Tanger Inc. (SKT) Earnings Call Transcript & Summary

Hello, everybody, and welcome to Citi's 2026 Global Property CEO Conference. I'm Craig Mailman with Citi Research. I'm pleased to have with us Tanger and CEO, Steve Yalof. This session is for Citi clients only and disclosures have been made available at the corporate access desk. [Operator Instructions]. Steve, I'm going to turn it over to you to introduce your company and team provide any opening remarks, tell the audience the top reasons for investors to buy your stock today, and then we'll jump into Q&A.

Sounds great. Thanks, Craig. Thanks for having us here, and good morning, everybody. I'm Stephen Yalof, I'm the President and CEO of Tanger, and I'm here today with Michael Bilerman, who's our CFO and Chief Investment Officer; Doug McDonald, who's our SVP and Treasurer; and Kasey Ennis, who is on our Investor Relations team. So Tanger's a leading owner and operator of outlet and open-air retail shopping destinations with a 45 years of expertise in the retail and outlet shopping industries. We've been listed on the New York Stock Exchange since 1993. Today, we have 41 centers across the U.S. and Canada, comprised of 38 outlet centers and 3 open-air lifestyle centers. We have over 3,000 different stores in our portfolio and over 800 brand name retailers. Tanger delivered another quarter of really strong results, capping off a productive year and positioning us for continued growth. Our differentiated and best-class leasing operating and marketing platform is powering our ability to drive sustained growth across our portfolio. We're supported by limited new retail development and consolidation of the department store business and a favorable demographic and economic trends in the markets and communities that we serve. We're executing across all facets of our business, including record-breaking leasing production this year at over 3 million square feet and are integration of our recent acquisitions in Little Rock, Cleveland and Kansas City and disciplined expense management across our enterprise, which contributed to core FFO growth this year of 9.4% and same-center NOI growth of 4.3% for the full year. We've also strengthened our balance sheet by completing several financing transactions in January, which I would say that our Georgia Bulldog did an unbelievable job I'd say that, that transaction is an MIT meets HBS case study and how to refinance your balance sheet. It address upcoming bond maturities, strengthen our liquidity position and mitigated our refinancing costs. Our well-positioned balance sheet now provides us the flexibility to reinvest in re-tenanting and our existing portfolio and align our assets with growing opportunities in our markets, while pursuing selective growth across the country. Craig, you asked us for our top reasons why investors should buy our stock. I think #1 is sort of a positive macroeconomic trend. Obviously, very little retail real estate being built across the country right now. Coupled with that department store consolidation, I think our retailer partners are looking for growth, and we're a great place for them to come. Second, there's a significant value creation opportunity through Tanger's leasing our operating and marketing platform. And I think we're doing a really good job of marking to market our real estate and bringing in better best quality retailers that drive better sales performance on a per square foot basis and to attract more people to our shopping centers. Third is the attractive financial profile. We're low leveraged, we're liquid. We have a flexible balance sheet. We have great access to capital that gives us opportunity to continue to grow our platform, which is a real big focus of ours, particularly going into 2026. And we've got a great management team, I think, that's focused on driving sustained growth for our shareholders. And I guess with that, I'll hand it back to you.

Great. Thanks, Steve. You mentioned you guys have had really good momentum here on the leasing front, driving better pricing, merchandising, just kind of curious how the pipeline looks for the next quarter or two from addressing expirations, hitting temp space, and the remerchandising that you're doing also you can hit on Legends. I know that's a multi-parter, but take it deconstructed as you wish.

I will. So look, I think there's a lot of things that are giving us a great tailwind going into 2026. I talked about the contraction of the department store business and particularly in the off-price business, a lot of our brands are merchants that principally sell in the wholesale channels. And when that contracts those brands are looking for places to replace some of that opportunity. And they find that particularly in our channel. Second of all, the big demographic shift of folks from outlet shopping centers that we've built over 25 years ago were built 2 and 3 concentric ring roads out because it was incumbent on those shopping centers to be far enough away from full price retail or permanent population basis because their brands wanted their consumers to shop their full-price channels. But what's since happened, and I think COVID really pushed a lot of this is that folks started to move closer to where our shopping centers are, places like Daytona, Florida; Savannah, Georgia; Charleston, South Carolina, we're seeing huge population shift in big population boom, and that permanent population is driving 7-day a week business into our centers. Using that as an influence, we've got ahead, and we've released a number of our centers to bring in other uses, whether they're service-oriented uses, better food and beverage, entertainment, things that cater to that 7-day a week population that we typically didn't see in some of those geographies when they were originally bought. And for us, what that does is it's a 400,000 square foot shopping center, if we dedicate a percentage of that retail space to alternative uses really densifies that retail -- the core retail offering, which makes the space a lot more valuable over the past 4 or 5 years, we've decreased our renewals from 95% of the annual roll, down to 80% of the annual roll. And we did so for a number of reasons. First of all, we've recognized that in order for us to encourage a younger and newer consumer to come into our centers, it's important that we bring the brands that they want. So we've done a really good job of flowing the new brands, employing newness into our centers and creating positive energy across our portfolio. But more importantly, the brand, the younger consumer desires because it's important for them. It's important for us to make sure that we're catering to what it is that they're looking for. They like to shop in store. We want to make sure that we've got the stores they want when they come and they visit us. Similarly, we found that our ability to re-tenant or bring in new tenants, we've gotten significant growth in our rents. And you see that in our NOI performance. So we'll renew -- most retailers don't want to give up spaces. Obviously, it's we're in a retail challenged environment. There's not a lot of newness -- not a lot of new retail centers being delivered into the marketplace. And a retailer that has a cash flowing store that's fully amortized, last thing they want to do is replace it. Well, for us, we have to make some tough decisions, and those decisions really pay off when we take an older retailer that stopped investing in their brand and replaced them with one that started to -- and that's investing in their brand that's growing retail that has a sales performance per square foot that continues to grow and drives a lot of newness into our centers.

And maybe an update on where you are with Legends. I know you haven't owned it that long, but -- and it's a big center. So maybe set expectations about time it's going to take to really bring it up to what you underwrote and where you are in the progress so far?

Yes. So we bought the Legends asset in Kansas City on the Kansas side of the Kansas City market. We brought that into our portfolio this year. My history, I worked on the retailer side for a substantial portion of my career. And I put a number of brands in Legends when I was on the tenant side. It's a shopping center, I always believed in, but it was always a core outlet type shopping center. Now that the West Village market where that center exists is really come to life. With all the -- between Kansas City Motor Speedway and the Minor League Baseball Stadium and the hotels that are popping up, the residential development, Mattel is under construction to put a new theme park. It really has become quite the destination in that center in our hands, I think, is going to have a lot of long-term sustained growth over time, principally because there were a number of retailers that were never in that center. I think when a non-outlet specific developer or property owner manages a property, there are certain things they don't think about that we think about because of our scale, because of our marketing ability, just how we understand the outlet business. So it's not a uncommon for a retailer to say to ask, hey, if that's something that you owned, yes, that would be something that we'd be interested in leasing space and coming and joining you. And then obviously, the last major shot in the arm is the Kansas City Chiefs, who are looking to replace Arrowhead with a more modern stadium picked that West Village Market where we have our center and said, hey, that's where they're going to invest and put that stadium. So I think that's going to be another great growth driver for us over time. And we're extraordinarily optimistic in our ability to continue to drive rents perhaps hybrid that center in a way brings in nonconventional outlet retail, but adds another retailers into the marketplace as that consumer that starts to sort of work, live and play in that marketplace wants to come and shop us more frequently.

And do you guys have more of an operating kind of model than some of the other retail peers, you have more akin to a mall, but its crossover with the open air guys, right? And so you've talked in the past about Tanger Loyalty Club and -- or Tanger Club loyalty and the rebranding of that and some digital initiatives you're doing? One of the things you talked about a lot is with AI, right? And so how are you guys trying to tie in either Agentic commerce or smarter marketing campaign to some of these people, where it feels like you have a real opportunity to drive traffic. Where are we in your evolution of that? Where are we in the technology to do that? And how big do you think the opportunity could be for you guys?

Look, I would say about 10% of the customers that shop us a year are. We've got information on them that they've opted into either our Tanger Club or our Tanger Loyalty Program. somewhere around 12 million people. And I think that, that's a really good cohort of individuals that we can market to. One of my biggest pet peeves is when I am inundated with e-mails that have absolutely no bearing on my life whatsoever it gives me great joy to just delete them without reading them. And my whole feeling with my e-mail and marketing team is how do we send out bespoke e-mails that speak to our consumer base, so we train them to open the e-mails and not get that great joy when they delete them. And I think AI is really going to be able to help us because if we know that Craig Mailman is one of our customers in our loyalty program and his favorite 3 brands are Under Armour, Nike and Ralph Lauren, I'm not going to send him Let Creuset offers because if I do, he's not going to open that e-mail. But if I consistently send them offers to brands that I know that he wants to shop and there's value in the messaging and every time he opens it, I know that I'll know when he opens, he's opted into my program. But more importantly, if I send you a digital coupon that you put in your wallet and you come into my center, I know when you're there and when you use that coupon, it's attributable. So I'm able to now use the data that I sent you something, you used that, and then I was able to attribute that to a sale. So I know what works for you. And I think that AI is really helping us far more rapidly, create the marketing, the art work that goes with that. And then without -- with great speed, make sure that you and the similar cohort to you, I'm sure of that 12 million people, there's probably a number of people that fit in that same grouping. We can market specifically to you, get that bespoke e-mail out to you and make sure that we get you into our shopping center. Our retail -- in the outlet space, I think this is a really important part of the story line. In the outlet space, the retailers don't spend a lot of their marketing capital to tell the consumer to come to outlet. That's just they don't -- they want to get their consumer to go to their full price stores. But they give us a marketing budget to go ahead and do that marketing for them. And we're putting those marketing dollars to great use to drive traffic. And you see it in our traffic increase numbers. You see it in our sales performance. And ultimately, you see it in our same center growth.

It feels hard to quantify, but clearly, foot traffic leads to sales is at least the higher rents for you guys. I mean how do you measure the success of the ROI on some of these initiatives to tell you this is where we need to go deeper. This didn't really work, right?

Well, look, digital marketing has gone a long way in making your marketing spend attributable right? So you know when you send something to you and you come back in and you scan it. I know that you're there. So we know what's working and what's not working. I would say that's probably 30% to 40% of our marketing initiatives have some sort of attribution attached to them. I think that, that's only going to get better and greater in time. And I think AI is definitely going to support that. So that's kind of how I think about that.

And what partners are you guys using? I guess -- and this goes beyond just the digital marketing, but internally, kind of how are you guys looking at it from either an efficiency standpoint on reporting or however, you guys feel it could help Tanger on the kind of efficiency side of this.

I mean what I'm sharing with you externally is really how we're using it in our marketing initiatives, and that's not where -- that's -- that's a very outwardly facing piece that's easy to talk about. We also use chatbots, and we're using a program called Yellow.ai. It's one of our big partners, a vendor partner of ours. And we use them for customer service. So our customer service is facilitated presently with the back of house group of folks that sit in the room and field phone calls when consumers call us or text us or e-mail us during the course of the day, with questions, problems, things. Our AI, which is now multilingual, and that's this year, is able to facilitate over half of those interactions. AI will start with all of the interactions. If they can't get through, then they'll go to a real-life living, breathing person during the operating hours of the center. So I think that's a real breakthrough for us, and I think it's really helping us in a way that customers are starting to become a little bit more comfortable interacting. Then from a backhouse point of view, I mean, obviously, the things that we're able to do from a research point of view, the information that's available to us, the speed at which we're able to process and deposit, both payments and receivables, I think, is really going to help us. And look, when you're talking about 3,000 stores paying you rent, the faster you can process and put that money to work for you that better off the company is.

How effectively are you guys able to do it on the leasing side with documentation or legal? Where -- you do have a lot of leases, right? So that's a lot of paperwork for your folks.

Yes. I think it's really -- it's made our legal team a lot smarter and a lot more efficient. That's for sure. Look at the Saks leases is just an example. We all know what's going on with Saks right now. And for us, we want -- there's a lot of lease processing that needs to happen. We want to make sure we understand each of the used clauses because if they're if there's a sale of a Saks lease, we want to make sure that we have the right. Which -- in which leases do we have the right to challenge a potential user and others? Where can we work with the potential users so that we can make sure that we -- we see some upside in some of those transactions? So it's one of those things that might have taken us 2 or 3 weeks to process, and we're able to put that together in a relatively short order.

And you mentioned Michael and Doug's execution on the balance sheet side. That obviously helped fund the plan, pay down debt maturities coming up. As you guys look at what the available capacity you have internally for external opportunities is -- what does the pipeline look like? What is the appetite for additional investment when you are digesting things like Legends, which is a big asset with some capital needs. How much do you want on your plate of maybe some unstabilized or more needing remerchandising versus some kind of more stabilized lifestyle or something else that's more...

So, I'll give you the sort of the tip of the iceberg, and then I'll hand it off to Michael and Doug, who can take you through a little bit more in detail just our capacity. But look, for us, our -- we think we can add a lot of value. We're an operating company. And we're shopping center owners that have great skilled leasing, marketing and operating our properties. And we think we can put that to work at a tremendous amount of property types across our channel. Outlet obviously, we're built for outlet. It's something that we can specialize in. And I think an outlet company, can, with very little friction get into the lifestyle business as we have, I think that those folks in the lifestyle business, there's a lot more friction getting into outlet because the marketing muscle is so critically important, particularly in the outlet side of the business. So we're presently evaluating. There's not that many outlet centers that aren't either owned by us or one of our competitors. And because of that, that the population of existing outlets today isn't so grand that, that's going to give us what we would consider enough runway to continue to build our portfolio. Hence, our moving into that full price lifestyle center, which we think is right up our alley. So Michael is the Chief Investment Officer. So it's something that's very near and dear to him. So I'll kind of turn it over to him to give you a little bit more of an update on how that's going.

I was just going to ask you all the questions. I thought that would be more fun. But -- the -- from a capacity standpoint, we'll start with that because we're at 4.7x debt to EBITDA today which is almost a turn lower than we were 5 years ago. So we've been able to grow compound annual FFO of 7.5% over the last 4 years, yet delever in the process. So we feel relative to our targets of 5x to 6x, we have some capacity to lever up. The second point is we will constantly delever because of the way we're set up from a financial profile perspective, where we're retaining $80 million to $100 million of free cash flow a year. And why is that so substantial, it's because our CapEx as a percentage of our NOI is much lower than our retail peers. We operate today about 15% CapEx as a percentage of NOI our peers are 20% to 30%. So for every dollar of NOI, we're keeping $0.85. And then our dividend today is set at about 60% of FFO, and so -- of AFFO. So we're retaining 40% of that higher cash flow, and we continue to see strong EBITDA growth. We have $1.1 billion of capacity today, which is $300 million of cash. $150 million that we have available under delayed draws for the term loan. So we've access to 150 that we're not diluting shareholders today with, and we have a full untapped line of credit. Nothing about the recent deals gives us any pause about doing other deals. If anything, the success that we've had across the three outlets that we bought and one outlet that we developed in the three lifestyle centers, has demonstrated to us the value of the platform that we've created. And that's where we feel that we can lean in and find opportunities where we can drive leasing drive efficiencies in operating and really leverage this marketing platform that we have. And we'll continue to work on things, both off market as well as on market and be very disciplined with that capital allocation because our view is we can't control the stock price. All we can control is the decisions we make to allocate capital, how we manage our balance sheet and then how we asset manage and operate. And we feel that we've built a very competitive operating platform that is very attractive to other owners to bring us in for ability to operate as well as bring capital, and we think that provides a lot of opportunity for us in the future.

And Steve, I want to circle back to the balance sheet in a second. But you had mentioned there's not a lot of outlets that either you or your peers don't own, right? Like is it less than 10%? Like how should we think about that opportunity versus how lifestyle could trend over time as a percent of the portfolio?

Yes. Look, as the markets continue to pivot and change and geographies continue to shift, things that we might have passed on 3 years ago might be things that become interesting again to us in 3 years. So it's probably a fungible number, probably less than 20. I would be comfortable saying. The economics of building right now don't make sense when you can buy for $0.40 on the dollar. So we're going to be seeking acquisition opportunities over land and development opportunities. It doesn't mean we're going to not pursue a development opportunity should something have the economics that we could substantiate moving forward. But for us, we've built a pretty good operating team, and I think that we add value. The projects that we'll choose to pursue will be those that we can add value.

And Michael, going back to the balance sheet quickly. I know when you guys bought Legends, there was an encumbrance there that becomes pre-payable. What's the plan there? Kind of what's the earnings power, especially as debt spreads for REITs have kind of compressed there?

So raising the capital that we did, so I said $300 million on the cash, and we have $150 million on delayed draw. That matches up pretty much perfectly with the $350 million bond in September. And then the Kansas City mortgage as a November '27 maturity that opens up for prepayment with no penalty this November. The cash rate on that CMBS was 7.57%. We marked that to market on a GAAP basis at 6%, and so our intent is to unsecure pay off the mortgage and use our unsecured capacity that is -- if we think about the term loan capital, it's about 100 basis points over SOFR. We have swaps in place that effectively fix that debt in probably the mid-4s. So we'll see as we think about '27, just that benefit from that refinancing. And then the only piece of debt that we have to refinance is going to be the July '27 bonds, which are $300 million at just under 4%. And then we have nothing into 2030. So we're in this really good spot right now over the next 4 years to continue to grow our NOI because our rents are still low relative to the tenant sales at 9.7%. We think that there's a tremendous opportunity to continue to upgrade the tenant mix with higher productive tenants that, therefore, pay us higher rent at the same occupancy cost. We continue to find ways to manage our operating expenses. And then if we have the ability over the next few years to accretively deploy this capacity that not only we have today, but that will continue to build each year, we don't have a deleveraging plan. We have a leveraging up plan to take all of this capacity and hopefully be able to deploy it in attractive opportunities. And because we are not -- we don't need a market presence because of the way we operate with boots on the ground at every one of our assets and a national platform, we can go to a lot of places that others can't. That would be very synergistic with our current portfolio.

That's helpful. Any questions in the audience? Circling back to fundamentals a bit. Michael, you just noted the OCR still around 9.7%. I think over the last couple of years, you guys have said, over time, depending on the asset, you get somewhere to 10% to 12% would be pretty good bogey. And even with the rent spreads that you guys have been pushing through, you still haven't been -- you're still a little bit of ways from even 10% at the low end. Just kind of curious, as you are remerchandising, you are improving sales per square foot, how quickly can you get there? Is this just runway we should think about for the next several years that gets you that premium same-store that you guys have been posting, premium FFO growth you guys have been posting, it's just algorithm just sustainable because of you guys are constantly chasing rent higher because of what you're doing on the ground?

Well, interestingly, the way that math works is if somebody does $500 a square foot and pays us $50, they're at a 10% OCR. That same retailer, we do $600 a square foot pays us a $60, we're still at a 10 OCR. So the metrics kind of work. They're a little wonky the way the metrics were. So we can maintain a flat OCR, but in a sales improving environment, we continue to drive additional NOI. So it's been -- when we first sat down together at the first -- I guess, Michael was on that side of the room at the time, we were about 8% OCR, and it's taken us about 5 years to get up 150, 160 basis points. So I think there's a lot of runway. But with that came a lot of expansion in our sales performance. So we were at 8%, but at $385 a square foot. Now we're at 9.7% at $475 a square foot. So I just think that if we maintain that 9.7% or approach 10% in sales increasing environment, I think we definitely achieve what it is that we're looking to achieve, and that's same center NOI growth across our portfolio.

And this doesn't even necessarily take into account. You guys are running closer to 10% temporary tenants, right, which we've talked about is historically, maybe you were 5%, but it's a little bit strategic what you guys are doing just the quality has frictional vacancy. But those tenants are paying 1/3 or maybe I guess, to go full price, you're 3x to 4x what your temp guys are paying.

Look, short-term tenancy takes on a number of different forms in our portfolio. What you're referencing is like sort of the mom-and-pop tenants that feel frictional vacancy, very short-term leases. They're the cheapest. The lease that has the least amount of lease rights is the cheapest lease in your portfolio. And that's one where we have the right to terminate or move a tenant on 30 days written notice, right? Most expensive leases in your portfolio are going to be the ones that only want to be opened seasonally during the high season. So those are the most expensive leases you'll have. So you've got short-term leases that run the gamut from the cheapest to the most expensive. And we also use short-term leases and experiment. Outlet is there's many barriers of entry for retailers to enter the outlet space because they don't know if they're going to have enough excess inventory to sign a 10-year lease, so many retailers want to try before they buy. So we engage them in our pop-up strategy. And we're often asked, well how much of your short-term tenants are going to convert to long-term tenants most of our pop-ups do because once they get a taste of the traffic, the buying power that we've got a shopper base that is looking to sort of buy into these brands that they love at a low price point, but get traded up throughout the brands ecosystem. I think there's a number of reasons why retailers want to be in that outlet space. And I think then the core vacancy over time, we find that we can replace some of those short-term leases. Usually, there's 3x to 4x the value.

Yes. And I was getting at your sales per square foot are skewed lower because you have this 10% that may be less productive because you're...

Perhaps. Look, I think the aspirational shopper that shops our centers finds great opportunity to come in and engage with retailers across our portfolio at a great going-in price point. I think that's a really important part of our story. So when we get retailers that want to come in, like I'll give you a great example. We'll use Lulu Lemon as an example. They've got a number of full price. They've got a number of stores across our portfolio, particularly in the outlet space. All of which, they select us inventory. That's their model in the outlet space. When they open up a store, a new store with us, it's always going to be a short-term lease because they want to make sure that, that market can support a full-term deal. We have a very high hit rate of converting Lulu Lemons from short term to permanent. But that's an important part of their strategy. We embrace it because we want them to be successful. We know the conversion rate is really high.

We run out of time, but I want to quickly ask because Agentic Commerce has been a big talking point with retail. You guys obviously sit at a different value proposition in retail with a different consumer base. I'm kind of curious how you see this trend impacting maybe your lifestyle centers, but also the outlet business.

Well, look, I talked about earlier, just the Agentic e-commerce for us is it's how the consumer is going to engage product. At the end of the day, whether they're using their AI agent to say, I'm going to a wedding that casual chic, and you don't know what casual chic is, and they come back and tell you what you're supposed to wear. Will they tell you to go shop at Tanger? I mean one day, I think that, that's probably going to be something that we're going to see. Where can I buy that outfit closest to me? Where can I buy that outfit for the least amount of money? And I think that over time, we're probably going to see some of that information shared directionally. I don't think we're quite there yet. But we're going to continue to engage. We're going to stay very, very close to it. And if there's an opportunity to ultimately monetize we're going to be -- that's something that we're going to invest and we're going to make sure that we're sitting in the front row.

And then rapid fires here. Same-store NOI for the retail group next year.

3 to 3.5.

More fewer or the same amount of companies in your space this time next year?

Fewer.

Favorite song in your playlist.

How do you like me now.

All right. Great. Well, thank you guys so much.

I would have said Scarlett. But that's it.

Great. Thank you, guys.