Weingarten Realty REIT: Strong Yield, Safe Property Portfolio 7 comments
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Weingarten Realty (WRI) is one of the nation's largest real estate investment trusts [REITs]. The company owns 335 commercial shopping centers around the country, as well as 80 industrial properties -- a portfolio comprising more than 72 million square feet of space under management.
Fears of a slowdown in consumer spending (and thus falling demand for retail space) have taken a toll on the stock lately, erasing more than one-fourth of Weingarten's market cap. However, I think any near-term threats have been overstated.
Unlike some rivals, Weingarten has a diversified base of 5,700 tenants and doesn't depend too heavily on the business of any single customer. Its largest customer accounts for less than 3% of the firm's revenues, and the top ten represent less than 15%. And while the company does have a modest concentration of properties in the central part of the country, recent acquisitions along the east and west coasts should help provide some geographic diversity and protect against a real estate downturn in any one region.
Furthermore, many of the company's shopping centers are anchored by Wal-mart (WMT) or other leading grocery chains, which are better prepared to weather an economic slump than discretionary retailers. In six decades of operation, occupancy has never once dipped below the 90% mark -- and it currently stands at a lofty +94.4%.
Nor do recent fourth-quarter results point to a slowdown. In fact, Weingarten has signed more than 1,200 new leases or renewals over the past year, at an average rental increase of +14%. Meanwhile, funds from operations [FFO], a widely used cash flow measure within the industry, rose +8% to reach $3.06 per share.
As a REIT, Weingarten returns the lion's share of cash to shareholders -- increasing its distributions for 23 consecutive years. After a recent distribution hike to $0.525 per share, investors can now expect to receive $2.10 per share over the next year for a yield of 5.8%. And with dozens of new properties under development and a steady stream of recurring rental income from its existing portfolio, there is plenty more where that came from.
Weingarten Realty is in the fortunate position of collecting a steady stream of income. And thanks to its tax-advantaged structure, it is also able to pass along outsized dividends to its owners.
Now that WRI is trading well off its highs, investors can get much more bang for their buck. With a stable outlook, reliable dividend track record and attractive upside potential, I think this company would make a sound pick for income-oriented value investors.
Disclosure: None
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This article has 7 comments:
A factor not generally discussed, is the degree to which the "participation rentals" (where the rentors return is based in part on a percentage of sales made by the tenant) affects the rates of cash flow (the accepted substitute basis for "earnings").
It has been years since I analyzed 10Ks or 10Qs for any such details. However, slowing, or declining retail sales may have more of an impact on "retail REITs" than many suspect.
Discounting the non-recurring item, their income was only $150 Mill, and their cashflow is poor. The net tangible assets is low, compared to the current market value and the way that Reits were set up, makes it difficult to rebuild a balance sheet.
On the plus side, being at the "value for money" end of retailing is probably a shrewd strategy, during the down turn.
However, there are inherent dangers, as I expect vacancy rates to settle between 11% - 12%. On top of this, as their revenue worsens, the company debt will cost more to service.
I hope their strategy sees them through, I much prefer their chances to those of GGP and Taubman.