WRI Weingarten Realty Investors

Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended March 31, 2020. The supplemental financial package with additional information can be found on the Company's website under the Investor Relations tab.

“We had a really solid first quarter from operations, but obviously all of our attention is on the future. Our first priority is the safety and well-being of our associates, tenants, stakeholders and the broader community during these challenging times. We are also very focused on communicating and working with our tenants to get those that are closed safely open at the appropriate time. Getting all of our tenants open and operating in our centers is in everyone’s best interest – the tenant’s, WRI’s and the communities they serve. With a portfolio of primarily grocery-anchored centers providing goods and services to the public, supported by a resilient balance sheet and strong liquidity, we are optimistic our centers will be on the front-end of the recovery curve. Navigating the challenges of this recovery will undoubtedly be a significant task but with a team of talented associates and a great portfolio of properties, we will succeed,” said Drew Alexander, Chairman, President and Chief Executive Officer.

First Quarter Operating and Financial Highlights

• Net income attributable to common shareholders (“Net Income”) for the quarter was $0.41 per diluted share (hereinafter “per share”) compared to $0.39 per share in the same quarter of 2019;

• Core Funds From Operations Attributable to Common Shareholders ("Core FFO") for the quarter was $0.44 per share compared to $0.52 per share a year ago;

• Bad debt expense/uncollectible revenue was $9.0 million related to COVID-19
  • The $9.0 million includes $7.0 million of non-cash straight line rent receivables;

• Net Debt to EBITDA was a strong 6.1x;

• Investments in acquisitions totaled $43 million; and

• Dispositions for the quarter totaled $73 million.

Financial Results

The Company reported Net Income of $52.6 million or $0.41 per share for the first quarter of 2020, as compared to $49.7 million or $0.39 per share for the same period in 2019. This increase was due primarily to higher gains on sales of properties offset by bad debt expense/uncollectible revenue totaling $9.0 million related to the coronavirus pandemic, which includes $7.0 million of non-cash straight-line rent receivables.

Funds From Operations attributable to common shareholders in accordance with the National Association of Real Estate Investment Trusts definition (“NAREIT FFO”) was $56.9 million or $0.44 per share for the first quarter of 2020 compared to $67.3 million or $0.52 per share for 2019. The decrease is primarily due to disposition activity and the bad debt expense/uncollectible revenue. Core FFO for the quarter ended March 31, 2020 was $57.3 million or $0.44 per share compared to $67.3 million or $0.52 per share for the same quarter of last year.

Effective this quarter, the Company changed the allocation of gains and losses on assets held in its deferred compensation plan to better reflect the current expense classification of the employees in the plan. Therefore, all changes to the liability will be recorded in general and administrative expense with no allocation to operating expense. All gains and losses on the assets will continue to be included in Interest and other (expense) income, net. There is no net effect on Net Income, NAREIT FFO or Core FFO.

Reconciliations of Net Income to NAREIT FFO and Core FFO are included at the end of the press release.

Operating Results

For the period ending March 31, 2020, the Company’s operating highlights were as follows:

 

 

 

 

 

 

 

Q1 2020

Occupancy (Signed Basis):

 

 

 

 

Occupancy - Total

 

 

94.5

%

Occupancy - Small Shop Spaces

 

 

90.4

%

Occupancy - Same Property Portfolio

 

 

95.2

%

 

 

 

 

 

Same Property Net Operating Income, with redevelopments

 

 

0.2

%

(Note: Includes COVID-19 impact of $1.9M of bad debt/uncollectible revenue which reduced SPNOI by 2.4%)

 

 

 

 

 

 

 

 

 

Rental Rate Growth - Total:

 

 

9.9

%

New Leases

 

 

14.1

%

Renewals

 

 

9.3

%

 

 

 

 

 

Leasing Transactions:

 

 

 

 

Number of New Leases

 

 

56

 

New Leases - Annualized Revenue (in millions)

 

$

4.4

 

Number of Renewals

 

 

144

 

Renewals - Annualized Revenue (in millions)

 

$

16.9

 

A reconciliation of Net Income to SPNOI is included at the end of the press release.

Portfolio Activity

During the quarter, the Company purchased Village Green Center, a 70,000 square foot center in Wellington, FL. Anchored by a Trader Joe’s with extremely strong sales, this center is adjacent to our Wellington Green Commons center. The Company also purchased Stevens Creek Corner, an 8,000 square foot multi-tenant building adjacent to Stevens Creek Central shopping center in San Jose, CA which was purchased in late 2019.

The Company closed $73 million of dispositions with the sale of three shopping centers in Texas and a center in Aurora, CO.

The Company also invested $29 million in new developments and redevelopments during the first quarter with $18 million of the total invested in its 30-story residential tower at its River Oaks Shopping Center in Houston and $7 million in its two mixed-use developments in the Washington D.C. area.

COVID-19 Update as of May 5, 2020

• 64% of total April 2020 Annualized Base Rent (“ABR”) and recoveries has been paid to date
• 62% of tenants, based on ABR, are designated “essential businesses”
• $501 million cash & cash equivalents currently on balance sheet

The temporary closing of non-essential businesses and the shelter-at-home mandates caused extreme operational and financial hardship for many tenants. The Company’s operations were strong in the first quarter, however, at quarter-end it was clear the severity of the COVID-19 impact was going to cause operational and liquidity issues for many of its tenants. Accordingly, the Company evaluated the collectability of its receivables given these conditions resulting in $9.0 million of bad debt/uncollectible revenue. This additional write-off included straight-line rent receivables of $7.0 million

With respect to April rents, cash collections totaled $24.8 million which is over 60% of the total due. As to May rent collections, several tenants who paid in April have negotiated rent deferrals going forward which will likely temporarily reduce the cash collections over the next couple of months. With several markets within the Company’s geographic footprint beginning to reopen retail operations, the current expectation is that rent collections will trend upward over the final two quarters of 2020 and throughout 2021. As previously announced, the Company has withdrawn its 2020 guidance.

“As to rents still outstanding, our associates are working very hard to obtain commitments from our tenants. Primarily, we are negotiating deferrals only that will generally be payable in the latter half of 2020 and in some cases into 2021. Our results demonstrate the significance of our portfolio transformation which resulted in a substantial upgrade in the credit quality of our tenancy,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.

Additional information can be found on page 41 of our supplemental disclosure.

Balance Sheet, Liquidity and Dividends

The benefit of the Company’s best in class balance sheet has been highlighted by this crisis. Given its low leverage and the absence of any material maturities until the fourth quarter of 2022, the Company believes it has adequate liquidity to restore its properties to their full operating potential. However, these challenging times require a very measured, cautious approach to maintaining adequate liquidity and financial flexibility. Accordingly, the Company has drawn down the remaining $497 million available under its $500 million Revolving Credit Facility during the quarter.

In light of the uncertainties surrounding the pandemic, the Company expects to substantially limit acquisitions and will continue to monitor opportunities to dispose of additional properties. With both of its mixed-use projects in the Washington D.C. at or nearing completion, minimal investment will be required. Construction of the River Oaks residential tower has continued as leasing is scheduled to begin in mid-summer. The Company will carefully evaluate all other capital investment requirements going forward.

The Board of Trust Managers declared a cash dividend of $0.18 per common share payable on June 16, 2020 to shareholders of record on June 8, 2020. As to dividend payments, it is important to understand the Company position with respect to its 2020 dividend obligation. With large gains realized from disposition activities in 2019, the Company was able to eliminate a special dividend in 2019 by making an election to pay those dividends in 2020, as allowed by IRS regulations and disclosed in its Form 10-K. This enabled the Company to not only retain capital for reinvestment but also to shift dividends to 2020, a year in which the Company intended to greatly reduce disposition volumes and the related taxable gains. There is $70 million of dividend obligation remaining in 2020 from this election. The Company does not anticipate an additional dividend obligation from 2020 operations, and therefore has declared a dividend of $.18 per share. This is one third of the $70 million remaining obligation for 2020 and about one half of the previous dividend, consistent with the reduction in cash collections. Currently, the Company anticipates paying the remainder of the $70 million before year-end. The Company believes it will have adequate liquidity to meet these needs. The Company will continue to monitor tenant collections and to evaluate its operations and financial position, adjusting future dividends as appropriate.

In early March, prior to retail closures due to COVID-19 governmental mandates, the Company repurchased 847,309 of its common shares for $18.2 million.

“The significant deleveraging of our balance sheet was an important part of our multi-year transformation strategy. The future remains uncertain, but the strength of our balance sheet and our strong liquidity position will be more than sufficient to maximize the profitability of our portfolio once again. We clearly have the capital to continue to operate the portfolio, complete the new developments, which require little additional capital, and pay the announced dividend. We feel the $0.18 per share dividend was the right balance considering the requirement to make the distributions under the REIT rules versus paying federal income tax on the gains. Assuming we pay the third and fourth quarter dividends at this level or more, we would satisfy the $70 million payout. This is very manageable, especially given our strong liquidity position.” said Steve Richter, Executive Vice President and Chief Financial Officer.

Conference Call Information

The Company also announced that it will host a live webcast of its quarterly conference call on May 8, 2020 at 12:00 p.m. Central Time. The live webcast can be accessed via the Company’s website at www.weingarten.com. Alternatively, if you are not able to access the call on the web, you can listen live by phone by calling (800) 447-0521 (conference ID # 49202483). A replay will be available through the Company’s website starting approximately two hours following the live call.

About Weingarten Realty Investors

Weingarten Realty Investors (NYSE: WRI) is a shopping center owner, manager and developer. At March 31, 2020, the Company owned or operated under long-term leases, either directly or through its interest in real estate joint ventures or partnerships, a total of 167 properties which are located in 16 states spanning the country from coast to coast. These properties represent approximately 31.5 million square feet of which our interests in these properties aggregated approximately 21.3 million square feet of leasable area. To learn more about the Company’s operations and growth strategies, please visit www.weingarten.com.

Forward-Looking Statements

Statements included herein that state the Company’s or Management’s intentions, hopes, beliefs, expectations or predictions of the future are “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995 which by their nature, involve known and unknown risks and uncertainties. The Company’s actual results, performance or achievements could differ materially from those expressed or implied by such statements. These risks and uncertainties include those related to the COVID-19 pandemic, about which there are still many unknowns, including the duration of the pandemic and the extent of its impact, as well as those discussed in the Company’s regulatory filings with the Securities and Exchange Commission, which include other information or factors that may impact the Company’s performance.

Projections involve numerous assumptions such as rental income (including assumptions on percentage rent), interest rates, tenant defaults, occupancy rates, volume and pricing of properties held for disposition, volume and pricing of acquisitions, expenses (including salaries and employee costs), insurance costs and numerous other factors. Not all of these factors are determinable at this time and actual results may vary from the projected results, and may be above or below the ranges indicated. The above ranges represents management’s estimate of results based upon these assumptions as of the date of this press release. Accordingly, there is no assurance that our projections will be realized.

Weingarten Realty Investors

(in thousands, except per share amounts)

Financial Statements

 

Three Months Ended

March 31,

2020

 

 

 

2019

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

Revenues: Rentals, net

$

108,050

 

$

119,826

 

Other

3,302

 

3,312

 

Total Revenues

111,352

 

123,138

 

Operating Expenses: Depreciation and amortization

36,656

 

33,972

 

Operating

23,160

 

24,248

 

Real estate taxes, net

15,008

 

16,131

 

Impairment loss

44

 

74

 

General and administrative

2,307

 

9,581

 

Total Operating Expenses

77,175

 

84,006

 

Other Income (Expense): Interest expense, net

(14,602

)

(15,289

)

Interest and other (expense) income, net

(5,828

)

4,384

 

Gain on sale of property

13,576

 

17,787

 

Total Other (Expense) Income

(6,854

)

6,882

 

Income Before Income Taxes and Equity in Earnings of Real Estate Joint Ventures and Partnerships

27,323

 

46,014

 

Provision for Income Taxes

(172

)

(177

)

Equity in Earnings of Real Estate Joint Ventures and Partnerships, net

27,097

 

5,417

 

Net Income

54,248

 

51,254

 

Less: Net Income Attributable to Noncontrolling Interests

(1,626

)

(1,588

)

Net Income Attributable to Common Shareholders -- Basic

$

52,622

 

$

49,666

 

Net Income Attributable to Common Shareholders -- Diluted

$

53,150

 

$

49,666

 

Earnings Per Common Share -- Basic

$

0.41

 

$

0.39

 

Earnings Per Common Share -- Diluted

$

0.41

 

$

0.39

 

______________

(1)

Reclassification of prior year's amounts were made to conform to current year presentation.

Weingarten Realty Investors

(in thousands)

Financial Statements

 

March 31,

 

 

December 31,

2020

 

 

2019

(Unaudited)

 

 

(Audited)

CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS Property

$

4,205,978

$

4,145,249

Accumulated Depreciation

(1,130,846)

(1,110,675)

Investment in Real Estate Joint Ventures and Partnerships, net

401,641

427,947

Unamortized Lease Costs, net

151,844

148,479

Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net

61,407

83,639

Cash and Cash Equivalents

484,697

41,481

Restricted Deposits and Escrows

30,804

13,810

Other, net

179,263

188,004

Total Assets

$

4,384,788

$

3,937,934

  LIABILITIES AND EQUITY Debt, net

$

2,229,193

$

1,732,338

Accounts Payable and Accrued Expenses

84,212

111,666

Other, net

205,138

217,770

Total Liabilities

2,518,543

2,061,774

  Commitments and Contingencies

—

—

  EQUITY Common Shares of Beneficial Interest

3,890

3,905

Additional Paid-In Capital

1,767,559

1,779,986

Net Income Less Than Accumulated Dividends

(73,317)

(74,293)

Accumulated Other Comprehensive Loss

(11,207)

(11,283)

Shareholders' Equity

1,686,925

1,698,315

Noncontrolling Interests

179,320

177,845

Total Liabilities and Equity

$

4,384,788

$

3,937,934

Non-GAAP Financial Measures

Certain aspects of our key performance indicators are considered non-GAAP financial measures. Management uses these measures along with our Generally Accepted Accounting Principles ("GAAP") financial statements in order to evaluate our operating results. Management believes these additional measures provide users of our financial information additional comparable indicators of our industry, as well as, our performance.

Funds from Operations Attributable to Common Shareholders

Effective January 1, 2019, the National Association of Real Estate Investment Trusts ("NAREIT") defines NAREIT FFO as net income (loss) attributable to common shareholders computed in accordance with GAAP, excluding gains or losses from sales of certain real estate assets (including: depreciable real estate with land, land, development property and securities), changes in control of real estate equity investments, and interests in real estate equity investments and their applicable taxes, plus depreciation and amortization related to real estate and impairment of certain real estate assets and in substance real estate equity investments, including our share of unconsolidated real estate joint ventures and partnerships. The Company calculates NAREIT FFO in a manner consistent with the NAREIT definition.

Management believes NAREIT FFO is a widely recognized measure of REIT operating performance which provides our shareholders with a relevant basis for comparison among other REITs. Management uses NAREIT FFO as a supplemental internal measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income by itself as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that uses historical cost accounting is insufficient by itself. There can be no assurance that NAREIT FFO presented by the Company is comparable to similarly titled measures of other REITs.

The Company also presents Core FFO as an additional supplemental measure as it is more reflective of the core operating performance of our portfolio of properties. Core FFO is defined as NAREIT FFO excluding charges and gains related to non-cash, non-operating assets and other transactions or events that hinder the comparability of operating results. Specific examples of items excluded from Core FFO include, but are not limited to, gains or losses associated with the extinguishment of debt or other liabilities and transactional costs associated with development activities. NAREIT FFO and Core FFO should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. NAREIT FFO and Core FFO do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

 

NAREIT FFO and Core FFO is calculated as follows (in thousands):

 

 

Three Months Ended

March 31,

2020

 

 

2019

 

(Unaudited)

Net income attributable to common shareholders

$

52,622

 

$

49,666

 

Depreciation and amortization of real estate

36,475

 

33,743

 

Depreciation and amortization of real estate of unconsolidated real estate joint ventures and partnerships

3,797

 

2,952

 

Impairment of properties and real estate equity investments

44

 

74

 

(Gain) on sale of property, investment securities and interests in real estate equity investments

(13,574

)

(18,949

)

(Gain) on dispositions of unconsolidated real estate joint ventures and partnerships

(22,372

)

(274

)

Noncontrolling interests and other (1)

(575

)

(489

)

NAREIT FFO – basic

56,417

 

66,723

 

Income attributable to operating partnership units

528

 

528

 

NAREIT FFO – diluted

56,945

 

67,251

 

Adjustments for Core FFO: Contract terminations

340

 

—

Core FFO – diluted

$

57,285

 

$

67,251

 

  FFO weighted average shares outstanding – basic

127,862

 

127,756

 

Effect of dilutive securities: Share options and awards

943

 

834

 

Operating partnership units

1,432

 

1,432

 

FFO weighted average shares outstanding – diluted

130,237

 

130,022

 

  NAREIT FFO per common share – basic

$

.44

 

$

.52

 

  NAREIT FFO per common share – diluted

$

.44

 

$

.52

 

  Core FFO per common share – diluted

$

.44

 

$

.52

 

______________

(1)

Related to gains, impairments and depreciation on operating properties and unconsolidated real estate joint ventures, where applicable.

Same Property Net Operating Income

Management considers SPNOI an important additional financial measure because it reflects only those income and expense items that are incurred at the property level and when compared across periods, reflects the impact on operations from trends in occupancy rates, rental rates and operating costs. The Company calculates this most useful measurement by determining our proportional share of SPNOI from all owned properties, including the Company’s share of SPNOI from unconsolidated joint ventures and partnerships, which cannot be readily determined under GAAP measurements and presentation. Although SPNOI (see page 1 of the supplemental disclosure regarding this presentation and limitations thereof) is a widely used measure among REITs, there can be no assurance that SPNOI presented by the Company is comparable to similarly titled measures of other REITs. Additionally, the Company does not control these unconsolidated joint ventures and partnerships, and the assets, liabilities, revenues or expenses of these joint ventures and partnerships, as presented, do not represent its legal claim to such items.

Properties are included in the SPNOI calculation if they are owned and operated for the entirety of the most recent two fiscal year periods, except for properties for which significant redevelopment or expansion occurred during either of the periods presented, and properties that have been sold. While there is judgment surrounding changes in designations, management moves new development and redevelopment properties once they have stabilized, which is typically upon attainment of 90% occupancy. A rollforward of the properties included in the Company’s same property designation is as follows:

Three Months Ended March 31, 2020 Beginning of the period

155

 

Properties removed: Redevelopments

(2

)

Dispositions

(4

)

End of the period

149

 

 

We calculate SPNOI using net income attributable to common shareholders excluding net income attributable to noncontrolling interests, other income (expense), income taxes and equity in earnings of real estate joint ventures and partnerships. Additionally to reconcile to SPNOI, we exclude the effects of property management fees, certain non-cash revenues and expenses such as straight-line rental revenue and the related reversal of such amounts upon early lease termination, depreciation and amortization, impairment losses, general and administrative expenses and other items such as lease cancellation income, environmental abatement costs, demolition expenses and lease termination fees. Consistent with the capital treatment of such costs under GAAP, tenant improvements, leasing commissions and other direct leasing costs are excluded from SPNOI. A reconciliation of net income attributable to common shareholders to SPNOI is as follows (in thousands):

Three Months Ended

March 31,

2020

 

 

 

2019

 

(Unaudited)

Net income attributable to common shareholders

$

52,622

 

$

49,666

 

Add: Net income attributable to noncontrolling interests

1,626

 

1,588

 

Provision for income taxes

172

 

177

 

Interest expense, net

14,602

 

15,289

 

Property management fees

1,078

 

873

 

Depreciation and amortization

36,656

 

33,972

 

Impairment loss

44

 

74

 

General and administrative

2,307

 

9,581

 

Other (1)

88

 

444

 

Less: Gain on sale of property

(13,576

)

(17,787

)

Equity in earnings of real estate joint ventures and partnership interests, net

(27,097

)

(5,417

)

Interest and other expense (income), net

5,828

 

(4,384

)

Revenue adjustments (2)

3,125

 

(3,219

)

Adjusted income

77,475

 

80,857

 

Less: Adjusted income related to consolidated entities not defined as same property and noncontrolling interests

(4,772

)

(7,674

)

Add: Pro rata share of unconsolidated entities defined as same property

7,756

 

7,122

 

Same Property Net Operating Income

$

80,459

 

$

80,305

 

______________

(1)

Other includes items such as environmental abatement costs, demolition expenses and lease termination fees.

(2)

Revenue adjustments consist primarily of straight-line rentals, lease cancellation income and fee income primarily from real estate joint ventures and partnerships.

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate

NAREIT defines EBITDAre as net income computed in accordance with GAAP, plus interest expense, income tax expense (benefit), depreciation and amortization and impairment of depreciable real estate and in substance real estate equity investments; plus or minus gains or losses from sales of certain real estate assets and interests in real estate equity investments; and adjustments to reflect our share of unconsolidated real estate joint ventures and partnerships for these items. The Company calculates EBITDAre in a manner consistent with the NAREIT definition.

As mentioned above, NAREIT FFO is a widely recognized measure of REIT operating performance which provides our shareholders with a relevant basis for comparing earnings performance among other REITs based upon the unique capital structure of each REIT. However as a basis of comparability that is independent of a company's capital structure, management believes that since EBITDA is a widely known and understood measure of performance, EBITDAre will represent an additional supplemental non-GAAP performance measure that will provide investors with a relevant basis for comparing REITs. There can be no assurance that EBITDAre as presented by the Company is comparable to similarly titled measures of other REITs.

The Company also presents Core EBITDAre as an additional supplemental measure as it is more reflective of the core operating performance of our portfolio of properties. Core EBITDAre is defined as NAREIT EBITDAre excluding charges and gains related to non-cash and non-operating transactions and other events that hinder the comparability of operating results. Specific examples of items excluded from Core EBITDAre include, but are not limited to, gains or losses associated with the extinguishment of debt or other liabilities, and transactional costs associated with development activities. EBITDAre and Core EBITDAre should not be considered as alternatives to net income or other measurements under GAAP as indicators of operating performance or to cash flows from operating, investing or financing activities as measures of liquidity. EBITDAre and Core EBITDAre do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

EBITDAre and Core EBITDAre is calculated as follows (in thousands):

Three Months Ended

March 31,

2020

 

 

2019

 

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre): Net income

$

54,248

 

$

51,254

 

Interest expense, net

14,602

 

15,289

 

Provision for income taxes

172

 

177

 

Depreciation and amortization of real estate

36,656

 

33,972

 

Impairment loss on operating properties and real estate equity investments

44

 

74

 

Gain on sale of property and investment securities (1)

(13,574

)

(18,970

)

EBITDAre adjustments of unconsolidated real estate joint ventures and partnerships, net (2)

(17,637

)

3,624

 

Total EBITDAre

74,511

 

85,420

 

Adjustments for Core EBITDAre: Contract terminations

340

 

—

Total Core EBITDAre

$

74,851

 

$

85,420

 

______________

(1)

Includes a $.2 million gain on sale of non-operating assets for the three months ended March 31, 2019.

(2)

Includes a $22.4 million gain on sale of property for the three months ended March 31, 2020 and a $.3 million gain on sale of non-operating assets for the three months ended March 31, 2019.

 

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Information: Michelle Wiggs, Phone: (713) 866-6050