Weingarten Realty REIT: Strong Yield, Safe Property Portfolio

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

Comments

[TexasInvestor:]

Good for you to recognize this. I have invested in WRI for many years now and have watched as analyst continued to warn against it while my profits kept growing. Now is a great time for long term investors to look to WRI

2008 Apr 11 09:55 AM

[R. Richard ...:]

It has been some years since I have been concerned with WRI specifically. By my recollection, it is in the "retail" sector of the REITs.
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.

2008 Apr 11 09:59 AM

[TexasInvestor:]

Here is a portion of WRI's recent 10K - "Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants. Rental revenues generally include minimum lease payments, which often increase over the lease term, reimbursements of property operating expenses, including ad valorem taxes, and additional rent payments based on a percentage of the tenants' sales. The majority of our anchor tenants are supermarkets, value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services. We believe stability of our anchor tenants, combined with convenient locations, attractive and well-maintained properties, high quality retailers and a strong tenant mix, should ensure the long-term success of our merchants and the viability of our portfolio." The key to this is the portion that speaks to the retailers on their properties who "generally sell basic necessity-type goods and services." This helps to protect them in down periods.

2008 Apr 11 10:16 AM

[Chris Marshall:]

I do prefer WRI to most retail Reits, but I still have reservations for the whole sector.

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.

2008 Apr 11 01:41 PM

[stockmarket...:]

If we go into a deep recession such as that forecast by Peter Schiff and Nouriel Roubini you definitely do not want to invest in retail REITs such as this one.

2008 Apr 12 12:26 AM

[rbtexas:]

The WRI portfolio is extremely stable, but no value is given to the upside as properties are re positioned and upgraded which has certainly been an ongoing theme in the history of this REIT.

2008 Apr 14 10:31 AM

[Big K:]

The author would do well to do some research before singing the praises of REITS such as WRI. Since this article was published, the dividend was slashed 50-60%. The cut in dividend was widely predicted and should have been known by the author if he were really on top of it. WRI has been badly managed over the last 10 years with debt ballooning to $3.2 billion. The debt increased by almost a factor of 6 while the FFO has barely doubled. WRI has a nice portfolio of good performing assets, but in the hands of fools who can't balance a checkbook. Under the current (mis)management, it is likely these good assets will pass from the stockholders' hands to those of more shrewd creditors who will force WRI to accept pennies on the dollar to get out from under the mountainous debts they've racked up.

May 24 01:46 PM