Weingarten Realty Investors
Q4 2014 Earnings Call Transcript

Published: 17 Feb 2015

[Operator:]

Good morning. Welcome to the Weingarten Realty's Fourth Quarter 2014 Conference Call. My name is Brandon, and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning, and welcome to our fourth 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 Web site. 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. We are very pleased to report another great quarter with strong operating results that were made possible by the successful transformation of our portfolio over the last four years. Before we talk more about the quarter and the year, I’d like to take this opportunity to recap the success of the strategic initiative we announced at our Investor Day presentation in April of 2011 as our transformation is complete. Our plan was to transform the portfolio to one that generates strong growth over time and minimizes downturn volatility. Since the beginning of 2011, we’ve sold $1.5 billion of non-core assets and reinvested 700 million in quality acquisitions and new development projects. We performed a very comprehensive review of our assets to determine which assets we wanted to retain and those markets in which we wanted to expand. We focused on assets that would grow in an acceptable rate in markets with significant barriers to entry and strong demographics where we had the critical mass to effectively lease and manage our properties. After this review, we began existing secondary and tertiary markets and selling assets in our targeted markets that didn’t meet our growth requirements. In May of 2012, we became the pure-play retail company by selling our industrial division. We continue to execute our retail dispositions in a very methodical and discipline manner. The majority of our non-core assets were sold individually in fully marketed deals that maximize the value received creating the greatest benefit for our shareholders. We did this during a period of declining cap rates where the spread between high quality assets and the assets we were selling was also narrowing, again maximizing the benefit to our shareholders. To frame the magnitude of this effort, at January 1, 2011, our retail portfolio of 312 properties generated annualized ABR, that’s average base rent, of about 400 million. The properties that we’ve sold represented approximately 20% of that total or 80 million of annualized ABR. During this period, we increased both our FFO per share and our dividend each year. Let me illustrate the significance of this transformation with an individual example. ABR is widely considered a proxy for quality. Over the last four years, the average base rent per square foot for the properties sold was $11.62 versus $19.80 for the properties acquired and the impact on this activity on the entire portfolio is equally impressive. ABR for the whole portfolio went up by 19%. You can see the full schedule of the portfolio transformation metrics on Page 41 of the supplemental. Equally important, we’ve transformed our balance sheet as Steve will cover in a minute. Now, let me switch gears to our new development activities. We continued to make progress on our Hilltop development in D.C. with Wegmans currently scheduled to open in June. We’re 94% leased and the commencement of rent will significantly accelerate in the latter half of the year. This is a great development in a tremendous location that is a quality addition to our portfolio and an excellent example of how our team creates shareholder value. At our Wake Forest development in the Raleigh market, we’re 88% leased with Ross, PETCO, TJ Maxx and Michaels all signed. Construction is well underway and should be substantially complete by the third quarter. Our investment in the project will be about 16 million. At Nottingham Commons, our newest addition to the pipeline in White Marsh, Maryland, leasing is progressing nicely with several junior anchor deals well underway. Demand for shop space is strong with several merchants already signed. Upon completion, this 138,000 square foot development should have an approximate investment of 45 million and 7.5% return. The Whitaker, our exciting infill project in West Seattle is also moving forward. This six story mixed-use project is being co-developed with Lennar with our 63,000 square foot retail portion anchored by a 41,000 square foot Whole Foods. Lennar has broken ground and anticipates delivering the retail portion to us in late 2016. Our investment will be around 29 million. We continue to see activity in new development and our experienced team will continue to pursue select opportunities. I’ll now turn it 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 $0.51 per diluted share, up from $0.48 in the fourth quarter of last year. FFO for the fourth quarter benefited from a strong increase in same-property NOI of 3.6%. FFO for the quarter also benefited from unanticipated bad debt and litigation recoveries as well as favorable expense from our insurance captive and positive debt refinancing activity, primarily the redemption of our 8.1% bonds in September of 2014. These increases were offset by the impact of our dispositions program, which cost us $0.05 per share compared to the fourth quarter of 2013. For the year, recurring FFO was $2.05 per diluted share compared to $1.96 for 2013, an increase of 4.6%. We are really proud of these results especially when one considers that dispositions cost us $0.14 per share of FFO when compared to the prior year. Turning to the balance sheet. We have continued to strengthen our financial position this quarter by using our disposition proceeds to reduce debt. Since the beginning of the portfolio transformation in April of 2011, we have reduced our net debt to EBITDA from 6.67 times to 5.39 times, our net debt plus preferreds to EBITDA from 7.96 times to 5.81 times and our debt to total market cap from 43.2% to 30.2% at December 31, 2014. At the same time, we have significantly improved our maturity schedule with the maturities in any future year no greater than 305 million. Our reduced leverage, well-laddered maturity schedule and simplified corporate structure are attractive to the investment community and we are very well positioned for future growth, a very successful transformation. As to 2015, we are providing guidance for both recurring and reported FFO in accordance with NAREIT’s definition. Guidance for recurring FFO is $2.12 to $2.17 per diluted share. This assumes acquisitions ranging from $200 million to $250 million and dispositions of 125 million to 175 million. We have also forecast new development investment in the range of $50 million to $100 million and we expect incremental FFO of $0.06 per share from our new development completions in 2015. I would also add that we are negotiating a five-year $200 million term loan, which we expect to close in the first quarter. Also in the first quarter, we expect to close a 10-year extension of $66 million secured loan, which will reduce interest expense in 2015 by almost $0.02 per share. This refinancing will include a prepayment penalty of $0.05 per share. Taking into account the $0.05 penalty, our guidance for reported FFO is $2.07 to $2.12 per share. All the details of our guidance are included on Page 9 of our supplemental. Johnny?

[Johnny Hendrix:]

Good morning. We ended a great year with another strong quarter highlighted by 3.6% same-property NOI, 95.4% occupancy, 11.2% rent growth, historically low tenant fallout, consistent leasing velocity, the sale of 14 non-core shopping centers and the acquisition of the Scottsdale Horizon shopping center in Phoenix, Arizona. Overall, we continue to see a retail market dominated by the lack of new supply. Retailer sales are mixed but supermarkets seem to continue to grow sales. Weingarten supermarkets today average over $560 a square foot. That translates to about 80,000 customers coming into our shopping centers every month. Shop occupancy increased to 89.8% at the end of the quarter, an increase of 70 basis points from the third quarter. The overall occupancy was up 95.4%, up 50 basis points from last quarter. I anticipate that our occupancy will remain in a range of 20 to 30 basis points of where it is today through 2015 before it eventually increases to above 96% by the end of 2016. During the fourth quarter, we posted solid same-property NOI growth of 3.6%. This included a very impressive 3.1% growth in base minimum rent for that same-property pool. We had strong growth for most of our regions with Las Vegas and Florida producing the highest, mostly as a result of new lease commencements. Over the last three years, Weingarten has averaged same-property NOI growth of 3.9%. That’s part of what we mean when we talk about great results. While 2015 same-property NOI will be comping against a series of very strong numbers, we feel good about our guidance of 2.5% to 3.5%. We have built in rent increases that will produce an average of 1% to 1.25% growth and we also know increasing commenced occupancy will continue to contribute same-property NOI growth through 2015. Today, we have about 500,000 square feet of space that is signed and not commenced. That translates to a 170 basis point spread between signed and commenced, which represents $8.5 million of revenue on an annualized basis. Most of that is in the same-property pool and will commence in the second half of 2015. Rent growth will also continue to be a positive impact on same-property NOI. We ended the quarter with an increase of 11.2%. That was 11.4% for renewals and 10.4% for new leases. As occupancy increases, we continue to gain leverage with tenants in need of new space. It’s important to remember that even in Houston, this recovery for retail properties has mostly been driven by the lack of new construction. That continued limited supply will be a significant factor offsetting the impact of lower oil prices. We expect 2015 rent growth for the company to be in the 10% to 15% range. Leasing remains consistent. We leased 283 spaces for about 1 million square feet during the fourth quarter. That includes 97 new leases for 300,000 square feet. This is about the same square footage as the fourth quarter a year ago. Given our declining vacancy and the historically low fallout, it’s good to still be able to maintain a steady leasing velocity. Our redevelopment program continues to build. Today, we have 13 shopping centers in various stages of redevelopment and expect to spend a total of $67 million on those projects over the next couple of years producing a return around 12%. The specifics of those projects are listed on Page 11 of the supplemental. Our capital recycling program continues to transform the portfolio. During the fourth quarter, we sold 14 non-core shopping centers and four land parcels for $166 million. These included two closed supermarkets, two independent supermarkets, a trade school and a shadow-anchored center. For the year, we sold five centers in Louisiana, six centers in small towns in Texas and six properties located in Houston. As you’ve heard, the transformation is complete but in future years we will continue to weed out about 2% to 3% of properties at the lower end of our portfolio. During the fourth quarter, we finalized the purchase of Scottsdale Horizon in North Scottsdale, Arizona for almost $44 million. The property is anchored by Safeway and CVS. A three-mile demographics show an average household income of $120,000 and college educations around 65%. We expect to grow the NOI for the property around 3% a year. As Steve mentioned earlier, our acquisition guidance for 2015 is $200 million to $250 million. We will remain disciplined and we have not loosened our underwriting standards. We’re seeing deal flow and a competitive environment similar to 2014 but we started the year with a strong pipeline of great properties under contract. We’ve already closed on Baybrook Gateway shopping center and have two other properties under contract. These three assets would represent close to $146 million. Obviously, no guarantees but the pending transactions are looking pretty good right now. Baybrook is a great location, south of downtown with strong demographics. It services the Clear Lake super zip. The center is across Interstate 45 from Baybrook mall, which is one of the top malls in Houston. The mall is owned by General Growth and has sales around $750 a square foot. Traffic counts are very high, 350,000 cars a day. The property had been held by a special servicer for a couple of years and occupancy is only 65%. We bought this property for a cap rate around 5% on the existing NOI but we plan within a couple of years to move the return into the high 7s. We have lots of tenant interest for Baybrook, so this redevelopment is going to be fun. We’re competently looking forward to 2015. We have a great portfolio and a seasoned team to meet the challenges ahead of us. Drew?

[Andrew M. Alexander:]

Thanks, Johnny. The main items I want to address in my closing remarks concern the decrease in oil prices. A lengthy period of low energy prices would undoubtedly have a cooling effect on the Houston economy and depending upon the duration would result in significant job losses in the energy sector. But Houston is not all about energy. We have the largest medical center in the world with 55 different member institutions and tremendous planned growth. We have the second largest port in the United States. There are major capital investments underway there as growth is expected with the widening of the Panama Canal in 2016. A large part of the Houston energy industry is chemicals and other downstream products. This part of the energy business thrives on lower oil prices. Given the percentage of the Houston economy related to energy is much less than in the 80s, we feel our portfolio will be fine through this period. At WRI, we experienced the major downturn in Houston in the mid-80s and a couple of less significant downturns in the 90s in the 2000s. Our occupancy has never fallen below 90%. Further, there are few key differences I would like to point out. First, in 1985, 71% of our ABR, that’s average base rent, was in Houston. Today, it’s 16%. The extent of our geographic diversification driven by the transformation is not fully appreciated even by some who follow us. More importantly, the quality of the centers that make up that 16% is far superior to the portfolio we had even as little as five years ago, also due to the transformation. Today, 80% of our Houston ABR is in what we term our key centers, which are shown on our Web site, the majority of which serves super zips. To quantify the strength of these centers, the average household income for these properties is nearly 30% higher than the average for the Houston CBSA and the percentage of college graduates is nearly 50% higher. Comparatively little new space has been built or is planned to compete with these centers. As we’ve highlighted in our presentation, the land prices are just too expensive near most of our centers for competitive retail properties. Additionally, about 80% of our merchants in Houston are national and regional retailers today with significantly fewer mom and pop tenants. However, the mom and pop tenants we have in our Houston portfolio have operated in our centers for an average of nine years. Bottom line for us, we have outstanding properties in Houston that provide necessity-based goods and services and were experienced in operating and downturns. There will be some pain, but we don’t believe it will be significant. We encourage all of you to plan a trip to Houston soon. The weather is often great this time of year. The rodeo’s coming, the Rockets are doing pretty well. We’d love to show you how strong our properties are in this market. Looking ahead to 2015, we will focus on growing the cash flow and the NAV of the company through accretive acquisitions and new developments, as well as our existing operations. With our transformed portfolio and balance sheet, we’re very excited about the future of WRI. I’d like to thank all of our associates for their efforts in completing the transformation and for our great results in 2014. I’d especially like to thank Patty Bender, our Executive Vice President of Leasing who is retiring in a couple of months after over 33 years with WRI. Many of you have met Patty at our Investor Day presentations and we’ll miss her passion, love of retail and dedication. Patty has been a great mentor to many. She developed a very talented team with a strong bench and I’m confident we can divide her responsibilities and continue with our best-in-class platform. 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 be happy to take questions.

[Operator:]

Thanks, Drew. We will now begin the question-and-answer session. [Operator Instructions]. From Citi, we have Christy McElroy on line. Please go ahead.

[Christy McElroy:]

Hi. Good morning, everyone. Steve, you pointed out how far you’ve come in terms of leverage. How do you view your current net debt to EBITDA 5.4? Is that a level that you plan to stay out longer term or is that a level that has some dry powder built in such that you’d be comfortable increasing leverage as you transition to being a net acquirer and should the opportunity to invest capital arises?

[Stephen C. Richter:]

Good morning, Christy. Yes, I think that we do have some dry powder in the current leverage position of the company. We haven’t really given direct guidance in terms of where we want to be on net debt to EBITDA, but I think clearly 75 basis points even to 6.5 quite frankly for time to time would be fine with us. We clearly don’t want to get back up in the 7 range. But I think we do have some room right now to further lever up the company.

[Christy McElroy:]

Okay. And then, Johnny with regard to acquisitions, you talked about 146 million closed under contract. It remains a competitive market but can you give us a sense for sort of average cap rates on those deals, whether or not they were widely marketed? And what do you think gives you a competitive advantage in competing for deals today?

[Johnny Hendrix:]

Good morning, Christy. I’ll answer the last part first. One of the great things about the company is we have some great people in all of the regions. And as we look at pro formas and develop pro formas for shopping centers, we feel like we’re going to be in a position to drive the NOI higher, which will enable us to pay a little bit more for some of the shopping centers that we’re looking at. We’ve consistently seen cap rates in the 4.75 to 5.5 range for stabilized returns on properties and generally that’s the range of the properties that we’re looking at today.

[Christy McElroy:]

Okay. And then just lastly, Drew, you talked about the port of Houston. What do you think the expansion there means for job growth in the Houston market?

[Andrew M. Alexander:]

It’s hard to say for sure. It’s interesting with all the turmoil in Long Beach but there are forecasts that it can be very transformative over, say, a five to seven-year period as more and more goods would come from Asia through the Panama Canal up to Houston and then connect into the railways and the newly expanded Interstate 69 and really cover a huge portion of the country. So it is something that isn’t going to start having an impact really until next year and it’s hard to forecast exactly, but it could be pretty significant.

[Christy McElroy:]

Thanks so much guys.

[Operator:]

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

[Jeremy Metz:]

Hi, guys. Good morning. In the opening remarks, you talked about looking at some interesting new development opportunities. I was just wondering, is this stuff within your existing land bank or are you looking at taking down any new land and have you seen an increase in anchors looking for new development?

[Andrew M. Alexander:]

Good morning. This is Drew. Things continue at a moderate pace. We’re certainly going to stay disciplined. I don’t see us buying big parcels of land in suburban areas especially unless there’s huge density and I especially don’t see us buying big parcels without a lot of preleasing done, very sensitive to entitlement risk. The supermarkets remain interested anchors as well as the value-oriented retailers; Ross and Marshalls. So we are looking at our existing platform and properties and have several things highlighted in our redevelopment where we’re building different phases as well as active across the 25 markets in the 10 or 12 states that we look at. So seeing some things there. We’ll stay disciplined but I think we’ve continue to add modestly to our pipeline.

[Jeremy Metz:]

Okay. And then in terms of the Office Depot/Staples merger, I think combined you have close to 2% of revenues there. Have you had any discussions yet with them, or what are your expectations about the stores you have in the portfolio?

[Johnny Hendrix:]

Good morning, Jeremy. I’m looking at this thing with my glass half full. Over the last four years, due to transformation process we sold 19 of the office supply stores. Today, we’ve got 35. And the idea that we had a whole industry in disarray several years ago and this is being consolidated into one single strong entity I see as pretty positive. We have 35 stores. The maturities of those leases are spread out very nicely, roughly five or six a year starting in 2016. And even in 2016 the average rent is only about $11.85. We’ve got two that expired in '15. One of them has already expired and we’ve leased that space in Roswell, Georgia to fresh market. And then throughout the rest of the next four or five years, we’ve got five or six leases that expire. So I think we can handle this in an orderly way. Clearly, there’s a lot of good locations that they’ll keep with us. And I’m looking at it in a pretty positive outlook.

[Jeremy Metz:]

And what’s the mark-to-market on those spaces you have coming up just in the next 24 months?

[Johnny Hendrix:]

Yes, we probably will make a little bit of money after capital but it won’t be a whole lot, but we certainly have got a number of eager leasing executives hopeful that they can get some space to lease.

[Jeremy Metz:]

Okay. Thank you.

[Johnny Hendrix:]

Thank you.

[Operator:]

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

[Jay Carlington:]

Great. Thank you. Johnny, I think last quarter you mentioned new lease spreads in Texas kind of outpacing the rest of your portfolio. Is that still the case and maybe are there any other regional callouts of strength or weakness?

[Johnny Hendrix:]

Jay, I will tell you that the whole portfolio has been very consistent. And even in Texas, the new leases, the spreads have been outstanding. We haven’t seen anything relative to a downturn in demand for this space either from renewals or new leases and it’s still pretty strong, so we just haven’t seen anything at this point.

[Jay Carlington:]

Okay. Any other regional callouts, strength or weakness and I think you mentioned California last quarter.

[Johnny Hendrix:]

Yes, it’s interesting. It kind of goes up and down. Las Vegas had an outstanding quarter altogether, huge occupancy increases for commenced leases and in Atlanta also. Atlanta has really picked up in terms of its overall operating metrics including the rent growth, so we’re very encouraged by that.

[Jay Carlington:]

Okay. And you mentioned, I guess, your portfolio is getting contractual rent bumps in kind of 1 to 1.25. Did any of that – I guess in your '14 leases, did you get better rent bumps in those contracts?

[Johnny Hendrix:]

It was roughly the same. On an annualized basis that’s generally what we’re looking at is in that 1% to 1.25% range.

[Jay Carlington:]

Okay. And then just a quick last question. What was the cap rate on that Scottsdale purchase?

[Andrew M. Alexander:]

Did we disclose that?

[Stephen C. Richter:]

Not sure.

[Andrew M. Alexander:]

It was around 5.

[Jay Carlington:]

Okay. Thank you.

[Andrew M. Alexander:]

Thank you.

[Operator:]

From SunTrust Robinson, we have Ki Bin Kim on the line. Please go ahead.

[Ki Bin Kim:]

Thanks. You guys already mentioned a few things about Houston but I was wondering if you could touch on what you think cap rates are doing on a comparable basis for assets in Houston? I would have imagined just after taking into consideration just the risk factor for the uncertainty regarding oil prices that it would have to back up a little bit, but maybe provide some color on that.

[Andrew M. Alexander:]

We haven’t seen a whole lot of upward movement for the good quality assets that we want to buy, but you have to be right that it has to be out there. I think that we will see it, but I think for very good quality supermarket anchored centers in the dense infill where all of our properties are, given that debt levels are still pretty cheap, I don’t think it will move up very much.

[Ki Bin Kim:]

And you think it will move for maybe the lower quality? I don’t want to say lower but --

[Andrew M. Alexander:]

I think there will be a widening for the lower quality and more suburban and things that are – new developments, et cetera, yes, but for great supermarket anchored with good basic service tenants, which is where we focus, I don’t think it will be that much.

[Ki Bin Kim:]

Okay. And this quarter you guys had a nice gain in small shop occupancy. Just curious, is most of that gain seasonal and how much of that carries forward in 2015? And I guess the last part of that is, I know your portfolio has changed a lot but where do you think peak out at for small shop?

[Andrew M. Alexander:]

Ki Bin, I wouldn’t describe it as seasonal. Some of the movement in occupancy was the dispositions program. Some of the properties we sold in the last quarter had a relatively low occupancy. But I would say that was kind of normal leasing for the portfolio. And I’m sorry, your other question was?

[Ki Bin Kim:]

Where do you think your portfolio could peak out at going forward?

[Andrew M. Alexander:]

Yes. I would say we’re talking to maybe 96.5% overall, which would put us around 92%, 93% in the shop space.

[Ki Bin Kim:]

Okay. All right, thank you.

[Andrew M. Alexander:]

Thanks.

[Operator:]

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

[Craig Schmidt:]

Thank you. Are you seeing any changes in transaction market or are you just looking harder to account for the increase in the pipeline in acquisitions relative to 2014?

[Andrew M. Alexander:]

Good morning, Craig. Yes, I would tell you that we’ve maintained a disciplined and I wouldn’t say that we’re looking any harder. I think what you’re seeing in 2015 is some work that was pulled forward from 2014. And we had some things that we hoped to close in 2014 that we did not and then I think we had a pretty quick hit with Baybrook. But no, I don’t see any significant changes in the methodology or the process that we’re going through.

[Craig Schmidt:]

And will the acquisitions have sort of the opportunistic flavor that Baybrook has?

[Andrew M. Alexander:]

Craig, I think some of them will and I think some of them will just be strong assets that have great rent growth. The big thing that we’re looking forward, Craig, is great properties that grow over a longer period of time. And I think that will be the piece that you’ll continue to see in the properties that we’re buying.

[Craig Schmidt:]

Okay. Thanks.

[Andrew M. Alexander:]

Thanks, Craig.

[Operator:]

From JPMorgan, we have Michael Mueller on the line. Please go ahead.

[Michael Mueller:]

Hi. Just as you look out over the next few years, how big do you think your development in the redevelopment pipeline could average in any given year?

[Andrew M. Alexander:]

Mike, it’s Drew, good morning. That’s a really difficult question for us to put a specific number on it. As has been alluded by Johnny and Steve, the whole purpose of the transformation was to switch to good quality assets that over an extended period of time would provide a very good risk adjusted return to shareholders. So, as you carry that down to the next level, we certainly want to do as much redevelopment of our existing properties as we can and we’ve detailed what we’re working on in the supplemental and we’ve also detailed the sort of projects that are coming behind that that we’re trying to tee up. Those returns are great. When it comes to acquisitions development, as Steve mentioned, we got some dry powder. We are looking to grow and the thing that’s unique about us is we’re geographically focused in about 25 markets with our boots on the ground in those markets, so we see a lot of the opportunities. So it’s just a matter of finding the things that have the growth that Johnny mentioned. So we got the financial capacity, we got the human resources’ capacity. We’re going to stay disciplined, so it’s finding those opportunities. So it is hard to put a number on it, but we certainly hope to grow the pipeline from where it is now. But always want to keep a conservative balance sheet and keep our percentage of new development under control.

[Michael Mueller:]

Got it. I apologize if I missed this from before but Steve, did you mention the size of the term loan or any rough pricing?

[Stephen C. Richter:]

$200 million on the term loan and we think it will be somewhere – the five-year deal will be on the LIBOR and we’ll probably swap that back, so we’re looking at across probably around 2.75.

[Michael Mueller:]

Got it, okay. Thank you.

[Operator:]

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

[Rich Moore:]

Good morning, guys. Steve, the debt extinguishment charge, which quarter is that do you think?

[Stephen C. Richter:]

We think it will be in the first quarter. It could roll to the very first part of the second, Rich, but we’re expecting Q1.

[Rich Moore:]

Okay, great. And why are you extending – it’s a mortgage that you’re extending, right, so why are you extending that? Why not combine the balance on your line of credit with that mortgage and issue a bond to make it unencumbered and unsecure?

[Stephen C. Richter:]

Good question, Rich. Quite frankly, it was a way for us to lock rates with no current – we didn’t have a good use of proceeds to do an index level deal, which in today’s market is $250 million or more. And given the dip in rates that we have seen over the last 90 days or so, it was just a way for us to lock in and refinance and push those maturities out.

[Rich Moore:]

Okay, all right, good. I got you. And then I don’t really understand the purpose of the term loan. I mean why do that too?

[Stephen C. Richter:]

Quite frankly, if you look at our maturity schedule, we’re wide open to add a five and six-year kind of window. And we just saw a great opportunity to go ahead and do a five-year deal versus doing a 10. If you evaluate our business plan and project that forward and look at our maturities, quite frankly towards the end of the year we’ll get back to needing to do probably something with the bond market and we would have a 10-year transaction at that point.

[Rich Moore:]

Okay, good. Thanks. And then the last thing, Steve, the recovery ratio went down and also you got rid of your OP units and I’m curious on both of those, what exactly happened there?

[Stephen C. Richter:]

The OP units purely that was – one of the unitholders have the option to put that back to us and we did eliminate that. We did not issue shares. We paid that off in cash with which we have the option to do.

[Andrew M. Alexander:]

In addition to that, they were anti-dilutive this quarter. It will reappear next quarter.

[Stephen C. Richter:]

So you’ll see those units – I guess technically they didn’t go away, they just show up anti-dilutive but we did have a small amount that – we did redeem a small amount of them. To your second question, Rich, having to do with the recovery ratios, the fourth quarter actually had a little bit of unusual to it. As we noted in the opening remarks, we saw some benefit from our insurance captive, so that’s kind of going opposite of what here you saw. We also had a utility issue with some water at one of the locations that kind of offset that. And then the balance is really just the Q4 generally it’s a little bit of seasonality. You see a little higher cost in Q4, but I would tell you if you look at the annual numbers, it’s pretty much right on. So I would tell you that Q4 was more seasonality than anything.

[Rich Moore:]

Okay, great. Thanks.

[Operator:]

[Operator Instructions]. We do have Ki Bin Kim back on the line with a follow up. Please go ahead.

[Ki Bin Kim:]

Just a quick accounting question. Does your NOI guidance include bad debt?

[Stephen C. Richter:]

Yes, it does.

[Ki Bin Kim:]

And is it a negative contribution in 2015 or a positive?

[Stephen C. Richter:]

Yes. We actually have bad debt expense.

[Ki Bin Kim:]

Okay.

[Stephen C. Richter:]

So if I’m understanding your question correctly, it would be negative.

[Ki Bin Kim:]

Yes, year-over-year right?

[Stephen C. Richter:]

Correct.

[Ki Bin Kim:]

Okay. Just wanted to confirm that. And is there any reason why your independent lease in commissions are not a part of what you consider capital expenditures? I know you guys provide a footnote, but why is that accounted for separately?

[Stephen C. Richter:]

It’s all non-cash. It’s built into the overhead.

[Andrew M. Alexander:]

I think it’s just really a nomenclature issue. We just never called it capital expenditures, but we’re giving people the number.

[Ki Bin Kim:]

Okay.

[Stephen C. Richter:]

I think we do consider it as part of capital. We just break it out from the tenant finish and the other things that are more cash, which we thought would have a more clear disclosure in our capital. It is capitalized.

[Ki Bin Kim:]

All right, definitely. Thank you.

[Operator:]

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

[Christopher Lucas:]

Good morning, everyone. Johnny, on the Roswell asset, you talked about how you would swap out an office supply store with a fresh market. Just curious as to what your thoughts are in terms of the cap rate differential between the asset before and after the change?

[Johnny Hendrix:]

Good morning, Chris. I certainly think it’s an improvement. We had an office supply store that was competing actually with another store right down the street and we put in a supermarket that’s going to bring in more people and continue to be a great offering to the community.

[Christopher Lucas:]

And then on the development framework, I guess I was trying to get a sense as to if you think about over the next three years potential starts, how much of the current land inventory – or let me think about it this way. Of the new starts that you might think about, how much do you think would be on the existing land inventory and how do you think has really got to be stuff that you look to acquire?

[Andrew M. Alexander:]

Chris, good morning, it’s Drew. I would say the majority will come from new stuff. As you see the progress that we’ve made in the pipeline on redevelopments and expansions of projects in Sheraton, Colorado, Las Vegas, I think that will continue at sort of similar-ish rates. But I think the majority of it will come from new. We are also as always in some cases working on some sales, in some cases for retail and some cases for other uses. So I think we’ll continue to make progress on the land held as we have in past years. But it is a multiyear effort and I think the majority of new stuff will be new sites.

[Christopher Lucas:]

Great. Thank you.

[Operator:]

From Wells Fargo, we have Tammy Fique on the line. Please go ahead.

[Tamara Fique:]

Hi. Good morning. I was just wondering if you could talk about your plans for the preferred if you have any intentions of calling that this year? And then also if you could talk about the Baybrook redevelopment, what your plans are for that particular asset?

[Andrew M. Alexander:]

Good morning, Tammy. I’ll take the first one on preferred. That’s something we always look at, refinancing opportunities and capital structure and so forth. So I would tell you, sure, it’s on our radar screen but at this point in time we have no – it’s not in the business plan to call the preferred.

[Johnny Hendrix:]

Tammy, this is Johnny and I’m glad you asked the question about Baybrook. The center today has Michaels, Cost Plus, Barnes & Noble, La Madeleine and Jared, good stores for all those folks. We’ve gotten 15 letters of intent that we’re discussing with people today, talking to a couple of different supermarkets and several big boxes. And I will tell you the lack of space in that area is unbelievable and we’ve got something that’s a hot commodity right now in that market, so we’re very excited. If we could move that towards a supermarket-anchored shopping center, that would be our first choice. We don’t know that we can do that and there might be some risks associated with the timing of it. So we’re going to have to analyze that and try to determine how long that would take, how long we’d have to wait and then we’ll make a decision if we just move forward with some other boxes. But it’s going to be a fun, exciting project.

[Tamara Fique:]

And then do you think you’ll have to invest additional capital and I guess if you could just quantify that for us, and then maybe talk about what your stabilized yield expectations are when that’s all finished?

[Johnny Hendrix:]

Yes, we definitely will invest additional capital and I mentioned that. We had a 7% return on the property. That is after all of the additional capital. It really depends on where we end up with a supermarket or without a supermarket and how we combine some of the spaces. It probably would be more in the 6.75 range if we ended up with a supermarket in our return but certainly our NAV would be improved if we did have a supermarket, probably in the 7 range if we end up just doing all boxes.

[Tamara Fique:]

Okay. Thank you. And then just one more. I was wondering if you could give us a sense, Steve, for what you’re expecting for G&A expenses in 2015?

[Stephen C. Richter:]

Sure. I think on a go-forward run rate, 6.5 million to 6.75 million is probably what you should see on a quarterly run rate.

[Tamara Fique:]

Okay, great. Thank you.

[Operator:]

[Operator Instructions]. We do have a follow up from Rich Moore. Please go ahead.

[Rich Moore:]

Hi, guys. A couple quick more questions. The disposition activity you’ve guided to about 150 million, is that sort of the done-done with the transformation or is that something that we should probably expect annually as another hundred or so of dispositions as you guys kind of trim the bottom of a few percent?

[Johnny Hendrix:]

Rich, it’s John again. We’re going to continue to trim along the way 2% to 3%. I think that is going to be an ongoing proposition for us, so I think you could continue to look at that 150 range over a period of time.

[Rich Moore:]

Okay, good. Thanks, Johnny. And then one last thing for you guys. You gave us the guidance in both NAREIT and recurring FFO, so how would you like to see it shown by the analysts? I mean there’s always this debate going on, on how to show it and for consistently, we should all show it the same. Would you rather see the recurring or the NAREIT this year as what we put out there?

[Stephen C. Richter:]

Rich, it’s Steve. I believe that we would prefer as Weingarten recurring only because that’s the way we kind of run the business and that’s the way we monitor ourselves. However, we understand that the noise given the earnings estimates and the way that it gets tracked by the various first call and so forth. And we also understand that it’s not recurring, is not NAREIT generated our guidance. So, look, we’re just out there. We think it makes sense to give both since with all the noise, but I think on a go-forward basis, quite frankly if you exclude debt penalties, the numbers are going to be pretty close.

[Rich Moore:]

Okay, all right, good. Thanks, Steve. I got you.

[Operator:]

We have no further questions at this time. I will now turn it back to Drew for closing remarks.

[Andrew M. Alexander:]

Thank you, Brandon. I want to thank everybody for their interest in Weingarten, we appreciate it. We’ll be around this afternoon if there are any other questions and we’ll also be at a couple of conferences coming up and look forward to seeing many of you there. Thank you so very much.

[Operator:]

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