Tanger Inc (SKT) 2013 Q4 法說會逐字稿

Good morning, and welcome to the Tanger Factory Outlet Centers fourth-quarter and year-end 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 Investor Relations link.

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

These forward-looking statements are subject to numerous risks and uncertainties, and actual results could differ materially from those projected due to factors including, but not limited to, changes in economic and real estate conditions, the availability and cost of capital, the Company's ongoing ability to lease, 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 these risks and uncertainties.

During the call we will also use -- 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 only be accurate as of today's date, February12, 2014.

At this time, all participants are in listen-only mode. Following management's prepared comments, the call will be opened up for your questions. We ask that you limit your questions to two so that all callers will have the opportunity to ask questions.

On the call today will be Steven Tanger, President and Chief Executive Officer; and Frank Marchisello, Executive Vice President and Chief Financial Officer. I will now turn the call over to Steve. Go ahead, Steve.

Thank you, Cyndi, and good morning, everyone. 2013 was another record year for Tanger. Solid operating performance resulted in adjusted funds from operations that exceeded the high end of our guidance by $0.02 and exceeded the consensus estimate by $0.03.

We achieved significant milestones during the year and in the fourth quarter. With occupancy at 98.9% within our consolidated portfolio, December 31, 2013, marked our 33rd consecutive year with year-end occupancy of 95% or greater. Our fourth-quarter same-center net operating income growth was 3.5%, extending our streak to 36 consecutive quarters of internal growth dating back to the first quarter of 2005 when we first began tracking this metric.

During 2013, AFFO was also positively impacted by external growth, as we realized the full-year impact of investments in centers we opened or acquired in 2012 and the partial year impact of investments in development projects that opened in 2013. I know many of you are interested in an update on our development projects and the outlook for 2014, but first, let me turn the call over to Frank to take you through a discussion of our financial results and the refinancing activity during the fourth quarter that further strengthened our balance sheet.

Thank you, Steve, and good morning, everyone. Our reported 2013 funds from operations, or FFO, per share increased 19% to $1.94 per share compared to $1.63 per share in 2012. Adjusted FFO per share increased 13.9% to $1.88 per share from $1.65 per share in 2012.

For the fourth quarter, AFFO per share increased 15.2% to $0.53 per share from $0.46 per share in the fourth quarter of last year. As Steve noted, this growth is attributable to both internal and external initiatives.

On a consolidated basis, our total market capitalization at 12/31/13 was $4.5 billion, up 1% compared to the end of the prior year. Our debt-to-total market capitalization of approximately 29.4% at December 31, 2013, was best in class for the mall REIT group. We also maintained a strong interest coverage ratio of 4.36 times for 2013, up from 4.18 times for 2012.

On November 18, 2013, Tanger announced a $250 million 10-year senior notes offering. Investor demand for the paper was strong, creating a book that was 5 times oversubscribed and resulted in spread compression of 22.5 basis points compared to the initial whisper price. The notes, which mature December 1, 2023, bear interest at a rate of 3.875% and were priced at 98.36% of the principal amount to yield 4.076%.

We completed the transaction on November 25, 2013, using net proceeds to repay floating-rate borrowings under our unsecured lines of credit. Our 2014 guidance takes into consideration estimated dilution of approximately $0.07 per share from this transaction.

In addition, we used interest-rate swaps to fix the rate of the $150-million Deer Park mortgage on October 28, 2013. This loan, which carries a rate of 150 basis points over LIBOR, is fixed at an effective interest rate of 2.8%.

Assuming an average 2014 LIBOR rate of 30 basis points, this transaction will be dilutive by approximately $0.025 per share in 2014. We have accepted the short-term dilution from these successful bond offering and converting floating to fixed rate on the Deer Park loan totaling almost $0.10 per share in 2014 in return for the reduced exposure of floating-rate debt and the long-term strength and stability of our balance sheet.

Our balance sheet strategy continues to be conservative, targeting minimal use of secured financing and manageable schedule of debt maturities. As of December 31, 2013, there was $503.8 million available under our unsecured lines of credit, or 96.9% of the $520 million total commitment.

As of year end, approximately 86% of our consolidated gross leasable area was unencumbered by mortgages, and we had no significant maturities on our balance sheet before November of 2015. Approximately 79.4% of our debt is now at fixed rates.

Our Board of Directors declared a dividend of $0.225 per share for the quarter ended December 31, 2013, payable this Friday to shareholders of record on January 30. We have paid cash dividends each quarter and have raised our dividend each of the 20 years since becoming a public company in May of 1993.

Our dividend is well covered, with an expected FAD payout ratio for 2014 of less than 60%. At this level, we expect to generate significant incremental cash flow over our dividend, which we plan to use to help fund our future growth or to reduce our outstanding debt.

I will now turn the call back over to Steve.

Thank you, Frank. I am pleased to report that we continue to see positive rental-rate spreads for space renewed and released during the fourth quarter of 2013. This is, in part, a reflection of the increased sales and profitability of the outlet channel for our tenant partners. For the year ended December 31, 2013, straight-line blended rental rate increased 24.1% on the renewal and releasing of space throughout our consolidated portfolio.

Lease renewals accounted for 1.574 million square feet, or about 80.7% of the space coming up for renewal during 2013, and generated a 19.3% increase in average base rental rates. The remaining 510,000 square feet was released at an increase in average base rental rates of 37.8%.

Positive leasing spreads, together with contractually embedded rental rate increases, resulted in same-center net operating income growth during the fourth quarter of 3.5% for the consolidated portfolio. For the year ended December 31, 2013, same-center net operating income growth was 4.3%, slightly above our initial guidance of 4%. At year end, our consolidated portfolio occupancy was 98.9%.

We are excited to have introduced great retail brands to our portfolio during 2013 including: Asics; Cache; DVF; Elie Tahari; Forever 21; Francesca's; Halston Heritage; Kipling; MaxStudio; The North Face; Peter Millar; Swarovski; and Vera Bradley, to name just a few.

Despite widespread reports in the media regarding the shorter holiday season, bad weather conditions, and other factors that resulted in a challenging holiday environment, comparable tenant sales within our consolidated portfolio increased 3.2% for the three months ended December 31, 2013, and 2.6% to $387 per square foot for the year ended December 31, 2013.

These are comparable sales figures and do not capture those sales generated by new, often highly productive stores operated by tenants, like some of the brands I just mentioned, that tend to create quite a buzz among our shoppers. Feedback from our tenant partners indicates that sales in any given quarter or year do not impact their long-term expansion plans within the outlet channel, particularly when you consider the profitability of outlets and the supply-constrained environment in full-price channels. The resiliency and growth of the outlet channel has been proven over the past 30 years through many economic cycles.

We continue to succeed in negotiating increased rental rates, as a result of the low cost of occupancy for tenants doing business in Tanger Outlet centers. With the lowest-average tenant occupancy cost in our mall peer group, at just 8.6% of our consolidated portfolio in 2013, our average occupancy cost ratio is well below market. Under these conditions, we are able to raise rents while maintaining a very profitable distribution channel for our tenant partners.

Tenant demand for outlet space, coupled with our reputation within the industry of having refined a skill set for developing, leasing, operating, and marketing high-quality outlet centers has afforded Tanger a robust external growth pipeline throughout the United States and Canada. During 2013, and to date this year, we have thoughtfully allocated capital to a number of external growth opportunities.

These include: one newly developed outlet center and two expansions of existing successful properties that opened during the year; five development projects that are currently under construction; and the acquisition of a controlling interest in a property that had been previously held in an unconsolidated joint venture.

In early April 2013, we opened a 40,000-square-foot fully leased expansion of Tanger Outlets in Gonzales, Louisiana. The project increased the gross leasable area of the center to 319,000 square feet and added great brands that were new to the center, including: Ann Taylor; Loft; Brooks Brothers; J. Crew; and Under Armour.

On May 15, 2013, we and our 50/50 co-owner broke ground on our first ground-up development in Canada, located in Ottawa, which is the capital and fourth largest city in the nation with 1.2 million residents and 7.5 million annual visitors. Currently, we expect the 303,000-square-foot center will feature about 80 brand and designer stores and will open in time for the 2014 holiday shopping season.

Our other Canadian project, currently under construction, is a major expansion and renovation of Tanger Outlets Cookstown, located on the northern end of the greater Toronto area, directly off Highway 400, which is the gateway to the highest concentration of vacation homes in southern Ontario's cottage country. This region is a well-traveled year-round vacation area, where visitors enjoy snow skiing in the winter and lakeside activities in the summer.

On May 16, 2013, we and our co-owners broke ground on the project, which will nearly double the size of the 156,000-square-foot center that we originally purchased in December 2011. The expansion will add about 35 new brand and designer outlet stores and create an updated exterior and interior for our existing -- for the existing space, consistent with the expansion space. We currently expect the project to open in time for the 2014 shopping season.

On August 30, 2013, we acquired an additional one-third interest in the highly productive Tanger Outlets Deer Park, which Tanger has had an ownership interest in since the development stage. Located on Long Island in New York and currently -- and originally opened in October 2008, the center offers over 90 outlet stores, 10 restaurants and a 16-screen cinema that serve the 18 million people that reside in a 60-mile radius. As a result of the acquisition of a controlling interest, the property is now consolidated for reporting -- for financial reporting purposes.

A small expansion of the Tanger Outlets in Sevierville, Tennessee, opened in September 2013. The project added 20,000 square feet to the center, which we originally acquired in 1997, increasing its gross leasable area to about 438,000 square feet.

We and our 50/50 joint venture partner broke ground on a new outlet center in Charlotte, North Carolina, on September 20, 2013. The 400,000-square-foot project will feature about 90 brand and designer stores, and is expected to open during the third quarter of 2014. The site is located 8 miles southwest of uptown Charlotte at an interchange of I-485 and Stone Creek Road, the two major thoroughfares in Charlotte.

On September 26, we broke ground on Tanger Outlets Foxwoods in Mashantucket, Connecticut, at Foxwoods Resort Casino. Unique within the Tanger portfolio, this 314,000-square-foot project will be suspended above ground to join the resort's two casino floors, which attract millions of visitors each year.

The center will feature about 80 brand and designer tenants, including: American Eagle Outfitters; Ann Taylor; Banana Republic; Calvin Klein; Coach; Fossil; Gap; LOFT; Michael Kors; Nike; Skechers; Steve Madden; Tommy Hilfiger, just to name a few. We currently expect a second-quarter 2015 opening for the property, which will be consolidated for reporting -- for financial reporting purposes as a result of our controlling ownership interest.

Despite more than 60 rain days during construction, we and our 50/50 joint venture partner opened Tanger Outlets National Harbor -- 98% leased on November 22, 2013 -- just in time for the holiday shopping season. For opening weekend, we welcomed more than 225,000 shoppers, and many tenants reported surpassing their sales plan.

The center includes 336,000 square feet and features about 80 brand name and designer outlet stores including: Banana Republic; Brooks Brothers; Calvin Klein; Coach; DVF; Elie Tahari; Halston Heritage; Hugo Boss; J. Crew; Peter Millar; and many other popular brands. Located within the National Harbor Waterfront Resort in Washington, DC, metropolitan area, the center is accessible from I-95, I-295, I-495 and the Woodrow Wilson Bridge. The nation's capital welcomes approximately 33 million tourists annually.

We started out 2014 with the announcement on January 23 of our ownership interest in a 50/50 joint venture that is developing a Tanger Outlet Center in Savannah -- in the Savannah, Georgia, market. Our partner broke ground on the property in September 2013. The highly visible site is located on I-95, just north of I-16 in Pooler, Georgia, near the Savannah International Airport, which welcomes 1.6 million travelers annually.

We expect this location to capitalize on the popularity of the Tanger Outlets brand in the region and to provide marketing and management synergies with our other seven centers in Georgia and South Carolina. When complete, the initial phase of the center will include approximately 385,000 square feet and will feature about 80 upscale brand and designer name outlet stores. Currently, we expect the center to open in the second quarter of 2015.

We were pleased to share our newest development announcement yesterday in our year-end earnings release. We plan to develop a wholly owned outlet center in the Grand Rapids, Michigan market. The site of the planned 350,000-square-foot outlet center is located 11 miles south of the city of Grand Rapids at the southwest quadrant of US 131.

The site, which has great visibility from both roads, is located 30 miles east of Lake Michigan and its lakeside communities that vacationers frequent. Pre-development and pre-leasing activity are ongoing for the project, which we currently expect to open in the second half of 2015. Our share of the initial investment and developments we plan to deliver by the end of 2015 is about $470 million.

Tanger has a robust pipeline of other development sites that are currently in the pre-development stage. In Columbus, Ohio, after securing the necessary zoning approvals and winning the subsequent voter referendum, we and our 50/50 joint venture partner are hard at work on off-site improvement plans and other pre-development work.

Pre-development activities are also ongoing for our development site in Scottsdale, Arizona, and for our planned expansions of existing assets in Branson, Missouri; Glendale, Arizona; and Park City, Utah. In addition, we have a deep shadow pipeline of other markets that are either unserved or underserved by the outlet industry.

With respect to our earnings guidance for 2014, based on our current view of market conditions and trends, we expect our estimated diluted net income will be between $0.78 and $0.84 per share, and our FFO will be between $1.93 and $1.99 per share. Our estimates do not include the impact of any rent-termination fees, any potential refinancing transactions, the sale of any outparcels of land, or the sale or acquisition of any properties.

Our 2014 guidance includes a projected increase in same-center net operating income of approximately 3%. This projection takes into consideration the difficult comparable benchmark established as a result of our portfolio being essentially fully occupied since 2012 and the fact that 1.6 million square feet expiring 2014 is 23% less than the 1.2 million square feet expiring in 2013 -- excuse me, I made a mistake. The 2.1 million square feet expiring in 2013. Since the majority of our renewal activity occurs in the first quarter, this reduction has a significant impact on 2014.

We completed 72.1% of our 2013 renewals in the first quarter. The reduction in expiring GLA was largely driven by changes in our average lease term since the economic downturn. When rents were under pressure in the 2008 to 2009 time frame, we renewed leases for shorter terms in order to retain our ability to mark rents to market sooner upon improvement in economic conditions. As our ability to raise rents improved, post-recession, in late 2010 and into 2011, we began targeting longer-term leases with annual escalations.

The abnormally low lease rollover in 2014 is primarily due to the combination of these two factors. While not included in our guidance, we are continuing to aggressively pursue terminating leases with underperforming tenants, which we then hope to re-tenant with higher performing tenants at higher market rents. Our guidance also assumes that tenant sales will remain stable or increase modestly based on the current economic environment and the negative impact of weather conditions on early 2014 traffic.

Our guidance is based on an average general administrative expenses of approximately $10.5 million to $11 million per quarter. This increase in G&A is primarily driven by an increase in long-term equity-based compensation for our senior leadership team.

Over time, our goal is to increase the percentage of overall compensation that has performance-based equity rather than cash, further aligning the interest of management with those of our shareholders. As such, the base salary of our senior executive management team has not increased for three consecutive years.

In lieu of base salary increases, our Board has issued restricted shares that vest over five years in equity-based long-term performance plans. Although the latter impacts current expense, management will not receive any value unless our total return to shareholders meets certain minimum criteria. Taking equity compensation into consideration, our 2014 guidance assumes 99 million weighted average diluted shares and an allocation to participate in securities of approximately $1 million per quarter.

We remain optimistic about the growth prospects of our Company and our industry as shoppers continue to seek branded value. The tenant community continues to indicate its desire to expand into new markets in the United States and Canada with Tanger as a preferred partner.

We have over 2,800 leases with good credit, brand-name tenants that have historically provided a continuous and predictable cash flow in good times and in challenging times. No single tenant accounts for more than 5.1% of our base and percentage rental revenues, or 7.9% of our gross leasable area. In addition, approximately 90% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements.

And now, I'd like to turn the call over to any questions.

(Operator Instructions)

Todd Thomas, KeyBanc Capital Markets.

First question, a lot of your external growth is focused on growing the portfolio through new developments and expansions but was sort of wondering what your view is of selling properties and whether there are any opportunities to cull the portfolio a bit, maybe sell off some of the more mature properties and recycle capital into this some of the new developments or expansions that you're working on.

We have always reviewed our properties each quarter, each year and make a determination whether to continue to invest in them and hold them or to dispose of the assets. We have over the past year sold probably 10 to 15 assets and continue to take a dispassionate view of each one of our assets. We have no problem selling assets and may well do so before the end of the year and recycle the cash into new investments.

Okay. Do you have anything on the market listed today?

There are assets on the market right now that are being marketed through a national brokerage firm, and we will not announce any transaction until a contract is signed. A contract may not be signed. But the properties are being marketed.

Okay. And then second question, regarding the Savannah site, I was wondering if you could expand a little bit from what you discussed in your prepared remarks about the impact that you may or may not be expecting from traffic or sales to some of the other nearby centers in Hilton Head and elsewhere within a reasonable drive time? Maybe you could talk about that a little bit?

The Tanger brand is well-known in the Southeast. We've been marketing in various media outlets and in social media for the better part of 30 years since we started the Tanger brand. We are delighted to partner with Ben Carter who is a well-known, experienced, very successful developer in the Southeast.

The center will be a Tanger outlet, and there should be significant synergies in marketing and also in the management of the asset as we go forward. We have seven centers in North and South Carolina, and we look forward to opening Savannah. By the way, the Savannah asset has been embraced wholeheartedly by our tenant community. We have probably close to 70% already committed.

Okay. So, you're not expecting the Savannah site to draw traffic from a little further north in the Hilton Head market at all?

The Savannah site will draw traffic from the millions of people that come to Old Savannah as sightseers. There is probably close to 10 million people that come to that market a year. And we also intend to draw from the Atlanta market over to Savannah. So, we're excited. The catchment area is rather large, and we will be able to have the synergy of advertising the Tanger brand utilizing the asset in Savannah.

Okay. Thank you.

This is Frank. There's not a significant amount of traffic in Hilton Head that comes from Savannah based on our ZIP code studies.

Okay, great. That's helpful. Thank you.

Craig Schmidt, Bank of America.

Steve, how did the Savannah joint venture come about? Did you approach them or did they approach you?

I've known Ben Carter for years and have the utmost respect for Ben. And candidly, I did it the old-fashioned way. I love the project, loved what he had done. The tenant community told us it was going to be great.

So, I just -- I know this is going to sound odd, but I picked up the phone and called Ben. And we basically sat down and he's -- it served his purposes to equitize part of his investment. He's got other projects under development, and it's a match of skill sets. He's extremely talented visionary developer and we're pretty good operators. So, it was a good blending of skill sets.

Do think there's other opportunities out there, projects that you might work your way into?

We're always open to new ventures where we can add value to a partnership. And I don't have any guidance on that, but we certainly are open and happy to talk to anybody that wants to talk to us.

Okay. Thank you.

Christine McElroy, Citi.

Just wanted to follow-up on the lease roll discussion. The percentage rolling in 2014 came down in the last couple quarters. So, a year ago it was 13% of the ABR was expiring in 2014 and now it's 8%. I'm just wondering, I understand that the discussion around the leases signed, but was that -- the decline over the last year, was that pre-leasing, or was it related to more tenant exercising options? I'm just wondering if you could provide some more color on that.

This is Frank.

If you look back, you really have to look back a couple years to do a comparable analysis of the leases that were rolling because we sometimes renew leases early. So, if we renew a lease in December that impacts the next year, it comes out as a lease expiration report. For example, if you look back at December 31 of 2001, you'll see that in 2013 we had 18% rolling and 2014 it was dropping to 13%.

So, this really is a function of what Steve mentioned earlier, is that we had been doing shorter-term leases during the recessionary times and then jumped up and were doing longer-term leases as the recession was finishing up. And truly, there was a large percentage, exceptionally large percentage in 2013 and now an exceptionally low percentage in 2014.

If I understand, some of that was pre-leasing. Is there a chance that that 8% could move higher if you are pre-leasing some of the 2015 space?

8%.

8% of ABR expiring in 2014?

Well, right. The 8% was really more than that originally. This is what's left to renew in 2014. We've already renewed some 2014 space. That's why I was suggesting you look back historically to see really a good comparable year-to-year.

Okay. So, is it possible that some of the 2015 space could be pre-leased this year, which would mean that that would impact your -- it would impact the growth rate more?

Well, we renew it early, but we don't get an early increase in rent. In other words, the paperwork is done and put to bed. But typically, the tenant has an option, and we're not renewing early to get an early increase in rent. We're renewing early to get the paperwork done and the commitment out of the way.

The forward years, did they include option expirations to the renewal options? How much of the space in the forward years is subject to renewal option?

If I had to venture a guess, it would be 50% or more.

Okay.

And they hit the expiration schedule when the current term expires, not at the end of all renewal options.

Okay. Just one more question. A year ago in your Q4 2012 results, you provided your quarterly and your 12 month trailing year-over-year sales comps, excluding the eight centers that experienced closings, but they're more due to Hurricane Sandy. I'm imagining those centers would have impacted you favorably as they came back online in 2013. Can you give us a sense for what your sales growth would have been in Q4 excluding those centers?

In the fourth quarter of 2013 and the fourth quarter of 2012, the number of hours our center works -- our centers were closed were pretty comparable. There have been -- instead of one major named hurricane in the fourth quarter of 2013, there were continuous rolling storms that came through our portfolio with the rest of the industry's portfolios that also impacted and closed our centers. So, when you look at it, although Hurricane Sandy created significant damage, the total number of hours our centers were closed was pretty comparable in both fourth quarters.

Okay. Thank you.

Andrew Rosivach, Goldman Sachs.

This is actually Caitlin. Most other mall REITs have provided sales per foot in tiers. Would you be able to tell us what percent of your NOI comes from outlets that generate $500 a foot or more versus $300 a foot or less?

We have a smaller portfolio than most, Caitlin, and we have not provided that information. Right now, we're not prepared to do that.

Okay. And then similarly, it seems like the tenancy of your developments, that their completion would lead to an average up of your portfolio. Do you have an idea of what you expect the sales per square foot to be of your development pipeline and what the overall sales per square foot of your overall portfolio could be upon completion?

Again, we've guided our sales for 2014 to be flat. We don't really have guidance yet for any new centers and we don't announce guidance for new centers that are unconsolidated. And a lot of the ventures -- joint ventures may be unconsolidated. We only announce reported consolidated sales.

Okay. Thank you.

Norman Kramer, Kramer Investments.

You reported your rental growth on a straight-line basis. And my question is, do you also calculate this on a cash basis? And if so, can you share it with us?

Yes. On page 10 in our supplement, we actually have both. If you look, for example, in the re-tenanted space, we have number of leases, gross leasable area, and then it says new initial base rent per square foot. That's the cash basis number, and then their prior expiring rent is the cash basis. So, they're both on that schedule.

Okay, we'll check that. All right, thank you.

Carol Kemple, Hilliard Lyons.

It looks like one small expansion project in Canada that was on your schedule last quarter dropped off. Was there anything specific going on there, or why is that one gone?

We've just decided based on the current conditions in the market to put that expansion on hold.

And then your Savannah project will not show up on the consolidated balance sheet, correct?

It is a 50/50 partnership, and right now we don't anticipate it being consolidated.

Do you think there's an option later that your partner will want to sell?

We have, in all of our joint ventures, an opportunity to buy and sell based on any particular time in the future. So, I really don't want to look out into the future, but we both have a defined exit opportunity.

Congratulations on building an outlet center in a city I like to shop in. That was a good move.

Well, thank you, Carol, we appreciate it. We hope you like to shop all of our cities.

I do, but I especially love Savannah and Charleston and Hilton Head. So, that's a good thing for earnings.

Thank you.

Ben Yang, Evercore.

Maybe for Steven, is there a meaningful performance difference between, say, class A and class B outlet centers similar to what we've been seeing in the mall sector? And is this maybe the rationale for selling some of what I assume are some of your lower tier assets?

We -- there is, like any other portfolio, differentiation between the very top and the very bottom. But we look to sell some assets that we feel we've maximized the potential going forward and somebody else coming in can take it to the next level by focusing on it. I will say, part of the portfolio that we have offered for sale includes A assets also.

Can you at least offer how many assets you're trying to sell this year?

It is publicly being marketed right now, and we have five assets on the market to sell.

Great. And then maybe second question on the Savannah outlet, are you guys actually managing and leasing that project or just maybe providing your synergies with that joint venture?

We will be working with Ben Carter and his group finishing the existing lease commitments and leases out for signature. And then at a particular point in time, we will take over the leasing and hopefully finish up, so when we open, we will open north of our normal 90%.

Okay. But --

The center will be a Tanger outlet, and we will be responsible for the marketing and operating of the asset.

Got it. Thank you.

Daniel Busch, Green Street Advisors.

There's been much discussion on your mall peers conference calls regarding e-commerce. I want to get your thoughts, how do you see e-commerce impacting or really not impacting the outlet business? And I guess in your opinion, Steve, can the value proposition that is offered in your centers be replicated online?

I guess value's in the eye of the beholder, but there has been a lot of discussion, and I'm sure you've been on the calls, as have the other people listening in. And I basically agree with the analysis of the CEOs of the other mall REITs. An interesting data point is that the growth in online sales, overall sales in most instances does not net out the high level of returns, particularly in the apparel and footwear business and activewear business. But we are monitoring online sales.

I can tell you that for the 15 years that Internet sales have been prevalent, our sales have gone up every year, our profitability has gone up every year. And our tenants continue to tell us that they find the outlet distribution channel to be profitable and a growth area.

Okay, that's helpful. And just a switching gears to the Phoenix market, obviously, it seems like Westgate is obviously off to a good start, given the fact you're already ready to expand. And then obviously with Scottsdale in the pre-development, what are you seeing in that market that makes you so comfortable? Is the retailer demand that just for new outlet space just off the charts? Or can give us a little color on what's going on in that market?

Phoenix is, I believe, the seventh-largest metropolitan area in the country. When we started developing this a couple of years ago, there was only one outlet center about 75 miles north of the city we didn't feel that serviced the Phoenix metropolitan area. We think that Phoenix is rebounding. A lot of the housing that was possibly over built during the last up cycle and then got hit hard during the economic downturn has been sold. So, we are big fans of Phoenix.

The Westgate project in Glendale has exceeded our expectation more rapidly than we had anticipated. Tenant demand for that site is extraordinary. We have committed to and will start shortly construction on an expansion. So, we're very excited about that.

Okay, great. Thank you.

Mike Mueller, JPMorgan.

Steve, I think you mentioned 80% retention on leases that expired last year. For the 20% that didn't renew, is there a way you can give a sense as to what the natural fallout was, where tenants just didn't renew where they were going versus you proactively just say, no, we're not putting you back in, we're replacing you with tenant X or something?

About -- over 60% of the 20% that did not renew, we terminated or were able to terminate the lease or did not renew the lease at our option so that we could, what we call, complete the Tanger Shuffle and move tenants around and bring in more high value -- more high volume tenants. Only a very small percentage of the tenants, for whatever reason, did not renew. And as you can see, the leasing spreads, when we are able to re-tenant space, is significantly higher than the renewal spread on leases that have options.

Got it. Okay, that was it. Thanks.

Steve Sakwa, ISI Group.

Just a quick question on the weather here. Obviously, it's been a severe winter and more bad weather is approaching. I'm just curious how you guys have thought about snow removal and that in the 3% NOI growth. I realize that some of that maybe pass-throughable, but with fixed CAM, just wondering how much of that risk has shifted to you and how have you thought about those year-over-year increases?

Well, only about 17% of our portfolio is now fixed CAM, so on a lot of our leases the snow removal is a reimbursable item and not a risk item for us.

Okay, so it sounds like it's going to not have much of an impact on that 3% growth rate?

We don't anticipate it.

It should not.

Okay, thanks. Other questions were answered.

Rich Moore, RBC Capital Markets.

I'm curious of the projects you have listed on page 17, all the development projects and expansions, are all of these, Steve, 50%? Do they meet your threshold of 50% pre-leased or higher? Is that true for even the new ones, I guess?

The ones that we have started construction are at least 50% committed. That includes leases that are signed and out for signature.

Okay, so some of these that you haven't started actual construction on, you're still working on leasing?

That's correct.

Okay. And the other thing, I didn't quite understand on page 10, we were talking about the leasing metrics. There's nothing in the re-tenanting, the new leases section of the schedule of page 10, Frank, and I guess I don't quite understand that.

Hello, Rich. Historically, it's interesting. There just were no new re-tenant -- there was no re-tenanted space in the fourth quarter. But to give you some history on that, I look back, last year we only had six leases that we re-tenanted in the fourth quarter. The year before that nine, the year before that seven.

So, there's not a lot of volume within the fourth quarter with regard to re-tenanted space. If people are open going to the fourth quarter, they want to be open for the holiday. That's why it just so happens this year there was zero, but like I said, on a relative scale, it's typically minimal.

Okay, I thought that was an error. Great. Thank you for the clarification.

I did too when I first saw it, to be honest with you (laughter).

Great. Thank you.

I had my guys double-check it.

Tayo Okusanya, Jefferies.

My question really is on this idea of being able to get -- to take out the underperforming retailers. Just wondering, is there a way you could quantify what that opportunity is this year? Is it like 2% of your rents that suddenly go up 20% when you get a new tenant in? Or give us just a sense of how big that opportunity could be?

I wish I could, Tayo, but it's an ongoing process that we've done for the past 20 years. We work with our tenants, we get sales every month, and we try to limit our exposure and aggressively pursue terminating leases with underperforming tenants. But it's very difficult to quantify because even if they're underperforming, they do have a contractual lease. But we work with them and we try to move them out as fast as we can.

Okay. So, it's really more of a conversation between the two of you to come up with a win/win situation?

That's correct.

Got it. Thank you very much.

Nathan Isbee, Stifel.

Just going back to Christie's question about the Sandy impact, can you provide the sales growth number for the fourth quarter, excluding those eight centers?

We have not broken it out.

Okay. Could you?

We didn't break it out in the third quarter either, Nate. It was really only relevant early in the year when you're doing a rolling 12 months. And to Steve's point earlier, we had centers closed this year in the fourth quarter similar to prior years, so we didn't think it was really relevant.

Okay. And then just focusing on Long Island for a second, there was recently a resolution with -- in Oyster Bay. I'm just curious how you see that perhaps impacting the retail/outlet center landscape in Long Island over the next few years?

It's tough for us to speculate, Nate. The folks at Simon and their partner, or at least the public reports say they're working with the local community to try to find a win/win on the property. And I really don't know until they make an announcement and it's been approved and permitted by the city as to what their plans are.

Okay. Thank you.

We have not heard any plans to put outlet stores on that site.

Okay, thanks. And then I guess it's time for you to expand your mantra about in good times and bad times and now in omnichannel times you have to (laughter) (multiple speakers).

Thank you, Nate. It's been omnichannel time, though, for 15 years. That hasn't changed due to the weather or the economic situation.

Thanks.

Christie McElroy, Citi.

It's actually Michael Bilerman. Steve, just a question on Savannah. In the supplemental notes that your capital contributions could result in you having a larger than 50% share of the project, just curious, how much larger of a share? And I don't know whether there's some financing that's been lined up from a construction perspective. Just trying to get a sense of how much equity you could be putting to that project and ultimately, what share you could own that could differ than the 50%?

Michael, this is Frank. Some of that is still being worked through, and we're really not prepared to give a lot of guidance on that yet. Ultimately, I think within the next quarter or two, that we will provide something. Most likely within the 10-Q disclosure as to the actual structure of that.

Is this something that you could potentially have a buyout on that you would own 100% of after a certain amount of time? Is that -- or are you guys really thinking about it as partners together?

We are thinking about it as partners together. But as I mentioned before, our agreement with our partner has an exit scenario that either one of us can start.

But it's not a contractual obligation to buy one or the other out, it's your typical joint venture arrangement.

Okay. You talked about having five assets on the market. I would assume guidance does not include any plans to sell and the use of those proceeds. I'm just curious, your balance sheet obviously is in tremendous shape, being able to fund the attractive development and redevelopment pipeline.

So, what would you use those proceeds for? And in totality, not looking for which centers on the market, but in totality, how much could that be in terms of gross proceeds?

Hi, Michael. We really don't want to give any guidance, because we haven't decided, first of all, if we're going to sell, and if we're able to get the price which is attractive for us to sell. And if we do sell, I would think the closing would not happen until the middle of the third quarter of the year. There will be plenty of guidance and visibility if and when we do go to contract. Right now, it is not in our guidance.

Is there assets on the market the same way that you're looking to buy? If you have five on the market, is there activity where those proceeds could be rotated into an acquisition rather than just pay down debt?

We always have our ears open. Right now, we're not in discussions with any asset to purchase, although we do have a few that we would like to purchase.

Okay. Anything in Bromont that took that occupancy down at year-end? And I know Sauveur dropped off the redevelopment schedule. And I apologize, I missed what you said about Sauveur in terms of why that redevelopment came off. But is there anything happening with your Quebec assets that we need to be knowledgeable about?

Nothing that jumps out. The small expansion in Saint-Sauveur was just basically one tenant, so it was not a significant expansion.

And the Bromont drop in occupancy, given the size of the center, that literally could have been one tenant as well.

Right, but it's 84%. Then you're saying the expansion is now off, you're not building up for the tenant in Saint-Sauveur anymore?

Those plans are on hold.

They are on hold, we have not given up. They are just on hold because the timing is not as clear as we would like, so we took off the schedule.

But we do have permitting and can build the building at any time.

Okay. I just want clarify this thing, just on the lease roll in the same-store. And I recognize if you go back to the beginning of 2012, you had 18% rolling in 2013 and only 13% rolling in 2014. Clearly, there is a 500 basis points of rent differential between 2013 and 2014 that existed at that point in time.

I would have thought, though, that some of the higher lease roll in 2013 would have spilled over into 2014 same-store, given the fact that not every tenant renews or signs up on day one in 2013, it's done throughout the year. So, it only has a partial year impact on 2013 and has a spillover in 2014, let alone the natural bumps in the leasing activity that you're going to do. So, I'm just trying to gain a little bit more comfort around this discussion.

Michael, this is Frank. As Steve mentioned in his prepared remarks, almost 75%, I think we said 72%-point something of the leases that renew, renew in the first quarter. The reality is, most of those renew, probably by the end of January because a lot of our tenants have January year-ends.

Those renewals that occurred in 2013, 72% occurred the first month of the first quarter, so they impacted 2013 numbers pretty substantially. You're not going to get a pickup in 2014 for the 2013 renewals that occurred so early in the year.

Right. There's not much of a spillover effect that goes on.

That's correct.

And is there anything else that would take you, in terms of conservatism in your guidance, toward the lower end that you've built in? I recognize the lower lease roll, I recognize the bond deal that occurred. I recognize the G&A, and all those are important items, but it still seems that the lower end, even towards the midpoint, seems very conservative. Is there anything else that we should be knowledgeable about 2014 relative to 2013 that would be having an impact?

The other thing that we've mentioned is we have this allocation to participating securities, which is pretty much doubling year-over-year. That really relates to a long-term incentive plan that was in the form of notional units that are now restricted shares that dilute earnings slightly.

But I think if you use our guidance of about $1 million a quarter for the participating securities and then we disclosed the weighted average shares to use for the year, I think to a certain extent, I think some folks have that wrong. And so we hopefully people will take a look at that and then adjust accordingly. Beyond that, we've given you I think everything that we're comfortable giving you at this current time.

Right. No, it's clear the Street didn't move on the bond deal. Street stayed at $2.02, even though the bond deal paying down floating rate debt is $0.06 to $0.07 dilutive to 2014. So, that clearly is a big number that wasn't in the Street numbers. I just didn't know if there was anything else that we need to be mindful of.

All right. Well, thank you for the time.

Thank you, Michael, very much. I appreciate it.

There are no further questions at this at this time. I will now turn the call back over to the presenters.

Well, it's -- I want to thank everybody for participating in the call today and your interest in our Company. Frank, Cyndi and I are always available to answer any questions you may have. Have a great day. Thank you, and goodbye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.