-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, U3vyWX8VaPhPh1Qy+vMUPdwzHJEhQj0Au7a/vYZWShybER7f+9c+VUV2ynX/RBnS lB1RpFTyo4eZEwxF4YAnkw== 0000828916-04-000069.txt : 20040510 0000828916-04-000069.hdr.sgml : 20040510 20040510164712 ACCESSION NUMBER: 0000828916-04-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040331 FILED AS OF DATE: 20040510 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEINGARTEN REALTY INVESTORS /TX/ CENTRAL INDEX KEY: 0000828916 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 741464203 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09876 FILM NUMBER: 04793712 BUSINESS ADDRESS: STREET 1: 2600 CITADEL PLAZA DR STREET 2: SUITE 300 CITY: HOUSTON STATE: TX ZIP: 77292 BUSINESS PHONE: 7138666000 MAIL ADDRESS: STREET 1: PO BOX 924133 CITY: HOUSTON STATE: TX ZIP: 77292-4133 10-Q 1 doc1.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2004 -------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from____________________ to ____________________ Commission file number 1-9876 ------ WEINGARTEN REALTY INVESTORS --------------------------- (Exact name of registrant as specified in its charter)
Texas 74-1464203 - ---------------------------------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2600 Citadel Plaza Drive, P.O. Box 924133, Houston, Texas 77292-4133 - ---------------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 866-6000 -------------- ____________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes X . No . ----- ----- As of April 30, 2004, there were 85,602,210 common shares of beneficial interest of Weingarten Realty Investors, $.03 par value, outstanding. PART 1 FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS THAT ARE REPORTED ON A POST-SPLIT BASIS)
Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Revenues: Rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 116,001 $ 96,383 Interest income . . . . . . . . . . . . . . . . . . . . . . . 276 246 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,571 1,018 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . 117,848 97,647 ---------- ---------- Expenses: Depreciation and amortization . . . . . . . . . . . . . . . . 26,663 21,057 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . 27,733 19,439 Operating . . . . . . . . . . . . . . . . . . . . . . . . . . 17,214 14,047 Ad valorem taxes. . . . . . . . . . . . . . . . . . . . . . . 14,527 11,419 General and administrative. . . . . . . . . . . . . . . . . . 4,026 3,057 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . 90,163 69,019 ---------- ---------- Operating Income. . . . . . . . . . . . . . . . . . . . . . . . 27,685 28,628 Equity in Earnings of Joint Ventures. . . . . . . . . . . . . . 1,286 1,038 Income Allocated to Minority Interests. . . . . . . . . . . . . (879) (895) Gain on Sale of Properties. . . . . . . . . . . . . . . . . . . 317 9 ---------- ---------- Income Before Discontinued Operations . . . . . . . . . . . . . 28,409 28,780 ---------- ---------- Operating Income from Discontinued Operations . . . . . . . . . 240 Gain on Sale of Properties. . . . . . . . . . . . . . . . . . . 871 ---------- ---------- Income From Discontinued Operations. . . . . . . . . . . 1,111 ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 28,409 29,891 Dividends on Preferred Shares . . . . . . . . . . . . . . . . . (1,266) (4,922) ---------- ---------- Net Income Available to Common Shareholders . . . . . . . . . . $ 27,143 $ 24,969 ========== ========== Net Income Per Common Share - Basic: Income Before Discontinued Operations . . . . . . . . . . . . $ .33 $ .31 Income From Discontinued Operations . . . . . . . . . . . . . .01 ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $ .33 $ .32 ========== ========== Net Income Per Common Share - Diluted: Income Before Discontinued Operations . . . . . . . . . . . . $ .32 $ .31 Income From Discontinued Operations . . . . . . . . . . . . . .01 ---------- ---------- Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . $ .32 $ .32 ========== ========== Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,409 $ 29,891 ---------- ---------- Other Comprehensive Income (Loss): Unrealized derivative gain (loss) on interest rate swaps. . . (1,450) 529 Amortization of forward-starting interest rate swaps. . . . . (22) (40) Unrealized derivative loss on forward-starting interest rate swaps . . . . . . . . . . . . . . . . . . . . (4,257) ---------- ---------- Other Comprehensive Income (Loss) . . . . . . . . . . . . . . . (5,729) 489 ---------- ---------- Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . $ 22,680 $ 30,380 ========== ==========
See Notes to Consolidated Financial Statements. Page 2
WEINGARTEN REALTY INVESTORS CONSOLIDATED BALANCE SHEETS (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31, December 31, 2004 2003 ------------ ------------ ASSETS Property. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,447,492 $ 3,200,091 Accumulated Depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (549,714) (527,375) ------------ ------------ Property - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,897,778 2,672,716 Investment in Real Estate Joint Ventures. . . . . . . . . . . . . . . . . . . . . 35,671 35,085 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,933,449 2,707,801 Notes Receivable from Real Estate Joint Ventures and Partnerships . . . . . . . . 41,705 36,825 Unamortized Debt and Lease Costs. . . . . . . . . . . . . . . . . . . . . . . . . 78,170 70,895 Accrued Rent and Accounts Receivable (net of allowance for doubtful accounts of $4,146 in 2004 and $4,066 in 2003). . . . . . . . . . . . . . . . . 29,244 40,325 Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,455 20,255 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,152 46,993 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,169,175 $ 2,923,094 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,947,070 $ 1,810,706 Preferred Shares Subject to Mandatory Redemption, net . . . . . . . . . . . . . . 109,378 109,364 Accounts Payable and Accrued Expenses . . . . . . . . . . . . . . . . . . . . . . 52,466 78,986 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,558 52,671 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,186,472 2,051,727 ------------ ------------ Minority Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56,033 49,804 ------------ ------------ Commitments and Contingencies Shareholders' Equity: Preferred Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 10,000 6.75% Series D cumulative redeemable preferred shares of beneficial interest; 100 shares issued and outstanding in 2004 and 2003; liquidation preference $75,000. . . . . . . . . . . . . . . . 90 90 Common Shares of Beneficial Interest - par value, $.03 per share; shares authorized: 150,000; shares issued and outstanding: 85,578 in 2004 and 81,889 in 2003 . . . . . . . . . . . . . . . . . . . . . 2,562 2,488 Capital Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,112,768 993,570 Accumulated Dividends in Excess of Net Income . . . . . . . . . . . . . . . . . (182,670) (174,234) Accumulated Other Comprehensive Loss. . . . . . . . . . . . . . . . . . . . . . (6,080) (351) ------------ ------------ Shareholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 926,670 821,563 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,169,175 $ 2,923,094 ============ ============
See Notes to Consolidated Financial Statements. Page 3
WEINGARTEN REALTY INVESTORS STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (AMOUNTS IN THOUSANDS) Three Months Ended March 31, -------------------------- 2004 2003 ----------- ----------- Cash Flows from Operating Activities: Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 28,409 $ 29,891 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 26,663 21,199 Equity in earnings of joint ventures. . . . . . . . . . . . . (1,286) (1,038) Income allocated to minority interests. . . . . . . . . . . . 879 895 Gain on sale of properties. . . . . . . . . . . . . . . . . . (317) (880) Changes in accrued rent and accounts receivable . . . . . . . 11,082 7,690 Changes in other assets . . . . . . . . . . . . . . . . . . . (13,683) (7,023) Changes in accounts payable and accrued expenses. . . . . . . (24,668) (36,418) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . 195 236 ----------- ----------- Net cash provided by operating activities . . . . . . . 27,274 14,552 ----------- ----------- Cash Flows from Investing Activities: Investment in properties. . . . . . . . . . . . . . . . . . . . . . (199,741) (56,088) Notes Receivable: Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . (7,027) (3,678) Collections . . . . . . . . . . . . . . . . . . . . . . . . . 2,087 131 Proceeds from sales and disposition of property . . . . . . . . . . 593 1,716 Real estate joint ventures and partnerships: Investments . . . . . . . . . . . . . . . . . . . . . . . . . (643) (60) Distributions . . . . . . . . . . . . . . . . . . . . . . . . 1,134 904 ----------- ----------- Net cash used in investing activities . . . . . . . . . (203,597) (57,075) ----------- ----------- Cash Flows from Financing Activities: Proceeds from issuance of: Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 207,250 136,013 Common shares of beneficial interest. . . . . . . . . . . . . 119,076 1,050 Principal payments of debt. . . . . . . . . . . . . . . . . . . . . (98,946) (54,883) Common and preferred dividends paid . . . . . . . . . . . . . . . . (36,846) (35,404) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11) (43) ----------- ----------- Net cash provided by financing activities . . . . . . . 190,523 46,733 ----------- ----------- Net increase in cash and cash equivalents . . . . . . . . . . . . . . . 14,200 4,210 Cash and cash equivalents at January 1. . . . . . . . . . . . . . . . . 20,255 27,420 ----------- ----------- Cash and cash equivalents at March 31 . . . . . . . . . . . . . . . . . $ 34,455 $ 31,630 =========== ===========
See Notes to Consolidated Financial Statements. Page 4 WEINGARTEN REALTY INVESTORS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements included in this report are unaudited; however, amounts presented in the balance sheet as of December 31, 2003 are derived from our audited financial statements at that date. In our opinion, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted of normal recurring items. Interim results are not necessarily indicative of results for a full year. The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in our annual financial statements and notes. These Consolidated Financial Statements should be read in conjunction with our Annual Report on Form 10-K for the year ended December 31, 2003. Certain reclassifications of prior year's amounts have been made to conform to the current year presentation. 2. STOCK-BASED COMPENSATION On January 1, 2003, we adopted SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123", and began recognizing stock-based employee compensation as new shares were awarded. With respect to share options awarded prior to January 1, 2003, we accounted for stock-based employee compensation using the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and related interpretations. In accordance with APB Opinion No. 25, no stock-based employee compensation had been recognized in our financial statements prior to January 1, 2003. Page 5 The following table illustrates the effect on net income available to common shareholders and net income per common share if the fair value-based method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):
Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Net income available to common shareholders. . . . . . . . $ 27,143 $ 24,969 Stock-based employee compensation included in net income available to common shareholders. . . . . . . 47 Stock-based employee compensation determined under the fair value-based method for all awards . . . . (140) (101) ---------- ---------- Pro forma net income available to common shareholders. . . . . . . . . . . . . . . . . . . $ 27,050 $ 24,868 ========== ========== Net income per common share: Basic - as reported. . . . . . . . . . . . . . . . . $ .33 $ .32 ========== ========== Basic - pro forma. . . . . . . . . . . . . . . . . . $ .33 $ .32 ========== ========== Net income per common share: Diluted - as reported. . . . . . . . . . . . . . . . $ .32 $ .32 ========== ========== Diluted - pro forma. . . . . . . . . . . . . . . . . $ .32 $ .32 ========== ==========
3. PER SHARE DATA Net income per common share - basic is computed using net income available to common shareholders and the weighted average shares outstanding, which have been adjusted for the three-for-two share split described in Note 12. Net income per common share - diluted includes the effect of potentially dilutive securities for the periods indicated, as follows (in thousands):
Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Numerator: Net income available to common shareholders - basic . . . . . $ 27,143 $ 24,969 Income attributable to operating partnership units. . . . . . 826 832 ---------- ---------- Net income available to common shareholders - diluted . . . . $ 27,969 $ 25,801 ========== ========== Denominator: Weighted average shares outstanding - basic . . . . . . . . . 83,143 78,136 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . . . 957 596 Operating partnership units . . . . . . . . . . . . . . 2,181 2,294 ---------- ---------- Weighted average shares outstanding - diluted . . . . . . . . 86,281 81,026 ========== ==========
Page 6 Options to purchase 1,950 common shares for the first quarter ended March 31, 2003 were not included in the calculation of net income per common share - diluted as the exercise prices were greater than the average market price. No common shares have been excluded from the first quarter ended March 31, 2004 calculation of net income per common share - diluted. 4. NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which was reissued as Interpretation No. 46R in December 2003. FIN 46R requires a variable interest entity to be consolidated by a company if that company absorbs a majority of the variable interest entity's expected losses, receives a majority of the entity's expected residual returns, or both. It further requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. We have applied FIN 46R to our joint ventures and concluded that it did not require consolidation of additional entities. 5. DISCONTINUED OPERATIONS In 2003, we sold five retail projects located in San Antonio (1), McKinney (1), Nacogdoches (1) and Houston (2), Texas. Also, a warehouse building in Memphis, Tennessee and a retail building in Houston, Texas were sold. The operating results and the gain on sale of these properties have been reclassified and reported as discontinued operations in the Statements of Consolidated Income and Comprehensive Income in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." For the three months ended March 31, 2004, we had no dispositions to be reported as discontinued operations. The discontinued operations reported in 2003 had no debt that was required to be repaid upon their disposition. In addition, we elected not to allocate other consolidated interest to discontinued operations since the interest savings to be realized from the proceeds of the sale of these operations was not material. 6. DERIVATIVES AND HEDGING We hedge the future cash flows of our debt transactions, as well as changes in the fair value of our debt instruments, principally through interest rate swaps with major financial institutions. As of March 31, 2004, we had two interest rate swap contracts, which fix interest rates at 7.7% on an aggregate notional amount of $20 million and expire in June 2004. We have determined that these swap contracts are highly effective in offsetting future variable interest cash flows of the revolving credit debt and, accordingly, they have been designated as cash flow hedges with a fair value, net of accrued interest, of $ .2 million at March 31, 2004 and are included in Other Liabilities. In March 2004, we entered into two interest rate swaps with an aggregate notional amount of $50 million that convert fixed interest rate payments to variable interest payments. At March 31, 2004, we have twelve interest rate swap contracts with an aggregate notional amount of $142.5 million that convert fixed interest payments at rates ranging from 4.2% to 7.4% to variable interest payments. These contracts have been designated as fair value hedges. We have determined that they are highly effective in limiting our risk of changes in the fair value of fixed-rate notes attributable to changes in variable interest rates. In December 2003, we entered into two forward-starting interest rate swaps with an aggregate notional amount of $97.0 million in anticipation of the issuance of fixed-rate medium term notes subsequent to year-end. These contracts were designated as a cash flow hedge of forecasted interest payments for $100 million of unsecured notes with a coupon of 4.9% that were sold in February 2004. Concurrent with the sale of the 4.9% notes, we settled our $97.0 million forward-starting interest rate swap contracts, resulting in a loss of $.9 million, which is being amortized as a reduction Page 7 to earnings over the life of the 4.9% notes. In January 2004, we entered into four additional forward-starting interest rate swaps with an aggregate notional amount of $194.0 million in anticipation of the issuance of fixed-rate medium term notes. A medium term note totaling $50 million was issued in January 2004, at which time one of the four forward-starting interest rate swaps with a notional amount of $48.5 million was settled at a loss of $.7 million. This $.7 million loss is being amortized as a reduction to earnings over the life of the related medium term note. An additional medium term note totaling $50 million was issued in March 2004, at which time the second of the four forward-starting interest rate swaps with a notional amount of $48.5 million was settled at a loss of $2.7 million. This $2.7 million loss is being amortized as a reduction to earnings over the life of the related medium term note. Subsequent to quarter-end, the remaining two forward-starting interest rate swaps with an aggregate notional amount of $97 million were settled at a net loss of $.7 million. This loss will be amortized as a reduction to earnings over the life of the related medium term notes, which were also issued subsequent to quarter-end. On March 31, 2004, the derivative instruments designated as cash flow hedges were reported at their fair values as Other Liabilities, net of accrued interest, of $2.4 million. The derivative instruments designated as fair value hedges on March 31, 2004 were reported at their fair values as Other Assets, net of accrued interest, of $5.3 million and as Other Liabilities, net of accrued interest, of $.6 million. Within the next twelve months, we expect to reclassify to earnings as interest expense approximately $0.7 million of the current balance held in accumulated other comprehensive loss. As of March 31, 2004, the balance in accumulated other comprehensive loss relating to the derivatives was $5.5 million. With respect to fair value hedges, both changes in fair market value of the derivative hedging instrument and changes in the fair value of the hedged item will be recorded in earnings each reporting period. These amounts should completely offset with no impact to earnings, except for the portion of the hedge that proves to be ineffective, if any. 7. DEBT Our debt consists of the following (in thousands):
March 31, December 31, 2004 2003 ------------ ------------ Fixed-rate debt payable to 2030 at 4.5% to 8.9%. . . . . . . . . . $ 1,735,754 $ 1,510,294 Unsecured notes payable under revolving credit agreements. . . . . 170,000 259,050 Obligations under capital leases . . . . . . . . . . . . . . . . . 33,458 33,458 Industrial revenue bonds payable to 2015 at 1.1% to 3.0% . . . . . 7,858 7,904 ------------ ------------ Total . . . . . . . . . . . . . . . . . . . . . . . $ 1,947,070 $ 1,810,706 ============ ============
As of March 31, 2004, we had a $400 million unsecured revolving credit facility that matures in November 2006. At March 31, 2004, the variable interest rate of the $400 million revolving credit facility was 1.5%. At March 31, 2004, we had no amounts outstanding under the $20 million revolving credit agreement. For the three months ended March 31, 2004, we issued a total of $200 million of ten-year unsecured fixed-rate medium term notes at a weighted average interest rate of 5.2%, net of the effect of related interest rate swaps. Proceeds received were used to pay down amounts outstanding under our $400 million revolving credit facility. Page 8 Subsequent to quarter-end, we issued an additional $125 million of unsecured fixed-rate medium term notes with a weighted average life of 8.8 years at a weighted average interest rate of 5.2%, net of the effect of related interest rate swaps. Proceeds received were used to pay down amounts outstanding under our $400 million revolving credit facility. Our debt can be summarized as follows (in thousands):
March 31, December 31, 2004 2003 ------------ ------------ As to interest rate (including the effects of interest rate swaps): Fixed-rate debt . . . . . . . . . . . . . . $ 1,634,252 $ 1,458,792 Variable-rate debt. . . . . . . . . . . . . 312,818 351,914 ------------ ------------ Total . . . . . . . . . . . . . . . . . $ 1,947,070 $ 1,810,706 ============ ============ As to collateralization: Unsecured debt. . . . . . . . . . . . . . . $ 1,327,390 $ 1,216,998 Secured debt. . . . . . . . . . . . . . . . 619,680 593,708 ------------ ------------ Total . . . . . . . . . . . . . . . . . $ 1,947,070 $ 1,810,706 ============ ============
8. PREFERRED SHARES SUBJECT TO MANDATORY REDEMPTION In 2003, we adopted SFAS No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". SFAS No. 150 requires that certain financial instruments that incorporate an obligation by the issuer to transfer assets or issue equity be reported as liabilities. Financial instruments that fall within the scope of SFAS No. 150 include equity shares and non-controlling interests in subsidiaries that are mandatorily redeemable. Our 7.0% Series C Cumulative Redeemable Preferred Shares fall within the scope of SFAS No. 150, since they are mandatorily redeemable and redemption is through transfer of cash or a variable number of our common shares. Preferred Shares Subject to Mandatory Redemption at March 31, 2004 of $109.4 million represents the redemption value, net of unamortized issuance costs totaling $3.5 million, of the 7.0% Series C Cumulative Redeemable Preferred Shares. These shares, with a liquidation preference of $50 per share and no stated maturity, can be redeemed by the holder only upon their death in either cash or a variable number of common shares at our option. There are limitations on the number of shares per shareholder and in the aggregate that may be redeemed per year. These shares are also redeemable by us any time on or after March 15, 2004. On March 2, 2004, we called for redemption of all of these shares effective April 1, 2004. Page 9 9. PROPERTY Our property consists of the following (in thousands):
March 31, December 31, 2004 2003 ------------ ------------ Land . . . . . . . . . . . . . . $ 652,625 $ 603,972 Land held for development. . . . 21,226 21,112 Land under development . . . . . 20,291 22,459 Buildings and improvements . . . 2,677,209 2,483,414 Construction in-progress . . . . 76,141 69,134 ------------ ------------ Total. . . . . . . . $ 3,447,492 $ 3,200,091 ============ ============
Interest and ad valorem taxes capitalized to land under development or buildings under construction was $1.6 million and $2.2 million for the quarters ended March 31, 2004 and 2003, respectively. Acquisitions of properties are accounted for utilizing the purchase method (as set forth in SFAS No. 141 and SFAS No. 142) and, accordingly, the results of operations are included in our results of operations from the respective dates of acquisition. We have used estimates of future cash flows and other valuation techniques to allocate the purchase price of acquired property among land, buildings on an "as if vacant" basis, and other identifiable intangibles. Other identifiable intangibles include the effect of out-of-market leases, the value of having leases in place and out-of-market assumed mortgages. At March 31, 2004, deferred charges of $6.4 million for above-market leases are included in Other Assets, deferred credits of $5.6 million for below-market leases and $27.7 million for out-of-market assumed mortgages are included in Other Liabilities and deferred charges of $18.8 million for lease origination costs are included in Unamortized Debt and Lease Costs. These identifiable debit and credit intangibles are amortized over the terms of the acquired leases or the remaining lives of the mortgages. We purchased seven shopping centers during the first quarter of 2004, comprising 1.5 million square feet, and representing a total investment of $230.4 million. These purchases included two each in North Carolina and Florida and one each in California, Texas and Kentucky. With respect to new development, we have 13 shopping centers in various stages of development in Arizona, Colorado, Louisiana, Nevada, Texas and Utah, and we anticipate that the majority of them will come on-line during the remainder of 2004 and into 2005. Page 10 10. INVESTMENTS IN REAL ESTATE JOINT VENTURES We own interests in joint ventures or limited partnerships in which we do not exercise financial and operating control. These partnerships are accounted for under the equity method since we exercise significant influence. Our interests in these joint ventures and limited partnerships range from 20% to 75% and, with the exception of one partnership, which owns seven industrial properties, each venture owns a single real estate asset. Combined condensed financial information of these ventures (at 100%) is summarized as follows (in thousands):
March 31, December 31, 2004 2003 ------------ ------------ Combined Balance Sheets Property . . . . . . . . . . . . $ 237,256 $ 229,285 Accumulated depreciation . . . . (28,024) (26,845) ------------ ------------ Property - net. . . . . . . 209,232 202,440 Other assets . . . . . . . . . . 13,942 15,088 ------------ ------------ Total. . . . . . . . . $ 223,174 $ 217,528 ============ ============ Debt . . . . . . . . . . . . . . $ 94,969 $ 92,839 Amounts payable to WRI . . . . . 37,814 35,062 Other liabilities. . . . . . . . 2,929 4,729 Accumulated equity . . . . . . . 87,462 84,898 ------------ ------------ Total. . . . . . . . . $ 223,174 $ 217,528 ============ ============
Combined Statements of Income Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Revenues. . . . . . . . . . . . . . . . . $ 7,666 $ 6,142 ---------- ---------- Expenses: Depreciation and amortization . . . . . 1,559 1,058 Operating . . . . . . . . . . . . . . . 1,117 778 Interest. . . . . . . . . . . . . . . . 1,999 1,518 Ad valorem taxes. . . . . . . . . . . . 992 782 General and administrative. . . . . . . 64 38 ---------- ---------- Total. . . . . . . . . . . . . . . . 5,731 4,174 ---------- ---------- Net Income. . . . . . . . . . . . . . . . $ 1,935 $ 1,968 ========== ==========
Page 11 Our investment in real estate joint ventures, as reported on the balance sheets, differs from our proportionate share of the joint ventures' underlying net assets due to basis differentials, which arose upon the transfer of assets from us to the joint ventures. This basis differential, which totaled $4.8 million at March 31, 2004 and December 31, 2003, respectively, is depreciated over the useful lives of the related assets. Fees earned by us for the management of these joint ventures totaled $.2 million and $.1 million for the quarters ended March 31, 2004 and 2003, respectively. 11. SEGMENT INFORMATION The operating segments presented are the segments for which separate financial information is available and operating performance is evaluated regularly by senior management in deciding how to allocate resources and in assessing performance. We evaluate the performance of our operating segments based on net operating income that is defined as total revenues less operating expenses and ad valorem taxes. Management does not consider the effect of gains or losses from the sale of property in evaluating ongoing operating performance. The shopping center segment is engaged in the acquisition, development and management of real estate, primarily neighborhood and community shopping centers, located in Texas, California, Louisiana, Arizona, Nevada, Arkansas, New Mexico, Oklahoma, Tennessee, Kansas, Colorado, Missouri, Illinois, Florida, North Carolina, Mississippi, Georgia, Utah, Kentucky and Maine. The customer base includes supermarkets, discount retailers, drugstores and other retailers who generally sell basic necessity-type commodities. The industrial segment is engaged in the acquisition, development and management of bulk warehouses and office/service centers. Its properties are currently located in Texas, Nevada, Georgia, Florida, California and Tennessee, and the customer base is diverse. Included in "Other" are corporate-related items, insignificant operations and costs that are not allocated to the reportable segments. Information concerning our reportable segments is as follows (in thousands):
SHOPPING CENTER INDUSTRIAL OTHER TOTAL ---------- ----------- --------- ------------ Three Months Ended March 31, 2004: Revenues . . . . . . . . . . . . . . . . . . . $ 105,563 $ 11,591 $ 694 $ 117,848 Net operating income . . . . . . . . . . . . . 77,451 8,248 408 86,107 Equity in earnings of joint ventures . . . . . 1,242 35 9 1,286 Investment in real estate joint ventures . . . 35,228 443 35,671 Total assets . . . . . . . . . . . . . . . . . 2,617,028 294,864 257,283 3,169,175 Three Months Ended March 31, 2003: Revenues . . . . . . . . . . . . . . . . . . . $ 87,447 $ 9,708 $ 492 $ 97,647 Net operating income . . . . . . . . . . . . . 65,160 6,872 149 72,181 Equity in earnings of joint ventures . . . . . 977 92 (31) 1,038 Investment in real estate joint ventures . . . 28,299 275 28,574 Total assets . . . . . . . . . . . . . . . . . 2,090,813 236,932 151,306 2,479,051
Page 12 Net operating income reconciles to income before discontinued operations as shown on the Statements of Consolidated Income and Comprehensive Income as follows (in thousands):
Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Total segment net operating income. . . . . . . . . $ 86,107 $ 72,181 Less: Depreciation and amortization. . . . . . . . . 26,663 21,057 Interest . . . . . . . . . . . . . . . . . . . 27,733 19,439 General and administrative . . . . . . . . . . 4,026 3,057 Income allocated to minority interests . . . . 879 895 Equity in earnings of joint ventures . . . . . (1,286) (1,038) Gain on sale of properties . . . . . . . . . . (317) (9) ---------- ---------- Income Before Discontinued Operations . . . . . . . $ 28,409 $ 28,780 ========== ==========
12. COMMON SHARES OF BENEFICIAL INTEREST In February 2004, a three-for-two share split, to be effected in the form of a 50% share dividend, was declared for shareholders of record on March 16, 2004, payable March 30, 2004. We issued 28.5 million common shares of beneficial interest as a result of the share split. All references to the number of shares and per share amounts have been restated to reflect the share split, and an amount equal to the par value of the number of common shares issued have been reclassified to common shares of beneficial interest from accumulated dividends in excess of net income. In March 2004, we issued an additional 3.6 million common shares of beneficial interest. Net proceeds to us totaled $118.0 million based on a price of $33.64 per share. The proceeds from this offering were used primarily to redeem our 7.0% Series C Cumulative Redeemable Preferred Shares on April 1, 2004. In October 2003, we issued 1.7 million common shares of beneficial interest. Net proceeds to us totaled $50.9 million based on a price of $30.33 per share. In November 2003, we issued an additional 1.5 million common shares of beneficial interest. Net proceeds to us totaled $44.5 million based on a price of $30.47 per share. The proceeds from the above offerings were used primarily to redeem our 7.125% Series B Cumulative Redeemable Preferred Shares in December 2003. 13. PREFERRED SHARES In February 1998, we issued $75 million of 7.44% Series A Cumulative Redeemable Preferred Shares with a liquidation preference of $25 per share, which were called for redemption in April 2003. The redemption in May 2003 was financed through the issuance of $75 million of depositary shares in April 2003. Each depositary share represents one-thirtieth of a Series D Cumulative Redeemable Preferred Share. The depositary shares are redeemable, in whole or in part, for cash on or after April 30, 2008 at our option, at a redemption price of $25 per depositary share, plus any accrued and unpaid dividends thereon. The depositary shares are not convertible or exchangeable for any of our other property or securities. The Series D preferred shares pay a 6.75% annual dividend and have a liquidation value of $750 per share. Page 13 14. EMPLOYEE BENEFIT PLANS In December 2003, FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirements Benefits" as amended. SFAS No. 132 revises employers' disclosures about pension plans and other postretirement benefit plans to include disclosures of the amount of net periodic benefit cost and the total amount of employers' contributions made. The components of net periodic benefit cost are as follows (in thousands):
Three Months Ended March 31, -------------------- 2004 2003 -------- -------- Service cost . . . . . . . . . . . . . . $ 151 $ 48 Interest cost. . . . . . . . . . . . . . 259 82 Expected return on plan assets . . . . . (240) (76) Prior service cost . . . . . . . . . . . (38) (12) Recognized loss. . . . . . . . . . . . . 67 21 -------- -------- Total . . . . . . . . . . . . . . . $ 199 $ 63 ======== ========
We contributed approximately $850,000 to the plan subsequent to quarter-end. We will make no additional payments in 2004. 15. BANKRUPTCY REMOTE PROPERTIES We had 42 properties, having a net book value of approximately $730.8 million at March 31, 2004 (collectively the "Bankruptcy Remote Properties", and each a "Bankruptcy Remote Property"), which are wholly owned by various "Bankruptcy Remote Entities". Each Bankruptcy Remote Entity is either a direct or an indirect subsidiary of us. The assets of each Bankruptcy Remote Entity, including the respective Bankruptcy Remote Property or Properties owned by each, are owned by that Bankruptcy Remote Entity alone and are not available to satisfy claims that any creditor may have against us, our affiliates, or any other person or entity. No Bankruptcy Remote Entity has agreed to pay or make its assets available to pay our creditors, any of its affiliates, or any other person or entity. Neither we nor any of our affiliates have agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity (other than any agreement by a Bankruptcy Remote Entity to pay its own creditors). No affiliate of any Bankruptcy Remote Entity has agreed to pay or make its assets available to pay creditors of any Bankruptcy Remote Entity. The accounts of the Bankruptcy Remote Entities are included in our consolidated financial statements because we exercise financial and operating control over each of these entities. ***** Page 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the consolidated financial statements and notes thereto and the comparative summary of selected financial data appearing elsewhere in this Form 10-Q. Historical results and trends which might appear should not be taken as indicative of future operations. Our results of operations and financial condition, as reflected in the accompanying statements and related footnotes, are subject to management's evaluation and interpretation of business conditions, retailer performance, changing capital market conditions and other factors which could affect the ongoing viability of our tenants. EXECUTIVE OVERVIEW We focus on increasing Funds from Operations and dividend payments to our common shareholders through hands-on leasing and management of the existing portfolio of properties and through disciplined growth from selective acquisitions and new developments. We are also committed to maintaining a conservative balance sheet, a well-staggered debt maturity schedule and strong credit agency ratings. At March 31, 2004, we owned or operated under long-term leases, either directly or through our interests in joint ventures, 331 developed income-producing properties and three properties that are currently under development, which are located in 20 states that span the southern half of the United States from coast to coast. Included in the portfolio are 273 shopping centers and 61 industrial properties. We have approximately 6,800 leases and 4,900 different tenants. Leases for our properties range from less than a year for smaller spaces to over 25 years for larger tenants. Leases generally include minimum lease payments that often increase over the lease term, reimbursements of property operating expenses, including ad valorem taxes, and additional rent payments based on a percentage of the tenants' sales. The majority of our anchor tenants are supermarkets, value-oriented apparel/discount stores and other retailers or service providers who generally sell basic necessity-type goods and services. The stability of our anchor tenants, combined with convenient locations, attractive and well-maintained properties, high quality retailers and a strong tenant mix, should ensure the long-term success of our merchants and the viability of our portfolio. In assessing the performance of our properties, management carefully tracks the occupancy of our portfolio. Occupancy for the total portfolio was 93.5% at March 31, 2004 compared to 91.8% at March 31, 2003. Another important indicator of performance is the increase in rental rates on a same-space basis as we complete new leases and renew existing leases. We completed 264 new leases or renewals for the first quarter of 2004 totaling 1.0 million square feet, increasing rental rates an average of 8.5% on a same-space basis. Net of capital costs, the average increase in rental rates was 6.4%. With respect to external growth through acquisitions and new developments, management closely monitors movements in returns in relation to its blended weighted average cost of capital, the amount of product in its acquisition and new development pipelines and the geographic areas in which opportunities are present. We purchased seven shopping centers during the first quarter of 2004, comprising 1.5 million square feet, and representing a total investment of $230.4 million. These purchases included two each in North Carolina and Florida and one each in California, Texas and Kentucky. Kentucky represents the 20th state in which we operate, and was a logical expansion given our geographic footprint in the southern part of the United States from coast to coast. With respect to new development, we have 13 shopping centers in various stages of development in Arizona, Colorado, Louisiana, Nevada, Texas and Utah, and we anticipate that the majority of them will come on-line during the remainder of 2004 and into 2005. Page 15 Management is also committed to maintaining a strong, conservative capital structure, which provides constant access to a variety of capital sources. The strength of our balance sheet is evidenced by unsecured debt ratings of "A" by Standard and Poor's and "A3" by Moody's rating services, the highest combined ratings of any public REIT. We carefully balance obtaining low cost financing with minimizing exposure to interest rate movements, matching long-term liabilities with the long-term assets acquired or developed and maintaining adequate debt to market capitalization, fixed charge coverage and other ratios as necessary to retain our current credit ratings. In executing this strategy, we redeemed our Series C Cumulative Redeemable Preferred Shares on April 1, 2004 and issued 3.6 million common shares of beneficial interest, respectively. We also issued $200 million of ten-year unsecured fixed-rate medium term notes during the first quarter of 2004 at a weighted average rate of 5.2%, net of the effect of related interest rate swaps. Subsequent to quarter-end, an additional $125 million of unsecured fixed-rate medium term notes with a weighted average life of 8.8 years at a weighted average interest rate of 5.2%, net of the effect of related interest rate swaps, were issued. SUMMARY OF CRITICAL ACCOUNTING POLICIES Our discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and contingencies as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate our assumptions and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Valuation of Receivables An allowance for the uncollectible portion of accrued rents and accounts receivable is determined based upon an analysis of balances outstanding, historical bad debt levels, tenant credit worthiness and current economic trends. Balances outstanding include base rents, tenant reimbursements and receivables attributable to the straight-lining of rental commitments. Additionally, estimates of the expected recovery of pre-petition and post-petition claims with respect to tenants in bankruptcy is considered in assessing the collectibility of the related receivables. Property Real estate assets are stated at cost less accumulated depreciation, which, in the opinion of management, is not in excess of the individual property's estimated undiscounted future cash flows, including estimated proceeds from disposition. Depreciation is computed using the straight-line method, generally over estimated useful lives of 18-50 years for buildings and 10-20 years for parking lot surfacing and equipment. Major replacements where the improvement extends the useful life of the asset are capitalized and the replaced asset and corresponding accumulated depreciation are removed from the accounts. All other maintenance and repair items are charged to expense as incurred. Upon acquisitions of real estate, we assess the fair value of acquired assets (including land, buildings on an "as if vacant" basis, acquired out-of-market and in-place leases, and tenant relationships) and acquired liabilities, and allocate the purchase price based on these assessments. We assess fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known trends, and specific market/economic conditions that may affect the property. Page 16 Property also includes costs incurred in the development of new operating properties. These costs include preacquisition costs directly identifiable with the specific project, development and construction costs, interest and real estate taxes. Indirect development costs, including salaries and benefits, travel and other related costs that are clearly attributable to the development of the property, are also capitalized. The capitalization of such costs ceases at the earlier of one year from the completion of major construction or when the property, or any completed portion, becomes available for occupancy. Our properties are reviewed for impairment if events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. In such an event, a comparison is made of the current and projected operating cash flows of each such property into the foreseeable future on an undiscounted basis to the carrying amount of such property. Such carrying amount would be adjusted, if necessary, to estimated fair value to reflect an impairment in the value of the asset. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2004 TO THE THREE MONTHS ENDED MARCH 31, 2003 Revenues Total revenues increased by $20.2 million or 20.7% in 2004 ($117.8 million in 2004 versus $97.6 million in 2003). This increase resulted primarily from the increase in rental revenues of $19.6 million and other income of $.6 million. Property acquisitions and new development activity contributed $17.7 million of the rental income increase with the remainder of $2.5 million due to the activity at our existing properties, as described below. Occupancy (leased space) of the total portfolio increased as compared to the prior year as follows:
MARCH 31, -------------------- 2004 2003 -------- -------- Shopping Centers. . . . . 93.5% 92.6% Industrial. . . . . . . . 93.2% 89.0% Total . . . . . . . . . . 93.5% 91.8%
In 2004, we completed 264 renewals and new leases comprising 1.0 million square feet at an average rental rate increase of 8.5%. Net of the amortized portion of capital costs for tenant improvements, the increase averaged 6.4%. Other income increased by $.6 million or 60.0% in 2004 ($1.6 million in 2004 versus $1.0 million in 2003). This increase is due primarily to an increase in lease cancellation payments from various tenants. Expenses Total expenses increased by $21.2 million or 30.7% in 2004 ($90.2 million in 2004 versus $69.0 million in 2003). The increases in 2004 for depreciation and amortization expense ($5.6 million), operating expenses ($3.2 million) and ad valorem taxes ($3.1 million) are primarily a result of the properties acquired and developed during the year. Overall, direct operating costs and expenses (operating and ad valorem tax expense) of operating our properties as a percentage of rental revenues increased to 27% in 2004 from 26% in 2003. Page 17 Interest expense as reported represents the gross interest expense on our indebtedness plus interest expense on our preferred shares classified as liabilities less interest that is capitalized for properties under development and over-market interest payments on mortgages assumed through acquisitions. Interest expense as reported in 2004 increased by $8.3 million due to the combination of increased gross interest expense, increased interest expense from preferred shares, decreased interest capitalization and increased over-market interest. Gross interest expense increased by $6.9 million in 2004 due to an increase in the average debt outstanding from $1.4 billion in 2003 to $1.9 billion in 2004. This was offset by a decrease in the weighted-average interest rate between the two periods from 6.2% in 2003 to 6.0% in 2004. Interest on preferred shares increased by $2.0 million and represents the dividends paid or accrued as of March 31, 2004 on the Series C Cumulative Redeemable Preferred Shares that are classified as liabilities, as a result of the adoption of SFAS No. 150. Interest capitalized in 2004 decreased by $.5 million versus 2003 due to completion of new development projects in 2003. Interest from our over-market mortgages increased from zero in 2003 to $1.1 million in 2004. General and administrative expenses increased by $.9 million or 29.0% in 2004 ($4.0 million in 2004 versus $3.1 million in 2003). This increase results primarily from normal compensation increases as well as increases in staffing necessitated by the growth in the portfolio. General and administrative expense as a percentage of rental revenues was 3% in 2004 and 2003, respectively. Other We began reporting discontinued operations effective January 2002 based on the guidelines established in SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which broadened the definition of discontinued operations to include components of an entity whose operations and cash flows are clearly distinguishable from the rest of the entity for operational and financial reporting purposes. Income from discontinued operations decreased $1.1 million in 2004. Included in this caption for 2003 are the operating results and gain from the disposition of seven properties in 2003 totaling 371,000 square feet of gross leasable area with no such activity present in 2004. CAPITAL RESOURCES AND LIQUIDITY We anticipate that cash flows from operating activities will continue to provide adequate capital for all dividend payments in accordance with REIT requirements. Cash on hand, internally-generated cash flow, borrowings under our existing credit facilities, issuance of secured and unsecured debt, as well as other debt and equity alternatives, should provide the necessary capital to maintain and operate our properties, refinance debt maturities and achieve planned growth, which are our primary liquidity needs. Investing Activities - Acquisitions We invested $230.4 million for the acquisition of seven centers during the first quarter of 2004. In January 2004, we acquired three supermarket-anchored shopping centers. Greenhouse Marketplace, located in San Leandro, California, is a 100% leased 151,000 square foot shopping center anchored by Safeway and Longs Drugs, which are corporately-owned, and includes other retailers such as 99 Cents Only, Factory 2-U and Big Lots. Leesville Town Centre is a 114,000 square foot center located in Raleigh, North Carolina that is 100% occupied, and is anchored by Harris Teeter and Blockbuster. Harrison Pointe Center is a 124,000 square foot center anchored by Harris Teeter and Staples and is located in Cary, North Carolina, a suburb of Raleigh. All of these acquisitions were acquired in limited partnerships utilizing a DownREIT structure and are included in our consolidated financial statements because we exercise financial and operating control. In March 2004, we completed the acquisition of a portfolio of four shopping centers. First Colony Commons is a 410,000 square foot community center located in Sugar Land, Texas, a suburb of Houston, and is anchored by Home Depot, Michael's, Office Depot, Babies R Us and Conn's Appliances. T.J. Maxx Plaza is a 162,000 square foot center anchored by T.J. Maxx and Winn Dixie and is located in Kendall, Florida, a suburb of Miami. Largo Mall, a 378,000 square foot community center, is anchored by a corporately-owned Albertson's and Target, as well as Marshall's, Bed, Bath & Beyond, PetsMart, Staples and Michael's and is Page 18 located near St. Petersburg, Florida. Tates Creek is a 185,000 square foot shopping center located in Lexington, Kentucky, which represents the 20th state in which we operate. Kroger and Rite Aid anchor the center. Investing Activities - New Development and Capital Expenditures With respect to new development, we have 13 projects at various stages of construction. These projects, upon completion, will represent an investment of approximately $129 million and will add .9 million square feet to the portfolio. We expect to invest approximately $24.7 million in these properties during 2004. These projects will continue to come on-line during the remainder of 2004 and into 2005. Financing Activities - Debt Total debt outstanding increased to $1.9 billion at March 31, 2004 from $1.8 billion at December 31, 2003. This increase was primarily due to the funding of acquisitions and ongoing development and redevelopment efforts. Included in total debt outstanding of $1.9 billion at March 31, 2004 is variable-rate debt of $312.8 million, after recognizing the net effect of $162.5 million of interest rate swaps. For the three months ended March 31, 2004, we issued a total of $200 million of ten-year unsecured fixed-rate medium term notes at a weighted average interest rate of 5.2%, net of the effect of related interest rate swaps. Proceeds received were used to pay down amounts outstanding under our $400 million revolving credit facility. Subsequent to quarter-end, we issued an additional $125 million of unsecured fixed-rate medium term notes with a weighted average life of 8.8 years at a weighted average interest rate of 5.2%, net of the effect of related interest rate swaps. Proceeds received were used to pay down amounts outstanding under our $400 million revolving credit facility. In December 2003, we entered into two forward-starting interest rate swaps with an aggregate notional amount of $97.0 million in anticipation of the issuance of fixed-rate medium term notes subsequent to year-end. These contracts were designated as a cash flow hedge of forecasted interest payments for $100 million of unsecured notes with a coupon of 4.9% that were sold in February 2004. Concurrent with the sale of the 4.9% notes, we settled our $97.0 million forward-starting interest rate swap contracts, resulting in a loss of $.9 million, which is being amortized as a reduction to earnings over the life of the 4.9% notes. In January 2004, we entered into four additional forward-starting interest rate swaps with an aggregate notional amount of $194.0 million in anticipation of the issuance of fixed-rate medium term notes. A medium term note totaling $50 million was issued in January 2004, at which time one of the four forward-starting interest rate swaps with a notional amount of $48.5 million was settled at a loss of $.7 million. This $.7 million loss is being amortized as a reduction to earnings over the life of the related medium term note. An additional medium term note totaling $50 million was issued in March 2004, at which time the second of the four forward-starting interest rate swaps with a notional amount of $48.5 million was settled at a loss of $2.7 million. This $2.7 million loss is being amortized as a reduction to earnings over the life of the related medium term note. Subsequent to quarter-end, the remaining two forward-starting interest rate swaps with an aggregate notional amount of $97 million were settled at a net loss of $.7 million. This loss will be amortized as a reduction to earnings over the life of the related medium term notes, which were also issued subsequent to quarter-end. In April 2003, the SEC declared effective our $1 billion shelf registration statement, of which $505.9 million was available as of March 31, 2004. We will continue to closely monitor both the debt and equity markets and carefully consider our available financing alternatives, including both public and private placements. Financing Activities - Equity Our Board of Trust Managers approved a quarterly dividend of $.415 per common share for the first quarter of 2004. Our dividend payout ratio on common equity for the first quarter of 2004 and 2003 was 68% and 69%, respectively, based on funds from operations for the applicable period. In February 2004, a three-for-two share split, to be effected in the form of a 50% share dividend, was declared for shareholders of record on March 16, 2004, payable March 30, 2004. We issued 28.5 million common shares of beneficial interest as a result of the share split. All references to the number of shares and per share amounts have been restated to reflect the share split, and an amount equal to the par value of the number of common shares issued have been reclassified to common shares of beneficial interest from accumulated dividends in excess of net income. Page 19 In March 2004, we issued an additional 3.6 million common shares of beneficial interest. Net proceeds to us totaled $118.0 million based on a price of $33.64 per share. The proceeds from this offering were used primarily to redeem our 7.0% Series C Cumulative Redeemable Preferred Shares on April 1, 2004. CONTRACTUAL OBLIGATIONS The following table summarizes our principal contractual obligations as of March 31, 2004 (in thousands):
Remainder of 2004 2005 2006 2007 2008 Thereafter Total --------- ------- --------- --------- --------- ----------- ----------- Unsecured Debt: (1) Medium Term Notes . . . . . . $ 50,000 $ 52,500 $ 37,000 $ 79,000 $ 36,000 $ 700,500 $ 955,000 7% 2011 Bonds . . . . . . . . 200,000 200,000 Revolving Credit Facilities . 170,000 170,000 Secured Debt. . . . . . . . . . . . 41,459 30,146 21,769 20,114 164,446 341,746 619,680 Ground Lease Payments . . . . . . . 1,217 1,464 1,230 1,059 1,029 25,426 31,425 Construction Contracts on Development Projects. . . . . . . 24,725 24,725 --------- ------- --------- --------- --------- ----------- ----------- Total Contractual Obligations . . . $ 117,401 $ 84,110 $ 229,999 $ 100,173 $ 201,475 $ 1,267,672 $ 2,000,830 ========= ======== ========= ========= ========= =========== =========== - ------- (1) Total unsecured debt obligations as shown above are $2.4 million less than total unsecured debt as reported due to amortization of the discount on medium term notes and the fair value of interest rate swaps.
As of March 31, 2004 and 2003, we did not have any off-balance sheet arrangements. FUNDS FROM OPERATIONS The National Association of Real Estate Investment Trusts (NAREIT) defines funds from operations (FFO) as net income (loss) computed in accordance with generally accepted accounting principles, excluding gains or losses from sales of property, plus real estate related depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. In addition, NAREIT recommends that extraordinary items not be considered in arriving at FFO. We calculate FFO in a manner consistent with the NAREIT definition. We believe FFO is an appropriate supplemental measure of operating performance because it helps investors compare the operating performance to similarly titled measures of other REITs. There can be no assurance that FFO presented by us is comparable to similarly titled measures of other REITs. FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing, or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. Page 20 Funds from operations is calculated as follows (in thousands):
Three Months Ended March 31, ------------------------ 2004 2003 ---------- ---------- Net income available to common shareholders . . . . . . . . . . . . . . . . . $ 27,143 $ 24,969 Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 24,754 19,392 Depreciation and amortization of unconsolidated joint ventures. . . . . . . . 657 434 Gain on sale of properties. . . . . . . . . . . . . . . . . . . . . . . . . . (317) (880) ---------- ---------- Funds from operations . . . . . . . . . . . . . . . . . . . . . 52,237 43,915 Funds from operations attributable to operating partnership units . . . . . . 1,330 1,263 ---------- ---------- Funds from operations assuming conversion of OP units . . . . . $ 53,567 $ 45,178 ========== ========== Weighted average shares outstanding - basic . . . . . . . . . . . . . . . . . 83,143 78,136 Effect of dilutive securities: Share options and awards. . . . . . . . . . . . . . . . . . . . . . . . 957 596 Operating partnership units . . . . . . . . . . . . . . . . . . . . . . 2,181 2,294 ---------- ---------- Weighted average shares outstanding - diluted . . . . . . . . . . . . . . . . 86,281 81,026 ========== ==========
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS In January 2003, FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities", which was reissued as Interpretation No. 46R in December 2003. FIN 46R requires a variable interest entity to be consolidated by a company if that company absorbs a majority of the variable interest entity's expected losses, receives a majority of the entity's expected residual returns, or both. It further requires disclosures about variable interest entities that a company is not required to consolidate, but in which it has a significant variable interest. We have applied FIN 46R to our joint ventures and concluded that it did not require consolidation of additional entities. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK We use fixed and floating-rate debt to finance our capital requirements. These transactions expose us to market risk related to changes in interest rates. Derivative financial instruments are used to manage a portion of this risk, primarily interest rate swap agreements with major financial institutions. These swap agreements expose us to credit risk in the event of non-performance by the counter-parties to the swaps. We do not engage in the trading of derivative financial instruments in the normal course of business. At March 31, 2004, we had fixed-rate debt of $1.6 billion and variable-rate debt of $312.8 million, after adjusting for the net effect of $162.5 million of interest rate swaps. ITEM 4. DISCLOSURE CONTROLS AND PROCEDURES Under the supervision and with the participation of our principal executive officer and principal financial officer, management has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) as of March 31, 2004. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that our disclosure controls and procedures were effective as of March 31, 2004. In January 2004, we determined that a newly-released accounting standard governing financial instruments having characteristics of both liabilities and equity needed to be applied in a manner different from that previously applied Page 21 in our financial statements for the period ended September 30, 2003. Steps have been taken to enhance our internal controls to ensure that we properly apply new accounting standards including access to enhanced accounting research tools. We will continue to evaluate the effectiveness of our disclosure controls over financial reporting on an on-going basis and will take further action as appropriate. Other than described above, there has been no change to our internal control over financial reporting during the quarter ended March 31, 2004 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting. Page 22 PART II OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 12.1 A statement of computation of ratios of earnings and funds from operations to combined fixed charges and preferred dividends. 31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). 32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). (b) Reports on Form 8-K A Form 8-K, dated February 24, 2004, was filed in response to Item 7. Exhibits and Item 12. Results of Operation and Financial Condition. Page 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WEINGARTEN REALTY INVESTORS ----------------------------- (Registrant) BY: /s/ Andrew M. Alexander --------------------------------- Andrew M. Alexander President/Chief Executive Officer (Principal Executive Officer) BY: /s/ Joe D. Shafer --------------------------------- Joe D. Shafer Vice President/Controller (Principal Accounting Officer) DATE: May 10, 2004 Page 24 EXHIBIT INDEX EXHIBIT NUMBER - ------ 12.1 A statement of computation of ratios of earnings and funds from operations to combined fixed charges and preferred dividends. 31.1 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 31.2 Certification pursuant to Section 302(a) of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). 32.1 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Executive Officer). 32.2 Certification pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer). Page 25 EX-12.1 2 doc2.txt EXHIBIT 12.1
WEINGARTEN REALTY INVESTORS COMPUTATION OF RATIOS OF EARNINGS AND FUNDS FROM OPERATIONS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS (AMOUNTS IN THOUSANDS) Three Months Ended March 31, ---------------------- 2004 2003 --------- --------- Net income available to common shareholders . . . . . . . . . $ 27,143 $ 24,969 Add: Portion of rents representative of the interest factor. . . . 241 236 Interest on indebtedness. . . . . . . . . . . . . . . . . . . 27,733 19,439 Preferred dividends . . . . . . . . . . . . . . . . . . . . . 1,266 4,922 Amortization of debt cost . . . . . . . . . . . . . . . . . . 349 328 --------- --------- Net income as adjusted. . . . . . . . . . . . . . . . . . $ 56,732 $ 49,894 ========= ========= Fixed charges: Interest on indebtedness. . . . . . . . . . . . . . . . . . . $ 27,733 $ 19,439 Capitalized interest. . . . . . . . . . . . . . . . . . . . . 1,342 1,816 Preferred dividends . . . . . . . . . . . . . . . . . . . . . 1,266 4,922 Amortization of debt cost . . . . . . . . . . . . . . . . . . 349 328 Portion of rents representative of the interest factor. . . . 241 236 --------- --------- Fixed charges . . . . . . . . . . . . . . . . . . . . . . $ 30,931 $ 26,741 ========= ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS . . . . . . . . . . . . . . . 1.83 1.87 ========= ========= Net income available to common shareholders . . . . . . . . . $ 27,143 $ 24,969 Depreciation and amortization . . . . . . . . . . . . . . . . 25,411 19,826 Gain on sale of properties. . . . . . . . . . . . . . . . . . (317) (880) --------- --------- Funds from operations . . . . . . . . . . . . . . . . . . 52,237 43,915 Add: Portion of rents representative of the interest factor. . . . 241 236 Preferred dividends . . . . . . . . . . . . . . . . . . . . . 1,266 4,922 Interest on indebtedness. . . . . . . . . . . . . . . . . . . 27,733 19,439 Amortization of debt cost . . . . . . . . . . . . . . . . . . 349 328 --------- --------- Funds from operations as adjusted . . . . . . . . . . . . $ 81,826 $ 68,840 ========= ========= RATIO OF FUNDS FROM OPERATIONS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS . . . . . . . . . . . . 2.65 2.57 ========= =========
EX-31.1 3 doc3.txt EXHIBIT 31.1 CERTIFICATION I, Andrew M. Alexander, Chief Executive Officer of Weingarten Realty Investors certify that: 1. I have reviewed this quarterly report on Form 10-Q of Weingarten Realty Investors; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of trust managers: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. BY: /s/ Andrew M. Alexander ----------------------------------- Andrew M. Alexander President/Chief Executive Officer May 10, 2004 EX-31.2 4 doc4.txt EXHIBIT 31.2 CERTIFICATION I, Stephen C. Richter, Sr. Vice President/Chief Financial Officer of Weingarten Realty Investors certify that: 1. I have reviewed this quarterly report on Form 10-Q of Weingarten Realty Investors; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of trust managers: a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. BY: /s/ Stephen C. Richter ----------------------------------- Stephen C. Richter Sr. Vice President/Chief Financial Officer May 10, 2004 EX-32.1 5 doc5.txt EXHIBIT 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Weingarten Realty Investors (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Andrew M. Alexander, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. BY: /s/ Andrew M. Alexander --------------------------------- Andrew M. Alexander President/Chief Executive Officer May 10, 2004 A signed original of this written statement required by Section 906 has been provided to Weingarten Realty Investors and will be retained by Weingarten and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 6 doc6.txt EXHIBIT 32.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Weingarten Realty Investors (the "Company") on Form 10-Q for the period ended March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Stephen C. Richter, Sr. Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. BY: /s/ Stephen C. Richter ------------------------------ Stephen C. Richter Sr. Vice President/Chief Financial Officer May 10, 2004 A signed original of this written statement required by Section 906 has been provided to Weingarten Realty Investors and will be retained by Weingarten and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----