Good morning. This is Cyndi Holt, Senior Vice President of Capital Markets, and I would like to welcome you to the Tanger Factory Outlet Centers Fourth Quarter and Year-end 2021 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, and actual results could differ materially from those projected.

We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties. During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including funds from operations, or FFO, core FFO, 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, February 18, 2022. . On the call today will be Steven Tanger, our Executive Chair; Stephen Yalof, Chief Executive Officer; and Jim Williams, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Steven Tanger. Please go ahead, Steve..

Good morning, and thank you for joining us for our fourth quarter and year-end 2021 earnings call. We ended 2021 in a meaningfully stronger position than we entered with improvements in traffic, tenant sales and occupancy at our open-air shopping centers.

We are also entering 2022 with a well-positioned balance sheet, which we proactively strengthened in 2021 in anticipation of higher interest rates and inflation. Our long-term strategy is to increase cash flow and the value of our real estate. I want to thank our entire team for their hard work and focus on driving this success.

I will now turn the call over to Steve Yalof, to provide additional details..

Thank you, Steve. The fourth quarter punctuated a year of continued improvement as consumers demonstrated their desire to shop at Tanger Centers and retailers recognized the benefits of being in our open-air shopping centers. In the fourth quarter, we delivered positive results across each of our key metrics.

Domestic traffic during the quarter exceeded 2019 levels, was up 12% from the fourth quarter of 2020. Occupancy recovered to 95.3%, representing a sequential increase of 90 basis points and a 310-basis-point year-over-year increase.

Tenant sales reached an all-time high for our portfolio at $468 per square foot, a 17.6% increase over 2019 and generated significant percentage rental growth. And cash blended rent spreads improved 220 basis points sequentially and 650 basis points year-over-year as renewal rent spreads turned positive.

Taken together, all of these metrics helped generate year-over-year same-center NOI growth of 5.6% for the fourth quarter and 16% for the full year.

Additionally, throughout the year, we took a number of proactive steps to further enhance our balance sheet and liquidity position, extend our maturities, reduce our leverage and position us to execute on our capital plan and growth opportunities.

Since the beginning of 2020, we recaptured over 1 million square feet of space due to COVID accelerated bankruptcies and brand-wide restructuring. During 2021, we executed 337 leases, totaling over 1.4 million square feet, recovering 310 basis points of occupancy and filling space with more productive tenants.

These include high-quality footwear and apparel retailers, elevated fashion brands and diversified uses such as F&B, specialty grocery, home and experiential concepts.

We continue to benefit from our temporary leasing program, led by our field organization, temporary tenants diversify our offering and add new concepts and uses that ultimately drive revenue.

Additionally, our temporary tenant program helps draw new customer to our shopping center, increases visit frequency and extend stays that ultimately yields higher sales per customer visit. Our goal, when appropriate, is to convert select tenants from temporary to permanent.

Percentage rentals during the fourth quarter, again, outpaced our expectations, led by ongoing tenant sales strength, our strategy of exchanging value for value while we renewed and restructured deals during the height of COVID proved fruitful.

Deals where we reduced base rents for larger percentage rent shares drove ratably larger percentage rent revenues. In many cases, this strategy produced total rent that exceeded the prior contractual fixed rent, growing our core FFO.

As these deals come up for renewal in 2022 and 2023, we are focused on converting most of the variable upside into fixed rents to provide longer-term certainty.

These restructures, along with the proactive deferrals we employed during the pandemic, have proven to be effective, and we are in a favorable position as we emerge from the challenges of the pandemic. Sales and traffic momentum is supporting our ability to increase rents.

Cash blended rent spreads for comparable leases executed in 2021 improved significantly and renewal spreads turn positive, an important milestone. In-place rents at year-end represented an occupancy cost ratio for 2021 of 8.1%. This is meaningfully lower than other retail distribution channels and provides an opportunity for rental rate upside.

Currently, we have renewals executed or in process for 39% of the space expiring in 2022, compared to approximately 45% of the 2021 expirations at the same time last year. Our fourth quarter results have given us the ability to better price our real estate, and we are now accelerating our renewal activity.

We are also encouraged by our discussions with prospective new tenants and with current tenants looking to expand and are pleased that we are seeing an increase in number of opens to buy for new outlet stores.

Non-store revenues remain a strong contributor of our earnings growth, as evidenced by other revenues line item, which increased over 40% during the fourth quarter compared to the same period of 2020 and over 50% compared to the fourth quarter of 2019.

Our high-traffic open-air shopping centers provide an opportunity for our retailers and national brands to connect with our shoppers outside of the four walls of their store through marketing partnerships, on-center sponsorship and digital and static media.

In 2021, we hosted major activations for such brands as Heineken, Tesla, Unilever, GEICO and Hilton, just to name a few. As this strategy has proven to drive measurable results for retailers and sponsors, we will expand this business and grow the revenue-generating platform over time.

We continue to invest in our people and systems in order to scale our business. Last year, we brought on Justin Stein as EVP of Leasing, and we promoted our EVP of Operations, Leslie Swanson, to Chief Operating Officer. Additionally, we added a Chief Commercial Officer, Andrew Wingrove to our management team.

This is a new role for Tanger, and it demonstrates our commitment to commercializing our business through digital transformation, modernizing our loyalty programs and creating an experience through all touch points that engage our customers.

Andrew has extensive experience in elevating marketing programs, loyalty strategies and customer centricity at companies including Macy's and Delta Airlines. We are investing in technology and business systems to enhance our core business capabilities.

Our investment in, and implementation of a new ERP system will support our ability to effectively scale further. We remain laser-focused on sustaining the internal growth that generated strong cash flow in 2021.

Additionally, we are pursuing a number of value-enhancing investments, including solar, electric vehicle charging stations and other projects to reduce energy and water usage, all underscoring our commitment to sustainability.

Our peripheral land team is aggressively pursuing opportunities to monetize our outparcel portfolio, unlock new opportunities to enhance our offering, generate new revenue streams and create long-term portfolio value.

Tenant interest in our Nashville project has been strong, and we are on track to break ground in the first half of this year, with grand opening in fall of 2023. I'm extremely proud of the entire Tanger team and the results that they achieved for 2021.

I would also like to thank the hundreds of retailers and merchants so vital to the success of Tanger for their great results in our platform. The value proposition of our open-air centers is being validated by shoppers, tenants and the communities we serve.

I would now like to turn the call over to Jim Williams, to take you through our financial results, balance sheet and outlook for 2022..

Thank you, Steve. I am pleased to report that our results for the full year 2021 exceeded our expectations, and we delivered full year core FFO of $1.76 per share, above the high end of our guidance range. Our outperformance was due to better-than-expected contributions from percentage rentals occupancy gains and other revenues.

These factors also drove a year-over-year increase in same-center NOI for the total portfolio of 5.6% for the quarter to $82.8 million. Our balance sheet is well-positioned due to the proactive capital market steps we took during the past year.

We amended our lines of credit, extended our maturities and executed a successful ATM equity issuance strategy to significantly reduce our leverage and enhance our liquidity. We have no significant debt maturities until April 2024.

And as of year-end, our net debt to adjusted EBITDAre improved to 5.5x for the trailing 12 months compared to 7.2x for the comparable 12-month period. As of year-end, 93% of our outstanding debt was fixed. We have always prioritized maintaining a strong financial position and a disciplined and prudent approach to capital allocation.

For the full year, our dividend was well-covered, with an FAD payout ratio of 53%. Our Board will continue to evaluate dividend distributions alongside earnings increases and taxable income distribution requirements. Our priority uses of capital are investing in our portfolio to grow NOI and evaluating selective external growth opportunities.

I would like to highlight a few changes we have made to our disclosures with our year-end reporting to improve comparability with other open-air retail center REITs. We have added our pro rata share of JVs to certain metrics to provide a more comprehensive view of our portfolio.

We are now providing leasing spreads on an executed basis rather than a commenced basis to provide a more forward-looking metric. But during this transitionary quarter, we also provided these on a commenced basis. We are introducing our guidance for 2022.

We expect core FFO to be in the range of $1.68 to $1.76 per share and are pleased to reintroduce guidance for same-center NOI growth at a range of 1.5% to 3.5%. Included in our guidance are the investments that Steve discussed to support our growth, which are primarily reflected in our G&A expectation of between $69 million and $72 million.

This includes investments in building the team and technology, critical to executing our core strategies of reshaping operations, accelerating leasing and growing our commercial strategy.

Additionally, as part of our commitment to our employees, we reevaluated our benefits packages and have improved our employee health insurance program, which will have an approximate $1 million impact on G&A.

Finally, due to the capital markets activity in 2021, our guidance assumes 2022 weighted average diluted common shares of approximately $110.5 million or FFO per share compared to $106.8 million in 2021. For additional details on our key assumptions, please see our release issued last night. I'd now like to open it up for questions.

Operator, can we take our first question?.

. Our first question today is coming from Katy McConnell from Citi..

I was wondering if you could walk us through some of your expectations for noncore line items embedded within guidance this year that could be impactful, including straight-line rent, FAS, lease term fee income and new bad debt expense for this year?.

Katy, it's Jim. Good morning.

We've given you in our guidance range, what we think are the major components that will be driving the results, and that's the same-center NOI increases of 1.5% to 3.5% and the G&A I do want to point out, just to make sure everyone understands that there will be another -- there will be a little bit of a dilutive effect as the equity shares -- the equity offerings we did last year and the shares we issued, we'll have a -- we'll be outstanding for the full year this year where they were only outstanding for a partial year last year.

So that's going to make about a penny or two penny diluted impact this year. As far as these other items, we're not going to really guide to those. There hasn't -- if there were something significant, we would point those out, but there's really not that really significant compared to year-over-year in those items..

Okay. That's helpful.

And then what's your outlook for free cash flow generation this year? And maybe if you could walk us through how you're thinking about the major sources and uses of capital for this year, including your higher CapEx expectations? And what you plan to spend on the national project?.

As far as our CapEx spend, we -- one of the components we gave you in the guidance about $55 million -- and that's the recurring cap piece to lease up our properties and to maintain and refresh the properties, that amount is a little bit elevated from a typical year.

I think if you look over the last 3 years, we'll probably be in the range of $35 million to $40 million. But a couple of things just to point out, we do have a little bit bigger bucket of renewals coming up. And we, last year would have a little -- we had very -- a lot smaller amounts that we spent on tenant allowances.

So that reflected our strategy to not enter into the long-term permanent leases when we're at the bottom of the market. But we certainly see those trends improving now and some of those shorter-term leases will be rolling into 2022.

And given the traffic and -- given the improvement in the traffic in sales, we're certainly feeling a little bit better about our business to be able to do -- to get a lot of those renewals done to do some more permanent leasing. So we'll see some of that going up.

And also, we have 4 or 5 projects in our portfolio that we'll be doing some extra renovations to really improve the overall appeal and experience for our customers..

And then just on the free cash flow expectation?.

On the -- what's the free cash flow? Is that what you're....

If you can give us any sense for what you're expecting this year?.

We -- let me just -- let me put it in terms of this way. I think if you look at our -- what we're expecting our current payout ratio to be after dividends, it will be pretty healthy. I think we'll still be in the 50s, which really puts us in a good spot as we move into 2022..

Our next question is coming from Samir Khanal from Evercore ISI..

Steve, can you provide a bit more information on the guidance, what you're assuming for tenant sales, which have certainly rebounded at this time, just to kind of get to the low end or the high end of guidance?.

The low end of our guidance assumes little to perhaps reduction in tenant sales, and the high end of our guidance takes into consideration improvement in tenant sales. But personally, we're optimistic about tenant sales. We feel pretty good about the momentum that we have coming out of the fourth quarter going -- and going into this year.

And with inflation, we've just found in past years that inflation values our channel and the discount channel..

And in terms of just looking at guidance, again, one of the drivers for growth has been that other revenue line, which is the paid media and marketing, you talked about. I mean, at this point, when you look at that line, it's clearly about 30% over what we saw in 2019.

I guess, how much more is there you can do on that line as we think about your outlook range for '22 that you provided?.

Well, we really just started that business about 1.5 years ago, and it continues to grow because it's coming off of an extremely low base. So we think that becomes an increasingly more important part of our business in outer years. It's something that we're ultimately going to invest in. Part of that line item is digital media.

And as we invest in digital media boards, we certainly get a return on the investment as we go after marketing opportunities with either retailers within our shopping center portfolio or outside media like the ones that we named in our script earlier, guys like Unilever and Heineken and folks that are doing -- taking advantage of over -- the 125 million to 150 million people that visit our shopping centers every year.

So they want to get an opportunity to get their products in front of that customer base..

Your next question is coming from Todd Thomas from KeyBanc Capital Markets..

Steve, you talked about the deals that you got during the pandemic, where you reduced breakpoints and traded fixed rent for higher variable rent, and that seems to be paying off.

What percent of the tenant base is not paying full freight today or fixed rent? And what's the uplift that you're expecting on average as you convert those tenants back to fixed rent, which I think you said would generally take place in '22 and '23?.

You saw in our supplement that we've got a big chunk of renewals coming back this year, and we see that renewal population is opportunity for us to push rents for sure. When our leasing team gets in front of our tenants, the first thing we talk about is sales and traffic.

And those two metrics have been improving over the last few quarters and continue to improve. And obviously, that gives us a great opportunity to reprice our real estate and push our rents -- so that's our strategy.

That's what we're looking forward to doing with regard to some of the temp leasing or the short-term leasing that we've done over the past year or so, we see that, too, as opportunity, to replace some of the local temp leasing that we've done with more longer-term permanent leasing at market rents and full paying base rents with triple net.

We also put money in our budget for tenant allowance because we're anticipating a big improvement of longer-term commercial permanent rents..

Okay.

If you carved out those tenants, though, where you struck deals during the pandemic, if you carve them out from the -- within the renewal bucket, what does that look like relative to the balance of the renewal activity that you're seeing?.

It would probably be more of a normalized renewal year..

Okay.

But -- and the uplift in rents, the spreads that you're seeing from those tenants?.

Well, again, I think, we're going to go after what we consider to be market rents with every renewal that comes in front of us. And we think our real estate is worth it. We reported an 8.1% occupancy cost, which we believe is the lowest in any retail channel. So there's great value. There's opportunity and upside for us to push those rents.

I don't think we get a tremendous amount of pricing resistance from the retailers because we're still that one value channel from a retailer pricing point of view, but also from sales volume point of view, I think we're probably one of the most profitable for the retailers as well..

Okay. And if I could just follow up on Samir's question a bit, related to the G&A increase and the investments in technology and the commercial businesses that you've described, the marketing and sponsorship.

How big of a business could this be for Tanger? And Jim, what's in the guidance for that business segment in '22?.

Todd, this is Jim. As far as we've given you the parameters, I think we're certainly excited about the team that we've built and we put in place. We really have been going after best-in-class tenants.

I mean, best-in-class employees that really build this team, and we're really seeing that take hold in a lot of different metrics as far as driving other income and building the team to make improvements in our specialty leasing temporary tenant programs and leasing throughout the core organization.

Those things, I think we feel there's an opportunity to come later as those folks become seasoned. But what would really -- all that stuff is really kind of baked into our same-center NOI guidance..

Todd, I'd say one thing. Just as we look at the G&A number as it relates to building these businesses, we're setting up an infrastructure in order to help us monetize these businesses in a way that we've never had before.

Again, I mentioned when Samir asked the question, that this marketing partnership business and this paid media business is kind of a brand-new business for us.

But because we've gotten such great traction and it continues to build, we're now going to put systems in place so that we can do a better job of managing it, managing our inventory and getting out in front of the tenant a lot faster.

We think the faster we can execute to getting in front of tenants getting deals done, we can generate even more revenue. And that's our plan. So we're investing today to make sure that we're setting up the systems in order to ultimately execute to a much bigger bucket on a going-forward basis..

Next question is coming from Floris Van Dijkum from Compass Point..

Just wanted to just touch on some of these issues that you sort of danced around. Can you give us a sense of -- I know that you said you got 18% of your rents coming due in '22, typical would be more like 10%-ish. So is 8% would be those percentage rent deals.

Can you maybe give us an indication of what the average rent is of the expiring leases in '22 relative to -- obviously, I think you've been signing new rents at around $30.

Maybe give people a little bit of comfort in terms of where the spreads might be going?.

I don't know that we're guiding to spreads, Floris, but I'll certainly say we're optimistic that our -- first of all, renewal spreads turned positive. I mean that's definitely a step in the right direction. And we feel pretty optimistic that we're going to push positive spreads going into this year. I mean, that's the plan.

We've just brought in a new EVP of Leasing, who is now driving the team in the way it's never been driven before. We're really commercializing our leasing efforts. We're looking at our retail performance from a sales per square foot number every single day and repricing our real estate accordingly.

We look at that 8% of our occupancy costs, and all we see is opportunity. We see this 18% that's coming back this year, and we see that as opportunity.

So we're going to continue to take some of that short-term local leasing that was so vital to our success over the past year, building vacancy and cash flowing, but our plan is to take that short-term leasing, replace it with permanent leasing and price our real estate at the value that it's worth today.

And right now with an all-time high at $468 a square foot across the portfolio, we think our real estate similarly carries an all-time high price per square foot. And our goal is to go out and execute that..

And, Floris, this is Jim. If I can just add a little bit to that as well. I think the really key difference coming into 2022 if you look at our tenant health, it's in a much better spot than we've seen in the past few years. We don't have -- we don't -- our watch list is as short as it's been. There's not that many tenants on that watch list anymore.

We don't have that expectation of store closures. So we don't have to necessarily play the occupancy gain that we've had to play in the past that gets us -- not with that issue with improving tenant health, the improving trends in traffic and sales gives us more optimism about what we can do with rent brands in 2022..

And if I can ask one more question, I guess, maybe if you can talk about your leased versus occupied spread and what percentage of your occupied is temporary?.

There's about a 30 basis points spread between leased and occupied right now, Floris. And the temporary tenants are low double digits, which -- a couple of things. One, it just reflects the strategy that we've used. We really wanted to ramp up that program to drive revenues and improve experiences.

We also, in the fourth quarter, you have a little bit of a ramp up due to the seasonal tenants that typically open in fourth quarter for the holiday season. I think you'll see those close in the first quarter of 2022..

Jim, by low double digits, you're talking about below 15%?.

Yes..

Like 12-ish. Okay..

Next question is coming from Caitlin Burrows from Goldman Sachs..

Maybe just a quick follow-up on that tenant health and watch list topic. Jim, I know in recent years, you had like a buffer in guidance so that if there were some unknown closures that guidance could absorb that and then if there wasn't, there was upside.

So could you just tell us whether this year's guidance assumes something like that, where if there is possible unexpected closures it could absorb it or not given the health of the tenants?.

So, Caitlin, I think that we -- in our range, we can absorb some of that, but we really don't have much of that built in because just from what we're seeing and what we're hearing, what those improved trends as we're in a spot that's much, much improved from what we've seen in the past..

Okay. Yes. No, that makes sense. And then just maybe on the external side. I think, in the past quarter or two, you guys have talked about there possibly being attractive acquisition opportunities. And I know you've done a lot of work over the past year so on the balance sheet side.

So could you give an update on what you're seeing on the front of possible acquisitions that could occur in '22?.

Yes. Unfortunately, we don't want to share anything until it's a deal. So it's -- but there's definitely some interesting things out in the marketplace.

Because the Tanger name is synonymous with outlet, we have amazing brand recognition, not only in this country, but around the world, you can imagine that we see a lot of opportunity to brand outlet centers and bring our TangerClub, our loyalty program and all the suite of services that come with being a part of a Tanger shopping center to other assets..

Our next question is coming from Craig Schmidt from Bank of America..

Great. I wanted to talk a little bit about gas prices. I know, in the past, you said that increased gas prices hasn't diminished traffic, but we're hearing that, come to summer months, gas prices could hit $5. And if the Russian-Ukraine tension escalates, it could even hit as high as $7.

What are you thinking about -- are these increases enough that it could have impact? Or are you thinking traffic will be as expected?.

Craig, you got to get an electric car. And that's also -- it's a big part of the investment that we're making right now is in e-charging stations. And by the end of the year, we'll have e-charging stations in every one of our assets.

But as far as gas prices are concerned, the outlet center of today is much different than the outlet center of 20 years ago, 25 years ago. I don't want to date myself in the business, but we're finding that particularly, in our markets, these drive-to resort markets, they're big second home markets, too.

And a lot of people are staying in those second home markets, whether they've got flexible work, we're seeing a lot more traffic during the week to our shopping centers, and that's supporting the fact that people are living a little bit closer to our shopping centers.

The wholesale sensitivity that kept shopping centers so far away years ago has really diminished in our business, and we're able to put our assets much closer to where the people are.

And more importantly, a lot of the places where we put shopping centers 10, 15, 20 years ago, have become sort of the go-to residential destinations and they're growing from a residential point of view in very big ways. And I think Savanna is a great example.

We're outside of downtown Savannah, which is the big tourist destination, but we're in Pooler and Pooler is one of the fastest-growing geographies in the market. you look at Westgate, we've had unbelievable results coming through our Westgate Shopping Center in Arizona. A lot of that has to do with the increase in permanent population.

So as we're looking for new opportunities, but we're also investing in some of our existing, we're leaning very heavily into those where the permanent population is a very important part to the future growth of those shopping centers..

Okay.

And then just what is the pre-leasing that's done at Nashville?.

Well, we said we won't break ground until we have 60% committed, and we're planning on breaking ground early in the second quarter. So we're -- I guess you can do the math. We're -- we won't break ground without that commitment..

Okay.

So you're either very close or already there?.

Yes..

Next question today is coming from Mike Mueller from JPMorgan..

Following up on Nashville, can you give us some like rough stats and parameters for the size or the economics of the project? And how you think your tenant looked like you moved to the average Tanger center today?.

Yes. The Center will be about 300,000 square feet, which is slightly smaller than a typical Tanger center. With regard to the tenant mix, we know that we're in an extremely competitive market, so we're not really releasing the names on the tenants, but that will be forthcoming.

The important part of the geography of that shopping center, we're in the south side of the market. We're also part of a mega pad that is part of a $1 billion investment, not only in infrastructure, but in residential housing, hotel. It is on the same site as the practice facility for the professional soccer team in Nashville.

It's directly across the street from the professional practice facility for the hockey team. So we think, not only will we benefit from the permanent population, to Craig's point earlier, but also as folks come in for soccer tournaments and hockey tournaments, there's a huge hospital that also sits on that same mega pad.

We just think being part of a mixed-use development. It's a little bit different than how we've pursued real estate in the past. This has a built-in client base for our retailers, but also its proximity to Nashville will give us a great draw for the tourists that visit in that booming market..

Got it.

And any rough color on anticipated economics returns?.

Yes, it'd be a typical return for us. We always look going in at a 7% to 7.5%, third year stabilized. There may be some upside in that, as that market gets increasingly more competitive for retail space, we can push rents..

Our next question is a follow-up from Caitlin Burrows from Goldman Sachs..

Just a quick one. I don't think it was brought up, but just wondering on the idea of the temp tenants, totally get the strategy there.

But wondering if you could just clarify what portion of the portfolio they met -- made up in the fourth quarter?.

We said at the end of the third quarter that we were just over 10%. I think it got a little bit higher in the fourth quarter, but a lot of that was just seasonal temp tenants. That's pretty typical. Holiday pop-ups and things of that nature..

Maybe like 11% or 12%?.

I don't think it was that high..

We reached end of our question-and-answer session. I'd like to turn the floor back over to Mr. Tanger for any further or closing comments..

Thank you, everybody, for your interest in our company. Steve, Jim, Cyndi and I and our entire team would be happy to answer additional questions after this call. We look forward to seeing some of you in person, hopefully, at the upcoming Citi conference in a couple of weeks. Be well, and have a great weekend. Goodbye..

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today..