Weingarten Realty Investors' CEO Discusses Q1 2011 Results - Earnings Call Transcript

May. 6.11 | About: Weingarten Realty (WRI)

Weingarten Realty Investors (NYSE:WRI)

Q1 2011 Earnings Call

May 05, 2011 11:00 am ET

Executives

Johnny Hendrix - Chief Operating Officer and Executive Vice President

Stephen Richter - Chief Financial Officer and Executive Vice President

Robert Smith - Senior Vice President of Development

Andrew Alexander - Chief Executive Officer, President, Trust Manager, Chairman of Executive Committee and Chairman of Pricing Committee

Kristin Horn - Director of Investor Relations

Analysts

Laura Clark - Greenstreet Advisors

David Wigginton - Merrill Lynch

Benjamin Yang - Keefe, Bruyette, & Woods, Inc.

Omotayo Okusanya - Jefferies & Company, Inc.

Nathan Isbee

Ki Kim - Macquarie Research

Carol Kemple - Hilliard Lyons

Richard Moore - RBC Capital Markets, LLC

Quentin Velleley - Citigroup Inc

Michael Mueller - JP Morgan Chase & Co

Craig Schmidt - BofA Merrill Lynch

Operator

Good morning. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weingarten First Quarter Earnings Conference Call. [Operator Instructions] Ms. Kristin Horn, you may begin your conference.

Kristin Horn

Good morning, and welcome to our first quarter 2011 conference call. Joining me today are Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Senior Vice President and Chief Accounting Officer.

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, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to this non-GAAP financial measure is available in our supplemental information packet 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 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

Thanks, Kristin. Good morning, everyone. As most of you heard, during our 2011 annual analyst and investor day in New York a couple of weeks ago, things are getting better. If you were unable to listen to the call, a replay of the presentation is available via our corporate website under the Investor Relations tab.

While not repeating, I will briefly highlight some of the more important aspects of the presentation. Senior management discussed how fallout is decreasing, same property net operating income and rental rates are slowly but surely becoming less negative year-over-year, and we expect occupancy will end the year where we guided, at 92% for the total portfolio.

In addition, but probably the most important aspect of the analyst day presentation was the accelerated capital recycling program of our secondary assets. We anticipate that over the next several years, we will prune approximately $600 million of assets, further strengthening our high-quality portfolio. The combination of increased operating fundamentals and the strategic direction outlined in our five-year business plan will allow Weingarten to be a top performer in the retail REIT arena. There will be bumps in the road, like Blockbuster and Ultimate Electronics, which Johnny will discuss more in his remarks. However, we're excited about what 2011 brings in the solid future, with continue upward momentum over the next five years that we've outlined. I'd now like to turn the call over to Steve Richter to discuss the financial results.

Stephen Richter

Thanks, Drew, and good morning, everyone. We discussed last quarter, but I want to mention again this morning, Weingarten will detail its funds from operations on a reported and recurring basis. We've itemized the differences between these metrics on Page 5 of our supplemental information package for your convenience. Weingarten reported funds from operations, or FFO, per diluted share of $0.41 for the first quarter of 2011. Recurring FFO was $50.4 million or $0.42 per diluted share for the quarter. Reported FFO was affected by several small impairments, all of which were related to property sales including two industrial buildings, two tracts of undeveloped land, which were included in our land held for future development, and the exercise of a tenant's purchase option on a single building in one of our retail centers. Recurring FFO continues to track according to our 2011 business plan, and we continue to believe we will produce between $1.72 and $1.82 of recurring FFO per share as we previously guided for the full year of 2011. As part of the analyst day presentation, we outlined a five-year forecast that produces 5-plus percent FFO growth in 2014 and 2015 and even stronger growth in 2012 and '13 as we move back to the 95% to 96% occupancy. These results will be achieved through several different factors, but the most important are the increases in occupancy and the narrowing of the spread between signed and commenced leases.

I'm also pleased to announce that the Sheridan bond financing transaction that we discussed last quarter closed subsequent to quarter end. A $0.15 per share improvement loss will be recognized in Q2, the period in which the transaction closed. This impairment is excluded from our recurring FFO guidance.

Our balance sheet continues to be strong, with total leverage in the 40% range and a fixed charge cover of 2.4x. The 5-year business plan also highlighted further improvements in the balance sheet, and our financial metrics and ratios resulting from the $600 million of projected dispositions. So we're in great shape from a balance sheet and liquidity perspective to execute the strategy we laid out three weeks ago. I will now turn the call over to Robert Smith to discuss our development results.

Robert Smith

Thank you, Steve. On the development front, things are going well. We are in good shape on our 2011 projected stabilizations. We've taken great strides in trimming our land held for development, and we are beginning to create a modest level of new activity that we hope to soon bring into our pipeline. Since analyst day in our existing development portfolio, Harris Teeter supermarkets successfully opened at Surf City Crossing in Surf City, North Carolina. Initial reports are that they are pleased with their opening sales volume and expect this to be a good store. To coincide with the opening of Harris Teeter, we signed leases on an additional 5,000 square feet of small shop space and currently have one out parcel under contract for a major drugstore chain.

Leasing activity at some of our existing development projects is also picking up. We are seeing notable increases in activity, both at Clermont Landing in Florida, which is anchored by JCPenney, TJ Maxx and Ross, as well as that Ridgeway Trace in Memphis, Tennessee, which is anchored by Target and Best Buy.

Finally, through the combination of land sales and the reactivation of projects into our development pipeline, we are making considerable progress in reducing our land held for development. We have already sold $9 million of land. We anticipate moving another $25 million into active development over the next several quarters, and have an additional $10 million of sales in negotiations. Although the timing and uncertainty of any transaction in the current environment remains, we believe the combination of these items would reduce land held for development by approximately $45 million or roughly 30% of the year end balance.

Although there is still much to accomplish, we have made considerable progress and feel our development platform and properties will create future shareholder value. I will now turn the call over to Johnny Hendrix to discuss our operating results.

Johnny Hendrix

Thank you, Robert. Good morning to everybody on the call. We continue to be encouraged that a better operating environment is evolving. Our supermarkets are healthy. They seem to have the pricing power to pass off commodity increases, and financially, they've seen sizable increases in valuation over the last several months. Today, 75% of our retail NOI comes from shopping centers with a grocery component. So supermarkets are our most significant customers, and when they're healthy, it's better for us.

The Business Bureau reports supermarket sales increased 3.9% in the first quarter of 2011 versus a year ago. Our second most significant category, discount ready-to-wear, stores like TJX and Ross, are also continuing to increase sales. With Easter sales moved to the end of April, it's even more impressive they produced quarter-over-quarter increases. They're comping against strong numbers over the last year and continued increases confirmed they're offering value and quality products consumers are looking for. Healthy retailers are in a position to open new stores and should be willing to pay higher rent as quality space becomes more scarce.

So far, during 2011, operations have progressed pretty much according to our business plan. We did see that dip in occupancy we talked about during the last couple of calls, and at quarter end our retail portfolio was up 92.3% occupied, still slightly ahead of the first quarter 2010. For the company, our rent growth was down 1.1% and down 1.4% for our retail new leases and renewals. We're seeing good pricing power with retail renewals, which were up about 1%.

It's important to know we're being aggressive on new leases, signing short-term agreements or leases with significant steps built in. This reduces our rent growth in the near term, but we believe we'll see rental rates escalate over the next couple of years and we'll be in a better position to capitalize on those increases when we have higher occupancy and these short-term leases roll.

We signed 152 new retail leases for 466,000 square feet in the first quarter, which is about the same number of leases we've averaged over the last couple of years. The square footage is slightly lower, mostly because we've leased the bulk of our spaces over 10,000 square feet. The company's same property NOI was up 0.4%, with retail at 0.5%. The primary driver is the commencement of leases signed during 2010. We currently have about 900,000 square feet of retail space signed and not commenced. The opening of these stores will drive the increase in same property NOI throughout the rest of 2011 and into 2012.

A couple of situations have varied slightly from our plans. The industrial portfolio experienced some further weakness during the quarter. Occupancies held at 87%, primarily due to the expiration of a 110,000-square-foot lease in one of our Dallas properties. We believe rates have bottomed, as rents were slightly positive for the quarter. Also on the positive side, no new space is being built, and we're seeing more leasing activity. Certainly, industrial space is quite dependent on the overall economy. Our business plan assumes some improvement in the economy, and we project to be at 88% to 89% occupancy at year end.

Second, Ultimate Electronics closed all three of their stores with us in the second quarter. The fact they closed is not a surprise. We did think it would take a little longer to liquidate the company. Also, the situation with Blockbuster continues to deteriorate. We received notice from Dish, the successor to Blockbuster, that they were affirming 4 leases and reviewing the status of the 12 remaining. Some definitive plans should be disclosed over the next 90 days, but our expectation is most of these 12 leases will be terminated. The most current details of these lease terminations and further exposure is described in a chart on Page 45 of the supplemental. While the loss of rent associated with these terminations is disappointing, we're comfortable our business plan adequately anticipated these reductions, and as Steve mentioned we are maintaining guidance. It's worth repeating, we believe we'll re-lease all the Blockbuster spaces over the next 12 to 24 months, and we believe they will be revenue neutral even after adjusting for capital.

They certainly occupied the best spaces in our shopping centers and we're seeing lots of interest from quick-service restaurants, banks and just about any tenant who's looking for space. We also had a bit of positive surprise. Fallout from spaces less than 10,000 square feet were the lowest we've seen since 2007. Not accounting for Blockbuster, about 10% less than the first quarter last year. I think it's a positive sign that our local shops are stabilizing. You may have seen in the press release, small shop fallouts in Florida were down 18%. This, along with a 34% pick up in new leases in Florida, is a good indication the state is stabilizing.

There's not much to add on the acquisition front. Since our Investor Day meeting, we've invested $33 million in the 4 properties noted in the press release. At the meeting, I mentioned we may have a couple of properties fall out of the acquisition pipeline, and in fact, that has happened. Today, we have $39 million under contract or in the letter of intent stage, and we feel good about closing on these centers. We'll remain disciplined looking for opportunities that are accretive to shareholders. Our efforts to recycle the secondary properties, which make up about 10% of the company's NOI, is moving forward quickly. We'll have about $400 million of those assets on the market in May. We're looking forward to the improved operating measures this reconfigured portfolio will produce.

Finally, we're excited about the ICSC ReCon Convention coming up in Las Vegas. Our leasing team continues to finalize appointments with retailers. The last I heard, we scheduled somewhere around 600 meetings. There's a lot of buzz around expanded store count so we're expecting to convert these meetings into renewals and new leases in the months and quarters ahead. The operating environment continues to get better, and Weingarten is in a position to take advantage of this improvement. Drew, I think you have some closing comments.

Andrew Alexander

Thanks, Johnny. Weingarten has been very diligent over the last several years to focus on what we do best, and that is operate our portfolio. We like the stability of supermarkets and value retailers that anchor our shopping centers. We're very optimistic about our future. While there are some bumps in our recovery to 95-plus percent occupancy, we have great assets with strong demographics.

We've enhanced our acquisition capabilities by revamping our resources in the field. Through the downturn, we've maintained the most talented and experienced members of our development team. We feel that market fundamentals are moving in the right direction to allow our disposition team to achieve our accelerated recycling capital program. With the people, processes and platforms we have in place, our commitment to the strategy laid out at our Analyst Day, we will ensure that we create significant shareholder value over the next five years and beyond. Thanks so much for your interest in Weingarten. And we're now very happy to take your questions. Operator, we'd be happy to take questions now.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Craig Schmidt from Bank of America.

Craig Schmidt - BofA Merrill Lynch

It seems despite the really strong same-store sales for the first four months of the year, we're constantly being cautioned that the headwinds from higher gas prices, food inflation and even higher cotton prices could slow same-store sales. I just wonder in your discussion with your tenants, how are they looking at the second of the year and just what your views on that topic?

Johnny Hendrix

Craig, I definitely agree with you. Our retailers are very concerned about these prices. It appears that they have been able to pass on a significant portion of these prices and maintain margin. I think the current idea is consumers do not believe $4 gas prices are going to continue and are anticipating some reduction in that, and certainly haven't been as shocked as they were several years ago. We definitely are concerned about the other commodity price increases, but again, so far, retailers told us and this is somewhat anecdotal, that they have been able to pass those prices on.

Craig Schmidt - BofA Merrill Lynch

But do you think it's possible the first 4 months could -- that trend continue for the rest of the year? Or are you sort of us planning for a somewhat slowdown in the pace of sales?

Johnny Hendrix

You know, I hope that the pace goes up. I anticipate, if there are further increases, they will be relatively modest as compared to what we've seen certainly in April. And I think you can chalk April up to the fact that Easter moved into April from March a year ago, and I think that's going to be a big piece of it.

Craig Schmidt - BofA Merrill Lynch

In thinking that the two months combined, it still averages over 5%, same-store gain.

Johnny Hendrix

It is quite impressive, and I think what you are seeing is some price increases being passed on.

Operator

Your next question comes from the line Ki Kim from Macquarie .

Ki Kim - Macquarie Research

I noticed that your development yields increased slightly this quarter over last quarter. And I know the mix is slightly different. You had one new property, but I don't think that property alone probably move the yield and stuff. Could you give a little more commentary?

Stephen Richter

I think most of that has to do with the Sheridan project where there are a couple of other things that were moving it, but the majority of the difference has to do with the closing of the financing of Sheridan and how we accounted for that at the real estate versus at the bond level. So probably more than half of that difference, the increase in the yield is due to the finalization of the Sheridan financing.

Andrew Alexander

But as Robert mentioned, we are seeing some nice leasing activity at Ridgeway, some improvements there and some additions there, as well as the addition of some space at 300 West. And as we talked about at the Analyst Day, we do have a fair amount of work in our pipeline that is being added in at better returns. So it's not huge, but there are definitely some positive signs there.

Ki Kim - Macquarie Research

I think Regency just mentioned that the leasing done in April or what they're working on seems pretty strong. Have you seen a similar trend?

Johnny Hendrix

April is about where it was a year ago. I don't see that it's exceptionally strong or weak. We're pleased with what we've seen so far in the month.

Operator

Your next question comes from the line of David Wigginton from DISCERN.

David Wigginton - Merrill Lynch

Johnny, can you maybe just talk a little bit more with respect to what drove the negative spread on the new leases in the quarter?

Johnny Hendrix

I will tell you, I think I tried to address that a little bit in my comments. I think we are being very aggressive on leases that I can't -- that we can make one or two years or leases that'll have some really significant increases. I don't know if you would call that a concession or not; maybe you would. But if I can lease a space and get significantly less rent for the first six months and then really bump the rent up 20% or 30% after that, I'm probably going to do that right now. And I'm willing to accept that reduction in the rent increases because I think when that lease rolls two years from now, I'm going to be in a much better negotiating position with that tenant. A, they've already committed capital to the space and they're more likely to renew, and I'm going to be in a much better negotiating position. And that's really what I see happening on the new leases that -- pretty much across the board, there was not a single lease that moved it. Sure, there were two or three that were the lowest. And if I take those out, it's at minus 8% but that's not significant.

David Wigginton - Merrill Lynch

What percentage of the mix is the shorter-term leases with the built-in step-ups?

Johnny Hendrix

I don't have that specific member with me, but it would probably be 40% in terms of the square footage because you still had 5 larger leases done during the quarter. I'd say around there.

David Wigginton - Merrill Lynch

Are you doing similar deals on renewals or is this strictly for new leases?

Johnny Hendrix

We've shown, I think, much better pricing power on the renewals. Renewals were up 1%, and I feel really good that renewals were not really having to do that.

David Wigginton - Merrill Lynch

What is your small shop occupancy right now? In the quarter?

Johnny Hendrix

I think it's 85% of spaces that are under 10,000 square feet.

David Wigginton - Merrill Lynch

And where does that need to get to, I guess, achieve your 95% target?

Johnny Hendrix

Around 90%. 85% -- the small space is under 10,000 square feet account for about 38% of the overall retail space. Spaces that are over 10,000 square feet are almost 63% of the overall retail space and today it's around 97% leased.

David Wigginton - Merrill Lynch

Okay, in order to get that 95% target, that's predominantly going to be a small shop space that's got to be leased up then?

Johnny Hendrix

Yes, absolutely. That's where we have the opportunity, and that's where we're focused.

David Wigginton - Merrill Lynch

With respect to the new leases, would you have an idea what the breakout was between, say, spaces less than 10,000 feet and greater than 10,000 feet in the quarter?

Johnny Hendrix

Greater than 10,000 square feet was about 13% down and less than 10,000 square feet was around 9.8% roughly.

David Wigginton - Merrill Lynch

What was the -- do you know what the breakout was? Meaning, what percentage of the new leases signed in the quarter were anchors versus small shops?

Johnny Hendrix

Roughly 78,000 square feet were big boxes and 137,000 square feet were under 10,000 square feet.

Operator

Your next question comes from the line of Nathan Isbee from Stifel, Nicolaus.

Nathan Isbee

Just thinking about your $600 million of assets that you've targeted for sale, how much of that plan is dependent on cap rates staying relatively stable? Or are you committed to selling that even if cap rates do back up or you don't hit targeted pricing?

Johnny Hendrix

I certainly think it will be more advantageous if cap rates stay stable. We are committed to sell those 65 properties.

Nathan Isbee

They're just not part of your -- the future Weingarten?

Johnny Hendrix

That's correct.

Nathan Isbee

Can you just give us a little more color on the Seattle acquisition? It seems like -- I know there's a story there, but it was a pretty aggressive cap rate.

Johnny Hendrix

It's really a great story. We have a supermarket whose lease expires in two years and we've got Wal-Mart and another, Safeway, kind of competing for the space. We have the opportunity maybe to sell off part of it and go vertical. So there's a lot of things we can look at. We have, I think, around 7.2% 3-year out on it, but it could be as much as 9.5%. So for the quality of real estate that this is, we think that's a great investment. It's going to actually be quite a lot of fun to work on.

Operator

Your next question comes from the line of Laura Clark from Green Street Advisors..

Laura Clark - Greenstreet Advisors

In your Investor Day presentation, you gave us your internal NAV estimate of 29.10%. At the current discount to today's share price, does it make sense for you to buy back your stock?.

Stephen Richter

When we look at our overall balance sheet and everything, it's not something that's on our radar screen today. It's something, as we go forward with the disposition plan we would certainly consider in light of alternatives to reinvest the capital. Depends where cap rates are, on other acquisitions, development, et cetera. So it's not any immediate-term future, but might be out there in the more distant future.

Operator

Your next question comes from the line of Carol Kemple from Hilliard Lyons.

Carol Kemple - Hilliard Lyons

At this point, how many dispositions do you all have under contract or letter of intent?

Andrew Alexander

In numbers wise, I think it's probably 7 or 8. Dollars wise, it's probably less than $50 million.

Carol Kemple - Hilliard Lyons

And are you also comfortable with your plan that you put in the first and fourth quarter press releases of doing $75 million to $125 million this year?

Andrew Alexander

We are reconfirming that guidance. It's certainly going to be quite a bit of work and, obviously, at this point, it's going to be more back-end loaded. But yes, we've affirmed that. We're also, with the accelerated plan that we talked about at the Analyst Day, diligently working. So I think there's a distinct possibility of overperforming that plan and selling more than that. You were talking about dispositions right?

Carol Kemple - Hilliard Lyons

Yes, that's what I was concerned about since you all had your new capital, your recycling plan, if it would possibly be more than that number.

Andrew Alexander

We are working diligently to get it to be more than that number.

Operator

Your next question comes from the line of Rich Moore from RBC Capital Markets.

Richard Moore - RBC Capital Markets, LLC

Following up on that last question, these $400 million or so are the assets that you want to put that into the market, would this be sort of a portfolio concept do you think? Or are these one offs in each case?

Andrew Alexander

Rich, we're pursuing parallel tracks. We will have one portfolio on the market, and we will also have several individual assets on the market. Some of the assets do lend themselves to a portfolio, and others we feel like probably a local buyer is going to be our best bet. So we're moving it both ways. And it's about half and half in terms of $400 million.

Richard Moore - RBC Capital Markets, LLC

So the portfolio could be 100 or more in size?

Andrew Alexander

Yes.

Richard Moore - RBC Capital Markets, LLC

Steve, on the recovery ratio, at least the way we're calculating it, it looked like it was down sharply. Is there anything special going on in there?

Stephen Richter

No, Rich, I think you had a little bit from occupancy drop that we realized during the quarter in Q1. And also I think we had year end cleanup and a little bit of stuff that had to be written off from prior years.

Richard Moore - RBC Capital Markets, LLC

So we've bounced back to where we were pretty much?

Stephen Richter

I think that's it.

Richard Moore - RBC Capital Markets, LLC

And then the last thing, on Sheridan, the reissuance of the bonds, that's going to happen, is that right? I mean, we have a timeframe for that now, I guess. And that is something that's certain at this point?

Stephen Richter

A little more certain than that, Rich, because the transaction's closed. The bonds are sold. It's all done. We're pretty certain of that one.

Operator

Your next question comes from the line of Omotayo Okusanya from Jefferies & Co.

Omotayo Okusanya - Jefferies & Company, Inc.

Just a couple of quick questions. The sale of the industrial asset, was this item just one-off opportunistic opportunity this quarter? Or should we be thinking about this more as a strategic review of the industrial portfolio and possibly doing more by way of dispositions in that category?

Stephen Richter

They were opportunistic sales to users that very much made sense to us, and we took advantage of that opportunity.

Omotayo Okusanya - Jefferies & Company, Inc.

And then just the disclosure you provided on the impact and exported to recently bankrupt retailers, if I look up that information for a lot of the stuff that's relatively unknown, what happens with those assets? Could you give us a sense of what you're thinking may happen?

Stephen Richter

I think what you're asking is what we think is going to happen with the bankruptcies that we've listed on Page 45 in the supplemental?

Omotayo Okusanya - Jefferies & Company, Inc.

Correct. Certain parts of it.

Stephen Richter

I can give you a really good idea there. I think what I said earlier was that we have 16 Blockbusters remaining. Four of those have been affirmed, and they are looking at the 12 others, and it looks like in my opinion they'll terminate most of those 12. Borders has closed one of its stores with us. They have 5 remaining. I'm sorry, they had 5, they closed 1, they have 4 more remaining. And I think they'll keep those stores. And Ultimate Electronics has closed all 3.

Omotayo Okusanya - Jefferies & Company, Inc.

And then with the acquisition volumes slowing during the quarter, just last question. Could you just give us a sense of whether that's just more of pricing getting very competitive in the market so a good sense of whether that could pick up later on in the year?

Stephen Richter

Yes, I would definitely say pricing is competitive. Most of the quality shopping centers that we're looking at, there may be 10, 15, 20 buyers that are qualified, that are making offers on the property. And we're just going to try to remain diligent and look for properties that are accretive to the shareholders and improve the overall quality of the portfolio. It is a challenge, but we are out in the market and looking at everything that we can.

Operator

Your next question comes from the line of Michael Mueller from JPMorgan.

Michael Mueller - JP Morgan Chase & Co

I want to go back to the development, or not the development, excuse me, the asset sales for a minute. And just to get a sense, could the timing of this be accelerated? Because, I guess, Drew, in your opening comments, you talked about the $600 million of sales over the next few years. I know at the Investor Day, I think it was -- you're marked primarily '12, but '11 and '12. then it seems like you have about $400 million that's getting ready to hit the market. So do you think this could be even more front-end loaded?

Andrew Alexander

Yes, as I was attempting to respond to a question before, we're comfortable with our disposition guidance for '11, but it's certainly a possibility we could overperform that and sell more in 2011. It's our expectation that it would be so weighted towards the end of the year, it would not have a substantial impact on 2011. It is a lot of small transactions, as Johnny mentioned, and also some portfolios. So it's pretty hard thing to forecast, but it is something that we feel the time is right. We think that cap rates are narrowing, the debt markets are available. These are good properties, as Johnny said, and in some cases in some smaller towns that lend themselves to local buyers. So it's our forecast and belief and expectation that we can get it done, and it could happen towards the end of this year.

Stephen Richter

And I may add one thing to that. As Drew said earlier that we are not planning to fire sale these assets. And we're going to put $400 million on the market for sale, it's unlikely that we will sell $400 million in our first try. And the reason we put $400 million is so we can say no if we don't like the price. This is a process that's going to take a couple of years, and we do not feel compelled to do it all in the first six months or even one year. So it's going to be a lot of effort to do it, but I think it's the best way to end up selling all these assets.

Michael Mueller - JP Morgan Chase & Co

And secondly, I know this was touched on the Investor Day, but can you walk through and put some bigger picture numbers around that? But if you're selling, say, $600 million at a 200 to 300 basis point negative spread, it's an FFO hit of anywhere from, let's call it, $12 million to $18 million. I know you said your internal growth is probably up 4% or 4.5% so maybe that kind of get you to 15% to 20%. I mean, how does that stuff net out to the comments of 2012 and 2013 having above-average FFO growth compared to the out years in 2013, 2014?

Andrew Alexander

Mike, I would tell you we don't have enough time on the call to go through all the intricacies of that, and I'm willing to offline walk you through that. But on a global basis, we have obviously modeled out the acquisitions so that they don't have happen all at the beginning of the year. So you have some dilution effect that comes in as we layer the dispositions in, as well as the balance of the program. Because as we mentioned on April 14, at Investor Day, it also includes the rest of the assumptions of the company, including the payoff of debt and the refinancing of some of our financings and so forth. So it all rolls through, but again, in terms of going through the specifics, I can walk with you offline.

Operator

Your next question comes from the line of Quentin Velleley from Citigroup.

Quentin Velleley - Citigroup Inc

Just a question on occupancy. With the mid-Atlantic region, and I apologize if I missed this earlier, but you had -- the signed basis dropped 420 basis points and the commenced 330 basis points. Sequentially, I'm just wondering what drove that.

Andrew Alexander

Yes, Quentin, that was the last couple of calls, we've mentioned that we were expecting a home improvement store that's 130,000 square feet and a bookstore that was approximately 40,000 square feet to close. Two of those or the both of those happen to be in Atlanta. So the Midwest occupancy dropped 187,000 square feet. 170,000 square feet of that were those two stores.

Quentin Velleley - Citigroup Inc

With the 5% same-store and OI number the next year that you put out at the Investor Day, I'm just curious what your expectation is with the industrial portfolio for 2012?

Andrew Alexander

The industrial portfolio is, as we said in the prepared remarks, it's obviously very dependent on the economy. Industrial is much more of a commodity space and the spaces are much less distinguishable. Our general economic forecast is modest improvement. And I think both of those words are important: Modest, but improvement. We don't see a roaring recovery. So consistent with that, we do see improvements in the industrial occupancy through the rest of this year and the next. And as I tried to outline at the Investor Day presentation, I think it's especially important in industrial because it is so much of a commodity that the basic price appreciation of all of the things that go into industrial space: concrete, steel, asphalt, et cetera has been huge, so there's no new space being built. And as the space is absorbed, the ability to increase rents is going to be very dramatic and the leases are certainly a lot shorter. So we think there's some very good opportunities industrial as the economy slowly recovers over the next few years.

Operator

Your next question comes from the line of from Ben Yang from Keefe, Bruyette, Woods.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc.

I apologize if you have mentioned this in the past but have you identified the 65 properties that you intend to sell on the $600 million that, obviously, a lot of questions or being asked on?

Andrew Alexander

We haven't identified each of the assets. We did, in the investor presentation, indicate the location of all of these assets and that's on our website.

Operator

[Operator Instructions] Your next question comes from the line of Ki Kim from Macquarie.

Ki Kim - Macquarie Research

Just to follow up. Could you give -- is there a 2011 guidance that includes refinancing your 2011 bonds that are coming due that are at 7% interest?

Andrew Alexander

Yes, that is included in the 2011 business plan.

Ki Kim - Macquarie Research

What are you assuming that you'll refinance that at?

Andrew Alexander

The refinancing of debt assumptions for the '11 business plan is 7%.

Ki Kim - Macquarie Research

But that's still high.

Andrew Alexander

In the 2011 business plan, it's 6%, excuse me.

Ki Kim - Macquarie Research

Is that where your cost capital is for debt? 6%?

Andrew Alexander

No, we can issue inside of 6% today. We're somewhere around -- for 10 years, we're some around 200 over for a 10-year piece of paper today.

Ki Kim - Macquarie Research

It's likely that we'll see some more savings from that. From a practical standpoint.

Andrew Alexander

If, in fact, we refinance that with long-term debt, that is correct. As I kind of mentioned that on Investor Day, we'll be a wait and see. Obviously, we have a lot of variables. We don't know whether or not we'll get the convertible bonds put back to us, number one. Number two, with the conversations that we've had this morning relative to the disposition program, how quickly some of those transactions come to fruition. Also what opportunities we have in acquisitions as well. So we'll just have to wait and see. The revolver, we have lots of capacity we can -- and currently, we're sitting on about 8% floating rate debt as opposed to fixed. So we have lots of opportunity and flexibility relative to how we finance those maturities that come due in the summer.

Ki Kim - Macquarie Research

Just a simple question. If so, the $400 million that you're looking to sell, I think if I remember correctly in Investor Day, you said the total dissolution package you're expecting an 8% cap rate -- two parts, so is that that's still the case? And second, if a buyer like Blackstone came and decide to pay or offer to pay 8% for the $400 million, would that be a done deal? All else equal.

Andrew Alexander

You know it'd be difficult, but there are a lot of other pieces that go along with a price like that. But yes, I think that's about what they're worth. And if somebody said they wanted to buy them, I'd sell them.

Operator

Your next question comes from the line of Ben Yang from Keefe, Bruyette, Woods.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc.

I'm sorry if you've addressed this one as well, but regarding the 65 properties that you intend to sell, have you given any guidepost in terms of impairment charges that might come as you go through that process?

Andrew Alexander

No, we don't. We obviously have just put in those assets on the market. And our policy is until we have a transaction that has hard money on it, we do not take that impairment. So don't really have indication yet exactly where those transactions may fall out.

Stephen Richter

You might keep in mind that most of these assets are older assets that we've owned for a long time. We're not -- certainly there may be some impairments that we're certainly not anticipating that would be significant.

Benjamin Yang - Keefe, Bruyette, & Woods, Inc.

So pretty modest and probably not a consideration to kind of slow this disposition process, I guess.

Andrew Alexander

No, that's correct.

Operator

There are no further questions in queue at this time. I'll turn the call back over to the presenters for any closing remarks.

Andrew Alexander

Well, thank you very much. I know we'll see a number of you at the upcoming ICSC meeting. And I'm sure at May Reed [ph] after that. We very much appreciate your interest in Weingarten, and thank you so much for your participation in the call.

Operator

This concludes today's conference call. You may now disconnect.

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