Weingarten Realty : Reports Strong Results

Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended June 30, 2018. 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 $0.61 per diluted share (hereinafter “per share”) from $0.49 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 2.7% over the same quarter of the prior year;
• Occupancy increased to 94.6% at quarter end from 94.5% in the prior year;
• Rental rates on new leases and renewals for the quarter were up 21.4% and 7.1%, respectively; and
• Dispositions totaled $77 million for the quarter and $358 million to-date.

Financial Results

The Company reported Net Income of $78.3 million or $0.61 per share for the second quarter of 2018, as compared to $63.9 million or $0.49 per share for the same period in 2017. This increase was due primarily to higher gains on sales of properties during 2018. Year-to-date, Net Income was $225.1 million or $1.74 per share for 2018 compared to $94.7 million or $0.74 per share for 2017.

Core FFO for the quarter ended June 30, 2018 was $0.57 per share or $74.3 million compared to $0.61 per share or $79.2 million for the same quarter of last year. Dispositions in 2017 and 2018 decreased Core FFO by $0.08 per share. This was offset by higher operating income driven by increased base rents, slightly higher expense reimbursements, bad debt recoveries and reduced interest expense due to the reduction in debt outstanding with disposition proceeds. For the six months, Core FFO was $149.1 million or $1.15 per share for 2018 compared to $158.8 million or $1.22 per share for 2017. Dispositions reduced Core FFO for the six months by $0.14 per share.

NAREIT FFO was $84.5 million or $0.65 per share for the second quarter of 2018 compared to $79.4 million or $0.61 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. Year-to-date, NAREIT FFO was $162.8 million or $1.25 per share for 2018 compared to $153.8 million or $1.18 per share for 2017.

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

Operating Results

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

A reconciliation of Net Income to SPNOI is included herein.

“Operations remained strong this quarter, a reflection of our significantly improved portfolio of properties. With the most diversified tenant base in our sector, the impact of tenant closures has been relatively muted. The recent Toys R Us bankruptcy resulted in minimal impact to SPNOI for the quarter, but will reduce occupancy by 0.7% beginning in the third quarter and reduce revenue by approximately $0.9 million over the balance of the year. However, we have great interest in all of these locations and should have rent back on line for all of them within eighteen months,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.

Portfolio Activity

During the quarter, the Company closed $77 million of dispositions and an additional $13 million subsequent to quarter end. These dispositions included two centers each in Nevada, North Carolina and Texas, one in Georgia and a portion of Stoneridge Towne Centre in Moreno Valley, California. The Company also sold two land parcels.

The Company did not acquire any properties during the quarter.

During the quarter, the Company invested $34 million in new developments and redevelopments. We are breaking 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 dispose of assets that are in the bottom portion of our portfolio where we can sell at or near the properties net asset value. While conditions can change rapidly, the current environment seems to be conducive to further disposition activity, leading to an increased guidance range for 2018,” 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. At the beginning of the quarter, the Company paid down the remaining $100 million outstanding under its $200 million term loan. During the second quarter of 2018, the Company used additional proceeds to repurchase $0.6 million of its unsecured bonds and $10.4 million of its common shares at an average price of $26.90 per share. Year-to date, the Company has repurchased $14.3 million of its unsecured bonds and $18.5 million of its common shares at an average price of $27.10 per share. At quarter-end, Net Debt to Core EBITDAre was a strong 5.1 times and Debt to Total Market Capitalization was 31.4%.

“The use of proceeds from our disposition program has enabled us to further enhance our financial position through both the pay down and repurchase of debt. It will further provide funding for our new development and redevelopment programs, the repurchase of common shares and a relatively large special dividend at year-end that is required due to the significant tax gains generated by our disposition program. Our balance sheet is as strong as it has ever been and positions us 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 increased guidance for Net Income and NAREIT FFO as set forth in the table below. Given the strong market for quality properties, the Company is cautious with respect to the pricing of acquisitions, and accordingly, is reducing its acquisitions guidance for the remainder of the year. Additionally, the Company has increased the amount of property it is marketing for sale; therefore, it has increased its guidance for dispositions. Shown below is the Company’s guidance with adjusted items highlighted.

Dividends

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

Conference Call Information

The Company also announced that it will host a live webcast of its quarterly conference call on July 31, 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 # 45774519). 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, 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 190 properties which are located in 17 states spanning the country from coast to coast. These properties represent approximately 38.4 million square feet of which our interests in these properties aggregated approximately 24.6 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.

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):

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:

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):

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):

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