Weingarten Realty Investors
Q3 2014 Earnings Call Transcript

Published: 24 Oct 2014

[Operator:]

Welcome to the Weingarten Realty's Third Quarter 2014 Earnings Conference Call. My name is Joe, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode and later we'll conduct a question-and-answer session. Please note that this conference is being recorded. I'll now turn the conference over to Vice President of Investor Relations, Michelle Wiggs. Ms. Wiggs, you may begin.

[Michelle Wiggs:]

Good morning and welcome to our third quarter 2014 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 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.

[Drew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. We're pleased to report another fine quarter. As we enter the home stretch of our transformation process, the strong operating results for this quarter clearly validate our strategy. We produced another great quarter of same property NOI growth, up 3.8% over the prior year. Over the previous 10 quarters, we produced the highest same property NOI of our peer group at 4.1%. We increased rental rates on new leases by 20.3% for the quarter, a clear indication of the improvement in the quality of our portfolio, helped by an ever dwindling supply of available retail space. Total occupancy is up. Sharp occupancy is up and tenant fallout is down. And more importantly, recurring FFO is up in spite of the significant drag caused by our accelerated disposition program. All of these outstanding metrics are a result of our extensive capital recycling over the last few years. You'll see significant disposition activity in the fourth quarter as we're in the final innings of our transformation. Next year we'll see a more normal asset management mode with dispositions in the $125 million to $150 million range, so a very strong quarter. As to new development, things are good. Our Hilltop development in D.C. continues to progress nicely, with preleasing now at over 93%. Wegmans is under construction and scheduled to open in the first half of 2015. At our Wake Forest development, leasing is progressing nicely with leases now signed with Ross and PETCO in addition to our previously announced TJ Maxx and Michaels. Construction is expected to begin in the next month. Our investment in the project will be about $60 million and should be substantially complete by the third quarter of 2015. The Whitaker, our exciting infill project in West Seattle is also moving forward. The six story mixed-use project is being co-developed with Lennar with our 63,000 square foot retail portion anchored by Whole Foods. Demolition has begun and building permits should be issued soon. Our investment will be around $29 million and completion is estimated to be in the third quarter of 2016. We're pleased to announce a new project to our pipeline, Nottingham Commons. We purchased 18.3 acres of land in White Marsh, Maryland a suburb of Baltimore for $22 million. Upon completion in about two years this 133,000 square foot development should have an approximate investment of $45 million and generate a 7.2% return. This property is well located in the dense core of White Marsh, Maryland with over 210,000 people in five miles. It's directly across the street from the successful Regional Power Center and near White Marsh Mall. We like this project for many reasons. The seller has completed all the entitlements and the majority of the site work. We have leases in place on four of the six pad sites and just the completed ground leases represent a return of 2.7%. We're also far along in lease negotiations with several of the typical value priced retailers for all of the expected anchors square footage and we have others interested in more space than we have available. We feel this is a wonderful project, which minimizes our risk and highlights our new development platform's ability to create shareholder value. As I indicated last quarter there is more activity in new development and our experienced team will continue to pursue select opportunities. I'll now turn it over to Steve for the financial results.

[Steve Richter:]

Thanks Drew. I'm happy to report that WI turned in another solid quarter. Recurring FFO was a very strong $0.53 per diluted share for the quarter up from $0.51 in the third quarter last year. FFO for the quarter benefited from improved commenced occupancy which increased by 50 basis points from the same quarter of the prior year and rental rate increases as well as a favorable impact of our ongoing debt refinancing. Included in the quarter was a total of $0.02 per share from lease cancellation income and bad debt recoveries. Dispositions cost us $0.03 per share of FFO compared to the third quarter of 2013. In the fourth quarter we estimate that dispositions will cost us an additional $0.02 to $0.03 per share compared to the third quarter of this year. We acknowledge the drag on the growth in FFO or as we've called it before, the short term paying for long term gain, but we're excited about our transformed portfolio in the improved operating metrics it's producing, especially the strong same property NOI growth. Reported FFO for the second quarter increased $0.52 per share from $0.49 per share in 2013. Included in the 2014 amount was about a penny per share of debt cost write-offs while 2013 included $0.02 per share of impairments. Turning to the balance sheet, at quarter end the company's net debt to EBITDA was a solid 5.5 times, down about 10% from the third quarter of 2013. Net debt plus preferred to EBITDA was 5.9 times and debt to total market cap decreased to 33.2%. Clearly, the primary driver of this improvement is a reduction of our debt with the net proceeds from our capital recycling initiative. With the highly competitive acquisitions and new development markets, our disposition has greatly exceeded our reinvestment activity resulting in a net reduction in leverage. Also contributing to our improved balance sheet metrics is the monetization of our land held inventory. Since the beginning of the year we have sold $7.1 million of land and transferred another $5.5 million to operations that will become income producing. We currently have over 10 million under contract to sell. So we expect to continue to make progress reducing the land held inventory. During the quarter we redeemed the remaining $90 million of 8.1% bond, grew significant refinancings and restructuring of debt over the last few years, we've totally transformed our balance sheet and are well positioned for growth opportunities as they arise. As to 2014 guidance given our strong performance year-to-date, we are raising guidance for recurring FFO from a range of $1.95 to $2.01 per share to a range of $2.01 to $2.03 per share. Additionally, we are increasing our disposition guidance from $300 million to $400 million to a range of $350 million to $450 million. All of the guidance details are included on Page 9 of our supplemental. Johnny?

[Johnny Hendrix:]

Thanks Steve. It was another great quarter. Same property NOI was 3.8%. Leasing velocity was significantly higher than a year ago. Occupancy increased to 94.9%. Sharp occupancy is over 89% up 50 basis points in the quarter. Our rent growth for new leases was over 20% and the company's capital recycling effort continues to transform our portfolio. We're operating in an environment today with a slowly recovering economy, modest retailer demand and many conflicting signals. But the dominant influence is the lack of new supply. New construction is one-third of what it was in 2005. Even if new development accelerated dramatically today, it would take three years for that supply to hit the market. So our expectation is we will enjoy more negotiating leverage in the next several years. We have a great portfolio and it continues to get better with our recycling efforts. 75% of our NOI is in shopping centers with a grocery store component. 77% of our NOI comes from national and regional operators and our supermarkets average $558 per square foot in sales. That's an increase of 21% since we began the transformation. Our same property NOI for the quarter was 3.8%. Base minimum rent, which is by far the most critical component, was up 3.6%. Just a reminder, we should a breakout of the components of same property NOI on Page 26 of the supplemental. Occupancy increased to 94.9% up 50 basis points from a year ago and I think we still have room to increase occupancy into the 96% range. You'll note the spread between signed and commenced occupancy increased to 250 basis points this quarter. This is a result of some of the box repositioning we talked about over the last couple of quarters. This is a great pipeline for future revenue growth. We saw a dramatic increase in shop occupancy this quarter. It was up to 89.1%. That's an increase of 50 basis points from last quarter. About half of the improvement in shop occupancy is the result of the dispositions over the quarter. But that still leaves a very healthy increase for small space generated through increased leasing. Our platform provides an incredibly efficient process for leasing to shop tenants. We have a short tenant friendly lease that can be executed in 24 hours or less and have a key in the store owners pocket the next day. We're also very friendly to third-party brokers who can get paid within days. They're motivated to bring their clients to us. During the quarter we leased 126 new spaces and 167 renewals. Combined that represented $18.1 million in annual base minimum rent. New leases represented a little over 515,000 square feet, the most we've leased in any quarter since 2010. Leasing production increased across the entire footprint, but Texas continues to be the pacesetter. I expect we will continue to see a high level of leasing as we add new developments like Nottingham and Wake Forest. Our rent growth was outstanding during the quarter. New leases increased 20.3% and renewals were up 9.5%. That's an average of close to 13% for all transactions during the quarter. At least as exciting is over 80% of all our new leases had increases. You won't be surprised to hear that Texas had the best increases at 23% for new leases. But we made good progress in California with increases of 11%. That's very good as California is not quite back to peak rental rates and has more runway for growth. As for capital recycling, we sold 11 shopping centers and two pads for a total of $121 million during the quarter including six properties we sold subsequent to the quarter we disposed off $277 million of assets year-to-date. As of today we have an additional $192 million under contract or with a signed Letter of Intent. Some of these will slip, but you can see it's a full pipeline. We're seeing a very strong demand for non-core assets with cap rates in the range of 6.5% to 8%. These cap rates of 50 to 75 basis points lower than 18 months ago. CMBS debt is plentiful and buyers are getting 70% to 75% loan to value at raise around 4%. It's a good time to be a seller. As for acquisitions, we've remained disciplined. We have two centers under contract now. Combined they would represent over $90 million. We're working through our due diligence, so there's no guarantee we'll close, but we do feel optimistic. For great quality assets we're seeing cap rates in the range of 4.75% to 6%. And it's not unusual to see 10 to 15 bidders for A assets, so it continues to be very competitive. Our redevelopment initiative is going well as we look to create value in our existing portfolio. We have a list of active redevelopments on page 11 of the supplemental. Since last quarter our investment in active projects increased from $44 million to $61 million. We started construction of four new projects including adding a free-standing building at West Hill and a new Whole Foods at Westchase Shopping Center. Both of those assets are in Houston. At River Point in Colorado, Karnes opened last weekend and we signed a lease with Sportsman's Warehouse and expect to have them open next year. The redevelopments under construction today average returns around 10% to 15%. Over the last several years we've completed around $30 million to $40 million annually and I would expect 2015 to be at the top of that range. So again, a great quarter highlighted our outstanding operating metrics and a transformed portfolio continuing to improve. Drew?

[Drew Alexander:]

Thanks Johnny. It was a really good quarter. Our transformation is nearly complete and the portfolio is producing the kind of results that we expected. We posted outstanding operational results evidenced by stellar same property NOI growth and strong rent growth. Occupancy continues to increase with strong demand for the little remaining space in our high-quality shopping centers. Accordingly we've produced good FFO growth despite the significant disposition headwinds. We're pleased with the progress we've made in new development and redevelopment and we're well positioned for future investment with the strongest balance sheet we've had in years. This was a great quarter and we're confident that our transform portfolio will enable us to continue this solid performance going forward. I'm proud of our team and all of our accomplishments. Great people, great properties, and a great platform equals great results. I thank you all for joining in the call today and for your continued interest in Weingarten. And with that, operator we'll be happy to take questions.

[Operator:]

Thank you. We will now begin the question and answer session. (Operator instructions) Our first question here comes from Ms. Christy McElroy from Citigroup. Pease go ahead.

[Christy McElroy:]

Hi, good morning everyone. Johnny just a question on disposition timing, in terms of what you still have under contract pretty meaningful at almost $200 million, you talked about some of that slipping into 2015. Can you just provide some additional color on expected timing for those deals to close and I know Drew mentioned about $125 million to $150 million of dispositions expected in 2015. Is that slippage included in that range? And what do you expect for acquisitions and development spend next year? Just trying to get a sense for where net investment is expected to shake out.

[Johnny Hendrix:]

Yeah, good morning Christy. It’s really difficult to say we have third parties who have these properties under contract. Some of these assets that we're selling have issues and that’s kind of why we’re selling them and they are generally less sophisticated buyers. So we’ve had some issues in terms of the timing and things continuing to get pushed back. My expectation is -- will be towards the middle of our range by the end of the year around $400 million a little bit over $400 million and that what slips into next year will be included in the $150 million to $200 million that we’ve talked about.

[Drew Alexander:]

So Christy, it’s Drew. Good morning. So when we talk about next year being a more normal year at $125 million to $150 million, I think if we are successful and very little slips, then we’d be more like the $125 million and if there is some leftover, then we’d be a little closer to the $150 million. As far as your question about acquisition and development, both remain very competitive, but we do expect to be certainly not in a net negative capital mode. So we will be looking to invest capital both in acquisitions, new development and redevelopments after we finish the transformation at the end of this year.

[Operator:]

And thank you. Our next question here comes from Jay Carlington from Green Street Advisors. Please go ahead, sir.

[Jay Carlington:]

Right, thank you. So I guess on the NOI guidance we're trending at three to seven year date and implying you need something, I guess sub two just for the midpoint to be a possibility and I know Johnny you’ve mentioned in the past about some Office Depots and their Randalls closing potentially in the back half. So I’m just trying to figure out how that lower half of the guidance is possible with just two months left in the year?

[Steve Richter:]

Excuse me Jay this is Steve. The same property, we didn’t change our guidance. I think part of that is around the fact that we have some headwind and we've signaled that historically with things like Randall’s and so forth at our Westchase Center here in Huston that we have some box repositionings that will cause that. But probably the biggest thing is just the mix and the disposition program and knowing exactly where that will wind up. So -- and when you get to the bottom end of the range, it’s really a function of the items that we talked about in the prepared remarks is that we had a couple cents a share from the cancelation income and we had and bad debt recoveries, but again it’s driven off of the disposition program.

[Jay Carlington:]

Okay.

[Drew Alexander:]

Hey Jay, just to kind of make sure that's clear, I think our general expectation is that the fourth quarter same property NOI is going to be somewhere between 2.5 to 3.5. So there is no change in our outlook or anything like that. I think we were just a little bit concerned about the mix of the dispositions and so things are still good.

[Jay Carlington:]

Okay, that’s helpful. On the acquisitions I guess back in Q1 we had $42 million on the contract, now we’re I guess we are sitting at you said two projects with $90 million. So is that a drag from Q1 or are you, I think it's changing where bidding is getting a little aggressive, so just trying to see what is taking I guess so long to close on some of these deals?

[Drew Alexander:]

Jay that’s a good question. The fact is we had a deal to fill out in the due diligence that was in Q1. The two deals that we have currently were not under contract at that time. There is one of the things that we are working on that’s particularly difficult and could fall into next year.

[Jay Carlington:]

Okay. And maybe just a quick follow-up just, any idea where the cap rate ranges on those two deals?

[Drew Alexander:]

I think A, assets generally are running 4.75% to 5.75% and certainly it's within that range.

[Jay Carlington:]

Okay. Thank you.

[Operator:]

And thank you. Our next question here comes from Mr. Craig Schmidt from Bank of America. Please go ahead sir.

[Craig Schmidt:]

Thank you. I was wondering what are the cap rates on some of the more recent dispositions?

[Steve Richter:]

Craig, generally running 6.5 to 8 as I think you know the Village Arcade closed this quarter it was about half of the quarterly disposition number that ended up closing for about 8.5 cap rate. So the balance of this stuff began as more in the mid to high 7’s

[Craig Schmidt:]

Okay. And have you seen that market tighten up with the aggressive transaction market?

[Steve Richter:]

Craig, we have definitely seen it tighten up probably 50 basis points over the last 12 months CMBS debt is incredibly plentiful and willing to lend on what seems to be risky projects.

[Craig Schmidt:]

And the reason you've accelerated the dispositions, is it because of that competitive market or is it focused more on improving the balance sheet?

[Steve Richter:]

Craig there’s obviously a lot of benefits to accelerate in the disposition. I think the primary reason is it’s a good time to be a seller of those assets right now.

[Craig Schmidt:]

Agree, thanks a lot.

[Steve Richter:]

Thanks.

[Operator:]

And thank you. Our next question comes from Ki Bin Kim from SunTrust Robinson, please go ahead.

[Ki Bin Kim:]

Thanks. First, I just want to clarify I might have missed this, so the $200 million dispositions that you have slated for sale plus another 125 for 2015 for 325? And second question just want to turn to your TI disclosure it seems like this quarter you were able to obtained pretty good lease spreads 20% plus on new leases. But you did see a nice jump in TI spending for that. I was just curious on what the duration looked like for the leases that you signed if it was your typical five-year lease or if that was longer than usual?

[Drew Alexander:]

Good morning. It's Drew here. So on the dispositions what we're trying to articulate is we're raising our guidance for 2014 to a range of $350 million to $450 million and as Johnny said earlier, there are a lot of variables and a lot of timing that our best estimates are a bit -- will be right around the $400 million. And therefore, I talked about disposition guidance for next year consistent with the normalized range that we've talked about at the New York Analyst Day and lot of other times of somewhere around $125 million with the possibility that it could be $125 million to $150 million next year depending upon which deals might slip and how long they slip into 2015. So certainly as time goes on we'll update everybody with those numbers and how good progress that we are making on the transformation goes, but that’s the big picture of how we see it today.

[Johnny Hendrix:]

Hey Ki Bin this is Johnny. On your question on the TI, really important factor is the blend of the boxes in the shops. For this quarter about 60% of the space that we leased were boxes and one of those was the Whole Foods that is replacing the Randall Store. The TI for that space alone was $80. It's still incredibly accretive to our NAV, so it's a good deal. Also like you said the boxes tend to have a longer duration. Our hope is going to be 20 years in most of your junior anchors are going to be 10 to 15 years. So you do have a little bit longer to amortize that TI. So for the quarter the boxes leases were about $43 a square foot and the shop leases were about $1,150 square foot. So the blend of that is significant and kind of where you end up. Now I would think it does move around a little bit, but I would think somewhere around the flip of that 40 on the boxes and 60 on the shop space is a more normal production run.

[Ki Bin Kim:]

Okay. Thank you.

[Operator:]

And thank you. Our next question here comes from Carol Campbell from Hilliard Lyons. Please go ahead.

[Carol Campbell:]

Good morning. In our small shop space, what tenants are you seeing that are signing the most leases?

[Drew Alexander:]

Good morning, Carol. We've pretty much seen the same tenants we've seen over the last several years, mostly internet resistant operations. QSRs, medical, grocery stores, discount ready to wear, health and fitness and service tenants. It's pretty much the same cast of characters. It's been I think a generally modest demand, but it's been pretty steady over the last several years.

[Carol Campbell:]

Okay. And are you starting to see any pick up in the mom and pop tenants or are they possibly improving, but you have so much demand from the national regional. You don’t need the necessarily signed leases with them.

[Drew Alexander:]

Carol our portfolio today is certainly much more suited for the national and regional tenants and I think you can see that in the percentage of occupancy that they have. We did see a marked increase in the activity with the mom and pops this quarter and certainly there is a place for them in our portfolio and we have some centers that they’re going to be really good in. So we're pretty excited about that actually.

[Carol Campbell:]

Okay. Thank you.

[Drew Alexander:]

Thank you.

[Operator:]

And, thank you. Our next question comes from Jeff Donnelly from Wells Fargo Securities. Please go ahead sir.

[Jeff Donnelly:]

Good morning, guys. Just maybe a question for Drew and for Johnny on your NOI outlook. Year to date obviously same store NOI is running pretty strong, I think Drew you mentioned a lack of supply growth and ideally you're making changes to enhance the portfolio. So maybe Drew despite your conservatism, is it possible that same store NOI could hold in sort of a range of 3.5% to 4% over the next year or two just on a run rate bases. Because it's hard to see how the demand supply fundamentals are going to change?

[Drew Alexander:]

Good morning, Jeff. It's certainly possible. We had outstanding rent growth this year -- this quarter. There is a lot of factors that go into it. There is a very little new supply. There is very good demand. There was a great rent growth, but we've also been clear about the short term pain and the long term gain and we want to continue to invest to maximize long-term shareholder value. So sometimes that means playing little tough negotiations with some of the tenants who are a litter weaker today and then any quarter specifically we could have some headwinds, but the bigger picture fundamentals are really very strong. We are extremely pleased with the rent growth numbers, some of the best numbers we can ever remember seeing and while there are lot of factors and extraneous events in the economy that are out of control and we don’t have the ability to predict, generally things for our recession resilient, supermarket, anchored portfolio, in the markets that we are in are pretty good. So yes, we are very optimistic about the future, but we always want to keep the expectations under control. Jonny, any other thoughts on that subjects.

[Johnny Hendrix:]

No. It's good.

[Jeff Donnelly:]

And then just as a follow-up. Johnny, what’s the appetite been like first space at this point mean obviously a lot of easy vacancies have been filled in the last few years and I think rents are edging higher, but retail sales generally have been sluggish in the last 12 months. Are you seeing retailer may be begin to flinch on their appetite for new stores or maybe there are new stores as they think about '15 and '16 or is it really just too early to say?

[Johnny Hendrix:]

Yeah. Jeff one of the things that I said in the prepared remarks is we're seeing a lot of conflicting information, sales one month or one quarter are better and then go down and consumer confidence is up and down. I’ll say that the retailer demand again most of the people we're dealing with are public companies or national companies, regional companies and they have pressure to grow and there is demand from those folks, they are being more flexible on sizes, on frontage, on the way the store ends up and I think the leverage continues to move toward the landlord. So I think that generally we are in a good place. We certainly did not keep all of our best space till the end, but we have good centers certainly better centers than we had a year or two, three years ago and I think that we are in good shape with being able to lease the space. I think it's towards 96%. So I think we are moving forward.

[Jeff Donnelly:]

Thanks.

[Johnny Hendrix:]

Thanks Jeff.

[Operator:]

And thank you. Our next question here comes from Jeremy Metz from UBS. Please go ahead.

[Jeremy Metz:]

Hey good morning. I just wanted to go back to a prior question about same store NOI in the midst of dispositions impacting result? I guess I would have thought that you were selling some of the lower growth assets and if anything you would see a boost from the sales, am I getting completed, am I thinking about this wrong?

[Drew Alexander:]

Jeremy I can certainly understand how we would think that, but what happens in a lost of these assets is we've leave some space and moved occupancy to probably the highest level it's been at in a couple of years so there is definitely a pickup in same store NOI on some of the assets that we're selling because some of the spaces were more recently leased and that’s the factor that we're seeing. For the most part try not to lease spaces that have a lot of vacancy, but we are trying to sell shopping centers with a lot of vacancy, but we're trying to do is move the vacancy up and then sell them and that’s where the mix or the blend of what we end up selling for the year could impact us.

[Jeremy Metz:]

Okay. And then Johnny I think in your opening remarks you mentioned California not quite being back to peak and therefore having more room for growth. Can you just give some color on which of your markets are in a similar position versus those where rents are now above prior peaks?

[Johnny Hendrix:]

Jeremy I would say that for the most part, the research we've done, the information we've seen would tell me that most of California is generally at around 80% of peak. And I think what we are seeing in many other markets Florida, Texas is that we're really back to the peak years. So I feel good. Certainly the peak was much higher in California than it was in Texas or Florida, but generally there is some room for growth in those rents in the coming year.

[Jeremy Metz:]

Okay. And just one last quick one. On the acquisitions you have under contract, can you just tell us what the growth profile is on those or how you source those? Thank you.

[Johnny Hendrix:]

Yes Jeremy, generally what we've said is we're looking for great shopping centers that have 3% or more NOI growth a year. certainly these assets will meet that criteria and one of the properties was off market and one of them was in a general bid process.

[Jeremy Metz:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from Jim Sullivan from Cowen. Please go ahead. I am sorry, Mr. Sullivan you line is now open for your question. Please go ahead. Mr. Sullivan if your phone is muted please un-mute it for me. I am sorry, our next question here will come from Rich Moore from RBC Capital Markets. Please go ahead.

[Rich Moore:]

Hi, good morning guys. On the joint venture portfolio that you have I noticed a couple I guess three assets sales in the quarter. What is going on in the portfolio, I guess more broadly? Are those assets sales part of an initial move to maybe on wind some of these ventures or was it just something happened this quarter.

[Drew Alexander:]

Hi Rich. How are you this morning? I think they are more isolated circumstances. Several of the ventures that we have, there is a desire to call out some of the assets. Generally I think over time, those JVs will kind of continue to sell off assets, but I don't see anything that would be immediate or anything that would be impactful.

[Rich Moore:]

Okay. So mostly stable, Johnny

[Johnny Hendrix:]

Yeah.

[Rich Moore:]

Okay. And then the second thing Christy asked about the size of maybe your starts next year and the development pipeline and I was kind of curious, you have a 125 roughly million of projects underway right now in terms of development, not redevelopment and I am curious if that sort of level call those your 14 starts if you will, if that sort of level is what we should expect for '15 or if gets bigger than that. And as part of that, I am little curious about Dallas and Houston in particular because as you guys mentioned, they're very, very strong markets. Last I checked you guys are pretty dominant in those markets, but we're not seeing any developments coming out of Weingarten in those markets yet and I am curious if maybe those are places where we start to see some developments.

[Drew Alexander:]

Good morning, Rich. A lot of good question in there, so let me attempt to address all of that. We're certainly hopeful and plan to continue to find good quality development at about the pace that we've produced over the last year, year and half and would hope to continue to ramp that up as things get better. We're going to stay disciplined about what we do and we are as I've said a couple of times starting to see the very beginnings of more discussion about realistic rent. So we'll remain active across our entire footprint that 25 markets where we look for things. As you say Texas is really, really strong and in Houston particular as we talked about in New York last December for the good quality infill sites where we want to be located in all our markets, the land is just so expensive principally driven by a lot of the multifamily people and office people who can go multistory. So we love Houston, we love Texas. We have a lot of good property here. We would love to add to it, but we're going to stay disciplined and it can be very competitive here given the multistory nature of particularly the multifamily guys.

[Rich Moore:]

Okay. Got you, Drew. Thank you. So as a follow-up to that real quick, to fund these developments if you guys are going to do additional projects, [assuming] (ph) you probably will, the line of credit Steve has $260 million on a disposition sort of clear that or is there something else you need to do in anticipation of using that line for developments going forward?

[Steve Richter:]

Good morning, Rich. No, I think that right now as you noted the line has some balance on it, but we would expect by the end of the year or shortly after the first of the year, given the timing of those dispositions that it will pretty much clear out the line and have that available.

[Rich Moore:]

Okay. Great. Thank you, guys.

[Operator:]

(Operator Instructions) Our next here is from Jim Sullivan from Cowen and Group. Please go ahead sir.

[Jim Sullivan:]

Yes hi, sorry about that earlier. I got called away. I have a question for you Johnny in terms of the internal growth rate. You had talked about the pretty impressive spreads in Texas in the quarter and obviously you had mentioned quite a bit as being very strong. When you think about your three largest markets, Texas, California and Florida, I wonder and I know that you don't get sales productivity by your tenants or from your tenants, but obviously you're talking with your tenants all the time, when they talk about their business in those three locations, is there a significant difference in terms of productivity growth an appetite for space kind of number one. And number two as you think about that going forward, any opportunity for maintaining or maybe even expanding the spreads, I am not sure if that's possible. How do you come down? Do you think this internal growth rate just that you had has been obviously robust in Texas is going to be complemented by robust growth in California and Florida?

[Johnny Hendrix:]

Yes, thanks Jim and good morning. It is interesting when I look at the sales productivity of grocery stores particularly in Texas and then I would say Florida and then California, our properties are dominated by super grocer called ATB and they are far more productive than any other super market. So our vision what we see in our shopping centers is this incredible supermarket that's doing $750 million or $1,000 a square foot. And when you compare that to Florida, we have a lot of public stores de $500 to $600 a square foot again very, very good. Some of them do more. California tends to do lower volumes on a square foot basis but I think has a lot better margin because they have a lot less competition. When you look at the other retailers the junior boxes, I would tell you they probably do it's probably a similar situation they probably do more sales and Texas and Florida and do better margin in California. But that’s very generalized and specific locations are going to all be different.

[Jim Sullivan:]

But are you saying that or is it your sense Johnny that the productivity change year-over-year has been stronger perhaps in Texas because of everything that's happing with the economy than it has been in Florida and California. In another ways the productivity growth has lagged or it just hasn’t cut up with how robust it is in Texas and the other two big states Florida and California.

[Johnny Hendrix:]

That's probably right. I don’t think it's absolutely clear that that’s right, but I think that is probably right because again I just want to say this, you can't underestimate how powerful ATB is in the supermarket. The grocers we have generally in Texas to do very well and they're not in California or well I guess they're either in Florida, but not in California, so it's difficult to really compare one grocer pursuit to another.

[Jim Sullivan:]

We had a question for Drew in terms of development, I mean Drew you’ve been through a few cycles and where disposition cap rates are with the robust demand on disposition side and obviously where interest rates are, in terms of how that impacts your thinking about development yields do you, does that lower your hurdle rate in terms of what you want to do for or what you are willing to do in terms of development as to your initial going in yield.

[Drew Alexander:]

Good morning Jim, yes I have been through a quite a few cycles and my father is across the table for me, laughing since he has been through even more. What we look at and what we've built the company for all these years over is the risk reward. As mentioned we're in a lot of different market. So there is different risks and different rewards in the different markets. Generally speaking as we've articulated, we think around a 200 basis point spread to the estimated exit cap rate is a fair return for the risk associated with new development. That’s a number we feel comfortable sharing with our major tenant relationship partners in a development that’s a number we obviously feel comfortable talking about to investors, so around 200 basis points. Now that can move down in a market like a Washington DC where you can take a lot of risk off with a good pre releasing effort because the entitlement process is going to be so long as you -- if you can control the property without a lot of money and if we gotten into something more speculative we want more. So as I've mentioned in a couple of calls and I want to try to articulate this as best I can, we have over the last few quarters seen more activity, more discussions in talking to our experts in the field. There is more conversation at the different meanings in our different global meanings that more and more tenants are willing to step up and pay the rents necessary for our new development. So we're encouraged about that. As Johnny mentioned in his prepared remarks, there is still a shortage of new space and we think the operating leverage and the negotiating leverage that we'll have with tenants will be very good for a very long time because even if massive new projects started next week, it will still take us about three years for them to come on online. So while there is lot of stuff going on in the world and as Johnny said a lot of mixed singles, we feel very good our portfolio, our footprint of quality of our tenant's etcetera and are optimistic about some amount of good new risk adjusted development opportunities going forward.

[Jim Sullivan:]

Okay. Then final question for me, the price of oil again you’ve seen the price of oil rise and fall over time and when you think about the impact on your portfolio, I guess $80 price of oil may moderate some of the growth we're seeing in Houston, on the other hand of course it's really good for the consumer. So how do you think about the price of oil and the impact it might have on what's been exceptional growth in Houston for a while here?

[Drew Alexander:]

Yes and that's a great question. If you think about a little bit big picture, oil prices are historically extremely volatile. Over the last 30 years we've seen prices at $8, $9 a barrel. Over the last 10 years we've seen prices below $50 a barrel. There is a great article in the Wall Street Journal this morning Page 13-A, that talks about how the production today is just so much more efficient. The Houston economy is really strong, added over 200,000 jobs in total over the last few years. So things are really, really good. So in our view and we discuss this at our Board meeting a lot yesterday, as long as energy prices don't fall really significantly and stay down that really low levels for a very long time, we don't see a negative impact. We have a great portfolio in Houston, have had for a long time and the transformation makes it even stronger. Went over a lot of it in New York in December last year and just remind everybody, about 80% of our Houston NOI as we covered them, comes from our key shopping centers in Houston where the incomes are about $120,000 a year, so again very resilient properties with great supermarket. So we remain bullish on Houston and Texas and are very comfortable with things.

[Jim Sullivan:]

Okay. Great. Thanks guys.

[Operator:]

And we have one final question from Ms. Christy McElroy from Citigroup. Please go ahead.

[Christy McElroy:]

Hi, just a follow-up, on same store NOI growth you're up 3.7% year-to-date, if you strip out the assets that you’ve sold or are selling in 2014. What's the same store NOI growth of that remaining portfolio? So what would that have looked like without those assets?

[Drew Alexander:]

Yes Christy, we do not go back and reconcile from one quarter to the next and when you get a final same property NOI a number from us, we'll have that number for the assets that are in the same property pool at that time. If you looked at the 3.7% number that we reported year-to-date is all that stripped out, but again it's not really an average of the three previous quarters, it will be the same property NOI of the assets that are in that pool currently. So if I sold the shopping center last month, it's let's say sold a shopping center this month. It would have been in the pool for the first, second and third quarter. It will not be in the pool for the final number.

[Christy McElroy:]

Great. And just you talked about the disposition centers, the lease up of those centers impacting the growth rate in the positive way, I am just wondering sort of if you striped out those centers, what the ongoing growth rate is of that remaining portfolio that will obviously translate into next year?

[Drew Alexander:]

Well the 3.7% is the current population and a number that we will report for the fourth quarter will be then current population. So we're not -- we're not using any of the numbers historically if that makes sense.

[Christy McElroy:]

I was just wondering if you dissect the portfolio in that way.

[Drew Alexander:]

Yes.

[Christy McElroy:]

Thank you.

[Drew Alexander:]

Thank you.

[Operator:]

And thank you. This concludes the question-and-answer session. I will now be turning the call back over to Mr. Alexander for closing remarks.

[Drew Alexander:]

Well thanks everybody for your interest. I appreciate it. Steve, Johnny and Michelle will be at NAREIT in a couple of weeks and they look forward to seeing many of you. We really appreciate your interest your interest in Weingarten this morning and generally and we're here if there are other questions later in the day or whenever. So thanks again so much for your interest in Weingarten. We appreciate it.

[Operator:]

And thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation and you may now disconnect.