Weingarten Realty Investors (NYSE:WRI)
Q4 2015 Results Earnings Conference Call
February 17, 2016, 10:00 AM ET
Michelle Wiggs - IR
Drew Alexander - President and CEO
Stanford Alexander - Chairman
Johnny Hendrix - EVP and COO
Steve Richter - EVP and CFO
Joe Shafer - SVP and CAO
Christy McElroy - Citi
Ki Bin Kim - SunTrust
Craig Schmidt - BofA Merrill Lynch
Jay Carlington - Green Street Advisors
Jeremy Metz - UBS
Michael Mueller - JPMorgan
Carol Kemple - Hilliard Lyons
Rich Moore - RBC Capital Markets
Chris Lucas - Capital One Securities
Tammi Fique - Wells Fargo
Good morning and welcome to the Weingarten Realty Fourth Quarter 2015 Earnings Call. 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 this conference is being recorded.
And I will now turn it over to Michelle Wiggs. Michelle, you may begin.
Good morning, and welcome to our fourth quarter 2015 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 will now turn the call over to Drew Alexander.
Thank you, Michelle, and thanks to all of you for joining us. Please bear with me today, I've got a bit of a cold. We finished 2015 with another great quarter featuring strong operations, great acquisitions and additional strategic dispositions. It was a fitting conclusion to year that highlighted the success of our portfolio transformation and our ability to effectively allocate our capital to high-growth opportunities while maintaining a solid balance sheet.
Operations remained strong. Five years ago we were concentrated on increasing occupancy of our portfolio as we emerged from the recession. Over the last couple of years, with very little bit retail space being built and a portfolio greatly enhanced modern transformational capital, recycling program, we refocused our efforts on aggressively increasing rental rates, strengthening our tendency and repositioning many of our assets. In 2015, we were very successful in accomplishing each of the strategic initiatives.
With all the attention on the energy industry, Johnny will talk about the Houston market and the performance of our Houston portfolio a little later. But I wanted to make an important observation. A successful as our transformation initiative was, there was no single market more dramatically impacted by these efforts in Houston.
Many of you have seen our map of Houston that shows all the centers that we have sold over the last five years and the current centers located and are serving super-zips. This map dramatically depicts the remarkable improvement, a super transformation if you would. You can see this on the energy factsheet on our website that was updated last night.
Today around 16% of Weingarten's ABR comes from Houston and represents some of the strongest properties in our portfolio with an average household income of $110,000. Our tendency in these properties is exceptional with 76% of our Houston ABR coming from national and regional tenants.
Our local tenants are strong operators who have been in business and our centers on average nine years. The point being, our Houston portfolio is stronger than ever and well positioned to remain relatively unaffected by the energy downturn.
Turning to acquisition it continues to be challenging. For the full year 2015, we acquired a property for $268 million. This included a couple of future redevelopments, a great addition to our outstanding South Texas portfolio and quality centers in Florida and Arizona. That will enhance our already strong line ups in those markets.
I am extremely pleased with the unique opportunities we are able to identify and close on in 2015. We are also active on the disposition front. During the fourth quarter, we sold four properties, another real estate for $33 million of special significance, the company exited the States of South Carolina and Oklahoma.
For the year, we sold 15 income producing properties and other real estate for $126 million and then subsequent to year end we sold Rainbow Plaza in Las Vegas for $66 million.
Now, let me switch gears to our new development activities. We are making great progress on all four projects under development. Our Hilltop development in DC is 100% leased. We stabilize this Wegman property and investment of $65 million at the beginning of the year with an 8% yield, obviously significant value creation.
At our Lake Forest development in the Realty market, you'll notice our occupancy dropped slightly this quarter as we expanded the development by adding 15,000 square feet into new multi-tenant buildings due to tenant demand. We are nearly 92% leased and have commenced rents on that 90,000 square feet space.
At Nottingham Commons in White Marsh, Maryland, leasing is progressing nicely. Leases are signed with TJ Maxx, Ross, PETCO and MOM's, a value-oriented organic market. And we recently signed a lease with DSW, which is the last anchor space in the project. Signed occupancy already stands over 80% with construction commencing last quarter. Tenants should start opening in the third quarter of 2016.
The Whittaker in West Seattle is a six-story mixed-use project being co-developed with Lennar. Our 65,000 square foot retail portion is anchored by a 41,000 square foot Whole Foods and now anticipates delivering the retail portion by early next year and leasing is going well.
Our Walter redevelopment continues to move forward with the closing on a portion of the land expected to occur this year. Development of the majority of the retail component will probably commence in 2018. At the Atlanta Civic Center, on the north end of the downtown Atlanta, we have continued our preliminary planning and we estimate up to 200,000 square feet of retail plus residential and office components.
The current investment in the retail portion is estimated at $70 million with total project cost around $300 million. We are still early in the process and expect to open this, the project in late 2018 or 2019. We are pursuing other development opportunities and we are optimistic about our primarily pipeline. We will remain sensitive to risks, but we are pleased with the shareholder value created by our efforts and new development. It was a great year on all fronts.
And I'll now turn it over to Steve for the details of the financials.
Thank you, Drew. I'm pleased to once again report strong earnings results. Reported FFO was $0.57 per diluted share for the quarter compared to $0.51 per share in the prior year. Recurring FFO for the quarter was $0.56 per share compared to $0.51 per share in the prior year. This represents a per share increase in recurring FFO of 9.8% over the prior year.
FFO for the fourth quarter benefited from an increase in same property NOI of 2.1%, our new development and redevelopment activity and to a lesser extent, our current year acquisitions. Additionally, we have benefited from favorable refinancing activity, including our new five year $200 million term loan closed in the first quarter, as well as the redemption of our remaining preferred shares, offset by our disposition activity.
For the year, reported FFO was $2.07 per diluted share compared to $2.06 per share for 2014. Reported FFO for 2015 includes redemption cost for preferred shares and the write-off of debt cost on refinancing that were not included in recurring FFO.
For 2015, recurring FFO was $2.18 per diluted share compared to $2.05 per share for 2014, an increase of 6.3%. We are really proud of these results, especially when one considers that disposition cost us $0.11 per share of FFO when compared to the prior year.
As mentioned last quarter, we commenced the implementation of a new ERP system that will be completed this year. This resulted in additional G&A expense of $1 million for the fourth quarter and $1.6 million of all of 2015. I expect an additional G&A expense of around $400,000 in 2016 to complete the implementation. These costs will be included in our recurring FFO number.
As to the balance sheet, with the majority of our acquisitions funded with proceeds from dispositions combined with the issuance of $40.8 million of common shares under our ATM program interest in the first half of the year, we have maintained strong debt ratios. At year end our net debt-to-EBITDA was 5.82 times and our debt-to-total market cap was 32.8%.
As to 2016, we are affirming our guidance for both recurring and reported FFO in accordance with NAREIT's definition. As announced last month, guidance for recurring FFO was in the range of $2.27 to $2.31 per diluted share.
Reported FFO is in the range of $2.26 to $2.31 per share. This assumes acquisitions ranging from $125 million to $225 million and dispositions of $125 million to $225 million.
We have forecast new development and redevelopment investment in the range of $50 million to $100 million. All of the details of our guidance are included on page nine of our supplemental.
Finally, our Board declared a 5.8% annual dividend increase to a $1.46 per share from a $1.38 per share. This equates to an FFO payout ratio of 64% using the midpoint of our FFO guidance. Johnny?
Thanks Steve. We feel great about the performance of our portfolio in 2015. Rent growth was very good at 12.5%. New leases were up over 21% and renewals were up almost 10%. Same-property NOI increased 3.3%, mostly driven by 3.2% increase in base minimum rent. Occupancy ended the year at 95.1%. We have a robust redevelopment pipeline totaling $78 million with an expected return of almost 14%.
During the year, we acquired eight very good shopping centers. These assets average 107,000 people in three miles with household incomes of $100,000 and 53% have college degrees. One of those is a center we purchased during the fourth quarter, the Westside Center in Los Angeles. We paid $25 million for the property.
It has 324,000 people in a three mile radius with an average household income of $112,000 and 65% of adults or college graduates. The initial return on this property is 4.5% and should be around 5.7% by our third year of ownership. The longest lease on the property including options is about 11 years and current rents are well under market.
We can achieve over 5% compound annual growth under current conditions but much better if we can recapture some space in re-tenant centre. The fundamentals of our business have remained consistent over the last couple of years and we don’t see much change in the near term.
Retailer demand remains tepid, but high occupancy rates and the dearth of new supply have tilted negotiating leverage towards landlords. We still see the best demand for discount closing, supermarkets, service tenants, and restaurants.
It’s important we take advantage of this environment upgrading our tenant base and increasing rents where we can. Over the last several quarters we’ve taken a more aggressive position pushing rents and upgrading tenant quality.
As an example, during 2015 we signed a lease with CVS in our 8,000 Sunset shopping center. We elected not to renew a local day spa. As a result, we’ll have great synergy between the new CVS and existing trader Joe’s, and we have dramatically improved the credit profile.
This sort of remerchandising will continue to be our focus. Across the portfolio we’ve identified more than 500,000 square feet we would like to recapture either to buyouts or lease explorations over the next 24 months.
Our operating numbers could be a little choppy as we have down time on remerchandising spaces. But long term this effort will result in higher rents and improved credit profile. But just to be clear, we’re still going to post good, competitive operating metrics and we anticipate meeting the guidance we’ve outlined. Drew will give you an overview on Houston, so let me give you some details.
For the economy as a whole, job growth slowed in 2015 and we ended up the year slightly positive. There are many projections out there for 2016 but most anticipate job growth will be flat.
Clearly the office market has suffered the greatest distress, particularly the Westside of Houston. Multi family has also experienced some headwind. For Weingarten, our properties have not been negatively impacted.
Over the last five years the city has added more than 600,000 people and during that time most of the new retail space was built in the suburbs say 20 miles or more from Downtown.
In contrast more than 50% of the net operating income of our properties is within 5 miles of the Galleria, very infill areas where there’s still an imbalance of supply and demand. Our Houston properties are anchored by strong grocers, with sales averaging $589 square foot.
We’ve seen no weakening of our operations and at the end of 2015 our same property occupancy in Houston was 96.5%. Our same property NOI for the fourth quarter in Houston was 4.2%,rent growth for new leases was 46%.
Overall rent growth, new leases, and renewals, was 25%. Through 2015, our Houston properties average base rent increased $1.17 from $17.2 to $18.19. We believe despite energy prices that our shopping centers will remain resilient.
Let me give you an example of that resilience we’re observing. We found out late last year a local retailer who operates four stores was not going to renew an 8000 square foot lease in a center we own near the Galleria. Last week not last year but just a couple of days ago, we signed a new lease to replace that tenant for a similar use with a national operator who has hundreds of locations and we’re increasing their rent over 40%.
This is not an unusual story in Houston retail today. I have similar situations over the last couple of months where we are replacing tenants quickly and at higher rents. We have a great portfolio including Houston and a season team to navigate this cycle successfully.
We look forward to the challenge and invite each of you to come see our properties and what’s happening here. Drew?
Thanks, Johnny. 2015 was a very good year. Operations were great. We found some unique acquisition opportunities and our new development and redevelopments efforts continue to bear fruit. As we look forward to 2016, we'll cautiously optimistic will continue to see quality assets come to market but as usual there will be strong competition and will be very focused and select their efforts.
Looking longer term, we at Weingarten have experienced many cycles. In fact that gives us a lot of comfort today is the relatively small amount of new retail space being built this is true in Houston and across our footprint. The supply demand balance favors the landlord and this makes up confident of our ability to perform well in key metrics same property and high growth rent increases FFO growth for years to come.
I'd like to thank all of our associates for their efforts, 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.
And with that operator, we’d be happy to take questions.
[Operator Instructions] And from Citi we have Christy McElroy on line. Please go ahead.
Hi, good morning everyone. Just trying to get a sense for the same store NOI growth trajectory in 2016 presumably ramps up through the year as occupancy moved higher again. And I think there was 20 basis point redevelopment impact on same store NOI growth in Q4 versus your guidance of 100 basis points in 2016 overall. It’s a little hard to tell from the redevelopment schedule but may be you can help us visualize sort of how do you start out may be with less of an impact and then it grows as project start to stabilize, just trying to get a sense for that.
Hi, Christy this is Johnny. Good morning, I think that what we are going to see in 2016 is a little bit of choppiness due to some of the remerchandising that we have underway. I think what we saw this quarter was impacted by that and will continue to see some of that. We’ve got some sign not commenced space that will commence over the next several months that will be annualized $7.7 million and I would expect the same property NOI to ramp up through the year, start out a little bit lower and then ramp up through the year into the fourth quarter.
And then with regards to the redevelopment impact on that?
It would be relatively slight, it’s not significant.
A – Johnny Hendrix
And you are talking about a 100 basis point impact in the year overall?
A – Johnny Hendrix
Yes, that’s right
So that ramps up at well.
Yes, most of that in Q3 and Q4 yes.
Okay, got it. And then Johnny you also mentioned in your opening remarks some more aggressive spends on pushing rents, I’m just wondering in the last year or two is there have been any change in the level of contractual rent growth that you have been able to right into the leases.
Christy it's been pretty slight there has been, more things - tilting more and more towards us and I'd say tilting, it's not an avalanche away. We do have better contractual steps with the smaller tenants most of the larger tenants you are getting about the same 10% every five years or so that hasn't changed a lot but the small tenants has.
From SunTrust, we have Ki Bin Kim on line. Please go ahead.
Ki Bin Kim
Thanks. It's a follow up on the previous topic. This quarter, it seems NOI was a little volatile given some changes in other income and bad debt. Just curious, what is implicit in your 2016 guidance for those two items?
Ki Bin, let me give you a little bit of background or color on the whole same-store NOI issue. On Page 26 in our supplemental towards the bottom, you can see the same-store NOI disclosure and how we break out that. During - we always, as Johnny mentioned, have fall out and lease up. Anna's Linens, probably this quarter was about $275,000 loss in '15 -- Q4 of '15. We had a legal settlement of about $375,000 in Q4 of last year that didn't reoccur this year.
And then if you look at the swing in bad debt between the two quarters, net recovery, there was about $189,000. And just those three items alone is like $839,000 of difference between the two which is, again, I'm using the denominators on Page 26 is about 95 basis points or 100 basis points of improvement that we would have seen in Q4 this year compared to Q4 of last year. So $2.1 million would have been a little in excess of 3%.
There was a modest increase in bad debt as noted in 2016 - excuse me, I think I said '15. So I think that hopefully grinds a little bit of --
Hi Ki Bin, let me add. This is Johnny. Let me add a little bit to that. Number one, the Anna Linens store is actually a very positive store for the company even though there is a short-term loss in revenue. We had nine Anna's Linens, six of them have been released to better tenants, mostly for more rent. Two of them were negotiating letters of intent now. So we are making very positive progress on the Anna's Linens story.
We have another roughly $154,000 of revenue that we lost during the fourth quarter of 2015 due to remerchandising that we elected to terminate tenants in spaces that we are leasing for more rent, better tenants. So again, you are correct that it is lumpy, but I honestly believe that it's mostly a good story.
Yes. Ki Bin, this is Steve again. Just to go back to your original question on guidance, I mean as Johnny mentioned, we are $2.5 million, $3.5 million without redevelopments, a 100 basis points more with redevelopments. That will come on slowly during the first couple of quarters and then as he said come on stronger in the second half of the year. So it is to use a word, a little lumpy.
Ki Bin Kim
Okay. I agree it could be a good thing. So many of those moving out. Just second question, I think you attract some of your developing projects looks like the square footage, timing, and the scope change a little a bit. Any color there?
Ki Bin, Drew, good morning. As I said, things are going generally very well. The Wake Forest project we actually started construction of two multi-tenant buildings, one of which is already preleased, the other one at which is leasing nicely. But because we expanded the project, saw that occupancy dropped. So Hilltop is basically finished doing great. Wake Forest is generally doing well, we expanded it. And things are going nicely in the development pipeline.
Ki Bin Kim
Okay. Thank you.
From Bank of America, we have Craig Smith on line. Please go ahead.
I was wondering what was responsible the pickup in new leasing spreads in fourth quarter versus the prior two quarters. Is that Anna's Linens or something else?
Hi good morning, Craig. Johnny again. It is generally across the board. We have obviously some better bigger. I would tell you that the increase in leasing spreads we are seeing nationally, we are seeing in almost every location. And generally, it's just this imbalance of supply and demand. I think that one of the things we have talked about earlier was CVS and they do have a bit of a nice increase at 8,000 Sunsets as part of that number, but again there was no one project or one space that really totally dominated the number.
Is this something that can continue into 2006?
Craig, it is our intention to continue this obviously as long as possible, but I think it can. The imbalance that we see in supply and demand doesn’t appear to be leveling out and for good space, which honestly I think we mostly have good space, it does seem that, that imbalance is greater than it was a year ago and is increasing.
Okay. And just maybe some thoughts on you have seven sports authority. Have you heard about any of those and what might be the relief in strategies if any that might close down?
Right. We've had some conversations with sport authority recently. I talked with them yesterday actually. I do anticipate that they’ll do something over the next two to three weeks perhaps file bankruptcy, we're not sure.
We feel really good about our position with sports authority, the level of sales that we have. If I had to guess today, we would if they reorganize, which I do believe they will, we would probably lose one store and I feel good that we'll be able to release that in -- it will take a little bit of time, would be some downtime, but we'll be fine with where we end up with that.
Three of the stores they've just renewed in the last several months. So they have the opportunity to terminate them at that time. So I am assuming they wouldn't be that and they're toward the bottom end of the stores that we have with them. So I feel good that we'll be fine.
Okay. Thank you.
From Green Street Advisors, we have Jay Carlington on line. Please go ahead.
Thank you. Drew just look at the redevelopment ROI of roughly 14%. I am wondering is any of that land in there, is it impaired land that occurred during the downturn?
I don't think so. I think that's mostly on existing properties, but generally speaking of course a lot of why the redevelopments are such a good returns is because we've harvested a pad and the basis is already in the shopping center.
So the returns are so strong because there is no imputed land value and that's why the incremental cost is so good.
Okay. Maybe switching gears Steve, just given the volatility in rates we've seen, has that impacted how you're thinking about refinancing at all? Said differently, is there any chance you could be more opportunistic about some of your maturities.
Good morning, Jay. We're always looking at the market. Our maturity schedule in is in great shape. We have about -- it shows about a 161 on a reported basis. Maturities this year from a practical standpoint is probably closer to $150 million -- $130 million because of some of the JV debt that would just get rolled, so that includes our some of the share the JV debt.
And given where our revolver is, we barely have over $100 million currently and as we talked about the disposition program, we're still looking forward in being opportunistic with regard to selling a few centers.
So there is not a need and I should mention also the new development program as Drew mentioned earlier, a couple of the projects being finished up, a lot of the capital there is really in '17 and '18. Not a whole lot in the next 12 months.
So that's longwinded. I'll basically say yeah we are. We've never really been big proponents of pre-buy and money, but I think most CFOs like to finance in this market when you have -- rates are up a little bit this morning, but have been running in the last week or so at about $160 million, $170 million right.
So we continue to look, but right now I would tell you there is nothing on the horizon.
Okay. That's helpful. And then Johnny just a quick one on small shop occupancy, it's flat until the last couple of quarters. Is that just a lot of returning going on or are we nearing to where you're comfortable with on your small shop lease sign?
No. I think it is some of the re-tenanting that's going on. Most of that $154,000 I talked about is smaller tenants. The 8,000, 5,000 square feet tenants where we do believe we have more leverage and just being more aggressive.
Okay. Thank you.
From UBS we have Jeremy Metz on line. Please go ahead.
Hi. Good morning, guys. John, I was just wondering if you could give us an update on the transaction market today in Houston. Are you seeing any movement in cap rates or interest in assets and are you seeing any acceleration of sales maybe ahead of things potentially getting worse out there?
Hi Jeremy, good morning. It is quite interesting, we have seen a few assets trade hands over the last several months and frankly the cap rates do not indicate that there is a lot of movement.
I know that a number of investors have reduced the cap rates in Houston, but as far as private transactions, that doesn’t seem to be the case. Beltaire, big shopping outweigh in West Houston, more than 20 miles from Downtown, recently sold for six cap.
It has a Walmart in a cold shadow. It's got a sports authority, a Best Buy in Ross. So if you use that as a guide and it's hard to use one property, then the cap rates that we have applied to our shopping centers when one looks at our NAV would be fairly attractive.
We've also seen a property under contract hasn’t closed yet below six around the high fives for a small Kroger out in the suburbs. So we haven't seen particularly in Houston or anywhere else for that matter any reduction in prices.
Cap rates have remained fairly stable. Quite honestly, the number of transactions that we see for great properties, for properties that we would be interested in buying is pretty slim and so it might be difficult to really draw a great comparison to that, but so far we haven't seen a lot of movement in cap rates over the last six months.
Okay. Thanks. And then just one bigger picture question here. Between whether be the sports authority or the Anna's Linens has been an opportunity to recycle some of these assets or some of these weaker retailers kind of move out.
At this point this has really been viewed as an opportunity, but I guess at what point does this really become a risk to leasing that you -- just too many boxes coming back across too many assets or even markets where it might just start to pressure some of the ability to push the rents we've seen in those low double digits?
Jeremy I think one of the benefits of the properties we have, great properties I think for a while this will continue to be a benefit. I certainly think if we saw something like we saw in 2009, 2009, just an avalanche of spaces coming back, it might be an issue.
For now when you look at the office guys or you look at the drug stores, for the most part, it will be a controlled series of stores that would come back one, two a year for our portfolio. And generally the properties we have are very high quality.
And so I think it is certainly risk when you look at the operating metrics on a short term basis, but when you look at the NAV and you look at the value that we could create over a period of time, I still think it's an opportunity for us and frankly for our peer group.
Okay. Thanks guys.
From JPMorgan, we have Michael Mueller on line. Please go ahead.
Yes, hi. Johnny, I was wondering can you talk a little bit more about you mentioned the $500,000 square feet that you're probably looking to recapture. Can you talk a little bit about rents in place what you think the mark-to-market opportunity is? And just timing of how you see this playing out over the next couple of years?
If you could waive a magic one, I would try to do it all immediately. Unfortunately, a lot of the space that we want to get back will be difficulty. Obviously, it's difficult to average out those. What you think you might get, what you think is going to be more difficult to get.
I would think that after capital, we could be looking at 20% increase in rental and I think a really nice pick up in NAV as what we're really going to do is increase the credit profile, which is difficult to really judge.
Are they all boxes or is it a mix of big, juniors, and some small shop?
No, this is a mix. There are number of boxes that we would hope to be able to get back over the next 24 months. It is a lot of small space. We have gone through the portfolio in our budget process and identified these spaces.
And we are talking with these tenants trying to see if they would give us the space back early, if there’s something we could pay them or if there are other things we can do.
So it’ll take some time to get through it. I think what I was trying to do is just make sure that the market our investors know that we are focused on this and that it could cause some choppiness in the operating metrics over the next several years.
Got it. Okay, thank you.
From Hilliard Lyons, we have Carol Kemple, on line. Please go ahead.
Good morning. Steve, you talked about an additional $400 million in G&A cost in 2016. Will that be all in the first quarter or should we think about that being a little more evenly spreaded out?
It will -- good morning, Carol. It will basically be spread out. I would think that there will probably be the majority of that in the first half of the year. We’re quite frankly planning on going live with the system in July. And we’ll certainly have some cost after that. But I would say the majority of that will be in the first half of the year.
Okay. And I know earlier in the call, you all talked about you’re having some successful service tenants. Can you talk about what areas those service tenants are in? Whether they’re still on medical or where you’re seeing demand?
Sure, Carol. Good morning. Yes, we have - honestly, it's all over the Board. The medical stuff continues to be a huge piece for us. Chiropractors, dentist, these -- emergency rooms, studio -- I mean all of it. We have a lot of stuff in duty, a lot of insurance agents kind of all over the Board.
Okay, thank you.
[Operator Instructions] And from RBC Capital Markets, we have Rich Moore on line. Please go ahead.
Hi, good morning guys. Query is on the Vegas sale. Is that Rainbow Plaza and Rainbow Plaza one, is that both of those that you’re selling?
Good morning, Rich. It's Drew. Yes, it's both of those that we sold.
Okay. And if --
But you know the consumer would -- while we bought them separately to a shopper, they would be considered one project when shopping center.
Yes. Right. And by the way I like the Marlon Brando voice, that's pretty cool.
Yesterday my colleagues were telling me I sounded like Barry White. So, thank you.
There you go. So, do you guys have a cap rate on the sale of that pair?
Yes. Let me dig that out here. Any other questions, Rich?
Yes. So, how do you guys think about Vegas? I guess going forward I’ve always thought of that as sort of one of your core markets. I mean, do you guys still feel that way or is it sort of the start of may be lightening up in Vegas?
We like Vegas, it's a good market. We’ve toured the centers there at [Recon] [ph]. And they’re generally good. But across all of our markets, Johnny and his team are very active in asset management. And as we can opportunistically harvest some property, some gains that we have, it makes sense.
So generally speaking, we like Vegas. It is the market that we intend to be in and would certainly invest if we found the right things. But that said, across all of our foot print, we'll be optimistic.
Looks like the cap rate was in a low to mid 7.
Okay, great. Thank you. And then, Steve, did you say you put a new term loan in place in January? Is that what I thought you’re trying to say?
No. That was the first part of 2015, Rich.
Okay, okay. Got you. Then turning to the tenants real quick, do you guys see any pull back from the tenants in general? I mean you mentioned that demand is sort of tepid. But, I mean are they softening in terms of their store opening plans given the things are little bit softer in the economy at this point?
Hi Rich, Johnny. I would say no. Again, it's important that we haven't seen a huge avalanche or wall of interest coming from tenants. Most of the tenants that we have today are public, most of them need to grow, they want to expand, they have to expand.
So, we are seeing certainly that the discount ready to wear, the super markets being very active and we can get a good space, they’re certainly willing to go forward. So, it’s a little strange, where the demand is relatively light but the balance of the negotiations is tipped towards us, it’s just -- not a whole lot of space available and certainly and not a whole lot of good space available.
Okay, very good, got you. And then last thing, as you flip that around, is there any evidence that the consumer is may be getting some benefit from the lower oil prices and is spending more, do you see any evidence like that?
Good morning, Rich, it’s Drew again. We read all the same publications, everybody else does, and that’s a hard thing to figure that it certainly seems that lower fuel price dividend hasn’t gone entirely into goods and shopping centers, may be a little bit to cars and other things, so the consumer must be paying down debt.
But generally as Johnny said, things are pretty good and we think our portfolio in Huston will withstand the energy and of course across the vast majority of our portfolio that consumer does benefit from that savings.
But as Johnny said, the sales growth, the retail demand is still petty moderate but the supply has just so loaded the balances in our favor.
Okay, all right. Good, thank you guys.
From Capital One Securities we have Chris Lucas, online. Please go ahead.
Hi, yeah, good morning everyone. Steve, you had mentioned that you’ve got some mortgages maturing in some of your JV’s, I guess I was just wondering what’s the outlook for those JV’s? Is this is an opportunity to either consolidate or unwind those and is that something you’re looking to do rather than just going into the refinance market and continuing those JV’s?
Good morning, Chris. I would tell you that we have been in communication with our JV partners for a while and quite frankly they’re very -- for the most part they’re very pleased with our assets and the performance and they want to continue.
I think some of it has to do with – you’re finding the same difficulty that we have and you can’t find additional places to invest capital. So, I would say generally speaking for example, there is a couple of them this year that we’re just rolling the debt quite frankly in the bank market.
I would also acknowledge that they’re looking not may be not to go out 10 years but doing a 5 and 7 year kind of renewal to give them an option of another look without going full 10.
Okay. And then I guess just an update on what your thoughts are as it relates to the development, outlook. And whether or not new supply is a risk at all over the next couple of years, are we going to continue to see this very, very light inventory increase?
Hi, Chris, Drew, good morning. My view is, we’ll see the very light inventory increase. I think like a lot of people we are focused on more infill -- somewhat more mixed use, more complicated, more expensive. The projects take years to put together and much, much longer than we were doing Greenfield development in the suburbs.
So, even if we pedal as fast as we can on something, its three or four or five years from now before the space comes online. All the stars have to really line up well, and it really works in order to justify the new construction, prices in tenants sales models and our returns etcetera.
So, my guess is we continue to see very modest new space actually come on line.
Great, thanks. Appreciate it.
[Operator Instructions] And from Wells Fargo we have Tammi Fique on the line. Please go ahead.
Hi, good morning. I guess just following up on the supply questions. General supply being muted but are there any specific markets where you’re starting to see supply pick up to a level that is all concerning?
This is Drew, and I’ll let Johnny add on. But I would say, no. And again we’ve been focused on more of the core close-in areas where there is dense population. So Northern Florida, some other places, all seem fine to me. Johnny any comments-
I have not. I haven't seen it.
The tenants tenure is so focused on things lining up that they are just not building in the Greenfields and the “build it and they will come” mentality. They are focused on their ROIs et cetera. So it really is across our footprint, I think the supply will be very modest.
Okay, thank you. And then you spoke about exiting a couple of markets in the fourth quarter. I’m just curious as you look forward, are there any other markets or states where you are looking to strategically exit?
We've talked about it, and you’ve seen in the road-show presentation the core states where we continue to focus. We feel that we are 90 plus percent in those core states. So we don’t have to do anything. But it is something we will pay extra attention to if we get compelling offers on it, sender in New Mexico at some point in time over the next few years, we could exit that.
As we continue to find great projects like we did last year in West side and other things but at this point, it’s a lot about balance and match funding and capital neutral outlook that we don’t see selling a lot nor buying a lot. So it is something we will work on but slowly.
Okay, thanks. And then in terms of your expectations for cap rates spread between acquisitions and dispositions for 2016, I’m wondering if you could give us some details around that.
It will vary a lot quarter to quarter but somewhere in that 1% to 1.5%.
Okay. And then maybe one last question. We heard from one of your peers that sales at properties around next suborder have dropped off. I think last quarter you mentioned that you are bullish on the Texas border town. Is there any change in sentiment there or it tells that this property is still strong?
Hi Tammi, Johnny. Good question and something that we have been talking to our retailers about including stage stores. These stores remain in a top quartile for all of these operators. So somewhere around 78% of our tenants in the border towns are national, and regional operators in these stores are some of the best ones that they have.
They have seen a decline in the growth rate. The Peso has lost value to the Dollar. And I think what’s happening is as you’re seeing less trips to Houston, to Dallas, and more medium size trips to McAllen and to Laredo but the sales increases have been reduced. We are actively renewing and expanding stage who, I think, is one of the tenants who said the border has been difficult for them, we are actively expanding them in a location on the border. That’s how good that story is for.
So I think the proof is in the pudding there. If we had a space come available tomorrow, I could lease it if that was a box or a small space. And I could lease it for more rent than I have it for today.
So I think we are still in really good shape in the valley. The border crossings are actually up. So maybe there is smaller trips going on it’s the sales increases, that are primarily been impacted.
Okay, great. Thank you very much.
Thank you. And we will now turn it back to Drew for final remarks.
Thanks Brandon, and thanks to all of you on the call. There are several conferences coming up and we look forward to seeing many of you there. Thanks again for your interest. We are around if there is any more questions.
Again, thank you all very much.
Ladies and gentlemen, this concludes our call for today. Thank you for joining. You may now disconnect.
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