Tanger Factory Outlet Centers delivered a strong first quarter, beating expectations and raising its outlook for the year, despite surging COVID-19 cases in the United States, inflation and a swinging stock market.
“Consumers are demonstrating their desire to shop at Tanger Centers and retailers are committed to our outdoor destinations, as evidenced by our rental dynamics and tenants’ desire to expand our portfolio,” said Stephen Yalof, President and CEO of Tangier. A declaration.
“We remain focused on sustaining our organic growth as we continue to accelerate leasing, commercialize marketing and reshape operations, while advancing new developments and pursuing opportunities to generate new revenue streams. and create long-term portfolio value.”
The company operates high-end outdoor retail centers; owns or has an interest in 36 properties, including Tanger Outlets Riverhead in New York and Tanger Outlets Myrtle Beach in South Carolina, and is developing its 37th, a 300,000 square foot shopping center in Nashville, Tennessee.
For the first quarter ended March 31, Tangier’s net income rose to 19 cents per share, or $20.3 million, from 4 cents, or $3.9 million, in the same time of year previous.
Funds from operations were 45 cents per share, or $49.4 million, compared to 38 cents, or $38.2 million, a year ago.
Basic FFO was 45 cents per share, or $49.4 million, compared to 40 cents, or $40.6 million, for the prior year period. Base FFO for the first quarter of 2021 excluded expenses of $2.4 million, or 2 cents per share, related to a voluntary retirement plan and severance pay.
The occupancy rate was 94.3% as of March 31, compared to 92% as of March 31, 2021, although slightly lower than the 95.3% rate as of December 31, 2021. The recent slippage was attributed to typical play of temporary and temporary leases. .
The net profit forecast for 2022 has risen to 69 cents to 77 cents per share, from 66 cents to 74 cents previously, and in April Tangier raised its annual dividend from 73 cents to 80 cents per share.
In the following Q&A, Yalof discusses how the company plans to maintain momentum, evolve the tenant mix, and navigate through major headwinds.
Stephane Yalof
WWD: With sky-high gas prices at $4 a gallon or more, how does that affect attendance at your centers, which many shoppers drive to?
Stephane Yalof: People driving a longer distance to our centers is an old story. Many of the markets where our centers exist have benefited from the movement of people from the cities to the suburbs. We have seen it over the past two years. The population is increasing in the cities where we have positioned our shopping centres, so local retail is becoming a more important theater of the success of these centres. We still rely very heavily on tourist traffic by car, but you don’t have to pack the car and drive miles and miles to get to a mall in Tangier like you did 10 or more years ago . We are bargain priced. People see an exchange. What they spend on gas, they get back in value and savings when they shop at our centers. The last time gasoline hit that $4 level, right at the time of the recession, our centers did extremely well.
WWD: How has the traffic been lately?
SY: Traffic for the quarter was up and the first reading for April indicates that it was up from last year, mainly due to the Easter shift, from April 4 of last year to April 17 of This year. It is important [because] Tanger Style, a perennial promotion, essentially a discount on participating brands that’s on top of other value shoppers get, usually starts two weeks before Easter. So last year it started at the beginning of the third week of March. This year, the program only started in April and we are seeing the results.
WWD: How has inflation impacted your business?
SY: Inflation causes a lot of stress in all channels. We are certainly not immune. But the value channel is definitely favored in times of inflation. Most brands benefited from a big price increase in the fourth quarter of last year, where usually in October and November, especially in the retail space, you’d see retailers slashing prices and getting a bit more promotions to compete with customers. We didn’t see this momentum until late December of last year, but now these high prices…we’re seeing retailers become more promotional in our centres. And everyone wins. This is great for shoppers and for the retailer as a big part of their POS strategy is to convert [sell] excess product that has not been transferred elsewhere.
WWD: What is the current rental rate?
SY: We have added 230 basis points of occupancy over the past year. We saw a sequential decline from the end of the year. This is typical in the first quarter because seasonal and temporary leases usually fall. But there really hasn’t been the same speed of fallout of years past, where retailers hold out through the holiday season and then close stores. This dynamic did not occur this year. In fact, only two brands have closed stores. We were prepared. We have a pretty strong pipeline of new tenants and expanding tenants. Fila brand stores have closed. They just decided to leave the exit space.
WWD: How are you changing the mix of tenants?
SY: We have relied heavily on clothing and footwear in recent years. These are the brands that were growing, taking on bigger footprints. What we have found is that a more diverse assortment in our malls creates a much better customer experience. With that in mind, we researched different brands, different uses, different categories, as well as more experiential retail, and food and beverage. During the past quarter, Crate & Barrel opened in Riverhead, NY, and Mitchell Gold and Bob Williams Home Furnishings opened in August, in Riverhead and San Marcos, Texas. It’s also important to share some of the best brands we’ve added [including] St. John to some of our malls, Wolford, Regatta. It’s a big dynamic, more fashionable clothes in the last quarter overtake casual clothes, when it comes to comps.
WWD: Are the demographics of buyers in your centers changing?
SY: A lot of the work we do is to attract the best brands, the most current brands, the brands that have the most followers. In doing so, we are targeting digital native brands that appeal to a much younger consumer. We’ll have the first Summersalt store, not to mention the outlet, which will pop up on Memorial Day in our Myrtle Beach hub. [Summersalt emphasizes swimwear.] It is a brand purchased online by a much younger consumer. We will benefit from their digital marketing and following and they will benefit our customers. Our digital initiatives with the Tanger site, whose marketing targets a much younger clientele. This young buyer certainly enjoys window shopping before making a transaction.
WWD: Landlords raised rents after granting breaks earlier in the pandemic. What is Tangier’s approach to leases?
SY: As we begin to recast new leases, whether renewing existing tenants or with new transactions, we are focusing on longer term leases. Our renewals are up six months and new leased spaces are up nearly four years. We’re also making great strides in taking that variable rent and turning it into base rent, which is much more protective for us. We are priced, from a rent occupancy perspective, in the lowest brick and mortar range. We position you next to some of the most powerful brands on the planet, whether it’s Ralph Lauren or Nike. This is our value proposition.
WWD: Tell me about the ancillary revenue sources sought by Tangier.
SY: National brands like Coca Cola, NFL, Heineken, Unilever and Tesla want to take advantage of the crowds we see and want to showcase their product or service in front of the consumer. In Tesla’s case, it’s about offering test drives. In the case of the NFL in 2023, they will co-brand with our Phoenix property which is adjacent to where the Super Bowl will be played. So we’re working with the NFL to host events and do promotions in the months and weeks leading up to the Super Bowl. With Coca Cola, there is both product placement and signage in our portfolio. Last summer’s Heineken initiative was a non-alcoholic drink launched by Heineken in our malls based on a taste test.
WWD: What is the status of the 300,000 square foot Nashville project?
SY: We’ll start later this month, with a grand opening planned for fall 2023. In many of these hot markets, it starts with the great education system that fuels the workforce that fuels bigger and better businesses. who are located there. With the momentum of better companies moving into these markets, all ships are rising. Vanderbilt University [located in Nashville] or other colleges at this level nurture the workforce, especially in the field of technology. You have Amazon building two office towers and Oracle building a large office complex, both located in The Gulch, a rapidly growing downtown neighborhood that is fueling population growth and density. Our shopping center will be 20 km from the city center.
WWD: Is Nashville advancing your POS platform?
SY: Our vision is to move from a real estate company to a customer experience company. We see this manifesting as a customer-centric shopping experience, which means we don’t just rent space to retailers. Our business is to entertain buyers during their visit. We must be more than just a shopping experience. We need to be much better at food and drink. We need to have much better equipment. We need to provide a much better service. Although some of our existing shopping centers are currently moving towards this, this center will be built with this framework in mind.
