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Cyndi M. Holt - VP of IR
Good morning.
This is Cyndi Holt, Vice President of Investor Relations, and I would like to welcome to the Tanger Factory Outlet Centers' First Quarter 2017 Conference Call.
Yesterday, we issued our earnings release as well as our supplemental information package in our Investor Presentation.
This information is available on our Investor Relations web page, investors.tangeroutlets.com.
Please note that during this conference call, some of management's comments will be forward-looking statements that are subject to numerous risks and uncertainties, and actual results could differ materially from those projected.
We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.
During the call, we will also discuss non-GAAP financial measures, as defined by SEC Regulation G, including funds from operations or FFO, adjusted funds from operations or AFFO, same center net operating income and portfolio net operating income.
Reconciliations of these non-GAAP measures to the most directly 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, May 2, 2017.
(Operator Instructions) On the call today will be Steven Tanger, President and Chief Executive Officer; Jim Williams, Senior Vice President and Chief Financial Officer; and Tom McDonough, Executive Vice President and Chief Operating Officer.
I will now turn the call over to Steve.
Please go ahead, Steve?
Steven B. Tanger - CEO, President and Director
Thank you, Cyndi, good morning, everyone.
We're pleased to have extended our streak to 54 consecutive quarters of consolidated portfolios, same-center net operating income growth, and ended the first quarter with our consolidated portfolio 96.2% occupied.
We believe the current retail environment characterized by bankruptcies and store closure announcements, is a direct result of underperforming retailers having not invested in their product, their store experience or their balance sheets, which in many cases has resulted -- was the result of leveraged buyouts by private equity firms.
We had the foresight to prune our portfolio of 8 noncore assets between December 2014 and January 2016 and to convert $525 million of floating rate debt to fixed interest rates in 2016.
No other retail venue provides the combination of social experience with the world's best brand names, cutting out the middleman and selling direct to the consumer at value prices every day.
Our occupancy costs ratio remains the lowest in the mall REIT group.
Outlets remain an important and profitable channel of distribution for our tenant partners.
We believe the popularity of outlets with consumers and retailers, along with our fortress balance sheet and the strength of our core portfolio position us to weather the current headwinds in the retail environment as we have in similar parts of the cycle for the past 36 years.
Before I discuss our operating performance and our outlook for the balance of 2017, I will turn the call over to Jim, who will take you through our financial results and a brief overview of our recent financing activities.
Afterwards, Tom will update you on our development activities.
Go ahead, Jim.
James F. Williams - CFO and SVP
Thank you, Steve.
First quarter 2017 AFFO was $0.58 per share and in line with consensus estimates and up 3.6% compared to the first quarter of 2016.
The total market capitalization as of March 31, 2017 was $5 billion and leverage remained low with our debt-to-total market capitalization ratio at 34%.
Last year, we had the foresight to convert $525 million of floating rate debt to fixed interest rates.
Although higher interest expense is expected to have a dilutive impact on 2017 FFO of about $0.05 per share or about 2%, the 2016 financial activity took most of our interest risk off the table.
Our floating rate exposure represented only 12% of total debt or 4% of total enterprise value as of March 31, 2017.
The average term to maturity for our outstanding debt was 5.9 years as of quarter end and we have no significant maturities until June of 2020.
Approximately 92% of the square footage in our consolidated portfolio was not encumbered by mortgages as of March 31, 2017.
We continue to maintain significant liquidity with about $72 million outstanding under our unsecured lines of credit at quarter end, leaving 86% unused capacity or approximately $448 million.
We have also maintained a strong interest coverage ratio during the first quarter of 4.22x.
In April, we raised our dividend by 5.4% on an annualized basis.
This was the 24th consecutive year we have increased our dividend or every year since becoming a public company in May of 1993.
Our current annualized dividend of $1.37 per share is more than double our 2006 dividend, which was $0.68 per share on a split-adjusted basis.
Over the last 3 years, our dividend has grown at a 13% compounded annual growth rate.
On May 15, 2017, we will pay our 96th consecutive quarterly dividend of $34.25 -- $0.3425 per share to holders of record on April 28, 2017.
Our dividend is well covered.
In 2016, our FFO exceeded our dividend by over $100 million.
Over and above what we have invested in new developments and expansions, we have reinvested more than $300 million into our portfolio over the last 10 years to renovate our properties and to add new sought-after retailers, which represents about 13% of our gross book value of our real estate assets.
We expect our FFO to, once again, exceed our dividends by more than $100 million in 2017, with an expected payout ratio in the mid-50% range.
We plan to continue to reinvest this into our business.
Our top funding priorities are: accretively developing new outlet centers and expanding existing successful centers; upgrading and remerchandising our core properties so they remain vibrant and continue to meet the expectations of the consumer; and managing our debt to maintain a strong balance sheet and maximum flexibility.
Currently, we believe, these remain the best uses of our capital.
If our shares become persistently undervalued, we will consider all other alternatives, such as a share repurchase plan, if appropriately sized to maintain flexible leverage -- a flexible leverage profile in our investment grade credit ratings.
Our conservative mindset has served Tanger well throughout 36 years of economic peaks and valleys.
Maintaining a fortress balance sheet and investment grade credit is our way of life.
Financial stewardship is a hallmark of Tanger Outlets that we do not intend to change.
I will now turn the call over to Tom.
Thomas E. McDonough - COO and EVP
Thank you, Jim.
This year, we plan to complete 2 development projects, both of which are currently under construction.
In September, we expect to complete a major expansion that will increase the size of the Tanger Outlet Center in Lancaster, Pennsylvania, by 123,000 square feet and add over 20 new brand name and designer outlet stores.
In the fastest-growing area of the Dallas-Fort Worth market, we are planning a late October opening for our new 352,000-square-foot Fort Worth, Texas Outlet Center, located within the Champions Circle mixed-use development adjacent to the Texas Motor Speedway.
The population of Denton County, where our center is located, is projected to increase from 800,000 people to 2.1 million people between 2015 and 2040.
These wholly owned projects are expected to generate a weighted average stabilized yield of approximately 9.3%.
So far, 2017 has been a difficult year for retailers, characterized by multiple bankruptcies and store closing announcements.
Retailers have become more deliberate about external growth opportunities as restructuring has been -- become the strategy du jour.
Our long-standing, disciplined development approach remains intact.
Our underwriting practice requires achievement of 60% pre-leasing and receipt of all non-appealable permits prior to acquisition of land or commencement of construction.
We will not build on speculation.
During the first quarter, we elected to terminate our purchase option for a predevelopment stage project near Detroit, Michigan, which resulted in a $627,000 charge for abandonment -- abandoned predevelopment costs.
Recall that we did not deliver any new developments between October 2008 and November 2010.
Since that time, we have delivered 10 new developments, acquired 7 existing outlet centers and sold 8 noncore centers.
Given the current market conditions, we feel the highest return to our shareholders is to focus our leasing efforts on filling vacant space in our existing portfolio, which we believe is the fastest way to grow cash flow and shareholder value.
Two areas of recent leasing focus have been food and the home products category.
Our food objective has been to make more and better food offerings available to enhance the shopping experience.
While this can be challenging due to outlet traffic patterns being more concentrated on the weekends, we have had success signing 44 new food leases during 2016, 19 of which were new to our portfolio.
Our centers will now have seated dining options like Texas Roadhouse and Metro Diner; fast casual options like 5 Guys, Chipotle, Zoës Kitchen, Rise Pies, Jimmy John's and Schlotzsky's Deli as well as coffee and grazing food options like Dunkin' Donuts, Krispy Kreme and Planet Smoothie.
Our home objective has been to enhance the variety of home product offerings in our centers as a convenience to our shopper and to earn a greater number of her overall shopping trips.
In 2016, we executed leases to add 7 home product tenants to our portfolio, including Restoration Hardware, HomeGoods, Westpoint Home and Kirklands and are currently negotiating deals with additional tenants in the home products category.
Demand for outlet space is also coming from existing retailers interested in selectively opening new stores or upsizing their existing stores, as well as retailers that are newer to outlet distribution.
The seasoned tenant group includes retailers like Old Navy, Michael Kors, Polo Ralph Lauren, Sketchers, Columbia, Under Armour and Bath & Body Works, which is adding the White Barn and Candle brand within their stores.
Other than the food and home tenants I've just mentioned, the newer tenant group includes T.J. Maxx, Yves Delorme in this home category; Tory Burch, Lululemon, francesca's, H&M, Dockers, Torrid, New Balance and Asics in the apparel and footwear categories; Alex and Ani, Brighton and Shinola in the accessories categories; and bare + BEAUTY in the health and beauty category.
As Jim mentioned, we've invested over $300 million of our own capital in the past 10 years, upgrading the look and feel of our centers.
We are starting to see some of the top fashion brands like Coach and Polo introducing new store designs that are leading to dramatic increases in sales.
I will now turn the call back over to Steve.
Steven B. Tanger - CEO, President and Director
Thank you, Tom.
As I mentioned earlier, our consolidated portfolio was 96.2% occupied.
As of March 31, 2017, 30 basis -- down 40 basis points from last year.
Historically, we have maintained both high occupancy and a dynamic lineup of the most sought-after brand name retailers.
At times in the cycle, when underperforming brands have shuttered stores, we have capitalized on those opportunities to enhance the tenant mix by filling the space with fresh new brands that our shoppers tell us they want in our centers.
While these sought-after retailers have a lower relative cost of occupancy that may impact retenanting spreads in the short-term, remerchandising vacant space with high-volume retailers has been a successful long-term strategy for Tanger for more than 35 years.
Enhancing the tenant mix in this way has historically increased shopper traffic, driven demand from additional new tenants and increased future renewal spreads and overall tenant sales productivity.
With these objectives, we have planned major remerchandising projects at 7 of our centers during 2017.
These centers are located in Howell, Michigan, Hilton Head, South Carolina, Jeffersonville, Ohio, Myrtle Beach, South Carolina, Ocean City, Maryland, Tilton, New Hampshire and Westbrook, Connecticut.
Excluding 7 leases, totaling 138,000 square feet associated with these remerchandising projects, blended base rental rates increased 13.8% during the first quarter of 2017.
The 138,000 square feet retenanted with exciting high-volume retailers, required the consolidation of 22 storefronts with an average size of 6,300 square feet to create 7 new storefronts with an average size of approximately 19,700 square feet.
Including these projects, blended rental -- blended base rental rates increased 8.4% during the first quarter on about 1 million square feet.
Through the first quarter of 2016, we had executed about 950,000 square feet.
Additionally, over the past several years, we have successfully implemented a leasing strategy to give tenants fewer and shorter renewal options, to increase the number of leases with annual rent escalations and to convert pro-rata CAM to fixed CAM.
Spreads have narrowed over this period of time because rents are generally closer to market at lease expiration or when space is recaptured as a result of our ability to capture base rent growth throughout the lease term and to increase CAM reimbursements.
As of quarter end, approximately 34% of the space in our consolidated portfolio was on fixed CAM.
These embedded base rent and CAM escalations during the term of our leases are key drivers of our same center net operating income growth.
With the lowest average tenant occupancy cost among the mall REITs at just 9.9% for our consolidated portfolio in 2016, we have been successful at raising rents while maintaining a very profitable distribution channel for our tenant partners.
Lease spreads are a function of what rates were years ago, what locations in the center are coming up for renewal and what decisions we made to remerchandise and strengthen a property for the long-term.
In addition to having negative impact on rent spreads, these remerchandising projects are also expected to have an approximately 100 basis point negative impact on same center net operating income for 2017.
Same center net operating income increased 1% during the first quarter of 2017, which as I mentioned earlier, is our 54th consecutive quarter of comp NOI increase.
In fact, our same center NOI as grown cumulatively by 47% over the past 5 years.
In addition, portfolio NOI, which includes NOI from comparable centers, increased 10.9% throughout the consolidated portfolio during the first quarter of 2017.
For the last 5 years, our portfolio NOI has grown by 46% cumulative.
Lease termination fees, which are excluded from same center and portfolio NOI, were approximately $1.2 million during the first quarter compared to $600,000 in the same period last year.
Average tenant sales productivity within our consolidated portfolio was about $380 per square foot for the trailing 12 months ended March 31, 2017, or $403 per square foot on an NOI weighted basis.
On a same center basis, tenant sales performance was down 3.5% for the consolidated portfolio and down 2.4% for the overall portfolio compared to the 12 months ended March 31, 2016.
There are a number of factors impacting tenant sales for the 12 months ended March 31.
For the past 12 months, 4 new centers have rolled into the consolidated portfolio average tenant sales metric, including Foxwoods in Memphis, during the first quarter of 2017 and Grand Rapids in Savannah during the third quarter of 2016.
Initially, new centers do not typically exceed our portfolio average, but in the first several years have the potential for strong tenant sales growth.
Westgate is a good example of this.
Having started out below our portfolio average in the first quarter of 2014 and grown to its current productivity, is ranked in one of our top 10 centers.
Tenant sales were also impacted as a result of 1 fewer shopping day compared to the prior trailing 12-month period, which included a leap day and by the shift in the Easter holiday.
The trailing 12 months ended March 31, 2016, included 2 Easter holidays, April 5, 2015, and March 27, 2016, providing a difficult comparison period for the trailing 12 months ended March 31, 2017, which did not include an Easter holiday.
Unlike regional malls that are largely located in market, many of our outlet centers are located in drive-to-vacation destinations, which we believe results in a more pronounced impact of the Easter shift.
Other factors negatively impacting apparel sales are the shift in spending from soft to durable goods and prevalent price deflation, as underperforming retailers continue to deeply discount product that is not resonating with the consumer, particularly those retailers that are closing stores and liquidating inventory.
On a relative basis, other retail venues have cited negative sales growth over the past couple of years as a result of the negative impact of the strong dollar on international tourism.
As they enter -- as they anniversary of the onset of the strong dollar impact, their comps have grown relatively easy.
While our sales have been stable in recent years with minimal impact from the strong dollar, our comps have become, on a relative basis, more difficult.
Our initial guidance underestimated the impact of longer downtime, unexpected store closings and lease termination fees.
We are revising our guidance for consolidated portfolio same center NOI growth to a range of approximately 1.5% to 3%, excluding the impact of remerchandising in several of the 7 centers mentioned earlier.
Including these centers, we are updating our consolidated portfolio same center NOI guidance to a range of approximately 0.5% to 2%.
The primary drivers of our current expectations are delayed store opening, expectations and incremental unexpected store closing relative to our previous forecast.
Through the end of the first quarter, we have recaptured approximately 62,000 square feet within our consolidated portfolio, related to bankruptcies and brand-wide restructuring by retailers compared to approximately 45,000 square feet during the first quarter of 2016.
Based on our current expectations, we expect to recapture approximately 22,000 additional square feet during the second quarter of this year.
And for the full year, we expect the total to be similar to the amount over the past 2 years.
We recaptured 105,000 square feet during 2016 and 157,000 square feet during 2015 within our consolidated portfolio related to bankruptcies and brand-wide restructurings by retailers.
Taking into account our releasing expectations, we currently expect average occupancy for the full year to be approximately 96% compared to actual 2016 average occupancy of 97%.
To a lesser extent, incremental lease modifications and reduced percentage rents are now reflected in our same center NOI guidance.
These factors are partially offset by approximately $1 million in incremental operating expense savings not reflected in our previous guidance.
These savings resulted from a management review of our operating and marketing expenses to determine how we can operate more efficiently.
Lease termination fees are not included in same center NOI but help offset, and may more than offset, the impact of rent loss from store closings, resulting in immediate cash flow.
The amount and timing of lease termination fees can be volatile and difficult to protect -- predict.
Our current 2017 guidance is based upon $2.3 million of forecasted lease termination fees for the full year, including $1.1 million expected to be recognized during the second quarter.
Our previous guidance assume no lease termination fees.
We are also adjusting our net income per share guidance to a range of FFO and AFFO per share guidance and FFO guidance by $0.04.
The reduction is a function of lower same center NOI and the write-off of predevelopment costs for the Detroit Project, partially offset by approximately $2.3 million of lease termination fees, $1.1 million of which we expect to be recognized in the second quarter.
While lease termination fees are not included in the same center NOI, they help to offset rent loss when stores close.
The amount and timing of lease termination fees are volatile and difficult to predict.
Our previous forecast did not include any lease termination fees.
Currently, we expect our 2017 estimated diluted net income to be between $1.04 and $1.09 compared to our previous forecast of $1.02 and $1.08.
And our AFFO and FFO per share to be between $2.40 and $2.45 compared to our previous forecast of $2.41 and $2.47.
Our current FFO guidance represents growth of 1.3% to 3.4% over 2016 AFFO per share.
This includes a $0.06 per share increase in interest expense.
Excluding the dilutive impact our guidance would represent growth of 3.6% to 5.7%.
Unchanged from our previous forecast, our estimates for CapEx and second-generation tenant allowance, general and administrative expenses, financing transactions and acquisition and disposition activity.
Combined, we expect 2017 CapEx and second-generation tenant allowance to be about $60 million as we continue to reinvest in our portfolio.
A little over $10 million of that total will be allocated to routine CapEx, while the remaining $50 million split between tenant allowance and renovation projects in the sites I mentioned earlier.
Due to tight expense control, our G&A expense guidance range is between $11.2 million and $11.7 million per quarter for this year, which is 2% less than 2016's quarterly range.
Our forecast assumes approximately 95.7 million and 100.7 million weighted average diluted common shares for 2017 net income and AFFO per share, respectively.
Our forecast does not include the impact of any refinancing transactions, any property acquisitions or the sale of any outparcels of land or additional outlet centers.
The resiliency of the outlet channel has been proven over the past 35 years through many economic cycles.
We have more than 3,100 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 6.2% of our base in percentage rental revenue or 7.7% of our gross leasable area; and approximately 90% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements.
To conclude, despite bankruptcies and store closing announcements by a number of underperforming retailers, outlets continue to provide the brand value and experienced trifecta that consumers crave, and one of the most profitable channels of distribution for retailers.
We believe our fortress balance sheet, the strength of our core portfolio and our long-standing retailer relationships will leave us well positioned to weather the headwinds of today's retail environment.
And now, I'll be happy to call -- I'll turn the call to any questions.
Operator
(Operator Instructions) Your first question comes from the line of Craig Schmidt with Bank of America.
Craig Richard Schmidt - Director
I was wondering how long will the major redevelopments negatively impact leasing spreads?
And when those projects are done, what might the trajectory of leasing spreads look like going forward?
Steven B. Tanger - CEO, President and Director
Craig, we expect most of the redevelopment projects to be done by the end of this year.
And historically, within the next 12 to 24 months, after the retenanted shopping centers open, that you start to see a positive trajectory in nearby tenants renewing, new tenants coming in; we've done this many times in the past.
You may remember years ago when Liz Claiborne went out of business, they were our anchor tenant and we had to remerchandise most of our properties.
So this is something we've done.
We think it's an investment.
It's painful in the short term, but we think long term, it's the best way to create shareholder value and increase the sales and productivity and profitability of the centers that are remerchandised.
Craig Richard Schmidt - Director
Great.
And then, just given the amount of wood you're chopping this year, is it likely that you may not have a new project to open in 2018, or is that yet to be determined?
Steven B. Tanger - CEO, President and Director
I'm chopping so much wood here we're getting splinters.
So we review and we have a pipeline of potential new sites.
There is demand and there is, certainly, the outlet centers are under-stored and undeserving our customers.
There is only about 175 outlet centers in the complete country.
So there is demand, there is markets that we have identified.
When the tenant demand, at rents that we can get the appropriate return are prevalent, we'd be happy to continue to develop.
Right now, as we mentioned in our prepared remarks, the fastest, most efficient way to create shareholder value is to fill existing space.
There is very little cost and immediate return and immediate cash flow.
So we're going to maintain the discipline we've had for the past 35 years.
We've been through cycles like this before, as I mentioned.
We are not going to build on speculation.
We are very pleased that our disciplined approach to the capital allocation has worked.
Our balance sheet is a fortress.
And we're going to maintain the same strategies that we've done before.
Operator
Your next question comes from the line of Christine McElroy with Citi.
Christine Mary McElroy Tulloch - Director
Just to kind of follow-up on Craig's question and realizing that you're not going to build on spec and it's a tougher environment and you're putting more capital into leasing.
Just as you think about sort of capital allocation and using free cash flow, in addition to those sort of larger remerchandising efforts at select properties, what's your desire to do more of the sort of larger redevelopment and expansion projects?
Kind of putting more capital back into your existing assets to make them even stronger?
Steven B. Tanger - CEO, President and Director
We believe in doing that, as we've had our entire corporate history.
As I mentioned in my remarks, we have invested $330 million into the look and feel and upgrading our properties in the last 10 years.
Each of them look great.
We will continue to allocate a portion of our free cash flow to continue to upgrade our properties.
The 7 remerchandised centers that you alluded to are major projects, and we'll put those properties in a very dynamic underserved market, where we feel we can attract really high-volume tenants.
With regard to Lancaster, we are in the midst of a $50 million expansion and renovation, bringing in just fantastic new tenants to the property to consolidate that center as the outlet center in the Lancaster market.
So, Christine, we agree with you, it's a good investment for us to continue to upgrade our portfolio.
But we have lots of capital, we have over $100 million now of free cash flow.
And we're going to prudently allocate that capital to various sources: raising our dividend, keeping our debt low, refinancing from a short-term floating rate debt to long-term fixed-rate debt and upgrading our properties.
Christine Mary McElroy Tulloch - Director
Okay, thank you.
And then, Steve also just following up on your comments about the Easter shift.
Do have a sense for maybe how much impact that had on sales growth?
Just thinking sort of ahead to Q2, when that shift issue is eliminated, what the normalized sales growth rate could look like?
Steven B. Tanger - CEO, President and Director
It's -- well, in the past the month of April, traffic has been up and sales have been up.
We just got traffic results and they are up mid- to high single-digits for the month of April.
We won't know sales impact until the 20th of the following month, but historically, it has been positive.
And we hope that trend continues.
Operator
The next question comes from the line of Caitlin Burrows with Goldman Sachs.
Caitlin Burrows - Research Analyst
Earlier you mentioned some good quick details on your portfolios since 2010 in terms of developments, acquisitions, dispositions.
And yesterday, CBL and Horizon announced they sold their outlet center at Oklahoma City.
So I was just wondering if you guys had looked at that property, were aware it was on the market, and then kind of if so what made you decide to ultimately not moving forward?
Steven B. Tanger - CEO, President and Director
We were aware that the property was on the market.
It did not fit into our strategic planning.
And we decided not to pursue it.
Caitlin Burrows - Research Analyst
Okay.
And then, you mentioned before about the kind of limited number of outlet centers that there are in the U.S. I guess, when you think about acquisition opportunity, just generally, do you think there are many acquisition opportunities out there?
Or do most of them kind of not fit what works for Tanger?
Steven B. Tanger - CEO, President and Director
Well, the good news is, we have probably close to $500 million available in free cash flow to -- I mean, in immediate cash availability to be opportunistic should some center come available that does fit into our planning.
Right now we don't know of one.
But if anybody is listening and they have an outlet center that they want to sell, please give us a call and we would be happy to think about it.
Caitlin Burrows - Research Analyst
Got it.
And then just in terms of adding the food options to your portfolio.
Have you guys noticed that this increases dwell time at all, which could be a positive for growth in the future?
Or is it still too early to tell all the impact of the added food?
Thomas E. McDonough - COO and EVP
This is Tom McDonough.
We don't have any empirical data, but we -- anecdotally, our managers have told us that all of this food has been very helpful in retaining people on the property longer, which is our key objective there.
Operator
Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets.
Andrew Patrick Smith - Associate
This is Drew Smith on for Todd today.
I would be curious if you could just speak in detail a little bit about the decision to terminate the project in Detroit.
You cited current market conditions in your press release.
I was just hoping just elaborate on that a little bit, and maybe give us some insight as to how far along you are in terms of pre-leasing thresholds?
Steven B. Tanger - CEO, President and Director
Sure.
As we mentioned in our prepared remarks, we decided not to move forward with the Detroit site because we did not meet the leasing -- minimum leasing committed 60% threshold that's been our discipline for many, many years.
And we could not see visibility to get to the 60% in the near term and decided rather than throwing money after a project and maintaining options on the land, we decided to move forward with other strategies, mainly filling existing space and focusing the tenants and our leasing reps on filling our existing space than moving forward with the Detroit project.
And we've done this, and you can go back and check over the past 10 years, there have been many times, where we've done due diligence pre-leasing and decided not to move forward.
And we took a $627,000 write-off in Q1, which is about $0.01 per share.
So we bit the bullet and we've decided not to pursue anything on speculation.
Andrew Patrick Smith - Associate
Great, that's helpful, thank you.
And then just lastly, in terms of same center NOI, just curious, if you foresee any further deceleration throughout the year?
Or do you think maybe this is the trough here in 1Q and maybe things inflect a little bit moving forward?
Steven B. Tanger - CEO, President and Director
Well, we've given you guidance for the year.
We think it will continue to improve and we're comfortable with the guidance that we've just put out.
Operator
Your next question comes from the line of Omotayo Okusanya with Jefferies.
Omotayo Tejamude Okusanya - MD and Senior Equity Research Analyst
Steve, part of your commentary in regards to why guidance was lowered, really kind of focused on this idea of unexpected store closings, relative to previous forecasts.
And, I guess, you guys have always prided yourselves on having a good pulse on what's going on with your tenants.
Just curious, why you termed these "unexpected" and kind of what really happened in those scenarios that you were in?
It wasn't something you were forecasting initially.
Steven B. Tanger - CEO, President and Director
We get sales reports every month from our tenants, and do our best to limit our exposure to some -- to selected tenants that are not performing well or not investing in their own business.
But occasionally, there are people that decide to close without any advance warning or without any advanced discussions.
And that happens.
And I'm sure it will continue to happen.
Our leasing team has done a marvelous job over the past 35 years in filling vacancy on an organized and rapid schedule.
And our tenants are being more deliberate, doing more due diligence before executing leases to fill the vacant space.
So we've revised our guidance based on that.
They may -- the corporate entities that close stores may not be healthy corporate entities, but are doing well in our outlet centers.
So it's an interesting phenomenon that the outlets are the cash cow, but some of the other divisions are doing poorly and that forces them to close stores.
Omotayo Tejamude Okusanya - MD and Senior Equity Research Analyst
Okay.
And then would you say there are definitely more conversations today, just from a retailers -- basically acting to get out of their leases?
Is this more just kind of pay the term fees and just kind of call it quits?
Steven B. Tanger - CEO, President and Director
I don't think there is more or less than the years past.
Poorly performing retailers have conversations with their landlords all the time.
And we make a decision whether to give a short-term lease modification and to maintain occupancy if the -- if our tenant partner has invested in their own business, and this is a short-term blip for them.
If a tenant has not invested in their business and is overleveraged due to whatever ownership structure they have, we're not inclined to invest in that business.
So these are not unusual or new conversations.
Just like we have many, many more conversations with new tenants coming in to the outlet sector that are excited and use this opportunity to get space in our portfolio.
Keep in mind, our portfolio is over 96% occupied.
The only way some of these new, vibrant tenants can gain access is if some other tenants go out.
So it's a process that's been going on for 35, 36 years we've been in business.
It's nothing new.
Omotayo Tejamude Okusanya - MD and Senior Equity Research Analyst
Got it.
Okay.
Last one for me.
Just in regards to the upcoming ICSC, can you just talk a little bit about your schedule, tenants you are planning to see whether things kind of feel like business as usual, or whether anything feels unusual about it?
Thomas E. McDonough - COO and EVP
This is Tom McDonough, again.
Before I answer that, just following up on what Steve -- on your earlier question.
I think we've guided to the second quarter the amount of square-footage that we expect to close, and that includes 1 tenant -- only 1 tenant that has approached us about leaving.
With respect to the ICSC, we've heard some -- about some tenants that aren't planning to attend the ICSC, but our schedule appears to be as full as normal.
And it is a great event for us from a leasing standpoint.
It brings us together with many, many tenants at the same time.
So we will be there in force.
Operator
Your next question comes in line of Michael Mueller with JP Morgan.
Michael William Mueller - Senior Analyst
Steve, I was wondering, can you give is little more color on some of the store opening delays that you were talking about that's contributing to the guidance as well.
Is it just -- is it delays in identifying the tenants that are going in there?
Or is it delays in permitting and things like that?
Steven B. Tanger - CEO, President and Director
Well, there is a number of different things.
First, the remerchandising centers require a lot of the juggling.
As we mentioned, we have to hold off the market, 22 storefronts, in order to be able to consolidate space to accommodate the new tenants.
As you might imagine, we're moving tenants, we're consolidating space, the new tenants coming in are negotiating and executing leases.
This is a complicated process to remerchandise, we're not just filling vacant space.
The tenants, on their own side, are being deliberate and I'm glad they are.
They are studying markets and they are delaying, executing leases until they're satisfied, which is good, because they are informed customers.
The tenants we're talking to are well-financed to go into these spaces, and they are in high demand.
So we are very happy that they are coming into Tanger Centers, and if there's a minor delay to convince them or provide them with the necessary information, that's just fine with us.
Michael William Mueller - Senior Analyst
Got it.
Okay.
And then, I think in your earlier commentary as well you were talking about how, as you are signing leases these days, you typically don't give renewal options.
Where before, on like a new development, maybe if there was something like that.
But as you are leasing to these larger tenants, this 20,000-square-footers that you talked about, does it change there?
Do those tenants require you to step up and give options where you necessarily wouldn't do it for 3,000 or 4,000 square foot tenant?
Steven B. Tanger - CEO, President and Director
Michael, every tenant is different as you know.
I prefer not to talk specifics.
But we endeavor to sign in an initial term, whether it be 5 years or 10 years, and to either not agree to a renewal option or in some cases, we do, depending upon the tenant and the strength they have in the center.
Operator
Your next question comes from the line of Carol Kemple with Hilliard Lyons.
Carol Lynn Kemple - VP and Analyst for Real Estate Investment Trusts
On the remerchandising, I know you don't want to give specific tenant names.
But are the larger tenants that are coming in your center, are those all apparel or are you seeing some home furnishing?
Kind of -- are you losing apparel tenants and replacing them with better apparel tenants or you looking to go in a different direction with the space?
Steven B. Tanger - CEO, President and Director
Some of the space is apparel.
They are some of the highest volume of apparel tenants in the country right now.
They are the hottest names.
And we also are excited, we're signing leases now with a very, very high volume home store.
So look, our mix -- we are satisfied with our own mix between apparel and jewelry and accessories right now.
We're maybe 58% apparel, which is down from 5 or 10 years ago.
We used to be in probably the low to mid-80% apparel.
So we've adapted to consumer demands and we will continue to do so.
Carol Lynn Kemple - VP and Analyst for Real Estate Investment Trusts
And I know you all have theaters on some a your properties.
Has there been any more interest in getting other entertainment concepts?
It seems that some of your mall peers are going into.
Is that something that Tanger has looked at?
Or do you feel that there are plenty of retailers, you don't need to go that route?
Steven B. Tanger - CEO, President and Director
First, there is plenty of retailers -- we don't need to go that route.
Second, we're 96% occupied.
And to provide the space for a large theater or a Dave & Buster's or some of these entertainment venues, we just candidly don't have the space.
And we have sufficient demand from existing new high-volume tenants that we have not shown much of an interest in putting these people in.
Operator
(Operator Instructions) Your next question comes from the line of Floris van Dijkum with Boenning.
Floris Gerbrand Hendrik van Dijkum - Senior Analyst of REIT
Steve, a question for you on -- you guys have been pretty disciplined in selling some of your lower productivity assets, but if I look at your asset list, you still have -- your bottom 10 assets produced average sales below $280 a square foot.
What are your thoughts on those centers and do they fit long-term in the Tanger portfolio?
Steven B. Tanger - CEO, President and Director
We do have a strategic review with our asset management team a couple of times a year and every one of our assets to decide whether to invest, to keep it order to sell it.
Every portfolio has its bottom 10%-or-so.
And we focus on these with -- there are none of these assets on the market for sale.
We do get occasionally inbound calls which we pursue, but right now, these assets are producing profitably for us.
And unless we get an appropriate price, we don't see a reason to sell them.
Floris Gerbrand Hendrik van Dijkum - Senior Analyst of REIT
Okay, and one other question I had for you.
As you -- you say 34% of your leases now are on fixed CAM.
As you move more of your existing leases to fixed CAM, what is the impact going to be on your occupancy costs?
Because your occupancy -- one of the benefits in the past has been lower occupancy costs, but presumably, fixed CAM raises that occupancy cost for tenants.
How do you see that moving forward?
Steven B. Tanger - CEO, President and Director
Fixed CAM is an accepted business practice with both our tenants and ourselves and other landlords.
So I don't, as long as our sales continue to grow, which we expect they will and our costs remain in line which I've said, we have done a strategic review by our management team in all of our operating expenses.
We don't think that the cost of occupancy will go up, but on the tenant side they would prefer the certainty of their monthly expense so they can budget appropriately versus a pro rata variable one.
So it works for both of us, Floris.
There is no direct link between fixed CAM and increase in the cost of occupancy.
Operator
Your next question comes on the line of Mike Beall with Davenport.
Michael Sunderland Beall - EVP, Portfolio Manager and Director
With the development opportunities maybe not so robust in the past and share price where it is, when do you consider buying your own stock versus other capital opportunities?
Steven B. Tanger - CEO, President and Director
I'm going to let Jim Williams take that.
James F. Williams - CFO and SVP
We're very proud of the balance sheet that we've created, and one of our main focuses -- we're proud of the private investment grade that we have.
So we're mindful of any strategy that we are pursuing what does to our balance sheet.
We still think that reinvesting in our properties and expanding our successful centers, renovating our properties to really meet what our customers are beginning to expect, managing of our debt, we still think those are the main priorities that we want to focus on.
We haven't ruled out stock buybacks, I think particularly, if the levels where our prices now, we certainly run those models and if there is not a better use of cash, then we will lean more to that, but as long as it doesn't hamper our flexibility that we have in our leverage ratios.
We like our leverage ratios where they are and we are not interested in pushing too strong on that.
Operator
Your next question comes from the line of David West with Davenport & Company.
David McKinley West - Director of Research
My questions were asked and answered.
Thank you.
Operator
There are no further questions at this time.
I'll turn the call back over to the presenters.
Steven B. Tanger - CEO, President and Director
Well, thank you all for participating on our call today and for your interest in Tanger Outlets.
We look forward to seeing you at one of our (inaudible) roadshows this month or at the NAREIT conference next month.
We are always available in answering your questions.
Have a great day.
And thank you, very much.
Goodbye now.
Operator
Thank you, ladies and gentlemen.
This concludes today's conference call.
You may now disconnect.