Weingarten Realty Investors
Q2 2015 Earnings Call Transcript

Published: 29 Jul 2015

[Operator:]

Good morning and welcome to the Weingarten Realty’s Second 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. And, I will now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our second 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 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 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 website. 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’re very pleased to report another great quarter with strong operating results from our outstanding portfolio. Clearly, the transformation we began five years ago is working. We had very solid same property NOI growth, fueled by growth in rental rates, increased occupancy and minimal tenant fall out. This firmly validates the success of our transformation. Turning to acquisition, we purchased two great core properties during the quarter. First, we purchased Wellington Green Commons in Florida anchored by Whole Foods. Second, at the end of the quarter, we purchased The Summit at Scottsdale in the greater Phoenix metro. This property is anchored by Target and Safeway. Both of these properties will produce good NOI growth and are located in solid markets with strong demographics. Johnny, will provide a little more color on each of these properties in a minute. Looking ahead, the acquisition market remains competitive and we’ll stay focused on our target markets and remain disciplined. As to dispositions, our major transformation was complete in 2014, but our strategy is to continue to improve the quality of our portfolio. During the second quarter, we sold about $28 million of property brining our year-to-date sales to about $64 million. And we expect to end the year in our guidance range of $125 million to $175 million of dispositions. Now, let me switch gears to our new development activities. We’re making nice progress on all four projects. At our Hilltop development in DC, Wegmans grand opening was strong with nearly 2,000 people waiting in line to shop this 126,000 square foot store. Obviously, it’s exciting to have this best-in-class supermarket open in our center and generating tremendous traffic for our Hilltop merchants. We’re over 97% leased and the commencement of rent will significantly accelerate in the latter half of the year. We’re also pleased to report that Ross, TJ Maxx, and Michaels opened last week at our Wake Forest development in the Raleigh market. This project is 94% leased and many of the remaining stores will be opening soon. Our investment in the project will be about $19 million. At Nottingham Commons, our newest addition to the pipeline in White Marsh, Maryland, leasing is progressing nicely. During the quarter, we signed a lease with TJ Maxx, who will join PETCO and MOM’s. MOM’s is a value oriented organic food market with locations in Maryland, Pennsylvania, Virginia and DC. Further, demand for shop space is strong with several small shop merchants already signed. Signed occupancy already stands at 80% with construction commencing next month. The Whittaker in West Seattle is a six story mixed-use project is being co-developed with Lennar. Our 63,000 square foot retail portion is anchored by a 41,000 square foot Whole Foods. Lennar has begun construction and they anticipate delivering the retail portion to us in late 2016. We continue to see increased activity in new development with more potential projects. Our experienced team will continue to pursue select opportunities, where we can add shareholder value with reasonable risk. I now like to turn the call over to Steve to discuss our financial results.

[Stephen Richter:]

Thanks, Drew. Reported FFO was $0.46 per diluted share for the quarter, compared to $0.53 per share in the prior year, included in reported FFO for the current quarter was preferred share redemption cost of $0.08 per share, resulting in recurring FFO of $0.54 per diluted share, up 5.9% from $0.51 in the second quarter last year. FFO for the second quarter benefited from a strong increase in Same Property NOI of 4.1%, driven by increased occupancy and rental rate growth. Recurring FFO for the quarter also benefited from our new development and redevelopment activity, and to a lesser extent, our current year acquisitions. Additionally, we benefited from favorable refinancing activity including our new five-year $200 million term loan closed in the first quarter as well as a redemption of our remaining preferred shares. These increases were offset by the impact of our disposition program, primarily the fourth quarter 2014 activity, which cost us $0.7 per share, compared to the second quarter of 2014. Turning to the balance sheet, this quarter has been reasonably active from a capital markets perspective. First, as previously announced, we redeemed a $150 million of our 6.5% Series F preferred shares on May 8, which was the last of our preferreds. In May, we sold $250 million of 3.85% senior unsecured 10-year notes. The yield to maturity on the notes was 3.94%; however we locked the swap rate back in April when we gave notice to redeem the preferred shareholders. So including the benefits from the settlement of the hedge, our all-in costs to this financing was 3.77%. These bonds fit nicely into our maturity ladder, which had minimal debt maturing in 2025 and it allowed us to completely payoff the revolver, which had been used to fund the preferred redemption. We also partially funded the redemptions of preferreds with $40.8 million of common equity issued under our ATM facility as reported last quarter. Our decision to refinance part of the preferreds with common equity reaffirms our commitment to maintaining a strong capital structure, providing us the capacity to take advantage of future opportunities as they arise. No equity has been issued since our last earnings release. Our debt ratios remained very strong at quarter-end with our net debt to EBITDA at 5.9 times and our debt to total market cap at 33.7%. As to 2015 guidance, we are increasing guidance for recurring FFO to a range of $2.14 to $2.18 per diluted share from $2.12 to $2.17. Guidance for reported FFO also increases to $2.02 to $2.06 per share. Additionally, we are increasing guidance for Same Property NOI to a range of 3% to 4% from 2.5% to 3.5%. All the other details of our guidance remained unchanged and are included on Page 9 of our supplemental package. Johnny?

[Johnny Hendrix:]

Thanks, Steve. It was another great quarter. And it’s really been a string of 14 great quarters since the beginning of 2014 when the transformation began to produce results. During that period, we’ve averaged 4% increases in Same Property NOI. We increased occupancy by 340 basis points, and we increased the average base rent by 15% from $14.51 a square foot to $16.63 at quarter end. Today, we have a strong tailwinds with very little new supply, modest but improving retailer demand, and high occupancy for good retail properties. These conditions lead to strong leverage for renewals and for new leases. During the quarter, we generated rent increases of 12.2% led by our strong new lease spread of 16.8%. The strength in rent growth is apparent with about 90% of all our transactions providing positive increases. Occupancy across the portfolio is a strong 95.5%, an increase of 70 basis points from a year-ago; particularly strong is Raleigh, over 97%; Denver, Atlanta and Florida just under 97%. These numbers are great. And there’s still a 180 basis point spread between signed and commenced leases. As those spaces open and start paying rent in the next six months to nine months, they’ll bring online about $9 million in annualized minimum rent. We still anticipate that we can increase occupancy to 96% or even a little higher, to get there small shop occupancy would need to increase to around 93% from about 90% today. This represents about $0.06 per share of FFO. The trajectory towards 96% may be a little saw-toothed along the way. We’re focusing on improving the portfolio quality as we have the opportunity to improve rents and tenant credit. We’ll take advantage of that, even if there is a little downtime. Our redevelopment at Westchase here in Houston is a good example. When the opportunity was available we elected to re-lease the former supermarket to Whole Foods. We lost about a year of rent. We have improved our NAV dramatically, achieving over 100-basis-point compression in cap rate. We continue to execute profitably on our redevelopment pipeline. We have 10 active projects, where we’re anticipating investing $62 million and generate over 10% return. So far, we’ve invested about $27 million on these 10 properties and another $8 million on four properties completed this year. While we have a few major redevelopments underway, much of our efforts have been adding additional square footage in our parking lots. A good example is the Westhill Center in Houston. We demolished an old Mexican food restaurant and built a new 6,700 square foot building occupied by Starbucks and two quick-service restaurants. While the investment is relatively small the incremental returns on this project have been around 26% and add about $6 million in NAV. Our Same Property increase of 4.1% this quarter was fantastic. I’m most excited that we produced the 3.4% increase in base minimum rent. Our increasing guidance for Same Property NOI is a firm indication, we feel good about the balance of 2015. We thought the bad debt recovery comparison for last year might impact our quarterly increase. But the recovery through this quarter actually grew. Bad debt recoveries are primarily the result of legal settlements and bankruptcy payouts that are protracted legal funds, predicting the timing has been difficult. We’re certainly happy with the outcome of 4.1%. Tenant fallout is a record low. During the quarter, we terminated 73 tenants, representing only $3 million in annual rent. This is the lowest quarterly fallout we’ve experienced since we began tracking this number. Year-to-date, our tenant fallout is 20% below 2014. Most of the year-over-year decrease comes from improvement in short tenant fallout. Through our transformation, we steadily improved the credit quality of shop tenants, which directly correlates to the improving fallout trend over the last several years. Leasing remains steady. We’ve recently seen an increase in the number of shop retailers looking for space. That pickup is coming from several categories. First, footwear retailers have been expanding and want to locate in centers like ours anchored by soft good retailers like Ross, T.J. Maxx and Marshalls. Payless, Rack Room, DSW, and Boot Barn and Famous Footwear are very active. We’re seeing continued expansion from service tenants like the Massage Envy, value hair services, cellphone stores, mattress stores, and restaurants. Pet stores continue to expand in that category, starting to produce several more competitors. Banfield Pet Hospital, PetPeople, Pet Value, and Pet Supermarket are all looking to grow. We currently have five leases working with these brands. It’s great to have retailers competing for limited space available. Cap rates have held steady through the quarter. Generally, we are seeing 4.5% to 5.5% for core assets in gateway markets and 5% to 6% in other metros. During the quarter, we acquired two shopping centers investing $81 million at cap rates in the low 5s. First was Wellington Green near Palm Beach, Florida. The center is anchored by a high-volume Whole Foods and has household incomes around $100,000 a year and about 50% of its population are college graduates. The project also enjoys the benefit of being located on the ring road of the mall of Wellington, expanding our trade area beyond the normal neighborhood center. Even though, the property is a 100% leased, we expect to have NOI growth over 3% with contractual rent bumps and some re-tenanting. Also, we closed on the Summit at Scottsdale and Scottsdale, Arizona. The property is anchored by Target, CVS, and a Safeway supermarket on a ground lease. We co-invested with our Dutch partner, Bouwinvest. This property is in a super-zip with household incomes in a three-mile radius over $132,000 a year, and over 65% of the population are college graduates. With significant barriers to entry, we think this asset will grow NOI over 3% a year. So year-to-date, we’ve invested $173 million. We also have a couple of other deals about $60 million in the pipeline today. Obviously, there is no guarantee they’ll close. But we feel like, we’ll be within our guidance range of $200 million to $250 million in acquisitions this year. Again, it was a great quarter with 4.1% Same Property NOI, new lease rent growth of 16.8%, renewal rent growth of 10.9%, strong occupancy, consistent execution of our redevelopment pipeline, and a solid acquisition pipeline. With our transformed portfolio, we’re looking forward to the rest of 2015. Drew?

[Andrew Alexander:]

Thanks, Johnny. We’re still closely following the Houston economy, as continued lower energy prices translates to a slowdown in job creation. However, as we pointed out previously, we have a great group of assets in Houston. So we feel our properties will remain largely unaffected. Case in point, occupancy for Weingarten’s Houston’s comparable assets is 96.8%, up 70 basis points from six months ago. For the year, we’ve signed 12 new leases with rent growth of 16.1%, and growth for negotiated renewals of 16.8%. So while 2015 job growth will likely be modest, the job growth over the prior five years was so good, and so little new space was built that we remain confident our Houston properties will be fine. Looking at the big picture of the company halfway through 2015, I would say, we’re very pleased with our performance and we believe we can maintain this momentum. Investing capital remains very challenging, but we’ve continued to uncover unique opportunities. We remain optimistic that new development will accelerate with the ever dwindling supply of quality space. We will continue to produce outstanding operating results driven by strong increases in NOI from our transformed portfolio quality properties. In closing, I want to highlight that next month we’ll mark our 30th anniversary as a lead on the New York Stock Exchange. We’ve obviously seen a lot of changes in our industry during this time and have navigated through good times and bad. But the constants have been a continual focus on maximizing shareholder returns and a dedication to ethical business practices and to all our stakeholders. I would like to thank all our associates for their efforts, great people, great properties, and a great platform equals great results. I thank all of you for joining the call today and for your continued interest in Weingarten. Operator, we’ll now be happy to take questions.

[Operator:]

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

[Katy McConnell:]

Good morning. This is Katy McConnell for Christy. Can you tell us what the Same Store NOI growth was in the Houston portfolio on 2Q? And have you seen any impact on retailer demand for space there yet?

[Johnny Hendrix:]

Hey, Katy, good morning. This is Johnny. Same Property NOI for the quarter in Houston was about 5.5%, so pretty strong. We’ve been in close contact with most of our retailers and so far we have not seen any negative impact from reduction in oil prices, obviously, it’s something that, I think, one would expect. But today, it hasn’t hit us. So, hope, we will be able to continue that.

[Katy McConnell:]

Okay, great. Thank you.

[Operator:]

From the SunTrust Robinson Humphrey, we have Anthony Hew [ph] on line. Please go ahead.

[Unidentified Analyst:]

Good morning, guys. So, in terms of Same Store NOI, you guys increased your guidance range from 3% to 4%. Here you are trading at a very high end of that right now. Just thinking about the back-end of the year, is there anything we should expect or anything driving and expect to slowdown, is it just tougher comps,or do you think there is some store closing that’s maybe didn’t happen in the first-half of the year and may pick up in the back-half of the year?

[Johnny Hendrix:]

Hey, good morning, Anthony. This is, Johnny. I would tell you that there is no question that the number of store closings is lower than we had anticipated. And that certainly has helped us. I don’t see that increasing dramatically. We do have a couple of boxes that will close in the second-half of the year. And something that we talked about in the script and that is that, we’re certainly prepared to have boxes closed and re-lease them, and that’s really the situation that we have. One of the space has already leased and the other one we’ve got a couple of good prospects, but there is no way we can get those back online producing rent for the year. So, our outlook is very positive for the rest of the year as far as Same Store NOI and we do have some tough comps.

[Unidentified Analyst:]

Okay. Thank you.

[Operator:]

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

[Jay Carlington:]

Hey guys. So just kind of go back to the bad debt comparison, I’m a little unclear kind of how that shook out this quarter. I guess - did the timing of anything change in terms of bad debt this quarter or was it just a better outcome?

[Johnny Hendrix:]

Hey, good morning, Jay. What I tried to lay out in the script was that the inflow of revenue from bad debt is a little bit hard to calculate. Most of it is the result of lawsuits that occur for a number of years or bankruptcies that occur for a number of years. So it does tend to be a little bit lumpy when you’re trying to calculate what it might be and then what it is. One other things that we did look at it was kind of try to pull out all of the bad debt. So we looked at the last eight quarters, and during that period we reported 3.8% increase in Same Property NOI. If you strip out all of that bad debt, the increase would still be 3.8%. So I think that it creates a lot of noise but over time it does tend to balance out.

[Jay Carlington:]

Okay. I guess, when I think about that 2%, that we were kind of expecting in Q2 versus the delta. Is that all bad debt or is that just kind of a combination of that and better core performance?

[Johnny Hendrix:]

It is a combination of things. The most of it is bad debt, but certainly operations with the lower fall-out has been positive. Leasing has been a little bit better than we had anticipated. Got a little bit extra from percentage rent. We got a little more from recoveries because of the occupancy, so a number of things that are working positively for us. The primary thing was, we got about $1 million in bad debt, and we had really thought it would be significantly less than that. There was a significant lawsuit that we did receive money on.

[Jay Carlington:]

Okay. Okay, maybe just shifting to kind of acquisitions, I guess, the year-to-date going cap rate on this kind of mid-to-high 4s. What type of IRR [ph] are you underwriting on these purchases, and has that changed maybe in the last couple of quarters?

[Johnny Hendrix:]

Jay, one of the things that you have to look at is, when you look at the first two assets we bought during the year, both Cambrian and Baybrook. Those are assets that have significant upside over a longer period of time, where we going to redevelop those properties, and we will have an IRR of more than 8 on those assets. And so initially, the return seems a little bit low, but generally what we looked at is IRRs in the 7-ish range.

[Jay Carlington:]

Okay. Thanks, Johnny.

[Operator:]

From UBS we have Jeremy Metz on line. Please go ahead.

[Jeremy Metz:]

Hey, good morning, guys. Drew, you talked about seeing new development increase in opening remarks. I’m just wondering which markets maybe in particular are you seeing or do you expect to see the activity pickup?

[Andrew Alexander:]

Good morning, Jeremy. It’s really across our whole footprint. One of the things that we’ve always tried to stress is that we are a lot more focused than some of our peers. We have our local people in the market. So really we’re looking at things from the Pacific Northwest through California, Florida, as well as up into Washington DC. So it’s really somewhat across the footprint. I would say we’re very sensitive to things in Houston recognizing the oil comments, but - and again, the closing areas of Houston if we could find something where we could make sense with the land, we would certainly look at it here too. So it’s pretty consistent across the footprint.

[Jeremy Metz:]

And, so I guess, as we think about your shadow development pipeline, given the fact that maybe you’ll see a little more general increase in activity here. Are you close to trying to get some of those out-of-the-box sooner versus later ahead of that. And how should we really think about the normal run rate here for development and redevelopment?

[Andrew Alexander:]

That’s a good question. We’re certainly going to stay disciplined. We are seeing the opportunities we mentioned. But we generally think we can keep about the same level as where we are now in the $150 million to $200 million neighborhood. It may vary some quarter-to-quarter because good properties do take a lot of time to work things out and have a good risk-reward. But over a period of time we think we can stay in that $150 million to $200 million neighborhood.

[Jeremy Metz:]

Okay. And then just steady [ph] and one more switching gears over to Houston, sounds like things are pretty good at least in your portfolio, but more generally is the volatility there creating any opportunities or additional opportunities on the acquisitions front, and maybe more deals similar to what you have with Baybrook?

[Andrew Alexander:]

Yes, I’ll let Johnny follow-on here. We’ll certainly pay close attention. And if we can find the right things that make sense, we will do it. We may get a couple. I don’t think it’ll be huge, because people who have really well-located properties are not going to fire-sell them. So with our knowledge of the market, if we see things that make sense we can certainly move on but I don’t think it will be more than a little bit.

[Johnny Hendrix:]

Yes, Jeremy, I would tell you that. There is certainly no panic in Houston. There’s not a sense of a recession. We lived through this in the 80s, and you could feel it, you could smell it. Houston home sales, according to the Houston Association of Realtors increased in June over a year-ago, and the average price is up 6%. So it seems odd, but we are not seeing the result of the job slowdown. And again, I think what Drew, said is that the increase in population, increase in jobs that occurred over the last several years is still impacting us, and there was a pent-up demand that is still not satisfied.

[Jeremy Metz:]

Okay, great. Thanks guys.

[Operator:]

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

[James Bambrick:]

Hey, guys. Jimmy Bambrick on for Rich. We had a question about dispositions. We noticed that about half of the dispositions this year are outside of your target markets, while the other half, such as the Texas and Florida properties, are in the target markets. We are wondering if you generally focus on assets outside of those target markets, or could you maybe go into more detail on your disposition criteria?

[Andrew Alexander:]

So, good morning. What we’re looking at is - we try to articulate is the best thing shopping center by shopping center. As we’ve discussed, the major transformation is finished and we think our operating results this quarter evidenced what a great success that strategic plan has been. But we’ll continue to sell in that $150 million neighborhood sort of this far as we can see, our guidance this year is the $125 million to $175 million. So within that, Johnny, and the deep asset-management bench that we have across the whole portfolio look at each center, and we see what make sense. So we’ll continue to hone the map and exit some states, but that exit will be slower, as it will be more deliverable. And then, we’ll continue to hone and sell centers that we don’t think are making their contribution in the Same Property NOI, have more risk, and otherwise just make sense to us. So with the smaller amount of property, you will see some shifts quarter-to-quarter. Again it’s all about the individual assets as we continue to improve the portfolio, which we are very optimistic. We’ll continue to produce results like we had this quarter.

[James Bambrick:]

Great, thank you. And then, it’s good to hear all the detail on how Houston has been resilient to the job in oil on the demand side. We’re curious if you guys have seen anything on the supply side, whether interest in new supply or construction on new site that waned it all.

[Andrew Alexander:]

So the main thing to think of and I would encourage anybody who is interested to come down here, or get us on the phone or look at the map on our website. But the key thing to recall is that about 75% to 80% of our Houston NOI comes from some key centers in very dense populated areas, servicing the super-zips generally. And as we went through in detail in our road-show in New York a year or so ago, the land prices in those areas are just too high for competitive - comparable shopping center space. So that’s why we still have this pent-up demand that Johnny talked about. It’s principally apartments were built and no comparable competitive shopping center space was built. So while there might be some new development going on in the far Houston suburbs; where our properties are, really aren’t seeing that kind of competitive pressures. So as I talked about development before, we are looking across all of our footprint and we could certainly find something here, but we are very selective to the areas within Houston that we want to build.

[James Bambrick:]

All right. Thanks very much.

[Operator:]

[Operator Instructions] From Hilliard Lyons, we have Carol Kemple, on the line. Please go ahead.

[Carol Kemple:]

Good morning. In your earlier comments, you talked about some of the footwear retailers moving into the shopping center space. Is there a reason that better rents, better traffic, or just not enough room in the malls to expand what are you hearing from those retailers?

[Andrew Alexander:]

Good morning, Carol. Really, what we’re hearing is that they want to be located adjacent to the anchor tenants we have. So when you look at our shopping centers, we’re clearly dominated by supermarkets, who are averaging sales of $576 a square foot, that’s a good start. But we also have Targets, Ross, Marshalls, and we are generating a lot of traffic. Those are really the retailers that are doing business. When you look at comp store sales for Ross and Marshalls and TJX, you’re talking about 5% year-over-year increases. You’ve not been over fine those kind of increases, that kind of traffic driven, but in other locations. And certainly, they will have a mall strategy. I don’t think there is a lot of space there. But I will tell you the demand for our space is because of the tenancy that we have is really good.

[Carol Kemple:]

Okay. And then kind of following up on that, there’s also been a trend where we’re seeing a lot of outlets and retailers go to shopping centers due to slower outlets underdevelopment. Are you picking up any of those retailers and if so, which ones are you doing deals with?

[Andrew Alexander:]

Yes. We really haven’t at this point for whatever reason, I think, we’re more kind of bread and butter kind of stuff. And a lot of service tenants, a lot of the discount ready to wear, and we just haven’t - we haven’t seen a whole lot of the outlook folks migrating toward our properties.

[Carol Kemple:]

Okay. Thanks.

[Andrew Alexander:]

Thank you.

[Operator:]

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

[Chris Lucas:]

Good morning, everyone. Hey, Drew, I was hoping to get maybe a little more color on your comments about the new development. Specifically, I guess, I’m wondering, if you’re seeing a change or broadening of the composition of the kinds of developers who are more active. And whether or not, when you think about the comment about, maybe a slight uptickin development, whether that is - is that from a sort of ground up type, or is that more just a function of an increase in the mixed use with the retail component, or redevelopment with significant sort of increase in size of the center, what’s sort of the break-down there?

[Johnny Hendrix:]

I think there is a lot of things in there, Chris, that you talked about. I don’t know that there is a whole lot of new developers to the space. Retailers have very relationship driven enterprise at something Stanford, our Chairman has talked about for years, we were with one of our key retailers the other day reminiscing over the 40, 45-year experience. So, it’s a little challenging to break in. So the people who do mixed use projects often look to a retail expert. We didn’t talk about Walter Reed in Washington DC on the call, because it’s pending long, moving nicely, but nothing new dramatic to report. But it’s a good example, where I think we bring that retail expertise. So, definitely seeing some mixed use, looking at different things there. But things are generally good that the tenants are open to looking it new stores and interested in it, but there are certainly no land rush. They’re not in any big super hurry that they have to get it done. So I think it bodes well for our existing portfolio and the quality of it, especially that we have now that we can continue to keep the occupancy high, push rents like we did this quarter. So that the pickup in development, it’s modest. I don’t think it will translate to anything big over the next quarter. But I think it will help us make value, make money for shareholders.

[Chris Lucas:]

Thanks. And then, Johnny, on the sort of the landlord tenant negotiation balance, if you will, how was that been - is that continuing to trend more in your favor, has it stabilized at all given where rents moved, or how do you see that?

[Johnny Hendrix:]

Yeah. Good morning, Chris. Shopping center business is corner-to-corner, space-to-space, center-to-center. And I would tell you over the larger view, yes, clearly the leverage is moving in our favor. At the same time, we have fewer anchor tenants, you only have one tenant in the office space and seem things being shrinking down. So it depends on what market it is kind of what the opportunities are, there is not a lot available. But clearly, we are seeing much better leverage in - certainly in the shop tenants, we’re seeing significantly better leverage. There is just enough place for them to go.

[Chris Lucas:]

Okay. Thanks a lot, guys. I appreciate it.

[Johnny Hendrix:]

Thanks, Chris.

[Operator:]

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

[Tammi Fique:]

Hi, good morning. Just following up on your comments you just made on landlord leverage, do you think market rents are back to prior peak levels, or what’s the delta there?

[Johnny Hendrix:]

Hi, Tammi. I would tell you that it varies. In some of the markets, particularly in California, we still haven’t reached peak levels. And in others, Houston, Florida, Atlanta, we are back up to peak, Raleigh, we’re probably over. Some of that is also dependent on the specific locations. I think the great locations and I think that we have the great locations are really the ones that are going to continue to pick up and continue to see better increases. And so, I feel good about the direction we’re headed in every market that we’re in. It’s clearly up. I think California just was so high. We haven’t totally reached the peak in all those areas yet.

[Tammi Fique:]

And so that 10% where you’re not actually seeing positive increases at this point, is that characterized by geography, or is there anything even sort of any trends you can sort of point to there. Is that maybe related to the credit quality improvements that you talked about?

[Johnny Hendrix:]

It’s probably a lot of things. I don’t think there is anyone single thing that I could identify, could be the movement, could be, we decided to do a lease for two years knowing that we’re going to remodel this center, and kind of basically hold this space in inventory. I would tell you that there is - again there is so many reasons, there is really no specific reason. And I feel really good that 90% of all the leases do show an increase, the 10% is something that is a low number when you really look at the longer-term view.

[Tammi Fique:]

Okay, yes. Great. And maybe just one more question, one of your peers indicated that acquisitions are becoming less attracted, use of capital in light of the changes in the interest rate environment. So, I guess, I’m just curious, I guess, if you agree with that notion and then how you think about future development opportunities in terms of required yields, as we face that environment?

[Andrew Alexander:]

Hi, Tammi, it’s Drew. Again, I think it all comes down to the centers. We’re not going to buy a billion dollars this year, as mentioned, we will probably be nicely in our guidance. Johnny talked before about the way it sort of broken down is a little coincidental. In the beginning of the year, we did two great redevelopment properties that were very comfortable with interest rate exchange that we can adjust the rents on the redevelopment of those and produce a good return for shareholders. This quarter, we bought two more core properties, but because of the strength of the centers, the barriers to entry around the properties, the number of tenants and where market rents are, we likewise see very good Same Property NOI growth there. So, we’ll certainly continue to match fund, we’re not going to have a lot of short-term floating rate debt on our balance sheet. So, we’ll continue to do some acquisitions. We always will look to do as much development and redevelopment of quality, as we can. And I think between the, all the different arrows we have in our quiver to grow in our existing portfolio, we can produce good, risk-adjusted FFO growth.

[Tammi Fique:]

Okay. Great. Thank you.

[Operator:]

And from UBS, we have a follow-up from Jeremy Metz. Please go ahead.

[Jeremy Metz:]

Hey, guys, just one quick follow-up along the same lines of growing earnings in Same Store side. You noted the Same Store was running ahead of expectation, given some lower than expected retailer fallout. But you’re also cautioning against higher comps going forward, particularly on the occupancy side. So, I guess, just given those comments, I’m just wondering, as we look out here at 2016, is it fair to think about the more normalized 2.5% to 3% sort of Same Store growth profile with redevelopment continue to add about 30 basis points to 50 basis points there?

[Johnny Hendrix:]

Hey, Jeremy. Johnny, again. I would say, yes, you’re probably close when you look at a stabilized portfolio, is it 3% to 4%, 2.5% to 3%, somewhere in that area. We obviously haven’t completed our budget. So we’re not trying to give guidance, but I think on a normalized basis those are certainly some ranges that seemed reasonable to me.

[Jeremy Metz:]

Okay. Thanks, guys.

[Operator:]

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

[Andrew Alexander:]

Well, thanks so much, everybody for your attention and participation. We know everybody is very busy with lots of earnings calls, and then announcements; and we appreciate it. Did want to quickly mention and that we’re having a tour in Las Vegas, the Monday before NAREIT. We’ve got your very strong assets there and a great team. So hope you can join us for that. We're around if there are any other questions and happy to talk more about Houston, either show people here physically, keep them nice and air-conditioned when we do that or talking through the maps and the road-show deck. So thank you all very much. Really appreciate your interest in Weingarten.

[Operator:]

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