Tanger (SKT) Q2 FY26 earnings call: guidance and Q&A

Tanger proactively recaptured 150,000 square feet of Saks Off 5th space, leading to a slight moderation in occupancy. Management views these closures as strategic opportunities to add more productive uses and in-demand retailers, expecting meaningful upside in rents and return on invested capital. Backfill deals are in the pipeline, and temporary tenants are being used to bridge select spaces while long-term deals are executed. The re-tenanting of these larger boxes is expected to have minimal impact in 2027, with a more significant impact anticipated in 2028 due to the time required for potential splitting and landlord work.

The company achieved its 18th consecutive quarter of positive blended rent spreads at 10.5%, executing over 650 transactions totaling 3.3 million square feet over the last 12 months. Tanger continues to expand and elevate its tenant roster with popular brands, food and beverage concepts, and service/entertainment uses. This strategy has resulted in a more diverse tenant base, with the Top 25 tenants now comprising approximately 50% of rent, down from over 60% five years ago, and the portfolio growing to over 800 brands from approximately 500.

Tanger continued its disciplined external growth strategy with the acquisition of Levis Commons Town Center, an open-air lifestyle center in Perrysburg, Ohio, expecting an 8.5% first-year return. This marks the seventh open-air center and fourth lifestyle center added in the past three years. The company focuses on leveraging its platforms to create value in mid-tier markets, benefiting from favorable demographics and population growth around its centers, which has grown at roughly twice the national average over the past 15 years.

The consumer remains resilient, with increased domestic tourism and engagement from younger customers driving traffic. Average tenant sales reached $487 per square foot on a trailing 12-month basis, up 5% year-over-year. Tanger's marketing platform, enhanced by AI-powered communications, drives higher subscriber engagement and shopper visits by delivering personalized offers. These efforts, combined with on-center events and activations, contribute to positive traffic momentum, especially during key shopping seasons like back-to-school.

Tanger maintains a strong balance sheet with low leverage, reporting net debt to adjusted EBITDA at 4.7x, flat with year-end 2025, providing capacity relative to its 5-6x target. The company's debt is 100% fixed-rate, with a weighted average interest rate of 4% and a 3.3-year weighted average term to maturity. Total liquidity stands at $1 billion, including $355 million in cash and $620 million in unsecured lines of credit, enabling funding for growth initiatives and debt maturities.

Tanger is actively focused on growing additional revenue streams beyond traditional leasing, which currently equates to almost $0.5 million per center on average. Opportunities include enhancing signage, leveraging assets as marketing mediums, and adding services like EV charging or solar. The company's loyalty program, TangerClub, with over 12 million members, also contributes to value creation by driving engagement and providing data for personalized marketing.

The company's strategic shift has increased non-apparel Gross Leasable Area (GLA) to 32% from approximately 19% several years ago, reflecting a focus on diverse uses that drive traffic and enhance productivity. Tanger is replacing lower-performing retailers with higher-performing ones, such as Sephora, which generates over $1,000 per square foot. This strategy, combined with a relatively flat occupancy cost ratio of 9.7% despite growing sales, indicates significant runway for continued rent growth.