Good day, and welcome to the Tanger Factory Outlet Centers, Inc. Second Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Cyndi Holt, Vice President of Investor Relations. Please go ahead.

Good morning. This is Cyndi Holt, Vice President of Investor Relations, and I would like to welcome you to the Tanger Factory Outlet Centers Second Quarter 2020 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 and same-center 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 of time in the future. As such, it's important to note that management's comments include time-sensitive information that may only be accurate as of today's date, August 6, 2020. [Operator Instructions] On the call today will be Steven Tanger, Chief Executive Officer; Stephen Yalof, 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.

Good morning, and thank you for joining us. Since the declaration of COVID-19 as a pandemic and the related stay-at-home mandates and business closure directives, Tanger has been focused on a few key priorities. These include the health and safety of our employees, tenants and customers, maintaining a strong balance sheet and liquidity position, working with our tenants to facilitate efficient store reopenings, collecting rent and protecting our rights under the leases and encouraging shoppers to return to our centers. I will provide a review of our second quarter performance and an update on each of our key priorities. Steve Yalof will provide additional details. And Jim Williams will discuss our financial results and balance sheet. In the second quarter of 2020, same-center NOI decreased by $39 million compared to the prior year, driven in large part by the impact of COVID-19 on rent collections, which Jim will discuss. At quarter-end, occupancy for our consolidated portfolio was 93.8%. Leasing is a top priority as we seek to continue curating our centers with quality retailers to provide the best customer experience. As of June 30, we had lease renewals executed or in process for 68% of the space in the consolidated portfolio scheduled to expire during the 2020 calendar year compared to 73% at the same time last year. We expect that our renewal rate for the space expiring this year will be below historical levels, which has averaged in the 80% range. This is partially due to the impact of expiring leases with tenants that have declared bankruptcy. Our blended average rental rates declined 1.1% on a straight-line basis and 6.5% on a cash basis for the 296 leases totaling 1.4 million square feet that commenced during the trailing 12 months ended June 30, 2020. There are many factors clearly…

Thank you, Steve. On our last call, I discussed 3 priorities, which have remained our focus during the second quarter and subsequently to date. First is maximizing rent collections. Second is providing support to our retailer partners as they manage their store reopenings while ensuring the shopping experience is a safety-focused, organized and fun experience for our many loyal shoppers. Third is accelerating our leasing efforts to fill vacant stores with a combination of new permanent, short-term and pop-up stores. With regard to rent collections, as store closures were first mandated, we immediately implemented a rent deferral strategy with the goal of facilitating store reopenings in the quickest and most efficient way. To that end, in late March, we offered all tenants in our consolidated portfolio the option to defer 100% of April and May rents while reserving all of our rights under the lease agreements. Now as mandates have lifted across all of our centers and stores have reopened, our priority has been to collect the rents that are contractually due us and come to resolutions while positioning the retailers in our portfolio for long-term growth. In that regard, we have employed several strategies to achieve this, including our rent deferral initiative and, in select cases, onetime concessions. Where we have provided onetime rent concessions, we have done so in exchange for landlord-favorable lease modifications such as co-tenancy waivers, term extensions and early option exercises in exchange of value-for-value, with the ultimate goal of preserving our ongoing income stream and sustaining occupancy. For the second quarter, we expect to collect 43% of rents billed, deferred 26%, while we continue to seek resolution on only 6%. We do not expect to collect 25% of second quarter rents. This includes 11% related to tenant bankruptcy filings and potentially uncollectible accounts. The…

Thank you, Steve. Second quarter results were primarily impacted by uncollected rent and reserves related to the pandemic. Please refer to the earnings release we issued last night for additional detail we provided to quantify the impact of rental revenues. For the second quarter, net loss available to common shareholders was $0.25 per share compared to net income of $0.15 per share in the prior year. Second quarter core FFO available to common shareholders was $0.10 per share compared to $0.57 per share in the second quarter of 2019. Same-center NOI for the consolidated portfolio decreased $39 million for the quarter, largely due to losses and variable rents, which are derived from tenant sales as stores were temporarily closed under mandates as well as a $33.9 million charge to write-off uncollectible revenues. This includes $13.9 million for onetime rent concessions in exchange for landlord-favorable lease amendments, $8.9 million related to the recent bankruptcies and $1.4 million of other rents we deem at-risk. In addition, we recognized a write-off of approximately $3.7 million in straight-line rents associated with the bankruptcies and uncollectible accounts. The outcome of the bankruptcies is largely unknown at this time, and the rents deemed uncollectible are largely prepetition rents. Tenants who are currently on a cash basis of accounting comprise less than 5% of our monthly rents. With regard to rent deferrals, we recognized revenue from these leases in our net income, FFO and same-center NOI and recorded a lease receivable on our balance sheet. In the second quarter, we recognized $31 million of rental income for deferred rents for those that are under negotiation. Substantially, all of the deferred rents are due in 2021, the majority of which are due in January and February. That said, we have taken a prudent approach towards collectibility. And in…

[Operator Instructions] Our first question comes from Greg McGinniss with Scotiabank.

Steve, it was encouraging to see that the foot traffic has had such a strong return. And I was just wondering if you could maybe break that down by geography or for the more tourism-based centers. And then whether you've seen any changes in recent weeks, given the rise of coronavirus cases in certain states?

We are also encouraged with the velocity and enthusiasm of outlet shoppers returning to Tanger centers once the mandates have been lifted. With regard to geography, our centers are primarily in the Northeast, down through the [ Bay Six Mile ], the Southeast and through Texas. We have not seen a geographic difference between our centers. Basically, when the mandates were lifted, people were excited to get out of their houses and go to shop. There's not much other types of entertainment. It's difficult to go to the movies, difficult -- can't go to concerts. So people were enthusiastic about coming to our centers. With regard to new cases, our centers are located in areas not necessarily hit too hard. And we've not seen any fallback since the latest rising cases in the last month or so.

Okay. And then just a quick one on kind of the deferrals and expected reserves. So in thinking about the expected loss rent and the reserve taken against deferred and negotiation rents, curious how much of that is tenant-specific versus a general reserve? And then of those tenants, who has been paying July rents?

Jim, do you want to take that?

Yes. We've done -- in coming up with the reserves, we've done a lease-by-lease analysis and tried to get the understanding who's in the pool. And we believe the reserves that we've set are appropriate. The -- remember, these deferrals, for most part, are related to second quarter. And we have started to receive some collections in July. So we think based on what we've seen there and from our lease-by-lease analysis, we think the reserve is appropriate.

And just to clarify there, so where you've taken a reserve, those tenants paid July rents?

We're seeing some collections come in July, yes.

Our next question comes from Craig Schmidt of Bank of America.

I was wondering where you think portfolio occupancy could be by year-end, given the store closings that you just went through?

As you know, we're not prepared at this time to give any guidance for 2020. I do think with the 14 bankruptcies that we have been involved with from our tenants -- our tenant bankruptcies that there will be some challenges as we go through the year. A lot of the stores, based on our history in bankruptcy states, will remain open, but it's really a fluid situation. And until we have more clarity, I don't think we're comfortable giving you any sort of guidance or view as to what occupancy may be at the end of the year.

Okay. And then in terms of some signing of new leases, are these for 2021 generally? Or are some of them going to open this year?

Steve Yalof, do you want to take that?

Sure. Thanks for the question, Craig. So, so far this year, we have -- and since COVID, we've had over 30 new stores permanent opened, 35 pop-up stores opened across the fleet. New store is opening actually today, just got an alert. So we've got a lot of new progress going and a lot of leasing happening, not only for this year, but also for next year.

Our next question comes from Christine McElroy of Citigroup.

Just on your collection status table, which we appreciate that disclosure, it implies about $32.5 million per month of billed rent. But then the release states that you collected $44.8 million in July. I assume that includes the collection of second quarter rents as well. So how much of that $44.8 million is associated with the 72% of July billed rents that were collected? And how much was that associated with the prior rent receivable?

This is Jim. Yes, you're correct, but how you get to the $44 million, there's also -- there's some rents that we are collecting from rents that were billed for April, May and June. There's also some rents in there where folks are already paying their August rents. We have received, as Steve said in his remarks, about 77% of our July rents and July rents, what we billed, is July rents is very similar to what we billed in second quarter. About 9% of those -- of the rents billed in second quarter also is related to the folks who are still in bankruptcy, those that filed in July. So most of those rents are prepetitioned. And we're expecting -- so you can kind of do the math to get there. And we're expecting some -- we've gotten commitments for additional payments for July rent. So we're encouraged to see July rents, particularly when you consider our portfolio is pretty much all nonessential tenants. We're really encouraged to see the improving trends in our cash collections for July. And we see -- and so far, starting off in August, we've seen August slightly ahead of July. So we're encouraged by those trends.

Okay. So maybe you can help me -- so of the $44.8 million, how much of that is just associated with the July billed rent? And I'm sort of trying to understand it within the 72%, the denominator isn't change at all. So if you're measuring the collection rate off of a different base versus just the second quarter, that maybe no longer includes like bankrupt or abated tenants that you're no longer billing, if that makes sense?

The amount of the rents that we collected for July -- by July 31 was about $23.5 million. That was about 72% of the rents billed. And the rest is cash we received from previous months rent and some prepayments for August.

Okay. Maybe I'll follow-up offline. And just a follow-up to Craig's question just in terms of the at-risk base subject to bankruptcy and store closures. Steve, the list that you discussed was over 12% of your space. It's obviously a very tough leasing environment, and it's a significant amount of space that you could reasonably get back. What sort of strategy would you employ in that kind of scenario and sort of thinking about backfilling that space and balancing rents versus trying to backfill as quickly as possible?

Steve Yalof, you want to grab that?

Yes. Sure. As I mentioned, we still have substantial tenant demand and particularly with some large-format tenants in the home furnishings area. So in February, West Elm joined one of our shopping centers in Pennsylvania. And we anticipate a pottery barn opening up in just a few days in the same shopping center. So we're discussing blocks of space with large-format retailers that are nonapparel retailers that we think will absorb some of that demand going forward. But with regard to our existing footprint of retailers, we still have some significant demand, particularly from some of the better retailers that have enjoyed some success in the middle part of our portfolio and are moving forward with new deals in that regard as well.

Our next question comes from Hong Zhang with JPMorgan.

I was wondering if you could tell us how you're thinking about uncollectible reserves in the second quarter and beyond, given the bankruptcies that you have put out in the -- in your prepared remarks?

Hong, this is Jim. Can you ask your question again?

I was wondering if you could provide some color on how you're thinking about uncollectible rent reserves in the second quarter and beyond, just given the bankruptcy picture that you painted in your prepared remarks?

Well, for second quarter, we've laid that out for you in the table for bankruptcies for second quarter. Most of those were prepetition, and we wrote off 100% of all the rents that was unpaid by the bankruptcy. So that's taken care of. We've got a general reserve for the other bucket.

Got it. I guess how should we think about that in the third quarter and fourth quarter?

Well, I just want to remind you, point you to the fact that as we -- as I said earlier, we -- our cash collections for July were already up to 77% with commitments to receive more and already -- 9% is sort of outside our control because they're primarily related to bankruptcy tenants and those rents are still considered prepetition rents. So we'll strike -- we'll write those off in July. But as you can see, I think we're really getting close to getting a majority of our rent collections back. And other than -- it's really going to be based on if there's any other bankruptcy filings for the rest of the year. Hopefully, we've seen the worst, but it will really depend on what happens from this point. But we've got -- we know we have the 9% of July rents that will probably be written off. And for the most part, the rest of it is in fairly good shape.

Our next question comes from Caitlin Burrows with Goldman Sachs.

When I look -- just about leasing, when I look at the total leasing volume for the second quarter on a trailing 12-month basis that you presented versus what was reported for the first quarter, it looks like the volume in 2Q of '20 alone versus 2Q '19 actually increased. I was wondering if that sounds right or not.

Steve Yalof, you want to take that?

Well, sure. I mean I'm looking -- if you're referencing the renewal volume or you're referencing new deal volume? I mean on the renewal volume...

The total.

Caitlin, this is Cyndi. It's actually about the same number of leases and incrementally a little more square feet, but we can follow up that and I can point you to the details on Page 11, I think, of our supplement.

Okay. And then, I guess, maybe bigger picture in terms of leasing. I know you guys mentioned that it might be a little tougher going forward. In terms of the leasing that you did during the second quarter, did you see any sort of improvement as the quarter went on? Or did it start out stronger, because you were maybe finishing off like February and into March where things were more normal? Just trying to get a sense of how leasing progressed during the second quarter and what you've seen so far in the third quarter.

Caitlin, when the world shut by government mandates in mid-March, all of us were trying to -- all of us meaning landlords and retailers, we were trying to figure out the landscape. There was no history. There is no best practice. So it took a while to get back to a more normal type of conversation about leasing. So you can expect that March, April and part of May, the conversation with our tenants was the health and safety protocols to encourage them to reopen their stores, which was our first priority. And then as the centers started to open again and the velocity of traffic returned to about 85% of last year and the excitement of the consumers coming back into the stores, which generated better-than-expected conversions of shoppers coming in, our tenant community was more receptive to conversations about new stores and temporary pop-up stores. As Steve Yalof mentioned earlier that we've signed about 30 new leases and about 30 temporary deals, some of the temporary deals are designer names and new tenants to the outlet space and new tenants and expanding tenants in our existing space. And those recent conversations now are more robust in August. As for most of the portfolio, we've put the discussion behind us with regard to rent collections during the COVID period.

Got it, okay. And then just looking at CapEx in the quarter, the FAD page shows that second-generation TIs and incentives plus the capital improvement were pretty similar in 2Q '20 versus last year. So just wondering if that's an area that there could be savings going forward? Or if you think that will stay pretty consistent.

Our guess is that the CapEx or the landlords work in reconfiguring space for new tenants will be consistent with prior years. That money is only spent unless the lease is signed and we're ready to install a new rent-paying tenant to add to our NOI. And I just want to remind the listeners that our property is essentially 1 floor on grade 150 consistent throughout the property. In our history, it has been easier to reconfigure that space with different sized tenants, since the height and the depth are consistent. And we're in lots of meaningful conversations to fill space as we go into the balance of the year, as Steve Yalof mentioned a couple of different types of retailers that are extremely interested in expanding or joining the outlet distribution channel.

Our next question comes from Vince Tibone with Green Street Advisors.

Could you elaborate on the amendments to lease structure you received in exchange for rent abatement in the second quarter?

Sure. In the -- for the most part, we discussed waivers of co-tenancy, pushing lease terminations, extending leases, early option renewals, things of that nature, things that will protect income stream as well as long-term tenancy.

And then is there -- I guess how did you think about the kind of monetary value of some of these pieces? I mean I know it's all a negotiation and it's a very unique time, but -- yes, I mean, is there any additional color you could provide on how you try to approach this from an NPV neutral point for Tanger?

I think the long-term leases probably provide us with some good value. I mean securing occupancy is really one of the core focuses that we have right now. But as we mentioned earlier, there's a number of new retailers that are looking at the portfolio. We've done some really good pop-up to perm leasing. And like I mentioned earlier, some of our better retailers are now looking a little bit deeper in our portfolio as they've been enjoying success with some of their entry points into our portfolio. And again, the occupancy certainly helps in our leasing efforts as we bring some of the better international and national names into our -- people into our portfolio.

Got it. I also have a few questions on the Tanger Virtual Shopper business model. Who bears the incremental cost of having these Virtual Shoppers, is it Tanger, the retailer or the consumer through fees? And then also, does Tanger receive any revenue or fee sharing for providing this service?

Well, the Virtual Shopper program was developed really when a lot of the mandates hadn't been lifted in some of our geographies yet. So we wanted to provide an opportunity for our loyal customers, those who we call Tanger Insiders and Tanger VIPs, an opportunity to shop the entire portfolio when they couldn't actually get to their particular store. So in that connection, we've leveraged a lot of our in-house talent in order to serve as the Virtual Shopper. We've got a robust customer service program in each one of our shopping centers. And our customer service representatives who've got great tenure at Tanger are intimately with all the stores and their particular shopping centers and have actually served as great ambassadors of this program. With regard to shipping, the shipping fees are borne by either the retailer or the purchaser. So from an incremental cost point of view, there's relatively none.

Got it. And then do you view this as a long-term offering as the business evolves or more of a COVID-related short-term decision?

Well, it's a great question. We think it's a durable component of our business going forward. I think the way shoppers shop today has evolved to a place that we hadn't seen. And we see this as a long-term strategy for us to keep as part of our suite of services that we offer both our customers and our retailers.

And just maybe just one last quick one on Virtual Shopper. Is there anything you can share on what percentage of recent tenant sales have gone through the platform? That would be helpful.

Well, what I can share is that the engagement, we've had over 100,000 outside engagements on the program itself. But I'm not prepared right now to talk about the sales or conversion.

Our next question comes from Floris Van Dijkum of Compass Point.

I wanted to -- it seems -- it appears that you've been very much at the forefront and being proactive with your deferrals with your tenants. Have you -- can you maybe talk a little bit about the outlet industry? And has this -- have your actions spurred others to do the same thing? How has your competitive position within the outlet space evolved as a result of that?

Thank you for the compliment. I think our -- I think the goodwill that we have generated with the tenant community is evidenced by the velocity and the speed with which the stores have reopened in our centers. At this stage, to be around 95% reopened, keeping in mind that most of that several of our large centers are located in the Washington, D.C. and on Long Island, which just opened in mid-June. We're pleased with that. We're pleased that a lot of the tenants have accepted the deferral for 2 months to be repaid primarily in January and February of next year, so we could all get back to business. I think the success of the program is that we appear to be back on a normal cadence in July and now into August. And we're spending time with our tenants talking about future growth opportunities as opposed to only focused on how much they're going to pay and what are they going to do. So the deferral achieved its purpose. We have over 500 different tenants. And it would be pure chaos to try to renegotiate every lease with every tenant or have all of those conversations. So we decided to take a proactive approach, which appears to have worked.

And do you think that, that spurred other of your competitors in the outlet space? I know there are not that many of them. But to be more -- to pursue similar deferral strategies, in your view?

We have a lot of respect for the well-seasoned senior management of our competitors. To my knowledge, their calls are coming up next week and you may want to ask their response. I certainly can't speak for them.

Fair enough, fair enough. The other -- you had a couple of other interesting, I thought, comments earlier, which is, number one, you talked potentially about going on offense at some point. I'm curious just what you think are the opportunities that you might see? And where do you think you will find them in the market?

Well, as Steve Yolaf mentioned, the upside of getting stores back in our productive properties is that we have the opportunity to curate and upgrade our co-tenancy. I think it's fair to say that virtually all of the bankruptcies -- productivities -- their store productivities were a fraction of our shopping center average. So this will give us a chance to add more high-volume tenants create more excitement in the properties that we already own. So that's one of the ways to go on offense. Second, we do feel that there are opportunities in certain markets for additional outlet space, where there are no outlets or that market is underserved with outlets. And third, we have $564 million of available cash for opportunities that we may find interesting to add -- create -- add accretive investments to the portfolio.

And let me just follow up, if I can. You also mentioned that some of your more experiential -- you're happy that you don't have the experiential assets to -- in your centers today, because obviously, some of those have suffered perhaps more greatly than even apparel. But you said that you will look to add that potentially going forward. Do you see a big change in the way a Tanger Outlet Center will look in 2 to 3 years?

Floris, I don't want to speculate on what the centers may look like. We are talking to a wide variety of different types of tenants to create additional excitement and exist -- and new experiences when our shoppers come to our properties. So please stay tuned as we continue to evolve and announce our strategic planning going forward.

And no more questions at this time. This concludes the question-and-answer session. I would like to turn the call back over to Steve Tanger for any closing remarks.

Let me thank each of you for your time today and your interest in our company. We remain available to go into further detail, should you wish to extend the conversation. I look forward to, as all of us do, Steve Yalof, Jim Williams, and Cyndi Holt and Ashley Curtis look forward to greeting all of you personally as soon as we possibly can. In the meantime, best wishes and the hope that you and your families stay safe. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.