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Tanger Factory Outlet Centers Inc. (NYSE:SKT)

Q4 2013 Earnings Conference Call

February 12, 2014 10:00 AM ET

Executives

Cyndi Holt - VP of Finance and IR

Steven Tanger - President and CEO

Frank Marchisello - EVP and CFO

Analysts

Todd Thomas - KeyBanc Capital Markets

Craig Schmidt - Banc of America

Christy McElroy - Citi

Caitlin Burrows - Goldman Sachs

Norman Kramer - Kramer Investments

Carol Kemple - Hilliard Lyons

Ben Yang - Evercore Partners

Daniel Bush - Green Street Advisors

Steve Sakwa - ISI Group

Rich Moore - RBC Capital Markets

Tayo Okusanya - Jefferies

Nate Isbee - Stifel

Michael Bilerman - Citi

Cyndi Holt

Good morning and welcome to the Tanger Factory Outlet Centers Fourth Quarter and Year-end Conference Call. Yesterday we issued our earnings release as well as our supplemental information package and our investor presentation. This information is available on our website under the Investor Relations link.

Please note that during this conference call, some of management comments will be forward-looking statements, including statements regarding the Company’s property operations, leasing, tenant sales trends, development, acquisition and expansion activities, as well as their comments regarding the Company’s funds from operations, adjusted 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 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 these risks and uncertainties.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations of these non-GAAP measures to the 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 be accurate only as of today’s date, February 12, 2014. At this time, all participants are in listen-only mode. Following managements prepared comments, the call will be opened up for your questions. We ask that you to limit your questions to two so that all callers will have the opportunity to ask questions.

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 Steve. Go ahead, Steve.

Steven Tanger

Thank you, Cyndi, and good morning, everyone. 2013 was another record year for Tanger. Solid operating performance resulted in adjusted funds from operations that exceeded the high end of our guidance by $0.02 and exceeded the consensus estimate by $0.03. We achieved significant milestones during the year and in the fourth quarter. With occupancy at 98.9% within our consolidated portfolio, December 31, 2013 marked our 33rd consecutive year with year-end occupancy of 95% or greater.

Our fourth quarter same-center net operating income growth was 3.5%, extending our streak to 36 consecutive quarters of internal growth dating back to the first quarter of 2005, when we first began tracking this metric. During 2013 AFFO was also positively impacted by external growth as we realized a full year impact of investments in centers we opened or acquired in 2012 and the partial year impact of investments in development projects that opened in 2013.

I know many of you are interested on an update on our development projects and the outlook for 2014. But first let me turn the call over to Frank to take you through a discussion of our financial results and the refinancing activity during the fourth quarter that further strengthened our balance sheet.

Frank Marchisello

Thank you Steve and good morning everyone. Our reported 2013 funds from operations or FFO per share increase 19% to $1.94 per share compared to $1.63 per share in 2012. Adjusted FFO per share increased 13.9% to $1.88 per share from $1.65 per share in 2012. For the fourth quarter, AFFO per share increased 15.2% to $0.53 per share from $0.46 per share in the fourth quarter of last year. As Steve noted this growth is attributable to both internal and external initiatives.

On a consolidated basis our total market capitalization at 12/31/13 was $4.5 billion, up 1% compared to the end of the prior year. Our debt-to-total market capitalization of approximately 29.4% at December 31, 2013 was best in class for the mall REIT group. We also maintained a strong interest coverage ratio of 4.36 times for 2013, up from 4.18 times for 2012. On November 18, 2013 Tanger announced $250 million 10-year senior notes offering, investor demand for the paper was strong creating a book that was five times oversubscribed and resulted in spread compression of 22.5 basis points compared to the initial whisper price.

The notes which matured December 1, 2023 bear interest at a rate of 3.875% and we’re priced at 98.36% of the principle amount to yield 4.076%. We completed the transaction on November 25, 2013 using net proceeds of repay floating rate borrowings under our unsecured lines of credit. Our 2014 guidance takes in consideration estimated dilution of approximately $0.07 per share from this transaction.

In addition, we used interest rate swaps to fix the rate of the $150 million Dear Park mortgage on October 28, 2013. This loan which carries rate of 150 basis points over LIBOR is fixed in an effective interest rate of 2.8%. Assuming an average 2014 LIBOR rate of 30 basis points, this transaction will be dilutive by approximately $0.025 per share in 2014.

We have accepted the short-term dilution from the successful bond offering and converting floating to fixed rate on the Deer Park loan totaling almost $0.10 per share in 2014 in return for the reduced exposure of floating rate debt and the long-term strength and stability of our balance sheet. Our balance sheet strategy continues to be conservative targeting minimal use of secured financing and manageable schedule of debt maturities.

As of September 30, 2013, there was $503.8 million available under our unsecured lines of credit or 96.9% of the $520 million total commitment. As of year-end approximately 86% of our consolidated gross releasable area was unencumbered marked mortgages and we had no significant maturities on our balance sheet before November 2015. Approximately 79.4% of our debt is now at fixed rates.

Our Board of Directors declared a dividend of $0.225 per share for the quarter ended December 31, 2013; payable this Friday to shareholders of record on January 30. We have cash dividends each quarter and have raised our dividend each of the 20 years since becoming a public company in May of 1993. Our dividend is well covered with an expected FAD payout ratio for 2014 of less than 60%. At this level we expect to generate significant incremental cash flow over our dividend which we plan to use to help fund our future growth or reduce our outstanding debt.

I'll now turn the call back over to Steve.

Steven Tanger

Thank you, Frank. I'm pleased to report that we continue to see positive rental rate spreads for space renewed and re-leased during the fourth quarter of 2013. This is in part a reflection of the increased sales and profitability of the outlet channel for our tenant partners.

For the year ended December 31, 2013; straight line blended rental rates increased 24.1% on the renewal and re-leasing of space throughout our consolidated portfolio. Lease renewals accounted for 1,574,000 square feet or about 80.7% of the space coming up for renewal during 2013 and generated a 19.3% increase in average base rental rates. The remaining 510,000 square feet was re-leased at an increase in average base rental rates of 37.8%.

Positive leasing spreads, together with contractually embedded rental rate increases, resulted in same center net operating income growth during the fourth quarter of 3.5% for the consolidated portfolio. For the year ended December 31, 2013; same-center net operating income growth was 4.3%, slightly above our initial guidance of 4%. At year-end our consolidated portfolio occupancy was 98.9%.

We are excited to have introduced great retail brands to our portfolio during 2013 including, Asics, Cache, DVF, Elie Tahari, Forever 21, Francesca’s, Halston Heritage, Kipling, Max Studio, The North Face, Peter Millar, Swarovski, and Vera Bradley to name just a few.

Despite widespread reports in the media regarding the shorter holiday seasons, bad weather conditions and other factors that resulted in a challenging holiday environment, comparable tenant sales within our consolidated portfolio increased 3.2% for the three months ended December 31, 2013 and 2.6% to $387 per square foot for the year ended December 31, 2013. These are comparable sales figures and do not capture those sales generated by new, often highly productive stores operated by tenants like some of the brands I just mentioned that tend to create quite a buzz among our shoppers.

Feedback from our tenant partners indicates that sales in any given quarter or year do not impact our long-term expansion plans within the outlet channel. Particularly when you consider the profitability at outlets and the supply constrained environment in full price channels. The resiliency and growth of the outlet channel has been proven over the past 30 years through many economic cycles. We continue to succeed in negotiating increased rental rates as a result of the low cost of occupancy for tenants doing business in Tanger outlet centers. With the lowest average tenant occupancy cost in our mall peer group at just 8.6% of our consolidated portfolio in 2013. Our average occupancy cost ratio is well below market.

Under these conditions we are able to raise rents while maintaining a very profitable distribution channel for our tenant partners. Tenant demand for outlet space coupled with our reputation within the industry of having refined a skill set for developing, leasing, operating and marketing high quality outlet centers has afforded Tanger a robust external growth pipeline through the United States and Canada.

During 2013 and to date this year we have thoughtfully allocated capital to a number of external growth opportunities. These include one newly developed outlet center and two expansions of existing successful properties that opened during the year. Five development projects that are currently under construction and the acquisition of a controlling interest in our property that have been previously held in an unconsolidated joint venture.

In early April 2013, we opened a 40,000 square foot fully leased expansion of Tanger outlets in Gonzales, Louisiana. The project increased the gross leasable area of the center to 319,000 square feet and added great brands that were new to the center including Ann Taylor, LOFT, Brooks Brother, J.Crew and Under Armor. On May 15, 2013 we and our 50-50 co-owner broke ground on our first ground up development in Canada located in Ottawa, which is the capital and fourth largest city in the nation with a.1 million, 200,000 residents and 7.5 million annual visitors. Currently we expect the 303,000 square foot center will feature about 80 brand and designer stores and will open in time for the 2014 holiday shopping season.

Our other Canadian project is currently under construction, is a major expansion and renovation of Tanger Outlets, Cookstown located on the northern end of the greater Toronto area, directly off highway 400, which is the gateway to the highest concentration of vacation homes in Southern Ontario’s college country. This region is a well travelled year vacation area, where visitors enjoy snow skiing in the winter and lake side activities in the summer.

On May 16, 2013 we and our co-owner broke ground on the project which will nearly double the size of the 156,000 square foot center that we originally purchased in December 2011. The expansion will add about 35 new brand and designer outlet stores and create an updated exterior and interior for the existing space consistent with the expansion space. We currently expect the project open in time for the 2014 shopping season.

On August 30, 2013 we acquired an additional one-third interest in the highly productive Tanger Outlets, Deer Park which Tanger has had an ownership interest in since the development stage. Located on Long Island in New York and originally opened in October 2008. The center offers over 90 outlet stores, 10 restaurants and 16 screen cinema that served the 18 million people that reside in the 60 mile radius. As a result to the acquisition of controlling interest the property is now consolidated for reporting -- for financial reporting purposes.

Small expansion of the Tanger Outlets in Sevierville, Tennessee opened in September 2013. The project added 20,000 square feet to the center which we originally acquired in 1997 increasing its gross leasable area to about 438,000 square feet. We and our 50-50 joint venture partner broke ground on a new outlet center in Charlotte, North Carolina on September 20, 2013.

The 400,000 square foot project will feature about 90 brand and designer stores and is expected to open during the third quarter of 2014. The site is located eight miles southwest of Uptown Charlotte at an interchange of I485 in Stone Creek road, the two major thoroughfares in Charlotte.

On September 26, we broke ground on Tanger Outlets, Foxwoods in Mashantucket, Connecticut at Foxwoods Resort Casino, unique within the Tanger portfolio this 314,000 square foot project will be suspended above ground to join the resort’s two casino floors, which attract millions of visitors each year. The center will feature about 80 brand and designer tenants, including American Eagle Outfitters, Ann Taylor, Banana Republic, Calvin Klein, Coach, Fossil, Gap, LOFT, Michael Kors, Nike, Skechers, Steve Madden, and Tommy Hilfiger just to name a few. We currently expect the second quarter 2015 opening for the property which will be consolidated for reporting or financial reporting purposes as result of our controlling ownership interest.

Despite more than 60 days rains days during construction, we and our 50-50 joint venture partner opened Tanger Outlets National Harbor, 98% leased on November 22, 2013 just in time for the holiday shopping season. For opening weekend, we welcomed more than 225,000 shoppers and many tenants reported surpassing their sales plan. The center includes 336,000 square feet and features about 80 brand name and designer outlet doors including Banana Republic, Brooks Brothers, Calvin Klein, Coach, DVF, Elie Tahari, Halston Heritage, Hugo Boss, J. Crew, Peter Millar, and many other popular brands.

Located within the National Harbor waterfront resort in Washington D.C. metropolitan area, the center is accessible from I-95, I-295, I-495, and the Woodrow Wilson Bridge. The nation’s capital welcomes approximately 33 million tourists annually. We started out 2014 with the announcement on January 23rd of our ownership interest in a 50-50 joint venture that is developing a Tanger Outlets center in the Savannah, Georgia market our partner broke ground the property in September 2013.

The highly visible site is located on I-95 just North of I-16 in Pooler, Georgia near the Savannah International Airport, which welcomes 1,600,000 travelers annually. We expect this location to capitalize on the popularity of the Tanger Outlets brand in the region and to provide marketing and management synergies with our others seven centers in Georgia and South Carolina. When complete the initial phase of center, we will include approximately 385,000 square feet and we’ll feature about 80 up scaled brand and designer name outlet stores. Currently, we expect the center to open in the second quarter of 2015.

We were pleased to share our news development announcement yesterday in our yearend earnings release. We plan to develop a wholly owned outlet center in the Grand Rapids Michigan market. The site of the plan 350,000 square foot outlet center is located 11 miles south of the city of the Grand Rapids at the southwest quadrant of US-131. The site which has great visibility from both roads is located 30 miles east of Lake Michigan and its lakeside communities their vacationers frequent. Predevelopment and preleasing activities are ongoing for the project which we currently expect to open in the second half of 2015. Our share of the initial investment and developments we plan to deliver by end of 2015 is about $470 million.

Tanger has a robust pipeline of other development sites that currently in the predevelopment stage. In Columbus, Ohio, after securing the necessary zoning approvals and winning the subsequent voter referendum, we and our 50-50 joint venture partner are hard at work on offsite improvement plans and other predevelopment work. Predevelopment activities are also ongoing for our development site in Scottsdale, Arizona and for our planned expansions of existing assets in Branson, Missouri; Glendale, Arizona; and Park City, Utah. In addition, we have a deep shadow pipeline of other markets that are either un-served or under-severed by outlet and despite outlet industry.

With respect to our earnings guidance for 2014 based on our current view of market conditions and trends, we expect our estimated diluted net income will be between $0.78 and $0.84 per share and our FFO will be between $1.93 and $1.99 per share. Our estimates do not include the impact of any rent termination fees, any potential refinancing transactions, the sale of any out parcels of land, or the sale or acquisition of any properties. Our 2014 guidance includes a projected increase in same center of in our operating income of approximately 3%. This projection takes into consideration the difficult comfortable benchmark established as a result of our portfolio being essentially fully occupied since 2012 and the fact that 1,600,000 square feet expiring in 2014 is 23% less than the 1,200,000 square feet expiring in 2013 -- excuse me I made a mistake the 2.1 (Ph) million square feet expiring in 2013. Since the majority of our renewal activity occurs in the first quarter, this reduction has a significant impact on 2014. We completed 72.1% of our 2013 renewals in first quarter.

The reduction in expiring, GLA was largely driven by changes in our average lease terms since the economic downturn. When rents were under pressure, in the 2008 to 2009 timeframe, we renewed leases for shorter terms in order to retain our ability to mark rents to markers sooner upon improvement in economic conditions. As our ability to raise rents improved, post recession in late 2010 and into 2011 we began targeting longer term leases with annual escalations. We have normally low lease roll over in 2014, is primarily due to the combination of these two factors while not included in our guidance, we’re continuing to aggressively pursue terminating leases with underperforming tenants which we then hope to re-tenant with higher performing tenants at higher market rents.

Our guidance also assumes that tenant sales will remain stable or increase modestly based on the current economic environment and the negative impact of weather conditioning on early 2014 traffic. Our guidance is based on an average general and administrative expenses of approximately 10.5 million to 11 million per quarter. This increase in G&A is primarily driven by an increase of long-term equity based compensation for our senior leadership team.

Over time our goal is to increase the percentage of overall compensation that is performance based equity rather than cash. Further aligning the interest of management with those of our shareholders. As such the base salary of our senior executive management team has not increased for three consecutive years. In lieu of base salary increases our Board has issued restricted shares that vest over five years and equity-based long-term performance plans. Although the later impacts current expense management will not receive any value unless our total returns to shareholder meet certain minimum criteria. Taking equity, compensation into consideration our 2014 guidance assumes 99 million weighted average diluted shares and an allocation to participating securities of approximately $1 million per quarter.

We remain optimistic about the growth prospects of our company and our industry as shoppers continued to seek branded value. The tenant community continues to indicate its desire to expand into new markets in the United States and Canada with Tanger as a preferred partner. We have over 2,800 leases with good credit brand name tenants that have historically provided a continuous and predictable cash flow in good times and in challenging times. No single tenant accounts for more than 5.1% of our base and percentage rental revenues or 7.9% of our gross leasable area. In addition, approximately 90% of our total revenues are expected to be derived from contractual base rents and tenant expense reimbursements.

And now I would like to turn the call over to any questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Todd Thomas from KeyBanc Capital Markets. Your line in is open.

Todd Thomas - KeyBanc Capital Markets

First question, lot of your external growth is focused on growing the portfolio through new developments and expansions but was sort of wondering what your view is of selling properties and whether there are any opportunities to call the portfolio a little bit, maybe sell off some of the more mature properties and recycle capital into some of the new developments or expansions that you are working on.

Steven Tanger

We have always reviewed our properties each quarter each year and make a determination whether to continue to invest in them and hold them or to dispose of the assets. We have over the past years sold probably 10 to 15 assets and continue to take a dispassionate view of each one of our assets. We have no problem selling assets and may well do so before the end of the year and recycle the cash in the new investments.

Todd Thomas - KeyBanc Capital Markets

Do you have anything on the market listed today?

Steven Tanger

There are assets on the markets right now that are being marketed through national brokerage firm and we will not announce any transaction until our contract is signed or contract may not be signed, but the properties are being marketed.

Todd Thomas - KeyBanc Capital Markets

Okay and then the second question regarding Savannah site, I was just wondering if you could expand a little bit from your discussion in your prepared remarks about the impact that you may or may not be expecting from traffic or sales or some of the other nearby centers in Hilton Head and elsewhere within a reasonable drive time maybe you could just talk about that a little bit?

Steven Tanger

The Tanger brand is well known in the southeast. We’ve been marketing in various media outlets and in social media for the better part of 30 years since we started the Tanger brand. We are delighted to partner with Ben Carter, who is a well known experienced, very successful developer in the southeast. The center will be a Tanger Outlet and there should be significant synergies and marketing and also in the management of asset as we go forward. We have seven centers in North and South Carolina and we look forward to open in Savannah. By the way, the Savannah asset has been embraced wholeheartedly by out tenant community. We have probably close to 70% already committed.

Todd Thomas - KeyBanc Capital Markets

Okay so you’re not expecting the Savannah site to draw traffic from little further north in sort of Hilton Head market at all?

Steven Tanger

The Savannah site will draw traffic from the millions of people that come to Old Savannah as sightseers. There is probably close 10 million people that come to that market a year and we also intend to draw from Atlanta market over to Savannah. So we’re excited the catchment area is rather large and we will be able to have the synergy of advertising the Tanger brand utilizing the asset in Savannah.

Todd Thomas - KeyBanc Capital Markets

Okay, thank you.

Frank Marchisello

This is Frank. There is not a significant amount of our traffic in Hilton Head that comes from Savannah based on our zip code studies.

Todd Thomas - KeyBanc Capital Markets

Okay, great. That’s helpful. Thank you.

Operator

Your next question comes from the line of Craig Schmidt of Banc of America. Your line is open.

Craig Schmidt - Banc of America

Thank you. Steve, how does the Savannah joint venture come about? Did you approach them or did they approach you?

Steven Tanger

I have known Ben Carter for years and have the utmost respect for Ben. And candidly I did it the old fashion way. I love the project, love what he had done. The tenant community told us it was going to be great, so I just -- I know this is going to sound odd but I picked up the phone and called Ben. And we basically sat down and it served his purposes to equitize (Ph) part of his investment. He has got other projects under development and it’s a match of skill sets. He is extremely talented visionary developer and we’re pretty good operators. So it was a good blending of skill sets.

Craig Schmidt - Banc of America

Do you think there are another opportunities out there projects that you might work your way into?

Steven Tanger

We’re always open to new ventures where we can add value to a partnership and I don’t have any guidance on that, but we certainly are open and happy to talk to anybody that wants to talk to us.

Craig Schmidt - Banc of America

Okay, thank you.

Operator

Your next question comes from the line of Christy McElroy of Citi. Your line is open.

Christy McElroy - Citi

Hi, good morning guys. Just wanted to follow-up on the lease role discussion, the percentage of rolling in ’14 sort of came down in the last couple of quarters though a year ago was 13% of ABR was expiring in ’14 and now with 8%, I’m just wondering, I understand the discussion around the lease is signed but was that, the decline over the last year was that sort of preleasing or was it related to more tenant exercising option, I am just wondering if you could provide more color around that?

Frank Marchisello

This is frank. If you look back, you really have to look back a couple of year to do a comparable analysis of the leases that were rolling because we sometime renew leases early, so if renew a lease in December that impacts the next year. It comes out of the lease exploration report for example if you look back at the December 31, 2001, you will see that in 2013 we had 18% rolling and in 2014 it was dropping to 13%. So this really is a function of what Steve mentioned earlier is that we had been doing shorter term leases during the recessionary time and then jumped up and we’re long longer term leases as the recession was finishing up. And truly there was a exceptionally large percentage in ’13 and now exceptionally low percentage in ’14.

Christy McElroy - Citi

So if I understand some of that was pre-leasing. Is there a chance that 8% could move higher if you’re pre-leasing some of the ‘15 space?

Frank Marchisello

8%

Christy McElroy - Citi

8% of ABR expiring in 2014.

Frank Marchisello

Right, the 8% was really more than that originally. This is what left to renew in 2014. We’ve already renewed some 2014 space. That’s why I was suggesting to look back historically to see a really good comparable year-to-year.

Christy McElroy - Citi

Okay, so is it possible that some of the ‘15 space could be pre-leased this year which should mean that it would impact the growth rate more.

Frank Marchisello

We renew it early but we don’t get an early increase in rent, in other words the paperwork is done and put to bed, but typically the tenant has an option and we’re not renewing early to get an early increase in rent. We’re renewing early to get the paperwork done and the commitment out of the way.

Christy McElroy - Citi

So the forward years -- do they include option expiration for the renewal options? How much of the space in the forward years is subject to renewal option?

Frank Marchisello

If I had to venture a guess it would be 50% or more; and the expiration schedule -- when the current term expires, not at the end of all renewal options.

Christy McElroy - Citi

Just one more question; a year ago in your Q4 ‘12 results you provided your quarterly and your 12-month trailing year-over-year sales comp excluding the eight centers that experienced closing but they're more due to hurricane Sandy, I’m imagining those centers would have impacted you favorably as they sort of came back online in 2013. Can you give us a sense for what your sales growth would have been in Q4 excluding those centers?

Steven Tanger

In the fourth quarter of 2013 and in the fourth quarter of 2012 the number of hours our centers were closed were pretty comparable. There’d been instead of one major named hurricane in the fourth quarter of 2013, there were continuous rolling storms that came through our portfolio, the rest of the industries’ portfolios that also impacted and closed our centers. So when you look at it, although hurricane Sandy created significant damage. The total number of hours our centers were closed was pretty comparable on both fourth quarters.

Operator

Your next question comes from the line of Andrew Rosivach from Goldman Sachs; your line is opened.

Caitlin Burrows - Goldman Sachs

This is actually Caitlin; most of the mall REIT's have now provided sales per square foot in Tiers. Would you be able to tell us what percent of your NOI comes from outlook that generate $500 a foot or more versus $300 a foot or less?

Steven Tanger

We have a smaller portfolio the most Caitlin, and that we have not provided that information and right now we’re not prepared to do that.

Caitlin Burrows - Goldman Sachs

Okay and then similarly it seems like the tendency of your developments that their completion would be to an average or above your portfolio. Given the idea of what you expect the sales per square foot to be of your development pipeline, and what are the overall sales per square foot of your overall portfolio could be upon completion?

Steven Tanger

Again we have guided our sales for 2014 to be flat. So we don’t really have guidance yet for any new centers and we don’t announce guidance for new centers that are unconsolidated. And a lot of the joint ventures maybe unconsolidated. We only announced reported consolidated sales.

Operator

Your next question comes from the line of Norman Kramer for Kramer Investments, your line is open. Norman Kramer your line is open you may have yourself on mute.

Norman Kramer - Kramer Investments

You reported your rental growth on a straight-line basis and my question is do you also calculate this on a cash basis, and if so can you share it with us?

Frank Marchisello

Yes, on page 10 in our supplement we actually have both. If you look for example in the re-tenanted space, we have a number of leases gross lease-up area, and then there’s is this new initial base rent per square foot, that’s the cash basis number, and then the prior expiring rent is the cash basis. So they are both on that schedule.

Norman Kramer - Kramer Investments

Okay, I will check that. Thank you.

Operator

Your next question comes from the line of Carol Kemple from Hilliard Lyons; your line is open.

Carol Kemple - Hilliard Lyons

It look s like one small expansion project in Canada that was on your schedule last quarter, dropped off; was there anything specific going on there, why was that one gone?

Steven Tanger

We have just decided based on the current conditions in the market to put that expansion on hold.

Carol Kemple - Hilliard Lyons

And then your Savannah project will not show on the consolidated balance sheet, correct?

Steven Tanger

It is 50-50 partnership and right now we don’t anticipate it being consolidated.

Carol Kemple - Hilliard Lyons

Do you think there is an option later that your partner will want to sell?

Steven Tanger

We have in all of our joint ventures, an opportunity to buy and sell based on any particular time in the future, so I really don’t want to look out into the future but we both have a defined exit opportunity.

Carol Kemple - Hilliard Lyons

Congratulations on building an outlet center in the city, I like to shop there. That was a good move.

Steven Tanger

Well thank you Carol, we hope you like to shop at all of our cities.

Carol Kemple - Hilliard Lyons

I do but I especially love Savannah, Charleston and Hilton Head, so that’s a good thing for earnings.

Operator

Your next question comes from the line of Ben Yang from Evercore -- sorry Evermore. Your line is open.

Ben Yang - Evercore Partners

May be for Steven, is it a meaningful performance difference between say class A and class B outlet centers than what we have been seeing in the mall sector. Is this maybe the rationale for selling some of what I assume are your lower tier asset?

Steven Tanger

There is like any other portfolio differentiation between the very top and the very bottom. But we look to sell some assets that we feel we have maximized the potential going forward and somebody else coming in can take it to the next level by focusing on it. I will say part of the portfolio that we have offered for sale includes A assets also.

Ben Yang - Evercore Partners

Can you at least offer how many assets; I mean how many assets you are trying to sell this year?

Steven Tanger

It is publicly being marketed right now and we have five assets on the market to sell.

Ben Yang - Evercore Partners

And then may be second question within outlets. Are you guys actually managing on leasing that project or just maybe providing synergies with that joint venture?

Steven Tanger

We will be working with Ben Carter and his group finishing the existing lease commitments and leases out for signature. And then at a particular point in time we will take over the leasing and hopefully finish up, so when we open we will open north of our normal 90%. The center will be a Tanger Outlet and we will be responsible for the marketing and operating of the asset.

Operator

Your next question comes from the line of Daniel Bush from Green Street Advisors. Your line is open.

Daniel Bush - Green Street Advisors

There has been a much discussion on your mall peers conference calls regarding e-commerce. I kind of just want to get your thoughts. How do you see e-commerce impacting or really not impacting the outlet business and I guess in our opinion Steve the value proposition that is offered in your centers be replicated online?

Steven Tanger

I guess value is in the eye of the beholder Ben. But there has been a lot of discussion and I am sure you have been on the calls as have the other people listening in. And I basically agree with the analysis of the CEOs of the other mall REITs. An interesting data point is that the growth in online sales, overall sales in most instances does not net out the high level of returns particularly in the apparel and footwear business and active wear business. But we are monitoring online sales, I can tell you that for the 15 years that Internet sales have been prevalent, our sales have gone up every year, our profitability has gone up every year and our tenants continue to tell us that they find the outlet distribution channel to be profitable and a growth area.

Daniel Bush - Green Street Advisors

That’s helpful. And just switching gears to that Phoenix market, obviously it seems like Westgate is obviously off to a good start given the fact that you are already to expand and then obviously with Scottsdale in the pre-development. What are you seeing in that market that makes you feel comfortable, is the retailer demand that’s just for new outlets space just off the charts or can you give us a little color on what’s going on in that market?

Steven Tanger

Phoenix is I believe the seventh metropolitan area in the country. When we started developing this a couple of years ago, there was only one outlet center about 75 miles north of the city, we didn’t feel that serviced the Phoenix metropolitan area. We think that Phoenix is rebounding a lot of the housing that was possibly over built during the last up-cycle and got hit hard during the economic downturn has been sold. So we’re big fans of Phoenix, the Westgate project in Glendale has exceeded our expectation more rapidly than we had anticipated. Tenant demand for that site is extraordinary. So we have committed to and we’ll start shortly construction on an expansion. So we’re very excited about that.

Operator

Your next question comes from the line of Michael Mueller from JPMorgan. Your line is open.

Michael Mueller - JPMorgan

Hi, Steve, I think you’ve mentioned 80% retention on leases that expired last year, for the 20% that didn’t renew, is there a way you can kind of give us sense to what the natural fallout was where tenants just didn’t renew where they were going versus you proactively just say, no we are not putting you back and we’re replacing you with tenant X or something?

Steven Tanger

Above over 60% of the 20% that did not renew, we terminated or we’re able to terminate the lease or did not renew the lease at our option. So that we could what we call complete the Tanger shuffle and move tenants around and bring it more high volume tenants. So only a very small percentage of the tenants for whatever reason did not renew and as you can see the leasing spreads when we’re able to re-tenant space is significantly higher than the renewal spread on leases that have options.

Michael Mueller - JPMorgan

Got it. Okay, that was it. Thanks.

Operator

Your next question comes from the line of Steve Sakwa from ISI Group. Your line is open.

Steve Sakwa - ISI Group

Thanks. Good morning. Just a quick question on kind of the weather here. Obviously, it’s been severe winter and more bad weather is sort of approaching, I’m just curious how you guys have thought about sort of snow removal and that kind of in the 3% NOI growth and I realized that some of that maybe passed through a bill but with fixed camp I’m just wondering how much of that risk is kind of shifted to you? And how have you sort of thought about this year-over-year increases?

Steven Tanger

Well, only about 17% of our portfolio is now fixed camp so in a lot of our leases the snow removal is a reimbursable item and not a risk item for us.

Steve Sakwa - ISI Group

Okay, so it sounds like it’s going to not have much of an impact on the 3% growth rate?

Steven Tanger

We don’t anticipate it.

Frank Marchisello

It should not.

Steve Sakwa - ISI Group

Okay, thanks. Another question you’ve answered.

Operator

Your next question comes from the line of Rich Moore from RBC Capital Markets. Your line is open.

Rich Moore - RBC Capital Markets

Hi, good morning guys. I’m curious of the projects you have listed on Page 17 all the development projects and expansions, are all of these, Steve, 50%, I mean, do they meet your threshold of 50% preleased or higher? Is that true for even the new ones I guess?

Steven Tanger

The ones that we have started construction are at least 50% committed that includes leases that are signed and out for signature.

Rich Moore - RBC Capital Markets

Okay, so some of these which haven’t started actual construction and you’re still working the leasing?

Steven Tanger

That’s correct.

Rich Moore - RBC Capital Markets

Okay and then the other thing I didn’t quite understand on Page 10 that where you were talking about the leasing metric, there is nothing in the re-tenanting the new leases section of the schedule on Page 10, Frank, and I guess they don’t quite understand that?

Frank Marchisello

Rich, historically, it’s interesting. There just were no new re-tenants. There was no re-tenant space in the fourth quarter but to give you some history on that I looked back last year we only had 6 leases that we re-tenanted in the fourth quarter, the year before that 9, the year before that 7. There is not of a lot of volume within the fourth quarter with regard to re-tenant space. If people are open going into the fourth quarter they want to be open for the holiday, so that’s why it just so happens this year there was zero but like I said on a relative scale it’s typically minimum.

Rich Moore - RBC Capital Markets

Okay, I thought that was an error, great. Thank you for the clarification.

Frank Marchisello

I did too when I first saw it to be honest with you.

Rich Moore - RBC Capital Markets

Great. Thank you.

Frank Marchisello

I have my guys, they’ll check it.

Operator

Your next question comes from the line of Tayo Okusanya from Jefferies. Your line is open.

Tayo Okusanya - Jefferies

Good morning, everyone. My question really is on this idea of being able to get takeout the underperforming retailers, just wondering is there a way you could quantify what that opportunity is this year is it like 2% of your rent that suddenly go up 20% when you got a new tenant in or you kind of give us just a sense of how big that opportunity could be?

Steven Tanger

I wish I could Tayo, but it’s an ongoing process that we’ve done for the past 20 years. We work with our tenants we get sales every month and we try to limit our exposure and aggressively pursue terminating leases with underperforming tenants, but it’s very difficult to quantify because even if they’re underperforming they do have a contractual lease. But we work them and we try to move them out as fast as we can.

Tayo Okusanya - Jefferies

Okay so it’s more of conversation between two of you kind of come up with the win-win situation?

Steven Tanger

That’s correct.

Tayo Okusanya - Jefferies

Got it. All right. Thank you very much.

Operator

Your next question comes from the line of Nate Isbee from Stifel. Your line is open.

Nate Isbee - Stifel

Good morning. Just going back to Christy’s question about the Sandy impact, can you just provide the sales growth number for the fourth quarter excluding those 8 centers?

Steven Tanger

We have not broken it out.

Nate Isbee - Stifel

Okay, could you.

Frank Marchisello

We didn’t break it out in the third quarter either, Nate. It was really only relevant early in the year when you’re doing a rolling 12 month and to Christy’s point earlier we had centers closed this year in the fourth quarter similar to prior year, so we didn’t think it was really relevant.

Nate Isbee - Stifel

Okay and then just focusing on Long Island for a second, there was recently resolution with Oyster Bay. I’m just curious how you see that perhaps impacting the retail/outlet on landscape in Long Island over the next few years?

Steven Tanger

It’s tough for us to speculate, Nate. The folks at Simon and their partner at least the public report say they’re working with the local community to try to find the win-win on the property and I really don’t know until they make an announcement and it’s been approved in permanent by the city as to what their plans are.

Nate Isbee - Stifel

Okay, thank you.

Steven Tanger

We have not heard any plans to put outlet stores on that site.

Nate Isbee - Stifel

Okay, thanks. And then I guess it’s time for you to expand your mantra about in good times and bad times and now in omni-channel time you have to.

Steven Tanger

Thank you, Nate. It’s been omni-channel time though for 15 years that hasn’t changed due to the weather or the economic situation.

Operator

Your next question comes from the line of Christy McElroy from Citi. Your line is open.

Michael Bilerman - Citi

Good morning, it’s actually Michael Bilerman. Steve, just a question on Savannah, in the supplemental notes that your capital contribution could result in you sort of having a larger than 50% share of the project, just curious how much larger of a share and I don’t know whether there is some financing has been lined up form a construction perspective just trying to a sense of how much equity you could be putting to that project and ultimately what share you could own that could differ than the 50%?

Frank Marchisello

Michael, this is Frank. Some of that is still kind of being worked through and really not prepared to give you a whole lot of guidance on that yet. Ultimately, I think within the next quarter or two, we’ll provide something most likely within the 10-Q disclosure as to actual structure there.

Michael Bilerman - Citi

Is it something that you could potentially you have buyout on that you would own 100% of after certain amount of time is that or are you guys really thinking about it as partners together?

Steven Tanger

We’re thinking about it as partners together. But as I mentioned before, our agreement with our partner has an exit scenario that either one of us can start.

Frank Marchisello

But it’s not a contractual obligation to buy one or the other out as you typical joint venture arrangement.

Michael Bilerman - Citi

Okay. You’ve talked about having 5 assets on the market I would assume guidance does not include any plans to sell and the use of those proceeds and I’m just curious and your balance sheet obviously is in tremendous shape being able to fund the attractive development and redevelopment pipeline, so what would you use those proceeds for in totality I’m not looking for which centers are on the market but in totality how much could that be in terms of gross proceeds?

Frank Marchisello

Hi, Michael. We really don’t want to give any guidance because we haven’t decided; first of all if we’re going to sell and if we’re able to get to the price which is attractive for us to sell and if we do sell I would think the closing would not happen until middle or third quarter of year. So there will be plenty of guidance and visibility, if and when we do go to contract. Right now, it is not in our guidance.

Michael Bilerman - Citi

Is there assets on the market, the same way that you’re looking to buy and if you have file on the market is there activity where those proceeds could be rotated into an acquisition rather than just pay down debt?

Frank Marchisello

We always have our ears open. Right now, we’re not in discussions with any asset to purchase although we do have a few of that we will like to purchase.

Michael Bilerman - Citi

Okay, anything in Beaumont that took that occupancy down at year end? And I know Sauveur dropped off the redevelopment schedule and I apologize I missed, what you said about Sauveur in terms of why redevelopment came off, is there anything happening with your Quebec assets that we need to be knowledgeable about?

Steven Tanger

Nothing that jumps out. The small expansion in Saint Sauveur was basically one tenant so it was not a significant expansion.

Steven Tanger

In the Beaumont drop in occupancy given the size of the center that literally could have been one candidate as well?

Michael Bilerman - Citi

But it’s just 84% and you’re saying expansion is now offering and building out for the tenant in Saint Sauveur anymore?

Steven Tanger

Those plans are on hold.

Frank Marchisello

They are on hold. We have not given up. They’re just on hold because the timing is not as clear as we’d like so we took it off the schedule.

Frank Marchisello

They are on hold. They are not-- we have not given up, they are just on hold because the timing is not as clear as we would like so we took it off the schedule.

Steven Tanger

But we do have permit and can build the building at any time.

Michael Mueller - JP Morgan

Okay, and this one is, to clarify this dealing bond -- lower lease role were on the same-store and I recognize if you go back to the beginning of 2012, you had 18% rolling in ’13 and only 13% rolling in ’14. So clearly there is a 500 basis point of rent differential between ‘13 and ‘14 that existed at that point in time. I would have thought though that some of the higher lease role in ‘13 would have spilled over into ‘14 same-store given the fact that not every tenant renews or signs the lease day one in ’13. It’s done throughout the year. So it only has a partial year impact on ‘13 and has a spill over on ‘14 let alone the natural bumps and the leasing activity that you’re going to do. So I’m just trying to gain a little bit more comfort around sort of with this discussion.

Frank Marchisello

Hey Mike this is Frank. As Steve mentioned in his prepared remarks, almost 75%; I think we said 72 point something percentage of leases that are renewed in the first quarter. The reality is most of those are renewed probably by the end of January, because a lot of our tenants have January year-ends. So those renewals that occurred in 2013, 72% occurred in the first month of the first quarter. So they impacted ‘13 numbers pretty substantially. So you’re not willing at a pickup in ‘14 for the ‘13 renewals that occurred so early in the year.

Michael Mueller - JP Morgan

Right, not much of a spill-over effect that goes on.

Frank Marchisello

That’s correct.

Michael Mueller - JP Morgan

And is there anything else that will take you in terms of conservatism in your guidance towards the lower end that you’ve built-in; I’ve recognized the lower lease role, I recognized the bond deal that occurred; I recognized the G&A, and all those are important items. But it just still seems that the lower end and even towards the midpoint seems very conservative. Is there anything else that we should be knowledgeable about ‘14 relative to ‘13 that would be having an impact?

Frank Marchisello

I mean the other thing that we’ve mentioned is we have this allocation to participating securities which is pretty much doubling year-over-year, that really relates to a long-term incentive plan the was in the form of notional units that are now restricted shares that dilute our earnings slightly. But I think if you use our guidance of about $1 million a quarter for the participating securities, and then we’ve disclosed the weighted average shares used for the year, I think to a certain extent I think some folks have that wrong. And so hopefully people will take a look at that and adjust accordingly. Beyond that we have given you, I think everything that we are comfortable giving you at this current time.

Michael Mueller - JP Morgan

Right, now it’s clear that the street didn't move on the bonds deal. Streets did a 202, even though the bond deal paying down floating rate debt is $0.06 to $0.07 diluted of ’14. That clearly is a big number that wasn’t in the Street number. I just didn’t know if there was anything else that we need to be mindful of.

Operator

There are no further questions at this time. I will now turn the call back over to the presenters.

Steven Tanger

I want to thank everybody for participating in the call today and your interest in our company. Frank, Cindy and I are always available to answer any questions you may have. Have a great day. Thank you and goodbye.

Operator

Ladies and gentlemen, this concludes today’s conference call, you may now disconnect.

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