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Executives

Stanley K. Tanger – Chairman and Chief Executive Officer

Frank C. Marchisello, Jr. – Executive Vice President and Chief Financial Officer

Analysts

Michael Bilerman- Citigroup

[Quentin Vallaley] – Citigroup

Lindsay Schroll – UBS

Jay Habermann – Goldman Sachs

Jonna Brown – Goldman Sachs

Ben Yang – Green Street Advisors

Michael Mueller – JP Morgan

Dennis Anchor – Private Investor

Tanger Factory Outlet Centers Inc. (SKT) Q4 2008 Earnings Call February 18, 2009 10:00 AM ET

Operator

Good morning and welcome to the Tanger Factory Outlet Center's Fourth Quarter 2009 Conference Call. Please note that during this conference call, some of management's comments may be forward-looking statements regarding the company's property operations, leasing, tenant sales, trends, developments, acquisitions, expansion, and disposition activities, as well as their comments regarding the company's funds from operations, funds available for additional distribution, and dividends.

These forward-looking statements are subject to numerous risks and uncertainties, and actual results could differ materially from those projected due to factors including, but not limited to, changes in economic and real estate conditions, the availability and cost of capital, the company's ongoing ability to lease, develop and acquire properties, as well as potential tenant bankruptcies and competition.

We direct you to the company's filings with the Securities and Exchange Commission for a detailed discussion of the risks and uncertainties.

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 be accurate only as of today's date, February 18, 2009.

At this time, all participants are in a listen-only mode. Following management's prepared comments, the call will be opened up for your questions. On the call will be Steven Tanger, the company's President and Chief Executive Officer; and Frank Marchisello, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Steven Tanger, please go ahead sir.

Steven B. Tanger

Thank you and good morning everyone. Also on the call is Stanley Tanger, our Chairman; 2008 was a very challenging and interesting year for the REIT industry, our company and our country. Financial losses in all sectors of the economy were huge.

Through it all, Tanger was able to show a positive total return to its shareholders of almost 4%. In fact, for publicly traded REITs with market capitalizations in excess of $1.4 billion, our company ranked number two in total return to its shareholders for 2008.

As of the end of last year, Tanger also ranked number one in three year, five year, and ten year total return to shareholders. We have a consistent, long-term track record of outperforming the market and creating value for our stakeholders.

In this economic climate, consumers continue to want value when they buy brand name products. The old adage, that in good times people like a bargain, and in tough times like these they need a bargain, remains true today.

I'm going to turn the call over to Frank, who will take you through our financial results for the year, and then I will follow with a summary of our operating performance, our future developments, and our expectations for 2009.

Frank C. Marchisello, Jr.

Thank you, Steve and good morning everyone. Since our last conference call in October, the turmoil in the financial markets has continued and there is still no clear vision of what lies ahead. Based upon our 28 years of successfully managing this business, we know that a strong balance sheet with low leverage and access to liquidity is a must, particularly in market conditions like these.

Let me just take a minute to summarize some of the financial transactions we successfully completed during 2008. Early in the year, we increased our unsecured line of credit capacity from $200 million to $325 million, providing us with $125 million in additional liquidity.

Five of our lines of credit, totaling $300 million do not mature until June of 2011 or later, and the remaining $25 million line of credit is with Wachovia Bank and matures in June of 2009. As most of you know, Wachovia was recently purchased by Wells Fargo.

Fortunately, we have a long standing relationship with the team at Wells Fargo and are already in early discussions with them about absorbing the Wachovia line and expanding its maturity.

In June 2008, we closed on a $235 million unsecured three year term loan. The loan bares a floating interest rate at 160 basis point spread over LIBOR. Then in July and September we completed two three-year swap transactions, which fixed the rate on the entire $235 million term loan at an average rate of approximately 5.25%, through April 1, 2011.

And in October 2008, we received an upgrade from Standard & Poor's Rating Agencies from BBB- to BBB, making Tanger one of only two reached to receive a ratings upgrade during 2008. We have also maintained our investment grade rating of BAA3 with Moody's Investor Services.

On a consolidated basis, our total market capitalization at December 31, 2008, was approximately $2.3 billion and our debt to total market capitalization at the end of the year was approximately 34.7%.

We also maintain a strong interest coverage ratio of 3.67 times for the year. As of year end 2008, approximately 80% of our debt was at fixed rates, our wholly owned portfolio properties was 100% unencumbered, and we had no outstanding maturities until June of 2011.

We also had $161.5 million outstanding on our $325 million in unsecured lines of credit, which have an interest rate ranging from 60 to 85 basis points over LIBOR. Our balance sheet strategy has always been conservative.

As for our results, funds from operations for the fourth quarter of 2008 was $0.74 per share, compared to $0.70 per share the previous year, and funds from operations for the year was $2.46 per share, compared to $2.48 per share last year.

Our reported FFO for 2008 was impacted by a number of unusual items, including a $2.2 million increase in lease termination fees over the prior year, offset by a $3.3 million increase in abandoned due diligence costs, an $8.9 million charge relating to the settlement of two U.S. Treasury locks, and a $406,000 prepayment premium associated with the early extinguishment of debt.

FFO as adjusted for these items would have been approximately $2.73 per share for 2008, representing a 10.1% increase over the prior year. This year-over-year increase in adjusted FFO was driven by our ability to increase rental rates on renewals and release space, as well as incremental FFO from our four expansion projects which opened during the fourth quarter of 2007, and our new center in Washington, Pennsylvania, which opened at the end of August 2008.

Our FFO payout ratio for the year was approximately 61% and our FAD payout ratio was 94%. We substantially completed all of our planned capital improvements during 2008, including the reconfiguration project at our center located on Highway 501 in Myrtle Beach, South Carolina.

Excluding this reconfiguration project, our FAD payout ratio would have been 73% for the year. In addition, we will continue our ongoing efforts to increase occupancies at select centers and attract new high volume tenants to the outlet industry.

We have been committed to achieving high quality long-term earnings by consistently investing in our business. We've been planning for the future by making over $60 million in capital improvements throughout 11 properties over the last five years.

All of our large capital improvement projects are now complete. We are currently budgeting to spend less than $8 million in capital projects in 2009, compared to $30.8 million that we spent in 2008; this will bring our FAD payout ratio down substantially, most likely in the mid 60% range.

At these levels, our dividend is well covered and we will generate incremental cash flow over our dividend, which we plan on using to reduce our outstanding debt.

I will now turn the call back over to Steve.

Steven B. Tanger

Thank you, Frank. During 2008, we were able to deliver strong earnings growth, driven in part by healthy increases in rents and the execution of our strategic plan by the entire Tanger team. For the year, same center NOI growth was 4.1% on top of growing 5.3% in 2007, 3.1% in 2006, and 3.8% in 2005.

I am pleased to report that the positive rent spreads we achieved the last few years continued in 2008. Through year end, we have executed or in process approximately 83% of the 1.3 million square feet of leases that came up for renewal throughout our wholly owned portfolio during the year, with an average increase on the executed renewals of 17.5%, compared to an increase of 13.9% in 2007.

Approximately 137,000 square feet of space not renewed with the existing tenants was in our option, so that we could upgrade our co-tenancy or expand existing successful tenant stores at a number of locations. Excluding this space, we actually renewed 92% of the stores that came up for renewal during 2008.

We also re-tenanted over 490,000 square feet during the year, at an increase of average base rent of 44.1% over the rent that was being paid by the previous tenant prior to their vacating the space, compared to an increase of 39.7% in 2007.

This year, we have executed and welcomed to our portfolio 33 new tenants, including Stewart Weitzman, True Religion, Neiman Marcus Last Call, Restoration Hardware, Victoria's Secret, Talbot's, Ann Taylor LOFT, William Sonoma Home, Betsey Johnson, Optical Shop of Aspen, and Wolford.

We have already made great progress on our 2009 renewals throughout our wholly owned portfolio. As of the end of January, we have executed or in process 834,000 square feet or about 56% of the space coming up for renewal during 2009, with an increase on average base rental rates on the executor renewals of 16.4%.

This compares the 859,000 square feet representing 61% of the total square feet up for renewal at this time last year, with an increase last year in average base rents on executed renewals of 17.5%.

In addition, during January 2009, we re-tenanted approximately 127,000 square feet, with an increase in average base rental rates of 57.3%. This increase compares favorably to last year at this time when we had released 191,000 square feet, with an increase in average base rental rates of 29.3%.

The overall occupancy rate for our wholly owned, stabilized properties was 96.6% at the end of the year, marking the 28th consecutive year that we have achieved a year-end occupancy level of at least 95%.

During 2008, we recaptured 70 stores that were occupied by nine tenants, representing approximately 330,000 square feet or 3.7% of our wholly owned portfolio. Sales for these tenants averaged only $176 per square foot, with an average base rental rate of $16.65.

Approximately 52% of this space has now been released at base rental rates averaging 61% higher than the average rent being paid by the previous tenants. As a result of the current economic conditions, we subsequently received notice from six tenants of their plans to close stores this year. The combined space, which is now vacant, represents 41 stores totaling approximately 171,000 square feet, which represents about 2% of our wholly owned portfolio.

Reported tenant comparable sales within our wholly owned portfolio, excluding centers going through major renovations, decreased 1.6% for the rolling 12 months ending December 2008 to $336 per square foot.

Our portfolio does not have many luxury stores, which have been suffering the steepest decline in sales. Most moderate stores did not have the robust sales increases in 2007, so they planned more modest inventory levels in 2008.

Our average cost of occupancy for 2007 was 8.2% of average tenant sales, compared to 7.7% in 2007, 7.4% in 2006 and 7.5% in 2005, which means stores in Tanger Centers are still very profitable for our tenants. Our low occupancy cost to our tenants still provides us with the opportunity to raise rental rates on the releasing and renewal of space.

Percentage rents, which are paid by tenants once their total sales exceed certain levels, only represents 2.9% of our total revenues during 2008. Approximately 91.5% of our total revenues were derived from contractual based rent rates and tenant expense reimbursements.

In addition, no tenant, no single tenant accounts for more than 8.4% of our gross leasable area or 5.3% of our base and percentage rent. Most of our tenants have very strong balance sheets; they are not encumbered by the excess debt layered on by leverage buyouts which have caused most of the high profile bankruptcies.

Our wholly owned center located in Washington County south of Pittsburgh Pennsylvania, opened to tremendous crowds when we held a very successful grand opening celebration over Labor Day weekend last year.

On October 23, 2008 we held the grand opening of our center in Deer Park which is on Long Island, New York, our Deep Park property is owned by a joint venture in which we and our two partners each own a one third interest. The property opened to huge crowds and parking lots filled beyond their capacity.

Based upon the successful openings at both of these properties, we believe that there will continue to be tenant interest in the remaining space and additional signed leases will be completed over the next twelve months at both locations.

On January 5, 2009, we acquired the remaining 50% interest in the joint venture, which owns the Tanger Outlet Center located on Highway 17 in Myrtle Beach, South Carolina for a purchase price of $32 million which was funded from amounts available under our lines of credit.

The property is currently subject to a $35.8 million mortgage which matures on April 7, 2012, assuming we exercise the two year extension. There is an interest rate swap on the loan that fixes the rate on the $35 million at 5.99% and the remainder of the loan is at a floating rate of LIBOR plus 140 basis points.

The current loan to value is about 36%, this is an A property which we obviously know very well. The acquisition was at an 8.3% to 8.5% Cap rate on estimated 2009 NOI and will be immediately accretive.

We continue to have signed purchase options for new development sites in Mebane, North Carolina and Irvine, Texas. Initial reaction to these sites from our magnum tenants has been positive, however, we are still in the due diligence study period on both of these sites.

We have a long standing policy of only buying property and starting construction when at least 50% of the first phase is leased and when we have all non-appealable permits in place. We will not build on speculation, in that regard we announced in our third quarter earnings release that we have decided to terminate our purchase options with respect to potential sites in Port St. Lucie, Florida and Phoenix, Arizona.

Given current market conditions, we felt it was in our best interests to terminate these options and focus our leasing efforts on the other development sites, as well as filling vacant space within our existing portfolio.

The fourth quarter of 2008 was a tough quarter for virtually all companies and all sectors in the economy. We are responding by taking immediate action to proactively reduce certain costs in 2009. We plan to increase our liquidity by maximizing the cash flows in every part of our business.

Based on our view of the current market conditions, we currently believe our estimated diluted net income per share for 2009 will be between $0.87 and $0.97 and our FFO per share for 2009 will be between $2.73 and $2.83.

In our earnings guidance we have lowered our expectations and are assuming that same center NOI growth is in the range of 1 to 2%. The growth in NOI will be driven by continued increases in renewal and releasing spreads during 2009.

Rental rate increases, however, will be offset somewhat but what we expect will be slightly lower average occupancy rates over the next 12 months to last year's, we continue to fill vacancies within our portfolio.

In our guidance we also assume our tenants will be challenged to maintain sales, as increased discounting and price deflation will most likely continue in 2009. We are projecting percentage rental revenue being decreased, which is a direct result of lower sales.

Our guidance range also reflects the accounting change relating to the recording of additional non-cash interest expense associated with our $149.5 million of outstanding convertible debt, which will have a negative impact on earnings of approximately $0.07 per share.

There is currently a lively debate within the REIT industry with regard to many REITs shift in their dividend policy. Historically, we have announced our dividend plans which are set by the Board of Directors in mid April of each year.

We will be using the next two months to watch the market and use all available information to determine the best course of action for our company and our shareholders, with respect to our dividend policy.

Our budget for 2009 currently anticipates year-end funds available for distribution or FAD in the mid 60% range. This means our existing cash dividend is 150% covered from operating cash flow. We do not use our lines of credit to fund our dividend.

In addition, we are very proud of the fact that we have raised our dividend in each of the 15 years that we have been a public company. One of the reasons we believe investors buy REITs, REIT stocks, and Tanger is the expectation of a total return including a cash dividend.

We plan to continue to thoughtfully use our resources and to maintain a conservative financial position. These are unprecedented times, but our company is positioned well to get through the head winds. Our solid balance sheet with no upcoming debt maturities in the next two years puts us in a very strong position going into 2009.

Our management team is ready and able to execute our strategy to maximize the profitability of every one of our assets in 2009. Before I close, I'd like to take a moment and give special thanks to our entire management team and our Board of Directors for their valuable assistance in making 2008 another profitable years for our company. With that, we'd be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) your first question comes from Michael Bilerman – Citigroup.

[Quentin Vallaley] – Citigroup

Hi it's [Quentin Vallaley], I'm here with Michael. Just a question in relation to Deer Park, I noticed there are a lot of operating expenses this quarter, I'm just wondering if you could explain what drove that and also what the outlook is for that asset in terms of net income throughout 2009?

Frank C. Marchisello, Jr.

The fourth quarter Deer Park NOI was negatively impacted by the fact that there was a lot of start-up costs that hit the expense line, as well as grand opening fees at that property were quite a bit higher than might typically be expected due to the market, and the fact that the partnership wanted to get the property off to a very good start.

So what you see in the fourth quarter will obviously not be recurring in nature. It was a one-time event to get the property open and get it off to a great start.

[Quentin Vallaley] – Citigroup

So if you assume that you just have the comp wasting at 79% what's the cash flow yield on the assets at the moment?

Steven B. Tanger

We don't get into cash flow yields on individual assets in our portfolio.

Frank C. Marchisello, Jr.

I think we stated the return on costs on a stabilized basis would be between 8-1/2% and 9%.

[Quentin Vallaley] – Citigroup

And that's when stabilized?

Frank C. Marchisello, Jr.

Right.

[Quentin Vallaley] – Citigroup

And just in terms of your Myrtle Beach acquisition, I'm just wondering if you could explain how the process went, who initiated the transaction and who set the price and so forth?

Steven B. Tanger

It was a negotiated sale amongst partners.

Michael Bilerman – Citigroup

It contained a buy-sell provision, right?

Steven B. Tanger

It was a buy-sell provision; neither party executed the buy-sell provision.

Michael Bilerman – Citigroup

Who came to who to buy it out? This was something you wanted to do or that they wanted to sell?

Steven B. Tanger

We've wanted to buy it for quite some time and over the past several years we've had discussions, and last summer they finally agreed to sell.

Michael Bilerman – Citigroup

And you had offered a price, I guess, which they accepted.

Steven B. Tanger

Yes, after some negotiation.

Michael Bilerman – Citigroup

Can you talk a little bit about, I mean it's an 8 cap on '08 results and you talked about an 8.3 to 8.5 on '09. That would sort of imply about a 5 to 8% increase in NOI on 100% leased assets. Can you sort of bridge that gap relative to I think you talked about the total portfolio being up 1 to 2%?

Steven B. Tanger

I don't understand your question.

Michael Bilerman – Citigroup

Sorry?

Frank C. Marchisello, Jr.

Are you asking...?

Michael Bilerman – Citigroup

Well I'm just – Steve, you talked about the asset, the purchase being at an 8.3 to 8.5 cap rate.

Steven B. Tanger

That's correct.

Michael Bilerman – Citigroup

On 2009 results.

Steven B. Tanger

Right.

Michael Bilerman – Citigroup

Based on actual 2008 results in the sub it's about an 8 cap, so that would imply growth in NOI for this asset of 5 to 8%.

Frank C. Marchisello, Jr.

This is an A+ asset of high occupancy and renewals that we're aware of that are coming up and we realized that those renewals are going to get bumps in rent, so we're comfortable that particular asset will have approximately 4 to 5% increase in NOI.

Michael Bilerman – Citigroup

I'm just trying to compare that relative to the overall portfolio being up 1 to 2 and sort of how things are moving within the portfolio.

Steven B. Tanger

Michael, it's relative. The entire portfolio, it's a relatively small asset and we've given you guidance on the entire portfolio which we're comfortable with.

[Quentin Vallaley] – Citigroup

Just the last question, in terms of the tenants that haven't renewed for this year, just wondering what type of tenants they are and how that relates relative to history?

Steven B. Tanger

Again I'm having trouble understanding you, but we've announced the amount of leases that have been renewed at this point in time, which is consistent with previous years. Leases expire throughout the year and we're in discussions with our tenants for leases that expiring throughout the balance of the year.

Michael Bilerman – Citigroup

I mean I was just asking in terms of the closures that you mentioned, 6 tenants, 41 stores. What type of tenant is that?

Steven B. Tanger

It's a broad range of tenants, some are table top. The largest tenant in that is Kay Bee Toys with 21 stores which announced bankruptcy. They're trying, I guess, to sell their assets, but 21 of the 41 stores comes from that particular tenant. The rest of them, a couple of them are table top, a couple of them are apparel.

Michael Bilerman – Citigroup

And that's less than the amount that had closed last year and somewhere probably in line with what your historical closure rate has been in the first quarter?

Steven B. Tanger

So far.

Operator

(Operator instructions) Your next question comes from Jeffrey Spector – UBS.

Lindsay Schroll – UBS

Can you discuss any impact you saw from malls heavily discounting this holiday season? Was traffic down?

Steven B. Tanger

Traffic was down consistent with other retail, but I believe our traffic still performed better than other retail distribution channels.

Lindsay Schroll – UBS

Okay and then can you comment on the hold-up is at Mebane and when you expect that project to move forward?

Steven B. Tanger

As we announced during our remarks, we have a long-standing non-negotiable policy of not breaking ground and buying any land until we have at least 50% of the leases signed and all non-appealable permits. We have not met that threshold yet.

Lindsay Schroll – UBS

Okay, I think last quarter you had mentioned that you were expecting it to come online at the end of '09. Does that still stand or has it been pushed back to '10?

Steven B. Tanger

Undoubtedly it will be pushed back to 2010.

Lindsay Schroll – UBS

And one final question, what does their guidance assume for occupancy decrease given the NOI came down from 4% to 1 to 2%?

Steven B. Tanger

Our goal is to end the year at 95% or more for the 28th consecutive year.

Operator

(Operator instructions) Your next question comes from Jay Habermann – Goldman Sachs.

Jay Habermann – Goldman Sachs

Question on the tenants, you mentioned the six tenants closing in the 2% of space. At the same time you mentioned, obviously, CapEx is coming down significantly. I know a lot of that is due, obviously, to the developments, but can you talk a bit just about the capital that's going to be needed in the coming 12 to 24 months to either maintain occupancy or attract or new tenants, obviously in this more challenging environment?

Steven B. Tanger

Jay, we're expecting about $7.5 to $8 million in capital improvements and right now we're budgeting around $10 to $15 million in second generation tenant allowance. I think that's the number you're looking for, correct? But that is directly associated with what we consider to be value-added, high volume tenants.

Jay Habermann – Goldman Sachs

And how is that number changing versus the prior year, the $10 to $15 million? Because I'm thinking back to the late '90s or early 2000s when you went through a pretty substantial re-tenanting process that incurred a bunch of capital at that time.

Frank C. Marchisello, Jr.

This past year we're at about $13 million and the year before we were at $19 million so we're still kind of within the same range.

Jay Habermann – Goldman Sachs

And then you also mentioned using the free cash flow to de-lever. Any target there in terms of goals to de-lever? I mean 2011 is shaping up as probably a more difficult year?

Steven B. Tanger

Jay, that's two years in the future. We will continue to use the positive cash flow generated in excess of our cash dividend to pay down our lines of credit.

Jay Habermann – Goldman Sachs

Okay and then just, can you comment on the percentage runs? I know it dipped for the year. Any specific tenants and can you give us any sense there of what drove that specifically?

Frank C. Marchisello, Jr.

It was not a particular tenant or two. It mainly was attributable to the fact that when we renew leases and get a higher base rent, we often reset the break point at a higher level, and since tenant sales were flat to down, we obviously lost the percentage rent that we had gotten the year before.

So it's really a reclassification, if you will, and we would prefer it to be a fixed renal rate as opposed to a variable rate through percentage rent. So that was really the main factor in that decrease.

Jay Habermann – Goldman Sachs

And I think Jonna has a question.

Jonna Brown – Goldman Sachs

Turning to center sales for a second, looks like sales were down about 1.6% for the year. Could you give us a breakdown for what that number was for the quarter and then just as a follow-up, maybe also what you've been seeing in January and then thus far in February as well?

Steven B. Tanger

We are reporting consistent with the other folks in our industry on the trailing twelve-month sales, January sales we don’t have yet. We get sales the 20th of the month following.

Operator

Your next question comes from Ben Yang – Green Street Advisors.

Ben Yang – Green Street Advisors

Going back to the Myrtle Beach acquisition, you commented earlier that neither partner executed the buy-sell agreement. Were there any other bidders for that property, or was it just you at the table?

Steven B. Tanger

The reason we did a negotiated friendly transaction was to pre-empt other bidders from coming in.

Ben Yang – Green Street Advisors

Is it fair to say that an 8 1/2% cap rate for an 8% plus property is reflective of what the outlet center valuations might look like today?

Steven B. Tanger

Ben, you can draw whatever conclusions you want. The deal was made last summer, and the world looked a lot different then.

Ben Yang – Green Street Advisors

Okay and then can you comment on the slow lease up at Deer Park in Pittsburgh? It looks like the leasing there hasn’t moved since your last call three months ago.

Steven B. Tanger

I wouldn’t consider it slow lease up when we’re between 75 and 80% occupied in both assets. Pittsburgh is 85% occupied and Deer Park is about 78%.

Ben Yang – Green Street Advisors

What’s your expectation kind of heading into the holiday season later this year?

Steven B. Tanger

We’re going to lease up the remaining space as rapidly as we can with the best quality tenants. Deer Park is an asset that is not replaceable. As you probably know from following other REITs, it’s very difficult to develop assets on Long Island.

To our knowledge, we’re told that our Deer Park property is the equivalent in size of a regional mall, at total build out around 800,000 square feet and that this is the first regional mall built on the island in 35 years, so we are managing and leasing this property with a long-term view. These are long-term assets and we’re just not going to fill space unless we’re satisfied that the tenant can add value.

Ben Yang – Green Street Advisors

Last question, you said you were in negotiations extending the credit facility with Wells Fargo at this point. Is it your expectation that the size of the facility will be downsized and that it will be pricier, and if so can you comment on where you think, things might fall out?

Steven B. Tanger

Initial indications are that the Wells Fargo line will be expanded to accommodate the $25 million Wells line, and we are in discussions now about the rate.

Operator

Your next question comes from Michael Mueller – JP Morgan.

Michael Mueller – JP Morgan

A couple of questions – first going back to Deer Park and Washington County, I think the prior expectations were at about a year after opening you would hit a stabilization run rate. Do you still think that that’s an achievable target at this point, or does it feel like it’s going to take a little bit longer?

Steven B. Tanger

In this environment, your guess is as good as mine. My guess is it's going to take a little longer. Again, these are cash flow positive properties right now and we are not going to just fill space with tenants that we don’t feel long-term can add value to these assets.

Michael Mueller – JP Morgan

On the occupancy side, looking at guidance, it seems like you’re looking for again about 100-150 basis points year-over-year on the releasing spread, you mentioned about 16% I think was the number for the renewals for January. Is the expectation on a full year basis to still have double-digit positive spreads on the renewals?

Frank C. Marchisello, Jr.

I think we will see double-digit positive spreads on renewals and the releasing spreads will still be very positive. What’s going to pull down on that is obviously the lower occupancy levels throughout the year.

Michael Mueller – JP Morgan

And speaking of lower occupancies, can you comment on the announcement from – I think it was probably a month or two ago at this point – about Phillips-Van Heusen and store closures and just how you think that could impact the assumptions going forward.

Steven B. Tanger

Sure, I just want to refer you to page 7 in our supplement. We have 97 stores with Phillips-Van Heusen, which is about 5% of our portfolio and square footage. This is at least the second, if not the third time, in the past 20 years that Phillips-Van Heusen has announced a downsizing of their portfolio or pruning of their portfolio.

They announced on January 14 that they intend to close 175 stores in addition to other cost-savings initiatives and took a large reserve. As of this date, and we are very close with the folks at PVH, we have completed the negotiation of all 13 of our renewals for 2009 and have been given no indication of their intention to close any stores in our portfolio.

Operator

(Operator Instructions) Your next question comes from Michael Bilerman – Citigroup.

Michael Bilerman – Citigroup

I just have a few others. The $1.7 million lease vacancy, can you just discuss what drove that and whether the occupancy had already vacated – I’m not sure at the beginning or the end of the quarter?

Frank C. Marchisello

The tenant that paid termination fees were closed by the end of the quarter. It mainly came from three tenants in total that had quite a few leases with some term left on them, and obviously, the longer the remaining term, the more termination fee that is appropriate, but those stores have all closed.

Michael Bilerman – Citigroup

How much square footage did it represent?

Frank C. Marchisello

About 75,000 feet.

Michael Bilerman – Citigroup

And that was primarily renting for the full quarter?

Frank C. Marchisello

Yes.

Michael Bilerman – Citigroup

And was any of that in the 171,000 square feet of closures in Steve’s commentary?

Frank C. Marchisello

Yes it is.

Michael Bilerman – Citigroup

The 75,000 is part of the 171,000?

Frank C. Marchisello

Yes. Well, I’m sorry, in the fourth quarter it was 35,000 feet of the 171,000. We had termination fees in Q3 as well, which amounted to the other remaining square footage.

Michael Bilerman – Citigroup

So $35,000 related to the $1.7 million, and the 35 is part of the 171?

Frank C. Marchisello

Correct.

Michael Bilerman – Citigroup

On the abandoned pursuit, you guys talked about $1.8 million last quarter. It came in at $3.3 million. Was there just additional cost to shut those down?

Steven B. Tanger

There was additional cost and some other things that we decided we’re not going to pursue.

Michael Bilerman – Citigroup

You’re saying other projects?

Steven B. Tanger

Yes.

Michael Bilerman – Citigroup

Is there anything outside of the two active projects? Do you have anything else that you have committed capital too?

Steven B. Tanger

No.

Frank C. Marchisello

Not at this time, no.

Michael Bilerman – Citigroup

And then Frank, can you just go through just a couple more guidance items, G&A, recovery rate, and then any other sort of one-time items – you talked about the $0.07 on the convert, but I didn’t know if there was a certain amount of lease term fees or anything one-time that would be in the numbers.

Frank C. Marchisello

Typically, we do not, and we have not budgeted any lease termination fees in ’09; that’s typical for our budgeting process. We’ve also estimated G&A to be roughly $6 million a quarter. Some of our cost savings measures may reduce that to a certain degree, but for now that’s where we are.

And recovery rates should be similar to what it was in 2008, excluding reducing it slightly from the fourth quarter because some of our termination fee income gets put into additional to the recovery income line.

Michael Bilerman – Citigroup

And then was there something particular in G&A this quarter? It came in at $5.1 million versus the $6 million run rate?

Frank C. Marchisello

The fourth quarter we had to make an adjustment to some salary and bonus accruals. We have a cash bonus plan in place and some of the targets that it appeared we would hit in Q3, during Q4 that ended up not occurring. We had to reduce that accrual.

Michael Bilerman – Citigroup

And then other than the $0.07 for the non-cash for the convert, there’s nothing else one-time or charges or gains at all in that [add rate]?

Frank C. Marchisello

There’s nothing else one-time.

Michael Bilerman – Citigroup

Just finally, based on the debt – and Steve I do appreciate the fact that you’re going to take the free cash flow and repay the line of credit between the line of credit between now and 2011, but that’s really only $20 million a year, and you just put out $30 million for the Myrtle Beach asset. And while 2011 seems like a long way away, it is almost 70% of the debt when you include the convert, and is also all at relatively low rates.

And so while I know it’s further out, I just want to understand how you’re thinking about staggering the debt maturity schedule or other forms of capital in order to not make 2011, which every quarter that goes by, a bigger risk?

Frank C. Marchisello, Jr.

I think the first thing we're focused on and we will be having meetings with all of our commercial lenders, as part of that maturity is our unsecured lines of credit, and to the extent we can go ahead and have discussions with them about the extension of those lines that will take a chunk of that maturity off the table.

Steven B. Tanger

That's $325 million of which is the lines of credit with banks that we have done business with for the better part of 20 years.

Frank C. Marchisello, Jr.

Right another chunk of that is obviously the unsecured term loan which is also with those similar banks, so while we're having our discussions with them we'll get their indication as to whether that's a market that they believe would still be available as time goes by.

Steven B. Tanger

Michael, just as additional color on that, as you may recall last summer we went out to raise $200 million in an unsecured term loan, the demand was such that we were oversubscribed and increased it from $200 million to $235 million.

Part of the syndicate and we acted as our own syndicator, was six additional new banks, several of whom we have not done business with and we are now in conversations with them to broaden our relationship.

Michael Bilerman – Citigroup

Okay and then on the line of credit the…

Steven B. Tanger

Hold on Michael, just one second and the third component is $149.5 million in the convert, which has a put feature but there's no requirement to put.

Michael Bilerman – Citigroup

But assuming that given that where the converts are trailing the likelihood…

Steven B. Tanger

Well you can assume whatever you like, but two years out in this type of market – you can make whatever assumption you like.

Michael Bilerman – Citigroup

Right and the piece that expires on the line of credit in June '09, that's a $25 million piece?

Steven B. Tanger

That's correct.

Frank C. Marchisello, Jr.

That's right.

Operator

Your next question comes from [Dennis Anchor] – Private Investor

[Dennis Anchor] – Private Investor

You mentioned that as far as paying out dividends, your cash flow is 150% of what you pay in dividends or is it the other way around?

Frank C. Marchisello, Jr.

The cash flow is over 150% of the dividend.

[Dennis Anchor] – Private Investor

So in other words, you actually have safe coverage when you do this?

Frank C. Marchisello, Jr.

That's correct.

Steven B. Tanger

That's correct.

[Dennis Anchor] – Private Investor

Okay that's all I need to ask, thank you very much for your time.

Operator

And at this time there are no more questions in the queue.

Steven B. Tanger

I want to take this opportunity to thank all of you for participating today and for your interest in our company. In these uncertain times we are very proud of our performance in 2008. We plan to continue growing our company and increasing our stakeholders value in 2009.

We're always available to answer any questions you may have, and again thank you and have a wonderful day.

Operator

This concludes today's conference call. You may now disconnect your line.

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Source: Tanger Factory Outlet Centers Inc. Q4 2008 Earnings Call Transcript
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