Tanger Inc (SKT) 2008 Q1 法說會逐字稿

Good morning, and welcome to the Tanger Factory Outlet Centers First Quarter 2008 Conference Call.

Please note that during this Conference Call some of management's comments will be forward-looking statements regarding the Company's property operations, leasing, tenant sales trends, development, acquisitions, expansion and disposition activities; as well as their comments regarding the Company's funds from operations, funds available for distribution, and dividends.

These forward-looking statements are subject to numerous risks and uncertainties, and actual results could differ materially from the projected, due to factors including, but not limited to -- changes in economic and real estate conditions, the availability and cost of capital, the Company's ongoing ability to lease, development in acquired properties; as well as potential tenant bankruptcies and competition.

We direct you to the Company's filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

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, including time-sensitive information, that may be accurate only as of today's date, May 1st, 2008.

(OPERATOR INSTRUCTIONS)

On the call today will be Stanley Tanger, the Company's Chairman and Chief Executive Officer; Steven Tanger, President and Chief Operating Officer; and Frank Marchisello; Executive Vice President and Chief Financial Officer.

I will now turn the call over to Stanley Tanger.

Please go ahead, sir.

Good morning, everyone, and thank you for participating on the call today.

Frank will take you through our financial results, and Steve will follow with a summary of our operating performance and future developments.

Then we'll have time for questions.

I'll now turn the call over to Frank Marchisello, please.

Thank you, Mr.

Tanger, and good morning, everyone.

Our total funds from operations available to common shareholders for the first quarter increased 7% to $22.8 million, compared to $21.3 million last year.

FFO per share also increased 7% to $0.61 per share, as compared to $0.57 per share last year.

Our year-over-year increase in FFO is the direct result of our ability to drive rental rates on renewals and re-leased space, as well as incremental revenues from our four expansion projects which opened during the fourth quarter of 2007.

Our FFO payout ratio for the quarter ended March 2008 was 59%, compared to 60% last year.

And our FAD payout ratio was 82% as compared to 97% last year.

Including the impact of the recently announced dividend increase, we currently believe that we can maintain an FFO payout ratio in the 60% range and an FAD payout ratio in the 90% range during 2008.

We will continue to invest additional dollars in capital improvements during 2008, including a $17 million reconfiguration project currently underway at our center located on Highway 501 in Myrtle Beach, South Carolina.

Excluding this reconfiguration project, our FAD payout ratio for 2008 is expected to be in the mid-70% range.

In addition, we will continue to invest in our ongoing efforts to increase occupancies at selected centers and attract new high-volume tenants to the outlet industry.

We are committed to achieving high-quality long-term earnings by consistently investing in our business.

Net income available to common shareholders for the first quarter of 2008 was $5.6 million, or $0.18 per share; as compared to net income of $1.9 million, or $0.06 per share for the first quarter of 2007.

On a consolidated basis, our total market capitalization at March 31st, 2008 was approximately $2.2 billion, and our debt-to-total market capitalization at the end of the first quarter was approximately 32.4%.

We also maintained a strong interest coverage ratio of 3.43 times for the first quarter of 2008.

We have now successfully increased our unsecured lines of credit capacity by over 62%, from $200 million to $325 million.

On February 15th , 2008, we repaid our $100 million of unsecured senior notes, which had a coupon rate of 9-1/8 %.

We repaid them with amounts available under our unsecured lines of credit, which bear interest at the rate of 75 basis points over the 30-day LIBOR interest rate.

On July 10th, 2008, our only remaining mortgage loan, which has a principal balance of $171.7 million and bears interest at a rate of 6.59%, will become payable at our option.

We are currently analyzing a number of refinancing options with respect to this mortgage, and we should be in a position to announce our intentions sometime prior to the end of the second quarter.

A strong balance sheet is a strategic advantage and will protect our franchise, especially in turbulent market conditions like these.

No matter what happens in the economy, we want to have access to capital, liquidity, and the overall strength to continue to invest wisely in our business.

I'll now turn the call over to Steve

Thank you, Frank.

And good morning, everyone.

The outlet industry continues to be a profitable channel of distribution for our tenants.

And we're excited to be a major player in a growing industry.

Continuing to build off the positive trends of the last couple of years, we had an outstanding first quarter in 2008.

Once again, our shareholders have been rewarded with a 5.6% increase in our common dividend, from $1.44 per share to $1.52 per share, which was announced on April 10th of this year.

This marks the 15th consecutive year we have increased our dividend since becoming a public company in May 1993.

In the past for years, we have raised our dividend almost 24%.

During that time, our shareholders have received a total return on their investment in Tanger of approximately 245%.

From an operational standpoint, we had an exceptional first quarter.

I'm pleased to report that the robust rent spreads we achieved the last few years have continued into 2008.

As of March 31st, we have executed or [in process] approximately 67% of the square feet associated with leases that come up for renewal throughout our wholly owned portfolio this year.

We have achieved an average increase on the executed renewals of 17.9% on a straight-line basis, compared to 13.3% last year.

Over 279,000 square feet was re-tenanted during the first quarter 2008, producing an increase in average base rent on a straight-line basis of 41.7% over the rent that was being paid by the previous tenant prior to vacating their space, compared to an increase of 37.4% last year.

Leases entered into 10 to 15 years ago are coming to the end of their term.

The fundamental metrics of our business remain strong.

The successful remerchandising strategy implemented in the past five to six years has dramatically increased sales and now, together with our relatively low cost of occupancy, allows us the opportunity to mark our assets to current market, with substantially higher rents.

The scarcity of this type of quality asset gives us the opportunity to add value for our stakeholders and our tenants.

Our leasing momentum remains strong, with tenants on waiting lists for several of our properties.

Same-center NOI growth during the quarter was 5.7%, compared to 3% during the first quarter of 2007.

The occupancy rate for our wholly owned stabilized properties was 95.2% at the end of the first quarter of 2008, up from 95.1% last year.

This is exceptional, given the fact that we have recaptured 38 stores that were occupied by six tenants in the first quarter, representing a gross leasable area of approximately 236,000 square feet, or 2.8% of our wholly owned portfolio.

Sales for these tenants averaged only $167 per square foot, with an average base rent of about $16 per square foot.

We believe this space can be re-leased to better tenants at much higher rental rates.

Approximately 26% of this space has already been re-leased at base rents 60% higher than the $16 average rent being paid by the previous tenants.

It is our goal to have most of the remaining space re-leased by the end of this year.

There have been many articles written about the pending retail bankruptcies and store closures.

Because the majority of our tenants are brand-name retailers and manufacturers, many of which are listed on public stock exchanges, we do not have the bankruptcy risks that other retail formats may have.

In fact, we have only had one tenant, the Disney Store, file for bankruptcy since the first of the year.

As reported in the Wall Street Journal yesterday, many of the companies announcing store closures are actually closing their full-price stores and leaving their outlet stores in place or opening new outlets.

In fact, the majority of our tenants have in their 2008 plan to increase the number of outlet stores in their portfolio.

Outlet stores remain a very profitable channel of distribution for our tenants.

Outlet centers represent an attractive, defensive property type and growth opportunity during an economic slowdown.

While not immune from effects of the slowing economy or possible recession, Tanger enters this environment with high occupancy, many long-term leases ending with below-market rents, and a strong balance sheet.

We continue to be comfortable with our comp center NOI growth assumption of 4% this year.

With respect to tenant productivity -- reported tenant comparable sales within our wholly owned portfolio increased 3.5% for the rolling three months ended March 2008 compared to March 2007, with sales for the rolling 12 months ending March 31st [were] $343 per square foot.

As most of you know, the majority of our centers are located in areas that attract domestic tourists.

We have not benefited materially from the extraordinary sales volume generated by international tourists.

Turning to our development pipeline -- construction at our site in Washington County south of Pittsburgh continued during the first quarter of this year.

We have signed leases for approximately 74% of the 370,000-square feet first phase, with an additional 8% under negotiation or out for signature.

We are still targeting a second quarter 2008 turnover to tenants, with a grand opening planned around Labor Day.

When the center celebrates its grand opening, we expect to have about 90% of the space leased.

Bass Pro Shops has closed on the acquisition of two parcels of their development site adjacent to our center and appeared to be moving forward with the development of their property.

As for our new development site in Deer Park on Long Island, New York -- site work and construction continues on an initial phase that will contain approximately 682,000 square feet.

Currently, we have 53 signed leases for approximately 58% of the first phase, with an additional 23 leases or 17% of the space under negotiation or out for signature.

We are committed to the environment and pleased to report that the Tanger Outlet Center in Deer Park will be the first LEED-certified shopping center on Long Island.

In developing this property, we adhere to the most stringent guidelines.

We are currently planning a second quarter 2008 turnover to tenants, with a grand opening planned in October of this year.

We have signed options for new development sites in Mebane, North Carolina; Port St.

Lucie, Florida and Irving, Texas.

Initial reaction to these sites from our magnet tenant has been positive.

However, we are still in the early due diligence study periods on all these sites.

We also have several target markets in our shadow pipeline and plan to announce one additional new site this year.

Our goal is to deliver at least two new centers in each of the next three to five years.

We have been managing the risks associated with development for the past 27 years.

It takes about two to three years to get all the permits and 50% of the leases signed for us to buy the property and start construction.

Though mindful of the current economic environment, we are long-term optimists about the future of the U.S.

economy and our company.

Our solid balance sheet should allow us to fund our healthy development pipeline and drive good, strong growth in our business for years to come.

Based on our internal budgeting process, our review of current market conditions and the strength and stability of our core portfolio, we are maintaining our estimated diluted net income-per-share guidance for 2008 of $0.93 to $1.01 per share and our FFO guidance for 2008 of $2.60 to $2.68 per share.

Our guidance range reflects the uncertainty that continues to exist in the credit markets, as well as other variables, such as the expected lead time necessary to re-lease the space vacated by certain tenants during January of this year, our projected opening dates for our two new centers, as well as the overall sales productivity of our tenants.

That said, the midpoint of this range represents an increase in FFO over the prior year of approximately 6.5%.

We plan to continue to thoughtfully use our resources and to maintain a conservative financial position.

Our solid balance sheet allows us to fund our healthy development pipeline and to grow accretively.

We are very excited about the execution of our strategy by our team to maximize revenue from our assets in 2008.

We have not only worked hard to instill management discipline, but we have also spent considerable time and resources developing a strong foundation for long-term growth.

There is no substitute for good judgment and strong oversight.

With that, we would be happy to answer any questions you may have.

(OPERATOR INSTRUCTIONS) Michael Bilerman, Citi.

Hi, guys, it's [Menni] here, with Michael and [Ambica].

First question I had for you is -- it looked like your total pre-leasing, including under-contract and out for signature at Pittsburgh, dropped from 4Q.

Was wondering if you can give some details on maybe who fell out, and why.

I don't think your information is accurate.

Frank is just checking from the fourth quarter.

We have additional signed leases and additional out for signature; I don't think you're correct.

Okay.

The Irving -- the options you have on the Irving land -- could you give some more color on those options -- how easy it would be for you guys to back out?

And also any concerns about competing centers in the area?

the option is merely an option to buy the land, subject to our due diligence.

We have the ability, should we not be satisfied with our due diligence, to cancel the option and not develop the site.

There are competing sites, as there always are.

And that's just part of the development process of which we've dealt with for the past 27 years.

The comp sales were up a strong 3.5%.

What regions were the major drivers of that?

We're seeing sales basically in the tourist areas, and our sites in Texas and in New England have done very well.

Those are the two primary -- and also we have a site in California which is doing well.

And then my final question is -- it looks like your percentage rents were a little bit low.

Any particular reason for that?

On percentage rents, they were less than last year, mainly because when we do renew leases -- and we have gotten substantial increases in base rental and on renewals -- oftentimes, the bright point for percentage rent also goes up.

So what we've done is we've swapped, if you will, a contractual fixed rent amount for a variable percentage rent amount.

And I think we're happy to do that; it takes some of the risk out.

Ultimately, the sales of the tenant whose breakpoint increased will go up, and they will eventually be in percentage rent again.

It's really just a swap, if you will, in the short term of a variable-rate rent to a fixed-rate rent.

And was any of that related to the tenants that closed?

Were any of them on percentage rents only?

The tenants that closed -- I don't believe they would have been in percentage rent, given the average of their sales.

Their sales only averaged $167 per square foot.

Thanks, guys.

(OPERATOR INSTRUCTIONS) Jonathan Habermann; Goldman Sachs.

Hey, guys, it's [Johanne Hemode] here with Jay Habermann.

Just on the 38 stores that you recaptured during the first quarter -- just looking to get some color on the new rates you're seeing, and maybe a sense of what retailers are thinking of in terms of expansion plans, given an obviously modest growth in retail sales in the quarter.

As we announced during our prepared remarks, we have re-leased 26% of the space at an average increase of about 60% over the prior tenant's rent.

So I think that's the answer to your first question.

Second question I believe we also answered.

We are not seeing any slowdown yet, and really don't have any indication that one's coming, in the velocity of new tenants coming into the outlet industry and the existing tenants opening stores.

If you read the very positive article yesterday in the Wall Street Journal about the outlet distribution channel, you will have seen that some of the stores mentioned are now opening outlet stores for the first time.

And other stores mentioned are closing full-price stores and continuing to open outlet stores.

Okay, great, thanks.

So the outlets continue to be a very profitable -- or for some companies, the most profitable -- channel of distribution.

Okay.

And then just as a follow-up -- on your leasing, and how progress is going with your Pittsburgh and Deer Park projects, could you provide some color on that, and also whether you are still targeting a September-October store opening?

Well, again, in Pittsburgh, in the prepared remarks, we did mention that we are still anticipating second-quarter turnover, and we have a grand opening planned in October.

That has not changed.

I don't know what you mean by color on Pittsburgh; we've given you the number of leases in percentage that are signed and out for signature.

Okay, great, thank you.

[Nathan Isbee, Stifel Nicolaus].

Hi, good morning.

Morning.

Just following up on the Deer Park -- seems to have remained -- the total leasing and leases out for signature remained firm, at about 75%.

If you can talk a little bit about what might be slower there than you had expected, if it is, and what types of tenants you would have imagined -- you were envisioning for -- you are envisioning for the remaining 25% that is still not signed?

Good morning, Nate.

We have a total of 76 leases either signed or out for signature in Deer Park, totaling in excess of 500,000 square feet.

As you know, that's significantly larger than the average size of a first phase of a Tanger Center.

Right.

We are -- pardon me?

No, no.

We are in various stages of negotiating with tenants to go in our designer wing.

Unfortunately, there is an analyst report out there with information that was not discussed with us prior to the report, that may not be correct.

We are negotiating with some unique tenants that will provide unique shopping experiences for this property.

And we are also in discussions with several upscale designer brands that usually come into a property or sign leases at the very end of the process right before they're ready to open.

So --

Okay.

Can you set the record straight -- where do you expect that wing to open?

You mean --

In terms of occupancy.

Right now, the wing has about 117,000 square feet, which represents 12% of the entire shopping center.

Of that, approximately 36,000 square feet is signed.

And that leaves about 81,000 square feet, or about maybe 11% of the shopping center, that is to be leased.

We expect that those will be leased, or a large percentage of that will be leased, by the time we open in October.

Okay, thank you.

Are you getting pushback from tenants, given the proximity to Riverside and Woodbury?

We are not getting pushback -- it's Riverhead, not Riverside.

Right.

But we are not getting pushback from tenants that are in Riverhead going into Deer Park.

And there will be numerous tenants in both properties.

They are two separate markets.

Long Island is one of the largest markets and one of the highest demographic profiles in the country, and certainly can support two outlet centers.

This is 35 miles from Riverhead and 35 miles from Manhattan -- totally different marketplaces.

And as a matter of fact, people are very excited to go into both properties.

Okay.

And how about Woodbury?

Is it safe to say that you will see tenants who are in both properties?

Oh, absolutely.

Woodbury Commons is one of the most productive, best outlet centers in the world.

It's located about 55, 60 miles north of Manhattan.

Deer Park is located about 35 miles due east of Manhattan.

Yes.

So if one were to drive, it's about a 90-mile drive.

But I'm sure you know, being familiar with New York, that 90 miles can take anywhere from two to four hours, depending on traffic.

Full day.

Full day.

So they are again two separate markets.

And Woodbury will continue to do well, and Deer Park will do well, and Riverhead will do well.

Okay.

And just one follow-up -- what are you assuming for same-store NOI in your guidance?

4%.

Okay, so based on the 5.7 in the first quarter, that would seem to imply you're expecting some sort of -- not a decline, but a moderation in the growth in the coming quarters?

And what would be causing that, especially given the -- as you lease up at 236,000 square feet?

There are a lot of macro environmental uncertainties out of our control, most of which you're certainly familiar with.

We remain comfortable with 4% after only one quarter productivity.

If our visibility towards the end of the year changes in the next couple of quarters, of course we'll adjust our guidance.

Okay, thank you so much.

(OPERATOR INSTRUCTIONS) Michael Bilerman, Citi.

Had just one quick follow-up.

Have you seen any of the bigger mainstream luxury retailers, like the [Allfests] or the [Rack's], looking to open your existing centers rather than just your new developments?

I think you broke up on the last part of your question.

Have you seen those stores coming to your existing centers, rather than just your new developments?

We are talking with the retailers you mentioned about both going to our existing properties and to our new properties.

Thank you.

(OPERATOR INSTRUCTIONS)

At this time, there are no further questions.

Thank you for your continued interest in our company.

Steve, Frank and I are always available to answer any of your questions you may have.

Thank you again.

Have a great day.

This concludes today's Tanger Factory Outlet Centers First Quarter 2008 Conference Call.

You may now disconnect.