Tanger Inc. Q1 FY2022 Earnings Call

Good morning. This is Doug McDonald, Senior Vice President of Finance and Capital Markets, and I would like to welcome you all to the Tanger Factory Outlet Centers First Quarter 2022 Conference Call. Yesterday evening, we issued our earnings release as well as our supplemental information package and investor presentation. This information is available on our Investor Relations website, investors.tangeroutlets.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 FFO, core FFO, same-center net operating income, adjusted EBITDAre and net debt. 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. 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, May 6, 2022. On the call today will be Steve Tanger, our Executive Chair; Stephen Yalof, Chief Executive Officer; and Jim Williams, Executive Vice President and Chief Financial Officer. I will now turn the call over to Steve Tanger. Please go ahead, Steve.

Good morning, and thank you for joining us for our first quarter 2022 earnings call. The results reflect our company's ongoing positive momentum as evidenced by our strong operating performance, including sustained high occupancy, raised guidance for the year and a recent dividend increase. I want to thank our team for their unwavering commitment to executing on our strategy to increase cash flow and to grow the value of our real estate. I will now turn the call over to Steve Yalof to provide additional details.

Thanks, Steve. Our first quarter results reflect our strong operating fundamentals, positive leasing momentum, occupancy improvement and a return to positive leasing spreads are translating into earnings growth. This strength along with a constructive outlook, led our Board of Directors to approve a 9.6% increase in the annual dividend. Our first quarter operating and financial metrics were ahead of our expectations. And with our leasing results to date supporting a positive outlook, we are raising our full year's earnings guidance. In particular, traffic in the first quarter was up about 1% compared to the prior year first quarter, which I will remind you when we saw traffic rebounds and approach pre-pandemic levels. Traffic was later in March on a year-over-year comparable basis due to the timing of Easter and our related Tanger style marketing program. Yet, April traffic has returned even as consumers face higher gas prices and an inflationary environment. Tenant sales remained strong at $464 per square foot for the trailing 12-month period, an almost 20% increase from the pre-pandemic comparable period in 2019. We ended the first quarter with 94.3% total portfolio occupancy, an increase of 230 basis points from the year-ago period. Leasing spreads turned positive with blended average rental rates up 1.3% for all comparable renewed and re-tenanted leases executed during the 12 months ended March 31, 2022. This is a significant milestone and one which underscores the importance of our shopping destinations to our retailers and tenants. Taken together, these metrics helped generate robust growth. Same-center NOI was up 9.9% compared to the prior year driven by growth in occupancy, variable rents and other revenues in 2022. The current quarter benefited from a reversal of revenue reserves as we collected previously doubtful or disputed rents. As we've been discussing over the past several quarters, we are laser-focused on three strategic priorities, all aimed at sustaining growth over time. We continue to make meaningful progress on accelerating leasing, commercializing marketing and reshaping operations, which are evident in our results, and we are laying the foundation for growth in the quarters and years to come. Our goal is to accelerate leasing, which is simple: to increase occupancy, grow rent over time, and elevate and diversify and attract new brands. We continue to achieve this with our best-in-class centers and a best-in-class leasing team all supported by enhanced analytics that allow us to make the right decisions to optimize the merchandising of our properties. What's increasingly clear is that the retailers are committed to our open-air shopping destinations as part of their growth strategies, evidenced by our leasing momentum and tenants' desire to expand their footprint within our centers. We have also welcomed a number of new brands to the portfolio, such as Wolford, St. John, Ulta and Regatta and new food and beverage businesses Junction 35 to our flagship severe build destination and Brooklyn Monster at Tanger Outlet Spotswood. Our focus on non-apparel and footwear tenants also continues as we sign leases with new food and beverage, furniture and home, and digitally native brands. These new additions deliver high-quality shopper visits by attracting a higher-income shopper and a younger demographic. Over the trailing 12-month period ended March 31, we executed 1.8 million square feet of leases across 375 transactions, representing a 39% increase in space and a 42% increase in transactions from the comparable prior period, driven in large part by the strong renewal activity—approximately 45% of this GLA was executed in the first quarter of this year. Growing customer traffic, coupled with increased sales productivity at Tanger Centers has led to the absorption of vacancy as evidenced by our 230 basis point pickup in occupancy over the last 12 months. This dynamic is translating into our ability to execute far more landlord-favorable lease terms and enabling us to convert variable rent to fixed rent while commanding greater overage rent pay rates and tighter breakpoints. We also saw the lengthening of the average initial lease term by six months on renewal and four years on re-tenanted comparable leases executed in the trailing 12 months ended March 31, 2022, versus the prior year period. Our leasing momentum fuels our optimism and our continued ability to achieve our leasing objectives. Furthermore, we feel confident in our tenant base with a watch-list that is meaningfully smaller than it has been for many years and only 1% of our portfolio is on a cash basis, down from 3% at year's end. Our core strategy of commercializing marketing revolves around our ongoing digital transformation. We are focused on performing marketing that is targeted, measurable and drives higher conversions. We have shifted some of our marketing spend from broader brand awareness to targeted programs designed to achieve specific goals, including driving cars into our parking lots and growing the average spend per shopper. Our retailers are the direct recipients of these targeted initiatives, and as they continue to drive value, their partnership and participation continue to grow, thus resulting in higher shopper spends and bigger basket sizes. We have also improved our TangerClub paid membership program by enhancing the value proposition, exclusive offerings and shopper perks aimed at growing our active membership. Year-to-date, new enrollments were up 20% compared to the prior year, and we continue to see this group as the most productive of our customers. We are focused on reshaping operations by maximizing operational efficiency and growing ancillary revenues through marketing partnerships and media. On-center activations and partnerships with national brands such as Coca-Cola and the National Football League are growing across our entire portfolio as these brands seek to leverage the traffic and customers we drive to Tanger shopping destinations. These other revenues increased by almost 50% in the first quarter from the prior year, and there is additional opportunity in these non-rental revenues in the quarters and years to come. We are continuing to invest and execute on our sustainability initiatives that provide a return to our shareholders and our communities. Efforts include doubling our renewable energy footprint with solar infrastructure that will also produce expense savings over time, growing our EV charging station program by adding 200 new units across 17 centers delivering free charging options to our shoppers and bringing our very popular eco-friendly rooftop initiative to more Tanger Centers. Finally, we're encouraged by our tenants' desire to expand their footprint with Tanger and for new tenants to begin and grow their relationship with us. We are pleased with the progress of our national project and continue to be on track to break ground later this quarter, with grand openings scheduled for fall 2023. Our peripheral land team is aggressively pursuing opportunities to monetize and develop our outparcel portfolio. We are unlocking new opportunities to enhance our offering at exciting shopper amenities and generate new revenue streams, all creating long-term portfolio value. In summary, we're encouraged by our continued progress and our ability to execute on our strategic priorities. The value proposition of our open-air centers is being validated by shoppers, tenants and the communities we serve. I would now like to turn the call over to Jim Williams to take you through our financial results, balance sheet and increased guidance for 2022.

Thank you, Steve. I am pleased to report that we delivered solid results for the first quarter of 2022 with core FFO of $0.45 per share, up 12.5% compared to the last year period. Our outperformance was due to better-than-expected leasing performance and other revenues as well as the reserve reversals. Including our share of unconsolidated joint ventures, we recognized approximately $3.1 million in the reversal of certain revenue reserves compared to approximately $1.7 million in the first quarter of the prior year. These factors helped drive a year-over-year increase in same-center NOI for the total portfolio of 9.9% for the quarter to $78.2 million. Also contributing to the outperformance was the recognition of approximately $2.6 million in termination fees, including our share of unconsolidated joint ventures in the current quarter compared to $0.8 million in the prior year. Due to the well-timed capital markets activity executed over the past year, our balance sheet is well positioned. We have no significant debt maturities until April 2024 and as of March 31, our net debt to adjusted EBITDAre improved to 5.4x for the trailing 12 months compared to 6.8x a year ago. As of quarter end, our weighted average interest rate was 3.1% and 93% of our outstanding debt was fixed. We have always prioritized maintaining a strong financial position and a disciplined and prudent approach to capital allocation. Our dividend was well covered with an FAD payout ratio of 38% for the first quarter. Last month, the Board of Directors approved a 9.6% increase in the dividend on an annualized basis. We are increasing our guidance for 2022 and now expect core FFO to be in the range of $1.71 and $1.79 per share. This is $0.03 higher than our original guidance, approximately half driven by better-than-anticipated first quarter results and half due to stronger-than-expected leasing performance year-to-date. We expect same-center NOI growth at a range of 2.5% to 4.5%, up 100 basis points. For additional details on our key assumptions, please see our release issued last night. I'd now like to open it up for questions.

. Our first question today is coming from Todd Thomas from KeyBanc.

First question, I just wanted to ask about the sequential decrease in occupancy. It sounds like leasing activity is strong. Curious if some of that occupancy loss was the result of temporary and seasonal tenants vacating after the holidays, if you could sort of quantify or speak to that? And then if you could also address whether or not you'd expect to see occupancy climb higher from here? Or could there continue to be a little bit of occupancy loss in the second quarter from your temporary or seasonal tenants or otherwise that are still potentially moving out?

Thanks for the question. With regard to the sequential decrease in occupancy, some of that was seasonal, but another bit was frictional. Currently, we're performing a lot of what we call shuffles around our portfolio. If you read the release recently, we opened up and expanded the Under Armour store in Tilton in order to expand some of these stores, other stores have to close and make room through the expansion of existing tenants or make room for new tenants. That same strategy is playing out in places like Lancaster with Victoria's Secret, Atlantic City with a large retailer that we're putting in there that we'll hopefully be able to share next quarter or even in with Ulta. So there's a number of things that play with regard to what's causing some of that sequential decrease. We're actually pretty excited about the 230 basis point increase year-over-year. We've got a very robust pipeline. We don't talk about deals that are unexecuted, but we've got a very, very robust pipeline of new retailers to Tanger as well as expanding some of our best-performing retailers in the portfolio and also adding across the rest of our portfolio some of our best brands that have gone into some of our shopping centers yet. So we're pretty optimistic about our leasing activity going into the next quarter.

Okay. And can you provide an update after the holidays as to where the portfolio stands in terms of occupancy that's related to temporary and seasonal tenants today? And then I know you've been working to convert a lot of tenants to permanent. I wanted to ask for an update there. And also, maybe, Jim, I was just curious if you could let us know if that leasing when you do convert temporary tenants to permanent, is that leasing included in the trailing 12-month leasing stats that are disclosed?

So I'll address the first part of your question. Our main goal is to convert our temporary tenants to permanent tenancy. However, when we do have a permanent tenant occupying a temporary space, there may still be available space in that shopping center. In such cases, we will relocate that tenant to another space within our portfolio. There will always be some movement with our temporary tenants. We view leasing as an effective strategy, but our priority is on long-term leasing, as it offers a significantly better return compared to short-term tenants. Now I'll pass it over to Jim for more insight on our financial perspective.

So, Todd, to answer your question on the spreads, temporary tenants are not in the spreads. Our spreads compare a permanent tenant to the most recent prior permanent tenant.

Okay. And how much of the occupancy today is related to temp tenants?

A little bit over 10%.

The next question is coming from Mike Bilerman from Citi.

So Stephen, maybe just going on occupancy for a moment. It's obviously been an impressive increase off of the lows. When you look at the portfolio, there's about five assets that are in that high 70s sort of low 80s occupancy. And when you look at those five assets, it actually is 200 basis points of your vacancy, right? So that if you're at 94.3% and you take out Atlantic City and Foxwoods and we had two assets in Grand Rapids and Howell and you mentioned Tilton, you're talking about almost half of that vacancy, and without it, you'd be at 96.5%. So maybe you can dive in a little bit on the strategy for those assets and where you think occupancy can go because it feels as though there's probably not as much occupancy upside, maybe another 50 to 100 basis points of the other assets. And then all of those other initiatives, which I want to spend some time on will continue to drive NOI growth, but maybe you can talk a little bit about the specific assets and how much effort you can do to narrow that gap on those? Or maybe you want to sell them. And that's the way you're going to get rid of the vacancy?

Thanks for the question. So first of all, the good news is all the assets that you called out are still cash flowing positive. So that's important. But in two of the assets, the Foxwoods asset and the Atlantic City asset, we had said in prior quarters, we'll probably hit the hardest through the pandemic because those markets were relying on tourism, relying on hotel space, entertainment, and gaming. And what we're seeing right now is those categories come back. So...

Very strong. yes, that's why would the gaming markets have been so strong over time through the pandemic. I guess I'm surprised that you haven't been able to make further progress in that vacancy for those two assets.

A significant portion of the opportunity we see, especially once we secure a tenant, requires a period of nine to twelve months for a permanent lease to finalize. Therefore, we will soon start seeing the results of our efforts in these markets. Regarding Atlantic City, as Todd pointed out about the existing vacancies, while we typically don't discuss unexecuted leases, we do expect to finalize a major tenant in the coming months in Atlantic City that will occupy a substantial amount of space we have reserved for them. This tenant's arrival reinforces the resurgence of the Atlantic City market, where both sales and visitor traffic are improving. Although Foxwoods has been slower to rebound, they recently announced a partnership with Great Wolf Lodge, which will begin construction soon. They also have a more extensive lineup of summer events and entertainment than in previous years, which indicates that Foxwoods is making significant investments in attracting visitors. We have executed one or two recent deals at Foxwoods and plan to continue investing there. Concerning the other two centers in Michigan, they depend more on people driving to their locations, and we observe a shift in this pattern, particularly this summer, as many customers who previously purchased items online are now venturing out. We expect increased tourist traffic to our centers, and both Howell and Grand Rapids will benefit greatly from this trend.

Is there a way to think about the occupancy target towards the end of the year? So effectively, if you think about it today, Stephen, you're sitting out about 700,000 square feet of vacancy across the portfolio, those five assets I just mentioned are a little over $300,000 and $400,000 in the rest of the portfolio. Where should net absorption be by the end of the year, right? How much of this $300,000 of vacancy of these assets are you going to be able to chew into because I would think that, that has the most meaningful impact on that bottom-line occupancy number and then all of those other initiatives that you're focused on in terms of maximizing and reshaping the operations, getting all those new leasing streams, commercializing the marketing are going to add on top of that occupancy gains that you're going to get?

Our primary objective is we're focused on cash flow. And for us, some of the vacancy and some of our better performing assets will return far better than some of the vacancy and some of our lower-performing assets. That said, we're going to focus on in some particular centers where we've got 100% occupancy, where we've got underperforming retailers, we're going to be just as aggressive going after more productive retailers and higher rent payers in some of that space and creating some of that frictional vacancy when we pull out an underperforming and replace them with a much better performer or a larger expanding retailer. As far as these other assets, I guess, I mentioned we've got a pipeline of executed leases that are signed but have not yet taken delivery of possession. We're always looking at least 18 and 24 months out. So as leases are rolling, we're thinking about replacing those tenants, and that's across the entire portfolio. And with regard to leases out for signature, that pipeline is extremely robust right now. And as I mentioned, being fed by a lot of the retailers that have had success in our portfolio for years and years going into some of the markets that they hadn't yet joined us in. So for us, cash flow generation is far more important than occupancy, although occupancy is a great flashing light. We're very excited to say we're up 230 basis points. But again, we're focused on the most productive tenants, the best leases and the highest cash flow, and that's where our leasing team is focusing their energy.

Our next question today is coming from Floris Gerbrand Van Dijkum from Compass Point.

Just following up on the leasing. I mean, obviously, your shares are valued like you have no growth. And what you're showing here is you've got growth both in occupancy and for the first time in probably over 5 years, positive leasing spreads. And just maybe if you can talk through, Stephen, you talked a little bit about your improved or longer lease terms. Obviously, rents are going higher. But maybe you can talk about some of the other soft elements of your leasing? Are you negotiating higher fixed bumps? Or are you actively trying to do that? And maybe also talk about the occupancy costs? And how much ability because the occupancy cost is, call it, 8.3% appears pretty low. How much ability do you think you have as the overall occupancy increases, how much more ability will you have to push rents higher?

Floris, thanks so much for the question. I think the most material change to leasing right now over the last two years is that where we were very focused two years ago on maintaining occupancy, reducing base rents, replacing base rents with higher percentage rents in order to get some downside protection to some retailers during the height of the pandemic. What we're seeing now, evidenced by our lease spreads increasing as well as our lease terms increasing, is that we're going back to fundamental lease and deal-making: 10-year terms, higher base rents. We're now pushing for and getting better percentage rents going forward, the retailers have gotten used to stepping up to higher percentage rents over the last couple of years. We're doing a very effective job of taking a lot of that variable rent that was a huge driver of our growth over the last few quarters and sweeping that into the base rent numbers so that we are protecting a lot of the rent that we've achieved over the past quarters. And I think, especially now in this current market environment, that's a really good leasing strategy for us. I know you asked a number of other questions.

One of the things I'm curious about is the progress on achieving higher fixed increases in your lease terms. Do you have a specific target in mind for the direction you'd like the portfolio to take?

In terms of fixed bumps, the key point is that we are reverting to our traditional lease structuring. Retailers will continue to cover their share of real estate taxes, other expenses, and marketing fees. These marketing fees are increasingly significant for our retailers, particularly as they recognize the progress we've made in our marketing efforts. We've transitioned from static marketing to performance-driven strategies, utilizing technology to attract more customers to our centers. Over the past couple of quarters, we've implemented various initiatives that not only enhance foot traffic but also provide valuable data on our tenants and shoppers. This data allows us to communicate more effectively and convert visitors into TangerClub members, which is a valuable revenue source, encouraging them to return more frequently. Retailers depend on outlet developers like us to drive traffic, and many of our larger partners allocate their advertising budgets to attract customers to their full-price stores. In our industry, we conduct a significant amount of advertising on behalf of retailers to bring customers into the shopping centers, and we have a successful strategy in place to achieve this.

If I have one more question, could you provide a number regarding your lease pipeline? Specifically, do you have figures for your signed but not yet opened leases or the expected dollar amount of revenues that may come online in the next 12 to 24 months?

Floris, this is Jim. The spread between lease and occupied is currently around 40 basis points.

Your next question today is coming from Caitlin Burrows from Goldman Sachs.

Maybe just following up a little on that discussion you were having with Floris on the pricing. So with leasing spreads having turned positive, it sounds like you guys are more confident, which is good on the pricing side going forward. I'm wondering given that the quoted number is trailing 12 months, could you give more color on maybe the real time or the outlook do you expect rents and leasing spreads could stay in that kind of flattish range or even increase?

Caitlin, this is Jim. We are definitely satisfied with the momentum and performance we've experienced so far this year. This has contributed to our confidence in raising our guidance. While we won't provide specific details or forecasts regarding the spreads, we are very pleased with our year-to-date performance and remain optimistic about the rest of the year.

Okay. And then also that trailing 12-month leasing spread only includes the space that was vacant for less than 12 months. So I was wondering if you could comment on what it would be if the longer vacant spaces were included, would you get a sense of the more complete portfolio?

Again, Caitlin, that's not a number we're going to provide. We believe a better comparison to accurately reflect the space is to do it as we currently are on a comparable basis. I think this approach is pretty consistent with how our peers operate as well.

Could you provide an update on external growth? In recent quarters, you mentioned potential acquisition opportunities. I'm curious if there are any developments or acquisitions you considered but decided against, or any transaction activity you’re observing.

We're still very heavily working on a number of different opportunities for us from an acquisition point of view. We've got of the 36 properties that we manage, six of them are JVs. We think the JV structure is a great one for us. It's been very successful for us, whether it's with our partnerships in Canada, our partnerships with Simon, or other partners that we have across the portfolio. And that's a strategy that we're pursuing right now. We're hopeful in maybe in the next quarter or two to talk about one specific JV that we've been working on. But unfortunately, until we have that one fully completed, we're not going to be able to share it.

Next question is coming from Emily Arft from Green Street.

Just a quick one. Would you say that the low end of your updated same-store NOI guidance still assumes roughly flat tenant sales or has your outlook on sales for the year ahead changed?

This is Jim. When we gave our year-end guidance, we said that the bottom of the range really take into consideration a modest decline in sales at the upper end of our range would imply a modest increase in sales. I think what we've seen so far this year through the first quarter is sales are pretty much where we had planned them to be. So that's still the parameters that we put into our guidance.

Okay. And maybe one follow-up. You reported strong leasing activity, and there seems to be significant enthusiasm on the tenant side. What are you hearing from retailers? And is there any sort of change in tone? Are they concerned at all about the higher inflation, the higher interest rate environment and the potential drop in consumer spending, or are they talking about potential recession?

We're noticing a significant shift from casual products to fashion products among our retailers, and many of our fashion brands have performed exceptionally well over the last quarter. Our retailers are adapting to this change, and it seems like they are increasingly focused on transitioning from casual offerings to more work-appropriate attire. This shift is positively impacting foot traffic to our shopping centers and contributing to sales. In terms of potential recessionary pressures, we have made strategic adjustments to our balance sheet over the past year, which puts us in a strong position. We have restructured our credit lines and secured our debt at a historically low rate. Additionally, converting a portion of variable rent to base rent ensures a more stable income stream during uncertain economic times. We also have confidence in the resilience of our retail partners, who are established, top-tier brands with extensive experience navigating economic fluctuations. Overall, we believe our value-pricing model will attract shoppers looking for quality brands, particularly in a challenging economic environment.

Your next question today is coming from Mike Mueller from JPMorgan.

I guess in terms of the 10% temp tenants, given the strong sales and traffic trends that you've been seeing, is it getting any easier to convert those tenants to longer-term leases?

Temporary tenants vary in size, and I have a great example to share. We recently signed a temporary lease with Summersalt, a digitally native brand, for their first store, which will also be their first outlet store, in Myrtle Beach. We refer to these as pop-up shops, which are short-term tenants. This strategy allows us to introduce a new brand to our customers and gives the brand a chance to attract new clientele. We believe, similar to what we observed with Tory Burch, that we may see those temporary leases convert into long-term commitments over time. Additionally, our short-term leases include tenants where we have control over the real estate, which is crucial. In areas where there are still occupancy opportunities in our shopping centers, having short-term tenants allows us to maintain flexibility. Most of these leases can be terminated with a 30-day notice, providing us with options. While these tenants might pay the lowest rent, they give us significant flexibility to manage our real estate effectively. For instance, if a short-term tenant is located next to an Under Armour store at Tilton, we may need to let that tenant go to expand Under Armour. We'll then do our best to find a new space for that short-term tenant within our portfolio or the shopping center. We're focusing on moving these tenants into other vacant spots, even if that means relocating them within the shopping center. It remains cost-effective for them to be located in our centers, and we plan to continue introducing temporary tenants throughout our portfolio as opportunities arise.

Got it. And then I think you made a comment about Nashville breaking ground this quarter and then opening in the fall. Can you remind me, is that a normal timeframe from break ground to open? Or is it a little drawn out just because of the macro environment?

It's actually turned out because the entire property is built on rock. So the typical groundbreaking or shoveling dirt, we're going to be jackhammering rock. So unfortunately, the preparing the mega pad for development is going to take far longer than a standard development. I've built a lot of shopping centers over the years. They're usually in the 12 to 14 months period. This one at 16 months has to do with the condition of the property as we break ground.

. Our next question is coming from Greg McGinniss from Scotiabank.

Jim, I just wanted to touch on guidance increase. You mentioned about $0.015 of the raise was driven by prior period rent collections and these termination fees, which was around $0.05 in Q1. Could you help us understand what's baked in for the balance of the year?

Greg, yes, I mean, just to give you a little color, we had a handful of tenants, a small group of tenants that were on cash basis or still kind of disputing rents back to the COVID days. We're able to settle those and collect those rents in the first quarter and reverse those reserves. Most of that was actually baked into our guidance, particularly if you think about how we get to the top of the range. Looking forward, we really have about— we've got about one other tenant that we were converting from a cash basis to accrual basis in the second quarter. And that will have about $0.015, $0.02 a share impact in the second quarter. The majority of that is really restoring straight-line rents. And looking after that, I mean, we'll have less than 1% of our portfolio that's on a cash basis. So I think that really kind of gets through most of the significant reserves from prior year rents. So we don't see much of that going forward for the balance of the year.

Okay. And then maybe just a couple of follow-ups on Nashville. How do you plan on funding that development? Can you talk about maybe investment yields that you're targeting? I mean how are you controlling for increasing construction costs and supply chain headwind, especially given the extended build-out time?

I'll address the second part of your question. Jim can explain how we're financing the development. You are correct about the supply chain, and the initial construction costs have indeed fluctuated. The positive aspect is that Nashville is a very active market, and our rental prices have also increased. Therefore, we are confident that the yield range we provided in previous quarters remains valid. Jim, could you take over the funding details?

Yes, we have $153 million in cash and an undrawn credit facility of about $520 million. Our payout ratio was around 38% for the first quarter, and we expect it to be in the low 50s going forward, generating approximately $50 million to $70 million in excess cash flow. This allows us to effectively fund our Nashville project, especially with its 16-month development timeline being supported by our internally generated cash.

Great. Your next question today is coming from Craig Schmidt from Bank of America.

Thinking again about Nashville. How would you characterize the tenancy at Nashville versus your other Tanger centers? And what is the mix of local versus national tenants? And have you hit that 60% hurdle yet?

We are currently unable to disclose our tenant names, but I can provide some insights. Regarding the hurdle, we have reached the threshold we committed to, and we are prepared to break ground on the shopping center. We believe that local food and beverage options will play a significant role in attracting tenants to this center. It will include some of our better-performing tenants who have already partnered with us. I will share more details about the full tenant base in upcoming quarters. Additionally, the design of the center will differ from most of our existing shopping centers, shifting from a racetrack design to a village design that we believe will be more inviting and serve as a gathering place for the rapidly growing local population in that area.

And will the tenant reflect your current thinking on nonfashion tenant fleet?

I'm sorry, you broke up a little bit. Will they reflect what?

You're currently pumping down the fashion tenancy mix of your portfolio. I'm just wondering are you going to bake that into your opening at Nashville?

Yes.

Okay. Great. And then one other question. I mean you're very active in terms of rewards programs and building a good customers. What do you do on acquiring new customers to the Tanger outline?

We have a couple of great strategies for acquiring new customers. I'll share a recent one with you because I think it's a great example of what we do best. Through every year on Easter time, we host TangerStyle, and TangerStyle is basically the retailers offering an additional 25% off to each one of the customers that shop in the shopping center if they participate in the TangerStyle program. And that's usually 2 weeks before Easter, and it concludes 2 weeks following the Easter holiday. This year, we did things a little bit differently. We offered 15% to all of our shoppers. We offered an additional 10% or 25% off to TangerClub members. And the goal was not only to build up our TangerClub base, which we think is a very important set of customers, they shop more frequently, they spend more money each time they come and visit with us. But it gave us an opportunity to acquire a new customer and get some data on a new customer. And we think that, that's the most important part of our TangerClub on a going-forward basis is the personalization of how we communicate to these new customers and the value proposition that they get for being part of this TangerClub — this TangerClub group, better value, exclusive offerings such as early shopping hours and in some instances, upfront parking. But all of the things that these customers are looking for when they shop with us in exchange for our getting more data so we can communicate to them in a more meaningful way.

You reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Tanger for any further or closing comments.

I want to take this opportunity to thank each of you for your interest in our company and your time this morning. We are very proud of our positive results and continued momentum. We look forward to providing ongoing updates on our various initiatives in the next coming months. Our team is always available for follow-up discussions and we will be speaking with many of you at the upcoming NAREIT conference. Take care and be safe. Goodbye.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.