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Press Release

Weingarten Realty Reports Strong Same Property Net Operating Income

Company Release - 4/29/2019 5:15 PM ET

HOUSTON--(BUSINESS WIRE)-- Weingarten Realty (NYSE: WRI) announced today the results of its operations for the quarter ended March 31, 2019. The supplemental financial package with additional information can be found on the Company's website under the Investor Relations tab.

First Quarter Operating and Financial Highlights

  • Net income attributable to common shareholders (“Net Income”) for the quarter was $0.39 per diluted share (hereinafter “per share”) compared to $1.13 per share in the same quarter of 2018;
  • Core Funds From Operations Attributable to Common Shareholders ("Core FFO") for the quarter was $0.52 per share compared to $0.57 per share a year ago;
  • Same Property Net Operating Income (“SPNOI”) including redevelopments increased 3.2% over the same quarter of the prior year;
  • Investments in acquisitions of $20.3 million; and
  • Dispositions for the quarter totaled $67 million.

Financial Results

The Company reported Net Income of $49.7 million or $0.39 per share for the first quarter of 2019, as compared to $146.8 million or $1.13 per share for the same period in 2018. This decrease was due primarily to lower gains on sales of properties due to reduced disposition activity during 2019.

Effective this quarter, the Company adopted the new standard issued by the Financial Accounting Standards Board, ASU 2016-02, “Leases.” Among the changes required under this new ASU are the following:

  • Indirect, internally-generated leasing and legal costs are no longer capitalized which resulted in an increase in general and administrative expenses of approximately $2.3 million for the quarter;
  • Real estate taxes paid directly by tenants are no longer included in revenues and expenses in the Company’s consolidated financial statements. Real estate taxes paid directly by tenants totaled $1.2 million during the first quarter of 2018;
  • Ground leases where the Company is the lessee were recorded on the balance sheet and were amortized accordingly to rent expense; and,
  • New guidelines for assessing the collectability of accounts receivable and the related presentation were implemented.

This standard was adopted on a modified retrospective approach; therefore, prior year amounts were not restated. Further details of these issues are included on page 44 of our Supplemental.

Funds From Operations attributable to common shareholders in accordance with the newly revised National Association of Real Estate Investment Trusts definition (“NAREIT FFO”) was $67.3 million or $0.52 per share for the first quarter of 2019 compared to $78.3 million or $0.60 per share for 2018.

Core FFO for the quarter ended March 31, 2019 was the same as NAREIT FFO at $67.3 million or $0.52 per share compared to $74.7 million or $0.57 per share for the same quarter of last year. Key factors that effected this change of $0.05 per share from this year to last year are:

  • Disposition activity of $0.03 per share;
  • Increase of $0.02 per share for indirect leasing and legal costs expensed in accordance with the new leasing standard;
  • Non-cash expense increase of $0.02 per share of compensation expense due to lower valuations of our restricted shares for incentive compensation purposes offset by other reductions in overhead; and,
  • Increased SPNOI and other factors.

Effective this quarter, the Company adopted the updated definition of NAREIT FFO and will exclude gains or losses on the sale of land parcels and securities which were previously not adjusted in NAREIT FFO. Prior period NAREIT FFO amounts have not been restated.

Reconciliations of Net Income to NAREIT FFO and Core FFO are included herein.

Operating Results

For the period ending March 31, 2019, the Company’s operating highlights were as follows:

   

Q1 2019

Occupancy (Signed Basis):    
Occupancy - Total   94.3%
Occupancy - Small Shop Spaces   90.3%
Occupancy - Same Property Portfolio   94.5%
     
Same Property Net Operating Income, with redevelopments   3.2%
     
Rental Rate Growth - Total:   3.7%
New Leases   11.5%
Renewals   2.0%
     
Leasing Transactions:    
Number of New Leases   65
New Leases - Annualized Revenue (in millions)   $4.6
Number of Renewals   145
Renewals - Annualized Revenue (in millions)   $13.4
 

A reconciliation of Net Income to SPNOI is included herein.

“Operationally, we had a solid quarter with strong Same Store results of 3.2%. However, rent growth for the quarter was below the recent norms. Our new leases produced strong increases of 11.5%; however, our renewals averaged only 2%. While shop renewals were a healthy 7%, a few box renewals where the tenant had significant negotiating leverage led to a decrease of 3% for boxes. Looking ahead to the rest of 2019, we expect to produce rent growth in the mid-to-high single digits for the rest of 2019,” said Johnny Hendrix, Executive Vice President and Chief Operating Officer.

Portfolio Activity

During the quarter, the Company purchased Madison Village in Central Phoenix, Arizona at Seventh and Glendale for $20.3 million. The center is anchored by a Safeway that produces extremely strong sales and is located in a densely populated area of Phoenix with 140,000 people within a three-mile radius. With 40,000 square feet of shop space, focused leasing efforts to improve the tenancy should produce strong growth over the next couple of years.

The Company closed $67 million of dispositions with the sale of three shopping centers including Reynolds Crossing and Brookwood Marketplace, both in suburban Atlanta, Georgia and Waterford Village in Leland, North Carolina. The Company also sold one land parcel.

In addition, the Company invested $44 million in new developments and redevelopments during the first quarter. The majority of the investment is in its two projects in the Washington D.C. area and its 30-story residential tower at its River Oaks Shopping Center in Houston.

“We are pleased to begin 2019 with the acquisition of a solid grocery anchored center with outstanding sales and great upside. Our two mixed-use developments in D.C. area are progressing nicely and will be successful, valuable real estate projects and our significantly transformed existing portfolio produced outstanding same property NOI of 3.2%. All of these factors should contribute to solid gains for our shareholders,” said Drew Alexander, Chairman, President and Chief Executive Officer.

Balance Sheet

The Company continues to maintain one of the strongest balance sheets in its sector and proceeds from the Company’s recent dispositions were used to further strengthen its financial position. Net Debt to Core EBITDAre was a strong 5.3 times and Debt to Total Market Capitalization was 31.9% at quarter end.

“Both Moody’s and S&P completed full credit analyses and confirmed our ratings of Baa1/BBB during the first quarter. With the strongest credit metrics we have had in many years, we are poised to take advantage of whatever opportunities may arise. Low leverage provides the flexibility to react quickly as market conditions change,” said Steve Richter, Executive Vice President and Chief Financial Officer.

2019 Guidance

As to earnings guidance, the Company affirms NAREIT FFO and Core FFO per share of a range from $2.09 to $2.17. All of the details of our guidance are included on page 10 of our Supplemental.

Dividends

The Board of Trust Managers declared a quarterly cash dividend of $0.395 per common share payable on June 14, 2019 to shareholders of record on June 7, 2019.

Conference Call Information

The Company also announced that it will host a live webcast of its quarterly conference call on April 30, 2019 at 10:00 a.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 (888) 771-4371 (conference ID # 47857841). 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, 2019, 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 177 properties which are located in 17 states spanning the country from coast to coast. These properties represent approximately 34.6 million square feet of which our interests in these properties aggregated approximately 22.6 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. Reference is made to the Company’s regulatory filings with the Securities and Exchange Commission for 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 represent 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,
2019 2018 (1)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Revenues:
Rentals, net $ 119,826 $ 129,148
Other 3,312   3,304  
Total Revenues 123,138   132,452  
Operating Expenses:
Depreciation and amortization 33,972 38,095
Operating 24,248 23,270
Real estate taxes, net 16,131 17,639
Impairment loss 74
General and administrative 9,581   5,595  
Total Operating Expenses 84,006   84,599  
Other Income (Expense):
Interest expense, net (15,289 ) (14,672 )
Interest and other income (expense) 4,384 1,533
Gain on sale of property 17,787   109,045  
Total Other Income 6,882   95,906  
Income Before Income Taxes and Equity in Earnings of Real Estate Joint Ventures and Partnerships 46,014 143,759
Provision for Income Taxes (177 ) (783 )
Equity in Earnings of Real Estate Joint Ventures and Partnerships, net 5,417   5,993  
Net Income 51,254 148,969

Less: Net Income Attributable to Noncontrolling Interests

(1,588 ) (2,145 )
Net Income Attributable to Common Shareholders -- Basic $ 49,666   $ 146,824  
Net Income Attributable to Common Shareholders -- Diluted $ 49,666   $ 147,352  
Earnings Per Common Share -- Basic $ .39   $ 1.15  
Earnings Per Common Share -- Diluted $ .39   $ 1.13  

______________

(1) Reclassification of prior year's amounts were made to conform to current year presentation.
 
Weingarten Realty Investors
(in thousands)
Financial Statements
   
March 31,
2019
December 31,
2018
(Unaudited) (Audited)
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
Property $ 4,104,795 $ 4,105,068
Accumulated Depreciation (1,118,217 ) (1,108,188 )
Investment in Real Estate Joint Ventures and Partnerships, net 364,165 353,828
Unamortized Lease Costs, net 139,533 142,014
Accrued Rent, Accrued Contract Receivables and Accounts Receivable, net 76,900 97,924
Cash and Cash Equivalents 60,570 65,865
Restricted Deposits and Mortgage Escrows 11,134 10,272
Other, net 198,783   160,178  
Total Assets $ 3,837,663   $ 3,826,961  
 
LIABILITIES AND EQUITY
Debt, net $ 1,788,551 $ 1,794,684
Accounts Payable and Accrued Expenses 79,459 113,175
Other, net 209,219   168,403  
Total Liabilities 2,077,229   2,076,262  
 
Commitments and Contingencies
 
EQUITY
Common Shares of Beneficial Interest 3,903 3,893
Additional Paid-In Capital 1,777,089 1,766,993
Net Income Less Than Accumulated Dividends (187,581 ) (186,431 )
Accumulated Other Comprehensive Loss (10,480 ) (10,549 )
Shareholders' Equity 1,582,931 1,573,906
Noncontrolling Interests 177,503   176,793  
Total Liabilities and Equity $ 3,837,663   $ 3,826,961  
 

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), change in control, 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,
2019   2018
(Unaudited)
Net income attributable to common shareholders $ 49,666   $ 146,824
Depreciation and amortization of real estate 33,743 37,765
Depreciation and amortization of real estate of unconsolidated real estate joint ventures and partnerships 2,952 3,184
Impairment of properties and real estate equity investments 74
(Gain) on sale of property, investment securities and interests in real estate equity investments (18,949 ) (109,038 )
(Gain) on dispositions of unconsolidated real estate joint ventures and partnerships (274 ) (2,363 )
Provision for income taxes (1) 161
Noncontrolling interests and other (2) (489 ) 1,210  
NAREIT FFO – basic (3) 66,723 77,743
Income attributable to operating partnership units 528   528  
NAREIT FFO – diluted (3) 67,251   78,271  
Adjustments to Core FFO:
(Gain) on extinguishment of debt including related swap activity   (3,557 )
Core FFO – diluted $ 67,251   $ 74,714  
 
FFO weighted average shares outstanding – basic 127,756 127,926
Effect of dilutive securities:
Share options and awards 834 781
Operating partnership units 1,432   1,432  
FFO weighted average shares outstanding – diluted 130,022   130,139  
 
NAREIT FFO per common share – basic $ .52   $ .61  
 
NAREIT FFO per common share – diluted $ .52   $ .60  
 
Core FFO per common share – diluted $ .52   $ .57  
 
(1)   The applicable taxes related to gains and impairments of properties.
(2) Related to gains, impairments and depreciation on operating properties and unconsolidated real estate joint ventures, where applicable.
(3) 2019 Nareit FFO is presented in accordance with 2018 Restatement of "Nareit's Funds from Operations White Paper."
 

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, 2019
Beginning of the period 171
Properties added:
New Developments 1
Properties removed:
Dispositions (4 )
End of the period 168  
 

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,
2019   2018
(Unaudited)
Net income attributable to common shareholders $ 49,666 $ 146,824
Add:
Net income attributable to noncontrolling interests 1,588 2,145
Provision for income taxes 177 783
Interest expense, net 15,289 14,672
Property management fees 873 867
Depreciation and amortization 33,972 38,095
Impairment loss 74
General and administrative 9,581 5,595
Other (1) 444 89
Less:
Gain on sale of property (17,787 ) (109,045 )
Equity in earnings of real estate joint ventures and partnership interests, net (5,417 ) (5,993 )
Interest and other income/expense (4,384 ) (1,533 )
Revenue adjustments (2) (3,219 ) (3,932 )
Adjusted income 80,857 88,567
Less: Adjusted income related to consolidated entities not defined as same property and noncontrolling interests 44 (10,511 )
Add: Pro rata share of unconsolidated entities defined as same property 8,308   8,374  
Same Property Net Operating Income 89,209 86,430
Less: Redevelopment Net Operating Income (7,793 ) (7,084 )
Same Property Net Operating Income excluding Redevelopments $ 81,416     $ 79,346  

___________________

(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,
2019   2018
Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre):
Net income $ 51,254 $ 148,969
Interest expense, net (1) 15,289 14,672
Provision for income taxes 177 783
Depreciation and amortization of real estate 33,972 38,095
Impairment loss on operating properties and real estate equity investments 74
Gain on sale of property and investment securities (2) (18,970 ) (109,045 )
EBITDAre adjustments of unconsolidated real estate joint ventures and partnerships, net (3) 3,624   2,488  
Total EBITDAre 85,420   95,962  
Total Core EBITDAre $ 85,420   $ 95,962  
(1)   Includes a $3.8 million gain on extinguishment of debt including related swap activity for the three months ended March 31, 2018.
(2) Includes a $.2 million gain on sale of non-operating assets for the three months ended March 31, 2019.
(3) Includes a $.3 million gain on sale of non-operating assets for the three months ended March 31, 2019 and a $.2 million loss on extinguishment of debt for the three months ended March 31, 2018.
 

Michelle Wiggs, Phone: (713) 866-6050

Source: Weingarten Realty