Tanger Inc (SKT) 2009 Q4 法說會逐字稿

Good morning, and welcome to the Tanger Factory Outlet Centers fourth quarter 2009 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 trade, development, acquisition, expansion and deposition 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 those 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 and acquire properties, as well as potential tenant bankruptcies and competition.

We direct you to the Company's filing with the Securities and Exchange Commission for a detailed discussion of 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 include time-sensitive information that may be accurate only as of today's date, February 24, 2009.

At this time, all participants are in a listen-only mode.

Following management's prepared comments, the call will be opened for your questions.

On the call today will be Steven Tanger, President and Chief Executive Officer, and Frank Marchisello, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Mr.

Tanger.

Please go ahead.

Thank you, and good morning, everyone.

2009 was another very challenging and interesting year for the REIT industry and for our Company.

Through it all, Tanger was able to show a positive total return to its shareholders of over 8% for the year.

Even more importantly, however, we have had a consistent long-term track record of outperforming the market and creating value for our shareholders.

Of the 90 REIT and REOCs ranked by Morningstar and REIT Zone publications, only 46 outperformed the RMS over the trailing 10-year period ended December 31, 2009, with Tanger coming in at number five in these rankings, with an average annual return of 17.53%.

In this economic climate, consumers continue to want value when they buy brand name products, and they can find those brands at Tanger Outlet Centers coast to coast.

We believe that we are entering 2010 from a position of operational and financial strength, with the right brands at the right price points for today's consumer at our centers across the country.

I am going to turn the call over to Frank, who will take you through our financial results for the year, and then I will follow with a summary of our operating performance, our future developments and our expectations for 2010.

Thank you, Steve.

Good morning, everyone.

Total adjusted funds from operations, or FFO, for the year ended December 31, 2009 increased approximately 17% for the year, while adjusted FFO per share increased approximately 3.4% to $2.73 per share, compared to $2.64 per share last year.

The increase in total adjusted FFO per share was driven in part by same center NOI growth during the year, incremental FFO from our new wholly-owned center in Washington, Pennsylvania, and our joint venture property located in Deer Park, Long Island, New York, both of which opened during the third quarter of 2008, as well as the acquisition of our property located on Highway 17 in Myrtle Beach, South Carolina, in January of 2009.

The percentage increase in adjusted FFO per share was less that than of the total dollars of adjusted FFO, due to the issuance of 8.3 million additional common shares associated with the two successful equity transactions completed during 2009.

I would like to take a minute and summarize these two equity issuances.

On May 11, 2009 we completed an exchange offer on our 3.75% Exchangeable Notes.

In the aggregate, the exchange offer resulted in the retirement of approximately $142.3 million principal amount of the notes, and the issuance of approximately 4.9 million common shares of the Company.

Subsequently, on August 14, we completed a public offering of 3,450,000 common shares at a price of $35.50 per share, including 450,000 common shares issued and sold upon the full exercise of the underwriters' overallotment option.

The net proceeds to the Company from the offering, after deducting underwriters commissions and discounts and estimated offering expenses, were approximately $116.8 million.

We also received an upgrade in our outlook from Moody's Investor Services from Baa3 stable to Baa3 positive in September of 2009.

On a consolidated basis, our total market capitalization at year-end 2009 was approximately $2.5 billion, and our debt to total market capitalization at the end of the year was approximately 23.7%.

We also maintained a strong interest coverage ratio of over 5 to 1 for the fourth quarter of 2009.

As of year-end 2009, approximately 90% of our debt was at fixed rates, and our wholly-owned portfolio or properties was 95% unencumbered.

We also had $57.7 million outstanding on our $325 million in unsecured lines of credit, which have an interest rate ranging from 60 to 75 basis points over LIBOR.

Our balance sheet strategy has always been conservative, with a manageable debt maturity schedule.

We do not have any debt maturing during 2010.

Our FFO payout ratio for the year was approximately 56%, and our FAD payout ratio was 62%.

At these levels, our dividend is well covered.

We will continue to generate incremental cash flow over our dividend, which we plan on using to help fund our new development in Mebane, North Carolina, and to reduce amounts outstanding on our lines of credit.

I will now turn the call back over to Steve.

Thank you, Frank.

During 2009, we were able to deliver positive earnings growth, driven in part by healthy increases in rents and the execution of our long-term strategic plan by the entire Tanger Team.

As expected, same-center NOI growth for 2009 was 1.4%, on top of growing 4.1% in 2008, 5.3% in 2007, 3.1% in 2006, and 3.8% in 2005.

I am pleased to report that even in this most difficult environment, we were able to achieve positive blended rental spreads of 14.3% during 2009.

Through December 31, we have executed or in process approximately 81% of the 1,500,000 square feet of leases that came up for renewal throughout our wholly-owned portfolio during the year, with an average increase on the executed renewals of 9.7%.

Approximately 65,000 square feet of the space not renewed with the existing tenants was at our option, so that we could upgrade our co-tenancy or expand existing tenant stores at a number of locations.

Excluding this space, we actually renewed approximately 85% of the space that came up for renewal during 2009.

We also re-tenanted 305,000 square feet during the year at an increase in average base rent of 30.9% over the rent that was being paid by the previous tenant prior to their vacating the space.

This year, we have executed leases and welcomed to our portfolio 32 new tenants, including Express, Talbots, Dooney & Bourke, and QVC, just to name a few.

We have already made some progress on our 2010 renewals throughout our wholly-owned portfolio.

As of the end of January, we have obtained executed renewals and renewals in process for 564,000 square feet, or about 38% of the space coming up for renewal in 2010, with an average increase in base rental rates on the executed renewals of 8.8%.

In addition, during January 2010 we re-tenanted approximately 164,000 square feet, with an increase in average base rental rates of 22.4%.

We remain cautiously optimistic that the general economy and our tenant sales will continue to improve during 2010.

We have purposely delayed early 2010 renewals, with the expectation of better terms as the year progresses.

The overall occupancy rate for our wholly-owned, stabilized properties was 96% at the end of the year; marking the 29th consecutive year that we have achieved a year-end occupancy level of at least 95%.

Reported tenant comparable sales within our wholly-owned portfolio, excluding our centers in Foley, Alabama and our Highway 501 in Myrtle Beach, South Carolina, both of which have been going through major renovations, increased 0.6% for the rolling 12 months ended December 2009 to $339 per square foot, and increased 4.1% for the three months ended December 31, 2009.

Our average cost of occupancy for 2009 was up slightly to 8.5%, compared to 8.2% in 2008, 7.7% in 2007, and 7.4% in 2006, which means stores in Tanger centers are very profitable for our tenants.

Our low cost of occupancy for our tenants still provides us the opportunity to raise rental rates on the releasing and renewal of space.

Percentage rents, which are paid by tenants once their total sales exceed certain levels, only represented 2.5% of our total return during 2009.

In addition, no single tenant accounts for more than 8.4% of our gross leasable area, or 5.3% of our base in percentage rents.

Most of our tenants have very strong balance sheets.

We announced last quarter that we have begun construction of our center to be located in Mebane, North Carolina.

With the economy improving, this timeline has encouraged our retail partners to proceed now to sign leases, so that they can open in time for the 2010 Holiday season.

We currently have approximately 73% of the space either leased or with leases out for signature.

Our expected initial return on cost is 10% to 10.5%.

Most of the additional expense is related to the cost of soil stabilization, caused by the unusually wet weather this winter.

Tenant interest continues to be strong, and additional leasing momentum is building for this fabulous site, located on the heavily-traveled Interstate 85/40 corridor in North Carolina.

We are also in the process of building our shadow pipeline of potential new developments, should tenant demand continue to escalate.

We remain excited about the growth prospects for our industry.

In addition, we are currently underway with the demolition and redevelopment of one of our two centers in Hilton Head, South Carolina.

Upon completion, we will have turned what was a 186,500 square foot very shopper-unfriendly center, built in 1987, into a new, shopper-centric outlet center containing approximately 223,000 square feet, including four restaurant land parcels facing the highway, two of which we have already obtained signed leases from major restaurant food users.

The demolition costs, which would be expensed during 2010, amount to approximately $600,000, and the lost net operating income caused by the demolition will amount to approximately $1.4 million.

Our expected $50 million investment will create the first LEED-certified green shopping center in Beaufort County.

The new center is currently scheduled to open in the second half of 2011.

Based on our view of current market conditions, we believe our estimated diluted net income per share for 2010 will be between $0.82 and $0.92 per share, and our FFO for 2010 will between $2.57 and [$2.67] (corrected by company after the call) per share.

In our earnings guidance, we are assuming that same center NOI grows between 0.5% to 1.5%, while tenant sales will remain at the 2009 levels during 2010.

Our earnings estimates also reflect $2 million in lost net operating income and demolition costs associated with our plans to redevelop the Hilton Head, South Carolina property.

We currently expect our general and administrative expenses will average approximately $6 million per quarter, which includes incremental expenses associated with a number of long-term strategic initiatives, which we will be announcing throughout the year, as well as the compensation expense associated with the Company's multi-year performance plan.

As a result of the common equity transactions during 2009, our earnings estimate for 2010 also assumes that there will be 46.2 million diluted weighted average common shares outstanding.

Our 2010 guidance includes the full-year impact of the dilution caused by the issuance of [8.3 million] (corrected by company after the call) common shares associated with our two common share issuances during 2009.

Our earnings estimate does not include any rent termination fees, the impact of any potential refinancing transactions, the sale of any outparcels of land, or the sale or acquisition of any properties.

Our keen focus on managing our costs and expenses in 2009 has allowed us to enter 2010 from a position of strength, operationally and financially.

Our management team is ready and able to execute our strategy to maximize the profitability of every one of our assets in 2010.

Our business model remains focused and clear.

We maintain long-term, long-lasting relationships with our many tenants, and we will use our 29 years of experience to lease, market, operate and develop factory outlet shopping centers.

In these uncertain times, we are very proud of our performance in 2009.

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

These remain unprecedented times, but our Company has demonstrated its resilience and stability during a very tough year.

A recent report stated that outlet malls are becoming one of the best-performing channels in retail; and we believe that Tanger, with our broad representation and established brand name, will continue to generate solid operating results.

Before I close, I would like to take a moment and give special thanks to our entire management team and our Board of Directors for their valuable assistance in making 2009 another profitable year for our Company.

We plan to continue growing our Company and increasing our shareholder value in 2010.

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

(Operator Instructions)

Your first question comes from Quentin Velleley from Citi.

Your line is open.

Good morning, guys.

Just looking at the occupancy costs ratio at 8.2%, obviously we would expect that there's a lot of rental upsides due in the portfolio.

Could you give us some kind of insight into what -- when you are signing leases in 2009, what kind of occupancy cost ratios those new leases would have been on?

Whether they were sort of like above 10% or maybe even higher?

Good morning.

How are you today?

Good.

Thank you.

Just that clarify, the cost of occupancy in 2009 was 8.5%.

I believe you might have said 9% or something like that.

Our new leases target 10% to 11% cost of occupancy.

Our portfolio has some leases that are 10 and 15 years old.

Hence, the lower average portfolio cost of occupancy.

Got it.

And then, I think you commented on the call and in the press release on some of the increased expenses which will be associated with some of your new long-term strategic initiatives.

Is there any way you can give us some insight into what some of those initiatives might be?

Our long-term initiatives may include development, redevelopment, and acquisition of new centers, along with non-property specific activities such as IT enhancements to our centers and expanded marketing and operational plans.

Our executive leadership team along with our Board will assess these initiatives throughout the coming year, and we will announce any material developments as they come to fruition.

Okay.

And then just lastly, on the Hilton Head development, you gave us the CapEx investment and the timing.

What kind of return metrics, what kind of yield are you expecting on the project?

We are, at this point, expecting the return on Hilton Head to follow our normal criteria, which is 10% to 10.5% return on cost.

Okay.

Perfect.

Thank you.

Your next question comes from Jay Habermann from Goldman Sachs.

Your line is open.

Good morning, Steve and Frank.

Steve, you mentioned holding off some leasing in anticipation of some better deal terms in the back half of the year.

Can you give us some sense of what you are looking to see as we move into the latter half?

Well, if our expectation is correct and the economy continues to improve, consumer spending and -- consumer spending should increase along with job creation.

We are expecting that to lead to increased sales for our tenants, which will make it a win-win situation for both our Company and our tenant partners.

Our low cost of occupancy still allows us to continue to raise rents and, at the same time, continue to be a very profitable distribution channel for our customers.

Can you get a little more specific I guess in terms of -- how do you think leasing spreads first half of the year versus second half of the year will trend?

I think the first half of the year will continue as they were last year, and then during the latter part of the year, as the economy improves, we are expecting an increase in spreads.

And the occupancy, as well, are you anticipating flat for the year?

Or do you expect some modest pick-up given the brighter outlook?

I think consistent with our NOI growth, we are looking for basically flat to up 2%.

Okay.

And just stepping back now, obviously, post the Prime transaction, which will likely close in the next month or so, are you seeing other opportunities for acquisitions, or at this point are you really dedicated to focusing on the development strategy which you mentioned earlier?

Given the strength of our balance sheet and our access to capital under our lines of credit, as you know we are positioned well for opportunistic acquisitions of quality assets, should they become available at prices that will increase our shareholder value.

That said, there is not a large supply of quality outlet centers to be acquired.

Consequently, we feel that selective development, as well as organic growth throughout our existing portfolio, provide attractive opportunities for us for meaningful, accretive earnings growth.

I guess just a final question on Deer Park.

I know it is still sitting at roughly 80% to 81% occupied at this point, and I think the debt needs to be refinanced in 2011.

Would you seek to increase your ownership in that asset upon that timeframe, or are you not looking to increase your ownership stake?

I think it is premature to comment on something that's a year or so in advance.

And the Deer Park mortgage does have a one-year extension on it, as well.

Okay, thanks.

Your next question comes from Christy McElroy from UBS.

Your line is open.

Hi, good morning, guys.

Are you capitalizing any interest on Hilton Head when it goes offline?

When it becomes new development under construction, then we will look to capitalize costs on the new development, yes.

And are you -- is that capitalizing interest costs?

Yes.

And is that included in your guidance?

Yes.

And how much is that?

I couldn't tell you off the top of my head, but you can assume -- an average assumption would be, look at the amount we are going to spend and average it over probably a nine-month period and then estimate an average interest cost.

I think you can come up with something.

Okay.

And then can you provide a little more color on the percentage of tenants that you expect to return to the center once it is complete?

So what percentage of your tenants that are there are moving to that alternate location in the meantime, and then what percentage of the current tenants do you expect to return?

And then how many new tenants do you expect to sign?

Maybe a little bit more color on what exactly plan is?

We expect the tenants that were there in the past year, most of them to return.

There are some very high-profile, very high-volume tenants and we are in the process of working with them right now to execute leases in the new property.

We also are in discussions, no leases are signed, with some additional very high-profile tenants to go into this asset.

So what percentage of the new space would you say that you have under either pre-leased or Letter of Intent?

It is really premature.

We are just starting the demolition in April.

So give us another quarter or two, and we would be happy to give you benchmarks as we go along.

Okay.

Then as far as the NOI lost, can I assume that if it is $1.4 million this year and you are starting the project in April, you don't expect to complete until the second half of 2011, then it is probably another $500 million -- or, I'm sorry, $500,000 or so lost NOI in 2011?

That would be reasonable to anticipate, yes.

Okay.

And then sorry if I missed this; what was your same-store NOI growth assumption for 2010?

An increase of 0.5% to 1.5%.

Okay.

Thank you so much, guys.

Sure.

Your next question comes from Craig Schmidt of Banc of America.

Your line is open.

Good morning.

I guess returning to Deer Park, what is your game plan to increase occupancy at that project?

The first thing we are doing is continuing to drive large amounts of traffic to Deer Park.

In the first year we were pleased to welcome about 7,250,000 shopping visits in our first year in a very difficult economy.

Traffic continue to increase, and as traffic increases, sales continue to increase.

We -- I guess we picked what's the eye of the perfect storm to open in October of 2008.

So we are now seeing sales increases, the tenant community is taking notice.

We are getting Letters of Intent and executing leases now for the vacant space, and we are very excited about the future of this project.

Do you have a sense of where you might be in occupancy by year end?

I don't want to guess, Craig, but certainly probably in the mid-80s to our -- our goal would be to get in the high 80s to 90% by year end.

Thanks a lot.

The next question comes from Michael Mueller with JPMorgan.

Your line is open.

We are talking about the year-to-date renewal spreads and the new leasing spreads, were those cash spread numbers or GAAP spread numbers, the 8% and 28.8% and 22.4%?

Those are GAAP straight line numbers.

Do you have the cash numbers?

We do not.

Okay.

When we get to next year they will be in is supplement, but we don't have them for January.

Got it.

And then just following up on a prior Hilton Head question.

The $1.4 million, when is that coming out of service?

Is that pretty much out on January 1, full year, or are we going to get to May or June when construction starts, and it all of a sudden just drops off from there?

We are pretty much going to Q1 NOI from Hilton Head, and then after that it will pretty much drop off.

Okay.

Great.

Thank you.

Your next question comes from David Fick from Stifel Nicolaus.

Your line is open.

Good morning.

Steve, I know you may still be unable to stay very much about the Prime retail transaction since it isn't closed, and I am sure there were confidentialities out there, but I am wondering if there is anything you can say about the potential for that deal to end up being retraded?

Number one.

And number two, have you heard anything from tenants about a potential FTC investigation, or any calls they might have received related to that transaction?

Good morning, David.

As you know, and as you stated, we are subject to a confidentiality agreement, and unfortunately, I am not able to comment on that.

With regard to the rumors of -- that you are alluding to with the potential FTC information, I have no comment on that, either.

Okay.

Thank you.

The Texas development, anything else beyond the redevelopment you announced today?

Is there anything happening in Texas, or anything else that you might want to talk about in terms of predevelopment?

We still control that site.

We are convinced it is a viable site.

It is in close proximity to a number of regional malls, and we are working with potential JV partners to bring in some Big Box users to complement an outlet tenant strategy.

So we are still continuing to move that forward, although there is really nothing imminent there.

If -- at best, it would be a 2011 project.

Okay, great.

Thanks, Steve.

Your next question comes from Carol Kemple from Hilliard Lyons.

Your line is open.

Good morning.

What was the same-center NOI in the fourth quarter?

I believe we stated it as 0.3%.

The fourth quarter was over 4% comp NOI.

Okay.

And do you all have any thoughts on the dividend for 2010 at this point, if it will be increased or stay the same?

Our Board makes that decision, and we usually announce the Board's dividend policy for the coming year in April.

Okay.

As you know, we've successfully raised our dividend each year since we have been public since 1993.

We were one of the handful of REITs that successfully raised their dividend even last year.

So you should look for some time in April for our Board's decision.

Great.

Thank you.

Your next question comes from Rich Moore from RBC Capital Markets.

Your line is open.

Good morning, guys.

On the Hilton Head redevelopment, is that $50 million of new investment, new incremental investment over what you currently have there?

Yes.

Okay, so, Steve, is the land -- I mean the land is a certain component and I'm guessing, given it was 1987, it is not 20%, but that 10% to 10.5% yield, is that on the $50 million, plus the value of the land, whatever that is?

We have very little put in for the land.

When we purchased the portfolio, the [Charter Oaks] portfolio, five or so years ago, we attributed very little to the land there.

Okay.

Good.

I got you.

Thank you.

Then on Washington County, in leasing there, I see you guys are making some gains.

But is the tenant interest -- going forward, do you think it will continue to increase?

We are excited about the project in Washington County.

Once again, traffic increases have been great.

There is now an eight lane road in front of our site, which is a quarter mile from what will now be a full table gaming facility, one of two in the Pittsburgh market, literally across the street from us.

Sales are increasing, and we are getting great tenant interest and hope in the next couple of quarters to announce some exciting new tenants to the property that will bring our occupancy way up.

Okay.

Good.

Thank you.

Then the hotel there, is that progressing on schedule, on course with what you had anticipated?

Absolutely.

We closed on the sale of the land parcel.

They have all their permits, and they are proceeding.

Very good.

Thank you.

And then, the $0.10 range in guidance, that can't just be the same-store NOI difference; I mean, what else are you thinking in there?

I think that guidance spread is consistent with what we have done in previous years.

As the year goes on, and we have more visibility on the general economy and the sales of our tenants, we will continue to give you further guidance.

Okay.

All right.

Fair enough.

And the last thing I had, on the percentage rent side of things, even though it is small, it seemed to tick up from the fourth quarter over an increase from the third quarter would normally be.

We always expect it to be higher in the fourth quarter, but it seemed to be abnormally higher, if you will.

It there anything unusual going on in there, or was that sort of a timing thing where your tenants just hit the threshold?

Well, as we stated, sales were up about 4.3% in the fourth quarter, and that directly impacts percentage rents.

And Rich, I think to a point you are right, is that with that increase in the fourth quarter, it allowed people to hit the break point, and it probably generated more percentage rents than we had expected.

Very good.

Thank you, guys.

Your next question comes from David Lebovitz with Horizon Asset Management.

Your line is open.

Good morning.

A couple of unrelated questions, if I may.

First, very little was said about your joint venture properties.

Could you update us on those?

We have a joint venture property in Wisconsin, in Wisconsin Dells, which continue to be high occupancy.

We did discuss the Deer Park, Long Island joint venture.

So, I don't -- what other color would you like?

Basically, whether or not there is any opportunity to perhaps buy out your partner, whether or not your partner has other ventures you might want to go into with them, or you might want to invite them into with you?

Things of that nature.

We are very pleased with partner in the both ventures.

The one in Wisconsin is a local family that owned the land, and I don't believe there are many more opportunities to do development with them.

The two partners we have in Deer Park, Long Island are well-experienced, well-financed, highly-sophisticated retail -- real estate operators.

We would love to do additional deals with them.

They are close, personal friends, and from time to time we look at other opportunities.

But to date, we have not found something that works for all of us.

Also, in painting your outlook for the balance of the year, what are your major concerns that might be specific to Tanger Centers vis-a-vis thoughts about the overall economy?

Our centers participate in the overall economy, as you all know, so we have shown tremendous resilience in a terrible economy for the last year to 18 months.

Sales have continue to increase, traffic has continued to increase.

We are just being conservative because we don't know what is going to happen with the economy going forward.

We do remain cautiously optimistic, as we said, and we are proceeding accordingly, but we also are maintaining a fortress for a balance sheet in case the economy turns back down.

And lastly, are there any major retailers that you would like to have in your centers that do not exist there right now?

Sure.

There are really a lot -- there are several major retailers we would like to put into Tanger Centers, and we are in discussions with them right now, but please understand for competitive reasons, I am not going to disclose who they are.

Okay.

What about categories of retailers?

Are there any categories you feel you are under-weighted in that you prefer to increase your position with?

I think as the economy continues to improve, and we all hope it will continue to improve, and housing starts begin again or existing inventory of built houses continue to be purchased by new families creating family units, we are hoping that furniture, bedding, table-top, the categories that essentially went away when the housing bubble burst in 2007 and 2008, we would like to see them come back.

Of course, at 96% occupancy, we will have trouble finding space for them, but I think that is a category that in the next year or so will be robust.

Thank you very much.

Your next question comes from Quentin Velleley of Citi Investment Research.

Your line is open.

Manny here with Quentin.

A quick follow-up.

On Hilton Head, the $600,000 for demolition costs, how do you expect to incur that from a timing perspective?

So would that be in the second quarter or first quarter, how would that be?

It may kind of be part in the first and part in the second, to be honest with you.

So if we split it up, that is kind of reasonable?

Yes.

And then second question is on other income, do you have an idea of run rate into 2010?

Will it go back to about $2 million a quarter?

It should be fairly similar to what it was last year, taking out outparcel sales that occurred, I believe, in the third quarter.

Okay.

Thanks, guys.

(Operator Instructions)

The next question comes from Ben Yang from Keefe, Bruyette & Woods.

Your line is open.

Hi.

Good morning.

Steven, you mentioned adding 32 new tenants to the portfolio in 2009.

How many store openings did that translate into for you guys?

Ben, I don't have that off the top of my head.

We would be happy to call you back with that number.

That would be great.

And if you could, I'm curious what kind of feedback you are getting from these new retailers?

Have they expressed an interest in opening new stores, or is it still kind of in that experimentation phase for these guys?

Most of the new tenants in the Tanger portfolio have exceeded their initial plan, and are excited about the outlets as a distribution channel.

As you might imagine, we are in constant contact with them about rolling out their fine brands into the balance of our portfolio.

Great.

Thank you.

Your last question comes from Nate Isbee with Stifel Nicolaus.

Your line is open.

Good morning.

Just to clarify, on Hilton Head, when you talk about the 10% to 10.5% return on the $50 million investment, what is the pro forma NOI at the end?

Is that including the $1.4 million, or is it $6.4 million post-redo, or $5 million.

No, the existing NOI is going to go away, and the new NOI will be based on the return expectation.

Okay.

Thank you.

There are no further questions at this time.

I would to now turn the call over to Mr.

Tanger.

Please go ahead, sir.

Thank you.

We appreciate all of you participating today, and for your interest in our Company.

We are always available to answer any questions you may have.

Thank you again, and have a great day.

This concludes today's conference.

You may now disconnect.