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Edited Transcript of WRI.N earnings conference call or presentation 23-Feb-21 4:00pm GMT

·44 min read

Q4 2020 Weingarten Realty Investors Earnings Call Houston Feb 23, 2021 (Thomson StreetEvents) -- Edited Transcript of Weingarten Realty Investors earnings conference call or presentation Tuesday, February 23, 2021 at 4:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew M. Alexander Weingarten Realty Investors - Chairman, President & CEO * Johnny L. Hendrix Weingarten Realty Investors - Executive VP & COO * Michelle Wiggs Weingarten Realty Investors - VP of IR * Stephen C. Richter Weingarten Realty Investors - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Christopher Ronald Lucas Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst * Craig Richard Schmidt BofA Securities, Research Division - Director * Floris Gerbrand Hendrik Van Dijkum Compass Point Research & Trading, LLC, Research Division - Analyst * Greg Michael McGinniss Scotiabank Global Banking and Markets, Research Division - Analyst * Ki Bin Kim Truist Securities, Inc., Research Division - MD * Linda Tsai Jefferies LLC, Research Division - Equity Analyst * Mary Kathleen McConnell Citigroup Inc., Research Division - Research Analyst * Michael William Mueller JPMorgan Chase & Co, Research Division - Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to the Weingarten Realty Inc. Fourth Quarter 2020 Earnings Call. My name is Brandon, and I'll be your operator for today. (Operator Instructions) Please note, this conference is being recorded. And I will now turn it over to Michelle Wiggs. Michelle, you may begin. -------------------------------------------------------------------------------- Michelle Wiggs, Weingarten Realty Investors - VP of IR [2] -------------------------------------------------------------------------------- Good morning, and welcome to our fourth quarter 2020 conference call. Joining me today is Drew Alexander, Johnny Hendrix, Steve Richter, Joe Shafer. 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 core and NAREIT, 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. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Thank you, Michelle, and thanks to all of you for joining us. I thank you all for your patience with rescheduling our call from last week. We felt that moving the call was for the best as power and Internet was inconsistent, and our team was working in some difficult conditions. I want to reiterate that our first priority continues to be the safety and well-being of our associates, tenants, stakeholders and the broader community as we begin to hopefully put COVID-19 behind us. We are pleased with our operating results for the quarter. Our cash collections continue to trend favorably which clearly reflects the strength of our transformed portfolio of primarily grocery-anchored centers located in the Southern and Western United States. As most know, Weingarten embarked upon a multiyear transformation several years ago. We focused on centers with stronger demographics and selling centers with watch list tenants. Our transformed portfolio today is much better positioned for growth. We've always believed in the Sunbelt and the growing popularity of the states in which we operate will further enhance the value of our strong portfolio. We continue to strategically hone our portfolio exiting Charlotte, North Carolina and Dallas-Fort Worth, Texas during the quarter. Both good markets, but we didn't see getting a real presence in either. So strategically, it made sense to exit. For the full year, we sold property totaling $248 million, purchased $167 million of assets and invested $75 million in our 3 new development projects. Subsequent to year-end, we sold 2 properties, 1 in Tucson and 1 in Raleigh. We are especially pleased with our purchase of the remainder of Village Plaza at Bunker Hill here in Houston, certainly one of the best properties in our portfolio. Johnny will discuss this further in a little bit. While there are challenges, we're especially impressed with the production of our leasing team in this unprecedented economic environment as they've already gained commitments from quality retailers for several of the recently vacated junior box anchor spaces. We still have a lot of hard work ahead of us as we seek to return to full occupancy, but the multiyear transformation of our portfolio has certainly made the road ahead easier. Our transformation resulted in a higher percentage of grocery-anchored centers, a much improved tenant base and most importantly, a much stronger balance sheet with little near-term debt maturities. With respect to our dividend, we declared an increase to $0.30 per share from $0.18 per share. Our cash collections remained strong. We have approximately $10 million of annualized revenue from leases that are signed but not yet paying rent and an additional robust pipeline of over 60 new leases that are under letter of intent and in our legal department with annualized rents greater than $7 million that makes us very optimistic as we look to the future. Not only does this make us comfortable with our 2021 dividend, we are also bullish about 2022 NOI growth. With no material debt maturities this year, and reduced CapEx requirement, we are also very comfortable with our liquidity. We'll certainly monitor conditions and our cash flow, but as mentioned, we are optimistic that the worst is behind us. Finally, all 3 of our large new development projects are progressing nicely. There's minimal additional investment for completion and leasing is going well. Centro is nearing stabilization with retail at 98% leased and residential at 89% leased. At West Alex, residential is currently 46% leased; retail, 82% leased, and we're very excited that Harris Teeter is under construction with their opening scheduled for this summer. At the Driscoll, in Houston, the residential construction is nearly complete and we're 47% leased. These are great projects, which will begin to contribute meaningful cash flow this year, and they're creating good long-term shareholder value. Steve? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, Drew. Core FFO for the quarter ended December 31, 2020, was $0.43 per share compared to $0.53 per share for the same quarter of the prior year. The decrease from the prior year is a result of the ongoing impact of the pandemic on our operating results, which included abatements of rent, tenant fallouts, and reserve recorded for bad debt, expense and uncollectible revenue during the quarter, which together totaled about $0.08 per share. Also contributing to the year-over-year decrease was our disposition program, which cost us an additional $0.03 per share compared to the same quarter of last year. A reconciliation of net income to core FFO is included in our press release. With respect to our balance sheet, our $500 million revolving credit facility is totally available. During the quarter, we repurchased 832,000 shares of our common stock at an average price of $16.66 per share, with proceeds from the disposition program. With no material maturities until late 2022, we have adequate liquidity after the payment of dividends to comfortably sustain operations and pursue select growth opportunities. Finally, I'd like to address 2021 guidance. While there is a great deal of uncertainty remaining regarding the impact of the pandemic, we've run many possible scenarios to find the middle of the road with how our transformed portfolio will perform this year. This guidance is based on a gradual improvement in the economy and retail environment as the country moves through the vaccination process during the remainder of the year. Occupancy is expected to bottom out midyear and build from there. Guidance for 2021 core FFO is a range of $1.65 to $1.75 per share. The range of guidance for both net income and FFO are predictably wider than normal due to the significant uncertainties. Let me highlight a few components to provide color around some major drivers using numbers at the midpoint of our guidance for simplicity. First, this guidance anticipates that bad debt uncollectible revenue will decrease from 2020 levels but this benefit will be largely offset by tenant fallout and terminations, both fallout that has occurred as -- and additional fallout anticipated. Second, the guidance does not anticipate taking any new leases to cash basis. This, along with our normal process to budget straight-line rent will result in a benefit in straight-line rent of $0.12 per share due to the projected absence of any straight-line rent write-offs in 2021. Third, our development program will contribute a $0.01 per share in 2021. This includes NOI coming online of $0.08, offset by a reduction in capitalized interest of $0.05 and a reduction in capitalized overhead of $0.02 per share. Finally, we have our transactions activity. Our 2020 dispositions will reduce 2021 FFO by $0.07, which is partially offset by 2020 acquisitions totaling $0.04 per share. This guidance also includes the impact of $100 million to $150 million of dispositions, which is front-end loaded, given we've already sold about $54 million in 2021. We forecast acquisitions of between $50 million to $100 million, which is projected to be back-end loaded. The net impact of these projected transactions will reduce FFO $0.05 per share in 2021. There are certainly a lot of assumptions, but we hope this helps build the bridge between 2020 actual results and 2021 guidance. Same-property NOI guidance will not be provided initially but may be added during the year. Our guidance specifics are included on Page 10 of the supplemental. Johnny? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [5] -------------------------------------------------------------------------------- Thanks, Steve. Our transformed, highly diversified portfolio continues to produce results at the top of our peer group. As of February 12, the fourth quarter collections were 94% of the rent billed. Our essential tenants, including restaurants, were 96% and nonessential was 91%. Large-format gyms and theaters continue to lag behind all other categories. Only 2.7% of our ABR comes from these 2 categories. Regionally, collections have been consistent across our portfolio with the exception of California properties, where we collected 87% of the rent billed in Q4. California has recently lifted some restrictions, so we believe total collections will improve there. For the company as a whole, January collections trajectory is similar to the last several months. As of February 12, we've collected 93% of the rent billed. Most of the portfolio has benefited from our geographic positioning in high-growth, pro business, low tax states, not only containing the first areas to reopen. But also enjoying significant inward migration. Occupancy for the portfolio fell to 92.9% from 93% last quarter. That's not nearly as severe as we had feared. Keep in mind, we still have 3% of our tenants who have not signed any sort of agreement and who have not paid rent. The company is committed to working with those tenants we can help. But some will not be able to make the transition post COVID. It's important to note there are many of our tenants who are thriving. Supermarkets, medical services, general merchandise, home improvements, sporting goods, wine and liquor, electronics, discount clothing, home furnishings, pets, financial services and craft, make up 50% of Weingarten's ABR. Collections for these categories were 98% in the fourth quarter. These tenants are healthy and many of the categories are expanding. We're experiencing strong demand for available space. During the fourth quarter, we executed 81 new leases and 91 renewals. New leases represented $6.7 million in base minimum rent. This is the highest fourth quarter production volume we've generated since 2015. The pipeline for new leases is strong. Over the last several quarters, we've been adding human resources to our production chain and we're poised to take advantage of the demand for great space. During the quarter, we executed leases with several medical clinics and urgent care facilities, Kelsey-Seybold Clinic, PACS Urgent Care, Virginia Hospital and Quick Care. We're also excited to have signed leases with Sprout Supermarket and Ross, along with several home furnishing retailers. Rent growth for the fourth quarter was 5.8%. Rent for new leases increased almost 10%, while renewals grew just under 4%. For the year, rent for new leases grew 11.2% with renewals at 6.6%. Management anticipates modest rent growth through 2021 as we focus on improving overall occupancy. Rent growth will likely vary considerably from quarter-to-quarter. Excluding River Oaks, we're completing the redevelopment of 8 properties this year. We've spent $41 million on these assets to date and we'll spend another $11 million over the next 12 months. Most of these projects are outparcel buildings, and we believe they provide the company with returns around 10%. The company is very excited to have executed a transaction to obtain our partners 42% interest in Village Plaza at Bunker Hill here in Houston. We now own 100% of the project, which is one of the finest supermarket-anchored shopping centers in Houston. It's anchored by a very high-volume HEB, Academy, Ross, Burlington, PetSmart and Nordstrom Rack. The 3-mile demographics are very strong, population of 140,000, college educations over 51%, and average household incomes over $141,000 a year. This improves our very strong Houston-based assets. Today, almost 80% of our Houston ABR comes from shopping centers within 5 miles of the Galleria. Our 3-mile average population is 155,000 with household incomes of $136,000. Collections at our properties in Houston are 95%. Houston's economy is strong and very diversified. Houston has regained about half the jobs lost at the beginning of the pandemic and we expect to continue to grow our employment base through 2021. It's too early to determine the exact effect of recent migration, but we know it is a positive impact on new household formations. 2021 will continue to provide challenges for the company, and I am confident our portfolio and our associates will continue to perform at the top of the peer group. Drew? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [6] -------------------------------------------------------------------------------- Thanks, Johnny. Heartfelt thanks goes out to all our associates who are working so very hard right now, and to our Board of Trust Managers who provided constant quality feedback throughout these difficult times. There are still issues to deal with, but we feel things are positioned to improve through 2021. 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. Operator, we'd now be happy to take questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) And from Citi, we have Katy McConnell. -------------------------------------------------------------------------------- Mary Kathleen McConnell, Citigroup Inc., Research Division - Research Analyst [2] -------------------------------------------------------------------------------- Great. So to start, can you provide some color on how you expect pricing to trend on both the acquisitions and dispositions for this year, just in the range? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [3] -------------------------------------------------------------------------------- Sure, Katy. This is Drew. As we said in the guidance, we have a few dispositions that we want to continue to hone the map and take advantage of things, and that's where we're looking at that being $100 million to $150 million. We've already sold 2 properties, 1 in Tucson, it was more of a power center with some tenants that would be on most people's watch list; and 1 in Raleigh, where the supermarket wasn't as strong as our average. So a few other honings, but we don't see a tremendous amount of disposition activity. Last year was a little stronger than we would have forecast or we did forecast, largely as a result of the COVID crisis, the opportunity to buy stock back and then the opportunity to basically do what could be considered a swap to sell our last asset in Fort Worth for the remainder of Bunker Hill. So a lot less activity on the dispositions front. On acquisitions, we're very focused, as you know, on about 24 markets, coast to coast. We see everything that trades will continue to be selective. We do hear some brokers talking about more property coming to market, and we'll certainly look at it. But good quality properties like we're looking for are still trading at pretty aggressive cap rates, call it, 5%, a little less in coastal markets. So it has to have some good growth to it, identifiable growth to make sense. So we do see some transaction activity, but not big in 2021. -------------------------------------------------------------------------------- Mary Kathleen McConnell, Citigroup Inc., Research Division - Research Analyst [4] -------------------------------------------------------------------------------- Okay. Got it. And then could you update us on the percentage of ABR that's coming from cash basis tenants today and how those collection levels have been trending so far? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [5] -------------------------------------------------------------------------------- Katy, this is Steve. Total cash basis tenants today are about $17.5 million, which is about 14% of our ABR. And interestingly enough, between Q3 and Q4, the collections for cash basis has been in the 79%, 80% range for both quarters. -------------------------------------------------------------------------------- Operator [6] -------------------------------------------------------------------------------- From Scotiabank, we have Greg McGinniss. -------------------------------------------------------------------------------- Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [7] -------------------------------------------------------------------------------- I'm glad to hear that the team is doing all right after the winter storm and totally understand moving the call. I'd like to talk about the dividend. We were surprised at the level of the reestablished dividend that does not appear to give much breathing room after CapEx needs. Is it currently set to be matching taxable income for 2021? Are there some 2020 gains that are being distributed? Or what was the reasoning for setting kind of this high level of dividend, which is one of the -- represents one of the highest yields within the shopping center group now? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [8] -------------------------------------------------------------------------------- Greg, it's Drew. Thank you for the kind wishes. It was a tumultuous week across the state, but everybody is safe, and that's the main thing. So as to your question on the dividend, we're comfortable with the $0.30. It's about 70% of FFO with the midpoint of our guidance, It's middle 90s of AFFO, depending upon how you score it. And it is a function of several things that you mentioned in terms of our estimated taxable income this year as well as obligations from past years. But the main thing that I would say is what we tried to get into in the script is when we look at the what's going on in the portfolio, we look at the huge amount of leases that are signed but not commenced. We look at a very strong, robust, growing pipeline. We also don't have that much capital left on the new developments that will continue to produce more revenues. So as we look to the end of '21 and into '22, we feel very comfortable with it. We're in a great financial position. So looking at the taxable income, the cash flows, the trends, we felt comfortable with the $0.30. -------------------------------------------------------------------------------- Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [9] -------------------------------------------------------------------------------- Is there a kind of payout ratio that you're targeting at this point on an AFFO basis? So if I'm thinking about kind of outsized growth from repopulating the portfolio with tenants and growing FFO back up from what was lost in 2020. Should we expect kind of dividend to match that so we maintain kind of higher payout ratio? Or do we expect to get to maybe a more kind of 80% ish historical average within the shopping center payout? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [10] -------------------------------------------------------------------------------- So I'll give you my thoughts, and then Steve can elaborate. But I would say what drives it is our guess of our own taxable income. And that's where taxable income is really, really, really hard to forecast. Doing FFO projections is challenging in a COVID world, but taxable income gets into not only how much dispositions we do, but what dispositions we do. We have great joint venture relationships, but some of those have been around for a while, and there could be some changes in our joint ventures that, again, are very hard to forecast. You even get into issues about when your tenants pay rent in terms of the calendar year. So it's very complicated. So I would say what drives it for us ideally would be to be at [100.1%] of taxable income, but it's a very imprecise thing. So I think Steve's telling me, I covered it. Anything else to add, Steve? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [11] -------------------------------------------------------------------------------- No, I was just going to reinforce that our long-term strategy has been to pay out kind of, if you will, the minimum required in order to maintain REIT status. But as Drew articulated, you have to be careful with that [101%] or whatever because the calculation of net income is anything but precise, and we're having to do that in advance. So that longer term, the strategy is a dividend is a minimum payout to maintain REIT status. -------------------------------------------------------------------------------- Greg Michael McGinniss, Scotiabank Global Banking and Markets, Research Division - Analyst [12] -------------------------------------------------------------------------------- Right. Okay. No, that's fair. And then just a quick question on the development pipeline. Leasing seems to be going well in general. Just curious if you could comment on the Centro Arlington residential leasing decline. And I'm also curious if you guys have any updated thoughts on the final stabilized yield of the developments? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [13] -------------------------------------------------------------------------------- Sure. Yes, as we've talked in a couple of different formats, we -- as part of the whole unprecedented year, we encountered at Centro a lot of pushback in the fall as we tried to lean the tenants from free rent. Some of this was due to some localized conditions with some competition, but a lot of it was the whole work from home environment, and we heard this from investors at different conferences that we've seen across the country that not only were people willing to move in this environment, apartment folks, they were quite happy to move to have some new walls to stare at. So we got up into the 90s. We ratcheted back a little bit on the free rent. We dropped down. And as you've heard in the prepared remarks, we're now up to about 89% leased, which is up from the end of the year, that's in the supplemental that we posted. So things are going well. The projects are 4 miles from Amazon HQ2. More people are going back to the office, the barriers to entry are quite high. So we feel good about things, as we move forward through the rest of the year. As far as the yields, it's a bit challenging to say, but we are still looking at, broadly speaking, around a 6% -- 5.5%, 6% stabilized yield. We are in the world, as we've said before, where we're no longer capitalizing. So our investment is not going up due to the capitalized expenses. So the expenses are somewhat set, and each dollar of revenue is additive. So again, we feel very good about the long term nature, exit cap rates for this kind of product will be in the middle to maybe even low 4s. So good value creation, and we've worked on all the projects for many, many years. It's great to see them leasing up. And we can't overstate how important it is to get the Harris Teeter, the Kroger supermarket open at West Alex, which should happen in the early part of the summer. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- And from Bank of America we have Craig Schmidt. -------------------------------------------------------------------------------- Craig Richard Schmidt, BofA Securities, Research Division - Director [15] -------------------------------------------------------------------------------- Yes, I just wanted to dig a little deeper. You mentioned in your earnings release that you're still seeing some of the smaller shops struggle, and you think it might continue to struggle for some time. I noticed that the January rent collection dipped to 87% from 90%. I'm just wondering, maybe you could talk about what degree -- I realize it's a smaller part of your portfolio, but what's happening with the small shops? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [16] -------------------------------------------------------------------------------- Sure, Craig. This is Drew. I'll take a shot at it and then turn it over to Johnny. Yes, I think one of the main things that we all need to keep in mind is how generally good things are that as you know, Craig, being an astute follower of retail, this quarter is typically bankruptcy season. One of the things that we feel very good about as we look at our top 25, our top 50, our top 60 tenants is we really don't see appreciable exposure to bankruptcies above and beyond what we're already dealing with. So we feel real good about that. But when it does come to the mom-and-pops, especially in California, it's challenging. We -- it's hard for us to know, don't have the sophistication level. There have been a lot of the use restrictions, those are getting better. There's more government programs that it looks like will be coming to the rescue. So it's very difficult for us to forecast. Johnny, what else would you have to add? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [17] -------------------------------------------------------------------------------- Craig, some of it is timing. Craig, January, I mean has many days to collect. But overall, we've been very happy. I think some of it is some amount of fatigue. We have a lot of the service tenants who still are struggling a little bit and could certainly use some help from Washington if that is still coming soon. -------------------------------------------------------------------------------- Craig Richard Schmidt, BofA Securities, Research Division - Director [18] -------------------------------------------------------------------------------- Great. And then just maybe a little on the acceleration of leasing activity. Are you seeing tenants willing to sign leases but want to open later in the year? Or are they agnostic in terms of when they're opening? And do you think 2021 could have greater ABR in leasing transactions than 2020 overall? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [19] -------------------------------------------------------------------------------- Craig, I will say that given governmental policy, it seems to take about a year for somebody to get open. So anybody who signs a lease now is not going to be open for probably a year. And in some municipalities, that could be even longer. I think people are anxious to get back open. They see an opportunity that could be once in a lifetime to get space and shopping centers like River Oaks and other great properties where they haven't been able to be over the last 5 or 6 years. So I think people want to take advantage of that. And I think that's really a lot of what is driving leases. We are not seeing any delays in new leases. Now we are seeing some leases where we're doing some amendments or some more deferrals, gyms, theaters, where there is some amount of a delay in that taking place. But those are really the 2 specific areas where we're seeing any kind of delayed transactions. We did a lease in Texas on a new gym. And there is a contingency relative to who could -- when they come, how -- what their occupancy could be. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- From Truist, we have Ki Bin Kim. -------------------------------------------------------------------------------- Ki Bin Kim, Truist Securities, Inc., Research Division - MD [21] -------------------------------------------------------------------------------- So you guys talked about the leasing pipeline growing. You have about $15 million of signed deals this quarter, another $10 million that you've talked about signing in thus far in '21 and another $7 million under LOI or negotiation. I'm just curious, how much of this is just replacing tenants that are paying today that might fall out or expiring leases? And ultimately, I'm just trying to get to an answer of like how much of this will be additive to your bottom line versus replacing other tenants? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [22] -------------------------------------------------------------------------------- Ki Bin, I would say -- this is Johnny. I would say that the vast majority of the spaces that we are leasing are currently vacant. Now when did they go vacant? Probably they went vacant over the last 12 months. So there's not very many tenants that I'm replacing while they're still in place. Again, I think I referred to this idea that we're trying to work with as many tenants as we can to get them to the other side of the pandemic. And it is -- the economics for us are significantly better if we can renew a tenant even if it's for a little less rent, even if we had to abate a little bit of rent. So we're trying to do that where we can. Most of the leasing we're doing right now is replacement of the [Bealls], of the Stein Mart and replacement of shop tenants who left during the pandemic. -------------------------------------------------------------------------------- Ki Bin Kim, Truist Securities, Inc., Research Division - MD [23] -------------------------------------------------------------------------------- Got it. And Steve, so your same-store NOI declined 12% this quarter, worse than last quarter's minus 8%. But when you look at the high level metrics, like occupancy year-over-year, it didn't change all that much in 4Q versus 3Q. If you look at the rent collection, still pretty good. And obviously, bad debt went up a little bit. So I'm just trying to put all those things together to come up with a mental bridge of why same-store NOI went from negative 8% to negative 12%, and how we should think about this going forward? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [24] -------------------------------------------------------------------------------- I think there's a lot of pieces that go into that, obviously. But again, bad debt and fallout is probably the most significant. I mean one thing I can point to, for example, is that we added some cash basis tenants in Q4, quite frankly, about 114 tenants. And that was -- you have to write-off the -- any receivable there. So that caused a little bit more bad debt in Q4. But it's really all about that bad debt. And then as noted, we still are seeing some fallout, and we expect to have a little more in '21 and then middle part of the year, we'll begin to build. So it again, it's all around that bad debt fallout number. -------------------------------------------------------------------------------- Ki Bin Kim, Truist Securities, Inc., Research Division - MD [25] -------------------------------------------------------------------------------- Was there an accounting element to the negative 12% same-store NOI, which will reverse course, just by a matter of fact, next quarter? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [26] -------------------------------------------------------------------------------- I'm sorry, I missed the first part of your -- it had to do with the economy? -------------------------------------------------------------------------------- Ki Bin Kim, Truist Securities, Inc., Research Division - MD [27] -------------------------------------------------------------------------------- No, is there an accounting aspect to the negative 12% same-store NOI that will reverse? -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [28] -------------------------------------------------------------------------------- Yes, the cash basis, taking tenants to cash basis and having to write-off the AR that's sitting on the balance sheet is certainly more accounting than just Q4 numbers. So I mean, I think some of it is accounting. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- From JPMorgan, we have Mike Mueller. -------------------------------------------------------------------------------- Michael William Mueller, JPMorgan Chase & Co, Research Division - Senior Analyst [30] -------------------------------------------------------------------------------- Just the press release, you mentioned you can expect a full recovery to pre-pandemic operating results. It's going to take many months. I guess when I think of months, I think, of less than a year, and I just want to make sure that, that's not what you're saying. And if you can give us any more color on that comment or time frame would be great. And where do you think occupancy could trough at midyear compared to the 91% level where it is now? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [31] -------------------------------------------------------------------------------- Mike, it's Drew. So yes, in terms of months, 24 months, 30 months are still a number of months. So it's very challenging to say when things get back, and it will be more of an evolution. But as we've commented, we are extremely pleased with the amount of activity that we saw in the fourth quarter and this year. And a lot of it has to do with what Johnny was saying earlier that really when the vaccine announcements came out, it was sort of game on because in the barrier to entry markets where we operate, it is, as Johnny said, about a year. So tenants that we've been talking to for several months have been looking at opening even end of '21, into '22. And then from this point forward, basically '22, so they're really actively looking at space. So when all that translates and how we get those things commenced is many months, and yes, could definitely be more than 12. And I'm sorry, there's another part of your question that I forgot. -------------------------------------------------------------------------------- Michael William Mueller, JPMorgan Chase & Co, Research Division - Senior Analyst [32] -------------------------------------------------------------------------------- Yes. When you talk about occupancy [crossing] at mid year. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [33] -------------------------------------------------------------------------------- Occupancy. Great question that we don't know the answer to, and we have some sort of internal discussions because our occupancy has never dropped below. Signed occupancy has never dropped below 90% in the history of the company. Didn't in Texas in the middle and late '80s, didn't in the global financial crisis. And according to the business plan, isn't supposed to this year, but it will be really close and right around that level. And it's totally a function of, as Johnny said, we're working with a lot of tenants. We don't have that many tenants in the really at high-risk categories, but we do have some. And then on the other hand, we have a tremendous amount of new leases and leases being signed. So we do, as Steve said in the prepared remarks, see it continuing to soften a little bit and then get stronger for the rest of the year. So whether or not it does drop below the 90% will be a very close play at the plate as they say. -------------------------------------------------------------------------------- Michael William Mueller, JPMorgan Chase & Co, Research Division - Senior Analyst [34] -------------------------------------------------------------------------------- Got it. And you talked about... -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [35] -------------------------------------------------------------------------------- And I personally am taking that it won't drop, but we'll see. I'm sorry, go ahead, Mike. -------------------------------------------------------------------------------- Michael William Mueller, JPMorgan Chase & Co, Research Division - Senior Analyst [36] -------------------------------------------------------------------------------- Got it. Yes. I was just going to say -- just to clarify, you're talking about the leased rate as opposed to the occupancy rate? Is that correct? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [37] -------------------------------------------------------------------------------- Correct. That's the sign. Yes. The commenced occupancy will definitely. And we think, as we've said, the historic spreads between sign and commence will widen as we try to get all these tenants backfilled and in the barrier to entry markets where we generally operate. That takes a long time. It takes about a year, as Johnny said. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- From Compass Point, we have Floris Van Dijkum. -------------------------------------------------------------------------------- Floris Gerbrand Hendrik Van Dijkum, Compass Point Research & Trading, LLC, Research Division - Analyst [39] -------------------------------------------------------------------------------- Capital allocation. I wanted to ask you some questions on that, Drew, with some interesting developments. You exited 2 noncore markets. And you bought presumably a very low cap rate asset in your core market in Houston. Maybe if you can talk about -- I know the demographics of Bunker Hill are great, but what's the upside potential of having full control of that asset in your view? If you can maybe give a little bit more details on that. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [40] -------------------------------------------------------------------------------- Sure, Floris. Thank you. And yes, it's 70 degrees and beautiful here today. So had dinner outside last night and my wife and I were joking about what a difference a week makes. So thank you for your concern, but we're through it. Bunker Hill is one of the strongest assets in our portfolio. And honestly, the demographics understated in terms of the growth and the potential that it has because the area south of it is a super zip with super high incomes. The area north of it, not so much, but it's improving dramatically. We are shooting some drone videos with the tremendous densification that's going on right across the freeway with high-rise apartments, office, new hotels, et cetera. It is just such an incredible location that economically, the ability to lease it, increase rents is great for us. This also was the opportunity to take over management and leasing of it because it is also something of a flagship asset along with River Oaks, our center at Post Oak, it further cements that any tenant who thinks about coming to Houston is going to want to talk to us. So it -- not only does it have strong economics in the growth, it also increases our platform and our leverage. And the Dallas-Fort Worth market and the Charlotte market are both great markets. And if good portfolio of properties came up in either, we would certainly take a good look at it. But we've just had trouble getting any sort of presence in either one. And so strategically, I heard somebody say the other day, you either want to be A or in A, that if we can't be a significant factor in the market, then we should focus our resources where we can. So good markets, but it made sense to focus and Bunker is just an incredible asset with a great lineup of tenants and the ability to continue to push rents. And if we did ever get any big space back, we could look at densifying, but economically probably makes sense just to lease it. It's a great, great center. -------------------------------------------------------------------------------- Floris Gerbrand Hendrik Van Dijkum, Compass Point Research & Trading, LLC, Research Division - Analyst [41] -------------------------------------------------------------------------------- Drew, I appreciate the insight. The other thing, which I think was actually a testament to your balance sheet, I think you're the only strip company that I can recall that has actually repurchased shares this past quarter, significantly below where the stock price is today. How do you think about allocating -- obviously, you're trading closer presumably to consensus NAV now or how do you think about allocating capital? Presumably, the fact that you're talking about acquisitions going forward means that will you look to resell those shares and dribble them back in the markets? Or how do you think about future capital allocation? And where do you see the greatest opportunity, I guess? Is it in your core markets? Is it in the troubled markets on the West Coast? Or where do you feel that you're going to create the greatest value for your shareholders? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [42] -------------------------------------------------------------------------------- Good question there, a lot to unpack. So we have tried to keep a lot of dry powder, really a lesson coming out of the global financial crisis and timing lined up that we were able to buy the stock at a price that we were very comfortable with, that was a very, very good discount to our underlying net asset value. And as you may remember, we sold a couple of pretty decent assets in the midst of the pandemic, 1 in Orlando and 1 in Durham that reconfirmed to us the underlying NAV. So a lot of why our dispositions were higher in '20 than we expected them to be, was a direct result of creating that dry powder because of the COVID crisis and then we were able to take advantage of it to buy some stock back. The other reason dispositions were higher was the opportunity to swap out of Bunker that we talked about. So we certainly want to have some dry powder. And I certainly hope we don't see those kind of availability in the stock price. But if that opportunity does present itself, we'll take advantage. So we will certainly look at acquisitions across the 2 dozen markets where we're focused. And whatever presents itself, happy to buy other things in Houston or Florida or Washington, D.C. or Seattle or the San Francisco area or Southern California. It's all about the individual underwriting and that the assets meet the quality test and have the growth. So we don't sort of preallocate, we are just opportunistic to where the opportunities present themselves. -------------------------------------------------------------------------------- Operator [43] -------------------------------------------------------------------------------- (Operator Instructions) On the line from Jefferies, we have Linda Tsai. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [44] -------------------------------------------------------------------------------- Your earlier comment on cash basis tenants to 79% being collected in 3Q and 4Q. Just anything to highlight on why it was the same? And how does this trend in the upcoming quarters? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [45] -------------------------------------------------------------------------------- Linda, the population changed a little bit. In Q3, we had like $20 million. In Q4, that number was $17.5 million. So I mean as we go through time and tenants are added or -- and/or fall out, it changes. The 79% to 80% for both quarters, I don't have a good indication as to why, other than we continue to do -- the team does a great job of collecting that rent. In terms of going forward, again, I think if you think about our overall trend that we think things stay a little weak for the first half of '21 and then build from that. So I don't think you're going to see dramatic shift one way or another, but could it drop down a little bit? Could it increase? Yes. -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [46] -------------------------------------------------------------------------------- Linda, this is Johnny. Just think about this. A large part of that are the theaters and the gyms. And they're still pretty stagnant. A lot of our theaters and gyms are in California, and there just hasn't been a lot of movement there. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [47] -------------------------------------------------------------------------------- I guess, related to that, the 3% that's not signed, would that kind of fall in the gym category? Or are those more like local tenants? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [48] -------------------------------------------------------------------------------- Yes. I would say that theaters is kind of the big one, and there are a few gyms. It's the large gyms that are really mostly the concern. We've had very good luck with the small gyms paying or coming to some sort of agreement to defer later on. And as a matter of fact, where we've had small gyms fall out, we've had someone else ready to jump right in. You have Orangetheory and [Stretch]. There's a lot of folks who are interested in that category and who believe that category will recover quickly when full restrictions are released and the vaccination becomes effective. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [49] -------------------------------------------------------------------------------- The capital requirements for those concepts that don't have big equipment is just a good business model for them. -------------------------------------------------------------------------------- Linda Tsai, Jefferies LLC, Research Division - Equity Analyst [50] -------------------------------------------------------------------------------- Got it. And then just finally on the rent collections at 94%. Does this stay pretty steady in 2021? Or does it tick up? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [51] -------------------------------------------------------------------------------- Linda, I -- this is Johnny. I personally believe it ticks up. California is the -- we would be around 98% for the rest of the country, and California is at 87%. So that is really the area we need to target. And a lot of the restrictions for collections are being relaxed. And I think we'll see movement there. My sense is California is probably 4 months behind the rest of the country. As you think about leasing activity and getting the resolution to some of the issues we've had. And their problems are a lot worse, a lot worse because they have been closed a lot longer. -------------------------------------------------------------------------------- Stephen C. Richter, Weingarten Realty Investors - Executive VP & CFO [52] -------------------------------------------------------------------------------- Let me just add one other thing, this is Steve, on that. You never get to 100%. Historically, we're probably at the end of 30 days, we were 96%, 97%. Historically, the actual bad debt is somewhere between 0.5% and 0.75%. But you always have some laggards. Now the pandemic has certainly caused collection of rents to be a little different than historical. But at the end of the day, you still don't get to 100%. So the [90], 94%, we think is pretty good. We're at 93% in January already, a little over that, probably. So I think it has a little room to grow, but you have to put it in perspective of you're not going to get to 100% either. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- And from Capital One Securities, we have Chris Lucas. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [54] -------------------------------------------------------------------------------- Just going back to the capital allocation conversation. The timing mismatch between the dispositions and the reinvestment, is that something that we should see sort of catch-up at some point in '22? Or is that something that is -- where some of that sort of excess proceeds from dispositions is probably going to be help for sort of future investment and redevelopment projects? How should we be thinking about the timing of sort of replacing that NOI? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [55] -------------------------------------------------------------------------------- Chris, Drew. You're talking about in terms of the guidance that... -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [56] -------------------------------------------------------------------------------- Yes, just the guidance. Yes. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [57] -------------------------------------------------------------------------------- Yes. Yes. That's -- I appreciate, just wanted to make sure. It's totally around the opportunities, Chris, that we can't totally fine-tune it. As I think I said, we are not at this exact second, seeing a lot of acquisition opportunities that make sense. We think we will and we're well positioned for that. Over time, we will have more development opportunities. As you know, we have a pipeline that we've talked about in our roadshow that could total up to $2 billion over a multiple period of years with another $600 million just at River Oaks. Now again, in terms of '22, the -- if we spent a lot of money on some construction drawings in '22, that would be sort of quick timing. So it is something that we want to be positioned for the long term, but I want to underline the long term. So if we can sell the dispositions and continue to hone the map and deal with watch list tenants, we'll do that. I don't think it will be that much money this year, and we'll be responsive to good acquisitions, but we're going to be long term. We're not going to let the money burn a hole in our pocket, as it were. We're going to be focused on good assets that meet our investment criteria from a quality perspective and have some identifiable growth, so happy. Hopefully, [that gives the essence] of your question. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [58] -------------------------------------------------------------------------------- Yes. So I guess, just wanting to follow-up. In the past, when you guys were going through the portfolio repositioning process, the amount of assets on the market for sale was usually significantly more than you sort of anticipated selling. Is this more of a rifle shot approach in terms of the dispositions? Or is it a similar process on a scale basis just at a smaller number? -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [59] -------------------------------------------------------------------------------- I would sort of say it's a little bit in the middle. It's -- we do have more working than we think we would sell, but it's nowhere near the same magnitude. So it is more of a rifle because we just don't -- we have 1 center in Kentucky that we've been working on some title issues that we think will get resolved. But it's a good center. So if we hold it a little longer, we hold it a little longer if we can exit Kentucky, probably makes sense to exit Kentucky. So I would say it probably leans to rifle that there's just not that much in terms of how we've honed and what's left to do. -------------------------------------------------------------------------------- Christopher Ronald Lucas, Capital One Securities, Inc., Research Division - Senior VP & Lead Equity Research Analyst [60] -------------------------------------------------------------------------------- Okay. And then just jumping over to leasing for a second. Is there more -- or is there any difference right now in terms of anchor tenant -- what's the right word here, hustle, looking to close on leases versus shop space. Is there any difference in terms of the pace of their interest in getting something done? -------------------------------------------------------------------------------- Johnny L. Hendrix, Weingarten Realty Investors - Executive VP & COO [61] -------------------------------------------------------------------------------- Chris, Johnny. Yes. I think there seems to always have been. The entrepreneurs, the shop guys have a lot more desire to move quickly. And when you're looking at the boxes, they are working through a process that remains the same as it has been, probably a little more difficult with the work from home. And so it does seem to take a little longer to get some of the individual, the boxes done. I will complement our friends at Sprouts. They have been incredible and moving very quickly on the deal that we did with them and looking at some other stuff. But I would say, generally, the shops are a little faster. It's interesting. I meant to say a little bit earlier that one of the great benefits we've had from this pandemic is while we were providing flexibility for some of our partners, the box tenants, we did get some loosening of restrictions in exclusives that have been very valuable for us. And a lot of what we're leasing now is the ability to lease uses that we never had the ability to lease in certain areas of the shopping centers. And so these tenants are eager to get these spaces that they've really never been able to get before. -------------------------------------------------------------------------------- Operator [62] -------------------------------------------------------------------------------- And we'll now turn it back to Drew for closing remarks. -------------------------------------------------------------------------------- Andrew M. Alexander, Weingarten Realty Investors - Chairman, President & CEO [63] -------------------------------------------------------------------------------- Thank you, Brandon. I really appreciate everybody's interest in Weingarten. We're available later, if there's other questions. There are some conferences coming up shortly. And in the next few weeks, we'll be talking to investors. So again, thank you all very much for your interest in Weingarten. Have a great day. All the best. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Thank you, ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.