When Weingarten Realty Investors (WRI) opened for business in 1948, it had $60,000 in capital, contracts to build two supermarkets for the Weingarten Grocery Stores, and a philosophy of active management.
Half a century later, the company boasts a market capitalization of $1.6 billion (debt and equity) that includes 202 operating properties totaling 23 million sq. ft., including the two projects it built 50 years ago.
That's not surprising because corporate philosophy at WRI has always been to buy or build properties and hold them - even for five decades. Aggressive, disciplined acquisition practices coupled with sound and knowledgeable business sense have served the company well over the years, notes Stanford J. Alexander, chief executive officer of the Houston-based REIT.
"We consider the neighborhood or community center to be the most resilient of all retail real estate formats," he explains. "Catering to basic consumer needs and services and offering value-oriented anchors generate strong sales in all economic climates - even in those downturns in the economy that we have seen and experienced in the past 50 years."
Sticking to its guns Stubbornly adhering to those fundamentals has brought the company tremendous success, note analysts who follow the company. "WRI is an excellent company," notes Kevin Lampo, a research analyst at St. Louis-based Edward Jones. "Weingarten has a terrific management team, and that's where it all starts. They have been in business forever, and been doing the same thing forever."
Although the company has been criticized for not growing as fast as other retail REITs, WRI remains unyielding. "They have a long-term outlook on their investments," Lampo continues. "WRI tends to buy one property at a time and stay away from portfolio, because it doesn't like the 'dogs' that come with the 'gems.'"
Kevin Comer, REIT analyst at BT Alex Brown in New York, shares this view. Because WRI didn't make flashy investments like other investment trusts, he says, Wall Street cooled on the company several years ago. But now REITs such as Weingarten are back in vogue.
"Neighborhood grocery-anchored centers cater more to a consumer's everyday needs and are thus less susceptible to changes," he adds. "Outlet malls and power centers might be popular one year, but the next year their time might have passed. Not so with neighborhood centers."
Weingarten has gradually expanded beyond its home market of Houston to the point where today the company has positioned itself as the dominant neighborhood shopping center landlord throughout the Southwest, Comer says. "Some of the markets WRI is in include Phoenix and Las Vegas, and they're fairly serious about themarket."
Today, WRI properties are located in 13 states, primarily in the Southwest. The company has more than 2,500 different tenants; its largest tenant, Randall's Supermarket, contributes only 3.3 percent of total revenues. In addition, WRI's largest property represents only 3.9 percent of total assets and 3.4 percent of the company's $169 million in revenue.
Initially, Weingarten Realty bought land for Weingarten grocery stores and frequently had to purchase much more land than it needed. Hence, the concept of adding a few retail shops connected to the grocery store was born.
Methodical approach The company could be much bigger today, says Alexander, but it has stressed disciplined growth. "This is a long-term business and we acquire only quality real estate," he continues. "For instance, we closely evaluate a property's location. Factors like traffic patterns, population density, income levels, ethnicity, competition, etc., not only confirm the obvious, but give us a peek of what is to follow, what the location will be like in five or 10 or even 20 years."
The type of anchor retailers also is important. "There are many factors that define a quality retailer, but certain characteristics are paramount," explains Drew Alexander, WRI's president and the immediate past chairman of the International Council of Shopping Centers. "They include financial strength, merchandising expertise, ability to produce strong sales volumes and willingness to maintain a fresh physical environment through periodic renovation."
The younger Alexander - Stanford's son - notes that WRI tries to cultivate the best tenants it can for a very good reason. "We will not always be in a bull market with rents invariably projected to go up," he says. "Our underwriting process forces us to evaluate in detail such things as current rental rates, realistic vacancy rates, deferred maintenance, tenant sales volumes and their cost of occupancy as it relates to their ability to succeed."
While at the macro level Houston may seem fully stored, Alexander explains, there are still pockets that may be underserved. "Retail is much less of a commodity than other real estate sectors," he says. "There are vast differences in shopping centers. You can travel several miles and see a tremendous increase in value of centers. Even at a single intersection, the success of a retail development depends on how the center is laid out, the rents within individual centers and so forth."
Alexander believes the Space City grocery market, which is already extremely aggressive with Albertson's, Kroger's, Randall's and H.E.B. competing for consumer dollars, will become even more competitive, particularly since 61 percent of Randall's was purchased by the New York investment firm Kohlberg Kravis Roberts & Co.
Meanwhile, WRI continues to seek shopping center acquisitions in Houston that meet its financial criteria. Among the company's acquisitions in Houston is the Market at Town Center. Anchors at the 383,000 sq. ft. mall include Marshalls, Pier 1 Imports, Barnes & Noble and Linens 'n Things. Weingarten already owns another project in the First Colony area, the 263,000 sq. ft. Williams Trace Shopping Center.
"We think the majority of our growth will be from acquisitions, although we are looking for selective opportunities to develop sites when warranted," Alexander notes. "Any addition must make economic sense and provide an appropriate return."
Avoiding complacency The company continues to improve the performance of its portfolio, whether in occupancy - which has never fallen below 90 percent - or the continued increase in rental rates. It does this by renovating existing properties, selectively developing new centers and carefully acquiring new assets.
WRI officials point to North Oaks center in Houston as an example of its ability to redevelop its properties. Adjacent to a 100,000 sq. ft. Target, the 315,000 sq. ft. center was developed in 1976 as a mini-mall. While the mini-mall concept initially looked good, larger regional malls were later developed in the area and sales fell at North Oaks. WRI repositioned North Oaks by remodeling the entire property and replacing several of its anchor retailers.
"Before the remodeling, North Oaks was generating a little over a 9 percent return, but now it yields an 11.5 percent return," says the senior Alexander. "This is an excellent example of our management team's ability to create additional value for our shareholders."
Last year, WRI spent $120 million to purchase or develop 23 properties with 2 million sq. ft., including the 280,000 sq. ft. Rainbow Plaza Shopping Center in Las Vegas - the company's fifth acquisition in the market. The company also purchased its joint venture partner's 85 percent interest in four centers for $26 million, adding more than 478,000 sq. ft. to its portfolio. The properties were located in Dallas and El Paso, Texas; Albuquerque, N.M.; and Tempe, Ariz.
"WRI does the right acquisitions at the right price," says Lampo. "They haven't got caught up in the hysteria that you have to grow fast and make a lot of purchases you might not really want to make."
Longevity counts Financial strength and long-term management are two of the strengths of the company. "They have a very strong balance sheet, and unlike some other REITs, their reliance on debt is kept at a minimum," says Lampo. "When they do debt they're cognizant of it and structure it so that no one year has a lot of debt, so it's easy to roll over."
Stanford Alexander agrees. "Our strong financial position supported by a conservative balance sheet and capital structure remains a key to the future success of WRI. We are fortunate to have one of the strongest balance sheets in the industry," notes Alexander.
In addition, WRI's cash flow covers its interest expense a healthy 3.8 times. Debt to total market capitalization is 28 percent, which positions the company to use additional leverage in the future. "We have a $200 million revolving credit facility that currently has about $130 million available," he notes.
Perhaps most importantly, the senior management team is seasoned. Stanford Alexander has been CEO for 35 years, vice chairman Martin DeBrovner has been with the company since 1968, and president Drew Alexander joined the firm in 1978.
"The management team has been there forever," says Lampo. "It's interesting that Stanford pursued the real estate side of the business, when the other Weingarten family members opted for the grocery side. Although the supermarket chain was sold in 1980, the real estate firm has continued to grow and prosper."
As Comer of BT Alex Brown notes, "Today, investors focus on companies that have management teams that have been though good times and bad times and have prospered. That's WRI's management team."
Thus it appears that Weingarten Realty Investors will be doing in the future what it has done for the past 50 years: grow through disciplined acquisitions, selective new development and continued concentration on its existing portfolio.