With retail and industrial properties under its management, Weingarten Realty Investors (NYSE:WRI) is not your typical REIT. The company is gradually pursuing a strategy that includes a greater focus on joint ventures, which generate greater income from management fees, and merchant-building development, which derives income from sales of portions of a shopping center or the entire shopping center.
For its first quarter, Weingarten reported that funds from operations (FFO) per diluted share increased 9.1% from $0.66 to $0.72. Included in the FFO number are $0.01-$0.02 of bankruptcy recoveries, which I would back out to assess recurring FFO. Net income per diluted share increased to $0.57 from $0.38 a year ago, largely because of asset sales that the company made during the quarter as part of its program to sell non-core assets and reinvest the proceeds in assets that it views as more attractive going forward.
Weingarten's merchant-building development program, which develops projects expressly to sell them rather than keep them, delivered $0.02 of the company's FFO for the quarter. The company expects this portion of its business to contribute $0.05 to $0.10 for the year, with continued growth in future years thanks to substantial demand for commercial real estate by private investors and businesses.
Overall, the company's occupancy rate sits at 94.4%, with the shopping center portfolio at 94.9% and the industrial portfolio at 92.9%. Those numbers are close to flat on a sequential quarterly basis, but the industrial portfolio has improved by 3.4 percentage points from last year's first quarter. The company's largest tenants on a revenue basis include Kroger (NYSE:KR), Ross Stores (NASDAQ:ROST), Gap (NYSE:GPS), and Petco Animal Supplies (NASDAQ:PETC).
On the balance sheet, Weingarten is quite healthy, with a debt-to-total capitalization ratio below 40%. Of its total debt, 84% is fixed, and the weighted average interest rate on its debt during the quarter was 6.36%. The conservative amount of debt, and the company's ability to easily cover interest expense with earnings before interest and taxes, gives Weingarten some flexibility going forward.
Valuing Weingarten is a bit tricky, since it has a number of moving parts. Management has advised that earnings will be more lumpy than normal as the company relies more on growing the merchant building development and joint-venture portions of its business. A long-term view shows that there isn't a great deal of growth priced into shares, and the company's 4.6% yield is well-funded by its FFO. I don't consider Weingarten a slam dunk, but I do think it merits further research.
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Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.
