Weingarten Realty Reports Strong Quarter and Announces $285 Million Florida Acquisition

HOUSTON--()--Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended June 30, 2016. The supplemental financial package with additional information can be found on the Company's website under the Investor Relations tab.

Second Quarter Operating and Financial Highlights

  • Net income attributable to common shareholders (“Net Income”) for the quarter increased to $0.28 per diluted share from $0.20 per diluted share in the same quarter of 2015;
  • Core(1) Funds From Operations Attributable to Common Shareholders ("Core FFO") for the quarter increased to $0.57 per diluted share from $0.54 per diluted share a year ago;
  • Same Property Net Operating Income (“SPNOI”) including redevelopments increased 3.3% over the same quarter of the prior year;
  • Rental rates on new leases and renewals were up 29.4% and 14.4%, respectively;
  • The Palms at Town & Country in Miami was acquired for $285 million subsequent to quarter end bringing year-to-date acquisitions to $421 million; and,
  • Common shares totaling $107 million were sold under the At-The-Market (“ATM”) program during quarter.

(1) Effective this quarter, the Company substituted the term Core FFO for Recurring FFO used in communications. The definition of this Non-GAAP measure remains unchanged as well as all historical amounts previously reported as Recurring FFO.

Financial Results

The Company reported Net Income of $35.8 million or $0.28 per diluted share (hereinafter “per share”) for the second quarter of 2016, as compared to $25.2 million or $0.20 per share for the same period in 2015. This favorable variance was due to the write-off of unamortized preferred redemption costs in the prior year quarter, higher operating income driven by increased rental rates and incremental income from our new developments and redevelopments. Reduced interest expense from favorable debt refinancings and reduced preferred share dividends due to redemptions in 2015 also contributed to the increased Net Income, all of which was offset by gains on sales of property in 2015. Year-to-date, Net Income was $142.9 million or $1.13 per share for 2016 compared to $70.2 million or $0.57 per share for 2015.

Funds From Operations attributable to common shareholders (“NAREIT FFO”) in accordance with the National Association of Real Estate Investment Trusts definition, was $75.3 million or $0.59 per share for the second quarter of 2016 compared to $58.4 million or $0.46 per share for 2015. The increase is primarily due to the non-cash write-off of preferred redemption costs of $0.08 per share in 2015. Additionally, a net gain of $2.0 million related to the refinancing of a secured note was included in interest expense. The remainder of the increase was due to operations at the Company’s existing portfolio, redevelopments and new developments. Year-to-date, NAREIT FFO was $141.6 million or $1.11 per share for 2016 compared to $118.7 million or $0.95 per share for 2015.

Core FFO for the quarter ended June 30, 2016 was $0.57 per share or $73.6 million, an increase of 5.6% on a per share basis over $0.54 per share or $68.3 million for the same quarter of last year. The increase in Core FFO over the prior year was primarily due to increases in net operating income from our existing portfolio resulting from increases in rental rates, incremental income from our new developments and redevelopments, and reduced interest expense from favorable debt refinancings. These increases were partially offset by the impact of the Company’s disposition program. For the six months, Core FFO was $145.9 million or $1.15 per share for 2016 compared to $133.7 million or $1.07 per share for 2015.

A reconciliation between Net Income to NAREIT FFO and Core FFO is included herein.

Operating Results

SPNOI including redevelopments increased by 3.3% for the quarter primarily due to increased base minimum rent resulting from contractual rental rate increases for existing merchants, renewal options exercised and rental rate increases on new leases. These increases were offset by an increase in bad debt expense due to reduced bad debt recoveries compared to the prior year. Year-to-date, SPNOI increased 3.0%.

A reconciliation between Net Income and SPNOI is included herein.

Occupancy for the quarter of 94.9% was down slightly from the prior quarter due primarily to the rejection in bankruptcy of one Sports Authority lease and the closing of a bowling alley at a center slated for redevelopment. Further decreases in occupancy are expected in the next quarter as some of the Company’s remaining six Sports Authority leases could also be rejected in bankruptcy as they finalize their plan. Occupancy of small shop space increased to 90.2% from 90.0% in the prior quarter. The Company produced steady leasing results during the second quarter with 251 new leases and renewals. These transactions were comprised of 94 new leases and 157 renewals, which represent annualized revenues of $6.2 million and $10.5 million, respectively. The average rental rate increase on new leases and renewals signed during the quarter was 29.4% and 14.4%, respectively.

“Operations remain very strong, driven by some of the highest rental rate increases in the history of our Company. While the Sports Authority bankruptcy will provide some temporary headwinds, we expect our quality, transformed portfolio to continue to perform incredibly well,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.

Portfolio Activity

Subsequent to quarter end, the Company completed the acquisition of The Palms at Town & Country, a 664,000 square foot premier shopping destination in Miami, Florida for $285 million. The center features best-in-class operators including Publix, Kohl’s, Nordstrom Rack, Dick’s Sporting Goods, and Marshalls. National retailers comprise 87% of the revenue of the center. The shopping center serves the dense and affluent communities of Kendall and West Kendall with 171,000 people and 59,000 households in a three-mile trade area. It is situated at one of Miami’s most trafficked interstate interchanges with exposure to the Florida Turnpike and Kendall Drive which have combined traffic counts exceeding 200,000 vehicles per day.

During the quarter, the Company acquired Deerfield, a 394,000 square foot, Publix-anchored center located in the South Florida community of Deerfield Beach (Fort Lauderdale MSA) for $93 million. The center is anchored by strong national and regional tenants including a dominant Publix, T.J. Maxx, Marshalls, Cinépolis, and Ulta Beauty.

The Company continues to make progress on its three active new development properties and its various redevelopment projects, spending a total of $16.1 million during the quarter. For the new development properties, the total spent to date is $59.7 million, the estimated final investment is $100.8 million and the estimated final return is 7.5%. For the redevelopment projects, the total spent to date is $41.9 million, the estimated final investment is $85.4 million and the estimated final returns are around 11%.

During the second quarter, the Company sold three land parcels and its interest in three shopping centers held in a joint venture for $14.6 million, bringing the year-to-date total to $126.6 million.

“We are extremely pleased with the addition of a premier asset, The Palms at Town & Country, to our portfolio. Its trade area buying power, a combination of median household income and density, is comparable to the most successful properties in the state including Aventura and Dadeland Mall,” said Drew Alexander, President and Chief Executive Officer.

Balance Sheet

The Company continues to improve its balance sheet. The Company sold $107 million of common shares during the quarter under its ATM program at an average price of $38.32. Year-to-date, the Company has sold $125.1 million under its ATM program. You can see the detail of all of our issuances on page 41 of the supplemental financial package.

Subsequent to quarter end, the Company closed on a commitment for a $200 million term loan, which matures in July 2017, with the Company having an additional one year extension option. Borrowing rates float at a margin over LIBOR and are priced off a grid that is tied to our senior unsecured credit ratings.

The Company’s credit metrics remain very strong at quarter end with Net Debt to EBITDA at 5.57 times and Debt to Total Market Cap at 28.0%, both of which benefited from the common share issuance during the quarter.

“We were very pleased with our execution under the ATM. In 2016 we have issued over $125 million of common equity at attractive valuations. This is very efficient, cost effective way to raise the equity necessary for our current capital allocation activities. Along with the commitment for a new $200 million term loan, these transactions allow us to maintain our strong balance sheet and liquidity position while funding our acquisition and new development opportunities,” said Steve Richter, Executive Vice President and Chief Financial Officer.

2016 Guidance

The Company adjusted its guidance as noted below by the highlighted items. Additionally, the Company has provided initial guidance for Net Income this quarter.

   

Previous Guidance

 

Revised Guidance

Net Income (per diluted share)       $1.67 - $1.73
NAREIT FFO (per diluted share)   $2.21 - $2.26   $2.24 - $2.28
Core FFO (per diluted share)   $2.27 - $2.31   $2.28 - $2.32
Acquisitions   $125 - $225 million   $425 - $500 million
Re / New Development   $50 - $100 million   $50 - $100 million
Dispositions   $125 - $225 million   $125 - $225 million
Same Property NOI with redevelopments   3.5% - 4.5%   3.0% - 4.0%
Same Property NOI w/o redevelopments   2.5% - 3.5%   2.5% - 3.5%

Dividends

The Board of Trust Managers declared a quarterly cash dividend of $0.365 per common share payable on September 15, 2016 to shareholders of record on September 8, 2016.

Conference Call Information

The Company also announced that it will host a live webcast of its quarterly conference call on July 29, 2016 at 10:00 a.m. Central Time. The live webcast can be accessed via the Company’s website at www.weingarten.com. Alternatively, if you are not able to access the call on the web, you can listen live by phone by calling (888) 771-4371 (conference ID # 40193471). A replay will be available through the Company’s website starting approximately two hours following the live call.

About Weingarten Realty Investors

Weingarten Realty Investors (NYSE: WRI) is a shopping center owner, manager and developer. At June 30, 2016, the Company owned or operated under long-term leases, either directly or through its interest in real estate joint ventures or partnerships, a total of 226 properties which are located in 18 states spanning the country from coast to coast. These properties represent approximately 44.7 million square feet of which our interests in these properties aggregated approximately 28.0 million square feet of leasable area. To learn more about the Company’s operations and growth strategies, please visit www.weingarten.com.

Forward-Looking Statements

Statements included herein that state the Company’s or Management’s intentions, hopes, beliefs, expectations or predictions of the future are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which by their nature, involve known and unknown risks and uncertainties. The Company’s actual results, performance or achievements could differ materially from those expressed or implied by such statements. Reference is made to the Company’s regulatory filings with the Securities and Exchange Commission for information or factors that may impact the Company’s performance.

Projections involve numerous assumptions such as rental income (including assumptions on percentage rent), interest rates, tenant defaults, occupancy rates, volume and pricing of properties held for disposition, volume and pricing of acquisitions, expenses (including salaries and employee costs), insurance costs and numerous other factors. Not all of these factors are determinable at this time and actual results may vary from the projected results, and may be above or below the ranges indicated. The above ranges represents management’s estimate of results based upon these assumptions as of the date of this press release. Accordingly, there is no assurance that our projections will be realized.

Weingarten Realty Investors
(in thousands, except per share amounts)
Financial Statements
       
Three Months Ended
June 30,
Six Months Ended
June 30,
2016   2015 2016   2015
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Unaudited)
Rentals, net $ 132,814 $ 124,310 $ 261,323 $ 246,968
Other Income 2,862   2,494   6,770   5,435  
Total Revenues 135,676   126,804   268,093   252,403  
Depreciation and Amortization 39,218 36,451 77,097 72,602
Operating Expense 24,663 22,200 48,199 44,785
Real Estate Taxes, net 17,221 15,498 33,078 30,125
Impairment Loss 153 43 153
General and Administrative Expense 6,388   6,461   12,886   13,833  
Total Expenses 87,490   80,763   171,303   161,498  
Operating Income 48,186 46,041 96,790 90,905
Interest Expense, net (18,558 ) (20,292 ) (39,449 ) (46,750 )
Interest and Other Income 361 418 572 3,140
Gain on Sale and Acquisition of Real Estate Joint Venture and Partnership Interests 18 37,392 879
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net 6,645 3,212 10,738 8,584
(Provision) Benefit for Income Taxes (16 ) 226   (5,915 ) (435 )
Income from Continuing Operations 36,618 29,623 100,128 56,323
Gain on Sale of Property 1,033   8,163   46,190   30,685  
Net Income 37,651 37,786 146,318 87,008
Less: Net Income Attributable to Noncontrolling Interests (1,835 ) (1,757 ) (3,428 ) (3,332 )
Net Income Adjusted for Noncontrolling Interests 35,816 36,029 142,890 83,676
Less: Preferred Share Dividends (1,120 ) (3,830 )
Less: Redemption Costs of Preferred Shares   (9,687 )   (9,687 )
Net Income Attributable to Common Shareholders -- Basic $ 35,816   $ 25,222   $ 142,890   $ 70,159  
Net Income Attributable to Common Shareholders -- Diluted $ 35,816   $ 25,222   $ 143,888   $ 70,159  
 
Weingarten Realty Investors
(in thousands)
Financial Statements
   
June 30,
2016
December 31,
2015
(Unaudited) (Audited)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Property $ 4,446,535 $ 4,262,959
Accumulated Depreciation (1,144,670 ) (1,087,642 )
Property Held for Sale, net 34,363
Investment in Real Estate Joint Ventures and Partnerships, net 292,530 267,041
Unamortized Lease Costs, net 148,632 137,609
Accrued Rent and Accounts Receivable, net 82,368 84,782
Cash and Cash Equivalents 14,529 22,168
Restricted Deposits and Mortgage Escrows 5,652 3,074
Other, net 187,351   177,591  
Total Assets $ 4,032,927   $ 3,901,945  
 
LIABILITIES AND EQUITY
Debt, net $ 2,052,236 $ 2,113,277
Accounts Payable and Accrued Expenses 102,850 112,205
Other, net 159,995   131,453  
Total Liabilities 2,315,081   2,356,935  
 
Commitments and Contingencies
Deferred Compensation Share Awards 48,140
 
EQUITY
Common Shares of Beneficial Interest 3,878 3,744
Additional Paid-In Capital 1,711,114 1,616,242
Net Income Less Than Accumulated Dividends (186,136 ) (222,880 )
Accumulated Other Comprehensive Loss (14,633 ) (7,644 )
Shareholders' Equity 1,514,223   1,389,462  
Noncontrolling Interests 155,483   155,548  
Total Liabilities and Equity $ 4,032,927   $ 3,901,945  

Non-GAAP Financial Measures

Certain aspects of our key performance indicators are considered non-GAAP financial measures. Management uses these measures along with our GAAP financial statements in order to evaluate our operating results. Management believes these additional measures provide users of our financial information additional comparable indicators of our industry, as well as, our performance.

Funds from Operations Attributable to Common Shareholders

The National Association of Real Estate Investment Trusts defines NAREIT FFO as net income (loss) attributable to common shareholders computed in accordance with GAAP, excluding extraordinary items and gains or losses from sales of operating real estate assets and interests in real estate equity investments, plus depreciation and amortization of operating properties and impairment of depreciable real estate and in substance real estate equity investments, including our share of unconsolidated real estate joint ventures and partnerships. The Company calculates NAREIT FFO in a manner consistent with the NAREIT definition.

Management believes NAREIT FFO is a widely recognized measure of REIT operating performance which provides our shareholders with a relevant basis for comparison among other REITs. Management uses NAREIT FFO as a supplemental internal measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, Management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself. There can be no assurance that NAREIT FFO presented by the Company is comparable to similarly titled measures of other REITs.

The Company also presents Core FFO as an additional supplemental measure as it is more reflective of the core operating performance of our portfolio of properties. Core FFO is defined as NAREIT FFO excluding charges and gains related to non-cash and non-operating transactions and other events that hinder the comparability of operating results of our core portfolio of properties. Specific examples of items excluded from Core FFO include, but are not limited to, gains or losses associated with the extinguishment of debt or other liabilities, impairments of land, transactional costs associated with acquisition and development activities, certain deferred tax provisions/benefits, redemption costs of preferred shares and gains on the disposal of non-real estate assets. NAREIT FFO and Core FFO should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. NAREIT FFO and Core FFO do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

NAREIT FFO and Core FFO is calculated as follows (in thousands):

  Three Months Ended
June 30,
  Six Months Ended
June 30,
2016   2015 2016   2015
Net income attributable to common shareholders $ 35,816 $ 25,222 $ 142,890 $ 70,159
Depreciation and amortization 38,519 35,767 75,728 71,030
Depreciation and amortization of unconsolidated real estate joint ventures and partnerships 3,993 3,468 7,679 6,978
Impairment of operating properties and real estate equity investments 153 153
Impairment of operating properties of unconsolidated real estate joint ventures and partnerships 1,497 326 1,497
Gain on acquisition including associated real estate equity investment (37,383 )
Gain on sale of property and interests in real estate equity investments (368 ) (8,137 ) (45,493 ) (31,470 )
Gain on dispositions of unconsolidated real estate joint ventures and partnerships (3,139 ) (53 ) (3,139 ) (615 )
Other (8 ) (4 ) (8 ) (4 )
NAREIT FFO – basic 74,813 57,913 140,600 117,728
Income attributable to operating partnership units 499   479   998   960  
NAREIT FFO – diluted 75,312   58,392   141,598   118,688  
Adjustments to Core FFO:
Redemption costs of preferred shares 9,749 9,749
Deferred tax expense, net 5,895
Acquisition costs 245 142 600 346
Other impairment loss, net of tax 43
(Gain) loss on extinguishment of debt (1,679 ) (1,679 ) 6,100
Other, net of tax (294 )   (536 ) (1,161 )
Core FFO – diluted $ 73,584   $ 68,283   $ 145,921   $ 133,722  
 
Weighted average shares outstanding – basic 125,791 123,298 124,692 122,715
Effect of dilutive securities:
Share options and awards 1,053 1,252 1,136 1,344
Operating partnership units 1,462   1,480   1,462   1,483  
Weighted average shares outstanding – diluted 128,306   126,030   127,290   125,542  
 
NAREIT FFO per common share – basic $ .59   $ .47   $ 1.13   $ .96  
 
NAREIT FFO per common share – diluted $ .59   $ .46   $ 1.11   $ .95  
 
Core FFO per common share – diluted $ .57   $ .54   $ 1.15   $ 1.07  

Same Property Net Operating Income

Management considers SPNOI an important additional financial measure because it reflects only those income and expense items that are incurred at the property level and when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates and operating costs. The Company calculates this most useful measurement by determining our proportional share of SPNOI from all owned properties, including the Company’s share of SPNOI from unconsolidated joint ventures and partnerships, which cannot be readily determined under GAAP measurements and presentation. Although SPNOI is a widely used measure among REITs, there can be no assurance that SPNOI presented by the Company is comparable to similarly titled measures of other REITs. Additionally, the Company does not control these unconsolidated joint ventures and partnerships, and the assets, liabilities, revenues or expenses of these joint ventures and partnerships, as presented, do not represent its legal claim to such items.

Properties are included in the SPNOI calculation if they are owned and operated for the entirety of the most recent two fiscal year periods, except for properties for which significant redevelopment or expansion occurred during either of the periods presented, and properties classified as discontinued operations. While there is judgment surrounding changes in designations, Management moves new development and redevelopment properties once they have stabilized, which is typically upon attainment of 90% occupancy. A rollforward of the properties included in the Company’s same property designation is as follows:

  Three Months Ended
June 30, 2016
  Six Months Ended
June 30, 2016
Beginning of the period 197 206
Properties added:
Acquisitions 1
Redevelopments 9 11
Other 1
Properties removed:
Dispositions (3 ) (8 )
Redevelopments (5 )
Other   (3 )
End of the period 203   203  

The Company calculates SPNOI using operating income as defined by GAAP excluding property management fees, certain non-cash revenues and expenses such as straight-line rental revenue and the related reversal of such amounts upon early lease termination, depreciation, amortization, impairment losses, general and administrative expenses, acquisition costs and other items such as lease cancellation income, environmental abatement costs and demolition expenses. Consistent with the capital treatment of such costs under GAAP, tenant improvements, leasing commissions and other direct leasing costs are excluded from SPNOI. A reconciliation of Net Income to SPNOI is as follows (in thousands):

  Three Months Ended
June 30,
  Six Months Ended
June 30,
2016   2015 2016   2015
Net income attributable to common shareholders $ 35,816 $ 25,222 $ 142,890 $ 70,159
Add:
Redemption costs of preferred shares 9,687 9,687
Dividends on preferred shares 1,120 3,830
Net income attributable to noncontrolling interests 1,835 1,757 3,428 3,332
Provision (benefit) for income taxes 16 (226 ) 5,915 435
Interest expense, net 18,558 20,292 39,449 46,750
Less:
Gain on sale of property (1,033 ) (8,163 ) (46,190 ) (30,685 )
Equity in earnings of real estate joint ventures and partnership interests (6,645 ) (3,212 ) (10,738 ) (8,584 )
Gain on sale and acquisition of real estate joint venture and partnership interests (18 ) (37,392 ) (879 )
Interest and other income (361 ) (418 ) (572 ) (3,140 )
Operating Income 48,186 46,041 96,790 90,905
Less:
Revenue adjustments (1) (3,526 ) (2,987 ) (7,253 ) (6,339 )
Add:
Property management fees 590 642 1,536 1,578
Depreciation and amortization 39,218 36,451 77,097 72,602
Impairment loss 153 43 153
General and administrative 6,388 6,461 12,886 13,833
Acquisition costs 174 96 223 301
Other (2) (89 ) 81   71   131  
Net Operating Income 90,941 86,938 181,393 173,164
Less: NOI related to consolidated entities not defined as same property and noncontrolling interests (9,211 ) (8,002 ) (18,478 ) (15,502 )
Add: Pro rata share of unconsolidated entities defined as same property 8,244   8,186   16,346   16,313  
Same Property Net Operating Income $ 89,974   $ 87,122   $ 179,261   $ 173,975  

___________________

(1) Revenue adjustments consist primarily of straight-line rentals, lease cancellation income and fee income primarily from real estate joint ventures and partnerships.

(2) Other includes items such as environmental abatement costs and demolition expenses.

Contacts

Weingarten Realty
Michelle Wiggs, 713-866-6050

Release Summary

Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended June 30, 2016.

Contacts

Weingarten Realty
Michelle Wiggs, 713-866-6050