Weingarten Realty Investors' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Weingarten Realty Investors (WRI)

Q1 2012 Earnings Call

May 09, 2012 11:00 am ET


Tim Goss -

Andrew M. Alexander - Chief Executive Officer, President, Trust Manager, Chairman of Executive Committee and Chairman of Pricing Committee

Steven R. Weingarten - Senior Vice President of Leasing and Director of Southeast Region

Johnny L. Hendrix - Chief Operating Officer and Executive Vice President

Stephen C. Richter - Chief Financial Officer and Executive Vice President

Robert Smith - Senior Vice President of Development

Joe D. Shafer - Chief Accounting Officer and Senior Vice President


Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

James W. Sullivan - Cowen and Company, LLC, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Bruce G. Garrison - Chilton Capital Management LLC

Philip J. Martin - Morningstar Inc., Research Division



Good morning, and welcome to the Weingarten Realty First Quarter Earnings Conference. My name is Brandon, and I will be the operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Tim Goss. Mr. Goss, you may begin.

Tim Goss

Good morning, and welcome to our First Quarter 2012 Conference Call. Joining me today is Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Senior Vice President and CAO.

As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and change in circumstances. Actual results may differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the company's SEC filings.

Also, during this conference call, management may make reference to certain non-GAAP financial measures, such as funds from operations, or FFO, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to this non-GAAP financial measure is available in our supplemental information package located under the Investor Relations tab of our website. [Operator Instructions]

I will now turn the call over to Drew Alexander.

Andrew M. Alexander

Thank you, Tim, and thanks to all of you for joining our call. At our Investor Day presentation in April of last year, we highlighted 3 strategic objectives: One, further improving operations and leasing our portfolio back to 95-plus percent occupancy; two, continuing the improvement in the quality of our portfolio through recycling of capital by selling noncore properties and acquiring or developing assets in high barrier entry markets with strong growth prospects; and three, improving our financial position by slightly delevering our balance sheet. We've made great progress on all 3 goals. We've adjusted the specifics of our plan as opportunities and challenges have surfaced, but we've remained focused and committed to achieving our ultimate objectives.

Our decision to exit the industrial business will contribute significantly to achieving our goals. As announced last month, we contracted to sell our wholly owned industrial portfolio for $382 million. This portfolio includes 52 properties, aggregating 9.6 million square feet, priced at about an 8% cap rate based upon our 2012 budget. The sale to DRA is progressing nicely and we expect to close in the next 30 days.

We are also working on the disposition of our industrial joint venture interests. This will transform WRI into a pure-play retail REIT and significantly simplify our story. The proceeds from the sale will be used to reduce debt, achieving our goal to delever the balance sheet.

We remain focused on operating and improving the quality of our retail portfolio. We produced exceptional first quarter operating results. I'm pleased to announce that we're on track to deliver a guidance of 4% to 5% Same Property NOI, with 4.8% retail growth in Q1. Additionally, we saw solid improvements in both occupancy and rent growth. This is clearly a great way to start 2012.

I will quickly review the industrial metrics for the quarter, so Johnny can focus his remarks solely on our retail portfolio. While the broader industrial markets are improving, we had a few specific challenges, and therefore, Same Property NOI was a negative 3.1% and occupancy was down 2.7% for the quarter, both primarily due to the fallout of a few tenants. Rental rates were also down slightly. This was in line with our business plan, and more detailed metrics are available in our supplemental package.

Even with the industrial sale, we remain dedicated to the goal of improving the quality of our portfolio by selling our secondary properties. We're targeting dispositions of retail assets of $150 million to $250 million for all of 2012. By pruning our lower-tier assets, we will provide greater clarity as to the true quality of the vast majority of our portfolio. We remain focused on recycling this capital into quality acquisitions in new development. The market remains incredibly competitive in these arenas, but we will maintain our disciplined pursuit of opportunities. Johnny will discuss our acquisition program a little later.

Turning to our new development efforts. We continue to make good progress on our pipeline of 11 properties. In the last quarter, our strong leasing efforts improved our net percentage lease by 270 basis points, and we're on track to finish these projects, which represent an investment of almost $200 million at an average ROI of 7.2%. We continue to pursue new projects in multiple markets, and are confident our development expertise will add shareholder value.

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