Tanger Factory Outlet Centers Inc

NYSE:SKT

Earnings Call Transcript 2019-Q1

[Cyndi Holt, Vice President, Investor Relations]

Good morning. This is Cyndi Holt, Vice President of Investor Relations, and I would like to welcome you to the Tanger Factory Outlet Centers First Quarter 2019 Conference Call.

Yesterday, we issued our earnings release as well as our supplemental information package in our 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, same-center net operating income and portfolio net operating income.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP financial measures are included in our earnings release and in our supplemental information.

This call is being recorded for rebroadcast for a period of time in the future. 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 7, 2019.

At this time, all participants are in listen-only mode. Following managements prepared remarks, the call will be open for your questions. We ask you to limit your questions to two, so that all callers will have the opportunity to ask your questions.

On the call today will be Steven Tanger, Chief Executive Officer; Tom McDonough, President and Chief Operating Officer; and Jim Williams, Executive Vice President and Chief Financial Officer.

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

[Steven Tanger, Chief Executive Officer]

Thank you for joining us this morning. Today, I will provide you with our first quarter results and strategic highlights. Tom will then provide additional operational detail and Jim will review our financials and outlook for this year.

The first quarter operational results came in as anticipated and our enthusiastic and dedicated team continued to drive forward our strategy to create long-term value.

We made ongoing progress, driving traffic to Tanger centers and carrying our centers with desired, high-volume, brand-name tenants. Everyone in our company is a leasing rep. We understand that filling the vacant spaces produces instant revenue and improves our same center NOI.

There is no denying that the retail industry is evolving as brands and landlords alike are trying to figure out exactly where it will stabilize for the long-term.

While we're seeing the impact of some of the recent bankruptcies and store closures, we also see that there is ongoing demand for high-quality, well-located centers, specifically physical stores remain essential to omnichannel for retailers and Tanger centers provide an important, proven and profitable distribution channel for our tenants.

As we have successfully done in the past, we plan to continue working through the headwinds of the bankruptcies and store closures. While retailers are looking for additional distribution, they remain more measured in their decision-making around the timing of opening new stores. We continue to proactively meet with our current and potential tenants with the overall tenor more positive.

One thing that remains clear is that shoppers love a good value and enjoy the experience of finding one. We continue to refine our approach to marketing and attracting shoppers to our centers. In particular, this includes more targeted offers and more on-site experiences. Our data-driven digital focus enables us to be more timely, relevant and precise in our marketing programs.

Directed offers with the most appeal to each individual have driven incremental center visits and resulted in additional sales. We are also pleased with the retailer participation in these programs, which has increased due to the successfully we've realized.

We already have a large and loyal customer base who are consistent Tanger shoppers. We are increasing our focus on bringing new customers to the Tanger platform. I'm pleased that we are seeing positive results from these efforts. Memberships on our Tanger Club loyalty program, which requires a few to join, is at 1.4 million members, a 12.3% increase over this time last year.

We have also been seeing strong interest in consumers wanting to be added to our friends and family database. And in the first quarter of 2019, we added 36% more new customers than we did in the first quarter of 2018.

In our efforts to maintain a higher quality portfolio, we made a decision to dispose off four declining non-core assets rather than invest additional capital. These assets contributed only about 5% of our total NOI. And with their removal from our portfolio, we have freedom resources and capital to focus on those areas where we believe we can deliver higher growth and value creation.

By completing these asset sales, we have further strengthened our overall portfolio quality as we reduced the average age and improved the long-term growth profile.

Relative to the remaining portfolio, the key performance metrics of these centers reflect the quality differential. For example, tenant sales per square foot in 2018 were 33% higher and year-round occupancy was 110 basis points higher for the remaining portfolio of the centers we sold.

Notably, rent spreads were also meaningfully higher. For leases that commenced during 2018, cash spreads were 950 basis points higher than our remaining portfolio and 930 basis points higher on a straight-line basis.

Due to the declining long-term growth profile of the four centers we recently sold, with an average age of 24 years, we do not believe that they are representative of the value of our remaining portfolio and that the benefits of these dispositions over time will more than offset the expected short-term earnings dilution. This transaction demonstrates our ongoing discipline around strategic portfolio management.

Since December 2014, we have sold 13 assets generating total gross proceeds of $402 million and enhancing the profile of our remaining portfolio. During this time, we have also invested over $1 billion to create additional value by expanding our footprint, reinvesting in the existing portfolio and buying back our shares. This includes the addition of 2.6 million square feet through the development of eight new outlet centers and the acquisition of our JV partner's ownership interest in three key assets, along with reinvesting in our existing portfolio through renovations that attract new high-volume retailers.

Throughout our long and successful history, we have continued a thoughtful approach, maintaining a conservative balance sheet and delivered solid cash flows, which has allowed us to support a well-covered dividend. Our balance sheet remains well positioned, providing us with stability along with the financial flexibility to pursue growth opportunities as they arise and to prudently return capital to shareholders.

Specifically, given our strong cash flow, we're able to continue allocating capital towards investing in our centers to keep them modern and attractive to our customers, implementing marketing initiatives to drive traffic to our properties, paying down debt, increasing and paying our dividend which had a low FFO payout ratio, and buying back our shares.

As we move forward, we will continue to pursue a similarly thoughtful, balanced approach through the evolving retail landscape.

Finally, I'd like to recognize the enthusiastic, unwavering commitment and ongoing dedication of all the members of the Tanger team. A special thanks to each of you for making good things happen every day.

With that, I'll now turn the call over to Tom who will discuss the current sales and leasing environment.

[Tom McDonough, President and Chief Operating Officer]

Thanks, Steve. We continue to be diligently focused on our leasing and marketing activity in order to drive customers to Tanger centers and to keep our centers filled with high-quality productive tenants.

During the trailing 12 months ended March 31, we had 351 new and renewal leases commence, comprising 1.8 million square feet of GLAs. That represents an almost 5% increase compared to the square footage which commenced in the prior year.

Our quarter-end consolidated portfolio occupancy was 95.4% compared to 95.9% at the end of last year's first quarter and 96.8% at year-end 2018. Approximately 80% of the sequential change came from a combination of the decline in seasonal tenancy, which is typically highest in the fourth quarter, along with the space that was recaptured due to bankruptcies.

During the quarter, we recaptured 82,000 square feet. In April, we recaptured an additional 86,000 square feet. The year-to-date recapture include 57,000 square feet related to 24 Gymboree and Crazy 8 stores and 82,000 square feet related to 14 Charlotte Russe locations.

In terms of rent spreads, we're seeing positive results. For leases that commenced over the prior 12 months, rent spreads increased by 60 basis point on a cash basis and 4.7% on a straight-line basis.

Although some retailers are taking longer to make decisions related to new stores and select tenants are facing challenges, we continue our aggressive approach to leasing and are having constructive conversations with new and existing retailers.

Full and vibrant centers are important to customers and help maximize the center's appeal. To that end, we are exploring opportunities to expand and, in some cases, add new non-traditional experiential tenants to Tanger centers.

As we focus on filling vacant space, we have the opportunity to continue to upgrade our tenant mix with popular new retailers as curating our tenancy remains one of our top priorities. There a lot of exciting potential opportunities, particularly within the women's activewear, outdoor and lifestyle apparel, specialty footwear and athletic categories.

Comparable traffic for our total portfolio was up 60 basis points in the quarter compared to the prior-year. We delivered this traffic increase even with the shift in Easter to the second quarter this year.

When looking at the first four months of the year, to account for the shift in Easter, traffic was up 1.8% year-to-date through April compared to the same period last year.

For the trailing 12 months ended March 31st, average tenant sales for the consolidated portfolio were $391 per square foot, a $7 increase from the prior-year. On an NOI-weighted basis, they were a healthy $418, a $9 increase from the prior year.

Same center tenant sales performance increased 60 basis points. Categories that performed well in the quarter included jewelry, beauty and cosmetics, and women and family shoes.

During the quarter, we saw favorable results from our marketing efforts. With an emphasis on digital and social marketing campaigns and experiential events, our efforts are producing increases in traffic and sales. For example, we are leveraging data analytics to further segment our consumer database, allowing us to push real-time offers to our most engaged customers with highly targeted deals designed to resonate with their shopping patterns.

This increases the likelihood of shoppers responding favorably and coming to a Tanger center to receive the specific offer. Our most recent major consumer marketing program called Tanger Style, which is circulated three times per year, saw an increase of 47% in March.

Retailers are recognizing the success. We are seeing more active participation in these programs. In addition, the marketing events we held saw positive results and drove incremental traffic. For example, we brought the golden age of Hollywood costume exhibit to our Riverhead, New York Center. This exhibit ran for 30 days and drew much publicity and rave reviews as well as a 67% increase in Tanger Club memberships and even greater increase in our friends and family database, and a 4% increase in traffic compared to the prior year.

Other experiential events during the first quarter included St. Patrick's Day celebrations, food truck and family festivals and Mommy & Me programs. These events and ongoing experience promotions provide immediate and sustained traffic increases, build loyalty and introduce new shoppers to Tanger centers.

Regarding our future planned development in Nashville, Tennessee, we are excited about the market and the site and we're continuing our early due diligence process.

I will now turn the call over to Jim to take you through our financial results and a brief balance sheet recap.

[Jim Williams]

Thank you, Tom. First quarter FFO available to common shareholders was $0.57 per share compared to $0.60 per share in the first quarter of 2018. As expected, same center NOI decreased 50 basis points compared to the prior-year quarter, driven primarily by store closures and lease modifications.

We recognized $1.1 in termination fees in the consolidated portfolio during the first quarter of 2019, consistent with the prior year's quarter and which are not included in same center and portfolio NOI.

As a result of implementing the new lease standard, in the first quarter, we recognized an incremental $1.1 million in general and administrative expenses related to leasing costs that were previously capitalized and an incremental $1.5 million in non-cash revenue related to the straight-line recognition of [indiscernible].

Also, in our operating supplement posted last night, we provided a table showing the components of rental revenues that have now been collapsed into a single-line item on the face of the income statement as required by the standard.

Maintaining a strong balance sheet remains a strategic priority for us. As of March 31, approximately 94% of the square footage in our consolidated portfolio was not encumbered by mortgages. We'll utilized $128 million of net proceeds from the asset sales to pay down balances on our unsecured lines of credit. And as of quarter-end, only $50 million was outstanding, leaving 97% unused capacity for approximately $585 million.

We maintained a substantial interest coverage ratio for the first quarter of 4.2 times and net consolidated debt to EBITDA adjusted to exclude the sold properties was approximately 5.9 times for the trailing 12 months.

Our floating rate exposure represented only 3% of total debt and less than 2% of total enterprise value as of March 31. The weighted average interest rate for our outstanding consolidated debt as of quarter-end was 3.6% and the average term of the maturity was 6.2 years with no significant debt maturities until December 2023.

The strength of our balance sheet provides us with stability to continue paying our cash dividends as we work to produce organic growth and allows us to take advantage of selective external opportunities that may arise.

We did not repurchase any shares from the first quarter, primarily due to the status of pending assets sales. However, we intend to opportunistically repurchase common shares as market conditions warrant.

Since 2017, when the authorization was put in place, we have cumulatively repurchased approximately $69.3 million of our common shares. In February, our Board of Directors approved an increase of the remaining authorization to $100 million and an extension of the authorization by two years to May 2021.

In terms of our outlook for 2019, we estimate that FFO per share will be between $2.22 and $2.28. The update from our initial guidance range reflects the previously disclosed $0.09 dilutive impact from the sale of the four non-core assets.

The centers we recently sold had lower average expected NOI growth when compared to the broader portfolio. These centers only comprise an approximate 5% of the consolidated portfolio's NOI. Therefore, removing them does not have a significant expected impact on our NOI trends for the year. Consequently, we're not making adjustments to our same center NOI expectations.

While our same center NOI was down only 50 basis points for the quarter, occupancy and same center NOI are expected to be softer during the last nine months as a result of the store closings anticipated to occur during the year, including the 82,000 square feet that closed late in the first quarter and 86,000 square feet of additional closures that occurred in April.

We continue to expect same center NOI to be down to 2% and 2.75% from 2018, reflecting the impact of prior year's store closures along with projected 2019 store closures of up to 200,000 square feet of the consolidated portfolio, some of which are unknown at this time.

As we progress through 2019, we will remain thoughtful in our capital allocation decisions. We continue to generate free cash flow and have a well-covered dividend with a 61% FFO payout ratio for the first quarter.

We don't anticipate a meaningful increase in CapEx spend to complete our planed leasing and, therefore, we feel comfortable in our ability to maintain a strong balance sheet, with low leverage and with the safety of our dividend.

We continually evaluate our priority uses of capital, which include reinvesting in our assets, paying our dividend, repurchasing our common shares opportunistically and deleveraging the balance sheet, while also evaluating potential opportunities for long-term growth.

I'd now like to open it up for questions. Operator, can we take our first question?

[Operator]

Thank you. [Operator Instructions]. And your first question comes from Todd Thomas.

[Todd Thomas, KeyBanc Capital Markets]

Hi, thanks. Good morning. First question. Jim, just in terms of the guidance and the average occupancy assumption of 94% to 94.5% for the year, that implies occupancy will be lower in the second quarter, maybe the third quarter before rebounding a bit ahead of the holidays. But the 86,000 square feet that you talked about closing in April, so that represents about 70 basis points. That still leaves you above the high end of that average range for the year. What else impacts occupancy that would get you lower, maybe towards the midpoint of the year just to help us understand.

[Jim Williams]

Well, Todd, I think the – you have to consider, I think, the whole range. I think you mentioned the 86,000 square feet that will come in April, which will affect occupancy for the balance of the year. In our range, we have projected closures up to 200,000. Some of that is unknown. Depending on the timing of when that will come back will affect that average occupancy rate.

The later in the year we get, the less impact that will have on occupancy and square feet NOI just depends on how quick it comes back.

[Todd Thomas, KeyBanc Capital Markets]

Okay. And then, I was just wondering if you could comment on Lancaster. Slipped into tier 3 in the quarter and you just completed the redevelopment and expansion there. I know that there's been some structural or, I guess, some substructural issues at that center that might have been impacting sales there. Can you just provide an update on that center and the impact, when you expect it to begin operating at full tilt again?

[Steven Tanger, Chief Executive Officer]

Todd, this is Steve. Lancaster experienced a failure in part of the parking lot, which affected the traffic flow. And those repairs are underway right now. We also are working with major point of differentiation tenants about coming to our center. And we are holding space and making plans for those tenants to join us. We're not quite there yet, but we're very optimistic about the future of Lancaster. And that market is growing dramatically. So, we're excited about that.

[Todd Thomas, KeyBanc Capital Markets]

Okay, can you just talk about the timing to maybe get that asset, I guess, restabilized? And can you quantify how much of the center is being impacted right now?

[Steven Tanger, Chief Executive Officer]

There's – I don't know, I'm going to say maybe 15%, 20% of the property is impacted by it. The property is certainly stabilized. What we're trying to do is to bring it to the next level. And I would think over the next three or four quarters, the plans will be finalized and we'll be happy to share them with you.

[Todd Thomas, KeyBanc Capital Markets]

Okay. All right, thank you.

[Operator]

Your next question comes from Christy McElroy with Citi.

[Christy McElroy, Citigroup]

Hi. Good morning, everyone. First, I just wanted to thank you for the lease accounting disclosure as well as the new leasing Capex disclosure. It's helpful.

With regard to the targeted marketing programs and experiential events, it does seem like you're ramping up this activity that you're doing to drive traffic. Where do these costs flow through on the P&L? Is that in property operating expense or is that G&A? And can you talk about the extent to which you expect these costs to be higher in 2019 versus 2018 and how that's factored into your guidance?

[Tom McDonough, President and Chief Operating Officer]

Good morning, Christy. It's Tom McDonough. Those expenses are in property operating category.

[Christy McElroy, Citigroup]

Okay. And those flow through same store as well? Square feet NOI?

[Tom McDonough, President and Chief Operating Officer]

Yes.

[Christy McElroy, Citigroup]

Okay. And then, with regard to the bad debt, having previously been a component of G&A, does that mean that it was not a factor in same-store NOI previously? And now that it's a contra revenue, is it now in the same store NOI calculations?

[Jim Williams]

Yes, Christy. That's right. Last year, it was not in same-store NOI. It's really been – bad debt has really been insignificant for us. If you look just over the last three years, it varies quarter to quarter between $100,000 and $150,000. And I think year-over-year basis, it varies $200,000, which is really less than 10 basis points.

With the change in the standard and the disclosures we're talking, it was appropriate to put it into square feet pool. So, the bad debt is in square feet for this year, both in the current year and the prior year periods. It is up over the quarter, which is about $341,000. Without that bad debt expense, our square feet NOI would have been flat for the quarter.

[Christy McElroy, Citigroup]

Okay, thank you.

[Operator]

Your next question comes from Craig Schmidt with Bank of America.

[Craig Schmidt, Bank of America Merrill Lynch]

Thank you. As you guys work through the releasing of the store closings, will you maintain your exposure to apparel or will that change?

[Steven Tanger, Chief Executive Officer]

Good morning, Craig. This is Steve. We are finding that apparel is very profitable for our company and for our retailers. We think the mix is appropriate. The department stores that went out of other distribution channels was heavily weighted towards apparel. As I think you know, we're over 95% occupied. And we really don't have room or, frankly, the desire to put in restaurants that are a higher risk. But on the margin, we're looking at other opportunities that may be non-apparel users, but we haven't decided to install any of them yet. We still think that there is a lot of growth with apparel and we're focused on that.

[Craig Schmidt, Bank of America Merrill Lynch]

Okay, thank you. And then, in terms of the same center tenant sales performance for the next three quarters, do you think that will go higher than the 0.6% or maintain or slip?

[Steven Tanger, Chief Executive Officer]

Right now, what we're seeing is that the sales trend should continue this way for the balance of the year, but, of course, we'll update you every quarter.

[Craig Schmidt, Bank of America Merrill Lynch]

Thank you.

[Operator]

Your next question comes from Greg McGinniss with Scotiabank.

[Greg McGinniss, Scotiabank]

Hey, good morning. I just want to make sure I understand the updated guidance from store closures. The 200,000 square feet of closures is based on a smaller base than the initial range following the portfolio sale, I believe. Could you give us some details on what changed with the higher level of closures from tenants that aren't expected to get closed or ones that you thought there might be a reorg, but ended up with liquidation? Any color on those closures would be appreciated.

[Jim Williams]

How are you doing, Greg? Just to remind you, our initial range at year-end was 150,000 to 200,000. We're now saying up to 200,000. In that original under 150,000 to 200,000 range was about 15,000 square feet that was in the properties that are sold. So, that's the impact from quarter-over-quarter – or from year end. But other than that, it's still not changed. We'll want to point out that based on the 168,000 square feet that we have gotten back, that's still less than the original midpoint of our range, so there is room to the midpoint from unknown closures that may occur for the balance of the year.

[Greg McGinniss, Scotiabank]

All right, thanks. Appreciate that. And then, I also – I do appreciate the color on the report on the 63% of 2019 expirations that have or are being dealt with, which is similar to last year. I'm curious how that number comps to an average, say, before 2017?

[Steven Tanger, Chief Executive Officer]

I think that's pretty comparable to the way it was in years past. We have historically been able to renew in the area of about 80% of the existing tenants in the existing space. And as leases come up for renewal at the end of their term, sometimes tenants lease, sometimes we have replacement tenants for them, sometimes we need the space to expand existing tenants. So, there is always part of the space in transition, but it's consistent with years past.

[Greg McGinniss, Scotiabank]

Okay. Thanks, Steve.

[Operator]

Your next question comes from Caitlin Burrows with Goldman Sachs.

[Caitlin Burrows, Goldman Sachs]

Hi. Good morning. Just following up on maybe one of the questions from a little earlier and on some of the prepared remarks. You talked about that you're exploring some new and non-traditional tenants to vacant spaces. Could you give any more details on what these types of tenants could be? Is it that it's different categories like food or home or something else that I might not have considered?

[Tom McDonough, President and Chief Operating Officer]

Good morning, Caitlin. This is Tom McDonough. We are working with some of those folks. We really don't – prefer not to announce them until the leases are executed. But some of them are in the food category. One, for instance, that has been executed and actually opened recently is Olive Garden in a Fort Worth center. And beyond that, I will say that there are other tenants that are already – that are opening new stores, are expanding including Polo, Ralph Lauren, Columbia, American Eagle, Vans, and adidas.

[Caitlin Burrows, Goldman Sachs]

Got it. And then maybe just quickly in terms of buybacks going forward, it looks like, based on the share count assumption for the year, they are assumed in your guidance. So, is it just timing that you didn't get a chance to do them obviously by the quarter end versus when the transaction was announced, but otherwise you generally plan to do it when you have the ability?

[Steven Tanger, Chief Executive Officer]

Good morning, Caitlin. Again, I just want to remind you that share buybacks are only one of the ways we allocate capital to try to add value for our shareholders. We expect to continue to take a thoughtful approach among the various different priorities. And since the authorization was put in place in May of 2017, we have allocated over $69 million to buy back our stock. But I think you'll find that, during the balance of the year, we will implement share buybacks as we will some of the other capital allocation priorities that we've announced previously.

[Caitlin Burrows, Goldman Sachs]

Okay, thanks.

[Operator]

Your next question comes from Michael Mueller with J. P. Morgan.

[Michael Mueller, J. P. Morgan]

Following up on the buyback, the release says you didn't buy anything back because of pending asset sales. I am just curious, what about asset sales being pending would cause you not to be able to buy stocks back?

[Steven Tanger, Chief Executive Officer]

We took a very cautious approach knowing that this asset sale portfolio may close in the first quarter. And we chose not to buy back stock with that information not in the public domain. We don't have any pending in asset sales of a significant nature, which would, in our opinion, preclude us from buying back stock the balance of the year.

[Michael Mueller, J. P. Morgan]

Got it. okay. So, literally, timing on that. And then, is there any sort of update on the interest in the Nashville development that you talked about last quarter?

[Steven Tanger, Chief Executive Officer]

I wish I could give you more color. Right now, we're continuing our early due diligence process. The master developer of the Sentry Farms [ph] project is continuing with the balance of this permitting. The interchange is fully funded and actually under construction now. This will be a large multi-use project, of which Tanger outlets will be the hub. This will be a void in Nashville market south of us where people can live, shop, play. There will be thousands of apartments, major office buildings. Our retail – it's an exciting project, but it's still premature to give you more color since it probably won't open for another two to three years.

[Michael Mueller, J. P. Morgan]

Got it. Okay, that was it. Thank you.

[Operator]

Your next question comes from Steve Sakwa with Evercore ISI.

[Steve Sakwa, Evercore ISI]

Thanks. Good morning. Just a couple questions. Steve, could you just maybe talk about the tenant watchlist, not specific names, but just how do you kind of stack up the watchlist of tenants today, either by number of tenants or number of stores or square feet today versus, say, 6, 12, maybe 18 months ago?

[Steven Tanger, Chief Executive Officer]

Hi. Good morning, Steve. Our watchlist is much less than it was a year or two ago. We perform our own internal credit assessment, plus monitoring all the public disclosures and listening to their conference calls. Right now, we are comfortable with the bankruptcies creating the store closings of up to 200,000 square feet and we'll continue to update you as the year goes on. I just want to add that, what I said in our prepared remarks, everybody in our company including myself is a leasing rep. We're all out there every day fighting to fill the space that was vacated due to tenant liquidation, not reorganization. And in the past, that's a significant difference. Usually, tenants would go on to Chapter XI and reorganize and keep their stores open. These Chapter VIIs and liquidations close stores immediately and it takes a little bit of time to refill them as we curate our properties to get the very best tenants. We're just not going to put in an inferior tenant in just to fill space. We want to have the new tenants going in add to the overall experience of shopping at a Tanger center.

[Steve Sakwa, Evercore ISI]

Okay. Second question is, if you just think about occupancy costs, I think you're hovering kind of plus or minus, right around 10% mark. How do you sort of think about that number going forward, particularly as the mix of tenants change, maybe a bit away from apparel, towards maybe more home, more entertainment, more food?

[Steven Tanger, Chief Executive Officer]

Steve, we're told by our tenant partners that the outlets are still the most profitable or among their most profitable business units. A 10% cost of occupancy seems to work for both our company and our tenant partners. And it still is. But at least what we read in the public market, anywhere from 300 to 500 basis points less cost of occupancy than on other retail distribution channels.

[Steve Sakwa, Evercore ISI]

Okay. And then, last, on the Nashville project, I realize it's still kind of early days, but as your thinking about programming and merchandising and you're kind of thinking about the outlet for the next decade or two, are you thinking about kind of the mix differently or how you design it or are there kind of things that you're thinking about doing very differently moving forward?

[Steven Tanger, Chief Executive Officer]

Sure. We will be reflective of the market at the time. As I mentioned, we like to be the hub of a major development. We do what we do very well. But we don't think it's appropriate to risk our shareholders' capital building other types of assets where we may not be professional. We would rather have professional office developers take that risk and build an appropriate product. We'd rather have multifamily developers build their product and we all benefit. There's some of our projects that we've opened in the last two or three years that have 1,000 apartment units contiguous with us. We benefit without putting our capital at risk.

[Steve Sakwa, Evercore ISI]

Okay, thanks. That's it's for me.

[Operator]

Your next question comes from Douglas Eden, Eden Capital Management.

[Douglas Eden, Eden Capital Management]

Good morning.

[Steven Tanger, Chief Executive Officer]

Good morning

[Douglas Eden, Eden Capital Management]

Perfect. It appears there's a bit of a chorus about the buyback, team. While I appreciate and agree with the comments about balancing capital allocation in usual clients, these have not been typical times in the retail environment And each company and their stock valuations are, therefore, obviously in differing situations. With Tanger stock down more than 50% over the past three years and with shortage being so large at nearly 30% of the float, why not provide value to your shareholders by repurchasing even greater number of shares at these suppressed level? If you are repurchasing it at more than $24 a share not long ago, I would imagine it would appear very attractive currently at nearly $18 a share? Thank you.

[Steven Tanger, Chief Executive Officer]

We are very mindful of every fact that you just mentioned. And we try to balance and be thoughtful on our capital allocation decisions. Buying back stock is of course one of those components. But we are also very proud of our investment grade rating and we want to be sure that we prudently manage and maintain our balance sheet as a fortress. We also want to maintain the very best presentation to the – close to 200 million shoppers that visit Tanger centers. So, we continue to invest in our assets, to upgrade those assets, to be sure that the presentation is terrific. And historically, we've raised our dividend every year. We want to be sure that the dividend is safe and we maintain appropriate coverage ratios. So, it's a more complicated decision than just looking at the stock price every day. We try to put everything into a balanced approach and that seems to have been the right decision for us over time. And that's what we're committed to continue doing.

[Douglas Eden, Eden Capital Management]

Thank you.

[Operator]

Your next question is a follow-up from Caitlin Burrows with Goldman Sachs.

[Caitlin Burrows, Goldman Sachs]

Hi, good morning. Again, just one quick one. Thanks for the new disclosure on the leasing Capex. I was just wanting to confirm, since you showed the 1Q '19 data now and compared to 1Q '18 on a trailing 12-month basis, does that 1Q '18 data, that's the TI data, include the impact of your previous remerchandising activity?

[Jim Williams]

Okay. It's Jim. Yes, it does. Those were for all leases executed, including those projects.

[Caitlin Burrows, Goldman Sachs]

Makes sense. Thanks.

[Operator]

There are no further questions at this time.

[Steven Tanger, Chief Executive Officer]

Again, I just want to thank everybody for their participation this morning in our call. We look forward to seeing you at the next conference wherever that may be. Hope you have a nice day. Good bye now.

[Operator]

Thank you for joining on today's call. At this time, you may disconnect.