Tanger Outlet's (SKT) CEO Steven Tanger on Q4 2016 Results - Earnings Call Transcript

| About: Tanger Factory (SKT)
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Tanger Factory Outlet Centers, Inc. (NYSE:SKT) Q4 2016 Earnings Conference Call February 15, 2017 10:00 AM ET

Executives

Cyndi Holt - IR

Steven Tanger - CEO

Jim Williams - CFO

Tom McDonough - COO

Analysts

Todd Thomas - KeyBanc Capital Markets

George Huglund - Jefferies

Craig Schmidt - Bank of America

Caitlin Burrows - Goldman Sachs

Greg McGinniss - UBS

Christy McElroy - Citi

Floris van Dijkum - Boenning

Cyndi Holt

Good morning everyone. This is Cyndi Holt, Vice President of Investor Relations, and I would like to welcome you to the Tanger Factory Outlet Centers’ Year-End and Fourth Quarter 2016 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 Investor Relations webpage, investors.tangeroutlet.com.

Please note that during this conference call, some of management’s comments will be forward-looking statements that are subject to numerous risks and uncertainties and actual results could differ materially from those projected. We direct you to our filings with the Securities and Exchange Commission for a detailed discussion of these risks and uncertainties.

During the call, we will also discuss non-GAAP financial measures as defined by SEC Regulation G, including funds from operations or FFOs, adjusted funds from operations or AFFO, same center net operating income and portfolio net operating income. Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information.

This call is being recorded for rebroadcast for a period of time in the future and as such, it is important to note that management’s comments include time sensitive information that may only be accurate as of today’s date, February 15, 2017. [Operator Instructions] We ask that you 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; Jim Williams, Senior Vice President and Chief Financial Officer; and Tom McDonough, Executive Vice President and Chief Operating Officer.

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

Steven Tanger

Thank you, Cyndi, and good afternoon everyone. 2016 was another great year for Tanger outlets. We continued to produce both internal and external growth and our fortress balance sheet got even stronger. No other retail venue provides the combination of social experience with the world's best brand and designers, cutting out the middle person and selling direct to the consumer.

Our traffic is growing, our NOI and cash flows are growing and out fortress balance sheet was strengthened by converting $525 million of floating rate debt to fixed rates including a $350 million 10-year bond at 3.125% of which we completed 250 million in August and an additional 100 million in October, just before rates started to increase.

Although a few tenants are rationalizing their store count, we are not faced with the challenge of remerchandising large format Macy's, Sears and Sports Authority stores since they are not in our portfolio. While the retail environment is challenging, demand for high volumes profitable space remains robust.

We are taking advantage of this demand to re-tenant underperforming retailers with higher volume, more popular brands. This redevelopment strategy should strengthen our future sales and cash flow. We've always been willing to accept limited vacancy to put together enough space to attract new retailers. Before I discuss our operating performance and our outlook for 2017, I will turn the call over to Jim who will take you through our financial results and a brief overview of our recent financing activities. Afterwards Tom will update you on our development activities.

Please go ahead Jim.

Jim Williams

Thank you, Steve. Fourth quarter 2016 AFFO was $0.61 per share and in line with consensus estimates and up 5.2% compared to the fourth quarter of 2015. For the full year 2016 AFFO was $2.37 per share which represents a 6.8% increase over 2015 and a five-year compounded annual growth rate of 10%. During 2016 we completed a number of financing transactions that made our fortress balance sheet even stronger.

As Steve mentioned we successfully executed our strategy to convert $525 million of floating rate debt to fixed interest rates. Also, we paid down our floating rate debt by an additional $109 million with a portion of the proceeds from 2015 and 2016 asset sales. In addition, we're paying balances outstanding under our unsecured loans of the credit, we repaid three floating rate mortgages totaling $310 million, unencumbering the assets that secured these loans.

Looking back at the end of 2015 our floating rate exposure represented 36% of our total debt outstanding or 12% of our total market capitalization. As of December 31, 2016 our floating rate exposure represented only 11% of our total debt and 4% of our total enterprise value. In addition to reducing floating rate debt exposure during 2016 we extended the average term to maturity for our outstanding debt from 5.4 years to 5.9 years, expanded our unencumbered asset pool from 84% of our consolidated portfolio square footage to 92%, and increased liquidity available under our unsecured lines of credit from 45% to 88% of capacity.

Our total market capitalization as of December 31, 2016 was $5.3 billion, up 9% compared to December 31, 2015. Our debt to total market capitalization ratio was 32% at the end of both 2016 and 2015. We continue to maintain a strong interest coverage ratio of 4.4 times during 2016. In April we've raised our dividend by 14%, the 23rd consecutive year of dividend increases since becoming a public company in May 1993. Our current annual dividend of $1.30 per share has more than doubled our 2005 dividend which was $0.645 per share on a split adjusted basis. Today we paid our 95th consecutive quarterly dividend $0.325 to holders of record of January 31, 2017.

Over the last three years, our dividend has grown at a 13% compounded annual growth rate or 18% including the $0.21 per share special dividend we paid in January 2016. Our dividend is well covered. In 2016 we generated over $100 million of cash flow in excess of our dividend which was nearly 1.5 times more than 2011 representing a five-year compounded annual growth rate of 12%. Over and above what we have invested in new developments and expansions, we have reinvested more than $300 million into our portfolio over the last 10-years to renovate our properties and add new sought after retailers.

We expect to once again generate more than $100 million of cash flow after dividends in 2017 with an excited FFO payout ratio in the mid-50% range. We plan to continue to reinvest in our business by upgrading our properties and funding most of our development needs. Our conservative mindset has served Tanger well throughout 36 years of economic peaks and valleys, maintaining a fortress balance sheet and investment grade credit is our way of life. Financial stewardship is a hallmark of Tanger Outlets that we do not intend to change.

I will now turn the call over to Tom.

Tom McDonough

Thank you, Jim. In 2016 we expanded our overall footprint by 5% by opening two new outlet centers that are expected to generate a weighted average stabilized yield of approximately 10.3%. During the fourth quarter we opened the newest Tanger Outlet center is Daytona Beach, Florida. This 349,000 square foot wholly owned center opened 93% leased on November 18, featuring over 80 brand name and desire outlet stores. We had a fantastic grand opening weekend with many retailers exceeding plan and traffic so strong we had to utilize off-site overflow parking and shutter shoppers to the center.

In the 12 weeks that have followed, we have continued to receive positive feedback from both tenants and shoppers. Everyone seems to love the fresh upscale look of the architectural features and the shopper amenities like the kid's splash pad, the cozy common areas with soft seating and charging stations, and especially the new VIP shopper lounge. We remain optimistic about the future of the Tanger Outlet's business. Our reputation with retailers of having a quality of portfolio of outlet centers and a fine skill set for developing, leasing, operating and marketing them has afforded us a robust external growth pipeline.

This year we plan to complete two development projects that are currently under construction. In the fastest growing area of the Dallas, Fort Worth market, we are planning a holiday 2017 opening of our new 350,000 square foot Fort Worth, Texas Outlet center located within the Campion Circle mixed use development adjacent to Texas Motors Speedway.

During the third quarter of 2017 we expect to complete a major expansion that will increase the size of the Tanger Outlet Center in Lancaster, Pennsylvania by 123,000 square feet and add over 20 new brand name and designer outlet stores. These wholly owned projects are expected to generate a weighted average stabilized yield of approximately 9.3%. In addition, work is ongoing for other predevelopment state sites in our shadow pipeline, which we plan to announce upon successful completion of our underwriting process. Currently we expect to continue to deliver on average one to two development projects annually.

Turning to leasing, we have added some grate new brands to the portfolio in 2016. Like L.K. Bennett, Karen Millen, [indiscernible], White Barn Candle, to name a few. During 2016 two areas of leasing focus for Tanger have been food and the home products category. Our food objective has been to make more and better food offerings available to enhance the shopper experience. While this can be challenging due to outlet traffic patterns being more concentrated on the weekends. We have had success signing 44 new food leases during 2016, 19 of which were new to our portfolio.

Our centers will now have seated dining options like Texas Road House and Metro Diner, fast casual options like Five Guys, Chipotle, Zoës Kitchen, Rise Pies, Jimmy John's and Schlotzsky's Deli, as well as coffee engraving food options like Dunkin Donuts, Krispy Kreme and Planet Smoothie.

Our home objective has been to enhance the variety of home products offerings in our centers as a convince to our shopper and to earn a greater number of her overall shopping trips. In 2016, we executed leases to add seven home products tenants to our portfolio. Including Restoration Hardware, HomeGoods, WestPoint Home and Kirkland we are currently negotiating deals with additional tenants in the home products category.

I will now turn the call back over to Steve.

Steven Tanger

Thank you, Tom. Same center net operating income increased 3.3% during 2016 on top of a 3.5% increase in 2015. This is the 53rd consecutive quarter of comps NOI increases. In fact, our same center net operating income has grown cumulatively by 47% over the past five years. During the fourth quarter of 2016 same center NOI increased 2.7%, on top of a 2.1% increase in the fourth quarter of 2015. In addition, portfolio NOI for the consolidated portfolios increased 8.4% and 12.5% respectively for the full-year and fourth quarter of 2016.

Over the last five years our portfolio has grown by 46% cumulatively. Portfolio NOI is property level net operating income excluding leased termination fees and non-cash adjustments like straight line and net above and below market rent amortization. Lease termination fees were approximately 3.6 million and $100,000 respectively during the full year and fourth quarter of 2016 compared to 4.6 million and $200,000 respectively for the same period in 2015.

Blended base rental rates increased 20.2% during 2016 on top of a 22.4% increase during 2015. With the lowest average tenant occupancy cost ratio among the high-quality mall REIT's at just 9.9% of our consolidated portfolio in 2016 we have been successful at raising rents while maintaining a very profitable distribution channel for our tenant partners. Lease spreads are functions of what rates were years ago, what locations in the center are coming up for renewal and what decisions we made to remerchandise and strengthen our property for the long term. With 97.7% occupancy sometimes we must hold space off the market to make room for new high volume tenants.

Over the past several years we have successfully implemented a leasing strategy to give fewer and shorter renewal options to increase the number of leases with annual rent escalations and to convert pro rata CAM to fixed CAM. Our rent spreads, at lease expiration have narrowed slightly as a result of our ability to capture base rent growth and to increase CAM reimbursements annually through the lease term, rather than waiting until the end of the lease term. As of year-end approximately 34% of the space in our consolidated portfolio was on a fixed CAM. These embedded base rent and CAM escalations during the term of the lease are key drivers of our same center NOI growth.

During the fourth quarter of 2016 traffic and tenant sales at several of our centers were negatively impacted by major weather events. In mid-October severe weather and mandatory evacuations related to Hurricane Matthew negatively impacted seven centers including our locations in Charleston, South Carolina; Hilton Head, South Carolina; Myrtle Beach, South Carolina; Nags Head, New York and Savannah, Georgia. These centers were closed anywhere from two to six days each due to the storm.

During the third quarter these same properties were also negatively impacted by Hurricane Hermine over Labor Day weekend and in August our center in Gonzales, Louisiana was closed all or part of six consecutive days due to the devastating flooding and enforcement of subsequent curfews. Trailing 12-month traffic was down over 1% for these eight centers which comprised about 19% of the total square footage in our consolidated portfolio. In spite of the weather impact overall traffic was up 1.2% or 1.8% excluding these centers.

Price deflation remains prevalent in the apparel and footwear business, which makes up a large percentage of the outlet industry. There are no Apple or Tesla stores in our portfolio. In this heavily promotional environment average tenant sales with our consolidated portfolio were $394 per square foot with a trailing 12 month ended December 31, 2016 excluding the 8 weather impacted centers. On a same center basis, sales were stable excluding these centers including the weather impacted centers, average tenant sales were $387 per square foot for the trailing 12 months ended December 31, 2016. On a same center basis sales decreased by 80 basis points.

Two new centers, Grand Rapids, Michigan and Savana, Georgia rolled into the consolidated portfolio average tenant sales metric during the third quarter of 2016. Initially, these centers do not typically exceed our portfolio average, but in the first several years have the potential for strong tenant sales growth. Westgate Arizona and the Phoenix market is a good example of this having started out below our portfolio average of the first quarter of 2014 and growing to its current productivity which was ranked in our Top 10 centers.

As I mentioned earlier, our consolidated portfolio was 97.7% occupied as if December 31, 2016 up 20 basis points from 97.5 on December 31, 2015 and up 30 basis points from 97.4 at September 30, 2016. Historically, we have maintained both high occupancy and a dynamic line up of the most sought after brand name retailers.

At times in the cycle, when underperforming brands have shuttered stores, we have capitalized on these opportunities to enhance the tenant mix by filling the space with fresh new brands that are shoppers tell us they want in our centers. While magnet tenants have a lower relative occupancy cost that may impact re-tenanting spreads in the short term, remerchandising vacant space with high volume retailers has been a successful long-term strategy for Tanger for more than 35 years.

Enhancing the tenant mix in this way has historically increased shopper traffic, driven demand for additional tenants, increased future renewal spreads and increased overall tenant sales productivity in spite of the highly-publicized challenges facing parts of the retail sector, we have created opportunities.

In 2015 we got back the 157,000 square feet and 2016 we got back 105,000 square feet. In spite of this vacant space we ended the year 97.7% occupied. We continue to plan for about 1% of space in our portfolio to turn over each year for various reasons. This feels like a normal retail cycle to me, not a new paradigm.

We are pleased to introduce our 2017 FFO guidance at $2.41 to $2.47 per share, which represents growth of 2% to 4% over 2016 AFFO per share. This guidance includes about $0.05 per share increased in interest expense comprised of $0.03 per share related to transactions we completed in 2016 to convert floating rate debt to fix rates and about $0.02 per share based on an assumption that LIBOR will increase during 2017.

Excluding this dilutive impact, our guidance would represent growth of 4% to 6%. We currently expect our 2017 estimated diluted net income to be between $1.02 and $1.08 per share. Up against tough comps we expect 2017 same center NIO of 2% to 3% for the consolidated portfolio which includes about a 100 basis points negative impact from remerchandising planned or centers at Hilton Head, South Carolina; Howell, Michigan; Jeffersonville, Ohio; Myrtle Beach 17, South Carolina; Ocean City, Maryland; Tilton, New Hampshire and Westbrook, Connecticut.

For many of these projects we are remerchandising space with retailers that operate bigger boxes which will require us to shuffle all of the tenants around within these centers to create suites with adequate size and will involve downtown, however we expect our portfolio NOI growth for the consolidated portfolio to be between 8.5% and 9.5%.

Combined, we expect 2017 CapEx and second generation tenant allowance to be approximately $60 million. A little over 10 million of that total will be allocated to routine CapEx with the remaining 50 million split between tenant allowance and renovation projects in the [indiscernible] Beach, Maryland; Myrtle Beach, South Carolina and Hilton Head, South Carolina.

Due to tight expense control, we are able to lower our general and administrative expense guidance to between $11.2 million and $11.7 million per quarter for 2017, which is a 2% decrease compared to 2016's quarterly guidance and are based upon approximately 100.7 million shares weighted average diluted to common shares for 2017. Our forecast does not include the impact of any termination rents. Any refinancing transactions, any property acquisitions or the sale of any out parcels or any outlet centers. We remain optimistic about the growth prospects for our company as shoppers continue to see Tanger's unique shopping experience and a wide array of brand name merchandize direct from the 80 to 90 manufacturers that operate stores in each Tanger outlook center.

The tenant community continues to indicate its desire to expand into new markets within the profitable outlook channel and with Tanger as a preferred partner. The resiliency of the outlook channel has been proven over the past 35 years through many economic cycles. We have more than 3,100 long-term 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 6.2% of our base and percentage rental revenue or 7.6% of our gross leasable area. And approximately 90% of our total revenues are expected to be derived from contractual based rents and tenant expense reimbursements.

To conclude, our business fundamentals remain strong. The robust tenant demand for space at Tanger Centers is evidenced by our 97.7% occupancy. We remain focused on growing our cash flow and creating shareholder value.

Now I'll be happy to open the call for any questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] And your first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Your line is open, please go ahead.

Todd Thomas

First question maybe for Jim, you talked about what's in guidance in terms of the storage recaptured and 100 basis points impact, that activity is expected to have on same-store growth in '17 and I'm just curious how much quotient is embedded in the range at the low end for future closings throughout the year?

Jim Williams

Todd, it's hard to quantify. I think we -- our processed to come up with our same center NOI guidance range, is to meet with our leasing guys and we do a ground up lease by lease projections. So what's in our numbers is what is output from that project -- from that product. And it reflects, as Steve mentioned earlier, what we think we may get, which feels like somewhere between 100,000 square feet to 150,000 square feet we got back last year.

Todd Thomas

And then Steve in terms of the space that you're recapturing in your comments that this feels like a typical retail cycle. Can you maybe just talk about that a little bit, just given what we're hearing and seeing out there from retailers. Perhaps you could just give us a sense for how deep the demand pipeline is from new tenants taking space, because I think that there is a view that the pipeline for new tenants is thinning, so maybe some anecdotes or data points around demand would be helpful.

Steven Tanger

I've been doing this for a long time and I've never seen a new paradigm. I'm a believer in retail cycles. This feels that way to me. Tom in his prepared remarks mentioned numerous new tenants that are expanding in the outlet sector with us. We don't anticipate at this point any extraordinary amounts of space to be returned to us due to tenants rationalizing their store counts, which has happened every year since we've been in business. We're looking at less than 1% of our portfolio which we've been successful in remerchandising and in most instances with higher productivity tenants. And I don't see that that's going to change.

We are actually looking at this as an opportunity to improve the tenant mix in our presentation to the consumer. And as I think Jim mentioned we've invested $300 million into our properties in the last 10 years. Our properties look fantastic, the tenant mix is superb, none of the rationalization of tenant fleet of stores is surprised at this, it's been part of our business every year for the past 35 years this feels no different.

Todd Thomas

Okay thank you.

Operator

Your next question comes from the line of George Huglund with Jefferies. Your line is open, please go ahead.

George Huglund

I appreciate the comments about some of the new restaurants and they're adding more food into the outlets. I think from looking at and touring several of the properties that that could be a big growth driver going forward in terms of adding more food concepts. Just how much more upside is there in terms of space you could actually build out to existing outlets to add an additional food court something like that?

Steven Tanger

Most of our properties are built out. And we do have some out parcels which might be appropriate for sit down type popular restaurants. But we are putting lots of these tenants inline as Tom mentioned, I think we opened 44 restaurants this year and 14 were new to the portfolio, we're very excited about. Where there is traffic there is demand for food. We welcomed this year about 186 million shopping visits and we're capitalizing on that by talking to the finest most popular restaurants available today and introducing them to the outlet space.

George Huglund

Okay thank you.

Operator

And our next question comes from the line of Craig Schmidt with Bank of America. Your line is open, please go ahead.

Craig Schmidt

I'm wondering at this point do you expect that you may have a ground up project opening in 2018?

Steven Tanger

We are in the process of underwriting and doing our due diligence on our property in the Detroit market. If our due diligence and our leasing gets to the point where we're ready to break ground which is 60% committed and all permits in hand, we will move forward. If we don't get to that point we will not move forward. Craig you've known us for many, many years, we've never build the property on speculation and we don't intend to.

Craig Schmidt

No, we appreciate that discipline. Just interesting to hear that you do have project in Detroit. I was also wondering, maybe you could tell me what's impacting Bromont's current occupancy level?

Steven Tanger

Bromont is a very small property in Canada and due to bankruptcy in Canada we have lost couple of tenants. But our partners RioCan, which is the largest retail REIT in Canada. We are 50-50 partners and RioCan is working with several prospects to fill those vacancies, long-term we still think Bromont is a -- will be a successful market for us in the Quebec area.

Craig Schmidt

Okay, thank you.

Operator

[Operator Instructions] Our next question comes from the line of Andrew Rosivach from Goldman Sachs. Your line is open. Please go ahead.

Caitlin Burrows

This is Caitlin Burrows, I just had a question on the same-store NOI guidance of 2% to 3% for this year and that it's including the negative 100 basis points impact from the remerchandising effort. I was just wondering if you could give a little more detail on what that remerchandising entails. And what is happening to boxes at their lease exploration and/or is it something with the common area space?

Steven Tanger

Well, it doesn’t include the common area space. We are constantly remerchandising some of our properties, which we've mentioned in our remarks to attract some high-volume tenants like H&M and some other high volume tenants we're talking to. There box is larger than our average size, so it requires a little bit of shuffling of tenants and accumulating space off the market until we can get a size large enough to accommodate them. So, that's all in those numbers.

Caitlin Burrows

Okay, got it. And then just on occupancy cost side, I know you mentioned the 10-year portfolio is up to 9.9% now which is lower than other high quality mall peers, but I guess going forward if you're sales productivity remains flat do you think this can continue to increase closer to the other mall peers or is there some concerns that retailers expect lower occupancy costs at the outlook and as a result maybe comparing versus those mall peers could be less relevant?

Steven Tanger

There are lots of questions there, so let me see if I can answer one at a time. We have the lowest occupancy cost in the mall sector at 9.9%. We have the highest occupancy at 97.7% among our mall peers. Obviously, there is demand for space in Tanger centers which continues. This is no different than any of their cycle we've been through.

So I don’t know how to answer all the rest of your questions for assumptions, but we -- this is no different. The demand is there, we attract the best brands and designers in the world to our centers. The high volume, most popular brand names continue to open outlet stores because they're very profitable. And this doesn’t feel any different to me than it does a year or two ago although we probably will get less space back than previous.

Caitlin Burrows

Okay, thank you.

Operator

Your next question comes from the line of Jeremy Metz from UBS. Your line is open. Please go ahead.

Greg McGinniss

This is Greg McGinniss on for Jeremy. Obviously, releasing spread can be a bit lumpy but the negative 12% print on the new lease signed this quarter is a bit of a sticker shock on what appear it's only be one or two leases based on the size. So just curious what happened here and any color you can provide would be appreciated.

Steven Tanger

Well I mean you said it yourself, it's not a meaningful samples size. So I think the re-tenanted space you referred to we did better than the fourth quarter of last year and I think you can draw inappropriate conclusions from really small sample size. I would encourage you not to do that. We don't look at one quarter, we look at the trailing 12 months.

Greg McGinniss

Okay thank you for that. And then just going back to that 100 bps impact on same-store NOI real quick, is any of that related to The Limited or Aeropostale? And then based on tenant making -- your earlier comments on making the space a bit larger, how does that help to accelerate future same-store?

Steven Tanger

Again, we're 97.7% occupied, it doesn't really matter to us what demand with the tenant is and we have remerchandising strategies and are prepared for these tenants to leave, we get monthly sales, we know what's going on. So we plan way in advance to remerchandise in the event we get the space back. So we're very comfortable with our guidance.

Operator

Your next question comes from the line of Christy McElroy from Citi. Your line is open, please go ahead.

Christy McElroy

Many of the mall landlords over the last year have granted rent modifications to tenants in bankruptcy or some Middle East tenants that are struggling. To what extent have you been granting any rent relief over the last year? And if so, if you did, does that show up in your re-leasing spreads?

Steven Tanger

We've deep long standing relations with a lot of our tenant partners, but we also have a contract and we work very hard to fulfill our obligations under the contract and we expect the tenants to fulfill their obligations under the contract. At the end of the contract term, we're happy to visit with tenants and discuss where we are in the cycle and their cost of occupancy and their strategy going forward.

As far as any modifications, we again have long standing relationships, we talk long term strategy with the people that run those businesses, but we -- it's a two-way street, we want to create a win-win scenario. We're working hard and we spent $300 million upgrading our portfolio in the last 10 years. We are sympathetic if tenants help themselves. If they invest in their product, the presentation and the environment, if they invest in their people; we're happy to talk to them because it's just a short-term blip. But if they're not interested in helping themselves we'll continue to fill our obligations under the contract we signed.

As far as your second question, whatever modifications may have been signed, and they're not a lot, are reflected in our 2017 guidance.

Christy McElroy

Okay got it. And is there anything that you are seeing in terms of potential acquisition opportunities, and if you did see opportunities out there at some point, what is your willingness to take advantage of your low cost of capital in balance sheet in new deals [ph].

Steven Tanger

Our industry is consolidated, faster and to a greater degree than most other sectors of the retail. So if you know of any high-quality centers looking to sell please have them call us.

Christy McElroy

Got it. Thank you.

Operator

[Operator Instructions]. Your next question comes from the line of Floris van Dijkum from Boenning. Your line is open, please go ahead.

Floris van Dijkum

A quick question on your 34% fixed CAM ratio. Are all of the new leases that you're signing, are they now going to be having fixed CAM going forward. And what impact do you think that that could have on your expense recovery ratio going forward?

Steven Tanger

34% is up from zero five years ago. So we are moving towards as much of the portfolio being fixed CAM as possible. New leases and new development are primarily fixed CAM. And when our contract with existing tenants comes to the end of the term and we renew, we endeavor to get fixed CAM include.

The second part of your question is the impact. Most of the fixed CAM have escalators. They range anywhere from 2% to 5%, which we hope will give us a little bit of spread over inflation. We are able now to capture annually a little bit more reimbursement in rent spread as opposed to waiting five years of capture it. So you're going to probably see, we forecasted this a year and two and three years ago, you can feel free to check our conference call scripts.

As lease spreads narrow our comp NOI continues to grow. We run the business and I know there is a curiosity and fascination with lease spreads, last year it was a fascination with stores closing and the year before it was fascination with something else. But this year's lease spreads, we don't run the business based on lease spreads, our team is focused on generating more cash flow from our assets and growing our net operating income. And overtime that's proven to be a very successful formula.

Floris van Dijkum

Great thanks. And one follow up question I guess and maybe get you're take on, it sounds like you're adding a lot of food concepts to your centers. Food sales densities generally are higher than apparel. And so what do you think that's going to do to the average sales per square foot at your centers over the next 18 to 24 months. Do you expect to pickup -- we should see a pickup as a result of that?

Steven Tanger

I think your first assumption is probably right. Food users have less square footage and usually higher per square foot volumes. But a lot of these tenants are new to the portfolio. As we mentioned, we're very excited to have opened 44 new restaurants this year, including 14 new names to our portfolio. We can probably give you more accurately information a year from now, I'd hate to speculate.

Floris van Dijkum

Okay, thanks.

Operator

There are no further questions at this time. I’ll turn the call back to our presenters.

Steven Tanger

I want to take the opportunity on behalf of all of my colleagues here in the room to thank you for your interest in our company. We look forward to seeing you in a couple of weeks at the next upcoming investor conference and as always, we are here to answer any of your questions feel free to call anytime. Have a great day.

Operator

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

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