Earnings Call Transcript - SKT Q2 2025

Ashley Curtis, Assistant Vice President of Investor Relations

Good morning. I'm Ashley Curtis, Assistant Vice President of Investor Relations, and I would like to welcome you to Tanger Inc.'s Second Quarter 2025 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 IR website, investors.tanger.com. Please note, this call may contain 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. 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, August 5, 2025. On the call today will be Stephen Yalof, President and Chief Executive Officer; and Michael Bilerman, Chief Financial Officer and Chief Investment Officer. In addition, other members of our leadership team will be available for Q&A. I will now turn the call over to Stephen Yalof. Please go ahead.

Stephen J. Yalof, President and CEO

Thank you, Ashley, and good morning. I'm pleased to report another quarter of great results, driven by our internal and external growth initiatives, and we have raised our full year guidance. Core FFO was $0.58 per share, a 9.4% increase over the prior year, which was driven by robust same-center NOI growth of 5.3%. Operating metrics for the quarter were strong with occupancy increasing sequentially to 96.6% and blended leasing spreads of 12% over the trailing 12 months. We also delivered a solid increase in tenant sales, which were up 6.2% to $465 per square foot on a trailing 12-month basis, and traffic to our centers was up for the quarter compared to last year. This performance reflects the fundamental strength of our platform as well as the effectiveness of our differentiated and proven leasing, marketing and operational strategies and our successful external growth initiatives. Our merchandising strategy is yielding impressive results with our open-air outlet and newly acquired lifestyle centers. We continue to attract brands and retail categories that are new to our portfolio while expanding store counts with our most productive existing tenants. This thoughtful approach to merchandising is attracting a younger demographic while maintaining our core value-seeking shopper base. Across our portfolio, we are seeing our shoppers visit more frequently, stay longer when they visit and ultimately spend more. We continue to maximize value through peripheral land activation, merchandising optimization and investments in our centers. Population shifts and residential densification in many of our core markets have created the need for more restaurants, service uses, health clubs and entertainment venues, and the land adjacent to our traffic-generating shopping centers has proven to be a destination of choice for many of these national and local businesses. Our digital capabilities and marketing initiatives are driving strong engagement and delivering meaningful results. As I mentioned earlier, traffic to our centers was up in the quarter compared to last year, driven by a balanced marketing plan aimed at deepening connections with our core customers, attracting new and younger demographics and engaging our local markets as we see these populations grow. Further, participation in our enhanced loyalty program continues to expand, supported in great part by our retailer partners. Our proprietary loyalty program, TangerClub, enables us to deliver more targeted and compelling offers to our customers. These programs are driving results as we continue to see meaningful improvements to both traffic and sales. Our strategic Summer of Savings campaign and early back-to-school value messaging, which we rolled out last quarter, aimed at tariff uncertainty and provided a messaging opportunity to inspire customers to shop early and take advantage of favorable pricing and product availability. These initiatives with strong support from participating retailers inspired targeted ad campaigns that appear in print, digital and social channels and have proven to be particularly effective. These proactive marketing programs will continue as we plan to reintroduce our Black Friday everyday messaging this fall where we celebrate holiday shopping throughout November. Our marketing partnerships and paid media sponsorships business continue to grow our other revenues. These programs leverage our shopper traffic and offer participating brands the opportunity to reach highly engaged consumers throughout our centers and social channels. We are leveraging AI technology across our business to optimize customer service, enhance our data and analytics predictive functionality and enable more efficient use of resources across our enterprise. Our strong balance sheet, conservative leverage profile and ample liquidity provide us with flexibility to pursue selective external growth opportunities while continuing to invest in our existing portfolio. Our disciplined approach to capital allocation remains focused on generating long-term shareholder value through both internal and external growth initiatives. Our recent acquisitions and Nashville development have assimilated quickly into the Tanger portfolio. In addition to growing NOI, they provided the opportunity to engage new retailers, restaurants, grocery, service and entertainment uses which will prove to be a valuable source of new business as we introduce them to the balance of our portfolio. In today's uncertain macroeconomic environment characterized by persistent inflation and shifting consumer sentiment, Tanger's value proposition is a constant that continues to resonate strongly with both shoppers and retailers. We remain confident in our strategic approach to leasing, marketing and operations, combined with our strong balance sheet and proven track record of execution, which provide us with multiple opportunities to pursue growth over time. I want to thank our dedicated Tanger team members, retail partners, shoppers and shareholders for your continued support. I'll now turn the call over to Michael to discuss our financial results, capital markets activities and updated guidance in more detail.

Michael Jason Bilerman, Chief Financial Officer and Chief Investment Officer

Thank you, Steve. For the second quarter, core FFO was $0.58 per share compared to $0.53 a share in the prior year period, driven by our strong internal and external growth. Same-center NOI increased 5.3%, driven by higher rental revenues from the continued strong leasing activity, which is leading to higher base rents and higher tenant reimbursements as we continue to drive total rents. We also saw continued growth in other revenues. For the first half of the year, same center NOI was up 3.8%. Our balance sheet remains well positioned with low leverage, ample liquidity and a largely fixed rate debt structure. At the end of the quarter, our net debt to adjusted EBITDA was at 5x, benefiting from the strong EBITDA growth and the retention of free cash flow after dividends with our growing dividend only representing about 60% of our funds available for distribution, or FAD. Outside of the leverage capacity from a liquidity perspective, we had approximately $614 million of total liquidity at quarter end, including $17 million of cash, $528 million available on our lines of credit and $70 million of proceeds still available from the forward equity that we issued late last year. During the quarter, we also continued to proactively manage and further strengthen our debt profile through a couple of refinancings, which increased proceeds, lowered rates and extended duration, and we continue to execute on our interest rate hedging strategies. At quarter end, 95% of our debt was at fixed rates and our weighted average interest rate stands at 4% with a weighted average term to maturity of 3.4 years. The next significant maturity will be our unsecured bonds next September 2026. In terms of interest rate swap activity during and post quarter end, we entered into interest rate swaps on the Memphis and Houston refinancings, fixing the interest rate on these loans through 2029. We have also now addressed $125 million of the $150 million of interest rate swaps, which are due to expire in 2026, with the new forward starting swaps fixing SOFR at a weighted average rate of 3.2%, which represents a 40 basis point reduction from the expiring swaps at various points next year. The new swaps run through '27 and '28 as detailed in the supplemental. Based on our strong performance year-to-date and a positive outlook, we are raising our full year guidance, and we now expect core FFO per share of $2.24 to $2.31, representing core FFO growth of 5.2% to 8.5%. And we've lifted same-center NOI growth to 2.5% to 4%, up from 2% to 4% previously. Our guidance reflects our continued strong operational execution and does not assume any additional acquisitions, dispositions or financing activities. For additional information and assumptions, please see our release issued last night. We've greatly enjoyed having you at our centers through all of the tours, and we do hope you'll stop by and shop at Tanger Center before the summer ends. And we look forward to seeing and speaking to many of you in the fall at Evercore's Real Estate Conference, BofA's Global Real Estate Conference, Jefferies Real Estate Conference, NAREIT, as well as a number of tours. Operator, we would now like to turn the call over for questions.

Operator, Operator

The first question is from Jeff Spector from Bank of America.

Jeffrey Alan Spector, Analyst

I guess my first question, let's focus on the merchandising strategy. I know that's been a big effort to upgrade the tenancy and bring in different mixes. Stephen, I know you talked about higher traffic. I guess can you just talk a little bit more about that effort and how that's tied to the improvement in sales per square foot?

Stephen J. Yalof, President and CEO

Thanks for the question. So from a macroeconomic standpoint, there's not a lot of new development happening in the retail space. And as a company, we consider our retail space to be more valuable every day. That being said, there are many retailers that are actively looking for space in our shopping centers, both in our popular top markets and in our mid-tier markets, and we see a lot of expansions from retailers in both of those shopping centers, from our lifestyle centers to our outlet shopping centers. The brands that are looking to get in are brands that are new to outlet. So we are growing some; we talked about Sephora last quarter and the proliferation of Sephora across our shopping centers, which has been a great brand, not only attracting their core consumer but bringing a much younger consumer into our shopping centers. We're also pursuing a lot of food and beverage as populations begin to shift to some of those markets that were typically tourist-driven and are now primary resident markets. We're seeing the need for food and beverage, more service orientation and some entertainment type uses that are either taking space inline or on our peripheral land. I think the combination of all those factors has caused a lot more traffic to our shopping centers. We've seen much more frequency, particularly from our local customer base. And ultimately, that's where we see a lot of pop in our sales.

Jeffrey Alan Spector, Analyst

Great. And then my follow-up question. I know last quarter, you talked about starting back-to-school early with concerns over tariffs and inventory; you put that strategy into place. I guess, did that help in the quarter? And how are you now thinking about inventory for back-to-school in the holiday season?

Stephen J. Yalof, President and CEO

Yes. Thanks for asking that question, Jeff. As far as the early back-to-school, yes, we think that's resonating. We've seen a lot of traffic growth where we've seen a lot of pop most recently is also in tax-free days and a lot of the centers that we have in the South have just experienced tax-free day with back-to-school shopping being the second biggest shopping holiday of the retail calendar. Our early initiative to get folks out as early as June resonated with a lot of the consumers that we were looking to who might have had some uncertainty with regard to the tariff impact or macroeconomic impact. We wanted to get consumers out earlier, get them shopping so they could find the brands they wanted at the best possible value. We saw tremendous traction. Some of that was attributable based on the social and digital initiatives that we put in front of our customers. So we're able to actually see the data in real time. And going into Q3, I think there was far less impact, particularly from a traffic point of view than we had thought. I think most of our retailer partners are well-stocked with inventory. There's a lot of product in the store in our value channel. We still see pricing very compelling, incentivizing customers to come shop with us. And I remind you, I think I mentioned in my opening comments, we continue to celebrate our everyday Black Friday sale this year throughout November. So we are keeping the selling theme in front of our core shoppers as we head into the holiday selling season.

Operator, Operator

The next question is from Greg McGinniss from Scotiabank.

Greg Michael McGinniss, Analyst

I wanted to touch on this remerchandising a bit more as you bring in more differentiated tenants into your outlet centers and you've increased traffic and stay time. I'm curious how far along this remerchandising process you feel that Tanger has come? And if you could give us some context for this portfolio evolution, whether that's percent of non-apparel and footwear from a few years ago versus today and where you're expecting to go? Or any commentary with regards to what you expect to happen on the remerchandising effort long term?

Stephen J. Yalof, President and CEO

Yes, sure. Look, again, I think remerchandising is a process that goes on in perpetuity. There's no end to remerchandising. There's always going to be brands that have stopped investing or are losing a little bit of their market share to other newer brands. We've got a great leasing team that's out there every day speaking to tenants, maybe a year, 1.5 years out that haven't necessarily done deals in the outlet space. They're direct-to-consumer brands. They're specialty store brands that think one day, the outlet business might be something that they'd invest in. So we're constantly a year or 1.5 years out talking to new retailers. I mentioned Sephora earlier because they only recently discovered the outlet business, and that's a brand that's been in business for years. So as we proceed, it's on us to make sure that the brands understand that there is great value in the outlets. But in addition, there's also a lot of customers that shopped over 125 million customers a year come through Tanger Centers. I think that's a lot of folks for brands to get their customers in front of. And so we'll continue to remerchandise our centers for many, many years to come.

Greg Michael McGinniss, Analyst

Just a follow-up on that. In the near term, have your tenants or new potential tenants become more hesitant to sign leases until the tariff situation gets maybe more resolved?

Stephen J. Yalof, President and CEO

I don't think we've seen that. I think that there's a tremendous amount of activity in our space. We have done more leasing this past year than in almost any other year at Tanger, over 2.8 million square feet of leasing. So there's a lot of activity that’s going on in our portfolio right now. I think retailers are making long-term decisions. I think the tariff uncertainty that they're facing is probably a little bit more uneven regarding its impact on them in the near term, but long-term leasing decisions haven't been affected. In fact, I'll go back to what I said to Jeff, not a lot of new retail development is happening in the United States, because that retail space is becoming more and more valuable.

Operator, Operator

The next question is from Craig Mailman from Citi.

Craig Allen Mailman, Analyst

Can you provide some insight into the growth algorithm over the next few years, considering your early success and Steve's nearly five-year tenure? I've noticed that the occupancy cost ratio remains at 9.7%, yet your average sales per square foot continue to increase. This is just one indicator, but could you elaborate on the organic opportunities within the portfolio regarding occupancy cost ratios and mark-to-market? How do you anticipate AFFO growth and same-store growth will compare to the peer average in the coming years?

Stephen J. Yalof, President and CEO

Well, look, the guidance is in the release. I can provide some generalizations based on the question that you asked. I think if you look at our spreads, you'll see our mark-to-market. We've had 14 or 15 quarters of positive rent spreads, which speaks to the fact that we think there's a tremendous amount of upside in rent. I think as poor performing retailers get replaced by better performing retailers, retailers that are doing more than mall average sales on a per square foot basis, I believe we'll see an opportunity for us to continue to push our rents forward. Does anybody have anything they want to add?

Michael Jason Bilerman, Chief Financial Officer and Chief Investment Officer

Yes, Craig. I mean, when we think about value creation and driving ultimately cash flow, it is driven by the internal growth and our external growth activities and continuing to invest in our asset base and intensifying and activating our peripheral land. That's wrapped in a balance sheet that is in the best position relative to our industry at 5x debt to EBITDA with a significant amount of free cash flow. So our job is there's enough levers that we have to drive NOI while leveraging our balance sheet to create long-term growth for our stakeholders.

Craig Allen Mailman, Analyst

Okay. That's helpful. And then I noticed there was an article about some additional leasing at Huntsville. Could you just run through maybe where that asset could be leased by year-end and maybe the economic uptick from some of those leases?

Justin C. Stein, Executive

It's Justin. I appreciate you mentioning our full-price assets. Last week, we announced several developments. Earlier this year, we reported the Apple expansion and the Warby deal, and Starbucks also opened its location. Recently, we announced that Madewell will be joining us in Huntsville, and LL Bean will occupy a significant space from the old Bed Bath & Beyond. Additionally, Rowan will be coming, and Crocs just opened. At Pine Crest, we recently welcomed a new food and beverage tenant called Toastique, which opened about two weeks ago, and Tecovas is set to open later this year. There's a lot happening with our full-price assets, and we're optimistic about it. As these tenants begin operating later this year, we expect them to contribute financially starting in 2026.

Craig Allen Mailman, Analyst

Awesome. Can I slip one third one in there, it's quick. On your occupancy, you guys have Deer Park in there, but Main Event doesn't really commence for a few more months. Is the occupancy number, just to clarify, is that a leased occupancy or commenced occupancy the 96.6%?

Doug M. McDonald, Executive

Craig, it's Doug. We quote physical occupancy. So when a tenant takes possession of the space, they're in physical occupancy and Main Event has possession; they're building out their space right now. They'll open in the first quarter, but they're in our physical occupancy right now.

Operator, Operator

The next question is from Michael Griffin from Evercore ISI.

Michael Anderson Griffin, Analyst

It seems like the national retailer concepts probably have maybe more certainty or clarity around their footprint needs despite the tariff uncertainty. But Steve, maybe you can give some context around the demand you're seeing from those regional and local tenants. I imagine that tariffs could crunch the mom-and-pop budget a little bit more than the bigger guys. So maybe talk a little bit about the demand from that cohort within your portfolio.

Stephen J. Yalof, President and CEO

First of all, I understand it's a very small population of retailers that you're talking about and even smaller population of our NOI. Again, it's still a very important part of our business. I think local retailers, particularly in some of our full-price lifestyle shopping centers, are really important to the communities that they serve and drive great traffic from that local population. As far as my visits to shopping centers, which have been frequent, I've spent the last couple of weeks visiting our centers. I haven't seen any impact to shelves. There's lots of inventory and a lot of supply. So I think for many of the retailers or manufacturer distributors, I would suppose that the third quarter and fourth quarter inventory is really already cleared in the warehouse and sitting here in the United States for distribution. So I can't really report much issue as it relates to that group of tenants in our portfolio.

Michael Anderson Griffin, Analyst

I appreciate the insight you've provided. You mentioned the ongoing strength of consumers at your centers. I'm interested to know if there has been a change in customer demographics. Have you noticed if consumers who typically shop at full-price retailers are now seeking value at your centers? I'm trying to understand what the customer profile looks like currently.

Stephen J. Yalof, President and CEO

I would say that we are indeed seeing new customers coming to the outlet centers, and I believe part of the reason is the localization of these centers. For example, we built our Nashville center only nine miles from downtown Nashville. Many of our other centers have experienced significant population shifts, as secondary homes have turned into primary residences, largely due to people moving out of cities and into different markets after COVID. From a merchandising perspective, we believe that bringing diverse uses into our shopping centers increases our chances of attracting customers. Whether it's a regular customer seeking value or a new visitor drawn in by a restaurant, grocery store, health club, or other amenities, if we can get them in for one of those reasons and encourage them to shop as well, we're essentially winning new customers every day.

Operator, Operator

The next question is from Caitlin Burrows from Goldman Sachs.

Caitlin Burrows, Analyst

Maybe just in the press release, you guys went through how you've renewed about 65% of the space set to expire in 2025. So I was wondering if you could comment on your latest thoughts on renewals versus retenanting and then what the status is of that other 35% of '25 expirations?

Doug M. McDonald, Executive

Caitlin, it's Doug. So we quote the renewed percentage that 65%. If you layer in the space that we've already re-tenanted or certain tenants that are relocating, we're at about 80% of the expiring population is addressed. And with the remaining 20%, we have active conversations and think that a majority of that space is going to renew.

Caitlin Burrows, Analyst

Got it. Okay. And then maybe just on the acquisition side. So I feel like we continue to hear that competition for acquisition deals is high. So wondering if you guys could comment on maybe the volume of deals you looked at in either 2Q or the first half and more broadly, how hard it's gotten to be the winning bidder on a deal? Or are you able to identify off-market or lightly marketed deals?

Stephen J. Yalof, President and CEO

Thanks, Caitlin. We've been extraordinarily active across both of those fronts in terms of marketed transactions as well as negotiated off-market transactions. We feel where we're going to lean in is where we can really add value to what we buy. I think that has been evidenced through Pine Crest, Little Rock, Asheville, and Huntsville. We're pretty unique and differentiated, being able to look at both outlets as well as open-air lifestyle centers. Given our geographical footprint and boots on the ground at every one of our assets, we feel that gives us a competitive advantage in looking at the entire marketplace. And we have deals when we close them. The balance sheet is sitting in really good shape to be able to execute, running at 5x debt-to-EBITDA today and still having the $70 million of forward equity that we issued late last year.

Operator, Operator

The next question is from Todd Thomas from KeyBanc Capital Markets.

Todd Michael Thomas, Analyst

You touched on the increase in occupancy during the quarter, but same-store base rent growth was higher by only 1.8% year-over-year. And I heard the comments about Main Event. But I was wondering if you could comment on the portfolio signed, not occupied pipeline in total. What that looks like today? Or whether there was anything you can share regarding the timing of some of the lease signings in the quarter that was reflected in the occupancy metric, but that was not rent-paying during the quarter? Just trying to get a sense of the trajectory of base rent growth throughout the remainder of the year.

Stephen J. Yalof, President and CEO

Thanks, Todd. One part of it is when we are signing new leases, we're getting both an increase on the base and we're getting our fixed common area maintenance. Depending on the type of activity, we're looking to grow our total rent. When you look at the P&L, you have to look at both line items to consider our total revenue growth, which is leading to NOI growth with our expense load. In terms of signed not open, given the fact that our portfolio has a small tenant average size, we've talked about our average tenant size is 4,700 square feet across 3,000 stores, and the speed at which a tenant opens after turnover is pretty short. We don't have a large signed not open pipeline. In fact, Main Event is probably the biggest component right now, about 30 basis points, that's been turned over that's not cash paying today but will become open next year. The rest is small between quarters just given the short time frame of 60 to 90 days between turnover and store opening.

Todd Michael Thomas, Analyst

Okay. And then I noticed that the straight-line rent in the quarter was up significantly. I was wondering if there was any onetime or non-recurring impact either related to leasing or otherwise that we should consider moving into the third quarter?

Stephen J. Yalof, President and CEO

Sure. Our straight-line rent typically increases during the second and third quarters. This relates partly to the cadence of our occupancy. We've talked about troughing in the first quarter, building back up throughout the year, peaking in the fourth quarter. When tenants take over, Michael talked about the 60 to 90 day build-out period; the straight-line occurs when they take possession, and the cash rent starts when they open. There is typically more straight-line rent in the second and third quarters of the year, and we would expect that again this year.

Todd Michael Thomas, Analyst

Okay. Got it. So that will burn off a little bit moving throughout the balance of the year. And one more, if I could. Steve, you talked a little bit about the centers that you consider primary or that fit into that localization bucket and have been benefiting from a broader use of tenants. I was wondering how many of your centers do you consider to be in that bucket, if you will? What percentage of ABR or GLA or just number of centers would you consider to fit that criteria? And then looking out longer term, are the centers that do not have that support from a primary population or that local market impact that you're discussing, would they be considered non-core?

Stephen J. Yalof, President and CEO

I think where we are right now, all the centers in our portfolio are definitely core centers. We just address them differently. We have a shopping center in Somerville, Tennessee, actually home to Dollywood, which was voted the #1 amusement park in the United States this month. That shopping center benefits from tourist traffic, 100% is one of our top producing assets. It’s really hard to rationalize which ones do better from local trade versus those who do better from tourist trade. We definitely market our centers a little bit differently. We have a much wider catchment as it relates to those centers that rely a little bit more on tourist-driven traffic. The shopping centers positioned closer to the casinos, things of that nature, I think, definitely benefit from more tourist-driven traffic. But when Myrtle Beach and Hilton Head and Daytona were built 10, 15, 20 years ago, they were built for tourism and now are some of the fastest growing permanent population markets in the country. So the shift is happening rapidly. We’re embracing the shift, but we’ll continue to remerchandise our centers accordingly as that shift takes place.

Operator, Operator

The next question is from Hong Zhang from JPMorgan.

Hongliang Zhang, Analyst

I guess my first question is just on thinking about same-store NOI growth in the second half of the year. You were 3.8% year-to-date, and it seems like the guidance implies some deceleration at the midpoint. Just wondering what's driving that?

Stephen J. Yalof, President and CEO

Thanks, Hong. We are very pleased to be able to increase our full year guidance, bringing up the low end to 2.5%. When we think about the back half of the year, we still have a certain amount of uncertainty related to the macroeconomic environment and the credit environment, the sales environment, operational expenses, and downtime. So there's nothing specific in the second half relative to the first half, and that's why we have a range that's still producing a very healthy same-center NOI forecast for the year with a midpoint at 3.25%.

Hongliang Zhang, Analyst

Got it. And I guess I think you still have around $70 million of forward equity to settle for the remainder of the year. I guess I'm curious what you would use the proceeds for if acquisitions don't shake out?

Stephen J. Yalof, President and CEO

Yes. We have time on that forward equity. We don't need to pull it down right away. We have it there to be able to fund any of our internal or external investments in addition to the balance sheet capacity we have being at 5x levered.

Operator, Operator

The next question is from Floris Van Dijkum from Ladenburg Thalmann.

Floris Gerbrand Hendrik Van Dijkum, Analyst

I guess could you maybe talk a little bit about the internal growth prospects regarding your estimated 10% temp tenancy? And also, how much more fixed CAM can you increase your portfolio by over the next, call it, 6 quarters?

Stephen J. Yalof, President and CEO

Floris, I'll take the second one first. I wouldn't be focused just on the expense reimbursement side because when we're negotiating with a tenant, we like to drive total rent. If that means higher fixed CAM at the expense of base rent, we'll just do that because we're driving our total NOI growth at the end of the day. So there's not a specific formula to look at, and there's a wide variety of lease types. Regarding temp tenancy, that's one part of the NOI growth that we could see over time, whether that's driving rents on our existing permanent base and continuing to re-tenant, but also continuing to use the temp business as a strategy because the consumers that come shop with us don't know the difference between a temp tenant and a permanent tenant, but they do know the difference between an open store and a closed store. We want to keep our assets vibrant and continue to drive NOI over the long term, and that's a source of potential upside that we could see over time.

Floris Gerbrand Hendrik Van Dijkum, Analyst

Just to clarify, Michael, the temporary tenants don't contribute to fixed CAM. What is your current fixed CAM percentage for your overall tenancy? Where do you think you can improve that? Considering the strong retail demand, historically, your temporary tenant percentage was around 5%. How quickly do you think that can return to those historical levels? That's the essence of my question.

Michael Jason Bilerman, Chief Financial Officer and Chief Investment Officer

Yes. I wouldn't focus too much on the fact that temp doesn't give us fixed CAM. I look at it more as the total rent that we can get for that space from a permanent tenant relative to the temp tenant. We've talked about anywhere from 2 to 3 to 4x the rent. In terms of cadence, you are correct that historically, we've operated in the 500 to 600 basis point range in terms of temp tenancy. We are higher than that today. But we don't have a timeline that we want to bring it down. We're trying to drive our total NOI growth and continue to diversify and remerchandise our centers; it provides us a pool of leases that we think has upside, and we'll continue to see that upside over the next few years.

Floris Gerbrand Hendrik Van Dijkum, Analyst

I have a question for Steve regarding the new retailers in the outlets. You mentioned Sephora earlier. How are those discussions progressing? Are you experiencing increased interest from retailers for outlet space? Additionally, what growth potential do you anticipate over the next couple of years from bringing in new retailers in the outlet format?

Stephen J. Yalof, President and CEO

Look, we're out in front of retailers all day, every day. We have a team just focused on new business and their sole mission is to go out and speak to brands that just haven't discovered us yet. There are plenty of those brands enough to keep a couple of people occupied. It’s exciting when new brands want to enter. We've just recently done our first Marc Jacobs deals in the outlet space, and their performance has been amazing. They're drawing a customer; they've got fans of that brand. There's a lot of things that new brands do for us. Aside from the fact that we get great productivity, they pay market rents and draw their own customer base to our centers. As these new brands discover our product, so do some customers loyal to that brand. I think that's just a great win-win for us. It's hard for me to guide how big that business can be. If you go back 30 years, I've been in this business leasing outlets for a long time. An outlet center of 30 years ago looks completely different than the outlet center of today because there's been a constant evolution of brands discovering and replacing brands that have not performed well. We will continue to grow newness and bring in new brands, uses, and types of tenants. I would say food and beverage has been relatively new to the outlet space in the last 5 years. But as that customer becomes more localized, those are the things they're demanding when they want to come and shop with us. We think it's really smart for us to play into the expanded consumer base to drive traffic into our centers.

Operator, Operator

The next question is from Rich Hightower from Barclays.

Richard Allen Hightower, Analyst

I think maybe just to put a finer point on some of the occupancy questions so far on the call. I think we understand Deer Park, we understand Huntsville. But maybe in the context of the guidance and the different swing factors, are there any other known move-outs, move-ins, cash versus straight line? Any other elements you'd like to sort of call out that we should be aware of over the next couple of quarters?

Stephen J. Yalof, President and CEO

The big one was Forever 21. But we absorbed Forever 21. We've been able to place where we've got 5 of the design Forever 21s already leased, and we'll probably have the rest leased by the end of the year. I think that speaks to the high demand that retailers have for space in our shopping centers. It also speaks to the fact that we're going to curate. We're not going after just retailers to fill space. We’re looking for retailers that will bring more to the party, drive customers, be interesting, and elevate the shopping center of choice in the geographies we serve. Because of that, we're going to be smart about how we curate centers and make sure we're bringing in not only retailers that can pay the best rents, but also retailers that will do the best volume and draw the most shoppers to our centers.

Richard Allen Hightower, Analyst

Okay. So I appreciate that. Just to be clear, so Forever 21 would probably be the biggest swing factor to call out for the second half in that regard? Just to clarify?

Stephen J. Yalof, President and CEO

I would say yes.

Richard Allen Hightower, Analyst

Okay. Great. And then more broadly, and I think you addressed this from a different angle before. But just as far as the double-digit leasing spreads for the past many quarters and obviously, a very overt remerchandising strategy that I think you've articulated very well. Is there a natural runway for that given sort of existing tenancy that’s probably not leaving the center in the next several years? I mean, can it go on for years and years? I mean, how would you sort of think about that runway going forward?

Stephen J. Yalof, President and CEO

Look, again, as I mentioned earlier, we're creating our own demand. I think demand is a virtuous cycle in that the better retailers we bring into the center result in better sales performance, and the more rents we can ultimately charge. As centers become more popular and sales continue to grow, more retailers take note and want to be part of that. In this environment right now with very little new retail coming online, retailers are looking for places where they can do business. They're searching for voids in the market where they have distribution. Many brands we could be competing with are department store businesses that may be contracting, and retailers are looking for places to put their freestanding stores so they can execute and get their product in front of a customer. I don't see an end to that in the foreseeable future. As I mentioned earlier, we have a dedicated team looking 18 to 24 months out to bring in new brands. There’s a lot of interest in being part of what we're doing over here at Tanger.

Operator, Operator

The next question is from Tayo Okusanya from Deutsche Bank.

Omotayo Tejumade Okusanya, Analyst

Solid results here. Wanted to follow up on Hong's question around guidance. Again, the low end of same-store NOI raised to 2.5%. Curious if what's driving that is really more occupancy as you've discussed some of the occupancy gains? Or whether there's an OpEx component to it, if there's a bad debt component to it?

Stephen J. Yalof, President and CEO

Thanks, Tayo. The range at both the high and low ends has various assumptions around many of the variables that impact revenues and expenses. We provide a range we feel comfortable with. We are pleased midway through the year to be able to lift our FFO guidance and our same-center guidance. Both ends of the range account for varying assumptions around occupancy, tenant credit, sales environment, variable operating expenses, and downtime. All of that goes into a range we feel comfortable with. As part, in 90 days, we get to report again and see where our results are and update guidance at that point.

Omotayo Tejumade Okusanya, Analyst

Got it. And then a quick follow-up regarding tenant credit. Could you just talk a little bit about your exposure to Torrid that I believe recently filed bankruptcy? Again, there are talks about possible challenges for other tenants as well. How you're thinking about some of those names and any watchlist tenants?

Michael Jason Bilerman, Chief Financial Officer and Chief Investment Officer

To take a step back from it overall, our watch list remains at manageable levels. In regards to the tenants we've talked about, they aren't among our top 25 tenants. The store sizes related to the mentioned brand are pretty small. While there may be a number of stores, it's a relatively smaller part of our base rent.

Stephen J. Yalof, President and CEO

If I could add, I've said this on past calls, I'll say it again. Outlet stores have tended to be very profitable for brands, and they’re often among the last stores brands will close in a restructuring. So even though a brand may declare bankruptcy, in the case of the brands mentioned, I think that as they work through their population of stores to decide what to keep and what to reject, there will be very few impacted in the outlet space.

Operator, Operator

The next question is from Vince Tibone from Green Street.

Vince James Tibone, Analyst

Could you help quantify the near-term outparcel opportunity in the portfolio in terms of how many you expect to be actionable and monetizable over the next 1 to 2 years? And then also, kind of what do you anticipate being the most common structure here, whether it's selling the dirt, doing a ground lease, or doing a full development that a tenant would ultimately lease? Just trying to get a sense of how much capital will be committed here, and then how much NOI ultimately generated over the near term?

Stephen J. Yalof, President and CEO

We've said in the past that the value of our outparcel business is probably equivalent to one of our top shopping centers. I think that number continues to grow as we buy more shopping centers that offer outparcel capacity. What's interesting from a capital allocation perspective is we’re not looking to sell outparcels; we’re looking to lease them. Typically, the investments we’re going to make in an outparcel, whether it’s a build-to-suit or a ground lease deal, require the lease to be executed before we commit capital. There are typically high teens to low double-digit returns, but we already have those deals confirmed prior to any capital commitment from a risk profile.

Vince James Tibone, Analyst

No, that's super helpful. How many of these have you completed over the last 1 to 2 years? I'm just trying to get a sense of how many of these will impact the NOI.

Justin C. Stein, Executive

Yes, Vince, this is Justin. Over the last 1 to 2 years, we've had a handful come online and start rent paying, but we have really pinned our ears back and focused on this business. We have deals coming online over the next 12 to 18 months with brands like Portillo's and Seven Brews. We opened up a major food and beverage tenant called Toastique in Ottawa about 2 weeks ago, and Shake Shack is opening more stores with us on the peripheral land. We're doing deals with First Watch and 151 coffee. So we have a lot in the pipeline and are excited about the prospects for this business.

Vince James Tibone, Analyst

Thank you for all that detail, that's helpful. And then last question for me. Could you just discuss high level about the re-tenanting economics and ultimately NOI upside from the former 21 spaces? I know you commented on the number that were already leased? I'm not sure if those are all permanent or temp deals. But I just know they paid so little rent prior to bankruptcy. I would imagine there's a sizable mark-to-market opportunity there, but not sure how that compares to the suite size and if you have to demise it in certain cases? So I would love to hear how you view the opportunity there with those boxes.

Stephen J. Yalof, President and CEO

Temp leasing those boxes quickly was a great trade-off for us because the rents being so low allowed us to maintain or grow the rents on a near-term basis as we're making decisions about how to either replace the complete box or, based on the positioning in the shopping center, break them in half and redemise them. We'll make those decisions based on the ability to generate rent and attract exciting tenants. We’re working with various tenants on a lot of deals currently. I believe there's a lot more rent that can be achieved by leasing smaller spaces, so where that makes sense, we’ll make that trade. I feel we're in a strong position. I have repeated myself on this call, and I’ll say it again: I believe our real estate becomes more valuable every day as there's less new space added to the market. The demand for retailers continues to increase in our portfolio. We’ll ensure not only that we choose the best retailers for our spaces, but that they will be the most productive ones, driving traffic and new shoppers to our centers. I think all those factors combined will contribute to growing our value and NOI over time.

Operator, Operator

There are no further questions at this time. This concludes the question-and-answer session and today's teleconference. You may disconnect your lines at this time. Thank you for your participation.