Weingarten Realty Investors
Q3 2015 Earnings Call Transcript

Published: 30 Oct 2015

[Operator:]

Welcome to the Weingarten Realty Third Quarter Conference Call. My name is Richard, and I’ll be your operator for today’s call. 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 the call over to Michelle Wiggs. You may begin.

[Michelle Wiggs:]

Good morning, and welcome to our third 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.

[Drew 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 from our transformed portfolio. We had very solid same property NOI fueled by outstanding growth in rental rates. While our scarcity of vacant space clearly benefits our negotiating position, the improved quality of our portfolio created through our highly successful transformation program is a significant driver of this growth. Vacant space at great centers is in high demand. While operations remain solid, the acquisitions environment continues to be challenging. Cap rates for high quality shopping centers in our targeted markets remain very low with numerous bidders for every transaction. We acquired four great acquisitions during the quarter each a bit unique and Johnny will review the highlights later. Looking to the end of 2015 and into 2016, we expect this highly competitive environment to continue and it could be further obfuscated by possible increases in interest rates. As such, we will remain disciplined in our pursuit of opportunities. As to dispositions, our major transformation was completed in 2014, but as mentioned, we will continue to improve the quality of our portfolio. During the third quarter we closed 29 million of dispositions and subsequent to quarter end sold an additional property and a land parcel for $14 million, bringing our year-to-date sales to about $107 million. Sales activity remained strong, so we may consider accelerating our disposition. It's too early to call it, but this could possibly push us to the high end or above our guidance range of $125 million to $175 million for 2015. Now let me switch gears to our new development activities. We're making great progress on all four projects under development. Our Hilltop development in DC anchored by Wegmans and LA Fitness is over 98% leased. We have 188,000 square feet paying rent and the majority of the remaining space is anticipated to commence in the fourth quarter. At our Wake Forest development in the Raleigh market we’ve commenced rents on about 90,000 square feet of space. This is particularly impressive as the time from our purchasing the land to commencing rent occurred in a little over 12 months. This was a unique opportunity and highlights the strength of our development team. At Nottingham Commons, our newest addition to the pipeline in White Marsh, Maryland leasing is progressing nicely. We’ve executed leases with T.J. Maxx, Ross, PETCO and MOM’s, a value oriented organic market with locations in Maryland, Pennsylvania, Virginia and DC. Demand for shop space is strong with several small shop merchants already signed. Signed occupancy already stands over 80% with construction commencing next month. Tenants should start opening in the third quarter of 2016. The Whittaker in West Seattle is a six story mixed-use project being co-developed with Lennar. Our 63,000 square foot retail portion is anchored by Whole Foods. Lennar has begun construction and they anticipate delivering their retail portion to us in late 2016. Our Walter Reed development continues to move forward with the closing on the land expected to occur in 2016. Development of the majority of the retail component will probably commence in 2008. We are thrilled that during the quarter we were selected as the master developer for the redevelopment of the Atlanta Civic Center. Our team won this competitive process to control this 19 acre mixed-use development in a densely populated trade area adjacent to the north end of downtown Atlanta. We are in preliminary planning and we estimate up to 200,000 square feet of retail plus residential and office components. The investment in the retail portion is estimated at 70 million with the total project cost around 300 million. We are early in the process and expect to open in late 2018 or 2019. We are pursuing other development opportunities and we're optimistic about our preliminary pipeline. We will remain sensitive to risks, but we're pleased with the shareholder value created by our efforts in new development. Steve, the financial results?

[Steve Richter:]

Thanks, Drew. I'm pleased to once again report strong earnings. Reported FFO was $0.56 per diluted share for the quarter compared to $0.52 per share in the prior year. Recurring FFO for the quarter was also $0.56 compared to $0.53 per share in the prior year. This represents a per share increase in recurring FFO of 5.7% over the prior year even though the full year effect of our 2014 disposition program as well as our current year sales have cost us about $0.03 per share. FFO for the third quarter benefited from a strong increase in same property NOI, our new development and redevelopment activity and to a lesser extent, our current year acquisitions. Additionally, we benefited from favorable refinancing activities, including our new five year $200 million term loan closed in the first quarter as well as the redemption of our remaining preferred shares, offset by our disposition activity. Also we’ve commenced the implementation of a new integrated business management software otherwise referred to as an ERP system that will be completed next year. This resulted in additional G&A expense of $550,000 for September of this year. I expect additional G&A expense of around $800,000 in the fourth quarter and $250,000 in 2016 to complete the system implementation. These costs will be included in our recurring FFO number. As to the balance sheet, our acquisition outlays were self funded with proceeds from dispositions and our debt maturities were insignificant. Accordingly, our debt ratios remain 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%. Moving to 2015 guidance, we are tightening our guidance for recurring FFO to a range of $2.16 to $2.18 per diluted share and for reported FFO to a range of $2.04 to $2. 06 per diluted share. All of the other details of our guidance remain unchanged or included on page nine of the supplemental package. Our press release last night announced a $200 million share repurchase program approved by the board in yesterday's meeting. With the extreme volatility we have experienced in the stock market and specifically within the REIT space, we felt it was prudent to put this program into place. As we've discussed with many of you, we would only use it if there was a significant discount to NAV. Johnny?

[Johnny Hendrix:]

Good morning. We're excited that portfolio continues to produce excellent results. Tenant demand remains modest, but we have a strong tailwind with existing space highly occupied and very low levels of new supply. 75% of our NOI comes from centers with a supermarket component and we have 117 discount junior department stores. These anchor tenants continue to drive customers to our smaller retailers and service providers. Our supermarkets average $588 per square foot which represents more than 80,000 customers a month visiting our centers. All in all, business is good. The Houston economy has performed better than we expected even with low energy prices. Houston had incredible job growth the previous five years with 105,000 jobs created in 2014, that however slowed considerably. The Greater Houston Partnership has estimated that the city will create 20,000 jobs in 2015. Still, we have not seen significant impact on our centers or demand for the very little vacant space we have available. It’s important to remember only 16% of our AVR come from Houston properties. And these properties that primarily service superzips are very strong. A couple of stats really drive home that strength. Our Houston same property occupancy is 96.9% and year-to-date rent growth is 17% both outstanding numbers. This rent growth is a blend of new leases at 39% impacted by a couple of strong unique deals and renewals at 13%. Not a single one of those renewals was negative. I still think Houston has some economic weakness ahead, but Weingarten’s properties are very strong and I believe we will continue to be productive. Many of you have visited us in Houston recently. Folks have been impressed with the strength of the city and especially our transformed Houston portfolio that has an average household income in a three mile radius of $110,000. We invite you all to come see and let us show you why we feel so strongly that our properties in Houston will withstand economic conditions. Turning to the broad numbers, same property NOI for the quarter was 3%. It's worth noting that the number was really driven by the base minimum rent which was up 3.2%. So far, for the year, we've averaged 3.7% same property NOI and expect to finish the year around 3.5% which would be within the current guidance range. These numbers include a few of our small redevelopments as shown on page 12 of the supplemental. If we were to include all redevelopments, our same property for the whole quarter would have been 5.7% and year-to-date 4.7%. Rent growth was excellent this quarter and I think reflective of the overall market conditions and the quality of our portfolio. New leases increased 19% with renewals up 9%. All of our markets with the exception of some parts of California have returned to peak rents we saw in 2007. We ended the quarter with occupancy at 95.1%. This is slightly ahead of a year ago, but a little less than last quarter. My expectation is, we will see overall occupancy climb toward 96% in 2016, but we're focused on increasing rent. So if we lose a tenant here or there, we’ll accept that. Our major markets are all over 94% and the states of Florida, Colorado and North Carolina ended the quarter with signed occupancy already over 96%. Occupancy was impacted a little by the fallout of Anna's Linens. We had nine stores with them and have already released three and have letters of intent working on five others. We are also watching Haggen’s bankruptcy. We had two former bonds leases assigned to Haggen’s and both of those stores are now closed. Bonds, which is Albertsons’ is still obligated for five years lease term on both and we have good prospect. So it’s not going to be much of an impact for us. Leasing velocity remains strong. We executed 291 new leases and renewals during the quarter that’s a 125 new leases per $8 million in annualized base minimum rent, about the same as we leased in the third quarter a year ago. Demand for quality retail space has been consistent all across our footprint. We continue to see absorption from both niche supermarkets and regional grocers. Discount clothing, footwear, pet stores are also expanding along with a wide variety of medical and service uses. We're also pleased with four unique acquisitions we closed during the quarter for $61 million. First, we closed on Trenton Crossing in McAllen, Texas. It’s a Target anchored shopping center with Marshalls, Ross, Hobby Lobby, PetSmart and Bealls. Sales at this location are in the top of these retailers’ nationwide averages and rents are in $9 to $10 range. That’s a nice combination. We continue to be bullish on Texas border towns as these are hubs for shoppers from Mexico. Even with the strong dollar versus peso, sales during the late summer and early fall have held steady and legal border crossings have increased. Our second acquisition was Wake Forest Crossing in Raleigh, North Carolina. This center is anchored by Lowes supermarket and adjacent to Weingarten’s new development, which is anchored by Kohl’s, Ross, T.J.Maxx and Michael’s. We will likely combine the properties for sale in 2016 as our development nears stabilization. We also closed on two small [Technical Difficulty] that may play a part in future redevelopments. We haven't seen much movement in cap rates over the last six months. Generally, there is still 4.5%, 5.5% for gateway markets and 5% to 6% in most other metropolitan markets with supermarket anchored assets still commanding the highest prices. There is still a lot of money chasing properties. Year-to-date, we've acquired $234 million in new property and as of now, we don't have much in the pipeline that could be closed in 2015. We continue to grow the company through redevelopments as well. We currently have eight active redevelopments underway and six completed this year. We expect to invest a total of $76 million for an average return of around 12% in these 14 properties. Please note our enhanced new development and redevelopment disclosure on page 12 of the supplemental. So business was good for the quarter. Same-property up 3%, 5.7% with redevelopments, strong base minimum rent increases, leasing velocity is steady, outstanding rental growth with new leases up 19% and a few nice acquisitions. Drew?

[Drew Alexander:]

Thanks, Johnny. Our performance in 2015 has been very good. We’re especially pleased that the strength of our operations continues as this clearly validates the success of our transformation. Investing capital remains challenging, but we've uncovered some unique opportunities. We remain optimistic that new development will accelerate with the ever dwindling supply of quality space. Like last year, we plan to communicate 2016 guidance around year-end. I'd like to thank all of 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'd now be happy to take questions.

[Operator:]

[Operator Instructions] Our first question online comes from Christy McElroy from Citi. Please go ahead.

[Christy McElroy:]

Hi, good morning everyone. Just with regard to your share buyback program, recognizing the volatility in the market could present opportunities, what is your appetite to buy back shares at the current level? Steve, you mentioned you would only use it if your stock was trading at a significant discount to any of these, so would you use it today?

[Steve Richter:]

Good morning, Christy. As we noted in the prepared remarks, we would only be willing to buy back stock if it was a significant discount to NAV. If you look at all of the analysts’ numbers and so forth, we're clearly nowhere close to the 10% or 15% -- 15% or 20% number that we would look at in order to buy back stock. So fortunately, the market has recovered and we don't anticipate anything, but we certainly wanted to have that in our tool box in case the market did soften once again.

[Christy McElroy:]

Just to clarify, you still expect an accelerated pace at this position into the fourth quarter and into 2016?

[Drew Alexander:]

Good morning, Christy, it’s Drew. You know, what we tried to highlight to be as clear as we could be with the Street was that it’s a possibility. We've thought about things the last month or so we come into the Board meeting, we’ve had a bunch of people approach us and it is seems to us that there's the possibility that some of what we've been planning to sell in ‘16 could get a little bit accelerated. So it is possible that we could end up at the high end of our '15 guidance or maybe even a little bit over it for ’15 and then some of what we've always talked about selling in '16 could be a little frontloaded. It’s a little early to say. We’ll know more as we do our year-end release with our guidance for ’16. It’s just something we see taking advantage of a strong market, have been approached by some folks for 1031s and other things. So we wanted to get as much communication to the Street as we could, but it is something that's in the very preliminary possible stages at this time.

[Christy McElroy:]

Okay. And then my second question is on Houston. Can you sort of discuss transaction market trends in the market and given that there may be somewhat of a perception overhang on the market. What's your appetite today to maybe take advantage of that by assets and some of the stronger markets in which you operate? And Johnny, I'm not sure if I missed this, but what was same-store NOI growth in Q3 for Houston?

[Johnny Hendrix:]

Hey, Christy, good morning. You know, the transactions that we've seen over the last several months would give us an indication that cap rates have remained steady, a large power center went under contract for about a 6 cap, 7 to suburbs, supermarket-anchored shopping center went under contract in the suburbs for about a 6.2. These haven’t closed yet and certainly the properties that had closed were actually under contract no longer ago, but would reflect the same thing that cap rates have remained relatively steady. I think there probably has a muted number of transactions. So that could support the idea that perhaps cap rates have moved a little. I would tell you that on the quality of our assets, it’s hard for me to imagine that cap rates have moved much at all. When you look at River Oaks Shopping Center, Post Oak Shopping Center, Richmond, Bunker Hill, those are trophy assets that are going to remain strong over time. In Houston, our same-property NOI was 4.5%, so again strong. Sometimes that is a lagging indicator. But I got to tell you that what we're seeing when we have a space come available is continue to be a very, very high demand. And one of the things that I’d like to highlight is that over the last five or six years, Houston has added over a million people and a lot of those people are inside the loop and around the areas where our shopping centers are and development has been very, very muted. We’ve been in competition with apartment developers and office buildings and you really haven't seen much retail space built. So I think that we still have an environment where we can continue to push rents and the property that we have is very, very desirable.

[Christy McElroy:]

Thank you very much.

[Operator:]

Thank you. Our next question online comes from Mr. Craig Smith from Bank of America. Please go ahead.

[Craig Smith:]

Thank you. At the Atlanta Civic Center, you won the competitive process, but at this point, are you investing money in it or is there a trip day [ph] when you'll have to invest money?

[Drew Alexander:]

Good morning, Craig, it’s Drew. As you mentioned, just – it was just a few weeks ago that we won the bid, so things are very preliminary. So we're spending some money in terms of architects’ fees, engineers’ fees, consultants et cetera as we start to plan it, but it's not significant and we’re still very much in the preliminary stages of figuring this out. There is a 170,000 people in 3 miles, it's an underserved location that is definitely becoming stronger. We’re very proud of our team and the success that we've had in these competitions. Got a lot of interest in the folks who would do the apartments, the office components, even some hotel stuff. The Atlanta ICSC was earlier this week and I don’t have the full reports, but the preliminary reports I have from our team, lot of interest from all the good retailers, the grocers, the full line and the specialty as well as of course all the promotional soft good standards. So it's early. We’ll know a lot more at our next call. We're excited about it, proud of the team, but a lot of work left to be done before we really have our plans nailed down.

[Craig Smith:]

And these JVs and mixed use type projects, are they becoming more interesting to Weingarten as they go forward?

[Drew Alexander:]

I have to say yes. You look at our success so far in Seattle, our involvement in Walter Reed, you look at the broader landscape of where people want to live today and it's a lot of what people want, it’s a lot of what the tenants want, it’s a lot of where people want to live. So it is something that we’ll be very sensitive to. I could see us getting involved possibly in the residential part in some way depending how the layout works out and how integrated the residential is with the retail. I think it’s very unlikely that we are involved in the hotel, we sell that off to somebody, we must likely sell the office off to somebody. So again, it’s something that we have done a decent amount of and involved in projects like 8000 Sunset as well as other projects in Denver, and it’s a big part of where the growth is.

[Operator:]

Thank you. Our next question on line comes from Lina Rudashevski from JPMorgan. Please go ahead.

[Mike Mueller:]

Hey. Actually, it’s Mike Mueller here. So going back to the possibility of increasing asset sales and I know you're going to give the guidance out and as you mentioned probably in early ‘16, but can you give us some sort of a framework for how you think about just normalized disposition levels in any given year and then to the extent that you do ramp up dispositions more, I mean just some sort of sense of magnitude, because I can imagine if you went out of your way to put this in the press release, you’re talking about going from 100 million to 125 million or something like that. So any color would be appreciated.

[Drew Alexander:]

Good morning, Mike. It's Drew. And I appreciate that. We’re also not looking at something as big as equity residential either. So as you know, we've talked about the transformation, the completion of the transformation being basically complete, but then is also is laid out in our maps and everything that we will continue to sell property and the range that we had talked about for this year of 125 million to 175 million is a reasonable range to think about, that calling of the 3% to 5% of the portfolio that we would do on a regular routine basis. So as we looked at things in August basically, as things started to turn down, we looked at a lot of opportunities to sell some things that if everything comes together and again it’s very preliminary and perhaps we have made more out of this than it mirrors, but we're trying to be as clear with the Street as we can be that there is the possibility that we could end up around the 175 or maybe a little over it for 2015. And then when we look at that 2016 number that a lot of where that number ends up could be more towards the front of the year. So again, we’ll know more when we do our press release around the end of the year and we’ll certainly communicate that more. So it is something that it’s an opportunity, we look at the pricing on some of these things, it looks very good to us relative to our NAV and it is something that we want to take advantage of what we think are some pretty strong conditions.

[Mike Mueller:]

Okay. So do you think it’s safe to characterize it this way where you’re not necessarily looking at significantly ramping up the volume in 2016, if it happens but maybe keeping a similar level, but potentially front-end loading it more? Is that fairly accurate?

[Drew Alexander:]

Yes, I think that's reasonable.

[Mike Mueller:]

Okay. And then just a quick one for Steve, it looks like the deferred compensation investment income turned negative in the quarter. I was wondering what drove that and then what's a good run rate for going forward?

[Steve Richter:]

Good morning. You are correct. It did go negative, obviously, that's driven by stock returns except, et cetera. There is no P&L effect on that Mike. It all works out between compensation and so forth. So I don't know what the run rate, because I don't really know what the market is going to do going forward, but bottom line, it doesn’t affect FFO.

[Mike Mueller:]

It’s a wash. Got it. Okay. Thank you.

[Operator:]

Thank you. Our next question on line comes from Jay Carlington from Green Street Advisors. Please go ahead.

[Jay Carlington:]

Hi, guys. Was there either any other projects in the shadow pipeline become less of a priority with right on your plate now?

[Drew Alexander:]

No. Good morning, Jay. It’s Drew. We've got a strong team. We've got -- these are all good projects and they are all things that will continue work on as well as I mentioned, there are some other things that are likewise preliminary and we’ll be very sensitive to the risks, both from a tenant entitlement et cetera perspective, but as I commented on before, a lot of these projects are very dense in-field complicated projects, but also with a tremendous amount of population and pent-up demand. And if you look at our existing development pipeline and the hilltops and a lot of the other projects are completing and you look at the multi-year nature of a lot of these projects and then of course the case of Walter Reed, we’re not the master developer there, but we’re very focused on the retail and have incredible interest. So we see it as a nice, but manageable in the size of the company pipeline that we feel can definitely add shareholder value.

[Jay Carlington:]

So, do you think you're appropriately staffed up at current levels to handle these projects?

[Drew Alexander:]

We’ll have to add some more folks if these -- if and as these things come together in the construction area and leasing area, in the sort of project coordinating area. We've got a good amount of people outsourcing deals in the future, but there will be, if all goes according to plan, conference calls in the future whoever we’re talking about, some overhead increases and everything as well development is profitable and it's profitable after overhead cost, it does take people and when it comes to the construction, the project management, even some leasing folks, we’ll have to add over the next few years.

[Jay Carlington:]

Okay. And I guess Johnny, just on the implied cap rates on dispositions, they’ve been trending lower sequentially, I guess, from the, call it, 8% earlier in the year to 6% on the recent batch. So I know there is a lot of noise there, but is there anything to read in terms of the types of assets you are now selling from a quality perspective?

[Drew Alexander:]

Good morning. It’s Drew again, because I actually handle a lot of the day-to-day for Johnny after [indiscernible] help him since he took so much more on his plate. So yes, you are exactly right as we talked about with the transformation ending, there is a compression in cap rates and we want to continue to hone the map, we want to continue to eliminate risk, but we are seeing a noticeable, as you say, change in cap rates. There will be some exceptions and quarter to quarter, it will vary, but the bulk of it is, we are seeing that cap rate improvement. We are also making some progress, a little bit fewer on the unimproved land. So having sold a nice track of that, post-quarter of course from a cap rate perspective, selling land really helps out your averages.

[Jay Carlington:]

Okay. But just to clarify the lower cap rates, is that some cap rate compression or is it just the quality of the assets that you're selling?

[Drew Alexander:]

It's probably a bit of both, what you say, Johnny?

[Johnny Hendrix:]

Yeah.

[Jay Carlington:]

Okay. Thank you.

[Operator:]

Thank you. Our next question on line comes from Jeremy Metz from UBS. Please go ahead.

[Jeremy Metz:]

Good morning. In terms of the same store, you mentioned this quarter, I think maybe for the first time that all redevelopments would have added about 270 basis points of same-store results. Obviously, this is a pretty big impact. So I'm just interested maybe in the components here, where redevelopments are dragged a year ago, so some of this is just a turn maybe from negative to positive NOI and then as a second part to that question, I think you said a few were in the 3% quarterly results. So I'm just wondering what drives the determination of which to include or exclude from your more core same-store results?

[Steve Richter:]

Hey, good morning, Jeremy. Yeah, we thought that it would be helpful to include the same-store NOI with all of the remodels. Traditionally, we have used some of the very small remodels that frankly impact you slightly coming in and impact you slightly going out during the remodel. This quarter in particular, if we hadn't used any remodels, it still would have been the same 3%. So you can say it's not a big driver on that side. We did have a couple of larger redevelopments that are, we have the tenants who have been paying rent now, particularly and then the LA Fitness at Brookwood, and what we've tried to do is be clear what we’ve included and what we haven't included in the supplemental. So I would take a look at that and I think it is clear again the very, very strong remodels if I'm going to building down and build a new floater building, then I'm trying to get negative on the way in, I’m getting positive on the way out, but frankly it's just not that much money and we just always try to give you as much information as possible.

[Jeremy Metz:]

Okay. And I guess my second question is just as it relates to some language in the press release, some concern over sluggishness in the economy, so I guess if I just ignore Houston here and your markets, are you observing anything in particular on the ground that is making you more cautious today than maybe a few months ago or even earlier this year?

[Drew Alexander:]

This is Drew. Good morning. No. I think we see the same things that everybody else sees that I think the GDP numbers worldwide concerns about China et cetera, income growth or lack thereof, play on everybody's mind. So as I talked to our retailers and Johnny talks to them, everything is sort of pretty good, it’s is not super-duper great and of course the main thing that we've said that makes our business so good is the total lack of a lot of new supply and even the increase in development that we’ve talked about earlier in the call, of course, most of those projects won't come on for years and years and years. So I still think the supply demand balance will remain in a very good position, so the grocers, the promotional tenants, the basic goods and services, retailers and service tenants who occupy our shopping centers are doing pretty well, even in an economy that in our view and I think most economists view is a recovery, but a pretty mediocre bumpy, boring and very gradual recovery.

[Jeremy Metz:]

Okay, thank you.

[Operator:]

Our next question on line comes from Mr. Jim Sullivan from Cowen Group. Please go ahead.

[Jim Sullivan:]

Good morning, thank you. Drew, I am curious with the, let’s call it the continued expansion in the development pipeline of these mix use projects, and kind of following on from the question earlier from Craig Smith, I'm trying to determine whether you are expanding these type of projects, which are not typical, historical Weingarten type projects because of the lack of call it, conventional greenfield kind of ground up development on the one hand or whether it’s driven by the higher projected development yields and perhaps also higher projected same-store NOI growth or is it just a combination of all three?

[Drew Alexander:]

It's a combination of those things combined with the fact that it’s where a lot of the growth in residences is, it’s where the tenants want to be. So we have done some of it over the years and we will certainly be judicious about it, but it’s really a combination of everything, it’s what the tenants want, it’s what the consumers want, it’s what the residents, it’s what the so-called, and even a lot of boomers et cetera want are the so-called live, work, play environment. It’s where the tenants are focused. So it’s all that that comes together and we will be judicious about it and dot our ‘I’s and cross our ‘T’, but it is something that we are pleased with the opportunities that we see at Walter Reed, in the Civic Center and West Seattle et cetera.

[Jim Sullivan:]

And tell me given the complexity of doing these projects and given that they often times involve property types that you’re less familiar with or have less experience with. Is there a high on hurdle rate in terms of returns or conversely if you believe the same property NOI growth is going to be superior if they are in fact the opposite or lower hurdle rate.

[Drew Alexander:]

I think we're able to get comparable returns and then as you say, I think at the end of the day we have a more secure product that we think over time will do better. So for those reasons, the comparable going in return and better security and growth over time, we think it's a very good risk-adjusted return. The other thing that plays into is because these things are so complicated, you can work through a lot of the complications and line up everything so you can also take a lot of the risk out. So it's not like you're going and building on a Greenfield in advance of all the people, the people are there, and the cities, landowners et cetera, et cetera on these infield deals appreciate that you're going to have everything worked out. And you'll have some pursuit cost with that but you won’t buy the land, in most cases, you won't have a whole lot of money at risk. And so you really have a pretty good handle on what you're doing. So we think it's -- hopefully articulating this pretty well, we think it’s a very good risk return scenario and it's also driven by what the people and by that I mean the consumers and tenants is what people want today.

[Jim Sullivan:]

Okay, and then kind a related question. The company has a land portfolio, some of it is held for sale, some of it for development. And I tend to assume that most of that land was assembled for what I'll call conventional historical development patterns. And I'm just curious whether we should assume that we’re going to see more of that land being sold?

[Drew Alexander:]

We think we’re making very nice progress, I mentioned the sale which was to Sam's store in the Raleigh area and we’re hopeful that with the sale of about half of that track that we will have a future development there of the next phase of that project. And we’re working on some of the other parcels, some of which will be sales to other users and then some of which will trigger developments and redevelopments. So, it is something we think we’re making nice progress on. It does take a long time, so in any particular quarter, we don't always make a lot of progress. So the sale this quarter, which is, some things have been working for a while we are very pleased with and optimistic that it will lead to some other development.

[Jim Sullivan:]

Okay, then final question from me. We did have the Republican debate this week and one of the major topics that comes up in every one of these is immigration policy and kind of following on the comments the prepared comments about assets closer to the border. I just wonder when you hear the immigration policy alternatives discussed whether there any policy options that would be particularly positive or negative for that part of your portfolio.

[Drew Alexander:]

Without taking the rest of the day on politics, let me just say quickly as Johnny mentioned that the shoppers who are in, in our centers are making legal border crossings, buying a lot of goods going back to Mexico and I don't think there has really been any serious discussion that we would stop those legal crossings. So the immigration policy is a whole different subject from the fact that every day thousands of people come over, especially on the weekends, many thousands of people shop go back to Mexico because there are hundreds of thousands of people who live in northern Mexico and it's a very underserved, Johnny is telling me it's millions, it's a very underserved area. So I don't think there is any serious discussion to stop those legal crossings.

[Jim Sullivan:]

Good thank you.

[Operator:]

[Operator Instructions] Our next question comes from Rich Moore from RBC Capital Markets. Please go ahead.

[Rich Moore:]

Hey guys good morning. You're going to be a net acquirer this year. What you think about next year, so you’re thinking the same terms that even though you got these dispositions lined up for the January time period, you'll probably be overall a net acquirer?

[Drew Alexander:]

Good morning Rich it's Drew. Well as I said, we are seeing some opportunities, so you're right mathematically in ‘15 we will be a net acquirer. You know ‘16 it’s a little harder to call that it is something we will remain focused but also disciplined on the acquisition side, so it's really hard to know what opportunities may or may not present themselves. We're very pleased with Baybrook acquisition that we did earlier this year. When we were on this call a year ago, we didn’t know about that deal, I mean that was a wonderful deal that came up very quickly. So, acquisition is very hard to forecast, we know we’ll be disciplined. Dispositions I think we have a lot more clarity that it looks like there could be some good opportunities there. So while we'll get out specific guidance towards the end of the year if one wanted to think about ‘16 being approximately neutral that should be reasonably close.

[Rich Moore:]

Okay, alright good thanks Drew. So I’m just trying to figure out if you -- even if it's neutral or if you have some net positive and then of course you have what appears to be an expanding development pipeline and you guys, it's nice disclosure you added by the way, thanks you, you have some redevelopments as well obviously that you’re adding. I'm not sure why you would be inclined to want to buy back stock with that kind of opportunity set, it seems like you're going to hold on to the capital and see what comes up?

[Drew Alexander:]

As hopefully we articulated what we thought was the right thing was to have the tools in toolbox to have the Board and passed it and be in a position to take advantage of things if the market changes. Given the rebound in the stock, given as Steve said, we would want to see significant discount to NAV in the number that we kicked around most frequently with that is a 15% discount I think we’re more 15 to 20 than anything below that. So at this point as we sit, it's a tool that going to stay in the toolbox for hopefully a long time, but we thought it was prudent to just have it available because we think our job is to allocate capital and if we got into a situation more significant than we saw in middle August we wanted to be ready to take advantage of what we would see as an opportunity.

[Rich Moore:]

All right, good thank you. And then, I’m not sure I understood this correctly but were you saying basically the weight force to sort of a merchant build project i.e. you’re going to take the other phase that you just bought and put it with the one you're building and then sell that project at some point in time.

[Drew Alexander:]

Rich, I'm not sure that were a system in favor these days but it is --

[Rich Moore:]

No, I know it's not.

[Drew Alexander:]

It is something that we you know it is something that opportunistically selling it and our ability to buy the area next door and therefore have a grocery anchor center and take advantage of the cap rate, it is something that as Johnny mentioned in his remarks we've also been approached by some people who are perhaps interested in it. So it's something we'll give some strong consideration to. Again, we think it's the right long-term, it could be the right long-term thing.

[Rich Moore:]

So it’s really more of an opportunistic [indiscernible] as opposed to a notion that might go out and do merchant building again I guess?

[Drew Alexander:]

It was definitely opportunistic. We do not see a lot of new merchant building in ours or anybody else’s future.

[Rich Moore:]

Got you, okay great. Thank you guys.

[Operator:]

Our next question comes from Tammi Fique from Wells Fargo Securities. Please go ahead.

[Tammi Fique:]

Hi, good morning. I'm sorry if I've missed this but just looking at the FFO guidance increase for 2015, it looks like the underlying components weren’t unchanged. And then with the potential dispositions to get accelerated, I guess I'm just sort of wondering what is driving that guidance higher this year?

[Steve Richter:]

Good morning Tammi, this is Steve. Look the guidance was slightly increased a $0.01 at the midpoint, there is a lot of moving pieces. Operations are clearly strong. Probably one of the other issue is the time of acquisition dispositions. If we are successful or we do windup selling some more properties between now and end of the year given the timing, they just won't drive the FFO for ’15. So it's really, we've had very strong performance thus far and looking at Q4, we don't see a lot of that anything changing there. So that was the reason we felt comfortable taking away the lower end of the guidance.

[Tammi Fique:]

Okay great, thanks. And then, you spoke about I guess last quarter about the boxes closing in the back half of the year and that potentially wearing on occupancy and then I guess you mentioned in your opening remarks about Anna's Linens, I guess did all of that activity occur in the third quarter or shall we expect anchor occupancy to dip again sequentially in the fourth quarter?

[Drew Alexander:]

Good morning, Tammi. I would say we are the best we can see today pretty well done with that. I think that we tried to signal that occupancy could be a little bit erratic but I think from here my guess is, my hope is we will go up and I think we are on our way to do that.

[Tammi Fique:]

Okay, that’s all me. Thank you.

[Operator:]

And at this time I see we have no further questions in queue. I'd now turn the call over to Drew Alexander for closing remarks.

[Drew Alexander:]

Thank you Richard. Well I just want to wish everybody a happy Halloween, look forward to seeing many of you at NAREIT that should be a lot of fun as well. And I know a lot of you have ready signed up for the tour that we have of some of our Vegas assets and to meet our team on the ground there in Las Vegas that's just before NAREIT starts but look forward to seeing many of you then and obviously could make a few more slots available if we need to. So, have a great weekend everybody. Thanks so much, we’ll be around if there are other questions and enjoy Halloween.

[Operator:]

Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating, you may now disconnect.