Weingarten Realty Reports Third Quarter Operating Results

Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended September 30, 2018. The supplemental financial package with additional information can be found on the Company's website under the Investor Relations tab.

Third Quarter Operating and Financial Highlights

  • Net income attributable to common shareholders (“Net Income”) for the quarter was $0.34 per diluted share (hereinafter “per share”) compared to $0.56 per share in the same quarter of 2017;
  • Core Funds From Operations Attributable to Common Shareholders ("Core FFO") for the quarter was $0.58 per share compared to $0.61 per share a year ago;
  • Same Property Net Operating Income (“SPNOI”) including redevelopments increased 2.2% over the same quarter of the prior year;
  • Occupancy was 94.4% at quarter-end compared to 94.6% in the prior quarter;
  • Rental rates on new leases and renewals for the quarter were up 12.7% and 5.9%, respectively; and
  • Dispositions totaled $49 million for the quarter and $394 million for the first nine months of 2018.

Financial Results

The Company reported Net Income of $43.0 million or $0.34 per share for the third quarter of 2018, as compared to $72.6 million or $0.56 per share for the same period in 2017. This decrease was due primarily to lower gains on sales of properties during the third quarter of 2018. Year-to-date, Net Income was $268.1 million or $2.08 per share for 2018 compared to $167.3 million or $1.30 per share for 2017, due primarily to higher gains on the sale of properties in 2018.

Core FFO for the quarter ended September 30, 2018 was $0.58 per share or $74.8 million compared to $0.61 per share or $79.7 million for the same quarter of last year. Dispositions in 2017 and 2018 decreased Core FFO which was partially offset by higher operating income driven by increased base rents and bad debt recoveries, reduced interest expense due to the reduction in debt outstanding with disposition proceeds and higher interest income from invested excess cash. For the nine months, Core FFO was $223.9 million or $1.72 per share for 2018 compared to $238.5 million or $1.83 per share for 2017.

NAREIT FFO was $76.5 million or $0.59 per share for the third quarter of 2018 compared to $78.9 million or $0.61 per share for 2017. Year-to-date, NAREIT FFO was $239.3 million or $1.84 per share for 2018 compared to $232.7 million or $1.79 per share for 2017. Included in 2018 is a benefit of $10.0 million, or $0.08 per share, from the write-off of under market rent intangibles related to terminated Toys R Us leases.

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

Operating Results

For the period ending September 30, 2018, the Company’s operating highlights were as follows:

Q3 2018

YTD 2018

Occupancy (Signed Basis):
Occupancy - Total 94.4%
Occupancy - Small Shop Spaces 91.0%
Occupancy - Same Property Portfolio 94.9%
Same Property Net Operating Income, with redevelopments 2.2% 2.2%
Rental Rate Growth - Total: 7.0% 7.6%
New Leases 12.7% 13.2%
Renewals 5.9% 6.3%
Leasing Transactions:
Number of New Leases 59 213
New Leases - Annualized Revenue (in millions) $3.3 $14.0
Number of Renewals 156 456
Renewals - Annualized Revenue (in millions) $10.5 $37.2

A reconciliation of Net Income to SPNOI is included herein.

“Operations remained strong this quarter, a reflection of our significantly improved portfolio of properties. Our increase in rental rates on new leases of 12.7% for the quarter and 13.2% year-to-date is a reflection of this improvement. Additionally, the number of tenant failures for the quarter was 25% lower than any other quarter in the last five years, a further validation of the improvement in the portfolio,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.

Portfolio Activity

During the quarter, the Company closed $49 million of dispositions. These dispositions included centers in Kentucky, North Carolina and Texas and the final portion of Stoneridge Towne Centre in Moreno Valley, California. The Company also sold 57 acres of land outside of Atlanta, Georgia.

The Company did not acquire any properties during the quarter.

During the quarter, the Company invested $40 million in new developments and redevelopments. We have broken ground on The Driscoll at River Oaks, a 30-story residential tower to be constructed at the Company’s River Oaks Shopping Center. Details of these projects can be found in the Company’s Supplemental Financial Information package on its website.

“We continue to upgrade the quality of our portfolio by successfully disposing of assets that are in the bottom portion of our portfolio which has led to the increase in disposition guidance for 2018. As to our disposition outlook for 2019, we will continue to be opportunistic in our approach but we expect the volume of dispositions to be significantly less next year,” said Drew Alexander, President and Chief Executive Officer.

Balance Sheet

Proceeds from the Company’s 2017 and 2018 dispositions were used to strengthen its balance sheet. The Company has paid down all balances under its revolving credit facility and had $17 million of excess cash invested at quarter-end. Net Debt to Core EBITDAre was a strong 4.9 times and Debt to Total Market Capitalization was 31.7%.

“The use of proceeds from our disposition program has enabled us to further enhance our financial position. It will also provide funding for our new development and redevelopment programs, the repurchase of common shares on a leverage neutral basis and a relatively large special dividend at year-end that is required due to the significant tax gains generated by our disposition program. With one of the strongest balance sheets in our sector, we are positioned to pursue opportunities as they arise,” said Steve Richter, Executive Vice President and Chief Financial Officer.

2018 Guidance

With respect to 2018 guidance, the Company has increased the amount of property it is marketing for sale; therefore, it has increased its guidance for dispositions and tightened its guidance for Net Income, NAREIT FFO and Core FFO. Shown below is the Company’s guidance with adjusted items highlighted.

Previous Guidance

Revised Guidance

Net Income (per share) $2.52 - $2.60 $2.52 - $2.55
NAREIT FFO (per share) $2.37 - $2.43 $2.38 - $2.41
Core FFO (per share) $2.27 - $2.33 $2.27 - $2.30
Acquisitions $25 - $75 million $25 - $75 million
Re / New Development $125 - $175 million $125 - $175 million
Dispositions $400 - $550 million $525 - $625 million
Same Property NOI with redevelopments 2.5% - 3.5% 2.5% - 3.5%
Same Property NOI w/o redevelopments 2.0% - 3.0% 2.0% - 3.0%

Dividends

The Board of Trust Managers declared a quarterly cash dividend of $0.395 per common share payable on December 14, 2018 to shareholders of record on December 7, 2018.

Conference Call Information

The Company also announced that it will host a live webcast of its quarterly conference call on October 25, 2018 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 # 45774520). 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 September 30, 2018, 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 185 properties which are located in 17 states spanning the country from coast to coast. These properties represent approximately 37.4 million square feet of which our interests in these properties aggregated approximately 24.1 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
September 30,

Nine Months Ended
September 30,

2018

2017 (1)

2018

2017 (1)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)(Unaudited)
Rentals, net $ 125,261 $ 141,064 $ 392,510 $ 424,845
Other Income 3,529 3,046 10,818 8,951
Total Revenues 128,790 144,110 403,328 433,796
Depreciation and Amortization 38,042 41,509 126,558 126,115
Operating Expense 22,555 27,813 69,929 83,944
Real Estate Taxes, net 17,601 18,634 52,706 57,783
Impairment Loss 2,398 2,398 15,012
General and Administrative Expense 5,971 6,450 17,715 20,252
Total Expenses 86,567 94,406 269,306 303,106
Operating Income 42,223 49,704 134,022 130,690
Interest Expense, net (15,996 ) (19,850 ) (47,685 ) (61,405

)

Interest and Other Income/Expense 1,847 1,398 4,735 4,210
Benefit (Provision) for Income Taxes 99 (577 ) (1,368 ) 2,035
Equity in Earnings of Real Estate Joint Ventures and
Partnerships, net
8,022 5,219 19,333 17,966
Income from Continuing Operations 36,195 35,894 109,037 93,496
Gain on Sale of Property 17,079 38,579 173,077 86,566
Net Income 53,274 74,473 282,114 180,062

Less: Net Income Attributable to Noncontrolling Interests

(10,293 ) (1,844 ) (14,020 ) (12,755

)

Net Income Attributable to Common Shareholders -- Basic $ 42,981 $ 72,629 $ 268,094 $ 167,307
Net Income Attributable to Common Shareholders -- Diluted $ 42,981 $ 73,144 $ 269,678 $ 168,874
Earnings Per Common Share -- Basic $ .34 $ .57 $ 2.10 $ 1.31
Earnings Per Common Share -- Diluted $ .34 $ .56 $ 2.08 $ 1.30

______________

(1) Reclassification of prior year's amounts were made to conform to current year presentation.

Weingarten Realty Investors
(in thousands)
Financial Statements

September 30,
2018

December 31,
2017
(Unaudited)(Audited)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Property $ 4,245,514 $ 4,498,859
Accumulated Depreciation (1,137,548 ) (1,166,126 )
Property Held for Sale, net 81,224 54,792
Investment in Real Estate Joint Ventures and Partnerships, net 344,024 317,763
Unamortized Lease Costs, net 151,165 181,047
Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net 94,807 104,357
Cash and Cash Equivalents 24,412 13,219
Restricted Deposits and Mortgage Escrows 22,369 8,115
Other, net 171,160 184,613
Total Assets $ 3,997,127 $ 4,196,639
LIABILITIES AND EQUITY
Debt, net $ 1,793,128 $ 2,081,152
Accounts Payable and Accrued Expenses 111,691 116,463
Other, net 169,587 189,182
Total Liabilities 2,074,406 2,386,797
Commitments and Contingencies
EQUITY
Common Shares of Beneficial Interest 3,893 3,897
Additional Paid-In Capital 1,766,528 1,772,066
Net Income Less Than Accumulated Dividends (15,584 ) (137,065 )
Accumulated Other Comprehensive Loss (9,507 ) (6,170 )
Shareholders' Equity 1,745,330 1,632,728
Noncontrolling Interests 177,391 177,114
Total Liabilities and Equity $ 3,997,127 $ 4,196,639

Non-GAAP Financial Measures

Certain aspects of our key performance indicators are considered non-GAAP financial measures. Management uses these measures along with our Generally Accepted Accounting Principles ("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 ("NAREIT") 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 and their applicable taxes, 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, non-operating and other transactions or events that hinder the comparability of operating results. 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
September 30,
Nine Months Ended
September 30,
2018201720182017
(Unaudited)(Unaudited)
Net income attributable to common shareholders $ 42,981 $ 72,629 $ 268,094 $ 167,307
Depreciation and amortization of real estate 37,784 41,240 125,659 125,379
Depreciation and amortization of real estate of unconsolidated real estate joint ventures and partnerships 3,035 3,453 9,480 10,640
Impairment of operating properties and real estate equity investments 2,398 2,398 12,007
(Gain) on sale of property and interests in real estate equity investments (16,541 ) (38,548 ) (172,280 ) (86,266 )
(Gain) on dispositions of unconsolidated real estate joint ventures and partnerships (2,714 ) (28 ) (6,296 ) (1,978 )
Provision (benefit) for income taxes (1) 1,296 71 1,779 (1,943 )
Noncontrolling interests and other (2) 7,723 (451 ) 8,848 5,955
NAREIT FFO – basic 75,962 78,366 237,682 231,101
Income attributable to operating partnership units 528 515 1,584 1,567
NAREIT FFO – diluted 76,490 78,881 239,266 232,668
Adjustments to Core FFO:
Other impairment loss 3,029
(Benefit) provision for income taxes (3) (1,494 ) (1,494 ) (952 )
Loss (gain) on extinguishment of debt including related swap activity 368 (3,090 )
Storm damage costs 804 804
Lease terminations (10,023 )
Other (535 ) (775 ) 2,904
Core FFO – diluted $ 74,829 $ 79,685 $ 223,884 $ 238,453
FFO weighted average shares outstanding – basic 127,525 127,801 127,651 127,734
Effect of dilutive securities:
Share options and awards 792 844 809 877
Operating partnership units 1,432 1,432 1,432 1,450
FFO weighted average shares outstanding – diluted 129,749 130,077 129,892 130,061
NAREIT FFO per common share – basic $ .60 $ .61 $ 1.86 $ 1.81
NAREIT FFO per common share – diluted $ .59 $ .61 $ 1.84 $ 1.79
Core FFO per common share – diluted $ .58 $ .61 $ 1.72 $ 1.83

______________

(1)

The applicable taxes related to gains and impairments of operating properties.

(2)

Related to gains, impairments and depreciation on operating properties and unconsolidated real estate joint ventures, where applicable.

(3)

The applicable taxes related to gains and impairments of non-operating assets.

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 (see page 1 of the supplemental disclosure regarding this presentation and limitations thereof) 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 that have been sold. 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
September 30, 2018
Nine Months Ended
September 30, 2018
Beginning of the period 179 183
Properties added:
Acquisitions 6
New Developments 1
Redevelopments 2 4
Properties removed:
Dispositions (4 ) (17 )
Other (1 ) (1 )
End of the period 176 176

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, demolition expenses and lease termination fees. 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 Attributable to Common Shareholders to SPNOI is as follows (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2018201720182017
(Unaudited)(Unaudited)
Net income attributable to common shareholders $ 42,981 $ 72,629 $ 268,094 $ 167,307
Add:
Net income attributable to noncontrolling interests 10,293 1,844 14,020 12,755
(Benefit) provision for income taxes (99 ) 577 1,368 (2,035 )
Interest expense, net 15,996 19,850 47,685 61,405
Less:
Gain on sale of property (17,079 ) (38,579 ) (173,077 ) (86,566 )
Equity in earnings of real estate joint ventures and partnership interests (8,022 ) (5,219 ) (19,333 ) (17,966 )
Interest and other income/expense (1,847 ) (1,398 ) (4,735 ) (4,210 )
Operating Income 42,223 49,704 134,022 130,690
Less:
Revenue adjustments (1) (3,945 ) (4,349 ) (21,985 ) (12,569 )
Add:
Property management fees 722 672 2,219 2,252
Depreciation and amortization 38,042 41,509 126,558 126,115
Impairment loss 2,398 2,398 15,012
General and administrative 5,971 6,450 17,715 20,252
Acquisition costs 1
Other (2) 279 1,103 (33 ) 4,384
Net Operating Income 85,690 95,089 260,894 286,137
Less: NOI related to consolidated entities not defined as same property and noncontrolling interests (2,866 ) (14,131 ) (13,148 ) (44,733 )
Add: Pro rata share of unconsolidated entities defined as same property 8,685 8,551 25,424 25,837
Same Property Net Operating Income 91,509 89,509 273,170 267,241
Less: Redevelopment Net Operating Income (8,411 ) (8,166 ) (25,819 ) (24,576 )
Same Property Net Operating Income excluding Redevelopments $ 83,098 $ 81,343 $ 247,351 $ 242,665
___________________

(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, demolition expenses and lease termination fees.

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate

NAREIT defines EBITDAre as net income computed in accordance with GAAP, plus interest expense, income tax expense (benefit), depreciation and amortization and impairment of depreciable real estate and in substance real estate equity investments; plus or minus gains or losses from sales of operating real estate assets and interests in real estate equity investments; and adjustments to reflect our share of unconsolidated real estate joint ventures and partnerships for these items. The Company calculates EBITDAre in a manner consistent with the NAREIT definition.

As mentioned above, NAREIT FFO is a widely recognized measure of REIT operating performance which provides our shareholders with a relevant basis for comparing earnings performance among other REITs based upon the unique capital structure of each REIT. However as a basis of comparability that is independent of a company's capital structure, management believes that since EBITDA is a widely known and understood measure of performance, EBITDAre will represent an additional supplemental non-GAAP performance measure that will provide investors with a relevant basis for comparing REITs. There can be no assurance that EBITDAre as presented by the Company is comparable to similarly titled measures of other REITs.

The Company also presents Core EBITDAre as an additional supplemental measure as it is more reflective of the core operating performance of our portfolio of properties. Core EBITDAre is defined as NAREIT EBITDAre excluding charges and gains related to non-cash and non-operating transactions and other events that hinder the comparability of operating results. Specific examples of items excluded from Core EBITDAre include, but are not limited to, gains or losses associated with the extinguishment of debt or other liabilities, and transactional costs associated with development activities. EBITDAre and Core EBITDAre 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. EBITDAre and Core EBITDAre do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

EBITDAre and Core EBITDAre is calculated as follows (in thousands):

Three Months Ended
September 30,
Nine Months Ended
September 30,
2018201720182017
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre):
Net income $ 53,274 $ 74,473 $ 282,114 $ 180,062
Interest expense, net (1) 15,996 19,850 47,685 61,405
(Benefit) Provision for income taxes (99 ) 577 1,368 (2,035 )
Depreciation and amortization of real estate 38,042 41,509 126,558 126,115
Impairment loss on operating properties and real estate equity investments 2,398 2,398 15,012
Gain on sale of property (2) (17,079 ) (38,579 ) (173,077 ) (86,566 )
EBITDAre adjustments of unconsolidated real estate joint ventures and partnerships, net (3) 1,590 4,621 7,397 12,425
Total EBITDAre94,122102,451294,443306,418
Adjustments for Core EBITDAre:
Storm damage costs 804 804
Lease terminations (10,023 )
Other 3 3 3,154
Total Core EBITDAre$94,125$103,255$284,423$310,376
(1) Includes a $3.8 million gain on extinguishment of debt including related swap activity for the nine months ended September 30, 2018.
(2) Includes a $.6 million and $.8 million gain on sale of non-operating assets for both the three and nine months ended September 30, 2018, respectively. Also includes a $.2 million gain on sale of non-operating assets for the nine months ended September 30, 2017.
(3) Includes a $.4 million and $.7 million loss on extinguishment of debt for the three and nine months ended September 30, 2018, respectively.

Contacts:

Weingarten Realty
Michelle Wiggs, (713) 866-6050

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