Tanger Inc (SKT) 2014 Q2 法說會逐字稿

Good morning. This is Cyndi Holt, Vice President Investor Relations and Finance with Tanger Outlets, and I would like to welcome you to our second quarter 2014 conference call.

Yesterday we issued our earnings release as well as our compliance, our supplemental information package and 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 their projected -- from those projections due to factors including, but not limited to, changes in economic and real estate conditions, the availability and cost of capital, the Company's ongoing ability to lease, develop and acquire properties as well as potential tenant bankruptcies and competition. We direct you to the Company's filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

During the call we will also discuss non-GAAP financial members 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, August 6, 2014.

At this time all participants are in listen only mode. Following managements prepared comments, the call will be open for your questions. We ask that you limit your questions to two so that all the 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. Please go-ahead, Steve.

Thank you, Cyndi, and good morning, everyone. I am pleased to report that the second quarter 2014 was another solid quarter for Tanger. Adjusted funds from operations per share increased 6.8% compared to the second quarter of 2013. Same-center net operating income increased 3.3% for the quarter, extending our streak to 38 consecutive quarters of internal growth, dating back to the first quarter of 2005 when we first began tracking this metric.

And last week we expanded our footprint with the opening of the new 400,000 square-foot outlet center in the Charlotte, North Carolina market. Our long-term strategic plan is to build a growth Company with substantially increasing cash flow and a balance sheet that's a fortress.

Many of you are interested in an update on our development projects and anticipated returns. First, let me turn the call over to Frank who will take you through our financial results. I will then follow-up with the discussion of our operating performance, our development pipeline and our expectations for the balance of 2014.

Thank you, Steve, and good morning, everyone. As Steve mentioned, our reported AFFO per share increased 6.8% for the second quarter of 2014 to $0.47 per share from $0.44 per share for the second quarter of 2013. For the first half of 2014 AFFO per share increased 8.2% to $0.92 per share compared to $0.85 per share for the same period of 2013.

On a consolidated basis, our total market capitalization at June 30, 2014 was $4.9 billion, up 11% compared to June 30, 2013. And our debt to total market capitalization of approximately 28.4% was best in class for the mall REIT group. We also maintained a strong interest coverage ratio of 3.97 times for the second quarter.

Our balance sheet strategy continues to be conservative, targeting minimal use of secured financing and a manageable secured schedule of debt maturities. As of June 30, 2014, there was $428.8 million of available capacity under our unsecured lines of credit, or 82% of the total $520 million commitment.

As of quarter end, approximately 86% of our consolidated square footage was unencumbered by mortgages. We have no significant maturities on our balance sheet until November of 2015 when our $250 million bond matures. The rate on these bonds is 6.15%.

If rates and spreads remain constant, we are told we could refinance this debt at an all-in rate below 4%. We have paid cash dividends each year and have raised our dividend each of the 21 years since becoming a public Company in May of 1993.

At the current levels, we expect our AFFO to exceed our common dividend in the neighborhood of $100 million annually. So our dividend is well covered. With an expected FAD [pair] ratio for 2014 of approximately 60%, we expect to generate significant incremental cash flow over our dividend, which we plan to use to reinvest in our business to help fund the development of new properties and the expansion of successful properties.

I will now turn the call back over to Steve.

Thank you, Frank. Some of our peers have begun disclosing total sales volume as another measure of the sales productivity of a portfolio of retail properties. On a same center basis, our total tenant sales volume reported to us by all tenants throughout the consolidated portfolio, regardless of their store size, increased 2.6% to $4.1 billion for the 12 months ended June 30, 2014 compared to $4 billion for the 12 months ended June 30, 2013. For Tanger, we believe this metric is a better indicator of the continued success of our ongoing efforts to improve the overall tenant mix and productivity within our portfolio.

Same center total sales captures sales for tenants immediately upon their opening compared to comparable tenant sales, which only reflect new tenants upon their being open for 12 consecutive months. Comparable tenant sales for the 12 months ended June 30 increased approximately 1% to $386 per square foot.

Comparable tenant sales is a single metric and is not the best indicator of Tanger's ability to generate future cash flow and to continue building shareholder value. Our ability to raise rents, to upgrade our tenant mix and to grow the footprint of our portfolio are the key drivers that will allow us to continue to increase the free cash flow for our business.

We focus on related indicators for our growth including our low-cost of occupancy and high rent spreads, strong tenant demand for outlet space, our robust development pipeline, and our proven track record of disciplined capital allocation and development success. Our tenant partners overwhelmingly tell us that sales in any given quarter have virtually no impact on their long-term expansion plans within the outlet channel of distribution. Our tenant partners continue to grow their business by opening new profitable outlet stores, particularly in this time of very limited new supply of other full price retail space.

I am pleased to report that we continue to generate healthy base rental rate spreads during the second quarter of 2014. For the first half of 2014, blended rental rates increased 22.9% compared to a 22.1% increase for the same period in 2013. This ability to drive rents higher is a function of both retailer demand for outlet space and the fact that, on average, our leases are currently at below market rents with the lowest average tenant occupancy cost ratio in our mall peer group at just 8.6% of our consolidated portfolio in 2013.

Our average occupancy cost ratio is well below market and nearly 300 basis points lower than some other mall REITs. Under these conditions, we are able to raise rents while maintaining a very profitable distribution channel for our tenant partners. Lease renewals in the first half of 2014 accounted for 1.011 million square feet, or approximately 60.8% of the space coming up for renewal during 2014 and generated a 16.9% increase in base rental rates.

An additional 385,000 square feet was released at an increase in base rental rates of 35.8%, as we continue to capture the embedded value within our portfolio. These positive leasing spreads, together with contractually embedded rental rate increases, were the primary drivers of our same center net operating income growth.

Midyear consolidated portfolio occupancy is 98% this year compared to 98.3% last year. As I mentioned earlier, we reported same-center net operating income growth of 3.3% for the second quarter. Same-center net operating income also increased 3.3% for the first half of 2014.

This healthy growth, on top of tough comps, as our first half same-center net operating income increased 4.2% in 2013 and 6.9% in 2012. Tenant demand for outlet space, coupled with our reputation within the industry of having a quality portfolio of outlet centers and a refined skill set for developing, leasing, operating and marketing them, has afforded us a robust external growth pipeline throughout the United States and Canada.

As I mentioned, the newest property was added to our portfolio just last week when we and our 50/50 joint venture partner opened a center in Charlotte, North Carolina. The 400,000 square-foot upscale outlet center is located 8 miles southwest of uptown Charlotte and features about 90 brand-name and designer stores. Since the center opened on July 31, shopper traffic has been strong.

To accommodate the traffic volume on grand opening weekend, we utilized overflow parking and provided shuttle service to additional off-site parking. Retailer feedback has been very positive with most tenants reporting above-plan sales for the grand opening weekend.

Some of the sale side research published overnight expressed concern over changes to the development information summarized in our supplemental. We began providing this summary six quarters ago as a means of improving our disclosure to you. Our best estimate based on current expectations for each project at the end of each quarter.

However, I want to stress to you that changes in development pro formas are part of real estate development, even more so in the pre-development and early development stages. As leases are executed, rents, tenant allowance cost and tenant mix can vary from our original projections. Development cost and projected opening dates can vary from our original expectations as a result of a number of factors including site or municipality specific conditions, inclement weather, which may result in overtime costs necessary to meet contractual tenant turnover dates, and the availability of public funding sources, among others.

The fourth quarter this year will be busy for us as we plan to complete five projects that are currently under construction just in time for the holiday shopping season. First up is the grand opening of our first ground-up development in Canada, located in suburban Kanata, Ontario. Tanger Outlets Ottawa is being developed with our 50/50 co-owner.

Ottawa is the capital and fourth largest city in the nation with 1.2 million residents and about 7.5 million annual visitors. The 316,000 foot center will feature about 80 brand-name and designer stores when complete.

In Ottawa, we revised our projection yield to 6.5% to 7.5% from the initial 8% to 9% last quarter. The yield impact was caused by our long-term strategic decision to move forward with a major department store anchor that will be unique in this market. We redesigned the center layout to accommodate the sought after tenant, which increase our cost of construction, permitting fees and reduced our initial yield.

It is easy to increase the yield on development by putting middle and lower tiered tenants in a center at higher rates. However, we chose to look at the long-term viability of this development and are willing to accept a lower initial return if it means improving the tenant mix and providing a better shopping experience for the consumer. Over time this strategy results in a higher valuation for the shopping center, which in turn results in greater shareholder value.

Construction of a major expansion and renovation in Tanger Outlets Cookstown is currently underway. We, and our Canadian co-owners, plan to complete and open the expansion during the fourth quarter. Originally acquired in December, 2011, the center is located in the northern end of the greater Toronto area in southern Ontario's Cottage Country, known for its high concentration of vacation homes.

The project will nearly double the size of the 155,000 square-foot center, adding about 35 brand-name and designer outlet stores and will create an updated exterior for the existing space consistent with the expansion space. Based on our successful leasing of this expansion, we decided to further invest in the center by adding amenities to the original face. This reduced our initial return but should add substantial long-term value as we continue to attract proven upscale brands and designer tenants.

Final three projects we plan to open during the fourth quarter are expansions of successful outlet centers. Construction in is on pace to achieve holiday openings for expansion of 65,000 square feet in Tanger Outlets Westgate in Glendale, Arizona. A 25,000 square-foot expansion of Tanger Outlets in Branson, Missouri, and a 21,000 square-foot expansion of Tanger Outlets in Park City, Utah.

The total project cost for the new developments and expansions and that we have opened or plan to open in 2014 is about $316 million. Of this amount, our remaining equity contribution necessary to complete these projects, net of construction loan proceeds, was only about $74 million as the end of June, 2014.

2015 we currently expect to open four additional new developments, two of which are already under construction. Tanger Outlets at Foxwoods in Mashantucket, Connecticut, at the Foxwoods Resort Casino will be suspended above ground to join the resorts two casino floors, which along with Foxwoods other various on-site entertainment venues, attracts millions of visitors each year.

The 314,000 square-foot center will feature about 80 brand-name and designer tenants when complete. We currently expect a second quarter 2015 opening for the project, which will be consolidated for financial reporting purposes as a result of our controlling ownership interest.

We, and our 50/50 joint venture partner, are developing at Tanger Outlet Center near Savannah, Georgia, a market that welcomes 12 million visitors annually. The highly visible site is located on Interstate 95 near Savannah's international airport in Pooler, Georgia.

When complete, the initial phase of the center will include approximately 385,000 square feet and feature about 90 upscale brand-name and designer outlet stores. Currently we expect the center to open in the second quarter of 2015.

Last month we acquired the land and began site work for our newly -- for our new wholly-owned development in Grand Rapids, Michigan. The site is located 11 miles south of Grand Rapids at the southwest quadrant of US 131 and 84th Street in Byron Center, Michigan. The official groundbreaking is scheduled for Thursday, August 21, 2014.

Pre-development and pre-leasing activities are ongoing for other projects we intend to open next year with our 50/50 joint venture partner located in Columbus, Ohio. The total project cost for the development projects that we expect to open in 2015 is about $392 million. Of this amount, our remaining equity contribution necessary to complete these projects, net of construction loan proceeds, was about $142 million as of June 30.

Based on our initial estimates, the initial yield is expected to be in the 9% to 11% range. Our most recently announced pre-development site is located in the Hartford Market in Cheshire, Connecticut. Additionally, we have identified a deep shadow pipeline of other markets that we are either -- that are either under served or not served by the outlet industry.

Sometimes properties open quicker than our original expectations, like when we opened Tanger Outlets Westgate in November, 2012, just eight months after breaking ground. Others may not always get underway as early as we originally expect them to. We have two such examples this quarter.

After close to three years, the Park City expansion project has an expected opening date that is now pushed from the third quarter to the fourth quarter this year. It took longer than we expected to get the final approvals but construction is now underway. We currently feel confident that the project will be completed in time for the 2014 holiday shopping season.

In Columbus, we and our partner are working on securing some potential public funding for the off-site improvements. As a result, we pushed the projected opening to the second half of 2015 from the first half. We plan to break ground by the end of 2014 to meet our revised opening projection.

Consistent with the information included in our SEC filings, this quarter we began providing you with project costs incurred to date and moved from a projected cost range to a single cost projection for each project. As I mentioned, costs and yields can vary from quarter to quarter. Based on our expectations of June 30, 2014, we decreased the project yields for two projects and increased the project yields for two others.

Both of the projects with decrease project yields we're primarily the result of strategic decisions to invest in a tenant mix that we believe will add long-term value. In both cases, the initial projected return was negatively impacted by the addition of a key magnet tenant that we believe will drive traffic to these centers and result in higher yields in the long term.

For our Westgate expansion, the situation is similar but the overall impact is meaningful, given the small scope of this project at only 65,000 feet. We revised our projected initial yield from 6.5% to 7.5%, down from 9.5% to 10.5%. The project initial yield was negatively impact because 30% of the square footage of the smallest expansion is allocated to a single [magna] tenant and the pro forma is impacted by the related rent structure and cost structure of this lease.

Again, this is a long-term play for Tanger as we expect this tenant to drive traffic to the center and produce higher yields in the long term. The combined development yield for the initial phase I development and this small expansion is well within our targeted range of 9% to 11% for domestic development projects.

The projects with increased project yield resulted from costs that are currently expected to be less than our original estimates. In Charlotte, our total cost was reduced and our project yield was increased to a range of 10.5% to 11.5% from 9.5% to 10.5%.

Tanger's ability to secure approximate $4.5 million in TIF financing was a major factor in reducing cost expectations. For our small expansion in Branson, Missouri, our projected total cost was reduced to $7.8 million from a range of $8 million to $9 million last quarter. Our projected yield was increased to a range of 10.5% to 11.5%, up from 9% to 10% last quarter.

To put these changes in perspective, we compared our current projections with the projects in this quarter supplement to our originally published projections for each of these projects. At the midpoint of the projected ranges, the weighted average yield is currently within our targeted 9% to 11% range, which is far greater than our weighted cost of capital. And as I mentioned, these are initial yields and our strategy is to increase them over time.

Moving onto redevelopment. Tanger is known for its well-maintained portfolio of vibrant dynamic properties. Depreciation is a real expense, so from time to time we embark on larger scale redevelopment's to extend the life and performance of our centers and to elevate the Tanger brand.

In 2014 our major redevelopment project is a $16.8 million renovation of our flagship asset in Riverhead, New York. Designed to improve the customer experience and appeal to the most sought after tenants, the project will include a dramatic new exterior, new signage and energy-efficient LED lighting retrofit, and the addition of shopper friendly features like a fire pit, fountains, soft seating areas, mobile device charging stations and an iPad-equipped tech lounge.

We are also orchestrating what we call the Tanger shuffle during this renovation to group the more upscale brands together. This section of the center will include some tenants already operating in the center as well as new high-end fashion and designer tenants that we are bringing to Riverhead.

On a smaller scale, a $7 million-dollar renovation is underway at our center in Rehoboth Beach, Delaware. In addition to modifying the exterior of the center, the project will also include a new tower sign that can be seen up to a mile away to greatly increase the centers visibility. Both projects are nearing completion.

With respect to earnings guidance for 2014, based on our initial budgeting process, our current view of market conditions and the strength and stability of our core portfolio, we are maintaining the midpoint of our previously announced guidance. We expect our estimated diluted net income will be between $0.78 and $0.82 per share. And our AFFO will be between $1.92 and $1.96 per share.

Our estimates do not include the impact of any additional rent termination fees, any potential refinancing transactions, the sale of any out parcels of land, or the sale or acquisition of any of our properties. Our 2014 guidance assumes a projected increase in same-center net operating income of approximately 3%. Our tenant sales will remain stable or increase modestly and that general and administrative expenses will average approximately $10.5 million to $11 million per quarter.

We remain optimistic about the growth prospects of our Company and our industry as shoppers continue to seek brand-name products direct from the manufacturer. 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.

The resiliency of the outlet channel has been proven over the past 33 years through many economic cycles. We have over 2,900 long-term 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 4.7% 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.

So I'm out of breath and now I'm going to turn it over to any questions you might have. Operator?

(Operator Instructions)

Your first question comes from Samir Khanal from ISI Group. Your line is open.

Just quickly on Canada here, on your Kanata project. It looks like, as of 2Q, the project was approximately 50% leased. We were going through the -- based on RioCan's disclosure. Do you have a sense as to where this will be leased as you open in 4Q later in the year?

Right now, we're approximately 86% committed. We've made a lot of project in signing leases since RioCan's disclosure several weeks ago. And we're very comfortable that the center will open in the mid- to high-80% range -- the first phase of the center.

And just on Canada, I mean I know -- is your current view on the market, has that changed maybe in the last 6 to12 months? Your view is current as what maybe your prior expectations may have been?

I think if you read our prior expectations, we are still consistent. Canada is an exciting growth area. We are looking forward to opening our center in Ottawa, which, by the way there's -- to our knowledge -- no other large outlet center within 200 miles. So, this will be a really good test for the nation's capital of Canada, and we're expecting great reception. We're doubling the size of our center north of Toronto, which is a large market. So this is our initial test. We have always said that we expect anywhere from eight to nine new centers over a five- to seven-year buildout. And, this is the initial test and we're still very optimistic.

And one final question from me, if I may. I know on Atlantic City -- getting back to the US here, domestic -- I know there's been some sort of headlines coming out in terms of tourism and hotel closures. I know you have an asset over there. Just wondering if you've seen any kind of -- directionally, at least, in terms of sales or trends, in terms of traffic -- has there been any changes in your views?

Well, we're very excited about Atlantic City. It's a market where we have most of the upscale tenants in our -- in the tenant world represented. Sales continue to increase in Atlantic City. We think that the market will rationalize as to the number of casinos that the market can support. A Bass Pro Shop is opening there. They've just opened a very large community-owned -- or city-owned parking structure to provide convenient parking.

We have a local government there in Atlantic City and the governor of New Jersey are committed to maintaining Atlantic City as a vibrant, exciting tourist attraction. By the way, the Miss America Pageant is returning, and if you'd like tickets we'd be happy to provide them for you. But we're excited about Atlantic City. And we still think the long-term viability of Atlantic City is exciting.

Okay. Thank you. Great, guys.

Your next question comes from Christy McElroy from Citi. Your line is open.

Just a follow-up on Kanata, the change in the yield effectively implies, on our math, a roughly 20% decline in NOI per square foot, with the total cost of the project unchanged. And if I understand it right, the anchor is effectively replacing the in-line -- some in-line space. So, how large is that anchor that's impacting the total NOI by that much? Who is the anchor? Does the 86% committed -- does that include the new anchor? And you talked about the longer-term yield being higher. Can you walk through ultimately how you get to a higher yield on this project?

I hope I can remember all those questions. But, the anchor is a well-known department store, which we're not, right now, at liberty to mention. But it will be their first store in that market, so we're excited about that. This lease came together after we'd already started construction, so we had to redesign part of the site plan to accommodate this major anchor. The anchor will open about 1 year to 16 months after the center opens. So the yield will increase substantially once the tenant opens. But we had to increase our cost because we're building the space and redesigned the space to accommodate them.

The cost of the project is unchanged, correct? Last quarter it was $115 million to $120 million, and now it's $117 million?

Right. But we're paying that now and we're not having the income of the anchor tenant until 16 months from now. So the yield is down because we have less revenue.

Does the 86% committed include the anchor?

Yes, it does.

It does. And is it an American or Canadian retailer?

You can ask it any way you want, I'm not going to tell you the name of the tenant.

(laughter) And just a follow-up -- in regards to the four projects that are coming online in 2015, when do you anticipate breaking ground on Grand Rapids and Columbus? And I know you provided general standard 9% to 11% target for those four projects, but would you expect ultimately for those yields to come on the lower end or the upper end of that target range?

Grand Rapids -- we have already broken ground. We own the land, have broken ground, and will have a formal groundbreaking within the next 30 days. With regard to Columbus, we're in the final permitting stages. And it's still our anticipation to break ground in Columbus before the end of the year. I don't really want to refine other than to say that the yield expectation for both projects, the weighted return, is within our range of 9% to 11%. But as we have done in the past, after we break ground and leases come together, and construction costs come together, we'll update that return in subsequent quarters.

Thank you.

Your next question comes from Caitlin Burrows from Goldman Sachs. Your line is open.

Good morning. Just a quick question on sales. In terms of sales growth, you already reviewed your trailing 12-month tenant sales growth of about 1% for comparable tenants. But, rather than looking at the trailing 12 months, and instead just looking at the year-over-year second quarter versus first quarter, so the three months -- could you quantify how the sales growth may have differed for the two time periods?

Sales in the first quarter were essentially flat compared to last year -- I'm sorry, in the second quarter, were essentially flat. But, I don't know if that's indicative of anything. We look at the 12-month trailing numbers to -- because one month or one quarter can be affected either up or down by nonrecurring conditions. So, it's probably a better reflection and consistent with what the other mall REITs report to look at the trailing 12 months.

Okay. Knowing that, would you just generally say though that the first-quarter sales were negative versus the prior year?

I'm not going to -- you can draw whatever conclusions you want from the information we give you. But that's the way we report it.

Okay. Thank you.

Your next question comes from Todd Thomas from KeyBanc Capital Markets. Your line is open.

Thanks. Good morning. Following Christy -- following up on Christy's line of questioning. I'm curious, at Glendale -- we're just a few months away from that expected completion. Can you identify that magnet retailer that you mentioned will be taking 30% of the expansion GLA? And then is -- just kind of more -- on a more broad basis, is bringing in magnet retailers or anchors, is that a new strategy for the Company as you see it with regard to merchandising either new developments or even existing centers? And could it potentially lead to some new redevelopments at some of your existing properties?

Let me answer one question at a time. With regard to Westgate, we're not prepared to announce the anchor yet. It's obviously an upscale anchor tenant, and it's sensitive in the market. So, in the next couple of months, certainly by the next quarter, we'll be able to announce that. We have always worked with magnet tenants. Some of the department-store anchors are in the range of 25,000 to 35,000 feet versus other outlet anchor tenants, or magnet tenants as we call them, which are in the range of 8,000 to 10,000 feet.

So, obviously, we look for the long -- we're in the real estate business, which is a long-term capital allocation, long-term tenant mix decisions rather than short-term returns. We could easily lease the space to nonproductive or just go to the highest rent-paying tenant to get a short-term return. But, long term, it might adversely affect the property and we won't do that. We have always worked with these anchors. Sometimes they commit in the first phase, sometimes they commit in the second phase. Sometimes they commit as we're under construction and we have to change the footprint to accommodate them. And that's what happened in Ottawa and that's what happened in Westgate. But, the total return on our Westgate project, including the expansion, is well within our 9% to 11% yield.

Okay. And then, in terms of US development, you've talked about your expectations over the next few years and you have one pre-development deal in Connecticut that's been announced and sort of slated for, I guess, a 2016 delivery. After the completion, or delivery, of the 2014 and 2015 deals, do you see the pipeline continuing to build? Are you comfortable that you can maintain this current pace of development?

We've always told the market to expect one to two new centers a year. The past couple of years have been extraordinary to meet the demand. I think we're still comfortable saying in 2016 and going forward, one to two new centers a year. We have not announced anything in addition to the existing development and expansion schedule because we want our tenants to focus on 2014 and 2015 development deals. We do have our entire leasing team looking at shadow pipeline sites as we speak this week. And, hopefully, we'll be able to announce, before the end of the year, one or maybe two additional sites for 2016 delivery.

Okay, thank you.

Your next question comes from Ross Nussbaum with UBS Securities. Your line is open.

Good morning. Jeremy Metz on with Ross. Steve, can you just talk a little bit about the leasing environment for your developments more broadly? Are you seeing any changes in lease terms or kick-out provisions? And then, any particular tenants getting more or less aggressive with expansion plans?

We do business with close to 500 tenants and the great majority of them are looking to grow their businesses. Right now, they tell us they're allocating more capital to the outlet distribution channel than other distribution channels. So, we're excited about the demand for our properties and new developments. Our existing portfolio remains at 98% occupied -- which, by the way, in 33 years of being in business, we've never ended the year less than 95% occupied. So that's a testament to the demand for space in outlet centers.

As far as lease terms, as you might imagine, in a portfolio our size, they're all over the board. We don't see any particular trends. We're talking about 90 tenants in a new development. We're still, on balance, getting the yields that are appropriate and profitable for us. And long-term viability of the center, where we feel we can increase cash flow over time.

Great. And then, obviously, you got a lot going on in the development [fronts] still. But are you actively underwriting any acquisitions? Is there much of a market there right now?

If you know of any, please have them call us.

(laughter) I do not. All right, thanks.

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

A couple questions going back to returns. I just want to clarify something. For Kanata, this 6.5% to 7.5% -- I know you mentioned that the anchor is opening, I think you said, it was12 to 16 months later. Does that return reflect the year one after this fourth quarter opening without the anchor in there? Or the first year after the anchor is open?

It reflects opening cash on cash return. And the return should increase pretty nicely after the magnet tenant opens.

Okay. So what after -- I guess that this is probably in year two or year two/three -- what does that return go to after the anchor is open?

It's speculative because, obviously, the return will be based upon the performance of the existing tenants, and any percentage rents we get from them, and also leasing up whatever vacant space there might be. But our 33-year history has shown that we are able to move new developments into the mid-90% range over time. And I think that we will be able to do that in Ottawa. This project is unique to the Ottawa market and we think the consumer reaction will be strong. Based upon this anchor tenant coming, we're in discussions with other upscale and designer tenants, and we hope to be able to get those into executed leases, which will also, over time, increase the yield.

Got it. And then, Glendale, is there -- what's the gap between the center opening and the anchor opening there?

We expect them to open either at the grand opening or within two or three months of the grand opening of the expansion.

Okay. So it seems like that yield in a supplemental is more tied to -- that's the overall project there, where Kanata is maybe a little bit more of a timing impact? Is that the correct way to think of it?

That's right.

Got it. Okay. That was it. Thank you.

Your next question comes from Todd Lukasik from Morningstar. Your line is open.

I was just wondering if you could comment on the capital improvements line on the funds available for distribution schedule and why that ticked up. And then also, what your full-year expectation is for capital improvements this year.

It ticked up specifically with regards to the Riverhead and Rehoboth Beach redevelopments, which Steve spoke of earlier in his prepared remarks. And, as far as for the year, we're looking at $35 million to $40 million in total.

Okay, thanks. And then, last quarter you talked about weather as being an impact on the results. Was that still an impact to this quarter? Or was there anything else that may have impacted expenses this quarter?

Impacted expenses? I don't see anything that's an extraordinary impact on expenses in the second quarter.

Okay. Thank you.

(Operator Instructions)

Your next question comes from Christy McElroy from Citi. Your line is open.

It's Michael Bilerman. Good morning. So, I'm not going to ask you if it's Canadian or American, or whether it starts with an S or an H, but I did want to understand what the size of the anchor in Ottawa was relative to. So the square footage went up about 13,000 square feet -- I didn't know if that was the sole anchor or how much of the existing inline of the original project size got taken away.

Hi, Michael. How are you? Yes. Part of the original project was taken away and the anchor tenant will be part of our second phase, we're calling it. We still have additional expansions -- a little bit of additional expansion addition to that anchor. So we're excited that this is coming to fruition. And I think, long term, it will add great viability and excitement to the project in that market.

And so, is it a 40,000 square-foot box? Or --

No, I think it's in the area of 28,000 feet.

28 -- so taking away 15,000 from the existing project in line and then adding 13,000, which ate into some of the second phase.

That's exactly right. Also the expense of building it is ongoing now without any revenue.

Right. But you -- the total project cost stayed relatively similar. So you must've had some savings somewhere else because your project total cost is -- even though you're adding square footage, the total project cost is relatively in line.

That's right. But the revenue is down because we don't have any revenue from the anchor.

Correct. And the anchor rent, I assume, would -- is there a certain factor that we should think about anchor rent relative to in-line? Is it half of what a normal in-line space would be? Is that a fair --?

I don't really want to discuss individual lease terms.

I was just thinking more generally, anchor rents versus in-line rents for your portfolio, how big of a spread that would be as we think about anchor tenants versus in-line tenants?

There's always a spread between an anchor tenant and an in-line tenant. Again, I'd prefer not to disclose the differential.

Okay.

Certainly in return for that differential, it's unique in the market and it draws traffic. And, over time, it attracts other upscale and designer tenants. So we think -- and it's proven -- over time, it's a good investment.

And I guess if you were -- put aside the lease-up of the additional space and what percentage rents are and how the center is once this anchor opens, do you think, just based on the rents that have been committed for that space and the rents that you had targeted for the remaining, that we -- that the yield would still be comparable getting back to that original expectation of 8% to 9%? Or do you still think there's some compression in yield, at least at the outset?

I think by the time our anchor tenant opens, in 12 to 16 months, we're expecting the initial yield to be back in the initial range.

And then, in terms of --

Now, Michael, that includes leasing-up some of the vacant space that's not leased at opening, et cetera. But the total return by the time that tenant opens, we expect to be in the range that we initially announced.

Great. And the additions to the schedules as the schedule continues to improve is certainly helpful. It would assume -- the total here is about $700 million of total development cost at gross share. Obviously, your share is smaller than that, about $440 million. You've talked a little bit about construction loans. It would be helpful to sort of know which one of these projects, if all, and the sort of size of those construction loans. I don't know if you have just roughly -- if it's $708 million of total construction cost on this page, what is your construction loan gross total for that?

Michael, a lot of that will be in the Q. So, it will be additional disclosure there, we just kind of ran out of room on the pipeline page.

We can make it landscape and shrink the font.

(laughter) For now, look in the Q for additional color on some of the construction loans. But, obviously, if it's a joint venture, you can pretty much assume roughly 60% to 65% of the total expected cost would be funded through a construction loan.

And so of the remaining -- you have gross -- you have spent about $136 million on this page using just the total in your share, thereabouts, which leaves about $300 million. You said your equity of that was $124 million, if I heard you right. Was that the right number to finish these projects of equity?

For all of the projects on the schedule, it would be the total of the two numbers that Steve had mentioned in his prepared remarks.

And I -- yes, I missed that. I apologize.

I think it's about a couple hundred million.

Okay.

Michael, I'm sorry. Just to clarify, we have about $75 million remaining for Tanger's equity participation in 2014 projects. That's out of a total cost of about $315 million. We have about $142 million remaining of the $392 million total cost for 2015. For the two-year total, Michael, it's $707 million total cost -- 100%.

Yes.

And Tanger's remaining equity contribution over the next two years is $217 million.

Perfect. That's exactly what I needed. And I think where a lot of people are -- and I think part of the initial negative reaction that you probably saw in notes -- is the footnote on this page says stabilized returns. So I think that, when we looked at it -- or most of us and certainly the market, they sort of saw that and said, okay, Ottawa is now down to 6.5% to 7.5%, stabilized. Forget about not knowing the anchor thing. So I think what may be helpful in the future is maybe adding, A, the construction loans and the equity required and having the totals on this page -- and [BXP] is a good sort of example of that. And then having initial return and then stabilized return, and in that way I think we can get over some of the issues that have been drawn out on the call.

Thanks, Michael.

Okay. Thank you.

We have no further questions at this time. I turn the call over to the presenters.

I want to thank you all for participating on the call today and your interest in our Company. Frank, Cyndi, and I are always available to answer any questions you may have. We hope to see you all in a couple of weeks in Grand Rapids for our groundbreaking. Have a great day. Take care. Bye.

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