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Summary

  • WRI is a retail REIT that owns a diversified portfolio of 270 retail properties located in 21 states. The properties are primarily Class A grocery-anchored shopping centers.
  • WRI is one of the oldest and best-managed REITs and its debt is rated BBB by Standard & Poor's.
  • We are recommending the purchase of the stock due to its attractive NAV, excellent management, attractive dividend yield of 4.3% and solid growth prospects.

This REIT Focus from our commercial real estate newsletter, View of the Market, is on Weingarten Realty Investors (NYSE:WRI), a publicly-traded REIT engaged in the ownership, management and development of primarily food/drug anchored shopping centers. WRI owns or operates under long-term leases, either directly or through its interests in real estate joint ventures or partnerships, a total of 270 properties, located in 21 states throughout the country. The properties represent approximately 49.9 million rentable square feet, of which, WRI's interests in these properties aggregated approximately 30.4 million rentable square feet.

Major tenants include Kroger (NYSE:KR) (3.2% of revenues), TJX Companies (NYSE:TJX) (2.4% of revenues), Ross Stores (NASDAQ:ROST) (2% of revenues) and H.E.B (1.5% of revenues). The average occupancy, rent per square foot and yoy rent increase as of 12/31/13 were 94.8%, $15.66 and 6.3%, respectively.

WRI is incorporated in Texas, went public in 1985 and is listed on the NYSE. WRI is based in Houston, TX and its debt is rated Baa2 by Moody's and BBB by Standard & Poor's. WRI has 122 million common shares outstanding and a market capitalization of approximately $3.7 billion.

Management

Stanford Alexander, 85, is Chairman of WRI and serves on the Board of Trustees. Mr. Alexander joined WRI in the early 1950s after completing the executive training program at J. Weingarten, Inc., the family's supermarket chain. Following several promotions in various divisions of the WRI, Mr. Alexander was named President in 1962. In 1997, Mr. Alexander was appointed Chairman and CEO and served as WRI's Chief Executive Officer until December 31, 2000.

Andrew M. Alexander, 57, is President and CEO and graduated from the University of Texas with highest honors, majoring in real estate. Mr. Alexander joined WRI in 1978 as a leasing executive in the retail division where he held various positions. Mr. Alexander was named President in 1997, was appointed as WRI's Chief Executive Officer in 2001 and serves on the Board of WRI.

Steve Richter, 59, is Executive Vice President and Chief Financial Officer of WRI and is responsible for the financial matters, compliance with all securities laws and investor relations.

Financial Data

Select financial data for WRI as of the 12/31/13 10K and supplemental data for the period 1/1-12/31/13 is as follows (in millions where applicable):

Real Estate Assets, Gross$4,412
Total Assets$4,223
Property Debt$2,300
Common Stockholders' Equity$1,378
Revenue$498
Net Income$184
Net Income Per Share$1.52
Cash Flow from Operations$234
Unsecured Revolving Credit Facility ($500 with $2 used)$498
Market Capitalization$3,700
Property Debt to:
Gross Real Estate Assets52%
Market Capitalization62%
Enterprise Value38%
Dividend and Yield ($1.30/sh.)4.3%
Valuation Methodology:
2013 Revenue Per Above$498
Less: 2013 Operating Expenses (excluding depreciation, amortization & interest expense and plus G&A expenses)175
Annualized Net Operating Income 2013$323
Add: NOI from Unconsolidated JV's and Partnerships40
Adjusted NOI for 2013$363
Projected Inflation Rate at 3.5%x103.5%
Projected Forward NOI for Next Year$376
Projected Cap Rate7%
Projected Value of Real Estate Assets$5,371
Add: Unimproved land (26.4M sq. ft. at average value of $15 per sq. ft.)396
Net Operating Working Capital368
Total Projected Asset Value$6,135
Less: Total Debt Per Above(2,300)
Non-controlling Interests(310)
Series F Preferred Stock (at liquidation value)(150)
Projected Net Asset Value3,375
Common Shares Outstanding 126M (122M common stock shares and 4M equity compensation and restricted shares)
Projected NAV Per Share$26.79
Market Price Per Share on 4/15/14$30.32

Financial Metrics

The gross real estate assets, property debt, revenues, net income (loss), funds from operations, return on invested capital and dividends per share for the years 2009 through 2013 are shown in the table below:

(millions except per share amounts)20092010201120122013
Gross Real Estate Assets$4,973$5,125$5,030$4,689$4,412
Property Debt$2,532$2,589$2,532$2,204$2,300
Revenues$440$423$433$457$498
Net Income (Loss)$136$11($20)$109$184
Funds From Operations$205$187$173$222$222
Return on Invested Capital (1)3.1%2.7%2.5%3.9%4.5%
Dividends Per Share$1.28$1.04$1.10$1.16$1.22 (2)

(1) This is the ratio of NOPAT divided by stockholders equity plus property debt, less cash, and measures the return the REIT is earning on its invested capital.

(2) Dividend raised to $.325 per quarter in 2/14.

As shown above, our net asset value per share for WRI is $26.79/sh. versus a market price of $30.32/sh. Current average cap rates for shopping center properties per our industry experience and CBRE's Cap Rate Survey are in the 5% to 8% range, depending on the location, tenancy and quality of the property. We have used an average cap rate of 7% due to WRI's portfolio being primarily in well-located Class A grocery-anchored shopping centers and their excellent management expertise.

Valuation Analysis

WRI's strengths, concerns and recommendations are as follows.

Strengths:

  • Excellent management team.
  • High occupancy of 94.8%.
  • One of the oldest and most stable REITs.
  • Diversified portfolio of retail assets.
  • Low leverage at 38% of enterprise value.
  • YOY rent growth of 6.3%.
  • Attractive dividend yield of 4.2%.

Concerns:

  • Negative gross asset growth of 11.2% since 2009.
  • No growth in FFO from 2012 to 2013.
  • Excessive investment in land assets (26.4M sq. ft.) not earning a cash return.

Recommendations:

We like WRI and think it is one of the best-managed REITs with an attractive retail portfolio and a solid dividend. Even though our NAV is 10% less than the market price, we are recommending the purchase of the stock. In addition to the strengths above, WRI is projecting 8%-15% rent growth in 2014. We would also recommend that WRI liquidate some of its land assets and use the proceeds for additional acquisitions or current property renovations.

A five-year price chart of WRI is shown below:

Source: REIT Focus: Weingarten Realty Investors