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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 Conference Call. Yesterday, we issued our earnings release, as well as our supplemental information package and our investor presentation. This information is available on our Investor Relations Web site, investors.tangeroutlet.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, adjusted funds from operations or AFFO, 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 02, 2018. At this time, all participants are in listen-only mode. Following management’s prepared remarks, the call will be opened for your questions. We ask you to limit your questions to two so that all callers will have the opportunity to ask questions.
On the call today we will have Steven Tanger, Chief Executive Officer; Jim Williams, Senior Vice President and Chief Financial Officer; and Tom McDonough, President and Chief Operating Officer.
I will now turn the call over to Steven Tanger. Please go ahead, Steve.
Thank you, Trinity. Let me start with a significant milestone that we will celebrate later this month. 25 years of our stock trading on your New York Stock Exchange. Since the time of our IPO, we have grown from 17 centers with 1.5 million square feet to 44 properties with 15.3 million square feet. Our enterprise value has grown from about $200 million to about $4 billion at the end of the quarter, a compounded annual growth rate of 13%.
Throughout this time, we have successfully navigated a number of different economic and retail cycles, and we have adapted our business accordingly, keeping our centers relevant and highly occupied. We pride ourselves on keeping the tenant mix of our centers dynamic and giving Tanger shoppers the brands and designers they want. We have stayed true to our mission of delivering the best brands, the best prices and the best experience. With this long-term view, we have proven we can successfully adapt to evolving consumer preferences, and aligning those with tenant needs.
We have consistently focused on redevelopment and renovation of our properties. We have invested approximately $340 million over the last 10 years, making Tanger centers more innovative and exciting. We have also invested in the consumer experience across our entire portfolio.
In recent years, we have added enhanced shopping amenities, including gathering digital platforms, which meet the needs of tech savvy shoppers, as well as community events such as 5Ks concerts and food festivals. We believe these investments help to drive the consistent traffic we experience at our centers and reflect our confidence in the long-term growth of the outlet distribution channel.
That being said, we are still working through some retailers closures and liquidations, and are budgeting for potential additional store closures and lease adjustments still to come this year. We unfortunately also face the challenge of the first quarter caused by unusually harsh winter weather conditions, which led to higher than anticipated unreimbursed snow removal costs and center closures, which resulted in lower variable rents.
In light of this environment, we have adjusted our 2018 guidance accordingly. This near term change does not alter our long-term optimism. Sales and traffic are strong. Our conversations with tenants and prospects are encouraging. And we continue to employ a strategic approach that has proven effective and successful for the last 25 years. Importantly, our company maintains a very strong level of cash flow. We remain disciplined in our capital allocation decisions with a singular focus on creating shareholder value.
The cash we generate covers our capital needs for investing in our assets and maintaining one of the sector’s strongest balance sheets. Our dividend remains a priority as is evident by our recent 2.2% increase to $1.40 per share, which marks the 25th consecutive annual increase and represents a three year cumulative growth rate of 22%. Today, our dividend is secured and well covered. Furthermore, during the quarter, we executed our share repurchase program. Going forward, we will continue to evaluate our priority uses of cash, including investing in our assets, continuing to raise our dividend, repurchasing our common shares and deleveraging our balance sheet. Although, not a current priority for us, we continue to monitor, do development and our acquisition opportunities.
Throughout it all, the three pillars of the outlet business have remained constant for us, brand, value and experience. By keeping our tenant mix dynamic, we deliver the most popular brands and designers to our shoppers. Through our best price promise, we take price out of the equation whenever a shopper visits any Tanger outlet center. In addition, the social experience of outlet shopping cannot be duplicated on a computer or a mobile device.
I’ll now turn the call over to Tom who will discuss the current leasing environment with you.
Thanks Steve. In recent months, we have met face-to-face with more than 70 retailers. And while we recognize the near-term challenges exist based on our conversation with current and prospective tenants, it appears overall sentiment is improving. Over the years, we’ve remained strategic in our approach to leasing. We have evolved and invested in our centers and in the experience to keep Tanger outlet centers fresh and fun, making us the desired location for retailers and the shopping destination of choice for customers.
As of March 31st, consolidated portfolio occupancy was 95.9% compared to 96.2% on March 31, 2017. The year-over-year decline was primarily driven by the roughly 200,000 square feet of closures that we faced in 2017, and the additional square footage recaptured in the first quarter of 2018. Fortunately, we do not have any bonds on or other department stores. For the trailing 12 months ended March 31, 2018, commenced leases that were renewed or released for a term of more than 12 months, included 277 leases, totaling approximately 1.3 million square feet. These leases achieved 13.5% increase in blended average rental rate.
Recognizing some of the near-term pressures on occupancy in certain cases, we’ve allowed for lease modification and leases of 12 months or less. By accommodating tenants in these instances, we are maximizing revenue, maintaining relationship, sustain the occupancy and vibrancy of our centers and preserving long-term upside optionality in terms of tenants mix and rent increases.
Total commenced leases for the trailing 12 months ended March 31, 2018 that were renewed or released for all terms, included 338 leases totaling approximately 1.6 million square feet. These leases achieved 7.7% increase in blended average rental rates. Our approach of selectively signing short-term leases is a strategy we’ve employed throughout our 37 year history. To give you perspective, the leases of 12 months or less that we have signed represent about 2% of our total GLA, which remains in line with our historical average. These leases are on a case-by-case basis with no concentration in any one tenant, geography or peer.
Of the leases with terms of 12 months or less, which commenced in 2017, we’ve already renewed or released approximately one third of the space at market rates for an average term of roughly five years. I would like to point you to pages 11 and 12 of our supplemental package where we have added some additional disclosure regarding our leasing. We are now providing you with details around trailing 12 month commenced leases, including leases only greater than 12 months, including all leases and showing the impact of the remerchandising activities from last year in order to provide a clear picture of our leasing activity.
We believe that the level of bankruptcies that we saw in recent years is tapering; although, we may be impacted by some throughout the balance of this year. During the first quarter of 2018, we recaptured approximately 37,000 square feet within our consolidated portfolio related to bankruptcies and brand wide restructurings by retailers compared to 62,000 square feet during the first quarter of 2017.
Retailer sentiment and the leasing environment show signs of ongoing improvement, driven in part by increased sales and tenant profitability. Average tenant sales productivity for the consolidated portfolio was $384 per square foot for the 12 month ended March 31, 2018 and on an NOI weighted basis, it was $409 per square foot. Same center tenant sales performance for the overall portfolio increased 1.7% for the 12 month ended March 31, 2018 compared to the 12 month ended March 31, 2017. And traffic maintained a consistent level over this period.
For the first three months of this year, sales performance was up a strong 5.6%. Noting, however, that this includes the impact of a shift in Easter from April last year to March this is. Examples of some tenants that are performing particularly well include Old Navy Addidas, Tommy Hilfiger, American Eagle Outfitters and Coach. We saw particular strength with apparel, athletic, handbag and the food categories. We believe this performance demonstrates the consumers’ continuing desire to shop at Tanger outlet centers.
I will now turn the call over to Jim to take you through our financial results and a brief balance sheet recap.
Thank you, Tom. First quarter FFO available to common shareholders was $0.60 per share, an increase of 3% over the first quarter of 2017. Incremental income from our new developments and expansions completed in 2017 and reduced G&A expense was partially offset by our same center results. Same center NOI decreased 1.5% compared to the prior year quarter, driven primarily by the 2017 and 2018 store closures as previously mentioned as one of the harsh winter conditions, which resulted in greater than expected unreimbursed snow removal expenses at certain centers and lower percentage rents due to center closing.
During the first quarter of 2018 due to snow storms, Tanger centers were closed they combined 900 hours compared to 300 hours during the first quarter of 2017. In addition to the comp centers that closed, snow storms and road conditions affect traffic and sales on the day the center closes and several days thereafter.
Lease termination fees, which are not included in same center and portfolio NOI, totaled approximately $1.1 million for the consolidated portfolio during the first quarter of 2018 and $1.2 million during the first quarter of 2017. In addition, our share of lease termination fee and our unconsolidated joint ventures, which is included in the equity and earnings of unconsolidated joint ventures line, was $45,000 from the first quarters in both 2018 and 2017.
Our balance sheet is strong. As of March 31, 2018, approximately 94% of the square footage in our consolidated portfolio was not encumbered by mortgages. Only $228 was outstanding under our unsecured lines of credit, exceeding 62% unused capacity or approximately $366 million. We maintained a substantial interest coverage ratio during the first quarter of 4.4 times and net debt to EBITDA was approximately 6 times at quarter end.
Our floating rate exposure represents 13% of our total debt, down from 15% at year end or 6% of total enterprise value as of March 31, 2018. The average term maturity and weighted average interest rate for our outstanding debt as of quarter end was 6.3 years and 3.4% respectively. We have no significant debt maturities until April of 2021. In January, we completed amendments to a lot of credit agreements to extend the maturity by two years, increase our borrowing capacity to $600 million from $520 million and reduced the interest rate spread to 87.5 basis points over LIBOR from 90 basis points.
As Steve discussed, shareholder return is an important part of our value proposition. During the first quarter, we repurchased approximately 444,000 of our common shares having weighted average price of $22.56 per share for total consideration of $10 million. This leaves approximately $66 million remaining under our $125 million share repurchase authorization. In April, we’ve raised our dividend by 2.2% on an annualized basis to $1.40 per share, marking the 25th consecutive year we have increased our dividend. We have raised it every year since becoming a public company and over the last three years, our dividend has grown 22% cumulatively.
We expect our FFO to exceed our dividend by more than $100 million in 2018 with an expected FFO pay-out ratio under 60%. Our dividend is well covered. We have no news in our openings plan for this year. During 2018, upon completion of the residual funding of our 2017 development project and spending between $35 million and $40 million for capital expenditures of lease up cost, we should have internally generated cash of approximately $50 million that maybe used to naturally deliver our balance sheet and further reduce floating rate debt exposure and/or repurchase additional common shares as market conditions warrant.
The strength of our balance sheet will allow us to take advantage of growth opportunities that arise as the cycle turns positive. In terms of our guidance, we are updating our expectations for 2018. And we are now expecting our FFO per share for the year to between $3.40 and $2.40 per share compared to our prior expectation of between $2.43 and $2.49 per share, representing a change of 1%. We're also adjusting our same center NOI to be down 2.5% and down 1.5% compared to the prior range of down 1% to flat. The updated assumption for same center NOI reflects the closing of all 99 web store or 49,000 square feet by early April.
While these closures were in our original guidance, the abrupt closing of all stores occurred seven months earlier than we anticipated. It also reflects the unexpected closings and liquidation of all Toys“R”Us Stores in the second quarter, including our six stores with approximately 27,000 square feet, and the closing of one office next store of approximately 23,000 square feet. Combined these are resulting in $2 million decrease in NOI compared to our prior projections.
We currently anticipate capturing 72,000 square feet during the second quarter of 2018. And based on this alleviative level of space coming back already this year, we are increasing our projected store closings to be between 150,000 and 175,000 square feet, up from our prior expectation of approximately 100,000 square feet. In addition as we look ahead, we believe it is prudent to anticipate potential lease adjustments, additional leases with terms of 12 months or less and narrowing rent spreads.
The remainder of the guidance reflects the harsh winter, which effected first quarter results and may reduce variable rate income later this year. Additional details distinct in our guidance can be found in our release we issued last night. While we believe it’s prudent to align 2018 guidance with current expectations, our long-term confidence in our centers and our model is intact.
I would now like to open it up for questions. Operator, can we take the first question.
[Operator Instructions] Your first question comes from the line of Nicholas Yulico from UBS. Your line is now open.
I just wanted to go back starting with Nine West. You talked about these closures are happening earlier than anticipated. Why was this bad outcome not factored into or potential outcome not factored into your original guidance for the year?
We have anticipated Nine West to close. We were led to believe with conversations with the tenant that they would stay open until the end of October. And they made a decision to close basically the first of the second quarter. So the several months early closing, there was no way that we could possibly anticipate that.
How is it shaping up if you just think about it going forward as you’re giving guidance, creating some more downside scenarios in the portfolio rather than just I guess dealing with them on a real-time basis and then adjusting guidance? How do you -- is that process going to change now?
We feel that the guidance today reflects our view of the current state of the industry. We have increased the amount of expected or anticipated store closures from 100,000 square feet to a range of 150,000 to 175,000 square feet. We’ve also reduced our average annual occupancy from 96%, to 95% to 95.5%. We feel that this guidance is appropriate. And obviously, we’ll visit the guidance every 90 days as we go forward.
And then I guess in terms of -- number of your major assets lost a significant amount of occupancy year-over-year. Riverhead, occupancy was down 300 basis points, by example. What's driving that? I mean, is that specific tenant falling out of the portfolio? Is it issues unique to the assets?
As you may know being in the New York area, Riverhead is one of our marquee assets. Most of the space that vacated in Riverhead was due to some of these bankruptcies. Fortunately in Riverhead it’s our flagship property and we’re being very selective in which tenants we want to put into the space. I might mention that as an example, the Office Max space, which is now vacated, will be replaced this summer by a new West Elm store. And West Elm will join Pottery Barn and Williams Sonoma as an addition to our home furnishings presentation to the consumers. So we are being very selective.
Some of the other centers -- we also are replacing tenants now that some of them gone bankrupt. For instance in Jeffersonville, we signed also West Elm and they will be taking occupancy in July. And that one store will add about 500 basis points or 5% to the occupancy, we get a backup in the mid 90s. So as you can see, we’re aggressively in the process of upgrading our co-tenancy as these stores come back and gives us the opportunity to refresh our properties with exciting new more high impact tenants.
Your next question comes from the line of Caitlin Burrows from Goldman Sachs. Your line is open.
I guess you mentioned one of your uses of cash is investing in assets. So just wondering without the department store replacements that other potential peers of yours have to go through, what investment opportunities do you guys have at this point? I know you’ve done some expansions in the past. Is there any outlook for that?
We have no -- today, we have contemplated no significant expansions of any of our assets. We are constantly reviewing our capital allocation strategy. And the free cash flow that we generate, which is pretty substantial, will be used. We just raised our dividend as you know. The balance of the year, the free cash flow after CapEx and whatever remainder there is on our two major projects last year, about $50 million will be allocated between nationally deleveraging our balance sheet and which certainly report us that we maintain our high credit rating of BBB+ and BAA1. And also on a selective basis, repurchasing our counter shares and executing our announced strategy there.
And then your need to reset some of the lease rates lower make it seem like occupancy cost in some cases are too high. I realized that your occupancy cost at 10% is still lower than most of the other -- or all of the other mall companies. So just wondering how much further you think you have to go with the pool of users that will be paying more than they either can afford or willing to pay.
We have 3,100 leases. So fortunately only about 15% to 18% of them come out for renewal every year. We reflect in our guidance our expectation for the renewals. Thank you for reminding everybody that our cost of occupancy at 10% is to our knowledge the lowest in our peer group. So fortunately, we’ve been a very profitable distribution channel for our tenants. The current market environment is now in favor if there is some leverage on behalf of the tenants. We are getting through that now. But the good news is our properties are highly occupied and extremely well maintained. And we’re focusing right now on putting high impact exciting new tenants into the properties. And we’ve been through this type of situation before. So all the replacement tenants are and all the new tenants are reflected in our guidance.
Your next question comes from the line of Todd Thomas with KeyBanc Capital. Your line is open.
Just a follow up on that question around the occupancy costs. I was curious if you could comment maybe on the tenant occupancy cost ratios for the lease modifications that were completed so far year-to-date. Were they above average relative to the portfolio average or was that not the case? Maybe you can just provide some context around that.
There is really no concentration Todd. The lease modifications, the lease renewals are spread out geographically by center, by tenant and across all of our asset tiers. So there is really no conclusion, it’s a case-by-case basis.
And I had a question about -- so the leasing activity and the remerchandising that took place primarily last year. You had talked about an 8% return on roughly $21 million of spend for about half of dozen centers. I was just wondering the status of that. Has all that commenced and is that space open and paying rent? And how much of that is in the same store?
All five of the re-merchandise centers are now open. Three of them are performing as we had expected or better, and two of them are still experiencing some remerchandising, one of which is Jeffersonville, which I mentioned. We are adding West Elm, which will be open this year. And the other is Hilton Head, which was adversely affected, or the occupancy was affected by some bankrupt tenants. And we’re in the process now of working through that to replace those tenants.
Your next question comes from the line of Craig Schmidt from Bank of America. Your line is open.
I wonder what tenure stands in terms of the rent adjustments. The rent adjustments you’ve completed, does that include your work with Ascena?
We have completed our package renewals with Ascena through the first quarter of 2019, and they are reflected in these numbers.
And then in terms of bringing some of the newer tenants. Do you think that will come with an increased CapEx spend to bring some of them in?
The CapEx and the budget that we put forward between $35 million and $40 million is in line with our 10 year average for the combined lease up cost and the CapEx. So we are consistent with what we’ve done for the past basically 10 years, Craig, we’re not spending anymore.
Your next question comes from the line Michael Mueller from JPMorgan. Your line is open.
Couple of questions. First of all, looking at the properties, one of the Myrtle Beach properties had about 600 basis point occupancy drop since year end. I was just wondering provide a little color for what's going on there?
The Myrtle Beach 501 property is preparing for the addition of a very popular regional tenant by the name of Carolina Pottery, which is going to take 52,000 square feet and which will bring the occupancy of Myrtle Beach back up to where it was.
And then I think in your opening comments, you talk about a third of the 2017 short-term leases that you released -- about a third of the short-term leases in 2017. Just curious, can you give some color about how the new rental rates compared to what was in place for the short term leases?
We have re-leased on basically the market rents, which is up considerably from what the short-term leases were. And the term has been extended to five years from the short-term. So this is as pretty good evidence that our strategy to keep our properties highly occupied is working. We’re building a bridge between today and when we think the market will turn with these short-term leases to keep our properties vibrant. It’s a strategy that we’ve employed for many years, 37 years actually. So it’s standard practice for us.
Your next question comes from the line of Christy McElroy from Citi. Your line is open.
Just a follow-up on the spreads question, just looking at the data on Page 11. On a cash basis, it looks like we calculate about 26% decline on the shorter term deals in the 12 months ended Q1 ’18 versus an 8% decline on the 12 months ended Q1 ’17. So looks like while this has always been a part of your business and the percentage outstanding is in line with your historical averages as you pointed out, Tom. It looks like the rent cuts are getting deeper. Is that more bankruptcy rent relief and the mix, or can you talk about what’s happening there and what we should expect going forward?
Well, some of them are bankruptcy related. We are attempting to keep stores open while they are in reorganization. So yes, I don’t want to on the fact that lease as a fact that it’s a very mall subset. We have about 61 leases in that category, of which 11 have already been released so that’s out of 31,000 leases we have. There is -- as a trend, we have executed fewer short-term transactions in the first quarter than we did in the fourth quarter of last year.
Steven, its Michael Bilerman speaking. Just in terms of looking at the stat from Page 11 where you strip out the ones greater than 12 months relative to total. How much of then the re-tenanted or re-lease space offered a short-term lease is then included in the numbers. So as an example, of the 1.3 million square feet lease on the trailing 12 month 2018, we’re up 4.5% on a cash basis. Arguably some of the 200,000 square feet of leases were there in the prior 12 months have rolled into that number. So is there some double counting in the way that these stats are being shown some benefit that’s been shown for those that go from the term in that terms of greater than 12 months?
Michael, I don’t know if we’ve really understand your question. Jim, you want to take a shot at it?
I mean, effectively the way you break this out is you have the total leasing, which takes in account everything, short-term and longer-term leases, which shows that cash rents were down 50 basis points. And then you break out the disclosure of leases that have terms greater than 12 months. The assumption being that included in that leasing activity of 1.3 million square feet, 277 leases, there are some leases that have gone from temporary to now permanent. And to what you're saying, they are going to a full market rent, so arguably some element, because the cuts are getting deeper and you’re saying that they’re going back to market. Is that number being enhanced by that element?
Michael, that budget that we referred to that’s been released, remember these spreads on a commenced basis. And these are -- we re-leased on, but they have most of those, if not all of them, I am not sure how many. But the majority of them have not commenced yet, so they are not in the numbers.
But if this is a consistent thing as part of your business, so if you just do the math on this page, it was 210,000 square feet in the trailing 3/31/2017 and now it’s 250,000 square feet in terms of these under 12 months deals, down 7% last year down 26% this year. Is this always part of your business, shouldn’t it all just keep on rolling in as the consistent number? If the amount is consistent, which what you said that this is not out of the line, 2% of GLA, shouldn’t the releasing of that space going from temporary to permanent be part of the math?
Michal, is your question regarding why the differential is greater now than it was a year ago. Is that what you said?
No, why don’t we just follow offline…
Your next question comes from the line of Tayo Okusanya from Jefferies. Your line is open.
Just two quick ones from me. First of all, the unconsolidated joint venture portfolio, I was just curious about the financing strategy for that portfolio, because 97% of the debt there is variable versus your consolidated assets where you quickly moving towards fixed debt. So on the unconsolidated side, why so much variable there?
We have traditionally used shorter term variable rate data as the centers open and commence. And when they mature -- when we would consider -- and they hit the stabilization marks to mature is when we would think about putting longer term financing. Most of those JVs still are fairly new, but there are a couple that already hit that maturity stage and we are in discussions right now with our partners to potentially put some longer term fixed rate debt on those.
And then second question just in regard to the updated guidance. Could you talk a little bit about what expectations are just from a provision and expense perspective? What initial guidance was, and maybe you could update that number in light of the additional store closures?
We’re having trouble with hearing you. Would you mind repeating the question?
So the updated guidance, I was hoping you could discuss your guidance around bad debt expense or bad debt provisioning. What’s your updated guidance number is versus maybe initially what you had in guidance just in light of the additional store closures and tenant bankruptcies.
It does incorporate a little bit. Bad debt expense hasn’t necessary been material. Its range is usually maybe 0.3% or maybe 0.5% of our revenues. And most of that would be straight-line rent write-off, which doesn’t get into your same store NOI. So unfortunately we haven't really been hit that hard, particularly on a cash basis. And while certainly that we make, we have built-in with an expectation of getting the additional square footage back of 15,175, we have raised it a little bit but it’s really not that same.
Your next question comes from line of Steve Sakwa from Evercore ISI. Your line is now open.
Just a clarification, Steve, you I guess mentioned that the West Elm was going to be opening up a store I guess in the closed office supply store. And I just see on the Web site that there is a West Elm warehouse, I guess currently at the property. So I guess I would take that they’re moving maybe into a larger store. And if that's correct, do you have prospects to backfill the West Elm that may be moving?
Steve, the West Elm is not currently in our existing property. I don’t know what their Web site shows. We’re preparing the space for them now. And they were going into -- they are going into the close the Office Max property, but I can get you further details. Let me check on that for you.
Your next question comes from the line of Samir Khanal from Evercore. Your line is open.
I guess Jim, can you walk us through the reduction in FFO as part of guidance. There was a $0.03 reduction at the midpoint. I thought the impact would have been great with the decrease of about 150 basis points in the NOI. I mean what are the offsets that we should be thinking about and what are you incorporating?
As you know and on the press release what we all heard, we did increase interest rate expense but we also increase assumption for term fee $500,000 each those tend to wash. The offsetting -- I think you’re right. You got it right on the same center NOI. The offset is the centers that’s in the non-center pool work that we have done last year and I think extra expansion, are leasing up a little bit quicker than we thought and some GAAP rent are another thing that doesn’t factor into your NOI, because it will increase cash basis rents. But GAAP rent throughout the portfolio reflect those two properties, as well a lot of this leasing activity that we’ve been talking about earlier that we’ll open later in the year.
And in terms of buy bucks, are you incorporating any of that at this point?
As we said earlier, Sameer, we anticipate having $50 million of excess cash flow. We do expect and within our guidance to use portion of that to pay down our debt. And as market conditions warrant, we’ll consider buying back some more shares.
I guess the second thing is switching subject a little bit here. But is there any color you can provide on the transaction market. I know nothing really trades from an outlook perspective, but we don't get the same level of information that you all probably get. Is there anything that you can point us to as to give us an idea as to maybe how cap rates have shifted or pricing has shifted in light of the retail headwinds? And I know you probably have reviews with brokers of your portfolio. Just trying to get a sense of any color you can provide on cap rates or pricing?
No, there really is no color we can give. And we don't have broker introduced to give us cap rate valuations on particular assets. We have today no assets in the market for sale. We in the past have entertained qualified reverse enquiries, which led to the sale of an asset last year. But there is no color I can give you. I wish there were many more comparables as I think the private market puts a higher value. This is just the Tanger the value on our assets that the public market does.
Your next question comes from the line Christy McElroy from Citi. Your line is open.
Steven, its Michael Bilerman. I wanted to go back to some of the commentary about the history of the company and history of the business. I am really trying to understand you believe this time is not different than other times in the sense that you look at what's happening in the mall industry and certainly the impact on the lower sales productivity malls relative to the higher quality malls, which are also seeing their fair share of weakness, what's happening within big box, what's happening within grocery. The whole retail element is changing and has evolved over the last 37 years that since your father started this company. And I just trying to understand why what's happening today you think will revert back to a historical mean and there is not potentially more difficulty around the edges?
First Michael, if I might just go back to Steve's question with regard to West Elm, there is not a West Elm warehouse store but we do have that West Elm outlet store. Currently, existing in our Riverhead property and they are upsizing to the new -- to replace Office Max. And we are working to replace the existing West Elm. So I just wanted to close the loop on a previous question.
With regard to yours, every part of a cycle during the down part feels like it’s never happened before, and it’s only going to get worse. And during an up part of the cycle, feels like it’s always going to stay the same and only get better. We candidly every time it’s different, happen stock market crash in 87, we experienced the downturn after the bubble of the e-com tech bubble or the dotcom bubble of 98, 99, obviously 10 years ago which was an economic cycle. I know there was no Amazon. We have been tracking e-commerce sales for the better part of 20 years.
The comfort we have is that although the country is over retail or as one of my friends with friendly competitor says, it’s not over retail that’s probably hundred demolished. Our industry is under-built. There is only about 175 outlet centers in the country of about 70 million square feet. There is, according to ICSC, over thousand regional malls of about 1 billion square feet. We don’t have multiple level boxes, department stores, category killer type of stores. We have property type and a structure that's easily adaptable to new trends. And that's why we’ve been able to for 37 years never end the year less than 95% occupied.
So there is no easy answer, Michael. It's just my instinct based on my experience. We’re still able to keep occupancy north of 95%. Our traffic is flat. If you read the popular press and if everybody was just sitting home, our traffic would be off significantly, and I believe our sales would be off significantly. But the facts are the opposite. So I can’t point you to anything. I wish that I had a crystal ball or a transporter to go two, three, four years in the future and look back, but we don’t. That’s just my feeling. It’s not corporate representations the lawyers are looking at me. But you asked a personal question and I am just giving you a personal answer.
And I guess if you step back also and you think about strategically about trying to maintain occupancy, keeping the centers vibrant for shoppers to come, doing stuff on the right hand side of the balance sheet, doing share repurchase program, fixing out the floating rate debt, keep on increasing the dividend. What is the next step if the stock price, which clearly is significantly underperforming today and is at quite a low trading, probably mid 8s implied cap rate towards 9. Do you think about exploring strategic alternatives? Do you look at options? Private capital has been interesting in this space and over time, the public world has been there as well. How do you think about that next step? At what point do you think about that to drive shareholder value?
We review constantly our capital allocation strategy, as I mentioned. We have a balanced strategy to pay down debt, opportunistically executive our common stock repurchase program and investing in our assets. We want to make our assets as strong as possible with the best tenant presentation as possible to consumer. I think it’s the right strategy. In addition, we raise our dividend, as you may know. So we’re comfortable with that current strategy. And we don’t see any reason right now to change it. We have no new development planned for 2019. I think that the free cash flow will continue to grow and maybe $50 million this year after CapEx and paying for previous investments may grow considerably next year. And look, we constantly review our capital allocation strategy.
But doesn’t seem a need to one alter that and look at something more strategic or look at more companywide alternatives?
I don’t see any reason for it today. But we’re a public company and as we get credit for shareholder friendly governance, if someone wants to talk to us we have an responsibility and we’re happy to talk to anybody as we have ever since we went business public i25 years ago.
There are no further audio questions at this time. I’ll turn the call back over to the presenters.
I want to thank everybody for participating today in our call. As always, we’re available for any follow up questions. And we look forward to seeing everybody in NAREIT in a couple of weeks. So have a great day and good bye now.
This concludes today's conference call. You may now disconnect.