Weingarten Realty Investors
Q4 2017 Earnings Call Transcript

Published: 25 Apr 2018

[Operator:]

Good morning and welcome to Weingarten Realty Inc.'s First Quarter 2018 Earnings Call April 25, 2018. 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 the question-and-answer session. [Operator Instructions] Please note this conference is being recorded. And I'll now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning and welcome to our first quarter 2018 conference call. Joining me today is Drew Alexander, President and CEO; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; and Joe Shafer, Senior Vice President and CAO. As a reminder certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and 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 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 Web site. I'll now turn the call over to Drew Alexander.

[Drew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. I’m pleased to announce another good quarter. While the retailer environment remains challenging our portfolio performance shows the quality real estate prevails. This is especially true for neighborhood and community shopping centers with glossary components and merchant selling basic goods and services. Further with dramatic improvements we made to our portfolio over the last seven years our tenant quality and location strength are significantly better. Coupled with that our balance sheet is stronger than ever, so there maybe challenges ahead but WRI is well positioned for future opportunities. As communicated our disposition program has been highly successful. Thus far we sold $268 million of property in 2018, pricing seems to be holding for the most part of what we have in the market. We’re selling property that ranks in the bottom of our portfolio and field with disposing these assets when our stock is selling at such a significant discount to our net asset value is the right thing to do. With these disposition proceeds we have the ability to fund our new development and redevelopment projects, pursue quality acquisitions and repurchase debt or common shares, basically we’re positioned to take advantage of whatever opportunities present themselves going forward, while maintaining our strong balance sheet. While dispositions impact FFO in short-term, we believe it's the best long-term strategy for our shareholders. With respect to our new development and redevelopment activities West Alex, Central Arlington and the Whitaker are on track and we expect to break ground this summer on the Driscoll our 30 story high-rise apartment projects that are prominent River Oaks shopping center here in Houston. Our redevelopment program is robust and continues to produce very strong risk-adjusted results generally over 10%. As an example, we just started construction on 9000 square-foot building on a path repurchased from target at Roswell corners in Atlanta. Most of the building is committed and we already hit security entitlements at the time we acquired the land. As to future new developments, we continue to work on projects that are being very cautious with our risk profile. We have many other redevelopment projects in the pipeline that will provide excellent returns on invested capital and we continue to work those with great focus. A solid quarter. Steve the financials.

[Steve Richter:]

Thanks, Drew. Good morning, everyone. Before I get into the specifics of our results, I wanted to point out that, effective this quarter, we adopted the new GAAP revenue recognition standard, which resulted in the re-class of about $1.1 million of revenue in the first quarter from parking, licensing and occupancy agreements out of minimum rentals into other revenue under the caption customer contact revenue. This is purely a re-class and does not change the total revenues reported. This standard was adopted prospectively, so we did not restate the prior year amounts. The details of this reclassification Viscount are included on page 45 of the supplemental and the impact on various same property NOI components by line item is noted on page 30. Now onto the quarter, which I am pleased to report was very solid, core FFO for the quarter ended March 31, 2018 was $0.57 per share compared to $0.61 per share for the same quarter of the prior year. Core FFO for 2018 benefitted from increased occupancy, increased rental rates and incremental income from our new developments and redevelopments. Additionally, interest expense was lower due to the reduction of debt outstanding with disposition proceeds from 2017 and 2018. However, these increases were more than offset by reduced operating income from the same dispositions in both years. Dispositions reduced FFO by $0.04 per share for the quarter. A reconciliation of net income to core FFO is included in our press release. Our balance sheet is stronger than ever. We paid off our $200 million term loan in two $100 million tranches to second of which closed on April 3 just after quarter end. Year-to-date, we have also repurchased $14.3 million of unsecured bonds, and $13.9 million of common shares at an average price of $27.17 per share. At quarter end, net debt-to-EBITDA RE was a strong 5.1 times and debt-to-total market capitalization was 34.6% supported by well laddered maturity schedule that has no significant maturities until 2022. Our great liquidity and strong credit metrics provides significant flexibility to pursue opportunities that arise. As to earnings guidance, we are increasing [main RE] FFO to a range of $2.29 to $2.35 per share and reaffirm core FFO for the year along with supporting details as previously provided. All the details of our guidance are included on page 10 of our supplemental. Johnny?

[Johnny Hendrix:]

Thanks Steve. We're proud our associates and our high-quality portfolio primarily located in major metropolitan markets continue to produce strong results. Occupancy increased to 94.8% from 93.7% a year ago. Shop up occupancy is at 90.4% and our spaces are over 10,000 square feet or 97.5% occupied. Same property NOI was up 2% and has built in growth over the next several quarters through the commencement of over 500,000 square feet of signed leases. Leasing production remains strong with 75 new leases signed for $5.3 million in annual base minimum rent. In addition, our redevelopment program continues to grow and produce very good risk adjusted returns. Today, almost 80% of our annual base rent is generated from shopping centers with a supermarket component. Those supermarkets produced average sales of $637 per square foot. We're confident these strong supermarket anchored shopping centers will continue to be in great demand from retail and service tenants. We have a little better clarity on a couple of our bankrupt tenants. First Toys“R”Us, has announced they're liquidating and will be closing the 4 locations they have with us. They'll be conducting liquidation sales over the next several weeks. So those stores will close sometime in June. We feel very good about the prospects of releasing all the spaces and I think will profit long term from the closings. Significantly, after quarter-end we purchased the leasehold to stake from Toys at [Palms at County Country] in Miami. The Toys building sits on a freestanding 3-acre pad [front of Kimble Drive]. Over the next several months, we'll be evaluating several options ranging from selling the parcel for multifamily and/or office to reusing the existing building for retail use. Since our last call Southeastern foods or Winn-Dixie has filed Chapter 11. They told us they will be terminating one of the three leases we have with them. That location in the sea lakes will close in the next couple of weeks, we’re in discussions with a few grocers to replace the Winn-Dixie at this location so expect to have the rent back online relatively, quickly. Finally, we only had one charming Charlie's locations and they have confirmed that lease. So, we will not see any downtime there. The bulk for the lost rent from these bankruptcies was built into our guidance and will absorb the rest within our business plan. As the Torres and Winn-Dixie close occupancy will drop a little, but again, we feel good that these spaces will be released quickly. Overall fallout has been lighter than we anticipated and we are cautiously optimistic about the balance of the year. As I mentioned earlier, we expect to commence over 500,000 square feet of leases throughout the rest of the year. These commencements should add to same property NOI through the balance of 2018 and we believe will result in annual same property NOI growth for the year within our guidance range of 2.5% to 3.5%. Rent growth slowed to 5.8%. This is based upon relatively small population of 47 comparable new leases, while leverage continues to shift towards tenants our results this quarter reflect some amount of short-term sacrifice in order to position ourselves for the long term. We're executing some shorter-term renewals and canceling options, which in some cases helps position us for redevelopment opportunities. The leasing team is preparing for ICSE recon meetings in May and we are excited about the demand for meetings in the interest in our centers from retailers. These retailers include discount clothing, banks, quick service restaurants, full-service restaurants, shoe stores, supermarkets, pet stores, home furnishings stores, line stores, fitness facilities and many more. The company continues to pursue great assets in our target markets and currently have a couple of interesting opportunities were pursuing. We’re seeing supermarket anchored properties with strong demographics and good growth selling for cap rates in the 4.5% to 5.5% percent range. These assets are attracting a strong list of bidders and lots of interest. Assets in secondary and tertiary markets are trading in a wider range and they likely will transact in a cap rate range of 6% to 8%. So again, it was a solid quarter and we believe the company is prepared to produce solid results as we move forward. Drew.

[Drew Alexander:]

Thanks Johnny. It's been a good start to 2018. Our job is to position the company to maximize the long-term value for our shareholders and we remain focused on that goal. Revaluation spaces headwinds in 2018 specialty retail rates. Today, there is a clear disconnect between the value of good quality supermarket anchored neighborhood and community centers in the private market versus the value of the public retail rates. This combined with the constant changes in the retail world causes us to adapt our strategy. The management team at WRI has been through many real estate and economic cycles and has experienced dramatic changes in the retail world. This cycle like all the others is different, and we will respond accordingly with our eye on that long-term value creation goal. Over the last several years, we've totally transformed our portfolio and significantly de-levered and strengthened our balance sheet. We positioned WRI to not only handle the current headwinds, but to take advantage of the opportunities that will come out of such a turbulent market. Great people, great properties and a great platform equals great results. And I thank all of you for joining the call today and for your continued interest in Weingarten. With that, operator, we'll be happy to take questions.

[Operator:]

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

[Christy McElroy:]

Hey, guys good morning. Just wanted to follow up on the dispositions in Q1. You had an average cap rate in there at 7.3, but there was also a new footnote that it's based on underwritten estimates instead of current returns. Just given that the underwritten amount presumably accounts for some vacancies through the year. I'm wondering if you could give us a sense for what those cap rates are based on current increased NOI especially since that's effectively what we're modeling for?

[Drew Alexander:]

Good morning, Christy. It doesn't really move it that much. I think the middle 7 is still a good number. We just had a couple of unique circumstances where we sold one of the Toys“R”Us that we knew we was going out. We also had some leases, some rather large leases that were signed but not commenced. So, there were things moving both ways. So, we thought, it's actually the practice that we've been using for years is that we sort of look at and then come up with a reasonable estimate of what's current but especially with this environment -- as being the main example. It's hard to say definitively what it is, when there are certain known things moving both ways rather suited in the underwriting. So, it's really an attempt to enhance the disclosure it's not really a change and the middle 7 is a pretty good estimate for modeling.

[Christy McElroy:]

Okay. So, if we're looking sort of Q1 unaffected NOI that if we look at the mid-7 that's a pretty good representation of the NOI that's going away?

[Drew Alexander:]

Yes.

[Christy McElroy:]

Okay. And then just given where you're at today at the low end of the disposition range. Can you tell us what you have under contract today, just give us your sense for how the volumes could trend through the next few quarters given presumably greater visibility a couple of months later?

[Drew Alexander:]

So, I'd really rather not get into the specifically what's under contract. I am prepared to say that we're working on a lot of different things. We are in a good position to sell a lot this year. We obviously did not see a need to change guidance at this time. As mentioned and there is a lot has been said, there is a lot going on with cap rates and interest rates. So, while we are working on the lot and we do think it make sense to sell when we can do good sales with the socket at this discount. Having so much in the market gives us a tremendous amount flexibility. As you know we don't have to sell things. So, we'll continue to be opportunistic and we'll certainly update folks as things move along. But things aren't done, until they're done and we'll continue to be flexible and opportunistic.

[Christy McElroy:]

Okay. And I apologize just a really quick follow up on that. You mentioned sort of the trend in interest rates and cap rates, are you seeing actually an impact on cap rates today in terms of where you’re negotiating from what’s happening with interest rates.

[Drew Alexander:]

As I mentioned in my prepared remarks, we really haven’t seen it yet. We appreciate, we talked about it [indiscernible] conference in a month or so ago. We certainly read all the same reports that there's a lot coming to market and one has to think that does affect things over time. So, we haven't seen it yet. And as I said you were in a position that we don't have to sell anything and we will continue to be flexible and opportunistic.

[Operator:]

From Bank of America with Craig Schmidt. Please go ahead.

[Craig Schmidt:]

Like to stay on dispositions, we’re in a multiple year of asset dispositions for Weingarten and I just wondered if your criteria has changed, particularly given the events of the last couple years in terms of what you arguing with us, you talk about obviously improving the location your assets in and the tendencies. But what are the things are looking in filling in 2018. That might've been different from say 2014.

[Drew Alexander:]

Good morning Greg, I would say we look at lot of things differently, the changing nature of the retail world, the focus on different measures of tenant quality, so we certainly worked over years to hone the map as you and I have talked for a lot of years. While we think we have some wonderful independent supermarkets, its clear to us that those are worth more in the private markets then the public markets can understand. So, there's been lots and lots of things that go into that and as I try to stay in my prepared remarks, I think it's our responsibility to adjust our strategy based upon changing retailer and retail conditions. And then the biggest that I would say is with the stock at a discount to NAV is just seems to us to make sense to sell, especially since were mostly selling out the bottom of the portfolio when we can. You know we've always been much more focused on the quality of the particular real estate and maybe not as focused to whether it might be classified by some of the power center as you know most of the so-called power centers that we have our supermarket anchored in were comfortable with them. But again in a lot of cases, those can be perceived better in the market and we can take advantage of selling something very, very close to our internal NAV, while the stocks at a big discount and that just has to we just feel so strongly that has to be the right thing and as I said we’re working on a lot of different things and it gives us the flexibility to pick and choose what we want to do.

[Craig Schmidt:]

Okay, just may be as a follow up. Do you have a preference for the five of your shopping centers or at this point do you remain agnostic on how big or whatever the total [GLA] is?

[Drew Alexander:]

I don’t we have a significant preference, as I said, we love the supermarket, anchored power center of the larger community center that does have a supermarket and some other centers. As you and I talked before if you just have a supermarket and some shops space it can be rather labor-intensive and it's hard to move things so you know as a big company it's nice to have a little bit bigger center and be in that 250,000 square foot range, obviously, you have to be sensitive to who the tenants are and I think we've done a good job over the years with our watch list and shedding some of the at risk tenants. And so, I would say we have a slight preference for larger centers and certainly a preference for clustering our centers in markets where we can be both cost effective and know the market and be something of a leader in that market with our strong leasing and property management platforms.

[Operator:]

From UBS, we have Nick Yulico. Please go ahead.

[Greg McGinniss:]

Hi, good morning. This is Greg McGinniss on for Nick. Based on disposition so far this year. Do you have an idea for the potential minimum size for special dividend you're going to be paying?

[Johnny Hendrix:]

Yeah Greg, good morning. We really don't at this point, it depends on so many different things in terms of the mix and the basis of things. Somethings we 1031 into. So, it's really, really complicated. But I think Steve, as we communicated to folks, there are very, very likely will be some amount of special dividend. And that's something we're very cognizant of in our cash planning needs and keeping our balance sheet strong. But we haven't got into putting any numbers around that.

[Drew Alexander:]

Yeah, the only thing I would add it's not only the volume that we disposed obviously the specific assets and individually how much gain is driven by those. And so, it's too early in the year to really tell.

[Greg McGinniss:]

Okay. Thanks. And on the development side, there is another pushback with the Sunset Point. I was just curious what's causing delay here? And then as with there are pushback in two quarters. Is this changing your development assumptions going forward?

[Johnny Hendrix:]

Hey, Greg. This is Johnny. And actually, we've been thrilled with Sunset 19. It's been a really exciting new development. And I think the positive news here as we've been able to expand the scope of the project and improve things as we gone along. We initially started by relocating Bed, Bath and Beyond. And then we signed new leases with cost plus 5 below Kirk 1, Carters, DSW, Pobby Lobby. And then finally this quarter Sprouts. And as we've added new tenants like Sprouts, we've adjusted the completion dates and some of the investment totals. We probably could have done it in phases but that seemed to be more confusing than anything. So again, we see this as very, very positive. And as we've added some tenants and scope changes we've made some changes to the numbers we've reported to you guys.

[Greg McGinniss:]

Okay, thanks. And then just one quick final one here. On guidance, G&A seemed pretty low versus full year expectations. Is the guidance on G&A and net interest expense from last quarter still buy or are there anything onetime impacts from that?

[Steve Richter:]

Good morning, Greg. This is Steve. We did have a relatively large adjustment in G&A in the first quarter. It came out of the calculation of equity-based compensation expense for last year. But we adjusted it in Q1 because of those shares were issued in Q1. And it all results from the significant price decrease that we've experienced over the last several months. So that was in Q1. I think if you look going forward, we're probably still on that $18 million $19 million for G&A for the balance of the year.

[Operator:]

From Jefferies we have George Hoglund. Please go ahead.

[George Hoglund:]

Hi good morning. Just one question in terms of the buybacks. Sort of how are you looking at buying back equity versus debt at this point?

[Drew Alexander:]

Hey George, good morning. And I'll let Steve amplify this. As mentioned, we look at a lot of different things. The main thing that we wanted to do is think about the long term and obviously we're not in position to [indiscernible]. We don't know the ins and outs of what the stock's going to do on any given day or what interest rates are going to do. So, we are looking at a variety of different things. Johnny mentioned, we also have some exciting acquisition opportunities that we are pursuing, it's early but we are very much looking at good quality things there, don't see a whole lot of brand-new developments but we do have a lot of activity in our redevelopment pipeline. So, we will certainly look at some debt buybacks but we are also very sensitive to where rates are and most of the nearer term stuff we handled with the payoff of the term loan. And then to the extent that the stock looks attractive and the discounts to NAV and everything is accounted for in terms of factoring in special dividends, we can certainly consider some stock buybacks as was reported we did both last quarter and earlier this year, so the strength of our balance sheet. The amount of dispositions that we have working give us a lot of flexibility in pursuing all the various opportunities that will maximize the long-term value. Steve.

[Steve Richter:]

The only thing I would add on the debt side, obviously, is that you look at our maturity schedule, given that we paid off the term loan. There's nothing left out there other than our unsecured bonds that trade-ins fortunately or unfortunately, they don't trade that much so there's not a lot of opportunity to buy a whole lot there. But we will continue to look at that from time to time and look at it as a possibility as well. At this point we do not have in the plan to attend for anything. So, I think again as we mentioned is more of an opportunistic approach.

[George Hoglund:]

And as far as the debt are you targeting any sort of certain discounts [at par] that you're willing to buy it at or kind how are you evaluating that?

[Drew Alexander:]

I would say we’re more focused on a shorter maturity than long than the longer paper and I would also acknowledge that we look at the yield to WRI but a lot of that paper given where rates are as is not trading significantly away from that. So again, looking at what the yields as is and where we are is part of the analysis.

[Operator:]

From Baird we have RJ Milligan. Please go ahead.

[RJ Milligan:]

Just curious to follow-up on George's question on those stock buybacks, what leverage level or how much are you willing to buyback before you become to a point on a debt EBITDA basis for your comfortable.

[Drew Alexander:]

So, I think I'll start out here and then Steve can amplify. As I said, I think we’re going to be very cautious in the amount we buyback and cognizant of how much dispositions we've actually done as opposed to just have working because as I said before, we will be opportunistic, we don't have to do anything. So, if somebody re-trades us for other than the most justifiable reasons we will more than likely to tell them though and deal with the fact that that means it takes us another six months to remarket the asset because again we don't have to sell anything. So, we’re going to be very sensitive to the balance sheet and protecting it in and very much move moderately and cautiously with the long-term view in mind. I would say and Steve you can amplify. You know we are cognizant of the fact that we got a couple of new developments in the large River Oaks redevelopment that will have to lay money out for and it basically will be 2021 before we have that cash flow on. So, we are aware of that and would certainly factor that unique event into our pipeline. Steve any other thoughts?

[Steve Richter:]

Yeah. The only thing that I would mention is whatever -- we're approaching this on a leverage neutral kind of basis. Now that doesn't mean that I'm going to always be at a 5.1 net debt-to-EBITDA kind of number. We have a little flexibility that’s obviously a very conservative number. But we want to keep some dry powder. The other only comment that I would make is that when one looks at it you also have to be associated that we have that obligation to pay that special dividend. And that can be as we know last year it was a $100 million. So, it's something that we also have to reserve that far.

[RJ Milligan:]

That's helpful. So, would it be fair to assume that if you exceeded your full year guidance for dispositions that we could see greater than expected activity on the buyback side?

[Drew Alexander:]

I would say yes, again as Steve said, we have to account or reserve or keep in mind the special dividend. We want to do it leverage neutral, depends what acquisition opportunities, redevelopment opportunities we see. But as I said if the deals are done, then we would -- and we will pursue some amount of special dividend, but if the deals were done and we were done over the range and yes, we would look more aggressively at it.

[RJ Milligan:]

That's helpful. And question to clarify on some of your opening comments about leasing spreads. You mentioned that you had signed a few shorter-term lease renewals. But new lease spreads were also down in the quarter and I'm just curious what was driving that?

[Johnny Hendrix:]

Hey good morning RJ this is Johnny. It's always interesting to me how you have one or two leases kind of move things. When we look at the renewal rent growth for the leases that we had, they were overwhelmingly positive. Only 8 of the 169 renewals were negative. And if we took out 3 leases for the renewal rent growth, the rent growth would have been 7%. So more in line with the 9% that we had in 2018. And when you look at the new leases, it's really a small subset with only 47 new leases. So, one can really move the number and really as a good example we did release the space in the first quarter that had been vacant for more than 2 years. So, in keeping with our criteria we excluded that particularly. If we had included it, the overall new lease rent growth would have been around 15%. So, you can see that will be a tremendous new just with one lease. I think overall, the rent growth is going to be better as we go forward through the rest of the year. It's very difficult to really project. Because we don't really know what the exact mix of the space is will be.

[Operator:]

From Wells Fargo we have Jeff Donnelly. Please go ahead.

[Jeff Donnelly:]

Hi good morning guys. I think you mentioned in the prepared remarks that cap rates in secondary markets are in the range of I think it's 6% to 8%. Frankly it seems a lot of the REITs are selling their non-core assets kind of in the range of 7.5 to 8.5 and those are from portfolios that have arguably or even I guess called repeatedly. So, I guess I'm curious what kind of -- in your view drives an asset from one end of that cap rate range to the other. Is it market, is it sort of deal size, is it anchor profile, it’s a wide range admittedly and I think there's a lot of uncertainty in the market and any kind of clarity you could give it will be great.

[Drew Alexander:]

I think you touched on a lot of the different things. There's many, many things that go into the pricing as you mentioned in the question and you hit on the vast majority of them. So, it's been widely reported and I think generally accurate that larger deals have fewer folks. A lot of that is a symbolist as you know lenders and you can certainly appreciate. Given the in the name of your business card how lenders in a look at things so that’s a major part. So, if you got a supermarket anchors center and supermarket does great and long term left in lease and its good credit. That's totally different situation than if you got a lot of tenants on everybody's watch list. You know who have short-term the replacement. There is just lots and lots of things that go into that as Johnny mentioned in the prepared, generally speaking sees 6 to 8 but as I think we've been clear. We’re targeting and I think a good number to use for everybody's model is that middle sevens and that will move around quarter to quarter, especially with some outline things. But I think over the course of the year it’s a good number and then in terms of what we sell we can be selectively, we got a lot working and we certainly don't plan to sell everything we work on. So, we analyze it every quarter, we report to the board on what we sold relative to what we thought, and generally speaking we come pretty close but there's always some ups and there's always some downs.

[Jeff Donnelly:]

Do you really think that cut of is on the deal side basis, where you kind of move from may be a sweet spot to may be one that’s more difficult is sort of $25 million is easy transaction and the hundred's hard? I guess where do you kind draw that line.

[Drew Alexander:]

So I don’t think it's, we who draw the line versus the lenders who draw the line but one sees a lot written about 50 million and it's of course not a hardline at -- $49 million deal is easy and $51 million is hard it's not that bright a line but directionally around $50 million you are looking at $25 million to $30 million equity check that limits the number of people you pretty definitional are getting into a pretty sophisticated person who has $25 million of equity to put into a real estate deal. So, you're dealing with, bright sophisticated folks who have access to lots of data as you get to around $50 million.

[Jeff Donnelly:]

And just one last question you had mentioned in your remarks looking admittedly cautiously at opportunities, what are you guys seeing in land pricing. I would just think that the uncertainty around stabilized asset prices and maybe widening of cap rates would have had a really sharp negative impact on land prices particularly for retail, have you seen a selloff in prices there or has that really not occurred.

[Drew Alexander:]

No, we have not seen it, which hopefully I was clear that when I said, we are looking at a few new development opportunities. I would underline view and I would underline what I said about our risk profile such that I don't see us doing a lot of new development, redevelopments things like the pad we bought from Target, other things that we're working on adjacent to shopping centers where we can buy things we are looking at. In most metropolitan areas, zoning can be changed, it's a function of time. So again, given where we retailers are and their willingness and how often they're willing to pay the rents to command new construction, one hasn't seen the drop-in land prices, people have just more pulled off the market, and are waiting or pursuing zoning changes and looking at other things. So, I do think it's one of the things that will make the existing portfolio stronger is there is not a lot of new retail space being built which is helpful given all the change going on in the retail world.

[Operator:]

From JPMorgan we have Michael Mueller. Please go ahead.

[Michael Mueller:]

Hi. My questions were answered on the leasing stuff. Well actually sticking up with dispositions for a second. Any thoughts on 2019 at this point in terms of do you anticipate something that's more normalized in terms of disposition levels or is there a shot to get still keep up at this elevated level?

[Drew Alexander:]

Good morning, Mike. Yeah, it's really hard to forecast. As I said it's we're going to be opportunistic and we don’t have any pressure for what we do the rest of 2018. I guess really, really believe that we if we can sell properties at NAV when the stock had a big discount to NAV that that's the right thing to do. So, it's hard to forecast exactly how that plays out in '18. It therefore I think pretty well follows, it's really hard to say how it plays out in '19 in terms of the mood on retail stock price, interest rates et cetera, et cetera. So again, we don't have to sell any property. As Steve said, we don't really have any debt maturities to speak of and it's only $300 million a year until '22. We integrate position to take advantage of opportunities and take us a good situation and make it even better. So, forecasting '18 has so many variables chief among them were the stock prices that will be very hard to forecast that.

[Operator:]

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

[Ki Bin Kim:]

Thanks. Just a more broader question on development. When you are developing your major projects at about 5.5% yield. At this point, do you feel like that is enough of a buffer versus what that exit cap rate could be on those deals especially given the environment we're in today?

[Drew Alexander:]

Yeah Ki Bin, it all depends on the project. The nice thing about the bigger projects that we have underway in the Northern Virginia area is they're incredibly good locations where the entitlement process is 8 years on one of them. I think close to that on the other. The good news, bad news is there is a lot of residential in both of those things as people know. So that the cap rates on those the exit cap rates on those are much lower tend to stay lower longer, because rents can move. So, I think we're comfortable with that. but as we've talked we don't see adding a whole lot more to that, in part because we don't want to increase our residential exposure and in part because the basic answer to your question is you know it is concerning what interest rates can start to cost might do over the time it makes to build these. So very comfortable with the two existing assets in Virginia and with River Oaks here in Houston but will be very, very, very selective on adding anything new into the new development pipeline.

[Ki Bin Kim:]

And sort of projects that have an apartment component to it, what approximately --what percent of the value of the project is tied to apartments versus retail or other.

[Drew Alexander:]

It's about two thirds.

[Ki Bin Kim:]

Okay and another product question, obviously T.J. Maxx top tenants and just kind we took about obviously doing well but isn’t there a point where the market just gets saturated, like how many more T.J. Maxx do you need in a city or Rosses or may be how far do we think we’re away from that saturation point?

[Drew Alexander:]

So, I think I will start and then turn it over to Jonny. I think we've got huge runway, you know, they continue to evolve new concepts, adding their home goods, Ross has their duties, Johnny talked about recon and we look forward to that. And as you can imagine with those tenants in particular not only we do we [indiscernible], we meet before leading up to it and organize things, there obviously public companies. You can look at they are open to buy but they and the other treasure hunt apparel folks have an excellent niche in this world.

[Johnny Hendrix:]

We really like T.J. Maxx. You may have noticed that they are today our top tenant and one of the things that I really wanted to emphasize is that our tenant roster is incredibly diversified and we don't have a single tenant. That's more than 2.5% of our annual base rent. The top 25 tenants only 28%. So really don't have a lot of exposure to any single tenant, but again I agree with Drew. We still have a lot of runway with T.J. Maxx, Ross and some the discount clothing guys.

[Operator:]

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

[Chris Lucas:]

Good morning everybody. John I just wanted to follow up on the comment you made during your presentation about the lighter than expected fallout year to date. I just curious as say may be how that would've compared to last year or '16.

[Drew Alexander:]

Good morning, Chris. It actually compares pretty favorably. You know as we went through with the board, went through the list of things tenants calling out the amounts, it was a little bit less and certainly less than we had initially budgeted. So, when you look at some tenants who aren't as well known, haven't fallen out and overall, we are very, very pleased with the with where we are.

[Chris Lucas:]

And I guess just a follow-up to that, as it relates to sort of where your watchlist and obviously we know where Toys is headed, but as things have evolved, how has the watchlist evolved are there new names showing up or is it fairly stable at this point?

[Johnny Hendrix:]

Chris there are few new names. And you guys are probably familiar with some of them and, so we're intently watching these tenants who generally have gotten over levered been bought by private equity, and it seems to be a fairly familiar theme there. The other thing in terms of the watchlist that I wanted to add is when [Dixcy] at Southeastern Foods. In the long run, this is going to be a very positive event for us. They're in South Florida high demand per space there. They're only paying a $7 a square foot for the next 27 years. So, it's going to be a little bit of short term pain there but on the long-term basis, it will be very positive for the company.

[Drew Alexander:]

Hey Chris it's Drew. I feel compelled to say, I kid Johnny all the time, that we watch all the tenants. So, it is something that I think the key point is the point Johnny made just a moment or two ago about the diversification of our tenant base which is not it's not an accident. We do pay close attention to all the tenants. And the years that we've been together the cycles that this management team and this company been through, we appreciate that all things can change. And I think the point Johnny made about diversification, that's the key point.

[Chris Lucas:]

And I guess maybe my last question Drew, is on the buyer pool that you're seeing as it relates to assets. Have you seen any changes to that, are we hearing more anecdotal evidence of whatever called sort of the smart money looking around right now? Are you seeing that or is the pool continue to be sort of more the one off local guy?

[Drew Alexander:]

So, your intel is the same as ours, that I would at this moment the pools are fine. You can see what we've sold and what we expect to sale as evidence of that. They're not the feeding frenzy it was that it was years ago. But as long as you have several people competing into fine. But yeah, we've heard the same things that some of the so called smart money big houses are starting to sniff the opportunity recognizing how things have changed and starting to align things up there. And as you implied in your question if that were to happen, that could be usually transformative.

[Operator:]

[Operator Instructions]. And from Green Street Advisors, we have Vince [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good morning. one more if you guys on development. Can you discuss the change on return expectations for the mixed-use project? It appears the combined ROI for the three largest projects dropped by about 30 bps last year. I just want to make sure I'm looking at that the right way.

[Drew Alexander:]

Hey, Vince, good morning. some of that is just that we moved the River Oaks into the larger redevelopment group. And as you know that as we talked about that’s a large apartment project which are developed and sell at lower cap rate. So, it's not really a change, it's just a moving of River Oaks at a conservative lower end of the range is what's driving it.

[Unidentified Analyst:]

My next question is. So, I think the 7.5% previous high end that River Oaks probably unattainable at this point or [indiscernible] closer to that high-5 low 6 yields at River Oaks development?

[Drew Alexander:]

Exactly right.

[Unidentified Analyst:]

Okay. Thank you, that’s helpful. And then one more, can you expand on your earlier comments on just like selectively trying to cancel retailer lease options and replacing with the renewal. Just want to better understand how that teams up the redevelopment opportunities as the tenants remaining in the space. And how that kind of negotiations goes at the retailer getting them to give up any options?

[Johnny Hendrix:]

Yeah Vince, this is Johnny, good morning. in the specific cases that we were referring to. We had tenants who had options that lasted may be more than 20 years in five-year increments. And generally, they may have to give us a 180 to 230 days' notice of the option. It's almost impossible for me to go out and negotiate with another tenant to redevelop the shopping center and say that I am going to put them in the place of that existing retailer when we really don't know. So, if I have a finite period and I know that their lease ends on January 1, 2018, I have a lot better chance to be able to convince another tenant to come in and help me with the redevelopment of that shopping center. So, the idea that that auctions are going away is very helpful for me as the landlord.

[Unidentified Analyst:]

That makes sense, is there a negotiation you’re talking about, you are changing existing leases or just more going forward you always trying to make auctions out of the leases.

[Drew Alexander:]

You know I think its selected situations and we certainly have had some of the boxes come back to us and ask for a reduction in the rent that they have today and we’re trying to accommodate them but at the same time give ourselves more options and be able to do some different things down the road. And that's really where that that comes and that could be loosening up of restrictions for outparcel, for uses, and other things, so it's not all your cash on cash deal, it’s a lot of other pieces to the negotiation and anytime somebody wants a reduction in rent, we are going to try to get some things also.

[Operator:]

Thank you. We will now turn it back to Drew for final remarks.

[Drew Alexander:]

So, thank you, Brandon. Thank you everybody for your interest in Weingarten. We really appreciate it. We will around if there are questions. We look forward to seeing many of you at ICSE coming up, and it may reach shortly thereafter. Thank you again so much. Have a great day.

[Operator:]

Thank you. Ladies and gentleman this concludes today’s conference. Thank you for joining. You may now disconnect.