Drew Alexander, president & CEO, and, Stephen Richter, executive vice president & CFO, are reporting for Weingarten Realty Investors at NAREIT's REIT Week.
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Below are notes from the session.
8:47: Alexander: Occupancy is improving--92.3 percent in retail. Acquisitions, YTD, acquired properties worth $33 million. Looking at our full year guidance see recurring FFO in $1.72 to $1.82 per share. Retail occupancy will be 93 percent by end of year. Acquisitions we are aiming for $175 million, most of which will be by end of year. If we have one concern it is hitting that acquisitions number. ... Amount of product we are seeing is reasonable, but prices are high and cap rates are quite low, so we're choosing to bow out before the final round.
8:48: Alexander: Over the next several years we anticipate selling around $600 million, with activity picking up at the end of this year and into next year.
8:53: Alexander: One of the retail trends we saw at ICSC is a good amount of activity. … We're seeing a lot of (activity from specialty grocers and retailers like Marshalls, Ross, Saks Off 5th, Nordstrom Rack). … In service world, we're seeing activity from uses like cleaners and nail salons and seeing insurance coming back. Tremendous activity in quick-service restaurants. Lot of medical office. … Lot of people taking care of themselves, whether it's a day spa, massage, hair cutting or fitness. Seeing some activity in furniture and some activity in family dining group. And it's always pleasant to us to see the cell phone stores continuing to proliferate. … I think we have most of the problems behind us of giving space back.
8:57: Alexander: (In response to what he saw at ICSC) The general mood was absolutely positive. Frankly, ICSC is not as important to us in 2011 as it was in the late 1970s and early 1980s. Given the size of our company and the national platform, we had a significant number of portfolio review meetings with key retailers. We sometimes do these twice a year or once every nine months. … These give us the opportunity to a … very deep dive in their portfolio and gain an understanding of their expansion plans. … ICSC is more of a high-level touch base meeting. We met with heads of real estate of Walmart, Ross, Target, Safeway, Kroger and probably a few others. It's nice to touch base. … There's an open acknowledgement that they're going to have trouble reaching their store plans. … We're going to see a tipping point in rents where those last few boxes are taken and you have to start looking at new development. All of the big-box folks are aware of that. … As for shop tenants, there are more chains as opposed to moms & pops (at ICSC). People are absolutely looking to open more stores. They have shed their weak and underperforming stores and looking to open from here.
9:01: Alexander: (In response to question of the state of big boxes.) Best Buy is looking to shrink their footprint in a lot of cases. We are looking at that with them. In some cases they are spending money to shrink now and that will help us lease it. … In the office products world, we have leases with all three of the big office products folks. … It's my personal belief that all of those companies remain solvent entities and will honor their contractual obligations. Office Depot represents 1 percent of our NOI. Even if they have problems, it won't be significant to us. … One of the tragedies of the downturn was that there was no debtor-in-possession financing available. That is available today. … It is a little bit of a headwind, but my general attitude is one of cautious, moderated optimism. The economic conditions we are in now and the speed bumps now are substantially better than they were in the late 2008-2009 period. … They are really very manageable.
9:05: Alexander: (In response to questions about the acquisitions climate.) The market is very competitive. We are seeing an improvement in the amount of quality product coming to the market. ... But it's still probably just one-third of the volume we saw in 2006-07. … There's just an ocean of capital out there from a tremendous number of sources. The fiercest competition is from the nontraded REITS. They raise money and place it very aggressively…. It's pretty clear from the ads they are run and how they are oriented in terms of the number of acquisitions people vs. leasing people, that they are aiming for very big volumes. … Some large pension funds with maybe a big asset management fund advisor will buy a supermarket-anchored project, directly hire a brokerage firm and think it's so simple that they can do it without a local partner. That hasn't been our experience. … Occasionally we see our peer REITs. They tend to see their cost of capital like we do, so the ferociousness of their capital is not that great. When they are they are tending to partner with a pension fund, so it's not just their money.
9:07: Alexander: It has always been a second half business. I do think we'll do comfortably more than the $33 million we've done. But we'll be selective. … So I'm not sure we'll get to the huge numbers. … On dispositions, we can sell (lower quality) assets at attractive prices. … It's a distinct possibility that we could be a net seller this year, because that's where we are seeing the opportunity. … It may have short-term dilution effects, but long-term it is the right thing to do.
9:10: Alexander: As the economy is getting better and we have circumstances with a weak anchor and we can recapture a store, we are working a number of things. It's tough to quantify and say that it will be a tremendous amount of money (on redevelopment) in one fiscal year. … We are focused on redevelopment opportunities and think there will be some, but don't think it will be a lot. But the returns when we do will be fabulous.
9:13: Alexander: (In response to questions about mom & pops and inline tenants) Most of mom & pops are service retailers. Their cost-of-goods sold and capital investment is very different. We are definitely seeing improvements. The hole in the bucket is getting smaller. While there are some issues—Blockbuster and others—we're optimistic about improving the occupancy through the rest of the year.
It's absolutely getting better. … Everything I read leads me to believe that it is getting slowly better. I think the majority of tenants—large or small—that went out business did so because their fundamental performance was just not that good. I would think the circumstances from the capitalistic nature of a bank, if you had a line out to a merchant and they were doing pretty good. You might not increase it and let them open a new store, but it would seem pretty rare that you'd pull it and put them out of business. … I think some people got a little out over their skis with too much debt relative to their sales and profits. … As the economy turned down, sales went down and prices went down. … But really across the whole geographic footprint we're seeing very strong improvement.