Tanger Inc (SKT) 2010 Q3 法說會逐字稿

Good morning, my name is Andrea and I'll be your conference facilitator. At this time, I would like to welcome everyone to the Tanger Factory Outlet Centers, Inc. third quarter 2010 earnings conference call. (Operator Instructions). Thank you. I would now like to turn the call over to our presenters, Steven Tanger, President and Chief Executive Officer, Frank Marchisello, Executive Vice President and Chief Financial Officer and Mona Walsh, Assistant Vice President corporate communication. Miss Walsh, you may begin your conference.

Thank you. Good morning. This is the Tanger Factory Outlet Centers, Inc. third quarter 2010 conference call. Please note that during the 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 of 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, availability and cost of capital, the Company's on going ability to lease, develop and acquire properties as well potential tenant bankruptcies and competition. We direct to you the Company's filings 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 October 27, 2010. At this time all participants are in a listen-only mode. Following management's prepared comments the call will be opened up for your questions. I will turn the call over to Steven Tanger. Please go ahead, Steve.

Thank you, Mona, and good morning, everyone. Before we get started today I would like to acknowledge the passing of our founder, my father Stanley Tanger. Dad died last Saturday peacefully surrounded by our family including my mother, his wife of over 62 years, his three children and six grandchildren. Stanley Tanger was a dedicated family man and entrepreneur who will be remembered for his lifetime commitment to philanthropy. He was a visionary, but more than anything he was my mentor and my friend. His legacy will be carried forward by everyone at Tanger Outlet Centers, of whom he was very proud. As you can imagine, it is with mixed emotions that we conduct this call today.

Stanley Tanger never sat still and always moved forward. So it is in this spirit that we share our thoughts on our performance during the third quarter. Our operating results were strong and above plan. Same center NOI increasing by 3.6% in the third quarter and 2.4% in the first nine months of 2010. Our tenant comparable sales for the rolling 12 months ended September 30, 2010 increased 6.3% to $349 per square foot. Comparable sales for the third quarter increase 4.9%, compared to the third quarter of 2009. During the quarter we expanded our senior management team with the appointment of Thomas E. McDonough to the newly created position of Executive Vice President of Operations.

Tom brings to Tanger, nearly 30 years of REIT management, leasing, acquisitions and development experience. He has served in senior management positions at several REITs. Tom joined the Tanger management team in August and are very pleased to have him on board. We also expanded and strengthened our Board of Directors with the addition of Thomas J. Reddin of 30-year of consumer marketing and e-commerce veteran. Appointed director in July, Tom has already brought value and perspective to our board. Each year millions of shoppers across America look to Tanger Outlet Centers to receive value on all the brand name fashion and accessories they purchase for their family. Kicking off on September 15, Tanger added even more value to our consumers visits by giving them a chance to also fight breast cancer in their community.

For the 17th year, the annual Tanger style of pink campaign is providing consumers, in our 32 outlet centers across the country, the opportunity to purchase Tanger pink cards for $1 donation and receive 25% discount at participating stores. The money raised is locally donated to nearly 20 different organizations across the country through the Stanley K. Tanger breast cancer fund. Tanger's 2010 pink campaign concluded on October 25, and raised approximately $1.2 million. Since 1994, Tanger Outlet Centers has contributed more than $8.7 million to this important cause giving back and supporting the communities where we live and work. I will now turn the call over to Frank who will take you through our financial results for the quarter and than I will follow with a summary of our operating performance and current expectations for the balance of 2010.

Thank you, Steve, and good morning, everyone. Total adjusted funds from operations or FFO for nine months ended September 30, 2010, increased approximate 9.1% for the period. As expected the adjusted FFO per share decreased 3.9% to $1.96 per share compared to $2.04 per share for nine months ends September 30, 2009. The decrease in FFO per share was due to 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 on form 10K for the year ending December 31, 2009. On a consolidated basis, our total market capitalization at September 30, 2010, was approximate $2.9 billion including $609 million of debt outstanding, equating to a debt to total market capitalization of approximate 21.2%. We also maintained a strong interest coverage ratio of 4.62 times for the quarter compared to 4.63 times last year. As of September 30, 2010, approximate 91% of our debt was at fixed rates. Our only floating rate debt is the $54.8 million outstanding on our $325 million in unsecured lines of credit, which mature between June and August 2011. Following our recent senior note offering, we have no significant debt maturities until November of 2015, and June of 2020. As of September 30, our wholly-owned portfolio properties had no mortgages and was 100% unencumbered. Tanger's Board of Directors declared a dividend $0.3875 per common share for the third quarter ended September 30, payable on November 15, the share holders of record on October 29.

Tanger has paid cash dividends each quarter since becoming a publicly traded entity in 1993. Our dividend is well covered. We will generate incremental cash flow over our dividend, which we plan on using to help fund our new developments and reduce amounts outstanding on lines of credit. In addition, no single tenant accounts for more than 8.5% of our gross leasable area or 6.8% of our base and percentage rents. Most of our tenants have very strong balance sheets. Tanger's conservative approach to all aspects of our business and this approach continues to build value for our stakeholders. I'll turn the call back over to Steve. Go ahead, Steve.

Thank you, Frank. I'm very pleased to report that through the end of the quarter we continue to see positive rent spreads on the renewal and releasing of space within our portfolio. As of the end of September, we executed 358 leases totalling 1,441,000 square feet throughout our wholly-owned portfolio. New tenants to Tanger in 2010, include outstanding brands such as PS by Aeropostale, Ed Hardy, New Balance, Joseph A. Bank, Coach Men's stores, Pearly, Soma and New York and Co..

Lease renewals during the first nine months accounted for 1,014,000 square feet or about 69% of the square footage coming up for renewal during 2010, and generated an increase in average base rental rates on the executed renewals of 10.1%. In addition, during the first nine months we re-tenanted approximately 427,000 square feet with an increase in average base rental rates of 25%. Tanger's low cost of occupancy and our tenants increasing sales allow us the opportunity to continue to drive up rents, while maintaining very profitable distribution channel for our tenant partners.

As I mentioned earlier, same center NOI growth increased 2.4% for the first nine months of 2010, and 3.6% during the third quarter of 2010. Our overall occupancy rate for wholly owned stabilized properties was 98.1% at the end of the third quarter ,up from 96.9% at June 30, 2010, and 96% at year end 2009. Reported tenant comparable sales within our wholly owned portfolio, increased 6.3% for the rolling 12 months ended September 2010, to $349 per square foot. Sales for the third quarter increased 4.9% compared to the third quarter of 2009. The grand opening of our Mebane, North Carolina Outlet Center is just a week away. Scheduled for Friday November 5, our $65 million, 317,000 square foot center will open its doors just in time for the 2010, holiday season.

I'm pleased to announce that the center is now 100% leased or with leases out for signature. To name a few of the close to 80 stores that will open at this outlet center are Banana Republic Factory Store, BCBG, Carters, Coach, J Crew, Gap Outlets, Izod, Levi, Nike Factory Stores, Nine West, Oshkosh, Polo Factory Stores, QVC, Saks Fifth Avenue OFF 5TH, rue21 and Tommy Hilfiger. The Mebane Outlet Center home page has been launched on our consumer website where a complete list of stores and a center map can now be found. The entire Tanger team is looking forward to next week's ribbon-cutting ceremony which will officially open this newest addition to our portfolio properties. Our Hilton Head one center, currently in the midst of redevelopment in Buford County, South Carolina, is moving rapidly towards an expected reopening by the second half of 2011.

Hilton Head two, just down the road on 278, continues to service our customer base in this up scale tourist location as residents, tourists in the tenant community eagerly await the Hilton Head one return. Upon completion, Hilton Head one will be approximately 176,000 square feet plus four restaurant land parcels facing Highway 278. Panera Bread, Olive Garden and LongHorn Steakhouse will occupy three of these parcels. Leasing activity has been very strong with 73.4% of Hilton Head one leases signed or out for signature, up from 53.6% at the time of our last earnings call. A quick lineup of stores of our shoppers in the Hilton Head area are anxiously awaiting to open are; Brooks Brothers, Children's Place, J Crew, Jackie, Levi, Saks Fifth Avenue OFF 5TH and many more.

Our expected $50 million investment will create the first lead certificated green shopping center in Buford County. We are continuing the process of building our shadow pipeline of potential new developments in roughly 17 markets across the country. These markets are currently either underserved or not served at all by the outlet industry. We are currently leasing and developing new sites in west Phoenix, Scottsdale and the Houston markets where tenant support is keen and market potential is great. We remain very excited about the growth prospects or Company and our industry as the tenant community continues to indicate desire to expand in new markets in the United States. As we work through the negotiation with Liz Claiborne we will have a better understanding of how they plan to exit this business.

At this juncture it would premature for us to make any further announcements about sales levels, rental rates, termination fees and the like until an agreement is reached. We are delighted that Liz Claiborne decided to continue to own and operate outlet centers for their Juicy Couture, Lucky Brand Jeans, Kenzie and Kate Spade brands. With respect to earnings guidance for 2010, based on the positive trends in the third quarter and our current view of market conditions, we believe our estimated diluted net income per share for 2010 will be between $0.65 and $0.71 per share and our FFO for 2010, will be between $2.42 and $2.48 per share. 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 the dilution caused by the issuance of $8.3 million common shares in 2009 as well as issuance of $300,000 million of unsecured bonds in 2010.

Our 2010, earnings estimate do not include any additional rent termination fees, the impact of any potential future refinancing transactions, the sales of any additional outparcels of land or the sale or acquisition of properties. We plan to continue to thoughtfully use our resources and 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 in a very strong position for the balance of 2010, and the start of next year. Our tenants appear to have appropriate well-priced inventory levels in their store. They have significant positive momentum heading into the important holiday season. I'd like now to open the call for any questions. Operator?

(Operator Instructions). Your first question from the line of Krissy McElroy of UBS. Your line is open.

Good morning. Regarding the leasing that you have done this year, at what lease duration are you signing on average and what kind of rent step ups our typical as leases your signing today both for the retenanted and renewed space. Seems like the spread between the cash and GAAP is much wider on retenanted versus renewed space?

Well, we still are signing primarily five-year leases. Occasionally with good credit, high volume tenant we went to a 10-year lease and we have had that business model for many, many years. We are in the fashion business. And we want to be able with the shorter term leases to continually upgrade the portfolio with the current popular brand names and with five year leases gives us the opportunity to continue to upgrade.

And step ups typically 1%, 1 1/2% per year on average?

There is no typical. Most of the leases have interim step ups during the period of time of the initial term and renewal terms.

Right. And to your point on renewals. A lot of the renewals that we are doing still have renewals second and third renewal periods that we can not adjust, so that's why the spread between cash and straight line is less on the renewals then on the releasing.

Okay. And without commenting on the Liz Claiborne outlet stores, can you give us sense for the retailer's commitment to expand and open new stores in their other brands?

We are seeing that across the board. Their is tremendous brand leverage. As I mentioned, Coach Leatherware has now opened one of the first Coach men's store in our center Riverhead, New York. Aeropostale is expanding into PS, and on and on. The outlet distribution channel is now an important part of a business strategy when our tenants continue to expand their brands.

Okay. I guess what I'm trying to get a sense for is whether or not the retailer plans to maybe replace some of the leases on the stores that have plans to close with some of the other brands.

I don't know what you're referring to.

Okay. If they plan to close a Liz Claiborne outlet store would they open it with a Juicy, something like that.

Specifically talking about Liz Claiborne, a number of different opportunities that Liz is presenting to us. Liz Claiborne is the guarantor and signature on all of our leases and we are very comfortable with the financial positions of Liz Claiborne as the guarantor. They have presented some potential tenants in order assign the lease to them and we are analyzing that position right now. In some cases they are converting parts of the Liz Claiborne store to their other brands. As I mentioned we've got a broad portfolio with Liz in all different sizes and shapes, so their is no one cookie cutter solution.

Thank you.

Your next question from the line of Quinten Velleley of Citi. Your line is open.

Good morning. Just curious if you looked at investing into the outlet shops in Oklahoma City and whether or not that's a market you had interest in?

We are subject to confidentiality agreement so I hope you understand I'm not at liberty to comment.

And just whether or not you can give us an update on leasing at Deer Park.

We have had great succession in Deep Park since the beginning of the year. I think you can see that we are up now close to 86% leased. We have executed new leases and licenses with approximately 50,000 square feet of new tenants, including such prestige brands as Brooks Brothers, J Crew, OshKosh B'gosh, New York and Company, et cetera. We are seeing positive momentum in Deer Park. The traffic continues to build nicely. We expect in our second full year of operation to welcome 9 million shoppers to Deer Park, which is an extraordinary amount and I think overtime sales usually follow traffic so cautiously optimistic on the continued success of Deer Park.

Thank you.

Your next question comes from the line of Craig Schmidt with Bank of America Merrill Lynch. Your line is open.

First I want to express condolences to you, Steve, and the entire Tang or family with the passing of Stanley Tanger. I would say that over the years we've enjoyed Stanley's insight into the outlet industry but as well overall good humor.

That's very nice and I will pass your lovely comments on to my sisters and the rest of my family. We really appreciate that Craig.

Okay. And then moving forward, of the 17 markets that you're looking at for potential ground up development, do any of those look like they could be built in 2011 or more toward 2012?

More toward 12, 13 and 14. We are going to now focus on the three that we've announced, which is market high volume market we anticipate on interstate 45 south of Houston on the way to Galvenston and our site in Scottsdale and our site in west Phoenix.

Thank you.

Your next question from the line of Todd Thomas with Key Bank Capital Markets. Your line is open.

Hi. Good Morning. I am on with Jordan Sadler as well. I was wondering with the higher of Thomas McDonough seems like a pretty senior level addition, wondering if you could shed light for the reason bringing hum on board?

First of all, Tom is a highly skilled senior executive and delighted to have him as part of our management team. As you may recall, we had a senior executive named Al Chaffin who was with us 17 years and he retired four or five years ago and was not replaced. Also, Joseph Neiman who was our Senior VP of operations retired a year ago and was not replaced imminently. So Tom is essentially taking those two job functions and just a replacement for those two.

Okay. And just quickly on the comparable store sales, I was just wondering if you could, how did they trend through the quarter? Any discernible trend through the quarter on the months?

We are delighted that the tenant community is experiencing such great success in Tanger centers. We do not announce interim quarter results and hope you can understand that I don't want to start that trend.

Thank you.

Your next question comes from the line of Michael Mueller with JPMorgan. Your line is open.

Hi, Steve. We'd like to echo Craig's sentiments our thoughts our with you and your family, your dad was a great guy. And two questions one with respect to Deer Park. I know you talked about the progress so far. We are halfway through the fourth quarter, can you give us any insight as to should we expect to see that occupancy continue to pick up in Q4? And the second question is just thinking about the development pipeline, obviously their has been a lot of discussion about new entrance coming into the business. Are you seeing any impact what so ever a this point development yields or expected yields?

Well Deer Park, I don't want to speculate as to which tenants may or may not sign leases or move forward with us. Going into the fourth quarter most of it is set. You'll find continued leasing success as we go forward, certainly in the next 12 months. I think we announced a year or two ago during the economic conditions and remember we opened in the eye of the perfect storm in October 2008, that it would probably take us a year or two longer to stabilize that center at 90% to 95% occupancy and I believe by next year if things continue on the positive trend we'll be at probably 90% to 95% occupied. What was your second question again?

New entrants into the business. Any impact on yields?

Our development site in Mebane, North Carolina is 100% occupied and a lot of those leases were executed during the past 12 months. Our development site in Hilton Head continues to lease up and, yes, we are thoughtfully working with our tenant partners to establish rents. This remains a highly profitable distribution channel for them and our stakeholders get an appropriate return. The new sites and the new markets we have just started to lease so premature for us to say that. I will tell you though, as you can see from our positive rent spreads as they have continued as we've driven our occupancy up over 98% that these new entrants have allowed us to do that and also have been profitable for the new tenants coming into our industry.

Okay. Thank you.

Your next question comes from the line of Carol Kemple with Hilliard Lyons. Your line is open.

Good morning. On your outlets centers in Arizona and Houston that your are interested in, do you think those will be 2011 or 2012 deliveries?

I think it's realistic to expect to be 2012.

And what you have a percent or what stage of leasing you are with those centers?

We just started the early predevelopment and preleasing so it would not be appropriate. It's not a significant amount. Tenant interest is very high and in the early process of getting leases out and executed but very early.

Okay. Thank you.

Your next question from the line of David Leibowitz with Horizon Asset Management. Your line is open.

Good morning and let me add my condolences as well. Briefly, the new projects that you are speaking about, 12, 13, 14. What is the capital expenditures going to be and is that going to be funded internally and how much would you like to borrow?

We are still working on budgets as you might imagine so premature for us to say that. Keep in mind we generate an FAD or funds available for distribution between $55 million and $60 million a year. Half of that can be put forward to new development opportunities. We only have $55 million outstanding on our $325 million line of credit so we have lots of capacity to defund the development. The developments will be funded over the next two to three years. Not one big check tomorrow that's being written.

And the second weighted issue, not we said about the possibility of acquiring existing properties. Is that no longer on the table?

We thank heavens with the strength of our balance sheet right now we are in a position to be opportunistic should acquisition targets become available. The best outlet centers in the country should they become available would be very desirable and we would certainly aggressively pursue them.

What about converting a strip mall or whatever into an outlet center?

We have looked at that on and off for the past 30 years. And each of those opportunities has different reasons why they're not appropriate or the tenants have determined they are not appropriate for outlet centers. A failed regional mall or failed strip center usually has been outflanked by new properties or the demographics of the trade area have changed and our tenants don't want to go into it. The location of strip centers and the location of most malls makes them very sensitive for our brand name high quality tenants so although it would be an easy way to grow the portfolio, our tenants have not had any desire so far to go into that type of property.

Thank you very much.

Your next question comes from the line of Ben Yang with Keefe, Bruyette & Woods . Your line is open.

Hi. Good morning. Two quick questions, did you readvise your same store analyzed guidance for this year?

We raised our analyzed guidance same store analyzed guidance to roughly 2% to 2.5% based on the Q3 results up from .5 to 1.5 and partially the reason why our guidance was increased.

Okay. And second you said that at Mebane it is 100% leased and out for signature. Curious what the physical occupancy will be for that center when it opens next week?

We anticipate it will be close to 100%.

Okay. Great. That's it for me.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors.

Thank you. Just looking at the tenant allowances for this quarter the number jumped significantly from previous quarters, the square footage that has been leased is lower. Can you explain to me what's the philosophy right now on tenant allowances and what if anything created the larger amount this quarter?

The 10 allowances in the FAD calculations are when it's paid not when it's signed so not going to match up. That said, We have signed additional leases above expectations and our second generation budget has been revised upwards some from about $15 million to $18 million for the year.

So when you think about it on the first quarter per year of the lease, what's typical package to you right now?

There is no typical package. Our goal is to put the right tenants in the right spaces in our centers to produce the highest sales per square foot. There are magnet tenants which draws significant traffic and we are delighted to have them join our portfolio. But there is no typical allowance.

Thank you.

Your next question comes from the line of Rich Moore of RBC Capital Markets. Your line is open.

Hello, Steve. I want to extend our condolence on Stanley's passing. The only question I have left is on G&A it appeared a slight bit higher, anything special going on in G&A?

Nothing really. Above average legal and professional fees. The run rate for G&A will come back down in Q4, 6.2 million or so.

Thank you, guys.

(Operator Instructions). Your next question comes from the line of Nathan Isbee with Stifel Nicolaus.

I wanted to express my condolences to you and your family. As you look to capitalize on the external growth opportunities looking at 17 different sites. Could you talk about how you look at your existing portfolio and opportunities to prune sell off some of the low productivity lower quality assets?

We have always done that and as you know over the past seven, eight years we've probably sold properties. We just sold, with in the last year, our property in Commerce, Georgia, which was the first we built in 1987, 1998. We examine every one of our properties every quarter to see if we can continue to add value to them and lease them up or if it's appropriate to sell them. Not having a mortgage encumbering anything of these assets gives us the flexibility to sell. Right now we have no assets on the market to sell and very comfortable with the portfolio we have.

Okay. And when you look at the 17 sites you are looking at, is it fair to say there's more of a bias toward major metro areas versus some of the exiting assets which are in less populated areas?

We go to two type of areas. One large populated centers such as Phoenix and Houston, but also we've had tremendous success with American go-to type resorts search as Myrtle Beach and Foley, Alabama, et cetera. We are looking to resort areas and we are looking at major population centers.

Okay. Thanks.

(Operator Instructions). There are no further questions at this time. I turn the call back over to Mr. Tanger for closing remarks.

Thank you all for participating today and for your interest in the Company and your condolences on the passing of my father. Tanger is the only public REIT with a pure outlet portfolio. We have a conservatively structured balance sheet, high brand recognition and 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 US providing significant returns for our stake holders. We are always available to answer any of your questions and look forward to receiving them. Thank you and have a great day. Goodbye.

That concludes today's teleconference. You may now disconnect.