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Lulu Cheng

WRI AT A GLANCE

P/E ► 39.3 AVG EV/EBITDA ► 24.1 AVG ROA ► 4% AVG ROE ► 3.2% AVG Debt to Equity ► 1.73 AVG Interest Coverage Ratio ► 1.40 AVG

 

 

 

 

 

 

Weingarten Realty Investors (WRI) is a real estate investment trust (REIT) that develops shopping centers, primarily in Texas and other southern states,^[1][2] which it then leases to commercial tenants. Of the 389 properties WRI owns or operates under long-term leases, 322 are community shopping centers and 67 are industrial projects.^[3] Altogether the properties amount to some 65 million square feet of land.^[4]

Although WRI's geographical footprint is expanding (it has properties in 22 states) a disproportionate amount of its revenue comes from Texas, its home state. WRI's Texas properties generated 64% of the company's revenues in 2001, but only 38% in 2007. As part of its effort to diversify its revenues, the company has been "recycling" its properties - selling poorly performing and non-core properties and purchasing higher potential properties on the West and East Coasts.

Business Financials

WRI earns most of its revenue by leasing space on its properties to tenants (rental revenue). Rental revenues include minimum lease payments, reimbursements of property operating expenses, and additional rent payments based on a percentage of the tenants' sales^[5]. In recent years, WRI has made an increasing number of acquisitions through joint-venture partnerships. In the capacity of managing or operating partner, WRI generates fee revenue in addition to its share of rental revenue^[6].

In 2006 community shopping centers generated 89.7% of WRI's total revenue while industrial properties made up 9.8%^[7]. The company’s tenant base is very diversified, with the largest merchant accounting for only 3% of total rental revenue in 2006^[8]. From a geographic standpoint, over 44% of WRI properties are located in Texas^[9]. However, the firm has increasingly expanded its holdings outside the state in recent years; in 2006 the majority of acquisitions were on the East and West Coasts.

WRI Annual Report^[10]

As the chart indicates, revenue increased by less than 50% from 2003 to 2006, while net income tripled over the same period. This trend can be partly attributed to WRI's new strategy for long-term growth. One of the key facets of this plan is to sell the company's less profitable property and redirect the sales proceeds into centers with more revenue earning potential^[11]. From 2003 to 2006, the amount WRI earned from "sale of properties" increased nearly thirty-four fold^[12].

WRI Annual Report^[13]. Regional definitions are taken from the Energy Information Administration, as based on the 10 Federal Regions of the U.S. Bureau of Labor Statistics^[14].

Trends and Forces

• Supermarket Consolidation: The growth of stores like Wal-Mart and Target have cemented the appeal of large, consolidated supermarkets. The convenience and affordability of these chains have driven many smaller grocery stores out of business, and forced others to consolidate in order to compete. So far, WRI tenants like Kroger and Safeway have managed to maintain the low prices necessary to compete with Wal-Mart. If continued pricing pressure results in industry consolidation, however, it could result in lost business for WRI.

• E-Commerce Effect: Over the past few decades more and more consumers have begun to utilize the convenience of online shopping, especially in the consumer electronics sector. The likes of Amazon.com and Overstock.com have stolen market share away from traditional retailers like Best Buy and Circuit City, both tenants of WRI. As traditional retailers try to create their own online presence, the demand for physical retail space could decline, hurting WRI’s rental revenue.

• U.S. Economic Cycles: As a player in the market for retail space, WRI is affected by swings in the national and local economies. In particular, rising energy costs and recent downturns in the U.S. housing market have caused a ripple effect of economic uncertainty in many markets. However, WRI is somewhat sheltered from economic downturns because almost all of its properties are located in densely populated metropolitan areas^[15]. In addition, its shopping centers are anchored by grocery stores that provide basic day-to-day items consumers will still need regardless of economic changes^[16].

• Interest Rates: WRI derives the majority of its revenue from the rental of real estate. Its rental income is fairly independent of its interest rates. The company's strategy for growth is largely dependent on "recycling" its properties--selling for poorly performing and non-core properties to fund the purchase and development of higher potential properties. Higher, interest rates can have a substantial impact on the selling price of WRI's properties and can also make it more expensive for to purchase other properties. Interest rates can also affect the cost of developing new properties.

Competition

WRI competes with other developers and real estate companies involved in the acquisition and development of shopping centers and commercial property^[17]. Among the major retail REITs there is quite a bit of tenant overlap.

WRI's closest competitors include the following:

Notes

1. ↑ WRI 2006 10K, Item 1, pg.2
2. ↑ WRI 2006 10K, Item 1, pg.3
3. ↑ WRI 2006 10K, Item 1, pg.2
4. ↑ WRI 2006 10K, Item 1, pg.2
5. ↑ WRI 2006 10K, Item 7, pg.28
6. ↑ WRI 2006 10K, Item 2, pg.19
7. ↑ WRI 2006 10K, Item 1, pg.3
8. ↑ WRI 2006 10K, Item 1, pg.3
9. ↑ WRI 2006 10K, Item 2, pg.18
10. ↑ WRI 2006 10K, Item 6, pg.26
11. ↑ WRI 2006 10K, Item 1, pg.3
12. ↑ WRI 2006 10K, Item 6, pg.26
13. ↑ WRI 2006 10K, Item 2, pg.18
14. ↑ Energy Information Administration, "Regional Definitions"
15. ↑ WRI 2006 10K, Item 1, pg.4
16. ↑ WRI 2006 10K, Item 1, pg.4
17. ↑ WRI 2006 10K, Item 1, pg.4
18. ↑ WRI 2006 10K, Item 8, pg.46
19. ↑ WRI 2006 10K, Item 1, pg.3
20. ↑ WRI 2006 10K, Item 2, pg.19
21. ↑ DDR 2006 10K, Item 7, pg.78
22. ↑ DDR 2006 10K, Item 1, pg.3
23. ↑ DDR 2006 10K, Item 1, pg.4
24. ↑ KIM 2006 10K, Item 6, pg.45
25. ↑ KIM 2006 10K, Item 1, pg.4
26. ↑ NXL 2006 10K, Item 6, pg.27
27. ↑ NXL 2006 10K, Item 1, pg.4
28. ↑ REG 2006 10K, Item 7, pg.47
29. ↑ REG 2006 10K, Item 1, pg.1