currently evaluating.
Thanks, Mike and I'd say, we're in the market looking at a lot of things.
And outside of Nashville spend.
Yes, that's what the optionality that our balance sheet projects and.
Not only the cash on hand, but we've been maintaining this below average leverage level and so combined with being in the low five times leverage and then having that $200 million to be able to deploy accretively into transactions. We think the combination positions us very well so that when we see an opportunity that we.
We are excited about we will take the swing and tried to hit it out of the park.
Got it.
Okay, and then one quick one on the leasing front for the 20 some percent and thinks it's 21% of leases expiring next year is there a portion of that that you proactively just won't renew because you want to sit there and just the mix and what what's a rough percentage of that proportion.
Yeah, I don't know what the I don't know what the proportion is but there's definitely some that won't be renewed because they're either too big.
We're sitting in locations in the shopping center that will command higher rents and give us the opportunity to diversify the portfolio with over half the portfolio in the high <unk> on an occupancy we have the opportunity to proactively.
Asset manage our shopping center and then can choose who we want to put in what strategic locations.
Got it okay. Thank you.
Thanks, Mike.
Thank you. Our next question comes from the line of Emily <unk> with Green Street Advisors. Please proceed with your question.
Hi, Thanks, I wanted to touch on tenant allowances. So it looks like that number jumped from about $40 per square foot to $60 per square foot. So.
Great.
And the thing that drives that number higher and where do you see that number settle them.
Sure Emily.
A lot of our leasing activity is on renewals.
When we talk about 95% of our leases, which having minimal capex.
<unk> hundred 13000 square feet, where we get eight years duration those deals make sense from an economic basis, where we're achieving a high spreads.
And so it's just a factor of the deals that came through this quarter and what they're adding.
6% of our total leasing activity.
And when you take the Capex in totality, its a pretty small amount relative to.
The aggregate rent that we're getting but importantly, the increased rent overall.
And the duration I would add is these are long duration leases on average about eight years.
Great. Thanks, and then I'm sorry, if I missed this in the opening remarks, but the turnkey collected in the third quarter is that from a single tenant art I have all the time.
Following our top 25 tenant list.
Emily that's actually related to most of that is related to bankruptcy from Covid era. There were some bankruptcy claim distributions that that had the flow through that line.
Was very minimal in terms of any current tenants.
Okay.
Thank you. Our next question is a follow up from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, Thanks for the follow up I'm, just with regards to the equity issuance you mentioned that that money was spent on an accretive investment.
Could you provide any details on that investment or the magnitude.
A potential more investments, there and whether that might be a good opportunity for additional equity issuances to fund.
Yeah. Thanks, Greg I mean, if we look at our sources and uses of capital a little bit fungible, and being able to raise $2 $7 million of equity.
You know almost $25 given all of the investments we've been making in our portfolio, whether there's out parcels and things that we are looking at we felt the cost of that capital would be accretive ultimately to our bottom line and always is trying to maintain as much option.
<unk> and our balance sheet as possible and so we were just conscious of where the cost was and where and how we're deploying that money to ensure that it was accretive for our stakeholders.
Okay. Thanks, and sorry, if this was covered before but how many how many out parcels are currently underdevelopment and what's the expected outlay on those.
Yeah.
We haven't guided to what the what the cash.
The cash outlay.
Yes, I don't know if we have that number.
Like handy all I can say is that the.
Our parcels are primarily real estate that we have control for some time as we've owned most of the.
Shopping centers that we have open our 40 30 20 years old. So the land is an extremely low basis in our investment relative to the.
The rents that we will collect is.
Is typically in the <unk>.
Well.
I would say double digits teens high teens as far as a return. So we made the decisions to move forward on an individual deal basis, but the returns are very significant.
Okay. Thank you.
Thanks, Greg.
Thank you ladies and gentlemen, this concludes our question and answer session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.