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Weingarten Realty Investors (NYSE:WRI)

Q1 2014 Earnings Conference Call

April 25, 2014 11:00 AM ET

Executives

Michelle Wiggs - VP, IR

Andrew Alexander - President and CEO

Stephen Richter - EVP and CFO

Johnny Hendrix - EVP and COO

Analysts

Jay Carlington - Green Street Advisors

Katy McConnell - Citigroup

Juan Sanabria - Bank of America Merrill Lynch

Jonathan Pong - Robert W. Baird

Tamara Fique - Wells Fargo Securities

Ki Bin Kim - SunTrust Robinson Humphrey

Richard Moore - RBC Capital Markets

Jeremy Metz - UBS

Nathan Isbee - Stifel Nicolaus

Christopher Lucas - Capital One Securities

Operator

Good morning, and welcome to the Weingarten Realty First Quarter 2014 Conference. 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 the call over to Michelle Wiggs. Michelle, you may begin.

Michelle Wiggs

Good morning and welcome to our first 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 website.

I would also like to request, that callers observe a two question limit during the Q&A portion of our call, in order to just give everyone a chance to participate. If you have additional questions, please rejoin the queue.

I will now turn the call over to Drew Alexander.

Andrew Alexander

Thank you, Michelle, and thanks to all of you for joining us. We are very pleased to report another good quarter. Our portfolio transformation contributed to very good same property NOI number, driven by a nice year-over-year increase in commenced occupancy. Our transformation is progressing as planned, with a solid quarter of disposition activity. We'd like to have redeployed some of our disposition proceeds into high quality shopping centers, but the acquisition market remains incredibly competitive, and we remain resolutely disciplined.

We continue to simplify and provide additional transparency to our balance sheet, with the repayment of significant debt maturities, and the unwinding of our Hines joint venture in the quarter. So we again made good progress on our focused strategy of transforming the portfolio, improving operations and maintaining a strong balance sheet.

Switching briefly to our new development efforts, our hilltop development in D.C. continues to progress nicely, with Wegmans scheduled to open in the first half of 2015.

As we mentioned last quarter, we stabilized our Tomball development effective January 1, moving it into our operating portfolio. Our Wake Forest Crossing deal in Raleigh, which is about $15 million project, is moving right along and we should buy the land soon. We continue to work through the preliminary planning at the Walter Reid development with our development partners. As we pointed out, the timing is certainly multi-year, and the retail part of this project, which WRI is doing, will be approximately 250,000 square feet, and represent an investment of $80 million to $100 million.

Bigger picture, the development market remains very tough, with high land prices and the tenant's unwillingness to pay the rents that would be required for most deals to make sense. However, we think we may be seeing an ever so slight thaw. We certainly are seeing more interest from retailers in talking new development, as we prepare for ICSC RECon. As such, we continue to look at a variety of opportunities, and have made a modest increase in our pipeline of potential deals.

I will now turn the call over to Steve, to discuss our financial results.

Stephen Richter

Thanks Drew. I am happy to report that WRI turned in another solid quarter.

Recurring FFO was $0.49 per diluted share for the quarter, up from $0.48 in the first quarter last year. FFO for the quarter benefited from the improved commenced occupancy, which increased by 160 basis points from the same quarter of the prior year, and the impact of our prior year acquisitions. Recurring FFO also benefited from the redemption of our preferred D and preferred F shares during the first half of 2013, as well as the favorable impact of our ongoing refinancing of debt maturities.

Offsetting these increases was the dilutive effect of our disposition program in 2013 and 2014, which cost us $0.03 per share in FFO, compared to the first quarter of 2013.

Reported FFO for the first quarter decreased to $0.51 per share from $0.53 per share in 2013. Included in the reported FFO for 2013 was a benefit from the write-off of an above market mortgage intangible, from the early pay off of debt of $0.07 per share, offset by non-cash redemption costs of preferred shares of $0.02 per share.

Turning to the balance sheet; we reduced our total debt outstanding by over $200 million from year end 2013. As we communicated last quarter, our $250 million bond offering in October, effectively pre-funded the majority of our $315 million of our first quarter 2014 debt maturities. With the repayment of the $315 million, we now have less than $50 million maturing in the remainder of 2014.

At quarter end, the company's net debt to EBITDA was 5.81 times and net debt plus preferred to EBITDA, which many of us agree is a more important measure of leverage, was a strong 6.22 times. With repayment of the first quarter debt maturities, a rise in our common share price and the repayment of debt with our first quarter disposition proceeds, debt-to-total market cap decreased to 35.2% from 39.4% at year end.

Another transaction which further simplified our balance sheet, was the dissolution in January of our consolidated joint venture with the Hines REIT, where the company owned a 30% interest in 13 properties. The transaction was completed through the joint venture's distribution of five properties to WRI and eight properties to Hines. We will continue to lease and manage the properties owned by Hines.

As to guidance, we reaffirm the guidance we provided at year end, and all the details are included on page nine of the supplemental. It’s a little too early to adjust our full year guidance on acquisitions, but as Drew already mentioned, that part of our business remains extremely challenging.

Johnny?

Johnny Hendrix

Thanks Steve. Overall, we are extremely pleased with the results we continue to produce. Even in an environment where retail sales have been pretty anemic, and the overall economy has been slow to improve, our centers, anchored primarily by supermarkets and discount clothing stores, continue to produce great sales.

At the end of the quarter, our supermarkets averaged sales of $554 per square foot. This volume results in about 70,000 customer visits every month, a great benefit to our shop tenants, restaurants, service tenants and retail stores, giving them exposure to the most desirable customers in our markets.

This quarter's 3.3% increase in same property NOI marks our ninth consecutive quarter in excess of 2.8%, and is an average of over 4% since January of 2012. Most of the growth in same property NOI this quarter was a direct result of close to a 3% rise in base rent. Most of that rent increase came from the commencement of new leases over the last half of 2013, and built in steps from existing tenants.

Signed occupancy was down a little over the last quarter, but that's pretty normal following Christmas. 94.5%, at still 80 basis points over a year ago, and importantly, our commenced occupancy remained consistent with last quarter at 92.8%. Regionally, our three largest markets are in great shape. Occupancy in Texas is 95.2%, Florida is 95.3%, and California is almost 97%.

During the quarter, we leased 102 new spaces for $5.6 million of annual rent. On the surface, this is less than we leased last year by about $1 million in annual rent, but virtually, all the difference is from box leasing. We only leased two boxes during the quarter, compared to nine a year ago.

We are over 98% leased for spaces over 10,000 square feet today, so it’s natural, leasing in this category will slow. The spaces we leased under 10,000 square feet had annual rent of $5.1 million, which was the same as a year ago, so it feels like we are on about the same trajectory as last year.

The mix of new leases is about the same as we have seen over the last couple of years, mostly national and regional operators, with very few local tenants. Restaurants led by fast casual operators like Chipotle; health and beauty like Sally Beauty and Vitamin Shop; medical like Pacific Dental and discount apparel like Rainbow.

Renewals continue to be a bright spot. We signed 204 renewals for $13.4 million in annual rent in the first quarter. As of the quarter end, we renewed 71% of our leases expiring in 2014.

Rent growth was slightly below the range we indicated for our guidance, but this can be driven by one or two leases. As [indiscernible] will end the year between 8% and 15%. Over 80% of the leases we signed this quarter had positive rent growth. We continue to see this number rise over time, so we expect overall improvement through 2014.

The company is closely monitoring the progress of the proposed Cerberus' acquisition of Safeway. Safeway is our fourth largest tenant, occupying 17 locations. We have six Cerberus locations and the combined company would be our fourth largest tenant, with about 2% of our revenue.

We continue to successfully execute our capital recycling program. We sold three shopping centers and two vacant pads this quarter for $79 million. These centers sold for an average cap rate of 7.2%. We currently have $107 million under contract or letter of intent, and we are marketing an additional $200 million of non-core assets. We are seeing good demand for these assets.

The acquisition side of the recycling equation has been very competitive. While we didn't acquire any property in the first quarter, we currently have under contract or letter of intent, $42 million of pro rata investment, and we have several offers pending. The really good assets we want are in great demand, and we have seen cap rates fall on core assets, about 25 basis points over the last six months, to a range of 5% to 6%.

Importantly, we are going to stay disciplined, maintaining our underwriting standards and only buying high quality assets that are accretive to our shareholders. We continue to focus on finding value in our existing portfolio through redevelopments. We define our redevelopment as a location where we are adding square footage, either through new construction or expansion of an existing space.

We have added new disclosure on Page 14 of the supplemental to show locations where we have active redevelopment projects. We are currently investing $40 million on nine projects, and expect to begin work on another 14 projects, spending some $40 million over the next year or so. Returns vary, but generally, we are expecting an average of around 12%. That's a great return, as the risk associated with these investments, is generally minimal.

Again, this was a good quarter for us, in a pretty slow economic environment. Same property NOI continued strong, leasing is consistent and we are continuing to execute our recycling initiative. Drew?

Andrew Alexander

Thanks Johnny. It was a good quarter. We continue to produce good operating results, because our transformation is working. The competitive for acquisitions has made it difficult to find great new properties, but the same frothy market, has also provided us with a great opportunity to dispose off our remaining non-core assets.

Our balance sheet is greatly improved, which positions us to take advantage of any investment opportunities that might arise and its supported by a well balanced maturity schedule.

All in all, Weingarten is well ahead in executing the five year strategic plan we outlined at our Investor Day in April of 2011. This has dramatically improved the NAV of the company. This plan includes the transformation of the portfolio, significantly improving the quality of the properties, improving operations through releasing the portfolio to fill occupancy, and strengthening the balance sheet through deleveraging, and improving our maturity schedule.

I am proud of our team and all of our accomplishments. 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 now be very happy to take questions.

Question-and-Answer Session

Operator

Thank you, sir. And we will now begin the question-and-answer session. (Operator Instructions) And from Green Street Advisors, we have Jay Carlington online. Please go ahead.

Jay Carlington - Green Street Advisors

Hey great. Thanks. So just on your Q1 renewal spreads, ticked up a little, 7.8 this quarter. Was there any one-off leases that kind of pushed that a little bit above trend?

Johnny Hendrix

Jay, this is Johnny, good morning. No, I think the strength in our renewals is pretty well across the board, and it's clearly the piece that we are most excited about, and where we have the most leverage today. Obviously, in terms of the space that we have available, the best space is already leased, and again those A, A plus centers are really where we have the most leverage today, we are being able to really push rents there.

Jay Carlington - Green Street Advisors

So when those renewals are coming up, I was kind of surprised there weren't any TIs there. Are tenants not asking for kind of above average packages there?

Johnny Hendrix

Jay, I think it's pretty normal for us, not to have any capital associated with renewals. It's an unusual situation, I would say. If we have 100 renewals, there might be two or three, where we are putting some capital into those.

Jay Carlington - Green Street Advisors

Okay. And I guess my second question, just on the dispositions and the 7.2% cap rate, it looks like that's kind of trending below that, mid to high 7% range you suggested. So is that where you're kind of looking for that next $300 million in the pipeline?

Johnny Hendrix

It's certainly unclear to me exactly where we will end up. I think today, the 8%, 7.75% is probably a good range. Some of it will depend on the mix of assets that we sell. We won't sell all of the assets that are on the market today. So the mix will just depend. But it's honestly better than we had thought it would be and make the demand in this -- B product, non-core, some tertiary markets, is really good. We are seeing more buyers than we have, over the last couple of years, and that's really helping us.

Jay Carlington - Green Street Advisors

Okay. Thank you.

Operator

From Citi, we have Christy McElroy online. Please go ahead.

Katy McConnell - Citigroup

Good morning. This is Katy McConnell on for Christy. Can you talk a little bit about the drivers of this 6.4% same store expense growth in 1Q, and how do you expect this to trend for the balance of the year?

Stephen Richter

Yeah, this is Steve. Good morning. If you look on page 26 of the supplemental, we obviously detail out the same property NOI there between, and if you look at the ratios, Katy, you can see that from 14 to 13 or exactly 73.5. We did have some unusual expenses. We had about $400,000 of incremental snow removal, but that was all recovered. We also had about $0.5 million of increased property taxes, but again, it was also covered. So it doesn't fall on the bottom line, but there is probably may be $1 million or so that I would call unusual in there. But again, that was basically recovered.

Katy McConnell - Citigroup

Okay, great. Thanks.

Operator

From Bank of America, we have Juan Sanabria online. Please go ahead.

Juan Sanabria - Bank of America Merrill Lynch

Hi. Good morning. Just wondering if you could comment a little bit on what's driving the difference, if I look at occupancy between your anchor and small shop space on a year-over-year basis. The anchor space had a significant increase, I think it’s like 120 basis points relative to the small shops which is plus 10, and if that's sort of a read-through that may be the mom and pop demand has just not really returned, post the recession. I am not sure if it’s lack of availability of credit or what else your thoughts may be?

Johnny Hendrix

Hey Juan. I think that retailer demand has been pretty consistent over the last few years, and most of the difference that we are seeing in terms of occupancy today is more related to the supply available, than the demand as so much. There is not very much box space available in the markets that we are in, not only in our portfolio, but generally across the board. There is more shop space available, mostly because you just haven't had this return of the local mom and pop tenant. Almost all of the business we are doing in terms of new business today, is really associated with regional and national operators and franchisees; and I really think that's where you're seeing kind of the combination of those things, is where the difference is clearly, and we are very focused on leasing the shop space. It is the major initiative we have in our leasing department, and I think we are doing a good job on that, and I think over time, we will continue to improve that.

Juan Sanabria - Bank of America Merrill Lynch

Great, thanks. And just a quick follow-up on your development side, on West Seattle. Any updates there? I know there were some issues with the unions and their views on Whole Foods, and if there is any change to how we should be thinking about the economics or the timing of that development?

Andrew Alexander

Good morning Juan, it's Drew. We continue to make progress and have received affirmative votes at all the various committees and city councils etcetera. So good progress. There is still the opportunity for folks to appeal, so the exact timing of construction is still a little murky, but we continue to receive those positive votes and I am cautiously optimistic that we will get there, and it will be fantastic development for us.

Juan Sanabria - Bank of America Merrill Lynch

Great. Thank you very much.

Operator

From Robert W. Baird, we have Jonathan Pong online. Please go ahead.

Jonathan Pong - Robert W. Baird

Hey, good morning guys. Drew, wanted to dig in a little more on your comments on development environment, maybe picking up a little bit. Is that something you're seeing across each of your regions, or is that something more in your core Texas markets, where it seems like residential development has gotten most of the [inaudible] dollars thus far?

Andrew Alexander

Good morning Jonathan. I would say, we are seeing and I want to be clear and I tried to articulate this in my prepared remarks, and I will try to do so again. What we are seeing is certainly positive, but it's an increase in the discussion. We are not seeing tenants rushing to sign lease at rents that make a lot of new development possible. So while it is a move in the right direction, it's very much a trickle, not the opening of a floodgate. So our preliminary pipeline of deals that we are engaged on and talking about is longer, but it's certainly premature to say that we’ll be actively under construction of the lot, any time soon.

It is something that we are seeing opportunities across the entire footprint, from Seattle, Washington, where we are working on some other deals, in addition to the West Seattle deal I just spoke about, to Washington D.C., including California, Colorado, Texas, Florida, Atlanta, North Carolina, up into Washington etcetera, basically our whole footprint.

As you said in your question, as we have talked about in New York, while we love Houston and we love other parts of Texas, it can be extremely competitive here for the sites that we want to buy, oftentimes very -- retail just can't afford it, competing with residential, especially the multifamily players who are building typically a five storey product, that covers almost the entire site.

So that's great for the existing portfolio, that's helping Johnny fill up the shop space, that's helping our occupancy, that's helping our rent growth, and we do see the ever so slightest improvement and are talking about developments. Looking forward to a good conversation with more tenants at RECon in a few weeks. But we don't see the floodgates opening with a lot of under-construction, over the remaining quarters of the year. So hopefully that clarifies and gives folks the color on that.

Jonathan Pong - Robert W. Baird

That's helpful. Thanks Drew, and quick follow-up question on dispositions. You took out the two pad sites that you sold, what would that cap rate have been for the other three?

Stephen Richter

Hey Jonathan. We don't include the pad size that are not producing income in the cap rate.

Jonathan Pong - Robert W. Baird

Got it. Thanks guys.

Operator

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

Tamara Fique - Wells Fargo Securities

Good morning. I was just curious, that first quarter NOI growth was towards the higher end of the range you provided for the year. What if anything are you seeing on the horizon that could be a drag on growth, as you continue through the year. And I guess, as we sort of think about the 2.5% at the low end, are you getting more comfortable, as that level of growth is off the table at this point?

Stephen Richter

Good morning Tammy. We are certainly feeling positive about the overall guidance, 2.5% to 3.5%, and certainly the first quarter was fantastic. Some of what we think we have seen is, may be some store closings that moved from the first quarter to the second quarter and so you might have some drag on that. But I feel good about the guidance that we have. I am certainly not in a position to increase that, and -- generally, it is a very positive quarter and I don't see anything looming on the horizon, that would be negative, and pretty much have leased all the space that will be impactful for this year, in terms of same property NOI. So I think we are probably pretty close.

Tamara Fique - Wells Fargo Securities

Okay. And then just -- again you discussed the acquisition environment remains very competitive and talked about cap rates being down about 25 basis points. Can you provide some detail on the pipeline of acquisition opportunities that you have under contract today, in terms of what markets and where you are finding the better opportunities, and at what cap rates? And then maybe for the deals that you are losing, what is the gap [indiscernible] between your bid and the winning bid.

Andrew Alexander

Good morning Tammy, it's Drew. As Johnny mentioned, cap rates have really come down, and I would say that increasingly on the quality of properties that we want in most of our markets, the Californias, the Floridas, the Washingtons, certainly, you're looking at cap rates that are over five, or in some cases even the high fours. So as we look at our cost of capital and where we think we need to be over time, it’s a pretty significant gap, could be 50, even 60, 75 basis points.

So, we continue to work across the major metropolitan areas in the 12 states that we are focused on, and as we said before, it's about 25 different markets, depending how you score it. We got our boots in the ground, we see everything that comes to market, and we are very comfortable that we are making the right decision. So there is no place that's particularly easy. We do have some things working, that we are optimistic about in various parts of our geography. But is all about finding the opportunities where we perceived it a little bit better than the rest of the market. We think we can do something with it to improve it. We would be very comfortable reducing our leverage a little bit more, and as I mentioned, are going to remain very disciplined. But if we combined good opportunities with good upside, that are going to contribute to continued great same property NOI numbers like we've had for the last several quarters, we are happy to move forward too.

So we are seeing some opportunities, but it is very competitive.

Tamara Fique - Wells Fargo Securities

Great. Thank you very much.

Operator

From SunTrust, we have Ki Bin Kim online. Please go ahead.

Ki Bin Kim - SunTrust Robinson Humphrey

Thank you. Just a couple of quick questions here. I know the gap between signed and commenced never fully closes. But some of the small shop or the non-anchor portion, if you lease up the -- I would guess may be slightly under 300 basis points of occupants you already signed, what would that translate to, in terms of dollars?

Stephen Richter

Hey Ki Bin, I don't have that in front of me right now, but did you have another question, I will get back while you're asking it.

Ki Bin Kim - SunTrust Robinson Humphrey

So when I look at your expiration schedule, it seems like a lot of your leases have options, which is not atypical. But I was wondering if you could provide some more details around, what are the typical options to a tenant? Is it kind of CPI based, is it -- I guess, it can't be renegotiated, because that's not a real option, is there a fixed increase. Just wanted to get a sense of, if the market does really get a lot better, duty of options inherently caps your growth rate, because tenants would typically tend to renew, and what would that look like?

Andrew Alexander

Yes, it really does vary across the board. Clearly, the national and anchored tenants have set option rates that generally are going to be 10% or so increases, and the local tenants have generally option rates that will be 10% to 15% increases, but they are also getting annual increases about 8%. Then probably 13% of the mom and pops or the local tenants have options at market, and certainly going forward, we have done a lot more of those. So I think you will be able to capitalize, over a period of time, on a shops basis.

Just to go back and answer your other question, there is about $10 million of annualized rent in that category.

Ki Bin Kim - SunTrust Robinson Humphrey

Okay. And just sticking with that last question, do you know that looks like if you average that out. Like what percent of your tenants, non-anchor tenants have at-market options, versus what percent have it at a fixed rate, and what that fixed rate average is ought to be?

Stephen Richter

Hey, I can get back with you on that later. I am guessing, and my range would probably be pretty close. Probably around 35% at market, and in the balance of the fixed rate.

Ki Bin Kim - SunTrust Robinson Humphrey

Okay. Thank you.

Operator

From RBC Capital Markets we have Rich Moore online. Please go ahead.

Richard Moore - RBC Capital Markets

Hi. Good morning guys. Staying with that last question by keeping on the lease versus commenced. Both anchors and small shops have hit sort of a low point in terms of that spread, between lease versus commenced. Can we safely assume that that's probably as low as that spread is going to get for both anchors and small shops?

Johnny Hendrix

Rich, I think that it is. We have been sitting at over 200 for a couple of years. You've have leasing velocity at a maximum level, and we had enough vacancy that we were really leasing a lot of space, and kind of getting some of boxes open, takes a little bit longer. So you tend to have that category be higher. But I think 170 basis points today is pretty low, and certainly if you look back over a longer period of time, 200 basis points is closer to normal.

Richard Moore - RBC Capital Markets

Okay. Thanks Johnny. And then, could you give us a little color on the bankruptcy scene that you guys are seeing in the first quarter, and as we move into the second quarter and may be with the outlook for bad debt and the provision for credit loss that you've had before, what that looks like going forward?

Johnny Hendrix

Sure Rich. I would tell you that we haven't seen anything that is substantial, that has been unexpected. Obviously Dots filed for bankruptcy, Ashley filed for bankruptcy. Combined, that stores are around $1 million in base rent, 16 stores. All of that is built into all of our forecast. So we feel pretty good about it. I know there has been some discussion about store closings, which for us, is really not going to be very impactful. On a macro level, obviously we will put some more property in the market, but frankly, the supply is so limited today, that I don't think its going to be significantly be significant.

Richard Moore - RBC Capital Markets

Okay. And if I could just follow-up real quick on that, if you don't have any new spaces coming, either from bankruptcies or development, what happens when a Kroger or TJX or Ross, one of your big tenants, wants to open stores? I mean do you guys just sort of say, sorry, we don't have anything, and then sort of go away?

Johnny Hendrix

That's certainly the sort of discussions that we are having, and I will tell you that increasingly, folks are being more flexible on the frontage and the depth and the size of the stores that they are willing to take. And I think you will have to continue to see that over time, when you're trying to lease spacing great locations. One of the things that we have not participated in, but certainly the retailers continue to look at tertiary markets, to meet their overall growth demands.

Richard Moore - RBC Capital Markets

Okay. Thank you, guys.

Andrew Alexander

Hey Rich, it's Drew. I'd just add that, that's part of why we are having increased conversations about new development, because we would certainly talk to them. Its just a question of, right now in most cases, we still need a rent that they are not quite willing to sign on the dotted line for. But they are willing to talk about it, whereas six months, 12 months ago, they weren't even willing to talk about it.

Richard Moore - RBC Capital Markets

That's a good point. Thank you, Drew.

Operator

From UBS we have Jeremy Metz online. Please go ahead.

Jeremy Metz - UBS

Hey, good morning out there. Quick one or two on development. Hill Top Village, you said it was going pretty well, but it looks like the costs went up, and your yields are down 20 basis points. Just a little color on what happened there?

Andrew Alexander

A lot of it is just things moving around, little bit of soil conditions that we spend a little extra money on a little bit, longer with Wegmans being a little bit slower. So its nothing material. We have debated internally, we still got a reasonable kitty in our contingency. The project is quite strong, the remaining space, I think we can push rent. So its still a wonderful project. While your observation is accurate, the return slipped a little bit for its quality of property, it is still well in excess of what we green light a new project on today, when you think about what the exit cap rate would be for a Wegmans center on a ground lease, in the Washington D.C. area. It's a great project and to be over eight on a project, it probably sell what Johnny, at five? And we have said before, that 200 basis point spread is great, if you have enough pre-leasing. A 150 basis point spread could be good. So here we are at over 300, while you're right, it slipped, its still a great deal. A lot more like it.

Jeremy Metz - UBS

Yeah, don't disagree. And just, I mean, that's actually a good segue. Just thinking a little more broadly, if you could talk about the IRRs, [indiscernible] and development. I mean clearly the 12% initial investment yields you quoted on the -- I believe 2014, you are thinking about starting in the next year, that sounds good. But just wondering how those projects look like from a -- more of an IRR perspective when you factor the time it takes to get there?

Andrew Alexander

Well those are of course redevelopment projects, and that's where we would move forward with redevelopment projects at a lower return threshold certainly. But most or many of the redevelopments that are exposed to, are doing -- building expansions, where we are adding either a multi-tenant building in the front, or wing of shops in the side or building a tenant back. I am not really sure an IRR calculation is the best way to look at it, because what we have invested for a tremendous amount, is just our own time in working on all the government restrictions etcetera. So its not like one would think of it in a classic partnership, private equity that I have drawn down the funds, and that's when the meter starts running for IRR.

So on the redevelopments, its really about our time that it can take years to sort of tee these things up, that's where its mentioned in the supplemental, in addition to the projects we are working actively on building, there are some 74 other projects that we are trying to line up leases. So the comment on the 12 was about redevelopment.

As to new development, again, we are really more focused on that spread to the exit cap rate, and we think the right number is 150 to 200 basis points. So when you are talking about a project, our Wake Forest project in Raleigh, that's a better return for us; and as I mentioned, it looks like that project will go forward. A Seattle project, a Walter Reed project, those projects will be lower. So we are encouraged by the increased conversation on new development, but it will be a very gradual and a time consuming process before we have actually ramped up our actual pipeline of stuff we are building.

Jeremy Metz - UBS

Okay. Thank you.

Operator

From Stifel, we have Nathan Isbee online. Please go ahead.

Nathan Isbee - Stifel Nicolaus

Good morning. Drew, just following up on this development discussion. You mentioned the rents as the main impediment to really opening the floodgates for new development. As you look at across the top 20 or 30 markets that you traffic in, is it possible that most of the areas are fully saturated with some of the key tenants, that you really would need to get a new development going? And as you look at what you have done over the last few years, and what you're planning, its less of a commodity like centers, it's a Wegmans, it’s a Whole Foods, it’s Bethesda, that definitely has a little bit more of a different flavor to it, than what I would call, just generic commodity shopping center?

Andrew Alexander

Good morning Nate. You're absolutely right in your question that while, as a landlord, I always say that the problem is the tenant should pay more rent. In reality, it’s a function of several things. Landowners don't want to part with good land at cheap prices. Developers don't want to work for free, and tenants don't want to pay more rent than they can afford. The function of what they can afford is based on the sales that they expect to do, and their returns on investment. So in a lot of cases, areas do have a reasonable supply/demand, and the sales projections aren't high enough to justify things. You overlay that, when a lot of tenants are finding better returns on investment, investing in their existing stores, their logistics, their infrastructure, their omni channel presence, and increasingly, when we meet with tenants, a lot of our tenants talk about competing for capital in their companies with the IT departments, the logistics departments etcetera.

So again, all of that is good for the existing portfolio, drives the sales, enables Johnny and Patty Bender's team to get those rent increases on the renewals. But you're right. It’s a lot broader than just, I wanted to pay more rent. Its all about the sales and that's the beauty of the capitals model.

Nathan Isbee - Stifel Nicolaus

Right. I mean, would you say that the more commodity generic shopping center development is going to take a lot longer to come back than you would think?

Andrew Alexander

Well I think it will take a good long time, because the other thing that we have seen is -- as you know, when I was Chairman of ICSE some 17 years ago now, but one of the things I talked in my state of the industry speech, was the consolidation of big box tenants. So we have certainly seen that the last several years. So you look at the consolidation, you look at the fact that lots of categories, while they are doing okay now, they are certainly not going to be as active. So its challenging today to pressure Best Buy to do a new store threatening them with, you're doing a Circuit City, if they don't. So yeah, you're absolutely right, the commodity-esque sensor will be very slow to come back. And again, its all about -- the other thing that factors into this, is the psychographic of the younger generation is much more focused on an urban lifestyle, and we haven't seen substantial white picket fence suburban growth, and I think it’s a real question, when that comes back in a strong way, that kids want to live in homes in the suburbs that will support a lot more centers.

So that's where, as you say, we are being selective, we are doing a lot more projects like Walter Reed, like our project in Maryland, that will eventually redevelop like West Seattle. They take longer, but they are really valuable barrier to entry projects at the end of the day.

Nathan Isbee - Stifel Nicolaus

Sure. And then, just finally, a lot of the discussions surrounding the e-commerce impact on retailers has been centered around malls, and then some of the more traditional suspects in the shopping center space. I am just curious, as you look out over the next few years with e-commerce, if we could perhaps start having conversation with some of the healthier retailers who have not been part of the discussion, take Target as an example. When you think about Amazon, there is really nothing at Target that's not sold on Amazon. Are they -- do you see them rethinking their footprint plans?

Andrew Alexander

I think everybody is very focused on it, and as you know, there is a slide in our traditional road show deck, that analyses how we see the retail world. But we think the vast majority of our tenants are pretty internet resilient, and the reason for that is, the gross profit of the item doesn't really lend itself to delivery. Now, Amazon is held to a different standard, they don't make any money and the market doesn't seem too concerned about that, but that doesn't work for a lot of folks.

The other thing that's interesting of course is, ICSE National Retail Federation's strong push for the collection of taxes on merchandise sold over the internet. As you may have seen recently, Amazon is now up to paying taxes in 20 states, and that has shown, as everybody thought. To have a greater than anticipated effect, people responded to taxes in a different way than one might think. So we are comfortable that our good real estate in the densely populated urban areas, where we continue to transform the portfolio, that the omni-channel experience will continue to make our existing centers more viable, and we've certainly seen some issues with digital music, etcetera. But we are very comfortable with the vast majority of the tenants.

Nathan Isbee - Stifel Nicolaus

I mean, I would agree in the better centers, I would agree with them. Just curious from your perspective, in lower quality centers, would you see some space rationalization from healthy retailers?

Andrew Alexander

Well I think part of it is, it’s a gradual thing, and that's part of why we are not investing in new lower quality centers. And then I am happy to continue this discussion with you offline, if that makes sense?

Nathan Isbee - Stifel Nicolaus

Absolutely. Thank you so much.

Andrew Alexander

Thank you.

Operator

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

Christopher Lucas - Capital One Securities

Good morning everyone. Drew, just kind of going back to the development question a little bit. Just, could you give us a little sense as to where the discussions are coming from, from type of retailer, whether its grocery or general merchandise or soft goods. Where is the predominance of those kinds of conversations occurring?

Andrew Alexander

Good morning Chris. The good news is, I would say its across the board, and Johnny can chime in here, because as you know, ICSE RECon is in a few weeks. We have already set a lot of our meetings. We know, as we call to set the meeting, where a couple of years ago they would say we are not going. Now they are, we want to talk about deals. But I would say we are seeing it in really across the board. The conventional center markets like Kroger. The more niche supermarkets, Whole Foods, Trader Joe's, the TJX, Ross. We have got some meetings with the home improvement guys even. So obviously, some of the folks who are still struggling, I mean, not as vibrant. But I think its across everybody. Johnny, you have any other color that you're seeing?

Johnny Hendrix

No. I think that's right. Clearly, the supermarkets are the dominant sector that continues to expand, and will drive the potential for new properties. But we are talking to Target and some other folks that would be able to initiate a project. For the most part, the junior boxes, if we could get someone to initiate the project in a great location, they certainly are in a position to want those locations.

Christopher Lucas - Capital One Securities

Okay, great. Then for a second question. Just looking at the debt maturities for a couple of your JVs, one is under -- averages under one year, and one averages under two years. I guess, just trying to think, how are you guys thinking about dealing with those maturities?

Johnny Hendrix

Chris, it varies. I think some of our partners are -- well basically, make contributions to the partnership and we won't refinance, and then others were basically out in the market, looking to roll back debt. And we obviously do that in a secured market.

Christopher Lucas - Capital One Securities

Any chance that those would be more of a liquidity event, in terms of looking to exit the joint ventures?

Johnny Hendrix

No, I think that -- I think that's always a question in today's world as -- because obviously, if someone is looking to exit any time soon, having a asset that's not encumbered by debt, it is certainly more marketable, and different -- and buyers want to put different levels of debt and so forth. So I would say certainly, that's in the cards.

Christopher Lucas - Capital One Securities

Okay. Thanks a lot guys.

Operator

(Operator Instructions) We do have a follow-up from Juan Sanabria. Please go ahead.

Juan Sanabria - Bank of America Merrill Lynch

Hi, just one quick follow-up. Could you estimate the spreads between what you need depends a lot on developments versus sort of market rents today, and I am sure it is a pretty broad generalization, but if you could give us any color, that'd be great?

Andrew Alexander

It is a very broad generalization. But I would again say, we are still -- some significant degree apart, 15%, 20% of where we need things. So I want to hopefully be clear on everything we've said, over the last little bit, that we are encouraged by the increased conversation, the increased dialog etcetera. But at that point, that's all it is. Its not massive open-to-buy increases for 2015 that needs us to start construction real soon. So it’s the most early seedling, but we are still a little bit of -- a significant amount of part, closer than it was.

Juan Sanabria - Bank of America Merrill Lynch

Great, thanks. That does it for me.

Andrew Alexander

Thanks Juan. Good morning.

Operator

And we have Rich Moore back online. Please go ahead.

Richard Moore - RBC Capital Markets

Hi. Steve, just one quick question for you, on the credit line, you have a balance on the credit line, I think about $160 million. Is there any plan to do anything at this point with that, or do you need to wait for it to get a little bigger and do a bond offering kind of thing?

Stephen Richter

Well Rich, you're right. We continue to monitor the markets we have a little under the revolver today. But we will wait and see what happens with our opportunity to invest in new capital and the success of our disposition program. And as the business plan lays out today, we are actually anticipating being a net sell-out this year. So there may not be any need to do anything quite frankly, and that's where -- its just too early in the year right now to be able to determine exactly what we do with that balance, and where it will be at the end of the year.

Richard Moore - RBC Capital Markets

Okay, great. Thanks a lot.

Operator

And we have Jay Carlington back online. Please go ahead.

Jay Carlington - Green Street Advisors

I guess I will join the follow-on party. You mentioned the Safeway sale going on right now, and I know Randall's has kind of been one of the weaker players in your markets down there. So is there any insight in kind of what they are thinking their strategy is? Are they looking to exit some of those leases? Can you give us some insight on what the lease term looks like for those stores down there, kind of just what your thoughts are?

Andrew Alexander

Yeah Jay, certainly we have had a number of discussions with our friends at Safeway. Today, their current thinking is, is that they would continue to operate Randall's. They operate a company called Tom Thumb in Dallas, that basically they are utilizing some of the same distribution facilities for they operate in Austin. They actually got a few new stores planned for 2015 here in Houston, that would be pretty urban in nature. So their current thinking is, is that they would continue to operate the stores.

Today, our sales for Randall's are about $350 a square foot, so well below the company average. I certainly think that, so far, Albertsons has done a pretty good job, in terms of putting together different flags in different parts of the country. And so I am certainly encouraged that they would be able to increase those sales, just because Randall's has had such a difficult time with their price image, over the last couple of years. If in fact, they did elect to sell the Houston units, I think we will be in tremendous shape, and would be able to benefit significantly from new stores, both from an NAV perspective, as well as an FFO perspective.

Jay Carlington - Green Street Advisors

Okay. That was my next question. Thank you.

Operator

(Operator Instructions) It looks like we have no further questions. I will turn it back to you Drew, for any closing remarks.

Andrew Alexander

Thanks Brandon. Well, I thank everybody for participating in the call. We really appreciate the interest in Weingarten. We will see a lot of you at ICSE RECon in Vegas coming up in a few weeks and/or at NAREIT in New York, a few weeks after that. So thanks so much for your interest, and we will certainly be around for any other questions this afternoon. All the best, have a great weekend.

Operator

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

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