Weingarten Realty Investors
Q1 2015 Earnings Call Transcript

Published: 29 Apr 2015

[Operator:]

Good morning and welcome to the Weingarten Realty's First Quarter 2015 Conference 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. Please note that this conference is being recorded. I will now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our first quarter 2015 conference call. Joining me today is Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; and Kristen Seaboch, Divisional Vice President and Controller, pulling in for Joe Shafer, who is attending to online death in the family. 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 recurring and reported, 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 will now turn the call over to Drew Alexander.

[Andrew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. We are very pleased to report another great quarter with strong operating results produced by our transformation portfolio of outstanding properties. We had very solid same property NOI growth, filled by higher rental rates, increased occupancy and minimal tenant fall out. Clearly our transformation is working. Q1, overall has several accomplishments. Under our previously announced ATM or at the market equity issuance program, we began selling common shares in late February. And to date have raised $40.8 million and an average price of $36.18 per share. This issuance is in large part to finance the redemption of the last 150 million of our preferred shares. We believe in selling the equity of both of our NAV [ph] and thus we’re comfortable issuing equity at this level. Looking forward, we’ve not seen any signs of increasing cap rates for quality assets and our progress in new development and our growing NOI, will further improve our NAV. Therefore, given our current stock price, we’ll be extremely cautious about future equity issuance. Turning to acquisitions, we’ve closed three great purchases since the beginning of the year. Each is a little different and demonstrates different areas of our strategy. Baybrook Gateway, is a redevelopment opportunity servicing a superzip on the south side of Houston. This deal came together in literally a matter of weeks. Our obvious knowledge of the market allowed us to move quickly in locking up this property. Given strong tenant demand, we’ve several redevelopment alternatives that may take a little while to sort out, but this property represents a great near term redevelopment. A different strategy applies to Cambrian Park Plaza in San Jose, California. This is a longer term redevelopment. We plan to do some short term leases on this project, as we formulate what we expect to be a significant redevelopment that we estimate is five plus years away. This is great real estate that really can’t be replicated where we will have multiple options to create significant value. Finally, we purchased Wellington Green Commons subsequent to quarter end. This is simply a great course center anchored by Whole Foods with good NOI growth in a solid market with strong demographics. Johnny will provide a little more color on each of these properties in a minute. Looking ahead the acquisition markets remain extremely competitive. We’ll stay focused on our target markets and remain disciplined and thorough. As to dispositions, as you know our major transformation is complete. However, as per our guidance we will sell select properties going forward. Year-to-date, we’ve sold six properties for about $45 million including exiting a small town in Texas and the disposition of our last property in Missouri. Now, let me switch gears to our new development activities. We’re making nice progress on all four projects under development. At our Hilltop development in DC, Wegmans is scheduled to open in June. We’re over 97% leased and the commencement of rent will significantly accelerate in the latter half of the year. This is a great development in a tremendous location that is a quality addition to our portfolio. At our Wake Forest development in the Raleigh market, we’re 96% leased with Ross, PETCO and TJ Maxx and Michaels all signed. Construction is well underway and should be substantially complete by the third quarter. Our investment in the project will be about $16 million. At Nottingham Commons, our newest addition to the pipeline in White Marsh, Maryland, leasing is progressing nicely with several junior anchor deals well underway. We’ve signed leases during the quarter with PETCO and MOM’s of value orient organic market with locations in Maryland, Pennsylvania, Virginia and DC. Further, demand for shop space is strong with several small shop merchants already signed. The Whitaker is our exciting infill project in West Seattle. This six story mixed-use project is being co-developed with Lennar with our 63,000 square foot retail portion anchored by a 41,000 square foot Whole Foods. This project is under construction by Lennar and they anticipate delivering the retail portion to us in late 2016. We continue to see activity in new development and our experienced team will continue to pursue select opportunities, where we can add shareholder value with reasonable risk. And I’ll like to turn it over to Steve to discuss our financial results.

[Stephen Richter:]

Thanks, Drew. Recurring FFO was $0.52 per diluted share, up 6.1% from $0.49 in the first quarter of last year. FFO for the first quarter benefited from a strong increase in same-property NOI of 4.2%, driven by increased occupancy and rental rate growth. Recurring FFO for the quarter, also benefited from our fourth quarter and first quarter acquisitions, our new development and redevelopment activity and reduced interest expense from favorable refinancing activity. These increases were offset by the impact of our dispositions program, primarily the fourth quarter of 2014 activity, which cost us $0.06 per share this quarter compared to the first quarter of 2014. Reported FFO was $0.48 per share for the quarter compared to $0.51 per share in the prior year. Included in reported FFO, were debt extinguishment cost of $0.05 per share, offset by gain on the settlement of a law suit of $0.01 per share. Turning to the balance sheet, this quarter has been reasonably active from a capital market perspective. First, as previously announced we closed on a five year $200 million term loan that was swapped to a fixed rate of 2.64%. This loan fit nicely into our maturity schedule, which had minimal debt maturing in 2020. Second, we negotiated an amendment to a $66 million secured loan with an insurance company that extended the maturity by eight years to 2025 and reduced the interest rate to 3.5%. This is the financing that cost $0.05 debt extinguishment cost in the quarter. Third, as Drew mentioned earlier, we initiated selling equity under our ATM facility. Through March the 31st, we raised $29.4 million with an additional $11.4 million self subsequent to quarter end. Finally we gave notice to redeem a $150 million of our Series F preferred shares effective on May 8th, which is the last of our outstanding preferreds. While the perpetual future of preferred equity is beneficial, we view the rate premium as too expensive given today’s low intrastate environment. Our decision to finance part of the preferreds with equity reaffirms our commitment to maintaining a strong capital structure providing us the capacity to take advantage of future opportunities as they arise. Our debt ratios remained very strong at quarter end with our net debt to EBITDA at 5.35 times, our net debt plus preferred to EBITDA at 5.77 times and debt to total market cap at 29.4%. After 2015, we affirm guidance recurring FFO guidance at $2.12 to $2.17 per diluted share and reported FFO of $2.07 to $2.12 per diluted shares. All of the other details of our guidance are included on page 9 of our supplemental package. Johnny?

[Johnny Hendrix:]

Thanks, Steve. Weingarten had a great quarter and we feel good about the rest of 2015. Even with tepid tenant demand, we continue to enjoy the tailwinds from the limited new supply and the quality of the transform portfolio. So far operations in our energy influenced markets have not experienced impacts from reduced oil prices. Most of our Houston retailers that report quarterly had sales increases during the first quarter versus last year. We still expect local economic conditions will weaken, but the impact of other significant contributors to the local economy like the Port of Houston and the Houston Medical Center, will help to partially offset the magnitude of that slow down. Our Houston portfolio is significantly different than it was five or ten years ago. We have exceptional properties, with almost 80% of our average base rent coming from shopping centers either in or serving superzips. These properties which provide necessities and value are well positioned. During the quarter, our Houston portfolio generated a 7% same property NOI in double digit rent growth [ph]. We expect comparable growth over the next several quarters. Nationally, the job market continues to improve and low energy prices are putting money in the consumer’s pocket. Savings from lower gas prices appear to have been used for consumer debt reduction and savings. But many economists expect improved retail sales are on the horizon. The consumer confidence index has increased over 8 points since the end of 2014. That’s the best three month improvement since the third quarter of 2007. So we continue to believe better retail sales and stronger tenant demand are ahead. During the quarter our transform portfolio produced great operating metrics, same property NOI of 4.2%. The base minimum rent increase in that same property pool was 3.6%, increased occupancy to 95.5%. Shop occupancy rose to 90.3%, that’s an increase of 200 basis points from a year ago. Tenant fallouts continue to slow. The first quarter of 2015 was 24% less than 2014. Average base rent across the portfolio rose to $16.45, an increase of over 4% from a year ago for the entire company. And finally leasing production has remained steady even with significantly reduced vacancy. It’s challenging to single out a specific region which is performing better than others, as all are going so well. Florida occupancy is up to almost 97%. Excluding our new Baybrook project, Houston occupancy rose to 96.2%. Atlanta is 96.5% and both Los Vegas and Phoenix have reached 95.4%. We still expect in the year within our same property NOI guidance range of 2.5% to 3.5%. It is worth noting, the second quarter of 2014 included about $700,000 of bad debt recoveries that we don’t expect to reproduce. We anticipate the second quarter to increase around 2%, which is still quite good given the very strong comp in 2014. We continue to find ways to create value in our existing portfolio, as you can see on our redevelopment schedule on page 11 of the supplemental. Our active pipeline consists of 10 properties, with estimated incremental investments of around $60 million, generating returns of 10% to 15% upon completion. As per acquisitions, we had a great quarter, closing the purchase of two exciting redevelopment opportunities. Baybrook Gateway is located across from the very successful Baybrook Mall in Houston. The property has been held by a special servicer for several years. It was only 65% occupied when we closed. We’re working through several scenarios and should start remerchandising the property in the next several months. Also, we closed on Cambrian Park Plaza during the quarter, another redevelopment opportunity we’re very excited about. Cambrian is located in San Jose, California. The property has great demographics within a three mile radius. Household incomes are $122,000, 50.6% of adults are college educated and there are 183,000 people. Most exciting is this 17 acre site is not encumbered by long term leases, which gives us a lot of flexibility as we consider our options. We’ll be working closely with all the stakeholders as we look at adding density and likely a grocery component over the next several years. After quarter end, we also closed on the purchase of Wellington Green Commons. This 112,000 square foot shopping center is anchored by a high volume of Whole Foods and has average household incomes of $100,000. The center is fully leased, but has nice up sight over the next several years. Cumulatively, we’ve invested almost $146 million thus far in 2015. So we have a good start on the guidance range of $200 million to $250 million. Given the highly competitive environment, there is no guarantee we’ll achieve our acquisitions goal. We will remain disciplined looking for great properties with good growth. We’re seeing cap rates for great properties in four in a quarter to 5% range in gateway markets, probably 50 to 75 basis points higher in other strong urban areas. Drew?

[Andrew Alexander:]

Thanks, Johnny. To add on to some of Johnny’s points about Houston, Houston overall makes up only about 16% of our total company ABR. That 16% is concentrated in the core of the city, with the majority of that NOI servicing superzips. For these properties, the average household income is nearly 30% higher than the average Houston at CBSA and the percentage of college graduates is nearly 50% higher. Our retail portfolio by contrast to the office or multifamily sector benefits from the fact that very little new retail space has been built. This further strengthens our confidence. This has been a really great start to 2015 and we’re confident we can continue this momentum. Our balance sheet is very strong, which positions us to take advantage of opportunities as they arise. Combined with an outstanding transform portfolio of great properties that will continue to produce strong increases in NOI, we’re bullish on the future of WRI. We’re also looking forward to the ULI conference here in Houston and ICSC’s RECon convention in Los Vegas. If you’re here for ULI, let us know and I think you’ll get a feel for the strength of the city and especially our strong properties. As to RECon, I know Steve and Michelle had meetings with many of you. We look forward to those and to all the retailer meetings we have and the interest in our great properties. I would like to thank all of our associates for their efforts in this outstanding start to 2015. Great people, great properties, and a great platform includes great results. I thank you all for joining the call today and for your continued interest in Weingarten. Operator, we’d 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 Michael Bilerman on line. Please go ahead.

[Katy McConnell:]

Good morning. This is Katy McConnell of for Christy. Could you pun [ph] an update on thoughts around new ground up development and maybe give a sense for what’s in the shadow pipeline of DLG [ph] explain today?

[Andrew Alexander:]

Certainly, as I mentioned, we’re seeing a lot of opportunities, I think a bit of an increase. I don’t have a specific color that I could really - give you a number that I’m terribly comfortable with because we’re going to stay very disciplined. But we’re comfortable our development expertise and think that we could have a pipeline similar to where it is now as far out in the future as we can foresee. So we’re encouraged from what we see as the rends of some of the retailers a little more aggressive, a little more open to paying the rents necessary to make sense of new development.

[Katy McConnell:]

Okay great and then lastly, could you disclose the average cap rate on the acquisition that you’ve completed so far this year?

[Stephen Richter:]

Hey, Katy good morning. Yeah, it’s going to be roughly around 4.5% to 5%. The biggest piece of course is Cambrian, which was a little bit lower than that and I think the key to understand Cambrian is, that the property had been held in a family trust for over 20 years and the rents there are very, very low. We expect over the next several years to increase the rents and probably increase the density on the property and it’s really similar between a new development and an acquisition. We expect over the next four or five years, to ways that that return to around 7%.

[Katy McConnell:]

Okay, great. Thank you.

[Operator:]

From JP Morgan we have [indiscernible] on line. Please go ahead.

[Unidentified Analyst:]

Hi, thank you. I was just wondering, do you expect the development pipeline to stay around the same size as it has in the past three years or will you be allocating more capital in the future?

[Andrew Alexander:]

Good morning, it’s Drew. As to the capital allocation, we will pursue diligently all aspects of our growth strategy. Johnny and team look hard at the existing portfolio for any redevelopment opportunities. We’ll certainly look at core acquisitions like Wellington and we’ll look for redevelopment opportunities like Baybrook and Cambrian, as well as we’ll continue to source new development and we really don’t have any pre-established goals as to what goes into what bucket. It’s all about the opportunities and the risk reward. So as I mentioned before we are seeing a slight increase in the number of opportunities. We have an extremely robust pipeline now with some great deals and we’re cautiously optimistic that we can back fill that with new deals and stay it about the same level that we’ll of course disciplined to looking at good risk reward opportunities.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

From Wells Fargo Securities we have Tammy Fique on line. Please go ahead.

[Tammy Fique:]

Hi, I just wanted to ask a question on FFP redemption, I guess I was a little surprised that guidance didn’t increase as a result of the 6.5% redemption I guess. Can you just talk about if the upper end of guidance is - it may be a better target at this point or what maybe offsetting that and then maybe also what you’re planning in terms of funding for the remainder of that? Is it all equity at this point or are you also planning to use some debt funding? Thank you.

[Stephen Richter:]

Good morning, Tammy. This is Steve. Good question. There are a few more moving pieces in guidance and really where our business plan is and normally given that this is Q1. As we reported, we’ve did not have the redemption of the preferred in our business plan, note that we have the ATM aspect in the plan, acquisitions, dispositions, we use just a ratable approach throughout the year, so the timing of those creates some variant. As you mentioned in response to your question about funding the overall redemption of the preferreds, the thought quite frankly was to use some of the derived powder that we have on the balance sheet and redeem part of the preferreds with debt, but clearly to issue equity for a portion of that. There’s no magic number, but we were kind of thinking that 50-50 range would be appropriate, but obviously have the balance sheet capacity to do whatever. Having said all that, you go all the pluses and minuses, the dilution from the ATM, I would also tell you that we will - in our business plan we had a bond transaction, a debt financing very late in the year and given the redemption on the preferreds that will be moved up in the year. So we’ll most likely be doing a bond transaction sooner rather than later. So all of those kind of, if you will, plusing and minusing equates to we’re comfortable with where our guidance is overall. I would also say that, we had a very strong first quarter as Johnny mentioned in his prepared remarks, we have a difficult comp on same store NOI for the second quarter. So there’ll be a little bit of noise. And then as always, we’ve worked hard to do whatever we can to improve that, but it’s still early in the year.

[Tammy Fique:]

Okay, thank you. And then maybe just turning to releasing spread, can you just talk about your expectations for the [indiscernible], 9% of first quarter which is a good number, but it was slightly below where you were in 2014. And I guess just given record occupancy levels and the certain leasing on the small shop side, would seem to be a kind of increasing spreads I guess, would you agree with that and then maybe just talk about your outlook for the year?

[Johnny Hendrix:]

Tammy, this is Johnny and good morning. I tend to agree with you, I think we’re a little bit lower than our expectation. This quarter we did have a single transaction that really brought the number down. My expectation would be double digit the balance of the year. So yeah, I definitely think that we will improve that over the next several quarters. We do have a very strong leverage with our retailers and we’re seeing good increases and I think you’ll see the results of that through the rest of the year.

[Tammy Fique:]

Okay, great. Thank you.

[Operator:]

From Green Street Advisors we have Jay Carlington on line. Please go ahead.

[Jay Carlington:]

Great, thank you. Hey, Johnny just on Q1same store NOI, was that in your expectations or were there some surprises in that that kind of drove the hire number?

[Johnny Hendrix:]

Good morning, Jay. That was certainly inside of the range that we had anticipated in our forecast. And that’s why we wanted to point out that there would be some slight variance to that little bit lumpy in the next quarter, just not to surprise anybody going forward, but it was a great quarter and you can see 3.6% increase in a minimum rent is a tremendous number. So we’re very, very proud of it.

[Jay Carlington:]

Okay, so maybe as a follow up to that, as you look at the 2% number in Q2 and then towards the backend of the year. I guess, I’m trying to understand kind of what’s baked into the lower end of that same store range or maybe 2.5 to 3.5, so as we think about the back half of the year.

[Johnny Hendrix:]

Yeah, we expect to do some tenant remerchandising. We will have a little bit of fall out as we move towards the end of the year. We have a little bit of bad debt recovery that we had in fourth quarter of 2014 that would be again difficult to match.

[Jay Carlington:]

Okay and Drew, can you maybe give us some color regarding Patty’s retirement and what the transition plans are for her role?

[Andrew Alexander:]

Certainly. Good morning Jay. As [indiscernible] mentioned, we have been planning for Patty’s departure for some time. She’s with the company for 33 years and the biggest change is that the four folks who had reported to Patty, [indiscernible] divisions are western or central or south east and at mid Atlantic will now be reporting directly to Johnny. They’re all very experienced people and consequently comfortable that Johnny can handle the additional work load. As I said, tremendous experience and this was a couple of years in planning largely as I think a lot of people know at least there’s some personal circumstances with Patty. So we’re very comfortable with it. She leaves a strong team. I’ve taken over a few little things to take a little bit off of Johnny’s plate, but the strong bench we have will continue to move forward and we wish Patty, all the best, but we’re very comfortable with the transition.

[Jay Carlington:]

Got it, so it’s just all going to be rolled up and kind of segregated between the different members of the team.

[Andrew Alexander:]

We’ll continue the decentralization that we’ve been working on for probably 10, 15 years, where the folks that many of you have met, Miles Sanchez, out in Phoenix; Gerald Crump, here in Houston; Lee Brody in Atlanta and Steven Weingarten in Florida, really run those divisions, are very involved in all of the growth, all of the dispositions as well as the leasing and the overall strategic direction. And they’re all 10 year plus veterans with the company, who really understand all aspects of our business, so I’m not saying, Johnny won’t have anything to do in adding a second pair of viables and helping make things better, but they’re established folks who understand our culture, understand how we look at real estate and are very, very experienced in their jobs.

[Jay Carlington:]

Okay, very helpful. Thanks, guys.

[Operator:]

[Operator Instructions] And from SunTrust Robinson Humphrey we have Ki Bin Kim on the line. Please go ahead.

[Ki Bin Kim:]

Thanks. If I look at your expense recovery ratios versus the kind of your peer set, at least superficially does seem lower. I’m just curious is it because there’s different mix of things that are going into those numbers, but if can may be comment about why - at least officially your expense recovery seem to kind of around that 6% to 7% versus the peer group that goes into 80?

[Andrew Alexander:]

Good morning, Ki Bin. I can’t really comment relative to my peer group at AD. I can tell you ours have been relatively consistent on a - we do obviously have some older leases that may not be truly tripling that. On a marginal basis quite frankly as you move forward, the vast, vast majority of our incremental expenses are fully recovered. So I’m not very sure that again I can respond to the way that our peer group maybe different.

[Ki Bin Kim:]

[indiscernible] As you lease up your small shop occupancy, and your expense recoveries have improved with that, but is there another leg to this, where this small shop actually kicks in and commences, maybe the expense recovery ratio improves more so than it has been?

[Andrew Alexander:]

Well, I think it did. If you look at total operating expenses from year end, where we were a little over 30%, we reduced that some 50 basis points or so in Q1. So I think our improvement in operating leverage has improved. So I would say yes and I would - your overall observation of, as we leased up the smaller shop, which is all triple med [ph] is also correct in the sense that that will go up even further.

[Ki Bin Kim:]

Okay, thank you.

[Operator:]

From RBC Capital Markets we have Rich Moore on the line. Please go ahead.

[Rich Moore:]

Hi, good morning guys. I’m curious on the tenant front what you guys are hearing, I mean it seems like we’ve gone into another patch of slower economic growth after a bit of a speed up in economic growth and I’m curious how the retailers in general are responding to you guys in terms of new store openings and what your sense is, I guess for going to ICSC, so you’re your sense is as you head into that?

[Johnny Hendrix:]

Hey, good morning Rich. This is Johnny. I think things are about the same that they’ve been for the last I’m going to say 18 months. Tenants are interested in expanding, but things have to be exactly right for them and they’re continuing to grow, but pretty slow. I don’t see that there’s a lot of pressure on retailers to grow sales. I haven’t seen any change over the last several months, but some of the anchor, the mid anchor tenants seem to be willing to pay a little bit more over the last six months or so and that’s probably why we’re feeling like there could be more development on the horizon.

[Rich Moore:]

Okay, good. Thank you, Johnny. That’s very helpful. Then Steve, if I could. The mortgages that come due this year, I mean I guess, some of them are probably in joint ventures, I can’t really tell exactly which ones are, but will those eventually make their way into bonds and does the term loan play a part in that too or I guess, how do you look at that mortgage portfolio as it comes to?

[Stephen Richter:]

Good morning, Rich. I would say it’s all off the above. The JV’s there are a couple of secured loans in the JV’s that are coming due and some of those will be refinanced, if you will. And again we’re not using our balance sheet, but they maybe refinancing with new secured debts. Overall the steps that we have generally speaking, yes it does roll into unsecured with the bond transaction. Having said that, as we already reported, we did the $166 million deal with a life company blend and extend and we will have conversations with the secured lenders as you might be aware they’re very aggressive in terms of wanting to keep those loans outstanding. So we’ll compare that, the cost of that relative to doing a bond transaction, so it could be that we could do some more blend and extends as those come to, but we’ll just have to see the way the market feels at that time.

[Rich Moore:]

Okay, good. Great, thanks Steve.

[Operator:]

[Operator Instructions] From Capital One Securities we have Chris Lucas on line. Please go ahead.

[Chris Lucas:]

Good morning everyone. Hey, Johnny I just wanted to follow up on a comment that you made and I missed the beginning of the call, so I apologize if you’ve already addressed this. But, is it related to the development activity, where are we with that? Is that - are we starting to see a significant change in that new starts or is this something that again remains sort of a 17, 18, 19 kind of issue?

[Andrew Alexander:]

Hey, Chris it’s true. Good morning. Yes, I [indiscernible] my earlier question in terms of taking a little bit off Johnny’s plates. I’m pretty involved in development, so I’ll take a chance - take a shot at giving a little more color there. I agree with what Johnny said in answer to Rich’s question about the tenant mood that we’re a little more glass half-full, that there is some activity amongst the tenants and a little bit more action that they are starting to see, if they can pencil out the rents necessary for new developments in light of the fact that we and lot of our peers are 95%, 96% leased and they still have some desire for new space. But things have to line up really well, so we’re seeing some opportunities. It is something that we feel cautiously optimistic about, we’ve got some great developments in our pipeline and some big developments like them, the Hilltop deal as you know. So it will be challenging to replace those with similar good quality things as they come along. So we’re cautiously optimistic there. Things are in good moderations such that we don’t really see any issues of any over building, that’s where I think things will stay very nicely, under control. So hopefully that gives you a little more color on it.

[Chris Lucas:]

So what tenants, so what sort of type of tenant is leading this new development interest?

[Andrew Alexander:]

We have additional super markets, most exemplified by Kroger all of the niche super markets, Whole Foods, Sprouts et cetera. The value oriented retailers, the losses T.J.Maxx’s, Frowen, Home Goods et cetera. So there are a good number of tenants. Now, Wall Mart and Target, not as busy as they were, the Lowe’s, the Home Depot is not as busy as they were 10 years ago, so again I think tremendous over building is not a risk, but we are seeing a little bit of improvement with many of the value oriented tenants that we’ve done business with for many, many years.

[Chris Lucas:]

Are you seeing new grocery concepts pick up interest as well?

[Andrew Alexander:]

As these are there for several quarters and each grocers are very strong, Sprout’s, Earth Fare’s, Trader Joe’s, in addition to of course Whole Foods, who in many respects pioneered that industry, but it’s now been around for pretty good long time.

[Chris Lucas:]

Okay and the last question from me. It looks like the anchor space is pretty much plateaued call it mid 98’s on a signed lease basis, but the smaller shop space continues to sort of see this improvement in the lease rate. Where do you think that pops out on the small shop space?

[Andrew Alexander:]

I think we can get over a 96%, which means the shop spaces need to be 92 plus. Again I think with our transformed portfolio, the entry markets that we’re in, that we can achieve that. It’s a goal and it’s something that we’ll work towards. When we were talking about same property NOI growths towards the second half of the year, it is one of the other things that we will contrast that a proposed stronger rent growth in limited space. I’m sure there will be some circumstances where, we’ll just agree to disagree with the tenant over rent and we will take some space back. So it is very much a local decision, something that’s made by the team and I referred to earlier. But from a big picture level things are good and I think we can comfortably get the company over 96, which means shops over 92.

[Chris Lucas:]

Great, thank you guys.

[Operator:]

And from Wells Fargo Securities we have a follow up from Tammy Fique. Please go ahead.

[Tammy Fique:]

Hi, thanks. Just two quick modeling related questions. The first is, I guess what are you expecting in terms of preferred redemption cost in the second quarter and then does annual recurring guidance include or exclude the one legal settlement in that first quarter?

[Johnny Hendrix:]

Tammy, I think the preferred redemption cost is about $6 million and relative to the law suit settlement, that was not in recurring FFO, it was in reported FFO, but not recurring.

[Tammy Fique:]

Okay and then for guidance, I guess I just didn’t see that reconciliation in the guidance number, so was there additional debt extinguishment cost later in the year or was the quarter [indiscernible] in terms of debt extinguishment?

[Johnny Hendrix:]

Being Q2 we will not redeem the preferred until May 8.

[Tammy Fique:]

Okay, thank you.

[Operator:]

[Operator Instructions] Okay and we have no further questions. Drew, I’ll turn it back to you to close it up.

[Andrew Alexander:]

Well, thanks Brendon and thanks to everybody on the call. We really appreciate your interest in Weingarten and we’ll be around, if there’s other questions. Look forward to seeing some of you at ULI and many of you at RECon and we really, really appreciate your interest in Weingarten. Have a great day.

[Operator:]

And ladies and gentlemen this concludes today’s conference. Thank you for joining. You may now disconnect.