Tanger Inc.

Good morning. This is Doug McDonald, Senior Vice President of Finance and Capital Markets, and I would like to welcome you all to the Tanger Factory Outlet Center's first quarter 2022 conference call. Yesterday evening, we issued our earnings release, as well as our supplemental information package and investor presentation. This information is available on our investor relations website, investors.tangeroutlets.com. Please note that during this conference call, some of management's comments will be forward-looking statements that are subject to numerous risks and uncertainties, 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 SEC Regulation G, including funds from operations, or FFO, core FFO, same-center net operating income, adjusted EBITDA RE 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, May 6, 2022. At this time, all participants are in listen-only mode. Following management's prepared comments, the call will be opened for your questions. We request that everyone ask only one question and one follow-up to allow as many of you as possible to ask questions. If time permits, we are happy for you to re-queue for additional questions. On the call today will be Steve Tanger, our Executive Chair, Stephen Yaloff, Chief Executive Officer, and Jim Williams, Executive Vice President and Chief Financial Officer. I will now turn the call over to Steve Tanger. Please go ahead, Steve.

Good morning, and thank you for joining us for our first quarter 2022 earnings call. The results reflect our company's ongoing positive momentum. as evidenced by our strong operating performance, including sustained high occupancy, raised guidance for the year, and a recent dividend increase. I want to thank our team for their unwavering commitment to executing on our strategy to increase cash flow and to grow the value of our real estate. I will now turn the call over to Steve Yaloff, to provide additional details. Thanks, Steve.

Our first quarter results reflect our strong operating fundamentals. Positive leasing momentum, occupancy improvement, and a return to positive leasing spreads are translating into earnings growth. This strength, along with a constructive outlook, led our Board of Directors to approve a 9.6% increase in the annual dividend. Our first quarter operating and financial metrics were ahead of our expectations, and with our leasing results to date supporting a positive outlook, we are raising our full year's earnings guidance. In particular, traffic in the first quarter was up about 1% compared to the prior year first quarter, which I will remind you is when we saw traffic rebound and approach pre-pandemic levels. Traffic was lighter in March on a year-over-year comparable basis due to the timing of Easter, and our related Tanner-style marketing program. Yet, April traffic has returned even as consumers face higher gas prices and an inflationary environment. Tenant sales remained strong at $464 per square foot for the trailing 12-month period, an almost 20 percent increase from the pre-pandemic comparable period in 2019. We ended the first quarter with 94.3 percent total portfolio occupancy, of 230 basis points from the year-ago period, leasing spreads turned positive with blended average rental rates up 1.3% for all comparable renewed and retenanted leases executed during the 12 months ended March 31, 2022. This is a significant milestone and one which underscores the importance of our shopping destinations to our retailers and tenants. Taken together, these metrics helped generate robust growth. Same-center NOI was up 9.9% compared to the prior year, driven by growth in occupancy, variable rents, and other revenues in 2022. The current quarter benefited from reversal of revenue reserves as we collected previously doubtful or disputed rents. As we've been discussing over the past several quarters, we are laser-focused on three strategic priorities. all aimed at sustaining growth over time. We continue to make meaningful progress on accelerating leasing, commercializing marketing, and reshaping operations, which are evident in our results, and we are laying the foundation for growth in the quarters and years to come. Our goals to accelerate leasing are simple. Increase occupancy, grow rent over time, and elevate and diversify and attract new brands. We continue to achieve this with our best-in-class centers and a best-in-class leasing team, all supported by enhanced analytics that allow us to make the right decisions to optimize the merchandising of our properties. What's increasingly clear is that the retailers are committed to our open-air shopping destinations as part of their growth strategies, evidenced by our leasing momentum and tenants' desire to expand their footprint within Tanger Centers. We have also welcomed a number of new brands to the portfolio, such as Wolfert, St. John, Ulta, and Regatta, and new F&B businesses, Junction 35 to our flagship Sevierville destination, and Brooklyn Lobster at Tanger Outlets Foxwoods. Our focus on non-apparel and footwear tenants also continues as we sign leases with new F&B, furniture and home, and digitally native brands. These new additions deliver high-quality shopper visits by attracting a higher-income shopper and a younger demographic. Over the trailing 12-month period ended March 31st, we executed 1.8 million square feet of leases across 375 transactions, representing a 39% increase in space and a 42% increase in transactions from the comparable prior period. Driven in large part by the strong renewal activity, approximately 45% of this GLA was executed in the first quarter of this year. Growing customer traffic coupled with increased sales productivity at Tanger Centers has led to the absorption of vacancy as evidenced by our 230 basis point pickup in occupancy over the last 12 months. This dynamic is translating into our ability to execute far more landlord favorable lease terms and enabling us to convert valuable rent to fixed rent while commanding greater over-rent pay rates and tighter breakpoints. We also saw the lengthening of the average initial lease term by six months on renewal and four years on re-tenanted comparable leases executed in the trailing 12 months ended March 31, 2022, versus the prior year period. Our leasing momentum fuels our optimism and our continued ability to achieve our leasing objectives. Furthermore, we feel confident in our tenant base with a watch list that is meaningfully smaller than it has been for many years, and only 1% of our portfolio is on a cash basis, down from 3% by year's end. Our core strategy of commercializing marketing revolves around our ongoing digital transformation. We are focused on performing marketing that is targeted, measurable, and drives higher conversions. We have shifted some of our marketing spend from broader brand awareness to targeted programs designed to achieve specific goals, including drawing cars into our parking lots and growing the average spend per shopper. Our retailers are the direct recipients of these targeted initiatives, and as they continue to derive value, their partnership and participation continues to grow, thus resulting in higher shopper spends and bigger basket sizes. We have also improved our Tanger Club paid membership program by enhancing the value proposition, exclusive offerings, and shopper perks aimed at growing our active membership. Year-to-date, new enrollments were up 20% compared to the prior year, and we continue to see this group as the most productive of our customers. We are focused on reshaping operations by maximizing operational efficiency and growing ancillary revenues through marketing partnerships and media. On-center activations and partnerships with national brands such as Coca-Cola and the National Football League are growing across our entire portfolio as these brands seek to leverage the traffic and customers we drive to Tanger shopping destinations. These other revenues increased by almost 50% in the first quarter from the prior year, and there is additional opportunity in these non-rental revenues in the quarters and years to come. We are continuing to invest and execute on our sustainability initiatives that provide a return to our shareholders and our communities. Efforts include doubling our renewable energy footprint with solar infrastructure that will also produce expense savings over time, growing our EV charging station program by adding 200 new units across 17 centers, delivering free charging options to our shoppers, and bringing our very popular eco-friendly Rooftop B initiative to more Tanger centers. Finally, we are encouraged by our tenants' desire to expand their footprint with Tanger and for new tenants to begin and grow their relationship with us. We are pleased with the progress of our Nashville project, and continue to be on track to break ground later this quarter with grand opening scheduled for fall 2023. Our peripheral land team is aggressively pursuing opportunities to monetize and develop our out parcel portfolio. We are unlocking new opportunities to enhance our offering at exciting shopper amenities and generate new revenue streams, all creating long-term portfolio value. In summary, We're encouraged by our continued progress and our ability to execute on our strategic priorities. The value proposition of our open-air centers is being validated by shoppers, tenants, and the communities we serve. I would now like to turn the call over to Jim Williams to take you through our financial results, balance sheet, and increased guidance for 2022. Thank you, Steve.

I am pleased to report that we delivered solid results for the first quarter 2022, with core FFO of 45 cents per share, up 12.5% compared to the last year period. Our outperformance was due to better than expected leasing performance and other revenues, as well as the reserve reversals. Including our share of unconsolidated joint ventures, we recognized approximately $3.1 million in the reversal of certain revenue reserves compared to approximately $1.7 million in the first quarter of the prior year. These factors helped drive a year-over-year increase in Sane Center NOI for the total portfolio of 9.9% for the quarter to $78.2 million. Also contributing to the outperformance was the recognition of approximately $2.6 million in termination fees, including our share of unconsolidated joint ventures, the current quarter compared to 0.8 million dollars in the prior year due to the well-timed capital markets activity executed over the past year our balance sheet is well positioned we have no significant debt maturities until april 2024 and as of march 31st our net debt to adjusted ebitda re improved to 5.4 times for the trailing 12 months compared to 6.8 times a year ago as of quarter end Our weighted average interest rate was 3.1%, and 93% of our outstanding debt was fixed. We have always prioritized maintaining a strong financial position and a disciplined and prudent approach to capital allocation. Our dividend was well covered with an FAD payout ratio of 38% for the first quarter. Last month, the Board of Directors approved a 9.6% increase in the dividend on an annualized basis. We are increasing our guidance for 2022 and now expect core FFO to be in the range of $1.71 and $1.79 per share. This is 3 cents higher than our original guidance, approximately half driven by better than anticipated first quarter results and half due to stronger than expected leasing performance year to date. We expect same center NOI growth at a range of 2.5% to 4.5% up 100 basis points. For additional details on our key assumptions, please see our release issued last night. I'd now like to open it up for questions. Operator, can we take our first question?

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question today is coming from Todd Thomas from KeyBank. Your line is now live.

Hi, thanks. Good morning. first question I just wanted to ask about the sequential decrease in occupancy you know it sounds like leasing activities strong curious you know if you know some of that occupancy loss was the result of temp and seasonal tenants vacating after the holidays if you could sort of quantify or speak to that and then if you could also address whether or not you'd expect to see occupancy climb higher from here or could there continue to be a little bit of occupancy loss in the second quarter from either temp or seasonal tenants or otherwise that are still potentially moving out?

Good morning, Todd, and thanks for the question. With regard to the sequential decrease in occupancy, some of that was seasonal, but other of it was frictional. You know, currently we're performing a lot of what we call shuffles, Around our portfolio, if you read the release recently, we opened up an expanded Under Armour store in Tilton. In order to expand some of these stores, other stores have to close and make room for the expansion of existing tenants or make room for new tenants. That same strategy is playing out in places like Lancaster with Victoria's Secret, Atlantic City with a large retailer that we're putting in there that will hopefully be able to share the name next quarter. or even in Rehoboth with Ulta. So there's a number of things at play with regard to what's causing some of that sequential decrease. You know, we're actually pretty excited about the 230 basis point increase year over year. We've got a very robust pipeline. We don't talk about deals that are unexecuted, but we've got a very, very robust pipeline of new retailers to tanner, as well as expanding some of our best performing retailers in the portfolio and also adding across the rest of our portfolio some of our best brands that hadn't gone into some of our shopping centers yet. So we're pretty optimistic about our leasing activity going into the next quarter.

Okay. And can you provide an update after the holidays here as to where the portfolio stands in terms of occupancy that's related to you know temporary and seasonal tenants today and then you know I know you've been working to convert a lot of temp tenants to permanent you know I wanted to you know ask for an update there and also maybe Jim you know I was just curious if you could let us know if that leasing when you do convert temp tenants to permanent is that leasing included in the trailing 12-month leasing stats that are disclosed?

So here, I guess I'll take the front half of that. The big focus of ours is converting our tenants to permanent tenancy. But understand, when we take a permanent tenant and they occupy a temp space, if there's still occupancy or space available in that shopping center, we're going to take that temp tenant and we're going to move that temp tenant into another available space in our portfolio. So there's always going to be movement with our temp tenants. We think temp leasing is a great strategy, but obviously we're far more focused on long-term leasing because the payback of the long-term leasing is far better than the short-term tenants. I'll let Jim give you a little bit more color on how we look at it from a financial point of view.

So, Todd, to answer your question on the spreads, temporary tenants are not in the spreads. Our spreads compare a permanent tenant to the most recent or prior permanent tenant.

Okay. And how much of the occupancy today is related to temp tenants?

A little bit over 10%.

Okay. All right. Thank you. Thanks, Todd.

Thank you. Next question is coming from Mike Goldman from the city. Your line is now live.

Thanks for that. So, Stephen, maybe just going on on occupancy for a moment, it's obviously been an impressive increase off of the lows. When you look at the portfolio, there's about five assets that are in that high 70s, sort of low 80s type occupancy. And when you look at those five assets, it actually is 200 basis points of your vacancy. So that if you're at 94.3 and you take out Atlantic City and Foxwoods and the two assets in Grand Rapids and Howell, and you mentioned Tilton, you're talking about almost half of that vacancy. And without it, you'd be at 96.5. So maybe you can dive in a little bit on the strategy for those assets and where you think occupancy can go, because it feels as though there's probably not as much occupancy upside, maybe another 50 to 100 basis points of the other assets. And then all of those other initiatives, which I do want to spend some time on, you know, will continue to drive NOI growth. But maybe you can talk a little bit about these specific assets and how much effort you can do to narrow that gap on those. Or maybe you want to, you know, sell them. And that's the way you're going to get rid of the vacancy.

Well, good morning, Michael, and thanks for the question. So, first of all, the good news is all the assets that you call that are still cash flowing positive. So that's important. But, you know, and to the assets, the Foxwoods asset, the Atlantic City asset, you know, we had said in prior quarters were probably hit the hardest through the pandemic. because those markets relying on tourism, relying on hotel stays, entertainment, and gaming. And what we're seeing right now is those categories are coming back. Yeah, very strong.

That's why I was, you know, the gaming markets have been so strong over time through the pandemic. I guess I'm surprised that you haven't been able to make a further progress in that vacancy for those two assets.

So, and again, you know, a lot of that opportunity, you know, at least once we identify a tenant who's going to take a space, you know, that gestation period of a permanent lease can take anywhere between nine and 12 months. So you'll see a lot of the fruits of the labor of these markets coming back. I mentioned Atlantic City when Todd asked the question about some of the frictional vacancy that we see. You know, although we don't comment on leases that aren't executed yet, We've got a very large tenant that we anticipate executing in the next few months in Atlantic City that will fill a big chunk of space that we've been, for lack of a better expression, holding for that particular tenant. But I think this tenant coming to this location definitely underscores the fact that Atlantic City as a market is coming back and sales and traffic are coming back there as well. Foxwood had been historically a little bit slower to come back, but They just recently announced their partnership with Great Wolf Lodge, so that will be under construction shortly, and their lineup for their summer events and their summer entertainment calendar is far more robust than it's been in years past, which just underscores the fact that Foxwoods themselves are investing a lot of money in traffic generation, and obviously will ultimately reap the benefits. We have done one or two recent deals in Foxwoods. But, you know, we will continue to lean very heavily into them. As far as the other two centers, you know, the Michigan centers that you mentioned, you know, both of those centers rely a little bit more on people getting in their car and traveling to those shopping centers. And we see that dynamic changing, particularly over this summer, where a lot of our customers are shifting from maybe they were sitting home and buying products. Now they're hitting the road a little bit more. And, you know, we anticipate a lot of more tourist traffic to our centers. And I think Howell and Grand Rapids will definitely be great recipients of that.

Is there a way to think about the occupancy target towards the end of the year or so effectively? If you think about it today, Stephen, you know, you're sitting on about 700,000 square feet of vacancy across the portfolio. Those five assets I just mentioned are, you know, a little over 300,000 and 400,000 the rest of the portfolio. where should net absorption be by the end of the year, right? How much of this $300,000 of vacancy of these assets are you going to be able to chew into? Because I would think that that has the most meaningful impact on that bottom line occupancy number and then all of those other initiatives that you're focused on in terms of maximizing and reshaping the operations, getting all those new leasing streams, commercializing the marketing, are going to add on top of that occupancy gains that you're going to get.

Our primary objective is we're focused on cash flow. And for us, some of the vacancy and some of our better-performing assets will return far better than some of the vacancy and some of our lower-performing assets. That said, we're going to focus on, in some particular centers where we've got 100% occupancy but we've got underperforming retailers, we're going to be just as aggressive going after more productive retailers and higher rent payers in some of that space and creating some of that frictional vacancy when we pull out an underperformer and replace them with a much better performer or a larger expanding retailer. As far as these other assets, again, I mentioned we've got a pipeline of executed leases that are signed but have not yet taken delivery of possession. We're always looking at least 18 and 24 months out. So as leases are rolling, we're thinking about replacing those tenants, and that's across the entire portfolio. And with regard to leases out for signature, that pipeline is extremely robust right now. And as I mentioned, being fed by a lot of the retailers that have had success in our portfolio for years and years, going into some of the markets that they hadn't yet joined us in. So for us, Cash flow generation is far more important than occupancy, although occupancy is a great flashing light. We're very excited to say we're up 230 basis points, but again, we're focused on the most productive tenants, the best leases, and the highest cash flow, and that's where our leasing team is focusing their energy.

Yep, makes a lot of sense. Thanks for that, Stephen.

Thanks, Michael. Thank you. Next question today is coming from Boyle's Transaction from Compass Point. Your line is now live.

Hey, good morning, guys. You know, just following up on the leasing, I mean, obviously, your shares are valued like you have no growth. And what you're showing here is you've got growth both in occupancy and for the first time in probably over five years, positive leasing spreads. Maybe if you can talk through, Stephen, you talked a little bit about your improved or longer lease terms. Obviously, rents are going higher. But maybe you can talk about some of the other soft elements of your leasing. Are you negotiating higher fixed bumps? Are you actively trying to do that? And maybe also talk about... the occupancy cost and how much ability, because the occupancy cost is, you know, call it 8.3%, appears pretty low. How much ability do you think you have as the overall occupancy increases? How much more ability will you have to push rents higher?

So, good morning, Floris, and thank you. Thanks so much for the question. You know, I think the The most material change to leasing right now over the last two years is that where we were very focused two years ago on maintaining occupancy, reducing base rents, replacing base rents with higher percentage rents in order to give some downside protection to some retailers during the height of the pandemic. What we're seeing now, evidenced by our lease spreads increasing, as well as our lease terms increasing, is that we're going back to fundamental lease and deal making. Ten-year terms, higher base rents. We're now pushing for and getting better percentage rents going forward. You know, the retailers have gotten used to stepping up to higher percentage rents over the last couple of years. we're doing a very effective job of taking a lot of that variable rent that was a huge driver of our growth over the last few quarters and sweeping that into the base rent numbers so that we are protecting a lot of the rent that we've achieved over the past quarters. And I think, especially now in this current market environment, that's a really good leasing strategy for us. I know you asked a number of other questions. If you want to re-ask a couple of those, I'm trying to pick them off in order here.

Yeah, no, no. I, you know, one of the other things is in terms of, you know, other soft, softer elements in terms of, you know, you know, getting, you know, higher fixed bumps in, in, in your lease terms, et cetera. How's that progressing? And do you have like a target in your mind in terms of what, where you would like the portfolio to go? Well, as far as,

As far as the fixed bumps, look, I think the milestone here is that we're actually going back to the old or to how we have traditionally cast leases. So fixed cam with our bumps, the retailers paying their pro-rata share, the real estate taxes and other pass-throughs, and, you know, marketing fees. And I think the marketing fees, and I think, you know, if you're talking about sort of the softer numbers, I think marketing fees are becoming more and more important to our retailers as they see the progress that we've made from a marketing point of view. We've gone from more static marketing to performance-based marketing. We're using technology in order to influence more cars into the parking lots. There's a number of initiatives that we've stood up over the last, I'd say, two quarters that have really enhanced our ability to drive traffic into our centers, but also give us great data and information about the tenants about the shoppers that are coming into our parking lots. And through that data, we're able to better communicate with them. We're able to convert them into Tanger Club membership, which for us is a great source of revenue, and also get them to come back and shop with us far more frequently. So, you know, I think that that marketing spend, you know, the retailers rely very heavily on the outlet developer to drive traffic. I think a lot of our big retailer partners, their advertising spend is to drive customers into their full-price venues. So it's unique in our channel that we do a lot of that advertising on the retailer's behalf to drive customers into the shopping centers. And we've got a real successful strategy that we are executing to in order to do that.

If I have one more question, maybe you talk a little bit about your lease pipeline. Do you have like a number in terms of your signs not opened or the dollar amount of revenues that you expect to come online over the next 12 months or maybe 24 months?

Hi, Forrest. This is Jim. The spread, the lease spread versus occupied spread right now is around 40 basis points.

Okay, thanks, guys.

Thank you. Next question today is coming from Caitlin Burrows from Goldman Sachs. Her line is now live.

Hi, good morning. Maybe just following up a little on that discussion you were having with Flores on the pricing. So with leasing spreads having turned positive, it sounds like you guys are more confident, which is good on the pricing side going forward. I'm wondering, given that the quoted number is showing 12 months, Could you give more color on maybe the real-time or the outlook? Do you expect rents and leasing spreads to stay in that kind of flattish range or even increase?

Hi, Caitlin. This is Jim. Yeah, we're certainly pleased with the momentum that we're seeing and the performance that we've seen here today. Obviously, that sort of played into us feeling comfortable raising our guidance. We don't really give color. We're not going to guide to the spreads, but we can just say we are very pleased with the performance we've seen year-to-date and our outlook for the rest of the year.

Okay. And then also that trailing 12-month leasing spread only includes the space that was vacant for less than 12 months. So I was wondering if you could comment on what it would be if the longer vacant spaces were included, just to get a sense of the more complete portfolio.

Again, Kayla, that's not a number we're going to provide. I think we think the better comparison to be a true comparable to the space is to do it the way we're doing on a comparable basis, and I think that's pretty consistent with how our peers do it as well.

Okay. Maybe just one then on external growth. I think in recent quarters you guys had talked about there possibly being attractive acquisition opportunities. So just wondering if you could give an update on what you're seeing on this front, if any have kind of come and you've passed, or did they not actually go through, or just anything you're seeing on the transaction side?

Yeah, we're still very heavily working on a number of different opportunities for us from an acquisition point of view. You know, we've got, of the 36 properties that we manage, six of them are JVs. We think the JV structure is a great one for us. It's been very successful for us, whether it's with our partnerships in Canada, our partnerships with Simon, or other partners that we have across the portfolio. And that's a strategy that we're pursuing right now. You know, we're hopeful in maybe the next quarter or two to talk about one specific JV that we've been working on. But unfortunately, until we have that one fully completed, we're not going to be able to share it.

Okay, thank you.

Thank you. Next question is coming from Emily Arc from Green Street. Your line is now live.

Good morning. Thank you for taking my call. Just a quick one. Would you say that the low end of your updated same-store NOI guidance still assumes roughly flat tenant sales, or has your outlook on sales for the year ahead changed?

Hi, this is Jim. When we gave our year-end guidance, we said that the bottom of the range really takes into consideration a modest decline in sales. and the upper end of our range would imply a modest increase in sales. I think what we've seen so far this year through the first quarter is sales are pretty much where we had planned them to be, so that's still the parameters that we put into our guidance.

Okay, thank you. And maybe one follow-up. You reported strong leasing activity, and there seems to be significant enthusiasm on the tenant side. What are you hearing from retailers, and is there any sort of change in tone? Are they concerned at all about the higher inflation, the higher interest rate environment, and the potential drop in consumer spending? Are they talking about potential recession?

Well, first of all, I guess what we're hearing from our retailers and what we're seeing as far as sales performance is concerned is that there's been a big shift from casual product to fashion product. And a lot of fashion brands in our portfolio have really been the overachievers in the last quarter. And we're seeing now with the ability for a lot of our other retailers to pivot, and I guess you probably read the same things we read and we read with our retailers regularly. We know that a lot of retailers are now thinking about that pivot from more casual to more dressed for work product. And that is a great driver of traffic to our shopping centers and also a great driver of sales. And with regard to any recessionary pressure that may be ahead of us, you know, again, from a company point of view, you know, anticipating some financial, you know, headwinds that would occur this year We did a number of things in our balance sheet last year in order to recast our credit lines, recast our debt stack at an all-time low coupon for us. So we think we're in pretty good shape from a balance sheet point of view. And also from a leasing strategic point of view, moving a lot of that variable rent that we saw last year into base rent was a great move for us. because it guarantees a lot more rent for us going into a possible recessionary time. I also think that a lot of the retailers in our stack are extremely professional. They're some of the best international, global, and national brands, and they've been around for quite some time. They've dealt with these cycles many times in the past, and we're very confident that our retailers will be able to weather and perform well through these times. And, you know, I think the last point is we're value-priced. And when people want to go shopping, your dollar goes a lot further in a value-priced environment, especially when you're looking for your best brands and the best logos.

Great. Thank you.

Thank you. Next question today is coming from Mike Muller from J.P. Morgan. Your line is now live.

Yeah, hi. I guess in terms of the 10% temp tenants, given the strong sales and traffic trends that you've been seeing, is it getting any easier to convert those tenants to longer-term leases?

Well, you know, temp tenants come in a bunch of different shapes and sizes. You know, I mean, I'll give you a great example because we just signed a temp tenant. There's a digitally native brand called Somersault that just took a lease with us in Myrtle Beach. This will be Somersault's – this will be their first store, let alone their first outlet store, and they're popping up in our Myrtle Beach. We call a pop-up a short-term or a short-term tenant. So we see that as a strategy to get a brand-new brand in front of our customers, give this brand an opportunity to generate new customers, and we think they'll be, as Lululemon was and as Tory Burch was, converting their pop-up stores into long-term permanent leases, we think we'll see some growth from this retailer over time. Then there's our short-term leases, which to us are tenants where we control the real estate. And I think that's really critical because in an environment where there's still occupancy opportunities in some of our shopping centers, to have a short-term tenant where we're able to control whether we can terminate those leases on a 30-day notice, 99% of these leases have that clause, it's a landlord favorable clause, that will be the lowest rent payers perhaps, but gives us the most optionality and the most flexibility to do what we need to do with our real estate. So whether that tenant is sitting next to an Under Armour as they did in the Tilton, which we need to let that short-term tenant go so we can expand the Under Armour store, we'll do our best to take that short-term tenant and replace them someplace else in our portfolio or someplace else in that shopping center where there's another vacancy. So that although we're replacing a lot of that temp tenancy with either an expanding existing or some new tenancy, as long as there's vacancy in our shopping centers, we're going to want to move that short-term tenant into the next vacant space. You know, they may not get that space that was vacated by a Wilson's or a Bass or a Dress Barn over the last two years, and they may be moving to a different part of that shopping center. But once again, it's economical for them. They want to be in the shopping center. It's low-cost space, and we're just going to continue to pop them up throughout our portfolio as that opportunity provides itself.

Got it. And then I think you made a comment about Nashville breaking ground this quarter and then opening in the fall. Can you remind me, is that a normal time frame from break ground to open, or is it a little drawn out just because of the macro environment?

It's actually drawn out because the entire property is built on rock. So, you know, typical ground breakings or shoveling dirt, we're going to be jackhammering rock. So Unfortunately, preparing the mega pad for development is going to take far longer than a standard development. I've built a lot of shopping centers over the years. They're usually in the 12 to 14 months period. This one at 16 months has to do with the condition of the property as we break ground.

That's interesting. Okay.

That was it. Thank you. Thank you. As a reminder, that's star one to be placed in the question queue. Our next question is coming from Greg McGinnis from Scotiabank. Your line is now live.

Hey, good morning, everyone. Jim, I just want to touch on guidance increase. You mentioned about one and a half cents of the raise was driven by prior period rent collections and these termination fees, which was around five cents in Q1. Could you help us understand what's baked in for the balance of the year?

Yeah, hi, Greg. Yeah, I mean, just to give you a little color, we had a handful of tenants, a really small group of tenants that were on cash bases or still kind of disputing rents back to the COVID days. We were able to settle those and collect those rents in the first quarter and reverse those reserves. Most of that was actually baked into our guidance, particularly if you think about how we get to the top of the range. Looking forward... we really have about, we've got about one other tenant that we will convert from cash basis to accrual basis in second quarter. And that'll have about a penny and a half to two pennies of share impact in second quarter. The majority of that's really restoring straight line rents. And looking after that, I mean, we'll have less than a percent of our portfolio that's on a cash basis. So I think that really kind of gets through most of the significant reserves from prior year rents. We don't see much of that going forward for the balance of the year.

Okay, thank you. And then maybe just a couple follow-ups on Nashville. How do you plan on funding that development? Can you talk about maybe investment yields that you're targeting? And then how are you controlling for increasing construction costs and supply chain headwinds, especially given the extended build-out time?

Well, I'll give you, I'll take the back half of the question. Jim can talk about how we're funding the development. But, you know, you're right about supply chain and, you know, that original construction cost has definitely had some movement. The good news is Nashville being such a hot market, our rents have also grown. So we're very confident that that sort of range we provided in quarters past with regard to yield is still intact.

As far as funding, Jim, do you want to? Yeah, sure. Greg, you know, we have $153 million of cash on the books. We have a complete undrawn credit facility, around $520 million. And also, if you look at our, we know where our payout ratio is, it's around 38% for first quarter, but I think looking ahead, we anticipate a payout ratio in the mid to low 50s. And that's generating about $60 to $70 million of excess cash flow. So we can really fund Nashville, particularly since it's got a 16-month development timeline with our internally generated cash.

Great. Well, thank you.

Thank you. Next question today is coming from Craig Schmidt from Bank of America. Your line is now live.

Thank you. Thinking again about Nashville, So how would you characterize the tenancy at Nashville versus your other Tanger centers? And, you know, what is the mix of local versus national tenants? And have you hit that 60% hurdle yet?

So I would say that we're trying to – I would say that the Nashville tenancy – and unfortunately we're not sharing our tenant names right now, but I can – I'll talk around a little bit. But – And with regard to the hurdle, let me start with that. You know, we are at our threshold that we've committed to. So we are, in fact, ready to break ground on that shopping center. But with regard to tenancy, I think local food and beverage is going to be very exciting and very needed in that shopping center. So I think that that's where a lot of that local tenancy is going to come from. And as far as will it look like another one of our shopping centers, I think it'll be a lot of the better performing tenants in our stack are tenants that have already joined us in the shopping center. And I'll give a little bit more color in the quarters to come with regard to who that full tenant base is going to be. As far as the look at the center, it'll look a lot different than most of the shopping centers that we have in our portfolio where we are going away from what was formerly a racetrack design to more of a village design that we think will be much better and much more welcoming to the community and allow us to be a gathering place for a lot of the local population that seems to be building quite rapidly in that market.

And will the Senate reflect your current thinking on non-fashion tendencies?

I'm sorry, you broke up a little bit. Will they reflect what...

You know, you're currently tamping down the fashion tenancy mix of your portfolio. I'm just wondering, are you going to bake that into your opening at Nashville? Yes. Okay, great. And then one other question. I mean, you're very active in terms of rewards programs and building up good customers. What do you do on acquiring new customers to the Tanger Outlets?

We have a couple of great strategies for acquiring new customers. I'll share a recent one with you because I think it's a great example of what we do best. Every year around Easter time, we host Tanger Style. And Tanger Style is basically the retailers offering an additional 25% off to each one of the customers that shop in the shopping center if they participate in the Tanger-style program. And that's usually two weeks before Easter, and it concludes two weeks following the Easter holiday. This year we did things a little bit differently. We offered 15 percent to all of our shoppers. We offered an additional 10 percent or 25 percent off to Tanger Club members. And the goal was not only to build up our Tanger Club base, which we think is a very important set of customers, They shop more frequently. They spend more money each time they come and visit with us. But again, it's an opportunity to acquire a new customer and get some data on a new customer. And we think that that's the most important part of our Tanger Club on a going forward basis is the personalization of how we communicate to these new customers and the value proposition that they get for being part of this Tanger Club group. Better value. exclusive offerings, such as early shopping hours, and in some instances, upfront parking, but all of the things that these customers are looking for when they shop with us in exchange for our getting more data so we can communicate to them in a more meaningful way.

Great. Thank you.

Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Mr. Tanger for any further or closing comments.

I want to take this opportunity to thank each of you for your interest in our company and your time this morning. We are very proud of our positive results and continued momentum. We look forward to providing ongoing updates on our various initiatives in the next coming months. Our team is always available for follow-up discussions, and we will be speaking with many of you at the upcoming NARIC conference. Take care and be safe. Goodbye.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.