Tanger Inc.

Good morning. This is Ashley Curtis, and I would like to welcome you to the Tanger Factory Outlet Center's fourth quarter 2022 conference call. Yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation. This information is available on our investor relations website, investors.tangeroutlet.com. Please note that during the conference call, some of management's comments will be forward-looking statements that are subject to numerous risks and uncertainties, and actual results 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, poor FFO, same center net operating income, adjusted EBIT dowry, 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 February 22nd, 2023. 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 Steven Tanger, our Executive Chair, Steven Yaloff, President and Chief Executive Officer and Michael Billerman, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A. I will now turn the call over to Stephen Tanger. Please go ahead, Steve.

Good morning, and thank you for joining us for our fourth quarter and full year 2022 earnings call. The team delivered tremendous results, executing on all of our objectives, and positioning Tanger for continued growth. 2023 is a milestone year for Tanger and marks our 30th year as a public company traded on the New York Stock Exchange. I am very proud of what we have accomplished and even more excited about our future. I have the utmost confidence in the management team and the strategic direction of the company. I will now turn the call over to Steve Yaloff.

Thanks, Steve, and good morning. I'm pleased to announce another quarter of solid results, which reflects our strategy of providing curated, engaging, and value-filled experiences for our shoppers, offering a productive sales model as well as a clearance channel for our retailers, elevating and diversifying our tenancy, and delivering a platform which delivers both reliable earnings and attractive growth opportunities. We are pleased to introduce our guidance for 2023, which anticipates continued growth, taking into effect the leasing execution from last year and continued momentum, even in the face of broader macroeconomic uncertainty. And we look forward to the grand opening of our newest development in Nashville, Tennessee, expected in September. In 2022, we delivered a 5.5% increase in same center NOI, which was supported by robust leasing, strong occupancy gains, and attractive rent spreads. For the year, we executed 447 leases representing 2.1 million square feet, a 50% increase from the 1.4 million square feet executed last year. For the trailing 12 months, we realized a 10.1% blended rent spread on these leases. This includes a 28% re-tenanting and an 8.6% renewal spread, representing seven consecutive quarters of improvement for Tanger. This strong performance is the result of our ability to exercise pricing power and convert variable rent to fixed rent and is a clear demonstration of the importance that retailers place on the outlet retail distribution channel and our open-air shopping centers. Our occupancy increased by 170 basis points year over year, ending the year at 97%. But even at this high level, we have a meaningful growth opportunity as we continue to realize attractive rent spreads on both renewal and re-tenanted space and convert temporary space to long-term occupancy. Our temporary occupancy serves as an important and effective role in our overall strategy in both maintaining revenue-generating occupied space while introducing new tenants to the Tanger platform. With approximately 10% of our GLA currently occupied by short-term, pop-up, or other temporary tenancy, we have the ability to drive additional rent growth over time as a portion of these convert to longer-term leases. Beyond the numbers, the quality of our leasing activity is something I'd like to highlight. We have prioritized elevating and diversifying our brands, and since embarking on this objective two years ago, we have made tremendous progress adding new food and beverage, entertainment, home furnishing, and digitally native brands to our portfolio. With the goal of curating the best open-air environments with elevated brands, improved amenities, and best-in-class food and beverage, we are creating a more engaging experience for our shoppers who ultimately stay longer and spend more dollars at our centers. We are pleased with the quality of our tenants and the importance of the outlet channel to their operations. While we maintain a watch list, it is minimal. We proactively manage this list and work with tenants to mitigate our risk. Traffic for 2022 approached last year's levels as we anniversary strong comps for 2021. Traffic was down 50 basis points for the full year and 200 basis points for the fourth quarter, which reflects the historic winter storm that impacted much of the country in December. However, we are encouraged by current trends as we have seen an uptick in traffic post-Christmas and into the new year. Total gross sales reported by tenants in our centers remained steady to last year's levels as we faced a more promotional environment compared to last year, where we saw the benefits of a tight inventory for retailers and stimulus spending by shoppers. Our sales per square foot was roughly flat on a sequential basis at $445 per square foot. However, down slightly compared to the prior 12-month period, impacted by the change in the mix of retailers included in the comparable pool, as well as retailer expansions that occurred during the year. We are encouraged by our outlook as we start to see the benefit of our new leasing activity in the coming quarters. Our ability to help drive sales productivity is in part attributable to our enhanced performance marketing and which we continue to refine and achieve measurable results with increasingly relevant and compelling content. We continue to derive incremental value from our centers through our marketing partnerships, media platform, and sustainability efforts. Other revenues for 2022 grew 14% as local, regional, and national brands sought to gain visibility with Tanger Shoppers. We continue to build our media infrastructure and have proven its value to clients, evidenced by repeat campaigns from several national brands. We believe this is a unique revenue stream to Tanger given the scale and quality of our audience with additional runway in the years ahead. Through our sustainability initiatives, we seek to have a positive impact on the planet while driving positive returns on our investments. In August, we announced our goal to be carbon neutral by 2050 and have already achieved several milestones. These include our investment in renewable energy, recently doubling our solar infrastructure, and adding electric vehicle charging stations across our centers. We have also attained LEED Gold certification at an additional four centers. Now over 50% of our GLA is LEED certified. We continue to progress on our Nashville development, which is now over 80% lease committed. Construction is well underway and on track for grand opening in September of this year. Our anticipated stabilized yield of 7 to 7.5% remains unchanged. This center will add 290,000 square feet of GLA, tenanted with elevated national brands, best-in-class food and beverage, and entertainment concepts. Tanger Outlets Nashville will feature an updated design and layout which enables a sense of place for our shoppers, retailers, and community activations. We are encouraged by the success that we have achieved in Palm Beach, where we have rebranded the existing outlet center, Tanger Outlets Palm Beach. To date, we have realized strong tenant demand and executed robust leasing volume. We're looking forward to welcoming investors to this center during the upcoming city CEO conference in March. Looking ahead, we're well positioned for growth. Our occupancy cost ratio has increased by 50 basis points over the past year and at just 8.6% for 2022. We believe we still have significant runway to realize additional rent increases while providing tremendous value for our retailers and tenants. We have a model that generates strong free cash flow and a solid balance sheet, which provides us with the liquidity and flexibility to invest in our growth. We continue to return capital to shareholders through our well-covered and growing dividend. We are driving organic growth, unlocking additional value at our centers through redevelopments and activating other revenue opportunities while selectively pursuing external growth. Over the past two years, we have assembled an immensely talented and experienced senior management team. This team's capabilities are evident in our 2022 results, and I'm excited about the value we will continue to create in the quarters and years ahead. I'm pleased to now be turning this call over to our newest senior team member, Michael Billerman, Tanger's CFO and Chief Investment Officer. I want to thank our entire team, our shoppers, retailers, and all of our stakeholders for their continued support. I'd now like to turn the call over to Michael.

Thank you, Steve. I'm extremely excited to be part of this team and help drive value for all of our stakeholders. Today, I'm going to quickly walk through our financial results, our balance sheet position, and the guidance that we're introducing for 2023. Tanger delivered solid results for the fourth quarter and full year 2022, meeting the high end of our upwardly revised annual guidance range. Core FFO per share increased 4.4% to 47 cents for the fourth quarter and was up 4% for the year to $1.83. Sane Center NOI for the total portfolio increased 5.1% for the quarter and was up 5.5% for the year, driven by the growth in occupancy, positive rent spreads, and similar to other retail peers, some benefit from reserve reversals. The reserve reversals were included in our original guidance and largely were recorded earlier in 2022. And just as a reminder, our same center NOI is presented on a cash basis and also excludes lease termination fees. As part of our active asset management strategy in the fourth quarter, we did sell a non-core outlet center located in Blowing Rock, North Carolina for $13 million or approximately a 9% to 10% cap rate. Of note, this was our least productive center in our portfolio. We entered 2023 with a balance sheet with the liquidity and the flexibility to pursue our growth objectives. As of year end, our cash and cash equivalents and our short-term investments totaled $273 million with full availability on our 520 million unsecured lines of credit. In addition, our net debt to adjusted EBITDA RE improved to 5.1 times in 2022, down from 5.5 times in 2021, one of the lowest in the retail sector, which provides additional capacity to drive our growth while staying below our target leverage level. The weighted average rate on our debt at year-end was 3.4%. with 93% of our debt at fixed rates and a weighted average term to maturity of 5.6 years. Now, in terms of thinking about our anticipated cash moves during the year, our biggest cash expense will be funding the rest of our development in Nashville, which is set to deliver in mid-September. As of year end 2022, we had deployed nearly $36 million into the project with an additional 110 million remaining to fund at the midpoint. For recurring CapEx across our portfolio, we have earmarked 50 to $60 million this year, including our second generation tenant allowance and capital improvements. This aggregate level is anticipated to be higher in 2023 than in 2022 as we return to a more traditional pre-COVID level and embark on certain strategic center renovations. Our dividend is well covered with a low payout ratio, providing the company with additional free cash flow after dividends. As previously announced, our Board of Directors approved two dividend increases during 2022, resulting in a combined 20% increase in the annual dividend to its current annualized level of $0.88 per share. This annualized dividend equates to a current yield of nearly 5% based on the recent stock price of approximately $18. And now turning to our guidance. We are introducing FFO guidance for 2023 and expect core FFO to be in the range of $1.80 to $1.88 per share. Underpinning this guidance is SANE Center NOI growth of 2% to 4%. As I mentioned before, this range assumes no reserve reversals compared to a net $4.5 million last year, which represents approximately 150 basis points of same center growth. In addition, we're assuming a more normalized level of bad debt reserves in our numbers. We expect G&A to be in the range of 73 to 76 million as we've invested in a strong team and infrastructure. And new this year, we are also introducing guidance for interest expense and interest in other income. We are in the unique position of temporarily benefiting from rising interest rates with a cash balance that is currently larger than our variable rate debt exposure. For additional details on our key assumptions, please see our release issued last night. And now I'd like to open up the call for questions. Operator, can we please take our first question?

Certainly. As a reminder, that's star one to be placed into question queue. Our first question is coming from Todd Thomas from KeyBank Capital Markets. Your line is now live.

Hi, thanks. Good morning. Stephen, Michael, you know, I wanted to ask a little bit about investments and external growth for Tanger as operating trends have stabilized. You know, the balance sheet's in good shape with low leverage of cash, full availability on the line, and Nashville's underway, but That's really it as we see today. And as you step back and think about external growth for the company, how should we think about investing initiatives over the next one, three, or five years as we look forward?

Good morning, Todd, and thanks for the question. So the way we're looking at external growth, take a look at not only the Nashville development that we'll be delivering in September, but also take a look at the Palm Beach property that we just added to our portfolio as an incentivized management deal. And there's a number of similar structured deals that we're looking at externally. You know, we're an operating company. We're set up for best-in-class leasing, marketing, and property operations, and we plan on flexing those muscles over the next, over the coming years and quarters to We're extremely confident in the team that we've built over here and are in conversations with a number of different property types currently, primarily in the outlet or adjacent to outlet space that gives us the opportunity to leverage a lot of the business that we've done with big box food and beverage and entertainment uses and expand those uses to other properties across the country. You know, just as we were very quiet on Palm Beach and Nashville until we were ready to discuss it, we're going to remain so. But looking forward to giving you an update on that progress in the coming quarters.

Okay. And with regard to Nashville, you know, now that it's set to open in September, You know, what's the timing look like to get to that 7 to 7.5% stabilized yield? Can you talk about, you know, what the initial yield might look like in September when it opens and what the ramp will look like in terms of the timeline? And also, you know, can you help us understand that? how you'll see capitalizing interest on the project. Will it be the entire project at that time, or do you bring phases online over the course of months and quarters?

Sure, Todd. This is Doug. I'll start with your last question. It's all coming online at the same time. Capitalized interest will stop upon the opening of the center this fall. With regards to the stabilized yield, we see that happening probably two to three years in. The first year is going to be below that range. And as we strategically hold back certain spaces within the center and fill them with shorter term tenants, but we're expecting that that stabilized yield is there in year two to year three.

Any sort of sense on what the initial yield might look like early on, just so we get a sense for the model, you know, how that might trend late in 23 into 24?

Sure. It won't be very far below the yield that we've guided to, but, you know, I'd say somewhere in the sixes.

Okay. That's helpful. And if I could just sneak one last one in on the balance sheet, Michael, the $300 million of swaps where SOFR is fixed at – about 50 basis points. You know, they're not set to expire until February of next year, but, you know, any thought there or any, you know, potential strategies that we should be considering during 2023 as it pertains to that, those swaps. Thanks for that, Todd.

You know, as we think about where our balance sheet is today, we're obviously extraordinarily pleased with where it stands. with the amount of cash we have on our balance sheet, the below average leverage, and no significant maturity until 2026, outside of a JV loan that comes due this year. And so the swaps is really the only thing that's currently on the docket, as you talked about. It's not until next January until windows burn off. And obviously they can burn off and just go to floating at that point. But there's a lot of other strategies that we're going to look at overall in our balance sheet as we progress through the year and into 2024. Okay.

All right. Thank you.

Thank you. Next question today is coming from Craig Millman from Citi. Your line is now live.

Hey, good morning. Just want to circle back to the same store guidance. Michael, you kind of pointed out 150 basis point uh drag from the reserve reversals but if can you kind of give us what the assumption is for bad debt this year and maybe how that compares to 22 if you were to normalize for kind of prior period collections i'm just trying to get an apple samples um the three percent versus the five and a half you guys had in in uh 2022.

Sure, and thanks for the question, Craig. I think if you step back from it, we introduced guidance of 2% to 4% of same-store NOI growth, which, as we talked about, was on a cash basis and excludes lease termination fees. We had $4.5 million of reserve reversals last year. This year, in 2023, we don't have that. So that, if we just take that in isolation, is 150 basis points of same-store NOI. growth. Separate from that is what we would be assuming for bad debt. Now, we go back to 2022, there was a positive benefit from bad debt. I think you would probably agree, given the macroeconomic environment, we probably should not be assuming that we have positive recoveries in this environment. So our guidance, if we adjust for the reserves in that three and a half to five and a half There's a lot of different assumptions that go into that, one of which is obviously the bad debt. And we're trying to be prudent in how we're looking at that against all the other variables that's embedded in coming up with the same store in terms of our occupancy, where our spreads are, the percentage rents, our recoveries, the timing of our leasing, the role, the burden that we have from 2022. Steve talked about temp to perm conversions. There's a lot of things that go into it of which bad debt is one, and we're assuming a relatively prudent level. We're very cognizant that we do not have large exposure to some of the distressed retailers that have announced store closings and potential bankruptcies. And Steve talked about our watch list being very low at this point. Does that sort of help put some color for it?

It does, but I guess what I'm trying to get at is maybe these are two of the bigger components in isolation. I get your point that there's a bunch of moving parts, but as we think about the fact that occupancy is up year over year, so you get the benefit of better reimbursements and the incremental revenue there going from temp to perm is obviously a positive tailwind. I'm just trying to see you know, of these two, right, and, you know, everything else aside, right, because that's where the growth is, but these are sort of assumptions that are placeholders to some extent rather than kind of bottom-up analyses. So I'm just trying to get at, you know, if you were at 5.5%, you adjust to the 150, you're now at 4.5% instead of 3%, What's the net year-over-year change for bad debt? Is that four and a half now, five and a quarter? Is it five? What decel is baked in year-over-year because of just the bad debt? Then maybe some of these other things, again, you're being conservative, you may get more temp to perm done, other areas that could move it higher, because I assume we're going to be somewhat conservative with initial guidance. But just from a baseline, kind of where are we on a year-over-year decel?

You're saying conservative. We would say prudent. This is a 3.5% to up 5.5% same-store range, has different variabilities at the low and the high end. We feel 4.5% core growth, again, The reserve reversals was just money we got back from prior reserves going back to COVID days. So that's why we're really looking at this three and a half to five and a half. And we feel very good about the momentum we have in driving that above average growth relative to the retail sector. The bad debt, Craig, just given the size of our tenancy and where we are on our watch list, it's just a more normalized level embedded in our guidance. It's not something that is massive that's going to change our numbers one way or the other. It's one element in the overall pie where I would say all the things that we're doing, you look at our occupancy growth, you look at where our rent spreads are, that is really what's driving our top line overall.

So I should just assume it's not a significant drag road to the 4.5%? Yes. Okay. Um, and then separately, uh, Michael, maybe sticking with you, just kind of curious, you've been in the seat for about three months. Um, just your initial impressions going into the job. Um, you know, some of what you're seeing, some of the challenges you think you haven't had, just any, uh, any commentary would be helpful.

Um, well, thanks for that. Uh, it's day 83. I am extraordinarily excited being here. And what I find really unique is, you know, relative to my prior life, where I focused on 90 different companies, being able to take all of my time on one, you know, I certainly had an appreciation for where this company had been and where it was going. But I've gotten a much deeper appreciation for our business, our people, our our platform, and the significant growth opportunities that are in front of us. I think the biggest surprise for me has been able to get out and see a lot of our assets. So for the past three months, I've actually been able to go out and visit with our teams across the country. And that, to me, the quality, the location, the retailer interest in the assets really has been the differentiator and I'm so excited to be able to get out on the road with you and other analysts as well as the investors and really show what we have because all of the results are driven out of those local assets, and the perception, I think, is different than the reality.

Great. Thank you. Thank you. Next question today is coming from Flores Van Dyke from Compass Point. Your line is now live.

Thanks, guys. So let me start with my first question. If we can touch on the temp occupancy of 10%. You talk about this as being one of your growth drivers. Maybe if you can, you know, I was always under the impression that temp occupancy should probably be closer to 5% or in that range. What do you have baked into your numbers for 23 in terms of, you know, the temp to permanent conversion? And could you also remind us again on what kind of impact you would get from those tenants that convert from temp to occupancy in terms of NOI impact?

Sure, Floris, and thanks for the question. So we've said for at least the last six to eight quarters as we've built this field-driven company that's far less centralized and gone to a decentralized structure, giving each of our general managers the opportunity to really run the business that is their shopping center operations, we've essentially quadrupled the size of our leasing team by making everybody in the field leasing people. And for us, especially coming out of COVID a couple of years ago, losing a million square feet of retailers, we looked to the local marketplace in order to fill a lot of that space. We learned a number of things. First of all, we learned that our customer that was shopping in our outlet-focused shopping environments were looking for far more experience, amenity, food and beverage, and entertainment when they came and visited our shopping centers, a lot of which has been sourced both nationally, but also locally. A lot of that local sourcing has been developed by a lot of the people out in the field that are doing that work. We actually have a team in place now that focuses solely on taking short-term tenants or tenants that we brought in on a temporary basis to build space and keep lights on and keep the space cash flowing. It's solely focused on converting the best of breed into long-term deals. And that has been very productive for us, not only in the locations where they've originated their business, but also taking them across our portfolio where relevant. We've seen that with a lot of food and beverage, but also with specialty retail as well. And it's been a great source of temp to permanent occupancy growth for us. You know, in that same time period, we talked about temp leasing being closer to, we said above 10%. At one point, we said closer to 12%. So as that temp leasing number continues to go down, it's being replaced with permanent. And that 170 basis points of occupancy growth that we've seen year over year, there's a lot of permanent leasing embedded in that occupancy growth as well. We've also said on past calls that in many instances, some of the temp deals, which are localized deals, deals that like I said, keep lights on, but also give us the flexibility of a 30-day termination should the adjacent tenant choose to expand into that space or a new tenant want to come and fill that space. And we're seeing great growth and upside when we replace a temp tenant with a permanent tenant. We've said in some instances two, three, and four times the rent that the temp tenant is paying. So we see upside in that as well. I know one need only look at the rent spread growth that we've experienced, look at the occupancy growth that we experienced, And more importantly, look at the growth in NOI. And a lot of that is coming from some of the powerful leasing that we've done and a lot of that conversion of temporary stuff into permanent stuff.

Thanks. Just to clarify, is your attempt to perm conversion, are they included in your lease spreads or I thought they were separate?

Yeah, they are separate. My reference to the lease spreads just shows the pricing power we have in our real estate.

Got it, got it. Thank you. So my second question, I'll try to stick to two, is that the, in terms of your sales numbers, obviously they were, you know, tenant sales were down marginally flat sequentially, but down year over year. You know, in a, obviously in a, you know, inflationary environment, you know, How should people think about that and maybe also touch on, because I would have thought that including more food and beverage in your leasing and in your tenancy should potentially increase your average sales numbers. but I'm not sure what the impact of that is. And then also talk maybe about what the average dwell time is that a shopper has at your center and how that's tracked over the last year. And maybe because you would assume that adding more food and beverage and other non-apparel elements to your centers should actually increase the amount of time people spend at your properties.

Okay. Lots to unpack there, Flores. I don't even know where to start. Let's just talk about the food and beverage and the growth and dwell time because I think that that's important. And just remember, you know, in the sales per square foot number, some of that new leasing that we've done is non-comp, so it's not going to appear in that dollars per square foot number yet. I think the most important concept, particularly what we saw in 2022, and we should focus on this, is that we are in the outlet space. And a lot of the retailers, the larger retailers in our platform have said publicly that they're using the outlet space as a clearance channel and keeping a lot of their full price distribution and wholesale distribution channels a little bit cleaner, meaning that they're clearing a lot of that excess inventory through our channel. And so as we see a lot of that activity, what will ultimately happen is that an item which last year in 2021, where we saw a very non-promotional environment, particularly in the fourth quarter, where you might have sold two items for $100, we're finding across our platform that you can now get that same, you can now get three items for that same $100, or buy two and get the third free as a common promotion spent together. It gives the retailer an opportunity to clear through a lot of excess inventory, but we're not going to see a tremendous amount of sales growth, although they're able to execute to what their objective is, and that's get rid of excess inventory. Look, I would just point to the fact that a lot of those larger retailers have a number of stores within our portfolio, and we've done a tremendous amount of renewal activity over the past year, and also into this year, and our renewal spreads point to the fact that those retailers that might not have seen huge gains from a dollars per square foot point of view, but they're also willing to pay more rent to be in our shopping centers, and they're not giving up space in our shopping centers either, meaning that they see the value that outlet and the outlet channel provides, and therefore are willing to pay slightly more for that. So I think there'll be some more growth coming from that organically as we go forward. I know you asked a number of other questions in there, Floris. Can you just remind me if I've missed any?

Yeah, no, I mean, I think you've hit upon the key one. Maybe if I can just get you to give some comments. One of the things which I find very intriguing about the Outlook space is the, uh, the expansion in the U S of, of luxury tenants, uh, which have, you know, significantly higher sales, significantly higher sales also in the outlets. And, and as they expand more full price stores in the country, which is what they're doing in, in the a malls, um, they're also, they have to, they can't burn stuff anymore and, you know, for excess inventory. So, uh, they are opening when we'll be here. from others, more stores in outlets. And have you seen any of that? I know that you might not have all of the outlets suitable for that, but presumably you have a couple of them. Can you talk a little bit about that trend and what that could mean also for average tenant sales and average traffic in your centers?

Yeah, I think it'll have a positive effect on all. Obviously, we're in that game too. We're in touch with all of those retailers. We understand they're open to buy. We know where they want to open stores. And as is common practice with us over here, until a lease is executed, and in many cases until the sign is put up on the door in front of the store, we have a tendency to keep a lot of the names of tenants with whom we're doing business quiet. But that is a recent trend, one that we are very actively participating in.

Thanks, that's it for me.

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

Hi, good morning. This is Lizzie Doigen on for Craig. I wanted to ask a couple more questions about progress on Nashville. Was, I guess, the planned opening in September seems about 16 to 17 months until after this broke ground back in May. Is this in line with your expectations and the typical timeframe you anticipated? Were there any delays there just on the expected timeline there? Thanks.

Thanks for the question, Libby. No, there were no delays. In fact, we did a great job of buying steel. We did a great job of buying a lot of the long lead items. that are right now still caught up in manufacturing for other developments. And we very fortunately have a lot of those products on site. Having built a number of shopping centers in my history, a typical start to opening is about a year, 12 months to 14 months. This has taken a bit longer because, as you're probably aware, Nashville is built on solid rock, and rock remediation takes quite a bit of time. That was a big part of the lead time to getting the site prepared before we were actually ready to pour the foundations and start erecting steel and till wall, which, if you visited the site, you would see is taking place right now as we speak.

Okay, thanks. And with about $110 million remaining to fund, how should we expect the cadence of that spend to And then separately, I guess, you know, you mentioned the updated design and layout. If you could provide more details on maybe how this, you might be changing your thinking around the design of your developments now. What kind of makes Nashville more unique and different?

So first of all, a lot of our Most recent outlet developments, and I would say most recent outlet developments in the outlet space have been a racetrack design with the parking on the outside and the shopping on the inside. And that's been, for years, that's been the trend, and it's been a great model. But what we found, particularly coming out of COVID, is we've pivoted a number of our uses from less pure play outlets. to adding things like food and beverage and experiential retail and entertainment retail. We also find that the customer and the shoppers and the outlet centers, they're looking to stay longer and they're looking for more amenities. And as we provide them with a better amenitized space, what we've created in Nashville is the shopping on the outside, the parking on the inside, all surrounded by a central park, essentially. That park will be an activated community space one where our retailers will use if it's an athletic fitness brand to hold yoga or fitness. Our restaurants will activate so that they can have entertainment and experiential activations on that site as well. So we think that's kind of unique, creating that big gathering space in the middle of the shopping center. With regard to the timing on the spend, I'm going to hand that over to Michael.

Michael can take you through those numbers. Thanks, Steve. So, Lizzie, we spent $36 million to date, and we have $110 million left to spend. You should think about that radibly over the course of the year as we move into September, and that's sort of how, you know, you think about our cash balance during the year. We'll draw that down as we go.

Okay, got it. That's helpful. Thanks. And if I could, I just wanted to ask about the non-core outlet center that was sold for $13 million. What sort of indications were you seeing from the buyer's pool this past quarter, and what's the thinking around dispositions in 2023?

Just real quickly, the buyer pool for that particular shopping center was a local buyer. It was a non-core asset. It was the smallest asset in our portfolio. So it really wasn't a center that we were, we had talked about marketing that center, but it was one where local buyers came forward in order to acquire it. With regard to the other shopping centers in our portfolio, obviously for the right price, we're willing to discuss, but as you've seen our occupancy grow materially across our portfolio, all of our shopping centers continue to trend positively, cash flow positively, so we have no current plans to sell any of those shopping centers.

Great. Thanks. That's all from me.

Thank you. Next question is coming from Vince Tobone from Green Street. Your line is now live.

Hi, good morning. Could you share some color on the steps you've taken to keep same-store expense growth under 1% in 2022 despite inflation? And just kind of any color as well on expense reimbursements, which are also on the lower growth side, just whether these expense reimbursements are fixed versus variable, just some commentary around there would be helpful.

You know, our chief operating officer is on the phone, Leslie Swanson. I'm going to kind of hand this off to her and ask her to give you a quick answer on that.

You know, one of the things that we've been able to do over the last several years is convert our contracts to fixed contracts. So we've been very successful with that. We've also been able to identify revenue streams within our operating expenses that we've been able to maximize and build over the last two and a half years with this new senior management team.

So maybe just on the CAM piece, so if there are fixed reimbursements, I thought those were generally in the 3% to 4% range. But I thought for the full year 22, that revenue was under 1% growth. So is it maybe lower taxes? Is it a direct flow through? Or can you just help me understand maybe why the fixed versus variable CAM component, if you follow my questions?

Sure, Vince. This is Doug. Another component that impacts those numbers that you're looking at, there was an agreement that we did last year involving our trash pickup that took some costs out of the property operating expense, but also took a commensurate amount out of the recoveries. It's still an opportunity where we have There's some growth in that business line for us, but this was a strategic transaction to help provide a little bit of incremental income. It's a geography thing that impacted both the expense and recovery side.

Got it. Thank you. And then one more for me, just on the CapEx side. It looks like the guidance for CapEx is a little higher in 23 than it was in 22 in kind of the typical pre-COVID years. So is there anything unique about 23? Is it just getting a lot of stores open? Or maybe how should we think about CapEx over the next three or five years? Is this a level we should underwrite annually? Or is kind of the more historical levels appropriate and 23 is a little unique?

So, Vince, as we think about that total CapEx number, right, there's two components to it. It's our second generation tenant allowances and the second part being some strategic center renovations that we have targeted for this year. I think if you go back to last year, you heard us talk about having pushed some of those. We feel confident in going forward with some of those projects this year and returning to a more normalized level of renovation CapEx in our portfolio.

Got it. That's helpful. Thank you. Thanks, Vince.

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

Yeah, hi. I guess first, where does the overall mix of leases to the tenants like home, food and beverage, where it's a greater area of focus, where does that stand today compared to a few years ago?

As far as percentage, look, our reliance on apparel and footwear continues to drop as we go after different uses. Obviously, home has been a great driver for us in a number of our shopping centers where we built these, essentially built these home clusters like Riverhead and San Marcos. And we'll continue to do so. You know, entertainment uses, we're continuing to build our entertainment resource in places like Foxwoods, Savannah, and Atlantic City, where those markets definitely gain the benefit of putting those uses there. So we're going to be strategic where we place those uses. We're going to make sure that there's void in the marketplace, but there's also demand, so we'll execute accordingly. But again, the overarching strategy is to limit our reliance on certain categories that are quite high in our portfolio.

Got it. And, Michael, you guided this $5 to $7 million of interest in other income. I guess, what was that number in 22? And assuming it's part of other revenues, why just call out that part of other revenues?

So, thanks, Mike. And actually, if you look at our P&L, it's the line other income and then in brackets expense. That embeds the interest income. If you look at 2022, in that $6 million of What we determined interest and other income slash expense was the $2.4 million gain on the sale of our aircraft. So you would back that out from that number, and you get down to 3.6. In totality, we're giving you guidance of $5 to $7 million. The vast majority of that income is interest income. We talked about our current cash and cash equivalents and short-term investments. today is $273 million. That cash balance is going to come down over the course of the year as we spend money in Nashville and as we embark on our tenant allowances and our strategic center renovations. And so then we look at, okay, what interest income should we use? And we don't feel like we're smarter than the market, so we look at the forward curve and take some assumptions around the timing of our cash the yield that we're getting, and all that goes into a range of $5 to $7 million for interest and other income, which, again, will be tied to that line item in our P&L. And I should just step back. You know, we feel that the numbers we've given you in terms of our same store growth, our interest and other income, the G&A, the interest expense, if you total all those up, you should be able to attain our range. Got it. Okay. Thank you.

Thank you. Next question today is coming from Greg McGinnis from Scotiabank. Your line is now live.

Hey, good morning. Just touching on occupancy and perhaps again, depending on how you interpret the question, but what are your expectations for the cadence and trend of occupancy in 2023?

We're not guiding to occupancy, but I will tell you where our expectation based on the lease momentum. some of the executed but not yet open stores, and a lot of deals in the pipeline, we're very optimistic about our occupancy growth going into the next year.

So even beyond... Sorry, go ahead.

Greg, I was going to add, you know, the totality, we don't want to isolate just one item because what we're trying to do here is grow our NOI, drive our rents, obviously move our permanent occupancy and gain the benefits, and diversify our tenant base and leverage our balance sheet.

And Greg, one more thing to highlight. As you know, historically, the first quarter often has a little bit of a dip as there's some holiday tenants that leave and a lot of leases that carry January 31st expirations. I don't think we expect anything out of the norm this year, but don't be alarmed if there's a small pullback in the first quarter.

Okay. Yeah, I was asking more to understand if there's going to be a larger pullback to the level of temp tenants. You guys have done a nice job of getting back to pre-pandemic occupancy, so appreciate the clarity there. And then just with the expected increase in CapEx, how are you thinking about pre-cash life expectations this year?

So we don't give FAD guidance, but we give you enough of the components to try to estimate that. And so we feel good about where our underlying cash flows are and the investments that we're making. We feel very strong coming into 2023. You can see where our FAD payout ratio was in the fourth quarter at just about 60%, which I would add is below. We're in a unique position where we're offering investors a higher yield with a lower payout ratio, which is typically the inverse. So we feel good about where we stand today.

Okay. Appreciate that. Thank you.

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

Thank you for joining us today. We are looking forward to seeing many of you at several upcoming investor conferences, including hosting investor meetings tomorrow, at the 26th Annual Wells Fargo Real Estate Securities Conference in New York, and then hosting a presentation, investor meetings, and a tour of our Palm Beach Tanger Outlets at the Citi Global Property CEO Conference in early March in Florida. If you'd like to join us at any of these events or visit any of our other centers, please give Michael Billerman a call. Goodbye and have a great day.

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.