Tanger Inc (SKT) 2010 Q2 法說會逐字稿

Good morning and welcome to the Tanger Factory Outlet centers second quarter 2010 conference call.

Thank you, Amanda and good morning and welcome to the Tanger Factory Outlet Centers second quarter 2010 conference call.

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

Please note that during this call some of management's comments will be forward-looking statements, regarding the Company's property, operations, leasing, tenant sales trends, development, acquisition, 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.

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, develop and acquire 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 include time sensitive information that may be accurate only as of today's date, July 28, 2010.

At this time all participants are in listen only mode.

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

Again 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 turn the call over Steven Tanger.

Please go ahead, Steve.

Thank you, Mona and good morning, everyone.

Our operating results were strong, with adjusted funds from operation increasing by 14.2% for the first six months of 2010 and 9.1% for the second quarter.

Our Tenant partners continue to right size inventories and consumers continue to find every day value for their dollars in Tanger Outlet Centers.

Our tenant comparable sales for the rolling 12 months, ended June 30, 2010 increased 4.6% to $345 per square foot.

Comparable sales for the second quarter increased 4.8% compared to the second quarter of 2009.

Notable events occurring during second quarter include, on April 8, the approval from our Board of Directors, to increase our annual cash dividend rate from $1.53 to $1.55 per share, was announced.

This is the 17th consecutive year that we have raised our cash dividend

On May 20, Tanger received an upgrade from Moody's, from Baa3 to Baa2, becoming the only retail REIT, to receive a rating agency upgrade thus far this year.

On June 7th, we took the opportunity to further strengthen our balance sheet when we announced the closing of a $300 million senior notes transaction, which netted Tanger $295.5 million in proceeds after deducting the underwriter discount and offering expenses.

The proceeds from this offering as outlined in our press release and 8-K filing, were used retire debt maturing in 2011, to terminate related interest rate swap agreements and reduce the amounts outstanding on unsecured lines of credit.

The notes will pay interest semi-annual at a rate of 6.125% per annum and mature on June 1, 2020.

Yesterday, we announced that Board of Directors of Tanger Outlet Centers approved the expansion of our board to eight members and appointed Thomas Reddin as a new Director.

Tom brings to Tanger 30 years of consumer marketing and e-commerce background that will add immediate value and perspective to our board.

He has spent many years at the helm of divisions of iconic branded consumer product companies, such as Kraft Food, Coca-Cola USA and Lending Tree.com.

Where he coined the phrase "when the banks compete you win" and the resulting, highly successful, marketing campaign.

We are very pleased to have Tom join us on the Tanger Board of Directors.

I will now turn the call over to Frank, who will take you through our financial results for the quarter and then I'll follow with a summary of our operating performance and our current expectations for balance of 2010.

Thank you Steve and good morning everyone.

Total adjusted funds from operations or FFO for the second quarter ended June 30, 2010, increased approximately 9.1% for the period.

As expected, adjusted FFO per share decreased approximately 5.9% to $0.64 per share, compared to $0.68 per share in the 2nd quarter ended June 30, 2009.

The decrease in FFO per share was due to the issuance of $8.3 million additional common shares associated with the two successful equity transactions completed during 2009.

More information on these transactions may be found in our Form 10-K, for the year ended December 31, 2009.

On a consolidated basis our total market capitalization at June 30, 2010, was approximately $2.6 billion, including $605 million of debt outstanding, equating to a debt to total market capitalization of approximately 23.2%.

We also maintained a strong interest coverage ratio of 4.68 times for the quarter, compared to 3.98 times last year and 4.82 times last quarter.

As of June 30, 2010 approximately 91.6% of our debt was at fixed rates.

Our only floating rate debt is $50.8 million outstanding on our $325 million in unsecured lines of credit, which mature between June and August of 2011.

Our balance sheet strategy has always been conservative, following our recent senior notes offering, we have no significant debt maturities until November 2015 and June 2020.

As of June 30, our wholly-owned portfolio properties had no mortgages and was 100% unencumbered.

Our dividend is well covered.

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

In addition, no single tenant accounts for more than 8.4% of our gross leasable area, or 6.8% of our base and percentage rent.

Most of our tenants have strong balance sheets.

The conservative approach that Tanger brought to all aspects of our business, whether it be financial or development, continues to build value for our stakeholders.

I will now turn the call back over to Steve.

Go ahead Steve.

Thanks, Frank.

I'm pleased to report, that as we reach the midpoint of 2010, we continue to see positive rent spreads on the renewal and releasing of space within our portfolio.

As of the end of June, we executed 294 leases, totalling 1,222,000 square feet throughout our wholly-owned portfolio.

New tenants to Tanger in 2010, include brands such as P.S.

by Aeropostale, Ed Hardy, Naartjie, New Balance, Pampolina and Jos.

A Bank.

Lease renewals during the first six months accounted for 899,000 square feet or about 60.5% of the space coming up for renewal during 2010, and generated an increase in average base rental rates on the executed renewals of 8.7% as compared to 8.8% last quarter.

In addition, during the second quarter we re-tenanted approximately 323,000 square feet with an increase in average base rental rates of 22.4%.

Our low cost of occupancy and our tenants increasing sales allow us the opportunity to continue to drive up rents, while maintaining a very profitable distribution channel for our tenant partners.

Same center NOI growth increased 1.7% for the first six months of 2010 and 2.4% during the second quarter, compared to .7% in the first quarter of 2010.

Our overall occupancy rate for our wholly-owned stabilized properties was 96.9% at the end of the second quarter up from 94.8% at the end of March 2010, and 96.0% at year end 2009.

Reported tenant comparable sales within our wholly-owned portfolio increased 4.6% for the rolling 12 months ended June 2010, to $345 per square foot.

Sales for the second quarter increased 4.8% compared to the second quarter of 2009.

We are fast approaching the completion of construction on our new center to be located in Mebane, North Carolina, scheduled to open on November 5, in time for the 2010 holiday season.

The center is now 90.5% leased or with leases out for signature.

Tanger field personnel are now onsite in temporary headquarters trailers and the excitement continues to build throughout the state of North Carolina as we get nearer the grand opening of this fantastic $65 million, 317,000 square foot center.

Among the stores that will open at this outlet center are Saks Fifth Avenue Off 5th, Coach Factory Store, Banana Republic Factory Store, Levis, Gap Outlet, J.

Crew, BCBG, Nike, Izod, QVC, Route 21, Carters, Oshkosh B'Gosh, Nine West and Tommy Hilfiger.

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

We are also in the process of building our shadowed pipeline of potential new developments and over 17 markets across the country should tenant demand continue to escalate.

These markets are currently either under served or not served at all by the Outlet industry.

At the recent ICSC conference in May, we announced new sites that we are exploring in the west Phoenix, Scottsdale and Houston markets.

We remain excited about the growth prospects of our industry.

Demolition is now complete and the redevelopment in process at one of our two centers in Hilton Head, South Carolina.

Upon completion, Hilton Head will be approximately -- Hilton Head One will be approximately 176,000 square feet, plus four restaurant land parcels facing highway 278, two of which, we have already obtained signed leases from major restaurant food users.

The tenant community is excited about the rebuild of this center in this upscale tourist location.

Hilton Head One currently has 53.6% of it's leases signed or out for signature.

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.

Last week Liz Claiborne, Inc.

announced their plans to exit the Liz Claiborne branded outlet store concept in United States and Puerto Rico by early 2011.

Liz Claiborne has been, for the past 25 years and will remain, a valued Tanger Outlet Center business partner.

We look forward to continuing our long standing relationship with them in the future.

We will work closely with the Liz Claiborne management team to facilitate their new strategy for this brand and to provide an orderly transition of the space they occupy in our portfolio over the next 12 months.

In the past five years, we have successfully reduced our exposure to the Liz Claiborne branded outlet store foot print in our centers by approximately one-third, from 316,000 to 233,000 square feet.

Throughout our portfolio, we currently have 22 Liz Claiborne branded outlet stores, which represent approximately 2.6% of the total Tanger portfolio.

The combined annualized base and percentage rent revenue, to us, from these Liz Claiborne branded outlet stores, currently represents less than 1.5% of our total base and percentage rent revenue.

The leases -- The lease expirations range from July 2010 to August 2016.

As we work through the negotiations with Liz Claiborne, we will have a better understanding of how they plan to exit this business.

At this juncture, it would be premature for us to make any comments about sales levels, rental rates, termination fees and the like, until an agreement is reached.

We are delighted that Liz Claiborne, Inc.

has decided to continue to own and operate outlet stores, for the Juicy Couture, Lucky Brand Jeans, Kenzie and Kate Spade brands.

With respect to earnings guidance for 2010, based on our current view of market conditions and the recent bond offering, we believe our estimated diluted net income per share, for 2010 will be between $0.63 and $0.71 per share and our FFO for 2010 will be between $2.39 and $2.47 per share.

In our earnings guidance, we continue to assume, that same center NOI grows between .5% to 1.5% while tenant sales will remain constant at their current levels.

If the second quarter positive trend continues, fueled in part by higher sales productivity, we may revisit this estimate based on our third quarter results.

As a result of the two successful equity, common equity transactions during 2009, our earnings estimate for 2010 is based upon 46.2 million diluted weighted average common shares outstanding.

Our 2010 guidance includes the full year impact of dilution caused by issuance of 8.3 million common shares in 2009 as well issuance of $300 million of unsecured bonds in 2010.

Our 2010 earnings estimates do not include any additional rent termination fees, the impact any potential future refinancing transactions, the sale of any additional out parcels of land or the sale or acquisition of any properties.

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

Our solid balance sheet with no upcoming debt maturities until November 2015, and no mortgages encumbering our assets, puts us at a very strong position going into the second half of 2010.

I'd like to now open the call to any of your questions.

Operator.

(Operator Instructions).

Your first question comes from Quentin Velleley at Citibank.

Your line is open.

Good morning guys.

This is actually Manny here with Quentin.

Just had a question for you on your releasing spreads and wonder if you can give me details on why those look like year to date they are lower than they were in 2009 year to date?

It's just is a matter of which leases come up at which time.

There's not a large universe of leases that have been executed.

We continue to compound the rent increases.

We were one of the few groups, few companies in the retail world to get increases last year and the year before and we continue to get increases this year.

We were very satisfied with the increases.

Our cost of occupancy to our tenants, allows this distribution channel to be profitable, for both our company and stakeholders and for our tenant partners.

Thank you.

Can you give me an update on Deer Park, where are leasing stands there?

Right now we're at about, I think it's 84% leased.

Okay.

And I notice on your balance sheet you've now added an asset to hold for sale.

Is that the Georgia property you previously impaired?

That's correct.

That's the Commerce one property in (inaudible)

Any details on where you are in that process?

The Commerce property was sold subsequent to the end of the quarter and that has now closed.

Great.

Thank you, guys.

Your next question from Todd Thomas at KeyBanc Capital Markets .

Your line is

Hi, good morning.

I'm on with Jordan Sadler as well.

Regarding the news from Liz Claiborne, can you talk about or characterize what the backlog of demand looks like from tenants today for similar lease size spaces?

I hope you understand we are in the process of negotiating an agreement with Liz Claiborne to facilitate their new strategy to exit this distribution channel .

I would prefer not to comment any further than the prepared remarks and we will, of course, announce complete details of our agreement with Liz Claiborne and any plans to release the space that Liz Claiborne is exiting when we have more

Okay.

Understood.

I noticed in the quarter that Phillips Van Heusen store count increased pretty noticeably.

Was it a specific brand and is there more growth coming from PVH and what are your expectations there?

Phillips Van Heusen, as you may be aware, purchased Tommy Hilfiger.

So the combined Tommy Hilfiger, Phillips Van Heusen store count now is included under Phillips Van Heusen.

Okay.

And then just lastly, in terms of the monthly comparable store sales that you've received, how did they trend throughout the quarter?

Did you see any indications that they were beginning to moderate throughout the quarter from April through June?

You had in the first quarter a shift of Easter from April to March.

So we have -- we do not announce individual month trends, but anecdotally June was a very good month.

So we are seeing a positive trend.

Okay.

Thank you.

Your next question comes from Lindsay Schroll from Bank of America Merrill Lynch.

Your line is open.

Good morning.

I just wondering if you could discuss the leasing progress at Mebane in more detail for what caused the leasing to pick up so significantly between April and July, if that was in line or better than your expectations?

This is consistent with our 30-year experience.

Once we reach the threshold of 50% to start construction, the tenant community knows for certain that the shopping center will be delivered at a specific time and discussions turn into leases out for negotiation, which turn into be signed leases and this is consistent with our past experience.

Okay.

And then sticking with leasing, how has the leasing momentum in the last month or so, compared to the beginning of the year?

Have you seen retailers growing any more cautious on expansion plans or negotiating tougher deals in light of the recent macro weakness?

Well, macro weakness is, your term, I don't know what you are referring to.

In the outlet distribution channel, our sales have continued to grow.

Our tenant partners find it a profitable distribution channel.

Conversations with the senior management of our tenant partners, leaves me to believe that they will continue to grow their outlet divisions and we are in the process of announcing new sites for new developments to meet that new demand.

Okay.

And then finally given the relative strength of the outlet business during the downturn.

Are you concerned about competitors entering the outlet development business as things improve?

We've been doing this for 30 years.

We are always aware of what our competitors are saying.

This is a business that requires a special skill set of operating and marketing.

This property type which is different than other property types -- other retail property types.

We certainly welcome competition from high quality operators, because the more outlet centers with high quality tenants and well maintained and well marketed assets, provides a better presentation to all of the consumers, which we welcome.

Thank you.

Your next question comes from Steve Sakwa at SI Group.

Your line is open.

Thank You, good morning.

Steve, could you just comment a little bit more on the shadow pipe line, the 17 markets and specifically you talked about West Phoenix, Scottsdale and Houston, what do you think the timing looks like for those and how confident are you that you can begin to get shovels in the ground for delivery starting in 2012?

Hi, Steve.

We are very confident of the three sites that we mentioned.

The ones in West Phoenix, Scottsdale and Houston.

We have been visited, we have gotten early commitments and letters of intents from fabulous tenants that want to go to that market.

We are in the process and have a real estate group led by a senior manager, going to the 14 markets in addition to the two that just I mentioned, identifying sites.

We're in the process of tying those sites up and when we do they'll be announced.

I can't give you any color on our thoughts on the markets until we announce them and show our major tenants the sites, specific sites.

I can tell you, though, that the senior management of the tenants we are talking to are very excited that we are growing in this manner, with new development.

Just to kind of remind me to get, let's say, a delivery some time by the middle of 2012 or certainly open by the holiday season of 2012, kind of walk us through the timeline when you'd need to start construction and how much lead time do you have to get something that's actually deliverable in 2012.

Assuming no extraordinary permitting issues, it takes anywhere from 9 to 12 maybe 15 months to get the necessary leases signed which internally we want 50% of the space actually signed leases and all the permits in a non appealable form.

So if you want to use a midpoint about a year to do the pre development and pre leasing and than it takes anywhere from 9 to12 months to build the site, turn over tenants and get them open.

So your looking at approximately two, to two and a half year lead time.

Okay.

So just given that we are kind of in the middle of 10, and you haven't -- I mean you haven't signed anything, you might be talking to tenants.

I mean, I guess, it even possible to get one of these new sites open in calendar 2012?

We've not announced the delivery yet, Steve.

For the two sites in the Phoenix market or the site in the Houston market.

To our knowledge there are no extraordinary development issues.

We are working with our tenant partners right now to attempt to get the leases necessary to begin construction.

I would not want to speculate, but these three sites are now tied up and we have six months until the end of the year, where we are hoping to get enough leases signed to start construction.

If we start in the two sites -- the three sites I mentioned, there's a 12 month building season.

So if we can start by the first of 2011, certainly there's a chance that it will be delivered by middle part of 2012.

Okay.

Thank you.

Your next question come from Carol Kemple at Hilliard Lyons .

Your line is

Good morning.

At this point, are you seeing any impact on traffic from any of your sites, due to the oil spill?

The only site that is impacted and we really -- our hearts go out and doing what we can to help the local communities, is Foley, Alabama, which has done a lot of marketing, such as a Jimmy Buffet concert and various other events to bring people to the area to show them that business is open.

Fortunately today in the "New York Times" above the fold, are big pictures showing aerial views that the oil spill now appears to be dissipating rapidly since the last cap went on.

We have worked with a very strong local management team, that's worked with our tenants and the state and the local community to get the word out, that business is good, the beaches are good.

And unfortunately, in this month, in the month of July, traffic is down maybe 7% to 8%.

It was up -- it was flat in April and up in May.

We are down a little bit, but not as much as one might imagine.

Okay.

And then I know on the last quarter call, you all talked about how you would be interested in acquisitions, but you just didn't see anything of the quality you want on the market right now.

Is the acquisition environment basically the same?

Any changes?

There hasn't been any changes that I'm aware of.

If you know anything, please let me know.

Okay, Thanks.

Our next question comes from the line of Ben Yang at Keefe, Bruyette & Woods.

Your line is open.

Good morning.

Just curious, are the Liz Clairborne stores typically in good locations within your outlet centers?

How would you characterize, I guess, their real estate within your real estate.

It's great.

Very desirable to potential tenants?

Liz Claiborne has been a very valued business partner for 25 years.

We work closely with them over that period of time and identifying sites.

Liz's management team executed leases immediately and in a lot of our properties they have very desirable space.

Okay, It's good for you.

And then exclude the Commerce Georgia asset from the occupancy statistic.

Are you also excluding this property in sales and NOI numbers as well?

It's excluded from the comp prior year and current year numbers.

And I know it's a small project, but any idea how much that's helped the growth numbers, that you reported for the quarter?

.

Well, because we excluded it from the NOI in both the comparative period and the current period, the percent increase is actually comparable.

Okay.

Great.

Thank you.

Your next question comes from David Leibowitz from Horizon.

Your line is open.

Good morning.

A couple of unrelated items if I may.

First what percentage of your leases would you -- do you believe are below market rates at the moment?

Hi, David.

We have -- if one looks at the re-tenanted leasing spreads, although it's a relatively small amount, that's where we mark to market the assets, the space we get back.

It would be tough to guess at how much is under market, but over a period of time, because we have such large renewal with an existing -- with existing tenants and existing space, we don't get a lot of space back.

But this is a way for us to add value for our shareholders, but I can't give you a percentage.

Okay.

Also you may have touched on this but I missed it.

Did you state what percentage of your leases are up for renewal next calendar year?

In our supplement, we have a lease expiration table in 2011 that's about 17% of leasable space.

About 15% of the base rent.

And the last question, in times past, you've discussed industries that you would like to have or categories you would like to have represented, in your centers.

Have you been able to have success in attracting those particular types of tenants to your centers -- since January 1 of this year.

And are you close to perhaps adding some as this year goes forward?

We think right now there's -- if housing starts increase and families continue to buy houses, there will be more demand for furniture and table top and bedding and products like that, which went away.

We lost about half a million square feet, two to three years ago when the housing bubble burst.

We are monitoring and talking to a lot of people in those categories, and if that will build more demand.

To date we opened a Restoration Hardware, but there really have not been a lot of stores coming back from those categories.

Thank you very much.

Candidly our portfolio is 96.9% occupied.

I don't know where we would put them.

Well, everybody should have such problems.

But thank you very much.

Your next question comes from Les Gardi at RBC Capital Markets.

Your line is open.

Good morning everyone.

Who is some of the tenants looking to expand into the outlet center space, assuming there is space for them?

I hope you understand for competitive reasons, we've not announced potential new tenants coming into the market.

We would like to go ahead and get them signed up and open their first door and then announce them once the lease is signed.

Okay.

I guess on a little bit broader picture, are you seeing a lot of demand from international tenants?

We are seeing demand from international and from domestic tenants.

Virtually everybody -- in apparel and footwear, most business models today include an outlet center distribution channel .

Okay, thank you.

Your next question from the line of Michael Mueller JPMorgan.

Your line is open.

Good morning guys, it's Sarah King here for Mike.

Two questions, one is regarding Commerce One, could you give the economics around that or just any details there.

and, two, regarding the Deer Park luxury wing, any plans to change your strategy for that part of the project?

The commerce transaction was not a significant event.

I don't think we've announced the details of it.

With regard to the Deer Park collections area, which we had contemplated as a designer wing, it is anchored by Neiman-Marcus and we are in discussions with various types of tenants, some luxury very upscale tenants and some upper moderate to luxury tenants.

When we have leases signed, we will be happy to announce them.

Okay, Thank you.

(Operator Instructions) There are currently no questions in the queue.

Okay.

Thank you all for participating today and for your interest in our Company.

Tanger is the only public REIT, with a pure outlet portfolio.

We have a conservatively structured balance sheet, high brand recognition and a tenured management team.

Tanger has always had and will continue to maintain a disciplined development approach.

We currently have a strong portfolio of operating properties across the country.

As always, Frank and I will be available to answer any of your questions during the day.

Goodbye.

Thank you.

This concludes today's conference call.

You may now disconnect.