HOUSTON--(BUSINESS WIRE)--Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended March 31, 2018. The supplemental financial package with additional information can be found on the Company's website under the Investor Relations tab.
First Quarter Operating and Financial Highlights
- Net income attributable to common shareholders (“Net Income”) for the quarter was $1.13 per diluted share (hereinafter “per share”) compared to $0.24 per share in the same quarter of 2017;
- Core Funds From Operations Attributable to Common Shareholders ("Core FFO") for the quarter was $0.57 per share compared to $0.61 per share a year ago;
- Same Property Net Operating Income (“SPNOI”) including redevelopments increased 2.0% over the same quarter of the prior year;
- Occupancy increased to 94.8% from 93.7% at the end of the first quarter of 2017;
- Dispositions for the quarter totaled $268 million; and
- Common shares totaling $13.9 million and unsecured debt totaling $14.3 million were repurchased to-date in 2018.
The Company reported Net Income of $146.8 million or $1.13 per share for the first quarter of 2018, as compared to $30.8 million or $0.24 per share for the same period in 2017. This significant increase was due primarily to higher gains on sales of properties during 2018.
Funds From Operations attributable to common shareholders in accordance with the National Association of Real Estate Investment Trusts definition (“NAREIT FFO”) was $78.3 million or $0.60 per share for the first quarter of 2018 compared to $74.4 million or $0.57 per share for 2017. The increase is primarily due to increased occupancy, increased rental rates and incremental income from our new developments and redevelopments. Also contributing to the increase in NAREIT FFO was reduced interest expense due to the reduction of debt outstanding with disposition proceeds from 2017 and 2018; however, these increases were offset by the reduced operating income from these same property dispositions in both years. Additionally, NAREIT FFO for 2018 included about $0.03 per share of gain on debt extinguishment in the quarter. In 2017, NAREIT FFO included $.04 per share for a lease termination payment and impairments of non-operating property, net of the related tax benefit. Core FFO is calculated by deducting from NAREIT FFO the gain on debt extinguishment in 2018 and adding back a lease termination payment and impairments in 2017. Core FFO for the quarter ended March 31, 2018 was $74.7 million or $0.57 per share compared to $79.5 million or $0.61 per share for the same quarter of last year.
Effective this quarter, the Company adopted the new revenue recognition standard, ASU 2014-09, “Revenue from Contracts with Customers”, which resulted in the classification of about $1.1 million of revenue from parking, licensing and occupancy agreements out of Rental Revenue into Other Revenue. As this standard was adopted on a modified retrospective approach, we did not restate the prior year amounts. The detail of the classification adjustments by line item is included on Page 45 of the Supplemental and this impact was adjusted for on Same Property NOI by line item on Page 30.
Reconciliations of Net Income to NAREIT FFO and Core FFO are included herein.
For the period ending March 31, 2018, the Company’s operating highlights were as follows:
|Occupancy (Signed Basis):|
|Occupancy - Total||94.8%|
|Occupancy - Small Shop Spaces||90.4%|
|Occupancy - Same Property Portfolio||95.4%|
|Same Property Net Operating Income, with redevelopments||2.0%|
|Rental Rate Growth - Total:||5.8%|
|Number of New Leases||75|
|New Leases - Annualized Revenue (in millions)||$5.3|
|Number of Renewals||169|
|Renewals - Annualized Revenue (in millions)||$14.9|
A reconciliation of Net Income to SPNOI is included herein.
“We are pleased with our performance as we continue to add quality merchants to our outstanding portfolio of properties. Our occupancy continues to improve, increasing 1.1% over last year to 94.8%. Additionally, as 2.8% of our portfolio has signed leases that have not commenced, we have imbedded growth for the remainder of 2018 which should contribute to meeting our Same Property NOI guidance for the year ,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.
During the quarter, the Company closed $268 million of dispositions with the sale of eight shopping centers including Moore Plaza in Corpus Christi, Texas, Best in the West and Paradise Marketplace in Las Vegas, Nevada, Millpond Center and Tates Creek Centre in Lexington, Kentucky, Horne Street Market in Fort Worth, Texas, Palmilla Center in Avondale, Arizona and a portion of Stoneridge Towne Centre in Moreno Valley, California. The Company also sold two land parcels.
As for acquisitions, the Company purchased a land parcel adjacent to an existing shopping center for $1.3 million during the quarter and will begin construction of a 9,000 square foot multi-tenant building in the next 30 days.
The Company invested $27 million in new developments and redevelopments during the first quarter. Groundbreaking on the Driscoll at River Oaks, a 30-story residential tower to be constructed at the Company’s River Oaks Shopping Center, is expected to occur this summer.
“We are pleased with our solid start to 2018 considering the retail real estate environment. Further, our dispositions reduce our exposure to power centers and to tertiary markets which clearly enhances the overall quality of our portfolio. Our new developments and redevelopments are progressing nicely, which will provide earnings growth going forward,” said Drew Alexander, President and Chief Executive Officer.
Proceeds for the Company’s 2017 and 2018 dispositions were used to further enhance its balance sheet. The Company paid down its $200 million term loan in two $100 million tranches, the second of which closed on April 3rd. During the first quarter of 2018, the Company repurchased $13.7 million of its unsecured bonds and $8.1 million of its common shares at an average price of $27.37 per share. Subsequent to quarter-end, the Company repurchased an additional $0.6 million of its unsecured bonds and $5.8 million of its common shares at an average price of $26.89. At quarter-end, Net Debt to Core EBITDAre was a strong 5.1 times and Debt to Total Market Capitalization was 34.6%.
“With the strongest credit metrics we have had in many years, we are poised to take advantage of whatever opportunities may arise, which could include quality acquisitions, additional purchases of our bonds and buying back our stock. Low leverage provides the flexibility to react quickly as market conditions change,” said Steve Richter, Executive Vice President and Chief Financial Officer.
As to earnings guidance, we are increasing NAREIT FFO per share to a range of $2.29 to $2.35 and reaffirm Core FFO for the year along with the supporting details as previously provided. All of the details of our guidance are included on page 10 of our Supplemental.
The Board of Trust Managers declared a quarterly cash dividend of $0.395 per common share payable on June 15, 2018 to shareholders of record on June 8, 2018.
Conference Call Information
The Company also announced that it will host a live webcast of its quarterly conference call on April 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 # 45774517). 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 March 31, 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 196 properties which are located in 17 states spanning the country from coast to coast. These properties represent approximately 39.5 million square feet of which our interests in these properties aggregated approximately 25.0 million square feet of leasable area. To learn more about the Company’s operations and growth strategies, please visit www.weingarten.com.
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)|
Three Months Ended
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME||(Unaudited)|
|Depreciation and Amortization||38,095||42,449|
|Real Estate Taxes, net||17,639||17,517|
|General and Administrative Expense||5,595||7,384|
|Interest Expense, net||(14,672||)||(21,082||)|
|Interest and Other Income/Expense||1,533||1,622|
|(Provision) Benefit for Income Taxes||(783||)||3,359|
Equity in Earnings of Real Estate Joint Ventures and
|Income from Continuing Operations||39,924||20,633|
|Gain on Sale of Property||109,045||15,763|
Less: Net Income Attributable to Noncontrolling Interests
|Net Income Attributable to Common Shareholders -- Basic||$||146,824||$||30,826|
|Net Income Attributable to Common Shareholders -- Diluted||$||147,352||$||30,826|
|Earnings Per Common Share -- Basic||$||1.15||$||.24|
|Earnings Per Common Share -- Diluted||$||1.13||$||.24|
|Weingarten Realty Investors|
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|Property Held for Sale, net||—||54,792|
|Investment in Real Estate Joint Ventures and Partnerships, net||323,590||317,763|
|Unamortized Lease Costs, net||172,852||181,047|
|Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net||87,091||104,357|
|Cash and Cash Equivalents||88,238||13,219|
|Restricted Deposits and Mortgage Escrows||7,395||8,115|
|LIABILITIES AND EQUITY|
|Accounts Payable and Accrued Expenses||88,024||116,463|
|Commitments and Contingencies||—||—|
|Common Shares of Beneficial Interest||3,895||3,897|
|Additional Paid-In Capital||1,769,306||1,772,066|
|Net Income Less Than Accumulated Dividends||(35,580||)||(137,065||)|
|Accumulated Other Comprehensive Loss||(9,694||)||(6,170||)|
|Total Liabilities and Equity||$||4,109,166||$||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
|Net income attributable to common shareholders||$||146,824||$||30,826|
|Depreciation and amortization of real estate||37,765||42,188|
Depreciation and amortization of real estate of unconsolidated real estate joint ventures
|Impairment of operating properties and real estate equity investments||—||12,005|
|(Gain) on sale of property and interests in real estate equity investments||(109,038||)||(15,748||)|
|(Gain) on dispositions of unconsolidated real estate joint ventures and partnerships||(2,363||)||—|
|Provision (benefit) for income taxes (1)||161||(2,392||)|
|Noncontrolling interests and other (2)||1,210||3,369|
|NAREIT FFO – basic||77,743||73,887|
|Income attributable to operating partnership units||528||526|
|NAREIT FFO – diluted||78,271||74,413|
|Adjustments to Core FFO:|
|Other impairment loss||—||3,017|
|Provision (benefit) for income taxes||—||(952||)|
|(Gain) on extinguishment of debt including related swap activity||(3,557||)||—|
|Core FFO – diluted||$||74,714||$||79,544|
|FFO weighted average shares outstanding – basic||127,926||127,610|
|Effect of dilutive securities:|
|Share options and awards||781||938|
|Operating partnership units||1,432||1,462|
|FFO weighted average shares outstanding – diluted||130,139||130,010|
|NAREIT FFO per common share – basic||$||.61||$||.58|
|NAREIT FFO per common share – diluted||$||.60||$||.57|
|Core FFO per common share – diluted||$||.57||$||.61|
|(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.|
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
March 31, 2018
|Beginning of the period||183|
|End of the period||184|
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
|Net income attributable to common shareholders||$||146,824||$||30,826|
|Net income attributable to noncontrolling interests||2,145||5,570|
|Provision (benefit) for income taxes||783||(3,359||)|
|Interest expense, net||14,672||21,082|
|Gain on sale of property||(109,045||)||(15,763||)|
|Equity in earnings of real estate joint ventures and partnership interests||(5,993||)||(5,317||)|
|Interest and other income/expense||(1,533||)||(1,622||)|
|Revenue adjustments (1)||(3,932||)||(4,109||)|
|Property management fees||867||926|
|Depreciation and amortization||38,095||42,449|
|General and administrative||5,595||7,384|
|Net Operating Income||88,567||96,171|
|Less: NOI related to consolidated entities not defined as same property and noncontrolling interests||(3,892||)||(13,643||)|
|Add: Pro rata share of unconsolidated entities defined as same property||8,374||8,687|
|Same Property Net Operating Income||93,049||91,215|
|Less: Redevelopment Net Operating Income||(7,133||)||(6,693||)|
|Same Property Net Operating Income excluding Redevelopments||$||85,916||$||84,522|
|(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
|Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre):|
|Interest expense, net (1)||14,672||21,082|
|Provision (benefit) for income taxes||783||(3,359||)|
|Depreciation and amortization of real estate||38,095||42,449|
|Impairment loss on operating properties and real estate equity investments||—||14,986|
|Gain on sale of property (2)||(109,045||)||(15,763||)|
|EBITDAre adjustments of unconsolidated real estate joint ventures and partnerships, net (3)||2,488||4,881|
|Adjustments for Core EBITDAre:|
|Total Core EBITDAre||$||95,962||$||103,740|
|(1)||Includes a $3.8 million gain on extinguishment of debt including the related swap activity for the three months ended March 31, 2018.|
|(2)||Includes a $2 thousand gain on sale of non-operating assets for the three months ended March 31, 2017.|
|(3)||Includes a $.2 million loss on extinguishment of debt for the three months ended March 31, 2018.|