Short-term leases a helpful tool for Tanger

“2017 was a challenging year for retailers, characterized by multiple bankruptcy and brandwide closing announcements, including 22 of our tenants,” said President and COO Thomas E. McDonough. “Faced with these market conditions, we decided to execute short-term renewals for about 15 percent of the renewal space that commenced during 2017, to provide the flexibility necessary to preserve upside opportunity while accommodating our tenant partners and maintaining high occupancy.”

This strategy has helped Tanger weather similar downturns in its portfolio in past decades, says CEO Steven B. Tanger. “Our long-term strategies since we started the business were pretty straightforward: Occupied stores are bright and alive; vacant stores are dark and dead,” Tanger said. “Very few of our customers know the difference between a short-term lease of 1 year or less of a permanent tenant; they just know if a store is occupied or not occupied. We have been through this before. This is not our first downturn in the 37 years we have been in the business. We are talking to many more new tenants to add to our portfolio; we are having extremely positive meetings with our existing tenant partners.”

Tanger executives said leasing momentum shows signs of rebounding this year and that they expect to replace most if not all of the firm's short-term leases with longer ones to higher-volume tenants. “We feel confident that we will be able to replace these short-term deals with longer-term deals when they expire,” said CFO James F. Williams. “Our strategy is that, over time, maintaining a high occupancy in these assets leads to higher return and higher rents.”

Tanger Factory Outlets says that, excluding the centers with major re-merchandising projects during 2017, same-center NOI for the consolidated portfolio increased 0.6 percent during the fourth quarter and increased 1.4 percent on a year-to-date basis.