Weingarten Realty Investors
Q3 2019 Earnings Call Transcript

Published: 30 Oct 2019

[Operator:]

Good morning, and welcome to the Weingarten Realty Inc. Third Quarter 2019 Earnings Call. My name is Brandon, and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note, this conference is being recorded.And I will now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our third quarter 2019 conference call. Joining me today is Drew Alexander, Johnny Hendrix; Steve Richter; Joe Shafer.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 changes in circumstances. Actual results could 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, both core and NAREIT, which we believe help analysts and investors to better understand Weingarten’s operating results. Reconciliation to these non-GAAP financial measures is available in our supplemental information package located under the Investor Relations tab of our website.I will now turn the call over to Drew Alexander.

[Drew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. I am pleased to announce a great quarter. Our results show the resiliency of neighborhood and community shopping centers with grocers and merchants selling basic goods and services. Further, the quality improvements we've made in our portfolio by selling weaker assets and adding stronger assets has proven beneficial.Coupling this transformed portfolio with a significantly reduced volume of dispositions planned for 2020, a nice pipeline of potential acquisitions, revenue from our new developments beginning to come online and a best-in-class balance sheet, we're extremely bullish about the future.While the acquisition market remains highly competitive, during the quarter we were able to purchase in partnership with Bouwinvest, a Whole Foods' anchored center in a very affluent part of Atlanta. The company's share of acquisitions was $28 million in Q3. Subsequent to quarter end, we purchased Hilshire Village in Houston, bringing acquisitions to date in 2019 to $113 million. Johnny will talk more about this fine asset in a minute. We continue to see other quality opportunities which prompted us to increase our acquisition guidance for 2019.As to dispositions, we sold $162 million of property in the third quarter, the largest of which was the sale of Jess Ranch marketplace in Apple Valley California. As discussed last quarter, the sale of this $89 million power center in a tertiary market was a significant derisking event for the company that further strengthens our portfolio.Given our year-to-date dispositions of $362 million and our current pipeline, we will likely finish the year at the upper end of our disposition guidance. As I said last quarter, we plan for dispositions to return to more normalized portfolio management for 2020, which we don't see being above $150 million.Moving on to our new development activities. At the Whittaker in West Seattle Washington, Whole Foods opened earlier this month. At Centro Arlington, our mixed-use project in the D.C. market Harris Teeter opened last week. We also have some residential units occupied here and are about 30% complete leasing our 366 residential units with rents running above pro forma.At West Alex, also near D.C., we are about to begin residential leasing and expect move-ins to begin around year-end. The Harris Teeter supermarket plans to open at West Alex in 2021. Both of these projects benefit from a good supermarket anchor in close proximity to Amazon HQ2, the vibrant North Virginia -- Northern Virginia market and strong barriers to new construction.The Driscoll at River Oaks is progressing nicely. Construction is currently ahead of plan and we should have residential units available in mid-2020. We have many other redevelopment projects in the pipeline that will provide excellent returns on the invested capital and we continue to work those with great focus. A great quarter.Steve, the financials?

[Steve Richter:]

Thanks, Drew. Our balance sheet remains amongst the strongest in our sector. At quarter end net debt to EBITDA was a strong 4.97 times and debt to total market capitalization was 31.4%, supported by a well-laddered maturity schedule that has no significant maturities until 2022.Our current leverage position allows us to fund our new developments, redevelopments and acquisition programs while still maintaining capacity to pursue future growth even with our reduced disposition activity going forward. This great liquidity and our strong credit metrics provide significant long-term stability for our shareholders and the flexibility to pursue opportunities.Core FFO for the quarter was $0.53 per share, compared to $0.58 per share for the same quarter of the prior year. The decrease is primarily due to disposition activity which cost us $0.03 per share, when compared to last year, and the $0.02 per share of indirect leasing costs we expensed under the new leasing standard in 2019, but not in 2018. These decreases were partially offset by increases in same-property NOI, primarily driven by increased base minimum rents and incremental income from our new developments and redevelopments. A reconciliation of net income to core FFO is included in our press release.As to guidance, we are increasing our core FFO guidance to a range of $2.07 to $2.11 per share and we are increasing our acquisition guidance to a range of $175 million to $275 million. All the details of our guidance are included on page 10 of our supplemental. Johnny?

[Johnny Hendrix:]

Great, Steve. We're pleased with the solid results, our properties and associates produced during the quarter. Leasing remained strong. Bankruptcies are well below levels we expected. Shop occupancy rose 30 basis points from last quarter to 90.7%. Same-property NOI with redevelopment grew almost 3%, with base minimum rent growth at 3.1%.New lease rent growth was 15%. Our redevelopment program, continue to deliver strong risk-adjusted returns and we've acquired some great properties that will enhance our portfolio quality and grow our FFO. Overall, levels of tenant fallout in our portfolio have remained reasonable, about the same for the last couple of years. Weingarten has the most diversified tenant lineup in our peer group, with limited exposure to any one retailer.I do have a couple of bankruptcy updates. Just after our call last quarter, Avenue filed for liquidation. They quickly rejected all their leases and now have closed all their stores. We had four, representing only $350,000 of annual base minimum rent. We should be able to lease these spaces quickly and get them generating rent again over the next several quarters. We have one Forever 21 store. It's at Palms at Town & Country in Florida. The store produces high volume and has a modest occupancy cost. They've actually paid significant percentage rent over the last several years. We expect this lease will be affirmed.Leasing production was good during the quarter. We executed 78 new leases and 108 renewals for a total of $13.7 million in annual base minimum rent. Demand for space continues to come from several categories, supermarkets; discount clothing; restaurants, both quick service and full service; medical services; and gyms. Occupancy has remained stable over the last year. We ended the quarter with occupancy of 94.7%. That's slightly higher than a year ago and a little below the 94.8% from last quarter.We're excited to grow the shop occupancy to 90.7%. This is the highest level we've achieved in at least 10 years. We feel, we can continue to improve this metric in future quarters. The spread between leased and commenced grew to a robust 230 basis points at quarter end. That represents 500,000 square feet of space. We expect to commence about half of that space, representing $6 million in annual base minimum rent over the next six months. This is great fuel for our same-property NOI next year.Same-property NOI remains very good at 2.9%, with redevelopment for the quarter and we're comfortable with our guidance range of 2.5% to 3.5% for the year. Our redevelopment program continues to generate strong risk-adjusted returns. We have 10 properties under construction. You'll see that, we completed two properties, our Sprouts-anchored Winter Park Corners and a multi-tenant building at Roswell Corners.We also added a multi-tenant building at Flamingo Pines. We've budgeted to spend $71 million on the 10 properties and expect a return on investment -- on our new investment of around 10%.Most of these redevelopments are outparcel buildings between 5,000 and 10,000 square feet, so really not much risk. A good example is a 12,000 square-foot building we're adding at Wellington shopping center. We will have leased most of the building before we start construction and we'll have a clear understanding of our costs.As Drew mentioned, we found some great properties to buy. Year-to-date, we've invested $113 million and we have $170 million under contract. There's no guarantee we close all these properties and some of these transactions might get pushed into next year, but we are excited to be improving our portfolio quality and growing our FFO by adding these great assets.After the end of the quarter, we purchased The Shops at Hilshire Village. This is a neighborhood center, anchored by a high-volume Kroger supermarket. It's located at the edge of a very affluent Memorial Villages here in Houston.The three-mile demographics are strong with 135,000 people and an average household income of $117,000. We've wanted to own this asset for several years. And by staying in regular contact with the owner, we were able to acquire the property prior to going to market. We expect to upgrade the tenancy and increase rents in years to come.Drew?

[Drew Alexander:]

Thanks, Johnny. We're very pleased with our accomplishments in 2019. We've acquired four great grocery-anchored centers and our new development projects continue to move successfully forward. Same-property NOI at 2.9% is quite good. Great rent growth and increased occupancy, with small shop occupancy at a 10-year high.As our highly successful disposition program nears the end, our shareholders can look forward to the benefits of owning a company with a highly transformed portfolio, with a much stronger diversified merchant lineup, greatly improved demographics and a sector-leading balance sheet.This will allow us to continue to post great operating metrics and will provide our shareholders greater financial stability and future FFO growth. Great people, great properties and a great platform equals great results. I thank you all for joining the call today and for your continued interest in Weingarten.Operator, we'd now be happy to take questions.

[Operator:]

Thanks, Drew, and we'll now begin the question-and-answer session. [Operator Instructions] And from Citi we have Christy McElroy. Please go ahead.

[Katy McConnell:]

Good morning. This is Katy McConnell on for Christy. Could you talk about what's driving the wider dispersion in same-store with and without redevelopments year-to-date versus your expectations implied in guidance? And then, maybe walk us through the key drivers of the steeper acceleration implied for same-store growth ex redevs in Q4?

[Johnny Hendrix:]

Sure, Katy. A lot of the redev has come online. Like we said, we've actually closed some of those out. And it's all those new tenants coming online that are really driving the difference in it. We had some bad debt in the same-property without redev and we were kind of comping against a pretty tough number.In terms of the guidance for the rest of the year, I think, like always there's a lot of moving pieces to it. We still have about $400,000 in bad debt in the number and we don't see any immediate need for that, but it does seem prudent to maintain it.And we're always re-merchandising and improving our properties. And as part of that, we have some tenants moving out. We've terminated a couple of tenants at Lakeside in Atlanta where we're under construction with Michaels and Ulta. We terminated a Rite Aid early in Raleigh where we've already leased the space and we had a nice termination for that, but that doesn't count towards same-property NOI.And then, we also have some pretty difficult comp numbers on some bad debt recoveries and that's kind of hard to predict what we might be able to get this year. At the end of the day, I think, three for an annualized same-property NOI number is a pretty good number.

[Katy McConnell:]

Okay, great. Thanks. And then maybe one more. If you could just provide any color on your outlook for net transaction activity in 2020? And how you're thinking about acquisitions as an avenue of growth going forward versus reinvestment in the portfolio?

[Drew Alexander:]

Good morning. It's Drew. We look at all opportunities. We have the large developments that are progressing along nicely. We've talked about not adding more mixed-use to our balance sheet until we digest the three that are on our plate. As you heard in my prepared remarks those are coming along nicely. But I certainly don't see us spending significant money in 2020 on new mixed-use or residential projects.We do have a huge densification pipeline over an extended period of time. And when you get to 2021 and 2022, I could see us spending a lot of money there but not so much in 2020. Johnny and his team worked very diligently on the small, simple, very profitable risk-adjusted redevelopments like -- at Wellington and we have an active pipeline on those as well.When it comes to acquisitions, we always work, we always look, we see every deal and we've had some good fortune on some deals. We're able to source an off-market transaction that we're very excited about. It happens to be a center I shop in frequently so pleased to be able to do that. So we'll keep working on acquisitions, but it's always opportunistic.And then as far as capital allocation as I mentioned in my prepared remarks, we've gone through a lot. We've sold a lot of weak centers. I think we very much benefited shareholders, but we're basically done. And we don't see the 2020 dispositions being $150 million we think it would be less than that. And we would expect to match funds or better that we would plan to find good growth opportunities looking at both acquisitions redevelopments and if any new developments came along looking at those as well.

[Katy McConnell:]

Okay, great. Thanks for the color.

[Operator:]

And from Bank of America we have Craig Schmidt. Please go ahead.

[Craig Schmidt:]

Yes. I wonder, I mean, you guys are pretty active in both buying now and selling. If you could give us an update on cap rates and demand depth for open-air centers?

[Johnny Hendrix:]

Hi, Craig. Good morning. Yes. It really varies. I would tell you that pricing seems to have remained fairly consistent over the last three quarters or so. If you wanted to have a really great supermarket-anchored property on the coast, you'd probably be looking at somewhere around a 4.25% to 5% in other parts of the country probably 50 basis points -- 75 basis points more. Power centers seem to be -- kind of seems to have settled somewhere around that 7.5% range maybe a little bit more depending on the specific tenancy. Debt is certainly available. And so we are very, very pleased with what we've done in terms of the dispositions in the acquisitions as well.

[Craig Schmidt:]

Thank you. That was helpful. And then just maybe if you could give us your most recent pre-leasing update on the multifamily for both of the Alexander -- Alexandria projects?

[Drew Alexander:]

Sure, Craig. It's Drew. As mentioned at Centro things are progressing nicely. As I said in my prepared remarks about 30% pre-leased which we're very pleased with. Rents are trending ahead of our pro forma. Very, very pleased with that. We also have a nice book of pretty strong inquiries in terms of people that -- evaluating applying in a couple of corporate relo deals that we're looking on. As I mentioned Harris Teeter opened in the last few weeks. So we're just very, very pleased with how we're coming out of the gate at Centro.The construction timing situation just the basics of it West Alex is a little behind that. So we haven't really started leasing per se. We're in that organizational part hosting a lot of tours of realtors, buying bagels and coffee at their office website up and running. And as I mentioned should be turning those units over around the end of the year. But also trying to make sure with the holidays precisely what our timing is we'll know more about that over the next few weeks.So two projects are very close to each other. So the fact that we're ahead of pro forma at Centro makes us feel good about West Alex. And the two projects are close, very close to Amazon HQ2, which doesn't have many employees on the ground today, but will provide a wonderful tailwind as we renew leases over the next few years.So, very pleased with those projects. And as I mentioned ahead of schedule construction wise on the Driscoll here in Houston should start having some heads and beds as they say the middle of next year here at the project in Houston.So, very pleased with the progress that we've made. It's takes a long time to develop these, kind of, projects so we've been talking about them on a lot of calls and very excited about the revenue that'll be coming online next year and in 2021.

[Craig Schmidt:]

Great. Thank you for the update.

[Operator:]

From Scotiabank we have Greg McGinniss. Please go ahead.

[Greg McGinniss:]

Hey good morning. Johnny, so we've heard in some conversations that more interesting assets maybe are entering the market as smaller private owners are shying away from increasingly capital intensive business. Is this indicative of the type of assets you guys have identified for acquisitions? Or how would you classify those deals, considering you mentioned cap rates have been fairly stable?Also I understand you'll need to be vague here, but how many deals are you currently looking at? And what, kind of, cap rates should we expect to see on these acquisitions?

[Johnny Hendrix:]

Hey, good morning Greg. I would say a lot of what we are focused on are assets that have strong supermarkets and have some room to grow the rent, and I will tell you that they're generally fully priced. We haven't seen a lot of mom and pops or smaller folks either selling those or buying those. So we're pretty well competing with some of our peers in some of the others like us institutions.So we're -- I would say, we're seeing some things that actually where the price is relatively high today, not anything we have under contract but some over $100 million deals, which is kind of a change in the way that -- the assets we've been seeing over time. And a lot of them have a lot of different moving pieces, so they really don't lend themselves to be resolved by a local person without significant capital.And I'm sorry, what was the other question you had?

[Greg McGinniss:]

Yeah. It’s just what you expect from cap rates and acquisitions?

[Johnny Hendrix:]

Yeah. I think we're buying at a competitive price. So we're going to be buying product that is going to be 4.5%, 5.5% going in cap rate. We think that we're going to move this return on investment to about 5.25%, 5.5% over time in three years or so.

[Greg McGinniss:]

Great, thanks. And next question I'll preface this by saying, I'm not looking for 2020 guidance -- same-store guidance but a few details would be appreciated. So first could you remind us, Steve or Johnny whoever wants to take this one, could you remind us what your steady-state same-store NOI growth expectations are? If there's going to be any one-time items that we have -- we can see right now into next year? And then a little color on the state of the tenant watch list, so then we can try and make our own conclusions from there.

[Drew Alexander:]

Greg, maybe I'll start and then Steve and Johnny can chime in. So I think we are in a world where over an extended period of time, I think 2.5% same-property NOI growth is a good number.As Johnny mentioned we always have to comp against bad debt and that always moves around. We have an active redevelopment pipeline and we take some short-term pain to position ourselves in order to do those redevelopments that we think are very accretive for shareholders. And that's where we look at the same-property with redev number and Johnny talked about that. We feel pretty good that we'll be around the 3% the middle of our guidance this year.So if 2.5% is normal and we're better than normal, we hope to do a little better next year. As far as the watch list, we go through to disclose with you guys all the top tenants and all the weak tenants and we're in touch with them. There's nothing that jumps off the page that's super scary. There's no imminent knowledge that we have that's not out there. But over some period of time, something is going to happen to some of those at-risk tenants. So exactly what quarter that is and which stores, we don't know. We have good centers. That's where we've sold a lot of things. So one Forever 21 that pays percentage rent they keep it. So having a well-diversified tenant mix is a really good thing. So Johnny, Steve anything else?

[Johnny Hendrix:]

Yes. I would repeat what I had said earlier that we have about 500,000 square feet that is signed and not commenced. We expect about $6 million of NOI to come online on that property over the next six months the balance of it throughout the year and then a little bit into 2021 and I think that's going to be the bigger driver of things that we have.

[Steve Richter:]

The only thing I would add Greg is that we have not finished our business plan our budgets for 2020 yet. And so obviously not in a position to provide guidance but we're still working through that. And as Johnny and Drew mentioned, there's a lot of moving pieces that will dial into that number ultimately.

[Greg McGinniss:]

Well, thank you. I appreciate all the color there.

[Operator:]

From SunTrust, we have Ki Bin Kim. Please go ahead.

[Ki Bin Kim:]

Thanks. So I guess the message is pretty clear that you're winding down that massive disposition program. Just curious what is the kind of underlying thinking behind that? Is it that investors are expressing some frustration or fatigue with the dilution? Or is it more of the fact that you think there's not much that you really want to sell?

[Drew Alexander:]

Ki Bin, it's Drew. So, yes, first of all in the reports that I saw last night, I'm pleased that our messaging has come through. I totally get the questions that people have had about that. I think those questions are totally logical and I understand questions that came up in our last earnings call, questions that came up outside of the earnings call, different conferences, totally understand the question. And that's where -- try to do the best we could to address those questions directly that we do think 2020 will be much less.As to why, I would say, it is really a function of we just don't have that much left that we see all that compelling. Have some things if you look at our map have some things that we think we can harness more shareholder value if we give Johnny and the team a little time to position some of these assets better.So don't have to be in any rush to sell them. So I think we've done a fabulous job of derisking and repositioning. And it's mostly as you surmised, we just don't have that much left that we're worried about.

[Ki Bin Kim:]

Okay. And you mentioned that you're not planning any new development projects in 2020 but maybe there's something -- you do have a pipeline as most companies do maybe 2021, 2022 depending on the situation. But is there a change in the threshold or the hurdle rates that you're looking at?I'm looking at the development projects you have in the pipeline today around about 5.5% yield. I mean some questions around kind of low yield versus where your stock is trading implicitly has a threshold or hurdle rates changed at all for things that you will contemplate?

[Drew Alexander:]

I think that's an excellent question. So let me try to do this briefly. It's a pretty important subject. So we have a multibillion-dollar pipeline and it's one of the things that we'll go over with folks in -- at NAREIT and add to our roadshow that is identified projects that one can look at.These are not entitled. There's lots of work to do. So that's where I say I feel comfortable that we won't be spending lots and lots of money in 2020 but we will be investing going forward.Our River Oaks Center in Houston is an excellent example where we're building the first tower and it's very clear that one could see four or five additional towers there over a long period of time. But obviously, we're going to digest the first one before we add the next.As far as the hurdle rates, when you're looking at these largely residential projects, you're looking at a different set of returns, you're looking at exit cap rates in a market like D.C. for residential in the low 4s. So if you can develop something to a mid to high 5s that's actually a pretty good profit. And the other nice thing about resi is, you do get another bite at the apple after a year.So the mixed-use projects do take longer. I think the risk/reward is there. I think over a multiyear period, we'll be investing more in them, but we'll also be very judicious about limiting our exposure and not doing more in the near term till we digest some of what we have. But we do have a very robust pipeline of future densification and additional redevelopments.

[Ki Bin Kim:]

Okay. Thanks Drew. Maybe I can squeeze one more in. Steve, I'm not sure if I missed it but what was the year-to-date impact or 2019 impact from bankruptcies or bad debt? And did you -- I'm not sure if you've said it, but did you expect that to normalize or get better next year?

[Steve Richter:]

Good morning. I think the -- we did realized some bad debt. The issue is really the comping off of prior quarters where we had recoveries. Quite frankly if you look back over the last couple of years, we have not had bad debt expense but we've actually had recoveries.So I think that what we realized in the third quarter was kind of a normal amount of bad debt. As Johnny mentioned there's obviously some that's still built-in in the plan for Q4. We feel fairly comfortable about our tenancy and where things are, but we don't see a lot of movement from what the current state is between now and the end of the year.

[Ki Bin Kim:]

Okay. Thank you guys.

[Operator:]

From Capital One Securities, we have Chris Lucas. Please go ahead.

[Chris Lucas:]

Good morning everybody. Just to kind of follow up on that detailed question Steve, just on the $1 million of lease intangible write-offs was that mostly related to Avenue stores or are there other things in there as well?

[Steve Richter:]

Good morning Chris. I would tell you, it was not Avenue. There was -- the vast majority was on two leases, one down at Palms, the Charming Charlie's lease that we got back and then there was one for a bigger restaurant. That was -- between the two of them it was like $800,000 plus of $1 million. So we do have those from time to time. They're not huge, but there was a couple of big ones this quarter.

[Chris Lucas:]

And then just a follow-up on this tact, just thinking dressbarn, what's the exposure and what's sort of the outcome to you guys for that?

[Johnny Hendrix:]

Hey Chris. Good morning. It's Johnny. We have three remaining dressbarns. We did had one close at Largo during the last quarter. We have not agreed to anything with dressbarn and so we'll pursue them paying the money that they owe us and we'll work through that over the next 1 year or 2.

[Chris Lucas:]

Okay. Great. And then on the 30% pre-leasing so far done at Centro, does that include any WhyHotel units or is there -- is that all sort of normal pre-leasing?

[Drew Alexander:]

No that's before the WhyHotel units.

[Chris Lucas:]

Okay. And then when does their deal kick in?

[Drew Alexander:]

The WhyHotel?

[Chris Lucas:]

Yes.

[Drew Alexander:]

I'm not 100% sure Chris, but I think it's pretty soon.

[Chris Lucas:]

Okay. And then Steve, just one more question for you, just as it relates to the accounting approach that you're taking for West Alex and Centro have you guys settled on that in terms of when you're going to stop capitalizing in expense?

[Steve Richter:]

Yes. I think we've done quite a bit of research trying to understand the resi market quite frankly from some of our peers as well as some in the multifamily space. And the bottom line conclusion is, I think we concluded there's not a standard out there.But we're looking at using the CO date, plus a short number of days thereafter as a benchmark to stop the interest accrual -- the interest capitalization.

[Chris Lucas:]

Okay. And then I guess just as it relates to the acquisitions, I guess what we've heard more is that there are some large institutional owners that have some funds that are sort of maturing in the next 1 year or 2. Is -- can you give us a sense as to sort of the sourcing of your acquisition opportunities both for what you already have sort of under contract and what you're looking at as you look into next year?

[Johnny Hendrix:]

Sure Chris. We've always highlighted the boots on the ground and the idea that our decisions are made in the parking lot, not the boardroom. Our acquisition team really reflects that. We have dedicated resources in regional offices that are working with leasing people for redevelopment, new development and then acquisitions. They're sourcing opportunities through their relationships with brokers with tenants and even with property owners like I think Hilshire is a really good example of. We are seeing this teamwork approach really paying off as we continue to be able to find some great properties and try to – and really understand some pretty complicated situations that we're looking at.

[Chris Lucas:]

Okay. Thank you. And then the last question for me relates to M&A, where there have been two really large deals in the industrial and in the data center space announced this week public-to-public transactions. I guess within the shopping center space, is there anything specific that you could point to that suggests why there hasn't been more M&A in the space to date?

[Drew Alexander:]

Chris, Drew. It's one of those things I think you and I have talked privately. I really don't know. It is something we've been around and going to conferences for a long time. I've been CEO for 18 years. I've always predicted that there would be consolidation. And it seems that every time there is there's somebody that wants to go public and take their place. So, very different fact situation than industrial and we would always look to do the right thing for shareholders, but it remains uncertain as to what will happen but it is perplexing I agree with that.

[Chris Lucas:]

Great. Thank you. Appreciate it. That's all I have this morning.

[Operator:]

From JPMorgan we have Hong Zhang. Please go ahead.

[Hong Zhang:]

Yeah. Hi. Just as a quick question about the development redevelopment pipeline. Just looking at – comparing to Q2 and the Q3 sub looks like in 2Q you had an allocation of 25,000 square feet in West Alex for office and that seems to be --- to have been rolled up into retail. Was there any particular reason why that got combined?

[Drew Alexander:]

We just felt it was simpler. This is Drew. Good morning. If you look at the layout, we had some ground floor retail and then a couple of spaces above that that when the project was originally conceived before we got involved would seen as sort of it would be good boutique office. We were never 100% sure, how it would play out and we were approached by a school a montessori school to take the top floor. Well, I think a school is more of a use you see pretty commonly in shopping centers. So that left us with the middle floor, which is more likely going to be leased to more service businesses maybe you'd see like a stockbroker office or insurance office or something like that. But we just felt to call it office was more confusing you're talking about 12,000 square feet. So we thought it simplified folks. So hopefully, with this explanation it does going forward.

[Hong Zhang:]

Got it. Thank you.

[Operator:]

From Compass Point, we have Floris van Dijkum. Please go ahead.

[Floris van Dijkum:]

Great. Thanks for taking my question, guys. A question on the mixed-use, I know you've talked a little bit about it already. But as you think about your cost of capital and proving concept and Drew you talked about not starting additional projects until you're a little further along in your current pipeline. Would you consider harvesting some of your existing investments before moving on? Or do you think – or do you see yourself owning several thousand units of apartments going forward?

[Drew Alexander:]

Floris, I think that's a great question and it's not one that I can directly specifically answer today, because I think all options are on the table. We've talked about at different conferences that we would possibly exit the Virginia projects when they're fully stabilized and everything is sort of totally understood. And then we've done a lot of analysts and investors appreciating that with the Amazon HQ2 announcement and when those jobs really come online that that could be years before you get to the point that you want to do that.So it is something that I think we'd look at all alternatives. We are looking at a ground lease of some units on a property. We're looking at componentized mixed-use developments where it makes sense possibly a Cambrian project in San Jose, where we'd sell things off. At our Palms project in South Florida we're basically – talked about at the Board meeting yesterday looking at it both ways with maybe doing it on balance sheet or a joint venture or just componentizing it off.So, I would say we look at all different things. And it's very much market broader financial conditions in specific. But it is something that, we see lots and lots of projects.We recognize this means we'll have to get some other expertise and more talent in that. But we do see it as a great growth option going forward.

[Floris van Dijkum:]

Great, and then, the second question I guess is regarding, but maybe if you can give us an update on your -- where you think your mark-to-market is in your portfolio today?

[Drew Alexander:]

In terms of leases or, as, opposed to debt?

[Floris van Dijkum:]

Yes. So in terms of rents, where they would -- if you could mark your whole portfolio to market, what kind of delta would you be looking at relative to what you're getting today?

[Drew Alexander:]

We're comfortable with it, Floris. But that's not really a number that we've gotten into. Because it's also one of those things that in a lot of cases for the older, cheaper leases you're going to have trouble accessing it.We're very comfortable with the exposure to the office guys. And some of the other weak folks on the leases expiring over the next few years, but we've never really gotten into that number.

[Floris van Dijkum:]

Okay, that's it for me. Thanks guys.

[Drew Alexander:]

Thank you.

[Operator:]

[Operator Instructions] And from Jefferies, we have Linda Tsai. Please go ahead.

[Linda Tsai:]

Hi. Thanks for taking my questions. I was just wondering, how has the power and specialty segment of your portfolio. I guess that's about 20% performed relative to the overall portfolio?

[Drew Alexander:]

It's performed very well. One of the things that we try to stress and good morning -- you know one of the things that we try to stress is that, the centers that we have in that portfolio. And there's a lot of information on this in our road show deck are really, really good centers.So our Mueller center in Austin, just north of UT main campus by the Dell Medical Center, tremendous infill location. Our Post Oak and Westheimer shopping center right across from Simon's Galleria our center at Richmond just south of the Galleria.The centers that we have that don't have a supermarket are really, really good. And that's where they don't lend themselves to a lot of broad classifications that the industry sometimes uses. So we're really pleased with them.

[Linda Tsai:]

Do you have a longer-term goal of exposure that you want to power centers?

[Drew Alexander:]

Yeah. And that's where -- in the sense of the traditional word power center, we don't have very much exposure to a large center with many, many big boxes, and very little shop space. We have some good "supermarket-anchored" power centers that we love like Bunker Hill with a fabulous HEB store in a very densely populated areas, and then we have some unique centers like Post Oak and Westheimer.But we've got very few of what traditional power centers with multiple, multiple boxes that -- in those shop space. So we are very comfortable with the right mix of tenants. Love supermarkets.But love a lot of the other basic goods and services folks, and would certainly consider buying the right non-supermarket-anchored center. And as mentioned before, have sold a lot of places that we saw risk. So pretty comfortable and we'll have less dispositions in 2020. So don't have a lot to sell on that front either.

[Linda Tsai:]

Thanks a lot.

[Operator:]

Thank you. And I'll now turn it back to Drew, for closing remarks.

[Drew Alexander:]

Well, thank you, Brandon. So I appreciate the interest in Weingarten and all the questions. We'll be around this afternoon. If there are more questions, I'm happy to entertain those.We'll also see many of you at NAREIT, in a couple of weeks. And I got to say, go ASTRO. So, everybody have a great day.

[Operator:]

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.