Tanger Inc (SKT) 2012 Q2 法說會逐字稿

Good morning. I'm Cindy Holt, VP, Finance and IR, and I would like to welcome you to the Tanger Factory Outlet Centers' second quarter 2012 conference call. Yesterday we issued our earnings release, as well as our supplemental information package, and our investor presentation. This information is available on our website under the IR tab.

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 activity, 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 ability to lease, development, and acquire properties, as well as potential tenant bankruptcies and competition. We direct you to the Company's filings with the Securities & Exchange Commission for a detailed discussion of the risks and uncertainties.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the comparable GAAP financial measures are included in our earnings release and in our supplemental information.

This call is being recorded for rebroadcast for a period of time in the future. As such, it is important to note that management's comments include time-sensitive information that may be accurate only as of today's date, August 1, 2012.

(Operator instructions.) We ask that you limit your questions to two so that we will have the opportunity to address all callers. We will address additional questions as time permits, so you may re-enter the queue after your initial two questions.

On this call today will be Steven Tanger, President and CEO, and Frank Marchisello, EVP and CFO. I will now turn the call over to Steven Tanger. Please go ahead, Steve.

Thank you, Cindy, and good morning, everyone. Our ability to successfully increase rental rates resulted in strong same-center net operating income growth of 7% in the second quarter of 2012. This marks the 30th consecutive quarter of positive same-center NOI growth, dating back to when we first began reporting this metric in 2005.

Comparable traffic for the six months ended June 30, 2012 was up over 4%, marking the fifth consecutive year of positive traffic comps. Tenant comparable sales for the rolling 12 months ended June 30, 2012 increased 3.9% to $375 per square foot. Continued positive comparable tenant sales have allowed us to achieve a blended increase in rents of 23.7% in the first half of 2012. Our low cost of occupancy, which was 8.4% at the end of 2011, and increasing tenant sales should allow us to capture significant embedded value in our portfolio over time while maintaining a very profitable distribution channel for our tenants.

Many of you want to learn more about the progress we are making on the two Tanger Outlet Centers currently under construction, our domestic development pipeline and our Canadian expansion plans through the co-ownership agreement with RioCan Real Estate Investment Trust. Later in the call, I will address these topics, along with a summary of our operating performance and our current expectations for the balance of the year. But first, let me turn the call over to Frank, who will take you through our financial results for the six months ended June 30, 2012. Please go ahead, Frank.

Thank you, Steve, and good morning, everyone. Total funds from operations, or FFO, for the quarter ended June 30, 2012 increased 30.4% to $38.6 million compared to $29.6 million last year. Adjusted FFO per share increased 18.2% to $0.39 per share from $0.33 per share for the second quarter of last year and met the Street's consensus expectations. This year-over-year increase in AFFO per share is a direct result of our ability to continue to drive rental rates and same-center NOI growth, as well as the accretive impact of the acquisitions made during 2011.

On a consolidated basis, our total market capitalization at June 30, 2012 was approximately $4.2 billion, up from $3.4 billion last year. Our debt to total market capitalization was approximately 25% at June 30, 2012 compared to 26.2% last year. We also maintained a very strong interest coverage ratio of 4.08 times for the quarter.

As of June 30, 2012, approximately 63% of our debt was at fixed rates. Our balance sheet strategy continues to be conservative, targeting minimal use of secured financing and a manageable schedule of debt maturities.

The dividend continues to be well covered. Our 2012 FAD payout ratio is expected to be less than 60%, generating significant incremental cash flow over our dividends, which will be used to help fund our new developments or to reduce amounts outstanding on our lines of credit. We strive to maintain a conservative approach to every aspect of our business, which [has] built, and we believe will continue to build, value for all of our stakeholders over time.

I'll now turn it back over to Steve.

Thanks, Frank. I'm pleased to report that the positive leasing momentum from the first quarter continued through the first half of the year, with this quarter's leasing spread surpassing our first quarter results. Through mid-year, we have produced significantly increased rent spreads on the renewal and releasing of space throughout our consolidated portfolio.

As of June 30, we have executed 334 leases totaling 1,508,000, with a blended average increase in rental rates of 23.7%. We have executed renewals and renewals in process for 1,361,000, or about 74.9% of the space coming up for renewal in 2012, yielding an increase in average base rental rates on the executed renewals of 14.7% on top of the 14.9% increase in average base rental rates reported during the first six months of 2011.

In addition, during the first half of 2012, we re-tenanted approximately 319,000 square feet, with an increase in average base rental rates of 54.5%, up from 51.5% for the first half of 2011. Excellent leasing spreads like these, together with contractually embedded rental increases, have again resulted in outstanding same-center net operating income growth through the first half of 2012. Same-center net operating growth during the second quarter was 7% compared to 3.8% in the second quarter of last year.

For the first half of 2012, same-center net operating income growth was 6.9% on top of the 4.9% increase we reported for the first half of 2011. Overall occupancy for our consolidated stabilized portfolio was high for both periods, up 20 basis points year-over-year to 98%.

Increasing tenant comparable sales continued in 2012, with a 3.9% gain for the 12 months ended June 30, 2012 compared to the 12 months ended June 30, 2011. Tenant comparable sales for the quarter ended June 30 increased 2.5%.

There is high demand for space in Tanger Centers and virtually no excess supply. Tanger's low cost of occupancy and our tenants' increasing sales have allowed us the opportunity to continue to drive up rents while maintaining a very profitable distribution channel for our tenant partners. Consequently, we anticipate that demand for space and favorable rents will continue as our properties continue to perform well.

Our development pipeline is robust in both the United States and Canada. We expect to deliver the newest Tanger Outlet Center to tenants and shoppers on October 19, 2012 in Texas City, Texas. Located in the Houston market, the project is being developed through a joint venture and will offer over 85 brand-name outlets and designer stores in the first phase of approximately 350,000 square feet.

There is ample room for expansion of the Center for a total buildout of approximately 470,000 square feet. Tenant interest for the project is strong, with tenant commitments for approximately 97% of the space. We currently expect the Center will be fully leased at opening. The tenant lineup for phase one will include American Eagle, Banana Republic, Brooks Brothers, Coach, Columbia, Gap, J. Crew, Kenneth Cole, Levi's, Michael Kors, Nike, Nine West, Puma, Sketchers, Under Armour, and many, many more.

This site is just 30 miles south of Houston and 20 miles north of Galveston, along the highly traveled Interstate 45. The Center should benefit from the resident population of Houston, the fourth largest city in the United States, and from tourists visiting Galveston beaches and resorts, which attract over five million visitors each year.

Close on the heels of this exciting new development in Texas, the grand opening of Tanger Outlets Westgate is scheduled for November 15, 2012 in Glendale, Arizona, just in time for the holiday shopping season. The site is located just off I-10 on the Loop 101 and Glendale Avenue, adjacent to Westgate City Center, Jobing.com Arena, University of Phoenix stadium, and the Renaissance Hotel and Convention Center.

We are developing the project through a joint venture. Our tenants have expressed interest in this 330,000 square feet project as evidenced by strong pre-leasing, with signed leases and commitments for approximately 76% of the space. Currently, we expect the Center will be more than 90% leased at opening. The tenant lineup will feature some 80 brand-name designer outlets and outlet stores, including American Eagle, Banana Republic, Brooks Brothers, Charlotte Russe, Chico's, Coach, Cole Haan, The Gap, Guess, H&M, J. Crew, Levi's, Michael Kors, Nike, Talbot's, Under Armour, White House Black Market, and many, many more.

Beyond these projects under construction, we have a robust development and pre-development pipeline. Just a few weeks ago, on June 18, 2012, we announced the newest site in our pipeline, an exciting opportunity to develop a Tanger Outlet Center at Foxwoods Resort and Casino in Mashantucket, Connecticut on the Mashantucket Pequot Indian Reservation. Foxwoods attracts approximately 16 million visitors annually and boasts more gaming square footage than any other casino in the country.

We plan to develop an upscale outlet center of approximately 312,000 square feet designed to connect the casino floors of the resort's two casinos, the MGM Grand and the Grand Pequot. Initial reaction to this site has been outstanding. If leasing momentum continues at this pace, we plan to be in a position to start construction before the end of the year.

Pre-leasing and pre-development work continues for the previously named pipeline sites in Scottsdale, Arizona and National Harbor in the Washington, DC market. We expect to have final entitlements for National Harbor by the end of the year, and pending continued leasing momentum, we plan to be in a position to break ground at the end of 2012.

In addition to these named sites, we have a shadow pipeline, including several markets that are either underserved or not served at all by the outlet industry, where we intend to develop properties. And outside the United States, progress continues towards the establishment of a platform for US-style outlet shopping in Canada.

Through our co-ownership agreement with RioCan Real Estate Investment Trust, we planted the Tanger Outlets flag in the Toronto market late last year by acquiring and rebranding Cookstown Outlet Mall, located approximately 30 miles north of the city in a town called Innisville, Ontario. We and RioCan have identified a pre-development side in Kanata, Ontario, in the Ottawa market. We plan to expand Tanger Outlets Cookstown from 150,000 square feet to approximately 320,000 square feet.

And in April, we and RioCan announced an agreement to create a strategic alliance with the Orlando Corporation to develop outlet opportunities on land within Orlando's Heartland Town Center. Heartland is located in the western Greater Toronto area in the town of Mississauga. Pre-development and pre-leasing activities for these sites are underway. In addition to these name sites, the co-owners have identified several other markets in Canada that we believe are prime locations for a potential Tanger Outlet Center.

We remain optimistic about the growth prospects for our Company and for our industry, as shoppers continue to seek branded value and the tenant community continues to indicate the desire to expand their outlet divisions into new markets in the United States and Canada.

With respect to earnings guidance for the balance of 2012, based on the positive trends in the first half of the year and our current view of the market conditions, we raised the low end of our previous guidance by $0.02 and currently believe that our estimated diluted net income per share for 2012 will be between $0.58 and $0.62 per share, and our FFO for 2012 will be between $1.59 and $1.63 per share.

We have over 2,500 leases with good credit, brand-name tenants who have historically provided a continuous and predictable cash flow in good times and in challenging times. No single tenant accounts for more than 7.9% of our gross leasable area or 6.5% of our base and percentage rents.

In addition, approximately 91% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements. We plan to continue to thoughtfully use our resources and to maintain a conservative financial position. We expect our solid balance sheet with no significant debt maturities until 2015, and 92% of our consolidated GLA unencumbered by mortgage, will provide the platforms to execute our growth strategy in 2012 and beyond.

I would now like to open the call to questions. Operator? Operator, we're prepared to take questions.

(Operator instructions.) Quentin Velleley from Citi.

Actually it's Michael Bilerman speaking, and [Manny Quarcherman] is on with me, as well. Good morning, Steve.

Just question in terms of the development, and this robust development pipeline that you have. Can you outline a little bit sort of total cost of each of the projects just so that we get a better understanding? Obviously the balance sheet's in great shape to be able to fund development, but obviously the pipeline is growing with increasing number of commitments. And so we just want to get a better sense of where things stand.

Well, most of the projects, as you know, Michael, are joint ventures, so our capital commitment is significantly less than you might have imagined. I'm happy to give you the individual amounts, which I don't think we've announced before, but our site in Arizona, the approximate investment will be about $80 million. And we have about 58% of that partnership.

The investment in Houston will be about $66 million, and we own half of that project. The Foxwoods development, which probably will start much later in the year or early next year, is 300,000 square feet, so that will probably be in the area of $70 million to $80 million, once that's concluded. National Harbor--.

--And on Foxwoods, you'll own how much of that development?

We haven't disclosed that yet, but we'll own significantly more than 50%. National Harbor, be about 350,000 square feet. Again, that'll probably be, depending upon final cost, somewhere between $75 million and $85 million. We own 50% of that. The Cookstown expansion, which we own 50%, probably will be next year, a development not that large. It's only 164,000 square feet expansion. And in Ottawa, again, that probably will be next year. We own 50% of that, and that's, I don't know, maybe 350,000, 300,000 to 350,000 depending upon the final site plan.

So as you can see, it's a very manageable commitment. Keep in mind that, with our FAD payout ratio, we throw off $60 million to $70 million a year in positive cash flows. So these developments are pretty well self-funded.

With the Cookstown expansion, that's going to cost -- that's about $200 a foot on that 164,000? And should we use the same for Ottawa and what will be in Heartland?

Yes. Again, in Canada, there may be some additional costs. So I think we probably -- just for modeling purposes if you're going to do it, I would use $250 a foot. But we have not -- that's just an estimate.

Right. And then, the Heartland site is going to be how large?

Right now it's scheduled for 312,000 square feet.

And ultimately there you'll only own basically 25%, because Orlando's going to take 50% and then you'll split the other 50% with RioCan?

I think it's an equal one third-one third-one third. We can verify that for you. But right now, that's what it's planned.

So we're looking at something that, once you layer in the potential Scottsdale site, something probably on the order of magnitude and -- I don't know, the Scottsdale is a joint venture as well, or that's wholly owned?

That would be wholly owned.

It's wholly owned.

So something on the magnitude of probably $350 million of total capital before any debt for all of the projects? Does that sound about right?

You're talking just our half of it, or our portion?

Right, your portion.

Right. And that's spread out over at least two years.

Right.

And Michael, obviously there will be property-level financing within the JVs, so our pure out-of-pocket capital will be quite a bit less than that.

And where -- just given the balance sheet today, so call it 30% debt to gross asset value, 5.5 times debt to EBITDA, where do you sort of feel comfortable, just again thinking about the equity funding either coming from your free cash flow or a new common equity, where should we take the balance sheet to as you fund these developments?

Actually, between project-level financing reducing the amount of capital that we're required to put into the JVs, we don't believe that our leverage is going to change materially from where it is now, because a lot of it will be self-funded from internal cash.

Or that we will need to do any additional equity.

Yes. We don't see the need for that, given the current timeline.

Hey, guys, it's Manny here with Michael. Thanks for all that. Just a quick -- wondering if you can give a quick comment on what we heard from Coach on their earnings call, where traffic into their factory stores slowed in their quarter. Have you seen similar trends elsewhere, or do you think it's a tenant-specific thing or market-specific thing?

Well, I think, as you know, Coach is one of the top performing brands in not only our portfolio but in the outlet industry and in the regular retail industry in terms of sales.

On their call, they pinpointed a change in their couponing strategy as a major driver of this issue. All in-store coupons were eliminated for most of the quarter. Coach is, to our understanding, and based on our reports from local centers, Coach has not reinstated the use of coupons as an outlet store marketing strategy.

They announced plans to open 20 new outlet stores in 2013, which demonstrates their confidence in the outlet distribution channel. Comp traffic was up in our portfolio for the first half of 2012 by more than 4%, and which marks the fifth consecutive first half of the year, January to June, comp increases. So we've had comp increases for five straight years in traffic.

Great merchants test different strategies, and this test I don't think got the results that Coach wanted, so they immediately -- and were very nimble, and pivoted back to their successful formula. The short answer is I think it's a Coach issue -- I think they've addressed it and solved it -- not an industry issue.

Got it. And then, on the (inaudible)--.

--Just a second, please. I think we have to -- we've had, like, 10 questions from you folks. We're happy to continue the conversation offline, but there are other people that, in fairness, we'd like to have them ask questions.

Thank you.

Jeff Spector from Merrill Lynch.

Great, thank you. Good morning. I guess a follow-up, Steve, on Coach. So you do feel that the coupon excuse is reasonable? I mean, I just didn't think I guess that coupons really drove traffic into the outlets, into specifically Coach. I mean, could it be another issue? Maybe it was just a merchandise issue, but do you believe that?

I think you'd have to ask Coach. We respect their -- they are outstanding merchants. In their conference call, they identified the coupon as an issue for traffic in their stores. It did not say traffic into the outlet centers, but they spoke specifically about their stores. And anecdotally, our mall managers tell us that, once they reinstated the policy, that traffic has picked up and there are lines at the register again. So I have no reason to doubt what Coach said in their conference call.

Okay, thanks. That's helpful. And then, I just had a question on occupancy costs to sales. I think you said you're currently at 8.4%. I think historically, I mean way back, you were at 7%. I guess when you're entering leasing negotiations now, do you have a certain target in mind? Do you think you'll continue to march closer to 9% plus over time, or is this kind of -- is 8.5%, let's say, a reasonable number to be at in the outlet category?

Well, keep in mind, we've been doing this for 30 years, so we have a lot of legacy leases, and our sales have increased every year, so the cost of occupancy -- actually we fight to maintain it because we have such high renewal rates, and our sales have been successful in going up.

Right now, new leases are targeted in the range of 10% to 12%. New leases in development properties are targeted between 10% to 12%. The actual numbers for the growth in our occupancy cost, we have gone from 7.5% to 8.4% in the last five or six years. So that's a significant move of about 15% increase in cost of occupancy, driven by the success of the sales of our tenants in our properties and, even though we've been able to increase slightly the cost of occupancy, this still is a very profitable distribution channel for our tenants.

The low cost of occupancy for us as our management team allows us to capture, over time, tremendous embedded value in the portfolio, and we're very comfortable that we can continue to do that. And I think that's evidenced by outstanding leasing spreads, which you can do the research, but from the reports we read are best in class, and have been for quite some time. So we're hopeful the sales continue, that we will -- able to capture that embedded value for our stakeholders, at the same time provide a very profitable distribution channel for our tenants.

Great, thanks. And then, if I could just confirm on Canada -- last question -- at this time, I don't think you provided any of the leasing stats there. Am I correct on that? Did you discuss that?

We don't provide leasing stats on any project until it's under construction and ready to open. We have a partner in Canada, and we don't do that in the incremental stages.

Great. Thank you.

(Operator instructions.) Rich Moore from RBC Capital Markets.

Hi, good morning, guys. Steve, you had said a few years ago that you thought we could build 100 factory outlet centers in the US over the next 10 years. What do you think of that number now? I mean, how would you assess the need for more centers, going forward, in the US in particular?

I think that number will prove to be pretty close to being accurate. There'll be probably at least, if you believe what the trade publication says, in 2012, this year, probably four to five centers opening, next year maybe two to three in the entire industry opening.

I've said before it's very easy to announce a project. It's really difficult to get one built. The public company major developers who are well financed and have got longstanding tenant relationships should be able to deliver. But I still think that the net buildout over the next probably -- what did I say it, two years ago -- probably the next eight years still show probably close to 100 new centers.

Okay, all right. Good, thank you. And then, you had often said that you were looking at 17 or 18 markets around the country. Is that number still what you're thinking, or is that expanding at all, or have you thrown out some of those?

Well, the 17, 18 markets I announced two to three years ago, and some of our friendly competitors have identified the same markets and have started construction in a couple of them already, so we are pursuing. We do have a shadow pipeline, and we probably will announced very, very shortly at least one, if not two or three, additional new sites.

Okay, good, and thank you. And last question, guys. The preferred equity market has been kind of hot lately, a lot of people accessing preferreds. Any interest from you guys in looking at that market as a source of financing?

Fortunately, Rich, over the past 30 years, we've been on a very disciplined track to create a balance sheet that's a fortress. Right now, we really have no need for additional financing. As you know, we have no significant maturities until 2015. We really have no need for anything. We don't need any debt. We don't need any equity. We're self-financing the construction. We only have 25% debt to equity, with significant coverages. It's a really nice place to be right now.

Okay, Steve, terrific. Thank you.

Michael Mueller from JPMorgan.

Yes, hi, couple of questions. One, kind of going back to the development pipeline that you laid out, Steve, just want to double-check something. So if we're thinking about 13 openings, it sounds like you could have Foxwoods, you could have National Harbor. When you mentioned Cookstown in Ottawa being next year, were you talking about a start at some point next year, or were you envisioning actually coming online?

No, I think a start next year.

Okay. And the same probably goes for Toronto, or it falls into that bucket at least?

That's correct. That's our plan.

Okay, great. And then, I guess when you're thinking about what's in pre-development and then the shadow pipeline of stuff that you may be announcing soon, are you seeing any erosion in the returns that you're expecting?

Actually, no. Based on our experience in Houston and Westgate, we think that we can continue to generate returns in the 10% to 11% range, which is what we've done in the past. We have a proven track record as a skilled outlet developer and long-lasting relationships with our tenants, and we think that that provides a competitive advantage over new entrants to the space. And we feel that this advantage continues to make these returns achievable.

Okay. Okay, great. Thank you.

Andrew Johns from Green Street Advisors.

Thank you. Steve, if you take a step back from Coach and maybe look at the tenant base as a whole, has there been a change or a compression in the margins that your retailers are able to achieve? And does this have a corresponding change in the OCR that you're able to achieve on new deals?

Well, that's a complicated question. We still are targeting 10% to 11%, as I mentioned before, on new deals. And on average, we're achieving that.

The tenant community is large. As I mentioned, we have 2,500 different leases. It's probably over 400 different tenants. There are new tenants coming in virtually every month into the outlet space, and they each have a different strategy. But as this distribution channel continues to be one of, if not the most, profitable distribution channels for our tenant partners, and that allows us to get fair rent for our stakeholders, and also a cost of occupancy that provides significant profits and cash flow for our tenants. As long as it's a win-win for both parties, we think it will continue.

Maybe over the last year, though -- and I don't know if you get this granularity from your tenants, but if you look at a Gap or a J. Crew or any of the major anchor tenants to the Center, what's happened to their margins in the outlet space over the last year?

I think you'd have to call them. We don't get that granularity from our tenants. But feel free to call our tenants, and I think they'll provide whatever information they feel appropriate to you. I'd rather have you do that.

Thank you.

(Operator instructions.) Carol Kemple from Hilliard Lyons.

Good morning. Last week you all announced a renovation project at Louisiana, where you're going to add about 50,000 square feet. What kind of capacity do you have in your portfolio to actually add additional square feet to existing centers?

Hi, Carol. The Gonzales, Louisiana center is extraordinarily successful. The expansion we announced will include some fabulous tenants like American Eagle, Ann Taylor Loft, Brooks Brothers, J. Crew, Talbots, Under Armour, and several others.

Our properties are virtually built out. We just completed a small expansion in Locust Grove that opened in May of this year. We are in the process of permitting another small expansion in Park City, Utah in the next 12 months. Both are new development projects, [in] Houston and in Westgate have room to expand. But by and large, our portfolio of properties is fully built out.

Okay. And then, Frank, G&A in the quarter was about $8.7 million. Is that a good run rate, going forward?

We currently think G&A will run close to about $8.5 million per quarter, going forward.

Okay, great. Thank you.

Todd Thomas from KeyBanc Capital [Mark].

Hi, just thought a little bit more color on the traffic trends would be helpful. This is actually Jordan Sadler here with Todd. You said it's up 4% year-over-year in the first half. Could you maybe give us a little bit more color on what it did in the quarter versus the first quarter year-over-year? Was it slowing at all, or accelerating at all?

I think it's accelerating. And as I mentioned, Jordan, in the opening remarks, that's the fifth consecutive year of increasing comps in the first six months. So clearly, there's a dramatic increase in traffic coming to the Tanger Centers.

No, that's helpful. And then, on the returns, helpful commentary on the development in terms of expected spend, as well as the yield. Curious, would you expect the same types of yields in Canada as you do in the US, same 10% to 11%?

I think the target in Canada will be a little bit less of a return because of the additional costs of development and entitlements up there. Our target I think in Canada probably will be between 9% and 10%. But the scarcity of retail and the value of the properties, once they're up and built, will add significant value for our stakeholders.

That's helpful. And I'm just digging in a little bit deeper -- last question -- on the spend. I'm calculating, call it a $300 million, round numbers, number in terms of the joint venture projects that are currently teed up and you identified in terms of maybe your share of spending, rough numbers, yet you have about $60 million to $70 million of free cash flow per year. What's sort of the preferred method for financing development? I know you have a strong balance sheet.

Well, there's several. First of all, please don't lose sight of the fact that in your number includes Westgate and Houston, which are opening in the next three months and significantly -- most of our investment has already been made.

Fair point.

And so that's already been financed. And so, if you take those two out, you're not talking about a lot of capital required. Some of the developments, because they are joint venture, we will finance with property-specific financing, which obviously will require significantly less equity. But if you net out the two projects, Houston and Phoenix, and then you spread it over 2013 and 2014 and you take our free cash flow, we don't have a lot of financing needs.

No, that makes sense. That's helpful. I appreciate the color.

Quentin Velleley from Citi.

Yes. Can you hear me okay?

Sure, Michael.

Great. Just following up to some thinking about acquisition activity, obviously you had a bunch last year. In thinking about how that sort of plays into expansions as well, I guess is there opportunities, both in the US but also maybe mimicking what you are doing in Toronto with Cookstown, in terms of buying [in] existing outlets?

Granted, there's not a ton of outlets already in Canada, but there's probably -- knowing from experience, there are a handful. So is that a strategy as you think about pursuing growth that will add to it?

Well, Michael, as you've heard me say before, we have four legs on our growth stool, one of which is acquisition, one is Canadian development, US development, and internal growth. Being from Canada, as you are, you know that there are several outlet centers there, and you can assume that we are thinking about acquisitions in Canada similar to the Cookstown acquisition.

In the United States, there are only a handful of quality assets that are currently held by private operators, so the pool of potential acquisitions is very limited. We've not included any acquisitions in our guidance, but we monitor the pool of these assets very closely.

We're not interested in acquiring less than A assets or assets that we feel, within a very short period of time, we can make A assets. Should one of these private owners decide to monetize their existing outlet property, I think it would be logical for them to talk to us. We can close rapidly and not subject to financing. So if any of those developers are listening, please give us a call.

But other than that, we will be opportunistic on the acquisition front and can certainly afford it.

And then, in terms of Heartland with Simon proceeding and under construction, how has that impacted at all sort of your discussions with tenants? And at what stage is that project at in terms of trying to build?

Well, Heartland -- and again, since you're from the Toronto area, Heartland is probably the largest and most successful shopping center, power center in Canada, and certainly in Toronto. It's eight miles from the Simon site and probably 10 miles or so from our Halton Hills previous site.

The tenant community, a lot of them already have stores in Heartland. As I understand it, Simon is currently under construction in Halton Hills. We are very optimistic about the Heartland project. And again, it will be either a '13 or '14 project. It's not going to happen instantly.

Okay. And then, is there anything from--?

--Michael, I've got to ask again -- Michael, please, we're happy to -- we have other people asking questions. Please limit this to your last question.

Oh, I thought that was the last question in the queue. Okay.

Be happy to talk to you offline, spend as much time as you'd like.

Sure. No problem.

There are no further questions at this time. I'll turn--.

--Oh, there is no questions.

So, Michael, ask your question.

Am I still open?

Sure.

Oh, perfect. Just [thinking], in terms of the experience in Cookstown, just thinking about buying existing centers, what have you been able to do? Obviously you have the expansion going on, but in terms of the yield of that asset? And just [in terms of] bringing in the Tanger name, how should we think about that opportunity in buying an existing center and sort of bringing your operating knowledge and the brand name to a center?

Well, we have a very skilled partner in Canada, RioCan Real Estate Investment Trust. That's our partner. We we're in the process of "Tangerizing" the Cookstown asset. We have a grand re-opening, where we renovated the interior of the asset. Our plans for doubling the size will include a major renovation of both the existing center and the expansion, so it will look more like a Tanger Outlet Center in the States.

It's really too early to provide any additional yield, but the marketing is kicking in. The traffic is up, sales are up. So again, over time, I believe we will add significant value by "Tangerizing" that asset.

And how do we compare -- if we're looking on page 14 of your unconsolidated joint ventures, your share of the NOI is .8, which I assume is $1.6 million gross. That seems really light relative to $60 million of investment. Well, I guess it's -- that's just the quarter, so it still seems really light relative to -- we can follow up offline on that.

I think that would probably best, because we're having trouble understanding your question and want to be sure we give you an accurate answer.

Sure. Okay, thank you.

And there are no further questions in the queue. And I turn the call back over to the presenters.

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 with a disciplined development approach. Our strong portfolio of geographically diversified operating properties provides significant returns for our shareholders, and our pipeline of growth opportunities is robust.

Frank and I are always available to answer any other questions you may have. Thank you again, and have a great day.

This concludes today's conference call. You may now disconnect.