Tanger’s Stephen Yalof on Maintaining Outlet Center Momentum

Tanger Factory Outlet Centers pulled off a strong first quarter, beating expectations and raising its outlook for the year, despite spiking COVID-19 cases in the U.S., inflation and a wildly gyrating stock market.

“Consumers are demonstrating their desire to shop at Tanger Centers and retailers are committed to our open-air destinations as evidenced by our leasing momentum and tenants’ desire to expand in our portfolio,” Stephen Yalof, Tanger’s president and chief executive officer, said in a statement.

“We remain focused on sustaining our internal growth as we continue to accelerate leasing, commercialize marketing and reshape operations, along with advancing new development and pursuing opportunities to generate new revenue streams and create long-term portfolio value.”

The company operates upscale open-air outlet centers; owns or has a stake in 36 properties, including Tanger Outlets Riverhead in New York, and Tanger Outlets Myrtle Beach in South Carolina, and is developing its 37th, a 300,000-square-foot outlet center in Nashville, Tennessee.

For the first quarter ended March 31, Tanger’s net income rose to 19 cents a share, or $20.3 million, compared to 4 cents, or $3.9 million, in the prior-year period.

Funds from operations were 45 cents a share, or $49.4 million, compared to 38 cents, or $38.2 million, in the year-ago period.

Core FFO was 45 cents a share, or $49.4 million, compared to 40 cents, or $40.6 million, for the prior-year period. Core FFO for the 2021 first quarter excluded expenses of $2.4 million, or 2 cents a share, related to a voluntary retirement plan and severances.

Occupancy was 94.3 percent on March 31, compared to 92 percent on March 31, 2021, though slightly under the 95.3 percent rate as of Dec. 31, 2021. The recent slip was attributed to a typical playing out of temporary and pop-up leases.

Guidance on net income for 2022 was raised from 69 cents to 77 cents a share, from 66 cents to 74 cents previously, and in April, Tanger raised it annual dividend from 73 cents to 80 cents a share.

In the following Q&A, Yalof discusses how the company plans to sustain its momentum, evolve the mix of tenants and navigate through macro headwinds.

WWD: With gas prices sky-high at $4 a gallon or more, how’s that affecting turnout at your centers, which many shoppers drive to?

Stephen Yalof: People driving a longer distance to our centers is an old narrative. A lot of the markets where our centers exist have benefited from people moving from cities to the suburbs. We saw that over the last two years. Population is growing in the towns and cities where we have positioned our shopping centers so the local trade is becoming a more important theater to the success of these centers. We still rely very highly on the drive-to touristic traffic, but you don’t have to pack up the car and drive miles and miles to get to a Tanger outlet center as you did 10 or more years ago. We are value priced. People see an exchange. What they spend on gas, they get back in value and savings when they shop our centers. The last time gas hit that $4 level, right around the recession, our centers fared extremely well.

WWD: How has traffic been recently?

S.Y.: Traffic for the quarter was up and the early read on April is that it was up against last year, primarily due to the Easter shift, from April 4 last year to April 17 this year. That is important [because] Tanger Style, a perennial promotion, essentially a discount off of participating brands that’s in addition to the other values shoppers get, usually starts two weeks prior to Easter. So last year it started at the beginning of the third week of March. This year the program didn’t start until April and we are seeing the results of that.

WWD: How much has inflation impacted your business?

S.Y.: Inflation is causing a lot of stress across all channels. We are definitely not immune. But the value channel is definitely favored in inflationary times. Most of the brands enjoyed a big pricing push in the fourth quarter of last year, where typically in October and November, particularly in the outlet space, you would see retailers breaking price and becoming a little more promotional to compete with customers. We didn’t see that dynamic until late in December last year, but now those elevated prices…we are finding retailers becoming more promotional in our centers. And everybody wins. It’s great for the shoppers and great for the retailer because of lot of their outlet strategy is to convert [sell] excess product that didn’t transfer elsewhere.

WWD: What is the pace of leasing like now?

S.Y.: We added 230 basis points of occupancy over the last year. We did see sequential decline from the end of the year. That’s typical in the first quarter because seasonal, temporary leases usually fall out. But there really hasn’t been the same velocity of fallout of years past, where retailers hold out through holiday season and then close stores. That dynamic didn’t happen this year. If fact, only two brands closed stores. We were prepared. We have a pretty robust pipeline of new tenants and tenants expanding. Fila brand stores closed. They just decided to exit the outlet space.

WWD: How are you evolving the tenant mix?

S.Y.: We have relied on very heavily on apparel and footwear in years past. Those were the brands that were expanding, taking larger footprints. What we have found is that a more diversified assortment in our shopping centers creates a much better customer experience. With that in mind, we have gone after different brands, different uses, different categories and also more experiential retail, and food and beverage. In the past quarter, Crate & Barrel opened in Riverhead, N.Y., and Mitchell Gold and Bob Williams Home Furnishings opened in August, in Riverhead and San Marcos, Texas. It’s also important to share some of the better brands we have added [including] St. John to a couple of our shopping centers, Wolford, Regatta. That is an important dynamic, more fashionable apparel in the last quarter is outpacing casual apparel, as far as comps are concerned.

WWD: Are the shopper demographics in your centers changing?

S.Y.: A lot of the work we are doing is to attract the best brands, the most current brands, the brands that have the biggest following. In so doing, we are going after digitally native brands that speak to a much younger consumer. We will have the first Summersalt store, let alone outlet, which will be a pop up on Memorial Day in our Myrtle Beach center. [Summersalt emphasizes swimwear.] That’s a brand shopped online by a much younger consumer. We will get the benefit of their digital marketing and following and they get the benefit of our customers. Our digital initiatives with the Tanger website, that marketing speaks to a much younger customers. That younger shopper certainly likes to window shop before they transact.

WWD: Landlords have been raising rents after giving breaks earlier in the pandemic. What’s Tanger’s approach to leases?

S.Y.: As we start to recast new leases whether renewing existing tenants or with new deals, we are focused on longer-term leases. Our renewals are up six months and new tenanted space is up to close to four years in terms. We are also making great strides in taking that variable rent and sweeping that into base rent, which is far more protection for us. We are priced, from the rent occupancy point of view, in the lowest range in brick-and-mortar. We are positioning you next to some of the most powerful brands on the planet, whether it’s Ralph Lauren or Nike. That’s our value proposition.

WWD: Tell me about ancillary revenue sources Tanger pursues.

S.Y.: National brands like Coca Cola, NFL, Heineken, Unilever and Tesla want to take advantage of the crowds we see and want to get their product or service out in front of the consumer. In the case of Tesla, it’s about offering test drives. In the case of NFL in 2023 they will co-brand with our Phoenix property which is adjacent to where the Super Bowl will be played. So we are working with NFL to host events and do promotions in the month and weeks leading up to the Super Bowl. With Coca Cola, there’s both product placement and signage across our portfolio. The Heineken initiative last summer was an alcohol-free beverage Heineken launched using our shopping centers on a taste-testing basis.

WWD: What is the progress on the 300,000-square-foot Nashville project?

S.Y.: We will break ground later this month, with a grand opening scheduled for fall of 2023. In a lot of these hot markets, it starts with the great educational system there which feeds the workforce which feeds bigger and better businesses positioning themselves there. With the dynamics of better businesses moving into these markets, all ships rise. Vanderbilt University [located in Nashville] or other colleges of that level feed the workforce, particularly in the tech space. You’ve got Amazon building two office towers and Oracle building a large office complex, both to be housed in The Gulch, a rapidly growing downtown neighborhood fueling population growth and density. Our shopping center will be 12 miles from downtown.

WWD: Does Nashville advance your outlet platform?

S.Y.: Our vision is that we are pivoting from a real estate company to a customer experience company. We see that manifesting itself as a customer-centric shopping experience, meaning we are not in the business of just leasing space to retailers. We are in the business of entertaining shoppers when they visit. We have to be more than just a shopping experience. We have to be a much better in food and beverage. We have to have much better amenities. We have to provide much better service. Although some of our existing shopping centers are pivoting to that right now, this center will be built with that framework in mind.