Floris van Dijkum: Hey, guys. Just a couple of follow-ups here. I note that SPG is actually your second largest tenant or not SPG directly, but Spark at 3.9%. They lease 4.3%, so they negotiate it pretty, apparently, pretty well in terms of paying less than what they’re leasing. But if I look at your soft luxury brands, Capri and Tapestry combines, they account for about 3% of the space and pay 5% of the rents. You don’t have any LVMH and caring the higher-end luxury brands. Steve, again, we’ve been saying this for a while, but maybe you can talk about what needs to happen to — for you to be able to attract some of those — and by the way, those two control multiple brands of operators. But what does it take to get those into your centers? And presumably, you’re working on that. What are the things that need to happen, in your view, in order for you to get some of those other luxury retailers to tenant your properties?
Stephen Yalof: Well, first of all, we’ve seen outsized growth in the portfolio that we have. And a lot of our shopping centers, you don’t — you merchandise a shopping center for the community and for the customer base. So we know who our customer is, we know what their price point is, and you don’t want to make the mistake of bringing a customer to a shopping center regardless of price point that isn’t going to have a large audience to shop it and not be successful. So there’s a handful of shopping centers that we think have great opportunity to be elevated, that is a road that we need to travel. It’s going to require us building foundation and increasing some of those bridge to better then better could help us support more of a luxury elevation.
You mentioned, as we’ve said in past calls, we are in constant communication with all of those brands. We know what we need to do. We know where we need to do it. We’ve got a strategy to execute to it. And we don’t think it’s that far away, but it’s something that we think about every day because there’s a population of retailers that aren’t yet in our centers were — it is our responsibility to make sure that we’re going after them and speaking to them regularly. In the meantime, there’s also a population of retailers that speak directly to the sweet spot of customer that comes to our shopping center. And we’ve done a really good job of bringing new and diverse brands, Nashville is a great example of a shopping center, 25% of that center are tenants that are brand new to Tanger are brand new to the outlet channel.
And that’s really where our core focus is. I think we’ll ultimately get to that North Star of luxury. But in the meantime, we’re going to continue to deliver revenue growth, positive rent spreads and continue to grow our business with the retailers that our customer base wants to shop.
Floris van Dijkum: Thanks. And I guess the follow-up to my follow-up is temp tenancy is still at 10%. When could we expect that percentage, I think, more normalized prior to COVID or prior to the retail armageddon, I think that number was around 5%. When do you see that number stabilizing or reducing going forward and over what time period?
Stephen Yalof: Look, again, when we — post COVID, when we rebuilt the team here at Tanger, one of our focuses was to put short-term leasing in the hands of the general managers in each one of our shopping centers. So we added 35 new tenant reps to our leasing team, one for each of the centers. Now we’re up to 39 centers. So of course, our short-term leasing pace is going to be a lot greater than it had been in the past because we have so many more people focusing on it. All of that said and what I shared earlier, we look at short-term leasing as a strategy. One that keeps lights on, one that keeps space cash flowing, one that gives an opportunity to new retailers coming into the business to try before they buy. And it’s been a very successful strategy for us.
Michael just said, there’s one square foot of vacancy or we see that as opportunity. We’re going to constantly keep those spaces leased as best we can. Also, if I have a short-term tenant sitting at center court in one of my shopping centers and I can re-lease that space. I’m not going to kick the short-term tenant out of the shopping center if they want to stay, we’re just going to find them a less desirable space to slide into. And as we continue to — and what that does is ultimately maintain that level of temp. So we’re going to continue to use it as a strategy. I think it’s been very good for us. It served a lot of purposes. Obviously, rent revenue is a critical one. And we’ve been very successful as we’ve been replacing temp, getting great mark-to-market on the space.
And a lot of that rent growth for us is embedded in that conversion. We’re anxious to get there, we see this great opportunity, a great source of organic growth. We also see the renewals. A lot of those retailers that we’re not going to renew and replace with new tenants, we see that as a great source of organic growth. And we’re going to asset manage our centers to the best of our ability to make sure we go after every opportunity to grow revenues across our portfolio.
Floris van Dijkum: But just to be clear, your guidance does not assume any reduction in temp tenancy in your portfolio over the next 12 months?
Stephen Yalof: I think the temp tenancy will reduce on its own as we continue to grow that permanent tenancy. So again, that’s – the goal is to — we’re in the — we’re in the permanent leasing business. We’re in the long-term rent collecting business. That is our core business. We’re going to use whatever strategy we can to generate revenue while we get to that North Star of full-term, long-term high-paying secured leases. In the meantime, we’ll use whatever strategies we can to make sure that we’re keeping the right time to do and keeping cash flow in our centers.
Floris van Dijkum: Thanks.
Stephen Yalof: Thanks, Floris.
Operator: Thank you. Our last question is from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Caitlin Burrows: Hi, again, everyone. Maybe just a couple of quick ones before we get to the hour mark. So a follow-up on the leasing spread topic. Realize that leasing spreads do end up being somewhat a function of new versus renewal leases. But looking at the ’22 10-K, it looked like the ’24 expirations are expected to have higher ABR. So I’m wondering if you could just talk about the population of lease expirations in ’24 and whether those do have tough comps or maybe they’re higher quality spaces, so that’s not really an issue.
Stephen Yalof: So a lot of that is just the population of leases in terms of the mix of our centers. You look in the supplemental, there’s a wide range. Some of those centers that are on a 10-year anniversary, you just have a little bit of higher rent. So it’s much more about what is expiring and who’s in that pool rather than something in aggregate around our portfolio. And you are correct. Our net leasing spread is going to be impacted by the amount of re-tenanting or renewal we’re going to do. We continue to believe we’re going to have positive spreads overall, as we have demonstrated for the last eight quarters overall, and that is really driving our OCR is driven by the rent increases that we’ve been able to attain.
Caitlin Burrows: Got it. So when you say that like it’s the higher expirations in ’24, they are based on like mix of centers and some anniversarying perhaps when they were built. Again, I’m just wondering if they kind of deserve to be higher, so there is not really tough comps? Or if, in reality, they are tough comps because if they were only built 10 years ago, then they were established well or something and now maybe the upside is less. Is there anything to add on that or it’s kind of a wash?
Stephen Yalof: Caitlin, the other piece of it is that that’s just the base rent component. We’ve talked for the last couple of quarters about adding in more of the recoveries, ensuring the tenants are covering their share of CAM and taxes and our advertising fees. So the total rent is our focus, growing total rent leads to growing NOI. The base rents by themselves, it can be a little skewed comparing year-to-year because you’re not sure which in that pool are just more of a gross rent or which ones are going to be layered in with some of the recovery components. But our strategy, as Steve and Michael talked about, growing total rents, continuing to focus on where we can improve the rent paying in each individual space throughout all of our centers. And that is going to continue to be a focus. And as Michael mentioned, it’s more of a pool issue and not necessarily a tougher comps issue.
Caitlin Burrows: Okay. And then maybe just following up on Floris’ recent question, not necessarily on luxury, but could you guys talk about the types of tenants that are active today maybe those that are more legacy tenants looking to expand and who you’re seeing that were perhaps new in 4Q and could be new in ’24. I think Steve earlier, you mentioned doing more like home, wellness, health and beauty, but any more details you can give on like who’s driving this activity that you guys see?
Justin Stein: Caitlin, it’s Justin. We are very proud of our execution to our diversification strategy. As Steve mentioned earlier, we’ve done a bunch of deals in the home and beauty category, food and beverage opportunities throughout the portfolio, whether it’s in our peripheral land opportunity or within the four walls of our center, we’ve done business with bookstores and entertainment concepts. So we are very proud of what we’ve done. We brought a ton of new brands in the portfolio in ’24 and we feel that, that will continue into ’25, bringing new brands that are finding the outlet channel as a profitable distribution point for them, and we’re excited about ’24 and beyond.
Caitlin Burrows: Okay. Thank you.
Justin Stein: Thanks, Caitlin.
Operator: Thank you. Ladies and gentlemen, this will conclude our question-and-answer session and also today’s teleconference. You may now disconnect your lines at this time. We thank you for your participation and have a wonderful day.
