Tanger Factory Outlet Centers, Inc. (NYSE:SKT) Q1 2024 Earnings Call Transcript

Tanger Factory Outlet Centers, Inc. (NYSE:SKT) Q1 2024 Earnings Call Transcript May 1, 2024

Tanger Factory Outlet Centers, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Ashley Curtis: Good morning. I’m Ashley Curtis, Assistant Vice President of Investor Relations, and I would like to welcome you to Tanger Inc.’s First Quarter 2024 Conference Call. Yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation. This information is available on our IR website, investors.tanger.com. Please note that this call may contain 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.

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 1, 2024. At this time, all participants are in listen-only mode. Following management’s prepared comments, the call will be opened for your question. On the call today will be Stephen Yalof, President and Chief Executive Officer; and Michael Bilerman, Executive Vice President, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A.

I will now turn the call over to Stephen Yalof. Please go ahead.

Stephen Yalof: Thank you, and good morning. I’m pleased to announce another quarter of solid performance. Last year’s positive momentum carried into our first quarter and we continue to successfully execute on our strategic initiatives of unlocking the embedded value in our portfolio through our leasing, operating and marketing efforts and selectively pursuing external growth. In the first quarter, same center NOI grew by 5.2% and core FFO per share by 13%, driven by the execution of our internal and external growth initiatives. Leasing volume and rent spreads are key indicators of our ability to reprice our space and over the trailing 12 months, we leased more than 2.3 million square feet of GLA, representing nearly 20% of our portfolio, and an average increase of 13% on a comparable basis as reflected in our rent spreads.

Rent spreads in the quarter were 36% for re-tenanted space and 11% for renewals. We are pleased with the demand for space in our portfolio as we maintain a robust pipeline of deals and progress with existing best-in-class brands and new to Tanger retailers, categories and uses seeking to grow their business with us. As of March 31, our portfolio occupancy was 96.5% flat to the prior year period for the total portfolio with our same center portfolio up 60 basis points. As we discussed last quarter, we continue to grow occupancy and create demand for space in our centers. That end, we’re focused on portfolio enhancement. Where appropriate, our leasing professionals are prioritizing re-tenanting and right-sizing over renewing selected stores in order to enhance the overall merchandising mix, utility and shopper experience.

Over the past few years, we have seen renewal rates greater than historical averages. Today, we see our increased pricing power as a catalyst to driving higher re-tenanting activity, which may result in renewal rates returning to our previous levels. Peripheral land has continued to be an important driver of incremental growth as we continue to activate and monetize our real estate with a variety of complementary uses and attractions that add to the diversity of experiences on center and drive both local and tourist trade. Additionally, the locations of our centers are benefiting from broader demographic, travel and migration trends. We have the advantage of serving high tourist destinations, which are also the areas of the country that are experiencing elevated population and employment growth.

This creates additional demand drivers for our centers and uniquely positions them to cater to both destination shoppers and more frequent local shoppers. These shoppers enjoy our mix of apparel and footwear retailers, as well as the new categories we’ve added, which include food and beverage, entertainment, and health and beauty uses. Traffic in the quarter was up slightly to last year, as a challenging January was impacted by weather related closures. However, this was offset as the quarter progressed with a stronger February and March due in part to the earlier timing of Easter. Sales led by family apparel, athletic and footwear brands drove an increase in trailing 12 month total portfolio sales per square foot to $437, a sequential improvement over our year end reported numbers.

We are pleased with the integration of the three centers we added to the Tanger platform in the fourth quarter last year. Nashville continues to build momentum benefiting from tourist shopper visits and the growing local population. As sales and traffic continue to grow, we’ve executed leases for most of the remaining space and look forward to welcoming these exciting retailers to Tanger Nashville. Both our Asheville and Huntsville centers have proven to be strong contributors and natural fits to our platform. We are executing against our strategic plans for each with new tenant announcements, food and beverage additions, and shopper amenities expected later this year. With our proven track record as operators and asset managers of Open Air Centers, we continue to see opportunities to selectively pursue expansion.

Our solid balance sheet position and operational expertise have provided a wider addressable market as we consider additional acquisition opportunities. We will maintain a disciplined approach, which incorporates leveraging our best-in-class leasing and operating platform, as well as our retailer relationships to create value. I want to thank the Tanger team, our shoppers, retailer partners and all of our stakeholders for their contributions and support toward our continued success. I’d now like to turn the call over to Michael.

Michael Bilerman: Thank you, Steve. Today I’m going to discuss our first quarter financial results, our balance sheet activity, and our increased guidance for the year. Overall, we continue to deliver strong financial results, driven by both internal and external growth backed by a solid balance sheet which was further enhanced by the recent upsizing, extension and reduced pricing on our unsecured lines of credit. In the first quarter, we delivered core FFO of $0.52 a share compared to $0.46 a share in the first quarter of the prior year as we saw continued solid operating growth along with the contributions from the three new centers added in the fourth quarter. This growth was partially offset by increased interest expense from the new interest rate swaps which became effective during the first quarter.

Same center NOI increased 5.2% in the first quarter, driven by the robust leasing and positive rent spreads that Steve talked about which has led to higher rental revenues from increased base rent and higher expense recoveries. In addition, in the first quarter, we recognized certain expense refunds related to expenses from prior year periods, which were approximately $0.01 higher than we anticipated. This was partially offset by additional snow removal expenses compared to the milder winter in the prior year. Our balance sheet remains well-positioned to support our internal and external growth initiatives with low leverage, a largely fixed rate balance sheet, minimal debt maturities until late 2026 and ample free cash flow after dividends.

At quarter end, we had an equity market capitalization of $3.4 billion and had $1.6 billion of pro rata net debt. Including the $325 million of interest rate swaps that went into effect in February of this year, approximately 93% of our total debt outstanding is at fixed rates. While our net debt to adjusted EBITDA was 5.7 times at pro rata share for the trailing 12 months ended March 31, 2024, pro forma for a full year of adjusted EBITDA for the three new centers that came online during the fourth quarter, we estimate that our leverage ratio would be between 5.2 times and 5.3 times on a trailing 12 month basis, still one of the lowest in the REIT sector. At quarter end, we had $474 million of availability on our unsecured lines of credit and $23 million of pro rata cash and investments.

Subsequent to quarter end, we were pleased to amend our lines of credit which increased Tanger’s liquidity, reduced our borrowing costs and extended our maturity through 2029 with options further enhancing our flexibility to pursue Tanger’s growth initiatives. With the amendment our borrowing capacity increased by $100 million to $620 million with an accordion feature to increase that capacity to $1.2 billion subject to lender approval. In addition, our pricing grid was improved, including a 15 basis point reduction at current levels while all of our financial covenant thresholds were maintained. We were very pleased with the execution of our line recast, especially during a difficult real estate lending environment and greatly appreciate the continued strong support from our overall lender group.

Thank you for your confidence in Tanger, our growth, our credit and our team. In April, our Board approved the 5.8% increase in our dividend to $1.10 per share on an annualized basis, which lifted our dividend yield approximately 20 basis points with the shares yielding just under 4% today. Our quarterly cash dividend remains well covered with a continued low payout ratio that provides free cash flow to support our growth. In the first quarter, our dividend payout ratio was at 54%. Now turning to our increased guidance for 2024. We’re increasing our core FFO per share expectations by $0.01 to a range of $2.03 to $2.11, or 4% to 8% growth over 2023. We have increased our same center NOI growth expectations by 25 basis points on both ends of the range to a new range of 2.25% to 4.25% predominantly due to the better than expected expense refunds that I previously discussed.

All the other expectations remain unchanged from the guidance that we provided on our year end call. For additional details on our key assumptions, please see our issue — our release issued last night. We are greatly looking forward seeing many of our financial stakeholders at upcoming industry events and property tours. The next stop on the Tanger tour will be at Tanger Outlets Savannah, which will take place on May 7 in conjunction with Wells Fargo’s 27th Annual Real Estate Securities Conference, which takes place on May 8th and 9th in Florida. In addition, members of our management team will be hosting meetings at BMO’s Conference in New York on May 8th, the ICSC Conference in Las Vegas on May 20th and 21st and NAREIT’s REIT Week in New York on June 4th through the 6th.

With that, I would now like to open up the call for questions. Operator, can we take our first question please?

See also 10 Extreme Dividend Stocks to Buy Now and 12 Best Places to Retire in Puerto Rico.

Q&A Session

Operator: Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] And our first question will come from the line of Jeff Spector with Bank of America. Please proceed with your question.

Jeffrey Spector: Great. Good morning, and congrats on the quarter. My first question just thinking about enhancing the merchandising mix, I know we’ve discussed this, but if you can maybe talk a little bit more about that. Are these tenants that are in outlets already? Are these tenants that are in, let’s just say, other outlets and not yours or maybe some are at Deer Park, but you’re hoping to expand or maybe a combination?

Stephen Yalof: Good morning, Jeff, and thanks for the question. Yeah, it’s a combination of all. We’re doing a really good job of surfing out new brands and retailers that haven’t been in the Tanger platform or haven’t been in outlets before. And we’re quite proud when we’re able to bring a new retailer into the outlet space. We’ve announced a number of those. We talked about Nashville, where 20% of the tenant mix in Nashville were either new to Tanger or new brands to the outlet space. We’re also going after diversified uses, better restaurants, sit down restaurants, they’re moving away from food courts and moving more into a sit down experience. We’re also going after different brands for our peripheral land, where we’ve a lot of traction, signed a number of deals that we’re looking forward to announcing shortly.

But again, adding brand new brands, uses, amenities to the portfolio to create a far more diverse experience because as we go after both that tourist customer and the local customer, we’re looking for things for all of our shoppers to do when they come and visit.

Jeffrey Spector: Thank you. And then, as you’ve been achieving this — you’ve been working on this the past year. I know it’s a bigger part in 2024, but are you bringing in a different or new customer at some of the centers where you have work, let’s say, brought in some of these new categories and tenants?

Stephen Yalof: Absolutely. Go back to Hilton Head, South Carolina where we added Nantucket meat and fish. It’s a great example of a grocery store opening up in one of our shopping centers that’s anchored by H&M and Nike. And we see a whole new set of people coming in shopping more frequently and staying for the brand shopping as well. We’re seeing our catchment area expanded as we add these new uses and we’re seeing our frequency of visit expand as well. So I think the strategy for us is to improve the complement of uses when you come to one of our shopping centers. I think the customer is demanding a far wider ranged experience when they come to us, not just that traditional power shot that we get at the outlet centers of a generation ago.

I think our customers are looking for far more wide ranging uses, amenities, services and product categories and that’s what we’re going after. And our customers are responding. And you can see it in the traffic numbers as they continue to build this quarter. You can see it in our sales numbers as they continue to build this quarter. So a lot of that strength is coming through based on a lot of the work that our leasing team has done.

Jeffrey Spector: Great. Thank you.

Stephen Yalof: Thanks, Jeff.

Operator: Thank you. Our next question is coming from the line of Craig Mailman with Citi. Please proceed with your questions.

Craig Mailman: Hey, good morning. Steve, I just want to go back to the commentary about clearly retention could be up and down this year as you guys are more purposeful about re-tenanting and remerchandising. It seemed like you emphasized that. Should we expecting anything in the next quarter or two, so that we’re not surprised here if retention drops or occupancy kind of dips in the near term?

Stephen Yalof: No, I don’t think there’ll be any surprises, but we guided to 2% to 4% same center NOI growth. We’ve grown that guidance 2.5 to 4.5 same center NOI growth. So I think that those numbers are all contemplated in our guidance. Sorry, I said 2.5, I mean 2.25% to 4.25%, Craig. But as far as we’re concerned, I think strategically what we’re looking to do is, it’s been retained 95% of our customer base on a renewal basis for the last two years. This year we anticipate less renewal because we see some of that renewal space as opportunity to re-tenant. We’re getting over 30% spreads on our re-tenanting. We’re getting close to 10% to 12% on our renewal and it’s a great trade for us, if we can take some older retailers that we’ve been renewing over the past 10, 15, 20 years, right-size them in better locations inside our portfolio and then replace some of that more visible space with far better retailers that are far more productive.

And that’s been the trend, that’s what we’ve been doing. There’s a number of retailers that are going to be brand new to our portfolio that we’ll be announcing shortly that are great examples of that strategy.

Craig Mailman: And kind of bigger picture, I know these some of these initiatives are newer, but you guys have done a lot on the digital side with the new app and that initiative there. I mean, are there any early takeaways from how customers are using it or I don’t know, if you guys are actually tracking kind of how they’re moving about through the centers, but anything on that front that’s helping you kind of reprice space within your centers or having kind of a different take on maybe what’s the more valuable space or how people are kind of approaching their shopping patterns?

Stephen Yalof: We haven’t been using our internal digital footprint in order to speak to how to value our real estate. I think that our centers — the footprints of our centers are manageable enough that supply and demand certainly dictates that pricing. We are using our digital footprint however to communicate better with our shoppers and our customers. And being in the discount space, we’re able to communicate everyday value in everyday discount in partnership with our retailers to get out in front of that. So as an example, a lot of our a lot of full price retail, a lot of brands that don’t typically go on sale can’t offer as a catalyst to drive customers into your shopping center an additional discount. In our space, we can and because of our great relationships with our retailer partners, we’re able to use the speed that digital offers to get new offers out in front of our customers and drive shoppers into our centers.

Craig Mailman: That’s helpful. And maybe just one last one. Michael, on Express, I know you guys lost one tenant there and you’ve been pretty clear in your responses at conferences and last quarter’s earnings. But from the range of outcomes that could happen there, kind of, it is a potential 7, which I know is not being discussed really, but is that captured in the low end of the range? Do you think, could you just kind of talk about the range of outcomes for that particular tenant as you guys kind of build-up guidance?

Michael Bilerman: Yeah. Thanks, Craig. As you noted, we were ahead of this. We talked about it on last quarter call. We contemplated a range of outcomes in our guidance, sort of, what we know today, we continue to believe will be in that range and it’s a fluid process. I think you step back from it overall, the outlet business overall when you go through different processes are usually the last stores to close. And they also benefit from having generally low OCRs and pretty high productivity. And so I think the outlet channel during this process has demonstrated a lot of the talking points that we’ve been communicating and certainly over the 40 year history of this company.

Craig Mailman: What do you think the OCRs are for that target (ph) roughly?

Michael Bilerman: You’re now into overtime and like four questions at this point.

Craig Mailman: I know, I know.

Michael Bilerman: We’re not going to talk about specific tenant OCRs. Our OCR for the entire portfolio is at 9.3%. As you’ve seen, we’ve been able to lift that OCRs as we’ve been driving our rents. So I think gives you an indication overall in our portfolio that we continue to believe that our rents are below market and we get the extra tailwind as tenant sales continue to move forward.

Craig Mailman: Great. Thank you.

Operator: Thank you. Our next question has come from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your questions.

Todd Thomas: Hi, thanks. Good morning. Steve, I just wanted to go back to your comments around tenant retention and some of the potential re-tenanting activity that you anticipate being a headwind to same store growth this year. What was the renewal rate in the first quarter and any sense on how 2Q is trending? I would imagine that you have better line of sight four or five months into the year, particularly after the holiday season with regard to some of that tenant churn that you’re talking about and the potential headwind that it might have on same store growth this year. I’m just curious, if you can provide a little more detail.

Stephen Yalof: Well, I don’t think it’s a headwind. I mean, again, it’s a strategy. So it’s easy to renew existing tenants. It’s a great strategy. You maintain your occupancy. The tenants continue to pay rent and we’ve been consistently getting nice growth. However, for our portfolio, if you have a 10,000 square foot tenant whose sales performance on a per square foot basis continues to slowly deteriorate, it’s incumbent on us as merchandisers of shopping centers to make sure that we put a more productive retailer in that particular location. And even more importantly, have that retailer who is the incumbent retailer reposition inside our center in a right sized box that also drives additional rent growth for us, but also more productivity for that retailer.

So the narrative is merchandiser centers for the future, make sure we’re putting in the most productive retailers that we can, making sure that the customer comes to shop with us has a complement of product to buy that they want, so they keep coming back, make sure that we’re constantly reinventing the footprint of our mall, but more importantly, reinventing the footprint of the store and forcing those retailers to really reinvent and upgrade their store build outs as well. I think we’ve been satisfied with that strategy of renewal for the past few years, as we exited COVID. I think our rent spreads particularly on the re-tenanting side have given us the courage and our conviction that we can command far more money for our space than we have.

We’ve grown our OCRs now over the last year by 100 basis points. We still think there’s room to grow and we’re a leasing company, that’s what we do and we’re going to continue to do so and the retailers are responding. We’re adding those new tenants that we’re talking about, new uses that we’re talking about. Couple of examples of which Huntsville, Alabama, we’re thrilled to welcome Warby Parker to the center. That’s our first deal that we’ve done with Warby Parker, thanks to our partnership with Centennial (ph) who’s done the leasing at that project for some time, great partnership. But again, these are new brands that we’re bringing into our portfolio and looking forward to expanding those brands throughout the portfolio. And that’s what I think our customer wants, that’s what they’re shopping for, that’s what’s going to keep them coming back.

Todd Thomas: Okay. Has the renewal rate started to normalize a little bit from 95% or so down towards kind of the mid to low-80s, where it has been historically?

Stephen Yalof: That’s how we’re thinking about it and that’s how we planned it.

Todd Thomas: Okay. And then, I just wanted to follow-up on, I guess, Express and maybe the range of outcomes for certain events here during the year. Just I think last quarter you indicated that you had about 50 basis points of bad debt reserves embedded in the 2% to 4% same store range, which I realized was lifted this quarter, 25 basis points, it sounds like due to expense refunds. But is there anything else on top of that for unexpected move outs or bankruptcies, because Michael, you mentioned some of — sometimes these restructurings are fluid, they can take a sudden turn. And I’m just curious whether you can provide a little bit more detail around what’s budgeted and what degree of confidence you have that they will emerge from bankruptcy just given they’re a top 10 and 170 basis points of ABR?

Michael Bilerman: Sure, Todd. When we talked on the 4Q call and provided that 2% to 4% range, we did reference where our bad debt had been historically, we can see the numbers from last year around 35 basis points, but the range in bad debt, when you have a 2% to 4% range, it contemplates different levels. What we’ve been trying to communicate is effectively our 2% to 4% original guidance which we have increased by 25 basis points due to the expense refunds that we did get in the quarter. It’s still — we still feel comfortable with that range as we sit here today and contemplate the variety of outcomes that could come about. We don’t want to get into different alternatives, Chapter 7, Chapter 11, how a Chapter 11 process will go.

What we know today, that’s been public. Express came out with a store closure list. On that store closure list there was one tender store out of the 30 stores that we have. And overall, there was only three outlet stores, open air outlet stores on that list, which demonstrates to us the value of the outlet channel, the outlet platform for brands and retailers.

Todd Thomas: Okay. Thank you.

Operator: Thank you. Our next questions come from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your questions.

Caitlin Burrows: Hi, everyone. Good morning. Steve, I think earlier you commented on the volume of leasing you did in the last year, your 2.3 million square feet, which is pretty impressive. So, as you guys consider your pipeline today, the activity, the conversations, do you think that volume of leasing activity can be sustained? And I guess, why or why not?

Stephen Yalof: I have my EVP, Leslie (ph) is sitting next to me shaking his head, yes. We do because we think that there’s a lot of other brands that are discovering the outlet channel. We also think as we’ve started to allow brands that are not necessarily traditional outlet brands into our platform, they’re finding that our locations and our positions within the communities that we serve to be the place the customer wants to shop. So as we create these diverse mix of retailers in our footprints in these tourist driven, local population driven market places that were traditionally reserved for outlet only, we’ve opened up the floodgates to a whole new set of uses and that’s why we’re having such great velocity of retailers and other uses that want to join the mix.

Caitlin Burrows: Got it. Okay. And then, just on the leasing spreads, you mentioned how they are pretty impressive on the new leases, but at least this quarter the TIs were pretty high too. So I was wondering, if you or someone else could talk about the TI trends, what type of tenants are asking for what and how you’re deciding which to actually agree to fund?

Stephen Yalof: So, Caitlin, when you look at supplemental, the tenant allowances were relatively flat sequentially, so pretty consistent with the types of retailers that are coming into the space. And if you think about the gross rent that we’re getting $47, the 68 of TA on 8.5 years of duration is a pretty appropriate payback period. And obviously, as a company we think about that investment that we’re making into the real estate for the productivity. And in almost all cases the tenant is putting substantial dollars ahead of our capital that we’re providing as they build out the stores. Caitlin, I know you’ve been out to a number of our centers and you can see the build outs of the re-tenanted spaces that are really strong.

Caitlin Burrows: Okay. Got it. Thank you.

Operator: Thank you. Our next question has come from the line of Floris van Dijkum with Compass Point. Please proceed with your questions.

Floris van Dijkum: Hey, good morning, guys. Question on capital allocation, I was particularly interested in the Huntsville transaction you guys executed last year. And I think you indicated you’ve looked at over $7 billion of assets that you underwrote. As we look forward, maybe talk about the pipeline of stuff that you’re looking at and how many more of those lifestyle centers could be contemplated to be added to the portfolio over the next 18 months or so?

Stephen Yalof: Sure, Floris. So like, we step back from it just thinking about our size, right. We’re a $5 billion company. We don’t need a tremendous amount of transactions. We want to make sure that the transactions that we do are value enhancing, where we can bring our operating, leasing and marketing platform to bear. We’re not a buy and hold company. If we’re going to acquire something, we wanted to ensure that it fits with our strategy and where our platform can create value. We think as part of that strategy is incumbent upon us to look at everything, which is why we’ve looked at a lot of transactions, so that when Huntsville or Nashville comes about, we can act quick. And being able to act quick is why the balance sheet is so well positioned to be able to go after those opportunities.

So being able to have the liquidity, getting our line recast, getting additional availability, having the free cash flow and operating at a lower leverage levels allows us to be opportunistic when transactions are in the market or when there is disarray in the marketplace for us to be able to act. Our balance sheet is really clean, so we have the ability to take over assets with secured debt. We have an ability to do joint ventures. We have the ability to do partnerships. There are so many different alternatives, but the most important thing that we want to keep in our mind is we want to be disciplined, we want to be prudent, and we want to ensure that we can create value so that when we announce transactions we’ll be able to articulate the growth that we can see as those assets come into the market into our portfolio.

Floris van Dijkum: And so we should presume that you’re constantly evaluating stuff and you will not make announcements as and when things get agreed. Is that the right interpretation?

Stephen Yalof: Yeah. We are an active organization looking a lot of opportunities, but they’re going to have to be the right ones and there’s nothing embedded in our guidance. We have no — we don’t want to set a transaction amount, that’s not the way we operate because if we find a deal we have to look at that deal, finance it appropriate at that time relative to the return that we see going in and over the long term and we’ll keep everyone apprised as deals come through. And we’re optimistic that we feel that this platform that’s been built has the ability to own and manage additional open air retail centers that have effective lifestyle and outlet component.

Floris van Dijkum: Great. And if I can follow-up perhaps and I know this is the question I’ve asked you guys in the past, but maybe if you can give us a little bit of an update on your thoughts on getting more luxury type tenants in your portfolio? Have you made any progress? Which centers are in your view are the most likely to be the ones that receive some of that demand? And maybe think about what the potential impact of having more of these types of tenants in your portfolio, what would that do to your sales productivity and to your rental levels?

Justin Stein: Floris, this is Justin. Thank you for the question. Yeah. We continue to evaluate all the tenants throughout our portfolio asset by asset. And we can share that we recently opened Lafayette 148 in our National Harbor asset. We recently brought in Ba&Sh, a luxury tenant into Riverhead. Kate Spade recently opened in Charleston. So we continue to penetrate that elevated market case by case, center by center, and we’re going to continue to chip away at that going forward.

Floris van Dijkum: Thanks.

Operator: Thank you. Our next questions come from the line of Greg McGinniss with Scotiabank. Please proceed with your questions.

Greg McGinniss: Hey, good morning. On the dividend yields along with the payout ratio, they’re one of the lowest amongst retail REITs. How are you thinking about additional dividend increases over the next few years?

Stephen Yalof: Thanks, Greg. Well, dividend yield is a factor of stock price, right. And so we think about our dividend level, which is obviously a Board level decision. We’ve been able — the last number of years coming out of COVID to raise that dividend yield as our cash flow has been growing, right. We’ve seen considerable FFO growth and we’re sharing in that growth with our shareholders, and still maintaining as low of a payout ratio as regulations, right, that allow us to because free cash flow is free. And so that free cash flow really helps to fund all of our internal and external growth initiatives on an effective basis in a high capital cost environment. So, we recently, as we noted in the release and a couple of weeks ago, raised a quarterly dividend to an annualized level of $1.10 a share.

The payout ratio in the first quarter was 54%. That payout ratio should trend a little bit higher just based on the timing of CapEx relative to the first quarter. And then we’ll continue to evaluate how we can share in that cash flow growth over time.

Greg McGinniss: Okay. [Multiple Speakers]

Michael Bilerman: And provide the potential to return to shareholders.

Greg McGinniss: Okay. But the expectation is to kind of maintain as much free cash flow as you can. Understood. Could you provide more…

Michael Bilerman: We’re balancing REIT regulations and free cash flow, right. Those are the two variables that we think about.

Greg McGinniss: Okay. Could you provide a bit more color on what you saw regarding the increasing strength in consumers through quarter end? Has that trend continued into April? And is this a situation where trailing 12 month tenant sales may see greater sequential growth in Q2?

Stephen Yalof: We’re optimistic about the sales growth. A lot of the strategies that we’re employing that we talked about, replacing some older brands that with sales that are deteriorating with what we think are newer concepts that have great productivity ahead of them, I think is going to contribute to our sales growth. We’re also doing a wonderful job from marketing point of view. We’ve balanced our marketing approach to both touristic as well as localized marketing. We’ve been continue to invest in local marketing in a lot of the centers that paradigm has shifted. We talk about the suburbanization of America, where a lot of folks are moving to the geographies where our centers currently exist and because of that we’re going after a whole new catchment.

We’re also merchandising our shopping centers to attract that catchment as well. So that’s why we’re optimistic about sales going forward. As far as the April run rate versus the March run rate, the Easter was in March this year, typically what retailers and developers do is, we blend our March and April sales to make those two comps a fair fight.

Greg McGinniss: Okay. And I guess with regards to some of those new concepts, are you seeing higher average tenant sales from those new offerings? And is there any categories in particular that are doing well?

Stephen Yalof: Yeah. Health and beauty is really doing great. We’re really very pleasantly surprised with apparel, mostly family apparel, American Eagle and those brands just doing exceptionally well. I also think discipline on our part to make sure that these stores are right sized. The old narrative outlets were to give the retailer as much space as they wanted, but as we’re learning now with more efficient with faster delivery, with more efficient floor sets, a lot of our retailers could be far more productive on a per square foot basis in far smaller footprint and that works out great for everybody. It gives us an opportunity to have far more productive stores in a shopping center and provides a lot more variety to shopper.

Greg McGinniss: Thanks, Steve. At the risk of being chastised for asking too many questions, I do have one more. Given the strength of the balance sheet, the level of retailer demand with most assets in the high 90s occupancy, are there opportunities to add square footage to any of the centers? And is there any other redevelopment being considered at this time?

Stephen Yalof: There are. Well, there’s a couple of ways that we’re adding square footage to our shopping centers. I mean, there are Phase 2 locations in a number of our centers. In others, we’ve got peripheral land and our peripheral land strategy has been one that we’ve really uncovered a couple of years ago. It takes a bit to ultimately see those spaces cash flow. But we signed a number of deals. Arizona is a good example. We’ve got a Texas Roadhouse that should be opening shortly. That’s on a piece of peripheral land that’s immediately adjacent to the shopping center. So we’re finding demand for peripheral land close to our centers has heightened by virtue of the fact that, again, we are the regional draw in the markets that we serve and brands if they can’t be in line want to be adjacent to where the car — where most of the cars in that geography are being parked and that’s in our tenure centers.

Greg McGinniss: All right. Thanks again.

Operator: Thank you. Our next question has come from the line of Samir Khanal with Evercore ISI. Please proceed with your questions.

Samir Khanal: Hey, Michael. Just most of my questions have been answered. But on the — just on the modeling side here, the other revenues in the income statement, I think that’s ancillary income sponsorships that you’ve done. I know that you’ve tried to sort of touch many of the assets and that line has actually grown over time. And I think in the quarter, it was maybe down year-over-year. I’m just trying to understand how much there is more to do on that from ancillary income, sponsorships, etc.? Thanks.

Michael Bilerman: Sure. So step back just in the first quarter, first quarter last year, our center in Westgate in Phoenix, Glendale is right beside where the Super Bowl is placed and we did a significant amount of marketing last year in first quarter. So that’s what’s affecting the year-over-year comp. Now if we step back and go to the full year, driving other incremental revenues at our centers continues to be a top priority and we think we’ll continue to have higher growth in the overall core portfolio and that’s what you’ll see trend through the year as we continue to activate, drive our marketing partnerships and a lot of the other income sources that we’re able to do at our centers just driving off of what Steve was talking about the cars being regional draws. There’s a fair amount of tenants that want to get in front of those consumers each and every day.

Samir Khanal: Okay. So it seems like you can still grow that line. I think last year you’re up like 12%. So that’s sort of the double-digit growth. Is it still the right sort of number to think about?

Leslie Swanson: Absolutely. This is Leslie Swanson, Chief Operating Officer. We see a lot of potential. As we’ve outlined over the last several years, we’re very, very keenly focused on incremental revenue, which not only needs marketing partnerships from a sponsorship and media perspective, but we’re very committed to operational ancillary revenue streams as well and we see a lot of that ROI come from our solar, from our EV charging. So what you’re looking at in that line item is a culmination of all of those strategic efforts made by our teams across the country.

Samir Khanal: Got it. And then last one for me. Michael, is the expense recovery ratio, I know that moves around a lot and I think it was much higher this quarter. What’s kind of the right number to think about for the long term for the business?

Michael Bilerman: So we think about this year in totality, probably be in the mid-80s maybe up a little bit from that level. The first quarter did benefit from the expense refunds that I talked about which reduced our OpEx. So that the recovery rate is going to show higher because the operating expense number was down a little bit. The other factor is, it is heavily seasonal because we’ve moved largely to a fixed CAM structure, our recoveries are generally flattish during the year absent our spreads, but the operating expenses are highly variable both from controllable as well as uncontrollable expenses. As we talked about the last few quarters, just from a cadence during the year, you should expect the recovery rate to be higher in the first half of the year and lower in the second half of the year as there typically is additional spend in the third and fourth quarters relative to the flat reimbursement level.

We are trying to drive as part of our strategy which has been the last number of years drive total rent which is increasing both base rent and that base rent line and higher reimbursements from the tenants which shows up in the reimbursement line and that’s why we continue to talk about total net growth which all drops to NOI. Is that helpful?

Samir Khanal: Yes. Yes it is. Thank you.

Operator: Thank you. Our next questions come from the line of Vince Tibone with Green Street. Please proceed with your questions.

Vince Tibone: Hi, good morning. Renewal spreads turned positive during ‘22 while the average lease term was about three years, but sales are currently down versus ‘22. I’m just trying to get a sense as these leases start rolling in ’24, excuse me ‘25 and ‘26. It feels like renewal spreads could be a little pressured and much lower than current levels unless sales really pick up. Am I thinking about this the right way or is there any color you can share on how we should think about renewal spreads after this year once you begin anniversarying the first renewal, the current team signed with the tenant?

Doug McDonald: Sure, Vince. This is Doug. When we look at 9.3% portfolio average and you’re right, there’s different vintage and market discrepancies, but we still feel that there is room throughout our portfolio for additional rental increases. And we are going to continue to pursue those and in situations where we feel that there aren’t as many rent growth opportunities if the tenant is somewhat maxing out of its productivity level. Those are some of the opportunities that we are looking for the remerchandising opportunities bringing in the new tenants creating that sense of vibrancy, additional traffic drivers, all those elements that Steve has discussed for the last few quarters.

Vince Tibone: Okay. That’s fair. But just to maybe follow-up, I’m just trying to think about kind of some of the basic OCR math. So let’s say, sales are up 5% over three years, contractual bumps are probably more than that, cumulatively. So I guess, like, do you think you’ll be able to push OCRs further on a lot of these tenants? Because imagine when the new team came in place who already accomplished that. I’m just trying to figure out the lever like do you think you can continue to push OCRs to get better spread or can kind of keep spreads positive and attractive or is it I guess that I’m struggling to put the pieces together on how renewal spreads at least could keep stay at the current levels? Because I totally agree on the new leases, there’s a great remerchandising opportunity. But on the renewal side is, where I guess, I’m trying to figure out what lever you guys could pull to keep those robust at the current levels for the next few years?

Stephen Yalof: Well, [indiscernible] we’ve now shown our retailers that those tenants that have expiring leases, they need to be productive in order to stay in the center. So if a store is not productive, we’re either going to ask them to reposition, downsize, right-size or we’re going to replace them. So if you’re — the key lever for growing rents for tenants that are renewing is the competition from the new productive retailers that are coming into the shopping center.

Vince Tibone: No, that’s fair. Makes sense. And then maybe one last one for me. Just how do you — how much do you think retailer inventory strategies impact demand for the outlet space? Like, it seems like everyone’s maybe a little tighter on inventory strategies today, but that obviously could change, we could loosen up. Like, how does that matter at all for trends in new store opening or yes, just curious to get your comments and thoughts there?

Stephen Yalof: Yeah. Look, I think a lot of brands are using outlet as a strategy to do a number of different things. It’s from clear excess inventory and look if you have an immediate excess inventory issue, you’re not going to do a 10 year lease in an outlet center to clear what might be a year’s worth of excess. Hence, we have a pop up strategy to allow a lot of our retailers to come in and sell through that inventory. And that’s give them an opportunity to have a taste of what the outlet center business is. We’ve done that with the member brands, direct to consumer brands that it becomes some of the faster growing brands within our portfolio. We also have other retailers that are always going to look at outlet because there’s an aspirational customer that shops our platform that may not shop those particular brands in any other channel.

So it’s the first point of entry for a retailer to engage a new consumer and then ultimately trade them up through their ecosystem. So we could talk chapter and verse about that dozens of different reasons why brands use outlet as a strategy, but those are sort of two strategies on either end of that spectrum.

Vince Tibone: No, that’s helpful. Thank you. Appreciate the time.

Operator: Thank you. Our next question has come from the line of Mike Mueller with JPMorgan. Please proceed with your questions.

Michael Mueller: Yeah. Hi. Just a quick follow-up on the peripheral land strategy. For clarification, is this land that you already own and are developing or is it unused land next to a center that you don’t own that you’re trying to acquire and ultimately put something on? And if it’s, land you already own, how many centers do you have that ability at today?

Justin Stein: Hey, Mike. It’s Justin. Thank you for the question. Primarily, it’s land that we have already owned. We’ve been doing a good job of activating and monetizing that peripheral land over the last 24 months to 36 months. Steve mentioned some of the brands that we brought in at Texas Roadhouse and Westgate. We also recently executed a Planet Fitness at Savannah, 7 Brews Coffee Shop in our Myrtle Beach asset. We believe very heavily in our peripheral land. We believe that there’s tremendous amount of opportunity. We recently brought somebody additional onto the team this week, that’s how much we believe in what we can do with our excess land. And as far as how many assets, we feel that there’s probably opportunity on our peripheral land in a little bit over half of our assets.

Michael Mueller: Got it. Okay. That was it. Thank you.

Operator: Thank you. We have reached the end of our question-and-answer session. And with that, that does conclude today’s teleconference. We appreciate your participation. You may disconnect at this time and enjoy the rest of your day.