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Weingarten Realty Investors (NYSE:WRI)
Q4 2019 Earnings Call
Feb 26, 2020, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Weingarten Realty Inc. Fourth Quarter 2019 Earnings Call for February 26, 2020. My name is Brandon, and I'll be your operator for today. [Operator Instructions] Later, we will conduct a question-and-answer session. [Operator Instructions]

And I will now turn it over to Michelle Wiggs. Michelle, you may begin.

Michelle Wiggs -- Vice President, Investor Relations

Good morning, and welcome to our fourth quarter 2019 conference call. Joining me today is Drew Alexander, Johnny Hendrix, Steve Richter and 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 -- Chairman, President and Chief Executive Officer

Thank you, Michelle and thanks to all of you for joining us. I'm pleased to announce another great quarter of fitting close to a very successful year. Same property NOI growth remains strong. Rental rate increases were outstanding and occupancy was up nicely. We bought three great properties investing $165 million of disposition proceeds and our mixed use properties are progressing nicely. The portfolio is stronger than ever and consumers continue to frequent are grade centers. Our 2019 disposition program closed strong with $452 million of property sold.

Since 2011, when our transformation strategy was announced, we've taken advantage of the arbitrage between the public and private markets selling $3 billion of retail property. This was about two-thirds of our existing retail portfolio sold when our stock was trading at a discount to NAV. I realize, we've often spoken about the transformation. But reflect for a bit on the magnitude, two-thirds that's quite significant. We significantly improved the overall demographics of the portfolio, reduced our exposure to power centers, improved our operational efficiency by exiting eight states, including Arkansas, Louisiana and Kansas, and significantly reduced our exposure to watch-list tenants.

Our properties are primarily grocery anchored, urban infill locations, geo-correctly concentrated in stronger markets. These improvements to our portfolio that has resulted in a significant decline in tenant fallouts with reduced exposure from the larger bankruptcies. We've reduced our leverage and invested in great quality acquisitions and new developments. There has been some pressure on FFO from our transformation, but in the long run, we are much better positioned.

Moving to our specific new developments. Central Arlington, our mixed-use project in the DC market is coming along exceptionally well. The 366 residential units are 50% leased and around 44% occupied with good rental rates. The leasing activity for the retail space is strong, Harris Teeter opened an 80% of the total retail space commenced. At West Alex also near DC, we're just beginning leasing activities and have 38 residential units leased and move-ins are under way. The leasing of the retail portion of the center is progressing well with over 75% already leased, including Harris Teeter, which is expected to open in 2021. Both of these projects benefit from a quality supermarket anchor. There are close proximity to Amazon HQ2, a vibrant Northern Virginia market and strong barriers to new construction.

At the Driscoll at River Oaks construction is ahead of plan and we should have residential units available in the second half of 2020. We have many other redevelopment projects in the pipeline that will provide excellent returns on the invested capital. Weingarten Realty has also remained focused on sound ESG practices. In 2019, we improved our GRESB score over the previous year and created and implemented a tenant engagement program we call GreenForward tenants, where we communicate with our tenants on being sound stewards of the environment. This program primarily focuses on four areas; energy management, alternative transportation, water management and recycling. We've also been a Green Lease Leader since 2015.

Great progress on new development and a terrific quarter and year. Steve, the financials?

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

Thanks, Drew. Good morning, everyone. Our balance sheet remains among the strongest in our sector. At quarter end, net debt to EBITDA was a solid 5.17 times and debt to total market capitalization was a very low 29.9%, supported by a well-laddered maturity schedule that has no significant maturities until 2022. Our current leverage position allows us to fund our new developments, redevelopments and acquisition programs while still maintaining capacity to pursue future growth, even with our reduced disposition activity. This great liquidity and our strong credit metrics provide significant long-term stability for our shareholders and the flexibility to pursue opportunities.

During the quarter, we amended our $500 million unsecured revolving credit facility and extended the maturity date to March 2024 with an option to extend for two additional six-month periods. I would like to thank our syndicate of outstanding banks for their continued support of our company. As to our operating results, core FFO for the quarter ended December 31, 2019 was $0.53 per share, down from $0.55 in the prior year. The decrease from the prior year was primarily due to dispositions of $242 million in the fourth quarter of 2018, an additional $451 million in the year ended December 31, 2019.

Also contributing to the decrease was an additional $0.02 per share in general and administrative expense as a new lease accounting standard prohibited the capitalization of indirect leasing and legal costs in 2019. This more than offset the increase in same property NOI of 2.5% for the quarter as well as the same-store NOI from our 2019 acquisitions of $246 million. Additionally, the adjustment to the fair value, our deferred compensation plan results an increases in interest income, G&A and operating expense. However, as you will note on Page 7 of our supplemental, there is no FFO impact.

For the full year, core FFO was $2.10 per share for 2019, compared to $2.28 per share for 2018. A reconciliation of net income to NAREIT FFO and core FFO is included in our press release. As to guidance for 2020, we expect that NAREIT FFO and core FFO will be in the range of $2.06 to $2.11 per share. This assumes acquisitions of $100 million to $150 million, primarily in the latter half of the year and new developments and redevelopment investment that range from $75 million to $125 million. We are budgeting dispositions in the range of $100 million to $150 million. As to the existing portfolio, same property NOI with redevelopment is expected to be in the range of 1.5% to 2.5%. Tenant fallouts and strong comps from last year will result in lower same property NOI growth in the first half of the year.

FFO will also be affected and we'll pick up nicely in the second half of the year and beyond as rents begin to commence from our 2019 fallouts, an additional new development revenue comes online. Included in our 2020 business plan is 130 basis points of credit loss, of this 90 basis points relates to specifically identified tenants, where we have knowledge of upcoming closures or expect tenants to fallout and 40 basis points is unidentified fallout. Johnny will give more color later. Additionally, the full year dilution in 2020 from the 2019 dispositions is $0.13 per share of NOI and interest income will decrease between $0.01 and $0.02 per share due to reduced excess cash balances in 2020.

As Drew mentioned, the lease up of our two DC development properties is well under way and leasing for the residential portion of The Driscoll and Houston will commence around mid-year. We expect the new development projects to generate NOI of between $0.03 and $0.04 per share in 2020. However, this increase will be offset by a reduction in capitalized interest of between $0.03 and $0.04 per share.

All the details of our guidance are included on Page 10 of our supplemental along with a roll forward of our 2019 FFO to 2020 FFO guidance. Johnny?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Thanks, Steve. Weingarten is excited to meet the challenges of a new decade. As we look at the changing landscape of retail, we remain confident our platform and our transformed portfolio are positioned to continue delivering strong results. 80% of our average base rent comes from shopping centers anchored by supermarkets. Those supermarkets average $691 per square foot in sales. That translates to about 100,000 a month. Along with our supermarkets, we have 62 TJX and Ross stores generating tremendous traffic for our shop tenants'. These traffic generators, supermarkets and discount clothing stores are really the sweet spot of shopping centers today.

Before we get to the quarterly results, we're excited this morning to announce our last Kmart lease at six work shopping center in Raleigh, North Carolina was assigned to target who will open later this year. Target will pay rent, while the remodeling and as part of our negotiations will be able to add about 10,000 square feet of shop space and a freestanding pad in the parking lot.

Now to our fourth quarter accomplishments. Occupancy rose to 95.2%, with shop occupancy at an all time high of 90.8%. Rent growth for new leases was 16% and total rent growth was 12%. Same property NOI was 2.5% in the quarter and 3.3% for the year. Leasing production was strong. We executed 86 new leases, representing $6.7 million in base minimum rent. This is the best quarterly leasing production, we've generated in a couple of years. Our redevelopment program continues to produce strong risk-adjusted returns.

As Steve mentioned, we're guiding our 2020 same property NOI to be in the range of 1.5% to 2.5%. As we start 2020, we have high occupancy and relatively strong leasing momentum. We have 240 basis point spread between signed and commenced occupancy, that represents 510,000 square feet or $10.5 million in rent that will come online over the next five quarters. At the same time, we will have some drag from store closings that will mute our 2020 same property NOI.

As Steve mentioned, we have 90 basis points of specifically identified fallouts and credit loss in our budget. We've broken that into the following three components: 20 basis points related to women's apparel, 15 basis points of strategic fallout and 55 basis points of other specific closings. First, is specific closures related to women's apparel, which includes DressBarn, Rue 21, Avenue and a couple of Rainbow stores. We have relatively small exposure to any one of these retailers, but collectively they're closing 13 stores, resulting in a loss of 20 basis points.

Second, we're strategically retenanting spaces that will generate 15 basis points of loss in same property NOI in 2020. We'll see significant improvement in credit quality and NOI potential from these transactions. For example, we're terminating a couple of office depots early in order to deliver spaces to Ross and Burlington. We're also replacing a former bank at River Oaks in Houston with the restaurant, replacing GAP with the new home furnishing store also at River Oaks and replacing rental center with Orangetheory Fitness in Denver. These are good examples of our strategic releasing where we are proactively improving our income stream.

Finally, we're budgeting other specific closings we anticipate might occur during 2020 and they represent 55 basis points of same property NOI. This component includes four of our five Pier 1 locations. We are budgeting all but River Oaks location to close after the first quarter. We're keeping River Oaks online for all of 2020. We have also included Stage as a specific fallout. We have six Stage stores representing $1 million in annual NOI. The budget has all six locations closing after the second quarter. Our budget does not include the fallout of our single Forever 21 store. While there is some risk this unit closes, it's a great store with high sales, so we're budgeting for rent through the entire year.

We expect same property NOI to be a little lumpy on a quarterly basis. Lower in the first couple of quarters where we have stronger comps and improving through the second half of the year as some of the newly leased space comes online. In spite of the headwinds we've highlighted, our properties continue to produce strong and consistent growth. Our redevelopment program continues to deliver great risk adjusted returns. Excluding River Oaks, we have 11 redevelopment projects under way. We expect to invest $74 million in these projects with returns around 10%. The majority of these are outparcel buildings 5,000 to 10,000 square feet. We invested $246 million in seven very good assets during 2019.

In the fourth quarter, we purchased three strong properties. As Safeway anchored center in San Jose with incredible demographics, 260,000 people with an average household income over $141,000 in a three mile radius. The center also includes Marshalls and Total Wine. We purchased a Kroger anchored center here in Houston, shops at Hilshire Village also with very strong demographics, 135,000 people in three miles with incomes of $117,000.

Finally, we purchased Covington Esplanade, a Home Depot anchored center with high barriers to entry in the Seattle metro. We continue to look for great centers and our target markets that will further improve our portfolio. Cap rates held steady over the last half of 2019 top tier supermarket anchored properties are trading for cap rates of 4.25% to 5.25% in coastal markets and 5% to 6% in other primary markets. Power centers are trading 100 basis points to 200 basis points higher depending on tenancy.

Our team and our properties are prepared to meet the changing needs of consumers as we look forward to the future. Drew?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Thanks, Johnny. Our job is to position the company to maximize the long-term value for our shareholders and we remain focused on that goal. We will continue to invest capital in those growth opportunities that make sense from a risk reward perspective especially redevelopments. A return to more normalized disposition activity, significant investments and mixed use new developments coming online in '20 and '21 and a much improved portfolio of primarily grocery-anchored centers will positively impact our results in 2020 and beyond. The current retail environment remains challenging and we see these conditions continuing through 2020.

Our transformation strategy has resulted in a resilient portfolio with a highly diversified tenant base, great locations and reduced exposure to watch-list tenants. However, we're not immune to the tenant disruption that characterizes the current retail market. We feel the 130 basis points of credit loss built into our 2020 guidance is adequate in this environment. Our balance sheet remains very strong and we're very well positioned to fund our capital requirements, while still maintaining the dry powder necessary to react to other growth opportunities when they arise. 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

Thank you, Drew. And we will now begin the question-and-answer session. [Operator Instructions] And from the Scotiabank, we have Greg McGinniss. Please go ahead.

Greg McGinniss -- Scotiabank -- Analyst

Hey. Good morning. Johnny, I appreciate the detail on the credit loss embedded in the same-store NOI metric. Could you also give us the expected contribution from rent escalators, rent spreads and redevelopment?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

We generally look at around 3% for rent steps. I'm not certain in terms of renewals, what that number is. So that would be -- for 1.5% to 2% of same property NOI increase from rent steps.

Greg McGinniss -- Scotiabank -- Analyst

Okay. And then the redevelopment contribution this year?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Be about 25 basis points.

Greg McGinniss -- Scotiabank -- Analyst

Okay. Thank you. And switching over to lease spreads a little bit. The Q4 newly spreads are really healthy at that 16%, but landlord costs were particularly high. Could you talk about kind of what drove that impact and whether there is potential for further spend at that level considering continued retailer issues?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Yeah, Greg. That's a really good question. Fourth quarter was a bit of an anomaly. First of all, we were more heavily weighted toward the boxes. So the TI for that is a little bit more. One of those boxes that we did was LA Fitness. And in order to get that leased done, we needed to raise the roof on the shopping center. So that was quite expensive. We see LA Fitness is a strong tenant and really a great traffic generator. So we felt like it was the right thing to do. If we eliminated that particularly TI would have been $38 a square foot, more in line with the last several quarters.

Greg McGinniss -- Scotiabank -- Analyst

Okay. That makes sense. And then just a final question. Steve, on the balance sheet, which is in good shape clearly, but curious, you're going to be leaning on debt a bit on development this year and redevelopment? So curious what the expectation is on leverage levels throughout this year? And I believe that you've previously mentioned, there is no specific target leverage metric in mind. But I'm curious what's your thoughts are as to a reasonable level to maintain there.

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

Yeah. Good morning, Greg. In terms of the capital for the year, we still have some excess funds a little bit left over from dispositions that we have to fund, probably somewhere in the neighborhood of 40%, 50% of our capex for the new development program this year. Obviously, we have the full capacity of our $500 million credit line that we also just renewed this quarter. So liquidity wise there and with no maturities until '22, we're in great shape from a capital perspective.

In terms of the guidance or giving a policy or a target for, we -- I think the market generally looks at net debt to EBITDA as a typical metrics. We're very conservative, where we are -- we like our position. We don't think that we don't give a specific target, but I think as long as is something is in the mid-6 range, I think we're fine. Having said that, we've got lots of room and lots of capacity to seek out opportunities.

Greg McGinniss -- Scotiabank -- Analyst

Great. Thank you.

Operator

From Citi, we have Christy McElroy. Please go ahead.

Christy McElroy -- Citi -- Analyst

Hi. Good morning. Thank you. Johnny, I just wanted to follow up on some of your comments about and get some more detail on sort of that acceleration of growth into the second half. You talked about that the spread between the lease and the commence rate, the $10.5 million of rent, but then that's offset by the assumed fallout. You're commenced occupancy rate was flat year-over-year in 2019. And so given those factors, how should we think about sort of the cadence of the rent commencement that you're expecting that's executed but not yet commenced. And then that fallout is -- or the commencements more back end loaded and the fallout is more front end loaded, how should we think about that?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Yeah, Christy. That's really where we are, a lot of that fallout has already occurred in the fourth quarter of 2019. So it's pretty significant impact on us in the beginning of the year. We've had really strong leasing over the last six months and that won't -- those tenants won't be open on into the third and fourth quarter. So, yeah, that's exactly where we think it will lay.

Christy McElroy -- Citi -- Analyst

And you have a good degree of confidence at this point in those rent commencements occurring. And just a point of clarification, is the 130 basis points, is that on NOI or is that on rents?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

That's our NOI. I would say, I have significant confidence. There is always a chance that in construction that things slow down -- in permitting things slow down. And one of the big changes that we've seen over the last several years is how long it takes to get a tenant open. The vast majority of all of the income that we have budgeted is already signed. And so the only thing that would stop us from meeting that would be construction delays or entitlement issues.

Christy McElroy -- Citi -- Analyst

Okay. And then, as I think about capital recycling and the additional impact from 2020 activity. In 2020, the $0.03 -- when you're thinking about doing dispositions, why do the dispositions? Your balance sheet is in really good shape. Why do you feel like you still have to match fund on the acquisition side and if some of that dilution related to the cash that you have sitting on the balance sheet?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Good morning, Christy. It's Drew, I would say that we look at a lot of different factors, as you know, and as we've talked about, we've come through several years of strong dispositions, taking an advantage of the difference in the stock price to the underlying assets and selling lower ranked properties at or in some cases above our internal NAV, when the stock was at a discount to NAV. We have reached the point and that's where hopefully we've been very clear that our 2020 disposition plan is much less in that range of $100 million to $150 million.

So, we still have some smaller centers were trying to hone, some watch-list tenants that we think we can sell it at good prices, some improvements to the map. But at the same time, when we look at the development and redevelopment opportunities as well as the acquisition opportunities. We expect to be approximately capital neutral, but if we find some good acquisition opportunities we could spend some money invest the money. And as Steve mentioned before, we certainly have the balance sheet capacity to do that, but we'll be disciplined and see if we can find good risk-reward things that have modest amounts of risk, but still some reward. So excited about 2020 and a lot of the growth opportunities that we see.

Christy McElroy -- Citi -- Analyst

Thank you.

Operator

From Bank of America, we have Craig Schmidt. Please go ahead.

Craig Schmidt -- Bank of America -- Analyst

Yeah. Thank you. What percent of the leases in 2020 have already been completed?

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

I would say the vast majority of them, is it 90%, 95% probably, somewhere around that. In terms of new leases -- in terms of renewals we're about 65% of leases that don't have an option.

Craig Schmidt -- Bank of America -- Analyst

Great. And then I know that the thought is that you would like to hold off on new additional mixed use projects. How long with that period of where you review your initial mixed use projects be before you might step up in start reinvesting in them.

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Good morning, Craig. It's Drew. That's an excellent question. We discussed that at the Board meeting yesterday, and I think it's fair to say, we are in the preliminary evaluation phases of some things, because we're so excited after all the time that we've spent that we are leasing space and making some good progress on the big three projects. So as we look at our River Oaks Center, we see multiple towers there. So yeah, we're still several quarters away from any specific discussions because we want to get more market intelligence there but we are also starting some of the pre-planning.

At our Cambrian project in San Jose, California, we pretty well have a plan that the city and us both those like and we're actively moving forward and would hope to be under construction there before too long. At Palms Town & Country, we're in discussions with some residential developers. Looking at some different structures there including some ground leases actively negotiating a ground lease for residential at a project in the Scottsdale area. So very pleased with what we're seeing pleased on the progress on the big three. Still some time away from specific announcements, but we are starting to look at some opportunities for the future.

Craig Schmidt -- Bank of America -- Analyst

Thanks for the color.

Operator

From JPMorgan, we have Hong Zhang. Please go ahead.

Hong Zhang -- JP Morgan -- Analyst

Hi, guys. I was wondering, where do you expect occupancy to be, I guess at the end of second quarter and at the end of the year?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Hey, Hong. This is Johnny. Good morning. We would anticipate occupancy trending down in the first quarter -- couple of quarters probably reach a trough by mid-year. And then depending on what happens with the bankruptcies after that, we would expect it to be more flat or rising slightly. Again a lot of those vacancies that occurred in the fourth quarter. For instance DressBarn, and maybe the Pier 1 will actually not hit the occupancy until after the first quarter. So we will see a fall in occupancy in the first quarter and then a little more in the second quarter and then, kind of troughed at that time.

Hong Zhang -- JP Morgan -- Analyst

Okay. Thank you.

Operator

From Jefferies, we have Linda Tsai. Please go ahead.

Linda Tsai -- Jefferies -- Analyst

Hi. Would you expect any accretion to SS NOI growth from capital recycling activities and is that factored into your 1.5% to 2.5% guidance?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

It's something-- hey, good morning. This is Drew. It's something that we certainly look at and it might move it a little bit, but I don't think it will be significant. We more look at the specific merits of selling a specific center at the price and if we think it's a good price. So it's hard to say if that would hurt same property NOI or help it, at this time because we're always working on more dispositions, than we expect to do and we're going to make the right long-term decision, but I don't think it will move it very much.

Linda Tsai -- Jefferies -- Analyst

Thanks for that. And I know you just spoke about this little bit earlier, but how do you feel generally about your small shop at 90.8%. Any view of how much higher that could go over time?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

So I'll speak first and then let Johnny add on after I commit him to something he'll probably resist, but as Johnny mentioned, as we continue to hone the portfolio, I think we can continue to improve occupancy of both shops and boxes. When we look at the demand, especially the shops of service tenants. So while we're pleased that it's over 90%. This is two quarters in a row that we've set a record and I'm cautiously optimistic we can continue. So, Johnny, now that I've committed you, what you think?

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Drew, I agree with you. I think -- Hi, Linda. I think we do have some room to go. We are seeing really strong demand from shop tenants' America's Best -- all the service tenants, Bath & Beauty, Five Below, restaurants and we've been really excited to see the sort of reaction that we've gotten from the Pier 1 Dressbarn and Avenue spaces. These are good quality spaces in really good shopping centers. And frankly, it's always fun to be able to lease in that sort of -- that sort of atmosphere.

Linda Tsai -- Jefferies -- Analyst

Thanks.

Operator

[Operator Instructions] And from Compass Point, we have Floris van Dijkum. Please go ahead.

Floris van Dijkum -- Compass Point -- Analyst

Good morning. Thanks guys for taking my question. Can you -- Drew maybe tell us a little bit about the growth expectations on the assets sold versus the capital that you're redeploying into new acquisitions as well as obviously your developments and highlight why you think this is a prudent way to allocate capital?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Good morning, Floris. Excellent question. And to some extent, the question is sort of explains itself that the big reason for most of the dispositions is when you look at the risk reward and over a portfolio, if you can sell a watch-list tenant, you probably, maybe not in all cases, but you probably over some amount of portfolio, some numbers of sales have avoided a very significant problem.

So again, it's not a certainty that all these tenants are going to close stores or anything, but it's about more thinking about it at the individual level and blending that with the risk reward in the probability that we are looking at -- selling these centers where there is that risk. So the growth is therefore less. We also continue to hone the map, which produces some operational efficiencies, but more importantly continues to focus us in areas that have good supply demand barriers to entry, but we are in markets like California and Texas, Florida, Georgia and North Carolina that are going to see population migrations. So they're going to continue to grow, and the amount of new retail space built is going to be very, very limited. A lot more mixed use a lot more densification so it helps the supply demand.

So that's the basic thesis of the transformation that we've been working on to look at all elements of risk and reward. Development we think is also a nice mix to it that we look at River Oaks the ability to densify and just how much it changes, we work in the field, the tenants who are interested in the center, some of the exciting things going on that Johnny talked about at River Oaks definitely are influenced positively by the densification efforts there. And then in the DC area, we see great upside from those projects, especially the residential part as more and more Amazon, HQ2 jobs come online. So development its risky to be sure, but there is a nice profit in it and we see great upside from those properties, given the strong locations.

Floris van Dijkum -- Compass Point -- Analyst

And that growth is more than enough to offset that 200 basis point spread between disposition cap rates and acquisition cap rates. I guess the redevelopment cap rates are actually quite high, but the mixed use developments are in similar range. So the growth is sufficient in your view to offset that 200 basis point gap.

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

I think you have to look at the long-term. Clearly, there has been some short-term pressure for the long-term benefit and it is one of those things that if you think about it from a portfolio theory as opposed to any one shopping center. If there is -- if there is a one in four chance that a tenant closes and really hurts your NOI, on one particular center, it's not likely that you get hurt. But if you have 10 centers each with that one in four chance the likelihood you don't have some big problem throughout the portfolio is, you're going to have that problem.

So you have to look at it over an extended period of time, look at the short-term pain and there will be long-term gain from the avoidance of risk. And that's where -- as Johnny said, we have -- I think a very strong list of tenants. We do have some issues to work through in the portfolio. We're not immune, but the strength of our tenants, the diversity of our tenants, it's one of the great strengths of the company and the portfolio.

Floris van Dijkum -- Compass Point -- Analyst

Thanks. Drew, can I ask you another question maybe in terms of the -- maybe this is more for Johnny, but the residential rents at your mixed use development, how are they looking relative to what's -- what you've underwritten and relative to your expectations and is that one of the key things that is you want to see more evidence, before you press ahead with some of these other potential mixed-use projects?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

So, we have said that we absolutely want to digest a lot of what's on our plate in the mixed-use projects before we add anything to our plate. And as I said before, we are getting close to that period, but we're still a couple of quarters away, but we certainly want to have demonstrated before we do more. We haven't started leasing at River Oaks yet, but the two DC projects are trending very well. As mentioned in the prepared remarks, we're a little over half leased it at Centro, right at pro forma to a little better there. Improving the concessions from where we started and very pleased. We are in the very beginning days and weeks at West Alex, but very pleased with the leasing activity there. The 38 leases we've done very pleased where we are relative to rents and look forward to a bright future, when the supermarket opens next year. The amount of activity that that will bring to the center that convenience for the residents. And as I said is more Amazon HQ2 jobs come online. So very pleased with the results so far and what we see is the future on all three projects.

Floris van Dijkum -- Compass Point -- Analyst

Great. Okay. Last question on for me is, I noticed you sold an asset in Vegas, you have four assets left. Are you planning on exiting that market or will you continue to have those properties there as going forward?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Good question, and I'm not sure I can give you a definitive yes or no. We don't have any immediate plans to exit Vegas, but I don't know that will be there forever. Is it conceivable that we would find a shopping center to buy in Vegas, it's possible, but I'd say it's very, very unlikely. It's quite frankly one of those classic public private things that Vegas has really been a very good market for us. It's performed nicely. It has much stronger barriers to entry than a lot of people realize, but I don't know that it's ever appreciated by Wall Street. So the ability to take some chips off the table I'm very much intended and sell some things with really good prices there seem to us to be the right thing to do. So it's not something we're likely to add too, but nor will we get out real soon.

Floris van Dijkum -- Compass Point -- Analyst

Great. Thanks.

Operator

From Capital One, we have Chris Lucas. Please go ahead.

Chris Lucas -- Capital One -- Analyst

Good morning, guys. On the development, I guess, Steve, maybe if you could help me understand a little bit, what do you guys in your guidance assuming as it relates to sort of monthly unit lease up at each of the projects Centro, West Alex and Driscoll. And then sort of where is the breakeven sort of assumptions for you in terms of where NOI goes from the property is running at a loss versus breaking even?

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

Good morning, Chris. This is Steve. In the prepared remarks, we gave the 3% to 4% -- $0.03 to $0.04 of NOI for the three projects. As Drew mentioned, we see some good momentum in both of the two DC projects. The leasing builds throughout the year obviously this summer is the kind of the sweet spot in the leasing cycle. And then -- but the big issue, as I think you are indirectly driving at is the interest cap piece that I think the interest cap we are, we have a certificate of occupancy plus 45 day policy of when we stop capping without getting into a lot of the specifics. Most of that cap is stopped by the end of Q1 for the residential part of these projects. So that all tied together and as we've articulated, we think that that's kind of an offsetting $0.03 to $0.04 of foot -- I mean a $0.03 to $0.04 of NOI as well, and offsets that. So that's kind of the way we are seeing the mixed-use the two projects. And then, as Drew mentioned in his prepared remarks that the River Oaks issue will commence leasing kind of mid-year. The one other point that I would note is that we included in our NOI guidance of $0.03 to $0.04 of NOI, that also includes the operating costs that have come on at the two DC projects in total. So you have that initial drag that's built into that.

Chris Lucas -- Capital One -- Analyst

Okay. And then with WhyHotel, what is the expectation for them to sort of commence their lease at Centro and is that factored into your $0.03 to $0.04 of NOI?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

It's certainly factored in. They've already commenced and in fact, we are actually reducing. We're sort of the leasing is going so well we're pairing them back and not going to do as many units for as long as we thought, but it's treated differently.

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

Yeah. Technically, there is no revenue coming in for the WhyHotel, it's without getting into the accounting issue. It's incidental operations the way the accountants talk about it. That's a reduction of cost. So WhyHotel really doesn't play into the $0.03 to $0.04 of NOI.

Chris Lucas -- Capital One -- Analyst

So reduction of cost on your basis?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

That's correct.

Chris Lucas -- Capital One -- Analyst

Okay, interesting. Okay, that's all I had it. Thank you.

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

Chris, just one other point on the whole WhyHotel, it's very immaterial and as Drew talked about they're taking -- we're delivering half of the initial projects that I mean the rooms are the units that were projected. So at the end of the day, the WhyHotel effect will not be significant at all.

Chris Lucas -- Capital One -- Analyst

Great. Thank you.

Operator

[Operator Instructions] We do have a follow-up from Greg McGinniss. Please go ahead.

Greg McGinniss -- Scotiabank -- Analyst

Hi. Yes. Just a quick follow up here. So on the transactions despite similar magnitude to an acquisitions dispositions this year is an expected $0.03 net drag. Could you just help us understand what's generating the drag, is it timing cap rates? And then, how much of those transaction range is whether acquisition or disposition, it's already identified?

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

So this is Drew, I'll take a stab and my colleagues can chime in. My guess is the bulk of that's driven by dispositions at 7% and acquisitions at 4.5%. So it's the bulk of it.

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

Yeah, I think, that's the biggest issue that the dispositions are kind of averaged spread out equally over the quarters and as we mentioned the acquisitions is more back end loaded. So you have a little bit of difference there as well. But I think the big issue is just a dilutive effect of the difference in the cap rates.

Chris Lucas -- Capital One -- Analyst

All right, Thank you.

Operator

All right. No further questions at this time. Drew we'll turn it back to you for closing.

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

Thank you, Brandon. Appreciate it. And thanks to all of you for your attention and interest in Weingarten. Appreciate it. We're around if other questions and happy to chat with you and look forward to seeing many of you next week at a wonderful conference. Have a great day and thank you so much.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Michelle Wiggs -- Vice President, Investor Relations

Andrew M. Alexander -- Chairman, President and Chief Executive Officer

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

Johnny Hendrix -- Executive Vice President, Chief Operating Officer

Greg McGinniss -- Scotiabank -- Analyst

Christy McElroy -- Citi -- Analyst

Craig Schmidt -- Bank of America -- Analyst

Hong Zhang -- JP Morgan -- Analyst

Linda Tsai -- Jefferies -- Analyst

Floris van Dijkum -- Compass Point -- Analyst

Chris Lucas -- Capital One -- Analyst

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