Tanger's Q3 2025 Earnings Call: Contradictions Emerge on Leasing, Occupancy, and Inventory Strategies

Business Commentary:

• Strong Financial and Occupancy Performance:
• Tanger Inc. reported core FFO of $0.60 per share, representing an 11% increase over the prior year period, and achieved a record leasing volume with over 600 transactions totaling 2.9 million square feet over the trailing 12 months.

• These results were driven by solid same-center NOI growth of 4%, increased leasing activity, and strategic external growth initiatives.

• Retenanting and Leasing Strategy:

• Tanger's portfolio occupancy reached 97.4%, an 80 basis point sequential increase, with a focus on retenanting activity resulting in a 50% increase in retenanting over the prior year period.

• This strategy is aimed at replacing underperforming tenants, right-sizing larger stores, and creating a more diverse merchandise mix to attract new retailers and increase traffic.

  

• Expansion and Acquisition Growth:

• With the acquisition of Legends Outlets in Kansas City, Tanger has added its sixth open-air center in the past two years, aligning with the strategic goal of acquiring well-located retail centers supported by strong residential and economic market fundamentals.

• The acquisition aligns with Tanger's strategy to drive productivity through its proven leasing, operating, and marketing platforms, supported by various ongoing partnerships such as the new partnership with Unrivaled Sports.

• Marketing and Partnership Success:

• Tanger's early back-to-school and summer promotional campaigns, along with initiatives like the 'Every Day is Black Friday' campaign, attracted significant customer engagement and increased traffic.
• These efforts were bolstered by leveraging AI technology for customer service and data analytics, resulting in higher leasing volume and increased sales productivity, as seen in blended rent spreads of over 10%.
  

Contradiction Point 1

Leasing Activity and Tariff Impact

It involves differing perspectives on the impact of tariffs on leasing activity and tenant decisions, which are critical for occupancy and revenue growth.

Given current term loan rates around 4.5%, how does Tanger view using term debt to fund acquisitions? - Craig Mailman(Citi)

2025Q3: We don't see hesitancy due to tariffs. Leasing activity is high and long-term decisions are unaffected. - Stephen Yalof(CEO)

How did the early back-to-school strategy impact sales, and how will inventory affect holiday sales? - Jeffrey Spector(Bank of America)

2025Q2: Back-to-school traffic grew due to early initiatives. There's less impact from tariffs now than initially thought. - Stephen Yalof(CEO)

Contradiction Point 2

Occupancy and Leasing Strategy

It highlights a shift in Tanger's strategy regarding occupancy and leasing, which impacts operational metrics and growth potential.

What is your outlook for the 2026 lease roll and potential non-renewals? - Juan Sanabria(BMO Capital Markets Equity Research)

2025Q3: We're at 97% occupancy, and we're making progress on our lease roll for 2026, with discussions already underway. - Stephen Yalof(CEO)

How do occupancy rates affect the portfolio? - Todd Thomas(KeyBanc Capital Markets)

2025Q2: Occupancy is strong, with a signed pipeline focused on short-term openings. Main Event is the largest impact at 30 basis points. - Stephen Yalof(CEO)

Contradiction Point 3

Retailer Inventory Availability and Strategy

It involves differing perspectives on the availability and strategy related to retail inventory, which impacts sales and revenue projections for the company.

How do temporary tenants behave during macroeconomic uncertainty, and what impact does this have on occupancy? What are discussions with retailers regarding inventory expectations for H2? - Andrew Reale (Bank of America)

2025Q3: Tanger is optimistic about inventory availability. Retailers are confident in moving excess inventory through the outlet channel earlier in the season. The strategy is to encourage back-to-school shopping in June to accommodate potential inventory shifts. - Stephen Yalof

What's the outlook for the Nashville center's performance and how are lower-tier portfolio segments being assessed? - Steve Sakwa (Evercore ISI)

2025Q1: We expect our sales per available square foot for outlet and off-price specialty will be well above prior year levels, and traditional stores will be comparable to last year. - Steve Sakwa (Evercore ISI)

Contradiction Point 4

Rent Spread Expectations

It involves changes in financial expectations, specifically regarding rent spread assumptions, which are critical for financial forecasting and investor understanding of the company's growth potential.

Will the 80% renewal target be reduced for retenanting and renewals? - Jeffrey Spector (BofA Securities, Research Division)

2025Q3: As we look ahead to 2026, we expect to see more favorable spread outcomes in the second half of the year driven by successful lease renewals and strategic tenant replacements. - Stephen Yalof(CEO)

Can you discuss the trade-offs for the 2025 midpoint of same-store NOI guidance? - Juan Sanabria (BMO Capital Markets)

2024Q4: Same-center NOI growth is expected to be in the range of 2% to 4% in 2025. Our base case assumption is that we expect to see an approximate 10 to 20 basis points of spread improvement. - Michael Bilerman(CFO)

Contradiction Point 5

Occupancy Strategy and Metrics

It involves differing perspectives on the strategic importance and metrics related to occupancy, which are critical for assessing the company's operational performance.

Are there significant non-renewals expected in 2026, and what spreads are anticipated? - Viktor Fediv (Scotiabank Global Banking and Markets)

2025Q3: We are proactively replacing underperforming stores to limit exposure. - Justin Stein

Were there additional occupancy impacts from proactive re-merchandising or vacate activities in Q2? Are there specific plans for Forever 21 store closures? - Todd Thomas (KeyBanc Capital Markets)

2025Q1: Occupancy declines are mainly due to re-merchandising. Opportunities exist to replace underperforming tenants with higher producing ones like LEGO and Marc Jacobs. - Stephen Yalof