Tanger - Earnings Call - Q2 2025

Executive Summary

• Tanger delivered another clean beat-and-raise quarter: Q2 revenue and GAAP EPS were above Street, FFO/share rose to $0.58, and management raised FY25 FFO/share and Same Center NOI growth ranges.
• Operating momentum remained solid: Same Center NOI grew 5.3% YoY, occupancy climbed to 96.6%, TTM blended cash rent spreads were +12%, and tenant sales per square foot increased to $465.
• Balance sheet remains conservative with Net debt/Adj EBITDAre at 5.0x, interest coverage 4.6x, 95% fixed-rate debt, and active swap program lowering future SOFR base rates to 3.2% on forward-starting swaps.
• Management is leaning into remerchandising, outparcel activation, and marketing (Deal Days, Summer of Savings, early Back-to-School); traffic was up and AI is being used to enhance analytics and service, reinforcing the growth playbook.
• Stock reaction catalyst: raised FY25 guidance (FFO/share $2.24–$2.31; Same Center NOI growth 2.5%–4.0%) with robust operating KPIs should support positive estimate revisions and narrative around sustained internal growth and disciplined external growth.

What Went Well and What Went Wrong

• What Went Well

  • Same Center NOI +5.3% YoY and occupancy up to 96.6%; TTM blended rent spreads +12% (28% re-tenant, 10.1% renewals) underscoring pricing power and demand.
  • Tenant sales psf rose to $465 (TTM) and traffic increased in the quarter; marketing initiatives (Deal Days, Summer of Savings, early Back-to-School) resonated with younger and value-focused shoppers.
  • Balance sheet strength: Net debt/Adj EBITDAre 5.0x, interest coverage 4.6x, 95% fixed debt, forward swaps reset SOFR base at 3.2% on $125m notional, extending duration and reducing rate risk.

• What Went Wrong

  • Percentage rent headwind persisted (down YoY) as Tanger continues to sweep variable rents into fixed, reducing sensitivity to upsides from sales spikes.
  • Certain assets seeing timing frictions from remerchandising (e.g., sign-not-open and large-box retenanting like Main Event at Deer Park) which can create near-term noise in base rent growth cadence.
  • Forever 21 closures were a known swing factor; while largely temp backfilled and being released, the boxes require curation/demising to optimize long-term NOI.

Transcript

Speaker 2

Good morning. I'm Ashley Curtis, Assistant Vice President of Investor Relations, and I would like to welcome you to Tanger Inc.'s second quarter 2025 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 this call may contain forward-looking statements that are subject to numerous risks and uncertainties, and actual results can 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, August 5, 2025. At this time, all participants are in listen-only mode. Following management's prepared comments, the call will be open for your questions. We request that everyone ask only one question and one follow-up question. If time permits, we are happy for you to re-queue for additional questions. On the call today will be 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 Stephen Yalof. Please go ahead.

Speaker 0

Thank you, Ashley, and good morning. I'm pleased to report another quarter of great results driven by our internal and external growth initiatives, and we have raised our full-year guidance. Core FFO was $0.58 per share, a 9.4% increase over the prior year, which was driven by robust same-center NOI growth of 5.3%. Operating metrics for the quarter were strong, with occupancy increasing sequentially to 96.6% and blended leasing spreads of 12% over the trailing 12 months. We also delivered a solid increase in tenant sales, which were up 6.2% to $465 per square foot on a trailing 12-month basis, and traffic to our centers was up for the quarter compared to last year. This performance reflects the fundamental strength of our platform, as well as the effectiveness of our differentiated and proven leasing, marketing, and operational strategies, and our successful external growth initiatives.

Our merchandising strategy is yielding impressive results with our open-air outlet and newly acquired lifestyle centers. We continue to attract brands and retail categories that are new to our portfolio while expanding store counts with our most productive existing tenants. This thoughtful approach to merchandising is attracting a younger demographic while maintaining our core value-seeking shopper base. Across our portfolio, we're seeing our shoppers visit more frequently, stay longer when they visit, and ultimately spend more. We continue to maximize value through peripheral land activation, merchandising optimization, and investments in our centers. Population shifts and residential densification in many of our core markets have created the need for more restaurants, service uses, health clubs, and entertainment venues, and the land adjacent to our traffic-generating shopping centers has proven to be a destination of choice for many of these national and local businesses.

Our digital capabilities and marketing initiatives are driving strong engagement and delivering meaningful results. As I mentioned earlier, traffic to our centers was up in the quarter compared to last year, driven by a balanced marketing plan aimed at deepening connections with our core customers, attracting new and younger demographics, and engaging our local markets as we see these populations grow. Further, participation in our enhanced loyalty program continues to expand, supported in great part by our retailer partners. Our proprietary loyalty program, Tanger Club, enables us to deliver more targeted and compelling offers to our customers. These programs are driving results as we continue to see meaningful improvements to both traffic and sales.

Our strategic Summer of Savings campaign and early back-to-school value messaging, which we rolled out last quarter, took aim on tariff uncertainty and provided a messaging opportunity to inspire customers to shop early and take advantage of favorable pricing and product availability. These initiatives, with strong support from participating retailers, inspire targeted ad campaigns that appear in print, digital, and social channels, and have proven to be particularly effective. These proactive marketing programs will continue as we plan to reintroduce our Black Friday Every Day messaging this fall, where we celebrate the holiday shopping throughout November. Our marketing partnerships and paid media sponsorships business continue to grow our other revenues. These programs leverage our shopper traffic and offer participating brands the opportunity to reach highly engaged consumers throughout our centers and social channels.

We are leveraging AI technology across our business to optimize customer service, enhance our data and analytics predictive functionality, and enable more efficient use of resources across our enterprise. Our strong balance sheet, conservative leverage profile, and ample liquidity provide us with flexibility to pursue selective external growth opportunities while continuing to invest in our existing portfolio. Our disciplined approach to capital allocation remains focused on generating long-term shareholder value through both internal and external growth initiatives. Our recent acquisitions and national development have assimilated quickly into the Tanger portfolio, and in addition to growing NOI, they've provided the opportunity to engage new retailers, restaurants, grocery, service, and entertainment uses, which will prove to be a valuable source of new business as we introduce them to the balance of our portfolio.

In today's uncertain macroeconomic environment, characterized by persistent inflation and shifting consumer sentiment, Tanger's value proposition is a constant that continues to resonate strongly with both shoppers and retailers. We remain confident in our strategic approach to leasing, marketing, and operations, combined with our strong balance sheet and proven track record of execution, which provide us with multiple opportunities to pursue growth over time. I want to thank our dedicated Tanger team members, retail partners, shoppers, and shareholders for your continued support. I'll now turn the call over to Michael to discuss our financial results, capital markets activities, and updated guidance in more detail.

Speaker 5

Thank you, Steve. For the second quarter, core FFO was $0.58 per share, compared to $0.53 a share in the prior year period, driven by our strong internal and external growth. Same-center NOI increased 5.3%, driven by higher rental revenues from the continued strong leasing activity, which is leading to higher base rents and higher tenant reimbursements as we continue to drive total rents. We also saw continued growth in other revenues. For the first half of the year, same-center NOI was up 3.8%. Our balance sheet remains well-positioned with low leverage, ample liquidity, and a largely fixed-rate debt structure. At the end of the quarter, our net debt to adjusted EBITDA was at five times, benefiting from the strong EBITDA growth and the retention of free cash flow after dividends, with our growing dividend only representing about 60% of our funds available for distribution or FAD.

Outside of the leverage capacity, from a liquidity perspective, we had approximately $614 million of total liquidity at quarter end, including $17 million of cash, $528 million available in our lines of credit, and $70 million of proceeds still available from the forward equity that we issued late last year. During the quarter, we also continued to proactively manage and further strengthen our debt profile through a couple of refinancings, which increased proceeds, lowered rates, and extended duration, and we continued to execute on our interest rate hedging strategies. At quarter end, 95% of our debt was at fixed rates, and our weighted average interest rate stands at 4%, with a weighted average term to maturity of 3.4 years. The next significant maturity will be our unsecured bonds next September 2026.

In terms of interest rate swap activity during and post-quarter end, we entered into interest rate swaps on the Memphis and Houston refinancings, fixing the interest rate on these loans through 2029. We have also now addressed $125 million of the $150 million of interest rate swaps which are due to expire in 2026, with the new forward starting swaps fixing SOFR at a weighted average rate of 3.2%, which represents a 40 basis point reduction from the expiring swaps at various points next year. The new swaps run through 2027 and 2028, as detailed in the supplemental. Based on our strong performance year to date and a positive outlook, we are raising our full-year guidance, and we now expect core FFO per share of $2.24 to $2.31, representing core FFO growth of 5.2% to 8.5%.

We have lifted same-center NOI growth to 2.5% to 4%, up from 2% to 4% previously. Our guidance reflects our continued strong operational execution and does not assume any additional acquisitions, dispositions, or financing activities. For additional information and assumptions, please see our release issued last night. We have greatly enjoyed having you at our centers through all of the tours, and we do hope you'll stop by and shop at a Tanger Center before the summer ends. We look forward to seeing and speaking to many of you in the fall at Evercore ISI Institutional Equities Real Estate Conference, BofA Securities Global Real Estate Conference, Jefferies Real Estate Conference, NAREIT, as well as a number of tours. Operator, we would now like to turn the call over for questions.

Speaker 2

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate 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. One moment, please, while we pull for questions. The first question is from Jeffrey Alan Spector from BofA Securities. Please go ahead.

Great. Good morning, everyone. I guess my first question, let's focus on the merchandising strategy. I know that's been a big effort to upgrade the tenancy and bring in different mix. Stephen, I know you talked about higher traffic. I guess can you just talk a little bit more about that effort and how that's tied to the improvement in sales per square foot? Thank you.

Speaker 3

Good morning and thanks for the question. I guess the issue is macroeconomically, there's not a lot of new development happening in the retail space. As a company, we consider our retail space to be more valuable every day. That being said, there's a lot of retailers that are actively looking for space in our shopping centers, both in our popular top markets and our mid-tier markets. We see a lot of expansion from retailers in both of those shopping centers, from our lifestyle centers to our outlet shopping centers. The brands that are looking to get in are brands that are new to outlets. We're growing some, you know, we've talked about Sephora last quarter and the proliferation of Sephora across our shopping centers, which has been a great brand, not only attracting their core consumer, but bringing a much younger consumer into our shopping centers.

We're also going after a lot of food and beverage as the populations begin to shift to some of those markets that were typically tourist-driven markets that are now primary resident markets. We're seeing the need for food and beverage, more service orientation, and some entertainment-type uses that either are taking space in line or on our peripheral land. It's a combination of all those and cause a lot more traffic to our shopping centers. We have a lot more frequency, particularly from our local customer base. Ultimately, that's where we see a lot of pop in our sales.

Great, thank you. My follow-up question, I know last quarter you talked about starting back to school early with concerns over tariffs and inventory. You put that strategy into place. Did that help in the quarter? How are you now thinking about inventory for back to school in the holiday season? Thank you.

Yeah, thanks for asking that question, Jeff. As far as the early back to school, we think that's resonating. We've seen a lot of traffic growth where we've seen a lot of pop. Most recently, it is also in tax-free days. A lot of the centers that we have in the South have just experienced tax-free day. With back to school shopping being the second biggest shopping holiday of the retail calendar, our early initiative to get folks out as early as June resonated with a lot of the consumers that were looking to, who might have had some uncertainty with regard to tariff impact or macroeconomic impact. We want to get the consumers out earlier, get them shopping so they could find the brands they wanted at the best possible value. We saw tremendous traction.

Some of that was attributable based on some of the social and digital initiatives that we put in front of our customers. We were able to actually see the data in real time. Going into Q3, I think there was probably far less impact, particularly from a traffic point of view than we had thought. I think most of our retailer partners are well inventoried. There's a lot of product in the store. Our value channel, we still see pricing very compelling, incenting customers to come and shop with us. I remind you, I think I said it in my opening comments, we continue to anniversary our every day of November is Black Friday sale this year, keeping the selling theme in front of our core shoppers as we get into the holiday selling season.

Great, thank you.

Speaker 2

The next question is from Greg Michael McGinniss from Scotiabank Global Banking and Markets. Please go ahead.

Hey, good morning. I want to touch on this remerchandising a bit more. As you bring in more differentiated tenants into your outlet centers and you've increased traffic and stay time, I'm curious how far along this remerchandising process you feel that Tanger has come and if you'd give us some context for this portfolio evolution, whether that's % of non-apparel and footwear from a few years ago versus today and where you're expecting to go, or any commentary with regards to what you expect to happen on the remerchandising effort long term.

Speaker 3

Yeah, sure. Look, again, I think remerchandising is a process that goes on in perpetuity. There's no end to remerchandising. There's always going to be brands that have stopped investing or just are losing a little bit of their market share to other newer brands. We've got a great leasing team that's out there every day speaking to tenants, maybe a year, a year and a half out, that haven't necessarily done deals in the outlet space. They're direct-to-consumer brands. They're specialty store brands that think one day the outlet business might be something that they'd invest in. We're constantly a year, year and a half out talking to brand new retailers. I talked about Sephora with Jeff. I use that as an example because they only recently discovered the outlet business, and that's a brand that's been in business for years and years.

The transition is really, it's on us to make sure that the brands understand that there is great value in the outlets. In addition, there's also a lot of customers that shop. There are over 125 million customers a year come through Tanger centers. I think that's a lot of folks for brands to get their customers in front of. We'll continue to remerchandise our centers, I would say, for many, many years to come.

I guess to follow up on that in the near term, have your tenants or new, potential tenants become more hesitant to sign leases until the tariff situation gets maybe more resolved?

I don't think we've seen that. I think that there's a tremendous amount of activity in our space. This past year, we've done more leasing than we have in almost any other year at Tanger, over 2.8 million square feet of leasing. There's a lot of activity that's going on in our portfolio right now. I think retailers are making long-term decisions. I think the tariff uncertainty that they're facing is probably a little bit more lumpy with regard to whether, you know, how it's going to affect them in the near term. Long-term leasing decisions haven't been affected. In fact, I'll go back to what I said to Jeff, not a lot of new retail development happening in the U.S. because of that. Retail space is becoming more and more valuable.

Okay, thanks, Stephen.

Speaker 2

The next question is from Craig Allen Mailman from Citigroup Inc. Please go ahead.

Hey, good morning, everybody. We're getting some questions about the growth algorithm here for you guys over the next couple of years, given the success you've had kind of early on in the, you know, in Stephen, your tenure, I guess. It's almost half a decade at this point. One of the things I noticed, OCR is still at 9.7%, but your average price, your average sales per square foot continue to go up. That's just one metric. Can you kind of give us a sense of the organic opportunity in the portfolio from OCRs, from the mark to market, to kind of give us a sense of what, you know, however you guys want to look at it, AFFO growth, same-store growth could look like relative to peer average here over the next few years?

Speaker 3

The guidance is in the release. I can give you some generalizations based on the question that you asked. I think if you look at our spreads, you'll see our mark to market. We've had 14 or 15 quarters of positive rent spreads, which speaks to the fact that we think there's a tremendous amount of upside in rent. I think as poor-performing retailers get replaced by better-performing retailers, retailers that are doing more than all average sales on a per square foot basis, I think we'll see an opportunity for us to continue to push our rents forward. Do you think they want to?

Yeah, Craig, I mean, look, when we think about the value creation and driving, you know, ultimately cash flow, it's driven by the internal growth and, you know, our external growth activities and continuing to invest in our asset base and intensify and activate our peripheral land. That's wrapped in a balance sheet that is in the best position, you know, relative to our industry at five times that EBITDA with a significant amount of free cash flow. Our job is there's enough levers that we have to drive NOI, leverage our balance sheet to create long-term growth for our stakeholders.

Okay, that's helpful. I noticed there was an article about some additional leasing at Huntsville. Could you just run through maybe where that asset could be leased by year-end and maybe the economic uptick from some of those leases?

Craig, it's Justin. How are you? I appreciate you calling out our full-priced assets. Last week we announced, in addition to announcing early in the year the Apple expansion and the Warby deal, Starbucks opened earlier this year, and late last week we announced that Madewell will be joining us in Huntsville. L.L.Bean will be coming and taking a significant portion of the old Bed Bath & Beyond box. Rowan will be joining us, and Crocs just opened. Additionally, at Pinecrest, we opened up a great new food and beverage tenant called Tostique that opened up about two weeks ago, and Tecovas will be opening up later this year. We have a lot of activity in our full-priced assets. We're really bullish on it. As these tenants open up later this year, they'll annualize then in 2026, and that's where we're going to see the financial impact of those brands.

Awesome. Can I just have one third one in there? It's quick. On your occupancy, you guys have Deer Park in there, but Main Event doesn't really commence for a few more months. Is the occupancy number, just to clarify, is that a leased occupancy or a commenced occupancy, that the 96.6%?

Speaker 5

Hey, Craig, it's Doug. We quote physical occupancy. When a tenant takes possession of the space, they're in physical occupancy, and Main Event has possession. They're building out their space right now. They'll open in the first quarter, but they're in our physical occupancy right now.

Cool. Thank you.

Speaker 2

The next question is from Michael Anderson Griffin from Evercore ISI. Please go ahead.

Great, thanks. It seems like the national retailer concepts probably have maybe more certainty or clarity around their footprint needs despite the tariff uncertainty. Steve, maybe you can give some context around the demand you're seeing from those regional and local tenants. I imagine that tariffs could crunch the mom-and-pop budget a little bit more than the bigger guys. Maybe talk a little bit about the demand from that cohort within your portfolio.

Speaker 3

First of all, I understand it's a very small population of retailers that you're talking about and a very, very even smaller population of our NOI. It's still a very important part of our business. I think local retailers, particularly in some of our full-priced lifestyle shopping centers, are really important to the communities that they serve, drawing in traffic from that local population. As far as my visits to shopping centers, which have been, I've spent the last couple of weeks out visiting our centers, I haven't seen any impact to shelves. There's lots of inventory and a lot of supply. I think a lot of the retailers or manufacturers and distributors, I would suppose that the third quarter and fourth quarter inventory is really already cleared in the warehouse and sitting here in the United States for distribution.

I can't really report much issue as it relates to that group of tenants in our portfolio.

Thanks. Appreciate the color there. You've highlighted the continued resilience of the consumer at your centers. I'm curious if you've seen maybe a shift in customer demo. Do you have any sense if consumers who may have traditionally shopped at full-priced retailers are trying to find a value at your centers? Just trying to get a sense about what the kind of customer profile looks like these days.

I would say anecdotally that people are actually, we're seeing new customers to the outlet centers. I think part of the reason why is because of the localization of those centers. We built Nashville only nine miles away from downtown Nashville. A lot of our other centers have seen significant population shifts where secondary homes or second homes have become primary residences, a lot of that driven by just, you know, people moving out of cities and moving into different markets post-COVID. What we've decided from a merchandising point of view is the more uses we can bring into one of our shopping centers, the better chance we have getting a car to park in one of our parking lots.

Whether that's the customer, our core customer that's coming to shop value every day, or it's a new customer that might be coming for the restaurant, the grocery store, the health club, the service, or the amenities that we offer on the center, if we can bring them in for one of those uses and get them to stay for the shopping, I think we're winning a new customer every day.

Great. That's it for me. Thanks for the time.

Thanks, Craig.

Speaker 2

The next question is from Caitlin Burrows from Goldman Sachs. Please go ahead.

Hi, good morning. Maybe just in the press release, you guys went through how you've renewed about 65% of the space set to expire in 2025. I was wondering if you could comment on your latest thoughts on renewals versus re-tenanting, and what the status is of that other 35% of 2025 expirations.

Speaker 5

Sure, Caitlin. It's Doug. We quote the renewed percentage, that's that 65%. If you layer in the space that we've already re-tenanting or certain tenants that are relocating, we're at about 80% of the expiring population is addressed. With the remaining 20%, we have active conversations and think that a majority of that space is going to renew.

Got it. Okay. Maybe just on the acquisition side, I feel like we continue to hear that the competition for acquisition deals is high. I'm wondering if you guys could comment on maybe the volume of deals you looked at in either 2Q or the first half, and more broadly, how hard it's gotten to be the winning bidder on a deal, or are you able to identify off-market or lightly marketed deals?

Thanks, Caitlin. We've been extraordinarily active across both of those fronts in terms of marketed transactions as well as negotiated off-market transactions. We feel where we're going to lean in is where we can really add value to what we buy. I think that has been evidenced through Pinecrest, Little Rock, Asheville, Huntsville. We're pretty unique and differentiated being able to look at both outlets as well as open-air lifestyle centers. Given our geographical footprint and boots on the ground at every one of our assets, we feel that gives us a competitive advantage in looking at the entire marketplace. The balance sheet's sitting in really good shape to be able to execute, running at five times debt to EBITDA today, and still having the $70 million of forward equity that we issued late last year.

All right, thanks. That sounds encouraging.

Speaker 2

The next question is from Todd Michael Thomas from KeyBanc Capital Markets Inc. Please go ahead.

Hi, thanks. Good morning. You touched on the increase in occupancy during the quarter, but same-store base rent growth was higher by only 1.8% year over year. I heard the comments about Main Event. I was wondering if you could comment on the portfolio's signed not occupied pipeline in total, what that looks like today, or whether there was anything you can share regarding the timing of some of the lease signings in the quarter that was reflected in the occupancy metric, but that was not rent paying during the quarter. Just trying to get a sense of the trajectory of base rent growth throughout the remainder of the year.

Speaker 5

Thanks, Todd. One part of it is, when we're signing new leases, we're getting both an increase on the base and we're getting our share fixed CAM. Depending on the type of activity, we're looking to grow our total rent. When you look at the P&L, you really have to look at both of those line items to be able to think about our total revenue growth, which is leading to NOI growth with our expense load. In terms of signed not open, given the fact that our portfolio is a pretty small tenant, we've talked about our average tenant size is 4,700 square feet across 3,000 stores. The speed at which a tenant, when we turn over to open, is pretty short. We don't have a large signed not open pipeline.

In fact, Main Event is probably the biggest component right now of 30 bps that's been turned over that's not cash paying today that will become open next year. The rest is pretty small between quarter to quarter, just given the short timeframe, 60 to 90 days between turning over and a store opening.

Okay. I noticed that the straight line rent in the quarter was up significantly. I was wondering if there was any one-time or non-recurring impact, either related to the leasing or otherwise, that we should consider moving into the third quarter.

Sure. Our straight line typically gets a little bit higher in the second and third quarters. It relates partly to the cadence of our occupancy. We've talked about troughing in the first quarter, building back up throughout the year, peaking in the fourth quarter. When tenants take over, and Michael talked about the 60 to 90-day build-out period, the straight line occurs when they take possession. The cash rent starts when they open. There's a little bit more straight line rent typically in the second and third quarters of the year. We would expect that again this year.

Okay. Got it. That'll burn off a little bit moving throughout the balance of the year. One more, if I could, Steve, you talked a little bit about the centers that you consider primary or that sort of fit into that localization bucket and have been benefiting from a broader use of tenants. I was wondering, how many of your centers do you consider to be in that bucket, if you will? What % of ABR or GLA or just number of centers would you consider to fit that criteria? Looking out longer term, are the centers that do not have that support from a primary population or that local market impact that you're discussing, would they be considered non-core?

Speaker 3

You know, I think where we are right now, all the centers in our portfolio are definitely core centers. It's just we address them differently. We have a shopping center in Sevierville, Tennessee, actually home of Dollywood, which was voted the number one amusement park in the United States this month. That shopping center benefits from tourist traffic 100%. It's one of our top producing assets. It's really hard to sort of rationalize which ones do better from local trade, which ones do better from that tourist trade. We definitely market our centers a little bit differently. We have a far wider catchment as it relates to those centers that rely a little bit more on tourist destination or tourist population. The shopping centers' position and closure of the casinos, things of that nature, I think, definitely benefit from more tourist-driven traffic.

When Myrtle Beach and Hilton Head and Daytona were built 10, 15, 20 years ago, they were built for tourists, for tourism, and now are some of the fastest growing permanent population markets in the country. The shift is happening rapidly. We're embracing the shift, but we'll continue to remerchandise our centers accordingly as that shift takes place.

Okay, thank you.

Speaker 2

The next question is from Hongliang Zhang from JPMorgan Chase & Co. Please go ahead.

Yeah, hey, good morning. I guess my first question is just thinking about same store NOI growth in the second half of the year. You were 3.8% year to date, and it seems like the guidance implies some deceleration at the midpoint. Just wondering what's driving that.

Speaker 5

Thanks, Hong. Yeah, we are very pleased to be able to increase our full-year guidance, bringing it below 2.5%, and we think about the back half of the year. We still have a certain amount of uncertainty related to the macroeconomic environment, tenant credit, sales environment, our operational expense cadence. There's nothing specific in the second half relative to the first half, and that's why we have a range that's still producing a very healthy same-center NOI forecast for the year, with a midpoint at 3.25%.

Got it. I think you still have around $70 million of forward equity to settle for the remainder of the year. I'm curious what you would use the proceeds for if acquisition doesn't shake out.

Yeah, we have time on that forward equity. We don't need to pull it down right away. We have that there to be able to fund any of our internal or external investments in addition to the balance sheet capacity that we have being at 5 times levered.

Great. Have a great day.

Speaker 3

Thanks, Hong.

Speaker 2

The next question is from Floris Gerbrand Hendrik Van Dijkum from Ladenburg Thalmann & Co. Inc. Please go ahead.

Hey, thanks, guys. I guess, could you maybe talk a little bit about the internal growth prospects regarding your 10% estimated 10%, you know, 10 tenancy and also how much more fixed CAM can you increase your portfolio by over the next, you know, call it, you know, six quarters?

Speaker 5

Floris, I think the second one first, I wouldn't be focused just on the expense reimbursement side because when we're negotiating with a tenant, we're looking to drive total rent. If that means higher fixed CAM with the expense base, we'll just do that because we're driving our total NOI growth at the end of the day. There's not a specific formula to look at, and there's a wide variety of types of leases as well, some that don't pay us fixed CAM. It really depends on the leasing activity that we're doing.

In relation to the temp tenancy, that's one part of the NOI growth that we could see over time, whether that's driving rents on our existing permanent base and continuing to re-tenant, but also continuing to use the temp business as a strategy because the consumers that come shop with us, they don't know the difference between a temp tenant and a permanent tenant, but they do know the difference between an open store and a closed store. We want to keep our assets vibrant and be able to continue to drive NOI over the long term, and that's one source of potential upside that we could see over time.

Just to make sure that I understand correctly, Michael, because I don't, obviously, the temp tenants don't pay fixed CAM. What is your fixed CAM % today on your overall tenancy? Where do you think you can push that? Do you expect, as the retailer demand continues to be really strong, I think historically your temp % was closer to 5%. Do you think, you know, how quickly do you think that 10% goes back to the historical norms? I guess that was what I was getting at in my question.

Yeah, you know, I wouldn't focus too much on the fact that temp doesn't give us fixed CAM. I look at it more, we look at it more, you know, what is the total rent that we can get for that space from a permanent tenant relative to a temp tenant? We've talked about anywhere from 2 to 3 to 4X the rent. In terms of, you know, the cadence of that, you are right. Historically, we've operated in the 500 to 600 basis point range. In terms of tenancy, we are higher than that today. We don't have a time that we want to bring it down. We're trying to drive our total NOI growth and continue to diversify and remerchandise our centers. It provides us a pool of leases that we think that there's upside, and we'll continue to see that upside over the next few years.

Thanks. Maybe the second question I have is maybe more of a Steve question, but Steve, you talked about bringing new retailers to the outlets. Can you talk, you mentioned Sephora, how are those discussions going? Are you seeing increased demand from retailers for the outlet space in particular? How much growth do you think you could get over the next couple of years from new retailers to the outlet format?

Speaker 3

We're out in front of retailers all day, every day. We have a team just thinking about new business, and their sole mission is to go out and speak to brands that just haven't discovered us yet. There are plenty of those brands, enough to keep a couple of people occupied a full-time job. It's exciting when new brands want to enter. We just recently did our first Marc Jacobs deals in the outlet space, and their performance has been amazing. They're drawing a customer. They've got fans of that brand. There are a lot of things that new brands do for us. Aside from the fact that we get great productivity, they pay market rents. They also draw their own customer base to our centers. As these new brands are discovering our product, some of the customers that are loyal to that brand are as well.

I think that's just a great win-win for us. It's hard for me to sort of guide to how big that business can be. If you go back 30 years, I've been in this business leasing outlets for a really long time. An outlet center 30 years ago looks completely different than the outlet center of today because there's been constant evolution of brands discovering and replacing brands that have, you know, sort of performed, I guess, less than to their capabilities. We're going to continue to grow newness. We're going to continue to bring in new brands, new uses, new types of tenants, new food and beverage. You could say in the last five years is relatively new to the outlet space. As that customer becomes a little bit more localized, those are the things that they're demanding when they want to come and shop with us.

We think it's really smart for us to play into the demand of the consumer base and possibly drive traffic into our centers.

Thanks, Steve.

Speaker 2

The next question is from Richard Allen Hightower from Barclays Bank PLC. Please go ahead.

Hey, good morning, guys. Thank you for taking the questions here. I think maybe just to put a little bit finer point on some of the occupancy questions so far on the call, I think we understand Deer Park, we understand Huntsville, but maybe in the context of the guidance and the different swing factors, are there any other known move-outs, move-ins, cash versus straight line, any other elements you'd like to sort of call out that we should be aware of over the next couple of quarters?

Speaker 3

The big one was Forever 21, but we observed Forever 21. We've been able to place where we've got five of the nine Forever 21s are already leased, and we'll probably have the rest leased by the end of the year. I think that speaks to high demand that retailers have for space in our shopping centers. It also speaks to the fact that we're going to curate. We're not going after just retailers just to fill space. We're looking for retailers that are really going to bring a little bit more to the party. We want to drive customers. We want to be interesting. We want to be the shopping center of choice in the geographies that we serve.

Because of that, we're going to be real smart about how we curate centers and make sure that we're bringing in not only retailers that can pay the best rents, but also retailers that will do the best volume and draw the most amount of shoppers to our centers.

Okay, I appreciate that. Just to be clear, Forever 21 would probably be the biggest swing factor to call out for the second half in that regard, just to clarify?

I would say yes.

Okay, great. More broadly, and I think you addressed this maybe from a different angle before, just as far as the double-digit leasing spreads for the past many quarters, and obviously a very overt remerchandising strategy that I think you've articulated very well, is there a natural runway for that given sort of existing tenancy that's probably not leaving the center in the next several years? Is it, I mean, can it go on for years and years? How would you sort of think about that runway going forward?

You know, as I mentioned earlier, we're creating our own demand. I think demand is sort of a virtuous cycle in that the better retailers you bring into the center, the better sales performance they execute to, and then the more rent that we could ultimately charge. As centers become more popular, as sales continue to grow, more retailers take note and want to be part of that. In this environment right now, with very little new retail coming online, retailers are looking for places where they can do business. They're looking for voids in the market where they have distribution. A lot of these brands, we could be competing with a department store business that may be contracting, where retailers are looking for places to put their freestanding stores so they can execute and get their product in front of a customer.

I don't see an end to that in the foreseeable future. As I mentioned earlier, with a team of people that are out of, you know, 18, 24 months looking at new brands to bring in, there's a lot of interest in being part of what we're doing over here at Tanger.

Great, thank you.

Speaker 2

The next question is from Omotayo Tejumade Okusanya from Deutsche Bank AG. Please go ahead.

Yes, good morning. Solid results here. I wanted to follow up on Hongliang Zhang's question around guidance. Again, the low end of seems to NOI raised to 2.5%. Curious if what's driving that is really more occupancy, as you've kind of discussed some of the occupancy gains, or whether there's an OpEx component to it, if there's a bad debt component to it.

Speaker 5

Thanks, Tayo. The range both at the high and the low end has got a variety of assumptions around a lot of the variables that impact both revenues and expenses. We give a range that we feel comfortable with. We are pleased, at the midway through the year, to be able to lift our FFO guidance, as well as lift our same center guidance. At both ends of the range, there's varying assumptions around occupancy or tenant credit, sales environment, our variable operating expenses, the downtime, the spread. All of that goes into it to a range that we feel comfortable. The best part is in 90 days, we get to report again and see where our results are and update guidance again at that point.

Gotcha. A quick follow-up as it pertains to tenant credit. Could you just talk a little bit about your exposure to like Torrid that I believe kind of recently filed bankruptcy? There is a lot of talk about Claire's may also do something. Are you kind of thinking about some of those names and maybe possibly some other watchlist tenants?

Yeah, to step back from it overall, our watchlist remains at pretty manageable levels. In regards to the tenants you talked about, they're not top 25 tenants for us. I'd say the store size, specifically on the Claire size, is pretty small. While there may be a number of stores, it's a relatively smaller part of our base rent.

Speaker 3

If I can add, I've said this on past calls, I'll say it again. Outlet stores have a tendency to be very profitable for brands, and some of the last stores that brands will close in a restructuring. Even though a brand may declare bankruptcy, I guess in the case of Claire's or the other brand that you mentioned, I think that as they work through their population of stores they're going to keep and stores they're going to reject, my guess is very few will happen in the outlet space.

Appreciate it. Thank you.

Speaker 2

The next question is from Vince James Tibone from Green Street. Please go ahead.

Hi, good morning. Could you help quantify the near-term out parcel opportunity in the portfolio in terms of how many you expect to be actionable and monetizable over the next one to two years? Also, what do you anticipate being the most common structure here, whether it's you're selling the dirt, doing a ground lease, or doing a full development that a tenant would ultimately lease? Just trying to get a sense of how much capital will be committed here and how much NOI could ultimately be generated too over the near term.

Speaker 3

We've said in the past that the value of our out parcel business is probably equivalent to one of our top shopping centers. I think that number continues to grow as we buy more shopping centers that give us more out parcel capacity. What's interesting from a capital allocation point of view as it relates to an out parcel deal, we're not looking to sell out parcels, we're looking to lease them. Typically, the investment that we're going to make in an out parcel, whether it's a built-to-suit or a ground lease deal, we don't make the investment until after the lease is executed. There are typically high teens to low double-digit returns when we've already had those deals executed before we commit the capital from a risk profile point.

No, that's super helpful. Maybe just to, like, I mean, how many of these have you completed over the last, I don't know, one to two years? Is that, you know, I'm just trying to get a sense of how, you know, how many of these have been, you know, is this going to move the NOI needle?

Yeah, Vince, this is Justin. Over the last one to two years, we've had a handful come online and start rent paying, but we've really pinned our ears back and focused on this business. What we can share with you is we have deals coming online over the next 12 to 18 months with brands like Portillo's and Seven Brews. We opened up a Chick-fil-A up in Ottawa. Shake Shack is opening up more stores with us on the peripheral end. We're doing deals with First Watch and 151 Coffee. We have a lot in the pipeline. We have a lot that are going to be coming and monetizing and cash flowing over the next year, year and a half. We're really excited about the prospects of this business.

No, thank you for all that detail. That's helpful. Last question for me. Could you just discuss high-level the, you know, the re-tenanting economics and ultimate NOI upside from the former Forever 21 spaces? I know you comment in terms of how many were already leased and not sure if those are all permanent or temp deals, but I just know they paid so little rent prior to bankruptcy. I would imagine there's a pretty sizable, you know, mark-to-market opportunity there, but not sure that, you know, compares to the suite size and if you have to, you know, demise in certain cases. Yeah, I'd just love to kind of hear how you view the opportunity there with those boxes.

Temporary lease of those boxes quickly was a great trade for us because the rents being as cheap as they were, we were able to at least maintain or grow the rents on that near-term basis as we're making those decisions that you just talked about. Do we replace the complete box or, based on the positioning in the shopping center, do we break them in half and remerchandise them? We'll make those decisions based on the ability to generate rent and get exciting tenants into the space. We're working with a number of tenants and a lot of deals currently. I think there's a lot more rent that you can get from smaller, to lease smaller spaces. Where that makes sense, we'll make that trade. I think we're in a pretty good position. I've said it a couple of times on the call. I'll repeat it again.

I think our real estate becomes more valuable every day as there's less new space being added to the market. As there's retailer demand that continues to increase to be in our portfolio, we're going to make sure not only that we choose the best retailers to fill the space, we're going to make sure that they're going to be the most productive retailers, and we're going to bring in retailers that are going to draw new traffic and new shoppers to our centers. I think all of those things together, all ships rise, and ultimately, that's how we're going to grow our value and NOI over time.

Great, thank you.

Speaker 2

There are no further questions at this time. This concludes the question and answer session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.