Weingarten Latest REIT To Use State Of Capital Markets To Solidify Balance Sheet
Houston-based retail REIT Weingarten Realty moved to strengthen its balance sheet by selling $433M in assets through the third quarter of 2019, earning dry powder that the company is using to upgrade its retail property portfolio in more affluent neighborhoods. The REIT is the latest to use robust investor interest to make its balance sheet stronger.
“We announced in our last earnings call that we expected to dispose of about $450M in non-core properties,” Weingarten CEO Drew Alexander said. “We’ve had great success doing that at low-to-mid-7[%] cap rate, because there's an enormous amount of capital interested in real estate because it's an excellent investment class.”
Alexander is speaking at Bisnow's Houston Capital Markets event Dec. 4.
The Houston-based REIT has been pouring the proceeds into new assets, recently paying $127M for Steven’s Creek Central shopping center in San Jose, California, and the Shops at Hilshire Village in Houston. The two acquisitions are just the latest in a $209M buying spree for five grocery-anchored properties in 2019.
"Grocery-anchored centers are still the blue-chip, a good grocery store is a wonderful asset,” Alexander said. "Obviously a Walmart or a Target is good. Home Depot and Lowe's are quite strong. You can still put together a smaller center with a TJ Maxx or Ross."
The move strengthens Weingarten’s balance sheet by trading up to more affluent properties. The average household income within 3 miles of the properties sold by Weingarten is $76K with an average population of 77,000. The five new properties acquired have an average household income of $116K with an average population of 135,000 within a 3-mile radius, according to Weingarten.
"We basically concluded our transformation knowing that the quality of our balance sheet and portfolio is where we need it," Alexander said. "Next year we expect to sell a lot less, likely less than $150M. We’ve taken advantage and sold a lot of properties to strengthen the balance sheet."
Many investors are turning toward REITs, which are using the interest to their advantage. Fellow Houston-based REIT Camden Property Trust has taken the opportunities of the current state of capital markets to trade up its multifamily portfolio, keeping the average age of its portfolio at 11 years old, the same average age of the portfolio in 2011, Camden CEO Ric Campo said.
Campo also cited the state of capital markets as a major factor in Camden's decisions.
Since 2010, REITs have raised nearly $300B in total equity capital: $22B in IPOs, $226B of secondary common equity and $43B of preferred shares, according to Nareit. Those REITs have made prudent use of debt, which accounts for less than half of the total capital raised. As a result, REITs have higher value — the ratio of total shareholders' equity to book assets has risen to 44.5%, more than 12% higher than a decade ago.
The limited use of debt to finance acquisitions in recent years has strengthened the well-capitalized balance sheets of most REITs. Investors interested in an investment class with a cushion against rising interest rates and a bulwark against unexpected market developments has helped REITs attain their strongest position in nearly two decades, Nareit said.