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Weingarten Realty Investors (NYSE:WRI)

Q1 2012 Earnings Call

May 09, 2012 11:00 am ET

Executives

Tim Goss -

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

Steven R. Weingarten - Senior Vice President of Leasing and Director of Southeast Region

Johnny L. Hendrix - Chief Operating Officer and Executive Vice President

Stephen C. Richter - Chief Financial Officer and Executive Vice President

Robert Smith - Senior Vice President of Development

Joe D. Shafer - Chief Accounting Officer and Senior Vice President

Analysts

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

James W. Sullivan - Cowen and Company, LLC, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Bruce G. Garrison - Chilton Capital Management LLC

Philip J. Martin - Morningstar Inc., Research Division

Operator

Good morning, and welcome to the Weingarten Realty First Quarter Earnings Conference. My name is Brandon, and I will be the operator for today's call. [Operator Instructions] I will now turn the call over to Mr. Tim Goss. Mr. Goss, you may begin.

Tim Goss

Good morning, and welcome to our First Quarter 2012 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; Robert Smith, Senior Vice President; 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 change in circumstances. Actual results may 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 package located under the Investor Relations tab of our website. [Operator Instructions]

I will now turn the call over to Drew Alexander.

Andrew M. Alexander

Thank you, Tim, and thanks to all of you for joining our call. At our Investor Day presentation in April of last year, we highlighted 3 strategic objectives: One, further improving operations and leasing our portfolio back to 95-plus percent occupancy; two, continuing the improvement in the quality of our portfolio through recycling of capital by selling noncore properties and acquiring or developing assets in high barrier entry markets with strong growth prospects; and three, improving our financial position by slightly delevering our balance sheet. We've made great progress on all 3 goals. We've adjusted the specifics of our plan as opportunities and challenges have surfaced, but we've remained focused and committed to achieving our ultimate objectives.

Our decision to exit the industrial business will contribute significantly to achieving our goals. As announced last month, we contracted to sell our wholly owned industrial portfolio for $382 million. This portfolio includes 52 properties, aggregating 9.6 million square feet, priced at about an 8% cap rate based upon our 2012 budget. The sale to DRA is progressing nicely and we expect to close in the next 30 days.

We are also working on the disposition of our industrial joint venture interests. This will transform WRI into a pure-play retail REIT and significantly simplify our story. The proceeds from the sale will be used to reduce debt, achieving our goal to delever the balance sheet.

We remain focused on operating and improving the quality of our retail portfolio. We produced exceptional first quarter operating results. I'm pleased to announce that we're on track to deliver a guidance of 4% to 5% Same Property NOI, with 4.8% retail growth in Q1. Additionally, we saw solid improvements in both occupancy and rent growth. This is clearly a great way to start 2012.

I will quickly review the industrial metrics for the quarter, so Johnny can focus his remarks solely on our retail portfolio. While the broader industrial markets are improving, we had a few specific challenges, and therefore, Same Property NOI was a negative 3.1% and occupancy was down 2.7% for the quarter, both primarily due to the fallout of a few tenants. Rental rates were also down slightly. This was in line with our business plan, and more detailed metrics are available in our supplemental package.

Even with the industrial sale, we remain dedicated to the goal of improving the quality of our portfolio by selling our secondary properties. We're targeting dispositions of retail assets of $150 million to $250 million for all of 2012. By pruning our lower-tier assets, we will provide greater clarity as to the true quality of the vast majority of our portfolio. We remain focused on recycling this capital into quality acquisitions in new development. The market remains incredibly competitive in these arenas, but we will maintain our disciplined pursuit of opportunities. Johnny will discuss our acquisition program a little later.

Turning to our new development efforts. We continue to make good progress on our pipeline of 11 properties. In the last quarter, our strong leasing efforts improved our net percentage lease by 270 basis points, and we're on track to finish these projects, which represent an investment of almost $200 million at an average ROI of 7.2%. We continue to pursue new projects in multiple markets, and are confident our development expertise will add shareholder value.

I'd now like to turn the call over to Steve to discuss our financial results.

Steven R. Weingarten

Thanks, Drew. We had a great quarter. Recurring FFO was $0.46 per diluted share for the quarter versus $0.42 last year, an increase of 9.5%. This was a result of reduced interest expense as we refinanced debt maturity and further increased commenced occupancy. An increase in G&A offset these gains slightly.

Reported FFO was $0.46 per share compared to $0.41 per share in 2011. During the quarter, we recognized $2 million in impairment, including an impairment of $3.2 million on our wholly owned shopping center held for sale, and a $6.6 million impairment was recorded against our investment in an industrial JV accounted for under the equity method. Since both of these impairments relate to operating properties, they were added back to net income in arriving at reported FFO.

The remaining $244,000 of impairment relates to unimproved land, and therefore is not added back in arriving at reported FFO, but is added back in arriving at recurring FFO. Please see Page 45 of the supplemental for further description of these impairments and how they flow through our financial statements.

The G&A increase in the quarter was primarily a result of the acceleration of expensing equity awards under our long-term incentive program as some executives reach retirement-eligible status. We anticipate quarterly G&A for all of 2012 will bounce around a bit, due to the onetime retirement-eligible item just mentioned. Additionally, we will recognize onetime severance costs once the industrial transaction closes, but this also results in overhead savings going forward. For 2013, we expect stabilized annual run rate for G&A to be around $27 million.

Updating our guidance given the anticipated industrial sale, we expect to achieve recurring FFO in the range of $1.76 to $1.84 per share. This guidance assumes the sale of our wholly owned industrial assets by the end of the second quarter, the sale of the industrial JVs, which is in the range of $40 million to $45 million, and $150 million to $250 million of retail dispositions for all of 2012, of which we've already closed $54 million year-to-date. The execution of this plan would bring total dispositions for the year, using the midpoint of our guidance, to around $625 million. Guidance for same-store NOI growth of 4% to 5%, acquisitions of $125 million to $175 million, and $75 million to $100 million of investment in new development all remain as previously communicated. All of these assumptions are outlined on Page 46 of the supplemental.

As Drew mentioned, the completion of the industrial transaction will have a significant positive impact on our balance sheet. We will pay off our $200 million term loan, and the remaining proceeds will reduce the outstanding balance on our $500 million line of credit to around $100 million at June 30. At the end of the year, our revised 2012 business plan has our debt-to-total assets at around 39%, our fixed charge on stabilized basis would be at about 3x, and our net debt-to-EBITDA would be less than 5.5x. This is clearly a tremendous improvement to our already strong balance sheet.

2012 is turning out to be a transformative year for WRI.

In closing, I'd like to point out some additional disclosures we've added this quarter. Starting on Page 31 of the supplemental, you will find we have added occupancy by location, and further, we have updated the average base rents by location.

Johnny?

Johnny L. Hendrix

Thanks, Steve. As we're exiting the industrial business, my remarks this morning refer specifically to our retail portfolio. First, I want to say I'm proud of the results we produced this quarter, and I appreciate all the efforts of our associates. We still have a lot of work ahead of us to achieve our mid- and long-term goals, but we have some wind at our back and we seem to be approaching that long-awaited tipping point, where we'll see more balanced negotiating leverage with our retail tenants.

Year-to-date, retail sales have exceeded expectations, and our shopping centers, anchored primarily by supermarkets and discount ready-to-wear retailers, continue to improve. We're also seeing economic conditions within our geographic footprint continue to improve. Over 50% of all the jobs created so far during 2012 have been in states where we operate.

Weingarten's Sunbelt strategy was severely tested through this recession, but we're now seeing the re-emergence of many of the positive features we expected: Higher job growth, higher population growth and a lower cost of living.

The 4.8% same property NOI we reported yesterday is our best quarterly increase since 2005 and a great start to achieve the guidance of 4% to 5%. The bulk of our annual same property NOI increase is driven by 4 components: First, the full year effect of leases commenced in 2011; second, the commencement of leases already signed which commenced during 2012; and third, contractual rent steps. There's still a lot of work to be done, ensuring leases commence on schedule. But for the most part, these first 3 components are in good shape. The bulk of the remaining work lies in the fourth category, leases projected to be signed and commenced this year. So long as we maintain our leasing velocity we've produced over the last 4 quarters, we'll meet the guidance.

While most states contributed to the same property NOI increase, Texas and California, which make up 43% of our overall same property NOI, performed best. We experienced slight declines in same property NOI in Nevada, Arizona and New Mexico, but these states have significant commencements in coming months and we're looking for improvements in those states through the rest of 2012.

As I mentioned on the last call, same property NOI will be a little lumpy through the year. As a result of some onetime bad debt recoveries in 2011, we anticipate a 1.5% to 2% increase next quarter, then accelerating through the rest of the year.

Occupancy increased again this quarter to 93.4%. That's from 93% last quarter and 92.3% a year ago. Notably, while we commenced 760,000 square feet in the last 6 months, we still have a 230 basis point spread between signed and commenced occupancy. 23% of that square footage signed and not commenced is in Nevada, New Mexico and Arizona, which is why I'm confident they will contribute to future NOI increases.

Our shop occupancy increased to 86.8% at quarter end. That's 170 basis point increase from the year ago and above our peer average. A significant contributor to occupancy gains and same property improvements is the continued reduction in the tenant fallout. We experienced about half the fallout in the first quarter of 2012 than a year ago. That's the lowest fallout since 2006. A review of our watch list and our current AR indicate this positive trend is likely to continue.

Leasing production continues to be consistent. We signed 376 leases during the quarter, representing $23 million in annual rent. This represents 129 new leases and 247 renewals for $6 million and $17 million in annual rent, respectively. Generally, this is in the same range we have produced for the last several quarters, and I would expect positive absorption over the balance of the year. Hence, our confidence in the 4% to 5% same property NOI guidance.

Renewals are also doing well. We've completed 70% of all renewals for 2012, which again is in line with our experience last year.

We've been busy scheduling meetings for our annual ICSC RECon Convention in May. We will be talking with hundreds of tenants and brokers, solidifying relationships and discussing renewals and new leases. Our initial indication is RECon will be well attended with national and regional shop tenants eager to expand. The convention is a great supplement to our global meeting plan. We've already been meeting with regional and national shop tenants reviewing opportunities. These are tenants like Chipotle, SmashBurger, Rue 21, Carter's and the Vitamin Shoppe.

Our global meetings have proven to be very productive and have resulted in numerous new leases and renewals. We recognize our continued growth lies with our spaces under 10,000 square feet, and we're very focused on marketing those opportunities. We recently announced the branding of long-standing efforts into a program we called shop-centric. This program bundles many of the services we've always offered our tenants. We simplify lease negotiations, provide consultation on marketing strategies, assist in permitting and partner with our tenants in order to build a relationship to help them succeed in our shopping centers. You can see the details of this program by clicking the ShopCentric icon on our website.

Rent growth for the quarter was also positive, with an increase of 5.1%. New leases were up 4.1% and renewals were up 5.3%. The company has consistently emphasized occupancy over the last several years, willing to give up immediate rent increases if we can stay short term or get good contractual increases. Our strategy to give up short-term rent growth appears to be paying off, as we're now enjoying good rent bumps and renewing short-term releases with solid increases.

We remain focused on our capital recycling program. We sold 10 assets for $47 million during the quarter, and since the end of the quarter have closed an additional $6 million, and have an additional $140 million of property under contract or negotiating a letter of intent.

We closed $22 million of acquisitions during the first quarter, mostly opportunistic purchases, including a freestanding Best Buy in the Galleria area, which is an expansion of our Richmond Square shopping center in Houston, and a Triple Net HEB lease in Houston. These properties have average household incomes of $107,000 with 131,000 people in a 3-mile radius. We have $30 million of additional acquisitions under contract, now expect to end the year within the guidance we've confirmed.

So in summary, we had a great quarter, but we still have challenges ahead, and we look forward to successfully meeting those challenges. Drew?

Andrew M. Alexander

Thanks, Johnny. I mentioned at the beginning of the call that we are focused on 3 strategic objectives: One, further improving operations and returning to 95-plus percent occupancy. Each 1% occupancy gain adds approximately $0.05 per share. Two, continued improvement in the quality of our portfolio through capital recycling. And three, continued improvement of our strong balance sheet and financial metrics. We've made significant progress in each of these areas during the quarter.

Clearly, the industrial disposition is a watershed event for this company. The corresponding strengthening of our balance sheet is obviously important. Our strong same property NOI increase and recurring FFO growth for the quarter highlights the momentum we are gaining in operations, and we are confident in our ability to continue to further improve occupancy and the repositioning of our portfolio according to plan. Certainly, this is one of the best overall quarters we've had in quite some time.

We are also optimistic about the remainder of 2012. Our guidance of $1.76 to $1.84 will require us to continue to push hard, but we are confident we will achieve this growth. I'm very proud of our team and all the effort put forth by all of our associates in producing such a strong quarter. I want to thank our board for the counsel and advice they provide, and I want to thank all of you for joining the call today and for your continued interest in Weingarten.

Operator, we'll now be happy to take questions.

Question-and-Answer Session

Operator

[Operator Instructions] And from Wells Fargo, we have Jeffrey Donnelly online.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

The first question I think is maybe split between Steve and Johnny. Are you guys able to quantify for us what portion of the growth behind your 2012 NOI growth guidance is signed but not commenced, versus, I'll call it not signed and thus not commenced? I'm just trying to figure out how much of your future growth might be in the bag, if you will.

Stephen C. Richter

Jeff, we have about $3 million that is not signed and not commenced that needs to be completed in order to achieve the goal. That gives you a sense of it. So that's a relatively small percentage of the overall.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And then maybe just for you, Johnny. I mean, it's 2 parts. But we are seeing renewed demand from the small retailers. The shop occupancy gains in the quarter are outpacing your broader reach of portfolio. I guess first, what do you think's triggering that resurgence? Is it higher confidence from retailers in adding stores? Or has there been some change maybe in some of the incentives you guys are providing versus, say, 12 to 24 months ago and...

Johnny L. Hendrix

We really...

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

The other thing -- and secondarily, is there some like different type of tenant that you're seeing today versus 2 years ago? Are they more national, regional or even more sort of local mom-and-pop type?

Johnny L. Hendrix

Yes, let me actually get to the first -- the second question first. And I would say, generally speaking, we're seeing many more national and regional than mom-and-pop. There is not a lot of new creation of what I would consider to be mom-and-pop businesses today. Most of the space that we're leasing today is national and regional tenants. I would tell you that the techniques and the discipline that we're using to lease the space today is the same as we have for the last many years. And I think we probably have increased a little bit the number of folks that we've had over the last couple of years. But other than that, we're not really adding any incentives that are special.

Operator

From Cowen and Company, we have Jim Sullivan online.

James W. Sullivan - Cowen and Company, LLC, Research Division

Question, I guess, for Johnny and/or Steve. In your revised guidance, you raised your signed occupancy number and kept the same property NOI number the same. The spread number remains the same, negative 1 to 2. You had a pretty good quarter on spreads, so I wondered if you could just talk about why you weren't able to raise that spread number a little bit, number one. And number two, just thinking, I don't want to get too far ahead here, but thinking about the progression of your same store NOI in the last cycle, you were -- at its peak, you were getting spreads in the 10% to 15% range. And I just wonder if you have a feel for do you know when you might be able to think about numbers like that looking forward?

Johnny L. Hendrix

Again, let me answer the second question first. I think it's coming. I'm not totally certain when it is, and I will tell you that we are very -- remain very focused on occupancy. I'm hopeful that by the beginning of next year, we could start seeing spreads like that, so that's kind of where I think we are. In terms of the occupancy guidance and why we didn't raise it more, I think that the issue you kind of got to look at is the industrial portfolio is only 10% of the NOI, but it's certainly significantly more than that on a square footage basis. So the effect of that kind of offsets the total guidance that we can have, and this was the retail occupancy from the very beginning. And pretty much, so far this year, we have been moving forward according to plan. I think both the fallout and the leasing, and the commencement of leases has been pretty consistent with the plan that we initially outlined.

James W. Sullivan - Cowen and Company, LLC, Research Division

Just to be clear, when you use the word fallout, you're referring to tenants who are closing stores prior to the expiration of the lease as opposed to just tenants who don’t renew?

Steven R. Weingarten

This will include both tenants who just don't renew and tenants who close their store before -- these are tenants that are leaving the space for one reason or another and not paying rent.

Operator

From RBC Capital Markets, we have Rich Moore online.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

As you unwind the 2 industrial joint ventures, does that change what you're doing with BIT and Eagle? Do those, I guess, just go away as joint venture partners?

Andrew M. Alexander

We have a -- Rich, it's Drew. We have a separate joint venture for retail assets with BIT, so that would, we anticipate, continue. But if we are successful -- or as we are successful in working through things with a partner, yes, then the Eagle and the BIT industrial, we will transition out of those.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Okay. And so does that change your thinking in general about joint venture partners? I guess, not really, it doesn’t sound like.

Andrew M. Alexander

No, not at all. We've had joint venture partners for at least 40 years that I can think of. And in the right circumstances, I think it's a fabulous way to leverage our operating platform, our expertise and a lot of other advantages as well. So with a number of good partners -- and both Anaco [ph], which is Eagle, and BIT are great partners. And I think they understand that for strategic reasons having nothing to do with these partnerships, we made the decision to exit industrial, and we've been in touch with them about it for months and I'm optimistic we'll get it resolved in a good way this year.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Okay. And then the second thing -- the second thing, if I could, on the development portfolio. It seemed like Sheridan and Hilltop both saw some increases in expected costs for those 2 projects. Do you have any thoughts on those in particular, and maybe anything else inside the pipeline that might be rising in cost?

Andrew M. Alexander

I'll take Sheridan, and then Robert, who's been intimately involved in Hilltop, can chime in. There's nothing significant. We're making some progress slowly but surely at Sheridan, working with some different restaurants and some other tenants. So we're actually pleased there that we see more activity and are looking at investing some more money. And then Robert can talk about Hilltop.

Robert Smith

Yes. Hilltop, we broke ground on that in March. and it's a 2-year build-out process before it opens, so you're really seeing the growing cost from the construction. And in a couple of years we'll start to see the income. And we're 70% preleased there, so we're in really good shape and we're seeing rents continue to appreciate, so it's going according to plan right now.

Operator

From JPMorgan, we have Michael Mueller online.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

I was just wondering once you get past 2012 and just thinking about dispositions going forward, I mean, how do you look at what you want to accomplish over the next few years? I mean, obviously, this is a big year, but do you remain active in '13 and 14? Do you contemplate selling, call it, $100 million, $200 million a year just as a normal program or...

Johnny L. Hendrix

Yes, Michael, this is Johnny. I think we do continue. I think this is the normal course of business for us going forward to continue to cull the portfolio to have the best-quality properties that we can. I think at the Investor Day in April, we talked about somewhere around $600 million in -- over a number of years, and I think a $200 million number going forward wouldn't be unreasonable.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay, great. And just following along those lines, should we be thinking of just same existing markets and just getting rid of stuff that you don't see that has as much growth in it in the existing markets? Or would you plan on changing what your map looks like at some point by getting out of some markets altogether?

Johnny L. Hendrix

I think one of the things that we definitely want to do is take some of the states off the map where we don't have regional offices close by. So mostly through central part of the U.S. and then take some properties off of the map that are in states that we're in but aren't within 2 hours of one of our regional offices. We want to continue to cluster our properties in regional areas and cities in -- basically in the same footprint that we're in.

Operator

From Deutsche Bank, we have Vincent Chao online.

Vincent Chao - Deutsche Bank AG, Research Division

I just had a question on -- to your outlook for cap rates just over the past 3 months or so, how that's changed, if at all. I think previously, you were looking up roughly 8% on the dispositions and about 6% on the acquisitions. And also, I just wanted to get us some specific color on the quarterly disposition, which came in at a 5.8%, which is a -- pretty attractive there.

Johnny L. Hendrix

Yes, Vincent, this is John again. I -- cap rates don’t seem to have moved much in the beginning of the year. And I think reasonable for the model to be 8% to 8.5% on the disposition side. On the acquisition side, I think 6% to 6.5%, again, is probably reasonable for the quality properties that we're looking at. I'm sorry, the next question was?

Vincent Chao - Deutsche Bank AG, Research Division

Just for the quarter, it was 5.8% for the dispo, so it pointed lower.

Johnny L. Hendrix

Yes, yes, yes, I'm sorry. Yes, on the disposition side, we had a individual property that kind of skewed the number. It would have been in that 8% to 8.5% range if not for a property that is -- was really a development property that was a little bit different. So I think that the number looks a little better than it probably would otherwise.

Vincent Chao - Deutsche Bank AG, Research Division

Okay, okay. And then just a clean-up question. Just you mentioned some severance charges that would come through, I guess as a result of the industrial sale. Can you give us a sense of what that number looks like? And I'm assuming that's out of -- not included in recurring FFO, correct?

Andrew M. Alexander

That would be correct. We don't know exactly since the industrial transaction has not closed yet. But we're -- expect that to be somewhere in the $1 million to $1.5 million range.

Operator

From Chilton Capital, we have Bruce Garrison online.

Bruce G. Garrison - Chilton Capital Management LLC

Steve, with respect to the same-store NOI, did I miss it in the supplemental? I saw the percent change, but did you all provide the absolute dollar amount this year versus last year?

Stephen C. Richter

No, I don't think we have, Bruce.

Bruce G. Garrison - Chilton Capital Management LLC

Oh, you have not done so in the past either?

Stephen C. Richter

No.

Bruce G. Garrison - Chilton Capital Management LLC

Oh, okay. All right. Very good. Is that something that you all may want to consider doing in the future?

Joe D. Shafer

We always are looking at additional disclosure, Bruce, and we'll take a look at that one as well.

Operator

From Wells Fargo, we have a follow-up from Jeffrey Donnelly.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

It is true -- I think in your remarks and in the press release, you mentioned there's just shy of I think about $200 million of retail assets sold or under contract. I'm suspecting there's more to come. What percentage of the retail portfolio falls into I think that lower-tier group, as you called it? And do you have the metrics on how those assets did in NOI versus the rest of the portfolio?

Andrew M. Alexander

I'm going to let Johnny take that.

Johnny L. Hendrix

Jeff, at the Investor Day, the portfolio that we laid out, there were 65 individual properties, roughly 12% of the retail NOI. We do not track those separately and have -- and I can tell you that generally, they did not perform at the level of the overall average.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Well, is it fair to say that might be flat to down? Or do you just think they're growing, just a bit more slowly?

Johnny L. Hendrix

I think they're growing just a little more slowly. Many of them are in Texas, and Texas has done exceptionally well. But for the most part, they have not performed at the level of the other properties.

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

And Johnny, just a follow-up. Are you seeing tenant demand broaden out beyond just what I would call your highest-quality markets and maybe into, I guess I'll call it like second- or third-tier parts of your portfolio or your assets? Or is -- tenants are still just pretty fairly focused?

Johnny L. Hendrix

Well, I think I made a joke to one of the leasing executives that we're not saving the best property for last. And as we continue to lease properties, yes, we're leasing property that is more difficult to lease and could be in secondary markets. So I think, yes, that's absolutely correct.

Operator

From MorningStar, we have Philip Martin online.

Philip J. Martin - Morningstar Inc., Research Division

Now that we're -- now that Weingarten has what appears to be some sustainable leasing demand and activity, can you provide some insight into trends and tenant -- in terms of tenant space demands and lease terms along the tenant spectrum, and looking at kind of the small mid-box and large tenants? And comparing that, let's say, today versus 5 years ago.

Andrew M. Alexander

Again, always easier for me to take that last question first. Compared to 5 years ago, the demand for everything is better than it has been. Certainly, those were kind of dark days, but -- the phone wasn't ringing off the hook and we were trying to do -- lease anything we could. I would tell you today, with our box spaces over 97% leased, we are being pretty selective, both in renewals and in new leases, and I think driving a little bit harder bargain than we did several years ago. I would say that's probably true in that kind of midsize box. On the shop space, there does seem to be not nearly the pricing power that we have in the boxes, even though the better spaces, and this is a business that's corner by corner and space by space. And when you get a good space, you can really drive the rent and you can really get some competition amongst retailers. And again, most of the retailers we're doing business with today, particularly in the shop space or national and regional folks, many of which are public companies, and do need to grow. And as we do not have any new development going on, most of that growth is going to need to occur in properties that exist today.

Philip J. Martin - Morningstar Inc., Research Division

All right. Would you say lease terms today are as strong as pre-crisis levels?

Andrew M. Alexander

Probably in some markets. Texas is -- actually has the highest occupancy we've had since -- I've been with the company for 27 years. So we probably have some pricing power here. But you still have I think some overhang of some vacant spaces, some vacant shopping centers around, so you probably don't have the pricing power that you had in 2006. And I think that's what we talked about earlier, that hopefully, by the time we get to 2013, we can get back to that.

Philip J. Martin - Morningstar Inc., Research Division

Okay. And with regard to that first question. In terms of tenant space demands, are you seeing the mid to larger tenants looking for less space, more space?

Andrew M. Alexander

Oh, no, no. The junior boxes, the 20,000, 25,000, 30,000 square-foot tenants, again, are mostly public companies and I would say there's more demand in that area than there is space. So I think you're continuing to see more and more of that as we go on.

Operator

[Operator Instructions] From Cowen and Company, we have Jim Sullivan online.

James W. Sullivan - Cowen and Company, LLC, Research Division

Yes, quickly, I just have a follow-up question. You had talked in the prepared comments about where some of those debt metrics will be getting to by the end of the year with the completion of the industrial sale, 5.5x net debt to EBITDA in the fixed charge coverage. Maybe if you could just help us going forward, again, think about particularly as development opportunities present themselves, what kind of ratios you want to maintain with those 2 metrics?

Stephen C. Richter

Yes, Jim. I think just the be clear, those metrics that we used are with the completion of our business plan, so it does include the industrial, as well as executing the balance of the guidance items that we laid out in the revised 2012 guidance. I think going forward, probably the easiest way to articulate it is on a total leverage basis. We think in the high 30%, call it 38%, in that neighborhood is where we'd like to run the company. I think that probably equates to something in the 5.5-ish range for net debt-to-EBITDA. And I think that will yield a fantastic fixed charge coverage as well.

Operator

I will now turn it back over to Drew for any final remarks.

Andrew M. Alexander

Well, thank you very much for your interest in Weingarten. We appreciate your joining us on the call this morning. We look forward to seeing many of you at the RECon Convention in Las Vegas in a few weeks, and then also at New York in maybe in about a month. Thanks so much for your interest and we'll be around later if there are further questions. Thanks again.

Operator

And this concludes today's conference. Thank you for joining. You may now disconnect.

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