Weingarten Realty Investors
Q4 2010 Earnings Call Transcript

Published: 28 Feb 2011

[Operator:]

Good morning. My name is Steve, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weingarten Fourth Quarter 2010 Earnings Call. [Operator Instructions] Ms. Kristin Horn, Director of Investor Relations, you may begin your conference.

[Kristin Horn:]

Good morning, and welcome to our fourth quarter 2010 conference call. Joining me today are Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Senior Vice President and Chief Accounting Officer. 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, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliations to this non-GAAP financial measure is available in our supplemental information packet located under the Investor Relations tab of our website. I would also like to request that callers observe a two-question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue. I will now turn the call over to Drew Alexander.

[Andrew Alexander:]

Thanks, Kristin, and good morning, everyone. Our operating metrics improved dramatically in 2010. We produced three straight quarters of positive Same Property NOI. We dramatically increased occupancy. We invested $200 million in very good assets. I attribute our strong performance to number one, our people; and number two, the quality of our portfolio. We have great local expertise with experienced and motivated associates close to our properties, what we call our boots-on-the-ground approach. This proved highly productive as our results show. To further demonstrate my point, we're currently averaging 24 days from the day a retailer signs a letter of intent to the date we execute a lease. Working together, our leasing and in-house legal associates are pushing to get leases signed and tenants open for business. Our shopping centers average 1,361 households per square mile. These strong densities are among the highest of our peers. When combined with great anchors and excellent adjusted household incomes, our centers have proved to be quite resilient through these tough times. We continue to see improvement in the negotiating balance between landlord and tenant. For example, base rents on new retail leases during the fourth quarter 2010 increased 3.4% compared to a decline of 5.8% during the first quarter of 2010. This demonstrates how owners of high-quality centers located in dense areas are able to push rents even in challenging times. To give you some detail on acquisitions in 2010, we invested close to $200 million with an average return of around 7%. During the fourth quarter, we closed on five shopping centers, investing $168 million. The average household income within three miles of these properties is $95,000, which is 32% over the national average. Four of the five centers are anchored by supermarkets, and the fifth is anchored by Target and Kohl's. These acquisitions are great additions to our existing high-quality portfolio. So far this year, we've seen a bit of a lull in the quality product we want to acquire. We currently have about $59 million under contract, with just a little more in the pipeline behind that. We will remain disciplined buying good quality properties at returns which are accretive to our shareholders. In New Development, Weingarten stabilized three properties during 2010, and our future stabilizations remain generally on track as shown on Page 10 of our supplemental. There was some modest deterioration in returns, which is mostly a result of slower leasing. These are well-located properties, detail on our website, and over time, we will see upside from these. Our balance sheet remains strong, and the company has ample liquidity to fund operations, pay dividends and fund growth opportunities. 2010 was challenging, but showed many positive signs towards more normalized operations. We are well positioned to move into 2011 and grow the company. This growth will primarily come from continuing to improve occupancy, but also from acquisitions, redevelopment and new development. And now I'd like to turn the call over to Steve Richter to go over our financial results. Steve?

[Stephen Richter:]

Thanks, Drew. Going forward, Weingarten will detail its funds from operations on a recurring and a reported basis. We've itemized the differences between these metrics on Page 5 on our supplemental package for your convenience. Reporting recurring FFO for the full year 2010 excludes the redemption of notes, impairment losses, acquisition costs and gains on land and merchant development sales. Reported FFO includes all of these items. Weingarten reported funds from operations or FFO per diluted share of $0.33 for the fourth quarter and $1.42 for the full year 2010. Recurring FFO was $51.6 million or $0.43 per diluted share for the quarter and $204.9 million or $1.70 per diluted share for the year. Results were affected by a number of items that we have discussed for several quarters now and are fully outlined on Page 5 of the supplemental. Many of you are aware we have previously taken impairment losses on our Sheridan development in Colorado. This was a public, private venture where the City of Sheridan sold bonds and reimbursed us for environmental remediation, development of streets and a bridge and other infrastructure improvements. Prior-period non-cash losses have come from the decline in the value of the undeveloped land and changes in the fair value of this shopping center when we consolidated the joint venture's operation in our balance sheet. As of December 31, 2010, the City of Sheridan had senior bonds outstanding totaling $97 million, of which the company holds $51 million, and we also own an additional $22 million of subordinate bonds. Based on updated leasing and tenant sales assumption which drive the amount of revenue available to service the bonds, we recorded an impairment of $11.7 million or $0.10 per share against the bonds owned by WRI in the fourth quarter. In conjunction with the City of Sheridan in Colorado, we are currently working towards a bond reissuance with their redevelopment authority to extend the dedication of tax revenues allocated for bond retirement by an additional 10 years. Based on that agreement, we anticipate that all of the outstanding bonds will be recalled in the first half of 2011 and new senior and subordinate bonds will be reissued to the public and WRI, resulting in immediate proceeds of the company estimated at $16 million and new subordinate bonds totaling about $57 million. Based on the fair value accounting of this transaction, upon the completion of the refinance of the bonds, we expect to record an additional loss in the range of $16 million to $18 million. This loss is similar in nature to an impairment, but because it is triggered by the exchange of securities, it will be reflected as an investment loss as opposed to an impairment. All of this is contingent upon external market factors in the City of Sheridan's ability to reissue the bonds to the public, which cannot be assured. However, we do expect this transaction to close by the end of the second quarter. The Sheridan development has certainly been a challenge through the economic downturn. However, this is a great location with Target, Costco and a Regal Movie Theater all open and doing very well. We believe this refinance is the last hurdle in positioning this project for the future. We can now turn our full attention to attracting additional retailers to complete the project. Our business plan for 2011, for which I will overview in a moment, forecasts dispositions of $75 million to $125 million. The disposition of operating properties, as well as the monetization of some of our land held for future development, creates the possibility of additional future impairments as well. As Drew mentioned, the company's balance sheet remained strong. We ended the quarter with net debt to EBITDA at 6 7x. And during 2010, the company retired $120 million of outstanding debt. For 2011, we have $212 million of debt maturing, which is very manageable, as we ended 2010 with $450 million available in our lines of credit. Now let's move on to guidance for the full year 2011. We anticipate recurring FFO of $1.72 to $1.82 for 2011, which excludes the additional loss described earlier that we anticipate on Sheridan of $0.13 to $0.15 per share. We have budgeted acquisition of $125 million to $175 million and have further assumed a cap rate of 7%. As previously mentioned, dispositions are estimated at $75 million to $125 million at an average cap rate of 8.5%. We also expect to invest $34 million in the New Development program. This is a combination of the existing program and a small amount of new projects that we expect to commence later this year. Same Property NOI will be flat to up 1% for 2010. And finally, the business plan assumes an average retail occupancy of 93% for the year and total occupancy averaging 92%. I would also note that one can assume all the capital is invested readily throughout the year and that dispositions will be more weighted towards the second half of the year. A detailed listing of all of our assumptions for the 2011 business plan are available on Page 46 of the supplemental package. Also, I would call your attention to some new information that summarizes our ground leases, which is on Page 45 of the supplemental. And finally, we are also now providing the average base minimum rent for each retail center. This additional disclosure begins on Page 31. We will be updating these disclosures annually. We still feel the effects of a challenging economy, but are excited once again to be growing our FFO. 2011's growth may not be the full 5% we would expect annually going forward, but achieving the 4.1% growth at the midpoint of our guidance, we believe, would represent a solid year, given the current economy. I'd now like to turn the call over to Johnny Hendrix to discuss our operating results.

[Johnny Hendrix:]

Thank you, Steve, and good morning to everyone on the call. Weingarten had a very successful 2010, and we capped it off with a great fourth quarter. We increased our retail occupancy by 120 basis points in 2010, that's up from 91.8% to 93%, positive absorption of 394,000 square feet. The quarter-over-quarter increase was 40 basis points. We signed over 1,300 retail leases during 2010, 681 new leases for 2 million square feet and 668 renewals for 2.9 million square feet. Just to give you a little bit of perspective, that's the highest new lease production we generated in the last five years. During the fourth quarter alone, we signed 161 new leases with 179 renewals. Our retail portfolio produced an increase in Same Property NOI of 0.3% for the fourth quarter, ending the year increasing 0.2%. Our retail leasing spreads were negative 2% for the year and a positive 1.3% for the fourth quarter. Finally, we produced temporary income of $3.7 million during 2010. We're looking forward to continuing this positive momentum into 2011. Our retail properties, primarily anchored by supermarkets, discount department stores and discount clothing retailers, are well positioned to be the first alternative for national, regional and local tenants to locate. Our anchor stores are over 97% leased, so we're focused on the shop space. As the economy improves, we will make progress leasing our small space. We will continue to execute a disciplined plan to move our retail occupancy to the 95.5% we enjoyed in 2007. This plan includes continuing our global meetings, continuing our cold call program, maximizing our ICSC involvement, taking advantage of our local experts in our regional offices and utilizing our strong social networking outreach with Facebook, Twitter and text message leasing. In 2010, we had over 100 global meetings, where we spent as much as an entire day reviewing opportunities with national and regional tenants across our entire portfolio. Our national scope, overall ties and all operating history give us access to all key tenants. As an example, during the second quarter, we met with Chase Bank and agreed to five renewals and two new leases. This is very efficient for our customers and us. We also had very rewarding meetings that resulted in new leases with Ross, Nordstrom, TJX, Panera and many more. I feel strongly our regional office is manned by experienced and talented dealmakers who have the authority to act give us a competitive advantage. We're constantly networking with retailers, brokers, bankers and everyone involved in the retail community. We have the knowledge and the ability to act. It's not uncommon for us to sign a lease with a retailer within days of their commitment to the shopping center. Many of you have met our folks in these offices as you've toured our properties across the country. If you haven't, I would advise you to schedule a tour, and I know you'll be impressed. To highlight my point, our Sacramento office, working closely with local authorities in Northern California, have been able to finalize entitlement in leases re-tenanting a 100,000 square-foot space we struggled to re-lease for several years. The primary hurdle was the high cost of meeting entitlement conditions. Our associates recognize the city's change in regime and its need to increase taxes. Working closely with local authorities, they negotiated a modified improvement plan for the shopping center and the space, which made the re-tenanting profitable for us and provides the city additional taxes and an aesthetically pleasing shopping center. Bottom line, we'll have $1.6 million a year NOI once all the tenants are open. There are some bumps in the road ahead, and I think it's worthwhile to take a minute and go over those. In our last call, I talked about losing three bookstores and a home improvement center that would negatively impact our occupancy at the end of the first quarter 2011. Fortunately, we did lease one of the bookstores, but we will see a drop in retail occupancy next quarter of about 80 basis points. After that, I anticipate retail occupancy will move up an average 93% for 2011. For the company, I think we'll see a larger drop of up to 120 basis points with some fallout that will occur in the industrial division. We still do not have a precise answer to the future of Blockbuster. Their financial condition continues to deteriorate, and the liquidation of the company is possible. The proposed sale is probably the best situation we could hope for. We currently have 29 stores with Blockbuster. We expect to lose at least half of those leases as this bankruptcy continues. Over the last several months, we've signed agreements for 15 of the existing Blockbuster stores, which give us the right to terminate on 90 days notice. Now that we have control of these spaces, we're seeing good interest from banks, restaurants and retailers. A good example is an agreement we've reached with a bank in Florida. We turned an end cap into a freestanding building with a ground lease, improving our net operating income for that space by $100,000 a year. It will take some time, but our Blockbuster spaces are generally the best spaces in our shopping centers, and we will re-lease these stores. We do have some exposure to bookstores. At the end of the first quarter, we will have nine Barnes & Noble's. We will also have three Borders and one Waldenbooks. Additionally, we have three Ultimate Electronics stores and it appears all three stores will be closing at some point during 2011, as the company is working through bankruptcy. We have some good interest in two other spaces, and I believe we should re-lease those fairly quickly. Finally, our fallout has slowed, but it's still well above what I would consider to be normal. We experienced about 20% less fallout in 2010 than 2009, but this continues to be a drag on our operating metrics. We believe our budget accounts for these bumps and that we should be able to absorb their negative impact. As we look back over the last few years, the challenges we face today pale in comparison to those we've already overcome. We see an improving economy with a healthier supply and demand balance, and I am confident we have the portfolio and the people to succeed. Drew?

[Andrew Alexander:]

Thanks, Johnny. As you've heard, we feel the economy has gotten better. This, plus our drive and determination, produced improvements in operations throughout 2010. As a result, our board increased the dividend 5.8% to $0.275 per quarter or $1.10 per share annually. This dividend represents a 62% payout ratio to the midpoint of our guidance for full year recurring FFO. 2011 will have its ups and downs, but we see continued improvement. We are well positioned, being 97% leased in our anchor spaces, and this is a testament to the quality of our portfolio, which will position us very well to lease up our vacant retail space as the economy improves. On the external growth front, we remain selective for opportunities where we can improve shareholder value. We are confident that boots on the ground will result in improved operating fundamentals and growing NAV for shareholders. Before closing, I'd like to let everyone know that Weingarten will be hosting its annual Analyst and Investor Day in New York this year on April 14. Additional details will follow shortly, but please save that date. Again, the morning of April 14. Thank you so much for your interest in Weingarten, and we're happy to take your questions at this time.

[Operator:]

[Operator Instructions] And your first question comes from the line of Craig Schmidt with Bank of America Merrill Lynch.

[Craig Schmidt:]

Given the $168 million of acquisitions in the fourth quarter, it seems like we're a little light for the full year going from $125 million to $175 million. Is there something near term that's sort of dampening your enthusiasm for the acquisitions?

[Andrew Alexander:]

As we mentioned, Craig, we are going to be very selective. We've got some great opportunities in the fourth quarter and right now given the size of the pipeline and what we're seeing, we think that guidance is a good number. Again it's guidance were going to do the right long-term thing. A year from now, we could end up above that number or below. But at this moment, we are being very selective underwriting things very carefully and find things very competitive out there. In a lot of cases we bow out of the bidding pretty early because we just don't see the upside that some others do.

[Stephen Richter:]

Craig, this is Richter. I might just add that the Q4, the volume there really didn't have anything to do with our strategic shifting or changing in terms of investment. It just has to do with what kinds of deals kind of bunched together all around the end of the year. So don't read into it that we've changed our investment philosophy in the second half of last year.

[Craig Schmidt:]

You may have on touched this, but the minus 14% in the industrial leasing, was this something that accounted for that change?

[Andrew Alexander:]

Nothing specifically. We monitor all of our markets closely. We are actually ahead of occupancy in the majority of the markets, of the nine markets that we lease in, in industrial. We haven't lost any deals to competitors. The occupancy that we've lost has been either companies going out of business or in a lot of cases users buying their own businesses. Industrial has certainly taken its hit, but we feel pretty confident that as the economy stabilizes, things will get dramatically better there. There's obviously no new industrial space being built. Rents today are at a level well below what it would take to justify new construction, so we think we're going to see some pretty good increases as the occupancy improves. With the merger that's taking place in industrial, I think there's further consolidation, which will lead to stronger pricing power. So while the current situation may not be that good, we think the long-term future is pretty positive.

[Operator:]

Your next question comes from the line of Ki Bin Kim from Macquarie.

[Ki Bin Kim:]

What is your long-term strategy for your Industrial portfolio going forward a couple of years now?

[Andrew Alexander:]

As we've talked before, we've been in the Industrial business for a long time, some 40 years, really longer than any of the peers have been around. It's a good business for us. A business we know well. We understand it. We're in a number of markets. That said, if the right opportunity produced itself, as I've said before, we would certainly consider it strongly to just focus on retail.

[Ki Bin Kim:]

In terms of your acquisition guidance, when you think about your NAV and your implied cap rate around the low sevens, how does that configure your thinking about how aggressive you could be as you're buying assets versus possibly looking at your own NAV share on buybacks?

[Andrew Alexander:]

Buybacks is not something that we consider in our immediate future. As we said, we will continue to look for things that are accretive to shareholders that we can make money at, and that's where we're very pleased with the acquisitions that we did last year, again, mostly in the fourth quarter that average around 7% with some of the long-term upside. Also as I said before, we're very comfortable looking across the gamut of both core assets, value-added properties and also developing when the time is right. We're focused on about 10 markets within our footprint, so we're very focused with our local expertise on those areas.

[Ki Bin Kim:]

I know it's kind of early, but do you think some of the central assets that Blackstone bought -- you think there's some opportunity there to maybe pick some pieces of that?

[Andrew Alexander:]

As you say, I think it's a little too early to see. Generally speaking, we've looked at a lot of those assets over numerous iterations and companies, so it's not something we're super focused on.

[Operator:]

Your next question comes from the line of Jay Habermann with Goldman Sachs.

[Jonathan Habermann:]

For Steve or for Johnny, on the question on flat to positive 1% same-store NOI for the year, can you just walk us through with the low end of that assumption what you're assuming, I guess in terms of all the Blockbuster, Barnes & Noble and Borders and then the Electronics? Worst-case scenario, have you built that into the low end there?

[Johnny Hendrix:]

I think on the low end, yes. We've built that in. Of course we have the Ultimate Electronics, which we anticipate will totally go out of business. And we're prepared to lose all of the Borders stores. We don't think Barnes & Noble is going to go out of business, so we're not anticipating them leaving. But I think what we've estimated does take into account all of those things.

[Jonathan Habermann:]

And can you give us a sense, too, of just new rents versus previous and expected downtime in these cases?

[Johnny Hendrix:]

It's going to be pretty widespread. Of course, the bookstores had pretty high rent. As you recall, there was a lot of allowance put in those stores back in the go-go days. So you'll probably see 30% negative on that. The Blockbuster stuff, I feel really good that overall, we'll come out okay, either breakeven or make a little bit of money even after we've allocated some capital to that. Again, most of the Blockbuster stores we've had have been in our space for over 10 years. So they are not new leases, and they are really the best spaces that we have. The leasing executives will be happy to get those back. So that's kind of where I think we are.

[Jonathan Habermann:]

Okay. And sorry if I missed this, but what was your timing or what's your sense of when you get to that 95% or 95.5% occupied, getting back to the levels that you saw in the peak of the last cycle? Is that something you can do by the end of 2012 or is that beyond?

[Johnny Hendrix:]

I think it's possible we can get there by 2012. And if we do, I would be very excited about that. For the most part, what we have to do is lease the shop space in order to make it there. Today we're 97.5% leased in the boxes, and that's almost 63% of our overall retail space, 85.5% or 85.6% leased in the shop space, about 37.5% in the space overall. So you can see that's where we need to go. I think we need to be somewhere around 91% leased in the shop space to get there, so I've got some telling to do, and frankly, the fallout has been about the same as it's been the last several years. So I'm still churning a lot of small shop space, not making a lot of progress, so 2012 I'd be pleased with.

[Operator:]

Your next question comes from the line of David Wigginton from Discern.

[David Wigginton:]

Can you maybe just talk a little bit about what drove the outperformance in your net operating income in the Mountain Region, in particular, what the contributions were from the Phoenix, Arizona and Las Vegas markets? And do you expect that to continue in 2011?

[Johnny Hendrix:]

I don't think in Phoenix there was anything specific that drove that. I know we leased a lot of space in Phoenix in 2009, and certainly that pickup in occupancy helped a little bit. Las Vegas and Phoenix both have been very stable for us, and occupancy in those markets are 94.5% or so. So they have been quite nice in terms of the occupancy.

[David Wigginton:]

It just stands out that the NOI growth in that particular -- the Mountain Region, maybe it was driven by some of the other markets there, but is was a pretty strong outperformer versus the other regions in your portfolio. And so is that just completely attributable to the occupancy increases you mentioned?

[Johnny Hendrix:]

Yes. I think it's the box leasing. It's the full-year effect of the box leasing from 2009.

[David Wigginton:]

And just on development, your guidance calls for $34 million in development. And I think you mentioned potentially investing in a couple of new developments. Can you maybe talk about what's driving that decision and especially given that the current yield in your pipeline of 6.5% and you're talking about making acquisitions at a 7% cap?

[Andrew Alexander:]

The current yields are, of course, down because we've underperformed there. So as we find new opportunities, and we're working on a couple, we would expect and be pretty confident given the underwriting standards of today return to more like 9%.

[David Wigginton:]

And those are in your core markets then? Or are they existing projects that are on your shadow pipeline page?

[Andrew Alexander:]

No. These would be new properties that we're working on several things preliminary. And in terms of the business plan, we would expect that some portion of what we're working on comes to fruition, but probably not everything. But they are definitely in our core markets.

[Operator:]

Your next question comes from the line of Jeffrey Donnelly with Wells Fargo.

[Jeffrey Donnelly:]

Drew, just to follow up on Centro, I'm curious based on your past review, do you have a sense of your competitive overlap with their portfolio? And do you think Blackstone's acquisition might bring a renewed source of competition for tenants in those core markets that maybe has been lacking in recent years?

[Andrew Alexander:]

I think the overlap is generally high. It's certainly something that -- again, I looked at those properties a lot of different times and don't feel in a lot of cases that they're all that competitive, so it absolutely doesn't concern me. I also think they'll be a lot more professional in how they go about things and have their requirements to produce a return given the price that they're paying. So I think it could easily be a good thing. They have a lot of properties in Texas, California, Florida, et cetera. So again, it's something we're not concerned about.

[Jeffrey Donnelly:]

Just a follow-up, actually, for Johnny. There's about a 300 basis point gap between signed and commenced retail leases. I'm curious, do you expect a majority of those to commence in 2011 and maybe you're able to give us a rough sense of the timing over the course of the quarters of this year?

[Johnny Hendrix:]

Yes, Jeff. I think most of the leases that we have in the pipeline today will commence during 2011. Most of that will be back-end loaded, which is why you don't see that same property NOI effect jumping up in 2011. We really leased a lot of the space for the end of the year. Some of the space -- we had talked a little bit about in California we leased literally in the last week of the year. And it'll be late 2011 when a lot of the space does get open. I would say always back-end load everything to 2011. And that's kind of what we've done in the budget.

[Operator:]

Your next question comes from the line of Michael Mueller from JPMorgan.

[Michael Mueller:]

Looking at the lease spreads in the fourth quarter, you're positive, little bit stronger than we saw in the full year for 2010 and also above what you're expecting in 2011. I was wondering was there anything atypical in the fourth quarter or when you look out to 2011, you're just trying to be a little bit more conservative?

[Johnny Hendrix:]

I think, on average, it's always the compilation of a lot of ups and downs and ins and outs. We certainly had some boxes that pushed the number higher. And if you look at the smaller shops, I think it's more reflective of what we've indicated in the guidance.

[Michael Mueller:]

And then just going back to the 2011 outlook with respect to occupancy, you talked about an average of 93% for the year, starting off the year though down about 100 basis points in average. And then so it looks like by year end, you're looking to be about 94%, is that correct? And what is assumed in there going back to Blockbuster, Borders, et cetera, specifically in terms of fallout?

[Stephen Richter:]

When I talked about an average of 93%, I just want to make it clear that what I was talking about was the retail occupancy. And I think that, if you do the math, we're starting out -- budget started out at 92.2%, and it is moving to an average of 93%, so we're in the net of 94% for the year. It does account for about half or a little bit more than half of the Blockbuster stores going out of business, but then it's coming back from re-leasing a significant number of those. And you know, the Border stuff, we really only have three Borders stores left, so certainly less significant overall to the occupancy. And we don't have large numbers going out.

[Michael Mueller:]

So you do have Blockbuster going out, though, about half of those?

[Stephen Richter:]

Yes.

[Operator:]

Your next question comes from Laura Clark with Green Street Advisors.

[Laura Clark:]

Regarding the Sheridan development, what is your estimated deal on that project?

[Johnny Hendrix:]

Laura, at the project level, it's around three-ish to 3.5-ish.

[Laura Clark:]

And that's before impairment?

[Johnny Hendrix:]

Yes. That's at the real estate level. That's a pro forma number.

[Laura Clark:]

Going back to future developments in the shadow pipeline that you have on Page 11 of the supplemental, can you give us idea as to the projected timing for start of this pipeline and what the estimated cost to complete these projects would be?

[Robert Smith:]

This is Robert. You're looking at our schedule of our land that we're holding for development. These are all subject to eventual demand. There's really no projection on when they'll commence or when they would start contributing anything meaningful to FFO. So these are really just at large for now until the markets turned in these submarkets that they're in.

[Laura Clark:]

Any idea of where you would need to see rents go to make some of these projects pencil?

[Robert Smith:]

Well, development project -- right now there's really not a reasonable spread on rents to justify moving forward on most projects. There's going to be more anchor demand than there is shop space demand for some time, and a lot of these developments obviously rely on the ability to add shops to your projects. So it's probably a year or two off before these things get to be in that type range where you can start looking at justifying some development on it.

[Stephen Richter:]

Lauren, it's really case-by-case. There a couple that we're in some discussions on where we could trigger some construction around-ish the end of the year and maybe have a little cash flow in '12 and more meaningful in '13 and beyond. And I think it's something that as things firm up, we will see that tipping point balance out. But as Robert says, it is definitely over several years, and it's really hard to specifically forecast it at this time.

[Operator:]

Your next question comes from the line of Jim Sullivan with Cowen Group.

[James Sullivan:]

Two questions. Number one, I wonder if you could share with us what your financing assumptions are for 2011 regarding the maturities?

[Johnny Hendrix:]

Jim, in the revolver, we have assumed that most of that is in the revolver for most of the year. Frankly, it will depend on how the acquisition and disposition program goes to determine whether or not we actually wind up going to the market. We can clearly finance what we have coming due $212 million of maturities under the revolver. So we have, historically, always used the revolver temporarily until we need it to permanently finance and we'll continue to use that strategy going forward. So it's a combination, quite frankly.

[James Sullivan:]

In terms of the yield on the development pipeline on a consecutive quarter basis, it went down from 7 5 to 6 5. And I think, Drew, you touched on this as disappointment. And I guess I wonder can you give us some color on that? Does it tend to be more driven by a lower occupancy rate at stabilization or lower rental rate or both?

[Andrew Alexander:]

A little bit of both, but it's mostly the occupancy. That's where some of the projects have just taken longer to lease than we would like, so we have stabilized some things that are not as stabilized as they will eventually get. So again, good properties with long-term upside, but it has negatively affected us a little bit.

[James Sullivan:]

Okay, so going forward and to the extent you're going to boost your occupancy, those yields would come up. It's not a pricing issue.

[Andrew Alexander:]

It's more an occupancy than a pricing issue.

[Operator:]

Your next question comes from the line of Carol Kemple from Hilliard Lyons.

[Carol Kemple:]

In your small shop spaces, what categories are you seeing increase in? And which categories are tending to go out of business or so?

[Johnny Hendrix:]

You might imagine that we try to slice and dice this in a hundred different ways. When we look at it regionally today, our fallout is pretty consistent with the overall percentage of the NOI of the company. It's fallen, it was in 100 basis points pretty much around, so it's not regional today. I don't know that there's a specific type of business that is falling out. It tends to be the same businesses that we have today. We have about 10% of the portfolio is local tenants that are under 5,000 square feet. And when you look at that, the average tenant that has fallen out has been with us over six years. So these are tenants that have been in business for a while that are now going out of business. About 13% of the portfolio is national and regional tenants that's under 5,000 square feet, and only about 35% of those have fallen out. So most of the fallout, 60%, has been the local tenants.

[Carol Kemple:]

And I guess they are still struggling getting credit in this market, and that's what the cause of most of that?

[Johnny Hendrix:]

That's part of it. But the bottom line is the sales are not enough to continue to operate their business. And the sales need to come back up in order for these guys to be able to make it.

[Carol Kemple:]

Are you looking at any nontraditional-type tenants? I know you've done some Healthy Living leases and others. Are there any other categories you're looking to take small shop space that we might not think of?

[Johnny Hendrix:]

The medical uses like Pacific Dental and chiropractors and people like that have taken up more space than we have. But the other types of service tenants State Farm, Edward Jones, Liberty Tax, those are the people that we seem to be leasing a lot to. The other thing is we are seeing more franchise operators than we have in the past. I think over some period of time, I'm going to continue to increase the number of national tenants that I have in my portfolio.

[Operator:]

Your next question comes from the line of Vincent Chao with Deutsche Bank.

[Vincent Chao:]

Just a quick question to follow-up on the small shop side of things. We've heard from other companies this quarter about potentially taking out small shops and adding it to the junior anchor space. I'm just wondering what your appetite is for shifting the mix of small shop tenants in your synergies towards larger tenants.

[Johnny Hendrix:]

We've done a little bit of that. I don't see a lot of that going forward. For the most part, you don't have rents in the anchored tenants space that would make a lot of sense of building back and adding a lot of capital to the shopping center. We've always done that both ways where we brought in some what we call some big box space. I don't see that as a significant factor.

[Vincent Chao:]

And then just a question on the TIs this quarter. They were up quite a bit on the new leases on the retail side of things. Can you just describe what types of leases that drove that higher and also what your expectations are for 2011?

[Stephen Richter:]

I know it's the boxes. We did a deal with Dick's, buybuy BABY, Ross, Party City and these are some spaces that needed a lot of work on them and that's primarily what drove it.

[Vincent Chao:]

And I guess would you expect to continue to have to do that type of work going forward in 2011? Or should we see more like in the average of 16.5 [indiscernible] average of the year?

[Stephen Richter:]

I think you'll find the mix will change. Going forward, we don't have as many boxes to lease and it's more small shop space.

[Operator:]

Your next question comes from the line of Rich Moore from RBC Capital Markets.

[Richard Moore:]

Thank you, by the way, for the extra disclosure. That's great. On the guidance for 2011, Steve, did you give D&A guidance?

[Stephen Richter:]

No, I did not, specifically, Rich. I will tell you that we are probably comfortable at 6.5 a quarter at $26 million for the year. Q4 was a little low for us, but I think on a go-forward run rate, those numbers work.

[Richard Moore:]

Okay. All right, good. Thank you. And I wanted to ask you guys on the joint venture side of things. I think two of the properties you bought this quarter were in joint ventures. One, I think the Fidelis one was probably a guy who had land or whatever. The other one seemed to go in the Colins [ph] joint venture. And I'm curious, are you using your joint venture partners or planning to use them for some of these acquisitions you have, going forward in 2011?

[Andrew Alexander:]

I think the other joint venture was a deal we did out in California. And as to joint ventures going forward, yes, I would see a portion of what we do in '11, '12 and beyond being institutional joint ventures where we use our management platform.

[Richard Moore:]

So this group, Drew, is that the primary group or are you talking to some other potential new joint venture partners?

[Andrew Alexander:]

Both. We have great relationships with our existing group as well as we have had discussions with others and have another sort of tentative deal out there that we're hopeful to find some good property for.

[Stephen Richter:]

And I want to make clear, though, Rich, that the two deals that we did in Q4 of last year were not within our institutional partners. Those, in both situations, are with the existing developers of those properties.

[Operator:]

Your next question comes from the line of Omotayo Okusanya from Jefferies & Company.

[Omotayo Okusanya:]

In regards to 2011 guidance, just wanted to get a better sense of what's in there for the Industrials portfolio. I know you talked about 120 basis points of occupancy fallout. Is that for the whole year or just for 1Q? And what are your general occupancy and releasing spread assumptions for 2011 in the Industrials portfolio?

[Andrew Alexander:]

That is just one quarter, and then it drifts up through the rest of the year as you can basically impute with the overall that we gave you. I'm going to have to struggle to find some of the rent numbers, but they're not moving all that dramatically. It looks like the industrial occupancy gets up to around 90% around the end of the year.

[Omotayo Okusanya:]

I want to know your expectation in regards to the [indiscernible]

[Andrew Alexander:]

Let us search for that, and we'll get back to you.

[Operator:]

The next question comes from the line of Quentin Velleley from Citi.

[Quentin Velleley:]

Just in terms of the leases that you signed where the rents haven't yet commenced, do you have an annualized NOI number for those leases?

[Stephen Richter:]

Yes, Quinn, I do. I want to make sure that I tell you that you can't really kind of project this forward, because some of these places did produce rent during 2010. Just as an example, we leased this space to Safeway. There was a former supermarket in that space that paid rent through November. So it's not all new money, but it's roughly around $12.6 million. And we think we'll see somewhere around $6.5 million of that during 2011. But again, you can't project that out incrementally.

[Operator:]

Your next question comes from the line of Jim Sullivan with Cowen Group.

[James Sullivan:]

Just kind of a follow-up on that same question, Johnny. The spread on a regional basis between signed and commenced is very large in the western region. Is that attributable to one or two transactions? Or is that a general indication that leasing in that market is improving significantly?

[Johnny Hendrix:]

We're really feeling good about California these days. We have seen good progress in the occupancy. The specific situation that you're referring to is reflective of the shopping center of the single space that I talked about in the script, where we leased almost 100,000 square feet of one single space in that region, and that's where most of it is. But I do say that the fallout is getting better there, and I'm feeling a lot better about leasing overall in California, and in Florida, for that matter, too.

[James Sullivan:]

In terms of the small shop, small shop leasing on a regional basis, what would you characterize as your weakest regional market from the standpoint of pricing on the small shop space?

[Johnny Hendrix:]

Today, I think it may be unique to our own shopping centers, but for the most part, the Midwest is probably, I have the least amount of pricing power. The one thing I would say with almost 98% of my boxes being leased, my shopping centers are full and they are desirable. We generally are the best shopping centers in the markets that we're in. And we are looking forward to taking some of the existing tenants from other shopping centers and being able to get more than our fair share of the new tenants that are coming out.

[Operator:]

Your last question comes from the line of Chris Lucas from Robert Baird.

[Christopher Lucas:]

I was hoping to get us just a little bit of flavor for where the development activity might come. So is that in phase 2 tech developments? Or is that in greenfield? Or is that in redevelopment of existing sites?

[Andrew Alexander:]

All of the above. As I mentioned before, we've got a couple of things working to do some different phases, as well as start on some of the land held. We've got some brand new deals that we're working on, some in the Southeast and others in different parts of the country, and we're always looking at redevelopment as well. So again, it's not a tremendous amount of money, but we are starting to see a little bit of select opportunity, and we do feel that the land held for future development is a -- These are good locations that we picked, and this is a nice inventory to bring on over the next three, four or five years, as well as we've been very pleased that we've had several big anchor tenants, major retailers contact us to get involved in struggling deals and help them out. And we think that having our platform as we come out of this recession is going to be very valuable again over the next few years.

[Christopher Lucas:]

And then I guess as an extension to that question, are you guys seeing land values for New Development get to levels that would interest you at this point? And is your confidence at a point now where you'd be willing to make those investments sort of as an early cycle early valuation?

[Andrew Alexander:]

It's all about the tenant interest. We're not going to go out and speculate on any land without having the anchors absolutely secure. While that can be extremely profitable, we just don't see it as the risk profile as something that we want to do. So it very much depends. In a lot of cases, landowners are very proud of their land and holding onto it very firmly, and the tenants aren't willing to pay up for it. But we're going to be in the development role, not the land speculator role.

[Johnny Hendrix:]

I can add just a little more color to that. The weaker properties, you're seeing some price reductions -- better properties. It's just like acquisitions today. If it's good, it holds up, but it's all subject to demand. And right now largely, the rents won't justify it, but there are some exceptions depending on what geographic region you're in.

[Operator:]

There are no further questions at this time. I'll turn it back for closing remarks.

[Andrew Alexander:]

Thank you all very much for your interest. I would remind you of the Analyst and Investor Day on the morning of April 14. And we'll certainly be around for your questions and look forward to talking to you either between now and then or at the Analyst Day on April 14. Thank you so much for your interest in Weingarten.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.