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Tanger Factory Outlet Centers Inc. (NYSE:SKT)

Q2 2009 Earnings Call

July 29, 2009 10:00 am ET

Executives

Steven Tanger – President and Chief Executive Officer

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

Analysts

Quentin Velleley - Citigroup

Jay Habermann – Goldman Sachs

Ross Nussbaum - UBS

David Fick – Stifel Nicolaus & Company

Michael Mueller – JP Morgan

Carol Kemple - Hilliard Lyons

David Leibowitz – Horizon Asset Management

Rich Moore – RBC Capital Markets

Andrew Johns - Green Street Advisors

Operator

Welcome to the Tanger Factory Outlet Center's second quarter 2009 conference call. Please note that during this conference call some of management's comments will be forward-looking statements regarding the company's property operations, leasing, tenant sales trends, development, acquisition, expansion and disposition activities, as well as their comments regarding the company's funds from operations, funds available for distribution and dividends.

These forward-looking statements are subject to numerous risks and uncertainties and actual results could differ materially from these projected due to factors including, but not limited to, changes in economic and real estate conditions, the availability and cost of capital and 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 the uncertainties. This call is being record 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, July 29, 2009.

(Operator Instructions) On the call today will be Steven Tanger, President and Chief Executive Officer, and Frank Marchisello, Executive Vice President and Chief Financial Officer.

I will now turn the call over to Mr. Tanger.

Steven Tanger

We had another quarter of solid financial results and once again exceeded the Street's consensus estimate for FFO. In addition, our strong balance sheet and consistent growing cash flow allowed us to be one of a handful of REITs to raise their all cash dividend this year. Frank will take you through our financial results and I will follow with a summary of our operating performance and future developments. Then we will have time for any questions.

I will now turn the call over to Frank.

Frank C. Marchisello, Jr.

Our current year and prior year comparative results have been adjusted to include the impact of a number of new accounting pronouncements, the most material of which is FSP APB 14-1 accounting for convertible debt instrument that may be settled in cash upon conversion, including partial cash settlement.

Net income available to common shareholders for the second quarter of 2009 was $0.30 per share compared to a net loss of $0.03 per share in the prior year. Adjusted funds from operations for the second quarter of 2009, which excludes the $10.5 million gain on the early extinguishment of our exchangeable notes, as well as the $5.2 million impairment charge associated with our Commerce One property, increased approximately 11.5% to $0.68 per share compared to adjusted funds from operations for the second quarter of 2008 of $0.61 per share, which excludes the $8.9 million loss on the settlement of U.S. treasury rate lock.

The increase in FFO was driven by same center NOI growth during the quarter, incremental FFO from our new wholly-owned center in Washington, Pennsylvania, and our joint venture property located in Deer Park Long Island, New York, both of which opened during the second half of 2008, as well as the acquisition of our property located on Highway 17 in Myrtle Beach, South Carolina in January of this year.

Our FFO payout ratio for the second quarter, excluding the gain on the retirement of the exchangeable notes and the impairment charge, was approximately 56% and our FAD payout ratio was 70%. 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 has brought our FAD payout ratio down substantially from the prior year and it will most likely stay in the mid 60% range for the remainder of this year.

At these levels, our dividend is well covered. We will generate incremental cash flow over our dividend, which we plan on using to reduce our outstanding lines of credit. On a consolidated basis, our total market capitalization at June 30, 2009 was approximately $2.2 billion, and our debt to total market capitalization was approximately 32.8%.

We also maintained a strong interest coverage ratio of 3.98 times for the quarter. As of June 30, 2009, approximately 73.5% of our debt was at fixed rates. Our floating rate debt totaled $189.1 million, of which $188.3 million was outstanding on our $325 million in unsecured lines of credit, which have an interest rate ranging from 60 to 85 basis points over LIBOR for an all-in rate of approximately 1% today.

Our wholly-owned portfolio properties was 95% unencumbered and we had no outstanding debt maturing until June of 2011, including extension options. In addition, we are happy to report that we have recently closed on amendment to our unsecured line of credit with Wells Fargo Bank, which increased the size of their unsecured line of credit from $100 million to $125 million, thus absorbing the $25 million line we had with Wachovia Bank. We are in full compliance with all bank and unsecured bond convents.

Our balance sheet strategy has always been conservative. With that in mind, let me just take a couple minutes to discuss the final outcome of our successful exchange offering on our 3.75% exchangeable notes. In the aggregate, the exchange offer resulted in the retirement of approximately $142.3 million principle amount of the notes and the issuance of approximately 4.9 million common shares of the company.

For each $1,000 principle amount of exchangeable notes validly tendered, note holders received 34.21 common shares or $987.58, a 1.2% discount to par based on Tanger's May 7, 2009 closing share price. This offer represented one of the most successful convertible debt-to-equity exchanges in recent market history based on its 95% success rate.

This is a very efficient way to reduce debt and raise equity, more efficient then incurring the market discount in issuance cost associated with the marketed or blocked common share offering. As we suspected, many note holders already had held a short position in Tanger shares underlying the exchangeable note. The successful execution of the tender offer has significantly reduced the short positions currently held in Tanger common shares.

This transaction allowed us to match what is essentially an equity issuance with a use of proceeds targeted at the exchangeable notes. Put another way, we raised equity only to the extent the exchangeable notes were tendered and thus did not raise any more or less equity than was needed to complete this transaction.

Our ultimate goal in pursuing this transaction was to proactively address a pending 2011 maturity. Other than the remaining $7.2 million of exchangeable notes, all of our 2011 maturities relate to commercial banking facilities including the $235 million term loan, and amounts outstanding on our unsecured lines of credit.

I will now turn the call back over to Steve.

Steven Tanger

I am pleased to report that for the first half of this year we have continued to see positive rent spreads on the renewal and releasing of space within our portfolio. Our average cost of occupancy for 2008 was approximately 8.2% of average tenant sales, which still provides us the opportunity to raise rental rates on the releasing and renewal of space.

As predicted, our low cost of occupancy, or put another way, our profitable stores for our tenants, has proven to be an excellent shock absorber in this difficult market. While tenants look at the amount of base rent, they are focused on their total cost of occupancy. Our team has worked hard to reduce the non-rent component of the occupancy cost by reducing [CAM], appealing real estate taxes, renegotiating insurance rates and efficiently spending our marketing funds to drive traffic.

We have already made great progress on our 2009 renewals throughout our wholly-owned portfolio. As of the end of June, we have obtained executed renewals and renewals in process for approximately 71% of the space coming up for renewal in 2009 with an increase in average base rental rates on the executed renewals of 11.6%. This compares to approximately 76% this time last year with an increase in average base rental rates on the executed renewals of 18.3%.

In addition, during the first six months of 2009, we've re-tenanted approximately 224,000 square feet with an increase in average base rental rates of 47.1% compared to last year at this time when we had released 403,000 square feet with an increase in average based rental rates of 43.1%. We have made significant leasing progress and continue to creatively re-tenant our portfolio. In a tough market, we're getting deals signed.

Same center NOI growth during the second quarter was 1.8% compared to 2.4% growth in the first quarter of 2009, and same center comp NOI has grown 2.1% for the first six months of this year. Our overall occupancy rate for our wholly-owned stabilized properties was 94.7% as of June 30, 2009 up 1.2% compared to the end of the previous quarter.

We have now executed leases and welcomed 23 new first time tenants to the Tanger portfolio, including Petit Bateau, Aerie, Talbots, Bally, BCBG Girls, Dooney and Bourke, Aaron Rents, QVC, and many others. We continue to have formal face-to-face meetings with our tenants to discuss their short and long-term plans for the outlet stores as a distribution channel.

Tanger continues to be a trusted business partner with a strong balance sheet and the ability to deliver quality space on time as promised. Outlet stores remain a very profitable channel of distribution for our tenants. Tanger Outlet Centers represent an attractive defensive property type and growth opportunity during an economic slowdown.

Our operating portfolio continues to perform at a very high level. Reported tenant comparable sales within our wholly-owned portfolio decreased 2.7% for the rolling 12 months ended June 30, 2009 to $335 per square foot, but increased 1.8% for the rolling three months ended June 30, 2009. 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 2008 so they plan more modest inventory levels in 2009. Percentage rents, which are paid by tenants once their total sales exceed certain levels, represent less than 3% of our total revenue. In addition, no single tenant accounts for more than 8.4% of our gross leasable area and 5.3% of our base and percentage rents.

With respect to our earnings guidance for 2009, based on our view of current market conditions, we believe our estimated diluted net income per share for 2009 will be between $1.52 and $1.58 per share, and our FFO for 2009 will be between $2.79 and $2.85 per share. We have only adjusted our previous guidance to reflect the $10.5 million gain on the early extinguishment of our exchangeable notes and the $5.2 million impairment charge, both of which occurred during the second quarter of this year.

As well as the going forward diluted impact of the tender related to our exchangeable notes, which we estimate will be approximately $0.06 per share for the second half of the year, and the incremental dilution associated with the allocation of earnings to participating securities of approximately $0.03 per share. Our operating assumptions used in our guidance are consistent with those used at the end of the first quarter. We are assuming that same center NOI grows by approximately 1% to 2% this year.

In our guidance, we also assume our tenants will be challenged to maintain sales as increased discounting and priced deflation will most likely continue during the remainder of the year. We are projecting percentage rental revenues to decrease, which is a direct result of lower sales. 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 to get through the headwinds successfully. Our solid balance sheet with no upcoming debt maturities in the next two years puts us in a very strong position. On a personal note, I'm extremely proud of every member of the Tanger team for working so hard to execute successfully our strategic plan. Operating efficiently, maintaining low leverage, and improving liquidity remain the primary focus of our team of seasoned professionals.

With that, we'd be happy to answer any questions that you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Quentin Velleley - Citigroup.

Quentin Velleley - Citigroup

I'm here with Michael Bilerman. In terms of the retail sales which were up quarter-on-quarter, I'm just wondering whether you could comment a little as to what categories were the driver of that and whether there was any main differences between geographies and so forth.

Steven Tanger

The sales increases were pretty much across the board. We had a couple of areas of the country which were not increasing, particularly on the boarder of Mexico where the Mexican nationals were reluctant to come into Texas because of the swine flu and other difficulties. But basically our portfolio did well in the second quarter. We of course benefited, as did every other retail channel, from the shift in Easter from the end of March to April this year. But it was pretty much a consistent pattern.

Quentin Velleley - Citigroup

Secondly, in terms of the renewal spreads, which were much flatter this period, obviously, part of that is because the expiring rents were higher. Just wondering if you could comment on what your expectations are for the rest of the year on the renewal spreads.

Steven Tanger

Quentin, as we have always done, we look at the year-to-date results as opposed to quarter-to-quarter. Any particular quarter based on the mix of tenants, the centers, and a relatively low amount of GLA that was coming up for renewal in that particular quarter could skew the results, so management tends to look at the cumulative results year-to-date.

If you're asking us going forward if we can estimate where we will be at the end of the year, it would just be an estimate, but I think we're comfortable maintaining on the balance of the renewals coming up this year. We can continue to maintain the same results that we have through the end of the six months.

Quentin Velleley - Citigroup

Last question, the $25 million on one of the loans that was maturing, which Wells Fargo took out. What was the bank that held that piece of the loan?

Steven Tanger

Wachovia, which was purchased by Wells Fargo.

Operator

Our next question comes from Jay Habermann - Goldman Sachs.

Jay Habermann – Goldman Sachs

Here with [Johan] as well. Steve, if you look at occupancy from Q1 to Q2, I think you guys posted an increase at 10 of your 13 largest centers. Just trying to get a sense of are you starting to look more for, in terms of focusing more occupancy and giving up a bit on rate? Just maybe some comments on retailers just how price-sensitive they are currently in the market.

Steven Tanger

We have always focused on occupancy, as you may know, for 28 consecutive years. I believe that we're the only REIT with a national portfolio of any size that can say we've never ended the year less than 95% occupied, and that's our goal again for this year. That's a pretty extraordinary track record through many economic cycles. The goal of our company is to keep the lights on. We view ourselves as partners with our tenants, good business partners, and we work together to maintain profitable stores for our tenants.

As I've said many times when people questioned our low cost of occupancy compared to our competitors, I've always said that when times turn difficult, a low cost of occupancy or the opposite being highly profitable stores for our tenants is a good shock absorber, and that's proven to be correct. So we have a great relationship with our tenants, and we're a profitable source of income for them. And I think that should continue.

Jay Habermann – Goldman Sachs

As you commented on the back half of the year, can you give us a sense of perhaps how the watch list is growing? Are you seeing greater concerns as you move into the back half of the year, whether its tenants simply not renewing or risk of bankruptcies?

Steven Tanger

Well, there's always a risk of an unknown bankruptcy. Our watch list is relatively short. Historically, most retail bankruptcies occur in the first quarter of the year, so we've been through most of that. Most of the companies that have declared bankruptcy have gone to Chapter 11, as opposed to 7 liquidation, and the few number of bankruptcies we've had this year, substantially maybe 3/4 of the stores have stayed open as part of the bankrupt estate.

Jay Habermann – Goldman Sachs

Steve, could you give us an update on Deer Park? And I guess, Frank, can you give us specifics on the impairment charge at Commerce One?

Frank C. Marchisello, Jr.

In Commerce, the occupancy has obviously dropped there and at the end of the first quarter, we had a couple of deals that actually improved things. However, subsequent to the first quarter, we had a couple additional tenants that came to our attention that they were going to close their stores, as well as the theatre operator was going to make a change. We were going to make a change there with the theatre operator and they were restructuring their rent.

So at the end of the day, we did our undiscounted cash flow calculation and we basically came up to the decision that it was not going to cover the cost basis on the property, and therefore, you have to then market-to-market value. That property, as you probably know, is our first property in Commerce. We subsequently build Commerce Two, which is doing very well.

Commerce One, we have repositioned as more of a community strip center and actually call it a Tanger Town Center now it's not even considered a Tanger Outlet Center. But based on the lower occupancies, etc., and the fact that we could not cover the undiscounted cash flows, we decided to go ahead and write it down to market and take the impairment charge.

Steven Tanger

With regard to Deer Park leasing, Deer Park is enjoying very robust traffic. Our marketing continues to work. As you may recall, we opened on October 23, 2008 probably dead center of the eye of the perfect storm, as far as the economic crisis is concerned. We continue to build traffic each week and tenant sales reflect that. We continue to lease space in the center, which is consistent with our plan.

As previously with other developments, it takes a year or two to stabilize. This is a much larger project than we built as a first phase. So we are on track and the tenants, at least the reports from the tenants are that they're doing to plan or above plan, even in this difficult market.

Jay Habermann – Goldman Sachs

Do you think we'll see 90% occupancy there within 12 months?

Steven Tanger

I don't have a crystal ball, Jay, but we're working hard to get there.

Operator

Our next question comes from Ross Nussbaum - UBS.

Ross Nussbaum - UBS

Steve, question for you. Your full priced regional mall peers have been feeling some impact from rent relief requests from tenants. Can you talk a little bit about how that has impacted your company?

Steven Tanger

The requests for rent relief converted to rent relief have been deminimus. It's probably 0.1% to 0.15% of our base rental income for the year, so it's effectively nothing. The tenants that we have granted rent relief have been short-term primarily smaller tenants that help them maintain occupancy and avert bankruptcy.

So I can't speak to my peers in other distribution channels, but the outlets remain profitable for our tenants. And although it appeared during the first six months or first quarter certainly, that a strategy dujour for tenants was to ask for rent relief, most of them were not granted. And when we continued to press for the reason why, they just didn't press it.

Ross Nussbaum - UBS

Then just to clarify on your guidance I want to make sure I got it right. Your revised guidance does include both the debt gain, as well as the impairment.

Frank C. Marchisello, Jr.

That is correct.

Ross Nussbaum - UBS

So then the offsetting items to that, because that obviously would have taken the prior guidance up I think a net what $0.13 or so? So the offsets to that are the dilutions from the common shares, as well as I think a couple items you mentioned, percentage rents, and I thought I heard one other?

Frank C. Marchisello, Jr.

These other two items are the diluted impact of the tender offer, obviously. And then we've made an adjustment for allocation of earnings to participating securities. It really has more to do with the change in accounting for unvested restricted shares and the fact that you have to allocate income and FFO to those shares.

And that, although it was implemented the first of the year, was not factored into our original guidance so we're just making a minor tweak of about $0.03 relative to that. Operationally, our guidance remains the same.

Frank C. Marchisello, Jr.

So that accounting change you're saying is $0.03 for the full year that was not in the prior year.

Frank C. Marchisello, Jr.

Right.

Frank C. Marchisello, Jr.

Then lastly on the converts, just from an accounting perspective, you stopped booking the interest expense on $142.3 million the day the tender offer closed? Is that how you're...

Frank C. Marchisello, Jr.

That's correct.

Operator

Your next question comes from David Fick – Stifel Nicolaus & Company.

David Fick – Stifel Nicolaus & Company

Steve, can you just follow-up on Deer Park regarding yield and what you expect – well, first of all, where is your yield today and what you expect to stabilize based on your current pro forma look like?

Steven Tanger

We have never mentioned yield on any particular property, and I don't think it's appropriate to do that now. The property continues to lease up, NOI continues to grow, and in every new development we look at a 12 to 24-month window to stabilize.

David Fick – Stifel Nicolaus & Company

Can you talk a little bit more about your current tradeoffs of tenant sales versus rent and what you're actually seeing in terms of traffic and sales volume? I know there's a lot of deflation and [softness] right now. So when you talk to your tenants, what are they saying to you about store level profitability as opposed to top line of sales?

Steven Tanger

For the first six months of this year, our comp traffic is up 1.2%. So our successful marketing is driving folks to the property. There is well documented price deflation and major discounting going on. So the reciprocal number of units the tenant has to sell to reach the same top line volume are pretty incredible. There's a lot of merchandise going through our stores.

David Fick – Stifel Nicolaus & Company

Again, area you talking to tenants about their profitability and whether or not they're ever going to maintain or increase margin, despite top line sales shrinkage?

Steven Tanger

The outlets, at least from what we hear on our tenant conference calls and read in their public disclosures, the outlets continued to be either the most or one of the most profitable business divisions of their company. As far as store individual, four-wall store profitability, we don't have those discussions with them.

David Fick – Stifel Nicolaus & Company

Lastly, development pipeline, I know that there are an awful lot of backburner conversations still going on. But can you give us a forward look regarding what you might start and when in your current free development and development?

Steven Tanger

Our Mebane, North Carolina project, as of today we have about 57% either leases executed or leases in negotiation with existing tenants. As I disclosed in prior calls, for many years our criteria before we started construction was to have 50% of the leases signed and all non-appealable permits in place. We now have met both of those criteria, but based on the economic environment, I was uncomfortable closing on the property and proceeding.

So we have now instituted a more strict requirement and we are looking for either signed leases, leases in negotiations, or letters of intent with existing tenants where we have existing leases and relationships totaling about 75%. So we're not quite there. I've taken a much more conservative outlook. And we want to be sure when we break ground in the 9 to 12 months it takes to build, we'll open at least 75% occupied.

David Fick – Stifel Nicolaus & Company

Generically, I know you don't like to talk about specific products, but generically what would be your minimum yield hurdle to start a project today?

Steven Tanger

Based upon our cost capital, which we estimate, I think we would be comfortable anywhere maintaining a 10.5% to 11%, 11.5% return. That would be a stabilized return.

Operator

Our next question comes from Michael Mueller - JP Morgan.

Michael Mueller – JP Morgan

Steve, going back to Deer Park for a minute, can you give us some color on the types of tenants that moved in during the quarter? It looks like occupancy went up a couple hundred basis points.

Steven Tanger

It did. The largest tenant that took occupancy and opened was our sports club. And some of the other tenants were Hartmann Luggage a division of it's called It's Sugar. It's a pretty exciting store that's been around for a while. So, it's just a range of tenants, there's probably 10 to 12 tenants that opened.

Michael Mueller – JP Morgan

Anything you can say about what we should expect for Q3, anything else beyond quarter end?

Steven Tanger

I really don't want to project. It just depends on when the stores actually open and when leases get signed. We are in discussions and negotiations with a lot of folks, and I wouldn't want to guess when those occurred.

Michael Mueller – JP Morgan

Frank, you talked about CapEx being down I think the number was below $8 million or $9 million or something this year. If you look forward the next couple of years, do you expect that number to be comparable, higher, or just can you ballpark that for us?

Frank C. Marchisello, Jr.

I would suspect it's not going to be higher. We had spent quite a bit of money in the last five years renovating our property and the vast majority of them will not need any additional renovations for some time. So I think at worst case we'll spend the same $8 million next year that we have budgeted for this year, but no more.

Operator

Our next question comes from Carol Kemple - Hilliard Lyons.

Carol Kemple - Hilliard Lyons

I know there's been a lot of talk about retail stores that are entering outlet concepts at this time. Are there any stores that you all are aware of that are coming into your centers that haven't been in the outlet format before?

Steven Tanger

I think as I mentioned to you, we were very pleased to open Talbot's so far this year, and we're talking to many other tenants, such as we opened a Victoria's Secrets store. But there are lots of people in this environment that are talking about opening outlet stores and we're working with them to try to get them open.

They're looking at some of their competitors and seeing how profitable it is for them. And by the way, their normal retail distribution channels are backing up and they've got excess inventory. So, there are several high-profile tenants, none of which I'm at liberty to mention their names, but we're working closely with them.

Carol Kemple - Hilliard Lyons

Do you all have any thoughts on making acquisitions of competitor's outlet centers in this environment?

Steven Tanger

Carol, I think we have one of the strongest balance sheets in the industry. We have lots of liquidity and access to liquidity. We have always been opportunistic in our acquisitions and certainly would welcome the opportunity to grow our portfolio through acquisitions.

Carol Kemple - Hilliard Lyons

Are there many coming to market at this point that you're seeing?

Steven Tanger

To my knowledge there's none on the market, and I don't have any idea what will be coming on the market.

Operator

Our next question comes from David Leibowitz – Horizon Asset Management.

David Leibowitz – Horizon Asset Management

Briefly, if you were to mark all your properties to market as you already took your impairment charge, how much higher would your book value per share be?

Frank C. Marchisello, Jr.

That's not something that we would typically discuss in the public forum, and we to be honest with you, don't try to calculate what our market value would be per share. We leave that up to the analyst community.

David Leibowitz – Horizon Asset Management

Also, mention was made early on that you work closely with your tenants and you've been accused of charging rents that are below market to make sure that they remain profitable stores. At this moment in time, what would you estimate the number of or percentage of your stores that are unprofitable today?

Steven Tanger

Unprofitable for the tenants?

David Leibowitz – Horizon Asset Management

Yes.

Steven Tanger

I couldn't even begin to guess. Again, we don't have individual four-wall store discussions with our tenants. Like any other portfolio, there's I'm sure a certain percentage of the stores in every portfolio that are breakeven or slightly unprofitable, but I couldn't even begin to guess.

David Leibowitz – Horizon Asset Management

Also, what percentage of your centers can be expanded based on the amount of real estate you presently have at each center?

Steven Tanger

We have in the past ten years effectively built out the property, the portfolio. We have some expansion capacity we have 25 additional acres attached to our property in Myrtle Beach on Highway 501. We have some expansion capabilities in our new center that opened in Pittsburg last year, and we have expansion capabilities in our new center in Deer Park, and small expansion capabilities in Charleston. But effectively nothing that would be significant, David.

David Leibowitz – Horizon Asset Management

Lastly, given the precarious state of numerous financial institutions, most recently CIT. How many of your tenants are in a position right now where they may not be able to finance their ongoing expansion?

Steven Tanger

We pay close attention to the public filings and analyst reports on our major tenants. We have a monthly watch list, as far as tenants that are in default on their lease. Again, I couldn't estimate a number, but right now we're very comfortable with the mix of our tenants. We historically have written off virtually nothing in bad debt each year. In a bankrupt estate, unless they go right to Chapter 7 liquidations, the outlets remain a valuable asset of a bankrupt estate because it's the built in disposal system to turn the excess inventory into cash.

David Leibowitz – Horizon Asset Management

Lastly, in the wish list concept, which is obviously high in any real estate owner's desires, are there any specific names you'd like to share with us that you would really appreciate getting as tenants?

Steven Tanger

There's several names, but I'd be reluctant to share them with you, David, until we announce them as signed leases to the public.

David Leibowitz – Horizon Asset Management

Are you in negotiations with them at this time?

Steven Tanger

We're in negotiations with many people at this time, and we're working hard to get these leases executed and I'd be delighted to announce them.

Operator

Our next question comes from Rich Moore - RBC Capital.

Rich Moore – RBC Capital Markets

Steve, you're not really a traditional community center operator. Would it make more sense to maybe think of an alternative for Commerce One rather than maybe continuing to own the center?

Steven Tanger

We explored that alternative probably four or five years ago when we installed the movie theater, and an Old Navy, and a Goody's and several other tenants in an attempt to convert it. This center is right next to a Wal-Mart center, to convert it to a community strip. And we renamed it a Tanger Town Center as opposed to a Tanger Outlet Center. By the way, about a half mile from this property is another very successful Tanger Outlet Center. The property you're referring to was built over 20 years ago.

So, yes, we have explored the opportunity to sell the asset without success. And we have some leases that have just been executed and we're in negotiation for other leases, but we reached a point in time where late last week we received notice of certain tenants that we're not going to renew in the future. And we felt it appropriate at that point in time with that knowledge to take the impairment charge.

Rich Moore – RBC Capital Markets

Then going back to a few previous questions, are you seeing a change or a shift in the categories of tenants that are interested in outlet center space or is it pretty much as it has been over the past five years?

Steven Tanger

It's pretty consistent with the way has been.

Rich Moore – RBC Capital Markets

As you look forward to 2010, how would you characterize the interest in the desire by tenants versus 2009 to open stores in 2010? I mean is it better than 2009, about the same, what do you think?

Steven Tanger

In discussions with senior management of our major tenants right now and I don't think we have a comfort level as to how the economy will look and they certainly don't. Everybody is cautious. I don't think any of our tenants have an open to buy for 2010 yet. So we're just being cautious.

Operator

(Operator Instructions) Our next question comes from Andrew Johns - Green Street Advisors.

Andrew Johns – Green Street Advisors

Steve, with many of the retailers reducing the inventory at their full line stores to avoid markdowns at back to school and then later on in the holiday season, do you worried at all about the quality and the quantity of the product making its way into the outlet centers?

Steven Tanger

Most outlet divisions are freestanding business units with their own sourcing, productions, etc., depending upon the tenant, of course, only a small percentage of the product in their normal distribution channels make their way to the outlet channel. So we've not seen that big a change.

Again, the great percentage of our tenants are moderate to upper moderate price points that have been stable and consistent for many years. We did not enjoy the huge run up, both in price increases and volume increases for the luxury products during the boom times. And fortunately, we're not being adversely affected in this current market.

Operator

There are no further questions at this time

Steven Tanger

I want to thank everybody for joining us once again and your interest in our company. Frank and I will be available should you wish any follow-up questions. And, again, have a wonderful day. Goodbye.

Operator

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

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Source: Tanger Factory Outlet Centers Inc. Q2 2009 Earnings Call Transcript
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