Tanger - Q1 2023
April 28, 2023
Transcript
Ashley Curtis (Assistant VP of Investor Relations)
Good morning. This is Ashley Curtis. I would like to welcome you to the Tanger Factory Outlet Center's first quarter 2023 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 investor relations website, 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. 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, Core FFO, funds available for distribution or FAD, same-center net operating income, Adjusted EBITDAre, and net debt.
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, April 28, 2023. At this time, all participants are in listen-only mode. Following management's prepared comments, the call will be opened for your questions. We request that everyone ask only one question and one follow-up to allow as many of you as possible to ask questions. If time permits, we are happy for you to re-queue for additional questions. On the call today will be Steven Tanger, our Executive Chair, Stephen Yalof, President and Chief Executive Officer, and Michael Bilerman, 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 Steven Tanger. Please go ahead, Steve.
Steven Tanger (Executive Chair)
Good morning, and thank you for joining us for our first quarter 2023 earnings call. We had a very strong start to the year as we outperformed our expectations. Next month, we will be celebrating 30 years as a publicly traded company, and to mark that milestone, we will be ringing the closing bell on the New York Stock Exchange on May 10th. It has been an incredible journey where Tanger stock has delivered an above-market total shareholder return. Looking forward, we remain confident in our optimistic outlook as the team continues to execute on its growth strategy. I'll now turn the call over to Steve Yalof.
Stephen Yalof (President and CEO)
Thanks, Steve. Good morning. I'm pleased to report another quarter of growth as we have delivered positive results ahead of our expectations. Same-center NOI grew by 7.4%, driven by robust leasing activity and expense management, due in part to a mild winter. We continue to execute to our key strategic initiative of leveraging our platform to deliver reliable earnings and attractive growth opportunities. Leasing activity remains strong. We ended the quarter with occupancy of 96.5%, a 220 basis point improvement over the prior year. This reflects our leasing team's commitment to locking in higher fixed rents and expense recovery, extending lease terms, elevating and diversifying our tenancy, and maintaining high occupancy.
We delivered improved rent spreads for the eighth consecutive quarter, with our blended average rental rates increasing 13.8% for the trailing 12 months, ending March 31st, 2023. This represents a sequential improvement of 370 basis points of rent spread growth and up over 10x from the 1.3% spread we reported in the 1st quarter of 2022. Re-tenanting spreads grew 36.1%, renewal rent spreads grew 11.8%. Our ability to drive solid increases in renewal rents is the clearest demonstration of our retailers' commitment to the outlet channel and our ability to capture rent upside. This is further demonstrated by our higher occupancy cost, which as of the end of the quarter, was 8.8%, up 20 basis points sequentially.
As of the end of the first quarter, renewals executed or in process represented 57% of leases expiring this year, approximately 10 percentage points ahead of last year and at double-digit rent spreads. Sales and traffic continue to gain positive momentum. Traffic for the quarter was up 60 basis points compared to the prior year's first quarter. Total gross sales grew in the first quarter of 2023 from the prior year quarter. Our average tenant sales for the trailing 12 months also improved sequentially from the end of the fourth quarter to $447 per sq ft for the period ended March 31st, 2023. This sequential improvement is driven mainly by stabilizing trends in our core retailers, plus productivity gains derived from our new partners that are outperforming brands for stores that have exited our portfolio.
Our results also reflect the continued improvement to our marketing programs, which focus on media spend with clear, measurable results designed to drive traffic and sales. We are focused on digital media, which provides a more targeted reach with greater efficiency. We have added digital assets to all of our centers, including digital directories, tenant signage and easily identified QR technology directing customers to our Tanger digital channels and our virtual shopper services platform. Our enhanced platform provides shoppers with amenities and same-day access to every day and limited time promotional offers from our retailers, plus the ability to earn personalized retailer-funded incentives as they continue to shop with us. As shoppers turn to our digital services, we can increasingly personalize their experience. We continue to leverage our media platform, which provides a unique revenue opportunity to Tanger, given the scale and quality of our audience.
In the first quarter, we enjoyed great success on Super Bowl weekend at our Glendale, Arizona Shopping Center, securing campaigns from national brands such as Nike and Under Armour, as well as the NFL, which hosted a game day tailgate party on our site. Beyond adding more F&B and experiential retailers, we also continue to improve and update shopper amenities and are investing in sustainable on-site initiatives across our portfolio. These investments accomplish multiple objectives. In addition to improving the shoppers on-site experience, we continue to drive operational efficiencies, revenue generation, and environmental benefits. A few examples include our state-of-the-art security enhancements, growing electric security vehicle fleet, and increased solar and electric vehicle charging capacity. Finally, we continue to make leasing and construction progress on our Nashville development, where we are over 90% lease committed and anticipate our grand opening this fall.
I'm proud of our team and the strong results they continue to deliver and remain optimistic in our outlook. Earlier this month, our board approved an 11.4% increase in our dividend, reflecting this continued confidence. Tanger open-air shopping centers offer engaging and value-filled experiences for our shoppers and a highly effective sales channel for our retail partners. We have a high quality and diversified roster of tenants, increasing rents with more headroom for growth, and a platform with additional opportunities to grow NOI. I want to thank the entire team, our shoppers, retailers, and all of our stakeholders for their continued support. I'll now turn the call over to Michael.
Michael Bilerman (CFO and CIO)
Thank you, Steve. Today, I'm going to provide some color on our financial results, our balance sheet position, and provide an update on our increased 2023 guidance. Our first quarter results came in ahead of our expectations, with Core FFO of $0.46 per share compared to $0.45 in the prior year period. Same-center NOI for the total portfolio increased 7.4% for the quarter, which as a reminder, we present on a cash basis without lease termination fees. Our growth was driven by gains in occupancy from the robust leasing activity, strong rent spreads which have led to higher base rents and higher expense reimbursements, and operating expense savings in part from a milder winter.
In addition, we achieved this growth even as we comp the majority of the reserve reversals recognized in 2022, which as a reminder totaled $4.5 million dollars last year. Our operating results reflect our strategy of structuring leases to grow total rental revenues and higher CAM contributions while also converting percentage rents to fixed rents. We maintain a conservatively leveraged, well-laddered balance sheet with the liquidity and flexibility to pursue our growth objectives. We have no significant debt maturities into 2026, and we have been proactively addressing the February 2024 expiration of our current interest rate swaps. At the end of the first quarter, our cash and cash equivalents and short-term investments totaled $242 million or over $2 a share, with full availability on our $520 million unsecured lines of credit.
Our net debt to Adjusted EBITDAre was 5.2x for the 12 months ended March 31st, one of the lowest in the retail sector, providing additional capacity to drive our growth while staying below our target leverage levels. We will remain prudent in our approach to external growth. The weighted average rate on our debt at quarter end was 3.5%, with 93% of our debt at fixed rates and a weighted average term to maturity of 5.4 years. As previously discussed, we do have $300 million of interest rate swaps that will be maturing in February 2024. We have been selectively addressing these and to date have executed attractive forward-starting agreements on $100 million of these expirations.
We have locked in adjusted SOFR at a rate of 3.3% with an effective fixed interest rate of 4.5%, including our credit spread, extending duration for an additional 2.2 years, taking us into the spring of 2026. We are pleased with this execution and thank our banking relationships. We'll continue to look at various opportunities for the remaining expirations in the coming quarters. In terms of just thinking about our anticipated cash moves during the rest of the year, our biggest cash expense remains the funding of the rest of our development in Nashville. Through the end of the first quarter, we have deployed approximately $63 million, with an additional $83 million remaining to fund at the midpoint.
We also continue to anticipate deploying between $50 million and $60 million for recurring CapEx across our portfolio, which includes second generation tenant allowances and capital improvements, with approximately $8 million of that spend that occurred in the first quarter. Our recently increased dividend remains well covered with a continued low payout ratio, providing the company with additional free cash flow after dividends to drive our growth. Now turning to our increased 2023 guidance. We are increasing our expectations for Core FFO by $0.02 a share to a range of $1.82-$1.90. This is underpinned by a 75 basis point increase in our same-center NOI growth to a new range of 2.75%-4.75%.
This increase incorporates our first quarter outperformance, including lower than anticipated operating expenses, and is consistent with our strong operating performance. For additional details on our key assumptions, please see our release issued last night. We are looking forward to ringing the closing bell on May tenth for our 30-year anniversary, as well as seeing many of our investors and analysts at upcoming property tours, meetings and conferences, which we outlined in our earnings release last night. I'd now like to open up the call for questions. Operator, can we please take our first question?
Operator (participant)
Ladies and gentlemen, we will now be conducting our question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is coming from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Greg McGinniss (VP and Equity Research Analyst)
Hey, good morning. I just want to touch on the press release that you recently put out regarding a new tenant, Shake Shack and Dave & Buster's. You know, along that entertainment and food and beverage leasing, I'm just curious if you're starting to see any increase in visits or stay time because of those types of tenants that you're bringing in?
Stephen Yalof (President and CEO)
Good morning. The simple answer is yes. I mean, when you have sit down food and beverage, we've been adding that for the last, I would say 18 months, it's been a great practice for us. We're finding that a lot of our shopping centers, which are now sort of the centers of the community that they serve, those communities are really looking for places to come to spend time. The change to add more sit down, more entertainment, more experiential has definitely served its purpose of drawing people to our shopping centers. They're shopping more frequently, they're staying longer when they're there.
Greg McGinniss (VP and Equity Research Analyst)
Great. Thanks. Looking at some of the other leasing information you gave us, like mounted double-digit leasing spreads, blended spreads, what's the pace of leasing look like today versus, you know, six months ago? Sometimes it's just hard to kind of read between the lines on the trailing 12-month disclosure. I'm just curious if you can give us a little more clarity on kind of the pace of leasing today and types of rents that those tenants are signing at now.
Stephen Yalof (President and CEO)
Yeah, sure. You know, look, what it doesn't say on the page is the leasing activity in Nashville and the leasing activity in the shopping center that we're managing and entered into a strategic partnership with Clarion in Palm Beach. There's been a tremendous amount of leasing activity on both of those properties. Overall, across our portfolio, you know, you hit the nail on the head when you talked about some of the new retailers that we're seeing in that press release that we recently issued. There's a lot of new to platform and new to Tanger retailers that are coming to join us, and they're not just doing one store with us, they're doing several. You know, Justin Stein, sitting here, he's our Executive Vice President of Leasing.
Greg McGinniss (VP and Equity Research Analyst)
You know, maybe he'll share a couple of names of some of the tenants that are doing business with us right now.
Justin Stein (EVP of Leasing)
Yeah, Greg. As Steve said, we're diversifying our portfolio in a big way. Some of the brands that we've leased to recently, especially on the home furnishing side, Restoration Hardware, Design Within Reach, Casper, Crate & Barrel, Invicta. As Steve said, you know, we're doing multiple deals with these tenants throughout our portfolio. The leasing activity is definitely robust, and we look forward to continuing the progress with these guys.
Greg McGinniss (VP and Equity Research Analyst)
I'm sorry, just to clarify, on that leasing front, where I think that some of, you know, speaking with investors and listening to some of the retailer management teams talk about store openings, you know, it seems like maybe there was just a greater hunger for opening stores last year and year before. I'm just curious if you're seeing any sort of, you know, moderation in that demand in through Q1 and year to date.
Stephen Yalof (President and CEO)
You know, fortunately not. In our channel, what we're finding is a lot of our retailers are really optimizing outlet as a go-to destination for them, not only to clear out excess inventory, but to get in front of a new customer. There hasn't been much slowdown in leasing velocity over the past couple of quarters.
Greg McGinniss (VP and Equity Research Analyst)
Great. Thank you.
Operator (participant)
Thank you. Our next question is coming from Todd Thomas with KeyBanc. Please proceed with your question.
Todd Thomas (Managing Director and Equity Research Analyst)
Hi. Thanks. Good morning. First question, Michael, you emphasize that leasing efforts have aimed to capture higher base rents, but also, expense reimbursement revenue and expense recovery income was higher while expenses were down dramatically in the quarter. Your expense reimbursement rate was up in the 90% range this quarter, which is where it had been historically, but it was in the mid to high 70s, I think, a little bit more recently. Should we expect to see that stay in the 90% range going forward throughout the balance of the year and ahead?
Michael Bilerman (CFO and CIO)
Good morning, Todd. You're right. Our leasing strategy is really focused on driving base as well as expense reimbursements. In the first quarter benefited from the leasing strategy, but also the operating expenses, which were lower this quarter. We were able to get the fixed CAM, but we've managed our expenses this quarter, and there was also a little bit of timing related to some of our advertising spend in the first quarter. It will come down from a recovery perspective, but be higher than we were last year given the leasing strategy overall.
Todd Thomas (Managing Director and Equity Research Analyst)
Okay. For the tenants that are on fixed CAM, which I suspect is, you know, the bulk of the portfolio, you know, will there be, you know, sort of a reconciliation at the end of the year at all based on those actual results? I guess, how does that work exactly in your portfolio? Will there be an adjustment in future periods, you know, to the recoveries from tenants based on this quarter's operating expenses? What was the impact versus your budget related to the warmer weather on the operating expense side?
Michael Bilerman (CFO and CIO)
I'll take the second, and then I'll toss it to Steve to talk a little bit about the lease strategy. You know, the milder winter, we probably had a $1.5 million-$2 million relative to our savings overall. Within that, there was a little bit of timing as well for the rest of the year.
Stephen Yalof (President and CEO)
Just on fixed CAM. Fixed CAM is just that. You know, pro rata CAM is that's an old model, and a lot of businesses have pivoted to the fixed CAM. It's a lot easier for the retailers and certainly a lot easier for us. You know, you're hoping you're accurate in your numbers when you, when you put out your CAM dollar amounts at the beginning of each year. In some years, you may lose $0.01.
Todd Thomas (Managing Director and Equity Research Analyst)
Okay. Got it. Nothing sort of variable in there related to the fixed CAM component. Okay. Just last question, I guess. you know, along those lines with the, you know, your leasing strategy, you know, capturing more expense recovery income, converting percentage rents to fixed rents, does that change how we should, you know, think about base rent growth for here? I guess base rent growth was up 2.5% in the same store, but occupancy was up 220 basis points. You have rent escalators. You've talked about the positive leasing spreads. you know, eight straight quarters of improvements there. I guess, what's holding back base rent growth from accelerating, and are you expecting base rent growth to accelerate?
Stephen Yalof (President and CEO)
You know, our base rent number that we report is base rent and CAM. You know, we fill a lot of other buckets when we do a deal. Our triple nets include real estate taxes, the marketing fund. We talk a lot about marketing fund, and a lot of our retailers pay into that marketing fund. I mean, that's a big part of how we drive shoppers to our shopping centers. You know, I speak frequently about the fact that retailers don't necessarily use their own marketing capital to drive customers to an outlet shopping center and rely very heavily on us to do so. That's why our marketing team is robust, as robust as it is, and that's why that's an important component. It's not reflected in those base rent numbers.
Todd Thomas (Managing Director and Equity Research Analyst)
Okay. All right. Thank you.
Operator (participant)
Thank you. Our next question is coming from Samir Khanal with Evercore ISI. Please proceed with your question.
Samir Khanal (Senior Equity Analyst)
Good morning, everyone. hey, Steve. When I look at occupancy growth, you know, certainly very strong year-over-year, close to 97%. Can you remind us how much of that is the sort of temp occupancy right now? How are you thinking about that pool of tenants, you know, the ability to do the conversion to perm given a sort of the macro environment, you know, potential slowdown here?
Stephen Yalof (President and CEO)
Look, at a 97% occupancy, we still have 3% of unoccupied space in our portfolio. To us, that's an, that's an important metric. That's one that we're looking to fill and grow. We've done a pretty good job of growing our occupancy by 220 basis points over the course of the last year. Our temp is probably somewhere in that 10% range, you know, probably twice as high as historic averages pre-COVID. Again, you know, back in those days, we weren't as decentralized as we are as a team today. As a decentralized operating team, we rely really heavily on our general managers of each of our shopping centers to do localized leasing. That's an important component part of our centers.
You know, we bring in the best of the best in the communities that we serve, whether it's food and beverage, entertainment, experiential or retailers that drive a customer. We look to that temp tenancy not only to fill space and keep lights on, but also to provide a much needed variety to our shopping centers. We've also, our leasing team, we've built a team that now just focuses on a lot of those short term temp tenants that will take the best of the best of those retailers and see who could go from shopping center to shopping center, so we can start growing that business. Not only converting them from temp to long term, but increasing the number of stores that they have in our portfolio. That's an important part of our business too.
You know, we're focused on all aspects of that. The one component part that's most important to remember is that our temp leases, we control that real estate. We've got 30 days to cancel those leases. If they're sitting in the way of a long-term lease at considerably more rent, and we've said in the past, somewhere between two to four times the rent from a temp to a perm, we can notify that tenant, and we get that space back in short order, so it doesn't hold up any other long-term leasing activity, which is really our core business.
Samir Khanal (Senior Equity Analyst)
Thanks for that. I guess my second question is around, you know, the leasing environment and maybe external growth opportunities that exist. You've talked about the strong demand. I guess, how are you thinking about external growth? You've got Nashville. You got a pretty stable balance sheet here, so, maybe any color would be helpful.
Stephen Yalof (President and CEO)
Yeah. Well, look, we've built this pretty impressive operating model, an operating business based on the results that you've seen, leasing, operational, and marketing. You know, a lot of one-off owners, asset managers, and, you know, larger competitors have contacted us, and we're in discussions with a number of them, whether it's a JV partnership or acquisition opportunities that we can add tremendous value to those shopping centers. You know, if you take a look at the Palm Beach example, you know, since we've been leasing Palm Beach, we've done over 25 sq ft of transactions, and we've also taken some money out of the expense P&L just to manage the properties far more efficiently.
I think that narrative is playing out in a lot of our discussions, and our acquisitions team has been considering a number of opportunities. Obviously, we're not going to talk about anything until it's a done deal, but we're very active in that space.
Samir Khanal (Senior Equity Analyst)
Thank you.
Operator (participant)
Thank you. Our next question is coming from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Caitlin Burrows (VP)
Hi, everyone. Good morning. Maybe on lease maturities. The earnings release mentioned, and you mentioned earlier how you have renewals executed or in process for 57% of the space set to expire this year, which is 10 percentage points ahead of last year, but it is still a little below 2018 and 2019. I was just wondering what's driving the year-over-year pickup in pace for 2023, but limiting it from getting to kind of historical levels. There's a large amount of maturities in 2024. Wondering if you can kind of get to those early or not.
Stephen Yalof (President and CEO)
Well, first of all, good morning. I have to say that we see renewals, and we see this, that 24% that you referenced in 2024, we see that as opportunity. You know, we have 8 quarters of continued increase in our rent spreads. We think we've got pricing power. We've got the opportunity to drive additional rent. When we get this space back, you know, some of the negotiations are taking a little bit longer today than they might have taken in 2019 because we're holding out for rents. You know, the results speak for themselves. We're getting our price.
Caitlin Burrows (VP)
Okay. Just back to the press release from earlier this week that talked about the Shake Shack and Dave & Buster's outparcels. Could you talk about how those locations were selected for outparcel activity, and then to what extent you've gone through the portfolio to see how big the outparcel opportunity could be?
Stephen Yalof (President and CEO)
Well, you know, without giving an actual number on how big the outparcel opportunity could be, we think it's pretty robust. You know, it's as if we've got this portfolio of land in over 50% of our properties that will give us an opportunity to monetize over time. You also made the acquisition of the 7.5 acres in Glendale, adjacent to our Arizona shopping center, which, you know, I talked about earlier. We hosted the NFL's tailgate party on Super Bowl game day. That right now is under renovation to add all the relevant infrastructure to add a number of pads on that space.
We find that the retailers are seeing our shopping centers as sort of the center of the energy in the communities that we serve, and they wanna have access to our shoppers. You know, the flip side of that, particularly with the Shake Shack, yeah, our shopping center will really enjoy the benefit of the customer that Shake Shack draws. It's a great symbiotic relationship between us and our retailers. You know, we've got a team that is just focused on driving peripheral land growth and monetizing the external piece of our portfolio.
Caitlin Burrows (VP)
Thanks.
Operator (participant)
Thank you. Our next question is coming from Lizzie Doikin with Bank of America. Please proceed with your question.
Lizzie Doikin (Analyst)
Hi, good morning. I was hoping if you could provide just a bit more color on the cadence of your $50 million-$60 million CapEx guide throughout the balance of the year. If, you know, already realizing $8 million in the first quarter, what will the remainder of this year mark primarily come from, whether that be second-generation tenant allowances or capital improvements? What do you anticipate as a more normal pace of CapEx going forward?
Doug McDonald (SVP, Finance and Capital Markets)
Thanks, Lizzie. This is Doug. I would say that more of that $50 million-$60 million is going to come from our renovations and maintenance CapEx than the leasing side. As you know, we primarily only offer tenant allowance on the re-tenanting piece, and we've been heavier recently on renewals. With our occupancy levels where they're at, we expect that renewals will drive the bulk of the leasing. In terms of the renovations, there's a few specific projects at certain centers, the timing of that can move around a little bit, but I'd say it's going to be fairly well distributed throughout the rest of the year.
Lizzie Doikin (Analyst)
Okay, great. Thanks. I was hoping you guys could give an update on rue21, which I know Justin really sort of communicated a couple quarters ago about being optimistic about their turnaround. Are there any new thoughts on them potentially restructuring and is there anything assumed in the guide for 2023 regarding them?
Stephen Yalof (President and CEO)
Yeah, Lizzie. You know, as we all know, they recently hired a restructuring firm to assist with seeking the deferral only. What I'll say about our relationship with rue21 is that it's strong. They're current on all of our rents. We feel that we're well-positioned to address the situation as needed, and they operate at a very healthy occupancy in our portfolio. We believe that this is an isolated situation specifically to this tenant.
Lizzie Doikin (Analyst)
Great.
Doug McDonald (SVP, Finance and Capital Markets)
Lizzie, we maintain appropriate levels of bad debt within our guidance to account for any tenant issues.
Lizzie Doikin (Analyst)
Got it. Thank you. If I could ask one more. Just wondering on the conversations your general managers have had with temp tenants lately on, you know, converting to perm. Are there any new signs of reluctance on their end to stay longer or convert to perm, or if there's, you know, anything new to make note of there?
Stephen Yalof (President and CEO)
I don't think that there's anything to call out. I just think that there's been some good success. You know, what's interesting is we've added a number of direct-to-consumer brands that are new to our platform and new to Outlet. You know, Outlet's a slightly different animal. You know, you're not selling full price retail, you're selling your off-priced goods. It's clearance channel. A lot of these retailers, it'll take them 2 quarters to find their footing. We have a team in place as part of our marketing team that actually helps retailers understand our channel better, understand the geographies where they're operating stores, understand the consumer profile and how that consumer shops. We, you know, we rely very heavily on the retailer and their branding to bring customers into their store.
We as a team are quite supportive of our retailer partners, as we like to call them, because many of these leases have a percentage rent component, and their success is our shared success.
Lizzie Doikin (Analyst)
All right. Thanks for the time.
Operator (participant)
Thank you. Our next question is coming from the line of Floris van Dijkum with Compass Point. Please proceed with your question.
Floris van Dijkum (Managing Director and Senior Research Analyst)
Thanks. Good morning. Obviously, you know, encouraging set of results here. A couple, I guess, a couple questions. Number one, if you can touch on your other revenue and obviously that grew on your, in your same store pool a little bit. You know, what the prospects for that look like? I know that that's been a big push of yours, Steve. Maybe if you can give a little bit more color into that and where that could go over time. I'll start there and then, you know, come back with my follow-up.
Stephen Yalof (President and CEO)
Sure. Good morning. Look, we talked earlier in prepared remarks about a lot of the new digital initiatives that we're adding to our shopping centers, and I think that's an important component part. You know, look, you can add carts and you can add kiosks and you can charge all this additional rent, but, you know, at the end of the day, we wanna make sure that the shopping experience is, you know, one that the shoppers actually enjoy. We're trying to be real selective with regard to how we pursue that additional revenue stream. We've had a lot of success, I would say, in the last three or four quarters with national brands.
For us, national brands are, they're a lot easier to do business with because they look at our 36 shopping center portfolio, and they wanna take over in each of those centers. 1 deal to do 36 shopping centers of exposure are always great deals for us to make and far less clutter. We continue to pursue these nationals, capped only by our desire to keep our shopping centers a little less cluttered with external noise.
Floris van Dijkum (Managing Director and Senior Research Analyst)
I guess my follow-up. Obviously sales are, I guess, up marginally sequentially, but they're down year-over-year, the tenant sales. If I look at your portfolio, you've got a number of assets that are 100% leased. I mean, Deer Park, Sevierville, obviously two of your premier assets, but also Commerce, Branson, Gonzales, Southaven, your Hilton Head. I mean, how can you grow your sales and bring in higher... Maybe walk us through how you plan to grow sales at the portfolio when a number of your assets are already essentially 100% leased. How are you gonna, you know, grow NOI in those assets as well?
Stephen Yalof (President and CEO)
Well, you know, as far as after the mantra of leasing, leasing is the mantra of marketing, marketing. You know, we've got a great machine over here. You know, the way we market to our shopping centers, you know, performance-based marketing. We actually know what's working, what's not working. We accelerate the things that are working, and we take our foot off the gas pedal of the things that are not working. You know, what's important for us from a traffic driving point of view is knowing our customer and doing a better job of communicating with that customer. Whether it's new technology, digital initiatives, interaction with them on the on our digital or our app or other digital initiatives that we have.
You know, we're learning as much from the customers, the customers learning from us.
Floris van Dijkum (Managing Director and Senior Research Analyst)
Sorry. Have you We've talked about this in the past as well, and I've asked questions on this on previous calls, but we haven't heard any updates on in terms of bringing higher productivity, luxury, tenants to your outlets. I know Simon has been doing that to its outlets, and I guess it's just starting, but can you give us any more updates on your discussions and progress on that, on that front? How many of your assets you think are suitable for that kind of tenant?
Stephen Yalof (President and CEO)
Well, I think a lot of that has to do with the retailer's choice. You know, look, if you take a look at our asset base, we wanna fill the shopping centers with the retailers that we think are gonna be the most successful in our geographies. Although we have a handful of geographies that I think that we can continue to push the tenancy, we are pushing that tenancy. You know, you also know that Nashville, which will open in the next couple of months, we haven't announced a lot of the retailers there, so I think you'll be pretty surprised when you see the roster of tenants that are coming to join us in Nashville.
You know, a push for us, you know, we leaned a little bit more heavily into the digital initiatives right now because a lot of those are household names in the communities that we serve. We're a community-driven organization that's looking to bring the best possible brands to serve the communities where our shopping centers reside. We wanna give our retailers the best chance for success in those markets as well. As important as luxury is as a component part, and the handful of shopping centers that we have that have luxury retailers in them, we'll continue to lease around that.
We're gonna be extremely laser-focused on making sure that we merchandise our shopping centers for the consumers that are shopping in those shopping centers, so they can have the best shopping experience when they're there, and the retailers can be as successful as they can be.
Floris van Dijkum (Managing Director and Senior Research Analyst)
Thanks, Steve.
Operator (participant)
Thank you. The next question is coming from Craig Mailman with Citigroup. Please proceed with your question.
Craig Mailman (Director, Equity Research Analyst - Real Estate and Lodging Team)
Hey, good morning. I got Joseph on the line with me also. I'm just kind of curious. There's been some talk on the outparcels on this call. Just as you guys are getting done with Nashville, you have a little bit more capacity, a little bit more capital. Kinda how should we think about spending on this initiative on an annual basis going forward and your thoughts on kinda returns here and also sources of funds?
Stephen Yalof (President and CEO)
Well, let's start with the returns. You know, we just had a deal committee a couple of weeks ago. The returns on the outparcel leasing are pretty astronomical. You know, we're in at a very low basis. We've owned that real estate for quite some time. The capital improvement dollars that's required in order to bring that space up to a leasable condition, you know, is relatively nominal. If you take a look at the rents that we're getting, you know, we're looking at high teen and low 20% returns on some of those investments.
Craig Mailman (Director, Equity Research Analyst - Real Estate and Lodging Team)
Okay. How should we think about kinda dollar volume here as you guys identify candidates and then also maybe a mix or targeted mix or how you guys think it could play out from a kinda ground lease opportunity where you're not necessarily putting out the capital to opportunities where you're kind of funding most of the construction?
Stephen Yalof (President and CEO)
Yeah, you know what? The only, you know, sort of concrete point that I can give you is that we're not sellers. We're leasers. You know, when you do an outparcel deal, whether it's we provide the capital in order to build it, or we just ground lease the land and allow the customer to do the construction, we basically are focused on return. That whole deal is really a return-oriented deal, and we consider the credit worthiness of the retailer that we're doing business with.
There's a number of outparcel deals we've done. Dave & Buster's, we talk about a lot. Shake Shack we talk about a lot, where you know, we've made deals that are good deals for our customers, but also really good deals for us.
Speaker 15
Thanks. It's Nick here with Craig. Michael, just on the balance sheet, you've dealt with, I guess, a third of the interest rate swaps that are expiring thus far. How are you thinking about execution on the remainder or kind of running with a bit more floating rate debt?
Michael Bilerman (CFO and CIO)
Good morning, Nick. We've effectively fixed $100 million of anticipated floating rate debt exposure for an additional 2.2 years, which would take us to the spring of 2026. As you're pointed out, we have $200 million of effective floating rate debt that will come next February. We're gonna continue to look at opportunities over the next several quarters to potentially fix more of that debt, or we can leave some of it floating and let that go to floating rate. I think if you just step back from it for a second, and we talked about our current cash capacity of $242 million, and we've anticipated spend between Nashville and the FAD capital of about $130 million.
We sort of end the year before we even take into account the significant free cash flow generation after we pay our dividends with cash almost equivalent to our current floating rate debt. As we think about as we move into 2024, having some level, and I think if you look at your hunter comp sheet, the average REITs out there have about 20% floating rate debt. We're mindful of our balance sheet strategy of having some floating, but also providing reliable earnings and fixing additional amount as we go forward.
Speaker 15
Thank you very much.
Operator (participant)
Thank you. As a reminder, if you would like to ask a question at this time, please press star one on your telephone keypad. Our next question is coming from the line of Michael Mueller with JPMorgan. Please proceed with your question.
Michael Mueller (Senior Equity Research Analyst)
Yeah, hi. Just a couple of quick tweaks on a couple of prior questions. First, is there any meaningful CapEx that goes into temp tenants, or is it just that happens once you convert them to permanent? The second question is on the developments. Is there anything in the works where we could possibly hear about another start in the next year or two?
Michael Bilerman (CFO and CIO)
Unfortunately, nothing to talk about right now. We don't like to talk about things that we're working on until they're, you know, inked and ready to go. With regard to temp tenants, there's really no capital involved in the temp tenant deal. They're short-term leases with mutual rights of terminations of 30 days.
Michael Mueller (Senior Equity Research Analyst)
Got it. Okay. Thank you.
Operator (participant)
Thank you. Our next question is coming from Samir Khanal with Evercore ISI. Please proceed with your question.
Samir Khanal (Senior Equity Analyst)
Hey, Michael, I guess a question for you. What's been sort of the biggest misconception here, you think? You know, what's been misunderstood by the analyst or investor community about Tanger Outlets in general now that you've sort of had time to look under the hood? Just trying to get a view from you on that. You know, what are you seeing that's the biggest misconception here?
Michael Bilerman (CFO and CIO)
You know, I mentioned it quickly, last quarter where I talked about perception versus reality of our assets, where they are, how they perform, and how much the retailer community values us, and how much the consumers value us. I felt that there was a little bit of a disconnect on the investment community side in terms of that quality of our asset base and the growth opportunities that we have in front of us. I feel like we're getting more out there as we tour investors and analysts through our assets, as people spend the time really understanding how strong the platform is from a leasing, marketing, and operations perspective.
I think a better appreciation now for our balance sheet, which, you know, at 5 times debt to EBITDA, which also is a little bit elevated because we spent money on Nashville without the commensurate EBITDA yet. Having that cash capacity on the balance sheet, you know, to us is a really distinguishing factor relative to another company that would have to go out and raise new capital to execute their external growth. That external growth, we don't wanna be a buy and hold company. We wanna be a buy and add value. That really takes into account the operating platform that we have. That, to me, at the end, is really what's differentiated. It's how operationally intensive this company is and our asset base with very small suites and a significant amount of velocity.
Overall, we're excited to continue to show to the street our team, our assets, and our platform.
Samir Khanal (Senior Equity Analyst)
Thank you, Michael.
Operator (participant)
Thank you. We have reached the end of our question and answer session, so I'd like to turn the floor back over to Mr. Tanger for any additional closing remarks.
Steven Tanger (Executive Chair)
Thank you very much, everybody, for participating today. Samir, I might wanna add to what Michael Bilerman said. I believe the biggest misperception is that we are open-air shopping centers. Our platform is not enclosed malls, and we may be considered by the analyst community in the wrong neighborhood. We should be listed and compared to the other open-air shopping center group. We will see you and the rest of the analyst community at various different events that we have planned in the next couple of months, and look forward to showing you our properties and exactly how and why we believe that they are open-air centers. I wish you a great day and good luck. Goodbye.
Operator (participant)
Ladies and gentlemen, this does conclude our teleconference on Webcast. You may disconnect your lines at this time and have a wonderful day.