Weingarten Realty Investors
Q4 2013 Earnings Call Transcript

Published: 14 Feb 2014

[Operator:]

Good morning, and welcome to the Weingarten Realty Fourth Quarter 2013 Conference. My name is Brandon, and I'll be the operator for today. [Operator Instructions] Please note that this conference is being recorded. And I will now turn it over to Ms. Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our fourth quarter 2013 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. [Operator Instructions] I will now turn the call over to Drew Alexander.

[Andrew M. Alexander:]

Thank you, Michelle, and thanks to all of you for joining us, and a special thanks to all who came to our Investor Day in New York in December. We are very pleased to report another great quarter, a fitting end to a great year. Operations remain extremely strong with a nice increase in occupancy and very strong Same Property NOI for the fourth quarter and the year. As we discussed at Investor Day, we've made tremendous progress in transforming our portfolio and our balance sheet, and we continued this process with both acquisitions and dispositions in the fourth quarter. Also as discussed in our January 8 press release detailing all of our fourth quarter transaction activity, we completed 3 transactions with joint venture partners, closed on the sale of an additional property subsequent to year end and had another property sale pending, which has also closed. Looking ahead to 2014, we will continue to aggressively pursue our transformation goals. The acquisitions market remains highly competitive, so finding significant high-quality acquisitions, which make economic sense, will be challenging, but we will continue to diligently search for those opportunities. Our disposition program has benefited from the competitive market conditions, and we are confident that we will continue to execute our disposition program in 2014. As to new development, we continue to make progress on our Hilltop development in DC with Wegmans scheduled to open in the first half of 2015. We are 88% leased and in good shape to achieve our pro forma returns of over 8%. Wake Forest Crossing in Raleigh is a pipeline deal, which we reviewed in New York. It's about a $15 million project, is progressing nicely, and we should buy the land within in the next 45 days. In Washington, D.C., together with our development partners, we continue to work through the Walter Reed development. While we're in the preliminary planning and the timing is certainty multiyear, the retail part of this project, which WRI is doing, will be approximately 250,000 square feet and represents an investment of $80 million to $100 million. The development market remains very tough with high land prices and the tenants' unwillingness to pay rents that would be required for most deals to make sense. Nevertheless, as we noted in New York, we continue to look at a variety of opportunities and have seen a modest increase in our pipeline. I'll now turn the call over to Steve to discuss our financial results.

[Stephen C. Richter:]

Thanks, Drew. We ended a great year with a strong fourth quarter. Recurring FFO was $0.48 per diluted share for the quarter, up from $0.47 in the fourth quarter last year. FFO for the fourth quarter benefited from improved occupancy, which increased by 120 basis points to 94.8% from the same quarter of the prior year. Recurring FFO also benefited from the redemption of 75 million of our preferred D shares in the first quarter of 2013 and 200 million of our preferred F shares late in the second quarter, as well as the ongoing refinancing of our normal debt maturities. Offsetting these increases was a dilutive effect of our disposition program in 2012 and 2013, which cost us over $0.17 per share of FFO. Reported FFO for the fourth quarter decreased to $0.42 per share from $0.46 per share in 2012. The 2013 results were reduced by a noncash deferred tax expense of $0.06 per share related to the gain on the purchase of our partners' interest in an unconsolidated joint venture in California. Turning to the balance sheet, we completed a successful $250 million offering of 4.45% 10-year bonds in October of last year. As we showed you in December at our Investor Day, this transaction effectively prefunded the majority of our January 2014 debt maturities, which totaled $285 million. With the repayment of the $285 million in January, we now have less than $100 million maturing in the remainder of 2014. With only $115 million currently outstanding under our $500 million revolving credit facility, we have plenty of liquidity to handle the remaining maturities. We also expect to exercise our option to call $100 million of 8.1% bonds that would otherwise mature in 2019. This option window opens later this year in September. With the elimination of the 3 joint venture relationships mentioned earlier, we have further simplified our balance sheet. As a result of these transactions, over $70 million of loans from WRI to JVs were repaid, leaving only $13.3 million outstanding in loans to joint ventures. Because some of the joint ventures were consolidated and some were unconsolidated, the impact of these transactions on other line items on the balance sheet is not easy to follow. If anyone wants further details on these transactions, just give us a call and we'd be happy to go through it. At quarter end, the company's net debt-to-EBITDA was 6.3x and net debt plus preferred to EBITDA, which many of us agree is a more important measure of leverage, was a strong 6.78x. Debt to total market cap at 12/31 was only 39.4% in spite of the redemption of the preferred shares and the downward pressure of restock prices around year end. With the pay down of the January 2014 maturities, along with the recent improvement in our share price, this metric has improved even more. We remain committed to maintaining leverage below the 40% level. So things are very good on the financial front. Just a quick note on guidance. We affirmed the detailed guidance we provided at Investor Day with one update. For dispositions, we are adding the 2 properties that we sold shortly after year end that were projected to close in late 2013. So this increases our disposition guidance in 2014 by about $50 million. Additionally, our original guidance did not anticipate the exercise of the purchase option on the Village Arcade, which we expect to occur in the latter part of the year. With these updates, our disposition guidance changes from a range of $200 million to $300 million to a range of $300 million to $400 million. This does not change our FFO guidance, as the sale of the 2 properties were already built into our guidance, and the Village Arcade sale will not materially impact '14's FFO as it is expected to close in the latter part of the year. All of these details of our guidance is included on Page 9 of our supplemental package. Johnny?

[Johnny L. Hendrix:]

Thanks, Steve. Good morning to everyone on the call. Fourth quarter capped off another great year, highlighting our best-in-class operating platform and our fantastic properties. Same Property NOI finished the year at 4.2% for the second straight year. Leasing velocity remains steady, even as occupancy climbed to 94.8%. Rent growth on new leases was 13.1% for the fourth quarter and 12.7% for the year. We continue to execute our transformative capital recycling program, disposing of $278 million of property in 2013, including 24 non-core shopping centers and acquiring $175 million of great property, including Mueller Regional Center in Austin, an independent shopping center in Laredo. As we highlighted in our New York Investor Day, 75% of the company's rent comes from shopping centers with a supermarket, and those supermarkets are dominated by national and very productive regional chains. Currently, our supermarkets average $535 per square foot. This translates into an average of 65,000 customer transactions every month in each of our properties with a grocery store. These supermarkets, along with 27 Target stores and over 100 discount clothing stores like Ross, TJX and Stein Mart continue to attract shop retailers and service tenants who want to be close to these high-traffic generators. Our centers are located in growing metropolitan markets that have seen very little new competitive product coming online. We're excited about the transformation of the company over the last few years and we're looking forward to continued improvement ahead. The leasing trends we discussed last quarter carried through the end of the year. We leased fewer spaces for about the same total square footage at a higher annual rent than last year. For the year, the 519 new leases represented almost $29 million in annual revenue, over 10% higher rent than a year ago. The mix of tenants remained similar all year

[Andrew M. Alexander:]

Thanks, Johnny. We're very proud of our accomplishments in 2013, with occupancy of almost 95% and our second consecutive year of Same Property NOI growth in access of 4%, the transformation of our portfolio is evident. With an excellent debt maturity schedule and greatly reduced leverage on the balance sheet, we are very well positioned for the future. FFO growth in 2014 will be tempered as we continue significant sales of non-core properties and basically complete our transformation. The quality of our portfolio will further improve, also helped by several re-merchandisings, further ensuring strong operating metrics going forward. Our experienced growth teams are focused on our target markets. And while the growth environment is challenging, we remain confident we will find opportunities to add quality properties to the portfolio and grow NAV and FFO. 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] And from Citi, we have Christy McElroy online.

[Unknown Analyst:]

This is Katie McConnell [ph] on for Christy. Could you disclose the cap rates related to the JV transactions you completed in Q4 and January? And do you expect to complete any additional JV buy-ins in 2014?

[Johnny L. Hendrix:]

Yes, Katie, this is Johnny. The cap rates on the various partnerships were different for the various shopping centers. So the Hines transactions, for example, the range was probably 6.5% to 7.5%. And then a lot of it depends on how you would look at the Jess Ranch project. But generally, it was in the 6.5%, 7% range.

[Operator:]

From Green Street Advisors, we have Jay Carlington online.

[Jay Carlington:]

Just on the Village Arcade sale there, you mentioned the proceeds there. Any visibility on what that cap rate is? Is that following your disposition range or how does that shake out? And then also on the Blalock lease, the details on that, what kind of notice did they have to give you guys, and was that originally contemplated in guidance?

[Johnny L. Hendrix:]

Jay, on the Village Arcade, the cap rate is around 9%, so clearly, it's not within the range of dispositions that we had anticipated, and certainly not for the quality of the project. Keep in mind that we had 27 years left on that lease, and at that time, we would have received 0. As to Blalock, we have received notice yet. We try to give you guys a little bit of a heads-up on that. It would be a 1-year notice if we received it, and it would be -- at some point in the next several months, we would anticipate it. They've told us we would get that. And that would be generally in the 10% range. And again, that lease would've otherwise expired in 2039. When you look at the net present value of the income stream at Blalock, you're $1.5 million difference between that and what we'll get in proceeds from that.

[Jay Carlington:]

So did you say they had to give you a 1-year notice and this is coming up in March?

[Johnny L. Hendrix:]

The time that they can give me notice is coming up in March. We anticipate we will -- at that time, we anticipate we'll receive 1 year's notice at Blalock.

[Jay Carlington:]

Okay, got it. And then on the occupancy front, I think you've suggested that it was going to be a little bit choppy this year with maybe some of the office supply guys. So is there any update there, how are you thinking about that this year?

[Johnny L. Hendrix:]

Yes, I think it's going to be pretty much what we had thought. We had a couple of the office supply leases renew. We thought there would be a little more negotiation, I think, with the transition. They went ahead and renewed a few leases just because they weren't really set to do anything else. But generally, everything else seems about what we had anticipated, so I do think you'll see a little bit of chop in the occupancy after the first quarter, but not too much.

[Operator:]

From Robert W. Baird, we have Jonathan Pong on the line.

[Jonathan Pong:]

On the River Point power center consolidation, I just wondered if you guys could share some color as to what the strategic considerations were to taking that asset? Do you plan on keeping that asset? And then, do you have any plans to develop on the 16 acres of land, I think, that you're taking now under your full control?

[Andrew M. Alexander:]

This is Drew. A lot of different things factored into the strategy. Steve Richter negotiated, I think, what was a very fair dissolution to the overall partnership, and in part of that, we settled a bunch of things that made sense to us in including that in the trade we worked out, they took over some of the assets in Utah, which is a market that we don't intend to grow in. So we think the River Oak (sic) [Point] project in Sheridan is a very good location. It's a Target/Costco-anchored center. We are under construction with some new anchor space there, so we'll continue to develop it. It's right in the heart of Denver and we think it's -- while it's been through some tough times, we think it's very well positioned now to improve.

[Jonathan Pong:]

I guess I was thinking about further dissolutions. Can you guys talk maybe a little bit about future asset swaps, some of what you've done recently with Hines and whether or not you have anything else in the pipeline? Is that how should we be thinking about future simplification of the ownership structure?

[Andrew M. Alexander:]

We talked about this some in New York. And I'm always a little hesitant because I hear some of my peers say things that sound like they're going to take advantage of their partners. And we try to balance our fiduciary responsibilities to our partners and to the shareholders. So when it lines up, like it did in the case of Hines, and we can work out something that's mutually beneficial, which Johnny in that case worked out a swap that made sense to both sides, we will certainly do that. So we have a lot of good partners and it's really just hard to forecast which will continue for a while and which there might be some dissolution of. But if we can do something that makes sense to both sides, including the Weingarten, we'll certainly look for those opportunities.

[Operator:]

From SunTrust, we have Brandon Cheatham on the line.

[Brandon Cheatham:]

I was just wondering, could you kind of talk about how tenant demand is in your Texas market versus the rest of your portfolio?

[Johnny L. Hendrix:]

Brandon, tenant demand in Texas is very, very strong. Occupancy of the Houston portfolio is the highest it's been since I've been with the company for 27 years. We have incredible strength down in the valley in the properties we have there. Austin is very strong. So we're very, very positive about what we see in terms of demand. Interestingly, California, Florida are both also are very strong. Occupancies in those markets are close to 96%. So we're really seeing strength over the entire portfolio.

[Brandon Cheatham:]

And have the lease spreads in those markets been pretty similar or are some stronger than the others?

[Johnny L. Hendrix:]

It's interesting, lease spreads in Texas have probably been the best, coming off some very, very difficult comp numbers in California. And when you reduce the population that you're comparing, one number can really move the spread pretty significantly on a quarterly or even an annualized basis. So Texas is clearly the strongest, Florida is probably next, and California is trailing those.

[Brandon Cheatham:]

Okay. And on the leases that are expiring in 2014, can you give us an idea of kind of when these were signed? Was that during the downturn? How much does that have to do with your expectations in increasing rental rates?

[Johnny L. Hendrix:]

A lot of the leases we signed in the downturn are now coming up. Some of those have options, some of them don't. Most of the increases we're seeing today is in spaces that are vacant, and that's -- I don't think that, that is really playing into part of the increase in the rental increases.

[Operator:]

From Wells Fargo, we have Jeff Donnelly online.

[Jeffrey J. Donnelly:]

Johnny, I was curious, what's the seasonal tenant fallout looking like for Q1 2014? Because last year, I think we saw unseasonally low move-outs. Do you think that's going to repeat this year? Or is it going to maybe revert to more of an average decline in occupancy from Q4 as we shift into Q1?

[Johnny L. Hendrix:]

Jeff, I think it's probably going to be close to where it was last year. It might be a little bit higher, but not significantly. Interestingly, what we see is 2 really seasonal periods, one is January. But then after Easter, when you look at a lot of the Florida properties and the Arizona properties, when some folks go back up to the Northeast, go to the off-season there, you start to see a little bit of fallout. So those 2 periods, but I don't think it's any more than it's -- than we've expected or than it would otherwise have been. Like we talked about earlier, the boxes might be a little bit more, but that's more just the maturity schedule than seasonal.

[Jeffrey J. Donnelly:]

And then last quarter, I think you had said you had expected occupancy growth to maybe flatten out a little bit as you take a tougher stance on renewals. But we didn't really see that, I guess, happen in Q4 because occupancy ticked up a little bit. Did you take that tougher stance or did you just not get the pushback you were expecting from tenants?

[Johnny L. Hendrix:]

We have taken that tougher stance. And I think some of what you're seeing is just a lot better demand and a lot more leverage by the landlord. But I do want to be transparent with you, some of the occupancy pickup we had was based on the lease, the LA Fitness lease in Atlanta. So if you look at the -- specifically, at the Atlanta market, it went up dramatically. We reduced the denominator by 140,000 square feet in that location, and that translated into a 30-basis point pick up on the entire portfolio.

[Jeffrey J. Donnelly:]

And I just want to clarify something in your guidance, quickly. The retail rent increases expected of 8% to 15%, is that the blended range for new and renewal?

[Johnny L. Hendrix:]

It is, yes.

[Operator:]

From Cowen Group, we have Jim Sullivan on line.

[James W. Sullivan:]

A couple of questions. Johnny, first, in terms of the anchor lease terms, given the fairly positive fundamentals in terms of demand that are reflected in the higher occupancy and better pricing, are you finding that your negotiating position is enhanced in dealing with anchors, and is that paying off in other terms such as better bumps or fewer option terms with anchors?

[Johnny L. Hendrix:]

Jim, it's interesting, we've done a few boxes over the last several quarters. But frankly, I don't know that we've had enough vacancy that we've done enough that I could really give you a trend line. I can tell you just generally throughout the portfolio, we have taken a much tougher stand on noneconomic issues. For example, eliminating or significantly reducing the options that we give, reducing the term of the leases so that we're going to be able to turn them over faster. And so generally, I would say, yes, our negotiating leverage is greatly enhanced. What we're really seeing is retailers coming in and exercising options because generally, we've taken a position that we're not going to negotiate with a tenant while they have an option. And so we kind of take them to the brink and they've exercised their options.

[James W. Sullivan:]

Okay. And then a second question. We've heard from some of your peers that this has been something that's been going on for a few years. But there were a couple of larger retailers who are looking to systematically reduce the size of their boxes. Are you seeing any of that in your portfolio? And I don't know if you feel comfortable disclosing which retailers are doing that.

[Johnny L. Hendrix:]

I think it's primarily in the electronics and in the office. A little bit the books, but really not much. We feel very good about the exposure that we have in both of those areas. And again, the experience that we've had recently with those categories coming to us, there's no space available that is of good quality and certainly not the quality of the product that we have. And for the most part, those retailers are renewing their leases, extending them without reducing space. It is not economically practical to reduce the size of most of these boxes, given the depth and the frontage. And I think there's probably a realization of that today, and I think you hear a lot less about that. And it's unusual when you get a box of 25,000 or 30,000 square feet that you can divide up in an economically viable way.

[James W. Sullivan:]

Okay. And then final question for me. There has been a significant amount of value creation with street retail, so-called street retail assets in this cycle. And I'm curious how much interest do you have in this segment? And do you expect to make any investments in the product type?

[Andrew M. Alexander:]

Jim, Drew here. It's something that we would always look at and if the right opportunity came available we might do it, but it's not a major focus for us. I think the major focus for us is supermarket and community centers in the major metropolitan areas and the 12 growth states that we've identified. So it's something that we've kicked around and maybe, but it's not a key area of focus for us.

[Operator:]

From JP Morgan, we have Michael Mueller online.

[Michael W. Mueller:]

I guess, the guidance for leased occupancy is flattish to slightly down as you talked about pushing rate and kind of holding occupancy, but what about the actual commenced occupancy number that I think was 90.28 at 12/31? Do you see that remaining flat as well or moving up a little?

[Johnny L. Hendrix:]

I think one of are the things we talked about in New York was repositioning some of the boxes we had, re-merchandising those. So I think you'll see the overall occupancy stay pretty flat, but then I think you'll see some expansion in the spread between leased and commenced. I think we've talked a lot about what is normal in that category, and I think traditionally, it's for us, it's been around 180 to 210. Since the downturn, it's been more just because there's been more product churning. So I think around 200 is probably a normal number. I think we'll go up a little bit as we re-merchandise and then kind of squeeze that's spread back down.

[Michael W. Mueller:]

Okay, so if we're looking at that 90.28 and where you ended the year on a same-store basis, do you think that's flattish or down a little, it seems?

[Johnny L. Hendrix:]

90.48 a year?

[Michael W. Mueller:]

No, the 90.28. You're 90.28 occupied, year end?

[Johnny L. Hendrix:]

Yes, yes.

[Michael W. Mueller:]

Where do you think you...

[Johnny L. Hendrix:]

I think it will probably be a little bit less but not much.

[Michael W. Mueller:]

Okay, got it. I forget, do we get 2 questions or 1?

[Andrew M. Alexander:]

You can have as many as you like.

[Michael W. Mueller:]

There you go. Can you remind us, when we're thinking about 2015, what the pace of disposition should be, or should look like relative to what we're seeing this year, which is now $300 million to $400 million? Should it be at a comparable level, begin to moderate more?

[Andrew M. Alexander:]

This is Drew here. What we had talked about in New York is that this year basically represents the completion of the transformation. So in '15 and beyond, while there will still be some dispositions, it's a lot more moderate. So somewhere in the neighborhood of 125 to 175 is what we talked about in New York. The other thing to bear in mind is as we have sold more of the non-core properties, is there will be an improvement in the spread of what we're selling in '15 and beyond. So it should be less diluted after we basically finish the transformation in 2014.

[Operator:]

From RBC Capital Markets, we have Richard Moore online.

[Richard C. Moore:]

I'm curious a little bit on the redevelopment side of things. It seems that there's an enormous amount of demand out there for, especially, big box space, and not a whole lot is going on, on the development -- ground-up development side of the world, but yet the redevelopment talk that you guys have seems fairly modest. And I'm wondering if maybe we could see that accelerate, or conversely, maybe you're thinking ground-up developments start accelerating? Curious what you think.

[Johnny L. Hendrix:]

Rich, I think that we've been pretty consistent in terms of the redevelopment. A, it's pretty hard. Most of our shopping centers are very well leased and so you've got to go through entitlements and retailers, 3 or 4 at a time. We're certainly working through that. I wonder sometimes if there's some definitional differences between redevelopment that we have and maybe some other folks have. I don't know. When we talk about redevelopment, we're talking about adding new square footage or tearing down buildings, like we're doing at Brookwood Shopping Center. Generally, when we replace a tenant, re-merchandise, replace a roof, fix the parking lot, we're just calling that regular operations. I do not know the definitions that some other folks may use. We definitely are focused on doing as much redevelopment as we can, and I think there's certainly demand. The rent is at the level that we can do it as long as we can kind of put all the pieces together. And when boxes are 98% leased, there's not a lot of extra space available.

[Richard C. Moore:]

Okay. All right. I got you. And then thinking, too, Johnny, about the small shop space and you talked a little bit about the alternative-uses sort of concept, are you seeing that accelerating? And I mean, I know medical has been one, the urgent care centers and that kind of thing that the people are talking about, but are there other alternative-type uses that might go into a shopping center that you're seeing? And I guess, how do you evaluate those for whether you think the tenant themselves is a worthy tenant for you?

[Johnny L. Hendrix:]

Right. I don't see a whole lot of other alternative uses. I think we're pretty much straight down the middle in terms of the Verizon stores, the T-Mobiles, the services, Great Clips, Ultas, Allstate. The medical, certainly, over the last several years has been pretty huge, but really nothing that would compared to that. We're really focused on making sure, the best that we can, that all the tenants that we put into this space have good balance sheets, have a good opportunity to succeed. Most of the dentists we've done or doctors and so, generally, we feel good about that. Some of the change with the urgent care, pretty good balance sheet. So we feel pretty good about all of that stuff.

[Richard C. Moore:]

Okay. So you evaluate their cash flow actually in each case?

[Johnny L. Hendrix:]

Absolutely.

[Operator:]

From Bank of America, we have Craig Schmidt on the line.

[Juan C. Sanabria:]

This is Juan Sanabria, actually. I'm with Craig. Just a couple of questions, can you just speak about your 2014 guidance, kind of what the differences are between the top and the bottom end of the retail rent growth range you set out of 8% to 15%?

[Johnny L. Hendrix:]

I'm sorry, Juan. Can you clarify that for me a little bit? You're looking for some color on the rent growth?

[Juan C. Sanabria:]

Yes. I mean, 8% to 15% just seems like a pretty wide range. What are the big drivers to get you from the top to the bottom end of that range?

[Johnny L. Hendrix:]

Yes, I can understand that, that is a wide range. One of the things that is always interesting about rent growth is it's probably the most volatile metric that we've experienced. 1 or 2 leases can really move that dramatically one way or the other, and especially when you look at it on a quarterly basis. We, I think, are recognizing that volatility and just trying to give a range that we feel like we could come inside of. So I don't -- I think that we'll be within that range and I think we'll be well within it. So I'm uncertain what could happen that would put me at the bottom, unless I lease some space and don't get a lot of rent.

[Juan C. Sanabria:]

Okay, fair enough. Just on your grocers, just thinking big picture. What are you seeing from some of the specialties? It seems like they may be beginning to look at some greenfields and some new markets. Are you getting any concern that they may be beginning to overextend themselves? And then sort of as a second part, any sort of third tier groceries within an individual submarket that kind of you're watching with regards to maybe underperforming expectations that you think could be an issue at some point down the track?

[Andrew M. Alexander:]

Drew here. So I'll take the new development part and maybe Johnny can comment on the existing part and elaborate on what we said in New York. So as far as new development, we are in touch with all of the major grocers, conventional, niche, the discount stores, et cetera. We do a lot of work with Whole Foods and a lot of other good companies. So we'll continue to stay focused on that in, principally, the major metropolitan areas in the 12 states. So we are very selective about how green a field we want to do a development in, and I'd say our focus is to stay in new development areas where there's a little more population versus just down on the prairie. As I mentioned, we are seeing the most modest uptick in deals. It will be a while at best before those result in a lot of capital expenditure. But it has been observed, there is more interest out there. Johnny?

[Johnny L. Hendrix:]

Probably, the important piece here is that I think the independent supermarkets generally are under a lot of pressure, both margin pressure and volume pressure. Walmart continues to expand with their neighborhood market and with their superstores. And in some of the markets we're in, it's penetrating some of the core areas that haven't been reached for a while, particularly in Houston. And we've been concerned about this independent supermarket group for a while. And today, they're only 2% of the NOI of the company. We still see some real strength in specialty guys, a 99 Ranch Market, a Fiesta and generally, those folks have been able to hold their own in the face of this additional competition, and I think they'll continue to be able to do that.

[Operator:]

From Capital One Securities, we have Chris Lucas online.

[Christopher R. Lucas:]

Steve, just a couple of quick questions for you. What do you think about financing out the Walter Reed development? How are you thinking about that? Is that something that you'll use your line for or will you go specific on a construction loan?

[Steven R. Weingarten:]

Chris, this is an interesting question. And given that Walter Reed is many -- several years out, I think, before we will commence construction. I would tell you, I've thought about it, but there's clearly no direction as of yet. I think some of it will depend upon what the balance of our opportunities are in investing new capital at the time as to whether or not we'd do that under the line or we obviously could do something, a construction loan, we could sell some bonds early. It also will tag in -- or tie into our maturity schedule at the time. But again, with the repositioning of our maturity schedule, we're in pretty great shape. But I don't mean to be evasive, but it is -- kind of it depends on when we really begin to spend capital on the project.

[Christopher R. Lucas:]

The other question I have is, I noticed a pretty meaningful sequential and year-over-year drop in both the tenant recovery metric and the operating margin. Is there something going on here this quarter that's unique or what are we looking at here?

[Steven R. Weingarten:]

I think, Chris, there is about 3 quarters of that, that is kind of onetime expense items and operating expenses in the other category. And then I think you have the year end, just 25% of that is just a year end kind of movement that we always -- true-ups that we have.

[Christopher R. Lucas:]

So we're down 220 over last year on a year-over-year basis and occupancy is up. I guess, I'm still -- I don't -- I'm having a hard time trueing those up, if you will. Is it just a better true-up this year than a year ago? Or...

[Steven R. Weingarten:]

Well, again, if you take out the onetime differences, I think we're somewhere around $750 million of onetime stuff. Then that gets you back down to where I think it's pretty consistent.

[Operator:]

From UBS, we have Ross Nussbaum online.

[Ross T. Nussbaum:]

All my questions were answered except for one housekeeping item. Steve, on the balance sheet, inside of your other assets disclosure, you've got a line called investments that popped up a little more than $50 million from 3Q to 4Q? What was that?

[Joe D. Shafer:]

This is Joe Shafer, that's actually the investment of the excess cash from the bond issuance in October, as well as some investments related to our captive insurance. It's about $58 million. And obviously, excess cash was used to pay the maturities in January.

[Ross T. Nussbaum:]

Got it. I was just making sure you weren't buying, say, shares of Kimco?

[Andrew M. Alexander:]

Interesting idea, Ross, but no.

[Operator:]

[Operator Instructions] Okay, we're showing no further questions at the moment. Drew, I'll turn it back to you for any final remarks.

[Andrew M. Alexander:]

Thanks, Brandon, and thanks, everybody, for your interest in Weingarten. We really appreciate it. We'll be around later if there are more questions. I want to wish everybody a happy Valentine's Day, a great weekend. Stay warm and thanks again for your interest in Weingarten.

[Operator:]

And this concludes today's conference. Thank you for joining. You may now disconnect.